FIDELITY ADVISOR KOREA FUND INC, 497, 1994-10-26

FIDELITY ADVISOR KOREA FUND INC
497, 1994-10-26

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<PAGE> 1

PROSPECTUS

OCTOBER 25, 1994
4,400,000 SHARES

FIDELITY ADVISOR
KOREA FUND, INC.
COMMON STOCK

Fidelity Advisor Korea Fund, Inc. (the "Fund") is a newly organized,
non-diversified, closed-end management investment company. The Fund's investment
objective is long-term capital appreciation. The Fund seeks to achieve its
objective by investing primarily in equity and debt securities of Korean Issuers
(as defined in this Prospectus). Under normal market conditions, the Fund will
invest at least 65% of its total assets in such securities. The Fund's
investment manager and investment adviser currently anticipate that, once fully
invested, at least 80% of the Fund's net assets will be invested in equity
securities of Korean Issuers. There can be no assurance that the Fund's
investment objective will be achieved. Up to 35% of the Fund's total assets may
be invested in equity and debt securities of Asian Issuers (as defined in the
Prospectus) other than Korean Issuers. Due to the risks inherent in
international investments generally, the Fund should be considered as a vehicle
for investing a portion of an investor's assets in foreign securities markets
and not as a complete investment program. INVESTMENT IN KOREAN SECURITIES
INVOLVES RISKS THAT ARE NOT NORMALLY INVOLVED IN INVESTMENTS IN SECURITIES OF
U.S. COMPANIES. IN ADDITION, ALTHOUGH THE FUND CURRENTLY INTENDS TO INVEST
PRINCIPALLY IN EQUITY SECURITIES, IT MAY INVEST WITHOUT LIMITATION IN HIGH RISK,
HIGH YIELD DEBT INSTRUMENTS THAT ARE LOW RATED OR UNRATED AND ARE PREDOMINANTLY
SPECULATIVE. INVESTMENT IN THE FUND SHOULD BE CONSIDERED SPECULATIVE. SEE
"INVESTMENT OBJECTIVE AND POLICIES" AND "RISK FACTORS AND SPECIAL
CONSIDERATIONS."

PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE SHARES (AS
DEFINED IN THIS PROSPECTUS). THE FUND'S COMMON STOCK HAS BEEN APPROVED FOR
LISTING ON THE NEW YORK STOCK EXCHANGE UPON NOTICE OF ISSUANCE UNDER THE SYMBOL
"FAK." SHARES OF CLOSED-END INVESTMENT COMPANIES HAVE IN THE PAST FREQUENTLY
TRADED AT DISCOUNTS FROM THEIR NET ASSET VALUES. THE RISK OF LOSS ASSOCIATED
WITH THIS CHARACTERISTIC OF CLOSED-END INVESTMENT COMPANIES MAY BE GREATER FOR
INVESTORS PURCHASING SHARES IN THE OFFERING AND EXPECTING TO SELL THE SHARES
SOON AFTER THE COMPLETION THEREOF. THERE IS NO RESTRICTION ON THE NUMBER OF
SHARES THAT MAY BE PURCHASED SUBJECT TO THE TRANSFER RESTRICTION DESCRIBED IN
THE FOOTNOTES TO THE TABLE BELOW, EXCEPT THAT THE UNDERWRITERS HAVE UNDERTAKEN
TO COMPLY, WITH RESPECT TO NON-RESTRICTED SHARES, WITH THE DISTRIBUTION
REQUIREMENTS OF THE NEW YORK STOCK EXCHANGE. SEE "UNDERWRITING." TO THE EXTENT
INVESTORS WHO ARE SUBJECT TO THE TRANSFER RESTRICTION SELL THEIR SHARES ONCE THE
TRANSFER RESTRICTION IS NO LONGER APPLICABLE, THE MARKET PRICE OF THE FUND'S
COMMON STOCK COULD BE ADVERSELY AFFECTED. IN ADDITION, THE TRANSFER RESTRICTION
WILL REDUCE THE NUMBER OF SHARES AVAILABLE FOR SALE IN THE SECONDARY MARKET
DURING THE 90-DAY RESTRICTION PERIOD.

This Prospectus sets forth concisely information about the Fund that a
prospective investor should know before purchasing Shares. Investors are advised
to read this Prospectus and retain it for future reference.
(Continued on following page)

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
PRICE SALES LOAD PROCEEDS
TO PUBLIC(1) (1)(2) TO FUND(3)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................. $15.00 $.90 $14.10
- ------------------------------------------------------------------------------------------------------------
Total(4)............................... $66,000,000 $3,960,000 $62,040,000
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
<FN>
(Footnotes on following page)
</TABLE>

The Shares are offered by the several U.S. Underwriters subject to prior
sale, when, as and if delivered to and accepted by them, subject to approval of
certain legal matters by counsel for the U.S. Underwriters and certain other
conditions, including the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the share
certificates will be made in New York, New York on or about October 31, 1994.

