-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NmFYn0NdimmQtPyVwHxPeVp6/qs4WKs0WGjLYviISdvvvBJx3kV/J39beOhMHgF9 +GTTWsY7YOH1YXd2PG3XbA== 0001047469-98-010403.txt : 19980319 0001047469-98-010403.hdr.sgml : 19980319 ACCESSION NUMBER: 0001047469-98-010403 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980318 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY ASIA PACIFIC FUND INC CENTRAL INDEX KEY: 0000919808 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-08388 FILM NUMBER: 98568412 BUSINESS ADDRESS: STREET 1: 1221 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 6175578742 MAIL ADDRESS: STREET 1: MORGAN STANLEY ASIA PACIFIC FUND STREET 2: 1221 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10020 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY ASIA INVESTMENT FUND INC DATE OF NAME CHANGE: 19940316 N-30D 1 N-30D MORGAN STANLEY ASIA-PACIFIC FUND, INC. - -------------------------------------------------------------------------------- DIRECTORS AND OFFICERS Barton M. Biggs William G. Morton, Jr. CHAIRMAN OF THE BOARD DIRECTOR OF DIRECTORS Michael F. Klein Stefanie V. Chang PRESIDENT AND DIRECTOR VICE PRESIDENT Peter J. Chase Harold J. Schaaff, Jr. DIRECTOR VICE PRESIDENT John W. Croghan Joseph P. Stadler DIRECTOR VICE PRESIDENT David B. Gill Valerie Y. Lewis DIRECTOR SECRETARY Graham E. Jones Joanna M. Haigney DIRECTOR TREASURER John A. Levin Belinda A. Brady DIRECTOR ASSISTANT TREASURER - -------------------------------------------------------------------------------- INVESTMENT ADVISER Morgan Stanley Asset Management Inc. 1221 Avenue of the Americas New York, New York 10020 - -------------------------------------------------------------------------------- ADMINISTRATOR The Chase Manhattan Bank 73 Tremont Street Boston, Massachusetts 02108 - -------------------------------------------------------------------------------- CUSTODIANS Morgan Stanley Trust Company One Pierrepont Plaza Brooklyn, New York 11201 The Chase Manhattan Bank 3 Chase MetroTech Center Brooklyn, New York 11245 - -------------------------------------------------------------------------------- SHAREHOLDER SERVICING AGENT American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 (800) 278-4353 - -------------------------------------------------------------------------------- LEGAL COUNSEL Rogers & Wells LLP 200 Park Avenue New York, New York 10166 - -------------------------------------------------------------------------------- INDEPENDENT ACCOUNTANTS Price Waterhouse LLP 1177 Avenue of the Americas New York, New York 10036 - -------------------------------------------------------------------------------- For additional Fund information, including the Fund's net asset value per share and information regarding the investments comprising the Fund's portfolio, please call 1-800-221-6726. - -------------------------------------------------------------------------------- MORGAN STANLEY ASIA-PACIFIC FUND, INC. - -------------------------------------------------------------------------------- ANNUAL REPORT DECEMBER 31, 1997 MORGAN STANLEY ASSET MANAGEMENT INC. INVESTMENT ADVISER LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- For the year ended December 31, 1997, the Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund") had a total return, based on net asset value per share, of -26.36% compared to its benchmark (as defined below) of -28.09%. For the period since the Fund's commencement of operations on August 2, 1994 through December 31, 1997, the Fund's total return, based on net asset value per share, was -26.46% compared with -36.49% for the benchmark (The benchmark for investment purposes is the weighted average of the percentage change month-on-month of each of two Morgan Stanley Capital International (MSCI) indices; Japan, and Combined Asia Free ex-Japan, where the weights are based on the respective market capitalizations of these indices at the beginning of each month). On December 31, 1997, the closing price of the Fund's shares on the New York Stock Exchange was $7.44 representing a 15.2% discount to the Fund's net asset value per share. Asian markets witnessed a disastrous year in 1997, as the index suffered its largest yearly decline since its inception. Of the core East Asian markets, not a single individual country managed a positive return for the year, as the region's best performers were Taiwan (-6.3%) and Hong Kong (-23.3%). Five of the nine countries encompassed within the index suffered declines of more than 60%, led by Indonesia (-74.1%) and followed by Thailand (-73.4%), Malaysia (-68.0%), Korea (-66.7%) and the Philippines (-62.6%). Though the meltdown in the region can be traced to factors which existed in many countries, the collapse was precipitated by the de-pegging of the Thai baht on July 2, 1997, which subsequently forced the currency and equity markets into a vicious downward spiral. A large current account deficit coupled with unhedged U.S. dollar loans going into a property bubble first attracted the speculators who eventually triggered the depreciation of the currency. Despite a change of government and an IMF led bailout package, the equity market remains badly beaten, down close to 90% from its peak two years ago. Though the IMF has been successful in closing shaky financial institutions, a complete lack of confidence in the currency and illiquidity in the markets has led most international equity investors to desert Thailand. The currency depreciation quickly spread to other Southeast Asian countries, most severely to Indonesia. Despite reasonably solid macroeconomic fundamentals, domestic and international holders of the currency quickly fled to U.S. dollars, forcing the rupiah down 56% by the year end. Indonesian corporates and banks with large exposure to U.S. dollar-denominated debt led the market down, as interest costs skyrocketed throughout the economy. The ensuing economic slowdown, as well as concerns over the health of Indonesia's ailing patriarch Suharto, allowed little upside to the equity market through year end. The contagion effect which lashed Southeast Asia quickly spread to Northeast Asia with the Korean won depreciating by 47%. In the fourth quarter, the stock market declined sharply amidst concern over the credit quality of the financial sector and the ability of Korea to repay its foreign short-term obligations. Korea's downturn was a result of the excessive expansion and over-leverage by Korean chaebols, the business conglomerates of Korea, which comprise over 70% of GDP. Several large chaebols entered into court receivership including Sammi, Hanbo, Kia and Jinro with net debt to equity ratios well above 500%. In the latter part of the year, the IMF stepped in and Korea was forced to undertake quick liberalization and reform measures, including the opening of its capital markets. Lastly, even Hong Kong did not remain unscathed from the regional turmoil. Though its currency board system allowed it to maintain the Hong Kong dollar peg to the U.S. dollar, the cost was levied through a rapid increase in interest rates. The equity market, dominated by interest sensitive stocks such as property and banks, reversed the 20% return it had made through September and plummeted to a final -25% performance for the year. Hong Kong property prices, among the most expensive in the world dropped 30% in 4 months, as asset deflation took the place of currency depreciation. ASIA EXCLUDING JAPAN - OUTLOOK As the crash takes its initial victims in ASEAN to below 70% from their peaks, focus has now shifted to North-East Asia. The imminent demise of the Korean economy (the 11th largest in the world) as we know it today has finally awakened the world to the risk of a worldwide contagion and begun to elicit some concerted response from the U.S. and the international community. At the same time, however, as the other currencies and markets fall, the remaining markets like Hong Kong, Singapore and Taiwan are looking more and more expensive and vulnerable. The risk in Hong Kong is that China is obviously slowing rapidly and its currency peg to the U.S. dollar is exacting a heavy toll on its economy. Should the U.S. equity markets crash, Hong Kong's position could become untenable. 