-----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, Oh8pAbI3ivEzPAtRG9IebXcCJ3KvFHEWnqdckApz81al09zUpD+J22u6m3lKUiKS BAgxS/9s71Ce3cmmEGcCZQ== 0001047469-03-007916.txt : 20030306 0001047469-03-007916.hdr.sgml : 20030306 20030306155208 ACCESSION NUMBER: 0001047469-03-007916 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030306 EFFECTIVENESS DATE: 20030306 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY DEAN WITTER ASIA PACIFIC FUND INC CENTRAL INDEX KEY: 0000919808 IRS NUMBER: 000000000 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-08388 FILM NUMBER: 03594708 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 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY ASIA PACIFIC FUND INC DATE OF NAME CHANGE: 19940505 N-30D 1 a2100776zn-30d.txt N-30D ANNUAL REPORT December 31, 2002 [MORGAN STANLEY LOGO] Morgan Stanley Asia-Pacific Fund, Inc. Morgan Stanley Investment Management Inc. Investment Adviser Morgan Stanley Asia-Pacific Fund, Inc. DIRECTORS AND OFFICERS Barton M. Biggs William G. Morton, Jr. CHAIRMAN OF THE DIRECTOR BOARD OF DIRECTORS Michael Nugent Ronald E. Robison DIRECTOR PRESIDENT AND DIRECTOR Fergus Reid John D. Barrett II DIRECTOR DIRECTOR Stefanie V. Chang Thomas P. Gerrity VICE PRESIDENT DIRECTOR Lorraine Truten Gerard E. Jones VICE PRESIDENT DIRECTOR James W. Garrett Joseph J. Kearns TREASURER DIRECTOR Mary E. Mullin Vincent R. McLean SECRETARY DIRECTOR Belinda A. Brady C. Oscar Morong, Jr. ASSISTANT TREASURER DIRECTOR INVESTMENT ADVISER Morgan Stanley Investment Management Inc. 1221 Avenue of the Americas New York, New York 10020 ADMINISTRATOR JPMorgan Chase Bank 73 Tremont Street Boston, Massachusetts 02108 CUSTODIAN JPMorgan Chase Bank 3 Chase MetroTech Center Brooklyn, New York 11245 STOCKHOLDER SERVICING AGENT American Stock Transfer & Trust Company 59 Maiden Lane New York, New York 10030 (800) 278-4353 LEGAL COUNSEL Clifford Chance US LLP 200 Park Avenue New York, New York 10166 INDEPENDENT AUDITORS Ernst & Young LLP 200 Clarendon Street Boston, Massachusetts 02116 For additional Fund information, including the Fund's net asset value per share and information regarding the investments comprising the Fund's portfolio, please call 1-800-221-6726 or visit our website at www.morganstanley.com/im. (C) 2003 Morgan Stanley MORGAN STANLEY ASIA-PACIFIC FUND, INC. Overview Letter to Stockholders For the year ended December 31, 2002, the Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund") had a total return, based on net asset value per share of -7.12% compared with -7.52% for its benchmark. The benchmark for the Fund is comprised of two Morgan Stanley Capital International (MSCI) indices; Japan Net and All-Country Asia-Pacific Free ex-Japan Net, with each index weighted equally. On December 31, 2002, the closing price of the Fund's shares on the New York Stock Exchange was $7.20 representing a 16.0% discount to the Fund's net asset value per share. MARKET REVIEW The Japanese market had provided investors with good relative returns among asset classes during the twelve months ended December 2002, as positive indicators of a cyclical recovery pushed Japanese equities higher throughout the first half of the reporting period. As the period came to a close, however, mounting concerns about the prospects for an economic recovery in the United States led investors to reevaluate the anticipated cyclical recovery in Japan. The fourth quarter began with many market observers believing that Japan's economy might be entering the final phase of its 12-year bear market with the appointment of Heizo Takenaka, the new head of Japan's Financial Services Agency. His initial ideas were perceived to have a negative impact on the economy, and many lower-quality companies and bank shares were sold aggressively on fears of bankruptcies. Japanese corporate earnings, for the six months ending September, showed surprising improvement, especially in recurring profits (ex-financials) and return on equity ratios, owing largely to cost cutting and restructuring efforts over the last several years. Overall in 2002, All-Country Asia-Pacific ex-Japan performance was hampered by weak global economic growth, domestic concerns in select emerging markets, the continued sell-off of U.S. equities and increased geo-political risk. Nevertheless, the asset class outperformed both the U.S. and developed international markets. The MSCI All-Country Asia-Pacific Free (ACAPF) ex-Japan fell 5.6% versus a 15.9% decline in the MSCI Europe, Australasia and Far East index (EAFE) and a 22.1% decline in the S&P 500. Asia-Pacific Free ex-Japan started the year in positive territory as equities in the region were supported by early year expectations of a U.S. led economic recovery and positive economic data from select Asia-Pacific Free ex-Japan countries. However, after outperforming for much of the year and rebounding over 43.3% (MSCI ACAPF ex-Japan index return) from September 2001 lows, performance in the region turned negative during the second and third quarters. Domestic economic concerns in Hong Kong and Singapore coupled with profit taking within cyclical markets such as South Korea and Taiwan were the primary reasons for declines. During this period market participants in general shifted into more defensive, domestic oriented names and away from cyclical sectors on concerns over the quality of corporate earnings and the timing and magnitude of the global recovery. Overall, risk aversion had increased on a global basis during the second quarter, dominated by negative sentiment toward Brazil (due to poor political outlook) and greater uncertainty over the global backdrop. Increased reports of corporate accounting fraud and concerns over the strength of the U.S. economic recovery coupled with geo-political risks in the Asian sub-continent and the Middle East served to undermine investor confidence for much of the year. Nevertheless, amid a more favorable tone in U.S. equities, particularly in the months of October and November, Asia-Pacific Free ex-Japan markets rebounded following better than expected corporate earnings and export data from select Asia-Pacific Free ex-Japan countries. Risk appetite in particular increased at year end for technology and export stocks helping to support markets such as Taiwan and South Korea while improving economic data in Hong Kong and Thailand led markets higher. The Asia-Pacific Free ex-Japan region ended the period in review with a solid 4.8% fourth quarter return. MARKET OUTLOOK In Japan, the appointment of a new Bank of Japan governor will likely be the main issue for the first quarter of 2003. With the cyclical recovery beginning to wane, a more liberal governor may provide needed help and incentive for the Koizumi government to push reforms ahead more aggressively. With an election year in 2004, we believe that U.S. authorities will exercise every available option to stimulate the economy through stimulus spending and tax cuts and that the exchange rates between the Japanese yen and the U.S. dollar will remain relatively stable. We believe that select Japanese companies are continuing to reinvent themselves by focusing on their core competencies through restructuring, rationalization of their businesses and presenting attractive global valuation comparisons. Our long-term outlook for Asia-Pacific Free ex-Japan remains positive. We believe the Asian-Pacific Free ex-Japan markets are well positioned to continue to outperform global markets given valuations, corporate fundamentals, relative growth and leveraged exposure to the pick-up in global sentiment and economic activity. Near-term, however, global equities are likely to remain volatile given concerns over high oil prices due to the crises in Iraq and Venezuela and economic uncertainties in the U.S., Japan and Germany. Nevertheless, our expectations are for oil prices to fall to more normal levels once the crisis in Iraq passes and for global economies to recover in the second half of this year. Asia-Pacific Free ex-Japan markets are likely to be supported by reduced fears of a U.S. double dip recession as the economy begins to show the benefits of U.S. monetary easing that has lowered rates to 1.25%, a 41 year low. Signs of fundamental improvements in Indonesia, Thailand and Taiwan, along with patches of decent domestic strength continue to support overall sentiment in Asia-Pacific Free ex-Japan markets. On a bottom-up basis, we continue to focus on earnings visibility as a driver of medium-term returns. OTHER DEVELOPMENTS In our ongoing efforts to reduce Fund expenses, the Fund will discontinue the distribution of first and third quarter stockholder reports. The Fund will continue to produce and distribute semi-annual and annual stockholder reports. Additionally, the Fund's portfolio holdings information that was contained in the first and third quarter reports will be available on our web site, which is www.morganstanley.com/im, beginning in May of 2003. If you have difficulty accessing or navigating the site, or if you would like us to send you a copy of the portfolio holdings, please call us at 1-800-221-6726 and we will be happy to assist you. On February 13, 2003, Barton M. Biggs resigned as Director and Chairman of the Board of Directors of the Fund. On that same day, Mitch Merin, President and Chief Operating Officer of the Adviser, was elected by the Fund's Board of Directors to serve as a Director and Chairman of the Board of Directors of the Fund. Sincerely, /s/ Ronald E. Robison Ronald E. Robison President and Director January 2003 2 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Investment Summary (Unaudited) December 31, 2002 Historical Information
