<PAGE>
--------------------------------------------------------------
MORGAN STANLEY
DEAN WITTER
AFRICA INVESTMENT
FUND, INC.
--------------------------------------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 1999
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
INVESTMENT ADVISER
MORGAN STANLEY DEAN WITTER
AFRICA INVESTMENT FUND, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
Barton M. Biggs
CHAIRMAN OF THE BOARD
OF DIRECTORS
Michael F. Klein
PRESIDENT AND DIRECTOR
Peter J. Chase
DIRECTOR
John W. Croghan
DIRECTOR
David B. Gill
DIRECTOR
Graham E. Jones
DIRECTOR
John A. Levin
DIRECTOR
William G. Morton, Jr.
DIRECTOR
Stefanie V. Chang
VICE PRESIDENT
Harold J. Schaaff, Jr.
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
ASSISTANT TREASURER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Dean Witter Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
- --------------------------------------------------------------------------------
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(800) 278-4353
- --------------------------------------------------------------------------------
LEGAL COUNSEL
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers 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 or visit our website at
www.msdw.com/institutional/investmentmanagement.
<PAGE>
LETTER TO SHAREHOLDERS
- ----------
For the six months ended June 30, 1999, the Morgan Stanley Dean Witter Africa
Investment Fund, Inc. (the "Fund") had a total return, based on net asset value
per share, of 11.43%. For the period since the Fund's commencement of operations
on February 14, 1994 through June 30, 1999, the Fund's total return, based on
net asset value per share, was 48.45%. On June 30, 1999, the closing price of
the Fund's shares on the New York Stock Exchange was $10 1/8, representing a
21.8% discount the Fund's net asset value per share.
SOUTH AFRICA
The South African market rallied strongly during the second quarter, with the
Johannesburg All-Share Index rising 12.6%. The market gathered momentum as
commodity prices began to recover, especially the base metals, and in reaction
to a series of interest rate cuts which brought the Prime lending rate down from
20% at the start of the quarter to 18% by the end of June. The second all-race
elections were successfully held on June 2, giving the ruling ANC party a
landslide victory. We expect this vote of confidence to encourage the regime
under President Mbeki to press ahead with the difficult and politically
unpopular areas of labor market reform and privatization.
The Gross Domestic Product (GDP) release for the first quarter of the year
showed positive growth, primarily as a result of the rebasing of its components,
yet was still greeted as a positive surprise. We believe the economy bottomed
out in the second quarter and we expect economic indicators to start showing
stronger tendencies over the next few months. The rand has been relatively flat
all year, reflecting healthy portfolio inflows primarily from the London
listings of several leading companies. The pick up in commodity prices also
appears to have had a positive influence on the rand, though the weakness in
gold (the country's main export) and the strength in oil (the main import) will
cause a deterioration in the trade account. The demutualization of Old Mutual,
South Africa's largest insurance company was completed a few days after the end
of the second quarter and should provide a boost to consumer expenditure and GDP
that will be evident over the next 12 months.
We remain positive about South Africa, expecting further interest rate cuts,
deeper reforms under Thabo Mbeki and the acceleration of growth in the economy.
We do, however, have concerns about the rand, in light of a weak gold price and
the possibility of further relaxation of exchange controls in the near future.
EGYPT
The EFG Index fell 2.3% during the second quarter, as investors swapped their
market holdings for the much more liquid stock of Egypt Mobile, a cellular
company, whose price has risen dramatically in 1999. Privatization has gathered
momentum relative to the standstill of 1998, yet is still moving frustratingly
slow with only two major transactions completed in the first six months and a
large number of others postponed. The Central Bank's management of foreign
reserves continues to be baffling, restricting dollar liquidity while hoarding
reserves equal to 15 months of import cover. Earnings growth is on track,
averaging over 15% for the calendar year 1999, and dividend yields have reached
levels of over 10% in some cases (while local 90-day treasury bills yield only
8.8%). The combination of cheap valuations (1999 price-earnings of 7.8 times),
strong earnings performance and a healthy macroeconomic environment give us
confidence in the future potential of the market and we remain positive.
GHANA
The Ghanaian market, as measured by the Databank Index, lost 7.4% in the second
quarter, continuing to contradict the stream of positive news coming out at the
macroeconomic level. Inflation is collapsing in Ghana, with the latest CPI
figures as of May registering a 9.4% rise in prices year-on-year; a far cry away
from the 19% in 1998 and 28% in 1997. Interest rates have followed with a lag,
as the 90-day treasury bill rate has dropped from about 48% at the beginning of
1998 to 26% today. The country is also making inroads into its fiscal deficit
under auspices of the IMF and is experiencing GDP growth consistently above the
3% level. Much of the negative performance in the quarter can be attributed to
the currency, which depreciated 6.4% against the dollar during the quarter,
reacting to weakness in the cocoa and gold prices, Ghana's main exports.
