<PAGE>
THE BRAZILIAN INVESTMENT FUND, INC.
- --------------------------------------------------
DIRECTORS AND OFFICERS
Barton M. Biggs R. Charles Tschampion
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS James W. Grisham
Michael F. Klein VICE PRESIDENT
PRESIDENT AND DIRECTOR Harold J. Schaaff, Jr.
Peter J. Chase VICE PRESIDENT
DIRECTOR Joseph P. Stadler
John W. Croghan VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
David B. Gill SECRETARY
DIRECTOR Joanna M. Haigney
Graham E. Jones TREASURER
DIRECTOR Belinda A. Brady
John A. Levin ASSISTANT TREASURER
DIRECTOR
William G. Morton, Jr.
DIRECTOR
- --------------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- -----------------------------------------------------------------
U.S. ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
- -----------------------------------------------------------------
BRAZILIAN ADMINISTRATOR AND CUSTODIAN
Unibanco-Uniao de Bancos Brasileiros S.A.
Avenida Eusebio Matoso, 891,
Sao Paulo, S.P., Brazil
- -----------------------------------------------------------------
U.S. CUSTODIAN
The Chase Manhattan Bank
770 Broadway
New York, New York 10003
- -----------------------------------------------------------------
SHAREHOLDER SERVICING AGENT
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
(800) 548-7786
- -----------------------------------------------------------------
LEGAL COUNSEL
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
- -----------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
- -----------------------------------------------------------------
For additional Fund information, including the Fund's net asset value per share
and information regarding the investments comprising the Fund's portfolio,
please call 1-800-221-6726.
------------------------
THE
BRAZILIAN INVESTMENT
FUND, INC.
----------------------
SEMI-ANNUAL REPORT
JUNE 30, 1997
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the six months ended June 30, 1997, The Brazilian Investment Fund, Inc. (the
"Fund") had a total return, based on net asset value per share, of 52.74%
compared to 55.16% for the IFC Total Return Index for Brazil (the "Index"). For
the one year ended June 30, 1997, the Fund had a total return, based on net
asset value per share, of 60.24% compared with 70.71% for the Index. For the
period from commencement of operations on June 4, 1991 through June 30, 1997,
the Fund's total return, based on net asset value per share, was 434.54%
compared to 485.03% for the Index.
The Brazilian stock market evidenced one of its strongest ever quarterly
performances in the second quarter of 1997. The major event that took place in
the second quarter was the successful privatization of mining giant CVRD, for a
price that was 20% above the minimum price established by the government. The
sale marked a significant advance in the therefore slow-moving privatization
efforts of the government, and sparked a rally in the early part of the second
quarter. Further, a much-needed tariff increase and rebalancing was implemented
for the all-important electric utility and telecommunications sectors, and this
too was seen as a positive step on the road to eventual privatizations in these
two industries. Taken together, the second quarter witnessed a significant
acceleration in privatization momentum, and this is extremely bullish for the
stock market given that over half of its market capitalization is comprised of
government-run companies.
On the political front, there was no real news of import. Most of the reform
measures are in various stages of the congressional approval process, a
maddeningly slow-moving affair. In terms of economic activity, inflation
continues to surprise on the low-side, reflecting both the impact of a tight
monetary policy and an overvalued exchange rate. We see the economy as being
mixed, with some sectors advancing healthily, and others struggling with anemic
demand or overindebted consumers. Interest rates are still at an amazingly high
13%-14% per annum in real terms, which reflects the government's stubborn fiscal
deficit and the country's large and growing current account deficit.
On the subject of the currency, we are not particularly alarmed by the
overvaluation of the Real in light of what is happening in Asia. The
government's war chest of foreign reserves, plus its steadfast commitment to
currency stability as the cornerstone of the government's popularity, give us
confidence that the central bank authorities will not materially alter its
exchange rate regime. What we may see, however, is a stabilization of nominal
interest rates, or perhaps even a modest pickup in nominal interest rates to
restore calm to the currency markets in the event of currency instability. This
scenario of stable to perhaps increasing interest rates explains our present
underweight in the banking sector as well as in most interest rate sensitive
sectors (e.g. the steel sector).
