<PAGE>
THE PAKISTAN INVESTMENT FUND, INC.
---------------------------------------------
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS J. Antonio Quila
Frederick B. Whittemore DIRECTOR
VICE CHAIRMAN OF THE BOARD OF Altaf M. Saleem
DIRECTORS DIRECTOR
Warren J. Olsen James W. Grisham
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 Joanna M. Haigney
DIRECTOR 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.
---------------------
FIRST QUARTER REPORT
MARCH 31, 1996
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the three months ended March 31, 1996, The Pakistan Investment Fund, Inc.
had a total return, based on net asset value per share, of 4.11% compared to
6.00% for the IFC Index for Pakistan. For the period since the Fund's
commencement of operations on December 27, 1993, the Fund's total return based
on net asset value per share is -51.31% compared with -33.22% for the Index. On
March 29, 1996, the closing price of the Fund's shares on the New York Stock
Exchange was $6.25, representing an 8.6% discount to the Fund's net asset value
per share.
Despite outperformance by our top-weighted stocks -- Fauji Fertilizer, Hubco,
Sui North and Pakistan State Oil -- our portfolio slightly underperformed the
market's rally. The first quarter of 1996 proved to be a particularly volatile
one for the Pakistan market. The Karachi Stock Exchange (KSE) shot up by 15%
during January and February, spurred by an improving macroeconomic climate and
fresh inflows of foreign funds. Surprisingly, the Index retraced just about all
of its gains during the month of March as local investors feared that the highly
touted money from abroad would not be as substantial as originally expected. The
upshot, however, is positive as the compelling fundamentals behind the market's
rise early this year are still in place.
Of primary significance for the market this year is the cotton crop. In line
with our expectations, it does seem certain now that Pakistan's 1996 June crop
will be its best since 1992 -- on the order of close to 11 million bales. After
three years of marginal crops, this is no small news and the economy, on both a
micro and macro level, will benefit as a result. GDP growth for 1996 should be
at least 6% -- again a three-year high -- and the improved revenue collection
from the pick-up in the economy will keep the budget deficit beneath 5% of GDP
- -- in line with IMF expectations. A tighter interest rate policy and improved
agricultural production will also help inflation with the 1996 rate expected at
around 11% -- down from 13% six months ago.
These are all very encouraging signs and indicate significant macroeconomic
progress being made over the past year. Perhaps more encouraging are the recent
strides made by the government with regard to its privatization program. For
over a year now, we have been emphasizing the importance of privatization for
Pakistan. While the government's commitment to the process has been impressive,
the real variable has been the degree to which foreign investors would
participate in the program. Over the past two years, Pakistan has become ever
more reliant on foreign capital flows -- especially the indirect variety. As the
Mexican experience demonstrated, these flows can be fickle and tend to be medium
to short term in nature. In fact, much of the 1993 market rally for the KSE was
propelled by foreign money and its hasty exit in early 1994 precipitated what
eventually became a two year bear market.
Thus, the government's recent sale of the Kot Addu electrical power utility to
Britain's National Power for a much better than expected $215 million will be a
big boost to what had been an ailing privatization program. Kot Addu was
certainly not at the top of the list quality-wise, and foreign interest for such
an ambitious project will make the disposals of PTC (the telecom monopoly), Sui
North and Sui South (gas distributors) and KESC (electrical utility) seem easy
by comparison. These assets -- all of them quoted on the KSE -- could bring
close to $2 billion in revenues to the government over the next three years --
no small figure, given the current level of $1.7 billion in foreign reserves.
Thus, this sale demonstrates that despite much of the bad press Pakistan has
been receiving over the past two years, direct foreign investors are still
willing to commit resources to the country.
Going forward, the Kot Addu sale is sure to spark interest not only in the
government's other privatization candidates but in the broader market as a
whole. Companies like Sui North, Sui South, PTC and KESC -- comprising 21% of
PKF's investment portfolio -- are both profitable as well as being attractive on
an NAV basis and will be at the forefront of any market rally this year. On the
corporate side, prospects are also
2
<PAGE>
improving. After two years of stagnant earnings growth, 1997 (Pakistan's fiscal
year ends June 1996) is set to be a strong year for EPS growth. By then, many
companies will be reaping the benefits of 1996's good growth year, with special
emphasis on the textile and fertilizer sectors. The bear market in Pakistan has
been a long and arduous one; but at current levels -- 8.5X 1997 estimated
earnings underpinned by 30% EPS growth -- the market looks to be one of the
cheapest in Asia. We expect then that further developments on the privatization
front, along with solid corporate earnings growth, will spur the Index back up
to the 1900 range -- a 22% percent increase from the current levels.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT AND DIRECTOR
[SIGNATURE]
Marianne L. Hay
SENIOR PORTFOLIO MANAGER
[SIGNATURE]
Landon Thomas
PORTFOLIO MANAGER
April 25, 1996
3
<PAGE>
The Pakistan Investment Fund, Inc.