The market continues to trade at remarkably low multiples (1999 price-earnings
of 3.8 times) and earnings per share growth ranges from 15% to 30% in real
terms. We are awaiting the liberalization and partial privatization of the
pension and mutual fund sector later on this year as a catalyst to channel a
larger portion of domestic money into the equity market. Several public
companies should also be listed over the next twelve months broadening the
market and improving liquidity, a major obstacle to current investment.
2
<PAGE>
MAURITIUS
The Mauritian market fell again in the second quarter of the year, as the SEMDEX
Index fell 2.5%. The news was marginally negative over the second quarter, as
the effect on the economy of a drought-induced 36% drop in the sugar crop became
more evident. Our GDP forecast has been reduced to about 3.3% for 1999, though
we expect a rebound to the 5% level in 2000. Interest rates ticked up to 13%
from 12% at the end of March, as the Central Bank tightened policy to ward off
inflation, which rose slightly over 7%. Looking forward, with the economy
weakening and the rupee's strength relative to the Euro hurting textile
exporters, we expect aggressive cuts in interest rates, helping the performance
of the economy and the stock market. Growth in the sectors where the Fund is
invested, namely financial services and tourism, continues to strengthen, with
the average earnings per share growth in this portion of the Fund's portfolio at
around 20%. The government has resuscitated plans to privatize Mauritius Telecom
in early 2000, a landmark transaction that would need to be completed before
presidential elections in the latter part of the year. We continue to be quite
positive about the market, with valuations at the low end of their recent
historical range and the normalization of the sugar industry.
ZIMBABWE
The Zimbabwean Industrial Index raced ahead by 10.4% in the second quarter, as
corporate earnings continued to strengthen and locals favored stocks to bonds.
The performance of the economy, however, was not encouraging, as inflation
climbed to around 53% and severe upward adjustments in the prices of key goods
such as fuel, electric power, telephone services and corn meal are still needed.
Speculation mounted during the quarter about the fate of the currency, which
appreciated slightly in the face of sharply rising inflation and an apparent
lack of foreign reserves. The country's involvement in the conflict in the Congo
and its controversial stance on land reform has temporarily scared the IMF away,
but the prospects for some type of support later on in the year are reasonable.
With the market trading at attractive valuations (1999 price-earnings of 6
times), a strong, well-managed private sector, and interest rates well below the
inflation rate, we feel the outlook for equities is positive. We are concerned,
nonetheless, about the value of the currency if balance of payment support is
not granted in the coming months.
REST OF AFRICA
The other markets where the Fund has positions were mostly down for the second
quarter, with the notable exception of Botswana, whose Domestic Company Index
rose 6.3% driven by banking stocks. We remain heavily concentrated in the
brewery sector, that is slated to benefit from increased disposable income
resulting from high economic growth as well as, in the short term, a large pay
raise received by public sector employees.
Kenya, where the Fund keeps a small position, fell sharply as the currency, the
shilling, lost 11.4% of its value against the dollar. Interest rates have risen
to defend the currency and the economy remains stagnant, with market
expectations of GDP growth at or below 2%.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
July 1999
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED.
- --------------------------------------------------------------------------------
DAILY NET ASSET AND MARKET VALUES, AS WELL AS MONTHLY PORTFOLIO INFORMATION FOR
THE FUND, ARE AVAILABLE ON OUR WEBSITE AT
WWW.MSDW.COM/INSTITUTIONAL/INVESTMENTMANAGEMENT.
3
<PAGE>
Morgan Stanley Dean Witter Africa Investment Fund, Inc.
Investment Summary as of June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL TOTAL RETURN (%)
INFORMATION --------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2)
------------------------- --------------------------
ANNUAL ANNUAL
CUMULATIVE AVERAGE CUMULATIVE AVERAGE
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
FISCAL YEAR TO DATE 21.51% -- 11.43% --
ONE YEAR -6.94 -6.94 -9.73 -9.73%
FIVE YEAR 48.66 8.25 63.40 10.32
SINCE INCEPTION* 15.97 2.79 48.45 7.63
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
ENDED
JUNE 30,
1994* 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share. . . . . $14.43 $17.05 $16.86 $14.45 $11.69 $12.96
Market Value Per Share . . . . . . $11.38 $12.88 $13.63 $11.50 $ 8.38 $10.13
Premium/(Discount) . . . . . . . . -21.1% -24.5% -19.2% -20.4% -28.3% -21.8%
Income Dividends . . . . . . . . . $ 0.54 $ 0.96 $ 0.14 $ 0.30 $ 0.86 $ 0.05
Capital Gains Distributions. . . . -- $ 0.01 $ 1.23 $ 2.25 $ 0.00# --
Fund Total Return (2). . . . . . . 7.34% 26.14% 8.64% 2.69% -11.82% 11.43%
</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.
# Amount is less than U.S.$0.01 per share.
4
<PAGE>
Morgan Stanley Dean Witter Africa Investment Fund, Inc.
