-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pyv8s+cJntnUjrg2fbEIwZY4eE/BDDw6mZEmNgX7bs9ikf4mcAb5rd0s84Smjqw9 OcjPLuqsvqLordampeO6mw== 0000950123-96-001557.txt : 19960404 0000950123-96-001557.hdr.sgml : 19960404 ACCESSION NUMBER: 0000950123-96-001557 CONFORMED SUBMISSION TYPE: N-2/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19960402 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY ASIA PACIFIC FUND INC CENTRAL INDEX KEY: 0000919808 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-01597 FILM NUMBER: 96543885 FILING VALUES: FORM TYPE: N-2/A SEC ACT: 1940 Act SEC FILE NUMBER: 811-08388 FILM NUMBER: 96543886 BUSINESS ADDRESS: STREET 1: 73 TREMONT ST 8TH FL CITY: BOSTON STATE: MA ZIP: 02108 BUSINESS PHONE: 6175578790 MAIL ADDRESS: STREET 1: MORGAN STANLEY ASIA PACIFIC FUND STREET 2: 73 TREMONT STREET 8TH FLOOR CITY: BOSTON STATE: MA ZIP: 02108 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY ASIA INVESTMENT FUND INC DATE OF NAME CHANGE: 19940316 N-2/A 1 PRE EFFECTIVE AMENDMENT NO. 1 1 AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 1996 SECURITIES ACT FILE NO. 333-1597 INVESTMENT COMPANY ACT FILE NO. 811-8388 ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------ FORM N-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/ PRE-EFFECTIVE AMENDMENT NO. 1 /X/ POST-EFFECTIVE AMENDMENT NO. / / AND/OR REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/ AMENDMENT NO. 4 /X/ (CHECK APPROPRIATE BOX OR BOXES) ------------------------------------ MORGAN STANLEY ASIA-PACIFIC FUND, INC. (FORMERLY MORGAN STANLEY ASIA INVESTMENT FUND, INC.) Exact Name of Registrant as Specified in Charter) 1221 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10020 (Address of Principal Executive Offices) Registrant's Telephone Number, including Area Code: (212) 296-7100 ------------------------------------ HAROLD J. SCHAAFF, JR. MORGAN STANLEY ASIA-PACIFIC FUND, INC. C/O MORGAN STANLEY ASSET MANAGEMENT INC. 1221 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10020 (Name and Address of Agent for Service) ------------------------------------ With copies to: G. DAVID BRINTON, ESQ. PIERRE DE SAINT PHALLE, ESQ. ROGERS & WELLS DAVIS POLK & WARDWELL 200 PARK AVENUE 450 LEXINGTON AVENUE NEW YORK, NEW YORK 10166 NEW YORK, NEW YORK 10017 (212) 878-8000 (212) 450-4000
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the effective date of this registration statement. If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box. / / CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933 ================================================================================================== PROPOSED PROPOSED MAXIMUM MAXIMUM AGGREGATE AMOUNT OF TITLE OF SECURITIES BEING AMOUNT BEING OFFERING PRICE OFFERING REGISTRATION REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE(2) - -------------------------------------------------------------------------------------------------- Common Stock, $.01 Par Value....................... 18,000,000 Shares $13.375 $240,750,000 $83,018 ================================================================================================== (1) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933, based on the average of the high and low sale prices reported on the New York Stock Exchange on March 7, 1996. (2) This amount was paid at the time of filing the Registration Statement on March 8, 1996. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ==================================================================================================
2 CROSS REFERENCE SHEET PARTS A AND B OF PROSPECTUS*
ITEMS IN PARTS A AND B OF FORM N-2 LOCATION IN PROSPECTUS - ------------------------------------------------ -------------------------------------------- 1. Outside Front Cover........................ Front Cover Page 2. Inside Front and Outside Back Cover Page... Front Cover Page; Inside Front Cover Page 3. Fee Table and Synopsis..................... Prospectus Summary; Fee Table 4. Financial Highlights....................... Not Applicable 5. Plan of Distribution....................... Cover Page; Prospectus Summary; Distribution Arrangements 6. Selling Shareholders....................... Not Applicable 7. Use of Proceeds............................ Prospectus Summary; The Offer 8. General Description of the Registrant...... Cover Page; Prospectus Summary; The Fund; Risk Factors and Special Considerations; Investment Objective and Policies; Investment Restrictions; Common Stock 9. Management................................. Prospectus Summary; Management of the Fund; Expenses; Portfolio Transactions and Brokerage; Custodians; Common Stock; Dividend Paying Agents, Transfer Agents and Registrars; 10. Capital Stock, Long-Term Debt and Other Securities............................... Prospectus Summary, Common Stock; Dividends and Distributions; Dividend Reinvestment and Cash Purchase Plan; Distribution Arrangements; Taxation 11. Defaults and Arrears on Senior Securities.. Not Applicable 12. Legal Proceedings.......................... Not Applicable 13. Table of Contents of the Statement of Additional Information................... Not Applicable 14. Cover Page................................. Not Applicable 15. Table of Contents.......................... Not Applicable 16. General Information and History............ The Fund 17. Investment Objective and Policies.......... Investment Objective and Policies; Investment Restrictions 18. Management................................. Management of the Fund 19. Control Persons and Principal Holders of Securities............................... Not Applicable 20. Investment Advisory and Other Services..... Prospectus Summary; Management of the Fund; Expenses; Dividend-Paying Agents, Transfer Agents and Registrars; Custodians; Experts 21. Brokerage Allocation and Other Practices... Portfolio Transactions and Brokerage 22. Tax Status................................. Taxation 23. Financial Statements....................... Incorporation of Financial Statements by Reference
- --------------- * As permitted under the General Instructions to Form N-2, all information required to be set forth in Part B: Statement of Additional Information has been included in Part A: The Prospectus. Information required to be included in Part C is set forth under the appropriate item, so numbered in Part C of this Registration Statement. 3 PROSPECTUS (Subject to Completion) Dated April 2, 1996 18,000,000 Shares Morgan Stanley Asia-Pacific Fund, Inc. COMMON STOCK Issuable Upon Exercise of Rights to Subscribe for Such Shares of Common Stock ------------------------ Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund") expects to issue to its shareholders of record as of the close of business on April 16, 1996 (the "Record Date") transferable rights ("Rights") entitling the holders thereof to subscribe for up to an aggregate of 18,000,000 shares (the "Shares") of the common stock, par value $.01 per share ("Common Stock"), of the Fund (the "Offer") at the rate of one share of Common Stock for each three Rights held. In addition, Record Date Shareholders (as defined below) will be entitled to subscribe, subject to certain limitations and subject to allotment, for any Shares not acquired by exercise of primary subscription Rights. The number of Rights to be issued to Record Date Shareholders (as defined below) will be rounded up to the nearest number of Rights evenly divisible by three. In the case of shares of Common Stock held of record by Cede & Co. ("Cede"), the nominee for The Depository Trust Company, or any other depository or nominee (in each instance, a "Nominee Holder"), the number of Rights issued to such Nominee Holder will be adjusted to permit rounding up (to the nearest number of Rights evenly divisible by three) of the Rights to be received by beneficial holders for whom it is the holder of record only if the Nominee Holder provides to the Fund on or before the close of business on , 1996 written representation of the number of Rights required for such rounding. Shareholders of record on the Record Date and beneficial holders with respect to whom Nominee Holders have submitted such written representations are referred to herein as "Record Date Shareholders." Fractional Shares will not be issued. The Fund's currently outstanding shares of Common Stock are, and the Shares offered hereby will be, listed for trading on the New York Stock Exchange (the "NYSE") under the symbol "APF" and on the Osaka Securities Exchange under the symbol "8682." The Rights will be transferable and will trade on the NYSE under the symbol "APF.RT." See "The Offer." THE SUBSCRIPTION PRICE PER SHARE (THE "SUBSCRIPTION PRICE") WILL BE $ . It is currently estimated that the Subscription Price will represent a discount of between 15% and 25% to the last reported sale price on the Business Day (as defined herein) prior to the Record Date. THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME, ON , 1996, UNLESS EXTENDED AS DESCRIBED HEREIN (THE "EXPIRATION DATE"). The Fund announced the Offer after the close of trading on the NYSE on March 8, 1996. The net asset value per share of Common Stock at the close of business on March 8, 1996 and April 16, 1996 was $15.07 and $ , respectively, and the last reported sale price of a share of Common Stock on the NYSE on such dates was $13.625 and $ respectively. The Fund is a non-diversified, closed-end management investment company. The Fund's investment objective is long-term capital appreciation, which it seeks to achieve by investing primarily in equity securities of Asian-Pacific issuers and in debt securities issued or guaranteed by Asian-Pacific governments or governmental entities ("Sovereign Debt"). Asian-Pacific countries in which the Fund may invest are Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, Sri Lanka and Thailand and other countries in Asia, specifically Burma, Cambodia, Laos and Vietnam, in which the Fund is permitted to invest in the future. The Fund will not invest in any countries that do not have diplomatic relations with Japan. These countries currently include Taiwan and North Korea, and may, in the future, include other countries that sever diplomatic relations with Japan. It is the policy of the Fund, under normal market conditions, to invest substantially all, but not less than 65%, of its total assets in equity securities of issuers in Asian-Pacific countries and in Sovereign Debt. See "Investment Objective and Policies." There can be no assurance that the Fund's investment objective will be achieved. Investment in the Fund involves special considerations and risks that are not typically associated with investing in the stock markets of major industrialized countries. See "Risk Factors and Special Considerations." Morgan Stanley Asset Management Inc. serves as the Fund's Investment Manager. The address of the Fund is 1221 Avenue of the Americas, New York, New York 10020 (telephone number (212) 296-7100). This Prospectus sets forth concisely the information about the Fund that a prospective investor ought to know before investing. Investors are advised to read this Prospectus and to retain it for future reference. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------
PROCEEDS TO SUBSCRIPTION PRICE SALES LOAD(1)(2) THE FUND(3) ------------------------------------------------ --------------- Per Share......................................... $ (4) $ $ Total............................................. $ $ $ (5)
(Footnotes on following page) ------------------------ An immediate dilution, which could be substantial, of the aggregate net asset value of the Common Stock owned by Record Date Shareholders who do not fully exercise their Rights is likely to occur as a result of the Offer because the Subscription Price per Share is expected to be less than the Fund's net asset value per share, and the number of shares outstanding after the Offer is likely to increase in a greater percentage than the increase in the size of the Fund's assets. In addition, as a result of the Offer, Record Date Shareholders who do not fully exercise their Rights should expect that they will, at the completion of the Offer, own a smaller proportional interest in the Fund than would otherwise be the case. See "Risk Factors and Special Considerations." ------------------------ MORGAN STANLEY & CO. Incorporated , 1996 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. 4 - ------------ (Footnotes from previous page) (1) In connection with the Offer, the Fund has agreed to pay to Morgan Stanley & Co. Incorporated (the "Dealer Manager") and other broker-dealers included in the selling group to be formed and managed by the Dealer Manager ("Selling Group Members") a fee of % of the Subscription Price per Share for each Share either issued upon the exercise of Rights as a result of their soliciting efforts or purchased from the Dealer Manager for sale to the public. Certain other broker-dealers that have executed and delivered a Soliciting Dealer Agreement and have solicited the exercise of Rights will receive fees for their soliciting efforts of % of the Subscription Price per Share, subject generally to a maximum fee based upon the number of shares of Common Stock held by each such broker-dealer through The Depository Trust Company on the Record Date. The Fund will pay to the Dealer Manager a fee for financial advisory and marketing services in connection with the Offer equal to % of the first $ of the proceeds of the Offer before deduction of offering expenses and financial advisory and soliciting fees payable in connection with the Offer (the "Gross Proceeds"), % of the next $ of the Gross Proceeds and % of the Gross Proceeds in excess of $ . The Fund has agreed to indemnify the Dealer Manager against certain liabilities under the Securities Act of 1933, as amended. See "Distribution Arrangements." (2) Assumes that all Rights were exercised and that the exercise of all Rights was solicited by a Selling Group Member. However, the exercise of Rights solicited by non-Selling Group members will reduce the Sales Load payable and will increase the proceeds to the Fund. (3) Before deduction of expenses incurred by the Fund, estimated at $ , including up to an aggregate of $ to be paid to the Dealer Manager in reimbursement of its expenses. (4) Represents the Subscription Price per Share payable by holders of Rights. Sales of Shares may be made during the Subscription Period by the Dealer Manager and other Selling Group Members at prices set by the Dealer Manager from time to time. See "Distribution Arrangements." (5) Assumes that all of the Rights are exercised. NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, THE INVESTMENT MANAGER OR THE DEALER MANAGER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- PROSPECTUS SUMMARY.............................................................................................. 3 THE FUND........................................................................................................ 13 THE OFFER....................................................................................................... 13 RISK FACTORS AND SPECIAL CONSIDERATIONS......................................................................... 21 ASIAN-PACIFIC ECONOMIES AND STOCK MARKETS....................................................................... 29 INVESTMENT OBJECTIVE AND POLICIES............................................................................... 39 INVESTMENT RESTRICTIONS......................................................................................... 42 MANAGEMENT OF THE FUND.......................................................................................... 44 EXPENSES........................................................................................................ 52 PORTFOLIO TRANSACTIONS AND BROKERAGE............................................................................ 52 NET ASSET VALUE................................................................................................. 53 DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN....................................... 53 TAXATION........................................................................................................ 55 COMMON STOCK.................................................................................................... 60 DISTRIBUTION ARRANGEMENTS....................................................................................... 63 DIVIDEND PAYING AGENTS, TRANSFER AGENTS AND REGISTRARS.......................................................... 64 CUSTODIANS...................................................................................................... 64 EXPERTS......................................................................................................... 64 LEGAL MATTERS................................................................................................... 65 ADDITIONAL INFORMATION.......................................................................................... 65 INCORPORATION OF FINANCIAL STATEMENTS BY REFERENCE.............................................................. 65 APPENDIX A: Form of Subscription Certificate.................................................................... A-1 APPENDIX B: Form of Notice of Guaranteed Delivery............................................................... B-1 APPENDIX C: Form of Nominee Holder Over-Subscription Exercise Form.............................................. C-1 APPENDIX D: Description of Various Foreign Currency and Interest Rate Hedges and Options on Securities and Securities Index Futures Contracts and Related Options.............................................. D-1
------------------------ In this Prospectus, the Commonwealth of Australia is referred to as "Australia"; Myanmar is referred to as "Burma"; the People's Republic of China is referred to as "China"; the Republic of India is referred to as "India"; the Republic of Indonesia is referred to as "Indonesia"; the Republic of Korea is referred to as "Korea"; the Lao People's Democratic Republic is referred to as "Laos"; the Federation of Malaysia is referred to as "Malaysia"; the Democratic People's Republic of Korea is referred to as "North Korea"; the Islamic Republic of Pakistan is referred to as "Pakistan"; the Republic of the Philippines is referred to as "the Philippines"; the Republic of Singapore is referred to as "Singapore"; the Democratic Socialist Republic of Sri Lanka is referred to as "Sri Lanka"; the Republic of China is referred to as "Taiwan"; the Kingdom of Thailand is referred to as "Thailand"; and the Socialist Republic of Vietnam is referred to as "Vietnam." For purposes of this Prospectus, Hong Kong, a British colony, is sometimes referred to as a country. In this Prospectus, unless otherwise specified, all references to "dollars," "US$" or "$" are to United States dollars. IN CONNECTION WITH THIS OFFERING, THE DEALER MANAGER MAY EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE RIGHTS AND THE COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKETS OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 5 PROSPECTUS SUMMARY The following is qualified in its entirety by the more detailed information included elsewhere in this Prospectus. TERMS OF THE OFFER Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund") expects to issue to its shareholders of record ("Record Date Shareholders") as of the close of business on April 16, 1996 (the "Record Date") transferable rights (the "Rights") to subscribe for up to an aggregate of 18,000,000 shares (the "Shares") of the common stock, par value $.01 per share (the "Common Stock"), of the Fund (the "Offer"). Each Record Date Shareholder is being issued one Right for each full share of Common Stock owned on the Record Date. The number of Rights to be issued to Record Date Shareholders will be rounded up to the nearest number of Rights evenly divisible by three. Accordingly, no fractional Shares will be issued. In the case of Shares held of record by a Nominee Holder (as defined below under "-- Over-Subscription Privilege"), the number of Rights issued to such Nominee Holder will be adjusted to permit rounding up (to the nearest number of Rights evenly divisible by three) of the Rights to be received by beneficial holders for whom it is the holder of record only if the Nominee Holder provides to the Fund on or before the close of business on , 1996 written representation of the number of Rights required for such rounding. The Rights entitle the holders thereof (each, a "Rights Holder") to acquire at the Subscription Price (as hereinafter defined) one Share for each three Rights held. The Subscription Period commences on , 1996 and ends at 5:00 p.m., New York time, on , 1996, unless extended by the Fund and the Dealer Manager (the "Expiration Date"). The Rights are evidenced by subscription certificates ("Subscription Certificates") which will be mailed to Record Date Shareholders except as discussed below under "Foreign Restrictions." The right of a Rights Holder to acquire during the Subscription Period at the Subscription Price one Share for each three Rights held is hereinafter referred to as the "Primary Subscription." All Rights may be exercised immediately upon receipt and until 5:00 p.m., New York time, on the Expiration Date. Rights Holders purchasing Shares in the Primary Subscription are hereinafter referred to as "Exercising Rights Holders." OVER-SUBSCRIPTION PRIVILEGE Any Record Date Shareholder who fully exercises all Rights issued to such Record Date Shareholder by the Fund is entitled to subscribe for Shares which were not otherwise subscribed for by others in the Primary Subscription (the "Over-Subscription Privilege"). Purchasers of Rights who are not Record Date Shareholders are not eligible to participate in the Over-Subscription Privilege. For purposes of determining the number of Shares that a Record Date Shareholder may acquire pursuant to the Offer, broker-dealers whose Shares are held of record by Cede & Co. ("Cede"), nominee for The Depository Trust Company, or by any other depository or nominee (in each instance, a "Nominee Holder"), will be deemed to be the holders of the Rights that are held by Cede or such other depository or nominee on their behalf. Shares acquired pursuant to the Over-Subscription Privilege are subject to allotment, which is more fully discussed under "The Offer -- Over-Subscription Privilege." SUBSCRIPTION PRICE It is currently estimated that the Subscription Price will represent a discount of between 15% and 25% to the last reported sale price on the Business Day (as defined below under "-- Sale of Rights") prior to the Record Date. The Subscription Price per Share will be $ . The Subscription Price is approximately an % discount to the Fund's net asset value per share on , 1996 and approximately a % discount to the last reported sale price of a share of Common Stock on the NYSE on , 1996. The Subscription Price is discussed further under "The Offer -- The Subscription Price." In addition, information with respect to the high and low sale prices of the Fund's Common Stock on the New York Stock Exchange Composite Tape, quarterly trading volume on the NYSE, the corresponding high and low net asset value per share and the premium and discount percentages of the market price of the Fund's Common Stock to its per 3 6 share net asset value for each calendar quarter since the Fund's commencement of operations is summarized under "Market and Net Asset Value Information." EXERCISING RIGHTS Rights will be evidenced by Subscription Certificates (see Appendix A) and may be exercised by completing a Subscription Certificate and delivering it, together with payment, either by means of a Notice of Guaranteed Delivery (see Appendix B) or a check, to American Stock Transfer & Trust Company (the "Subscription Agent") at the address set forth under "The Offer -- Subscription Agent." Exercising Rights Holders will have no right to rescind or modify a purchase after the Subscription Agent has received a completed Subscription Certificate or Notice of Guaranteed Delivery. See "The Offer -- Exercise of Rights" and "The Offer -- Payment for Shares." There is no minimum number of Rights that must be exercised in order for the Offer to close. SALE OF RIGHTS The Rights are transferable until the last Business Day prior to the Expiration Date. The Rights will be listed for trading on the NYSE. The Fund has used its best efforts to ensure that an adequate trading market for the Rights will exist by causing the Rights to be listed on the NYSE and by retaining the Dealer Manager, the Subscription Agent and the Information Agent. The Fund expects that a market for the Rights will develop and that the value of the Rights, if any, will be reflected by the market price. Rights may be sold directly by a Rights Holder, or may be sold through the Subscription Agent if delivered to the Subscription Agent on or before , 1996. Trading of the Rights on the NYSE will be conducted on a when-issued basis commencing on , 1996 and on a regular-way basis from , 1996 through the last Business Day prior to the Expiration Date. If the Subscription Agent receives Rights for sale in a timely manner, it will use its best efforts to sell the Rights through or to the Dealer Manager. Any commissions in connection with the sale of Rights by the Subscription Agent will be paid by the applicable selling Rights Holders. Neither the Fund, the Subscription Agent nor the Dealer Manager will be responsible if Rights cannot be sold, and none of them has guaranteed any minimum sale price for the Rights. For purposes of this Prospectus, a "Business Day" means any day on which trading is conducted on the NYSE. See "The Offer -- Sale of Rights." Rights Holders are urged to obtain a recent trading price for the Rights on the NYSE from their broker, bank, financial adviser or the financial press. Exercising Rights Holders' inquiries should be directed to Shareholder Communications Corporation, Investor Relations Department. See "Information Agent" below. DEALER MANAGER AND SOLICITING FEES In connection with the Offer, the Fund has agreed to pay to Morgan Stanley & Co. Incorporated, as Dealer Manager, and each of the Selling Group Members fees equal to % of the Subscription Price per Share for Shares either issued upon the exercise of Rights as a result of their soliciting efforts or purchased from the Dealer Manager for sale to the public. Such fees will not be paid for Shares issued upon the exercise of Rights solicited by non-Selling Group Members. Certain other broker-dealers that have executed and delivered a Soliciting Dealer Agreement and have solicited the exercise of Rights will receive fees for their soliciting efforts of up to % of the Subscription Price per Share, subject generally to a maximum fee based upon the number of shares of Common Stock held by each such broker-dealer through The Depository Trust Company on the Record Date. The Fund will pay to the Dealer Manager a fee equal to % of the first $ of the proceeds of the Offer before deduction of offering expenses and financial advisory and soliciting fees payable in connection with the Offer (the "Gross Proceeds"), % of the next $ of Gross Proceeds and % of Gross Proceeds in excess of $ for financial and advisory services, including advice with respect to the advisability, timing, size and pricing of the Offer, the formation and management of the Selling Group Members, the coordination of soliciting efforts among soliciting dealers, the Subscription Agent and the Information Agent and market-making activities to assure a liquid and orderly market for the Rights and the Shares. The Fund has also agreed to reimburse the Dealer Manager for its out- 4 7 of-pocket expenses in connection with the Offer up to an aggregate of $ . See "Distribution Arrangements." FOREIGN RESTRICTIONS Subscription Certificates will not be mailed to Record Date Shareholders whose record addresses are outside the United States (for these purposes the United States includes its territories and possessions and the District of Columbia) ("Foreign Record Date Shareholders"). The Rights to which such Subscription Certificates relate will be held by the Subscription Agent for such Foreign Record Date Shareholders' accounts until instructions are received to exercise, sell or transfer the Rights. If no instructions have been received by 12:00 Noon, New York time, three Business Days prior to the Expiration Date, the Subscription Agent will use its best efforts to sell the Rights of those Foreign Record Date Shareholders through or to the Dealer Manager. The net proceeds, if any, from the sale of those Rights by the Dealer Manager will be remitted to the Foreign Record Date Shareholders on a pro rata basis. See "The Offer -- Foreign Shareholders." It is anticipated that Rights issued to Foreign Record Date shareholders in Japan, who hold approximately 27% of the shares of Common Stock, will be sold by the Subscription Agent or otherwise on behalf of such Foreign Record Date Shareholders. INFORMATION AGENT The Information Agent for the Offer is: Shareholder Communications Corporation 17 State Street New York, New York 10004 Toll Free: (800) 733-8481, Ext. 333 or Call Collect: (212) 805-7000, Ext. 333 IMPORTANT DATES TO REMEMBER
EVENT DATE - ---------------------------------------------------------- -------------------------------------- RECORD DATE (EXPECTED).................................... APRIL 16, 1996 SUBSCRIPTION PERIOD....................................... , 1996 TO , 1996 (UNLESS EXTENDED) EXPIRATION DATE........................................... , 1996 (UNLESS EXTENDED) NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM DUE........ , 1996 SUBSCRIPTION CERTIFICATES, ACCOMPANIED BY PAYMENT FOR SHARES, OR NOTICES OF GUARANTEED DELIVERY DUE........... , 1996 SUBSCRIPTION CERTIFICATES AND PAYMENT FOR SHARES DUE PURSUANT TO NOTICE OF GUARANTEED DELIVERY............... , 1996
PURPOSE OF THE OFFER AND USE OF PROCEEDS The Board of Directors of the Fund has determined that it is in the best interests of the Fund and its shareholders to increase the assets of the Fund available for investment so that the Fund will be in a better position to take advantage of further investment opportunities in Asian-Pacific Countries (as defined below). At March 29, 1996, the Fund had net assets of $808,283,815. In addition, the Offer seeks to reward the Fund's shareholders by giving them the right to purchase additional shares of Common Stock at a price below market and net asset value without incurring any commission charge. The distribution to shareholders of transferable Rights which themselves may have intrinsic value also will afford non-participating shareholders the potential of receiving a cash payment upon sale of such Rights, receipt of which may be viewed as partial compensation for the dilution of their interest in the Fund. 5 8 The net proceeds of the Offer will be invested in accordance with the Fund's investment objective and policies. See "Investment Objective and Policies." Assuming all of the Rights are exercised in full and the maximum solicitation fee is paid to Selling Group Members, the net proceeds are estimated to be approximately $ million after deducting offering expenses payable by the Fund estimated to be approximately $ . The Fund anticipates that the net proceeds of the Offer will be invested in accordance with the Fund's investment objective and policies within three months of the Expiration Date. INFORMATION REGARDING THE FUND The Fund is a non-diversified, closed-end management investment company designed for investors desiring to invest a portion of their assets in equity securities of Asian-Pacific issuers. Asian-Pacific countries in which the Fund may invest are Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, Sri Lanka and Thailand and other countries in Asia, specifically Burma, Cambodia, Laos and Vietnam, in which the Fund is permitted to invest in the future (each, an "Asian-Pacific Country" and collectively, "Asian-Pacific Countries"). The Fund will not invest in any countries that do not have diplomatic relations with Japan. These countries currently include Taiwan and North Korea, and may, in the future, include other countries that sever diplomatic relations with Japan. As used herein, "Asian-Pacific issuers" means (i) companies organized in an AsianPacific Country, and in the case of Hong Kong, companies organized in, or for which the principal business activities are conducted in, Hong Kong, (ii) companies whose equity securities are denominated in the currency of an Asian-Pacific Country and issued to finance operations in an Asian-Pacific Country and (iii) companies that alone or on a consolidated basis derive 50% or more of their revenues from either goods produced, sales made or services performed in an AsianPacific Country. The Fund may also invest, from time to time, in debt securities, including debt securities issued or guaranteed by Asian-Pacific governments or governmental entities ("Sovereign Debt"). See "Investment Objective and Policies -- Type of Investments." The Fund is responsible for all of its operating expenses. If the Offer is fully subscribed, it is estimated that the Fund's annual normal operating expenses, including advisory, administration and custodial fees, will be approximately $ , exclusive of organization expenses which were $55,000 (which are being amortized over five years) and the expenses of this Offer, estimated to be $ which will be charged to capital. See "Expenses." For the period from August 2, 1994 to December 31, 1994 and the year ended December 31, 1995, the Fund's expenses (exclusive of amortization of organization expenses) were $4,057,000 and $9,718,000, respectively. The Fund's expense ratio was 1.31% (annualized) and 1.36% (inclusive of amortization of organization expenses) of the Fund's net assets for the period from August 2, 1994 to December 31, 1994 and the year ended December 31, 1995, respectively. INFORMATION REGARDING THE INVESTMENT MANAGER Morgan Stanley Asset Management Inc. (the "Investment Manager"), a wholly-owned subsidiary of Morgan Stanley Group Inc., manages the investments of the Fund pursuant to an Investment Advisory and Management Agreement with the Fund (the "Management Agreement"). The Investment Manager emphasizes a global investment strategy, and, as of December 31, 1995, had assets under management (including assets under fiduciary advisory control) totaling approximately $57.5 billion, of which approximately $6.4 billion was invested in emerging country markets. The Investment Manager is a registered investment adviser under the U.S. Investment Advisers Act of 1940 (the "Advisers Act"). See "Management of the Fund." The Fund pays the Investment Manager a fee, computed weekly and payable monthly, at the annual rate of 1.00% of the Fund's average weekly net assets. This fee is higher than those paid by most other U.S. investment companies, primarily because of the additional time and expense required of the Investment Manager in pursuing the Fund's objective of investing in securities of Asian-Pacific issuers and Sovereign Debt. This investment objective entails additional time and expense because public information concerning securities of Asian-Pacific issuers is limited in comparison to that available for U.S. companies and accounting standards are more flexible. See "Management of the Fund." 6 9 INFORMATION REGARDING THE ADMINISTRATOR The Chase Manhattan Bank, N.A., through its affiliate Chase Global Funds Services Company (the "Administrator") (formerly Mutual Funds Services Company, a wholly-owned subsidiary of the United States Trust Company of New York), provides administrative services to the Fund pursuant to an Administration Agreement (the "Administration Agreement") with the Fund. The Fund pays the Administrator an annual administration fee of $65,000 plus .09% of the average weekly net assets of the Fund. See "Management of the Fund -- Administrator." DIVIDEND DISTRIBUTIONS AND REINVESTMENT The Fund's policy is to distribute to stockholders at least annually substantially all of its net investment income and any net realized capital gains (except that the Fund may elect annually to retain for investment any net realized long-term capital gains). Distributions are typically made at the end of each fiscal year. However, the Fund anticipates its Board of Directors will declare an additional taxable dividend sometime during the period between June and September 1996 in the amount of approximately $.33 per share assuming the exercise of all rights, or approximately $.45 per share if the rights offering is not completed. Unless the Fund is otherwise instructed in writing in the manner described under "Dividends and Distributions; Dividend Reinvestment and Cash Purchase Plan," stockholders are presumed to have elected to have all distributions automatically reinvested in shares of the Fund. Stockholders who have distributions automatically reinvested may also make additional payments into the dividend reinvestment and cash purchase plan to purchase shares of the Fund on the open market. See "Dividends and Distributions; Dividend Reinvestment and Cash Purchase Plan" and "Taxation -- U.S. Federal Income Taxes." INFORMATION REGARDING THE CUSTODIANS Morgan Stanley Trust Company acts as custodian for the Fund's assets held outside the United States and may employ sub-custodians approved by the Directors of the Fund in accordance with regulations of the U.S. Securities and Exchange Commission. The Chase Manhattan Bank, N.A. acts as custodian for the Fund's assets held in the United States. See "Custodians." RISK FACTORS AND SPECIAL CONSIDERATIONS Dilution An immediate dilution, which could be substantial, of the aggregate net asset value of the Common Stock owned by Record Date Shareholders who do not fully exercise their Rights is likely to occur as a result of the Offer because the Subscription Price per Share is expected to be less than the Fund's net asset value per share on the Record Date, and the number of shares outstanding after the Offer is likely to increase in a greater percentage than the increase in the size of the Fund's assets. In addition, as a result of the Offer, Record Date Shareholders who do not fully exercise their Rights should expect that they will, upon the completion of the Offer, own a smaller proportional interest in the Fund than would otherwise be the case. Although it is not possible to state precisely the amount of any such decrease in net asset value, because it is not known at this time what the net asset value per share will be on the Expiration Date or what proportion of the Rights will be exercised, such dilution could be substantial. For example, assuming that all Rights are exercised and that the Subscription Price of $ is % below the Fund's net asset value of $ per share as of , 1996, the Fund's net asset value per share (after payment of the financial advisory and soliciting fees and estimated offering expenses) would be reduced by approximately $ per share. The distribution to shareholders of transferable Rights which themselves may have intrinsic value also will afford non-participating shareholders the potential of receiving a cash payment upon sale of such Rights, receipt of which may be viewed as compensation for the dilution of their interest in the Fund. No assurance can be given that a market for the Rights will develop or as to the value, if any, that such Rights will have. 7 10 Certain Risk Factors The Fund's investments in Asian-Pacific Countries involve certain special considerations not typically associated with investing in securities of U.S. companies, including risks relating to (1) social, political and economic instability, including the possibility that recent favorable economic developments may be slowed or reversed by unanticipated political, economic or social events; (2) the possibility that all or a substantial portion of the Fund's assets invested in Asian-Pacific Countries may be lost as a result of expropriation; (3) restrictions on the repatriation of capital; (4) national policies which may restrict the Fund's investment opportunities, including restrictions on investments in issuers or industries deemed sensitive to relevant national interests; (5) currency exchange matters, including fluctuations in the rate of exchange between the U.S. dollar and the various currencies in which the Fund's portfolio securities are denominated, exchange control regulations, currency exchange restrictions, and costs associated with the conversion of one currency into another; (6) the potential price volatility in and relative illiquidity of some Asian-Pacific securities markets, the absence of uniform accounting, auditing and financial reporting standards, practices and disclosure requirements and less government supervision and regulation; and (7) the absence of developed legal structures governing private or foreign investments and private property. The Fund may be subject to withholding taxes, including withholding taxes on realized capital gains that may exist or may be imposed by the governments of the countries in which the Fund invests. See "Risk Factors and Special Considerations." Many of the Asian-Pacific Countries in which the Fund may invest may be subject to a greater degree of economic, political and social instability than is the case in the United States and Western European countries. Such instability may result from, among other things: (i) authoritarian governments or military involvement in political and economic decision-making, including changes in government through unconstitutional means; (ii) popular unrest associated with demands for improved political, economic and social conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring countries; and (v) ethnic, religious and racial disaffection. Such social, political and economic instability could disrupt the principal financial markets in which the Fund invests and cause losses to the Fund. See "Risk Factors and Special Considerations -- Social, Political and Economic Factors." While the Fund invests primarily in equity securities of publicly traded Asian-Pacific issuers, it may invest up to 25% of its total assets in unlisted equity securities (some or all of which may be illiquid) of Asian-Pacific issuers to the extent permitted by any local investment restrictions. Such investments may involve a high degree of business and financial risk. Because of the absence of any liquid trading market for these investments, the Fund may take longer to liquidate these positions than it would in the case of listed securities. In addition to financial and business risks, issuers whose securities are not publicly traded may not be subject to the same disclosure requirements applicable to issuers whose securities are publicly traded. See "Risk Factors and Special Considerations -- Investments in Unlisted Securities." The Fund may also invest up to 35% of its assets in (i) debt securities of Asian-Pacific issuers and (ii) debt securities of the type described below under "Investment Objective and Policies -- Temporary Investments." In addition, the Fund may enter into options and futures contracts on a variety of instruments and indexes and forward exchange contracts in order to protect against fluctuation in interest rates, foreign currency exchange risks and declines in the value of portfolio securities or increases in the costs of securities to be acquired. The Fund also may enter into options transactions on securities for purposes of increasing its investment returns. Each of these types of transactions involves special risks. See "Investment Objective and Policies" and Appendix D. The Fund is classified as a "non-diversified" investment company under the Investment Company Act of 1940 (the "1940 Act"), which means that the Fund is not limited by the 1940 Act in the proportion of its assets that may be invested in the securities of a single issuer. As a non-diversified investment company, the Fund may invest a greater proportion of its assets in the securities of a smaller number of issuers and, as a result, may be subject to greater risk of loss with respect to its portfolio securities. However, the Fund intends to continue to comply with the diversification requirements imposed by the U.S. Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated investment company, and the Fund has 8 11 adopted an investment policy that it will not acquire more than 25% of any class of outstanding stock of any company. See "Taxation -- U.S. Federal Income Taxes" and "Investment Restrictions." The Fund's Articles of Incorporation contain certain anti-takeover provisions that may have the effect of inhibiting the Fund's possible conversion to open-end status and limiting the ability of other persons to acquire control of the Fund. In certain circumstances, these provisions might also inhibit the ability of stockholders to sell their shares at a premium over prevailing market prices. See "Risk Factors and Special Considerations" and "Common Stock." Investors should carefully consider their ability to assume the foregoing risks before making an investment in the Fund. An investment in shares of the Fund may not be appropriate for all investors and should not be considered as a complete investment program. See "Risk Factors and Special Considerations." Net Asset Value Discount Since the Fund's commencement of operations in August 1994, the Common Stock has traded in the market at a discount to net asset value. Officers of the Fund cannot determine the reason why the Common Stock has traded at a discount to net asset value, nor can they predict whether the Common Stock will in the future trade at a premium or discount to net asset value and if so, the level of such premium or discount. Shares of closed-end investment companies frequently trade at a discount from net asset value. The risk of the Common Stock trading at a discount is a risk separate from the risk of a decline in the Fund's net asset value. See "Market and Net Asset Value Information." Additional Considerations The Fund may use various other investment practices that involve special considerations, including purchasing and selling options on securities, financial futures and other financial instruments, entering into financial futures contracts, interest rate transactions, currency transactions and repurchase agreements and lending portfolio securities. See "Investment Objective and Policies" and Appendix D. In addition, certain special voting provisions of the Fund's Articles of Incorporation may have the effect of depriving shareholders of an opportunity to sell their shares at a premium over prevailing market prices. See "Common Stock." Investors should carefully consider their ability to assume the foregoing risks before making an investment in the Fund. An investment in the Common Stock of the Fund may not be appropriate for all investors and should not be considered as a complete investment program. 9 12 FEE TABLE SHAREHOLDER TRANSACTION EXPENSES: Sales Load (as a percentage of offering price)(1)(2)............................. % ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS ATTRIBUTABLE TO COMMON SHARES): Management Fees.................................................................. 1.00% Other Expenses(2)................................................................ 0.35% ----- Total Annual Expenses.............................................................. 1.35% =====
EXAMPLE:
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF: ---------------------------------------- 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- An investor would pay the following expenses on a $1,000 investment, assuming a 5% annual return throughout the periods(3)................................................ $ $ $ $
- --------------- (1) The Fund has agreed to pay to the Dealer Manager and each Selling Group Member fees equal to % of the Subscription Price per Share for each Share either issued upon the exercise of Rights as a result of their soliciting efforts or purchased from the Dealer Manager for sale to the public. Certain other broker-dealers that have executed and delivered a Soliciting Dealer Agreement and have solicited the exercise of Rights will receive fees for their soliciting efforts of up to % of the Subscription Price per Share, subject generally to a maximum fee based upon the number of shares of Common Stock held by each such broker-dealer through The Depository Trust Company on the Record Date. The Fund will pay to the Dealer Manager a fee for financial advisory and marketing services in connection with the Offer equal to % of the first $ of the proceeds of the Offer before deducting offering expenses and financial advisory and soliciting fees payable in connection with the Offer (the "Gross Proceeds"), % of the next $ of the Gross Proceeds and % of the Gross Proceeds in excess of $ . These fees will be borne by the Fund and indirectly by all of the Fund's shareholders, including those who do not exercise their Rights. Assumes that all Rights were exercised and that the exercise of all Rights was solicited by Selling Group Members. However, the exercise of Rights solicited by non-Selling Group members will reduce the Sales Load payable and will increase the proceeds to the Fund. See "Distribution Arrangements." (2) Does not include expenses of the Fund incurred in connection with the Offer, estimated at $ . (3) The Example reflects the Sales Load and other expenses of the Fund incurred in connection with the Offer and assumes that all of the Rights are exercised. The foregoing Fee Table is intended to assist investors in understanding the costs and expenses that an investor in the Fund will bear directly or indirectly. The Example set forth above assumes reinvestment of all dividends and distributions at net asset value and an annual expense ratio of 1.35%. The table above and the assumption in the Example of a 5% annual return are required by regulations of the Commission applicable to all investment companies. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN. Actual expenses or annual rates of return may be more or less than those assumed for purposes of the Example. In addition, while the Example assumes reinvestment of all dividends and distributions at net asset value, participants in the Fund's Dividend Reinvestment and Cash Purchase Plan may receive shares purchased or issued at a price or value different from net asset value. See "Dividends and Distributions; Dividend Reinvestment and Cash Purchase Plan." The figures provided under "Other Expenses" are based upon estimated amounts for the current fiscal year. See "Management of the Fund" for additional information. 10 13 FINANCIAL HIGHLIGHTS The table below sets forth certain information for a share of Common Stock outstanding throughout each period presented. This information is derived from the financial and accounting records of the Fund. The selected per share data and ratios for the period from August 2, 1994 to December 31, 1994 and for the year ended December 31, 1995 have been audited by Price Waterhouse LLP, independent accountants, whose report thereon was unqualified. The information should be read in conjunction with the financial statements and notes contained in the Fund's most recent Annual Report as of December 31, 1995, which is available upon request from the Fund's Transfer Agent, American Stock Transfer & Trust Company, and incorporated herein by reference.
FOR THE PERIOD AUGUST 2, 1994* YEAR ENDED TO DECEMBER 31, DECEMBER 31, 1995 1994 ------------ --------------- PER SHARE OPERATING PERFORMANCE Net Asset Value, Beginning of Period........................... $ 13.20 $ 14.10 Offering Costs............................................... -- (0.03) Net Investment Income (Loss)................................. 0.05 0.05 Net Realized and Unrealized Gain (Loss) on Investments....... 1.16 1.16 -------- -------- Total from Investment Operations............................... 1.21 1.21 Less distributions: Dividends from net investment income......................... (0.05) (0.04) Distributions from net realized capital gains................ (0.02) (0.01) Total Distributions............................................ (0.07) (0.05) Net Asset Value, End of Period................................. $ 14.34 $ 13.20 -------- -------- Per Share Market Value, End of Period.......................... $ 13.33 $ 12.25 Total Investment Return: Net Asset Value**............................................ 9.24% (5.94)% Market Value................................................. 9.38% (12.71)% RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period (In Thousands)....................... $769,414 $ 708,323 Ratio of Expenses to Average Net Assets........................ 1.36% 1.31%*** Ratio of Net Investment Income to Average Net Assets........... 0.36% 0.84%*** Portfolio Turnover Rate........................................ 21% 2%
- --------------- * Commencement of operations. ** Total investment return based on per share net asset value reflects the effects of changes in net asset value on the performance of the Fund during each period, and assumes distributions, if any, were reinvested. During the period August 2, 1994 to December 31, 1994, the Fund paid $0.04 in dividends and made $0.01 in capital gains distribution. For the year ended December 31, 1995, the Fund paid $0.05 in dividends and made $0.02 in capital gains distributions. 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 of the Fund. *** Annualized. 11 14 MARKET AND NET ASSET VALUE INFORMATION The Fund's currently outstanding shares of Common Stock are, and the Shares offered by this Prospectus will be, listed on the NYSE. Shares of the Fund's Common Stock commenced trading on the NYSE on August 2, 1994. In the past, the Fund's shares have traded at a discount in relation to net asset value. Shares of other closed-end investment companies frequently trade at a discount from net asset value. See "Risk Factors and Special Considerations." The following table shows for each of the periods indicated the high and low closing sale prices of the Fund's Common Stock on the New York Stock Exchange Composite Tape, quarterly trading volume on the NYSE, the corresponding high and low net asset value per share and the premium or discount at which the Fund's shares were trading at the end of each calendar quarter since the commencement of trading of the Fund's Common Stock.
