<PAGE>
MORGAN STANLEY
AFRICA INVESTMENT FUND, INC.
- ---------------------------------------------
DIRECTORS AND OFFICERS
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS James W. Grisham
Michael F. Klein VICE PRESIDENT
PRESIDENT AND DIRECTOR Harold J. Schaaff, Jr.
Peter J. Chase VICE PRESIDENT
DIRECTOR Joseph P. Stadler
John W. Croghan VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
David B. Gill SECRETARY
DIRECTOR Joanna M. Haigney
Graham E. Jones TREASURER
DIRECTOR Belinda A. Brady
John A. Levin ASSISTANT TREASURER
DIRECTOR
- ---------------------------------------------
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.
---------
SEMI-ANNUAL REPORT
JUNE 30, 1997
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the six months ended June 30, 1997, the Morgan Stanley Africa Investment
Fund, Inc. (the "Fund") had a total return, based on net asset value per share,
of 25.68%. For the one year ended June 30, 1997, the Fund had a total return,
based on net asset value per share, of 42.22%. For the period since the Fund's
commencement of operations on February 14, 1994 through June 30, 1997, the
Fund's total return, based on net asset value per share, was 84.91%. On June 30,
1997, the closing price of the Fund's shares on the New York Stock Exchange was
$17 7/8, representing a 15.6% discount to the Fund's net asset value per share.
SOUTH AFRICA
The MSCI South Africa index appreciated by 1.3% and 15%, respectively, for
the quarter and six months ended June 30, 1997. During the quarter the rand
depreciated by 2.5% giving back some of its gain made during the first quarter.
The gold index also declined by 26% reaching a four-year low as the gold price
fell to $332/oz. and negatively impacted on the quarterly performance of the
gold mines. Gold mines represent approximately 4% of the Johannesburg Stock
Exchange market capitalization and are responsible for 18% of the country's
exports.
High real interest rates combined with a strong currency during the first half
of 1997 continued to put pressure on the economy. As a result, the GDP
contracted by 0.8% (seasonally adjusted annual rate) in the first quarter. This
was the first quarter which showed negative GDP growth since the first quarter
of 1994. Given the difficult macroeconomic environment we are revising our GDP
growth forecast for 1997 down to 2.5% from 3.0%.
On the positive front it appears that both money supply and inflation are being
brought under control. Inflation appears to have peaked at 9.7% in April and was
down to 9.5% in May while money supply growth came down to 15.7%. We expect
inflation to end the year in the 7.5%-8% range. With continued stability in
monetary and fiscal policies we expect a 1 percentage point rate cut late in the
fourth quarter followed by a further 2 percent cut in rates in 1998. Declining
interest rates combined with increased spending on infrastructure should lead to
GDP growth in excess of 4% in 1998.
The 1997/98 budget provided for relaxation of foreign exchange controls for
individuals up to $44,000 equivalent as of July 1, 1997. The relaxation of
controls were expected to lead to significant outflows from South Africa. This
expectation turned out to be exaggerated as the outflows turned out to be
minimal. Over the long term we do expect these outflows to increase gradually as
South Africans begin to look for diversification overseas. Meanwhile, South
Africa's foreign exchange reserves also increased significantly during the
quarter as the partial privatization of Telkom added $1.3 billion to the
existing reserves. The current reserves of $4.9 billion now provide over 7 weeks
of import cover compared to the recent average of 4 weeks cover. We expect these
reserves to increase as proceeds from the privatization of South African Airways
and Airports Company are realized over the next year.
Our outlook on the equity market is positive as declining inflation, money
supply and interest rates will provide a strong support to the market. The
market trades at a one year prospective price/earnings of 12.5 times with
earnings growth in excess of 18%.
ZIMBABWE
The IFC Zimbabwe Index declined by 1.3% during the second quarter but is
still up 15.3% since the beginning of the year. The Harare stock exchange needed
a period of consolidation after having appreciated over 72% in 1996 and 17% in
the first quarter of 1997. We believe that the market has completed this
consolidation phase and is now ready to move higher. A recent partial
privatization of the Dairiboard was 10 times oversubscribed and provided proof
that local institutions remain heavily underweight in equities. Our estimate is
that local institutional investors have a weighting of approximately 15% in
equities versus a 60% weighting in neighboring South Africa. We expect local
institutions to continue increasing their exposure to equities as inflation and
interest rates continue their long term downward trend.
Fiscal policy remains weak with government spending remaining excessive. The
deficit is forecast to be greater than 10.5% of GDP and continues to be a
serious problem as it keeps the cost of capital at exceptionally high levels
and, as a result, crowds out potential investment. The budget will be presented
on July 24 and will cover 18 months to December 31, 1998. The budget is expected
to include measures to improve revenue collection via the Revenue Authority,
increase privatizations and significant controls to bring down government
spending and the deficit to 5% of GDP by the end of the decade.
