-----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, Ib7z6MxfcE3NLG4U+T50kNp426X0nIR0MQJ14Oo0QDDRI7nRn5nGM3BQ5o0rxfqj MjhETdQD3RpOBJE+hlcXFA== 0001047469-99-008670.txt : 19990308 0001047469-99-008670.hdr.sgml : 19990308 ACCESSION NUMBER: 0001047469-99-008670 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990305 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: 99558034 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. --------------------------------------------------------------------- ANNUAL REPORT DECEMBER 31, 1998 MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC. INVESTMENT ADVISER MORGAN STANLEY ASIA-PACIFIC FUND, INC. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DIRECTORS AND OFFICERS Barton M. Biggs CHAIRMAN OF THE BOARD OF DIRECTORS Michael F. Klein PRESIDENT AND DIRECTOR Peter J. Chase DIRECTOR John W. Croghan DIRECTOR David B. Gill DIRECTOR Graham E. Jones DIRECTOR John A. Levin DIRECTOR William G. Morton, Jr. DIRECTOR Stefanie V. Chang VICE PRESIDENT Harold J. Schaaff, Jr. VICE PRESIDENT Joseph P. Stadler VICE PRESIDENT Valerie Y. Lewis SECRETARY Joanna M. Haigney TREASURER Belinda A. Brady ASSISTANT TREASURER - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INVESTMENT ADVISER Morgan Stanley Dean Witter Investment Management Inc. 1221 Avenue of the Americas New York, New York 10020 - -------------------------------------------------------------------------------- ADMINISTRATOR The Chase Manhattan Bank 73 Tremont Street Boston, Massachusetts 02108 - -------------------------------------------------------------------------------- CUSTODIAN 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 PricewaterhouseCoopers 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. LETTER TO SHAREHOLDERS - ---------- For the year ended December 31, 1998, the Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund") had a total return, based on net asset value per share, of -0.34% compared to its benchmark (as defined below) of -0.30%. For the period since the Fund's commencement of operations on August 2, 1994 through December 31, 1998, the Fund's total return, based on net asset value per share, was -26.75% compared with -34.01% for the benchmark. (The benchmark for the Fund is the weighted average of the percentage change month-on-month of each of two Morgan Stanley Capital International (MSCI) indices; Japan and All-Country Asia-Pacific Free ex-Japan, where the weights are based on the respective market capitalizations of these indices at the beginning of each month). Beginning December 31, 1998, the Fund's benchmark will be comprised of 50% of each of the two MSCI indices rather than the monthly market capitalization weighting of each. This change more closely follows the investment strategy of the Fund. On December 31, 1998, the closing price of the Fund's shares on the New York Stock Exchange was $7.00 representing a 19.8% discount to the net asset value per share. JAPANESE EQUITY REVIEW & OUTLOOK The Japanese economy and equity markets faced a severely challenging environment during 1998 with the mounting uncertainty of the financial system tested throughout the year. The tip of this economic iceberg for 1998 was the collapse of Hokkaido Takushoku Bank, Yamaichi and Sanyo Securities in late 1997. In early 1998 the Japanese Government did little to address the ballooning non-performing loans, credit crunch and deflationary spiral that escalated as the economy continuously failed to recover after numerous stimulus packages over the last several years. As the credit crunch and deflationary spiral continued to grow with negligible economic activity, the Government began to announce a series of additional stimulus and bank rescue programs during April and May. These had minor, if any, impact on improving the situation as banks were reluctant to apply for Government loans and the stimulus packages offered no multiplier effects on invigorating the stalled economy and depressed consumer sentiment. A new prime minister was elected in July, with strong voter turnout reflecting the dissatisfaction with Hashimoto's ineffectiveness in dealing with Japan's financial crisis. The new Prime Minister, Mr. Obuchi, declared a 60 trillion yen bank rescue package in October, doubling the efforts of his predecessor including a new scheme to nationalize troubled banks. Later in the year both Long Term Credit Bank and Nippon Credit Bank were nationalized, the first in post WWII history for Japan. Not only did Japan face domestic difficulties during 1998 but compounding these problems were external factors, such as the Russian Crisis, a sharp correction in the United States equity market and deflation spreading throughout Asia, curbing economic activity to a virtual halt in the region. With no structural changes, minor fiscal reform and the above mentioned external factors, investing in Japan could not have been more challenging. Moreover, it became evident to most observers, including the Japanese Government which stubbornly engaged in pork belly stimulus programs, that the "traditional" way to stimulate the economy would not work. Indeed, even though Mr. Obuchi, Japan's second prime minister in 1998, proposed tax cuts both on a corporate and individual level, this seemed to have only a minor effect on consumer sentiment or confidence. With the domestic equity market becoming increasingly unattractive and the high volatility of the overseas markets, Japanese investors' flight to quality brought 10-year government bond yields to 0.7%, the lowest on record, although yields subsequently jumped to 2% by year end 1998 due to fears of oversupply in the market. The foreign exchange rate fell to 147 during the first half of 1998 on "sell Japan" but jumped to 110 in September as hedge funds began to unwind their "yen carry trades," President Clinton's fate became questioned and the current account deficit began to grow to unacceptable levels. In this volatile and bleak environment Japanese equities fell to 12-year lows in 1998 and sentiment became increasingly negative on the future for the Japanese economy. Fiscal 1999 will most likely remain a difficult year for the Japanese economy. At best we look for flat gross domestic product (GDP) growth but realistically growth should be negative. Our outlook for flat GDP is based on some optimism that the huge 60 trillion yen stimulus packages enacted in 1998 will provide modest support for the economy. We are not confident that "aspirin" for a patient in critical condition is sufficient for a sustainable recovery and positive growth in 1999. Moreover, the recent volatility of global financial markets and in particular the yen and domestic bond markets will mean the health of Japan's financial institutions have significantly deteriorated over the last six months and that credit contraction and balance sheets within these institutions will continue to