<PAGE>
MORGAN STANLEY ASIA-PACIFIC FUND, INC.
- ---------------------------------------------
DIRECTORS AND OFFICERS
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS James W. Grisham
Michael F. Klein VICE PRESIDENT
PRESIDENT AND DIRECTOR Harold J. Schaaff, Jr.
Peter J. Chase VICE PRESIDENT
DIRECTOR Joseph P. Stadler
John W. Croghan VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
David B. Gill SECRETARY
DIRECTOR Joanna M. Haigney
Graham E. Jones TREASURER
DIRECTOR Belinda A. Brady
John A. Levin ASSISTANT TREASURER
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.
---------------------
SEMI-ANNUAL REPORT
JUNE 30, 1997
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the six months ended June 30, 1997, the Morgan Stanley Asia-Pacific Fund,
Inc. (the "Fund") had a total return, based on net asset value per share, of
9.62% compared to its benchmark (as defined below) of 7.07%. For the one year
ended June 30, 1997, the Fund had a total return, based on net asset value per
share, of -0.09% compared with -5.34% for the benchmark. For the period since
the Fund's commencement of operations on August 2, 1994 through June 30, 1997,
the Fund's total return, based on net asset value per share, was 9.47% compared
with -5.43% 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 June 30, 1997, the closing
price of the Fund's shares on the New York Stock Exchange was $10.50
representing a 19.8% discount to the Fund's net asset value per share.
JAPAN
Following a yearly low set in February, the Japanese equity market rebounded
sharply. This rally came despite a consumption tax hike from 3% to 5% in April,
the collapse of Nissan Life Insurance, scandals at Nomura and Dai-Ichi Kangyo
Bank ("DKB") as well as a sharp strengthening of the yen. Sentiment also
improved after April as the severely depressed banking sector staged a technical
rally and overall anxiety regarding the Japanese economy softened.
In retrospect, we believe that the stock market digested the weakening economic
growth of the second quarter of 1996 (stemming from the consumption tax hike) in
the November '96 to February '97 sell-off. In fact, as the second quarter
progressed, many market participants became more encouraged that economic
prospects are brighter than the prevailing negative consensus, with such
conviction confirmed by the release of June's Bank of Japan "Tankan" report.
This quarterly survey was "+7", significantly better than the consensus
estimates. Moreover, on a global basis, Japanese domestic shortcomings looked
less severe when compared with the French election results and Germany's
mounting budget deficit problems. Therefore, on a global macro level confidence
and relative optimism for Japan yet again began to emerge.
The financial sector, particularly banks, staged a sharp technical rebound from
severely oversold levels with large open short interest positions contributing
to a volatile rally during the second quarter. The announcements that troubled
Nippon Credit Bank and Bankers Trust have formed alliances and that Hokkaido
Bank and Takushoku Bank will merge also helped to raise interest in the sector.
The Ministry of Finance will not allow large banks to fail. Also, the 5% equity
stake a large U.S. investor took in Wako Securities provided evidence that
mergers and acquisitions activity in Japanese's financial sector with Big Bang
looming may become a reality.
International blue chips, the market bell-cow since mid 1996, entered a
consolidation period in June. This sector, favored by domestic pension funds and
foreign investors for both value and growth, sold off primarily from the rapid
appreciation of the yen. The sharp appreciation of the yen came from a mounting
trade surplus between Japan and the U.S., particularly during April and May. At
the Washington G-7 meeting in April, statements were issued that "proper
currency levels are necessary" for the trade balance to correct. Moreover,
official U.S. statements directed to Japan posed strong language that the
Japanese domestic economy must be improved. As such, although most international
blue chips' earnings are more resilient now to a stronger yen, some investors
had ample reason to take profits in this sector.
OUTLOOK
We believe that the focus should not be on the Japanese economic recovery
but more on the degree to which it will improve. Evidence such as June's Tankan
report and bottom-up earnings results we are witnessing from leading companies
in Japan suggest that the recovery is well on it's way. However, the drag on the
domestic economy from mounting bankruptcy rates and banks' non-performing loans
as well as inefficient fiscal policy remains serious. In order for the domestic
economy to continue improving and show real private demand increases, additional
policy changes including further deregulation and administrative reform will
need to take place. We are hopeful this will occur. The LDP has recently shown
it is getting stronger with less internal friction and therefore a concerted
policy drive will be easier to implement.
While the scandals at Nomura, DKB and bankruptcy at Nissan Life were a few
casualties during the first half of 1997, we believe there are potentially more
such cases which could negatively affect the financial sector. On the other
2
<PAGE>
hand, international blue chips and globally competitive deregulated Japanese
industries will likely see a continued improvement in earnings and demand from
domestic and foreign investors. These companies are also "domestic demand" plays
because Japan is rapidly shifting to digital broadcasting, e-mail, PC's and
multimedia and therefore companies such as SONY are not only "export" plays on
the market.
We believe that the yen will stabilize in a trading range of 110-123 and the
recent 10% correction in the currency should begin to impact trade surplus
numbers less negatively. Our portfolio will continue to favor electronics, blue
chips, multimedia and high technology companies which represent value and show
visible earning momentum.
ASIA EX-JAPAN
REVIEW AND OUTLOOK
Continuing the pattern set in 1996, the individual Asian markets (excluding
Japan) showed a great divergence in performance in the first half of 1997. The
rise in the Asian markets was led by the Indian sub-continent markets with India
up a sharp 36.4% and Sri Lanka 34.1%. This was followed by the greater China
markets where Taiwan (+26.6%) China (+10.3%) and Hong Kong (+8.1%) staged sharp
pickups ahead of Hong Kong's handover to China on July 1, 1997. Rounding out the
Northeast Asian markets, Korea also showed a sharp rise, gaining 9.7%. In
contrast, the Southeast Asian markets of Thailand (-37.3%), the Philippines
(-12.2%) and Malaysia (-12.2%) registered sharp falls.
Following the first quarter where the Hong Kong market fell 9.5%, the Fund
increased its exposure to that market. This increased weight stood it in good
stead as the market staged a sharp rebound. Euphoria over China concept plays
and in particular red chips led the way. Sentiment and liquidity further
contributed, as asset injection stories propelled the red chips ever higher
while traditional blue chip stocks languished. As the Handover neared the market
appeared to be stretched, and the Fund began to trim its holdings. With the
Handover complete, red chip fever has subsided and talk of increasing the supply
of residential units in Hong Kong has caused the property sector to weaken. The
Fund will be looking to take its Hong Kong weighting down while shifting towards
better value blue chips such as the major property developers if they weaken
further.
The Fund further increased its exposure to India since last year, taking
advantage of that market's exceptional rise. Rapidly falling interest rates and
increased interest by foreign institutional investors powered the market to a
36.4% gain over the first half of 1997. Although in the near term the market is
likely to pause, valuations remain very reasonable on a historic basis and
inflows of money from foreign fund managers should continue.