For the balance of 1997 we remain very optimistic about our Zimbabwean
portfolio. Companies have been reporting earnings growth of between 25% - 60%
over the past year. We believe a sustainable rate for the
2
<PAGE>
market over the next two years is close to 30%. Given this positive earning
environment, coupled with declining inflation and interest rates will lead to
local institutions switching their investments from T-bills into equities.
EGYPT
The Cairo stock exchange corrected by 11% during the second quarter, but
remains up by 18% for the first half of 1997. The market correction was mainly
led by sales from local mutual funds and was dominated in the banking sector
which, has been experiencing margin pressure and had become fundamentally
overvalued. Privatizations also slowed down significantly during the quarter
with a few smaller sized issues being placed on the exchange. Egypt's
macroeconomic prospects remain very stable with GDP growth for 1997 expected to
be 6%, inflation at 6.5% and a budget deficit of 1.2% of GDP. We expect the
market to appreciate once companies with June financial year-ends start
reporting their annual results in July and August.
Overall, we believe the Fund's investments are well positioned across the
continent, in countries with improving macroeconomic and political fundamentals.
Moreover, the Fund's investments in these countries are positioned in the higher
growth sectors which are expected to outperform their respective markets.
Sincerely,
[SIGNATURE]
Michael F. Klein
PRESIDENT AND DIRECTOR
[SIGNATURE]
Jaideep Khanna
PORTFOLIO MANAGER
[SIGNATURE]
Madhav Dhar
PORTFOLIO MANAGER
[SIGNATURE]
Robert L. Meyer
PORTFOLIO MANAGER
July 1997
- --------------------------
Madhav Dhar is a Managing Director of Morgan Stanley Asset Management Inc. and
chief portfolio manager of MSAM's global emerging market equity portfolios.
Robert L. Meyer has assumed the co-portfolio manager responsibilities of the
Fund from Marianne L. Hay, effective April 1, 1997. Mr. Meyer is a Managing
Director of Morgan Stanley Asset Management Inc. and co-manager of MSAM's global
emerging market equity portfolios.
3
<PAGE>
Morgan Stanley Africa Investment Fund, Inc.
Investment Summary as of June 30, 1997 (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>
FISCAL YEAR TO DATE 31.93% -- 25.68% --
ONE YEAR 52.33 52.33% 42.22 42.22%
SINCE INCEPTION* 56.00 14.46 84.91 19.97
</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>
MORGAN STANLEY AFRICA INVESTMENT FUND, INC.
(2)
YEARS ENDED DECEMBER 31:
TOTAL RETURN
SIX MONTHS ENDED
<S> <C> <C> <C> <C>
1994* 1995 1996 June 30, 1997
Net Asset Value Per Share $14.43 $17.05 $16.86 $21.19
Market Value Per Share $11.38 $12.88 $13.63 $17.88
Premium/(Discount) -21.1% -24.5% -19.2% -15.6%
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% 25.68%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
per share of the Fund.
* The Fund commenced operations on February 14, 1994.
4
<PAGE>
Morgan Stanley Africa Investment Fund, Inc.
Portfolio Summary as of June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 97.9%
Debt Securities 1.2%
Short-Term Investments 0.9%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Banking 12.4%
Beverages & Tobacco 10.3%
Building Materials & Components 4.8%
Chemicals 11.0%
Electrical & Electronics 5.9%
Energy Sources 3.7%
Food & Household Products 4.2%
Merchandising 7.5%
Mining 4.7%
Multi-Industry 16.7%
Other 18.8%
</TABLE>
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
South Africa 43.1%
Zimbabwe 21.4%
Egypt 18.0%
Mauritius 7.2%
Morocco 3.1%
Ghana 2.6%
Botswana 1.8%
Kenya 1.7%
Ireland 1.0%
Gabon 0.3%
Other -0.2%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT
OF
NET
ASSETS
---------
<C><S> <C>
1. SASOL Ltd. 7.6%
2. Meikles Africa Ltd. 6.3
3. Delta Corp. Ltd. 6.3
4. Gencor Ltd. 4.2
5. New Africa Investments Ltd. 3.2
<CAPTION>
PERCENT OF
NET ASSETS
----------
<C><S> <C>
6. Trans Zambezi Industries, Ltd. 3.1%
7. State Bank of Mauritius 3.1
8. Commercial International Bank 2.2
9. Rembrandt Group Ltd. 2.2
10. Coronation Holdings Ltd. 2.0
---
40.2%
---
---
</TABLE>
5
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS (UNAUDITED)
