<PAGE>
THE BRAZILIAN INVESTMENT FUND, INC.
- ---------------------------------------------
OFFICERS AND DIRECTORS
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS R. Charles Tschampion
Frederick B. Whittemore DIRECTOR
VICE-CHAIRMAN OF THE James W. Grisham
BOARD OF DIRECTORS VICE PRESIDENT
Warren J. Olsen Harold J. Schaaff, Jr.
PRESIDENT AND DIRECTOR VICE PRESIDENT
Peter J. Chase Joseph P. Stadler
DIRECTOR VICE PRESIDENT
John W. Croghan Valerie Y. Lewis
DIRECTOR SECRETARY
David B. Gill James R. Rooney
DIRECTOR TREASURER
Graham E. Jones Joanna M. Haigney
DIRECTOR ASSISTANT TREASURER
John A. Levin
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, N.A.
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, N.A.
770 Broadway
New York, New York 10003
- --------------------------------------------------------
SHAREHOLDER SERVICING AGENT
The Chase Manhattan Bank, N.A.
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.
---------------------
FIRST QUARTER REPORT
MARCH 31, 1996
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the three months ended March 31, 1996, the Fund's total return based on net
asset value per share was 13.42% compared to 10.62% for the IFC Total Return
Index for Brazil (the "IFC Index"). For the period from commencement of
operations on June 4, 1991 through March 31, 1996, the Fund's total return based
on net asset value per share is 167.23% compared to 210.21% for the IFC Index.
The Fund's results were due primarily to an overweighting in the retail and
beverage sectors, and an underweighting in the mining and pulp and paper
sectors. The overall market performance was driven by an early quarter rally
fueled by an increase in foreign capital inflows, and later mitigated by a
setback in the reform program of the government and an increase in U.S. interest
rates.
POLITICS
President Cardoso had a bumpy quarter on the political front. While trying to
shepherd various reform measures through congress, he has been beset with
different scandals which have put him on the defensive and used up scarce
political capital. This quarter he narrowly avoided a potentially time consuming
investigation into a banking crisis. He also recovered from a defeat of the
social security reform bill in mid-February by massaging a watered-down version
through the first stage of congressional approval three weeks later. In the
process, the President has demonstrated his reknowned negotiating skills, but
the latent fear is that he is perpetually reacting to, rather than leading,
events. All constitutional changes must pass a five-stage voting procedure in
congress before being implemented into law. The two most important reform
measures -- the social security and administrative reforms -- need to make
visible progress in this process before congress gets distracted by municipal
elections scheduled for October.
Nevertheless, we still believe President Cardoso will ultimately succeed. Like
our own President Clinton, President Cardoso listens painstakingly to all sides
before taking a concrete stance on an issue, waits until the last moment before
moving forward, and seems to perform best when the odds are against him. To
date, he has not lost an important battle. Thus, although the political
negotiating costs may be high and the process protracted, we remain confident
that President Cardoso will prevail in the end on the two vital reform measures.
Although the social security reform -- because it was so watered down -- will
likely need to be tinkered with in a couple of years, its passage will at least
be a bandaid to a system that is headed toward bankruptcy, and will provide
symbolic momentum to President Cardoso's efforts.
More important still is the administrative reform. The wage bill is the single
largest expense in the government budget -- in some of the more profligate state
government budgets, wages are over 100% of revenues -- and passage of the
administrative reform is vital to reversing the untenable trend in which public
sector wages are spiraling out of control. The bill, if passed, would give much
more latitude to state governments to dismiss workers and would set maximum
salary levels based on the President's salary. We will be following progress of
this reform very closely, as well as paying close attention to the government's
discipline toward salary and minimum wage adjustments in the coming months. We
are guardedly optimistic on both fronts.
ECONOMICS
We have observed mixed signals with respect to economic activity. The general
trend we have seen is that volume sales across many industries are up
year-over-year, but real prices are down. In an effort to boost sales in a
relatively sluggish economic environment, many companies are opting to reduce
prices and suffer a margin hit. Interest rate sensitive sectors -- construction,
steel, capital goods -- still appear to be weak, while consumer non-durables
have withstood the slowdown much better and evidenced a mild pick-up in the
first quarter. We continue to expect a generalized recovery in the second half
of the year, resulting in yearly GDP growth of around 3%.
2
<PAGE>
Interest rates, as expected, are trending down, albeit modestly. Inflation has
behaved very well for the first part of the year -- averaging roughly 0.6% per
month -- and this has allowed the monetary authorities to guide interest rates
down. Even still, borrowing costs are extremely high, as real interest rates on
government paper yield (depending on the tenor) a return of between 15-20%
annually. Given that we are rather cautious with respect to the reduction of the
fiscal deficit during the course of the year, we believe that interest rates
will continue falling but nevertheless remain stubbornly high and continue to
crowd out private investment.
