<PAGE>
---------------------------------------------------------------------
MORGAN STANLEY
ASIA-PACIFIC
FUND, INC.
---------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1998
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
INVESTMENT ADVISER
MORGAN STANLEY
ASIA-PACIFIC FUND, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
Barton M. Biggs
CHAIRMAN OF THE BOARD
OF DIRECTORS
Michael F. Klein
PRESIDENT AND DIRECTOR
Peter J. Chase
DIRECTOR
John W. Croghan
DIRECTOR
David B. Gill
DIRECTOR
Graham E. Jones
DIRECTOR
John A. Levin
DIRECTOR
William G. Morton, Jr.
DIRECTOR
Stefanie V. Chang
VICE PRESIDENT
Harold J. Schaaff, Jr.
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Valerie Y. Lewis
SECRETARY
Joanna M. Haigney
TREASURER
Belinda A. Brady
ASSISTANT TREASURER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Dean Witter Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
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CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
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SHAREHOLDER SERVICING AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(800) 278-4353
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LEGAL COUNSEL
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
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- --------------------------------------------------------------------------------
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.
<PAGE>
LETTER TO SHAREHOLDERS
- ----------
For the year ended December 31, 1998, the Morgan Stanley Asia-Pacific Fund, Inc.
(the "Fund") had a total return, based on net asset value per share, of -0.34%
compared to its benchmark (as defined below) of -0.30%. For the period since the
Fund's commencement of operations on August 2, 1994 through December 31, 1998,
the Fund's total return, based on net asset value per share, was -26.75%
compared with -34.01% for the benchmark. (The benchmark for the Fund is the
weighted average of the percentage change month-on-month of each of two Morgan
Stanley Capital International (MSCI) indices; Japan and All-Country Asia-Pacific
Free ex-Japan, where the weights are based on the respective market
capitalizations of these indices at the beginning of each month). Beginning
December 31, 1998, the Fund's benchmark will be comprised of 50% of each of the
two MSCI indices rather than the monthly market capitalization weighting of
each. This change more closely follows the investment strategy of the Fund. On
December 31, 1998, the closing price of the Fund's shares on the New York Stock
Exchange was $7.00 representing a 19.8% discount to the net asset value per
share.
JAPANESE EQUITY REVIEW & OUTLOOK
The Japanese economy and equity markets faced a severely challenging environment
during 1998 with the mounting uncertainty of the financial system tested
throughout the year. The tip of this economic iceberg for 1998 was the collapse
of Hokkaido Takushoku Bank, Yamaichi and Sanyo Securities in late 1997. In
early 1998 the Japanese Government did little to address the ballooning
non-performing loans, credit crunch and deflationary spiral that escalated as
the economy continuously failed to recover after numerous stimulus packages over
the last several years.
As the credit crunch and deflationary spiral continued to grow with negligible
economic activity, the Government began to announce a series of additional
stimulus and bank rescue programs during April and May. These had minor, if
any, impact on improving the situation as banks were reluctant to apply for
Government loans and the stimulus packages offered no multiplier effects on
invigorating the stalled economy and depressed consumer sentiment.
A new prime minister was elected in July, with strong voter turnout reflecting
the dissatisfaction with Hashimoto's ineffectiveness in dealing with Japan's
financial crisis. The new Prime Minister, Mr. Obuchi, declared a 60 trillion
yen bank rescue package in October, doubling the efforts of his predecessor
including a new scheme to nationalize troubled banks. Later in the year both
Long Term Credit Bank and Nippon Credit Bank were nationalized, the first in
post WWII history for Japan.
Not only did Japan face domestic difficulties during 1998 but compounding these
problems were external factors, such as the Russian Crisis, a sharp correction
in the United States equity market and deflation spreading throughout Asia,
curbing economic activity to a virtual halt in the region. With no structural
changes, minor fiscal reform and the above mentioned external factors, investing
in Japan could not have been more challenging. Moreover, it became evident to
most observers, including the Japanese Government which stubbornly engaged in
pork belly stimulus programs, that the "traditional" way to stimulate the
economy would not work. Indeed, even though Mr. Obuchi, Japan's second prime
minister in 1998, proposed tax cuts both on a corporate and individual level,
this seemed to have only a minor effect on consumer sentiment or confidence.
With the domestic equity market becoming increasingly unattractive and the high
volatility of the overseas markets, Japanese investors' flight to quality
brought 10-year government bond yields to 0.7%, the lowest on record, although
yields subsequently jumped to 2% by year end 1998 due to fears of oversupply in
the market. The foreign exchange rate fell to 147 during the first half of 1998
on "sell Japan" but jumped to 110 in September as hedge funds began to unwind
their "yen carry trades," President Clinton's fate became questioned and the
current account deficit began to grow to unacceptable levels. In this volatile
and bleak environment Japanese equities fell to 12-year lows in 1998 and
sentiment became increasingly negative on the future for the Japanese economy.
Fiscal 1999 will most likely remain a difficult year for the Japanese economy.
At best we look for flat gross domestic product (GDP) growth but realistically
growth should be negative. Our outlook for flat GDP is based on some optimism
that the huge 60 trillion yen stimulus packages enacted in 1998 will provide
modest support for the economy. We are not confident that "aspirin" for a
patient in critical condition is sufficient for a sustainable recovery and
positive growth in 1999. Moreover, the recent volatility of global financial
markets and in particular the yen and domestic bond markets will mean the health
of Japan's financial institutions have significantly deteriorated over the last
six months and that credit contraction and balance sheets within these
institutions will continue to shrink.
While Prime Minister Obuchi has provided a platform for significant tax cuts and
economic stimulus packages to support Japan on a macro level, adjustments to
over-capacity and over-employment and de-leveraging on the micro level will
probably become the dominant themes for investors in 1999. As Japan
increasingly gravitates to "international" standards for return on equity, the
traditional full employment socialist system will become increasingly challenged
in 1999 and will further dampen consumer sentiment as unemployment rises during
the year. In other words, we believe that the
2
<PAGE>
macro stimulus programs totaling over 100 trillion yen of government spending
which have occurred during the last 8 years will now transform into aggressive
private sector restructuring in 1999.
Also, external factors affecting Japan will also be challenging to the economy
and markets. A pronounced slowdown or sharp correction in the U.S. or European
markets will hurt the already fragile domestic environment. Meanwhile, the
deflationary forces which began to emerge and spread in 1998 throughout the
world will take time to correct and the IMF and G7's influence to shoulder these
problems has shown they have limits. Moreover, the rapid rise of the yen and
spike in interest rates are also compounding Japan's woes and negatively
affecting the already frail corporate earnings outlook. It appears to us that
the Japanese Government and Ministry of Finance have reached the tolerance limit
to further increase deficit spending to stimulate the economy after the
negligible impact this has had over the last 8 years.
We therefore believe that investments in Japanese equities should remain highly
selective. We favor PC, semiconductor, service, pharmaceutical and select
domestic sectors such as housing and housing related securities. As we enter
1999, we are cautiously optimistic that this year will become a true inflection
point in which the private sector will finally foster real structural changes in
areas such as wage adjustment, employment efficiencies, and focus on return on
equity. After 10 years of sharp contraction, Japan has entered the final phase
of real change which is an important milestone for long term investors in
Japanese equities.