Investment Summary as of June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIVERSIFICATION OF TOTAL INVESTMENTS
[PIE CHART]
<TABLE>
<S> <C>
Equity Securities (96.6%)
Short-Term Investments (3.4%)
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
[PIE CHART]
<TABLE>
<S> <C>
Banking (19.2%)
Beverages & Tobacoo (17.0%)
Broadcasting & Publising (3.0%)
Financial Services (9.9%)
Food & Household Products (4.2%)
Insurance (5.4%)
Merchandising (5.1%)
Misc. Materials & Commodities (5.1%)
Multi-Industry (6.6%)
Telecommunications (5.6%)
Other (18.9%)
</TABLE>
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
<TABLE>
<S> <C>
Botswana (4.9%)
Egypt (15.1%)
Ghana (11.6%)
Ivory Coast (1.7%)
Kenya (2.2%)
Mauritius (11.4%)
South Africa (42.2%)
Tunisia (0.8%)
Zambia (0.7%)
Zimbabwe (7.3%)
Other (2.1%)
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS (*)
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<S> <C>
1. State Bank of Mauritius Ltd. (Mauritius) 7.3%
2. Bidvest Group Ltd. (South Africa) 5.6
3. Egyptian Company for Mobile Services (Egypt) 5.6
4. Sechaba Breweries Ltd. (Botswana) 4.9
5. Standard Chartered Bank (Ghana) 4.3
6. B.O.E. Corp. Ltd. (South Africa) 4.2
7. Sanlam Ltd. (South Africa) 3.5
8. Meikles Africa Ltd. (Zimbabwe) 3.2
9. Al-Ahram Beverages Co. (Egypt) 2.8
10. Social Security Bank Ltd. (Ghana) 2.8
----
44.2%
----
----
</TABLE>
(*) EXCLUDES SHORT-TERM INVESTMENTS.
5
<PAGE>
FINANCIAL STATEMENTS
- -------
STATEMENT OF NET ASSETS (UNAUDITED)
- -------
JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (98.6%)
(Unless otherwise noted)
- --------------------------------------------------------------------------------
BOTSWANA (4.9%)
BEVERAGES & TOBACCO
Sechaba Breweries Ltd. 7,649,450 U.S.$ 8,852
-------------
- --------------------------------------------------------------------------------
EGYPT (15.1%)
BEVERAGES & TOBACCO
(a)Al-Ahram Beverages Co. GDR 181,000 5,145
Eastern Tobacco 184,102 4,483
-------------
9,628
-------------
BUILDING MATERIALS & COMPONENTS
Industrial & Engineering
Enterprises Co. 22,347 177
Industrial & Engineering
Enterprises Co. 191,338 1,513
Suez Cement Co. 43,026 615
Suez Cement Co. GDR 151,960 2,188
-------------
4,493
-------------
ELECTRONIC COMPONENTS, INSTRUMENTS
Egyptian Electro Cables 1,848 15
-------------
FINANCIAL SERVICES
(b)EFG-Hermes Holding GDR 79,200 934
National Societe Generale Bank 28,616 436
-------------
1,370
-------------
FOOD & HOUSEHOLD PRODUCTS
Central Flour Mills 110 --@
North Cairo Flour Mills 605 7
-------------
7
-------------
TELECOMMUNICATIONS
Egyptian Company for Mobile
Services 451,665 10,179
-------------
UTILITIES - ELECTRICAL & GAS
Egypt Gas Co. 45,000 1,842
-------------
27,534
-------------
- --------------------------------------------------------------------------------
GHANA (11.6%)
BANKING
Ghana Commercial Bank 5,394,580 2,089
Social Security Bank Ltd. 6,938,100 5,132
Standard Chartered Bank 913,400 7,783
-------------
15,004
-------------
BEVERAGES & TOBACCO
(a)Ghana Breweries Ltd. 504,000 367
Guinness Ghana Ltd. 3,050,979 1,093
Pioneer Tobacco Co., Ltd. 6,749,660 993
-------------
2,453
-------------
FINANCIAL SERVICES
Home Finance Co. 2,814,840 818
-------------
FOOD & HOUSEHOLD PRODUCTS
Unilever Ghana Ltd. 2,494,900 1,672
-------------
Metals - Non Ferrous
(a)Ghana Pioneer Aluminum Factory 1,043,400 119
-------------
- --------------------------------------------------------------------------------
MISC. MATERIALS & COMMODITIES
Aluworks Ghana Ltd. 1,070,000 U.S.$ 1,119
-------------
21,185
-------------
- --------------------------------------------------------------------------------
IVORY COAST (1.7%)
DIVERSIFIED OPERATIONS
(a)SOC Ivoirienne de Coco Rappe 24,000 463
-------------
FINANCIAL SERVICES
(a)Filature Tissages Sacs 25,000 826
-------------
FOOD & HOUSEHOLD PRODUCTS
(a)Nestle Cote D Ivoire 12,500 1,772
-------------
3,061
-------------
- --------------------------------------------------------------------------------
