<PAGE>
THE PAKISTAN INVESTMENT FUND, INC.
- ---------------------------------------------
OFFICERS AND DIRECTORS
Barton M. Biggs J. Antonio Quila
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS Altaf M. Saleem
Frederick B. Whittemore DIRECTOR
VICE-CHAIRMAN OF THE BOARD OF DIRECTORS James W. Grisham
Warren J. Olsen VICE PRESIDENT
PRESIDENT AND DIRECTOR Michael F. Klein
Peter J. Chase VICE PRESIDENT
DIRECTOR Harold J. Schaaff, Jr.
John W. Croghan VICE PRESIDENT
DIRECTOR Joseph P. Stadler
David B. Gill VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
Graham E. Jones SECRETARY
DIRECTOR James R. Rooney
John A. Levin TREASURER
DIRECTOR Belinda A. Brady
William G. Morton, Jr. ASSISTANT TREASURER
DIRECTOR
- ---------------------------------------------
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
73 Tremont Street
Boston, Massachusetts 02108
- -----------------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company (International)
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank (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.
---------------------
SEMI-ANNUAL REPORT
JUNE 30, 1996
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the six months ended June 30, 1996, The Pakistan Investment Fund, Inc. had a
total return, based on net asset value per share, of 8.83% compared to 14.96%
for the IFC Global Pakistan Total Return Index. For the period since the Fund's
inception on December 27, 1993, the Fund's total return was -49.11% compared
with -27.57% for the Index. On June 28, 1996, the closing price of the Fund's
shares on the New York Stock Exchange was $6.75, representing a 5.6% discount to
the Fund's net asset value per share.
Despite relative outperformance in the Fund's key overweight sectors such as
telecommunications, fertilizer, and oil and gas, the narrow scope of the
market's rally compared to the breadth of the Fund's portfolio contributed to
the relative underperformance.
During the second quarter, the Karachi Stock Exchange broached the ever-elusive
1800 barrier on increased volume concentrated in the large cap stocks. The
increase proved unsustainable and towards the end of the quarter the broader
market lost ground in response to a contractionary fiscal policy announced with
the budget for FY1997.
POLITICAL AND ECONOMIC DEVELOPMENTS
Politics for the period remained uneventful. A relatively calm Karachi allowed
the government to focus on its presentation of the 1996/1997 budget. Unlike the
previous year, this year's budget has a much keener focus on economic reform and
it seems to have been met with approval from the IMF. Emphasis remains on
enhanced revenue collection and a continued reduction of the central government
deficit to the IMF-mandated target of 4%.
Strong growth in both the agricultural and manufacturing sectors contributed to
an acceleration of GDP growth during FY 1996 to 6.1% compared to 4.4% in the
previous year. Faster output growth, accompanied by a tighter monetary policy,
appears also to have slowed the rate of inflation to 10.5% compared to 13% a
year earlier.
KEY PORTFOLIO CHANGES
During the period, extensive changes have been made to the Fund's portfolio. In
view of the bleak prospects facing the synthetics and cement industries, we sold
our holding in Pakistan Synthetics and significantly reduced our exposure to
D.G. Khan Cement and ICI. We have also increased our exposure to the textile
sector by increasing our positions in Crescent Textile and Nishat Mills.
Anticipating the trend towards consolidation in the financial services sector,
the Fund increased its holdings in strongly capitalized banks such as Faysal,
Muslim Commercial and Askari and liquidated its positions in mid-sized banks
such as Union and the Bank of Punjab. We also increased our holdings in Hub
Power Company, Pakistan Telecommunication and Sui Southern, the state owned gas
utility. During the period, we sold a number of small cap stocks mainly in the
financial services, captive power and textile sectors.
