-----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, HmS8X3oFlZubMHhvQpppyoNXgosB799UdW5vos1db0ArDlaXgMpVXqNlS4jzBnIH ysFaPVXIgtqiNrO36RHBVg== 0000912057-02-009086.txt : 20020415 0000912057-02-009086.hdr.sgml : 20020415 ACCESSION NUMBER: 0000912057-02-009086 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020307 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY DEAN WITTER ASIA PACIFIC FUND INC CENTRAL INDEX KEY: 0000919808 IRS NUMBER: 000000000 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-08388 FILM NUMBER: 02569693 BUSINESS ADDRESS: STREET 1: 1221 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 6175578742 MAIL ADDRESS: STREET 1: MORGAN STANLEY ASIA PACIFIC FUND STREET 2: 1221 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10020 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY ASIA PACIFIC FUND INC DATE OF NAME CHANGE: 19940505 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY ASIA INVESTMENT FUND INC DATE OF NAME CHANGE: 19940316 N-30D 1 a2071592zn-30d.txt N-30D 2001 ANNUAL REPORT December 31, 2001 [MORGAN STANLEY LOGO] MORGAN STANLEY ASIA-PACIFIC FUND, INC. MORGAN STANLEY INVESTMENT MANAGEMENT INC. INVESTMENT ADVISOR DIRECTORS AND OFFICERS Barton M. Biggs CHAIRMAN OF THE BOARD OF DIRECTORS Ronald E. Robison PRESIDENT AND DIRECTOR John D. Barrett II DIRECTOR Thomas P. Gerrity DIRECTOR Gerard E. Jones DIRECTOR Joseph J. Kearns DIRECTOR Vincent R. Mclean DIRECTOR C. Oscar Morong, Jr. DIRECTOR William G. Morton, Jr. DIRECTOR Michael Nugent DIRECTOR Fergus Reid DIRECTOR Stefanie V. Chang VICE PRESIDENT Lorraine Truten VICE PRESIDENT James A. Gallo TREASURER Mary E. Mullin SECRETARY Belinda A. Brady ASSISTANT TREASURER INVESTMENT ADVISER Morgan Stanley Investment Management Inc. 1221 Avenue of the Americas New York, New York 10020 ADMINISTRATOR JPMorgan Chase Bank 73 Tremont Street Boston, Massachusetts 02108 CUSTODIAN JPMorgan Chase 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 AUDITORS Ernst & Young LLP 200 Clarendon Street Boston, Massachusetts 02116. 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.morganstanley.com/im. MORGAN STANLEY ASIA-PACIFIC FUND, INC. OVERVIEW LETTER TO SHAREHOLDERS For the year ended December 31, 2001, the Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund") had a total return, based on net asset value per share, of -14.60% compared with -17.39% and -16.53%, respectively, for its benchmarks (described below). The new benchmark for the Fund is comprised of two Morgan Stanley Capital International (MSCI) indices; Japan Net and All-Country Asia-Pacific Free ex-Japan Net, with each index weighted equally. The old benchmark for the Fund is comprised of two Morgan Stanley Capital International (MSCI) indices; Japan Gross and All-Country Asia-Pacific Free ex-Japan Gross, with each index weighted equally. On December 31, 2001, the closing price of the Fund's shares on the New York Stock Exchange was $7.49, representing a 18.9% discount to the Fund's net asset value per share. MARKET REVIEW JAPANESE EQUITY During the 12-month period ended December 31, the environment for equities in Japan was challenging, with a confluence of events affecting the market. First, international blue-chip companies, despite showing relatively strong balance sheets and attractive valuations, were affected negatively by both investor sentiment and perceptions that a slowdown in consumption in the United States and Europe would likely hamper prospects for growth. Second, domestic Japanese institutions, scrambling to raise cash, found leading blue chips to be a key source of funds, because their relative cost basis for these securities is lower than current prices. On a positive note, enthusiastic public support for Junichiro Koizumi, the first Prime Minister elected from an urban constituency in 45 years, has opened an entirely new path for policymaking in Japan. In short, Koizumi's radical plans for the Japanese economy, if successfully implemented, would transform a mercantilist state-centered economy into a new capitalist-based economy promoting individuals over big groups and encourage the creation of new companies over protection of existing big industries. This could provide the foundation for Japanese stocks to make a significant rebound after a decade of stagnation, particularly as valuations such as price to book and price to cash flow are near 17 year lows. Within Japan, we have been using rallies in the market to trade into higher-quality names with strong cash positions, strong brands and higher-than-average liquidity, while avoiding the bank sector, which supported the fund's relative performance for the last 12 month. We are currently pursuing a defensive strategy in Japan because of its concerns about medium-term market fundamentals. In our opinion, Japanese banks appear to have zero tolerance for non-performing loans in the current global and domestic economic environment and we expect several large forced corporate bankruptcies in February and March before Japan's fiscal year-end in March. One encouraging sign is that over the last several months restructuring is gaining momentum - since August 98,000 job cuts have been announced providing some indication that companies, primarily from the electronics industry, are cutting costs aggressively as the economy slows. Although the next several months would likely produce headlines in business failures, we believe important steps are being taken by the Koizumi administration to revitalize the economy. Despite a weak Macro outlook, many Japanese industries such as electronics, semiconductors, autos and pharmaceuticals are still world leaders and therefore to ignore Japan at this time in the economic cycle could peril investments in international portfolios if we begin to see concrete actions to re-vitalize the economy. ASIAN EQUITY Asian equity markets performed strongly in the fourth quarter of 2001, ending up the year as one of the better performing regions globally. Asian market rallies were led primarily by the export-oriented markets of Taiwan and Korea which were each up over 50% in the fourth quarter on the back of hopes of a global economic recovery in 2002. Technology was the strongest performing sector within Asia, led by the cyclical semiconductor sector as large cap semiconductor names in Asia like Taiwan Semiconductor Manufacturing and Samsung Electronics ended the year up outperforming most benchmarks. While Asian markets have mainly been keying off global trends and the US economic cycle, the relative outperformance for Asia has been a function of a relatively undervalued market and under invested and risk-averse domestic investors. We saw a comeback of domestic retail and institutional investors in the fourth quarter, especially in Taiwan and Korea. In terms of economic indicators and market levels we think that the worst is behind us and markets are unlikely to re-test the lows we saw in September. In the near term confidence and sentiment seem to have improved from a reasonable and quick solution to the 'war against terror' in Afghanistan. One of the key drivers of the global economy has been the US consumption demand, at 21% of world GDP, which seems to be holding up better than expected through the end of the year. Recent manufacturing and inventory-related data indicate a bottoming of the US economy in the fourth quarter of 2001. Asian exports, an important lead indicator, bottomed in September and have since shown positive sequential growth. Although the global economic recovery seems to be in place, we believe it is likely to be gradual and anemic, as capital expenditure (especially in information technology and telecom sectors) is unlikely to pick up substantially until 2003. The recent surge in markets seems to be somewhat ahead of near term fundamentals and it is likely that markets may enter a corrective phase over the next two quarters. Although we largely had a 'bar-bell' portfolio through 2001, we have cautiously increased the 'aggressive' tilt to our portfolio in the last three months. We are overweight in selective cyclical stocks in the semiconductor, electronics manufacturing, consumer discretionary and real estate sectors. For our portfolio, stock specific decisions still override big sector calls. We are focussed on companies that are increasing global market shares, restructuring balance sheets, survi- 2 vors geared to cyclical recovery or are positioned for secular growth over the next 2 to 3 years. On December 3, 2001, MSCI introduced the first phase of its enhanced methodology by shifting to a weighting system based on freely floated