- ---------
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -----------------------------------------------------------------
- -------------
COMMON STOCKS (97.9%)
(Unless otherwise noted)
- --------------------------------------------------
- ----------
BOTSWANA (1.8%)
BEVERAGES & TOBACCO
Sechaba Investment Co. 5,000,000 U.S.$ 6,020
--------------
- -----------------------------------------------------------------
- -------------
EGYPT (18.0%)
AGRICULTURE
General Silo Storage 48,600 1,266
--------------
BANKING
Commercial International Bank 348,990 7,301
(a)Egypt American Bank 10,709 422
--------------
7,723
--------------
BEVERAGES & TOBACCO
Eastern Tobacco 236,150 5,975
--------------
BUILDING MATERIALS & COMPONENTS
Alexandria Cement 28,860 569
Ameriyah Cement Co. 159,998 3,898
Helwan Portland Cement Co. 209,800 4,440
(a)Suez Cement Co. 101,700 2,054
Torah Portland Cement Co. 150,770 3,815
--------------
14,776
--------------
CHEMICALS
Egyptian Finance & Industrial 97,450 5,820
Paint & Chemicals Industries 19,510 674
--------------
6,494
--------------
ELECTRICAL & ELECTRONICS
Egyptian Electro Cables 51,131 1,399
--------------
FOOD & HOUSEHOLD PRODUCTS
Central Flour Mill 60,000 707
North Cairo Flour Mills 120,375 6,269
South Cairo & Giza Mills Bakeries 14,670 281
--------------
7,257
--------------
MERCHANDISING
(a)MISR Free Shops Co. 50,000 556
--------------
REAL ESTATE
Helioplis Housing 15,000 1,775
Madinet Nasr Housing & Development 67,420 4,761
--------------
6,536
--------------
TEXTILES & APPAREL
KABO -- El Nasr Clothing & Textile
Co. 144,050 4,323
--------------
UTILITIES -- ELECTRICAL & GAS
(a,c)Egypt Gas 500 2,574
--------------
58,879
--------------
- -----------------------------------------------------------------
- -------------
GHANA (2.6%)
BANKING
(a)Social Security Bank Ltd. 6,560,000 4,197
(b)Standard Chartered Bank 855,000 2,107
--------------
6,304
--------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
BEVERAGES & TOBACCO
(b)Guinness Ghana 3,761,089 U.S.$ 642
(a)Kumasi Brewery Ltd. 336,000 127
Pioneer Tobacco Co. Ltd. 3,606,600 472
--------------
1,241
--------------
FINANCIAL SERVICES
(a)Home Finance Co. 2,345,700 172
--------------
FOOD & HOUSEHOLD PRODUCTS
(a)Unilever 1,595,800 692
--------------
METALS -- NON-FERROUS
(b)Ghana Pioneer Aluminum Factory 1,043,400 64
--------------
8,473
--------------
- -----------------------------------------------------------------
- -------------
IRELAND (1.0%)
MINING
(a)Kenmare Resources 3,815,000 1,502
--------------
OIL & GAS
(a)Tuskar Resources plc 19,000,000 1,621
--------------
3,123
--------------
- -----------------------------------------------------------------
- -------------
KENYA (1.7%)
BANKING
(a)Kenya Commercial Bank Ltd. 899,918 1,783
(a)National Industrial Credit Bank 46,361 48
--------------
1,831
--------------
INDUSTRIAL COMPONENTS
Firestone East Africa Ltd. 2,973,360 1,569
--------------
MERCHANDISING
Uchumi Supermarket Ltd. 2,501,107 1,744
--------------
UTILITIES -- ELECTRICAL & GAS
(a)Kenya Power & Lighting Co. Ltd. 100,000 312
--------------
5,456
--------------
- -----------------------------------------------------------------
- -------------
MAURITIUS (7.2%)
BANKING
Mauritius Commercial Bank 1,272,145 5,411
State Bank of Mauritius 17,792,469 10,091
--------------
15,502
--------------
FOOD & HOUSEHOLD PRODUCTS
Happy World Foods Ltd. 1,509,713 1,125
--------------
LEISURE & TOURISM
New Mauritius Hotels 2,066,112 3,674
Sun Resorts Ltd. 121,687 292
--------------
3,966
--------------
MULTI-INDUSTRY
Mon Tressor Desert 66,368 128
Rogers and Co. Ltd. 602,081 2,807
--------------
2,935
--------------
23,528
--------------
- -----------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
MOROCCO (3.1%)
BANKING
Banque Marocaine 35,330 U.S.$ 2,149
Wafabank 13,095 1,068
--------------
3,217
--------------
MULTI-INDUSTRY
Groupe Ona 22,500 1,828
SNI Maroc 56,011 4,258
--------------
6,086
--------------
TELECOMMUNICATIONS
Alcatel Alsthom 19,380 884
--------------
10,187
--------------
- -----------------------------------------------------------------
- -------------
SOUTH AFRICA (41.1%)
