KOREA CAPITAL FUND
Supplement to Prospectus Dated January 31, 1996
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1. Please delete the reference to Mr. Jae Bong Chung in the second paragraph
of the section entitled "Investment Manager" on page 27 of the Prospectus
and replace with the following:
"Mr. Hyun Jong Nam has been the individual who is primarily responsible
for the Fund's day-to-day management since 1994. Mr. Nam has been employed
by the Adviser since 1990. Mr. Nam has a master's and undergraduate degree
from Yonsei University in Public Administration and Economics."
2. Under the heading "Sub-Administrator," please delete the last sentence of
the first paragraph on page 28 and replace with the following:
"Investment Company Administration Corp. receives from the Fund a fee
computed daily and paid monthly at an annual rate equal to 0.10% of the
Fund's average net assets, subject to a minimum annual fee of no less than
$35,000 per annum."
<PAGE>
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KOREA CAPITAL FUND
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3360 W. Olympic Blvd., Los Angeles, CA 90019
Tel. (800) 335-3381
KOREA CAPITAL FUND (the "Fund") is a mutual fund that seeks long-term
capital appreciation by investing at least 65% of its total assets in the
securities of Korean issuers which are listed on the Korea Stock Exchange. The
Fund invests in common stock and other equity securities, as well as debt
securities, including debt securities of the government of the Republic of
Korea, commonly referred to as "Korea."
There can be no assurance that the Fund will achieve its investment
objective. The Fund is an investment company designed for long-term investors
and not as a trading vehicle. The Fund does not present a complete investment
program nor is the Fund suitable for all investors. An investment in the Fund
should be considered speculative and is subject to special risk factors, related
primarily to the Fund's investments in Korea, which should be reviewed carefully
by potential investors.
The Fund intends to suspend the offering of its shares if Daehan
Securities, Inc. ("Daehan"), Korea Investment Management Europe Ltd. ("KIM") and
the Fund's Board of Trustees determine that the proceeds from the sale of Fund
shares cannot be effectively invested in securities of Korean issuers consistent
with the investment objectives and policies of the Fund. Currently, the Fund
expects to suspend sales when the value of its net assets reaches a point, as
determined by Daehan and KIM, between $100 million and $125 million. Thereafter,
the Fund will resume sales of its shares when doing so becomes consistent with
prudent portfolio management and the best interests of the Fund's shareholders.
This Prospectus sets forth concisely the information an investor
should know before investing. This Prospectus should be read carefully and
retained for future reference. Should more detailed information be desired, a
Statement of Additional Information, dated January 31, 1996, which has been
filed with the Securities and Exchange Commission and which, as amended or
supplemented from time to time, is incorporated by reference into this
Prospectus and is available without charge by writing to the Fund at 3360 West
Olympic Boulevard, Los Angeles, California 90019, or calling (213) 734-5000.
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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 ON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------------------------
The Date of this Prospectus is January 31, 1996
<PAGE>
(Continued from preceding page)
DAEHAN SECURITIES, INC. ("Daehan", "Administrator" or the "Investment
Adviser') is the investment adviser and administrator of the Fund and is
responsible for the day-to-day affairs of the Fund. Daehan consults with the
Fund's investment manager to identify industries and specific Korean issuers (as
defined herein) where political and economic factors are likely to produce
above-average growth rates. Daehan is a registered investment adviser and a
full-service broker-dealer which provides brokerage services to the
Korean-American community, but has not previously advised or administered a
mutual fund.
KOREA INVESTMENT MANAGEMENT EUROPE LTD. ("KIM") is the investment
manager for the Fund and, in consultation with Daehan, attempts to identify
industries and securities of specific Korean issuers which are likely to produce
above average long-term growth rates. KIM is 80% owned by Korea Investment Trust
Co., Ltd. ("KITC"), which was the first investment trust management company to
be established under the laws of Korea. KITC is presently the largest investment
fund management organization in Korea, with over $28 billion under management as
of November, 1995 in 425 investment funds which invest primarily in Korean
securities. KIM provides investment advice to collective investment trusts, but
has not previously managed a U.S. mutual fund.
An investment in the KOREA CAPITAL FUND offers the following
advantages:
* Access to companies listed on the Korea Stock Exchange
* Professional Management by KIM, a subsidiary of the largest
Korean investment management firm with over $28 billion under
management
* Automatic Dividend and Capital Gain Reinvestment
* $1,000 Minimum Investment ($250 for IRAs)
* Reduced Sales Charge Plans
FOR FURTHER INFORMATION, CONTACT:
DAEHAN SECURITIES, INC. (800) 335-3381
OR
SHAREHOLDER SERVICES (800) 424-2295.
<PAGE>
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TABLE OF CONTENTS
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Prospectus Summary.......................................................... 4
Table of Fees and Expenses.................................................. 7
Financial Highlights........................................................ 8
Investment Objective, Policies and Risks.................................... 10
How To Invest............................................................... 16
How To Redeem Shares........................................................ 20
Shareholder Account Manual.................................................. 21
Calculation of Net Asset Value.............................................. 23
Dividends, Other Distributions and Taxation................................. 23
Management.................................................................. 25
Other Information........................................................... 28
Appendix--Korean Risk Factors............................................... 32
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In this Prospectus, unless otherwise specified, all references to
"billion" are to one thousand million; to "dollars," "US$" or "$" are to United
States dollars; and, to "Won" or "W" are to Korean Won.
<PAGE>
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PROSPECTUS SUMMARY
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The following summary is qualified in its entirety by the more detailed
information appearing in the body of this Prospectus. Cross-references in this
summary are to headings in the body of this Prospectus.
Investment Objective: The Fund seeks long-term capital appreciation
Principal Investments: Invests primarily in securities of companies listed
and primarily traded on the Korea Stock Exchange
Risk Factors: An investment in the Fund should be considered
speculative and is subject to special risk factors
Investment Adviser and
Administrator: Daehan Securities, Inc.
Investment Manager: Korea Investment Management Europe Ltd.
Shares Available Through: Daehan Securities, Inc., your own broker or directly
through the Fund
Dividends and Other
Distributions: Paid annually from available income and capital gain
Reinvestment: Distributions may be reinvested in Fund shares
automatically without a sales charge
Initial Purchase: $1,000 minimum ($250 for IRAs)
Subsequent Purchases: $100 minimum ($25 for IRAs)
Net Asset Value: Determined daily and available by calling the Fund
Other Features: Letter of Intent
Quantity Discounts
Reinstatement Privilege
4
<PAGE>
The Fund. Korea Capital Fund (the "Fund") is a mutual fund organized as
a non-diversified series of Korea Capital Trust (the "Trust"), a registered
open-end management investment company. Shares of beneficial interest of the
Fund are available through Daehan Securities, Inc. ("Daehan"), the Fund's
distributor, brokers which have entered into agreements with Daehan to sell
shares of the Fund or directly through the Fund. See "How To Invest" and
"Shareholder Account Manual." Shares may be redeemed either through brokers or
the Fund. See "How To Redeem Shares" and "Shareholder Account Manual."
Investment Adviser and Administrator. Daehan also acts as the Fund's
investment adviser and administrator. Daehan is a registered investment adviser
and also acts as a full-service broker-dealer which maintains an investment
research office in Los Angeles, California. Daehan specializes in the Korean
financial markets and provides investors of the Korean-American community access
to research and information regarding the U.S. securities markets and to the
Korean securities market through its business ties with major Korean securities
businesses. Daehan has no previous experience advising or administering a mutual
fund. See "Management."
Investment Manager. Korea Investment Management Europe Ltd. ("KIM") is
the Fund's investment manager. KIM was established in September 1991 under the
laws of the United Kingdom as a joint venture between KITC and Kleinwort Benson
Investment Management Limited and is 80% owned by KITC. KITC was organized in
1974 under the securities laws of Korea as the first investment trust management
company and is presently the largest investment trust fund sponsor in Korea.
KITC provides investment management services to 425 investment funds organized
and managed under the laws of Korea including 195 equity funds, 207 bond funds
and 23 funds designed primarily for non-Korean investors, with combined assets
of over $28 billion as of November 1995. See "Management."
Investment Objective and Policies and Risks. The Fund's investment
objective is long-term capital appreciation. The Fund invests primarily in
through investment in the securities of Korean issuers which are listed and
primarily traded on the Korea Stock Exchange ("Korean Issuers" and the "Stock
Exchange", respectively). The Fund invests in common stock and other equity
securities of Korean Issuers and may, to the extent permitted by Korean law,
invest in various debt securities, including debt securities of the Government
of the Republic of Korea, commonly referred to as South Korea ("Korea"). See
"Investment Objective, Policies and Risks" and "Appendix--Korean Risk Factors."
Under normal circumstances, the Fund will invest primarily (at least
65% of its total assets) in equity securities, consisting of common stock and
preferred stock, debt securities convertible into common stock and common stock
purchase warrants of Korean Issuers. The Fund may also invest, to the extent
permitted by Korean law, in corporate or governmental debt securities. In
selecting securities for the Fund, KIM, in consultation with Daehan, attempts to
identify Korean Issuers which, due to economic and political factors, are likely
to produce above-average growth.
5
<PAGE>
The Fund may invest up to 35% of its assets in the equity and debt
securities of United States issuers and may invest in certain money market
instruments for temporary defensive purposes. The Fund may also enter into
forward currency exchange contracts, futures contracts, covered call options and
repurchase agreements. See "Investment Objective, Policies and Risks."
Risk Factors. There is no assurance that the Fund will achieve its
investment objective. The Fund's net asset value fluctuates, reflecting
fluctuations in the market value of its portfolio positions and in the rate of
exchange between the Korean Won in which its positions are traded and the U.S.
dollar. Investing in securities of Korean companies and the Korean government
involves certain considerations not typically associated with investing in
securities of United States companies or the United States government, including
(1) restrictions on foreign investment in Korea, (2) restrictions on, and costs
associated with, conversion of principal invested in Korea from Won-denominated
to dollar-denominated assets, (3) currency exchange rate fluctuations, (4)
potential price volatility and lesser liquidity of the Korean securities market,
(5) governmental involvement in and influence on the private sector, and (6)
political and economic risks. Korean accounting, auditing and financial
reporting standards are not equivalent to United States standards and,
therefore, certain material disclosures may not be made and less information may
be available to investors investing in Korea than in the United States. There
also is less governmental regulation of the securities industry in Korea than in
the United States. See "Investment Objectives, Policies and Risks" and
"Appendix--Korean Risk Factors."
As a "non-diversified" investment company, the Fund may invest a larger
percentage of its assets in the securities of a single issuer than a diversified
company; its exposure to credit and market risks associated with each such
issuer is greater than that of a diversified company.
Management. The Fund pays investment advisory and administration fees
to Daehan at the annualized rate of 0.30% of the Fund's average daily net
assets. The Fund pays investment management fees to KIM at the annualized rate
of 0.70% of the Fund's average daily net assets. Such fees in the aggregate are
higher than similar fees of most other mutual funds but are comparable to the
fees paid by mutual funds which invest primarily in the securities of non-U.S.
countries or in a single geographic region.
