<PAGE>
THE PAKISTAN INVESTMENT FUND, INC.
---------------------------------------------
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
Barton M. Biggs J. Antonio Quila
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS Altaf M. Saleem
Warren J. Olsen DIRECTOR
PRESIDENT AND DIRECTOR Frederick B. Whittemore
Peter J. Chase DIRECTOR
DIRECTOR James W. Grisham
John W. Croghan VICE PRESIDENT
DIRECTOR Harold J. Schaaff, Jr.
David B. Gill VICE PRESIDENT
DIRECTOR Joseph P. Stadler
Graham E. Jones VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
John A. Levin SECRETARY
DIRECTOR James R. Rooney
William G. Morton, Jr. TREASURER
DIRECTOR Joanna M. Haigney
ASSISTANT TREASURER
</TABLE>
---------------------------------------------
U.S. INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
----------------------------------------------------------------
PAKISTANI INVESTMENT ADVISER
International Asset Management Company Limited
Sidco Avenue Centre
6th Floor
Strachen Road
Karachi, Pakistan
----------------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank, N.A.
73 Tremont Street
Boston, Massachusetts 02108
----------------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company (International)
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank, N.A. (Domestic)
770 Broadway
New York, New York 10003
----------------------------------------------------------------
SHAREHOLDER SERVICING AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(800) 278-4353
----------------------------------------------------------------
LEGAL COUNSEL
Rogers & Wells
200 Park Avenue
New York, New York 10166
----------------------------------------------------------------
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
PAKISTAN
INVESTMENT
FUND, INC.
---------------------
THIRD QUARTER REPORT
SEPTEMBER 30, 1995
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- -------
For the third quarter of 1995, the Fund's total return, based on net asset value
per share, was 0.94%, in line with the IFC Index for Pakistan (the "Index")
which was up by 0.80%. The quarter was indeed volatile as the market was strong
for the first two months, before selling off in September. For the nine months
ended September 30, 1995, the total return of the Fund was -28.90% compared to
- -17.58% for the Index.
The rally in June and July was mostly technical, as both local and foreign
investors took advantage of cheap stocks across the board to increase their
equity exposure. Investors were also heartened by the continuing talks between
the government and the MQM -- the opposition group behind much of the recent
violence in Karachi. While the talks have yet to yield concrete results, the
fact that the two sides continue to exchange views despite their broad range of
differences is encouraging. Strikes and intermittent violence continue to plague
Karachi, but to a large degree investors have discounted these factors and the
day-to-day effect that such disturbances have on the market has been minimal
compared to last year. International investors are remaining on the sidelines
however.
Perhaps the best news to report is the strong possibility that for the first
time in three years, Pakistan may experience a bumper cotton crop. Initially,
expectations were for a crop of nine million bales, in line with last year. Now,
however, it seems that favorable weather conditions, increased acreage and
reduced instances of the leaf-curl virus have created conditions for a crop of
as much as 11 to 12 million bales. If this turns out to be the case, the
government's target growth rate of 6% for 1995/1996 looks realistic. It is
thought that every extra 500,000 bales of cotton produced in Pakistan adds 0.5%
to GDP growth. Consequently, local cotton prices have come down sharply in
recent months in expectation of the increased supply on the market.
The cotton crop news will be positive for textile stocks which have been in the
doldrums for the past three years. Companies like Nishat Mills, the textile
composite with products ranging from yarn to higher value-added items such as
gray cloth, will benefit as their margins have been under pressure for the past
three years. To increase our exposure to the sector we have added another
textile stock, Gadoon Textile, to the portfolio. Gadoon is a quality
manufacturer of downstream textile products and will benefit from cheaper input
costs.
At the same time, the government has chipped in with a long-awaited textile
package, creating more incentives for exporters while at the same time
discouraging local exporters of raw cotton.
Another beneficiary of the improved cotton crop will be the fertilizer sector,
especially Fauji Fertilizer, the Fund's largest weighting. Increased purchasing
power on the part of farmers, shortages within the domestic market and continued
high prices abroad, have allowed Fauji to exceed this year's production targets.
The stock has underperformed the market of late due to a liquidity overhang, but
at 9x 1996 expected earnings and 6x cash flow, we consider the company very much
undervalued.
We continue to remain positive on the power sector, especially companies like
KESC (the electricity supplier for Karachi) and Sui Northern (the gas supplier
for all of north Pakistan). Both companies remain high priorities on the
government's privatization list and should reap considerable gains in efficiency
as
1
<PAGE>
they come under new management. Electricity and gas prices have been on the rise
of late as the government continues to slice away at past subsidies.
While the cement sector remains under pressure due to declining prices, the
recent move by the government to increase controls on dumped, lower quality
Indian cement should result in firmer prices in the near future. Increasing
energy prices have been squeezing margins, but the long term result of higher
input costs will be a decrease in capacity as many of today's plants use the
outdated and energy inefficient wet process technology. DG Khan and Cherat, both
users of the more cost-efficient dry process technology, will be the natural
beneficiaries.
