-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, lvG1ZZEtbYITBGC1D3WUoIYBrDJbbTSak5TPN2LZSlaB2/+PnY4lAEdpwdozH/Kx UpDonAxBQtaQftFTNAZbzQ== 0000912057-95-004467.txt : 19950619 0000912057-95-004467.hdr.sgml : 19950619 ACCESSION NUMBER: 0000912057-95-004467 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950608 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAKISTAN INVESTMENT FUND INC CENTRAL INDEX KEY: 0000886243 STANDARD INDUSTRIAL CLASSIFICATION: FILING VALUES: FORM TYPE: N-30B-2 SEC ACT: 1940 Act SEC FILE NUMBER: 811-06636 FILM NUMBER: 95545900 BUSINESS ADDRESS: STREET 1: 73 TREMONT ST 8TH FLOOR CITY: BOSTON STATE: MA ZIP: 02108 BUSINESS PHONE: 6175578742 MAIL ADDRESS: STREET 1: 73 TREMONT ST STREET 2: 8TH FLR CITY: BOSTON STATE: MA ZIP: 02108 N-30B-2 1 N-30B-2 THE PAKISTAN INVESTMENT FUND, INC. --------------------------------------------- OFFICERS AND DIRECTORS Warren J. Olsen Altaf M. Saleem CHAIRMAN OF THE BOARD DIRECTOR OF DIRECTORS James W. Grisham Marianne L. Hay VICE PRESIDENT PRESIDENT AND DIRECTOR Harold J. Schaaff, Jr. James W. Donley VICE PRESIDENT DIRECTOR Joseph P. Stadler Graham E. Jones VICE PRESIDENT DIRECTOR Valerie Y. Lewis John A. Levin SECRETARY DIRECTOR Hilary D. Toole J. Antonio M. Quila ASSISTANT SECRETARY DIRECTOR James R. Rooney Fergus Reid TREASURER DIRECTOR Timothy F. Osborne Frederick O. Robertshaw ASSISTANT TREASURER DIRECTOR --------------------------------------------- U.S. INVESTMENT ADVISER Morgan Stanley Asset Management Inc. 1221 Avenue of the Americas New York, New York 10020 ---------------------------------------------------------------- PAKISTANI INVESTMENT ADVISER International Asset Management Company Limited Sidco Avenue Centre 6th Floor Strachen Road Karachi, Pakistan ---------------------------------------------------------------- ADMINISTRATOR The United States Trust Company of New York 73 Tremont Street Boston, Massachusetts 02108 ---------------------------------------------------------------- CUSTODIANS Morgan Stanley Trust Company One Pierrepont Plaza Brooklyn, New York 11201 The United States Trust Company of New York 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 ---------------------------------------------------------------- --------- THE PAKISTAN INVESTMENT FUND, INC. --------- FIRST QUARTER REPORT MARCH 31, 1995 MORGAN STANLEY ASSET MANAGEMENT INC. INVESTMENT ADVISER LETTER TO SHAREHOLDERS - - -------- The first three months of 1995 proved to be another difficult quarter for Pakistan. Violence in the commercial capital of Karachi escalated to a level not previously seen before, as rival sects and partisan groups battled for supremacy. With the military withdrawal from Karachi and the government thus far mute on the issue, extremists have easily filled the vacuum. For the first time, even the hardened Karachi business community has begun to take issue, as evidenced by its one day strike in late March. Not surprisingly, the stock market suffered during this volatile period. The IFC Global Total Return Index for Pakistan (Index) was down 18.44% for the quarter, compared to a 23.12% decrease in the Fund's total return based on net asset value per share. The primary reason for the underperformance was the Fund's overweight position in the cement sector, as compared to the Index (13.9% compared to 4.2%). Cement stocks have come under pressure recently due to lower margins resulting from increased Indian imports. Floods, violence in Karachi and lower than expected GDP growth (5.0% as opposed to 6.7%) have also had their effect. Nevertheless, with a housing deficit estimated by the government to be around 4.5 million and with Pakistan's infrastructure needs still acute, we remain convinced that an overweighting in the cement sector is justified. A secondary reason for the underperformance was the disproportionately large weighting of 51% assigned by the IFC to four of our top holdings--Fauji Fertilizer, Engro Chemicals, Dewan Salman and Pakistan State Oil. We had to underweight these stocks and diversify into some smaller and more volatile issues. During the recent market sell-off, these smaller issues underperformed the Index. Starting this year, however, the IFC has revised its weightings and for the first time we are overweight the stocks we want to overweight, namely the four mentioned above. When the market turns, we believe these four blue chips will be at the forefront of the recovery. The global bear market in emerging markets this quarter has also had an