N-30D 1 a2019937zn-30d.txt N-30D ----------------------------------------------------------- MORGAN STANLEY DEAN WITTER ASIA-PACIFIC FUND, INC. ----------------------------------------------------------- SEMI-ANNUAL REPORT JUNE 30, 2000 MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC. INVESTMENT ADVISER MORGAN STANLEY DEAN WITTER ASIA-PACIFIC FUND, INC. ================================================================================ DIRECTORS AND OFFICERS Barton M. Biggs CHAIRMAN OF THE BOARD OF DIRECTORS Harold J. Schaaff, Jr. PRESIDENT AND DIRECTOR John D. Barrett II DIRECTOR Gerard E. Jones DIRECTOR Graham E. Jones DIRECTOR John A. Levin DIRECTOR Andrew McNally IV DIRECTOR William G. Morton, Jr. DIRECTOR Samuel T. Reeves DIRECTOR Fergus Reid DIRECTOR Frederick O. Robertshaw DIRECTOR Stefanie V. Chang VICE PRESIDENT Arthur J. Lev VICE PRESIDENT Joseph P. Stadler VICE PRESIDENT Mary E. Mullin SECRETARY Belinda A. Brady TREASURER Robin L. Conkey 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 Clifford Chance Rogers & Wells LLP 200 Park Avenue New York, New York 10166 -------------------------------------------------------------------------------- INDEPENDENT ACCOUNTANTS Ernst & Young LLP 787 Seventh Avenue New York, New York 10019 ================================================================================ 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/im. LETTER TO SHAREHOLDERS --------- For the six months ended June 30, 2000, the Morgan Stanley Dean Witter Asia-Pacific Fund, Inc. (the "Fund") had a total return, based on net asset value per share, of -3.09% compared to -8.23% for its benchmark (described below). For the period from the Fund's commencement of operations on August 2, 1994 through June 30, 2000, the Fund's total return, based on net asset value per share, was 24.50% compared with -6.26% for the benchmark. The benchmark for the Fund is comprised of two Morgan Stanley Capital International (MSCI) indices; Japan and All- Country Asia-Pacific Free ex-Japan, with each index weighted equally. On June 30, 2000, the closing price of the Fund's shares on the New York Stock Exchange was $10 3/16, representing a 30.9% discount to the net asset value per share. ASIA EX-JAPAN Markets globally continued to be volatile as higher inflation data in the U.S. and a subsequent 0.5% rate hike by the Federal Reserve made equity investors nervous about the prospects of a hard landing in the U.S. Asian ex-Japan markets continued to slide lower and the high-performing technology and telecom stocks corrected significantly from their highs in March this year. The markets began to stabilize towards the end of the second quarter as the Federal Reserve kept interest rates on hold in June and economic data releases pointed to a slow down in the U.S. economy. The Korean market, which underperformed broader Asian markets in the first quarter of 2000, was among the best performing markets in the second quarter of 2000. Although, at one point the market touched a 12-month low as domestic retail investors and institutions sold down equities heavily. However, strong policy action and several positive postures by the government, including the injection of public funds into the ailing investment trust companies, helped the market to bounce back strongly. In addition, the Hyundai Group's implementation of an aggressive restructuring plan to induce foreign capital and dissolve control by the founding family, as well as a re-capitalization plan of its investment trust company, were viewed positively by investors. With respect to the restructuring of the defunct Daewoo Group, preliminary bids were submitted by potential strategic investors for Daewoo Motors with the highest bid coming in well above market expectations. With foreign portfolio investment inflows in the second quarter of 2000 and growing foreign direct investment (FDI), the Korean Won continued to show strength. One of the government measures to calm financial markets was the implementation of the second tranche of the bond stabilization plan worth 10 trillion Won to soak up some of the supply from illiquid bond markets. Based on new demand sources and waning redemptions at investment trust companies which resulted in forced sells in the first quarter of 2000, benchmark bond yields started to trend down to wards the latter half of the second quarter of 2000. The monumental summit between the leaders of the two Koreas did not have much impact on the stock market. We continue to retain an extremely positive stance on Korea with our portfolio anchored in blue chips like Samsung Electronics and Korea Telecom. While Taiwan was the best performing market in the first quarter of 2000, it was among the worst performing in the second quarter of 2000. Although part of this underperformance came from a generic sell-off in technology related shares globally, much of this was due to diminishing domestic investor confidence and confusion over the domestic policy moves of the new DPP government. There were indications from the government that taxes would be introduced to hi-tech companies, which traditionally paid little or no tax. Technology companies in Taiwan, especially in the semiconductor sector, have enjoyed significant tax advantages while the financial and other traditional sector companies have been fully taxed. These feelers are perhaps the first steps towards rationalization of the taxation system and attempts to bridge the fiscal deficit, which has become bloated. We think that investors are likely to be cautious in the long term towards the Taiwanese technology sector and analysts are likely to start incorporating taxation anomalies in valuations. The new President has done much to help calm cross-strait relations and it seems that the worst is behind us. Hong Kong was a weak performer in the second quarter of 2000, but the market managed to recover toward the end of the second quarter of 2000 as investors became increasingly comfortable with a soft landing scenario in the U.S. There was increased interest in Hong Kong companies benefiting from growth momentum in China. GDP growth rates in Hong Kong have been running ahead of expectations for the last two quarters. With a benign outlook for interest rates and a recent well-bided land auction, demand is returning to the Hong Kong residential market. Although growth rates are heady, Hong Kong's recovery has probably had its best quarter and growth is likely to be slower in 2001 with deflation continuing to be a problem. Hutchison Whampoa, our biggest position in Hong Kong, continues to be in the limelight with its foray into 3G in the United Kingdom and its attractive mobile telecom assets in the U.S. Our positive stance on global exports and supply logistics leader, Li & Fung, performed very well this year. China has been the star among Asian markets this year and the market continued to do extremely well in the second quarter. While there have been substantial portfolio inflows into China following the increased weighting in the MSCI indexes, positive macroeconomic news flow from China continues to keep sentiment very strong. Economic growth in China, which had been decelerating for the last 7 years, 2 is now showing impressive cyclical revival. GDP growth for the first half of this year was over 8%. Consumer spending in China has started to pick up and with exports continuing to stay robust, the quality of growth is also changing for the better. Political risks from Taiwan-China relations have diminished considerably after the new Taiwanese President delivered a friendly inauguration speech in May. The U.S. Senate is expected to approve PNTR (Permanent Normal Trade Relations) with China. Indications from listed corporate companies in China lead us to believe that corporate results for the first half of 2000 are likely to exceed expectations. China has stated plans