<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
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank
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, 1996
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the year ended December 31, 1996, the Morgan Stanley Africa Investment Fund,
Inc. (the "Fund") had a total return, based on net asset value per share, of
8.64%. For the period since the Fund's commencement of operations on February
14, 1994 through December 31, 1996, the Fund's total return, based on net asset
value per share, was 47.12%. For the three months ended December 31, 1996, the
Fund had a total return of 9.27%, based on net asset value per share. On
December 31, 1996, the closing price of the Fund's shares on the New York Stock
Exchange was $13 5/8, representing a 19.2% discount to the Fund's net asset
value per share.
Overall, the Fund performed well during the year given that Africa's biggest
stock market, South Africa, declined by 20.1% in 1996 as measured by the Morgan
Stanley Capital International South Africa Index. Our strategy to be underweight
in South Africa and to be overweight in markets such as Zimbabwe, Egypt,
Mauritius and Morocco paid off. In 1996 the Zimbabwe, Egypt and Morocco stock
markets appreciated by 72%, 41% and 29%, respectively. The Fund's fixed income
holdings also appreciated strongly in 1996. Excluding a small position in South
African bonds held during the first half of 1996, the Fund's total return on
fixed income holdings in Morocco, Algeria, Nigeria and Ivory Coast varied
between 30% and 85%.
Given the strong performance of the Fund's fixed income portfolio and attractive
equity investment opportunities in Egypt, Zimbabwe, Mauritius and Kenya, the
Fund realized its gains in its fixed income holdings and utilized the proceeds
to invest in these markets. As a result of this switch between fixed income and
equity holdings, the Fund's fixed income weightings as a percentage of the
portfolio declined from 12.6% to 2.8% between the end of third and fourth
quarters of 1996. As of December 31, 1996, the Fund had a 95.1% weighting in
equities compared to 74.1% at December 31, 1995.
The following table details the change in weightings for the Fund over the past
year.
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------
COUNTRY 1995 1996 CHANGE
- ------------------------------- --------- --------- ------------
<S> <C> <C> <C>
Algeria........................ 2.0% -- (2.0)%
Botswana....................... -- 1.3% 1.3
Egypt.......................... 0.5 15.0 14.5
Ghana.......................... 1.6 1.3 (0.3)
Ivory Coast.................... 2.4 2.8 0.4
Kenya.......................... -- 0.8 0.8
Mauritius...................... 2.3 7.2 4.9
Morocco........................ 15.2 3.7 (11.5)
Nigeria........................ 3.6 -- (3.6)
South Africa................... 65.8 46.4 (19.4)
Zimbabwe....................... 4.2 16.9 12.7
Cash & Other................... 2.4 4.6 2.2
</TABLE>
SOUTH AFRICA
1996 was a difficult year for the South African securities markets. The
Morgan Stanley Capital International South Africa Index declined by 20.1% while
the J.P. Morgan ELMI South Africa Bond Index declined by 9.1% in 1996 primarily
as a result of a 28.3% depreciation in the South African rand.
Rising money supply, private sector credit growth, inflation and a volatile
currency led the Reserve Bank to increase the bank rate by 1% in each of April
and November 1996. The bank and prime rates now stand at 17% and 20.25%,
respectively. Inflation has been rising since May 1996 when it reached a 23-year
low of 5.5%. In November it had reached 9.2%. We expect inflation to peak around
10% by the end of the first quarter as the import component increases as a
consequence of the currency depreciation and the effect of higher mortgage rates
filter through the economy. Interest rates are not expected to rise any further
in 1997 as the currency appears to be stabilizing, inflation is close to peaking
and money supply growth is declining. We are optimistic that rates will begin to
decline late in the year as all the preceding factors are brought under control.
Given the high real interest rate environment we expect GDP to grow by 2.5-3.0%
in 1997. This growth will be driven by the agricultural, mining and export
oriented sectors. 1998 should see GDP growth in excess of 4% as interest rate
cuts in 1997 drive the overall economy. In 1997 the trade surplus is expected to
increase further as the benefits of the weaker currency
2
<PAGE>
are realized. As of November, the cumulative trade surplus was 8.5 billion rand
versus 3 billion rand for the comparable period in 1995.
