-----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, PyCzU1k6syK9jRYpQfV68ZVX7TumM6ntgKrsol+6jnCCK+AAP8OUZDiIAUjqrysw iVKp//CN7wAqwDCzZw/cZg== 0000912057-97-030060.txt : 19970912 0000912057-97-030060.hdr.sgml : 19970912 ACCESSION NUMBER: 0000912057-97-030060 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970905 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY ASIA PACIFIC FUND INC CENTRAL INDEX KEY: 0000919808 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-08388 FILM NUMBER: 97676099 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 INVESTMENT FUND INC DATE OF NAME CHANGE: 19940316 N-30D 1 N-30D MORGAN STANLEY ASIA-PACIFIC FUND, INC. - --------------------------------------------- DIRECTORS AND OFFICERS Barton M. Biggs William G. Morton, Jr. CHAIRMAN OF THE BOARD DIRECTOR OF DIRECTORS James W. Grisham Michael F. Klein VICE PRESIDENT PRESIDENT AND DIRECTOR Harold J. Schaaff, Jr. Peter J. Chase VICE PRESIDENT DIRECTOR Joseph P. Stadler John W. Croghan VICE PRESIDENT DIRECTOR Valerie Y. Lewis David B. Gill SECRETARY DIRECTOR Joanna M. Haigney Graham E. Jones TREASURER DIRECTOR Belinda A. Brady John A. Levin ASSISTANT TREASURER DIRECTOR - --------------------------------------------- INVESTMENT ADVISER Morgan Stanley Asset Management Inc. 1221 Avenue of the Americas New York, New York 10020 - -------------------------------------------------------- ADMINISTRATOR The Chase Manhattan Bank 73 Tremont Street Boston, Massachusetts 02108 - -------------------------------------------------------- CUSTODIANS Morgan Stanley Trust Company One Pierrepont Plaza Brooklyn, New York 11201 The Chase Manhattan Bank 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. --------------------- SEMI-ANNUAL REPORT JUNE 30, 1997 MORGAN STANLEY ASSET MANAGEMENT INC. INVESTMENT ADVISER LETTER TO SHAREHOLDERS - -------- For the six months ended June 30, 1997, the Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund") had a total return, based on net asset value per share, of 9.62% compared to its benchmark (as defined below) of 7.07%. For the one year ended June 30, 1997, the Fund had a total return, based on net asset value per share, of -0.09% compared with -5.34% for the benchmark. For the period since the Fund's commencement of operations on August 2, 1994 through June 30, 1997, the Fund's total return, based on net asset value per share, was 9.47% compared with -5.43% for the benchmark. (The benchmark for investment purposes is the weighted average of the percentage change month-on-month of each of two Morgan Stanley Capital International (MSCI) indices; Japan and Combined Asia Free ex- Japan, where the weights are based on the respective market capitalizations of these indices at the beginning of each month). On June 30, 1997, the closing price of the Fund's shares on the New York Stock Exchange was $10.50 representing a 19.8% discount to the Fund's net asset value per share. JAPAN Following a yearly low set in February, the Japanese equity market rebounded sharply. This rally came despite a consumption tax hike from 3% to 5% in April, the collapse of Nissan Life Insurance, scandals at Nomura and Dai-Ichi Kangyo Bank ("DKB") as well as a sharp strengthening of the yen. Sentiment also improved after April as the severely depressed banking sector staged a technical rally and overall anxiety regarding the Japanese economy softened. In retrospect, we believe that the stock market digested the weakening economic growth of the second quarter of 1996 (stemming from the consumption tax hike) in the November '96 to February '97 sell-off. In fact, as the second quarter progressed, many market participants became more encouraged that economic prospects are brighter than the prevailing negative consensus, with such conviction confirmed by the release of June's Bank of Japan "Tankan" report. This quarterly survey was "+7", significantly better than the consensus estimates. Moreover, on a global basis, Japanese domestic shortcomings looked less severe when compared with the French election results and Germany's mounting budget deficit problems. Therefore, on a global macro level confidence and relative optimism for Japan yet again began to emerge. The financial sector, particularly banks, staged a sharp technical rebound from severely oversold levels with large open short interest positions contributing to a volatile rally during the second quarter. The announcements that troubled Nippon Credit Bank and Bankers Trust have formed alliances and that Hokkaido Bank and Takushoku Bank will merge also helped to raise interest in the sector. The Ministry of Finance will not allow large banks to fail. Also, the 5% equity stake a large U.S. investor took in Wako Securities provided evidence that mergers and acquisitions activity in Japanese's financial sector with Big Bang looming may become a reality. International blue chips, the market bell-cow since mid 1996, entered a consolidation period in June. This sector, favored by domestic pension funds and foreign investors for both value and growth, sold off primarily from the rapid appreciation of the yen. The sharp appreciation of the yen came from a mounting trade surplus between Japan and the U.S., particularly during April and May. At the Washington G-7 meeting in April, statements were issued that "proper currency levels are necessary" for the trade balance to correct. Moreover, official U.S. statements directed to Japan posed strong language that the Japanese domestic economy must be improved. As such, although most international blue chips' earnings are more resilient now to a stronger yen, some investors had ample reason to take profits in this sector. OUTLOOK We believe that the focus should not be on the Japanese economic recovery but more on the degree to which it will improve. Evidence such as June's Tankan report and bottom-up earnings results we are witnessing from leading companies in Japan suggest that the recovery is well on it's way. However, the drag on the domestic economy from mounting bankruptcy rates and banks' non-performing loans as well as inefficient fiscal policy remains serious. In order for the domestic economy to continue improving and show real private demand increases, additional policy changes including further deregulation and administrative reform will need to take place. We are hopeful this will occur. The LDP has recently shown it is getting stronger with less internal friction and therefore a concerted policy drive will be easier to implement. While the scandals at Nomura, DKB and bankruptcy at Nissan Life were a few casualties during the first half of 1997, we believe there are potentially more such cases which could negatively affect the financial sector. On the other 2 hand, international blue chips and globally competitive deregulated Japanese industries will likely see a continued improvement in earnings and demand from domestic and foreign investors. These companies are also "domestic demand" plays because Japan is rapidly shifting to digital broadcasting, e-mail, PC's and multimedia and therefore companies such as SONY are not only "export" plays on the market. We