-----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, DNWihT1fimjVqSGTwz2Q+nmma8h6cvqb0Ffq2H0NMDneyV2JclbVrh7LmJOZvWeR 2/rqzKYh9i6rqmLfB79WBw== 0000912057-96-004075.txt : 19960308 0000912057-96-004075.hdr.sgml : 19960308 ACCESSION NUMBER: 0000912057-96-004075 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960307 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY ASIA PACIFIC FUND INC CENTRAL INDEX KEY: 0000919808 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-08388 FILM NUMBER: 96532014 BUSINESS ADDRESS: STREET 1: 73 TREMONT STREET 8TH FLOOR CITY: BOSTON STATE: MA ZIP: 02108 BUSINESS PHONE: 6175578790 MAIL ADDRESS: STREET 1: MORGAN STANLEY ASIA PACIFIC FUND STREET 2: 73 TREMONT STREET 8TH FLOOR CITY: BOSTON STATE: MA ZIP: 02108 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY ASIA INVESTMENT FUND INC DATE OF NAME CHANGE: 19940316 N-30D 1 N-30D MORGAN STANLEY ASIA-PACIFIC FUND, INC. - --------------------------------------------- OFFICERS AND DIRECTORS Barton M. Biggs William G. Morton, Jr. CHAIRMAN OF THE BOARD DIRECTOR OF DIRECTORS Frederick B. Whittemore Warren J. Olsen DIRECTOR PRESIDENT AND DIRECTOR James W. Grisham Peter J. Chase VICE PRESIDENT DIRECTOR Harold J. Schaaff, Jr. John W. Croghan VICE PRESIDENT DIRECTOR Joseph P. Stadler David B. Gill VICE PRESIDENT DIRECTOR Valerie Y. Lewis Graham E. Jones SECRETARY DIRECTOR James R. Rooney John A. Levin TREASURER DIRECTOR Joanna M. Haigney ASSISTANT TREASURER
- --------------------------------------------- INVESTMENT ADVISER Morgan Stanley Asset Management Inc. 1221 Avenue of the Americas New York, New York 10020 - -------------------------------------------------------- ADMINISTRATOR The Chase Manhattan Bank, N.A. 73 Tremont Street Boston, Massachusetts 02108 - -------------------------------------------------------- CUSTODIANS Morgan Stanley Trust Company (International) One Pierrepont Plaza Brooklyn, New York 11201 The Chase Manhattan Bank, N.A. (Domestic) 770 Broadway New York, New York 10003 - -------------------------------------------------------- SHAREHOLDER SERVICING AGENT American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 (800) 278-4353 - -------------------------------------------------------- LEGAL COUNSEL Rogers & Wells 200 Park Avenue New York, New York 10166 - -------------------------------------------------------- INDEPENDENT ACCOUNTANTS Price Waterhouse LLP 1177 Avenue of the Americas New York, New York 10036 - -------------------------------------------------------- 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. ------------------------ MORGAN STANLEY ASIA-PACIFIC FUND, INC. --------------------- ANNUAL REPORT DECEMBER 31, 1995 MORGAN STANLEY ASSET MANAGEMENT INC. INVESTMENT ADVISER LETTER TO SHAREHOLDERS - -------- For the year ended December 31, 1995, the Morgan Stanley Asia-Pacific Fund, Inc. had a total return, based on net asset value per share (assuming reinvestment of dividend distributions), of 9.24% compared to its benchmark (as defined following) of 0.87%. (The benchmark for investment performance is the weighted average of the percentage change month-on-month of each of four Morgan Stanley Capital International (MSCI) indices; Japan, Combined Asia Free ex-Japan, Australia, and New Zealand, where the weights are based on the respective market capitalizations of these indices at the beginning of the month.) JAPAN During 1995, the Japanese equity market fluctuated greatly, beginning the first six months with a rapid decline then recovering in the latter half of the year with a remarkable rally to end the year almost flat. The first half was marked by unexpected events such as the Mexican peso crisis, the Great Hanshin Earthquake, bankruptcy of Barings, Sarin subway gas attacks and the unprecedented rise of the yen. Sentiment was greatly affected by the above-mentioned factors and equity market participants questioned Japan's anemic economic recovery with the relentless strength of the yen. The second half of 1995 saw a reversal of the currency, the Japanese authorities seriously addressing structural reforms as well as a technical rebound from extremely oversold conditions. The greatest impact on the market, in our opinion, was the coordinated currency intervention which occurred from May 31 by the 12 major countries. In September, Japan cut the ODR to 0.5% (lowest on record and among G-7 nations) and an additional $140 billion stimulus package was announced, while the Bank of Japan increased base money dramatically to 7.7% in November. Additionally, the MOF deregulated overseas investments by Japanese life insurance companies. The result of the actions by Japan as well as the massive currency intervention were reflected in the move from Y80 to Y100 by the end of September. The stock market, after hitting its lows in July, staged a powerful rally, led by electronic companies and international blue-chip issues. Towards the end of the year, the Daiwa Bank Scandal and the Japan premium associated with the banking sector caused the market to consolidate the rapid gains from mid-summer. In December, some solutions to the "Jusen's" non-performing loans, including the use of public funds, were put forth to the Diet, causing a year-end short squeeze in the depressed bank shares. Thus, in 1995 the stock market was shaped like a classic "V" ending approximately at the same level as it began. We believe that the yen, stable to weakening over the second half of the year, had a material positive impact on corporate Japan and that private capital expenditure will recover after being flat for the last four years. Private consumption is already showing signs of improvement and we believe real GDP will increase 2.5% or more in fiscal year 1996, higher than most consensus estimates. Moreover, corporate profits should accelerate quarter over quarter and the stock market should also rise in anticipation of these earnings gains. Also, allocation of foreign pension funds to Japanese equities will likely increase while individual investors in Japan will return to the equity market in the current low interest rate environment. ASIA EX-JAPAN The Asian markets as represented by the MSCI Combined Far East Free ex-Japan Index increased by a moderate 6.8% in 1995, which was largely an extension of the correction and consolidation that took place since early 1994 when the liquidity bubble was pricked. The performance, however, paled in comparison with the developed markets, many of which achieved double-digit market appreciation of between 15%-35% in 1995. With the exception of