As the Fund's distributor, Daehan retains the sales charges imposed on
sales of shares and reallows a portion of such charges to brokers that have made
such sales. Pursuant to a distribution plan adopted in accordance with Rule
12b-1 under the Investment Company Act of 1940 (the "1940 Act"), the Fund may
reimburse Daehan for a portion of Daehan's distribution expenses at the
6
<PAGE>
annualized rate of up to 0.25% of the Fund's average daily net assets. Daehan
may pay brokers and other financial institutions ongoing trail commission
payments for servicing shareholder accounts, for which Daehan may be reimbursed
pursuant to the Fund's distribution plan. The Fund pays all of its expenses not
assumed by Daehan or KIM. Daehan and KIM have undertaken to limit the Fund's
expenses to the annual level of 2.4% of the Fund's average net assets (exclusive
of brokerage commissions, interest, taxes and extraordinary expenses). See
"Management."
7
<PAGE>
---------------------------------------------
TABLE OF FEES AND EXPENSES
---------------------------------------------
The following table lists the costs and expenses that an investor in
the Fund will incur either directly or indirectly as a shareholder of the Fund.
The information is based on expenses incurred during the period September 1,
1993 through August 31, 1994.
Shareholder Transaction Expenses:
Maximum sales load imposed on purchases(1)................... 4.50%
Annual Fund Operating Expenses:
(Percent of average net assets)
Advisory Fees--After Fee Waiver.............................. 0.53%
12b-1 Expenses............................................... 0.25%
Other Expenses (including Administration Fee)................ 1.62%
Total Operating Expenses--After Fee Waivers............. 2.40%
Example: 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
You would pay the following expenses
on a $1,000 investment, assuming a
5% annual return and redemption at
the end of each time period......... $68 $116 $167 $306
- --------------------------------------------------------------------------------
The foregoing table is to assist you in understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly. The
sales charge is a one-time charge paid at the time of purchase of the shares. An
investor may be entitled to a reduction in such sales charges. For more
information concerning the reduction in sales charges, see "How To Invest." The
Investment Adviser, the Administrator, Sub-Administrator and the Distributor
may, at their discretion, waive all or a portion of their fees. In addition,
Daehan and KIM have undertaken to limit the Fund's expenses to the annual level
of 2.4% of the Fund's average net assets (exclusive of brokerage commissions,
interest, taxes and extraordinary expenses). Absent such waivers and
undertaking, the advisory fee, administration fee, sub-administration fee and
maximum 12b-1 expenses would have been .70%, .30%, 0.34% and 0.25% of average
daily net assets, respectively. In addition, Total
- ---------------------------------
(1)Sales charges are reduced for purchases of $100,000 or more of shares of
the Fund. The National Association of Securities Dealers, Inc. limits total
annual sales charges (including 12b-1 expenses) to all purchasers of shares of a
Fund to 6.25% of new sales plus an interest factor. However, long-term
shareholders may pay more than the economic equivalent of such maximum sales
charges.
8
<PAGE>
Operating Expenses would have been 2.64%, absent any fee waivers. For a
further discussion of these fees see "Management" herein. The figures reflected
in this example should not be considered as a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown above.
9
<PAGE>
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FINANCIAL HIGHLIGHTS
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The following per share data has been audited by Coopers & Lybrand, L.L.P.,
whose unqualified report thereon appears in the Fund's Annual Report to
Shareholders for the year ended August 31, 1995. This financial data should be
read in conjunction with the related financial statements and notes thereto,
which appear in the Annual Report incorporated by reference in the Statement of
Additional Information.
<TABLE>
<CAPTION>
From October 1, 1992
For the For the (Commencement of
year ended year ended operation) to
August 31, 1995 August 31,1994 August 31, 1993
------------ ------------ ------------
<S> <C> <C> <C>
Beginning Net Asset Value $ 11.18 $10.89 $10.00
============ ============ ============
Net Investment Income (Deficit) ( 0.07) ( 0.17) ( 0.09)
Net Realized and Unrealized Gains
on Securities and Foreign Currency ( 1.20) 1.00 0.98
Distributions from Capital Gains ( 0.27) ( 0.54) --
Distributions from Capital (0.38) -- --
------------ ------------ --------------
Ending Net Asset Value $ 9.26 $ 11.18 $ 10.89
============ ============ ==============
Total Return (Annualized) ( 12.24%) 7.64% 9.71%
Net Assets at End of Period $ 11,856,897 $ 13,981,937 $ 10,046,655
Ratio of Expenses to Average Net Assets 2.40%(1) 2.40%(1) 2.40%(1)
Ratio of Net Investment Income
(Expense) to Average Net Assets ( 0.72%) 1.44% 1.60%
Portfolio Turnover Rate 60.59% 63.00% 139.00%
</TABLE>
(1) This data is net of expense reimbursement due from Advisor/Administrator and
Investment Manager.
10
<PAGE>
Ratio of gross expenses, before expense reimbursement, to average net
assets was 2.63% and 3.01% and 5.59% for the periods ended August 31, 1995 ,
1994 and 1993, respectively.
Management Discussion and Analysis. During the last quarter of 1995, the
Korean government initiated a political reform that had a profound impact on the
Korea stock market.
In investigating the slush funds created by two former Presidents of
Korea, government officials discovered that most of the slush fund contributions
were made by heads of Korean corporations. As a result of these investigations,
many senior management and Board members were prosecuted for charges of
corruption and bribery. News of such events sent stocks tumbling and created
uncertainty over the entire Korea stock market.
Nonetheless, the Fund management is still optimistic about future of
Korea. Management believes that such reforms were necessary to end years of
corruption between business and political officials and that these sweeping
reforms will provide stability for Korea's political and financial environment
in the long term. In addition, Korea's fundamental economic indicators are
stable. The Gross Domestic Product (GDP) continued to outperform that of the
United States. In 1995, average Korean GDP grew by approximately 9% with stable
inflation rate of approximately 5%. Korea's inflation appears to be in check as
the Korean Won remained relatively constant at approximately Won 760 to the
Dollar during 1995.
Index Comparison. The investment performance of the Fund is compared to
the performance of the Lipper International Fund Index and S&P 500 Index in the
following chart from October 2, 1992 (commencement of operation) through
December 31, 1995. A $10,000 investment in the Fund made on the inception date
would have declined to to $9,473 (as of December 31, 1995). The graph below
shows how this compares to the Index over the same period.
11
<PAGE>
KOREA CAPITAL FUND S&P 500 Index Lipper International
Performance from Fund Index
Inception to 1995
Load Included in
Calculation
TOTAL TOTAL TOTAL
DATE VALUE DATE VALUE DATE VALUE
- --------- --------- --------- ---------- --------- ---------
02-OCT-92 9,550.00 02-OCT-92 $10,000.00 02-OCT-92 10,000.00
31-OCT-92 10,294.90 31-OCT-92 $10,036.00 31-OCT-92 9,703.30
30-NOV-92 10,801.05 30-NOV-92 $10,374.21 30-NOV-92 9,754.93
31-DEC-92 10,705.55 31-DEC-92 $10,510.12 31-DEC-92 9,875.49
- -------------------- ---------------------- ---------------------
31-JAN-93 11,288.10 31-JAN-93 $10,586.84 31-JAN-93 9,911.63
28-FEB-93 10,858.35 28-FEB-93 $10,729.76 28-FEB-93 10,133.62
31-MAR-93 11,240.35 31-MAR-93 $10,960.45 31-MAR-93 10,721.86
30-APR-93 11,889.75 30-APR-93 $10,691.92 30-APR-93 11,276.99
31-MAY-93 11,870.65 31-MAY-93 $10,980.60 31-MAY-93 11,537.25
30-JUN-93 11,947.05 30-JUN-93 $11,016.84 30-JUN-93 11,310.09
31-JUL-93 11,517.30 31-JUL-93 $10,965.06 31-JUL-93 11,668.13
31-AUG-93 10,399.95 31-AUG-93 $11,382.83 31-AUG-93 12,441.01
30-SEP-93 10,820.15 30-SEP-93 $11,298.59 30-SEP-93 12,394.55
31-OCT-93 10,972.95 31-OCT-93 $11,527.96 31-OCT-93 13,088.29
30-NOV-93 11,813.35 30-NOV-93 $11,419.59 30-NOV-93 12,491.72
31-DEC-93 11,423.90 31-DEC-93 $11,560.05 31-DEC-93 13,760.89
- -------------------- ---------------------- ---------------------
31-JAN-94 12,584.30 31-JAN-94 $11,947.32 31-JAN-94 14,619.21
28-FEB-94 11,784.02 28-FEB-94 $11,624.74 28-FEB-94 14,267.73
31-MAR-94 11,383.89 31-MAR-94 $11,119.06 31-MAR-94 13,615.85
30-APR-94 11,273.85 30-APR-94 $11,263.61 30-APR-94 13,976.15
31-MAY-94 11,744.01 31-MAY-94 $11,447.21 31-MAY-94 13,954.26
30-JUN-94 11,834.04 30-JUN-94 $11,164.46 30-JUN-94 13,734.74
31-JUL-94 11,924.07 31-JUL-94 $11,534.01 31-JUL-94 14,158.28
31-AUG-94 11,183.82 31-AUG-94 $12,003.44 31-AUG-94 14,646.88
30-SEP-94 11,513.93 30-SEP-94 $11,714.16 30-SEP-94 14,268.34
31-OCT-94 12,844.39 31-OCT-94 $11,982.41 31-OCT-94 14,523.13
30-NOV-94 12,594.30 30-NOV-94 $11,542.66 30-NOV-94 13,845.11
31-DEC-94 11,592.96 31-DEC-94 $11,711.18 31-DEC-94 13,657.78
- -------------------- ---------------------- ---------------------
31-JAN-95 10,596.85 31-JAN-95 $12,015.67 31-JAN-95 12,981.82
28-FEB-95 9,971.64 28-FEB-95 $12,481.88 28-FEB-95 12,982.73
31-MAR-95 10,713.42 31-MAR-95 $12,851.34 31-MAR-95 13,321.63
30-APR-95 10,215.37 30-APR-95 $13,225.31 30-APR-95 13,813.07
31-MAY-95 9,961.04 31-MAY-95 $13,747.71 31-MAY-95 13,947.96
30-JUN-95 10,067.01 30-JUN-95 $14,070.79 30-JUN-95 13,999.72
31-JUL-95 10,183.58 31-JUL-95 $14,539.34 31-JUL-95 14,768.25
31-AUG-95 9,802.09 31-AUG-95 $14,578.60 31-AUG-95 14,518.57
30-SEP-95 10,480.29 30-SEP-95 $15,189.44 30-SEP-95 14,761.25
31-OCT-95 10,777.00 31-OCT-95 $15,136.28 31-OCT-95 14,455.54
30-NOV-95 10,077.61 30-NOV-95 $15,802.28 30-NOV-95 14,502.74
31-DEC-95 9,473.59 31-DEC-95 $16,094.62 31-DEC-95 14,925.36
- -------------------- ---------------------- ---------------------
Total Returns for Periods Ending December 31, 1995
Annualized Return One Year Return
Since Inception 01/01/95 - 12/31/95
----------------- -------------------
Korea Capital Fund ................... -1.65% -21.65%
Lipper International Fund Index ...... 13.10% 9.28%
S&P 500 Index ........................ 14.13% 31.25%
12
<PAGE>
---------------------------------------------
INVESTMENT OBJECTIVE, POLICIES AND RISKS
---------------------------------------------
The Fund's investment objective is long-term capital appreciation. The
Fund normally invests at least 65% of its total assets in equity securities,
consisting of common stock and preferred stock, debt securities convertible into
common stock and common stock purchase warrants of Korean Issuers that are
listed and primarily traded on the Stock Exchange.