KENYA (2.2%)
BANKING
Kenya Commercial Bank Ltd. 991,326 626
National Industrial Credit Bank 389,439 160
-------------
786
-------------
CONSTRUCTION & HOUSING
(a)Athi River Mining Ltd. 3,262,500 246
-------------
FOOD & HOUSEHOLD PRODUCTS
Uchumi Supermarket Ltd. 2,501,107 1,647
-------------
INDUSTRIAL COMPONENTS
Firestone East Africa Ltd. 4,756,950 1,077
-------------
UTILITIES - ELECTRICAL & GAS
Kenya Power & Lighting Co., Ltd. 150,000 232
-------------
3,988
-------------
- --------------------------------------------------------------------------------
MALAWI (0.6%)
FOOD & HOUSEHOLD PRODUCTS
(c)Sugar Corp. of Malawi 7,160,000 993
-------------
- --------------------------------------------------------------------------------
MAURITIUS (11.4%)
BANKING
Mauritius Commercial Bank 782,036 3,107
State Bank of Mauritius Ltd. 20,307,940 13,310
-------------
16,417
-------------
LEISURE & TOURISM
New Mauritius Hotels 1,753,850 3,253
Rogers and Co., Ltd. 408,031 1,078
-------------
4,331
-------------
20,748
-------------
- --------------------------------------------------------------------------------
MOZAMBIQUE (0.1%)
MISC. MATERIALS & COMMODITIES
Kenmare Resources plc 1,975,000 184
-------------
- --------------------------------------------------------------------------------
NIGERIA (0.0%)
ENERGY SOURCES
Tuskar Resources plc 14,329,000 56
-------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
SOUTH AFRICA (42.2%)
BANKING
Standard Bank Investment Corp.,
Ltd 229,000 U.S.$ 757
-------------
BEVERAGES & TOBACCO
Amalgamated Beverage
Industries Ltd. 403,605 3,311
Rembrandt Group Ltd. 364,490 3,038
-------------
6,349
-------------
BROADCASTING & PUBLISHING
Naspers Ltd. 'N' 327,300 1,966
Primedia Ltd. 2,325,000 3,467
-------------
5,433
-------------
BUSINESS & PUBLIC SERVICES
Educor 3,203,680 3,021
-------------
CHEMICALS
SASOL Ltd. 695,800 4,964
-------------
CONSTRUCTION & HOUSING
Concor Ltd. 1,169,822 2,375
-------------
DATA PROCESSING & REPRODUCTION
(a)Paracon Holdings Ltd. 5,487,000 1,155
-------------
ELECTRICAL & ELECTRONICS
Comparex Holdings Ltd. 135,000 850
-------------
FINANCIAL SERVICES
ABSA Group Ltd. 860,780 4,871
B.O.E. Corp. Ltd. 'N' 9,601,868 7,638
FirstRand Ltd. 1,683,000 1,924
-------------
14,433
-------------
GOLD MINES
Goldfields Ltd. 515,337 1,768
-------------
Insurance
(a)New Africa Investments Ltd.
(Preferred) 'N' 5,869,900 3,453
(a)Sanlam Ltd. 5,421,700 6,424
(c)Suncrush Ltd. 151,300 22
-------------
9,899
-------------
MACHINERY & ENGINEERING
Howden Africa Holdings Ltd. 2,010,172 333
-------------
MERCHANDISING
Ellerine Holdings Ltd. 683,700 2,719
Pepkor Ltd. 172,500 695
-------------
3,414
-------------
METALS - NON FERROUS
Impala Platinum Holdings Ltd. 130,500 3,283
-------------
MISC. MATERIALS & COMMODITIES
(a)Anglo American plc 26,100 1,220
Billiton plc 1,273,550 4,430
De Beers 73,000 1,749
-------------
7,399
-------------
MULTI-INDUSTRY
Bidvest Group Ltd. 1,223,292 10,217
(a)Leisure Planet Holdings 218,404 1,051
-------------
11,268
-------------
76,701
-------------
- --------------------------------------------------------------------------------
TUNISIA (0.8%)
BANKING
Banque de l'Habitat 75,000 U.S.$ 1,043
-------------
FINANCIAL SERVICES
Tunisie Leasing SA 15,000 492
-------------
1,535
-------------
- --------------------------------------------------------------------------------
ZAMBIA (0.7%)
FOOD & HOUSEHOLD PRODUCTS
(a)Zambia Sugar Co., Ltd. 151,371,609 818
-------------
MISC. MATERIALS & COMMODITIES
Zambia Consolidated Copper
Mines 600,000 525
-------------
1,343
-------------
- --------------------------------------------------------------------------------
ZIMBABWE (7.3%)
BANKING
NMBZ Holdings Ltd. 1,954,000 859
-------------
BEVERAGES & TOBACCO
Delta Corp., Ltd. 10,970,036 3,122
TSL Ltd. 3,477,000 550
-------------
3,672
-------------
BUILDING MATERIALS & COMPONENTS
Portland Holdings Ltd. 400,000 88
(a)Portland Holdings Ltd.
