<PAGE>
MORGAN STANLEY ASIA-PACIFIC FUND, INC.
- ---------------------------------------------
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS Frederick B. Whittemore
Warren J. Olsen DIRECTOR
PRESIDENT AND DIRECTOR James W. Grisham
Peter J. Chase VICE PRESIDENT
DIRECTOR Harold J. Schaaff, Jr.
John W. Croghan VICE PRESIDENT
DIRECTOR Joseph P. Stadler
David B. Gill VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
Graham E. Jones SECRETARY
DIRECTOR James R. Rooney
John A. Levin TREASURER
DIRECTOR Joanna M. Haigney
ASSISTANT TREASURER
</TABLE>
- ---------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank, N.A.
73 Tremont Street
Boston, Massachusetts 02108
- --------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company (International)
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank, N.A. (Domestic)
770 Broadway
New York, New York 10003
- --------------------------------------------------------
SHAREHOLDER SERVICING AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(800) 278-4353
- --------------------------------------------------------
LEGAL COUNSEL
Rogers & Wells
200 Park Avenue
New York, New York 10166
- --------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
- --------------------------------------------------------
For additional Fund information, including the Fund's net asset value per share
and information regarding the investments comprising the Fund's portfolio,
please call 1-800-221-6726.
------------------------
MORGAN STANLEY
ASIA-PACIFIC
FUND, INC.
---------------------
ANNUAL REPORT
DECEMBER 31, 1995
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the year ended December 31, 1995, the Morgan Stanley Asia-Pacific Fund, Inc.
had a total return, based on net asset value per share (assuming reinvestment of
dividend distributions), of 9.24% compared to its benchmark (as defined
following) of 0.87%. (The benchmark for investment performance is the weighted
average of the percentage change month-on-month of each of four Morgan Stanley
Capital International (MSCI) indices; Japan, Combined Asia Free ex-Japan,
Australia, and New Zealand, where the weights are based on the respective market
capitalizations of these indices at the beginning of the month.)
JAPAN
During 1995, the Japanese equity market fluctuated greatly, beginning the
first six months with a rapid decline then recovering in the latter half of the
year with a remarkable rally to end the year almost flat. The first half was
marked by unexpected events such as the Mexican peso crisis, the Great Hanshin
Earthquake, bankruptcy of Barings, Sarin subway gas attacks and the
unprecedented rise of the yen. Sentiment was greatly affected by the
above-mentioned factors and equity market participants questioned Japan's anemic
economic recovery with the relentless strength of the yen.
The second half of 1995 saw a reversal of the currency, the Japanese authorities
seriously addressing structural reforms as well as a technical rebound from
extremely oversold conditions. The greatest impact on the market, in our
opinion, was the coordinated currency intervention which occurred from May 31 by
the 12 major countries.
In September, Japan cut the ODR to 0.5% (lowest on record and among G-7 nations)
and an additional $140 billion stimulus package was announced, while the Bank of
Japan increased base money dramatically to 7.7% in November. Additionally, the
MOF deregulated overseas investments by Japanese life insurance companies. The
result of the actions by Japan as well as the massive currency intervention were
reflected in the move from Y80 to Y100 by the end of September.
The stock market, after hitting its lows in July, staged a powerful rally, led
by electronic companies and international blue-chip issues. Towards the end of
the year, the Daiwa Bank Scandal and the Japan premium associated with the
banking sector caused the market to consolidate the rapid gains from mid-summer.
In December, some solutions to the "Jusen's" non-performing loans, including the
use of public funds, were
put forth to the Diet, causing a year-end short squeeze in the depressed bank
shares. Thus, in 1995 the stock market was shaped like a classic "V" ending
approximately at the same level as it began.
We believe that the yen, stable to weakening over the second half of the year,
had a material positive impact on corporate Japan and that private capital
expenditure will recover after being flat for the last four years. Private
consumption is already showing signs of improvement and we believe real GDP will
increase 2.5% or more in fiscal year 1996, higher than most consensus estimates.
Moreover, corporate profits should accelerate quarter over quarter and the stock
market should also rise in anticipation of these earnings gains. Also,
allocation of foreign pension funds to Japanese equities will likely increase
while individual investors in Japan will return to the equity market in the
current low interest rate environment.
ASIA EX-JAPAN
The Asian markets as represented by the MSCI Combined Far East Free ex-Japan
Index increased by a moderate 6.8% in 1995, which was largely an extension of
the correction and consolidation that took place since early 1994 when the
liquidity bubble was pricked. The performance, however, paled in comparison with
the developed markets, many of which achieved double-digit market appreciation
of between 15%-35% in 1995. With the exception of Hong Kong which rose 18%, the
Asian markets generally did not benefit from a more benign external economic
environment which led to a surge in bond and equity prices in many parts of the
world. Portfolio investment flows into Asia in 1995 were down significantly from
the 1993/94 level, as funds were attracted to the developed markets led by the
U.S. where unexpectedly weak economies and low inflation resulted in significant
declines in interest rates. Investors had also largely avoided emerging markets
following the Mexico crisis which led to a higher risk premium being attached to
countries with weak economic fundamentals.
Hong Kong (+18.2%) emerged as the best performing market in Asia as a result of
its currency peg which benefited directly from the U.S. monetary easing.
Singapore also performed strongly (+11.0%) because of its strong economic
fundamentals and relative valuation attractions. Concerns over overheating,
higher inflation and growing external deficits after several years of strong GDP
growth had put upward pressure on interest rates in some Asian markets such as
Thailand, the Philippines and Malaysia. The subsequent downgrading of earnings
growth forecasts caused a
2
<PAGE>
sell-off in these markets and resulted in their underperformance. The Taiwanese
and Korean markets benefited strongly from a boom in sales of semiconductors,
electronics and computer-related products. However, these positive factors were
overwhelmed by political concerns which caused stock prices to plummet. Taiwan
(-30.2%) was one of the worst performing markets in the world last year as
tensions between China and Taiwan escalated following Taiwanese President Lee
Teng Hui's high-profile visit to the U.S.
OUTLOOK FOR 1996
1996 has gotten off to an encouraging start, with many Asian markets
recovering strongly from their low levels seen in 1995. The rally was to a large
extent triggered by the return of foreign funds. According to Salomon Brothers,
U.S. mutual fund cash flows into non-Japan Asia for the first 3 weeks of 1996
have already exceeded the total inflow for the whole of 1995.