shrink. While Prime Minister Obuchi has provided a platform for significant tax cuts and economic stimulus packages to support Japan on a macro level, adjustments to over-capacity and over-employment and de-leveraging on the micro level will probably become the dominant themes for investors in 1999. As Japan increasingly gravitates to "international" standards for return on equity, the traditional full employment socialist system will become increasingly challenged in 1999 and will further dampen consumer sentiment as unemployment rises during the year. In other words, we believe that the 2 macro stimulus programs totaling over 100 trillion yen of government spending which have occurred during the last 8 years will now transform into aggressive private sector restructuring in 1999. Also, external factors affecting Japan will also be challenging to the economy and markets. A pronounced slowdown or sharp correction in the U.S. or European markets will hurt the already fragile domestic environment. Meanwhile, the deflationary forces which began to emerge and spread in 1998 throughout the world will take time to correct and the IMF and G7's influence to shoulder these problems has shown they have limits. Moreover, the rapid rise of the yen and spike in interest rates are also compounding Japan's woes and negatively affecting the already frail corporate earnings outlook. It appears to us that the Japanese Government and Ministry of Finance have reached the tolerance limit to further increase deficit spending to stimulate the economy after the negligible impact this has had over the last 8 years. We therefore believe that investments in Japanese equities should remain highly selective. We favor PC, semiconductor, service, pharmaceutical and select domestic sectors such as housing and housing related securities. As we enter 1999, we are cautiously optimistic that this year will become a true inflection point in which the private sector will finally foster real structural changes in areas such as wage adjustment, employment efficiencies, and focus on return on equity. After 10 years of sharp contraction, Japan has entered the final phase of real change which is an important milestone for long term investors in Japanese equities. ASIAN EQUITY REVIEW AND OUTLOOK Asian stock markets performed well in the fourth quarter of 1998, as the market rose 40.2% during the quarter, reducing some of the losses incurred earlier in the year. For the year the market declined 7.4%. A combination of domestic and global factors contributed to the recovery in Asian stock markets, including domestic monetary and fiscal policy easing, improved domestic liquidity from current account surpluses, U.S. and European interest rate cuts, corporate restructuring and currency strengthening relative to the U.S. dollar. The IMF crisis countries of South Korea, Thailand and Indonesia led the fourth quarter rally just as they had led the downturn in late 1997. The much-maligned IMF programs, based on tight monetary and fiscal policy, created significant contractions in domestic consumption and investment. These contractions led to a swing from current account deficits to current account surpluses, which stabilized and then strengthened the currencies. Currency strength allowed the governments to relax monetary and fiscal policy early in the third quarter with IMF approval. By September, data began to emerge suggesting that industrial production and some categories of consumption had bottomed in Korea and Thailand. Interest rates have fallen dramatically, due to easier monetary policy and falling inflationary expectations. For example, interest rates fell from over 30% at the peak in Korea to 7% today; interest rate declines encouraged domestic investors to return to the equity markets, pushing stocks up. In 1999, easier monetary policy should stimulate some improvement in domestic consumption as well. Banking sector reform and re-capitalization will be critical to the resumption of strong growth across Asia because banks remain the key financial intermediaries in most countries. Korea has taken the lead in addressing its banking problems. Korea's program includes forced mergers of troubled banks, the use of government funds to recapitalize failed banks and purchase non-performing assets from them and the subsequent liquidation of these assets. Korea has also benefited from the presence of one of Asia's few domestic bond markets, which has helped to keep financing available even while the heavy bank reform work was underway. Thailand has also designed a good recapitalization program although there have been some disappointments in its implementation. One of the key elements of the banking package, enhanced foreclosure laws, was delayed until mid-1999. The Indonesian program has been designed but due to the greater scale of the banking problems in Indonesia will take longer to implement. Bank recapitalization will allow the restructuring efforts to move onto the next phase - corporate level debt restructuring. These initiatives will require some debt forgiveness and insolvent banks were in no position to take the required write-downs. Hong Kong lagged the overall index during the fourth quarter. Hong Kong's equity market is particularly sensitive to interest rate movements due to its heavy weighting of property and financial stocks. Interest rate cuts in the U.S. and Hong Kong during September and October were very supportive to the market. In addition, the Hong Kong Monetary Authority (HKMA) purchased approximately 25% of the free float of most major stocks during its August market intervention. This technical condition probably exaggerated the market's move upwards when interest rates began to fall. Due to Hong Kong's decision to maintain its currency peg to the U.S. dollar even as its neighbors devalued, companies in Hong Kong have been forced to cut costs to remain competitive. The resulting deflationary conditions have prevented real interest rates from falling very far in Hong Kong; cuts in nominal interest rates have been matched by a fall into outright deflation. The territory has not experienced real interest rates at these levels for an extended period of time over the last few decades and this should delay economic recovery and limit stock market gains. Although we expect further reductions in nominal and real rates in 1999 the scope for significant declines are limited given the U.S. dollar peg and deflation. Revenue growth will be hard to come by in 1999 and much of the 3 earnings growth will be generated from comparisons with 1998 earnings which include heavy non-recurring provisions. In addition, the HKMA must design a program for the disposition of its extensive stock holdings. For these reasons, we entered 1999 underweight Hong Kong equities. China was the worst performing East Asian market in 1998. This under-performance reflects the weakness