Baring Asset Management (Asia) Limited 19th Floor, Edinburgh Tower 15 Queen’s Road Central, Hong Kong Tel: (852) 2841 1411 Fax: (852) 2868 4110

www.barings.com

The Asia Pacific Fund, Inc.

Market Outlook and Investment Strategy

Franki Chung and Henry Chan December 2007

Table of Contents

Section 1: Section 2:

Performance and Portfolio Review Asian Investment Outlook

Page

2 - 19 20 - 47

1

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Section 1: Performance and Portfolio Review

Performance Summary Highlights

3 month period to November 30, 2007

 Fund’s NAV returns: +11.5% in USD terms

(+57.3% inc. dividends over 12 month period to 11/30/07)

 Fund’s share price returns: +9% in USD terms

(+50.3% inc. dividends over 12 month period to 11/30/07)

 Fund’s ranking in Micropal survey: 3 rd quartile for 3 month period and Top 15% for 12 month periods to Nov 2007  Strong long-term track record maintained

3

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The Asia Pacific Fund, Inc.

Long-Term Performance (Cumulative NAV Returns over 1, 3, 5 and 10 year periods to November 30, 2007)

(%)

400 350 300 250 200 150 100 50 0

Micropal Ranking +

57.3

Portfolio * MSCI AC F/E (Free) x Jap Gross 45.0

1 Yr to 11/30/2007

30/212

159.0

129.8

3 Yrs to 11/30/2007

23/177

291.7

255.1

5 Yrs to 11/30/2007

26/153

373.5

215.7

10 Yrs to 11/30/2007

5/89

Fund performance are bid to bid, net of fees, gross income, US$. For risks associated with investment securities in emerging and less developed markets, please refer to the Offering Document for details. Transactions in derivatives, warrants and forward contracts and other fund derivatives instruments may be used for the purpose of meeting the investment objective of the Fund. The Net Asset Value of the Fund may have a high volatility due to these instruments and techniques being included in its scheme property and may involve a greater degree of risk. Past performance is not an indication of future performance.

Data source - © 2007 Morningstar, Inc. (See Important Information)

Strong long-term track record maintained 4

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The Asia Pacific Fund, Inc.

Short-Term Performance (NAV Returns over 3 month period to November 30, 2007)

70 60 50 40 30 20 10 0 -10 -20 Portfolio * MSCI AC F/E (Free) x Jap Gross 10.1

10.0

14.4

11.7

11.5

11.4

57.3

45.0

Micropal Ranking +

-11.5

-9.3

11/30/2007

194/220

10/31/2007

100/220

9/30/2007

42/220

3 mths to 11/30/2007

130/219

1 year

30/211

Fund performance are bid to bid, net of fees, gross income, US$. For risks associated with investment securities in emerging and less developed markets, please refer to the Offering Document for details. Transactions in derivatives, warrants and forward contracts and other fund derivatives instruments may be used for the purpose of meeting the investment objective of the Fund. The Net Asset Value of the Fund may have a high volatility due to these instruments and techniques being included in its scheme property and may involve a greater degree of risk. Past performance is not an indication of future performance.

Data source - © 2007 Morningstar, Inc. (See Important Information)

In line with referenced Benchmark, but slightly below Micropal Peer Average over 3 month period 5

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Performance Attribution Analysis - Summary

(3 month period to November 30, 2007)

Positive Contributors:

 Asset Allocation  Stock Selection

Negative Contributor:

 Sector Allocation

6

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Performance Analysis - Details

Asset and Sector Allocation (3 month period to Nov 30, ’07)

Positive Asset Allocation :

 Overweight China

Negative Sector Allocation :

 Underweight Telecoms and Real Estate  Overweight Materials

7

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Performance Analysis

Stock Selection – Highlights of largest positive contributors (3 month period to November 30, 2007)

Stock Zijin Mining Group

(listed in HK) (2.1% of NAV)

Hengan Intl

(listed in HK) (1.9% of NAV)

Inco Intl Nickel Indo

(listed in Indonesia) (0.8% of NAV)

HDFC

(listed in India) (1.3% of NAV)