Overall, the market is currently trading at 12.8x 1995 estimated earnings and
11x 1996. Any progress on the MQM/government talks will boost market sentiment,
allowing investors to focus on the broad corporate and economic benefits that
lower cotton prices will bring.
Sincerely,
[SIG]
Marianne L. Hay
SENIOR PORTFOLIO MANAGER
[SIG]
Landon Thomas
PORTFOLIO MANAGER
October 25, 1995
2
<PAGE>
The Pakistan Investment Fund, Inc.
Investment Summary as of September 30, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
TOTAL RETURN (%)
----------------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (3)
------------------------ ------------------------ ------------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT QUARTER -1.79% -- 0.94% -- 0.80% --
FISCAL YEAR TO DATE -26.34 -- -28.90 -- -17.58 --
ONE YEAR -40.90 -40.90% -41.64 -41.64% -26.28 -26.28%
SINCE INCEPTION* -52.84 -34.78 -42.34 -26.88 -24.59 -14.91
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION (2)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1993* 1994 9 MONTHS ENDED 9/30/95 (UNAUDITED)
<S> <C> <C> <C>
Net Asset Value $ 14.03 $ 11.42 $ 8.10
-- 0.003 --
Income Dividends
Total Return (2) (0.50)% (18.36)% (28.90)%
Index Total Return (3) 0.00% (8.51)% (17.58)%
</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 value on the performance of the Fund during each
period, and assumes dividends and distributions, if any, were reinvested.
These percentages are not an indication of the performance of a shareholder's
investment in the Fund based on market value due to differences between the
market price of the stock and the net asset value of the Fund.
(3)IFC Index for Pakistan
* The Fund commenced operations on December 27, 1993.
3
<PAGE>
The Pakistan Investment Fund, Inc.
Portfolio Summary as of September 30, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 97.2%
Debt Securities 1.5%
Short-Term Investments 1.3%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Chemicals 20.0%
Textiles & Apparel 12.9%
Building Materials & Components 12.0%
Utilities - Electrical & Gas 11.9%
Energy Sources 9.3%
Telecommunications 8.3%
Financial Services 6.8%
Banking 6.2%
Forest Products & Paper 4.1%
Other 8.5%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<C> <S>
1. Fauji Fertilizer Co. Ltd.
2. Pakistan State Oil Co. Ltd.
3. D. G. Khan Cement Ltd.
4. Pakistan Telecommunications GDR
5. Sui Northern Gas Co.
6. Engro Chemicals Ltd.
7. Dewan Salman Fibre
8. Pakistan Telecommunications
9. Fauji Jordan Fertilizer Co. Ltd.
10. Sui Southern Gas Co.
</TABLE>
4
<PAGE>
INVESTMENTS (UNAUDITED)
- ---------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
PAKISTANI COMMON STOCKS (96.5%)
(Unless otherwise noted)
- -----------------------------------------------------------
- -------------
APPLIANCES & HOUSEHOLD DURABLES (2.2%)
Pel Appliances Ltd. 678,342 U.S.$ 2,045
------------
- -----------------------------------------------------------
- -------------
AUTOMOBILES (0.2%)
Indus Motor Co. 5,000 3
Pak Suzuki Motor Co. Ltd.
(Rights) 827,800 171
------------
174
------------
- -----------------------------------------------------------
- -------------
BANKING (6.2%)
Bank of Punjab 755,000 608
Bankers Equity Ltd. 949,520 716
Faysal Bank Ltd. 2,000,000 1,777
First International
Investment Bank Ltd. 220,000 194
Muslim Commercial Bank Ltd. 1,365,850 1,820
Muslim Commercial Bank Ltd.
(Rights) 173,625 231
Union Bank Ltd. 617,500 509
------------
5,855
------------
- -----------------------------------------------------------
- -------------
BUILDING MATERIALS & COMPONENTS (12.0%)
Cherat Cement Ltd. 639,360 1,146
Dadabhoy Cement 1,357,400 743
Dadabhoy Cement (Rights) 686,450 103
Dandot Cement Co. 1,356,250 1,291
Dandot Cement Co. (Rights) 339,062 323
D. G. Khan Cement Ltd. 3,735,500 5,511
Maple Leaf Cement 513,500 558
Pakland Cement 918,000 1,602
------------
11,277
------------
- -----------------------------------------------------------
- -------------
CHEMICALS (20.0%)
Engro Chemicals Ltd. 702,000 3,430
Fauji Fertilizer Co. Ltd. 4,619,000 9,123
Fauji Jordan Fertilizer Co.
