<PAGE>
MORGAN STANLEY ASIA-PACIFIC FUND, INC.
- ---------------------------------------------
OFFICERS AND DIRECTORS
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS James W. Grisham
Frederick B. Whittemore VICE PRESIDENT
VICE-CHAIRMAN OF THE Michael F. Klein
BOARD OF DIRECTORS VICE PRESIDENT
Warren J. Olsen Harold J. Schaaff, Jr.
PRESIDENT AND DIRECTOR VICE PRESIDENT
Peter J. Chase Joseph P. Stadler
DIRECTOR VICE PRESIDENT
John W. Croghan Valerie Y. Lewis
DIRECTOR SECRETARY
David B. Gill James R. Rooney
DIRECTOR TREASURER
Graham E. Jones Belinda A. Brady
DIRECTOR ASSISTANT TREASURER
John A. Levin
DIRECTOR
- ---------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
- --------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank
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, 1996
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the year ended December 31, 1996, the Morgan Stanley Asia-Pacific Fund, Inc.
(the "Fund") had a total return, based on net asset value per share, of -2.87%
compared to its benchmark (as defined below) of -9.17%. For the period since the
Fund's commencement of operations on August 2, 1994 through December 31, 1996,
the Fund's total return, based on net asset value per share, is -0.20% compared
with -11.68% for the benchmark. (The benchmark for investment purposes is the
weighted average of the percentage change month-on-month of each of two Morgan
Stanley Capital International (MSCI) indices; Japan and Combined Asia Free ex-
Japan, where the weights are based on the respective market capitalizations of
these indices at the beginning of each month). On December 31, 1996, the closing
price of the Fund's shares on the New York Stock Exchange was $9.75 representing
a 18.4% discount to the net asset value per share.
The Fund has outperformed the benchmark mainly because it was overweighted in
Asia ex-Japan and underweighted in Japan. Asia ex-Japan markets were generally
strong with a few exceptions, whereas the Japanese market fell 4.9%. Some of the
better performing markets were the Philippines (up 17.8%), Malaysia (up 16.2%),
Hong Kong (up 15.8%) and Indonesia (up 13.2%).
JAPAN
REVIEW
The Japanese equity market was characterized by a steady advance in the
first half of 1996 followed by a sharp decline in the 2nd half, resulting in net
loss of 7% for the year in local currency terms.
For the first half, the market was propelled by a more favorable macro
environment stemming from the weakness in the yen, positive fiscal policy and
easy monetary policy. GDP for the first quarter of 1996 was 8.4% on an
annualized basis. Corporate earnings for 1,050 Tokyo Stock Exchange listed
companies (ex-financial) for the year ended March 1996 also doubled, further
improving investor confidence. Partial resolution of the "Jyusen" problem caused
by non-performing assets was an added positive development during the first
half. Buoyed by these encouraging factors, the market scaled to a 4-year high in
June.
While the yen continued its modest decline and interest rates remained low
during the second half, investors became increasingly concerned that a weak yen
was insufficient to sustain a recovery and that more structural changes were
necessary. The market was further undermined by the Government announcement of a
rise in the consumption tax from 3% to 5% and a cessation of the special
personal income tax cut with effect from April 1997. The administrative reforms
and structural reforms including Japanese "Big-Bang" proposed by the Hashimoto
Cabinet in October was also regarded as lacking in substance and the selling of
Japanese equities continued to accelerate. Moreover, a robust U.S. market and
global bond rally shifted attention away from Japan.
On a micro basis, however, international blue chips and globally competitive
Japanese companies continued to improve their earnings momentum through modest
corporate restructuring and a weaker yen. A distinct two-tier market emerged
under such weak market conditions and our stock selection worked positively for
the Fund's performance.
OUTLOOK
We believe that the Japanese market will remain weak in the first quarter of
1997. An increase in the consumption tax and the termination of income tax cuts
in April 1997 will adversely affect the economy and dampen investor sentiment.
However the economy is expected to show gradual signs of a recovery thereafter
as private capital expenditure is likely to improve and disposable income is
expected to increase. Structural reform, such as Japan's "Big Bang", is a long
term positive factor for the market and the authorities are expected to take
urgent actions to resolve the issue of non-performing loans.
We believe that corporate earnings (ex-financials), particularly international
blue chips which our Portfolio is overweight, will continue to display strength
through business rationalization and a weakening yen. Sectors such as
multimedia, broadcasting and communications should perform well. As the market
increasingly becomes "two-tier", companies with earnings momentum and good stock
selection will be paramount to good investment results in 1997.
We believe that our Portfolio is well positioned with our current holdings to
meet the earnings driven environment of 1997.
ASIA EX-JAPAN
MARKET REVIEW
Asian markets surpassed the modest gains they displayed in 1995, rising 9.2%
in 1996. This increase however, disguised a huge disparity between the
performance of different markets. Most of the markets were up strongly, led by
China's 35.1% increase, followed by Hong Kong (+28.9%). Indonesia and Malaysia
also posted returns in excess of 20%. This is in sharp contrast
2
<PAGE>
to the performance of other markets in the region, as South Korea plummeted
- -38.4% and Thailand tumbled -38.0%.
Lessened anxiety over relations with China also spurred the Hong Kong market.
Investor sentiment over the prospects of a smooth transition improved gradually
throughout the year and stock prices reacted accordingly. As widely expected,
shipping magnate C.H. Tung was appointed Chief Executive of the Special
Administrative Region that will encompass Hong Kong after the handover. Economic
fundamentals also buoyed the market as the U.S. Federal Reserve resisted raising
interest rates, spurring property prices throughout Hong Kong. China stocks also
benefited from improved relations. The major impetus behind the MSCI China
Index's 35% move, however, so was frantic local buying in the fourth quarter.
The government brought to a close its 3-year austerity program and cut interest
rates twice in 1996, injecting a large amount of liquidity into the domestic
market. This led to the unusual occurrence of local shares actually trading at a
premium to foreign shares.
The South Korean market was the region's worst performer, losing 38.4% of its
value based on the MSCI index. The current account deficit increased
substantially and is expected to exceed $22 billion in 1996. Exporters suffered
severely as the prices for key Korean exports of semiconductors and
petrochemicals fell sharply. Though the Korean Won devalued throughout the year,
the comparative weakening of the Yen prevented any consequent gains in Korean
product competitiveness. The situation continued to be exacerbated by the zeal
with which the chaebols have built up capacity, far in excess of any reasonable
expectation of short-term demand. A final blow to the overall market landed at
year's end, as many labor unions went on strike following changes to national
labor laws by the Korean government.
