<PAGE>
--------------------------------------------------
THE
PAKISTAN
INVESTMENT
FUND, INC.
--------------------------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 2000
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
INVESTMENT ADVISER
THE PAKISTAN INVESTMENT FUND, INC.
================================================================================
DIRECTORS AND OFFICERS
Barton M. Biggs
CHAIRMAN OF THE BOARD OF DIRECTORS
Harold J. Schaaff, Jr.
PRESIDENT AND DIRECTOR
John D. Barrett II
DIRECTOR
Gerard E. Jones
DIRECTOR
Graham E. Jones
DIRECTOR
John A. Levin
DIRECTOR
Andrew McNally IV
DIRECTOR
William G. Morton, Jr.
DIRECTOR
Samuel T. Reeves
DIRECTOR
Fergus Reid
DIRECTOR
Frederick O. Robertshaw
DIRECTOR
Stefanie V. Chang
VICE PRESIDENT
Arthur J. Lev
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
================================================================================
U.S. INVESTMENT ADVISER
Morgan Stanley Dean Witter Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
--------------------------------------------------------------------------------
PAKISTAN INVESTMENT ADVISER
International Asset Management Company Limited
Nacon House
Maulana Din Mohammed Wafar Road
Karachi, Pakistan
--------------------------------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
--------------------------------------------------------------------------------
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
--------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(800) 278-4353
--------------------------------------------------------------------------------
LEGAL COUNSEL
Clifford Chance Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
--------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
================================================================================
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 or visit our website at www.msdw.com/im.
<PAGE>
LETTER TO SHAREHOLDERS
-----------
For the six months ended June 30, 2000, The Pakistan Investment Fund, Inc. (the
"Fund") had a total return, based on net asset value per share, of 6.51%
compared to -0.86% for the IFC Global Pakistan Total Return Index (the "Index").
For the period from the Fund's commencement of operations on December 27, 1993
through June 30, 2000, the Fund had a total return, based on net asset value per
share, of -71.28% compared to -58.27% for the Index. On June 30, 2000, the
closing price of the Fund's shares on the New York Stock Exchange was $2 1/2,
representing a 31.1% discount to the Fund's net asset value per share.
Hub Power Co., Ltd. (Hubco), the power generation company involved in tariff
dispute with the Government, had accounted for 16.8% of the Fund's net assets in
December 1999. By June 2000 this was systematically reduced to 7.6% as the
dispute became entangled in an increasingly bitter legal battle. In contrast,
ICI Pakistan Ltd., had a weight of 0.85% in December 1999. By June 2000, this
was gradually increased to 11.34% as sector fundamentals improved with the
global petrochemical cycle turning firmly positive. Pakistan Telecom's weight
also rose from 15.8% in December 1999 to 18.5% in June 2000 as the stock turned
in a strong performance on the back of re-rating driven by improving earnings
outlook based on tariff rebalancing. These three stocks, along with successful
bets in the chemical, oil marketing and banking sectors, led to the
out-performance of the Fund in the first six months of 2000.
MARKET REVIEW
Pakistan ended up as one of the best performing markets in Asia- up 8% in the
last six months despite the market's high volatility. As mentioned in our first
quarter 2000 letter to shareholders, the initial rise in the market was a
combination of both improving economic and corporate fundamentals as well as
easier liquidity and lower interest rates engineered by the central bank.
However, a liquidity driven speculative bubble quickly formed and margin
financing, which used to range between 4 and 5 billion rupees, shot up to a
record 20 billion rupees in April 2000. The bull run was given further impetus
as a few emerging market funds, having shunned Pakistan for the last two years,
returned to the market. Domestic speculators pushed the local index well beyond
its fair value at this early stage of economic recovery and the game ended soon
enough.
As the market retreat turned into a mini-crash driven by margins, the newly
reorganized Securities and Exchange Commission of Pakistan (SECP) faced its
first real test. It went into action promptly, shutting down the exchanges for a
day, bringing together a consortium of domestic financial institutions and
financially strong brokers to take over open positions and underwrite
outstanding claims. The crisis management worked and the Karachi Stock
Exchange-100 Index stabilized near the 1400 levels. In its aftermath the
speculative bubble left several brokers bankrupt and retail investor sentiment
badly bruised. Average daily volumes that had set new records in the first
quarter of 2000, reaching as high as U.S. $275 million, fell to a mere U.S. $50
million during June.
ECONOMIC DEVELOPMENTS
Real GDP grew by 4.5% for the fiscal year 2000, which ended in June, against a
3.1% growth in fiscal year 1999. This growth was underpinned by a strong
recovery of 5.5% in agricultural output, led by a record wheat harvest of 19
million bales versus 17.5 million bales in 1999, and also better than expected
cotton and rice crops. Manufacturing industry recorded an anemic growth of 1.6%
highlighting the recessionary conditions in the industrial sector last year. The
fiscal budget deficit was 6.3% in fiscal year 2000. Although a significant
improvement over the 8.3% deficit recorded in fiscal year 1998, this was still
much higher than the 4.0% target agreed with the IMF. The trade deficit was U.S.
