<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.
---------------------
ANNUAL REPORT
DECEMBER 31, 1995
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
The total return of the Morgan Stanley Africa Investment Fund, Inc. (the "Fund")
based on net asset value per share, was 13.72% for the fourth quarter of 1995,
bringing the full year's return to 26.14%. The annual return includes the
year-end distribution of $0.97 per share.
This strong performance was due to a number of factors. First, the Fund's
overweight position in South African industrial shares at the cost of mining and
gold shares significantly enhanced the Fund's performance. At December 31, 1995,
the Fund's South African equity portfolio was comprised of 90% industrial shares
and 10% in mining related shares. For 1995, the JOHANNESBURG INDUSTRIAL INDEX
appreciated by 27% while the JOHANNESBURG ALL GOLD INDEX declined by 27%. Barlow
operating in the infrastructure sector, is the Fund's largest equity position
representing 5.1% of net assets as of December 31, 1995, and appreciated by 45%
during the year and was a major contributor to the Fund's strong performance.
Second, the Fund's debt portfolio with investments in Algeria, Ivory Coast,
Morocco and Nigeria provided a total return in 1995 in excess of 25%. Finally,
the Fund had a 4% exposure in Zimbabwe which was the third best performing
emerging market in 1995, posting a dollar return of 12%.
In 1995, the Fund continued to diversify its investment geographically in
markets with improving fundamentals. During the fourth quarter, the Fund began
investing in Egypt while also increasing its exposure to Mauritius and Zimbabwe.
Although these markets are small with market capitalizations between $1.5 - $5
billion, they trade at very attractive multiples which range from 6x - 10x
prospective earnings, 1-1.5x book value, and provide good dividend yields. Real
GDP growth in 1996 is expected to exceed 5% in these markets. In 1996, provided
that valuations remain attractive, the Fund will continue to selectively
increase its exposure to these markets.
SOUTH AFRICA
South Africa's fundamentals continue to improve. Inflation is under control and
appears to have stabilized at the 6.5% level, the currency has been stable while
foreign exchange reserves have been rising and are currently at eight weeks of
import cover. Money supply growth is gradually being brought under control and
is beginning to decline and fiscal policy continues to be well managed by the
Government of National Unity. Agriculture, which represents 20% of GDP should be
a major beneficiary from the heavy rainfall received in South Africa in December
1995. Some dams which had been only 15% full at the beginning of December, were
at capacity by the end of the month. Due to the drought in 1994, food inflation
in early 1995 was high-running at a 21% rate. Presently, food inflation is well
under control and has been declining on a year-on-year basis. As a result of the
widespread and much needed rainfall in late 1995, we expect the economy to post
solid growth in 1996 and have revised our GDP forecast to 4.5%.
Currently, South Africa has one of the highest real interest rates in the world
of approximately 8% and as a result, we expect a rate cut in 1996. Gross
Domestic Fixed Investment is forecast to have grown by 8% in 1995 and should
increase by a similar amount in 1996 as a number of new projects currently are
underway. Given all the preceding, corporate earnings growth for the industrial
sector should approximate 25% for 1996. For 1996, we believe the infrastructure,
banking, tourism, furniture and retailing, and electronics and electrical
sectors will perform well as the long delayed Reconstruction and Development
Plan (RDP) is begun to be implemented. In our opinion the RDP will gather
momentum in the second half of 1996 as the newly elected municipal authorities
are able to manage and deliver the much needed services and infrastructure.
EGYPT
During the fourth quarter, the Fund initiated a position in Egypt. Egypt, by
signing a peace treaty with Israel in 1978 is one of the original architects of
peace in the Middle East. Consequently, it will be one of the primary
beneficiaries of stability in the region. Egypt has a population of 60 million
and as such is the most populated Arab country. 65% of Egyptians are below the
age of 25 years. 25% of the country's population resides in Cairo, the most
populated city in Africa.
The country's macro-economic situation has been improving over the past couple
of years. Inflation has declined from 21% in 1989 to 9% currently, foreign
exchange reserves are at historic highs of $17.5 billion
2
<PAGE>
and the fiscal deficit as a percentage of GDP has declined from 15% in 1991 to
1.7% in 1995. GDP growth has averaged 3.5% over the past five years and we are
projecting 4.2% for 1996.
The Cairo Stock Exchange is the biggest in the region with over 700 listed
stocks with a total market capitalization in excess of $5 billion. The market is
undervalued and trades at a prospective price to earnings ratio of 7x and is
supported by prospective dividend yields in excess of 9%. The Fund initiated a
position in Commercial International Bank which was formed as a joint venture
with Chase Manhattan Bank and uses a number of Chase risk management systems.