of most of the listed Chinese companies as well as the challenging economic conditions within China. The Chinese economy is currently experiencing persistent deflation, oversupply of most manufactured goods, slowing exports, high real interest rates and bank asset quality problems. The Chinese government has attempted to deal with these issues through a massive government-funded infrastructure program. This program helped GDP growth approach the government's target for 1998 but did not flow through into corporate earnings and equity performance. The Chinese have begun to grapple with external debt problems recently as well. We expect the Chinese government will shift from infrastructure spending to real reform as 1999 progresses. Some interesting values are starting to emerge among the Chinese companies but earnings visibility remains poor and the flow of news will likely be negative in the first half of the year. We have maintained an overweight position in the technology sectors in 1998. These positions primarily consist of electronics companies in Korea and Singapore. These stocks were more influenced by their local markets during the fourth quarter than by individual company fundamentals. These positions are the result of bottom-up work at the individual company level. Given the quality of management, market positions, financial condition and growth prospects of the portfolio of electronics stocks we hold, we believe they may outperform again in 1999. Malaysia's decision to implement capital controls in early September led to its removal from the MSCI developed market and emerging market free indexes at the end of November. Shifting securities regulations have severely limited the ability of most foreign investors to trade over the past few months. We hold sound, primarily consumer-oriented stocks in Malaysia. The Malaysian government has signaled that it is studying various proposals to lift the capital controls. We expect some movement on this during the first half of 1999. We will reexamine our weighting in Malaysia and the pricing of these securities when the Malaysian authorities introduce their new rules. Several themes we expect to drive equity performance in 1999 include modest improvements in domestic consumption in most economies, disinflation in some countries and deflation in others and the ability of companies to enhance their own performance through corporate restructuring. Restructurings broadly include debt restructuring, divestitures, sales of strategic stakes to multinationals, business unit shutdowns, mergers or staff downsizing. We have seen all of the above announced in various forms in 1998. The markets have clearly rewarded companies that adopt Western style restructuring with a focus on enhancing shareholder value. During 1999, we will be monitoring the progress of the restructurings announced in 1998 and searching for management teams with the vision and ability to improve returns to shareholders going forward. Several risk factors we will be monitoring in 1999 include the performance of the Japanese economy, the large supply of new offerings and capital raisings we expect to see in Asia and growth in the developed economies that are the primary markets for Asian exports. Upside surprises could include successful bank recapitalization and economic recovery in Japan and stronger than expected import demand from the U.S. and Europe. During 1998 we constructed a fairly defensive portfolio, emphasizing consumer and technology companies and utilities while limiting our exposure to banks and properties. During the fourth quarter, we increased our exposure to banks and properties but as performance reflects, we remained underweight these sectors. In 1999, we are focusing more of our research time and company visits on companies that have the ability to implement sound restructuring programs or are sensitive to recoveries in domestic consumption. We do not believe that all of Asia's economic problems have been solved but the trends have certainly improved. Sincerely, /s/ Michael F. Klein Michael F. Klein PRESIDENT AND DIRECTOR January 1999 THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. - -------------------------------------------------------------------------------- VINOD SETHI NO LONGER SERVES AS PORTFOLIO MANAGER TO THE FUND. TIMOTHY JENSEN AND ASHUTOSH SINHA NOW SHARE PRIMARY RESPONSIBILITY FOR MANAGING THE ASSETS OF THE FUND. 4 Morgan Stanley Asia-Pacific Fund, Inc. Investment Summary as of December 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
HISTORICAL INFORMATION TOTAL RETURN (%) ---------------------------------------------------------------------- MARKET VALUE (1) NET ASSET VALUE (2) INDEX (3) --------------------- --------------------- -------------------- AVERAGE AVERAGE AVERAGE CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL ---------- ------- ---------- ------- ---------- ------- One Year -5.77% -5.77% -0.34% -0.34% -0.30% -0.30% Since Inception* -41.26+ -11.35+ -26.75+ -6.80+ -34.01+ -8.99+
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. - -------------------------------------------------------------------------------- RETURNS AND PER SHARE INFORMATION [GRAPH]
YEAR ENDED DECEMBER 31, 1994* 1995 1996 1997 1998 ------- ------- ------ ------- ------ Net Asset Value Per Share. . . . . . $ 13.20 $ 14.34 $11.95 $ 8.77 $ 8.73 Market Value Per Share . . . . . . . $ 12.25 $ 13.33 $ 9.75 $ 7.44 $ 7.00 Premium/(Discount) . . . . . . . . . -7.2% -7.0% -18.4% -15.2% -19.8% Income Dividends . . . . . . . . . . $ 0.04 $ 0.05 $ 0.61 $ 0.02 $ 0.01 Capital Gains Distributions. . . . . $ 0.01 $ 0.02 -- -- -- Fund Total Return(2) . . . . . . . . -5.94% 9.24% -2.87%+ -26.36% -0.34% Index Total Return(3). . . . . . . . -5.24% 2.88% -3.63% -29.55% -0.30%
(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 All-Country Asia-Pacific Free ex-Japan, where the weights are based on the respective market capitalizations of these indices at the beginning of each month. Beginning December 31, 1998, the Fund's benchmark will be comprised of 50% of each of the two MSCI indices rather than the monthly market capitalization weighting of each. This change more closely follows the investment strategy of the Fund. * The Fund commenced operations on August 2, 1994. + This return does not include the effect of the rights issued in connection with the Rights Offering. 5 Morgan Stanley Asia-Pacific Fund, Inc. Investment Summary as of December 31, 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DIVERSIFICATION OF TOTAL INVESTMENTS [CHART] Equity Securities (95.6%) Short-Term Investments (4.4%) - -------------------------------------------------------------------------------- SECTORS [CHART] Appliances & Household Durables (4.3%) Automobiles (5.0%) Banking (6.0%) Beverages & Tobacco (4.5%) Data Processing & Reproduction (4.3%) Electrical & Electronics (9.0%) Electronic Components, Instruments (5.9%) Food & Household Products (4.8%) Machinery & Engineering (5.0%) Telecommunications (4.2%) Other (47.0%) - -------------------------------------------------------------------------------- COUNTRY WEIGHTINGS [CHART] Other (7.2%) Thailand (1.5%) Pakistan (1.5%) Malaysia (2.0%) Indonesia (2.3%) Korea (2.5%) India (6.5%) Singapore (7.2%) Hong Kong (10.0%) Australia (10.3%) Japan (49.0%)