The Thai market also suffered a significant decline this year. Worries about the
nature and term of the capital inflows mounted throughout the year, leading to a
downgrading of Thai debt by Moody's in May. The Thai central bank responded to
concerns over the stability of the financial sector by imposing stiff new
regulations which severely impacted the short-term profitability of the banks,
which then proceeded to lead the market into its decline. The market suffered
further setbacks as the ruling government lost a no-confidence motion in
parliament and was replaced by a coalition under General Chavalit's New
Aspiration Party. A large and persistent current account deficit has also
plagued the country, as the government has remained firm to their commitment to
maintain the value of the Thai Baht at current levels.
The rally in Australian bonds since mid-year was the main factor that
underpinned the good gains in equities. This gain might have been larger were it
not for the continuing downgrading in profit forecasts as the slowdown in the
Australian economy extended for longer than expected.
OUTLOOK
Against the background of an increase in global growth, Asian markets in
general should continue to appreciate in 1997. In Hong Kong, strong corporate
earnings growth and liquidity are likely to provide support for the market
despite its recent strength. Stock valuations are no longer cheap, and will
likely remain close to the recent historical average. As the handover to China
becomes reality, China related stocks and red-chips will remain the focus of the
market. Shares of companies listed in China should also come under increasing
interest from both foreign and local investors, and volatility will remain high.
Both markets will be susceptible to China's foreign relations with the U.S. and
Taiwan, and Hong Kong will continue to be vulnerable to changes in U.S. interest
rates (the Chinese government has pledged to keep the Hong Kong dollar pegged to
the U.S. dollar). Shares in Taiwan should benefit from an improvement in global
demand for electronics, as well as improving economic fundamentals and a benign
interest rate environment.
Although it is premature in the near term to envision a sustained fundamental
turnaround in the Korean economy and stock market, with reduction in facilities
investment, de-stocking of inventory levels, and gradual recovery of prices,
improvements should impact the market starting in the second half. A reduction
in facilities investment during this period of oversupply should help reduce
import growth and in turn shrink the current account deficit, which will reduce
the need for working capital financing and lower market interest rates. However,
the uncertain political situation ahead of this year's presidential election and
the pace of chaebols to focus on production efficiency will determine the speed
of a sustained recovery.
Despite strong upward moves in 1996, the Malaysian market prospective 1997
price-earnings ratio (18.5 times) is at the low end of the past 5 year
historical range. Whereas gains in 1996 were led by small and medium cap firms,
large cap companies are expected to generate better earnings growth in 1997.
Singapore is likely to trade within a narrow range, though with a definite
upward bias led by small cap electronic stocks.
3
<PAGE>
Indonesia's macroeconomic environment should continue to buoy the stock market
with healthy economic growth and lower inflation. Earnings growth is predicted
to top 20%, yielding a 15 times prospective 1997 price-earnings ratio.
Parliamentary elections in May should not provide any major surprises, and
concerns over Suharto's health have lessened, though not dissipated. The
Philippines will also retain the high earnings and GDP growth it enjoyed in
1996. However, stock prices here look fairly valued if not expensive, and record
property prices have raised concerns over the asset quality of some banks. The
market is also vulnerable to increasing uncertainty ahead of the Presidential
elections in 1998, where Ramos, the architect of the country's economic success,
is required to step down under the current constitution.
The market in Thailand is likely to trend sideways as investors await
indications of the future of the economy. The finance sector was forced to
swallow stern medicine by the central bank, and it remains to be seen whether
they will be able to grow out of their current problems. Record low valuations
should provide a floor under the current market level, though institutional
selling and lackluster earnings growth will impede large upside moves in the
immediate future.
Earnings performance will continue to be the key driver of Australian equity
performance. For industrial companies, an acceleration in domestic growth in
early 1997 should underpin an earnings recovery. Resource companies, however,
are expected to benefit from a modest rise in non-rural commodity prices over
the next 18 months on the back of a gradual strengthening in global growth.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT AND DIRECTOR
[SIGNATURE]
Ean Wah Chin
SENIOR PORTFOLIO MANAGER
January 1997
- --------------------------------------------------------------------------------
MORGAN STANLEY GROUP INC., THE DIRECT PARENT COMPANY OF THE FUND'S INVESTMENT
ADVISER, MORGAN STANLEY ASSET MANAGEMENT INC., RECENTLY ANNOUNCED ITS INTENTION
TO MERGE WITH DEAN WITTER, DISCOVER & CO. TO FORM MORGAN STANLEY, DEAN WITTER,
DISCOVER & CO.
IT CURRENTLY IS ANTICIPATED THAT THE TRANSACTION WILL CLOSE IN MID-1997.
THEREAFTER, MORGAN STANLEY ASSET MANAGEMENT INC. WILL BE A SUBSIDIARY OF MORGAN
STANLEY, DEAN WITTER, DISCOVER & CO.
4
<PAGE>
Morgan Stanley Asia-Pacific Fund, Inc.
Investment Summary as of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 -14.72% -14.72% -2.87% -2.87% -9.17% -9.17%
SINCE INCEPTION* -18.58 -8.15 -0.20 -0.08 -11.68 -5.01
</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>
YEAR ENDED DECEMBER 31:
1994* 1995 1996
<S> <C> <C> <C>
Net Asset Value Per Share $13.20 $14.34 $11.95
Market Value Per Share $12.25 $13.33 $9.75
Premium/(Discount) -7.20% -7.00% -18.4%
Income Dividends $0.04 $0.05 $0.61
Capital Gains Distributions $0.01 $0.02 --
Fund Total Return (2)+ -5.94% 9.24% -2.87%
Index Total Return (1)(3) -5.90% 0.87% -9.17%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
per share of the Fund.
(3) The benchmark for investment performance is the weighted average of the
percentage change month-on-month of each of two Morgan Stanley Capital
International (MSCI) indices; Japan and Combined Asia Free ex-Japan, where
the weights are based on the respective market capitalizations of these
indices at the beginning of the month.
*The Fund commenced operations on August 2, 1994.
+This return does not include the effect of dilution in connection with the
Rights Offering.
5
<PAGE>
Morgan Stanley Asia-Pacific Fund, Inc.