to open up the A-share market, which when combined with the listed H-shares and red chips, would make China the biggest stock market in Asia after Japan in the next few years. We have been adding to the China weighting in the Fund, but the lack of liquid and attractively priced investible ideas is a constraint in constructing a broad-based portfolio. The current Index constituents are very skewed and top heavy with China Mobile making up almost 60% of the China Index. We managed to increase exposure to the growing mobile telecom sector by participating in the highly successful listing of China Unicom, the second biggest mobile communication services company in China. The Indian market witnessed a huge increase in weighting for the TMT (Technology, Media & Telecom) sector but it has been volatile in line with the gyrations of the NASDAQ. Although data on industrial production over the last few months demonstrated strength in the cyclical upswing of the economy, the high fiscal deficit numbers continue to be a looming concern. An incremental foreign portfolio inflow is a function of the perceived success of the government's privatization program. We continue to favor high growth software services stocks like Infosys Technologies, NIIT and SSI as these companies are increasing market share in the global IT services market with their smooth execution and cost competitiveness. Singapore has been a relative laggard this year but the underlying economic fundamentals continue to stay strong. GDP growth in the second quarter was over 7.7%, much higher than consensus estimates. New U.S. orders for electronics, a key leading indicator for Singapore exports, have shown strong growth in the last few quarters. In addition, the recovery in Japan and increase in intra-Asian trade are creating impressive new demands for Singapore exports. Over the medium term, we believe that a soft landing in the U.S. will ease off interest rate fears in Asia and refocus attention on some of the inexpensive growth stocks, especially in South Korea. China's strong recovery and entry into the World Trade Organization later this year will keep sentiment on China stocks buoyant through the rest of the year. We think that future performance will depend on judicious stock selection, as the gap between the winners and losers continues to widen. JAPAN Encouraging evidence of a meaningful economic recoverybegan to emerge during the second quarter 2000. GDP growth for the January - March period showed Japan's economy growing at a 10% annualized rate, while the latest Tankan survey confirmed a strong positive trend for the Large Manufacturing Diffusion Index, at the highest level during the last 3 years. Capital expenditures at these Large Manufacturers was announced to increase by over 11.3% in 2000, centering on information technology (IT) investments. This is a result of a 10 trillion yen free cash flow generated by Japanese corporations which are now bearing the fruits of restructuring. In addition, corporate profits for non-financial Tokyo Stock Exchange first section companies for fiscal year March 2000 rose 26% in aggregate versus the consensus estimate of 21%. The "0%" interest rate environment as well as the recovery in Asian economies during this year also contributed positively to these bright statistics. Signs of more robust consumption were also evidenced by June automobile sales which jumped 8.5%, year-over-year. Despite the above mentioned factors, the stock market was generally weak during this review period and at one point fell to levels last seen in June 1999. Reasons for the weakness included fears that Greenspan would prevail and therefore exports to the U.S. would slow; volatility and sharp declines of the NASDAQ and the virtual collapse of leading "New" economy Japanese stocks such as Hikari Tsushin, Softbank and NTT DoCoMo which were the bell-cows of 1999's Japanese equity market. Foreign investors, particularly momentum players and sector funds, became large net sellers. The ill-timed change in 30 constituents of the Nikkei 225 at the peak of NASDAQ volatility further confused any potential buyers, particularly Japanese individual investors. The Fund, however, performed well as many of our holdings were reasonably valued versus the overall market. The key assumption to our outlook is that the U.S. will have a "soft landing" and that Japan's economic recovery will become self sustaining during the second half of 2000. Japan's Government leaders are expected to use the July Summit in Okinawa as a means of show-casing concrete plans for a self sustaining recovery and will pledge to continue Mr. Obuchi's plan for a domestic led recovery. Many Japanese companies, as mentioned earlier, are beginning to generate free cash flow and IT spending as a percent of CAPEX is expected to grow significantly during the next year. In fact, the Japanese Government actually created a new "Minister of Information Technology" within the ruling cabinet. Global demand for Japan's digital products is also expected to contribute to corporate earnings where companies have become highly geared to top line growth. 3 We expect earnings surprises because of this gearing in earnings. Finally, we believe a modest rise in interest rates will actually be positive to spur consumption and accelerate restructuring, an event that the BOJ has hinted at for several months. We expect to maintain the current holdings in select world class technology companies, eco-nomic sensitive stocks and deep value cyclicals. Sincerely, /s/ Harold J. Schaaff, Jr. Harold J. Schaaff, Jr. PRESIDENT AND DIRECTOR July 2000 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. FOREIGN INVESTING INVOLVES CERTAIN RISKS, INCLUDING CURRENCY FLUCTUATIONS AND CONTROLS, RESTRICTIONS ON FOREIGN INVESTMENTS, LESS GOVERNMENTAL SUPERVISION AND REGULATION, LESS LIQUIDITY AND THE POTENTIAL FOR MARKET VOLATILITY AND POLITICAL INSTABILITY. -------------------------------------------------------------------------------- DAILY NET ASSET AND MARKET VALUES, AS WELL AS MONTHLY PORTFOLIO INFORMATION FOR THE FUND, ARE AVAILABLE ON OUR WEBSITE AT www.msdw.com/im. 4 MORGAN STANLEY DEAN WITTER ASIA-PACIFIC FUND, INC. INVESTMENT SUMMARY AS OF JUNE 30, 2000 (UNAUDITED) ================================================================================
HISTORICAL INFORMATION TOTAL RETURN(%) ------------------------------------------------------------------ MARKET VALUE(1) NET ASSET VALUE(2) INDEX(3) -------------------- ------------------------------------------- AVERAGE AVERAGE AVERAGE CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL ---------- ------- ---------- ------- ---------- ------- YEAR TO DATE -13.46% -- -3.09% -- -8.23% -- ONE YEAR 6.56 6.56% 28.35 28.35% 11.80 11.80% FIVE YEAR 8.57 1.66 31.47 5.62 1.23 0.24 SINCE INCEPTION* -13.94 -2.51 24.50 3.77 -6.26 -1.09
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. -------------------------------------------------------------------------------- RETURNS AND PER SHARE INFORMATION [CHART]
YEARE ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, 1994* 1995 1996 1997 1998 1999 2000 ------- ------- ------- ------- ------- ------- --------- Net Asset Value Per Share ....... $13.20 $14.34 $11.95 $8.77 $8.73 $15.26 $14.74 Market Value Per Share .......... $12.25 $13.33 $ 9.75 $7.44 $7.00 $11.81 $10.19 Premium/(Discount) .............. -7.2% -7.0% -18.4% -15.2% -19.8% -22.6% -30.9% Income Dividends ................ $ 0.04 $ 0.05 $ 0.61 $0.02 $0.01 $ 0.04 $ 0.03 Capital Gains Distribution ...... $ 0.01 $ 0.02 -- -- -- -- -- Fund Total Return (2) ........... -5.94% 9.24% -2.87%+ -26.36% -0.34% 75.39% -3.09% Index Total Return (3) .......... -5.24% 2.88% -3.63% -29.55% -0.30% 54.79% -8.23%