PERFORMANCE ANALYSIS
Despite extensive restructuring over the last six months, the Fund's performance
has lagged the Index. This is attributable to three key factors. First, our
underweight position in Hubco (our weighting is 8.6% compared to a 14% weighting
for the Index) kept the Fund from fully capitalizing on the near 47%
appreciation in the share's value over this period. Second, continued weakness
in the cement, textiles, synthetics and leasing sectors has adversely affected
the Fund. And third, many of the small-cap stocks which the Fund has stakes in
have underperformed, despite showing impressive fundamentals.
The Fund's sizable exposure in fertilizers, energy, telecommunications and
banking made a significant contribution to the growth of the overall portfolio.
The fertilizer and energy sectors have been among the country's fastest growing
sectors as excess demand virtually guarantees profitable operations. The Fund's
top ten holdings include fertilizer companies, namely Fauji Fertilizer, Fauji
Jordan and Engro Chemicals. The immediate prospects for these companies remain
excellent as access to cheap gas provides a competitive edge over imports while
strong demand stemming from agricultural growth ensures volume and price growth.
The energy sector now accounts for nearly one-third of the Fund's portfolio and
covers diversified activities including oil exploration, power generation and
distribution, oil marketing, gas transmission and distribution. With the
exception of oil exploration, the sector produced excellent results for the six
months ended June 30. Our top holdings in the sector include Pakistan State Oil
with a six month price growth of 58%, Hub Power (47%), Sui Northern (32%), Sui
Southern (8%) and Karachi Electric Supply (36%).
PROSPECTS
The medium-term economic prospects for Pakistan depend critically on its ability
to maintain the GDP growth rate achieved in FY1996. The official economic growth
target for FY1997 of 6.3% seems realistic if agricultural output continues to
expand and industrial growth is
2
<PAGE>
sustained by incremental output from greenfield projects in the energy and
synthetics sectors and capacity expansions in the cement, and fertilizer
sectors.
The focus of government economic policy remains the early resumption of the IMF
economic stabilization program for Pakistan. The government's continued struggle
to raise adequate tax revenue remains the major issue and the recent budget has
addressed this concern by expanding the scope and incidence of indirect taxes.
The uncertainty surrounding the restoration of concessionary IMF lending,
however, is mostly an issue of timing and the bulk of the reforms will in all
likelihood be in place before September 1997.
Regionally, the Karachi Stock Exchange offers attractive valuations relative to
markets in Malaysia, Thailand and Indonesia while also promising strong earnings
growth. The market is now trading at 10X 1997 expected earnings, underpinned by
EPS growth forecast to be around the 35% level. We are thus cautiously
optimistic about prospects for the Fund over the second half of the year.
Compared to a year ago, the Fund is now strategically positioned to benefit from
a market upswing while carrying a limited downside risk in the event of
continued market weakness.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT AND DIRECTOR
[SIGNATURE]
Marianne L. Hay
SENIOR PORTFOLIO MANAGER
[SIGNATURE]
Landon Thomas
PORTFOLIO MANAGER
July 24, 1996
3
<PAGE>
The Pakistan Investment Fund, Inc.
Investment Summary as of June 30, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION (UNAUDITED)
TOTAL RETURN (%)
----------------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (1)(3)
------------------------ ------------------------ ------------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
FISCAL YEAR TO DATE 28.57% -- 8.83% -- 14.96% --
ONE YEAR 0.07 0.07% -10.90 -10.90% -3.19 -3.19%
SINCE INCEPTION* -51.95 -25.33 -49.11 -23.60 -27.57 -12.11
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31: SIX MONTHS
ENDED JUNE 30,
1996
1993* 1994 1995 (UNAUDITED)
<S> <C> <C> <C> <C>
Net Asset Value Per Share $ 14.03 $ 11.42 $ 6.57 $ 7.15
Market Value Per Share $15.50 $9.00 $5.25 $ 6.75
Premium/(Discount) 10.5% -21.2% -20.1% -5.6%
Income Dividends - $0.03 $0.00# -
Cap Gains Distributions - - $0.00# -
Fund Total Return (2) -0.50% -18.36% -42.43% 8.83%
Index Total Return
(1)(3)** N/A -8.51% -31.14% 14.96%
</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. 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) The IFC Global Pakistan Total Return Index is an unmanaged index of common
stocks.