2 Similarly, should China falter, Taiwan would be seriously impacted, and its problems compounded by the current weakness in the technology and electronics area. Any fallout in the electronics area will also be problematic for Singapore which is already contending with the devastation of its ASEAN partners and hinterland. We would therefore look to reduce our Hong Kong and China exposure and seek to hedge our currency exposure to the Hong Kong dollar, the New Taiwan dollar and the Singapore dollar. Concurrently, we would be seeking to put money to work in selected stocks in the more devastated markets which are beginning to offer compelling values for the patient investor. It is anticipated that 1998 will be a very difficult year for the region. The effect of the fallout in the regional markets is just beginning to filter through into the real economy and 1998 will be marked by corporate collapses and massive layoffs which are likely to cause many of the economies to descend into economic recessions and possible political and social unrest. Although the currency turmoil and confidence crisis continues and there are no signs of the stock markets stabilizing, the speed at which some of the regional currencies and markets are sliding would seem to indicate a climatic condition. It is therefore our view that now is not the time for serious investors to exit these markets. Indeed, investors with the luxury of a longer term horizon stand to reap massive long term gains through capitalizing on this monumental meltdown in the Asian markets. Our strategy would be to concentrate on identifying for acquisition, the companies and stocks that represent irreplaceable franchises which are currently available at bargain basement levels. JAPAN - REVIEW During the fourth quarter of 1997 economic conditions deteriorated substantially faster than market expectations. In fact, the Tankan survey of Japanese corporations released in December showed almost all economic indicators to be accelerating lower than most pessimists had been predicting. A vicious downward spiral, starting with a weak economy leading to declining stock prices and erosion of "hidden profits" held by Japanese institutions resulted in a sharply higher Japan premium. This self-feeding economic downturn further depressed investor confidence and consumer spending. Moreover, in order to meet international BIS standards Japanese banks were forced to liquidate cross-holdings of equities to raise capital while their lending activity was also curtailed to avoid unnecessary exposure, particularly to medium to smaller companies. These events, coupled with a severe economic climate led to the collapse of several major Japanese corporations in the 4th quarter, unprecedented since WWII, including Sanyo and Yamaichi Securities and Hokkaido Takushoku Bank. The mounting credit crunch from the rising Japan premium for inter bank loans also forced Toshoku, a medium sized trading company into bankruptcy. The Japanese Government in an act of desperation announced plans for a new type of bond to provide capital for the DIC (Deposit Insurance Corporations) and also proposed to purchase preferred stocks from Japanese banks. Also, in order to boost public confidence the Government announced a one time 2 trillion yen individual tax cut in mid December. However, investors' reactions to such proposals was largely cool as most participants believe that only a massive fiscal stimulus program will help the ailing economy. Foreign investors in particular were disappointed with the lack of fiscal stimulus and became large net sellers, preferring to shore-up overseas investments and flee to "quality" and back to the dollar. The combined unstable Asian economies and Korea's economic uncertainty propelled Japan's equity markets to lows set in 1995 and the year ended amid clouds of uncertainty over the future of Japan. For the full year 1997 most Japanese Government authorities and investors grossly underestimated the severely negative implications on the Japanese economy by changes made in fiscal policy at the beginning of the year. In particular, the consumption tax hike in April followed by depressed consumer sentiment during a stagnant economy resulted in a sharp reversal of gradually improving economic indicators from the previous year. Moreover, most bureaucrats firmly believed that austerity measures together with a deregulated economy would lead to long term growth despite weakening economic back drop. From July 1997, such an environment created a severe credit crunch for non- performing loans held by banks. In addition, the collapse of several Asian currencies during the 2nd half of 1997 further impacted an already faltering economy. With a mounting domestic financial crisis looming, Japanese authorities seemed to sense little urgency in responding by necessary stimulus measures. 3 Judging by both the Asian crisis and critically slowing Japanese economy, foreign investors became net sellers of Japanese equity in a increasingly deteriorating demand environment for equities by domestic institutions and therefore leading to sharply higher volatility and selling pressures. However, a pronounced and polarized market developed within Japanese equities whereby those companies participating in a favorable global economy provided relatively good returns. In particular, sectors in new technologies and consumer growth products withheld sharp declines in indexes heavily weighted by financial companies and banks. The overweight position in these sectors provided the basis for the Fund's outperformance for 1997. Our view on the outlook for the overall Japanese equity market is based on whether Japanese authorities seriously recognize the need to massively change fiscal policy. Specifically, we believe "supply side" measures must be implemented together with deregulation. Although a 2 trillion yen one time personal income tax cut was announced in December, we believe additional permanent corporate and individual tax cuts must also be made. The current economic woes in Japan have yet to fully discount the slowdown in non Japan Asia in our view and although some attention has been paid to bank non-performing loans, more drastic proposals should be implemented to provide the necessary liquidity in real estate for sustainable economic growth. Unfortunately, politicians seem more preoccupied with status quo rather than risk votes by implementing major changes. However, increasing pressure from G7 and the leading Japanese business community will likely grow significantly during the coming months as the economy remains weak. A meaningful and sustainable recovery will occur, in our view, if there is enough pressure for such change by the G7 Summit in May or July 1998 when Upper House elections will take place. Meanwhile, while we are hopeful that authorities will make the necessary fiscal stimulus changes to invigorate Japan, we will maintain our current portfolio weighting in electronics, blue chips and globally competitive Japanese companies. If a massive fiscal policy change is implemented, however, our strategy is to remain flexible for sector and stock selection. The paternal guidance both politicians and bureaucrats have exercised on governing the Japanese economy favoring the corporate sector over individuals since WWII will need to change in order for a new sustainable growth for Japan. This radical departure from the past is beginning to emerge but in order for us to become bullish for the entire market we believe additional empowerment must be made for consumers to play greater role in overall economic policies of Japan. Finally, this is to inform you that effective January 1, 1998, Vinod Sethi, a Managing Director of Morgan Stanley Asset Management Inc. ("MSAM") and John R. Alkire, a Managing Director of MSAM, will share the primary responsibility for the day-to-day management of the Fund's assets. Mr. Sethi is MSAM's Chief Investment Officer for the Asian region and has been involved in the emerging markets group since joining MSAM in 1989. He received his undergraduate degree in chemical engineering from I.I.T. (Bombay) and has an M.B.A. from York University School of Business. Mr. Alkire is the President of Morgan Stanley Investment Advisory, Japan. He graduated from the University of Victoria, Canada. Sincerely, /s/ Michael F. Klein Michael F. Klein PRESIDENT AND DIRECTOR /s/ Vinod Sethi Vinod Sethi PORTFOLIO MANAGER /s/ John R. Alkire John R. Alkire PORTFOLIO MANAGER January 1998 4 MORGAN STANLEY ASIA-PACIFIC FUND, INC. INVESTMENT SUMMARY AS OF DECEMBER 31, 1997 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------- HISTORICAL TOTAL RETURN (%) INFORMATION ------------------------------------------------------------------------------------ MARKET VALUE (1) NET ASSET VALUE (2) INDEX (3) ------------------------ ------------------------ ------------------------ AVERAGE AVERAGE AVERAGE CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL ---------- ------- ---------- ------- ---------- ------- ONE YEAR 23.46% -23.46% -26.36% -26.36% -28.09% -28.09% SINCE INCEPTION* -37.67+ -12.92+ -26.46+ -8.60+ -36.49 -12.45 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. - -----------------------------------------------------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION [CHART]
YEARS ENDED DECEMBER 31: 1994* 1995 1996 1997 ------- ------- ------- ------- Net Asset Value Per Share. . . . . . . . $ 13.20 $ 14.34 $ 11.95 $ 8.77 Market Value Per Share . . . . . . . . . $ 12.25 $ 13.33 $ 9.75 $ 7.44 Premium/(Discount) . . . . . . . . . . . -7.2% -7.0% -18.4% -15.2% Income Dividends . . . . . . . . . . . . $ 0.04 $ 0.05 $ 0.61 $ 0.02 Capital Gains Distributions. . . . . . . $ 0.01 $ 0.02 -- -- Fund Total Return (2). . . . . . . . . . -5.94% 9.24% -2.87%+ -26.36% Index Total Return (3) . . . . . . . . . -5.90% 0.87% -9.17% -28.09%