Event

China’s leading gold producer, with some copper interests (stock price rose by 64.5%) China’s leading provider of personal hygiene tissue-based products (inc. sanitary napkins and baby diapers) (stock price rose by

42.4%)

Indonesia’s largest listed nickel producer (61% owned by CVRD Inco) (stock price rose

by 91.8%)

India’s leading provider of housing finance; company is extremely well-managed, with sustainable growth in sales and profits (stock

price rose by 45.4%)

8

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Price Momentum Factor peaked in October, after a 12 month strong out-performance

1.0

0.8

0.6

0.4

0.2

0.0

-0.2

-0.4

-0.6

May 2006

Asia Pacific Fund VaR Factor Exposures, last 18 months (as at November 30, 2007)

Aug 2006

Value

Nov 2006

Growth

Feb 2007

Size

May 2007 Aug 2007

Momentum

Nov 2007

Market Index Cumulative Factor Returns, last 18 months (as at November 30, 2007)

25% 20% 15% 10% 5% 0% -5% -10% -15% May 2006 Aug 2006

Value

Nov 2006

Growth

Feb 2007

Size

May 2007 Aug 2007

Momentum

Nov 2007 Source: Baring Asset Management

We continued to reduce the Fund’s exposure to stocks with high price momentum 9

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Local Currency exchange rate (US$/Local rate)

(3 month period to November 30, 2007)

08/31/2007 11/30/2007 Change %* North Asia

New Taiwan Dollar Chinese Renminbi South Korean Won Hong Kong Dollar

ASEAN

Philippine Peso Singaporean Dollar Malaysian Ringgit Thai Baht Indonesian Rupiah

Indian Rupee

33.00

7.55

938 7.80

32.26

7.40

921 7.79

+2.3

+2.0

+1.9

+0.1

46.54

1.52

3.50

34.31

9,390 40.88

42.78

1.45

3.36

33.85

9,370 39.63

+8.8

+5.3

+4.1

+1.4

+0.2

+3.2

*: + denotes an appreciation of the local currency vs the USD (and vice-versa) Source: Factset

Strong Asian currencies’ performance vs the USD 10

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Asian Stock Markets: Country Performance

(3 month period to November 30, 2007)

Gross return in USD Country - Index North Asia

MSCI Hong Kong Free MSCI China Free MSCI Korea Free MSCI Taiwan Free

ASEAN

MSCI Indonesia Free MSCI Malaysia Free MSCI Philippines Free MSCI Thailand Free MSCI Singapore Free

MSCI India Free MSCI AC Far East Free Ex Japan Gross (%)

+23.3

+20.9

+4.1

-0.8

+31.0

+14.4

+12.1

+9.1

+7.9

+33.9

+11.4

Source: Factset

‘Growth’ markets of India, Indonesia and HK-China led, while ‘Technology-dominated’ markets of Korea/Taiwan lagged 11

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Asian Stock Markets: Sectoral Performance

(3 month period to November 30, 2007)

Gross return in USD (%)

MSCI Energy MSCI Telecommunication Services MSCI Real Estate MSCI Consumer Staples MSCI Financials MSCI Industrials MSCI Consumer Discretionary MSCI Utilities MSCI Materials MSCI Health Care MSCI Information Technology +38.6

+23.1

+21.9

+14.7

+12.9

+11.3

+7.4

+5.3

+4.5

+0.3

-0.6

Source: Factset

12

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Energy and Telecoms led, while Technology and Health Care lagged

The Asia Pacific Fund, Inc.

Country Allocation (as at November 30, 2007)

Country 08/31/2007 (%) 11/30/2007 (%) Significant Change * North Asia

Hong Kong/China South Korea Taiwan

ASEAN

Singapore Indonesia Malaysia Philippines Thailand

India Cash 80.6

44.0

20.5

16.1

16.0

11.8

2.1

1.8

0.3

0.0

1.2

2.2

78.4

43.0

20.9

14.5

16.8

11.9

3.4

0.6

0.4

0.7

1.5

3.3

      * Only 1% change or more is highlighted by arrow moves Source: Factset

Reduced China and Malaysia in order to fund other markets and Cash 13

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The Asia Pacific Fund, Inc.

