<PAGE>
THE PAKISTAN INVESTMENT FUND, INC.
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
Barton M. Biggs James W. Grisham
CHAIRMAN OF THE BOARD VICE PRESIDENT
OF DIRECTORS Michael F. Klein
Warren J. Olsen VICE PRESIDENT
PRESIDENT AND DIRECTOR Harold J. Schaaff, Jr.
Peter J. Chase VICE PRESIDENT
DIRECTOR Joseph P. Stadler
John W. Croghan VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
David B. Gill SECRETARY
DIRECTOR James R. Rooney
Graham E. Jones TREASURER
DIRECTOR Belinda A. Brady
John A. Levin ASSISTANT TREASURER
DIRECTOR
William G. Morton, Jr.
DIRECTOR
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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
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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.
----------------------------------
FIRST QUARTER REPORT
MARCH 31, 1997
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the three months ended March 31, 1997, The Pakistan Investment Fund, Inc.
(the "Fund") had a total return, based on net asset value per share, of 18.24%
compared to 21.22% for the IFC Global Pakistan Total Return Index (the "Index").
For the one year ended March 31, 1997, the Fund had a total return, based on net
asset value per share, of -17.54% compared to -7.89% for the Index. For the
period from the Fund's commencement of operations on December 27, 1993 through
March 31, 1997, the Fund had a total return, based on net asset value per share,
of -59.85% compared with -38.49% for the Index. On March 31, 1997, the closing
price of the Fund's shares on the New York Stock Exchange was $5.25 representing
a 6.9% discount to the Fund's net asset value per share.
Over the quarter, as the market's rally was mostly retail driven, small caps in
textile (overweight), cement (underweight), banking (overweight) and synthetics
(underweight) sectors outperformed. Larger cap issues, where we are overweight
(fertilizer, telecommunications, oil and gas), underperformed slightly due to
lack of institutional support.
Following its post-election high of 1775, the market weakened in February and
March due to uncertainties regarding external debt repayments and the Pakistan
stock market entered a narrow trading range of 1500-1600. Investors are waiting
to see how the macro economic picture shapes up prior to the June budget and
importantly, how the International Monetary Fund (IMF) reacts to the reform
initiatives being introduced by the new government.
While short-term concerns regarding foreign exchange reserves, the government's
cash crunch, and higher than expected budget and current account deficits will
continue, these maladies are the result of past mismanagement and are now being
addressed by the new reform minded government of Nawaz Sharif. If the new budget
builds on the government's already emphasized supply-side theme and contains
credible elements of greater fiscal discipline, investor confidence will be
revived significantly. We feel that the IMF will respond positively to the
government's policy initiatives. While we rule out a default by Pakistan, there
is a likelihood of some form of restructuring of Pakistan's long term debt in
fiscal 1997-98. Such an arrangement should remove the uncertainty regarding
foreign exchange reserves and attract investors back into the market.
A fundamental change has taken place in Pakistan's body-politic during the
February elections. The success of any economic reform program is very much
dependent on political strength and the will to push forward with unpopular
measures. The coalition of parties led by Nawaz Sharif's PML (N) -- which swept
the elections on February 3rd with an overwhelming majority of 80% -- will thus
be in a unique position to kickstart economic reform. Despite a low turnout, a
decisive power-shift is occurring in Pakistan's politics from the feudal elite
to the urban-entrepreneurial class. This evolutionary shift has been
long-delayed due to vested interests it is likely to accelerate in the future
carrying positive ramifications for the reform process in Pakistan.
With such a huge majority and following annulment of the notorious eighth
amendment (a provision allowing the President to dismiss parliament), the Nawaz
Sharif government is arguably the strongest elected administration in the
post-independence history of the subcontinent. It is this new threshold where
Pakistan stands today which makes us believe that reforms finally have a real
chance of being successfully implemented. After several years of stagnation,
industrial growth is now likely to get a boost with pro-business and investment
friendly policies being adopted by the new administration. Furthermore, the
large parliamentary majority at the federal as well as provincial levels, and
the consensus driven approach adopted by Premier Sharif -- exemplified by the
unanimous support given by Parliament to his bill repealing the eighth amendment
of the constitution -- means that investors can look ahead to a period of much
greater political stability. Current valuations by no means take into
consideration the huge potential for successful reforms and the ensuing balanced
growth over the coming years.
While some observers have expressed fears that the removal of the controversial
eighth amendment makes Pakistan more susceptible to potential martial law if a
political crisis occurs in the future, we believe that the army is content to
stay out of politics and let the elected government implement economic policies
which lead to sustained economic growth. We therefore think that the future
political outlook is considerably more stable than at any time since the ending
of martial law in the late eighties. In fact, political and economic stability
was the missing factor that had continually led investors to discount Pakistani
equities, despite strong corporate sector fundamentals. Going forward, this
means that the focus of investors will now remain primarily on macro-economic
issues.