Hong Kong which rose 18%, the Asian markets generally did not benefit from a more benign external economic environment which led to a surge in bond and equity prices in many parts of the world. Portfolio investment flows into Asia in 1995 were down significantly from the 1993/94 level, as funds were attracted to the developed markets led by the U.S. where unexpectedly weak economies and low inflation resulted in significant declines in interest rates. Investors had also largely avoided emerging markets following the Mexico crisis which led to a higher risk premium being attached to countries with weak economic fundamentals. Hong Kong (+18.2%) emerged as the best performing market in Asia as a result of its currency peg which benefited directly from the U.S. monetary easing. Singapore also performed strongly (+11.0%) because of its strong economic fundamentals and relative valuation attractions. Concerns over overheating, higher inflation and growing external deficits after several years of strong GDP growth had put upward pressure on interest rates in some Asian markets such as Thailand, the Philippines and Malaysia. The subsequent downgrading of earnings growth forecasts caused a 2 sell-off in these markets and resulted in their underperformance. The Taiwanese and Korean markets benefited strongly from a boom in sales of semiconductors, electronics and computer-related products. However, these positive factors were overwhelmed by political concerns which caused stock prices to plummet. Taiwan (-30.2%) was one of the worst performing markets in the world last year as tensions between China and Taiwan escalated following Taiwanese President Lee Teng Hui's high-profile visit to the U.S. OUTLOOK FOR 1996 1996 has gotten off to an encouraging start, with many Asian markets recovering strongly from their low levels seen in 1995. The rally was to a large extent triggered by the return of foreign funds. According to Salomon Brothers, U.S. mutual fund cash flows into non-Japan Asia for the first 3 weeks of 1996 have already exceeded the total inflow for the whole of 1995. We expect the Asian markets to revert to their secular growth rate of between 15%-20% in 1996 after two years of correction and below trend performance. While a moderate slowdown in economic growth is expected in 1996 (from 7.5% to 7.1%), the Asian economies are generally in better shape than they were last year. With cyclical pressure beginning to unwind in many Asian countries, inflation should ease from an estimated 7% in 1995 to slightly below 6% in 1996. This should give rise to less restrictive monetary policies and make interest rate cuts possible. While lower U.S. interest rates will support liquidity flows into Asia, attractive equity valuations should lend further credence to the Asian story. Politics is likely to be the major concern for 1996. Tensions between China and Taiwan could build up again ahead of Taiwan's first ever presidential election in March, although the prospect for a major military confrontation seems remote. In South Korea, uncertainties ahead of the National Assembly elections scheduled for April do not augur well for the stock market. As the largest and most liquid Asian market with modest equity valuation, we expect Hong Kong to continue to do well in 1996. The market is underpinned by a favorable interest rate trend, the bottoming of the economic and real estate cycle. The expected relaxation of China's austerity program should benefit Hong Kong further. Singapore should continue to attract its fair share of international fund flows given its robust economy and currency attraction. We remain very selective in Malaysia, Thailand, Indonesia and the Philippines where economic and interest rate risks are relatively higher. Their overall market risk reward profile has deteriorated following their recent strong showings. Their relative attraction should improve once their economic imbalance is contained. Elsewhere, Taiwan and South Korea have borne the brunt of political tensions last year. As these markets are trading near their respective historical low multiples, we expect a significant rebound from the current low levels once they get over the height of the political uncertainties. Sincerely, [SIGNATURE] Barton M. Biggs CHAIRMAN [SIGNATURE] Ean Wah Chin SENIOR PORTFOLIO MANAGER February 9, 1996 3 Morgan Stanley Asia-Pacific Fund, Inc. Investment Summary as of December 31, 1995 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
HISTORICAL INFORMATION TOTAL RETURN (%) ---------------------------------------------------------------------------- MARKET VALUE (1) NET ASSET VALUE (2) INDEX (1)(3)** ------------------------ ------------------------ ------------------------ AVERAGE AVERAGE AVERAGE CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL ------------------------ ------------------------ ------------------------ ONE YEAR 9.38% 9.38% 9.24% 9.24% 0.87% 0.87% SINCE INCEPTION* -4.53 -3.22 2.75 1.94 -2.76 -1.96
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. - -------------------------------------------------------------------------------- RETURNS AND PER SHARE INFORMATION A BAR CHART REFLECTING THE DATA BELOW IS REFLECTED HERE.
YEARS ENDED DECEMBER 31: 1994* 1995 Net Asset Value Per Share $13.20 $14.34 Market Value Per Share $12.25 $13.33 Premium/(Discount) -7.2% -7.0% Income Dividends $0.04 $0.05 Capital Gains Distributions $0.01 $0.02 Fund Total Return (2) -5.94% 9.24% Index Total Return (1)(3) ** -5.90% 0.87%
(1) Assumes dividends and distributions, if any, were reinvested. (2) Total investment return based on per share net asset value 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 the weighted average of the percentage change month-on-month of each of four Morgan Stanley Capital International (MSCI) indices; Japan, Combined Asia Free ex-Japan, Australia, and New Zealand, where the weights are based on the respective market capitalizations of these indices at the beginning of the month. * The Fund commenced operations on August 2, 1994. ** Unaudited. 4 Morgan Stanley Asia-Pacific Fund, Inc. Portfolio Summary as of December 31, 1995 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PORTFOLIO INVESTMENTS DIVERSIFICATION EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Equity Securities 97.8% Short-Term Imvestments 2.2%
- -------------------------------------------------------------------------------- SECTORS EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Other 30.3% Electrical & Electronics 12.6% Real Estate 10.5% Banking 10.2% Machinery & Engineering 7.4% Telecommunications 6.5% Multi-Industry 6.4% Chemicals 4.8% Financial Services 4.1% Construction & Housing 4.1% Utilities - Electrical & Gas 3.1%