Investment Summary as of March 31, 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 19.05% -- 4.11% -- 6.00% --
ONE YEAR -3.78 -3.78% -22.04 -22.04% -10.51 -10.51%
SINCE INCEPTION* -55.51 -30.12 -51.31 -27.27 -33.22 -16.43
</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: THREE MONTHS
ENDED MARCH 31,
1996
1993* 1994 1995 (UNAUDITED)
<S> <C> <C> <C> <C>
Net Asset Value Per Share $ 14.03 $ 11.42 $ 6.57 $ 6.84
Market Value Per Share $15.50 $9.00 $5.25 $ 6.25
Premium/(Discount) 10.5% -21.2% -20.1% -8.6%
Income Dividends - $0.03 $0.00# -
Cap Gains Distributions - - $0.00# -
Fund Total Return (2) -0.50% -18.36% -42.43% 4.11%
Index Total Return
(1)(3)** N/A -8.51% -31.14% 6.00%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. 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.
** Unaudited
# Amount is less than $0.01 per share.
4
<PAGE>
The Pakistan Investment Fund, Inc.
Portfolio Summary as of March 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 97.7%
Short-Term Investments 2.3%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Appliances & Household Durables 2.4%
Banking 6.1%
Building Materials & Components 5.4%
Chemicals 21.7%
Energy Sources 11.0%
Financial Services 4.8%
Forest Products & Paper 4.4%
Telecommunications 11.5%
Textiles & Apparel 8.9%
Utilities - Electrical & Gas 17.2%
Other 6.6%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
-------------
<C> <S> <C>
1. Fauji Fertilizer Co., Ltd. 12.6%
2. Pakistan Telecommunications 11.3
3. Pakistan State Oil Co., Ltd. 9.8
4. Hub Power Co., Ltd. GDR 7.1
5. Sui Northern Gas Co. 5.3
<CAPTION>
PERCENT OF
NET ASSETS
-------------
<C> <S> <C>
6. Nishat Mills Ltd. 4.3%
7. Engro Chemicals Ltd. 3.8
8. Sui Southern Gas Co. 3.5
9. D.G. Khan Cement Ltd. 2.8
10. Fauji Jordan Fertilizer Co., Ltd. 2.7
-----
63.2%
-----
-----
</TABLE>
5
<PAGE>
INVESTMENTS (UNAUDITED)
- ---------
MARCH 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
PAKISTANI COMMON STOCKS (97.5%)
(Unless otherwise noted)
- --------------------------------------------------
- ----------
APPLIANCES & HOUSEHOLD DURABLES (2.4%)
Pel Appliances Ltd. 814,010 U.S.$ 1,936
------------
- -----------------------------------------------------------
- -------------
AUTOMOBILES (0.0%)
Indus Motor Co. 5,000 3
------------
- -----------------------------------------------------------
- -------------
BANKING (6.1%)
Askari Commercial Bank 809,200 774
Bankers Equity Ltd. 633,520 349
Faysal Bank Ltd. 2,383,150 1,952
First International
Investment Bank Ltd. 220,000 124
Muslim Commercial Bank Ltd. 1,558,475 1,627
------------
4,826
------------
- -----------------------------------------------------------
- -------------
BUILDING MATERIALS & COMPONENTS (5.4%)
Cherat Cement Ltd. 799,200 776
D. G. Khan Cement Ltd. 3,722,550 2,159
D. G. Khan Cement Ltd.
(Rights) 1,232,715 71
Dadabhoy Cement (Rights) 686,450 239
Dandot Cement Co. 285,000 83
Dandot Cement Co. (Rights) 339,062 98
Pakland Cement 795,600 554
Pakland Cement Ltd. (Rights) 841,300 342
------------
4,322
------------
- -----------------------------------------------------------
- -------------
CHEMICALS (21.7%)
Engro Chemicals Ltd. 702,000 3,012
Fauji Fertilizer Co., Ltd. 4,619,000 10,012
Fauji Jordan Fertilizer Co.