The Fund also increased its weight in Korea since the beginning of the year and
will continue to look for good values in that market. The Korean economy appears
to have bottomed as positive export growth generated its first monthly trade
surplus in 30 months. Equally encouraging, there are also signs that the Korean
corporate culture is finally changing. The zealousness with which many Korean
companies pursued market share gains and top line growth is finally beginning to
shift towards interest in the bottom line which should bode well for equity
investors.
The Fund maintained its reduced weighting in Malaysia over the first half of the
year. This strategy paid off in the second quarter of 1997 as Bank Negara's
curbs on property lending and stock market margin loans in April finally forced
the economy to confront its problems with the impending oversupply in the
property market and an infrastructure spending binge. The subsequent severity of
the market fallout indicated an overstretched market. Although the long term
fundamentals for Malaysia remain good, short term prospects are not promising,
especially in the aftermath of the fallout from the depegging of the Thai baht.
The Fund is looking to maintain its underweight in Malaysia barring unforeseen
positive developments.
The Fund's weighting in Thailand has also been taken down slightly due to a
combination of portfolio sales and a collapsing market. This market has
continued to be a disaster, falling -37.3% this year following a -38.0% decline
last year. Most recently, confidence plummeted as the government resorted to
capital controls and jacked up interest rates to fend off the currency
speculators. The gloom was further compounded by news of a slowing economy as
the mounting financial crisis resulted in the suspension of trading in 16
finance companies. The depegging of the Thai baht at the beginning of July is
the first step towards addressing the Thai financial crisis. Recovery, however,
will be a slow and painful process, and the first sharp rally when the baht
broke is proving hard to sustain. The Fund will selectively continue to seek to
acquire good companies at "bombed-out" prices but it is still too early to bet
on the Thai market.
3
<PAGE>
The Thai financial crisis and the final depegging of the Thai baht have brought
into focus the common ills of the fast growing Southeast Asian nations. Thailand
is further along the economic cycle but the pain it is going through has
heightened investors' wariness about the region in general and is likely to
prove a dampener on the markets in the near term. The collapse in the Thai
market and the correction in Malaysia, Singapore and the Philippines have
brought market valuations back to attractive levels but short-term sentiment
remains poor.
In summary, the Fund will continue to electively seek to move out of more
extended markets like Hong Kong into the more distressed situations in Southeast
Asia.
Sincerely,
[SIGNATURE]
Michael F. Klein
PRESIDENT AND DIRECTOR
[SIGNATURE]
Ean Wah Chin
SENIOR PORTFOLIO MANAGER
July 1997
4
<PAGE>
Morgan Stanley Asia-Pacific Fund, Inc.
Investment Summary as of June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
TOTAL RETURN (%)
------------------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (3)
------------------------ -------------------------- ------------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
------------------------ -------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
FISCAL YEAR TO DATE 7.69% -- 9.62% -- 7.07% --
ONE YEAR -10.25 -10.25% -0.09 -0.09% -5.34 -5.34%
SINCE INCEPTION* -12.30+ -4.53+ 9.47+ 3.16+ -5.43 -1.90
</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>
TOTAL RETURN
YEARS ENDED DECEMBER 31: SIX MONTHS ENDED
1994* 1995 1996 JUNE 30, 1997
<S> <C> <C> <C> <C>
Net Asset Value Per Share $13.20 $14.34 $11.95 $13.10
Market Value Per Share $12.25 $13.33 $9.75 $10.50
Premium/(Discount) -7.20% -7.00% -18.4% -19.8%
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%+ 9.62%
Index Total Return (3) -5.90% 0.87% -9.17% 7.07%
Morgan Stanley Asia-Pacific Fund, Inc.
(2)
MSCI Regional Composite Index (3)
</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 two Morgan Stanley Capital International
(MSCI) indices; Japan and Combined Asia Pacific Free ex-Japan, where the
weights are based on the respective market capitalizations of these indices
at the beginning of the month.
* The Fund commenced operations on August 2, 1994.
+ This return does not include the effect of the rights issued in connection
with the Rights Offering.
5
<PAGE>
Morgan Stanley Asia-Pacific Fund, Inc.
Investment Summary as of June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Secu-
rities 96.1%
Short-Term
Investment 3.9%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Automobiles 4.1%