Fiscal policy remains conservative and the government is projecting a deficit to
GDP of 4% for the 1997/1998 fiscal year. Privatizations are also imminent with
Telkom being the first. If privatization is pursued aggressively by the
government and the benefits of the growth oriented policies put forth in 1996
are begun to be realized, we believe that the overall sentiment and confidence
towards South Africa will improve considerably. This should lead to further
currency stability and perhaps an increase in portfolio and foreign direct
investment.
REST OF AFRICA
Zimbabwe and Egypt were two markets which performed exceptionally well in
1996. The Harare Stock Exchange's value increased by 72% in 1996 driven by
declining interest rates, a stronger economy and good earnings growth from the
corporate sector. Inflation which started 1996 at 28% has declined to 14%. This
significant decline was due to the numbers being compared to a drought related
high base from the prior year. With a normal rainy season already under way we
expect inflation to average 15% in 1997. Our GDP forecast for 1996 and 1997 is
6% and 7%. The corporate sector which is a direct beneficiary of the lower
interest rate environment is expecting real earnings growth between 15-20%.
Delta, the largest market cap company which operates in the beverage, hotel and
retail sectors of the economy is already benefiting from the increased private
consumption expenditure. Beverage and clear beer volume growth for 1996 are
averaging approximately 11% over the past nine months. Local institutions who
are very underweight in equities with an estimated weighting of 15% have been
pushing equity prices higher as rates have declined. For 1997 we remain
optimistic on Zimbabwe
as we expect privatizations, lower inflation and interest rates to underpin the
growing economy.
The Cairo stock exchange also performed extremely well in 1996 by providing a
return of 41%. For the fourth quarter alone the index increased by 28%. The
market re-rated mainly as a result of increasing investment by foreign
institutional investors and greater research coverage by global brokerage
houses. Also fueling the market performance was declining interest rates which
are now below 10%. The market currently sells at a prospective multiple of 11
times earnings supported by a 5.5% dividend yield. We expect GDP growth of 4.5%
and inflation to decline to 6% in 1997. President Mubarak is also committed to
rapid privatization and recently announced that all remaining government owned
shares in joint venture companies will be privatized in 1997.
In conclusion, we remain optimistic on the investment opportunities in Africa
and will continue to proactively pursue them.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT AND DIRECTOR
[SIGNATURE]
Marianne L. Hay
SENIOR PORTFOLIO MANAGER
[SIGNATURE]
Jaideep Khanna
PORTFOLIO MANAGER
January 1997
- --------------------------------------------------------------------------------
MORGAN STANLEY GROUP INC., THE DIRECT PARENT COMPANY OF THE FUND'S INVESTMENT
ADVISER, MORGAN STANLEY ASSET MANAGEMENT INC., RECENTLY ANNOUNCED ITS INTENTION
TO MERGE WITH DEAN WITTER, DISCOVER & CO. TO FORM MORGAN STANLEY, DEAN WITTER,
DISCOVER & CO. IT CURRENTLY IS ANTICIPATED THAT THE TRANSACTION WILL CLOSE IN
MID-1997. THEREAFTER, MORGAN STANLEY ASSET MANAGEMENT INC. WILL BE A SUBSIDIARY
OF MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
3
<PAGE>
Morgan Stanley Africa Investment Fund, Inc.