We expect the Asian markets to revert to their secular growth rate of between
15%-20% in 1996 after two years of correction and below trend performance. While
a moderate slowdown in economic growth is expected in 1996 (from 7.5% to 7.1%),
the Asian economies are generally in better shape than they were last year. With
cyclical pressure beginning to unwind in many Asian countries, inflation should
ease from an estimated 7% in 1995 to slightly below 6% in 1996. This should give
rise to less restrictive monetary policies and make interest rate cuts possible.
While lower U.S. interest rates will support liquidity flows into Asia,
attractive equity valuations should lend further credence to the Asian story.
Politics is likely to be the major concern for 1996. Tensions between China and
Taiwan could build up again ahead of Taiwan's first ever presidential election
in March, although the prospect for a major military confrontation seems remote.
In South Korea, uncertainties ahead of the National Assembly elections scheduled
for April do not augur well for the stock market.
As the largest and most liquid Asian market with modest equity valuation, we
expect Hong Kong to continue to do well in 1996. The market is underpinned by a
favorable interest rate trend, the bottoming of the economic and real estate
cycle. The expected relaxation of China's austerity program should benefit Hong
Kong further. Singapore should continue to attract its fair share of
international fund flows given its robust economy and currency attraction. We
remain very selective in Malaysia, Thailand, Indonesia and the Philippines where
economic and interest rate risks are relatively higher. Their overall market
risk reward profile has deteriorated following their recent strong showings.
Their relative attraction should improve once their economic imbalance is
contained. Elsewhere, Taiwan and South Korea have borne the brunt of political
tensions last year. As these markets are trading near their respective
historical low multiples, we expect a significant rebound from the current low
levels once they get over the height of the political uncertainties.
Sincerely,
[SIGNATURE]
Barton M. Biggs
CHAIRMAN
[SIGNATURE]
Ean Wah Chin
SENIOR PORTFOLIO MANAGER
February 9, 1996
3
<PAGE>
Morgan Stanley Asia-Pacific Fund, Inc.
Investment Summary as of December 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
TOTAL RETURN (%)
----------------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (1)(3)**
------------------------ ------------------------ ------------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
ONE YEAR 9.38% 9.38% 9.24% 9.24% 0.87% 0.87%
SINCE INCEPTION* -4.53 -3.22 2.75 1.94 -2.76 -1.96
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
A BAR CHART REFLECTING THE DATA BELOW IS REFLECTED HERE.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31: 1994* 1995
<S> <C> <C>
Net Asset Value Per Share $13.20 $14.34
Market Value Per Share $12.25 $13.33
Premium/(Discount) -7.2% -7.0%
Income Dividends $0.04 $0.05
Capital Gains Distributions $0.01 $0.02
Fund Total Return (2) -5.94% 9.24%
Index Total Return (1)(3)
** -5.90% 0.87%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
per share of the Fund.
(3) The benchmark for investment performance is the weighted average of the
percentage change month-on-month of each of four Morgan Stanley Capital
International (MSCI) indices; Japan, Combined Asia Free ex-Japan, Australia,
and New Zealand, where the weights are based on the respective market
capitalizations of these indices at the beginning of the month.
* The Fund commenced operations on August 2, 1994.
** Unaudited.
4
<PAGE>
Morgan Stanley Asia-Pacific Fund, Inc.
Portfolio Summary as of December 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 97.8%
Short-Term Imvestments 2.2%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Other 30.3%
Electrical & Electronics 12.6%
Real Estate 10.5%
Banking 10.2%
Machinery & Engineering 7.4%
Telecommunications 6.5%
Multi-Industry 6.4%
Chemicals 4.8%
Financial Services 4.1%
Construction & Housing 4.1%
Utilities - Electrical &
Gas 3.1%
</TABLE>
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Japan 40.4%
Hong Kong 13.0%
Australia 8.3%
Malaysia 7.4%
Singapore 6.4%
Thailand 6.2%
India 4.7%
Indonesia 3.2%
Philippines 2.8%
Korea 2.4%
China 0.6%
Other 4.6%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS
PERCENT OF NET
ASSETS
---------------
<C> <S> <C>
1. Western Mining Corp. 2.1%
2. HSBC Holdings plc 1.9
3. Broken Hill Proprietary Co. Ltd. 1.8
4. Toshiba Corp. 1.7
5. Lend Lease Corp. Ltd. 1.6
6. Cheung Kong (Holdings) Ltd. 1.6
<CAPTION>
PERCENT OF NET
ASSETS
---------------
<C> <S> <C>
7. Hutchison Whampoa Ltd. 1.6%
8. National Australia Bank Ltd. 1.5
9. Hitachi Ltd. 1.4
10. New World Development Co. Ltd. 1.2
---
16.4%
---
---
</TABLE>
5
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS
- ---------
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -----------------------------------------------------------------
- -------------
COMMON STOCKS (95.1%)
(Unless otherwise noted)
- --------------------------------------------------
- ----------
AUSTRALIA (8.3%)
BANKING
National Australia Bank Ltd. 1,284,614 U.S.$ 11,553
--------------
BROADCASTING & PUBLISHING
News Corp. Ltd. 1,407,884 7,513
News Corp. Ltd. (Preferred) 3,414 16
--------------
7,529
--------------
ENERGY SOURCES
Broken Hill Proprietary Co. Ltd. 980,127 13,841
--------------
METALS -- NON-FERROUS
Western Mining Corp. Ltd. 2,544,750 16,342
--------------
REAL ESTATE
Lend Lease Corp. Ltd. 850,647 12,329
--------------
TRANSPORTATION -- AIRLINES
Qantas Airways Ltd. 1,188,076 1,978
--------------
63,572
--------------
- -----------------------------------------------------------------
- -------------
CHINA (0.6%)
AUTOMOBILES
+Shenzen North Jianshe Motorcycle `B' 3,090,300 1,279
--------------
CHEMICALS
+Jilin Chemical Industrial Co. Ltd. ADR `H' 68,000 1,462
--------------
MACHINERY & ENGINEERING
Harbin Power Equipment Co. Ltd. `H' 286,000 42
--------------
TEXTILES & APPAREL
Shenzhen Yizheng Chemical Fibre Co.