The bank is well managed and provisioned and trades at 9x earnings, has a
dividend yield of 10% with a return on equity of 24%. The Fund also invested in
Torah Portland Cement which is the largest producer of cement in Egypt with a
market share of over 17%. Torah supplies cement to Cairo and surrounding areas
and has an installed capacity of 3.5 million tons per annum. The company trades
at
7x prospective earnings with a 12% dividend yield.
In 1996, we expect foreign portfolio investment to increase in Africa primarily
in South Africa and some of the smaller, less followed markets, where the Fund
has been increasing its exposure. In our opinion, 1996 will be another good year
for African markets and we are confident that the Fund will be a direct
beneficiary of this new capital inflow.
The Fund's strategy to maintain significant holdings in African fixed income
securities paid off handsomely in 1995. Emerging debt prices posted very strong
gains over the course of the year, after sharp declines during the post-Mexican
devaluation collapse in the first quarter. The Fund's positions in Morocco,
South Africa, Algeria and especially Nigeria provided the Fund with returns
ranging from 15%-45%. In keeping with the overall long-term strategy, we
gradually reduced debt positions over the term in favor of new equity
opportunities in the region.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT
[SIGNATURE]
Marianne L. Hay
SENIOR PORTFOLIO MANAGER
[SIGNATURE]
Jaideep Khanna
PORTFOLIO MANAGER
February 7, 1996
3
<PAGE>
Morgan Stanley Africa Investment Fund, Inc.
Investment Summary as of December 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
TOTAL RETURN (%)
--------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2)
------------------------ ------------------------
AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL
------------------------ ------------------------
<S> <C> <C> <C> <C>
ONE YEAR 20.84% 20.84% 26.14% 26.14%
SINCE INCEPTION* 2.26 1.20 35.43 17.54
</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>
1994* 1995
Net Asset Value Per Share $ 14.43 $ 17.05
Market Value Per Share $11.38 $12.88
Premium/Discount -21.1% -24.5%
Income Dividends $0.54 $0.96
Capital Gains Distributions - $0.01
Fund Total Return (2) 7.34% 26.14%
</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
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 December 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 74.1%
Debt Securities 18.2%
Other 7.7%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Multi-Industry 24.4%
Debt Instruments 19.8%
Banking 7.2%
Merchandising 7.2%
Electrical & Electronics 5.4%
Financial Services 4.7%
Energy Sources 4.2%
Food & Household Products 3.8%
Forest Products & Paper 3.3%
Beverages & Tobacco 3.2%
Other 16.8%
</TABLE>
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
South Africa 66.4%
Morocco 15.1%
Zimbabwe 4.2%
Nigeria 3.6%
United Kingdom 2.6%
Ivory Coast 2.4%
Mauritius 2.3%
Algeria 2.0%
Ghana 1.6%
Egypt 0.7%
Other -0.9%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
-------------
<C> <S> <C>
1. Kingdom of Morocco Restructuring and
Consolidation Agreement 'A' 6.59375%,
1/1/09 9.8%
2. Barlow Ltd. 5.1
3. Bidvest Group Ltd. 3.0
4. Gencor Ltd. 2.9
5. Nedcor Ltd. (Unit) 2.9
<CAPTION>
PERCENT OF
NET ASSETS
-------------
<C> <S> <C>
6. Amalgamated Banks of South Africa 2.8%
7. Nampak Ltd. 2.8
8. Engen Ltd. 2.7
9. Murray & Roberts Holdings Ltd. 2.5
10. SNI Maroc 2.5
-----
37.0%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
*Excludes short term securities
5
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS
- ---------
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------
- ------------
AFRICAN COMMON STOCKS (77.8%)
(Unless otherwise noted)
- -----------------------------------------------------------------
- -------------
EGYPT (0.5%)
BANKING
+Commercial International Bank 6,291 U.S.$ 940
---------------
BUILDING MATERIALS & COMPONENTS
+Torah Portland Cement Co. 29,995 430
---------------