Investment Summary as of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 16.26% 16.26% 8.64% 8.64%
SINCE INCEPTION* 18.89 6.19 47.12 14.35
</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>
1994* 1995 1996
Net Asset Value Per Share $14.43 $17.05 $16.86
Market Value Per Share $11.38 $12.88 $13.63
Premium/(Discount) -21.1% -24.5% -19.2%
Income Dividends $0.54 $0.96 $0.14
Capital Gains Distributions - $0.01 $1.23
Fund Total Return (2) 7.34% 26.14% 8.64%
</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 December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 95.1%
Short-Term Investments 2.1%
Debt Securities 2.8%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Banking 10.1%
Beverages & Tobacco 9.2%
Building Materials & Components 4.9%
Chemicals 11.4%
Electrical & Electronics 5.5%
Energy Sources 4.6%
Leisure & Tourism 4.4%
Merchandising 5.1%
Mining 6.4%
Multi-Industry 15.5%
Other 22.9%
</TABLE>
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
South Africa 46.4%
Zimbabwe 16.9%
Egypt 15.0%
Mauritius 7.2%
Morocco 3.7%
Ivory Coast 2.8%
United Kingdom 2.5%
Botswana 1.3%
Ghana 1.3%
Other 2.9%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
-------------
<C> <S> <C>
1. SASOL Ltd. 8.3%
2. Delta Corp. Ltd. 6.2
3. Gencor Ltd. 4.8
4. Meikles Africa Ltd. 4.5
5. State Bank of Mauritius 3.3
<CAPTION>
PERCENT OF
NET ASSETS
-------------
<C> <S> <C>
6. Dimension Data Holdings Ltd. 2.9%
7. Republic of Ivory Coast Syndicated
Loan 2.9
8. Corporate Africa 2.7
9. Lonrho plc 2.4
10. Commercial International Bank 2.1
-----
40.1%
-----
-----
</TABLE>
5
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS
- ---------
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------------
- ------------
<S> <C> <C>
AFRICAN COMMON STOCKS (92.2%)
(UNLESS OTHERWISE NOTED)
- ----------------------------------------------------------------------------------
- ------------
BOTSWANA (1.3%)
BEVERAGES & TOBACCO
Sechaba Investment Co. 5,000,000 U.S.$ 3,290
--------------
- ----------------------------------------------------------------------------------
- ------------
EGYPT (15.0%)
AGRICULTURE
General Silo Storage 48,600 717
--------------
BANKING
Commercial International Bank 35,709 5,389
Egypt American Bank 14,209 632
--------------
6,021
--------------
BEVERAGES & TOBACCO
Eastern Tobacco 236,150 3,654
--------------
BUILDING MATERIALS & COMPONENTS
Alexandria Cement 28,860 472
Ameriyah Cement Co. 159,998 3,018
Helwan Portland Cement 209,800 3,710
+Suez Cement Co. 101,700 1,587
Torah Portland Cement Co. 150,770 3,044
--------------
11,831
--------------
CHEMICALS
+Egyptian Finance & Industrial 97,450 3,088
+Paint & Chemical Industries 19,510 753
--------------
3,841
--------------
ELECTRICAL & ELECTRONICS
Egyptian Electro Cables 46,483 1,452
--------------
FOOD & HOUSEHOLD PRODUCTS
Central Flour Mill 60,000 690
North Cairo Flour Mills 120,375 4,754
South Cairo & Giza Mills Bakeries 14,670 294
--------------
5,738
--------------
REAL ESTATE
Helioplis Housing 15,000 1,901
Madinet Nasr Housing & Development 33,710 3,805
--------------
5,706
--------------
38,960
--------------
- ----------------------------------------------------------------------------------
- ------------
GHANA (1.3%)
BANKING
Standard Chartered Bank 555,000 1,595
--------------
- ----------------------------------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------------
- ------------
<S> <C> <C>
BEVERAGES & TOBACCO
Guinness Ghana 3,636,822 U.S.$ 575
Kumasi Breweries 336,000 127
Pioneer Tobacco Co., Ltd. 2,897,600 221
--------------
923
--------------
FINANCIAL SERVICES
+Home Finance Co. 1,620,000 127
--------------
FOOD & HOUSEHOLD PRODUCTS
Unilever 1,575,800 725
--------------
METALS -- NON-FERROUS
Ghana Pioneer Aluminum Factory 1,043,400 103
--------------
3,473
--------------
- ----------------------------------------------------------------------------------
- ------------
KENYA (0.8%)
BANKING
+Kenya Commercial Bank Ltd. 319,141 418
--------------
INDUSTRIAL COMPONENTS
+Firestone East Africa Ltd. 300,000 150
--------------
MERCHANDISING
+Uchumi Supermarket Ltd. 1,667,405 1,623
--------------
2,191
--------------
- ----------------------------------------------------------------------------------
- ------------
MAURITIUS (7.2%)
BANKING
Mauritius Commercial Bank 847,004 3,417
State Bank of Mauritius 16,792,469 8,722
--------------
12,139
--------------