Ltd. `H' 3,558,000 801
--------------
UTILITIES -- ELECTRICAL & GAS
Shandong Huaneng Power Co. Ltd. ADR 132,000 891
--------------
4,475
--------------
- -----------------------------------------------------------------
- -------------
HONG KONG (13.0%)
BANKING
HSBC Holdings plc 945,148 14,301
--------------
CONSTRUCTION & HOUSING
+New World Infrastructure Ltd. 4,666 9
--------------
FINANCIAL SERVICES
Peregrine Investment Holdings 142,000 184
--------------
FOOD & HOUSEHOLD PRODUCTS
Charoen Pokphand Co. Ltd. 1,076,000 431
--------------
MULTI-INDUSTRY
Citic Pacific Ltd. 1,299,000 4,443
Guangdong Investments Ltd. 12,300,000 7,397
Hutchison Whampoa Ltd. 2,000,000 12,182
Swire Pacific Ltd. 'A' 950,000 7,371
--------------
31,393
--------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
REAL ESTATE
Cheung Kong (Holdings) Ltd. 2,000,000 U.S.$ 12,182
Hopewell Holdings 9,500,000 5,467
New World Development Co. Ltd. 2,285,000 9,959
Sun Hung Kai Properties Ltd. 1,000,000 8,180
Wharf (Holdings) Ltd. 390,000 1,299
--------------
37,087
--------------
TELECOMMUNICATIONS
Hong Kong Telecom Ltd. 4,300,000 7,674
--------------
UTILITIES -- ELECTRICAL & GAS
China Light & Power Co. Ltd. 1,900,000 8,747
--------------
99,826
--------------
- -----------------------------------------------------------------
- -------------
INDIA (4.4%)
APPLIANCES & HOUSEHOLD DURABLES
Philips India Ltd. 138,300 606
--------------
AUTOMOBILES
Apollo Tyres Ltd. 135,150 526
***+Apollo Tyres Ltd. (Rights) 248 --
***+Apollo Tyres Ltd. (Warrants)
expiring, 2/15/96 2,608 3
Autolec Industries 152,800 437
Autolite Ltd. 72,100 381
Escorts Ltd. 101,250 245
Hero Honda 25,000 163
Jay Bharat Maruti 53,200 83
Lumax Automatic Parts Industries 46,400 162
Nippondenso India Ltd. 4,800 12
Rico Auto Industries Ltd. 82,000 275
Sona Steering System 92,500 211
Tata Engineering & Locomotive 2,490 27
--------------
2,525
--------------
BANKING
State Bank of India 779,200 4,394
--------------
BEVERAGES & TOBACCO
ITC Ltd. 99,200 706
United Breweries 249,100 223
--------------
929
--------------
BUILDING MATERIALS & COMPONENTS
Associated Cement Co. Ltd. 14,555 1,187
Murudeshwar Ceramics Ltd. 46,000 141
***+Murudeshwar Ceramics Ltd. (Rights) 32,200 2
+Saurashtra Cement & Chemicals `B' 26,200 47
--------------
1,377
--------------
CHEMICALS
#Gujarat Narmada Valley Fertilizers GDR 275,000 1,750
Indian Dyestuff Industries Ltd. 304,250 251
Indian Organic Chemical Ltd. 275,500 270
Jaysynth Dyechem Ltd. 145,800 381
--------------
2,652
--------------
CONSTRUCTION & HOUSING
Larsen & Toubro 400 3
--------------
- -----------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
INDIA (CONTINUED)
ELECTRICAL & ELECTRONICS
BPL Ltd. 123,300 U.S.$ 259
Rolta India Ltd. 1,000,000 626
--------------
885
--------------
ENERGY EQUIPMENT & SERVICES
Bharat Heavy Electricals 858,200 2,148
Crompton Greaves Ltd. 311,530 1,772
Esab India Ltd. 307,900 499
--------------
4,419
--------------
FINANCIAL SERVICES
Housing Development Finance Corp. 33,410 2,570
--------------
FOREST PRODUCTS & PAPER
Ballarpur Industries Ltd. 204,964 1,090
+J.K. Corp. Ltd. GDR 61,140 206
#+J.K. Corp. Ltd. GDR 249,240 841
--------------
2,137
--------------
HEALTH & PERSONAL CARE
Sol Pharma 2,000 5
--------------
MACHINERY & ENGINEERING
Artson Engineering Ltd. 235,600 196
--------------
METALS -- NON-FERROUS
Hindalco Industries Ltd. 5,000 131
--------------
METALS -- STEEL
Special Steels Ltd. 59,100 129
***+Special Steels Ltd. (Rights) 2,990 --
Tata Iron & Steel Co. Ltd. 176,145 997
--------------
1,126
--------------
MISCELLANEOUS MATERIALS & COMMODITIES
Cosmo Films Ltd. 175,000 518
Essel Packaging Ltd. 116,750 617
Polyplex Ltd. 225,000 467
--------------
1,602
--------------
MULTI-INDUSTRY
Bajaj Hindustan Ltd. 21,000 48
*+Container Corp. of India 910,000 2,031
EID Parry Ltd. 64,300 190
UTI Mastershares Ltd. 1,883,700 727
+UTI Mastershares Ltd. -- New 377,480 145
@+Morgan Stanley-Growth Fund 3,000,000 512
VXL Ltd. 743,000 686
--------------
4,339
--------------
TELECOMMUNICATIONS
Infosys Technology Ltd. 9,600 111
Mahanagar Telephone Nigam 572,000 2,391
Videsh Sanchar Nigam Ltd. 10,000 236
--------------
2,738
--------------
TEXTILES & APPAREL
Coates of India Ltd. 56,750 347
G.T.N. Textiles Ltd. 87,500 267
Indo Rama Synthetics 154,500 154
+J.K. Synthetics Ltd. 187,900 131
+Morajee Goculdas Spinning 125,000 579
+Viniyoga Clothes Ltd. 486,600 180
--------------
1,658
--------------
34,292
--------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
INDONESIA (3.2%)
BUILDING MATERIALS & COMPONENTS
**Indocement Tunggal Perkasa (Foreign) 120,000 U.S.$ 403
**Semen Gresik (Foreign) 587,000 1,643
--------------
2,046
--------------
CHEMICALS
**Sorini Corp. (Foreign) 600,000 2,913
--------------
FOOD & HOUSEHOLD PRODUCTS
**Mayora Indah (Foreign) 27,000 19
--------------
FOREST PRODUCTS & PAPER
**Barito Pacific Timber (Foreign) 1,043,000 764
--------------
HEALTH & PERSONAL CARE
**Kalbe Farma (Foreign) 883,500 2,995
--------------
MACHINERY & ENGINEERING
**United Tractors (Foreign) 716,500 1,348
--------------
MISCELLANEOUS MATERIALS & COMMODITIES
**Charoen Pokphand Indonesia (Foreign) 2,510,000 5,105
--------------
REAL ESTATE
**Duta Pertiwi Property (Foreign) 280,000 285
--------------
RECREATION, OTHER CONSUMER GOODS
**Asiana IMI Industries (Foreign) 360,000 189
--------------
TELECOMMUNICATIONS
**Indosat (Foreign) 1,810,000 6,570
**+Telekomunikasi Indonesia (Foreign) 1,746,500 2,291
--------------
8,861
--------------
24,525
--------------
- -----------------------------------------------------------------
- -------------
JAPAN (40.4%)
AEROSPACE & MILITARY TECHNOLOGY
Mitsubishi Heavy Industries Ltd. 1,220,000 9,725
--------------
AUTOMOBILES
Asahi Tec Corp. 360,000 2,392
