N-CSRS 1 a2141933zn-csrs.txt N-CSRS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-08388 --------------------------------------------- MORGAN STANLEY ASIA-PACIFIC FUND, INC. ------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 1221 AVENUE OF THE AMERICAS 22ND FLOOR NEW YORK, NY 10020 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) RONALD E. ROBISON 1221 AVENUE OF THE AMERICAS 34TH FLOOR NEW YORK, NY 10020 ------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 1-800-221-6726 ---------------------------- Date of fiscal year end: 12/31 -------------------------- Date of reporting period: 6/30/04 ------------------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. Section 3507. ITEM 1. REPORTS TO STOCKHOLDERS. The Fund's semi-annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows: SEMI-ANNUAL REPORT MORGAN STANLEY ASIA-PACIFIC FUND, INC. JUNE 30, 2004 DIRECTORS CHARLES A. FIUMEFREDDO JOSEPH J. McALINDEN MICHAEL BOZIC VICE PRESIDENT EDWIN J. GARN BARRY FINK WAYNE E. HEDIEN VICE PRESIDENT JAMES F. HIGGINS STEFANIE V. CHANG DR. MANUEL H. JOHNSON VICE PRESIDENT JOSEPH J. KEARNS AMY R. DOBERMAN MICHAEL NUGENT VICE PRESIDENT FERGUS REID JAMES W. GARRETT TREASURER AND CHIEF OFFICERS FINANCIAL OFFICER [MORGAN STANLEY LOGO] CHARLES A. FIUMEFREDDO CHAIRMAN OF THE BOARD MICHAEL J. LEARY ASSISTANT TREASURER MITCHELL M. MERIN PRESIDENT MARY E. MULLIN SECRETARY MORGAN STANLEY RONALD E. ROBISON ASIA-PACIFIC FUND, INC. EXECUTIVE VICE PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER INVESTMENT ADVISER MORGAN STANLEY INVESTMENT MANAGEMENT INC. 1221 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10020 ADMINISTRATOR JPMORGAN INVESTOR SERVICES COMPANY 73 TREMONT STREET BOSTON, MASSACHUSETTS 02108 CUSTODIAN JPMORGAN CHASE BANK 270 PARK AVENUE NEW YORK, NEW YORK 10017 STOCKHOLDER SERVICING AGENT AMERICAN STOCK TRANSFER & TRUST COMPANY 59 MAIDEN LANE NEW YORK, NEW YORK 10030 1 (800) 278-4353 LEGAL COUNSEL CLIFFORD CHANCE US LLP 31 WEST 52ND STREET NEW YORK, NEW YORK 10019 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP 200 CLARENDON STREET BOSTON, MASSACHUSETTS 02116 FOR ADDITIONAL FUND INFORMATION, INCLUDING THE MORGAN STANLEY FUND'S NET ASSET VALUE PER SHARE AND INFORMATION INVESTMENT MANAGEMENT INC. REGARDING THE INVESTMENTS COMPRISING THE FUND'S INVESTMENT ADVISER PORTFOLIO, PLEASE CALL 1-800-221-6726 OR VISIT OUR WEBSITE AT www.morganstanley.com/im. (C)2004 MORGAN STANLEY MORGAN STANLEY ASIA-PACIFIC FUND, INC. LETTER TO STOCKHOLDERS Overview PERFORMANCE For the six months ended June 30, 2004, the Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund") had a total return, based on net asset value per share of 5.48%, compared with 4.75% 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 (the "Index"), with each index weighted equally. On June 30, 2004, the closing price of the Fund shares on the New York Stock Exchange was $11.25, representing a 13.1% discount to the Fund's net asset value per share. FACTORS AFFECTING PERFORMANCE - The Fund's outperformance over the six-month period was largely attributable to stock selection in Japan and India. - Within the Japanese market, performance was supported in particular by stock selection and overweight positions within the materials and consumer durables sectors relative to the Index. These sectors performed well as investors shifted their focus to earnings growth potential from momentum and improved domestic consumer spending drove the country's economic recovery. - Profit margins and return on assets of Japanese companies are hitting post bubble highs for select Japanese companies and with recent worries about the global economy, China's economic slowdown, interest rates and finally elections, investors will likely focus on companies with the highest quality and most visible earnings. - The cyclical economy is now showing signs of permeating into the domestic Japanese economy and real household spending in May rose 5.6%, the highest growth rate in 21 years. MANAGEMENT STRATEGIES - Despite the downdraft in Asia ex-Japan, we find the economic outlook for the region is structurally on a sounder footing and liquidity conditions extremely favorable, even though the momentum of growth has certainly peaked. - Exports into China and the U.S. continue to grow at a steady pace and domestic demand has stayed robust in most Asian countries except for South Korea. - We believe the Asian economies are in much better shape than a decade ago, with huge current account surpluses, a healthier backing system and reduced external debt levels. - Outside of China, investment to gross domestic product has been on a decline and capacity utilizations are rising; we believe that we are likely to see an investment pickup in many Asian countries. - Over the last several months, the correlation of buying Japanese stocks with the movement of U.S. stocks has begun to break down, resulting in a view that Japan's domestic demand may grow regardless of the world trade environment and Japanese equities may continue to rise based on relatively favorable valuations and growth rate. Our view is that investors will need to become more selective than the past year, look to companies with cash assets and discriminate between liquidity driven stocks and those with visible earning. Sincerely, /s/ Ronald E. Robison Ronald E. Robison Executive Vice President-- Principal Executive Officer July 2004 2 MORGAN STANLEY ASIA-PACIFIC FUND, INC. STATEMENT OF NET ASSETS June 30, 2004 (unaudited)
VALUE SHARES (000) -------------------------------------------------------------------------------- COMMON STOCKS(97.0%) (UNLESS OTHERWISE NOTED) ================================================================================ AUSTRALIA(8.8%) AIRLINES Qantas Airways Ltd. 790,650 $ 1,946 -------------------------------------------------------------------------------- BEVERAGES Coca-Cola Amatil Ltd. 223,450 1,083 -------------------------------------------------------------------------------- COMMERCIAL BANKS Australia & New Zealand Banking Group Ltd. 471,959 6,031 National Australia Bank Ltd. 167,950 3,503 -------------------------------------------------------------------------------- 9,534 -------------------------------------------------------------------------------- CONSTRUCTION & ENGINEERING Downer EDI Ltd. 634,000 1,418 -------------------------------------------------------------------------------- CONTAINERS & PACKAGING Amcor Ltd. 262,150 1,277 -------------------------------------------------------------------------------- INSURANCE AMP Ltd. 780,300 3,453 Promina Group Ltd. 556,900 1,557 QBE Insurance Group Ltd. 298,100 2,667 -------------------------------------------------------------------------------- 7,677 -------------------------------------------------------------------------------- MEDIA News Corp., Ltd. 508,900 4,511 -------------------------------------------------------------------------------- METALS & MINING BHP Billiton Ltd. 764,277 6,695 Rio Tinto Ltd. 201,200 5,056 -------------------------------------------------------------------------------- 11,751 -------------------------------------------------------------------------------- TEXTILES, APPAREL & LUXURY GOODS Billabong International Ltd. 268,900 1,553 -------------------------------------------------------------------------------- 40,750 ================================================================================ CHINA(1.1%) INSURANCE Ping An Insurance Group Co. of China Ltd., 'H' (a)569,000 773 -------------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES Sina Corp. (a)26,900 888 Tom Online, Inc. (a)3,085,000 522 -------------------------------------------------------------------------------- 1,410 -------------------------------------------------------------------------------- METALS & MINING Yanzhou Coal Mining Co., Ltd., 'H' 266,000 290 -------------------------------------------------------------------------------- MULTILINE RETAIL Lianhua Supermarket Holdings Co., Ltd., 'H' 435,000 438 Wumart Stores, Inc., 'H' (a)220,000 423 -------------------------------------------------------------------------------- 861 -------------------------------------------------------------------------------- OIL & GAS Sinopec Zhenhai Refining & Chemical Co., Ltd., 'H' 1,590,000 $ 1,529 -------------------------------------------------------------------------------- TRANSPORTATION INFRASTRUCTURE Hainan Meilan International Airport Co., Ltd., 'H' 475,000 362 -------------------------------------------------------------------------------- 5,225 ================================================================================ HONG KONG(7.2%) AIRLINES Cathay Pacific Airways Ltd. 75,000 141 -------------------------------------------------------------------------------- BUILDING PRODUCTS Asia Aluminum Holdings Ltd. 7,298,000 711 -------------------------------------------------------------------------------- COMMERCIAL BANKS CITIC International Financial Holdings Ltd. 1,189,000 435 Industrial & Commercial Bank of China (Asia) Ltd. 868,000 1,124 -------------------------------------------------------------------------------- 1,559 -------------------------------------------------------------------------------- DISTRIBUTORS Li & Fung Ltd. 648,000 947 -------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES Swire Pacific Ltd., 'A' 361,000 2,337 -------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Kingboard Chemicals Holdings Ltd. 324,000 563 -------------------------------------------------------------------------------- HEALTH CARE EQUIPMENT & SUPPLIES Moulin International Holdings Ltd. 1,616,000 989 -------------------------------------------------------------------------------- HOUSEHOLD DURABLES Grande Holdings Ltd. 857,000 835 Techtronic Industries Co. 832,000 1,328 -------------------------------------------------------------------------------- 2,163 -------------------------------------------------------------------------------- MEDIA Television Broadcasts Ltd. 66,000 283 -------------------------------------------------------------------------------- OIL & GAS CNOOC Ltd. 3,610,000 1,527 -------------------------------------------------------------------------------- REAL ESTATE Great Eagle Holdings Ltd. 1,364,000 2,107 Henderson Land Development Co., Ltd. 1,327,000 5,717 HongKong Land Holdings Ltd. 790,000 1,232 Hysan Development Co., Ltd. 2,321,000 3,452 New World Development Ltd. 2,066,800 1,524 -------------------------------------------------------------------------------- 14,032 -------------------------------------------------------------------------------- SPECIALTY RETAIL Esprit Holdings Ltd. 1,625,500 7,273 --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 3 MORGAN STANLEY ASIA-PACIFIC FUND, INC. STATEMENT OF NET ASSETS (CONT'D) June 30, 2004 (unaudited)
VALUE SHARES (000) -------------------------------------------------------------------------------- HONG KONG (CONT'D) TEXTILES, APPAREL & LUXURY GOODS Fountain Set Holdings Ltd. 1,258,000 $ 839 -------------------------------------------------------------------------------- 33,364 ================================================================================ INDIA(2.9%) AUTOMOBILES Hero Honda Motors Ltd. 156,075 1,723 -------------------------------------------------------------------------------- COMMERCIAL BANKS State Bank of India Ltd. (b)145,235 1,433 Union Bank of India Ltd. 1,392,000 1,750 -------------------------------------------------------------------------------- 3,183 -------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT Bharat Heavy Electricals Ltd. 171,937 1,877 -------------------------------------------------------------------------------- HOUSEHOLD DURABLES Voltas Ltd. 230,000 525 -------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS Hindustan Lever Ltd. 182,000 504 -------------------------------------------------------------------------------- LEISURE EQUIPMENT & PRODUCTS Amtek Auto Ltd. 94,000 1,044 -------------------------------------------------------------------------------- MARINE Alok Industries Ltd. 1,390,000 1,516 -------------------------------------------------------------------------------- METALS & MINING Jindal Steel & Power Ltd. 32,381 313 Tata Iron & Steel Co., Ltd. 110 1 Welspun-Gujarat Stahl Ltd. (a)895,000 566 -------------------------------------------------------------------------------- 880 -------------------------------------------------------------------------------- TEXTILES, APPAREL & LUXURY GOODS Arvind Mills Ltd. (a)891,000 1,322 Raymond Ltd. 262,700 1,078 -------------------------------------------------------------------------------- 2,400 -------------------------------------------------------------------------------- 13,652 ================================================================================ INDONESIA(2.2%) AUTOMOBILES Astra International Tbk PT 4,125,000 2,415 -------------------------------------------------------------------------------- COMMERCIAL BANKS Bank