believe that the yen will stabilize in a trading range of 110-123 and the recent 10% correction in the currency should begin to impact trade surplus numbers less negatively. Our portfolio will continue to favor electronics, blue chips, multimedia and high technology companies which represent value and show visible earning momentum. ASIA EX-JAPAN REVIEW AND OUTLOOK Continuing the pattern set in 1996, the individual Asian markets (excluding Japan) showed a great divergence in performance in the first half of 1997. The rise in the Asian markets was led by the Indian sub-continent markets with India up a sharp 36.4% and Sri Lanka 34.1%. This was followed by the greater China markets where Taiwan (+26.6%) China (+10.3%) and Hong Kong (+8.1%) staged sharp pickups ahead of Hong Kong's handover to China on July 1, 1997. Rounding out the Northeast Asian markets, Korea also showed a sharp rise, gaining 9.7%. In contrast, the Southeast Asian markets of Thailand (-37.3%), the Philippines (-12.2%) and Malaysia (-12.2%) registered sharp falls. Following the first quarter where the Hong Kong market fell 9.5%, the Fund increased its exposure to that market. This increased weight stood it in good stead as the market staged a sharp rebound. Euphoria over China concept plays and in particular red chips led the way. Sentiment and liquidity further contributed, as asset injection stories propelled the red chips ever higher while traditional blue chip stocks languished. As the Handover neared the market appeared to be stretched, and the Fund began to trim its holdings. With the Handover complete, red chip fever has subsided and talk of increasing the supply of residential units in Hong Kong has caused the property sector to weaken. The Fund will be looking to take its Hong Kong weighting down while shifting towards better value blue chips such as the major property developers if they weaken further. The Fund further increased its exposure to India since last year, taking advantage of that market's exceptional rise. Rapidly falling interest rates and increased interest by foreign institutional investors powered the market to a 36.4% gain over the first half of 1997. Although in the near term the market is likely to pause, valuations remain very reasonable on a historic basis and inflows of money from foreign fund managers should continue. The Fund also increased its weight in Korea since the beginning of the year and will continue to look for good values in that market. The Korean economy appears to have bottomed as positive export growth generated its first monthly trade surplus in 30 months. Equally encouraging, there are also signs that the Korean corporate culture is finally changing. The zealousness with which many Korean companies pursued market share gains and top line growth is finally beginning to shift towards interest in the bottom line which should bode well for equity investors. The Fund maintained its reduced weighting in Malaysia over the first half of the year. This strategy paid off in the second quarter of 1997 as Bank Negara's curbs on property lending and stock market margin loans in April finally forced the economy to confront its problems with the impending oversupply in the property market and an infrastructure spending binge. The subsequent severity of the market fallout indicated an overstretched market. Although the long term fundamentals for Malaysia remain good, short term prospects are not promising, especially in the aftermath of the fallout from the depegging of the Thai baht. The Fund is looking to maintain its underweight in Malaysia barring unforeseen positive developments. The Fund's weighting in Thailand has also been taken down slightly due to a combination of portfolio sales and a collapsing market. This market has continued to be a disaster, falling -37.3% this year following a -38.0% decline last year. Most recently, confidence plummeted as the government resorted to capital controls and jacked up interest rates to fend off the currency speculators. The gloom was further compounded by news of a slowing economy as the mounting financial crisis resulted in the suspension of trading in 16 finance companies. The depegging of the Thai baht at the beginning of July is the first step towards addressing the Thai financial crisis. Recovery, however, will be a slow and painful process, and the first sharp rally when the baht broke is proving hard to sustain. The Fund will selectively continue to seek to acquire good companies at "bombed-out" prices but it is still too early to bet on the Thai market. 3 The Thai financial crisis and the final depegging of the Thai baht have brought into focus the common ills of the fast growing Southeast Asian nations. Thailand is further along the economic cycle but the pain it is going through has heightened investors' wariness about the region in general and is likely to prove a dampener on the markets in the near term. The collapse in the Thai market and the correction in Malaysia, Singapore and the Philippines have brought market valuations back to attractive levels but short-term sentiment remains poor. In summary, the Fund will continue to electively seek to move out of more extended markets like Hong Kong into the more distressed situations in Southeast Asia. Sincerely, [SIGNATURE] Michael F. Klein PRESIDENT AND DIRECTOR [SIGNATURE] Ean Wah Chin SENIOR PORTFOLIO MANAGER July 1997 4 Morgan Stanley Asia-Pacific Fund, Inc. Investment Summary as of June 30, 1997 (Unaudited) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
HISTORICAL INFORMATION TOTAL RETURN (%) ------------------------------------------------------------------------------ MARKET VALUE (1) NET ASSET VALUE (2) INDEX (3) ------------------------ -------------------------- ------------------------ AVERAGE AVERAGE AVERAGE CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL ------------------------ -------------------------- ------------------------ FISCAL YEAR TO DATE 7.69% -- 9.62% -- 7.07% -- ONE YEAR -10.25 -10.25% -0.09 -0.09% -5.34 -5.34% SINCE INCEPTION* -12.30+ -4.53+ 9.47+ 3.16+ -5.43 -1.90
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. - -------------------------------------------------------------------------------- RETURNS AND PER SHARE INFORMATION A BAR CHART REFLECTING THE DATA BELOW IS REFLECTED HERE.
TOTAL RETURN YEARS ENDED DECEMBER 31: SIX MONTHS ENDED 1994* 1995 1996 JUNE 30, 1997 Net Asset Value Per Share $13.20 $14.34 $11.95 $13.10 Market Value Per Share $12.25 $13.33 $9.75 $10.50 Premium/(Discount) -7.20% -7.00% -18.4% -19.8% Income Dividends $0.04 $0.05 $0.61 - Capital Gains Distributions $0.01 $0.02 - - Fund Total Return (2) -5.94% 9.24% -2.87%+ 9.62% Index Total Return (3) -5.90% 0.87% -9.17% 7.07% Morgan Stanley Asia-Pacific Fund, Inc. (2) MSCI Regional Composite Index (3)