TOTAL RETURN (%) ------------------------------------------------------------------------------------------- MARKET VALUE(1) NET ASSET VALUE(2) INDEX(3) ------------------------------------------------------------------------------------------- AVERAGE AVERAGE AVERAGE CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL - --------------------------------------------------------------------------------------------------------------------- One Year (3.77)% (3.77)% (7.12)% (7.12)% (7.52)% (7.52)% Five Year (0.28) (0.06) 0.70 0.14 (16.12) (3.45) Since Inception* (37.84) (5.49) (25.98) (3.52) (44.48) (6.75)
Past performance is not predictive of future performance. [CHART] Returns and Per Share Information
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------------------------------- 1994* 1995 1996 1997 1998 1999 2000 2001 2002 - ---------------------------------------------------------------------------------------------------------------------------------- Net Asset Value Per Share $ 13.20 $ 14.34 $ 11.95 $ 8.77 $ 8.73 $ 15.26 $ 10.82 $ 9.24 $ 8.57 - ---------------------------------------------------------------------------------------------------------------------------------- Market Value Per Share $ 12.25 $ 13.33 $ 9.75 $ 7.44 $ 7.00 $ 11.81 $ 8.69 $ 7.49 $ 7.20 - ---------------------------------------------------------------------------------------------------------------------------------- Premium/(Discount) (7.2)% (7.0)% (18.4)% (15.2)% (19.8)% (22.6)% (19.7)% (18.9)% (16.0)% - ---------------------------------------------------------------------------------------------------------------------------------- Income Dividends $ 0.04 $ 0.05 $ 0.61 $ 0.02 $ 0.01 $ 0.04 $ 0.22 -- $ 0.01 - ---------------------------------------------------------------------------------------------------------------------------------- Capital Gains Distributions $ 0.01 $ 0.02 -- -- -- -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Fund Total Return(2) (5.94)% 9.24% (2.87)%+ (26.36)% (0.34)% 75.39% (27.37)% (14.60)% (7.12)% - ---------------------------------------------------------------------------------------------------------------------------------- Index Total Return(3) (5.24)% 2.88% (3.63)% (29.55)% (0.30)% 55.16% (30.21)% (17.39)% (7.52)% - ----------------------------------------------------------------------------------------------------------------------------------
(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. Total returns do not reflect the deduction of taxes that a stockholder would pay on Fund distributions or the redemption of fund shares. These percentages are not an indication of the performance of a stockholder's investment in the Fund based on market value due to differences between the market price of the stock and the net asset value per share of the Fund. (3) The benchmark for investment performance is comprised of two Morgan Stanley Capital International (MSCI) indices; Japan Net and All-Country Asia-Pacific Free ex-Japan Net with each index weighted equally. The net dividends reinvested series approximate the minumum possible dividend reinvestment. The dividend is reinvested after deduction of withholding tax, applying the rate applicable to non-resident individuals who do not benefit from double taxation treaties. * The Fund commenced operations on August 2, 1994. + This return does not include the effect of the rights issued in connection with the rights offering. FOREIGN INVESTING INVOLVES CERTAIN RISKS, INCLUDING CURRENCY FLUCTUATIONS AND CONTROLS, RESTRICTIONS ON FOREIGN INVESTMENTS, LESS GOVERNMENTAL SUPERVISION AND REGULATION, LESS LIQUIDITY AND THE POTENTIAL FOR MARKET VOLATILITY AND POLITICAL INSTABILITY. IN ADDITION, INVESTING IN EMERGING MARKETS MAY INVOLVE A RELATIVELY HIGHER DEGREE OF VOLATILITY. 3 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Portfolio Summary (Unaudited) December 31, 2002 [CHART] Allocation of Total Investments Equity Securities 96.7% Short-Term Investments 3.3%
[CHART] Industries Semiconductor Equipment & Products 7.6% Household Durables 7.2% Banks 5.8% Chemicals 5.6% Automobiles 5.5% Other 68.3%
[CHART] Country Weightings Japan 49.9% South Korea 12.0% Hong Kong 9.6% Australia 8.9% Taiwan 7.6% Other 12.0%
Ten Largest Holdings*
PERCENT OF NET ASSETS - ---------------------------------------------------------------------------- 1. Samsung Electronics Co., Ltd. (South Korea) 5.2% 2. SK Telecom Co., Ltd. (South Korea) 2.0 3. Toyota Motor Corp. (Japan) 1.7 4. BHP Billiton Ltd. (Australia) 1.7 5. Nissan Motor Co., Ltd. (Japan) 1.7 6. Canon, Inc. (Japan) 1.6% 7. Rio Tinto Ltd. (Australia) 1.5 8. Ricoh Co., Ltd. (Japan) 1.5 9. Yamanouchi Pharmaceutical Co.,Ltd. (Japan) 1.5 10. Fuji Photo Film Co., Ltd. (Japan) 1.5 ---- 19.9% ====
* Excludes Short-Term Investments 4 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Statement of Net Assets STATEMENT OF NET ASSETS December 31, 2002
VALUE SHARES (000) - ------------------------------------------------------------------------------------ COMMON STOCKS (95.2%) (UNLESS OTHERWISE NOTED) ==================================================================================== AUSTRALIA (8.5%) AIRLINES Qantas Airways Ltd. 961,650 $ 2,067 - ------------------------------------------------------------------------------------ BANKS Australia & New Zealand Banking Group Ltd. 399,350 3,888 Commonwealth Bank of Australia 162,350 2,460 - ------------------------------------------------------------------------------------ 6,348 - ------------------------------------------------------------------------------------ COMMERCIAL SERVICES & SUPPLIES Brambles Industries Ltd. 318,901 841 - ------------------------------------------------------------------------------------ DIVERSIFIED FINANCIALS Macquarie Bank Ltd. 52,600 697 - ------------------------------------------------------------------------------------ INSURANCE QBE Insurance Group Ltd. 239,050 1,093 - ------------------------------------------------------------------------------------ MEDIA News Corp., Ltd. 508,900 3,278 - ------------------------------------------------------------------------------------ METALS & MINING BHP Billiton Ltd. 902,277 5,139 MIM Holdings Ltd. 2,500,540 2,119 Rio Tinto Ltd. 244,050 4,649 - ------------------------------------------------------------------------------------ 11,907 - ------------------------------------------------------------------------------------ 26,231 ==================================================================================== CHINA (0.2%) ELECTRIC UTILITIES Huaneng Power International, Inc., 'H' 994,000 797 ==================================================================================== HONG KONG (9.6%) AIRLINES Cathay Pacific Airways Ltd. 426,000 582 - ------------------------------------------------------------------------------------ DISTRIBUTORS Li & Fung Ltd. 1,504,000 1,427 - ------------------------------------------------------------------------------------ DIVERSIFIED FINANCIALS Hong Kong Exchanges & Clearing Ltd. 572,000 719 Swire Pacific Ltd. 'A' 260,000 993 Wharf Holdings Ltd. 412,000 777 - ------------------------------------------------------------------------------------ 2,489 - ------------------------------------------------------------------------------------ ELECTRICAL EQUIPMENT Johnson Electric Holdings Ltd. 1,646,000 1,805 - ------------------------------------------------------------------------------------ HOUSEHOLD DURABLES Techtronic Industries Co., Ltd. 848,000 805 - ------------------------------------------------------------------------------------ INDUSTRIAL CONGLOMERATES Hutchison Whampoa Ltd. 592,950 3,710 - ------------------------------------------------------------------------------------ MEDIA Television Broadcasts Ltd. 268,000 845 - ------------------------------------------------------------------------------------ OIL & GAS CNOOC Ltd. 1,010,000 $ 1,314 - ------------------------------------------------------------------------------------ REAL ESTATE Cheung Kong Holdings Ltd. 460,000 2,993 Henderson Land Development Co., Ltd. 749,000 2,247 Sun Hung Kai Properties Ltd. 625,000 3,703 - ------------------------------------------------------------------------------------ 8,943 - ------------------------------------------------------------------------------------ SPECIALTY RETAIL Esprit Holdings Ltd. 1,140,000 1,922 Giordano International Ltd. 1,456,000 570 - ------------------------------------------------------------------------------------ 2,492 - ------------------------------------------------------------------------------------ TEXTILES & APPAREL Texwinca Holdings Ltd. 995,000 740 - ------------------------------------------------------------------------------------ WIRELESS TELECOMMUNICATION SERVICES China Mobile (Hong Kong) Ltd. 1,452,000(a) 3,454 SmarTone Telecommunications Holdings Ltd. 839,000 936 - ------------------------------------------------------------------------------------ 4,390 - ------------------------------------------------------------------------------------ 29,542 ==================================================================================== INDIA (2.0%) AUTOMOBILES Hero Honda Motors Ltd. 155,725 882 - ------------------------------------------------------------------------------------ BANKS State Bank of India Ltd. 145,235(b) 879 - ------------------------------------------------------------------------------------ ELECTRICAL EQUIPMENT Bharat Heavy Electricals Ltd. 171,937 619 - ------------------------------------------------------------------------------------ IT CONSULTING & SERVICES Infosys Technologies Ltd. 19,850 1,975 - ------------------------------------------------------------------------------------ METALS & MINING Hindalco Industries Ltd. 56,000 685 Tata Iron & Steel Co., Ltd. 1,910 6 - ------------------------------------------------------------------------------------ 691 - ------------------------------------------------------------------------------------ OIL & GAS Hindustan Petroleum Corp., Ltd. 69,000 414 - ------------------------------------------------------------------------------------ TOBACCO ITC Ltd. 58,900 811 - ------------------------------------------------------------------------------------ 6,271 ==================================================================================== INDONESIA (0.7%) AUTOMOBILES Astra International Tbk PT 3,029,000(a) 1,066 - ------------------------------------------------------------------------------------ DIVERSIFIED TELECOMMUNICATION SERVICES Telekomunikasi Indonesia Tbk PT 2,904,500 1,250 - ------------------------------------------------------------------------------------ 2,316 ==================================================================================== JAPAN (49.9%) AUTOMOBILES Nissan Motor Co., Ltd. 654,000 5,099
The accompanying notes are an integral part of the financial statements. 5 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Statement of Net Assets (cont'd) STATEMENT OF NET ASSETS December 31, 2002
VALUE SHARES (000) - ------------------------------------------------------------------------------------ JAPAN (CONT'D) AUTOMOBILES (CONT'D) Suzuki Motor Corp. 294,000 $ 3,193 Toyota Motor Corp. 194,300 5,219 - ------------------------------------------------------------------------------------ 13,511 - ------------------------------------------------------------------------------------ BUILDING PRODUCTS Daikin Industries Ltd. 246,000 3,894 Sanwa Shutter Corp., Ltd. 352,000 948 - ------------------------------------------------------------------------------------ 4,842 - ------------------------------------------------------------------------------------ CHEMICALS Daicel Chemical Industries Ltd. 798,000 2,251 Denki Kagaku Kogyo Kabushiki Kaisha 1,038,000 2,264 Kaneka Corp. 540,000 2,887 Lintec Corp. 195,000 1,528 Mitsubishi Chemical Corp. 1,079,000(a) 2,153 Nifco, Inc. 203,000 2,205 Shin-Etsu Polymer Co., Ltd. 387,000 1,626 Toyo INK MFG Co., Ltd. 100,000 270 - ------------------------------------------------------------------------------------ 15,184 - ------------------------------------------------------------------------------------ COMMERCIAL SERVICES & SUPPLIES Dai Nippon Printing Co., Ltd. 188,000 2,078 Nissha Printing Co., Ltd. 63,000 397 - ------------------------------------------------------------------------------------ 2,475 - ------------------------------------------------------------------------------------ COMPUTERS & PERIPHERALS Fujitsu Ltd. 671,000 1,915 Mitsumi Electric Co., Ltd. 221,500 2,016 NEC Corp. 560,000 2,094 Toshiba Corp. 1,280,000(a) 4,009 - ------------------------------------------------------------------------------------ 10,034 - ------------------------------------------------------------------------------------ CONSTRUCTION & ENGINEERING Kyudenko Corp. 220,000 819 Obayashi Corp. 692,000 1,538 Sanki Engineering Co., Ltd. 74,000 354 - ------------------------------------------------------------------------------------ 2,711 - ------------------------------------------------------------------------------------ DIVERSIFIED FINANCIALS Hitachi Capital Corp. 258,300 3,093 - ------------------------------------------------------------------------------------ DIVERSIFIED TELECOMMUNICATION SERVICES Nippon Telegraph & Telephone Corp. 936 3,397 - ------------------------------------------------------------------------------------ ELECTRIC UTILITIES Tokyo Electric Power Co., Inc. 165,100 3,135 - ------------------------------------------------------------------------------------ ELECTRICAL EQUIPMENT Furukawa Electric Co., Ltd. 414,000 868 - ------------------------------------------------------------------------------------ ELECTRONIC EQUIPMENT & INSTRUMENTS Hitachi High-Technologies Corp. 70,000 869 Hitachi Ltd. 712,000 2,728 Kyocera Corp. 54,600 $ 3,176 Ryosan Co., Ltd. 133,000 1,336 TDK Corp. 72,200 2,906 - ------------------------------------------------------------------------------------ 11,015 - ------------------------------------------------------------------------------------ FOOD & DRUG RETAILING FamilyMart Co., Ltd. 127,300 2,492 - ------------------------------------------------------------------------------------ FOOD PRODUCTS House Foods Corp. 136,000 1,284 Nippon Meat Packers, Inc. 210,000 2,095 - ------------------------------------------------------------------------------------ 3,379 - ------------------------------------------------------------------------------------ HOUSEHOLD DURABLES Casio Computer Co., Ltd. 407,000 2,265 Matsushita Electric Industrial Co., Ltd. 374,000 3,684 Nintendo Co., Ltd. 41,200 3,847 Rinnai Corp. 83,700 1,906 Sangetsu Co., Ltd. 17,000 279 Sekisui Chemical Co., Ltd. 500,000 1,293 Sekisui House Ltd. 351,000 2,483 Sony Corp. 105,700 4,414 - ------------------------------------------------------------------------------------ 20,171 - ------------------------------------------------------------------------------------ LEISURE EQUIPMENT & PRODUCTS Fuji Photo Film Co., Ltd. 141,000 4,595 Yamaha Corp. 310,000 2,863 - ------------------------------------------------------------------------------------ 7,458 - ------------------------------------------------------------------------------------ MACHINERY Amada Co., Ltd. 508,000 1,386 Daifuku Co., Ltd. 583,000 1,747 Fuji Machine Manufacturing Co., Ltd. 156,000 1,471 Fujitec Co., Ltd. 178,000 926 Kurita Water Industries Ltd. 234,000 2,354 Minebea Co., Ltd. 504,000 1,753 Mitsubishi Heavy Industries Ltd. 1,106,000 2,701 Tsubakimoto Chain Co. 743,000 1,758 - ------------------------------------------------------------------------------------ 14,096 - ------------------------------------------------------------------------------------ MARINE Mitsubishi Logistics Corp. 141,000 687 - ------------------------------------------------------------------------------------ MEDIA Toho Co., Ltd. 75,000 719 - ------------------------------------------------------------------------------------ OFFICE ELECTRONICS Canon, Inc. 129,000 4,855 Ricoh Co., Ltd. 281,000 4,606 - ------------------------------------------------------------------------------------ 9,461 - ------------------------------------------------------------------------------------ PHARMACEUTICALS Ono Pharmaceutical Co., Ltd. 104,000 3,143 Sankyo Co., Ltd. 275,000 3,448
The accompanying notes are an integral part of the financial statements. 6 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Statement of Net Assets (cont'd) STATEMENT OF NET ASSETS December 31, 2002
VALUE SHARES (000) - ------------------------------------------------------------------------------------ JAPAN (CONT'D) PHARMACEUTICALS (CONT'D) Yamanouchi Pharmaceutical Co., Ltd. 159,000 $ 4,605 - ------------------------------------------------------------------------------------ 11,196 - ------------------------------------------------------------------------------------ REAL ESTATE Mitsubishi Estate Co., Ltd. 436,000 3,318 - ------------------------------------------------------------------------------------ ROAD & RAIL East Japan Railway Co. 769 3,814 - ------------------------------------------------------------------------------------ SEMICONDUCTOR EQUIPMENT & PRODUCTS Rohm Co., Ltd. 14,200 1,806 - ------------------------------------------------------------------------------------ TEXTILES & APPAREL Nisshinbo Industries, Inc. 315,000 1,093 - ------------------------------------------------------------------------------------ TRADING COMPANIES & DISTRIBUTORS Mitsubishi Corp. 529,000 3,229 Nagase & Co., Ltd. 197,000 883 - ------------------------------------------------------------------------------------ 4,112 - ------------------------------------------------------------------------------------ 154,067 ==================================================================================== MALAYSIA (0.7%) BANKS Commerce Asset Holdings Bhd 1,384,000 1,180 - ------------------------------------------------------------------------------------ HOTELS, RESTAURANTS & LEISURE Magnum Corp. Bhd 1,446,000 871 - ------------------------------------------------------------------------------------ 2,051 ==================================================================================== SINGAPORE (4.6%) AIRLINES Singapore Airlines Ltd. 438,000 2,576 - ------------------------------------------------------------------------------------ BANKS DBS Group Holdings Ltd. 318,979 2,023 United Overseas Bank Ltd. 416,389 