N-CSR 1 a2149438zn-csr.txt N-CSR [ANNOTATED FORM N-CSR FOR ANNUAL REPORTS] 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 America's 22nd Floor New York, NY 10020 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Ronald E. Robison 1221 Avenue of the Americas, 33rd Floor New York, New York 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: 12/31/04 -------------------------------------------------------------- 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 annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows: 2004 ANNUAL REPORT DECEMBER 31, 2004 [MORGAN STANLEY LOGO] MORGAN STANLEY ASIA-PACIFIC FUND, INC. MORGAN STANLEY INVESTMENT MANAGEMENT INC. INVESTMENT ADVISER MORGAN STANLEY ASIA-PACIFIC FUND, INC. Overview LETTER TO STOCKHOLDERS PERFORMANCE For the year ended December 31, 2004, the Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund") had a total return, based on net asset value per share of 19.63%, net of fees, compared to 19.48% 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 December 31, 2004, the closing price of the Fund shares on the New York Stock Exchange was $12.81, representing a 12.1% discount to the Fund's net asset value per share. FACTORS AFFECTING PERFORMANCE - Total stock selection was positive and was the primary catalyst to performance. - From a top-down perspective, the Fund's relative overweight positions in outperforming markets like Indonesia and underweight in underperforming markets like China boded well for performance but the Fund's underweight in Australia, one of the strongest performing markets in the region, hurt performance. - From a bottom-up perspective, the Fund's positions in Hong Kong's retail and real estate sectors and Indian banks contributed positively to performance. - Another strong contributor came from Japan where stock selection, especially within sectors where the Fund has larger exposure such as materials, capital goods, consumer durables and pharmaceutical sectors, was driven up by investors reverting to fundamentals and valuations. While the Fund's select exposures to domestic oriented stocks continued to support performance, its underweight position to the banking sector negatively affected relative performance. - 2004 closed on a sober note when an earthquake and consequent tsunami in late December inflicted severe damage to coastal communities and took many lives in the South East Asian region. This natural disaster was a human tragedy of the highest proportion. The economies in Asia most directly impacted by the event were Thailand, Indonesia and India. While Banda Aceh is a very small part of Indonesia's gross domestic product, the disaster stresses the need for infrastructure improvement in Indonesia. Strangely (though not illogically), the local markets have been rising steadily as the market anticipates an increase in infrastructure spending in the coming years. We believe Thailand will be negatively impacted in the next few quarters due to slowing tourism demand. In our opinion, the impact to India's economy is not likely to be severe. - During the past 12 months, all markets in the Asia-Pacific region posted positive returns with the exception of Thailand where its market suffered when investor sentiment turned cautious after several incidents of militant violence in the South as well as intermittent occurrences of the avian flu virus. Several regional markets posted double-digit returns; Indonesia led the group as presidential elections passed smoothly and investor sentiment improved due to growing confidence in its new president to implement reforms. The Indonesian government plans to sell its remaining stake in local banks (helping to lower its fiscal deficit); this together with strong corporate results helped its market this quarter. Australia, another strong performer, posted gains as investor confidence increased in light of the re-election of its prime minister for his fourth term. - Currencies in the region like the Korean won, Taiwan dollar, Singapore dollar and Japanese yen continued to appreciate against a weakening U.S. dollar. MANAGEMENT STRATEGIES - There have been no significant changes to our strategic positions in the Fund. We continue to concentrate on bottom-up pockets of longer-term secular growth. In Taiwan, poor visibility on technology sector earnings, have led us to adopt a more cautious stance. At the end of November 2004, MSCI implemented the first of a two-stage process to give full index weight to Taiwan's constituents. Asian markets like Hong Kong/China, Singapore, Taiwan and South Korea were not severely impacted by the tsunami; our portfolio strategy has remained unchanged. - In Japan, we are inclined to believe most forward consensus estimates are too conservative and we expect continued profit expansion and emergence of some reflection in 2005. Therefore, our portfolio continues to emphasize economically sensitive sectors such as electronics, machinery and technology, which we believe will exhibit better than expected earnings as the currency markets as well as overseas economies appear to be stabilizing. Valuations on the Japanese markets are now near 25-year lows while domestic companies are continuing to restructure and focus on profitability, a relationship that suggests support for the markets with potential upside surprises in the coming months. 2 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Overview LETTER TO STOCKHOLDERS (CONT'D) - In Asia ex-Japan, the two critical variables we believe will be watched closely as influencing market direction and economic growth in Asia this year are going to be the continued robustness of U.S. consumer demand and the strength of the Chinese economy. Asian exports have benefited over the past year from the resilience of the U.S. consumer and the supernormal expansion of the Chinese economy. In our opinion, U.S. consumption growth is likely to be anemic given the specter of rising interest rates and the extremely high leverage in the economy. We believe China's investment boom is likely to slow down as a mix of economic growth rebalances from investment to consumption over the coming year. Hence, we believe it is unlikely that exports and rising trade surpluses are going to be a key driver of Asia's economic progress. We continue to focus our Fund on economies that are driven by endogenous factors like domestic demand. We closely follow new outsourcing themes in Asia in sectors such as textiles, auto components and the growth of globally expanding Asian brands. Sincerely, /s/ Ronald E. Robison Ronald E. Robison Executive Vice President-- Principal Executive Officer January 2005 3 MORGAN STANLEY ASIA-PACIFIC FUND, INC. December 31, 2004 PORTFOLIO OF INVESTMENTS
VALUE SHARES (000) -------------------------------------------------------------------------------- COMMON STOCKS(95.8%) (UNLESS OTHERWISE NOTED) AUSTRALIA(8.7%) AIRLINES Qantas Airways Ltd. 790,650 $ 2,295 -------------------------------------------------------------------------------- BIOTECHNOLOGY CSL Ltd. 100,850 2,308 -------------------------------------------------------------------------------- COMMERCIAL BANKS Australia & New Zealand Banking Group Ltd. 270,809 4,363 National Australia Bank Ltd. 114,800 2,588 -------------------------------------------------------------------------------- 6,951 -------------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES Brambles Industries Ltd. 356,050 1,936 -------------------------------------------------------------------------------- CONSTRUCTION & ENGINEERING Downer EDI Ltd. 634,000 2,346 -------------------------------------------------------------------------------- INSURANCE AMP Ltd. 780,300 4,432 Insurance Australia Group Ltd. 252,750 1,272 QBE Insurance Group Ltd. 298,100 3,580 -------------------------------------------------------------------------------- 9,284 -------------------------------------------------------------------------------- METALS & MINING BHP Billiton Ltd. 687,827 8,256 Newcrest Mining Ltd. 86,150 1,176 Rio Tinto Ltd. 231,150 7,075 -------------------------------------------------------------------------------- 16,507 -------------------------------------------------------------------------------- PAPER & FOREST PRODUCTS Gunns Ltd. 357,800 1,324 -------------------------------------------------------------------------------- TEXTILES, APPAREL & LUXURY GOODS Billabong International Ltd. 268,900 2,409 -------------------------------------------------------------------------------- 45,360 ================================================================================ CHINA(2.5%) COMMUNICATIONS EQUIPMENT Air China Ltd., 'H' (a)681,000 263 -------------------------------------------------------------------------------- ELECTRIC UTILITIES Huadian Power International Co. 2,274,000 673 -------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Kingboard Chemical Holdings Ltd. 638,000 1,350 -------------------------------------------------------------------------------- HEALTH CARE EQUIPMENT & SUPPLIES Moulin International Holdings Ltd. 1,616,000 1,102 -------------------------------------------------------------------------------- HOUSEHOLD DURABLES Grande Holdings Ltd. 1,179,000 1,153 -------------------------------------------------------------------------------- INSURANCE China Life Insurance Co., Ltd., 'H' (a)1,250,000 836 Ping An Insurance Group Co. of China Ltd., 'H' (a)569,000 $ 967 -------------------------------------------------------------------------------- 1,803 -------------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES Tom Online, Inc. (a)5,552,000 1,043 -------------------------------------------------------------------------------- METALS & MINING Asia Aluminum Holdings Ltd. 7,298,000 751 Yanzhou Coal Mining Co., Ltd., 'H' 914,000 1,305 -------------------------------------------------------------------------------- 2,056 -------------------------------------------------------------------------------- MULTILINE RETAIL Lianhua Supermarket Holdings Co., Ltd., 'H' 686,000 838 -------------------------------------------------------------------------------- OIL & GAS CNOOC Ltd. 3,610,000 1,939 -------------------------------------------------------------------------------- TEXTILES, APPAREL & LUXURY GOODS Fountain Set Holdings Ltd. 1,258,000 817 -------------------------------------------------------------------------------- 13,037 ================================================================================ HONG KONG(7.2%) DISTRIBUTORS Li & Fung Ltd. 648,000 1,092 -------------------------------------------------------------------------------- HOTELS, RESTAURANTS & LEISURE China Travel International Investment Hong Kong Ltd. 2,650,000 852 -------------------------------------------------------------------------------- HOUSEHOLD DURABLES Techtronic Industries Co. 1,343,000 2,929 -------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES Hutchison Whampoa Ltd. 175,000 1,638 -------------------------------------------------------------------------------- REAL ESTATE Cheung Kong Holdings Ltd. 164,000 1,635 Great Eagle Holdings Ltd. 1,091,000 2,821 Henderson Land Development Co., Ltd. 656,000 3,410 HongKong Land Holdings Ltd. 588,000 1,558 Hysan Development Co., Ltd. 1,287,000 2,707 New World Development Ltd. 5,284,800 5,915 Swire Pacific Ltd., 'A' 241,000 2,016 -------------------------------------------------------------------------------- 20,062 -------------------------------------------------------------------------------- SPECIALTY RETAIL Esprit Holdings Ltd. 1,625,500 9,829 -------------------------------------------------------------------------------- TEXTILES, APPAREL & LUXURY GOODS Victory City International Holdings Ltd. 2,414,000 1,017 -------------------------------------------------------------------------------- TRANSPORTATION Integrated Distribution Services Group Ltd. (a)296,000 192 -------------------------------------------------------------------------------- 37,611 ================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 4 MORGAN STANLEY ASIA-PACIFIC FUND, INC. December 31, 2004 PORTFOLIO OF INVESTMENTS (CONT'D)