(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 the weighted average of the percentage change month-on-month of two Morgan Stanley Capital International (MSCI) indices; Japan and Combined Asia Pacific Free ex-Japan, 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. + This return does not include the effect of the rights issued in connection with the Rights Offering. 5 Morgan Stanley Asia-Pacific Fund, Inc. Investment Summary as of June 30, 1997 (Unaudited) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PORTFOLIO INVESTMENTS DIVERSIFICATION EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Equity Secu- rities 96.1% Short-Term Investment 3.9%
- -------------------------------------------------------------------------------- SECTORS EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Automobiles 4.1% Banking 12.2% Chemicals 4.7% Electrical & Electronics 11.6% Electronic Components & Instruments 3.2% Energy Equipment & Services 3.2% Financial Services 3.7% Machinery & Engineer- ing 6.6% Multi-Industry 9.5% Real Estate 7.5% Other 33.7%
- -------------------------------------------------------------------------------- COUNTRY WEIGHTINGS EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Japan 40.8% India 14.4% Australia 8.8% Singapore 5.9% Hong Kong 10.7% Thailand 4.5% Philippines 1.8% Korea 3.1% Malaysia 3.2% Indonesia 2.4% Other 4.4%
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS PERCENT OF NET ASSETS --------------- 1. Bharat Heavy Electricals Ltd. 3.0% 2. Housing Development Finance Corp. Ltd. 2.9 3. Cheung Kong (Holdings) Ltd. 2.2 4. HSBC Holdings plc 2.2 5. National Australia Bank Ltd. 1.9 PERCENT OF NET ASSETS --------------- 6. Amcor Ltd. 1.9% 7. WMC Ltd. 1.8 8. China Resources Enterprise Ltd. 1.7 9. Broken Hill Proprietary Co. Ltd. 1.7 10. Container Corp. of India Ltd. 1.6 --- 20.9% --- ---
6 FINANCIAL STATEMENTS - --------- STATEMENT OF NET ASSETS (UNAUDITED) - ------------ JUNE 30, 1997
VALUE SHARES (000) - ----------------------------------------------------------- - ------------- COMMON STOCKS (96.2%) (Unless otherwise noted) - ---------------------------------------------- - ---------- AUSTRALIA (8.8%) BANKING National Australia Bank Ltd. 1,229,384 U.S.$ 17,614 ------------- ENERGY SOURCES Broken HIll Proprietary Co. Ltd. 1,052,964 15,494 ------------- FOREST PRODUCTS & PAPER Amcor Ltd. 2,630,455 17,483 ------------- METALS -- NON-FERROUS WMC Ltd. 2,645,655 16,684 ------------- REAL ESTATE Lend Lease Corp. Ltd. 721,207 15,251 ------------- 82,526 ------------- - ----------------------------------------------------------- - ------------- CHINA (0.1%) MACHINERY & ENGINEERING Qingling Motors Co. 'H' 2,674,000 1,381 ------------- - ----------------------------------------------------------- - ------------- HONG KONG (10.7%) BANKING Dao Heng Bank Group Ltd 420,000 2,298 HSBC Holdings plc 685,948 20,630 Hang Seng Bank Ltd. 181,000 2,582 ------------- 25,510 ------------- MULTI-INDUSTRY China Resources Enterprise Ltd. 3,178,000 15,588 Hutchison Whampoa Ltd. 1,749,000 15,126 Ng Fung Hong Ltd. 860,000 1,288 Shanghai Industrial Holdings Ltd. 707,000 4,399 ------------- 36,401 ------------- REAL ESTATE Cheung Kong (Holdings) Ltd. 2,098,000 20,717 Henderson Land Development Co. Ltd. 997,000 8,847 New World Development Co. Ltd. 317,000 1,890 Sun Hung Kai Properties Ltd. 583,000 7,017 ------------- 38,471 ------------- 100,382 ------------- - ----------------------------------------------------------- - ------------- INDIA (14.4%) APPLIANCES & HOUSEHOLD DURABLES Phillips India Ltd. 123,582 300 Supreme Industries Ltd. 'B' 178,449 996 ------------- 1,296 ------------- - ----------------------------------------------------------- - ------------- VALUE SHARES (000) - ----------------------------------------------------------- - ------------- AUTOMOBILES Autolec Industries Ltd.'B' 152,800 U.S.$ 184 (a) Autopal Industries Ltd. 'B' 65,000 11 Bajaj Tempo Ltd. 100 1 (b) Bajaj Tempo Ltd. -- New 2,048 12 (a,c) Bajaj Tempo Ltd. (Rights) 1,717 6 Bharat Forge Co., Ltd. 217,996 431 Ceat Ltd. 'A' 368,000 316 (a) Denso India Ltd. 71,200 134 Escorts Ltd. 'A' 384,125 899 (a) Hero Honda Ltd. 'B' 400 6 MRF Ltd. 18,000 1,482 Patheja Forgings and Auto Ltd. 677,700 272 Tata Engineering & Locomotive Ltd. 223,022 2,816 ------------- 6,570 ------------- BANKING Industrial Finance Corp. (India) Ltd. 1,462,300 1,307 State Bank of India Ltd. 918,312 8,728 ------------- 10,035 ------------- BEVERAGES & TOBACCO ITC Ltd. 17,525 275 United Breweries Ltd. 149,100 113 ------------- 388 ------------- BUILDING MATERIALS & COMPONENTS Asian Paints Ltd. 800 8 Associated Cement Co. Ltd. 'A' 2,286 94 Gujarat Ambuja Cements Ltd. 'A' 415,250 4,019 India Cements Ltd. 75,000 226 Murudeshwar Ceramics Ltd. 'B' 44,000 42 (a) Panyam Cements & Minerals Ltd. 'B' 33,765 568 (b) Saurashtra Cement & Chemicals Ltd. 50 --@ ------------- 4,957 ------------- CHEMICALS Birla VXL Ltd. 846,998 319 Gujarat Narmada Valley Fertilizers Ltd. 'A' 303,974 193 Gujarat Narmada Valley Fertilizers Ltd. GDR 144A 275,000 688 Indian Dyestuff Industries Ltd. 'B' 304,250 86 (a) Indian Organic Chemical Ltd. 275,480 35 Indian Petro Chemical Corp. Ltd. 1,097,610 4,445 (a) Jaysynth Dyechem Ltd. 145,800 88 United Phosphorous Ltd. 'B' 97,500 541 ------------- 6,395 ------------- CONSTRUCTION & HOUSING Alacrity Housing Ltd. 381,000 64 (a) Hindustan Construction Co. 'B' 254,675 194 Hindustan Development Corp. 'B' 988,780 293 (b) Nagarjuna Construction Ltd. 'B' 151,100 126 ------------- 677 ------------- - ----------------------------------------------------------- - -------------
The accompanying notes are an integral part of the financial statements. 7
VALUE SHARES (000) - --------------------------------------------------- - ------------ INDIA (CONTINUED) ELECTRONIC COMPONENTS & INSTRUMENTS Infosys Technology Ltd. 'B' 9,600 U.S.$ 498 Rolta India Ltd. 999,500 395 S&S Power Switchgear Ltd. 'B' 63,550 122 ------------- 1,015 ------------- ENERGY EQUIPMENT & SERVICES Bharat Heavy Electricals Ltd. 2,651,000 28,639 ------------- ENERGY SOURCES Esab India Ltd. 'B' 346,865 1,020 ------------- FINANCIAL SERVICES Housing Development Finance Corp. Ltd. 238,287 27,175 UTI MasterShares Ltd. 'A' 2,268,170 839 ------------- 28,014 ------------- FOOD & HOUSEHOLD PRODUCTS Dhampur Sugar Mills Ltd. 'B' 141,575 326 ------------- FOREST PRODUCTS & PAPER (a) Ballarpur Industries Ltd. 'B' 232,264 287 ITC Bhadrachalam Paperboards Ltd. 'B' 273,595 352 ------------- 639 ------------- HEALTH & PERSONAL CARE Godrej Soaps Ltd. 197,600 127 Sun Pharmaceutical Industries Ltd. 161,200 1,116 TTK Biomed Ltd. 21,500 9 ------------- 1,252 ------------- INDUSTRIAL COMPONENTS (b) Apollo Tyres Ltd. 686,525 2,129 (a,c) Apollo Tyres Ltd. (Warrants), expiring 2/28/98 189,543 73 Essel Packaging Ltd. 'B' 146,300 531 ITW Signode India Ltd. 'B' 571,132 1,368 KEC International Ltd. 'B' 881,750 1,188 ------------- 5,289 ------------- LEISURE & TOURISM ITC Hotels Ltd. 212,900 830 ------------- MACHINERY & ENGINEERING Artson Engineering Ltd. 'B' 234,700 40 Crompton Greaves Ltd. 'B' 415,210 864 DGP Windsor India Ltd. 'B' 218,800 177 Flat Products Equipments (India) Ltd. 'B' 174,900 342 Hindustan Power Plus Ltd. 75,600 186 (a) Hindustan Power Plus Ltd. (Rights), expiring 12/31/97 15,120 1 Lumax Automatic Parts Industries Ltd. 100,825 276 Thermax Ltd. 'B' 31,200 305 Veejay Lakshmi Engineering Ltd. 149,100 154 ------------- 2,345 ------------- METALS -- STEEL Tata Iron & Steel Co. Ltd. 