(1) Assumes dividends and distributions, if any, were reinvested. (2) Total investment return based on net asset value per share reflects the effects of changes in net asset value on the performance of the Fund during each period, and assumes dividends and distributions, if any, were reinvested. These percentages are not an indication of the performance of a shareholder's investment in the Fund based on market value due to differences between the market price of the stock and the net asset value per share of the Fund. (3) The benchmark for investment performance is the weighted average of the percentage change month-on-month of two Morgan Stanley Capital International (MSCI) indices; Japan and Combined Asia Pacific Free ex- Japan, where the weights are based on the respective market capitalizations of these indices at the beginning of the month. * The Fund commenced operations on August 2, 1994. + This return does not include the effect of the rights issued in connection with the Rights Offering. 5 MORGAN STANLEY ASIA-PACIFIC FUND, INC. PORTFOLIO SUMMARY AS OF DECEMBER 31, 1997 - -------------------------------------------------------------------------------- DIVERSIFICATION OF TOTAL INVESTMENTS [CHART] Equity Securities 82.7% Short-Term Investments 17.3%
- -------------------------------------------------------------------------------- SECTORS (UNAUDITED) [CHART] Automobiles 5.2% Banking 8.0% Chemicals 5.2% Data Processing & Reproduction 3.3% Electrical & Electronics 12.9% Energy Equipment & Services 4.1% Machinery & Engineering 5.1% Multi-Industry 3.3% Real Estate 3.5% Transportation -- Road & Rail 2.1% Other 47.3%
- -------------------------------------------------------------------------------- COUNTRY WEIGHTINGS [CHART] Japan 42.5% India 15.4% Hong Kong 6.6% Australia 4.2% Singapore 3.2% Pakistan 2.5% Indonesia 1.8% Thailand 1.7% United Kingdom 1.6% Philippines 1.2% Other 19.3%
- -------------------------------------------------------------------------------- TEN LARGEST HOLDINGS* PERCENT OF NET ASSETS ---------- 1. Bharat Heavy Electricals Ltd. (India) 4.1% 2. Housing Development Finance Corp. Ltd. (India) 3.0 3. United Overseas Bank (Foreign) (Singapore) 2.3 4. Nintendo Ltd. (Japan) 2.0 5. Hutchison Whampoa Ltd. (Hong Kong) 2.0 6. Cheung Kong (Holdings) Ltd. (Hong Kong) 1.9% 7. Sony Corp. (Japan) 1.9 8. Container Corp. of India Ltd. (India) 1.8 9. China Light & Power Co. Ltd. (Hong Kong) 1.7 10. Ricoh Co. Ltd. (Japan) 1.7 ---- 22.4% ---- ----
* Excludes short-term investments. 6 FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- DECEMBER 31, 1997
VALUE SHARES (000) - --------------------------------------------------------------------------- COMMON STOCKS (83.5%) (Unless otherwise noted) - --------------------------------------------------------------------------- AUSTRALIA (4.2%) BANKING Commonwealth Bank of Australia 3,900 U.S.$ 45 National Australia Bank Ltd. 636,000 8,879 Westpac Banking Corp. Ltd. 1,054,000 6,740 ------------- 15,664 BROADCASTING & PUBLISHING News Corp. Ltd. 527,600 2,911 ------------- REAL ESTATE Lend Lease Corp. Ltd. 109,000 2,130 ------------- TELECOMMUNICATIONS (a) Telstra Corp. Ltd. 1,798,000 3,795 ------------- TRANSPORTATION -- ROAD & RAIL Brambles Industries Ltd. 104,200 2,067 ------------- 26,567 ------------- - --------------------------------------------------------------------------- CHINA (0.6%) ENERGY SOURCES (a) Huaneng Power International, Inc. ADR 150,000 3,478 ------------- - --------------------------------------------------------------------------- HONG KONG (6.6%) AUTOMOBILES Qingling Motors Co. 12,480,000 6,120 ------------- MULTI-INDUSTRY Hutchison Whampoa Ltd. 1,966,000 12,330 ------------- REAL ESTATE Cheung Kong (Holdings) Ltd. 1,839,000 12,044 ------------- UTILITIES -- ELECTRICAL & GAS China Light & Power Co. Ltd. 1,955,000 10,849 ------------- 41,343 ------------- - --------------------------------------------------------------------------- INDIA (15.4%) APPLIANCES & HOUSEHOLD DURABLES Phillips India Ltd. 123,582 205 Supreme Industries Ltd. 178,449 828 ------------- 1,033 ------------- AUTOMOBILES (a) Autolite Ltd. 231,900 155 (a) Autopal Industries Ltd. 62,600 6 Bajaj Auto Ltd. 4,000 62 Bajaj Tempo Ltd. 707 4 (a,c) Bajaj Tempo Ltd. (Rights) 1,717 6 Bharat Forge Co., Ltd. 217,996 353 Ceat Ltd. 368,000 221 Denso India Ltd. 71,200 85 Escorts Ltd. 136,325 290 Hero Honda Ltd. 240,050 5,651 MRF Ltd. 18,000 888 (a) Patheja Forgings and Auto Ltd. 677,700 111 ------------- 7,832 ------------- BANKING Industrial Finance Corp. (India) Ltd. 92,500 77 State Bank of India Ltd. 1,254,812 7,779 ------------- 7,856 ------------- BEVERAGES & TOBACCO ITC Ltd. 46,273 730 ------------- BUILDING MATERIALS & COMPONENTS Associated Cement Co. Ltd. 1,164 41 Gujarat Ambuja Cements Ltd. 50 1 India Cements Ltd. 75,000 128 Panyam Cements & Minerals Ltd. 33,765 341 Saurashtra Cement & Chemicals Ltd. 50 -- @ ------------- 511 ------------- CHEMICALS Birla VXL Ltd. 842,098 244 E.I.D. Parry Ltd. 64,300 148 Gujarat Narmada Valley Fertilizers Ltd. GDR 144A 275,000 412 Gujarat Narmada Valley Fertilizers Ltd. 324 -- @ Indian Petro Chemical Corp. Ltd. 2,010 4 Jaysynth Dyechem Ltd. 125,200 32 United Phosphorous Ltd. 94,290 247 ------------- 1,087 ------------- CONSTRUCTION & HOUSING Alacrity Housing Ltd. 381,000 49 (a) Hindustan Construction Co. 254,675 85 Hindustan Development Corp. Ltd. 988,780 219 Nagarjuna Construction Ltd. 151,100 64 ------------- 417 ------------- ELECTRONIC COMPONENTS & INSTRUMENTS Infosys Technology Ltd. 44,200 1,390 Rolta India Ltd. 999,500 442 S&S Power Switchgear Ltd. 63,550 27 ------------- 1,859 ------------- ENERGY EQUIPMENT & SERVICES Bharat Heavy Electricals Ltd. 2,881,000 26,014 ------------- ENERGY SOURCES Esab India Ltd. 346,865 960 ------------- FINANCIAL SERVICES Housing Development Finance Corp. Ltd. 238,282 18,707 UTI MasterShares Ltd. 2,196,970 717 ------------- 19,424 ------------- FOOD & HOUSEHOLD PRODUCTS Dhampur Sugar Mills Ltd. 141,575 206 Smithkline Beecham Consumer Health Care Ltd. 384,600 3,208 ------------- 3,414 ------------- FOREST PRODUCTS & PAPER Ballarpur Industries Ltd. 100 -- @ - ---------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 7
VALUE SHARES (000) - --------------------------------------------------------------------------- HEALTH & PERSONAL CARE Sun Pharmaceutical Industries Ltd. 161,200 U.S.$ 922 ------------- INDUSTRIAL COMPONENTS Apollo Tyres Ltd. 685,475 1,390 (a) Apollo Tyres Ltd. (Warrants), expiring 2/28/98 189,543 5 Essel Packaging Ltd. 146,300 424 ITW Signode India Ltd. 571,132 1,111 KEC International Ltd. 881,750 607 ------------- 3,537 ------------- LEISURE & TOURISM ITC Hotels Ltd. 212,530 542 ------------- MACHINERY & ENGINEERING (a) Artson Engineering Ltd. 221,800 36 Crompton Greaves Ltd. 415,210 315 DGP Windsor India Ltd. 218,800 112 Flat Products Equipments (India) Ltd. 174,900 169 (a) Hindustan Power Plus Ltd. 75,600 85 (a,b) Hindustan Power Plus Ltd. - New 17,400 20 Veejay Lakshmi Engineering Ltd. 149,100 114 ------------- 851 ------------- METALS - STEEL Tata Iron & Steel Co., Ltd. 254 1 (a,b) Tata SSL Ltd. - New 467,740 163 ------------- 164 ------------- MISCELLANEOUS MATERIALS & COMMODITIES Vikas WSP Ltd. 323,600 916 ------------- MULTI-INDUSTRY Century Textiles & Industries Ltd. 58,660 104 Indian Rayon & Industries Ltd. 75 -- @ J.K. Corp. Ltd. 100 -- @ J.K. Corp. Ltd. GDR 144A 249,240 95 Kesoram Industries Ltd. 310,238 180 (b) Max India Ltd. - New 170,000 390 (a,d) Morgan Stanley Growth Fund 32,892,200 5,077 (a) Voltas Ltd. 207,950 145 ------------- 5,991 ------------- RECREATION, OTHER CONSUMER GOODS Suashish Diamonds Ltd. 148,100 87 Tube Investments of India Ltd. 109,400 96 Wimco Ltd. 700 1 ------------- 184 ------------- TEXTILES & APPAREL Coates of India Ltd. 100,680 265 G.T.N. Textiles Ltd. 243,000 251 Garware Plastics & Polyester Ltd. 275,525 146 Indo Rama Synthetics Ltd. 257,270 66 (a) J.K. Synthetics Ltd. 686,901 28 Mahavir Spinning Mills Ltd. 173,686 219 Morajee Goculdas Spinning Ltd. 125,000 68 Raymond Ltd. 190 -- @ (a) Viniyoga Clothes Ltd. 5,400 -- @ ------------- 1,043 ------------- TRANSPORTATION -- ROAD & RAIL Container Corp. of India Ltd. 1,059,600 11,353 ------------- TRANSPORTATION -- SHIPPING Great Eastern Shipping Ltd. 4,334 5 ------------- 96,645 ------------- - --------------------------------------------------------------------------- INDONESIA (1.8%) AUTOMOBILES Astra International Inc. 3,514,300 911 ------------- BEVERAGES & TOBACCO Bat Indonesia 265,000 1,253 Gudang Garam (Foreign) 2,783,000 4,238 ------------- 5,491 ------------- FOOD & HOUSEHOLD PRODUCTS Mayora Indah 10,773,500 930 (b) Unilever Indonesia (Foreign) 522,500 2,850 ------------- 3,780 ------------- HEALTH & PERSONAL CARE (b) SQUIBB Indonesia 49,000 64 ------------- TELECOMMUNICATIONS Telekomunikasi Indonesia (Foreign) 1,608,000 855 ------------- 11,101 ------------- - --------------------------------------------------------------------------- JAPAN (42.5%) APPLIANCES & HOUSEHOLD DURABLES Rinnai Corp. 160,700 2,426 ------------- AUTOMOBILES Asahi Tec Corp. 443,000 703 Nissan Motor Co. 1,000,000 4,139 Suzuki Motor Co. Ltd. 630,000 5,698 Toyota Motor Corp. 270,000 7,739 ------------- 18,279 ------------- BUILDING MATERIALS & COMPONENTS Sangetsu Co. Ltd. 147,000 1,510 Sanwa Shutter Corp. Ltd. 552,000 2,775 (a) Sanwa Shutter Corp. Ltd. (Warrants), expiring 1/20/98 1,400 52 ------------- 4,337 ------------- BUSINESS & PUBLIC SERVICES Dai Nippon Printing Co. Ltd. 270,000 5,070 ------------- CHEMICALS Daicel Chemical Industries Ltd. 1,140,000 1,485 Fuji Photo Film Ltd. 222,000 8,507 Kaneka Corp. 949,000 4,284 Mitsubishi Chemical Industries 2,060,000 2,953 Nifco Inc. 330,000 2,150 Okura Industrial Co. Ltd. 434,000 725 Sekisui Chemical Co. 653,000 3,318 Shin-Etsu Polymer Co. Ltd. 15,000 50 ------------- 23,472 ------------- - ---------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 8