- -------------------------------------------------------------------------------- COUNTRY WEIGHTINGS EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Japan 40.4% Hong Kong 13.0% Australia 8.3% Malaysia 7.4% Singapore 6.4% Thailand 6.2% India 4.7% Indonesia 3.2% Philippines 2.8% Korea 2.4% China 0.6% Other 4.6%
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS PERCENT OF NET ASSETS --------------- 1. Western Mining Corp. 2.1% 2. HSBC Holdings plc 1.9 3. Broken Hill Proprietary Co. Ltd. 1.8 4. Toshiba Corp. 1.7 5. Lend Lease Corp. Ltd. 1.6 6. Cheung Kong (Holdings) Ltd. 1.6 PERCENT OF NET ASSETS --------------- 7. Hutchison Whampoa Ltd. 1.6% 8. National Australia Bank Ltd. 1.5 9. Hitachi Ltd. 1.4 10. New World Development Co. Ltd. 1.2 --- 16.4% --- ---
5 FINANCIAL STATEMENTS - --------- STATEMENT OF NET ASSETS - --------- DECEMBER 31, 1995
VALUE SHARES (000) - ----------------------------------------------------------------- - ------------- COMMON STOCKS (95.1%) (Unless otherwise noted) - -------------------------------------------------- - ---------- AUSTRALIA (8.3%) BANKING National Australia Bank Ltd. 1,284,614 U.S.$ 11,553 -------------- BROADCASTING & PUBLISHING News Corp. Ltd. 1,407,884 7,513 News Corp. Ltd. (Preferred) 3,414 16 -------------- 7,529 -------------- ENERGY SOURCES Broken Hill Proprietary Co. Ltd. 980,127 13,841 -------------- METALS -- NON-FERROUS Western Mining Corp. Ltd. 2,544,750 16,342 -------------- REAL ESTATE Lend Lease Corp. Ltd. 850,647 12,329 -------------- TRANSPORTATION -- AIRLINES Qantas Airways Ltd. 1,188,076 1,978 -------------- 63,572 -------------- - ----------------------------------------------------------------- - ------------- CHINA (0.6%) AUTOMOBILES +Shenzen North Jianshe Motorcycle `B' 3,090,300 1,279 -------------- CHEMICALS +Jilin Chemical Industrial Co. Ltd. ADR `H' 68,000 1,462 -------------- MACHINERY & ENGINEERING Harbin Power Equipment Co. Ltd. `H' 286,000 42 -------------- TEXTILES & APPAREL Shenzhen Yizheng Chemical Fibre Co. Ltd. `H' 3,558,000 801 -------------- UTILITIES -- ELECTRICAL & GAS Shandong Huaneng Power Co. Ltd. ADR 132,000 891 -------------- 4,475 -------------- - ----------------------------------------------------------------- - ------------- HONG KONG (13.0%) BANKING HSBC Holdings plc 945,148 14,301 -------------- CONSTRUCTION & HOUSING +New World Infrastructure Ltd. 4,666 9 -------------- FINANCIAL SERVICES Peregrine Investment Holdings 142,000 184 -------------- FOOD & HOUSEHOLD PRODUCTS Charoen Pokphand Co. Ltd. 1,076,000 431 -------------- MULTI-INDUSTRY Citic Pacific Ltd. 1,299,000 4,443 Guangdong Investments Ltd. 12,300,000 7,397 Hutchison Whampoa Ltd. 2,000,000 12,182 Swire Pacific Ltd. 'A' 950,000 7,371 -------------- 31,393 -------------- - ----------------------------------------------------------------- - ------------- VALUE SHARES (000) - --------------------------------------------------------- - ------------ REAL ESTATE Cheung Kong (Holdings) Ltd. 2,000,000 U.S.$ 12,182 Hopewell Holdings 9,500,000 5,467 New World Development Co. Ltd. 2,285,000 9,959 Sun Hung Kai Properties Ltd. 1,000,000 8,180 Wharf (Holdings) Ltd. 390,000 1,299 -------------- 37,087 -------------- TELECOMMUNICATIONS Hong Kong Telecom Ltd. 4,300,000 7,674 -------------- UTILITIES -- ELECTRICAL & GAS China Light & Power Co. Ltd. 1,900,000 8,747 -------------- 99,826 -------------- - ----------------------------------------------------------------- - ------------- INDIA (4.4%) APPLIANCES & HOUSEHOLD DURABLES Philips India Ltd. 138,300 606 -------------- AUTOMOBILES Apollo Tyres Ltd. 135,150 526 ***+Apollo Tyres Ltd. (Rights) 248 -- ***+Apollo Tyres Ltd. (Warrants) expiring, 2/15/96 2,608 3 Autolec Industries 152,800 437 Autolite Ltd. 72,100 381 Escorts Ltd. 101,250 245 Hero Honda 25,000 163 Jay Bharat Maruti 53,200 83 Lumax Automatic Parts Industries 46,400 162 Nippondenso India Ltd. 4,800 12 Rico Auto Industries Ltd. 82,000 275 Sona Steering System 92,500 211 Tata Engineering & Locomotive 2,490 27 -------------- 2,525 -------------- BANKING State Bank of India 779,200 4,394 -------------- BEVERAGES & TOBACCO ITC Ltd. 99,200 706 United Breweries 249,100 223 -------------- 929 -------------- BUILDING MATERIALS & COMPONENTS Associated Cement Co. Ltd. 14,555 1,187 Murudeshwar Ceramics Ltd. 46,000 141 ***+Murudeshwar Ceramics Ltd. (Rights) 32,200 2 +Saurashtra Cement & Chemicals `B' 26,200 47 -------------- 1,377 -------------- CHEMICALS #Gujarat Narmada Valley Fertilizers GDR 275,000 1,750 Indian Dyestuff Industries Ltd. 304,250 251 Indian Organic Chemical Ltd. 275,500 270 Jaysynth Dyechem Ltd. 145,800 381 -------------- 2,652 -------------- CONSTRUCTION & HOUSING Larsen & Toubro 400 3 -------------- - ----------------------------------------------------------------- - -------------
The accompanying notes are an integral part of the financial statements. 6
VALUE SHARES (000) - --------------------------------------------------------- - ------------ INDIA (CONTINUED) ELECTRICAL & ELECTRONICS BPL Ltd. 123,300 U.S.$ 259 Rolta India Ltd. 1,000,000 626 -------------- 885 -------------- ENERGY EQUIPMENT & SERVICES Bharat Heavy Electricals 858,200 2,148 Crompton Greaves Ltd. 311,530 1,772 Esab India Ltd. 307,900 499 -------------- 4,419 -------------- FINANCIAL SERVICES Housing Development Finance Corp. 33,410 2,570 -------------- FOREST PRODUCTS & PAPER Ballarpur Industries Ltd. 204,964 1,090 +J.K. Corp. Ltd. GDR 61,140 206 #+J.K. Corp. Ltd. GDR 249,240 841 -------------- 2,137 -------------- HEALTH & PERSONAL CARE Sol Pharma 2,000 5 -------------- MACHINERY & ENGINEERING Artson Engineering Ltd. 235,600 196 -------------- METALS -- NON-FERROUS Hindalco Industries Ltd. 5,000 131 -------------- METALS -- STEEL Special Steels Ltd. 59,100 129 ***+Special Steels Ltd. (Rights) 2,990 -- Tata Iron & Steel Co. Ltd. 176,145 997 -------------- 1,126 -------------- MISCELLANEOUS MATERIALS & COMMODITIES Cosmo Films Ltd. 175,000 518 Essel Packaging Ltd. 116,750 617 Polyplex Ltd. 225,000 467 -------------- 1,602 -------------- MULTI-INDUSTRY Bajaj Hindustan Ltd. 21,000 48 *+Container Corp. of India 910,000 2,031 EID Parry Ltd. 64,300 190 UTI Mastershares Ltd. 1,883,700 727 +UTI Mastershares Ltd. -- New 377,480 145 @+Morgan Stanley-Growth Fund 3,000,000 512 VXL Ltd. 743,000 686 -------------- 4,339 -------------- TELECOMMUNICATIONS Infosys Technology Ltd. 9,600 111 Mahanagar Telephone Nigam 572,000 2,391 Videsh Sanchar Nigam Ltd. 10,000 236 -------------- 2,738 -------------- TEXTILES & APPAREL Coates of India Ltd. 56,750 347 G.T.N. Textiles Ltd. 87,500 267 Indo Rama Synthetics 154,500 154 +J.K. Synthetics Ltd. 187,900 131 +Morajee Goculdas Spinning 125,000 579 +Viniyoga Clothes Ltd. 486,600 180 -------------- 1,658 -------------- 34,292 -------------- - ----------------------------------------------------------------- - ------------- VALUE SHARES (000) - --------------------------------------------------------- - ------------ INDONESIA (3.2%) BUILDING MATERIALS & COMPONENTS **Indocement Tunggal Perkasa (Foreign) 120,000 U.S.