'A' 1,445 8 (a,b) Tata SSL Ltd. -- New 3,290 3 (a,b) Tata SSL Ltd. -- New 'B' 464,500 415 ------------- 426 ------------- - ----------------------------------------------------------- - ------------- VALUE SHARES (000) - ----------------------------------------------------------- - ------------- MISCELLANEOUS MATERIALS & COMMODITIES Amforge Industries Ltd. 'B' 34,505 U.S.$ 19 (b) Amforge Industries Ltd. -- New 5,150 3 (a,b) Amforge Industries Ltd. (Warrants), expiring 7/1/97 5,150 --@ Vikas WSP Ltd. 304,600 993 ------------- 1,015 ------------- MULTI-INDUSTRY Autolite Ltd. 'B' 231,900 340 Century Textile & Industry Ltd. 11,038 678 Container Corp. of India Ltd 1,059,600 15,480 EID Parry Ltd. 'B' 64,300 185 Indian Rayon & Industries Ltd. 50 1 JK Corp. Ltd. 'A' 100 --@ JK Corp. Ltd. GDR 61,140 32 JK Corp. Ltd. GDR 144A 249,240 131 Kesoram Industries Ltd. 'B' 310,238 396 Max India Ltd. -- New 70,000 356 (a,e) Morgan Stanley Growth Fund 32,892,200 5,880 Voltas Ltd. 207,950 144 ------------- 23,623 ------------- RECREATION, OTHER CONSUMER GOODS Suashish Diamonds Ltd. 'B' 148,100 120 Tube Investments of India Ltd. 'B' 109,400 179 Wimco Ltd. 'A' 422,200 225 ------------- 524 ------------- TELECOMMUNICATIONS Mahanagar Telephone Nigam Ltd. 'A' 383,700 3,256 ------------- TEXTILES & APPAREL Coates of India Ltd. 100,680 447 (a) DCL Polyesters Ltd. 195,000 31 G.T.N. Textiles Ltd. 'B' 243,000 353 Garware Plastics & Polyester Ltd. 275,525 454 Indo Rama Synthetics Ltd. 'B' 689,100 491 (b) Indo Rama Synthetics Ltd. -- New 46,170 31 (a) J.K. Synthetics Ltd. 'A' 686,901 110 Mahavir Spinning Mills Ltd. 173,686 359 Morajee Goculdas Spinning Ltd. 125,000 98 (a) Raymond Ltd. 82,595 150 (a,b) Raymond Ltd. -- New 126,057 211 (a) Viniyoga Clothes Ltd. 479,500 13 ------------- 2,748 ------------- TRANSPORTATION -- SHIPPING Great Eastern Shipping Ltd. 'A' 2,609,234 3,571 ------------- 134,850 ------------- - ----------------------------------------------------------- - ------------- INDONESIA (2.4%) AUTOMOBILES Astra International (Foreign) 1,815,500 7,465 ------------- BANKING (b) Bank International Indonesia (Foreign) 2,515,319 2,172 (a,b) Bank International Indonesia (Foreign) (Warrants), expiring 1/17/00 401,362 157 (b) Bank Negara Indonesia (Foreign) 4,000,000 2,549 ------------- 4,878 ------------- - ----------------------------------------------------------- - -------------
The accompanying notes are an integral part of the financial statements. 8
VALUE SHARES (000) - --------------------------------------------------- - ------------ INDONESIA (CONTINUED) BEVERAGES & TOBACCO (b) Gudang Garam (Foreign) 729,500 U.S.$ 3,060 (b) HM Sampoerna (Foreign) 389,000 1,483 ------------- 4,543 ------------- FOOD & HOUSEHOLD PRODUCTS (b) Indofood Sukses Makmur (Foreign) 250,000 576 ------------- FOREST PRODUCT & PAPER (a,b) Indah Kait Pulp & Paper (Warrants) Expiring 7/11/02 54,391 10 (a,b) Indah Kait Pulp & Paper (Rights), expiring 8/11/97 305,949 53 ------------- 63 ------------- MERCHANDISING (b) Matahari Putra Prima (Foreign) 1,023,500 2,062 ------------- MULTI-INDUSTRY (b) Bimantara Citra (Foreign) 160,000 280 ------------- TELECOMMUNICATIONS (b) Telekomunikasi Indonesia (Foreign) 1,608,000 2,628 ------------- 22,495 ------------- - ----------------------------------------------------------- - ------------- JAPAN (40.8%) APPLIANCES & HOUSEHOLD DURABLES Rinnai Corp. 160,700 3,451 ------------- AUTOMOBILES Asahi Tec Corp. 443,000 2,158 Nissan Motor Co. 1,000,000 7,760 Suzuki Motor Co. Ltd. 630,000 7,973 Toyota Motor Corp. 190,000 5,606 ------------- 23,497 ------------- BUILDING MATERIALS & COMPONENTS Sangetsu Co. Ltd. 147,000 3,079 Sanwa Shutter Corp. Ltd. 492,000 4,466 (a) Sanwa Shutter Corp. Ltd. (Warrants), expiring 1/20/98 1,400 595 ------------- 8,140 ------------- BUSINESS & PUBLIC SERVICES Dai Nippon Printing Co. Ltd. 270,000 6,104 ------------- CHEMICALS Daicel Chemical Industries Ltd. 1,012,000 3,913 Fuji Photo Film Ltd. 222,000 8,933 Kaneka Corp. 899,000 5,634 Mitsubishi Chemical Industries 2,060,000 6,726 Nifco Inc. 330,000 3,457 Okura Industrial Co. Ltd. 434,000 1,708 Sekisui Chemical Co. 703,000 7,118 ------------- 37,489 ------------- CONSTRUCTION & HOUSING Kyudenko Co. Ltd. 389,000 3,280 Obayashi Corp. 865,000 5,791 Sekisui House Ltd. 387,000 3,918 Taisei Corp. Ltd. 1,000,000 4,635 ------------- 17,624 ------------- DATA PROCESSING & REPRODUCTION Fujitsu Ltd. 910,000 12,629 Nissha Printing 43,000 495 Ricoh Co. Ltd. 866,000 11,339 ------------- 24,463 ------------- - ----------------------------------------------------------- - ------------- VALUE SHARES (000) - ----------------------------------------------------------- - ------------- ELECTRICAL & ELECTRONICS Canon, Inc. 450,000 U.S.$ 12,255 Hitachi Ltd. 1,185,000 13,240 Kyocera Corp. 60,000 4,766 Matsushita Electric Industrial Co. Ltd. 562,000 11,332 NEC Corp. 925,000 12,918 Nintendo Ltd. 130,000 10,893 Sony Corp. 145,000 12,644 Stanley Electric Co. 690,000 3,572 Tokyo Electron Ltd. 269,500 12,891 Toshiba Corp. 1,730,000 11,129 ------------- 105,640 ------------- ELECTRONIC COMPONENTS & INSTRUMENTS Mitsumi Electric Co. Ltd. 423,000 10,080 Murata Manufacturing Co. 180,000 7,164 TDK Corp. 145,000 10,644 ------------- 27,888 ------------- FINANCIAL SERVICES Hitachi Credit Corp. 198,000 3,837 ------------- HEALTH & PERSONAL CARE Sankyo Co. Ltd. 326,000 10,956 Yamanouchi Pharmaceutical Co. 300,000 8,065 ------------- 19,021 ------------- INDUSTRIAL COMPONENTS Furakawa Electric Co. 826,000 5,256 ------------- INSURANCE Sumitomo Marine & Fire Co. 542,000 4,447 ------------- MACHINERY & ENGINEERING Amada Co. Ltd. 817,000 7,203 Daifuku Co. Ltd. 531,000 6,999 Daikin Kogyo Co. 600,000 5,447 Fuji Machine Co. 329,000 11,918 Fujitec Co. Ltd. 400,000 4,748 Kurita Water Industries Ltd. 274,000 7,295 Mitsubishi Heavy Industries Ltd. 1,150,000 8,823 Nishio Rent All Co. 57,000 795 (a,b) Nishio Rent All Co. (Warrants), expiring 2/20/98 1,055 7 Tsubakimoto Chain Co. 872,000 5,328 ------------- 58,563 ------------- MERCHANDISING FamilyMart 158,200 7,760 ------------- MISCELLANEOUS MATERIALS & COMMODITIES Nippon Pillar Packing Co. 157,000 1,385 ------------- MULTI-INDUSTRY Lintec 150,000 2,736 ------------- REAL ESTATE Daibiru Corp. 228,000 2,746 Keihanshin Real Estate Co. 205,000 1,387 Mitsubishi Estate Co. Ltd. 390,000 5,651 ------------- 9,784 ------------- TELECOMMUNICATIONS Nippon Telephone & Telegraph Corp. 1,032 9,909 ------------- TEXTILES & APPAREL Shimamura Co. Ltd. 78,900 2,810 ------------- WHOLESALE & INTERNATIONAL TRADE Inabata & Co. 406,000 2,768 ------------- 382,572 ------------- - ----------------------------------------------------------- - -------------
The accompanying notes are an integral part of the financial statements. 9