$1.7 billion with imports being U.S. $10.2 billion against U.S. $8.5 billion
exports. The deficit would have been much lower but for the sharply higher oil
price, which averaged U.S. $25 per barrel in fiscal year 2000 versus U.S. $17
per barrel the year before.
Going forward, the government has set a GDP growth target of 5.0% and a fiscal
deficit target of 5.1% in fiscal year 2001, which we believe to be rather
optimistic. With drought being faced in the southern part of the country,
agricultural growth is likely to suffer. At the same time, the government's
industrial growth target of 5.9% appears high given that the economy is still at
an early stage in the up-cycle. We estimate fiscal year 2001 GDP growth rate of
no more than 4.3-4.5%. The fiscal deficit target is closely related to the
economic growth rate. A lower growth rate could mean a higher deficit unless tax
revenue rises significantly, otherwise development expenditure is likely to be
reduced to achieve the budget deficit target in order to conform to IMF
conditions.
In the current fiscal year, enhancement of tax revenue collection has been made
a priority. For the first time in over two decades, serious efforts are underway
to revamp the tax collection machinery, penalize corrupt officials, close legal
loopholes, document the economy and crackdown on tax defaulters. There are
initial signs of some success.
2
<PAGE>
A tax amnesty scheme for those declaring their wealth has led to recognition of
hitherto undocumented assets worth 90 billion rupee and netted the government
9.0 billion rupees as a one-time penalty fee. The government has also
successfully withstood the first wave of resistance against documentation by
holding its ground against a strike by retailers. However, it is too early to
claim success as a large percentage of traders have yet to accept the tax survey
forms. We are cautiously optimistic that this government is serious about
documenting the economy. The process, however, is likely to be long and hard, as
a tax culture has all but disappeared in the chaotic governance structure that
has emerged over the last twenty years.
The major macro economic risk factor is not the domestic economy where we
believe the government is taking appropriate, though still slow, action but
rather the external sector. The trade deficit continues to remain unsustainably
large, exacerbated further by the higher costs of imported petroleum.
The government has determined that if a billion dollars each from food and
petroleum imports can be reduced, the structural deficit gap in the trade
account can be plugged. Only then will reliance on external debt, which has
touched a staggering U.S. $38 billion, be reduced. Towards that end, efforts are
being directed at boosting agricultural production and intensifying the search
for domestic energy sources. Pakistan has proven gas reserve of around 21
trillion cubic feet, enough to last 35 years at the current rate of consumption.
With a growing population and increasing industrialization however, there is an
urgent need to discover new oil and gas fields. The government has finally laid
down a new pricing framework for oil and gas exploration, which it hopes will
attract international investment in this critical sector.
In the short term, however, Pakistan's external account continues to remain
vulnerable to high oil prices. The central bank has done a good job of
maintaining foreign exchange reserves at an average level of U.S. $1.5 billion
last year. This is quite commendable given that in fiscal year 2000 external aid
was cut off and IMF support did not come through. In fact, Pakistan found itself
in the unenviable position of becoming a net capital exporter to the tune of
U.S. $530 million as it continued to service its preferential creditors, mainly
the international development finance institutions.
The main external sector risk going into the fiscal year 2001 is that of a
second round of debt rescheduling not coming through or being inordinately
delayed. Unless a second rescheduling occurs by the first quarter of 2001, the
country will be facing the specter of a debt-servicing burden exceeding U.S. $4
billion in fiscal 2001. Thus, the next few months are likely to be crucial for
the government as it enters into negotiations with the IMF. Only if Pakistan is
in an IMF program can the government approach the G-7 bilateral lenders for more
comprehensive external debt-relief. We believe that this is likely to keep
credit risk rating low and investment sentiment weak in the near term.
STOCK MARKET OUTLOOK
With the local KSE-100 Index currently adrift around the 1500 local Index level,
investors are left assessing their position for the second half of 2000. Our
view is that this Index is likely to remain range bound between 1400-1650 levels
in the third quarter of 2000. This provides trading opportunities for more
aggressive investors while long-term value players are likely to adopt a wait
and see attitude. The latter will focus upon implementation of policies
announced in the recent federal budget, particularly government's success in
widening the tax net and significantly increasing tax collection. On the
domestic economic front this will be the most critical benchmark to meet if
investor confidence is to be restored. On the external front, as noted in the
previous section, getting back into the IMF program and successfully negotiating
a second, more comprehensive debt-rescheduling is likely to be the trigger for
raising investor confidence. Otherwise, devaluation and capital control risk
would out-weight any potential domestic currency returns.