We remain positive on the market over the medium-term given the phenomenal
commitment of the government to free market reforms and privatization, although
we do feel that in the short-term there may be a bit more volatility owing to
the dramatic rise we have seen in the past few quarters.
Sincerely,
[SIGNATURE]
Michael F. Klein
PRESIDENT AND DIRECTOR
[SIGNATURE]
Andy Skov
PORTFOLIO MANAGER
[SIGNATURE]
Robert L. Meyer
PORTFOLIO MANAGER
July 1997
2
<PAGE>
The Brazilian Investment Fund, Inc.
Investment Summary as of June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
TOTAL RETURN (%)
--------------------------------------------------------
NET ASSET VALUE (1) INDEX (2)
--------------------------- ---------------------------
AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
FISCAL YEAR TO DATE 52.74% -- 55.16% --
ONE YEAR 60.24 60.24% 70.71 70.71%
FIVE YEAR 369.39 36.24 452.85 40.77
SINCE INCEPTION* 434.54 31.76 485.03 33.75
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
A BAR CHART REFLECTING THE DATA BELOW IS REFLECTED HERE.
<TABLE>
<CAPTION>
THE BRAZILIAN INVESTMENT FUND, INC.
(1)
IFC TOTAL RETURN INDEX FOR BRAZIL (2)
YEARS ENDED DECEMBER 31:
<S> <C> <C> <C> <C> <C> <C> <C>
Total Return Six Months Ended
1991* 1992 1993 1994 1995 1996 June 30, 1997
Net Asset Value Per Share $63.31 $55.28 $83.58 $129.97 $64.14 $52.72 $70.95
Income Dividends - - - $1.80 - $0.02 -
Capital Gains Distributions - - $7.06 $6.65 $37.73 $30.75 $6.25
Fund Total Return (1) 26.62% -12.68% 72.52% 68.32% -26.61% 48.54% 52.74%
Index Total Return (2) 3.48% 0.32% 99.45% 69.83% -20.24% 34.36% 55.16%
</TABLE>
(1) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. The Fund's shares are issued in a private placement and not
traded; therefore, market value total investment return is not calculated.
(2) The IFC Total Return Index for Brazil is an unmanaged index of common
stocks, including dividends.
* The Fund commenced operations on June 4, 1991.
3
<PAGE>
The Brazilian Investment Fund, Inc.
Portfolio Summary as of June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 99.9%
Short-Term Investments 0.1%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Appliances & Household Durables 0.6%
Banking 12.5%
Beverages & Tobacco 4.4%
Electrical & Electronics 3.1%
Energy Sources 4.6%
Industrial Components 0.2%
Merchandising 8.4%
Metals - Non-Ferrous 4.6%
Telecommunications 31.3%
Textiles & Apparel 2.5%
Utilities-Electrical & Gas 20.3%
Other 7.5%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<C> <S> <C>
1. Telebras 30.7%
2. Eletrobras 14.3
3. Lojas Renner 4.8
4. Cemig 4.6
5. Banco Bradesco 4.6
<CAPTION>
PERCENT OF
NET ASSETS
----------
<C> <S> <C>
6. Petrobras 4.6%
7. CVRD 4.6
8. Brahma 4.2
9. Itaubanco 4.0
10. Unibanco 3.8
-----
80.2%
-----
-----
</TABLE>
4
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS (UNAUDITED)
- ---------
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------------
- ------------------------
BRAZILIAN INVESTMENT FUND (92.6%)
- ---------------------------------------------------------------
- ------------------------
BRAZILIAN NON-VOTING PREFERRED
STOCKS (92.5%)
(Unless otherwise noted)
- ---------------------------------------------------------------
- ------------------------
APPLIANCES & HOUSEHOLD DURABLES (0.6%)
Brasmotor S.A. 2,100,000 U.S.$ 468
-----------
BANKING (12.5%)
Banco Bradesco 333,743,000 3,363
(a,b)Banco Nacional 112,483,664 5
Itaubanco 5,214,000 2,920
(a)Unibanco GDR 74,900 2,781
-----------
9,069
-----------
BEVERAGES & TOBACCO (4.4%)
Brahma 3,986,000 3,036
Souza Cruz (Common) 17,700 187
-----------
3,223
-----------
ELECTRICAL & ELECTRONICS (3.1%)
Ericsson 37,860,000 2,251
-----------