shares, rather than just market capitalization. The second and final phase will be implemented on May 31, 2002. South Korea, which is our biggest overweight, will see the largest weight gains and Malaysia, the largest declines. We continue to be underweight Malaysia given expensive valuations, insipid restructuring initiatives and risks of the currency getting devalued. Despite a recent run up in the market, we still think that the restructuring story for South Korea is not over, In fact given the steadily rising ROE for corporate Korea and the low interest rate environment, the re-rating for that market may have only just begun. We are looking to add to our weighting in Taiwan in the event of a market correction, as the market should benefit from increased domestic investor participation as export growth begins to recover in 2002. In Hong Kong, We have reduced our positions in select consumer discretionary sector names such as Li & Fung and TVB, as these stocks are trading well ahead of medium term fundamentals. We have also reduced our weightings in China where domestic companies are likely to see margin pressure in a more deregulated market, post entry into WTO. Economic growth buoyed by domestic consumption has held up relatively well in China, but as the world recovers, China is likely to be a relative underperformer. MARKET OUTLOOK Although we believe markets could be headed for a near term trading range, we are positive on a 12-month view that Asian markets should trade higher given the strong liquidity, relatively cheap valuations and several attractive bottom up restructuring stories. OTHER DEVELOPMENTS On December 13, 2001, the Board of Directors of the Fund authorized the Fund to conduct a tender offer during the second quarter of 2002 for up to 15% of the Funds shares, at a price equal to 95% of the Fund's net asset value per share ("NAV") on the last day of the tender period. The tender offer materials will be mailed to shareholders of the Fund. Sincerely, /s/ Ronald E. Robison Ronald E. Robison President and Director January 2002 3 INVESTMENT SUMMARY Historical Information (Unaudited)
TOTAL RETURN (%) ------------------------------------------------------------------------------------------------------ MARKET VALUE(1) NET ASSET VALUE(2) INDEX(3) INDEX(4) ------------------------------------------------------------------------------------------------------ AVERAGE AVERAGE AVERAGE AVERAGE CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL - ------------------------------------------------------------------------------------------------------------------------------- One Year -13.78% -13.78% -14.60% -14.60% -17.39% -17.39% -16.53% -16.53% Five Year -20.68 -4.53 -20.16 -4.40 -36.76 -8.76 -34.97 -8.25 Since Inception* -35.40 -5.72 -20.31 -3.01 -40.58 -6.78 -38.91 -6.43
Past performance is not predictive of future performance and assumes that all dividend distributions, if any, were reinvested. [CHART] RETURNS AND PER SHARE INFORMATION
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------------- 1994* 1995 1996 1997 1998 1999 2000 2001 - --------------------------------------------------------------------------------------------------------------------------- Net Asset Value Per Share $13.20 $14.34 $11.95 $ 8.77 $ 8.73 $15.26 $ 10.82 $ 9.24 - --------------------------------------------------------------------------------------------------------------------------- Market Value Per Share $12.25 $13.33 $ 9.75 $ 7.44 $ 7.00 $11.81 $ 8.69 $ 7.49 - --------------------------------------------------------------------------------------------------------------------------- Premium/(Discount) -7.2% -7.0% -18.4% -15.2% -19.8% -22.6% -19.7% -18.9% - --------------------------------------------------------------------------------------------------------------------------- Income Dividends $ 0.04 $ 0.05 $ 0.61 $ 0.02 $ 0.01 $ 0.04 $ 0.22 -- - --------------------------------------------------------------------------------------------------------------------------- Capital Gains Distributions $ 0.01 $ 0.02 -- -- -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------- Fund Total Return(2) -5.94% 9.24% -2.87%+ -26.36% -0.34% 75.39% -27.37% -14.60% - --------------------------------------------------------------------------------------------------------------------------- Index Total Return(3) -5.24% 2.88% -3.63% -29.55% -0.30% 55.16% -30.21% -17.39% - --------------------------------------------------------------------------------------------------------------------------- Index Total Return(4) -5.24% 2.88% -3.63% -29.55% -0.30% 54.79% -29.59% -16.53% - ---------------------------------------------------------------------------------------------------------------------------
(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 Net and All-Country Asia-Pacific Free ex-Japan Net with each index weighted equally. The net dividends reinvested series approximate the minumum possible dividend reinvestment. The dividend is reinvested after deduction of withholding tax, applying the rate applicable to non-resident individuals who do not benefit from double taxation treaties. (4) 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. Dividends are assumed to be gross of withholding tax and net of any domestic tax credits. * 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. 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. 4 PORTFOLIO SUMMARY [CHART OF ALLOCATION OF TOTAL INVESTMENTS] - - Equity Securities 96.0% - - Short-Term Investments 4.0
[CHART OF INDUSTRIES] - - Semiconductor Equipment & Products 9.8% - - Banks 8.3 - - Household Durables 6.7 - - Electronic Equipment & Instruments 5.2 - - Computers & Peripherals 4.9 - - Metals & Mining 4.7 - - Machinery 4.7 - - Real Estate 4.4 - - Automobiles 3.9 - - Pharmaceuticals 3.8 - - Other 43.6
[CHART OF COUNTRY WEIGHTINGS] - - Japan 41.6% - - South Korea 12.8% - - China/Hong Kong 11.2 - - Australia 10.7 - - Taiwan 10.1 - - Singapore 5.3 - - India 3.8 - - Malaysia 0.7 - - Other 3.8
TEN LARGEST HOLDINGS*
PERCENT OF NET ASSETS - -------------------------------------------------------------------------------- 1. Samsung Electronics Co., Ltd. (South Korea) 3.5% 2. Taiwan Semiconductor Manufacturing Co., Ltd. (Taiwan) 2.9 3. Hutchison Whampoa Ltd. (China/Hong Kong) 2.0 4. SK Telecom Co., Ltd. (South Korea) 1.8 5. Nintendo Co., Ltd. (Japan) 1.7 6. BHP Billiton Ltd. (Australia) 1.6 7. United Microelectronics Corp. (Taiwan) 1.5 8. Rio Tinto Ltd. (Australia) 1.5 9. Sun Hung Kai Properties Ltd. (China/Hong Kong) 1.5 10. News Corp., Ltd. (Australia) 1.3 ---- 19.3% ====
* Excludes short-term investments 5 FINANCIAL STATEMENTS DECEMBER 31, 2001 STATEMENT OF NET ASSETS
VALUE SHARES (000) - -------------------------------------------------------------------------------- COMMON STOCKS (95.5%) (UNLESS OTHERWISE NOTED) ================================================================================ AUSTRALIA (10.7%) AIRLINES Qantas Airlines Ltd. 1,089,100 $ 2,047 BANKS Australia & New Zealand Banking Group Ltd. 68,200 620 Commonwealth Bank of Australia 95,900 1,466 National Australia Bank Ltd. 209,400 3,407 Westpac Banking Corp., Ltd. 279,650 2,250 - -------------------------------------------------------------------------------- 7,743 - -------------------------------------------------------------------------------- BEVERAGES Foster's Brewing Group Ltd. 938,750 2,330 - -------------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES Brambles Industries Ltd. 341,651 1,814 Computershare Ltd. 151,600 409 - -------------------------------------------------------------------------------- 2,223 - -------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES Telstra Corp., Ltd. 1,027,150 2,853 - -------------------------------------------------------------------------------- HEALTH CARE PROVIDERS & SERVICES Sonic Healthcare Ltd. 169,200 691 - -------------------------------------------------------------------------------- MEDIA News Corp., Ltd. 648,400 5,172 - -------------------------------------------------------------------------------- MEDICAL INSTRUMENTS Resmed, Inc. 85,900 (a) 458 - -------------------------------------------------------------------------------- METALS & MINING BHP Billiton Ltd. 1,149,627 6,164 MIM Holdings Ltd. 1,118,100 651 Normandy Mining Ltd. 1,749,100 1,617 Rio Tinto Ltd. 310,950 5,908 WMC Ltd. 188,250 920 - -------------------------------------------------------------------------------- 15,260 - -------------------------------------------------------------------------------- PHARMACEUTICALS CSL Ltd. 87,610 2,304 - -------------------------------------------------------------------------------- REAL ESTATE Lend Lease Corp., Ltd. 137,250 915 - -------------------------------------------------------------------------------- TRANSPORTATION INFRASTRUCTURE Lang Corp., Ltd. 70,250 402 - -------------------------------------------------------------------------------- 42,398 ================================================================================ CHINA/HONG KONG (11.2%) AUTOMOBILES Denway Motors Ltd. 1,795,900 558 - -------------------------------------------------------------------------------- BANKS Bank of East Asia 138,000 $ 297 Hang Seng Bank Ltd. 150,000 1,650 - -------------------------------------------------------------------------------- 1,947 - -------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS Legend Holdings Ltd. 632,000 322 - -------------------------------------------------------------------------------- DISTRIBUTORS Li & Fung Ltd. 490,000 550 - -------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS Hong Kong Exchanges and Clearing Ltd. 552,000 839 Swire Pacific Ltd. 