Banking 12.2%
Chemicals 4.7%
Electrical &
Electronics 11.6%
Electronic Components &
Instruments 3.2%
Energy Equipment &
Services 3.2%
Financial Services 3.7%
Machinery & Engineer-
ing 6.6%
Multi-Industry 9.5%
Real Estate 7.5%
Other 33.7%
</TABLE>
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Japan 40.8%
India 14.4%
Australia 8.8%
Singapore 5.9%
Hong Kong 10.7%
Thailand 4.5%
Philippines 1.8%
Korea 3.1%
Malaysia 3.2%
Indonesia 2.4%
Other 4.4%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS
PERCENT OF
NET ASSETS
---------------
<C> <S> <C>
1. Bharat Heavy Electricals
Ltd. 3.0%
2. Housing Development Finance
Corp. Ltd. 2.9
3. Cheung Kong (Holdings) Ltd. 2.2
4. HSBC Holdings plc 2.2
5. National Australia Bank Ltd. 1.9
<CAPTION>
PERCENT OF
NET ASSETS
---------------
<C> <S> <C>
6. Amcor Ltd. 1.9%
7. WMC Ltd. 1.8
8. China Resources Enterprise
Ltd. 1.7
9. Broken Hill Proprietary Co.
Ltd. 1.7
10. Container Corp. of India
Ltd. 1.6
---
20.9%
---
---
</TABLE>
6
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS (UNAUDITED)
- ------------
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -----------------------------------------------------------
- -------------
COMMON STOCKS (96.2%)
(Unless otherwise noted)
- ----------------------------------------------
- ----------
AUSTRALIA (8.8%)
BANKING
National Australia Bank Ltd. 1,229,384 U.S.$ 17,614
-------------
ENERGY SOURCES
Broken HIll Proprietary Co. Ltd. 1,052,964 15,494
-------------
FOREST PRODUCTS & PAPER
Amcor Ltd. 2,630,455 17,483
-------------
METALS -- NON-FERROUS
WMC Ltd. 2,645,655 16,684
-------------
REAL ESTATE
Lend Lease Corp. Ltd. 721,207 15,251
-------------
82,526
-------------
- -----------------------------------------------------------
- -------------
CHINA (0.1%)
MACHINERY & ENGINEERING
Qingling Motors Co. 'H' 2,674,000 1,381
-------------
- -----------------------------------------------------------
- -------------
HONG KONG (10.7%)
BANKING
Dao Heng Bank Group Ltd 420,000 2,298
HSBC Holdings plc 685,948 20,630
Hang Seng Bank Ltd. 181,000 2,582
-------------
25,510
-------------
MULTI-INDUSTRY
China Resources Enterprise Ltd. 3,178,000 15,588
Hutchison Whampoa Ltd. 1,749,000 15,126
Ng Fung Hong Ltd. 860,000 1,288
Shanghai Industrial Holdings Ltd. 707,000 4,399
-------------
36,401
-------------
REAL ESTATE
Cheung Kong (Holdings) Ltd. 2,098,000 20,717
Henderson Land Development Co. Ltd. 997,000 8,847
New World Development Co. Ltd. 317,000 1,890
Sun Hung Kai Properties Ltd. 583,000 7,017
-------------
38,471
-------------
100,382
-------------
- -----------------------------------------------------------
- -------------
INDIA (14.4%)
APPLIANCES & HOUSEHOLD DURABLES
Phillips India Ltd. 123,582 300
Supreme Industries Ltd. 'B' 178,449 996
-------------
1,296
-------------
- -----------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -----------------------------------------------------------
- -------------
AUTOMOBILES
Autolec Industries Ltd.'B' 152,800 U.S.$ 184
(a) Autopal Industries Ltd. 'B' 65,000 11
Bajaj Tempo Ltd. 100 1
(b) Bajaj Tempo Ltd. -- New 2,048 12
(a,c) Bajaj Tempo Ltd. (Rights) 1,717 6
Bharat Forge Co., Ltd. 217,996 431
Ceat Ltd. 'A' 368,000 316
(a) Denso India Ltd. 71,200 134
Escorts Ltd. 'A' 384,125 899
(a) Hero Honda Ltd. 'B' 400 6
MRF Ltd. 18,000 1,482
Patheja Forgings and Auto Ltd. 677,700 272
Tata Engineering & Locomotive Ltd. 223,022 2,816
-------------
6,570
-------------
BANKING
Industrial Finance Corp. (India) Ltd. 1,462,300 1,307
State Bank of India Ltd. 918,312 8,728
-------------
10,035
-------------
BEVERAGES & TOBACCO
ITC Ltd. 17,525 275
United Breweries Ltd. 149,100 113
-------------
388
-------------
BUILDING MATERIALS & COMPONENTS
Asian Paints Ltd. 800 8
Associated Cement Co. Ltd. 'A' 2,286 94
Gujarat Ambuja Cements Ltd. 'A' 415,250 4,019
India Cements Ltd. 75,000 226
Murudeshwar Ceramics Ltd. 'B' 44,000 42
(a) Panyam Cements & Minerals Ltd. 'B' 33,765 568
(b) Saurashtra Cement & Chemicals
Ltd. 50 --@
-------------
4,957
-------------
CHEMICALS
Birla VXL Ltd. 846,998 319
Gujarat Narmada Valley Fertilizers
Ltd. 'A' 303,974 193
Gujarat Narmada Valley Fertilizers
Ltd. GDR 144A 275,000 688
Indian Dyestuff Industries Ltd. 'B' 304,250 86
(a) Indian Organic Chemical Ltd. 275,480 35
Indian Petro Chemical Corp. Ltd. 1,097,610 4,445
(a) Jaysynth Dyechem Ltd. 145,800 88
United Phosphorous Ltd. 'B' 97,500 541
-------------
6,395
-------------
CONSTRUCTION & HOUSING
Alacrity Housing Ltd. 381,000 64
(a) Hindustan Construction Co. 'B' 254,675 194
Hindustan Development Corp. 'B' 988,780 293
(b) Nagarjuna Construction Ltd. 'B' 151,100 126
-------------
677
-------------
- -----------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------
- ------------
<S> <C> <C>
INDIA (CONTINUED)
ELECTRONIC COMPONENTS & INSTRUMENTS
Infosys Technology Ltd. 'B' 9,600 U.S.$ 498
Rolta India Ltd. 999,500 395
S&S Power Switchgear Ltd. 'B' 63,550 122
-------------
1,015
-------------
ENERGY EQUIPMENT & SERVICES
Bharat Heavy Electricals Ltd. 2,651,000 28,639
-------------
ENERGY SOURCES
Esab India Ltd. 'B' 346,865 1,020
-------------
FINANCIAL SERVICES
Housing Development Finance Corp. Ltd. 238,287 27,175
UTI MasterShares Ltd. 'A' 2,268,170 839
-------------
28,014
-------------
FOOD & HOUSEHOLD PRODUCTS
Dhampur Sugar Mills Ltd. 'B' 141,575 326
-------------
FOREST PRODUCTS & PAPER
(a) Ballarpur Industries Ltd. 'B' 232,264 287
ITC Bhadrachalam Paperboards Ltd. 'B' 273,595 352
-------------
639
-------------
HEALTH & PERSONAL CARE
Godrej Soaps Ltd. 197,600 127
Sun Pharmaceutical Industries Ltd. 161,200 1,116
TTK Biomed Ltd. 21,500 9
-------------
1,252
-------------
INDUSTRIAL COMPONENTS
(b) Apollo Tyres Ltd. 686,525 2,129
(a,c) Apollo Tyres Ltd. (Warrants),
expiring 2/28/98 189,543 73
Essel Packaging Ltd. 'B' 146,300 531
ITW Signode India Ltd. 'B' 571,132 1,368
KEC International Ltd. 'B' 881,750 1,188
-------------
5,289
-------------
LEISURE & TOURISM
ITC Hotels Ltd. 212,900 830
-------------
MACHINERY & ENGINEERING
Artson Engineering Ltd. 'B' 234,700 40
Crompton Greaves Ltd. 'B' 415,210 864
DGP Windsor India Ltd. 'B' 218,800 177
Flat Products Equipments (India) Ltd.
'B' 174,900 342
Hindustan Power Plus Ltd. 75,600 186
(a) Hindustan Power Plus Ltd.
(Rights), expiring 12/31/97 15,120 1
Lumax Automatic Parts Industries Ltd. 100,825 276
Thermax Ltd. 'B' 31,200 305
Veejay Lakshmi Engineering Ltd. 149,100 154
-------------
2,345
-------------
METALS -- STEEL
Tata Iron & Steel Co. Ltd. 'A' 1,445 8
(a,b) Tata SSL Ltd. -- New 3,290 3
(a,b) Tata SSL Ltd. -- New 'B' 464,500 415
-------------
426
-------------
- -----------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -----------------------------------------------------------
- -------------
MISCELLANEOUS MATERIALS & COMMODITIES
Amforge Industries Ltd. 'B' 34,505 U.S.$ 19
(b) Amforge Industries Ltd. -- New 5,150 3
(a,b) Amforge Industries Ltd.