FOOD & HOUSEHOLD PRODUCTS
Happy World Foods, Ltd. 1,427,041 1,223
--------------
LEISURE & TOURISM
New Mauritius Hotels 1,741,669 2,898
--------------
MULTI-INDUSTRY
Mon Tressor Desert 66,368 132
Rogers & Co., Ltd. 520,118 2,334
--------------
2,466
--------------
18,726
--------------
- ----------------------------------------------------------------------------------
- ------------
MOROCCO (3.7%)
BANKING
Banque Marocaine 35,330 1,614
Wafabank 13,095 823
--------------
2,437
--------------
MULTI-INDUSTRY
Groupe Ona 22,500 1,339
SNI Maroc 75,711 4,722
--------------
6,061
--------------
- ----------------------------------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------------
- ------------
MOROCCO (CONTINUED)
<S> <C> <C>
TELECOMMUNICATIONS
Alcatel Alsthom 19,380 U.S.$ 1,184
--------------
9,682
--------------
- ----------------------------------------------------------------------------------
- ------------
SOUTH AFRICA (46.0%)
APPLIANCES & HOUSEHOLD DURABLES
Ellerine Holdings Ltd. 198,881 897
--------------
BANKING
Amalgamated Banks of South Africa 703,051 3,607
--------------
BROADCASTING & PUBLISHING
Omni Media Corp. 75,000 1,022
Perskor Beleggings Beperk 163,200 1,360
--------------
2,382
--------------
CHEMICALS
Polfin Ltd. 2,475,000 4,126
SASOL Ltd. 1,728,842 20,509
--------------
24,635
--------------
CONSTRUCTION & HOUSING
Concor Ltd. 277,222 1,185
LTA Ltd. 126,700 623
--------------
1,808
--------------
ELECTRICAL & ELECTRONICS
Allied Electronics Corp., Ltd. 770,000 823
DataTec Ltd. 862,146 2,912
Dimension Data Holdings Ltd. 2,591,487 7,616
Spescom Electronics Ltd. 800,000 1,111
Voltex Holdings Ltd. 1,018,426 492
--------------
12,954
--------------
ENERGY SOURCES
+Energy Africa Ltd. 500,000 1,828
Ingwe Coal Corp. Ltd. 256,200 1,835
Trans Natal Coal Corp. Ltd. 600,000 4,437
--------------
8,100
--------------
GOLD MINES
Driefontein Consolidation Ltd. 400,000 4,211
Evander Gold Mines Ltd. 190,900 1,591
Free State Consolidation Gold Mines Ltd. 291,500 2,134
Kloof Gold Mining Co. Ltd. 200,000 1,629
--------------
9,565
--------------
INDUSTRIAL COMPONENTS
Tiger Wheels Ltd. 101,297 364
--------------
INSURANCE
+Capital Alliance Holdings 1,000,000 4,510
Sage Group Ltd. 1,005,000 4,081
--------------
8,591
--------------
- ----------------------------------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------------
- ------------
<S> <C> <C>
LEISURE & TOURISM
Kersaf Investments Ltd. 120,000 U.S.$ 1,097
Leisurenet Ltd. 114,510 89
Servgro International Ltd. 508,900 2,491
Spur Holdings Ltd. 550,000 970
Sun International Ltd. 2,643,571 2,133
--------------
6,780
--------------
MACHINERY & ENGINEERING
Dorbyl Ltd. 75,000 818
Howden Africa Holdings Ltd. 1,563,940 1,370
--------------
2,188
--------------
METALS -- NON-FERROUS
+Chromecorp Holdings Ltd. 515,700 1,102
Potgietersrust Platinums Ltd. 307,549 1,512
Rustenburg Platinum Holdings Ltd. 96,018 1,313
--------------
3,927
--------------
METALS -- STEEL
Highveld Steel & Vanadium Corporation Ltd. 560,000 1,783
--------------
MINING
De Beers Consolidated Mines Ltd. 100,000 2,864
Gencor Ltd. 3,422,000 12,434
--------------
15,298
--------------
MULTI-INDUSTRY
Barlow Ltd. 545,700 4,841
Bidvest Group Ltd. 689,938 3,576
Corporate Africa 2,500,000 1,176
Corporate Africa (Preferred) 12,500,000 5,825
+Real Africa Holdings Ltd. 80,000 80
Rembrandt Group Ltd. 148,200 1,323
--------------
16,821
--------------
119,700
--------------
- ----------------------------------------------------------------------------------
- ------------
ZIMBABWE (16.9%)
BEVERAGES & TOBACCO
Delta Corp. Ltd. 4,594,489 16,099
--------------
BUILDING MATERIALS & COMPONENTS
PG Industries 1,115,614 576
Portland Holdings Ltd. 300,000 394
--------------
970
--------------
ENERGY SOURCES
Wankie Colliery Co. Ltd. 6,522,900 3,609
--------------
FOOD & HOUSEHOLD PRODUCTS
Colcom Holdings 1,512,500 516
Eastern Highlands 3,375,659 420
Hippo Valley Estates Ltd. 1,500,000 1,418
--------------
2,354
--------------
LEISURE & TOURISM
Zimbabwe Sun 4,668,161 1,743
--------------
MERCHANDISING
Meikles Africa Ltd. 7,920 11,682
--------------
- ----------------------------------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------------
- ------------
ZIMBABWE (CONTINUED)
<S> <C> <C>
METALS -- NON-FERROUS
Bindura Nickel Corp. Ltd. 625,000 U.S.$ 432
--------------
MULTI-INDUSTRY
TA Holdings Ltd. 10,000,000 1,614