ASIAN EQUITY REVIEW AND OUTLOOK
Asian stock markets performed well in the fourth quarter of 1998, as the market
rose 40.2% during the quarter, reducing some of the losses incurred earlier in
the year. For the year the market declined 7.4%. A combination of domestic and
global factors contributed to the recovery in Asian stock markets, including
domestic monetary and fiscal policy easing, improved domestic liquidity from
current account surpluses, U.S. and European interest rate cuts, corporate
restructuring and currency strengthening relative to the U.S. dollar.
The IMF crisis countries of South Korea, Thailand and Indonesia led the fourth
quarter rally just as they had led the downturn in late 1997. The much-maligned
IMF programs, based on tight monetary and fiscal policy, created significant
contractions in domestic consumption and investment. These contractions led to
a swing from current account deficits to current account surpluses, which
stabilized and then strengthened the currencies. Currency strength allowed the
governments to relax monetary and fiscal policy early in the third quarter with
IMF approval. By September, data began to emerge suggesting that industrial
production and some categories of consumption had bottomed in Korea and
Thailand. Interest rates have fallen dramatically, due to easier monetary
policy and falling inflationary expectations. For example, interest rates fell
from over 30% at the peak in Korea to 7% today; interest rate declines
encouraged domestic investors to return to the equity markets, pushing stocks
up. In 1999, easier monetary policy should stimulate some improvement in
domestic consumption as well.
Banking sector reform and re-capitalization will be critical to the resumption
of strong growth across Asia because banks remain the key financial
intermediaries in most countries. Korea has taken the lead in addressing its
banking problems. Korea's program includes forced mergers of troubled banks,
the use of government funds to recapitalize failed banks and purchase
non-performing assets from them and the subsequent liquidation of these assets.
Korea has also benefited from the presence of one of Asia's few domestic bond
markets, which has helped to keep financing available even while the heavy bank
reform work was underway. Thailand has also designed a good recapitalization
program although there have been some disappointments in its implementation.
One of the key elements of the banking package, enhanced foreclosure laws, was
delayed until mid-1999. The Indonesian program has been designed but due to the
greater scale of the banking problems in Indonesia will take longer to
implement. Bank recapitalization will allow the restructuring efforts to move
onto the next phase - corporate level debt restructuring. These initiatives
will require some debt forgiveness and insolvent banks were in no position to
take the required write-downs.
Hong Kong lagged the overall index during the fourth quarter. Hong Kong's
equity market is particularly sensitive to interest rate movements due to its
heavy weighting of property and financial stocks. Interest rate cuts in the
U.S. and Hong Kong during September and October were very supportive to the
market. In addition, the Hong Kong Monetary Authority (HKMA) purchased
approximately 25% of the free float of most major stocks during its August
market intervention. This technical condition probably exaggerated the market's
move upwards when interest rates began to fall. Due to Hong Kong's decision to
maintain its currency peg to the U.S. dollar even as its neighbors devalued,
companies in Hong Kong have been forced to cut costs to remain competitive. The
resulting deflationary conditions have prevented real interest rates from
falling very far in Hong Kong; cuts in nominal interest rates have been matched
by a fall into outright deflation. The territory has not experienced real
interest rates at these levels for an extended period of time over the last few
decades and this should delay economic recovery and limit stock market gains.
Although we expect further reductions in nominal and real rates in 1999 the
scope for significant declines are limited given the U.S. dollar peg and
deflation. Revenue growth will be hard to come by in 1999 and much of the
3
<PAGE>
earnings growth will be generated from comparisons with 1998 earnings which
include heavy non-recurring provisions. In addition, the HKMA must design a
program for the disposition of its extensive stock holdings. For these reasons,
we entered 1999 underweight Hong Kong equities.
China was the worst performing East Asian market in 1998. This
under-performance reflects the weakness of most of the listed Chinese companies
as well as the challenging economic conditions within China. The Chinese
economy is currently experiencing persistent deflation, oversupply of most
manufactured goods, slowing exports, high real interest rates and bank asset
quality problems. The Chinese government has attempted to deal with these
issues through a massive government-funded infrastructure program. This program
helped GDP growth approach the government's target for 1998 but did not flow
through into corporate earnings and equity performance. The Chinese have begun
to grapple with external debt problems recently as well. We expect the Chinese
government will shift from infrastructure spending to real reform as 1999
progresses. Some interesting values are starting to emerge among the Chinese
companies but earnings visibility remains poor and the flow of news will likely
be negative in the first half of the year.
We have maintained an overweight position in the technology sectors in 1998.
These positions primarily consist of electronics companies in Korea and
Singapore. These stocks were more influenced by their local markets during the
fourth quarter than by individual company fundamentals. These positions are the
result of bottom-up work at the individual company level. Given the quality of
management, market positions, financial condition and growth prospects of the
portfolio of electronics stocks we hold, we believe they may outperform again in
1999.
Malaysia's decision to implement capital controls in early September led to its
removal from the MSCI developed market and emerging market free indexes at the
end of November. Shifting securities regulations have severely limited the
ability of most foreign investors to trade over the past few months. We hold
sound, primarily consumer-oriented stocks in Malaysia. The Malaysian government
has signaled that it is studying various proposals to lift the capital controls.
We expect some movement on this during the first half of 1999. We will
reexamine our weighting in Malaysia and the pricing of these securities when the
Malaysian authorities introduce their new rules.
Several themes we expect to drive equity performance in 1999 include modest
improvements in domestic consumption in most economies, disinflation in some
countries and deflation in others and the ability of companies to enhance their
own performance through corporate restructuring. Restructurings broadly include
debt restructuring, divestitures, sales of strategic stakes to multinationals,
business unit shutdowns, mergers or staff downsizing. We have seen all of the
above announced in various forms in 1998. The markets have clearly rewarded
companies that adopt Western style restructuring with a focus on enhancing
shareholder value. During 1999, we will be monitoring the progress of the
restructurings announced in 1998 and searching for management teams with the
vision and ability to improve returns to shareholders going forward.
Several risk factors we will be monitoring in 1999 include the performance of
the Japanese economy, the large supply of new offerings and capital raisings we
expect to see in Asia and growth in the developed economies that are the primary
markets for Asian exports. Upside surprises could include successful bank
recapitalization and economic recovery in Japan and stronger than expected
import demand from the U.S. and Europe.
During 1998 we constructed a fairly defensive portfolio, emphasizing consumer
and technology companies and utilities while limiting our exposure to banks and
properties. During the fourth quarter, we increased our exposure to banks and
properties but as performance reflects, we remained underweight these sectors.
In 1999, we are focusing more of our research time and company visits on
companies that have the ability to implement sound restructuring programs or are
sensitive to recoveries in domestic consumption. We do not believe that all of
Asia's economic problems have been solved but the trends have certainly
improved.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
January 1999
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED.
- --------------------------------------------------------------------------------
VINOD SETHI NO LONGER SERVES AS PORTFOLIO MANAGER TO THE FUND. TIMOTHY JENSEN
AND ASHUTOSH SINHA NOW SHARE PRIMARY RESPONSIBILITY FOR MANAGING THE ASSETS OF
THE FUND.