BARING SECURITIES INC. AND DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
ARE THE
GLOBAL COORDINATORS OF THE OFFERING.
------------------------

<TABLE>
<S> <C>
BARING SECURITIES INC. DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
</TABLE>

DILLON, READ & CO. INC.
COWEN & COMPANY

LEGG MASON WOOD WALKER
INCORPORATED

RAUSCHER PIERCE REFSNES, INC.

RAYMOND JAMES & ASSOCIATES, INC.
<PAGE> 2

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKETS OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

(Continued from previous page)

Of the 4,400,000 shares of the Fund's Common Stock offered (the "Shares"),
2,200,000 Shares are being offered by the U.S. Underwriters in the United States
and Canada (the "U.S. Offering") and 2,200,000 Shares are being offered by the
International Managers to non-U.S. and non-Canadian investors outside the United
States and Canada (the "International Offering" and together with the U.S.
Offering, the "Offering"), subject to transfer between the U.S. Underwriters and
the International Managers (collectively, the "Underwriters"). The initial
public offering price and sales load per Share are the same for both the U.S.
Offering and the International Offering.

Fidelity Management & Research Company will serve as investment manager to
the Fund. Fidelity International Investment Advisors will serve as the Fund's
investment adviser. Pursuant to a Sub-Advisory Agreement, Fidelity International
Investment Advisors has delegated certain of its responsibilities for the day-
to-day management of the Fund to Fidelity Investments Japan Limited, which will
serve as the Fund's sub-adviser and will manage the Fund's portfolio through its
Tokyo office.

The address of the Fund is 82 Devonshire Street, Boston, Massachusetts
02109. The Fund's telephone

number is (800) 426-5523. is a registered trademark of FMR Corp.

------------------------
(Notes from prior page)

(1) The "Price to Public" and "Sales Load" per Share will be reduced to $14.77
for purchases in single transactions (as defined herein under
"Underwriting") of 200,000 or more Shares, subject to the following
sentence. Purchasers who agree to purchase Shares at the reduced price will
be restricted from transferring such Shares for a period of 90 days after
the closing of the offering.

(2) The Fund, the investment manager, the investment adviser and the sub-adviser
have agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.

(3) Before deducting expenses payable by the Fund, estimated at $700,000, which
include up to $200,000 to be paid to the Underwriters in partial
reimbursement of their actual expenses.

(4) The Fund has granted the U.S. Underwriters options, exercisable one or more
times within 30 days after the date of this Prospectus, to purchase up to an
aggregate of 660,000 additional shares of Common Stock at the Price to
Public less Sales Load solely to cover over-allotments, if any. If all of
such shares are purchased, the total Price to Public, Sales Load and
Proceeds to Fund will be $75,900,000, $4,554,000 and $71,346,000,
respectively, assuming no reduction as described in (1) above. See
"Underwriting."

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

Unless otherwise specified, references in this Prospectus to "dollars,"
"U.S.$," or "$" are to U.S. dollars and references to "Won" or "W" are to Korean
Won. On September 16, 1994, the market average exchange rate of the Won to the
U.S. dollar, as published by the Korea Financial Telecommunications and
Clearings Institute (the "Market Average Exchange Rate"), was W 812.00 = $1.00.
Unless otherwise indicated, the U.S. dollar equivalent of information in Korean
Won as of a date or for a period is as of such date or for the end of such
period and is based on The Bank of Korea concentration base rate, if pre-March
1990, or the Market Average Exchange Rate, from March 1990. No representation is
made that the Won or U.S. dollar amounts in this Prospectus could have been or
could be converted into Won or U.S. dollars, as the case may be, at any
particular rate or at all. See "Risk Factors -- Exchange Rate Fluctuations" and
"The Republic of Korea -- Foreign Exchange" for additional information on the
historical rate of exchange between the U.S. dollar and Won.

Certain numbers in this Prospectus have been rounded for ease of
presentation, and, as a result, may not total precisely.

2
<PAGE> 3

SUMMARY

The following summary is qualified in its entirety by reference to the more
detailed information included herein.