* The Fund commenced operations on December 27, 1993.
** Unaudited
# Amount is less than $0.01 per share.
4
<PAGE>
The Pakistan Investment Fund, Inc.
Portfolio Summary as of June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 97.6%
Short-Term Investments 2.4%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Appliances & Household Durables 2.1%
Banking 7.3%
Chemicals 25.5%
Energy Sources 13.3%
Financial Services 3.4%
Forest Products & Paper 3.6%
Insurance 1.8%
Telecommunications 12.7%
Textiles & Apparel 4.5%
Utilities - Electrical & Gas 18.8%
Other 7.0%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
-------------
<C> <S> <C>
1. Fauji Fertilizer Co. Ltd. 14.3%
2. Pakistan Telecommunications 12.6
3. Pakistan State Oil Co. Ltd. 12.5
4. Hub Power Co. Ltd. 8.5
5. Engro Chemicals Ltd. 5.7
<CAPTION>
PERCENT OF
NET ASSETS
-------------
<C> <S> <C>
6. Sui Northern Gas Co. 5.5%
7. Fauji Jordan Fertilizer Co. Ltd. 4.1
8. Sui Southern Gas Co. 3.4
9. Faysal Bank Ltd. 3.3
10. Muslim Commercial Bank Ltd. 3.0
-------------
72.9%
-------------
-------------
</TABLE>
5
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS (UNAUDITED)
- ---------
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------------
------------
<S> <C> <C>
PAKISTANI COMMON STOCKS (96.4%)
(Unless otherwise noted)
- ----------------------------------------------------------------------------------
- ------------
APPLIANCES & HOUSEHOLD DURABLES (2.1%)
+Pel Appliances Ltd. 814,010 U.S.$ 1,738
--------------
- ---------------------------------------------------------
- ------------
AUTOMOBILES (0.0%)
+Indus Motor Co. 2,500 2
--------------
- ---------------------------------------------------------
- ------------
BANKING (7.3%)
+Askari Commercial Bank 809,200 768
+Bankers Equity Ltd. 138,520 44
Faysal Bank Ltd. 2,883,150 2,702
First International Investment Bank Ltd. 200,000 63
+Muslim Commercial Bank Ltd. 2,321,270 2,487
--------------
6,064
--------------
- ---------------------------------------------------------
- ------------
BUILDING MATERIALS & COMPONENTS (1.5%)
+Cherat Cement Ltd. 775,200 565
+Dandot Cement Co. 285,000 50
+Dandot Cement Co. (Rights) 284,562 50
D.G. Khan Cement Ltd. 1,460,050 580
--------------
1,245
--------------
- ---------------------------------------------------------
- ------------
CHEMICALS (25.5%)
Engro Chemicals Ltd. 1,026,200 4,749
Fauji Fertilizer Co. Ltd. 4,619,000 11,876
+Fauji Jordan Fertilizer Co. Ltd. 7,500,000 3,407
ICI Pakistan Ltd. 118,500 182
Sitara Chemicals Industries 689,630 970
--------------
21,184
--------------
- ---------------------------------------------------------
- ------------
ELECTRICAL & ELECTRONICS (0.8%)
+Pak Electronics 701,246 661
--------------
- ---------------------------------------------------------
- ------------
ENERGY SOURCES (13.3%)
+Pakistan Oilfields Ltd. 377,170 636
Pakistan State Oil Co. Ltd. 882,518 10,412
--------------
11,048
--------------
- ---------------------------------------------------------
- ------------
FINANCIAL SERVICES (3.4%)
Atlas BOT Lease Co. Ltd. 605,000 356
+**Atlas BOT Lease Co. Ltd. (Rights) 302,500 178
+National Development Leasing Corp. 2,245,068 946
Orix Leasing Pakistan Ltd. 520,590 762
+PIL Corp. Ltd. 1,180,200 506
+Trust Modaraba 147,500 29
--------------
2,777
--------------
- ----------------------------------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------------
------------
<S> <C> <C>
FOOD & HOUSEHOLD PRODUCTS (0.9%)
+Haseeb Waqas Sugar 3,240,000 U.S.$ 324
Lever Brothers 20,180 461
--------------
785
--------------
- ---------------------------------------------------------
- ------------
FOREST PRODUCTS & PAPER (3.6%)
Century Paper & Board 1,883,150 1,816
Packages Ltd. 406,900 1,127
--------------
2,943
--------------
- ---------------------------------------------------------