Consistent with its investment objective and policies, the Fund may invest
in equity securities consisting of common and preferred stock, debt securities
convertible into common stock and common stock purchase warrants and
substantially similar forms of equity securities with comparable risk
characteristics, and, to the extent permitted by Korean law, bonds, notes,
debentures or other forms of indebtedness that may be developed in the future.
The Fund's Prospectus will be revised to describe such other forms of
indebtedness prior to investment by the Fund. Under current regulations, the
Fund is permitted to directly purchase equity securities listed on the Stock
Exchange. The Fund may only purchase convertible bonds, bonds with warrants,
depositary receipts and other debt securities (including floating rate notes,
bonds and commercial paper) of Korean Issuers outside of Korea in currencies
other than the Won. Although the Government currently does not permit direct
foreign investment in debt securities issued by the Government or by privately
and publicly held Korean companies (other than as described above), if such
investments become lawful for the Fund, as a result of application by the Fund
or otherwise, the Fund may invest in such debt securities. The Fund may invest
up to 5% of its total assets in securities of foreign issuers in the form of
American Depository Receipts and European Depository Receipts or other
securities convertible into the securities of Korean Issuers. To the extent
permitted by applicable U.S. and Korean regulations, the Fund's assets may be
utilized to enter into foreign currency exchange contracts, currency and stock
index futures contracts, covered put and call options and repurchase agreements.
The Fund purchases most of its equity securities on the Stock Exchange. If
permitted by regulation, application of the Fund or otherwise, the Fund may
purchase equity securities in the over-the-counter market and reserves the right
to invest up to 15% of its net assets in securities of Korean companies that are
not publicly traded and therefore not readily marketable.
The Fund purchases and holds securities for long-term capital appreciation
and does not trade in securities for short-term gain. Capital appreciation in
debt securities may occur as a result of changes in relative currency exchange
rates, in relative interest rate levels or in the creditworthiness of issuers.
The receipt of income from such debt securities is incidental to the Fund's
objective of capital appreciation.
The Fund may invest its assets in a broad spectrum of Korean industries,
including, as conditions warrant from time to time, automobiles, cement,
chemicals, construction, electrical equipment, electronics, finance, food and
beverage, international trading, machinery, shipbuilding, steel and textiles. In
selecting industries and companies for investment, KIM, in consultation with
Daehan, considers overall growth prospects, competitive position in export
markets, technology, research and development, productivity, labor costs, raw
material costs and sources, profit
13
<PAGE>
margins, return on investment, capital resources, government regulation,
management and other factors.
Because the Fund is a non-diversified company, the only portfolio
diversification requirements to which the Fund is subject are contained (a) in
rules of the Securities and Exchange Commission of Korea (the "KSEC"), under
which the Fund currently may not hold more than 3% of certain equity securities
of any Korean issuer acquired upon exercise of certain conversion rights,
commonly referred to as "Converted Shares," and more than 3% of any equity
securities of Korean Issuers acquired through reinvestment of the proceeds of
any sale of Converted Shares which result in the Fund acquiring "Reinvested
Shares," and may not acquire Government and corporate bonds (excluding
convertible bonds, bonds with warrants and other debt securities issued by
Korean companies in non-Korean markets in currencies other than the Won); and
(b) in the rules applicable to regulated investment companies under the Internal
Revenue Code of 1986, as amended (the "Code").
While the relatively greater concentration in securities of particular
companies permitted to the Fund as a non-diversified company is expected to
increase risk, and could result in greater fluctuation in the Fund's net asset
value than for a diversified company, it also reflects the composition of the
Korean securities market, in that securities of relatively few companies account
for a greater share of the total capitalization of such market and trading in
those securities represents a greater share of the total trading market than is
the case in the United States.
Under normal circumstances, the Fund may invest up to 35% of its total
assets in a combination of equity and debt securities of U.S. issuers. In
evaluating investments in securities of U.S. issuers, KIM, in consultation with
Daehan, will consider, among other factors, the issuer's Korean business
activities and the impact that economic and political developments may have on
the value of the issuer's securities.
Investments in Debt Securities. Although the Fund invests primarily in
equity securities, the Fund may, consistent with its investment objective and
other policies, invest up to 35% of its total assets in debt securities of
Korean and United States issuers. The Fund does not invest in debt securities
rated below "A" by Standard & Poor's Corporation ("S&P") or Moody's Investors
Service ("Moody's") or which, if unrated, are of comparable credit quality as
determined by KIM, in consultation with Daehan, under procedures adopted and
periodically reviewed by the Board of Trustees. Debt securities rated "A"
possess many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Most of the debt securities of Korean
Issuers in which the Fund may invest, in all likelihood, will not be rated by
either S&P or Moody's; however, the Fund will not invest in any unrated debt
securities of Korean Issuers unless such securities are found by KIM, in
consultation with Daehan, to have attributes which are at least comparable to
"A" rated debt securities pursuant to procedures adopted by the Board of
Trustees.
Investment in Other Investment Companies. Consistent with provisions of
Investment Company Act of 1940 (the "1940 Act") and any administrative
exemptions that may be granted by the U.S. Securities and Exchange Commission
(the "SEC"), the Fund may invest in the securities of other investment companies
that invest in Korean securities. Absent special relief from the
14
<PAGE>
SEC, the Fund may invest up to 10% of its assets in the aggregate in shares of
other investment companies and up to 5% of its assets in any one investment
company, as long as that investment does not represent more than 3% of the
voting stock of the acquired investment company. As a shareholder in any
investment company, the Fund will bear its ratable share of such company's
expenses, and will remain subject to payment of the Fund's advisory, management
and administrative fees with respect to assets so invested.
Temporary Defensive Strategies. The Fund may invest in Money Market
Securities (as defined herein) to generate income to defray Fund expenses, for
temporary defensive purposes and pending investment in accordance with the
Fund's investment objective and policies. For temporary defensive purposes, the
Fund may invest up to 100% of its assets in Money Market Securities. In
addition, the Fund reserves the right to be primarily invested in U.S.
securities for temporary defensive purposes or pending investment of the
proceeds of the offering made hereby. The Fund may assume a temporary defensive
position when, due to political, market or other factors broadly affecting
Korea, KIM, in consultation with Daehan, determines that opportunities for
capital appreciation in the Korean market would be significantly limited over an
extended period, or that investing in the Korean market presents undue risk of
loss.
Money Market Securities are defined as short-term debt securities (less
than 12 months to maturity) denominated in U.S. dollars or in Korean Won (at the
time such investment is permitted), which consist of: (a) obligations issued or
guaranteed by (i) the U.S. government or the Korean government, their agencies
or instrumentalities, or municipalities or (ii) international organizations
designed or supported by multiple foreign governmental entities to promote
economic reconstruction or development ("supranational entities"); (b) finance
company obligations, corporate commercial paper and other short-term commercial
obligations; (c) bank obligations (including certificates of deposit, time
deposits, demand deposits and bankers' acceptances), subject to the restriction
that the Fund may not invest more than 25% of its total assets in bank
securities; and (d) repurchase agreements with respect to all the foregoing. The
Fund, as a matter of fundamental policy may invest up to 25% of its total assets
in the securities of the Korean government (at the time such investment is
permitted) and up to 25% of its total assets in the securities of supranational
entities.
The Fund may invest in commercial paper rated as low as A-3 by S&P or P-3
by Moody's and other Money Market Securities rated as low as A-2 by S&P or MIG-2
by Moody's or which, if unrated, are of comparable credit quality as determined
by KIM, in consultation with Daehan, pursuant to guidelines approved by the
Board of Trustees. Such obligations are considered to have an acceptable
capacity for timely repayment. However, these securities may be more vulnerable
to adverse effects of changes in circumstances than obligations carrying higher
designations.
The banks whose obligations may be purchased by the Fund and the banks and
broker-dealers with whom the Fund may enter into repurchase agreements include
any member bank of the Federal Reserve System, and any broker-dealer or any
foreign bank whose creditworthiness has been determined by KIM, in consultation
with Daehan, and in accordance with guidelines approved by the Board of
Trustees, to be at least equal to that of issuers of commercial paper that the
Fund may purchase, as described above. KIM and Daehan will review and monitor
the creditworthiness of such institutions under the Board's general supervision.
In this regard, KIM and Daehan will consider, among other factors, the
capitalization of the institution, the Fund's prior dealings with
15
<PAGE>
the institution, any rating of the institution's senior long-term debt by
independent rating agencies and other factors KIM or Daehan deem appropriate.
The Fund does not invest in the securities of any issuer which is affiliated
with KIM, KITC or Daehan.
Repurchase agreements are transactions in which the Fund purchases a
security from a bank or recognized securities dealer and simultaneously commits
to resell that security to the bank or dealer at an agreed-upon price, date and
market rate of interest separate from the coupon rate and maturity of the
purchased security. The Fund will invest only in repurchase agreements
collateralized at all times in an amount at least equal to the repurchase price
plus accrued interest. To the extent that the proceeds from any sale of such
collateral upon a default in the obligation to repurchase were less than the
repurchase price, the Fund would suffer a loss. Further, the Fund could suffer a
loss if the bank or dealer which is party to the repurchase agreement petitions
for bankruptcy or otherwise becomes subject to bankruptcy or other liquidation
proceedings, as this could restrict the Fund's ability to sell the collateral.
However, with respect to banks and dealers whose bankruptcy or liquidation
proceedings are subject to the U.S. Bankruptcy Code, the Fund intends to comply
with provisions of such Code that would allow it immediately to resell such
collateral.
Forward Currency Contracts, Options and Futures Contracts. In seeking to
protect against the effect of adverse changes in the financial markets in which
the Fund invests, or against currency exchange rate or interest rate changes
that are adverse to the present or prospective positions of the Fund, the Fund
may employ certain risk management practices, including forward currency
transactions and transactions in options, futures contracts and options on
futures contracts on U.S. and foreign government securities and currencies. Only
a limited market, if any, currently exists for hedging transactions relating to
the Korean Won, to securities denominated in Won or to securities of issuers
domiciled or principally engaged in business in Korea. To the extent that such a
market does not exist, the Fund may not be able to effectively hedge its
investment in the Korean market.