Kansei Corp. 170,000 1,376
Nissan Motor Co. 900,000 6,912
Suzuki Motor Co. Ltd. 660,000 7,351
--------------
18,031
--------------
BUILDING MATERIALS & COMPONENTS
Sangetsu Co. Ltd. 100,000 2,518
Sanwa Shutter Corp. Ltd. 48,000 348
+Sanwa Shutter Corp. Ltd. (Warrants),
expiring 1/20/98 1,400 315
--------------
3,181
--------------
BUSINESS & PUBLIC SERVICES
Dai Nippon Printing Co. Ltd. 280,000 4,746
--------------
CHEMICALS
Daicel Chemical Industries 750,000 4,264
Fuji Photo Film Ltd. 160,000 4,618
Kaneka Corp. 999,000 6,299
Nifco 283,000 3,700
Okura Industrial Co. Ltd. 434,000 2,963
Sekisui Chemical Co. 520,000 7,655
--------------
29,499
--------------
- -----------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
JAPAN (CONTINUED)
CONSTRUCTION & HOUSING
Kyudenko Co. Ltd. 349,000 U.S.$ 4,597
Matsui Construction 171,000 1,332
Nishio Rent All Co. 111,000 2,559
+Nishio Rent All Co. (Warrants),
expiring 2/20/98 1,055 593
Ohbayashi Corp. 320,000 2,542
Taisei Corp. Ltd. 1,240,000 8,275
Takasago Thermal Engineering 109,000 1,953
Yahagi Construction 238,000 2,015
--------------
23,866
--------------
ELECTRICAL & ELECTRONICS
Canon Inc. 180,000 3,260
Hitachi Ltd. 1,085,000 10,929
Kyocera Corp. 40,000 2,971
+Kyocera Corp. (Warrants), expiring
1/23/98 1,450 1,858
Matsushita Communication Industries 191,000 4,440
Matsushita Electric Industries Ltd. 555,000 9,031
NEC Corp. 775,000 9,458
Nintendo Ltd. 115,000 8,743
Ricoh Co. Ltd. 700,000 7,661
Sony Corp. 140,000 8,394
Stanley Electric Co. 750,000 4,504
Tokyo Electron Ltd. 175,000 6,780
Toshiba Corp. 1,630,000 12,772
--------------
90,801
--------------
ELECTRONIC COMPONENTS & INSTRUMENTS
Mitsumi Electric Co. Ltd. 388,000 9,357
Nitto Denko Corp. 182,000 2,820
TDK Corp. 135,000 6,890
--------------
19,067
--------------
FINANCIAL SERVICES
Hitachi Credit Corp. 118,000 2,137
Nikko Securities Co. 700,000 9,017
Nomura Securities Co. 335,000 7,300
Sumitomo Lease 102,000 524
--------------
18,978
--------------
HEALTH & PERSONAL CARE
Sankyo Co. Ltd. 217,000 4,876
Santen Pharmaceutical Co. 55,000 1,246
Secom Co. 94,000 6,537
Yamanouchi Pharmaceutical Co. 240,000 5,160
--------------
17,819
--------------
INSURANCE
Nichido Fire & Marine Insurance Co. 205,000 1,648
Sumitomo Marine & Fire 600,000 4,928
--------------
6,576
--------------
MACHINERY & ENGINEERING
Amada Co. Ltd. 500,000 4,939
Daifuku 450,000 6,363
Daikin Kogyo Co. 600,000 5,869
Fuji Machine Co. 256,000 9,174
Kurita Water Industries 136,000 3,622
Teijin Seiki Co. 431,000 2,212
Tsubakimoto Chain 817,000 4,914
--------------
37,093
--------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
REAL ESTATE
Daibiru Corp. 308,000 U.S.$ 3,490
Keihanshin Real Estate Co. 205,000 1,571
Mitsubishi Real Estate Co. Ltd. 470,000 5,872
--------------
10,933
--------------
TELECOMMUNICATIONS
Nippon Telephone & Telegraph 612 4,949
--------------
TEXTILES & APPAREL
Japan Vilene Co. Ltd. 304,000 1,917
--------------
TRANSPORTATION -- ROAD & RAIL
Nippon Konpo Unyu Soko 295,000 2,514
--------------
WHOLESALE & INTERNATIONAL TRADE
FamilyMart 147,300 6,648
Inabata & Co. 249,000 1,760
Ito Yokado Co. Ltd. 42,000 2,587
--------------
10,995
--------------
310,690
--------------
- -----------------------------------------------------------------
- -------------
KOREA (2.4%)
APPLIANCES & HOUSEHOLD PRODUCTS
+Samsung Electronics Co. (Foreign) 33,560 6,100
+Samsung Electronics Co. (2nd Issue)
(Foreign) 499 91
+Samsung Electronics Co. -- New
(Foreign) 6,642 1,199
--------------
7,390
--------------
CONSTRUCTION & HOUSING
**Hyundai Engineering (Foreign) 124,440 5,711
+Hyundai Engineering (Rights),
expiring 1/1/96 8,523 391
--------------
6,102
--------------
METALS -- STEEL
Pohang Iron & Steel ADR 43,500 952
--------------
UTILITIES -- ELECTRICAL & GAS
**Korea Electric Power (Foreign) 93,920 4,027
--------------
18,471
--------------
- -----------------------------------------------------------------
- -------------
MALAYSIA (7.4%)
BANKING
Malayan Banking Bhd 1,127,000 9,496
--------------
LEISURE & TOURISM
Genting Bhd 513,000 4,282
Resorts World Bhd 768,000 4,113
--------------
8,395
--------------
MACHINERY & ENGINEERING
United Engineers, Ltd. 1,369,000 8,733
--------------
MULTI-INDUSTRY
Renong Bhd 5,468,000 8,095
--------------
REAL ESTATE
Bandar Raya Developments Bhd 1,640,000 2,338
--------------
TELECOMMUNICATIONS
+Technology Resources Industries Bhd 1,444,000 4,264
Telekom Malaysia Bhd 989,000 7,710
--------------
11,974
--------------
- -----------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
MALAYSIA (CONTINUED)
UTILITIES -- ELECTRICAL & GAS
+Petronas Gas Bhd 200,000 U.S.$ 681
Tenaga Nasional Bhd 1,920,000 7,560
--------------
8,241
--------------
57,272
--------------
- -----------------------------------------------------------------
- -------------
PHILIPPINES (2.8%)
BANKING
+Philippine National Bank 53,380 590
--------------
BEVERAGES & TOBACCO
San Miguel Corp. 'B' 260,000 887
--------------
CONSTRUCTION & HOUSING
+DMCI Holdings, Inc. 4,947,000 1,773
--------------
ENERGY SOURCES
Petron Corp. 7,127,500 3,668
--------------
MULTI-INDUSTRY
Ayala Corp. 'B' 205,800 251
JG Summit Holdings 'B' 5,500,000 1,510
--------------
1,761
--------------
REAL ESTATE
Ayala Land, Inc. 'B' 2,265,750 2,764
+C&P Homes, Inc. 2,963,600 2,175
+SM Prime Holdings, Inc. 8,031,400 2,296
--------------
7,235
--------------
TELECOMMUNICATIONS
Philippine Long Distance Telephone 'B' 55,650 3,023
--------------
UTILITIES -- ELECTRICAL & GAS
Manila Electric Co. 'B' 285,270 2,327
--------------
21,264
--------------
- -----------------------------------------------------------------
- -------------
SINGAPORE (6.4%)
BANKING
Development Bank of Singapore
(Foreign) 448,000 5,574
Oversea-Chinese Banking Corp.