(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 benchmark for investment performance is comprised of two Morgan Stanley Capital International (MSCI) indices; Japan and All-Country Asia-Pacific Free ex-Japan with each index weighted equally. * The Fund commenced operations on August 2, 1994. + This return does not include the effect of the rights issued in connection with the Rights Offering. 5 Morgan Stanley Dean Witter Asia-Pacific Fund, Inc. Portfolio Summary as of June 30, 2000 (Unaudited) ================================================================================ DIVERSIFICATION OF TOTAL INVESTMENTS [CHART] Equity Securities (98.0%) Short-Term Investments (2.0%)
-------------------------------------------------------------------------------- INDUSTRIES [CHART] Banks (5.5%) Computers & Peripherals (8.7%) Diversified Financials (4.6%) Diversified Telecommunication Services (4.7%) Electronic Equipment & Instruments (7.6%) Household Durables (6.2%) Leisure Equipment & Products (3.7%) Machinery (6.3%) Pharmaceuticals (3.6%) Semiconductor Equipment & Products (10.1%) Other (39.0%)
-------------------------------------------------------------------------------- COUNTRY WEIGHTINGS [CHART] Australia (7.3%) China (2.8%) Hong Kong (9.0%) India (5.6%) Japan (49.1%) Malaysia (2.5%) Singapore (4.2%) South Korea (8.3%) Taiwan (8.0%) Thailand (0.9%) Other (2.3%)
-------------------------------------------------------------------------------- TEN LARGEST HOLDINGS*
PERCENT OF NET ASSETS ------------ 1. Samsung Electronics (South Korea) 3.7% 2. Hutchison Whampoa Ltd. (Hong Kong) 2.4 3. Fujitsu Ltd. (Japan) 1.9 4. NEC Corp. (Japan) 1.9 5. Taiwan Semiconductor Manufacturing (Taiwan) 1.9 6. Nintendo Co., Ltd. (Japan) 1.9 7. Sony Corp. (Japan) 1.7 8. TDK Corp. (Japan) 1.7 9. Toshiba Corp. (Japan) 1.6 10. Infosys Technologies Ltd. (India) 1.6 ---- 20.3% ====
* EXCLUDES SHORT-TERM INVESTMENTS. 6 FINANCIAL STATEMENTS --------- STATEMENT OF NET ASSETS (UNAUDITED) --------- JUNE 30, 2000
VALUE SHARES (000) -------------------------------------------------------------------------------- COMMON STOCKS (97.6%) (UNLESS OTHERWISE NOTED) -------------------------------------------------------------------------------- AUSTRALIA (7.3%) AIRLINES Qantas Airlines 932,300 U.S.$ 1,882 ------------- BANKS Commonwealth Bank of Australia 137,100 2,267 National Australia Bank Ltd. 299,450 4,989 Westpac Banking Corp., Ltd. 557,550 4,013 ------------- 11,269 ------------- BEVERAGES Foster's Brewing Group Ltd. 908,000 2,549 ------------- COMMERCIAL SERVICES & SUPPLIES Davnet Ltd. 1,027,200 773 ------------- COMPUTERS & PERIPHERALS (a)Securenet Ltd. 225,000 1,239 ------------- DIVERSIFIED FINANCIALS Lend Lease Corp., Ltd. 246,300 3,135 ------------- DIVERSIFIED TELECOMMUNICATION SERVICES (a)AAPT Ltd. 505,048 1,653 (a)Macquarie Corporate Telecommunications Holdings Ltd. 544,200 666 Telstra Corp. Ltd. (Installment Receipts) 676,500 1,536 Telstra Corp., Ltd. 924,600 3,744 ------------- 7,599 ------------- ELECTRONIC EQUIPMENT & INSTRUMENTS E.R.G. Ltd. 355,560 2,754 ------------- HEALTH CARE PROVIDERS & SERVICES Sonic Healthcare Ltd. 242,000 994 ------------- INDUSTRIAL CONGLOMERATES Brambles Industries Ltd. 76,550 2,347 ------------- MEDIA News Corp., Ltd. 883,350 12,134 ------------- METALS & MINING Broken Hill Proprietary Co., Ltd. 665,150 7,846 Normandy Mining Ltd. 2,501,600 1,345 Rio Tinto Ltd. 429,750 7,089 ------------- 16,280 ------------- PHARMACEUTICALS CSL Ltd. 117,800 2,324 ------------- SOFTWARE (a)Solution 6 Holdings Ltd. 266,750 518 ------------- 65,797 ------------- -------------------------------------------------------------------------------- CHINA (2.8%) COMMERCIAL SERVICES & SUPPLIES Cosco Pacific Ltd. 1,472,000 1,161 ------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Great Wall Technology Co., Ltd. 2,717,000 1,882 ------------- HOUSEHOLD DURABLES (a)TCL International 1,918,000 701 ------------- INDUSTRIAL CONGLOMERATES China Merchants Holdings International Co. Ltd. 1,302,000 894 ------------- -------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES (a)China Telecom Ltd. 1,548,000 13,652 (a)China Unicom 3,286,000 6,976 ------------- 20,628 ------------- 25,266 ------------- -------------------------------------------------------------------------------- HONG KONG (9.0%) AIRLINES Cathay Pacific Airways 1,529,000 2,834 ------------- BANKS Dao Heng Bank Group Ltd. 211,000 934 Hang Seng Bank Ltd. 226,500 2,150 ------------- 3,084 ------------- BROADCASTING & CABLE TV (a)Phoenix Satellite TV 2,000,000 278 ------------- COMPUTERS & PERIPHERALS Legend Holdings Ltd. 2,322,000 2,249 ------------- DIVERSIFIED FINANCIALS Hutchison Whampoa Ltd. 1,742,950 21,911 Swire Pacific Ltd. 'A' 741,600 4,338 ------------- 26,249 ------------- DIVERSIFIED TELECOMMUNICATION SERVICES Cable & Wireless Ltd. 3,405,900 7,493 ------------- ELECTRICAL EQUIPMENT Johnson Electric Holdings Ltd. 275,000 2,602 ------------- GAS UTILITIES Hong Kong & China Gas Co., Ltd. 2,018,500 2,266 ------------- INDUSTRIAL CONGLOMERATES Citic Pacific Ltd. 181,000 947 ------------- INTERNET SOFTWARE & SERVICES (a)chinadotcom corp. 41,200 841 Sino-i.com Ltd. 6,295,000 287 (a)Timeless Software Ltd. 2,568,000 1,161 ------------- 2,289 ------------- MEDIA Asia Satellite Telecom Holdings 606,000 2,072 Television Broadcasts Ltd. 382,000 2,548 ------------- 4,620 ------------- REAL ESTATE Cheung Kong (Holdings) Ltd. 864,000 9,559 Hong Kong Land Holdings Ltd. 572,000 915 Sino Land Co. 2,899,000 1,023 Sun Hung Kai Properties Ltd. 922,000 6,623 ------------- 18,120 ------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS ASM Pacific Technology 350,000 1,311 ------------- TEXTILES & APPAREL Li & Fung Ltd. 1,100,000 5,503 ------------- WIRELESS TELECOMMUNICATION SERVICES Smartone Telecommunications 191,000 423 ------------- 80,268 ------------- -------------------------------------------------------------------------------- INDIA (5.0%) AUTOMOBILES Hero Honda Ltd. 66,008 1,460 ------------- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 7
VALUE SHARES (000) -------------------------------------------------------------------------------- INDIA (CONTINUED) CHEMICALS Grasim Co. 150,000 U.S.$ 962 ------------- COMMERCIAL SERVICES & SUPPLIES Aptech Ltd. 164,800 3,122 ------------- COMPUTERS & PERIPHERALS Digital Equipment (India) Ltd. 108,322 1,741 ------------- CONSTRUCTION MATERIALS Associated Cement Co., Ltd. 110 --@ Gujarat Ambuja Cements 255,000 1,114 ------------- 1,114 ------------- DIVERSIFIED TELECOMMUNICATION SERVICES Mahanagar Telephone Nigam Ltd. 468,127 2,250 Videsh Sanchar Nigam Ltd. 75,810 2,054 ------------- 4,304 ------------- ELECTRICAL EQUIPMENT Bharat Heavy Electricals Ltd. 450,200 1,346 Sterlite Industries 126,750 2,365 ------------- 3,711 ------------- GAS UTILITIES Gas Authority of India 135,000 911 ------------- IT CONSULTING & SERVICES (a)HCL Technologies Ltd. 34,750 1,003 Infosys Technologies Ltd. 78,150 14,560 NIIT Ltd. 56,000 2,772 (a)Ramco Sysytems Ltd 23,400 802 (a,b)SSI Ltd. GDR 105,000 688 ------------- 19,825 ------------- MACHINERY Escorts Ltd. 180,000 570 ------------- MEDIA ZEE Telefilms Ltd. 99,000 994 ------------- METALS & MINING Tata Iron & Steel Co., Ltd. 1,949 5 ------------- PHARMACEUTICALS Ranbaxy Laboratories Ltd. 68,000 878 ------------- ROAD & RAIL Container Corp. of India Ltd. 350,000 1,348 ------------- SOFTWARE Leading Edge Systems Ltd. 8,250 163 Mastek Ltd. 1,800 65 PSI Data Systems Ltd. 31,785 615 Software Solution Integrated Ltd. 26,000 1,657 Tata Infotech Ltd. 25 --@ ------------- 2,500 ------------- TEXTILES & APPAREL (a,c)Shopper Stop 324,100 1,161 ------------- TOBACCO ITC Ltd. 14,900 265 ------------- 44,871 ------------- -------------------------------------------------------------------------------- INDONESIA (0.2%) DIVERSIFIED TELECOMMUNICATION SERVICES Telekomunikasi Indonesia ADR 208,356 1,446 ------------- TOBACCO Gudang Garam 294,000 475 ------------- 1,921 ------------- -------------------------------------------------------------------------------- JAPAN (49.1%) AUTO COMPONENTS Nifco, Inc. 375,000 4,784 ------------- AUTOMOBILES Nissan Motor Co. 1,180,000 6,948 Suzuki Motor Corp., Ltd. 430,000 5,542 Toyota Motor Corp. 212,000 9,647 ------------- 22,137 ------------- BANKS Bank of Tokyo-Mitsubishi, Ltd. 85,000 1,026 ------------- BUILDING PRODUCTS Sanwa Shutter Corp., Ltd. 642,000 2,081 ------------- CHEMICALS Daicel Chemical Industries Ltd. 1,220,000 3,931 Kaneka Corp. 829,000 9,130 Lintec Corp. 413,000 4,300 Mitsubishi Chemical Industries 920,000 3,770 Shin-Etsu Polymer Co., Ltd. 637,000 5,269 ------------- 26,400 ------------- COMMERCIAL SERVICES & SUPPLIES Dai Nippon Printing Co., Ltd. 413,000 7,272 Nissha Printing Co., Ltd. 105,000 725 ------------- 7,997 ------------- COMPUTERS & PERIPHERALS Fujitsu Ltd. 505,000 17,461 Mitsumi Electric Co., Ltd. 306,000 11,243 NEC Corp. 554,000 17,380 Toshiba Corp. 1,301,000 14,671 ------------- 60,755 ------------- CONSTRUCTION & ENGINEERING Kurita Water Industries Ltd. 295,000 6,489 ------------- DISTRIBUTORS Nissei Sangyo 165,000 2,409 ------------- DIVERSIFIED FINANCIALS Hitachi Credit Corp. 383,400 10,367 ------------- DIVERSIFIED TELECOMMUNICATION SERVICES Nippon Telephone & Telegraph Corp. 932 12,380 ------------- ELECTRIC UTILITIES Tokyo Electric Power 162,000 3,945 ------------- ELECTRICAL EQUIPMENT Furakawa Electric Co. 268,000 5,593 Kyudenko Co., Ltd. 380,000 1,142 ------------- 6,735 ------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Hitachi Ltd. 955,000 13,765 Kyocera Corp. 70,000 11,864 Ryosan Co., Ltd. 173,000 3,912 TDK Corp. 104,000 14,932 ------------- 44,473 ------------- FOOD & DRUG RETAILING Family Mart Co., Ltd. 142,200 5,466 ------------- FOOD PRODUCTS House Foods Corp. 147,000 2,271 Nippon Meat Packers, Inc. 278,000 4,060 ------------- 6,331 ------------- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 8
VALUE SHARES (000) -------------------------------------------------------------------------------- JAPAN (CONTINUED) HOUSEHOLD DURABLES Aiwa Co., Ltd. 169,800 U.S.$ 2,716 Casio Computer Co., Ltd. 617,000 6,917 Matsushita Electric Industrial Co., Ltd. 481,000 12,462 Rinnai Corp. 180,700 4,026 Sangetsu Co., Ltd. 137,000 2,259 Sekisui Chemical Co. 1,043,000 4,009 Sekisui House Ltd. 655,000 6,054 Sony Corp. 173,000 16,135 ------------- 54,578 ------------- LEISURE EQUIPMENT & PRODUCTS Fuji Photo Film Ltd. 284,000 11,612 Nintendo Co., Ltd. 96,000 16,750 Yamaha Corp. 432,000 4,717 ------------- 33,079 ------------- MACHINERY Amada Co., Ltd. 712,000 6,037 Daifuku Co., Ltd. 651,000 7,212 Daikin Kogyo Co. 475,000 11,031 Fuji Machine Co. 184,500 9,682 Fujitec Co., Ltd. 420,000 3,652 Minebea Co., Ltd. 540,000 6,766 Mitsubishi Heavy Industries Ltd. 1,600,000 7,085 Tsubakimoto Chain Co. 832,000 4,233 ------------- 55,698 ------------- MARINE Mitsubishi Logistics Corp. 260,000 2,351 OFFICE ELECTRONICS ------------- Canon, Inc. 289,000 14,376 Ricoh Co., Ltd. 606,000 12,817 ------------- 27,193 ------------- PHARMACEUTICALS Ono Pharmaceutical Co., Ltd. 209,000 8,959 Sankyo Co., Ltd. 397,000 8,957 Yamanouchi Pharmaceutical Co., Ltd. 202,000 11,019 ------------- 28,935 ------------- REAL ESTATE Keihanshin Real Estate Co. 164,000 533 Mitsubishi Estate Co., Ltd. 422,000 4,962 ------------- 5,495 ------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS Rohm Co., Ltd. 31,000 9,054 ------------- 440,158 ------------- -------------------------------------------------------------------------------- MALAYSIA (2.5%) BANKS Commerce Asset Holding Bhd 286,000 828 Malayan Banking Bhd 1,138,000 4,612 Public Bank Bhd 2,532,000 2,332 ------------- 7,772 ------------- BEVERAGES Carlsberg Brewery (Malaysia) Bhd 589,000 1,984 ------------- DIVERSIFIED TELECOMMUNICATION SERVICES Telekom Malaysia Bhd 877,000 3,023 ------------- ELECTRIC UTILITIES Tenaga Nasional Bhd 449,000 1,465 ------------- HOTELS RESTAURANTS & LEISURE Resorts World Bhd 542,000 1,483 Tanjong plc 651,000 1,559 ------------- 3,042 ------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS Malaysian Pacific Industries Bhd 199,000 2,043 ------------- TOBACCO British American Tobacco Bhd 192,000 1,566 ------------- WIRELESS TELECOMMUNICATION SERVICES (a)Digi.Com Bhd 901,000 1,648 ------------- 22,543 ------------- -------------------------------------------------------------------------------- NEW ZEALAND (0.3%) DIVERSIFIED TELECOMMUNICATION SERVICES Telecom Corp. of New Zealand Ltd. 671,100 2,346 ------------- -------------------------------------------------------------------------------- SINGAPORE (4.2%) AIRLINES (a)SIA Engineering Company Ltd. 671,000 753 Singapore Airlines Ltd. 448,000 4,435 ------------- 5,188 ------------- BANKS DBS Group Holdings Ltd. 629,979 8,096 Oversea-Chinese Banking Corp., Ltd. (Foreign) 607,700 4,186 Overseas Union Bank Ltd. 'F' 356,210 1,381 ------------- 13,663 ------------- COMPUTERS & PERIPHERALS Natsteel Electronics Ltd. 405,000 1,243 ------------- DIVERSIFIED FINANCIALS Keppel Corp., Ltd. 572,000 1,238 ------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Omni Industries Ltd. 594,000 980 Venture Manufacturing Ltd. 279,000 2,842 ------------- 3,822 ------------- MARINE (a)Neptune Orient Lines 688,000 637 Sembcorp Logistics Ltd. 378,200 2,124 ------------- 2,761 ------------- MEDIA Singapore Press Holdings Ltd. 315,600 4,933 ------------- REAL ESTATE City Developments Ltd. 297,000 1,152 ------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS (a)Chartered Semiconductor 330,000 2,885 (a)ST Assembly Test Services 300,000 771 ------------- 3,656 ------------- 37,656 ------------- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 9
VALUE SHARES (000) -------------------------------------------------------------------------------- SOUTH KOREA (8.3%) BANKS Housing & Commercial Bank 137,566 U.S.$ 3,220 Housing & Commercial Bank GDR 7,400 165 Kookmin Bank 169,731 2,162 Shinhan Bank Co. Ltd. (Foreign) 212,330 1,999 ------------- 7,546 ------------- COMMUNICATIONS EQUIPMENT LG Information & Communication Ltd. 6,910 388 (a)Locus Corp. 7,860 638 Teleson Electronics Co., Ltd. 94,750 1,007 ------------- 2,033 ------------- DIVERSIFIED FINANCIALS Dongwon Securities Co. 28,715 207 ------------- DIVERSIFIED TELECOMMUNICATION SERVICES (a)Korea Telecom Corp. 3,080 271 Korea Telecom Corp., ADR 66,200 3,203 ------------- 3,474 ------------- ELECTRIC UTILITIES Korea Electric Power Corp. ADR 225,600 4,160 ------------- ELECTRONIC EQUIPMENT & INSTRUMENTS (a)Communication Network Interface Inc. 72,530 400 (a)Humax Co., Ltd. 92,400 1,280 Prochips Technology Inc. 95,685 378 Samsung Electro-Mechanics Co. 53,161 3,333 ------------- 5,391 ------------- FOOD PRODUCTS Tongyang Confectionery Co. 31,030 675 ------------- INTERNET & CATALOG RETAIL LG Home Shopping Inc. 12,250 1,165 ------------- MEDIA Cheil Communications Inc. 16,960 2,213 CJ39 Shopping 21,850 715 ------------- 2,928 ------------- METALS & MINING Pohang Iron & Steel Ltd. ADR 69,100 1,658 ------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS Hyundai Electronics Industries Co. 68,357 1,349 Samsung Electronics 100,317 33,198 ------------- 34,547 ------------- WIRELESS TELECOMMUNICATION SERVICES Korea Telecom Freetel 15,170 1,011 SK Telecom Co., Ltd. 4,610 1,509 SK Telecom Co., Ltd. ADR 233,000 8,461 ------------- 10,981 ------------- 74,765 ------------- -------------------------------------------------------------------------------- TAIWAN (8.0%) BANKS (a)Chinatrust Commercial Bank 1,278,000 1,111 Taishin International Bank 2,016,520 1,293 United World Chinese Commercial Bank 962,000 914 ------------- 3,318 ------------- CHEMICALS Nan Ya Plastic Corp. 1,705,290 3,441 ------------- COMMUNICATIONS EQUIPMENT (a)Accton Technology Corp. 42,000 94 (a)Microelectronics Technology 284,400 944 ------------- 1,038 ------------- COMPUTERS & PERIPHERALS Acer Peripherals Inc. 812,352 2,300 (a)Acer, Inc. 432,000 808 Advantech Co. Ltd. 209,300 1,110 Asustek Computer, Inc. 495,040 4,092 Compal Electronics 559,763 1,376 (a)ProMos Technologies Inc 183,000 742 (a)Ritek Incorporation 189,750 760 ------------- 11,188 ------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Ambit Microsystems Corp. 85,000 844 Delta Electronic Industrial 525,000 2,486 (a)Hon Hai Precision Industry 492,200 4,454 Universal Scientific IND 369,600 902 ------------- 8,686 ------------- FOOD & DRUG RETAILING President Chain Store Corp. 349,000 1,306 ------------- INTERNET SOFTWARE & SERVICES (a)GigaMedia Ltd. 14,600 177 ------------- METALS & MINING China Steel Corp. 1,691,000 1,156 ------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS (a)Advanced Semiconductor Engineering, Inc. 617,000 1,888 (a)ASE Test Ltd. 35,200 1,036 (a)Macronix International 510,760 1,280 (a)Siliconware Precision Industries Co. 926,000 2,079 (a)Siliconware Precision Industries Co. ADR 145,800 1,349 (a)Taiwan Semiconductor Manufacturing Co., Ltd. 3,557,120 16,903 United Micro Electronics Corp., Ltd. 4,261,400 11,858 (a)Winbond Electronics Corp. 1,097,560 3,179 ------------- 39,572 ------------- TEXTILES & APPAREL Far Eastern Textile Ltd. 1,053,040 1,309 (a,b)Far Eastern Textile Ltd. GDR 7,100 89 ------------- 1,398 ------------- 71,280 ------------- -------------------------------------------------------------------------------- THAILAND (0.9%) BANKS Thai Farmers Bank Ltd. (Foreign) 1,611,600 1,358 ------------- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 10
VALUE SHARES (000) -------------------------------------------------------------------------------- THAILAND (CONTINUED) CONSTRUCTION MATERIALS (a)Siam City Cement Public Co., Ltd. (Foreign) 251,933 U.S.$ 952 ------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Delta Electronics Public Co., Ltd. (Foreign) 201,316 1,418 ------------- MEDIA BEC World Public Co., Ltd. (Foreign) 143,500 857 ------------- REAL ESTATE (a)Golden Land Property Development Public Co., Ltd. 2,849,000 422 ------------- WIRELESS TELECOMMUNICATION SERVICES (a)Advanced Info. Services Public Co., Ltd. (Foreign) 207,000 2,578 (a)Total Access Communication 81,800 329 ------------- 2,907 ------------- 7,914 ------------- -------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost U.S.$673,038) 874,785 ------------- -------------------------------------------------------------------------------- MUTUAL FUNDS (0.6%) -------------------------------------------------------------------------------- INDIA (0.6%) MUTUAL FUNDS (d)Morgan Stanley Growth Fund 19,448,100 5,161 (Cost U.S.$3,689) ------------- -------------------------------------------------------------------------------- NO. OF WARRANTS -------------------------------------------------------------------------------- WARRANTS (0.0%) THAILAND (0.0%) BANKS (a)Siam Commercial Bank Public Co., Ltd., expiring 5/10/02 (Cost U.S.$136) 1,727,300 203 ------------- -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS (1.7%) -------------------------------------------------------------------------------- UNITED STATES (1.7%) REPURCHASE AGREEMENT Chase Securities Inc., 6.15%, dated 6/31/00, due 7/03/00, to be repurchased at U.S.$15,819, collateralized by U.S.$16,760 United States Treasury Note, 5.50%, valued at U.S.$16,160 (Cost U.S.$15,811) 15,811 15,811 ------------- -------------------------------------------------------------------------------- FACE AMOUNT VALUE (000) (000) -------------------------------------------------------------------------------- FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.2%) Indian Rupee INR 600 U.S.$ 13 Japanese Yen JPY 99,983 942 Malaysian Ringgit MYR 3,209 845 Singapore Dollar SGD 25 14 South Korean Won KRW 3,871 4 Taiwan Dollar TWD 4,925 160 Thai Baht THB 629 16 -------------------------------------------------------------------------------- TOTAL FOREIGN CURRENCY (Cost U.S.$1,995) 1,994 ------------- -------------------------------------------------------------------------------- TOTAL INVESTMENTS (100.1%) (Cost U.S.$694,669) 897,954 ------------- -------------------------------------------------------------------------------- OTHER ASSETS (0.4%) Cash U.S.$ 45 Receivable for Investments Sold 1,503 Dividends Receivable 1,091 Foreign Withholding Tax Reclaim Receivable 47 Interest Receivable 3 Other 70 2,759 --------- ------------- -------------------------------------------------------------------------------- LIABILITIES (-0.5%) Payable For: Dividends Declared (2,116) Investment Advisory Fees (715) Investments Purchased (564) Custodian Fees (283) Professional Fees (174) Administrative Fees (146) Directors' Fees and Expenses (145) Shareholder Reporting Expenses (116) Other Liabilities (125) (4,384) --------- ------------- -------------------------------------------------------------------------------- NET ASSETS (100%) Applicable to 60,804,774, issued and outstanding U.S.$ 0.01 par value shares (100,000 shares authorized) U.S.$896,329 ============= -------------------------------------------------------------------------------- NET ASSET VALUE U.S.$ 14.74 ============= --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 11
AMOUNT (000) -------------------------------------------------------------------------------- AT JUNE 30, 2000, NET ASSETS CONSISTED OF: -------------------------------------------------------------------------------- Common Stock U.S.$ 608 Capital Surplus 837,873 Distributions in Excess of Net Investment Income (3,555) Accumulated Net Realized Loss (141,896) Unrealized Appreciation on Investments and Foreign Currency Translations 203,299 -------------------------------------------------------------------------------- TOTAL NET ASSETS U.S.$896,329 ============= -------------------------------------------------------------------------------- (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. (d) -- The fund is advised by an affiliate. @ -- Value is less than U.S.$500. ADR -- American Depositary Receipt. GDR -- Global Depositary Receipt. -------------------------------------------------------------------------------- FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of foreign currency exchange contracts open at June 30, 2000, the Fund is obligated to deliver foreign currency in exchange for U.S. dollars as indicated below: CURRENCY IN NET TO EXCHANGE UNREALIZED DELIVER VALUE SETTLEMENT FOR VALUE LOSS (000) (000) DATE (000) (000) (000) -------------------------------------------------------------------------------- THB 629 U.S.$ 16 07/03/00 U.S.$ 16 U.S.$ 16 U.S.$ -- 2,918 74 07/05/00 74 74 -- --------- --------- --------- U.S.$ 90 U.S.$ 90 U.S.$ -- ========= ========= ========= -------------------------------------------------------------------------------- JUNE 30, 2000 EXCHANGE RATES: -------------------------------------------------------------------------------- INR Indian Rupee 44.650 = U.S.$1.00 JPY Japanese Yen 106.145 = U.S.$1.00 KRW South Korean Won 1,115.025 = U.S.$1.00 MYR Malaysian Ringgit 3.800 = U.S.$1.00 SGD Singapore Dollar 1.728 = U.S.$1.00 TWD Taiwan Dollar 30.725 = U.S.$1.00 THB Thai Baht 39.175 = U.S.$1.00 --------------------------------------------------------------------------------
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY CLASSIFICATION -- JUNE 30, 2000