(Warrants), expiring 7/1/97 5,150 --@
Vikas WSP Ltd. 304,600 993
-------------
1,015
-------------
MULTI-INDUSTRY
Autolite Ltd. 'B' 231,900 340
Century Textile & Industry Ltd. 11,038 678
Container Corp. of India Ltd 1,059,600 15,480
EID Parry Ltd. 'B' 64,300 185
Indian Rayon & Industries Ltd. 50 1
JK Corp. Ltd. 'A' 100 --@
JK Corp. Ltd. GDR 61,140 32
JK Corp. Ltd. GDR 144A 249,240 131
Kesoram Industries Ltd. 'B' 310,238 396
Max India Ltd. -- New 70,000 356
(a,e) Morgan Stanley Growth Fund 32,892,200 5,880
Voltas Ltd. 207,950 144
-------------
23,623
-------------
RECREATION, OTHER CONSUMER GOODS
Suashish Diamonds Ltd. 'B' 148,100 120
Tube Investments of India Ltd. 'B' 109,400 179
Wimco Ltd. 'A' 422,200 225
-------------
524
-------------
TELECOMMUNICATIONS
Mahanagar Telephone Nigam Ltd. 'A' 383,700 3,256
-------------
TEXTILES & APPAREL
Coates of India Ltd. 100,680 447
(a) DCL Polyesters Ltd. 195,000 31
G.T.N. Textiles Ltd. 'B' 243,000 353
Garware Plastics & Polyester Ltd. 275,525 454
Indo Rama Synthetics Ltd. 'B' 689,100 491
(b) Indo Rama Synthetics Ltd. -- New 46,170 31
(a) J.K. Synthetics Ltd. 'A' 686,901 110
Mahavir Spinning Mills Ltd. 173,686 359
Morajee Goculdas Spinning Ltd. 125,000 98
(a) Raymond Ltd. 82,595 150
(a,b) Raymond Ltd. -- New 126,057 211
(a) Viniyoga Clothes Ltd. 479,500 13
-------------
2,748
-------------
TRANSPORTATION -- SHIPPING
Great Eastern Shipping Ltd. 'A' 2,609,234 3,571
-------------
134,850
-------------
- -----------------------------------------------------------
- -------------
INDONESIA (2.4%)
AUTOMOBILES
Astra International (Foreign) 1,815,500 7,465
-------------
BANKING
(b) Bank International Indonesia
(Foreign) 2,515,319 2,172
(a,b) Bank International Indonesia
(Foreign) (Warrants), expiring
1/17/00 401,362 157
(b) Bank Negara Indonesia (Foreign) 4,000,000 2,549
-------------
4,878
-------------
- -----------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------
- ------------
<S> <C> <C>
INDONESIA (CONTINUED)
BEVERAGES & TOBACCO
(b) Gudang Garam (Foreign) 729,500 U.S.$ 3,060
(b) HM Sampoerna (Foreign) 389,000 1,483
-------------
4,543
-------------
FOOD & HOUSEHOLD PRODUCTS
(b) Indofood Sukses Makmur (Foreign) 250,000 576
-------------
FOREST PRODUCT & PAPER
(a,b) Indah Kait Pulp & Paper
(Warrants) Expiring 7/11/02 54,391 10
(a,b) Indah Kait Pulp & Paper
(Rights), expiring 8/11/97 305,949 53
-------------
63
-------------
MERCHANDISING
(b) Matahari Putra Prima (Foreign) 1,023,500 2,062
-------------
MULTI-INDUSTRY
(b) Bimantara Citra (Foreign) 160,000 280
-------------
TELECOMMUNICATIONS
(b) Telekomunikasi Indonesia (Foreign) 1,608,000 2,628
-------------
22,495
-------------
- -----------------------------------------------------------
- -------------
JAPAN (40.8%)
APPLIANCES & HOUSEHOLD DURABLES
Rinnai Corp. 160,700 3,451
-------------
AUTOMOBILES
Asahi Tec Corp. 443,000 2,158
Nissan Motor Co. 1,000,000 7,760
Suzuki Motor Co. Ltd. 630,000 7,973
Toyota Motor Corp. 190,000 5,606
-------------
23,497
-------------
BUILDING MATERIALS & COMPONENTS
Sangetsu Co. Ltd. 147,000 3,079
Sanwa Shutter Corp. Ltd. 492,000 4,466
(a) Sanwa Shutter Corp. Ltd.
(Warrants), expiring 1/20/98 1,400 595
-------------
8,140
-------------
BUSINESS & PUBLIC SERVICES
Dai Nippon Printing Co. Ltd. 270,000 6,104
-------------
CHEMICALS
Daicel Chemical Industries Ltd. 1,012,000 3,913
Fuji Photo Film Ltd. 222,000 8,933
Kaneka Corp. 899,000 5,634
Mitsubishi Chemical Industries 2,060,000 6,726
Nifco Inc. 330,000 3,457
Okura Industrial Co. Ltd. 434,000 1,708
Sekisui Chemical Co. 703,000 7,118
-------------
37,489
-------------
CONSTRUCTION & HOUSING
Kyudenko Co. Ltd. 389,000 3,280
Obayashi Corp. 865,000 5,791
Sekisui House Ltd. 387,000 3,918
Taisei Corp. Ltd. 1,000,000 4,635
-------------
17,624
-------------
DATA PROCESSING & REPRODUCTION
Fujitsu Ltd. 910,000 12,629
Nissha Printing 43,000 495
Ricoh Co. Ltd. 866,000 11,339
-------------
24,463
-------------
- -----------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -----------------------------------------------------------
- -------------
ELECTRICAL & ELECTRONICS
Canon, Inc. 450,000 U.S.$ 12,255
Hitachi Ltd. 1,185,000 13,240
Kyocera Corp. 60,000 4,766
Matsushita Electric Industrial Co.
