<PAGE>
THE PAKISTAN INVESTMENT FUND, INC.
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
Barton M. Biggs James W. Grisham
CHAIRMAN OF THE BOARD VICE PRESIDENT
OF DIRECTORS Harold J. Schaaff, Jr.
Michael F. Klein VICE PRESIDENT
PRESIDENT AND DIRECTOR Joseph P. Stadler
Peter J. Chase VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
John W. Croghan SECRETARY
DIRECTOR Joanna M. Haigney
David B. Gill TREASURER
DIRECTOR Belinda A. Brady
Graham E. Jones ASSISTANT TREASURER
DIRECTOR
John A. Levin
DIRECTOR
William G. Morton, Jr.
DIRECTOR
- --------------------------------------------------------------------------------
U.S. INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------------------------------------
PAKISTAN 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
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank
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, 1997
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the six months ended June 30, 1997, The Pakistan Investment Fund, Inc. (the
"Fund") had a total return, based on net asset value per share, of 19.71%
compared to 20.55% for the IFC Global Pakistan Total Return Index (the "Index").
For the one year ended June 30, 1997, the Fund had a total return, based on net
asset value per share, of -20.14% compared to -15.61% for the Index. For the
period from the Fund's commencement of operations on December 27, 1993 through
June 30, 1997, the Fund had a total return, based on net asset value per share,
of -59.36% compared with -38.88% for the Index. On June 30, 1997, the closing
price of the Fund's shares on the New York Stock Exchange was $5.25 representing
an 8.1% discount to the Fund's net asset value per share.
The Fund's relative under performance versus the IFC benchmark is directly
related to the increased concentration of the IFC Pakistan Index. Due to IRS
diversification restraints, the Fund is unable to fully match the IFC's
weightings in key holdings such as Hubco, Fauji and PSO. During periods of
economic slow down and market uncertainty such as that experienced in Pakistan
until very recently it is usual for the largest market cap stocks to fare better
than the broader market. However, as the economy improves and moves into a
higher growth phase, as we expect the Pakistan economy to do over the coming
12-18 months, the broader market not only catches up but tends to out-perform
the larger cap stocks. We believe that while the broader diversification of the
Fund was a disadvantage during the economic down cycle in terms of relative
performance to the IFC benchmark, in the expected up cycle this will lead to
relative out performance. We have already begun to see such results in our
performance relative to the local index. Compared to what we feel is the more
representative local Karachi Stock Exchange Index (KSE-100), the Fund
outperformed the benchmark by 3.7% for the half year.
Going forward, we feel that the Fund's portfolio is now well positioned to
capture the upside of the broader market as the government's structural reform
initiatives take form. The Fund's portfolio now covers not only the traditional
large cap holdings but selective mid size stocks as well -- with particular
emphasis on the banking, consumer goods and textile sectors.
With the end of fiscal year June 30, 1997 the full extent of the previous
administrations' economic mismanagement has become clear. Real GDP growth shrunk
to 3% from 6% a year earlier as industrial and agricultural growth stagnated. As
a result, tax revenue fell far short of the budget target causing the fiscal
budget deficit to rise to 6% of GDP. The previous government was forced to fund
this large gap through extensive borrowings from the domestic banking system
causing sharply higher interest rates.
The new government of Nawaz Sharif has embarked on a bold, albeit risky strategy
of reform. It has launched a series of supply side measures designed to foster
economic growth by reducing the tax burden on both the individual and corporate
sectors. The 1997/98 budget has not ignored the demand side either as it has
curtailed growth in government expenditure (the defense budget was cut in real
terms for the first time in the history of Pakistan). In sum, one can easily say
that the 1997/1998 budget was a revolutionary event; by not increasing taxes and
by keeping expenditures in check, the budget is effectively setting the stage
for a liquidity-induced recovery of the Pakistan economy.
In our first quarter report, we had identified several institutional reforms
which we believed essential to whatever reform-minded budget the government
planned to introduce. The government has now begun implementing most of these
reforms. Restructuring and downsizing of the public sector is now the top
priority of the government. The privatization process has resumed with the
successful divestment of Habib Credit & Exchange Bank, the proceeds of which
have gone to retire high cost domestic debt. Financial sector reform is now
underway and a new foreclosure law has been passed making it much easier for
banks to move against defaulters.
We believe that these policy initiatives, together with the fresh budget
initiatives, will allow the economy to stabilize over the coming 12-18 months by
restoring investor confidence, raising agricultural income, enhancing corporate
profitability and ultimately reducing the dual burdens of fiscal and current
account deficits.