Central Asia Tbk PT 3,960,000 790 Bank Internasional Indonesia Tbk PT (a)81,850,000 1,263 Bank Mandiri Persero Tbk PT 7,358,500 920 Bank Rakyat Indonesia (a)5,835,500 1,041 -------------------------------------------------------------------------------- 4,014 -------------------------------------------------------------------------------- CONSTRUCTION MATERIALS Indocement Tunggal Prakarsa Tbk PT (a)4,959,500 752 -------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES Telekomunikasi Indonesia Tbk PT (a)1,579,500 1,244 -------------------------------------------------------------------------------- METALS & MINING Bumi Resources Tbk PT 17,494,000 $ 1,071 -------------------------------------------------------------------------------- MULTILINE RETAIL Ramayana Lestari Sentosa Tbk PT (a)1,607,000 761 -------------------------------------------------------------------------------- 10,257 ================================================================================ JAPAN(51.8%) AUTOMOBILES Nissan Motor Co., Ltd. 660,000 7,356 Suzuki Motor Corp. 267,000 4,715 Toyota Motor Corp. 194,300 7,891 Yamaha Motor Co., Ltd. 200,000 3,122 -------------------------------------------------------------------------------- 23,084 -------------------------------------------------------------------------------- BUILDING PRODUCTS Daikin Industries Ltd. 221,000 5,950 Sanwa Shutter Corp. 352,000 1,885 -------------------------------------------------------------------------------- 7,835 -------------------------------------------------------------------------------- CHEMICALS Daicel Chemical Industries Ltd. 695,000 3,659 Denki Kagaku Kogyo KK 1,038,000 3,691 Kaneka Corp. 540,000 5,125 Lintec Corp. 170,000 2,552 Mitsubishi Chemical Corp. 1,179,000 3,142 Nifco, Inc. 193,000 3,064 Shin-Etsu Polymer Co., Ltd. 347,000 2,057 Toyo Ink Manufacturing Co., Ltd. 300,000 1,188 -------------------------------------------------------------------------------- 24,478 -------------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES Dai Nippon Printing Co., Ltd. 210,000 3,363 Nissha Printing Co., Ltd. 63,000 1,009 -------------------------------------------------------------------------------- 4,372 -------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS Fujitsu Ltd. 952,000 6,727 Mitsumi Electric Co., Ltd. 221,500 2,568 NEC Corp. 765,000 5,398 Toshiba Corp. 1,400,000 5,647 -------------------------------------------------------------------------------- 20,340 -------------------------------------------------------------------------------- CONSTRUCTION & ENGINEERING Kyudenko Corp. 220,000 1,104 Obayashi Corp. 582,000 3,139 Sanki Engineering Co., Ltd. 74,000 540 -------------------------------------------------------------------------------- 4,783 -------------------------------------------------------------------------------- CONSUMER FINANCE Hitachi Capital Corp. 214,300 3,997 -------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES Nippon Telegraph & Telephone Corp. 836 4,478 --------------------------------------------------------------------------------
4 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. MORGAN STANLEY ASIA-PACIFIC FUND, INC. STATEMENT OF NET ASSETS (CONT'D) June 30, 2004 (unaudited)
VALUE SHARES (000) -------------------------------------------------------------------------------- JAPAN (CONT'D) ELECTRIC UTILITIES Tokyo Electric Power Co., Inc. (The) 155,100 $ 3,527 -------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT Furukawa Electric Co., Ltd. (a)414,000 1,773 -------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Hitachi High-Technologies Corp. 70,000 953 Hitachi Ltd. 790,000 5,451 Kyocera Corp. 60,000 5,105 Ryosan Co., Ltd. 133,000 3,049 TDK Corp. 65,200 4,961 -------------------------------------------------------------------------------- 19,519 -------------------------------------------------------------------------------- FOOD & STAPLES FamilyMart Co., Ltd. 140,300 4,589 -------------------------------------------------------------------------------- FOOD PRODUCTS House Foods Corp. 128,000 1,813 Nippon Meat Packers, Inc. 200,000 2,470 -------------------------------------------------------------------------------- 4,283 -------------------------------------------------------------------------------- HOUSEHOLD DURABLES Casio Computer Co., Ltd. 325,000 4,933 Matsushita Electric Industrial Co., Ltd. 469,000 6,675 Rinnai Corp. 78,700 2,401 Sangetsu Co., Ltd. 12,000 307 Sansui Electric Co., Ltd. (a)428,500 134 Sekisui Chemical Co., Ltd. 500,000 4,231 Sekisui House Ltd. 351,000 3,906 Sony Corp. 120,700 4,558 -------------------------------------------------------------------------------- 27,145 -------------------------------------------------------------------------------- LEISURE EQUIPMENT & PRODUCTS Fuji Photo Film Co., Ltd. 150,000 4,713 Yamaha Corp. 281,000 4,622 -------------------------------------------------------------------------------- 9,335 -------------------------------------------------------------------------------- MACHINERY Amada Co., Ltd. 508,000 3,361 Daifuku Co., Ltd. 450,000 2,303 Fuji Machine Manufacturing Co., Ltd. 156,000 1,813 Fujitec Co., Ltd. 178,000 908 Kurita Water Industries Ltd. 260,000 3,571 Minebea Co., Ltd. 504,000 2,352 Mitsubishi Heavy Industries Ltd. 1,500,000 4,080 Tsubakimoto Chain Co. 580,000 1,993 -------------------------------------------------------------------------------- 20,381 -------------------------------------------------------------------------------- MEDIA Toho Co., Ltd. 75,000 1,093 -------------------------------------------------------------------------------- OFFICE ELECTRONICS Canon, Inc. 131,000 $ 6,921 Ricoh Co., Ltd. 330,000 7,035 -------------------------------------------------------------------------------- 13,956 -------------------------------------------------------------------------------- PHARMACEUTICALS Ono Pharmaceutical Co., Ltd. 104,000 4,902 Sankyo Co., Ltd. 226,000 4,911 Yamanouchi Pharmaceutical Co., Ltd. 154,000 5,193 -------------------------------------------------------------------------------- 15,006 -------------------------------------------------------------------------------- REAL ESTATE Mitsubishi Estate Co., Ltd. 245,000 3,048 -------------------------------------------------------------------------------- ROAD & RAIL East Japan Railway Co. 769 4,324 -------------------------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT Rohm Co., Ltd. 21,200 2,544 -------------------------------------------------------------------------------- SOFTWARE Nintendo Co., Ltd. 55,000 6,393 -------------------------------------------------------------------------------- TEXTILES, APPAREL & LUXURY GOODS Nisshinbo Industries, Inc. 265,000 1,999 -------------------------------------------------------------------------------- TRADING COMPANIES & DISTRIBUTORS Mitsubishi Corp. 445,000 4,334 Nagase & Co., Ltd. 197,000 1,809 -------------------------------------------------------------------------------- 6,143 -------------------------------------------------------------------------------- TRANSPORTATION INFRASTRUCTURE Mitsubishi Logistics Corp. 111,000 1,055 -------------------------------------------------------------------------------- 239,480 ================================================================================ NEW ZEALAND (0.4%) BUILDING PRODUCTS Fletcher Building Ltd. 241,800 700 -------------------------------------------------------------------------------- PAPER & FOREST PRODUCTS Carter Holt Harvey Ltd. 843,000 1,110 -------------------------------------------------------------------------------- 1,810 ================================================================================ SINGAPORE (3.1%) AIRLINES Singapore Airlines Ltd. 438,000 2,856 -------------------------------------------------------------------------------- COMMERCIAL BANKS Oversea-Chinese Banking Corp. 491,000 3,458 -------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT Unisteel Technology Ltd. 1,401,000 1,085 -------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Venture Corp., Ltd. 171,000 1,792 -------------------------------------------------------------------------------- MARINE Neptune Orient Lines Ltd. 970,000 1,332 -------------------------------------------------------------------------------- REAL ESTATE CapitaCommercial Trust REIT (a)54,800 34 CapitaLand Ltd. 1,464,000 1,168
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 5 MORGAN STANLEY ASIA-PACIFIC FUND, INC. STATEMENT OF NET ASSETS (CONT'D) June 30, 2004 (unaudited)
VALUE SHARES (000) -------------------------------------------------------------------------------- SINGAPORE (CONT'D) REAL ESTATE (CONT'D) City Developments Ltd. (a)380,000 $ 1,194 -------------------------------------------------------------------------------- 2,396 -------------------------------------------------------------------------------- TRANSPORTATION INFRASTRUCTURE SembCorp Logistics Ltd. 537,800 576 -------------------------------------------------------------------------------- WATER UTILITIES Hyflux Ltd. 910,000 784 -------------------------------------------------------------------------------- 14,279 ================================================================================ SOUTH KOREA(8.5%) AIRLINES Korean Air Lines Co., Ltd. (a)141,460 1,838 -------------------------------------------------------------------------------- AUTO COMPONENTS Hankook Tire Co., Ltd. 397,820 3,480 Hyundai Mobis 71,790 3,190 -------------------------------------------------------------------------------- 6,670 -------------------------------------------------------------------------------- CAPITAL MARKETS Daishin Securities Co., Ltd. 94,590 1,069 LG Investment & Securities Co., Ltd. (a)224,640 1,609 -------------------------------------------------------------------------------- 2,678 -------------------------------------------------------------------------------- COMMERCIAL BANKS Pusan Bank 179,800 997 -------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Samsung SDI Co., Ltd. 75,820 7,979 -------------------------------------------------------------------------------- FOOD PRODUCTS Orion Corp. 21,930 1,356 -------------------------------------------------------------------------------- MACHINERY Daewoo Shipbuilding & Marine Engineering Co., Ltd. 45,590 551 Hyundai Mipo Dockyard Co., Ltd. (a)122,785 1,882 STX Shipbuilding Co., Ltd. 55,320 580 -------------------------------------------------------------------------------- 3,013 -------------------------------------------------------------------------------- MULTILINE RETAIL Hyundai Department Store Co., Ltd. 66,550 1,652 -------------------------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT Samsung Electronics Co., Ltd. 22,687 9,374 -------------------------------------------------------------------------------- TEXTILES, APPAREL & LUXURY GOODS Cheil Industrial, Inc. 128,440 1,491 -------------------------------------------------------------------------------- TOBACCO KT&G Corp. 45,660 1,056 -------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES SK Telecom Co., Ltd. 6,460 1,063 -------------------------------------------------------------------------------- 39,167 ================================================================================ TAIWAN(7.7%) AUTO COMPONENTS Cheng Shin Rubber Industry Co., Ltd. 537,000 $ 704 -------------------------------------------------------------------------------- COMMERCIAL BANKS China Development Financial Holding Corp. 2,589,000 1,327 Chinatrust Financial Holding Co., Ltd. 3,084,037 3,445 Taishin Financial Holdings Co., Ltd. 2,133,000 1,760 -------------------------------------------------------------------------------- 6,532 -------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS Acer, Inc. 772,310 1,088 Infortrend Technology, Inc. 644,600 1,844 -------------------------------------------------------------------------------- 2,932 -------------------------------------------------------------------------------- CONSTRUCTION & ENGINEERING CTCI Corp. 1,812,000 896 -------------------------------------------------------------------------------- CONSTRUCTION MATERIALS Taiwan Cement Corp. 2,427,000 1,099 -------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES Polaris Securities Co., Ltd. (a)1,375,760 725 -------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT Asia Vital Components Co., Ltd. 535,000 615 Catcher Technology Co., Ltd. 231,000 740 Phoenixtec Power Co., Ltd. (a)981,885 965 Richtek Technology Corp. (a)125,000 363 Waffer Technology Co., Ltd. 620,000 1,256 -------------------------------------------------------------------------------- 3,939 -------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Hon Hai Precision Industry Co., Ltd. 551,440 2,053 Ya Hsin Industrial Co., Ltd. 1,131,000 1,398 -------------------------------------------------------------------------------- 3,451 -------------------------------------------------------------------------------- INSURANCE Cathay Financial Holding Co., Ltd. 275,000 496 -------------------------------------------------------------------------------- LEISURE EQUIPMENT & PRODUCTS Asia Optical Co., Inc. 426,600 2,593 Largan Precision Co., Ltd. 250,430 2,402 -------------------------------------------------------------------------------- 4,995 -------------------------------------------------------------------------------- MARINE Evergreen Marine Corp. 1,654,940 1,400 Taiwan Navigation Co., Ltd. 353,000 245 -------------------------------------------------------------------------------- 1,645 -------------------------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT Faraday Technology Corp. 375,000 704 MediaTek, Inc. 249,000 1,988
