<PAGE>
MORGAN STANLEY ASIA-PACIFIC FUND, INC.
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS
Michael F. Klein Stefanie V. Chang
PRESIDENT AND DIRECTOR VICE PRESIDENT
Peter J. Chase Harold J. Schaaff, Jr.
DIRECTOR VICE PRESIDENT
John W. Croghan Joseph P. Stadler
DIRECTOR VICE PRESIDENT
David B. Gill Valerie Y. Lewis
DIRECTOR SECRETARY
Graham E. Jones Joanna M. Haigney
DIRECTOR TREASURER
John A. Levin Belinda A. Brady
DIRECTOR ASSISTANT TREASURER
- --------------------------------------------------------------------------------
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
3 Chase MetroTech Center
Brooklyn, New York 11245
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(800) 278-4353
- --------------------------------------------------------------------------------
LEGAL COUNSEL
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
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, 1997
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
For the year ended December 31, 1997, the Morgan Stanley Asia-Pacific Fund, Inc.
(the "Fund") had a total return, based on net asset value per share, of -26.36%
compared to its benchmark (as defined below) of -28.09%. For the period since
the Fund's commencement of operations on August 2, 1994 through December 31,
1997, the Fund's total return, based on net asset value per share, was -26.46%
compared with -36.49% 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, 1997, the closing price of the Fund's shares on the New York Stock Exchange
was $7.44 representing a 15.2% discount to the Fund's net asset value per share.
Asian markets witnessed a disastrous year in 1997, as the index suffered its
largest yearly decline since its inception. Of the core East Asian markets, not
a single individual country managed a positive return for the year, as the
region's best performers were Taiwan (-6.3%) and Hong Kong (-23.3%). Five of the
nine countries encompassed within the index suffered declines of more than 60%,
led by Indonesia (-74.1%) and followed by Thailand (-73.4%), Malaysia (-68.0%),
Korea (-66.7%) and the Philippines (-62.6%).
Though the meltdown in the region can be traced to factors which existed in many
countries, the collapse was precipitated by the de-pegging of the Thai baht on
July 2, 1997, which subsequently forced the currency and equity markets into a
vicious downward spiral. A large current account deficit coupled with unhedged
U.S. dollar loans going into a property bubble first attracted the speculators
who eventually triggered the depreciation of the currency. Despite a change of
government and an IMF led bailout package, the equity market remains badly
beaten, down close to 90% from its peak two years ago. Though the IMF has been
successful in closing shaky financial institutions, a complete lack of
confidence in the currency and illiquidity in the markets has led most
international equity investors to desert Thailand.
The currency depreciation quickly spread to other Southeast Asian countries,
most severely to Indonesia. Despite reasonably solid macroeconomic fundamentals,
domestic and international holders of the currency quickly fled to U.S. dollars,
forcing the rupiah down 56% by the year end. Indonesian corporates and banks
with large exposure to U.S. dollar-denominated debt led the market down, as
interest costs skyrocketed throughout the economy. The ensuing economic
slowdown, as well as concerns over the health of Indonesia's ailing patriarch
Suharto, allowed little upside to the equity market through year end.
The contagion effect which lashed Southeast Asia quickly spread to Northeast
Asia with the Korean won depreciating by 47%. In the fourth quarter, the stock
market declined sharply amidst concern over the credit quality of the financial
sector and the ability of Korea to repay its foreign short-term obligations.
Korea's downturn was a result of the excessive expansion and over-leverage by
Korean chaebols, the business conglomerates of Korea, which comprise over 70% of
GDP. Several large chaebols entered into court receivership including Sammi,
Hanbo, Kia and Jinro with net debt to equity ratios well above 500%. In the
latter part of the year, the IMF stepped in and Korea was forced to undertake
quick liberalization and reform measures, including the opening of its capital
markets.
Lastly, even Hong Kong did not remain unscathed from the regional turmoil.
Though its currency board system allowed it to maintain the Hong Kong dollar peg
to the U.S. dollar, the cost was levied through a rapid increase in interest
rates. The equity market, dominated by interest sensitive stocks such as
property and banks, reversed the 20% return it had made through September and
plummeted to a final -25% performance for the year. Hong Kong property prices,
among the most expensive in the world dropped 30% in 4 months, as asset
deflation took the place of currency depreciation.
ASIA EXCLUDING JAPAN - OUTLOOK
As the crash takes its initial victims in ASEAN to below 70% from their peaks,
focus has now shifted to North-East Asia. The imminent demise of the Korean
economy (the 11th largest in the world) as we know it today has finally awakened
the world to the risk of a worldwide contagion and begun to elicit some
concerted response from the U.S. and the international community.
At the same time, however, as the other currencies and markets fall, the
remaining markets like Hong Kong, Singapore and Taiwan are looking more and more
expensive and vulnerable. The risk in Hong Kong is that China is obviously
slowing rapidly and its currency peg to the U.S. dollar is exacting a heavy toll
on its economy. Should the U.S. equity markets crash, Hong Kong's position could
become untenable.
2
<PAGE>
Similarly, should China falter, Taiwan would be seriously impacted, and its
problems compounded by the current weakness in the technology and electronics
area. Any fallout in the electronics area will also be problematic for Singapore
which is already contending with the devastation of its ASEAN partners and
hinterland.
We would therefore look to reduce our Hong Kong and China exposure and seek to
hedge our currency exposure to the Hong Kong dollar, the New Taiwan dollar and
the Singapore dollar. Concurrently, we would be seeking to put money to work in
selected stocks in the more devastated markets which are beginning to offer
compelling values for the patient investor.
It is anticipated that 1998 will be a very difficult year for the region. The
effect of the fallout in the regional markets is just beginning to filter
through into the real economy and 1998 will be marked by corporate collapses and
massive layoffs which are likely to cause many of the economies to descend into
economic recessions and possible political and social unrest.
Although the currency turmoil and confidence crisis continues and there are no
signs of the stock markets stabilizing, the speed at which some of the regional
currencies and markets are sliding would seem to indicate a climatic condition.
It is therefore our view that now is not the time for serious investors to exit
these markets. Indeed, investors with the luxury of a longer term horizon stand
to reap massive long term gains through capitalizing on this monumental meltdown
in the Asian markets.
Our strategy would be to concentrate on identifying for acquisition, the
companies and stocks that represent irreplaceable franchises which are currently
available at bargain basement levels.
JAPAN - REVIEW
During the fourth quarter of 1997 economic conditions deteriorated substantially
faster than market expectations. In fact, the Tankan survey of Japanese
corporations released in December showed almost all economic indicators to be
accelerating lower than most pessimists had been predicting.