VALUE SHARES (000) -------------------------------------------------------------------------------- INDIA (3.0%) AUTO COMPONENTS Amtek Auto Ltd. 470,000 $ 1,934 -------------------------------------------------------------------------------- AUTOMOBILES Hero Honda Motors Ltd. 101,075 1,335 -------------------------------------------------------------------------------- COMMERCIAL BANKS State Bank of India Ltd. (b)145,235 2,377 Union Bank of India Ltd. 1,265,000 3,184 -------------------------------------------------------------------------------- 5,561 -------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT Bharat Heavy Electricals Ltd. 171,937 3,061 -------------------------------------------------------------------------------- METALS & MINING Tata Iron & Steel Co., Ltd. 165 1 -------------------------------------------------------------------------------- TEXTILES, APPAREL & LUXURY GOODS Alok Industries Ltd. 697,000 1,147 Raymond Ltd. 317,700 2,328 -------------------------------------------------------------------------------- 3,475 -------------------------------------------------------------------------------- 15,367 ================================================================================ INDONESIA(2.2%) COMMERCIAL BANKS Bank Central Asia Tbk PT 3,960,000 1,269 Bank Internasional Indonesia Tbk PT (a)81,850,000 1,631 Bank Mandiri Persero Tbk PT 2,626,500 545 Bank Rakyat Indonesia PT 5,835,500 1,808 -------------------------------------------------------------------------------- 5,253 -------------------------------------------------------------------------------- CONSTRUCTION MATERIALS Indocement Tunggal Prakarsa Tbk PT (a)4,959,500 1,643 -------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES Telekomunikasi Indonesia Tbk PT 3,159,000 1,642 -------------------------------------------------------------------------------- METALS & MINING Bumi Resources Tbk PT (a)14,347,000 1,236 -------------------------------------------------------------------------------- MULTILINE RETAIL Ramayana Lestari Sentosa Tbk PT 8,035,000 671 -------------------------------------------------------------------------------- REAL ESTATE Kawasan Industries Jababeka Tbk PT (a)63,752,000 790 -------------------------------------------------------------------------------- 11,235 ================================================================================ JAPAN(49.4%) AUTOMOBILES Nissan Motor Co., Ltd. 693,900 7,547 Suzuki Motor Corp. 279,400 5,106 Toyota Motor Corp. 204,900 8,341 Yamaha Motor Co., Ltd. 209,900 $ 3,152 -------------------------------------------------------------------------------- 24,146 -------------------------------------------------------------------------------- BUILDING PRODUCTS Daikin Industries Ltd. 204,000 5,895 Sanwa Shutter Corp. 369,000 2,068 -------------------------------------------------------------------------------- 7,963 -------------------------------------------------------------------------------- CHEMICALS Daicel Chemical Industries Ltd. 731,000 4,139 Denki Kagaku Kogyo KK 1,083,000 3,605 Kaneka Corp. 545,000 6,172 Lintec Corp. 178,300 2,703 Mitsubishi Chemical Corp. 1,242,000 3,783 Nifco, Inc. 202,300 3,387 Shin-Etsu Polymer Co., Ltd. 364,000 2,616 Teijin Ltd. 336,000 1,460 Toyo Ink Manufacturing Co., Ltd. 315,000 1,258 -------------------------------------------------------------------------------- 29,123 -------------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES Dai Nippon Printing Co., Ltd. 220,000 3,531 Nissha Printing Co., Ltd. 67,000 931 -------------------------------------------------------------------------------- 4,462 -------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS Fujitsu Ltd. 998,000 6,499 Mitsumi Electric Co., Ltd. 232,700 2,663 NEC Corp. 801,000 4,981 Toshiba Corp. 1,473,000 6,327 -------------------------------------------------------------------------------- 20,470 -------------------------------------------------------------------------------- CONSTRUCTION & ENGINEERING Kyudenko Corp. 220,000 1,171 Maeda Road Construction Co, Ltd 60,000 472 Obayashi Corp. 608,000 3,834 Sanki Engineering Co., Ltd. 78,000 571 -------------------------------------------------------------------------------- 6,048 -------------------------------------------------------------------------------- CONSUMER FINANCE Hitachi Capital Corp. 224,600 4,638 -------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES Nippon Telegraph & Telephone Corp. 877 3,939 -------------------------------------------------------------------------------- ELECTRIC UTILITIES Tokyo Electric Power Co., Inc. 162,800 3,997 -------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT Furukawa Electric Co., Ltd. (a)434,000 2,407 -------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Hitachi Ltd. 828,000 5,739 Kyocera Corp. 63,100 4,861 Ryosan Co., Ltd. 125,900 2,907
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 5 MORGAN STANLEY ASIA-PACIFIC FUND, INC. December 31, 2004 PORTFOLIO OF INVESTMENTS (CONT'D)
VALUE SHARES (000) -------------------------------------------------------------------------------- JAPAN (CONT'D) ELECTRONIC EQUIPMENT & INSTRUMENTS (CONT'D) TDK Corp. 68,400 $ 5,068 -------------------------------------------------------------------------------- 18,575 -------------------------------------------------------------------------------- FOOD & STAPLES RETAILING FamilyMart Co., Ltd. 147,200 4,290 -------------------------------------------------------------------------------- FOOD PRODUCTS House Foods Corp. 134,300 1,940 Nippon Meat Packers, Inc. 210,000 2,848 -------------------------------------------------------------------------------- 4,788 -------------------------------------------------------------------------------- HOUSEHOLD DURABLES Casio Computer Co., Ltd. 341,000 5,263 Matsushita Electric Industrial Co., Ltd. 493,000 7,826 Rinnai Corp. 82,600 2,218 Sangetsu Co., Ltd. 12,000 293 Sekisui Chemical Co., Ltd. 525,000 3,839 Sekisui House Ltd. 369,000 4,301 Sony Corp. 126,700 4,898 -------------------------------------------------------------------------------- 28,638 -------------------------------------------------------------------------------- LEISURE EQUIPMENT & PRODUCTS Fuji Photo Film Co., Ltd. 157,000 5,732 Yamaha Corp. 294,900 4,503 -------------------------------------------------------------------------------- 10,235 -------------------------------------------------------------------------------- MACHINERY Amada Co., Ltd. 532,000 2,940 Daifuku Co., Ltd. 472,000 3,055 Fuji Machine Manufacturing Co., Ltd. 162,100 1,598 Fujitec Co., Ltd. 186,000 979 Kurita Water Industries Ltd. 272,700 3,924 Minebea Co., Ltd. 529,000 2,309 Mitsubishi Heavy Industries Ltd. 1,580,000 4,489 Tsubakimoto Chain Co. 609,000 2,348 -------------------------------------------------------------------------------- 21,642 -------------------------------------------------------------------------------- MEDIA Toho Co., Ltd. 78,700 1,244 -------------------------------------------------------------------------------- OFFICE ELECTRONICS Canon, Inc. 137,500 7,423 Ricoh Co., Ltd. 345,000 6,659 -------------------------------------------------------------------------------- 14,082 -------------------------------------------------------------------------------- PHARMACEUTICALS Ono Pharmaceutical Co., Ltd. 108,900 6,113 Sankyo Co., Ltd. 217,200 4,909 Yamanouchi Pharmaceutical Co., Ltd. 162,100 $ 6,315 -------------------------------------------------------------------------------- 17,337 -------------------------------------------------------------------------------- REAL ESTATE Mitsubishi Estate Co., Ltd. 257,000 3,011 -------------------------------------------------------------------------------- ROAD & RAIL East Japan Railway Co. 807 4,491 -------------------------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT Rohm Co., Ltd. 22,200 2,297 -------------------------------------------------------------------------------- SOFTWARE Nintendo Co., Ltd. 57,800 7,262 -------------------------------------------------------------------------------- TEXTILES, APPAREL & LUXURY GOODS Nisshinbo Industries, Inc. 278,000 2,082 -------------------------------------------------------------------------------- TRADING COMPANIES & DISTRIBUTORS Hitachi High-Technologies Corp. 73,600 1,040 Mitsubishi Corp. 467,000 6,036 Nagase & Co., Ltd. 207,000 1,787 -------------------------------------------------------------------------------- 8,863 -------------------------------------------------------------------------------- TRANSPORTATION INFRASTRUCTURE Mitsubishi Logistics Corp. 117,000 1,154 -------------------------------------------------------------------------------- 257,184 ================================================================================ MALAYSIA(0.3%) ELECTRIC UTILITIES Tenaga Nasional Bhd 398,000 1,142 -------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES Bandar Raya Developments Bhd 177,000 91 -------------------------------------------------------------------------------- REAL ESTATE MK Land Holdings Bhd 707,000 329 -------------------------------------------------------------------------------- 1,562 ================================================================================ NEW ZEALAND(0.3%) PAPER & FOREST PRODUCTS Carter Holt Harvey Ltd. 1,144,725 1,701 ================================================================================ SINGAPORE(2.8%) AIRLINES Singapore Airlines Ltd. 367,000 2,563 -------------------------------------------------------------------------------- COMMERCIAL BANKS Oversea-Chinese Banking Corp. 491,000 4,061 -------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT Unisteel Technology Ltd. 1,401,000 1,279 -------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Venture Corp., Ltd. 171,000 1,666 -------------------------------------------------------------------------------- MACHINERY Hyflux Ltd. 910,000 1,656 -------------------------------------------------------------------------------- REAL ESTATE CapitaLand Ltd. 1,464,000 1,911 --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 6 MORGAN STANLEY ASIA-PACIFIC FUND, INC. December 31, 2004 PORTFOLIO OF INVESTMENTS (CONT'D)
VALUE SHARES (000) -------------------------------------------------------------------------------- SINGAPORE (CONT'D) REAL ESTATE (CONT'D) City Developments Ltd. 380,000 $ 1,653 -------------------------------------------------------------------------------- 3,564 -------------------------------------------------------------------------------- 14,789 ================================================================================ SOUTH KOREA(8.2%) AIRLINES Korean Air Lines Co., Ltd. (a)81,280 1,480 -------------------------------------------------------------------------------- AUTO COMPONENTS Hankook Tire Co., Ltd. (a)326,930 3,221 Hyundai Mobis (a)61,000 3,860 -------------------------------------------------------------------------------- 7,081 -------------------------------------------------------------------------------- AUTOMOBILES Hyundai Motor Co. (a)16,260 872 Hyundai Motor Co. (Preference) (a)14,730 442 -------------------------------------------------------------------------------- 1,314 -------------------------------------------------------------------------------- CAPITAL MARKETS Daishin Securities Co., Ltd. 46,980 640 LG Investment & Securities Co., Ltd. (a)184,610 1,523 -------------------------------------------------------------------------------- 2,163 -------------------------------------------------------------------------------- COMMERCIAL BANKS Pusan Bank (a)213,680 1,641 -------------------------------------------------------------------------------- CONSTRUCTION & ENGINEERING Doosan Heavy Industries and Construction Co., Ltd. (a)197,460 2,251 LG Engineering & Construction Corp. (a)17,890 492 -------------------------------------------------------------------------------- 2,743 -------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Samsung SDI Co., Ltd. 64,310 7,020 -------------------------------------------------------------------------------- FOOD PRODUCTS Orion Corp. (a)18,020 1,897 -------------------------------------------------------------------------------- INSURANCE