PREMIUM/ (DISCOUNT) AS A % CLOSING NET ASSET OF NET ASSET MARKET PRICE QUARTERLY VALUE(1) VALUE ----------------- TRADING --------------- ----------------- CALENDAR QUARTERS HIGH LOW VOLUME HIGH LOW HIGH LOW - -------------------------- ------- ------- --------- ------ ------ ------ ------ (000'S) Period Ended December 31, 1994 Third Quarter(2)..... $15.125 $12.375 1,567.6 $14.33 $14.03 5.55% (11.80)% Fourth Quarter....... 12.825 10.500 4,463.9 14.24 12.78 (9.94) (17.84) Year Ended December 31, 1995 First Quarter........ 11.875 9.500 10,353.9 12.81 12.04 (7.30) (21.10) Second Quarter....... 11.750 10.250 8,740.8 13.68 12.83 (14.11) (20.11) Third Quarter........ 12.500 11.000 13,837.5 14.01 13.56 (10.78) (18.88) Fourth Quarter....... 13.375 10.500 16,021.5 14.34 13.17 (6.73) (20.27) Year Ended December 31, 1996 First Quarter........ 14.750 12.250 30,007.9 15.28 14.50 (3.47) (15.52)
- --------------- (1) Net asset value per share of the Common Stock as calculated on each Friday of the period. (2) From August 2, 1994, the commencement of trading, through September 30, 1994. The last reported sale price, net asset value per share and percentage discount to net asset value of the Common Stock on March 29, 1996 were $13.125, $15.06 and (12.85)%, respectively. CAPITALIZATION AT MARCH 29, 1996
AMOUNT OUTSTANDING EXCLUSIVE OF AMOUNT HELD BY THE AMOUNT HELD BY THE FUND OR FOR ITS TITLE OF CLASS AMOUNT AUTHORIZED FUND OR FOR ITS ACCOUNT ACCOUNT - -------------------------------- ------------------ ----------------------- ----------------- Common Stock, $0.01 par value... 200,000,000 Shares -0- 53,654,508 Shares
12 15 THE FUND The Fund, incorporated in Maryland on February 28, 1994, is a non-diversified, closed-end management investment company registered under the Investment Company Act of 1940 (the "1940 Act"). The Fund's investment objective is long-term capital appreciation. The Fund seeks to achieve its objective by investing primarily in equity securities of Asian-Pacific issuers (as defined below under "Use of Proceeds"). The Fund may also may invest, from time to time, in debt securities, including debt securities issued or guaranteed by Asian-Pacific governments or governmental entities ("Sovereign Debt"). See "Investment Objective and Policies -- Types of Investment. Asian-Pacific countries in which the Fund may invest are Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, Sri Lanka and Thailand and other countries in Asia, specifically Burma, Cambodia, Laos and Vietnam, in which the Fund is permitted to invest in the future (each, an "Asian-Pacific Country" and collectively, "Asian-Pacific Countries"). The Fund will not invest in any countries that do not have diplomatic relations with Japan. These countries currently include Taiwan and North Korea, and may, in the future, include other countries that sever diplomatic relations with Japan. The Fund invests, from time to time, a significant portion, but less than 50%, of its assets in equity securities of issuers located in Japan. Over time, the Fund has the ability to add value by changing asset allocations throughout Asia to take advantage of both value and growth opportunities as market conditions change. No assurance can be given that the Fund's investment objective will be realized. Due to the risks inherent in international investments generally, the Fund should be considered as a vehicle for investing a portion of an investor's assets in foreign securities markets and not as a complete investment program. The Fund commenced operations on August 2, 1994 following the issuance of 7,093 shares of Common Stock to the Investment Manager on July 14, 1994, for $100,000 and the initial public offering on July 25, 1994 of 53,500,000 shares to the public resulting in aggregate net proceeds to the Fund of approximately $754,350,000. Since commencement of operations through March 29, 1996, the Fund has also issued 147,415 shares pursuant to its Dividend Reinvestment and Cash Purchase Plan. At March 29, 1996, the Fund had 53,654,508 shares of Common Stock outstanding, which are listed and traded on the NYSE under the symbol "APF" and on the Osaka Securities Exchange under the symbol "8682." As of March 29, 1996, the net assets of the Fund were $808,283,815. At all times, except during periods when a temporary defensive investment strategy is appropriate, as determined by the Fund's Investment Manager, the Fund invests substantially all, but not less than 65%, of its total assets in equity securities of Asian-Pacific issuers and in Sovereign Debt. The Fund's holdings of equity securities consist primarily of listed equity securities; however, the Fund may invest up to 25% of its total assets in unlisted equity securities of Asian-Pacific issuers to the extent permitted by any local investment restrictions, including investments in new and early stage companies. See "Investment Objective and Policies" and "Risk Factors and Special Considerations." THE OFFER TERMS OF THE OFFER The Fund is issuing Rights to subscribe for the Shares to Record Date Shareholders. Each Record Date Shareholder is being issued one transferable Right for each full share of Common Stock owned on the Record Date. The number of Rights to be issued to Record Date Shareholders will be rounded up to the nearest number of Rights evenly divisible by three. Accordingly, no fractional Shares will be issued. In the case of shares held of record by a Nominee Holder, the number of Rights issued to such Nominee Holder will be adjusted to permit rounding up (to the nearest number of Rights evenly divisible by three) of the Rights to be received by beneficial holders for whom it is the holder of record only if the Nominee Holder provides to the Fund on or before the close of business on , 1996 written representation of the number of Rights required for such rounding. The Rights entitle the holders thereof to acquire at the Subscription Price one Share for each three Rights held. The Rights are evidenced by Subscription Certificates, which will be mailed to the Record Date Shareholders other than Foreign Record Date Shareholders. See "The Offer -- Foreign Shareholders." 13 16 Completed Subscription Certificates may be delivered to the Subscription Agent at any time during the Subscription Period, which commences on , 1996 and ends at 5:00 p.m., New York time, on , 1996, unless extended by the Fund and the Dealer Manager. See "-- Expiration of the Offer." Parties that purchase Rights prior to the Expiration Date may purchase Shares in the Primary Subscription, but may not participate in the Over-Subscription Privilege with respect to such Rights. All Rights may be exercised upon receipt and until 5:00 p.m. on the Expiration Date. Any Record Date Shareholder who fully exercises all Rights issued to such Record Date Shareholder by the Fund is entitled to subscribe for Shares which were not otherwise subscribed for by Exercising Rights Holders in the Primary Subscription. For purposes of determining the maximum number of Shares a Record Date Shareholder may acquire pursuant to the Offer, broker-dealers whose Shares are held of record by Cede, the nominee for The Depository Trust Company, or by any other depository or nominee will be deemed to be the holders of the Rights that are held by Cede or such other depository or nominee on their behalf. Shares acquired pursuant to the Over-Subscription Privilege may be subject to allotment, which is more fully discussed below under "-- Over-Subscription Privilege." Rights will be evidenced by Subscription Certificates (see Appendix A) and may be exercised by completing a Subscription Certificate and delivering it, together with payment, either by means of a Notice of Guaranteed Delivery or a check, to the Subscription Agent. The method by which Rights may be exercised and Shares paid for is set forth below under "-- Exercise of Rights" and "-- Payment for Shares." An Exercising Rights Holder will have no right to rescind or modify a purchase after the Subscription Agent has received a completed Subscription Certificate or Notice of Guaranteed Delivery. See "Payment for Shares" below. Shares issued pursuant to an exercise of Rights will be listed on the NYSE. The Rights are transferable until the close of business on the last Business Day prior to the Expiration Date and will be listed for trading on the NYSE. Assuming a market exists for the Rights, the Rights may be purchased and sold through usual brokerage channels, or may be sold through the Subscription Agent if delivered to the Subscription Agent on or before , 1995. Although no assurance can be given that a market for the Rights will develop, trading in the Rights on the NYSE may be conducted until and including the close of trading on the last Business Day prior to the Expiration Date. The method by which Rights may be transferred is set forth below under "-- Sale of Rights." The underlying Shares also will be listed for trading on the NYSE. PURPOSE OF THE OFFER The Board of Directors of the Fund has determined that it is in the best interests of the Fund and its shareholders to increase the assets of the Fund available for investment so that the Fund will be in a better position to take advantage of further investment opportunities in Asian-Pacific Countries. The Board of Directors determined to proceed with the offer of transferable rights after having considered the dilutive effect of the offering on shareholders who are unwilling to fully exercise their rights, as well as the alternatives of a secondary offering or the offer of nontransferable rights. The Offer seeks to reward the Fund's shareholders by giving existing shareholders the right to purchase additional shares of Common Stock at a price below market and net asset value without incurring any commission charge. The distribution to shareholders of transferable Rights which themselves may have intrinsic value also will afford nonparticipating shareholders the potential of receiving a cash payment upon sale of such Rights, receipt of which may be viewed as compensation for the possible dilution of their interest in the Fund. The Investment Manager will benefit from the Offer because the Investment Manager's fee is based on the weekly average net assets of the Fund. See "Management of the Fund -- Investment Manager." It is not possible to state precisely the amount of additional compensation the Investment Manager will receive as a result of the Offer because it is not known how many Shares will be subscribed for and because the proceeds of the Offer will be invested in additional portfolio securities, which will fluctuate in value. However, in the event that all the Rights are exercised in full and on the basis of the Subscription Price of $ per Share, the 14 17 Investment Manager would receive additional annual advisory fees of approximately $ . Three of the Fund's Directors who voted to authorize the Offer are affiliated with the Investment Manager. These Directors could benefit indirectly from the Offer because of their affiliations. The other Directors, all of whom voted to authorize the Offer, are not affiliated with the Investment Manager or the Dealer Manager. See "Management of the Fund." The Fund may, in the future and at its discretion, choose to make additional rights offerings from time to time for a number of shares and on terms which may or may not be similar to the Offer. In addition, following the expiration of the Offer the Fund may make a secondary offering of its shares of Common Stock at prices not less than the net asset value of the Fund's shares at the time of such offer. USE OF PROCEEDS If all of the Rights are exercised in full at the Subscription Price of $ per Share and the maximum solicitation fee is paid to Selling Group Members, the net proceeds to the Fund would be approximately $ million, after deducting offering expenses payable by the Fund estimated to be $ . However, there can be no assurance that all Rights will be exercised in full. It is anticipated that the net proceeds of the Offer will be fully invested in investments conforming to the Fund's investment objective and policies within three months of the Expiration Date. Pending such investment it is anticipated that the proceeds will be invested in certain short-term and medium-term debt instruments, as described under "Investment Objective and Policies -- Temporary Investments." OVER-SUBSCRIPTION PRIVILEGE Shares not subscribed for in the Primary Subscription will be offered, by means of the Over-Subscription Privilege, to Record Date Shareholders who have exercised all Rights issued to them by the Fund and who wish to acquire more than the number of Shares for which the Rights held by them are exercisable. Record Date Shareholders should indicate, on the Subscription Certificate which they submit with respect to the exercise of the Rights held by them, how many Shares they are willing to acquire pursuant to the Over-Subscription Privilege. If sufficient Shares remain, all over-subscriptions will be honored in full. Purchasers of Rights who are not Record Date Shareholders are not eligible to participate in the Over-Subscription Privilege. If subscriptions for Shares pursuant to the Over-Subscription Privilege exceed the Shares available, the available Shares will be allocated among those Record Date Shareholders who over-subscribe based on the number of Rights originally issued to them by the Fund so that the number of Shares issued to Record Date Shareholders who subscribe pursuant to the Over-Subscription Privilege will generally be in proportion to the number of shares owned by them in the Fund on the Record Date. The percentage of remaining Shares each over-subscribing Record Date Shareholder may acquire may be rounded up or down to result in delivery of whole Shares. The allocation process may involve a series of allocations in order to assure that the total number of Shares available for oversubscriptions is distributed on a pro rata basis. THE SUBSCRIPTION PRICE It is currently estimated that the Subscription Price will represent a discount of between 15% and 25% to the last reported sale price on the Business Day prior to the Record Date. The Subscription Price per Share will be $ . Exercising Rights Holders will have no right to rescind or modify a purchase after receipt of their completed Subscription Certificates for Shares by the Subscription Agent. The Fund does not have the right to withdraw the Offer after the Rights have been distributed. The Fund announced the Offer after the close of trading on the NYSE on March 8, 1996. The net asset value per share of Common Stock at the close of business on March 8, 1996 and on April 16, 1996 was $15.07 and $ , respectively, and the last reported sale price of a share of the Common Stock on the NYSE on those dates was $13.625 and $ , respectively. The Subscription Price of $ is approximately an % discount to the Fund's net asset value per share on , 1996 and approximately a % discount to the last reported sale price of a share of Common Stock on the NYSE on , 1996. 15 18 EXPIRATION OF THE OFFER The Offer will expire at 5:00 p.m., New York time, on , 1996, unless extended by the Fund and the Dealer Manager (the "Expiration Date"). Rights will expire on the Expiration Date and may not be exercised thereafter. SUBSCRIPTION AGENT The Subscription Agent is American Stock Transfer & Trust Company, which will receive for its administrative, processing, invoicing and other services as Subscription Agent, a fee estimated to be approximately $ , as well as reimbursement for all out-of-pocket expenses related to the Offer. The Subscription Agent is also the Fund's transfer agent, dividend paying agent and registrar. Questions regarding Subscription Certificates should be directed to American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005 (telephone (800) 937-5449); shareholders may also consult their brokers or nominees. Signed Subscription Certificates (see Appendix A) should be sent by mail, hand, express mail or overnight courier, together with payment of the Subscription Price to American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005. Subscription Certificates may also be sent by facsimile to (718) 234-5001, with the original Subscription Certificate to be sent by one of the methods described above. Facsimiles should be confirmed by telephone to (718) 234-2700. INFORMATION AGENT Any questions or requests for assistance may be directed to the Information Agent at its telephone number and address listed below: The Information Agent for the Offer is: Shareholder Communications Corporation 17 State Street New York, New York 10004 Toll Free: (800) 773-8481, Ext. 333 or Call Collect (212) 805-7000, Ext. 333 The Information Agent will receive a fee estimated to be approximately $ , as well as reimbursement for all out-of-pocket expenses related to the Offer. SALE OF RIGHTS The Rights are transferable until the last Business Day prior to the Expiration Date. The Rights will be listed on the NYSE under the symbol "APF.RT" and may be sold on the NYSE through the usual investment channels. The Fund has used its best efforts to ensure that an adequate trading market for the Rights will exist by causing the Rights to be listed on the NYSE and by retaining the Dealer Manager, the Subscription Agent and the Information Agent. Although there can be no assurance that such a market for the Rights will develop, trading in the Rights on the NYSE may be conducted until the close of trading on the last Business Day prior to the Expiration Date. Sales through Subscription Agent. Rights Holders who do not wish to exercise any or all of their Rights may instruct the Subscription Agent to sell any unexercised Rights. Subscription Certificates representing the Rights to be sold by the Subscription Agent must be received by the Subscription Agent on or before , 1996. Upon the timely receipt by the Subscription Agent of appropriate instructions to sell Rights, the Subscription Agent will use its best efforts to complete the sale and the Subscription Agent will remit the proceeds of sale, net of commissions, to the Rights Holders. Rights may be sold through or to the Dealer Manager on the NYSE or otherwise. If the Rights can be sold, sales of such Rights will be deemed to have been effected at the weighted average price received by the Subscription Agent on the day such Rights are 16 19 sold. The selling Rights Holder will pay any brokerage commissions incurred by the Subscription Agent. The sale price of any Rights sold to the Dealer Manager will be based upon the then current market price for the Rights less amounts comparable to the usual and customary brokerage fees. The Subscription Agent will also attempt to sell all Rights which remain unclaimed as a result of Subscription Certificates being returned by the postal authorities to the Subscription Agent as undeliverable as of the fourth Business Day prior to the Expiration Date. Such sales will be made net of any commissions on behalf of the nonclaiming Record Date Shareholders. The Subscription Agent will hold the proceeds from those sales for the benefit of such nonclaiming Record Date Shareholders until such proceeds either are claimed or escheat. There can be no assurance that the Subscription Agent will be able to complete the sale of any such Rights, and neither the Fund, the Subscription Agent nor the Dealer Manager has guaranteed any minimum sale price for the Rights. Other Transfers. The Rights are transferable until the close of business on the last Business Day prior to the Expiration Date. The Rights evidenced by a single Subscription Certificate may be transferred in whole or in part (in a number evenly divisible by three) by delivering to the Subscription Agent a Subscription Certificate properly endorsed for transfer, with instructions to register such portion of the Rights evidenced thereby in the name of the transferee and to issue a new Subscription Certificate to the transferee evidencing such transferred Rights. In such event, a new Subscription Certificate evidencing the balance of the Rights will be issued to the transferring Rights Holder or, if the transferring Rights Holder so instructs, to an additional transferee. Rights Holders wishing to transfer all or a portion of their Rights should allow up to three Business Days prior to the Expiration Date for (i) the transfer instructions to be received and processed by the Subscription Agent; (ii) a new Subscription Certificate to be issued and transmitted to the transferee or transferees with respect to transferred Rights, and to the transferor with respect to retained Rights, if any; and (iii) the Rights evidenced by such new Subscription Certificate to be exercised or sold by the recipients thereof. Neither the Fund, the Subscription Agent nor the Dealer Manager shall have any liability to a transferee or transferor of Rights if Subscription Certificates are not received in time for exercise or sale prior to the Expiration Date. Except for the fees charged by the Subscription Agent (which will be paid by the Fund as described above), all commissions, fees and other expenses (including brokerage commissions and transfer taxes) incurred in connection with the purchase, sale or exercise of Rights will be for the account of the transferor of the Rights, and none of such commissions, fees or expenses will be paid by the Fund, the Subscription Agent or the Dealer Manager. The Rights will be eligible for transfer through, and the exercise of the Primary Subscription (but not the Over-Subscription Privilege) may be effected through, the facilities of The Depository Trust Company ("DTC"); Rights exercised through DTC are referred to as "DTC Exercised Rights." The holder of a DTC Exercised Right may exercise the Over-Subscription Privilege in respect of such DTC Exercised Right by properly executing and delivering to the Subscription Agent, at or prior to 5:00 p.m., New York time, on the Expiration Date, a Nominee Holder Over-Subscription Form (see Appendix C), together with payment of the Subscription Price for the number of Shares for which the Over-Subscription Privilege is to be exercised. Copies of the Nominee Holder Over-Subscription Form may be obtained from the Subscription Agent. EXERCISE OF RIGHTS Rights may be exercised by completing and signing the reverse side of the Subscription Certificate which accompanies this Prospectus and mailing it in the envelope provided, or otherwise delivering the completed and signed Subscription Certificate to the Subscription Agent, together with payment of the Subscription Price for the Shares as described below under "Payment for Shares." Completed Subscription Certificates must be received by the Subscription Agent prior to 5:00 p.m., New York time, on the Expiration Date (unless payment is effected by means of a Notice of Guaranteed Delivery as described below under "-- Payment for Shares") at the offices of the Subscription Agent at the address set forth above. Rights may also be exercised through an Exercising Rights Holder's broker, who may charge such Exercising Rights Holder a servicing fee. 17 20 Nominees who hold shares of Common Stock for the account of others, such as banks, brokers, trustees or depositories for securities, should notify the respective beneficial owners of such shares as soon as possible to ascertain such beneficial owners' intentions and to obtain instructions with respect to the Rights. If the beneficial owner so instructs, the nominee should complete the Subscription Certificate and submit it to the Subscription Agent with the proper payment. In addition, beneficial owners of Common Stock or Rights held through such a nominee should contact the nominee and request the nominee to effect transactions in accordance with the beneficial owner's instructions. EXERCISE OF THE OVER-SUBSCRIPTION PRIVILEGE Record Date Shareholders who fully exercise all Rights issued to them by the Fund may participate in the Over-Subscription Privilege by indicating on their Subscription Certificate the number of Shares they are willing to acquire pursuant thereto. Persons purchasing Rights who are not Record Date Shareholders are not eligible to participate in the Over-Subscription Privilege. There is no limit on the number of Shares that Record Date Shareholders may seek to subscribe for pursuant to the Over-Subscription Privilege. If sufficient Shares remain after the Primary Subscription, all over-subscriptions will be honored in full; otherwise the number of Shares issued to each Record Date Shareholder participating in the Over-Subscription Privilege will be allocated as described above under "-- Over-Subscription Privilege." Banks, brokers, trustees and other nominee holders of Rights will be required to certify to the Fund, before any Over-Subscription Privilege may be exercised as to any particular beneficial owner, as to the aggregate number of Rights exercised pursuant to the Primary Subscription and the number of Shares subscribed for pursuant to the Over-Subscription Privilege by such beneficial owner and that such beneficial owner's Primary Subscription was exercised in full. PAYMENT FOR SHARES Exercising Rights Holders may choose between the following methods of payment: (1) An Exercising Rights Holder may send the Subscription Certificate together with payment for the Shares acquired on Primary Subscription and any additional Shares subscribed for pursuant to the Over-Subscription Privilege (for Record Date Shareholders) to the Subscription Agent based upon the Subscription Price of $ per Share. A subscription will be accepted when payment, together with the executed Subscription Certificate, is received by the Subscription Agent at its Shareholders Services Division; such payment and Subscription Certificates to be received by the Subscription Agent no later than 5:00 p.m., New York time, on the Expiration Date. The Subscription Agent will deposit all checks received by it for the purchase of Shares into a segregated interest-bearing account of the Fund (the interest from which will belong to the Fund) pending proration and distribution of Shares. A PAYMENT PURSUANT TO THIS METHOD MUST BE IN U.S. DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK LOCATED IN THE UNITED STATES, MUST BE PAYABLE TO THE ORDER OF MORGAN STANLEY ASIA-PACIFIC FUND, INC. AND MUST ACCOMPANY A PROPERLY COMPLETED AND EXECUTED SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED AND BE RECEIVED BY 5:00 P.M., NEW YORK TIME, ON THE EXPIRATION DATE. (2) Alternatively, a subscription will be accepted by the Subscription Agent if, prior to 5:00 p.m., New York time, on the Expiration Date, the Subscription Agent has received a Notice of Guaranteed Delivery (see Appendix B) by facsimile (telecopy) or otherwise from a bank, a trust company, or a NYSE member guaranteeing delivery of (i) payment of the full Subscription Price for the Shares subscribed for in the Primary Subscription and any additional Shares subscribed for pursuant to the Over- Subscription Privilege (for Record Date Shareholders), and (ii) a properly completed and executed Subscription Certificate. The Subscription Agent will not honor a Notice of Guaranteed Delivery unless a properly completed and executed Subscription Certificate and full payment for the Shares is received by the Subscription Agent by the close of business on the third Business Day after the Expiration Date (the "Protect Period"). 18 21 To the extent that share certificates have not already been distributed, within seven Business Days following the Protect Period, the Subscription Agent will send to each Exercising Rights Holder (or, if the Common Stock is held by a Nominee Holder, to such Nominee Holder) the share certificates representing the Shares purchased pursuant to the Primary Subscription and, if applicable, the Over-Subscription Privilege, along with a letter explaining the allocation of Shares pursuant to the Over-Subscription Privilege. Any excess payment to be refunded by the Fund to a Record Date Shareholder who is not allocated the full amount of Shares subscribed for pursuant to the Over-Subscription Privilege will be mailed by the Subscription Agent to such Record Date Shareholder within ten Business Days after the end of the Protect Period. An Exercising Rights Holder will have no right to rescind or modify a purchase after the Subscription Agent has received a properly completed and executed Subscription Certificate or a Notice of Guaranteed Delivery. All payments by a Rights Holder must be in U.S. dollars by money order or check drawn on a bank located in the United States and payable to the order of Morgan Stanley Asia-Pacific Fund, Inc. Whichever of the two methods described above is used, issuance and delivery of certificates for the Shares purchased are subject to collection of checks and actual payment. If an Exercising Rights Holder who acquires Shares pursuant to the Primary Subscription or Over-Subscription Privilege does not make payment of any amounts due, the Fund and the Subscription Agent reserve the right to take any or all of the following actions: (i) find other shareholders or Rights Holders for such subscribed and unpaid for Shares; (ii) apply any payment actually received by it toward the purchase of the greatest whole number of Shares which could be acquired by such holder upon exercise of the Primary Subscription and/or Over-Subscription Privilege; and/or (iii) exercise any and all other rights or remedies to which it may be entitled, including, without limitation, the right to set-off against payments actually received by it with respect to such subscribed Shares. THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE SUBSCRIPTION PRICE TO THE FUND WILL BE AT THE ELECTION AND RISK OF THE EXERCISING RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER. All questions concerning the timeliness, validity, form and eligibility of any exercise of Rights will be determined by the Fund, whose determinations will be final and binding. The Fund in its sole discretion may waive any defect or irregularity, or permit a defect or irregularity to be corrected within such time as it may determine, or reject the purported exercise of any Right. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such time as the Fund determines in its sole discretion. The Fund will not be under any duty to give notification of any defect or irregularity in connection with the submission of Subscription Certificates or incur any liability for failure to give such notification. Nominees who hold shares of Common Stock for the account of others, such as banks, brokers, trustees or depositories for securities, should notify the respective beneficial owners of such shares as soon as possible to ascertain such beneficial owners' intentions and to obtain instructions with respect to the Rights. If the beneficial owner so instructs, the nominee should complete the Subscription Certificate and submit it to the Subscription Agent with the proper payment. In addition, beneficial owners of Common Stock or Rights held through such a nominee should contact the nominee and request the nominee to effect transactions in accordance with the beneficial owner's instructions. DELIVERY OF SHARE CERTIFICATES Certificates representing Shares purchased pursuant to the Primary Subscription will be delivered to Exercising Rights Holders as soon as practicable after the corresponding Rights have been validly exercised 19 22 and full payment for such Shares has been received and cleared. Certificates representing Shares purchased pursuant to the Over-Subscription Privilege will be delivered to Exercising Rights Holders as soon as practicable after the Expiration Date and after all allocations have been effected. FOREIGN SHAREHOLDERS Subscription Certificates will not be mailed to Foreign Record Date Shareholders. The Rights to which such Subscription Certificates relate will be held by the Subscription Agent for such Foreign Record Date Shareholders' accounts until instructions are received to exercise, sell or transfer the Rights. If no instructions have been received by 12:00 Noon, New York time, three Business Days prior to the Expiration Date, the Subscription Agent will use its best efforts to sell the Rights of those Foreign Record Date Shareholders through or to the Dealer Manager. The net proceeds, if any, from the sale of those Rights will be remitted to the Foreign Record Date Shareholders. It is anticipated that Rights issued to Foreign Record Date Stockholders in Japan, who hold approximately 27% of the shares of Common Stock, will be sold by the Subscription Agent or otherwise on behalf of such Foreign Record Date Shareholders. FEDERAL INCOME TAX CONSEQUENCES The Offer The U.S. federal income tax consequences to holders of Common Stock with respect to the Offer will be as follows: 1. The distribution of Rights to Record Date Shareholders will not result in taxable income to such holders nor will such holders realize taxable income as a result of the exercise of the Rights. 2. The basis of a Right will be (a) to a holder of Common Stock to whom it is issued and who exercises or sells the Right (i) if the fair market value of the Right immediately after issuance is less than 15% of the fair market value of the Common Stock with regard to which it is issued, zero (unless the holder elects, by filing a statement with his timely filed federal income tax return for the year in which the Rights are received, to allocate the basis of the Common Stock between the Right and the Common Stock based on their respective fair market values immediately after the Right is issued), and (ii) if the fair market value of the Right immediately after issuance is 15% or more of the fair market value of the Common Stock with regard to which it is issued, a portion of the basis in the Common Stock based upon their respective fair market values immediately after the Right is issued; (b) to a holder of Common Stock to whom it is issued and who allows the Right to expire, zero; and (c) to anyone who purchases a Right in the market, the purchase price for a Right. 3. The holding period of a Right received by a Record Date Shareholder includes the holding period of the Common Stock with regard to which the Right is issued. 4. Any gain or loss on the sale of a Right will be treated as a capital gain or loss if the Right is a capital asset in the hands of the seller. Such a capital gain or loss will be long- or short-term, depending on how long the Right has been held, in accordance with paragraph 3 above. A Right will be a capital asset in the hands of the person to whom it is issued if the Common Stock to which the Right relates would be a capital asset in the hands of that person. If a Right is allowed to expire, there will be no loss realized unless the Right had been acquired by purchase, in which case there will be a loss equal to the basis of the Right. 5. If the Right is exercised by the Record Date Shareholder, the basis of the Common Stock received will include the basis allocated to the Right and the amount paid upon exercise of the Right. 6. If the Right is exercised, the holding period of the Common Stock acquired begins on the date the Right is exercised. 20 23 7. Gain recognized by a foreign shareholder on the sale of a Right will be taxed in the same manner as gain recognized on the sale of Fund shares. See "Taxation -- U.S. Federal Income Taxes -- Foreign Shareholders." The Fund is required to withhold and remit to the U.S. Treasury 31% of reportable payments paid on an account if the holder of the account is a taxpayer to which the backup withholding rules apply and has provided the Fund with either an incorrect taxpayer identification number or no number at all or fails to certify that he is not subject to such withholding. The foregoing is only a summary of the applicable U.S. federal income tax laws and does not include any state or local tax consequences of the Offer. Exercising Rights Holders should consult their own tax advisers concerning the tax consequences of this transaction. See "Taxation." NOTICE OF NET ASSET VALUE DECLINE The Fund has, as required by the Commission, undertaken to suspend the Offer until it amends this Prospectus if, subsequent to , 1996 (the effective date of the Fund's Registration Statement), the Fund's net asset value declines more than 10% from its net asset value as of that date. CERTAIN CONSIDERATIONS FOR EMPLOYEE PLAN AND OTHER TAX-EXEMPT ENTITIES Shareholders that are employee benefit plans subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA") (including corporate savings and 401(k) plans), Keogh or H.R. 10 plans of self-employed individuals and Individual Retirement Accounts ("IRAs") (collectively, "Plans") should be aware that additional contributions of cash to the Plan (other than rollover contributions or trustee-to-trustee transfers from other Plans) in order to exercise Rights would be treated as Plan contributions and, when taken together with contributions previously made, may subject a Plan, among other things, to excise taxes for excess or nondeductible contributions. In the case of Plans qualified under Section 401(a) of the Code and certain other plans, additional cash contributions could cause the maximum contribution limitations of Section 415 of the Code or other qualification rules to be violated. Furthermore, it may be a reportable distribution and there may be other adverse tax consequences if Rights are sold or transferred by a Plan to another account. Plans and other tax-exempt entities, including governmental plans, should also be aware that if they borrow in order to finance their exercise of Rights, they may become subject to the tax on unrelated business taxable income under Section 511 of the Code. If any portion of an IRA is used as security for a loan, the portion so used is also treated as distributed to the IRA depositor. ERISA contains fiduciary responsibility requirements, and ERISA and the Code contain prohibited transaction rules, that may impact the exercise or transfer of Rights. Due to the complexity of these rules and the penalties for noncompliance, Plans should consult with their counsel and other advisers regarding the consequences of their exercise or transfer of Rights under ERISA and the Code. RISK FACTORS AND SPECIAL CONSIDERATIONS Investors should recognize that investing in securities of Asian-Pacific issuers involves certain special considerations and risk factors, including those set forth below, which are not typically associated with investing in the stock markets of major industrialized countries. 21 24 DILUTION An immediate dilution of the aggregate net asset value of the Common Stock owned by Record Date Shareholders who do not fully exercise their Rights is likely to occur as a result of the Offer because the Subscription Price per Share is expected to be less than the Fund's net asset value per share on the Record Date, and the number of shares outstanding after the Offer is likely to increase in a greater percentage than the increase in the size of the Fund's assets. In addition, as a result of the Offer, Record Date Shareholders who do not fully exercise their Rights should expect that they will, upon the completion of the Offer, own a smaller proportional interest in the Fund than would otherwise be the case. Although it is not possible to state precisely the amount of such a decrease in value, because it is not known at this time what the net asset value per share will be on the Expiration Date or what proportion of the Rights will be exercised, such dilution could be substantial. For example, assuming that all Rights are exercised and that the Subscription Price of $ is % below the Fund's net asset value of $ per share as of , 1996, the Fund's net asset value per share would be reduced by approximately $ per share. The distribution to shareholders of transferable Rights which themselves may have intrinsic value will afford non-participating shareholders the potential of receiving a cash payment upon sale of such Rights, receipt of which may be viewed as partial compensation for the dilution of their interest in the Fund. No assurance can be given that a market for the Rights will develop or as to the value, if any, that such Rights will have. SOCIAL, POLITICAL AND ECONOMIC FACTORS Social, political and economic instability may be significantly greater in many of the Asian-Pacific Countries than that typically associated with the United States and other industrialized countries. Varying degrees of social, political and economic instability could significantly disrupt the principal financial markets in which the Fund invests, and in turn could adversely affect the value of the Fund's assets. Such instability may result from, among other things, the following: (i) authoritarian governments or military involvement in political and economic decision-making, and changes in government through extra-constitutional means; (ii) popular unrest associated with demands for improved political, economic and social conditions; (iii) internal insurgencies; (iv) war or hostile relations with neighboring countries; and (v) ethnic, religious and racial disaffection. Also, asset expropriations or future confiscatory levels of taxation affecting the Fund may occur in some of the Asian-Pacific Countries. Few of the Asian-Pacific Countries have western-style or fully democratic governments. Some governments in the region are authoritarian and subject to control by the military. Over the past twenty-five years, governments in the region have been installed or removed as a result of military coups, while others have periodically demonstrated against repressive police state characteristics. Disparities of wealth, among other factors, have also led to social unrest in some of the Asian-Pacific Countries, accompanied, in certain cases, by violence and labor unrest. Ethnic, religious and racial disaffection, as evidenced in India, Pakistan and Sri Lanka, have created social, economic and political problems. Several of the Asian-Pacific Countries have, or in the past have had, hostile relationships with neighboring nations or have experienced internal insurgency. Thailand has experienced border conflicts with Laos and Cambodia, and India is engaged in border disputes with several of its neighbors, including China and Pakistan. Over the past 45 years, India and Pakistan have gone to war three times and intermittent border exchanges continue. An uneasy truce exists between North Korea and Korea, and the recurrence of hostilities remains possible. A reunification of North Korea and Korea, whether peaceful or not, could have a detrimental effect on the economy of Korea. Tension between the Tamil and Sinhalese communities in Sri Lanka has resulted in periodic outbreaks of violence. The hostile relationships are further complicated by China's possession of nuclear weapons capability and North Korea's alleged possession or development of such a capability. China has consistently expressed concern about the possibility of Taiwan's declaration of independence from China or its development of nuclear weapons and has indicated that neither would be tolerated. Relations between the United States and China have recently been strained as a result of China's objection to the private 22 25 visit by Taiwan's President Lee Teng-Hui to the United States in June 1995 and China's conduct of military exercises in the waters off Taiwan. Among the Asian-Pacific Countries, any internal conflicts or conflicts with neighbors, including war, could adversely affect not only the securities markets of the countries directly involved but also the securities markets of countries not involved. In Hong Kong, the implementation of British proposals to extend limited democracy have adversely affected British relations with China, which is scheduled to assume sovereignty over Hong Kong in July 1997. In particular, China has stated that it intends to abolish Hong Kong's Legislative Council and restructure the governmental system. Although China has committed by treaty to preserve the economic and social freedoms enjoyed in Hong Kong for 50 years after regaining control of Hong Kong, the continuation of the current economic system in Hong Kong after the reversion will depend on the actions of the government of China. With the impending return of Hong Kong to China, sensitivity in Hong Kong to political developments and statements by public figures in China has increased. Business confidence in Hong Kong, therefore, can be significantly affected by such developments and statements, which in turn can affect markets and business performance. The economies of most of the Asian-Pacific Countries are heavily dependent upon international trade and are accordingly affected by protective trade barriers and the economic conditions of their trading partners, principally, the United States, Japan, China and the European Union. The enactment by the United States or other principal trading partners of protectionist trade legislation, reduction of foreign investment in the local economies and general declines in the international securities markets could have a significant adverse effect upon the securities markets of the Asian-Pacific Countries. For example, the sharp and rapid devaluation of the Mexican new peso in December 1994 had a destabilizing effect on emerging markets generally. In addition, strained trade relations between the United States and Japan and the threat by the United States government to increase tariffs on Japanese goods could adversely affect the Japanese markets. Also, the economies of some of the Asian-Pacific Countries, Indonesia and Malaysia, for example, are vulnerable to weakness in world prices for their commodity exports, including crude oil. Governments in certain of the Asian-Pacific Countries participate to a significant degree, through ownership interests or regulation, in their respective economies. Action by these governments could have a significant adverse effect on market prices of securities and payment of dividends. FOREIGN INVESTMENT AND REPATRIATION RESTRICTIONS; EXCHANGE CONTROLS Foreign investment in the securities markets of several of the Asian-Pacific Countries is restricted or controlled to varying degrees. These restrictions may limit investment in certain of the Asian-Pacific Countries and may increase expenses of the Fund. For example, certain countries may require governmental approval prior to investments by foreign persons in a particular company or industry sector or limit investment by foreign persons to only a specific class of securities of a company which may have less advantageous terms (including price) than securities of the company available for purchase by nationals. Certain Asian-Pacific Countries may restrict or prohibit investment opportunities in issuers or industries deemed important to national interests. In addition, the repatriation of both investment income and capital from several of the Asian-Pacific Countries is subject to restrictions such as the need for certain government consents. Even where there is no outright restriction on repatriation of capital, the mechanics of repatriation may affect certain aspects of the operation of the Fund. Although these restrictions may in the future make it undesirable to invest in the countries to which they apply, the Investment Manager does not believe that any current repatriation restrictions would preclude the Fund from effectively managing its assets. If for any reason the Fund was unable, through borrowing or otherwise, to distribute an amount equal to substantially all of its investment company taxable income (as defined for U.S. tax purposes) within applicable time periods, the Fund would cease to qualify for the favorable tax treatment afforded to regulated investment companies under the U.S. Internal Revenue Code of 1986, as amended (the "Code"). See "Taxation." 23 26 Generally, foreign investment in certain Asian-Pacific Countries is restricted or controlled, although the restrictions vary in form and content. In Japan, foreign exchange controls may require foreign investors, such as the Fund, to file reports with certain Japanese government agencies after the acquisition of threshold amounts of certain Japanese securities. In India, Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand, the Fund may be limited by government regulation or a company's charter to a maximum percentage of equity ownership in any one company. Korea generally prohibits foreign investment in Won-denominated debt securities and Sri Lanka prohibits foreign investment in government debt securities. In the Philippines, the Fund may generally invest in "B" shares of Philippine issuers engaged in partly nationalized business activities, which shares are made available to foreigners, and the market prices, liquidity and rights of which may vary from shares owned by nationals. Similarly, in China, the Fund may only invest in "B" shares of securities traded on The Shanghai Securities Exchange and The Shenzhen Stock Exchange, currently the two officially recognized securities exchanges in China. "B" shares traded on The Shanghai Securities Exchange are settled in U.S. dollars, and those traded on The Shenzhen Stock Exchange are generally settled in Hong Kong dollars. In Hong Kong, Korea, the Philippines and Thailand, there are restrictions on the percentage of permitted foreign investment in shares of certain companies, mainly those in highly regulated industries. In addition, Korea also prohibits foreign investment in specified telecommunication companies, and the Philippines prohibits foreign investment in mass media companies and companies providing certain professional services. In New Zealand, an application must be made to New Zealand's Overseas Investment Commission for consent for any investment proposal in which a non-resident is seeking the acquisition or control of 25% or greater of any class of shares or voting power in a New Zealand enterprise or the acquisition of assets in a New Zealand enterprise where the value of the investment exceeds NZ$10 million. In Australia, proposals by foreign investors to acquire substantial (15% or more) shareholdings in large Australian corporations (over AU$5 million in assets) must be notified to the Australian Government's Foreign Investment Review Board (the "FIRB"), which will examine the proposals, and in some cases, may require prior approval of the FIRB. From time to time, the Fund may invest in pooled investment funds, as they may be the most effective available means by which the Fund may invest in equity securities of certain Asian-Pacific Countries. Investment in such investment funds may involve the payment of management expenses and in connection with some purchases, sales loads, and payment of substantial premiums above the value of such companies' portfolio securities. The Fund does not intend to invest in such investment funds unless, in the judgment of the Investment Manager, the potential benefits of such investment outweigh the payment of any applicable premium, sales load and expense. See "Investment Objective and Policies -- Types of Investments." In addition, the Fund's investment in such investment funds are subject to limitations under the 1940 Act and market availability and may result in adverse U.S. Federal income tax consequences. See "Investment Restrictions" and "Taxation -- U.S. Federal Income Taxes -- Passive Foreign Investment Companies." FOREIGN CURRENCY CONSIDERATIONS The Fund's assets are invested primarily in equity securities of Asian-Pacific issuers and substantially all of the income received by the Fund is in foreign currencies. The Fund computes and distributes its income in dollars, and the computation of income will be made on the date of its receipt by the Fund at the foreign exchange rate in effect on that date. Therefore, if the value of the foreign currencies in which the Fund receives its income falls relative to the U.S. dollar between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required to liquidate securities in order to make distributions if the Fund has insufficient cash in U.S. dollars to meet distribution requirements. The liquidation of investments, if required, may have an adverse impact on the Fund's performance. In addition, if the liquidated investments include securities that have been held less than three months, such sales may jeopardize the Fund's status as a regulated investment company under the Code. See "Taxation -- U.S. Federal Income Taxes." 24 27 Because the Fund invests in securities denominated or quoted in currencies other than the U.S. dollar, changes in foreign currency exchange rates will affect the value of securities in the Fund's portfolio and the unrealized appreciation or depreciation of investments. Over many years, the value of the Japanese yen has generally appreciated in relation to the U.S. dollar, adding to the returns of U.S. funds investing in yen-denominated securities; however, no assurances can be given that the yen will continue to appreciate or remain stable. The value of the assets of the Fund as measured in dollars also may be affected favorably or unfavorably by changes in exchange control regulations. Recently, certain of the risks associated with international investments are heightened for investments in Asian-Pacific Countries. For example, some of the currencies of Asian-Pacific Countries have experienced devaluations relative to the U.S. dollar, and major adjustments have been made periodically in certain of such currencies. Certain countries, such as India, have faced serious exchange constraints. Further, the Fund may incur costs in connection with conversions between various currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into forward, futures or options contracts to purchase or sell foreign currencies. The table below sets forth historical exchange rates per U.S. dollar for the Asian-Pacific currencies listed. It should be noted that as the value of a foreign currency declines, its ratio to the dollar increases. CURRENCY EXCHANGE RATES (FOREIGN CURRENCY PER U.S. DOLLAR) END OF PERIOD