We believe that Pakistan is likely to enter the IMF support program in late
third quarter 2000 with initial funding coming through by the end of the
calendar year. Next fiscal year's real GDP growth is expected to be in the
4.3-4.5% range with budget deficit narrowing to 5.6%. Foreign exchange reserves
are likely to remain stable and, assuming that the issue of second external debt
rescheduling is successfully resolved, gradually improve as exports pick up from
their lows and oil prices stabilize. These factors should lead to country risk
premium gradually reducing, which would help valuations recover.
Liquidity inflows to equities are likely to remain muted in the third quarter of
2000 in the aftermath of the market's mini-crash. However, the government has
recently barred institutional investors from investing in public sector National
Savings Schemes. Pension funds, which have over
3
<PAGE>
400 billion rupee in managed assets, are now looking for alternative investment
vehicles. Thus, in the medium term there is likely to be increased institutional
interest in the equity market that would help create necessary depth and provide
greater stability.
SECTORAL OUTLOOK
We expect the chemical, textile and synthetic-fiber sectors to continue
displaying strong earnings momentum in fiscal year 2000 and fiscal year 2001.
Oil and gas sectors are likely to perform well in the second half of 2000 and
fiscal year 2001 on the back of deregulation and internal restructuring of
public sector utilities. The domestic banking sector should see recovery in loan
demand as the industrial economy comes out of a two-year recession but low
interest rates will continue putting pressure on net interest margins. The
telecom sector should also witness a one-off re-rating with the final phase of
tariff rebalancing occurring in the third quarter of 2000. The insurance sector
is expected to put in a better performance as the claims ratio reduces and
premium income improves with increasing industrial activity. The cement sector
has a positive medium term outlook but is likely to underperform in the short
term if sales tax is imposed and higher fuel and power costs cut into gross
margin. The fertilizer sector is expected to continue underperforming unless
weather conditions improve. The current drought has led to reduced urea sales
and inventory build-up from the last season is creating a drag on sales. The
recent 15% rise in fuel prices will also hurt margins.
INVESTMENT STRATEGY
In view of the above developments and our expectation of a direction-less market
in the near term, the Fund's portfolio has been positioned to emphasize sectors
that offer superior value potential based on longer term fundamentals. While
active sector rotation strategy worked well in the first half of 2000, we
believe that in the second half of 2000 it is important to focus more on macro
level developments such as Pakistan's entry into the IMF program and progress on
second external debt rescheduling. We feel these top-down factors will weigh
heavily on investor sentiment and become critical drivers for the market in the
second half of 2000.
We exclude prospects for privatization from our assumption in fiscal 2001 as we
feel that high country risk and government emphasis on first restructuring and
streamlining the operations of public sector corporations prior to engaging in
privatization efforts means that state sector sell-offs are still a ways away.
The Fund will thus remain focused on large capitalization, liquid stocks with
the underlying investment philosophy being "growth at a reasonable price". At
the same time, being cognizant of the fact that Pakistan is an under-bought
market from a global asset allocation perspective and that increasingly,
international funds are beginning to take a "sector view" rather than country
view, we believe the Fund will continue to position itself to changes in
domestic economic dynamics, impact of external developments and changes in
investor sentiments.
Sincerely,
/s/ Harold J. Schaaff, Jr.
Harold J. Schaaff, Jr.
PRESIDENT AND DIRECTOR
JULY 2000
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED.
FOREIGN INVESTING INVOLVES CERTAIN RISKS, INCLUDING CURRENCY FLUCTUATIONS AND
CONTROLS, RESTRICTIONS ON FOREIGN INVESTMENTS, LESS GOVERNMENTAL SUPERVISION AND
REGULATION, LESS LIQUIDITY AND THE POTENTIAL FOR MARKET VOLATILITY AND POLITICAL
INSTABILITY.
--------------------------------------------------------------------------------
DAILY NET ASSET AND MARKET VALUES, AS WELL AS MONTHLY PORTFOLIO INFORMATION FOR
THE FUND, ARE AVAILABLE ON OUR WEBSITE AT www.msdw.com/im.
4
<PAGE>
The Pakistan Investment Fund, Inc.
