<PAGE>
MORGAN STANLEY
AFRICA INVESTMENT FUND, INC.
- ---------------------------------------------
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS Frederick B. Whittemore
Warren J. Olsen DIRECTOR
PRESIDENT AND DIRECTOR James W. Grisham
Peter J. Chase VICE PRESIDENT
DIRECTOR Harold J. Schaaff, Jr.
John W. Croghan VICE PRESIDENT
DIRECTOR Joseph P. Stadler
David B. Gill VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
Graham E. Jones SECRETARY
DIRECTOR James R. Rooney
John A. Levin TREASURER
DIRECTOR Joanna M. Haigney
ASSISTANT TREASURER
</TABLE>
- ---------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank, N.A.
73 Tremont Street
Boston, Massachusetts 02108
- --------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company (International)
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank, N.A. (Domestic)
770 Broadway
New York, New York 10003
- --------------------------------------------------------
SHAREHOLDER SERVICING AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(800) 278-4353
- --------------------------------------------------------
LEGAL COUNSEL
Rogers & Wells
200 Park Avenue
New York, New York 10166
- --------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
- --------------------------------------------------------
For additional Fund information, including the Fund's net asset value per share
and information regarding the investments comprising the Fund's portfolio,
please call 1-800-221-6726.
----------
MORGAN STANLEY
AFRICA INVESTMENT
FUND, INC.
---------------------
THIRD QUARTER REPORT
SEPTEMBER 30, 1995
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- -------
The Morgan Stanley Africa Investment Fund, Inc. returned 4.48% and 11.39% for
the quarter and nine months ending September 30, 1995, respectively, based on
net asset value per share. This growth in the net asset value resulted from
consistent outperformance by the Fund's investments in South African industrial
shares and African fixed income securities. The Morgan Stanley Capital
International (MSCI) South Africa Index increased by 4.07% and 7.63%, in U.S.
dollar terms, for the quarter and nine months ended September 30, 1995,
respectively.
Over the past year, the Fund continued to diversify geographically in order to
capitalize on undervalued investment opportunities. Between September 30, 1994
and September 30, 1995, the Fund's exposure to South Africa decreased from 69.7%
to 59.0%; in the Ivory Coast it decreased from 2.8% to 2.4%; in Algeria it
decreased from 2.2% to 1.7%; in Morocco it increased from 11.6% to 12.9%; in
Nigeria it increased from 6.8% to 8.2%; and in Zimbabwe it increased from 0.2%
to 3.5%. The Fund also obtained exposure to two new markets during this period.
In both Ghana and Mauritius, the Fund's exposure increased from 0% to 1.8%. We
remain committed to further diversifying the Fund's portfolio in the near term
as we believe that African securities markets, excluding South Africa, remain
undervalued. As these markets move to more appropriate valuations which better
represent the underlying fundamentals, the Fund should directly benefit from
this potential re-rating.
SOUTH AFRICA
South Africa recently reported some very encouraging economic data. Inflation
for the month of August declined to a 22-year low of 7.5%. The decline was
primarily as a result of a fall in food prices which in August 1994 had
increased by 20% due to a drought in southern Africa. Food inflation is now
running at a 2% rate and is expected to stabilize at these levels. Our inflation
forecast for 1995 is 8.5%. This would be the third consecutive year of single
digit inflation. We expect inflation to remain in single digits over the next
couple of years as the government pursues a tight monetary policy by maintaining
high real interest rates, reduces its fiscal deficit and continues to remove
import barriers. Wages are also rising at slower rates than in previous economic
upswings. The independent Central Bank headed by a conservative governor, Chris
Stals, is determined to keep inflation low and has set a 5% target to be
achieved over the next two years.
Money supply growth also declined in August to 14.8% from 15.5% in July but
still remains above the 6%-10% target rate. Foreign exchange reserves in South
Africa remain low and can currently only cover six weeks of imports.