HONG NEW AUSTRALIA CHINA KONG INDIA INDONESIA JAPAN KOREA MALAYSIA ZEALAND PAKISTAN AU$ RMB HK$ RS RUPIAH Y W RM NZ$ PRS --------- ------ ----- ------ --------- ----- ----- -------- ------- -------- 1985.... 1.466 3.2015 7.811 12.166 1125 200.5 890.2 2.4265 1.996 15.98 1986.... 1.503 3.7221 7.785 13.122 1641 159.1 861.4 2.6030 1.884 17.25 1987.... 1.382 3.7221 7.751 12.877 1650 123.5 792.3 2.4928 1.512 17.45 1988.... 1.169 3.7221 7.799 14.949 1731 125.9 684.1 2.7153 1.583 18.65 1989.... 1.266 4.7221 7.805 17.035 1797 143.5 679.6 2.7033 1.680 21.42 1990.... 1.297 5.2221 7.801 18.073 1901 134.4 716.4 2.7015 1.699 21.90 1991.... 1.316 5.4342 7.781 25.834 1992 125.2 760.8 2.7240 1.849 24.72 1992.... 1.451 5.7518 7.741 26.200 2062 124.8 788.4 2.6120 1.946 25.70 1993.... 1.473 5.8000 7.726 31.380 2110 111.9 808.1 2.7015 1.788 30.12 1994.... 1.287 8.446 7.737 31.380 2200 99.7 788.7 2.5600 1.556 30.80 1995.... 1.342 8.317* 7.733 35.180 2308 102.8 774.7 2.5405 1.531 34.25 SRI PHILIPPINES SINGAPORE LANKA THAILAND P S$ SLRS B ----------- --------- ------ -------- 1985.... 19.032 2.1050 27.408 26.65 1986.... 20.530 2.1750 28.520 26.13 1987.... 20.800 1.9985 30.763 25.07 1988.... 21.335 1.9462 33.033 25.24 1989.... 22.440 1.8944 40.000 25.69 1990.... 28.000 1.7445 40.240 25.29 1991.... 26.650 1.6305 42.580 25.28 1992.... 25.096 1.6449 46.000 25.52 1993.... 27.699 1.6080 49.562 25.54 1994.... 24.418 1.4607 49.980 25.09 1995.... 26.214 1.4143 54.048 25.16**
- --------------- * At October 31, 1995. ** At November 30, 1995. Sources: International Monetary Fund, International Financial Statistics Yearbook 1995 and International Financial Statistics, February 1996. The relative performance of foreign currencies is an important factor in the Fund's performance. The above table demonstrates the tendency of certain currencies of Asian-Pacific Countries to fluctuate significantly against the U.S. dollar. The Investment Manager may manage the Fund's exposure to various currencies to take advantage of different yield, risk and return characteristics that different currencies can provide for investors. The Fund may seek to protect the value of some portion or all of its portfolio holdings against currency risks by engaging in hedging transactions. The Fund may enter into forward currency exchange contracts and currency futures contracts and options on such futures contracts, as well as purchase put or call options on currencies, in U.S. or foreign markets. See "Investment Objective and Policies -- Foreign Currency Hedging Transactions; Options and Futures Contracts" and Appendix D. 25 28 Although the Investment Manager may attempt to manage currency exchange rate risk, there is no assurance that it will do so at an appropriate time or that it will be able to predict exchange rates accurately. For example, if the Investment Manager increases the Fund's exposure to a foreign currency, and that currency's value subsequently falls, the Investment Manager's currency management may result in increased losses to the Fund. Similarly, if the Investment Manager hedges the Fund's exposure to a foreign currency, and that currency's value rises, the Fund will lose the opportunity to participate in the currency's appreciation. In addition, there is no assurance that suitable foreign exchange markets or currency management instruments will be available to the Fund. MARKET CHARACTERISTICS Some of the stock exchanges in the Asian-Pacific Countries, such as those in China, are in the early stages of their development, and many companies traded on such exchanges are smaller, newer and less seasoned than companies whose securities are traded on securities markets in the United States. Investments in smaller companies involve greater risk than is customarily associated with investing in larger companies. Smaller companies may have limited product lines, markets or financial or managerial resources and may be more susceptible to losses and risks of bankruptcy. Additionally, the securities markets of most Asian-Pacific Countries other than Japan have substantially less volume than the New York Stock Exchange and other United States national securities exchanges, and equity and debt securities of most issuers in the Asian-Pacific Countries are less liquid and more volatile than equity and debt securities of comparable U.S. issuers. Market making and arbitrage activities are generally less extensive in such markets, which may contribute to the increased volatility and reduced liquidity of such markets. As a result, these markets may be subject to greater influence by adverse events generally affecting the market, and by large investors trading significant blocks of securities, than is usual in the United States. Investment of the Fund's assets in relatively illiquid securities may restrict the ability of the Fund to dispose of its investments in a timely fashion and for a fair price, as well as its ability to take advantage of market opportunities. The risks associated with illiquidity will be particularly acute in situations in which the Fund's operations require cash, such as when the Fund repurchases shares, commences a tender offer or pays dividends or distributions, and could result in the Fund borrowing to meet short-term cash requirements or incurring capital losses on the sale of illiquid investments. To the extent that any Asian-Pacific Country experiences rapid increases in its money supply and investment in equity securities for speculative purposes, the equity securities traded in such country may trade at price-earnings multiples higher than those of comparable companies trading on securities markets in the United States and such price-earnings multiples may not be sustainable. Brokerage commissions and other transaction costs on securities exchanges in Asian-Pacific Countries are generally higher than in the United States. In addition, security settlements may in some instances be subject to delays and related administrative uncertainties, including risk of loss associated with the credit of local brokers. There is less government supervision and regulation of foreign securities exchanges, listed companies and brokers in Asian-Pacific Countries than exists in the United States. Less information may, therefore, be available to the Fund than with respect to investments in the United States. Further, in certain Asian-Pacific Countries, less information may be available to the Fund than to local market participants. Brokers in Asian-Pacific Countries may not be as well capitalized as those in the United States, so they are more susceptible to financial failure in times of market, political or economic stress. In addition, existing laws and regulations are often inconsistently applied. As legal systems in some of the Asian-Pacific Countries develop, foreign investors may be adversely affected by new laws and regulations, changes to existing laws and regulations and preemption of local laws and regulations by national laws. In circumstances where adequate laws exist, it may not be possible to obtain swift and equitable enforcement of the law. Currently a mixture of legal and structural restrictions affect the securities markets of certain Asian-Pacific Countries. India in particular is experiencing difficulty in processing and settling securities transactions to such a degree that investments are currently impeded, although the implementation of a central depository system is expected in the near future. 26 29 Korea, in an attempt to avoid market manipulation, has imposed deposit requirements prior to trading that will expose the Fund to the broker's credit risk. These examples demonstrate that legal and structural developments can be expected to affect the Fund, potentially affecting liquidity of positions held by the Fund, in unexpected and significant ways from time to time. In order to hedge against adverse market shifts, the Fund may purchase put and call options on securities, write covered call options on securities and enter into securities index futures contracts and related options to the extent such investments are available. The Fund may also hedge against interest rate fluctuations affecting portfolio securities by entering into interest rate futures contracts and options thereon. For a description of such hedging strategies, see "Investment Objective and Policies -- Foreign Currency Hedging Transactions; Options and Futures Contracts" and Appendix D. There can be no assurance, however, that such hedging activities will be successful. FINANCIAL INFORMATION AND STANDARDS Asian-Pacific issuers generally are subject to accounting, auditing and financial standards and requirements that differ, in some cases significantly, from those applicable to U.S. issuers. In particular, the assets and profits appearing on the financial statements of an Asian-Pacific issuer may not reflect its financial position or results of operations in accordance with U.S. generally accepted accounting principles. For example, differences in Japanese accounting methods make it difficult to compare the earnings of Japanese companies with those of companies of other countries, especially the United States. In general, however, reported net income in Japan is understated relative to U.S. accounting standards. In addition, for an issuer that keeps accounting records in local currency, inflation accounting rules may require, for both tax and accounting purposes, that certain assets and liabilities be restated on the issuer's balance sheet in order to express items in terms of currency of constant purchasing power. Inflation accounting may indirectly generate losses or profits. Consequently, financial data may be materially affected by restatements for inflation and may not accurately reflect the real condition of those issuers and securities markets. Moreover, substantially less information may be publicly available about Asian-Pacific issuers than is available about U.S. issuers. INVESTMENTS IN UNLISTED SECURITIES Although the Fund invests primarily in listed securities, the Fund may invest up to 25% of its total assets in the aggregate in unlisted equity securities (some or all of which may be illiquid) purchased directly from issuers or in unregulated over-the-counter markets or other unlisted securities markets that may involve a high degree of business and financial risk which can result in substantial losses. Because of the absence of active and regulated trading markets for these investments, and because of the difficulties in determining market values accurately, the Fund may take longer to liquidate these positions than would be the case for publicly listed securities. Although these securities may be resold in privately negotiated transactions, the prices realized on these sales could be less than those originally paid by the Fund. Further, companies whose securities are not publicly listed may not be subject to public disclosure and other investor protection requirements applicable to publicly traded securities. Additionally, to the extent that the Fund invests in unlisted equity securities of smaller capitalized companies, the degree of risk and price volatility may be greater than securities of larger companies as such smaller companies typically are more vulnerable to financial and other risks than larger listed and unlisted companies. INVESTMENTS IN LOWER-QUALITY SECURITIES The Fund may invest up to 20% of its total assets in debt securities that are determined by the Fund's investment manager to be comparable to securities rated below investment grade by Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's"). Generally, securities rated BB or lower by S&P or Ba or lower by Moody's are considered to be below investment grade. Such lower-quality securities are regarded as being predominantly speculative and involve significant risks and, if issued by U.S. companies, would be considered "junk" or "high risk." For example, lower-quality securities generally tend to fluctuate in value in response to economic changes (and the outlook for economic growth) and short-term corporate and industry developments and the market's perception of their credit quality (which may not be based on fundamental analysis) to a greater extent than investment grade securities which react primarily to fluctuations in the general level of interest rates (although lower-quality securities are also affected by changes in interest rates). In the past, economic downturns or an increase in interest rates have under certain 27 30 circumstances caused a higher incidence of default by the issuers of these securities. To the extent that the issuer of any lower-quality debt security held by the Fund defaults, the Fund may incur additional expenses in order to enforce its rights under such security or to participate in a restructuring of the obligation. In addition, the prices of lower-quality debt securities generally tend to be more volatile and the market less liquid than is the case with investment grade securities. Adverse economic events can further exacerbate these tendencies. Consequently, the Fund may at times experience difficulty in liquidating its investments in such securities at the prices it desires. There also can be significant disparities in the prices quoted for lower-quality debt securities by various dealers which may make valuing such securities by the Fund more subjective. The Fund's expects that its holdings of lower-quality debt securities will consist predominantly of Sovereign Debt, some of which may trade at a discount to face value. The Fund may invest in Sovereign Debt to hold and trade in appropriate circumstances. Investment in Sovereign Debt may involve a high degree of risk and such securities may be considered speculative in nature. The issuers or governmental authorities that control the repayment of Sovereign Debt may not be able or willing to repay the principal or interest when due in accordance with the terms of such debt. A sovereign debtor's willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of its debt service burden, the sovereign debtor's policy towards the International Monetary Fund and the political constraints to which a sovereign debtor may be subject. Sovereign debtors may also be dependent on expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearages on their debt. The commitment on the part of these governments, agencies and others to make such disbursements may be conditioned on a sovereign debtor's implementation of economic reforms, its economic performance and the timely service of its debtor's obligations. Failure to implement economic reforms, achieve appropriate levels of economic performance or repay principal or interest when due may result in the cancellation of commitments to lend funds to the sovereign debtor, which may further impair the debtor's ability or willingness to timely service its debts. In certain instances, the Fund may invest in Sovereign Debt that is in default as to payment of principal or interest. To the extent the Fund is holding any non-performing Sovereign Debt or other non-performing debt, it may incur additional expenses in connection with any restructuring of the issuer's obligations or in otherwise enforcing its rights thereunder. The Fund may experience difficulties in disposing of certain Sovereign Debt obligations because there may be a thin trading market for such securities. The lack of a liquid secondary market may have an adverse impact on the market price of such securities and the Fund's ability to dispose of particular securities when necessary to meet the Fund's liquidity needs or in response to a specific economic event such as a deterioration in the credit worthiness of the issuer. The lack of a liquid secondary market for certain Sovereign Debt securities also may make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing the Fund's portfolio and calculating its net asset value. NET ASSET VALUE DISCOUNT; NONDIVERSIFICATION Since the Fund's commencement of operations in August 1994, the Common Stock has traded in market at a discount to net asset value. Officers of the Fund cannot determine the reason why the Common Stock has traded at a discount to net asset value, nor can they predict whether the Common Stock will in the future trade at a premium or discount to net asset value and if so, the level of such premium or discount. Shares of closed-end investment companies frequently trade at a discount from net asset value. The risk of the Common Stock trading at a discount is a risk separate from the risk of a decline in the Fund's net asset value. See "Market and Net Asset Value Information." The Fund is classified as a non-diversified investment company under the 1940 Act, which means that the Fund is not limited by the 1940 Act in the proportion of its assets that may be invested in the obligations of a single issuer. Thus, the Fund may invest a greater proportion of its assets in the securities of a small number of issuers and, as a result, will be subject to greater risk of loss with respect to its portfolio securities. The Fund, however, intends to comply with the diversification requirements imposed by the Code for qualification as a regulated investment company, and the Fund has adopted an investment policy that it will not acquire more than 25% of any class of outstanding stock of any company. See "Taxation -- U.S. Federal Income Taxes" and "Investment Restrictions." 28 31 ADDITIONAL CONSIDERATIONS The Fund may use various other investment practices that involve special considerations, including purchasing and selling options on securities, financial futures, and other financial instruments, entering into financial futures contracts, interest rate transactions, currency transactions and repurchase agreements and lending portfolio securities. See "Investment Objective and Policies" and Appendix D. The Fund's Articles of Incorporation contain certain anti-takeover provisions that may have the effect of inhibiting the Fund's possible conversion to open-end status and limiting the ability of other persons to acquire control of the Fund. In certain circumstances, these provisions might also inhibit the ability of stockholders to sell their shares at a premium over prevailing market prices. See "Common Stock." Certain considerations concerning the Fund's ability to enter into repurchase agreements, purchase securities on a when-issued or delayed delivery basis and lend portfolio securities are discussed below under "Investment Objective and Policies -- Temporary Investments" and "-- Lending of Portfolio Securities." The Fund may be subject to withholding taxes, including withholding taxes on realized capital gains that may exist or may be imposed by the governments of the countries in which the Fund invests. See "Taxation -- U.S. Federal Income Taxes." Investment in shares of Common Stock of the Fund should not be considered a complete investment program and may not be appropriate for all investors. Investors should carefully consider their ability to assume these risks before making an investment in the Fund. ASIAN-PACIFIC ECONOMIES AND STOCK MARKETS The information set forth in this Section has been extracted from various publications of governmental agencies and international and private organizations and is based on the most recently published information available. The Fund and its Board of Directors make no representation as to the accuracy of the information, nor has the Fund or its Board of Directors attempted to verify it. Furthermore, no representation is made that any correlation will exist between Asian-Pacific Countries, economies or stock markets in general and the performance of the Fund. OVERVIEW The data contained in this section, "Asian-Pacific Economies and Stock Markets," relates specifically to the Asian-Pacific Countries in which the Fund may invest. For purposes of this section only, the term "Asian Countries" shall refer only to the following twelve countries: China, Hong Kong, India, Indonesia, Korea, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka, Thailand and, as investment opportunities become available, Vietnam. Data for Vietnam has only recently become available and accurate and reliable sources for such data are difficult or impossible to obtain. The data on Japan specifically mentioned within the "Asian Countries" sub-section is intended to supplement the information contained in the following sub-section entitled "Japan." The data on the United States is included herein for comparative purposes only. 29 32 ASIAN COUNTRIES Asian Economies. The economies of Asian Countries are in different stages of development and encompass a broad range of industries. Hong Kong and Singapore have well developed industrial, financial and service sectors, but limited natural resources. Korea has a large manufacturing sector, but relies heavily on imports of raw materials. The economies of Indonesia, Malaysia, the Philippines and Thailand are generally less developed than Hong Kong, Korea and Singapore, but these countries have higher levels of natural resources. Of the Asian Countries, the economies of China, India, Pakistan, Sri Lanka and Vietnam are generally the least developed, with large agricultural sectors, but there are geographic regions in several of these countries which have a much higher level of development. Generally, the economies of Asian Countries have grown at a relatively high rate over the years 1985 to 1995. The Investment Manager intends to continue allocating a significant portion of the Fund's assets to Asian emerging markets, which the Investment Manager believes will see continued growth assisted by an eventual recovery of Japan's economy. As the following table shows, all of the economies of Asian Countries during the period from 1990 to 1995 grew faster than that of the United States. Of these, China was the fastest growing economy followed by Vietnam and Malaysia. There can be no assurance, however, that the economies of the Asian Countries will continue to grow at their relatively high rates. NOMINAL GNP FOR 1994, AVERAGE ANNUAL REAL GDP GROWTH FOR THE PERIOD 1990 THROUGH 1995 AND REAL GDP GROWTH FOR 1993, 1994 AND 1995
AVERAGE ANNUAL NOMINAL GNP REAL GDP REAL GDP GROWTH (%) FOR 1994 GROWTH FOR THE PERIOD --------------------------- COUNTRY (US$ BILLIONS)(1) 1990-1995 (%)(1) 1993(1) 1994(1) 1995(1) - ------------------------------------- ----------------- --------------------- ------- ------- ------- China................................ 630 12.1 13.4 11.6 9.8 Hong Kong............................ 126 5.2 6.4 5.4 4.5 India................................ 279 4.4 4.3 5.4 6.0 Indonesia............................ 168 6.9 6.5 7.3 7.3 Korea................................ 366 7.9 5.8 8.4 9.5 Malaysia............................. 69 8.8 8.3 9.2 9.0 Pakistan............................. 56 4.3 1.9 3.1 4.3 Philippines.......................... 63 2.4 2.1 4.3 5.4 Singapore............................ 69 8.3 10.1 10.1 7.9 Sri Lanka............................ 12 5.5 6.9 5.6 5.2 Thailand............................. 130 8.8 8.1 8.5 8.7 Vietnam.............................. 14 7.7 8.1 8.8* 9.5** Japan................................ 4,321 1.8 (0.2) 0.5 0.5 United States........................ 6,737 2.2 3.1 4.1 3.3
- --------------- Notes: (1) Data may in some cases be an estimate. Data may be for calendar or for fiscal years. Sources: World Bank Atlas 1996; Economic Intelligence Unit, Country Annual World Outlook 1996. * Official estimate. ** Excludes transferable rouble debt. The Investment Manager believes that the economic conditions in Asian Countries are conducive to long-term economic growth and long-term capital appreciation from investment in securities of Asian issuers. These conditions include the ability to attract foreign direct investment and the increasing industrialization of Asian Countries and rising per capita incomes to support local markets for consumer goods and increasing consumer demand. 30 33 The following table shows the per capita GNP in 1994 for each of the Asian Countries and the real growth rate in GNP per capita for the period 1985 through 1994 for each of the Asian Countries, other than Vietnam. GNP per capita grew more rapidly during the period in all of these countries than in the United States. GNP PER CAPITA FOR 1994 AND GNP PER CAPITA REAL GROWTH RATE FOR THE PERIOD 1985-1994
GNP PER CAPITA GNP PER CAPITA REAL GROWTH RATE COUNTRY 1994 (US$) 1985-1994(%) - ---------------------------------------------------------------- -------------- ---------------- China........................................................... 530 6.9 Hong Kong....................................................... 21,650 5.3 India........................................................... 310 2.9 Indonesia....................................................... 880 6.0 Korea........................................................... 8,220 7.8 Malaysia........................................................ 3,520 5.7 Pakistan........................................................ 440 1.6 Philippines..................................................... 960 1.8 Singapore....................................................... 23,360 6.9 Sri Lanka....................................................... 640 2.8 Thailand........................................................ 2,210 8.2 Vietnam......................................................... 190 n/av Japan........................................................... 34,630 3.2 United States................................................... 25,860 1.3
- --------------- Sources: World Bank Atlas, 1996. Asian Securities Markets. The stock markets in Asian Countries have varied in their historical development. The stock exchange in Bombay, India, for example, has been operating since as early as 1875, while the Shenzhen Exchange in China has operated only since 1991. Since the mid-1980s, stock market development throughout Asian Countries, both with respect to average daily trading volume and the number of securities traded, has gained momentum. In terms of market capitalization, Hong Kong is the largest stock market in Asia after Japan, with a market capitalization of U.S.$269 billion as of December 1994, followed by Malaysia at U.S.$199 billion and Korea at U.S.$191 billion. Over the period from 1985 to 1994, Indonesia has experienced a 800% expansion in the number of listed companies, coupled with an increase in market capitalization from U.S.$117 million to U.S.$47 billion. The number of listed companies in India (Bombay) and Thailand increased 61% and 289%, respectively, over the same period, while annual stock exchange turnover in these markets also rose dramatically. The table below indicates annual trading value, number of listed companies and market capitalization for Asian Countries. However, because the annual trading value and market capitalization are stated in U.S. dollars, the difference in values for 1985 and 1994 may, to a large extent, reflect changes in the various exchange rates. 31 34 DEVELOPMENT OF ASIAN STOCK MARKETS 1985-1994
MARKET ANNUAL TRADING NUMBER OF CAPITALIZATION VALUE LISTED DECEMBER 31, U.S.$ MILLIONS COMPANIES U.S.$ BILLIONS ------------------- ------------- ----------------- EXCHANGE LOCAL INDEX 1985 1994 1985 1994 1985 1994 - ----------------------- --------------------------- ------- --------- ----- ----- ------- ------- China.................. n/av -- 97,526 -- 291 -- 43.5 Hong Kong.............. Hang Seng 9,732 147,158 260 529 34.5 269.5 India(1)............... BSE Sensitive Index 4,959 27,290 4,344 7,000 14.4 127.5 Indonesia.............. JSE Composite 3 11,801 24 216 0.1 47.2 Korea.................. KOSPI 4,162 286,056 342 699 7.4 191.8 Malaysia............... KLSE Composite 2,335 126,458 222 478 16.2 199.3 Pakistan............... KSE Index 236 3,198 362 724 1.4 12.3 Philippines............ Philippines Stock Exchange 111 13,949 138 189 0.7 55.5 Singapore(2)........... DBS 50 1,383 81,054 122 240 11.1 134.5 Sri Lanka.............. CSE All Shares 3 700 171 215 0.4 2.9 Thailand............... SET 568 80,188 100 389 1.8 131.5 Japan(3)............... Combined 329,970 1,121,438 1,829 2,205 978.7 3,719.9 United States(4)....... Combined 997,189 3,592,668 8,022 7,770 2,324.6 5,081.8
- --------------- Notes: (1) Bombay Stock Exchange only. (2) Does not include Singapore's Clob International. (3) Fukuoka, Hiroshima, Kyoto, Nagoya, Niigata, Osaka, Tokyo and Sapporo Stock Exchanges. (4) NASDAQ, NYSE and AMEX stock exchanges. Source: International Finance Corp., Emerging Markets Factbook 1995. For a wide variety of historical and/or ideological reasons, foreign ownership restrictions have at some time been imposed over most stock exchanges in the region. The government of India has only recently authorized direct access to Indian securities markets for approved foreign institutional investors. The Investment Manager is an authorized foreign institutional investor in India and may invest on behalf of the Fund upon approval by the Indian government. Foreign ownership of many companies in China, India, Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand is restricted and can result in foreign-owned stock trading at a substantial premium or discount to locally-owned shares. Average daily volume can be much lower in these markets than a typical day's trading volume in the United States, particularly in the small and medium capitalization sectors of the less well developed stock markets. In some of these markets (i.e., Hong Kong and Thailand), retail trading is comparatively more active, and institutional investment accounts for a lower proportion of total trading. A large volume of retail trading can result in more volatile stock markets, although some markets have daily price fluctuation limits. On average, during the period 1992 through 1995, stock markets of Asian Countries have had positive returns. In general, these markets do not move together although they are susceptible to sudden and substantial price volatility as indicated by the repercussions of the December 1994 financial crisis in Mexico and its effect on 1995 market performance. The table below indicates the market performance of various Asian stockmarkets. It should be noted that the information in the table below reflects performance in terms of local currency and does not measure relative market performance or performance in U.S. dollar terms. Past performance in any country is not intended to predict the future performance of any stock market or anticipated return to the Fund's stockholders. 32 35 ASIAN STOCK MARKET RETURNS(1)
STOCK MARKET AVERAGE ANNUAL PERFORMANCES(%) STOCK MARKET STOCK MARKET JANUARY 1 TO PERFORMANCES(%) PERFORMANCES(%) FEBRUARY 29, COUNTRY 1992-1995 1995 1996 - --------------------------------------------------- -------------- ------------ -------------- China.............................................. n/av (22.1) 11.9 Hong Kong.......................................... 35.4 22.5 11.6 India.............................................. n/av (22.6) 16.7 Indonesia.......................................... 26.0 13.6 2.8 Korea.............................................. 13.9 (4.9) (3.2) Malaysia........................................... 27.5 4.6 8.0 Pakistan........................................... n/av (29.3) 9.4 Philippines........................................ 35.9 (6.9) 11.1 Singapore.......................................... 18.1 3.3 6.3 Sri Lanka.......................................... n/av (32.6) 1.1 Thailand........................................... 22.2 (5.8) 3.2 Japan.............................................. 1.0 4.3 (1.2) United States...................................... 14.4 38.2 4.7
- --------------- Note: (1) Performances are calculated based on local currencies. Sources: MSCI Price Indices; Bloomberg World Indices. 33 36 JAPAN Economic Overview. Japan's economy continues to suffer a protracted downturn that began in late 1991. By late 1995, the estimated gap between potential and actual output had widened to almost 6 percent. Unemployment, low by most modern standards, is at a record high and threatens to rise in the absence of a strong recovery. The current weakness in Japan's economy is due to the combined effects of sluggish domestic demand, and the strength of the exchange rate. The sharp appreciation of the yen during the first half of 1995 threatened to set back further the prospects for Japan's recovery. However, the subsequent depreciation of the yen and the rise in equity prices have strengthened the prospects for growth in 1996. In addition, Japan's fiscal and monetary policies have been eased in order to stimulate economic activity. The Japanese economy may differ, favorably or unfavorably, from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resources, self-sufficiency and its balance of payments position. Moreover, although recovery within this fiscal year is expected, it is not assured. Further cuts in investment, increases in unemployment, continued poor consumer and business sentiments and the collapse of the reform-oriented coalition, or the failure of its policies, may all deepen the current recession. Exchange Rate. The following table sets forth certain information as to yen per U.S. dollar exchange rates for the years 1985 through 1995. EXCHANGE RATE: YEN PER U.S. DOLLAR, 1985 TO 1995
Y PER U.S. $1.00 ------------------------------ HIGH LOW AVERAGE ------ ------ -------- 1985............................................................. 200.40 263.05 232.75 1986............................................................. 152.03 202.95 162.13 1987............................................................. 122.00 159.18 128.25 1988............................................................. 121.15 136.75 128.25 1989............................................................. 124.05 150.30 143.62 1990............................................................. 125.40 159.95 133.72 1991............................................................. 120.10 142.02 134.36 1992............................................................. 118.60 131.95 120.02 1993............................................................. 100.40 125.95 111.10 1994............................................................. 96.35 113.60 102.22 1995............................................................. 79.75 104.70 93.74
- --------------- Source: The Bank of Japan. Japanese Stock Exchanges. Currently, there are eight stock exchanges in Japan. The Tokyo Stock Exchange (the "TSE"), Osaka Securities Exchange and Nagoya Stock Exchange are the largest stock exchanges in Japan, together accounting for approximately 98.4% of the stock trading volume and 98.2% of the overall value of all Japanese stock exchanges as of December 31, 1995. The chart below presents stock trading volume and value of each Japanese stock exchange for the period from 1988 to 1995. 34 37 STOCK TRADING VOLUME AND VALUE ON JAPANESE STOCK EXCHANGES(1) (MILS. OF SHARES, Y BILS.)
ALL EXCHANGES TOKYO OSAKA NAGOYA KYOTO HIROSHIMA FUKUOKA ----------------- ----------------- --------------- --------------- ------------- ------------- ------ VOLUME VALUE VOLUME VALUE VOLUME VALUE VOLUME VALUE VOLUME VALUE VOLUME VALUE VOLUME -------- -------- -------- -------- ------ ------- ------ ------- ------ ----- ------ ----- ------ 1988...................... 328,311 332,757 282,637 285,521 31,691 34,504 12,485 11,349 373 375 192 180 247 1989...................... 256,296 386,395 222,599 332,617 25,096 41,679 7,263 10,395 331 443 190 235 268 1990...................... 145,837 231,837 123,099 186,667 17,187 35,813 4,323 7,301 416 770 169 261 203 1991...................... 107,844 134,160 93,606 110,897 10,998 18,723 2,479 3,586 220 300 125 149 122 1992...................... 82,573 80,456 66,408 60,110 12,069 15,575 3,300 3,876 225 322 110 136 139 1993...................... 101,172 106,123 86,934 86,889 10,439 14,635 2,779 3,459 222 340 185 178 229 1994...................... 105,936 114,622 84,514 87,355 14,903 19,349 4,719 5,779 447 562 255 311 578 1995...................... 120,148 115,839 92,033 83,563 21,093 24,719 5,059 5,462 640 872 285 305 404 NIIGATA SAPPORO ------------- ------------- VALUE VOLUME VALUE VOLUME VALUE ----- ------ ----- ------ ----- 1988....................... 233 528 445 158 149 1989....................... 330 398 475 151 221 1990....................... 405 245 334 195 286 1991....................... 174 181 208 113 123 1992....................... 129 163 178 149 129 1993....................... 225 206 226 173 170 1994....................... 668 249 298 267 295 1995....................... 393 295 211 336 307
- --------------- Note: (1) Trading volume and value of foreign stocks are not included. Sources: The Tokyo Stock Exchange 1995 Fact Book, 1994 Fact Book and 1993 Fact Book. Although the short-term direction of the Japanese stock market may not be accurately predicted, especially with the current political instability, the Investment Manager considers the Japanese stock market to be an attractive investment over the medium- to long-term. The TSE is the largest and most prestigious of the Japanese stock exchanges. In 1995, the TSE accounted for 76.6% of the trading volume and 72.1% of the trading value on all Japanese stock exchanges. Consequently, the TSE is widely regarded as the principal securities exchange for all of Japan. A foreign stock section on the TSE, consisting of shares of non-Japanese companies, was established in December 1973 and, at the end of 1995, had 77 non-Japanese companies. The market for stock of Japanese issuers on the TSE is divided into two sections, the First Section and the Second Section. The TSE's First Section is generally for larger, established companies (in existence for five years or more) that meet the stringent listing criteria for that Section. The listing criteria for the First Section relate to the size and business condition of the issuing company, the liquidity of its securities and other factors pertinent to investor protection. The TSE's Second Section is for smaller companies and newly listed issuers. The First and Second Section markets are not independent of each other, and an authorized change in listing from the Second to the First Section, or vice versa, is reviewed each year. Newly listed domestic shares are ordinarily assigned to the Second Section, except under certain conditions. For example, in 1995, of the 32 newly listed companies on the TSE, 29 were assigned to the Second Section. For each company whose shares are listed in the Second Section, the TSE determines at the end of a listed company's business year whether the company meets the assignment criteria of the First Section. Second Section stocks meeting the assignment criteria are assigned to the First Section. On the other hand, if a First Section listed company would not meet the criteria for the First Section, it would be reassigned to the Second Section or delisted entirely if it falls under any of the delisting criteria. In 1995, there were 17 companies whose listings were changed from the Second to the First Section, no companies reassigned from the First Section to the Second Section and seven companies whose shares were delisted. As of December 31, 1995, there were 1,253 Japanese companies assigned to the TSE First Section and 461 Japanese companies assigned to the Second Section. At the end of 1995, the market value of all the TSE's domestic stocks was approximately Y365.7 trillion (approximately 96.3% of the market value of all Japanese stock exchanges), and the average daily trading volume was approximately 369 million shares. The market value of all the TSE's domestic stocks for 1991, 1992, 1993, 1994 and 1995 was approximately Y377.9 trillion, Y289.5 trillion, Y324.4 trillion, Y358.4 trillion and Y365.7 trillion, respectively. Japanese Foreign Exchange Controls. Under the Foreign Exchange and Foreign Trade Control Law of Japan (Law No. 228, December 1, 1949), as amended, and cabinet orders and ministerial ordinances thereunder currently in effect (the "Foreign Exchange Controls"), the acquisition of shares in a Japanese company from a resident of Japan (including a corporation) by a non-resident of Japan (including a corporation) requires, in general, prior notification of the proposed transaction to the Minister of Finance of Japan (the "Minister of Finance"). If the acquisition is made from or through a securities company 35 38 designated by the Minister of Finance (as will generally be the case with the Fund) or if the yen equivalent of the aggregate purchase price of shares is not more than Y100 million, such prior notification is not required, except as provided below. The Foreign Exchange Controls give the Minister of Finance the power, in certain limited and exceptional circumstances, to require prior approval for any such acquisition. There can be no assurance that under the Foreign Exchange Controls the Minister of Finance will not require prior approval for an acquisition by the Fund of shares listed on the Tokyo Stock Exchange, or that the Minister of Finance or any other Minister will not recommend modification or prohibition of the direct or indirect acquisition by the Fund of greater than 10% of the shares of a Japanese corporation. Regulation of the Japanese Equities Markets. The principal securities law in Japan is the Securities and Exchange Law, which provides overall regulation for the issuance of securities in public offerings and private placements and for secondary market trading. Corporate issuers that have made registered public offerings of securities under the Securities and Exchange Law, as well as corporate issuers whose securities are listed on Japanese stock exchanges or registered with the Japan Securities Dealers' Association (the "JSDA"), become subject to the disclosure requirement that they file annual securities reports, semi-annual reports and current reports with the Minister of Finance pursuant to the Securities and Exchange Law, which reports are made available for public inspection. The eight stock exchanges in Japan are licensed by the Minister of Finance pursuant to the Securities and Exchange Law. Each stock exchange is required to have a constitution, regulations governing the sale and purchase of securities and standing rules for exchange contracts for the purchase and sale of securities on the exchange. In addition, each stock exchange has detailed rules and regulations covering a variety of matters, including rules and standards for listing and delisting of securities. Companies seeking to list their securities on an exchange are subject to a suitability review by the exchange. 36 39 AUSTRALIA AND NEW ZEALAND Economies. Over the past decade, the economic ties between Australia and New Zealand have strengthened. In the early 1980s, the two countries signed the Australia New Zealand Closer Economic Relations Trade Agreement ("CERTA") allowing free trade of certain goods between the two countries. In January 1989, CERTA was extended to allow the free trade of services, and in July 1990, full free trade in goods was also achieved. Although both Australia and New Zealand have experienced little or modest growth in the past three years, the Investment Manager believes both countries are beginning their economic recovery, as indicated by their 1994 annual growth rates of real GDP. The chart below indicates the Nominal GNP for 1994 and the annual growth rate of real GDP for the period 1990 through 1995. NOMINAL GNP FOR 1994 AND REAL GDP GROWTH FOR THE PERIOD 1990 THROUGH 1995
NOMINAL GNP FOR 1994 COUNTRY (U.S.$ BILLIONS) 1990 1991 1992 1993 1994 1995 - ---------------------------- -------------------- ---- ---- ---- ---- ---- ---- Australia................... 321 1.0% 0.4% 2.4% 2.9% 5.0% 2.9% New Zealand................. 47 -- (3.7) 0.9 5.1 3.7 2.8
- --------------- Sources: The Economist Intelligence Unit, Country Annual, World Outlook 1996; World Bank Atlas 1996. Australian Stock Exchange. The Australian Stock Exchange's total trading volume increased by 116.3% from June 30, 1992 to June 30, 1994. As of December 31, 1994, the Australian Stock Exchange had 11,144 listed companies, a market capitalization of approximately U.S.$219 billion and an annual trading value of approximately U.S.$94.7 billion. The following table indicates figures for trading volume, trading value and market capitalization of the Australian Stock Exchange for the period from June 30, 1989 through June 30, 1994. The figures below are stated in Australian dollars. TOTAL TRADING VOLUME AND VALUE AND MARKET CAPITALIZATION: YEAR-ENDED JUNE 30, 1989-1994
TRADING VALUE MARKET CAPITALIZATION TRADING VOLUME ------------- --------------------- ---------------- (AU$MILLION) (AU$BILLION) (SHARES MILLION) 1989......................................... 26,629 49,499 208.9 1990......................................... 27,334 56,784 218.6 1991......................................... 23,597 54,540 228.1 1992......................................... 30,263 63,082 276.8 1993......................................... 39,321 72,690 413.9 1994......................................... 65,459 128,426 458.3
- --------------- Source: Australian Stock Exchange Annuals 1994, 1993 and 1992. New Zealand Stock Exchange. The New Zealand Stock Exchange's total trading volume increased by approximately 172%, from 1990 to 1994. As of December 31, 1994, the New Zealand Stock Exchange had over 200 listed companies, a market capitalization of approximately U.S.$31.5 billion and an annual trading value of approximately U.S.$8.9 billion. The following table indicates trading volume, trading value and market capitalization of the New Zealand Stock Exchange for the period from 1989 through 1994. The figures below are stated in New Zealand dollars. 37 40 TOTAL TRADING VOLUME AND VALUE AND MARKET CAPITALIZATION: 1989-1994
TRADING VALUE MARKET CAPITALIZATION YEAR ------------- --------------------- - --------------------------------------------- TRADING VOLUME (NZ$MILLION) (NZ$BILLION) ---------------- (SHARES MILLION) 1989......................................... 2,894.1 5,170.1 22.6 1990......................................... 2,158.2 3,493.9 15.0 1991......................................... 3,417.6 5,419.1 26.5 1992......................................... 3,696.6 6,122.6 29.8 1993......................................... 6,362.2 12,548.8 45.8 1994......................................... 5,862.7 12,062.1 42.4
- --------------- Source: New Zealand Stock Exchange, Sharemarket Review 1994. Market Returns. The stock markets of Australia and New Zealand had positive returns for 1993, which were relatively high compared to Japan (11.4%) and the United States (7.0%). However, as the chart below indicates, the stock markets of Australia and New Zealand have had divergent returns since the beginning of 1996, although New Zealand averaged impressive performance for the period 1992 to 1995. Despite New Zealand's slow start in 1996, the Investment Manager believes that both stock markets present attractive investment opportunities for investors because of Australia's and New Zealand's export-driven economies, which are likely to benefit from a recovering world economy and any corresponding increase in demand for their natural resources. AUSTRALIA AND NEW ZEALAND STOCK MARKET PERFORMANCES(1)
STOCK MARKET AVERAGE ANNUAL PERFORMANCES (%) STOCK MARKET STOCK MARKET JANUARY 1 TO PERFORMANCES (%) PERFORMANCES (%) FEBRUARY 29, COUNTRY 1992-1995 1995 1996 - ---------------------------------------- ----------------- --------------- --------------- Australia............................... 12.1 17.3 3.6 New Zealand............................. 19.4 19.9 (0.3)