Portfolio Summary as of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 92.9%
Short-Term Investments 7.0%
Fixed Income Securities 0.1%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Sectors
Automobiles 3.4%
Banking 11.8%
Chemicals 5.3%
Construction & Housing 3.2%
Electrical & Electronics 12.3%
Financial Services 4.1%
Machinery & Engineering 6.4%
Multi-Industry 7.3%
Real Estate 8.8%
Telecommunications 8.0%
Other 29.4%
</TABLE>
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Country Weightings
Japan 38.6%
India 14.0%
Hong Kong 12.9%
Australia 8.0%
Singapore 6.2%
Thailand 4.0%
Philippines 3.1%
Malaysia 3.0%
Korea 2.8%
Indonesia 2.5%
Other 4.9%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS*
PERCENT OF NET
ASSETS
---------------
<C> <S> <C>
1. Citic Pacific Ltd. 2.2%
2. Lend Lease Corp. Ltd. 2.2
3. National Australia Bank Ltd. 2.2
4. Cheung Kong (Holdings) Ltd. 2.1
5. WMC Ltd. 1.9
<CAPTION>
PERCENT OF NET
ASSETS
---------------
<C> <S> <C>
6. Broken Hill Proprietary Co.
Ltd. 1.8%
7. Hutchison Whampoa Ltd. 1.6
8. Bharat Heavy Electricals Ltd. 1.6
9. HSBC Holdings plc 1.6
10. Hong Kong Telecom Ltd. 1.5
---
18.7%
---
---
</TABLE>
- --------------------------------------------------------------------------------
* Excludes short-term investments.
6
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS
- ---------
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
COMMON STOCKS (95.3%)
(Unless otherwise noted)
- --------------------------------------------------
- ----------
AUSTRALIA (8.0%)
BANKING
National Australia Bank Ltd. 1,571,884 U.S.$ 18,480
--------------
ENERGY SOURCES
Broken Hill Proprietary Co. Ltd. 1,052,964 14,989
--------------
METALS -- NON-FERROUS
WMC Ltd. 2,645,655 16,665
--------------
REAL ESTATE
Lend Lease Corp. Ltd. 959,277 18,593
--------------
68,727
--------------
- ---------------------------------------------------------
- ------------
CHINA (0.2%)
UTILITIES -- ELECTRICAL & GAS
Shandong Huaneng Power Co. Ltd. ADR 125,700 1,226
--------------
- ---------------------------------------------------------
- ------------
HONG KONG (12.9%)
BANKING
HSBC Holdings plc 639,948 13,693
--------------
MULTI-INDUSTRY
Citic Pacific Ltd. 3,299,000 19,151
Hutchison Whampoa Ltd. 1,749,000 13,738
Swire Pacific Ltd. 'A' 738,000 7,037
--------------
39,926
--------------
REAL ESTATE
CDL Hotels International 740,000 423
Cheung Kong (Holdings) Ltd. 2,067,000 18,373
+China Resources Beijing Land 1,509,000 956
China Resources Enterprise Ltd. 212,000 477
New World Development Co. Ltd. 1,402,000 9,471
Sun Hung Kai Properties Ltd. 583,000 7,142
Wharf (Holdings) Ltd. 901,000 4,497
--------------
41,339
--------------
TELECOMMUNICATIONS
+Asia Satellite Telecom Holdings 867,500 2,013
Hong Kong Telecom Ltd. 8,050,200 12,958
--------------
14,971
--------------
TRANSPORTATION -- ROAD & RAIL
+Guangshen Railway ADR 21,000 433
--------------
110,362
--------------
</TABLE>
- ---------------------------------------------------------
- ------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
INDIA (14.0%)
APPLIANCES & HOUSEHOLD DURABLES
Phillips India Ltd. 123,582 U.S.$ 263
--------------
AUTOMOBILES
Apollo Tyres Ltd. 690,625 2,257
+Apollo Tyres Ltd. (Warrants),
expiring 2/28/98 190,358 117
Autolec Industries Ltd. 152,800 263
Autolite Ltd. 231,900 652
+Autopal Industries Ltd. 65,000 48
Bajaj Tempo Ltd. 16,350 149
**+Bajaj Tempo Ltd. (Rights) 5,450 33
Ceat Ltd. 368,000 657
+Denso India Ltd. 71,400 189
Escorts Ltd. 966,375 2,240
Hero Honda Ltd. 37,150 251
Jay Bharat Maruti Ltd. 53,200 40
Lumax Automatic Parts Industries Ltd. 100,825 248
MRF Ltd. 18,000 1,419
*Patheja Forgings and Auto Ltd. 677,700 697
Rico Auto Industries Ltd. 82,000 172
Sona Steering System Ltd. 56,000 83
Tata Engineering & Locomotive Ltd. 309,522 2,935
--------------
12,450
--------------
BANKING
State Bank of India Ltd. 918,362 6,001
--------------
BEVERAGES & TOBACCO
+ITC Ltd. 107,654 993
+United Breweries Ltd. 149,100 106
--------------
1,099
--------------
BUILDING MATERIALS & COMPONENTS
Associated Cement Co. Ltd. 126,111 4,313
Gujarat Ambuja Cements Ltd. 521,050 3,423
India Cements Ltd. 75,000 181
Kesoram Industries Ltd. 311,100 352
Murudeshwar Ceramics Ltd. 46,000 36
+Panyam Cements & Minerals Ltd. 33,765 768
Saurashtra Cement & Chemicals 26,200 29
--------------
9,102
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
INDIA (CONTINUED)
CHEMICALS
Asian Paints Ltd. 71,614 U.S.$ 575
EID Parry Ltd. 64,300 127
#Gujarat Narmada Valley Fertilizers
Ltd GDR 275,000 931
Gujarat Narmada Valley Fertilizers
Ltd. 'A' 304,029 209
Gujarat State Fertilisers Ltd. 6,550 16
Indian Dyestuff Industries Ltd. 304,250 127
+Indian Organic Chemical Ltd. 275,480 93
Indian Petro Chemical Corp. 2,079,240 6,815
Jaysynth Dyechem Ltd. 145,800 122
Sudarshan Chemicals Ltd. 4,600 11
United Phosphorous Ltd. 97,500 497
--------------
9,523
--------------
CONSTRUCTION & HOUSING
Hindustan Construction Co. 255,825 221
Nagarjuna Construction Ltd. 151,200 218
--------------
439
--------------
DATA PROCESSING & REPRODUCTION
Modi Xerox Ltd. 16,850 64
--------------
ELECTRICAL & ELECTRONICS
BPL Ltd. 263,000 212
--------------
ELECTRONIC COMPONENTS & INSTRUMENTS
Infosys Technology Ltd. 9,600 206
Rolta India Ltd. 999,500 334
S&S Power Switchgear Ltd. 63,550 151
Samtel India Ltd. 1,000 1
Vikas WSP Ltd. 234,700 858
Viral Filaments Ltd. 4,700 5
--------------
1,555
--------------
ENERGY EQUIPMENT & SERVICES
Bharat Heavy Electricals Ltd. 2,262,600 13,696
Crompton Greaves Ltd. 455,410 1,524
--------------
15,220
--------------
FINANCIAL SERVICES
Housing Development Finance Corp. Ltd. 204,863 12,640
