<PAGE>
MORGAN STANLEY
AFRICA INVESTMENT FUND, INC.
- ---------------------------------------------
OFFICERS AND DIRECTORS
Barton M. Biggs John A. Levin
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS William G. Morton, Jr.
Frederick B. Whittemore DIRECTOR
VICE-CHAIRMAN OF THE BOARD OF DIRECTORS James W. Grisham
Warren J. Olsen VICE PRESIDENT
PRESIDENT AND DIRECTOR Michael F. Klein
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
TREASURER
Belinda A. Brady
ASSISTANT TREASURER
- ---------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- ---------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
- ---------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company (International)
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank (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.
---------
SEMI-ANNUAL REPORT
JUNE 30, 1996
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the six months ended June 30, 1996, the Morgan Stanley Africa Investment
Fund, Inc. (the "Fund") had a total return, based on net asset value per share,
of -3.93%. For the period since the Fund's inception on February 14, 1994, the
Fund's total return based on net asset value per share was 30.11%. On June 28,
1996, the closing price of the Fund's shares on the New York Stock Exchange was
12 5/8, representing a 21.3% discount to the Fund's net asset value per share.
The Fund's performance was negatively impacted by its 58% exposure to South
Africa, which experienced a currency depreciation of 8.8% versus the dollar
during the second quarter. For the first quarter, the currency depreciated by
9.1% bringing the total decline in the rand to 18% for the first half of 1996.
The Morgan Stanley Capital International South Africa Index declined by 6.2% and
8.2% for the quarter and six months ended June 30, 1996, respectively.
During the second quarter and first half of 1996, the Fund gained from its
geographic and asset class diversification. Equity holdings in Zimbabwe, Morocco
and Botswana and fixed income exposure in Nigeria, Morocco, and Algeria provided
strong support to the Fund. The Zimbabwe stock market where the Fund has a 6.7%
weighting has appreciated over 30% in the first half of 1996 while the Fund's
Moroccan debt and equity positions have gained in excess of 15% each during the
same period. The smaller debt positions in Algeria and Nigeria have also
contributed positively in 1996 providing total returns between 11% and 27%,
respectively.
SOUTH AFRICA
Currency stability continues to be the major issue in South Africa. Having
depreciated by approximately 18% in the first half of 1996 it has further
weakened by 2.5% in the first two weeks in July. To support the weakening
currency, the Reserve Bank raised the bank rate in April by 1% to 16% while
commercial banks increased the prime rate to 19.5%. The rates have been raised
during a period of declining inflation, which is now at 5.9%, close to a 24-year
low. The higher interest rates combined with a depreciating currency have led us
to increase our year end inflation forecast to around 9% and lower GDP growth to
3.3% for 1996. We do not expect interest rates to come down before the end of
the fourth quarter and as a result, corporate earnings growth for 1996 is more
likely to be 15%
rather than the 20% we anticipated previously. Accordingly, the Fund has been
positioned in sectors which will benefit from the depreciating currency and the
higher interest rate environment.
The mining and export oriented companies are the primary beneficiaries of the
weaker currency as their products are priced in dollars while their costs are
largely denominated in rand. Sectors which are negatively affected by higher
interest rates and lower GDP growth rates are the consumer and fixed investment
sectors. Since the currency adjustment, the Fund has aggressively lightened its
exposure to the consumer and, certain fixed investment stocks.
The proceeds from these sales were used to initiate positions in the gold mining
sector where the rand gold price is close to its record high and should result
in significant earnings growth in the sector. We also increased our exposure in
selected exporters such as Sasol, the coal to fuel and chemicals conversion
company whose earnings per share increase by 2.5% for every 1% depreciation in
the currency. Sasol trades at a 30% discount to the market and has provided
returns on equity of 22% (50% higher than industrial sector) and operating
margins of 19% on average for each of the past 5 years. We also reduced our
overall exposure to South Africa from 65% to 58% of the Fund's assets by
investing in other more attractive African markets.
GROWTH AND EMPLOYMENT PLAN
The new finance minister, Trevor Manuel, put forth a macroeconomic plan in
June which focuses on growth and job creation by pursuing open-market policies.
Some of the main features of the plan are highlighted below.
- - Achieve 6% GDP growth and creation of 400,000 jobs per annum by the year
2000.
- - Lower the budget deficit to 4% of GDP by 1997/98 from the 5.1% expected in
the current fiscal year.
- - Lower tariffs, provide tax holidays and accelerated depreciation in labor
intensive and manufacturing sectors.
- - Gradual relaxation of exchange controls by initially allowing local
institutions to swap up to 10% of their assets offshore including 3% of
institutional cash flows on an annual basis.
- - A commitment to privatization with the possible strategic equity sale of
about 30% of Telkom to be completed in 1996.
Clearly the above mentioned goals are very positive for South Africa however,
the government has not been
2
<PAGE>
specific enough on how and when they are going to be implemented. For instance,
in order to bring the fiscal deficit down to 4% of GDP by 1997/98 a major push
towards revenue raising sources, mainly privatization, have to be made. As of
yet, the government has not announced any details on how much they expect to
raise via this source in the near term and how they are going to tackle the
unions which are against privatization. We will continue to actively monitor
developments on this front and will make our investment decisions accordingly.
POLITICS
On the political front, the elections in KwaZulu Natal were conducted
peacefully with voter turnout being low at 45%. Inkatha Freedom Party (IFP)
obtained 45% of the votes while the African National Congress (ANC) received
33%. The ANC won in Durban and the metropolitan areas while IFP took control of
the seven regional councils. As expected, the Zulu vote was spilt evenly between
the older Zulus living in the countryside voting for IFP and the younger
progressive Zulus voting for the ANC. The elections were considered extremely
successful given that there was no violence and because they had already been
postponed twice.