- -------------------------------------------------------------------------------- TEN LARGEST HOLDINGS*
PERCENT OF NET ASSETS ---------- 1. Nintendo Ltd. (Japan) 2.0% 2. Samsung Electronics Co. (Korea) 1.9 3. National Australia Bank Ltd. (Australia) 1.7 4. Fujitsu Ltd. (Japan) 1.7 5. Sony Corp. (Japan) 1.6 6. TDK Corp. (Japan) 1.6 7. Toshiba Corp. (Japan) 1.6 8. Hutchison Whampoa Ltd. (Hong Kong) 1.5 9. NEC Corp. (Japan) 1.5 10. Yamanouchi Pharmaceutical Co., Ltd. (Japan) 1.5 ---- 16.6% ---- ----
* Excludes short-term investments. 6 FINANCIAL STATEMENTS - ---------- STATEMENT OF NET ASSETS - ---------- DECEMBER 31, 1998
VALUE SHARES (000) - ------------------------------------------------------------------------------- COMMON STOCKS (95.4%) (Unless otherwise noted) - ------------------------------------------------------------------------------- AUSTRALIA (10.3%) BANKING National Australia Bank Ltd. 678,900 U.S.$ 10,233 Westpac Banking Corp., Ltd. 1,193,800 7,988 ------------- 18,221 ------------- BEVERAGES & TOBACCO Coca-Cola Amatil Ltd. 1,040,900 3,878 Foster's Brewing Group Ltd. 1,426,300 3,863 ------------- 7,741 ------------- BROADCASTING & PUBLISHING News Corp., Ltd. 966,800 6,386 ------------- BUSINESS & PUBLIC SERVICES Brambles Industries Ltd. 166,900 4,065 ------------- ENERGY SOURCES Santos Ltd. 637,900 1,712 ------------- FOOD & HOUSEHOLD PRODUCTS Woolworths Ltd. 1,003,150 3,415 ------------- MISC. MATERIALS & COMMODITIES Rio Tinto Ltd. 471,150 5,588 ------------- REAL ESTATE Lend Lease Corp., Ltd. 386,600 5,212 ------------- TELECOMMUNICATIONS Telstra Corp., Ltd. 1,798,000 8,406 ------------- 60,746 ------------- - -------------------------------------------------------------------------------- HONG KONG (10.0%) BANKING HSBC Holdings plc 237,200 5,909 ------------- BROADCASTING & PUBLISHING Television Broadcasts Ltd. 901,000 2,326 ------------- ELECTRICAL & ELECTRONICS VTech Holdings Ltd. 145,000 633 ------------- FOOD & HOUSEHOLD PRODUCTS Dairy Farm International Holdings Ltd. 2,003,000 2,304 ------------- MULTI-INDUSTRY Hutchison Whampoa Ltd. 1,278,500 9,035 Swire Pacific Ltd. 'A' 1,155,600 5,176 ------------- 14,211 ------------- REAL ESTATE New World Development Co. Ltd. 661,000 1,664 Sun Hung Kai Properties Ltd. 982,000 7,161 ------------- 8,825 ------------- TELECOMMUNICATIONS -- INTEGRATED Hong Kong Telecommunications Ltd. 2,848,300 4,982 ------------- TELECOMMUNICATIONS -- WIRELESS China Telecom Ltd. 2,322,000 4,016 ------------- TELECOMMUNICATIONS - Smartone Telecommunications 498,000 1,382 ------------- UTILITIES -- ELECTRICAL & GAS CLP Holdings Ltd. 816,000 4,066 Hong Kong & China Gas Co., Ltd. 2,803,300 3,564 Hong Kong Electric Holdings Ltd. 1,365,000 4,140 ------------- 11,770 ------------- WHOLESALE & INTERNATIONAL TRADE Li & Fung Ltd. 1,060,000 2,196 ------------- 58,554 ------------- - -------------------------------------------------------------------------------- INDIA (6.5%) AUTOMOBILES Escorts Ltd. 1,450 3 Hero Honda Ltd. 521,456 6,676 ------------- 6,679 ------------- BANKING State Bank of India Ltd. 11,312 42 ------------- BEVERAGES ITC Ltd. 16,955 299 ------------- BUILDING MATERIALS & COMPONENTS Associated Cement Co., Ltd. 785 19 ------------- BUSINESS & PUBLIC SERVICES (a)Wimco Ltd. 150 --@ ------------- CHEMICALS Gujarat Narmada Valley Fertilizers Co. Ltd. GDR 49 --@ Supreme Industries Ltd. 50 --@ ------------- --@ ------------- COMPUTERS Crompton Greaves Ltd. 50 --@ ------------- CONSTRUCTION & HOUSING (a)Alacrity Housing Ltd. 100 --@ ------------- ELECTRIC COMPONENTS Infosys Technology Ltd. 44,200 3,079 ------------- ELECTRICAL & ELECTRONICS Bharat Heavy Electricals Ltd. 1,352,200 8,361 ------------- FINANCIAL SERVICES (a)Housing Development Finance Corp., Ltd. 106,742 5,475 UTI-MasterShares Ltd. 600 --@ ------------- 5,475 ------------- FOOD & HOUSEHOLD PRODUCTS Smithkline Beecham Consumer Health Care Ltd. 49,550 613 ------------- HEALTH & PERSONAL CARE Reckitt & Coleman of India Ltd. 38,450 340 ------------- INDUSTRIAL COMPONENTS Apollo Tyres Ltd. 6,475 10 Esab India Ltd. 65 --@ ------------- 10 ------------- LEISURE & TOURISM ITC Hotels Ltd. 350 1 ------------- MACHINERY & ENGINEERING DGP Windsor India Ltd. 100,000 34 Punjab Tractors Ltd. 80,900 1,513 ------------- 1,547 ------------- - --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 7
SHARES VALUE (000) - ------------------------------------------------------------------------------- INDIA (CONTINUED) METALS -- STEEL Tata Iron & Steel Co., Ltd. 89 U.S.$ --@ ------------- MULTI-INDUSTRY (c)Morgan Stanley Growth Fund 32,888,250 4,646 ------------- TELECOMMUNICATIONS Mahanagar Telephone Nigam Ltd. 190,000 820 ------------- TEXTILES & APPAREL (a)J.K. Synthetics Ltd. 674 --@ Raymond Ltd. 50 --@ (a)Viniyoga Clothes Ltd. 5,300 --@ ------------- --@ ------------- TRANSPORTATION -- MARINE Great Eastern Shipping Ltd. 200 --@ ------------- TRANSPORTATION -- RAIL (b)Container Corp. of India Ltd. 1,059,600 5,968 ------------- 37,899 ------------- INDONESIA (2.3%) BEVERAGES & TOBACCO (a)Bat Indonesia 294,500 506 Gudang Garam 3,790,500 5,520 ------------- 6,026 ------------- BUILDING MATERIALS & COMPONENTS Semen Gresik 411,000 426 ------------- FOOD & HOUSEHOLD PRODUCTS Unilever Indonesia 1,913,500 7,176 ------------- HEALTH & PERSONAL CARE (b)Squibb Indonesia 49,000 36 ------------- 13,664 ------------- JAPAN (49.0%) APPLIANCES & HOUSEHOLD DURABLES Matsushita Electric Industrial Co., Ltd. 482,000 8,538 Sony Corp. 130,000 9,481 ------------- 18,019 ------------- AUTOMOBILES Autobacs Seven Co. 50,000 1,684 Nifco, Inc. 330,000 2,664 Nissan Motor Co. 1,770,000 5,427 Suzuki Motor Co., Ltd. 490,000 5,818 Toyota Motor Corp. 270,000 7,345 ------------- 22,938 ------------- BROADCASTING & PUBLISHING Nissha Printing Co., Ltd. 105,000 642 ------------- BUILDING MATERIALS & COMPONENTS Fujitec Co., Ltd. 460,000 2,967 Rinnai Corp. 160,700 2,814 Sanwa Shutter Corp., Ltd. 582,000 2,548 ------------- 8,329 BUSINESS & PUBLIC SERVICES Dai Nippon Printing Co., Ltd. 270,000 4,311 ------------- CHEMICALS Daicel Chemical Industries Ltd. 1,290,000 3,841 Kaneka Corp. 939,000 7,048 Mitsubishi Chemical Industries 1,360,000 2,868 Nippon Pillar Packing Co. 157,000 586 Okura Industrial Co., Ltd. 407,000 819 Sekisui Chemical Co. 563,000 3,792 Shin-Etsu Polymer Co., Ltd. 15,000 78 ------------- 19,032 ------------- CONSTRUCTION & HOUSING Kyudenko Co., Ltd. 389,000 2,634 Sekisui House Ltd. 347,000 3,674 ------------- 6,308 ------------- DATA PROCESSING & REPRODUCTION Canon, Inc. 362,000 7,747 Fujitsu Ltd. 760,000 10,136 Ricoh Co. Ltd. 816,000 7,534 ------------- 25,417 ------------- ELECTRICAL & ELECTRONICS Hitachi Ltd. 1,335,000 8,281 Minebea Co., Ltd. 200,000 2,293 Mitsumi Electric Co., Ltd. 403,000 8,535 NEC Corp. 960,000 8,847 Toshiba Corp. 1,525,000 9,095 ------------- 37,051 ------------- ELECTRONIC COMPONENTS, INSTRUMENTS Kyocera Corp. 100,000 5,290 Murata Manufacturing Co. 143,000 5,943 Rohm Co., Ltd. 30,000 2,736 TDK Corp. 103,000 9,428 Tokyo Electron Ltd. 163,000 6,196 ------------- 29,593 ------------- ENERGY EQUIPMENT & SERVICES Kurita Water Industries Ltd. 304,000 4,466 ------------- FINANCIAL SERVICES Hitachi Credit Corp. 243,000 5,405 ------------- FOOD & HOUSEHOLD PRODUCTS Aiwa Co., Ltd. 40,000 1,056 Sangetsu Co., Ltd. 137,000 2,052 Yamaha Corp. 299,000 3,100 ------------- 6,208 ------------- HEALTH & PERSONAL CARE Ono Pharmaceutical Co., Ltd. 100,000 3,128 Sankyo Co., Ltd. 328,000 7,179 Yamanouchi Pharmaceutical Co., Ltd. 270,000 8,709 ------------- 19,016 ------------- INDUSTRIAL COMPONENTS Furakawa Electric Co. 1,083,000 3,695 ------------- INSURANCE Sumitomo Marine & Fire Co. 492,000 3,122 ------------- - --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 8
VALUE SHARES (000) - ------------------------------------------------------------------------------- JAPAN (CONTINUED) MACHINERY & ENGINEERING Amada Co., Ltd. 842,000 U.S.$ 4,081 Daifuku Co., Ltd. 626,000 3,351 Daikin Kogyo Co. 603,000 5,985 Fuji Machine Co. 243,000 7,687 Mitsubishi Heavy Industries Ltd. 1,300,000 5,069 Tsubakimoto Chain Co. 872,000 1,862 ------------- 28,035 ------------- MERCHANDISING Family Mart Co., Ltd. 87,200 4,358 ------------- MULTI-INDUSTRY Lintec Corp. 215,000 2,002 ------------- REAL ESTATE Keihanshin Real Estate Co. 205,000 774 Mitsubishi Estate Co. Ltd. 415,000 3,725 ------------- 4,499 ------------- RECREATION, OTHER CONSUMER GOODS Casio Computer Co., Ltd. 522,000 3,858 Fuji Photo Film Ltd. 222,000 8,262 Nintendo Co., Ltd. 120,000 11,644 ------------- 23,764 ------------- TELECOMMUNICATIONS Nippon Telephone & Telegraph Corp. 932 7,201 NTT Data Corp. 600 2,983 ------------- 10,184 ------------- WHOLESALE & INTERNATIONAL TRADE Inabata & Co. 406,000 1,086 ------------- 287,480 ------------- - -------------------------------------------------------------------------------- KOREA (2.5%) APPLIANCES & HOUSEHOLD DURABLES Samsung Electronics 106,500 7,144 ------------- ELECTRONICS Samsung Electro-Mechanics Co. 181,630 3,925 ------------- METALS -- STEEL Pohang Iron & Steel Ltd. ADR 228,000 3,848 ------------- 14,917 ------------- - -------------------------------------------------------------------------------- MALAYSIA (2.0%) BEVERAGES & TOBACCO (b)Carlsberg Brewery (Malaysia) Bhd 1,380,000 2,770 (b)Guinness Anchor Bhd 2,781,000 1,957 (b)R.J. Reynolds Bhd 1,714,000 1,357 (b)Rothmans of Pall Mall Bhd 705,000 2,908 ------------- 8,992 ------------- FOOD & HOUSEHOLD PRODUCTS (b)Nestle Bhd 953,000 2,668 ------------- 11,660 ------------- - -------------------------------------------------------------------------------- NEW ZEALAND (1.0%) BUILDING MATERIALS & COMPONENTS Fletcher Challenge Building 899,000 1,387 ------------- ENERGY SOURCES Fletcher Challenge Energy 376,600 714 ------------- FOREST PRODUCTS & PAPER Fletcher Challenge Forests 79,520 26 Fletcher Challenge Paper 1,988,000 1,330 ------------- 1,356 ------------- TELECOMMUNICATIONS Telecom Corp. of New Zealand Ltd. 1,134,700 2,479 ------------- 5,936 ------------- - -------------------------------------------------------------------------------- PAKISTAN (1.5%) BANKING (b)Askari Bank 2,245,925 484 ------------- CHEMICALS (b)Engro Chemicals Ltd. 9,090 15 ------------- FOOD & HOUSEHOLD PRODUCTS (b)Lever Brothers Pakistan Ltd. 442,880 5,520 ------------- OIL & GAS (b)Shell Pakistan Ltd. 499,600 1,432 ------------- TELECOMMUNICATIONS (b)Pakistan Telecommunications Corp Ltd. 4,700,000 1,625 ------------- 9,076 ------------- - -------------------------------------------------------------------------------- PHILIPPINES (1.3%) BANKING Bank of the Philippine Islands 475,450 1,008 ------------- BEVERAGES & TOBACCO (a)LA Tondena Distillers, Inc. 2,652,600 2,114 San Miguel Corp. 'B' 891,200 1,718 ------------- 3,832 ------------- ELECTRICAL & ELECTRONICS Ionics Circuit, Inc. 1,521,300 372 Music Corp. 406,600 33 ------------- 405 ------------- REAL ESTATE Ayala Land, Inc. 'B' 1 --@ SM Prime Holdings, Inc. 'B' 9,637,680 1,834 ------------- 1,834 ------------- UTILITIES -- ELECTRICAL & GAS Manila Electric Co. 'B' 117,250 377 ------------- 7,456 ------------- - -------------------------------------------------------------------------------- SINGAPORE (7.2%) AEROSPACE & MILITARY TECHNOLOGY Singapore Technologies Engineering Ltd. 2,189,000 2,043 - --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 9
VALUE SHARES (000) - ------------------------------------------------------------------------------- SINGAPORE (CONTINUED) BANKING Oversea-Chinese Banking Corp., Ltd. (Foreign) 465,000 U.S.$ 3,156 United Overseas Bank Ltd. (Foreign) 1,003,000 6,444 ------------- 9,600 ------------- BROADCASTING & PUBLISHING Singapore Press Holdings Ltd. 313,600 3,347 ------------- BUSINESS & PUBLIC SERVICES Informatics Holdings Ltd. 5,832,000 2,050 ------------- ELECTRICAL & ELECTRONICS Natsteel Electronics Ltd. 2,303,000 5,862 ------------- ELECTRONIC COMPONENTS, INSTRUMENTS Venture Manufacturing Ltd. 1,318,000 5,032 ------------- FOOD & HOUSEHOLD PRODUCTS Want Want Holdings Ltd. 174,000 209 ------------- REAL ESTATE City Developments Ltd. 975,000 4,225 ------------- TOBACCO Rothmans Industries Ltd. 838,000 5,028 ------------- TRANSPORTATION -- AIRLINES Singapore Airlines Ltd. 665,000 4,877 ------------- 42,273 ------------- - -------------------------------------------------------------------------------- SRI LANKA (0.3%) INDUSTRIAL COMPONENTS Lanka Lubricants Ltd. 1,800,000 1,651 ------------- - -------------------------------------------------------------------------------- THAILAND (1.5%) BROADCASTING & PUBLISHING (b)BEC World Public Co., Ltd. (Foreign) 1,397,900 7,691 (b)Grammy Entertainment Public Co., Ltd. (Foreign) 192,000 909 ------------- 8,600 ------------- ELECTRICAL & ELECTRONICS Delta Electronics Public Co., Ltd. (Foreign) 82,500 436 ------------- 9,036 ------------- - -------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost U.S.$611,522) 560,348 ------------- - -------------------------------------------------------------------------------- NO. OF WARRANTS - -------------------------------------------------------------------------------- WARRANTS (0.0%) - -------------------------------------------------------------------------------- INDIA (0.0%) (a)Apollo Tyres Ltd. (Cost U.S.$4) 2,150 -- ------------- - --------------------------------------------------------------------------------