Ltd. 7,500,000 2,379
ICI Pakistan Ltd. 225,000 450
ICI Pakistan Ltd. (Rights) 495,000 832
Searle Pakistan 592,209 1,278
Sitara Chemicals Industries 626,919 1,273
Sitara Chemicals Industries
(Rights) 23 -
------------
18,765
------------
- -----------------------------------------------------------
- -------------
ELECTRICAL & ELECTRONICS (1.8%)
Pak Electron 937,497 1,740
------------
- -----------------------------------------------------------
- -------------
ENERGY SOURCES (9.3%)
Pakistan Oilfields Ltd. 377,170 957
Pakistan State Oil Co. Ltd. 678,860 7,754
------------
8,711
------------
- -----------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
FINANCIAL SERVICES (6.8%)
Atlas BOT Lease 605,000 U.S.$ 835
Atlas BOT Lease (Rights) 302,500 225
First Punjab Modaraba 12,480 3
LTV Capital Modaraba 1,500,000 245
LTV Capital Modaraba
(Rights) 499,975 82
National Development Leasing
Corp. 2,125,063 1,551
National Development Leasing
Corp. (Rights) 170,005 70
Orix Leasing Pakistan Ltd. 520,590 1,140
P.I.C.I.C. 953,425 726
PIL Corporation Ltd. 1,180,200 1,367
Trust Modaraba 692,000 181
------------
6,425
------------
- -----------------------------------------------------------
- -------------
FOOD & HOUSEHOLD PRODUCTS (0.9%)
Haseeb Waqas Sugar 3,240,000 879
------------
- -----------------------------------------------------------
- -------------
FOREST PRODUCTS & PAPER (4.1%)
Century Paper & Board 1,883,150 2,225
Packages Ltd. 441,200 1,680
------------
3,905
------------
- -----------------------------------------------------------
- -------------
INDUSTRIAL COMPONENTS (0.9%)
Baluchistan Wheels 887,375 430
General Tyres & Rubber Co. 292,500 371
------------
801
------------
- -----------------------------------------------------------
- -------------
INSURANCE (0.5%)
Adamjee Insurance Co. Ltd. 124,250 438
------------
- -----------------------------------------------------------
- -------------
TELECOMMUNICATIONS (8.3%)
Pakistan Telecommunications 26,542 2,905
Pakistan Telecommunications
GDR 44,950 4,720
T.F. Payphones Ltd. 350,000 140
------------
7,765
------------
- -----------------------------------------------------------
- -------------
TEXTILES & APPAREL (11.4%)
Artistic Denim Mills 1,250,000 674
Dewan Salman Fibre 1,220,625 3,418
Dewan Salman Fibre (Rights) 107,812 -
Gadoon Textile Mills 246,000 353
Ibrahim Fibres Ltd. 325,400 97
Kohinoor Industries 904,601 344
Mohib Exports 1,163,876 194
Mohib Textile 1,050,000 533
Nishat Mills Ltd. 2,406,952 2,233
Pakistan Synthetic 1,933,000 1,570
Saif Textiles 640,656 676
Zahur Textile Mills 2,130,000 220
Zahur Textile Mills (Rights) 4,400,000 454
------------
10,766
------------
- -----------------------------------------------------------
- -------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
UTILITIES -- ELECTRICAL & GAS (11.9%)
Hub Power Co. Ltd. GDR 2,000,000 U.S.$ 1,459
Ibrahim Energy 995,000 1,326
Karachi Electric Supply
Corp. 1,050,000 1,049
Kohinoor Power Co. Ltd. 356,250 362
Nishat Tek Ltd. 728,986 746
Nishat Tek Ltd. (Rights) 17 -
Sui Northern Gas Co. 3,333,164 3,913
Sui Southern Gas Co. 2,003,420 2,288
------------
11,143
------------
- -----------------------------------------------------------
- -------------
TOTAL PAKISTANI COMMON STOCKS
(Cost U.S.$151,034) 90,689
------------
- -----------------------------------------------------------
- -------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
FIXED INCOME SECURITY (1.5%)
- ---------------------------------------------------------
- ------------
TEXTILES & APPAREL (1.5%)
Dewan Salman Fibre 5.00%,
5/5/01 (Cost U.S. $2,000) U.S.$ 2,000 1,410
------------
- -----------------------------------------------------------
- -------------
SHORT TERM INVESTMENT (1.2%)
- ---------------------------------------------------------
- ------------
REPURCHASE AGREEMENT (1.2%)
Chase Manhattan Bank, N.A.,
6.00%, dated 9/29/95, due
10/2/95, to be repurchased
at U.S.$1,161,
collateralized by
U.S.$1,040 United States
Treasury Bonds 7.625%, due
11/15/22, valued at
U.S.$1,187 (Cost
U.S.$1,160) 1,160 1,160
------------
- -----------------------------------------------------------
- -------------
<CAPTION>
AMOUNT VALUE
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
TOTAL INVESTMENTS (99.2%)
(Cost U.S.$154,194) U.S.$ 93,259
------------
- -----------------------------------------------------------
- -------------
OTHER ASSETS AND LIABILITIES (0.8%)
Other Assets U.S.$ 2,695
Liabilities (1,929) 766
------------- ------------
- -----------------------------------------------------------
- -------------
NET ASSETS (100%)
Applicable to 11,604,793, issued and
outstanding U.S. $.01 par value shares
(100,000,000 shares authorized) U.S.$ 94,025
-------------
- -----------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S.$ 8.10
-------------
- -----------------------------------------------------------
- -------------
<FN>
GDR--Global Depositary Receipt
</TABLE>
6