Country Allocation vs Asian universe including India (as at November 30, 2007)

Country North Asia

Hong Kong/China South Korea Taiwan

ASEAN

Singapore Indonesia Philippines Thailand Malaysia

India Pakistan Cash Asia Pacific Fund (%) 78.4

43.0

20.9

14.5

16.8

11.9

3.4

0.4

0.7

0.6

1.5

0.0

3.3

MSCI All Country Asia x-Japan (%) 73.1

36.8

21.3

15.0

15.3

6.6

2.5

0.8

2.0

3.5

11.2

0.3

0.0

Difference 5.2

6.1

-0.4

-0.5

1.5

5.3

0.8

-0.4

-1.3

-3.0

-9.7

-0.3

3.3

Source: Factset

14

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The Asia Pacific Fund, Inc.

Sector Allocation (as at November 30, 2007)

Sector

Financials Information Technology Industrials Materials Consumer Discretionary Energy Consumer Staples Telecom Services Health Care Utilities Chinese ‘A-share’ ETF Cash

08/31/2007 (%)

23.0

19.3

18.2

12.3

8.4

6.2

3.4

3.0

0.0

0.5

3.4

2.2

11/30/2007 (%)

25.0

16.0

15.7

13.0

6.6

8.4

4.9

5.2

0.0

0.0

1.8

3.3

Significant Change *

         * Only 1% change or more is highlighted by arrow moves Source: Factset

Industrials, Technology and Cons. Disc. reduced; Financials, Cons. Staples and Telecoms raised 15

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Highlights of Portfolio Activity

(3 month period to November 30, 2007)

HK/China

  Took profits in ‘Cyclical Growth’: Consumer (Lifestyle Intl), Materials (Zijin Mining, Alum Corp of China), Industrials (Zhuzhou Times, Nine Dragons, Guangshen Railways) and A-share ETF Added to ‘Defensive Growth’ (China Mobile, ICBC Bank, Henderson Land

& Devpt)

Taiwan

  Added to Undervalued Property plays/ Materials (Asia Cement) Switched Technology stocks (sold Siliconware Precision and Firich Enterprise, bought Advanced Semicon and Asustek)

(Cont.) 16

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Highlights of Portfolio Activity

(3 month period to November 30, 2007)

ASEAN

  Reduced Malaysia Added to Indonesia, Singapore and Thailand

Korea

  Added to ‘Special Situations’ (Samsung Corp, Korea Invt, KT&G) and Materials (Posco) Reduced exposure to YTD winners (Samsung Heavy) or under-performing stocks (Hynix Semi, Woori Investment)

17

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Portfolio Characteristics

(as at November 30, 2007)

P/E using FY1 Est (X) P/E using FY2 Est (X) Dividend Yield (%) EPS FY1/FY0 growth (%) EPS FY2/FY1 growth (%) Hist 3 Yr EPS Growth (%) Hist 3 Yr Sales Growth (%)

Asia Pacific Fund

26.5

20.9

1.5

+50.3

+26.3

+43.6

+31.2

Source : FactSet

Growth and quality bias maintained 18

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The Asia Pacific Fund, Inc.

Premium/Discount Graph

Source: Bloomberg (12/2007)

‘Range bound’ trend, with discount trading 19

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between 7.5% to 12.5%

Section 2: Global and Asian Investment Outlook

Asia’s Long-Term Outlook:

We retain our positive stance

 Sustainable growth, boosted by rising domestic demand  Improving corporate returns and healthy balance sheets  Undervalued currencies, fairly-valued equity markets  Secular re-rating of Asian assets expected to continue

21

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Barings’ Global Economic forecasts for 2008

    OECD G7 economies expected to grow at a slower rate, caused by weaker US consumption and much reduced new bank lending But prospects for US recession still unlikely (less than 40% probability) US Federal Reserve expected to continue to ease, but extent and speed dependent on inflation trend Asian economies will likely feel some negative impact through weaker exports, but are expected to continue to grow solidly

Net, net, a more challenging global economic backdrop 22

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Barings’ Asian Economic forecasts for 2008

