MORGAN STANLEY ASIA PACIFIC FUND INC, N-2, 1996-03-08

MORGAN STANLEY ASIA PACIFIC FUND INC
N-2, 1996-03-08

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<PAGE> 1

AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON MARCH 8, 1996

SECURITIES ACT FILE NO. 33-
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. / /

POST-EFFECTIVE AMENDMENT NO. / /

AND/OR

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/

AMENDMENT NO. 3 /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>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF SECURITIES BEING AMOUNT BEING OFFERING PRICE OFFERING AMOUNT OF
REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------
Common Stock, $.01 Par
Value....................... 18,000,000 Shares $13.375 $240,750,000 $83,018
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(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.

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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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
- ------------------------------------------------- --------------------------------------------
<C> <S> <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 MARCH 8, 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") is issuing to its
shareholders of record as of the close of business on , 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 Rights are
transferable and the Rights and the Shares will be listed for trading on the New
York Stock Exchange (the "NYSE"). The Fund's Common Stock is traded on the NYSE
under the symbol "APF." (The Rights will be traded 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
, 1996 was $ and $ , respectively, and the last
reported sale price of a share of Common Stock on the NYSE on such dates was
$ 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)

------------------------

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
INVESTMENT OBJECTIVE AND POLICIES............................................................................... 29
INVESTMENT RESTRICTIONS......................................................................................... 32
MANAGEMENT OF THE FUND.......................................................................................... 34
EXPENSES........................................................................................................ 42
PORTFOLIO TRANSACTIONS AND BROKERAGE............................................................................ 42
NET ASSET VALUE................................................................................................. 43
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN....................................... 43
TAXATION........................................................................................................ 45
COMMON STOCK.................................................................................................... 50
DISTRIBUTION ARRANGEMENTS....................................................................................... 52
DIVIDEND PAYING AGENTS, TRANSFER AGENTS AND REGISTRARS.......................................................... 53
CUSTODIANS...................................................................................................... 54
EXPERTS......................................................................................................... 54
LEGAL MATTERS................................................................................................... 54
ADDITIONAL INFORMATION.......................................................................................... 55
INCORPORATION OF FINANCIAL STATEMENTS BY REFERENCE.............................................................. 55
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: Asian-Pacific Countries............................................................................. D-1
APPENDIX E: Description of Various Foreign Currency and Interest Rate Hedges and Options on Securities and
Securities Index Futures Contracts and Related Options.............................................. E-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") is issuing to its
shareholders of record ("Record Date Shareholders") as of the close of business
on , 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 Privileges"), 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 PRIVILEGES

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 % and % 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

3
<PAGE> 6

Common Stock to its per 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 28% of the shares of Common Stock, will be sold by
the Subscription Agent or otherwise on behalf of such Foreign Record Site
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............................................... , 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 1, 1996, the Fund had net assets of $803,744,530. 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
$ (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 , 1996, had assets under management
(including assets under fiduciary advisory control) totaling approximately
$ billion, of which approximately $ 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 AsianPacific 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. These distributions are typically made at the end of each fiscal year.
However, the Fund anticipates its Board of Directors will declare an additional
dividend sometime during the period between June and September 1996 in the
amount of approximately $0.33 per share assuming the exercise of all rights or
approximately $0.45 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.

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

7
<PAGE> 10

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 currency 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 E.

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 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."

8
<PAGE> 11

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 E.

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.............................................................. %
=====
</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 solicated 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 %. 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
(through March 1,
1996).............. 14.750 13.500 21,811.3 15.28 14.72 (3.47) (8.29)
</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 1, 1996 were $13.625,
$14.98 and (9.05)%, respectively.

CAPITALIZATION AT MARCH 8, 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 8, 1996, the Fund
has also issued 147,415 shares pursuant to its Dividend Reinvestment and Cash
Purchase Plan. At March 1, 1996, the Fund had 53,654,508 shares of Common Stock
outstanding, which are listed and traded on the NYSE under the symbol "APF." As
of March 1, 1996, the net assets of the Fund were $803,744,530.

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

14
<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 , 1996 was $ and $ ,
respectively, and the last reported sale price of a share of the Common Stock on
the NYSE on those dates was $ 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

16
<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

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.

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 28% of the shares of Common Stock, will be sold by
the Subscription Agent or otherwise on behalf of such Foreign Record Date
Shareholders.

FEDERAL INCOME TAX CONSEQUENCES

The Offer

The U.S. federal income tax consequences to holders of Common Stock with
respect to the Offer will be as follows:

1. The distribution of Rights to Record Date Shareholders will not
result in taxable income to such holders nor will such holders realize
taxable income as a result of the exercise of the Rights.

2. The basis of a Right will be (a) to a holder of Common Stock to
whom it is issued and who exercises or sells the Right (i) if the fair
market value of the Right immediately after issuance is less than 15% of
the fair market value of the Common Stock with regard to which it is
issued, zero (unless the holder elects, by filing a statement with his
timely filed federal income tax return for the year in which the Rights are
received, to allocate the basis of the Common Stock between the Right and
the Common Stock based on their respective fair market values immediately
after the Right is issued), and (ii) if the fair market value of the Right
immediately after issuance is 15% or more of the fair market value of the
Common Stock with regard to which it is issued, a portion of the basis in
the Common Stock based upon their respective fair market values immediately
after the Right is issued; (b) to a holder of Common Stock to whom it is
issued and who allows the Right to expire, zero; and (c) to anyone who
purchases a Right in the market, the purchase price for a Right.

3. The holding period of a Right received by a Record Date Shareholder
includes the holding period of the Common Stock with regard to which the
Right is issued.

4. Any gain or loss on the sale of a Right will be treated as a
capital gain or loss if the Right is a capital asset in the hands of the
seller. Such a capital gain or loss will be long- or short-term, depending
on how long the Right has been held, in accordance with paragraph 3 above.
A Right will be a capital asset in the hands of the person to whom it is
issued if the Common Stock to which the Right relates would be a capital
asset in the hands of that person. If a Right is allowed to expire, there
will be no loss realized unless the Right had been acquired by purchase, in
which case there will be a loss equal to the basis of the Right.

5. If the Right is exercised by the Record Date Shareholder, the basis
of the Common Stock received will include the basis allocated to the Right
and the amount paid upon exercise of the Right.

6. If the Right is exercised, the holding period of the Common Stock
acquired begins on the date the Right is exercised.

20
<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.

EMPLOYEE PLAN CONSIDERATIONS

Shareholders that are subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), including employee benefit plans such as
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.
A sale of Rights by a Plan account to an unrelated third party and retention of
cash proceeds by the Plan account, or the direct exercise of Rights by a Plan
account, should not be treated as a taxable Plan distribution. Plans
contemplating making additional cash contributions to exercise Rights should
consult with their counsel prior to making such contributions.

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 ("UBTI")
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 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 north of 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 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. For example, prior to January 3,
1992, foreign investment in Korea was generally limited to a few investment
funds that had been granted a license from the government of Korea, although
since that date direct foreign investment in individual stocks in Korea has been
officially permitted within specified limits. 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 February 1996 and International Financial Statistics Data Base.

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 E.

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 of 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 E. 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 accounting
methods of Japan 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

27
<PAGE> 30

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 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,

28
<PAGE> 31

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."

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 E.

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.

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

29
<PAGE> 32

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 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,

30
<PAGE> 33

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).

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

31
<PAGE> 34

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.

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 E.

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.

32
<PAGE> 35

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 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,

33
<PAGE> 36

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.

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.
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 of CGL, Inc.; Director of
821-C San Mateo twelve investment companies managed
Santa Fe, New Mexico 87505 by Morgan Stanley Asset Management,
Inc.; Member of the Investment
Advisory Council of The Thailand
Fund; Consultant, NGV Systems, Inc.;
Previously Chairman of CJS, Inc. and
Principal of Sidney A. Staunton, Inc.
and the Yankee Group.
JOHN W. CROGHAN (64)............. 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>

34
<PAGE> 37

<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 (62)............. Director Senior Vice President of BGK
23 Chestnut Street Properties; Trustee of nine funds
Boston, Massachusetts 02108 managed by Weiss, Peck & Greer;
Trustee of eight 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. (58)...... 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>

35
<PAGE> 38

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS POSITION WITH FUND PAST FIVE YEARS
- --------------------------------- ---------------------- -------------------------------------
<S> <C> <C>
FREDERICK B. WHITTEMORE (64)*.... 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 (53)*........... 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 (40)*.......... 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 (39)*........... 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>

36
<PAGE> 39

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS POSITION WITH FUND PAST FIVE YEARS
- --------------------------------- ---------------------- -------------------------------------
<S> <C> <C>
JOANNA M. HAIGNEY (28)*.......... 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. 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

37
<PAGE> 40

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>
PENSION OR
RETIREMENT TOTAL COMPENSATION NUMBER OF FUNDS
AGGREGATE BENEFITS ACCRUED FROM FUND AND FUND IN FUND COMPLEX
COMPENSATION AS PART OF THE COMPLEX PAID FOR WHICH
NAME OF DIRECTORS FROM FUND FUND'S EXPENSES TO DIRECTORS DIRECTOR SERVES
- ----------------------------------- ------------ ---------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Barton M. Biggs(1)(2).............. $ 0 None $ 0 13
Warren J. Olsen(1)(2).............. 0 None 0 13
Peter J. Chase..................... 14,025 None 48,200 12
John W. Croghan.................... 3,500 None 18,600 12
David B. Gill...................... 4,925 None 21,825 12
Graham E. Jones.................... 2,675 None 32,188 12
John A. Levin...................... 2,675 None 20,000 13
William G. Morton, Jr. ............ 2,675 None 39,700 12
Frederick B. Whittemore(1)(2)...... 0 None 41,429 12
John D. Barrett II(3).............. 9,500 None 24,952 3
Andrew McNally IV(3)............... 10,744 None 31,605 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 6, 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%
1251 Avenue of the Americas 2,173,552 shares with shared voting power
New York, New York 10020
</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

38
<PAGE> 41

and officers to the Fund or its stockholders for monetary damages for breach of
fiduciary duty as a director or 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
, 1996, the Investment Manager had, together with its affiliated
investment management companies, assets under management (including assets under
fiduciary advisory control) totaling approximately $ billion. 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 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.

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<PAGE> 42

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 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

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<PAGE> 43

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 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 , 1996 had approximately $

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<PAGE> 44

billion of investment company assets under administration and approximately
$ billion of investment company assets under custody. The Administrator's
business address is 73 Tremont Street, Boston, Massachusetts 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.

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 the information must still be
analyzed, weighed and reviewed by the Investment Manager's staff. Such

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<PAGE> 45

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 dividend during
the period between June and September 1996 in the amount of approximately $0.33
per share assuming the exercise of all rights or approximately $0.45 per share
if the rights offering is not completed.

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 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.

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<PAGE> 46

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 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

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<PAGE> 47

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 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. 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 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

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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.
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 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.