While the headline budget targets seem optimistic (6% GDP growth and a budget
deficit of 5% of GDP), we feel that the IMF will lend support through its ESAF
loan program as long as the direction of reforms and progress in implementation
remain positive. If ESAF is in place by early in the fourth quarter of 1997,
Pakistan will become eligible for a host of general and project linked long term
concessional finance of up to US$ 3.5-4.0 billion over the next two years. These
inflows will go a long way towards boosting forex reserves and helping repay the
bulk of high cost short term borrowings due over the coming twelve months. With
2
<PAGE>
a bit of luck on the agricultural front, rising exports should then allow the
structural trade deficit to start narrowing. While there is some way to go
before it can be said that the Pakistan economy is once and for all out of its
current danger zone, we see compelling evidence the renewed emphasis on
structural reform is succeeding.
The most important development in the second quarter of 1997 has been the
increase in PTCL's (Pak Telecom) weight in the KSE-100 Index from 6% to 30%. The
government now seems aware of the importance of PTCL's performance in terms of
overall investor (especially foreign investor) sentiment. Recent tariff and tax
reforms announced in the budget have significantly improved its earnings outlook
leading to a 30% rerating of its stock price in the six weeks ended June 30,
1997. With further tariff reforms expected, we feel that PTCL, and with it the
stock market, will perform well in the second half of this year. Consequently we
have increased our weighting in PTCL from 11% to 17% to reflect both the higher
weighting as well as the improved earnings prospects for the company.
We have also made several other weighting changes. These include Lever Brothers
(from 2.5% to 4.2%), which, after its merger with Brooke Bond and a major
internal reorganization, will become the dominant force in tea and personal care
products, Muslim Commercial Bank (from 3.2% to 3.4%), the first privatized bank,
poised to show a massive earnings explosion starting in 1997; and Packages (from
0.7% to 1.4%), the premium packaging and paper company which has just completed
a significant capacity increase.
The Pakistan market as a whole has one of the most attractive valuations in the
region with 1998 forecast price to earnings multiple (PER) of 8 times and
consensus earnings growth estimates for 97-98 of over 30%. If, as we expect, the
ESAF facility is in place by the fourth quarter of 1997 the country risk premium
will fall and the potential devaluation risk will reduce leading to an upward
re-rating of the market. The Fund's portfolio is now well positioned to take
full advantage of this change in market sentiment.
Sincerely,
[SIGNATURE]
Michael F. Klein
PRESIDENT AND DIRECTOR
[SIGNATURE]
Landon Thomas
PORTFOLIO MANAGER
[SIGNATURE]
Madhav Dhar
PORTFOLIO MANAGER
[SIGNATURE]
Robert L. Meyer
PORTFOLIO MANAGER
July 1997
- --------------------------
Robert L. Meyer has assumed the co-portfolio manager responsibilities of the
Fund from Marianne L. Hay, effective April 1, 1997. Mr. Meyer is a Managing
Director of Morgan Stanley Asset Management Inc. and co-manager of MSAM's global
emerging market equity portfolios.
Madhav Dhar has also assumed the co-portfolio manager responsibilities of the
Fund effective April 1, 1997. Mr. Dhar is a Managing Director of Morgan Stanley
Asset Management Inc. and chief portfolio manager of MSAM's global emerging
market equity portfolios.
3
<PAGE>
The Pakistan Investment Fund, Inc.
Investment Summary as of June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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>
FISCAL YEAR TO DATE 2.44% -- 19.71% -- 20.55% --
ONE YEAR -22.22 -22.22% -20.14 -20.14% -15.61 -15.61%
SINCE INCEPTION* -62.63 -24.96 -59.36 -22.63 -38.88 -13.07
</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,
1993* 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Net Asset Value Per Share $ 14.03 $ 11.42 $ 6.57 $ 4.77 $ 5.71
Market Value Per Share $15.50 $9.00 $5.25 $ 5.13 $ 5.25
Premium/(Discount) 10.5% -21.2% -20.1% 7.5% -8.1%
Income Dividends - $0.03 $0.00# - -
Capital Gains Distributions - - $0.00# - -
Fund Total Return (2) -0.50% -18.36% -42.43% -27.40% 19.71%
Index Total Return (3) N/A -8.51% -31.14% -19.46% 20.55%
</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, including dividends.
* The Fund commenced operations on December 27, 1993.
# Amount is less than $0.01 per share.
4
<PAGE>
The Pakistan Investment Fund, Inc.
