<PAGE> 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:
<TABLE>
<S> <C>
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
</TABLE>
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
<TABLE>
==================================================================================================
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)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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.
==================================================================================================
</TABLE>
<PAGE> 2
CROSS REFERENCE SHEET
PARTS A AND B OF PROSPECTUS*
<TABLE>
<CAPTION>
ITEMS IN PARTS A AND B OF FORM N-2 LOCATION IN PROSPECTUS
- ------------------------------------------------ --------------------------------------------
<S> <C> <C>
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
</TABLE>
- ---------------
* 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.
<PAGE> 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.
------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
SUBSCRIPTION PRICE SALES LOAD(1)(2) THE FUND(3)
------------------------------------------------ ---------------
<S> <C> <C> <C>
Per Share......................................... $ (4) $ $
Total............................................. $ $ $ (5)
</TABLE>
(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.
<PAGE> 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
------------------------
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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<TABLE>
<CAPTION>
EVENT DATE
- ---------------------------------------------------------- --------------------------------------
<S> <C>
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
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 12
FEE TABLE
<TABLE>
<S> <C>
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%
=====
</TABLE>
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD
OF:
----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment, assuming a 5% annual return throughout the
periods(3)................................................ $ $ $ $
</TABLE>
- ---------------
(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
<PAGE> 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.
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 2, 1994*
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ---------------
<S> <C> <C>
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%
</TABLE>
- ---------------
* 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
<PAGE> 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.
<TABLE>
<CAPTION>
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
- -------------------------- ------- ------- --------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
(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)
</TABLE>
- ---------------
(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
<TABLE>
<CAPTION>
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
- -------------------------------- ------------------ ----------------------- -----------------
<S> <C> <C> <C>
Common Stock, $0.01 par value... 200,000,000 Shares -0- 53,654,508 Shares
</TABLE>
12
<PAGE> 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
<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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").
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<TABLE>
<CAPTION>
HONG NEW
AUSTRALIA CHINA KONG INDIA INDONESIA JAPAN KOREA MALAYSIA ZEALAND PAKISTAN
AU$ RMB HK$ RS RUPIAH Y W RM NZ$ PRS
--------- ------ ----- ------ --------- ----- ----- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
SRI
PHILIPPINES SINGAPORE LANKA THAILAND
P S$ SLRS B
----------- --------- ------ --------
<S> <C> <C> <C> <C>
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**
</TABLE>
- ---------------
* 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<TABLE>
<CAPTION>
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)
- ------------------------------------- ----------------- --------------------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------
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
<PAGE> 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
<TABLE>
<CAPTION>
GNP PER CAPITA
GNP PER CAPITA REAL GROWTH RATE
COUNTRY 1994 (US$) 1985-1994(%)
- ---------------------------------------------------------------- -------------- ----------------
<S> <C> <C>
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
</TABLE>
- ---------------
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.$47 billion. The number of listed
companies in India (Bombay) and Thailand increased 61% and 289%, respectively,
over the same period, while annual stock exchange turnover in these markets also
rose dramatically. The table below indicates annual trading value, number of
listed companies and market capitalization for Asian Countries. However, because
the annual trading value and market capitalization are stated in U.S. dollars,
the difference in values for 1985 and 1994 may, to a large extent, reflect
changes in the various exchange rates.
31
<PAGE> 34
DEVELOPMENT OF ASIAN STOCK MARKETS
1985-1994
<TABLE>
<CAPTION>
MARKET
ANNUAL TRADING NUMBER OF CAPITALIZATION
VALUE LISTED DECEMBER 31,
U.S.$ MILLIONS COMPANIES U.S.$ BILLIONS
------------------- ------------- -----------------
EXCHANGE LOCAL INDEX 1985 1994 1985 1994 1985 1994
- ----------------------- --------------------------- ------- --------- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------
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
<PAGE> 35
ASIAN STOCK MARKET RETURNS(1)
<TABLE>
<CAPTION>
STOCK MARKET
AVERAGE ANNUAL PERFORMANCES(%)
STOCK MARKET STOCK MARKET JANUARY 1 TO
PERFORMANCES(%) PERFORMANCES(%) FEBRUARY 29,
COUNTRY 1992-1995 1995 1996
- --------------------------------------------------- -------------- ------------ --------------
<S> <C> <C> <C>
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
</TABLE>
- ---------------
Note:
(1) Performances are calculated based on local currencies.