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

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<PAGE> 49

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 closed out) 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,
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 sale or exchange
will be disallowed to the extent that the shares disposed of are replaced
(including replacement through the reinvesting 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

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<PAGE> 50

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 ("PFIC"), the Fund
will be subject to U.S. federal income tax on a portion of any "excess
distribution" (the Fund's ratable share of distributions 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 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 unify and, in certain cases,
modify the anti-deferral rules contained in various provisions of the Code,
including the provisions dealing with PFICs, related to the taxation of U.S.
stockholders of foreign corporations. In the case of a passive foreign company,
as defined in the proposed legislation ("PFC"), having "marketable stock," the
proposed legislation would require U.S. stockholders, such as the Fund, owning
less than 25% of a PFC that is not U.S.-controlled to mark-to-market the PFC
stock annually, unless the stockholders elected to include in income currently
their proportionate shares of the PFC's income and gain. 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 PFCs 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 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 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. 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

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<PAGE> 51

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. 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 a foreign investor, distributions of net investment income and net realized
short-term capital gains will be subject to a 30% 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. In the case of a foreign
investor who is a nonresident alien individual, the Fund may be required to
withhold U.S. federal 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

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<PAGE> 52

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, 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 8, 1996, the Fund had 53,654,508 shares of Common Stock
outstanding, which are listed and traded on the NYSE under the symbol "APF." As
of March 1, 1996, the net assets of the Fund were $803,744,530.

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

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<PAGE> 53

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 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

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<PAGE> 54

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 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 1251 Avenue of the Americas, New York,
New York 10020. 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

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<PAGE> 55

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 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.

53
<PAGE> 56

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.

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

54
<PAGE> 57

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 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 accompany 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 was 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.

55
<PAGE> 58

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> 59

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>
/ / 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) = $
------------------
</TABLE>
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.
<TABLE>
<S> <C>
/ / 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 (Print Full Name of Assignee)
Assignee
- ------------------------------------------ ----------------------------------------------------------------
Signature(s) of Assignee(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> 60

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> 61

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 pursuant to
Number of Shares subscribed for in the Primary the Over-Subscription Privilege for which
Subscription for which you are guaranteeing you are guaranteeing delivery of Rights
delivery of Rights and payment 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> 62

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

- ------------------------------------------------------------
Depository Primary Subscription Confirmation Number

- ------------------------------------------------------------
Depository Participant Number

Contact Name ----------------------------------------------

Phone Number ----------------------------------------------
- ------------------------------------------------------------
Name of Nominee Holder

- ------------------------------------------------------------
Address

- ------------------------------------------------------------
City State Zip Code

By: --------------------------------------------------------

Name: -----------------------------------------------------

Title: -----------------------------------------------------

Dated: , 1996

* PLEASE COMPLETE THE BENEFICIAL OWNER CERTIFICATION ON THE BACK HEREOF
CONTAINING THE RECORD DATE POSITION OF PRIMARY RIGHTS OWNED, THE NUMBER OF
PRIMARY SHARES SUBSCRIBED FOR AND THE NUMBER OF OVER-SUBSCRIPTION SHARES, IF
APPLICABLE, REQUESTED BY EACH SUCH OWNER.

C-1
<PAGE> 63

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 OverSubscription
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) ---------------------------- ---------------------------- ----------------------------
</TABLE>
<TABLE>
<S> <C>
- --------------------------------------------- ---------------------------------------------
Name of Nominee Holder Depository Participant Number
- --------------------------------------------- ---------------------------------------------
Name: Depository Primary Subscription Confirmation
Numbers(s)
Title:
Dated: , 1996
</TABLE>

C-2
<PAGE> 64

APPENDIX D

ASIAN-PACIFIC COUNTRIES

The information set forth in this Appendix has been extracted from various
publications of governmental agencies and international and private
organizations, 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
AsianPacific Countries, economies or stock markets in general and the
performance of the Fund. This Appendix is divided into three sections: (i) Asian
Economies and Stock Markets, (ii) Japan and (iii) Australia and New Zealand. The
data contained in "Asian Economies and Stock Markets" relates specifically to
the Asian-Pacific Countries in which the Investment Manager anticipates that the
Fund will initially invest, excluding Japan, Australia and New Zealand.

ASIAN ECONOMIES AND STOCK MARKETS

OVERVIEW

The continent of Asia covers approximately one-fifth of the earth's surface
and is home to approximately 58% of the world's population. Asia includes, among
others, the countries of Bangladesh, Bhutan, Brunei, Cambodia, China, Hong Kong,
India, Indonesia, Japan, Laos, Malaysia, Myanmar (Burma), Nepal, North Korea,
Pakistan, the Philippines, Singapore, South Korea, Sri Lanka, Thailand and
Vietnam.

The data contained in this section, "Asian Economies and Stock Markets,"
relates specifically to the AsianPacific Countries in which the Investment
Manager anticipates that the Fund will invest, including the following countries
(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 this section is intended to supplement the information contained in the
following section entitled "Japan." The data on the United States is included
herein for comparative purposes only.

As of the 1992 year end, Asian Countries had a combined population of over
2.6 billion, representing over half of the world's population. Individual
countries in the region range from the world's most populous nations, China and
India, to the city-states of Hong Kong and Singapore, whose combined populations
are under 10 million. In addition, the annual population growth rates for these
countries for the period from 1985 to 1992, with the exception of Hong Kong, are
higher than those of the United States and Japan. The Investment Manager
believes that population growth in Asian Countries will continue at a relatively
high pace, providing a potentially ready supply of young, skilled labor and a
growing market for consumer goods.

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 1992. 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

D-1
<PAGE> 65

during the period from 1985 to 1992 grew faster than that of the United States.
Of these, Thailand was the fastest growing economy followed by Korea and China.
There can be no assurance, however, that the economies of the Asian Countries
will continue to grow at their relatively high rates.

NOMINAL GDP FOR 1993, AVERAGE ANNUAL REAL GDP GROWTH
FOR THE PERIOD 1985 THROUGH 1992 AND REAL GDP GROWTH FOR 1991, 1992 AND 1993

<TABLE>
<CAPTION>
AVERAGE ANNUAL
NOMINAL GDP REAL GDP REAL GDP GROWTH (%)
FOR 1993 GROWTH FOR THE PERIOD ---------------------------
COUNTRY (US$ BILLIONS)(1) 1985-1992 (%)(1) 1991(1) 1992(1) 1993(1)
- ------------------------------------- ----------------- --------------------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
China................................ 531(2) 8.7 7.8 13.0 13.0(2)
Hong Kong............................ 39 7.0 4.2 5.0 5.3
India................................ 243 5.0 2.3 3.3 4.2
Indonesia............................ 143 6.2 6.6 5.8 6.6
Korea................................ 321 9.2 8.5 4.8 5.0
Malaysia............................. 61 7.3 8.7 8.0 8.0
Pakistan............................. 48 5.5 7.7 3.0 3.0
Philippines.......................... 53 3.2 (1.0) 0.6 1.4
Singapore............................ 50 7.5 6.7 5.8 9.9
Sri Lanka............................ 10 3.7 4.6 4.3 5.9
Thailand............................. 121 9.3 8.2 7.5 7.9
Vietnam.............................. 20(3) 4.7 4.0 5.0 n/av
Japan................................ 4,219 4.0 4.0 1.1 0.0
United States........................ 6,374 2.2 (0.7) 2.6 2.9
</TABLE>

- ---------------
Notes:
(1) Data may in some cases be an estimate. Data may be for calendar or for
fiscal years.
(2) Data is for gross national product.
(3) Data is for 1992.
Sources: International Monetary Fund, World Economic Outlook, October 1993;
Economic Intelligence Unit, Country Reports, 1st Quarter 1994; The WEFA Group:
Asia Economic Outlook, October 1993; Value Line Economic Series, March 18, 1994;
International Reports -- a Division of IBC USA Inc., International Country Risk
Guide, December 1993.

ASIAN ECONOMIES

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,
discussed below in greater detail, include: (1) favorable demographics and
competitive wage rates; (2) the ability to attract foreign direct investment and
the increasing industrialization of Asian Countries; (3) rising per capita
incomes to support local markets for consumer goods and increasing consumer
demand; (4) high rates of domestic savings and investment in infrastructure; and
(5) increasing export growth and intra-Asian trade.

Favorable Demographics and Competitive Wages

The Investment Manager believes that two key competitive advantages of
Asian Countries are the relatively young age of their populations and their
competitive wage rates. With a high proportion of the population under age 15,
employers have a plentiful supply of new labor force participants which in turn
reduces the likelihood of significant upward pressure on wage rates over the
medium term, thus decreasing the likelihood of inflationary wage growth in the
future. In this respect, India, Indonesia, Malaysia, Pakistan, the Philippines,
Sri Lanka and Thailand are particularly well positioned. These countries in
particular, however, need to maintain a sufficient level of overall economic
activity in order to provide employment opportunities to

D-2
<PAGE> 66

new entrants or, as in the case of the Philippines, the export of labor may
occur. Policymakers in many of these countries, therefore, have actively
encouraged foreign direct investment, particularly in labor intensive
industries, such as textiles, shoes, apparel, vehicles and components and
electronics assembly.

The generally low wage rates and the relatively young population in Asian
Countries have attracted foreign direct investment which has underpinned
economic growth in the Asian region. Japanese companies, in particular, have
been major investors in production facilities throughout Asia, as the
appreciation of the Yen since 1985 has made production in Japan less cost
competitive and has forced Japanese manufacturers to seek low cost labor abroad.

The Investment Manager believes that foreign direct investment in Asian
Countries confers a number of benefits which enhance the long-term economic
growth potential of Asian Countries, including, but not limited to, (1) the
conversion of Asian economies from agrarian- to industrial-based production, (2)
the transfer of technology, including upgraded worker skills and the
introduction of modern production, management, accounting and finance methods
and (3) the promotion of exports.

The following table indicates the growth in foreign direct investment from
the United States to Asian Countries from 1989 through 1995.

U.S. DIRECT INVESTMENT IN ASIAN COUNTRIES
(US$ IN MILLIONS)

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Direct investment(1)............ $18,055 $20,606 $24,616 $29,172
Percentage increase from year to
year.......................... -- 14.1% 19.5% 18.5%
</TABLE>

- ---------------
Note:

(1) Data for 1989 does not include India.
Source: U.S. Department of Commerce, Survey of Current Business, July 1993.

Rising Per Capita Incomes

The Investment Manager believes that, in the long term, foreign direct
investment and industrialization raise both the level and the quality of
employment, attracting subsistence agrarian workers to less seasonal, higher
paying industrial jobs. Many of the new jobs include technical and managerial
training which further increase the recipient country's skills base and per
capita income. Rising per capita incomes coupled with an increase in population
may positively affect demand for basic consumer durables, non-durables and
various services, including leisure activities. The Investment Manager believes
that an increase in consumer spending may also result in greater production of
goods and services aimed at the needs of an emerging middle class.

The following table shows the per capita GNP in 1992 and the real growth
rate in GNP per capita for the period 1985 through 1992 for each of the Asian
Countries, except for Vietnam for the period 1985 through 1992. GNP per capita
grew more rapidly in all of these countries than in the United States. The
Investment Manager believes there is also the potential for the poorer Asian
Countries, such as China, India, Indonesia, Pakistan, the Philippines, Sri
Lanka, Thailand and Vietnam, to reach the levels of GNP per capita achieved by
the more industrialized countries.