$ 403 **Semen Gresik (Foreign) 587,000 1,643 -------------- 2,046 -------------- CHEMICALS **Sorini Corp. (Foreign) 600,000 2,913 -------------- FOOD & HOUSEHOLD PRODUCTS **Mayora Indah (Foreign) 27,000 19 -------------- FOREST PRODUCTS & PAPER **Barito Pacific Timber (Foreign) 1,043,000 764 -------------- HEALTH & PERSONAL CARE **Kalbe Farma (Foreign) 883,500 2,995 -------------- MACHINERY & ENGINEERING **United Tractors (Foreign) 716,500 1,348 -------------- MISCELLANEOUS MATERIALS & COMMODITIES **Charoen Pokphand Indonesia (Foreign) 2,510,000 5,105 -------------- REAL ESTATE **Duta Pertiwi Property (Foreign) 280,000 285 -------------- RECREATION, OTHER CONSUMER GOODS **Asiana IMI Industries (Foreign) 360,000 189 -------------- TELECOMMUNICATIONS **Indosat (Foreign) 1,810,000 6,570 **+Telekomunikasi Indonesia (Foreign) 1,746,500 2,291 -------------- 8,861 -------------- 24,525 -------------- - ----------------------------------------------------------------- - ------------- JAPAN (40.4%) AEROSPACE & MILITARY TECHNOLOGY Mitsubishi Heavy Industries Ltd. 1,220,000 9,725 -------------- AUTOMOBILES Asahi Tec Corp. 360,000 2,392 Kansei Corp. 170,000 1,376 Nissan Motor Co. 900,000 6,912 Suzuki Motor Co. Ltd. 660,000 7,351 -------------- 18,031 -------------- BUILDING MATERIALS & COMPONENTS Sangetsu Co. Ltd. 100,000 2,518 Sanwa Shutter Corp. Ltd. 48,000 348 +Sanwa Shutter Corp. Ltd. (Warrants), expiring 1/20/98 1,400 315 -------------- 3,181 -------------- BUSINESS & PUBLIC SERVICES Dai Nippon Printing Co. Ltd. 280,000 4,746 -------------- CHEMICALS Daicel Chemical Industries 750,000 4,264 Fuji Photo Film Ltd. 160,000 4,618 Kaneka Corp. 999,000 6,299 Nifco 283,000 3,700 Okura Industrial Co. Ltd. 434,000 2,963 Sekisui Chemical Co. 520,000 7,655 -------------- 29,499 -------------- - ----------------------------------------------------------------- - -------------
The accompanying notes are an integral part of the financial statements. 7
VALUE SHARES (000) - --------------------------------------------------------- - ------------ JAPAN (CONTINUED) CONSTRUCTION & HOUSING Kyudenko Co. Ltd. 349,000 U.S.$ 4,597 Matsui Construction 171,000 1,332 Nishio Rent All Co. 111,000 2,559 +Nishio Rent All Co. (Warrants), expiring 2/20/98 1,055 593 Ohbayashi Corp. 320,000 2,542 Taisei Corp. Ltd. 1,240,000 8,275 Takasago Thermal Engineering 109,000 1,953 Yahagi Construction 238,000 2,015 -------------- 23,866 -------------- ELECTRICAL & ELECTRONICS Canon Inc. 180,000 3,260 Hitachi Ltd. 1,085,000 10,929 Kyocera Corp. 40,000 2,971 +Kyocera Corp. (Warrants), expiring 1/23/98 1,450 1,858 Matsushita Communication Industries 191,000 4,440 Matsushita Electric Industries Ltd. 555,000 9,031 NEC Corp. 775,000 9,458 Nintendo Ltd. 115,000 8,743 Ricoh Co. Ltd. 700,000 7,661 Sony Corp. 140,000 8,394 Stanley Electric Co. 750,000 4,504 Tokyo Electron Ltd. 175,000 6,780 Toshiba Corp. 1,630,000 12,772 -------------- 90,801 -------------- ELECTRONIC COMPONENTS & INSTRUMENTS Mitsumi Electric Co. Ltd. 388,000 9,357 Nitto Denko Corp. 182,000 2,820 TDK Corp. 135,000 6,890 -------------- 19,067 -------------- FINANCIAL SERVICES Hitachi Credit Corp. 118,000 2,137 Nikko Securities Co. 700,000 9,017 Nomura Securities Co. 335,000 7,300 Sumitomo Lease 102,000 524 -------------- 18,978 -------------- HEALTH & PERSONAL CARE Sankyo Co. Ltd. 217,000 4,876 Santen Pharmaceutical Co. 55,000 1,246 Secom Co. 94,000 6,537 Yamanouchi Pharmaceutical Co. 240,000 5,160 -------------- 17,819 -------------- INSURANCE Nichido Fire & Marine Insurance Co. 205,000 1,648 Sumitomo Marine & Fire 600,000 4,928 -------------- 6,576 -------------- MACHINERY & ENGINEERING Amada Co. Ltd. 500,000 4,939 Daifuku 450,000 6,363 Daikin Kogyo Co. 600,000 5,869 Fuji Machine Co. 256,000 9,174 Kurita Water Industries 136,000 3,622 Teijin Seiki Co. 431,000 2,212 Tsubakimoto Chain 817,000 4,914 -------------- 37,093 -------------- - ----------------------------------------------------------------- - ------------- VALUE SHARES (000) - --------------------------------------------------------- - ------------ REAL ESTATE Daibiru Corp. 308,000 U.S.$ 3,490 Keihanshin Real Estate Co. 205,000 1,571 Mitsubishi Real Estate Co. Ltd. 470,000 5,872 -------------- 10,933 -------------- TELECOMMUNICATIONS Nippon Telephone & Telegraph 612 4,949 -------------- TEXTILES & APPAREL Japan Vilene Co. Ltd. 304,000 1,917 -------------- TRANSPORTATION -- ROAD & RAIL Nippon Konpo Unyu Soko 295,000 2,514 -------------- WHOLESALE & INTERNATIONAL TRADE FamilyMart 147,300 6,648 Inabata & Co. 249,000 1,760 Ito Yokado Co. Ltd. 42,000 2,587 -------------- 10,995 -------------- 310,690 -------------- - ----------------------------------------------------------------- - ------------- KOREA (2.4%) APPLIANCES & HOUSEHOLD PRODUCTS +Samsung Electronics Co. (Foreign) 33,560 6,100 +Samsung Electronics Co. (2nd Issue) (Foreign) 499 91 +Samsung Electronics Co. -- New (Foreign) 6,642 1,199 -------------- 7,390 -------------- CONSTRUCTION & HOUSING **Hyundai Engineering (Foreign) 124,440 5,711 +Hyundai Engineering (Rights), expiring 1/1/96 8,523 391 -------------- 6,102 -------------- METALS -- STEEL Pohang Iron & Steel ADR 43,500 952 -------------- UTILITIES -- ELECTRICAL & GAS **Korea Electric Power (Foreign) 93,920 4,027 -------------- 18,471 -------------- - ----------------------------------------------------------------- - ------------- MALAYSIA (7.4%) BANKING Malayan Banking Bhd 1,127,000 9,496 -------------- LEISURE & TOURISM Genting Bhd 513,000 4,282 Resorts World Bhd 768,000 4,113 -------------- 8,395 -------------- MACHINERY & ENGINEERING United Engineers, Ltd. 1,369,000 8,733 -------------- MULTI-INDUSTRY Renong Bhd 5,468,000 8,095 -------------- REAL ESTATE Bandar Raya Developments Bhd 1,640,000 2,338 -------------- TELECOMMUNICATIONS +Technology Resources Industries Bhd 1,444,000 4,264 Telekom Malaysia Bhd 989,000 7,710 -------------- 11,974 -------------- - ----------------------------------------------------------------- - -------------