Trans Zambezi Industries Ltd. 1,202,482 2,886
+Trans Zambezi Industries Ltd. ADR 72,000 173
TSL Ltd. 3,313,000 2,139
--------------
6,812
--------------
TEXTILES & APPAREL
+Spinweave 3,336,000 385
--------------
44,086
--------------
- ----------------------------------------------------------------------------------
- ------------
TOTAL AFRICAN COMMON STOCKS
(Cost U.S. $204,380) 240,108
--------------
- ----------------------------------------------------------------------------------
- ------------
OTHER COMMON STOCKS (3.8%)
- ----------------------------------------------------------------------------------
- ------------
IRELAND (0.5%)
MINING
+Kenmare Resources 2,500,000 1,440
--------------
- ----------------------------------------------------------------------------------
- ------------
SWITZERLAND (0.8%)
MULTI-INDUSTRY
+Suedelektra Holding AG 2,175 1,991
--------------
- ----------------------------------------------------------------------------------
- ------------
UNITED KINGDOM (2.5%)
ENERGY SOURCES
Wankie Colliery Co., Ltd. 650,000 178
--------------
MULTI-INDUSTRY
Lonrho plc 2,913,981 6,240
--------------
6,418
--------------
- ----------------------------------------------------------------------------------
- ------------
TOTAL OTHER COMMON STOCKS
(Cost U.S. $10,378) 9,849
--------------
- ----------------------------------------------------------------------------------
- ------------
CONVERTIBLE PREFERRED STOCK (0.4%)
- ----------------------------------------------------------------------------------
- ------------
SOUTH AFRICA (0.4%)
CHEMICALS
SASOL 8.5% (Cost $1,071) 94,800 1,114
--------------
- ----------------------------------------------------------------------------------
- ------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- ----------------------------------------------------------------------------------
- ------------
DEBT INSTRUMENTS (2.8%)
- ----------------------------------------------------------------------------------
- ------------
IVORY COAST (2.8%)
LOAN AGREEMENT
Republic of Ivory Coast Syndicated Loan,
12/31/00
(Cost U.S. $5,494) FRF 109,441 7,437
--------------
- ----------------------------------------------------------------------------------
- ------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<S> <C> <C>
- ----------------------------------------------------------------------------------
- ------------
SHORT-TERM INVESTMENTS (0.4%)
- ----------------------------------------------------------------------------------
- ------------
UNITED STATES (0.4%)
REPURCHASE AGREEMENT
Chase Securities, Inc. 5.95%, dated 12/31/96,
due 1/2/97, to be repurchased at U.S. $1,007,
collateralized by U.S. $965 United States
Treasury Bonds 7.25%, due 5/15/16, valued at
U.S. $1,029 (Cost U.S. $1,007) U.S.$ 1,007 U.S.$ 1,007
--------------
- ----------------------------------------------------------------------------------
- ------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (1.7%)
British Pound GBP -- 1
Egyptian Pound EGP 1,049 309
Kenyan Shilling KES 40,113 730
Mauritius Rupee MUR 15,660 790
South African Rand ZAR 10,776 2,303
Zimbabwe Dollar ZWD 3,780 349
--------------
(Cost U.S. $4,470) 4,482
--------------
- ----------------------------------------------------------------------------------
- ------------
TOTAL INVESTMENTS (101.3%)
(Cost U.S. $226,800) 263,997
--------------
- ----------------------------------------------------------------------------------
- ------------
OTHER ASSETS (7.9%)
Receivable for Investments Sold U.S.$ 18,958
Dividends Receivable 983
Interest Receivable 527
Deferred Organization Costs 25
Other Assets 38 20,531
------------- --------------
- ----------------------------------------------------------------------------------
- ------------
LIABILITIES (-9.2%)
Payable for:
Dividends Declared (17,113)
Investments Purchased (6,231)
Investment Advisory Fees (272)
Custodian Fees (210)
Shareholder Reporting Expenses (80)
Professional Fees (52)
Directors' Fees and Expenses (25)
Administrative Fees (23) (24,006)
------------- --------------
- ----------------------------------------------------------------------------------
- ------------
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.$ 260,522
----------
- ----------------------------------------------------------------------------------
- ------------
NET ASSET VALUE PER SHARE U.S.$ 16.86
----------