2,832 - ------------------------------------------------------------------------------------ 4,855 - ------------------------------------------------------------------------------------ DIVERSIFIED FINANCIALS Keppel Corp., Ltd. 309,000 659 - ------------------------------------------------------------------------------------ ELECTRONIC EQUIPMENT & INSTRUMENTS Venture Corp., Ltd. 230,000 1,843 - ------------------------------------------------------------------------------------ INDUSTRIAL CONGLOMERATES SembCorp Industries Ltd. 1,704,000 771 - ------------------------------------------------------------------------------------ MARINE Neptune Orient Lines Ltd. 2,291,000(a) 1,215 - ------------------------------------------------------------------------------------ REAL ESTATE CapitaLand, Ltd. 1,464,000 937 City Developments Ltd. 250,000 600 - ------------------------------------------------------------------------------------ 1,537 - ------------------------------------------------------------------------------------ TRANSPORTATION INFRASTRUCTURE Sembcorp Logistics Ltd. 671,800 608 - ------------------------------------------------------------------------------------ 14,064 ==================================================================================== SOUTH KOREA (10.9%) AUTO COMPONENTS Hyundai Mobis 125,720 $ 2,311 - ------------------------------------------------------------------------------------ AUTOMOBILES Hyundai Motor Co., Ltd. 36,420 852 - ------------------------------------------------------------------------------------ BANKS Shinhan Financial Group Co., Ltd. 167,260 1,749 - ------------------------------------------------------------------------------------ CHEMICALS LG Chem Ltd. 18,140 621 - ------------------------------------------------------------------------------------ DIVERSIFIED FINANCIALS Daishin Securities Co. 41,290 498 LG Investment & Securities Co., Ltd. 57,540 645 Samsung Securities Co., Ltd. 42,430(a) 1,025 Seoul Securities Co., Ltd. 32,300 115 - ------------------------------------------------------------------------------------ 2,283 - ------------------------------------------------------------------------------------ FOOD PRODUCTS Tongyang Confectionery Corp. 15,050 736 - ------------------------------------------------------------------------------------ HOUSEHOLD DURABLES Humax Co., Ltd. 36,190 444 LG Electronics Ltd. 26,169(a) 911 - ------------------------------------------------------------------------------------ 1,355 - ------------------------------------------------------------------------------------ MEDIA CJ Home Shopping 16,616 593 - ------------------------------------------------------------------------------------ METALS & MINING POSCO 22,750 2,263 POSCO ADR 20,700 512 - ------------------------------------------------------------------------------------ 2,775 - ------------------------------------------------------------------------------------ MULTILINE RETAIL Shinsegae Co., Ltd. 5,320 671 - ------------------------------------------------------------------------------------ SEMICONDUCTOR EQUIPMENT & PRODUCTS Samsung Electronics Co., Ltd. 51,337 13,591 - ------------------------------------------------------------------------------------ WIRELESS TELECOMMUNICATION SERVICES SK Telecom Co., Ltd. 26,400 5,097 SK Telecom Co., Ltd. ADR 50,600 1,080 - ------------------------------------------------------------------------------------ 6,177 - ------------------------------------------------------------------------------------ 33,714 ==================================================================================== TAIWAN (7.6%) AIRLINES Eva Airways Corp. 3,016,884(a) 1,275 - ------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 7 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Statement of Net Assets (cont'd) STATEMENT OF NET ASSETS December 31, 2002
VALUE SHARES (000) - ------------------------------------------------------------------------------------ TAIWAN (CONT'D) BANKS Taishin Financial Holdings Co., Ltd. 2,795,000(a) $ 1,436 - ------------------------------------------------------------------------------------ CHEMICALS Formosa Chemicals & Fibre Corp. 455,726 484 Formosa Plastics Corp. 644,000 847 - ------------------------------------------------------------------------------------ 1,331 - ------------------------------------------------------------------------------------ COMMUNICATIONS EQUIPMENT Accton Technology Corp. 1,481,725(a) 1,518 - ------------------------------------------------------------------------------------ COMPUTERS & PERIPHERALS Asustek Computer, Inc. 414,800 730 Quanta Computer, Inc. 465,100 765 Quanta Storage, Inc. 99,000(a) 666 - ------------------------------------------------------------------------------------ 2,161 - ------------------------------------------------------------------------------------ CONSTRUCTION & ENGINEERING CTCI Corp. 922,000 492 - ------------------------------------------------------------------------------------ DIVERSIFIED FINANCIALS Chinatrust Financial Holding Co., Ltd. 3,698,043(a) 3,021 Polaris Securities Co., Ltd. 1,481,000(a) 517 Sinopac Holdings Co. 2,929,432(a) 1,230 - ------------------------------------------------------------------------------------ 4,768 - ------------------------------------------------------------------------------------ ELECTRICAL EQUIPMENT Phoenixtec Power Co., Ltd. 977,000 742 - ------------------------------------------------------------------------------------ ELECTRONIC EQUIPMENT & INSTRUMENTS Hon Hai Precision Industry Co., Ltd. 596,200 2,065 - ------------------------------------------------------------------------------------ INSURANCE Cathay Financial Holding Co., Ltd. 396,000 422 - ------------------------------------------------------------------------------------ LEISURE EQUIPMENT & PRODUCTS Largan Precision Co., Ltd. 131,300 735 Premier Image Technology Corp. 704,000 1,087 - ------------------------------------------------------------------------------------ 1,822 - ------------------------------------------------------------------------------------ SEMICONDUCTOR EQUIPMENT & PRODUCTS ASE Test Ltd. 42,500 170 Novatek Microelectronics Corp., Ltd. 406,800 769 Siliconware Precision Industries Co. 1,253,247(a) 611 Taiwan Semiconductor Manufacturing Co., Ltd. 2,901,584(a) 3,567 United Microelectronics Corp. 613,646(a) 374 - ------------------------------------------------------------------------------------ 5,491 - ------------------------------------------------------------------------------------ 23,523 ==================================================================================== THAILAND (0.5%) BANKS Bangkok Bank PCL 589,400(a),(b) $ 820 Thai Farmers Bank PCL 858,500(a),(b) 597 - ------------------------------------------------------------------------------------ 1,417 ==================================================================================== TOTAL COMMON STOCKS (Cost $365,332) 293,993 ==================================================================================== PREFERRED STOCKS (1.5%) ==================================================================================== AUSTRALIA (0.4%) MEDIA News Corp., Ltd. 229,800 1,231 - ------------------------------------------------------------------------------------ SOUTH KOREA (1.1%) AUTOMOBILES Hyundai Motor Co., Ltd. 64,310 754 - ------------------------------------------------------------------------------------ SEMICONDUCTOR EQUIPMENT & PRODUCTS Samsung Electronics Co., Ltd. 20,460 2,588 - ------------------------------------------------------------------------------------ TOTAL PREFERRED STOCKS (Cost $4,840) 4,573 ==================================================================================== INVESTMENT COMPANIES (0.6%) ==================================================================================== INDIA (0.6%) Morgan Stanley Growth Fund (Cost $1,744) 9,491,200(a,c) 1,871 ==================================================================================== FACE AMOUNT (000) - ------------------------------------------------------------------------------------ SHORT-TERM INVESTMENT (3.0%) ==================================================================================== UNITED STATES (3.0%) REPURCHASE AGREEMENT J.P. Morgan Securities Inc., 1.05%, dated 12/31/02, due 1/02/03 (Cost $9,304) $ 9,304(d) 9,304 ==================================================================================== FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.3%) ==================================================================================== Australian Dollar AUD 21 12 Japanese Yen JPY 76,904 648 South Korean Won KRW 195 --@ Taiwan Dollar TWD 12,237 353 - ------------------------------------------------------------------------------------ TOTAL FOREIGN CURRENCY (Cost $986) 1,013 ====================================================================================
The accompanying notes are an integral part of the financial statements. 8 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Statement of Net Assets (cont'd) STATEMENT OF NET ASSETS December 31, 2002