Ltd. 7,500,000 2,175
ICI Pakistan Ltd. (Rights) 495,000 829
Sitara Chemicals Industries 689,630 1,200
------------
17,228
------------
- -----------------------------------------------------------
- -------------
ELECTRICAL & ELECTRONICS (1.3%)
Pak Electronics 1,031,246 1,017
------------
- -----------------------------------------------------------
- -------------
ENERGY SOURCES (11.0%)
Pakistan Oilfields Ltd. 377,170 979
Pakistan State Oil Co., Ltd. 882,518 7,754
------------
8,733
------------
- -----------------------------------------------------------
- -------------
FINANCIAL SERVICES (4.8%)
Atlas BOT Lease Co. (Rights) 302,500 259
Atlas BOT Lease Ltd. 605,000 517
First Punjab Modaraba 12,480 2
LTV Capital Modaraba 492,000 67
National Development Leasing
Corp. 2,495,068 1,194
Orix Leasing Pakistan Ltd. 520,590 951
PIL Corporation Ltd. 1,180,200 753
Trust Modaraba 147,500 27
------------
3,770
------------
- -----------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
FOOD & HOUSEHOLD PRODUCTS (1.2%)
Haseeb Waqas Sugar 3,240,000 U.S. $ 470
Lever Brothers 20,180 456
------------
926
------------
- -----------------------------------------------------------
- -------------
FOREST PRODUCTS & PAPER (4.4%)
Century Paper & Board 1,883,150 1,939
Packages Ltd. 441,200 1,535
------------
3,474
------------
- -----------------------------------------------------------
- -------------
INDUSTRIAL COMPONENTS (0.3%)
General Tyres & Rubber Co. 242,000 239
------------
- -----------------------------------------------------------
- -------------
INSURANCE (1.3%)
Adamjee Insurance Co., Ltd. 262,526 1,020
------------
- -----------------------------------------------------------
- -------------
TELECOMMUNICATIONS (11.5%)
Pakistan Telecommunications 45,000 4,580
Pakistan Telecommunications
GDR 44,950 4,405
T.F. Payphones Ltd. 350,000 128
------------
9,113
------------
- -----------------------------------------------------------
- -------------
TEXTILES & APPAREL (8.9%)
Artistic Denim Mills 1,250,000 616
Crescent Textile Mills Ltd. 1,147,440 799
Dewan Salman Fibre 63,750 84
Gadoon Textile Mills 670,000 816
Kohinoor Industries 904,594 223
Mohib Exports 35,600 3
Mohib Textile 200 --
Nishat Mills Ltd. 4,190,911 3,403
Pakistan Synthetic 271,500 124
Saif Textiles 704,722 577
Saif Textiles (Rights) 160,164 62
Zahur Textile Mills 2,130,000 123
Zahur Textile Mills (Rights) 4,400,000 255
------------
7,085
------------
- -----------------------------------------------------------
- -------------
UTILITIES -- ELECTRICAL & GAS (17.2%)
Hub Power Co., Ltd. GDR 6,663,500 5,633
Ibrahim Energy 98,000 47
Karachi Electric Supply
Corp. 1,155,000 971
Kohinoor Power Co., Ltd. 45,950 23
Nishat Tek Ltd. 586 --
Nishat Tek Ltd. (Rights) 17 --
Sui Northern Gas Co. 3,999,536 4,164
Sui Southern Gas Co. 3,026,137 2,808
------------
13,646
------------
- -----------------------------------------------------------
- -------------
TOTAL PAKISTANI COMMON STOCKS
(Cost U.S.$125,760) 77,338
------------
- -----------------------------------------------------------
- -------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (2.3%)
Pakistani Rupees
(Cost U.S. $1,861) PKR 64,091 U.S.$ 1,858
------------
- -----------------------------------------------------------
- -------------
TOTAL INVESTMENTS (99.8%)
(Cost U.S. $127,621) 79,196
------------
- -----------------------------------------------------------
- -------------
OTHER ASSETS AND LIABILITIES (0.2%)
Other Assets U.S.$ 439
Liabilities (315) 124
------------- ------------
- -----------------------------------------------------------
- -------------
NET ASSETS (100%)
Applicable to 11,604,792, issued and
outstanding U.S. $0.01 par value shares
(100,000,000 shares authorized) U.S.$ 79,320
-------------
- -----------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S.$ 6.84
-------------
- -----------------------------------------------------------
- -------------
<FN>
GDR -- Global Depositary Receipt
</TABLE>
7