VALUE SHARES (000) - --------------------------------------------------- - ------------ KOREA (3.1%) APPLIANCES & HOUSEHOLD DURABLES (b) Samsung Electronics Co. (Foreign) 57,197 U.S.$ 6,403 ------------- BANKING (b) Housing & Commercial Bank, Korea 89,340 1,668 Kookmin Bank GDR 90,309 1,908 (b) Shinhan Bank Co. Ltd. (Foreign) 42,040 609 ------------- 4,185 ------------- METALS -- STEEL (b) Pohang Iron & Steel Ltd. (Foreign) 500 51 Pohang Iron & Steel Ltd. ADR 161,500 5,168 ------------- 5,219 ------------- TELECOMMUNICATIONS LG Information & Communication Ltd. 57,580 7,133 ------------- UTILITIES -- ELECTRICAL & GAS Korea Electric Power Corp. (Foreign) 201,920 6,025 ------------- 28,965 ------------- - ----------------------------------------------------------- - ------------- MALAYSIA (3.2%) AUTOMOBILES Edaran Otomobil Nasional Bhd 143,000 1,218 ------------- BANKING Commerce Asset Holding Bhd 786,000 2,071 (a) Commerce Asset Holding Bhd (Rights) 157,200 6 (a) Commerce Asset Holding Bhd (Warrants), expiring 3/16/02 98,250 15 Malayan Banking Bhd 328,000 3,444 ------------- 5,536 ------------- BUILDING MATERIALS & COMPONENTS Jaya Tiasa Holdings Bhd 411,000 2,068 ------------- CONSTRUCTION & HOUSING IJM Corp. Bhd 545,000 1,144 ------------- ELECTRICAL & ELECTRONICS Lityan Holdings Bhd 110,000 1,340 ------------- ENERGY EQUIPMENT & SERVICES Dialog Group Bhd 132,000 1,909 ------------- FINANCIAL SERVICES Rashid Hussain Bhd 301,000 1,908 (a) Rashid Hussain Bhd (Rights) expiring 12/31/97 43,000 --@ ------------- 1,908 ------------- INDUSTRIAL COMPONENTS Leader Universal Holdings Bhd 603,000 1,085 Malaysian Pacific Industries Bhd 110,000 479 ------------- 1,564 ------------- LEISURE & TOURISM Berjaya Group Bhd 662,000 813 Genting Bhd 522,000 2,502 Resorts World Bhd 1,028,000 3,095 ------------- 6,410 ------------- MULTI-INDUSTRY Berjaya Sport Toto Bhd 89,000 420 Multi-Purpose Holdings Bhd 274,000 384 Sime Darby Bhd 1,776,000 5,911 ------------- 6,715 ------------- - ----------------------------------------------------------- - ------------- VALUE SHARES (000) - ----------------------------------------------------------- - ------------- REAL ESTATE Malaysian Resources Corp. Bhd 160,000 U.S.$ 441 ------------- 30,253 ------------- - ----------------------------------------------------------- - ------------- NEW ZEALAND (0.5%) FOREST PRODUCTS & PAPER Fletcher Challenge Paper 2,067,520 5,014 ------------- - ----------------------------------------------------------- - ------------- PHILIPPINES (1.8%) CONSTRUCTION & HOUSING DMCI Holdings, Inc. 9,894,000 3,264 ------------- MULTI-INDUSTRY JG Summit Holdings 'B' 4,390,100 899 ------------- REAL ESTATE Ayala Land, Inc. 'B' 3,273,631 3,010 (a) Fil-Estate Land Inc. 'B' 1,159,000 338 SM Prime Holdings, Inc. 'B' 9,637,680 2,850 ------------- 6,198 ------------- TELECOMMUNICATIONS (a) Digital Telecommunications Philippines, Inc. 30,651,000 2,963 ------------- UTILITIES -- ELECTRICAL & GAS Manila Electric Co. 'B' 734,306 3,619 ------------- 16,943 ------------- - ----------------------------------------------------------- - ------------- SINGAPORE (5.9%) BANKING Development Bank of Singapore (Foreign) 385,000 4,847 Oversea-Chinese Banking Corp. (Foreign) 463,200 4,795 United Overseas Bank (Foreign) 477,200 4,907 ------------- 14,549 ------------- BROADCASTING & PUBLISHING Singapore Press Holdings (Foreign) 439,000 8,843 ------------- ELECTRICAL & ELECTRONICS SM Summit Holdings Ltd. 2,238,000 1,691 ------------- ELECTRONIC COMPONENTS & INSTRUMENTS Electronic Resources Ltd. 397,000 625 (a) Electronic Resources Ltd. (Rights) 198,500 132 ------------- 757 ------------- FOOD & HOUSEHOLD PRODUCTS Super Coffeemix Manufacturing Ltd. 8,518,000 7,090 (a) Want Want Holdings 1,474,800 4,896 ------------- 11,986 ------------- MULTI-INDUSTRY Natsteel Ltd. 3,930,000 10,006 Parkway Holdings 791,000 3,541 Wing Tai Holdings Ltd. 1,478,000 4,258 ------------- 17,805 ------------- 55,631 ------------- - ----------------------------------------------------------- - -------------
The accompanying notes are an integral part of the financial statements. 10
VALUE SHARES (000) - ----------------------------------------------------------- - ------------- THAILAND (4.5%) BANKING Bangkok Bank Ltd. (Foreign) 1,901,800 U.S.$ 13,068 Industrial Finance Corp. (Foreign) 601,000 766 Siam Commercial Bank Co. Ltd. (Foreign) 1,796,500 7,351 (a) Thai Farmers Bank Ltd. (Foreign) 2,632,000 11,176 (a) Thai Farmers Bank Ltd. (Warrants) expiring 9/15/02 128,000 39 ------------- 32,400 ------------- BROADCASTING & PUBLISHING (b) National Multimedia Group (Foreign) 545,000 1,157 ------------- BUILDING MATERIALS & COMPONENTS Siam Cement Co. Ltd. (Foreign) 15,400 266 Tipco Asphalt Co. Ltd. (Foreign) 79,000 412 ------------- 678 ------------- CHEMICALS (b) National Petrochemical Ltd. (Foreign) 107,600 110 ------------- ELECTRONIC COMPONENTS & INSTRUMENTS Shinawatra Computer Co., Ltd. 81,000 560 ------------- ENERGY SOURCES Banpu Co. Ltd. (Foreign) 38,000 554 Lanna Lignite Co. Ltd. 13,000 91 Lanna Lignite Co. Ltd. (Foreign) 27,000 181 ------------- 826 ------------- FINANCIAL SERVICES National Finance & Securities Co., Ltd. (Foreign) 1,319,400 827 National Finance & Securities Co., Ltd. (Local) 882,000 553 Phatra Thanakit Co. Ltd. (Foreign) 3,400 4 ------------- 1,384 ------------- REAL ESTATE Central Pattana PCL 100,000 137 ------------- TELECOMMUNICATIONS Advanced Information Services Co., Ltd. (Foreign) 55,000 480 (b) United Communications Industry (Foreign) 931,000 3,845 ------------- 4,325 ------------- UTILITIES -- ELECTRICAL & GAS (a,d) Eastern Water Resources Development and Management 257,000 298 ------------- 41,875 ------------- - ----------------------------------------------------------- - ------------- TOTAL COMMON STOCKS (Cost U.S. $846,363) 902,887 -------------
- ----------------------------------------------------------- - -------------
FACE AMOUNT VALUE (000) (000) - ----------------------------------------------------------- - ------------- FIXED INCOME SECURITIES (0.0%) - ----------------------------------------------------------- - ------------- INDIA (0.0%) METALS -- STEEL (b) Tata SSL Ltd. 14.00%, 12/6/02 INR 3 U.S.$ 3 ------------- MULTI-INDUSTRY (b) Max India Part B, Zero Coupon 12/16/06 100 508 ------------- - ----------------------------------------------------------- - ------------- TOTAL FIXED INCOME SECURITIES (Cost U.S. $750) 511 ------------- - ----------------------------------------------------------- - ------------- SHORT-TERM INVESTMENT (1.2%) - ----------------------------------------------------------- - ------------- UNITED STATES (1.2%) REPURCHASE AGREEMENT Chase Securities, Inc., 5.70%, dated 6/30/97, due 7/1/97 to be repurchased at U.S. $11,556, collateralized by United States Treasury Notes 5.625%, due 2/15/06, valued at U.S. $11,749 (Cost U.S. $11,554) U.S.$ 11,554 11,554 ------------- - ----------------------------------------------------------- - ------------- FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (2.7%) Australian Dollar AUD 275 208 Hong Kong Dollar HKD 1,858 240 Indian Rupee INR 734,332 20,512 Indonesian Rupiah IDR 107,561 44 Japanese Yen JPY 325,165 2,838 Malaysian Ringgit MYR 168 67 New Zealand Dollar NZD 2 1 Philippine Peso PHP 3,610 137 Singapore Dollar SGD 199 139 South Korean Won KRW 200,658 226 Thai Baht THB 15,854 612 ------------- (Cost U.S. $25,015) 25,024 ------------- - ----------------------------------------------------------- - ------------- TOTAL INVESTMENTS (100.1%) (Cost U.S. $883,682) 939,976 ------------- - ----------------------------------------------------------- - ------------- OTHER ASSETS (0.7%) Receivable for Investments Sold U.S.$ 5,320 Dividends Receivable 1,320 Foreign Withholding Tax Reclaim Receivable 24 Deferred Organization Costs 23 Interest Receivable 2 Other Assets 81 6,770 --------------- ------------- - ----------------------------------------------------------- - ------------- LIABILITIES (-0.8%) Deferred Indian Taxes (1,070) Payable for: Investments Purchased (5,027) Investment Advisory Fees (745) Custodian Fees (302) Shareholder Reporting Expenses (139) Professional Fees (78) Administrative Fees (73) Directors' Fees and Expenses (68) Net Unrealized Loss on Foreign Currency Exchange Contracts (53) Other Liabilities (201) (6,686) --------------- ------------- - ----------------------------------------------------------- - -------------