- ----------------------------------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
(000)
- ----------------------------------------------------------------------------------
------------
AT DECEMBER 31, 1996, NET ASSETS CONSISTED OF:
<S> <C> <C>
- ----------------------------------------------------------------------------------
Common Stock U.S.$ 154
Capital Surplus 216,929
Accumulated Net Realized Gain 6,194
Unrealized Appreciation on Investments and Foreign Currency
Translations 37,245
- ----------------------------------------------------------------------------------
- ------------
TOTAL NET ASSETS U.S.$ 260,522
----------
- ----------------------------------------------------------------------------------
- ------------
</TABLE>
+ -- Non-income producing.
ADR -- American Depositary Receipt
- --------------------------------------------------------------------------------
- ------------
<TABLE>
<CAPTION>
DECEMBER 31, 1996 EXCHANGE RATES:
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
GBP British Pound 0.584 = U.S. $1.00
EGP Egyptian Pound 3.393 = U.S. $1.00
FRF French Franc 5.187 = U.S. $1.00
KES Kenyan Shilling 54.975 = U.S. $1.00
MUR Mauritius Rupee 19.830 = U.S. $1.00
ZAR South African Rand 4.679 = U.S. $1.00
ZWD Zimbabwe Dollar 10.845 = U.S. $1.00
- -------------------------------------------------------------------
- ------------
</TABLE>
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY
CLASSIFICATION -- DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
<S> <C> <C>
- --------------------------------------------------------------------
- ------------
Agriculture U.S.$ 717 0.3%
Appliances & Household Durables 897 0.3
Banking 26,217 10.1
Beverages & Tobacco 23,966 9.2
Broadcasting & Publishing 2,382 0.9
Building Materials & Components 12,801 4.9
Chemicals 29,590 11.4
Construction & Housing 1,808 0.7
Electrical & Electronics 14,406 5.5
Energy Sources 11,887 4.6
Financial Services 127 0.0
Food & Household Products 10,040 3.8
Gold Mines 9,565 3.7
Industrial Components 514 0.2
Insurance 8,591 3.3
Leisure & Tourism 11,421 4.4
Machinery & Engineering 2,188 0.8
Merchandising 13,305 5.1
Metals -- Non-Ferrous 4,462 1.7
Metals -- Steel 1,783 0.7
Mining 16,738 6.4
Multi-Industry 40,391 15.5
Real Estate 5,706 2.2
Telecommunications 1,184 0.5
Textiles & Apparel 385 0.1
Other 12,926 5.0
------------ -----
U.S.$263,997 101.3%
------------ -----
------------ -----
- --------------------------------------------------------------------
- ------------
</TABLE>
SUMMARY OF TOTAL INVESTMENTS BY COUNTRY --
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
COUNTRY (000) ASSETS
<S> <C> <C>
- --------------------------------------------------------------------
- ------------
Botswana U.S.$ 3,290 1.3%
Egypt 38,960 15.0
Ghana 3,473 1.3
Ireland 1,440 0.5
Ivory Coast 7,437 2.8
Kenya 2,191 0.8
Mauritius 18,726 7.2
Morocco 9,682 3.7
South Africa 120,814 46.4
Switzerland 1,991 0.8
United Kingdom 6,418 2.5
United States (short-term investments) 1,007 0.4
Zimbabwe 44,086 16.9
Other 4,482 1.7
------------ -----
U.S.$263,997 101.3%
------------ -----
------------ -----
- --------------------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
STATEMENT OF OPERATIONS (000)
<S> <C>
- ------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends............................................... U.S.$ 5,722
Interest................................................ 4,573
Less: Foreign Taxes Withheld............................ (217)
- ------------------------------------------------------------------------------
Total Income.......................................... 10,078
- ------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees................................ 3,106
Custodian Fees.......................................... 698
Administration Fees..................................... 266
Professional Fees....................................... 155
Shareholder Reporting Expenses.......................... 122
Directors' Fees and Expenses............................ 84
Transfer Agent Fees..................................... 16
Other Expenses.......................................... 181
- ------------------------------------------------------------------------------
Total Expenses........................................ 4,628
- ------------------------------------------------------------------------------
Net Investment Income............................. 5,450