A vicious downward spiral, starting with a weak economy leading to declining
stock prices and erosion of "hidden profits" held by Japanese institutions
resulted in a sharply higher Japan premium. This self-feeding economic downturn
further depressed investor confidence and consumer spending. Moreover, in order
to meet international BIS standards Japanese banks were forced to liquidate
cross-holdings of equities to raise capital while their lending activity was
also curtailed to avoid unnecessary exposure, particularly to medium to smaller
companies. These events, coupled with a severe economic climate led to the
collapse of several major Japanese corporations in the 4th quarter,
unprecedented since WWII, including Sanyo and Yamaichi Securities and Hokkaido
Takushoku Bank. The mounting credit crunch from the rising Japan premium for
inter bank loans also forced Toshoku, a medium sized trading company into
bankruptcy. The Japanese Government in an act of desperation announced plans
for a new type of bond to provide capital for the DIC (Deposit Insurance
Corporations) and also proposed to purchase preferred stocks from Japanese
banks. Also, in order to boost public confidence the Government announced a one
time 2 trillion yen individual tax cut in mid December.
However, investors' reactions to such proposals was largely cool as most
participants believe that only a massive fiscal stimulus program will help the
ailing economy. Foreign investors in particular were disappointed with the lack
of fiscal stimulus and became large net sellers, preferring to shore-up overseas
investments and flee to "quality" and back to the dollar. The combined unstable
Asian economies and Korea's economic uncertainty propelled Japan's equity
markets to lows set in 1995 and the year ended amid clouds of uncertainty over
the future of Japan.
For the full year 1997 most Japanese Government authorities and investors
grossly underestimated the severely negative implications on the Japanese
economy by changes made in fiscal policy at the beginning of the year.
In particular, the consumption tax hike in April followed by depressed consumer
sentiment during a stagnant economy resulted in a sharp reversal of gradually
improving economic indicators from the previous year. Moreover, most
bureaucrats firmly believed that austerity measures together with a deregulated
economy would lead to long term growth despite weakening economic back drop.
From July 1997, such an environment created a severe credit crunch for non-
performing loans held by banks. In addition, the collapse of several Asian
currencies during the 2nd half of 1997 further impacted an already faltering
economy. With a mounting domestic financial crisis looming, Japanese
authorities seemed to sense little urgency in responding by necessary stimulus
measures.
3
<PAGE>
Judging by both the Asian crisis and critically slowing Japanese economy,
foreign investors became net sellers of Japanese equity in a increasingly
deteriorating demand environment for equities by domestic institutions and
therefore leading to sharply higher volatility and selling pressures. However,
a pronounced and polarized market developed within Japanese equities whereby
those companies participating in a favorable global economy provided relatively
good returns. In particular, sectors in new technologies and consumer growth
products withheld sharp declines in indexes heavily weighted by financial
companies and banks. The overweight position in these sectors provided the
basis for the Fund's outperformance for 1997.
Our view on the outlook for the overall Japanese equity market is based on
whether Japanese authorities seriously recognize the need to massively change
fiscal policy. Specifically, we believe "supply side" measures must be
implemented together with deregulation. Although a 2 trillion yen one time
personal income tax cut was announced in December, we believe additional
permanent corporate and individual tax cuts must also be made.
The current economic woes in Japan have yet to fully discount the slowdown in
non Japan Asia in our view and although some attention has been paid to bank
non-performing loans, more drastic proposals should be implemented to provide
the necessary liquidity in real estate for sustainable economic growth.
Unfortunately, politicians seem more preoccupied with status quo rather than
risk votes by implementing major changes. However, increasing pressure from G7
and the leading Japanese business community will likely grow significantly
during the coming months as the economy remains weak. A meaningful and
sustainable recovery will occur, in our view, if there is enough pressure for
such change by the G7 Summit in May or July 1998 when Upper House elections will
take place.
Meanwhile, while we are hopeful that authorities will make the necessary fiscal
stimulus changes to invigorate Japan, we will maintain our current portfolio
weighting in electronics, blue chips and globally competitive Japanese
companies. If a massive fiscal policy change is implemented, however, our
strategy is to remain flexible for sector and stock selection.
The paternal guidance both politicians and bureaucrats have exercised on
governing the Japanese economy favoring the corporate sector over individuals
since WWII will need to change in order for a new sustainable growth for Japan.
This radical departure from the past is beginning to emerge but in order for us
to become bullish for the entire market we believe additional empowerment must
be made for consumers to play greater role in overall economic policies of
Japan.
Finally, this is to inform you that effective January 1, 1998, Vinod Sethi, a
Managing Director of Morgan Stanley Asset Management Inc. ("MSAM") and John R.
Alkire, a Managing Director of MSAM, will share the primary responsibility for
the day-to-day management of the Fund's assets. Mr. Sethi is MSAM's Chief
Investment Officer for the Asian region and has been involved in the emerging
markets group since joining MSAM in 1989. He received his undergraduate degree
in chemical engineering from I.I.T. (Bombay) and has an M.B.A. from York
University School of Business. Mr. Alkire is the President of Morgan Stanley
Investment Advisory, Japan. He graduated from the University of Victoria,
Canada.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
/s/ Vinod Sethi
Vinod Sethi
PORTFOLIO MANAGER
/s/ John R. Alkire
John R. Alkire
PORTFOLIO MANAGER
January 1998
4
<PAGE>
MORGAN STANLEY ASIA-PACIFIC FUND, INC.
INVESTMENT SUMMARY AS OF DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
HISTORICAL TOTAL RETURN (%)
INFORMATION ------------------------------------------------------------------------------------
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>
ONE YEAR 23.46% -23.46% -26.36% -26.36% -28.09% -28.09%
SINCE INCEPTION* -37.67+ -12.92+ -26.46+ -8.60+ -36.49 -12.45
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
RETURNS AND PER SHARE INFORMATION
[CHART]
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31:
1994* 1995 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value Per Share. . . . . . . . $ 13.20 $ 14.34 $ 11.95 $ 8.77
Market Value Per Share . . . . . . . . . $ 12.25 $ 13.33 $ 9.75 $ 7.44
Premium/(Discount) . . . . . . . . . . . -7.2% -7.0% -18.4% -15.2%
Income Dividends . . . . . . . . . . . . $ 0.04 $ 0.05 $ 0.61 $ 0.02
Capital Gains Distributions. . . . . . . $ 0.01 $ 0.02 -- --
Fund Total Return (2). . . . . . . . . . -5.94% 9.24% -2.87%+ -26.36%
Index Total Return (3) . . . . . . . . . -5.90% 0.87% -9.17% -28.09%
</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.