- --------------- Note: (1) Performances are calculated based on local currencies. Source: MSCI Price Indices. Foreign Investment Regulations. The Australian Government's Foreign Investment Review Board ("FIRB") examines proposals by foreign interests for investment in Australian enterprises. Proposals by foreign investors to acquire substantial (15% or more) shareholdings in large Australian corporations (over AU$5 million in assets) must be notified to the FIRB, which will examine the proposals, and in some cases, may require prior approval of the FIRB. In general, transactions will not be prohibited unless the FIRB finds it contrary to the national interest. In addition, proposals in the media sector, regardless of size, must be notified to the FIRB. In New Zealand, an application must be made to New Zealand's Overseas Investment Commission ("NZOIC") for consent for any investment proposal in which a foreign investor is seeking the acquisition or control of 25% or greater of any class of shares or voting power in a New Zealand enterprise or the acquisition of assets in a New Zealand enterprise where the value of the investment exceeds NZ$10 million. Also, any foreign investment in the commercial fishing and rural sectors must be approved by the NZOIC. 38 41 INVESTMENT OBJECTIVE AND POLICIES The investment objective of the Fund is long-term capital appreciation. The Fund seeks to achieve this objective by investing primarily in equity securities of Asian-Pacific issuers. The Fund may also invest, from time to time in Sovereign Debt. Income is not a consideration in selecting investments or an investment objective. The Fund's investment objective is a fundamental policy which may not be changed without the approval of a majority of the Fund's outstanding voting securities. As used herein, a "majority of the Fund's outstanding voting securities" means the lesser of (i) 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are represented and (ii) more than 50% of the outstanding shares. There is no assurance the Fund will be able to achieve its investment objective. It is the Fund's policy, under normal market conditions, to invest substantially all, but not less than 65%, of its total assets in equity securities of Asian-Pacific issuers and in Sovereign Debt. For this purpose, "equity securities" means common and preferred stock (including convertible preferred stock), bonds, notes and debentures convertible into common or preferred stock, stock purchase warrants and rights, equity interests in trusts and partnerships and American, European, Global or other types of Depositary Receipts. The Fund's definition of Asian-Pacific issuers includes companies that may have characteristics and business relationships common to companies in other geographical regions. As a result, the value of the securities of such companies may reflect economic and market forces applicable to such other regions, as well as in Asian-Pacific Countries. The Fund believes, however, that investment in such companies will be appropriate because the Fund will invest only in those companies which, in its view, have sufficiently strong exposure to economic and market forces in Asian-Pacific Countries such that their value will tend to reflect developments in Asian-Pacific Countries to a greater extent than developments in other regions. The Fund invests in Sovereign Debt and equity securities of Asian-Pacific issuers as appropriate opportunities arise. Under normal circumstances, the Fund invests its assets in a number of different countries and across a variety of industries. The amount invested in any one Asian-Pacific Country varies depending on market conditions. The Fund is not limited in the percentage of its assets that may be invested in any single country and, from time to time, the Fund may have a significant portion, but less than 50%, of its assets invested in equity securities of issuers located in Japan. No more than 25% of the Fund's total assets may be invested in any single industry. See "Investment Restrictions." The Fund intends to purchase and hold securities for long-term capital appreciation and does not expect to trade for short-term gain. Accordingly, it is anticipated that the annual portfolio turnover rate normally will not exceed 50%, although in any particular year market conditions could result in portfolio activity at a greater or lesser rate than anticipated. The portfolio turnover rate for a year is calculated by dividing the lesser of sales or purchases of portfolio securities during that year by the average monthly value of the Fund's portfolio securities, excluding money market instruments. The rate of portfolio turnover will not be a limiting factor when the Fund deems it appropriate to purchase or sell securities for the Fund. However, the U.S. federal tax requirement that the Fund derive less than 30% of its gross income from the sale or disposition of securities held less than three months may limit the Fund's ability to dispose of its securities. See "Taxation -- U.S. Federal Income Taxes." TYPES OF INVESTMENTS The Fund invests primarily in equity securities of Asian-Pacific issuers traded both in the securities markets of Asian-Pacific Countries and in securities markets outside of Asian-Pacific Countries. Subject to obtaining any necessary local regulatory approvals and certain other restrictions, the Fund may invest through investment funds, pooled accounts or other investment vehicles designed to permit investment in a portfolio of stocks listed in a particular developing country or region. This could occur, for example, if a country requires foreign portfolio investment to be made through an investment vehicle. To the extent that the Fund's assets are not invested in equity securities of Asian-Pacific issuers or in Sovereign Debt, the remainder of the assets may be invested in (i) debt securities of Asian-Pacific issuers and (ii) debt securities of the type described below under "Temporary Investments." The Fund's assets may be 39 42 invested in debt securities when the Fund believes that, based upon factors such as relative interest rate levels and foreign exchange rates, such debt securities offer opportunities for long-term capital appreciation. It is likely that many of the debt securities in which the Fund will invest will be unrated. The Fund may invest up to 20% of its total assets in debt securities rated below investment grade by S&P or Moody's or, if unrated, are determined by the Fund's Investment Manager to be comparable to securities rated below investment grade by S&P or Moody's. Such lower-quality securities are regarded as being predominantly speculative and involve significant risks. The Fund expects its holdings of lower-quality debt securities will consist predominantly of Sovereign Debt, some of which may trade at substantial discounts from face value and which may include Sovereign Debt comparable to securities rated as low as D by S&P or C by Moody's. The Fund may invest in Sovereign Debt to hold and trade in appropriate circumstances. The Fund will only invest in Sovereign Debt when the Fund believes such investments offer opportunities for long-term capital appreciation. Investment in Sovereign Debt involves a high degree of risk and such securities are generally considered to be speculative in nature. For a discussion of the specific risks associated with investments in lower-quality securities, generally, and Sovereign Debt, specifically, see "Risk Factors and Special Considerations -- Investments in Lower-Quality Securities." The Fund may invest indirectly in securities of Asian-Pacific issuers through sponsored or unsponsored American Depository Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and other types of Depositary Receipts (which, together with ADRs, EDRs and GDRs, are hereinafter referred to as "Depositary Receipts"). Depositary Receipts may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. In addition, the issuers of the stock of unsponsored Depositary Receipts are not obligated to disclose material information in the United States and, therefore, there may not be a correlation between such information and the market value of the Depositary Receipts. ADRs are Depositary Receipts typically issued by a United States bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs, GDRs and other types of Depositary Receipts are typically issued by foreign banks or trust companies, although they also may be issued by United States banks or trust companies, and evidence ownership of underlying securities issued by either a foreign or a United States corporation. Generally, Depositary Receipts in registered form are designed for use in the United States securities markets and Depositary Receipts in bearer form are designed for use in securities markets outside the United States. For purposes of the Fund's investment policies, the Fund's investments in ADRs, EDRs, GDRs and other types of Depositary Receipts will be deemed to be investments in the underlying securities. The Fund may also invest through debt-equity conversion funds established to exchange foreign debt of countries whose principal repayments are in arrears into a portfolio of listed and unlisted equities, subject to certain repatriation restrictions. UNLISTED SECURITIES Securities in which the Fund may invest include those that are not listed on a stock exchange nor traded in a regulated over-the-counter market. As a result of the absence of a regulated public trading market for these securities, they may be less liquid than publicly traded securities or illiquid. Although these securities may be resold in privately negotiated transactions, the prices realized from these sales could be less than those originally paid by the Fund or less than what may be considered the fair value of such securities. Further, issuers whose securities are not publicly traded may not be subject to the disclosure and other investor protection requirements which may be applicable if their securities were publicly traded. If such securities are required to be registered under the securities laws of one or more jurisdictions before being resold, the Fund may be required to bear the expenses of registration. The Fund does not intend to invest more than 25% of its total assets in unlisted equity securities (some or all of which may be illiquid). 40 43 TEMPORARY INVESTMENTS During periods in which the Fund's Investment Manager believes changes in economic, financial or political conditions make it advisable, the Fund may for temporary defensive purposes reduce its holdings in equity and other securities and invest in certain debt securities or hold cash. The debt securities in which the Fund may invest consist of (a) obligations of the United States or Asian-Pacific Countries, their respective agencies or instrumentalities; (b) bank deposits and bank obligations (including certificates of deposit, time deposits and bankers' acceptances) of U.S. or Asian-Pacific banks denominated in any currency; (c) floating rate securities and other instruments denominated in any currency issued by international development agencies; (d) finance company and corporate commercial paper and other short-term corporate debt obligations of U.S. and Asian-Pacific corporations; and (e) repurchase agreements with banks and broker-dealers with respect to such securities. The Fund intends to invest for temporary defensive purposes only in debt securities that are rated A or better by S&P or Moody's or, if unrated, that the Fund's Investment Manager believes to be of comparable quality, i.e., subject to relatively low risk of loss of interest or principal. Repurchase agreements with respect to the securities described in the preceding paragraph are contracts under which a buyer of a security simultaneously commits to resell the security to the seller at an agreed upon price and date. Under a repurchase agreement, the seller is required to maintain the value of the securities subject to the repurchase agreement at not less than their repurchase price. The Fund's Investment Manager will monitor the value of such securities daily to determine that the value equals or exceeds the repurchase price including accrued interest. Repurchase agreements may involve risks in the event of default or insolvency of the seller, including possible delays or restrictions upon the Fund's ability to dispose of the underlying securities. FOREIGN CURRENCY HEDGING TRANSACTIONS; OPTIONS AND FUTURES CONTRACTS In order to hedge against foreign currency exchange rate risks, the Fund may enter into forward foreign currency exchange contracts and foreign currency futures contracts and may purchase and write (sell) put and call options on foreign currency and on foreign currency futures contracts. The Fund may also seek to hedge against interest rate fluctuations affecting portfolio securities by entering into interest rate futures contracts and options thereon. The Fund may seek to increase its return or hedge all or a portion of its portfolio investments through transactions in options on securities. In addition, the Fund may seek to hedge all or a portion of the investments held by it, or which it intends to acquire, against adverse market fluctuations by entering into stock index futures contracts and options thereon. Under the regulations of the U.S. Commodity Futures Trading Commission ("CFTC"), the Fund will not be considered a "commodity pool," as defined under such regulations, as a result of entering into the transactions in futures contracts and related options described above, provided, among other things, that: (1) such transactions are entered into solely for bona fide hedging purposes, as defined under CFTC regulations; or (2) with respect to any Fund transactions in future contracts or related options which are not entered into for bona fide hedging purposes, the aggregate initial margin and premiums does not exceed 5% of the Fund's total assets (after taking into account any unrealized profits and losses). The Fund only engages in transactions in options and futures which are traded on a recognized securities or futures exchange, including non-U.S. exchanges to the extent permitted by the CFTC. Moreover, when the Fund purchases a futures contract or a call option thereon or writes a put option thereon, an amount of cash or high quality, liquid securities will be deposited in a segregated account with the Fund's custodian so that the amount so segregated, plus the amount of initial and variation margin held in the account of its broker, equals the market value of the futures contract, thereby assuring that the use of such futures is unleveraged. 41 44 For a description of each of the instruments referred to above and an explanation of certain of the associated risks, limitations on use and possible strategies the Fund may utilize in connection therewith, see Appendix D. LENDING OF PORTFOLIO SECURITIES The Fund may from time to time lend securities (but not in excess of 33 1/3% of its total assets) from its portfolio to brokers, dealers and financial institutions and receive collateral in cash or securities believed by the Fund's investment manager to be equivalent to securities rated investment grade by S&P or Moody's which, while the loan is outstanding, will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities, including any accrued interest or dividend receivable. Any cash collateral received by the Fund will be invested in short-term securities, the income from which will increase the return to the Fund. The Fund will retain all rights of beneficial ownership as to the loaned portfolio securities, including voting rights and rights to interest or other distributions, and will have the right to regain record ownership of loaned securities to exercise such beneficial rights. Such loans will be terminable at any time. The Fund may pay finders', administrative and custodial fees to persons unaffiliated with the Fund in connection with the arranging of such loans. INVESTMENT RESTRICTIONS The following restrictions are fundamental policies of the Fund that may not be changed without the approval of the holders of a majority of the Fund's outstanding voting securities (as defined in "Investment Objective and Policies"). If a percentage restriction on investment or use of assets set forth below is adhered to at the time a transaction is effected, later changes will not be considered a violation of the restriction. Also, if the Fund receives from an issuer of securities held by the Fund subscription rights to purchase securities of that issuer, and if the Fund exercises such subscription rights at a time when the Fund's portfolio holdings of securities of that issuer would otherwise exceed the limits set forth below, it will not constitute a violation if, prior to receipt of securities upon exercise of such rights, and after announcement of such rights, the Fund has sold at least as many securities of the same class and value as it would receive on exercise of such rights. As a matter of fundamental policy: 1. The Fund will not invest more than 25% of its total assets in a particular industry (including for this purpose any securities issued by a government other than the U.S. government). 2. The Fund may not make any investment for the purpose of exercising control or management. 3. The Fund may not acquire more than 25% of any class of outstanding stock of any company. 4. The Fund may not buy or sell commodities or commodity contracts or real estate or interests in real estate, except that it may purchase and sell futures contracts on stock indices and foreign currencies, securities which are secured by real estate or commodities and securities of companies which invest or deal in real estate or commodities. 5. The Fund may not make loans, except that the Fund may (i) buy and hold debt instruments in accordance with its investment objective and policies, (ii) enter into repurchase agreements to the extent permitted under applicable law and (iii) make loans of portfolio securities. 6. The Fund may not act as an underwriter except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under applicable securities laws. 7. The Fund may not issue senior securities, borrow money or pledge its assets, except that the Fund may borrow from a lender (i) for temporary or emergency purposes, (ii) for such short-term credits necessary for the clearance or settlement of transactions, (iii) to finance repurchases of its shares (see "Common Stock") or (iv) to pay any dividends required to be distributed in order for the Fund to maintain its qualifications as a regulated investment company under the Code or otherwise to avoid taxation under the Code, in amounts not exceeding 10% (taken at the lower of cost or current value) of 42 45 its total assets (not including the amount borrowed), provided that the Fund will not purchase additional portfolio securities when its borrowings exceed 5% of its assets. The Fund may pledge its assets to secure such borrowings. 8. The Fund may not purchase securities on margin or engage in short sales of securities. 9. The Fund will invest less than 50% of its total assets in Japan. 10. The Fund will not invest more than 25% of its total assets in a particular company or issuer. As a matter of operating policy, which may be changed by the Fund's Board of Directors without stockholder vote, the Fund will not purchase or borrow securities from or sell or lend securities to interested persons, as defined under the 1940 Act, except as permitted under the 1940 Act. Unlike fundamental policies, operating policies of the Fund may be changed by the Directors of the Fund, without a vote of the Fund's stockholders, if the Directors determine such action is warranted. The Fund will notify its stockholders of any change in any of the operating policies set forth above. Such notice will also include a discussion of the increased risks of investment in the Fund, if any, associated with such a change. Under the 1940 Act, the Fund may invest only up to 10% of its total assets in the aggregate in securities of other investment companies and only up to 5% of its total assets in the securities of any one investment company, provided the investment does not represent more than 3% of the voting stock of the acquired investment company at the time such securities are purchased. As a stockholder in any investment company, the Fund will bear its ratable share of that investment company's expenses and would remain subject to payment of the Fund's management, advisory and administrative fees with respect to assets so invested. Stockholders of the Fund would therefore be subject to duplicative expenses to the extent the Fund invests in other investment companies. See also "Taxation -- U.S. Federal Income Taxes -- Passive Foreign Investment Companies." As a result of legal restrictions or market practices or both, the Fund, as a U.S. entity, may be precluded from purchasing shares in public offerings by certain Asian-Pacific issuers. Additionally, under the 1940 Act, the Fund may not purchase any security of which the Fund's Investment Manager or any of its affiliates is a principal underwriter during the public offering of such security. In addition to the foregoing restrictions, the Fund may be subject to investment limitations, portfolio diversification requirements and other restrictions imposed by certain Asian-Pacific Countries in which it invests. 43 46 MANAGEMENT OF THE FUND DIRECTORS AND OFFICERS OF THE FUND The Directors and officers of the Fund are listed below together with their respective positions and a brief statement of their principal occupations during the past five years and, in the case of Directors, their positions with certain international organizations and publicly held companies.
PRINCIPAL OCCUPATION DURING NAME AND ADDRESS POSITION WITH FUND PAST FIVE YEARS - --------------------------------- ---------------------- ------------------------------------- BARTON M. BIGGS (63)*............ Director and Chairman Chairman and Director of Morgan 1221 Avenue of the Americas of the Board Stanley Asset Management Inc. and New York, New York 10020 Morgan Stanley Asset Management Limited; Managing Director of Morgan Stanley & Co. Incorporated; Director of Morgan Stanley Group Inc.; Member of International Advisory Council of The Thailand Fund; Director and officer of various investment companies managed by Morgan Stanley Asset Management Inc.
WARREN J. OLSEN (39)*............ Director and President Principal of Morgan Stanley & Co. 1221 Avenue of the Americas Incorporated and Morgan Stanley Asset New York, New York 10020 Management Inc.; Director and officer of various investment companies managed by Morgan Stanley Asset Management Inc. PETER J. CHASE (63).............. Director Chairman and Chief Financial Officer, 1441 Paseo De Peralta High Mesa Technologies, LLC; Chairman Santa Fe, New Mexico 87501 of CGL, Inc.; Director of twelve investment companies managed by Morgan Stanley Asset Management, Inc.; Member of the Investment Advisory Council of The Thailand Fund. JOHN W. CROGHAN (65)............. Director Chairman of Lincoln Capital 200 South Wacker Drive Management Company; Director of St. Chicago, Illinois 60606 Paul Bancorp, Inc. and Lindsay Manufacturing Co.; Director of twelve investment companies managed by Morgan Stanley Asset Management Inc., Previously Director of Blockbuster Entertainment Corporation.
44 47
PRINCIPAL OCCUPATION DURING NAME AND ADDRESS POSITION WITH FUND PAST FIVE YEARS - --------------------------------- ---------------------- ------------------------------------- DAVID B. GILL (69)............... Director Director of twelve investment 3042 Cambridge Place, N.W. companies managed by Morgan Stanley Washington, D.C. 20007 Asset Management Inc.; Director of the Mauritius Fund Limited; Member of the International Advisory Committee of Banco Surinvest S.A.; Member of the International Advisory Council of The Thailand Fund; International Adviser to Crown Agents for Overseas Governments and Administrations; Member of the Capital Markets Committee of the Inter-American Investment Corporation; Member of the Advisory Council of Korea Development Investment Corporation; Chairman and Director of Norinvest Bank; Previously Director of Capital Markets Department of the International Finance Corporation; Trustee, Batterymarch Finance Management; Chairman and Director of Equity Fund of Latin America S.A. and Commonwealth Equity Fund Limited; Director of Global Securities, Inc; and Member of The International Advisory Council of Investment Management Company Chile S.A. GRAHAM E. JONES (63)............. Director Senior Vice President of BGK 23 Chestnut Street Properties; Trustee of nine funds Boston, Massachusetts 02108 managed by Weiss, Peck & Greer; Trustee of eleven funds managed by Morgan Grenfell Capital Management Incorporated; Director of twelve investment companies managed by Morgan Stanley Asset Management Inc.; Member of the International Advisory Council of The Thailand Fund; Previously Chief Financial Officer of Practice Management Systems, Inc. JOHN A. LEVIN (57)............... Director President of John A. Levin & Co., One Rockefeller Plaza Inc.; Director of thirteen investment New York, New York 10020 companies managed by Morgan Stanley Asset Management Inc. WILLIAM G. MORTON, JR. (59)...... Director Chairman and Chief Executive Officer 1 Boston Place of Boston Stock Exchange; Director of Boston, Massachusetts 02108 Tandy Corporation; Director of twelve investment companies managed by Morgan Stanley Asset Management Inc.
45 48
PRINCIPAL OCCUPATION DURING NAME AND ADDRESS POSITION WITH FUND PAST FIVE YEARS - --------------------------------- ---------------------- ------------------------------------- FREDERICK B. WHITTEMORE (65)*.... Director Advisory Director of Morgan Stanley & 1251 Avenue of the Americas Co. Incorporated; Chairman for the New York, New York 10020 United States National Committee for Pacific Economic Cooperation; Director and officer of various investment companies managed by Morgan Stanley Asset Management Inc.; Previously Managing Director of Morgan Stanley & Co. Incorporated. HAROLD J. SCHAAFF, JR. (35)*..... Vice President Principal of Morgan Stanley & Co. 1221 Avenue of the Americas Incorporated; General Counsel and New York, New York 10020 Secretary of Morgan Stanley Asset Management Inc.; Officer of various investment companies managed by Morgan Stanley Asset Management Inc. JAMES W. GRISHAM (54)*........... Vice President Principal of Morgan Stanley & Co. 1221 Avenue of the Americas Incorporated; Vice President of New York, New York 10020 Morgan Stanley Asset Management Inc.; Officer of various investment companies managed by Morgan Stanley Asset Management Inc. JOSEPH P. STADLER (41)*.......... Vice President Vice President of Morgan Stanley 1221 Avenue of the Americas Asset Management Inc.; Officer of New York, New York 10020 various investment companies managed by Morgan Stanley Asset Management Inc.; Previously with Price Waterhouse. VALERIE Y. LEWIS (40)*........... Secretary Associated with Morgan Stanley Asset 1221 Avenue of the Americas Management Inc.; Officer of various New York, New York 10020 investment companies managed by Morgan Stanley Asset Management Inc.; Previously with Citicorp. JAMES R. ROONEY (37)*............ Treasurer Assistant Vice President and Manager 73 Tremont Street of Fund Administration, Chase Global Boston, Massachusetts 02108 Funds Services Company; Officer of various investment companies managed by Morgan Stanley Asset Management Inc.; Previously Assistant Vice President and Manager of Fund Compliance and Control, Scudder Stevens & Clark Inc. and Audit Manager, Ernst & Young LLP.
46 49
PRINCIPAL OCCUPATION DURING NAME AND ADDRESS POSITION WITH FUND PAST FIVE YEARS - --------------------------------- ---------------------- ------------------------------------- JOANNA M. HAIGNEY (29)*.......... Assistant Treasurer Supervisor, Fund Administration, 73 Tremont Street Chase Global Funds Services Company; Boston, Massachusetts 02108 Officer of various investment companies managed by Morgan Stanley Asset Management Inc.; Previously Audit Supervisor, Coopers & Lybrand LLP.
- --------------- * Interested person of the Fund (as defined in the 1940 Act). Mr. Biggs is a director and officer and Messrs. Olsen, Grisham, Schaaff and Stadler and Ms. Lewis are officers of the Investment Manager. Mr. Whittemore is an Advisory Director of Morgan Stanley & Co. Incorporated, an affiliate of the Investment Manager and a registered broker-dealer, and he is the owner of a beneficial interest in the Investment Manager. Mr. Rooney and Ms. Haigney are employees of Chase Global Funds Services Company, an affiliate of Chase Manhattan Bank, N.A., the Fund's Administrator. The officers of the Fund, together with the Fund's Investment Manager, conduct and supervise the Fund's daily business operations. The Directors review and supervise the actions of the officers and the Fund's Investment Manager and decide general policy. The Fund pays to each of its Directors who is not an officer or employee of the Fund's Investment Manager or any of their affiliates, in addition to certain out-of-pocket expenses, an annual fee of $9,000 plus out-of-pocket expenses. Directors of the Fund, other than Directors who are affiliates of the Investment Manager, received for the period from August 2, 1994 to December 31, 1994 and for the year ended December 31, 1995 aggregate remuneration and reimbursement of expenses of $38,000 and $101,000, respectively. Each of the Directors who is not an "affiliated person" of the Investment Manager within the meaning of the 1940 Act may enter into a deferred fee arrangement (the "Fee Arrangement") with the Fund, pursuant to which such Director defers to a later date the receipt of his Director's fees. The deferred fees owned by the Fund are credited to a bookkeeping account maintained by the Fund on behalf of such Director and accrue income from and after the date of credit in an amount equal to the amount that would have been earned had such fees (and all income earned thereon) been invested and reinvested either (i) in shares of the Fund or (ii) at a rate equal to the prevailing rate applicable to 90-day U.S. Treasury Bills at the beginning of each calendar quarter for which this rate is in effect, whichever method is elected by a Director. Under a Fee Arrangement, deferred Directors' fees (including the return accrued thereon) will become payable in cash upon such Director's resignation from the Board of Directors in generally equal annual installments over a period of five years (unless the Fund has agreed to a longer or shorter payment period) beginning on the first day of the year following the year in which such Director's resignation occurred. In the event of a Director's death, remaining amounts payable to him under the Fee Arrangement will thereafter be payable to his designated beneficiary; in all other events, a Director's right to receive payments is nontransferable. Under the Fee Arrangement, the Board of Directors of the Fund, in its sold discretion, has reserved the right, at the request of a Director or otherwise, to accelerate or extend the payment of amounts in the deferred fee account at any time after the termination of a Director's service as a director. In addition, in the event of the liquidation, dissolution or winding up of the Fund or the distribution of all or substantially all of the Fund's assets and property to its shareholders (other than in connection with a reorganization or merger into another Fund advised by the Investment Manager), all unpaid amounts in the deferred fee account maintained by the Fund will be paid in a lump sum to Directors participating in the Fee Arrangements on the effective date thereof. Currently, Messrs. Croghan, Jones and Levin are the only Directors who have elected to enter into the Fee Arrangement with the Fund. Set forth below is a table showing the aggregate compensation paid by the Fund to each of its Directors, as well as the total compensation paid to each Director of the Fund by the Fund and by other investment 47 50 companies advised by the Investment Manager or its affiliates (collectively the "Fund Complex") for their services as directors of such investment companies for the fiscal year ended December 31, 1995.
TOTAL DEFERRED PENSION OR TOTAL COMPENSATION NUMBER OF RETIREMENT COMPENSATION FROM FUND FUNDS BENEFITS ACCRUED FROM FUND AND FUND IN FUND AGGREGATE DEFERRED AS PART AND FUND COMPLEX COMPLEX COMPENSATION COMPENSATION OF THE COMPLEX FOR FOR WHICH FROM FROM FUND'S PAID TO INDIVIDUALS DIRECTOR NAME OF DIRECTORS FUND FUND EXPENSES DIRECTORS DIRECTORS SERVES - ---------------------------------- ----------------- ------------ ---------------- ------------ ------------ --------- Barton M. Biggs(1)(2)............. $ 0 0 None $ 0 0 13 Warren J. Olsen(1)(2)............. 0 0 None 0 0 13 Peter J. Chase.................... 14,025 0 None 48,200 0 12 John W. Croghan................... 3,500 12,510 None 18,600 35,657 12 David B. Gill..................... 4,925 0 None 21,825 26,719 12 Graham E. Jones................... 2,675 1,831 None 32,188 21,723 12 John A. Levin..................... 2,675 0 None 20,000 21,796 13 William G. Morton, Jr. ........... 2,675 0 None 39,700 0 12 Frederick B. Whittemore(1)(2)..... 0 0 None 41,429 0 12 John D. Barrett II(3)............. 9,500 0 None 24,952 0 3 Andrew McNally IV(3).............. 10,744 0 None 31,605 0 4
- --------------- (1) Mr. Biggs is a director and officer of the Investment Manager, Mr. Olsen is an officer of the Investment Manager and Mr. Whittemore is a director of the Dealer Manager, and therefore are "interested persons" of the Fund within the meaning of the 1940 Act. As such, Messrs. Biggs and Olsen do not receive any compensation from the Fund or any other investment company in the Fund Complex for their services as a director of such investment companies. (2) As of the date hereof, Messrs. Biggs, Olsen and Whittemore, respectively, serve on 13, 13 and 12 boards of directors of investment companies in the Fund Complex. (3) Messrs. Barrett and McNally served as Directors of the Fund until the expiration of their terms on June 26, 1995. The Fund's Board of Directors has an audit committee that is responsible for reviewing financial and accounting matters. The members of the audit committee are Messrs. Levin, Morton and Croghan. The Board of Directors also has a valuation committee, the members of which are Messrs. Olsen and Croghan. The members of the audit committee will receive an additional $1,700 per year for serving on the committee. The officers and Directors of the Fund, in the aggregate, own less than 1% of the outstanding shares of Common Stock. To the knowledge of the Fund's management, based on a search of forms required to be filed with the Fund and the Commission by holders of more than five percent of the Fund's outstanding securities, the following person owned beneficially 5% or more of the Fund's outstanding shares at March 29, 1996:
AMOUNT AND NATURE OF PERCENT NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS - ----------------------------------------- ------------------------------------------------ -------- Morgan Stanley Group Inc.*............... 2,752,565 shares with shared dispositive power; 5.13% 1585 Broadway 2,173,552 shares with shared voting power New York, New York 10036
- --------------- * Information based upon a Schedule 13G filed with the Commission on February 18, 1996 by Morgan Stanley Group Inc. The Board of Directors is divided into three classes, each class having a term of three years. Each year the term of one class expires. The Fund's By-Laws provide that each Director holds office until (i) the expiration of his term and until his successor has been elected and qualified, (ii) his death, (iii) his resignation, (iv) December 31 of the year in which he reaches seventy-three years of age or (v) his removal as provided by statute or the Articles of Incorporation. See "Common Stock." The Articles of Incorporation of the Fund contain a provision permitted under the Maryland General Corporation Law (the "MGCL") which by its terms eliminates the personal liability of the Fund's Directors and officers to the Fund or its stockholders for monetary damages for breach of fiduciary duty as a director or 48 51 officer, subject to certain qualifications described below. The Articles of Incorporation and the By-Laws of the Fund provide that the Fund will indemnify directors, officers, employees or agents of the Fund to the fullest extent permitted by the MCGL. Under Maryland law, a corporation may indemnify any director or officer made a party to any proceeding by reason of service in that capacity unless it is established that (1) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (A) was committed in bad faith or (B) was the result of active and deliberate dishonesty; (2) the director or officer actually received an improper personal benefit in money, property or services; or (3) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. The Articles of Incorporation further provide that to the fullest extent permitted by the MGCL, and subject to the requirements of the 1940 Act, no Director or officer will be liable to the Fund or its stockholders for money damages. Under Maryland law, a corporation may restrict or limit the liability of directors or officers to the corporation or its stockholders for money damages, except to the extent that (1) it is proved that the person actually received an improper benefit or profit in money, property, or services or (2) a judgment or other final adjudication adverse to the person is entered in a proceeding based on a finding in the proceeding that the person's action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. Nothing in the Articles of Incorporation or the By-Laws of the Fund protects or indemnifies a Director, officer, employee or agent against any liability to which he would otherwise be subject by reason of acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or protects or indemnifies a Director or officer of the Fund against any liability to the Fund or its stockholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. INVESTMENT MANAGER The Fund employs Morgan Stanley Asset Management Inc. (the "Investment Manager"), a wholly owned subsidiary of Morgan Stanley Group Inc., pursuant to an Investment Advisory and Management Agreement, dated as of July 22, 1994 (the "Management Agreement"), to manage the investment and reinvestment of the assets of the Fund, subject to the supervision of the Fund's Directors. The Investment Manager's principal address is 1221 Avenue of the Americas, New York, New York 10020. The Investment Manager provides portfolio management and named fiduciary services to various closed-end and open-end investment companies taxable and nontaxable institutions, international organizations and individuals investing in United States and international equity and fixed income securities. At December 31, 1995, the Investment Manager had, together with its affiliated investment management companies, assets under management (including assets under fiduciary advisory control) totaling approximately $57.5 billion, of which approximately $6.4 billion was invested in emerging country markets. Additionally, in a transaction which closed on January 3, 1996, Morgan Stanley Group Inc. acquired Miller Anderson & Sherrerd, LLP, a U.S. registered investment adviser, which as of December 31, 1995, had assets under management (including assets under fiduciary advisory control) totaling approximately $35.0 billion. The Investment Manager is a registered investment adviser under the Advisers Act. The Investment Manager was one of the first non-Asian institutional investors to enter the non-Japan Asian capital markets, doing so in 1986, and manages several closed-end funds investing in Asia. The Investment Manager is under no restriction and remains free, at any time, to sponsor and advise new investment vehicles with investment restrictions similar or identical to those of the Fund. As an investment adviser, the Investment Manager emphasizes a global investment strategy and benefits from research coverage of a broad spectrum of equity investment opportunities worldwide. The Investment Manager draws upon the capabilities of its asset management specialists located in its various offices throughout the world. It also draws upon the research capabilities of Morgan Stanley Group Inc. and its other affiliates, as well as the research and investment ideas of other companies whose brokerage services the Investment Manager utilizes. In providing advisory services to the Fund, members of the Investment Manager's senior management, including Mr. Barton M. Biggs, establishes guidelines regarding the allocation of the Fund's investments 49 52 among various Asian-Pacific Countries and the strategy for those investments. The Investment Manager's senior management will meet regularly to review the equity markets and determine the Fund's asset mix. Barton M. Biggs is a Managing Director of Morgan Stanley & Co. Incorporated, is Chairman of the Investment Manager and is Director of Worldwide Research for Morgan Stanley. In his capacity as Director of Worldwide Research, he focuses upon asset allocation, international events and the relative attractiveness of the world's markets. He joined Morgan Stanley in 1973 as a General Partner and Managing Director. He is a member of Morgan Stanley's Management Committee and a member of the Board of Directors. Mr. Biggs formed Morgan Stanley's research department in 1973 and was Director of Research until 1979. In 1975, he founded Morgan Stanley Asset Management Inc. He has been named to the Institutional Investor All American Research Team ten times. He served three years as an officer in the United States Marine Corps, and graduated from Yale University and the New York University Graduate School of Business. Once allocation and strategic guidelines have been established for the Fund's investments by the Investment Manager's senior management, the Fund's portfolio is managed on a day-to-day basis by Ean Wah Chin and Kunihiko Sugio. Ms. Chin and Mr. Sugio have served as portfolio managers for the Fund since the commencement of the Fund's operations. Ms. Chin joined the Investment Manager's New York office as a Vice President in 1986 and is currently a Managing Director of the Investment Manager and heads the Singapore office. Ms. Chin is also the portfolio manager of Morgan Stanley Institutional Fund, Inc. -- Asian Equity Portfolio. Prior to joining the Investment Manager, Ms. Chin worked at the Monetary Authority of Singapore and Government of Singapore Investment Corporation. Ms. Chin was an ASEAN Scholar and received a Bachelor of Science degree from the University of Singapore. Mr. Sugio joined the Investment Manager's Tokyo office in December 1993 and is responsible for global dedicated Japanese equity portfolios, including Morgan Stanley Institutional Fund, Inc. -- Japanese Equity Portfolio. From September 1988 to November 1993, Mr. Sugio was a Director at Baring International Investment Management Japan, where he managed approximately $1.6 billion in assets. MANAGEMENT AGREEMENT Under the terms of the Management Agreement, the Investment Manager makes all investment decisions, prepares and makes available research and statistical data, and supervises the purchase and sale of securities on behalf of the Fund, including the selection of brokers and dealers to carry out the transactions, all in accordance with the Fund's investment objective and policies, under the direction and control of the Fund's Board of Directors. The Investment Manager is also responsible for maintaining records and furnishing or causing to be furnished all required records or other information of the Fund to the extent such records, reports and other information are not maintained or furnished by the Fund's administrators, custodians or other agents. The Investment Manager pays the salaries and expenses of the Fund's officers and employees, as well as the fees and expenses of the Fund's Directors, who are directors, officers or employees of the Investment Manager or any of its affiliates. However, the Fund bears travel expenses or an appropriate fraction thereof of officers and Directors of the Fund who are directors, officers or employees of the Investment Manager or its affiliates to the extent that such expenses relate to attendance at meetings of the Fund's Board of Directors or any committee thereof. The Fund pays all of its other expenses, including, among others, organization expenses (but not the overhead or employee costs of the Investment Manager); legal fees and expenses of counsel to the Fund; auditing and accounting expenses; taxes and governmental fees; listing fees; dues and expenses incurred in connection with membership in investment company organizations; fees and expenses of the Fund's custodians, subcustodians, transfer agents and registrars; fees and expenses with respect to administration, except as may be provided otherwise pursuant to administration agreements; expenses for portfolio pricing services by a pricing agent, if any; expenses of preparing share certificates and other expenses in connection with the issuance, offering and underwriting of shares issued by the Fund; expenses relating to investor and public relations; expenses of registering or qualifying securities of the Fund for public sale; freight, insurance and other charges in connection with the shipment of the Fund's portfolio securities; brokerage commissions and other costs of acquiring or disposing of any portfolio holding of the Fund; expenses of preparation and distribution of reports, notices and dividends to stockholders; expenses of the dividend reinvestment and cash 50 53 purchase plan (except for brokerage expenses paid by participants in such plan); costs of stationery; any litigation expenses; and costs of stockholders' and other meetings. For services under the Management Agreement, the Investment Manager receives a fee, computed weekly and payable monthly, at an annual rate of 1.00% of the Fund's average weekly net assets. The Fund's management and advisory fees are higher than advisory fees paid by most other U.S. investment companies, primarily because of the additional time and expense required of the Investment Manager in pursuing the Fund's objective of investing in securities of Asian-Pacific issuers and Sovereign Debt. This investment objective entails additional time and expense because available public information concerning securities of Asian-Pacific issuers is limited in comparison to that available for U.S. companies and accounting standards are more flexible. In addition, available research concerning Asian-Pacific issuers is not comparable to available research concerning U.S. companies. Pursuant to the Management Agreement, the Investment Manager received fees for its investment management services from the Fund in the amount of $3,092,000 for the period from August 2, 1994 to December 31, 1994 and $7,102,000 for the year ended December 31, 1995. Under the Management Agreement, the Investment Manager is permitted to provide investment advisory services to other clients, including clients who may invest in Asian-Pacific Country securities. Conversely, information furnished by others to the Investment Manager in the course of providing services to clients other than the Fund may be useful to the Investment Manager in providing services to the Fund. The Management Agreement became effective on July 22, 1994 and continues in effect until July 25, 1996 and from year to year thereafter provided such continuance is specifically approved at least annually by (i) a vote of a majority of those members of the Board of Directors who are not "interested persons" of the Investment Manager or the Fund, cast in person at a meeting called for the purpose of voting on such approval and (ii) by a majority vote of either the Fund's Board of Directors or the Fund's outstanding voting securities. The Management Agreement may be terminated at any time, without payment of penalty, by the Fund's Board of Directors, by vote of a majority of the Fund's outstanding voting securities or by the Investment Manager upon 60 days' written notice. The Management Agreement will automatically terminate in the event of its assignment, as defined under the 1940 Act. The Management Agreement provides that the Investment Manager will not be liable for any act or omission, error of judgment or mistake of law, or for any loss suffered by the Fund in connection with matters to which the Management Agreement relates, except for a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Investment Manager in the performance of its duties, or from reckless disregard by it of its obligations and duties under the Management Agreement. In addition, the Fund has agreed to indemnify the Investment Manager for any losses arising from any action or claims which may be brought against the Investment Manager in connection with the performance or nonperformance in good faith of its functions under the Management Agreement, except losses, costs and expenses resulting from willful misfeasance, bad faith or gross negligence in the performance of the Investment Manager's duties or from reckless disregard on the part of the Investment Manager of its obligations and duties under the Management Agreement. ADMINISTRATOR Under an Administration Agreement (the "Administration Agreement") between the Fund and The Chase Manhattan Bank, N.A. (the "Administrator"), the Administrator agreed that Chase Global Funds Services Company, an affiliate of the Administrator, will provide administrative services to the Fund. Such administrative services include maintenance of the Fund's books and records, calculations of net asset value, preparation and filing of reports with respect to certain of the Fund's U.S. reporting requirements, monitoring of custody arrangements with the Fund's custodians and other accounting and general administrative services. The Directors of the Fund supervise and monitor the administrative services provided by the Administrator. The Administrator, a New York state chartered bank and trust company, provides corporate management and administrative services to investment companies, and at February 29, 1996 had approximately $42 billion of investment company assets under administration and approximately $450 billion of investment company assets under custody. The Administrator's business address is 73 Tremont Street, Boston, Massachusetts 51 54 02108. Chase Global Funds Services Company's business address is 73 Tremont Street, Boston, Massachusetts 02108. Under the Administration Agreement, the Fund will pay to the Administrator an annual administration fee of $65,000 plus .09% of the average weekly net assets of the Fund, computed weekly and payable monthly. Pursuant to the Administration Agreement, the Administrator has received payments for administrative services for the Fund in the amount of $309,000 for the period from August 2, 1994 through December 31, 1994 and $715,000 for the year ended December 31, 1995. On August 28, 1995, The Chase Manhattan Corporation and Chemical Banking Corporation announced a definitive agreement to merge. The merger became effective on March 31, 1996 and does not affect the nature or the quality of the administrative services to the Fund. EXPENSES The Fund's annual operating expenses are higher than normal annual operating expenses of most closed-end investment companies of comparable size investing in the United States and reflect the specialized nature of the Fund, the extent of the advisory effort involved, and the costs of communication and other costs associated with investing in Asian-Pacific Countries rather than in the United States. For the period from August 2, 1994 to December 31, 1994 and the year ended December 31, 1995, the Fund's expenses (exclusive of amortization of organization expenses) were $4,057,000 and $9,718,000, respectively. Expenses of the Offer, estimated at $ , will be charged to capital. The Fund's expense ratio was 1.31% (annualized) and 1.36% (inclusive of amortization of organization expenses) of the Fund's net assets for the period from August 2, 1994 to December 31, 1994 and the year ended December 31, 1995, respectively. PORTFOLIO TRANSACTIONS AND BROKERAGE The Investment Manager places orders for securities to be purchased by the Fund. The primary objective of the Investment Manager in choosing brokers or dealers for the purchase and sale of securities for the Fund's portfolio is to obtain the most favorable net results taking into account such factors as price, commission, size of order, difficulty of execution and the degree of skill required of the broker-dealer. The capability and financial condition of the broker or dealer may also be criteria for the choice of that broker or dealer. The placing and execution of orders for the Fund also are subject to restrictions under U.S. securities laws, including certain prohibitions against trading among the Fund and its affiliates (including the Investment Manager or its affiliates). The Fund may utilize affiliates of the Investment Manager in connection with the purchase or sale of securities in accordance with rules or exemptive orders adopted by the Commission when the Investment Manager believes that the charge for the transaction does not exceed usual and customary levels. In addition, the Fund may purchase securities in a placement for which affiliates of the Investment Manager have acted as agent to or for issuers, consistent with applicable rules adopted by the Commission or regulatory authorization, if necessary. The Fund will not purchase securities from or sell securities to any affiliate of the Investment Manager acting as principal. The Investment Manager on behalf of the Fund may place brokerage transactions through brokers who provide it with investment research services, including market and statistical information and quotations for the Fund's portfolio valuation purposes. The terms "investment research" and "market and statistical information and quotations" include advice as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities and potential buyers or sellers of securities, as well as the furnishing of analyses and reports concerning issuers, industries, securities, economic factors and trends, and portfolio strategy, each and all as consistent with those services mentioned in Section 28(e) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Research provided to the Investment Manager in advising the Fund is in addition to and not in lieu of the services required to be performed by the Investment Manager itself, and the Investment Manager's fees is not reduced as a result of the receipt of such supplemental information. It is the opinion of the management of the Fund that such information is only supplementary to the Investment Manager's own research efforts, because 52 55 the information must still be analyzed, weighed and reviewed by the Investment Manager's staff. Such information may be useful to the Investment Manager in providing services to clients other than the Fund, and not all such information is necessarily used by the Investment Manager in connection with the Fund. Conversely, information provided to the Investment Manager by brokers and dealers through whom other clients of the Investment Manager effect securities transactions may prove useful to the Investment Manager in providing services to the Fund. The Fund's Board of Directors reviews at least annually the commissions allocated by the Investment Manager on behalf of the Fund to determine if such allocations were reasonable in relation to the benefits inuring to the Fund. Brokerage commissions paid or payable by the Fund for the period from August 2, 1994 to December 31, 1994 and for the fiscal year ended December 31, 1995 were $1,932,053 and $1,766,056, respectively, of which $184,817 and $150,516, respectively, were paid or are payable to affiliates. The percentage of the Funds aggregate brokerage commissions paid or payable to affiliates for the fiscal year ended December 31, 1995 was 8.52%. NET ASSET VALUE The Fund determines its net asset value no less frequently than the close of business on the last business day of each week and at such other times as the Board of Directors may determine, by dividing the value of the net assets of the Fund (the value of its assets less its liabilities, exclusive of capital stock and surplus) by the total number of shares of Common Stock outstanding. In valuing the Fund's assets, all listed equity securities for which market quotations are readily available, regardless of purchase price, are valued at the last sales price on the date of determination. Listed securities with no such sales price and unlisted equity securities are valued at the mean between the current bid and asked prices, if any, of two reputable brokers. Short-term investments having a maturity of 60 days or less are valued at cost with accrued interest or discount earned included in interest receivable. Other securities as to which market quotations are readily available are valued at their market values. All other securities and assets are taken at fair value as determined in good faith by the Board of Directors although the actual calculation may be done by others. In instances where price cannot be determined in accordance with the above procedures, or in instances in which the Board of Directors determines it is impractical or inappropriate to determine price in accordance with the above procedures, the price is at fair value as determined in good faith in such manner as the Board of Directors may prescribe. All assets and liabilities of the Fund not denominated in U.S. dollars are initially valued in the currency in which they are denominated and then will be translated into U.S. dollars at the prevailing foreign exchange rate on the date of valuation. The Fund's obligation to pay any local taxes, such as tax on remittances from an Asian-Pacific Country, will become a liability on the date the Fund recognizes income or marks-to-market its assets and will have the effect of reducing the Fund's net asset value. DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN The Fund intends to continue to distribute to stockholders, at least annually, substantially all of its investment company taxable income from dividends and interest earnings and any net realized capital gains. See "Taxation -- U.S. Federal Income Taxes." The Fund may elect annually to retain for reinvestment any net realized long-term capital gains. The Fund typically makes its distributions at the end of each fiscal year. However, the Fund anticipates its Board of Directors will declare an additional taxable dividend during the period between June and September 1996 in the amount of approximately $.33 per share assuming the exercise of all rights or approximately $.45 per share if the rights offering is not completed. Rights Holders acquiring Shares pursuant to the Offer will be eligible for such dividend, if declared, assuming that they hold the Shares on the record date for such dividend. Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"), each stockholder will be deemed to have elected, unless the Plan Agent (as defined below) is otherwise instructed by the stockholder in writing, to have all distributions automatically reinvested by American Stock Transfer & Trust Company (the "Plan Agent") in Fund shares pursuant to the Plan. Stockholders who do not participate in the Plan will receive all distributions in cash paid by check in U.S. dollars mailed directly to the stockholder by American 53 56 Stock Transfer & Trust Company, as paying agent. Stockholders who do not wish to have distributions automatically reinvested should notify the Fund, c/o the Plan Agent for Morgan Stanley Asia-Pacific Fund, Inc. at American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005. The Plan Agent serves as agent for the stockholders in administering the Plan. If the Directors of the Fund declare an income dividend or realized capital gains distribution payable either in the Fund's Common Stock or in cash, as stockholders may have elected, non-participants in the Plan will receive cash and participants in the Plan will receive Common Stock to be issued by the Fund or to be purchased in the open market by the Plan Agent. If the market price per share on the valuation date equals or exceeds the net asset value per share on that date, the Fund will issue new shares to participants at net asset value, unless the net asset value is less than 95% of the market price on the valuation date, in which case, at 95% of the market price. The valuation date will be the dividend or distribution payment date or, if that date is not a trading day on the exchange on which the Fund's Shares are then listed, the next preceding trading day. If the net asset value exceeds the market price of Fund shares on such valuation date, or if the Fund should declare a dividend or distribution payment only in cash, the Plan Agent will, as agent for the participants, buy Fund shares in the open market with the cash in respect of such dividend or distribution, for the participants' account on, or shortly after, the payment date. Participants in the Plan have the option of making additional payments to the Plan Agent, annually, in any amount from $100 to $3,000, for investment in the Fund's Common Stock. The Plan Agent will use all funds received from participants (as well as any dividends and distributions received in cash) to purchase Fund shares in the open market on or about January 15 of each year. No participant will have any authority to direct the time or price at which the Plan Agent may purchase the Common Stock on its behalf. Any voluntary cash payments received more than thirty days prior to such date will be returned by the Plan Agent, and interest will not be paid on any uninvested cash payments. To avoid unnecessary cash accumulations, and also to allow ample time for receipt and processing by the Plan Agent, it is suggested that participants send in voluntary cash payments to be received by the Plan Agent approximately ten days before January 15. A participant may withdraw a voluntary cash payment by written notice, if the notice is received by the Plan Agent not less than forty-eight hours before such payment is to be invested. All voluntary cash payments should be made by check drawn on a U.S. bank (or a non-U.S. bank, if U.S. currency is imprinted on the check) made payable in U.S. dollars and should be mailed to the Plan Agent for Morgan Stanley Asia-Pacific Fund, Inc. at American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005. The Plan Agent maintains all stockholder accounts in the Plan and will furnish written confirmations of all transactions in the account, including information needed by stockholders for personal and tax records. Shares in the account of each Plan participant will be held by the Plan Agent in non-certificated form in the name of the participant, and each stockholder's proxy will include those shares purchased pursuant to the Plan. In the case of stockholders, such as banks, brokers or nominees, which hold shares for others who are the beneficial owners, the Plan Agent administers the Plan on the basis of the number of shares certified from time to time by the stockholder as representing the total amount registered in the stockholder's name and held for the account of beneficial owners who are participating in the Plan. The Plan Agent's fees for the handling of the reinvestment of dividends and distributions are paid by the Fund. However, each participant's account is charged a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with the reinvestment of dividends or distributions. A participant also pays brokerage commissions incurred in purchases from voluntary cash payments made by the participant. Brokerage charges for purchasing small amounts of stock for individual accounts through the Plan are less than the usual brokerage charges for such transactions, because the Plan Agent is purchasing stock for all participants in blocks and prorating the lower commission thus attainable. The automatic reinvestment of dividends and distributions will not relieve participants of any income tax which may be payable on such dividends and distributions. See "Taxation -- U.S. Federal Income Taxes." Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund reserves the right to amend or terminate the Plan as applied to any voluntary cash payment made and any dividend or 54 57 distribution paid subsequent to notice of the change sent to all stockholders at least 90 days before the record date for such dividend or distribution. The Plan also may be amended or terminated by the Plan Agent by at least 90 days' written notice to all stockholders. All correspondence concerning the Plan should be directed to the Plan Agent for Morgan Stanley Asia-Pacific Fund, Inc. at American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005. TAXATION U.S. FEDERAL INCOME TAXES The Fund believes that it has, to date, qualified and intends to continue to qualify as a regulated investment company under the Code. To so qualify, the Fund must, among other things: (a) derive at least 90% of its gross income from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock or securities and gains from the sale or other disposition of foreign currencies, or other income (including gains from options, futures contracts and forward contracts) derived with respect to the Fund's business of investing in stocks, securities or currencies; (b) derive less than 30% of its gross income from the sale or other disposition of the following assets held for less than three months -- (i) stock and securities, (ii) options, futures and forward contracts (other than options, futures and forward contracts on foreign currencies), and (iii) foreign currencies (and options, futures and forward contracts on foreign currencies) which are not directly related to the Fund's principal business of investing in stocks and securities (or options and futures with respect to stock or securities); and (c) diversify its holdings so that, at the end of each quarter, (i) at least 50% of the value of the Fund's total assets is represented by cash and cash items, U.S. Government securities, securities of other regulated investment companies, and other securities, with such other securities limited in respect of any one issuer to an amount not greater in value than 5% of the Fund's total assets and to not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of the Fund's total assets is invested in the securities (other than U.S. Government securities or securities of other regulated investment companies) of any one issuer or of any two or more issuers that the Fund controls and that are determined to be engaged in the same business or similar or related businesses. The Fund expects that all of its foreign currency gains will be directly related to its principal business of investing in stock and securities. Legislation currently pending before the U.S. Congress would repeal the requirement that a regulated investment company must derive less than 30% of its gross income from the sale or other disposition of assets described in (b) above, that are held for less than three months. However it cannot be predicted whether this legislation will become law and, if so enacted, what form it will eventually take. As a regulated investment company, the Fund will not be subject to U.S. federal income tax on its investment company taxable income that it distributes to its stockholders, provided that at least 90% of its investment company taxable income for the taxable year is distributed to its stockholders; however, the Fund will be subject to tax on its income and gains, to the extent that it does not distribute to its stockholders an amount equal to such income and gains. See "Passive Foreign Investment Companies" below. Investment company taxable income includes dividends, interest and net short-term capital gains in excess of net long-term capital losses, but does not include net long-term capital gains in excess of net short-term capital losses. The Fund intends to continue to distribute annually to its stockholders substantially all of its investment company taxable income. If necessary, the Fund may borrow money temporarily or liquidate assets to make such distributions. Dividend distributions of investment company taxable income are taxable to a U.S. stockholder as ordinary income to the extent of the Fund's current and accumulated earnings and profits, whether paid in cash or in shares of Common Stock. Distributions in excess of the Fund's current and accumulated earnings and profits will first reduce the adjusted tax basis of a holder's stock and, to the extent such distributions exceed the positive adjusted tax basis of such stock, will constitute capital gains to such holder (assuming the stock is held as a capital asset). Since the Fund will not invest in the stock of domestic corporations, distributions to corporate stockholders of the Fund will not be entitled to the deduction for dividends received by corporations. If the Fund fails to satisfy the 90% distribution requirement or fails to 55 58 qualify as a regulated investment company in any taxable year, it will be subject to tax in such year on all of its taxable income, whether or not the Fund makes any distributions to its stockholders. As a regulated investment company, the Fund also will not be subject to U.S. federal income tax on its net long-term capital gains in excess of net short-term capital losses and capital loss carryovers from the prior eight years, if any, that it distributes to its stockholders. If the Fund retains for reinvestment or otherwise an amount of such net long-term capital gains, it will be subject to a tax of up to 35% of the amount retained. The Board of Directors of the Fund determines at least once a year whether to distribute any net long-term capital gains in excess of net short-term capital losses and capital loss carryovers from prior years. The Fund expects to designate amounts retained as undistributed capital gains in a notice to its stockholders who are stockholders of record as of the close of a taxable year of the Fund who, if subject to U.S. federal income taxation, (a) will be required to include in income for U.S. federal income tax purposes, as long-term capital gains, their proportionate shares of the undistributed amount, and (b) will be entitled to credit against their U.S. federal income tax liabilities their proportionate shares of the tax paid by the Fund on the undistributed amount and to claim refunds to the extent that their credits exceed their liabilities. For U.S. federal income tax purposes, the basis of shares owned by a stockholder of the Fund will be increased by an amount equal to 65% of the amount of undistributed capital gains included in the stockholder's income. Distributions of net long-term capital gains, if any, by the Fund are taxable to its stockholders as long-term capital gains whether paid in cash or in shares and regardless of how long the stockholder has held the Fund's shares. Such distributions of net long-term capital gains are not eligible for the dividends received deduction. Under the Code, net long-term capital gains will be taxed at a rate no greater than 28% for individuals and 35% for corporations. Stockholders will be notified annually as to the U.S. federal income tax status of their dividends and distributions. Stockholders receiving dividends or distributions in the form of additional shares pursuant to the Plan should be treated for U.S. federal income tax purposes as receiving a distribution in an amount equal to the amount of money that the stockholders receiving cash dividends or distributions will receive, and should have a cost basis in the shares of Common Stock equal to such amount. If the net asset value of shares is reduced below a stockholder's cost as a result of a distribution by the Fund, the distribution will be taxable even if it, in effect, represents a return of invested capital. Investors considering buying shares just prior to a dividend or capital gain distribution payment date should be aware that, although the price of shares purchased at that time may reflect the amount of the forthcoming distribution, those who purchase just prior to the record date for a distribution will receive a distribution which will be taxable to them. The amount of capital gains realized and distributed (which from an investment standpoint may represent a partial return of capital rather than income) in any given year will be the result of investment performance, among other things, and can be expected to vary from year to year. If the Fund is the holder of record of any stock on the record date for any dividends payable with respect to such stock, such dividends are included in the Fund's gross income not as of the date received but as of the later of (a) the date such stock became ex-dividend with respect to such dividends (i.e., the date on which a buyer of the stock would not be entitled to receive the declared, but unpaid, dividends) or (b) the date the Fund acquired such stock, either of which dates may be earlier than the date the dividend is received. Accordingly, in order to satisfy its income distribution requirements, the Fund may be required to pay dividends based on anticipated income, and stockholders may receive dividends in an earlier year than would otherwise be the case. Under the Code, the Fund may be subject to a 4% excise tax on a portion of its undistributed income. To avoid the tax, the Fund must distribute annually at least 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year and at least 98% of its capital gain net income for the 12-month period ending, as a general rule, on October 31 of the calendar year. For this purpose, any income or gain retained by the Fund that is subject to corporate income tax will be treated as having been distributed at year-end. In addition, the minimum amounts that must be distributed in any year to avoid the excise tax will be increased or decreased to reflect any under-distribution or over-distribution, as the case may be, in the previous year. For a distribution to qualify under the foregoing test, the distribution generally must be declared 56 59 and paid during the year. Any dividend declared by the Fund in October, November or December of any year and payable to stockholders of record on a specified date in such a month shall be deemed to have been received by each stockholder on December 31 of such year and to have been paid by the Fund not later than December 31 of such year, provided that such dividend is actually paid by the Fund during January of the following year. Accordingly, such distributions will be taxable to shareholders in the year the distributions are declared and become payable, rather than the year in which the distributions are received by the shareholders. The Fund maintains accounts and calculates income by reference to the U.S. dollar for U.S. federal income tax purposes. Certain investments are maintained and income therefrom is calculated by reference to non-U.S. currencies, and such calculations will not necessarily correspond to the Fund's distributable income and capital gains for U.S. federal income tax purposes as a result of fluctuations in currency exchange rates. Furthermore, exchange control regulations may restrict the ability of the Fund to repatriate investment income or the proceeds of sales of securities. These restrictions and limitations may limit the Fund's ability to make sufficient distributions to satisfy the 90% distribution requirement and avoid the 4% excise tax. The Fund's transactions in foreign currencies, forward contracts, options and futures contracts (including options and futures contracts on foreign currencies) are subject to special provisions of the Code that, among other things, may affect the character of gains and losses realized by the Fund (i.e., may affect whether gains or losses are ordinary or capital), accelerate recognition of income to the Fund, defer Fund losses, and affect the determination of whether capital gains and losses are characterized as long-term or short-term capital gains or losses. These rules could therefore affect the character, amount and timing of distributions to stockholders. These provisions also may require the Fund to mark-to-market certain types of the positions in its portfolio (i.e., treat them as if they were sold for fair market value at the close of the taxable year) which may cause the Fund to recognize income without receiving cash with which to make distributions in amounts necessary to satisfy the 90% and 98% distribution requirements for avoiding income and excise taxes. The Fund monitors its transactions, makes the appropriate tax elections, and makes the appropriate entries in its books and records when it acquires any foreign currency, option, futures contract, forward contract, or hedged investment to mitigate the effect of these rules and prevent disqualification of the Fund as a regulated investment company and minimize the imposition of income and excise taxes. The Fund may make investments that accrue income that is not matched by a current receipt of cash by the Fund, such as investments in certain obligations having original issue discount (i.e., an amount equal to the excess of the stated redemption price of the security at maturity over its issue price), or market discount (i.e., an amount equal to the excess of the stated redemption price of the security at maturity over its basis immediately after it was acquired) if the Fund elects to accrue market discount on a current basis on debt instruments, including Sovereign Debt. In addition, income may continue to accrue for federal income tax purposes with respect to a non-performing investment. Any of the foregoing income would be treated as income earned by the Fund and therefore would be subject to the distribution requirements of the Code. Because such income may not be matched by a concurrent receipt of cash to the Fund, the Fund may be required to borrow money temporarily or liquidate other securities to be able to make distributions to its investors. The extent to which the Fund may liquidate securities at a gain may be limited by the 30% limitation discussed above. For backup withholding purposes, the Fund may be required to withhold 31% of reportable payments (which may include dividends and capital gain distributions) to certain noncorporate stockholders. A stockholder, however, may avoid becoming subject to this requirement by filing an appropriate form certifying under penalty of perjury that such stockholder's taxpayer identification number is correct and that such stockholder is not subject to backup withholding, or is exempt from backup withholding. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from payments made to a stockholder may be credited against such shareholder's federal income tax liability. Upon the sale or exchange of its shares, a stockholder will realize a taxable gain or loss depending upon the amount realized and the stockholder's basis in the shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the stockholder's hands, and will be long-term if the stockholder's holding period for the shares is more than 12 months and otherwise will be short-term. Any loss realized on a 57 60 sale or exchange will be disallowed to the extent that the shares disposed of are replaced (including replacement through the reinvestment of dividends and capital gains distributions in the Fund) within a period of 61 days beginning 30 days before and ending 30 days after the disposition of the shares. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a stockholder on the sale of Fund shares held by the stockholder for six months or less will be treated for federal income tax purposes as a long-term capital loss to the extent of any distributions of long-term capital gains received by the stockholder with respect to such shares. A repurchase by the Fund of shares generally will be treated as a sale of the shares by a stockholder provided that after the repurchase the stockholder does not own, either directly or by attribution under Section 318 of the Code, any shares. If, after a repurchase, a stockholder continues to own, directly or by attribution, any shares, and has not experienced a meaningful reduction in its proportionate interest in the Fund, it is possible that any amounts received in the repurchase by such stockholder will be taxable as a dividend to such stockholder. If, in addition, the Fund has made such repurchases as part of a series of redemptions, there is a risk that stockholders who do not have any of their shares repurchased would be treated as having received a dividend distribution as a result of their proportionate increase in the ownership of the Fund. Passive Foreign Investment Companies If the Fund purchases stock in certain foreign passive investment entities described in the Code as passive foreign investment companies ("PFICs"), the Fund will be subject to U.S. federal income tax on a portion of any "excess distribution" with respect to the stock of a PFIC held by the Fund (distributions received by the Fund on such stock in any year that exceeds 125% of the average annual distribution received by the Fund in the three preceding years or the Fund's holding period, if shorter, and any gain from the disposition of such PFIC stock) even if such income is distributed as a taxable dividend by the Fund to its stockholders. Additional charges in the nature of interest may be imposed on the Fund in respect of deferred taxes arising from such "excess distributions." If the Fund were to invest in a PFIC and elect to treat the PFIC as a "qualified electing fund" under the Code (and if the PFIC were to comply with certain reporting requirements), in lieu of the foregoing requirements the Fund would be required to include in income each year its pro rata share of the PFIC's ordinary earnings and net realized capital gains, whether or not such amounts were actually distributed to the Fund. Legislation pending in the U.S. Congress would, in the case of a PFIC having "marketable stock," permit U.S. stockholders, such as the Fund, to elect to mark-to-market the PFIC stock annually. Otherwise, U.S. stockholders would be treated substantially the same as under current law. Special rules applicable to mutual funds would classify as "marketable stock" all stock in PFICs held by the Fund. It is unclear if or when the proposed legislation will become law and if it is enacted the form it will take. On March 31, 1992, the U.S. Internal Revenue Service released proposed regulations providing a mark-to-market election for regulated investment companies that would have effects similar to the proposed legislation. These regulations would be effective for taxable years ending after promulgation of the regulations as final regulations. The IRS subsequently issued a notice indicating that final regulations will provide that regulated investment companies may elect the mark-to-market election for tax years ending after March 31, 1992 and before April 1, 1993. Whether, and to what extent, the notice will apply to taxable years of the Fund is unclear. Foreign Tax Credits Income and gains received by the Fund from sources outside the United States may be subject to withholding and other taxes imposed by foreign countries. If the Fund qualifies as a regulated investment company, if certain distribution requirements are satisfied and if more than 50% of the value of the Fund's total assets at the close of any taxable year consists of stocks or securities of foreign corporations, which for this purpose should include obligations issued by foreign government issuers, which is expected to be the case, the Fund may elect, for U.S. federal income tax purposes, to treat any foreign country's income or withholding taxes paid by the Fund that can be treated as income taxes under U.S. federal income tax principles, as paid by its stockholders. The Fund expects to make this election in any year that it qualifies to do so. As a 58 61 consequence, each stockholder will be required to include in its income an amount equal to its allocable share of taxes paid by the Fund to a foreign country's government and the stockholders will be entitled, subject to certain limitations, to credit their portions of these amounts against their U.S. federal income tax due, if any, or to deduct their portions from their U.S. taxable income, if any. In general, a stockholder may elect each year whether to claim a deduction or a credit for such foreign taxes paid. However, no deductions for foreign taxes may be claimed by certain foreign stockholders, and by non-corporate stockholders who do not itemize deductions. Stockholders that are exempt from tax under Section 501(a) of the Code, such as pension plans, generally will derive no benefit from the Fund's election. However, such stockholders should not be disadvantaged either because the amount of additional income they are deemed to receive equal to their allocable share of such foreign countries' income taxes paid by the Fund generally will not be subject to U.S. federal income tax. The amount of foreign taxes that may be credited against a stockholder's U.S. federal income tax liability will generally be limited, however, to an amount equal to the stockholder's U.S. federal income tax rate multiplied by its foreign source taxable income. For this purpose, the Fund generally expects that the capital gains it distributes, whether as dividends or capital gains distributions, will not be treated as foreign source taxable income. In addition, this limitation must be applied separately to certain categories of foreign source income, one of which is foreign source passive income. For this purpose, foreign source passive income includes dividends, interest, capital gains and certain foreign currency gains. As a consequence, certain stockholders may not be able to claim a foreign tax credit for the full amount of their proportionate share of foreign taxes paid by the Fund, although taxes that cannot be claimed in the year they are paid as a result of this limitation may be carried back or carried forward. Each stockholder will be notified within 60 days after the close of the Fund's taxable year whether, pursuant to the election described above, the foreign taxes paid by the Fund will be treated as paid by its stockholders for that year and, if so, such notification will designate (i) such stockholder's portion of the foreign taxes paid to such country and (ii) the portion of the Fund's dividends and distributions that represents income derived from sources within such country. Foreign Stockholders Taxation of a stockholder who, as to the United States, is a foreign investor depends, in part, on whether the stockholder's income from the Fund is "effectively connected" with a United States trade or business carried on by the stockholder. If a foreign investor is not a resident alien and the income from the Fund is not effectively connected with a United States trade or business carried on by the foreign investor, distributions of net investment income and net realized short-term capital gains will be subject to a 30% (or lower treaty rate) United States withholding tax. Furthermore, such foreign investors may be subject to an increased United States tax on their income resulting from the Fund's election (described above) to "pass-through" amounts of foreign taxes paid by the Fund, but will not be able to claim a credit or deduction in the United States with respect to the foreign taxes treated as having been paid by them. Distributions of net realized long-term capital gains, amounts retained by the Fund which are designated as undistributed capital gains, and gains realized upon the sale of shares of the Fund will not be subject to United States tax unless a foreign investor who is a nonresident alien individual is physically present in the United States for more than 182 days during the taxable year and, in the case of gain realized upon the sale of Fund shares, unless (i) such gain is attributable to an office or fixed place of business in the United States or (ii) such nonresident alien individual has a tax home in the United States and such gain is not attributable to an office or fixed place of business located outside the United States. However, a determination by the Fund not to distribute long-term capital gains may reduce a foreign investor's overall return from an investment in the Fund, since the Fund will incur a U.S. federal tax liability with respect to retained long-term capital gains, thereby reducing the amount of cash held by the Fund that is available for distribution, and the foreign investor may not be able to claim a credit or deduction with respect to such taxes. However, if the fund designates the retained amounts as undistributed capital gains, as discussed above, foreign stockholders who are not subject to U.S. federal income tax on net capital gains can obtain a refund of their proportionate shares of the taxes paid by the Fund by filing a U.S. federal income tax return. In the case of a foreign investor who is a nonresident alien individual, the Fund may be required to withhold U.S. federal 59 62 income tax at a rate of 31%, unless the foreign investor files an appropriate form certifying under penalty of perjury as to his nonresident alien status. If a foreign investor is a resident alien or if dividends or distributions from the Fund are effectively connected with a United States trade or business carried on by the foreign investor, dividends of net investment income, distributions of net short-term and long-term capital gains, amounts retained by the Fund that are designated as undistributed capital gains and any gains realized upon the sale of shares of the Fund will be subject to United States income tax at the rates applicable to United States citizens or domestic corporations. If the income from the Fund is effectively connected with a United States trade or business carried on by a foreign investor that is a corporation, then such foreign investor also may be subject to the 30% branch profits tax. The tax consequences to a foreign stockholder entitled to claim the benefits of an applicable tax treaty may be different from those described in this section. Stockholders may be required to provide appropriate documentation to establish their entitlement to the benefits of such a treaty. Foreign investors are advised to consult their own tax advisers with respect to (a) whether their income from the Fund is effectively connected with a United States trade or business carried on by them, (b) whether they may claim the benefits of an applicable tax treaty and (c) any other tax consequences to them resulting from an investment in the Fund. Notices Stockholders are notified annually by the Fund as to the United States federal income tax status of the dividends, distributions and deemed distributions made by the Fund to its stockholders. Furthermore, stockholders are sent, if appropriate, various written notices after the close of the Fund's taxable year as to the U.S. federal income tax status of certain dividends, distributions and deemed distributions that were paid (or that were treated as having been paid) by the Fund to its stockholders during the preceding taxable year. OTHER TAXATION Dividends, distributions and deemed distributions also may be subject to additional state, local and foreign taxes depending on each stockholder's particular position. Investors should consult with their tax advisers concerning the state, local and foreign tax consequences, if any, resulting from an investment in the Fund. THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS A SUMMARY INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY. IN VIEW OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH STOCKHOLDER IS ADVISED TO CONSULT HIS OWN TAX ADVISER WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO HIM OF PARTICIPATION IN THE FUND, INCLUDING THE EFFECT AND APPLICABILITY OF STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS. COMMON STOCK The authorized capital stock of the Fund is 200,000,000 shares of Common Stock, $0.01 par value. Shares of the Fund, when issued, will be fully paid and nonassessable and will have no conversion, preemptive or other subscription rights. Holders of Common Stock are entitled to one vote per share on all matters to be voted upon by stockholders and are not able to cumulate their votes in the election of Directors. Thus, holders of more than 50% of the shares voting for the election of Directors have the power to elect 100% of the Directors. All shares are equal as to assets, earnings and the receipt of dividends and distributions, if any, as may be declared by the Board of Directors out of funds available therefor. In the event of liquidation, dissolution or winding up of the Fund, each share of Common Stock is entitled to receive its proportion of the Fund's assets remaining after payment of all debts and expenses and any preferential liquidating distributions to holders of any preferred stock issued by the Fund. The Fund's Board of Directors has the authority to classify and reclassify any authorized but unissued shares of capital stock and to establish the rights and preferences of such unclassified shares. The Fund commenced operations on August 2, 1994 following the issuance of 7,093 shares of Common Stock to the Investment Manager on July 14, 1994, for $100,000 and the initial public offering on July 25, 60 63 1994 of 53,500,000 shares to the public resulting in aggregate net proceeds to the Fund of approximately $754,350,000. Since commencement of operations through March 8, 1996, the Fund has also issued 147,415 shares pursuant to its Dividend Reinvestment and Cash Purchase Plan. At March 29, 1996, the Fund had 53,654,508 shares of Common Stock outstanding, which are listed and traded on the NYSE under the symbol "APF" and on the Osaka Exchange under the symbol "8682." As of March 29, 1996, the net assets of the Fund were $808,283,815. Following the expiration of the Offer, depending upon market conditions, the Fund may offer additional shares of Common Stock in a secondary offering at prices not less than the net asset value of the Fund's shares at the time of such offer. In addition, additional shares may be issued under the Plan. Other offerings of the Fund's shares will require approval of the Fund's Board of Directors and may require shareholder approval. Any such additional offerings would also be subject to the requirements of the 1940 Act, including the requirement that shares may not be sold at a price below the then current net asset value (exclusive of underwriting discounts and commissions) except in connection with an offering to existing shareholders or with the consent of a majority of the Fund's shares. The Fund is a closed-end investment company, and as such its stockholders do not have the right to cause the Fund to redeem their shares of Common Stock. The Fund, however, may repurchase shares of Common Stock from time to time in the open market or in private transactions when it can do so at prices at or below the current net asset value per share on terms that represent a favorable investment opportunity. Subject to its investment limitations, the Fund may borrow to finance the repurchase of shares. However, the payment of interest on such borrowings will increase the Fund's expenses and consequently reduce net income. In addition, the Fund is required under the 1940 Act to maintain "asset coverage" of not less than 300% of its "senior securities representing indebtedness" as such terms are defined in the 1940 Act. The Fund's shares of Common Stock trade in the open market at a price which is a function of several factors, including their net asset value and yield. The shares of closed-end investment companies frequently sell at a discount from, but sometimes at or at a premium over, their net asset values. See "Risk Factors and Special Considerations." There can be no assurance that it will be possible for investors to resell shares of the Fund at or above the price at which shares are offered by this Prospectus or that the market price of the Fund's shares will equal or exceed net asset value. The Fund may from time to time repurchase its shares at prices below their net asset value or make a tender offer for its shares. While this may have the effect of increasing the net asset value of those shares that remain outstanding, the effect of such repurchases on the market price of the remaining shares cannot be predicted. Any offer by the Fund to repurchase shares will be made at a price based upon the net asset value of the shares at the close of business on or within 14 days after the last date of the offer. Each offer will be made and stockholders notified in accordance with the requirements of the 1934 Act and the 1940 Act, either by publication or mailing or both. Each offering document will contain such information as is prescribed by such laws and the rules and regulations promulgated thereunder. When a repurchase offer is authorized by the Fund's Board of Directors, a stockholder wishing to accept the offer may be required to offer to sell all (but not less than all) of the shares owned by such stockholder (or attributed to him for federal income tax purposes under Section 318 of the Code). The Fund will purchase all shares tendered in accordance with the terms of the offer unless it determines to accept none of them (based upon one of the conditions set forth below). Persons tendering shares may be required to pay a service charge to help defray certain costs of the transfer agent. Any such service charges will not be deducted from the consideration paid for the tendered shares. During the period of a repurchase offer, the Fund's stockholders will be able to determine the Fund's current net asset value (which will be calculated weekly) by use of a toll free telephone number. In the event that the Fund would have to liquidate certain investments to finance such repurchases of shares, and the portfolio securities to be liquidated have been held less than three months, such sales may jeopardize the Fund's status as a regulated investment company under the Code because of the limitation imposed thereunder that not more than 30% of the Fund's gross income may be derived from the sale of securities held for less than three months. The Fund's Articles of Incorporation and By-Laws include provisions that could limit the ability of others to acquire control of the Fund, to modify the structure of the 61 64 Fund or to cause it to engage in certain transactions. These provisions, described below, also could have the effect of depriving stockholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of the Fund in a tender offer or similar transaction. In the opinion of the Fund, however, these provisions offer several possible advantages. They potentially require persons seeking control of the Fund to negotiate with its management regarding the price to be paid for the shares required to obtain such control, they promote continuity and stability and they enhance the Fund's ability to pursue long-term strategies that are consistent with its investment objective. The Fund's Articles of Incorporation provide that the Fund's Board of Directors have the sole power to adopt, alter or repeal the Fund's By-Laws. The Directors are divided into three classes, each having a term of three years, with the term of one class expiring each year. In addition, a Director may be removed from office only with cause and only by a majority of the Fund's stockholders, and the affirmative vote of 75% or more of the Fund's outstanding shares is required to amend, alter or repeal the provisions in the Fund's Articles of Incorporation relating to amendments to the Fund's By-Laws and to removal of Directors. See "Management of the Fund -- Directors and Officers of the Fund." These provisions could delay the replacement of a majority of the Directors and have the effect of making changes in the Board of Directors more difficult than if such provisions were not in place. The affirmative vote of the holders of 75% or more of the outstanding shares is required to (1) convert the Fund from a closed-end to an open-end investment company, (2) merge or consolidate with any other entity or enter into a share exchange transaction in which the Fund is not the successor corporation, (3) dissolve or liquidate the Fund, (4) sell all or substantially all of its assets, (5) cease to be an investment company registered under the 1940 Act or (6) issue to any person securities in exchange for property worth $1,000,000 or more, exclusive of sales of securities in connection with a public offering, issuance of securities pursuant to a dividend reinvestment plan or other stock dividend or issuance of securities upon the exercise of any stock subscription rights. However, if such action has been approved or authorized by the affirmative vote of at least 70% of the entire Board of Directors, the affirmative vote of only a majority of the outstanding shares entitled to vote thereon would be required for approval, except in the case of the issuance of securities, in which no stockholder vote would be required unless otherwise required by applicable law. The affirmative vote of the holders of 75% or more of the outstanding shares entitled to vote thereon is required to amend, alter or repeal the foregoing provisions of the Fund's Articles of Incorporation. The principal purpose of the above provisions is to increase the Fund's ability to resist takeover attempts and attempts to change the fundamental nature of the business of the Fund that are not supported by either the Board of Directors or a large majority of the stockholders. These provisions make it more difficult to liquidate, takeover or open-end the Fund and thereby are intended to discourage investors from purchasing its shares with the hope of making a quick profit by forcing the Fund to change its structure. These provisions, however, would apply to all actions proposed by anyone, including management, and would make changes in the Fund's structure accomplished through a transaction covered by the provisions more difficult to achieve. The foregoing provisions also could impede or prevent transactions in which holders of shares of Common Stock might obtain prices for their shares in excess of the current market prices at which the Fund's shares were then trading. Although these provisions could have the effect of depriving stockholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund, the Fund believes the conversion of the Fund from a closed-end to an open-end investment company to eliminate the discount may not be desired by stockholders, who purchased their Common Stock in preference to stock of the many mutual funds available. The Fund holds annual meetings of its stockholders as required by the rules of the New York Stock Exchange. Under Maryland law and the Fund's By-Laws, the Fund will call a special meeting of its stockholders upon the written request of stockholders entitled to cast at least 25% of all the votes at such meeting. Such request for such a special meeting must state the purpose of the meeting and the matters proposed to be acted on at it. The secretary of the Fund is required to (i) inform the stockholders who make the request of the reasonably estimated cost of preparing and mailing a notice of the meeting and (ii) on payment of these costs to the Fund, notify each stockholder entitled to notice of the meeting. Notwithstanding the above, under Maryland law and the Fund's By-Laws, unless requested by stockholders entitled to cast a 62 65 majority of all the votes entitled to be cast at the meeting, a special meeting need not be called to consider any matter which is substantially the same as a matter voted on at any special meeting of the stockholders held during the preceding 12 months. DISTRIBUTION ARRANGEMENTS Morgan Stanley & Co. Incorporated will act as Dealer Manager for the Offer. The Dealer Manager's principal address is 1585 Broadway, New York, New York 10036. Under