Samsung Fire & Marine Insurance Co., Ltd. 9,990 787 -------------------------------------------------------------------------------- MACHINERY Hyundai Mipo Dockyard Co., Ltd. (a)34,745 1,175 STX Shipbuilding Co., Ltd. (a)44,710 725 -------------------------------------------------------------------------------- 1,900 -------------------------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT Samsung Electronics Co., Ltd. 18,267 7,950 Samsung Electronics Co., Ltd. (Preference) 12,840 3,702 -------------------------------------------------------------------------------- 11,652 -------------------------------------------------------------------------------- TEXTILES, APPAREL & LUXURY GOODS Cheil Industries, Inc. (a)105,550 1,626 -------------------------------------------------------------------------------- TOBACCO KT&G Corp. (a)37,520 $ 1,122 -------------------------------------------------------------------------------- 42,426 ================================================================================ TAIWAN(7.8%) AUTO COMPONENTS Cheng Shin Rubber Industry Co., Ltd. 588,552 750 -------------------------------------------------------------------------------- COMMERCIAL BANKS Chinatrust Financial Holding Co., Ltd. 3,267,850 3,896 Mega Financial Holding Co., Ltd. 1,987,000 1,369 Taishin Financial Holdings Co., Ltd. 2,266,434 2,124 -------------------------------------------------------------------------------- 7,389 -------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS Acer, Inc. 811,310 1,340 Infortrend Technology, Inc. 870,210 1,889 -------------------------------------------------------------------------------- 3,229 -------------------------------------------------------------------------------- CONSTRUCTION & ENGINEERING CTCI Corp. 1,830,384 1,163 -------------------------------------------------------------------------------- CONSTRUCTION MATERIALS Taiwan Cement Corp. 3,028,410 1,991 -------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES Fubon Financial Holding Co., Ltd. GDR 49,118 490 Polaris Securities Co., Ltd. 1,460,890 818 -------------------------------------------------------------------------------- 1,308 -------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT Catcher Technology Co., Ltd. 452,200 1,486 Chaun-Choung Technology Corp. 353,745 746 Phoenixtec Power Co., Ltd. 981,885 1,183 Richtek Technology Corp. 162,500 342 Waffer Technology Co., Ltd. 404,000 511 -------------------------------------------------------------------------------- 4,268 -------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Delta Electronics, Inc. 706,000 1,244 Hon Hai Precision Industry Co., Ltd. 826,205 3,820 Ya Hsin Industrial Co., Ltd. 1,744,891 1,674 -------------------------------------------------------------------------------- 6,738 -------------------------------------------------------------------------------- INSURANCE Cathay Financial Holding Co., Ltd. 539,000 1,102 Shin Kong Financial Holding Co., Ltd. 1,019,000 981 -------------------------------------------------------------------------------- 2,083 -------------------------------------------------------------------------------- LEISURE EQUIPMENT & PRODUCTS Asia Optical Co., Inc. 549,046 3,057
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 7 MORGAN STANLEY ASIA-PACIFIC FUND, INC. December 31, 2004 PORTFOLIO OF INVESTMENTS (CONT'D)
VALUE SHARES (000) -------------------------------------------------------------------------------- TAIWAN (CONT'D) LEISURE EQUIPMENT & PRODUCTS (CONT'D) Largan Precision Co., Ltd. 275,473 $ 1,534 -------------------------------------------------------------------------------- 4,591 -------------------------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT Faraday Technology Corp. 424,338 741 MediaTek, Inc. 390,061 2,650 Sunplus Technology Co., Ltd. 500,300 702 -------------------------------------------------------------------------------- 4,093 -------------------------------------------------------------------------------- SOFTWARE Cyberlink Corp. 370,053 926 Springsoft, Inc. 585,918 1,253 -------------------------------------------------------------------------------- 2,179 -------------------------------------------------------------------------------- SPECIALTY RETAIL Tsann Kuen Enterprise Co., Ltd. 631,330 729 -------------------------------------------------------------------------------- 40,511 ================================================================================ THAILAND(3.4%) AIRLINES Thai Airways International PCL (Foreign) (b)875,700 1,093 -------------------------------------------------------------------------------- COMMERCIAL BANKS Bangkok Bank PCL (Foreign) (b)941,100 2,760 Kasikornbank PCL (Foreign) (a)(b)1,801,000 2,594 Siam City Bank PCL (Foreign) (b)460,400 299 Siam Commercial Bank PCL (Foreign) (b)775,100 977 -------------------------------------------------------------------------------- 6,630 -------------------------------------------------------------------------------- CONSTRUCTION & ENGINEERING Italian-Thai Development PCL (Foreign) (b)3,504,000 865 Sino Thai Engineering & Construction PCL (Foreign) (b)3,141,600 683 -------------------------------------------------------------------------------- 1,548 -------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES True Corp PCL (Foreign) (a)(b)7,724,900 1,610 -------------------------------------------------------------------------------- HOUSEHOLD DURABLES Asian Property Development PCL (Foreign) (b)9,160,300 862 Land & Houses PCL (Foreign) (b)2,988,000 869 -------------------------------------------------------------------------------- 1,731 -------------------------------------------------------------------------------- METALS & MINING Banpu PCL (Foreign) (b)182,900 715 -------------------------------------------------------------------------------- OIL & GAS PTT PCL (Foreign) (b)275,000 1,224 -------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES Advanced Info Service PCL (Foreign) (b)538,400 1,482 Total Access Communication PCL (a)463,000 $ 1,639 -------------------------------------------------------------------------------- 3,121 -------------------------------------------------------------------------------- 17,672 ================================================================================ TOTAL COMMON STOCKS (Cost $398,147) 498,455 ================================================================================ INVESTMENT COMPANIES(0.8%) INDIA(0.8%) Morgan Stanley Growth Fund (Cost $1,744) (c)9,491,200 4,235 ================================================================================ FACE AMOUNT (000) -------------------------------------------------------------------------------- SHORT-TERM INVESTMENT(4.0%) UNITED STATES(4.0%) REPURCHASE AGREEMENT J.P. Morgan Securities, Inc., 2.00%, dated 12/31/04, due 1/3/05, repurchase price $20,547 (Cost $20,544) $ (d)20,544 20,544 ================================================================================ TOTAL INVESTMENTS(100.6%) (Cost $420,435) 523,234 ================================================================================ LIABILITIES IN EXCESS OF OTHER ASSETS (-0.6%) (3,107) ================================================================================ NET ASSETS (100%) $ 520,127 ================================================================================
(a) Non-income producing security. (b) Security was valued at fair value - At December 31, 2004, the Fund held $18,410,000 of fair valued securities, representing 3.5% of net assets. (c) Investment in Security of Affiliated Issuer--The Morgan Stanley Growth Fund, acquired at a cost of $1,744,059, is advised by an affiliate of the Adviser. During the year ended December 31, 2004, there were no purchases or sales of this security. The Fund derived $314,278 of income from this security during the year ended December 31, 2004, before any applicable withholding taxes. (d) Represents the Fund's undivided interest in a joint repurchase agreement which has a total value of $1,018,656,000. The repurchase agreement was fully collateralized by U.S. government agency securities at the date of this portfolio of investments as follows: Federal Farm Credit Bank, 0.00% to 6.75%, due 2/28/05 to 8/15/13; Federal Home Loan Bank, 1.10% to 6.875%, due 4/15/05 to 10/28/24; Federal Home Loan Mortgage Corp., 2.00% to 6.51%, due 6/15/15 to 3/15/19; Federal National Mortgage Association, 1.75% to 8.20%, due 2/24/05 to 5/24/19; and Financial Assist Corp., 8.80%, due 6/10/05. The investment in the repurchase agreement is through participation in a joint account with affiliated parties pursuant to exemptive relief received by the Fund from the SEC. GDR Global Depositary Receipt THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 8 MORGAN STANLEY ASIA-PACIFIC FUND, INC. December 31, 2004 PORTFOLIO OF INVESTMENTS (CONT'D) 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) -------------------------------------------------------------------------------- HKD 140 $ 18 1/3/05 US$ 18 $ 18 $ @-- HKD 81 10 1/4/05 US$ 10 10 @-- US$ 22 22 1/3/05 IDR 207 22 @-- -------------------------------------------------------------------------------- $ 50 $ 50 $ @-- ================================================================================
HKD -- Hong Kong Dollar IDR -- Indonesian Rupiah GRAPHIC PRESENTATION OF PORTFOLIO HOLDINGS The following graph depicts the Fund's holdings by industry, as a percentage of total investments. [CHART] Commercial Banks 7.2% Electronic Equipment & Instruments 6.8% Household Durables 6.6% Chemicals 5.6% Real Estate 5.3% Automobiles 5.1% Machinery 4.8% Computers & Peripherals 4.5% Metals & Mining 3.9% Semiconductor Equipment & Products 3.4% Other* 42.9% Short-Term Investment 3.9%
* Industries which do not appear in the top 10 industries and industries which represent less than 3% of total investments, if applicable, are included in the category labeled "Other". THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 9 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Financial Statements STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004 (000) -------------------------------------------------------------------------------- ASSETS: Investments in Securities of Unaffiliated Issuers, at Value (Cost $418,691) $ 518,999 Investment in Security of Affiliated Issuer, at Value (Cost $1,744) 4,235 Foreign Currency, at Value (Cost $469) 473 Receivable for Investments Sold 387 Dividends Receivable 174 Tax Reclaim Receivable 5 Interest Receivable 1 Other 15 -------------------------------------------------------------------------------- TOTAL ASSETS 524,289 ================================================================================ LIABILITIES: Payable For: Dividends Declared (3,347) Investment Advisory Fees (451) Investments Purchased (115) Custodian Fees (52) Directors' Fees and Expenses (41) Administration Fees (14) Other Liabilities (142) -------------------------------------------------------------------------------- TOTAL LIABILITIES (4,162) ================================================================================ NET ASSETS Applicable to 35,683,665, Issued and Outstanding $0.01 Par Value Shares (200,000,000 Shares Authorized) $ 520,127 ================================================================================ NET ASSET VALUE PER SHARE $ 14.58 ================================================================================ NET ASSETS CONSIST OF: Common Stock $ 357 Paid-in Capital 587,862 Undistributed (Distributions in Excess of) Net Investment Income (2,406) Accumulated Net Realized Gain (Loss) (168,492) Unrealized Appreciation (Depreciation) on Investments and Foreign Currency Translations 102,806 -------------------------------------------------------------------------------- NET ASSETS $ 520,127 ================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 10 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Financial Statements STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004 (000) ---------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends from Securities of Unaffiliated Issuers (Net of $791 Foreign Taxes Withheld) $ 7,938 Dividends from Affiliated Issuer 314 Other Income 180 Interest 121 ==================================================================================================== TOTAL INVESTMENT INCOME 8,553 ==================================================================================================== EXPENSES Investment Advisory Fees (Note B) 4,662 Custodian Fees (Note D) 331 Administration Fees (Note C) 194 Professional Fees 111 Stockholder Reporting Expenses 92 Stockholder Servicing Agent 45 Directors' Fees and Expenses 13 Other Expenses 81 ==================================================================================================== TOTAL EXPENSES 5,529 ==================================================================================================== Waiver of Administration Fees (Note C) (43) ---------------------------------------------------------------------------------------------------- NET EXPENSES 5,486 ==================================================================================================== NET INVESTMENT INCOME (LOSS) 3,067 ==================================================================================================== NET REALIZED GAIN (LOSS) ON: Investments 37,674 Foreign Currency Transactions (142) ==================================================================================================== NET REALIZED GAIN (LOSS) 37,532 ==================================================================================================== CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON: Investments (Net of Decrease in Deferred Country Tax Accrual of $277) 44,705 Foreign Currency Translations 5 ==================================================================================================== CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 44,710 ==================================================================================================== TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 82,242 ==================================================================================================== NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 85,309 ====================================================================================================
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED DECEMBER 31, 2004 DECEMBER 31, 2003 (000) (000) ---------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS Operations: Net Investment Income (Loss) $ 3,067 $ 1,824 Net Realized Gain (Loss) 37,532 4,558 Change in Unrealized Appreciation (Depreciation) 44,710 129,547 ==================================================================================================== NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 85,309 135,929 ==================================================================================================== Distributions from and/or in Excess of: Net Investment Income (3,779) (3,175) ---------------------------------------------------------------------------------------------------- Capital Share Transactions: Repurchase of Shares (108,021 and 230,477 Shares, Respectively) (1,177) (1,797) ==================================================================================================== TOTAL INCREASE (DECREASE) 80,353 130,957 ==================================================================================================== Net Assets: Beginning of Period 439,774 308,817 ==================================================================================================== END OF PERIOD (INCLUDING UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET INVESTMENT INCOME OF $(2,406) AND $(1,555), RESPECTIVELY) $ 520,127 $ 439,774 ====================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 11 MORGAN STANLEY ASIA-PACIFIC FUND, INC. Financial Highlights SELECTED PER SHARE DATA AND RATIOS
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- 2004 2003 2002 2001 2000 ---------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 12.29 $ 8.57 $ 9.24 $ 10.82 $ 15.26 ---------------------------------------------------------------------------------------------------------------------------------- Net Investment Income (Loss) 0.09+ 0.05+ 0.02+ (0.02) (0.01) Net Realized and Unrealized Gain (Loss) on Investments 2.31 3.75 (0.70) (1.56) (4.50) ---------------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.40 3.80 (0.68) (1.58) (4.51) ---------------------------------------------------------------------------------------------------------------------------------- Distributions from and/or in Excess of: Net Investment Income (0.11) (0.09) (0.01) -- (0.22) ---------------------------------------------------------------------------------------------------------------------------------- Anti-Dilutive Effect of Shares Repurchased 0.00# 0.01 0.02 0.00# 0.29 ---------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 14.58 $ 12.29 $ 8.57 $ 9.24 $ 10.82 ================================================================================================================================== PER SHARE MARKET VALUE, END OF PERIOD $ 12.81 $ 10.85 $ 7.20 $ 7.49 $ 8.69 ================================================================================================================================== TOTAL INVESTMENT RETURN: Market Value 19.06% 51.87% (3.77)% (13.78)% (24.66)% Net Asset Value (1) 19.63% 44.48% (7.12)% (14.60)% (27.37)% ================================================================================================================================== RATIOS, SUPPLEMENTAL DATA: NET ASSETS, END OF PERIOD (THOUSANDS) $ 520,127 $ 439,774 $ 308,817 $ 397,336 $ 621,505 ---------------------------------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.18% 1.26% 1.35% 1.39% 1.26% Ratio of Net Investment Income (Loss) to Average Net Assets 0.66% 0.51% 0.17% 0.19% (0.07)% Portfolio Turnover Rate 25% 34% 37% 27% 35% ---------------------------------------------------------------------------------------------------------------------------------- Ratios Before Expenses Waived by Administrator: Ratio of Expenses to Average Net Assets 1.19% N/A N/A N/A N/A Ratio of Net Investment Income (Loss) to Average Net Assets 0.65% N/A N/A N/A N/A ----------------------------------------------------------------------------------------------------------------------------------
(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 per share. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 12 MORGAN STANLEY ASIA-PACIFIC FUND, INC. December 31, 2004 NOTES TO FINANCIAL STATEMENTS The Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund") was incorporated in Maryland on February 28, 1994, and is registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940 (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 U.S. generally accepted accounting principles for investment companies. Such policies are consistently followed by the Fund in the preparation of its financial statements. U.S. generally accepted accounting principles may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates. 1. SECURITY VALUATION: 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 13 MORGAN STANLEY ASIA-PACIFIC FUND, INC. December 31, 2004 NOTES TO FINANCIAL STATEMENTS (CONT'D) 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 Assets and Liabilities. 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 14 MORGAN STANLEY ASIA-PACIFIC FUND, INC. December 31, 2004 NOTES TO FINANCIAL STATEMENTS (CONT'D) 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 Assets and Liabilities, 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. INVESTMENT ADVISORY FEES: 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. ADMINISTRATION FEES: Prior to November 1, 2004, JPMorgan Chase Bank, through its corporate affiliate, J.P. Morgan Investor Services Co. ("JPMIS"), provided administrative services to the Fund under an Administration Agreement. JPMIS was 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 was charged for certain out-of-pocket expenses incurred by JPMIS on its behalf. Effective November 1, 2004, Morgan Stanley Investment Management Inc. (MSIM) serves as Administrator to the Fund pursuant to a new Administrative Agreement. Under the new Administrative Agreement, the new administrative fee will be 0.08% of the Fund's average weekly net assets. As approved by the Board of Directors, MSIM has agreed to limit the new administration fee so that it will be no greater than the old administrative fee of 0.02435% of the Fund's average weekly net assets plus $24,000 per annum. This waiver is voluntary and may be terminated at any time. For the year ended December 31, 2004, $43,000 of administration fees were waived pursuant to this arrangement. Administrative costs (including out-of-pocket expenses incurred in the ordinary course of providing services under the Agreement, which were previously borne by Fund), except pricing services and extraordinary expenses, will now be covered under the Administration Fee. JPMIS will continue to provide fund accounting and other services pursuant to a sub-administrative agreement, dated November 1, 2004, with MSIM and receives compensation from MSIM for these services. D. CUSTODIAN FEES: 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 Statement of Changes in Net Assets due to short-term capital gains being treated as 15 MORGAN STANLEY ASIA-PACIFIC FUND, INC. December 31, 2004 NOTES TO FINANCIAL STATEMENTS (CONT'D) ordinary income for tax purposes. The tax character of distributions paid during 2004 and 2003 was as follows:
2004 DISTRIBUTIONS 2003 DISTRIBUTIONS PAID FROM: PAID FROM: (000) (000) --------------------------------- ------------------------ LONG-TERM LONG-TERM ORDINARY CAPITAL ORDINARY CAPITAL INCOME GAIN INCOME GAIN ------------------------------------------------------------ $ 3,779 $ -- $ 3,175 $ --
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 U.S. generally accepted accounting principles. 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 are generally due to differing treatments of gains and losses related to foreign currency transactions and gains on certain equity securities designated as issued by passive foreign investment companies. 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. At December 31, 2004, the components of distributable earnings on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED ORDINARY INCOME LONG-TERM CAPITAL GAIN (000) (000) -------------------------------------------------------------------------------- $ 126 $ -- --------------------------------------------------------------------------------