The National Party (NP) left the Government of National Unity (GNU) after having
served for about two years. The role of the NP in policy making in the GNU had
steadily diminished as the ANC with its majority was taking the lead in the
decision making process. In our opinion, the departure of the NP from the GNU is
positive as it begins to play an active role as a credible opposition party to
the ANC. In May the first constitution of the new South Africa was also adopted
by parliament. The constitution separates the executive, legislature and
judiciary and provides a good system of checks and balances against
concentration of power in any one arm of government.
REST OF AFRICA
The Fund has been aggressively investing in Egypt, Zimbabwe and Mauritius
where the markets sell at considerable discounts to South Africa. Due to the
lower liquidity in these markets, it takes time for the Fund to gain exposure.
However, between the first and second quarter, the Fund increased its exposure
to Egypt from 2.2% to 4.9%, in Zimbabwe from 5.7% to 6.7% and in Mauritius from
3.3% to 3.8%.
Egypt sells at 8x 1996 estimated earnings with dollar dividend yields of 9% and
is expecting earnings growth of at least 15%. In addition, it is actively
pursuing privatizations with a 20% placement of Commercial International Bank
via the issue of global depositary receipts (GDR) which is currently being
marketed. This will be the first GDR issue by an Egyptian company. Zimbabwe has
already appreciated by over 30% in the first half of 1996. GDP growth should be
about 7% in 1996 and is forecast to lead to earnings growth of approximately
40%. The Zimbabwean market sells at 8x 1996 estimated earnings and is supported
by a 6% dividend yield. Inflation and interest rates are also trending lower and
should directly benefit the equity market. Mauritius is also extremely
attractive at 7.5x 1996 estimated earnings, 4% dividend yields and earnings
growth in the financial and tourism sectors averaging 20%. The Fund plans to
continue increasing its exposure to these markets.
Our focus remains on pursuing investments in the undervalued capital starved
markets in Africa where there is significant upside potential still to be
realized. The Fund will be increasing its exposure to these markets by bringing
down its holdings in South Africa.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT AND DIRECTOR
[SIGNATURE]
Marianne L. Hay
SENIOR PORTFOLIO MANAGER
[SIGNATURE]
Jaideep Khanna
PORTFOLIO MANAGER
July 22, 1996
3
<PAGE>
Morgan Stanley Africa Investment Fund, Inc.
Investment Summary as of June 30, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION (UNAUDITED)
TOTAL RETURN (%)
----------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2)
---------------------------- ----------------------------
AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
FISCAL YEAR TO DATE 0.14% -- -3.93% --
ONE YEAR 19.69 19.69 % 14.15 14.15 %
SINCE INCEPTION* 2.41 1.01 30.11 11.72
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION (2)
A BAR CHART REFLECTING THE DATA BELOW IS REFLECTED HERE.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31:
<S> <C> <C> <C>
Six Months
1994* 1995 Ended June 30, 1996 (Unaudited)
Net Asset Value Per Share $14.43 $17.05 $16.04
Market Value Per Share $11.38 $12.88 $12.63
Premium/(Discount) -21.1% -24.5% -21.3%
Income Dividends $0.54 $0.96 -
Capital Gains Distributions - $0.01 $0.27
Fund Total Return (2) 7.34% 26.14% -3.93%
</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.
* The Fund commenced operations on February 14, 1994.
4
<PAGE>
Morgan Stanley Africa Investment Fund, Inc.
Portfolio Summary as of June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 80.7%
Debt Securities 17.4%
Short-Term Investments 1.9%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Banking 12.8%
Beverages 4.5%
Chemicals 6.4%
Electrical & Electronics 3.8%
Food & Household Products 3.6%
Gold Mines 3.5%
Insurance 4.6%
Leisure & Tourism 4.4%
Loan Agreements 12.0%
Multi-Industry 22.9%
Other 21.5%
</TABLE>
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
South Africa 57.9%
Morocco 10.8%
Zimbabwe 6.7%
Egypt 4.9%
Mauritius 3.8%
Nigeria 3.6%
United Kingdom 3.3%
Ivory Coast 2.6%
Botswana 1.6%
Ghana 1.5%
Algeria 1.2%
United States 1.1%
Other 1.0%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
-------------
<C> <S> <C>
1. SASOL Ltd. 5.1%
2. Kingdom of Morocco Loan Agreement 4.7
3. Barlow Ltd. 4.0
4. Amalgamated Banks of South Africa 4.0
5. Central Bank of Nigeria Promissory
Note 3.6
<CAPTION>
PERCENT OF
NET ASSETS
-------------
<C> <S> <C>
6. Lonrho plc 3.3%
7. Republic of South Africa Bonds 3.0
8. SNI Maroc 2.8
9. Republic of the Ivory Coast Loan 2.6
10. Corporate Africa 2.6
-----
35.7%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS (UNAUDITED)
- ---------
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------------
- ------------
<S> <C> <C>
AFRICAN COMMON STOCKS (76.5%)
(UNLESS OTHERWISE NOTED)
- ----------------------------------------------------------------------------------
- ------------
BOTSWANA (1.6%)
BEVERAGES
+Sechaba Investment Co. 5,000,000 U.S.$ 3,942
--------------
- ----------------------------------------------------------------------------------
- ------------
EGYPT (4.7%)
BANKING
+Commercial International Bank 27,000 3,334
--------------
BUILDING MATERIALS & COMPONENTS
+Alexandria Cement 2,886 326
Ameriyah Cement Co. 90,000 1,222
Helwan Portland Cement 99,800 937
Torah Portland Cement Co. 45,795 599
--------------
3,084
--------------
CHEMICALS
+Paint & Chemical Industries 1,951 356
--------------
FINANCIAL SERVICES
+Egyptian Finance & Industrial 37,500 396
--------------
FOOD & HOUSEHOLD PRODUCTS
+Central Flour Mill 60,000 328
North Cairo Flour Mills 90,270 2,123