Ltd. 562,000 11,332
NEC Corp. 925,000 12,918
Nintendo Ltd. 130,000 10,893
Sony Corp. 145,000 12,644
Stanley Electric Co. 690,000 3,572
Tokyo Electron Ltd. 269,500 12,891
Toshiba Corp. 1,730,000 11,129
-------------
105,640
-------------
ELECTRONIC COMPONENTS & INSTRUMENTS
Mitsumi Electric Co. Ltd. 423,000 10,080
Murata Manufacturing Co. 180,000 7,164
TDK Corp. 145,000 10,644
-------------
27,888
-------------
FINANCIAL SERVICES
Hitachi Credit Corp. 198,000 3,837
-------------
HEALTH & PERSONAL CARE
Sankyo Co. Ltd. 326,000 10,956
Yamanouchi Pharmaceutical Co. 300,000 8,065
-------------
19,021
-------------
INDUSTRIAL COMPONENTS
Furakawa Electric Co. 826,000 5,256
-------------
INSURANCE
Sumitomo Marine & Fire Co. 542,000 4,447
-------------
MACHINERY & ENGINEERING
Amada Co. Ltd. 817,000 7,203
Daifuku Co. Ltd. 531,000 6,999
Daikin Kogyo Co. 600,000 5,447
Fuji Machine Co. 329,000 11,918
Fujitec Co. Ltd. 400,000 4,748
Kurita Water Industries Ltd. 274,000 7,295
Mitsubishi Heavy Industries Ltd. 1,150,000 8,823
Nishio Rent All Co. 57,000 795
(a,b) Nishio Rent All Co. (Warrants),
expiring 2/20/98 1,055 7
Tsubakimoto Chain Co. 872,000 5,328
-------------
58,563
-------------
MERCHANDISING
FamilyMart 158,200 7,760
-------------
MISCELLANEOUS MATERIALS & COMMODITIES
Nippon Pillar Packing Co. 157,000 1,385
-------------
MULTI-INDUSTRY
Lintec 150,000 2,736
-------------
REAL ESTATE
Daibiru Corp. 228,000 2,746
Keihanshin Real Estate Co. 205,000 1,387
Mitsubishi Estate Co. Ltd. 390,000 5,651
-------------
9,784
-------------
TELECOMMUNICATIONS
Nippon Telephone & Telegraph Corp. 1,032 9,909
-------------
TEXTILES & APPAREL
Shimamura Co. Ltd. 78,900 2,810
-------------
WHOLESALE & INTERNATIONAL TRADE
Inabata & Co. 406,000 2,768
-------------
382,572
-------------
- -----------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------
- ------------
<S> <C> <C>
KOREA (3.1%)
APPLIANCES & HOUSEHOLD DURABLES
(b) Samsung Electronics Co. (Foreign) 57,197 U.S.$ 6,403
-------------
BANKING
(b) Housing & Commercial Bank, Korea 89,340 1,668
Kookmin Bank GDR 90,309 1,908
(b) Shinhan Bank Co. Ltd. (Foreign) 42,040 609
-------------
4,185
-------------
METALS -- STEEL
(b) Pohang Iron & Steel Ltd. (Foreign) 500 51
Pohang Iron & Steel Ltd. ADR 161,500 5,168
-------------
5,219
-------------
TELECOMMUNICATIONS
LG Information & Communication Ltd. 57,580 7,133
-------------
UTILITIES -- ELECTRICAL & GAS
Korea Electric Power Corp. (Foreign) 201,920 6,025
-------------
28,965
-------------
- -----------------------------------------------------------
- -------------
MALAYSIA (3.2%)
AUTOMOBILES
Edaran Otomobil Nasional Bhd 143,000 1,218
-------------
BANKING
Commerce Asset Holding Bhd 786,000 2,071
(a) Commerce Asset Holding Bhd
(Rights) 157,200 6
(a) Commerce Asset Holding Bhd
(Warrants), expiring 3/16/02 98,250 15
Malayan Banking Bhd 328,000 3,444
-------------
5,536
-------------
BUILDING MATERIALS & COMPONENTS
Jaya Tiasa Holdings Bhd 411,000 2,068
-------------
CONSTRUCTION & HOUSING
IJM Corp. Bhd 545,000 1,144
-------------
ELECTRICAL & ELECTRONICS
Lityan Holdings Bhd 110,000 1,340
-------------
ENERGY EQUIPMENT & SERVICES
Dialog Group Bhd 132,000 1,909
-------------
FINANCIAL SERVICES
Rashid Hussain Bhd 301,000 1,908
(a) Rashid Hussain Bhd (Rights)
expiring 12/31/97 43,000 --@
-------------
1,908
-------------
INDUSTRIAL COMPONENTS
Leader Universal Holdings Bhd 603,000 1,085
Malaysian Pacific Industries Bhd 110,000 479
-------------
1,564
-------------
LEISURE & TOURISM
Berjaya Group Bhd 662,000 813
Genting Bhd 522,000 2,502
Resorts World Bhd 1,028,000 3,095
-------------
6,410
-------------
MULTI-INDUSTRY
Berjaya Sport Toto Bhd 89,000 420
Multi-Purpose Holdings Bhd 274,000 384
Sime Darby Bhd 1,776,000 5,911
-------------
6,715
-------------
- -----------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -----------------------------------------------------------
- -------------
REAL ESTATE
Malaysian Resources Corp. Bhd 160,000 U.S.$ 441
-------------
30,253
-------------
- -----------------------------------------------------------
- -------------
NEW ZEALAND (0.5%)
FOREST PRODUCTS & PAPER
Fletcher Challenge Paper 2,067,520 5,014
-------------
- -----------------------------------------------------------
- -------------
PHILIPPINES (1.8%)
CONSTRUCTION & HOUSING
DMCI Holdings, Inc. 9,894,000 3,264
-------------
MULTI-INDUSTRY
JG Summit Holdings 'B' 4,390,100 899
-------------
REAL ESTATE
Ayala Land, Inc. 'B' 3,273,631 3,010
(a) Fil-Estate Land Inc. 'B' 1,159,000 338
SM Prime Holdings, Inc. 'B' 9,637,680 2,850
-------------
6,198
-------------
TELECOMMUNICATIONS
(a) Digital Telecommunications
Philippines, Inc. 30,651,000 2,963
-------------
UTILITIES -- ELECTRICAL & GAS
Manila Electric Co. 'B' 734,306 3,619
-------------
16,943
-------------
- -----------------------------------------------------------
- -------------
SINGAPORE (5.9%)
BANKING
Development Bank of Singapore
(Foreign) 385,000 4,847
Oversea-Chinese Banking Corp.
(Foreign) 463,200 4,795
United Overseas Bank (Foreign) 477,200 4,907
-------------
14,549
-------------
BROADCASTING & PUBLISHING
Singapore Press Holdings (Foreign) 439,000 8,843
-------------
ELECTRICAL & ELECTRONICS
SM Summit Holdings Ltd. 2,238,000 1,691
-------------
ELECTRONIC COMPONENTS & INSTRUMENTS
Electronic Resources Ltd. 397,000 625
(a) Electronic Resources Ltd. (Rights) 198,500 132
-------------
757
-------------
FOOD & HOUSEHOLD PRODUCTS
Super Coffeemix Manufacturing Ltd. 8,518,000 7,090
(a) Want Want Holdings 1,474,800 4,896
-------------
11,986
-------------
MULTI-INDUSTRY
Natsteel Ltd. 3,930,000 10,006
Parkway Holdings 791,000 3,541
Wing Tai Holdings Ltd. 1,478,000 4,258
-------------
17,805
-------------
55,631
-------------
- -----------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------
- -------------
<S> <C> <C>
THAILAND (4.5%)
BANKING
Bangkok Bank Ltd. (Foreign) 1,901,800 U.S.$ 13,068
Industrial Finance Corp. (Foreign) 601,000 766
Siam Commercial Bank Co. Ltd.
(Foreign) 1,796,500 7,351
(a) Thai Farmers Bank Ltd. (Foreign) 2,632,000 11,176
(a) Thai Farmers Bank Ltd. (Warrants)
expiring 9/15/02 128,000 39
-------------
32,400
-------------
BROADCASTING & PUBLISHING
(b) National Multimedia Group
(Foreign) 545,000 1,157
-------------
BUILDING MATERIALS & COMPONENTS
Siam Cement Co. Ltd. (Foreign) 15,400 266
Tipco Asphalt Co. Ltd. (Foreign) 79,000 412
-------------
678
-------------
CHEMICALS
(b) National Petrochemical Ltd.
