<PAGE>
THE PAKISTAN INVESTMENT FUND, INC.
---------------------------------------------
OFFICERS AND DIRECTORS
Warren J. Olsen Altaf M. Saleem
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS James W. Grisham
Marianne L. Hay VICE PRESIDENT
PRESIDENT AND DIRECTOR Harold J. Schaaff, Jr.
James W. Donley VICE PRESIDENT
DIRECTOR Joseph P. Stadler
Graham E. Jones VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
John A. Levin SECRETARY
DIRECTOR Hilary D. Toole
J. Antonio M. Quila ASSISTANT SECRETARY
DIRECTOR James R. Rooney
Fergus Reid TREASURER
DIRECTOR Timothy F. Osborne
Frederick O. Robertshaw ASSISTANT TREASURER
DIRECTOR
---------------------------------------------
U.S. INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
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PAKISTANI INVESTMENT ADVISER
International Asset Management Company Limited
Sidco Avenue Centre
6th Floor
Strachen Road
Karachi, Pakistan
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ADMINISTRATOR
The United States Trust Company of New York
73 Tremont Street
Boston, Massachusetts 02108
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CUSTODIANS
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
The United States Trust Company of New York
770 Broadway
New York, New York 10003
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SHAREHOLDER SERVICING AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(800) 278-4353
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LEGAL COUNSEL
Rogers & Wells
200 Park Avenue
New York, New York 10166
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INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
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---------
THE
PAKISTAN
INVESTMENT
FUND, INC.
---------
FIRST QUARTER REPORT
MARCH 31, 1995
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- - --------
The first three months of 1995 proved to be another difficult quarter for
Pakistan. Violence in the commercial capital of Karachi escalated to a level not
previously seen before, as rival sects and partisan groups battled for
supremacy. With the military withdrawal from Karachi and the government thus far
mute on the issue, extremists have easily filled the vacuum. For the first time,
even the hardened Karachi business community has begun to take issue, as
evidenced by its one day strike in late March.
Not surprisingly, the stock market suffered during this volatile period. The IFC
Global Total Return Index for Pakistan (Index) was down 18.44% for the quarter,
compared to a 23.12% decrease in the Fund's total return based on net asset
value per share. The primary reason for the underperformance was the Fund's
overweight position in the cement sector, as compared to the Index (13.9%
compared to 4.2%). Cement stocks have come under pressure recently due to lower
margins resulting from increased Indian imports. Floods, violence in Karachi and
lower than expected GDP growth (5.0% as opposed to 6.7%) have also had their
effect. Nevertheless, with a housing deficit estimated by the government to be
around 4.5 million and with Pakistan's infrastructure needs still acute, we
remain convinced that an overweighting in the cement sector is justified. A
secondary reason for the underperformance was the disproportionately large
weighting of 51% assigned by the IFC to four of our top holdings--Fauji
Fertilizer, Engro Chemicals, Dewan Salman and Pakistan State Oil. We had to
underweight these stocks and diversify into some smaller and more volatile
issues. During the recent market sell-off, these smaller issues underperformed
the Index. Starting this year, however, the IFC has revised its weightings and
for the first time we are overweight the stocks we want to overweight, namely
the four mentioned above. When the market turns, we believe these four blue
chips will be at the forefront of the recovery.
The global bear market in emerging markets this quarter has also had an impact
on Pakistan. The country's lack of any restriction on foreign investment and a
settlement system considered more efficient than India's has made it quite
vulnerable to money outflows. The virtual absence of foreign investment this
quarter has thus contributed to local bearishness.
Nevertheless, unrest in Karachi deserves the brunt of the blame. Violence in
Karachi is not a new phenomenon due to the city's status as a flashpoint for the
long simmering tensions between urban and rural interest groups in Pakistan.
Consequently, governments have tended to regard the volatile nature of the city
as something unavoidable but exclusive to Karachi. However, events during recent
months have drawn international attention, making the Karachi problem a national
one for Pakistan. With the local business community and foreign investors
beginning to voice their concern, the government can no longer ignore the
problem. Urban businessmen in Karachi provide the bulk of tax revenues to the
state, and foreign investors--having invested $1.4 billion in Pakistan last year
alone-- represent an important source of funding for the government's ambitious
privatization program.