PORTFOLIO SUMMARY AS OF DECEMBER 31, 1997
- --------------------------------------------------------------------------------
DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
<TABLE>
<S> <C>
Equity Securities 82.7%
Short-Term Investments 17.3%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS (UNAUDITED)
[CHART]
<TABLE>
<S> <C>
Automobiles 5.2%
Banking 8.0%
Chemicals 5.2%
Data Processing & Reproduction 3.3%
Electrical & Electronics 12.9%
Energy Equipment & Services 4.1%
Machinery & Engineering 5.1%
Multi-Industry 3.3%
Real Estate 3.5%
Transportation -- Road & Rail 2.1%
Other 47.3%
</TABLE>
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
[CHART]
<TABLE>
<S> <C>
Japan 42.5%
India 15.4%
Hong Kong 6.6%
Australia 4.2%
Singapore 3.2%
Pakistan 2.5%
Indonesia 1.8%
Thailand 1.7%
United Kingdom 1.6%
Philippines 1.2%
Other 19.3%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
<TABLE>
PERCENT OF
NET ASSETS
----------
<C> <S> <C>
1. Bharat Heavy Electricals Ltd. (India) 4.1%
2. Housing Development Finance Corp. Ltd. (India) 3.0
3. United Overseas Bank (Foreign) (Singapore) 2.3
4. Nintendo Ltd. (Japan) 2.0
5. Hutchison Whampoa Ltd. (Hong Kong) 2.0
6. Cheung Kong (Holdings) Ltd. (Hong Kong) 1.9%
7. Sony Corp. (Japan) 1.9
8. Container Corp. of India Ltd. (India) 1.8
9. China Light & Power Co. Ltd. (Hong Kong) 1.7
10. Ricoh Co. Ltd. (Japan) 1.7
----
22.4%
----
----
</TABLE>
* Excludes short-term investments.
6
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (83.5%)
(Unless otherwise noted)
- ---------------------------------------------------------------------------
AUSTRALIA (4.2%)
BANKING
Commonwealth Bank of Australia 3,900 U.S.$ 45
National Australia Bank Ltd. 636,000 8,879
Westpac Banking Corp. Ltd. 1,054,000 6,740
-------------
15,664
BROADCASTING & PUBLISHING
News Corp. Ltd. 527,600 2,911
-------------
REAL ESTATE
Lend Lease Corp. Ltd. 109,000 2,130
-------------
TELECOMMUNICATIONS
(a) Telstra Corp. Ltd. 1,798,000 3,795
-------------
TRANSPORTATION -- ROAD & RAIL
Brambles Industries Ltd. 104,200 2,067
-------------
26,567
-------------
- ---------------------------------------------------------------------------
CHINA (0.6%)
ENERGY SOURCES
(a) Huaneng Power International, Inc. ADR 150,000 3,478
-------------
- ---------------------------------------------------------------------------
HONG KONG (6.6%)
AUTOMOBILES
Qingling Motors Co. 12,480,000 6,120
-------------
MULTI-INDUSTRY
Hutchison Whampoa Ltd. 1,966,000 12,330
-------------
REAL ESTATE
Cheung Kong (Holdings) Ltd. 1,839,000 12,044
-------------
UTILITIES -- ELECTRICAL & GAS
China Light & Power Co. Ltd. 1,955,000 10,849
-------------
41,343
-------------
- ---------------------------------------------------------------------------
INDIA (15.4%)
APPLIANCES & HOUSEHOLD DURABLES
Phillips India Ltd. 123,582 205
Supreme Industries Ltd. 178,449 828
-------------
1,033
-------------
AUTOMOBILES
(a) Autolite Ltd. 231,900 155
(a) Autopal Industries Ltd. 62,600 6
Bajaj Auto Ltd. 4,000 62
Bajaj Tempo Ltd. 707 4
(a,c) Bajaj Tempo Ltd. (Rights) 1,717 6
Bharat Forge Co., Ltd. 217,996 353
Ceat Ltd. 368,000 221
Denso India Ltd. 71,200 85
Escorts Ltd. 136,325 290
Hero Honda Ltd. 240,050 5,651
MRF Ltd. 18,000 888
(a) Patheja Forgings and Auto Ltd. 677,700 111
-------------
7,832
-------------
BANKING
Industrial Finance Corp. (India) Ltd. 92,500 77
State Bank of India Ltd. 1,254,812 7,779
-------------
7,856
-------------
BEVERAGES & TOBACCO
ITC Ltd. 46,273 730
-------------
BUILDING MATERIALS & COMPONENTS
Associated Cement Co. Ltd. 1,164 41
Gujarat Ambuja Cements Ltd. 50 1
India Cements Ltd. 75,000 128
Panyam Cements & Minerals Ltd. 33,765 341
Saurashtra Cement & Chemicals Ltd. 50 -- @
-------------
511
-------------
CHEMICALS
Birla VXL Ltd. 842,098 244
E.I.D. Parry Ltd. 64,300 148
Gujarat Narmada Valley Fertilizers Ltd.