+South Cairo & Giza Mills Bakeries 14,670 114
--------------
2,565
--------------
REAL ESTATE
+Madinet Nasr Housing & Development 33,210 876
--------------
TOBACCO
Eastern Tobacco 106,450 1,158
--------------
11,769
--------------
- ----------------------------------------------------------------------------------
- ------------
GHANA (1.5%)
BANKING
Standard Chartered Bank 555,000 1,866
--------------
BEVERAGES
+Guinness Ghana 3,636,822 535
+Kumasi Breweries 336,000 125
--------------
660
--------------
FINANCIAL SERVICES
+Home Finance Co. 1,620,000 107
--------------
FOOD & HOUSEHOLD PRODUCTS
Unilever 1,575,800 785
--------------
METALS -- NON-FERROUS
+Ghana Pioneer Aluminum Factory 1,043,400 95
--------------
- ----------------------------------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------------
- ------------
<S> <C> <C>
TOBACCO
+Pioneer Tobacco Co. Ltd. 2,897,600 U.S.$ 219
--------------
3,732
--------------
- ----------------------------------------------------------------------------------
- ------------
MAURITIUS (3.8%)
BANKING
Mauritius Commercial Bank 302,915 1,052
*State Bank of Mauritius 11,106,342 4,717
--------------
5,769
--------------
FOOD & HOUSEHOLD PRODUCTS
+Happy World Foods Ltd. 870,566 613
--------------
LEISURE & TOURISM
+New Mauritius Hotels 594,768 838
--------------
MULTI-INDUSTRY
Mon Tressor Desert 66,368 102
Rogers & Co. Ltd. 470,000 2,113
--------------
2,215
--------------
9,435
--------------
- ----------------------------------------------------------------------------------
- ------------
MOROCCO (6.2%)
BANKING
+BMCE 60,000 2,697
+BMCE (Bonus Shares) 17,142 770
+Wafabank 30,000 1,396
--------------
4,863
--------------
ELECTRICAL & ELECTRONICS
Alcatel Alsthom (MAD) 19,400 1,312
--------------
MULTI-INDUSTRY
Groupe Ona 47,500 2,178
SNI Maroc 109,640 6,913
--------------
9,091
--------------
15,266
--------------
- ----------------------------------------------------------------------------------
- ------------
SOUTH AFRICA (52.0%)
APPLIANCES & HOUSEHOLD DURABLES
Ellerine Holdings Ltd. 268,881 1,545
JD Group Ltd. 551,603 2,992
--------------
4,537
--------------
BANKING
Amalgamated Banks of South Africa 1,768,000 9,793
Nedcor Ltd. 34,800 526
+#Nedcor Ltd. GDR 350,000 5,250
+#Nedcor Ltd. (Warrants), expiring 9/30/97 95,000 321
--------------
15,890
--------------
BUSINESS & PUBLIC SERVICES
+Educor 750,000 580
--------------
- ----------------------------------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------------
- ------------
SOUTH AFRICA (CONTINUED)
<S> <C> <C>
BROADCASTING & PUBLISHING
+Nasionale Pers Beperk 'N' 220,000 U.S.$ 2,437
Omni Media Corp. 134,628 2,206
Perskor Beleggings Beperk 112,500 1,168
--------------
5,811
--------------
CHEMICALS
Polfin Ltd. 1,543,000 2,806
SASOL Ltd. 1,164,342 12,630
--------------
15,436
--------------
CONSTRUCTION & HOUSING
Concor Ltd. 265,122 1,285
LTA Ltd. 239,200 1,021
--------------
2,306
--------------
ELECTRICAL & ELECTRONICS
Allied Electronics Corp., Ltd. 720,000 1,213
+Dimension Data Holdings Ltd. 3,070,920 5,330
Spescom Electronics Ltd. 1,000,000 923
Voltex Holdings Ltd. 867,526 651
--------------
8,117
--------------
ENERGY SOURCES
Trans Natal Coal Corp. Ltd. 466,500 3,257
--------------
FOOD & HOUSEHOLD PRODUCTS
Premier Group Holdings Ltd. 2,087,023 3,015
--------------
GOLD MINES
Driefontein Consolidation Ltd. 219,350 2,936
Free State Consolidation Gold Mines Ltd. 291,500 2,742
Kloof Gold Mining Co. Ltd. 317,500 3,004
--------------
8,682
--------------
INSURANCE
Fedsure Holdings Ltd. 170,000 1,207
Sage Group Ltd. 1,005,000 4,824
--------------
6,031
--------------
LEISURE & TOURISM
Kersaf Investments Ltd. 150,000 1,537
Leisurenet Ltd. 114,510 85
Servgro International Ltd. 508,900 2,995
Spur Holdings Ltd. 700,000 1,454
Sun International (South Africa) Ltd. 2,343,571 2,583
--------------
8,654
--------------
MACHINERY & ENGINEERING
+Howden Africa Holdings Ltd. 840,500 960
--------------
MANUFACTURING
+Tiger Wheels Ltd. 100,000 323
--------------
MERCHANDISING
Lewis Foschini Ltd. 556,200 911
+Housewares Group Ltd. 750,000 1,194
+Metro Cash and Carry Ltd. 640,000 2,474
Specialty Stores Ltd. 'N' 1,440,000 1,762
Storeco Ltd. 'N' 301,230 382
--------------
6,723
--------------
- ----------------------------------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------------
- ------------
<S> <C> <C>
METALS -- NON-FERROUS
Potgietersrust Platinums Ltd. 307,549 U.S.$ 1,544
Rustenburg Platinum Holdings Ltd. 61,018 951
--------------
2,495
--------------
METALS -- STEEL
ISCOR Ltd. 2,525,000 1,975
--------------
MULTI-INDUSTRY
Anglo American Industrial Corp. 98,500 3,955
Barlow Ltd. 945,700 9,876
Bidvest Group Ltd. 1,010,838 6,042
+Corporate Africa 2,500,000 1,050
+Corporate Africa (Preferred) 12,500,000 5,366
Gencor Ltd. 1,200,300 4,432
Rembrandt Group Ltd. 358,200 3,365
--------------
34,086
--------------
128,878
--------------
- ----------------------------------------------------------------------------------
- ------------
ZIMBABWE (6.7%)
BEVERAGES
Delta Corp. Ltd. 2,509,000 6,412
--------------
BUILDING MATERIALS & COMPONENTS
PG Industries 440,614 230
Portland Holdings Ltd. 520,000 500
--------------
730
--------------
ENERGY SOURCES
Wankie Colliery Co. Ltd. 6,872,900 1,739
--------------
FINANCIAL SERVICES
Northchart Investment Ltd. 874,880 753
--------------
FOOD & HOUSEHOLD PRODUCTS
Colcom Holdings 2,250,000 478
+***Colcom Holdings (Rights), expiring 7/12/96 562,500 --
Eastern Highlands 2,290,000 267
Hippo Valley Estates Ltd. 1,900,000 1,250
--------------
1,995
--------------
LEISURE & TOURISM
Zimbabwe Sun 4,058,135 1,438
--------------
METALS -- NON-FERROUS
Bindura Nickel Corp. Ltd. 375,000 493
--------------
MULTI-INDUSTRY