The pressure is now on the government of Prime Minister Bhutto to address the
situation. We believe the events of recent months (especially the killing of the
two US diplomats in February) will force Prime Minister Bhutto's government to
address the problems in Karachi and that at some point soon the government will
offer a Karachi strategy as a means to defuse criticism that it is not in
control of the city. Already, we are seeing indications that the government is
looking to take
2
<PAGE>
on the issue. Over the past few months, both Prime Minister Bhutto and President
Leghari have met with leaders of the MQM party (the chief representative of
urban interests) in Karachi. Although nothing has been resolved yet, at least
views are being exchanged.
While the unrest in Karachi has resonated outside of Pakistan, there has been no
immediate economic effect. Economic growth is forecast for the year ending this
June to be 5%, with corporate profits averaging an increase of 28%. A shortfall
in expected tax revenues together with the reduction of import tariffs is likely
to result in a budget deficit of over 5% of GDP, missing the government's target
of 4% but in line with last year's figure of 5.8%. The IMF was recently in
Pakistan and continues to support the government's reform program. Amidst all
the bad news swirling around Pakistan these days, it is comforting to note the
government's continued commitment to the economic reform process, and especially
privatization.
In recent weeks, the government has increased the average returns on equity
allowed the two giant gas distributors, Sui Northern and Sui Southern, in order
to make them more attractive to foreign investors. At the same time, the
government is also accelerating the process to find a strategic foreign investor
for the telephone monopoly Pak Telecom ("PTC"). 1994 results for the company
were announced recently, with net profits up 13% over 1993. We believe the
bottom line performance will continue to improve under foreign management. As
the largest cap stock on the exchange, PTC is very much a bellwether for
investor sentiment. The securing of a strategic investor (a 26% stake is to be
awarded) and the inevitable efficiency gains that will ensue should be a huge
boost to market confidence. A deadline for year-end 1995 has been set for the
closing of the deal.
While there has been no concrete agreement between the government and the
opposition on Karachi, the city has been relatively peaceful during the last
three weeks of March, as the government tightened the security net prior to
Prime Minister Bhutto's visit to the United States. The army has yet to be
called in, but the rangers, as they are called--a crack government force which
has broader powers than the police but which is separate from the actual
military--have assumed a greater presence in the city. This brief respite has
allowed local investors to shift focus back to corporate fundamentals which have
been effectively ignored over the past three months.
Despite the bad news of the last few months, there have been positive
developments in Pakistan which affect many of the Fund's key holdings. As
mentioned before, the increase in the gas distributor margins will increase
earnings for the Sui Southern and Sui Northern gas companies; also on the margin
side, oil distributors were granted a 1.5% increase in net margins--a benefit
for Pakistan State Oil. Polyester synthetic fiber prices continue to increase in
line with cotton shortages, both local and abroad--good news for Dewan Salman
and Pakistan Synthetic. In the fertilizer sector, where the Fund has a 13%
weighting, the recent 12% price increase for urea fertilizer products promises a
boost to the already strong earnings growth of Fauji Fertilizer and Engro
Chemicals. As less efficient public sector fertilizer plants experience
production difficulties, Fauji and Engro will continue to expand their growing
share of the market.
In the banking sector, the recent decision by the Central Bank to withdraw the
previous limit on lending rates will allow the banks to improve their margins, a
move likely to improve profitability by 15% this year. A prime beneficiary here
will be Muslim Commercial Bank, the largest private sector bank in Pakistan in
terms of both assets
3
<PAGE>
and deposits. And finally, there is the renewed interest in Pak Telecom in light
of privatization developments. Investors, both foreign and local, are aware of
these developments and with the market collectively trading at around 8x 1995
expected earnings, the value is certainly there. While it is never easy to
predict a market's turn, we believe that investors are now poised and ready on
the sidelines, waiting for one big event--i.e. a government initiative on
Karachi or the sale of PTC--to bring them back into the market. With the market
at a 15 month low and the economic reform program broadly on track, it should
not take much to switch investor focus from the short-term effects of chaotic
Karachi to the long-term upside potential of the market. At just below 8x 1995
estimated earnings, the Pakistani market is now one of the cheapest in the
emerging markets universe.