At December 31, 2004, the U.S. Federal income tax cost basis of investments was approximately $423,192,000 and, accordingly, net unrealized appreciation for U.S. Federal income tax purposes was $100,042,000 of which $132,866,000 related to appreciated securities and $32,824,000 related to depreciated securities. At December 31, 2004, the Fund had a capital loss carryforward for U.S. Federal income tax purposes of approximately $168,225,000 available to offset future capital gains, of which $91,063,000 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. During the year ended December 31, 2004, the Fund utilized capital loss carryforward for U.S. Federal income tax purposes of approximately $37,569,000. 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, currency and passive foreign investment company losses incurred after October 31, and within the taxable year are deemed to arise on the first day of the Fund's next taxable year. For the year ended December 31, 2004, the Fund did not defer any post-October capital, currency and passive foreign investment company losses to January 1, 2005, 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 year ended December 31, 2004, the Fund made purchases and sales totaling approximately $115,730,000 and $133,300,000 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 year ended December 31, 2004, the Fund incurred a combined total of $59,000 in brokerage commissions paid to affiliated broker dealers, of which $56,800 was paid to Morgan Stanley & Co. Incorporated and $2,200 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 year ended December 31, 2004, the Fund repurchased 108,021 of its shares at an average discount of 14.59% from net asset value per share. Since the inception of the program, the Fund has repurchased 15,252,026 of its shares at an average discount of 20.44% 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. 16 MORGAN STANLEY ASIA-PACIFIC FUND, INC. December 31, 2004 NOTES TO FINANCIAL STATEMENTS (CONT'D) On December 14, 2004 the Officers of the Fund, pursuant to authority granted by the Board of Directors declared a distribution of $0.0938 per share, derived from net investment income, payable on January 7, 2005, to stockholders of record on December 23, 2004. FEDERAL TAX INFORMATION (UNAUDITED) For the year ended December 31, 2004, the Fund expects to pass through to stockholders foreign tax credits totaling approximately $782,000. For the year ended December 31, 2004, gross income derived from sources within a foreign country totaled $9,311,000. For the year ended December 31, 2004 qualified dividend income totaled $4,562,000. REPORTING TO STOCKHOLDERS (UNAUDITED) Each Morgan Stanley Fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports within 60 days of the end of the Fund's second and fourth fiscal quarters by filing the schedule electronically with the Securities and Exchange Commission (SEC). The semi-annual reports are filed on Form N-CSRS and the annual reports are filed on Form N-CSR. Morgan Stanley also delivers the semi-annual and annual reports to Fund stockholders and makes these reports available on its public website, www.morganstanley.com. Each Morgan Stanley Fund also files a complete schedule of portfolio holdings with the SEC for the Fund's first and third fiscal quarters on Form N-Q. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to stockholders, nor are the reports posted to the Morgan Stanley public website. You may, however, obtain the Form N-Q filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC's website, www.sec.gov. You may also review and copy them at the SEC's Public Reference Room in Washington, DC. Information on the operation of the SEC's Public Reference Room may be obtained by calling the SEC at 1(800) SEC-0330. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's email address (publicinfo@sec.gov) or by writing the Public Reference section of the SEC, Washington, DC 20549-0102. PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD (UNAUDITED) 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 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 SEC's website at www.sec.gov. 17 MORGAN STANLEY ASIA-PACIFIC FUND, INC. December 31, 2004 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF MORGAN STANLEY ASIA-PACIFIC FUND, INC. We have audited the accompanying statement of assets and liabilities of Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund"), including the portfolio of investments, as of December 31, 2004, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five 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. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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, 2004, 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 five years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 11, 2005 18 MORGAN STANLEY ASIA-PACIFIC FUND, INC. December 31, 2004 DIRECTOR AND OFFICER INFORMATION (UNAUDITED) Independent Directors:
NUMBER OF PORTFOLIOS IN TERM OF FUND OFFICE AND COMPLEX POSITION(S) LENGTH OF OVERSEEN NAME, AGE AND ADDRESS OF HELD WITH TIME PRINCIPAL OCCUPATION(S) BY OTHER DIRECTORSHIPS DIRECTOR REGISTRANT SERVED* DURING PAST 5 YEARS DIRECTOR** HELD BY DIRECTOR --------------------------- ----------- ---------- ----------------------------------- ------------- -------------------------- Michael Bozic (63) Director Director Private investor; Director or 197 Director of various c/o Kramer Levin Naftalis & since 2003 Trustee of the Retail Funds (since business organizations. Frankel LLP April 1994) and the Institutional Counsel to the Independent Funds (since July 2003); formerly Directors Vice Chairman of Kmart Corporation 919 Third Avenue (December 1998-October 2000), New York, NY 10022 Chairman and Chief Executive Officer of Levitz Furniture Corporation (November 1995-November 1998) and President and Chief Executive Officer of Hills Department Stores (May 1991-July 1995); formerly variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears Roebuck & Co. Edwin J. Garn (72) Director Director Consultant. Director or Trustee of 197 Director of Franklin 1031 N. Chartwell Court since 2003 the Retail Funds (since January Covey (time management Salt Lake City, UT 84103 1993) and the Institutional Funds systems), BMW Bank of (since July 2003); member of the North America, Inc. Utah Regional Advisory Board of (industrial loan Pacific Corp.; formerly Managing corporation), Escrow Director of Summit Ventures LLC Bank USA (industrial (2000-2004); United States Senator loan corporation), (R-Utah) (1974-1992) and Chairman, United Space Alliance Senate Banking Committee (joint venture between (1980-1986), Mayor of Salt Lake Lockheed Martin and The City, Utah (1971-1974), Astronaut, Boeing Company) and Space Shuttle Discovery (April Nuskin Asia Pacific 12-19, 1985), and Vice Chairman, (multilevel marketing); Huntsman Corporation (chemical member of the board of company). various civic and charitable organizations. Wayne E. Hedien (70) Director Director Retired; Director or Trustee of the 197 Director of the PMI c/o Kramer Levin Naftalis & since 2003 Retail Funds (since September 1997) Group Inc. (private Frankel LLP and the Institutional Funds (since mortgage insurance); Counsel to the Independent July 2003); formerly associated Trustee and Vice Directors with the Allstate Companies Chairman of The Field 919 Third Avenue (1966-1994), most recently as Museum of Natural New York, NY 10022 Chairman of The Allstate History; director of Corporation (March 1993-December various other business 1994) and Chairman and Chief and charitable Executive Officer of its organizations. wholly-owned subsidiary, Allstate Insurance Company (July 1989- December 1994). Dr. Manuel H. Johnson (55) Director Director Senior Partner, Johnson Smick 197 Director of NVR, Inc. c/o Johnson Smick since 2003 International, Inc., a consulting (home construction), International, Inc. firm; Chairman of the Audit Director of KFX Energy; 2099 Pennsylvania Avenue, Committee and Director or Trustee Director of RBS NW Suite 950 of the Retail Funds (since July Greenwich Capital Washington, D.C. 20006 1991) and the Institutional Funds Holdings (financial (since July 2003); Co-Chairman and holdings company). a founder of the Group of Seven Council (G7C), an international economic commission; formerly Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. Joseph J. Kearns (62) Director Director President, Kearns & Associates LLC 198 Director of Electro Rent c/o Kearns & Associates since 2001 (investment consulting); Deputy Corporation (equipment LLC Chairman of the Audit Committee and leasing), The Ford PMB754 Director or Trustee of the Retail Family Foundation and 23852 Pacific Coast Hwy. Funds (since July 2003) and the the UCLA Foundation. Malibu, CA 90265 Institutional Funds (since August 1994); previously Chairman of the Audit Committee of the Institutional Funds (October 2001- July 2003); formerly CFO of the J. Paul Getty Trust. Michael E. Nugent (68) Director Director General Partner of Triumph Capital, 197 Director of various c/o Triumph Capital, L.P. since 2001 L.P., a private investment business organizations. 445 Park Avenue, 10th Floor partnership; Chairman of the New York, NY 10022 Insurance Committee and Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2001); formerly Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988).
19 MORGAN STANLEY ASIA-PACIFIC FUND, INC. December 31, 2004 DIRECTOR AND OFFICER INFORMATION (CONT'D) Independent Directors: (cont'd)
NUMBER OF PORTFOLIOS IN TERM OF FUND OFFICE AND COMPLEX POSITION(S) LENGTH OF OVERSEEN NAME, AGE AND ADDRESS OF HELD WITH TIME PRINCIPAL OCCUPATION(S) BY OTHER DIRECTORSHIPS DIRECTOR REGISTRANT SERVED* DURING PAST 5 YEARS DIRECTOR** HELD BY DIRECTOR --------------------------- ----------- ---------- ----------------------------------- ------------- ------------------------ Fergus Reid (72) Director Director Chairman of Lumelite Plastics 198 Trustee and Director of c/o Lumelite Plastics since 2000 Corporation; Chairman of the certain investment Corporation Governance Committee and Director companies in the J.P. 85 Charles Coleman Blvd. or Trustee of the Retail Funds Morgan Funds complex Pawling, NY 12564 (since July 2003) and the managed by J.P. Morgan Institutional Funds (since June Investment Management 1992). Inc. Interested Directors: Charles A. Fiumefreddo (71) Chairman Chairman Chairman and Director or Trustee of 197 None. c/o Morgan Stanley Funds and and the Retail Funds (since July 1991) Harborside Financial Center Director of Director and the Institutional Funds (since Plaza Two 3rd Floor the Board since July 2003); formerly Chief Jersey City, NJ 07311 2003 Executive Officer of the Retail Funds (until September 2002). James F. Higgins (56) Director Director Director or Trustee of the Retail 197 Director of AXA c/o Morgan Stanley Funds since 2003 Funds (since June 2000) and the Financial, Inc. and The Harborside Financial Center Institutional Funds (since July Equitable Life Assurance Plaza Two 2nd Floor 2003); Senior Advisor of Morgan Society of the United Jersey City, NJ 07311 Stanley (since August 2000); States (financial Director of Morgan Stanley services). Distributors Inc. and Dean Witter Realty Inc.; previously President and Chief Operating Officer of the Private Client Group of Morgan Stanley (May 1999-August 2000), and President and Chief Operating Officer of Individual Securities of Morgan Stanley (February 1997-May 1999).
* 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 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 and Morgan Stanley Investment Advisors Inc.). Officers:
TERM OF OFFICE AND POSITION(S) HELD LENGTH OF TIME NAME, AGE AND ADDRESS OF EXECUTIVE OFFICER WITH REGISTRANT SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS ------------------------------------------ ---------------- ------------------ ------------------------------------------- Mitchell M. Merin (51) President President since President and Chief Operating Officer of Morgan Stanley Investment Management Inc. 2003 Morgan Stanley Investment Management Inc.; 1221 Avenue of the Americas 33rd Floor President, Director and Chief Executive New York, NY 10020 Officer of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc.; Chairman and Director of Morgan Stanley Distributors Inc.; Chairman and Director of Morgan Stanley Trust; Director of various Morgan Stanley subsidiaries; President of the Institutional Funds (since July 2003) and President of the Retail Funds (since May 1999); Trustee (since July 2003) and President (since December 2002) of the Van Kampen Closed-End Funds; Trustee (since May 1999) and President (since October 2002) of the Van Kampen Open-End Funds. Ronald E. Robison (65) Executive Vice Executive Vice Principal Executive Officer of Funds in Morgan Stanley Investment Management Inc. President and President and the Fund complex (since May 2003); 1221 Avenue of the Americas 33rd Floor Principal Principal Managing Director of Morgan Stanley & Co. New York, NY 10020 Executive Executive Officer Incorporated, Managing Director of Morgan Officer since 2003 Stanley; Managing Director, Chief Administrative Officer and Director of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc.; Director of Morgan Stanley Trust; Managing Director and Director of Morgan Stanley Distributors Inc.; Executive Vice President and Principal Executive Officer of the Retail Funds (since April 2003) and the Institutional Funds (since July 2003); previously President and Director of the Retail Funds (March 2001 - July 2003) and Chief Global Operations Officer and Managing Director of Morgan Stanley Investment Management Inc.