PERCENT VALUE OF NET INDUSTRY (000) ASSETS -------------------------------------------------------------------------------- Airlines U.S.$ 9,904 1.1% Auto Components 4,784 0.5 Automobiles 23,597 2.6 Banks 49,239 5.5 Beverages 4,533 0.5 Broadcasting & Cable TV 278 0.0 Building Products 2,081 0.2 Chemicals 30,803 3.4 Commercial Services & Supplies 13,053 1.5 Communications Equipment 3,071 0.3 Computers & Peripherals 78,415 8.7 Construction & Engineering 6,489 0.7 Construction Materials 2,066 0.2 Distributors 2,409 0.3 Diversified Financials 41,196 4.6 Diversified Telecommunication Services 42,065 4.7 Electric Utilities 9,570 1.1 Electrical Equipment 13,048 1.5 Electronic Equipment & Instruments 68,426 7.6 Food & Drug Retailing 6,772 0.8 Food Products 7,006 0.8 Gas Utilities 3,177 0.4 Health Care Providers & Services 994 0.1 Hotels Restaurants & Leisure 3,042 0.3 Household Durables 55,279 6.2 Industrial Conglomerates 4,188 0.5 Internet & Catalog Retail 1,165 0.1 Internet Software & Services 2,466 0.3 IT Consulting & Services 19,825 2.2 Leisure Equipment & Products 33,079 3.7 Machinery 56,268 6.3 Marine 5,112 0.6 Media 26,466 2.9 Metals & Mining 19,099 2.1 Mutual Funds 5,161 0.6 Office Electronics 27,193 3.0 Pharmaceuticals 32,137 3.6 Real Estate 25,189 2.8 Road & Rail 1,348 0.1 Semiconductor Equipment & Products 90,183 10.1 Software 3,018 0.3 Textiles & Apparel 8,062 0.9 Tobacco 2,306 0.3 Wireless Telecommunication Services 36,587 4.1 Other 17,805 2.0 ------------ ------------ U.S.$897,954 100.1% ============ ============ --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 12
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) STATEMENT OF OPERATIONS (000) -------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends ...................................................................................... U.S.$ 6,175 Interest ....................................................................................... 361 Less: Foreign Taxes Withheld ................................................................... (548) -------------------------------------------------------------------------------------------------------------------------- Total Income ................................................................................... 5,988 -------------------------------------------------------------------------------------------------------------------------- EXPENSES Investment Advisory Fees ....................................................................... 4,488 Administrative Fees ............................................................................ 446 Custodian Fees ................................................................................. 310 Shareholder Reporting Expenses ................................................................. 98 Professional Fees .............................................................................. 93 Country Tax Expense ............................................................................ 46 Transfer Agent Fees ............................................................................ 41 Directors' Fees and Expenses ................................................................... 34 Other Expenses ................................................................................. 79 -------------------------------------------------------------------------------------------------------------------------- Total Expenses ................................................................................. 5,635 -------------------------------------------------------------------------------------------------------------------------- Net Investment Income .......................................................................... 353 -------------------------------------------------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS) Investment Securities Sold ..................................................................... 28,502 Foreign Currency Transactions .................................................................. (25) -------------------------------------------------------------------------------------------------------------------------- Net Realized Gain .............................................................................. 28,477 -------------------------------------------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION Depreciation on Investments .................................................................... (65,239) Appreciation on Foreign Currency Translations .................................................. 336 -------------------------------------------------------------------------------------------------------------------------- Change in Unrealized Appreciation/Depreciation ................................................. (64,903) -------------------------------------------------------------------------------------------------------------------------- Total Net Realized Gain and Change in Unrealized Appreciation/Depreciation ..................... (36,426) -------------------------------------------------------------------------------------------------------------------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................................... U.S.$ (36,073) ========================================================================================================================== SIX MONTHS ENDED JUNE 30, 2000 YEAR ENDED (UNAUDITED) DECEMBER 31, 1999 STATEMENT OF CHANGES IN NET ASSETS (000) (000) -------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS Operations: Net Investment Income ...................................................... U.S.$ 353 U.S.$ 735 Net Realized Gain .......................................................... 28,477 86,741 Change in Unrealized Appreciation/Depreciation ............................. (64,903) 319,045 -------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations ............ (36,073) 406,521 -------------------------------------------------------------------------------------------------------------------------- Distributions: Net Investment Income ...................................................... (2,116) (593) In Excess of Net Investment Income ......................................... -- (1,791) -------------------------------------------------------------------------------------------------------------------------- Total Distributions ........................................................ (2,116) (2,384) -------------------------------------------------------------------------------------------------------------------------- Capital Share Transactions: Repurchase of Shares (1,429,200 and 5,040,600 shares, respectively) ........ (15,023) (41,752) -------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) .................................................. (53,212) 362,385 Net Assets: Beginning of Period ........................................................ 949,541 587,156 -------------------------------------------------------------------------------------------------------------------------- End of Period (including distributions in excess of net investment income of U.S. ($3,555) and U.S.($1,792), respectively) .................... U.S.$ 896,329 U.S.$ 949,541 --------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 13 FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA SIX MONTHS AND RATIOS: ENDED YEARS ENDED DECEMBER 31, JUNE 30, 2000 -------------------------------------------------------------------------- (UNAUDITED) 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD ..... U.S.$ 15.26 U.S.$ 8.73 U.S.$ 8.77 U.S.$ 11.95 U.S.$ 14.34 U.S.$ 13.20 ------------------------------------------------------------------------------------------------------------------------------------ Offering Costs ........................... -- -- -- -- (0.01) -- ------------------------------------------------------------------------------------------------------------------------------------ Net Investment Income .................... 