The accompanying notes are an integral part of the financial statements. 8
VALUE SHARES (000) - --------------------------------------------------------- - ------------ MALAYSIA (CONTINUED) UTILITIES -- ELECTRICAL & GAS +Petronas Gas Bhd 200,000 U.S.$ 681 Tenaga Nasional Bhd 1,920,000 7,560 -------------- 8,241 -------------- 57,272 -------------- - ----------------------------------------------------------------- - ------------- PHILIPPINES (2.8%) BANKING +Philippine National Bank 53,380 590 -------------- BEVERAGES & TOBACCO San Miguel Corp. 'B' 260,000 887 -------------- CONSTRUCTION & HOUSING +DMCI Holdings, Inc. 4,947,000 1,773 -------------- ENERGY SOURCES Petron Corp. 7,127,500 3,668 -------------- MULTI-INDUSTRY Ayala Corp. 'B' 205,800 251 JG Summit Holdings 'B' 5,500,000 1,510 -------------- 1,761 -------------- REAL ESTATE Ayala Land, Inc. 'B' 2,265,750 2,764 +C&P Homes, Inc. 2,963,600 2,175 +SM Prime Holdings, Inc. 8,031,400 2,296 -------------- 7,235 -------------- TELECOMMUNICATIONS Philippine Long Distance Telephone 'B' 55,650 3,023 -------------- UTILITIES -- ELECTRICAL & GAS Manila Electric Co. 'B' 285,270 2,327 -------------- 21,264 -------------- - ----------------------------------------------------------------- - ------------- SINGAPORE (6.4%) BANKING Development Bank of Singapore (Foreign) 448,000 5,574 Oversea-Chinese Banking Corp. (Foreign) 480,000 6,006 United Overseas Bank (Foreign) 979,200 9,415 -------------- 20,995 -------------- BEVERAGES & TOBACCO Fraser & Neave 182,000 2,316 -------------- BROADCASTING & PUBLISHING Singapore Press Holdings (Foreign) 120,000 2,121 -------------- ELECTRICAL & ELECTRONICS Acma Ltd. 284,400 945 -------------- MACHINERY & ENGINEERING Keppel Corp. 878,000 7,821 Sembawang Shipyards 250,000 1,388 -------------- 9,209 -------------- MULTI-INDUSTRY Singapore Technologies Industrial Corp. 1,534,000 3,470 -------------- REAL ESTATE City Developments Ltd. 888,000 6,466 DBS Land Ltd. 1,153,000 3,896 -------------- 10,362 -------------- 49,418 -------------- - ----------------------------------------------------------------- - ------------- VALUE SHARES (000) - --------------------------------------------------------- - ------------ THAILAND (6.2%) BANKING Bangkok Bank Ltd. (Foreign) 460,000 U.S.$ 5,588 Siam Commercial Bank Co., Ltd. (Foreign) 410,000 5,404 Thai Farmers Bank Ltd. (Foreign) 599,000 6,040 -------------- 17,032 -------------- BUILDING MATERIALS & COMPONENTS Siam Cement Co., Ltd. (Foreign) 48,700 2,699 -------------- ELECTRICAL & ELECTRONICS Shinawatra Computer Co. Ltd. (Foreign) 186,800 4,598 -------------- FINANCIAL SERVICES Finance One Co., Ltd. (Foreign) 223,827 1,555 National Finance & Securities Co., Ltd. (Foreign) 649,000 3,478 Phatra Thanakit Co., Ltd. (Foreign) 513,135 4,400 Phatra Thanakit Co., Ltd. (Local) 65 -- -------------- 9,433 -------------- MISCELLANEOUS MATERIALS & COMMODITIES Charoen Pokphand Feedmill Co., Ltd. (Local) 668,000 3,129 -------------- TELECOMMUNICATIONS Advanced Information Services Co., Ltd. (Foreign) 127,100 2,251 +TelecomAsia Corp. Ltd. (Foreign) 920,000 2,812 +Thai Telephone and Telecommunications Co. (Foreign) 530,000 3,808 **United Communication Industry (Foreign) 175,000 2,237 -------------- 11,108 -------------- 47,999 -------------- - ----------------------------------------------------------------- - ------------- TOTAL COMMON STOCKS (Cost U.S. $728,007) 731,804 -------------- - ----------------------------------------------------------------- - ------------- FACE AMOUNT (000) - --------------------------------------------------------- - ------------ SHORT TERM INVESTMENT (1.8%) - --------------------------------------------------------- - ------------ UNITED STATES (1.8%) REPURCHASE AGREEMENT Chase Manhattan Bank N.A., 5.35%, dated 12/29/95, due 1/2/96, to be repurchased at U.S.$13,467 collateralized by U.S.$12,815 United States Treasury Notes 6.875%, due 8/31/99, valued at U.S. $13,728 (Cost U.S.$13,459) U.S.$ 13,459 13,459 -------------- - ----------------------------------------------------------------- - ------------- FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.3%) Hong Kong Dollar HKD 2,177 282 Indian Rupee INR 69,814 1,985 Indonesian Rupiah IDR 141,831 62 Japanese Yen JPY 35,351 343 -------------- (Cost U.S. $2,867) 2,672 -------------- - ----------------------------------------------------------------- - ------------- TOTAL INVESTMENTS (97.2%) (Cost U.S. $744,333) 747,935 -------------- - ----------------------------------------------------------------- - -------------
The accompanying notes are an integral part of the financial statements. 9
AMOUNT AMOUNT (000) (000) - --------------------------------------------------------- - ------------ OTHER ASSETS (3.4%) Net Unrealized Gain on Forward Foreign Currency Contracts U.S.$ 24,656 Dividends Receivable 1,033 Receivable for Investments Sold 452 Deferred Organization Costs 40 Foreign Withholding Tax Reclaim Receivable 32 Interest Receivable 6 Other Assets 57 U.S.$ 26,276 --------------- -------------- - ----------------------------------------------------------------- - ------------- LIABILITIES (-0.6%) Deferred Indian Taxes (129) Payable for: Dividends Declared (2,731) Investments Purchased (844) Investment Advisory Fees (626) Custodian Fees (115) Professional Fees (81) Administrative Fees (63) Shareholder Reporting Expenses (39) Directors' Fees and Expenses (22) Other Liabilities (147) (4,668) --------------- -------------- - ----------------------------------------------------------------- - ------------- NET ASSETS (100.0%) Applicable to 53,654,508 issued and outstanding U.S. $.01 par value shares (100,000,000 shares authorized) U.S.$ 769,414 -------------- -------------- - ----------------------------------------------------------------- - ------------- NET ASSET VALUE PER SHARE U.S.$ 14.34 -------------- -------------- - ----------------------------------------------------------------- - ------------- AT DECEMBER 31, 1995, NET ASSETS CONSISTED OF: - ----------------------------------------------------------------- Common Stock U.S.$ 537 Capital Surplus 754,268 Distributions in Excess of Net Investment Income (133) Accumulated Net Realized Loss (13,375) Unrealized Appreciation on Investments and Foreign Currency Translations (net of accrual for foreign tax of U.S.$129 on unrealized appreciation) 28,117 - ----------------------------------------------------------------- - ------------- TOTAL NET ASSETS U.S.$ 769,414 -------------- -------------- - ----------------------------------------------------------------- - -------------