'A' 295,600 1,611 Wharf Holdings Ltd. 126,000 308 - -------------------------------------------------------------------------------- 2,758 - -------------------------------------------------------------------------------- ELECTRIC UTILITIES CLP Holdings Ltd. 202,200 771 - -------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT Johnson Electric Holdings Ltd. 1,316,000 1,384 - -------------------------------------------------------------------------------- GAS UTILITIES Hong Kong & China Gas Co., Ltd. 1,709,950 2,094 - -------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES China Merchants Holdings International Co., Ltd. 578,000 370 Citic Pacific Ltd. 399,000 888 Hutchison Whampoa Ltd. 831,950 8,028 - -------------------------------------------------------------------------------- 9,286 - -------------------------------------------------------------------------------- MEDIA Asia Satellite Telecommunications Holdings Ltd. 287,000 478 Clear Media Ltd. 395,000 (a) 289 - -------------------------------------------------------------------------------- 767 - -------------------------------------------------------------------------------- METALS & MINING Aluminum Corporation of China Ltd. 4,695,000 (a) 819 - -------------------------------------------------------------------------------- OIL & GAS China Petroleum & Chemical Corp. 5,348,000 734 CNOOC Ltd. 817,000 770 PetroChina Company Ltd. 4,340,000 768 - -------------------------------------------------------------------------------- 2,272 ================================================================================ The accompanying notes are an integral part of the financial statements. 6 VALUE SHARES (000) - -------------------------------------------------------------------------------- REAL ESTATE Amoy Properties Ltd. 409,000 $ 422 Cheung Kong (Holdings) Ltd. 272,000 2,825 Henderson Land Development Co., Ltd. 346,000 1,562 New World Development Co., Ltd. 1,159,000 1,010 Sun Hung Kai Properties Ltd. 724,000 5,849 - -------------------------------------------------------------------------------- 11,668 - -------------------------------------------------------------------------------- SOFTWARE Travelsky Technology Ltd. 252,000 (a) 194 - -------------------------------------------------------------------------------- SPECIALTY RETAIL Esprit Holdings Ltd. 2,093,000 2,362 - -------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES China Mobile (Hong Kong) Ltd. ADR 1,302,000 (a) 4,583 China Unicom Ltd. 696,000 (a) 767 SmarTone Telecommunications Holdings Ltd. 1,043,000 (a) 1,244 - -------------------------------------------------------------------------------- 6,594 - -------------------------------------------------------------------------------- 44,346 ================================================================================ INDIA (3.4%) AUTOMOBILES Hero Honda Motors Ltd. ADR 795 4 Hero Honda Motors Ltd. 179,930 936 - -------------------------------------------------------------------------------- 940 - -------------------------------------------------------------------------------- BANKS HDFC Bank Ltd. ADR 53,200 (a) 774 State Bank of India Ltd. 170,035 644 - -------------------------------------------------------------------------------- 1,418 - -------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES Mahanagar Telephone Nigam Ltd. 337,127 885 Videsh Sanchar Nigam Ltd. 151,430 648 - -------------------------------------------------------------------------------- 1,533 - -------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT Bharat Heavy Electricals Ltd. 197,937 577 - -------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS Colgate-Palmolive (India) 59,000 204 - -------------------------------------------------------------------------------- IT CONSULTING & SERVICES HCL Technologies Ltd. 145,170 826 Infosys Technologies Ltd. 47,850 4,042 Wipro Ltd. 23,000 765 - -------------------------------------------------------------------------------- 5,633 - -------------------------------------------------------------------------------- MEDIA Zee Telefilms Ltd. 125,000 289 - -------------------------------------------------------------------------------- METALS & MINING Tata Iron & Steel Co., Ltd. Ord. 1,800 $ 3 Tata Iron & Steel Co., Ltd. 110 -- - -------------------------------------------------------------------------------- 3 - -------------------------------------------------------------------------------- OIL & GAS Bharat Petroleum Corp., Ltd. 78,300 307 Hindustan Petroleum Corp., Ltd. 80,000 232 - -------------------------------------------------------------------------------- 539 - -------------------------------------------------------------------------------- PHARMACEUTICALS Cipla Ltd. 10,735 253 Dr. Reddy's Laboratories Ltd. 65,984 1,264 - -------------------------------------------------------------------------------- 1,517 - -------------------------------------------------------------------------------- TOBACCO - -------------------------------------------------------------------------------- ITC Ltd. 67,900 953 - -------------------------------------------------------------------------------- 13,606 ================================================================================ JAPAN ( 41.6%) AUTO COMPONENTS Nifco, Inc. 230,000 1,886 - -------------------------------------------------------------------------------- AUTOMOBILES Nissan Motor Co., Ltd. 780,000 4,117 Suzuki Motor Corp. 343,000 3,735 Toyota Motor Corp. 144,000 3,631 - -------------------------------------------------------------------------------- 11,483 - -------------------------------------------------------------------------------- BANKS Mitsubishi Tokyo Financial Group, Inc. 85 (a) 567 - -------------------------------------------------------------------------------- BUILDING PRODUCTS Sanwa Shutter Corp., Ltd. 302,000 651 - -------------------------------------------------------------------------------- CHEMICALS Daicel Chemical Industries Ltd. 840,000 2,456 Denki Kagaku Kogyo Kabushiki Kaisha 700,000 1,616 Kaneka Corp. 549,000 3,331 Lintec Corp. 240,000 1,475 Mitsubishi Chemical Corp. 894,000 1,894 Shin-Etsu Polymer Co., Ltd. 450,000 1,244 - -------------------------------------------------------------------------------- 12,016 - -------------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES Dai Nippon Printing Co., Ltd. 293,000 2,915 Nissha Printing Co., Ltd. 63,000 287 - -------------------------------------------------------------------------------- 3,202 ================================================================================ The accompanying notes are an integral part of the financial statements. 