The Fund........................... The Fund is a newly organized,
non-diversified, closed-end management
investment company established for
investors seeking to invest a portion of
their assets in a professionally managed
portfolio composed primarily of
securities of issuers in the Republic of
Korea ("Korea"). Although the Fund
currently intends to invest principally
in equity securities, it also may invest
in debt securities as described below.
Fidelity Management & Research Company
(the "Investment Manager") will serve as
the Fund's investment manager and will
supervise the Fund's investment program.
Fidelity International Investment
Advisors (the "Investment Adviser"), will
be the investment adviser and may in its
sole discretion either have day-to-day
management responsibility or delegate
such responsibility to Fidelity
Investments Japan Limited (the
"Sub-Adviser"). Pursuant to the
Sub-Advisory Agreement, the Investment
Adviser has delegated certain of its
responsibilities for the day-to-day
management of the Fund to the Sub-Adviser
which will manage the Fund's portfolio
through its Tokyo office. The Investment
Adviser will assist the Sub-Adviser and
will provide research and trading
facilities to the Sub-Adviser. See "The
Fund" and "Management of the Fund --
Investment Manager, Investment Adviser
and Sub-Adviser." (The Investment
Manager, Investment Adviser and
Sub-Adviser may be collectively referred
to as "Fidelity").

Investment Strategy................ Fidelity will look for growth
opportunities in Korean blue chip stocks,
either due to increases in permitted
foreign stock ownership or attractive
valuations. Fidelity will also look for
undervalued companies with strong
fundamentals within the large number of
medium-and smaller-sized companies,
including companies traded on the second
trading section of the Korean Stock
Exchange (the "KSE").

Korean law generally restricts foreign
ownership of any issuer to 10%. This has
given rise to an over-the-counter market
in KSE-listed securities, in which
foreign investors trade 10% foreign-owned
stocks, often at a premium to the KSE
price. The Fund may purchase securities
at premium prices when, in Fidelity's
view, the issuer's growth potential
justifies the premium. See "Investment
Strategy."

Investment in Korea................ Fidelity believes that attractive
investment opportunities may be found in
Korea due to its highly diversified
industrial base, large consumer
population and large and well educated
labor force, together with the evolving
process of the liberalization and reform
of the securities markets in Korea.
Korea's significant commitment to

3
<PAGE> 4

research and development generally,
coupled with its position as a leading
exporter in the Asia Pacific region
should contribute significantly to the
potential for growth in the Korean
economy. Continued liberalization of the
securities markets along with an increase
in the number of shares of Korean
companies that are available for
investment by foreign investors would
enable the Fund to participate in Korea's
economic growth potential. There can be
no assurance, however, that such
liberalization or economic growth will
continue to occur or that the Fund will
be able to participate in and benefit
from any future liberalization or
economic growth. See "Investment in
Korea."

Investment Objective and
Policies........................... The Fund's investment objective is
long-term capital appreciation. The Fund
will seek to achieve its objective by
investing primarily in equity and debt
securities of Korean Issuers (as defined
below). As a matter of fundamental policy
and under normal market conditions, at
least 65% of the Fund's total assets will
be invested in equity and debt securities
of Korean Issuers. Fidelity currently
anticipates that, once the Fund is fully
invested, at least 80% of its net assets
will be invested in equity securities of
Korean Issuers. No assurance can be given
that the Fund's investment objective will
be achieved. See "Investment Objective
and Policies" and "Risk Factors and
Special Considerations."

As used herein, Korean Issuers are
entities that, as determined by Fidelity,
(i) are organized under the laws of
Korea, (ii) regardless of where
organized, derive at least 50% of their
revenues or profits from goods produced
or sold, investments made or services
performed or have at least 50% of their
assets located in Korea, (iii) have the
primary trading market for their
securities in Korea or (iv) are the
government, or its agencies or
instrumentalities or other political
subdivisions, of Korea.

Equity securities in which the Fund may
invest include common and preferred
stock, American, global or other types of
depositary receipts, convertible bonds,
notes and debentures, equity interests in
trusts, partnerships, joint ventures and
common stock purchase warrants and
rights. Korean law currently permits
foreign investors, such as the Fund, to
invest in the following equity
securities: (i) common and preferred
stock listed on the KSE; (ii) non-
guaranteed convertible bonds of small and
medium-sized companies, shares of which
are listed on the KSE; (iii) global or
other types of depositary receipts
representing rights in shares of a Korean
company, which are issued outside Korea;
(iv) convertible bonds denominated in
non-Won currency and issued outside
Korea; and (v) equity warrants issued
together with bonds denominated in
non-Won currency outside Korea.