Consequently, we believe the Central Bank will not ease interest rates in the
near term. Our GDP forecast for South Africa remains at 3.0% for 1995 and 3.7%
for 1996. This growth will be driven by Gross Domestic Fixed Investment which
increased by 8% during the first half of 1995.
The Business Confidence Index maintained by the South African Chamber of
Business which represents a composite of 13 different financial indicators in
South Africa reached a 10-year high of 115.6 in September 1995 and provides
additional evidence that South Africa is in a clear upward trend. This
improvement in the index compares to a low of 89.0 in early 1992.
We remain heavily weighted in industrial and financial companies in South Africa
which represent 87% of the Fund's South African equity portfolio while mining
companies represent the balance of 13%. The industrial sector is experiencing
earnings growth of 27% to 30% and currently trades at 14x prospective earnings.
Within this sector the Fund has been investing in small and medium sized
companies which trade at approximately 0.8x the sector multiple with earnings
growth at 1.2x the sector.
ZIMBABWE & MAURITIUS
In Zimbabwe, the Fund initiated a position in TA Holdings, a diversified
conglomerate operating in the hotel, insurance, food and industrial sectors. The
company is in a recovery phase and has been selling off non-core businesses
using the proceeds to reduce
1
<PAGE>
debt from 42% of equity to 28%, over the past year. The Fund purchased TA
Holdings shares at 1.9x prospective earnings, 20% of book value, with a 13%
dividend yield and at a price/sales ratio of 7%. We forecast earnings growth of
35% over the next year and expect this share to re-rate significantly as the
company's visibility increases both in the domestic and international markets.
The Mauritius market continues to show value as it trades at approximately 9x
prospective earnings, 1.2x book value and provides a dividend yield of 5%.
Inflation remains low at 6% and our GDP forecast for 1995 is 5%, the average for
the past decade. During the quarter, the Fund initiated a position in Rogers &
Company, the largest conglomerate in Mauritius operating in the tourism,
services, shipping, manufacturing and engineering sectors. The outlook for
Rogers primary businesses, tourism and services, is very positive for the
balance of the decade with annual growth projections in excess of 6%. The
Mauritius tourism industry is the third largest foreign exchange earner and has
grown at an average annual rate of over 10% between 1983 and 1994. Rogers trades
at 8x prospective earnings, 5x cash flow, 1.1x book value and provides a
dividend yield of 2.3% and in our opinion is a good core investment.
DEBT SECURITIES
Nigerian Brady Bonds have been the best performing Brady Bonds in the emerging
debt markets in 1995. Debt buybacks, high yields and a stabilization in the
domestic political scene combined to produce total returns in excess of 30%
during 1995.
Oil revenues and delays in payments to official visitors will continue to
finance the servicing of Brady debt. We continue to hold Nigerian debt in the
portfolio.
Moroccan loans have underperformed the market this year. A severe drought
negatively affected GDP growth and the balance of payments. A comfortable
reserve position and help from multilateral agencies provided support to debt
prices.
We remain positive on Moroccan debt, as the impact of the drought is finally
reflected in prices. The privatization program and financial sector reform
should move ahead in the next few months and, with the worst over on the
economic front and relative political stability, should cause prices to move
higher in the next few months.
Sincerely,
[SIG]
Warren J. Olsen
PRESIDENT
[SIG]
Marianne L. Hay
SENIOR PORTFOLIO MANAGER
[SIG]
Jaideep Khanna
PORTFOLIO MANAGER
November 7, 1995
2
<PAGE>
Morgan Stanley Africa Investment Fund, Inc.
Investment Summary as of September 30, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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>
CURRENT QUARTER 6.57% -- 4.48% -- 4.07% --
FISCAL YEAR TO DATE 7.74 -- 11.39 -- 7.63 --
ONE YEAR 14.28 14.28% 17.75 17.75% 18.07 18.07%
SINCE INCEPTION* -8.82 -5.53 19.09 11.35 52.49 29.65
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION (2)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Periods ended September 30:
<S> <C> <C>
1994* 9 Months Ended 9/30/95 (Unaudited)
Net Asset Value $ 14.43 $ 16.00
Income Dividends 0.54 -
Capital Gains and Other Distributions - -
Total Return (2) 7.34% 11.39%
Index Total Return (3) 41.68% 7.63%
</TABLE>
(1)Assumes dividends and distributions, if any, were reinvested.