CONSTRUCTION & HOUSING
+Ameriyah Cement Co. 4,000 59
---------------
1,429
---------------
- -----------------------------------------------------------------
- -------------
GHANA (1.6%)
BANKING
Standard Chartered Bank 555,000 2,216
---------------
BEVERAGES & TOBACCO
Guinness Ghana 2,909,458 437
Kumasi Breweries 336,000 140
Pioneer Tobacco Co., Ltd. 2,897,600 253
---------------
830
---------------
FINANCIAL SERVICES
+Home Finance Co. 1,620,000 130
---------------
FOOD & HOUSEHOLD PRODUCTS
+Unilever 1,575,800 911
---------------
METALS -- STEEL
+Ghana Pioneer Aluminum Factory 1,043,400 93
---------------
4,180
---------------
- -----------------------------------------------------------------
- -------------
MAURITIUS (2.3%)
BANKING
+Mauritius Commercial Bank 299,902 1,244
+Mon Tressor Desert 66,368 128
*+State Bank of Mauritius 7,000,000 2,922
---------------
4,294
---------------
MULTI-INDUSTRY
+Rogers & Co., Ltd. 279,663 1,767
---------------
6,061
---------------
- -----------------------------------------------------------------
- -------------
MOROCCO (5.4%)
BANKING
BMCE 60,000 2,763
Wafabank 30,000 1,293
---------------
4,056
---------------
FINANCIAL SERVICES
+SNI Maroc 134,640 6,598
---------------
MULTI-INDUSTRY
Groupe Ona 47,500 1,817
---------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------
- ------------
TELECOMMUNICATIONS
Alcatel Alsthom 19,400 U.S.$ 1,626
---------------
14,097
---------------
- -----------------------------------------------------------------
- -------------
SOUTH AFRICA (63.8%)
APPLIANCES & HOUSEHOLD DURABLES
Ellerine Holdings Ltd. 268,881 1,512
JD Group Ltd. 451,500 2,972
---------------
4,484
---------------
BANKING
Amalgamated Banks of South Africa 1,311,156 7,373
---------------
BEVERAGES & TOBACCO
Kersaf Investments Ltd. 380,000 4,795
South African Breweries Ltd. 70,362 2,577
---------------
7,372
---------------
BROADCASTING & PUBLISHING
Omni Media Corp. 134,628 2,142
---------------
BUSINESS & PUBLIC SERVICES
Premier Group Holdings Ltd. 2,405,313 3,959
---------------
CHEMICALS
+Polfin Ltd. 534,946 858
SASOL Ltd. 641,970 5,257
---------------
6,115
---------------
ELECTRICAL & ELECTRONICS
Altron Ltd. 500,000 1,358
Reunert Ltd. 942,421 6,463
Siltek Ltd. 140,000 1,037
Spescom Electronics Ltd. 1,000,000 1,042
Voltex Holdings Ltd. 867,526 809
---------------
10,709
---------------
ENERGY SOURCES
Engen Ltd. 935,000 7,053
Trans Natal Coal Corp. Ltd. 425,000 2,740
---------------
9,793
---------------
FINANCIAL SERVICES
+Corporate Africa 2,500,000 940
+Corporate Africa (Preferred) 12,500,000 4,800
---------------
5,740
---------------
FOOD & HOUSEHOLD PRODUCTS
Bidvest Group Ltd. 1,175,110 7,898
---------------
FOREST PRODUCTS & PAPER
Nampak Ltd. 1,319,200 7,328
Sappi Ltd. 95,000 1,459
---------------
8,787
---------------
- -----------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------
<S> <C> <C>
- ------------
SOUTH AFRICA (CONTINUED)
INSURANCE
Fedsure Holdings Ltd. 512,700 U.S.$ 3,727
Sage Group Ltd. 90,000 488
---------------
4,215
---------------
LEISURE & TOURISM
Servgro International Ltd. 272,400 1,681
Sun International (South Africa) Ltd. 1,875,000 3,125
---------------
4,806
---------------
MERCHANDISING
Foschini Ltd. 325,500 2,545
Nedcor Ltd. 145,000 2,506
#PARANedcor Ltd. (Unit, 4 GDR + 1 warrant) 110,000 7,549
Pepkor Ltd. 255,000 1,591
#Pepkor Ltd. ADR 170,000 2,122
Specialty Stores Ltd. 'N' 1,500,000 2,263
Storeco Ltd. 'N' 301,230 454
---------------
19,030
---------------
METALS -- NON-FERROUS
Impala Platinum Holdings Ltd. 122,500 2,235
Potgietersrust Platinums Ltd. 307,549 1,856
Rustenburg Platinum Holdings Ltd. 76,018 1,251
---------------
5,342
---------------
METALS -- STEEL
Iscor Ltd. 4,845,500 4,360
---------------
MULTI-INDUSTRY
Anglo American Industrial Corp. 121,000 5,502
Anglovaal Industries Ltd. 488,000 3,681
Barlow Ltd. 945,700 13,489
Concor Ltd. 225,000 1,389
Gencor Ltd. 2,200,300 7,665
Lewis Foschini Investment 'N' 1,575,900 3,999
LTA Ltd. 252,900 1,682