4
<PAGE>
Morgan Stanley Asia-Pacific Fund, Inc.
Investment Summary as of December 31, 1998 (Unaudited)
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<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>
One Year -5.77% -5.77% -0.34% -0.34% -0.30% -0.30%
Since Inception* -41.26+ -11.35+ -26.75+ -6.80+ -34.01+ -8.99+
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994* 1995 1996 1997 1998
------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value Per Share. . . . . . $ 13.20 $ 14.34 $11.95 $ 8.77 $ 8.73
Market Value Per Share . . . . . . . $ 12.25 $ 13.33 $ 9.75 $ 7.44 $ 7.00
Premium/(Discount) . . . . . . . . . -7.2% -7.0% -18.4% -15.2% -19.8%
Income Dividends . . . . . . . . . . $ 0.04 $ 0.05 $ 0.61 $ 0.02 $ 0.01
Capital Gains Distributions. . . . . $ 0.01 $ 0.02 -- -- --
Fund Total Return(2) . . . . . . . . -5.94% 9.24% -2.87%+ -26.36% -0.34%
Index Total Return(3). . . . . . . . -5.24% 2.88% -3.63% -29.55% -0.30%
</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 All-Country Asia-Pacific Free
ex-Japan, where the weights are based on the respective market
capitalizations of these indices at the beginning of each month. Beginning
December 31, 1998, the Fund's benchmark will be comprised of 50% of each of
the two MSCI indices rather than the monthly market capitalization
weighting of each. This change more closely follows the investment
strategy of the Fund.
* 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 December 31, 1998
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- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
Equity Securities (95.6%)
Short-Term Investments (4.4%)
- --------------------------------------------------------------------------------
SECTORS
[CHART]
Appliances & Household Durables (4.3%)
Automobiles (5.0%)
Banking (6.0%)
Beverages & Tobacco (4.5%)
Data Processing & Reproduction (4.3%)
Electrical & Electronics (9.0%)
Electronic Components, Instruments (5.9%)
Food & Household Products (4.8%)
Machinery & Engineering (5.0%)
Telecommunications (4.2%)
Other (47.0%)
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
[CHART]
Other (7.2%)
Thailand (1.5%)
Pakistan (1.5%)
Malaysia (2.0%)
Indonesia (2.3%)
Korea (2.5%)
India (6.5%)
Singapore (7.2%)
Hong Kong (10.0%)
Australia (10.3%)
Japan (49.0%)
</TABLE>
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TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<S> <C>
1. Nintendo Ltd. (Japan) 2.0%
2. Samsung Electronics Co. (Korea) 1.9
3. National Australia Bank Ltd. (Australia) 1.7
4. Fujitsu Ltd. (Japan) 1.7
5. Sony Corp. (Japan) 1.6
6. TDK Corp. (Japan) 1.6
7. Toshiba Corp. (Japan) 1.6
8. Hutchison Whampoa Ltd. (Hong Kong) 1.5
9. NEC Corp. (Japan) 1.5
10. Yamanouchi Pharmaceutical Co., Ltd. (Japan) 1.5
----
16.6%
----
----
</TABLE>
* Excludes short-term investments.
6
<PAGE>
FINANCIAL STATEMENTS
- ----------
STATEMENT OF NET ASSETS
- ----------
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (95.4%)
(Unless otherwise noted)
- -------------------------------------------------------------------------------
AUSTRALIA (10.3%)
BANKING
National Australia Bank Ltd. 678,900 U.S.$ 10,233
Westpac Banking Corp., Ltd. 1,193,800 7,988
-------------
18,221
-------------
BEVERAGES & TOBACCO
Coca-Cola Amatil Ltd. 1,040,900 3,878
Foster's Brewing Group Ltd. 1,426,300 3,863
-------------
7,741
-------------
BROADCASTING & PUBLISHING
News Corp., Ltd. 966,800 6,386
-------------
BUSINESS & PUBLIC SERVICES
Brambles Industries Ltd. 166,900 4,065
-------------
ENERGY SOURCES
Santos Ltd. 637,900 1,712
-------------
FOOD & HOUSEHOLD PRODUCTS
Woolworths Ltd. 1,003,150 3,415
-------------
MISC. MATERIALS & COMMODITIES
Rio Tinto Ltd. 471,150 5,588
-------------
REAL ESTATE
Lend Lease Corp., Ltd. 386,600 5,212
-------------
TELECOMMUNICATIONS
Telstra Corp., Ltd. 1,798,000 8,406
-------------
60,746
-------------
- --------------------------------------------------------------------------------
HONG KONG (10.0%)
BANKING
HSBC Holdings plc 237,200 5,909
-------------
BROADCASTING & PUBLISHING
Television Broadcasts Ltd. 901,000 2,326
-------------
ELECTRICAL & ELECTRONICS
VTech Holdings Ltd. 145,000 633
-------------
FOOD & HOUSEHOLD PRODUCTS
Dairy Farm International Holdings Ltd. 2,003,000 2,304
-------------
MULTI-INDUSTRY
Hutchison Whampoa Ltd. 1,278,500 9,035
Swire Pacific Ltd. 'A' 1,155,600 5,176
-------------
14,211
-------------
REAL ESTATE
New World Development Co. Ltd. 661,000 1,664
Sun Hung Kai Properties Ltd. 982,000 7,161
-------------
8,825
-------------
TELECOMMUNICATIONS -- INTEGRATED
Hong Kong
Telecommunications Ltd. 2,848,300 4,982
-------------
TELECOMMUNICATIONS -- WIRELESS
China Telecom Ltd. 2,322,000 4,016
-------------
TELECOMMUNICATIONS -
Smartone Telecommunications 498,000 1,382
-------------
UTILITIES -- ELECTRICAL & GAS
CLP Holdings Ltd. 816,000 4,066
Hong Kong & China Gas Co., Ltd. 2,803,300 3,564
Hong Kong Electric Holdings Ltd. 1,365,000 4,140
-------------
11,770
-------------
WHOLESALE & INTERNATIONAL TRADE
Li & Fung Ltd. 1,060,000 2,196
-------------
58,554
-------------
- --------------------------------------------------------------------------------
INDIA (6.5%)
AUTOMOBILES
Escorts Ltd. 1,450 3
Hero Honda Ltd. 521,456 6,676
-------------
6,679
-------------
BANKING
State Bank of India Ltd. 11,312 42
-------------
BEVERAGES
ITC Ltd. 16,955 299
-------------
BUILDING MATERIALS & COMPONENTS
Associated Cement Co., Ltd. 785 19
-------------
BUSINESS & PUBLIC SERVICES
(a)Wimco Ltd. 150 --@
-------------
CHEMICALS
Gujarat Narmada Valley Fertilizers
Co. Ltd. GDR 49 --@
Supreme Industries Ltd. 50 --@
-------------
--@
-------------
COMPUTERS
Crompton Greaves Ltd. 50 --@
-------------
CONSTRUCTION & HOUSING
(a)Alacrity Housing Ltd. 100 --@
-------------
ELECTRIC COMPONENTS
Infosys Technology Ltd. 44,200 3,079
-------------
ELECTRICAL & ELECTRONICS
Bharat Heavy Electricals Ltd. 1,352,200 8,361
-------------
FINANCIAL SERVICES
(a)Housing Development Finance
Corp., Ltd. 106,742 5,475
UTI-MasterShares Ltd. 600 --@
-------------
5,475
-------------