Investment Summary as of June 30, 2000 (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>
YEAR TO DATE 2.62% -- 6.51% -- -0.86% --
ONE YEAR 23.39 23.39% 44.91 44.91% 40.41 40.41%
FIVE YEAR -58.80 -16.25 -49.72 -12.85 -44.22 -11.02
SINCE INCEPTION* -80.22 -22.03 -71.28 -17.43 -58.27 -12.57
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
--------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
[CHART]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
ENDED
JUNE 30,
1993* 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share .... $ 14.03 $11.42 $ 6.57 $ 4.77 $ 6.01 $ 2.37 $ 3.41 $ 3.63
Market Value Per Share ....... $ 15.50 $ 9.00 $ 5.25 $ 5.13 $ 4.88 $ 1.88 $ 2.44 $ 2.50
Premium/(Discount) ........... 10.5% -21.2% -20.1% 7.5% -18.8% -20.7% -28.4% -31.1%
Income Dividends ............. -- $ 0.03 $ 0.00# -- $ 0.01 $ 0.16 $ 0.07 (0.00)#
Capital Gains Distributions .. -- -- $ 0.00# -- -- -- -- --
Fund Total Return (2) ........ -0.50% -18.36% -42.43% -27.40% 26.32% -57.25% 44.56% 6.51%
Index Total Return (3) ....... N/A -8.51% -31.14% -19.46% 26.13% -55.88% 49.21% -0.86%
</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
per share 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.
# Amount is less than $0.01 per share.
5
<PAGE>
The Pakistan Investment Fund, Inc.
Portfolio Summary as of June 30, 2000 (Unaudited)
================================================================================
DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
<TABLE>
<S> <C>
Equity Securities (96.3%)
Short-Term Investments (3.7%)
</TABLE>
--------------------------------------------------------------------------------
INDUSTRIES
[CHART]
<TABLE>
<S> <C>
Banks (5.6%)
Chemicals (19.7%)
Diversified Telecommunication Services (18.5%)
Electric Utilities (7.6%)
Food Products (7.5%)
Gas Utilities (3.4%)
Insurance (1.5%)
Oil & Gas (22.1%)
Paper & Forest Products (2.2%)
Textiles & Apparel (4.7%)
Other (7.2%)
</TABLE>
--------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<S> <C> <C>
1. Pakistan Telecommunications Corp 18.5%
2. Pakistan State Oil Co., Ltd. 13.2
3. ICI Pakistan Ltd. 11.3
4. Hub Power Co, Ltd. 7.6
5. Lever Brothers Pakistan Ltd. 7.5
6. Shell Pakistan Ltd. 5.8
7. Muslim Commercial Bank Ltd. 5.1
8. Fauji Fertilizer Co., Ltd. 4.2
9. Engro Chemicals Ltd. 3.4
10. Sui Southern Gas Co. 3.4
----
80.0%
====
</TABLE>
* Excludes short-term investments.
6
<PAGE>
FINANCIAL STATEMENTS
---------
STATEMENT OF NET ASSETS (UNAUDITED)
---------
JUNE 30, 2000
<TABLE>
<CAPTION>
VALUE
SHARES (000)
---------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (95.6%)
(Unless otherwise noted)
---------------------------------------------------------------------------------------
AIRLINES (1.0%)
(a)Pakistan International Airlines Corp. 'A' 3,008,500 U.S.$ 408
----------
---------------------------------------------------------------------------------------
AUTOMOBILES (0.7%)
Pak Suzuki Motor Co., Ltd. 1,285,500 307
----------
---------------------------------------------------------------------------------------
BANKS (5.6%)
Askari Bank 725,791 191
(a)Muslim Commercial Bank Ltd. 3,585,670 2,111
----------
2,302
----------
---------------------------------------------------------------------------------------
CHEMICALS (19.7%)
Dewan Salman Fibres Ltd. 562,500 295
Engro Chemicals Ltd. 1,262,232 1,419
Fauji Fertilizer Co., Ltd. 2,284,200 1,718
ICI Pakistan Ltd. 16,319,700 4,678
----------
8,110
----------
---------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS (1.1%)
(a)D.G. Khan Cement Ltd. 2,820,000 436
----------
---------------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS (0.0%)
Trust Modaraba Ltd. 100 -- @
----------
---------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES (18.5%)
Pakistan Telecommunications Corp. 'A' 12,272,900 6,333
(a)Pakistan Telecommunications Corp. GDR 25,383 1,310
----------
7,643
----------
---------------------------------------------------------------------------------------
ELECTRIC UTILITIES (7.6%)
(a)Hub Power Co., Ltd. 11,237,000 3,125
----------
---------------------------------------------------------------------------------------
FOOD PRODUCTS (7.5%)
Lever Brothers Pakistan Ltd. 172,760 3,104
----------
---------------------------------------------------------------------------------------
GAS UTILITIES (3.4%)
(a)Sui Southern Gas Co. 4,553,682 1,401
----------
---------------------------------------------------------------------------------------
INSURANCE (1.5%)
Adamjee Insurance Co., Ltd. 537,791 627
----------
---------------------------------------------------------------------------------------
OIL & GAS (22.1%)
Pakistan Oilfields Ltd. 565,754 1,287
Pakistan State Oil Co., Ltd. 1,746,535 5,429
Shell Pakistan Ltd. 457,600 2,405
----------
9,121
----------
---------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS (2.2%)
Packages Ltd. 798,671 908
----------
---------------------------------------------------------------------------------------
TEXTILES & APPAREL (4.7%)
Ibrahim Fibres Ltd. 5,059,700 1,392
Nishat Mills Ltd. 1,220,211 540
Saif Textiles Mills Ltd. 100 --@
----------
1,932
----------
---------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost U.S.$42,675) 39,424
----------
---------------------------------------------------------------------------------------
<CAPTION>
NO. OF
RIGHTS
---------------------------------------------------------------------------------------
<S> <C> <C>
RIGHTS (0.0%)
(a)Nishat Mills Ltd.