- ------------
INDUSTRIAL COMPONENTS (0.2%)
+General Tyres & Rubber Co. 193,000 127
--------------
- ---------------------------------------------------------
- ------------
INSURANCE (1.8%)
Adamjee Insurance Co. Ltd. 378,533 1,503
--------------
- ---------------------------------------------------------
- ------------
TELECOMMUNICATIONS (12.7%)
+Pakistan Telecommunications 45,000 5,142
+Pakistan Telecommunications GDR 44,950 5,304
+**T.F. Payphones Ltd. 350,000 126
--------------
10,572
--------------
- ---------------------------------------------------------
- ------------
TEXTILES & APPAREL (4.5%)
+**Artistic Denim Mills 1,250,000 607
+Crescent Textile Mills Ltd. 1,147,440 508
Dewan Salman Fibre 63,750 76
Gadoon Textile Mills 670,000 603
+Mohib Exports 7,900 1
+Mohib Textile 200 --
+Nishat Mills Ltd. 4,190,911 1,676
Saif Textiles 703,458 271
+**Saif Textiles (Rights) 128,132 --
--------------
3,742
--------------
- ---------------------------------------------------------
- ------------
UTILITIES -- ELECTRICAL & GAS (18.8%)
+Hub Power Co. Ltd. GDR 7,133,000 7,050
+Ibrahim Energy 51,000 12
+Karachi Electric Supply Corp. 1,155,000 1,213
Nishat Tek Ltd. 555 --
+Nishat Tek Ltd. (Rights) 17 --
+Sui Northern Gas Co. 3,999,104 4,570
+Sui Southern Gas Co. 3,026,137 2,788
--------------
15,633
--------------
- ----------------------------------------------------------------------------------
- ------------
TOTAL PAKISTANI COMMON STOCKS
(Cost U.S. $110,599) 80,024
--------------
- ----------------------------------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AMOUNT
(000) (000)
- ----------------------------------------------------------------------------------
------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (2.4%)
<S> <C> <C>
Pakistani Rupee (Cost U.S. $2,011) PKR 70,228 U.S.$ 2,006
--------------
- ----------------------------------------------------------------------------------
- ------------
TOTAL INVESTMENTS (98.8%)
(Cost U.S. $112,610) 82,030
--------------
- ----------------------------------------------------------------------------------
- ------------
OTHER ASSETS (2.1%)
Cash U.S.$ 34
Receivable for Investments Sold 1,121
Dividends Receivable 487
Deferred Organization Costs 44
Other Assets 22 1,708
------------- --------------
- ----------------------------------------------------------------------------------
- ------------
LIABILITIES (-0.9%)
Payable for:
Investments Purchased (387)
U.S. Investment Advisory Fees (68)
Custodian Fees (64)
Shareholder Reporting Expenses (50)
Professional Fees (46)
Pakistani Investment Advisory Fees (25)
Directors' Fees and Expenses (16)
Administrative Fees (13)
Other Liabilities (40) (709)
------------- --------------
- ----------------------------------------------------------------------------------
- ------------
NET ASSETS (100%)
Applicable to 11,604,793 issued and outstanding U.S. $0.01 par
value shares (100,000,000 shares authorized) U.S.$ 83,029
-----------
- ----------------------------------------------------------------------------------
- ------------
NET ASSET VALUE PER SHARE U.S.$ 7.15
-----------
- ----------------------------------------------------------------------------------
- ------------
AT JUNE 30, 1996, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------------
Common Stock U.S.$ 116
Capital Surplus 164,095
Accumulated Net Investment Loss (403)
Accumulated Net Realized Loss (50,191)
Unrealized Depreciation on Investments and Foreign Currency
Translations (30,588)
- ----------------------------------------------------------------------------------
- ------------
TOTAL NET ASSETS U.S.$ 83,029
-----------
- ----------------------------------------------------------------------------------
- ------------
</TABLE>
+ -- Non-income producing.