6 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. MORGAN STANLEY ASIA-PACIFIC FUND, INC. STATEMENT OF NET ASSETS (CONT'D) June 30, 2004 (unaudited)
VALUE SHARES (000) -------------------------------------------------------------------------------- TAIWAN (CONT'D) SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (CONT'D) Novatek Microelectronics Corp., Ltd. 399,250 $ 1,320 Sunplus Technology Co., Ltd. 1,033,000 1,800 -------------------------------------------------------------------------------- 5,812 -------------------------------------------------------------------------------- SOFTWARE Chaun-Choung Technology Corp. 120,000 229 Cyberlink Corp. 324,000 801 Springsoft, Inc. 509,000 1,167 -------------------------------------------------------------------------------- 2,197 -------------------------------------------------------------------------------- SPECIALTY RETAIL Tsann Kuen Enterprise Co., Ltd. 304,000 380 -------------------------------------------------------------------------------- 35,803 ================================================================================ THAILAND(3.3%) AIRLINES Thai Airways International PCL (Foreign) 875,700 1,209 -------------------------------------------------------------------------------- COMMERCIAL BANKS Bangkok Bank PCL (Foreign) (a)(b)1,040,300 2,503 Bangkok Bank PCL NVDR (a)244,900 562 Kasikornbank PCL (Foreign) (a)1,209,700 1,537 Kasikornbank PCL NVDR (a)(b)401,800 496 Krung Thai Bank PCL (Foreign) 3,430,300 922 Siam Commercial Bank PCL (Foreign) (b)573,000 647 -------------------------------------------------------------------------------- 6,667 -------------------------------------------------------------------------------- CONSTRUCTION & ENGINEERING Italian-Thai Development PCL (Foreign) 3,504,000 864 Sino Thai Engineering & Construction PCL (Foreign) 3,141,600 852 -------------------------------------------------------------------------------- 1,716 -------------------------------------------------------------------------------- HOUSEHOLD DURABLES Land & Houses PCL (Foreign) 2,988,000 712 -------------------------------------------------------------------------------- METALS & MINING Banpu PCL (Foreign) 182,900 594 -------------------------------------------------------------------------------- OIL & GAS PTT PCL (Foreign) 275,000 1,034 -------------------------------------------------------------------------------- REAL ESTATE Asian Property Development PCL 9,160,300 967 -------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES Advanced Info Service PCL (Foreign) 538,400 1,197 Total Access Communication PCL (a)368,000 $ 953 -------------------------------------------------------------------------------- 2,150 -------------------------------------------------------------------------------- 15,049 ================================================================================ TOTAL COMMON STOCKS (Cost $391,935) 448,836 ================================================================================ PREFERRED STOCKS (1.3%) AUSTRALIA (0.4%) MEDIA News Corp., Ltd. 229,800 1,888 -------------------------------------------------------------------------------- SOUTH KOREA (0.9%) SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT Samsung Electronics Co., Ltd. 15,630 4,102 -------------------------------------------------------------------------------- TOTAL PREFERRED STOCKS (Cost $3,434) 5,990 ================================================================================ INVESTMENT COMPANY (0.6%) INDIA (0.6%) DIVERSIFIED FINANCIAL SERVICES Morgan Stanley Growth Fund (Cost $1,744) (c)9,491,200 2,760 ================================================================================ NO. OF WARRANTS -------------------------------------------------------------------------------- WARRANTS (0.0%) SINGAPORE (0.0%) REAL ESTATE City Developments Ltd., expiring 5/10/06 (Cost $@--) (a)38,000 65 ================================================================================ FACE AMOUNT (000) -------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (0.9%) UNITED STATES (0.9%) REPURCHASE AGREEMENT J.P. Morgan Securities, Inc., 1.25%, dated 6/30/04, due 7/1/04, repurchase price $4,199 (Cost $4,199) $ (d)4,199 4,199 ================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 7 MORGAN STANLEY ASIA-PACIFIC FUND, INC. STATEMENT OF NET ASSETS (CONT'D) June 30, 2004 (unaudited)
VALUE (000) -------------------------------------------------------------------------------- TOTAL INVESTMENTS (99.8%) (Cost $401,312) $ 461,850 ================================================================================ AMOUNT (000) -------------------------------------------------------------------------------- OTHER ASSETS (0.8%) Foreign Currency (Cost $2,136) $ 2,136 Receivable for Investments Sold 965 Dividends Receivable 502 Tax Reclaim Receivable 5 Other 18 3,626 ================================================================================ LIABILITIES (-0.6%) Payable For: Investments Purchased (1,007) Bank Overdraft (664) Dividends Declared (432) Investment Advisory Fees (369) Directors' Fees and Expenses (35) Custodian Fees (33) Administrative Fees (17) Other Liabilities (196) (2,753) ================================================================================ NET ASSETS (100%) Applicable to 35,743,072, issued and outstanding $ 0.01 par value shares (200,000,000 shares authorized) $ 462,723 ================================================================================ NET ASSET VALUE PER SHARE $ 12.95 ================================================================================ AT JUNE 30, 2004, NET ASSETS CONSISTED OF: Common Stock $ 357 Paid-in Capital 588,517 Undistributed (Distributions in Excess of) Net Investment Income (226) Accumulated Net Realized Gain (Loss) (186,462) Unrealized Appreciation (Depreciation) on Investments, Foreign Currency Exchange Contracts and Translations 60,537 -------------------------------------------------------------------------------- TOTAL NET ASSETS $ 462,723 ================================================================================