VALUE SHARES (000) - --------------------------------------------------------------------------- CONSTRUCTION & HOUSING Kyudenko Co. Ltd. 389,000 U.S.$ 1,965 Obayashi Corp. 565,000 1,923 Sekisui House Ltd. 387,000 2,488 Taisei Corp. Ltd. 1,000,000 1,640 ------------- 8,016 ------------- DATA PROCESSING & REPRODUCTION Fujitsu Ltd. 910,000 9,764 Nissha Printing 105,000 633 Ricoh Co. Ltd. 866,000 10,752 ------------- 21,149 ------------- ELECTRICAL & ELECTRONICS Canon, Inc. 420,000 9,786 Hitachi Ltd. 1,185,000 8,446 Kyocera Corp. 90,000 4,084 Matsushita Electric Industrial Co. Ltd. 562,000 8,227 NEC Corp. 925,000 9,854 Nintendo Ltd. 130,000 12,753 Sony Corp. 135,000 12,002 Stanley Electric Co. 690,000 1,904 Tokyo Electron Ltd. 163,000 5,222 Toshiba Corp. 2,130,000 8,865 ------------- 81,143 ------------- ELECTRONIC COMPONENTS & INSTRUMENTS Mitsumi Electric Co. Ltd. 423,000 6,030 Murata Manufacturing Co. 180,000 4,525 TDK Corp. 135,000 10,181 ------------- 20,736 ------------- FINANCIAL SERVICES Hitachi Credit Corp. 198,000 3,263 ------------- HEALTH & PERSONAL CARE Sankyo Co. Ltd. 326,000 7,371 Yamanouchi Pharmaceutical Co. 300,000 6,438 ------------- 13,809 ------------- INDUSTRIAL COMPONENTS Furukawa Electric Co. 1,083,000 4,640 ------------- INSURANCE Sumitomo Marine & Fire Co. 542,000 2,866 ------------- MACHINERY & ENGINEERING Amada Co. Ltd. 932,000 3,465 Daifuku Co. Ltd. 591,000 2,876 Daikin Kogyo Co. 673,000 2,538 Fuji Machine Co. 329,000 7,943 Fujitec Co. Ltd. 510,000 2,814 Kurita Water Industries Ltd. 274,000 2,793 Mitsubishi Heavy Industries Ltd. 1,300,000 5,420 Nishio Rent All Co. 47,000 407 (a) Nishio Rent All Co. (Warrants), expiring 2/20/98 1,055 7 Tsubakimoto Chain Co. 872,000 3,141 ------------- 31,404 ------------- MERCHANDISING FamilyMart 87,200 3,128 ------------- MISCELLANEOUS MATERIALS & COMMODITIES Autobacs Seven Co. 50,000 1,437 Nippon Pillar Packing Co. 157,000 845 ------------- 2,282 ------------- MULTI-INDUSTRY Lintec 150,000 2,322 ------------- REAL ESTATE Daibiru Corp. 4,000 29 Keihanshin Real Estate Co. 205,000 831 Mitsubishi Estate Co. Ltd. 390,000 4,245 ------------- 5,105 ------------- RECREATION, OTHER CONSUMER GOODS Yamaha Corp. 199,000 2,257 ------------- TELECOMMUNICATIONS Nippon Telephone & Telegraph Corp. 1,032 8,859 ------------- TEXTILES & APPAREL Shimamura Co. Ltd. 78,900 1,373 ------------- WHOLESALE & INTERNATIONAL TRADE Inabata & Co. 406,000 1,276 ------------- 267,212 ------------- - --------------------------------------------------------------------------- MALAYSIA (1.8%) BEVERAGES & TOBACCO Carlsberg Brewery Malaysia Bhd 352,000 1,131 Guinness Anchor Bhd 2,320,000 2,863 R.J. Reynolds Bhd 1,106,000 1,806 Rothmans of Pall Mall Bhd 395,600 3,077 ------------- 8,877 ------------- FOOD & HOUSEHOLD PRODUCTS Nestle Bhd 468,000 2,166 ------------- MISCELLANEOUS MATERIALS & COMMODITIES Kuala Lumpur Kepong Bhd 50,000 107 ------------- 11,150 ------------- NEW ZEALAND (0.4%) FOREST PRODUCTS & PAPER Fletcher Challenge Forests 79,520 66 Fletcher Challenge Paper 1,988,000 2,597 ------------- 2,663 ------------- - --------------------------------------------------------------------------- PAKISTAN (2.5%) BANKING (a) Askari Bank 2,708,500 1,800 ------------- CHEMICALS Engro Chemicals Ltd. 1,092,600 2,834 Fauji Fertilizer Co. Ltd. 1,424,000 2,727 (a) ICI Pakistan Ltd. 6,000,000 2,645 ------------- 8,206 ------------- HEALTH & PERSONAL CARE Lever Brothers 169,060 5,244 ------------- - ---------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 9
VALUE SHARES (000) - --------------------------------------------------------------------------- ENERGY SOURCES Shell Pakistan Ltd. 39,400 U.S.$ 252 (a) Shell Pakistan Ltd. (Rights) 19,700 63 315 ------------- 15,565 ------------- - --------------------------------------------------------------------------- PHILIPPINES (1.2%) BEVERAGES & TOBACCO LA Tondena Distillers Inc. 50,000 23 ------------- CONSTRUCTION & HOUSING (a) DMCI Holdings, Inc. 8,894,000 263 ------------- ELECTRONIC COMPONENTS & INSTRUMENTS (a) Music Corp. 1,200,000 430 ------------- MULTI-INDUSTRY JG Summit Holdings 'B' 3,890,100 317 ------------- REAL ESTATE Ayala Land, Inc. 'B' 3,273,631 1,293 (a) Fil-Estate Land Inc. 'B' 1,437,000 42 SM Prime Holdings, Inc. 'B' 9,637,680 1,428 ------------- 2,763 ------------- TELECOMMUNICATIONS (a) Digital Telecommunications Philippines, Inc. 30,151,000 1,087 ------------- UTILITIES - ELECTRICAL & GAS Manila Electric Co. 'B' 734,306 2,429 ------------- 7,312 ------------- - --------------------------------------------------------------------------- SINGAPORE (3.2%) BANKING United Overseas Bank (Foreign) 2,589,200 14,397 ------------- BEVERAGES & TOBACCO Rothmans Industries Ltd. 413,000 2,162 ------------- ELECTRONIC COMPONENTS & INSTRUMENTS (a) Creative Technology Ltd. 13,400 273 (a) Natsteel Electronics Ltd. 2,601,000 3,341 ------------- 3,614 ------------- FOOD & HOUSEHOLD PRODUCTS Super Coffeemix Manufacturing Ltd. 230,000 36 ------------- 20,209 ------------- - --------------------------------------------------------------------------- THAILAND (1.7%) BANKING Thai Farmers Bank Ltd. (Foreign) 365,000 663 ------------- BROADCASTING & PUBLISHING (b) BEC World Co., Ltd. (Foreign) 743,600 2,965 Grammy Entertainment Public Co. Ltd. 259,200 1,131 ------------- 4,096 ------------- ELECTRICAL & ELECTRONICS (a) GSS Array Technology Public Co., Ltd. (Foreign) 466,200 774 ------------- ENERGY SOURCES PTT Exploration & Production Public Co. Ltd. 294,800 3,392 ------------- FINANCIAL SERVICES Industrial Finance Corp. (Foreign) 1,045,000 161 ------------- TELECOMMUNICATIONS Advanced Information Services Co. Ltd. (Foreign) 379,000 1,810 ------------- 10,896 ------------- - --------------------------------------------------------------------------- UNITED KINGDOM (1.6%) BANKING HSBC Holdings plc 406,800 10,027 ------------- - --------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost U.S.$669,773) 524,168 ------------- - --------------------------------------------------------------------------- FACE AMOUNT (000) - --------------------------------------------------------------------------- FIXED INCOME SECURITIES (0.0%) - --------------------------------------------------------------------------- INDIA (0.0%) METALS - STEEL (b) Tata SSL Ltd. - New 14.00%, 12/6/02 (Cost U.S.$2) INR 2 1 ------------- - --------------------------------------------------------------------------- SHORT-TERM INVESTMENTS (16.4%) United States (16.4%) REPURCHASE AGREEMENT Chase Securities, Inc., 5.95%, dated 12/31/97, due 1/2/98, to be repurchased at U.S.$ 102,958, collateralized by U.S.$102,050 United States Treasury Notes, 6.625%, due 6/30/01, valued at U.S.$105,835 (Cost U.S.$102,924) U.S.$ 102,924 102,924 ------------- - --------------------------------------------------------------------------- FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (1.0%) Australian Dollar AUD 7 5 Hong Kong Dollar HKD 31 4 Indian Rupee INR 141,077 3,599 Indonesian Rupiah IDR 55,386 10 Japanese Yen JPY 343,130 2,630 Singapore Dollar SGD 23 13 Thai Baht THB 8,849 184 ------------- (Cost U.S.$6,529) 6,445 ------------- - ---------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 10