Murray & Roberts Holdings Ltd. 943,886 6,667
Safmarine and Rennies Holdings Ltd. 1,080,000 3,925
Tiger Oats Ltd. 227,800 3,937
---------------
51,936
---------------
TELECOMMUNICATIONS
+Dimension Data Holdings Ltd. 307,092 4,022
---------------
168,083
---------------
- -----------------------------------------------------------------
- -------------
ZIMBABWE (4.2%)
BEVERAGES & TOBACCO
+Eastern Highlands 2,100,000 282
---------------
BUILDING MATERIALS & COMPONENTS
+PG Industries 390,500 204
Portland Holdings Ltd. 520,000 477
---------------
681
---------------
ELECTRICAL & ELECTRONICS
Delta Corp. Ltd. 2,065,000 3,457
---------------
ENERGY SOURCES
Wankie Colliery Co. Ltd. 5,622,900 1,328
---------------
FOOD & HOUSEHOLD PRODUCTS
Hippo Valley Estates Ltd. 1,900,000 1,142
---------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------
- ------------
LEISURE & TOURISM
Zimbabwe Sun 3,538,135 U.S.$ 987
---------------
METALS -- NON-FERROUS
Bindura Nickel Corp. Ltd. 375,000 543
---------------
MULTI-INDUSTRY
+Colcom Holdings 2,250,000 676
TA Holdings, Ltd. 6,700,000 1,150
---------------
1,826
---------------
TEXTILES & APPAREL
+Trans Zambezi Industries Ltd. 627,482 910
---------------
11,156
---------------
- -----------------------------------------------------------------
- -------------
TOTAL AFRICAN COMMON STOCKS
(Cost U.S. $158,645) 205,006
---------------
- -----------------------------------------------------------------
- -------------
OTHER COMMON STOCKS (2.6%)
- -----------------------------------------------------------------
- -------------
UNITED KINGDOM (2.6%)
MULTI-INDUSTRY
Adam & Harvey Group plc 40,000 275
Lonrho plc 2,376,346 6,493
---------------
6,768
---------------
- -----------------------------------------------------------------
- -------------
TOTAL OTHER COMMON STOCKS
(Cost U.S. $5,720) 6,768
---------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- --------------------------------------------------------
- ------------
DEBT INSTRUMENTS (19.8%)
- -----------------------------------------------------------------
- -------------
ALGERIA (2.0%)
LOAN AGREEMENTS
p+++Algeria Reprofiled Loan Agreement 'A'
1992 7.52%, 3/4/00 U.S.$10,000 5,200
---------------
- -----------------------------------------------------------------
- -------------
IVORY COAST (2.4%)
LOAN AGREEMENTS
++Republic Ivory Coast Syndicated Loan FRF 168,857 6,207
---------------
- -----------------------------------------------------------------
- -------------
MOROCCO (9.8%)
LOAN AGREEMENTS
~+++Kingdom of Morocco Restructuring and
Consolidation Agreement 'A' 6.59375%,
1/1/09 (Participation: J.P. Morgan, Lehman
Brothers, Merrill Lynch, Salomon Brothers) U.S.$38,000 25,793
---------------
- -----------------------------------------------------------------
- -------------
NIGERIA (3.6%)
LOAN AGREEMENTS
Central Bank of Nigeria Promissory Notes,
8.00%, 1/5/10 20,000 7,550
---------------
- -----------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------
<S> <C> <C>
- ------------
NIGERIA (CONTINUED)
LOCAL GOVERNMENT DEBT
PARACentral Bank of Nigeria Par Bond 6.25%,
11/15/20 (includes 4,000 warrants) U.S.$ 4,000 U.S.$ 1,970
---------------
9,520
---------------
- -----------------------------------------------------------------
- -------------
SOUTH AFRICA (2.0%)
MULTI-INDUSTRY
Liberty Life Strategic Investments Ltd.
(Convertible) 6.50%, 9/30/04 4,000 5,320
---------------
- -----------------------------------------------------------------
- -------------
TOTAL DEBT INSTRUMENTS
(Cost U.S. $52,358) 52,040
---------------
- -----------------------------------------------------------------
- -------------
SHORT TERM INVESTMENT (7.6%)
- --------------------------------------------------------
- ------------
UNITED STATES (7.6%)
REPURCHASE AGREEMENT
Chase Manhattan Bank, N.A., 5.35%, dated
12/29/95, due 1/2/96, to be repurchased at
U.S. $20,095, collateralized by U.S.
$19,350 U.S. Treasury Notes 6.375%, due
1/15/99, valued at U.S. $20,487 (Cost U.S.