Investment Summary as of June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 97.1%
Short-Term Investments 2.9%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Automobiles 2.3%
Banking 8.7%
Chemicals 17.0%
Energy Sources 14.7%
Financial Services 0.8%
Forest Products & Paper 2.8%
Health & Personal Care 4.2%
Insurance 1.6%
Telecommunications 16.7%
Textiles & Apparel 6.1%
Utilities - Electrical &
Gas 22.7%
Other 2.4%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
-------------
<C> <S> <C>
1. Pakistan Telecommunications Corp. 16.7%
2. Hub Power Co. 14.9
3. Pakistan State Oil Co., Ltd. 11.8
4. Fauji Fertilizer Co., Ltd. 8.9
5. Engro Chemicals Ltd. 6.2
<CAPTION>
PERCENT OF
NET ASSETS
-------------
<C> <S> <C>
6. Lever Brothers 4.2%
7. Sui Northern Gas Co. 4.1
8. Sui Southern Gas Co. 3.8
9. Faysal Bank Ltd. 3.5
10. Muslim Commercial Bank Ltd. 3.4
-------------
77.5%
-------------
-------------
</TABLE>
5
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS (UNAUDITED)
- ---------
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -----------------------------------------------------------------
- -------------
COMMON STOCKS (97.6%)
(Unless otherwise noted)
- -----------------------------------------------------------------
- -------------
APPLIANCES & HOUSEHOLD DURABLES (0.0%)
(a)Pel Appliances Ltd. 110 U.S.$ --@
--------------
- -----------------------------------------------------------------
- -------------
AUTOMOBILES (2.3%)
Indus Motor Co. 2,500 1
Pak Suzuki Motor Co., Ltd. 1,236,000 1,529
--------------
1,530
--------------
- -----------------------------------------------------------------
- -------------
BANKING (8.7%)
(a)Askari Bank 1,642,638 1,128
Faysal Bank Ltd. 3,510,650 2,332
(a)Muslim Commercial Bank Ltd. 2,816,270 2,282
--------------
5,742
--------------
- -----------------------------------------------------------------
- -------------
BUILDING MATERIALS & COMPONENTS (0.0%)
(a)Dandot Cement Co. (Rights) 62 --@
--------------
- -----------------------------------------------------------------
- -------------
CHEMICALS (17.0%)
Engro Chemicals Ltd. 1,159,743 4,103
Fauji Fertilizer Co., Ltd. 2,984,000 5,869
(a)Fauji Jordan Fertilizer Co., Ltd. 3,391,500 1,292
--------------
11,264
--------------
- -----------------------------------------------------------------
- -------------
ENERGY SOURCES (14.7%)
Pakistan Oilfields Ltd. 471,462 850
Pakistan State Oil Co., Ltd. 970,600 7,816
Shell Pakistan Ltd. 181,900 1,058
--------------
9,724
--------------
- -----------------------------------------------------------------
- -------------
FINANCIAL SERVICES (0.8%)
Orix Leasing 520,090 508
Trust Modaraba Ltd. 180 --@
--------------
508
--------------
- -----------------------------------------------------------------
- -------------
FOREST PRODUCTS & PAPER (2.8%)
Century Paper & Board 2,071,465 897
(a)Packages Ltd. 610,700 937
--------------
1,834
--------------
- -----------------------------------------------------------------
- -------------
HEALTH & PERSONAL CARE (4.2%)
Lever Brothers 139,180 2,789
--------------
- -----------------------------------------------------------------
- -------------
INDUSTRIAL COMPONENTS (0.0%)
(a)General Tyres & Rubber Co. 56,900 23
--------------
- -----------------------------------------------------------------
- -------------
INSURANCE (1.6%)
Adamjee Insurance Co., Ltd. 473,165 1,065
--------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -----------------------------------------------------------------
- -------------
TELECOMMUNICATIONS (16.7%)
Pakistan Telecommunications
Corp. 'A' 11,924,600 U.S.$ 9,072
(a)Pakistan Telecommunications Corp.
