-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tj253nTPPASby/210BxqnelhZX/TZHoYCJzlfA9LwWfHg9qqDXHKyw31PbRDK4Ar H8WWtqnYt6krXJHMZRRrmQ== 0001047469-98-042791.txt : 19981204 0001047469-98-042791.hdr.sgml : 19981204 ACCESSION NUMBER: 0001047469-98-042791 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAKISTAN INVESTMENT FUND INC CENTRAL INDEX KEY: 0000886243 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043213457 FILING VALUES: FORM TYPE: N-30B-2 SEC ACT: SEC FILE NUMBER: 811-06636 FILM NUMBER: 98763099 BUSINESS ADDRESS: STREET 1: 1221 AVENUE OF THE AMERICAS STREET 2: MORGAN STANLEY ASSET MANAGEMENT INC CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 6175578742 MAIL ADDRESS: STREET 1: 1221 AVENUE OF THE AMERICAS STREET 2: 8TH FLR CITY: NEW YORK STATE: NY ZIP: 10020 N-30B-2 1 N-30B-2 - -------------------------------------------------------------------------------- THE PAKISTAN INVESTMENT FUND, INC. - -------------------------------------------------------------------------------- THIRD QUARTER REPORT SEPTEMBER 30, 1998 MORGAN STANLEY ASSET MANAGEMENT INC. INVESTMENT ADVISER THE PAKISTAN 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 Valerie Y. Lewis SECRETARY Joanna M. Haigney TREASURER Belinda A. Brady ASSISTANT TREASURER - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- U.S. INVESTMENT ADVISER Morgan Stanley Asset Management Inc. 1221 Avenue of the Americas New York, New York 10020 - -------------------------------------------------------------------------------- PAKISTAN INVESTMENT ADVISER International Asset Management Company Limited Nacon House Maulana Din Mohammed Wafar Road Karachi, Pakistan - -------------------------------------------------------------------------------- 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 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. LETTER TO SHAREHOLDERS - ---------------------- For the nine months ended September 30, 1998, The Pakistan Investment Fund, Inc. (the "Fund") had a total return, based on net asset value per share, of -51.36% compared to -51.63% for the IFC Global Pakistan Total Return Index (the "Index"). For the one year ended September 30, 1998, and for the period from the Fund's commencement of operations on December 27, 1993 through September 30, 1998, the Fund had a total return, based on net asset value per share, of - -55.86% and -79.14%, respectively, compared with -56.65% and -69.07%, respectively, for the Index. On September 30, 1998, the closing price of the Fund's shares on the New York Stock Exchange was $1 15/16 representing a 33.3% discount to the Fund's net asset value per share. For the one month ended September 30, 1998, the Fund had a total return, based on net asset value per share, of 6.39% compared to 11.91% for the Index. On September 4, 1998, in view of the restrictions that had been placed on the repatriation of currency from Pakistan, the Fund began discounting the U.S. Dollar equivalent value of its Pakistan investments. This fair valuation procedure contributed to the Fund's underperformance since that date. The balance of underperformance for the month came from the Fund's inability to match the weight of Pakistan Telecom in the Index, as well as the underperformance during the quarter of the food and energy sectors where we were overweight. The Fund continues to operate under "abnormal" circumstances. Foreign investors are still prevented, through bureaucratic obstacles, to repatriate U.S. dollars for any equity sales. As such, the Fund cannot hold any U.S. dollars in cash and reduce risks in the event of an eventual currency devaluation, which in our view is imminent. The exchange rate mechanism in Pakistan has collapsed; all U.S. dollar deposits have been frozen and risk premiums are at an absolute high as the country has been downgraded by S&P to CCC- or "junk" status. There are multiple exchange rates working in the country at this point. The so-called official rate is approximately 46 rupee to the dollar, the interbank rate is at 54 rupee to the U.S. dollar and the composite rate (which is what our benchmark index uses) is 50 rupee to the dollar. At this point, we are conservatively using the interbank rate to value our equity portfolio, thus reflecting the heightened risk premium. However, many dollar transactions are only being done at the 'kerb rate', which is around 62 at this point. Going forward, we will continue to monitor the appropriateness of these rates in determining the net asset value of the Fund. POLITICS The political outlook for Pakistan has become more fluid both on external and internal fronts. Internally, the law and order situation has witnessed a visible deterioration, particularly in the commercial hub of Karachi. At the same time differences have cropped up between the Federal Government and the provincial assemblies over an increasing number of issues. The recent resignation of the Army Chief three months prior to his scheduled retirement date, has highlighted the defense establishment's