impact on Pakistan. The country's lack of any restriction on foreign investment and a settlement system considered more efficient than India's has made it quite vulnerable to money outflows. The virtual absence of foreign investment this quarter has thus contributed to local bearishness. Nevertheless, unrest in Karachi deserves the brunt of the blame. Violence in Karachi is not a new phenomenon due to the city's status as a flashpoint for the long simmering tensions between urban and rural interest groups in Pakistan. Consequently, governments have tended to regard the volatile nature of the city as something unavoidable but exclusive to Karachi. However, events during recent months have drawn international attention, making the Karachi problem a national one for Pakistan. With the local business community and foreign investors beginning to voice their concern, the government can no longer ignore the problem. Urban businessmen in Karachi provide the bulk of tax revenues to the state, and foreign investors--having invested $1.4 billion in Pakistan last year alone-- represent an important source of funding for the government's ambitious privatization program. The pressure is now on the government of Prime Minister Bhutto to address the situation. We believe the events of recent months (especially the killing of the two US diplomats in February) will force Prime Minister Bhutto's government to address the problems in Karachi and that at some point soon the government will offer a Karachi strategy as a means to defuse criticism that it is not in control of the city. Already, we are seeing indications that the government is looking to take 2 on the issue. Over the past few months, both Prime Minister Bhutto and President Leghari have met with leaders of the MQM party (the chief representative of urban interests) in Karachi. Although nothing has been resolved yet, at least views are being exchanged. While the unrest in Karachi has resonated outside of Pakistan, there has been no immediate economic effect. Economic growth is forecast for the year ending this June to be 5%, with corporate profits averaging an increase of 28%. A shortfall in expected tax revenues together with the reduction of import tariffs is likely to result in a budget deficit of over 5% of GDP, missing the government's target of 4% but in line with last year's figure of 5.8%. The IMF was recently in Pakistan and continues to support the government's reform program. Amidst all the bad news swirling around Pakistan these days, it is comforting to note the government's continued commitment to the economic reform process, and especially privatization. In recent weeks, the government has increased the average returns on equity allowed the two giant gas distributors, Sui Northern and Sui Southern, in order to make them more attractive to foreign investors. At the same time, the government is also accelerating the process to find a strategic foreign investor for the telephone monopoly Pak Telecom ("PTC"). 1994 results for the company were announced recently, with net profits up 13% over 1993. We believe the bottom line performance will continue to improve under foreign management. As the largest cap stock on the exchange, PTC is very much a bellwether for investor sentiment. The securing of a strategic investor (a 26% stake is to be awarded) and the inevitable efficiency gains that will ensue should be a huge boost to market confidence. A deadline for year-end 1995 has been set for the closing of the deal. While there has been no concrete agreement between the government and the opposition on Karachi, the city has been relatively peaceful during the last three weeks of March, as the government tightened the security net prior to Prime Minister Bhutto's visit to the United States. The army has yet to be called in, but the rangers, as they are called--a crack government force which has broader powers than the police but which is separate from the actual military--have assumed a greater presence in the city. This brief respite has allowed local investors to shift focus back to corporate fundamentals which have been effectively ignored over the past three months. Despite the bad news of the last few months, there have been positive developments in Pakistan which affect many of the Fund's key holdings. As mentioned before, the increase in the gas distributor margins will increase earnings for the Sui Southern and Sui Northern gas companies; also on the margin side, oil distributors