Industrial Finance Corp (India) Ltd. 1,549,200 1,396
--------------
14,036
--------------
FOOD & HOUSEHOLD PRODUCTS
Dhampur Sugar Mills Ltd. 141,575 206
--------------
FOREST PRODUCTS & PAPER
Ballarpur Industries Ltd. 232,264 395
ITC Bhadrachalam Paperboards Ltd. 273,600 485
--------------
880
--------------
</TABLE>
- ---------------------------------------------------------
- ------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
HEALTH & PERSONAL CARE
Godrej Soaps Ltd. 197,600 U.S.$ 210
Hoechst India Ltd. 50,650 426
Pfizer Ltd. 8,850 52
Sun Pharmaceutical Industries Ltd. 161,300 1,057
TTK Biomed Ltd. 21,500 20
--------------
1,765
--------------
LEISURE & TOURISM
ITC Hotels Ltd. 278,030 1,050
--------------
MACHINERY & ENGINEERING
Artson Engineering Ltd. 234,700 92
DGP Windsor India Ltd. 218,800 439
Esab India Ltd. 346,865 847
Flat Products Equipments (India) Ltd. 174,900 628
+Hindustan Power Plus Ltd. 75,600 221
Thermax Ltd. 31,200 292
Veejay Lakshmi Engineering Ltd. 149,100 208
--------------
2,727
--------------
METALS -- STEEL
KEC International Ltd. 881,750 1,368
Tata Iron & Steel Co. Ltd. 43,518 203
Tata SSL Ltd. 464,500 635
+Tata SSL Ltd. (Rights) 3,290 4
--------------
2,210
--------------
MISCELLANEOUS MATERIALS & COMMODITIES
Amforge Industries Ltd. 34,855 30
**+Amforge Industries Ltd. (Warrants),
expiring 7/1/97 5,150 --
Bharat Forge Co., Ltd. 259,446 670
Cosmo Films Ltd. 175,000 190
Essel Packaging Ltd. 146,300 405
Hindustan Development Corp. 1,085,180 481
ITW Signode India Ltd. 371,132 771
Polyplex Ltd. 225,000 127
Suashish Diamonds Ltd. 148,100 215
Supreme Industries Ltd. 178,539 1,146
Wimco Ltd. 422,200 234
--------------
4,269
--------------
MULTI-INDUSTRY
+Bajaj Hindustan Ltd. 21,000 23
Birla VXL Ltd. 846,998 594
Indian Rayon & Industries Ltd. 570 5
JK Corp. Ltd. 100 --
JK Corp. Ltd. GDR 61,140 61
#JK Corp. Ltd. GDR 249,240 249
*Max India Ltd. -- New 100,000 613
@+Morgan Stanley Growth Fund 32,892,200 5,551
UTI MasterShares Ltd. 2,268,290 785
Voltas Ltd. 207,950 195
--------------
8,076
--------------
REAL ESTATE
Alacrity Housing Ltd. 381,000 112
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
INDIA (CONTINUED)
RECREATION, OTHER CONSUMER GOODS
Tube Investments of India Ltd. 109,450 U.S.$ 192
--------------
TELECOMMUNICATIONS
Mahanagar Telephone Nigam Ltd. 796,300 5,109
Videsh Sanchar Nigam Ltd. 188,600 4,998
--------------
10,107
--------------
TEXTILES & APPAREL
Century Textile & Industry Ltd. 11,038 605
Coates of India Ltd. 100,700 365
+DCL Polyesters Ltd. 195,000 60
Garware Plastics & Polyester Ltd. 275,825 700
G.T.N. Textiles Ltd. 243,000 339
Indo Rama Synthetics Ltd. 689,200 454
Indo Rama Synthetics Ltd. -- New 46,170 28
**+Indo Rama Synthetics Ltd. (Rights) 180 --
+J.K. Synthetics Ltd. 686,901 235
Mahavir Spinning Mills Ltd. 173,686 321
Morajee Goculdas Spinning Ltd. 125,000 180
Raymond Ltd. 253,724 807
+Raymond Ltd. Bonus Shares 126,862 386
+Viniyoga Clothes Ltd. 486,600 43
Viral Syntex Ltd. 5,000 2
--------------
4,525
--------------
TRANSPORTATION -- ROAD & RAIL
Container Corp. of India Ltd. 1,199,600 11,544
--------------
TRANSPORTATION -- SHIPPING
Great Eastern Shipping Ltd. 'A' 2,610,225 2,548
--------------
120,175
--------------
- ---------------------------------------------------------
- ------------
INDONESIA (2.5%)
AUTOMOBILES
Astra International (Foreign) 718,500 1,977
--------------
BANKING
*Bank International Indonesia
(Foreign) 2,709,190 2,667
--------------
BEVERAGES & TOBACCO
*Gudang Garam (Foreign) 729,500 3,150
*HM Sampoerna (Foreign) 389,000 2,075
--------------
5,225
--------------
CHEMICALS
*Sorini Corp. (Foreign) 2,700,000 1,257
--------------
</TABLE>
- ---------------------------------------------------------
- ------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
FOREST PRODUCTS & PAPER
*Indah Kiat Pulp & Paper (Foreign) 2,455,444 U.S.$ 1,793
--------------
TELECOMMUNICATIONS
*Telekomunikasi Indonesia (Foreign) 4,938,000 8,519
--------------
21,438
--------------
- ---------------------------------------------------------
- ------------
JAPAN (38.6%)
AEROSPACE & MILITARY TECHNOLOGY
Mitsubishi Heavy Industries Ltd. 1,150,000 9,136
--------------
APPLIANCES & HOUSEHOLD DURABLES
Rinnai Corp. 130,700 2,629
--------------
AUTOMOBILES
Asahi Tec Corp. 443,000 2,180
Nissan Motor Co. 1,000,000 5,803
Suzuki Motor Co. Ltd. 630,000 5,766
--------------
13,749
--------------
BUILDING MATERIALS & COMPONENTS
Nippon Pillar Packing Co. 157,000 1,044
Sangetsu Co. Ltd. 100,000 2,090
Sanwa Shutter Corp. Ltd. 472,000 3,525
+Sanwa Shutter Corp. Ltd. (Warrants),
expiring 1/20/98 2,400 135
Sekisui House Ltd. 287,000 2,924
--------------
9,718
--------------
BUSINESS & PUBLIC SERVICES
Dai Nippon Printing Co. Ltd. 370,000 6,486
--------------
CHEMICALS
Daicel Chemical Industries Ltd. 912,000 4,276
Fuji Photo Film Ltd. 240,000 7,917
Kaneka Corp. 899,000 4,603
Mitsubishi Chemical Corp. 1,510,000 4,890
Nifco Inc. 330,000 3,448
Okura Industrial Co. Ltd. 434,000 2,192
Sekisui Chemical Co. 703,000 7,102
--------------
34,428
--------------
CONSTRUCTION & HOUSING
Kyudenko Co. Ltd. 389,000 4,031
Nishio Rent All Co. 122,100 2,130
+Nishio Rent All Co. (Warrants),
expiring 2/20/98 1,055 119
Ohbayashi Corp. 940,000 6,347
Taisei Corp. Ltd. 1,230,000 6,372
Yahagi Construction Co. 238,000 1,418
--------------
20,417
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
JAPAN (CONTINUED)
ELECTRICAL & ELECTRONICS
Canon, Inc. 450,000 U.S.$ 9,947
Hitachi Ltd. 1,185,000 11,051
Kyocera Corp. 60,000 3,741
+Kyocera Corp. (Warrants), expiring
1/23/98 1,450 997
Matsushita Communication Industrial
Co. 281,000 7,279
Matsushita Electric Industrial Co.