GDS (Euro) 26,650 2,012
--------------
11,084
--------------
- -----------------------------------------------------------------
- -------------
TEXTILES & APPAREL (6.1%)
(b)Artistic Denim Mills (IPO) 1,250,000 526
(a)Crescent Textile Mills Ltd. 1,262,184 490
Gadoon Textile Mills 670,000 555
(a)Ibrahim Fibre Ltd. 2,000,000 408
(a)Nishat Mills Ltd. 4,190,911 2,074
(a)Saif Textiles 100 --@
--------------
4,053
--------------
- -----------------------------------------------------------------
- -------------
UTILITIES -- ELECTRICAL & GAS (22.7%)
(a)Hub Power Co. 9,731,000 9,847
(a)Karachi Electric Supply Corp. 157,500 47
Nishat Tek Ltd. 100 --@
Nishat Tek Ltd. (Rights) 17 --@
(a)Sui Northern Gas Co. 3,444,192 2,705
Sui Southern Gas Co. 3,543,863 2,499
--------------
15,098
--------------
- -----------------------------------------------------------------
- -------------
TOTAL COMMON STOCKS
(Cost U.S. $86,619) 64,714
--------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (2.9%)
Pakistani Rupee
(Cost U.S. $1,938) PKR 78,214 1,935
--------------
- -----------------------------------------------------------------
- -------------
TOTAL INVESTMENTS (100.5%)
(Cost U.S. $88,557) 66,649
--------------
- -----------------------------------------------------------------
- -------------
OTHER ASSETS (4.4%)
Receivable for Investments Sold U.S.$ 2,298
Dividends Receivable 521
Deferred Organization Costs 26
Other Assets 52 2,897
--------------- --------------
- -----------------------------------------------------------------
- -------------
LIABILITIES (-4.9%)
Payable for:
Bank Overdraft (2,176)
Investments Purchased (798)
Custodian Fees (66)
Investment Advisory Fees (53)
Shareholder Reporting Expenses (51)
Professional Fees (41)
Directors' Fees and Expenses (29)
Pakistani Investment Advisory Fees (20)
Administrative Fees (12)
Other Liabilities (7) (3,253)
--------------- --------------
- -----------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
VALUE
(000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
NET ASSETS (100%)
Applicable to 11,604,792, issued and outstanding U.S.
$0.01 par value shares (100,000,000 shares
authorized) U.S.$ 66,293
--------------
--------------
- -----------------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S.$ 5.71
--------------
--------------
- -----------------------------------------------------------------
- -------------
AT JUNE 30, 1997, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------
Common Stock U.S.$ 116
Capital Surplus 163,055
Undistributed Net Investment Income 108
Accumulated Net Realized Loss (75,066)
Unrealized Depreciation on Investments and Foreign
Currency Translations (21,920)
- -----------------------------------------------------------------
- -------------
TOTAL NET ASSETS U.S.$ 66,293
--------------
--------------
- -----------------------------------------------------------------
- -------------
</TABLE>
(a) -- Non-income producing.
(b) -- Security valued at fair value - see note A-1 to financial statements.
GDS -- Global Depositary Shares.
IPO -- Initial Public Offering.
@ -- Amount is less than U.S.$500
<TABLE>
<S> <C> <C>
- ----------------------------------------------------
- -------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange
contracts open at June 30, 1997, the Fund is
obligated to deliver or is to receive foreign
currency in exchange for U.S. dollars as
indicated below:
</TABLE>
<TABLE>
<CAPTION>
CURRENCY IN NET
TO EXCHANGE UNREALIZED
DELIVER SETTLEMENT FOR VALUE GAIN (LOSS)
(000) DATE (000) (000) (000)
- --------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
U.S.$209 7/2/97 PKR 8,429 U.S.$209 U.S.$--
- --------- --------- -----------
- --------- --------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
<S> <C>
- ---------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends............................................................................... U.S.$ 998
Interest................................................................................ 27
Less: Foreign Taxes Withheld............................................................ (150)
- ---------------------------------------------------------------------------------------------------------------
Total Income.......................................................................... 875
- ---------------------------------------------------------------------------------------------------------------
EXPENSES
U.S. Investment Advisory Fees........................................................... 321
Pakistani Investment Advisory Fees...................................................... 96
Custodian Fees.......................................................................... 91
Administrative Fees..................................................................... 73
Shareholder Reporting Expenses.......................................................... 54
Professional Fees....................................................................... 45
Directors' Fees and Expenses............................................................ 24
Amortization of Organization Costs...................................................... 9
Transfer Agent Fees..................................................................... 6
Other Expenses.......................................................................... 12
- ---------------------------------------------------------------------------------------------------------------
Total Expenses........................................................................ 731
- ---------------------------------------------------------------------------------------------------------------
Net Investment Income............................................................. 144
- ---------------------------------------------------------------------------------------------------------------
NET REALIZED LOSS
Investment Securities Sold.............................................................. (6,347)
Foreign Currency Transactions........................................................... (110)
- ---------------------------------------------------------------------------------------------------------------
Net Realized Loss................................................................. (6,457)
- ---------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Depreciation on Investments............................................................. 17,169