** -- Security valued at fair value -- see note A-1 to financial statements.
GDR -- Global Depositary Receipt.
June 30, 1996 exchange rate -- Pakistani Rupee (PKR) 35.005 = U.S.$1.00
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
<S> <C>
- ---------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends............................................................................... U.S.$ 576
Interest................................................................................ 31
Less: Foreign Taxes Withheld............................................................ (81)
- ---------------------------------------------------------------------------------------------------------------
Total Income.......................................................................... 526
- ---------------------------------------------------------------------------------------------------------------
EXPENSES
U.S. Investment Advisory Fees........................................................... 411
Custodian Fees.......................................................................... 127
Pakistani Investment Advisory Fees...................................................... 122
Administrative Fees..................................................................... 79
Professional Fees....................................................................... 50
Shareholder Reporting Expenses.......................................................... 36
Directors' Fees and Expenses............................................................ 18
Transfer Agent Fees..................................................................... 7
Other Expenses.......................................................................... 52
- ---------------------------------------------------------------------------------------------------------------
Total Expenses........................................................................ 902
- ---------------------------------------------------------------------------------------------------------------
Net Investment Loss............................................................... (376)
- ---------------------------------------------------------------------------------------------------------------
NET REALIZED LOSS
Investment Securities Sold.............................................................. (27,946)
Foreign Currency Transactions........................................................... (324)
- ---------------------------------------------------------------------------------------------------------------
Net Realized Loss................................................................. (28,270)
- ---------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Depreciation on Investments............................................................. 35,440
Depreciation on Foreign Currency Translations........................................... 16
- ---------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation.................................... 35,456
- ---------------------------------------------------------------------------------------------------------------
Total Net Realized Loss and Change in Unrealized Appreciation/Depreciation.................. 7,186
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................... U.S.$ 6,810
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Loss................................................. U.S.$ (376) U.S.$ (356)
Net Realized Loss................................................... (28,270) (22,179)
Change in Unrealized Appreciation/Depreciation...................... 35,456 (33,673)
- ---------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations..... 6,810 (56,208)
- ---------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income............................................... -- (22)
In Excess of Net Investment Income.................................. -- (6)
Net Realized Gain................................................... -- (28)
- ---------------------------------------------------------------------------------------------------------------
Total Distributions................................................. -- (56)
- ---------------------------------------------------------------------------------------------------------------
Total Increase (Decrease)........................................... 6,810 (56,264)
Net Assets:
Beginning of Period................................................. 76,219 132,483
- ---------------------------------------------------------------------------------------------------------------
End of Period (including accumulated (distributions in excess of)
net investment income (loss) of U.S. $(403) and U.S. $(27),
respectively....................................................... U.S.$ 83,029 U.S.$ 76,219
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS YEAR ENDED DECEMBER 27,
ENDED DECEMBER 31, 1993* TO
JUNE 30, 1996 -------------------------------- DECEMBER 31,
SELECTED PER SHARE DATA AND RATIOS: (UNAUDITED) 1995 1994 1993
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.... U.S.$ 6.57 U.S.$ 11.42 U.S.$ 14.03 U.S.$ 14.10
- -------------------------------------------------------------------------------------------------------------------
Offering Costs.......................... -- -- (0.01) (0.07)
- -------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss)............ (0.03) (0.02) 0.02 --
Net Realized and Unrealized Gain (Loss)
on Investments......................... 0.61 (4.83) (2.78) --