(2)Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market value due to differences
between the market price of the stock and the net asset value of the Fund.
(3)Morgan Stanley Capital International South Africa Index
*The Fund commenced operations on February 14, 1994.
3
<PAGE>
Morgan Stanley Africa Investment Fund, Inc.
Portfolio Summary as of September 30, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 72.9%
Fixed Income Securities 22.4%
Cash Equivalents 4.7%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Multi-Industry 19.6%
Loan Agreement 14.6%
Banking 9.6%
Local Government Debt 5.3%
Chemicals 5.1%
Building Materials & Components 5.0%
Merchandising 4.3%
Insurance 4.3%
Electrical & Electronics 3.7%
Other 28.5%
</TABLE>
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Algeria 1.7%
Ghana 1.8%
Ivory Coast 2.4%
Mauritius 1.8%
Morocco 12.9%
Nigeria 8.2%
South Africa 59.0%
United Kingdom 2.7%
Zimbabwe 3.5%
Other 6.0%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<C> <S>
1. Kingdom of Morocco Restructuring and
Consolidation Agreement 'A' 6.6875%, 1/1/09
2. Central Bank of Nigeria Par Bond 6.25%, 11/15/20
3. Barlow Ltd.
4. Gencor Ltd.
5. Foschini Ltd.
6. Nampak Ltd.
7. Anglo American Industrial Corp. of South Africa
8. Lonrho plc
9. Murray & Roberts Holdings Ltd.
10. Republic Ivory Coast Syndicated Loan
</TABLE>
4
<PAGE>
INVESTMENTS (UNAUDITED)
- ---------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
AFRICAN COMMON STOCKS (69.3%)
(Unless otherwise noted)
- -----------------------------------------------------------
- -------------
GHANA (1.8%)
BANKING
Standard Chartered Bank 555,000 U.S.$ 2,328
------------
BEVERAGES & TOBACCO
Guinness Ghana 2,909,458 464
Kumasi Breweries 336,000 154
Pioneer Tobacco Co., Ltd. 2,897,600 280
------------
898
------------
FINANCIAL SERVICES
Home Finance Co. 1,620,000 144
------------
FOOD & HOUSEHOLD PRODUCTS
Unilever 1,575,800 994
------------
METALS -- STEEL
Ghana Pioneer Aluminum 1,017,000 97
------------
4,461
------------
- -----------------------------------------------------------
- -------------
MAURITIUS (1.8%)
BANKING
Mauritius Commercial Bank 105,583 432
Mon Tressor Desert 6,906 13
Rogers & Co., Ltd. 195,000 1,181
State Bank of Mauritius 6,000,000 2,693
------------
4,319
------------
- -----------------------------------------------------------
- -------------
MOROCCO (5.4%)
BANKING
Banque Marocaine 60,000 2,636
Wafabank 30,000 1,247
------------
3,883
------------
ELECTRICAL & ELECTRONICS
CGE Maroc SA 11,400 1,441
------------
MULTI-INDUSTRY
ONA Group 47,500 1,945
SNI Maroc 104,720 5,918
------------
7,863
------------
13,187
------------
- -----------------------------------------------------------
- -------------
SOUTH AFRICA (56.8%)
APPLIANCES & HOUSEHOLD DURABLES
Ellerine Holdings Ltd. 239,700 1,116
------------
BANKING
Amalgamated Banks of South
Africa 1,270,256 5,479
Nedcor Ltd. 173,826 2,142
Nedcor Ltd. ADR 110,000 5,555
------------
13,176
------------
- -----------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
BEVERAGES & TOBACCO
South African Breweries Ltd. 70,000 U.S.$ 2,204
------------
BROADCASTING & PUBLISHING
Omni Media Corp. 134,628 1,383
------------
BUILDING MATERIALS & COMPONENTS
Barlow Ltd. 945,700 10,682
Concor Ltd. 225,000 1,063
------------
11,745
------------
CHEMICALS
AECI Ltd. 213,600 1,403
Engen Ltd. 850,000 5,004
Polfin Ltd. 534,946 1,113
SASOL Ltd. 630,000 5,176
------------
12,696
------------
CONSTRUCTION & HOUSING
LTA Ltd. 252,900 1,385
Murray & Roberts Holdings
Ltd. 935,000 6,081
------------
7,466
------------
ELECTRICAL & ELECTRONICS
Allied Electronics Corp.