APPLIANCES & HOUSEHOLD DURABLES
Ellerine Holdings Ltd. 381,400 2,715
--------------
BANKING
Amalgamated Banks of South Africa 303,051 2,174
--------------
BROADCASTING & PUBLISHING
Nasionale Pers Beperk 'N' 100,000 1,146
Omni Media Corp. 75,000 1,182
Perskor Beleggings Beperk 212,700 2,016
Primedia Ltd. 'N' 125,000 785
--------------
5,129
--------------
CHEMICALS
Polfin Ltd. 2,475,000 4,637
SASOL Ltd. 1,628,842 21,361
--------------
25,998
--------------
CONSTRUCTION & HOUSING
Concor Ltd. 377,222 1,962
--------------
ELECTRICAL & ELECTRONICS
Allied Electronics Corp. Ltd. 770,000 1,511
DataTec Ltd. 489,999 3,564
(a)Dimensions Data Holdings Ltd. 1,001,487 3,973
Persetel Holdings Ltd. 810,000 5,695
Reunert Ltd. 114,400 392
Spescom Electronics Ltd. 765,100 1,450
Voltex Holdings Ltd. 2,084,026 1,176
--------------
17,761
--------------
ENERGY SOURCES
(a)Energy Africa Ltd. 400,000 2,072
Ingwe Coal Corp. Ltd. 356,200 2,277
Trans Natal Coal Corp. Ltd. 600,000 3,967
--------------
8,316
--------------
FINANCIAL SERVICES
(a)Coronation Holdings Ltd. 300,000 6,678
--------------
FOOD & HOUSEHOLD PRODUCTS
Illovo Sugar Ltd. 790,000 1,811
--------------
FOREST PRODUCTS & PAPER
Malbak Ltd. 200,000 317
--------------
INSURANCE
Sage Group Ltd. 605,000 3,200
--------------
LEISURE & TOURISM
Kersaf Investments Ltd. 117,000 814
Leisurenet Ltd. 116,800 121
Spur Holdings Ltd. 672,200 1,289
Sun International Ltd. 4,923,571 2,778
(a)Tourism Investment Corp. Ltd. 1,500,000 430
--------------
5,432
--------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
MACHINERY & ENGINEERING
Howden Africa Holdings Ltd. 2,034,572 U.S.$ 1,771
--------------
MERCHANDISING
New Clicks Holdings Ltd. 1,475,526 1,594
--------------
METALS -- NON-FERROUS
(a)Chromecorp Holdings Ltd. 715,700 1,458
Potgietersrust Platinums Ltd. 203,904 1,539
Rustenburg Platinum Holdings Ltd. 147,228 2,693
--------------
5,690
--------------
METALS -- STEEL
Highveld Steel & Vanadium Corp. Ltd. 566,380 2,116
--------------
MINING
Gencor Ltd. 3,000,500 13,822
--------------
MULTI-INDUSTRY
Barlow Ltd. 545,700 5,936
Bidvest Group Ltd. 583,007 4,498
(a)New Africa Investments Ltd.
(Preferred) 'N' 13,000,000 10,315
(a)Real Africa Holdings Ltd. 80,000 180
Rembrandt Group Ltd. 670,100 7,149
--------------
28,078
--------------
134,564
--------------
- -----------------------------------------------------------------
- -------------
ZIMBABWE (21.4%)
BANKING
(a)NMBZ Holdings Ltd. 1,350,000 3,679
--------------
BEVERAGES & TOBACCO
Delta Corp. Ltd. 13,411,365 20,579
--------------
BUILDING MATERIALS & COMPONENTS
PG Industries 1,123,748 429
Portland Holdings Ltd. 400,000 684
--------------
1,113
--------------
ENERGY SOURCES
Wankie Colliery Co. Ltd. 7,522,900 3,793
Wankie Colliery Co. Ltd. (UK) 650,000 173
--------------
3,966
--------------
FOOD & HOUSEHOLD PRODUCTS
Colcom Holdings 1,000,000 403
Eastern Highlands 3,375,659 681
Hippo Valley Estates Ltd. 1,200,000 1,736
--------------
2,820
--------------
LEISURE & TOURISM
Zimbabwe Sun 6,445,161 2,402
--------------
MERCHANDISING
Meikles Africa Ltd. 8,419,880 20,713
--------------
METALS -- NON-FERROUS
Bindura Nickel Corp. Ltd. 625,000 343
--------------
MULTI-INDUSTRY
(a)CFI Holdings 1,054,300 157
TA Holdings Ltd. 11,250,100 2,121
Trans Zambezi Industries Ltd. 6,012,410 5,377
Trans Zambezi Industries Ltd. 144A 5,000,000 4,472
Trans Zambezi Industries Ltd.- New 360,000 322
TSL Ltd. 3,477,000 1,936
--------------
14,385
--------------
TEXTILES & APPAREL
(a)Spinweave 4,448,000 254
--------------
70,254
--------------
- -----------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------
- -------------
<S> <C> <C>
TOTAL COMMON STOCKS
(Cost U.S. $230,328) U.S.$ 320,484
--------------
- -----------------------------------------------------------------
- -------------
CONVERTIBLE PREFERRED STOCK (1.1%)
- -----------------------------------------------------------------
- -------------
SOUTH AFRICA (1.1%)
CHEMICALS
SASOL Ltd. 8.5% (Cost U.S.$3,361) 294,400 3,666
--------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
DEBT INSTRUMENTS (1.2%)
- ---------------------------------------------------------
- ------------