lack of comfort with the present socio-political and economic situation. On the foreign policy front, sufficient international pressure is being created for both Pakistan and India to indicate positive direction in eventually signing the Comprehensive Test Ban Treaty (CTBT) and make greater efforts to improve bilateral relations. On the economic front, one positive development is that agricultural output is likely to be reasonably healthy in the current fiscal year (June 98-99). Consensus forecasts put agricultural growth around 4%. On the fiscal front, however, tax collection still remains a contentious issue. The lower tax collection means fiscal deficit is unlikely to fall below 5-5.6% of gross domestic product. With monetization of this deficit and effective devaluation of 15-20% which we anticipate, inflation is likely to revert back to double digits after having fallen 8.3% last year. However, the most critical factor in assessing the future economic outlook and investment climate is the outcome of negotiations between the government of Pakistan and the IMF. Pakistan appears to be a one-event market - IMF or bust. While positive noises are being made on both sides, any deal with the multilateral financing agencies would involve fairly tough conditions and would need to be significantly larger than previous packages and also include some external debt restructuring. Without that, it is impossible for Pakistan to come out of a debt trap. The release of IMF funds is very likely to be delayed until December while the government attempts to dilute stringent IMF targets through negotiations. What all this means for investment outlook and stock market sentiment is continuation of the high volatility witnessed in the third quarter of 1998. Indeed market behavior is dominantly speculative in character at the moment. We expect the KSE-100 to remain range bound between 800-1100 for the next few months. In terms of portfolio strategy and given the constraints under which the Fund operates, we continue to maintain a two-pronged investment strategy. The bulk of 2 the portfolio remains defensive in nature, comprised mainly of large cap, blue chips and multinational corporations. At the same time, we continue to keep around a 5-10% rupee cash position. This allows us greater flexibility to take advantage of selective trading opportunities when the market touches the extremes of its trading range, thus improving performance and mitigating some of the adverse impacts of rupee depreciation. We continue to remain underweight in the financial sector in view of the sharply weakened earnings outlook for the current fiscal year as well as the potential threat of rising non-performing loans. We hope to outperform the Index during the next two quarters based on our longer term view on key sectors and stocks, as well as some adjustments to the Fund's portfolio. On a positive note, if the same exchange rate is used for both the Fund and the Index, the Fund outperformed the Index for nine months ending September 30, 1998 by 340 basis points. Sincerely, /s/ Michael F. Klein Michael F. Klein PRESIDENT AND DIRECTOR October 1998 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. 3 The Pakistan Investment Fund, Inc. Investment Summary as of September 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
HISTORICAL Total Return (%) INFORMATION ----------------------------------------------------------------------------------- Market Value (1) Net Asset Value (2) Index (3) ----------------------- ----------------------- ------------------------ Average Average Average Cumulative Annual Cumulative Annual Cumulative Annual ---------- ------ ---------- ------ ---------- ------ Fiscal Year to Date -24.39% -- -51.36% -- -51.63% -- One Year -67.13 -67.13% -55.86 -55.86% -56.65 -56.65% Since Inception* -86.11 -33.94 -79.14 -28.04 -69.07 -21.85
Past performance is not predictive of future performance. - -------------------------------------------------------------------------------- RETURNS AND PER SHARE INFORMATION
Year Ended December 31, Nine Months Ended September 30, 1993* 1994 1995 1996 1997 1998 -------- -------- -------- -------- -------- --------
[PLOT POINTS TO COME]
Year Ended December 31, Nine Months Ended September 30, 1993* 1994 1995 1996 1997 1998 -------- -------- -------- -------- -------- -------- Net Asset Value Per Share. . . . . . . . $ 14.03 $ 11.42 $ 6.57 $ 4.77 $ 6.01 $ 2.91 Market Value Per Share . . . . . . . . . $ 15.50 $ 9.00 $ 5.25 $ 5.13 $ 4.88 $ 1.94 Premium/(Discount) . . . . . . . . . . . 10.5% -21.2% -20.1% 7.5% -18.8% -33.3% Income Dividends . . . . . . . . . . . . -- $ 0.03 $ 0.00# -- $ 0.01 $ 0.01 Capital Gains Distributions. . . . . . . -- -- $ 0.00# -- -- -- Fund Total Return (2). . . . . . . . . . -0.50% -18.36% -42.43% -27.40% 26.32% -51.36% Index Total Return (3) . . . . . . . . . N/A -8.51% -31.14% -19.46% 26.13% -51.63%