The accompanying notes are an integral part of the financial statements. 11 - --------------------------------------------------- - ------------ NET ASSETS (100%) Applicable to 71,654,508 issued and outstanding U.S. $0.01 par value shares (100,000,000 shares authorized) U.S.$ 938,990 ------------- ------------- - ----------------------------------------------------------- - ------------- NET ASSET VALUE PER SHARE U.S. $ 13.10 ------------- ------------- - ----------------------------------------------------------- - ------------- AT JUNE 30, 1997, NET ASSETS CONSISTED OF: - ------------------------------------------------------------------------- Common Stock U.S.$ 717 Capital Surplus 927,879 Undistributed Net Investment Income 264 Accumulated Net Realized Loss (44,996) Unrealized Appreciation on Investments and Foreign Currency Translations (net of accrued foreign tax of U.S. $1,070 on unrealized appreciation) 55,126 - ----------------------------------------------------------- - ------------- TOTAL NET ASSETS U.S.$ 938,990 ------------- ------------- - ----------------------------------------------------------- - -------------
(a) -- Non-income producing. (b) -- Security valued at fair value -- see note A-1 to financial statements. (c) -- Security valued at fair value as determined based on the market value of the underlying security less subscription costs. (d) -- Security fair valued at cost -- see note A-1 to financial statements. (e) -- The Fund is advised by an affiliate. @ -- Value is less than U.S.$500. ADR -- American Depositary Receipt. GDR -- Global Depositary Receipt. 144A -- Certain conditions for public sale may exist. Note: Prior governmental approval for foreign investments may be required under certain circumstances in some emerging markets, and foreign ownership limitations may also be imposed by the charters of individual companies in emerging markets. As a result, an additional class of shares designated as "foreign" may be created and offered for investment. The "local" and "foreign" shares' market values may vary. - ----------------------------------------------------------- - ------------- FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of foreign currency exchange contracts open at June 30, 1997, the Fund is obligated to deliver or is to receive foreign currency in exchange for U.S. dollars as indicated below:
CURRENCY IN NET TO EXCHANGE UNREALIZED DELIVER VALUE SETTLEMENT FOR VALUE LOSS (000) (000) DATE (000) (000) (000) - -------------- ----------- ------------ ----------- ----------- ------------ U.S.$ 494 U.S.$ 494 7/2/97 THB12,779 U.S.$ 494 U.S.$-- THB 214,922 8,148 8/18/97 U.S.$ 8,095 8,095 (53) ----------- ----------- ------------ U.S.$8,642 U.S.$8,589 U.S.$(53) ----------- ----------- ------------ ----------- ----------- ------------
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY CLASSIFICATION -- JUNE 30, 1997 (UNAUDITED)
PERCENT VALUE OF NET INDUSTRY (000) ASSETS - --------------------------------------------------------------- - ---------------- Appliances & Household Durables U.S.$ 11,150 1.2% Automobiles 38,750 4.1 Banking 114,707 12.2 Beverages & Tobacco 4,931 0.5 Broadcasting & Publishing 10,000 1.1 Building Materials & Components 15,843 1.7 Business & Public Services 6,104 0.6 Chemicals 43,994 4.7 Construction & Housing 22,709 2.4 Data Processing & Reproduction 24,463 2.6 Electrical & Electronics 108,671 11.6 Electronic Components & Instruments 30,220 3.2 Energy Equipment & Services 30,548 3.2 Energy Sources 17,340 1.8 Financial Services 35,143 3.7 Food & Household Products 12,888 1.4 Forest Products & Paper 23,199 2.5 Health & Personal Care 20,273 2.2 Industrial Components 12,109 1.3 Insurance 4,447 0.5 Leisure & Tourism 7,240 0.8 Machinery & Engineering 62,289 6.6 Merchandising 9,822 1.0 Metals -- Non-Ferrous 16,684 1.8 Metals -- Steel 5,648 0.6 Mining Miscellaneous Materials & Commodities 2,400 0.3 Multi-Industry 88,967 9.5 Real Estate 70,282 7.5 Recreation, Other Consumer Goods 524 0.1 Telecommunications 30,214 3.2 Textiles & Apparel 5,558 0.6 Transportation -- Shipping 3,571 0.4 Utilities -- Electrical & Gas 9,942 1.0 Wholesale & International Trade 2,768 0.3 Other 36,578 3.9 ------------ ------- U.S.$939,976 100.1% ------------ ------- ------------ ------- - --------------------------------------------------------------- - ------------
The accompanying notes are an integral part of the financial statements. 12
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) STATEMENT OF OPERATIONS (000) - --------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends............................................................................... U.S.$ 6,027 Interest................................................................................ 1,124 Less: Foreign Taxes Withheld............................................................ (700) - --------------------------------------------------------------------------------------------------------------- Total Income.......................................................................... 6,451 - --------------------------------------------------------------------------------------------------------------- EXPENSES Investment Advisory Fees................................................................ 4,303 Custodian Fees.......................................................................... 596 Administrative Fees..................................................................... 428 Shareholder Reporting Expenses.......................................................... 220 Transfer Agent Fees..................................................................... 80 Professional Fees....................................................................... 57 Directors' Fees and Expenses............................................................ 35 Other Expenses.......................................................................... 66 - --------------------------------------------------------------------------------------------------------------- Total Expenses........................................................................ 