      Continuing growth in domestic demand expected to remain the key driver of growth in Asia China and India expected to continue to grow solidly, helping to boost intra-regional trade Other Asian economies likely to grow at trend rate, some helped by favourable recent electoral outcomes Asian central banks’ policy direction expected to remain mixed (ie, HK to cut, China to raise) Asian currencies likely to continue to strengthen vs the USD Key risks include rising inflation and tighter-than-expected monetary policy

Net, net, still a favourable economic backdrop for equity investors in the region 23

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Current Concerns in Equity Markets

 Global and regional inflation rates to continue to rise, forcing central banks to tighten more aggressively (or to cut rates by less) than currently expected  Fear of a US and global recession developing, causing risk aversion to reign in the short-term  Current high earnings expectations to cause disappointment

24

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We are monitoring the above risks closely

Global Risk Aversion Dominates:

Another buying opportunity in Asian equities ?

Risk index

10.0

8.0

6.0

4.0

Euphoria

2.0

0.0

-2.0

-4.0

Panic

-6.0

Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Source: Credit Suisse (12/2007)

It has paid to buy a strong growth story (such as Asia) in times of rising global risk aversion 25

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Significant Outflows in Aug/Nov ‘07 in EM Asia:

Precursor to US recession …. or .… high risk aversion ?

(US$bn)

(4) (6) (8) (10) (12) (14) (16) (18) (20) 10 8 6 4 2 (2) Monthly Net Foreign Buying in EM Asia 2.6

(15.2) (18.3) Source: Morgan Stanley (12/2007)

26

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Recent ‘panic selling’ probably caused by rising global risk aversion

Asia vs OECD World:

Some signs of decoupling …..

8 2 0 6 4 (2) (4) (6) Jan-86 Jan-89 Jan-92 OECD G7 LEI (Left) Asia LEI (Right) Jan-95 Jan-98 Jan-01 Jan-04 % YoY Jan-07 4 2 0 -2 18 16 14 8 6 12 10 30 20 10 0 -10 -20 -30 -40 -50 -60 Jan 88 Jan 90 Analyst Revision - MSCI A/P, % (Left) OECD LEI (Right) Jan 92 Jan 94 Jan 96 Jan 98 Jan 00 Jan 02 Jan 04 Jan 06 % YoY 10% 8% 6% 4% 2% 0% -2% -4% -6% Jan 08 -8% Source: Morgan Stanley (12/2007)

…. at both the economic and earnings levels 27

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Asian Economic De-Coupling from OECD:

Korean exports example

(%) 35 30 25 20 15 10 5 0 -5 Contribution to Korea’s Export Growth, % 2002-2006 YTD 2007

Source: Morgan Stanley (12/2007)

28

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Less to the US, more to the region and other EM/European nations

Asian Exports: How important are they, REALLY ?

Headline: yes ….. but value-added: not so much !

Export share of GDP (%)

35% 30% 25% 20% 15% 10% 5% 0% Source: UBS (12/2007) Estimated value-added share Headline Exports

Asian export sector’s value added contribution to the region’s GDP appears to be less than 5% 29

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So, can Asia withstand a G3 recession?

Theoretically yes, but practically …… ?

(y-y %)

32 24 16 8 0 (8) (16) Real total domestic demand weaker correlation as Asian domestic demand (+8.3% y-y) is stronger Real exports US real imports stronger correlation as Asian domestic demand (+4.1% y-y) is weaker 32 24 16 8 0 Source: BNP Paribas (12/2007)

If Asian’s current strong domestic demand continues, its correlation with the US economy should diminish over time 30

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Food:

Important for Asia’s headline CPI

(% share)

60 50 40 30 20 10 0 Food as a % of CPI Source: BNP Paribas (12/2007)

A key risk factor to watch 31

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Asia & China’s Core vs Headline Inflation:

Headline: worrying …… Core: tame

(%) 6%

Asia ex-Japan Asia ex-Japan CPI Core CPI

5% 4% 3% 2% 1% 0% Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07

China

(%) 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% Jan-01

China

Jan-02 Jan-03

CPI Non-Food CPI

Jan-04 Jan-05 Jan-06 Jan-07 Source: Morgan Stanley (12/2007)

Will Asian central banks act on headline or core inflation trends ?