Sources: MSCI Price Indices; Bloomberg World Indices.
33
<PAGE> 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
<TABLE>
<CAPTION>
Y PER U.S. $1.00
------------------------------
HIGH LOW AVERAGE
------ ------ --------
<S> <C> <C> <C>
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
</TABLE>
- ---------------
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
<PAGE> 37
STOCK TRADING VOLUME AND VALUE ON JAPANESE STOCK EXCHANGES(1)
(MILS. OF SHARES, Y BILS.)
<TABLE>
<CAPTION>
ALL EXCHANGES TOKYO OSAKA NAGOYA KYOTO HIROSHIMA FUKUOKA
----------------- ----------------- --------------- --------------- ------------- ------------- ------
VOLUME VALUE VOLUME VALUE VOLUME VALUE VOLUME VALUE VOLUME VALUE VOLUME VALUE VOLUME
-------- -------- -------- -------- ------ ------- ------ ------- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
NIIGATA SAPPORO
------------- -------------
VALUE VOLUME VALUE VOLUME VALUE
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------
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
<PAGE> 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
<PAGE> 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
<TABLE>
<CAPTION>
NOMINAL GNP FOR 1994
COUNTRY (U.S.$ BILLIONS) 1990 1991 1992 1993 1994 1995
- ---------------------------- -------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------
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.$94.7 billion. The following table indicates figures for
trading volume, trading value and market capitalization of the Australian Stock
Exchange for the period from June 30, 1989 through June 30, 1994. The figures
below are stated in Australian dollars.
TOTAL TRADING VOLUME AND VALUE AND
MARKET CAPITALIZATION: YEAR-ENDED JUNE 30, 1989-1994
<TABLE>
<CAPTION>
TRADING VALUE MARKET CAPITALIZATION
TRADING VOLUME ------------- ---------------------
---------------- (AU$MILLION) (AU$BILLION)
(SHARES MILLION)
<S> <C> <C> <C>
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
</TABLE>
- ---------------
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.$8.9 billion. The following table indicates trading volume,
trading value and market capitalization of the New Zealand Stock Exchange for
the period from 1989 through 1994. The figures below are stated in New Zealand
dollars.
37
<PAGE> 40
TOTAL TRADING VOLUME AND VALUE
AND MARKET CAPITALIZATION: 1989-1994
<TABLE>
<CAPTION>
TRADING VALUE MARKET CAPITALIZATION
YEAR ------------- ---------------------
- --------------------------------------------- TRADING VOLUME (NZ$MILLION) (NZ$BILLION)
----------------
(SHARES MILLION)
<S> <C> <C> <C>
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
</TABLE>
- ---------------
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)
<TABLE>
<CAPTION>
STOCK MARKET
AVERAGE ANNUAL PERFORMANCES (%)
STOCK MARKET STOCK MARKET JANUARY 1 TO
PERFORMANCES (%) PERFORMANCES (%) FEBRUARY 29,
COUNTRY 1992-1995 1995 1996
- ---------------------------------------- ----------------- --------------- ---------------
<S> <C> <C> <C>
Australia............................... 12.1 17.3 3.6
New Zealand............................. 19.4 19.9 (0.3)
</TABLE>
- ---------------
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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS POSITION WITH FUND PAST FIVE YEARS
- --------------------------------- ---------------------- -------------------------------------
<S> <C> <C>
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.
</TABLE>
<TABLE>
<S> <C> <C>
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.
</TABLE>
44
<PAGE> 47
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS POSITION WITH FUND PAST FIVE YEARS
- --------------------------------- ---------------------- -------------------------------------
<S> <C> <C>
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.
</TABLE>
45
<PAGE> 48
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS POSITION WITH FUND PAST FIVE YEARS
- --------------------------------- ---------------------- -------------------------------------
<S> <C> <C>
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.