Sincerely,
[SIGNATURE]
Marianne L. Hay
PRESIDENT AND SENIOR PORTFOLIO MANAGER
[SIGNATURE]
Landon Thomas
PORTFOLIO MANAGER
April 24, 1995
4
<PAGE>
INVESTMENTS (UNAUDITED)
- - ---------
MARCH 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- - ---------------------------------------------------------
- - ------------
PAKISTANI COMMON STOCKS (98.2%)
(Unless otherwise noted)
- - ---------------------------------------------------------
- - -------------
APPLIANCES & HOUSEHOLD DURABLES (2.4%)
Pel Appliances Ltd. 521,802 U.S.$ 2,114
Pel Appliances (Rights) 156,540 330
-----------
2,444
-----------
- - ---------------------------------------------------------
- - -------------
AUTOMOBILES (2.1%)
Indus Motor Co. 2,531,200 1,436
Pak Suzuki Motor Co. Ltd. 827,800 697
Pak Suzuki Motor Co. Ltd.
(Rights) 827,800 27
-----------
2,160
-----------
- - ---------------------------------------------------------
- - -------------
BANKING (5.2%)
Bankers Equity Ltd. 1,063,520 845
Bank of Punjab 755,000 704
First National Investment
Bank Ltd. 1,100,000 998
Muslim Commercial Bank Ltd. 1,157,500 1,829
Muslim Commercial Bank Ltd.
(Rights) 173,625 49
Union Bank Ltd. 1,057,500 874
-----------
5,299
-----------
- - ---------------------------------------------------------
- - -------------
BUILDING MATERIALS & COMPONENTS (13.9%)
Cherat Cement Ltd. 1,139,360 2,511
Dadabhoy Cement 1,372,900 1,179
Dandot Cement Co. 1,356,250 1,737
Dandot Cement Co. (Rights) 339,062 104
D. G. Khan Cement Ltd. 2,771,500 3,558
D. G. Khan Cement Ltd.
(Rights) 964,000 1,238
Maple Leaf Cement 560,000 701
Maple Leaf Cement (Rights) 1,120,000 1,401
Pakland Cement 612,000 1,448
Pioneer Cement Ltd. 350,000 275
-----------
14,152
-----------
- - ---------------------------------------------------------
- - -------------
CHEMICALS (21.1%)
Engro Chemicals Ltd. 702,000 3,755
Fauji Fertilizer Co. Ltd. 4,619,000 10,556
ICI Pakistan Ltd. 296,800 2,150
Jordan Fertiliser Co. Ltd. 7,500,000 2,431
Searle Pakistan 514,965 1,319
Sitara Chemicals Industries 632,419 1,312
Sitara Chemicals Industries
(Rights) 23 --
-----------
21,523
-----------
- - ---------------------------------------------------------
- - -------------
ELECTRICAL & ELECTRONICS (1.8%)
Pak Electronics 937,497 1,854
-----------
- - ---------------------------------------------------------
- - -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- - ---------------------------------------------------------
- - ------------
ENERGY SOURCES (8.1%)
Pakistan Oilfields Ltd. 377,170 U.S.$ 1,272
Pakistan State Oil Co. Ltd. 678,860 6,954
-----------
8,226
-----------
- - ---------------------------------------------------------
- - -------------
FINANCIAL SERVICES (7.3%)
Atlas Bot Lease Co. 605,000 961
First Punjab Modarabah 125,050 45
LTV Capital Modaraba 1,500,000 335
LTV Capital Modaraba (Rights) 499,975 112
National Development Leasing
Corp. 1,700,051 1,584
Orix Leasing Pakistan Ltd. 272,690 672
Orix Leasing Pakistan Ltd.
(Rights) 247,900 611
P.I.C.I.C. 940,366 1,189
PIL Corporation Ltd. 1,180,200 1,406
Trust Modaraba 1,204,000 556
-----------
7,471
-----------
- - ---------------------------------------------------------
- - -------------
FOOD & HOUSEHOLD PRODUCTS (0.8%)
Haseeb Waqas 3,240,000 761
-----------
- - ---------------------------------------------------------
- - -------------
FOREST PRODUCTS & PAPER (3.3%)
Century Paper & Board 1,166,500 1,286
Century Paper & Board
(Rights) 600,000 194
Packages Ltd. 441,200 1,859
-----------
3,339
-----------
- - ---------------------------------------------------------
- - -------------
INDUSTRIAL COMPONENTS (0.9%)
Baluchistan Wheels 903,375 622
General Tyres & Rubber Co. 195,000 319
General Tyres & Rubber Co.