32

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Property Prices’ Past 10 Year Trend:

US peaked, but Asia is still catching up ……

(%)

120 100 80 60 40 20 0 -20 -40 US Korea Thailand Taiwan Sing HK Source: UBS (12/2007)

More upside expected in Asia 33

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HK Housing Affordability:

Fine

Index

110 90 70 50 30 10 Affordability Ratio Source: UBS (12/2007)

Plenty of room for the value of an average property to rise 34

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HK Housing Sector:

Strong demand, limited supply

Units

40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 Total Private Residential Completion (unit) Forecast adjusted down in Nov 07 Source: UBS (12/2007)

Unlike the US, more favourable supply/demand characteristics 35

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HK Banking system:

Borrow, please !

(%)

200% 150% 100% 50% 0%

$HK bn

2,800 1,400 -1,400 -2,800 Net deposit (RHS) Total LDR (LHS) Source: UBS (12/2007)

Banks are seriously cashed-up !

36

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Asian Equities vs. Asian Bonds:

Equities still cheaper

(%)

4.0

3.0

2.0

1.0

0.0

-1.0

-2.0

-3.0

-4.0

-5.0

-6.0

APXJ

700 600 500 400 300 200 100 10Y Bond Yield - Fwd Earnings Yield (%) (LHS) Avg. -1 Std dev (LHS) Avg. +1 Std dev (LHS) MSCI_ Price_USD AP ex JP (RHS) Source: Morgan Stanley (12/2007)

Rising investor’s confidence needed to close the gap 37

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Asia Interest Rates:

Still low

(%)

16 14 12 10

Core Asia Interbk 3M

8 6

Asia Interbk 3M LIBOR 3M

4 2 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Source: Morgan Stanley (12/2007)

Low nominal and real Asian interest rates are expected to remain supportive for equity markets 38

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In a world of Downgrades, what are you prepared to pay for this EPS Growth series?

Asset 1 Asset 2 2006 EPS Growth (in % terms) 2007e 2008f 2009f CAGR 06-09e +17.8

+27.7

+21.4

+16.3

+20.7% +30.2

+11.9

+20.6

+27.1

+22.3%

Source: Morgan Stanley (12/2007)

39

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15x ? ….....… 25x ? ......... or higher ?

Asia Trades at a Premium to the US:

Deservedly so ?

(P/E)

27 25 23 21 19 17 15 13 11 9 7 Jan-88 Jan-91 Fed Easing Jan-94

12M Fwd PE

Jan-97 Jan-00 Fwd PE- AP ex JP Jan-03 Jan-06 S&P 500 Source: Morgan Stanley (12/2007)

The re-pricing of Asian vs US assets is likely to continue to favour Asia 40

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Profit Outlook:

US vs Asia

EPS index (2007: starting at 100 on base date of February ‘06)

116 113 110 107 104 101 98 95 Feb 06

US: down revisions

Sep 06

2008 2007

Apr 07 Nov 07 130 125 120 115 110 105 100 95 Feb 06

Asia Pacific Ex-Japan: up revisions 2008 2007

Sep 06 Apr 07 Nov 07 Source : JP Morgan (12/2007)

Asia uptrend pausing, US downtrend worsening 41

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Profit Outlook:

Asia’s out-performers

EPS index (2007: starting at 100 on base date February ‘06) China Singapore

155 145 135 125 115 105 95 Feb 06 Sep 06

2008

Apr 07

2007

Nov 07 136 128 120 112 104 96 Feb 06 Sep 06

2008

Apr 07

2007

Nov 07 Source : JP Morgan (12/2007)

A pause in the upward earnings surprise trend ?