(Cost U.S.$--@) 1,220,211 15
----------
---------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
---------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (1.3%)
---------------------------------------------------------------------------------------
REPURCHASE AGREEMENT (1.3%)
Chase Securities, Inc., 6.15%, dated 6/30/00,
due 07/03/00, to be repurchased at U.S.$513,
collateralized by U.S.$525 United States
Treasury Bond, 6.00%, due 2/15/26, valued
at U.S.$525
(Cost U.S.$513) U.S.$ 513 513
----------
---------------------------------------------------------------------------------------
FOREIGN CURRENCY ON DEPOSIT WITH
CUSTODIAN (2.4%)
Pakistani Rupee
(Cost U.S.$996) PKR 51,943 993
----------
---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
VALUE VALUE
(000) (000)
---------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS (99.3%)
(Cost U.S.$44,184) U.S.$40,945
------------
---------------------------------------------------------------------------------------
OTHER ASSETS (1.5%)
Cash U.S.$ 325
Dividends Receivable 229
Other 45 599
-------- -----------
---------------------------------------------------------------------------------------
LIABILITIES (-0.8%)
Payable For:
Custodian Fees (58)
Professional Fees (48)
Directors' Fees and Expenses (43)
Investment Advisory Fees (33)
Shareholder Reporting Expenses (32)
Administrative Fees (25)
Dividends Declared (15)
Pakistani Investment Advisory Fees (10)
Other Liabilities (41) U.S.$ (305)
-------- -----------
---------------------------------------------------------------------------------------
NET ASSETS (100%)
Applicable to 11,366,392, issued and
outstanding U.S.$ 0.01 par value
shares (100,000,000 shares authorized) U.S.$41,239
===========
---------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 3.63
===========
---------------------------------------------------------------------------------------
AT JUNE 30, 2000, NET ASSETS CONSISTED OF:
Common Stock U.S.$ 114
Capital Surplus 162,435
Undistributed Net Investment Income 268
Accumulated Net Realized Loss (118,337)
Unrealized Depreciation on Investments
and Foreign Currency Translations (3,241)
---------------------------------------------------------------------------------------
TOTAL NET ASSETS U.S.$41,239
===========
---------------------------------------------------------------------------------------
</TABLE>
(a) - Non-income producing
@ - Value is less than U.S.$ 500.
June 30, 2000 exchange rate - Pakistani Rupee (PKR) 52.325 = U.S.$ 1.00.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
-------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends ................................................................................ U.S.$ 953
Interest ................................................................................. 36
Less: Foreign Taxes Withheld ............................................................. (139)
-------------------------------------------------------------------------------------------------------------
Total Income ............................................................................. 850
-------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees ................................................................. 244
Pakistani Investment Advisory Fees ....................................................... 75
Administrative Fees ...................................................................... 70
Custodian Fees ........................................................................... 56
Professional Fees ........................................................................ 36
Directors' Fees and Expenses ............................................................. 15
Shareholder Reporting Expenses ........................................................... 13
Transfer Agent Fees ...................................................................... 11
Interest Expense ......................................................................... 11
Other Expenses ........................................................................... 29
-------------------------------------------------------------------------------------------------------------
Total Expenses ........................................................................... 560
-------------------------------------------------------------------------------------------------------------
Net Investment Income .................................................................... 290
-------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold ............................................................... 3,468
Foreign Currency Transactions ............................................................ 224
-------------------------------------------------------------------------------------------------------------
Net Realized Gain ........................................................................ 3,692
-------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Depreciation on Investments .............................................................. (1,766)
Depreciation on Foreign Currency Translations ............................................ (2)
-------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation ........................................... (1,768)
-------------------------------------------------------------------------------------------------------------
Net Realized Gain and Change in Unrealized Appreciation/Depreciation ..................... 1,924
-------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..................................... U.S.$ 2,214
=============================================================================================================
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income ................................................. U.S.$ 290 U.S.$ 854
Net Realized Gain (Loss) .............................................. 3,692 (18,658)
Change in Unrealized Appreciation/Depreciation ........................ (1,768) 30,747