- -------------------------------------------------------------------------------------------------------------------
Total From Investment Operations.... 0.58 (4.85) (2.76) --
- -------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income............... -- (0.00)# (0.02) --
In Excess of Net Investment
Income............................ -- (0.00)# (0.01) --
Net Realized Gain................... -- (0.00)# -- --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions................. -- (0.00)# (0.03) --
- -------------------------------------------------------------------------------------------------------------------
Increase in Net Asset Value due to
Repurchase of Shares................... -- -- 0.19 --
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......... U.S.$ 7.15 U.S.$ 6.57 U.S.$ 11.42 U.S.$ 14.03
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD... U.S.$ 6.75 U.S.$ 5.25 U.S.$ 9.00 U.S.$ 15.50
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value........................ 28.57% (41.63)% (41.76)% 9.93%
Net Asset Value (1)................. 8.83% (42.43)% (18.36)% (0.50)%
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS)... U.S.$83,029 U.S.$76,219 U.S.$132,483 U.S.$177,410
- -------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net
Assets................................. 2.20%** 2.20% 1.93% 2.51%**
Ratio of Net Investment Income (Loss) to
Average Net Assets..................... (0.92)%** (0.36)% 0.15% 0.41%**
Portfolio Turnover Rate................. 13% 15% 2% 0%
Average Commission Rate (2)............. U.S.$0.0082 N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
* Commencement of operations
** Annualized
# Amount is less than U.S.$0.01 per share
(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. 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.
(2) Beginning with fiscal year 1996, the Fund is required to disclose the average commission rate per share it paid
for portfolio trades on which commissions were charged during the period.
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
- ----------
The Pakistan Investment Fund, Inc. (the "Fund") was incorporated in Maryland
on January 14, 1992, and is registered as a non-diversified, closed-end
management investment company under the Investment Company Act of 1940, as
amended. The Fund's investment objective is long-term capital appreciation
through investments primarily in equity securities.
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 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. All other securities
and assets for which market values are not readily available (including
investments which are subject to limitations as to their sale) 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.
The Fund has been granted an exemption from taxation on gains realized on
sales of equity securities quoted on any Pakistani exchange. While this
exemption is applicable for an indefinite period, there is no assurance that
it will not be revoked in the future.
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 counterparty 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 Pakistani rupees 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 rate of exchange on the valuation date;
- investment transactions and investment income at
the prevailing rate 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 rate 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 the foreign exchange rate 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 forward foreign
currency exchange contracts, disposition of foreign currency, currency gains
or losses realized between the trade and settlement dates on securities
transactions, and 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) in the Statement of Net Assets. The change in
net unrealized currency gains (losses) for the period is reflected in the
Statement of Operations.
5. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into forward
foreign currency exchange contracts to attempt to protect securities and
related receivables and payables against changes in future foreign exchange
rates. A forward 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
10
<PAGE>
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 gains 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. 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-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 captial 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, net operating losses and 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 "U.S. Adviser") provides
investment advisory services to the Fund under the terms of an Investment
Advisory and Management Agreement (the "Agreement"). Under the Agreement, the
U.S. Adviser is paid a fee computed weekly and payable monthly at an annual rate
of 1.00% of the Fund's average weekly net assets.
C. International Asset Management Company Limited (the "Pakistani Adviser")
provides investment advice, research and assistance on behalf of the Fund to
Morgan Stanley Asset Management Inc. under terms of a contract. Under the
contract, the Pakistani Adviser is paid a fee computed weekly and paid monthly
at an annual rate of .30% of the Fund's average weekly net assets.
D. The Chase Manhattan Bank, through its affiliate Chase Global Funds Services
Company (the "Administrator"), provides administrative services to the Fund
under an Administration Agreement. Under the Administration Agreement, the
Administrator is paid a fee computed weekly and payable monthly at an annual
rate of .06% of the Fund's average weekly net assets, plus $100,000 per annum.