$20,083) 20,083 20,083
---------------
- -----------------------------------------------------------------
- -------------
FOREIGN CURRENCY ON DEPOSIT
WITH CUSTODIAN (0.7%)
Egyptian Pound EGP 1,271 373
South African Rand ZAR 5,177 1,420
---------------
(Cost U.S. $1,789) 1,793
---------------
- -----------------------------------------------------------------
- -------------
TOTAL INVESTMENTS (108.5%)
(Cost U.S. $238,595) 285,690
---------------
</TABLE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------
- -------------
OTHER ASSETS (3.7%)
Cash U.S.$ 4
Receivable for Investments Sold 8,106
Dividends Receivable 811
Interest Receivable 728
Deferred Organization Costs 37
Other Assets 54 9,740
--------------- ---------------
- -----------------------------------------------------------------
- -------------
LIABILITIES (-12.2%)
Payable for:
Investments Purchased (16,476)
Dividends Declared (15,044)
Investment Advisory Fees (265)
Custodian Fees (86)
Professional Fees (50)
Shareholder Reporting Expenses (49)
Administrative Fees (23)
Directors' Fees and Expenses (8)
Other Liabilities (1) (32,002)
--------------- ---------------
- -----------------------------------------------------------------
- -------------
NET ASSETS (100%)
Applicable to 15,448,477 issued and outstanding
U.S. $0.01 par value shares (100,000,000 shares
authorized) U.S.$ 263,428
-------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- -----------------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S.$ 17.05
-------------
</TABLE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------
- -------------
AT DECEMBER 31, 1995, NET ASSETS CONSISTED OF:
</TABLE>
- --------------------------------------------------------
<TABLE>
<S> <C> <C>
Common Stock U.S.$ 154
Capital Surplus 216,929
Distributions in Excess of Net Investment Income
(47)
Distributions in Excess of Net
Realized Gain (695)
Unrealized Appreciation on
Investments and Foreign Currency
Translations 47,087
</TABLE>
- -----------------------------------------------------------------
<TABLE>
<S> <C> <C>
TOTAL NET ASSETS U.S.$ 263,428
-------------
- -----------------------------------------------------------------
- -------------
</TABLE>
<TABLE>
<C> <C> <S>
+ -- Non income producing.
++ -- Non income producing -- in default.
+++ -- Variable/floating rate security -- rate disclosed
is as of December 31, 1995.
* -- Security valued at cost -- see note A-1 to
financial statements.
# -- 144A security -- certain conditions for public
sale may exist.
p -- Issuer is making partial interest payments.
PARA -- Attached warrants are non-income producing.
~ -- Participation interests were acquired through the
financial institutions indicated parenthetically.
ADR -- American Depositary Receipt.
FRF -- French Franc.
- -------------------------------------------------------------
- -------------
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at December 31, 1995,
the Fund is obligated to deliver U.S. dollars in exchange for foreign currency
as indicated below:
<TABLE>
<CAPTION>
IN NET
CURRENCY EXCHANGE UNREALIZED
TO RECEIVE VALUE SETTLEMENT FOR GAIN
(000) (000) DATE (000) (000)
<S> <C> <C> <C> <C>
- --------------------------------------------------------
ZAR 362 U.S.$99 1/2/96 U.S.$99 U.S.$--
</TABLE>
- -----------------------------------------------------------------
- -------------
DECEMBER 31, 1995 EXCHANGE RATES:
- -----------------------------------------------------------------
EGP Egyptian Pound 3.404 = U.S.$1.00
FRF French Franc 4.897 = U.S.$1.00
GBP British Pound 0.644 = U.S.$1.00
GHC Ghanian Cedis 1,453.000 = U.S.$1.00
MAD Moroccan Dhiram 8.469 = U.S.$1.00
MUR Mauritius Rupee 18.205 = U.S.$1.00
ZAR South African Rand 3.646 = U.S.$1.00
ZWD Zimbabwe Dollar 9.319 = U.S.$1.00
- ---------------------------------------------
- ---------
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY CLASSIFICATION -- DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF NET
INDUSTRY (000) ASSETS
<S> <C> <C>
- --------------------------------------------------------
- ------------
Appliances & Household Durables U.S.$ 4,484 1.7%
Banking 18,879 7.2
Beverages & Tobacco 8,484 3.2
Broadcasting & Publishing 2,142 0.8
Building Materials & Components 1,111 0.4
Business & Public Services 3,959 1.5
Chemicals 6,115 2.3
Construction & Housing 59 0.0
Electrical & Electronics 14,166 5.4
Energy Sources 11,121 4.2
Financial Services 12,468 4.7
Food & Household Products 9,951 3.8
Forest Products & Paper 8,787 3.3
Insurance 4,215 1.6
Leisure & Tourism 5,793 2.2
Loan Agreements 44,750 17.0
Local Government Debt 1,970 0.8
Merchandising 19,030 7.2
Metals -- Non-Ferrous 5,885 2.2
Metals -- Steel 4,453 1.7
Multi-Industry 69,434 26.4
Telecommunications 5,648 2.2
Textiles & Apparel 910 0.4
Other 21,876 8.3
--------------- -------
U.S.$285,690 108.5%
--------------- -------
--------------- -------
</TABLE>
- -----------------------------------------------------------------
- -------------
SUMMARY OF TOTAL INVESTMENTS BY COUNTRY -- DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF NET
COUNTRY (000) ASSETS
<S> <C> <C>
- --------------------------------------------------------
- ------------
Algeria U.S.$ 5,200 2.0%
Egypt 1,802 0.7
Ghana 4,180 1.6
Ivory Coast 6,207 2.4
Mauritius 6,061 2.3
Morocco 39,890 15.1
Nigeria 9,520 3.6
South Africa 174,823 66.4
United States (short term
investments) 20,083 7.6
United Kingdom 6,768 2.6
Zimbabwe 11,156 4.2
--------------- -------
U.S.$ 285,690 108.5%
--------------- -------
--------------- -------
</TABLE>
- -----------------------------------------------------------------
- -------------
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
STATEMENT OF OPERATIONS (000)
<S> <C>
- ------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends............................................... U.S.$ 4,730
Interest................................................ 9,945
Less: Foreign Taxes Withheld............................ (487)
- ------------------------------------------------------------------------------