Hedging practices may involve certain risks which are summarized below.
Subject to the Fund's investment objective and policies as stated above, the
Fund may invest in forward contracts, options on securities and options on
currency transactions. The Fund may write and purchase put and call options on
securities that are traded on recognized securities exchanges and OTC markets.
The Fund may also enter into stock index and interest rate futures contracts and
purchase and write options to buy and sell such futures contracts, to the extent
permitted under regulations of the U.S. Commodity Futures Trading Commission
("CFTC"). The Fund intends to use these practices only for hedging purposes and
not for speculation; however, these practices may result in the loss of
principal under certain conditions. In addition, certain provisions of the Code
limit the extent to which the Fund may enter into forward contracts or futures
contracts or engage in options transactions. See "Taxes" in the Statement of
Additional Information.
In order to hedge against currency risks, the Fund may use forward
currency contracts, currency futures contracts, and put and call options on
foreign currencies, as described below and in the Statement of Additional
Information. The Fund"s use of currency hedging strategies would involve certain
investment risks and transaction costs to which it might not otherwise be
subject. These risks include: dependence on KIM's ability to predict movements
in exchange rates; imperfect correlation between movements in exchange rates and
movements in the currency
16
<PAGE>
hedged; and the fact that the skills needed to effectively hedge against the
Fund's currency risks are different from those needed to select the securities
in which the Fund invests. The Fund may also conduct its foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market.
To attempt to hedge against adverse movements in exchange rates between
the U.S. dollar and Korean Won, the Fund may enter into forward currency
contracts for the purchase or sale of a specified currency at a specified future
date. Such contracts may involve the purchase or sale of the Korean Won against
the U.S. dollar or vice versa. The Fund may enter into forward currency
contracts either with respect to specific transactions or with respect to the
Fund's portfolio positions. For example, when the Fund anticipates making a
purchase or sale of a security, it may enter into a forward currency contract in
order to set the rate (either relative to the U.S. dollar or the Korean Won) at
which a currency exchange transaction related to the purchase or sale will be
made. Further, when KIM believes that either the Korean Won or the dollar may
decline against the other, the Fund may enter into a forward contract to sell
the currency KIM expects to decline in an amount up to the value of the Fund's
portfolio securities denominated in that currency. The Fund may also purchase
put or call options on currencies for the same purposes as it may use forward
currency contracts.
When-Issued, Forward Commitment Securities and Reverse Repurchase
Agreements. The Fund may purchase securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis in order to hedge
against anticipated changes in interest rates and prices. The price, which is
generally expressed in yield terms, is fixed at the time the commitment is made,
but delivery and payment for the securities take place at a later date.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund will enter into when-issued and forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. No income accrues on securities which have been
purchased pursuant to a forward commitment or on a when-issued basis prior to
delivery to the Fund. If the Fund disposes of the right to acquire a when-issued
security prior to its acquisition or disposes of its right to deliver or receive
against a forward commitment, it may incur a gain or loss. At the time the Fund
enters into a transaction on a when-issued or forward commitment basis, a
segregated account consisting of cash or high-grade liquid debt securities equal
to the value of the when-issued or forward commitment securities will be
established and maintained with its custodian and will be marked to market
daily. There is a risk that the securities may not be delivered and that the
Fund may incur a loss. The Fund may also enter into reverse repurchase
agreements, although it currently does not intend to do so with respect to more
than 5% of its total assets.
Lending of Portfolio Securities. For the purpose of realizing additional
income to meet current expenses, the Fund may make secured loans of portfolio
securities amounting to not more than 25% of its total assets. Securities loans
are made to broker-dealers or institutional investors pursuant to agreements
requiring that the loans be continuously secured by collateral at least equal at
all times to the value of the securities loaned, "marked to market" on a daily
basis. The collateral received will consist of cash, U.S. short-term government
securities, bank letters of credit or such other collateral as may be permitted
under the Fund's investment program and by regulatory agencies and approved by
the Board of Trustees. While the securities loan is outstanding, the Fund will
continue to receive the equivalent of the interest or dividends paid by
17
<PAGE>
the issuer on the securities, as well as interest on the investment of the
collateral or a fee from the borrower. The Fund will not have the right to vote
equity securities while they are being loaned, but it will call in a loan in
anticipation of any important vote. Securities loans involve risks of delay in
receiving additional collateral or in recovering the securities loaned should
the borrower default.
Additional Risk Factors. The Fund's classification as a non-diversified
investment company allows it, with respect to 50% of its assets, to invest more
than 5% of its total assets in the securities of any issuer. Because it is
non-diversified, the Fund's assets may be invested in the securities of a
limited number of Korean Issuers and the performance of any single issuer may
have a more significant effect upon the overall performance of the Fund than if
the Fund were a diversified investment company.
The Fund normally invests at least 65% of its total assets in the
securities of Korean Issuers. Accordingly, an investment in the Fund requires
consideration of certain factors not typically associated with investing in most
U.S. issuers.
The securities market of Korea is substantially smaller, less developed,
less liquid and more volatile than the major securities markets in the United
States. Disclosure and regulatory standards are in many respects less stringent
than U.S. standards. Furthermore, there is a lower level of monitoring and
regulation of the markets and the activities of investors in such markets, and
enforcement of existing regulations has been extremely limited.
The limited size of the Korean securities market and limited trading
volume in issues compared to volume of trading in U.S. securities could cause
prices to be erratic for reasons apart from factors that affect the quality of
the securities. For example, limited market size may cause prices to be unduly
influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on fundamental analysis, may
decrease the value and liquidity of portfolio securities, especially in these
markets.
Further, there is a risk that an emergency situation may arise in the
Korean market as a result of which prices for portfolio securities in such
markets may not be readily available. Section 22(e) of the 1940 Act permits a
registered investment company, such as the Fund, to suspend redemption of its
shares for any period during which an emergency, as determined by the SEC,
exists. Accordingly, if the Fund believes that appropriate circumstances exist,
it will promptly apply to the SEC for a determination that an emergency, within
the meaning of Section 22(e) of the 1940 Act, is present. During the period
commencing from the Fund's identification of such conditions until the date of
SEC action, the Fund's portfolio securities in the affected markets will be
valued at fair value determined in good faith by or under the direction of the
Board of Trustees.
The Fund may not invest more than 15% of its net assets in illiquid
securities. The Fund will treat any Korean securities that are subject to
restrictions on repatriation for more than seven days as illiquid securities for
purposes of this limitation. The Fund will also treat as illiquid for this
purpose: repurchase agreements with maturities in excess of seven days;
securities subject to conversion and transfer restrictions; securities in which
the Fund cannot receive the approximate
18
<PAGE>
amount at which it values such securities within seven days; securities of
Korean companies that are not publicly traded; and over-the-counter options and
their underlying securities.
Restricted securities issued pursuant to Rule 144A under the Securities
Act of 1933 that have a readily available market are not deemed illiquid for
purposes of this limitation, pursuant to liquidity procedures that have been
adopted by the Board of Trustees. Investing in Rule 144A securities could result
in increasing the level of a Fund's illiquidity if qualified institutional
buyers become, for a time, uninterested in purchasing these securities. KIM, in
consultation with Daehan, will monitor the liquidity of such restricted
securities under the supervision of the Board of Trustees.
Because the Fund invests in securities denominated in the Korean Won,
changes in the value of the Korean Won against the U.S. dollar will result in
corresponding changes in the U.S. dollar value of the Fund's assets denominated
in Korean Won. Such changes will also affect the Fund's income.
The economy of Korea may differ favorably or unfavorably from the U.S.
economy in such respects as the rate of growth of gross domestic product, the
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position. Companies in Korea are subject to accounting, auditing and
financial standards and requirements that differ from those applicable to U.S.
companies. There is substantially less publicly available information about
Korean companies and the Korean government than there is about U.S. companies
and the U.S. Government. See "Appendix--Korean Risk Factors."
Other Information. The Fund's annual operating expenses, which are higher
than those of many other investment companies of comparable size, are believed
by the Fund's adviser to be comparable to expenses of other open-end management
investment companies that invest primarily in the securities of countries in a
single geographic region.
The investment objective of the Fund is fundamental and may not be changed
without the approval of a majority of the Fund's outstanding voting securities.
As defined in the 1940 Act and as used in this Prospectus, 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. In addition, the
Fund has adopted certain investment limitations which also may not be changed
without shareholder approval. A complete description of these limitations is
included in the Statement of Additional Information. Unless specifically noted,
the Fund's investment policies described in this Prospectus, and in the
Statement of Additional Information, including its policies with respect to
investment in Korean securities and the percentage limitations with respect to
such investments, may be changed by the Board of Trustees without shareholder
approval. See "Investment Limitations" in the Statement of Additional
Information.
19
<PAGE>
---------------------------------------------
HOW TO INVEST
---------------------------------------------
Orders received before 4:00 p.m. Eastern Time on any Business Day will be
executed at the public offering price determined that day. A "Business Day" is
any day Monday through Friday on which the New York Stock Exchange ("NYSE") is
open for business. The minimum initial investment is $1,000 ($250 for IRAs) and
the minimum for additional purchases is $100 ($25 for IRAs). All purchase orders
will be executed at the public offering price next determined after the purchase
order is received. See "Public Offering Price" below. The Fund and the Transfer
Agent reserve the right to reject any purchase order and to suspend the offering
of shares for a period of time. The Fund intends to suspend the offering of its
shares if KIM and Daehan advise that doing so is in the best interests of the
portfolio management process. Currently, the Fund expects to suspend sales when
the value of its net assets reaches a point, as determined by KIM and Daehan and
the Fund's Board of Trustees, between $100 million and $125 million. Thereafter,
the Fund will resume sales of its shares when doing so becomes consistent with
prudent portfolio management.
Purchases Through Brokers. Shares of the Fund may be purchased through
brokers or dealers with which Daehan has entered into dealer agreements. Orders
received by such brokers or dealers before 4:00 p.m. Eastern Time on a Business
Day will be effected that day, provided such orders are promptly transmitted to
Daehan; in such case the broker or dealer will be responsible for forwarding the
investor's order to the Fund. After an initial investment is made and a
shareholder account is established through a broker, at the investor's option
subsequent purchases may be made directly with the Fund. See "Shareholder
Account Manual."
Brokers who do not have dealer agreements with Daehan also may offer to
place orders for the purchase of shares. Such a broker may charge the investor a
transaction fee as determined by the broker. That fee will be in addition to the
sales charge payable by the investor, and may be avoided if shares are purchased
through a broker which has a dealer agreement with Daehan or directly through
the Fund.
Purchases Through the Fund. Investors may purchase shares and open an
account directly through the Fund by completing and signing the Account
Application located at the end of this Prospectus. Investors should mail to the
Fund the completed Application together with a check to cover the purchase in
accordance with the instructions provided in the Shareholder Account Manual.