(Foreign) 107,600 110
-------------
ELECTRONIC COMPONENTS & INSTRUMENTS
Shinawatra Computer Co., Ltd. 81,000 560
-------------
ENERGY SOURCES
Banpu Co. Ltd. (Foreign) 38,000 554
Lanna Lignite Co. Ltd. 13,000 91
Lanna Lignite Co. Ltd. (Foreign) 27,000 181
-------------
826
-------------
FINANCIAL SERVICES
National Finance & Securities Co.,
Ltd. (Foreign) 1,319,400 827
National Finance & Securities Co.,
Ltd. (Local) 882,000 553
Phatra Thanakit Co. Ltd. (Foreign) 3,400 4
-------------
1,384
-------------
REAL ESTATE
Central Pattana PCL 100,000 137
-------------
TELECOMMUNICATIONS
Advanced Information Services Co.,
Ltd. (Foreign) 55,000 480
(b) United Communications Industry
(Foreign) 931,000 3,845
-------------
4,325
-------------
UTILITIES -- ELECTRICAL & GAS
(a,d) Eastern Water Resources
Development and Management 257,000 298
-------------
41,875
-------------
- -----------------------------------------------------------
- -------------
TOTAL COMMON STOCKS
(Cost U.S. $846,363) 902,887
-------------
</TABLE>
- -----------------------------------------------------------
- -------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------
- -------------
FIXED INCOME SECURITIES (0.0%)
- -----------------------------------------------------------
- -------------
INDIA (0.0%)
METALS -- STEEL
(b) Tata SSL Ltd. 14.00%, 12/6/02 INR 3 U.S.$ 3
-------------
MULTI-INDUSTRY
(b) Max India Part B, Zero Coupon
12/16/06 100 508
-------------
- -----------------------------------------------------------
- -------------
TOTAL FIXED INCOME SECURITIES
(Cost U.S. $750) 511
-------------
- -----------------------------------------------------------
- -------------
SHORT-TERM INVESTMENT (1.2%)
- -----------------------------------------------------------
- -------------
UNITED STATES (1.2%)
REPURCHASE AGREEMENT
Chase Securities, Inc., 5.70%, dated
6/30/97, due 7/1/97 to be repurchased
at U.S. $11,556, collateralized by
United States Treasury Notes 5.625%,
due 2/15/06, valued at U.S. $11,749
(Cost U.S. $11,554) U.S.$ 11,554 11,554
-------------
- -----------------------------------------------------------
- -------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (2.7%)
Australian Dollar AUD 275 208
Hong Kong Dollar HKD 1,858 240
Indian Rupee INR 734,332 20,512
Indonesian Rupiah IDR 107,561 44
Japanese Yen JPY 325,165 2,838
Malaysian Ringgit MYR 168 67
New Zealand Dollar NZD 2 1
Philippine Peso PHP 3,610 137
Singapore Dollar SGD 199 139
South Korean Won KRW 200,658 226
Thai Baht THB 15,854 612
-------------
(Cost U.S. $25,015) 25,024
-------------
- -----------------------------------------------------------
- -------------
TOTAL INVESTMENTS (100.1%)
(Cost U.S. $883,682) 939,976
-------------
- -----------------------------------------------------------
- -------------
OTHER ASSETS (0.7%)
Receivable for Investments Sold U.S.$ 5,320
Dividends Receivable 1,320
Foreign Withholding Tax Reclaim
Receivable 24
Deferred Organization Costs 23
Interest Receivable 2
Other Assets 81 6,770
--------------- -------------
- -----------------------------------------------------------
- -------------
LIABILITIES (-0.8%)
Deferred Indian Taxes (1,070)
Payable for:
Investments Purchased (5,027)
Investment Advisory Fees (745)
Custodian Fees (302)
Shareholder Reporting Expenses (139)
Professional Fees (78)
Administrative Fees (73)
Directors' Fees and Expenses (68)
Net Unrealized Loss on Foreign
Currency Exchange Contracts (53)
Other Liabilities (201) (6,686)
--------------- -------------
- -----------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------------
- ------------
NET ASSETS (100%)
Applicable to 71,654,508 issued and
outstanding U.S. $0.01 par value
shares (100,000,000 shares
authorized) U.S.$ 938,990
-------------
-------------
- -----------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S. $ 13.10
-------------
-------------
- -----------------------------------------------------------
- -------------
AT JUNE 30, 1997, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------
Common Stock U.S.$ 717
Capital Surplus 927,879
Undistributed Net Investment Income 264
Accumulated Net Realized Loss (44,996)
Unrealized Appreciation on Investments and Foreign
Currency Translations (net of accrued foreign tax of
U.S. $1,070 on unrealized appreciation)
55,126
- -----------------------------------------------------------
- -------------
TOTAL NET ASSETS U.S.$ 938,990
-------------
-------------
- -----------------------------------------------------------
- -------------
</TABLE>
(a) -- Non-income producing.
(b) -- Security valued at fair value -- see note A-1 to financial
statements.
(c) -- Security valued at fair value as determined based on the market value
of the underlying security less subscription costs.
(d) -- Security fair valued at cost -- see note A-1 to financial statements.
(e) -- The Fund is advised by an affiliate.
@ -- Value is less than U.S.$500.
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
144A -- Certain conditions for public sale may exist.
Note: Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging markets, and foreign ownership
limitations may also be imposed by the charters of individual companies in
emerging markets. As a result, an additional class of shares designated as
"foreign" may be created and offered for investment. The "local" and
"foreign" shares' market values may vary.