GDR 144A 275,000 412
Gujarat Narmada Valley Fertilizers Ltd. 324 -- @
Indian Petro Chemical Corp. Ltd. 2,010 4
Jaysynth Dyechem Ltd. 125,200 32
United Phosphorous Ltd. 94,290 247
-------------
1,087
-------------
CONSTRUCTION & HOUSING
Alacrity Housing Ltd. 381,000 49
(a) Hindustan Construction Co. 254,675 85
Hindustan Development Corp. Ltd. 988,780 219
Nagarjuna Construction Ltd. 151,100 64
-------------
417
-------------
ELECTRONIC COMPONENTS & INSTRUMENTS
Infosys Technology Ltd. 44,200 1,390
Rolta India Ltd. 999,500 442
S&S Power Switchgear Ltd. 63,550 27
-------------
1,859
-------------
ENERGY EQUIPMENT & SERVICES
Bharat Heavy Electricals Ltd. 2,881,000 26,014
-------------
ENERGY SOURCES
Esab India Ltd. 346,865 960
-------------
FINANCIAL SERVICES
Housing Development Finance Corp. Ltd. 238,282 18,707
UTI MasterShares Ltd. 2,196,970 717
-------------
19,424
-------------
FOOD & HOUSEHOLD PRODUCTS
Dhampur Sugar Mills Ltd. 141,575 206
Smithkline Beecham Consumer Health
Care Ltd. 384,600 3,208
-------------
3,414
-------------
FOREST PRODUCTS & PAPER
Ballarpur Industries Ltd. 100 -- @
- ---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------------
<S> <C> <C>
HEALTH & PERSONAL CARE
Sun Pharmaceutical Industries Ltd. 161,200 U.S.$ 922
-------------
INDUSTRIAL COMPONENTS
Apollo Tyres Ltd. 685,475 1,390
(a) Apollo Tyres Ltd. (Warrants),
expiring 2/28/98 189,543 5
Essel Packaging Ltd. 146,300 424
ITW Signode India Ltd. 571,132 1,111
KEC International Ltd. 881,750 607
-------------
3,537
-------------
LEISURE & TOURISM
ITC Hotels Ltd. 212,530 542
-------------
MACHINERY & ENGINEERING
(a) Artson Engineering Ltd. 221,800 36
Crompton Greaves Ltd. 415,210 315
DGP Windsor India Ltd. 218,800 112
Flat Products Equipments (India) Ltd. 174,900 169
(a) Hindustan Power Plus Ltd. 75,600 85
(a,b) Hindustan Power Plus Ltd. - New 17,400 20
Veejay Lakshmi Engineering Ltd. 149,100 114
-------------
851
-------------
METALS - STEEL
Tata Iron & Steel Co., Ltd. 254 1
(a,b) Tata SSL Ltd. - New 467,740 163
-------------
164
-------------
MISCELLANEOUS MATERIALS & COMMODITIES
Vikas WSP Ltd. 323,600 916
-------------
MULTI-INDUSTRY
Century Textiles & Industries Ltd. 58,660 104
Indian Rayon & Industries Ltd. 75 -- @
J.K. Corp. Ltd. 100 -- @
J.K. Corp. Ltd. GDR 144A 249,240 95
Kesoram Industries Ltd. 310,238 180
(b) Max India Ltd. - New 170,000 390
(a,d) Morgan Stanley Growth Fund 32,892,200 5,077
(a) Voltas Ltd. 207,950 145
-------------
5,991
-------------
RECREATION, OTHER CONSUMER GOODS
Suashish Diamonds Ltd. 148,100 87
Tube Investments of India Ltd. 109,400 96
Wimco Ltd. 700 1
-------------
184
-------------
TEXTILES & APPAREL
Coates of India Ltd. 100,680 265
G.T.N. Textiles Ltd. 243,000 251
Garware Plastics & Polyester Ltd. 275,525 146
Indo Rama Synthetics Ltd. 257,270 66
(a) J.K. Synthetics Ltd. 686,901 28
Mahavir Spinning Mills Ltd. 173,686 219
Morajee Goculdas Spinning Ltd. 125,000 68
Raymond Ltd. 190 -- @
(a) Viniyoga Clothes Ltd. 5,400 -- @
-------------
1,043
-------------
TRANSPORTATION -- ROAD & RAIL
Container Corp. of India Ltd. 1,059,600 11,353
-------------
TRANSPORTATION -- SHIPPING
Great Eastern Shipping Ltd. 4,334 5
-------------
96,645
-------------
- ---------------------------------------------------------------------------
INDONESIA (1.8%)
AUTOMOBILES
Astra International Inc. 3,514,300 911
-------------
BEVERAGES & TOBACCO
Bat Indonesia 265,000 1,253
Gudang Garam (Foreign) 2,783,000 4,238
-------------
5,491
-------------
FOOD & HOUSEHOLD PRODUCTS
Mayora Indah 10,773,500 930
(b) Unilever Indonesia (Foreign) 522,500 2,850
-------------
3,780
-------------
HEALTH & PERSONAL CARE
(b) SQUIBB Indonesia 49,000 64
-------------
TELECOMMUNICATIONS
Telekomunikasi Indonesia (Foreign) 1,608,000 855
-------------
11,101
-------------
- ---------------------------------------------------------------------------
JAPAN (42.5%)
APPLIANCES & HOUSEHOLD DURABLES
Rinnai Corp. 160,700 2,426
-------------
AUTOMOBILES
Asahi Tec Corp. 443,000 703
Nissan Motor Co. 1,000,000 4,139
Suzuki Motor Co. Ltd. 630,000 5,698
Toyota Motor Corp. 270,000 7,739
-------------
18,279
-------------
BUILDING MATERIALS & COMPONENTS
Sangetsu Co. Ltd. 147,000 1,510
Sanwa Shutter Corp. Ltd. 552,000 2,775
(a) Sanwa Shutter Corp. Ltd. (Warrants),
expiring 1/20/98 1,400 52
-------------
4,337
-------------
BUSINESS & PUBLIC SERVICES
Dai Nippon Printing Co. Ltd. 270,000 5,070
-------------
CHEMICALS
Daicel Chemical Industries Ltd. 1,140,000 1,485
Fuji Photo Film Ltd. 222,000 8,507
Kaneka Corp. 949,000 4,284
Mitsubishi Chemical Industries 2,060,000 2,953
Nifco Inc. 330,000 2,150
Okura Industrial Co. Ltd. 434,000 725
Sekisui Chemical Co. 653,000 3,318
Shin-Etsu Polymer Co. Ltd. 15,000 50
-------------
23,472
-------------
- ---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------------
<S> <C> <C>
CONSTRUCTION & HOUSING
Kyudenko Co. Ltd. 389,000 U.S.$ 1,965
Obayashi Corp. 565,000 1,923
Sekisui House Ltd. 387,000 2,488
Taisei Corp. Ltd. 1,000,000 1,640
-------------
8,016
-------------
DATA PROCESSING & REPRODUCTION
Fujitsu Ltd. 910,000 9,764
Nissha Printing 105,000 633
Ricoh Co. Ltd. 866,000 10,752
-------------
21,149