Ltd. 562,000 9,172
NEC Corp. 925,000 11,182
Nintendo Ltd. 130,000 9,306
Ricoh Co. Ltd. 706,000 8,108
Sony Corp. 145,000 9,503
Stanley Electric Co. 690,000 4,052
Tokyo Electron Ltd. 245,000 7,510
Toshiba Corp. 1,630,000 10,246
--------------
102,094
--------------
ELECTRONIC COMPONENTS & INSTRUMENTS
Mitsumi Electric Co. Ltd. 388,000 7,304
Murata Manufacturing Co. 130,000 4,322
TDK Corp. 131,000 8,540
--------------
20,166
--------------
FINANCIAL SERVICES
Hitachi Credit Corp. 188,000 3,052
Nikko Securities Co. 757,000 5,647
Nomura Securities Co. Ltd. 435,000 6,536
+Sumitomo Lease Co. 102,000 401
--------------
15,636
--------------
HEALTH & PERSONAL CARE
Sankyo Co. Ltd. 253,000 7,165
Secom Co. 130,000 7,869
Yamanouchi Pharmaceutical Co. 290,000 5,960
--------------
20,994
--------------
INSURANCE
Nichido Fire & Marine Insurance Co. 215,000 1,225
Sumitomo Marine & Fire Co. 642,000 3,992
--------------
5,217
--------------
MACHINERY & ENGINEERING
Amada Co. Ltd. 817,000 6,349
Daifuku Co. Ltd. 531,000 6,694
Daikin Kogyo Co. 600,000 5,337
Fuji Machine Co. 329,000 8,722
Kurita Water Industries Ltd. 274,000 5,536
Tsubakimoto Chain Co. 872,000 4,668
--------------
37,306
--------------
REAL ESTATE
Daibiru Corp. 308,000 2,846
Keihanshin Real Estate Co. 205,000 1,213
Mitsubishi Estate Co. Ltd. 597,000 6,134
--------------
10,193
--------------
RECREATION, OTHER CONSUMER GOODS
Square Co. Ltd. 51,900 2,622
--------------
</TABLE>
- ---------------------------------------------------------
- ------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
TELECOMMUNICATIONS
Nippon Telephone & Telegraph Corp. 982 U.S.$ 7,445
--------------
TEXTILES & APPAREL
Japan Vilene Co. Ltd. 304,000 1,328
Shimamura Co. Ltd. 14,000 481
--------------
1,809
--------------
TRANSPORTATION -- ROAD & RAIL
Nippon Konpo Unyu Soko Co. 245,000 1,544
--------------
WHOLESALE & INTERNATIONAL TRADE
FamilyMart 162,000 6,477
Inabata & Co. 406,000 2,485
--------------
8,962
--------------
330,551
--------------
- ---------------------------------------------------------
- ------------
KOREA (2.8%)
APPLIANCES & HOUSEHOLD DURABLES
Samsung Electronics Co. (Foreign) 41,873 2,480
*Samsung Electronics Co. RFD 12,619 748
--------------
3,228
--------------
BANKING
*+Housing & Commercial Bank, Korea 67,550 1,028
+Kookmin Bank GDR 82,000 1,490
*Shinhan Bank Co. Ltd. (Foreign) 42,040 675
--------------
3,193
--------------
CONSTRUCTION & HOUSING
+Hyundai Engineering (Foreign) 135,502 3,143
Hyundai Engineering (Foreign) RFD 7,889 183
--------------
3,326
--------------
METALS -- STEEL
Pohang Iron & Steel ADR 161,500 3,270
--------------
TELECOMMUNICATIONS
*+Korea Mobile Telecom (Foreign) 5,560 5,551
LG Information & Communication Ltd.
RFD 35,620 2,525
--------------
8,076
--------------
UTILITIES -- ELECTRICAL & GAS
Korea Electric Power (Foreign) 95,920 2,792
--------------
23,885
--------------
- ---------------------------------------------------------
- ------------
MALAYSIA (3.0%)
AUTOMOBILES
Edaran Otomobil Nasional Bhd 58,000 580
--------------
BANKING
Malayan Banking Bhd 430,000 4,767
--------------
CONSTRUCTION & HOUSING
IJM Corp., Bhd 37,000 87
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
MALAYSIA (CONTINUED)
LEISURE & TOURISM
Genting Bhd 441,000 U.S.$ 3,038
--------------
MACHINERY & ENGINEERING
United Engineers Ltd. 584,000 5,272
--------------
MULTI-INDUSTRY
Renong Bhd 2,468,000 4,378
--------------
TELECOMMUNICATIONS
Telekom Malaysia Bhd 847,000 7,546
--------------
25,668
--------------
- ---------------------------------------------------------
- ------------
PHILIPPINES (3.1%)
CONSTRUCTION & HOUSING
+DMCI Holdings, Inc. 4,947,000 3,245
--------------
ENERGY SOURCES
Petron Corp. 8,909,375 3,015
--------------
MULTI-INDUSTRY
JG Summit Holdings 17,430,100 4,904
--------------
REAL ESTATE
Ayala Land, Inc. 2,126,025 2,425
SM Prime Holdings, Inc. 9,637,680 2,492
--------------
4,917
--------------
TELECOMMUNICATIONS
Digital Telecommunications
Philippines, Inc. 30,651,000 2,564
Philippine Long Distance Telephone 64,250 3,530
--------------
6,094
--------------
UTILITIES -- ELECTRICAL & GAS
Manila Electric Co. 564,851 4,618
--------------
26,793
--------------
- ---------------------------------------------------------
- ------------
SINGAPORE (6.2%)
BANKING
Development Bank of Singapore
(Foreign) 884,000 11,940
Oversea-Chinese Banking Corp.