(Foreign) 480,000 6,006
United Overseas Bank (Foreign) 979,200 9,415
--------------
20,995
--------------
BEVERAGES & TOBACCO
Fraser & Neave 182,000 2,316
--------------
BROADCASTING & PUBLISHING
Singapore Press Holdings (Foreign) 120,000 2,121
--------------
ELECTRICAL & ELECTRONICS
Acma Ltd. 284,400 945
--------------
MACHINERY & ENGINEERING
Keppel Corp. 878,000 7,821
Sembawang Shipyards 250,000 1,388
--------------
9,209
--------------
MULTI-INDUSTRY
Singapore Technologies Industrial
Corp. 1,534,000 3,470
--------------
REAL ESTATE
City Developments Ltd. 888,000 6,466
DBS Land Ltd. 1,153,000 3,896
--------------
10,362
--------------
49,418
--------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
THAILAND (6.2%)
BANKING
Bangkok Bank Ltd. (Foreign) 460,000 U.S.$ 5,588
Siam Commercial Bank Co., Ltd.
(Foreign) 410,000 5,404
Thai Farmers Bank Ltd. (Foreign) 599,000 6,040
--------------
17,032
--------------
BUILDING MATERIALS & COMPONENTS
Siam Cement Co., Ltd. (Foreign) 48,700 2,699
--------------
ELECTRICAL & ELECTRONICS
Shinawatra Computer Co. Ltd. (Foreign) 186,800 4,598
--------------
FINANCIAL SERVICES
Finance One Co., Ltd. (Foreign) 223,827 1,555
National Finance & Securities Co.,
Ltd. (Foreign) 649,000 3,478
Phatra Thanakit Co., Ltd. (Foreign) 513,135 4,400
Phatra Thanakit Co., Ltd. (Local) 65 --
--------------
9,433
--------------
MISCELLANEOUS MATERIALS & COMMODITIES
Charoen Pokphand Feedmill Co., Ltd.
(Local) 668,000 3,129
--------------
TELECOMMUNICATIONS
Advanced Information Services Co.,
Ltd. (Foreign) 127,100 2,251
+TelecomAsia Corp. Ltd. (Foreign) 920,000 2,812
+Thai Telephone and Telecommunications
Co. (Foreign) 530,000 3,808
**United Communication Industry
(Foreign) 175,000 2,237
--------------
11,108
--------------
47,999
--------------
- -----------------------------------------------------------------
- -------------
TOTAL COMMON STOCKS
(Cost U.S. $728,007) 731,804
--------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
SHORT TERM INVESTMENT (1.8%)
- ---------------------------------------------------------
- ------------
UNITED STATES (1.8%)
REPURCHASE AGREEMENT
Chase Manhattan Bank N.A., 5.35%,
dated 12/29/95, due 1/2/96, to be
repurchased at U.S.$13,467
collateralized by U.S.$12,815 United
States Treasury Notes 6.875%, due
8/31/99, valued at U.S. $13,728
(Cost U.S.$13,459) U.S.$ 13,459 13,459
--------------
- -----------------------------------------------------------------
- -------------
FOREIGN CURRENCY ON DEPOSIT
WITH CUSTODIAN (0.3%)
Hong Kong Dollar HKD 2,177 282
Indian Rupee INR 69,814 1,985
Indonesian Rupiah IDR 141,831 62
Japanese Yen JPY 35,351 343
--------------
(Cost U.S. $2,867) 2,672
--------------
- -----------------------------------------------------------------
- -------------
TOTAL INVESTMENTS (97.2%)
(Cost U.S. $744,333) 747,935
--------------
- -----------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AMOUNT
(000) (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
OTHER ASSETS (3.4%)
Net Unrealized Gain on Forward Foreign
Currency Contracts U.S.$ 24,656
Dividends Receivable 1,033
Receivable for Investments Sold 452
Deferred Organization Costs 40
Foreign Withholding Tax Reclaim
Receivable 32
Interest Receivable 6
Other Assets 57 U.S.$ 26,276
--------------- --------------
- -----------------------------------------------------------------
- -------------
LIABILITIES (-0.6%)
Deferred Indian Taxes (129)
Payable for:
Dividends Declared (2,731)
Investments Purchased (844)
Investment Advisory Fees (626)
Custodian Fees (115)
Professional Fees (81)
Administrative Fees (63)
Shareholder Reporting Expenses (39)
Directors' Fees and Expenses (22)
Other Liabilities (147) (4,668)
--------------- --------------
- -----------------------------------------------------------------
- -------------
NET ASSETS (100.0%)
Applicable to 53,654,508 issued and outstanding U.S.
$.01 par value shares (100,000,000 shares authorized) U.S.$ 769,414
--------------
--------------
- -----------------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S.$ 14.34
--------------
--------------
- -----------------------------------------------------------------
- -------------
AT DECEMBER 31, 1995, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------
Common Stock U.S.$ 537
Capital Surplus 754,268
Distributions in Excess of Net
Investment Income (133)
Accumulated Net Realized Loss (13,375)
Unrealized Appreciation on Investments and Foreign
Currency Translations (net of accrual for foreign tax
of U.S.$129 on unrealized appreciation) 28,117
- -----------------------------------------------------------------
- -------------
TOTAL NET ASSETS U.S.$ 769,414
--------------
--------------
- -----------------------------------------------------------------
- -------------
</TABLE>
+ -- Non-income producing.