TA Holdings Ltd. 7,700,000 1,130
Trans Zambezi Industries Ltd. 627,482 941
TSL Ltd. 2,540,000 887
--------------
2,958
--------------
16,518
--------------
- ----------------------------------------------------------------------------------
- ------------
TOTAL AFRICAN COMMON STOCKS
(Cost U.S. $169,327) 189,540
--------------
- ----------------------------------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------------
- ------------
UNITED KINGDOM COMMON STOCK (3.3%)
<S> <C> <C>
- ----------------------------------------------------------------------------------
- ------------
MULTI-INDUSTRY
Lonrho plc (Cost U.S. $6,957) 2,896,310 U.S.$ 8,297
--------------
- ----------------------------------------------------------------------------------
- ------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- ----------------------------------------------------------------------------------
- ------------
DEBT INSTRUMENTS (17.3%)
- ----------------------------------------------------------------------------------
- ------------
ALGERIA (1.2%)
LOAN AGREEMENTS
###pAlgeria Reprofiled Loan
+++ Agreement 'A' 1992 7.00%, 3/4/00 U.S.$ 5,000 2,925
--------------
- ----------------------------------------------------------------------------------
- ------------
IVORY COAST (2.6%)
LOAN AGREEMENTS
++Republic of the Ivory Coast Syndicated Loan FRF 168,857 6,489
--------------
- ----------------------------------------------------------------------------------
- ------------
MOROCCO (4.7%)
LOAN AGREEMENTS
~+++Kingdom of Morocco Restructuring and
Consolidation Agreement 'A' 6.4375%, 1/1/09
(Participation: Bankers Trust, Merrill Lynch,
Bank Paribas and Salomon Brothers) U.S.$ 16,000 11,540
--------------
- ----------------------------------------------------------------------------------
- ------------
NIGERIA (3.6%)
LOAN AGREEMENTS
Central Bank of Nigeria Promissory Notes 8.00%,
1/5/10 20,000 8,850
--------------
- ----------------------------------------------------------------------------------
- ------------
SOUTH AFRICA (5.2%)
GOVERMENT BONDS
Republic of South Africa
Series 147 11.50%, 5/30/00 ZAR 3,750 797
Series 150 12.00%, 2/28/05 10,350 2,076
Series 153 13.00%, 8/31/10 9,300 1,895
Series 162 12.50%, 1/15/02 8,700 1,857
Series 175 9.00%, 10/15/02 3,000 527
Series 177 9.50%, 5/15/07 2,250 366
--------------
7,518
--------------
INSURANCE
Liberty Life Strategic Investments Ltd.
(Convertible) 6.50%, 9/30/04 U.S.$ 4,000 5,300
--------------
12,818
--------------
- ----------------------------------------------------------------------------------
- ------------
TOTAL DEBT INSTRUMENTS
(Cost U.S. $44,523) 42,622
--------------
- ----------------------------------------------------------------------------------
- ------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<S> <C> <C>
- ----------------------------------------------------------------------------------
- ------------
SHORT-TERM INVESTMENT (1.1%)
- ----------------------------------------------------------------------------------
- ------------
UNITED STATES (1.1%)
REPURCHASE AGREEMENT
Chase Securities, Inc. 5.15%, dated 6/28/96, due
7/1/96, to be repurchased at U.S. $2,616,
collateralized by U.S. $2,570 United States
Treasury Notes 7.125%, due 9/30/99, valued at
U.S. $2,627 (Cost U.S. $2,615) U.S.$ 2,615 U.S.$ 2,615
--------------
- ----------------------------------------------------------------------------------
- ------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.8%)
Egyptian Pound EGP 1,127 331
Mauritius Rupee MUR 475 24
South African Rand ZAR 7,134 1,646
Zimbabwe Dollar ZWD 986 100
--------------
(Cost U.S. $2,096) 2,101
--------------
- ----------------------------------------------------------------------------------
- ------------
TOTAL INVESTMENTS (99.0%)
(Cost U.S. $225,518) 245,175
--------------
- ----------------------------------------------------------------------------------
- ------------
OTHER ASSETS (2.6%)
Receivable for Investments Sold U.S.$ 4,774
Dividends Receivable 888
Interest Receivable 859
Deferred Organization Costs 31
Other Assets 49 6,601
------------- --------------
- ----------------------------------------------------------------------------------
- ------------
LIABILITIES (-1.6%)
Payable for:
Investments Purchased (3,407)
Investment Advisory Fees (235)
Custodian Fees (141)
Bank Overdraft (40)
Shareholder Reporting Expenses (75)
Professional Fees (43)
Administrative Fees (21)
Directors' Fees and Expenses (19)
Other Liabilities (39) (4,020)
------------- --------------
- ----------------------------------------------------------------------------------
- ------------
NET ASSETS (100%)
Applicable to 15,448,477 issued and outstanding U.S. $0.01 par
value shares (100,000,000 shares authorized) U.S.$ 247,756
-----------
- ----------------------------------------------------------------------------------
- ------------
NET ASSET VALUE PER SHARE U.S.$ 16.04
-----------
- ----------------------------------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
(000)
- ----------------------------------------------------------------------------------
------------
AT JUNE 30 1996, NET ASSETS CONSISTED OF:
<S> <C> <C>
- ----------------------------------------------------------------------------------
Common Stock U.S.$ 154
Capital Surplus 216,929
Undistributed Net Investment Income 3,447
Accumulated Net Realized Gain 7,589
Unrealized Appreciation on Investments and Foreign Currency
Translations 19,637
- ----------------------------------------------------------------------------------
- ------------
TOTAL NET ASSETS U.S.$ 247,756
-----------
- ----------------------------------------------------------------------------------
- ------------
</TABLE>
+ -- Non-income producing.