- ------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold.............................. 25,360
Foreign Currency Transactions........................... (2,661)
- ------------------------------------------------------------------------------
Net Realized Gain................................. 22,699
- ------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Depreciation on Investments............................. (9,905)
Appreciation on Foreign Currency Translations........... 63
- ------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation.... (9,842)
- ------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized
Appreciation/Depreciation.................................. 12,857
- ------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... U.S.$ 18,307
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income................................... U.S.$ 5,450 U.S.$ 9,966
Net Realized Gain....................................... 22,699 6,939
Change in Unrealized Appreciation/Depreciation.......... (9,842) 38,714
- -------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations.... 18,307 55,619
- -------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income................................... (2,153) (14,847)
In Excess of Net Investment Income...................... -- (47)
Net Realized Gains...................................... (19,060) (226)
- -------------------------------------------------------------------------------------------------
Total Distributions..................................... (21,213) (15,120)
- -------------------------------------------------------------------------------------------------
Total Increase (Decrease)............................... (2,906) 40,499
Net Assets:
Beginning of Year....................................... 263,428 222,929
- -------------------------------------------------------------------------------------------------
End of Year (including distributions in excess of net
investment income of U.S.$0 and U.S.$47,
respectively).......................................... U.S.$260,522 U.S.$263,428
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 14,
YEAR ENDED YEAR ENDED 1994* TO DECEMBER
SELECTED PER SHARE DATA AND RATIOS: DECEMBER 31, 1996 DECEMBER 31, 1995 31, 1994
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ U.S.$ 17.05 U.S.$ 14.43 U.S.$ 14.10
- -----------------------------------------------------------------------------------------------------------------------
Offering Costs.............................................. -- -- (0.05)
- -----------------------------------------------------------------------------------------------------------------------
Net Investment Income....................................... 0.35 0.64 0.54
Net Realized and Unrealized Gain (Loss) on Investments...... 0.83 2.95 0.38
- -----------------------------------------------------------------------------------------------------------------------
Total from Investment Operations........................ 1.18 3.59 0.92
- -----------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income................................... (0.14) (0.96) (0.54)
In Excess of Net Investment Income...................... -- (0.00)# (0.00)#
Net Realized Gains...................................... (1.23) (0.01) --
- -----------------------------------------------------------------------------------------------------------------------
Total Distributions..................................... (1.37) (0.97) (0.54)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. U.S.$ 16.86 U.S.$ 17.05 U.S.$ 14.43
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD....................... U.S.$ 13.63 U.S.$ 12.88 U.S.$ 11.38
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value............................................ 16.26% 20.84% (15.37)%
Net Asset Value (1)..................................... 8.64% 26.14% 7.34%
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS)....................... U.S.$ 260,522 U.S.$ 263,428 U.S.$ 222,929
- -----------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets..................... 1.79% 1.77% 1.87%**
Ratio of Net Investment Income to Average Net Assets........ 2.11% 4.18% 4.47%**
Portfolio Turnover Rate..................................... 68% 66% 32%
Average Commission Rate (2)................................. U.S.$ 0.0134 N/A N/A