2
<PAGE>
Since coming to power the new government has moved swiftly to tackle the
economic problems confronting the country. It has taken a supply-side oriented
route and is focusing on fundamental reforms rather than cosmetic policy changes
with tax and tariff cuts leading the way.
Such reforms are indeed laudable. However what is equally, if not more,
important is how and with what speed the new government embarks upon
institutional reforms which can facilitate meaningful implementation of the
overall structural reform program. The following reform initiatives are on the
government's agenda:
1. Reorganization and restructuring of public sector organizations
2. Speeding up the derailed privatization process
3. Overhauling of the financial sector
4. Revamping the tax system
5. Boosting exports and attracting direct investment
Reforms such as these go to the very core of what has ailed Pakistan over the
past ten years and success in their implementation will ease the fiscal and
external imbalances which have plagued past reform-minded governments.
Despite the improved reform outlook, the market has remained nervous -- not so
much from a lack of trust in the incoming government's reform commitment -- but
more due to concerns over existing macro economic issues. To be sure, the
government will have its hands full in coping with the multifold challenges of
reducing the budget and current account deficits, boosting foreign exchange
reserves and jump-starting privatization. While the IMF has acknowledged that
the Sharif government will not meet the admittedly unrealistic targets of the
past government, it has held out the possibility of longer term funding through
its ESAF facility. The IMF is obviously willing to give the new government the
benefit of the doubt with regard to its reform agenda. Given the scope and depth
of this effort it seems likely that the IMF will come through with the needed
support this summer. In the end, this is what the market will be looking for and
an ESAF agreement could very well be the development that kicks off a market
rally.
Accordingly, we remain fully invested in our core big cap holdings -- Fauji
Fertilizer, PSO, Hubco, PTC and Engro. When it indeed becomes evident that the
reform is a reality in Pakistan, we believe these stocks will be sure to lead
the market.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT AND DIRECTOR
[SIGNATURE]
Marianne L. Hay
SENIOR PORTFOLIO MANAGER
[SIGNATURE]
Landon Thomas
PORTFOLIO MANAGER
April 1997
3
<PAGE>
The Pakistan Investment Fund, Inc.
Investment Summary as of March 31, 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% -- 18.24% -- 21.22% --
ONE YEAR -16.00 -16.00% -17.54 -17.54% -7.89 -7.89%
SINCE INCEPTION* -62.63 -26.06 -59.85 -24.42 -38.49 -13.89
</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,
1993* 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Net Asset Value Per Share $ 14.03 $ 11.42 $ 6.57 $ 4.77 $ 5.64
Market Value Per Share $15.50 $9.00 $5.25 $ 5.13 $ 5.25
Premium/(Discount) 10.5% -21.2% -20.1% 7.5% -6.9%
Income Dividends - $0.03 $0.00# - -
Capital Gains Distributions - - $0.00# - -
Fund Total Return (2) -0.50% -18.36% -42.43% -27.40% 18.24%
Index Total Return (3) N/A -8.51% -31.14% -19.46% 21.22%
</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 $0.01 per share.
4
<PAGE>
The Pakistan Investment Fund, Inc.
Investment Summary as of March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 93.7%
Short-Term Investments 6.3%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Automobiles 2.1%
Banking 8.3%
Chemicals 23.1%
Energy Sources 14.1%
Forest Products & Paper 2.4%
Health & Personal Care 2.5%
Insurance 1.6%
Telecommunications 11.4%
Textiles & Apparel 7.6%
Utilities - Electrical &
Gas 18.3%
Other 8.6%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
-------------
<C> <S> <C>
1. Fauji Fertilizer 12.5%
2. Pakistan State Oil 11.7
3. Pakistan Telecommunications Corp. 11.4
4. Hub Power Co. 10.1
5. Engro Chemicals 6.5
<CAPTION>
PERCENT OF
NET ASSETS
-------------
<C> <S> <C>
6. Sui Northern Gas 4.3%
7. Nishat Mills Ltd. 4.1
8. FFC Jordan Fertilizer 4.0
9. Sui Southern Gas 3.8
10. Faysal Bank Ltd. 3.8
-------------
72.2%
-------------
-------------
</TABLE>
* Excluding short-term investments.