FOOD & HOUSEHOLD PRODUCTS
Smithkline Beecham Consumer
Health Care Ltd. 49,550 613
-------------
HEALTH & PERSONAL CARE
Reckitt & Coleman of India Ltd. 38,450 340
-------------
INDUSTRIAL COMPONENTS
Apollo Tyres Ltd. 6,475 10
Esab India Ltd. 65 --@
-------------
10
-------------
LEISURE & TOURISM
ITC Hotels Ltd. 350 1
-------------
MACHINERY & ENGINEERING
DGP Windsor India Ltd. 100,000 34
Punjab Tractors Ltd. 80,900 1,513
-------------
1,547
-------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
SHARES VALUE
(000)
- -------------------------------------------------------------------------------
<S> <C> <C>
INDIA (CONTINUED)
METALS -- STEEL
Tata Iron & Steel Co., Ltd. 89 U.S.$ --@
-------------
MULTI-INDUSTRY
(c)Morgan Stanley Growth Fund 32,888,250 4,646
-------------
TELECOMMUNICATIONS
Mahanagar Telephone Nigam Ltd. 190,000 820
-------------
TEXTILES & APPAREL
(a)J.K. Synthetics Ltd. 674 --@
Raymond Ltd. 50 --@
(a)Viniyoga Clothes Ltd. 5,300 --@
-------------
--@
-------------
TRANSPORTATION -- MARINE
Great Eastern Shipping Ltd. 200 --@
-------------
TRANSPORTATION -- RAIL
(b)Container Corp. of India Ltd. 1,059,600 5,968
-------------
37,899
-------------
INDONESIA (2.3%)
BEVERAGES & TOBACCO
(a)Bat Indonesia 294,500 506
Gudang Garam 3,790,500 5,520
-------------
6,026
-------------
BUILDING MATERIALS & COMPONENTS
Semen Gresik 411,000 426
-------------
FOOD & HOUSEHOLD PRODUCTS
Unilever Indonesia 1,913,500 7,176
-------------
HEALTH & PERSONAL CARE
(b)Squibb Indonesia 49,000 36
-------------
13,664
-------------
JAPAN (49.0%)
APPLIANCES & HOUSEHOLD DURABLES
Matsushita Electric Industrial
Co., Ltd. 482,000 8,538
Sony Corp. 130,000 9,481
-------------
18,019
-------------
AUTOMOBILES
Autobacs Seven Co. 50,000 1,684
Nifco, Inc. 330,000 2,664
Nissan Motor Co. 1,770,000 5,427
Suzuki Motor Co., Ltd. 490,000 5,818
Toyota Motor Corp. 270,000 7,345
-------------
22,938
-------------
BROADCASTING & PUBLISHING
Nissha Printing Co., Ltd. 105,000 642
-------------
BUILDING MATERIALS & COMPONENTS
Fujitec Co., Ltd. 460,000 2,967
Rinnai Corp. 160,700 2,814
Sanwa Shutter Corp., Ltd. 582,000 2,548
-------------
8,329
BUSINESS & PUBLIC SERVICES
Dai Nippon Printing Co., Ltd. 270,000 4,311
-------------
CHEMICALS
Daicel Chemical Industries Ltd. 1,290,000 3,841
Kaneka Corp. 939,000 7,048
Mitsubishi Chemical Industries 1,360,000 2,868
Nippon Pillar Packing Co. 157,000 586
Okura Industrial Co., Ltd. 407,000 819
Sekisui Chemical Co. 563,000 3,792
Shin-Etsu Polymer Co., Ltd. 15,000 78
-------------
19,032
-------------
CONSTRUCTION & HOUSING
Kyudenko Co., Ltd. 389,000 2,634
Sekisui House Ltd. 347,000 3,674
-------------
6,308
-------------
DATA PROCESSING & REPRODUCTION
Canon, Inc. 362,000 7,747
Fujitsu Ltd. 760,000 10,136
Ricoh Co. Ltd. 816,000 7,534
-------------
25,417
-------------
ELECTRICAL & ELECTRONICS
Hitachi Ltd. 1,335,000 8,281
Minebea Co., Ltd. 200,000 2,293
Mitsumi Electric Co., Ltd. 403,000 8,535
NEC Corp. 960,000 8,847
Toshiba Corp. 1,525,000 9,095
-------------
37,051
-------------
ELECTRONIC COMPONENTS, INSTRUMENTS
Kyocera Corp. 100,000 5,290
Murata Manufacturing Co. 143,000 5,943
Rohm Co., Ltd. 30,000 2,736
TDK Corp. 103,000 9,428
Tokyo Electron Ltd. 163,000 6,196
-------------
29,593
-------------
ENERGY EQUIPMENT & SERVICES
Kurita Water Industries Ltd. 304,000 4,466
-------------
FINANCIAL SERVICES
Hitachi Credit Corp. 243,000 5,405
-------------
FOOD & HOUSEHOLD PRODUCTS
Aiwa Co., Ltd. 40,000 1,056
Sangetsu Co., Ltd. 137,000 2,052
Yamaha Corp. 299,000 3,100
-------------
6,208
-------------
HEALTH & PERSONAL CARE
Ono Pharmaceutical Co., Ltd. 100,000 3,128
Sankyo Co., Ltd. 328,000 7,179
Yamanouchi Pharmaceutical Co., Ltd. 270,000 8,709
-------------
19,016
-------------
INDUSTRIAL COMPONENTS
Furakawa Electric Co. 1,083,000 3,695
-------------
INSURANCE
Sumitomo Marine & Fire Co. 492,000 3,122
-------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
JAPAN (CONTINUED)
MACHINERY & ENGINEERING
Amada Co., Ltd. 842,000 U.S.$ 4,081
Daifuku Co., Ltd. 626,000 3,351
Daikin Kogyo Co. 603,000 5,985
Fuji Machine Co. 243,000 7,687
Mitsubishi Heavy Industries Ltd. 1,300,000 5,069
Tsubakimoto Chain Co. 872,000 1,862
-------------
28,035
-------------
MERCHANDISING
Family Mart Co., Ltd. 87,200 4,358
-------------
MULTI-INDUSTRY
Lintec Corp. 215,000 2,002
-------------
REAL ESTATE
Keihanshin Real Estate Co. 205,000 774
Mitsubishi Estate Co. Ltd. 415,000 3,725
-------------
4,499
-------------
RECREATION, OTHER CONSUMER GOODS
Casio Computer Co., Ltd. 522,000 3,858
Fuji Photo Film Ltd. 222,000 8,262
Nintendo Co., Ltd. 120,000 11,644
-------------
23,764
-------------
TELECOMMUNICATIONS
Nippon Telephone & Telegraph Corp. 932 7,201
NTT Data Corp. 600 2,983
-------------
10,184
-------------
WHOLESALE & INTERNATIONAL TRADE
Inabata & Co. 406,000 1,086
-------------
287,480
-------------
- --------------------------------------------------------------------------------
KOREA (2.5%)
APPLIANCES & HOUSEHOLD DURABLES
Samsung Electronics 106,500 7,144
-------------
ELECTRONICS
Samsung Electro-Mechanics Co. 181,630 3,925
-------------
METALS -- STEEL
Pohang Iron & Steel Ltd. ADR 228,000 3,848
-------------
14,917
-------------
- --------------------------------------------------------------------------------
MALAYSIA (2.0%)
BEVERAGES & TOBACCO
(b)Carlsberg Brewery (Malaysia) Bhd 1,380,000 2,770
(b)Guinness Anchor Bhd 2,781,000 1,957
(b)R.J. Reynolds Bhd 1,714,000 1,357
(b)Rothmans of Pall Mall Bhd 705,000 2,908
-------------
8,992
-------------
FOOD & HOUSEHOLD PRODUCTS
(b)Nestle Bhd 953,000 2,668
-------------
11,660
-------------
- --------------------------------------------------------------------------------
NEW ZEALAND (1.0%)
BUILDING MATERIALS & COMPONENTS
Fletcher Challenge Building 899,000 1,387
-------------
ENERGY SOURCES
Fletcher Challenge Energy 376,600 714
-------------
FOREST PRODUCTS & PAPER
Fletcher Challenge Forests 79,520 26
Fletcher Challenge Paper 1,988,000 1,330
-------------
1,356
-------------
TELECOMMUNICATIONS
Telecom Corp. of New Zealand Ltd. 1,134,700 2,479
-------------