The trade accounts have performed nicely, and are roughly in balance for the
year. The exchange rate has likewise been stable, devaluing roughly 2% for the
year in nominal terms. Our outlook is that this trend -- trade accounts in
equilibrium, exchange rate stable and devaluing roughly in line with inflation
- -- will continue through the current quarter. Nevertheless, we are expecting a
modest pick-up in inflation in the second quarter as price deregulation (read
increases) in the oil and gas sector will make its way into the inflation
indices.
STOCK MARKET
While cautiously optimistic on the political front, we think the inflation and
interest rate trends continue to bode well for the stock market. Because the
slowdown in the economy has dampened the robust earnings growth experienced in
the early stage of the Real Plan, the Fund's portfolio is increasingly
concentrated in those companies that we feel will grow their earnings at a
faster rate than their peers. In particular, we favor those companies which have
protected niches in their industry either due to superior management and
strategy, strong brand identity, low-cost competitiveness, or monopolistic
regulation (or, better yet, a combination of the above).
An example of this is one of our favorite stocks and largest relative
weightings, Lojas Renner. A small but fast-growing department store in the south
of the country, Lojas Renner has grown its sales at a rate three times as fast
as the industry due to its superior management strategy which targets the
working woman and places a high emphasis on customer satisfaction. It has a
proprietary credit card which is a valuable franchise in itself that boosts
sales and provides additional financial income. The company has recently
announced an expansion plan into the populous yet competitive Sao Paulo region,
and we are certain that their pioneering retail strategy will prevail there. The
company generated a 30% return on its equity last year, has doubled profits each
year for the last two years, should increase profits 25% in 1996, and trades at
8 times this year's estimated earnings.
Another of our favorite stocks, which has been a great performer for the Fund,
is the beer company Brahma. Brahma, the leading beer company in Brazil with
close to 50% market share, doubled its earnings in 1995 on sales growth of 20%.
The brand franchise that Brahma possesses has few peers in the country and
enables it to generate enormous free cash flow in a fast growing market. The
company is investing over $1 billion to increase its brewing capacity by 40%,
and it generates a return on equity of 25%. Further, management has recently
embarked on an internal reorganization to focus its line managers on maximizing
economic value-added (EVA), a management technique whose driving orientation is
superior returns on investment and, thus, enhanced shareholder value. Brahma
should grow its earnings 20% this year, and trades on 11 times estimated 1996
earnings.
In the state company sector, we continue to heavily favor Telebras. Telebras has
a regulated monopoly over the telecommunications sector in Brazil, and should
enjoy outstanding secular growth through the decade. With an increase in tariffs
granted at the end of last year, the company should easily double earnings in
1996. Although its stock price is influenced by macro events in Brazil because
of its bellwether status for the market, it is our contention that throughout
1996 the stock will increasingly trade on the company's own fundamentals and
less on speculation surrounding the fate of macro events in the country. To that
extent, given that the stock trades at 8 times estimated 1996 earnings and 2.5
3
<PAGE>
times cash flow, we are very confident that its true value will be recognized
and it will be a strong outperformer.
In short, Brazil's thriving democracy will likely cause the reform process to be
slow and drawn out, as the legislative and executive branches battle to protect
their respective constituencies. Nevertheless, in spite of the halting speed of
the reforms, high real interest rates, and the fiscal deficit, Brazil is still
growing its economy at a respectable rate which highlights the resiliency of the
dynamic private sector and the significant pent-up demand built up after a
decade of hyperinflation and stagnation. We continue to be very excited by the
earnings growth prospects of the Fund's core holdings, as well as the economic
growth prospects of the country.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT AND DIRECTOR
[SIGNATURE]
Robert L. Meyer
PORTFOLIO MANAGER
[SIGNATURE]
Andy Skov
PORTFOLIO MANAGER
April 17, 1996
4
<PAGE>
The Brazilian Investment Fund, Inc.
Investment Summary as of March 31, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION (UNAUDITED)
TOTAL RETURN (%)
------------------------------------------------
NET ASSET VALUE (2) INDEX (1)(3)
----------------------- -----------------------
AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL
----------------------- -----------------------
<S> <C> <C> <C> <C>
FISCAL YEAR TO DATE 13.42% -- 10.62% --
ONE YEAR 31.09 31.09% 28.45 28.45%
SINCE INCEPTION* 167.23 22.58 210.21 26.36
</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>
YEARS ENDED DECEMBER 31: THREE MONTHS
1991* 1992 1993 1994 1995 ENDED 3/31/96 (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share $ 63.31 $ 55.28 $ 83.58 $ 129.97 $ 64.14 $ 40.92
Income Dividends - - - $ 1.80 -
Capital Gains Distributions - - $ 7.06 $ 6.65 $ 37.73 $ 29.97
Fund Total Return (2) 26.62% -12.68% 72.52% 68.32% -26.61% 13.42%
Index Total Return (1)(3)
** 3.48% 0.32% 99.45% 69.83% -20.24% 10.62%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on per share net asset value 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.
(3) IFC Total Return Index for Brazil.
* The Fund commenced operations on June 4, 1991.