D-3
<PAGE> 67

GNP PER CAPITA FOR 1992 AND GNP PER CAPITA REAL GROWTH RATE FOR THE PERIOD
1985-1992

<TABLE>
<CAPTION>
GNP PER CAPITA
GNP PER CAPITA REAL GROWTH RATE
COUNTRY 1992 (US$) 1985-1992(%)
- ---------------------------------------------------------------- -------------- ----------------
<S> <C> <C>
China........................................................... 380 6.0
Hong Kong(1).................................................... 15,380 5.6
India........................................................... 310 3.3
Indonesia....................................................... 670 4.7
Korea........................................................... 6,790 8.5
Malaysia........................................................ 2,790 5.7
Pakistan........................................................ 410 1.7
Philippines..................................................... 770 1.9
Singapore....................................................... 15,750 5.9
Sri Lanka....................................................... 540 2.2
Thailand........................................................ 1,840 8.3
Vietnam(1)...................................................... 295 n/av
Japan........................................................... 28,220 4.0
United States................................................... 23,120 1.1
</TABLE>

- ---------------
Note:

(1) Data is for gross domestic product.

Sources: World Bank Atlas, 1994; International Reports -- a Division of IBC USA
Inc., International Country Risk Guide, December, 1993.

Infrastructure Spending

In an attempt to sustain their competitiveness in attracting additional
foreign investment and to meet the needs of an emerging middle class, Asian
governments, generally, are increasing infrastructure investment in a broad
range of projects ranging from highways, ports, airports and mass transit to
water, power, telecommunications, sewage treatment and environmental and health
care facilities. Governmental spending boosts local employment and also fosters
development of a broad range of indigenous services and industries including,
but not limited to, engineering and design firms, construction and material
companies, utilities, telecommunications firms and health care providers. The
lack of basic infrastructure in a particular Asian Country or the perception of
a government's unwillingness to spend substantial resources on its country's
infrastructure may have the effect of deterring foreign direct investment in
such a country. The deterrence of foreign direct investment in an Asian Country
could substantially affect such country's ability to grow economically by
impacting unfavorably on employment and job creation. The Investment Manager can
offer no assurances that foreign direct investment will or will not be deterred
or, if deterred, have such effects. At the date hereof, the infrastructures in
most of the Asian Countries are substandard and need substantial improvement.

Trade and Exports

Most of the Asian Countries have historically pursued the Japanese
development model of export-led growth. This pursuit, together with the inflow
of foreign manufacturing facilities, has generally led to strong export sector
performances. The following table indicates the annual average growth rate of
exports of Asian Countries for the period from 1986 to 1992.

D-4
<PAGE> 68

ANNUAL AVERAGE GROWTH RATE OF EXPORTS: 1986-1992

<TABLE>
<CAPTION>
ANNUAL AVERAGE
GROWTH OF EXPORTS:
COUNTRY 1986-1992(%)
------------------------------------------------------------ ------------------
<S> <C>
China....................................................... 25
Hong Kong................................................... 15
India....................................................... 13
Indonesia................................................... 14
Korea....................................................... 16
Malaysia.................................................... 19
Pakistan.................................................... 14
Philippines................................................. 12
Singapore................................................... 21
Sri Lanka................................................... 13
Thailand.................................................... 24
Vietnam..................................................... 41
Japan....................................................... 9
United States............................................... 13
</TABLE>

- ---------------
Source: International Monetary Fund -- Direction of Trade Statistics Yearbook,
1993.

In general, Asian Countries have diversified their non-Asian export markets
considerably since the mid-1980s and the proportion of each Asian Country's
trade that is conducted within the region has increased significantly. For
example, approximately 44% of Malaysia's exports in 1992 went to other countries
within Asia compared with approximately 39% in 1986. In addition, approximately
50% of Hong Kong's exports went to Asian markets in 1992 compared with
approximately 30% in 1986. The Investment Manager believes that growth in
intra-Asian trade will help the development of Asian Countries, and that a
partial separation of the economies of Asian Countries from those of their
traditional Organization of Economic Co-Operation and Development ("OECD")
trading partners can be expected to lead to more stable growth that is less
susceptible to external shocks.

CERTAIN DEVELOPMENTS IN CHINA, HONG KONG, INDIA, KOREA AND VIETNAM

China. In 1978, China's senior leader, Deng Xiaoping, initiated what is
now the "open door policy," which included the establishment of special economic
zones, decentralization of economic decision making and acceptance of foreign
direct investment. As a result, there has been a move toward a more market-
oriented Chinese economy. The current economic growth campaign was initiated in
early 1992. Chinese government officials have continued to promote economic
reforms and encourage provincial governments and companies to restructure their
businesses. The reforms have included the development of share markets in
Shanghai and Shenzhen, with "B" shares available to foreign investors, as well
as a program to list Chinese enterprises on overseas exchanges and the Hong Kong
Stock Exchange. In October 1992 at the 14th Party Congress, Deng Xiaoping's new
reforms were adopted as official policy. As a result of the process of reform,
the share of the state sector in production steadily declined from a peak of 90%
in the 1960s to less than 50% by the end of 1992. However, these growth-oriented
policies also resulted in inflation rates rising to approximately 17%
(annualized) by the first quarter of 1993 with an estimated 1993 year end
inflation rate of 20% and a decline in China's exchange reserves from $45
billion at the beginning of 1992 to $21 billion at year-end and to $20 billion
through mid-1993. In June 1993, a partial relaxation of currency controls was
effected, which resulted in an immediate devaluation of the Yuan Renminbi (Rmb)
on the Shanghai swap market from approximately Rmb 5 per dollar to Rmb 10 per
dollar. The rate in the fall of 1993 was stabilized by the Bank of China at Rmb
8.8 to the dollar. In August 1993, in the light of further signs of overheating
of the economy, an austerity program was announced by Vice Premier Zhu Rongji,
head of the People's Bank of China, which included the calling in of bank loans
and increases in interest rates by 2.5% between June and September 1993.
However, in November 1993, the Communist Party Central Committee, in an apparent

D-5
<PAGE> 69

compromise between "reformists" and "conservatives," announced its intention to
allow market forces to play a greater role in the distribution of resources and
to relax the prior austerity program. The Investment Manager believes that it is
unlikely that the reform process in China will be affected in the long term,
although, in the short term, there could be a breakdown of consensus within the
Chinese ruling party concerning the pace of reform. Additionally, there can be
no assurances that the Chinese government will not implement a harsher form of
its austerity program or other reforms that detrimentally affect China's economy
and stock market. Furthermore, although the United States government has renewed
China's most favored nation status, the Fund cannot predict whether the United
States government will renew such status in the future, and, if not renewed, the
effect on the economy of China.

China has also implemented reforms to increase confidence in its securities
market, and encourage foreign investments. For example, China is attempting to
regulate the accounting profession and has recently passed a law designed to
ensure that reports to shareholders are appropriate and that listed companies
are properly audited. In addition, China has passed a law (which is planned to
take effect in July 1994) that is designed to regulate the primary markets in
China through the implementation of conditions for financial reporting, listed
companies and the issuance of shares. The Fund cannot predict the effect that
the new laws will have on the securities market in China.

Hong Kong. Because Hong Kong is one of the leading investors in China, the
economy of Hong Kong is the most likely of the Asian Countries to be affected by
reform in China. Between 1979 and 1992, Hong Kong accounted for almost 60% of
direct foreign investment into China. The rapid development of China's southern
provinces has created a diversification of investment from Hong Kong. Producers
which originally sought to utilize low cost labor for export production are now
investing in facilities that provide an array of goods and services aimed at
meeting emerging consumer demand within China, such as demand for financial
services, telecommunications, electricity production, leisure facilities and
consumer goods distribution services. In 1992, led by the growth in the
neighboring Chinese provinces, Hong Kong's real growth in terms of gross
domestic product increased by 5.0%, the highest rate since 1988. Real economic
growth is estimated to have increased slightly to 5.3% in 1993. Inflation, which
peaked at 12% in 1991, declined to 9.4% in 1992 and 8.5% in 1993. Although China
has committed by treaty to preserve the economic and social freedoms enjoyed in
Hong Kong for 50 years after China assumes sovereignty over Hong Kong in 1997,
the continuation of the current form of economic system in Hong Kong will depend
on the actions of the government of China.

India. India is one of the world's top 15 industrial nations and possesses
considerable natural resources. In 1993, India's economy was the world's seventh
largest economy in terms of GNP, according to statistics published by the World
Bank. Its population of over 880 million people represents about 16% of the
world's population. From 1981 to 1991, the population of India grew by
approximately 163 million people, an average annual growth rate of approximately
2.2%. Based on current growth rates, the population of India is expected to
exceed 1 billion by the year 2000. Approximately 25% of India's population live
in urban areas, while the remaining 75% live in rural areas.

Since July 1991, the government, led by the Congress Party's Narasimha Rao
has made strides toward liberating India's economy through the removal of many
intrusive government controls. In July 1991, the Rao Government introduced a
number of economic reforms (the "1991 Reforms") designed to increase economic
growth by transforming India from a centrally planned to a more market-oriented
economy. The 1991 Reforms contained substantial changes in trade policy,
including the abolition of export subsidies and the liberalization of import
controls and licenses. The 1991 Reforms also abolished most industrial licensing
requirements. Additional reforms were implemented as part of the 1992 and 1993
federal budgets. The 1992 budget included certain tax reforms, as well as
reductions in customs duties on a number of products. The 1993 budget abolished
the dual exchange rate system, thus permitting the value of the Rupee to be
determined on a fully floating basis, and reduced minimum lending rates on
commercial loans. The 1993 budget also provided for additional reductions in
customs and excise duties. Rao's reformist administration is expected to
continue to introduce new liberalizations.

Korea. The Investment Manager believes that the economic recovery in Korea
began in the second half of 1993 and is accelerating. GDP in the first quarter
of 1994 was estimated at more than nine percent above

D-6
<PAGE> 70

GDP in the first quarter of 1993. Strong growth in manufacturing, especially
small and medium-sized industries, contributed to a 10% rise in industrial
output, and exports have increased by 8.9% due to the strong performances of its
major industrial sectors -- automobiles, shipbuilding and electronics. Due to
increasing confidence in the economy, as well as much easier access to cheaper
funds for companies, financial investment has risen 41% in the first quarter of
1994, compared to negative growth in 1992. An increase in direct foreign
investment, particularly in the service sector, reflects positive overseas
sentiments. An increase in private consumption of imports has increased the
trade deficit to U.S.$2.5 billion; however, this increase is not expected to
significantly affect growth.

At present, Korea intends to deregulate its financial markets and integrate
into the world economy by 1997 under President Kim Young Sam's liberalization
policies and is expected to accelerate further economic reforms to ensure future
growth and deregulation under the terms of the General Agreement on Tariffs and
Trade or "GATT" (signed on December 15, 1993), and the OECD, in which it seeks
full membership by 1996. Such reforms, to be gradually implemented over the next
five to ten years, include the strengthening of its competitive forces by
loosening import restrictions and removing tariffs on 253 industrial products,
the opening of its local markets to international bidding, the release of
controls on interest rates, and the promotion of greater direct foreign
investment by raising the foreign ownership ceiling in listed Korean companies,
which is presently 10%, and allowing foreigners to purchase new issues of
unsecured convertible bonds from small firms, subject to an overall 15% ceiling
on equity securities if such bonds are converted.