-------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations .................. 2,214 12,943
-------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income ................................................. (15) (772)
In Excess of Net Investment Income .................................... -- (7)
-------------------------------------------------------------------------------------------------------------
Total Distributions ................................................... (15) (779)
-------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Repurchase of Shares (238,400 and 0 shares, respectively) ............. (582) --
-------------------------------------------------------------------------------------------------------------
Total Increase ........................................................ 1,617 12,164
Net Assets:
Beginning of Period ................................................... 39,622 27,458
-------------------------------------------------------------------------------------------------------------
End of Period (including undistributed/(distributions in
excess of) net investment income of U.S.$268 and U.S.$(7),
respectively) ......................................................... U.S.$ 41,239 U.S.$ 39,622
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SELECTED PER SHARE DATA SIX MONTHS
AND RATIOS: ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 2000 --------------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .... U.S.$ 3.41 U.S.$ 2.37 U.S.$ 6.01 U.S.$ 4.77 U.S.$ 6.57 U.S.$11.42
-----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) ............ 0.02 0.07 0.22 0.04 (0.04) (0.02)
Net Realized and Unrealized Gain
(Loss) on Investments ................... 0.18 1.04 (3.70) 1.21 (1.76) (4.83)
-----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations ........ 0.20 1.11 (3.48) 1.25 (1.80) (4.85)
-----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income ................... (0.00)# (0.07) (0.16) (0.01) -- (0.00)#
In Excess of Net Investment Income ...... -- (0.00)# (0.00)# -- -- (0.00)#
Net Realized Gain ....................... -- -- -- -- -- (0.00)#
-----------------------------------------------------------------------------------------------------------------------------------
Total Distributions ..................... (0.00)# (0.07) (0.16) (0.01) -- (0.00)#
-----------------------------------------------------------------------------------------------------------------------------------
Anti-Dilutive Effect of Shares
Repurchased ............................. 0.02 -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD .......... U.S.$ 3.63 U.S.$ 3.41 U.S.$ 2.37 U.S.$ 6.01 U.S.$ 4.77 U.S.$ 6.57
===================================================================================================================================
PER SHARE MARKET VALUE, END OF PERIOD ... U.S.$ 2.50 U.S.$ 2.44 U.S.$ 1.88 U.S.$ 4.88 U.S.$ 5.13 U.S.$ 5.25
===================================================================================================================================
TOTAL INVESTMENT RETURN:
Market Value ............................ 2.62% 32.89% (58.30)% (4.63)% (2.38)% (41.63)%
Net Asset Value (1) ..................... 6.51% 44.56% (57.25)% 26.32% (27.40)% (42.43)%
===================================================================================================================================
RATIOS, SUPPLEMENTAL DATA:
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS) ... U.S.$41,239 U.S.$39,622 U.S.$27,458 U.S.$69,771 U.S.$55,399 U.S.$76,219
-----------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets . 2.30%* 2.38% 2.69% 2.25% 2.30% 2.20%
Ratio of Expenses Excluding Interest
Expense to Average Net Assets ........... 2.26%* N/A N/A N/A N/A N/A
Ratio of Net Investment Income (Loss)
to Average Net Assets ................... 1.19%* 2.24% 5.88% 0.61% (0.63)% (0.36)%
Portfolio Turnover Rate ................. 29% 71% 55% 31% 28% 15%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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. This percentage is 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.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 (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 under procedures
approved by the Board of Directors, 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 is subject to withholding taxes on dividends earned.
Such tax is accrued at the time the applicable dividend income is recorded.
The Fund may be subject to taxes imposed by countries in which it invests.
Such taxes are generally based on either income earned or repatriated. The
Fund accrues such taxes when the related income is earned.
3. REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements under
which the Fund lends excess cash and takes possession of securities with an
agreement that the counterparty will repurchase such securities. In
connection with transactions in repurchase agreements, a bank as custodian
for the Fund takes possession of the underlying securities (collateral),
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
generally 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) due to securities transactions
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 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) on foreign cur-
11
<PAGE>
rency translations for the period is reflected in the Statement of
Operations.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of U.S. dollar
denominated transactions as a result of, among other factors, the
possibility of lower levels of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
The Fund may use derivatives to achieve its investment objectives. The Fund may
engage in transactions in futures contracts on foreign currencies, stock
indices, as well as in options, swaps and structured notes. Consistent with the
Fund's investment objectives and policies, the Fund may use derivatives for
non-hedging as well as hedging purposes.
