-----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, USj+ftc8n8SbfLi0b0evcY0W5VQ9NqGunPqRqXrgEpuj7QbNXAOyJsgc3mEbabkm RgTQSMVAedkByAJnvbGPKQ== 0001047469-99-035139.txt : 19990910 0001047469-99-035139.hdr.sgml : 19990910 ACCESSION NUMBER: 0001047469-99-035139 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990909 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: 99708147 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 DEAN WITTER ASIA-PACIFIC FUND, INC. - -------------------------------------------------------------------------------- SEMI-ANNUAL REPORT JUNE 30, 1999 MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC. INVESTMENT ADVISER MORGAN STANLEY DEAN WITTER 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 Mary E. Mullin SECRETARY 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 or visit our website at www.msdw.com/institutional/investmentmanagement. LETTER TO SHAREHOLDERS - --------- For the six months ended June 30, 1999, the Morgan Stanley Dean Witter Asia-Pacific Fund, Inc. (the "Fund") had a total return, based on net asset value per share, of 32.42% compared to 27.06% for its benchmark (described below). For the period since the Fund's commencement of operations on August 2, 1994 through June 30, 1999, the Fund's total return, based on net asset value per share, was -3.00% compared with -16.15% for the benchmark. The benchmark for the Fund is comprised of two Morgan Stanley Capital International (MSCI) indices; Japan and All-Country Asia-Pacific Free ex-Japan with each index weighted equally. On June 30, 1999, the closing price of the Fund's shares on the New York Stock Exchange was $9 5/8 representing a 16.7% discount to the net asset value per share. All major Asian markets performed well so far in 1999, with South Korea, Indonesia, China and Thailand as the primary leaders. Asian markets rose due to the restoration of confidence among domestic and foreign investors, on the back of stabilizing exchange rates and signs that economies had bottomed after the shock of the Asian crisis. Currency stability established in the second half of 1998, allowed local governments to ease monetary policy and bring interest rates down quickly. Lower interest rates eased the banking crisis in many countries, reduced government financing costs, lowered the cost of capital for businesses and encouraged local investors to shift from fixed income to equity investments. The power of high Asian savings rates was illustrated by the ability of local retail and institutional investors to subscribe to a heavy calendar of new corporate equity issues. This new equity helped many Asian companies repair their balance sheets, remove corporate distress risk, and enhance equity valuations. Asian countries needed new equity and not additional debt from foreign investors; the absence of heavy bond financing requirements mitigated the negative impacts of rising international bond yields and the small U.S. Federal Reserve interest rate increase. Although the economic recovery underway in many countries should not be characterized as export-led, an increase in export orders, particularly for electronic components, was positive particularly for the economies of Singapore and Malaysia. After several years of economic and corporate earnings disappointments, we are in an environment of expectation upgrades where forecasts of economic activity are continually being revised upwards across the region. The South Korean economy experienced the fastest recovery from the Asian economic downturn of 1998. Korean industrial production is above pre-crisis levels and consensus expectations for 1999 gross domestic product growth moved from 3% to 4% growth at the end of the 1st quarter to 5% to 7% estimates now. The Korean economy benefited from a combination of positive factors including strong government policy implementation, better demand and pricing for its exports and a strong recovery in domestic confidence. The Korean government implemented a harsh IMF-designed program in the first half of 1998 to correct the country's macroeconomic imbalances. The government encouraged consumers and businesses to cut back consumption and investment in early 1998. The Koreans responded vigorously with sharp cutbacks in personal consumption, investment and business inventory liquidation. This austerity created a rapid turnaround from trade deficit to trade surplus and the Koreans used these surpluses, IMF aid and better international capital market access to address the country's short-term funding problems. The Korean government aggressively tackled its banking system problems when it began implementing a KRW 64 trillion bank recapitalization program. Positive trade performance, successful refinancings and banking sector progress allowed the government to ease fiscal and monetary policies aggressively in the second half of 1998. Interest rates fell rapidly from a crisis high of over 30% to the 6% -7% range today. Interest rates at these levels are at a 20-year low and the Koreans have responded by shifting fixed income investments into equities, either directly or via a rapidly growing mutual fund sector. The government stopped urging austerity and Korean consumers responded by satisfying pent-up demand. Sales of consumer durables, in particular, have risen sharply in 1999. Listed Korean companies were the most heavily indebted in the region before the crisis. This leverage exaggerated equity market declines when interest rates were high, demand was falling and bankruptcies loomed. It also exaggerated the market's recovery when interest rates fell, demand expectations and product pricing improved and new equity issues reduced bankruptcy risks. Given the powerful moves seen in the equity markets over the past 9 months, Korean equities are now priced near their historic highs on measures such as price to book value. More corporate restructuring, particularly of the largest conglomerates known as chaebol, will be needed to transform this rally from a strong cyclical recovery to a long-term bull market. Korean corporations have historically traded at low multiples due to their high leverage, low returns on equity, opaque corporate structures and poor disclosure. The market has rewarded companies that have restructured and adopted a greater emphasis on shareholder returns. The government has actively encouraged chaebol restructuring and has introduced a number of regulations to reduce leverage and improve transparency among these companies. If restructuring broadens, the market can continue to rally and move to higher valuation multiples. If restructuring falters as the economic recovery removes pressure on the corporate sector, the market will stall or correct. 