(Convertible Shares 13%) 25,000 6
-------------
94
-------------
ENERGY SOURCES
Wankie Colliery Co. Ltd. 7,871,900 519
-------------
FOOD & HOUSEHOLD PRODUCTS
Eastern Highland Plantation 3,375,659 258
Interfresh Ltd. 15,000,000 455
-------------
713
-------------
FOREST PRODUCTS & PAPER
PG Industries Ltd. 1,713,446 84
-------------
LEISURE & TOURISM
Zimbabwe Sun Ltd. 6,617,338 610
-------------
MERCHANDISING
Meikles Africa Ltd. 6,544,880 5,777
-------------
MISC. MATERIALS & COMMODITIES
Bindura Nickel Corp., Ltd. 658,750 50
-------------
MULTI-INDUSTRY
(a)TA Holdings Ltd. 11,432,100 301
Trans Zambezi Industries Ltd. 6,012,410 365
(b)Trans Zambezi Industries Ltd.
ADR 2,560,000 155
-------------
821
-------------
13,199
-------------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost U.S.$195,061) 179,379
-------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
WARRANTS (0.0%)
- --------------------------------------------------------------------------------
SOUTH AFRICA (0.0%)
MULTI-INDUSTRY
(a)Leisure Planet Holdings `B',
expiring 1/24/01
(Cost U.S.$--) U.S.$ --@
-------------
- --------------------------------------------------------------------------------
FACE
AMOUNT
(000)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (1.0%)
- --------------------------------------------------------------------------------
UNITED STATES (1.0%)
REPURCHASE AGREEMENT
Chase Securities, Inc. 4.55%,
dated 6/30/99, due 7/1/99, to
be repurchased at U.S.$1,855,
collateralized by U.S.$1,725
United States Treasury
Bonds, 7.25%, due 5/15/16,
valued at U.S.$1,917
(Cost U.S.$1,855) U.S.$ 1,855 1,855
-------------
- --------------------------------------------------------------------------------
FOREIGN CURRENCY ON DEPOSIT WITH
CUSTODIAN (2.5%)
Egyptian Pound EGP 2,206 646
Mauritius Rupee MUR 3,189 127
South African Rand ZAR 22,575 3,741
-------------
(Cost U.S.$4,549) 4,514
-------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (102.1%)
(Cost $201,465) 185,748
-------------
- --------------------------------------------------------------------------------
OTHER ASSETS (2.5%)
Receivable for Investments
Sold U.S.$ 3,482
Dividends Receivable 1,087
Other Assets 28 4,597
----------------- -------------
- --------------------------------------------------------------------------------
LIABILITIES (-4.6%)
Payable For:
Investments Purchased (6,533)
Dividends Declared (702)
Bank Overdraft (510)
Custodian Fees (309)
Investment Advisory Fees (175)
Professional Fees (47)
Directors' Fees and Expenses (45)
Shareholder Reporting Expenses (42)
Administrative Fees (19)
Net Unrealized Loss on Foreign
Currency Exchange Contracts (2)
Other Liabilities (21) (8,405)
----------------- -------------
- --------------------------------------------------------------------------------
<CAPTION>
AMOUNT
(000)
- --------------------------------------------------------------------------------
<S> <C>
NET ASSETS (100%)
Applicable to 14,041,121,
issued and outstanding
U.S.$0.01 par value shares
(100,000,000 shares
authorized) U.S.$181,940
-------------
-------------
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 12.96
-------------
-------------
- --------------------------------------------------------------------------------
AT JUNE 30, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Common Stock U.S.$ 140
Capital Surplus 202,019
Undistributed Net Investment Income 1,802
Accumulated Net Realized Loss (6,228)
Unrealized Depreciation on Investments and
Foreign Currency Translations (15,793)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS U.S.$181,940
-------------
-------------
- --------------------------------------------------------------------------------
</TABLE>
(a) -- Non-income producing
(b) -- 144A Security - certain conditions for public sale may exist.
(c) -- Security valued at fair value -- See note A-1 to financial statements.
@ -- Value is less than U.S.$500.
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30, 1999,
the Fund is obligated to deliver foreign currency in exchange for U.S.
dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN NET
TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE LOSS
(000) (000) DATE (000) (000) (000)
- ------------ ----------- -------------- ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
EGP 409 U.S.$120 07/01/99 U.S.$ 119 U.S.$ 119 U.S.$ (1)
MUR 2,083 83 07/01/99 U.S.$ 82 82 (1)
MUR 616 24 07/01/99 U.S.$ 24 24 --
MUR 490 19 07/02/99 U.S.$ 19 19 --
-------- --------- ---------
U.S.$246 U.S.$ 244 U.S.$ (2)
-------- --------- ---------
-------- --------- ---------
</TABLE>
- --------------------------------------------------------------------------------
JUNE 30, 1999 EXCHANGE RATES:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
EGP Egyptian Pound 3.414 = U.S. $1.00
MUR Mauritius Rupee 25.175 = U.S. $1.00
ZAR South African Rand 6.035 = U.S. $1.00
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY CLASSIFICATION -- JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C>
Banking U.S.$ 34,866 19.2%
Beverages & Tobacco 30,954 17.0
Broadcasting & Publishing 5,433 3.0
Building Materials & Components 4,587 2.5
Business & Public Services 3,021 1.7
Chemicals 4,964 2.7
Construction & Housing 2,621 1.4
Data Processing & Reproduction 1,155 0.6
Diversified Operations 463 0.2
Electrical & Electronics 850 0.5
Electrical Components, Instruments 15 0.0
Energy Sources 575 0.3
Financial Services 17,939 9.9
Food & Household Products 7,622 4.2
Forest Products & Paper 84 0.1
Gold Mines 1,768 1.0
Industrial Components 1,077 0.6
Insurance 9,899 5.4
Leisure & Tourism 4,941 2.7
Machinery & Engineering 333 0.2
Merchandising 9,191 5.1
Metals-- Non-Ferrous 3,402 1.9
Misc. Materials & Commodities 9,277 5.1
Multi-Industry 12,089 6.6
Telecommunications 10,179 5.6
Utilities-- Electrical & Gas 2,074 1.1
Other 6,369 3.5
------------ -----
U.S.$185,748 102.1%
------------ -----
------------ -----
- --------------------------------------------------------------------------------
</TABLE>
SUMMARY OF TOTAL INVESTMENTS BY COUNTRY -- JUNE 30, 1999
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
COUNTRY (000) ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C>
Botswana U.S.$ 8,852 4.9%
Egypt 27,534 15.1
Ghana 21,185 11.6
Ivory Coast 3,061 1.7
Kenya 3,988 2.2
Malawi 993 0.6
Mauritius 20,748 11.4
Mozambique 184 0.1
Nigeria 56 0.0
South Africa 76,701 42.2
Tunisia 1,535 0.8
United States (short-term investments) 1,855 1.0
Zambia 1,343 0.7
Zimbabwe 13,199 7.3
Other 4,514 2.5
------------ -----
U.S.$185,748 102.1%
------------ -----
------------ -----
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1999
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends ........................................................................................ U.S.$ 4,327
Interest ......................................................................................... 31
Less: Foreign Taxes Withheld ..................................................................... (261)
- ---------------------------------------------------------------------------------------------------------------------------
Total Income 4,097
- ---------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees ......................................................................... 1,042
Custodian Fees ................................................................................... 312
Administrative Fees .............................................................................. 107
Shareholder Reporting Expenses ................................................................... 46
Professional Fees ................................................................................ 37
Directors' Fees and Expenses ..................................................................... 26
Transfer Agent Fees .............................................................................. 10
Other Expenses ................................................................................... 27
- ---------------------------------------------------------------------------------------------------------------------------
Total Expenses ................................................................................. 1,607
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income ........................................................................ 2,490
- ---------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold ....................................................................... 490
Foreign Currency Transactions .................................................................... (43)
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized Gain .............................................................................. 447
- ---------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments ...................................................................... 15,377
Depreciation on Foreign Currency Translations .................................................... (464)
- ---------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation ................................................. 14,913
- ---------------------------------------------------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized Appreciation/Depreciation ........................... 15,360
- ---------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................................. U.S.$ 17,850
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income U.S.$ 2,490 U.S.$ 5,826
Net Realized Gain 447 2,953
Change in Unrealized Appreciation/Depreciation 14,913 (39,777)
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations 17,850 (30,998)
- ---------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income (702) (12,452)
In Excess of Net Realized Gains -- (37)
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions (702) (12,489)
- ---------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Repurchase of Shares (305,300 shares and 1,102,056 shares, respectively) (2,931) (11,993)
- ---------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 14,217 (55,480)
NET ASSETS:
Beginning of Period 167,723 223,203
- ---------------------------------------------------------------------------------------------------------------------------
End of Period (including undistributed net investment income of U.S.$1,802 U.S.$ 181,940 U.S.$ 167,723
and U.S.$14, respectively)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS PERIOD FROM
ENDED YEAR ENDED DECEMBER 31, FEBRUARY 14, 1994*
SELECTED PER SHARE DATA JUNE 30, 1999 ------------------------------------------------------ TO
AND RATIOS: (UNAUDITED) 1998 1997 1996 1995 DECEMBER 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .. U.S. $11.69 U.S. $14.45 U.S. $16.86 U.S. $17.05 U.S. $14.43 U.S. $14.10
- ------------------------------------------------------------------------------------------------------------------------------------
Offering Costs ........................ -- -- -- -- -- (0.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income ................. 0.18 0.40 0.34 0.35 0.64 0.54
Net Realized and Unrealized Gain
(Loss) on Investments ............... 1.08 (2.58) (0.20) 0.83 2.95 0.38
- ------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations .. 1.26 (2.18) 0.14 1.18 3.59 0.92
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income ............... (0.05) (0.86) (0.30) (0.14) (0.96) (0.54)
In Excess of Net Investment Income .. -- -- -- -- (0.00)# (0.00)#
Net Realized Gains .................. -- -- (2.04) (1.23) (0.01) --
In Excess of Net Realized Gains ..... -- (0.00)# (0.21) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions ............... (0.05) (0.86) (2.55) (1.37) (0.97) (0.54)
- ------------------------------------------------------------------------------------------------------------------------------------
Anti-Dilutive Effect of Shares
Repurchased ......................... 0.06 0.28 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ........ U.S. $12.96 U.S. $11.69 U.S. $14.45 U.S. $16.86 U.S. $17.05 U.S. $14.43
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF
PERIOD .............................. U.S. $10.13 U.S. $8.38 U.S. $11.50 U.S. $13.63 U.S. $12.88 U.S. $11.38
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value ........................ 21.51% (20.62)% 1.13% 16.26% 20.84% (15.37)%
Net Asset Value (1) ................. 11.43% (11.82)% 2.69% 8.64% 26.14% 7.34%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(THOUSANDS) ......................... U.S.$181,940 U.S.$167,723 U.S.$223,203 U.S.$260,522 U.S.$236,428 U.S.$222,929
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net
Assets .............................. 1.85%** 1.79% 1.77% 1.79% 1.77% 1.87%**
Ratio of Net Investment Income to
Average Net Assets .................. 2.87%** 2.56% 1.72% 2.11% 4.18% 4.47%**
Portfolio Turnover Rate ............... 62% 53% 40% 68% 66% 32%
- ------------------------------------------------------------------------------------------------------------------------------------
</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
per share of the Fund.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
NOTE TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
- -----------
The Morgan Stanley Dean Witter Africa Investment Fund, Inc. (formerly 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 VALUATION: 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 rate of
exchange on 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, if any, 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.