Politically, Korea is currently in an uncertain and precarious position.
The stand-off by Korea's northern neighbor, North Korea, with nuclear inspection
authorities has resulted in explicit threats against Korea if an international
embargo occurs. An embargo, according to former North Korean President Kim Il
Sung, would be considered an act of war and would result in military responses
against Korea. With the recent and sudden death of Mr. Kim, an additional
element of uncertainty was created as his death occurred during sensitive
negotiations with the United States concerning North Korea's refusal to allow
inspection of its nuclear facilities. Additionally, little is known about Mr.
Kim's apparent successor, Kim Jong Il, and the future of negotiations between
the United States and North Korea. The Fund cannot predict the effect, if any,
of recent events in North Korea on the securities markets in Korea, Asia or
elsewhere.

Vietnam. Because Vietnam's population is approaching 70 million and its
government is apparently committed to market reforms, sharp growth in foreign
direct investment and the lifting of the United States trade embargo, the
Investment Manager believes that Vietnam's economy has significant growth
potential. Manufacturers from neighboring Southeast Asian countries, including
Thailand, Malaysia and Singapore, are looking to relocate selected production
facilities in order to capture Vietnam's low cost labor advantage, where even
higher price urban workers command only $150 per month in wages. The Investment
Manager believes that if reforms continue, Vietnam will have a stock market
within the next few years. Plans are currently underway for a small experimental
stock market in Vietnam in the next few years.

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.$385 billion as of December 1993, followed by
Singapore at U.S.$306.7 billion and Malaysia at U.S.$230 billion. Over the
period from 1983 to 1993, Indonesia has experienced a 816% expansion in the
number of listed companies, coupled with an increase in market capitalization
from U.S.$101 million to U.S.$33 billion. The number of listed companies in
India (Bombay) and Thailand increased 183% and 294%, 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 1983 and 1993 may, to a large extent, reflect changes
in the various exchange rates.

D-7
<PAGE> 71

DEVELOPMENT OF ASIAN STOCK MARKETS
1983-1993

<TABLE>
<CAPTION>
MARKET
ANNUAL TRADING NUMBER OF CAPITALIZATION
VALUE LISTED DECEMBER 31,
U.S.$ MILLIONS COMPANIES U.S.$ BILLIONS
------------------- ------------- -----------------
EXCHANGE LOCAL INDEX 1983 1993 1983 1993 1983 1993
- -------------------------- --------------------- ------- --------- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
China..................... n/av -- 38,524 -- 183 -- 39.9
Hong Kong................. Hang Seng 5,116 131,550 n/av 450 17.1 385.3
India(1).................. BSE Sensitive Index 2,377 17,013 1,151 3,263 7.2 98.0
Indonesia................. JSE Composite 11 9,141 19 174 0.1 33.0
Korea..................... KOSPI 2,260 211,699 328 693 4.4 139.4
Malaysia.................. KLSE Composite 3,398 154,130 204 413 22.8 230.1
Pakistan.................. KSE Index n/av 1,799 327 653 1.1 11.6
Philippines............... Manila Com/Ind Index 483 6,682 208 180 1.4 40.0
Singapore................. DBS 50 5,588 78,498(2) 118 361(2) 15.5 306.7(2)
Sri Lanka................. CSE All Shares -- 381 -- 200 -- 2.5
Thailand.................. SET 381 80,207 88 347 1.5 130.5
Japan(3).................. TOPIX 232,433 782,784 1,441 1,667 546.3 2,903.8
United States............. S&P 500 958,304 3,507,223 6,273 7,842 1,017.8 5,223.8
</TABLE>

- ---------------
Notes:

(1) Bombay Stock Exchange only.

(2) Includes Singapore's Clob International.

(3) Tokyo Stock Exchange, First and Second Sections only.

Sources: International Finance Corp. Emerging Markets Data Base; International
Finance Corp. Quarterly Review of Emerging Markets, Fourth Quarter 1993;
Emerging Stock Markets Factbook 1993: International Finance Corp.; The Tokyo
Stock Exchange 1994 Fact Book; SES Journal, January 1994; Morgan Stanley Capital
International Perspective, May 1994; NASDAQ Factbook and Company Directory, 1993
and 1994; U.S. Securities and Exchange Commission, Annual Report 1984.

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. Until 1987, investment in Indonesia was effectively closed to
foreigners; Korea opened up 10% of equity ownership to foreigners in 1992.
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.

Foreign investment restrictions may or may not change in the future. For
example, the Securities Exchange Commission of Thailand is currently studying
various proposals to permit foreigners to hold local stock without voting
rights. If adopted, such proposals could have the effect of reducing or
eliminating the premium at which many foreign-owned Thai stocks presently trade,
which could adversely affect the Fund if it had previously purchased such stocks
at a premium. It is uncertain when or if such a change will be implemented.

With the exception of Korea in the period 1989 through 1992 and China in
1993, stock markets of Asian Countries have had positive returns, although such
returns cannot be assured in the future. These markets, in general, do not move
together. In addition, 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

D-8
<PAGE> 72

U.S. dollar terms. The stock markets in most Asian Countries are at high levels
that may not persist. 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. These markets are susceptible to sudden and substantial price
volatility, and since January 1, 1994, many of these markets have experienced
substantial declines and volatility.

ASIAN STOCK MARKET RETURNS(1)

<TABLE>
<CAPTION>
AVERAGE ANNUAL STOCK MARKET
STOCK MARKET STOCK MARKET RETURNS(%)
RETURNS(%) RETURNS (%) JANUARY 1 TO
COUNTRY 1989-1992 1993 JULY 14, 1994
- --------------------------------------------------- -------------- ------------ --------------
<S> <C> <C> <C>
China.............................................. n/av (22.6) (47.68)
Hong Kong.......................................... 17.9 109.5 (24.85)
India.............................................. n/av 35.4 17.68
Indonesia.......................................... 4.0 106.5 0.61
Korea.............................................. (9.0) 32.5 16.35
Malaysia........................................... 12.2 113.5 (18.59)
Pakistan........................................... n/av 88.5 22.37
Philippines........................................ 19.1 165.2 12.39
Singapore.......................................... 7.1 62.3 (5.05)
Sri Lanka.......................................... n/av 79.0 13.81
Thailand........................................... 22.5 99.1 (15.84)
Japan.............................................. (14.2) 11.4 29.47
United States...................................... 12.2 7.0 (2.81)
</TABLE>

- ---------------
Note:

(1) Returns are calculated based on local currencies, are
capitalization-weighted and assume gross dividend reinvestment.

Sources: MSCI Price Indices; Bloomberg World Indices.

D-9
<PAGE> 73

JAPAN

OVERVIEW

Japan, located in the eastern region of Asia, consists of four major
islands, Hokkaido, Honshu, Kyushu and Shikoku, and many small islands. The
population of Japan currently is estimated at over 124.5 million.

The government of Japan is a representative democracy whose principal
executive is the Prime Minister. Japan's legislature (known as the Diet)
consists of two houses, the House of Representatives (the lower house) and the
House of Councillors (the upper house). Various parties within Japan's coalition
government are calling for political reform that could split the government and
lead to new political alignments. The Fund and the Investment Manager are unable
to predict the effect, if any, of the present political instability within
Japan, the recent resignations of Prime Ministers Hosokawa, Hata and Murayama
and the future election or actions of Mr. Hashimoto, Japan's new Prime Minister,
on the securities market of Japan.

ECONOMY

The Japanese economy maintained an average growth of 3.9% in real GDP terms
during the years 1980 through 1992, compared to 2.1% for the United States
during the same period. Although investment has declined from the very high
levels of the late 1980s and the recent appreciation of the yen has curtailed
business profits and weakened exports, increases in housing and public
investment and a decline in imports in the early part of 1993 have provided some
buffers to the economy's recent downturn.

In 1992, Japan's real GDP growth rate fell to 1.1% while 1993 recorded
little to no growth in GDP. Inflation has been kept in check, estimated at 1.2%
for 1993. Consumer expenditures dropped 0.9% due to prevalent fears that have
affected consumer and business sentiment, such as the fear of massive corporate
restructuring. The number of excess workers is currently estimated to be between
0.8 and 1.2 million. Although most corporations are not expected to reduce their
workforce by means of mass lay-offs, there can be no assurance that mass
lay-offs will not occur. Recently, companies have taken steps to relieve
corporate distress. For instance, companies have reduced overtime and bonus
payments and accelerated early retirement programs. However, overall employment
increased with over 800,000 new jobs created from January 1993 to August 1993.
Employment has shifted from the manufacturing to the service industry, a trend
that is expected to continue in 1994. Natural disasters, such as July 1993's
devastating earthquake off the island of Hokkaido, the torrential rains and
flooding in Kyushu, and the passing of Japan's coldest and wettest summer in 40
years, played a role in propelling the economic recession by halting what was
expected to be the start of a recovery during the summer of 1993.

Japan's early reliance on heavy industries subsequently shifted to higher
technology products assembly and, most recently, to automobile, electrical and
electronic production. Japan's success in exporting its products has generated
sizeable trade surpluses. Because of the concentration of Japanese exports in
highly visible products such as automobiles, machine tools and semiconductors,
and the large trade surpluses ensuing therefrom, and the recent large and
visible Japanese real estate investments in the United States, Japan is in a
difficult phase in its relations with its trading partners. The international
balance of payments for Japan has renewed concern with respect to the trade
imbalances among nations. Although it is probable that the recent improvement of
the U.S. economy, marked by a 3.0% real GNP growth rate for 1993, a significant
decrease in the U.S. trade deficit with Japan and an increased competitiveness
and success in manufacturing, such as the automobile industry, has had an effect
on Japan's growth, Japan's trade surplus for fiscal year 1993 remained the
largest in its history, amounting to $141 billion. Exports totalled $350
billion, up 5.8% from the previous year, and imports were $209 billion, up 5.3%.
The current account surplus in fiscal year 1993 was a record $130 billion.
Consequently, Japan has become the largest creditor nation and a significant
donor of foreign aid.

Although economic indicators remain mixed, the Investment Manager believes
that the recession in Japan has reached a low and that a gradual economic
recovery will soon begin. The Investment Manager believes that low inflation and
interest rates may help to create the conditions for a consumer led recovery,
and then sustain such a recovery. The Japanese economy has typically exhibited
low inflation and low interest

D-10
<PAGE> 74

rates. There can be no assurance, however, that low inflation and low interest
rates will continue, and it is likely that a reversal of such factors would
adversely affect the Japanese economy.

Although the value of the yen remains high, the Investment Manager believes
that a U.S. economic recovery will cause the yen to gradually depreciate against
the U.S. dollar in the short-term, which could help Japanese exports by allowing
exporters to take advantage of economic recoveries overseas.

Political uncertainties also have a strong effect on consumer and business
sentiment. The stability of any new ruling coalition and the direction and
success of past reforms of former ruling coalitions are not assured. Former
Prime Minister Hosokawa came to power with a limited mandate for political
reform. However, with pressures exerted from the slumping economy and the
growing trade surplus, his coalition had to forge new fiscal policies. On 13 and
September 16, 1993, the government announced emergency economic packages which
included stimulus plans for a total 19.2 trillion yen for the 1994 fiscal year
and numerous legislative provisions. A portion of the 19.2 trillion yen was
allocated as follows: one trillion yen was used for improving social
infrastructure; an additional 800 billion yen was used for public works
projects; 2.9 trillion yen in low-interest loans was used for housing; and one
trillion yen was used for low interest small business loans. Key items from the
legislation of the more recent package include an elimination or relaxing of 94
government regulations, a reduction of import costs (urging companies to pass
along the benefits of the rise in the yen's value to the consumer), an extension
of subsidies to companies for sustaining excess workers in order to curb
unemployment, and an offer of tax breaks to middle-income taxpayers for
education expenses and to companies for operational streamlining in order to
influence lower retail costs. In early 1994, the government answered the urgings
of the business and financial communities by providing an immediate income-tax
cut.

