<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 Michael F. Klein
PRESIDENT AND DIRECTOR VICE PRESIDENT
Peter J. Chase Harold J. Schaaff, Jr.
DIRECTOR VICE PRESIDENT
John W. Croghan Joseph P. Stadler
DIRECTOR VICE PRESIDENT
David B. Gill Valerie Y. Lewis
DIRECTOR SECRETARY
Graham E. Jones James R. Rooney
DIRECTOR TREASURER
John A. Levin Belinda A. Brady
DIRECTOR ASSISTANT TREASURER
- ---------------------------------------------
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.
---------------------
THIRD QUARTER REPORT
SEPTEMBER 30, 1996
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the nine months ended September 30, 1996, the total return for The Brazilian
Investment Fund, Inc. (the "Fund"), based on net asset value per share, was
51.87% compared to 24.42% for the IFC Total Return Index for Brazil (the
"Index"). For the period from inception on June 4, 1991 through September 30,
1996, the Fund's total return, based on net asset value per share is 257.81%
compared to 248.93% for the 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 third 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.
PERFORMANCE
For the third quarter ended September 30, 1996, the Fund's total return, based
on net asset value per share, was 7.26% compared to 1.88% for the Index. The
Fund outperformed during the quarter owing to its increased exposure to small
cap stocks generally and its overweight in the retail sector in particular. The
overall market was characterized by no major macroeconomic or political news,
corporate earnings that were within expectations, and a benign U.S. interest
rate environment.
THE CONSOLIDATION OF THE BENIGN MACRO SCENARIO
As we described in our last letter, the Brazilian market is undergoing an
interesting process of de-emphasizing the macro environment, and with each
quarter this process further consolidates itself. An example of this process is
the fact that, in spite of the market's strong performance year-to-date, the
market has not re-rated since last year. This year's market performance has been
due almost exclusively to sector-specific earnings growth which outpaced
expectations. In other words, the uptrend has been stock-led, rather than
macro-led. In fact, on some measures (e.g. price times next year earnings) the
market is cheaper now than it was at the same time last year. This is
encouraging for a couple of reasons. First, it underscores that the market is
"maturing" to the extent that it is paying attention to, and rewarding, specific
company earnings growth. Second, it helps demonstrate that the market does not
yet have much froth to it and -- at 10 times 1997 earnings -- that it is far
from being "overowned."
The macro environment has indeed been rather benign. Inflation has fallen to
such an extent that the market is
talking about a single digit number for 1997. The
economy, if not roaring ahead, has recovered to reach its medium-term potential
(i.e. around 4% per year). Unemployment, though increasing due to productivity
measures and to the less robust recovery, is not a major concern. The trade
accounts, though worsening, are under control. Interest rates, though high, are
continuing to fall. Structural reforms, though slow, are moving ahead.
We welcome the consolidation of the benign macro scenario, but are by no means
lulled into a false sense of complacency. A macro shock can upset the apple cart
at any moment in Brazil. Chief among them would be a) a Cardoso stumble in his
effort to change the constitution in order to run for a second term, b) a marked
deterioration in the trade accounts, c) a deterioration or non-improvement in
the fiscal deficit, d) a pickup in inflation owing to heated economic activity,
or e) a combination of any of the above. Of the items mentioned herein, we are
monitoring most closely the re-election issue and the fiscal account trends.
Although optimistic, we think that both issues represent some rough sledding
ahead and, with it, increased market volatility. As the pundits say, though, a
bull market climbs a wall of worry.
INVESTMENT STRATEGY -- THE RISE OF THE SMALL CAP
During the rough ride of the Mexico devaluation and its aftermath, liquid stocks
were the place to be. Accordingly, we adopted an investment strategy that placed
a significant premium on stocks that had sizable market capitalizations and,
more important, healthy daily trading volumes. In addition to our normal
fundamental analysis of uncovering the fastest earnings growth, we attached
liquidity into our valuation parameters.