12
<PAGE>
The Fund may use derivatives to achieve its investment objectives. The Fund may
engage in transactions in futures contracts on foreign currencies, stock
indices, as well as in options, swaps and structured notes. Consistent with the
Fund's investment objectives and policies, the Fund may use derivatives for
non-hedging as well as hedging purposes.
Following is a description of derivative instruments that the Fund may utilize
and their associated risks:
5. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into foreign
currency exchange contracts generally to attempt to protect securities and
related receivables and payables against changes in future foreign exchange
rates and, in certain situations, to gain exposure to a foreign currency. 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 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. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: The Fund
may make forward commitments to purchase or sell securities. Payment and
delivery for securities which have been purchased or sold on a forward
commitment basis can take place a month or more (not to exceed 120 days)
after the date of the transaction. Additionally, the Fund may purchase
securities on a when-issued or delayed delivery basis. Securities purchased
on a when-issued or delayed delivery basis are purchased for delivery beyond
the normal settlement date at a stated price and yield, and no income
accrues to the Fund on such securities prior to delivery. When the Fund
enters into a purchase transaction on a when-issued or delayed delivery
basis, it either establishes a segregated account in which it maintains
liquid assets in an amount at least equal in value to the Fund's commitments
to purchase such securities or denotes such securities on the custody
statement for its regular custody account. Purchasing securities on a
forward commitment or when-issued or delayed-delivery basis may involve a
risk that the market price at the time of delivery may be lower than the
agreed upon purchase price, in which case there could be an unrealized loss
at the time of delivery.
9. SWAP AGREEMENTS: The Fund may enter into swap agreements to exchange the
return generated by one security, instrument or basket of instruments for
the return generated by another security, instrument or basket of
instruments. The following summarizes swaps which may be entered into by the
Fund:
INTEREST RATE SWAPS: Interest rate swaps involve the exchange of commitments
to pay and receive interest based on a notional principal amount. Net
periodic interest payments to be received or paid are accrued daily and are
recorded in the Statement of Operations
13
<PAGE>
as an adjustment to interest income. Interest rate swaps are
marked-to-market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized appreciation or depreciation in
the Statement of Operations.
TOTAL RETURN SWAPS: Total return swaps involve commitments to pay interest
in exchange for a market-linked return based on a notional amount. To the
extent the total return of the security, instrument or basket of instruments
underlying the transaction exceeds or falls short of the offsetting interest
obligation, the Fund will receive a payment from or make a payment to the
counterparty, respectively. Total return swaps are marked-to-market daily
based upon quotations from market makers and the change, if any, is recorded
as unrealized gains or losses in the Statement of Operations. Periodic
payments received or made at the end of each measurement period, but prior
to termination, are recorded as realized gains or losses in the Statement of
Operations.
Realized gains or losses on maturity or termination of interest rate and
total return swaps are presented in the Statement of Operations. Because
there is no organized market for these swap agreements, the value reported
in the Statement of Net Assets may differ from that which would be realized
in the event the Fund terminated its position in the agreement. Risks may
arise upon entering into these agreements from the potential inability of
the counterparties to meet the terms of the agreements and are generally
limited to the amount of net interest payments to be received and/or
favorable movements in the value of the underlying security, instrument or
basket of instruments, if any, at the date of default.
10. STRUCTURED SECURITIES: The Fund may invest in interests in entities
organized and operated solely for the purpose of restructuring the
investment characteristics of sovereign debt obligations. This type of
restructuring involves the deposit with or purchase by an entity of
specified instruments and the issuance by that entity of one or more classes
of securities ("Structured Securities") backed by, or representing interests
in, the underlying instruments. Structured Securities generally will expose
the Fund to credit risks of the underlying instruments as well as of the
issuer of the Structured Security. Structured Securities are typically sold
in private placement transactions with no active trading market. Investments
in Structured Securities may be more volatile than their underlying
instruments, however, any loss is limited to the amount of the original
investment.