(Rights) 97,500 18
-----------
959
-----------
- - ---------------------------------------------------------
- - -------------
INSURANCE (0.4%)
Adamjee Insurance Co. Ltd. 99,400 419
-----------
- - ---------------------------------------------------------
- - -------------
MACHINERY & ENGINEERING (0.9%)
Millat Tractors Ltd. 455,000 900
-----------
- - ---------------------------------------------------------
- - -------------
MULTI-INDUSTRY (1.5%)
Bukhari & Co. Ltd. 873,960 1,473
-----------
- - ---------------------------------------------------------
- - -------------
TELECOMMUNICATIONS (5.2%)
Pakistan Telecommunications 9,042 909
Pakistan Telecommunications
GDR 44,950 4,135
T.F. Payphones Ltd. 350,000 238
-----------
5,282
-----------
- - ---------------------------------------------------------
- - -------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- - ---------------------------------------------------------
- - ------------
<S> <C> <C>
TEXTILES & APPAREL (15.2%)
Artistic Denim Mills 1,250,000 U.S.$ 1,013
Dewan Salman Fibre 1,490,625 6,088
Dewan Salman Fibre (Rights) 107,812 --
Ibrahim Fibres Ltd. 2,696,400 970
Kohinoor Industries 904,601 484
Mohib Textile 1,050,000 681
Nishat Mills Ltd. 2,093,002 2,103
Pakistan Synthetic 1,920,000 2,776
Saif Textiles 512,525 623
Tawakkal Polyester Industries 1,000 --
Zahur Textile Mills 2,130,000 259
Zahur Textile Mills (Rights) 4,400,000 535
-----------
15,532
-----------
- - ---------------------------------------------------------
- - -------------
UTILITIES -- ELECTRICAL & GAS (7.9%)
Ibrahim Energy 995,000 1,726
Kohinoor Power Co. Ltd. 356,250 465
Nishat Tek Ltd. 647,260 713
Nishat Tek Ltd. (Rights) 93,654 103
Sui Northern Gas Co. 2,820,000 2,697
Sui Southern Gas Co. 1,316,780 1,718
Sui Southern Gas Co. (Rights) 686,640 673
-----------
8,095
-----------
- - ---------------------------------------------------------
- - -------------
WHOLESALE & INTERNATIONAL TRADE (0.2%)
Mohib Exports 1,163,876 217
-----------
- - ---------------------------------------------------------
- - -------------
TOTAL PAKISTANI COMMON STOCKS
(Cost U.S. $162,477) 100,106
-----------
- - ---------------------------------------------------------
- - -------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<S> <C> <C>
- - ---------------------------------------------------------
- - ------------
FIXED INCOME SECURITY (1.5%)
TEXTILES AND APPAREL (1.5%)
Dewan Salman Fibre 5.00%,
5/5/01
(Cost U.S. $2,000) U.S.$ 2,000 U.S.$ 1,505
-----------
- - ---------------------------------------------------------
- - -------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.8%)
(Interest Bearing Demand Account)
Pakistani Rupee
(Cost U.S. $803) PKR 24,768 803
-----------
- - ---------------------------------------------------------
- - -------------
TOTAL INVESTMENTS (100.5%)
(Cost U.S. $165,280) 102,414
-----------
- - ---------------------------------------------------------
- - -------------
OTHER ASSETS AND LIABILITIES (-0.5%)
Other Assets U.S.$ 509
Liabilities (1,031) (522)
----------- -----------
- - ---------------------------------------------------------
- - -------------
NET ASSETS (100%)
Applicable to 11,604,793 issued
and outstanding U.S. $.01 par value
shares
(100,000,000 shares authorized) U.S.$101,892
-------------
- - ---------------------------------------------------------
- - -------------
NET ASSET VALUE PER SHARE U.S.$ 8.78
-------------
- - ---------------------------------------------------------
- - -------------
GDR--Global Depositary Receipt
</TABLE>
6