(Foreign) 758,000 9,426
United Overseas Bank (Foreign) 979,200 10,917
--------------
32,283
--------------
BEVERAGES & TOBACCO
Fraser & Neave 388,400 3,997
--------------
BROADCASTING & PUBLISHING
Singapore Press Holdings (Foreign) 120,000 2,367
--------------
MACHINERY & ENGINEERING
Keppel Corp. 978,000 7,618
Sembawang Corp. 369,000 1,952
--------------
9,570
--------------
MULTI-INDUSTRY
Straits Steamship Land Ltd. 1,469,000 4,703
--------------
52,920
--------------
</TABLE>
- ---------------------------------------------------------
- ------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
THAILAND (4.0%)
BANKING
Bangkok Bank Ltd. (Foreign) 958,300 U.S.$ 9,267
Siam Commercial Bank Co. Ltd.
(Foreign) 632,500 4,587
Thai Farmers Bank Ltd. (Foreign) 1,024,000 6,389
**+Thai Farmers Bank Ltd. (Warrants),
expiring 9/15/02 128,000 --
--------------
20,243
--------------
ELECTRICAL & ELECTRONICS
*Shinawatra Computer Co. Ltd.
(Foreign) 234,800 2,838
--------------
FINANCIAL SERVICES
Finance One Co. Ltd. (Foreign) 1,119,527 2,270
National Finance & Securities Co. Ltd.
(Foreign) 792,400 1,491
Phatra Thanakit Co. Ltd. (Foreign) 513,135 1,460
--------------
5,221
--------------
TELECOMMUNICATIONS
Advanced Information Services Co.,
Ltd. (Foreign) 349,700 3,273
United Communications Industry
(Foreign) 235,000 2,529
--------------
5,802
--------------
34,104
--------------
- ---------------------------------------------------------
- ------------
TOTAL COMMON STOCKS
(Cost U.S. $881,773) 815,849
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
FIXED INCOME SECURITIES (0.1%)
- ---------------------------------------------------------
- ------------
INDIA (0.1%)
METALS -- STEEL
Tata SSL Ltd.,
14.00%, 12/6/02 INR 3 4
--------------
MISCELLANEOUS MATERIALS & COMMODITIES
*Amforge Industries Ltd., Zero Coupon,
12/1/06 5 4
--------------
MULTI-INDUSTRY
*Max India Part B,
Zero Coupon, 12/1/06 100 576
--------------
- ---------------------------------------------------------
- ------------
TOTAL FIXED INCOME SECURITIES
(Cost U.S. $755) 584
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
SHORT-TERM INVESTMENT (3.0%)
- ---------------------------------------------------------
- ------------
UNITED STATES (3.0%)
REPURCHASE AGREEMENT
Chase Securities, Inc. 5.95%,
dated 12/31/96, due 1/2/97,
to be repurchased at U.S.$26,152,
collateralized by U.S. $25,550
United States Treasury Notes,
6.625%, due 7/31/01, valued at
U.S.$26,635
(Cost $26,143) U.S.$ 26,143 U.S.$ 26,143
--------------
- ---------------------------------------------------------
- ------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (4.1%)
Australian Dollar AUD 1 1
Hong Kong Dollar HKD 191,302 24,734
Indian Rupee INR 139,914 3,903
Indonesian Rupiah IDR 8,498,849 3,598
Japanese Yen JPY 130,835 1,130
Malaysian Ringgit MYR 6 2
Philippines Peso PNP 965 37
Singapore Dollar SGD 1 1
South Korean Won KRW 70,958 84
Thai Baht THB 49,755 1,940
--------------
(Cost U.S. $35,452) 35,430
--------------
- ---------------------------------------------------------
- ------------
TOTAL INVESTMENTS (102.5%)
(Cost U.S. $944,123) 878,006
--------------
<CAPTION>
<S> <C> <C>
- ---------------------------------------------------------
- ------------
OTHER ASSETS (0.3%)
Cash 1
Receivable for Investments Sold 1,432
Dividends Receivable 1,066
Deferred Organization Costs 28
Foreign Withholding Tax Reclaim Receivable 22
Interest Receivable 4
Other Assets 60 2,613
--------------- --------------
- ---------------------------------------------------------
- ------------
LIABILITIES (-2.8%)
Deferred Indian Taxes (155)
Payable for:
Dividends Declared (18,649)
Investments Purchased (3,727)
Investment Advisory Fees (717)
Custodian Fees (280)
Professional Fees (100)
Shareholder Reporting Expenses (91)
Administrative Fees (71)
Directors' Fees and Expenses (51)
Other Liabilities (381) (24,067)
--------------- --------------
- ---------------------------------------------------------
- ------------
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
NET ASSETS (100%)
Applicable to 71,654,508 issued and outstanding U.S.
$.01 par value shares (100,000,000 shares authorized) U.S.$ 856,397
--------------
--------------
- ---------------------------------------------------------
- ------------
NET ASSET VALUE PER SHARE U.S.$ 11.95
--------------
--------------
- ---------------------------------------------------------
- ------------
AT DECEMBER 31, 1996, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------
Common Stock U.S.$ 717
Capital Surplus 927,879
Distributions in Excess of Net
Investment Income (402)
Accumulated Net Realized Loss (5,527)
Unrealized Depreciation on Investments and Foreign
Currency Translations (net of accrued foreign tax of
U.S. $155 on unrealized appreciation) (66,270)
- ---------------------------------------------------------
- ------------
TOTAL NET ASSETS $ 856,397
--------------
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
+ -- Non-income producing.
* -- Security 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.
@ -- The Fund is advised by an affiliate.
# -- 144A Security -- certain conditions for public sale may exist.
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
RFD -- Ranked for Dividend.