2 Most countries in the region reported increases in exports of electronics components during the first half of 1999. This growth has contributed to economic forecast upgrades in Singapore and Malaysia. The value of Asian electronics shipments has risen despite price pressures in the global personal computer industry because price declines have forced PC manufacturers to cut costs, which often means sourcing more product from low-cost Asian producers. The trend towards greater outsourcing, firmly established among American companies, is being adopted by an increasing number of Japanese companies. In the past Japanese manufacturers often built factories in other Asian countries in an effort to cut costs. An increasing number of Japanese companies are now turning to outsourcing instead as part of their own restructuring efforts. Outsourcing allows us to invest directly in the resulting growth, as we can identify companies winning Japanese orders. Japanese outsourcing has already had a positive impact on a number of listed Asian companies. The Fund has a significant exposure to a number of Asian electronics companies in Korea, Singapore and Thailand, and these investments performed well in the second quarter as order books gained momentum. The Hong Kong market enjoyed strong absolute returns year-to-date, yet it continued to lag the regional benchmark. Hong Kong's adherence to its currency board regime has lengthened its adjustment to the deflationary effects of the Asian crisis. Hong Kong companies have not had their costs cut via devaluation, and instead have had to cut costs by reducing employment and negotiating lower rents, wages and other costs. Consequently, Hong Kong is experiencing deflation, with consumer price indexes down over 3% year-on-year. The currency board ties Hong Kong's interest rates to U.S. rates, leaving rates at very high levels in real terms. All of these factors have put Hong Kong's recovery behind the schedule of the rest of Asia by at least two or three quarters. The economy now appears to be bottoming, with signs of stability emerging in consumption, employment and perhaps price levels. A number of Hong Kong companies responded by aggressively cutting costs during the recession and are well positioned for the recovery. Banks in Hong Kong have also significantly strengthened their balance sheets during the recession, and are as liquid as they have been in years. They have so far, only been growing their mortgage loan portfolios but are well positioned to respond to increases in loan demand when conditions improve. The growth in mortgage portfolios is consistent with healthy demand for primary residential property developments. Strong demand for competitively priced residential property allowed the large Hong Kong developers to work off significant inventory of unsold developments. Strong land sales in Hong Kong and liquidation of older property developments suggest that Hong Kong property prices will move somewhat higher. A number of studies of Hong Kong's competitiveness were conducted recently, and the government responded with a number of initiatives of varying degrees of effectiveness. For example, the government began a review of the civil service and will contract out more services in the future to improve efficiency. Telecommunications deregulation was very effective at reducing service costs and increasing innovation. This is likely to be followed by other utility deregulation. The government would like to encourage the development of Hong Kong's software and technology industries, create a regional medical hub, and enhance tourism by attracting a Disney theme park. Hong Kong should also benefit from improved export flows and greater growth in China based on current Chinese initiatives. During the second quarter, we increased our exposure to Hong Kong. Chinese equities rallied sharply in the second quarter as China cut interest rates sharply to sustain economic growth and combat deflation. A large rate cut in June left Chinese interest rates significantly below U.S. rates; for instance, a Chinese saver could earn just 2.25% on a one-year deposit in a Chinese bank. China could cut rates this low despite the renminbi's peg to the U.S. dollar, due to a tightening of capital controls. The Chinese cut rates to encourage consumption rather than savings and to relieve the debt burden on Chinese state-owned enterprises. The Chinese also introduced a number of measures to encourage investment in domestic equity markets. The authorities hope that an equity market rally will create a wealth effect and encourage domestic consumption. Prime Minister Zhu Rongji adopted these policies after a trip to the United States. Stronger domestic equity markets would also facilitate the recapitalization of state owned enterprises and reduce the cost of bailing out the state-owned banking sector. The rally occurred despite a deterioration of Chinese export growth, the failure of China to secure American support for its entry to the WTO and a worsening of Sino-American relations. During the second quarter, we moved to a modest overweight position through Chinese equities listed in Hong Kong. The MSCI Singapore index recorded strong absolute returns during the quarter but lagged regional indexes. Returns lagged for foreign investors due to the erosion of premiums on a number of blue chip stocks, including the banks and Singapore Airlines. These premiums eroded as the Monetary Authority of Singapore announced a plan to merge the foreign and local tranches of the bank shares. This share class merger is a long term positive for the sector as it will facilitate bank mergers in Singapore. In-market mergers will reduce excess bank capacity and allow major cost cutting. The Singapore economy is enjoying a strong recovery on the back of improved electronics exports, easy monetary and fiscal policy, a more competitive exchange rate and improved consumer confidence. The local property market has enjoyed a strong price increase, allowing developers to improve their fi- 3 nancial condition by liquidating unsold units. Improving conditions in Indonesia and other ASEAN markets have also contributed to improved sentiment. We recently reduced our exposure in Singapore marginally for a number of our positions, as valuation targets were exceeded. The major political event in Asia during the second quarter was the Indonesian parliamentary elections. The elections were conducted in a far more peaceful environment than expected. Preliminary results suggest a new coalition will be formed to replace the current government. Following the social unrest seen in Indonesia in early 1998, the relative lack of problems during the campaign exceeded expectations. Social calm, falling inflation, a strengthening rupiah, falling interest rates, higher commodity export prices and nascent signs of economic recovery combined to make the Indonesian market the best performing Asian market during the first half. Successful coalition building, further progress on corporate debt restructuring and bank recapitalization will be needed to sustain the rally. The Thai market rallied sharply during the second quarter as interest rates fell below pre-crisis lows. Signs of an economic recovery continued to build and an innovative deal illustrated how banks could be recapitalized through a combination of government and private capital. Siam Commercial Bank raised Baht 65 billion (about $1.7 billion) of fresh capital through a scheme in which the government matched private capital. This sparked a rally in Thai financial institutions that had not yet raised new equ ity. Asset quality among Thai banks remains dire but meaningful progress is being made in the restructuring of corporate debt and trends are favorable. However, at this stage a fairly rapid recovery in economic growth and corporate earnings is needed to justify current equity valuations. The Fund is underweight Thai equities. Asian risk factors we will be monitoring include the large supply of upcoming equity offerings and the danger that economic recovery will lessen the will to implement needed economic and corporate level reforms. External risk factors include the performance of the Japanese economy, import and economic growth in Europe and America, U.S. monetary policy and global interest rate trends, extreme weakness in the Euro and the performance of Western equity markets. Upside surprises could include better than exp ected economic recovery and bank recapitalization in Japan, and stronger than expected import demand from the U.S. and Europe. Along with improving fundamentals, sentiment and liquidity have been driving equity returns in Asia over the past quarter. A rising tide has lifted most stocks. Given the magnitude of the recent moves, some companies and perhaps some markets have moved ahead of where they should be valued, unless further positive growth surprises occur. We continue to believe that the best way to