Ltd. 500,000 1,253
Datakor Ltd. 940,000 425
Dimension Data Holdings Ltd. 86,000 718
Reunert Ltd. 942,421 5,291
------------
7,687
------------
ENERGY SOURCES
Trans Natal Coal Corp. Ltd. 425,000 3,259
------------
FOOD & HOUSEHOLD PRODUCTS
Premier Group Holdings Ltd. 2,405,313 3,392
Tiger Oats Ltd. 227,800 3,306
------------
6,698
------------
FOREST PRODUCTS & PAPER
Nampak Ltd. 1,132,000 6,491
Sappi Ltd. 125,000 2,456
------------
8,947
------------
INSURANCE
Fedsure Holdings Ltd. 640,000 3,374
South African Metropolitan
Life Ltd. 159,500 1,747
------------
5,121
------------
LEISURE & TOURISM
Kersaf Investments Ltd. 380,000 3,798
Servgro International Ltd. 272,400 1,212
Sun International
Bophuthatswana Ltd. 210,000 1,337
------------
6,347
------------
MERCHANDISING
Foschini Ltd. 2,013,650 6,594
Pepkor Ltd. 338,700 2,041
Pepkor Ltd. ADR 170,000 2,061
------------
10,696
------------
- -----------------------------------------------------------
- -------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
SOUTH AFRICA (CONTINUED)
METALS -- NON-FERROUS
Impala Platinum Holdings
Ltd. 122,500 U.S.$ 3,035
Potgietersrust Platinums
Ltd. 300,448 1,810
Rustenburg Platinum Holdings
Ltd. 50,000 1,089
------------
5,934
------------
METALS -- STEEL
SA Iron & Steel Industrial
Corp. Ltd. 3,390,791 3,668
------------
MULTI-INDUSTRY
Anglo American Industrial
Corp.
of South Africa 130,909 6,309
Anglovaal Industries Ltd. 488,000 3,207
Bidvest Group Ltd. 946,110 5,441
Corporate Africa 2,500,000 685
Corporate Africa (Preferred) 12,500,000 3,765
Gencor Ltd. 2,200,300 8,194
Malbak Ltd. 185,000 1,254
Safmarine and Rennies
Holdings Ltd. 1,215,000 3,577
------------
32,432
------------
140,575
------------
- -----------------------------------------------------------
- -------------
ZIMBABWE (3.5%)
BEVERAGES & TOBACCO
Delta Corp. Ltd. 1,850,000 2,830
------------
BUILDING MATERIALS & COMPONENTS
PG Industries 258,000 168
Portland Holdings Ltd. 520,000 489
------------
657
------------
ENERGY SOURCES
Wankie Colliery Co. Ltd. 4,505,000 1,123
------------
FOOD & HOUSEHOLD PRODUCTS
Hippo Valley Estates Ltd. 1,900,000 947
------------
LEISURE & TOURISM
Zimbabwe Sun 3,538,135 1,082
------------
MISCELLANEOUS MATERIALS & COMMODITIES
Bindura Nickel Corp. Ltd. 375,000 521
------------
MULTI-INDUSTRY
TA Holdings, Ltd. 6,500,000 737
Trans Zambezi Industries
Ltd. 627,482 878
------------
1,615
------------
8,775
------------
- -----------------------------------------------------------
- -------------
TOTAL AFRICAN COMMON STOCKS
(Cost U.S. $143,928) 171,317
------------
- -----------------------------------------------------------
- -------------
OTHER COMMON STOCKS (2.7%)
- ---------------------------------------------------------
- ------------
UNITED KINGDOM (2.7%)
MULTI-INDUSTRY
Adam & Harvey Group plc 40,000 347
Lonrho plc 2,376,346 6,252
------------
6,599
------------
- -----------------------------------------------------------
- -------------
<CAPTION>
VALUE
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
TOTAL OTHER COMMON STOCKS
(Cost U.S. $5,720) U.S.$ 6,599
------------
- -----------------------------------------------------------
- -------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