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------
- -------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30,
1997, the Fund is obligated to deliver or is to receive foreign
currency in exchange for U.S. dollars as indicated below:
</TABLE>
<TABLE>
<CAPTION>
CURRENCY IN NET
TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE LOSS
(000) (000) DATE (000) (000) (000)
- -------------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
U.S.$ 494 U.S.$ 494 7/2/97 THB12,779 U.S.$ 494 U.S.$--
THB 214,922 8,148 8/18/97 U.S.$ 8,095 8,095 (53)
----------- ----------- ------------
U.S.$8,642 U.S.$8,589 U.S.$(53)
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY
CLASSIFICATION -- JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
<S> <C> <C>
- ---------------------------------------------------------------
- ----------------
Appliances & Household Durables U.S.$ 11,150 1.2%
Automobiles 38,750 4.1
Banking 114,707 12.2
Beverages & Tobacco 4,931 0.5
Broadcasting & Publishing 10,000 1.1
Building Materials & Components 15,843 1.7
Business & Public Services 6,104 0.6
Chemicals 43,994 4.7
Construction & Housing 22,709 2.4
Data Processing & Reproduction 24,463 2.6
Electrical & Electronics 108,671 11.6
Electronic Components & Instruments 30,220 3.2
Energy Equipment & Services 30,548 3.2
Energy Sources 17,340 1.8
Financial Services 35,143 3.7
Food & Household Products 12,888 1.4
Forest Products & Paper 23,199 2.5
Health & Personal Care 20,273 2.2
Industrial Components 12,109 1.3
Insurance 4,447 0.5
Leisure & Tourism 7,240 0.8
Machinery & Engineering 62,289 6.6
Merchandising 9,822 1.0
Metals -- Non-Ferrous 16,684 1.8
Metals -- Steel 5,648 0.6
Mining
Miscellaneous Materials & Commodities 2,400 0.3
Multi-Industry 88,967 9.5
Real Estate 70,282 7.5
Recreation, Other Consumer Goods 524 0.1
Telecommunications 30,214 3.2
Textiles & Apparel 5,558 0.6
Transportation -- Shipping 3,571 0.4
Utilities -- Electrical & Gas 9,942 1.0
Wholesale & International Trade 2,768 0.3
Other 36,578 3.9
------------ -------
U.S.$939,976 100.1%
------------ -------
------------ -------
- ---------------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
<S> <C>
- ---------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends............................................................................... U.S.$ 6,027
Interest................................................................................ 1,124
Less: Foreign Taxes Withheld............................................................ (700)
- ---------------------------------------------------------------------------------------------------------------
Total Income.......................................................................... 6,451
- ---------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees................................................................ 4,303
Custodian Fees.......................................................................... 596
Administrative Fees..................................................................... 428
Shareholder Reporting Expenses.......................................................... 220
Transfer Agent Fees..................................................................... 80
Professional Fees....................................................................... 57
Directors' Fees and Expenses............................................................ 35
Other Expenses.......................................................................... 66
- ---------------------------------------------------------------------------------------------------------------
Total Expenses........................................................................ 5,785
- ---------------------------------------------------------------------------------------------------------------
Net Investment Income............................................................... 666
- ---------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold.............................................................. (39,802)
Foreign Currency Transactions........................................................... 333
- ---------------------------------------------------------------------------------------------------------------
Net Realized Loss................................................................... (39,469)
- ---------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Depreciation on Investments............................................................. 121,309
Depreciation on Foreign Currency Translations........................................... 87
- ---------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation...................................... 121,396
- ---------------------------------------------------------------------------------------------------------------
Total Net Realized Loss and Change in Unrealized Appreciation/Depreciation.................. 81,927
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................... U.S.$ 82,593
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income............................................... U.S.$ 666 U.S.$ 1,372
Net Realized Gain (Loss)............................................ (39,469) 49,641
Change in Unrealized Appreciation/Depreciation...................... 121,396 (94,387)
- ---------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations..... 82,593 (43,374)
- ---------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income............................................... -- (43,033)
In Excess of Net Investment Income.................................. -- (402)
- ---------------------------------------------------------------------------------------------------------------
Total Distributions................................................. -- (43,435)
- ---------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Common Stock Issued Through Rights Offering (18,000,000 shares)..... -- 174,612
Offering Costs...................................................... -- (820)
- ---------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting From Capital Share
Transactions...................................................... -- 173,792
- ---------------------------------------------------------------------------------------------------------------
Total Increase...................................................... 82,593 86,983
Net Assets:
Beginning of Period................................................. 856,397 769,414
- ---------------------------------------------------------------------------------------------------------------
End of Period (including undistributed (distributions in excess of)
net investment income of U.S.$264 and U.S.$(402), respectively)... U.S.$938,990 U.S.$856,397
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS PERIOD FROM
ENDED JUNE 30, YEAR ENDED DECEMBER 31, AUGUST 2, 1994*
1997 --------------------------------- TO DECEMBER 31,
SELECTED PER SHARE DATA AND RATIOS: (UNAUDITED) 1996 1995 1994
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.............. U.S.$ 11.95 U.S.$ 14.34 U.S.$ 13.20 U.S.$ 14.10
- -------------------------------------------------------------------------------------------------------------------------
Offering Costs.................................... -- (0.01) -- (0.03)
- -------------------------------------------------------------------------------------------------------------------------
Net Investment Income............................. 0.01 0.02 0.05 0.05
Net Realized and Unrealized Gain (Loss) on
Investments...................................... 1.14 (0.33) 1.16 (0.87)
- -------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations.............. 1.15 (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.$ 13.10 U.S.$ 11.95 U.S.$ 14.34 U.S.$ 13.20
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD............. U.S.$ 10.50 U.S.$ 9.75 U.S.$ 13.33 U.S.$ 12.25
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value.................................. 7.69% (14.72)%+ 9.38% (12.71)%
Net Asset Value (1)........................... 9.62% (2.87)%+ 9.24% (5.94)%
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS)............. U.S.$938,990 U.S.$856,397 U.S.$769,414 U.S.$708,323
- -------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets........... 1.34%** 1.39% 1.36% 1.31%**
Ratio of Net Investment Income to Average Net
Assets........................................... 0.16%** 0.16% 0.36% 0.89%**
Portfolio Turnover Rate........................... 28% 28% 21% 2%
Average Commission Rate (2):
Per Share..................................... U.S.$0.0138 U.S.$0.0132 N/A N/A
As a Percentage of Trade Amount............... 0.43% 0.52% N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations.
** Annualized.
# Amount is less than U.S.$0.01.
+ This return does not include the effect of the rights issued in connection
with the Rights Offering.
(1) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. This percentage is not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value of
the Fund.
(2) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose the average commission rate per share it paid for portfolio
trades on which commissions were charged during the period.
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED)
- ------------
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's investment objective is long-term capital
appreciation through investments primarily in equity securities.
A. The following significant accounting policies, which are in conformity with
generally accepted accounting principles for investment companies, are
consistently followed by the Fund in the preparation of its financial
statements. Generally accepted accounting principles may require management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results may differ from those estimates.
1. SECURITY VALUATION: In valuing the Fund's
assets, all listed securities for which market quotations are readily available
are valued at the last sale price on the valuation date, or if there was no
sale on such date, at the mean between the current bid and asked prices.
Securities which are traded over-the-counter are valued at the average of
the mean of current bid and asked prices obtained from reputable brokers.
Short-term securities which mature in 60 days or less are valued at
amortized cost. All other securities and assets for which market values are
not readily available (including investments which are subject to
limitations as to their sale) are valued at fair value as determined in good
faith by the Board of Directors (the "Board"), although the actual
calculations may be done by others.
2. TAXES: It is the Fund's intention to continue to
qualify as a regulated investment company and distribute all of its taxable
income. Accordingly, no provision for U.S. Federal income taxes is required
in the financial statements.
The Fund may be subject to taxes imposed by countries in which it invests.