@ -- The Fund is advised by an affiliate.
* -- Security valued at cost -- see note A-1 to financial statements.
** -- Securities (totaling U.S.$43,890 or 5.7% of net assets at December 31,
1995) valued at fair value -- see note A-1 to financial statements.
*** -- Security valued at fair value as determined based on the market value of
the underlying security less subscription costs.
# -- 144A security -- certain conditions for public sale may exist.
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.
<TABLE>
<S> <C> <C>
- ---------------------------------------------
- ---------
DECEMBER 31, 1995 EXCHANGE RATES:
- ----------------------------------------------------
AUD Australian Dollar 1.345 = U.S.$1.00
HKD Hong Kong Dollar 7.733 = U.S.$1.00
INR Indian Rupee 35.165 = U.S.$1.00
IDR Indonesian Rupiah 2,286.500 = U.S.$1.00
JPY Japanese Yen 103.250 = U.S.$1.00
KRW Korean Won 775.750 = U.S.$1.00
MYR Malaysian Ringgit 2.540 = U.S.$1.00
PHP Philippine Peso 26.230 = U.S.$1.00
SGD Singapore Dollar 1.415 = U.S.$1.00
THB Thai Baht 25.190 = U.S.$1.00
- ----------------------------------------------------
- -------------
FORWARD FOREIGN CURRENCY CONTRACT INFORMATION:
Under the terms of forward foreign currency
contracts open at December 31, 1995, the Fund is
obligated to deliver foreign currency in
exchange for U.S. dollars as indicated below:
</TABLE>
<TABLE>
<CAPTION>
CURRENCY IN NET
TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR GAIN
(000) (000) DATE (000) (000)
- ------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
JPY
12,912,750 U.S.$125,344 1/17/96 U.S.$150,000 U.S.$24,656
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY
CLASSIFICATION -- DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
<S> <C> <C>
- ---------------------------------------------------------------
- ------------
Aerospace & Military Technology U.S.$ 9,725 1.3%
Appliances & Household Durables 7,996 1.0
Automobiles 21,835 2.8
Banking 78,361 10.2
Beverages & Tobacco 4,132 0.5
Broadcasting & Publishing 9,650 1.3
Building Materials & Components 9,256 1.2
Business & Public Services 4,746 0.6
Chemicals 36,573 4.8
Construction & Housing 31,753 4.1
Electrical & Electronics 97,229 12.6
Electronic Components & Instruments 19,067 2.5
Energy Equipment & Services 4,419 0.6
Energy Sources 17,509 2.3
Financial Services 31,165 4.1
Food & Household Products 450 0.1
Forest Products & Paper 2,901 0.4
Health & Personal Care 20,819 2.7
Insurance 6,576 0.9
Leisure & Tourism 8,395 1.1
Machinery & Engineering 56,621 7.4
Metals -- Non-Ferrous 16,473 2.1
Metals -- Steel 2,078 0.3
Miscellaneous Materials & Commodities 9,836 1.1
Multi-Industry 49,058 6.4
Real Estate 80,569 10.5
Recreation, Other Consumer Goods 189 0.0
Telecommunications 50,327 6.5
Textiles & Apparel 4,376 0.6
Transportation -- Airlines 1,978 0.3
Transportation -- Road & Rail 2,514 0.3
Utilities-Electrical & Gas 24,233 3.1
Wholesale & International Trade 10,995 1.4
Other 16,131 2.1
------------ -------
U.S.$747,935 97.2%
------------ -------
------------ -------
- ---------------------------------------------------------
- ------------
</TABLE>
SUMMARY OF TOTAL INVESTMENTS BY COUNTRY -- DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
COUNTRY (000) ASSETS
<S> <C> <C>
- ---------------------------------------------------------------
- ------------
Australia U.S.$ 63,572 8.3%
China 4,475 0.6
Hong Kong 100,108 13.0
India 36,277 4.7
Indonesia 24,587 3.2
Japan 311,033 40.4
Korea 18,471 2.4
Malaysia 57,272 7.4
Philippines 21,264 2.8
Singapore 49,418 6.4
Thailand 47,999 6.2
United States (short term investments) 13,459 1.8
------------ -------
U.S.$747,935 97.2%
------------ -------
------------ -------
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
STATEMENT OF OPERATIONS (000)
<S> <C>
- ---------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends............................................................................... U.S.$ 12,562
Interest................................................................................ 991
Less: Foreign Taxes Withheld............................................................ (1,241)
- ---------------------------------------------------------------------------------------------------------------
Total Income.......................................................................... 12,312
- ---------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees................................................................ 7,102
Custodian Fees.......................................................................... 1,084
Administrative Fees..................................................................... 715
Transfer Agent Fees..................................................................... 295
Professional Fees....................................................................... 185
Directors' Fees and Expenses............................................................ 101
Shareholder Reporting Expenses.......................................................... 56
Other Expenses.......................................................................... 180
- ---------------------------------------------------------------------------------------------------------------
Total Expenses........................................................................ 9,718
- ---------------------------------------------------------------------------------------------------------------
Net Investment Income............................................................. 2,594
- ---------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold (net of Indian tax of U.S.$2 on net realized gains).......... (10,426)
Foreign Currency Transactions........................................................... 113
- ---------------------------------------------------------------------------------------------------------------
Net Realized Loss................................................................. (10,313)
- ---------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Investments............................................................................. 48,263
Foreign Currency Translations........................................................... 24,447
- ---------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation.................................... 72,710
- ---------------------------------------------------------------------------------------------------------------
Total Net Realized Loss and Change in Unrealized Appreciation/Depreciation.................. 62,397
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................... U.S.$ 64,991
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 2, 1994*
TO YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income............................................... U.S.$ 2,758 U.S.$ 2,594
Net Realized Loss................................................... (1,824) (10,313)
Change in Unrealized Appreciation/Depreciation...................... (44,593) 72,710
- ---------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations..... (43,659) 64,991
- ---------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income............................................... (2,404) (2,598)
In Excess of Net Investment Income.................................. -- (133)
In Excess of Net Realized Gain...................................... (419) (1,169)
- ---------------------------------------------------------------------------------------------------------------
Total Distributions................................................. (2,823) (3,900)
- ---------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Initial Public Offering of Shares (53,647,415 shares)............... 756,429 --
Offering Costs...................................................... (1,724) --
- ---------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting From Capital Share
Transactions....................................................... 754,705 --
- ---------------------------------------------------------------------------------------------------------------
Total Increase...................................................... 708,223 61,091
Net Assets:
Beginning of Period................................................. 100 708,323
- ---------------------------------------------------------------------------------------------------------------
End of Period (including distributions in excess of net investment
income of U.S. $286 and U.S. $133, respectively)................... U.S.$708,323 U.S.$769,414
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 2, 1994* YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
SELECTED PER SHARE DATA AND RATIOS: 1994 1995
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD............................................ U.S.$ 14.10 U.S.$ 13.20
- -------------------------------------------------------------------------------------------------------------------
Offering Costs.................................................................. (0.03) --
- -------------------------------------------------------------------------------------------------------------------
Net Investment Income........................................................... 0.05 0.05
Net Realized and Unrealized Gain (Loss) on Investments.......................... (0.87) 1.16
- -------------------------------------------------------------------------------------------------------------------
Total from Investment Operations............................................ (0.82) 1.21
- -------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income....................................................... (0.04) (0.05)
In Excess of Net Investment Income.......................................... -- (0.00)#
In Excess of Net Realized Gain.............................................. (0.01) (0.02)
- -------------------------------------------------------------------------------------------------------------------
Total Distributions......................................................... (0.05) (0.07)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.................................................. U.S.$ 13.20 U.S.$ 14.34
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD........................................... U.S.$ 12.25 U.S.$ 13.33
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value................................................................ (12.71)% 9.38%
Net Asset Value (1)......................................................... (5.94)% 9.24%
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS)........................................... U.S.$708,323 U.S.$769,414
- -------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets......................................... 1.31%** 1.36%
Ratio of Net Investment Income to Average Net Assets............................ 0.89%** 0.36%
Portfolio Turnover Rate......................................................... 2% 21%
- -------------------------------------------------------------------------------------------------------------------
*Commencement of Operations.