VALUE (000) - ------------------------------------------------------------------------------------ TOTAL INVESTMENTS (100.6%) (Cost $382,206) $ 310,754 ==================================================================================== AMOUNT (000) - ------------------------------------------------------------------------------------ OTHER ASSETS (0.0%) Cash $ 1 Dividends Receivable 35 Tax Reclaim Receivable 5 Other 50 91 ==================================================================================== LIABILITIES (-0.6%) Payable For: Investments Purchased (1,184) Dividends Declared (277) Investment Advisory Fees (265) Stockholder Reporting Expenses (95) Custodian Fees (67) Directors' Fees and Expenses (66) Professional Fees (32) Stockholder Servicing Fee (24) Administrative Fees (16) Country Tax Expense (2) (2,028) ==================================================================================== NET ASSETS (100%) Applicable to 36,022,163 issued and outstanding $ 0.01 par value shares (100,000,000 shares authorized) $ 308,817 ==================================================================================== NET ASSET VALUE PER SHARE $ 8.57 ==================================================================================== AT DECEMBER 31, 2002, NET ASSETS CONSISTED OF: Common Stock $ 360 Paid-in Capital 590,788 Undistributed (Distributions in Excess of) Net Investment Income (209) Accumulated Net Realized Gain (Loss) (210,671) Unrealized Appreciation (Depreciation) on Investments and Foreign Currency Translations (71,451) ==================================================================================== TOTAL NET ASSETS $ 308,817 ====================================================================================
(a) -- Non-income producing. (b) -- Securities valued at fair value - see note A-1 to financial statements. At December 31, 2002, the Fund held $2,296,000 of fair-valued securities representing 0.7% of net assets. (c) -- Fund is advised by an affiliate. (d) -- The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of this statement of net assets. The investment in the repurchase agreement is through participation in a joint account with affiliated funds. @ -- Value is less than $500. ADR -- American Depositary Receipt HKD -- Hong Kong Dollar PCL -- Public Company Limited SGD -- Singapore Dollar =============================================================================== FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: The Fund had the following foreign currency exchange contract(s) open at period end:
CURRENCY IN NET TO EXCHANGE UNREALIZED DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS) (000) (000) DATE (000) (000) (000) ======================================================================== US$ 440 $ 440 1/02/03 HKD 3,431 $ 440 $ --@ US$ 700 700 1/03/03 HKD 5,461 700 --@ US$ 11 11 1/02/03 SGD 18 11 --@ US$ 8 8 1/03/03 SGD 14 8 --@ - ------------------------------------------------------------------------ $ 1,159 $ 1,159 $ --@ ========================================================================
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY CLASSIFICATION -- DECEMBER 31, 2002 (UNAUDITED)
PERCENT VALUE OF NET INDUSTRY (000) ASSETS - ------------------------------------------------------------------------------- Airlines $ 6,500 2.1% Automobiles 17,065 5.5 Banks 17,864 5.8 Building Products 4,842 1.6 Chemicals 17,136 5.6 Commercial Services & Supplies 3,316 1.1 Computers & Peripherals 12,195 3.9 Construction & Engineering 3,203 1.0 Diversified Financials 13,989 4.5 Diversified Telecommunication Services 4,647 1.5 Electric Utilities 3,932 1.3 Electrical Equipment 4,034 1.3 Electronic Equipment & Instruments 14,922 4.8 Food Products 4,115 1.3 Household Durables 22,331 7.2 Industrial Conglomerates 4,481 1.5 Leisure Equipment & Products 9,280 3.0 Machinery 14,096 4.5 Media 6,666 2.2 Metals & Mining 15,373 5.0 Office Electronics 9,461 3.1 Pharmaceuticals 11,196 3.6 Real Estate 13,798 4.5 Road & Rail 3,814 1.2 Semiconductor Equipment & Products 23,476 7.6 Trading Companies & Distributors 4,112 1.3 Wireless Telecommunication Services 10,567 3.4 Other 34,343 11.2 - ------------------------------------------------------------------------------- $ 310,754 100.6% ===============================================================================
The accompanying notes are an integral part of the financial statements. 9 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Financial Statements STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002 (000) - ------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of $621 of foreign taxes withheld) $ 5,428 Interest 105 ======================================================================================================= TOTAL INCOME 5,533 ======================================================================================================= EXPENSES Investment Advisory Fees 3,643 Administrative Fees 354 Custodian Fees 321 Stockholder Reporting Expenses 202 Country Tax Expense 111 Stockholder Servicing Fees 21 Directors' Fees and Expenses 4 Other Expenses 246 ======================================================================================================= TOTAL EXPENSES 4,902 ======================================================================================================= NET INVESTMENT INCOME (LOSS) 631 ======================================================================================================= NET REALIZED GAIN (LOSS) ON: Investments (2,531) Foreign Currency Transactions (204) ======================================================================================================= NET REALIZED GAIN (LOSS) (2,735) ======================================================================================================= CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON: Investments (17,298) Foreign Currency Translations 47 ======================================================================================================= CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (17,251) ======================================================================================================= TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (19,986) ======================================================================================================= NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (19,355) =======================================================================================================
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED DECEMBER 31, 2002 DECEMBER 31, 2001 (000) (000) - -------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS Operations: Net Investment Income (Loss) $ 631 $ 859 Net Realized Gain (Loss) (2,735) (70,098) Change in Unrealized Appreciation (Depreciation) (17,251) (18,155) ============================================================================================================== NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (19,355) (87,394) ============================================================================================================== Distributions from and/or in excess of: Net Investment Income (277) -- ============================================================================================================== Capital Share Transactions: Repurchase of Shares (6,960,192 and 14,446,519 shares, respectively) (68,887) (136,775) ============================================================================================================== TOTAL INCREASE (DECREASE) (88,519) (224,169) ============================================================================================================== Net Assets: Beginning of Period 397,336 621,505 ============================================================================================================== END OF PERIOD (INCLUDING UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET INVESTMENT INCOME OF $(209) AND $(417), RESPECTIVELY) $ 308,817 $ 397,336 ==============================================================================================================
The accompanying notes are an integral part of the financial statements. 10 MORGAN STANLEY ASIA-PACIFIC FUND, INC. SELECTED PER SHARE DATA AND RATIOS Financial Highlights
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------ 2002+ 2001 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.24 $ 10.82 $ 15.26 $ 8.73 $ 8.77 - --------------------------------------------------------------------------------------------------------------------------------- Net Investment Income (Loss) 0.02 (0.02) (0.01) 0.01 0.06 Net Realized and Unrealized Gain (Loss) on Investments (0.70) (1.56) (4.50) 6.44 (0.17) - --------------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations (0.68) (1.58) (4.51) 6.45 (0.11) - --------------------------------------------------------------------------------------------------------------------------------- Distributions from and/or in excess of: Net Investment Income (0.01) -- (0.22) (0.04) (0.01) - --------------------------------------------------------------------------------------------------------------------------------- Anti-Dilutive Effect of Share Repurchase Program 0.02 0.00# 0.29 0.12 0.08 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 8.57 $ 9.24 $ 10.82 $ 15.26 $ 8.73 ================================================================================================================================= PER SHARE MARKET VALUE, END OF PERIOD $ 7.20 $ 7.49 $ 8.69 $ 11.81 $ 7.00 ================================================================================================================================= TOTAL INVESTMENT RETURN: Market Value (3.77)% (13.78)% (24.66)% 69.32% (5.77)% Net Asset Value(1) (7.12)% (14.60)% (27.37)% 75.39% (0.34)% ================================================================================================================================= RATIOS, SUPPLEMENTAL DATA: - --------------------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (THOUSANDS) $ 308,817 $ 397,336 $ 621,505 $ 949,541 $ 587,156 - --------------------------------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.35% 1.39% 1.26% 1.29% 1.42% Ratio of Net Investment Income (Loss) to Average Net Assets 0.17% 0.19% (0.07)% 0.10% 0.80% Portfolio Turnover Rate 37% 27% 35% 65% 42% - ---------------------------------------------------------------------------------------------------------------------------------