7 VALUE SHARES (000) - -------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS Fujitsu Ltd. 538,000 $ 3,898 Mitsumi Electric Co., Ltd. 226,000 2,579 NEC Corp. 418,000 4,244 Toshiba Corp. 1,058,000 3,616 - -------------------------------------------------------------------------------- 14,337 - -------------------------------------------------------------------------------- CONSTRUCTION & ENGINEERING Kurita Water Industries Ltd. 291,000 3,596 Obayashi Corp. 770,000 2,175 Sanki Engineering 60,000 292 - -------------------------------------------------------------------------------- 6,063 - -------------------------------------------------------------------------------- DISTRIBUTORS Hitachi High - Technologies Corp. 95,000 1,024 - -------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS Hitachi Capital Corp. 237,900 3,559 - -------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES Nippon Telephone & Telegraph Corp. 934 3,029 - -------------------------------------------------------------------------------- ELECTRIC UTILITIES Tokyo Electric Power Co., Inc. 133,000 2,818 - -------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT Furakawa Electric Co., Ltd. 278,000 1,469 Kyudenko Co. 290,000 969 - -------------------------------------------------------------------------------- 2,438 - -------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Hitachi Ltd. 638,000 4,651 Kyocera Corp. 55,000 3,571 Ryosan Co., Ltd. 143,000 1,575 TDK Corp. 68,300 3,205 - -------------------------------------------------------------------------------- 13,002 - -------------------------------------------------------------------------------- FOOD & DRUG RETAILING FamilyMart Co., Ltd. 142,200 2,381 - -------------------------------------------------------------------------------- FOOD PRODUCTS House Foods Corp. 111,000 906 Nippon Meat Packers, Inc. 178,000 1,879 - -------------------------------------------------------------------------------- 2,785 - -------------------------------------------------------------------------------- HOUSEHOLD DURABLES Casio Computer Co., Ltd. 450,000 1,941 Matsushita ElectricIndustrial Co., Ltd. 358,000 4,576 Nintendo Co., Ltd. 38,400 6,693 Rinnai Corp. 98,700 1,581 Sangetsu Co., Ltd. 17,000 232 Sekisui Chemical Co., Ltd. 443,000 1,161 Sekisui House Ltd. 390,000 2,814 Sony Corp. 101,000 4,594 - -------------------------------------------------------------------------------- 23,592 - -------------------------------------------------------------------------------- LEISURE EQUIPMENT & PRODUCTS Fuji Photo Film Co., Ltd. 138,000 $ 4,905 Yamaha Corp. 292,000 2,151 - -------------------------------------------------------------------------------- 7,056 - -------------------------------------------------------------------------------- MACHINERY Amada Co., Ltd. 592,000 2,338 Daifuku Co., Ltd. 623,000 2,507 Daikin Industries Ltd. 272,000 4,245 Fuji Machine Manufacturing Co., Ltd. 176,000 2,285 Fujitec Co., Ltd. 170,000 540 Minebea Co., Ltd. 500,000 2,681 Mitsubishi Heavy Industries Ltd. 932,000 2,477 Tsubakimoto Chain Co. 632,000 1,440 - -------------------------------------------------------------------------------- 18,513 - -------------------------------------------------------------------------------- MARINE Mitsubishi Logistics Corp. 135,000 951 - -------------------------------------------------------------------------------- OFFICE ELECTRONICS Canon, Inc. 148,000 5,069 Ricoh Co., Ltd. 270,000 5,003 - -------------------------------------------------------------------------------- 10,072 - -------------------------------------------------------------------------------- PHARMACEUTICALS Ono Pharmaceutical Co., Ltd. 118,000 3,530 Sankyo Co., Ltd. 220,000 3,751 Yamanouchi Pharmaceutical Co., Ltd. 159,000 4,178 - -------------------------------------------------------------------------------- 11,459 - -------------------------------------------------------------------------------- REAL ESTATE Mitsubishi Estate Co., Ltd. 457,000 3,328 - -------------------------------------------------------------------------------- ROAD & RAIL East Japan Railway Co. 510 2,452 - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS Rohm Co., Ltd. 23,800 3,075 - -------------------------------------------------------------------------------- TEXTILES & APPAREL Nisshinbo Industries, Inc. 130,000 480 - -------------------------------------------------------------------------------- TRADING COMPANIES & DISTRIBUTORS Mitsubishi Corp. 340,000 2,197 Nagase & Co., Ltd. 197,000 816 - -------------------------------------------------------------------------------- 3,013 - -------------------------------------------------------------------------------- 165,232 ================================================================================ MALAYSIA (0.7%) HOTELS RESTAURANTS & LEISURE Magnum Corp. Bhd 1,678,000 940 - -------------------------------------------------------------------------------- TOBACCO British American Tobacco (Malaysia) Bhd 190,000 1,850 - -------------------------------------------------------------------------------- 2,790 ================================================================================ The accompanying notes are an integral part of the financial statements. 8 VALUE SHARES (000) - -------------------------------------------------------------------------------- SINGAPORE (5.3%) AEROSPACE & DEFENSE SIA Engineering Co., Ltd. 544,000 $ 383 Singapore Technologies Engineering Ltd. 777,000 989 - -------------------------------------------------------------------------------- 1,372 - -------------------------------------------------------------------------------- AIRLINES Singapore Airlines Ltd. 328,000 1,954 - -------------------------------------------------------------------------------- BANKS DBS Group Holdings Ltd. 364,979 2,728 Oversea-Chinese Banking Corp., Ltd. 463,700 2,762 United Overseas Bank Ltd. 532,389 3,662 - -------------------------------------------------------------------------------- 9,152 - -------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS Keppel Corp., Ltd. 466,000 717 - -------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES Singapore Telecommunications Ltd. 654,000 623 - -------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Venture Manufacturing (Singapore) Ltd. 250,000 1,800 - -------------------------------------------------------------------------------- MARINE Neptune Orient Lines 1,666,000 (a) 875 - -------------------------------------------------------------------------------- MEDIA Singapore Press Holdings Ltd. 149,600 1,766 - -------------------------------------------------------------------------------- REAL ESTATE Capitaland, Ltd. 651,000 (a) 659 City Developments Ltd. 320,000 1,049 - -------------------------------------------------------------------------------- 1,708 - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS Chartered Semiconductor 148,000 (a) 393 - -------------------------------------------------------------------------------- TRANSPORTATION INFRASTRUCTURE Sembcorp Logisitics Corp. 860,800 839 - -------------------------------------------------------------------------------- 21,199 ================================================================================ SOUTH KOREA (12.5%) AUTO COMPONENTS Hyundai Mobis 193,530 2,785 - -------------------------------------------------------------------------------- AUTOMOBILES Hyundai Motor Co., Ltd. 130,200 2,666 - -------------------------------------------------------------------------------- BANKS Hana Bank 115,315 1,484 Kookmin Bank 71,837 2,723 Shinhan Financial Group Co., Ltd. 219,520 (a) 2,933 - -------------------------------------------------------------------------------- 7,140 - -------------------------------------------------------------------------------- CONSTRUCTION & ENGINEERING LG Engineering & Construction Co., Ltd. 120,660 1,295 - -------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS Kookmin Credit Card Co., Ltd. 23,670 $ 901 LG Securities Co. 66,700 757 Samsung Securities Co., Ltd. 23,640 (a) 861 - -------------------------------------------------------------------------------- 2,519 - -------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES Korea Telecom Corp. ADR 100,500 2,043 - -------------------------------------------------------------------------------- ELECTRIC UTILITIES Korea Electric Power Corp. 27,200 449 Korea Electric Power Corp. ADR 121,200 1,109 - -------------------------------------------------------------------------------- 1,558 - -------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Samsung Electro Mechanics Co., Ltd. 46,351 1,546 - -------------------------------------------------------------------------------- FOOD PRODUCTS Tongyang Confectionery Corp. 24,610 630 - -------------------------------------------------------------------------------- HOUSEHOLD DURABLES Humax Co., Ltd. 91,000 2,200 LG Electronics Ltd. 38,660 730 - -------------------------------------------------------------------------------- 2,930 - -------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS LG Household & Health Care Ltd. 17,100 (a) 376 - -------------------------------------------------------------------------------- MEDIA Cheil Communications, Inc. 11,680 1,200 - -------------------------------------------------------------------------------- METALS & MINING Pohang Iron & Steel Co., Ltd. 14,180 1,317 Pohang Iron & Steel Co., Ltd. ADR 38,900 895 - -------------------------------------------------------------------------------- 2,212 - -------------------------------------------------------------------------------- MULTILINE RETAIL Shinsegae Co., Ltd. 4,400 466 - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS Samsung Electronics Co., Ltd. 59,427 12,623 - -------------------------------------------------------------------------------- TOBACCO Korea Tobacco & Ginseng Corp. 60,000 (a,b) 465 - -------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES SK Telecom Co., Ltd. 17,400 3,550 SK Telecom Co., Ltd. ADR 160,600 3,472 - -------------------------------------------------------------------------------- 7,022 - -------------------------------------------------------------------------------- 49,476 ================================================================================ The accompanying notes are an integral part of the financial statements. 