-------------
ELECTRICAL & ELECTRONICS
Canon, Inc. 420,000 9,786
Hitachi Ltd. 1,185,000 8,446
Kyocera Corp. 90,000 4,084
Matsushita Electric Industrial Co. Ltd. 562,000 8,227
NEC Corp. 925,000 9,854
Nintendo Ltd. 130,000 12,753
Sony Corp. 135,000 12,002
Stanley Electric Co. 690,000 1,904
Tokyo Electron Ltd. 163,000 5,222
Toshiba Corp. 2,130,000 8,865
-------------
81,143
-------------
ELECTRONIC COMPONENTS & INSTRUMENTS
Mitsumi Electric Co. Ltd. 423,000 6,030
Murata Manufacturing Co. 180,000 4,525
TDK Corp. 135,000 10,181
-------------
20,736
-------------
FINANCIAL SERVICES
Hitachi Credit Corp. 198,000 3,263
-------------
HEALTH & PERSONAL CARE
Sankyo Co. Ltd. 326,000 7,371
Yamanouchi Pharmaceutical Co. 300,000 6,438
-------------
13,809
-------------
INDUSTRIAL COMPONENTS
Furukawa Electric Co. 1,083,000 4,640
-------------
INSURANCE
Sumitomo Marine & Fire Co. 542,000 2,866
-------------
MACHINERY & ENGINEERING
Amada Co. Ltd. 932,000 3,465
Daifuku Co. Ltd. 591,000 2,876
Daikin Kogyo Co. 673,000 2,538
Fuji Machine Co. 329,000 7,943
Fujitec Co. Ltd. 510,000 2,814
Kurita Water Industries Ltd. 274,000 2,793
Mitsubishi Heavy Industries Ltd. 1,300,000 5,420
Nishio Rent All Co. 47,000 407
(a) Nishio Rent All Co. (Warrants),
expiring 2/20/98 1,055 7
Tsubakimoto Chain Co. 872,000 3,141
-------------
31,404
-------------
MERCHANDISING
FamilyMart 87,200 3,128
-------------
MISCELLANEOUS MATERIALS & COMMODITIES
Autobacs Seven Co. 50,000 1,437
Nippon Pillar Packing Co. 157,000 845
-------------
2,282
-------------
MULTI-INDUSTRY
Lintec 150,000 2,322
-------------
REAL ESTATE
Daibiru Corp. 4,000 29
Keihanshin Real Estate Co. 205,000 831
Mitsubishi Estate Co. Ltd. 390,000 4,245
-------------
5,105
-------------
RECREATION, OTHER CONSUMER GOODS
Yamaha Corp. 199,000 2,257
-------------
TELECOMMUNICATIONS
Nippon Telephone & Telegraph Corp. 1,032 8,859
-------------
TEXTILES & APPAREL
Shimamura Co. Ltd. 78,900 1,373
-------------
WHOLESALE & INTERNATIONAL TRADE
Inabata & Co. 406,000 1,276
-------------
267,212
-------------
- ---------------------------------------------------------------------------
MALAYSIA (1.8%)
BEVERAGES & TOBACCO
Carlsberg Brewery Malaysia Bhd 352,000 1,131
Guinness Anchor Bhd 2,320,000 2,863
R.J. Reynolds Bhd 1,106,000 1,806
Rothmans of Pall Mall Bhd 395,600 3,077
-------------
8,877
-------------
FOOD & HOUSEHOLD PRODUCTS
Nestle Bhd 468,000 2,166
-------------
MISCELLANEOUS MATERIALS & COMMODITIES
Kuala Lumpur Kepong Bhd 50,000 107
-------------
11,150
-------------
NEW ZEALAND (0.4%)
FOREST PRODUCTS & PAPER
Fletcher Challenge Forests 79,520 66
Fletcher Challenge Paper 1,988,000 2,597
-------------
2,663
-------------
- ---------------------------------------------------------------------------
PAKISTAN (2.5%)
BANKING
(a) Askari Bank 2,708,500 1,800
-------------
CHEMICALS
Engro Chemicals Ltd. 1,092,600 2,834
Fauji Fertilizer Co. Ltd. 1,424,000 2,727
(a) ICI Pakistan Ltd. 6,000,000 2,645
-------------
8,206
-------------
HEALTH & PERSONAL CARE
Lever Brothers 169,060 5,244
-------------
- ---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------------
<S> <C> <C>
ENERGY SOURCES
Shell Pakistan Ltd. 39,400 U.S.$ 252
(a) Shell Pakistan Ltd. (Rights) 19,700 63
315
-------------
15,565
-------------
- ---------------------------------------------------------------------------
PHILIPPINES (1.2%)
BEVERAGES & TOBACCO
LA Tondena Distillers Inc. 50,000 23
-------------
CONSTRUCTION & HOUSING
(a) DMCI Holdings, Inc. 8,894,000 263
-------------
ELECTRONIC COMPONENTS & INSTRUMENTS
(a) Music Corp. 1,200,000 430
-------------
MULTI-INDUSTRY
JG Summit Holdings 'B' 3,890,100 317
-------------
REAL ESTATE
Ayala Land, Inc. 'B' 3,273,631 1,293
(a) Fil-Estate Land Inc. 'B' 1,437,000 42
SM Prime Holdings, Inc. 'B' 9,637,680 1,428
-------------
2,763
-------------
TELECOMMUNICATIONS
(a) Digital Telecommunications
Philippines, Inc. 30,151,000 1,087
-------------
UTILITIES - ELECTRICAL & GAS
Manila Electric Co. 'B' 734,306 2,429
-------------
7,312
-------------
- ---------------------------------------------------------------------------
SINGAPORE (3.2%)
BANKING
United Overseas Bank (Foreign) 2,589,200 14,397
-------------
BEVERAGES & TOBACCO
Rothmans Industries Ltd. 413,000 2,162
-------------
ELECTRONIC COMPONENTS & INSTRUMENTS
(a) Creative Technology Ltd. 13,400 273
(a) Natsteel Electronics Ltd. 2,601,000 3,341
-------------
3,614
-------------
FOOD & HOUSEHOLD PRODUCTS
Super Coffeemix Manufacturing Ltd. 230,000 36
-------------
20,209
-------------
- ---------------------------------------------------------------------------
THAILAND (1.7%)
BANKING
Thai Farmers Bank Ltd. (Foreign) 365,000 663
-------------
BROADCASTING & PUBLISHING
(b) BEC World Co., Ltd. (Foreign) 743,600 2,965
Grammy Entertainment Public Co. Ltd. 259,200 1,131
-------------
4,096
-------------
ELECTRICAL & ELECTRONICS
(a) GSS Array Technology Public Co., Ltd.
(Foreign) 466,200 774
-------------
ENERGY SOURCES
PTT Exploration & Production Public
Co. Ltd. 294,800 3,392
-------------
FINANCIAL SERVICES
Industrial Finance Corp. (Foreign) 1,045,000 161
-------------
TELECOMMUNICATIONS
Advanced Information Services Co. Ltd.