(a) Non-income producing. (b) Security was valued at fair value - At June 30, 2004, the Fund held fair valued securities valued at $5,079,000 representing 1.1% of net assets. (c) The Morgan Stanley Growth Fund, acquired at a cost of $1,744,059, is advised by an affiliate of the Adviser. During the six months ended June 30, 2004, there were no purchases or sales of this security. The Fund derived $313,690 of income from this security during the six months ended June 30, 2004, before any applicable withholding taxes. (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/Face Amount is less than $500. NVDR Non-Voting Depositary Receipt REIT Real Estate Investment Trust FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: The Fund had the following foreign currency exchange contract(s) open at period end:
NET CURRENCY IN UNREALIZED TO EXCHANGE APPRECIATION DELIVER VALUE SETTLEMENT FOR VALUE (DEPRECIATION) (000) (000) DATE (000) (000) (000) ------------------------------------------------------------------- US$ 3 $ 3 7/2/04 HKD 25 $ 3 $ @-- US$ 177 177 7/2/04 THB 7,260 177 @-- US$ 182 182 7/2/04 THB 7,428 182 @-- SGD 101 59 7/2/04 US$ 59 $ 59 @-- ------------------------------------------------------------------- $ 421 $ 421 $ @-- ===================================================================
HKD -- Hong Kong Dollar SGD -- Singapore Dollar THB -- Thai Baht 8 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. MORGAN STANLEY ASIA-PACIFIC FUND, INC. STATEMENT OF NET ASSETS (CONT'D) June 30, 2004 (unaudited) SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY CLASSIFICATION - JUNE 30, 2004
PERCENT VALUE OF NET INDUSTRY (000) ASSETS -------------------------------------------------------------------- Commercial Banks $ 35,944 7.8% Electronic Equipment & Instruments 33,304 7.2 Household Durables 30,545 6.6 Automobiles 27,222 5.9 Chemicals 24,478 5.3 Machinery 23,394 5.1 Computers & Peripherals 23,272 5.0 Semiconductors & Semiconductor Equipment 21,832 4.7 Real Estate 20,508 4.4 Leisure Equipment & Products 15,374 3.3 Pharmaceuticals 15,006 3.2 Metals & Mining 14,585 3.1 Office Electronics 13,956 3.0 Building Products 9,246 2.0 Insurance 8,946 1.9 Construction & Engineering 8,813 1.9 Electrical Equipment 8,674 1.9 Software 8,590 1.9 Textiles, Apparel & Luxury Goods 8,282 1.8 Airlines 7,990 1.7 Media 7,775 1.7 Specialty Retail 7,653 1.7 Auto Components 7,374 1.6 Trading Companies & Distributors 6,143 1.3 Diversified Financial Services 5,822 1.3 Diversified Telecommunication Services 5,722 1.2 Food Products 5,639 1.2 Food & Staples 4,589 1.0 Marine 4,493 1.0 Other 46,679 10.1 -------------------------------------------------------------------- $ 461,850 99.8% ====================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 9 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Financial Statements
SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED) STATEMENT OF OPERATIONS (000) ----------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of $306 of foreign taxes withheld) $ 4,461 Interest 36 =========================================================================================================== TOTAL INCOME 4,497 =========================================================================================================== EXPENSES Investment Advisory Fees 2,295 Custodian Fees 183 Administrative Fees 80 Professional Fees 77 Stockholder Reporting Expenses 31 Stockholder Servicing Fees 23 Directors' Fees and Expenses 5 Other Expenses 42 =========================================================================================================== TOTAL EXPENSES 2,736 =========================================================================================================== NET INVESTMENT INCOME (LOSS) 1,761 =========================================================================================================== NET REALIZED GAIN (LOSS) ON: Investments 19,814 Foreign Currency Transactions (113) =========================================================================================================== NET REALIZED GAIN (LOSS) 19,701 =========================================================================================================== CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON: Investments 2,443 Foreign Currency Exchange Contracts and Translations (2) =========================================================================================================== CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 2,441 =========================================================================================================== TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 22,142 =========================================================================================================== NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 23,903 ===========================================================================================================
SIX MONTHS ENDED JUNE 30, 2004 YEAR ENDED (UNAUDITED) DECEMBER 31, 2003 STATEMENT OF CHANGES IN NET ASSETS (000) (000) ----------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS Operations: Net Investment Income (Loss) $ 1,761 $ 1,824 Net Realized Gain (Loss) 19,701 4,558 Change in Unrealized Appreciation (Depreciation) 2,441 129,547 =========================================================================================================== NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 23,903 135,929 =========================================================================================================== Distributions from and/or in excess of: Net Investment Income (432) (3,175) =========================================================================================================== Capital Share Transactions: Repurchase of Shares (48,614 and 230,477 shares, respectively) (522) (1,797) =========================================================================================================== TOTAL INCREASE (DECREASE) 22,949 130,957 =========================================================================================================== Net Assets: Beginning of Period 439,774 308,817 =========================================================================================================== END OF PERIOD (INCLUDING UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET INVESTMENT INCOME OF $(226) AND $(1,555), RESPECTIVELY) $462,723 $439,774 ===========================================================================================================