ENERGY SOURCES (4.6%)
Petrobras 12,100,000 3,361
-----------
INDUSTRIAL COMPONENTS (0.2%)
(a)Schulz 7,018,000 106
-----------
MERCHANDISING (8.4%)
Bompreco GDR 144A 23,630 656
Casa Anglo 1,900,000 90
Lojas Arapua 113,789,000 1,850
Lojas Renner 68,384,000 3,506
-----------
6,102
-----------
METALS - NON-FERROUS (4.6%)
CVRD 115,903 2,563
CVRD ADR 34,830 776
-----------
3,339
-----------
TELECOMMUNICATIONS (31.3%)
Telebras 114,851,895 17,421
Telebras (Common) 26,853,000 3,642
Telebras ADR 8,450 1,282
Telesp 245,601 81
Telesp (Receipts) 63,015 20
(a)Telesp (Common) 1,200,473 354
-----------
22,800
-----------
TEXTILES & APPAREL (2.5%)
Coteminas 4,632,000 1,807
-----------
- ---------------------------------------------------------------
- ------------------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------------
- ------------------------
UTILITIES - ELECTRICAL & GAS (20.3%)
Celesc GDR 144A 1,300 U.S.$ 181
Cemig 5,830,000 301
Cemig ADR 60,860 3,064
(a)CESP 90 --@
(a)CPFL 68,343 11
Eletrobras 'B' 4,728,000 2,819
Eletrobras 'B' (Common) 12,095,000 6,763
Eletrobras (Common) ADR 30,000 837
Eletrobras ADR 250 7
Light (Common) 1,620,000 806
-----------
14,789
-----------
- ---------------------------------------------------------------
- ------------------------
TOTAL BRAZILIAN NON-VOTING PREFERRED STOCKS
(Cost U.S. $46,734) 67,315
-----------
- ---------------------------------------------------------------
- ------------------------
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------------
- ------------------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.1%)
Brazilian Real
(Cost U.S. $65) BRL 70 65
-----------
- ---------------------------------------------------------------
- ------------------------
TOTAL BRAZILIAN INVESTMENT FUND
(Cost U.S. $46,799) 67,380
-----------
- ---------------------------------------------------------------
- ------------------------
OTHER ASSETS (16.0%)
Receivable for Investments Sold U.S.$ 11,087
Dividends Receivable 581
Other Assets 5 11,673
------------ -----------
- ---------------------------------------------------------------
- ------------------------
LIABILITIES (-8.6%)
Payable for:
Investments Purchased (4,877)
Bank Overdraft (1,269)
Shareholder Reporting Expenses (39)
Investment Advisory Fees (35)
Professional Fees (25)
Directors' Fees and Expenses (25)
Administrative Fees (11)
Brazilian Administrative Fees (8)
U.S. Custodian Fees (2) (6,291)
------------ -----------
- ---------------------------------------------------------------
- ------------------------
NET ASSETS (100%)
Applicable to 1,025,548 issued and outstanding
U.S. $0.01 par value shares (50,000,000
shares authorized) U.S.$72,762
-----------
-----------
- ---------------------------------------------------------------
- ------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
(000)
- ---------------------------------------------------------------
- ------------------------
<S> <C> <C>
NET ASSET VALUE PER SHARE U.S.$ 70.95
-----------
-----------
- ---------------------------------------------------------------
- ------------------------
AT JUNE 30, 1997, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------
- ------------------------
Common Stock U.S.$ 10
Capital Surplus 38,238
Undistributed Net Investement Income 1,215
Accumulated Net Realized Gain 12,725
Unrealized Appreciation on Investments and
Foreign Currency Translations 20,574
- ---------------------------------------------------------------
- ------------------------
TOTAL NET ASSETS U.S.$72,762
-----------
-----------
- ---------------------------------------------------------------
- ------------------------
</TABLE>
(a) -- Non-income producing.