++ -- Non-income producing -- in default.
+++ -- Variable/floating rate security -- rate disclosed is as of June 30,
1996.
* -- Security valued at cost -- See note A-1 to financial statements.
*** -- Security valued at fair value as determined based on the market value
of the underlying security less subscription cost.
# -- 144A Security -- certain conditions for public sale may exist.
### -- Under restructuring at June 30, 1996 -- See note A-6 to financial
statements.
p -- Issuer is making partial interest payments.
~ -- Participation interests were acquired through the financial
institutions listed parenthetically.
GDR -- Global Depositary Receipt.
- --------------------------------------------------------------------------------
- ------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of forward foreign currency exchange contracts open at June
30, 1996, the Fund is obligated to deliver U.S. dollars in exchange for
foreign currency as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN NET
TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN
(000) (000) DATE (000) (000) (000)
- --------- --------- ------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
U.S.$ 11 U.S.$11 7/1/96 ZWD 106 U.S.$11 U.S.$--
22 22 7/2/96 ZWD 222 22 --
--------- --------- -----------
U.S.$33 U.S.$33 U.S.$--
--------- --------- -----------
--------- --------- -----------
- ------------------------------------------------------------------------
- -------------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996 EXCHANGE RATES:
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
BWP Botswana Pula 3.361 = U.S. $1.00
EGP Egyptian Pound 3.402 = U.S. $1.00
FRF French Franc 5.139 = U.S. $1.00
GBP British Pound 0.644 = U.S. $1.00
GHC Ghana Cedis 1,665.000 = U.S. $1.00
MAD Moroccan Dirham 8.723 = U.S. $1.00
MUR Mauritius Rupee 20.015 = U.S. $1.00
ZAR South African Rand 4.333 = U.S. $1.00
ZWD Zimbabwe Dollar 9.880 = U.S. $1.00
- -------------------------------------------------------------------
- ------------
</TABLE>
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY
CLASSIFICATION -- JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
<S> <C> <C>
- --------------------------------------------------------------------
- ------------
Appliances & Household Durables U.S.$ 4,537 1.8%
Banking 31,722 12.8
Beverages 11,014 4.5
Broadcasting & Publishing 5,811 2.4
Building Materials & Components 3,814 1.6
Business & Public Services 580 0.2
Chemicals 15,792 6.4
Construction & Housing 2,306 0.9
Electrical & Electronics 9,429 3.8
Energy Sources 4,996 2.0
Financial Services 1,256 0.5
Food & Household Products 8,973 3.6
Gold Mines 8,682 3.5
Government Bonds 7,518 3.0
Insurance 11,331 4.6
Leisure & Tourism 10,930 4.4
Loan Agreements 29,804 12.0
Machinery & Engineering 960 0.4
Manufacturing 323 0.1
Merchandising 6,723 2.7
Metals -- Non-Ferrous 3,083 1.2
Metals -- Steel 1,975 0.8
Multi-Industry 56,647 22.9
Real Estate 876 0.4
Tobacco 1,377 0.6
Other 4,716 1.9
------------ ---
U.S.$245,175 99.0%
------------ ---
------------ ---
- --------------------------------------------------------------------
- ------------
</TABLE>
SUMMARY OF TOTAL INVESTMENTS BY COUNTRY --
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
COUNTRY (000) ASSETS
<S> <C> <C>
- --------------------------------------------------------------------
- ------------
Algeria U.S.$ 2,925 1.2%
Botswana 3,942 1.6
Egypt 12,100 4.9
Ghana 3,732 1.5
Ivory Coast 6,489 2.6
Mauritius 9,459 3.8
Morocco 26,806 10.8
Nigeria 8,850 3.6
South Africa 143,342 57.9
United Kingdom 8,297 3.3
United States (short term investments) 2,615 1.1
Zimbabwe 16,618 6.7
------------ ---
U.S.$245,175 99.0%
------------ ---
------------ ---
- --------------------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1996
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
<S> <C>
- ------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends................................................................... U.S.$ 2,770
Interest.................................................................... 3,082
Less: Foreign Taxes Withheld................................................ (112)
- ------------------------------------------------------------------------------------------------
Total Income.............................................................. 5,740
- ------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees.................................................... 1,562
Custodian Fees.............................................................. 293
Administration Fees......................................................... 134
Directors' Fees and Expenses................................................ 63
Professional Fees........................................................... 54
Shareholder Reporting Expenses.............................................. 52
Transfer Agent Fees......................................................... 9
Other Expenses.............................................................. 79
- ------------------------------------------------------------------------------------------------
Total Expenses............................................................ 2,246
- ------------------------------------------------------------------------------------------------
Net Investment Income................................................. 3,494
- ------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold.................................................. 13,434
Foreign Currency Transactions............................................... (1,050)
- ------------------------------------------------------------------------------------------------
Net Realized Gain..................................................... 12,384
- ------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments................................................. (27,439)
Depreciation on Foreign Currency Translations............................... (11)
- ------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation........................ (27,450)
- ------------------------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized Appreciation/Depreciation...... (15,066)
- ------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ U.S.$(11,572)
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31,
(UNAUDITED) 1995
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income............................................... U.S.$ 3,494 U.S.$ 9,966
Net Realized Gain................................................... 12,384 6,939
Change in Unrealized Appreciation/Depreciation...................... (27,450) 38,714
- -----------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations..... (11,572) 55,619
- -----------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income............................................... -- (14,847)
In Excess of Net Investment Income.................................. -- (47)
Net Realized Gains.................................................. (4,100) (226)
- -----------------------------------------------------------------------------------------------------------