the terms and subject to the conditions contained in a Dealer Manager Agreement dated the date of this Prospectus, the Dealer Manager will provide financial advisory services and marketing assistance in connection with the Offer. In addition, the Dealer Manager has agreed with the Fund to form and manage a group of securities dealers ("Selling Group Members") to (a) solicit the exercise of Rights and (b) sell to the public Shares purchased by the Dealer Manager from the Fund as a result of the purchase and exercise of Rights by the Dealer Manager. The Fund has agreed to pay the Dealer Manager a fee for financial advisory and marketing services equal to % of the first $ of the proceeds of the Offer before deducting offering expenses and financial advisory and soliciting fees payable in connection with the Offer (the "Gross Proceeds"), % of the next $ of the Gross Proceeds and % of the Gross Proceeds in excess of $ . The Fund has also agreed to reimburse the Dealer Manager for its out-of-pocket expenses in connection with the Offer up to an aggregate of $ . In addition, the Fund will indemnify the Dealer Manager with respect to certain liabilities, including liabilities under the U.S. Securities Act of 1933, as amended. Pursuant to the Dealer Manager Agreement, the Fund has agreed to pay fees equal to % of the Subscription Price per Share to the Dealer Manager and each Selling Group Member for each Share either issued upon the exercise of Rights as a result of the Dealer Manager's or Selling Group Member's soliciting efforts or purchased from the Dealer Manager for sale to the public, and to the Dealer Manager for each Share issued upon the exercise of Rights but for which no dealer designation was made on the related Subscription Certificate or for which no other securities dealer is receiving soliciting fees due to the maximum fee which is payable to a securities dealer who is not a Selling Group Member. The Fund has also agreed that, with respect to Rights exercised not as a result of the selling or soliciting efforts of the Selling Group Members, the Fund will pay a Soliciting Dealer Fee equal to % of the Subscription Price per Share to each securities dealer who is not a Selling Group Member but who is a member of the National Association of Securities Dealers, Inc. and who has executed and delivered a Soliciting Dealer Agreement and solicited the exercise of such Rights, subject generally to a maximum fee based upon the number of shares of Common Stock held by such dealer through The Depository Trust Company on the Record Date. From the date of this Prospectus, the Dealer Manager and Selling Group Members may offer and sell shares at prices set by the Dealer Manager from time to time, which prices may be higher or lower than the Subscription Price. Prior to the Expiration Date, each of those prices when set will not exceed the higher of the last sale price or current asked price of the Common Stock on the NYSE, plus, in each case, an amount equal to an exchange commission, and any offering price set on any calendar day will not be increased more than once during that day. Any offering by the Dealer Manager or any Selling Group Member will likely include Shares acquired through the exercise of the Rights. As a result of those offerings, the Dealer Manager and Selling Group Members may realize profits or losses independent of the Dealer Manager's financial advisory fee and any Selling Group Member fee received by them. Under applicable law, during the Subscription Period the Dealer Manager may bid for and purchase Rights for certain purposes. Those purchases will be subject to certain price and volume limitations when the Common Stock is being stabilized by the Dealer Manager or when the Dealer Manager owns Rights without an offsetting short position in the Common Stock. Those limitations provide, among other things, that subject to certain exceptions, not more than one bid to purchase Rights may be maintained in any one market at the same price at the same time and that the initial bid for or purchase of Rights may not be made at a price 63 66 higher than the highest current independent bid price on the NYSE. Any bid price may not be increased, subject to certain exceptions, unless the Dealer Manager has not purchased any rights for a full Business Day or the independent bid price for those Rights on the NYSE has exceeded the bid price for a full Business Day. DIVIDEND PAYING AGENTS, TRANSFER AGENTS AND REGISTRARS American Stock Transfer & Trust Company (the "Transfer Agent") acts as the Fund's dividend paying agent, transfer agent and the registrar for the Fund's Common Stock. The principal address of the Transfer Agent is 40 Wall Street, New York, New York 10005. The Mitsui Trust and Banking Company, Limited ("Mitsui") acts as the Fund's shareholder servicing and dividend disbursing agent for the Fund's Common Stock beneficially owned by investors in Japan. The principal address of Mitsui is 1-21, Shimomeguro 6-chome, Meguro-ku, Tokyo 153, Japan. CUSTODIANS Morgan Stanley Trust Company is the custodian for the Fund's assets held outside the United States (the "International Custodian"). The principal business address of the International Custodian is One Pierrepont Plaza, Brooklyn, New York 11201. Under a custody agreement (the "Custody Agreement") between the International Custodian and the Fund, the International Custodian agreed to hold all property of the Fund delivered to it in safekeeping in a segregated account, receive and collect all income and transaction proceeds with respect to such property, accept and deliver securities on the purchase, sale, redemption, exchange or conversion thereof, pay from the Fund's account the purchase price of any securities acquired by the Fund, as well as any taxes and other expenses payable in connection with securities transactions, maintain all necessary books and records with respect to the property of the Fund held by it, provide the Fund with periodic reports regarding the Fund's account and, in general, attend to all nondiscretionary details in connection with the sale, purchase, transfer and other dealings with the securities and other property of the Fund held by it. For its services the International Custodian receives a fee calculated as a percentage of Fund assets in its custody, plus an amount for each transaction effected in the Fund's account. In addition, the International Custodian is reimbursed by the Fund for any out-of-pocket expenses incurred by it in connection with the performance of its duties under the Custody Agreement. The Custody Agreement provides that the Fund shall indemnify the International Custodian against any liability, loss or expense (including attorneys fees and disbursements) incurred in connection with the Custody Agreement, except to the extent such liability, loss or expense results from the negligence or willful misconduct of or breach by the International Custodian or any sub-custodian. The International Custodian may employ one or more sub-custodians outside the United States that are approved by the Board of Directors in accordance with regulations under the 1940 Act. The fees and expenses of any such sub-custodians are paid by the International Custodian. The Chase Manhattan Bank, N.A. (the "U.S. Custodian") acts as the custodian for the Fund's assets held in the United States. The principal business address of the U.S. Custodian is 770 Broadway, New York, New York 10003. EXPERTS The financial statements of the Fund for the fiscal year ended December 31, 1995 are incorporated by reference into this Prospectus in reliance upon the report of Price Waterhouse LLP, the Fund's independent accountants, given on the authority of said firm as experts in auditing and accounting. The address of Price Waterhouse LLP is 1177 Avenue of the Americas, New York, New York 10036. 64 67 LEGAL MATTERS The validity of the Common Stock offered hereby will be passed on for the Fund by Rogers & Wells, New York and by its special Maryland counsel, Piper & Marbury, Baltimore, Maryland. Certain legal matters will be passed upon for the Dealer Manager by Davis Polk & Wardwell, New York, New York. It is likely that foreign persons, such as any sub-custodians of the Fund, will not have assets in the United States that could be attached in connection with any U.S. action, suit or proceeding. The Fund has been advised that there is substantial doubt as to the enforceability in the countries in which such persons reside of the civil remedies and criminal penalties afforded by the U.S. federal securities laws. It is also unclear if extradition treaties now in effect between the United States and any such countries would subject such persons to effective enforcement of criminal penalties. The books and records of the Fund required under U.S. law will be maintained at the Fund's principal office in the United States and will be subject to inspection by the Commission. ADDITIONAL INFORMATION The Fund has filed with the U.S. Securities and Exchange Commission, Washington, D.C. 20549, a Registration Statement under the U.S. Securities Act of 1933, as amended, with respect to the Common Stock offered hereby. Further information concerning the Shares and the Fund may be found in the Registration Statement of which this Prospectus constitutes a part. The Registration Statement may be inspected without charge at the Commission's office in Washington, D.C., and copies of all or any part thereof may be obtained from such office after payment of the fees prescribed by the Commission. The Fund is subject to the informational reporting requirements of the 1934 Act and the 1940 Act, and in accordance therewith files reports and other information with the Commission. Such reports and other information can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and the Commission's regional office at Seven World Trade Center, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such reports and other information concerning the Fund may also be inspected at the offices of the Commission. INCORPORATION OF FINANCIAL STATEMENTS BY REFERENCE The Fund's Annual Report, which includes financial statements for the fiscal year ended December 31, 1995, which accompanies this Prospectus, is incorporated herein by reference with respect to all information other than the information set forth in the Letters to Shareholders included therein. Any statement contained in the Fund's Annual Report that is incorporated herein shall be deemed modified or superseded for purposes of this Prospectus to the extent a statement contained in this Prospectus varies from such statement. Any such statement so modified or superseded shall not, except as so modified or superseded, be deemed to constitute a part of this Prospectus. The Fund will furnish, without charge, a copy of its Annual Report upon request to American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005, telephone (212) 278-4353. 65 68 SUBSCRIPTION CERTIFICATE NUMBER: ____________________________ NUMBER OF RIGHTS: __________________________ CUSIP NO.: APPENDIX A [FORM OF SUBSCRIPTION CERTIFICATE] MORGAN STANLEY ASIA-PACIFIC FUND, INC. SUBSCRIPTION RIGHT FOR SHARES OF COMMON STOCK This Subscription Certificate represents the number of Rights set forth in the upper right hand corner of this Form. The registered holder hereof (the "Holder") is entitled to acquire one (1) share of the Common Stock of Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund") for each three (3) Rights held. To subscribe for shares of Common Stock, the Holder must present to American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005 (the "Subscription Agent"), prior to 5:00 p.m., New York time, on the Expiration Date, either: (1) a properly completed and executed Subscription Certificate and a money order or check drawn on a bank located in the United States and payable to the order of Morgan Stanley Asia-Pacific Fund, Inc. for an amount equal to the number of Shares subscribed for in the Primary Subscription (and, if such Holder is a Record Date Shareholder electing to exercise the Over-Subscription Privilege, pursuant to the Over-Subscription Privilege) multiplied by the Subscription Price; or (2) a Notice of Guaranteed Delivery guaranteeing delivery of (i) a properly completed and executed Subscription Certificate; and (ii) a money order or check drawn on a bank located in the United States and payable to the order of Morgan Stanley Asia-Pacific Fund, Inc. for an amount equal to the number of Shares subscribed for in the Primary Subscription (and, if such Holder is a Record Date Shareholder electing to exercise the Over-Subscription Privilege, pursuant to the Over-Subscription Privilege) multiplied by the Subscription Price (which certificate and money order or check must then be delivered by the close of business on the third Business Day after the Expiration Date (the "Protect Period")). If the Holder of this certificate is entitled to subscribe for additional shares pursuant to the Over-Subscription Privilege, Part B of this Subscription Certificate must be completed to indicate the maximum number of Shares for which such privilege is being exercised. No later than seven Business Days following the Protect Period, the Subscription Agent will send to each Exercising Rights Holder (or, if the Fund's Shares are held by Cede & Co., the nominee for The Depository Trust Company, or any other depository or nominee) (in each instance, a "Nominee Holder"), the share certificates representing the Shares purchased pursuant to the Primary Subscription and, if applicable, the Over-Subscription Privilege, along with a letter explaining the allocation of Shares pursuant to the Over-Subscription Privilege. Any excess payment to be refunded by the Fund to a Record Date Shareholder who is not allocated the full amount of Shares subscribed for pursuant to the Over-Subscription Privilege will be mailed by the Subscription Agent. An Exercising Rights Holder will have no right to rescind or modify a purchase after the Subscription Agent has received a properly completed and executed Subscription Certificate or a Notice of Guaranteed Delivery. Any excess payment to be refunded by the Fund to a Rights Holder will be mailed by the Subscription Agent to him as promptly as practicable. If the Holder does not make payment of any amounts due in respect of Shares subscribed for, the Fund and the Subscription Agent reserve the right to (i) find other shareholders or Rights Holders for the subscribed and unpaid for Shares; (ii) apply any payment actually received by it toward the purchase of the greatest whole number of Shares which could be acquired by such holder upon exercise of the Primary Subscription and/or Over-Subscription Privilege; and/or (iii) exercise any and all other rights and/or remedies to which it may be entitled, including, without limitation, the right to set-off against payments actually received by it with respect to such subscribed Shares. This Subscription Certificate may be transferred, in the same manner and with the same effect as in the case of a negotiable instrument payable to specific persons, by duly completing and signing the assignment on the reverse side hereof. Capitalized terms used but not defined in this Subscription Certificate shall have the meanings assigned to them in the Prospectus, dated , 1996, relating to the Rights. MORGAN STANLEY ASIA-PACIFIC FUND, INC. By: AMERICAN STOCK TRANSFER & TRUST COMPANY, as Subscription Agent By: __________________________________ THIS SUBSCRIPTION RIGHT IS TRANSFERABLE AND MAY BE COMBINED OR DIVIDED (BUT ONLY INTO SUBSCRIPTION CERTIFICATES EVIDENCING A WHOLE NUMBER OF RIGHTS) AT THE OFFICE OF THE SUBSCRIPTION AGENT Any questions regarding this Subscription Certificate and the Offer may be directed to the Information Agent, Shareholder Communications Corporation toll free at (800) 733-8481 Ext. 333 or collect at (212) 805-7000, Ext. 333 A-1 69 Expiration Date: , 1996 PLEASE COMPLETE ALL APPLICABLE INFORMATION BY MAIL: BY OVERNIGHT COURIER: BY HAND: American Stock Transfer & Trust Company American Stock Transfer & Trust Company American Stock Transfer & Trust Company 40 Wall Street 46 Wall Street, 46th Floor 46 Wall Street, 46th Floor New York, New York 10005 New York, New York 10005 New York, New York 10005
SECTION I: TO SUBSCRIBE: I hereby irrevocably subscribe for the dollar amount of Common Stock indicated as the total of A and B below upon the terms and conditions specified in the Prospectus related hereto, receipt of which is acknowledged. TO SELL: If I have checked either the box on line C or the box on line D, I authorize the sale of Rights by the Subscription Agent according to the procedures described in the Prospectus. The check for the proceeds of sale will be mailed to the address of record. Please check /X/ below: / / A. Primary ------------------ / 3 = .000 X $ = $ Subscription (Rights Exercised) ------------------ ------------------ ------------------ (Full Shares of (Subscription (Amount Required) Common Stock Price) Requested) / / B. Over-Subscription Privilege .000 X $ = $ (*) ------------------ ------------------ ------------------ (Full Shares of (Subscription (Amount Required) Common Stock Price) Requested) Amount of Check or Money Order Enclosed (total of A + B) = $ ------------------ Make check payable to the order of "Morgan Stanley Asia-Pacific Fund, Inc." (*) The Over-Subscription Privilege can be exercised by Record Date Shareholders only, as described in the Prospectus. / / C. Sell any remaining unexercised Rights / / D. Sell all of my Rights. E. The following Broker-Dealer is hereby designated as having been instrumental in the exercise of the Rights: / / Morgan Stanley & Co. Incorporated Account # ------------------ / / Other Firm: Account # ------------------ - -------------------------------------- Please provide your telephone number Day ( ) Signature of Subscriber(s)/Seller(s) -------------------- Evening ( ) --------------------
SECTION II: TO TRANSFER RIGHTS: (except pursuant to C and D above) For value received, of the Rights represented by this Subscription Certificate are assigned to - -------------------------------------------- ---------------------------------------------------------------- Social Security Number or Tax ID of Assignee (Print Full Name of Assignee) - ------------------------------------------ ---------------------------------------------------------------- Signature(s) of Assignor(s) (Print Full Address including postal Zip Code)
The signature(s) must correspond with the name(s) as written upon the face of this Subscription Certificate, in every particular, without alteration. IMPORTANT: For Transfer, a Signature Guarantee must be provided by an eligible financial institution as defined in Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended, subject to the standards and procedures adopted by the issuer. SIGNATURE GUARANTEED BY: - ------------------------------------------------------------------------ PROCEEDS FROM THE SALE OF RIGHTS MAY BE SUBJECT TO WITHHOLDING OF U.S. TAXES UNLESS THE SELLER'S CERTIFIED U.S. TAXPAYER IDENTIFICATION NUMBER (OR CERTIFICATION REGARDING FOREIGN STATUS) IS ON FILE WITH THE SUBSCRIPTION AGENT AND THE SELLER IS NOT OTHERWISE SUBJECT TO U.S. BACKUP WITHHOLDING. / / CHECK HERE IF RIGHTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY DELIVERED TO THE SUBSCRIPTION AGENT PRIOR TO THE DATE HEREOF AND COMPLETE THE FOLLOWING: NAME(S) OF REGISTERED OWNER(S): WINDOW TICKET NUMBER (IF ANY): DATE OF EXECUTION OF NOTICE OF GUARANTEED DELIVERY: NAME OF INSTITUTION WHICH GUARANTEED DELIVERY: A-2 70 SAMPLE ONLY APPENDIX B [FORM OF NOTICE OF GUARANTEED DELIVERY] NOTICE OF GUARANTEED DELIVERY OF SUBSCRIPTION RIGHTS AND THE SUBSCRIPTION PRICE FOR SHARES OF COMMON STOCK OF MORGAN STANLEY ASIA-PACIFIC FUND, INC. SUBSCRIBED FOR IN THE PRIMARY SUBSCRIPTION AND THE OVER-SUBSCRIPTION PRIVILEGE As set forth in the Prospectus under "The Offer -- Payment for Shares," this form or one substantially equivalent hereto may be used as a means of effecting subscription and payment for all Shares of Morgan Stanley Asia-Pacific Fund, Inc. Common Stock subscribed for in the Primary Subscription and the Over- Subscription Privilege. Such form may be delivered by hand or sent by facsimile transmission, overnight courier or mail to the Subscription Agent. The Subscription Agent is: American Stock Transfer & Trust Company By Mail: By Facsimile: American Stock Transfer & Trust Company (718) 234-5001 40 Wall Street Confirm by Telephone New York, New York 10005 (718) 234-2700 By Hand: By Overnight Courier: American Stock Transfer & Trust Company American Stock Transfer & Trust Company 40 Wall Street, 46th Floor 40 Wall Street, 46th Floor New York, New York 10005 New York, New York 10005
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A TELECOPY OR FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY The New York Stock Exchange member firm or bank or trust company which completes this form must communicate the guarantee and the number of Shares subscribed for (under both the Primary Subscription and the Over-Subscription Privilege) to the Subscription Agent and must deliver this Notice of Guaranteed Delivery guaranteeing delivery of (i) payment in full for all subscribed Shares and (ii) a properly completed and executed Subscription Certificate (which certificate and full payment must then be delivered by the close of business on the third business day after the Expiration Date, as defined in the Prospectus) to the Subscription Agent prior to 5:00 p.m., New York time, on the Expiration Date ( , 1996, unless extended). Failure to do so will result in a forfeiture of the Rights. B-1 71 GUARANTEE The undersigned, a member firm of the New York Stock Exchange or a bank or trust company, guarantees delivery to the Subscription Agent by the close of business (5:00 p.m., New York time) on the third Business Day after the Expiration Date ( , 1996, unless extended) of (A) a properly completed and executed Subscription Certificate and (B) payment of the full Subscription Price for Shares subscribed for in the Primary Subscription and pursuant to the Over-Subscription Privilege, if applicable, as subscription for such Shares is indicated herein or in the Subscription Certificate. - ---------------------------------------------- ---------------------------------------------- Number of Shares subscribed for in the Primary Number of Shares subscribed for pursuant to Subscription for which you are guaranteeing the Over-Subscription Privilege for which delivery of Rights and payment you are guaranteeing delivery of Rights and payment Number of Rights to be delivered: ---------------------------------------------- Total Subscription Price payment to be delivered: $ -------------------------------------------- Method of Delivery [circle one] A. Through DTC B. Direct to Corporation
Please note that if you are guaranteeing for Over-Subscription Shares, and are a DTC participant, you must also execute and forward to American Stock Transfer & Trust Company a Nominee Holder Over-Subscription Exercise Form. - ---------------------------------------------- ---------------------------------------------- Name of Firm Authorized Signature - ---------------------------------------------- ---------------------------------------------- Address Title - ---------------------------------------------- ---------------------------------------------- Zip Code (Type or Print) - ---------------------------------------------- ---------------------------------------------- Name of Registered Holder (If Applicable) - ---------------------------------------------- ---------------------------------------------- Telephone Number Date
* IF THE RIGHTS ARE TO BE DELIVERED THROUGH DTC, A REPRESENTATIVE OF THE FUND WILL PHONE YOU WITH A PROTECT IDENTIFICATION NUMBER, WHICH NEEDS TO BE COMMUNICATED BY YOU TO DTC. PLEASE NOTE THAT IF YOU ARE GUARANTEEING FOR OVER-SUBSCRIPTION SHARES AND ARE A DTC PARTICIPANT, YOU MUST ALSO EXECUTE AND FORWARD TO THE SUBSCRIPTION AGENT A NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM. B-2 72 SAMPLE ONLY APPENDIX C [FORM OF NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM] MORGAN STANLEY ASIA-PACIFIC FUND, INC. RIGHTS OFFERING NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM PLEASE COMPLETE ALL APPLICABLE INFORMATION By Mail: By Hand: By Overnight Courier: To: American Stock To: American Stock To: American Stock Transfer & Trust Company Transfer & Trust Company Transfer & Trust Company 40 Wall Street 40 Wall Street, 46th Floor 40 Wall Street, 46th Floor New York, New York 10005 New York, New York 10005 New York, New York 10005
THIS FORM IS TO BE USED ONLY BY NOMINEE HOLDERS TO EXERCISE THE OVER-SUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO WHICH THE PRIMARY SUBSCRIPTION PRIVILEGE WAS EXERCISED AND DELIVERED THROUGH THE FACILITIES OF A COMMON DEPOSITORY. ALL OTHER EXERCISES OF OVER-SUBSCRIPTION PRIVILEGES MUST BE EFFECTED BY THE DELIVERY OF THE SUBSCRIPTION CERTIFICATES. --------------------- THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE FUND'S PROSPECTUS DATED , 1996 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE FUND. --------------------- VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00 P.M., NEW YORK TIME, ON , 1996, UNLESS EXTENDED BY THE FUND AND THE DEALER MANAGER (THE "EXPIRATION DATE"). 1. The undersigned hereby certifies to the Subscription Agent that it is a participant in [Name of Depository] (the "Depository") and that it has either (i) exercised the Primary Subscription Right in respect of Rights and delivered such exercised Rights to the Subscription Agent by means of transfer to the Depository Account of the Fund or (ii) delivered to the Subscription Agent a Notice of Guaranteed Delivery in respect of the exercise of the Primary Subscription Right and will deliver the Rights called for in such Notice of Guaranteed Delivery to the Subscription Agent by means of transfer to such Depository Account of the Fund. 2. The undersigned hereby exercises the Over-Subscription Privilege to purchase, to the extent available, shares of Common Stock and certifies to the Subscription Agent that such Over-Subscription Privilege is being exercised for the account or accounts of persons (which may include the undersigned) on whose behalf all Primary Subscription Rights have been exercised.(*) 3. The undersigned understands that payment of the Subscription Price of $ per Share for each share of Common Stock subscribed for pursuant to the Over-Subscription Privilege must be received by the Subscription Agent at or before 5:00 p.m., New York time, on the Expiration Date and represents that such payment, in the aggregate amount of $ either (check appropriate box): / / has been or is being delivered to the Subscription Agent pursuant to the Notice of Guaranteed Delivery referred to above or / / is being delivered to the Subscription Agent herewith or / / has been delivered separately to the Subscription Agent; and, in the case of funds not delivered pursuant to a Notice of Guaranteed Delivery, is or was delivered in the manner set forth below (check appropriate box and complete information relating thereto): / / uncertified check / / certified check / / bank draft / / money order - ------------------------------------------------------------ ------------------------------------------------------------ Depository Primary Subscription Confirmation Number Name of Nominee Holder - ------------------------------------------------------------ ------------------------------------------------------------ Depository Participant Number Address ------------------------------------------------------------ City State Zip Code Contact Name ---------------------------------------------- By: -------------------------------------------------------- Phone Number ---------------------------------------------- Name: ------------------------------------------------------ Title: -----------------------------------------------------
Dated: , 1996 * PLEASE COMPLETE THE BENEFICIAL OWNER CERTIFICATION ON THE BACK HEREOF CONTAINING THE RECORD DATE POSITION OF PRIMARY RIGHTS OWNED, THE NUMBER OF PRIMARY SHARES SUBSCRIBED FOR AND THE NUMBER OF OVER-SUBSCRIPTION SHARES, IF APPLICABLE, REQUESTED BY EACH SUCH OWNER. C-1 73 MORGAN STANLEY ASIA-PACIFIC FUND, INC. BENEFICIAL OWNER CERTIFICATION The undersigned, a bank, broker or other nominee holder of Rights ("Rights") to purchase shares of Common Stock, $0.01 par value ("Common Stock"), of Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund") pursuant to the Rights offering (the "Offer") described and provided for in the Fund's Prospectus dated , 1996 (the "Prospectus") hereby certifies to the Fund and to American Stock Transfer & Trust Company as Subscription Agent for such Offer, that for each numbered line filled in below the undersigned has exercised, on behalf of the beneficial owner thereof (which may be the undersigned), the number of Rights specified on such line in the Primary Subscription (as defined in the Prospectus) and such beneficial owner wishes to subscribe for the purchase of additional shares of Common Stock pursuant to the Over-Subscription Privilege (as defined in the Prospectus), in the amount set forth in the third column of such line:
NUMBER OF RIGHTS EXERCISED NUMBER OF SHARES REQUESTED IN THE PRIMARY PURSUANT TO THE RECORD DATE SHARES SUBSCRIPTION OVER-SUBSCRIPTION PRIVILEGE ---------------------------- ---------------------------- ---------------------------- 1) ---------------------------- ---------------------------- ---------------------------- 2) ---------------------------- ---------------------------- ---------------------------- 3) ---------------------------- ---------------------------- ---------------------------- 4) ---------------------------- ---------------------------- ---------------------------- 5) ---------------------------- ---------------------------- ---------------------------- 6) ---------------------------- ---------------------------- ---------------------------- 7) ---------------------------- ---------------------------- ---------------------------- 8) ---------------------------- ---------------------------- ---------------------------- 9) ---------------------------- ---------------------------- ---------------------------- 10) ---------------------------- ---------------------------- ---------------------------- - --------------------------------------------- ---------------------------------------------- Name of Nominee Holder Depository Participant Number - --------------------------------------------- --------------------------------------------- Name: Depository Primary Subscription Confirmation Title: Numbers(s) Dated: , 1996
C-2 74 APPENDIX D DESCRIPTION OF VARIOUS FOREIGN CURRENCY AND INTEREST RATE HEDGES AND OPTIONS ON SECURITIES AND SECURITIES INDEX FUTURES CONTRACTS AND RELATED OPTIONS FOREIGN CURRENCY HEDGING TRANSACTIONS Foreign Currency Sales Contract. A forward foreign currency exchange contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks). Foreign Currency Futures Contracts. A foreign currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at a price set at the time of the contract. Foreign currency futures contracts traded in the United States are traded on regulated exchanges. Parties to a futures contract must make initial "margin" deposits to secure performance of the contract, which generally range from 2% to 5% of the contract price. There also are requirements to make "variation" margin deposits as the value of the futures contract fluctuates. The Fund may enter into foreign currency futures contracts (or futures contracts with respect to interest rates or securities indexes (described below)) or related options only if (i) such transactions are entered into solely for bona fide hedging purposes, or (ii) the aggregate amount of initial margin deposits and option premiums on the Fund's then existing futures and related options positions would not exceed 5% of the Fund's total assets, when such transactions are entered into for non-hedging purposes. The Fund may purchase and write call and put options on foreign currency futures contracts. An option on a foreign currency futures contract, as contrasted with the direct investment in such a contract, gives the purchaser the right, in return for the premium paid, to assume a position in a foreign currency futures contract at a specified exercise price during an exercise period or at the time of the expiration of the option. The potential loss related to the purchase of an option on a futures contract is limited to the premium paid for the option (plus transaction costs). Because the value of the option is fixed at the point of sale, there are no daily cash payments by the purchaser to reflect changes in the value of the underlying contract; however, the value of the option does change daily. To the extent the Fund purchases an option on a foreign currency futures contract any change in the value of such option would be reflected in the net asset value of the Fund. Options on Currencies. A put option purchased by the Fund on a currency gives the Fund the right to sell the currency at the exercise price until the expiration of the option. A call option purchased by the Fund gives the Fund the right to purchase a currency at the exercise price until the expiration of the option. Currency Hedging Strategies. The Fund may enter into forward foreign currency exchange contracts and foreign currency futures contracts and related options in several circumstances. For example, when the Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency, or when the Fund anticipates the receipt in a foreign currency of dividends or interest payments on such a security which it holds, the Fund may desire to "lock in" the dollar price of the security or the dollar equivalent of such dividend or interest payment, as the case may be. In addition, when the Investment Manager believes that the currency of a particular foreign country may suffer a substantial decline against the dollar, it may enter into a forward or futures contract to sell, for a fixed amount of dollars, the amount of foreign currency approximating the value of some or all of the Fund's portfolio securities denominated in such foreign currency. At the maturity of a forward or futures contract, the Fund may either accept or make delivery of the currency specified in the contract or, prior to maturity, enter into an offsetting contract. Such offsetting transactions with respect to forward contracts must be effected with the currency trader who is a party to the original forward contract. Offsetting transactions with respect to futures contracts are effected on the same exchange on which the initial transaction occurred. The Fund will only enter into such futures contracts and related options if it is expected that there will be a liquid market in which to close out such contract. There can, however, be no assurance that such a liquid market will exist in which to close a futures contract or related option or that the opposite party to the forward contract will agree to the offset, in which case the Fund may suffer a loss. D-1 75 The Fund does not intend to enter into such forward or futures contracts to protect the value of its portfolio securities on a regular basis, and will not do so if, as a result, the Fund will have more than 20% of the value of its total assets committed to the consummation of such contracts. The Fund also will not enter into such forward or futures contracts or maintain a net exposure to such contracts where the consummation of the contracts would obligate the Fund to deliver an amount of foreign currency in excess of the value of the Fund's portfolio securities or other assets denominated in that currency. Further, the Fund generally will not enter into a forward or futures contract with a term of greater than one year. The Fund may attempt to accomplish objectives similar to those described above with respect to forward and futures contracts for currency by means of purchasing put or call options on foreign currencies on exchanges. A put option gives the Fund the right to sell a currency at the exercise price until the expiration of the option. A call option gives the Fund the right to purchase a currency at the exercise price until the expiration of the option. While the Fund may enter into forward, futures and options contracts to reduce currency exchange rate risks, changes in currency prices may result in a poorer overall performance for the Fund than if it had not engaged in any such transaction. Moreover, there may be an imperfect correlation between the Fund's portfolio holdings of securities denominated in a particular currency and forward, futures or options contracts entered into by the Fund. Such imperfect correlation may prevent the Fund from achieving the intended hedge or expose the Fund to risk of foreign exchange loss. Certain provisions of the Code may limit the extent to which the Fund may enter into forward or futures contracts or engage in options transactions. These transactions may also affect the character and timing of income and the amount of gain or loss recognized by the Fund and its stockholders for U.S. federal income tax purposes. See "Taxation -- U.S. Federal Income Taxes." INTEREST RATE FUTURES AND OPTIONS THEREON Interest Rate Futures Contracts. The Fund may enter into futures contracts on government debt securities for the purpose of hedging its portfolio against the adverse effects of anticipated movements in interest rates. For example, the Fund may enter into futures contracts to sell U.S. Government Treasury Bills (take a "short position") in anticipation of an increase in interest rates. Generally, as interest rates rise, the market value of any fixed-income securities held by the Fund will fall, thus reducing the net asset value of the Fund. However, the value of the Fund's short position in the futures contracts will also tend to increase, thus offsetting all or a portion of the depreciation in the market value of the Fund's fixed-income investments which are being hedged. The Fund may also enter into futures contracts to purchase government debt securities (take a "long position") in anticipation of a decline in interest rates. The Fund might employ this strategy in order to offset entirely or in part an increase in the cost of any fixed-income securities it intends to subsequently purchase. Options on Futures Contracts. The Fund may purchase and write call and put options on interest rate futures contracts which are traded on contract markets and enter into closing transactions with respect to such options to terminate an existing position. The Fund may use such options in connection with its hedging strategies. Generally, these strategies would be employed under the same market and market sector conditions in which the Fund enters into futures contracts. An option on an interest rate futures contract operates in the same manner as an option on a foreign currency futures contract (described above), except that it gives the purchaser the right, in return for the premium paid, to assume a position in an interest rate futures contract instead of a currency futures contract. The Fund may purchase put options on futures contracts rather than taking a short position in the underlying futures contract in anticipation of an increase in interest rates. Similarly, the Fund may purchase call options on futures contracts as a substitute for taking a long position in futures contracts to hedge against the increased cost resulting from a decline in interest rates of fixed-income securities which the Fund intends to purchase. The Fund may also write a call option on a futures contract rather than taking a short position in the underlying futures contract, or write a put option on a futures contract rather than taking a long position in the underlying futures contracts. The writing of an option, however, will only constitute a partial hedge, since the Fund could be required to enter into futures contract at an unfavorable price and will in any event be able to benefit only to the extent of the premiums received. D-2 76 Risk Factors in Transactions in Interest Rate Futures Contracts and Options Thereon. The Fund's ability to effectively hedge all or a portion of its fixed income securities through the use of interest rate futures contracts and options thereon depends in part on the degree to which price movements in the securities underlying the option or futures contract correlate with price movements of the fixed-income securities held by the Fund. In addition, disparities in the average maturity or the quality of the Fund's investments as compared to the financial instrument underlying an option or futures contract may also reduce the correlation in price movements. Transactions in options on futures contracts involve similar risks, as well as the additional risk that movements in the price of the option will not correlate with movements in the price of the underlying futures contract. OPTIONS ON SECURITIES AND SECURITIES INDEX FUTURES CONTRACTS AND RELATED OPTIONS Options on Securities. In order to hedge against market shifts, the Fund may purchase put and call options on securities. In addition, the Fund may seek to increase its income or may hedge a portion of its portfolio investments through writing (i.e., selling) covered call options. A put option gives the holder the right to sell to the writer of the option an underlying security at a specified price at any time during or at the end of the option period. In contrast, a call option gives the purchaser the right to buy the underlying security covered by the option from the writer of the option at the stated exercise price. A "covered" call option means that so long as the Fund is obligated as the writer of the option, it will own (i) the underlying securities subject to the option, or (ii) securities convertible or exchangeable without the payment of any consideration into the securities subject to the option. As a matter of operating policy, the value of the underlying securities on which options will be written at any one time will not exceed 5% of the total assets of the Fund. The Fund will receive a premium from writing call options, which increases the Fund's return on the underlying security in the event the option expires unexercised or is closed out at a profit. By writing a call, the Fund will limit its opportunity to profit from an increase in the market value of the underlying security above the exercise price of the option for as long as the Fund's obligation as writer of the option continues. Thus, in some periods the Fund will receive less total return and in other periods greater total return from writing covered call options than it would have received from its underlying securities had it not written call options. The Fund may purchase options on securities that are listed on securities exchanges or traded over the counter. In purchasing a put option, the Fund will seek to benefit from a decline in the market price of the underlying security, while in purchasing a call option, the Fund will seek to benefit from an increase in the market price of the underlying security. If an option purchased is not sold or exercised when it has remaining value, or if the market price of the underlying security remains equal to or greater than the exercise price, in the case of a put, or remains equal to or below the exercise price, in the case of a call, during the life of the option, the Fund will lose its investment in the option. For the purchase of an option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price, in the case of a put, and must increase significantly above the exercise price, in the case of a call, to cover the premium and transaction costs. Because premiums paid by the Fund on options are small in relation to the market value of the investment underlying the options, buying options can result in large amounts of leverage. The leverage offered by trading in options could cause the Fund's net asset value to be subject to more frequent and wider fluctuation than would be the case if the Fund did not invest in options. Securities Index Futures Contracts and Related Options. The Fund may, for hedging purposes, enter into securities index futures contracts and purchase and write put and call options on stock index futures contracts, in each case that are traded on regulated exchanges, including non-U.S. exchanges to the extent permitted by the CFTC. A securities index futures contract is an agreement to take or make delivery of an amount of cash equal to the difference between the value of the index at the beginning and at the end of the contract period. Successful use of securities index futures will be subject to the Investment Manager's ability to predict correctly movements in the direction of the relevant securities market. No assurance can be given that the Investment Manager's judgment in this respect will be correct. The Fund may enter into securities index futures contracts to sell a securities index in anticipation of or during a market decline to attempt to offset the decrease in market value of securities in its portfolio that D-3 77 might otherwise result. When the Fund is not fully invested in accordance with its investment objectives and policies and anticipates a significant market advance, it may enter into futures contracts to purchase the index in order to gain rapid market exposure that may in part or entirely offset increases in the cost of securities that it intends to purchase. In a substantial majority of these transactions, the Fund will purchase such securities upon termination of the futures position but, under unusual market conditions, a futures position may be terminated without the corresponding purchase of debt securities. The Fund may purchase and write put and call options on securities index futures contracts in order to hedge all or a portion of its investment and may enter into closing purchase transactions with respect to written options in order to terminate existing positions. There is no guarantee that such closing transactions can be effected. An option on a securities index futures contract operates in the same manner as an option on a foreign currency futures contract (described below), except that it gives the purchase the right, in return for the premium paid, to assume a position in a securities index futures contract instead of a currency futures contract. D-4 78 PART C -- OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (1) Financial Statements (i) -- Statement of Net Assets as of December 31, 1995* (ii) -- Statement of Operations for the year ended December 31, 1995* (iii) -- Statement of Changes in Net Assets for the year ended December 31, 1995 (iv) -- Financial Highlights for the period from August 2, 1994 to December 31, 1994 and the year ended December 31, 1994* (v) -- Notes to Financial Statements* (vi) -- Report of Independent Accountants*
Statements, schedules and historical information other than those listed above have been omitted since they are either not applicable, or not required or the required information is shown in the financial statements or notes thereto. - --------------- * Incorporated by reference to the Fund's Annual Report for the Year Ended December 31, 1995 filed on March 7, 1996. (2) Exhibits (a) (1) -- Articles of Incorporation*+ (2) -- Articles of Amendment**+ (3) -- Articles of Amendment***+ (b) -- By-Laws, as amended*****+ (c) -- Not applicable (d) (1) -- Specimen certificate for Common Stock, par value $.01 per share***+ (2) -- Form of Subscription Certificate (included on pages A-1 to A-2 of the Prospectus forming part of this Registration Statement) (3) -- Form of Notice of Guaranteed Delivery (included on pages B-1 to B-2 of the Prospectus forming part of this Registration Statement) (4) -- Form of Nominee Holder Over-Subscription Exercise Form (included on pages C-1 to C-2 of the Prospectus forming part of this Registration Statement) (5) -- Form of Subscription Agent Agreement (6) -- Form of Information Agent Agreement (e) -- Dividend Reinvestment and Cash Purchase Plan***+ (f) -- Not applicable (g) -- Investment Advisory and Management Agreement with the Investment Manager***+ (h) (1) -- Form of Dealer Manager Agreement (2) -- Form of Soliciting Dealer Agreement (3) -- Form of Selling Group Agreement (i) -- Not applicable (j) (1) -- Custody Agreement***+ (2) -- Domestic Custody Agreement***+ (k) (1) -- Agreement for Stock Transfer Services***+ (2) -- Administration Agreement***+ (3) -- Agreement for Shareholder Services in Japan***+ (4) -- Agreement for Dividend Paying Services in Japan***+ (5) -- Agreement for Commissions for Shareholder and Dividend Paying Services in Japan***+ (l) (1) -- Opinion and Consent of Rogers & Wells**** (2) -- Opinion and Consent of Piper & Marbury****
i 79 (m) -- Not applicable (n) -- Consent of Independent Accountants**** (o) -- Not applicable (p) -- Not applicable (q) -- Not applicable (r) -- Not applicable
- --------------- * Incorporated by reference to the Fund's Registration Statement on Form N-2 (File Nos. 33-76014; 811-8388) filed on March 2, 1994. ** Incorporated by reference to Pre-Effective Amendment No. 1 to the Fund's Registration Statement on Form N-2 (File Nos. 33-76014; 811-8388) filed on June 27, 1994. *** Incorporated by reference to Pre-Effective Amendment No. 2 to the Fund's Registration Statement on Form N-2 (File Nos. 33-76014; 811-8388) filed on July 25, 1994. **** To be filed by amendment. ***** Previously filed. + Filed pursuant to the EDGAR (Electronic Data Gathering, Analysis, and Retrieval) phase-in requirements on March 8, 1996. ITEM 25. MARKETING ARRANGEMENTS See Exhibits (h)(1) through (3) to this Registration Statement. ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the estimated expenses to be incurred in connection with the offering described in this Registration Statement. U.S Securities and Exchange Commission Registration fees.......................... $ 83,018 New York Stock Exchange listing fee............................................... 63,000 Printing (other than stock certificates).......................................... * Engraving and printing stock certificates......................................... * Fees and expenses of qualification under state securities laws (excluding fees of counsel)..................................................... * Auditing and accounting fees...................................................... * Legal fees and expenses........................................................... * Dealer Manager's expense allowance................................................ * Information Agent's fees and expenses............................................. * Subscription Agent's fees and expenses............................................ * NASD fee.......................................................................... * Miscellaneous..................................................................... * -------- Total........................................................................ $ * ========
- ------------------------ * To be completed by amendment. ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT Not applicable. ITEM 28. NUMBER OF HOLDERS OF SECURITIES At , 1996:
NUMBER OF TITLE OF CLASS RECORD HOLDERS - ---------------------------------------------------------------------------- -------------- Common Stock, $.01 par value................................................