were granted a 1.5% increase in net margins--a benefit for Pakistan State Oil. Polyester synthetic fiber prices continue to increase in line with cotton shortages, both local and abroad--good news for Dewan Salman and Pakistan Synthetic. In the fertilizer sector, where the Fund has a 13% weighting, the recent 12% price increase for urea fertilizer products promises a boost to the already strong earnings growth of Fauji Fertilizer and Engro Chemicals. As less efficient public sector fertilizer plants experience production difficulties, Fauji and Engro will continue to expand their growing share of the market. In the banking sector, the recent decision by the Central Bank to withdraw the previous limit on lending rates will allow the banks to improve their margins, a move likely to improve profitability by 15% this year. A prime beneficiary here will be Muslim Commercial Bank, the largest private sector bank in Pakistan in terms of both assets 3 and deposits. And finally, there is the renewed interest in Pak Telecom in light of privatization developments. Investors, both foreign and local, are aware of these developments and with the market collectively trading at around 8x 1995 expected earnings, the value is certainly there. While it is never easy to predict a market's turn, we believe that investors are now poised and ready on the sidelines, waiting for one big event--i.e. a government initiative on Karachi or the sale of PTC--to bring them back into the market. With the market at a 15 month low and the economic reform program broadly on track, it should not take much to switch investor focus from the short-term effects of chaotic Karachi to the long-term upside potential of the market. At just below 8x 1995 estimated earnings, the Pakistani market is now one of the cheapest in the emerging markets universe. Sincerely, [SIGNATURE] Marianne L. Hay PRESIDENT AND SENIOR PORTFOLIO MANAGER [SIGNATURE] Landon Thomas PORTFOLIO MANAGER April 24, 1995 4 INVESTMENTS (UNAUDITED) - - --------- MARCH 31, 1995
VALUE SHARES (000) - - --------------------------------------------------------- - - ------------ PAKISTANI COMMON STOCKS (98.2%) (Unless otherwise noted) - - --------------------------------------------------------- - - ------------- APPLIANCES & HOUSEHOLD DURABLES (2.4%) Pel Appliances Ltd. 521,802 U.S.$ 2,114 Pel Appliances (Rights) 156,540 330 ----------- 2,444 ----------- - - --------------------------------------------------------- - - ------------- AUTOMOBILES (2.1%) Indus Motor Co. 2,531,200 1,436 Pak Suzuki Motor Co. Ltd. 827,800 697 Pak Suzuki Motor Co. Ltd. (Rights) 827,800 27 ----------- 2,160 ----------- - - --------------------------------------------------------- - - ------------- BANKING (5.2%) Bankers Equity Ltd. 1,063,520 845 Bank of Punjab 755,000 704 First National Investment Bank Ltd. 1,100,000 998 Muslim Commercial Bank Ltd. 1,157,500 1,829 Muslim Commercial Bank Ltd. (Rights) 173,625 49 Union Bank Ltd. 1,057,500 874 ----------- 5,299 ----------- - - --------------------------------------------------------- - - ------------- BUILDING MATERIALS & COMPONENTS (13.9%) Cherat Cement Ltd. 1,139,360 2,511 Dadabhoy Cement 1,372,900 1,179 Dandot Cement Co. 1,356,250 1,737 Dandot Cement Co. (Rights) 339,062 104 D. G. Khan Cement Ltd. 2,771,500 3,558 D. G. Khan Cement Ltd. (Rights) 964,000 1,238 Maple Leaf Cement 560,000 701 Maple Leaf Cement (Rights) 1,120,000 1,401 Pakland Cement 612,000 1,448 Pioneer Cement Ltd. 350,000 275 ----------- 14,152 ----------- - - --------------------------------------------------------- - - ------------- CHEMICALS (21.1%) Engro Chemicals Ltd. 702,000 3,755 Fauji Fertilizer Co. Ltd. 4,619,000 10,556 ICI Pakistan Ltd. 296,800 2,150 Jordan Fertiliser Co. Ltd. 7,500,000 2,431 Searle Pakistan 514,965 1,319 Sitara Chemicals Industries 632,419 1,312 Sitara Chemicals Industries (Rights) 23 -- ----------- 21,523 ----------- - - --------------------------------------------------------- - - ------------- ELECTRICAL & ELECTRONICS (1.8%) Pak Electronics 937,497 1,854 ----------- - - --------------------------------------------------------- - - ------------- VALUE SHARES (000) - - --------------------------------------------------------- - - ------------ ENERGY SOURCES (8.1%) Pakistan Oilfields Ltd. 377,170 U.S.