10 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. MORGAN STANLEY ASIA-PACIFIC FUND, INC. SELECTED PER SHARE DATA AND RATIOS Financial Highlights
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, 2004 ------------------------------------------------------------ (UNAUDITED) 2003 2002 2001 2000 1999 --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 12.29 $ 8.57 $ 9.24 $ 10.82 $ 15.26 $ 8.73 --------------------------------------------------------------------------------------------------------------------------- Net Investment Income (Loss) 0.05+ 0.05+ 0.02+ (0.02) (0.01) 0.01 Net Realized and Unrealized Gain (Loss) on Investments 0.62 3.75 (0.70) (1.56) (4.50) 6.44 --------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 0.67 3.80 (0.68) (1.58) (4.51) 6.45 --------------------------------------------------------------------------------------------------------------------------- Distributions from and/or in excess of: Net Investment Income (0.01) (0.09) (0.01) -- (0.22) (0.04) --------------------------------------------------------------------------------------------------------------------------- Anti-Dilutive Effect of Shares Repurchased 0.00# 0.01 0.02 0.00# 0.29 0.12 --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 12.95 $ 12.29 $ 8.57 $ 9.24 $ 10.82 $ 15.26 =========================================================================================================================== PER SHARE MARKET VALUE, END OF PERIOD $ 11.25 $ 10.85 $ 7.20 $ 7.49 $ 8.69 $ 11.81 =========================================================================================================================== TOTAL INVESTMENT RETURN: Market Value 3.80%** 51.87% (3.77)% (13.78)% (24.66)% 69.32% Net Asset Value (1) 5.48%** 44.48% (7.12)% (14.60)% (27.37)% 75.39% =========================================================================================================================== RATIOS, SUPPLEMENTAL DATA: NET ASSETS, END OF PERIOD (THOUSANDS) $462,723 $439,774 $308,817 $397,336 $621,505 $949,541 --------------------------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.19%* 1.26% 1.35% 1.39% 1.26% 1.29% Ratio of Net Investment Income (Loss) to Average Net Assets 0.77%* 0.51% 0.17% 0.19% (0.07)% 0.10% Portfolio Turnover Rate 14%** 34% 37% 27% 35% 65% ---------------------------------------------------------------------------------------------------------------------------
(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 amount is based on average shares outstanding. # Amount is less than $0.005. * Annualized ** Not Annualized THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 11 MORGAN STANLEY ASIA-PACIFIC FUND, INC. NOTES TO FINANCIAL STATEMENTS June 30, 2004 (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 (the "1940 Act"), 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. Such policies are consistently followed by the Fund in the preparation of its financial statements. Accounting principles generally accepted in the United States 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: Equity securities listed on a U.S. exchange are valued at the latest quoted sales price on the valuation date. Equity securities listed or traded on NASDAQ, for which market quotations are available, are valued at the NASDAQ Official Closing Price. Securities listed on a foreign exchange are valued at their closing price. Unlisted securities and listed securities not traded on the valuation date for which market quotations are readily available are valued at the mean between the current bid and asked prices obtained from reputable brokers. Debt securities purchased with remaining maturities of 60 days or less are valued at amortized cost, if it approximates value. All other securities and investments for which market values are not readily available, including restricted securities, and those securities for which it is inappropriate to determine prices in accordance with the aforementioned procedures, are valued at fair value as determined in good faith under procedures adopted by the Board of Directors, although the actual calculations may be done by others. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances. Most foreign markets close before the New York Stock Exchange (NYSE). Occasionally, developments that could affect the closing prices of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities trade) and the close of business on the NYSE. If these developments are expected to materially affect the value of the securities, the valuations may be adjusted to reflect the estimated fair value as of the close of the NYSE, as determined in good faith under procedures established by the Board of Directors. 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 12 MORGAN STANLEY ASIA-PACIFIC FUND, INC. NOTES TO FINANCIAL STATEMENTS (CONT'D) June 30, 2004 (unaudited) foreign exchange rates from the fluctuations arising from changes in the market prices of the securities held at period end. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) due to securities transactions are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from sales and maturities of foreign currency exchange contracts, disposition of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains (losses) from valuing foreign 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 13 MORGAN STANLEY ASIA-PACIFIC FUND, INC. NOTES TO FINANCIAL STATEMENTS (CONT'D) June 30, 2004 (unaudited) 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 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 & Co., through its corporate affiliate J.P. Morgan Investor Services Co. (the "Administrator"), provides administrative services to the Fund under an 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. An employee of the Administrator is an Officer of the Fund. D. CUSTODIAN: JPMorgan Chase Bank and its affiliates serve as custodian for the Fund. The Custodian holds cash, securities, and other assets of the Fund as required by the 1940 Act. 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 2003 and 2002 was as follows:
2003 DISTRIBUTIONS 2002 DISTRIBUTIONS PAID FROM: PAID FROM: (000) (000) ------------------------------ ------------------------------ LONG-TERM LONG-TERM ORDINARY CAPITAL ORDINARY CAPITAL INCOME GAIN INCOME GAIN --------------------------------------------------------------- $3,175 $-- $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. 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 book and tax basis differences may result in reclassifications among undistributed (distributions in excess of) net investment income (or accumulated net investment loss), accumulated net realized gain (loss) and paid-in capital. 14 MORGAN STANLEY ASIA-PACIFIC FUND, INC. NOTES TO FINANCIAL STATEMENTS (CONT'D) June 30, 2004 (unaudited) At December 31, 2003, the components of distributable earnings on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED ORDINARY INCOME LONG-TERM CAPITAL GAIN (000) (000) ----------------------------------------------------- $431 $-- -----------------------------------------------------
At June 30, 2004, the U.S. Federal income tax cost basis of investments was approximately $401,312,000 and, accordingly, net unrealized appreciation for U.S. Federal income tax purposes was $60,538,000 of which $98,761,000 related to appreciated securities and $38,223,000 related to depreciated securities. At December 31, 2003, the Fund had a capital loss carryforward for U.S. Federal income tax purposes of approximately $205,795,000 available to offset future capital gains, of which $128,632,000 will expire on December 31, 2006, $73,333,000 will expire on December 31, 2009 and $3,830,000 will expire on December 31, 2010. To the extent that capital loss carryovers are used to offset any future capital gains realized during the carryover period as provided by U.S. Federal income tax regulations, no capital gains tax liability will be incurred by the Fund for gains realized and not distributed. 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, 2003, the Fund did not defer any post-October losses to January 1, 2004, for U.S. Federal income tax purposes. F. CONTRACTUAL OBLIGATIONS: The Fund enters into contracts that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. G. OTHER: During the six months ended June 30, 2004, the Fund made purchases and sales totaling approximately $65,266,000 and $68,130,000 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. During the six months ended June 30, 2004, the Fund incurred a combined total of $33,600 in brokerage commissions paid to affiliated broker dealers, of which $32,500 was paid to Morgan Stanley & Co. Incorporated and $1,100 was paid to China International Capital Corporation. 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 six months ended June 30, 2004, the Fund repurchased 48,614 of its shares at an average discount of 15.97% from net asset value per share. Since the inception of the program, the Fund has repurchased 15,192,619 of its shares at an average discount of 20.48% 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 June 21, 2004 the Officers of the Fund, pursuant to authority granted by the Board of Directors declared a distribution of $0.0121 per share, derived from net investment income, payable on July 15, 2004, to stockholders of record on June 30, 2004. H. SUPPLEMENTAL PROXY INFORMATION: The Annual Meeting of the Stockholders of the Fund was held on June 22, 2004. The following is a summary of the proposal presented and the total number of shares voted: PROPOSAL: 1. To elect the following Directors:
VOTES IN VOTES FAVOR OF AGAINST ------------------------------------------------------------- Wayne E. Hedien 26,964,395 1,719,125 James F. Higgins 26,964,394 1,719,126 Dr. Manuel H. Johnson 26,982,445 1,701,075
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD A copy of (1) the Fund's policies and procedures with respect to the voting of proxies relating to the Fund's portfolio securities; and (2) how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30, 2004 is available without charge, upon request, by calling 1-800-548-7786 or by visiting our website at www.morganstanley.com/im. This information is also available on the Securities and Exchange Commission's website at www.sec.gov. 15 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 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 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 16 ITEM 2. CODE OF ETHICS. Not applicable for semi-annual reports. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable for semi-annual reports. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable for semi-annual reports. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable for semi-annual reports. ITEM 6. [RESERVED.] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable for semi-annual reports. ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS MORGAN STANLEY CLOSED-END FUNDS SHARE REPURCHASE PROGRAM Morgan Stanley Asia-Pacific Fund, Inc. 1/1/04-6/30/04
Total Number of Shares Maximum Number of Purchased as Part of Publicly Shares that May Yet Be Total Number of Shares Average Price Paid Announced Plans or Purchased Under the Plans Period Purchased per Share Programs or Programs ------ ---------------------- ------------------ ----------------------------- ------------------------- January - - - Unlimited February - - - Unlimited March - - - Unlimited April - - - Unlimited May 48,614 $10.68 48,614 Unlimited June - - - Unlimited
*The Share Repurchase Program commenced on 1/23/1998 **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. ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not Applicable. Not Applicable ITEM 10. CONTROLS AND PROCEDURES. (a) The Fund's principal executive officer and principal financial officer have concluded that the Fund's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is resaonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 11. EXHIBITS. (a) Code of Ethics - Not applicable for semi-annual reports. (b) Certifications of Principal Executive Officer and Principal Financial Officer attached hereto as part of EX-99.CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Morgan Stanley Asia-Pacific Fund, Inc. By: /s/ Ronald E. Robison Name: Ronald E. Robison Title: Principal Executive Officer Date: August 19, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Ronald E. Robison Name: Ronald E. Robison Title: Principal Executive Officer Date: August 19, 2004 By: /s/ James W. Garrett Name: James W. Garrett Title: Principal Financial Officer Date: August 19, 2004