Purchases will be executed at the public offering price next determined after
the Fund has received the Application and check. Subsequent investments do not
need to be accompanied by an application.
Investors also may purchase shares of the Fund directly through the Fund
by bank wire. Bank wire purchases will be effected at the next determined public
offering price after the bank wire is received; accordingly, a purchase by a
bank wire received by 4:00 p.m. Eastern Time on a Business Day will be effected
that day. A wire investment is considered received when the Fund or its agent is
notified that the bank wire has been credited to the Fund. The investor is
responsible for providing prior telephonic notice to the Fund that a bank wire
is being sent. An investor's
20
<PAGE>
bank may charge a service fee for wiring money to the Fund. Investors desiring
to open an account by bank wire should call the Fund at the telephone number
provided in the Shareholder Account Manual to obtain an account number and
detailed instructions.
21
<PAGE>
Public Offering Price. The Fund's public offering price per share is equal
to the net asset value per share (see "Calculation of Net Asset Value") plus a
sales charge determined in accordance with the following schedule:
Broker
Reallowance
Amount of Purchase at Sales Charge as Percentage of as Percentage
------------------------------- of the
the Public Offering Price Offering Price Net Investment Offering Price
- ------------------------- -------------- -------------- --------------
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.50% 3.63% 3.00%
$250,000 but less than $500,000 2.25% 2.30% 1.85%
$500,000 but less than $1,000,000 1.75% 1.78% 1.45%
$1,000,000 or more 0.00% 0.00% 0.00%
The following purchases may be aggregated for purposes of determining
the "Amount of Purchase":
(a) Individual purchases on behalf of a single purchaser, the
purchaser's spouse and their children under the age of 21 years. This includes
shares purchased in connection with an employee benefit plan(s) exclusively for
the benefit of such individual(s), such as an IRA, individual Section 403(b)
plan or single-participant Keogh-type plan. This also includes purchases made by
a company controlled by such individual(s).
(b) Individual purchases by a trustee or other fiduciary purchasing
shares for a single trust estate or a single fiduciary account, including an
employee benefit plan (such as employer-sponsored pension, profit-sharing and
stock bonus plans, including Section 401(k) plans, and medical, life and
disability insurance trusts) other than a plan described in "(a)" above.
(c) Individual purchases by a trustee or other fiduciary purchasing
shares concurrently for two or more employee benefit plans of a single employer
or of employers affiliated with each other (again excluding an employee benefit
plan described in "(a)" above).
Sales Charge Waivers. Fund shares are sold at net asset value without
imposition of sales charges when investments are made by the following classes
of investors:
(i) Trustees or other fiduciaries purchasing shares for employee
benefit plans which are sponsored by organizations with collective employee
benefit plans that have at least $100 million of assets in the aggregate and
which have 1,000 or more employee participants.
(ii) Current or retired trustees of the Trust; current or retired
employees or directors of Daehan, KIM or any of their affiliated companies;
their children, siblings and parents; and trusts primarily for the benefit of
such persons.
(iii) Registered representatives or full-time employees of brokers and
dealers which have entered into dealer agreements with Daehan, and their
children, siblings and parents.
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<PAGE>
(iv) Accounts managed by one of the companies comprising or affiliated
with Daehan or KIM.
(v) Any of the companies comprising or affiliated with Daehan or KIM.
Automatic Investment Plan. Investors may purchase shares of the Fund
through the Automatic Investment Plan. Under this Plan, an amount specified by
the shareholder of $100 or more ($25 or more for IRA) on a monthly or quarterly
basis will be sent to the Fund from the investor's bank for investment in the
Fund. To participate in the Automatic Investment Plan, investors should complete
the appropriate portion of the Application provided at the end of this
Prospectus. Investors should contact their brokers or the Fund for more
information and the Application.
Letter of Intent. In executing a Letter of Intent ("LOI"), an investor
indicates an aggregate investment amount he or she intends to invest in the Fund
in the following thirteen months. The LOI is included as part of the purchase
application located at the end of this Prospectus. The sales charge applicable
to that aggregate amount then becomes the applicable sales charge on all
purchases made concurrently with the execution of the LOI and in the thirteen
months following that execution.
If at the end of the thirteen month period covered by the LOI the total
amount of purchases does not equal the amount indicated, the investor will be
required to pay the difference between the sales charges paid at the reduced
rate and the sales charges applicable to the purchases actually made. Shares
having a value equal to 5% of the amount specified in the LOI will be held in
escrow during the thirteen month period (while remaining registered in the
investor's name) and are subject to redemption to assure any necessary payment
of a higher applicable sales charge.
For purposes of an LOI, registered investment advisers, trust companies
and bank trust departments which exercise investment discretion and which intend
within thirteen months to invest $5 million or more can be treated as a single
purchaser, provided further that all purchases and redemptions are placed
through such entity. Such entities should be prepared to establish their
qualifications hereunder.
Reinstatement Privilege. Shareholders who redeem their shares in the
Fund have a one-time privilege of reinstating their investment by reinvesting
the proceeds of the redemption at net asset value without a sales charge in
shares of the Fund. The Fund must receive from the investor or the investor's
broker within 30 days after the date of the redemption both a written request
for reinvestment and a check not exceeding the amount of the redemption
proceeds. The reinstatement purchase will be effected at the net asset value per
share next determined after such receipt. Gain on a redemption is taxable
regardless of whether the reinstatement privilege is exercised; however, a loss
arising out of a redemption will not be deductible to the extent the
reinstatement privilege is exercised, and an adjustment will be made to the
shareholder's tax basis for shares acquired pursuant to the reinstatement
privilege.
Certificates. In the interest of economy and convenience, physical
certificates representing the Fund's shares will not be issued unless an
investor submits a written request to the Fund, or unless the investor's broker
requests that the Fund provide certificates. Shares of the Fund are
23
<PAGE>
recorded on a register by the Fund's shareholder servicing agent, and
shareholders who do not elect to receive certificates have the same rights of
ownership as if certificates had been issued to them. Redemptions by
shareholders who hold certificates may take longer to effect than similar
transactions involving noncertificated shares because the physical delivery and
processing of properly executed certificates is required. ACCORDINGLY, THE FUND
STRONGLY RECOMMENDS THAT SHAREHOLDERS DO NOT REQUEST ISSUANCE OF CERTIFICATES.
---------------------------------------------
HOW TO REDEEM SHARES
---------------------------------------------
As described below, Fund shares may be redeemed at their net asset
value and redemption proceeds will be sent within seven days of the execution of
a redemption request. Shareholders with brokers who sell shares may redeem
shares through such brokers; if the shares are held in the broker's "street
name", the redemption must be made through the broker. Other shareholders may
redeem shares through the Fund.
Redemptions Through Brokers. Shareholders with accounts with brokers
who sell shares of the Fund may submit redemption requests to such brokers.
Brokers may honor a redemption request either by repurchasing shares from a
redeeming shareholder or by forwarding such requests to the Fund. In either
event, shareholders will receive the shares' net asset value next computed after
receipt of the redemption request by the broker. Redemption proceeds normally
will be paid by check or, if offered by the broker, credited to the
shareholder's brokerage account at the election of the shareholder. Brokers may
impose a service charge for handling redemption transactions placed through them
and may have other requirements concerning redemptions. Accordingly,
shareholders should contact their brokers for more details.
Redemptions Through the Fund. Redemption requests must be transmitted
to the Fund by mail, in accordance with the instructions provided in the
Shareholder Account Manual. All redemptions will be effected at the net asset
value next determined after the Fund has received the request and any required
supporting documentation. Redemption requests will not require a signature
guarantee if the redemption proceeds are to be sent either: (i) to the redeeming
shareholder at the shareholder's address of record as maintained by the Fund,
provided the shareholder's address of record has not been changed in the
preceding thirty days; or (ii) directly to a predesignated bank, savings and
loan or credit union account ("Predesignated Account"). All other redemption
requests must be accompanied by a signature guarantee of the redeeming
shareholder's signature. A signature guarantee can be obtained from any
commercial bank, broker, dealer, credit union, securities exchange or
association, clearing agency or savings association which is a member of the
U.S. Federal Deposit Insurance Corporation, U.S. trust company, a member firm of
a U.S. stock exchange or a foreign branch of any of the foregoing. A notary
public is not an acceptable guarantor.
Shareholders may qualify to have redemption proceeds sent to a
Predesignated Account by completing the appropriate section of the Account
Application. Shareholders with Predesignated
24
<PAGE>
Accounts should request that redemption proceeds be sent either by bank wire or
by check; the minimum redemption amount for a bank wire is $1,000. Shareholders
requesting a bank wire should allow one business day from the time the
redemption request is effected for the proceeds to be deposited in the
shareholder's Predesignated Account. See "How to Redeem Shares--Other Important
Redemption Information." Shareholders may change their Predesignated Accounts
only by a letter of instruction to the Fund containing all account signatures,
each of which must be guaranteed.
Redemption requests should be mailed directly to the Fund at the
appropriate address provided in the Shareholder Account Manual. As discussed
above, requests for payment of redemption proceeds to a party other than the
registered account owner(s) and/or requests that redemption proceeds be mailed
to an address other than the shareholder's address of record require a signature
guarantee. Redemptions of shares for which certificates have been issued must be
accompanied by properly endorsed share certificates.
Other Important Redemption Information. A request for redemption will
not be processed until all of the necessary documentation has been received in
good order. A shareholder in doubt about what documents are required should
contact his or her broker or the Fund.
Except in extraordinary circumstances and as permitted under the 1940
Act, payment for redemption of shares will be made promptly after receipt of a
redemption request, if in good order, but not later than seven days after the
date the request is executed. Requests for redemption which are subject to any
special conditions or which specify a future or past effective date cannot be
accepted.
If the Fund is requested to redeem shares for which good payment has
not yet been received, the Fund may delay payment of redemption proceeds until
it has assured itself that good payment has been collected for the purchase of
the shares. In the case of purchases by check, it can take up to 15 days to
confirm that the check has cleared and good payment has been received.
Redemption proceeds will not be delayed when shares have been paid for by wire
or when the investor's account holds a sufficient number of shares for which
funds already have been collected.
The Fund may redeem the shares of any shareholder whose account is
reduced to less than $1,000 in value through redemptions or other action by the
shareholder. Notice will be given to the shareholder at least 60 days prior to
the date fixed for such redemption, during which time the shareholder may
increase his or her holdings to an aggregate amount of $1,000 or more (with a
minimum purchase of $100 or more).
---------------------------------------------
SHAREHOLDER ACCOUNT MANUAL
---------------------------------------------
Shareholders are encouraged to place purchase and redemption orders through
their brokers. Shareholders also may place such orders directly through the Fund
which acts as its own transfer
25
<PAGE>
agent in accordance with this Manual. See "How to Invest" and "How to Redeem
Shares" for more information.
