<PAGE>
MORGAN STANLEY
AFRICA INVESTMENT FUND, INC.
---------------------------------------------
OFFICERS AND DIRECTORS
Barton M. Biggs James W. Grisham
CHAIRMAN OF THE BOARD VICE PRESIDENT
OF DIRECTORS Harold J. Schaaff, Jr.
Warren J. Olsen VICE PRESIDENT
PRESIDENT AND DIRECTOR Joseph P. Stadler
James J. Biundo VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
Gerard E. Jones SECRETARY
DIRECTOR Hilary D. Toole
William G. Morton, Jr. ASSISTANT SECRETARY
DIRECTOR James R. Rooney
Fergus Reid TREASURER
DIRECTOR Timothy F. Osborne
Leslie Ann Shad ASSISTANT TREASURER
DIRECTOR
---------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
ECONOMIC ADVISER
Standard New York, Inc.
50 West 67th Street
New York, New York 10020
--------------------------------------------------------
ADMINISTRATOR
The United States Trust Company of New York
73 Tremont Street
Boston, Massachusetts 02108
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CUSTODIANS
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
The United States Trust Company of New York
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
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LEGAL COUNSEL
Rogers & Wells
200 Park Avenue
New York, New York 10166
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INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
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---------
MORGAN STANLEY
AFRICA INVESTMENT
FUND, INC.
---------
FIRST QUARTER REPORT
MARCH 31, 1995
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- - --------
For the first quarter of 1995, the Morgan Stanley Africa Investment Fund, Inc.'s
total return based on net asset value per share appreciated by 1.73% to $14.68
per share. The stock price appreciated 1.10% for the quarter to $11 1/2 per
share, a 21.7% discount to its underlying net asset value. The Fund has
continued to broaden its country exposure within Africa and now has investments
in seven African countries, with the majority of its investments in South
African securities, which represent 59% of the Fund's net assets. For the
quarter, the MSCI South Africa Index was up 3.8% versus a 12.7% decline in the
MSCI Emerging Markets Free Composite Index. The strength in the South African
market can be primarily attributed to the abolishment of the financial rand,
which appreciated by 13% versus the US dollar during the quarter.
The financial rand was set up as a parallel currency 10 years ago to protect the
rand from exchange-rate shocks and was the currency used by foreigners to invest
in South Africa. The financial rand traded at a discount to the commercial rand
and when it was abolished this discount was eliminated, resulting in a currency
gain for foreign investors. In the past, the financial rand had acted as a
deterrent to foreign investors due to its volatility and illiquidity. Further,
the two-tiered currency showed that South African authorities lacked confidence
in the strength of their currency and the long-term viability of the economy.
Therefore, the abolishment of the financial rand was a significant confidence
booster for potential international investors in South Africa. Although the
financial rand has been eliminated, exchange controls on residents are being
retained in the near term until South Africa is able to build up its foreign
exchange reserves, which currently amount to 6 weeks of import cover.
Performance in the South African equity market was also helped by the fact that
South Africa, unlike most emerging markets, did not experience significant
outflow of foreign investments due to the Mexican debacle. Foreign portfolio
investment is estimated to comprise only 5% of the equity market as major
international portfolio investors have only recently begun to invest in South
Africa. We expect foreign flows to increase into South Africa now that South
Africa is included in both the MSCI and IFC Emerging Markets Indices.
The Government of National Unity (GNU) in South Africa presented its first
budget on March 15, 1995. Some of the highlights included a deficit to GDP ratio
of 6.4%, which is forecast to decline to 5.8% in 1995/96 and 4.5% by 2000/01.
There was an increase in housing outlays from 1.6% to 2.7% of budget
expenditures. In order to create a more "friendly investment environment for
foreigners," the 15% non-resident shareholders tax is going to be abolished on
October 1, 1995. The GNU is further encouraging investment by eliminating import
surcharges on luxury and 'white' goods from October 1, 1995. The corporate tax
remains at 35%, however, the one time transition levy of 5% on corporations has
been eliminated.
We estimate the deficit/GDP for 1995/96 to be approximately 5.3% versus the
government's estimate of 5.8%, as we expect GDP to grow by 3.5% versus the
government's conservative estimate of 2.7%. It is clear that the GNU is taking a
responsible and proactive role in managing its finances and we are confident in
its ability to meet its objectives of maintaining conservative monetary and
fiscal policies.