20 MORGAN STANLEY ASIA-PACIFIC FUND, INC. December 31, 2004 DIRECTOR AND OFFICER INFORMATION (CONT'D) Officers: (cont'd)
TERM OF OFFICE AND POSITION(S) HELD LENGTH OF TIME NAME, AGE AND ADDRESS OF EXECUTIVE OFFICER WITH REGISTRANT SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS ------------------------------------------ ---------------- ------------------ ------------------------------------------- Joseph J. McAlinden (61) Vice President Vice President Managing Director and Chief Investment Morgan Stanley Investment Management Inc. since 2003 Officer of Morgan Stanley Investment 1221 Avenue of the Americas 33rdFloor Advisors Inc. and Morgan Stanley Investment New York, NY 10020 Management Inc.; Director of Morgan Stanley Trust; Chief Investment Officer of the Van Kampen Funds; Vice President of the Institutional Funds (since July 2003) and the Retail Funds (since July 1995). Barry Fink (49) Vice President Vice President General Counsel (since May 2000) and Morgan Stanley Investment Management Inc. since 2003 Managing Director (since December 2000) of 1221 Avenue of the Americas 22nd Floor Morgan Stanley Investment Management; New York, NY 10020 Managing Director (since December 2000), Secretary (since February 1997) and Director (since July 1998) of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc.; Vice President of the Retail Funds; Assistant Secretary of Morgan Stanley DW Inc.; Vice President of the Institutional Funds (since July 2003); Managing Director, Secretary and Director of Morgan Stanley Distributors Inc.; previously Secretary of the Retail Funds and General Counsel (February 1997- April 2004) of the Retail Funds; Vice President and Assistant General Counsel of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc. (February 1997-December 2001). Amy R. Doberman (42) Vice President Vice President Managing Director and General Counsel, U.S. Morgan Stanley Investment Management Inc. since July 2004 Investment Management; Managing Director of 1221 Avenue of the Americas 22nd Floor the Investment Manager and Morgan Stanley New York, NY 10020 Investment Advisor Inc.; Vice President of the Institutional and Retail Funds (since July 2004); Vice President of the Van Kampen Funds (since August 2004); previously, Managing Director and General Counsel - Americas, UBS Global Asset Management (July 2000-July 2004) and General Counsel, Aeltus Investment Management, Inc. (January 1997-July 2000). Carsten Otto (41) Chief Chief Compliance Executive Director and U.S. Director of Morgan Stanley Investment Management Inc. Compliance Officer since Compliance for Morgan Stanley Investment 1221 Avenue of the Americas 22nd Floor Officer 2004 Management (since October 2004); Executive New York, NY 10020 Director of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Investment Management Inc.; formerly Assistant Secretary and Assistant General Counsel of the Morgan Stanley Retail Funds. Stefanie V. Chang (38) Vice President Vice President Executive Director of Morgan Stanley & Co. Morgan Stanley Investment Management Inc. since 2001 Incorporated, Morgan Stanley Investment 1221 Avenue of the Americas 22nd Floor Management Inc. and Morgan Stanley New York, NY 10020 Investment Advisors Inc.; Vice President of the Institutional Funds and the Retail Funds; formerly practiced law with the New York law firm of Rogers & Wells (now Clifford Chance US LLP). James W. Garrett (36) Treasurer and Treasurer since Executive Director of Morgan Stanley & Co. Morgan Stanley Investment Management Inc. Chief Financial 2002 and Incorporated and Morgan Stanley Investment 1221 Avenue of the Americas 34th Floor Officer Chief Financial Management Inc.; Treasurer and Chief New York, NY 10020 Officer since Financial Officer of the Institutional 2003 Funds; previously with PriceWaterhouse LLP (now PriceWaterhouseCoopers LLP). Michael J. Leary (38) Assistant Assistant Assistant Director and Vice President of J.P. Morgan Investor Services Co. Treasurer Treasurer since Fund Administration, J.P. Morgan Investor 73 Tremont Street 2003 Services Co. (formerly Chase Global Funds Boston, MA 02108 Company); formerly Audit Manager at Ernst & Young LLP. Mary E. Mullin (37) Secretary Secretary since Executive Director of Morgan Stanley & Co. Morgan Stanley Investment Management Inc. 2001 Incorporated, Morgan Stanley Investment 1221 Avenue of the Americas 22nd Floor Management Inc. and Morgan Stanley New York, NY 10020 Investment Advisors Inc.; Secretary of the Institutional Funds and (since July 2003) the Retail Funds; formerly practiced law with the New York law firms of McDermott, Will & Emery and Skadden, Arps, Slate, Meagher & Flom LLP.
* Each Officer serves an indefinite term, until his or her successor is elected. 21 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 22 MORGAN STANLEY ASIA-PACIFIC FUND, INC. DIRECTORS CHARLES A. FIUMEFREDDO MICHAEL BOZIC EDWIN J. GARN WAYNE E. HEDIEN JAMES F. HIGGINS DR. MANUEL H. JOHNSON JOSEPH J. KEARNS MICHAEL NUGENT FERGUS REID OFFICERS CHARLES A. FIUMEFREDDO CHAIRMAN OF THE BOARD MITCHELL M. MERIN PRESIDENT RONALD E. ROBISON EXECUTIVE VICE PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER JOSEPH J. MCALINDEN VICE PRESIDENT BARRY FINK VICE PRESIDENT AMY R. DOBERMAN VICE PRESIDENT STEFANIE V. CHANG VICE PRESIDENT JAMES W. GARRETT TREASURER AND CHIEF FINANCIAL OFFICER CARSTEN OTTO CHIEF COMPLIANCE OFFICER MICHAEL J. LEARY ASSISTANT TREASURER MARY E. MULLIN SECRETARY INVESTMENT ADVISER AND ADMINISTRATOR MORGAN STANLEY INVESTMENT MANAGEMENT INC. 1221 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10020 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 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) 2005 MORGAN STANLEY Item 2. Code of Ethics. (a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Fund or a third party. (b) No information need be disclosed pursuant to this paragraph. (c) The Fund has amended its Code of Ethics during the period covered by the shareholder report presented in Item 1 hereto to delete from the end of the following paragraph on page 2 of the Code the phrase "to the detriment of the Fund." (d) Not applicable. (e) Not applicable. (f) (1) The Fund's Code of Ethics is attached hereto as Exhibit A. (2) Not applicable. (3) Not applicable. Item 3. Audit Committee Financial Expert. The Fund's Board of Directors has determined that it has two "audit committee financial experts" serving on its audit committee, each of whom are "independent" Directors: Dr. Manuel H. Johnson and Joseph J. Kearns. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an "expert" for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Directors in the absence of such designation or identification. Item 4. Principal Accountant Fees and Services. (a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2004 REGISTRANT COVERED ENTITIES(1) AUDIT FEES $ 57,860 N/A NON-AUDIT FEES AUDIT-RELATED FEES $ $ 115,000 (2) TAX FEES $ 2,700 (3) $ 100,829 (4) ALL OTHER FEES $ $ 60,985 (6) TOTAL NON-AUDIT FEES $ 2,700 $ 276,814 TOTAL $ 60,560 $ 276,814 2003 REGISTRANT COVERED ENTITIES(1) AUDIT FEES $ 55,105 N/A NON-AUDIT FEES AUDIT-RELATED FEES $ $ 93,000 (2) TAX FEES $ 2,575 (3) $ 163,414 (5) ALL OTHER FEES $ $ 341,775 (6) TOTAL NON-AUDIT FEES $ 2,575 $ 598,189 TOTAL $ 57,680 $ 598,189
N/A- Not applicable, as not required by Item 4. (1) Covered Entities include the Adviser (excluding sub-advisors) and any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Registrant. (2) Audit-Related Fees represent assurance and related services provided that are reasonably related to the performance of the audit of the financial statements of the Covered Entities' and funds advised by the Adviser or its affiliates, specifically attestation services provided in connection with a SAS 70 Report. (3) Tax Fees represent tax advice and compliance services provided in connection with the review of the Registrant's tax returns. (4) Tax Fees represent tax advice services provided to Covered Entities, including research and identification of PFIC entities. (5) All Other Fees represent attestation services provided in connection with performance presentation standards. (6) All Other Fees represent attestation services provided in connection with performance presentation standards, general industry education seminars provided, and a regulatory review project performed. (e)(1) The audit committee's pre-approval policies and procedures are as follows: AUDIT COMMITTEE AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY AND PROCEDURES OF THE MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS AS ADOPTED AND AMENDED JULY 23, 2004,(1) - Statement of Principles The Audit Committee of the Board is required to review and, in its sole discretion, pre-approve all Covered Services to be provided by the Independent Auditors to the Fund and Covered Entities in order to assure that services performed by the Independent Auditors do not impair the auditor's independence from the Fund. The SEC has issued rules specifying the types of services that an independent auditor may not provide to its audit client, as well as the audit committee's administration of the engagement of the independent auditor. The SEC's rules establish two different approaches to pre-approving services, which the SEC considers to be equally valid. Proposed services either: may be pre-approved without consideration of specific case-by-case services by the Audit Committee ("GENERAL PRE-APPROVAL"); or require the specific pre-approval of the Audit Committee or its delegate ("SPECIFIC PRE-APPROVAL"). The Audit Committee believes that the combination of these two approaches in this Policy will result in an effective and efficient procedure to pre-approve services performed by the Independent Auditors. As set forth in this Policy, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee (or by any member of the Audit Committee to which pre-approval authority has been delegated) if it is to be provided by the Independent Auditors. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the Audit Committee. The appendices to this Policy describe the Audit, Audit-related, Tax and All Other services that have the general pre-approval of the Audit Committee. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee considers and provides a different period and states otherwise. The Audit Committee will annually review and pre-approve the services that may be provided by the Independent Auditors without obtaining specific pre-approval from the Audit Committee. The Audit Committee will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations. ---------- (1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and Procedures (the "POLICY"), adopted as of the date above, supersedes and replaces all prior versions that may have been adopted from time to time. The purpose of this Policy is to set forth the policy and procedures by which the Audit Committee intends to fulfill its responsibilities. It does not delegate the Audit Committee's responsibilities to pre-approve services performed by the Independent Auditors to management. The Fund's Independent Auditors have reviewed this Policy and believes that implementation of the Policy will not adversely affect the Independent Auditors' independence. - Delegation As provided in the Act and the SEC's rules, the Audit Committee may delegate either type of pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting. - Audit Services The annual Audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by the Independent Auditors to be able to form an opinion on the Fund's financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit. The Audit Committee will approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Fund structure or other items. In addition to the annual Audit services engagement approved by the Audit Committee, the Audit Committee may grant general pre-approval to other Audit services, which are those services that only the Independent Auditors reasonably can provide. Other Audit services may include statutory audits and services associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings. The Audit Committee has pre-approved the Audit services in Appendix B.1. All other Audit services not listed in Appendix B.1 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). - Audit-related Services Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Fund's financial statements and, to the extent they are Covered Services, the Covered Entities or that are traditionally performed by the Independent Auditors. Because the Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor and is consistent with the SEC's rules on auditor independence, the Audit Committee may grant general pre-approval to Audit-related services. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters not classified as "Audit services"; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements under Forms N-SAR and/or N-CSR. The Audit Committee has pre-approved the Audit-related services in Appendix B.2. All other Audit-related services not listed in Appendix B.2 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). - Tax Services The Audit Committee believes that the Independent Auditors can provide Tax services to the Fund and, to the extent they are Covered Services, the Covered Entities, such as tax compliance, tax planning and tax advice without impairing the auditor's independence, and the SEC has stated that the Independent Auditors may provide such services. Pursuant to the preceding paragraph, the Audit Committee has pre-approved the Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). - All Other Services The Audit Committee believes, based on the SEC's rules prohibiting the Independent Auditors from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes it may grant general pre-approval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, would not impair the independence of the auditor and are consistent with the SEC's rules on auditor independence. The Audit Committee has pre-approved the All Other services in Appendix B.4. Permissible All Other services not listed in Appendix B.4 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). - Pre-Approval Fee Levels or Budgeted Amounts Pre-approval fee levels or budgeted amounts for all services to be provided by the Independent Auditors will be established annually by the Audit Committee. Any proposed services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services. - Procedures All requests or applications for services to be provided by the Independent Auditors that do not require specific approval by the Audit Committee will be submitted to the Fund's Chief Financial Officer and must include a detailed description of the services to be rendered. The Fund's Chief Financial Officer will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee. The Audit Committee will be informed on a timely basis of any such services rendered by the Independent Auditors. Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the Independent Auditors and the Fund's Chief Financial Officer, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC's rules on auditor independence. The Audit Committee has designated the Fund's Chief Financial Officer to monitor the performance of all services provided by the Independent Auditors and to determine whether such services are in compliance with this Policy. The Fund's Chief Financial Officer will report to the Audit Committee on a periodic basis on the results of its monitoring. Both the Fund's Chief Financial Officer and management will immediately report to the chairman of the Audit Committee any breach of this Policy that comes to the attention of the Fund's Chief Financial Officer or any member of management. - Additional Requirements The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work of the Independent Auditors and to assure the auditor's independence from the Fund, such as reviewing a formal written statement from the Independent Auditors delineating all relationships between the Independent Auditors and the Fund, consistent with Independence Standards Board No. 1, and discussing with the Independent Auditors its methods and procedures for ensuring independence. - Covered Entities Covered Entities include the Fund's investment adviser(s) and any entity controlling, controlled by or under common control with the Fund's investment adviser(s) that provides ongoing services to the Fund(s). Beginning with non-audit service contracts entered into on or after May 6, 2003, the Fund's audit committee must pre-approve non-audit services provided not only to the Fund but also to the Covered Entities if the engagements relate directly to the operations and financial reporting of the Fund. This list of Covered Entities would include: MORGAN STANLEY RETAIL FUNDS Morgan Stanley Investment Advisors Inc. Morgan Stanley & Co. Incorporated Morgan Stanley DW Inc. Morgan Stanley Investment Management Inc. Morgan Stanley Investment Management Limited Morgan Stanley Investment Management Private Limited Morgan Stanley Asset & Investment Trust Management Co., Limited Morgan Stanley Investment Management Company Van Kampen Asset Management Morgan Stanley Services Company, Inc. Morgan Stanley Distributors Inc. Morgan Stanley Trust FSB MORGAN STANLEY INSTITUTIONAL FUNDS Morgan Stanley Investment Management Inc. Morgan Stanley Investment Advisors Inc. Morgan Stanley Investment Management Limited Morgan Stanley Investment Management Private Limited Morgan Stanley Asset & Investment Trust Management Co., Limited Morgan Stanley Investment Management Company Morgan Stanley & Co. Incorporated Morgan Stanley Distribution, Inc. Morgan Stanley AIP GP LP Morgan Stanley Alternative Investment Partners LP (e)(2) Beginning with non-audit service contracts entered into on or after May 6, 2003, the audit committee also is required to pre-approve services to Covered Entities to the extent that the services are determined to have a direct impact on the operations or financial reporting of the Registrant. 100% of such services were pre-approved by the audit committee pursuant to the Audit Committee's pre-approval policies and procedures (attached hereto). (f) Not applicable. (g) See table above. (h) The audit committee of the Board of Directors has considered whether the provision of services other than audit services performed by the auditors to the Registrant and Covered Entities is compatible with maintaining the auditors' independence in performing audit services. Item 5. Audit Committee of Listed Registrants. (a) The Fund has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are: Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Manual H. Johnson, Joseph J. Kearns, Michael Nugent and Fergus Reid. (b) Not applicable. Item 6. Schedule of Investments Refer to Item 1. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. MORGAN STANLEY INVESTMENT MANAGEMENT PROXY VOTING POLICY AND PROCEDURES I. POLICY STATEMENT INTRODUCTION - Morgan Stanley Investment Management's ("MSIM") policies and procedures for voting proxies with respect to securities held in the accounts of clients applies to those MSIM entities that provide discretionary Investment Management services and for which a MSIM entity has the authority to vote their proxies. The policies and procedures and general guidelines in this section will be reviewed and, as necessary, updated periodically to address new or revised proxy voting issues. The MSIM entities covered by these policies and procedures currently include the following: Morgan Stanley Investment Advisors Inc., Morgan Stanley Alternative Investment Partners, L.P., Morgan Stanley AIP GP LP, Morgan Stanley Investment Management Inc., Morgan Stanley Investment Group Inc., Morgan Stanley Investment Management Limited, Morgan Stanley Investment Management Company, Morgan Stanley Asset & Investment Trust Management Co., Limited, Morgan Stanley Investment Management Private Limited, Morgan Stanley Investments LP, Morgan Stanley Hedge Fund Partners GP LP, Morgan Stanley Hedge Fund Partners LP, Van Kampen Investment Advisory Corp., Van Kampen Asset Management Inc., and Van Kampen Advisors Inc. (each a "MSIM Affiliate" and collectively referred to as the "MSIM Affiliates"). Each MSIM Affiliate will vote proxies as part of its authority to manage, acquire and dispose of account assets. With respect to the MSIM registered management investment companies (Van Kampen, Institutional and Advisor Funds)(collectively referred to as the "MSIM Funds"), each MSIM Fund will vote proxies pursuant to authority granted under its applicable investment advisory agreement or, in the absence of such authority, as authorized by its Board of Directors or Trustees. A MSIM Affiliate will not vote proxies if the "named fiduciary" for an ERISA account has reserved the authority for itself, or in the case of an account not governed by ERISA, the Investment Management Agreement does not authorize the MSIM Affiliate to vote proxies. MSIM Affiliates will, in a prudent and diligent manner, vote proxies in the best interests of clients, including beneficiaries of and participants in a client's benefit plan(s) for which we manage assets, consistent with the objective of maximizing long-term investment returns ("Client Proxy Standard"). In certain situations, a client or its fiduciary may provide a MSIM Affiliate with a statement of proxy voting policy. In these situations, the MSIM Affiliate will comply with the client's policy unless to do so would be inconsistent with applicable laws or regulations or the MSIM Affiliate's fiduciary responsibility. PROXY RESEARCH SERVICES - To assist the MSIM Affiliates in their responsibility for voting proxies and the overall global proxy voting process, Institutional Shareholder Services ("ISS") and the Investor Responsibility Research Center ("IRRC") have been retained as experts in the proxy voting and corporate governance area. ISS and IRRC are independent advisers that specialize in providing a variety of fiduciary-level proxy-related services to institutional investment managers, plan sponsors, custodians, consultants, and other institutional investors. The services provided to MSIM Affiliates include in-depth research, global issuer analysis, and voting recommendations. In addition to research, ISS provides vote execution, reporting, and recordkeeping. MSIM's Proxy Review Committee (see Section IV.A. below) will carefully monitor and supervise the services provided by the proxy research services. VOTING PROXIES FOR CERTAIN NON-US COMPANIES - While the proxy voting process is well established in the United States and other developed markets with a number of tools and services available to assist an investment manager, voting proxies of non-US companies located in certain jurisdictions, particularly emerging markets, may involve a number of problems that may restrict or prevent a MSIM Affiliate's ability to vote such proxies. These problems include, but are not limited to: (i) proxy statements and ballots being written in a language other than English; (ii) untimely and/or inadequate notice of shareholder meetings; (iii) restrictions on the ability of holders outside the issuer's jurisdiction of organization to exercise votes; (iv) requirements to vote proxies in person, (v) the imposition of restrictions on the sale of the securities for a period of time in proximity to the shareholder meeting; and (vi) requirements to provide local agents with power of attorney to facilitate the MSIM Affiliate's voting instructions. As a result, clients' non-U.S. proxies will be voted on a best efforts basis only, consistent with the Client Proxy Standard. ISS has been retained to provide assistance to the MSIM Affiliates in connection with voting their clients' non-US proxies. II. GENERAL PROXY VOTING GUIDELINES To ensure consistency in voting proxies on behalf of its clients, MSIM Affiliates will follow (subject to any exception set forth herein) these Proxy Voting Policies and Procedures, including the guidelines set forth below. These guidelines address a broad range of issues, including board size and composition, executive compensation, anti-takeover proposals, capital structure proposals and social responsibility issues and are meant to be general voting parameters on issues that arise most frequently. The MSIM Affiliates, however, may vote in a manner that is contrary to the following general guidelines, pursuant to the procedures set forth in Section IV. below, provided the vote is consistent with the Client Proxy Standard. III. GUIDELINES A. MANAGEMENT PROPOSALS 1. When voting on routine ballot items the following proposals are generally voted in support of management, subject to the review and approval of the Proxy Review Committee, as appropriate. Selection or ratification of auditors. Approval of financial statements, director and auditor reports. Election of Directors. Limiting Directors' liability and broadening indemnification of Directors. - Requirement that a certain percentage (up to 66 2/3%) of its Board's members be comprised of independent and unaffiliated Directors. - Requirement that members of the company's compensation, nominating and audit committees be comprised of independent or unaffiliated Directors. Recommendations to set retirement ages or require specific levels of stock ownership by Directors. General updating/corrective amendments to the charter. Elimination of cumulative voting. Elimination of preemptive rights. Provisions for confidential voting and independent tabulation of voting results. Proposals related to the conduct of the annual meeting except those proposals that relate to the "transaction of such other business which may come before the meeting." 