Total Distributions................................................. (4,100) (15,120)
- -----------------------------------------------------------------------------------------------------------
Total Increase (Decrease)........................................... (15,672) 40,499
Net Assets:
Beginning of Period................................................. 263,428 222,929
- -----------------------------------------------------------------------------------------------------------
End of Period (including undistributed (distributions in excess of)
net investment income of U.S. $3,447 and U.S. $(47),
respectively)...................................................... U.S.$247,756 U.S.$263,428
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS FEBRUARY 14,
ENDED YEAR ENDED 1994*
JUNE 30, 1996 DECEMBER 31, TO DECEMBER 31,
SELECTED PER SHARE DATA AND RATIOS: (UNAUDITED) 1995 1994
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD................... U.S.$ 17.05 U.S.$ 14.43 U.S.$ 14.10
- ------------------------------------------------------------------------------------------------------------
Offering Costs......................................... -- -- (0.05)
- ------------------------------------------------------------------------------------------------------------
Net Investment Income.................................. 0.23 0.64 0.54
Net Realized and Unrealized Gain (Loss) on
Investments........................................... (0.97) 2.95 0.38
- ------------------------------------------------------------------------------------------------------------
Total from Investment Operations................... (0.74) 3.59 0.92
- ------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income.............................. -- (0.96) (0.54)
In Excess of Net Investment Income................. -- (0.00)# (0.00)#
Net Realized Gains................................. (0.27) (0.01) --
- ------------------------------------------------------------------------------------------------------------
Total Distributions................................ (0.27) (0.97) (0.54)
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD......................... U.S.$ 16.04 U.S.$ 17.05 U.S.$ 14.43
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD.................. U.S.$ 12.63 U.S.$ 12.88 U.S.$ 11.38
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value....................................... 0.14% 20.84% (15.37)%
Net Asset Value (1)................................ (3.93)% 26.14% 7.34%
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS).................. U.S.$247,756 U.S.$263,428 U.S.$222,929
- ------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets................ 1.73%** 1.77% 1.87%**
Ratio of Net Investment Income to Average Net Assets... 2.69%** 4.18% 4.47%**
Portfolio Turnover Rate................................ 33% 66% 32%
Average Commission Rate (2)............................ U.S.$ 0.0136 N/A N/A
- ------------------------------------------------------------------------------------------------------------
*Commencement of Operations.
**Annualized.
#Amount is less than U.S.$0.01 per share
(1)Total investment return based on net asset value per share reflects the effects of changes in net asset
value on the performance of the Fund during each period, and assumes dividends and distributions, if any,
were reinvested. 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 of the Fund.
(2)Beginning with fiscal year 1996, the Fund is required to disclose the average commission rate per share
it paid for portfolio trades on which commissions were charged during the period.
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
- ----------
The Morgan Stanley Africa Investment Fund, Inc. (the "Fund") was
incorporated in Maryland on December 14, 1993, 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 VALUATIONS: In valuing the Fund's assets, all listed securities
for which market quotations are readily available are valued at the last
sales price on the valuation date, or if there was no sale on such date, at
the mean between the current bid and asked prices. Securities which are
traded over-the-counter are valued at the average of the mean of current bid
and asked prices obtained from reputable brokers. Short-term securities
which mature in 60 days or less are valued at amortized cost. All other
securities and assets for which market values are not readily available
(including investments which are subject to limitations as to their sale)
are valued at fair value as determined in good faith by the Board of
Directors (the "Board"), although the actual calculations may be done by
others.
2. TAXES: It is the Fund's intention to continue to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial
statements.
The Fund may be subject to taxes imposed by countries in which it invests.
The Fund accrues such taxes when the related income is earned.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the
underlying securities, with a market value at least equal to the amount of
the repurchase transaction, including principal and accrued interest. To the
extent that any repurchase transaction exceeds one business day, the value
of the collateral is marked-to-market on a daily basis to determine the
adequacy of the collateral. In the event of default on the obligation to
repurchase, the Fund has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. In the event of default or
bankruptcy by the counter-party 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. Foreign currency amounts are translated into
U.S. dollars at the mean of the bid and asked prices of such currencies
against U.S. dollars last quoted by a major bank as follows:
- investments, other assets and liabilities at the prevailing rates of
exchange on the valuation date;
- investment transactions and investment income at the prevailing rates
of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates 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 rates from the fluctuations arising from
changes in the market prices of the securities held at period end.
Similarly, the Fund does not isolate the effects of changes in foreign
exchange rates from the fluctuations arising from changes in the market
prices of securities sold during the period. Accordingly, realized and
unrealized foreign currency gains (losses) are included in the reported net
realized and unrealized gains (losses) on investment transactions and
balances.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from sales and maturities of forward foreign
currency exchange contracts, disposition of foreign currency, currency gains
or losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized currency gains
(losses) from valuing foreign currency denominated assets and liabilities at
period end exchange rates are reflected as a component of unrealized
appreciation (depreciation) in the Statement of Net Assets. The change in
net unrealized currency gains (losses) for the period is reflected in the
Statement of Operations.
5. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into
forward foreign currency exchange contracts to attempt to protect securities
and related receivables and payables against changes in future foreign
exchange rates. A forward foreign currency exchange contract is an agreement
12
<PAGE>
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 gain
on the contracts, if any, at the date of default. Risks may also arise from
unanticipated movements in the value of foreign currency relative to the
U.S. dollar.
6. DEBT INSTRUMENTS: The Fund may invest in debt instruments including those
in the form of fixed and floating rate loans ("Loans") arranged through
private negotiations between an issuer of sovereign debt obligations and one
or more financial institutions ("Lenders") deemed to be creditworthy by the
investment adviser. The Fund's investments in Loans may be in the form of
participations in Loans ("Participations") or assignments ("Assignments") of
all or a portion of Loans from third parties. The Fund's investment in
Participations typically results in the Fund having a contractual
relationship with only the Lender and not with the borrower. The Fund has
the right to receive payments of principal, interest and any fees to which
it is entitled only from the Lender selling the Participation and only upon
receipt by the Lender of the payments from the borrower. The Fund generally
has no right to enforce compliance by the borrower with the terms of the
loan agreement. As a result, the Fund may be subject to the credit risk of
both the borrower and the Lender that is selling the Participation. When the
Fund purchases Assignments from Lenders it acquires direct rights against
the borrower on the Loan. Because Assignments are arranged through private
negotiations between potential assignees and potential assignors, the rights
and obligations acquired by the Fund as the purchaser of an Assignment may
differ from, and be more limited than, those held by the assigning Lender.
7. WRITTEN OPTIONS: The Fund may write covered call options in an attempt to
increase the Fund's total return. The Fund will receive premiums that are
recorded as liabilities and subsequently adjusted to the current value of
the options written. Premiums received from writing options which expire are
treated as realized gains. Premiums received from writing options which are
exercised or are closed are offset against the proceeds or amount paid on
the transaction to determine the net realized gain or loss. By writing a
covered call option, the Fund foregoes in exchange for the premium the
opportunity for capital appreciation above the exercise price should the
market price of the underlying security increase.
8. 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 (except certain dividends which may be recorded as soon
as the Fund is informed of such dividend) net of applicable withholding
taxes where recovery of such taxes is not reasonably assured. Distributions
to shareholders are recorded on the ex-date.
The amount and character of income and capital gain distributions to be paid
are determined in accordance with Federal income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing book and tax treatments for foreign currency
transactions, gains on certain securities of corporations designated as
"passive foreign investment companies" and of the timing of the recognition
of losses on securities.
Permanent book and tax basis differences relating to shareholder
distributions may result in reclassifications to undistributed net
investment income (loss), accumulated net realized gain (loss) and capital
surplus.
Adjustments for permanent book-tax differences, if any, are not reflected in
ending undistributed net investment income (loss) for the purpose of
calculating net investment income (loss) per share in the financial
highlights.
B. Morgan Stanley Asset Management Inc. (the "Adviser") provides investment
advisory services to the Fund under the terms of an Investment Advisory and
Management Agreement (the "Agreement"). Under the Agreement, the Adviser is paid
a fee computed weekly and payable monthly at an annual rate of 1.20% of the
Fund's average weekly net assets.
C. The Chase Manhattan Bank, through its affiliate Chase Global Funds Services
Company (the "Administrator"), provides administrative services to the Fund
under an Administration Agreement. Under the Administration Agreement, the
Administrator is paid a fee computed weekly and payable monthly at an annual
rate of 0.06% of the Fund's average weekly net assets, plus $100,000 per annum.
In addition, the Fund is charged certain
13
<PAGE>
out-of-pocket expenses by the Administrator. The Chase Manhattan Bank, acts as
custodian for the Fund's assets held in the United States.
D. Morgan Stanley Trust Company (the "International Custodian"), an affiliate
of the Adviser, acts as custodian for the Fund's assets held outside the United
States in accordance with a Custody Agreement. International Custodian fees are
payable monthly based on Fund assets under custody plus an amount for each
transaction effected. For the six months ended June 30, 1996, international
custodian fees totaled $290,000, of which $140,000 was payable to the
International Custodian at June 30, 1996. In addition, for the six months ended
June 30, 1996, the Fund has earned interest income of $266,000 and incurred
interest expense of $12,000 on balances with the International Custodian.
E. During the six months ended June 30, 1996, the Fund made purchases and sales
totaling $83,823,000 and $92,885,000, respectively, of investment securities
other than long-term U.S. Government securities and short term investments.
There were no purchases and sales of long-term U.S. Government securities. At
June 30, 1996, the U.S. Federal income tax cost basis of securities was
$223,422,000 and accordingly, net unrealized appreciation for U.S. Federal
income tax purposes was $19,652,000 of which $34,779,000 related to appreciated
securities and $15,127,000 related to depreciated securities. For the year ended
December 31, 1995, the Fund expects to defer to January 1, 1996, post October
currency losses of $47,000.
F. In connection with its organization and initial public offering of shares,
the Fund incurred $60,000 and $719,000 of organization and offering costs,
respectively. The organization costs are being amortized on a straight-line
basis over a five-year period beginning February 14, 1994, the date the Fund
commenced operations. The offering costs were charged to capital.
G. A significant portion of the Fund's net assets consist of securities of
issuers located in Africa which are denominated in foreign currencies. Changes
in currency exchange rates will affect the value of and investment income from
such securities. Foreign securities are often 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, African
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. The deferred fees payable, under the Plan, at June 30, 1996 totaled $4,000
and are included in Payable for Directors' Fees and Expenses on the Statement of
Net Assets.