GABON (0.3%)
LOAN AGREEMENTS
Gabon Loans 6.688%, 4/1/04 U.S.$ 1,100 897
--------------
- -----------------------------------------------------------------
- -------------
SOUTH AFRICA (0.9%)
MULTI-INDUSTRY
First South Africa Corp. 9.00%,
6/15/04 250 3,129
--------------
- -----------------------------------------------------------------
- -------------
TOTAL DEBT INSTRUMENTS
(Cost U.S. $3,325) 4,026
--------------
- -----------------------------------------------------------------
- -------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.9%)
Egyptian Pound EGP 620 182
Ghana Cedi GHC 2,665 1
Irish Punt IEP 332 503
Kenyan Shilling KES 47,615 874
Mauritius Rupee MUR 12,077 581
South African Rand ZAR 1,313 289
Swiss Franc CHF 554 379
Zimbabwe Dollar ZWD 556 49
--------------
(Cost U.S. $2,878) 2,858
--------------
- -----------------------------------------------------------------
- -------------
TOTAL INVESTMENTS (101.1%)
(Cost U.S. $239,892) 331,034
--------------
- -----------------------------------------------------------------
- -------------
OTHER ASSETS (2.8%)
Receivable for Investments Sold U.S.$ 7,678
Dividends Receivable 1,218
Interest Receivable 88
Deferred Organization Costs 19
Net Unrealized Gain on Foreign
Currency Exchange Contracts 4
Other Assets 27 9,034
--------------- --------------
- -----------------------------------------------------------------
- -------------
LIABILITIES (-3.9%)
Payable for:
Bank Overdraft (6,742)
Investments Purchased (5,240)
Investment Advisory Fees (314)
Custodian Fees (243)
Shareholder Reporting Expenses (97)
Directors' Fees and Expenses (39)
Professional Fees (39)
Administrative Fees (25)
Other Liabilities (2) (12,741)
--------------- --------------
- -----------------------------------------------------------------
- -------------
NET ASSETS (100%)
Applicable to 15,448,477 issued and outstanding U.S.
$0.01 par value shares (100,000,000 shares
authorized) U.S.$ 327,327
--------------
--------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
NET ASSET VALUE PER SHARE U.S.$ 21.19
--------------
--------------
- -----------------------------------------------------------------
- -------------
AT JUNE 30, 1997, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------
Common Stock U.S.$ 154
Capital Surplus 216,929
Undistributed Net Investment Income 2,540
Accumulated Net Realized Gain 16,592
Unrealized Appreciation on Investments and Foreign
Currency Translations 91,112
- -----------------------------------------------------------------
- -------------
TOTAL NET ASSETS U.S.$ 327,327
--------------
--------------
- -----------------------------------------------------------------
- -------------
(a) -- Non-income producing.
(b) -- Security valued at fair value -- See note A-1 to financial
statements.
(c) -- Security fair valued at cost -- See note A-1 to financial
statements.
144A -- Certain conditions for public sale may exist.
- -----------------------------------------------------------------
- -------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30,
1997, the Fund is obligated to deliver or is to receive foreign
currency in exchange for U.S. dollars as indicated below:
</TABLE>
<TABLE>
<CAPTION>
CURRENCY IN NET
TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- ---------- ---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ZAR 9,939 U.S.$2,191 7/01/97 U.S.$ 2,197 U.S.$ 2,197 U.S.$6
CHF 554 379 7/01/97 379 379 --
U.S.$ 17 17 7/02/97 KES 936 17 --
10 10 7/03/97 550 10 --
290 290 7/03/97 MUR 5,992 288 (2)
---------- ----------- ------------
U.S.$2,887 U.S.$ 2,891 U.S.$4
---------- ----------- ------------
---------- ----------- ------------
</TABLE>
- -----------------------------------------------------------------
- -------------
<TABLE>
<S> <C> <C> <C> <C> <C>
JUNE 30, 1997 EXCHANGE RATES:
- ---------------------------------------------------------
= U.S.
GBP British Pound 0.60056 $1.00
= U.S.
CHF Swiss Franc 1.46000 $1.00
= U.S.
EGP Egyptian Pound 3.39875 $1.00
= U.S.
FRF French Franc 5.87470 $1.00
= U.S.
GHC Ghana Cedi 2,110.00000 $1.00
= U.S.
IEP Irish Punt 0.66050 $1.00
= U.S.
KES Kenyan Schilling 54.50000 $1.00
= U.S.