2. The following non-routine proposals, which potentially may have a substantive financial or best interest impact on a shareholder, are generally voted in support of management, subject to the review and approval of the Proxy Review Committee, as appropriate. CAPITALIZATION CHANGES Capitalization changes that eliminate other classes of stock and voting rights. Proposals to increase the authorization of existing classes of common stock (or securities convertible into common stock) if: (i) a clear and legitimate business purpose is stated; (ii) the number of shares requested is reasonable in relation to the purpose for which authorization is requested; and (iii) the authorization does not exceed 100% of shares currently authorized and at least 30% of the new authorization will be outstanding. Proposals to create a new class of preferred stock or for issuances of preferred stock up to 50% of issued capital. Proposals for share repurchase plans. Proposals to reduce the number of authorized shares of common or preferred stock, or to eliminate classes of preferred stock. Proposals to effect stock splits. Proposals to effect reverse stock splits if management proportionately reduces the authorized share amount set forth in the corporate charter. Reverse stock splits that do not adjust proportionately to the authorized share amount will generally be approved if the resulting increase in authorized shares coincides with the proxy guidelines set forth above for common stock increases. COMPENSATION Director fees, provided the amounts are not excessive relative to other companies in the country or industry. Employee stock purchase plans that permit discounts up to 15%, but only for grants that are part of a broad based employee plan, including all non-executive employees. Establishment of Employee Stock Option Plans and other employee ownership plans. ANTI-TAKEOVER MATTERS - Modify or rescind existing supermajority vote requirements to amend the charters or bylaws. - Adoption of anti-greenmail provisions provided that the proposal: (i) defines greenmail; (ii) prohibits buyback offers to large block holders not made to all shareholders or not approved by disinterested shareholders; and (iii) contains no anti-takeover measures or other provisions restricting the rights of shareholders. 3. The following non-routine proposals, which potentially may have a substantive financial or best interest impact on the shareholder, are generally voted AGAINST (notwithstanding management support), subject to the review and approval of the Proxy Review Committee, as appropriate. - Capitalization changes that add classes of stock which substantially dilute the voting interests of existing shareholders. - Proposals to increase the authorized number of shares of existing classes of stock that carry preemptive rights or supervoting rights. - Creation of "blank check" preferred stock. - Changes in capitalization by 100% or more. - Compensation proposals that allow for discounted stock options that have not been offered to employees in general. - Amendments to bylaws that would require a supermajority shareholder vote to pass or repeal certain provisions. - Proposals to indemnify auditors. 4. The following types of non-routine proposals, which potentially may have a potential financial or best interest impact on an issuer, are voted as determined by the Proxy Review Committee. CORPORATE TRANSACTIONS - Mergers, acquisitions and other special corporate transactions (i.e., takeovers, spin-offs, sales of assets, reorganizations, restructurings and recapitalizations) will be examined on a case-by-case basis. In all cases, ISS and IRRC research and analysis will be used along with MSIM Affiliates' research and analysis, based on, among other things, MSIM internal company-specific knowledge. - Change-in-control provisions in non-salary compensation plans, employment contracts, and severance agreements that benefit management and would be costly to shareholders if triggered. - Shareholders rights plans that allow appropriate offers to shareholders to be blocked by the board or trigger provisions that prevent legitimate offers from proceeding. Executive/Director stock option plans. Generally, stock option plans should meet the following criteria: (i) Whether the stock option plan is incentive based; (ii) For mature companies, should be no more than 5% of the issued capital at the time of approval; (iii) For growth companies, should be no more than 10% of the issued capital at the time of approval. ANTI-TAKEOVER PROVISIONS Proposals requiring shareholder ratification of poison pills. Anti-takeover and related provisions that serve to prevent the majority of shareholders from exercising their rights or effectively deter the appropriate tender offers and other offers. B. SHAREHOLDER PROPOSALS 1. The following shareholder proposals are generally supported, subject to the review and approval of the Proxy Review Committee, as appropriate: - Requiring auditors to attend the annual meeting of shareholders. - Requirement that members of the company's compensation, nominating and audit committees be comprised of independent or unaffiliated Directors. - Requirement that a certain percentage of its Board's members be comprised of independent and unaffiliated Directors. - Confidential voting. - Reduction or elimination of supermajority vote requirements. 2. The following shareholder proposals will be voted as determined by the Proxy Review Committee. - Proposals that limit tenure of directors. - Proposals to limit golden parachutes. - Proposals requiring directors to own large amounts of stock to be eligible for election. - Restoring cumulative voting in the election of directors. - Proposals that request or require disclosure of executive compensation in addition to the disclosure required by the Securities and Exchange Commission ("SEC") regulations. - Proposals that limit retirement benefits or executive compensation. - Requiring shareholder approval for bylaw or charter amendments. - Requiring shareholder approval for shareholder rights plan or poison pill. - Requiring shareholder approval of golden parachutes. - Elimination of certain anti-takeover related provisions. - Prohibit payment of greenmail. 3. The following shareholder proposals are generally not supported, subject to the review and approval of the Committee, as appropriate. - Requirements that the issuer prepare reports that are costly to provide or that would require duplicative efforts or expenditures that are of a non-business nature or would provide no pertinent information from the perspective of institutional shareholders. - Restrictions related to social, political or special interest issues that impact the ability of the company to do business or be competitive and that have a significant financial or best interest impact to the shareholders. - Proposals that require inappropriate endorsements or corporate actions. IV. ADMINISTRATION OF PROXY POLICIES AND PROCEDURES A. PROXY REVIEW COMMITTEE 1. The MSIM Proxy Review Committee ("Committee") is responsible for creating and implementing MSIM's Proxy Voting Policy and Procedures and, in this regard, has expressly adopted them. Following are some of the functions and responsibilities of the Committee. (a) The Committee, which will consist of members designated by MSIM's Chief Investment Officer, is responsible for establishing MSIM's proxy voting policies and guidelines and determining how MSIM will vote proxies on an ongoing basis. (b) The Committee will periodically review and have the authority to amend as necessary MSIM's proxy voting policies and guidelines (as expressed in these Proxy Voting Policy and Procedures) and establish and direct voting positions consistent with the Client Proxy Standard. (c) The Committee will meet at least monthly to (among other matters): (1) address any outstanding issues relating to MSIM's Proxy Voting Policy and Procedures; and (2) generally review proposals at upcoming shareholder meetings of MSIM portfolio companies in accordance with this Policy and Procedures including, as appropriate, the voting results of prior shareholder meetings of the same issuer where a similar proposal was presented to shareholders. The Committee, or its designee, will timely communicate to ISS MSIM's Proxy Voting Policy and Procedures (and any amendments to them and/or any additional guidelines or procedures it may adopt). (d) The Committee will meet on an ad hoc basis to (among other matters): (1) authorize "split voting" (i.e., allowing certain shares of the same issuer that are the subject of the same proxy solicitation and held by one or more MSIM portfolios to be voted differently than other shares) and/or "override voting" (i.e., voting all MSIM portfolio shares in a manner contrary to the Procedures); (2) review and approve upcoming votes, as appropriate, for matters for which specific direction has been provided in Sections I, II, and III above; and (3) determine how to vote matters for which specific direction has not been provided in Sections I, II and III above. Split votes will generally not be approved within a single Global Investor Group team. The Committee may take into account ISS recommendations and the research provided by IRRC as well as any other relevant information they may request or receive. (e) In addition to the procedures discussed above, if the Committee determines that an issue raises a potential material conflict of interest, or gives rise to the appearance of a potential material conflict of interest, the Committee will designate a special committee to review, and recommend a course of action with respect to, the conflict(s) in question ("Special Committee"). The Special Committee may request the assistance of the Law and Compliance Departments and will have sole discretion to cast a vote. In addition to the research provided by ISS and IRRC, the Special Committee may request analysis from MSIM Affiliate investment professionals and outside sources to the extent it deems appropriate. (f) The Committee and the Special Committee, or their designee(s), will document in writing all of their decisions and actions, which documentation will be maintained by the Committee and the Special Committee, or their designee(s) for a period of at least 6 years. To the extent these decisions relate to a security held by a MSIM U.S. registered investment company, the Committee and Special Committee, or their designee(s), will report their decisions to each applicable Board of Trustees/Directors of those investment companies at each Board's next regularly Scheduled Board meeting. The report will contain information concerning decisions made by the Committee and Special Committee during the most recently ended calendar quarter immediately preceding the Board meeting. (g) The Committee and Special Committee, or their designee(s), will timely communicate to applicable PMs, the Compliance Departments and, as necessary to ISS, decisions of the Committee and Special Committee so that, among other things, ISS will vote proxies consistent with their decisions. Item 8. Portfolio Managers of Closed-End Management Investment Companies Not Applicable Required disclosure beginning with fiscal year end 12/31/05. Item 9. Closed-End Fund Repurchases
TOTAL NUMBER OF SHARES MAXIMUM NUMBER OF TOTAL NUMBER OF PURCHASED AS PART OF SHARES THAT MAY YET BE SHARES AVERAGE PRICE PUBLICLY ANNOUNCED PLANS PURCHASED UNDER THE PERIOD PURCHASED PAID PER SHARE OR PROGRAMS PLANS OR PROGRAMS --------------------------------------------------------------------------------------------------- July -- -- -- Unlimited August 36,808 $ 10.71 36,808 Unlimited September 430 $ 11.05 430 Unlimited October 22,169 $ 11.38 22,169 Unlimited November -- -- -- Unlimited December -- -- -- 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 10. Submission of Matters to a Vote of Security Holders Not applicable. Item 11. 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 reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits (a) The Code of Ethics for Principal Executive and Senior Financial Officers is attached hereto. (b) A separate certification for each principal executive officer and principal financial officer of the registrant are 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: 2/17/2005 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: 2/17/2005 By: /s/ James W. Garrett ----------------------------------------------------------------------------- Name: James W. Garrett Title: Chief Financial Officer Date: 2/17/2005