** Unaudited.
5
<PAGE>
The Brazilian Investment Fund, Inc.
Portfolio Summary as of March 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 97.4%
Short-Term Investments 2.6%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Banking 10.3%
Beverages & Tobacco 11.0%
Energy Sources 8.6%
Food & Household Products 5.6%
Merchandising 8.3%
Metals -- Non-Ferrous 3.3%
Telecommunications 24.3%
Utilities - Electrical &
Gas 17.2%
Other 11.4%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS
PERCENT OF NET
ASSETS
---------------
<C> <S> <C>
1. Telebras 23.8%
2. Eletrobras 11.7
3. Brahma 11.0
4. Petrobras 8.6
5. Lojas Renner 7.1
<CAPTION>
PERCENT OF NET
ASSETS
---------------
<C> <S> <C>
6. Banco Bradesco 5.1%
7. CIA Brasileira ADR 4.9
8. Cemig S.A. 4.9
9. Banco Itau 4.9
10. CVRD 3.3
---
85.3%
---
---
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
INVESTMENTS (UNAUDITED)
- ---------
MARCH 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
BRAZILIAN INVESTMENT FUND (96.9%)
- --------------------------------------------------
- ----------
BRAZILIAN NON-VOTING PREFERRED STOCKS (94.4%)
(Unless otherwise noted)
- --------------------------------------------------
- ----------
BANKING (10.3%)
Banco Bradesco 191,131,708 U.S.$2,003
Banco Bradesco (Rights) 8,660,222 91
Banco do Brasil 15,480,000 157
Banco Itau 5,692,500 2,023
Banco Nacional 112,483,664 6
-----------
4,280
-----------
BEVERAGES & TOBACCO (11.0%)
Brahma 9,400,489 4,540
Brahma (Rights) 670,617 --
-----------
4,540
-----------
ENERGY SOURCES (8.6%)
Petrobras 29,791,000 3,559
-----------
FOOD & HOUSEHOLD PRODUCTS
(5.6%)
Cia Brasileira ADR 140,005 2,048
Dixie Toga 297,458 289
-----------
2,337
-----------
INDUSTRIAL COMPONENTS (1.1%)
Schulz 18,770,000 437
-----------
MACHINERY & ENGINEERING
(0.5%)
WEG 467,000 213
-----------
MERCHANDISING (8.3%)
Lojas Americanas 183,270 27
Lojas Americanas SA 8,185,000 197
Lojas Arapua ADR 30,140 294
Lojas Renner 84,870,000 2,935
-----------
3,453
-----------
METALS -- NON-FERROUS (3.3%)
CVRD 3,410,000 535
CVRD ADR 20,800 816
-----------
1,351
-----------
METALS -- STEEL (2.0%)
Usiminas 760,000,000 839
-----------
TELECOMMUNICATIONS (24.3%)
Telebras 145,429,895 7,245
Telebras (Common) 29,153,000 1,154
Telebras ADR 29,250 1,455
Telesp 245,601 42
Telesp (Common) 1,200,500 182
-----------
10,078
-----------
- ---------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
TEXTILES & APPAREL (2.2%)
Coteminas 1,200,000 U.S.$ 498
Wentex 188,000 400
-----------
898
-----------
UTILITIES -- ELECTRICAL & GAS
(17.2%)
Cemig ADR 16,600 463
Cemig S.A. 52,514,000 1,473
Cemig S.A. ADR 3,357 94
CESP 90 --
CPFL 6,891,000 234
Eletrobras (Common) 13,635,000 3,562
Eletrobras 'B' 4,683,000 1,280
Eletrobras ADR 250 3
-----------
7,109
-----------
- ---------------------------------------------------------
- -------------
TOTAL BRAZILIAN NON-VOTING PREFERRED
STOCKS
(Cost U.S. $38,041) 39,094
-----------
- ---------------------------------------------------------
- -------------
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
FOREIGN CURRENCY ON DEPOSIT WITH
CUSTODIAN (2.5%)
Brazilian Real (Cost U.S.
$1,028) BRL 1,015 1,028
-----------
- ---------------------------------------------------------
- -------------
TOTAL BRAZILIAN INVESTMENT FUND
(Cost U.S. $39,069) 40,122
-----------
- ---------------------------------------------------------
- -------------
TOTAL INVESTMENTS (96.9%)
(Cost U.S. $39,069) 40,122
-----------
- ---------------------------------------------------------
- -------------
OTHER ASSETS AND LIABILITIES (3.1%)
Other Assets U.S.$2,286
Liabilities (1,016) 1,270
------------- -----------
- ---------------------------------------------------------
- -------------
NET ASSETS (100%)
Applicable to 1,011,448,
issued and outstanding
U.S. $0.01 par value
shares (50,000,000 shares
authorized) U.S.$41,392
-------------
- ---------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S.$40.92
-------------
- ---------------------------------------------------------
- -------------
</TABLE>
ADR -- American Depositary Receipt
7