# Amount is less than $0.005. (1) Total investment return based on net asset value per share reflects the effects of changes in net asset value on the performance of the Fund during each period, and assumes dividends and distributions, if any, were reinvested. This percentage is not an indication of the performance of a stockholder'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. + Per share amounts for the year ended December 31, 2002 are based on average shares outstanding. The accompanying notes are an integral part of the financial statements. 11 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Notes to Financial Statements December 31, 2002 The Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund") was incorporated in Maryland on February 28, 1994, and is registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended. The Fund's investment objective is long-term capital appreciation through investments primarily in equity securities. A. ACCOUNTING POLICIES: The following significant accounting policies are in conformity with accounting principles generally accepted in the United States of America. Such policies are consistently followed by the Fund in the preparation of its financial statements. Accounting principles generally accepted in the United States of America may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates. 1. SECURITY VALUATION: In valuing the Fund's assets, all listed securities for which market quotations are readily available are valued at the last sale price on the valuation date, or if there was no sale on such date, at the mean between the current bid and asked prices or the bid price if only bid quotations are available. Securities which are traded over-the-counter are valued at the mean of the current bid and asked prices obtained from reputable brokers. Securities may be valued by independent pricing services. The prices provided by a pricing service take into account broker dealer market price quotations for institutional size trading in similar groups of securities, security quality, maturity, coupon and other security characteristics as well as any developments related to the specific securities. Short-term securities which mature in 60 days or less are valued at amortized cost. For all other securities and investments for which market values are not readily available, including restricted securities, and where prices determined in accordance with the aforementioned procedures are not reflective of fair market value, values are determined in good faith, under fair valuation procedures adopted by the Board of Directors, although actual calculations may be done by others. 2. REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements under which the Fund lends excess cash and takes possession of securities with an agreement that the counterparty will repurchase such securities. In connection with transactions in repurchase agreements, a bank as custodian for the Fund takes possession of the underlying securities (collateral), with a market value at least equal to the amount of the repurchase transaction, including principal and accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to determine the adequacy of the collateral. In the event of default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. In the event of default or bankruptcy by the counterparty to the agreement, realization and/or retention of the collateral or proceeds may be subject to legal proceedings. The Fund, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into one or more repurchase agreements. 3. FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the mean of the bid and asked prices of such currencies against U.S. dollars last quoted by a major bank as follows: - investments, other assets and liabilities at the prevailing rates of exchange on the valuation date; - investment transactions and investment income at the prevailing rates of exchange on the dates of such transactions. Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, the Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of the securities held at period end. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) due to securities transactions are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from sales and maturities of foreign currency exchange contracts, disposition of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar 12 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Notes to Financial Statements (cont'd) December 31, 2002 equivalent amounts actually received or paid. Net unrealized currency gains (losses) from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of unrealized appreciation (depreciation) on investments and foreign currency translations in the Statement of Net Assets. The change in net unrealized currency gains (losses) on foreign currency translations for the period is reflected in the Statement of Operations. A significant portion of the Fund's net assets consist of securities of issuers located in Asia which are denominated in foreign currencies. Changes in currency exchange rates will affect the value of and investment income from such securities. Asian securities are subject to greater price volatility, limited capitalization and liquidity, and higher rates of inflation than securities of companies based in the United States. In addition, Asian securities may be subject to substantial governmental involvement in the economy and greater social, economic and political uncertainty. Such securities may be concentrated in a limited number of countries and regions and may vary throughout the year. The Fund may use derivatives to achieve its investment objectives. The Fund may engage in transactions in futures contracts on foreign currencies, stock indices, as well as in options, swaps and structured notes. Consistent with the Fund's investment objectives and policies, the Fund may use derivatives for non-hedging as well as hedging purposes. Following is a description of derivative instruments that the Fund has utilized and their associated risks: 4. 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 and, in certain situations, to gain exposure to a foreign currency. A foreign currency exchange contract is an agreement between two parties to buy or sell currency at a set price on a future date. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked-to-market daily and the change in market value is recorded by the Fund as unrealized gain or loss. The Fund records realized gains or losses when the contract is closed equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Risk may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and is generally limited to the amount of unrealized gain on the contracts, if any, at the date of default. Risks may also arise from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. 5. STRUCTURED SECURITIES: The Fund may invest in interests in entities organized and operated solely for the purpose of restructuring the investment characteristics of sovereign debt obligations. This type of restructuring involves the deposit with or purchase by an entity of specified instruments and the issuance by that entity of one or more classes of securities ("Structured Securities") backed by, or representing interests in, the underlying instruments. Structured Securities generally will expose the Fund to credit risks of the underlying instruments as well as of the issuer of the Structured Security. Structured Securities are typically sold in private placement transactions with no active trading market. Investments in Structured Securities may be more volatile than their underlying instruments, however, any loss is limited to the amount of the original investment. 6. OVER-THE-COUNTER TRADING: Securities and other derivative instruments that may be purchased or sold by the Fund may consist of instruments not traded on an exchange. The risk of nonperformance by the obligor on such an instrument may be greater, and the ease with which the Fund can dispose of or enter into closing transactions with respect to such an instrument may be less, than in the case of an exchange-traded instrument. In addition, significant disparities may exist between bid and asked prices for derivative instruments that are not traded on an exchange. Derivative instruments not traded on exchanges are also not subject to the same type of government regulation as exchange traded instruments, and many of the protections afforded to participants in a regulated environment may not be available in connection with such transactions. 