FACE AMOUNT VALUE (000) (000) - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS (2.8%) - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT (2.8%) Chase Securities, Inc. 4.45%, dated 12/31/98, due 1/4/99, to be repurchased at U.S.$16,297, collateralized by U.S.$9,800 United States Treasury Bonds, 11.25%, due 2/15/15, valued at U.S.$16,623 (Cost $16,289) U.S.$ 16,289 U.S.$ 16,289 ------------- - -------------------------------------------------------------------------------- FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (1.6%) Australian Dollar AUD 48 29 Hong Kong Dollar HKD 3,117 402 Indian Rupee INR 175,212 4,125 Indonesian Rupiah IDR 956,770 120 Japanese Yen JPY 4,201 37 (b)Malaysian Ringgit MYR 7,739 1,425 New Zealand Dollar NZD 208 110 (b)Pakistani Rupee PKR 102,857 1,872 Philippine Peso PHP 144 4 Singapore Dollar SGD 1,847 1,119 Thai Baht THB 3,167 87 ------------- (Cost U.S.$9,298) 9,330 ------------- - -------------------------------------------------------------------------------- TOTAL INVESTMENTS (99.8%) (Cost $637,113) 585,967 ------------- - -------------------------------------------------------------------------------- OTHER ASSETS (0.7%) Receivable for Investments Sold U.S.$ 2,691 Dividends Receivable 824 Foreign Withholding Tax Reclaim Receivable 368 Deferred Organization Costs 7 Interest Receivable 2 Other Assets 66 3,958 -------------- ------------- - -------------------------------------------------------------------------------- LIABILITIES (-0.5%) Payable For: Investments Purchased (1,623) Investment Advisory Fees (490) Professional Fees (141) Shareholder Reporting Expenses (133) Custodian Fees (115) Directors' Fees and Expenses (58) Administrative Fees (51) Bank Overdraft (37) Fund Shares Redeemed (7) Net Unrealized Loss on Foreign Currency Exchange Contracts (3) Other Liabilities (111) (2,769) -------------- ------------- - --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 10
Amount (000) - -------------------------------------------------------------------------------- NET ASSETS (100%) Applicable to 67,274,574, issued and outstanding U.S.$0.01 par value shares (100,000,000 shares authorized) U.S.$ 587,156 ------------- ------------- - -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE U.S.$ 8.73 ------------- ------------- - -------------------------------------------------------------------------------- AT DECEMBER 31, 1998, NET ASSETS CONSISTED OF: - -------------------------------------------------------------------------------- Common Stock U.S.$ 673 Capital Surplus 894,583 Accumulated Net Investment Loss (1,367) Accumulated Net Realized Loss (255,890) Unrealized Depreciation on Investments and Foreign Currency Translations (50,843) - -------------------------------------------------------------------------------- TOTAL NET ASSETS U.S.$ 587,156 ------------- ------------- - --------------------------------------------------------------------------------
(a)-- Non-income producing (b)-- Security valued at fair value -- see note A-1 to financial statements. (c)-- The Fund is advised by an affiliate. @ -- Value is less than U.S.$500. ADR-- American Depositary Receipt GDR-- Global Depositary Receipt Note: Prior governmental approval for foreign investments may be required under certain circumstances in some emerging markets, and foreign ownership limitations may also be imposed by the charters of individual companies in emerging markets. As a result, an additional class of shares designated as "foreign" may be created, and offered for investment. The "local" and "foreign" shares' market values may vary. - -------------------------------------------------------------------------------- FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: Under the terms of foreign currency exchange contracts open at December 31, 1998, the Fund is obligated to deliver foreign currency in exchange for U.S. dollars as indicated below:
CURRENCY IN NET TO EXCHANGE UNREALIZED DELIVER VALUE SETTLEMENT FOR VALUE LOSS (000) (000) DATE (000) (000) (000) - -------------------------------------------------------------------------------- INR 124,000 U.S.$ 2,920 01/04/99 U.S.$ 2,917 U.S.$ 2,917 U.S.$ (3) ----------- ----------- -------- ----------- ----------- --------
- --------------------------------------------------------------------------------
DECEMBER 31, 1998 EXCHANGE RATES: AUD Australian Dollar 1.632 = U.S.$ 1.00 HKD Hong Kong Dollar 7.747 = U.S.$ 1.00 INR Indian Rupee 42.470 = U.S.$ 1.00 IDR Indonesian Rupiah 8000.000 = U.S.$ 1.00 JPY Japanese Yen 112.850 = U.S.$ 1.00 MYR Malaysian Ringgit 5.430 = U.S.$ 1.00 NZD New Zealand Dollar 1.899 = U.S.$ 1.00 PKR Pakistani Rupee 54.958 = U.S.$ 1.00 PHP Philippine Peso 38.900 = U.S.$ 1.00 SGD Singapore Dollar 1.650 = U.S.$ 1.00 THB Thai Baht 36.350 = U.S.$ 1.00
- -------------------------------------------------------------------------------- The accompanying notes are an intetgral part of the financial statements. 11 SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY CLASSIFICATION -- DECEMBER 31, 1998 (UNAUDITED)
PERCENT VALUE OF NET INDUSTRY (000) ASSETS - -------------------------------------------------------------------------------- Aerospace & Military Technology U.S.$ 2,043 0.4% Appliances & Household Durables 25,163 4.3 Automobiles 29,617 5.0 Banking 35,264 6.0 Beverages 299 0.1 Beverages & Tobacco 26,591 4.5 Broadcasting & Publishing 21,301 3.6 Building Materials & Components 10,161 1.7 Business & Public Services 10,426 1.8 Chemicals 19,047 3.3 Construction & Housing 6,308 1.1 Data Processing & Reproduction 25,417 4.3 Electric Components 3,079 0.5 Electrical & Electronics 52,748 9.0 Electronic Components, Instruments 34,625 5.9 Electronics 3,925 0.7 Energy Equipment & Services 4,466 0.8 Energy Sources 2,426 0.4 Financial Services 10,880 1.9 Food & Household Products 28,113 4.8 Forest Products & Paper 1,356 0.2 Health & Personal Care 19,392 3.3 Industrial Components 5,356 0.9 Insurance 3,122 0.5 Leisure & Tourism 1 0.0 Machinery & Engineering 29,582 5.0 Merchandising 4,358 0.7 Metals -- Steel 3,848 0.6 Misc. Materials & Commodities 5,588 1.0 Multi-Industry 20,859 3.6 Oil & Gas 1,432 0.2 Real Estate 24,595 4.2 Recreation, Other Consumer Goods 23,764 4.0 Telecommunications -- Integrated 4,982 0.8 Telecommunications -- Wireless 4,016 0.7 Telecommunications 24,896 4.2 Tobacco 5,028 0.9 Transportation -- Airlines 4,877 0.8 Transportation -- Rail 5,968 1.0 Utilities -- Electrical & Gas 12,147 2.1 Wholesale & International Trade 3,282 0.6 Other 25,619 4.4 -------------- ---- U.S.$ 585,967 99.8% --------------- ---- --------------- ----
- -------------------------------------------------------------------------------- SUMMARY OF TOTAL INVESTMENTS BY COUNTRY -- DECEMBER 31, 1998 (UNAUDITED)