+ -- Non-income producing. @ -- The Fund is advised by an affiliate. * -- Security valued at cost -- see note A-1 to financial statements. ** -- Securities (totaling U.S.$43,890 or 5.7% of net assets at December 31, 1995) valued at fair value -- see note A-1 to financial statements. *** -- Security valued at fair value as determined based on the market value of the underlying security less subscription costs. # -- 144A security -- certain conditions for public sale may exist. ADR -- American Depositary Receipt. GDR -- Global Depositary Receipt. Note: Prior governmental approval for foreign investments may be required under certain circumstances in some emerging markets, and foreign ownership limitations may also be imposed by the charters of individual companies in emerging markets. As a result, an additional class of shares designated as "foreign" may be created and offered for investment. The "local" and "foreign" shares' market values may vary. - --------------------------------------------- - --------- DECEMBER 31, 1995 EXCHANGE RATES: - ---------------------------------------------------- AUD Australian Dollar 1.345 = U.S.$1.00 HKD Hong Kong Dollar 7.733 = U.S.$1.00 INR Indian Rupee 35.165 = U.S.$1.00 IDR Indonesian Rupiah 2,286.500 = U.S.$1.00 JPY Japanese Yen 103.250 = U.S.$1.00 KRW Korean Won 775.750 = U.S.$1.00 MYR Malaysian Ringgit 2.540 = U.S.$1.00 PHP Philippine Peso 26.230 = U.S.$1.00 SGD Singapore Dollar 1.415 = U.S.$1.00 THB Thai Baht 25.190 = U.S.$1.00 - ---------------------------------------------------- - ------------- FORWARD FOREIGN CURRENCY CONTRACT INFORMATION: Under the terms of forward foreign currency contracts open at December 31, 1995, 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 GAIN (000) (000) DATE (000) (000) - ------------ ---------- ---------- ---------- ----------- JPY 12,912,750 U.S.$125,344 1/17/96 U.S.$150,000 U.S.$24,656
The accompanying notes are an integral part of the financial statements. 10 SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY CLASSIFICATION -- DECEMBER 31, 1995 (UNAUDITED)
PERCENT VALUE OF NET INDUSTRY (000) ASSETS - --------------------------------------------------------------- - ------------ Aerospace & Military Technology U.S.$ 9,725 1.3% Appliances & Household Durables 7,996 1.0 Automobiles 21,835 2.8 Banking 78,361 10.2 Beverages & Tobacco 4,132 0.5 Broadcasting & Publishing 9,650 1.3 Building Materials & Components 9,256 1.2 Business & Public Services 4,746 0.6 Chemicals 36,573 4.8 Construction & Housing 31,753 4.1 Electrical & Electronics 97,229 12.6 Electronic Components & Instruments 19,067 2.5 Energy Equipment & Services 4,419 0.6 Energy Sources 17,509 2.3 Financial Services 31,165 4.1 Food & Household Products 450 0.1 Forest Products & Paper 2,901 0.4 Health & Personal Care 20,819 2.7 Insurance 6,576 0.9 Leisure & Tourism 8,395 1.1 Machinery & Engineering 56,621 7.4 Metals -- Non-Ferrous 16,473 2.1 Metals -- Steel 2,078 0.3 Miscellaneous Materials & Commodities 9,836 1.1 Multi-Industry 49,058 6.4 Real Estate 80,569 10.5 Recreation, Other Consumer Goods 189 0.0 Telecommunications 50,327 6.5 Textiles & Apparel 4,376 0.6 Transportation -- Airlines 1,978 0.3 Transportation -- Road & Rail 2,514 0.3 Utilities-Electrical & Gas 24,233 3.1 Wholesale & International Trade 10,995 1.4 Other 16,131 2.1 ------------ ------- U.S.$747,935 97.2% ------------ ------- ------------ ------- - --------------------------------------------------------- - ------------
SUMMARY OF TOTAL INVESTMENTS BY COUNTRY -- DECEMBER 31, 1995 (UNAUDITED)
PERCENT VALUE OF NET COUNTRY (000) ASSETS - --------------------------------------------------------------- - ------------ Australia U.S.$ 63,572 8.3% China 4,475 0.6 Hong Kong 100,108 13.0 India 36,277 4.7 Indonesia 24,587 3.2 Japan 311,033 40.4 Korea 18,471 2.4 Malaysia 57,272 7.4 Philippines 21,264 2.8 Singapore 49,418 6.4 Thailand 47,999 6.2 United States (short term investments) 13,459 1.8 ------------ ------- U.S.$747,935 97.2% ------------ ------- ------------ ------- - --------------------------------------------------------- - ------------
The accompanying notes are an integral part of the financial statements. 11
YEAR ENDED DECEMBER 31, 1995 STATEMENT OF OPERATIONS (000) - --------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends............................................................................... U.S.$ 12,562 Interest................................................................................ 991 Less: Foreign Taxes Withheld............................................................ (1,241) - --------------------------------------------------------------------------------------------------------------- Total Income.......................................................................... 12,312 - --------------------------------------------------------------------------------------------------------------- EXPENSES Investment Advisory Fees................................................................ 7,102 Custodian Fees.......................................................................... 1,084 Administrative Fees..................................................................... 715 Transfer Agent Fees..................................................................... 295 Professional Fees....................................................................... 185 Directors' Fees and Expenses............................................................ 101 Shareholder Reporting Expenses.......................................................... 56 Other Expenses.......................................................................... 180 - --------------------------------------------------------------------------------------------------------------- Total Expenses........................................................................ 9,718 - --------------------------------------------------------------------------------------------------------------- Net Investment Income............................................................. 2,594 - --------------------------------------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS) Investment Securities Sold (net of Indian tax of U.S.$2 on net realized gains).......... (10,426) Foreign Currency Transactions........................................................... 113 - --------------------------------------------------------------------------------------------------------------- Net Realized Loss................................................................. (10,313) - --------------------------------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION Investments............................................................................. 48,263 Foreign Currency Translations........................................................... 24,447 - --------------------------------------------------------------------------------------------------------------- Change in Unrealized Appreciation/Depreciation.................................... 72,710 - --------------------------------------------------------------------------------------------------------------- Total Net Realized Loss and Change in Unrealized Appreciation/Depreciation.................. 62,397 - --------------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................... U.S.$ 64,991 - --------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------