**Annualized.
#Amount is less than U.S.$0.01.
(1)Total investment return based on per share net asset value reflects the effects of changes in net asset value on
the performance of the Fund during the 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.
Note: Current period permanent book-tax differences, if any, are not included in the calculation of net
investment income per share.
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- ------------
The Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund"), was incorporated in
Maryland on February 28, 1994, and is registered as a non-diversified,
closed-end management investment company under the Investment Company Act of
1940, as amended. The Fund commenced operations on August 2, 1994 pursuant to
the initial public offering of 53,500,000 shares of Common Stock. An additional
147,415 shares of Common Stock were issued on August 24, 1994 to cover
over-allotments. Prior to August 2, 1994 the Fund had no operations other than
the issuance of 7,093 shares of Common Stock on July 14, 1994 to Morgan Stanley
Asset Management Inc. (the "Adviser"). 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.
Distributions in excess of net investment income and accumulated net realized
loss have been adjusted for current and prior period permanent book-tax
differences. Current year adjustments arose principally from differing
book-tax treatments for foreign currency transactions
3. REPURCHASE AGREEMENTS: In connection with
transactions in repurchase agreements, a bank as custodian for the Fund takes
possession of the underlying securities, the value of which equals or exceeds
the principal amount of the repurchase transaction, including 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. To the extent that
proceeds from the sale of the underlying securities are less than the
repurchase price under the agreement, the Fund may incur a loss. In the event
of default or bankruptcy by the other 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 forward foreign
currency 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
14
<PAGE>
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 forward foreign currency contracts at period end exchange rates are
reflected as a component of unrealized appreciation (depreciation) in the
Statement of Net Assets. The change in net unrealized currency gains
(losses) for the period is reflected in the Statement of Operations.
5. FORWARD FOREIGN CURRENCY CONTRACTS: The Fund
may enter into forward foreign currency contracts to protect securities and
related receivables and payables against changes in future foreign exchange
rates. A forward foreign currency 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. OTHER: Security transactions are accounted for on
the date the securities are purchased or sold. Investments in new Indian
securities are made by making applications in the public offerings. The
issue price, or a portion thereof, is paid at the time of application and is
reflected as share application money on the Statement of Net Assets, if any.
Upon allotment of the securities, this amount plus any remaining amount of
issue price is recorded as cost of investments. Realized gains and losses on
the sale of investment securities are determined on the specific identified
cost basis. Interest income is recognized on the accrual basis. Dividend
income is recorded on the ex-dividend date (except certain dividends which
may be recorded as soon as the Fund is informed of such dividend) net of
applicable withholding taxes where recovery of such taxes is not reasonably
assured. Distributions to shareholders are recorded on the ex-date. Income
distributions and capital gain distributions are determined in accordance
with U.S. Federal income tax regulations which may differ from generally
accepted accounting principles. These differences are principally due to the
timing of the recognition of gains and losses on securities and forward
foreign currency contracts and due to the permanent differences described in
note A-2.
B. Morgan Stanley Asset Management Inc. 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. Effective September 1, 1995, The Chase Manhattan Bank, N.A., through its
affiliate Chase Global Funds Services Company (the "Administrator"), (formerly
Mutual Funds Service Company, a wholly owned subsidiary of the United States
Trust Company of New York), provides administrative services to the Fund under
an Administration Agreement. Under the Administration Agreement, the
Administrator is paid a fee computed weekly and payable monthly at an annual
rate of .09% of the Fund's average weekly net assets, plus $65,000 per annum. In
addition, the Fund is charged certain out of pocket expenses by the
Administrator. Effective September 1, 1995, The Chase Manhattan Bank, N.A. acts
as custodian for the Fund's assets held in the United States. Prior to September
1, 1995, Mutual Funds Service Company and United States Trust Company of New
York provided administrative and custodian services, respectively, to the Fund
under the same terms, conditions and fees as stated above.
D. Morgan Stanley Trust Company (the "International Custodian"), an affiliate
of the Adviser, acts as custodian for the Fund's assets held outside the United
States in accordance with a Custody Agreement. Custodian fees are payable
monthly based on assets under custody, investment purchase and sale activity, an
account maintenance fee, plus reimbursement for certain out-of-pocket expenses.
Investment transaction fees vary by country and security type. For the year
ended December 31, 1995, the Fund incurred International Custodian fees of
$1,076,000 of which $114,000 was payable to the International Custodian at
December 31, 1995. In addition, for the year ended December 31, 1995, the Fund
has earned interest income of $3,000 and incurred interest expense of $9,000 on
balances with the International Custodian.
E. For the year ended December 31, 1995, the Fund made purchases and sales
totaling $199,303,000 and $140,673,000, 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. The
Fund incurred $151,000 of brokerage commissions with Morgan Stanley & Co.
Incorporated, an affiliate of the Adviser.