5
<PAGE>
INVESTMENTS (UNAUDITED)
- ---------
MARCH 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------------------------
- ------------------------
COMMON STOCKS (92.4%)
(Unless otherwise noted)
- --------------------------------------------------------------------------
- ------------------------
APPLIANCES & HOUSEHOLD DURABLES (0.0%)
Pel Appliances 110 U.S.$ --@
--------------
- --------------------------------------------------------------------------
- ------------------------
AUTOMOBILES (2.1%)
Indus Motors 2,500 1
Pak Suzuki Motor Co., Ltd. 1,236,000 1,403
--------------
1,404
--------------
- --------------------------------------------------------------------------
- ------------------------
BANKING (8.3%)
Askari Bank 1,023,638 785
Faysal Bank Ltd. 3,483,150 2,490
Muslim Commercial Bank Ltd. 2,321,270 2,129
--------------
5,404
--------------
- --------------------------------------------------------------------------
- ------------------------
BUILDING MATERIALS & COMPONENTS (0.0%)
Dandot Cement Co. (Rights) 62 --@
--------------
- --------------------------------------------------------------------------
- ------------------------
CHEMICALS (23.1%)
Engro Chemicals 927,795 4,283
Fauji Fertilizer 4,169,000 8,165
FFC Jordan Fertilizer 6,000,000 2,642
--------------
15,090
--------------
- --------------------------------------------------------------------------
- ------------------------
ENERGY SOURCES (14.1%)
Pakistan Oilfields Ltd. 471,462 859
Pakistan State Oil 1,094,600 7,647
Shell Pakistan Ltd. 131,900 734
--------------
9,240
--------------
- --------------------------------------------------------------------------
- ------------------------
FINANCIAL SERVICES (1.0%)
Orix Leasing 520,590 649
Trust Modaraba 180 --@
--------------
649
--------------
- --------------------------------------------------------------------------
- ------------------------
FOREST PRODUCTS & PAPER (2.4%)
Century Paper & Board 2,071,465 1,080
Packages Ltd. 405,200 496
--------------
1,576
--------------
- --------------------------------------------------------------------------
- ------------------------
HEALTH & PERSONAL CARE (2.5%)
Lever Brothers (Pke) 88,180 1,650
--------------
- --------------------------------------------------------------------------
- ------------------------
INDUSTRIAL COMPONENTS (0.0%)
General Tyres 60,900 32
--------------
- --------------------------------------------------------------------------
- ------------------------
INSURANCE (1.6%)
Adamjee Insurance Co., Ltd. 378,532 1,025
--------------
- --------------------------------------------------------------------------
- ------------------------
TELECOMMUNICATIONS (11.4%)
Pakistan Telecommunications Corp. 'A' 7,629,000 5,472
Pakistan Telecommunications Corp. GDS
(Euro) 26,650 1,999
--------------
7,471
--------------
- --------------------------------------------------------------------------
- ------------------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------------------------
- ------------------------
TEXTILES & APPAREL (7.6%)
Artistic Denim (IPO) 1,250,000 U.S.$ 530
Crescent Textile Mills 1,262,184 661
Gadoon Textile 670,000 635
Ibrahim Fibres 2,000,000 469
Nishat Mills Ltd. 4,190,911 2,667
Saif Textiles 100 --@
--------------
4,962
--------------
- --------------------------------------------------------------------------
- ------------------------
UTILITIES -- ELECTRICAL & GAS (18.3%)
Hub Power Co. 7,091,000 6,617
Karachi Electric Supply Corp. 157,500 64
Nishat Tek Ltd. 100 --@
Nishat Tek Ltd. (Rights) 17 --@
Sui Northern Gas 3,729,192 2,791
Sui Southern Gas 3,585,863 2,505
--------------
11,977
--------------
- --------------------------------------------------------------------------
- ------------------------
TOTAL COMMON STOCKS
(Cost U.S. $84,026)
60,480
--------------
- --------------------------------------------------------------------------
- ------------------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- --------------------------------------------------------------------------
- ------------------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (2.4%)
Pakistani Rupee
(Cost U.S. $1,564) PKR 62,679 1,564
--------------
- --------------------------------------------------------------------------
- ------------------------
SHORT-TERM INVESTMENTS (3.9%)
REPURCHASE AGREEMENT (3.9%)
Chase Securities, Inc. 6.00%, dated
3/31/97, due 4/1/97, to be
repurchased at U.S. $2,512,
collateralized by United States
Treasury Notes 11.25% due 2/15/15,
valued at U.S. $2,564 (Cost U.S.
$2,512) U.S.$ 2,512 2,512
--------------
- --------------------------------------------------------------------------
- ------------------------
TOTAL INVESTMENTS (98.7%)
(Cost U.S. $88,102) 64,556
--------------
- --------------------------------------------------------------------------
- ------------------------
OTHER ASSETS AND LIABILITIES (1.3%)
Other Assets 3,717
Liabilities (2,844) 873
--------------- --------------
- --------------------------------------------------------------------------
- ------------------------
NET ASSETS (100%)
Applicable to 11,604,792 issued and
outstanding U.S. $0.01 par value
shares (100,000,000 shares
authorized) U.S.$ 65,429
--------------
--------------
- --------------------------------------------------------------------------
- ------------------------
NET ASSET VALUE PER SHARE
U.S.$ 5.64
--------------
--------------
- --------------------------------------------------------------------------
- ------------------------
</TABLE>
@ -- Value is less than U.S. $500.
GDS -- Global Depositary Shares
IPO -- Initial Public Offering
6