5,936
-------------
- --------------------------------------------------------------------------------
PAKISTAN (1.5%)
BANKING
(b)Askari Bank 2,245,925 484
-------------
CHEMICALS
(b)Engro Chemicals Ltd. 9,090 15
-------------
FOOD & HOUSEHOLD PRODUCTS
(b)Lever Brothers Pakistan Ltd. 442,880 5,520
-------------
OIL & GAS
(b)Shell Pakistan Ltd. 499,600 1,432
-------------
TELECOMMUNICATIONS
(b)Pakistan Telecommunications Corp Ltd. 4,700,000 1,625
-------------
9,076
-------------
- --------------------------------------------------------------------------------
PHILIPPINES (1.3%)
BANKING
Bank of the Philippine Islands 475,450 1,008
-------------
BEVERAGES & TOBACCO
(a)LA Tondena Distillers, Inc. 2,652,600 2,114
San Miguel Corp. 'B' 891,200 1,718
-------------
3,832
-------------
ELECTRICAL & ELECTRONICS
Ionics Circuit, Inc. 1,521,300 372
Music Corp. 406,600 33
-------------
405
-------------
REAL ESTATE
Ayala Land, Inc. 'B' 1 --@
SM Prime Holdings, Inc. 'B' 9,637,680 1,834
-------------
1,834
-------------
UTILITIES -- ELECTRICAL & GAS
Manila Electric Co. 'B' 117,250 377
-------------
7,456
-------------
- --------------------------------------------------------------------------------
SINGAPORE (7.2%)
AEROSPACE & MILITARY TECHNOLOGY
Singapore Technologies
Engineering Ltd. 2,189,000 2,043
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
SINGAPORE (CONTINUED)
BANKING
Oversea-Chinese Banking Corp.,
Ltd. (Foreign) 465,000 U.S.$ 3,156
United Overseas Bank Ltd.
(Foreign) 1,003,000 6,444
-------------
9,600
-------------
BROADCASTING & PUBLISHING
Singapore Press Holdings Ltd. 313,600 3,347
-------------
BUSINESS & PUBLIC SERVICES
Informatics Holdings Ltd. 5,832,000 2,050
-------------
ELECTRICAL & ELECTRONICS
Natsteel Electronics Ltd. 2,303,000 5,862
-------------
ELECTRONIC COMPONENTS, INSTRUMENTS
Venture Manufacturing Ltd. 1,318,000 5,032
-------------
FOOD & HOUSEHOLD PRODUCTS
Want Want Holdings Ltd. 174,000 209
-------------
REAL ESTATE
City Developments Ltd. 975,000 4,225
-------------
TOBACCO
Rothmans Industries Ltd. 838,000 5,028
-------------
TRANSPORTATION -- AIRLINES
Singapore Airlines Ltd. 665,000 4,877
-------------
42,273
-------------
- --------------------------------------------------------------------------------
SRI LANKA (0.3%)
INDUSTRIAL COMPONENTS
Lanka Lubricants Ltd. 1,800,000 1,651
-------------
- --------------------------------------------------------------------------------
THAILAND (1.5%)
BROADCASTING & PUBLISHING
(b)BEC World Public Co., Ltd.
(Foreign) 1,397,900 7,691
(b)Grammy Entertainment
Public Co., Ltd. (Foreign) 192,000 909
-------------
8,600
-------------
ELECTRICAL & ELECTRONICS
Delta Electronics Public Co., Ltd.
(Foreign) 82,500 436
-------------
9,036
-------------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost U.S.$611,522) 560,348
-------------
- --------------------------------------------------------------------------------
<CAPTION>
NO. OF
WARRANTS
- --------------------------------------------------------------------------------
<S> <C> <C>
WARRANTS (0.0%)
- --------------------------------------------------------------------------------
INDIA (0.0%)
(a)Apollo Tyres Ltd. (Cost U.S.$4) 2,150 --
-------------
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (2.8%)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (2.8%)
Chase Securities, Inc. 4.45%,
dated 12/31/98, due 1/4/99,
to be repurchased at
U.S.$16,297, collateralized by
U.S.$9,800 United States
Treasury Bonds, 11.25%, due
2/15/15, valued at
U.S.$16,623 (Cost $16,289)
U.S.$ 16,289 U.S.$ 16,289
-------------
- --------------------------------------------------------------------------------
FOREIGN CURRENCY ON DEPOSIT WITH
CUSTODIAN (1.6%)
Australian Dollar AUD 48 29
Hong Kong Dollar HKD 3,117 402
Indian Rupee INR 175,212 4,125
Indonesian Rupiah IDR 956,770 120
Japanese Yen JPY 4,201 37
(b)Malaysian Ringgit MYR 7,739 1,425
New Zealand Dollar NZD 208 110
(b)Pakistani Rupee PKR 102,857 1,872
Philippine Peso PHP 144 4
Singapore Dollar SGD 1,847 1,119
Thai Baht THB 3,167 87
-------------
(Cost U.S.$9,298) 9,330
-------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.8%)
(Cost $637,113) 585,967
-------------
- --------------------------------------------------------------------------------
OTHER ASSETS (0.7%)
Receivable for Investments
Sold U.S.$ 2,691
Dividends Receivable 824
Foreign Withholding Tax
Reclaim Receivable 368
Deferred Organization Costs 7
Interest Receivable 2
Other Assets 66 3,958
-------------- -------------
- --------------------------------------------------------------------------------
LIABILITIES (-0.5%)
Payable For:
Investments Purchased (1,623)
Investment Advisory Fees (490)
Professional Fees (141)
Shareholder Reporting Expenses (133)
Custodian Fees (115)
Directors' Fees and Expenses (58)
Administrative Fees (51)
Bank Overdraft (37)
Fund Shares Redeemed (7)
Net Unrealized Loss on Foreign
Currency Exchange Contracts (3)
Other Liabilities (111) (2,769)
-------------- -------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
Amount
(000)
- --------------------------------------------------------------------------------
<S> <C>
NET ASSETS (100%)
Applicable to 67,274,574, issued and
outstanding U.S.$0.01 par value shares
(100,000,000 shares authorized) U.S.$ 587,156
-------------
-------------
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 8.73
-------------
-------------
- --------------------------------------------------------------------------------
AT DECEMBER 31, 1998, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Common Stock U.S.$ 673
Capital Surplus 894,583
Accumulated Net Investment Loss (1,367)
Accumulated Net Realized Loss (255,890)
Unrealized Depreciation on Investments
and Foreign Currency Translations (50,843)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS U.S.$ 587,156
-------------
-------------
- --------------------------------------------------------------------------------
</TABLE>
(a)-- Non-income producing
(b)-- Security valued at fair value -- see note A-1 to financial statements.