Total Income.......................................... 14,188
- ------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees................................ 2,851
Custodian Fees.......................................... 458
Economic Adviser Fees................................... 298
Administrative Fees..................................... 253
Shareholder Reporting Expenses.......................... 116
Professional Fees....................................... 86
Directors' Fees and Expenses............................ 40
Transfer Agent Fees..................................... 15
Other Expenses.......................................... 105
- ------------------------------------------------------------------------------
Total Expenses........................................ 4,222
- ------------------------------------------------------------------------------
Net Investment Income............................... 9,966
- ------------------------------------------------------------------------------
NET REALIZED GAIN
Investment Securities Sold.............................. 6,190
Foreign Currency Transactions........................... 749
- ------------------------------------------------------------------------------
Net Realized Gain..................................... 6,939
- ------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investments............................................. 38,774
Foreign Currency Translations........................... (60)
- ------------------------------------------------------------------------------
Change in Unrealized Appreciation (Depreciation)...... 38,714
- ------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized
Appreciation (Depreciation)................................ 45,653
- ------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... U.S.$55,619
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 14,
1994* YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1994 1995
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income................................... U.S.$ 8,302 U.S.$ 9,966
Net Realized Gain (Loss)................................ (2,534) 6,939
Change in Unrealized Appreciation (Depreciation)........ 8,373 38,714
- -------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations.... 14,141 55,619
- -------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income................................... (8,302) (14,847)
In Excess of Net Investment Income...................... (29) (47)
In Excess of Net Realized Gain.......................... -- (226)
- -------------------------------------------------------------------------------------------------
Total Distributions..................................... (8,331) (15,120)
- -------------------------------------------------------------------------------------------------
Capital Share Transactions:
Initial Public Offering of Shares (15,451,884 shares)... 217,875 --
Offering Costs.......................................... (719) --
Repurchase of Shares (10,500 shares).................... (137) --
- -------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting From Capital Share
Transactions........................................... 217,019 --
- -------------------------------------------------------------------------------------------------
Total Increase.......................................... 222,829 40,499
Net Assets:
Beginning of Period..................................... 100 222,929
- -------------------------------------------------------------------------------------------------
End of Period (including distributions in excess of net
investment income of U.S. $1,173 and U.S. $47,
respectively).......................................... U.S.$222,929 U.S.$263,428
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 14,
1994* YEAR ENDED
TO DECEMBER DECEMBER 31,
SELECTED PER SHARE DATA AND RATIOS: 31, 1994 1995
<S> <C> <C>
- -------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ U.S.$ 14.10 U.S.$ 14.43
- -------------------------------------------------------------------------------------------
Offering Costs.............................................. (0.05) --
- -------------------------------------------------------------------------------------------
Net Investment Income....................................... 0.54 0.64
Net Realized and Unrealized Gain on Investments............. 0.38 2.95
- -------------------------------------------------------------------------------------------
Total from Investment Operations...................... 0.92 3.59
- -------------------------------------------------------------------------------------------
Distributions:
Net Investment Income..................................... (0.54) (0.96)
In Excess of Net Investment Income........................ (0.00)# (0.00)#
In Excess of Net Realized Gain............................ -- (0.01)
- -------------------------------------------------------------------------------------------
Total Distributions................................... (0.54) (0.97)
- -------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. U.S.$ 14.43 U.S.$ 17.05
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD....................... U.S.$ 11.38 U.S.$ 12.88
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value.............................................. (15.37)% 20.84%
Net Asset Value (1)....................................... 7.34% 26.14%
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS)....................... U.S.$222,929 U.S.$263,428
- -------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets..................... 1.87%** 1.77%
Ratio of Net Investment Income to Average Net Assets........ 4.47%** 4.18%
Portfolio Turnover Rate..................................... 32% 66%
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
# Amount is less than U.S.$0.01 per share
(1) 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
the 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.