It must be noted that 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 unequivocal. 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 recession.

EXCHANGE RATE

The following table sets forth certain information as to yen per U.S.
dollar exchange rates for the years 1983 through 1995.

EXCHANGE RATE: YEN PER U.S. DOLLAR, 1983 TO 1995

<TABLE>
<CAPTION>
YEN PER U.S. $1.00
------------------------------
HIGH LOW AVERAGE
------ ------ --------
<S> <C> <C> <C>
1983............................................................. 227.50 247.35 234.34
1984............................................................. 222.10 250.58 247.96
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............................................................. 125.25 141.75 128.07
1992............................................................. 119.25 134.77 123.98
1993............................................................. 101.25 126.87 109.72
1994.............................................................
1995.............................................................
</TABLE>

- ---------------
Source: The Bank of Japan.

D-11
<PAGE> 75

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 99%
of the stock trading volume and 98.9% of the overall value of all Japanese stock
exchanges as of December 31, 1993. The chart below presents stock trading volume
and value of each Japanese stock exchange for the period from 1988 to 1995.

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......................
1995......................

<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.......................
1995.......................
</TABLE>

- ---------------
Note:
(1) Trading volume and value of foreign stocks are not included.
Sources: The Tokyo Stock Exchange 1994 Fact Book and 1993 Fact Book.

As of the end of the first quarter of 1994, the Japanese market is over 40%
below its all-time high, in terms of the market capitalization of the First
Section of the TSE. The Investment Manager believes that Japan's recession, its
political problems and the depressed corporate earnings of Japanese companies
are fully reflected in current Japanese stock prices and that Japan is poised
for economic recovery, making Japanese equities an attractive investment
opportunity.

Although the short-term direction of the Japanese stock market may not be
accurately predicted, especially with the current political instability, the
Investment Manager believes that the Japanese stock market is an attractive
investment over the medium- to long-term. Also, the Investment Manager believes
that current earnings levels of Japanese companies are very depressed and may
present a strong potential for earnings per share growth in the near future.

Additionally, absolute Japanese price/earnings ratios (P/E ratios) are high
in comparison with other major stock markets. However, the ratings of individual
companies vary widely, enabling the Investment Manager, through careful stock
selection, to take advantage of anomalies. Also, other valuation measures, such
as price to book value and price to cash flow ratios, show that the Japanese
market is near its lowest level in the last 20 years relative to other world
markets.

THE TOKYO STOCK EXCHANGE

Overview of the Tokyo Stock Exchange

The TSE is highly systemized. Its chief characteristics are as follows:
prices are consecutively determined every day on which sessions are held;
trading is limited to members, who are required to possess certain
qualifications; trading is limited to listed stocks which have met certain basic
standards; in connection with the trading of listed stocks, a centralized market
has been adopted so that buy and sell orders converge on the market and trading
contracts are concluded based upon competitive bidding; in order to simplify the
settling of accounts, a system of clearing accounts has been adopted; and to
assure fairness in trading, the TSE reserves the right to supervise trading by
enacting appropriate regulations governing stock trading and to provide
punishment for any violations thereof.

The TSE is the largest and most prestigious of the Japanese stock
exchanges. In 1993, the TSE accounted for 81.9% of the trading value and 85.9%
of the trading volume on all Japanese stock exchanges.

D-12
<PAGE> 76

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
1993, had 110 nonJapanese 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
1993, of the 22 newly listed companies on the TSE, 19 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 1993, there were
seven companies whose listings were changed from the Second to the First
Section, no companies reassigned from the First Section to the Second Section
and six companies whose shares were delisted (five as a result of mergers and
one from reorganization).

As of December 31, 1993, there were 1,234 Japanese companies assigned to
the TSE First Section and 433 Japanese companies assigned to the Second Section.
At the end of 1993, the market value of all the TSE's domestic stocks was
approximately Yen324.4 trillion (approximately 96.7% of the market value of all
Japanese stock exchanges), and the average daily trading volume was
approximately 353 million shares. The market value of all the TSE's domestic
stocks for 1989, 1990, 1991 and 1992 was approximately Yen611.2 trillion,
Yen379.2 trillion, Yen377.9 trillion and Yen289.5 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 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 Yen100 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.

If a foreign investor intends to acquire shares of a Japanese corporation
listed on a Japanese stock exchange or traded on a Japanese over-the-counter
market (regardless of the person from or through whom the foreign investor
acquires such shares) and as a result of such acquisition the foreign investor
would directly or indirectly hold 10% or more of the total outstanding shares of
that corporation, such foreign investor must file a report within 15 days from
and including the day of such acquisition with the Minister of Finance and any
other Minister with proper jurisdiction. In instances where such acquisition
concerns national security or meets certain other conditions specified in the
Foreign Exchange Controls, such foreign investor must file a prior notification
in respect of the proposed acquisition with the Minister of Finance and any
other Minister with proper jurisdiction. Such Ministers may make a
recommendation to modify or prohibit the proposed acquisition if they consider
that such acquisition falls under certain limited conditions specified in the
Foreign Exchange Controls. If the foreign investor does not accept the
recommendation, such Ministers may issue an order modifying or prohibiting the
acquisition. The Fund will be considered a foreign investor for this purpose.

D-13
<PAGE> 77

In general, the acquisition of shares by non-resident shareholders by way
of stock splits, as well as the acquisition of shares of a Japanese company that
are listed on a Japanese stock exchange by non-residents upon exercise of
warrants or conversion of convertible bonds, are not subject to any of the
foregoing notification or reporting requirements. Under the Foreign Exchange
Controls, dividends paid on shares held by non-residents of Japan and the
proceeds of any sales of shares within Japan may, in general, be converted into
any foreign currency and remitted abroad. The Fund will be considered a
non-resident of Japan for this purpose.

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.
This law 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.

The insider trading provisions, including criminal sanctions, of the
Securities and Exchange Law are applicable to debt and equity securities listed
on a Japanese stock exchange and to unlisted debt and equity securities issued
by a Japanese corporation that has securities listed on a Japanese stock
exchange or registered with the JSDA. In addition, listed or JSDA registered
corporations are subject to provisions that prohibit directors, statutory
auditors and principal shareholders of listed or JSDA registered companies from
effecting short-swing transactions. The reporting obligations of directors,
statutory auditors and principal shareholders with respect to the purchase or
sale of securities issued by the subject corporation are also provided.

The so-called "five percent rule" of the Securities and Exchange Law is
applicable to listed or JSDA registered companies. When any person has become,
solely or jointly, the holder of more than five percent of the aggregate issued
capital stock of a company whose securities are listed on any Japanese stock
exchange or registered with the JSDA, a report concerning such holding must be
filed with the Minister of Finance within five business days. A similar report
must also be made in respect of any subsequent change of one percent or more in
any such holding. For this purpose, securities issuable to such a person upon
conversion of convertible securities or exercise of warrants are taken into
account in determining both the number of securities held by such person and the
issuer's total issued share capital. Copies of each such report must also be
furnished to the issuer of such securities and each Japanese stock exchange on
which the securities are listed and the JSDA with which securities are
registered.

The takeover bid rules (the "TOB rules") under the Securities and Exchange
Law are applicable to equity or equity-related securities issued by a company
that is subject to periodic disclosure requirements. All purchases of such
securities made outside any Japanese stock exchange must comply with the
procedures provided in the TOB rules unless expressly exempted therefrom. Exempt
transactions include those in which the bidder acquires not more than five
percent of the aggregate outstanding securities of the target company.

D-14
<PAGE> 78

The loss compensation (sonshitsu-hoten) incidents involving preferential
treatment of certain customers by certain Japanese securities companies, which
came to light in 1991, had several consequences for the securities industry in
Japan. First, several of the leading securities companies were found by the
Minister of Finance to have violated a ministerial directive it had previously
issued. Following completion of the Minister of Finance's investigation into
this matter, such firms accepted administrative guidance from the Minister of
Finance advising that the companies should suspend certain aspects of their
businesses for several days. Several of these companies were also subject to
fines by the TSE. In addition, as described below, the incidents gave impetus to
amendments to the Securities and Exchange Law, which took effect January 1,
1992, as well as to two reform bills passed by the Diet in 1992 to provide for
more comprehensive reforms of the Japanese financial system.

Under the amended law, certain practices formerly permitted, or prohibited
only by administrative guidance of the Minister of Finance, are now prohibited
by law. Securities companies are prohibited from the operation of discretionary
accounts, loss compensation or provision of artificial gains in securities
transactions, directly or indirectly, to their customers and making offers or
agreements with respect thereto; provided, however, that in the case of
compensation for damages caused by certain types of misconduct or failure to act
on the part of the securities companies, such compensation is exempted from the
prohibition only after notification thereof to the Minister of Finance.
Investors are prohibited from demanding that a securities company agree to
effect, and if demanded from receiving, directly or indirectly, such loss
compensation or gain provision. It is difficult to define illegal loss
compensation (sonshitsu-hoten); accordingly, the JSDA and the TSE have
promulgated certain rules, effective January 1, 1992, that are designed to
ensure that securities are traded at their fair market value by regulating or
prohibiting certain practices which might otherwise be manipulated to use
artificial pricing to effect loss compensation. Such rules also explicitly
prohibit any transaction undertaken with the intent to provide loss compensation
or illegal gains regardless of whether the transaction otherwise technically
complies with the rules.

One reform bill, which took effect July 20, 1992, provides, generally, for
the establishment of a new Japanese securities regulator (the "Securities
Transactions Surveillance Commission") to oversee the securities industry,
subject to the authority of the Minister of Finance, and the strengthening of
the regulatory authority and surveillance powers of securities industry
self-regulatory organizations, including the JSDA and the TSE. Another bill,
which was made effective as of April 1, 1993, provides for a variety of reforms
designed to rationalize and revitalize the Japanese financial and capital
markets. The bill's principal provisions permit banks and securities companies
to compete in each other's business field, subject to various regulations and
restrictions. The bill also contains provisions which (i) broaden the definition
of "securities" under the Securities and Exchange Law, (ii) clarify and
rationalize the concept of public offering versus private placement and related
regulations and (iii) revise the information disclosure system to ensure that in
each case investors continue to receive adequate information.

D-15
<PAGE> 79

AUSTRALIA AND NEW ZEALAND

OVERVIEW

Australia and New Zealand are located in the South Pacific Ocean; New
Zealand is approximately 1,200 miles to the east of Australia. Both countries
have similar histories in that they were both British colonies which are now
independent sovereign states, keep the British monarch as titular Head of State
and have legal systems originating from the British Common Law. Australia is a
federal democracy with a bicameral legislature, a 148-member House of
Representatives and a 76-member Senate. New Zealand is a parliamentary democracy
with a unicameral legislature, a 99-member House of Representatives. In
Australia and New Zealand, the governor-general, Queen Elizabeth II's
representative in each country, appoints the Prime Minister, who is the head of
the cabinet, on the basis of party strength in the House of Representatives.
Australia has a population of over 17.8 million, and New Zealand has a
population of over 3.4 million.

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.