</TABLE>
46
<PAGE> 49
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS POSITION WITH FUND PAST FIVE YEARS
- --------------------------------- ---------------------- -------------------------------------
<S> <C> <C>
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.
</TABLE>
- ---------------
* 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
<PAGE> 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.
<TABLE>
<CAPTION>
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
- ---------------------------------- ----------------- ------------ ---------------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------
(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:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ----------------------------------------- ------------------------------------------------ --------
<S> <C> <C>
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
</TABLE>
- ---------------
* 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
<PAGE> 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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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,
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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
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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
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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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 69
Expiration Date: , 1996
PLEASE COMPLETE ALL APPLICABLE INFORMATION
<TABLE>
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
/ / 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 ( )
--------------------
</TABLE>
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
<TABLE>
<S> <C>
- -------------------------------------------- ----------------------------------------------------------------
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)
</TABLE>
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
<PAGE> 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
<TABLE>
<S> <C>
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
</TABLE>
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
<PAGE> 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.
<TABLE>
<S> <C>
- ---------------------------------------------- ----------------------------------------------
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
</TABLE>
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.
<TABLE>
<S> <C>
- ---------------------------------------------- ----------------------------------------------
Name of Firm Authorized Signature
- ---------------------------------------------- ----------------------------------------------
Address Title
- ---------------------------------------------- ----------------------------------------------
Zip Code (Type or Print)
- ---------------------------------------------- ----------------------------------------------
Name of Registered Holder (If Applicable)
- ---------------------------------------------- ----------------------------------------------
Telephone Number Date
</TABLE>
* 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
<PAGE> 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
<TABLE>
<S> <C> <C>
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
</TABLE>
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
<TABLE>
<S> <C>
- ------------------------------------------------------------ ------------------------------------------------------------
Depository Primary Subscription Confirmation Number Name of Nominee Holder
- ------------------------------------------------------------ ------------------------------------------------------------
Depository Participant Number Address
------------------------------------------------------------
City State Zip Code
Contact Name
----------------------------------------------
By:
--------------------------------------------------------
Phone Number
---------------------------------------------- Name:
------------------------------------------------------
Title:
-----------------------------------------------------
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
NUMBER OF RIGHTS EXERCISED NUMBER OF SHARES REQUESTED
IN THE PRIMARY PURSUANT TO THE
RECORD DATE SHARES SUBSCRIPTION OVER-SUBSCRIPTION PRIVILEGE
---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
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
</TABLE>
C-2
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 78
PART C -- OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
<TABLE>
<C> <S> <C>
(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*
</TABLE>
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
<TABLE>
<C> <S> <C> <C>
(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****
</TABLE>
i
<PAGE> 79
<TABLE>
<C> <S> <C> <C>
(m) -- Not applicable
(n) -- Consent of Independent Accountants****
(o) -- Not applicable
(p) -- Not applicable
(q) -- Not applicable
(r) -- Not applicable
</TABLE>
- ---------------
* 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.
<TABLE>
<S> <C>
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........................................................................ $ *
========
</TABLE>
- ------------------------
* 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:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
- ---------------------------------------------------------------------------- --------------
<S> <C>
Common Stock, $.01 par value................................................
</TABLE>
ii
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- --------------------------------------- ---------------
<C> <C> <S>
* 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
</TABLE>
v
<PAGE> 83
Exhibit Index
-------------
<TABLE>
<S> <C> <C>
(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
</TABLE>
- ---------------
* 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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
<PAGE> 12
EXHIBIT A
FEE SCHEDULE
12
<PAGE> 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.
<PAGE> 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.
<PAGE> 3
[Shareholder Communications Corporation Logo]
<TABLE>
<CAPTION>
ESTIMATED EXPENSES LOW RANGE HIGH RANGE
------------------ --------- ----------
<S> <C> <C>
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
======= =======
</TABLE>
(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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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-
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
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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
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TOTAL(1):
- --------
(1) Aggregate solicitation fees will be subject to a maximum amount in
accordance with the second paragraph of the Soliciting Dealer Agreement.
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<PAGE> 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").
<PAGE> 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,
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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
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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
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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.
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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
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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
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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
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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
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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
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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:______________.
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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
--------------------------
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