At present we are revising our strategy. Because of the above-mentioned
consolidation of the benign macro scenario, we think that over the medium-term
this "liquidity premium" will decline and that small cap companies will
outperform. We are religiously holding to our obsession with earnings growth,
but attaching a lower premium for liquidity which, naturally, leads us to
increase our weighting in small cap stocks. The portfolio has accordingly taken
on a more small cap character, a process that began in the third quarter and
will likely continue into the fourth quarter. Thus, in next quarter's letter, I
will write in greater detail about some of the individual companies that
comprise the portfolio. Needless to say, I am quite excited about the prospects
of the
2
<PAGE>
companies that are in the portfolio and, with a favorable macro backdrop, about
the expected performance of these stocks in the future.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT AND DIRECTOR
[SIGNATURE]
Andy Skov
PORTFOLIO MANAGER
[SIGNATURE]
Robert L. Meyer
PORTFOLIO MANAGER
October 21, 1996
3
<PAGE>
The Brazilian Investment Fund, Inc.
Investment Summary as of September 30, 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 51.87% -- 24.42% --
ONE YEAR 31.70 31.70% 10.78 10.78%
FIVE YEAR 236.16 27.44 304.01 32.21
SINCE INCEPTION* 257.81 27.03 248.93 26.37
</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: NINE MONTHS
1991* 1992 1993 1994 1995 ENDED 9/30/96 (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share $ 63.31 $ 55.28 $ 83.58 $ 129.97 $ 64.14 $ 53.90
Income Dividends - - - $ 1.80 - $ 0.02
Capital Gains Distributions - - $ 7.06 $ 6.65 $ 37.73 $ 30.75
Fund Total Return (2) 26.62% -12.68% 72.52% 68.32% -26.61% 51.87%
Index Total Return (1)(3)
** 3.48% 0.32% 99.45% 69.83% -20.24% 24.42%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) 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.
(3) The IFC Total Return Index for Brazil is an unmanaged index of common
stocks.
* The Fund commenced operations on June 4, 1991.
** Unaudited.
4
<PAGE>
The Brazilian Investment Fund, Inc.
Portfolio Summary as of September 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 96.9%
Short-Term Investments 3.1%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Appliances & Household Durables 7.9%
Banking 8.4%
Beverages 4.7%
Broadcasting & Publishing 3.2%
Energy Sources 3.1%
Food & Household Products 3.2%
Merchandising 19.3%
Telecommunications 29.1%
Textiles & Apparel 4.0%
Utilities - Electrical & Gas 16.2%
Other 0.9%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS
PERCENT OF NET
ASSETS
---------------
<C> <S> <C>
1. Telebras 28.6%
2. Lojas Renner 19.3
3. Casa Anglo 5.7
4. Brahma 4.7
5. Eletrobras 4.4
<CAPTION>
PERCENT OF NET
ASSETS
---------------
<C> <S> <C>
6. Celesc GDR 4.3%
7. Itaubanco 3.9
8. TV Filme, Inc. 3.3
9. Petrobras 3.1
10. Coteminas 2.9
---
80.2%
---
---
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
INVESTMENTS (UNAUDITED)
- ---------
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -------------------------------------------------------
- ------------
BRAZILIAN INVESTMENT FUND (101.9%)
- -------------------------------------------------------
- ------------
BRAZILIAN NON-VOTING PREFERRED STOCKS (101.3%)
(Unless otherwise noted)
- -------------------------------------------------------
- -------------
APPLIANCES & HOUSEHOLD DURABLES (7.9%)
Casa Anglo 64,628,195 U.S.$3,102
Lojas Arapua 73,400,000 1,236
-----------
4,338
-----------
- -------------------------------------------------------
- -------------
BANKING (8.4%)
Banco Bradesco 145,947,395 1,244
Banco Nacional 112,483,664 6
Itaubanco 5,147,500 2,135
Unibanco 42,570,000 1,208
-----------
4,593
-----------
- -------------------------------------------------------
- -------------
BEVERAGES (4.7%)
Brahma 4,161,489 2,588
-----------
- -------------------------------------------------------