9 VALUE SHARES (000) - -------------------------------------------------------------------------------- TAIWAN (10.1%) BANKS Bank Sinopac 1,741,000 (a) $ 726 Chinatrust Commercial Bank 4,172,043 2,504 Fubon Financial HoldingCo., Ltd. 1,313,928 (a) 1,142 Taipei Bank 1,068,000 800 - -------------------------------------------------------------------------------- 5,172 - -------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT Accton Technology Corp. 639,000 (a) 1,644 - -------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS Ambit Microsystems Corp. 201,191 926 Asustek Computer, Inc. 453,800 1,984 Quanta Computer, Inc. 541,000 1,763 - -------------------------------------------------------------------------------- 4,673 - -------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS AU Optronics Corp. 864,000 (a) 924 Hon Hai Precision Industry Co., Ltd. 609,632 2,788 - -------------------------------------------------------------------------------- 3,712 - -------------------------------------------------------------------------------- FOOD & DRUG RETAILING President Chain Store Corp. 575,226 1,217 - -------------------------------------------------------------------------------- METALS & MINING China Steel Corp. 893,670 349 - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS Advanced Semiconductor Engineering, Inc. 591,000 (a) 549 ASE Test Ltd. 48,300 (a) 673 Faraday Technology Corp. 75,600 356 Siliconware Precision Industries Co. 1,783,247 (a) 1,575 Sunplus Technology Co., Ltd. 226,450 699 Taiwan Semiconductor Manufacturing Co., Ltd. 4,599,168 (a) 11,503 United Microelectronics Corp. 4,173,910 (a) 6,085 - -------------------------------------------------------------------------------- 21,440 - -------------------------------------------------------------------------------- TEXTILES & APPAREL Formosa Chemicals & Fibre Corp. 1,611,440 1,082 - -------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES Taiwan Cellular Corp. 770,425 (a) 1,031 - -------------------------------------------------------------------------------- 40,320 ================================================================================ TOTAL COMMON STOCKS (Cost $433,109) 379,367 ================================================================================ PREFERRED STOCK (0.3%) ================================================================================ SOUTH KOREA (0.3%) SEMICONDUCTOR EQUIPMENT & PRODUCTS Samsung Electronics Co., Ltd. (Preferred) (Cost $1,657) 14,240 $ 1,230 ================================================================================ - -------------------------------------------------------------------------------- INVESTMENT COMPANIES (0.4%) ================================================================================ INDIA (0.4%) Morgan Stanley Growth Fund (Cost $1,744) 9,491,200 1,732 ================================================================================ FACE AMOUNT (000) - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (3.6%) ================================================================================ REPURCHASE AGREEMENT (3.6%) J.P. Morgan Securities Inc., 1.63%, dated 12/31/01, due 1/2/02 (Cost $14,428) 14,428 (c) 14,428 ================================================================================ FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.4%) ================================================================================ Indian Rupee INR 1,230 26 New Taiwan Dollar TWD 48,282 1,380 South Korean Won KRW 47 --@ - -------------------------------------------------------------------------------- TOTAL FOREIGN CURRENCY (Cost $1,425) 1,406 ================================================================================ The accompanying notes are an integral part of the financial statements. 10 AMOUNT (000) - -------------------------------------------------------------------------------- TOTAL INVESTMENTS (100.2%) (Cost $452,363) $398,163 ================================================================================ AMOUNT (000) - -------------------------------------------------------------------------------- OTHER ASSETS (0.1%) Cash $ 2 Dividends Receivable 139 Tax Reclaim Receivable 5 Interest Receivable 1 Other 54 201 ================================================================================ LIABILITIES (-0.3%) Payable For: Investment Advisory Fees (326) Custodian Fees (206) Professional Fees (189) Directors' Fees and Expenses (93) Administrative Fees (52) Shareholder Reporting Expenses (68) Other Liabilities (94) (1,028) ================================================================================ NET ASSETS (100.0%) Applicable to 42,982,355 issued and outstanding $ 0.01 par value shares (100,000,000 shares authorized) $397,336 ================================================================================ NET ASSET VALUE PER SHARE $ 9.24 ================================================================================ AT DECEMBER 31, 2001, NET ASSETS CONSISTED OF: Common Stock $ 430 Paid-in Capital 659,660 Accumulated Net Investment Loss (417) Accumulated Net Realized Loss (208,137) Unrealized Depreciation on Investments and Foreign Currency Translations (54,200) ================================================================================ TOTAL NET ASSETS $397,336 ================================================================================
(a) -- Non-income producing. (b) -- 144A Security - certain conditions for public sale may exist. (c) -- The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated funds. ADR -- American Depositary Receipt INR -- Indian Rupee TWD -- New Taiwan Dollar KRW -- South Korean Won @ -- Value is less than $500. SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY CLASSIFICATION -- DECEMBER 31, 2001
PERCENT VALUE OF NET INDUSTRY (000) ASSETS - -------------------------------------------------------------------------------- Aerospace & Defense $ 1,372 0.3% Airlines 4,001 1.0 Auto Components 4,671 1.2 Automobiles 15,647 3.9 Banks 33,139 8.3 Beverages 2,330 0.6 Chemicals 12,016 3.0 Commercial Services & Supplies 5,425 1.4 Communications Equipment 1,644 0.4 Computers & Peripherals 19,332 4.9 Construction & Engineering 7,358 1.9 Distributors 1,574 0.4 Diversified Financials 9,553 2.4 Diversified Telecommunication Services 10,081 2.5 Electric Utilities 5,147 1.3 Electrical Equipment 4,399 1.1 Electronic Equipment & Instruments 20,060 5.2 Food & Drug Retailing 3,598 0.9 Food Products 3,415 0.9 Gas Utilities 2,094 0.5 Hotels Restaurants & Leisure 940 0.2 Household Durables 26,522 6.7 Industrial Conglomerates 9,286 2.3 Investment Companies 1,732 0.4 IT Consulting & Services 5,633 1.4 Leisure Equipment & Products 7,056 1.8 Machinery 18,513 4.7 Marine 1,826 0.5 Media 9,194 2.3 Metals & Mining 18,643 4.7 Office Electronics 10,072 2.5 Oil & Gas 2,811 0.7 Pharmaceuticals 15,280 3.8 Real Estate 17,619 4.4 Road & Rail 2,452 0.6 Semiconductor Equipment & Products 38,761 9.8 Specialty Retail 2,362 0.6 Textiles & Apparel 1,562 0.4 Tobacco 3,268 0.8 Trade Companies & Distributors 3,013 0.8 Transportation Infrastructure 1,241 0.3 Wireless Telecommunication Services 14,647 3.7 Other 18,874 4.7 - -------------------------------------------------------------------------------- $ 398,163 100.2% ================================================================================