0.01 0.01 0.06 0.03 0.02 0.05 Net Realized and Unrealized Gain (Loss) on Investments ........................... (0.59) 6.44 (0.17) (3.19) (0.33) 1.16 ------------------------------------------------------------------------------------------------------------------------------------ Total from Investment Operations ......... (0.58) 6.45 (0.11) (3.16) (0.31) 1.21 ------------------------------------------------------------------------------------------------------------------------------------ Distributions: Net Investment Income .................... (0.03) (0.01) -- (0.02) (0.60) (0.05) In Excess of Net Investment Income ....... -- (0.03) (0.01) -- (0.01) (0.00)# In Excess of Net Realized Gain ........... -- -- -- -- -- (0.02) ------------------------------------------------------------------------------------------------------------------------------------ Total Distributions ...................... (0.03) (0.04) (0.01) (0.02) (0.61) (0.07) ------------------------------------------------------------------------------------------------------------------------------------ Decrease in Net Asset Value due to Shares Issued through Rights Offering ........... -- -- -- -- (1.46) -- Anti-Dilutive Effect of Shares Repurchased .............................. 0.09 0.12 0.08 -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD ........... U.S.$ 14.74 U.S.$ 15.26 U.S.$ 8.73 U.S.$ 8.77 U.S.$ 11.95 U.S.$ 14.34 ==================================================================================================================================== PER SHARE MARKET VALUE, END OF PERIOD .... U.S.$ 10.19 U.S.$ 11.81 U.S.$ 7.00 U.S.$ 7.44 U.S.$ 9.75 U.S.$ 13.33 ==================================================================================================================================== TOTAL INVESTMENT RETURN: Market Value ............................. (13.46)% 69.32% (5.77)% (23.46)% (14.72)% 9.38% Net Asset Value (1) ...................... (3.09)% 75.39% (0.34)% (26.36)% (2.87)% 9.24% ==================================================================================================================================== RATIOS, SUPPLEMENTAL DATA: ------------------------------------------------------------------------------------------------------------------------------------ NET ASSETS, END OF PERIOD (THOUSANDS) .... U.S.$896,329 U.S.$949,541 U.S.$587,156 U.S.$628,173 U.S.$856,397 U.S.$769,414 ------------------------------------------------------------------------------------------------------------------------------------ Ratio of Expenses to Average Net Assets .. 1.25%* 1.29% 1.42% 1.34% 1.39% 1.36% Ratio of Net Investment Income to Average Net Assets ............................... 0.08%* 0.10% 0.80% 0.25% 0.16% 0.36% Portfolio Turnover Rate .................. 21% 65% 42% 66% 28% 21% ------------------------------------------------------------------------------------------------------------------------------------
* Annualized. # Amount is less than U.S.$0.01. + This return does not include the effect of the rights issued in connection with the Rights Offering. (1) Total investment return based on net asset value per share reflects the effects of changes in net asset value on the performance of the Fund during each period, and assumes dividends and distributions, if any, were reinvested. This percentage is not an indication of the performance of a shareholder's investment in the Fund based on market value due to differences between the market price of the stock and the net asset value of the Fund. The accompanying notes are an integral part of the financial statements. 14 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) --------- The Morgan Stanley Dean Witter Asia-Pacific Fund, Inc. (the "Fund") was incorporated in Maryland on February 28, 1994, 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, which are in conformity with generally accepted accounting principles for investment companies, 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 sale 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 that 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 under the procedures approved by the Board of Directors, although the actual calculations may be done by others. Events affecting the values of certain Fund securities that occur between the close of regular trading on the principal market for such securities (foreign ex changes and over-the-counter markets) and the regular close of the Exchange will not be reflected in the Fund's calculation of net asset value unless the Adviser believes that the particular event would materially affect net asset value, in which case an adjustment would be made. 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. Such taxes are generally based on income and/or capital gains earned or re- patriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation as such income and/or gains are 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 counterparty to the agreement, realization and/or retention of the collateral or proceeds may be subject to legal proceedings. 4. FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the mean of the bid and asked prices of such currencies against U.S. dollars last quoted by a major bank as follows: - investments, other assets and liabilities - at the prevailing rates of exchange on the valuation date; - investment transactions and investment income - at the prevailing rates of exchange on the dates of such transactions. Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, the Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of the securities held at period end. Similarly, the Fund does not isolate the effect 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) due to securities transactions are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from sales and maturities of foreign currency exchange contracts, disposition of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency 15 gains (losses) from valuing foreign currency denominated assets and liabilities and foreign currency contracts 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) on foreign currency translations for the period is reflected in the Statement of Operations. Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability. The Fund may use derivatives to achieve its investment objective. 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 a foreign currency relative to the U.S. dollar. 6. 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 assets as segregated on the Fund's records. 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. 7. 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 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 16 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. Risks also arise from potential losses from adverse market movements, and such losses could exceed the related amounts shown in the Statement of Net Assets. 8. 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. 9. OVER-THE-COUNTER TRADING: Securities and other derivative instruments that may be purchased or sold by the Fund may 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. During the six month period ended June 30, 2000, the Fund's investments in the derivative instruments described above only included foreign currency exchange contracts. 10. OTHER: Security transactions are accounted for on the date the securities are purchased or sold. Investments in new Indian securities are made by making applications in the public offerings. The issue price, or a portion thereof, is paid at the time of application and is reflected as share application money on the Statement of Net Assets, if any. Upon allotment of the securities, this amount plus any remaining amount of issue price is recorded as cost of investments. Realized gains and losses on the sale of investment securities are determined on the specific identified cost basis. Interest income is recognized on the accrual basis. Dividend income is recorded on the ex-dividend date (except certain dividends which may be recorded as soon as the Fund is informed of such dividend) net of applicable withholding taxes where recovery of such taxes is not reasonably assured. Distributions to shareholders are recorded on the ex-dividend date. The amount and character of income and capital gain distributions to be paid by the Fund are determined in accordance with Federal income tax regulations, which may differ from generally accepted accounting principles. The book/tax differences are either considered temporary or permanent in nature. Temporary differences are attributable to differing book and tax treatments for the timing of the recognition of gains and losses on certain investment transactions and the timing of the deductibility of certain expenses. Permanent book and tax basis differences may result in reclassifications among undistributed net investment income (loss), accumulated net realized gain (loss) and paid in capital. 