Note: Current period permanent book-tax differences, if any, are not included
in the calculation of net investment income per share.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- ----------
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 commenced operations on February 14,
1994, pursuant to the initial public offering of 15,451,884 shares of Common
Stock. Prior to February 14, 1994, the Fund had no operations other than the
issuance of 7,093 shares of Common Stock on January 26, 1994 to Morgan Stanley
Asset Management Inc. (the "Adviser"). 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 equity 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.
All non-equity securities for which market quotations are readily available
are valued at their market values. 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.
Capital surplus, distributions in excess of net investment income and
distributions in excess of net realized gain have been adjusted for current
and prior period permanent book-tax differences. Current period adjustments
arose principally from differing book-tax treatments for foreign currency
transactions and gains on certain securities of corporations designated as
"passive foreign investment companies".
3. REPURCHASE AGREEMENTS: In connection with
transactions in repurchase agreements, a bank as custodian for the Fund takes
possession of the underlying securities, the value of which equals or
exceeds the principal amount of the repurchase transaction, including
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. To the
extent that proceeds from the sale of the underlying securities are less
than the repurchase price under the agreement, the Fund may incur a loss. In
the event of default or bankruptcy by the other 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 contracts, disposition of foreign currency, currency gains or
losses realized between the trade and
12
<PAGE>
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 CONTRACTS: The Fund
may enter into forward foreign currency contracts to protect securities and
related receivables and payables against changes in future foreign exchange
rates. A forward foreign currency contract is an agreement between two
parties to buy or sell currency at a set price on a future date. The market
value of the contract will fluctuate with changes in currency exchange
rates. The contract is marked-to-market daily and the change in market value
is recorded by the Fund as unrealized gain or loss. The Fund records
realized gains or losses when the contract is closed equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed. Risk may arise upon entering into these contracts
from the potential inability of counterparties to meet the terms of their
contracts and is generally limited to the amount of unrealized 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. The Fund, as writer of a covered call option, limits its
opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option as long as the option
remains open.
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. Income
distributions and capital gain distributions are determined in accordance
with U.S. Federal income tax regulations which may differ from generally
accepted accounting principles. These differences are principally due to the
timing of the recognition of losses on securities and due to permanent
differences described in note A-2.
B. 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. Standard New York, Inc. ("Standard") provided economic research and
assistance on behalf of the Fund to Morgan Stanley Asset Management Inc. under
the terms of an Economic Advisory Agreement. Under the Economic Advisory
Agreement, Standard was paid a fee computed weekly and payable monthly at an
annual rate of
13
<PAGE>
.18% of the Fund's average weekly net assets. The Economic Advisory Agreement
was terminated on September 30, 1995.
D. Effective September 1, 1995, The Chase Manhattan Bank, N.A., through its
affiliate Chase Global Funds Services Company (the "Administrator"), (formerly
Mutual Funds Service Company, a wholly owned subsidiary of the United States
Trust Company of New York), 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 $.06% of the Fund's average weekly net assets, plus $100,000 per annum.
In addition, the Fund is charged certain out of pocket expenses by the
Administrator. Effective September 1, 1995, The Chase Manhattan Bank, N.A. acts
as custodian for the Fund's assets held in the United States. Prior to September
1, 1995, Mutual Funds Service Company and United States Trust Company of New
York provided administrative and custodian services, respectively, to the Fund
under the same terms, conditions and fees as stated above.
E. 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 year ended December 31, 1995, international
custodian fees totaled $449,000, of which $84,000 was payable to the
International Custodian at December 31, 1995. In addition, for the year ended
December 31, 1995, the Fund has earned interest income of $274,000 and incurred
interest expense of $32,000 on balances with the International Custodian.