The accompanying notes are an integral part of the financial statements. 11 FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2001 STATEMENT OF OPERATIONS (000) - ------------------------------------------------------------------------------------------------ INVESTMENT INCOME Dividends (net of $616 of foreign taxes withheld) $ 6,556 Interest 711 ================================================================================================ TOTAL INCOME 7,267 ================================================================================================ EXPENSES Investment Advisory Fees 4,592 Administrative Fees 508 Custodian Fees 362 Shareholder Reporting Expenses 231 Professional Fees 222 Country Tax Expense 190 Transfer Agent Fees 115 Directors' Fees and Expenses 4 Other Expenses 184 ================================================================================================ TOTAL EXPENSES 6,408 ================================================================================================ NET INVESTMENT INCOME 859 ================================================================================================ NET REALIZED LOSS ON: Investments (69,874) Foreign Currency Transactions (224) ================================================================================================ NET REALIZED LOSS (70,098) ================================================================================================ CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON: Investments (18,137) Foreign Currency Transactions (18) ================================================================================================ CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION (18,155) ================================================================================================ TOTAL NET REALIZED LOSS AND CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION (88,253) ================================================================================================ NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (87,394) ================================================================================================
YEAR ENDED YEAR ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 STATEMENT OF CHANGES IN NET ASSETS (000) (000) - ------------------------------------------------------------------------------------------------ DECREASE IN NET ASSETS Operations: Net Investment Income (Loss) $ 859 $ (540) Net Realized Gain (Loss) (70,098) 39,181 Change in Unrealized Appreciation/Depreciation (18,155) (304,247) ================================================================================================ NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS (87,394) (265,606) ================================================================================================ Distributions: Net Investment Income -- (5,936) In Excess of Net Investment Income -- (7,046) ================================================================================================ TOTAL DISTRIBUTIONS -- (12,982) ================================================================================================ Capital Share Transactions: Repurchase of Shares (14,446,519 and 4,805,100 shares, respectively) (136,775) (49,448) ================================================================================================ TOTAL DECREASE (224,169) (328,036) ================================================================================================ Net Assets: Beginning of Period 621,505 949,541 ================================================================================================ END OF PERIOD (INCLUDING ACCUMULATED NET INVESTMENT LOSS/DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME OF $(417) AND $(7,046), RESPECTIVELY) $ 397,336 $ 621,505 ================================================================================================
The accompanying notes are an integral part of the financial statements. 12 FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 2001 2000 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.82 $ 15.26 $ 8.73 $ 8.77 $ 11.95 - ---------------------------------------------------------------------------------------------------------------- Net Investment Income (Loss) (0.02) (0.01) 0.01 0.06 0.03 Net Realized and Unrealized Gain (Loss) on Investments (1.56) (4.50) 6.44 (0.17) (3.19) - ---------------------------------------------------------------------------------------------------------------- Total from Investment Operations (1.58) (4.51) 6.45 (0.11) (3.16) - ---------------------------------------------------------------------------------------------------------------- Distributions: Net Investment Income -- (0.10) (0.01) -- (0.02) In Excess of Net Investment Income -- (0.12) (0.03) (0.01) -- - ---------------------------------------------------------------------------------------------------------------- Total Distributions -- (0.22) (0.04) (0.01) (0.02) - ---------------------------------------------------------------------------------------------------------------- Anti--Dilutive Effect of Shares Repurchased 0.00# 0.29 0.12 0.08 -- - ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.24 $ 10.82 $ 15.26 $ 8.73 $ 8.77 ================================================================================================================ PER SHARE MARKET VALUE, END OF PERIOD $ 7.49 $ 8.69 $ 11.81 $ 7.00 $ 7.44 ================================================================================================================ TOTAL INVESTMENT RETURN: Market Value (13.78)% (24.66)% 69.32% (5.77)% (23.46)% Net Asset Value (1) (14.60)% (27.37)% 75.39% (0.34)% (26.36)% ================================================================================================================ RATIOS, SUPPLEMENTAL DATA: - ---------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (THOUSANDS) $397,336 $621,505 $949,541 $587,156 $628,173 - ---------------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.39% 1.26% 1.29% 1.42% 1.34% Ratio of Net Investment Income (Loss) to Average Net Assets 0.19% (0.07)% 0.10% 0.80% 0.25% Portfolio Turnover Rate 27% 35% 65% 42% 66% - ----------------------------------------------------------------------------------------------------------------
# Amount is less than $0.005. (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. 13 DECEMBER 31, 2001 NOTES TO FINANCIAL STATEMENTS The Morgan Stanley 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. ACCOUNTING POLICIES: The following significant accounting policies are in conformity with generally accepted accounting principles. Such policies are consistently followed by the Fund in the preparation of its financial statements. Generally accepted accounting principles may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates. 1. SECURITY VALUATION: In valuing the Fund's assets, all listed securities for which market quotations are readily available are valued at the last 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 or the bid price if only bid quotations are available. Securities which are traded over-the-counter are valued at the mean of the current bid and asked prices obtained from reputable brokers. Securities may be valued by independent pricing services. The prices provided by a pricing service take into account broker dealer market price quotations for institutional size trading in similar groups of securities, security quality, maturity, coupon and other security characteristics as well as any developments related to the specific securities. 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, if any) are valued at fair value as determined in good faith under procedures approved by the Board of Directors. 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 either income or capital gains earned or repatriated. The Fund accrues such taxes when the related income or capital gains is earned. 3. REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements under which the Fund lends excess cash and takes possession of securities with an agreement that the counterparty will repurchase such securities. In connection with transactions in repurchase agreements, a bank as custodian for the Fund takes possession of the underlying securities (collateral), 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. The Fund, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into one or more repurchase agreements. 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 gains (losses) from valuing foreign 14 currency denominated assets and liabilities at period end exchange rates are reflected as a component of unrealized appreciation (depreciation) on investments and foreign currency translations in the Statement of Net Assets. The change in net unrealized currency gains (losses) 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 objectives. The Fund may engage in transactions in futures contracts on foreign currencies, stock indices, as well as in options, swaps and structured notes. Consistent with the Fund's investment objectives and policies, the Fund may use derivatives for non-hedging as well as hedging purposes. Following is a description of derivative instruments that the Fund may utilize and their associated risks: 5. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into foreign currency exchange contracts generally to attempt to protect securities and related receivables and payables against changes in future foreign exchange rates and, in certain situations, to gain exposure to a foreign currency. A foreign currency exchange contract is an agreement between two parties to buy or sell currency at a set price on a future date. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked-to-market daily and the change in market value is recorded by the Fund as unrealized gain or loss. The Fund records realized gains or losses when the contract is closed equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Risk may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and is generally limited to the amount of unrealized gain on the contracts, if any, at the date of default. Risks may also arise from unanticipated movements in the value of 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: A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The following summarizes the types of swaps that the Fund may enter into: INTEREST RATE SWAPS: Interest rate swaps involve the exchange of commitments to pay and receive interest based on a notional principal amount. The Fund may utilize interest rate swaps in an attempt to increase income while limiting the Fund's exposure to market fluctuations in interest rates. 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 an unrealized gain or loss 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 and provide the Fund with the full benefit on an investment in a security without an initial cash outlay. To the extent the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate 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 an unrealized gain or loss in the Statement of Operations. Payments received or made at the end of each measurement period are recorded as realized gain or loss 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 15 swap agreements, the value reported in the Statement of Net Assets may differ from that which would be realized in the event the Fund terminated its position in the agreement. Risks may arise upon entering into these agreements from the potential inability of the counterparties to meet the terms of the agreements and are generally limited to the amount of net interest payments to be received and/or favorable movements in the value of the underlying security, instrument or basket of instruments, if any, at the date of default. 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 year ended December 31, 2001, the Fund's investments in derivative instruments included foreign currency exchange contracts, structured securities and over-the-counter trading. 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. 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. ADVISER: Morgan Stanley Investment Management Inc. (formerly 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. ADMINISTRATOR: JPMorgan Chase Bank, through its corporate affiliate J.P. Morgan Investor 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 for certain out-of-pocket expenses incurred by the Administrator on its behalf. 16 D. CUSTODIAN: JPMorgan Chase Bank and its affiliates serve as custodian for the Fund. Custody fees are payable monthly based on assets held in custody, investment purchase and sales activity and account maintenance fees, plus reimbursement for certain out-of-pocket expenses. E. OTHER: During the year ended December 31, 2001, the Fund made purchases and sales totaling approximately $120,654,000 and $256,752,000 respectively, of investment securities other than long-term U.S. Government securities, purchased options and short-term investments. There were no purchases or sales of long-term U.S. Government securities. At December 31, 2001, the U.S. Federal income tax cost basis of investments (excluding foreign currency) was approximately $453,933,000 and, accordingly, net unrealized depreciation for U.S. Federal income tax purposes was $57,176,000, of which $35,312,000 related to appreciated securities and $92,488,000 related to depreciated securities. At December 31, 2001, the Fund had a capital loss carryforward for U.S. Federal income tax purposes of approximately $204,823,000 available to offset future capital gains, of which $131,491,000 will expire on December 31, 2006 and $73,332,000 will expire on December 31, 2009. To the extent that capital gains are offset, such gains will not be distributed to the shareholders. Net capital and currency losses incurred after October 31, and within the taxable year are deemed to arise on the first business day of the Fund's next taxable year. For the year ended December 31, 2001, the Fund deferred to January 1, 2002, for U.S. Federal income tax purposes, capital losses of $382,000, post-October passive foreign investment company losses of $200,000 and post-October currency losses of $67,000. For the year ended December 31, 2001, the Fund incurred $88,000 of brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliate of the Adviser. 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. Each Director of the Fund who is not an officer of the Fund or an affiliated person as defined under the Investment Company Act of 1940, as amended, may elect to participate in the Directors' Deferred Compensation Plan (the "Plan"). Under the Plan, such Directors may elect to defer payment of a percentage of their total fees earned as a Director of the Fund. These deferred portions are treated, based on an election by the Director, as if they were either invested in the Fund's shares or invested in U.S. Treasury Bills, as defined under the Plan. At December 31, 2001, the deferred fees payable under the Plan totaled $89,000 and are included in Payable for Directors' Fees and Expenses on the Statement of Net Assets. 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 trade from their net asset value. For the year ended December 31, 2001, the Fund repurchased 89,300 of its shares at an average discount of 19.98% from net asset value per share. From the inception of the program through December 31, 2001, the Fund has repurchased 14,314,934 of its shares at an average discount of 20.72% 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. On December 14, 2000, with the aim of enhancing stockholder value and reducing the discount at which the Fund's shares have been trading, the Board of Directors authorized the Fund to conduct a tender offer during the first quarter of 2001 for up to 25% of the Fund's outstanding shares of common stock at a price equal to 95% of the Fund's net asset value per share ("NAV") on the last day of the tender period, or such later date as to which the offer is extended. On March 29, 2001, the Fund completed the tender offer. The Fund accepted 14,357,219 shares for payment which represented 25% of the Fund's then outstanding shares. Final payment was made on April 9, 2001 at $9.48 per share, representing 95% of the NAV per share on March 29, 2001. On December 13, 2001, the Board of Directors of the Fund authorized the Fund to conduct a tender offer during the second quarter of 2002 for up to 15% of the Funds shares, at a price equal to 95% of the Fund's net asset value per share ("NAV") on the last day of the tender period. The tender offer materials will be mailed to shareholders of the Fund. 17 E. SUPPLEMENTAL PROXY INFORMATION (UNAUDITED): The Annual Meeting of the Stockholders of the Fund was held on October 11, 2001. The following is a summary of the proposal presented and the total number of shares voted: PROPOSAL: 1. To elect the following Directors:
VOTES IN VOTES FAVOR OF AGAINST ---------- ------- Joseph J. Kearns 27,267,795 392,796 Michael Nugent 27,267,795 392,796 C. Oscar Morong, Jr. 27,267,795 392,796 Vincent R. McLean 27,267,795 392,796 Thomas P. Gerrity 27,267,795 392,796