11. OVER-THE-COUNTER TRADING: Derivative instruments that may be purchased or
sold by the Fund are expected to regularly consist of instruments not traded
on an exchange. The risk of nonperformance by the obligor on such an
instrument may be greater, and the ease with which the Fund can dispose of
or enter into closing transactions with respect to such an instrument may be
less, than in the case of an exchange-traded instrument. In addition,
significant disparities may exist between bid and asked prices for
derivative instruments that are not traded on an exchange. Derivative
instruments not traded on exchanges are also not subject to the same type of
government regulation as exchange traded instruments, and many of the
protections afforded to participants in a regulated environment may not be
available in connection with such transactions.
12. 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 net of applicable withholding taxes where recovery of
such taxes is not reasonably assured. Distributions to shareholders are
recorded on the ex-dividend 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 Dean Witter Investment Management Inc. (formerly 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 corporate 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
14
<PAGE>
$100,000 per annum. In addition, the Fund is charged certain out-of-pocket
expenses by the Administrator.
D. The Chase Manhattan Bank serves as custodian for the Fund. Custody fees are
payable monthly based on assets held in custody, investment purchase and sales
activity and account maintenance fees, plus reimbursement for certain
out-of-pocket expenses.
E. For the six months ended June 30, 1999, the Fund made purchases and sales
totaling approximately $106,643,000 and $108,146,000 respectively, of investment
securities other than long-term U.S. Government securities and short-term
investments. There were no purchases and sales of long-term U.S. Government
securities. At June 30, 1999, the U.S. Federal income tax cost basis of
securities was $196,916,000 and, accordingly, net unrealized depreciation for
U.S. Federal income tax purposes was $15,682,000 of which $27,451,000 related to
appreciated securities and $43,133,000 related to depreciated securities. At
December 31, 1998, the Fund had a capital loss carryforward for U.S. Federal
income tax purposes of approximately $3,546,000 available to offset future
capital gains which will expire on December 31, 2006. To the extent that capital
gains are offset, such gains will not be distributed to the shareholders.
F. For the six months ended June 30, 1999, the Fund placed a portion of its
portfolio transactions with affiliated broker/dealers. Accordingly, the Fund
incurred brokerage commissions of $56,000 with Morgan Stanley & Co.
Incorporated, an affiliate of the Adviser, for the six months ended June 30,
1999.
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, 1999 totaled
$41,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
I. During June 1999, the Officers declared a dividend distribution of $0.05 per
share, derived from net investment income, payable on July 9, 1999, to
shareholders of record on June 30, 1999.
J. On July 2, 1998, the Fund commenced a share repurchase program for purposes
of enhancing shareholder value and reducing the discount at which the Fund's
shares traded from their net asset value. For the six months ended June 30,
1999, the Fund repurchased 305,300 shares of its Common Stock at an average
price per share of $9.55 and an average discount of 22.71% from net asset value
per share. The Fund expects to continue to repurchase its outstanding shares at
such time and in such amounts as it believes will further the accomplishment of
the foregoing objectives, subject to review by the Board.
15
<PAGE>
K. Supplemental Proxy Information
The Annual Meeting of the Stockholders of the Morgan Stanley Africa Investment
Fund, Inc. was held on June 21, 1999. The following is a summary of each
proposal presented and the total number of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES AUTHORITY VOTES
PROPOSAL: FAVOR OF AGAINST WITHHELD ABSTAINED
- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C>
1. To elect the following Directors: Peter J. Chase 8,386,347 -- 3,791,446 --
David B. Gill 8,386,789 -- 3,791,004 --
Michael F. Klein 8,384,824 -- 3,792,967 --
2. To ratify the selection of PricewaterhouseCoopers LLP
as independent accountants of the Fund 12,119,704 36,512 -- 21,576
3. To approve an amendment to the Fund's Articles of
Incorporation to change the name of the Fund to Morgan
Stanley Dean Witter Africa Investment Fund, Inc. 8,505,575 3,641,489 -- 30,728
</TABLE>
16
<PAGE>
YEAR 2000 DISCLOSURE (UNAUDITED):
The investment advisory services provided to the Fund by the Adviser depend on
the smooth operation of its computer systems. Many computer and software systems
in use today cannot recognize the year 2000, but revert to 1900 or some other
date, due to the manner in which dates were encoded and calculated. That failure
could have a negative impact on the handling of securities trades, pricing and
account services. The Adviser has been actively working on necessary changes to
its own computer systems to deal with the year 2000 problem and expects that its
systems will be adapted before that date. There can be no assurance, however,
that the Adviser will be successful. In addition, other unaffiliated service
providers may be faced with similar problems. The Adviser is monitoring their
remedial efforts, but, there can be no assurance that they and the services they
provide will not be adversely affected.
In addition, it is possible that the markets for securities in which the Fund
invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected.
17
<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 share s 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 Dean Witter 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
18