F. During the year ended December 31, 1995, the Fund made purchases and sales
totaling $154,404,000 and $152,050,000, 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
December 31, 1995, the U.S. Federal income tax cost basis of securities was
$241,503,000 and accordingly, net unrealized appreciation for U.S. Federal
income tax purposes was $42,394,000 of which $56,049,000 related to appreciated
securities and $13,655,000 related to depreciated securities. For the year ended
December 31, 1995, the Fund utilized capital loss carryforwards for U.S. Federal
income tax purposes of approximately $1,390,000. For the year ended December 31,
1995, the Fund expects to defer to January 1, 1996, post October currency losses
of $47,000.
G. The Fund entered into an Agreement with a number of underwriters (the
"Underwriters") including Morgan Stanley & Co. Incorporated, an affiliate of the
Adviser, for the initial public offering of its shares and issued 15,451,884
shares in February 1994. The Fund has been advised that the total of
underwriting discounts and placement commissions paid to the Underwriters
relating to the initial public offering was $10,496,000.
H. 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.
I. At December 31, 1995, 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.
J. On March 21, 1994, the Board authorized the Fund to repurchase up to
1,000,000 shares of its Common Stock in the open market. During 1994, the Fund
repurchased 10,500 shares of its Common Stock at an average price per share of
$13.00 and a weighted average discount of 5.18% per share. Such shares are
included as authorized but unissued shares of the Fund.
K. Each Director of the Fund who is not an officer of the Fund or an affiliated
person as defined under the Investment Company Act of 1940, as amended, may
elect to participate in the Directors' Deferred Compensation Plan (the "Plan").
Under the Plan, such Directors may elect to defer payment of a percentage of
their total fees earned as a Director of the Fund. These deferred portions are
treated, based on an election by the Director, as if they were either invested
in the Fund's shares or invested in U.S. Treasury Bills, as defined under the
Plan. At December 31, 1995, none of the Directors elected to participate in the
Plan.
L. During December 1995, the Board declared a total distribution of $0.97 per
share of which $0.96 was derived from net investment income and $0.01 from net
realized gains, payable on January 9, 1996, to shareholders of record on
December 29, 1995.
14
<PAGE>
________________________________________________________________________________
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
U.S.$ AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
- -----------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------
MARCH 31, 1995 JUNE 30, 1995 SEPTEMBER 30, 1995 DECEMBER 31, 1995
---------------------- --------------------- --------------------- ---------------------
TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE
--------- ---------- -------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income............. $ 3,316 $0.21 $ 3,179 $ 0.21 $3,198 $ 0.21 $ 4,495 $ 0.29
Net Investment Income......... $ 2,436 $0.16 $ 2,063 $ 0.13 $2,154 $ 0.13 $ 3,313 $ 0.22
Net Realized Gain and Change
in Unrealized Appreciation
(Depreciation)............... $ 1,489 $0.09 $ 7,581 $ 0.50 $8,657 $ 0.56 $27,926 $ 1.80
Net Increase in Net Assets
Resulting from Operations.... $ 3,925 $0.25 $ 9,644 $ 0.63 $10,811 $ 0.69 $31,239 $ 2.02
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD FROM ----------------------------------------------------------------
FEBRUARY 14, 1994*
TO MARCH 31, 1994 JUNE 30, 1994 SEPTEMBER 30, 1994 DECEMBER 31, 1994
---------------------- -------------------- -------------------- --------------------
TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE
--------- ---------- -------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income............. $ 1,412 $0.09 $ 4,329 $0.28 $2,851 $0.18 $ 3,178 $0.21
Net Investment Income......... $ 848 $0.06 $ 3,262 $0.21 $2,123 $0.14 $ 2,069 $0.13
Net Realized Gain (Loss) and
Change in Unrealized
Appreciation (Depreciation).. $(30,942) $(2.00) $ 7,563 $0.49 $20,276 $1.31 $ 8,942 $0.58
Net Increase (Decrease) in Net
Assets Resulting from
Operations................... $(30,094) $(1.94) $10,825 $0.70 $22,399 $1.45 $11,011 $0.71
</TABLE>
________________________________________________________________________________
* Commencement of operations
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.
________________________________________________________________________________
FEDERAL TAX INFORMATION (UNAUDITED):
For the year ended December 31, 1995, the Fund designates $1,503,000 as
long-term capital gain dividend and expects to pass through to shareholders
foreign tax credits of approximately $487,000.
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------
To the Shareholders and Board of Directors of
Morgan Stanley Africa Investment Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Morgan Stanley Africa Investment Fund, Inc. (the "Fund") at December 31, 1995,
the results of its operations for the year then ended, the changes in its net
assets and the financial highlights for the year then ended and for the period
February 14, 1994 (commencement of operations) through December 31, 1994, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodians and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 9, 1996
16
<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
17