PERIOD FROM AUGUST 2, 1994* TO YEAR ENDED DECEMBER 31, 1994 DECEMBER 31, 1995 STATEMENT OF CHANGES IN NET ASSETS (000) (000) - --------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS Operations: Net Investment Income............................................... U.S.$ 2,758 U.S.$ 2,594 Net Realized Loss................................................... (1,824) (10,313) Change in Unrealized Appreciation/Depreciation...................... (44,593) 72,710 - --------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations..... (43,659) 64,991 - --------------------------------------------------------------------------------------------------------------- Distributions: Net Investment Income............................................... (2,404) (2,598) In Excess of Net Investment Income.................................. -- (133) In Excess of Net Realized Gain...................................... (419) (1,169) - --------------------------------------------------------------------------------------------------------------- Total Distributions................................................. (2,823) (3,900) - --------------------------------------------------------------------------------------------------------------- Capital Share Transactions: Initial Public Offering of Shares (53,647,415 shares)............... 756,429 -- Offering Costs...................................................... (1,724) -- - --------------------------------------------------------------------------------------------------------------- Net Increase in Net Assets Resulting From Capital Share Transactions....................................................... 754,705 -- - --------------------------------------------------------------------------------------------------------------- Total Increase...................................................... 708,223 61,091 Net Assets: Beginning of Period................................................. 100 708,323 - --------------------------------------------------------------------------------------------------------------- End of Period (including distributions in excess of net investment income of U.S. $286 and U.S. $133, respectively)................... U.S.$708,323 U.S.$769,414 - --------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------
*Commencement of operations The accompanying notes are an integral part of the financial statements. 12 FINANCIAL HIGHLIGHTS
PERIOD FROM AUGUST 2, 1994* YEAR ENDED TO DECEMBER 31, DECEMBER 31, SELECTED PER SHARE DATA AND RATIOS: 1994 1995 - ------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD............................................ U.S.$ 14.10 U.S.$ 13.20 - ------------------------------------------------------------------------------------------------------------------- Offering Costs.................................................................. (0.03) -- - ------------------------------------------------------------------------------------------------------------------- Net Investment Income........................................................... 0.05 0.05 Net Realized and Unrealized Gain (Loss) on Investments.......................... (0.87) 1.16 - ------------------------------------------------------------------------------------------------------------------- Total from Investment Operations............................................ (0.82) 1.21 - ------------------------------------------------------------------------------------------------------------------- Distributions: Net Investment Income....................................................... (0.04) (0.05) In Excess of Net Investment Income.......................................... -- (0.00)# In Excess of Net Realized Gain.............................................. (0.01) (0.02) - ------------------------------------------------------------------------------------------------------------------- Total Distributions......................................................... (0.05) (0.07) - ------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD.................................................. U.S.$ 13.20 U.S.$ 14.34 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- PER SHARE MARKET VALUE, END OF PERIOD........................................... U.S.$ 12.25 U.S.$ 13.33 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN: Market Value................................................................ (12.71)% 9.38% Net Asset Value (1)......................................................... (5.94)% 9.24% - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- RATIOS, SUPPLEMENTAL DATA: - ------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (THOUSANDS)........................................... U.S.$708,323 U.S.$769,414 - ------------------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets......................................... 1.31%** 1.36% Ratio of Net Investment Income to Average Net Assets............................ 0.89%** 0.36% Portfolio Turnover Rate......................................................... 2% 21% - ------------------------------------------------------------------------------------------------------------------- *Commencement of Operations. **Annualized. #Amount is less than U.S.$0.01. (1)Total investment return based on per share net asset value reflects the effects of changes in net asset value on the performance of the Fund during the 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. Note: Current period permanent book-tax differences, if any, are not included in the calculation of net investment income per share.