MAD Moroccan Dirham 9.53700 $1.00
= U.S.
MUR Mauritius Rupee 20.80500 $1.00
= U.S.
ZAR South African Rand 4.53700 $1.00
= U.S.
ZWD Zimbabwe Dollar 11.40500 $1.00
- -----------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY --
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
<S> <C> <C>
- ---------------------------------------------------------------
- ------------
Agriculture U.S.$ 1,266 0.4%
Appliances & Household Durables 2,715 0.8
Banking 40,430 12.4
Beverages & Tobacco 33,815 10.3
Broadcasting & Publishing 5,129 1.5
Building Materials & Components 15,889 4.8
Chemicals 36,158 11.0
Construction & Housing 1,962 0.6
Electrical & Electronics 19,160 5.9
Energy Sources 12,282 3.7
Financial Services 6,850 2.1
Food & Household Products 13,705 4.2
Forest Products & Paper 317 0.1
Industrial Components 1,569 0.5
Insurance 3,200 1.0
Leisure & Tourism 11,800 3.6
Loan Agreements 897 0.3
Machinery & Engineering 1,771 0.5
Merchandising 24,607 7.5
Metals -- Non-Ferrous 6,097 1.9
Metals -- Steel 2,116 0.6
Mining 15,324 4.7
Multi-Industry 54,613 16.7
Oil & Gas 1,621 0.5
Real Estate 6,536 2.0
Telecommunications 884 0.3
Textiles & Apparel 4,577 1.4
Utilities -- Electrical & Gas 2,886 0.9
Other 2,858 0.9
------------ -------
U.S.$331,034 101.1%
------------ -------
------------ -------
- ---------------------------------------------------------
- ------------
</TABLE>
SUMMARY OF TOTAL INVESTMENTS BY COUNTRY --
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
COUNTRY (000) ASSETS
<S> <C> <C>
- ---------------------------------------------------------------
- ------------
Botswana U.S.$ 6,020 1.8%
Egypt 58,879 18.0
Gabon 897 0.3
Ghana 8,473 2.6
Ireland 3,123 1.0
Kenya 5,456 1.7
Mauritius 23,528 7.2
Morocco 10,187 3.1
South Africa 141,359 43.1
Zimbabwe 70,254 21.4
Other 2,858 0.9
------------ -------
U.S.$331,034 101.1%
------------ -------
------------ -------
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1997
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
<S> <C>
- ---------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends............................................................................... U.S.$ 5,302
Interest................................................................................ 83
Less: Foreign Taxes Withheld............................................................ (135)
- ---------------------------------------------------------------------------------------------------------------
Total Income.......................................................................... 5,250
- ---------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees................................................................ 1,838
Custodian Fees.......................................................................... 472
Administration Fees..................................................................... 147
Shareholder Reporting Expenses.......................................................... 97
Professional Fees....................................................................... 38
Directors' Fees and Expenses............................................................ 22
Transfer Agent Fees..................................................................... 7
Other Expenses.......................................................................... 89
- ---------------------------------------------------------------------------------------------------------------
Total Expenses........................................................................ 2,710
- ---------------------------------------------------------------------------------------------------------------
Net Investment Income............................................................. 2,540
- ---------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold.............................................................. 10,662
Foreign Currency Transactions........................................................... (264)
- ---------------------------------------------------------------------------------------------------------------
Net Realized Gain................................................................. 10,398
- ---------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments............................................................. 53,976
Appreciation on Foreign Currency Translations........................................... (109)
- ---------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation 53,867
- ---------------------------------------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized Appreciation/Depreciation.................. 64,265
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................... U.S.$66,805
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSSETS
Operations:
Net Investment Income............................................... U.S.$ 2,540 U.S.$ 5,450
Net Realized Gain................................................... 10,398 22,699
Change in Unrealized Appreciation/Depreciation...................... 53,867 (9,842)
- ---------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations................ 66,805 18,307
- ---------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income............................................... -- (2,153)
Net Realized Gains.................................................. -- (19,060)
- ---------------------------------------------------------------------------------------------------------------
Total Distributions................................................. -- (21,213)
- ---------------------------------------------------------------------------------------------------------------
Total Increase (Decrease)........................................... 66,805 (2,906)
Net Assets:
Beginning of Period................................................. 260,522 263,428
- ---------------------------------------------------------------------------------------------------------------
End of Period (including undistributed net investment income of U.S.