Australia relies heavily on its manufacturing sector and natural resources.
At Australia's fiscal year end at June 30, 1993, manufacturing accounted for
17.3% of its GDP, while primary production and mining accounted for 8.8% of its
GDP. Australia's five largest export categories during its 1993 fiscal year were
all natural resource products, specifically, (i) metal ores and minerals
(22.0%), (ii) coal, petroleum and related products (19.1%), (iii) gold (7.6%),
(iv) wool (7.2%) and (v) cereals (6.2%). Exports accounted for 18.7% of GDP
during Australia's 1993 fiscal year end.

New Zealand's natural resource industries, particularly the agricultural,
horticultural, fishing and forestry industries, play a fundamental role in New
Zealand's economy, especially its export sector. The agricultural,
horticultural, fishing and forestry industries accounted for approximately 7.2%
of GDP for the year ended March 31, 1991, while agricultural and horticultural
products alone accounted for approximately 49.0% of the total value of New
Zealand's exports of goods for the year ended June 30, 1993. With exports of
goods and services accounting for 31% of GDP in year ended March 31, 1993,
exports are noticably important to the New Zealand economy. Over the four year
periods beginning July 1, 1989 and ending June 30, 1993, exports from New
Zealand have grown at an average annual rate of 6.1%. Additionally, for each
year during the four year period ended June 30, 1993, the top four principal
exports from New Zealand have all been natural resource products, specifically
meat, dairy products, forestry products and wool.

The largest trading partners of Australia are Japan and the United States,
while the largest trading partners of New Zealand are Australia, Japan and the
United States. New Zealand is Australia's fourth largest trading partner in
terms of Australia's exports to New Zealand. With Japan and the United States as
major importers of Australian and New Zealand goods, economic recoveries in
Japan and the United States are likely to benefit the commodities-based
economies of Australia and New Zealand. For example, exports to Japan accounted
for 24.8% and 15.3% of all exports from Australia and New Zealand, respectively,
for the year ended June 30, 1993. Japan's principal imports are natural
resources, mineral fuels and food products, while Australia's major exports are
mineral fuels including coal, petroleum and related products, and New Zealand's
major exports are food products, including meat and dairy produce. In addition,
wood is also among the largest imports of Japan, and 28% of New Zealand's
forestry exports went to Japan during year ended June 30, 1993.

Although both Australia and New Zealand have experienced little or negative
growth in recent years, the Investment Manager believes both countries are
beginning their economic recovery, as indicated by their 1993 annual growth rate
of real GDP. The New Zealand government estimates that real GDP has grown 3.9%
from

D-16
<PAGE> 80

the period ended June 30, 1992 to the period ended June 30, 1993. The chart
below indicates the Nominal GDP for 1993 and the annual growth rate of real GDP
for the period 1989 through 1995.

NOMINAL GDP FOR 1993 AND REAL GDP GROWTH FOR THE
PERIOD 1989 THROUGH 1993

<TABLE>
<CAPTION>
NOMINAL GDP FOR 1993
COUNTRY (U.S.$ BILLIONS)(1) 1989 1990 1991 1992 1993 1994 1995
- --------------------- -------------------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Australia............ 277 3.8% 1.0% 0.5% 2.4%
New Zealand(2)....... 43 (1.1) 1.3 (0.4) (1.6)
</TABLE>

- ---------------

Notes:

(1) Current estimates.

(2) For years ended March 31, except for Nominal GDP for 1993, which is
estimated as of year ended December 31.

Sources: Economic Intelligence Unit, Australia and New Zealand Country Reports,
1st Quarter 1994; New Zealand: Economic and Financial Overview, February 1994.

SECURITIES MARKETS

Australian Stock Exchange

The Australian Stock Exchange's total trading volume increased by 85.7%
from 1992 to 1993. As of December 31, 1993, the Australian Stock Exchange had
1107 listed companies, a market capitalization of approximately U.S.$324 billion
and an annual trading value of approximately U.S.$67.7 billion. The following
table indicates figures for trading volume, trading value and market
capitalization of the Australian Stock Exchange for the period from 1988 through
1995. The figures below are stated in Australian dollars.

TOTAL TRADING VOLUME AND VALUE AND
MARKET CAPITALIZATION: 1988-1995

TRADING VOLUME TRADING VALUE MARKET CAPITALIZATION
---------------- ------------- ---------------------
(SHARES MILLION) (AU$MILLION) (AU$BILLION)
<S> <C> <C> <C>
1988......................................... 29,437 $48,860 $ 213.6
1989......................................... 27,820 56,636 228.9
1990......................................... 22,895 51,421 195.7
1991......................................... 27,920 60,126 256.3
1992......................................... 29,624 62,248 385.1
1993......................................... 54,998 99,563 477.2
1994.........................................
1995.........................................
</TABLE>

- ---------------

Source: Australian Stock Exchange.

New Zealand Stock Exchange

The New Zealand Stock Exchange's total trading volume increased by 72.1%
from 1992 to 1993. As of December 31, 1993, the New Zealand Stock Exchange had
189 listed companies, a market capitalization of approximately U.S.$25.6 billion
and an annual trading value of approximately U.S.$7.0 billion. The following
table indicates trading volume, trading value and market capitalization of the
New Zealand Stock Exchange for the period from 1988 through 1995. The figures
below are stated in New Zealand dollars.

D-17
<PAGE> 81

TOTAL TRADING VOLUME AND VALUE
AND MARKET CAPITALIZATION: 1988-1995

YEAR TRADING VOLUME TRADING VALUE MARKET CAPITALIZATION
- --------------------------------------------- ---------------- ------------- ---------------------
(SHARES MILLION) (NZ$MILLION) (NZ$BILLION)

- ---------------

Source: New Zealand Stock Exchange.

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 little or negative returns since the beginning of 1994,
and New Zealand averaged negative returns for the period 1989 to 1992. Despite
the slow start in 1994 of the stock markets of Australia and New Zealand, the
Investment Manager believes that both countries 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 RETURNS(1)

<TABLE>
<CAPTION>
STOCK MARKET
AVERAGE ANNUAL RETURNS (%)
STOCK MARKET STOCK MARKET JANUARY 1 TO
RETURNS (%) RETURNS (%) JULY 14,
COUNTRY 1989-1992 1993 1994
- ---------------------------------------------------- -------------- ------------ ------------
<S> <C> <C> <C>
Australia........................................... 3.7 34.1 0.67
New Zealand......................................... (4.4) 49.4 (1.41)
</TABLE>

- ---------------
Note:

(1) Returns are calculated based on local currencies, are
capitalization-weighted and assume gross dividend reinvestment.

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.

D-18
<PAGE> 82

APPENDIX E

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.

E-1
<PAGE> 83

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
option 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 also may 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.

E-2
<PAGE> 84

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

E-3
<PAGE> 85

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.

E-4
<PAGE> 86

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) -- Specimen certificate for Common Stock, par value $.01 per share***+
(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
</TABLE>

i
<PAGE> 87

<TABLE>
<C> <S> <C> <C>
(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.

+ Filed pursuant to the EDGAR (Electronic Data Gathering, Analysis, and
Retrievel) phase-in requirements.

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>

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

ii
<PAGE> 88

Management Agreement, the U.S. Underwriting Agreement, the Japanese Subscription
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)

American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(with respect to its services as Subscription Agent and Transfer Agent)

iii
<PAGE> 89

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> 90

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 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
8th day of March, 1996.

MORGAN STANLEY ASIA-PACIFIC FUND, INC.

By: /S/ WARREN J. OLSEN

------------------------------------
Warren J. Olsen
President

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Warren J. Olsen and Harold J. Schaaff, Jr., and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all Amendments (including pre-effective
and post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this 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> <S> <C>
/s/ BARTON M. BIGGS Director and Chairman of the Board March 8, 1996
- -------------------------------------
Barton M. Biggs
/s/ WARREN J. OLSEN Director and President March 8, 1996
- ------------------------------------- (Principal Executive Officer)
Warren J. Olsen
/s/ PETER J. CHASE Director March 8, 1996
- -------------------------------------
Peter J. Chase
/s/ JOHN W. CROGHAN Director March 8, 1996
- -------------------------------------
John W. Croghan
Director
- -------------------------------------
David B. Gill
/s/ GRAHAM E. JONES Director March 6, 1996
- -------------------------------------
Graham E. Jones
/s/ JOHN A. LEVIN Director March 8, 1996
- -------------------------------------
John A. Levin
</TABLE>

v
<PAGE> 91

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- --------------------------------------- --------------
<C> <S> <C>
/s/ WILLIAM G. MORTON, JR. Director March 8, 1996
- -------------------------------------
William G. Morton, Jr.
/s/ FREDERICK B. WHITTEMORE Director March 8, 1996
- -------------------------------------
Frederick B. Whittemore
/s/ JAMES R. ROONEY Treasurer (Principal Financial and March 8, 1996
- ------------------------------------- Accounting Officer)
James R. Rooney
</TABLE>

vi
<PAGE> 92

Exhibit Index
-------------

<TABLE>
<CAPTION>
<S> <C> <C> <C>
(a) (1) -- Articles of Incorporation*
(2) -- Articles of Amendment**
(3) -- Articles of Amendment***
(b) -- By-Laws, as amended
(c) -- Not applicable
(d) -- Specimen certificate for Common Stock, par value $.01 per share***
(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.

<PAGE> 1
EXHIBIT b

- --------------------------------------------------------------------------------

MORGAN STANLEY ASIA-PACIFIC FUND, INC.

A Maryland corporation

BY-LAWS
As Amended

June 26, 1995

- -------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS

ARTICLE I Stockholders.............................................. 1

Section 1.1. Place of Meeting.......................................... 1
Section 1.2. Annual Meetings........................................... 1
Section 1.3. Special Meetings.......................................... 1
Section 1.4. Notice of Meetings of Stockholders........................ 2
Section 1.5. Record Dates.............................................. 2
Section 1.6. Quorum; Adjournment of Meetings........................... 3
Section 1.7. Voting and Inspectors..................................... 4
Section 1.8. Conduct of Stockholders' Meetings......................... 5
Section 1.9. Concerning Validity of Proxies, Ballots, etc ............. 5
Section 1.10. Action Without Meeting.................................... 5

ARTICLE II Board of Directors........................................ 6

Section 2.1. Function of Directors..................................... 6
Section 2.2. Number of Directors....................................... 6
Section 2.3. Classes of Directors; Term of Directors................... 6
Section 2.4. Vacancies................................................. 7
Section 2.5. Increase or Decrease in Number of Directors............... 7
Section 2.6. Place of Meeting.......................................... 8
Section 2.7. Regular Meetings.......................................... 8
Section 2.8. Special Meetings.......................................... 8
Section 2.9. Notices................................................... 8
Section 2.10. Quorum.................................................... 9
Section 2.11. Executive Committee....................................... 9
Section 2.12. Other Committees..........................................10
Section 2.13. Telephone Meetings........................................10
Section 2.14. Action Without a Meeting..................................10
Section 2.15. Compensation of Directors.................................11

ARTICLE III Officers..................................................11

Section 3.1. Executive Officers........................................11
Section 3.2. Term of Office............................................12
Section 3.3. Powers and Duties.........................................12
Section 3.4. Surety Bonds..............................................12

ARTICLE IV Capital Stock.............................................13

Section 4.1. Certificates for Shares...................................13
Section 4.2. Transfer of Shares........................................13
Section 4.3. Stock Ledgers.............................................13
Section 4.4. Transfer Agents and Registrars............................13
Section 4.5. Lost, Stolen or Destroyed Certificates....................14

ARTICLE V Corporate Seal; Location of Offices;
Books; Net Asset Value....................................14

Section 5.1. Corporate Seal............................................14
Section 5.2. Location of Offices.......................................15

<PAGE> 3
TABLE OF CONTENTS
(Continued)

Section 5.3. Books and Records.................................... 15
Section 5.4. Annual Statement of Affairs.......................... 15
Section 5.5. Net Asset Value...................................... 15

ARTICLE VI Fiscal Year and Accountant........................... 16

Section 6.1. Fiscal Year.......................................... 16
Section 6.2. Accountant........................................... 16

ARTICLE VII Indemnification and Insurance........................ 16

Section 7.1. General.............................................. 16
Section 7.2. Indeminification of Directors and Officers........... 16
Section 7.3. Insurance............................................ 18

ARTICLE VIII Custodian............................................ 18

ARTICLE IX Amendment of By-Laws................................. 19

<PAGE> 4
MORGAN STANLEY ASIA-PACIFIC FUND, INC.