ii 80 ITEM 29. INDEMNIFICATION Section 2-418 of the General Corporation Law of the State of Maryland, Article SEVENTH of the Fund's Articles of Incorporation, Article VII of the Fund's By-Laws, the Investment Advisory and Management Agreement, the Dealer Manager Agreement and the Custody Agreement provide for indemnification. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Act"), may be permitted to Directors, officers and controlling persons of the Fund, pursuant to the foregoing provisions or otherwise, the Fund has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Fund of expenses incurred or paid by a Director, officer or controlling person of the Fund in the successful defense of any action, suit or proceeding) is asserted by such Director, officer or controlling person in connection with the securities being registered, the Fund will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER The description of the business of Morgan Stanley Asset Management Inc. is set forth under the caption "Management of the Fund" in the Prospectus forming part of this Registration Statement. The information as to the Directors and officers of Morgan Stanley Asset Management Inc. set forth in Morgan Stanley Asset Management Inc.'s Form ADV filed with the Securities and Exchange Commission on December 15, 1981 (File No. 801-15757) and as amended through the date hereof is incorporated herein by reference. ITEM 31. LOCATION OF ACCOUNTS AND RECORDS Morgan Stanley Asia-Pacific Fund, Inc. c/o Morgan Stanley Asset Management Inc. 1221 Avenue of the Americas New York, New York 10020 (Fund's Articles of Incorporation and By-Laws) Morgan Stanley Asset Management Inc. 1221 Avenue of the Americas New York, New York 10020 (with respect to its services as Investment Manager) The Chase Manhattan Bank, N.A. 73 Tremont Street Boston, Massachusetts 02108 (with respect to its services as Administrator) Morgan Stanley Trust Company One Pierrepont Plaza Brooklyn, New York 11201 (with respect to its services as Custodian for the Fund's international assets) The Chase Manhattan Bank, N.A. 770 Broadway New York, New York 10003 (with respect to its services as Custodian for the Fund's U.S. assets) iii 81 American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 (with respect to its services as Subscription Agent and Transfer Agent) Mitsui Trust and Banking Company, Limited 1-21, Shimomeguro 6-chome Meguro-Ku, Tokyo 153 Japan (with respect to its services as dividend paying agent, transfer agent and registrar in Japan) ITEM 32. MANAGEMENT SERVICES Not applicable. ITEM 33. UNDERTAKINGS (a) The Fund undertakes to suspend offering its shares until it amends its prospectus contained herein if (1) subsequent to the effective date of its Registration Statement, the net asset value per share declines more than 10 percent from its net asset value per share as of the effective date of this Registration Statement or (2) the net asset value increases to an amount greater than its net proceeds as stated in the Prospectus contained herein. (b) The Fund hereby undertakes: (1) that for purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Fund under Rule 497(h) under the Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) that for the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) The Fund hereby undertakes to comply with the restrictions on indemnification set forth in Investment Company Act Release No. IC-11330, September 2, 1980. iv 82 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 2nd day of April, 1996. MORGAN STANLEY ASIA-PACIFIC FUND, INC. By: /S/ WARREN J. OLSEN ------------------------------------ Warren J. Olsen President Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment to the Registrant's Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------- --------------------------------------- --------------- * Director and Chairman of the Board April 2, 1996 - ------------------------------------- Barton M. Biggs /s/ WARREN J. OLSEN Director and President April 2, 1996 - ------------------------------------- (Principal Executive Officer) Warren J. Olsen * Director April 2, 1996 - ------------------------------------- Peter J. Chase * Director April 2, 1996 - ------------------------------------- John W. Croghan Director - ------------------------------------- David B. Gill * Director April 2, 1996 - ------------------------------------- Graham E. Jones * Director April 2, 1996 - ------------------------------------- John A. Levin * Director April 2, 1996 - ------------------------------------- William G. Morton, Jr. * Director April 2, 1996 - ------------------------------------- Frederick B. Whittemore * Treasurer April 2, 1996 - ------------------------------------- (Principal Financial and James R. Rooney Accounting Officer) *By: /s/ WARREN J. OLSEN - ------------------------------------- Warren J. Olsen Attorney-in-Fact
v 83 Exhibit Index ------------- (a)(1) -- Articles of Incorporation*+ (2) -- Articles of Amendment**+ (3) -- Articles of Amendment***+ (b) -- By-Laws, as amended***** (c) -- Not applicable (d)(1) -- Specimen certificate for Common Stock, par value $.01 per share***+ (2) -- Form of Subscription Certificate (included on pages A-1 to A-2 of the Prospectus forming part of this Registration Statement) (3) -- Form of Notice of Guaranteed Delivery (included on pages B-1 to B-2 of the Prospectus forming part of this Registration Statement) (4) -- Form of Nominee Holder Over-Subscription Exercise Form (included on pages C-1 to C-2 of the Prospectus forming part of this Registration Statement) (5) -- Form of Subscription Agent Agreement (6) -- Form of Information Agent Agreement (e) -- Dividend Reinvestment and Cash Purchase Plan***+ (f) -- Not applicable (g) -- Investment Advisory and Management Agreement with the Investment Manager***+ (h)(1) -- Form of Dealer Manager Agreement (2) -- Form of Soliciting Dealer Agreement (3) -- Form of Selling Group Agreement (i) -- Not applicable (j)(1) -- Custody Agreement***+ (2) -- Domestic Custody Agreement***+ (k)(1) -- Agreement for Stock Transfer Services***+ (2) -- Administration Agreement***+ (3) -- Agreement for Shareholder Services in Japan***+ (4) -- Agreement for Dividend Paying Services in Japan***+ (5) -- Agreement for Commissions for Shareholder and Dividend Paying Services in Japan***+ (l)(1) -- Opinion and Consent of Rogers & Wells**** (2) -- Opinion and Consent of Piper & Marbury**** (m) -- Not applicable (n) -- Consent of Independent Accountants**** (o) -- Not applicable (p) -- Not applicable (q) -- Not applicable (r) -- Not applicable
- --------------- * Incorporated by reference to the Fund's Registration Statement on Form N-2 (File Nos. 33-76014; 811-8388) filed on March 2, 1994. ** Incorporated by reference to Pre-Effective Amendment No. 1 to the Fund's Registration Statement on Form N-2 (File Nos. 33-76014; 811-8388) filed on June 27, 1994. *** Incorporated by reference to Pre-Effective Amendment No. 2 to the Fund's Registration Statement on Form N-2 (File Nos. 33-76014; 811-8388) filed on July 25, 1994. **** To be filed by amendment. ***** Previously filed. + Filed pursuant to the EDGAR (Electronic Data Gathering, Analysis, and Retrieval) phase-in requirements on March 8, 1996. EX-99.D.5 2 SUBSCRIPTION AGENT AGREEMENT 1 R&W Draft 3/25/96 SUBSCRIPTION AGENT AGREEMENT This Subscription Agent Agreement (the "Agreement") is made as of April __, 1996 between Morgan Stanley Asia-Pacific Fund, Inc., a Maryland corporation (the "Fund"), and American Stock Transfer & Trust Company, as subscription agent (the "Agent"). All terms not defined herein shall have the meaning given in the prospectus (the "Prospectus") included in the Registration Statement on Form N-2 (File No. 333-1597) filed by the Fund with the Securities and Exchange Commission on March 8, 1996, as amended by any amendment filed with respect thereto (the "Registration Statement"). WHEREAS, the Fund proposes to make a subscription offer by issuing certificates or other evidence of subscription rights, in the form designated by the Fund (the "Subscription Certificates"), to shareholders of record (the "Record Date Shareholders") of its common stock, par value $0.01 per share ("Common Stock"), as of a record date specified by the Fund (the "Record Date"), pursuant to which each Record Date Shareholder will have certain rights (the "Rights") to subscribe for shares of Common Stock, as described in and upon such terms as are set forth in the Prospectus, a final copy of which has been or, upon availability will promptly be, delivered to the Agent; and WHEREAS, the Fund wishes the Agent to perform certain acts on behalf of the Fund, and the Agent is willing to so act, in connection with the distribution of the Subscription Certificates and the issuance and exercise of the Rights to subscribe therein set forth, all upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing and of the mutual agreements set forth herein, the parties agree as follows: 1. APPOINTMENT. The Fund hereby appoints the Agent to act as subscription agent in connection with the distribution of Subscription Certificates and the issuance and exercise of the Rights in accordance with the terms set forth in this Agreement, and the Agent hereby accepts such appointment. 2 2. FORM AND EXECUTION OF SUBSCRIPTION CERTIFICATES. (a) Each Subscription Certificate shall be irrevocable and fully transferable. The Agent shall, in its capacity as Transfer Agent of the Fund, maintain a register of Subscription Certificates and the holders of record thereof (each of whom shall be deemed a "Shareholder" hereunder for purposes of determining the rights of holders of Subscription Certificates). Each Subscription Certificate shall, subject to the provisions thereof, entitle the Shareholder in whose name it is recorded to the following: (1) The right to acquire during the Subscription Period, as defined in the Prospectus, at the Subscription Price, as defined in the Prospectus, one share of Common Stock for every three Rights held (the "Primary Subscription Right"); and (2) With respect to Record Date Shareholders only, the right to subscribe for additional shares of Common Stock, subject to the availability of such shares and to the allotment of such shares as may be available among Record Date Shareholders who exercise Rights under the Over-Subscription Privilege ("Over-Subscription Rights") on the basis specified in the Prospectus; provided that such Record Date Shareholder has exercised all Primary Subscription Rights issued to him or her. 3. RIGHTS AND ISSUANCE OF SUBSCRIPTION CERTIFICATES. (a) Each Subscription Certificate shall evidence the Rights of the Shareholder therein named to purchase Common Stock upon the terms and conditions therein and herein set forth. (b) Upon the written advice of the Fund, signed by any of its duly authorized officers, as to the Record Date, the Agent shall, from a list of the Fund Shareholders as of the Record Date to be prepared by the Agent in its capacity as Transfer Agent of the Fund, prepare and record Subscription Certificates in the names of the Shareholders, setting forth the number of Rights to subscribe for the Fund's Common Stock calculated on the basis of one Right for each share of Common Stock recorded on the books in the name of each such Shareholder as of the Record Date. The number of Rights that are issued to Record Date Shareholders will be rounded up, by the Agent, to the nearest whole number of Rights evenly divisible by three. In the case of Shares of Common Stock held of record by a Nominee Holder (as defined in the Prospectus), the number of 2 3 Rights issued to such Nominee Holder will be adjusted, by the Agent, to permit rounding up (to the nearest whole number of Rights evenly divisible by three) of the Rights to be received by beneficial holders for whom the Nominee Holder is the holder of record only if the Nominee Holder provides to the Agent on or before the close of business on the fifth Business Day prior to the Expiration Date, written representation of the number of Rights required for such rounding. Each Subscription Certificate shall be dated as of the Record Date and shall be executed manually or by facsimile signature of a duly authorized officer of the Fund. No Subscription Certificate shall be valid for any purpose unless so executed. Should any officer of the Fund whose signature has been placed upon any Subscription Certificate cease to hold such office at any time thereafter, such event shall have no effect on the validity of such Subscription Certificate. (c) Upon the written advice of the Fund, signed as by any of its duly authorized officers, as to the effective date of the Registration Statement, the Agent shall promptly countersign and deliver the Subscription Certificates, together with a copy of the Prospectus and any other document as the Fund deems necessary or appropriate, to all Shareholders with record addresses in the United States (including its territories and possessions and the District of Columbia). Delivery shall be by first class mail (without registration or insurance). The Agent will mail a copy of the Prospectus, a special notice and other documents as the Fund deems necessary or appropriate, if any, but not Subscription Certificates to Record Date Shareholders whose record addresses are outside the United States (including its territories and possessions and the District of Columbia) ("Foreign Record Date Shareholders"). Delivery to Foreign Record Date Shareholders shall be by air mail (without registration or insurance) or for those Foreign Record Date Shareholders having APO or FPO addresses, by first class mail (without registration or insurance). (d) The Agent shall hold the Rights issued by the Fund to Foreign Record Date Shareholders for such Foreign Record Date Shareholders' accounts until instructions are received to exercise, sell or transfer the Rights. If no instructions have been received by 12:00 Noon, New York time, three Business Days prior to the Expiration Date, the Agent will use its best efforts to sell the Rights of those registered Foreign Record Date Shareholders through or to the Dealer Manager in accordance with Section 5(b) hereof. The proceeds net of commissions, if any, to the Dealer Manager from 3 4 the sale of those Rights will be remitted to the Foreign Record Date Shareholders. 4. EXERCISE. (a) Exercising Rights Holders, as defined in the Prospectus, may acquire Shares on Primary Subscription and Record Date Shareholders may acquire Shares pursuant to the Over-Subscription Privilege by delivery to the Agent as specified in the Prospectus of (i) the Subscription Certificate with respect thereto, duly executed by such Shareholder in accordance with and as provided by the terms and conditions of the Subscription Certificate, together with (ii) the purchase price of $____ for each share of Common Stock subscribed for by exercise of such Rights, in U.S. dollars by money order or check drawn on a bank in the United States, in each case payable to the order of the Fund. (b) Rights may be exercised at any time after the date of issuance of the Subscription Certificates with respect thereto but no later than 5:00 p.m., New York time, on the Expiration Date or such later date as the Fund may designate to the Agent in writing. For the purpose of determining the time of the exercise of any Rights, delivery of any material to the Agent shall be deemed to occur when such materials are received by the Agent. (c) Notwithstanding the provisions of Section 4(a) and 4(b) regarding delivery of an executed Subscription Certificate to the Agent prior to 5:00 p.m., New York time, on the Expiration Date, if prior to such time the Agent receives a Notice of Guaranteed Delivery by facsimile (telecopy) or otherwise from a bank, a trust company or a New York Stock Exchange member guaranteeing delivery of (i) payment of the full Subscription Price for the shares of Common Stock subscribed for on Primary Subscription and any additional shares of Common Stock subscribed for pursuant to the Over-Subscription Privilege (for Record Date Shareholders), and (ii) a properly completed and executed Subscription Certificate, then such exercise of Primary Subscription Rights and Over- Subscription Rights shall be regarded as timely, subject, however, to receipt of the duly executed Subscription Certificate and full payment for the Common Stock by the Agent within three Business Days after the Expiration Date (the "Protect Period"). (d) To the extent that share certificates have not already been distributed, within seven Business Days following the end of the Protect Period, the Agent shall send to each Exercising Rights 4 5 Holder (or, if shares of Common Stock on the Record Date are held by Cede & Co. or any other depository or nominee, to Cede & Co. or such other depository or nominee) the share certificates representing the shares of Common Stock acquired pursuant to the Primary Subscription, and, if applicable, the Over-Subscription Privilege. Any excess payment ("Excess Payment") to be refunded by the Fund to a Record Date Shareholder who is not allocated the full amount of shares of Common Stock subscribed for pursuant to the Over-Subscription Privilege, shall be mailed by the Agent to such Shareholder as described in Section 9(b). 5. TRANSFER OF RIGHTS. (a) Rights Holders who do not wish to exercise any or all of their Rights may instruct the Agent to sell any unexercised Rights by delivering to the Agent at least three Business Days prior to the Expiration Date Subscription Certificates representing the Rights to be sold with the appropriate instructions to sell the Rights. Upon timely receipt by the Agent of appropriate instructions to sell the Rights, the Agent shall use its best efforts to complete the sale. The Agent shall remit the proceeds of sale, net of any commissions, to the appropriate Rights Holder. The Agent shall also use its best efforts to sell all Rights which remain unclaimed as a result of Subscription Certificates being returned by the postal authorities to the Agent as undeliverable as of the fourth Business Day prior to the Expiration Date and Rights of non-U.S. shareholders who do not respond to the Agent by 12:00 Noon, New York time, three Business Days prior to the Expiration Date. Such sales will be made, net of any commissions, on behalf of such Shareholders. The Agent will hold the proceeds from those sales for the benefit of such Shareholders until such proceeds are either claimed or escheat. (b) The Agent may retain Morgan Stanley & Co. Incorporated ("MS & Co.") to act as its broker in carrying out the sale on a best efforts basis of any Rights to be sold pursuant to Sections 3(c) and 5(a), provided the brokerage fees charged by MS & Co. in connection with any such sales are not in excess of the usual and customary brokerage fees for such transactions. The Agent also may sell the Rights to MS & Co. as principal provided that such sales are made at the then current market price for the Rights less an amount not in excess of the usual and customary brokerage fee that would have been payable had such sales been conducted through a broker. 5 6 (c) Rights Holders may transfer a portion of the Rights evidenced by a single Subscription Certificate (but in a whole number evenly divisible by three) by delivering to the Agent within at least one Business Day prior to the Expiration Date a Subscription Certificate properly endorsed for transfer, with instructions to register such portion of the Rights evidenced thereby in the name of the transferee and to issue a new Subscription Certificate to the transferee evidencing such transferred Rights. In such event, the Agent shall issue a new Subscription Certificate evidencing the balance of the Rights to the transferring Rights Holder or, if the transferring Rights Holder so instructs, to an additional transferee. 6. VALIDITY OF SUBSCRIPTIONS. Irregular subscriptions not otherwise covered by specific instructions herein shall be submitted to an appropriate officer of the Fund and handled in accordance with his or her instructions. Such instructions will be documented by the Agent indicating the instructing officer and the date thereof. 7. OVER-SUBSCRIPTION. If, after allocation of shares of Common Stock to persons exercising Primary Subscription Rights, there remain unexercised Rights, then the Agent shall allot the shares issuable upon exercise of such unexercised Rights (the "Remaining Shares") to persons exercising the Over-Subscription Privilege in the amounts of such over-subscriptions. If the number of shares for which the Over-Subscription Privilege has been exercised is greater than the Remaining Shares, the Agent shall allocate the Remaining Shares to the persons exercising the Over-Subscription Privilege based on the number of Rights originally issued to them by the Fund so that the number of shares issued to Record Date Shareholders who subscribe pursuant to the Over-Subscription Privilege will generally be in proportion to the number of shares of Common Stock owned by them on the Record Date. The percentage of Remaining Shares each over-subscribing Record Date Shareholder may acquire will be rounded up or down to result in delivery of whole shares of Common Stock. The Agent shall advise the Fund immediately upon the completion of the allocation set forth above as to the total number of shares subscribed and distributable. 8. DELIVERY OF SHARE CERTIFICATES. The Agent will deliver (i) certificates representing those shares of Common Stock purchased pursuant to exercise of Primary Subscription Rights as soon as practicable after the corresponding Rights have been validly exercised and full payment for such shares has been 6 7 received and cleared and (ii) certificates representing those shares purchased pursuant to the exercise of the Over-Subscription Privilege as soon as practicable after the Expiration Date and after all allocations have been effected. 9. HOLDING PROCEEDS OF RIGHTS OFFERING IN ESCROW. (a) All proceeds received by the Agent from Shareholders in respect of the exercise of Rights shall be held by the Agent, on behalf of the Fund, in a segregated, interest-bearing escrow account (the "Escrow Account"). Pending disbursement in the manner described in Section 4(d) above, funds held in the Escrow Account shall be invested by the Agent at the direction of the Fund. (b) The Agent shall deliver all proceeds received in respect of the exercise of Rights (including interest earned thereon) to the Fund as promptly as practicable, but in no event later than seven Business Days after the end of the Protect Period. Proceeds held in respect of any Excess Payment shall be refunded to Record Date Shareholders entitled to such a refund within 10 Business Days after the end of the Protect Period. 10. REPORTS. (a) Daily, during the period commencing on the Record Date, until termination of the Subscription Period, the Agent will report by telephone or telecopier (by 12:00 Noon, New York time), confirmed by letter, to a designated officer of the Fund, daily data regarding Rights exercised, the selling price of Rights, the total number of shares of new Common Stock subscribed for, payments received therefor, the number of Rights sold and the net proceeds thereof, bringing forward the figures from the previous day's report in each case so as to also show the cumulative totals and any such other information as may be mutually determined by the Fund and the Agent. (b) The Agent will inform the Dealer Manager orally, on each Business Day during the Subscription Period (to be followed by written confirmation), as to the number of Rights that have been exercised since its previous daily report to the Dealer Manager and, not later than 12:00 Noon, New York time, on the Expiration Date, and will provide the Dealer Manager with a written statement as to the total number of Rights exercised (separately setting forth the number of Rights exercised by Record Date Shareholders). 7 8 11. LOSS OR MUTILATION. If any Subscription Certificate is lost, stolen, mutilated or destroyed, the Agent may, on such terms which will indemnify and protect the Fund and the Agent as the Agent may in its discretion impose (which shall, in the case of a mutilated Subscription Certificate include the surrender and cancellation thereof), issue a new Subscription Certificate of like denomination in substitution for the Subscription Certificate so lost, stolen, mutilated or destroyed. 12. COMPENSATION FOR SERVICES. The Fund agrees to pay to the Agent compensation for its services as such in accordance with its Fee Schedule to act as Agent, dated April , 1996, and set forth hereto as Exhibit A. The Agent agrees that such compensation shall include all services as Transfer Agent and Registrar provided in connection with the offering of Rights. The Fund further agrees that it will reimburse the Agent for its reasonable out-of-pocket expenses incurred in the performance of its duties as such. 13. INSTRUCTIONS AND INDEMNIFICATION. The Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions: (a) The Agent shall be entitled to rely upon any instructions or directions furnished to it by an appropriate officer of the Fund, whether in conformity with the provisions of this Agreement or constituting a modification hereof or a supplement hereto. Without limiting the generality of the foregoing or any other provision of this Agreement, the Agent, in connection with its duties hereunder, shall not be under any duty or obligation to inquire into the validity or invalidity or authority or lack thereof of any instruction or direction from an officer of the Fund which conforms to the applicable requirements of this Agreement and which the Agent reasonably believes to be genuine and shall not be liable for any delays, errors or loss of data occurring by reason of circumstances beyond the Agent's control, including, without limitation, acts of civil or military authority, national emergencies, labor difficulties, fire, flood, catastrophe, acts of God, insurrection, war, riots or failure of the mails, transportation, communication or power supply. (b) The Fund will indemnify the Agent and its nominees against, and hold it harmless from, all liability and expense which may arise out of or in connection with the services described in this Agreement or the instructions or directions furnished to the Agent relating to this Agreement by an appropriate officer of the 8 9 Fund, except for any liability or expense which shall arise out of the negligence, bad faith or willful misconduct of the Agent or such nominees. 14. CHANGES IN SUBSCRIPTION CERTIFICATE. The Agent may, without the consent or concurrence of the Shareholders in whose names Subscription Certificates are registered, by supplemental agreement or otherwise, concur with the Fund in making any changes or corrections in a Subscription Certificate that it shall have been advised by counsel (who may be counsel for the Fund) is appropriate to cure any ambiguity or to correct any defective or inconsistent provision or clerical omission or mistake or manifest error therein or herein contained, and which shall not be inconsistent with the provision of the Subscription Certificate except insofar as any such change may confer additional rights upon the Shareholders. 15. ASSIGNMENT; DELEGATION. (a) Neither this Agreement nor any rights or obligations hereunder may be assigned or delegated by either party without the written consent of the other party. (b) This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns. Nothing in this Agreement is intended or shall be construed to confer upon any other person any right, remedy or claim or to impose upon any other person any duty, liability or obligation. 16. GOVERNING LAW. The validity, interpretation and performance of this Agreement shall be governed by the laws of the State of New York. 17. SEVERABILITY. The parties hereto agree that if any of the provisions contained in this Agreement shall be determined invalid, unlawful or unenforceable to any extent, such provisions shall be deemed modified to the extent necessary to render such provisions enforceable. The parties hereto further agree that this Agreement shall be deemed severable, and the invalidity, unlawfulness or unenforceability of any term or provision thereof shall not affect the validity, legality or enforceability of this Agreement or of any other term or provision hereof. 9 10 18. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement. 19. CAPTIONS. The captions and descriptive headings herein are for the convenience of the parties only. They do not in any way modify, amplify, alter or give full notice of the provisions hereof. 20. FACSIMILE SIGNATURES. Any facsimile signature of any party hereto shall constitute a legal, valid and binding execution hereof by such party. 21. FURTHER ACTIONS. Each party agrees to perform such further acts and execute such further documents as are necessary to effect the purposes of this Agreement. 10 11 22. ADDITIONAL PROVISIONS. Except as specifically modified by this Agreement, the Agent's rights and responsibilities set forth in the Agreement for Stock Transfer Services between the Fund and the Agent are hereby ratified and confirmed and continue in effect. MORGAN STANLEY ASIA-PACIFIC FUND, INC. By:________________________________ Name: Warren J. Olsen Title: President AMERICAN STOCK TRANSFER & TRUST COMPANY By:________________________________ Name: Title: 11 12 EXHIBIT A FEE SCHEDULE 12 EX-99.D.6 3 FORM OF INFORMATION AGENT AGREEMENT 1 [Shareholder Communications Corporation Logo] AGREEMENT This document will constitute the agreement between MORGAN STANLEY ASIA-PACIFIC FUND, INC. (the "FUND"), with its principal executive offices at 1221 Avenue of the Americas, New York, NY 10020 and SHAREHOLDER COMMUNICATIONS CORPORATION ("SCC"), with its principal executive offices at 17 State Street, New York, NY 10005, relating to a Rights Offering (the "OFFER") of the Fund. The services to be provided by SCC will be as follows: (1) INDIVIDUAL HOLDERS OF RECORD AND BENEFICIAL OWNERS Target Group. SCC estimates that it may call between 3,400 to 6,840 of the approximately 18,000 outstanding beneficial and record shareholders. The estimate number is subject to adjustment and SCC may actually call more or less shareholders depending on the response to the OFFER or at the FUND's direction. Telephone Number Lookups. SCC will obtain the needed telephone numbers from various types of telephone directories. Initial Telephone Calls to Provide Information. SCC will begin telephone calls to the target group as soon as practicable. Most calls will be made during 10:00 A.M. to 9:00 P.M. on business days and only during 10:00 A.M. to 5:00 P.M. on Saturdays. No calls will be received by any shareholder after 9:00 P.M. on any day, in any time zone, unless specifically requested by the shareholder. SCC will maintain "800" lines for shareholders to call with questions about the OFFER. The "800" lines will be staffed Monday through Friday between 9:00 A.M. and 9:00 P.M. Remails. SCC will coordinate remails of offering materials to the shareholders who advise us that they have discarded or misplaced the originally mailed materials. Reminder/Extension Mailing. SCC will help to coordinate any targeted or broad-based reminder mailing at the request of the FUND. SCC will mail only materials supplied by the FUND or approved by the FUND in advance in writing. Subscription Reports. SCC will rely upon the transfer agent for accurate and timely information as to participation in the OFFER. 2 [Shareholder Communications Corporation Logo] (2) BANK/BROKER SERVICING --------------------- SCC will contact all banks, brokers and other nominee shareholders ("intermediaries") holding stock as shown on appropriate portions of the shareholder lists to ascertain quantities of offering materials needed for forwarding to beneficial owners. SCC will deliver offering materials by messenger to New York City based intermediaries and by Federal Express or other means to non-New York City based intermediaries. SCC will also follow-up by telephone with each intermediary to insure receipt of the offering materials and to confirm timely remailing of materials to the beneficial owners. SCC will maintain frequent contact with intermediaries to monitor shareholder response and to insure that all liaison procedures are proceeding satisfactorily. In addition, SCC will contact beneficial holders directly, if possible, and do whatever may be appropriate or necessary to provide information regarding the OFFER to this group. SCC will, as frequently as practicable, report to the Fund with response from intermediaries. (3) PROJECT FEE ----------- In consideration for acting as Information Agent SCC will receive a project fee of $20,000. (4) ESTIMATED EXPENSES ------------------ SCC will be reimbursed by the FUND for its reasonable out-of-pocket expenses incurred provided that SCC submits to the FUND an expense report, itemizing such expenses and providing copies of all supporting bills in respect of such expenses. If the actual expenses incurred are less than the portion of the estimated high range expenses paid in advance by the FUND, the FUND will receive from SCC a check payable in the amount of the difference at the time that SCC sends its final invoice for the second half of the project fee. SCC's expenses are estimated as set forth below and the estimates are based largely on data provided to SCC by the FUND. In the course of the OFFER the expenses and expense categories may change due to changes in the OFFER schedule or due to events beyond SCC's control, such as delays in receiving offering material and related items. In the event of significant change or new expenses not originally contemplated, SCC will notify the FUND by phone and/or by letter for approval of such expenses. 3 [Shareholder Communications Corporation Logo]
ESTIMATED EXPENSES LOW RANGE HIGH RANGE ------------------ --------- ---------- Distribution Expenses .................................. $ 2,500 $ 5,000 Telephone # look up 8,500 @ $.60 ........................................... 5,100 5,100 Outgoing telephone 3,400 to 6,300 initial outgoing telephone calls @ $3.75 ............... 12,750 23,625 Incoming "800" calls 900 to 1,600 @ $3.75 ................................... 3,375 6,000 Miscellaneous, data processing, postage, deliveries Federal Express and mailgrams .......................... 2,500 5,000 ------- ------- Total Estimated Expenses ............................. $26,225 $44,725 ======= =======
(5) PERFORMANCE SCC will use its best efforts to achieve the goals of the FUND but SCC is not guaranteeing a minimum success rate. SCC's Project Fee as outlined in Section 3 or Expenses as outlined in Section 4 are not contingent on success or failure of the OFFER. SCC's strategies revolve around a telephone information campaign. The purpose of the telephone information campaign is to raise the overall awareness among shareholders of the OFFER and help shareholders better understand the transaction. This in turn may result in higher overall response. (6) COMPLIANCE The FUND will be responsible for compliance with any regulations required by the Securities and Exchange Commission, National Association of Securities Dealers or any applicable federal or state agencies. In rendering the services contemplated by this Agreement, SCC agrees not to make any representations, oral or written, to any shareholders or prospective shareholders of the FUND that are not contained in the FUND's Prospectus, unless previously authorized to do so in writing by the FUND. (7) PAYMENT Payment for one half the project fee ($10,000) and one half the estimated high range expenses ($22,362) for a total of $32,362 will be made at the signing of this contract. The balance, if any, will be paid by the FUND due thirty days after SCC sends its final invoice. 4 [Shareholder Communications Corporation Logo] (8) MISCELLANEOUS SCC will hold in confidence and will not use nor disclose to third parties information we receive from the FUND, or information developed by SCC based upon such information we receive, except for information which was public at the time of disclosure or becomes part of the public domain without disclosure by SCC or information which we learn from a third party which does not have an obligation of confidentiality to the FUND. In the event the project is canceled for an indefinite period of time after the signing of this contract and before the expiration of the OFFER, SCC will be reimbursed by the FUND for any expenses incurred and not less than 100% of the project fee. The FUND agrees to indemnify, hold harmless, reimburse and defend SCC, and its officers, agents and employees, against all claims or threatened claims, costs, expenses, liabilities, obligations, losses or damages (including reasonable legal fees and expenses) of any nature, incurred by or imposed upon SCC, or any of its officers, agents or employees, which results, arises out of or is based upon services rendered to the FUND in accordance with the provisions of this AGREEMENT, provided that such services are rendered to the FUND without any negligence, willful misconduct, bad faith or reckless disregard on the part of SCC, or its officers, agents and employees. This agreement will be governed by and construed in accordance with the laws of the State of New York. This AGREEMENT sets forth the entire AGREEMENT between SCC and the FUND with respect to the agreement herein and cannot be modified except in writing by both parties. IN WITNESS WHEREOF, the parties have signed this AGREEMENT this _____ day of March 1996. MORGAN STANLEY SHAREHOLDER COMMUNICATIONS ASIA-PACIFIC FUND, INC. CORPORATION By By /s/ Robert S. Brennan --------------------------- ---------------------------- Warren J. Olsen Robert S. Brennan Senior Account Executive EX-99.H.1 4 DEALER MANAGEMENT AGREEMENT 1 18,000,000 Shares of Common Stock Issuable Upon Exercise of Transferable Rights MORGAN STANLEY ASIA-PACIFIC FUND, INC. COMMON STOCK PAR VALUE $.01 PER SHARE DEALER MANAGER AGREEMENT ___________ , 1996 2 ___________, 1996 Morgan Stanley & Co. Incorporated 1251 Avenue of the Americas New York, New York 10020 Dear Sirs: MORGAN STANLEY ASIA-PACIFIC FUND, INC., a corporation formed under the laws of the State of Maryland (the "Fund"), is a non-diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (together with the rules and regulations thereunder, the "Investment Company Act"). The Fund proposes to issue to its shareholders of record ("Record Date Shareholders") as of ___________, 1996 (the "Record Date") rights ("Rights") entitling their holders to subscribe for an aggregate of 18,000,000 shares ("Shares") of the Fund's Common Stock, par value $.01 per share ("Common Stock"). The Fund appoints Morgan Stanley & Co. Incorporated ("Morgan Stanley") as the exclusive dealer manager in connection with the offer of Shares contemplated by the proposed issuance of Rights (the "Offer") and Morgan Stanley accepts that appointment. The Fund also authorizes Morgan Stanley to form and manage a group of securities dealers (each, a "Selling Group Member," and, collectively, the "Selling Group") to solicit the exercise of Rights and sell Shares purchased by Morgan Stanley from the Fund 3 through the exercise of Rights. Morgan Stanley represents and warrants that it is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (together with the rules and regulations thereunder, the "Exchange Act"). Morgan Stanley Asset Management Inc. (the "Investment Manager") manages the investments of the Fund pursuant to the Investment Advisory and Management Agreement, dated as of July 22, 1994 with the Fund (the "Management Agreement"). In connection with the Offer, each Record Date Shareholder will be issued one Right for each full share of Common Stock owned on ___________, 1996. The number of Rights to be issued to Record Date Shareholders will be rounded up to the nearest number of Rights evenly divisible by three. No fractional Rights will be issued. The Rights entitle their holders to acquire one Share for each three Rights held at a price of $____ per Share (the "Subscription Price"). The period of subscription (the "Subscription Period") commences on ___________, 1996 and ends at 5:00 p.m., New York time, on ___________, 1996 unless extended by the Fund and Morgan Stanley (the "Expiration Date"). Any Record Date Shareholder who fully exercises all Rights issued to such Record Date Shareholder by the Fund is entitled to subscribe for Shares that were not otherwise subscribed for by others during the Subscription Period. Additional terms and conditions of the Offer are set out in the Registration Statement on Form N-2 (File No. 33-_____), as amended (the "Registration Statement"), filed by the Fund with the Securities and Exchange Commission (the "Commission") under the Investment Company Act and the Securities Act of 1933, as amended (together with the rules and regulations thereunder, the "Securities Act" and, together with the Investment Company Act, the "Acts"). The final prospectus for the Shares contained in the Registration Statement is hereinafter referred to as the "Prospectus"; any letters to beneficial owners of shares of Common Stock, any forms used to exercise Rights, any letters from the Fund to securities dealers, banks and other nominees, and any newspaper announcements, press releases and other offering materials and information that the Fund may use, approve, prepare or authorize in writing for use in 2 4 connection with the Offer are hereinafter collectively referred to as the "Offering Materials". I. The Fund and the Investment Manager, jointly and severally, represent and warrant to Morgan Stanley that: (a) The Registration Statement has become effective, no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or, to the knowledge of the Fund or the Investment Manager, threatened by the Commission. (b) The Fund has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of Maryland, has the corporate power and authority to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Fund. The Fund has no subsidiaries. (c) The Fund is registered with the Commission as a non-diversified, closed-end management investment company under the Investment Company Act and no order of suspension or revocation of such registration has been issued or proceedings initiated for that purpose or, to the knowledge of the Fund or the Investment Manager, threatened by the Commission. No person is serving or acting as an officer or director of, or investment adviser to, the Fund except in accordance with the provisions of the Investment Company Act and the Investment Advisers Act of 1940, as amended, and the rules and regulations of the Commission thereunder (such act and rules being collectively referred to as the "Advisers Act"). 3 5 (d) Each of this Agreement and the Subscription Agent Agreement dated as of ___________, 1996 (the "Subscription Agent Agreement") between the Fund and American Stock Transfer Company (the "Subscription Agent"), has been duly authorized, executed and delivered by the Fund. The Subscription Agent Agreement, assuming due authorization, execution and delivery by the Subscription Agent, constitutes the legal, valid and binding obligation of the Fund, enforceable against the Fund in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting creditors' rights generally and by general principles of equity, regardless of whether considered in a proceeding in equity or at law. (e) None of (i) the execution and delivery by the Fund of, and the performance by the Fund of its obligations under, this Agreement and the Subscription Agent Agreement, or (ii) the distribution of the Rights and the allotment, issue and sale of the Shares, contravenes or will contravene any provision of applicable U.S. law, the Blue Sky laws of the various foreign jurisdictions or the articles of incorporation or by-laws of the Fund or any agreement or other instrument binding upon the Fund that is material to the Fund, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Fund, whether foreign or domestic. No consent, approval, authorization, order or permit of, or qualification with, any governmental body or agency, self-regulatory organization or court or other tribunal, whether foreign or domestic, is required for the performance by the Fund of its obligations under this Agreement and the Subscription Agent Agreement, except such as have been obtained and as may be required by the Acts, the Exchange Act, or the securities or Blue Sky laws of the various states and political subdivisions of the United States and foreign 4 6 jurisdictions in connection with the distribution of the Rights and the issue and sale of the Shares. (f) The authorized capital stock and the articles of incorporation and by-laws of the Fund conform in all material respects to the description thereof contained in the Prospectus, and the Rights and Shares will conform in all material respects to the descriptions thereof contained in the Prospectus. (g) The articles of incorporation and by-laws of the Fund, this Agreement, the Subscription Agent Agreement, the Management Agreement, the Administration Agreement between The Chase Manhattan Bank, N.A. and the Fund (the "Administration Agreement"), the Custody Agreement between Morgan Stanley Trust Company and the Fund (the "International Custody Agreement") and the Domestic Custody Agreement between The Chase Manhattan Bank, N.A. and the Fund (the "Domestic Custody Agreement") (the Management Agreement, the Administration Agreement, the International Custody Agreement and the Domestic Custody Agreement are referred to herein, collectively, as the "Fundamental Agreements"), each as referred to in the Registration Statement, comply with all applicable provisions of the Acts, and all approvals of such documents required under the Investment Company Act by the Fund's shareholders and Board of Directors have been obtained and are in full force and effect. (h) The Fundamental Agreements are in full force and effect and neither the Fund nor, to the Fund's knowledge, any other party to any such agreement is in default thereunder and, to the knowledge of the Fund, no event has occurred that with the passage of time or the giving of notice or both would constitute a default thereunder. The Fund is not currently in breach of, or in default under, any other written agreement or instrument to which it or its property is bound or affected. 5 7 (i) The shares of Common Stock outstanding prior to the issuance of the Shares have been duly authorized and are validly issued, fully paid and non-assessable and the form of certificates used to evidence such shares is in due and proper form and complies with all provisions of applicable law. (j) The Offer, the Rights and the Shares have been duly authorized and, when issued, paid for and delivered as described in the Registration Statement, the Shares will be validly issued, fully paid and non-assessable and the issuance of the Shares will not be subject to any pre-emptive or similar rights. No person has rights to the registration of any securities because of the filing of the Registration Statement. (k) The Rights and the Shares have been approved for listing on the New York Stock Exchange, Inc. (the "New York Stock Exchange"), subject to official notice of issuance. (l) The Fund is a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). (m) There has not been any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, of the Fund, or in the investment objective, investment policies, liabilities, business, prospects or operations of the Fund from that set forth in the Prospectus and there have been no transactions entered into by the Fund that are material to the Fund other than those in the ordinary course of its business or as described in the Prospectus. (n) There are no legal or governmental proceedings pending or, to the knowledge of the Fund or the Investment Manager, threatened against or affecting the Fund that are required to be described in the Registration Statement or the Prospectus and are not so described or any statutes, regulations, contracts or 6 8 other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement that are not described, filed or incorporated by reference therein as required. (o) The Fund has all necessary consents, authorizations, approvals, orders (including exemptive orders), certificates and permits of and from, and has made all declarations and filings with, all governmental authorities, self-regulatory organizations and courts and other tribunals, whether foreign or domestic, to own and use its assets and to conduct its business in the manner described in the Prospectus, except to the extent that the failure to obtain or file the foregoing would not have a material adverse effect on the Fund. (p) Each preliminary prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 497 under the Securities Act, complied when so filed in all material respects with the Acts. (q) (i) Each part of the Registration Statement, when such part became effective, did not contain and each such part, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) the Registration Statement, the Prospectus and the Offering Materials comply and, as amended or supplemented, if applicable, will comply in all material respects with the Acts and (iii) the Prospectus and the Offering Materials do not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph (q) do not 7 9 apply to statements or omissions in the Registration Statement, the Prospectus or the Offering Materials based upon information concerning Morgan Stanley furnished to the Fund in writing by Morgan Stanley expressly for use therein. (r) The financial statements of the Fund, together with related notes and schedules and the summary financial data included in the Registration Statement and the Prospectus (or incorporated by reference therein as permitted by the Acts) present fairly the financial position and results of operations of the Fund as at the dates and for the periods indicated and have been prepared in conformity with generally accepted accounting principles. Price Waterhouse LLP, whose report has been incorporated by reference into the Prospectus, are independent public accountants with respect to the Fund as required by the Acts. (s) There are no material restrictions, limitations or regulations with respect to the ability of the Fund to invest its assets as described in the Prospectus, other than as described therein. II. The Investment Manager represents and warrants to Morgan Stanley that: (a) The Investment Manager has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of Delaware, has the corporate power and authority to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business requires such qualification, except to the extent that failure to be so qualified or be in good standing would not have a material adverse effect on the Investment Manager. 