In addition, the Fund is charged certain out-of-pocket expenses by the
Administrator. The Chase Manhattan Bank, acts as custodian for the Fund's assets
held in the United States.
E. Morgan Stanley Trust Company (the "International Custodian"), an affiliate
of the Adviser, acts as custodian for the Fund's assets held outside the United
States in accordance with a Custody Agreement. International Custodian fees are
payable monthly based on Fund assets under custody plus an amount for each
transaction effected. For the six months ended June 30, 1996, international
custodian fees totaled $124,000, of which $63,000 was payable to the
International Custodian at June 30, 1996. In addition, for the six months ended
June 30, 1996, the Fund has incurred interest expense of $3,000 on balances with
the International Custodian.
F. During the six months ended June 30, 1996, the Fund made purchases and sales
totaling $10,264,000 and $10,687,000, respectively, of investment securities
other than long-term U.S. Government securities and short-term investments.
There were no purchases or sales of long-term U.S. Government securities. At
June 30, 1996, the U.S. Federal income tax cost basis of securities was
$110,599,000 and accordingly, net unrealized depreciation for U.S. Federal
income tax purposes was $30,575,000, of which $7,122,000 related to appreciated
securities and $37,697,000 related to depreciated securities. At December 31,
1995, the Fund had a capital loss carryforward for U.S. Federal income tax
purposes of approximately $11,037,000 available to offset future capital gains
which will expire on December 31, 2003. To the extent that capital gains are
offset, such gains will not be distributed to the shareholders. For the year
ended December 31, 1995, the Fund expects to defer to January 1, 1996 for U.S.
Federal income tax purposes, post-October capital losses of $10,879,000.
G. In connection with its organization and initial public offering of shares,
the Fund incurred $89,000 of organization costs. The organization costs are
being amortized on a straight line basis over a five year period beginning
December 27, 1993, the date the Fund commenced operations.
H. A significant portion of the Fund's net assets consist of equity securities
and currency denominated in Pakistani rupees. Changes in currency exchange rates
will affect the value of and investment income from such investments. Pakistani
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, Pakistani securities
11
<PAGE>
may be subject to substantial governmental involvement in the economy and
greater social, economic and political uncertainty.
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, 1996 totaled
$11,000 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 Pakistan Investment Fund, Inc. was held on June 5, 1996. 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
- --------------------------------------------------------------------------------- --------- ----------- ----------- -----------
<C> <S> <C> <C> <C> <C>
1. To elect the following Directors: Peter J. Chase........................... 7,341,653 -- 93,099 --
David B. Gill................................. 7,341,653 -- 93,099 --
Warren J. Olsen............................... 7,342,855 -- 91,898 --
2. To ratify the selection of Price Waterhouse LLP as independent public
accountants of the Fund.................................................... 7,386,363 25,291 -- 23,100
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS* (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------
NET REALIZED
GAIN (LOSS) AND NET INCREASE
CHANGE IN UNREALIZED (DECREASE) IN
NET ASSETS
INVESTMENT NET INVESTMENT APPRECIATION/ RESULTING FROM
INCOME INCOME (LOSS) DEPRECIATION OPERATIONS
------------------------ ---------------------- -------------------- --------------------
PER PER PER PER
QUARTER ENDED AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
- ------------------------------ ----------- ----------- ----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1996................. $ 345 $ 0.03 $ (87) $ (0.01) $ 3,796 $ 0.32 $ 3,709 $ 0.31
March 31, 1996................ 181 0.02 (289) (0.02) 3,390 0.29 3,101 0.27
----------- ----- ----- --------- --------- --------- --------- ---------
----------- ----- ----- --------- --------- --------- --------- ---------
Total..................... $ 526 $ 0.05 $ (376) $ (0.03) $ 7,186 $ 0.61 $ 6,810 $ 0.58