AMOUNT AMOUNT (000) (000) - --------------------------------------------------------------------------- TOTAL INVESTMENTS (100.9%) (Cost U.S.$779,228) U.S.$ 633,538 ------------- - --------------------------------------------------------------------------- OTHER ASSETS (0.5%) Receivable for Investments Sold U.S.$ 2,384 Dividends Receivable 426 Foreign Withholding Tax Reclaim Receivable 85 Deferred Organization Costs 18 Interest Receivable 17 Net Unrealized Gain on Foreign Currency Exchange Contracts 5 Other Assets 58 2,993 ------------- ------------- - --------------------------------------------------------------------------- LIABILITIES (-1.4%) DEFERRED COUNTRY TAXES (47) Payable For: Investments Purchased (5,480) Dividends Declared (1,748) Investment Advisory Fees (552) Custodian Fees (172) Shareholder Reporting Expenses (105) Professional Fees (81) Administrative Fees (57) Director's Fees and Expenses (54) Bank Overdraft (3) Other Liabilities (59) (8,311) ------------- ------------- - --------------------------------------------------------------------------- NET ASSETS (100%) Applicable to 71,654,508, issued and outstanding U.S.$0.01 par value shares (100,000,000 shares authorized) U.S.$ 628,173 ------------- - --------------------------------------------------------------------------- NET ASSET VALUE PER SHARE U.S.$ 8.77 - --------------------------------------------------------------------------- AMOUNT (000) - --------------------------------------------------------------------------- AT DECEMBER 31, 1997, NET ASSETS CONSISTED OF: - --------------------------------------------------------------------------- Common Stock U.S.$ 717 Capital Surplus 927,869 Accumulated Net Investment Loss (5,423) Accumulated Net Realized Loss (149,208) Unrealized Depreciation on Investments and Foreign Currency Translations (net of accrued foreign tax of U.S.$47 on unrealized appreciation) (145,782) - --------------------------------------------------------------------------- TOTAL NET ASSETS U.S.$ 628,173 - ---------------------------------------------------------------------------
(a) -- Non-income producing (b) -- Security valued at fair value - see note A-1 to financial statements. (c) -- Security valued at fair value as determined based on the market value of the underlying security less subscription costs. (d) -- The Fund is advised by an affiliate. @ -- Value is less than U.S.$500. ADR -- American Depositary Receipt GDR -- Global Depositary Receipt 144A -- Certain conditions for public sale may exist. Note: Prior governmental approval for foreign investments may be required under certain circumstances in some emerging markets, and foreign ownership limitations may also be imposed by the charters of individual companies in emerging markets. As a result, an additional class of shares designated as "foreign" may be created, and offered for investment. The "local" and "foreign" shares' market values may vary. - --------------------------------------------------------------------------- FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of foreign currency exchange contracts open at December 31, 1997, the Fund is obligated to deliver or is to receive foreign currency in exchange for U.S. dollars as indicated below:
NET CURRENCY IN UNREALIZED TO EXCHANGE GAIN DELIVER VALUE SETTLEMENT FOR VALUE (LOSS) (000) (000) DATE (000) (000) (000) -------- ------ ---------- -------- ----- ---------- SGD 343 U.S.$ 204 01/02/98 U.S.$ 204 U.S.$ 204 U.S.$ -- JPY 114,119 874 01/05/98 878 878 4 U.S.$ 306 306 01/06/98 PHP 12,425 307 1 PHP 1,725 43 01/06/98 U.S.$ 43 43 -- ------------ ------------- ---------- U.S.$ 1,427 U.S.$ 1,432 U.S.$ 5 ------------ ------------- ---------- ------------ ------------- ----------
The accompanying notes are an integral part of these financial statements. 11 - -------------------------------------------------------------------------------- DECEMBER 31, 1997 EXCHANGE RATES: - -------------------------------------------------------------------------------- AUD Australian Dollar 1.535 = U.S. $1.00 HKD Hong Kong Dollar 7.749 = U.S. $1.00 IDR Indonesian Rupiah 5500.000 = U.S. $1.00 INR Indian Rupee 39.200 = U.S. $1.00 JPY Japanese Yen 130.475 = U.S. $1.00 PHP Philippines Peso 40.500 = U.S. $1.00 SGD Singapore Dollar 1.682 = U.S. $1.00 THB Thai Baht 48.150 = U.S. $1.00 - ---------------------------------------------------------------------------
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY CLASSIFICATION -- DECEMBER 31, 1997 (UNAUDITED)
PERCENT VALUE OF NET INDUSTRY (000) ASSETS - --------------------------------------------------------------------------- Appliances & Household Durables U.S.$ 3,459 0.6% Automobiles 33,142 5.3 Banking 50,407 8.0 Beverages & Tobacco 17,283 2.8 Broadcasting & Publishing 7,007 1.1 Building Materials & Components 4,848 0.8 Business & Public Services 5,070 0.8 Chemicals 32,765 5.2 Construction & Housing 8,696 1.4 Data Processing & Reproduction 21,149 3.4 Electrical & Electronics 81,917 13.1 Electronic Components & Instruments 26,639 4.3 Energy Equipment & Services 26,014 4.2 Energy Sources 8,145 1.3 Financial Services 22,848 3.6 Food & Household Products 9,396 1.5 Forest Products & Paper 2,663 0.4 Health & Personal Care 20,039 3.2 Industrial Components 8,177 1.3 Insurance 2,866 0.5 Leisure & Tourism 542 0.0 Machinery & Engineering 32,255 5.1 Merchandising 3,128 0.5 Metals - Steel 165 0.0 Miscellaneous Materials & Commodities 3,305 0.5 Multi-Industry 20,960 3.3 Real Estate 22,042 3.5 Recreation, Other Consumer Goods 2,441 0.4 Telecommunications 16,406 2.6 Textiles & Apparel 2,416 0.4 Transportation - Road & Rail 13,420 2.1 Transportation - Shipping 5 0.0 Utilities - Electrical & Gas 13,278 2.1 Wholesale & International Trade 1,276 0.2 Other 109,369 17.4 ------------- ----- U.S.$ 633,538 100.9% ------------- ----- ------------- ----- - ---------------------------------------------------------------------------
SUMMARY OF TOTAL INVESTMENTS BY COUNTRY -- DECEMBER 31, 1997 (Unaudited)
PERCENT VALUE OF NET COUNTRY (000) ASSETS - --------------------------------------------------------------------------- Australia U.S.$ 26,567 4.2% China 3,478 0.6 Hong Kong 41,343 6.6 India 96,646 15.4 Indonesia 11,101 1.8 Japan 267,212 42.5 Malaysia 11,150 1.8 New Zealand 2,663 0.4 Pakistan 15,565 2.5 Philippines 7,312 1.2 Singapore 20,209 3.2 Thailand 10,896 1.7 United States (short-term investments) 102,924 16.4 United Kingdom 10,027 1.6 Other 6,445 1.0 ------------- ----- U.S.$ 633,538 100.9% ------------- ----- ------------- ----- - ---------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 12
YEAR ENDED DECEMBER 31, 1997 STATEMENT OF OPERATIONS (000) - ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S.$ 11,489 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,823 Less: Foreign Taxes Withheld . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (987) - ----------------------------------------------------------------------------------------------------------------------------- Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,325 - ----------------------------------------------------------------------------------------------------------------------------- EXPENSES Investment Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,348 Custodian Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,269 Administrative Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 832 Shareholder Reporting Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314 Professional Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 Transfer Agent Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Directors' Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 - ----------------------------------------------------------------------------------------------------------------------------- Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,199 - ----------------------------------------------------------------------------------------------------------------------------- Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,126 - ----------------------------------------------------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS) Investment Securities Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (143,684) Foreign Currency Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,403) - ----------------------------------------------------------------------------------------------------------------------------- Net Realized Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (149,087) - ----------------------------------------------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION Appreciation on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (79,687) Depreciation on Foreign Currency Translations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 - ----------------------------------------------------------------------------------------------------------------------------- Change in Unrealized Appreciation/Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . (79,512) - ----------------------------------------------------------------------------------------------------------------------------- Total Net Realized Loss and Change in Unrealized Appreciation/Depreciation . . . . . . . . . . . . . . . (228,599) - ----------------------------------------------------------------------------------------------------------------------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . U.S.$ (226,473) - ----------------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED DECEMBER 31, 1997 DECEMBER 31, 1996 STATEMENT OF CHANGES IN NET ASSETS (000) (000) - ----------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS Operations: Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S.