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
such 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, 1996 EXCHANGE RATES:
- ----------------------------------------------------
AUD Australian Dollar 1.259 = U.S. $1.00
HKD Hong Kong Dollar 7.735 = U.S. $1.00
IDR Indonesian Rupiah 2,362.000 = U.S. $1.00
INR Indian Rupee 35.850 = U.S. $1.00
JPY Japanese Yen 115.810 = U.S. $1.00
KRW South Korean Won 845.000 = U.S. $1.00
MYR Malaysian Ringgit 2.526 = U.S. $1.00
PNP Philippines Peso 26.300 = U.S. $1.00
SGD Singapore Dollar 1.399 = U.S. $1.00
THB Thai Baht 25.646 = U.S. $1.00
- ----------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ----------------------------------------------------
- ------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT
INFORMATION:
Under the terms of a forward foreign currency
exchange contract open at December 31, 1996, 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>
THB 49,755 U.S.$1,941 1/2/97 U.S.$1,941 U.S.$--
- ---------------------------------------------------------
- ------------
</TABLE>
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY
CLASSIFICATION -- DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
<S> <C> <C>
- ---------------------------------------------------------------
- ------------
Aerospace & Military Technology U.S.$ 9,136 1.1%
Appliances & Household Durables 6,120 0.7
Automobiles 28,756 3.4
Banking 101,327 11.8
Beverages & Tobacco 10,321 1.2
Broadcasting & Publishing 2,367 0.3
Building Materials & Components 18,820 2.2
Business & Public Services 6,486 0.8
Chemicals 45,208 5.3
Construction & Housing 27,514 3.2
Data Processing & Reproduction 64 0.0
Electrical & Electronics 105,144 12.3
Electronic Components & Instruments 21,721 2.5
Energy Equipment & Services 15,220 1.8
Energy Sources 18,004 2.1
Financial Services 34,893 4.1
Food & Household Products 206 0.0
Forest Products & Paper 2,673 0.3
Health & Personal Care 22,759 2.7
Insurance 5,217 0.6
Leisure & Tourism 4,088 0.5
Machinery & Engineering 54,875 6.4
Metals -- Non-Ferrous 16,665 1.9
Metals -- Steel 5,484 0.6
Miscellaneous Materials & Commodities 4,273 0.5
Multi-Industry 62,563 7.3
Real Estate 75,154 8.8
Recreation, Other Consumer Goods 2,814 0.3
Telecommunications 68,560 8.0
Textiles & Apparel 6,334 0.7
Transportation -- Road & Rail 13,521 1.6
Transportation -- Shipping 2,548 0.3
Utilities -- Electrical & Gas 8,636 1.0
Wholesale & International Trade 8,962 1.0
Other 61,573 7.2
------------ -------
U.S.$878,006 102.5%
------------ -------
------------ -------
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
STATEMENT OF OPERATIONS (000)
<S> <C>
- ---------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends............................................................................... U.S.$ 13,345
Interest................................................................................ 1,704
Less: Foreign Taxes Withheld............................................................ (1,447)
- ---------------------------------------------------------------------------------------------------------------
Total Income.......................................................................... 13,602
- ---------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees................................................................ 8,796
Custodian Fees.......................................................................... 1,569
Administrative Fees..................................................................... 874
Professional Fees....................................................................... 243
Transfer Agent Fees..................................................................... 240
Shareholder Reporting Expenses.......................................................... 183
Directors' Fees and Expenses............................................................ 65
Other Expenses.......................................................................... 260
- ---------------------------------------------------------------------------------------------------------------
Total Expenses........................................................................ 12,230
- ---------------------------------------------------------------------------------------------------------------
Net Investment Income............................................................. 1,372
- ---------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold.............................................................. 7,818
Foreign Currency Transactions........................................................... 41,823
- ---------------------------------------------------------------------------------------------------------------
Net Realized Gain................................................................. 49,641
- ---------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Depreciation on Investments............................................................. (69,763)
Depreciation on Foreign Currency Translations........................................... (24,624)
- ---------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation.................................... (94,387)
- ---------------------------------------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized Appreciation/Depreciation.................. (44,746)
- ---------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................... U.S.$(43,374)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income............................................... U.S.$ 1,372 U.S.$ 2,594
Net Realized Gain (Loss)............................................ 49,641 (10,313)
Change in Unrealized Appreciation/Depreciation...................... (94,387) 72,710
- ---------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations..... (43,374) 64,991
- ---------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income............................................... (43,033) (2,598)
In Excess of Net Investment Income.................................. (402) (133)
In Excess of Net Realized Gain...................................... -- (1,169)
- ---------------------------------------------------------------------------------------------------------------
Total Distributions................................................. (43,435) (3,900)
- ---------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Common Stock Issued Through Rights Offering (18,000,000 shares)..... 174,612 --
Offering Costs...................................................... (820) --
- ---------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting From Capital Share
Transactions....................................................... 173,792 --
- ---------------------------------------------------------------------------------------------------------------
Total Increase...................................................... 86,983 61,091
Net Assets:
Beginning of Year................................................... 769,414 708,323
- ---------------------------------------------------------------------------------------------------------------
End of Year (including distributions in excess of net investment
income of U.S.$402 and U.S.$133, respectively)..................... U.S.$856,397 U.S.$769,414
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
DECEMBER 31, AUGUST 2, 1994*
--------------------------------- TO DECEMBER 31,
SELECTED PER SHARE DATA AND RATIOS: 1996 1995 1994
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ U.S.$ 14.34 U.S.$ 13.20 U.S.$ 14.10
- -----------------------------------------------------------------------------------------------------------------
Offering Costs.............................................. (0.01) -- (0.03)
- -----------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss)................................ 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) -- --
- -----------------------------------------------------------------------------------------------------------------
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 (Loss) to Average Net
Assets..................................................... 0.16% 0.36% 0.89%**
Portfolio Turnover Rate..................................... 28% 21% 2%
Average Commission Rate (2)................................. $0.0132 N/A N/A
- -----------------------------------------------------------------------------------------------------------------
* Commencement of Operations.
** Annualized.
# Amount is less than U.S.$0.01.
+ This return does not include the effect of dilution in connection with the Rights Offering.
(1) Total investment return based on net asset value per share reflects the effects of changes in net asset value
on the performance of the Fund during each period, and assumes dividends and distributions, if any, were
reinvested. This percentage is not an indication of the performance of a shareholder's investment in the Fund
based on market value due to differences between the market price of the stock and the net asset value of the
Fund.
(2) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose the average
commission rate per share it paid for portfolio trades on which commissions were charged during the period.
For the year ended December 31, 1996, the average commission rate paid on trades on which commissions were
charged was 0.52% of the trade amount.
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- ------------
The Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund"), was incorporated 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 forward 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 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 EXCHANGE CONTRACTS: The Fund may enter into
forward foreign currency exchange contracts to attempt to protect securities
and related receivables and payables
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against changes in future foreign exchange rates. A forward foreign currency
exchange contract is an agreement between two parties to buy or sell
currency at a set price on a future date. The market value of the contract
will fluctuate with changes in currency exchange rates. The contract is
marked-to-market daily and the change in market value is recorded by the
Fund as unrealized gain or loss. The Fund records realized gains or losses
when the contract is closed equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
Risk may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and is
generally limited to the amount of unrealized gain on the contracts, if any,
at the date of default. Risks may also arise from unanticipated movements in
the value of a foreign currency relative to the U.S. dollar.