18 INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF MORGAN STANLEY ASIA-PACIFIC FUND, INC. We have audited the accompanying statement of net assets of Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund") as of December 31, 2001, and the related statement of operations for the year then ended, and the statement of changes in net assets and the financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the three years in the period ended December 31, 1999 were audited by other auditors whose report, dated February 18, 2000, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2001 by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Morgan Stanley Asia-Pacific Fund, Inc. at December 31, 2001, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 11, 2002 19 OVERVIEW DIRECTOR AND OFFICER INFORMATION (UNAUDITED) Independent Directors:
NUMBER OF TERM OF PORTFOLIOS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS OF HELD WITH TIME PRINCIPAL OCCUPATION(S)DURING OVERSEEN BY OTHER DIRECTORSHIPS DIRECTOR REGISTRANT SERVED* PAST 5 YEARS DIRECTOR** HELD BY DIRECTOR - ------------------------ ----------- ---------- ------------------------------ ------------- ----------------------- John D. Barrett II (66) Director Director Chairman and Director of 78 Director of the 565 Fifth Avenue since Barrett Associates, Inc. Ashforth Company (real New York, NY 10017 2000 (investment counseling). estate). Thomas P. Gerrity (60) Director Director Professor of Management, 78 Director, ICG Commerce, 219 Grays Lane since formerly Dean, Wharton School Inc.; Sunoco; Fannie Haverford, PA 19041 2001 of Business, University Mae; Reliance Group of Pennsylvania; formerly Holdings, Inc., CVS Director, IKON Office Corporation and Solutions, Inc., Fiserv, Knight-Ridder, Inc. Digital Equipment Corporation, Investor Force Holdings, Inc. and Union Carbide Corporation. Gerard E. Jones (65) Director Director Of Counsel, Shipman & Goodwin, 78 Director of Tractor Shipman & Goodwin, LLP since LLP (law firm). Supply Company, Tiffany 43 Arch Street 2000 Foundation, and Greenwich, CT 06830 Fairfield County Foundation. Joseph J. Kearns (59) Director Director Investment consultant; 78 Director, Electro Rent 6287 Via Escondido since formerly CFO of The J. Paul Corporation and The For Malibu, CA 90265 2001 Getty Trust. d Family Foundation. Vincent R. McLean (70) Director Director Formerly Executive Vice 78 Director, Banner Life 702 Shackamaxon Drive since President, Chief Financial Insurance Co.; William Westfield, NJ 07090 2001 Officer, Director and Penn Life Insurance Member of the Executive Committee Company of New York. of Sperry Corporation (now part of Unisys Corporation). C. Oscar Morong, Jr. (66) Director Director Managing Director, Morong 78 1385 Outlook Drive West since Capital Management; formerly Trustee and Chairman of Mountainside, NJ 07092 2001 Senior Vice President and the mutual funds in the Investment Manager for CREF, Smith Barney/CitiFunds TIAA-CREF Investment fund complex; Director, Management, Inc. (investment Ministers and management); formerly Director, Missionaries Benefit The Indonesia Fund (mutual Board of American fund). Baptist Churches. William G. Morton, Jr. Director Director Chairman Emeritus and former 78 Director of Radio Shack (64) 100 Franklin Street since Chief Executive Officer of Corporation Boston, MA 02110 1995 Boston Stock Exchange. (electronics). Michael Nugent (65) Director Director General Partner, Triumph 207 Director of various c/o Triumph Capital, L.P. since Capital, L.P. (private business organizations; 237 Park Avenue 2001 investment partnership); Chairman of the New York, NY 10017 formerly, Vice President, Insurance Committee and Bankers Trust Company and BT Director or Trustee of Capital Corporation. the retail families of funds advised by Morgan Stanley Investment Advisors Inc. Fergus Reid (69) Director Director Chairman and Chief Executive 78 Trustee and Director of 85 Charles Colman Blvd. since Officer of Lumelite Plastics approximately 30 Pawling, NY 12564 2000 Corporation. investment companies in the JPMorgan Funds complex managed by JPMorgan Investment Management Inc.
20 Interested Directors:
NUMBER OF TERM OF PORTFOLIOS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS OF HELD WITH TIME PRINCIPAL OCCUPATION(S)DURING OVERSEEN BY OTHER DIRECTORSHIPS DIRECTOR REGISTRANT SERVED* PAST 5 YEARS DIRECTOR** HELD BY DIRECTOR - ------------------------ ----------- ---------- ------------------------------ ------------- ----------------------- Barton M. Biggs (69) Chairman Chairman Chairman, Director and 78 Member of the Yale 1221 Avenue of the and and Managing Director of Morgan Development Board Americas Director Director Stanley Investment Management New York, NY 10020 since Inc. and Chairman and Director 1994 of Morgan Stanley Investment Management Limited; Managing Director of Morgan Stanley & Co. Incorporated; Director and Chairman of the Board of various U.S. registered companies managed by Morgan Stanley Investment Management Inc. Ronald E. Robison (63) President President Chief Global Operations 78 1221 Avenue of the and since Officer and Managing Director Americas Director 2001 and of Morgan Stanley Investment New York, NY 10020 Director Management, Inc.; Director and since President of various U.S. 2001 registered investment companies managed by Morgan Stanley Investment Management Inc.; Previously, Managing Director and Chief Operating Officer of TCW Investment Management Company.
- ---------- * Each Director serves an indefinite term, until his or her successor is elected. ** The Fund Complex includes all funds advised by Morgan Stanley Investment Management Inc. and any funds that have an investment advisor that is an affiliated entity of Morgan Stanley Investment Management Inc. (including, but not limited to, Morgan Stanley Investments LP, Morgan Stanley Investment Advisors Inc. and Van Kampen Asset Management Inc.). 21 Officers:
POSITION(S) TERM OF OFFICE HELD WITH AND LENGTH OF NAME, AGE AND ADDRESS OF EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS - ------------------------------------------ ----------- ---------------- ---------------------------------------------------- Ronald E. Robison (63) President President since Chief Global Operations Officer and Managing Morgan Stanley Investment Management Inc. and Director 2001 and Director of Morgan Stanley Investment Management 1221 Avenue of the Americas Director since Inc.; Director and President of various U.S. New York, NY 10020 2001 registered investment companies managed by Morgan Stanley Investment Management Inc.; Previously, Managing Director and Chief Operating Officer of TCW Investment Management Company. Stefanie V. Chang (35) Vice Vice President Executive Director of Morgan Stanley & Co. Morgan Stanley Investment Management Inc. President since 1997 Incorporated and Morgan Stanley Investment 1221 Avenue of the Americas Management Inc.; formerly, practiced law with New New York, NY 1002 York law firm of Rogers & Wells (now Clifford Chance Rogers & Wells LLP); Vice President of certain funds in the Fund Complex. Lorraine Truten (40) Vice Vice President Executive Director of Morgan Stanley Investment Morgan Stanley Investment Management Inc. President since 2001 Management Inc.; Head of Global Client Services, 1221 Avenue of the Americas Morgan Stanley Investment Management Inc.; New York, NY 10020 President, Morgan Stanley Fund Distribution, Inc. formerly, President of Morgan Stanley Institutional Fund Trust; Vice President of certain funds in the Fund Complex. Mary E. Mullin (34) Secretary Secretary since Vice President of Morgan Stanley & Co., Inc. and Morgan Stanley Investment Management Inc. 1999 Morgan Stanley Investment Management, Inc.; 1221 Avenue of the Americas formerly, practiced law with New York firms of New York, NY 10020 McDermott, Will & Emery and Skadden, Arps, Slate, Meagher & Flom LLP; Secretary of certain funds in the Fund Complex. James A. Gallo (37) Treasurer Treasurer since Executive Director of Morgan Stanley Investment Morgan Stanley Investment Management Inc. 2001 Management Inc.; Treasurer of certain funds in the 1221 Avenue of the Americas Fund Complex; formerly, Director of Fund Accounting New York, NY 10020 at PFPC, Inc. Belinda A. Brady (34) Assistant Assistant Fund Administration Senior Manager, J.P. Morgan J.P. Morgan Investor Services Co. Treasurer Treasurer since Investor Services Co. (formerly Chase Global Funds 73 Tremont Street 2001 Services Company); and Assistant Treasurer of all Boston, MA 02108-3913 Portfolios of the Fund. Formerly Senior Auditor at PriceWaterhouse LLP (now PricewaterhouseCoopers LLP).
- ---------- * Each Officer serves an indefinite term, until his or her successor is elected. 22 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 Asia-Pacific Fund, Inc. American Stock Transfer & Trust Company Dividend Reinvestment and Cash Puchase Plan 40 Wall Street New York, NY 10005 1-800-278-4353 23 -----END PRIVACY-ENHANCED MESSAGE-----