$ 1,272 Pakistan State Oil Co. Ltd. 678,860 6,954 ----------- 8,226 ----------- - - --------------------------------------------------------- - - ------------- FINANCIAL SERVICES (7.3%) Atlas Bot Lease Co. 605,000 961 First Punjab Modarabah 125,050 45 LTV Capital Modaraba 1,500,000 335 LTV Capital Modaraba (Rights) 499,975 112 National Development Leasing Corp. 1,700,051 1,584 Orix Leasing Pakistan Ltd. 272,690 672 Orix Leasing Pakistan Ltd. (Rights) 247,900 611 P.I.C.I.C. 940,366 1,189 PIL Corporation Ltd. 1,180,200 1,406 Trust Modaraba 1,204,000 556 ----------- 7,471 ----------- - - --------------------------------------------------------- - - ------------- FOOD & HOUSEHOLD PRODUCTS (0.8%) Haseeb Waqas 3,240,000 761 ----------- - - --------------------------------------------------------- - - ------------- FOREST PRODUCTS & PAPER (3.3%) Century Paper & Board 1,166,500 1,286 Century Paper & Board (Rights) 600,000 194 Packages Ltd. 441,200 1,859 ----------- 3,339 ----------- - - --------------------------------------------------------- - - ------------- INDUSTRIAL COMPONENTS (0.9%) Baluchistan Wheels 903,375 622 General Tyres & Rubber Co. 195,000 319 General Tyres & Rubber Co. (Rights) 97,500 18 ----------- 959 ----------- - - --------------------------------------------------------- - - ------------- INSURANCE (0.4%) Adamjee Insurance Co. Ltd. 99,400 419 ----------- - - --------------------------------------------------------- - - ------------- MACHINERY & ENGINEERING (0.9%) Millat Tractors Ltd. 455,000 900 ----------- - - --------------------------------------------------------- - - ------------- MULTI-INDUSTRY (1.5%) Bukhari & Co. Ltd. 873,960 1,473 ----------- - - --------------------------------------------------------- - - ------------- TELECOMMUNICATIONS (5.2%) Pakistan Telecommunications 9,042 909 Pakistan Telecommunications GDR 44,950 4,135 T.F. Payphones Ltd. 350,000 238 ----------- 5,282 ----------- - - --------------------------------------------------------- - - -------------
5
VALUE SHARES (000) - - --------------------------------------------------------- - - ------------ TEXTILES & APPAREL (15.2%) Artistic Denim Mills 1,250,000 U.S.$ 1,013 Dewan Salman Fibre 1,490,625 6,088 Dewan Salman Fibre (Rights) 107,812 -- Ibrahim Fibres Ltd. 2,696,400 970 Kohinoor Industries 904,601 484 Mohib Textile 1,050,000 681 Nishat Mills Ltd. 2,093,002 2,103 Pakistan Synthetic 1,920,000 2,776 Saif Textiles 512,525 623 Tawakkal Polyester Industries 1,000 -- Zahur Textile Mills 2,130,000 259 Zahur Textile Mills (Rights) 4,400,000 535 ----------- 15,532 ----------- - - --------------------------------------------------------- - - ------------- UTILITIES -- ELECTRICAL & GAS (7.9%) Ibrahim Energy 995,000 1,726 Kohinoor Power Co. Ltd. 356,250 465 Nishat Tek Ltd. 647,260 713 Nishat Tek Ltd. (Rights) 93,654 103 Sui Northern Gas Co. 2,820,000 2,697 Sui Southern Gas Co. 1,316,780 1,718 Sui Southern Gas Co. (Rights) 686,640 673 ----------- 8,095 ----------- - - --------------------------------------------------------- - - ------------- WHOLESALE & INTERNATIONAL TRADE (0.2%) Mohib Exports 1,163,876 217 ----------- - - --------------------------------------------------------- - - ------------- TOTAL PAKISTANI COMMON STOCKS (Cost U.S. $162,477) 100,106 ----------- - - --------------------------------------------------------- - - ------------- FACE AMOUNT VALUE (000) (000) - - --------------------------------------------------------- - - ------------ FIXED INCOME SECURITY (1.5%) TEXTILES AND APPAREL (1.5%) Dewan Salman Fibre 5.00%, 5/5/01 (Cost U.S. $2,000) U.S.$ 2,000 U.S.$ 1,505 ----------- - - --------------------------------------------------------- - - ------------- FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.8%) (Interest Bearing Demand Account) Pakistani Rupee (Cost U.S. $803) PKR 24,768 803 ----------- - - --------------------------------------------------------- - - ------------- TOTAL INVESTMENTS (100.5%) (Cost U.S. $165,280) 102,414 ----------- - - --------------------------------------------------------- - - ------------- OTHER ASSETS AND LIABILITIES (-0.5%) Other Assets U.S.$ 509 Liabilities (1,031) (522) ----------- ----------- - - --------------------------------------------------------- - - ------------- NET ASSETS (100%) Applicable to 11,604,793 issued and outstanding U.S. $.01 par value shares (100,000,000 shares authorized) U.S.$101,892 ------------- - - --------------------------------------------------------- - - ------------- NET ASSET VALUE PER SHARE U.S.$ 8.78 ------------- - - --------------------------------------------------------- - - ------------- GDR--Global Depositary Receipt
6 -----END PRIVACY-ENHANCED MESSAGE-----