(c)-- The Fund is advised by an affiliate.
@ -- Value is less than U.S.$500.
ADR-- American Depositary Receipt
GDR-- Global Depositary Receipt
Note: Prior governmental approval for foreign investments may be required
under certain circumstances in some emerging markets, and foreign
ownership limitations may also be imposed by the charters of individual
companies in emerging markets. As a result, an additional class of
shares designated as "foreign" may be created, and offered for
investment. The "local" and "foreign" shares' market values may vary.
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open
at December 31, 1998, the Fund is obligated to deliver
foreign currency in exchange for U.S. dollars as indicated
below:
<TABLE>
<CAPTION>
CURRENCY IN NET
TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE LOSS
(000) (000) DATE (000) (000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INR 124,000 U.S.$ 2,920 01/04/99 U.S.$ 2,917 U.S.$ 2,917 U.S.$ (3)
----------- ----------- --------
----------- ----------- --------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1998 EXCHANGE RATES:
<S> <C> <C>
AUD Australian Dollar 1.632 = U.S.$ 1.00
HKD Hong Kong Dollar 7.747 = U.S.$ 1.00
INR Indian Rupee 42.470 = U.S.$ 1.00
IDR Indonesian Rupiah 8000.000 = U.S.$ 1.00
JPY Japanese Yen 112.850 = U.S.$ 1.00
MYR Malaysian Ringgit 5.430 = U.S.$ 1.00
NZD New Zealand Dollar 1.899 = U.S.$ 1.00
PKR Pakistani Rupee 54.958 = U.S.$ 1.00
PHP Philippine Peso 38.900 = U.S.$ 1.00
SGD Singapore Dollar 1.650 = U.S.$ 1.00
THB Thai Baht 36.350 = U.S.$ 1.00
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an intetgral part of the financial statements.
11
<PAGE>
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY
CLASSIFICATION -- DECEMBER 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C>
Aerospace & Military Technology U.S.$ 2,043 0.4%
Appliances & Household Durables 25,163 4.3
Automobiles 29,617 5.0
Banking 35,264 6.0
Beverages 299 0.1
Beverages & Tobacco 26,591 4.5
Broadcasting & Publishing 21,301 3.6
Building Materials & Components 10,161 1.7
Business & Public Services 10,426 1.8
Chemicals 19,047 3.3
Construction & Housing 6,308 1.1
Data Processing & Reproduction 25,417 4.3
Electric Components 3,079 0.5
Electrical & Electronics 52,748 9.0
Electronic Components, Instruments 34,625 5.9
Electronics 3,925 0.7
Energy Equipment & Services 4,466 0.8
Energy Sources 2,426 0.4
Financial Services 10,880 1.9
Food & Household Products 28,113 4.8
Forest Products & Paper 1,356 0.2
Health & Personal Care 19,392 3.3
Industrial Components 5,356 0.9
Insurance 3,122 0.5
Leisure & Tourism 1 0.0
Machinery & Engineering 29,582 5.0
Merchandising 4,358 0.7
Metals -- Steel 3,848 0.6
Misc. Materials & Commodities 5,588 1.0
Multi-Industry 20,859 3.6
Oil & Gas 1,432 0.2
Real Estate 24,595 4.2
Recreation, Other Consumer Goods 23,764 4.0
Telecommunications -- Integrated 4,982 0.8
Telecommunications -- Wireless 4,016 0.7
Telecommunications 24,896 4.2
Tobacco 5,028 0.9
Transportation -- Airlines 4,877 0.8
Transportation -- Rail 5,968 1.0
Utilities -- Electrical & Gas 12,147 2.1
Wholesale & International Trade 3,282 0.6
Other 25,619 4.4
-------------- ----
U.S.$ 585,967 99.8%
--------------- ----
--------------- ----
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF TOTAL INVESTMENTS BY COUNTRY --
DECEMBER 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
COUNTRY (000) ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C>
Australia U.S.$ 60,746 10.3%
Hong Kong 58,554 10.0
India 37,899 6.5
Indonesia 13,664 2.3
Japan 287,480 49.0
Korea 14,917 2.5
Malaysia 11,660 2.0
New Zealand 5,936 1.0
Pakistan 9,076 1.5
Philippines 7,456 1.3
Singapore 42,273 7.2
Sri Lanka 1,651 0.3
Thailand 9,036 1.5
United States (short-term investments) 16,289 2.8
Other 9,330 1.6
------------- ----
U.S.$585,967 99.8%
------------- ----
------------- ----
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
STATEMENT OF OPERATIONS (000)
- ---------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S.$ 10,334
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,622
Less: Foreign Taxes Withheld . . . . . . . . . . . . . . . . . . . . . . (1,111)
- ---------------------------------------------------------------------------------------------------
Total Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,845
- ---------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . 5,788
Custodian Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 885
Administrative Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 603
Shareholder Reporting Expenses . . . . . . . . . . . . . . . . . . . . . 220
Professional Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
Transfer Agent Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Directors' Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . 59
Country Tax Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Amortization of Organization Costs . . . . . . . . . . . . . . . . . . . 11
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345
- ---------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,231
- ---------------------------------------------------------------------------------------------------
Net Investment Income .. . . . . . . . . . . . . . . . . . . . . . 4,614
- ---------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . . . . . . . . . . . . (106,665)
Foreign Currency Transactions. . . . . . . . . . . . . . . . . . . . . . (4,286)
- ---------------------------------------------------------------------------------------------------
Net Realized Loss . . . . . . . . . . . . . . . . . . . . . . . . . . (110,951)
- ---------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments. . . . . . . . . . . . . . . . . . . . . . . 94,428
Appreciation on Foreign Currency Translations. . . . . . . . . . . . . . 511
- ---------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation. . . . . . . . . . . . 94,939
- ---------------------------------------------------------------------------------------------------
Total Net Realized Loss and Change in Unrealized Appreciation/Depreciation. . (16,012)
- ---------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . U.S.$ (11,398)
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . U.S.$ 4,614 U.S.$ 2,126
Net Realized Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . (110,951) (149,087)
Change in Unrealized Appreciation/Depreciation . . . . . . . . . . . . 94,939 (79,512)
- -----------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Operations . . . . . . . . . . . . . . . . . . . . . . . . . . (11,398) (226,473)
- -----------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . -- (1,751)
In Excess of Net Investment Income . . . . . . . . . . . . . . . . . . (639) --
- -----------------------------------------------------------------------------------------------------------------------
Total Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . (639) (1,751)
- -----------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Repurchase of Shares (4,379,934 shares). . . . . . . . . . . . . . . . (28,980) --
- -----------------------------------------------------------------------------------------------------------------------
Total Decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . (41,017) (228,224)
Net Assets:
Beginning of Period. . . . . . . . . . . . . . . . . . . . . . . . . . 628,173 856,397
- -----------------------------------------------------------------------------------------------------------------------
End of Period (including accumulated net investment loss
of U.S.$1,367 and U.S.$5,423, respectively). . . . . . . . . . . . . U.S.$587,156 U.S.$628,173
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
SELECTED PER SHARE DATA ----------------------------------------------------------------- AUGUST 2, 1994* TO
AND RATIOS: 1998 1997 1996 1995 DECEMBER 31, 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD. . . . U.S.$ 8.77 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 . . . . . . . . . . . 0.06 0.03 0.02 0.05 0.05