drive future performance will be through stock selection, and expect that the importance of stock selection will reassert its elf in a less buoyant market environment. We continue to focus our efforts on identifying companies that are restructuring and refocusing their businesses around the principle of improving returns on equity. Restructuring broadly includes divestitures, sales of strategic stakes to multinationals, business unit shutdowns, mergers, staff reductions or capital management initiatives. We have seen a variety of restructuring efforts by Asian companies over the past year and these companies continue to perfor m well in relative and absolute terms. As mentioned above, restructuring in Japan could also provide enhanced investment opportunities in non-Japan Asia through outsourcing. We will continue to search for these opportunities, and build significant positions in companies geared to the recovery in domestic consumption currently underway in most Asian economies. The Japanese equity markets continued to rise during the second quarter of 1999. In part, the growing optimism among investors stemmed from the weakness of the yen as the Bank of Japan maintained their intervention policy as well as guiding short term interest rates to "zero". As well, a recovery in the Asian stock market and economic activity also helped overall sentiment. Signs of an improvement in Japanese fundamentals, including a surprisingly strong preliminary release of first quarter gross domest ic product at an annualized rate of 7.9% set investors scrambling to raise equity allocations to Japan. Contrary to the indiscriminate buying during the first quarter, investors gravitated to higher quality investments in securities showing earnings momentum, restructuring and more reasonable valuations. This change in leadership appeared after the first week of May, when most companies reported full year earnings for fiscal 1999 ending March. Volumes on all exchanges rose sharply in contrast to 1998 and the Tokyo Stock Exchange (TSE) first section rose from around 200 million shares last October to 600 million shares during the second quarter. However, the total value on a "good day" is still only $6 billion and on a similar day the two most active shares in the U.S. (AOL and YAHOO) traded $8 billion or 30% more than the whole T.S.E. We believe it is because of the relative lack of liquidity on the T.S.E. that low priced high beta stocks surged through May as investors reallocated their positions in Japan and increased such allocations largely through the purchase of index related names. However, since May promising sectors such as communications, high technology and digital related companies rose sharply as investors became focused on fundamentals. In particular, investors rewarded companies such as Sony and Toshiba which developed the new Play Station II and Nintendo/Matsushita as they announced their 4 "dolphin" game platform. These products are expected to play an important role as home servers and Japan essentially has a 100% market share for these products. Restructuring announcements made earlier by Japanese companies also began showing early signs of progress. For example, Nissan Motors, owned 36% by Renault, rose from 400 yen to 600 yen as investors gained some confidence that production cuts, product focus and reduction of debt will be made in earnest by Mr. Carlos Ghosn, the new COO of Nissan. On a product rationalization restructuring story, NEC and Hitachi, both historically fierce competitors in D-RAM manufacturing, agreed to combine forces jointly to develop a new generation of D-RAMS. Such alliances would have hardly occurred in the Japan of the 1970's and 1980's. Both the rise in the OTC index and public appetite for IPO's suggested that retail investors were active participants in the market and rewarded handsomely by spectacular returns. Because of liquidity concerns, the Fund does not invest in smaller companies in Japan but the sharp rally in international blue chips and higher quality securities helped our relative performance since May. We added to our positions in Lintec and Shinetsu Polymer during the second quarter, with profit taking from Nissan. While such favorable micro-developments occurred, there were signs during the second quarter that economic activity is still modest, despite the surprisingly strong preliminary gross domestic product numbers. For example, March department store sales fell 7.3% for the 11th straight decline and supermarket adjusted sales were down 8%, the second worst ever. Importantly, with rising unemployment the consumer has yet to show meaningful signs of consumption; retail sales account for 27% of Japan's overall gross domestic product. The banking sector, which we do not own, in aggregate announced that they still have 20.19 trillion yen of bad debt on May 19. Under the new disclosure rule implemented by the Financial Supervisory Agency, these numbers showed an increase of 6.3 trillion yen (almost 50%) from the banks original estimates and confirm our suspicions that true non-performing loans held by banks are large and the amounts are not simply accounting "errors." If the U.S. Federal Reserve will maintain a mild tightening position and the Bank of Japan maintains their "zero" short term interest rate policy, it will allow Japan to accelerate restructuring and provide a platform for economic recovery. It will likely become very important for Japan to show concrete economic growth over the next year, particularly if U.S. growth slows. The U.S. elections next year and the G7 summit in Okinawa are two milestones which will likely provide focus for Japanese leaders and businesses to show a robust, domestic led economic recovery. In order to achieve this goal, further restructuring, deregulation and additional stimulus packages will be necessary, in our view. With the rising employment rate, politicians are becoming desperate to improve economic conditions as Japan, too, will have a lower house election in 2000. While we are increasingly bullish on the prospects for Japan, we intend to keep our highly selective stock and sector weightings and believe the "generals" will lead the charge. In particular, Sony, Fujitsu, Mitsui and TDK have reached all-time highs and "bell-cows" such as Nippon Telephone & Telegraph the largest capitalized company in Japan has broken out from a ten-year trading range. Sincerely, /s/ Michael F. Klein Michael F. Klein PRESIDENT AND DIRECTOR July 1999 THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATI ON TO PURCHASE OR SELL THE SECURITIES MENTIONED. - -------------------------------------------------------------------------------- DAILY NET ASSET AND MARKET VALUES, AS WELL AS MONTHLY PORTFOLIO INFORMATION FOR THE FUND, ARE AVAILABLE ON OUR WEBSITE AT www.msdw.com/institutional/investmentmanagement. 5 Morgan Stanley Dean Witter Asia-Pacific Fund, Inc. Investment Summary as of June 30, 1999 (Unaudited) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
HISTORICAL INFORMATION TOTAL RETURN (%) -------------------------------------------------------------------------- MARKET VALUE (1) NET ASSET VALUE (2) INDEX (3) ---------------------- ---------------------- ---------------------- AVERAGE AVERAGE AVERAGE CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL ---------- ------- ---------- ------- ---------- ------- FISCAL YEAR TO DATE 37.50% -- 32.42% -- 27.06% -- ONE YEAR 49.51 49.51 45.41 45.41 42.01 42.01 SINCE INCEPTION* -19.23 -4.25 -3.00 -0.62 -16.15 -3.52
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. - -------------------------------------------------------------------------------- RETURNS AND PER SHARE INFORMATION [GRAPH]