Such taxes are generally based on income and/or capital gains earned or
repatriated. Taxes are accrued and applied to net investment income, net
realized gains and net unrealized appreciation as such income and/or gains
are earned.
3. REPURCHASE AGREEMENTS: In connection with
transactions in repurchase agreements, a bank as custodian for the Fund
takes possession of the underlying securities, with a market value at least
equal to the amount of the repurchase transaction, including principal and
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market on a daily
basis to determine the adequacy of the collateral. In the event of default
on the obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. In the
event of default or bankruptcy by the counter-party to the agreement,
realization and/or retention of the collateral or proceeds may be subject to
legal proceedings.
4. FOREIGN CURRENCY TRANSLATION: The books and
records of the Fund are maintained in U.S. dollars. Foreign currency amounts
are translated into U.S. dollars at the mean of the bid and asked prices of
such currencies against U.S. dollars last quoted by a major bank as follows:
- investments, other assets and liabilities at the prevailing rates of
exchange on the valuation date;
- investment transactions and investment income at the prevailing rates of
exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the period, the Fund does not
isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of the securities held at period end.
Similarly, the Fund does not isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market
prices of securities sold during the period. Accordingly, realized and
unrealized foreign currency gains (losses) are included in the reported net
realized and unrealized gains (losses) on investment transactions and
balances.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from sales and maturities of foreign
currency exchange contracts, disposition of foreign currencies, currency
gains or losses realized between the trade and settlement dates on
securities transactions, and the difference between the amount of investment
income and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent amounts actually received or paid. Net unrealized
currency gains (losses) from valuing foreign currency denominated assets and
liabilities and foreign currency contracts at period end exchange rates are
reflected as a component of unrealized appreciation (depreciation) on
investments and foreign currency translations in
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<PAGE>
the Statement of Net Assets. The change in net unrealized currency gains
(losses) for the period is reflected in the Statement of Operations.
5. FOREIGN CURRENCY EXCHANGE CONTRACTS: The
Fund may enter into foreign currency exchange contracts to attempt to
protect securities and related receivables and payables against changes in
future foreign exchange rates. A foreign currency exchange contract is an
agreement between two parties to buy or sell currency at a set price on a
future date. The market value of the contract will fluctuate with changes in
currency exchange rates. The contract is marked-to-market daily and the
change in market value is recorded by the Fund as unrealized gain or loss.
The Fund records realized gains or losses when the contract is closed equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. Risk may arise upon entering
into these contracts from the potential inability of counterparties to meet
the terms of their contracts and is generally limited to the amount of
unrealized gain on the contracts, if any, at the date of default. Risks may
also arise from unanticipated movements in the value of a foreign currency
relative to the U.S. dollar.
6. OTHER: Security transactions are accounted for
on the date the securities are purchased or sold. Investments in new Indian
securities are made by making applications in the public offerings. The
issue price, or a portion thereof, is paid at the time of application and is
reflected as share application money on the Statement of Net Assets, if any.
Upon allotment of the securities, this amount plus any remaining amount of
issue price is recorded as cost of investments. Realized gains and losses on
the sale of investment securities are determined on the specific identified
cost basis. Interest income is recognized on the accrual basis. Dividend
income is recorded on the ex-dividend date (except certain dividends which
may be recorded as soon as the Fund is informed of such dividend) net of
applicable withholding taxes where recovery of such taxes is not reasonably
assured. Distributions to shareholders are recorded on the ex-date.
The amount and character of income and capital gain distributions to be paid
are determined in accordance with Federal income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing book and tax treatments for foreign currency
transactions, the timing of the recognition of gains and losses on
securities and foreign currency exchange contracts.
Permanent book and tax basis differences relating to shareholder
distributions may result in reclassifications to undistributed net
investment income (loss), accumulated net realized gain (loss) and capital
surplus.
Adjustments for permanent book-tax differences, if any, are not reflected in
ending undistributed net investment income (loss) for the purpose of
calculating net investment income (loss) per share in the financial
highlights.
B. Morgan Stanley Asset Management Inc. (the "Adviser") provides investment
advisory services to the Fund under the terms of an Investment Advisory and
Management Agreement (the "Agreement"). Under the Agreement, the Adviser is paid
a fee computed weekly and payable monthly at an annual rate of 1.00% of the
Fund's average weekly net assets.
C. The Chase Manhattan Bank, through its affiliate Chase Global Funds Services
Company (the "Administrator"), provides administrative services to the Fund
under an Administration Agreement. Under the Administration Agreement, the
Administrator is paid a fee computed weekly and payable monthly at an annual
rate of .09% of the Fund's average weekly net assets, plus $65,000 per annum. In
addition, the Fund is charged certain out-of-pocket expenses by the
Administrator. The Chase Manhattan Bank acts as custodian for the Fund's assets
held in the United States.
D. Morgan Stanley Trust Company (the "International Custodian"), an affiliate
of the Adviser, acts as custodian for the Fund's assets held outside the United
States in accordance with a Custody Agreement. Custodian fees are payable
monthly based on assets under custody, investment purchase and sale activity, an
account maintenance fee, plus reimbursement for certain out-of-pocket expenses.
Investment transaction fees vary by country and security type. For the six
months ended June 30, 1997, the Fund incurred International Custodian fees of
$592,000 of which $298,000 was payable to the International Custodian at June
30, 1997. In addition, for the six months ended June 30, 1997, the Fund has
earned interest income of $3,000 and incurred interest expense of $2,000 on
balances with the International Custodian.
E. For the six months ended June 30, 1997, the Fund made purchases and sales
totaling $230,733,000 and $226,351,000, 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 six months ended June 30, 1997,
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<PAGE>
the Fund incurred $15,000 of brokerage commissions with Morgan Stanley & Co.
Incorporated, an affiliate of the Adviser.
At June 30, 1997, the U.S. Federal income tax cost basis of securities was
$858,667,000 and accordingly, net unrealized appreciation was $56,285,000 of
which $160,531,000 related to appreciated securities and $104,246,000 related to
depreciated securities. 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.
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 June 30, 1997 totaled
$50,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
J. Supplemental Proxy Information
The Annual Meeting of the Stockholders of the Morgan Stanley Asia-Pacific Fund,
Inc. was held on April 30, 1997. The following is a summary of each proposal
presented and the total number of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES
PROPOSAL: FAVOR OF AGAINST ABSTAINED
- ------------------------------------------------------------------------------- ---------- --------- -----------
<S> <C> <C> <C>
1. To elect the following Directors: John W. Croghan 36,863,272 413,715 --
Graham E. Jones 36,863,272 413,715 --
2.To ratify the selection of Price Waterhouse LLP as independent public
accountants of the Fund. 37,011,542 204,898 60,547
3.To approve or disapprove an Investment Advisory and Management Agreement
between the Fund and Morgan Stanley Asset Management Inc. 36,738,087 419,335 119,563
</TABLE>
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