6. 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. For such applications, if any,
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.
Upon allotment of the securities, this amount plus any remaining amount of
issue price is recorded as cost of investments. Realized gains and losses on
the sale of investment securities are determined on the specific identified
cost basis. Interest income is recognized on the accrual basis. Dividend
income is recorded on the ex-dividend date (except certain dividends which
may be recorded as soon as the Fund is informed of such dividend) net of
applicable withholding taxes where recovery of such taxes is not reasonably
assured. Distributions to shareholders are recorded on the ex-date.
The amount and character of income and capital gain distributions to be paid
are determined in accordance with Federal income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing book and tax treatments for foreign currency
transactions, the timing of the recognition of gains and losses on
securities and forward foreign currency exchange contracts.
Permanent book and tax basis differences relating to shareholder
distributions may result in reclassifications to undistributed net
investment income (loss), accumulated net realized gain (loss) and capital
surplus.
Adjustments for permanent book-tax differences, if any, are not reflected in
ending undistributed net investment income (loss) for the purpose of
calculating net investment income (loss) per share in the financial
highlights.
B. Morgan Stanley Asset Management Inc. (the "Adviser") provides investment
advisory services to the Fund under the terms of an Investment Advisory and
Management Agreement (the "Agreement"). Under the Agreement, the Adviser is paid
a fee computed weekly and payable monthly at an annual rate of 1.00% of the
Fund's average weekly net assets.
C. The Chase Manhattan Bank, through its affiliate Chase Global Funds Services
Company (the "Administrator"), provides administrative services to the Fund
under an Administration Agreement. Under the Administration Agreement, the
Administrator is paid a fee computed weekly and payable monthly at an annual
rate of .09% of the Fund's average weekly net assets, plus $65,000 per annum. In
addition, the Fund is charged certain out-of-pocket expenses by the
Administrator. The Chase Manhattan Bank acts as custodian for the Fund's assets
held in the United States.
D. Morgan Stanley Trust Company (the "International Custodian"), an affiliate
of the Adviser, acts as custodian for the Fund's assets held outside the United
States in accordance with a Custody Agreement. Custodian fees are payable
monthly based on assets under custody, investment purchase and sale activity, an
account maintenance fee, plus reimbursement for certain out-of-pocket expenses.
Investment transaction fees vary by country and security type. For the year
ended December 31, 1996, the Fund incurred International Custodian fees of
$1,557,000 of which $278,000 was payable to the International Custodian at
December 31, 1996. In addition, for the year ended December 31, 1996, the Fund
has earned interest income of $13,000 and incurred interest expense of $8,000 on
balances with the International Custodian.
E. For the year ended December 31, 1996, the Fund made purchases and sales
totaling approximately $382,212,000 and $236,918,000, respectively, of
investment securities other than long-term U.S. Government securities and
short-term investments. There were no purchases and sales of long-term U.S.
Government securities. For the year ended December 31, 1996, the Fund incurred
approximately $110,000 of brokerage commissions with Morgan Stanley & Co.
Incorporated, an affiliate of the Adviser.
At December 31, 1996, the U.S. Federal income tax cost basis of securities was
approximately $909,134,000 and accordingly, net unrealized depreciation for U.S.
Federal income tax purposes was $66,557,000 of which $89,361,000 related to
appreciated securities and $155,918,000 related to depreciated securities.
During the year ended December 31, 1996, the Fund utilized capital loss
carryforwards for U.S. Federal income tax purposes of approximately
17
<PAGE>
$7,327,000. At December 31, 1996, the Fund had a capital loss carryforward for
U.S. Federal income tax purposes of approximately $5,069,000 available to offset
future capital 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, 1996, the Fund expects to defer to
January 1, 1997, for U.S. Federal income tax purposes, post-October currency
losses of $78,000.
F. In connection with its organization and initial public offering of shares,
the Fund incurred $55,000 and $1,724,000 of organization and offering costs,
respectively. The organization costs are being amortized on a straight-line
basis over a five-year period beginning August 2, 1994, the date the Fund
commenced operations. The offering costs were charged to capital.
G. A significant portion of the Fund's net assets consist of securities of
issuers located in Asia which are denominated in foreign currencies. Changes in
currency exchange rates will affect the value of and investment income from such
securities. Asian securities are subject to greater price volatility, limited
capitalization and liquidity, and higher rates of inflation than securities of
companies based in the United States. In addition, Asian securities may be
subject to substantial governmental involvement in the economy and greater
social, economic and political uncertainty.
H. The Fund issued to its shareholders of record as of the close of business on
April 16, 1996 transferable Rights to subscribe for up to an aggregate of
18,000,000 shares of Common Stock of the Fund at a rate of one share of Common
Stock for three Rights held at the subscription price of $10.00 per share.
During May 1996 the Fund issued a total of 18,000,000 shares of Common Stock on
exercise of such Rights. Rights' offering costs of $820,000 were charged
directly against the proceeds of the offering. The Fund was advised that Morgan
Stanley & Co. Incorporated, an affiliate of the Adviser, received commissions of
$3,062,000, dealer manager fees of $1,650,000 and reimbursement of its expenses
of $125,000 in connection with its participation in the Rights Offering.
I. Each Director of the Fund who is not an officer of the Fund or an affiliated
person as defined under the Investment Company Act of 1940, as amended, may
elect to participate in the Director's Deferred Compensation Plan (the "Plan").
Under the Plan, such Directors may elect to defer payment of a percentage of
their total fees earned as a Director of the Fund. These deferred portions are
treated, based on an election by the Director, as if they were either invested
in the Fund's shares or invested in U.S. Treasury Bills, as defined under the
Plan. The deferred fees payable, under the Plan, at December 31, 1996 totaled
$34,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
J. During December 1996, the Board declared a distribution of $0.26 per share,
derived from net investment income, payable on January 9, 1997, to shareholders
of record on December 31, 1996.
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED):
For the year ended December 31, 1996, the Fund expects to pass through to its
shareholders foreign tax credits of approximately $1,536,000. In addition, for
the year ended December 31, 1996, gross income derived from sources within
foreign countries amounted to $13,358,000.
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REPORT OF INDEPENDENT ACCOUNTANTS
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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, 1996, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and the financial highlights
for each of the two years in the period then ended and for the period August 2,
1994 (commencement of operations) through December 31, 1994, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1996 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 10, 1997
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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
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