7. 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 13 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Notes to Financial Statements (cont'd) December 31, 2002 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 dividends) net of applicable withholding taxes. Distributions to stockholders are recorded on the ex-dividend date. B. ADVISER: Morgan Stanley Investment Management Inc. (the "Adviser") provides investment advisory services to the Fund under the terms of an Investment Advisory and Management Agreement (the "Agreement"). Under the Agreement, the Adviser is paid a fee computed weekly and payable monthly at an annual rate of 1.00% of the Fund's average weekly net assets. C. ADMINISTRATOR: JPMorgan Chase Bank, through its corporate affiliate J.P. Morgan Investor Services Co. (the "Administrator"), provides administrative services to the Fund under an Administration Agreement. Under the old Administration Agreement, effective through September 30, 2002, the Administrator was paid a fee computed weekly and payable monthly at an annual rate of 0.09% of the Fund's average weekly net assets, plus $65,000 per annum. Effective October 1, 2002, under the new Administration Agreement, the Administrator is paid a fee computed weekly and payable monthly at an annual rate of 0.02435% of the Fund's average weekly net assets, plus $24,000 per annum. In addition, the Fund is charged for certain out-of-pocket expenses incurred by the Administrator on its behalf. D. CUSTODIAN: JPMorgan Chase Bank and its affiliates serve as custodian for the Fund. Custody fees are payable monthly based on assets held in custody, investment purchase and sales activity and account maintenance fees, plus reimbursement for certain out-of-pocket expenses. E. FEDERAL INCOME 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 Federal income taxes is required in the financial statements. Dividend income and distributions to stockholders are recorded on the ex-dividend date. 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. The tax character of distributions paid may differ from the character of distributions shown on the Statements of Changes in Net Assets due to short-term capital gains being treated as ordinary income for tax purposes. The tax character of distributions paid during 2002 and 2001 was as follows:
2002 DISTRIBUTIONS 2001 DISTRIBUTIONS PAID FROM: PAID FROM: (000) (000) --------------------------- -------------------------- LONG-TERM LONG-TERM ORDINARY CAPITAL ORDINARY CAPITAL INCOME GAIN INCOME GAIN ---------------------------------------------------------- $ 277 $ -- $ -- $ --
The amount and character of income and capital gain distributions to be paid by the Fund are determined in accordance with Federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. The book/tax differences are considered either temporary or permanent in nature. Temporary differences are attributable to differing book and tax treatments for the timing of the recognition of gains and losses on certain investment transactions and the timing of the deductibility of certain expenses. Permanent differences may result in reclassifications among undistributed net investment income (loss), accumulated net realized gain (loss) and paid-in capital. Adjustments for permanent book-tax differences, if any, are not reflected in ending undistributed net investment income (loss) for the purpose of calculating net investment income (loss) per share in the financial highlights. At December 31, 2002, the components of distributable earnings on a tax basis were are follows:
UNDISTRIBUTED UNDISTRIBUTED ORDINARY INCOME LONG-TERM CAPITAL GAIN (000) (000) -------------------------------------------- $ -- $ -- --------------------------------------------
At December 31, 2002, the U.S. Federal income tax cost basis of investments (excluding foreign currency if applicable) was approximately $382,713,000 and, accordingly, net unrealized depreciation for U.S. Federal income tax purposes was $72,972,000 of which $24,007,000 related to appreciated securities and $96,979,000 related to depreciated securities. At December 31, 2002, the Fund had a capital loss carryforward for U.S. Federal income tax purposes of 14 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Notes to Financial Statements (cont'd) December 31, 2002 approximately $208,653,000 available to offset future capital gains, of which $131,491,000 will expire on December 31, 2006, $73,332,000 will expire on December 31, 2009 and $3,830,000 will expire on December 31, 2010. To the extent that capital gains are offset, such gains will not be distributed to the stockholders. Net capital and currency losses incurred after October 31, and within the taxable year are deemed to arise on the first business day of the Fund's next taxable year. For the year ended December 31, 2002, the Fund deferred to January 1, 2003, for U.S. Federal income tax purposes, capital losses of $651,000 and post-October currency losses of $19,000. F. OTHER: During the year ended December 31, 2002, the Fund made purchases and sales totaling approximately $129,803,000 and $191,868,000 respectively, of investment securities other than long-term U.S. Government securities, purchased options and short-term investments. There were no purchases or sales of long-term U.S. Government securities. For the year ended December 31, 2002, the Fund incurred $40,000 of brokerage commissions with Morgan Stanley & Co., an affiliate of the Adviser. Each Director of the Fund who is not an officer of the Fund or an affiliated person as defined under the Investment Company Act of 1940, as amended, may elect to participate in the Directors' Deferred Compensation Plan (the "Compensation Plan"). Under the Compensation 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 will be 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 Compensation Plan. At December 31, 2002, the deferred fees payable under the Compensation Plan totaled $64,000 and are included in Payable for Directors' Fees and Expenses on the Statement of Net Assets. The deferred portion of Directors' Fees and Expenses shown on the Statement of Operations is impacted by fluctuations in the market value of the investments selected by each Director. For the year ended December 31, 2002, Directors' Fees and Expenses were decreased by $1,641 due to these fluctuations. On January 23, 1998, the Fund commenced a share repurchase program for purposes of enhancing stockholder value and reducing the discount at which the Fund's shares trade from their net asset value. For the year ended December 31, 2002, the Fund repurchased 598,594 of its shares at an average discount of 16.32% from net asset value per share. Since the inception of the program through December 31, 2002, the Fund has repurchased 14,913,528 of its shares at an average discount of 20.56% from net asset value per share. The Fund expects to continue to repurchase its outstanding shares at such time and in such amounts as it believes will further the accomplishment of the foregoing objectives, subject to review by the Board of Directors. On December 13, 2001, with the aim of enhancing stockholder value and reducing the discount at which the Fund's shares have been trading, the Board of Directors of the Fund authorized the Fund to conduct a tender offer during the second quarter of 2002 for up to 15% of the Funds shares, at a price equal to 95% of the Fund's net asset value per share ("NAV") on the last day of the tender period, or such later date as to which the offer is extended. On May 17, 2002, the Fund completed the tender offer. The Fund accepted 6,361,598 shares for payment which represented 15% of the Fund's then outstanding shares. Final payment was made on May 28, 2002 at $10.09 per share, representing 95% of the NAV per share on May 17, 2002. On December 13, 2002 the Officers of the Fund, pursuant to authority granted by the Board of Directors declared a distribution of $0.0077 per share, derived from net investment income, payable on January 10, 2003, to stockholders of record on December 24, 2002. FEDERAL TAX INFORMATION (UNAUDITED) For the year ended December 31, 2002, the Fund expects to pass through to stockholders foreign tax credits totaling approximately $611,000. In addition, for the year ended December 31, 2002, gross income derived from sources within a foreign country totaled $6,051,000. 15 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Independent Auditors' Report December 31, 2002 TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF MORGAN STANLEY ASIA-PACIFIC FUND, INC. We have audited the accompanying statement of net assets of Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund") as of December 31, 2002, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years then ended, and the financial highlights for each of the three years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the two years in the period ended December 31, 1999 were audited by other auditors whose report, dated February 18, 2000, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002 by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Morgan Stanley Asia-Pacific Fund, Inc. at December 31, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Ernst & Young LLP Boston, Massachusetts February 7, 2003 16 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Director and Officer Information (Unaudited) Overview Independent Directors:
NUMBER OF TERM OF PORTFOLIOS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS OF HELD WITH TIME PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY OTHER DIRECTORSHIPS HELD BY DIRECTOR REGISTRANT SERVED* PAST 5 YEARS DIRECTOR** DIRECTOR - ------------------------- ----------- ---------- ------------------------------ ------------- -------------------------------- John D. Barrett II (67) Director Director Chairman and Director of 71 Director of the Ashforth 565 Fifth Avenue since 1996 Barrett Associates, Inc. Company (real estate). New York, NY 10017 (investment counseling). Thomas P. Gerrity (61) Director Director Professor of Management, 71 Director, ICG Commerce, 219 Grays Lane since 2001 formerly Dean, Wharton Inc.; Sunoco; Fannie Mae; Haverford, PA 19041 School of Business, Reliance Group Holdings, University of Pennsylvania; Inc., CVS Corporation and formerly Director, IKON Knight-Ridder, Inc. Office Solutions, Inc., Fiserv, Digital Equipment Corporation, Investor Force Holdings, Inc. and Union Carbide Corporation. Gerard E. Jones (65) Director Director Of Counsel, Shipman & 72 Director of Tractor Supply Shipman & Goodwin, LLP since 1996 Goodwin, LLP (law firm). Company, Tiffany Foundation, 43 Arch Street and Fairfield County Greenwich, CT 06830 Foundation. Director of The India Magnum Fund Ltd. Joseph J. Kearns (60) Director Director Investment consultant; 71 Director, Electro Rent Kearns & Associates LLC since 2001 formerly CFO of The J. Paul Corporation and The Ford PMB 754 Getty Trust. Family Foundation. 23852 Pacific Coast Hwy. Malibu, CA 90265 Vincent R. McLean (71) Director Director Formerly, Executive Vice 71 Director, Banner Life 702 Shackamaxon Drive since President, Chief Financial Insurance Co.; William Penn Westfield, NJ 07090 2001 Officer, Director and Life Insurance Company of Member of the Executive New York. Committee of Sperry Corporation (now part of Unisys Corporation). C. Oscar Morong, Jr.(67) Director Director Managing Director, Morong 71 Trustee of the mutual funds 1385 Outlook Drive West since Capital Management; in the Smith Barney/CitiFunds Mountainside, NJ 07092 2001 formerly, Senior Vice fund complex. President and Investment Manager for CREF, TIAA-CREF Investment Management, Inc. (investment management); formerly, Director, The Indonesia Fund (mutual fund). William G. Morton, Jr.(65) Director Director Chairman Emeritus and 71 Director of Radio Shack 304 Newbury Street, #560 since former Chief Executive Corporation (electronics). Boston, MA 02115 2000 Officer of Boston Stock Exchange. Michael Nugent (66) Director Director General Partner, Triumph 194 Director of various business c/o Triumph Capital, L.P. since Capital, L.P. (private organizations; Chairman of 237 Park Avenue 2001 investment partnership); the Insurance Committee and New York, NY 10017 formerly, Vice President, Director or Trustee of the Bankers Trust Company and retail families of funds BT Capital Corporation. advised by Morgan Stanley Investment Advisors Inc. Fergus Reid (70) Director Director Chairman and Chief 72 Trustee and Director 85 Charles Colman Blvd. since Executive Officer of approximately 30 investment Pawling, NY 12564 1996 Lumelite Plastics companies in the JPMorgan Corporation. Funds complex managed by JPMorgan Investment Management Inc. Director of The India Magnum Fund Ltd.
17 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Director and Officer Information (cont'd) Overview Interested Directors:
TERM OF NUMBER OF OFFICE PORTFOLIOS IN AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS OF HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS DIRECTOR REGISTRANT SERVED* DURING PAST 5 YEARS DIRECTOR** HELD BY DIRECTOR - -------------------------- ---------- ------------ ----------------------------- ------------ ----------------------- Barton M. Biggs (70) Chairman Chairman Chairman, Director and 72 Member of the Yale 1221 Avenue of the Americas and and Managing Director of Morgan Development Board New York, NY 10020 Director Director Stanley Investment Management since Inc. and Chairman and 1996 Director of Morgan Stanley Investment Management Limited; Managing Director of Morgan Stanley & Co. Incorporated; Director and Chairman of the Board of various U.S. registered companies managed by Morgan Stanley Investment Management Inc. Ronald E. Robison (63) President President President and Trustee; Chief 72 1221 Avenue of the Americas and and Global Operations Officer and New York, NY 10020 Director Director Managing Director of Morgan since Stanley Investment 2001 Management, Inc.; Managing Director of Morgan Stanley & Co. Incorporated; formerly, Managing Director and Chief Operating Officer of TCW Investment Management Company; Director and President of various funds in the Fund Complex.
- ---------- * Each Director serves an indefinite term, until his or her successor is elected. ** The Fund Complex includes all funds advised by Morgan Stanley Investment Management Inc. and any funds that have an investment advisor that is an affiliated entity of Morgan Stanley Investment Management Inc. (including, but not limited to, Morgan Stanley Investments LP, Morgan Stanley Investment Advisors Inc. and Van Kampen Asset Management Inc.). 18 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Director and Officer Information (cont'd) Overview Officers:
TERM OF POSITION(S) OFFICE AND NAME, AGE AND ADDRESS OF EXECUTIVE HELD WITH LENGTH OF OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS - ------------------------------------- ----------- ------------ ---------------------------------------------------- Ronald E. Robison (63) President President Chief Global Operations Officer and Managing Morgan Stanley Investment Management Inc. and and Director Director of Morgan Stanley Investment Management 1221 Avenue of the Americas Director since 2001 Inc.; Director and President of various U.S. New York, NY 10020 registered investment companies managed by Morgan Stanley Investment Management Inc.; previously, Managing Director and Chief Operating Officer of TCW Investment Management Company. Stefanie V. Chang (36) Vice Vice Executive Director of Morgan Stanley & Co. Morgan Stanley Investment President President Incorporated and Morgan Stanley Investment Management Inc. since 1997 Management Inc.; formerly, practiced law with New 1221 Avenue of the Americas York law firm of Rogers & Wells (now Clifford New York, NY 10020 Chance US LLP); Vice President of certain funds in the Fund Complex. Lorraine Truten (41) Vice Vice Executive Director of Morgan Stanley Investment Morgan Stanley Investment President President Management Inc.; Head of Global Client Services, Management Inc. since 2001 Morgan Stanley Investment Management Inc.; 1221 Avenue of the Americas President, Morgan Stanley Fund Distribution, Inc. New York, NY 10020 formerly, President of Morgan Stanley Institutional Fund Trust; Vice President of certain funds in the Fund Complex. Mary E. Mullin (35) Secretary Secretary Vice President of Morgan Stanley & Co., Morgan Stanley Investment since 1999 Incorporated and Morgan Stanley Investment Management Inc. Management, Inc.; formerly, practiced law with the 1221 Avenue of the Americas New York law firms of McDermott, Will & Emery and New York, NY 10020 Skadden, Arps, Slate, Meagher & Flom LLP; Secretary of certain funds in the Fund Complex. James W. Garrett (34) Treasurer Treasurer Executive Director of Morgan Stanley & Co. Morgan Stanley Investment since 2002 Incorporated and Morgan Stanley Investment Management Inc. Management Inc. and Treasurer of various U.S. 1221 Avenue of the Americas registered investment companies managed by Morgan New York, NY 10020 Stanley Investment Management Inc.; formerly, with Price Waterhouse LLP (now PricewaterhouseCoopers LLP). Belinda A. Brady (34) Assistant Assistant Fund Administration Senior Manager, J.P. Morgan J.P. Morgan Investor Services Co. Treasurer Treasurer Investor Services Co. (formerly Chase Global Funds 73 Tremont Street since 2001 Services Company); formerly, Senior Auditor at Boston, MA 02108-3913 Price Waterhouse LLP (now PricewaterhouseCoopers LLP). Assistant Treasurer of certain funds in the Fund Complex.
- ---------- * Each Officer serves an indefinite term, until his or her successor is elected. 19 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Dividend Reinvestment and Cash Purchase Plan Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"), each stockholder will be deemed to have elected, unless American Stock Transfer & Trust Company (the "Plan Agent") is otherwise instructed by the stockholder 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 m arket 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 stockholders 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 stockholders, such as banks, brokers or nominees, that 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 stockholder as representing the total amount registered in the stockholder's name and held for the account of beneficial owners who are participating in the Plan. Stockholders 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 stockholders 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 59 Maiden Lane New York, New York 10030 1-800-278-4353 20 -----END PRIVACY-ENHANCED MESSAGE-----