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, 1994 1995 1996 1997 1998 1999 ------ ------ ------ ------ ------ ------ Net Asset Value Per Share. . . $ 13.20 $ 14.34 $ 11.95 $ 8.77 $ 8.73 $ 11.56 Market Value Per Share . . . . $ 12.25 $ 13.33 $ 9.75 $ 7.44 $ 7.00 $ 9.63 Premium/(Discount) . . . . . . -7.2% -7.0% -18.4% -15.2% -19.8% -16.7% 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% 32.42% Index Total Return (3) . . . . -5.24% 2.88% -3.63% -29.55% -0.30% 27.06%
(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 comprised of two Morgan Stanley Capital International (MSCI) indices; Japan and All- Country Asia-Pacific Free ex-Japan with each index weighted equally. * 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. 6 Morgan Stanley Dean Witter Asia-Pacific Fund, Inc. Investment Summary as of June 30, 1999 (Unaudited) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DIVERSIFICATION OF TOTAL INVESTMENTS [PIE CHART] Equity Securities (97.7%) Short-Term Investment (2.1%) Fixed Income Securities (0.2%)
- -------------------------------------------------------------------------------- SECTORS [PIE CHART] Appliances & Household Durables (4.7%) Banking (6.7%) Data Processing & Reproduction (5.4%) Electric & Electronics (9.3%) Electronic Components, Instruments (5.4%) Health & Personal Care (4.1%) Machinery & Engineering (4.8%) Real Estate (5.0%) Recreation, Other Consumer Goods (4.2%) Telecommunications (5.7%) Other (44.7%)
- -------------------------------------------------------------------------------- TEN LARGEST HOLDINGS*
PERCENT OF NET ASSETS ---------- 1. Nintendo Co., Ltd. (Japan) 2.3% 2. Hutchison Whampoa Ltd. (Hong Kong) 2.1 3. Fujitsu Ltd. (Japan) 2.0 4. Sony Corp. (Japan) 1.9 5. Korea Telecom Corp. (South Korea) 1.8 6. Hitachi Ltd. (Japan) 1.7 7. Toshiba Corp. (Japan) 1.7 8. NEC Corp. (Japan) 1.6 9. Ricoh Co. Ltd. (Japan) 1.6 10. Sun Hung Kai Properties Ltd. (Japan) 1.5 ---- 18.2% ---- ----
* Excludes short-term investments. 7 FINANCIAL STATEMENTS - --------- STATEMENT OF NET ASSETS (UNAUDITED) - --------- JUNE 30, 1999
VALUE SHARES (000) - -------------------------------------------------------------------------------- COMMON STOCKS (96.1%) (Unless otherwise noted) - -------------------------------------------------------------------------------- AUSTRALIA (9.8%) BANKING National Australia Bank Ltd. 629,400 U.S.$ 10,376 Westpac Banking Corp., Ltd. 1,160,650 7,500 --------------- 17,876 --------------- BEVERAGES & TOBACCO Foster's Brewing Group Ltd. 1,540,700 4,326 --------------- BROADCASTING & PUBLISHING News Corp., Ltd. 945,000 8,032 --------------- BUSINESS & PUBLIC SERVICES Brambles Industries Ltd. 163,900 4,301 --------------- ENERGY SOURCES (a) AAPT Ltd. 45,400 141 Broken Hill Proprietary Co. Ltd. 577,950 6,669 --------------- 6,810 --------------- GOLD MINES Normandy Mining Ltd. 1,977,700 1,312 --------------- MISC. MATERIALS & COMMODITIES Rio Tinto Ltd. 593,650 9,697 --------------- REAL ESTATE Lend Lease Corp., Ltd. 316,800 4,333 --------------- TELECOMMUNICATIONS Cable & Wireless Optus Ltd. 800,600 1,816 Telstra Corp., Ltd. 1,691,000 9,653 --------------- 11,469 --------------- TRANSPORTATION -- AIRLINES Airways Ltd. 795,300 2,617 --------------- 70,773 --------------- - ------------------------------------------------------------------------------ CHINA (0.4%) ENERGY SOURCES Yanzhou Mining Co. Ltd. 3,769,600 1,348 --------------- HEALTH & PERSONAL CARE Hengan International Group Co. Ltd. 3,199,000 1,619 --------------- 2,967 --------------- - ------------------------------------------------------------------------------- HONG KONG (10.7%) BANKING Dao Heng Bank Group Ltd. 690,000 3,095 --------------- BROADCASTING & PUBLISHING Television Broadcasts Ltd. 880,000 4,129 --------------- BUSINESS & PUBLIC SERVICES Florens Group Ltd. 1,013,300 842 --------------- CONSTRUCTION & HOUSING Kerry Properties Ltd. 542,000 716 --------------- ELECTRICAL & ELECTRONICS Johnson Electric Holdings Ltd. 228,000 940 --------------- INSURANCE Axa China Region Ltd. 787,900 630 --------------- MACHINERY & ENGINEERING (a) Shandong International Power Development Co. Ltd. 'H' 616,000 139 --------------- - ------------------------------------------------------------------------------- VALUE SHARES (000) - ------------------------------------------------------------------------------- MULTI-INDUSTRY Citic Pacific Ltd. 652,500 U.S.$ 2,081 Hutchison Whampoa Ltd. 1,709,500 15,479 Swire Pacific Ltd. 'A' 619,600 3,067 --------------- 20,627 --------------- REAL ESTATE Cheung Kong (Holdings) Ltd. 1,118,000 9,943 New World Development Co. Ltd. 716,000 2,146 Sun Hung Kai Properties Ltd. 1,203,000 10,970 --------------- 23,059 --------------- TELECOMMUNICATIONS -- INTEGRATED Asia Satellite Telecom Holdings 151,000 355 Hong Kong Telecommunications Ltd. 3,742,900 9,721 --------------- 10,076 --------------- TELECOMMUNICATIONS -- WIRELESS China Telecom Ltd. 756,000 2,100 --------------- TELECOMMUNICATIONS Smartone Telecommunications 1,101,000 3,917 --------------- TRANSPORTATION -- AIRLINES Cathay Pacific Airways 1,657,000 2,542 --------------- Utilities -- Electrical & Gas CLP Holdings Ltd. 394,000 1,915 --------------- WHOLESALE & INTERNATIONAL TRADE Li & Fung Ltd. 1,236,000 2,963 --------------- 77,690 --------------- - ------------------------------------------------------------------------------- INDIA (4.2%) AUTOMOBILES Escorts Ltd. 801 1 Hero Honda Ltd. 96,556 2,403 --------------- 2,404 --------------- BANKING (a) State Bank of India Ltd. 1,112 6 --------------- BEVERAGES & TOBACCO ITC Ltd. 70,455 1,778 --------------- Broadcasting & Publishing (a) Zee Telefilms Ltd. 20,000 670 --------------- BUILDING MATERIALS & COMPONENTS Associated Cement Co., Ltd. 8,700 34 --------------- DATA PROCESSING & REPRODUCTION Aptech Ltd. 22,200 366 Leading Edge Systems Ltd. 34,200 231 NIIT Ltd. 26,000 1,218 Satyam Computer Services Ltd. 40,000 1,168 --------------- 2,983 --------------- ELECTRICAL & ELECTRONICS Bharat Heavy Electricals Ltd. 550,200 3,118 Digital Equipment (India) Ltd. 109,100 1,075 Tata Infotech Ltd. 37,350 916 --------------- 5,109 --------------- ELECTRONIC COMPONENTS, INSTRUMENTS Infosys Technology Ltd. 43,150 3,605 --------------- - -------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 8
VALUE SHARES (000) - ------------------------------------------------------------------------------- INDIA (Continued) FINANCIAL SERVICES Housing Development Finance Corp., Ltd. 37,541 U.S.$ 1,922 ICICI Ltd. - New 765,000 1,295 --------------- 3,217 --------------- HEALTH & PERSONAL CARE Reckitt & Coleman of India Ltd. 750 8 --------------- INDUSTRIAL COMPONENTS (a) Apollo Tyres Ltd. 7,175 11 --------------- MACHINERY & ENGINEERING Punjab Tractors Ltd. 80,900 2,470 --------------- METALS -- STEEL Tata Iron & Steel Co., Ltd. 2,206 7 --------------- MULTI-INDUSTRY (c) Morgan Stanley Growth Fund 26,049,150 4,321 --------------- TELECOMMUNICATIONS Videsh Sanchar Nigam Ltd. 15,055 317 Videsh Sanchar Nigam Ltd. 39,400 830 --------------- 1,147 --------------- TRANSPORTATION -- ROAD & RAIL Container Corp. of India Ltd. 563,900 2,364 --------------- 30,134 --------------- - ------------------------------------------------------------------------------- INDONESIA (1.5%) BEVERAGES & TOBACCO Gudang Garam 2,267,500 6,159 --------------- BUILDING MATERIALS & COMPONENTS Semen Gresik 568,000 1,237 --------------- FOOD & HOUSEHOLD PRODUCTS Unilever Indonesia 149,000 866 --------------- TELECOMMUNICATIONS -- INTEGRATED Telekomunikasi Indonesia ADR 238,356 2,965 --------------- 11,227 - ------------------------------------------------------------------------------- JAPAN (47.8%) APPLIANCES & HOUSEHOLD DURABLES Matsushita Electric Industrial Co., Ltd. 530,000 10,304 Sony Corp. 130,000 14,036 --------------- 24,340 --------------- AUTOMOBILES Nifco, Inc. 350,000 3,368 Nissan Motor Co. 1,470,000 7,029 Suzuki Motor Co., Ltd. 470,000 7,485 Toyota Motor Corp. 230,000 7,288 --------------- 25,170 --------------- BROADCASTING & PUBLISHING Nissha Printing Co., Ltd. 105,000 764 BUILDING MATERIALS & COMPONENTS Fujitec Co., Ltd. 460,000 4,365 Rinnai Corp. 160,700 3,696 Sanwa Shutter Corp., Ltd. 582,000 3,159 Sekisui Chemical Co. 563,000 3,270 --------------- 14,490 --------------- Value Shares (000) - ------------------------------------------------------------------------------- BUSINESS & PUBLIC SERVICES Dai Nippon Printing Co., Ltd. 298,000 U.S.