At December 31, 1995, the U.S. Federal income tax cost basis of securities was
$742,445,000 and accordingly, net unrealized appreciation for U.S. Federal
income tax purposes was $2,818,000 of which $59,756,000 related to appreciated
securities and $56,938,000 related to depreciated securities. At December 31,
1995, the Fund had a capital loss carryforward for U.S. Federal income tax
purposes of approximately $12,396,000 available to offset future capital
15
<PAGE>
gains which will expire on December 31, 2003. To the extent that capital gains
are offset, such gains will not be distributed to the shareholders. For the year
ended December 31, 1995, the Fund expects to defer to January 1, 1996 for U.S.
Federal income tax purposes, post-October currency losses of $197,000.
F. The Fund entered into an Agreement with a number of underwriters (the
"Underwriters"), including Morgan Stanley & Co. Incorporated for the initial
public offering of its shares and issued 53,647,415 shares in August 1994. The
Fund has been advised that the total of underwriting discounts and placement
commissions paid to the Underwriters relating to the initial public offering was
$48,150,000.
G. In connection with its organization and initial public offering of shares,
the Fund incurred $55,000 and $1,724,000 of organization and offering costs,
respectively. The organization costs are being amortized on a straight-line
basis over a five year period beginning August 2, 1994, the date the Fund
commenced operations. The offering costs were charged to capital.
H. At December 31, 1995, a significant portion of the Fund's net assets consist
of securities of issuers located in Asia which are denominated in foreign
currencies. Changes in currency exchange rates will affect the value of and
investment income from such securities. Asian securities are subject to greater
price volatility, limited capitalization and liquidity, and higher rates of
inflation than securities of companies based in the United States. In addition,
Asian securities may be subject to substantial governmental involvement in the
economy and greater social, economic and political uncertainty.
I. Each Director of the Fund who is not an officer of the Fund or an affiliated
person as defined under the Investment Company Act of 1940, as amended, may
elect to participate in the Director's Deferred Compensation Plan (the "Plan").
Under the Plan, such Directors may elect to defer payment of a percentage of
their total fees earned as a Director of the Fund. These deferred portions are
treated, based on an election by the Director, as if they were either invested
in the Fund's shares or invested in U.S. Treasury Bills, as defined under the
Plan. The deferred fees payable, under the Plan, at December 31, 1995 totaled
$11,000 and are included in Payable for Director's Fees and Expenses on the
Statement of Net Assets.
J. During December 1995, the Board declared a distribution of $0.05 per share,
derived from net investment income, payable on January 9, 1996, to shareholders
of record on December 29, 1995.
- --------------------------------------------------------------------------------
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
U.S. AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
MARCH 31, 1995 JUNE 30, 1995 1995 1995
---------------- ---------------- ---------------- ----------------
PER PER PER PER
TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
-------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income....................... $ 3,185 $0.06 $ 3,978 $0.07 $ 2,907 $0.05 $ 2,242 $0.05
Net Investment Income................... $ 961 $0.02 $ 1,660 $0.03 $ 401 $0.01 $ (428) $(0.01)
Net Realized Loss and Change in
Unrealized Appreciation/Depreciation... $(22,702) $(0.42) $ 24,696 $0.46 $ 21,730 $0.40 $ 38,673 $0.72
Net Increase (Decrease) in Net Assets
Resulting From Operations.............. $(21,741) $(0.40) $ 26,356 $0.49 $ 22,131 $0.41 $ 38,245 $0.71
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 2, 1994* THREE MONTHS
TO ENDED
SEPTEMBER 30, DECEMBER 31,
1994 1994
---------------- ----------------
PER PER
TOTAL SHARE TOTAL SHARE
-------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income....................... $ 3,146 $0.06 $ 3,669 $0.07
Net Investment Income................... $ 1,503 $0.03 $ 1,255 $0.02
Net Realized Loss and Change in
Unrealized Depreciation................ $ (3,542) $(0.07) $(42,875) $(0.80)
Net Increase (Decrease) in Net Assets
Resulting From Operations.............. $ (2,039) $(0.04) $(41,620) $(0.78)
<CAPTION>
- ------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations
The Fund may purchase shares of its Common Stock in the open market at such
prices and in such amounts as the Board of Directors may deem advisable.
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED):
For the year ended December 31, 1995, the Fund expects to pass through to its
shareholders foreign tax credits of approximately $1,243,000.
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------
To the Shareholders and Board of Directors of
Morgan Stanley Asia-Pacific Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund") at December 31, 1995, the
results of its operations for the year then ended, and the changes in its net
assets and the financial highlights for the year then ended and for the period
August 2, 1994 (commencement of operations) through December 31, 1994, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodians and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 9, 1996
17
<PAGE>
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
each shareholder will be deemed to have elected, unless American Stock Transfer
& Trust Company (the "Plan Agent") is otherwise instructed by the shareholder in
writing, to have all distributions automatically reinvested in Fund shares.
Participants in the Plan have the option of making additional voluntary cash
payments to the Plan Agent, annually, in any amount from $100 to $3,000, for
investment in Fund shares.
Dividend and capital gain distributions will be reinvested on the
reinvestment date in full and fractional shares. If the market price per share
equals or exceeds net asset value per share on the reinvestment date, the Fund
will issue shares to participants at net asset value. If net asset value is less
than 95% of the market price on the reinvestment date, shares will be issued at
95% of the market price. If net asset value exceeds the market price on the
reinvestment date, participants will receive shares valued at market price. The
Fund may purchase shares of its Common Stock in the open market in connection
with dividend reinvestment requirements at the discretion of the Board of
Directors. Should the Fund declare a dividend or capital gain distribution
payable only in cash, the Plan Agent will purchase Fund shares for participants
in the open market as agent for the participants.
The Plan Agent's fees for the reinvestment of dividends and distributions
will be paid by the Fund. However, each participant's account will be charged a
pro rata share of brokerage commissions incurred on any open market purchases
effected on such participant's behalf. A participant will also pay brokerage
commissions incurred on purchases made by voluntary cash payments. Although
shareholders in the Plan may receive no cash distributions, participation in the
Plan will not relieve participants of any income tax which may be payable on
such dividends or distributions.
In the case of shareholders, such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are participating in the
Plan.
Shareholders who do not wish to have distributions automatically reinvested
should notify the Plan Agent in writing. There is no penalty for
non-participation or withdrawal from the Plan, and shareholders who have
previously withdrawn from the Plan may rejoin at any time. Requests for
additional information or any correspondence concerning the Plan should be
directed to the Plan Agent at:
Morgan Stanley Asia-Pacific Fund, Inc.
American Stock Transfer & Trust Company
Dividend Reinvestment and Cash Purchase Plan
40 Wall Street
New York, NY 10003
1-800-278-4353
18