- -------------
BROADCASTING & PUBLISHING
(3.2%)
TV Filme, Inc. (Common) 130,000 1,788
-----------
- -------------------------------------------------------
- -------------
BUILDING MATERIALS & COMPONENTS (0.6%)
Cia Cimento Portland Itau 1,240,000 330
-----------
- -------------------------------------------------------
- -------------
ENERGY SOURCES (3.1%)
Petrobras 14,475,000 1,701
-----------
- -------------------------------------------------------
- -------------
FOOD & HOUSEHOLD PRODUCTS (3.2%)
Lorenz 63,065,000 1,235
Pao de Acucar GDR 12,950 248
Pao de Acucar GDR 144A 13,530 260
-----------
1,743
-----------
- -------------------------------------------------------
- -------------
INDUSTRIAL COMPONENTS (0.4%)
Schulz 15,018,000 235
-----------
- -------------------------------------------------------
- -------------
MERCHANDISING (19.3%)
Lojas Renner 183,169,000 10,585
-----------
- -------------------------------------------------------
- -------------
METALS -- NON-FERROUS (0.8%)
CVRD 23 1
CVRD ADR 22,600 446
-----------
447
-----------
- -------------------------------------------------------
- -------------
MULTI-INDUSTRY (0.4%)
Itausa 320,000 251
-----------
- -------------------------------------------------------
- -------------
TELECOMMUNICATIONS (29.1%)
Telebras 167,099,895 13,142
Telebras ADR 8,450 663
Telebras (Common) 29,153,000 1,896
Telesp 245,601 48
Telesp (Common) 1,200,473 203
-----------
15,952
-----------
- -------------------------------------------------------
- -------------
TEXTILES & APPAREL (4.0%)
Coteminas 4,458,000 1,616
Wentex 162,000 563
-----------
2,179
-----------
- -------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -------------------------------------------------------
- -------------
UTILITIES -- ELECTRICAL & GAS (16.2%)
Celesc GDR 27,460 U.S.$2,368
CESP 90 1
Copel (Common) 142,140,000 1,420
CPFL 17,758,000 1,217
Electropaulo (Common) 2,742,000 269
Eletrobras ADR 250 3
Eletrobras 'B' (Common) 9,118,000 2,402
FLCL (Common) 213,200,000 240
Light (Common) 3,209,000 996
-----------
8,916
-----------
- -------------------------------------------------------
- -------------
TOTAL BRAZILIAN NON-VOTING PREFERRED STOCKS
(Cost U.S. $45,223) 55,646
-----------
- -------------------------------------------------------
- -------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- -------------------------------------------------------
- ------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.6%)
Brazilian Real (Cost U.S.
$321) BRL 328 321
-----------
- -------------------------------------------------------
- -------------
TOTAL BRAZILIAN INVESTMENT FUND (101.9%)
(Cost U.S. $45,544) 55,967
-----------
- -------------------------------------------------------
- -------------
SHORT-TERM INVESTMENT (2.7%)
- -------------------------------------------------------
- -------------
REPURCHASE AGREEMENT (2.7%)
Chase Securities, Inc.
5.40%, dated 9/30/96, due
10/1/96, to be
repurchased at U.S.
$1,472, collateralized by
U.S. $1,085 United States
Treasury Notes 10.625%,
due 8/15/15, valued at
U.S. $1,493 (Cost U.S.
$1,472) U.S.$ 1,472 1,472
-----------
- -------------------------------------------------------
- -------------
TOTAL INVESTMENTS (104.6%)
(Cost U.S. $47,016) 57,439
-----------
- -------------------------------------------------------
- -------------
OTHER ASSETS AND LIABILITIES (-4.6%)
Other Assets 8,285
Liabilities (10,834) (2,549 )
----------- -----------
- -------------------------------------------------------
- -------------
NET ASSETS (100%)
Applicable to 1,018,310,
issued and outstanding
U.S. $0.01
par value shares
(50,000,000 shares
authorized) U.S.$54,890
-------------
- -------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S.$ 53.90
-------------
</TABLE>
- ---------------------------------------------
- ---------
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
6