42

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Profit Outlook:

Selective in ASEAN

EPS index (2007: starting at 100 on base date February ‘06)

135 125 115 105 95 Feb 06

Indonesia

Sep 06

2008

Apr 07

2007

Nov 07

Thailand

110 106 102 98 94 90 86 82 Feb 06

2007

Sep 06

2008

Apr 07 Source : JP Morgan (12/2007)

Mixed trends in ASEAN

Nov 07

43

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Profit Outlook :

Asia’s recovery plays

114 111 108 105 102 99 96 93 90 Feb 06

EPS index (2007: starting at 100 on base date February ‘06) Taiwan Korea

Sep 06

2008

Apr 07

2007

Nov 07 115 110 105 100 95 90 85 80 Feb 06

2008 2007

Sep 06 Apr 07 Source : JP Morgan (12/2007)

Selective growth opportunities in Korea and Taiwan 44

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Earnings Growth vs Valuations:

What the consensus expects in Asia and the World

World US Emerging Markets

P/E (E) 2007 E 2008 E

15.9

13.9

EPS Growth (%) 2007 E 2008 E 2009 E

9.9

14.6

11.0

17.4

15.0

1.7

16.1

12.4

16.4

14.0

23.6

17.1

11.7

ASIA 18.1

15.4

21.0

17.2

15.9

Div. Yield 2007 E

2.4

1.9

2.3

2.3

ROE (%) 2007 E

16.2

16.9

18.0

16.2

Source: Goldman Sachs, IBES (12/2007)

45

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More sustainable and consistent earnings growth expected in Asia/EM, yet valuations of latter still not expensive

Key Investment Themes for Asia in 2008

 Assuming no US recession and no inflation blow-out in the region, Asian markets are expected to achieve a sixth year of positive return in 2008  The more sustainable the high earnings growth trend, the more expensive the market is likely to become (i.e.,

India, China

)  Favourable electoral outcomes in

Korea, Taiwan and Thailand

can turn these under-performing markets around dramatically

46

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The Fund’s Key Sectoral Investment themes

 Consumption, infrastructure and financials themes  Other regional asset reflation plays  Re-construction of Asia – engineering, construction, building materials, capital goods  Improved supply side discipline of “cyclical” sectors – energy, materials (and technology ?)

47

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Consumption, Asset Reflation and Infrastructure/Construction

Important Information

This document is provided as a service to professional investors/advisers. It is issued in the United Kingdom by Baring Asset Management Limited and/or by its investment adviser affiliates in other jurisdictions. The affiliate serving as the Asia Pacific Fund’s investment adviser is Baring Asset Management (Asia) Limited. In the United Kingdom this document is issued only to persons falling within a permitted category under (i) the FSA’s rules made under section 238(5) of the Financial Services and Markets Act 2000 and (ii) the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001.

This is not an offer nor a solicitation to buy or sell any investment referred to in this document. Baring Asset Management group companies, their affiliates and/or their directors, officers and employees may own or have positions in any investment mentioned herein or any investment related thereto and from time to time add to or dispose of any such investment. This document may include forward looking statements, which are based upon our current opinions, expectations and projections as of the date on the cover hereof. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. The value of any investments and any income generated may go down as well as up and is not guaranteed. Past performance will not necessarily be repeated. Changes in rates of exchange may have an adverse effect on the value, price or income of an investment. There are additional risks associated with investments (made directly or through investment vehicles which invest) in emerging or developing markets. Compensation arrangements under the Financial Services and Markets Act 2000 of the United Kingdom will not be available.

Private investors in the Company referred to herein should obtain their own independent financial advise before making investments. This document must not be relied on for purposes of any investment decisions. Before investing in the Company, we recommend that all relevant documents, such as reports and accounts and prospectus should be read, which specify the particular risks associated with investment in the Company, together with any specific restrictions applying and the basis of dealing. The Company may not be available for investment in all jurisdictions. There may also be prohibitions or restrictions on distribution of this document and other material relating to the Company and accordingly recipients of any such documents are advised to inform themselves about and to observe any such restrictions.

Research Material

Baring Asset Management only produces research for its own internal use. Where details of research are provided in this document it is provided as an example of research undertaken by Baring Asset Management and must not be used, or relied upon, for the purposes of any investment decisions. The information and opinions expressed herein may change at anytime.

For data sourced from Morningstar: © 2007 Morningstar, Inc. all rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

Complied (Boston): January 2, 2008

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