PERCENT VALUE OF NET COUNTRY (000) ASSETS - -------------------------------------------------------------------------------- Australia U.S.$ 60,746 10.3% Hong Kong 58,554 10.0 India 37,899 6.5 Indonesia 13,664 2.3 Japan 287,480 49.0 Korea 14,917 2.5 Malaysia 11,660 2.0 New Zealand 5,936 1.0 Pakistan 9,076 1.5 Philippines 7,456 1.3 Singapore 42,273 7.2 Sri Lanka 1,651 0.3 Thailand 9,036 1.5 United States (short-term investments) 16,289 2.8 Other 9,330 1.6 ------------- ---- U.S.$585,967 99.8% ------------- ---- ------------- ---- - --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 12
YEAR ENDED DECEMBER 31, 1998 STATEMENT OF OPERATIONS (000) - --------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S.$ 10,334 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,622 Less: Foreign Taxes Withheld . . . . . . . . . . . . . . . . . . . . . . (1,111) - --------------------------------------------------------------------------------------------------- Total Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,845 - --------------------------------------------------------------------------------------------------- EXPENSES Investment Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . 5,788 Custodian Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 885 Administrative Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 603 Shareholder Reporting Expenses . . . . . . . . . . . . . . . . . . . . . 220 Professional Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 Transfer Agent Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 105 Directors' Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . 59 Country Tax Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Amortization of Organization Costs . . . . . . . . . . . . . . . . . . . 11 Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345 - --------------------------------------------------------------------------------------------------- Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,231 - --------------------------------------------------------------------------------------------------- Net Investment Income .. . . . . . . . . . . . . . . . . . . . . . 4,614 - --------------------------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS) Investment Securities Sold . . . . . . . . . . . . . . . . . . . . . . . (106,665) Foreign Currency Transactions. . . . . . . . . . . . . . . . . . . . . . (4,286) - --------------------------------------------------------------------------------------------------- Net Realized Loss . . . . . . . . . . . . . . . . . . . . . . . . . . (110,951) - --------------------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION Appreciation on Investments. . . . . . . . . . . . . . . . . . . . . . . 94,428 Appreciation on Foreign Currency Translations. . . . . . . . . . . . . . 511 - --------------------------------------------------------------------------------------------------- Change in Unrealized Appreciation/Depreciation. . . . . . . . . . . . 94,939 - --------------------------------------------------------------------------------------------------- Total Net Realized Loss and Change in Unrealized Appreciation/Depreciation. . (16,012) - --------------------------------------------------------------------------------------------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . U.S.$ (11,398) - --------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED DECEMBER 31, 1998 DECEMBER 31, 1997 STATEMENT OF CHANGES IN NET ASSETS (000) (000) - ----------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS Operations: Net Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . U.S.$ 4,614 U.S.$ 2,126 Net Realized Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . (110,951) (149,087) Change in Unrealized Appreciation/Depreciation . . . . . . . . . . . . 94,939 (79,512) - ----------------------------------------------------------------------------------------------------------------------- Net Decrease in Net Assets Resulting from Operations . . . . . . . . . . . . . . . . . . . . . . . . . . (11,398) (226,473) - ----------------------------------------------------------------------------------------------------------------------- Distributions: Net Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . -- (1,751) In Excess of Net Investment Income . . . . . . . . . . . . . . . . . . (639) -- - ----------------------------------------------------------------------------------------------------------------------- Total Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . (639) (1,751) - ----------------------------------------------------------------------------------------------------------------------- Capital Share Transactions: Repurchase of Shares (4,379,934 shares). . . . . . . . . . . . . . . . (28,980) -- - ----------------------------------------------------------------------------------------------------------------------- Total Decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . (41,017) (228,224) Net Assets: Beginning of Period. . . . . . . . . . . . . . . . . . . . . . . . . . 628,173 856,397 - ----------------------------------------------------------------------------------------------------------------------- End of Period (including accumulated net investment loss of U.S.$1,367 and U.S.$5,423, respectively). . . . . . . . . . . . . U.S.$587,156 U.S.$628,173 - ----------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 13 FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31, PERIOD FROM SELECTED PER SHARE DATA ----------------------------------------------------------------- AUGUST 2, 1994* TO AND RATIOS: 1998 1997 1996 1995 DECEMBER 31, 1994 - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD. . . . U.S.$ 8.77 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 . . . . . . . . . . . 0.06 0.03 0.02 0.05 0.05 Net Realized and Unrealized Gain (Loss) on Investments . . . . . . . . . . . . (0.17) (3.19) (0.33) 1.16 (0.87) - ----------------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations. . (0.11) (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) -- (0.01) (0.00)# -- In Excess of Net Realized Gain . . . . -- -- -- (0.02) (0.01) - ----------------------------------------------------------------------------------------------------------------------------------- Total Distributions . . . . . . . . (0.01) (0.02) (0.61) (0.07) (0.05) - ----------------------------------------------------------------------------------------------------------------------------------- Decrease in Net Asset Value due to Shares Issued through Rights Offering. -- -- (1.46) -- -- Anti-Dilutive Effect of Shares Repurchased. . . . . . . . . . . . . . 0.08 -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD. . . . . . . U.S.$ 8.73 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.$ 7.00 U.S.$ 7.44 U.S.$ 9.75 U.S.$ 13.33 U.S.$ 12.25 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN: Market Value . . . . . . . . . . . . . (5.77)% (23.46)% (14.72)%+ 9.38% (12.71)% Net Asset Value(1) . . . . . . . . . . (0.34)% (26.36)% (2.87)%+ 9.24% (5.94) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- RATIOS, SUPPLEMENTAL DATA: - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (THOUSANDS) U.S.$587,156 U.S.$628,173 U.S.$856,397 U.S.$769,414 U.S.$708,323 - ----------------------------------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets . . 1.42% 1.34% 1.39% 1.36% 1.31%** Ratio of Net Investment Income to Average Net Assets . . . . . . . . . . 0.80% 0.25% 0.16% 0.36% 0.89%** Portfolio Turnover Rate . . . . . . . . . . 42% 66% 28% 21% 2% - -----------------------------------------------------------------------------------------------------------------------------------