Investments by Mail. Send completed Account Application (if initial
purchase) or letter stating Fund name, shareholder's registered name and account
number (if subsequent purchase) with a check to:
Korea Capital Fund
c/o The Provident Bank
Attn: Mutual Fund Services
P.O. Box 14967
Cincinnati, OH 45250-0967
Investments by Bank Wire. An investor opening a new account should call
l-800-424-2295 to obtain an account number. WITHIN SEVEN DAYS OF PURCHASE, SUCH
AN INVESTOR MUST SEND A COMPLETED APPLICATION CONTAINING THE INVESTOR'S
CERTIFIED TAXPAYER IDENTIFICATION NUMBER TO THE PROVIDENT BANK AT THE ADDRESS
PROVIDED ABOVE UNDER "INVESTMENTS BY MAIL." Wire instructions must state the
name of the Fund, shareholder's registered name and account number. Bank wires
should be sent through the Federal Reserve Bank Wire System to:
The Provident Bank
Attn: Mutual Fund Services
ABA Routing Number: 042-000-424
For Further Credit to Korea Capital Fund
Account Number
(stating Fund name, shareholder's registered account name and account
number)
Redemptions by Mail. Send complete instructions, including name of
Fund, amount of redemption, shareholder's registered name and account number,
to:
Korea Capital Fund
c/o The Provident Bank
Attn: Mutual Fund Services
P.O. Box 14967
Cincinnati, OH 45250-0967
Overnight Mail. Overnight mail services do not deliver to post office
boxes. To send purchase or redemption orders by overnight mail, comply with the
instructions above, but send to the following:
Korea Capital Fund
c/o The Provident Bank
Mutual Fund Services
One East Fourth Street
Cincinnati, OH 45202
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<PAGE>
Additional Questions. Shareholders with additional questions regarding
purchase and redemption procedures may call the Fund at 1-800-424-2295.
---------------------------------------------
CALCULATION OF NET ASSET VALUE
---------------------------------------------
The Fund calculates its net asset value as of the close of normal
trading on the NYSE, currently 4:00 p.m. Eastern Time, each day Monday through
Friday on which the NYSE is open for business. The Fund's net asset value per
share is computed by determining the value of its assets (the securities it
holds plus any cash or other assets, including the interest accrued but not yet
received), subtracting all the Fund's liabilities (including accrued expenses),
and dividing the result by the total number of shares outstanding at such time.
Equity securities are valued at the last sale price (for exchange-listed
securities) or the last bid price (for over-the-counter securities). Debt
securities generally are valued at the mean of representative quoted bid or
asked prices. Securities with 60 days or less remaining to maturity are valued
on an amortized cost basis.
Securities for which market quotations are not readily available are
valued at fair value determined in good faith by or under the direction of the
Board of Trustees. Assets or liabilities initially quoted in the Korean Won will
be valued in U.S. dollars based on the prevailing exchange rates on that day
quoted by the Korean Exchange Bank. In instances where the price determined
above is deemed not to represent fair market value (for example, if the price of
a security listed on the Stock Exchange was fixed by reason of a limit on the
daily price change, and KIM and Daehan have determined that the quoted price
does not reflect the value of the security because of unusual and material
changes affecting the issuer), the price will be determined in such manner as
the Board of Trustees may prescribe.
Because the Fund's portfolio securities are listed primarily on the
Stock Exchange, which trades on days when the NYSE may be closed (such as a
Saturday), the net asset values of the Fund may be significantly affected by
such trading on days when shareholders have no access to the Fund.
---------------------------------------------
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXATION
---------------------------------------------
Dividends and Other Distributions. The Fund annually distributes all
its net investment income, net short-term capital gain and substantially all of
its realized net capital gain (the excess of net long-term capital gain over net
short-term capital loss), if any, and net realized gains from
27
<PAGE>
foreign currency transactions, if any. The annual distribution is declared after
the end of the Fund's fiscal year on August 31. Shareholders may elect to:
have all dividends and capital gain distributions automatically
reinvested in additional Fund shares;
receive dividends in cash and have capital gain distributions
automatically reinvested in additional Fund shares;
receive capital gain distributions in cash and have dividends
automatically reinvested in additional Fund shares; or
receive dividends and capital gain distributions in cash.
Automatic reinvestments in additional Fund shares are made at net asset
value without imposition of a sales charge. If no election is made by a
shareholder, all dividends and capital gain distributions will be automatically
reinvested in additional Fund shares. These elections may be changed by a
shareholder at any time; to be effective with respect to a distribution, the
shareholder or the shareholder's broker must contact the Fund by mail or
telephone at least 15 business days prior to the payment date. The federal
income tax status of dividends and capital gain distributions is the same
whether they are received in cash or reinvested in additional Fund shares.
Any dividend or capital gain distribution paid by the Fund has the
effect of reducing the net asset value per share on the record date by the
amount thereof. Therefore, a dividend or capital gain distribution paid shortly
after a purchase of shares would represent, in substance, a return of capital to
the shareholder (to the extent it is paid on the shares so purchased), even
though subject to income taxes, as discussed below.
Taxes. The Fund qualifies as a "regulated investment company" under the
Code. In each taxable year that the Fund so qualifies, the Fund (but not its
shareholders) will be relieved of federal income tax on that part of its
investment company taxable income (consisting generally of net investment
income, net gains from foreign currency transactions and the excess of net
short-term capital gain over net long-term capital loss) and net capital gain
that is distributed to its shareholders. Dividends from the Fund's investment
company taxable income (whether paid in cash or reinvested in additional Fund
shares) are taxable to shareholders as ordinary income to the extent of the
Fund's earnings and profits. Distributions of the Fund's net capital gain
(whether paid in cash or reinvested in additional Fund shares) are taxable to
the shareholders as long-term capital gain, regardless of how long they have
held their Fund shares.
The Fund provides federal tax information to shareholders annually,
including information about dividends and other distributions paid during the
preceding year and, under certain circumstances, the shareholders' respective
shares of any foreign taxes paid by the Fund (in which event the shareholder
would be required to include in his gross income his pro rata share of those
taxes but might be entitled to claim a credit or deduction for them).
28
<PAGE>
Dividends and other distributions declared by the Fund in, and payable
to shareholders of record as of a date in, October, November or December of any
year will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
The Fund must withhold 31% from dividends, capital gain distributions
and redemption proceeds payable to any individuals and certain other
noncorporate shareholders who have not furnished to the Fund a correct taxpayer
identification number or a properly completed claim for exemption on Form W-8 or
Form W-9. Withholding from dividends and capital gain distributions also is
required for shareholders who otherwise are subject to backup withholding.
Taxpayer identification numbers may be furnished on the Account Application
provided at the end of this Prospectus. Fund accounts opened via a bank wire
purchase (see "How to Invest--Purchases Through the Fund") are considered to
have uncertified taxpayer identification numbers unless a completed Form W-8 or
W-9 or Account Application is received by the Fund within seven days after the
purchase. Amounts withheld reduce the shareholder's tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. A shareholder should contact the Fund if the shareholder
is uncertain whether a proper taxpayer identification number is on file with the
Fund.
A redemption of Fund shares may result in taxable gain or loss to the
redeeming shareholder, depending upon whether the redemption proceeds are more
or less than the shareholder's adjusted basis for the redeemed shares (which
normally includes any sales charges paid). However, special tax rules apply when
a shareholder (1) disposes of Fund shares through a redemption within 90 days of
purchase and (2) subsequently acquires shares of the Fund on which an initial
sales charge normally is imposed without paying a sales charge due to the 30-day
reinstatement privilege. In these cases, any gain on the disposition of the Fund
shares will be increased, or loss decreased, by the amount of the sales charge
paid when those shares were acquired, and that amount will increase the adjusted
basis of the shares subsequently acquired. In addition, if Fund shares are
purchased within 30 days of redeeming Fund shares at a loss, the loss will not
be deductible and instead will increase the basis of the newly purchased shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders; the Statement
of Additional Information contains a further discussion of other important tax
matters, including Korean income taxes and taxation of non-U.S. shareholders.
There may be other federal, state or local tax considerations applicable to a
particular investor. Prospective investors are therefore urged to consult their
tax advisers.
---------------------------------------------
MANAGEMENT
---------------------------------------------
The Trust's Board of Trustees has overall responsibility for the
operation of the Fund. Pursuant to such responsibility, the Board has approved
contracts with various financial
29
<PAGE>
organizations to provide, among other things, day-to-day management, advisory
and administration services required by the Fund.
Investment Adviser and Administrator. Daehan Securities, Inc., 3360
West Olympic Blvd., Los Angeles, CA 90019 serves as investment adviser and
administrator to the Fund. Under an Advisory and Administration Agreement with
the Fund, Daehan is responsible for reviewing investment decisions of and
consulting with KIM; providing investment research regarding U.S. companies and
recommending securities of U.S. issuers to KIM for purchase by the Fund;
reviewing and overseeing the operations of the Sub-Administrator; furnishing
corporate officers and clerical staff; providing office space, services and
equipment; and supervising all matters relating to the Fund's operations. For
these services, the Fund pays Daehan investment advisory and administration
fees, computed daily and paid quarterly, at the annualized rate of 0.30% of the
Fund's average daily net assets.
Investment Manager. Korea Investment Management Europe Ltd. ("KIM"),
3rd Floor, Fengate House, 14 Philpot Lane, London EC3M 8AJ, United Kingdom, a
U.S. registered investment adviser, serves as the investment manager to the
Fund. Under an Investment Management Agreement with the Fund, KIM has primary
responsibility for determining the composition of the Fund's portfolio and
places all orders to buy or sell securities on behalf of the Fund. For these
services, the Fund pays KIM investment management fees, computed daily and paid
quarterly at the annualized rate of 0.70% of the Fund's average daily net
assets.
KIM was established in September 1991 under the laws of the United
Kingdom as a joint venture between KITC and Kleinwort Benson Investment
Management Limited. KIM has a paid-in capital of (pound)3.0 million and is 80%
owned by KITC and 20% owned by Kleinwort Benson Investment Management Limited.
KIM's objective is to provide complete investment management and advisory
services in London to Korean and other international investors. The company is a
member of The Investment Management Regulatory Organization, Ltd. and commenced
business during December 1991. KIM currently provides investment advisory and
management services for $430 million invested primarily in Korean securities
market. As well as being the investment manager of the Fund, KIM is also the
sub-investment adviser of the Korea Vision
30
<PAGE>
Portfolio, part of the Jupiter Tyndall Global Fund SICAV, and the Korea Smaller
Companies Class, part of the Jupiter Tyndall Specialist Fund Limited and the
investment adviser of The Asia Emerging Markets Fund plc, KIME, Korea Fund plc,
Asia Portfolio Fund plc, Kim Europe Worldwide Fund, Korea Growth Geared Fund
plc, Korean Growth Fund, Korea Far East Fund, Korea Plus Fund, Korea Balanced
Return Fund, Atlas KITC Arbitrage Fund and KITC Phillipines Growth Fund. Mr. Jae
Bong Chung, of KIM, is the individual who is primarily responsible for the
Fund's day-to-day management.