$2,540 and U.S. $0, respectively).................................. U.S.$327,327 U.S.$260,522
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1997 ---------------
SELECTED PER SHARE DATA AND RATIOS: (UNAUDITED) 1996
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD............................................ U.S.$ 16.86 U.S.$ 17.05
- -------------------------------------------------------------------------------------------------------------------
Offering Costs.................................................................. -- --
- -------------------------------------------------------------------------------------------------------------------
Net Investment Income........................................................... 0.16 0.35
Net Realized and Unrealized Gain on Investments................................. 4.17 0.83
- -------------------------------------------------------------------------------------------------------------------
Total from Investment Operations............................................ 4.33 1.18
- -------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income....................................................... -- (0.14)
In Excess of Net Investment Income.......................................... -- --
Net Realized Gains.......................................................... -- (1.23)
- -------------------------------------------------------------------------------------------------------------------
Total Distributions......................................................... -- (1.37)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.................................................. U.S.$ 21.19 U.S.$ 16.86
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD........................................... U.S.$ 17.88 U.S.$ 13.63
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value................................................................ 31.93% 16.26%
Net Asset Value (1)......................................................... 25.68% 8.64%
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS)........................................... U.S.$327,327 U.S.$260,522
- -------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets......................................... 1.83%** 1.79%
Ratio of Net Investment Income to Average Net Assets............................ 1.72%** 2.11%
Portfolio Turnover Rate......................................................... 21% 68%
Average Commission Rate (2):
Per Share................................................................... U.S.$ 0.0142 U.S.$ 0.0134
As a Percentage of Trade Amount............................................. 0.49% 0.46%
- -------------------------------------------------------------------------------------------------------------------
*Commencement of Operations
**Annualized
#Amount is less than U.S. $0.01 per share
(1)Total investment return based on net asset value per share reflects the effects of changes in net asset value on
the performance of the Fund during each period, and assumes dividends and distributions, if any, were reinvested.
This percentage is not an indication of the performance of a shareholder's investment in the Fund based on market
value due to differences between the market price of the stock and the net asset value per share of the Fund.
(2)For fiscal years beginning on or after September 1, 1995, a fund is required to disclose the average commission
rate per share it paid for portfolio trades on which commissions were charged during the period.
<CAPTION>
PERIOD FROM
1994*
TO DECEMBER 31,
SELECTED PER SHARE DATA AND RATIOS: 1995 1994
<S> <C> <C>
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD............................................ U.S.$ 14.43 U.S.$ 14.10
- --------------------------------------------------------------------------------
Offering Costs.................................................................. -- (0.05)
- --------------------------------------------------------------------------------
Net Investment Income........................................................... 0.64 0.54
Net Realized and Unrealized Gain on Investments................................. 2.95 0.38
- --------------------------------------------------------------------------------
Total from Investment Operations............................................ 3.59 0.92
- --------------------------------------------------------------------------------
Distributions:
Net Investment Income....................................................... (0.96) (0.54)
In Excess of Net Investment Income.......................................... (0.00)# (0.00)#
Net Realized Gains.......................................................... (0.01) --
- --------------------------------------------------------------------------------
Total Distributions......................................................... (0.97) (0.54)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.................................................. U.S.$ 17.05 U.S.$ 14.43
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD........................................... U.S.$ 12.88 U.S.$ 11.38
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value................................................................ 20.84% (15.37)%
Net Asset Value (1)......................................................... 26.14% 7.34%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS)........................................... U.S.$236,428 U.S.$222,929
- --------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets......................................... 1.77% 1.87%**
Ratio of Net Investment Income to Average Net Assets............................ 4.18% 4.47%**
Portfolio Turnover Rate......................................................... 66% 32%
Average Commission Rate (2):
Per Share................................................................... N/A N/A
As a Percentage of Trade Amount............................................. N/A N/A
- --------------------------------------------------------------------------------
*Commencement of Operations
**Annualized
#Amount is less than U.S. $0.01 per share
(1)Total investment return based on net asset value per share reflects the effec
the performance of the Fund during each period, and assumes dividends and dist
This percentage is not an indication of the performance of a shareholder's inv
value due to differences between the market price of the stock and the net ass
(2)For fiscal years beginning on or after September 1, 1995, a fund is required
rate per share it paid for portfolio trades on which commissions were charged
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED)
- ------------
The Morgan Stanley Africa Investment Fund, Inc. (the "Fund") was
incorporated in Maryland on December 14, 1993, and is registered as a
non-diversified, closed-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective is long-term
capital appreciation through investments primarily in equity securities.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such policies
are consistently followed by the Fund in the preparation of its financial
statements. Generally accepted accounting principles may require management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results may differ from those estimates.
1. SECURITY VALUATIONS: In valuing the Fund's assets,
all listed securities for which market quotations are readily available are
valued at the last sales price on the valuation date, or if there was no
sale on such date, at the mean between the current bid and asked prices.
Securities which are traded over-the-counter are valued at the average of
the mean of current bid and asked prices obtained from reputable brokers.