* 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. The accompanying notes are an integral part of the financial statements. 14 NOTES TO FIANANCIAL STATEMENTS DECEMBER 31, 1998 - ----------- 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. At December 31, 1998, securities valued at $38,637,000 representing 6.6% of net assets have been fair valued. The amounts realized upon disposition may differ from the assigned valuations and such differences could be material. 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 unre- 15 alized currency gains (losses) for the period is reflected in the Statement of Operations. The Fund may use derivatives to achieve its investment objective. 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 and their associated risks that the Fund may utilize: 5. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into 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 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 16 ("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. 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-dividend 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, net operating losses 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 Dean Witter 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. The Chase Manhattan Bank, through its corporate 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 0.09% 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. D. The Chase Manhattan Bank and its affiliates serve as custodian for the Fund. The Fund's assets held outside the United States have been held by Morgan Stanley Trust Company ("MSTC"), which was an affiliate of the Adviser prior to October 1, 1998. On October 1, 1998, MSTC was acquired by the Chase Manhattan Bank. 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. Through September 30, 1998, the Fund paid MSTC fees of approximately $589,000. E. During the year ended December 31, 1998, the Fund made purchases and sales totaling $261,002,000 and $214,054,000, 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. At December 31, 1998, the U.S. Federal income tax cost basis of securities was $629,118,000 and, accordingly, net unrealized depreciation was $52,481,000 of which $59,087,000 related to appreciated securities and $111,568,000 related to depreciated securities. At December 31, 1998, the Fund had a capital loss carryforward for U.S. Federal income tax purposes of approximately $243,446,000 available to offset future capital gains of which $5,069,000 will expire on December 31, 2003, $93,503,000 will expire on December 31, 2005 and $144,874,000 will expire on December 31, 2006. To the extent that capital gains are offset, such gains will not be distributed to the shareholders. For the year ended 17 December 31, 1998, the Fund elects to defer to January 1, 1999 for U.S. Federal income tax purposes, post-October currency losses of $413,000 and post-October capital losses of $12,098,000. F. For year ended December 31, 1998, the Fund incurred $154,000 of brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliate of the Adviser. G. 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. H. 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. I. 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. J. 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, 1998 totaled $58,000 and are included in Payable for Directors' Fees and Expenses on the Statement of Net Assets. K. On September 15, 1998, the Fund commenced a share repurchase program for purposes of enhancing shareholder value and reducing the discount at which the Fund's shares traded from their net asset value. From that date through December 31, 1998, the Fund repurchased 4,379,934 shares or 6.11% of its Common Stock at an average price per share of $6.57 and an average discount of 16.92% 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. - -------------------------------------------------------------------------------- FEDERAL INCOME TAX INFORMATION (UNAUDITED): For the year ended December 31, 1998, the Fund expects to pass through to shareholders foreign tax credits of approximately $1,112,000. In addition, for the year ended December 31, 1998, gross income derived from sources within foreign countries amounted to $10,240,000. 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, 1998, 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 four 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, 1998 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036 February 8, 1999 19 YEAR 2000 DISCLOSURE (UNAUDITED): The investment advisory services provided to the Fund by the Adviser depend on the smooth operation of its computer systems. Many computer and software systems in use today cannot recognize the year 2000, but revert to 1900 or some other date, due to the manner in which dates were encoded and calculated. That failure could have a negative impact on the handling of securities trades, pricing and account services. The Adviser has been actively working on necessary changes to its own computer systems to deal with the year 2000 problem and expects that its systems will be adapted before that date. There can be no assurance, however, that the Adviser will be successful. In addition, other unaffiliated service providers may be faced with similar problems. The Adviser is monitoring their remedial efforts, but, there can be no assurance that they and the services they provide will not be adversely affected. In addition, it is possible that the markets for securities in which the Fund invests may be detrimentally affected by computer failures throughout the financial services industry beginning January 1, 2000. Improperly functioning trading systems may result in settlement problems and liquidity issues. In addition, corporate and governmental data processing errors may result in production problems for individual companies and overall economic uncertainties. Earnings of individual issuers will be affected by remediation costs, which may be substantial and may be reported inconsistently in U.S. and foreign financial statements. Accordingly, the Fund's investments may be adversely affected. 20 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 21 -----END PRIVACY-ENHANCED MESSAGE-----