(b) -- Security valued at fair value -- See note A-1 to financial
statements.
@ -- Value is less than U.S. $500.
144A -- Certain conditions for public sale may exist.
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
June 30, 1997 exchange rate --
Brazilian Real (BRL) -- 1.07660 = U.S. $1.00.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1997
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
<S> <C>
- ---------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends............................................................................... U.S.$ 1,025
Interest................................................................................ 6
- ---------------------------------------------------------------------------------------------------------------
Total Income.......................................................................... 1,031
- ---------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees................................................................ 261
U.S. Administrative Fees and Transfer Agent Fees........................................ 65
Brazilian Administrative and Custodian Fees............................................. 45
Shareholder Reporting Expenses.......................................................... 33
Professional Fees....................................................................... 30
Directors' Fees and Expenses............................................................ 20
Custodian Fees.......................................................................... 2
Other Expenses.......................................................................... 39
- ---------------------------------------------------------------------------------------------------------------
Total Expenses........................................................................ 495
- ---------------------------------------------------------------------------------------------------------------
Net Investment Income............................................................. 536
- ---------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold.............................................................. 11,890
Foreign Currency Transactions........................................................... (28)
- ---------------------------------------------------------------------------------------------------------------
Net Realized Gain................................................................. 11,862
- ---------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments............................................................. 12,882
Depreciation on Foreign Currency Translations........................................... (4)
- ---------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation.................................... 12,878
- ---------------------------------------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized Appreciation/Depreciation.................. 24,740
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................... U.S.$ 25,276
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income............................................. U.S.$ 536 U.S.$ 752
Net Realized Gain................................................. 11,862 6,790
Change in Unrealized Appreciation/Depreciation.................... 12,878 9,960
- -------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations.............. 25,276 17,502
- -------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income............................................. -- (21)
Net Realized Gain................................................. (5,797) (17,583)
- -------------------------------------------------------------------------------------------------------------
Total Distributions............................................... (5,797) (17,604)
- -------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Subscription of Shares (1,745 and 35,440 shares, respectively).... 102 1,525
Reinvestment of Distributions (118,324 and 446,448 shares,
respectively).................................................... 5,486 17,360
Repurchase of Shares (21,303 and 115,699 shares, respectively).... (1,161) (5,881)
- -------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting From Capital Share
Transactions..................................................... 4,427 13,004
- -------------------------------------------------------------------------------------------------------------
Total Increase.................................................... 23,906 12,902
Net Assets:
Beginning of Period............................................... 48,856 35,954
- -------------------------------------------------------------------------------------------------------------
End of Period (including undistributed net investment income of
U.S. $1,215 and U.S. $679, respectively.)........................ U.S.$ 72,762 U.S.$ 48,856
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
SELECTED PER SHARE DATA AND 1997 --------------------------------------------------------------------------------
RATIOS: (UNAUDITED) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD..................... U.S.$ 52.72 U.S.$ 64.14 U.S.$ 129.97 U.S.$ 83.58 U.S.$ 55.28 U.S.$ 63.31