----------- ----- ----- --------- --------- --------- --------- ---------
----------- ----- ----- --------- --------- --------- --------- ---------
December 31, 1995............. $ 642 $ 0.06 $ 295 $ 0.03 $ (18,100) $ (1.56) $ (17,805) $ (1.53)
September 30, 1995............ 332 0.03 (229) (0.02) 1,160 0.09 931 0.07
June 30, 1995................. 541 0.05 (55) (0.00)# (8,688) (0.75) (8,743) (0.75)
March 31, 1995................ 275 0.02 (367) (0.03) (30,224) (2.61) (30,591) (2.64)
----------- ----- ----- --------- --------- --------- --------- ---------
Total..................... $ 1,790 $ 0.16 $ (356) $ (0.02) $ (55,852) $ (4.83) $ (56,208) $ (4.85)
----------- ----- ----- --------- --------- --------- --------- ---------
----------- ----- ----- --------- --------- --------- --------- ---------
December 31, 1994............. $ 384 $ 0.03 $ (485) $ (0.04) $ (28,410) $ (2.44) $ (28,895) $ (2.48)
September 30, 1994............ 698 0.06 (205) (0.02) 592 0.05 387 0.03
June 30, 1994................. 1,065 0.10 488 0.04 (5,051) (0.43) (4,563) (0.39)
March 31, 1994................ 1,204 0.10 438 0.04 701 0.04 1,139 0.08
----------- ----- ----- --------- --------- --------- --------- ---------
Total..................... $ 3,351 $ 0.29 $ 236 $ 0.02 $ (32,168) $ (2.78) $ (31,932) $ (2.76)
----------- ----- ----- --------- --------- --------- --------- ---------
----------- ----- ----- --------- --------- --------- --------- ---------
</TABLE>
- --------------------------------------------------------------------------------
* Expressed in thousands of U.S. dollars except per share amounts.
#Amount is less than $0.01 per share.
The Fund may purchase shares of its Common Stock in the open market at such
prices and in such amounts as the Board of Directors may deem advisable.
12
<PAGE>
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
each shareholder will be deemed to have elected, unless American Stock Transfer
& Trust Company (the "Plan Agent") is otherwise instructed by the shareholder in
writing, to have all distributions automatically reinvested in Fund shares.
Participants in the Plan have the option of making additional voluntary cash
payments to the Plan Agent, annually, in any amount from $100 to $3,000, for
investment in Fund shares.
Dividend and capital gain distributions will be reinvested on the
reinvestment date in full and fractional shares. If the market price per share
equals or exceeds net asset value per share on the reinvestment date, the Fund
will issue shares to participants at net asset value. If net asset value is less
than 95% of the market price on the reinvestment date, shares will be issued at
95% of the market price. If net asset value exceeds the market price on the
reinvestment date, participants will receive shares valued at market price. The
Fund may purchase shares of its Common Stock in the open market in connection
with dividend reinvestment requirements at the discretion of the Board of
Directors. Should the Fund declare a dividend or capital gain distribution
payable only in cash, the Plan Agent will purchase Fund shares for participants
in the open market as agent for the participants.
The Plan Agent's fees for the reinvestment of dividends and distributions
will be paid by the Fund. However, each participant's account will be charged a
pro rata share of brokerage commissions incurred on any open market purchases
effected on such participant's behalf. A participant will also pay brokerage
commissions incurred on purchases made by voluntary cash payments. Although
shareholders in the Plan may receive no cash distributions, participation in the
Plan will not relieve participants of any income tax which may be payable on
such dividends and distributions.
In the case of shareholders, such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are participating in the
Plan.
Participants who wish to withdraw from the Plan should notify the Plan Agent
in writing. There is no penalty for non-participation or withdrawal from the
Plan, and shareholders who have previously withdrawn from the Plan may rejoin at
any time. Requests for additional information or any correspondence concerning
the Plan should be directed to the Plan Agent at:
The Pakistan Investment Fund, Inc.
American Stock Transfer & Trust Company
Dividend Reinvestment and Cash Purchase Plan
40 Wall Street
New York, NY 10005
1-800-278-4353
13