$ 2,126 U.S.$ 1,372 Net Realized Gain (Loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . (149,087) 49,641 Change in Unrealized Appreciation/Depreciation. . . . . . . . . . . . . . . . . . (79,512) (94,387) - ----------------------------------------------------------------------------------------------------------------------------- Net Decrease in Net Assets Resulting from Operations. . . . . . . . . . . . . . . (226,473) (43,374) - ----------------------------------------------------------------------------------------------------------------------------- Distributions: Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,751) (43,033) In Excess of Net Investment Income. . . . . . . . . . . . . . . . . . . . . . . . -- (402) - ----------------------------------------------------------------------------------------------------------------------------- Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,751) (43,435) - ----------------------------------------------------------------------------------------------------------------------------- Capital Share Transactions: Common Stock Issued Through Rights Offering (18,000,000 shares) . . . . . . . . . -- 174,612 Offering Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (820) - ----------------------------------------------------------------------------------------------------------------------------- Net Increase in Net Assets Resulting from Capital Share Transactions. . . . . . . -- 173,792 - ----------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (228,224) 86,983 Net Assets: Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 856,397 769,414 - ----------------------------------------------------------------------------------------------------------------------------- End of Period (including accumulated net investment loss and distributions in excess of net investment income of U.S.$5,423 and U.S.$402, respectively.) . . . U.S.$ 628,173 U.S.$ 856,397 - ----------------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 13 FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31, PERIOD FROM ------------------------------------------------------ AUGUST 2, 1994* TO SELECTED PER SHARE DATA AND RATIOS: 1997 1996 1995 DECEMBER 31, 1994 - ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD . . . U.S.$ 11.95 U.S.$ 14.34 U.S.$ 13.20 U.S.$ 14.10 - ----------------------------------------------------------------------------------------------------------------------------- Offering Costs . . . . . . . . . . . . . . -- (0.01) -- (0.03) - ----------------------------------------------------------------------------------------------------------------------------- Net Investment Income. . . . . . . . . . . 0.03 0.02 0.05 0.05 Net Realized and Unrealized Gain (Loss) on Investments. . . . . . . . . . . . . . (3.19) (0.33) 1.16 (0.87) - ----------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations . . (3.16) (0.31) 1.21 (0.82) - ----------------------------------------------------------------------------------------------------------------------------- Distributions: Net Investment Income . . . . . . . . . (0.02) (0.60) (0.05) (0.04) In Excess of Net Investment Income. . . -- (0.01) (0.00)# -- In Excess of Net Realized Gain. . . . . -- -- (0.02) (0.01) - ----------------------------------------------------------------------------------------------------------------------------- Total Distributions. . . . . . . . . (0.02) (0.61) (0.07) (0.05) - ----------------------------------------------------------------------------------------------------------------------------- Decrease in Net Asset Value due to Shares Issued through Rights Offering . . . . . -- (1.46) -- -- - ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD . . . . . . U.S.$ 8.77 U.S.$ 11.95 U.S.$ 14.34 U.S.$ 13.20 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- PER SHARE MARKET VALUE, END OF PERIOD . . U.S.$ 7.44 U.S.$ 9.75 U.S.$ 13.33 U.S.$ 12.25 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN: Market Value. . . . . . . . . . . . . . (23.46)% (14.72)%+ 9.38% (12.71)% Net Asset Value (1) . . . . . . . . . . (26.36)% (2.87)%+ 9.24% (5.94)% - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- RATIOS, SUPPLEMENTAL DATA: - ----------------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (THOUSANDS) . . U.S.$ 628,173 U.S.$ 856,397 U.S.$ 769,414 U.S.$ 708,323 - ----------------------------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets . . . . . . . . . . . . . . . 1.34% 1.39% 1.36% 1.31%** Ratio of Net Investment Income to Average Net Assets. . . . . . . . . . . . 0.25% 0.16% 0.36% 0.89%** Portfolio Turnover Rate. . . . . . . . . . 66% 28% 21% 2% Average Commission Rate (2): Per Share . . . . . . . . . . . . . . . U.S.$ 0.0141 U.S.$ 0.0132 N/A N/A As a Percentage of Trade Amount . . . . 0.43% 0.52% N/A N/A - -----------------------------------------------------------------------------------------------------------------------------
* Commencement of operations ** Annualized # Amount is less than U.S.$0.01. + This return does not include the effect of the rights issued in connection with the Rights Offering. (1) Total investment return based on net asset value per share reflects the effects of changes in net asset value on the performance of the Fund during each period, and assumes dividends and distributions, if any, were reinvested. This percentage is not an indication of the performance of a shareholder's investment in the Fund based on market value due to differences between the market price of the stock and the net asset value of the Fund. (2) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose the average commission rate per share it paid for portfolio trades on which commissions were charged during the period. The accompanying notes are an integral part of these financial statements. 14 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 - -------------------------------------------------------------------------------- Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund"), was incorporated in Maryland on February 28, 1994, and is registered as a non-diversified, closed- end management investment company under the Investment Company Act of 1940, as amended. The Fund's investment objective is long-term capital appreciation through investments primarily in equity securities. A. The following significant accounting policies, which are in conformity with generally accepted accounting principles for investment companies, are consistently followed by the Fund in the preparation of its financial statements. Generally accepted accounting principles may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates. 1. SECURITY VALUATION: In valuing the Fund's assets, all listed securities for which market quotations are readily available are valued at the last sale price on the valuation date, or if there was no sale on such date, at the mean between the current bid and asked prices. Securities which are traded over-the-counter are valued at the average of the mean of current bid and asked prices obtained from reputable brokers. Short-term securities which mature in 60 days or less are valued at amortized cost. All other securities and assets for which market values are not readily available (including investments which are subject to limitations as to their sale) are valued at fair value as determined in good faith by the Board of Directors (the "Board"), although the actual calculations may be done by others. 2. TAXES: It is the Fund's intention to continue to qualify as a regulated investment company and distribute all of its taxable income. Accordingly, no provision for U.S. Federal income taxes is required in the financial statements. The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation as such income and/or gains are earned. 3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase agreements, a bank as custodian for the Fund takes possession of the underlying securities, with a market value at least equal to the amount of the repurchase transaction, including principal and accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to determine the adequacy of the collateral. In the event of default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. In the event of default or bankruptcy by the counter-party to the agreement, realization and/or retention of the collateral or proceeds may be subject to legal proceedings. 4. FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the mean of the bid and asked prices of such currencies against U.S. dollars last quoted by a major bank as follows: - investments, other assets and liabilities at the prevailing rates of exchange on the valuation date; - investment transactions and investment income at the prevailing rates of exchange on the dates of such transactions. Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, the Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of the securities held at period end. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized and unrealized foreign currency gains (losses) are included in the reported net realized and unrealized gains (losses) on investment transactions and balances. Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from sales and maturities of foreign currency exchange contracts, disposition of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains (losses) from valuing foreign currency denominated assets and liabilities and foreign currency contracts at period end exchange rates are reflected as a component of unrealized appreciation (depreciation) on investments and foreign currency translations in the Statement of Net Assets. The change in net unrealized currency gains (losses) for the period is reflected in the Statement of Operations. 15 The Fund intends to use derivatives more actively than it has in the past. The Fund intends to 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 intends to use derivatives for non-hedging as well as hedging purposes. Following is a description of derivative instruments and their associated risks that the Fund intends to utilize: 5. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into forward foreign currency exchange contracts generally 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 forward foreign currency exchange contract is an agreement between two parties to buy or sell currency at a set price on a future date. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked-to-market daily and the change in market value is recorded by the Fund as unrealized gain or loss. The Fund records realized gains or losses when the contract is closed equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Risk may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and is generally limited to the amount of unrealized gain on the contracts, if any, at the date of default. Risks may also arise from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. 6. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: The Fund may make forward commitments to purchase or sell securities. Payment and delivery for securities which have been purchased or sold on a forward commitment basis can take place a month or more (not to exceed 120 days) after the date of the transaction. Additionally, the Fund may purchase securities on a when-issued or delayed delivery basis. Securities purchased on a when-issued or delayed delivery basis are purchased for delivery beyond the normal settlement date at a stated price and yield, and no income accrues to the Fund on such securities prior to delivery. When the Fund enters into a purchase transaction on a when-issued or delayed delivery basis, it either establishes a segregated account in which it maintains liquid assets in an amount at least equal in value to the Fund's commitments to purchase such securities or denotes such securities on the custody statement for its regular custody account. Purchasing securities on a forward commitment or when-issued or delayed-delivery basis may involve a risk that the market price at the time of delivery may be lower than the agreed upon purchase price, in which case there could be an unrealized loss at the time of delivery. 7. SWAP AGREEMENTS: The Fund may enter into swap agreements to exchange the return generated by one security, instrument or basket of instruments for the return generated by another security, instrument or basket of instruments. The following summarizes swaps which may be entered into by the Fund: INTEREST RATE SWAPS: Interest rate swaps involve the exchange of commitments to pay and receive interest based on a notional principal amount. Net periodic interest payments to be received or paid are accrued daily and are recorded in the Statement of Operations as an adjustment to interest income. Interest rate swaps are marked-to-market daily based upon quotations from market makers and the change, if any, is recorded as unrealized appreciation or depreciation in the Statement of Operations. TOTAL RETURN SWAPS: Total return swaps involve commitments to pay interest in exchange for a market-linked return based on a notional amount. To the extent the total return of the security, instrument or basket of instruments underlying the transaction exceeds or falls short of the offsetting interest obligation, the Fund will receive a payment from or make a payment to the counterparty, respectively. Total return swaps are marked-to-market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gains or losses in the Statement of Operations. Periodic payments received or made at the end of each measurement period, but prior to termination, are recorded as realized gains or losses in the Statement of Operations. Realized gains or losses on maturity or termination of interest rate and total return swaps are presented in the Statement of Operations. Because there is no organized market for these swap agreements, the value reported in the Statement of Net Assets may differ from that which would be realized in the event the Fund terminated its position in the agreement. Risks may arise upon entering into these agreements from the potential inability of the counterparties to meet the terms of the agreements and are generally limited to the amount of net interest payments to be received and/or favorable movements in the value of the underlying security, instrument or basket of instruments, if any, at the date of default. 8. 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 16 interests in, the underlying instruments. Structured Securities, invested in by the Fund, generally will have credit risk equivalent to that of the underlying instruments. 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. 9. OVER-THE-COUNTER TRADING: Derivative instruments that may be purchased or sold by the Fund are expected to regularly consist of instruments not traded on an exchange. The risk of nonperformance by the obligor on such an instrument may be greater, and the ease with which the Fund can dispose of or enter into closing transactions with respect to such an instrument may be less, than in the case of an exchange-traded instrument. In addition, significant disparities may exist between bid and asked prices for derivative instruments that are not traded on an exchange. Derivative instruments not traded on exchanges are also not subject to the same type of government regulation as exchange traded instruments, and many of the protections afforded to participants in a regulated environment may not be available in connection with such transactions. 10. OTHER: Security transactions are accounted for on the date the securities are purchased or sold. Investments in new Indian securities are made by making applications in the public offerings. The issue price, or a portion thereof, is paid at the time of application and is reflected as share application money on the Statement of Net Assets, if any. Upon allotment of the securities, this amount plus any remaining amount of issue price is recorded as cost of investments. Realized gains and losses on the sale of investment securities are determined on the specific identified cost basis. Interest income is recognized on the accrual basis. Dividend income is recorded on the ex-dividend date (except certain dividends which may be recorded as soon as the Fund is informed of such dividend) net of applicable withholding taxes where recovery of such taxes is not reasonably assured. Distributions to shareholders are recorded on the ex-date. The amount and character of income and capital gain distributions to be paid are determined in accordance with Federal income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing book and tax treatments for foreign currency transactions, the timing of the recognition of gains and losses on securities and foreign currency exchange contracts. Permanent book and tax basis differences relating to shareholder distributions may result in reclassifications to undistributed net investment income (loss), accumulated net realized gain (loss) and capital surplus. Adjustments for permanent book-tax differences, if any, are not reflected in ending undistributed net investment income (loss) for the purpose of calculating net investment income (loss) per share in the financial highlights. B. Morgan Stanley Asset Management Inc. (the "Adviser") provides investment advisory services to the Fund under the terms of an Investment Advisory and Management Agreement (the "Agreement"). Under the Agreement, the Adviser is paid a fee computed weekly and payable monthly at an annual rate of 1.00% of the Fund's average weekly net assets. C. The Chase Manhattan Bank, through its affiliate Chase Global Funds Services Company (the "Administrator"), provides administrative services to the Fund under an Administration Agreement. Under the Administration Agreement, the Administrator is paid a fee computed weekly and payable monthly at an annual rate of .09% of the Fund's average weekly net assets, plus $65,000 per