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . (0.17) (3.19) (0.33) 1.16 (0.87)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations. . (0.11) (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) -- (0.01) (0.00)# --
In Excess of Net Realized Gain . . . . -- -- -- (0.02) (0.01)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . (0.01) (0.02) (0.61) (0.07) (0.05)
- -----------------------------------------------------------------------------------------------------------------------------------
Decrease in Net Asset Value due to
Shares Issued through Rights Offering. -- -- (1.46) -- --
Anti-Dilutive Effect of Shares
Repurchased. . . . . . . . . . . . . . 0.08 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD. . . . . . . U.S.$ 8.73 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.$ 7.00 U.S.$ 7.44 U.S.$ 9.75 U.S.$ 13.33 U.S.$ 12.25
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value . . . . . . . . . . . . . (5.77)% (23.46)% (14.72)%+ 9.38% (12.71)%
Net Asset Value(1) . . . . . . . . . . (0.34)% (26.36)% (2.87)%+ 9.24% (5.94)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS) U.S.$587,156 U.S.$628,173 U.S.$856,397 U.S.$769,414 U.S.$708,323
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets . . 1.42% 1.34% 1.39% 1.36% 1.31%**
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . 0.80% 0.25% 0.16% 0.36% 0.89%**
Portfolio Turnover Rate . . . . . . . . . . 42% 66% 28% 21% 2%
- -----------------------------------------------------------------------------------------------------------------------------------
</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.
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
NOTES TO FIANANCIAL STATEMENTS
DECEMBER 31, 1998
- -----------
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. At December 31, 1998, securities valued at $38,637,000 representing
6.6% of net assets have been fair valued. The amounts realized upon
disposition may differ from the assigned valuations and such differences
could be material.
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 unre-
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alized currency gains (losses) for the period is reflected in the Statement
of Operations.
The Fund may use derivatives to achieve its investment objective. The Fund may
engage in transactions in futures contracts on foreign currencies, stock
indices, as well as in options, swaps and structured notes. Consistent with the
Fund's investment objectives and policies, the Fund may use derivatives for
non-hedging as well as hedging purposes.
Following is a description of derivative instruments and their associated risks
that the Fund may utilize:
5. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into foreign
currency exchange contracts generally to attempt to protect securities and
related receivables and payables against changes in future foreign exchange
rates and, in certain situations, to gain exposure to a foreign currency. A
foreign currency exchange contract is an agreement between two parties to
buy or sell currency at a set price on a future date. The market value of
the contract will fluctuate with changes in currency exchange rates. The
contract is marked-to-market daily and the change in market value is
recorded by the Fund as unrealized gain or loss. The Fund records realized
gains or losses when the contract is closed equal to the difference between
the value of the contract at the time it was opened and the value at the
time it was closed. Risk may arise upon entering into these contracts from
the potential inability of counterparties to meet the terms of their
contracts and is generally limited to the amount of unrealized gain on the
contracts, if any, at the date of default. Risks may also arise from
unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
6. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: The Fund
may make forward commitments to purchase or sell securities. Payment and
delivery for securities which have been purchased or sold on a forward
commitment basis can take place a month or more (not to exceed 120 days)
after the date of the transaction. Additionally, the Fund may purchase
securities on a when-issued or delayed delivery basis. Securities purchased
on a when-issued or delayed delivery basis are purchased for delivery
beyond the normal settlement date at a stated price and yield, and no
income accrues to the Fund on such securities prior to delivery. When the
Fund enters into a purchase transaction on a when-issued or delayed
delivery basis, it either establishes a segregated account in which it
maintains liquid assets in an amount at least equal in value to the Fund's
commitments to purchase such securities or denotes such securities on the
custody statement for its regular custody account. Purchasing securities on
a forward commitment or when-issued or delayed-delivery basis may involve a
risk that the market price at the time of delivery may be lower than the
agreed upon purchase price, in which case there could be an unrealized loss
at the time of delivery.
7. SWAP AGREEMENTS: The Fund may enter into swap agreements to exchange the
return generated by one security, instrument or basket of instruments for
the return generated by another security, instrument or basket of
instruments. The following summarizes swaps which may be entered into by
the Fund:
INTEREST RATE SWAPS: Interest rate swaps involve the exchange of
commitments to pay and receive interest based on a notional principal
amount. Net periodic interest payments to be received or paid are accrued
daily and are recorded in the Statement of Operations as an adjustment to
interest income. Interest rate swaps are marked-to-market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized appreciation or depreciation in the Statement of Operations.
TOTAL RETURN SWAPS: Total return swaps involve commitments to pay interest
in exchange for a market-linked return based on a notional amount. To the
extent the total return of the security, instrument or basket of
instruments underlying the transaction exceeds or falls short of the
offsetting interest obligation, the Fund will receive a payment from or
make a payment to the counterparty, respectively. Total return swaps are
marked-to-market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gains or losses in the Statement
of Operations. Periodic payments received or made at the end of each
measurement period, but prior to termination, are recorded as realized
gains or losses in the Statement of Operations.
Realized gains or losses on maturity or termination of interest rate and
total return swaps are presented in the Statement of Operations. Because
there is no organized market for these swap agreements, the value reported
in the Statement of Net Assets may differ from that which would be realized
in the event the Fund terminated its position in the agreement. Risks may
arise upon entering into these agreements from the potential inability of
the counterparties to meet the terms of the agreements and are generally
limited to the amount of net interest payments to be received and/or
favorable movements in the value of the underlying security, instrument or
basket of instruments, if any, at the date of default.
8. STRUCTURED SECURITIES: The Fund may invest in interests in entities
organized and operated solely for the purpose of restructuring the
investment characteristics of sovereign debt obligations. This type of
restructuring involves the deposit with or purchase by an entity of
specified instruments and the issuance by that entity of one or more
classes of securities
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<PAGE>
("Structured Securities") backed by, or representing interests in, the
underlying instruments. Structured Securities generally will expose the
Fund to credit risks of the underlying instruments as well as of the issuer
of the Structured Security. Structured Securities are typically sold in
private placement transactions with no active trading market. Investments
in Structured Securities may be more volatile than their underlying
instruments, however, any loss is limited to the amount of the original
investment.