By-Laws
As Amended

ARTICLE I

Stockholders

Section 1.1. Place of Meeting. All meetings of the stockholders should
be held at the principal office of the Corporation in the State of Maryland or
at such other place within the United States as may from time to time be
designated by the Board of Directors and stated in the notice of such meeting.

Section 1.2. Annual Meetings. The annual meeting of the stockholders
of the Corporation shall be held during the month of June of each year on such
date and at such hour as may from time to time be designated by the Board of
Directors and stated in the notice of such meeting, for the purpose of electing
directors for the ensuing year and for the transaction of such other business
as may properly be brought before the meeting.

Section 1.3. Special Meetings. Special meetings of the stockholders for
any purpose or purposes may be called by the Chairman of the Board, the
President, or a majority of the Board of Directors. Special meetings of
stockholders shall also be called by the Secretary upon receipt of the request
in writing signed by stockholders holding not less than 25% of the votes
entitled to be cast thereat. Such request shall state the purpose or purposes
of the proposed meeting and the matters proposed to be acted on at such
proposed meeting. The Secretary shall inform such stockholders of the
reasonably estimated costs of preparing and mailing such notice of meeting and
upon payment to the Corporation
<PAGE> 5

of such costs, the Secretary shall give notice as required in this Article to
all stockholders entitled to notice of such meeting. No special meeting of
stockholders need be called upon the request of the holders of common stock
entitled to cast less than a majority of all votes entitled to be cast at such
meeting to consider any matter which is substantially the same as a matter
voted upon at any special meeting of stockholders held during the preceding
twelve months.

Section 1.4. Notice of Meetings of Stockholders. Not less than ten
days' and not more than ninety days' written or printed notice of every meeting
of stockholders, stating the time and place thereof (and the purpose of any
special meeting), shall be given to each stockholder entitled to vote thereat
and to each other stockholder entitled to notice of the meeting by leaving the
same with such stockholder or at such stockholder's residence or usual place of
business or by mailing it, postage prepaid, and addressed to such stockholder
at such stockholder's address as it appears upon the books of the Corporation.
If mailed, notice shall be deemed to be given when deposited in the mail
addressed to the stockholder as aforesaid.

No notice of the time, place or purpose of any meeting of stockholders
need be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.

Section 1.5. Record Dates. The Board of Directors may fix, in
advance, a record date for the determination of

<PAGE> 6
stockholders entitled to notice of or to vote at any stockholders meeting or to
receive a dividend or be allotted rights or for the purpose of any other proper
determination with respect to stockholders and only stockholders of record on
such date shall be entitled to notice of and to vote at such meeting or to
receive such dividends or rights or otherwise, as the case may be; provided,
however, that such record date shall not be prior to ninety days preceding the
date of any such meeting of stockholders, dividend payment date, date for the
allotment of rights or other such action requiring the determination of a
record date; and further provided that such record date shall not be prior to
the close of business on the day the record date is fixed, that the transfer
books shall not be closed for a period longer than 20 days, and that in the
case of a meeting of stockholders, the record date or the closing of the
transfer books shall not be less than ten days prior to the date fixed for such
meeting.

Section 1.6 Quorum; Adjournment of Meetings. The presence in person
or by proxy of stockholders entitled to cast a majority of the votes entitled
to be cast thereat shall constitute a quorum at all meetings of the
stockholders, except as otherwise provided in the Articles of Incorporation. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the holders of a majority of the stock present in person or by
proxy shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until the requisite amount of stock
entitled to vote at such meeting shall be present, to a date not more than 120
days

3
<PAGE> 7
after the original record date. At such adjourned meeting at which the
requisite amount of stock entitled to vote thereat shall be represented, any
business may be transacted which might have been transacted at the meeting as
originally notified.

Any meeting of stockholders, annual or special, may adjourn from time
to time to reconvene at the same or some other place, and notice need not be
given of any such adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting.

Section 1.7. Voting and Inspectors. At all meetings, stockholders of
record entitled to vote thereat shall have one vote for each share of common
stock standing in his name on the books of the Corporation (and such
stockholders of record holding fractional shares, if any, shall have
proportionate voting rights) on the date for the determination of stockholders
entitled to vote at such meeting, either in person or by proxy appointed by
instrument in writing subscribed by such stockholder or his duly authorized
attorney.

All elections shall be had and all questions decided by a majority of
the votes cast at a duly constituted meeting, except as otherwise provided by
statute or by the Articles of Incorporation or by these By-Laws.

At any election of Directors, the Chairman of the meeting may, and upon
the request of the holders of ten percent (10%) of the stock entitled to vote at
such election shall, appoint two

4
<PAGE> 8
inspectors of election who shall first subscribe an oath or affirmation to
execute faithfully the duties of inspectors at such election with strict
impartiality and according to the best of their ability, and shall after the
election make a certificate of the result of the vote taken. No candidate for
the office of Director shall be appointed such Inspector.

Section 1.8. Conduct of Stockholders' Meetings. The meetings of the
stockholders shall be presided over by the Chairman of the Board, or if he is
not present, by the President, or if he is not present, by a vice-president, or
if none of them is present, by a Chairman to be elected at the meeting. The
Secretary of the Corporation, if present, shall act as a Secretary of such
meetings, or if he is not present, an Assistant Secretary shall so act; if
neither the Secretary nor the Assistant Secretary is present, then the meeting
shall elect its Secretary.

Section 1.9. Concerning Validity of Proxies, Ballots, etc. At every
meeting of the stockholders, all proxies shall be received and taken in charge
of and all ballots shall be received and canvassed by the Secretary of the
meeting, who shall decide all questions touching the qualification of voters,
the validity of the proxies and the acceptance or rejection of votes, unless
inspectors of election shall have been appointed by the Chairman of the
meeting, in which event such inspectors of election shall decide all such
questions. Unless a proxy provides otherwise, it is not valid for more than
eleven months after its date.

Section 1.10. Action Without Meeting. Any action to be taken by
stockholders may be taken without a meeting if (1) all
<PAGE> 9
stockholders entitled to vote on the matter consent to the action in writing,
(2) all stockholders entitled to notice of the meeting but not entitled to vote
at it sign a written waiver of any right to dissent and (3) said consents and
waivers are filed with the records of the meetings of stockholders. Such
consent shall be treated for all purposes as a vote at the meeting.

ARTICLE II

Board of Directors

Section 2.1. Function of Directors. The business and affairs of the
Corporation shall be conducted and managed under the direction of its Board of
Directors. All powers of the Corporation shall be exercised by or under
authority of the Board of Directors except as conferred on or reserved to the
stockholders by statute.

Section 2.2 Number of Directors. The Board of Directors shall
consist of not more than fourteen Directors nor less than such number of
Directors as may be permitted under Maryland law, as may be determined from
time to time by vote of a majority of the Directors then in office. Directors
need not be stockholders.

Section 2.3 Classes of Directors; Term of Directors. The Directors
shall be divided into three classes, designated Class I, Class II and Class
III. All classes shall be as nearly equal in number as possible. The Directors
as initially classified shall hold office for terms as follows: the Class I
Directors shall hold office until the date of the annual meeting of
stockholders in 1996 or until their successors shall be elected and qualified;
the Class II Directors shall hold office until the date

6
<PAGE> 10
of the annual meeting of stockholders in 1997 or until their successors shall
be elected and qualified; and the Class III Directors shall hold office until
the date of the annual meeting of stockholders in 1998 or until their
successors shall be elected and qualified. Upon expiration of the term of
office of each class as set forth above, the Directors in each such class shall
be elected for a term of three years to succeed the Directors whose terms of
office expire. Each Director shall hold office until the expiration of his term
and until his successor shall have been elected and qualified, or until his
death, or until he shall have resigned, or until December 31 of the year in
which he shall have reached seventy-three years of age, or until he shall have
been removed as provided by Statute or the Articles of Incorporation.

Section 2.4. Vacancies. In case of any vacancy in the Board of
Directors through death, resignation or other cause, other than an increase in
the number of Directors, subject to the provisions of law, a majority of the
remaining Directors, although a majority is less than a quorum, by an
affirmative vote, may elect a successor to hold office until the next annual
meeting of stockholders or until his successor is chosen and qualified.

Section 2.5 Increase or Decrease in Number of Directors. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of Directors and may elect Directors to fill the vacancies created by
any such increase in the number of Directors until the next annual meeting of
stockholders or until their successors are duly chosen and qualified. The Board
of Directors, by the vote of a majority of

7
<PAGE> 11
the entire Board, may likewise decrease the number of Directors to a number not
less than that permitted by law.

Section 2.6. Place of Meeting. The Directors may hold their meetings
within or outside the State of Maryland, at any office or offices of the
Corporation or at any other place as they may from time to time determine.

Section 2.7. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such time and on such notice as the Directors may
from time to time determine.

The annual meeting of the Board of Directors shall be held as soon as
practicable after the annual meeting of the stockholders for the election of
Directors.

Section 2.8. Special Meetings. Special meetings of the Board of
Directors may be held from time to time upon call of the Chairman of the Board,
the President, the Secretary or two or more of the Directors, by oral or
telegraphic or written notice duly served on or sent or mailed to each Director
not less than one day before such meeting.

Section 2.9. Notices. Unless required by statute or otherwise
determined by resolution of the Board of Directors in accordance with these
By-laws, notices to Directors need not be in writing and need not state the
business to be transacted at or the purpose of any meeting, and no notice need
be given to any Director who is present in person or to any Director who, in
writing executed and filed with the records of the meeting either before or
after the holding thereof, waives such notice. Waivers of notice need not state
the purpose or purposes of such meeting.

<PAGE> 12
Section 2.10. Quorum. One-third of the Directors then in office shall
constitute a quorum for the transaction of business, provided that if there is
more than one Director, a quorum shall in no case be less than two Directors.
If at any meeting of the Board there shall be less than a quorum present, a
majority of those present may adjourn the meeting from time to time until a
quorum shall have been obtained. The act of the majority of the Directors
present at any meeting at which there is a quorum shall be the act of the
Directors, except as may be otherwise specifically provided by statute or by
the Articles of Incorporation or by these By-Laws.