annum. In addition, the Fund is charged certain out-of-pocket expenses by the Administrator. The Chase Manhattan Bank acts as custodian for the Fund's assets held in the United States. D. Morgan Stanley Trust Company (the "International Custodian"), an affiliate of the Adviser, acts as custodian for the Fund's assets held outside the United States in accordance with a Custody Agreement. Custodian fees are payable monthly based on assets under custody, investment purchase and sale activity, an account maintenance fee, plus reimbursement for certain out-of-pocket expenses. Investment transaction fees vary by country and security type. For the year ended December 31, 1997, the Fund incurred International Custodian fees of $1,251,000 of which $169,000 was payable to the International Custodian at December 31, 1997. In addition, for the year ended December 31, 1997, the Fund has earned interest income of $2,000 and incurred interest expense of $6,000 on balances with the International Custodian. E. During the year ended December 31, 1997, the Fund made purchases and sales totaling $494,239,000 and $563,325,000, respectively, of investment securities other than long-term U.S. Government securities and short-term investments. There were no purchases and sales of long-term U.S. Government securities. For the year ended December 31, 1997, the Fund incurred $153,000 of brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliate of the Adviser. At December 31, 1997, the U.S. Federal income tax cost basis of securities was $774,684,000 and, accordingly, net unrealized depreciation was $147,591,000 of which $41,723,000 related to appreciated securities and $189,314,000 related to depreciated securities. At December 31, 1997, the Fund had a capital loss carryforward for 17 U.S. Federal income tax purposes of approximately $98,555,000 available to offset future capital gains of which $5,069,000 will expire on December 31, 2003 and $93,486,000 will expire on December 31, 2005. To the extent that capital gains are offset, such gains will not be distributed to the shareholders. For the year ended December 31, 1997, the Fund expects to defer to January 1, 1998 for U.S. Federal income tax purposes, post-October currency losses of $4,838,000 and post-October capital losses of $49,887,000. F. In connection with its organization and initial public offering of shares, the Fund incurred $55,000 and $1,724,000 of organization and offering costs, respectively. The organization costs are being amortized on a straight-line basis over a five year period beginning August 2, 1994, the date the Fund commenced operations. The offering costs were charged to capital. G. A significant portion of the Fund's net assets consist of securities of issuers located in Asia which are denominated in foreign currencies. Changes in currency exchange rates will affect the value of and investment income from such securities. Asian securities are subject to greater price volatility, limited capitalization and liquidity, and higher rates of inflation than securities of companies based in the United States. In addition, Asian securities may be subject to substantial governmental involvement in the economy and greater social, economic and political uncertainty. H. The Fund issued to its shareholders of record as of the close of business on April 16, 1996 transferable Rights to subscribe for up to an aggregate of 18,000,000 shares of Common Stock of the Fund at a rate of one share of Common Stock for three Rights held at the subscription price of $10.00 per share. During May 1996 the Fund issued a total of 18,000,000 shares of Common Stock on exercise of such Rights. Rights' offering costs of $820,000 were charged directly against the proceeds of the Offering. The Fund was advised that Morgan Stanley & Co. Incorporated, an affiliate of the Adviser, received commissions of $3,062,000, dealer manager fees of $1,650,000 and reimbursement of its expenses of $125,000 in connection with its participation in the Rights Offering. I. Each Director of the Fund who is not an officer of the Fund or an affiliated person as defined under the Investment Company Act of 1940, as amended, may elect to participate in the Director's Deferred Compensation Plan (the "Plan"). Under the Plan, such Directors may elect to defer payment of a percentage of their total fees earned as a Director of the Fund. These deferred portions are treated, based on an election by the Director, as if they were either invested in the Fund's shares or invested in U.S. Treasury Bills, as defined under the Plan. The deferred fees payable, under the Plan, at December 31, 1997 totaled $41,000 and are included in Payable for Directors' Fees and Expenses on the Statement of Net Assets. J. During December 1997, the Board declared a distribution of $0.02 per share, derived from net investment income, payable on January 9, 1998, to shareholders of record on December 31, 1997. K. At a meeting held on December 18, 1997, the Board approved a proposal to permit the Fund to make investments in Taiwan. However, as of December 31, 1997, the Fund did not have any investments in Taiwan. - -------------------------------------------------------------------------------- FEDERAL INCOME TAX INFORMATION (UNAUDITED): For the year ended December 31, 1997, the Fund expects to pass through to shareholders foreign tax credits of approximately $999,000. In addition, for the year ended December 31, 1997, gross income derived from sources within foreign countries amounted to $12,680,000. 18 REPORT OF INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Directors of Morgan Stanley Asia-Pacific Fund, Inc. In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund") at December 31, 1997, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended and for the period August 2, 1994 (commencement of operations) through December 31, 1994, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 1997 by correspondence with the custodians and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP 1177 Avenue of the Americas New York, New York 10036 February 18, 1998 19 DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"), each shareholder will be deemed to have elected, unless American Stock Transfer & Trust Company (the "Plan Agent") is otherwise instructed by the shareholder in writing, to have all distributions automatically reinvested in Fund shares. Participants in the Plan have the option of making additional voluntary cash payments to the Plan Agent, annually, in any amount from $100 to $3,000, for investment in Fund shares. Dividend and capital gain distributions will be reinvested on the reinvestment date in full and fractional shares. If the market price per share equals or exceeds net asset value per share on the reinvestment date, the Fund will issue shares to participants at net asset value. If net asset value is less than 95% of the market price on the reinvestment date, shares will be issued at 95% of the market price. If net asset value exceeds the market price on the reinvestment date, participants will receive shares valued at market price. The Fund may purchase shares of its Common Stock in the open market in connection with dividend reinvestment requirements at the discretion of the Board of Directors. Should the Fund declare a dividend or capital gain distribution payable only in cash, the Plan Agent will purchase Fund shares for participants in the open market as agent for the participants. The Plan Agent's fees for the reinvestment of dividends and distributions will be paid by the Fund. However, each participant's account will be charged a pro rata share of brokerage commissions incurred on any open market purchases effected on such participant's behalf. A participant will also pay brokerage commissions incurred on purchases made by voluntary cash payments. Although shareholders in the Plan may receive no cash distributions, participation in the Plan will not relieve participants of any income tax which may be payable on such dividends or distributions. In the case of shareholders, such as banks, brokers or nominees, which hold shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of shares certified from time to time by the shareholder as representing the total amount registered in the shareholder's name and held for the account of beneficial owners who are participating in the Plan. Shareholders who do not wish to have distributions automatically reinvested should notify the Plan Agent in writing. There is no penalty for non- participation or withdrawal from the Plan, and shareholders who have previously withdrawn from the Plan may rejoin at any time. Requests for additional information or any correspondence concerning the Plan should be directed to the Plan Agent at: Morgan Stanley Asia-Pacific Fund, Inc. American Stock Transfer & Trust Company Dividend Reinvestment and Cash Purchase Plan 40 Wall Street New York, NY 10005 1-800-278-4353 20 -----END PRIVACY-ENHANCED MESSAGE-----