KITC was the first investment trust management company to be
established under the laws of Korea. KITC is presently the largest investment
fund management organization in Korea , with assets over $28 billion under
management as of November 1995 in 425 investment funds which invest primarily in
Korean Securities.
Sub-Administrator. Investment Company Administration Corporation
("ICAC"), 2025 E. Financial Way, Suite 101, Glendora, CA 91741, acts as
Sub-Administrator of the Fund, pursuant to a Sub-Administration Agreement with
the Trust. ICAC also serves as administrator of other mutual funds. Under the
Sub-Administration Agreement, ICAC provides certain management and
administrative services necessary for the Fund's operations including: (1)
general supervision of the operation of the Fund, including coordination of the
service performed by the Fund's Investment Manager, custodian, independent
accountants and legal counsel; regulatory compliance, including the compilation
of information for documents such as reports to, and filings with the SEC and
state securities commissions; and preparation of proxy statements and
shareholder reports for the Fund; and (ii) general supervision relative to the
compilation of data required for the
31
<PAGE>
preparation of periodic reports distributed to the Trust's officers and Board of
Trustees. ICAC also furnishes office space and certain facilities required for
conducting the business of the Fund. For these services, the Fund pays ICAC a
monthly fee at a maximum annual rate of 0.10% of the Fund's average daily net
assets.
Portfolio Transactions. Commissions or discounts on the Stock Exchange
or OTC markets typically are fixed but generally are comparable to those
typically charged in U.S. securities exchanges or markets. Debt securities are
generally traded on a "net" basis with a dealer acting as principal for its own
account with a stated commission, although the price of the security usually
includes a profit to the dealer. U.S. and foreign government securities and
money market instruments are generally traded in the OTC markets. In
underwritten offerings, securities are usually purchased at a fixed price which
includes an amount of compensation to the underwriter. On occasion, securities
may be purchased directly from an issuer, in which case no commissions or
discounts are paid. Brokers and dealers may receive commissions on futures,
currency and options transactions. Consistent with its obligation to obtain best
net results, KIM may consider a broker's or dealer's sale of Fund shares as a
factor in considering through whom portfolio transactions will be effected. KIM
has no agreements or commitments to place orders with any broker-dealer.
32
<PAGE>
The Fund anticipates that its annual portfolio turnover rate will generally not
exceed 100%. However, KIM does not regard portfolio turnover as a limiting
factor and will buy or sell securities for the Fund as necessary in response to
market conditions to meet the Fund's objective. The portfolio turnover rate is
calculated by dividing the lesser of sales or purchases of portfolio securities
by the Fund's average month-end assets. For purposes of this calculation,
portfolio securities exclude purchases and sales of debt securities having a
maturity at the date of purchase of one year or less. High portfolio turnover
involves correspondingly greater transaction costs in the form of brokerage
commissions or dealer spreads and other costs that the Fund will bear directly,
and may result in the realization of net capital gains, which are taxable when
distributed to shareholders.
The Fund may effect portfolio transactions with or through Daehan or
affiliates of KIM when KIM determines that the Fund will receive competitive
execution, price and commissions. This standard will allow such affiliates of
the Fund to receive no more than the remuneration which would be expected to be
received by an unaffiliated broker in a similar arm's-length transaction. The
Fund will not effect portfolio transactions with or through Daehan or affiliates
of KIM where any such broker or dealer is acting as principal. The Fund does not
expect this policy to limit the availability of securities for investment by the
Fund.
Distribution of Fund Shares. Daehan is the distributor, or principal
underwriter, of the Fund's shares. Daehan is a U.S. broker-dealer registered
with the SEC and the National Association of Securities Dealers, Inc. As
distributor, Daehan collects the sales charges imposed on purchases of shares
and reallows a portion of such charges to brokers and dealers that have sold
such shares in accordance with the schedule set forth above under "How to
Invest." From time to time, Daehan may reallow to brokers the full amount of the
sales charge. Daehan may, at its expense, provide additional promotional
incentives to brokers that sell shares of the Fund. In some instances, these
incentives may be offered only to certain brokers which have sold or may sell
significant amounts of shares.
Under a plan of distribution adopted on behalf of the Fund pursuant to
Rule 12b-1 under the 1940 Act ("Plan"), the Fund reimburses Daehan for a portion
of its distribution expenditures at the annualized rate of up to 0.25% of the
Fund's average daily net assets. Daehan pays ongoing trail commissions to
organizations which are not affiliated with the Fund, such as brokerage firms,
financial institutions (including banks) and others that facilitate the
administration and servicing of shareholder accounts. All expenses for which
Daehan is reimbursed under the Plan will have been incurred within one year of
such reimbursement. Daehan's distribution expenses include the payment of trail
commissions; the cost of any additional compensation paid by Daehan to brokers
and dealers; the costs of printing and mailing to prospective investors
prospectuses and other materials relating to the Fund; the costs of developing,
printing, distributing and publishing advertisements and other sales literature;
and allocated costs relating to Daehan's distribution activities, including
among other things employee salaries, bonuses and other overhead expenses.
33
<PAGE>
Fund Expenses. The Fund pays all its expenses not assumed by Daehan,
KIM and other agents. These expenses include, in addition to the management,
administration, advisory, distribution and brokerage fees discussed above, legal
and audit expenses, custodian and transfer agency fees, trustee's fees,
organizational fees, fidelity bond and other insurance premiums, taxes,
extraordinary expenses and the expenses of reports and prospectuses sent to
existing investors. Daehan and KIM have undertaken to limit the Fund's expenses
to the annual level of 2.4% of the Fund's average net assets.
---------------------------------------------
OTHER INFORMATION
---------------------------------------------
Confirmations and Reports to Shareholders. Each time a transaction is
made that affects a shareholder's account in the Fund, such as an additional
investment, redemption or the payment of a dividend or distribution, the
shareholder will receive from the Fund a confirmation statement reflecting the
transaction. Shortly after the end of the Fund's fiscal year on August 31 and
fiscal half-year on February 28 of each year, shareholders will receive an
annual and semiannual report, respectively. These reports will list the
securities held by the Fund and financial statements relating to the Fund. In
addition, the federal income status of distributions made by the Fund to
shareholders will be reported after the end of the calendar year on Form
1099-DIV.
Organization. The Trust was organized as a Massachusetts business trust
on February 12, 1992 and is registered with the SEC as an open-end management
investment company. From time to time, the Trust may establish other funds, each
corresponding to a distinct investment portfolio and which will be a distinct
series of the Trust's shares. Shares of the Fund are entitled to one vote per
share (with proportional voting for fractional shares) and are freely
transferable. Shareholders have no preemptive or conversion rights.
On any matter submitted to a vote of shareholders, shares of the Fund
will be voted by the Fund's shareholders individually when the matter affects
the specific interest of the Fund only, such as approval of its investment
management arrangements. The shares of the Fund (and any other funds of the
Trust) will be voted in the aggregate on other matters, such as the election of
Trustees and ratification of the Board of Trustees' selection of the Trust's
independent accountants.
There normally will be no annual meeting of shareholders in any year,
except as required under the 1940 Act. The Fund would be required to hold a
shareholders meeting in the event that at any time less than a majority of the
Trustees holding office had been elected by shareholders. Trustees shall
continue to hold office until their successors are elected and have qualified.
Shares of the Trust's funds (at present only the Fund) do not have cumulative
voting rights, which means that the holders of a majority of the shares voting
for the election of Trustees can elect all the Trustees. A Trustee may be
removed upon a majority vote of the shareholders qualified to vote in the
election. Shareholders holding 10% of the Trust's outstanding shares may call a
meeting of shareholders. The 1940 Act requires the Trust to assist shareholders
in calling such a meeting.
34
<PAGE>
Shareholder Inquiries. Shareholder inquiries may be made by calling the
Fund at 1-800-424-2295 or by writing to the Fund at 3360 W. Olympic Blvd., Los
Angeles, CA 90019.
Performance Information. The Fund from time to time may include
information on its investment results and/or comparisons of its investment
results to various unmanaged indices or results of other mutual funds or groups
of mutual funds in advertisements, sales literature or reports furnished to
present or prospective shareholders.
In such materials the Fund may quote its average annual total return
("Standardized Return"). Standardized Return shows percentage rates reflecting
the average annual change in the value of an assumed investment in the Fund at
the end of a one-year period and at the end of five-and ten-year periods,
reduced by the maximum applicable sales charge imposed on sales of Fund shares.
If a one-, five-and/or ten-year period has not yet elapsed, data will be
provided as of the end of a shorter period corresponding to the life of the
Fund. Standardized Return assumes the reinvestment of all dividends and capital
gain distributions at net asset value on the reinvestment date as established by
the Board of Trustees.
In addition, in order to more completely represent the Fund's
performance or more accurately compare such performance to other measures of
investment return, the Fund also may include in advertisements, sales literature
and shareholder reports other total performance data ("Nonstandardized Return").
Nonstandardized Return reflects percentage rates of return encompassing all
elements of return (i e., income and capital appreciation or depreciation); it
assumes reinvestment of all dividends and capital gain distributions.
Nonstandardized Return may be quoted for the same or different periods as those
for which Standardized Return is quoted; it may consist of an aggregate or
average annual percentage rate of return, actual year-by-year rates or any
combination thereof. Nonstandardized Return may or may not take sales charges
into account; performance data calculated without taking the effect of sales
charges into account will be higher than data including the effect of such
charges.
The Fund's performance data reflects past performance and is not
necessarily indicative of future results. The Fund's investment results will
vary from time to time depending upon market conditions, the composition of its
portfolio and its operating expenses. These factors and possible differences in
calculation methods should be considered when comparing the Fund's investment
results with those published for other investment companies, other investment
vehicles and unmanaged indices. The Fund's results also should be considered
relative to the risks associated with its investment objective and policies. See
"Investment Results" in the Statement of Additional Information.
Transfer Agent. The Provident Bank, One East Fourth Street, Cincinnati,
Ohio, 45202, acts as the Fund's transfer agent to perform certain shareholder
servicing and accounting and general transfer agent functions.
Custodian. State Street Bank & Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110 is custodian of the Fund's assets and Bank of Seoul,
10-1 Namdaemun-no, No 2-Ga, Chung-Gu, Seoul, Korea has been approved by the
Board of Trustees as the subcustodian of the Fund's assets held in Korea.
35
<PAGE>
Independent Accountants. The Fund's independent accountants are Ernst &
Young L.L.P. Ernst & Young, L.L.P. will conduct an annual audit of the Fund,
assist in the preparation of the Fund's federal and state income tax returns and
consult with the Trust and the Fund as to matters of accounting, and federal and
state income taxation.