During the quarter, the Fund continued its goal of diversification into other
attractive African markets by building an equity portfolio in Ghana. Ghana has
been recently cited by the International Monetary Fund as the African nation
with the strongest economic growth since 1991. Ghana's GDP is forecast to grow
by 5% and 5.5% in 1995 and 1996, respectively. Inflation, which
2
<PAGE>
peaked in 1983 at 123%, has been brought under control by implementing a
conservative monetary policy and is currently estimated to be at 23%. In May
1994, the Ghanian government successfully completed a $1.6 billion privatization
of Ashanti Goldfields, the leading gold producer in Ghana. Through the
privatization, the government reduced its holdings in Ashanti from 55% to 29%
and increased the market capitalization of the Ghana stock exchange from $240
million to $1.8 billion.
The Fund's investments in Ghana include two breweries trading at 6x forecast
earnings, a tobacco company trading at 3x forecast earnings, a commercial bank
with returns on equity exceeding 60% per annum trading at 9.5x forecast
earnings, a housing finance company trading at 9x forecast earnings and a
consumer product company trading at 7.7x forecast earnings. We believe the
Ghanian stock market continues to offer considerable value as it currently
trades at 7x prospective 1995 earnings.
DEBT SECURITIES
In South Africa, the appreciation in the currency as a result of the abolition
of the financial rand presented an opportunity to lock in gains in holdings of
local rand denominated bonds. We expect short-term interest rates to edge higher
as the Reserve Bank adopts a tighter monetary policy to combat inflation and, if
needed, prevent the depreciation of the unitary rand. Once monetary and exchange
rate conditions stabilize, we anticipate re-entering the local bond market. In
the Ivory Coast, lack of progress in negotiations
with the commercial bank creditors resulted in a rather lacklustre performance
in the first quarter. The Ivory Coast has taken the first steps to normalize its
relations with its creditors. The Paris Club and IMF agreements lead us to
expect a rescheduling of commercial bank loans to be next on the agenda.
We remain optimistic about Africa's long-term investment potential and continue
to seek undervalued investment opportunities across the continent in order to
add value to your investments.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT
[SIGNATURE]
Marianne L. Hay
SENIOR PORTFOLIO MANAGER
[SIGNATURE]
Jaideep Khanna
PORTFOLIO MANAGER
April 26, 1995
3
<PAGE>
INVESTMENTS (UNAUDITED)
- - ---------
MARCH 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- - ---------------------------------------------------------
- - ------------
AFRICAN COMMON STOCKS (61.8%)
(Unless otherwise noted)
- - ---------------------------------------------------------
- - -------------
GHANA (2.1%)
BANKING
Standard Chartered Bank 555,000 U.S.$ 2,907
------------
BEVERAGES & TOBACCO
Guinness Ghana 1,501,360 274
Kumasi Breweries 336,000 176
Pioneer Tobacco Co., Ltd. 2,397,600 164
------------
614
------------
FINANCIAL SERVICES
Home Finance Co. 1,620,000 174
------------
FOOD & HOUSEHOLD PRODUCTS
Unilever 1,575,800 1,154
------------
4,849
------------
- - ---------------------------------------------------------
- - -------------
MOROCCO (4.7%)
BANKING
Wafabank 30,000 1,349
------------
ELECTRICAL & ELECTRONICS
CGE Maroc SA 11,400 1,462
------------
MULTI-INDUSTRY
ONA Group 47,500 2,050
SNI Maroc 104,720 5,774
------------
7,824
------------
10,635
------------
- - ---------------------------------------------------------
- - -------------
SOUTH AFRICA (53.6%)
BANKING
Amalgamated Banks of South
Africa 1,322,400 4,346
First National Bank 507,000 3,198
Nedcor Ltd. 451,818 5,506
------------
13,050
------------
BEVERAGES & TOBACCO
South African Breweries Ltd. 200,000 5,570
------------
BROADCASTING & PUBLISHING
Omni Media Corp. 133,400 1,217
------------
BUILDING MATERIALS & COMPONENTS
Barlow Ltd. 755,900 7,611
------------
CHEMICALS
African Explosives 213,600 1,614
Engen Ltd. 302,493 2,359
SASOL Ltd. 675,584 6,444
------------
10,417
------------
ELECTRICAL & ELECTRONICS
Reunert Ltd. 614,600 2,396
------------
ENERGY SOURCES
Anglo American Coal Corp.