- --------------------------------------------------------------------------------------------------------------------------------
Net Investment Income
(Loss)..................... 0.45 0.81 (0.11) (0.71) 1.42 (0.09)
Net Realized and Unrealized
Gain (Loss) on
Investments................ 24.03 18.54 (27.99) 55.55 33.94 (7.94)
- --------------------------------------------------------------------------------------------------------------------------------
Total from Investment
Operations............. 24.48 19.35 (28.10) 54.84 35.36 (8.03)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income.... -- (0.02) -- -- -- --
In Excess of Net
Investment Income...... -- -- -- (1.80) -- --
Net Realized Gain........ (6.25) (30.75) (37.73) (6.65) (6.89) --
In Excess of Net Realized
Gain................... -- -- -- -- (0.17) --
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions...... (6.25) (30.77) (37.73) (8.45) (7.06) --
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD..................... U.S.$ 70.95 U.S.$ 52.72 U.S.$ 64.14 U.S.$ 129.97 U.S.$ 83.58 U.S.$ 55.28
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Net Asset Value (1)...... 52.74% 48.54% (26.61)% 68.32% 72.52% (12.68)%
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(THOUSANDS)................ U.S.$ 72,762 U.S.$ 48,856 U.S.$ 35,954 U.S.$ 81,264 U.S.$ 52,207 U.S.$ 46,687
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average
Net Assets................. 1.64%* 1.81% 2.07% 1.82% 2.22% 2.27%(2)
Ratio of Net Investment
Income (Loss) to Average
Net Assets................. 1.77%* 1.58% (0.14)% (0.61)% 1.57% (0.07)%
Portfolio Turnover Rate...... 59% 179% 112% 52% 40% 36%
Average Commission Rate (3):
Per Share................ U.S.$ 0.0001 U.S.$ 0.0000 N/A N/A N/A N/A
As a Percentage of Trade
Amount................. 0.33% 0.30% N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
(1) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. The Fund's shares are issued in a private placement and are not
traded, therefore market value total investment return is not calculated.
Total return for the year ended December 31, 1992 would have been lower were
it not for voluntary expense limits.
(2) Reflects a voluntary expense limitation in effect during the period. As a
result of such limitation, expenses of the Fund for the year ended December
31, 1992 reflect a benefit of U.S.$0.14.
(3) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose the average commission rate per share it paid for portfolio
trades on which commissions were charged.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED)
- ------------
The Brazilian Investment Fund, Inc. (the "Fund") was incorporated on
November 7, 1990, and is registered as a non-diversified, closed-end management
investment company under the Investment Company Act of 1940, as amended. The
Fund's common stock is not registered under the Securities Act of 1933. The
Fund's investment objective is long-term capital appreciation through
investments primarily in equity securities. The Fund makes its investments in
Brazil through an investment fund established in compliance with Brazilian law.
The accompanying financial statements are prepared on a consolidated basis and
present the financial position and results of operations of the investment fund
and the Fund.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such policies
are consistently followed by the Fund in the preparation of its financial
statements. Generally accepted accounting principles may require management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results may differ from those estimates.
1. SECURITY VALUATION: In valuing the Fund's assets, all listed securities,
including purchased options, for which market quotations are readily
available are valued at the last sales price on the valuation date, or if
there was no sale on such date, at the mean between the current bid and
asked prices. Securities which are traded over-the-counter are valued at the
average of the mean of current bid and asked prices obtained from reputable
brokers. Short-term securities which mature in 60 days or less are valued at
amortized cost. Other securities and assets for which market values are not
readily available (including investments which are subject to limitations as
to their sale or for which a ready market for the securities in the
quantities owned by the Fund does not exist) are valued at fair value as
determined in good faith by the Board of Directors (the "Board"), although
the actual calculations may be done by others.
2. TAXES: It is the Fund's intention to continue to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial
statements.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the
underlying securities, with a market value at least equal to the amount of
the repurchase transaction, including principal and accrued interest. To the
extent that any repurchase transaction exceeds one business day, the value of
the collateral is marked-to-market on a daily basis to determine the adequacy
of the collateral. In the event of default on the obligation to repurchase,
the Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. In the event of default or bankruptcy by the
counter-party to the agreement, realization and/or retention of the
collateral or proceeds may be subject to legal proceedings.
4. FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are
maintained in U.S. dollars. Amounts denominated in brazilian real are
translated into U.S. dollars at the mean of the bid and asked prices of such
currency against U.S. dollars last quoted by a major bank as follows:
- investments, other assets and liabilities at the prevailing rates of
exchange on the valuation date;
- investment transactions and investment income at the prevailing rates of
exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rate and market values at the close of the period, the Fund does not isolate
that portion of the results of operations arising as a result of changes in
the foreign exchange rates from the fluctuations arising from changes in the
market prices of the securities held at period end. Similarly, the Fund does
not isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of securities sold
during the period. Accordingly, realized and unrealized foreign currency
gains (losses) are included in the reported net realized and unrealized
gains (losses) on investment transactions and balances.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from sales and maturities of foreign
currency exchange contracts, disposition of foreign currency and currency
gains or losses realized between the trade and settlement dates on
securities transactions. Foreign currency gains (losses) also occur due to
the difference between the amount of investment income and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized currency gains
(losses) from valuing foreign currency denominated assets and liabilities at
period end exchange rates are reflected as a component of unrealized
appreciation (depreciation) on investments and foreign currency translations
in the Statement of Net Assets.
9
<PAGE>
The change in net unrealized currency gains (losses) for the period is
reflected in the Statement of Operations.
5. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into foreign
currency exchange contracts to attempt to protect securities and related
receivables and payables against changes in future foreign exchange rates. A
foreign currency exchange contract is an agreement between two parties to
buy or sell currency at a set price on a future date. The market value of
the contract will fluctuate with changes in currency exchange rates. The
contract is marked-to-market daily and the change in market value is
recorded by the Fund as unrealized gain or loss. The Fund records realized
gains or losses when the contract is closed, equal to the difference between
the value of the contract at the time it was opened and the value at the
time it was closed. Risk may arise upon entering into these contracts from
the potential inability of counterparties to meet the terms of their
contracts and is generally limited to the amount of unrealized gain on the
contracts, if any, at the date of default. Risks may also arise from
unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
6. PURCHASED OPTIONS: The Fund may purchase call and put options on indices or
securities. The Fund may purchase call options to protect against an
increase in the price of the underlying index or security. The Fund may
purchase put options on indices or securities to protect against a decline
in the value of the underlying index or security. Possible losses from
purchased options cannot exceed the total amount invested. Realized gains or
losses on purchased options are included with net gain (loss) on investment
securities sold in the financial statements.
7. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Interest
income is recognized on the accrual basis. Dividend income is recorded on
the ex-dividend date (except certain dividends which may be recorded as soon
as the Fund is informed of such dividend) net of applicable withholding
taxes where recovery of such taxes is not reasonably assured. Distributions
to shareholders are recorded on the ex-date.
The amount and character of income and capital gain distributions to be paid
are determined in accordance with Federal income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing book and tax treatments for foreign currency
transactions and of the timing of the recognition of losses on securities.
Permanent book and tax basis differences relating to shareholder
distributions may result in reclassifications to undistributed net
investment income (loss), accumulated net realized gain (loss) and capital
surplus.
Adjustments for permanent book-tax differences, if any, are not reflected in
ending undistributed net investment income (loss) for the purpose of
calculating net investment income (loss) per share in the financial
highlights.
B. Morgan Stanley Asset Management Inc. (the "Adviser") provides investment
advisory services to the Fund under the terms of an Investment Advisory
Agreement (the "Agreement"). Under the Agreement, the Adviser is paid a fee
computed weekly and payable monthly at an annual rate of .90% of the Fund's
first $50 million of average weekly net assets, .70% of the Fund's next $50
million of average weekly net assets and .50% of the Fund's average weekly net
assets in excess of $100 million.
C. The Chase Manhattan Bank, through its affiliate Chase Global Funds Services
Company (the "U.S. Administrator"), provides administrative and shareholder
services to the Fund under an Administration Agreement. Under the Administration
Agreement, the U.S. Administrator is paid a fee computed weekly and payable
monthly at an annual rate of .08% of the Fund's average weekly net assets, plus
$75,000 per annum. In addition, the Fund is charged certain out-of-pocket
expenses by the U.S. Administrator. The Chase Manhattan Bank, acts as custodian
for the Fund's assets held in the United States.