Short-term securities which mature in 60 days or less are valued at
amortized cost. All other securities and assets for which market values are
not readily available (including investments which are subject to
limitations as to their sale) are valued at fair value as determined in good
faith by the Board of Directors (the "Board"), although the actual
calculations may be done by others. 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 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) on investments and foreign currency translations
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. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund
may enter into foreign currency exchange contracts to attempt to protect
securities and related receivables and payables against changes in future
foreign exchange rates. A 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
12
<PAGE>
currency exchange rates. The contract is marked-to-market daily and the
change in market value is recorded by the Fund as unrealized gain or loss.
The Fund records realized gains or losses when the contract is closed equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. Risk may arise upon entering
into these contracts from the potential inability of counterparties to meet
the terms of their contracts and is generally limited to the amount of
unrealized gain on the contracts, if any, at the date of default. Risks may
also arise from unanticipated movements in the value of foreign currency
relative to the U.S. dollar.
6. DEBT INSTRUMENTS: The Fund may invest in debt
instruments including those in the form of fixed and floating rate loans
("Loans") arranged through private negotiations between an issuer of
sovereign debt obligations and one or more financial institutions
("Lenders") deemed to be creditworthy by the investment adviser. The Fund's
investments in Loans may be in the form of participations in Loans
("Participations") or assignments ("Assignments") of all or a portion of
Loans from third parties. The Fund's investment in Participations typically
results in the Fund having a contractual relationship with only the Lender
and not with the borrower. The Fund has the right to receive payments of
principal, interest and any fees to which it is entitled only from the
Lender selling the Participation and only upon receipt by the Lender of the
payments from the borrower. The Fund generally has no right to enforce
compliance by the borrower with the terms of the loan agreement. As a
result, the Fund may be subject to the credit risk of both the borrower and
the Lender that is selling the Participation. When the Fund purchases
Assignments from Lenders it acquires direct rights against the borrower on
the Loan. Because Assignments are arranged through private negotiations
between potential assignees and potential assignors, the rights and
obligations acquired by the Fund as the purchaser of an Assignment may
differ from, and be more limited than, those held by the assigning Lender.
7. WRITTEN OPTIONS: The Fund may write covered call
options in an attempt to increase the Fund's total return. The Fund will
receive premiums that are recorded as liabilities and subsequently adjusted
to the current value of the options written. Premiums received from writing
options which expire are treated as realized gains. Premiums received from
writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the net realized
gain or loss. By writing a covered call option, the Fund foregoes in
exchange for the premium the opportunity for capital appreciation above the
exercise price should the market price of the underlying security increase.
8. OTHER: Security transactions are accounted for on
the date the securities are purchased or sold. Realized gains and losses on
the sale of investment securities are determined on the specific identified
cost basis. Interest income is recognized on the accrual basis. Dividend
income is recorded on the ex-dividend date (except certain dividends which
may be recorded as soon as the Fund is informed of such dividend) net of
applicable withholding taxes where recovery of such taxes is not reasonably
assured. Distributions to shareholders are recorded on the ex-date.
The amount and character of income and capital gain distributions to be paid
are determined in accordance with Federal income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing book and tax treatments for foreign currency
transactions 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
13
<PAGE>
under custody plus an amount for each transaction effected. For the six months
ended June 30, 1997, international custodian fees totaled $468,000, of which
$240,000 was payable to the International Custodian at June 30, 1997. In
addition, for the six months ended June 30, 1997, the Fund has earned interest
income of $1,000 and incurred interest expense of $39,000 on balances with the
International Custodian.
E. During the six months ended June 30, 1997, the Fund made purchases and sales
totaling approximately $66,704,000 and $61,463,000 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. During the six months ended June 30, 1997, the Fund placed a portion
of its portfolio transactions with affiliated broker/ dealers. Accordingly, the
Fund incurred brokerage commissions of $7,000 with Morgan Stanley & Co.
Incorporated, an affiliate of the U.S. Adviser, for the six months ended June
30, 1997.
At June 30, 1997, the U.S. Federal income tax cost basis of securities was
$237,014,000 and accordingly, net unrealized appreciation for U.S. Federal
income tax purposes was $91,162,000 of which $101,055,000 related to appreciated
securities and $9,893,000 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 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 investment. 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 June 30, 1997 totaled
$24,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
I. Supplemental Proxy Information
The Annual Meeting of the Stockholders of the Morgan Stanley Africa Investment
Fund, Inc. was held on April 30, 1997. The following is a summary of each
proposal presented and the total number of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES VOTES
PROPOSAL: FAVOR OF AGAINST WITHHELD ABSTAINED
- ----------------------------------------------------------------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
1. To elect the following Directors: John W. Croghan 10,980,133 107,280 -- --
Graham E. Jones 10,980,133 107,280 -- --
2.To ratify the selection of Price Waterhouse LLP as independent
public accountants of the Fund. 10,991,277 52,303 2 43,831
3.To approve an Investment Advisory and Management Agreement
between the Fund and Morgan Stanley Asset Management, Inc. 10,933,956 93,681 3 59,773
</TABLE>
14
<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
15