$ 4,771 --------------- CHEMICALS Daicel Chemical Industries Ltd. 1,190,000 4,381 Kaneka Corp. 939,000 8,856 Mitsubishi Chemical Industries 1,160,000 4,021 Nippon Pillar Packing Co. 99,000 631 Shin-Etsu Polymer Co., Ltd. 320,000 1,798 --------------- 19,687 --------------- CONSTRUCTION & HOUSING Kyudenko Co., Ltd. 380,000 2,176 Sekisui House Ltd. 495,000 5,348 --------------- 7,524 --------------- DATA PROCESSING & REPRODUCTION Canon, Inc. 362,000 10,423 Fujitsu Ltd. 710,000 14,303 Ricoh Co. Ltd. 816,000 11,247 --------------- 35,973 --------------- ELECTRICAL & ELECTRONICS Hitachi Ltd. 1,285,000 12,067 Minebea Co., Ltd. 460,000 5,138 Mitsumi Electric Co., Ltd. 353,000 9,871 NEC Corp. 920,000 11,455 Toshiba Corp. 1,675,000 11,959 --------------- 50,490 --------------- ELECTRONIC COMPONENTS, INSTRUMENTS Kyocera Corp. 118,000 6,931 Rohm Co., Ltd. 34,000 5,331 Ryosan Co., Ltd. 103,000 2,045 TDK Corp. 103,000 9,433 --------------- 23,740 --------------- ENERGY EQUIPMENT & SERVICES Kurita Water Industries Ltd. 304,000 5,458 FINANCIAL SERVICES Hitachi Credit Corp. 293,000 5,806 FOOD & HOUSEHOLD PRODUCTS Aiwa Co., Ltd. 85,000 2,813 Sangetsu Co., Ltd. 137,000 2,919 Yamaha Corp. 299,000 3,599 --------------- 9,331 --------------- HEALTH & PERSONAL CARE Ono Pharmaceutical Co., Ltd. 210,000 7,297 Sankyo Co., Ltd. 378,000 9,538 Yamanouchi Pharmaceutical Co., Ltd. 270,000 10,343 --------------- 27,178 --------------- INDUSTRIAL COMPONENTS Furakawa Electric Co. 983,000 4,514 --------------- MACHINERY & ENGINEERING Amada Co., Ltd. 692,000 4,895 Daifuku Co., Ltd. 626,000 4,376 Daikin Kogyo Co. 603,000 7,009 Fuji Machine Co. 243,000 7,499 Mitsubishi Heavy Industries Ltd. 1,300,000 5,281 - -------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 9
VALUE SHARES (000) - ------------------------------------------------------------------------------- JAPAN (CONTINUED) MACHINERY & ENGINEERING (CONTINUED) Tsubakimoto Chain Co. 872,000 U.S.$ 3,110 --------------- 32,170 --------------- MERCHANDISING Family Mart Co., Ltd. 97,200 4,463 --------------- MULTI-INDUSTRY Lintec Corp. 235,000 2,368 --------------- REAL ESTATE Keihanshin Real Estate Co. 64,000 617 Mitsubishi Estate Co. Ltd. 415,000 4,055 --------------- 4,672 --------------- RECREATION, OTHER CONSUMER GOODS Casio Computer Co., Ltd. 522,000 3,973 Fuji Photo Film Ltd. 252,000 9,549 Nintendo Co., Ltd. 120,000 16,888 --------------- 30,410 --------------- TELECOMMUNICATIONS Nippon Telephone & Telegraph Corp. 932 10,872 --------------- WHOLESALE & INTERNATIONAL TRADE Inabata & Co. 296,000 1,232 --------------- 345,423 --------------- - ------------------------------------------------------------------------------- MALAYSIA (2.8%) BANKING Commerce Asset Holding Bhd 699,000 1,729 Malayan Banking Bhd 666,000 1,998 Public Bank Bhd 1,375,000 1,046 --------------- 4,773 --------------- BEVERAGES & TOBACCO Carlsberg Brewery (Malaysia) Bhd 1,380,000 3,922 Rothmans of Pall Mall Bhd 705,000 5,334 --------------- 9,256 --------------- FOOD & HOUSEHOLD PRODUCTS Nestle Bhd 953,000 3,762 --------------- MULTI-INDUSTRY Sime Darby Bhd 4,000 5 --------------- TELECOMMUNICATIONS - INTEGRATED Telekom Malaysia Bhd 653,000 2,440 --------------- 20,236 --------------- - ------------------------------------------------------------------------------- NEW ZEALAND (0.9%) TELECOMMUNICATIONS Telecom Corp. of New Zealand Ltd. 1,264,100 5,428 --------------- TRANSPORTATION - AIRLINES Air New Zealand Ltd. 'B' 505,000 1,044 --------------- 6,472 --------------- - ------------------------------------------------------------------------------- PAKISTAN (0.9%) BANKING Askari Bank 50,445 11 --------------- FOOD & HOUSEHOLD PRODUCTS Lever Brothers Pakistan Ltd. 235,580 3,480 --------------- - ------------------------------------------------------------------------------- Value Shares (000) ------------------------------------------------------------------------------ TELECOMMUNICATIONS - INTEGRATED Pakistan Telecommunications Co., Ltd. 7,628,500 U.S.$ 2,886 ---------------- UTILITIES - ELECTRICAL & GAS (a) Hub Power Co., Ltd. 1,740,000 468 ---------------- 6,845 ---------------- ------------------------------------------------------------------------------ PHILIPPINES (1.3%) BANKING (a) Philippine National Bank 230,000 624 ---------------- BEVERAGES & TOBACCO (a) LA Tondena Distillers, Inc. 1,127,300 1,336 San Miguel Corp. 'B' 980,320 2,142 ---------------- 3,478 ---------------- REAL ESTATE Ayala Land, Inc. 'B' 1 -@ SM Prime Holdings, Inc. 'B' 8,646,180 1,958 ---------------- 1,958 ---------------- TELECOMMUNICATIONS - INTEGRATED Philippine Long Distance Telephone Co. 54,730 1,672 ---------------- UTILITIES - ELECTRICAL & GAS Manila Electric Co. 'B' 394,650 1,424 ---------------- 9,156 ---------------- ------------------------------------------------------------------------------ SINGAPORE (3.2%) AEROSPACE & MILITARY TECHNOLOGY Singapore Technologies Engineering Ltd. 872,000 988 ---------------- BANKING City Developments Ltd. 366,000 2,344 Oversea-Chinese Banking Corp., Ltd. 402,000 3,353 (Foreign) Overseas Union Bank Ltd. 'F' 209,000 1,007 United Overseas Bank Ltd. (Foreign) 286,000 1,999 ---------------- 8,703 ---------------- BEVERAGES & TOBACCO Rothmans Industries Ltd. 160,000 1,344 ---------------- BROADCASTING & PUBLISHING Singapore Press Holdings Ltd. 238,600 4,065 ---------------- ELECTRICAL & ELECTRONICS Natsteel Electronics Ltd. 667,000 2,919 ---------------- ELECTRONIC COMPONENTS, INSTRUMENTS Venture Manufacturing Ltd. 414,000 3,186 ---------------- HEALTH & PERSONAL CARE Parkway Holdings 310,000 765 ---------------- TRANSPORTATION - SHIPPING Sembcorp Logistics Ltd. 335,200 1,319 ---------------- 23,289 ---------------- ------------------------------------------------------------------------------ SOUTH KOREA (8.7%) APPLIANCES & HOUSEHOLD DURABLES Samsung Electronics 85,797 9,414 ---------------- ------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 10
VALUE SHARES (000) ------------------------------------------------------------------------------ SOUTH KOREA (Continued) BANKING Hana Bank 90,870 U.S.$ 1,335 Housing & Commercial Bank 87,250 2,751 Housing & Commercial Bank, Korea GDR 7,400 229 Kookmin Bank 56,830 1,154 Kookmin Bank GDR 29,500 600 Koram Bank 76,580 959 Korea Exchange Bank 249,760 1,403 ---------------- 8,431 ---------------- CHEMICALS Korea Chemical Co. Ltd. 16,510 1,483 L.G. Chemical Ltd. 39,040 1,063 ---------------- 2,546 ---------------- ELECTRICAL & ELECTRONICS LG Electronics 58,170 1,608 ---------------- ELECTRONIC COMPONENTS, INSTRUMENTS Samsung Electro-Mechanics Co. 74,889 2,588 ---------------- ENERGY SOURCES Yukong Ltd. (Foreign) 60,518 1,741 ---------------- FINANCIAL SERVICES Daewoo Securities Co. 32,260 627 Good Morning Securities Co. Ltd. 112,940 698 ---------------- 1,325 ---------------- INSURANCE Samsung Fire & Marine Insurance Co. 4,460 3,140 ---------------- METALS - STEEL Pohang Iron & Steel Ltd. ADR 186,600 6,274 ---------------- MISC. MATERIALS & COMMODITIES Hankuk Glass Industry Co., Ltd. 28,020 750 ---------------- TELECOMMUNICATIONS - INTEGRATED Korea Telecom Corp. 71,440 4,740 (a) Korea Telecom Corp. ADR 202,600 8,104 ---------------- 12,844 ---------------- TELECOMMUNICATIONS - WIRELESS (b) SK Telecom Co., Ltd. 2,160 2,965 ---------------- UTILITIES - ELECTRICAL & GAS Korea Electric Power Corp. ADR 453,900 9,305 ---------------- 62,931 ---------------- - ------------------------------------------------------------------------------- SRI LANKA (0.1%) INDUSTRIAL COMPONENTS Lanka Lubricants Ltd. 590,300 478 ---------------- - ------------------------------------------------------------------------------- TAIWAN (2.0%) BANKING International Commercial Bank of China 545,000 705 (a) Taishin International Bank 985,000 732 ---------------- 1,437 ---------------- CHEMICALS Nan Ya Plastic Corp. 639,000 1,058 ---------------- ------------------------------------------------------------------------------ VALUE SHARES (000) - ------------------------------------------------------------------------------- ELECTRICAL & ELECTRONICS (a) Siliconware Precision Industries Co. 372,000 U.S.