(Foreign) 379,000 1,810
-------------
10,896
-------------
- ---------------------------------------------------------------------------
UNITED KINGDOM (1.6%)
BANKING
HSBC Holdings plc 406,800 10,027
-------------
- ---------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost U.S.$669,773) 524,168
-------------
- ---------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------------------------------------------------------------------
<S> <C> <C>
FIXED INCOME SECURITIES (0.0%)
- ---------------------------------------------------------------------------
INDIA (0.0%)
METALS - STEEL
(b) Tata SSL Ltd. - New 14.00%,
12/6/02 (Cost U.S.$2) INR 2 1
-------------
- ---------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (16.4%)
United States (16.4%)
REPURCHASE AGREEMENT
Chase Securities, Inc., 5.95%,
dated 12/31/97, due 1/2/98,
to be repurchased at U.S.$ 102,958,
collateralized by U.S.$102,050
United States Treasury Notes,
6.625%, due 6/30/01, valued at
U.S.$105,835
(Cost U.S.$102,924) U.S.$ 102,924 102,924
-------------
- ---------------------------------------------------------------------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (1.0%)
Australian Dollar AUD 7 5
Hong Kong Dollar HKD 31 4
Indian Rupee INR 141,077 3,599
Indonesian Rupiah IDR 55,386 10
Japanese Yen JPY 343,130 2,630
Singapore Dollar SGD 23 13
Thai Baht THB 8,849 184
-------------
(Cost U.S.$6,529) 6,445
-------------
- ---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AMOUNT
(000) (000)
- ---------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS (100.9%)
(Cost U.S.$779,228) U.S.$ 633,538
-------------
- ---------------------------------------------------------------------------
OTHER ASSETS (0.5%)
Receivable for Investments Sold U.S.$ 2,384
Dividends Receivable 426
Foreign Withholding Tax Reclaim
Receivable 85
Deferred Organization Costs 18
Interest Receivable 17
Net Unrealized Gain on Foreign
Currency Exchange Contracts 5
Other Assets 58 2,993
------------- -------------
- ---------------------------------------------------------------------------
LIABILITIES (-1.4%)
DEFERRED COUNTRY TAXES (47)
Payable For:
Investments Purchased (5,480)
Dividends Declared (1,748)
Investment Advisory Fees (552)
Custodian Fees (172)
Shareholder Reporting Expenses (105)
Professional Fees (81)
Administrative Fees (57)
Director's Fees and Expenses (54)
Bank Overdraft (3)
Other Liabilities (59) (8,311)
------------- -------------
- ---------------------------------------------------------------------------
NET ASSETS (100%)
Applicable to 71,654,508, issued
and outstanding U.S.$0.01
par value shares (100,000,000
shares authorized) U.S.$ 628,173
-------------
- ---------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 8.77
- ---------------------------------------------------------------------------
<CAPTION>
AMOUNT
(000)
- ---------------------------------------------------------------------------
<S> <C>
AT DECEMBER 31, 1997, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------------
Common Stock U.S.$ 717
Capital Surplus 927,869
Accumulated Net Investment Loss (5,423)
Accumulated Net Realized Loss (149,208)
Unrealized Depreciation on Investments and
Foreign Currency Translations (net of accrued
foreign tax of U.S.$47 on unrealized appreciation) (145,782)
- ---------------------------------------------------------------------------
TOTAL NET ASSETS U.S.$ 628,173
- ---------------------------------------------------------------------------
</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) -- The Fund is advised by an affiliate.
@ -- Value is less than U.S.$500.
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
144A -- Certain conditions for public sale may exist.
Note: Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging markets, and foreign ownership
limitations may also be imposed by the charters of individual companies in
emerging markets. As a result, an additional class of shares designated as
"foreign" may be created, and offered for investment. The "local" and
"foreign" shares' market values may vary.
- ---------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at December 31,
1997, the Fund is obligated to deliver or is to receive foreign currency in
exchange for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
NET
CURRENCY IN UNREALIZED
TO EXCHANGE GAIN
DELIVER VALUE SETTLEMENT FOR VALUE (LOSS)
(000) (000) DATE (000) (000) (000)
-------- ------ ---------- -------- ----- ----------
<S> <C> <C> <C> <C> <C>
SGD 343 U.S.$ 204 01/02/98 U.S.$ 204 U.S.$ 204 U.S.$ --
JPY 114,119 874 01/05/98 878 878 4
U.S.$ 306 306 01/06/98 PHP 12,425 307 1
PHP 1,725 43 01/06/98 U.S.$ 43 43 --
------------ ------------- ----------
U.S.$ 1,427 U.S.$ 1,432 U.S.$ 5
------------ ------------- ----------
------------ ------------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
DECEMBER 31, 1997 EXCHANGE RATES:
- --------------------------------------------------------------------------------
<C> <S> <C>
AUD Australian Dollar 1.535 = U.S. $1.00
HKD Hong Kong Dollar 7.749 = U.S. $1.00
IDR Indonesian Rupiah 5500.000 = U.S. $1.00
INR Indian Rupee 39.200 = U.S. $1.00
JPY Japanese Yen 130.475 = U.S. $1.00
PHP Philippines Peso 40.500 = U.S. $1.00
SGD Singapore Dollar 1.682 = U.S. $1.00
THB Thai Baht 48.150 = U.S. $1.00
- ---------------------------------------------------------------------------
</TABLE>
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY
CLASSIFICATION -- DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
- ---------------------------------------------------------------------------
<S> <C> <C>
Appliances & Household Durables U.S.$ 3,459 0.6%
Automobiles 33,142 5.3
Banking 50,407 8.0
Beverages & Tobacco 17,283 2.8
Broadcasting & Publishing 7,007 1.1
Building Materials & Components 4,848 0.8
Business & Public Services 5,070 0.8
Chemicals 32,765 5.2
Construction & Housing 8,696 1.4
Data Processing & Reproduction 21,149 3.4
Electrical & Electronics 81,917 13.1
Electronic Components & Instruments 26,639 4.3
Energy Equipment & Services 26,014 4.2
Energy Sources 8,145 1.3
Financial Services 22,848 3.6
Food & Household Products 9,396 1.5
Forest Products & Paper 2,663 0.4
Health & Personal Care 20,039 3.2
Industrial Components 8,177 1.3
Insurance 2,866 0.5
Leisure & Tourism 542 0.0
Machinery & Engineering 32,255 5.1
Merchandising 3,128 0.5
Metals - Steel 165 0.0
Miscellaneous Materials & Commodities 3,305 0.5
Multi-Industry 20,960 3.3
Real Estate 22,042 3.5
Recreation, Other Consumer Goods 2,441 0.4
Telecommunications 16,406 2.6
Textiles & Apparel 2,416 0.4
Transportation - Road & Rail 13,420 2.1
Transportation - Shipping 5 0.0
Utilities - Electrical & Gas 13,278 2.1
Wholesale & International Trade 1,276 0.2
Other 109,369 17.4
------------- -----
U.S.$ 633,538 100.9%
------------- -----
------------- -----
- ---------------------------------------------------------------------------
</TABLE>
SUMMARY OF TOTAL INVESTMENTS BY COUNTRY --
DECEMBER 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
COUNTRY (000) ASSETS
- ---------------------------------------------------------------------------
<S> <C> <C>
Australia U.S.$ 26,567 4.2%
China 3,478 0.6
Hong Kong 41,343 6.6
India 96,646 15.4
Indonesia 11,101 1.8
Japan 267,212 42.5
Malaysia 11,150 1.8
New Zealand 2,663 0.4
Pakistan 15,565 2.5
Philippines 7,312 1.2
Singapore 20,209 3.2
Thailand 10,896 1.7
United States (short-term investments) 102,924 16.4
United Kingdom 10,027 1.6
Other 6,445 1.0
------------- -----
U.S.$ 633,538 100.9%
------------- -----
------------- -----
- ---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
STATEMENT OF OPERATIONS (000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S.$ 11,489
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,823
Less: Foreign Taxes Withheld . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (987)
- -----------------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,325
- -----------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,348
Custodian Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,269
Administrative Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 832
Shareholder Reporting Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314
Professional Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Transfer Agent Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Directors' Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
- -----------------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,199
- -----------------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,126