Depreciation on Foreign Currency Translations........................................... 38
- ---------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation.................................... 17,207
- ---------------------------------------------------------------------------------------------------------------
Total Net Realized Loss and Change in Unrealized Appreciation/Depreciation.................. 10,750
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................... U.S.$ 10,894
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income (Loss)........................................ U.S.$ 144 U.S.$ (465)
Net Realized Loss................................................... (6,457) (47,272)
Change in Unrealized Appreciation/Depreciation...................... 17,207 26,917
- ---------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations..... 10,894 (20,820)
- ---------------------------------------------------------------------------------------------------------------
Total Increase (Decrease)........................................... 10,894 (20,820)
Net Assets:
Beginning of Period................................................. 55,399 76,219
- ---------------------------------------------------------------------------------------------------------------
End of Period (including undistributed net investment income (loss)
of U.S. $108 and U.S. $(36), respectively.)........................ U.S.$ 66,293 U.S.$ 55,399
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS DECEMBER 27,
ENDED YEAR ENDED DECEMBER 31, 1993* TO
JUNE 30, 1997 ------------------------------------------------ DECEMBER 31,
SELECTED PER SHARE DATA AND RATIOS: (UNAUDITED) 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD.............................. U.S.$ 4.77 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)......... 0.01 (0.04) (0.02) 0.02 --#
Net Realized and Unrealized Gain
(Loss) on Investments............... 0.93 (1.76) (4.83) (2.78) --
- ---------------------------------------------------------------------------------------------------------------------------
Total From Investment
Operations..................... 0.94 (1.80) (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.$ 5.71 U.S.$ 4.77 U.S.$ 6.57 U.S.$ 11.42 U.S.$ 14.03
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF
PERIOD.............................. U.S.$ 5.25 U.S.$ 5.13 U.S.$ 5.25 U.S.$ 9.00 U.S.$ 15.50
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value..................... 2.44% (2.38)% (41.63)% (41.76)% 9.93%
Net Asset Value (1).............. 19.71% (27.40)% (42.43)% (18.36)% (0.50)%
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(THOUSANDS)......................... U.S.$ 66,293 U.S.$ 55,399 U.S.$ 76,219 U.S.$ 132,483 U.S.$ 177,410
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net
Assets.............................. 2.28%** 2.30% 2.20% 1.93% 2.51%**
Ratio of Net Investment Income (Loss)
to Average Net Assets............... 0.45%** (0.63)% (0.36)% 0.15% 0.41%**
Portfolio Turnover Rate.............. 17% 28% 15% 2% 0%
Average Commission Rate (2):
Per Share.......................... U.S.$ 0.0073 U.S.$ 0.0077 N/A N/A N/A
As a Percentage of Trade Amount.... 0.83% 1.02% 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 per share of the Fund.
(2)For fiscal years beginning on or after September 1, 1995, a 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, 1997 (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 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) on investments and foreign currency translations
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. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into foreign
currency exchange contracts to attempt to protect securities and related
receivables and payables against changes in future foreign
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<PAGE>
exchange rates. A 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 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, 1997, international
custodian fees totaled $88,000 of which $63,000 was payable to the International
Custodian at June 30, 1997. In addition, for the six months ended June 30,
1997,the Fund has incurred interest expense of $2,000 on balances with the
International Custodian.
F. During the six months ended June 30, 1997, the Fund made purchases and sales
totaling $10,763,000 and $10,500,000, 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, 1997, the U.S. Federal income tax cost basis of securities was
$86,619,000 and accordingly, net unrealized depreciation for U.S. Federal income
tax purposes was $21,905,000, of which $3,507,000 related to appreciated
securities and $25,412,000 related to depreciated securities. At December 31,
1996, the Fund had a capital loss carryforward for U.S. Federal income tax
purposes of approximately $68,246,000 available to offset future capital gains
in which $11,037,000 will expire on December 31, 2003, and $57,209,000 will
expire on December 31, 2004. To the extent that capital gains are offset, such
gains will not be distributed to the shareholders.
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
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<PAGE>
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 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, 1997 totaled
$22,000 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 April 30, 1997. 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
- ------------------------------------------------------------------------------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C>
1. To elect the following Directors: John W. Croghan 7,815,386 172,136 -- --
Graham E. Jones 7,815,386 172,136 -- --
2. To ratify the selection of Price Waterhouse LLP as independent public
accountants of the Fund. 7,880,655 91,242 -- 15,625
3. To approve or disapprove an Investment Advisory and Management Agreement
between the Fund and Morgan Stanley Asset Management Inc. 7,815,431 148,612 -- 23,479
4. To approve or disapprove an Investment Advisory Agreement between the Fund,
Morgan Stanley Asset Management Inc. and International Asset Management
Company Limited. 7,869,250 96,995 -- 21,277
</TABLE>
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
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