$ 708 (a) Taiwan Semiconductor Manufacturing Co. Ltd. ADR 105,300 3,580 ---------------- 4,288 ---------------- ELECTRONIC COMPONENTS, INSTRUMENTS Asustek Computer Inc. GDR 190,240 2,744 Compal Electronics 203,000 798 (a) Compeq Manufacturing Co., Ltd. 141,000 825 (a) Hon Hai Precision Industry 139,000 1,257 ---------------- 5,624 ---------------- METALS - STEEL China Steel Corp. 859,000 649 ---------------- TEXTILES & APPAREL (a) Far East Textile 697,000 1,036 TRANSPORTATION - SHIPPING Evergreen Marine Corp. 557,000 697 ---------------- 14,789 ---------------- - ------------------------------------------------------------------------------- THAILAND (1.8%) BANKING (a) Siam Commercial Bank Public Co. Ltd. (Preferred) 285,200 406 Thai Farmers Bank Ltd. (Foreign) 347,100 1,073 ---------------- 1,479 ---------------- BROADCASTING & PUBLISHING BEC World Public Co., Ltd. (Foreign) 316,000 1,970 ---------------- BUILDING MATERIALS & COMPONENTS Siam Cement Public Co. Ltd. (Foreign) 43,000 1,306 Siam City Cement Public Co., Ltd. (Foreign) 251,933 1,038 ---------------- 2,344 ---------------- ELECTRICAL & ELECTRONICS Delta Electronics Public Co., Ltd. (Foreign) 183,015 1,538 Shinawatra Computer Public Co., Ltd. (Foreign) 111,000 518 ---------------- 2,056 ---------------- REAL ESTATE Golden Land Property Development Public Co., Ltd. 3,555,300 2,097 ---------------- TELECOMMUNICATIONS - WIRELESS Advanced Info. Services Public Co., Ltd. (Foreign) 207,400 2,811 ---------------- 12,757 ---------------- - ------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost U.S.$597,886) 695,167 ---------------- - -------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 11
NO. OF VALUE RIGHTS (000) - ------------------------------------------------------------------------------- RIGHTS (0.0%) ------------------------------------------------------------------------------ INDIA BUILDING MATERIALS & COMPONENTS (a,b) Associated Cement Co. 8,700 U.S.$ 11 ---------------- ------------------------------------------------------------------------------ SOUTH KOREA TELECOMMUNICATIONS - WIRELESS (a,b) SK Telecom Co., Ltd. ADR 2,160 271 ---------------- ------------------------------------------------------------------------------ TOTAL RIGHTS (Cost U.S.$-) 282 ---------------- ------------------------------------------------------------------------------ NO. OF WARRANTS ------------------------------------------------------------------------------ WARRANTS (1.1%) ------------------------------------------------------------------------------ HONG KONG (0.1%) BANKING (a) HSBC Holdings plc, expiring 10/13/99 1,334,000 671 ---------------- - ------------------------------------------------------------------------------- SINGAPORE (0.9%) TRANSPORTATION - AIRLINES (a) Singapore Airlines Ltd., expiring 4/9/02 7,171,000 6,403 ---------------- - ------------------------------------------------------------------------------- THAILAND (0.1%) BANKING (a) Siam Commercial Bank Public Co. Ltd., expiring 5/10/02 1,727,300 1,112 ---------------- ------------------------------------------------------------------------------ TOTAL WARRANTS (Cost U.S.$4,958) 8,186 ---------------- ------------------------------------------------------------------------------ FACE AMOUNT (000) ------------------------------------------------------------------------------ FIXED INCOME SECURITIES (0.2%) ------------------------------------------------------------------------------ SINGAPORE (0.2%) FINANCIAL SERVICES Finlayson Global Corp., Ltd. 0.00%, 2/19/04 (Cost U.S.$1,150) U.S.$ 1,150 1,736 ---------------- - ------------------------------------------------------------------------------- FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS (1.3%) ------------------------------------------------------------------------------ REPURCHASE AGREEMENT Chase Securities, Inc. 4.55%, dated 6/30/99, due 7/1/99, to be repurchased at U.S.$9,032, collateralized by U.S.$9,935 Federal National Mortgage Association, 5.25%, due 1/15/09, valued at U.S.$9,352 (Cost U.S.$9,031) U.S.$ 9,031 U.S.$ 9,031 ---------------- - ------------------------------------------------------------------------------- FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.9%) Hong Kong Dollar HKD 2,751 355 Indian Rupee INR 85,216 1,963 Japanese Yen JPY 13,195 109 Malaysian Ringgit MYR 17 5 Pakistani Rupee PKR 126 2 Singapore Dollar SGD 18 11 Sri Lankan Rupee LKR 158 2 Taiwan Dollar TWD 117,940 3,651 Thai Baht THB 904 25 ---------------- (Cost U.S.$6,129) 6,123 ---------------- - ------------------------------------------------------------------------------- TOTAL INVESTMENTS (99.6%) (Cost $619,154) 720,525 ---------------- - -------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 12
Amount Amount (000) (000) - ------------------------------------------------------------------------------- OTHER ASSETS (1.7%) Cash U.S.$ 4 Receivable for Investments Sold 10,781 Dividends Receivable 1,864 Foreign Withholding Tax Reclaim Receivable 48 Receivable Due from Investment Advisor 5 Deferred Organization Costs 1 Interest Receivable 1 Other Assets 111 U.S.$ 12,815 ---------------- ---------------- - ------------------------------------------------------------------------------- LIABILITIES (-1.3%) Deferred Country Taxes (1,483) Payable For: Investments Purchased (6,496) Investment Advisory Fees (576) Fund Shares Repurchased (643) Custodian Fees (320) Professional Fees (155) Shareholder Reporting Expenses (122) Directors' Fees and Expenses (99) Administrative Fees (60) Other Liabilities (265) (8,736) ---------------- ---------------- NET ASSETS (100%) Applicable to 62,546,174, issued and outstanding U.S.$0.01 par value shares (100,000,000 shares authorized) U.S.$ 723,121 ---------------- - ------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE U.S.$ 11.56 ---------------- - ------------------------------------------------------------------------------- AT JUNE 30, 1999, NET ASSETS CONSISTED OF: Common Stock U.S.$ 625 Capital Surplus 855,980 Undistributed Net Investment Income 169 Accumulated Net Realized Loss (233,467) Unrealized Appreciation on Investments and Foreign Currency Translations 99,814 - ------------------------------------------------------------------------------- TOTAL NET ASSETS U.S.$ 723,121 - ------------------------------------------------------------------------------- (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. - ------------------------------------------------------------------------------- JUNE 30, 1999 EXCHANGE RATES: - ------------------------------------------------------------------------------- HKD Hong Kong Dollar 7.758 = U.S. $ 1.00 INR Indian Rupee 43.405 = U.S. $ 1.00 JPY Japanese Yen 120.870 = U.S. $ 1.00 MYR Malaysian Ringgit 3.800 = U.S. $ 1.00 PKR Pakistani Rupee 52.467 = U.S. $ 1.00 SGD Singapore Dollar 1.702 = U.S. $ 1.00 LKR Sri Lankan Rupee 71.550 = U.S. $ 1.00 TWD Taiwan Dollar 32.300 = U.S. $ 1.00 THB Thai Baht 36.885 = U.S. $ 1.00 - -------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 13 SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY CLASSIFICATION - JUNE 30, 1999 (Unaudited)