DEBT INSTRUMENTS (22.0%)
- ---------------------------------------------------------
- ------------
ALGERIA (1.7%)
LOAN AGREEMENTS
Algeria Reprofiled Loan
Agreement 'A' 1992 7.688%,
3/4/00 U.S.$ 10,000 4,200
------------
- -----------------------------------------------------------
- -------------
IVORY COAST (2.4%)
LOAN AGREEMENTS
Republic Ivory Coast
Syndicated Loan FRF 168,857 6,001
------------
- -----------------------------------------------------------
- -------------
MOROCCO (7.5%)
LOAN AGREEMENTS
+++Kingdom of Morocco
Restructuring and
Consolidation Agreement 'A'
6.6875%, 1/1/09
(Participation J.P. Morgan,
Merrill Lynch, Salomon
Brothers) U.S.$ 30,000 18,750
- -----------------------------------------------------------
- -------------
NIGERIA (8.2%)
LOAN AGREEMENTS
Central Bank of Nigeria
Promissory Note 5.25%
annuity, 1/5/10 5,000 1,775
Central Bank of Nigeria
Promissory Notes, 5.24%
annuity, 1/5/10 5,000 1,775
Central Bank of Nigeria
Promissory Notes, 5.19%
annuity, 1/5/10 10,000 3,550
------------
7,100
------------
LOCAL GOVERNMENT DEBT
Central Bank of Nigeria Par
Bond 6.25%, 11/15/20
(includes 29,000 warrants) 29,000 13,008
------------
20,108
------------
- -----------------------------------------------------------
- -------------
SOUTH AFRICA (2.2%)
INSURANCE
Liberty Life Strategic
Investments Ltd.
(Convertible) 6.50%,
9/30/04 5,000 5,500
------------
- -----------------------------------------------------------
- -------------
TOTAL DEBT INSTRUMENTS
(Cost U.S. $64,621) 54,559
------------
- -----------------------------------------------------------
- -------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
SHORT-TERM INVESTMENT (2.0%)
- ---------------------------------------------------------
- ------------
UNITED STATES (2.0%)
REPURCHASE AGREEMENT
Chase Manhattan N.A., 6.00%,
dated 9/29/95, due 10/2/95,
to be repurchased at U.S.
$4,855, collateralized by
$3,925 United States
Treasury Bonds 8.875%, due
2/15/19, valued at $4,950
(Cost U.S. $4,853) U.S.$ 4,853 U.S.$ 4,853
------------
- -----------------------------------------------------------
- -------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (2.7%)
Mauritius Rupee MR 3,968 223
South African Rand ZAR 23,496 6,434
------------
(Cost U.S. $6,647) 6,657
------------
- -----------------------------------------------------------
- -------------
<CAPTION>
AMOUNT VALUE
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
TOTAL INVESTMENTS (98.7%)
(Cost U.S. $225,769) U.S.$243,985
------------
- -----------------------------------------------------------
- -------------
OTHER ASSETS AND LIABILITIES
(1.3%)
Other Assets U.S.$ 5,863
Liabilities (2,616) 3,247
------------- ------------
- -----------------------------------------------------------
- -------------
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.$247,232
-------------
- -----------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S. $ 16.00
-------------
- -----------------------------------------------------------
- -------------
<FN>
ADR--American Depositary Receipt
FRF--French Franc
+++-- Variable/floating rate security - rate
disclosed is as of September 30, 1995
</TABLE>
7