8 10 (b) The Investment Manager is duly registered as an investment adviser under the Advisers Act, and is not prohibited by the Advisers Act or the Investment Company Act from acting under the Management Agreement as an investment adviser to the Fund as contemplated by the Prospectus, and no order of suspension or revocation of such registration has been issued or proceedings therefor initiated or, to the knowledge of the Investment Manager, threatened by the Commission. (c) Each of this Agreement and the Management Agreement has been duly authorized, executed and delivered by the Investment Manager and complies with all applicable provisions of the Acts. The Management Agreement, assuming due authorization, execution and delivery by the Fund, constitutes the legal, valid and binding obligation of the Investment Manager, enforceable against the Investment Manager in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting creditors' rights generally and by general principles of equity, regardless of whether considered in a proceeding in equity or at law. (d) The execution and delivery by the Investment Manager of, and the performance by the Investment Manager of its obligations under, this Agreement do not and will not contravene any provision of applicable law or the certificate of incorporation or by-laws of the Investment Manager or any agreement or other instrument binding upon the Investment Manager that is material to the Investment Manager, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Investment Manager. No consent, approval, authorization, order or permit of, or qualification with, any governmental body or agency, self-regulatory agency or court or other tribunal, whether foreign or domestic, is required for the performance by the Investment Manager of its 9 11 obligations under this Agreement or the Management Agreement except such as have been obtained and as may be required by the Acts, the Exchange Act or the securities or Blue Sky laws of the various states and foreign jurisdictions in connection with the distribution of the Rights and the issue and sale of the Shares. (e) There are no legal or governmental proceedings pending or, to the knowledge of the Investment Manager, threatened against or affecting the Investment Manager that are required to be described in the Registration Statement or the Prospectus and are not so described. (f) The Investment Manager has all necessary consents, authorizations, approvals, orders (including exemptive orders), certificates and permits of and from, and has made all declarations and filings with, all governmental authorities, self-regulatory organizations and courts and other tribunals, whether foreign or domestic, to own and use its assets and to conduct its business in the manner described in the Prospectus, except to the extent that the failure to obtain or file the foregoing would not have a material adverse effect on the Investment Manager. (g) The Investment Manager has the financial resources available to it necessary for the performance of its services and obligations as contemplated in the Prospectus. (h) The Management Agreement is in full force and effect and neither the Investment Manager nor, to the Investment Manager's knowledge, the Fund is in default thereunder and, to the knowledge of the Investment Manager, no event has occurred which with the passage of time or the giving of notice or both would constitute a default under the Management Agreement. (i) All information furnished by the Investment Manager for use in the Registration Statement and 10 12 Prospectus, including, without limitation, the description of the Investment Manager, does not, and on the Expiration Date will not, contain any untrue statement of a material fact or omit to state any material fact necessary to make such information not misleading. (j) There has not been any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the business or operations of the Investment Manager from that set forth in the Prospectus. III. On the basis of the representations and warranties, and subject to the terms and conditions, set forth in this Agreement: (a) Morgan Stanley agrees to (1) solicit, in accordance with the Acts, the Exchange Act and Morgan Stanley's customary practice, the exercise of Rights, subject to the terms of this Agreement, the Subscription Agent Agreement and the procedures described in the Registration Statement, and (2) form and manage the Selling Group to (i) solicit, in accordance with the Acts, the Exchange Act and Morgan Stanley's customary practice, the exercise of Rights, subject to the terms of this Agreement, the Subscription Agent Agreement and the procedures described in the Registration Statement, and (ii) sell Shares purchased by Morgan Stanley from the Fund as provided herein. No securities dealer shall be considered a Selling Group Member until it shall have entered into a Selling Group Agreement with Morgan Stanley in substantially the form of Exhibit A hereto. (b) Morgan Stanley is authorized to buy and exercise Rights and to sell Shares to the public or to Selling Group Members at the offering price set by 11 13 Morgan Stanley from time to time. Sales of Shares by Morgan Stanley or Selling Group Members shall be at not more than the offering price set by Morgan Stanley from time to time. Such offering price shall not be increased more than once during any calendar day and at the time any such price is set shall not be less than the Subscription Price specified in the Prospectus nor more than the greater of the last sale or the current offering price on the New York Stock Exchange, plus an exchange commission. (c) The Fund agrees to furnish, or cause to be furnished, to Morgan Stanley lists, or copies of those lists, showing the names and addresses of, and the number of Shares held by, Record Date Shareholders as of the Record Date, and to use its best efforts to advise Morgan Stanley, or cause it to be advised, on each day on which trading is conducted on the New York Stock Exchange (a "Business Day") during the Subscription Period with respect to any transfers of Rights, and Morgan Stanley agrees to use such information only in connection with the Offer, and not to furnish the information to any other person except for Selling Group Members or other securities brokers and dealers that Morgan Stanley has requested to solicit exercises of Rights. (d) The Fund will arrange for the Subscription Agent to inform Morgan Stanley orally, on each Business Day during the Subscription Period (to be followed by written confirmation), as to the number of Rights that have been exercised since its previous daily report to Morgan Stanley under the provision of this paragraph (d) and, not later than 12:00 noon (New York City time) on ___________, 1996 to provide Morgan Stanley with a written statement as to the total number of Rights exercised (separately setting forth the number of Rights exercised by Record Date Shareholders). (e) Morgan Stanley agrees to notify the Fund on or prior to ___________, 1996 of the Shares purchased by Morgan Stanley through the exercise of Rights and 12 14 sold to the public or to each Selling Group Member and the total amount of the commissions payable by the Fund pursuant to Article IV of this Agreement in connection with such sales. (f) Morgan Stanley agrees to provide to the Fund, in addition to the services described in paragraph (a) of this Article III, financial advisory and marketing services in connection with the Offer and general financial advisory services to the Fund. No advisory fee, other than the fees provided for in Article IV of this Agreement and reimbursement of Morgan Stanley's out-of-pocket expenses as described in paragraph (h) of Article VI of this Agreement, will be payable by the Fund to Morgan Stanley in connection with the general financial advisory services provided by Morgan Stanley in accordance with this paragraph unless the Fund requests Morgan Stanley to provide additional services with respect to a particular transaction involving the Fund, in which event the fees payable to Morgan Stanley will be mutually agreed upon by the Fund and Morgan Stanley. (g) The Fund and Morgan Stanley agree that Morgan Stanley and each Selling Group Member is an independent contractor with respect to its solicitation of the exercise of Rights, the purchase of Rights or the sale of Shares as contemplated by this Agreement and with respect to Morgan Stanley's performance of financial advisory services to the Fund contemplated by this Agreement, and Morgan Stanley represents and warrants that it is not a partner or agent of any other securities broker, dealer or other person soliciting the exercise of Rights, the purchase of Rights or the sale of Shares as contemplated by this Agreement, or of the Fund or any of its affiliates. (h) In rendering the services contemplated by this Agreement, neither Morgan Stanley nor any Selling Group Member will be subject to any liability to the Fund, the Investment Manager or any of their affiliates, for any act or omission on the part of any 13 15 securities broker or dealer (other than itself) or any other person, and neither Morgan Stanley nor any Selling Group Member will have any liability (whether direct or indirect, in contract or tort or otherwise) for or in connection with the performance of its obligations under this Agreement except for any such liability for losses, claims, damages or liabilities incurred that are finally judicially determined to have resulted from its bad faith or gross negligence. IV. The Fund agrees to pay in New York Clearing House (next day) funds on ___________, 1996 (or, if the Expiration Date is extended by the Fund and Morgan Stanley, on such later date not more than 15 days after the Expiration Date as the Fund and Morgan Stanley may agree to): (i) to Morgan Stanley, as compensation for its services to the Fund as financial and marketing advisor in connection with the Offer, a fee equal to the sum of (A) _____ multiplied by the first $_____ of the proceeds of the Offer before deduction of offering expenses and financial advisory and soliciting fees payable in connection with the Offer (the "Gross Proceeds"), (B) _____ multiplied by the next $_____ of the Gross Proceeds (if any) and (C) _____ multiplied by the Gross Proceeds (if any) in excess of $_____; (ii) to Morgan Stanley for its own account a fee equal to an amount computed by multiplying (A) ____, by (B) the sum of the number of Shares purchased pursuant to each subscription form relating to the Rights upon which Morgan Stanley is designated (other than Shares purchased by Morgan Stanley through the exercise of Rights and sold to the public or to Selling Group Members) plus the number of Shares sold by Morgan Stanley to the public as indicated in the notice provided by Morgan Stanley to the Fund pursuant to paragraph (e) of Article III of this Agreement, by (C) the Subscription Price; 14 16 (iii) to Morgan Stanley for the account of each Selling Group Member a fee equal to an amount computed by multiplying (A) ____, by (B) the sum of the number of Shares purchased pursuant to each subscription form relating to the Rights upon which the Selling Group Member is designated plus the number of Shares sold by Morgan Stanley to such Selling Group Member as indicated in the notice provided by Morgan Stanley to the Fund pursuant to paragraph (e) of Article III of this Agreement, by (C) the Subscription Price; (iv) to each securities broker or dealer who has executed the Fund's Soliciting Dealer Agreement (other than Morgan Stanley or any Selling Group Member) designated on any subscription form related to the Rights ("Listed Broker") a fee equal to an amount computed by multiplying (A) ____, by (B) the number of Shares purchased pursuant to each subscription form upon which the Listed Broker is designated, by (C) the Subscription Price, provided that the aggregate fees paid to any Listed Broker (other than a Listed Broker who is registered as a specialist in the Rights with The New York Stock Exchange and who has been approved by The New York Stock Exchange to act as such during the Subscription Period) may not exceed the product of (i) ___% of the Subscription Price per Share, times (ii) the aggregate number of shares of Common Stock held in such Listed Broker's participant accounts with The Depository Trust Company on the Record Date divided by three (subject to appropriate rounding up for the benefit of beneficial holders as described in the Prospectus); and (v) to Morgan Stanley a fee equal to an amount computed by multiplying (A) ____ by (B) the number of Shares purchased pursuant to each subscription form upon which neither Morgan Stanley nor any Selling Group Member or Listed Broker is designated plus the number of Shares purchased pursuant to subscription forms upon which a Listed Broker is designated but which are in excess of the limit set forth in clause (ii) of the 15 17 proviso in paragraph (iv) of this Article IV, by (C) the Subscription Price. V. The respective obligations of the Fund, the Investment Manager and Morgan Stanley are subject to the condition that the Registration Statement has become effective not later than the date hereof. The obligations of Morgan Stanley hereunder will at all times be subject to the following further conditions: (a) All representations, warranties and other statements of the Fund and the Investment Manager contained herein or in certificates of any officer of the Fund or the Investment Manager delivered pursuant to this Agreement are now, and at all times during the Subscription Period will be, true and correct in all material respects as though expressly made at such time. (b) There has not occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, of the Fund or the Investment Manager, or in the investment objectives, investment policies, liabilities, business, prospects or operations of the Fund from those set forth in the Registration Statement, that, in Morgan Stanley's reasonable judgment, is material and adverse and that makes it, in Morgan Stanley's reasonable judgment, impracticable to distribute the Rights and market the Shares on the terms and in the manner contemplated in the Prospectus. (c) Morgan Stanley has received separate certificates, dated the date hereof and signed by an executive officer of each of the Fund and the Investment Manager in the officer's capacity as such, to the effect that the respective representations and warranties of the Fund and the Investment Manager 16 18 contained in this Agreement are true and correct as of the date hereof. Each officer signing and delivering such a certificate may rely upon the best of his knowledge as to proceedings threatened. (d) The Investment Manager and the Fund at all times during the Subscription Period have each performed all of their respective obligations required to be performed hereunder. (e) Morgan Stanley has received on the date hereof an opinion of Rogers & Wells, counsel for the Fund, dated the date hereof, to the effect that: (i) the Registration Statement is effective under the Securities Act and, to the best of such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement is in effect and no proceedings for such purpose are pending or threatened by the Commission; (ii) the Fund has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of Maryland, has the corporate power and authority to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business requires such qualification, except to the extent that the failure to be so qualified or to be in good standing would not have a material adverse effect on the Fund; (iii) the Fund is registered with the Commission as a non-diversified, closed-end management investment company under the Investment Company Act and, to the best of such counsel's knowledge, no order of suspension or revocation of such registration has been issued or proceedings initiated for that purpose or threatened by the Commission; 17 19 (iv) each of this Agreement and the Subscription Agent Agreement has been duly authorized, executed and delivered by the Fund. The Subscription Agent Agreement constitutes the legal, valid and binding obligation of the Fund, enforceable against the Fund in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws affecting creditors' rights generally and by general principles of equity, regardless of whether considered in a proceeding in equity or at law; (v) none of (A) the execution and delivery by the Fund of, and the performance by the Fund of its obligations under, this Agreement or the Subscription Agent Agreement or (B) the distribution of the Rights and the issue and sale of the Shares contravenes or will contravene any provision of applicable U.S., State of New York or State of Maryland law or the articles of incorporation or by-laws of the Fund or any material agreement or instrument binding upon the Fund that is known to such counsel, or any judgment, order or decree of any U.S., State of New York or State of Maryland governmental body, agency or court having jurisdiction over the Fund that is known to such counsel. No consent, approval, authorization, permit or order of, or qualification with, any U.S. or State of New York governmental body or agency, self-regulatory organization or court or other tribunal, is required for the performance by the Fund of its obligations under this Agreement or the Subscription Agent Agreement, except as may be required by the Acts, the Exchange Act or the securities or Blue Sky laws of the various states and in connection with the distribution of the Rights and the issue and sale of the Shares; 18 20 (vi) the authorized capital stock and the articles of incorporation and by-laws of the Fund conform in all material respects to the description of them contained in the Prospectus; and the Rights and Shares conform in all material respects as to legal matters to the descriptions of them contained in the Prospectus; (vii) the articles of incorporation and by-laws of the Fund, this Agreement and each of the Fundamental Agreements comply with all applicable provisions of the Acts, and all approvals of such documents required under the Investment Company Act by the Fund's shareholders and Board of Directors have been obtained and are in full force and effect; (viii) to the knowledge of such counsel, the Fundamental Agreements are in full force and effect and, to such counsel's knowledge, neither the Fund nor any other party to any such agreement is in default thereunder and, to the knowledge of such counsel, no event has occurred which with the passage of time or the giving of notice or both would constitute a default thereunder. To the knowledge of such counsel, the Fund is not currently in breach of, or in default under, any other written agreement or instrument to which it or its property is bound or affected; (ix) the shares of Common Stock outstanding prior to issuance of the Shares have been duly authorized and are validly issued, fully paid and non-assessable, and the form of certificate used to evidence such shares is in due and proper form and complies with all provisions of applicable law; (x) the Offer, the Rights and the Shares have been duly authorized and, when issued, paid for and delivered as described in the Registration statement, the Shares will be validly issued, 19 21 fully paid and non-assessable and the issuance of the Shares will not be subject to any pre-emptive or other similar rights; (xi) the Rights and the Shares have been approved for listing on the New York Stock Exchange, subject to official notice of issuance; (xii) the statements in the Prospectus under "The Offer - Federal Income Tax Consequences," "Taxation - U.S. Federal Income Taxes" and "Common Stock," insofar as such statements constitute a summary of the law or legal conclusions, documents or proceedings referred to therein, are accurate in all material respects and fairly present the information called for with respect to such legal matters, legal conclusions, documents and proceedings and fairly summarize the matters referred to therein; (xiii) the descriptions, if any, in the Prospectus of U.S. or State of New York statutes, regulations and legal or governmental proceedings are accurate in all material respects and fairly summarize the matters referred to therein; (xiv) there are no U.S. or State of New York statutes or regulations, or, to the best of such counsel's knowledge, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required; and, to the best of such counsel's knowledge, there are no legal or governmental proceedings pending or threatened that are required to be described in the Registration Statement or the Prospectus and are not so described; (xv) the Registration Statement and the Prospectus and any supplements or amendments thereto (except for financial statements and 20 22 schedules included therein as to which such counsel need not express any opinion) comply as to form in all material respects with the Acts; and (xvi) all advertisements authorized in writing by the Fund for use in connection with the Offer comply with the requirements of the Acts. In addition to the foregoing opinion, such counsel will advise Morgan Stanley that, in the light of such counsel's understanding of the applicable law and the experience it has gained through its practice thereunder, nothing has come to its attention that would lead it to believe that (except for financial statements, schedules and other financial, economic or statistical information contained in the Registration Statement or the Prospectus or incorporated by reference therein, as to which counsel need express no belief) the Registration Statement, on the date it became effective, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, as of the time it was first provided to Morgan Stanley, contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Counsel will also be permitted to state that because of the limitations inherent in the independent verification of factual matters and the character of determinations involved in the registration process, that counsel does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or Prospectus. (f) Morgan Stanley has received on the date hereof an opinion of Harold J. Schaaff, Jr., general counsel for the Investment Manager, dated the date hereof, to the effect that: (i) the Investment Manager has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of 21 23 Delaware, has the corporate power and authority to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business requires such qualification, except to the extent that failure to be so qualified or be in good standing would not have a material adverse effect on the Investment Manager; (ii) the Investment Manager is duly registered as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act or the Investment Company Act from acting under the Management Agreement as an investment manager to the Fund as contemplated by the Prospectus, and no order of suspension or revocation of such registration has been issued or proceedings initiated for that purpose or, to the best of such counsel's knowledge, threatened by the Commission; (iii) this Agreement has been duly authorized, executed and delivered by the Investment Manager; (iv) the execution and delivery by the Investment Manager of, and the performance by the Investment Manager of its obligations under, this Agreement will not contravene any provision of applicable U.S. or State of New York law or the certificate of incorporation or by-laws of the Investment Manager or, to the best of such counsel's knowledge, any agreement or other instrument binding upon the Investment Manager that is material to the Investment Manager or, to the best of such counsel's knowledge, any judgment, order or decree of any U.S. or State of New York governmental body, agency or court having jurisdiction over the Investment Manager, and no consent, approval or authorization, or order of, or qualification with, any U.S. or State of New York governmental body or agency is required for the performance by the Investment Manager of its 22 24 obligations under this Agreement, except such as may be required by the Acts, the Exchange Act or the securities or Blue Sky laws of the various states in connection with the distribution of the Rights and the issue and sale of the Shares; (v) to the best knowledge of such counsel, there are no actions, investigations or other proceedings of any nature, whether foreign or domestic, pending, commenced or threatened, that in any case or in the aggregate, might result in any material adverse change in the business of the Investment Manager or that question the validity of this Agreement or the Management Agreement or the performance by the Investment Manager of such Agreements; and (vi) the description of the Investment Manager in the Prospectus does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (g) Morgan Stanley has received on the date hereof an opinion of Davis Polk & Wardwell, counsel to Morgan Stanley, dated the date hereof, covering the matters referred to in subparagraphs (iv) (but only as to this Agreement), (vi), (x) and (xii) (but only as to the statements in the Prospectus under "Common Stock" and "Distribution Arrangements," and only with respect to matters of U.S. law or legal conclusions) of paragraph (e) above and the last paragraph of (e) above except that no belief need be expressed with respect to statements in the Prospectus contained in Appendix D thereto. With respect to the last paragraph of (e) and (g) above, Rogers & Wells and Davis Polk & Wardwell may state that their opinion and belief are based upon their participation in the preparation of the Registration 23 25 Statement and Prospectus and any amendments or supplements thereto and review and discussion of the contents thereof, but are without independent check or verification except as specified. With respect to paragraphs (e) and (g) above, Rogers & Wells and Davis Polk & Wardwell may rely as to matters governed by the laws of the State of Maryland upon an opinion of Maryland counsel for the Fund and to the extent any such counsel deems appropriate, upon the representations of the Fund contained herein; provided that (A) such Maryland counsel for the Fund is reasonably satisfactory to Morgan Stanley and (B) a copy of the opinion so relied upon is delivered to Morgan Stanley and is in form and substance satisfactory to Morgan Stanley. (h) Morgan Stanley has received an opinion of Mitsui, Yasuda, Wani & Maeda, special Japanese counsel to the Fund, dated the date hereof, to the effect that: (i) no approval, validation, authorization, permit, order or consent is required to be obtained, or filing to be made, by the Fund under Japanese law or with the Osaka Stock Exchange in connection with the distribution of the Rights and the issue and sale of the Shares in the manner described in the Prospectus; and (ii) the description of the matters relating to Japanese law contained in the Registration Statement and the Prospectus is true and correct in all material respects. (i) Morgan Stanley has received on the date hereof a letter dated the date hereof, in form and substance satisfactory to Morgan Stanley, from Price Waterhouse LLP, independent public accountants, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information regarding the Fund contained or incorporated by reference in the Registration Statement and the Prospectus. 24 26 (j) Morgan Stanley has received during the Subscription Period such further information, certificates and documents as Morgan Stanley may reasonably request. (k) All proceedings taken by the Fund and the Investment Manager in connection with the distribution of Rights and the issue and sale of the Shares and registration of the Shares under the Acts and the laws of any foreign jurisdiction will be satisfactory in form and substance to Morgan Stanley and its counsel. (l) No proceedings have been instituted or threatened by the Commission that would adversely affect the Fund's standing as a registered investment company under the Investment Company Act or the standing of the Investment Manager as a registered investment adviser under the Advisers Act. (m) The Rights and the Shares have been duly authorized for listing on the New York Stock Exchange, subject only to official notice of issuance. In the event that any of the foregoing conditions is at any time not fulfilled, Morgan Stanley will be entitled to withdraw as dealer manager for the Offer without any liability or penalty to Morgan Stanley or any "controlling person" (as defined in Article VII hereof) and without loss of any right to the payment of any fees pursuant to Section IV earned prior to the date of such withdrawal and expenses payable hereunder. VI. In further consideration of the agreements of Morgan Stanley contained in this Agreement, the Fund covenants and agrees with Morgan Stanley as follows: (a) To notify Morgan Stanley immediately, and confirm such notice in writing (i) of the institution of any proceedings pursuant to Section 8(e) of the Investment Company Act and (ii) of the happening of any 25 27 event during the period described in paragraph (d) below that in the judgment of the Fund makes the Registration Statement or the Prospectus untrue in any material respect or that requires the making of any change in or addition to the Registration Statement or the Prospectus in order to make the statements therein not misleading in any material respect. If at any time the Commission issues any order suspending the effectiveness of the Registration Statement or an order pursuant to Section 8(e) of the Investment Company Act, the Fund will make every reasonable effort to obtain the withdrawal of such order at the earliest possible moment. (b) To furnish Morgan Stanley, without charge, five signed copies of the Registration Statement including exhibits and, during the period described in paragraph (d) below, as many copies of the Prospectus and any supplements and amendments thereto as Morgan Stanley may reasonably request. (c) Before amending or supplementing the Registration Statement or the Prospectus, to furnish Morgan Stanley with a copy of each proposed amendment or supplement, and to file no proposed amendment or supplement to which Morgan Stanley reasonably objects. (d) If, during such period as in the opinion of counsel to Morgan Stanley the Prospectus is required by law to be delivered, any event occurs as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus was delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Prospectus to comply with law, forthwith to prepare and furnish, at its own expense, to Morgan Stanley and to the Selling Group Members and other dealers (whose names and addresses Morgan Stanley will furnish to the Fund) to which Rights and/or Shares may have been sold by you and to any other dealers upon request, either amendments or supplements to the Prospectus so that the 26 28 statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus will comply with law. (e) To use its best efforts to maintain its qualification as a regulated investment company under Subchapter M of the Code. (f) To endeavor to qualify the Rights and the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as Morgan Stanley reasonably requests and to pay all expenses (including reasonable fees and disbursements of counsel) in connection therewith as well as all fees payable in connection with the review (if any) of the distribution of the Rights and the issue and sale of the Shares by the National Association of Securities Dealers, Inc.; provided, however, that the Fund shall not be obligated to file any consent to service of process or to qualify as a foreign corporation in any jurisdiction in which it is not so qualified. (g) To make generally available to the Fund's security holders as soon as practicable an earning statement covering the twelve-month period ending June 30, 1997 that satisfies the provisions of Section 11(a) of the Securities Act. (h) To pay (A) all costs, expenses, fees and taxes incident to (i) the preparation, printing and filing of the Registration Statement and of each amendment thereto, each preliminary prospectus and the Prospectus and any amendments or supplements thereto, and any Offering Materials, (ii) the printing of this Agreement and such other agreements as Morgan Stanley may reasonably request, (iii) the preparation, issuance and delivery of the certificates for the Rights and the Shares, including stock transfer taxes, if any, payable upon the sale, issuance and delivery by the Fund of the Shares, (iv) the fees and disbursements of the Fund's 27 29 counsel and accountants, (v) furnishing such copies of the Registration Statement, the Prospectus and any related preliminary prospectus, and all amendments and supplements thereto, as may be reasonably requested for use in connection with the distribution of the Rights and the issue and sale of the Shares, (vi) the printing and delivery to Morgan Stanley of copies of the Blue Sky Survey and (vii) the fees and expenses incurred with respect to the listing of the Rights and the Shares on the New York Stock Exchange including the listing fees of such Exchange and the preparation, printing and the filing fees with respect to the distribution of documents relating thereto, and (B) to Morgan Stanley up to $_______ as reimbursement of certain costs and expenses of Morgan Stanley incurred in connection with the distribution of the Rights and the issue and sale of the Shares. VII. The Fund agrees to indemnify and hold harmless Morgan Stanley and each person, if any, who controls Morgan Stanley within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (a "controlling person") from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred by Morgan Stanley or any such controlling person in connection with defending or investigating any such action or claim) (a) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus or the Prospectus (as amended or supplemented if the Fund has furnished any amendments or supplements thereto), or any Offering Materials, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission based upon information relating to Morgan Stanley furnished to the Fund in writing 28 30 by Morgan Stanley expressly for use therein; provided that the foregoing indemnity agreement with respect to any preliminary prospectus will not inure to the benefit of Morgan Stanley or of any person controlling Morgan Stanley, if a copy of the Prospectus (as then amended or supplemented if the Fund has furnished any amendments or supplements thereto) was not sent or given by or on behalf of Morgan Stanley to such person, if required by law to have been delivered, at or prior to the written confirmation of the sale of the Shares to such person, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such losses, claims, damages or liabilities, or (b) arising out of or based upon (i) any failure of the Fund to consummate the Offer, including any failure of the Fund to issue the Rights or issue and sell the Shares, (ii) any action taken or omitted to be taken by Morgan Stanley with the consent of the Fund, (iii) any action taken or omitted to be taken by the Fund, (iv) any breach by the Fund of any representation or warranty, or any failure by the Fund to comply with any agreement or covenant contained in this Agreement or (v) any of the other transactions contemplated by the Offer or by Morgan Stanley's performance of its obligations under this Agreement. Morgan Stanley agrees to indemnify and hold harmless the Fund, its directors, and each officer of the Fund who signs the Registration Statement and each person, if any, who controls the Fund within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus (as amended or supplemented if the Fund has furnished any amendment or supplements thereto) or any preliminary prospectus or any Offering Materials, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information relating to Morgan Stanley furnished to the Fund in writing by Morgan Stanley expressly for use in the Registration statement, the Prospectus, any amendment or supplement 29 31 thereto, any preliminary prospectus or any Offering Materials. In case any proceeding (including any governmental investigation) is instituted involving any person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such person (the "indemnified party") will promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, will retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and will pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, any indemnified party will have the right to retain its own counsel, but the fees and expenses of such counsel will be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party will not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for (a) the fees and expenses of more than one separate firm (in addition to any local counsel) for Morgan Stanley and all persons, if any, who control Morgan Stanley within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act and (b) the fees and expenses of more than one separate firm (in addition to any local counsel) for the Fund, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Fund within the meaning of either such Section. The indemnifying party will pay fees and expenses as they are incurred. The indemnifying party will not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to 30 32 indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party will have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it will be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party has not reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party may, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. If the indemnification provided for in the first or second paragraph of this Article VII is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, will contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Fund on the one hand and Morgan Stanley on the other hand from the distribution of the Rights and the issue and sale of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Fund on the one hand and of Morgan Stanley on the other hand in connection with the statements or omission that resulted in such losses, claims, damages or 31 33 liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Fund on the one hand and by Morgan Stanley on the other hand will be deemed to be in the same respective proportions as the net proceeds from the subscription for the Shares (before deducting expenses) received by the Fund on the one hand bear to the amounts received by Morgan Stanley pursuant to Article IV hereof on the other hand. The relative fault of the parties will be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Fund on the one hand or by Morgan Stanley on the other hand and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Fund and Morgan Stanley agree that it would not be just or equitable if contribution pursuant to this Article VII were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph will be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Article VII, Morgan Stanley will not be required to contribute any amount in excess of the amount by which the total fees received by Morgan Stanley pursuant to Article IV hereof exceeds the amount of any damages that Morgan Stanley has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Article VII are not exclusive and will not limit any 32 34 rights or remedies that may otherwise be available to any indemnified party at law or in equity. The indemnity and contribution provisions contained in this Article VII and the representations and warranties of the Fund and the Investment Manager contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement or (ii) any investigation made by or on behalf of any indemnified party. VIII. This Agreement will be subject to termination by notice given by Morgan Stanley to the Fund, if (a) after the execution and delivery of this Agreement (i) trading generally has been suspended or materially limited on the New York Stock Exchange, the American Stock Exchange, the National Association of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) a general moratorium on commercial banking activities has been declared by either federal or New York State authorities or (iii) there has occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in Morgan Stanley's judgment, is material and adverse and (b) in the case of any of the events specified in clauses (a)(i) through (iii), such event singly or together with any other such events makes it impracticable in Morgan Stanley's judgment to proceed with the solicitation of the exercise of the Rights or to market the Shares on the terms and in the manner contemplated in the Prospectus. Termination of this Agreement by Morgan Stanley shall not preclude the Fund from consummating the Offer at its discretion. IX. If the issuance of the Rights and the sale of Shares is not consummated because of any failure, refusal or inability on the part of the Fund or the Investment Manager to perform any agreement on its part to be performed, or 33 35 because any other condition of the obligations of Morgan Stanley under this Agreement is not fulfilled, the Fund will reimburse Morgan Stanley for up to $_______ for actual out-of-pocket costs and expenses as have been incurred by Morgan Stanley in connection with this Agreement and the proposed Offer, and upon demand, the Fund will pay the full amount of those costs and expenses to Morgan Stanley. X. Any notice by the Fund or the Investment Manager to Morgan Stanley will be sufficient if given in writing, by telegraph or by facsimile addressed to Morgan Stanley at 1251 Avenue of the Americas, New York, New York 10020 Attention: Corporate Financing Department, and any notice by Morgan Stanley to the Fund or the Investment Manager will be sufficient if given in writing, by telegraph or by facsimile addressed to the Fund at 1221 Avenue of the Americas, New York, New York 10020 Attention: Warren J. Olsen. This Agreement may be signed in two or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 34 36 This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. Very truly yours, MORGAN STANLEY ASIA-PACIFIC FUND, INC. By__________________________________ MORGAN STANLEY ASSET MANAGEMENT INC. By__________________________________ Accepted, ___________, 1996 MORGAN STANLEY & CO. INCORPORATED By_________________________ 35 EX-99.H.2 5 SOLICITING DEALER AGREEMENT 1 MORGAN STANLEY ASIA-PACIFIC FUND, INC RIGHTS OFFERING FOR SHARES OF COMMON STOCK SOLICITING DEALER AGREEMENT THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ______________, 1996, UNLESS EXTENDED. To Securities Brokers and Dealers: Morgan Stanley Asia-Pacific Fund, Inc. (the "Fund") is issuing to its shareholders of record ("Record Date Shareholders") as of the close of business on ______________, 1996 (the "Record Date") rights ("Rights") to subscribe for an aggregate of 18,000,000 shares (the "Shares") of common stock, par value $.01 per share ("Common Stock"), of the Fund upon the terms and subject to the conditions set forth in the Fund's Prospectus dated ______________, 1996 (the "Offer"). Each Record Date Shareholder is being issued one Right for each full share of Common Stock owned on the Record Date. The number of Rights to be issued to Record Date Shareholders will be rounded up to the nearest number of Rights evenly divisible by three. No fractional Rights will be issued. The Rights are listed for trading on the New York Stock Exchange. The Rights entitle the Record Date Shareholders and holders of Rights acquired during the Subscription Period (as hereinafter defined) to acquire at the Subscription Price (as hereinafter defined) one Share for each three Rights held in the primary subscription. The Subscription Price is $__ per Share. The Subscription Period commences on ______________, 1996 and ends at 5:00 p.m., New York time, on ______________, 1996 or such later time and date to which the Offer may be extended by the Fund and the Dealer Manager (as hereinafter defined) (the "Expiration Date"). Any Record Date Shareholder who fully exercises all Rights issued to him is entitled to subscribe for Shares which were not otherwise subscribed for by others in the primary subscription (the "Over-Subscription Privilege"). Shares acquired pursuant to the Over- 2 Subscription Privilege are subject to allotment, as more fully discussed in the Prospectus. For the duration of the Offer, the Fund will pay, to the extent described below, Soliciting Fees (as hereinafter defined) to any qualified broker or dealer who solicits the exercise of Rights in connection with the Offer and who complies with the procedures described below (a "Soliciting Dealer"). Upon timely delivery to The American Stock Transfer & Trust Company, the Fund's subscription agent for the Offer (the "Subscription Agent"), of payment for Shares purchased pursuant to the exercise of Rights and of properly completed and executed documentation as set forth in this Soliciting Dealer Agreement, a Soliciting Dealer will be entitled to receive fees equal to ___% of the Subscription Price per Share purchased pursuant to exercise of the Rights (the "Soliciting Fees"); provided that the aggregate fees paid to any Soliciting Dealer hereunder (other than a Soliciting Dealer who is registered as a specialist in the Rights with The New York Stock Exchange and who has been approved by The New York Stock Exchange to act as such during the Subscription Period) may not exceed the product of (i) ___% of the Subscription Price Per Share, times (ii) the aggregate number of shares of Common Stock held in such Soliciting Dealer's participant accounts with The Depository Trust Company on the Record Date divided by three (subject to appropriate rounding up for the benefit of beneficial holders as described in the Prospectus). A qualified broker or dealer is a broker or dealer that is a member of a registered national securities exchange in the United States or the National Association of Securities Dealers, Inc. ("NASD") or otherwise eligible to participate under the NASD Rules. The Fund hereby agrees to pay the Soliciting Fees payable to the Soliciting Dealers. Solicitation and other activities by Soliciting Dealers may be undertaken only in accordance with the applicable rules and regulations of the Securities and Exchange Commission and only in those states and other jurisdictions where those solicitations and other activities may lawfully be undertaken and in accordance with the laws in those states and other jurisdictions. Compensation will not be paid for solicitations in any state or other jurisdiction in which, in the opinion of counsel to the Fund or counsel to Morgan Stanley & Co. 2 3 Incorporated, the dealer manager in connection with the Offer (the "Dealer Manager"), compensation may not lawfully be paid. No Soliciting Dealer will be paid Soliciting Fees with respect to Shares purchased pursuant to an exercise of Rights for its own account or for the account of any affiliate of the Soliciting Dealer. No Soliciting Dealer or any other person is authorized by the Fund or the Dealer Manager to give any information or make any representations in connection with the Offer other than those contained in the Prospectus and other authorized solicitation material furnished by the Fund through the Dealer Manager. No Soliciting Dealer is authorized to act as agent of the Fund or the Dealer Manager in any connection or transaction. In addition, nothing contained in this Soliciting Dealer Agreement will constitute the Soliciting Dealers partners with the Dealer Manager or with one another or create any association between those parties, or will render the Dealer Manager or the Fund liable for the obligations of any Soliciting Dealer. The Dealer Manager will be under no liability to make any payment to any Soliciting Dealer, and will be subject to no other liabilities to any Soliciting Dealer, and no obligations of any sort will be implied. In order for a Soliciting Dealer to receive Soliciting Fees, the Subscription Agent must have received from that Soliciting Dealer no later than 5:00 p.m., New York time, on the Expiration Date, a properly completed and duly executed Soliciting Dealer Agreement (or a facsimile thereof), accompanied by either (i) a properly completed and duly executed Subscription Certificate with respect to Shares purchased pursuant to the exercise of Rights and full payment for those Shares; or (ii) a Notice of Guaranteed Delivery guaranteeing delivery to the Subscription Agent by the close of business on the third Business Day (as hereinafter defined) after the Expiration Date of a properly completed and duly executed Subscription Certificate with respect to Shares purchased pursuant to the exercise of Rights and full payment for such Shares. Soliciting Fees will only be paid to a Soliciting Dealer who is designated on the Subscription Certificate; if no Soliciting Dealer is designated, the Soliciting Fees will be paid to the Dealer Manager. A "Business Day" means any day on which trading is conducted on the New York Stock Exchange. In the case of a Notice of Guaranteed Delivery, Soliciting Fees will only be paid after payment and 3 4 delivery in accordance with that Notice of Guaranteed Delivery has been effected. All questions as to the form, validity and eligibility (including time of receipt) of the Soliciting Dealer Agreement will be determined by the Fund, in its sole discretion, which determination will be final and binding. Unless waived, any irregularities in connection with a Soliciting Dealer Agreement or delivery of a Soliciting Dealer Agreement must be cured within such time as the Fund may determine. None of the Fund, the Dealer Manager, Shareholder Communications Corporation, the Fund's Information Agent for the Offer, or the Subscription Agent, or any other person will be under any duty to give notification of any defects or irregularities in any Soliciting Dealer Agreement or incur any liability for failure to give that notification. Execution and delivery of this Soliciting Dealer Agreement and the acceptance of Soliciting Fees from the Fund by a Soliciting Dealer constitute a representation and warranty by that Soliciting Dealer to the Fund that: (i) it has received and reviewed the Prospectus; (ii) in soliciting purchases of Shares pursuant to the exercise of the Rights, it has complied with the applicable requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), the applicable rules and regulations thereunder, any applicable securities laws of any state or jurisdiction where such solicitations may lawfully be made, and the applicable rules and regulations of any self-regulatory organization or registered national securities exchange; (iii) in soliciting purchases of Shares pursuant to the exercise of the Rights, it has not published, circulated or used any soliciting materials other than the Prospectus and any other authorized solicitation material furnished by the Fund through the Dealer Manager; (iv) it has not purported to act as agent of the Fund or the Dealer Manager in any connection or transaction relating to the Offer; (v) the information contained in this Soliciting Dealer Agreement is, to its best knowledge, true and complete; (vi) it is not affiliated with the Fund; (vii) the Soliciting Fees being paid to it are not being paid with respect to Shares purchased by it pursuant to an exercise of Rights for its own account; (viii) it will not remit, directly or indirectly, any part of Soliciting Fees paid by the Fund pursuant to the terms of 4 5 this Soliciting Dealer Agreement to any beneficial owner of Shares purchased pursuant to the Offer; and (ix) it has agreed to the amount of the Soliciting Fees and the terms and conditions set forth in this Soliciting Dealer Agreement with respect to receiving those Soliciting Fees. By returning a Soliciting Dealer Agreement and accepting Soliciting Fees, a Soliciting Dealer agrees to indemnify the Fund against losses, claims, damages and liabilities to which the Fund may become subject as a result of the breach of that Soliciting Dealer's representations made in this Soliciting Dealer Agreement and described above. In making the foregoing representations and warranties, Soliciting Dealers are reminded of the possible applicability of Rule 10b-6 under the Exchange Act if they have bought, sold, dealt in or traded in any Shares for their own account since the commencement of the Offer. Soliciting Fees due to eligible Soliciting Dealers will be paid promptly after consummation of the Offer. Upon expiration of the Offer, no Soliciting Fees will be payable to Soliciting Dealers with respect to Shares purchased thereafter. This Soliciting Dealer Agreement may be signed in two or more counterparts, each of which will be an original, with the same effect as if the signatures were upon the same instrument. This Soliciting Dealer Agreement will be governed by the internal laws of the State of New York. Please list on the Appendix attached to this Agreement and forming part of this Soliciting Dealer Agreement the number of Shares purchased pursuant to the exercise of the Rights by each beneficial owner whose purchases you, as a Soliciting Dealer, have solicited. All amounts beneficially owned by a beneficial owner, whether in one account or several, and in however many capacities, must be aggregated for purposes of completing the table in the Appendix to this Agreement. Any questions as to what constitutes beneficial ownership should be directed to the Fund. The number of shares not listed in the Appendix for reasons of inadequate space should be listed on a separate schedule attached to, and forming part of, this Soliciting Dealer Agreement. 5 6 Please execute this Soliciting Dealer Agreement below, accepting the terms and conditions set forth in this Soliciting Dealer Agreement and confirming that you are a member firm of a registered national securities exchange or of the NASD or a foreign broker or dealer not eligible for membership who has conformed to the Rules of Fair Practice of the NASD in making solicitations of the type being undertaken pursuant to the Offer in the United States to the same extent as if you were a member of the NASD, and certifying that you have solicited the purchase of the Shares pursuant to exercise of the Rights, all as described above, in accordance with the terms and conditions set forth in this Soliciting Dealer Agreement. Very truly yours, ------------------------------- Warren J. Olson President The Morgan Stanley Asia-Pacific Fund, Inc. ACCEPTED AND CONFIRMED - ----------------------------- ------------------------------- Printed Firm Name Address - ----------------------------- ------------------------------- Authorized Signature Area Code and Telephone Number - ----------------------------- Name and Title 6 7 Dated:________________________ ALL SOLICITING DEALER AGREEMENTS SHOULD BE RETURNED TO THE AMERICAN STOCK TRANSFER COMPANY BY FACSIMILE (TELECOPIER) AT (718) 234-5001. FACSIMILE TRANSMISSIONS MAY BE CONFIRMED BY CALLING (718) 234-2700. ALL QUESTIONS CONCERNING SOLICITING DEALER AGREEMENTS SHOULD BE DIRECTED TO SHAREHOLDER COMMUNICATIONS CORPORATION, TOLL FREE AT (800) 733-8481 Ext. 333, OR CALL COLLECT (212) 805-7000 Ext. 333. 7 8 APPENDIX TO SOLICITING DEALER AGREEMENT TO BE COMPLETED BY THE SOLICITING DEALER BENEFICIAL OWNERS NUMBER OF SHARES PURCHASED - -------------------------------------------------------------------------------- Beneficial Owner No. 1 Beneficial Owner No. 2 Beneficial Owner No. 3 Beneficial Owner No. 4 Beneficial Owner No. 5 Beneficial Owner No. 6 Beneficial Owner No. 7 Beneficial Owner No. 8 Beneficial Owner No. 9 Beneficial Owner No. 10 Beneficial Owner No. 11 Beneficial Owner No. 12 Beneficial Owner No. 13 Beneficial Owner No. 14 Beneficial Owner No. 15 Beneficial Owner No. 16 Beneficial Owner No. 17 Beneficial Owner No. 18 Beneficial Owner No. 19 Beneficial Owner No. 20 8 9 TOTAL(1): - -------- (1) Aggregate solicitation fees will be subject to a maximum amount in accordance with the second paragraph of the Soliciting Dealer Agreement. 9 EX-99.H.3 6 SELLING GROUP AGREEMENT 1 SELLING GROUP AGREEMENT ____________, 1996 Morgan Stanley & Co. Incorporated 1251 Avenue of the Americas New York, New York 10020 Dear Sirs: We understand that Morgan Stanley Asia-Pacific Fund, Inc., a Maryland corporation (the "Fund"), proposes to issue to its shareholders of record as of_____________, 1996 rights ("Rights") entitling their holders to subscribe for an aggregate of 18,000,000 shares ("Shares") of the Fund's Common Stock, par value $.01 per share ("Common Stock"). We further understand that the Fund has appointed you as the exclusive Dealer Manager in connection with the offer of Shares contemplated by the proposed issuance of Rights (the "Offer"). 2 We hereby express our interest in participating in the Offer as a Selling Group Member. We hereby agree with you as follows: I. We have received and reviewed the Prospectus dated _________, 1996 (the "Prospectus") relating to the Offer and we understand that additional copies of the Prospectus (or of the Prospectus as it may be subsequently supplemented or amended, if applicable) and any other solicitation materials authorized by the Fund relating to the Offer ("Offering Materials") will be supplied to us in reasonable quantities upon our request therefor to you. We agree that we will not use any solicitation material other than the Prospectus (as supplemented or amended, if applicable) and such Offering Materials. II. From time to time during the period (the "Subscription Period") commencing on __________, 1996 and ending at 5:00 p.m., New York time, on _________, 1996, 2 3 unless extended by the Fund and you (the "Expiration Date"), we may solicit the exercise of Rights in connection with the Offer. We will be entitled to receive fees in the amounts and at the times described in Article IV of this Agreement with respect to Shares purchased pursuant to the exercise of Rights and with respect to which The American Stock Transfer & Trust Company (the "Subscription Agent") has received, no later than 5:00 p.m., New York time, on the Expiration Date, either (i) a properly completed and executed Subscription Certificate (in the form attached to the Prospectus), identifying us as the broker-dealer having been instrumental in the exercise of such Rights, and full payment for such Shares or (ii) a Notice of Guaranteed Delivery (in the form attached to the Prospectus) guaranteeing to the Subscription Agent by the close of business of the third business day after the Expiration Date of a properly completed and duly executed Subscription Certificate, similarly identifying us, and full payment for such Shares. We understand that we will not be paid these fees with respect to Shares purchased pursuant to an exercise of Rights for our own account or for the account of any of our affiliates except that we may 3 4 receive such fees with respect to Shares purchased pursuant to an exercise of Rights for our own account provided that such Shares are offered and sold by us to our clients. We also understand and agree that we are not entitled to receive any fees in connection with the solicitation of the exercise of Rights other than pursuant to the terms of this Agreement and, in particular, that we will not be entitled to receive any fees under the Fund's Soliciting Dealer Agreement. We agree to solicit the exercise of Rights in accordance with the Securities Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Investment Company Act of 1940, as amended, and the rules and regulations under each such Act, any applicable securities laws of any state or jurisdiction where such solicitations may be lawfully made, the applicable rules and regulations of any self-regulatory organization or registered national securities exchange and your customary practice and subject to the terms of the Subscription Agent Agreement between the Fund 4 5 and the Subscription Agent and the procedures described in the Fund's registration statement on Form N-2 (File No. 33- __________, as amended (the "Registration Statement"). III. From time to time during the Subscription Period, we may indicate interest in purchasing Shares from you as Dealer Manager. We understand that from time to time you intend to offer Shares obtained by you through the exercise of Rights to Selling Group Members who have so indicated interest at prices which shall be determined by you (the "Offering Price"). We agree that with respect to any such Shares purchased by us from you the sale of such Shares to us shall be irrevocable and we will offer them to the public at the Offering Price at which we purchased them from you. Shares not sold by us at such Offering Price may be offered by us after the next succeeding Offering Price is set at prices not in excess of the latest Offering Price set by you. You agree that you will set a new Offering Price prior to 4:00 p.m., New York time, on each business day. 5 6 We agree to advise you from time to time upon request, prior to the termination of this Agreement, of the number of Shares remaining unsold which were purchased by us from you and, on your request, we will resell to you any of such Shares remaining unsold at the purchase price thereof if in your opinion such Shares are needed to make delivery against sales made to other Selling Group Members. Any shares purchased hereunder from you shall be subject to regular way settlement through the facilities of the Depository Trust Company. IV. We understand that you will remit to us, on or shortly after _______________, 1996 (or, if the Expiration Date is extended, on such later date not more than 15 days after the Expiration Date as you may determine), following receipt by you from the Fund, a fee equal to an amount computed by multiplying (i) ____, by (ii) the sum of (a) the number of Shares purchased pursuant to each Subscription Certificate upon which we are designated, as certified to you by the Subscription Agent, as a result of our 6 7 solicitation efforts in accordance with Article II of this Agreement, plus (b) the number of Shares sold by you to us in accordance with Article III of this Agreement (less any Shares resold to you pursuant to the second paragraph thereof), by (iii) the subscription price of $ . Your only obligation with respect to payment of the foregoing fee to us is to remit to us amounts owing to us and actually received by you from the Fund. Except as aforesaid, you shall be under no liability to make any payments to us pursuant to this Agreement. V. We agree that you, as Dealer Manager, have full authority to take such action as may seem advisable to you in respect of all matters pertaining to the Offer. You are authorized to approve on our behalf any amendments or supplements to the Registration Statement or the Prospectus. VI. We represent that we are a member in good standing of the NASD and, in making sales of Shares, agree to comply 7 8 with all applicable rules of the NASD including, without limitation, the NASD's Interpretation with Respect to Free-Riding and Withholding and Section 24 of Article III of the NASD's Rule of Fair Practice. We understand that no action has been taken by you or the Fund to permit the solicitation of the exercise of Rights or the sale of Shares in any jurisdiction (other than the United States) where action would be required for such purpose. We represent that we have at all times complied with the provisions of Rule 10b-6 under the Securities Act applicable to the Offer and we agree that we will not, without your approval in advance, buy, sell, deal or trade in, on a when-issued basis or otherwise, the Rights or the Shares or any other option to acquire or sell Shares for our own account or for the accounts of customers, except as provided in Articles II and III hereof and except that we may buy or sell Rights or Shares in brokerage transactions on consolidated orders which have not resulted from activities on our part in connection with the solicitation 8 9 of the exercise of Rights and which are executed by us in the ordinary course of our brokerage business. We will keep an accurate record of the names and addresses of all persons to whom we give copies of the Registration Statement, the Prospectus, any preliminary prospectus (or any amendment or supplement thereto) or any Offering Materials and, when furnished with any subsequent amendment to the Registration Statement and any subsequent prospectus, we will, upon your request, promptly forward copies thereof to such persons. VII. Nothing contained in this Agreement will constitute the Selling Group Members partners with the Dealer Manager or with one another or create any association between those parties, or will render the Dealer Manager or the Fund liable for the obligations of any Selling Group Member. The Dealer Manager will be under no liability to make any payment to any Selling Group Member other than as provided in Article IV of this Agreement, and will be 9 10 subject to no other liabilities to any Selling Group Member, and no obligations of any sort will be implied. We agree to indemnify and hold harmless you and each other Selling Group Member and each person, if any, who controls you and any such Selling Group Member within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, against loss or liability caused by any breach by us of the terms of this Agreement. VIII. We agree to pay any transfer taxes which may be assessed and paid on account of any sales or transfers for our account and a percentage, based upon the ratio of the fees payable to us pursuant to Article IV of this Agreement to the aggregate fees payable by the Fund to you and all Selling Group Members pursuant to Article IV of each Selling Group Agreement, of (i) all expenses incurred by you in investigating or defending against any claim or proceeding which is asserted or instituted by any party (including any governmental or regulatory body) other than a Selling Group Member relating to the Registration Statement, any 10 11 preliminary prospectus, the Prospectus (or any amendment or supplement thereto) or any Offering Materials and (ii) any liability, including attorneys' fees, incurred by you in respect of any such claim or proceeding, whether such liability shall be the result of a judgment or as a result of any settlement agreed to by you, other than any such expense or liability as to which you receive indemnity pursuant to Article VII of this Agreement or indemnity or contribution from the Fund. Our agreements contained in this Article VIII shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Selling Group Member or any person controlling any Selling Group Member or by or on behalf of the Fund, its directors or officers or any person controlling the Fund and (ii) acceptance of and payment for the Shares. IX. All communications to you relating to the Offer will be addressed to the Syndicate Department, Morgan Stanley & Co. Incorporated, 1251 Avenue of the Americas, New York, New York 10020, Attention:______________. 11 12 12 13 X. This Agreement will be governed by the internal laws of the State of New York. Very truly yours, -------------------------- [Firm Name] By ------------------------- Name: Title: Confirmed and Accepted this ___ day of _________, 1996 MORGAN STANLEY & CO. INCORPORATED By -------------------------- 13 -----END PRIVACY-ENHANCED MESSAGE-----