I. SUPPLEMENTAL PROXY INFORMATION. The Annual Meeting of the Stockholders of
the Morgan Stanley Africa Investment Fund, Inc. was held on June 5, 1996. The
following is a summary of each proposal presented and the total number of shares
voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES VOTES
PROPOSAL: FAVOR OF AGAINST WITHHELD ABSTAINED
- ------------------------------------------------------------------------------ --------- --------- ----------- -----------
<S> <C> <C> <C> <C>
1. To elect the following Directors, Peter J. Chase........................... 3,422,431 -- 56,494 --
David B. Gill.................................. 3,421,871 -- 57,054 --
Warren J. Olsen................................ 3,421,002 -- 57,923 --
2. To ratify the selection of Price Waterhouse LLP as independent public
accountants of the Fund..................................................... 3,465,762 524 -- 12,641
3. To approve of the Investment Advisory and Management Agreement with Morgan
Stanley Asset Management Inc................................................ 3,371,580 80,272 -- 27,067
4. To request and recommend that the Board of Directors take the necessary
steps to revise certain fundamental investment policies..................... 365,416 2,569,460 -- 38,078
5. To request and recommend that the Board of Directors take the necessary
steps to ensure that there will be no further rights offerings by the Fund
at any time in the future................................................... 918,692 2,014,454 -- 39,808
</TABLE>
14
<PAGE>
________________________________________________________________________________
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS* (UNAUDITED)
________________________________________________________________________________
<TABLE>
<CAPTION>
NET REALIZED GAIN
NET INCREASE
(LOSS) AND CHANGE
NET INVESTMENT IN UNREALIZED (DECREASE) IN NET
INVESTMENT APPRECIATION/ ASSETS RESULTING
INCOME INCOME DEPRECIATION FROM OPERATIONS
--------------- -------------- ----------------- ------------------
PER PER PER PER
QUARTER ENDED AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
- ------------------------------ ------- ----- ------ ----- -------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1996................. $2,737 $0.18 $1,687 $0.11 $(11,718) $(0.75) $(10,031) $(0.64)
March 31, 1996................ 3,003 0.19 1,807 0.12 (3,348) (0.22) (1,541) (0.10)
------- ----- ------ ----- -------- ------ -------- -------
Total..................... $5,740 $0.37 $3,494 $0.23 $(15,066) $(0.97) $(11,572) $(0.74)
------- ----- ------ ----- -------- ------ -------- -------
------- ----- ------ ----- -------- ------ -------- -------
December 31, 1995............. $4,495 $0.29 $3,313 $0.22 $ 27,926 $ 1.80 $ 31,239 $ 2.02
September 30, 1995............ 3,198 0.21 2,154 0.13 8,657 0.56 10,811 0.69
June 30, 1995................. 3,179 0.21 2,063 0.13 7,581 0.50 9,644 0.63
March 31, 1995................ 3,316 0.21 2,436 0.16 1,489 0.09 3,925 0.25
------- ----- ------ ----- -------- ------ -------- -------
Total..................... $14,188 $0.92 $9,966 $0.64 $ 45,653 $ 2.95 $ 55,619 $ 3.59
------- ----- ------ ----- -------- ------ -------- -------
------- ----- ------ ----- -------- ------ -------- -------
December 31, 1994............. $3,178 $0.21 $2,069 $0.13 $ 8,942 $ 0.58 $ 11,011 $ 0.71
September 30, 1994............ 2,851 0.18 2,123 0.14 20,276 1.31 22,399 1.45
June 30, 1994................. 4,329 0.28 3,262 0.21 7,563 0.49 10,825 0.70
March 31, 1994**.............. 1,412 0.09 848 0.06 (30,942) (2.00) (30,094) (1.94)
------- ----- ------ ----- -------- ------ -------- -------
Total..................... $11,770 $0.76 $8,302 $0.54 $ 5,839 $ 0.38 $ 14,141 $ 0.92
------- ----- ------ ----- -------- ------ -------- -------
------- ----- ------ ----- -------- ------ -------- -------
</TABLE>
________________________________________________________________________________
* Expressed in thousands of U.S. dollars except per share amounts.
** The Fund commenced operations on February 14, 1994.
The Fund may purchase shares of its Common Stock in the open market at such
prices and in such amounts as the Board of Directors may deem advisable.
15
<PAGE>
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
each shareholder will be deemed to have elected, unless American Stock Transfer
& Trust Company (the "Plan Agent") is otherwise instructed by the shareholder in
writing, to have all distributions automatically reinvested in Fund shares.
Participants in the Plan have the option of making additional voluntary cash
payments to the Plan Agent, annually, in any amount from $100 to $3,000, for
investment in Fund shares.
Dividend and capital gain distributions will be reinvested on the
reinvestment date in full and fractional shares. If the market price per share
equals or exceeds net asset value per share on the reinvestment date, the Fund
will issue shares to participants at net asset value. If net asset value is less
than 95% of the market price on the reinvestment date, shares will be issued at
95% of the market price. If net asset value exceeds the market price on the
reinvestment date, participants will receive shares valued at market price. The
Fund may purchase shares of its Common Stock in the open market in connection
with dividend reinvestment requirements at the discretion of the Board of
Directors. Should the Fund declare a dividend or capital gain distribution
payable only in cash, the Plan Agent will purchase Fund shares for participants
in the open market as agent for the participants.
The Plan Agent's fees for the reinvestment of dividends and distributions
will be paid by the Fund. However, each participant's account will be charged a
pro rata share of brokerage commissions incurred on any open market purchases
effected on such participant's behalf. A participant will also pay brokerage
commissions incurred on purchases made by voluntary cash payments. Although
shareholders in the Plan may receive no cash distributions, participation in the
Plan will not relieve participants of any income tax which may be payable on
such dividends and distributions.
In the case of shareholders, such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are participating in the
Plan.
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. The provisions of the
Plan have been modified to conform to the above description regarding the option
of Participants to make additional voluntary cash payments to the Plan on an
annual, rather than monthly, basis. Requests for additional information or any
correspondence concerning the Plan should be directed to the Plan Agent at:
Morgan Stanley Africa 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
16