9. OVER-THE-COUNTER TRADING: Derivative instruments that may be purchased or
sold by the Fund are expected to regularly consist of instruments not
traded on an exchange. The risk of nonperformance by the obligor on such an
instrument may be greater, and the ease with which the Fund can dispose of
or enter into closing transactions with respect to such an instrument may
be less, than in the case of an exchange-traded instrument. In addition,
significant disparities may exist between bid and asked prices for
derivative instruments that are not traded on an exchange. Derivative
instruments not traded on exchanges are also not subject to the same type
of government regulation as exchange traded instruments, and many of the
protections afforded to participants in a regulated environment may not be
available in connection with such transactions.
10. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Investments in new Indian securities are made by
making applications in the public offerings. The issue price, or a portion
thereof, is paid at the time of application and is reflected as share
application money on the Statement of Net Assets, if any. Upon allotment of
the securities, this amount plus any remaining amount of issue price is
recorded as cost of investments. Realized gains and losses on the sale of
investment securities are determined on the specific identified cost basis.
Interest income is recognized on the accrual basis. Dividend income is
recorded on the ex-dividend date (except certain dividends which may be
recorded as soon as the Fund is informed of such dividend) net of
applicable withholding taxes where recovery of such taxes is not reasonably
assured. Distributions to shareholders are recorded on the ex-dividend
date.
The amount and character of income and capital gain distributions to be
paid are determined in accordance with Federal income tax regulations which
may differ from generally accepted accounting principles. These differences
are primarily due to differing book and tax treatments for foreign currency
transactions, the timing of the recognition of gains and losses on
securities, net operating losses and foreign currency exchange contracts.
Permanent book and tax basis differences relating to shareholder
distributions may result in reclassifications to undistributed net
investment income (loss), accumulated net realized gain (loss) and capital
surplus.
Adjustments for permanent book-tax differences, if any, are not reflected
in ending undistributed net investment income (loss) for the purpose of
calculating net investment income (loss) per share in the financial
highlights.
B. Morgan Stanley Dean Witter Investment Management Inc. (the "Adviser")
provides investment advisory services to the Fund under the terms of an
Investment Advisory and Management Agreement (the "Agreement"). Under the
Agreement, the Adviser is paid a fee computed weekly and payable monthly at an
annual rate of 1.00% of the Fund's average weekly net assets.
C. The Chase Manhattan Bank, through its corporate affiliate Chase Global
Funds Services Company (the "Administrator"), provides administrative services
to the Fund under an Administration Agreement. Under the Administration
Agreement, the Administrator is paid a fee computed weekly and payable monthly
at an annual rate of 0.09% of the Fund's average weekly net assets, plus $65,000
per annum. In addition, the Fund is charged certain out-of-pocket expenses by
the Administrator.
D. The Chase Manhattan Bank and its affiliates serve as custodian for the
Fund. The Fund's assets held outside the United States have been held by Morgan
Stanley Trust Company ("MSTC"), which was an affiliate of the Adviser prior to
October 1, 1998. On October 1, 1998, MSTC was acquired by the Chase Manhattan
Bank. Custody fees are payable monthly based on assets held in custody,
investment purchase and sales activity and account maintenance fees, plus
reimbursement for certain out-of-pocket expenses. Through September 30, 1998,
the Fund paid MSTC fees of approximately $589,000.
E. During the year ended December 31, 1998, the Fund made purchases and sales
totaling $261,002,000 and $214,054,000, respectively, of investment securities
other than long-term U.S. Government securities and short-term investments.
There were no purchases and sales of long-term U.S. Government securities. At
December 31, 1998, the U.S. Federal income tax cost basis of securities was
$629,118,000 and, accordingly, net unrealized depreciation was $52,481,000 of
which $59,087,000 related to appreciated securities and $111,568,000 related to
depreciated securities. At December 31, 1998, the Fund had a capital loss
carryforward for U.S. Federal income tax purposes of approximately $243,446,000
available to offset future capital gains of which $5,069,000 will expire on
December 31, 2003, $93,503,000 will expire on December 31, 2005 and $144,874,000
will expire on December 31, 2006. To the extent that capital gains are offset,
such gains will not be distributed to the shareholders. For the year ended
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<PAGE>
December 31, 1998, the Fund elects to defer to January 1, 1999 for U.S. Federal
income tax purposes, post-October currency losses of $413,000 and post-October
capital losses of $12,098,000.
F. For year ended December 31, 1998, the Fund incurred $154,000 of brokerage
commissions with Morgan Stanley & Co. Incorporated, an affiliate of the Adviser.
G. In connection with its organization and initial public offering of shares,
the Fund incurred $55,000 and $1,724,000 of organization and offering costs,
respectively. The organization costs are being amortized on a straight-line
basis over a five year period beginning August 2, 1994, the date the Fund
commenced operations. The offering costs were charged to capital.
H. A significant portion of the Fund's net assets consist of securities of
issuers located in Asia which are denominated in foreign currencies. Changes in
currency exchange rates will affect the value of and investment income from such
securities. Asian securities are subject to greater price volatility, limited
capitalization and liquidity, and higher rates of inflation than securities of
companies based in the United States. In addition, Asian securities may be
subject to substantial governmental involvement in the economy and greater
social, economic and political uncertainty.
I. 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.
J. 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, 1998 totaled $58,000 and are included in Payable for Directors' Fees and
Expenses on the Statement of Net Assets.
K. On September 15, 1998, the Fund commenced a share repurchase program for
purposes of enhancing shareholder value and reducing the discount at which the
Fund's shares traded from their net asset value. From that date through December
31, 1998, the Fund repurchased 4,379,934 shares or 6.11% of its Common Stock at
an average price per share of $6.57 and an average discount of 16.92% from net
asset value per share. The Fund expects to continue to repurchase its
outstanding shares at such time and in such amounts as it believes will further
the accomplishment of the foregoing objectives, subject to review by the Board
of Directors.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION (UNAUDITED):
For the year ended December 31, 1998, the Fund expects to pass through to
shareholders foreign tax credits of approximately $1,112,000. In addition, for
the year ended December 31, 1998, gross income derived from sources within
foreign countries amounted to $10,240,000.
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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, 1998, 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 four 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, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 8, 1999
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<PAGE>
YEAR 2000 DISCLOSURE (UNAUDITED):
The investment advisory services provided to the Fund by the Adviser depend on
the smooth operation of its computer systems. Many computer and software systems
in use today cannot recognize the year 2000, but revert to 1900 or some other
date, due to the manner in which dates were encoded and calculated. That failure
could have a negative impact on the handling of securities trades, pricing and
account services. The Adviser has been actively working on necessary changes to
its own computer systems to deal with the year 2000 problem and expects that its
systems will be adapted before that date. There can be no assurance, however,
that the Adviser will be successful. In addition, other unaffiliated service
providers may be faced with similar problems. The Adviser is monitoring their
remedial efforts, but, there can be no assurance that they and the services they
provide will not be adversely affected.
In addition, it is possible that the markets for securities in which the Fund
invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected.
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<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 10005
1-800-278-4353
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