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. (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 1.00% 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 0.09% of the Fund's average weekly net assets, plus $65,000 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. 17 E. During the six month period ended June 30, 2000, the Fund made purchases and sales totaling $188,844,000 and $193,575,000, respectively, of investment securities other than long-term U.S. Government securities and short-term investments. There were no purchases or sales of long-term U.S. Government securities. At June 30, 2000, the U.S. Federal income tax cost basis of securities was $692,674,000 and, accordingly, net unrealized appreciation was $203,286,000 of which $259,743,000 related to appreciated securities and $56,457,000 related to depreciated securities. At December 31, 1999, the Fund had a capital loss carryforward for U.S. Federal income tax purposes of approximately $169,662,000 available to offset future capital gains of which $24,788,000 will expire on December 31, 2005 and $144,874,000 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 month period ended June 30, 2000, the Fund incurred $45,000 of brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliate of the Adviser. G. A significant portion of the Fund's net assets consist of securities of issuers located in Asia which are denominated in foreign currencies. Changes in currency exchange rates will affect the value of and investment income from such securities. Asian securities are 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, Asian securities may be subject to substantial governmental involvement in the economy and greater social, economic and political uncertainty. Such securities may be concentrated in a limited number of countries and regions and may vary throughout the year. 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 Director's 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. At June 30, 2000, the deferred fees payable, under the Plan, totaled $145,000 and are included in Payable for Directors' Fees and Expenses on the Statement of Net Assets. I. On January 23, 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 month period ended June 30, 2000, the Fund repurchased 1,429,200 shares or 2.30% of its Common Stock at an average price per share of $10.46, excluding $71,000 in commissions paid, and an average discount of 27.78% from net asset value per share. For the year ended December 31, 1999, the Fund repurchased 5,040,600 shares or 7.49% of it's Common Stock at an average price per share of $8.23, excluding $252,000 in commissions paid, and an average discount of 15.81% from net asset value per share. Since the inception of the program, the Fund has repurchased 10,849,734 shares or 15.14% of its Common Stock at an average price per share of $7.85, excluding $506,000 in commissions paid, and an average discount of 17.83% 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 of Directors. J. During June 2000, the Board of Directors declared a distribution of $0.0348 per share, derived from net investment income, payable on July 11, 2000, to shareholders of record on June 30, 2000. 18 K. Supplemental Proxy Information The Annual Meeting of the Stockholders of the Fund was held on June 15, 2000. The following is a summary of the proposal presented and the total number of shares voted:
VOTES IN VOTES VOTES PROPOSAL: FAVOR OF AGAINST ABSTAINED --------- ---------- --------- ----------- 1. To elect the following Directors: Andrew McNally IV... ......... 47,523,839 3,402,754 -- Frederick O. Robertshaw....... 47,523,738 3,402,855 -- Harold J. Schaaff, Jr......... 47,524,569 3,402,024 -- Fergus Reid................... 47,523,839 3,402,754 -- Graham E. Jones............... 47,524,569 3,402,024 -- John D. Barrett II............ 47,524,569 3,402,024 -- Samuel T. Reeves.............. 47,459,869 3,466,724 -- Gerard E. Jones............... 47,524,569 3,402,024 --
The Annual Meeting of the Stockholders of the Fund was reconvened on August 1, 2000. The following is a summary of the proposal presented and the total number of shares voted:
VOTES IN VOTES VOTES PROPOSAL: FAVOR OF AGAINST ABSTAINED --------- ---------- --------- ----------- 2. To ratify the selection of Ernst & Young LLP as independent accountants of the Fund ......................................... 48,953,330 2,993,705 56,325
-------------------------------------------------------------------------------- CHANGE IN INDEPENDENT ACCOUNTANTS: ON JULY 5, 2000, PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT ACCOUNTANTS OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE FINANCIAL STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO ADVERSE OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED AS TO UNCERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH ITS AUDITS FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000, THERE HAVE BEEN NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY MATTER OF ACCOUNTING PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE, OR AUDITING SCOPE OR PROCEDURE, WHICH DISAGREEMENTS, IF NOT RESOLVED TO THE SATISFACTION OF PRICEWATERHOUSECOOPERS LLP, WOULD HAVE CAUSED THEM TO MAKE REFERENCE THERETO IN THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS. THE FUND, WITH THE APPROVAL OF ITS BOARD OF DIRECTORS, AUDIT COMMITTEE AND SHAREHOLDERS, ENGAGED ERNST & YOUNG LLP AS INDEPENDENT ACCOUNTANTS AS OF AUGUST 1, 2000. 19 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. If the market price per share equals or exceeds net asset value per share on the reinvestment date, the Fund will issue shares to participants at net asset value. If net asset value is less than 95% of the market price on the reinvestment date, shares will be issued at 95% of the market price. If net asset value exceeds the market price on the reinvestment date, participants will receive shares valued at market price. The Fund may purchase shares of its Common Stock in the open market in connection with dividend reinvestment requirements at the discretion of the Board of Directors. Should the Fund declare a dividend or capital gain distribution payable only in cash, the Plan Agent will purchase Fund shares for participants in the open market as agent for the participants. The Plan Agent's fees for the reinvestment of dividends and distributions will be paid by the Fund. However, each participant's account will be charged a pro rata share of brokerage commissions incurred on any open market purchases effected on such participant's behalf. A participant will also pay brokerage commissions incurred on purchases made by voluntary cash payments. Although shareholders in the Plan may receive no cash distributions, participation in the Plan will not relieve participants of any income tax which may be payable on such dividends or 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. Requests for additional information or any correspondence concerning the Plan should be directed to the Plan Agent at: Morgan Stanley Dean Witter Asia-Pacific Fund, Inc. American Stock Transfer & Trust Company Dividend Reinvestment and Cash Purchase Plan 40 Wall Street New York, NY 10005 1-800-278-4353 20