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose the average commission rate per share it paid for
portfolio trades on which commissions were charged during the period. For
the year ended December 31, 1996, the average commission rate paid on
trades where commissions were charged was 0.46% of the trade amount.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- ----------
The Morgan Stanley Africa Investment Fund, Inc. (the "Fund") was
incorporated 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. Due to certain African securities markets' small size, degree of
liquidity and volatility, the price which the Fund may realize upon sale of
securities may not be equal to its value as presented in the financial
statements.
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
12
<PAGE>
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 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. 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 and gains on certain securities of corporations designated as
"passive foreign investment companies".
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 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 year ended December 31, 1996, international
custodian fees totaled $689,000, of which $209,000
13
<PAGE>
was payable to the International Custodian at December 31, 1996. In addition,
for the year ended December 31, 1996, the Fund has earned interest income of
$340,000 and incurred interest expense of $30,000 on balances with the
International Custodian.
E. During the year ended December 31, 1996, the Fund made purchases and sales
totaling approximately $171,089,000 and $190,732,000, 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, 1996, the U.S. Federal income tax cost basis of
securities was $222,334,000 and accordingly, net unrealized appreciation for
U.S. Federal income tax purposes was $37,181,000 of which $52,058,000 related to
appreciated securities and $14,877,000 related to depreciated securities.
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 consists of securities of
issuers located in countries of Africa. These securities are denominated in
foreign currencies and involve certain considerations and risks not typically
associated with investments in the United States. Securities of these issuers
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, the securities markets in these countries are
less developed than the U.S. securities market and there is often substantially
less publicly available information about African issuers than there is about
U.S. issuers. Settlement mechanisms are also less developed and consist
primarily of physical delivery, which may cause the Fund to experience delays or
other difficulties in effecting transactions in certain African nations.
These securities may also be subject to substantial governmental involvement
in the economy and greater social, economic, and political uncertainty which
could adversely affect the liquidity or value, or both, of the Fund's
investments. In addition, the Fund's ability to hedge its currency risk is
limited, possibly exposing the Fund to currency devaluation and other exchange
rate fluctuations. Accordingly, the price which the Fund may realize upon sale
of such securities may not be equal to its value as presented in the financial
statements.
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 December 31, 1996 totaled
$12,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
I. During December 1996, the Board declared a distribution of $0.14 per share,
derived from net investment income and $0.97 per share, derived from net
realized gains, payable on January 9, 1997, to shareholders of record on
December 31, 1996.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
For the year ended December 31, 1996, the Fund designates $17,578,000 as
long-term capital gain and expects to pass through to shareholders foreign tax
credits of approximately $217,000. In addition, for the year ended December 31,
1996, gross income derived from sources within foreign countries amounted to
$9,966,000.
14
<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, 1996,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the two years 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, 1996 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 10, 1997
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