36
<PAGE>
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37
<PAGE>
---------------------------------------------
APPENDIX:
KOREAN RISK FACTORS
---------------------------------------------
Investing in securities of Korean companies and of the government (the
"Government") of the Republic of Korea (the "Republic" or "Korea") involves
certain risks not typically associated with investing in securities of United
States companies or the United States government, in addition to those discussed
under "Prospectus Summary" and "Investment Objective, Policies and Risks."
Investment and Repatriation Restrictions. Until recently, Korean
security regulations limited the percentage of any class of equity shares of an
issuer that may be held by a particular foreign investor to 3% and to 12% by all
foreign investors as a group. Currently, the limit on direct foreign investment
is up to 15% of any class of equity shares outstanding. The Ministry of Finance
has indicated that they will consider removing the ceiling on direct foreign
investment in the future.
Transfer of funds from Korea to foreign countries and repatriation of
foreign capital invested in Korea are subject to certain regulatory approvals
pursuant to foreign exchange control laws and regulations.
Generally, as long as the original investment was approved or allowed
under the applicable laws and regulations of Korea, the conversion and
remittance of cash or cash equivalents into U.S. dollars in relation to such
investment will be freely allowed upon receipt of the appropriate payment
approvals from the Bank of Korea or a designated Class A foreign exchange bank
such as the Bank of Seoul, the Korean sub-custodian for the Fund's assets,
depending on the type of transaction.
38
<PAGE>
Currency Fluctuations. The Fund's assets will be invested primarily in
Korean securities, the market value of which is determined in Won, and
substantially all of its income will be received or realized in the Korean Won.
The Fund will be required, however, to compute its net asset value and income,
and to distribute its income, in U.S. dollars. As a result, the Fund's net asset
value and its distribution amounts will be subject to foreign exchange rate
fluctuations.
39
<PAGE>
The Korean Won was devalued against the US dollar in the early 1980s to
reach approximately Won 890 to the US dollar by the end of 1985. The Korean Won
appreciated against the US dollar from 1986 to approximately 665 Won per US
dollar by May 1989. Since then the Korean Won has slowly lost value against the
US dollar and the exchange rate stood at approximately Won 770 per US dollar at
the end of 1995.
The Fund expects to incur certain transaction costs in connection with
its conversions between currencies and, in light of the history of fluctuating
currency values of the Korean Won relative to the dollar, it is impossible to
predict what effect currency conversion costs may have on the operations of the
Fund.
Potential Market Volatility. The Korean securities market is still
relatively small in comparison to the Japanese, United States and major European
securities markets. Because of this small size and low volume, the Korean
securities market is subject to greater price volatility and lesser liquidity
than is usual in the Japanese, United States or major European securities
markets. Because of these liquidity limitations and the Fund's investment
policies, it may be more difficult for the Fund to purchase and sell portfolio
positions than would be the case in the United States. Accordingly, in periods
of rising market prices, the Fund may be unable to participate fully in such
price increases to the extent that it is unable to acquire desired portfolio
positions quickly; conversely, the Fund's inability to dispose fully and
promptly of positions in declining markets will cause its net asset value to
decline as the value of unsold positions is determined by references to lower
prices.
40
<PAGE>
Political and Economic Factors. The partition of Korea following World
War II has created a political risk to the Republic. The demilitarized zone at
the boundary between the Republic and North Korea established after the Korean
War of 1950-1953 is supervised by United Nations forces. The United States
maintains a significant military force in the Republic. The situation remains a
source of tension, although negotiations to resolve the political division of
the Korean peninsula have been carried on intermittently for several years, and
in recent years there have been several meetings between representatives of the
Republic and of North Korea on political, economic and humanitarian issues. See
"Appendix A--The Korean Securities Market" in the Statement of Additional
Information.
The domestic political situation in Korea has been relatively stable
since Kim, Young Sam, who had been for many years a leader of an opposition
party, was elected as president of Korea in December 1992. During last quarter
of 1995, the Kim administration initiated a campaign to prosecute illegal slush
fund contributors. Contributions were made to major political figures, including
two former Presidents, mostly by heads of Korean corporations. Such reform
caused uncertainty in the Korean securities market and
41
<PAGE>
had a significant adverse impact on the security prices. Nonetheless, management
believes that the Fund will benefit from these reforms in the long term. Such
activities are believed to provide increased political stability and reduce
corruption.
42
<PAGE>
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43
<PAGE>
KOREA CAPITAL FUND
ACCOUNT APPLICATION
Mail To: KOREA CAPITAL FUND For assistance in completing
c/o The Provident Bank the application, contact your
P.O. Box 14967 account executive or call the
Cincinnati, OH 45250-0967 Korea Capital Fund at
1-800-424-2295
Please Print
1.
44
<PAGE>
45
<PAGE>
INITIAL INVESTMENT $ ______ (Minimum Initial Purchase: $1,000.00; $250.00 for
IRAs)
2. ACCOUNT REGISTRATION
h Individual
First M.I. Last Social Security
#/Tax ID
h Joint Tenant
First M.I. Last Social Security
#/Tax ID
Check one M With Right to Survivorship M Tenants in Common M Tenants by the
Entireties
h Uniform Gifts/Transfers to Minors Act as Customer for
Customer's Name
Minor's Name Minor's SS # Minor's Birthdate State of Residency
h Trust
Trustee's Name Date of Trust Tax ID
h Other
Legal Entity Name Tax ID
(Additional forms, such as a Corporate Resolution may be required.)
3. ACCOUNT ADDRESS
Street Address ______________ Citizen of: M U.S. M Other Country ______________
Country of Residency
City/State/Zip () ()
Home Phone # Business Phone
#
4. DISTRIBUTION OPTION (If no option is indicated, option A will be assigned).
h A. Dividends and capital gains distributions reinvested in additional
shares.
h B. Dividends in cash; capital gains distribution in additional shares.
46
<PAGE>
h C. Receive capital gains distribution in cash and have dividends reinvested
in additional shares.
h D. Dividends and capital gains distributions in cash.
5. LETTER OF INTENT
h I agree to the terms of the Letter of Intent set forth below. Although I am
not obligated to do so, it is my intention to invest over a thirteen-month
period in shares of Korea Capital Fund an aggregate amount at least equal
to:
h $100,000 h $250,000 h $500,000 h $1,000,000 h $2,000,000
When a shareholder signs a Letter of Intent in order to qualify for a
reduced sales charge, shares equal to 5% (in no case in excess of 1/2 of 1%
after an aggregate of $1,000,000 has been purchased under the Letter) of the
dollar amount specified in this Letter will be held in escrow in the
Shareholder's Account out of the initial purchase (or subsequent purchases,
if necessary) by the Fund. All dividends will be credited to the
Shareholder's Account in shares (or paid in cash, if requested). If the
intended investment is not completed within the specified thirteen-month
period, the purchaser will remit to the Fund the difference between the
sales charge actually paid and the sales charge which would have been paid
if the total of such purchases had been made at a single time. If this
difference is not paid within twenty days after written request by the Fund
or the shareholder's Authorized Agent, the appropriate number of escrowed
shares will be redeemed to pay such difference. If the proceeds from this
redemption are inadequate, the purchaser will be liable to the Fund for the
balance still outstanding. The Letter of Intent may be revised upward at any
time during the thirteen-month period, and such a revision will be treated
as a new Letter, except that the thirteen-month period during which the
purchase must be made will remain unchanged.
Any questions relating to this Letter of Intent should be directed to The
Provident Bank, P.O. Box 14967, Cincinnati, OH 45250-0967
6. SIGNATURE AND CERTIFICATIONS
By signing this Application I (I refers herein to all persons named on the
Account) hereby certify under the penalties of perjury that the information
on this application is complete and correct and that (check one):
h Under the penalty of perjury I certify (1) the number(s) shown on this form
is my correct taxpayer identification number and (2) that I am not subject
to backup withholding either because I have not been notified by the
Internal Revenue Service that I am subject to backup withholding as a
result of a failure to report all interest and dividends, or (3) the
Internal Revenue Service has notified me that I am no longer subject to
backup withholding; or
h I am subject to backup withholding; or
h No taxpayer I.D. Number or Social Security Number has been provided above. I
have applied, or intend to apply, to the Internal Revenue Service or the
Social Security Administration for a Taxpayer I.D. Number, and I understand
that if I do not provide this number to the Fund within 60 days of the date
of this Application, the Fund is required to withhold 20% of all reportable
payments thereafter made to me until I provide this number. (Please provide
this number on Form W-9. You may request the Form by calling the Fund at
1-800-424-2295.)
Irepresent that I am of legal age and capacity and agree to appoint __________
as my Agent. I have received, read and carefully reviewed a copy of the Fund's
current prospectus and agree to its terms.
SIGNATURE X_____________________ DATE____________________
47
<PAGE>
Additional Signature(s) (if any) X______________
7. FOR USE OF AUTHORIZED AGENT (BROKER/DEALER) ONLY
We hereby submit this application for the purchase of shares in accordance
with the terms of our Selling Agreement
with _________________________________________________________________________
and with the Prospectus and Statement of Additional Information of the Korea
Capital Fund. We agree to
notify _______________________________________________________________________
of any purchases made under a Letter of Intent.
Investment Dealer Name
Main Office Address Branch No.
Representative's Number Representative's Name
()
Branch Address Telephone Number
Investment Dealer's Authorized Signature Title
SIGNATURE
DATE
48
<PAGE>
KOREA CAPITAL FUND
3360 W. Olympic Blvd., Los Angeles, CA 90019
Tel. 800 335-3381
M INVESTMENT ADVISER AND ADMINISTRATOR
DAEHAN SECURITIES, INC.
3360 West Olympic Blvd.
Los Angeles, California 90019
M INVESTMENT MANAGER
KOREA INVESTMENT MANAGEMENT
EUROPE LTD.
3rd Floor, Fengate House
14 Philpot Lane
London EC3M 8AJ, U.K.
M PRINCIPAL UNDERWRITER AND DISTRIBUTOR
DAEHAN SECURITIES, INC.
3360 West Olympic Blvd.
Los Angeles, California 90019
M TRANSFER AGENT
The Provident Bank
P.O. Box 14967
Cincinnati, OH 45250-0967
M CUSTODIAN
STATE STREET BANK & TRUST COMPANY
225 Franklin Street
Boston, Massachusetts 02110
M SUB-CUSTODIAN
BANK OF SEOUL
101-1 Namdaemun-no, No 2 Ga,
Chung-Gu, Seoul, Korea
M AUDITORS
ERNST & YOUNG L.L.P.
515 S. Flower St.
Los Angeles, California 90071
LEGAL COUNSEL
PAUL, HASTINGS, JANOFSKY & WALKER
555 S. Flower St., 23rd Floor
Los Angeles, CA 90071
49
<PAGE>
M SUB-ADMINISTRATOR
INVESTMENT COMPANY ADMINISTRATION
CORPORATION
2025 East Financial Way, Suite 101
Glendora, California 91741
PROSPECTUS
[INSERT LOGO]
-------------------------------------------------
KOREA CAPITAL FUND
-------------------------------------------------
January 31, 1996
50