PERCENT VALUE OF NET INDUSTRY (000) ASSETS - ----------------------------------------------------------------- Aerospace & Military Technology U.S.$ 988 0.1% Appliances & Household Durables 33,754 4.7 Automobiles 27,574 3.8 Banking 48,218 6.7 Beverages & Tobacco 26,341 3.6 Broadcasting & Publishing 19,630 2.7 Building Materials & Components 18,116 2.5 Business & Public Services 9,914 1.4 Chemicals 23,291 3.2 Construction & Housing 8,240 1.1 Data Processing & Reproduction 38,956 5.4 Electrical & Electronics 67,410 9.3 Electronic Components, Instruments 38,743 5.4 Energy Equipment & Services 5,458 0.7 Energy Sources 9,899 1.4 Financial Services 12,084 1.7 Food & Household Products 17,439 2.4 Gold Mines 1,312 0.2 Health & Personal Care 29,570 4.1 Industrial Components 5,003 0.7 Insurance 3,770 0.5 Machinery & Engineering 34,779 4.8 Merchandising 4,463 0.6 Metals -- Steel 6,930 1.0 Misc. Materials & Commodities 10,447 1.5 Multi-Industry 27,321 3.8 Real Estate 36,119 5.0 Recreation, Other Consumer Goods 30,410 4.2 Telecommunications - Integrated 32,883 4.6 Telecommunications - Wireless 8,147 1.1 Telecommunications 32,833 4.5 Textiles & Apparel 1,036 0.1 Transportation - Airlines 12,606 1.7 Transportation - Road & Rail 2,364 0.3 Transportation - Shipping 2,016 0.3 Utilities - Electrical & Gas 13,112 1.8 Wholesale & International Trade 4,195 0.6 Other 15,154 2.1 --------------- ---- U.S.$ 720,525 99.6% --------------- ---- --------------- ---- - -----------------------------------------------------------------
SUMMARY OF TOTAL INVESTMENTS BY COUNTRY - JUNE 30, 1999 (Unaudited)
PERCENT VALUE OF NET COUNTRY (000) ASSETS - --------------------------------------------------------------------- Australia U.S.$ 70,773 9.8 China 2,967 0.4 Hong Kong 78,361 10.8 India 30,145 4.2 Indonesia 11,227 1.5 Japan 345,423 47.8 Malaysia 20,236 2.8 New Zealand 6,472 0.9 Pakistan 6,845 0.9 Philippines 9,156 1.3 Singapore 31,428 4.3 South Korea 63,202 8.7 Sri Lanka 478 0.1 Taiwan 14,789 2.0 Thailand 13,869 1.9 United States (short-term investments) 9,031 1.3 Other 6,123 0.9 ------------------------------ U.S.$ 720,525 99.6% ------------------------------ ------------------------------ - -------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 14
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) STATEMENT OF OPERATIONS (000) - --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends ......................................................................................... U.S.$ 5,961 Interest .......................................................................................... 175 Less: Foreign Taxes Withheld ...................................................................... (538) - --------------------------------------------------------------------------------------------------------------------------------- Total Income .................................................................................... 5,598 - --------------------------------------------------------------------------------------------------------------------------------- EXPENSES Investment Advisory Fees .......................................................................... 3,113 Custodian Fees .................................................................................... 337 Administrative Fees ............................................................................... 321 Shareholder Reporting Expenses .................................................................... 88 Professional Fees ................................................................................. 83 Transfer Agent Fees ............................................................................... 28 Directors' Fees and Expenses ...................................................................... 64 Country Tax Expense ............................................................................... 3 Amortization of Organization Costs ................................................................ 6 Other Expenses .................................................................................... 19 - --------------------------------------------------------------------------------------------------------------------------------- Total Expenses .................................................................................. 4,062 - --------------------------------------------------------------------------------------------------------------------------------- Net Investment Income .......................................................................... 1,536 - --------------------------------------------------------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS) Investment Securities Sold ........................................................................ 21,539 Foreign Currency Transactions ..................................................................... 884 - --------------------------------------------------------------------------------------------------------------------------------- Net Realized Gain ............................................................................... 22,423 - --------------------------------------------------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION Appreciation on Investments ....................................................................... 152,555 Depreciation on Foreign Currency Translations ..................................................... (1,898) - --------------------------------------------------------------------------------------------------------------------------------- Change in Unrealized Appreciation/Depreciation .................................................. 150,657 - --------------------------------------------------------------------------------------------------------------------------------- Total Net Realized Gain and Change in Unrealized Appreciation/Depreciation ............................ 173,080 - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .............................................. U.S.$ 174,616 - --------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1999 YEAR ENDED (UNAUDITED) DECEMBER 31, 1998 STATEMENT OF CHANGES IN NET ASSETS (000) (000) - --------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS Operations: Net Investment Income .................................................................. U.S.$ 1,536 U.S.$ 4,614 Net Realized Gain (Loss) ............................................................... 22,423 (110,951) Change in Unrealized Appreciation/Depreciation ......................................... 150,657 94,939 - --------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations ........................ 174,616 (11,398) - --------------------------------------------------------------------------------------------------------------------------------- Distributions: In Excess of Net Investment Income ..................................................... -- (639) - --------------------------------------------------------------------------------------------------------------------------------- Capital Share Transactions: Repurchase of Shares (4,728,400 shares and 4,379,934 shares, respectively) ............. (38,651) (28,980) - --------------------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) .............................................................. 135,965 (41,017) Net Assets: Beginning of Period .................................................................... 587,156 628,173 - --------------------------------------------------------------------------------------------------------------------------------- End of Period (including undistributed net investment income (accumulated net investment loss) of U.S.$169 and U.S.$(1,367), respectively) ..................... 723,121 U.S.