The accompanying notes are an integral part of the financial statements. 13 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 - ------------ 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 commenced operations on August 2, 1994 pursuant to the initial public offering of 53,500,000 shares of Common Stock. An additional 147,415 shares of Common Stock were issued on August 24, 1994 to cover over-allotments. Prior to August 2, 1994 the Fund had no operations other than the issuance of 7,093 shares of Common Stock on July 14, 1994 to Morgan Stanley Asset Management Inc. (the "Adviser"). 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 which are traded over-the-counter are valued at the average of the mean of current bid and asked prices obtained from reputable brokers. Short-term securities which mature in 60 days or less are valued at amortized cost. All other securities and assets for which market values are not readily available (including investments which are subject to limitations as to their sale) are valued at fair value as determined in good faith by the Board of Directors (the "Board"), although the actual calculations may be done by others. 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 repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation as such income and/or gains are earned. Distributions in excess of net investment income and accumulated net realized loss have been adjusted for current and prior period permanent book-tax differences. Current year adjustments arose principally from differing book-tax treatments for foreign currency transactions 3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase agreements, a bank as custodian for the Fund takes possession of the underlying securities, the value of which equals or exceeds the principal amount of the repurchase transaction, including 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. To the extent that proceeds from the sale of the underlying securities are less than the repurchase price under the agreement, the Fund may incur a loss. In the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral or proceeds may be subject to legal proceedings. 4. FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the mean of the bid and asked prices of such currencies against U.S. dollars last quoted by a major bank as follows: - investments, other assets and liabilities at the prevailing 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) are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from sales and maturities of forward foreign currency 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 14 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 currency denominated assets and liabilities and forward foreign currency contracts at period end exchange rates are reflected as a component of unrealized appreciation (depreciation) in the Statement of Net Assets. The change in net unrealized currency gains (losses) for the period is reflected in the Statement of Operations. 5. FORWARD FOREIGN CURRENCY CONTRACTS: The Fund may enter into forward foreign currency contracts to protect securities and related receivables and payables against changes in future foreign exchange rates. A forward foreign currency 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. 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-date. Income distributions and capital gain distributions are determined in accordance with U.S. Federal income tax regulations which may differ from generally accepted accounting principles. These differences are principally due to the timing of the recognition of gains and losses on securities and forward foreign currency contracts and due to the permanent differences described in note A-2. B. Morgan Stanley Asset Management Inc. 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. Effective September 1, 1995, The Chase Manhattan Bank, N.A., through its affiliate Chase Global Funds Services Company (the "Administrator"), (formerly Mutual Funds Service Company, a wholly owned subsidiary of the United States Trust Company of New York), 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 .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. Effective September 1, 1995, The Chase Manhattan Bank, N.A. acts as custodian for the Fund's assets held in the United States. Prior to September 1, 1995, Mutual Funds Service Company and United States Trust Company of New York provided administrative and custodian services, respectively, to the Fund under the same terms, conditions and fees as stated above. D. Morgan Stanley Trust Company (the "International Custodian"), an affiliate of the Adviser, acts as custodian for the Fund's assets held outside the United States in accordance with a Custody Agreement. Custodian fees are payable monthly based on assets under custody, investment purchase and sale activity, an account maintenance fee, plus reimbursement for certain out-of-pocket expenses. Investment transaction fees vary by country and security type. For the year ended December 31, 1995, the Fund incurred International Custodian fees of $1,076,000 of which $114,000 was payable to the International Custodian at December 31, 1995. In addition, for the year ended December 31, 1995, the Fund has earned interest income of $3,000 and incurred interest expense of $9,000 on balances with the International Custodian. E. For the year ended December 31, 1995, the Fund made purchases and sales totaling $199,303,000 and $140,673,000, respectively, of investment securities other than long-term U.S. Government securities and short-term investments. There were no purchases and sales of long-term U.S. Government securities. The Fund incurred $151,000 of brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliate of the Adviser. At December 31, 1995, the U.S. Federal income tax cost basis of securities was $742,445,000 and accordingly, net unrealized appreciation for U.S. Federal income tax purposes was $2,818,000 of which $59,756,000 related to appreciated securities and $56,938,000 related to depreciated securities. At December 31, 1995, the Fund had a capital loss carryforward for U.S. Federal income tax purposes of approximately $12,396,000 available to offset future capital 15 gains which will expire on December 31, 2003. To the extent that capital gains are offset, such gains will not be distributed to the shareholders. For the year ended December 31, 1995, the Fund expects to defer to January 1, 1996 for U.S. Federal income tax purposes, post-October currency losses of $197,000. F. The Fund entered into an Agreement with a number of underwriters (the "Underwriters"), including Morgan Stanley & Co. Incorporated for the initial public offering of its shares and issued 53,647,415 shares in August 1994. The Fund has been advised that the total of underwriting discounts and placement commissions paid to the Underwriters relating to the initial public offering was $48,150,000. G. In connection with its organization and initial public offering of shares, the Fund incurred $55,000 and $1,724,000 of organization and offering costs, respectively. The organization costs are being amortized on a straight-line basis over a five year period beginning August 2, 1994, the date the Fund commenced operations. The offering costs were charged to capital. H. At December 31, 1995, 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. I. 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. The deferred fees payable, under the Plan, at December 31, 1995 totaled $11,000 and are included in Payable for Director's Fees and Expenses on the Statement of Net Assets. J. During December 1995, the Board declared a distribution of $0.05 per share, derived from net investment income, payable on January 9, 1996, to shareholders of record on December 29, 1995. - -------------------------------------------------------------------------------- SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) U.S. AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS - --------------------------------------------------------------------------------
THREE MONTHS ENDED ---------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, MARCH 31, 1995 JUNE 30, 1995 1995 1995 ---------------- ---------------- ---------------- ---------------- PER PER PER PER TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE -------- ------ -------- ------ -------- ------ -------- ------ Investment Income....................... $ 3,185 $0.06 $ 3,978 $0.07 $ 2,907 $0.05 $ 2,242 $0.05 Net Investment Income................... $ 961 $0.02 $ 1,660 $0.03 $ 401 $0.01 $ (428) $(0.01) Net Realized Loss and Change in Unrealized Appreciation/Depreciation... $(22,702) $(0.42) $ 24,696 $0.46 $ 21,730 $0.40 $ 38,673 $0.72 Net Increase (Decrease) in Net Assets Resulting From Operations.............. $(21,741) $(0.40) $ 26,356 $0.49 $ 22,131 $0.41 $ 38,245 $0.71 - ----------------------------------------------------------------------------------------------------------------
PERIOD FROM AUGUST 2, 1994* THREE MONTHS TO ENDED SEPTEMBER 30, DECEMBER 31, 1994 1994 ---------------- ---------------- PER PER TOTAL SHARE TOTAL SHARE -------- ------ -------- ------ Investment Income....................... $ 3,146 $0.06 $ 3,669 $0.07 Net Investment Income................... $ 1,503 $0.03 $ 1,255 $0.02 Net Realized Loss and Change in Unrealized Depreciation................ $ (3,542) $(0.07) $(42,875) $(0.80) Net Increase (Decrease) in Net Assets Resulting From Operations.............. $ (2,039) $(0.04) $(41,620) $(0.78) - ------------------------------------------------------------------------------------------------------
*Commencement of operations The Fund may purchase shares of its Common Stock in the open market at such prices and in such amounts as the Board of Directors may deem advisable. - -------------------------------------------------------------------------------- FEDERAL TAX INFORMATION (UNAUDITED): For the year ended December 31, 1995, the Fund expects to pass through to its shareholders foreign tax credits of approximately $1,243,000. 16 REPORT OF INDEPENDENT ACCOUNTANTS - --------- To the Shareholders and Board of Directors of Morgan Stanley Asia-Pacific Fund, Inc. In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund") at December 31, 1995, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the year then ended and for the period August 2, 1994 (commencement of operations) through December 31, 1994, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 1995 by correspondence with the custodians and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP 1177 Avenue of the Americas New York, New York 10036 February 9, 1996 17 DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"), each shareholder will be deemed to have elected, unless American Stock Transfer & Trust Company (the "Plan Agent") is otherwise instructed by the shareholder in writing, to have all distributions automatically reinvested in Fund shares. Participants in the Plan have the option of making additional voluntary cash payments to the Plan Agent, annually, in any amount from $100 to $3,000, for investment in Fund shares. Dividend and capital gain distributions will be reinvested on the reinvestment date in full and fractional shares. If the market price per share equals or exceeds net asset value per share on the reinvestment date, the Fund will issue shares to participants at net asset value. If net asset value is less than 95% of the market price on the reinvestment date, shares will be issued at 95% of the market price. If net asset value exceeds the market price on the reinvestment date, participants will receive 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 Purchase Plan 40 Wall Street New York, NY 10003 1-800-278-4353 18 -----END PRIVACY-ENHANCED MESSAGE-----