- -----------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (143,684)
Foreign Currency Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,403)
- -----------------------------------------------------------------------------------------------------------------------------
Net Realized Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (149,087)
- -----------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (79,687)
Depreciation on Foreign Currency Translations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
- -----------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . (79,512)
- -----------------------------------------------------------------------------------------------------------------------------
Total Net Realized Loss and Change in Unrealized Appreciation/Depreciation . . . . . . . . . . . . . . . (228,599)
- -----------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . U.S.$ (226,473)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 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.$ 2,126 U.S.$ 1,372
Net Realized Gain (Loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . (149,087) 49,641
Change in Unrealized Appreciation/Depreciation. . . . . . . . . . . . . . . . . . (79,512) (94,387)
- -----------------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from Operations. . . . . . . . . . . . . . . (226,473) (43,374)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,751) (43,033)
In Excess of Net Investment Income. . . . . . . . . . . . . . . . . . . . . . . . -- (402)
- -----------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,751) (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 (Decrease) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (228,224) 86,983
Net Assets:
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 856,397 769,414
- -----------------------------------------------------------------------------------------------------------------------------
End of Period (including accumulated net investment loss and distributions in
excess of net investment income of U.S.$5,423 and U.S.$402, respectively.) . . . U.S.$ 628,173 U.S.$ 856,397
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERIOD FROM
------------------------------------------------------ AUGUST 2, 1994* TO
SELECTED PER SHARE DATA AND RATIOS: 1997 1996 1995 DECEMBER 31, 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. . . . . . . . . . . 0.03 0.02 0.05 0.05
Net Realized and Unrealized Gain (Loss)
on Investments. . . . . . . . . . . . . . (3.19) (0.33) 1.16 (0.87)
- -----------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations . . (3.16) (0.31) 1.21 (0.82)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income . . . . . . . . . (0.02) (0.60) (0.05) (0.04)
In Excess of Net Investment Income. . . -- (0.01) (0.00)# --
In Excess of Net Realized Gain. . . . . -- -- (0.02) (0.01)
- -----------------------------------------------------------------------------------------------------------------------------
Total Distributions. . . . . . . . . (0.02) (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.$ 8.77 U.S.$ 11.95 U.S.$ 14.34 U.S.$ 13.20
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD . . U.S.$ 7.44 U.S.$ 9.75 U.S.$ 13.33 U.S.$ 12.25
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value. . . . . . . . . . . . . . (23.46)% (14.72)%+ 9.38% (12.71)%
Net Asset Value (1) . . . . . . . . . . (26.36)% (2.87)%+ 9.24% (5.94)%
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS) . . U.S.$ 628,173 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. . . . . . . . . . . . 0.25% 0.16% 0.36% 0.89%**
Portfolio Turnover Rate. . . . . . . . . . 66% 28% 21% 2%
Average Commission Rate (2):
Per Share . . . . . . . . . . . . . . . U.S.$ 0.0141 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 these financial statements.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund"), was incorporated in
Maryland on February 28, 1994, and is registered as a non-diversified, closed-
end management investment company under the Investment Company Act of 1940, as
amended. The Fund's investment objective is long-term capital appreciation
through investments primarily in equity securities.
A. The following significant accounting policies, which are in conformity with
generally accepted accounting principles for investment companies, are
consistently followed by the Fund in the preparation of its financial
statements. Generally accepted accounting principles may require management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results may differ from those estimates.
1. SECURITY VALUATION: In valuing the Fund's assets, all listed securities for
which market quotations are readily available are valued at the last sale
price on the valuation date, or if there was no sale on such date, at the
mean between the current bid and asked prices. Securities which are traded
over-the-counter are valued at the average of the mean of current bid and
asked prices obtained from reputable brokers. Short-term securities which
mature in 60 days or less are valued at amortized cost. All other
securities and assets for which market values are not readily available
(including investments which are subject to limitations as to their sale)
are valued at fair value as determined in good faith by the Board of
Directors (the "Board"), although the actual calculations may be done by
others.
2. TAXES: It is the Fund's intention to continue to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly,
no provision for U.S. Federal income taxes is required in the financial
statements.
The Fund may be subject to taxes imposed by countries in which it invests.
Such taxes are generally based on income and/or capital gains earned or
repatriated. Taxes are accrued and applied to net investment income, net
realized gains and net unrealized appreciation as such income and/or gains
are earned.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the
underlying securities, with a market value at least equal to the amount of
the repurchase transaction, including principal and accrued interest. To
the extent that any repurchase transaction exceeds one business day, the
value of the collateral is marked-to-market on a daily basis to determine
the adequacy of the collateral. In the event of default on the obligation
to repurchase, the Fund has the right to liquidate the collateral and apply
the proceeds in satisfaction of the obligation. In the event of default or
bankruptcy by the counter-party to the agreement, realization and/or
retention of the collateral or proceeds may be subject to legal
proceedings.
4. FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars at the mean of the bid and asked prices of such currencies
against U.S. dollars last quoted by a major bank as follows:
- investments, other assets and liabilities at the prevailing rates of
exchange on the valuation date;
- investment transactions and investment income at the prevailing rates
of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the period, the Fund does not
isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of the securities held at period end.
Similarly, the Fund does not isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market
prices of securities sold during the period. Accordingly, realized and
unrealized foreign currency gains (losses) are included in the reported net
realized and unrealized gains (losses) on investment transactions and
balances.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from sales and maturities of foreign
currency exchange contracts, disposition of foreign currencies, currency
gains or losses realized between the trade and settlement dates on
securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid. Net
unrealized currency gains (losses) from valuing foreign currency
denominated assets and liabilities and foreign currency contracts at period
end exchange rates are reflected as a component of unrealized appreciation
(depreciation) on investments and foreign currency translations in the
Statement of Net Assets. The change in net unrealized currency gains
(losses) for the period is reflected in the Statement of Operations.
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The Fund intends to use derivatives more actively than it has in the past. The
Fund intends to engage in transactions in futures contracts on foreign
currencies, stock indices, as well as in options, swaps and structured notes.
Consistent with the Fund's investment objectives and policies, the Fund intends
to use derivatives for non-hedging as well as hedging purposes.