Following is a description of derivative instruments that the Fund may utilize
and their associated risks:
5. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into foreign
currency exchange contracts generally to attempt to protect securities and
related receivables and payables against changes in future foreign exchange
rates and, in certain situations, to gain exposure to a foreign currency. 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. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: The Fund
may make forward commitments to purchase or sell securities. Payment and
delivery for securities which have been purchased or sold on a forward
commitment basis can take place a month or more (not to exceed 120 days)
after the date of the transaction. Additionally, the Fund may purchase
securities on a when-issued or delayed delivery basis. Securities purchased
on a when-issued or delayed delivery basis are purchased for delivery
beyond the normal settlement date at a stated price and yield, and no
income accrues to the Fund on such securities prior to delivery. When the
Fund enters into a purchase transaction on a when-issued or delayed
delivery basis, it either establishes a segregated account in which it
maintains liquid assets in an amount at least equal in value to the Fund's
commitments to purchase such assets as segregated on the Fund's records.
Purchasing securities on a forward commitment or when-issued or
delayed-delivery basis may involve a risk that the market price at the time
of delivery may be lower than the agreed upon purchase price, in which case
there could be an unrealized loss at the time of delivery.
7. SWAP AGREEMENTS: The Fund may enter into swap agreements to exchange the
return generated by one security, instrument or basket of instruments for
the return generated by another security, instrument or basket of
instruments. The following summarizes swaps which may be entered into by
the Fund:
INTEREST RATE SWAPS: Interest rate swaps involve the exchange of
commitments to pay and receive interest based on a notional principal
amount. Net periodic interest payments to be received or paid are accrued
daily and are recorded in the Statement of Operations as an adjustment to
interest income. Interest rate swaps are marked-to-market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized appreciation or depreciation in the Statement of Operations.
TOTAL RETURN SWAPS: Total return swaps involve commitments to pay interest
in exchange for a market-linked return based on a notional amount. To the
extent the total return of the security, instrument or basket of
instruments underlying the transaction exceeds or falls short of the
offsetting interest obligation, the Fund will receive a payment from or
make a payment to the counterparty, respectively. Total return swaps are
marked-to-market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gains or losses in the Statement
of Operations. Periodic payments received or made at the end of each
measurement period, but prior to termination, are recorded as realized
gains or losses in the Statement of Operations.
Realized gains or losses on maturity or termination of interest rate and
total return swaps are presented in the Statement of Operations. Because
there is no organized market for these swap agreements, the value reported
in the Statement of Net Assets may differ from that which would be realized
in the event the Fund terminated its position in the agreement. Risks may
arise upon entering into these agreements from the potential inability of
the counterparties to meet the terms of the agreements and are generally
limited to the amount of net interest payments to be received and/or
favorable movements in the value of the underlying security, instrument or
basket of instruments, if any, at the date of default.
Risks also arise from potential losses from adverse market movements, and
such losses could exceed the related amounts shown in the Statement of Net
Assets.
12
<PAGE>
8. STRUCTURED SECURITIES: The Fund may invest in interests in entities
organized and operated solely for the purpose of restructuring the
investment characteristics of sovereign debt obligations. This type of
restructuring involves the deposit with or purchase by an entity of
specified instruments and the issuance by that entity of one or more
classes of securities ("Structured Securities") backed by, or representing
interests in, the underlying instruments. Structured Securities generally
will expose the Fund to credit risks of the underlying instruments as well
as of the issuer of the Structured Security. Structured Securities are
typically sold in private placement transactions with no active trading
market. Investments in Structured Securities may be more volatile than
their underlying instruments, however, any loss is limited to the amount of
the original investment.
9. OVER-THE-COUNTER TRADING: Securities and other derivative instruments that
may be purchased or sold by the Fund may consist of instruments not traded
on an exchange. The risk of nonperformance by the obligor on such an
instrument may be greater, and the ease with which the Fund can dispose of
or enter into closing transactions with respect to such an instrument may
be less, than in the case of an exchange-traded instrument. In addition,
significant disparities may exist between bid and asked prices for
derivative instruments that are not traded on an exchange. Derivative
instruments not traded on exchanges are also not subject to the same type
of government regulation as exchange traded instruments, and many of the
protections afforded to participants in a regulated environment may not be
available in connection with such transactions.
The Fund did not invest in Forward Commitments and When-Issued/Delayed
Delivery Securities, Swap Agreements, Structured Securities or participate in
Over-the-Counter Trading during the six months ended June 30, 2000.
10. 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-dividend date, net of applicable withholding taxes where recovery of
such taxes is not reasonably assured. Distributions to shareholders are
recorded on the ex-dividend date.
The amount and character of income and capital gain distributions to be
paid by the Fund are determined in accordance with Federal income tax
regulations, which may differ from generally accepted accounting
principles. The book/tax differences are either considered temporary or
permanent in nature.
Temporary differences are attributable to differing book and tax treatments
for the timing of the recognition of gains and losses on certain investment
transactions and the timing of the deductibility of certain expenses.