$ 587,156 - ---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 15 FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, SELECTED PER SHARE DATA 1999 --------------------------------- AND RATIOS: (UNAUDITED) 1998 1997 - ---------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD ..... U.S.$ 8.73 U.S.$ 8.77 U.S.$ 11.95 - ---------------------------------------------------------------------------------------------- Offering Costs ........................... -- -- -- - ---------------------------------------------------------------------------------------------- Net Investment Income .................... 0.02 0.06 0.03 Net Realized and Unrealized Gain (Loss) on Investments .................... 2.70 (0.17) (3.19) - ---------------------------------------------------------------------------------------------- Total from Investment Operations ..... 2.72 (0.11) (3.16) - ---------------------------------------------------------------------------------------------- Distributions: Net Investment Income .................. -- -- (0.02) In Excess of Net Investment Income ..... -- (0.01) -- In Excess of Net Realized Gain ......... -- -- -- - ---------------------------------------------------------------------------------------------- Total Distributions .................. -- (0.01) (0.02) - ---------------------------------------------------------------------------------------------- Decrease in Net Asset Value due to Shares Issued through Rights Offering ....................... -- -- -- Anti-Dilutive Effect of Shares Repurchased .................... 0.11 0.08 -- - ---------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD ........... U.S.$ 11.56 U.S.$ 8.73 U.S.$ 8.77 - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- PER SHARE MARKET VALUE, END OF PERIOD .... U.S.$ 9.63 U.S.$ 7.00 U.S.$ 7.44 - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN: Market Value ........................... 37.50% (5.77)% (23.46)% Net Asset Value (1) .................... 32.42% (0.34)% (26.36)% - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- RATIOS, SUPPLEMENTAL DATA: - ---------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (THOUSANDS) .... U.S.$723,121 U.S.$587,156 U.S.$628,173 - ---------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets .. 1.31%** 1.42% 1.34% Ratio of Net Investment Income to Average Net Assets ..................... 0.49%** 0.80% 0.25% Portfolio Turnover Rate .................. 35% 42% 66% - ---------------------------------------------------------------------------------------------- PERIOD FROM AUGUST 2, 1994* SELECTED PER SHARE DATA -------------------------------- TO AND RATIOS: 1996 1995 DECEMBER 31, 1994 - ------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD ..... U.S.$ 14.34 U.S.$ 13.20 U.S.$ 14.10 - ------------------------------------------------------------------------------------------------ Offering Costs ........................... (0.01) -- (0.03) - ------------------------------------------------------------------------------------------------ Net Investment Income .................... 0.02 0.05 0.05 Net Realized and Unrealized Gain (Loss) on Investments .................... (0.33) 1.16 (0.87) - ------------------------------------------------------------------------------------------------ Total from Investment Operations ..... (0.31) 1.21 (0.82) - ------------------------------------------------------------------------------------------------ Distributions: Net Investment Income .................. (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 .................. (0.61) (0.07) (0.05) - ------------------------------------------------------------------------------------------------ Decrease in Net Asset Value due to Shares Issued through Rights Offering ....................... (1.46) -- -- Anti-Dilutive Effect of Shares Repurchased .................... -- -- -- - ------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD ........... U.S.$ 11.95 U.S.$ 14.34 U.S.$ 13.20 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ PER SHARE MARKET VALUE, END OF PERIOD .... U.S.$ 9.75 U.S.$ 13.33 U.S.$ 12.25 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ TOTAL INVESTMENT RETURN: Market Value ........................... (14.72)%+ 9.38% (12.71)% Net Asset Value (1) .................... (2.87)%+ 9.24% (5.94)% - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ RATIOS, SUPPLEMENTAL DATA: - ------------------------------------------------------------------------------------------------ NET ASSETS, END OF PERIOD (THOUSANDS) .... U.S.$856,397 U.S.$769,414 U.S.$708,323 - ------------------------------------------------------------------------------------------------ Ratio of Expenses to Average Net Assets .. 1.39% 1.36% 1.31%** Ratio of Net Investment Income to Average Net Assets ..................... 0.16% 0.36% 0.89%** Portfolio Turnover Rate .................. 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. 16 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1999 - ---------- The Morgan Stanley Dean Witter Asia-Pacific Fund, Inc. (formerly 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. 17 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 that the Fund may utilize and their associated risks: 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 ("Structured Securities") backed by, or representing 18 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 serves as custodian for the Fund. Custody fees are payable monthly based on assets held in custody, investment purchase and sales activity and account maintenance fees, plus reimbursement for certain out-of-pocket expenses. E. During the six months ended June 30, 1999, the Fund made purchases and sales totaling $215,442,000 and $247,033,000, 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 June 30, 1999, the U.S. Federal income tax cost basis of securities was $613,025,000 and, accordingly, net unrealized appreciation was $101,377,000 of which $150,665,000 related to appreciated securities and $49,288,000 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. F. For the six months ended June 30, 1999, the Fund incurred $216,000 of brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliate of the Adviser. 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 19 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 June 30, 1999 totaled $93,000 and are included in Payable for Directors' Fees and Expenses on the Statement of Net Assets. J. On January 23, 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. For the six months ended June 30, 1999, the Fund repurchased 4,728,400 shares of its Common Stock at an average price per share of $8.12 and an average discount of 15.76% 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. K. Supplemental Proxy Information The Annual Meeting of the Stockholders of the Morgan Stanley Asia-Pacific Fund, Inc. was held on June 21, 1999. The following is a summary of each proposal presented and the total number of shares voted:
VOTES IN VOTES AUTHORITY VOTES PROPOSAL: FAVOR OF AGAINST WITHHELD ABSTAINED - -------- -------- ------- -------- --------- 1. To elect the following Directors: Peter J. Chase ................46,201,182 -- 491,019 -- David B. Gill .................46,201,165 -- 491,036 -- Michael F. Klein ..............46,200,984 -- 491,217 -- 2. To ratify the selection of PricewaterhouseCoopers LLP as independent accountants of the Fund ..........................46,421,012 147,584 -- 123,608 3. To approve an amendment to the Fund's Articles of Incorporation to change the name of the fund to Morgan Stanley Dean Witter Asia-Pacific Fund, Inc. ........46,164,672 385,004 -- 142,528
20 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. 21 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 Dean Witter 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 -----END PRIVACY-ENHANCED MESSAGE-----