Following is a description of derivative instruments and their associated risks
that the Fund intends to utilize:
5. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into
forward foreign currency exchange contracts generally to attempt to protect
securities and related receivables and payables against changes in future
foreign exchange rates and, in certain situations, to gain exposure to a
foreign currency. A 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. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: The Fund
may make forward commitments to purchase or sell securities. Payment and
delivery for securities which have been purchased or sold on a forward
commitment basis can take place a month or more (not to exceed 120 days)
after the date of the transaction. Additionally, the Fund may purchase
securities on a when-issued or delayed delivery basis. Securities purchased
on a when-issued or delayed delivery basis are purchased for delivery
beyond the normal settlement date at a stated price and yield, and no
income accrues to the Fund on such securities prior to delivery. When the
Fund enters into a purchase transaction on a when-issued or delayed
delivery basis, it either establishes a segregated account in which it
maintains liquid assets in an amount at least equal in value to the Fund's
commitments to purchase such securities or denotes such securities on the
custody statement for its regular custody account. Purchasing securities on
a forward commitment or when-issued or delayed-delivery basis may involve a
risk that the market price at the time of delivery may be lower than the
agreed upon purchase price, in which case there could be an unrealized loss
at the time of delivery.
7. SWAP AGREEMENTS: The Fund may enter into swap agreements to exchange the
return generated by one security, instrument or basket of instruments for
the return generated by another security, instrument or basket of
instruments. The following summarizes swaps which may be entered into by
the Fund:
INTEREST RATE SWAPS: Interest rate swaps involve the exchange of
commitments to pay and receive interest based on a notional principal
amount. Net periodic interest payments to be received or paid are accrued
daily and are recorded in the Statement of Operations as an adjustment to
interest income. Interest rate swaps are marked-to-market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized appreciation or depreciation in the Statement of Operations.
TOTAL RETURN SWAPS: Total return swaps involve commitments to pay interest
in exchange for a market-linked return based on a notional amount. To the
extent the total return of the security, instrument or basket of
instruments underlying the transaction exceeds or falls short of the
offsetting interest obligation, the Fund will receive a payment from or
make a payment to the counterparty, respectively. Total return swaps are
marked-to-market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gains or losses in the Statement
of Operations. Periodic payments received or made at the end of each
measurement period, but prior to termination, are recorded as realized
gains or losses in the Statement of Operations.
Realized gains or losses on maturity or termination of interest rate and
total return swaps are presented in the Statement of Operations. Because
there is no organized market for these swap agreements, the value reported
in the Statement of Net Assets may differ from that which would be realized
in the event the Fund terminated its position in the agreement. Risks may
arise upon entering into these agreements from the potential inability of
the counterparties to meet the terms of the agreements and are generally
limited to the amount of net interest payments to be received and/or
favorable movements in the value of the underlying security, instrument or
basket of instruments, if any, at the date of default.
8. STRUCTURED SECURITIES: The Fund may invest in interests in entities
organized and operated solely for the purpose of restructuring the
investment characteristics of sovereign debt obligations. This type of
restructuring involves the deposit with or purchase by an entity of
specified instruments and the issuance by that entity of one or more
classes of securities ("Structured Securities") backed by, or representing
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<PAGE>
interests in, the underlying instruments. Structured Securities, invested
in by the Fund, generally will have credit risk equivalent to that of the
underlying instruments. Structured Securities are typically sold in private
placement transactions with no active trading market. Investments in
structured securities may be more volatile than their underlying
instruments, however, any loss is limited to the amount of the original
investment.
9. OVER-THE-COUNTER TRADING: Derivative instruments that may be purchased or
sold by the Fund are expected to regularly consist of instruments not
traded on an exchange. The risk of nonperformance by the obligor on such an
instrument may be greater, and the ease with which the Fund can dispose of
or enter into closing transactions with respect to such an instrument may
be less, than in the case of an exchange-traded instrument. In addition,
significant disparities may exist between bid and asked prices for
derivative instruments that are not traded on an exchange. Derivative
instruments not traded on exchanges are also not subject to the same type
of government regulation as exchange traded instruments, and many of the
protections afforded to participants in a regulated environment may not be
available in connection with such transactions.
10. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Investments in new Indian securities are made by
making applications in the public offerings. The issue price, or a portion
thereof, is paid at the time of application and is reflected as share
application money on the Statement of Net Assets, if any. Upon allotment of
the securities, this amount plus any remaining amount of issue price is
recorded as cost of investments. Realized gains and losses on the sale of
investment securities are determined on the specific identified cost basis.
Interest income is recognized on the accrual basis. Dividend income is
recorded on the ex-dividend date (except certain dividends which may be
recorded as soon as the Fund is informed of such dividend) net of
applicable withholding taxes where recovery of such taxes is not reasonably
assured. Distributions to shareholders are recorded on the ex-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 year
ended December 31, 1997, the Fund incurred International Custodian fees of
$1,251,000 of which $169,000 was payable to the International Custodian at
December 31, 1997. In addition, for the year ended December 31, 1997, the Fund
has earned interest income of $2,000 and incurred interest expense of $6,000 on
balances with the International Custodian.
E. During the year ended December 31, 1997, the Fund made purchases and sales
totaling $494,239,000 and $563,325,000, 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, 1997, the Fund incurred $153,000 of brokerage
commissions with Morgan Stanley & Co. Incorporated, an affiliate of the Adviser.
At December 31, 1997, the U.S. Federal income tax cost basis of securities was
$774,684,000 and, accordingly, net unrealized depreciation was $147,591,000 of
which $41,723,000 related to appreciated securities and $189,314,000 related to
depreciated securities. At December 31, 1997, the Fund had a capital loss
carryforward for
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U.S. Federal income tax purposes of approximately $98,555,000 available to
offset future capital gains of which $5,069,000 will expire on December 31, 2003
and $93,486,000 will expire on December 31, 2005. To the extent that capital
gains are offset, such gains will not be distributed to the shareholders. For
the year ended December 31, 1997, the Fund expects to defer to January 1, 1998
for U.S. Federal income tax purposes, post-October currency losses of $4,838,000
and post-October capital losses of $49,887,000.
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, 1997 totaled $41,000 and are included in Payable for Directors' Fees and
Expenses on the Statement of Net Assets.
J. During December 1997, the Board declared a distribution of $0.02 per share,
derived from net investment income, payable on January 9, 1998, to shareholders
of record on December 31, 1997.
K. At a meeting held on December 18, 1997, the Board approved a proposal to
permit the Fund to make investments in Taiwan. However, as of December 31, 1997,
the Fund did not have any investments in Taiwan.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION (UNAUDITED):
For the year ended December 31, 1997, the Fund expects to pass through to
shareholders foreign tax credits of approximately $999,000. In addition, for the
year ended December 31, 1997, gross income derived from sources within foreign
countries amounted to $12,680,000.
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REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Morgan Stanley Asia-Pacific Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund") at December 31, 1997, 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 three 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, 1997 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 18, 1998
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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 10005
1-800-278-4353
20