Ltd. 15,200 1,016
Rand Mines Properties Ltd. 50,000 515
Trans Natal Coal Corp. Ltd. 238,584 1,761
------------
3,292
------------
</TABLE>
- - -----------------------------------------------------------------
- - -------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- - ---------------------------------------------------------
- - ------------
FOOD & HOUSEHOLD PRODUCTS
Premier Group Holdings Ltd. 1,991,300 U.S.$ 2,745
Tiger Oats Ltd. 227,800 3,125
------------
5,870
------------
FOREST PRODUCTS & PAPER
Nampak Ltd. 510,000 2,202
Sappi Ltd. 110,000 2,022
------------
4,224
------------
GOLD MINES
Anglo American Gold
Investment 70,500 6,244
------------
INSURANCE
Fedsure Holdings Ltd. 482,125 2,417
South African Metropolitan
Life Ltd. 159,500 1,555
------------
3,972
------------
LEISURE & TOURISM
Kersaf Investments Ltd. 437,100 4,261
Servgro International Ltd. 200,000 675
Sun International
Bophuthatswana Ltd. 170,100 1,078
------------
6,014
------------
MERCHANDISING
Foschini Ltd. 365,976 2,242
Pepkor Ltd. 338,700 2,122
Pepkor Ltd. ADR 207,500 2,555
Pick 'N Pay Stores Ltd. 100,000 251
------------
7,170
------------
METALS -- NON-FERROUS
Impala Platinum Holdings
Ltd. 99,400 2,242
Potgietersrust Platinums
Ltd. 300,448 2,029
Rustenburg Platinum Holdings
Ltd. 73,000 1,642
------------
5,913
------------
METALS -- STEEL
SA Iron & Steel Industrial
Corp., Ltd. 1,850,000 2,334
------------
MULTI-INDUSTRY
Anglo-American Corp. of
South Africa 143,100 7,851
Anglo American Industrial
Corp. 102,900 5,245
Anglovaal Industries Ltd. 488,000 3,466
Bidvest Group Ltd. 791,610 3,803
Corporate Africa 2,500,000 644
Corporate Africa (Preferred) 12,500,000 4,526
Gencor Ltd. 2,200,300 7,078
Johannesburg Consolidated
Investment Co. Ltd. 113,500 2,624
Safmarine and Rennies
Holdings Ltd. 300,000 940
------------
36,177
------------
121,471
------------
</TABLE>
- - -----------------------------------------------------------------
- - -------------
4
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- - ---------------------------------------------------------
- - ------------
ZIMBABWE (1.4%)
BEVERAGES & TOBACCO
Delta Corp. Ltd. 550,000 U.S.$ 652
------------
BUILDING MATERIALS & COMPONENTS
Portland Holdings Ltd. 485,000 460
------------
ENERGY SOURCES
Wankie Colliery Co. Ltd. 4,230,000 577
------------
FOOD & HOUSEHOLD PRODUCTS
Hippo Valley Estates Ltd. 1,900,000 586
------------
LEISURE & TOURISM
Zimbabwe Sun 2,205,000 457
------------
MISCELLANEOUS MATERIALS & COMMODITIES
Bindura Nickel Corp. Ltd. 375,000 422
------------
3,154
------------
- - ---------------------------------------------------------
- - -------------
TOTAL AFRICAN COMMON STOCKS
(Cost U.S. $112,948) 140,109
------------
- - ---------------------------------------------------------
- - -------------
OTHER COMMON STOCKS (3.0%)
- - ---------------------------------------------------------
- - ------------
AUSTRALIA (0.3%)
GOLD MINES
Golden Shamrock Mines Ltd. 1,250,000 815
------------
- - ---------------------------------------------------------
- - -------------
UNITED KINGDOM (2.7%)
MULTI-INDUSTRY
Adam & Harvey Group plc 40,000 353
Lonrho plc 2,344,530 5,750
------------
6,103
------------
- - ---------------------------------------------------------
- - -------------
TOTAL OTHER COMMON STOCKS
(Cost U.S. $6,674) 6,918
------------
</TABLE>
- - -----------------------------------------------------------------
- - -------------
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- - ---------------------------------------------------------
- - ------------
DEBT INSTRUMENTS (25.9%)
- - ---------------------------------------------------------
- - ------------
ALGERIA (1.2%)
LOAN AGREEMENT
+++Algeria Reprofiled Loan