D. Unibanco -- Uniao de Bancos Brasileiros S.A. ("the Brazilian Administrator
and Custodian") provides Brazilian administrative and custodian services to the
Fund under the terms of an agreement. Under the agreement, the Brazilian
Administrator and Custodian is paid a fee computed weekly and payable monthly at
an annual rate of .15% of the Fund's first $50 million of average weekly net
assets, .125% of the Fund's next $50 million of average weekly net assets and
.10% of the Fund's average weekly net assets in excess of $100 million.
E. During the six months ended June 30, 1997, the Fund made purchases and sales
totaling $34,111,000 and $38,705,000, respectively, of investment securities
other than long-term U.S. Government securities and short-term investments.
There were no purchases and sales of long-term U.S. Government securities. At
June 30, 1997, the U.S. Federal income tax cost basis of securities was
$46,734,000 and accordingly, net unrealized appreciation for U.S. Federal income
tax purposes was $20,581,000 of which $23,120,000 related to appreciated
securities and $2,539,000 related to depreciated securities.
10
<PAGE>
F. A significant portion of the Fund's net assets consist of securities
denominated in brazilian real. Changes in currency exchange rates will affect
the value of and investment income from such securities. Brazilian securities
are subject to greater price volatility, limited capitalization and liquidity,
and higher rates of inflation than securities of companies based in the United
States. In addition, Brazilian securities may be subject to substantial
governmental involvement in the economy and greater social, economic and
political uncertainty.
G. The Fund's Articles of Incorporation provide that, commencing January 6,
1992 and on each calendar quarter thereafter, the Fund will make a tender offer
to repurchase its outstanding shares of Common Stock at a price equal to the net
asset value per share at the time of repurchase.
During the six months ended June 30, 1997, the Fund repurchased the following
shares:
<TABLE>
<CAPTION>
U.S.
DATE SHARES (000)
- --------- ----------- ---------
<S> <C> <C>
2/4/97 18,763 $ 1,004
5/5/97 2,540 $ 157
</TABLE>
H. Shareholders of the Fund may purchase shares of Common Stock from the Fund
at a price equal to the net asset value at the beginning of the month. Purchases
are not allowed during each month the Fund makes a tender offer to repurchase
its outstanding shares. During the six months ended June 30, 1997, the Fund
issued 1,745 shares totaling $102,000.
I. Each Director of the Fund who is not an officer of the Fund or an affiliated
person as defined under the Investment Company Act of 1940, as amended, may
elect to participate in the Directors' Deferred Compensation Plan (the "Plan").
Under the Plan, such Directors may elect to defer payment of a percentage of
their total fees earned as a Director of the Fund. These deferred portions are
treated, based on an election by the Director, as if they were either invested
in the Fund's shares or invested in U.S. Treasury Bills, as defined under the
Plan. The deferred fees payable, under the Plan, at June 30, 1997 totaled
$16,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
J. Supplemental Proxy Information
The Annual Meeting of the Stockholders of The Brazilian Investment Fund, Inc.
was held on April 30, 1997. The following is a summary of each proposal
presented and the total number of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES VOTES
PROPOSAL: FAVOR OF AGAINST WITHHELD ABSTAINED
------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1. To elect the following Directors: Barton M. Biggs 80,003 -- -- --
Warren J. Olsen 80,003 -- -- --
Peter J. Chase 80,003 -- -- --
John W. Croghan 80,003 -- -- --
David B. Gill 80,003 -- -- --
Graham E. Jones 80,003 -- -- --
John A. Levin 80,003 -- -- --
William G. Morton, Jr. 80,003 -- -- --
R. Charles Tschampion 80,003 -- -- --
80,003 -- -- --
80,003 -- -- --
2. To ratify the selection of Price Waterhouse LLP as 80,003 -- -- --
independent public accountants of the Fund.
3. To approve an Investment Advisory and Management 80,003 -- -- --
Agreement between the Fund and Morgan Stanley Asset
Management Inc.
</TABLE>
11