5,785 - --------------------------------------------------------------------------------------------------------------- Net Investment Income............................................................... 666 - --------------------------------------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS) Investment Securities Sold.............................................................. (39,802) Foreign Currency Transactions........................................................... 333 - --------------------------------------------------------------------------------------------------------------- Net Realized Loss................................................................... (39,469) - --------------------------------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION Depreciation on Investments............................................................. 121,309 Depreciation on Foreign Currency Translations........................................... 87 - --------------------------------------------------------------------------------------------------------------- Change in Unrealized Appreciation/Depreciation...................................... 121,396 - --------------------------------------------------------------------------------------------------------------- Total Net Realized Loss and Change in Unrealized Appreciation/Depreciation.................. 81,927 - --------------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................... U.S.$ 82,593 - --------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1997 YEAR ENDED (UNAUDITED) DECEMBER 31, 1996 STATEMENT OF CHANGES IN NET ASSETS (000) (000) - --------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS Operations: Net Investment Income............................................... U.S.$ 666 U.S.$ 1,372 Net Realized Gain (Loss)............................................ (39,469) 49,641 Change in Unrealized Appreciation/Depreciation...................... 121,396 (94,387) - --------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations..... 82,593 (43,374) - --------------------------------------------------------------------------------------------------------------- Distributions: Net Investment Income............................................... -- (43,033) In Excess of Net Investment Income.................................. -- (402) - --------------------------------------------------------------------------------------------------------------- Total Distributions................................................. -- (43,435) - --------------------------------------------------------------------------------------------------------------- Capital Share Transactions: Common Stock Issued Through Rights Offering (18,000,000 shares)..... -- 174,612 Offering Costs...................................................... -- (820) - --------------------------------------------------------------------------------------------------------------- Net Increase in Net Assets Resulting From Capital Share Transactions...................................................... -- 173,792 - --------------------------------------------------------------------------------------------------------------- Total Increase...................................................... 82,593 86,983 Net Assets: Beginning of Period................................................. 856,397 769,414 - --------------------------------------------------------------------------------------------------------------- End of Period (including undistributed (distributions in excess of) net investment income of U.S.$264 and U.S.$(402), respectively)... U.S.$938,990 U.S.$856,397 - --------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 13 FINANCIAL HIGHLIGHTS
SIX MONTHS PERIOD FROM ENDED JUNE 30, YEAR ENDED DECEMBER 31, AUGUST 2, 1994* 1997 --------------------------------- TO DECEMBER 31, SELECTED PER SHARE DATA AND RATIOS: (UNAUDITED) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD.............. U.S.$ 11.95 U.S.$ 14.34 U.S.$ 13.20 U.S.$ 14.10 - ------------------------------------------------------------------------------------------------------------------------- Offering Costs.................................... -- (0.01) -- (0.03) - ------------------------------------------------------------------------------------------------------------------------- Net Investment Income............................. 0.01 0.02 0.05 0.05 Net Realized and Unrealized Gain (Loss) on Investments...................................... 1.14 (0.33) 1.16 (0.87) - ------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations.............. 1.15 (0.31) 1.21 (0.82) - ------------------------------------------------------------------------------------------------------------------------- Distributions: Net Investment Income......................... -- (0.60) (0.05) (0.04) In Excess of Net Investment Income............ -- (0.01) (0.00)# -- In Excess of Net Realized Gain................ -- -- (0.02) (0.01) - ------------------------------------------------------------------------------------------------------------------------- Total Distributions........................... -- (0.61) (0.07) (0.05) - ------------------------------------------------------------------------------------------------------------------------- Decrease in Net Asset Value due to Shares Issued through Rights Offering.......................... -- (1.46) -- -- - ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD.................... U.S.$ 13.10 U.S.$ 11.95 U.S.$ 14.34 U.S.$ 13.20 - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- PER SHARE MARKET VALUE, END OF PERIOD............. U.S.$ 10.50 U.S.$ 9.75 U.S.$ 13.33 U.S.$ 12.25 - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN: Market Value.................................. 7.69% (14.72)%+ 9.38% (12.71)% Net Asset Value (1)........................... 9.62% (2.87)%+ 9.24% (5.94)% - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- RATIOS, SUPPLEMENTAL DATA: - ------------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (THOUSANDS)............. U.S.$938,990 U.S.$856,397 U.S.$769,414 U.S.$708,323 - ------------------------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets........... 1.34%** 1.39% 1.36% 1.31%** Ratio of Net Investment Income to Average Net Assets........................................... 0.16%** 0.16% 0.36% 0.89%** Portfolio Turnover Rate........................... 28% 28% 21% 2% Average Commission Rate (2): Per Share..................................... U.S.$0.0138 U.S.$0.0132 N/A N/A As a Percentage of Trade Amount............... 0.43% 0.52% N/A N/A - -------------------------------------------------------------------------------------------------------------------------