(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. (3) The IFC Global Pakistan Total Return Index is an unmanaged index of common stocks, including dividends. * The Fund commenced operations on December 27, 1993. # Amount is less than $0.01 per share. 4 The Pakistan Investment Fund, Inc. Portfolio Summary as of September 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DIVERSIFICATION OF TOTAL INVESTMENTS [CHART] Short-Term Investments (9.4%) Equity Securities (90.6%)
- -------------------------------------------------------------------------------- SECTORS [CHART] Other (10.2%) Forest Products & Paper (1.1%) Insurance (2.3%) Automobiles (2.5%) Banking (5.0%) Textiles & Apparel (7.6%) Health & Personal Care (9.4%) Utilities -- Electrical & Gas (10.1%) Telecommunications (23.1%) Chemicals (17.3%) Energy Sources (11.4%)
- -------------------------------------------------------------------------------- TEN LARGEST HOLDINGS
Percent of Net Assets ---------- 1. Pakistan Telecommunications Corp. 23.1% 2. Lever Brothers Pakistan Ltd. 9.4 3. Fauji Fertilizer Co., Ltd. 9.0 4. Hub Power Co. 6.4 5. Pakistan State Oil Co., Ltd. 5.6 6. Nishat Mills Ltd. 4.6 7. Engro Chemicals Ltd. 4.4 8. Shell Pakistan Ltd. 4.3 9. ICI Pakistan Ltd. 3.9 10. Muslim Commercial Bank Ltd. 2.5 ---- 73.2% ---- ----
5 FINANCIAL STATEMENTS - ------------- STATEMENT OF NET ASSETS (Unaudited) - ------------- SEPTEMBER 30, 1998
Shares Value (000) - --------------------------------------------------------------------------- COMMON STOCKS (89.8%) (Unless otherwise noted) - --------------------------------------------------------------------------- AUTOMOBILES (2.5%) Pak Suzuki Motor Co., Ltd. 1,579,000 U.S. $ 831 ------------ - --------------------------------------------------------------------------- BANKING (5.0%) Askari Bank 1,524,092 424 Faysal Bank Ltd. 1,861,150 433 Muslim Commercial Bank Ltd. 2,222,770 848 ------------ 1,705 ------------ - --------------------------------------------------------------------------- BUILDING MATERIALS & COMPONENTS (0.0%) Dandot Cement Co. (Rights) 62 --@ ------------ - --------------------------------------------------------------------------- CHEMICALS (17.3%) Engro Chemicals Ltd. 1,233,459 1,484 Fauji Fertilizer Co., Ltd. 3,243,300 3,028 ICI Pakistan Ltd. 5,577,400 1,334 ------------ 5,846 ------------ - --------------------------------------------------------------------------- ENERGY SOURCES (11.4%) Pakistan Oilfields Ltd. 471,462 505 Pakistan State Oil Co., Ltd. 1,075,800 1,876 Shell Pakistan Ltd. 427,800 1,462 ------------ 3,843 ------------ - --------------------------------------------------------------------------- FINANCIAL SERVICES (0.0%) Trust Modaraba Ltd. 100 --@ ------------ - --------------------------------------------------------------------------- FOREST PRODUCTS & PAPER (1.1%) Packages Ltd. 564,062 385 ------------ - --------------------------------------------------------------------------- HEALTH & PERSONAL CARE (9.4%) Lever Brothers Pakistan Ltd. 225,160 3,161 ------------ - --------------------------------------------------------------------------- INSURANCE (2.3%) Adamjee Insurance Co., Ltd. 966,456 772 ------------ - --------------------------------------------------------------------------- TELECOMMUNICATIONS (23.1%) Pakistan Telecommunications Corp. 'A' 15,191,600 7,814 ------------ - --------------------------------------------------------------------------- TEXTILES & APPAREL (7.6%) Artistic Denim Mills Ltd. 1,250,000 254 Crescent Textile Mills Ltd. 1,325,192 220 Gadoon Textile Mills Ltd. 670,000 181 Ibrahim Fibre Ltd. 3,390,000 347 Nishat Mills Ltd. 7,987,428 1,564 Saif Textiles Mills Ltd. 110 --@ ------------ 2,566 ------------ - --------------------------------------------------------------------------- UTILITIES -- ELECTRICAL & GAS (10.1%) Hub Power Co. 7,764,200 U.S. $2,173 Sui Northern Gas Co. 2,272,270 460 Sui Southern Gas Co. 4,116,192 794 ------------ 3,427 ------------ - --------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost U.S.$65,423) 30,350 - --------------------------------------------------------------------------- Face Amount (000) - --------------------------------------------------------------------------- FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (9.3%) Pakistani Rupee (Cost U.S.$3,328) PKR 171,133 3,161 ------------ - --------------------------------------------------------------------------- TOTAL INVESTMENTS (99.1%) (Cost U.S.$68,751) 33,511 ------------ - --------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (0.9%) Other Assets U.S. $ 802 Liabilities (500) 302 ------------- ------------ - --------------------------------------------------------------------------- NET ASSETS (100%) Applicable to 11,604,792 issued and outstanding U.S.$0.01 par value shares (100,000,000 shares authorized) U.S.$ 33,813 ------------ ------------ - --------------------------------------------------------------------------- NET ASSET VALUE PER SHARE U.S.$ 2.91 ------------ ------------ - ---------------------------------------------------------------------------
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