Permanent book and tax basis differences may result in reclassifications
among undistributed net investment income (loss), accumulated net realized
gain (loss) and paid in capital.
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 Dean Witter Investment 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 Dean Witter Investment Management Inc. under the terms of a
contract. Under the contract, the Pakistani Adviser is paid a fee computed
weekly and paid monthly at an annual rate of 0.30% of the Fund's average weekly
net assets.
D. The Chase Manhattan Bank, through its corporate 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 0.06% 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.
E. The Chase Manhattan Bank serves as custodian for the Fund. Custody fees are
payable monthly based on assets held in custody, investment purchases and sales
activity and account maintenance fees, plus reimbursement for certain
out-of-pocket expenses.
F. During the six-month period ended June 30, 2000, the Fund made purchases and
sales totaling $12,899,000 and $13,244,000, 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, 2000, the U.S. Federal income tax cost basis of
securities was $43,188,000 and, accordingly, net unrealized depreciation for
U.S. Federal income tax purposes was $3,236,000, of which $3,953,000 related to
appreciated securities and $7,189,000 related to depreciated securities. At
December 31, 1999, the Fund had a capital loss carryforward for U.S. Federal
income tax purposes of approximately $116,829,000 available to offset future
capital gains of which $11,036,000 will expire on December 31, 2003, $57,209,000
will expire on December 31, 2004, $10,411,000 will expire on December 31, 2005,
$12,604,000 will expire on December 31, 2006 and $25,569,000 will expire on
December 31, 2007. To the extent that capital gains are offset, such gains will
not be distributed to the shareholders.
13
<PAGE>
G. 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.
H. 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. At June 30, 2000, the deferred fees payable, under the Plan totaled
$43,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
I. During June 2000, the Board of Directors declared a distribution of $0.0013
per share, derived from net investment income, payable on July 11, 2000, to
shareholders of record on June 30, 2000.
J. On May 16, 2000, the Fund commenced a share repurchase program for purposes
of enhancing shareholder value and reducing the discount at which the Fund's
shares traded from their net asset value. For the period from May 16, 2000
through June 30, 2000, the Fund repurchased 238,400 shares or 2.05% of its
Common Stock at an average price per share of $2.39, excluding $12,000 in
commissions paid, and an average discount of 33.32% from net asset value per
share. The Fund expects to continue to repurchase its outstanding shares at such
time and in such amounts as it believes will further the accomplishment of the
foregoing objectives, subject to review by the Board.
K. Supplemental Proxy Information
The Annual Meeting of the Stockholders of the Fund was held on June 15, 2000.
The following is a summary of the proposal presented and the total number of
shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES
PROPOSAL: FAVOR OF AGAINST ABSTAINED
--------- ---------- --------- -----------
<S> <C> <C> <C>
1. To elect the following Directors: Andrew McNally IV........... 8,922,527 449,284 --
Frederick O. Robertshaw..... 8,922,527 449,284 --
Harold J. Schaaff, Jr....... 8,922,527 449,284 --
Fergus Reid................. 8,922,527 449,284 --
Graham E. Jones............. 8,922,527 449,284 --
John D. Barrett II.......... 8,922,527 449,284 --
Samuel T. Reeves............ 8,922,527 449,284 --
Gerard E. Jones............. 8,922,527 449,284 --
</TABLE>
The Annual Meeting of the Stockholders of the Fund was reconvened on August 1,
2000. The following is a summary of the proposal presented and the total number
of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES
PROPOSAL: FAVOR OF AGAINST ABSTAINED
--------- ---------- --------- -----------
<S> <C> <C> <C>
2. To ratify the selection of Ernst & Young
LLP as independent accountants of the Fund...................... 8,766,278 909,235 24,667
</TABLE>
--------------------------------------------------------------------------------
CHANGE IN INDEPENDENT ACCOUNTANTS:
ON JULY 5, 2000, PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT ACCOUNTANTS
OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE FINANCIAL
STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO ADVERSE
OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED AS TO
UNCERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH ITS AUDITS
FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000, THERE HAVE BEEN
NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY MATTER OF ACCOUNTING
PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE, OR AUDITING SCOPE OR
PROCEDURE, WHICH DISAGREEMENTS, IF NOT RESOLVED TO THE SATISFACTION OF
PRICEWATERHOUSECOOPERS LLP, WOULD HAVE CAUSED THEM TO MAKE REFERENCE THERETO IN
THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS. THE FUND, WITH THE
APPROVAL OF ITS BOARD OF DIRECTORS, AUDIT COMMITTEE AND SHAREHOLDERS, ENGAGED
ERNST & YOUNG LLP AS INDEPENDENT ACCOUNTANTS AS OF AUGUST 1, 2000.
14
<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. 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 or 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.
Shareholders who do not wish to have distributions automatically reinvested
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
15