* Commencement of Operations. ** Annualized. # Amount is less than U.S.$0.01. + This return does not include the effect of the rights issued in connection with the Rights Offering. (1) Total investment return based on net asset value per share reflects the effects of changes in net asset value on the performance of the Fund during each period, and assumes dividends and distributions, if any, were reinvested. This percentage is not an indication of the performance of a shareholder's investment in the Fund based on market value due to differences between the market price of the stock and the net asset value of the Fund. (2) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose the average commission rate per share it paid for portfolio trades on which commissions were charged during the period. The accompanying notes are an integral part of the financial statements. 14 NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 (UNAUDITED) - ------------ 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. 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. 3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase agreements, a bank as custodian for the Fund takes possession of the underlying securities, with a market value at least equal to the amount of the repurchase transaction, including principal and accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to determine the adequacy of the collateral. In the event of default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. In the event of default or bankruptcy by the counter-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 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 currency denominated assets and liabilities and foreign currency contracts at period end exchange rates are reflected as a component of unrealized appreciation (depreciation) on investments and foreign currency translations in 15 the Statement of Net Assets. The change in net unrealized currency gains (losses) for the period is reflected in the Statement of Operations. 5. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into foreign currency exchange contracts to attempt to protect securities and related receivables and payables against changes in future foreign exchange rates. 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. 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. The amount and character of income and capital gain distributions to be paid are determined in accordance with Federal income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing book and tax treatments for foreign currency transactions, the timing of the recognition of gains and losses on securities and foreign currency exchange contracts. Permanent book and tax basis differences relating to shareholder distributions may result in reclassifications to undistributed net investment income (loss), accumulated net realized gain (loss) and capital surplus. Adjustments for permanent book-tax differences, if any, are not reflected in ending undistributed net investment income (loss) for the purpose of calculating net investment income (loss) per share in the financial highlights. B. Morgan Stanley Asset Management Inc. (the "Adviser") provides investment advisory services to the Fund under the terms of an Investment Advisory and Management Agreement (the "Agreement"). Under the Agreement, the Adviser is paid a fee computed weekly and payable monthly at an annual rate of 1.00% of the Fund's average weekly net assets. C. The Chase Manhattan Bank, through its affiliate Chase Global Funds Services Company (the "Administrator"), provides administrative services to the Fund under an Administration Agreement. Under the Administration Agreement, the Administrator is paid a fee computed weekly and payable monthly at an annual rate of .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. The Chase Manhattan Bank acts as custodian for the Fund's assets held in the United States. 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 six months ended June 30, 1997, the Fund incurred International Custodian fees of $592,000 of which $298,000 was payable to the International Custodian at June 30, 1997. In addition, for the six months ended June 30, 1997, the Fund has earned interest income of $3,000 and incurred interest expense of $2,000 on balances with the International Custodian. E. For the six months ended June 30, 1997, the Fund made purchases and sales totaling $230,733,000 and $226,351,000, 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. For the six months ended June 30, 1997, 16 the Fund incurred $15,000 of brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliate of the Adviser. At June 30, 1997, the U.S. Federal income tax cost basis of securities was $858,667,000 and accordingly, net unrealized appreciation was $56,285,000 of which $160,531,000 related to appreciated securities and $104,246,000 related to depreciated securities. At December 31, 1996, the Fund had a capital loss carryforward for U.S. Federal income tax purposes of approximately $5,069,000 available to offset future capital 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. F. 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. G. A significant portion of the Fund's net assets consist of securities of issuers located in Asia which are denominated in foreign currencies. Changes in currency exchange rates will affect the value of and investment income from such securities. Asian securities are subject to greater price volatility, limited capitalization and liquidity, and higher rates of inflation than securities of companies based in the United States. In addition, Asian securities may be subject to substantial governmental involvement in the economy and greater social, economic and political uncertainty. H. The Fund issued to its shareholders of record as of the close of business on April 16, 1996 transferable Rights to subscribe for up to an aggregate of 18,000,000 shares of Common Stock of the Fund at a rate of one share of Common Stock for three Rights held at the subscription price of $10.00 per share. During May 1996 the Fund issued a total of 18,000,000 shares of Common Stock on exercise of such Rights. Rights' offering costs of $820,000 were charged directly against the proceeds of the Offering. The Fund was advised that Morgan Stanley & Co. Incorporated, an affiliate of the Adviser, received commissions of $3,062,000, dealer manager fees of $1,650,000 and reimbursement of its expenses of $125,000 in connection with its participation in the Rights Offering. 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 June 30, 1997 totaled $50,000 and are included in Payable for Directors' Fees and Expenses on the Statement of Net Assets. J. Supplemental Proxy Information The Annual Meeting of the Stockholders of the Morgan Stanley Asia-Pacific Fund, Inc. was held on April 30, 1997. The following is a summary of each proposal presented and the total number of shares voted:
VOTES IN VOTES VOTES PROPOSAL: FAVOR OF AGAINST ABSTAINED - ------------------------------------------------------------------------------- ---------- --------- ----------- 1. To elect the following Directors: John W. Croghan 36,863,272 413,715 -- Graham E. Jones 36,863,272 413,715 -- 2.To ratify the selection of Price Waterhouse LLP as independent public accountants of the Fund. 37,011,542 204,898 60,547 3.To approve or disapprove an Investment Advisory and Management Agreement between the Fund and Morgan Stanley Asset Management Inc. 36,738,087 419,335 119,563
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-----