Agreement 'A' 1992 7.6875%,
3/4/00 U.S.$10,000 2,750
------------
- - ---------------------------------------------------------
- - -------------
IVORY COAST (2.0%)
LOAN AGREEMENT
Republic of Ivory Coast
Syndicated Loan FRF 168,857 4,544
------------
</TABLE>
- - -----------------------------------------------------------------
- - -------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- - ---------------------------------------------------------
- - ------------
MOROCCO (10.0%)
<S> <C> <C>
LOAN AGREEMENT
+++Kingdom of Morocco
Restructuring and
Consolidation Agreement 'A'
1990 7.375%, 1/1/09
(Participation: JP Morgan,
Merrill Lynch, Paribas,
Salomon Brothers, Chase
Manhattan Bank) U.S.$39,000 U.S.$ 22,815
------------
</TABLE>
- - -----------------------------------------------------------------
- - -------------
<TABLE>
<S> <C> <C>
NIGERIA (7.8%)
LOAN AGREEMENT
Central Bank of Nigeria
Promissory Notes 8.00%
annuity, 1/5/10 U.S.$30,000 8,100
------------
LOCAL GOVERNMENT DEBT
Central Bank of Nigeria Par
Bond 6.25%, 11/15/20
(includes 25,000 warrants) 25,000 9,562
------------
17,662
------------
- - ---------------------------------------------------------
- - -------------
SOUTH AFRICA (4.9%)
INSURANCE
Liberty Life Strategic
Investments Ltd.
(Convertible) 6.50%,
9/30/04 U.S.$ 6,000 6,465
------------
LOCAL GOVERNMENT DEBT
Republic of South Africa,
R147, 11.50%, 5/30/00 ZAR 20,000 4,645
------------
11,110
------------
- - ---------------------------------------------------------
- - -------------
TOTAL DEBT INSTRUMENTS
(Cost U.S. $80,602) 58,881
------------
- - ---------------------------------------------------------
- - -------------
SHORT TERM INVESTMENTS (8.2%)
- - ---------------------------------------------------------
- - ------------
UNITED STATES (8.2%)
GOVERNMENT AGENCY OBLIGATION
Federal National Mortgage
Association, 4/10/95 U.S.$16,600 16,576
------------
REPURCHASE AGREEMENT
U.S. Trust, 6.00%, dated
3/31/95,
due 4/3/95, to be
repurchased
at U.S.$1,946,
collateralized
by U.S.$1,825 Government
National Mortgage
Association,
9.50% to 10.00%, due
10/15/09 to 1/15/10, valued
at U.S.$1,960 1,945 1,945
------------
- - ---------------------------------------------------------
- - -------------
TOTAL SHORT TERM INVESTMENTS
(Cost U.S. $18,521) 18,521
------------
- - ---------------------------------------------------------
- - -------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
AMOUNT VALUE
(000) (000)
- - ---------------------------------------------------------
- - ------------
<S> <C> <C>
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (2.7%)
British Pound GBP 239 U.S.$ 387
Moroccan Dirham MAD 4,566 547
South African Rand ZAR 18,366 5,115
------------
(Cost U.S. $6,022) 6,049
------------
- - ---------------------------------------------------------
- - -------------
TOTAL INVESTMENTS (101.6%)
(Cost U.S. $224,767) 230,478
------------
- - ---------------------------------------------------------
- - -------------
OTHER ASSETS AND LIABILITIES (-1.6%)
Other Assets U.S.$ 3,386
Liabilities (7,010) (3,624)
----------- ------------
- - ---------------------------------------------------------
- - -------------
NET ASSETS (100.0%)
Applicable to 15,448,477 issued and
outstanding U.S. $.01 par value shares
(100,000,000 shares authorized) U.S.$ 226,854
-------------------------
- - ---------------------------------------------------------
- - -------------
NET ASSET VALUE PER SHARE U.S.$ 14.68
-------------------------
</TABLE>
- - -----------------------------------------------------------------
- - -------------
ADR -- American Depositary Receipt
FRF -- French Franc
+++ -- Variable/floating rate security - rate disclosed is as of March 31, 1995
6