Section 2.11. Executive Committee. The Board of Directors may appoint
from the Directors an Executive Committee to consist of such number of
Directors (not less than two) as the Board may from time to time determine.
The Chairman of the Committee shall be elected by the Board of Directors. The
Board of Directors shall have power at any time to change the members of such
Committee and may fill vacancies in the Committee by election from the
Directors. When the Board of Directors is not in session, to the extent
permitted by law, the Executive Committee shall have and may exercise any or
all of the powers of the Board of Directors in the management and conduct of
the business and affairs of the Corporation. The Executive Committee may fix
its own rules of procedure, and may meet when and as provided by such rules or
by resolution of the Board of Directors, but in every case the presence of a
majority shall be necessary to constitute a quorum. During the absence of a
member of the Executive Committee, the

<PAGE> 13
remaining members may appoint a member of the Board of Directors to act in his
place.

Section 2.12. Other Committees. The Board of Directors may appoint
from the Directors other committees which shall in each case consist of such
number of Directors (not less than two) and shall have and may exercise such
powers as the Board may determine in the resolution appointing them. A majority
of all the members of any such committee may determine its action and fix the
time and place of its meetings, unless the Board of Directors shall otherwise
provide. The Board of Directors shall have power at any time to change the
members and powers of any such committee, to fill vacancies and to discharge
any such committee.

Section 2.13. Telephone Meetings. Members of the Board of Directors
or a committee of the Board of Directors may participate in a meeting by means
of a conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time.
Participation in a meeting by these means, subject to the provisions of the
Investment Company Act of 1940, as amended, constitutes presence in person at
the meeting.

Section 2.14. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or any committee
thereof may be taken without a meeting, if a written consent to such action is
signed by all members of the Board or of such committee, as the case may be,
and such written consent is filed with the minutes of the proceedings of the
Board or such committee.

<PAGE> 14
Section 2.15. Compensation of Directors. No Director shall receive
any stated salary or fees from the Corporation for his services as such if such
Director is, otherwise than by reason of being such Director, an interested
person (as such term is defined by the Investment Company Act of 1940, as
amended) of the Corporation or of its investment manager or principal
underwriter. Except as provided in the preceding sentence, Directors shall be
entitled to receive such compensation from the Corporation for their services
as may from time to time be voted by the Board of Directors.

ARTICLE III

Officers

Section 3.1 Executive Officers. The executive officers of the
Corporation shall be chosen by the Board of Directors. These may include a
Chairman of the Board of Directors (who shall be a Director) and shall include
a President, a Secretary and a Treasurer. The Board of Directors or the
Executive Committee may also in its discretion appoint one or more
Vice-Presidents, Assistant Secretaries, Assistant Treasurers and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board of Directors or the Executive Committee may determine. The
Board of Directors may fill any vacancy which may occur in any office. Any two
offices, except those of President and Vice-President, may be held by the same
person, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity, if such instrument is required by law or

11
<PAGE> 15

these By-Laws to be executed, acknowledged or verified by two or more officers.

Section 3.2. Term of Office. The term of office of all officers
shall be one year and until their respective successors are chosen and
qualified. Any officer may be removed from office at any time with or without
cause by the vote of a majority of the whole Board of Directors. Any officer
may resign his office at any time by delivering a written resignation to the
Corporation and, unless otherwise specified therein, such resignation shall
take effect upon delivery.

Section 3.3. Powers and Duties. The officers of the Corporation shall
have such powers and duties as shall be stated in a resolution of the Board of
Directors, or the Executive Committee and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board of Directors and the Executive Committee.

Section 3.4. Surety Bonds. The Board of Directors may require any
officer or agent of the Corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940, as
amended, and the rules and regulations of the Securities and Exchange
Commission) to the Corporation in such sum and with such surety or sureties as
the Board of Directors may determine, conditioned upon the faithful performance
of his duties to the Corporation, including responsibility for negligence and
for the accounting of any of the Corporation's property, funds or securities
that may come into his hands.

<PAGE> 16

ARTICLE IV

Capital Stock

Section 4.1. Certificates for Shares. Each stockholder of the
Corporation shall be entitled to a certificate or certificates for the full
number of shares of stock of the Corporation owned by him in such form as the
Board may from time to time prescribe.

Section 4.2 Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature as the Corporation or its
agents may reasonably require; in the case of shares not represented by
certificates, the same or similar requirements may be imposed by the Board of
Directors.

Section 4.3. Stock Ledgers. The stock ledgers of the Corporation,
containing the names and addresses of the stockholders and the number of shares
held by them respectively, shall be kept at the principal offices of the
Corporation or, if the Corporation employs a Transfer Agent, at the offices of
the Transfer Agent of the Corporation.

Section 4.4. Transfer Agents and Registrars. The Board of Directors
may from time to time appoint or remove transfer agents and/or registrars of
transfers of shares of stock of the Corporation, and it may appoint the same
person as both transfer

<PAGE> 17
agent and registrar. Upon any such appointment being made, all certificates
representing shares of capital stock thereafter issued shall be countersigned
by one of such transfer agents or by one of such registrars of transfers or by
both and shall not be valid unless so countersigned. If the same person shall
be both transfer agent and registrar, only one countersignature by such person
shall be required.

Section 4.5. Lost, Stolen or Destroyed Certificates. The Board of
Directors or the Executive Committee or any officer or agent authorized by the
Board of Directors or Executive Committee may determine the conditions upon
which a new certificate of stock of the Corporation of any class may be issued
in place of a certificate which is alleged to have been lost, stolen or
destroyed; and may, in its discretion, require the owner of such certificate or
such owner's legal representative to give bond, with sufficient surety, to the
Corporation and each Transfer Agent, if any, to indemnify it and each such
Transfer Agent against any and all loss or claims which may arise by reason of
the issue of a new certificate in the place of the one so lost, stolen or
destroyed.

ARTICLE V

Corporate Seal; Location of
Offices; Books; Net Asset Value

Section 5.1. Corporate Seal. The Board of Directors may provide for a
suitable corporate seal, in such form and bearing such inscriptions as it may
determine. Any officer or director shall have the authority to affix the
corporate seal. If the Corporation is required to place its corporate seal to
a document,

<PAGE> 18
it shall be sufficient to place the word "(seal)" adjacent to the signature of
the authorized officer of the Corporation signing the document.

Section 5.2. Location of Offices. The Corporation shall have a
principal office in the State of Maryland. The Corporation may, in addition,
establish and maintain such other offices as the Board of Directors or any
officer may, from time to time, determine.

Section 5.3. Books and Records. The books and records of the
Corporation shall be kept at the places, within or without the State of
Maryland, as the directors or any officer may determine; provided, however,
that the original or a certified copy of the by-laws, including any amendments
to them, shall be kept at the Corporation's principal executive office.

Section 5.4. Annual Statement of Affairs. The President or any other
executive officer of the Corporation shall prepare annually a full and correct
statement of the affairs of the Corporation, to include a balance sheet and a
financial statement of operations for the preceding fiscal year. The statement
of affairs should be submitted at the annual meeting of stockholders and,
within 20 days of the meeting, placed on file at the Corporation's principal
office.

Section 5.5. Net Asset Value. The value of the Corporation's net
assets shall be determined at such times and by such method as shall be
established from time to time by the Board of Directors.

15
<PAGE> 19
ARTICLE VI

Fiscal Year and Accountant

Section 6.1 Fiscal Year. The fiscal year of the Corporation, unless
otherwise fixed by resolution of the Board of Directors, shall begin on the
first day of January and shall end on the last day of December in each year.

Section 6.2. Accountant. The Corporation shall employ an independent
public accountant or a firm of independent public accountants as its Accountant
to examine the accounts of the Corporation and to sign and certify financial
statements filed by the Corporation. The employment of the Accountant shall be
conditioned upon the right of the Corporation to terminate the employment
forthwith without any penalty by vote of a majority of the outstanding voting
securities at any stockholders' meeting called for that purpose.

ARTICLE VII

Indemnification and Insurance

Section 7.1. General. The Corporation shall indemnify directors,
officers, employees and agents of the Corporation against judgments, fines,
settlements and expenses to the fullest extent authorized and in the manner
permitted, by applicable federal and state law.

Section 7.2. Indemnification of Directors and Officers. The
Corporation shall indemnify to the fullest extent permitted by law (including
the Investment Company Act of 1940, as amended) as currently in effect or as
the same may hereafter be amended, any person made or threatened to be made a
party to any action, suit or

16
<PAGE> 20
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that such person or such person's testator or intestate is or was a
director or officer of the Corporation or serves or served at the request of
the Corporation any other enterprise as a director or officer. To the fullest
extent permitted by law (including the Investment Company Act of 1940, as
amended) as currently in effect or as the same may hereafter be amended,
expenses incurred by any such person in defending any such action, suit or
proceeding shall be paid or reimbursed by the Corporation promptly upon receipt
by it of an undertaking of such person to repay such expenses if it shall
ultimately be determined that such person is not entitled to be indemnified by
the Corporation. The rights provided to any person by this Article VII shall
be enforceable against the Corporation by such person who shall be presumed to
have relied upon it in serving or continuing to serve as a director or officer
as provided above. No amendment of this Article VII shall impair the rights of
any person arising at any time with respect to events occurring prior to such
amendment. For purposes of this Article VII, the term "Corporation" shall
include any predecessor of the Corporation and any constituent corporation
(including any constituent of a constituent) absorbed by the Corporation in a
consolidation or merger; the term "other enterprises" shall include any
corporation, partnership, joint venture, trust or employee benefit plan;
service "at the request of the Corporation" shall include service as a director
or officer of the Corporation which imposes duties on, or involves services by,
such director or officer with respect to an

<PAGE> 21

employee benefit plan, its participants or beneficiaries; any excise taxes
assessed on a person with respect to an employee benefit plan shall be deemed
to be indemnifiable expenses; and action by a person with respect to any
employee benefit plan which such person reasonably believes to be in the
interest of the participants and beneficiaries of such plan shall be deemed to
be action not opposed to the best interests of the Corporation.

Section 7.3. Insurance. Subject to the provisions of the Investment
Company Act of 1940, as amended, the Corporation, directly, through third
parties or through affiliates of the Corporation, may purchase, or provide
through a trust fund, letter of credit or surety bond insurance on behalf of
any person who is or was a Director, officer, employee or agent of the
Corporation, or who, while a Director, officer, employee or agent of the
Corporation, is or was serving at the request of the Corporation as a Director,
officer, employee, partner, trustee or agent of another foreign or domestic
corporation, partnership joint venture, trust or other enterprise against any
liability asserted against and incurred by such person in any such capacity or
arising out of such person's position, whether or not the Corporation would
have the power to indemnify such person against such liability.

ARTICLE VIII

Custodian

The Corporation shall have as custodian or custodians one or more trust
companies or banks of good standing, foreign or domestic, as may be designated
by the Board of Directors, subject to the provisions of the Investment Company
Act of 1940, as

<PAGE> 22
amended, and other applicable laws and regulations; and the funds and
securities held by the Corporation shall be kept in the custody of one or more
such custodians, provided such custodian or custodians can be found ready and
willing to act, and further provided that the Corporation and/or the Custodians
may employ such subcustodians as the Board of Directors may approve and as
shall be permitted by law.

ARTICLE IX

Amendment of By-Laws

The By-Laws of the Corporation may be altered, amended, added to or
repealed only by majority vote of the entire Board of Directors.