4
<PAGE> 5

The Fund may invest in debt securities.
Debt securities of Korean Issuers will be
treated as securities of Korean Issuers
for purposes of the Fund's policy of
investing at least 65% of its total
assets in securities of Korean Issuers
under normal market conditions. The
Fund's assets may be invested in debt
securities when Fidelity believes that
such securities offer opportunities for
long-term capital appreciation. The
Fund's investments in debt securities may
include bonds, notes, bills or other
fixed income or floating rate debt
obligations, including participations in
and assignments of portions of loans.
These debt securities may be unrated or
rated below investment grade. Korean law
does not currently permit foreign
investors such as the Fund to acquire
debt securities denominated in Won,
except for certain low interest rate
government or public bonds to be
designated by the Securities and Exchange
Commission of Korea (the "KSEC") from
time to time in the primary market
subject to certain foreign holding limits
and procedural requirements.

Certain investment practices in which the
Fund is authorized to engage, such as
investing in Korean government debt,
certain currency hedging techniques, the
lending of portfolio securities, forward
commitments, standby commitment
agreements and the purchase or sale of
put and call options are not currently
permitted, with certain limited
exceptions, under Korean laws or
regulations. The Fund may engage in these
investment practices to the extent the
practices become permissible under Korean
law in the future. See "Investment
Objective and Policies -- Other
Investments."

Most of the securities purchased by the
Fund are expected to be traded on the KSE
or other foreign stock exchanges or in a
foreign over-the-counter market. Compared
to securities traded in the United
States, generally all securities of
Korean Issuers may be considered to be
thinly traded. In addition, the Fund may
invest up to 35% of its total assets in
securities that are illiquid, that is,
securities for which there is no readily
available market, or no market at all.
See "Investment Objective and Policies."

The Fund may invest up to 35% of its
total assets in equity and debt
securities of Asian Issuers, if
warranted, in Fidelity's judgment, by
economic, political or regulatory
conditions in Korea or valuations in the
Korean securities markets relative to
such conditions. Asian Issuers are
issuers (other than issuers meeting the
definition of Korean Issuers), that, as
determined by Fidelity, (i) are organized
under the laws of Hong Kong, Japan or
Taiwan, (ii) regardless of where
organized, derive at least 50% of their
revenues or profits from goods produced
or sold, investments made, or services
performed in Hong Kong, Japan or Taiwan,
(iii) have the primary trading market for
their securities in Hong Kong, Japan or
Taiwan or (iv) are

5
<PAGE> 6

governments, or their agencies,
instrumentalities or other political
sub-divisions, of Hong Kong, Japan or
Taiwan. See "Risk Factors and Special
Considerations -- Investments in Asian
Issuers."

During the Fund's initial investment
period, the Fund may invest without
limitation in Temporary Investments (as
defined below). See "Investment Objective
and Policies -- Temporary Investments."

After the Fund's initial investment
period, for temporary defensive purposes,
the Fund may vary from its investment
policies by investing, without
limitation, in Temporary Investments and
investment grade debt instruments,
including unrated securities of
equivalent quality as determined by the
Investment Adviser or the Sub-Adviser,
short-term indebtedness or cash
equivalents denominated in U.S. dollars
or, if it becomes permissible for the
Fund to so invest, denominated in Won. No
assurance can be given that the Fund's
investment objective will be achieved.
See "Investment Objective and Policies"
and "Risk Factors and Special
Considerations."

The Offering....................... The Fund is offering 4,400,000 shares of
Common Stock, $0.001 par value (the
"Shares"), for sale in concurrent
offerings. Of the 4,400,000 Shares being
offered, 2,200,000 Shares (the "U.S.
Shares") are being offered in the United
States and Canada by a group of U.S.
Underwriters (the "U.S. Underwriters")
led by Baring Securities, Inc. and
Donaldson, Lufkin & Jenrette Securities
Corporation and 2,200,000 Shares (the
"International Shares") are being offered
to non-U.S. investors and non-Canadian
investors outside the United States and
Canada by a group of underwriters (the
"International Managers") led by Baring
Brothers & Co., Limited and Donaldson,
Lufkin & Jenrette Securities Corporation.
Baring Securities Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation
are the Global Coordinators of the
Offering (the "Global Coordinators"). The
initial public offering price of the
Shares is $15.00 per share, which will be
reduced to $14.77 for purchases in single
transactions (as defined herein under
"Underwriting") of 200,000 or more
Shares, subject to the following
sentence. Purchasers who agree to
purchase Shares at a reduced price will
be restricted from transferring such
Shares for a period of 90 days after the
closing of the Offering. There is no
restriction on the number of Shares that
may be purchased subject to the transfer
restriction described above, except that
the Underwriters have undertaken to
comply, with respect to non-restricted
Shares, with the distribution
requirements of the New York Stock
Exchange (the "NYSE"). The U.S.
Underwriters have also been granted
options to purchase an aggregate of
660,000 additional shares of the Fund's
Common Stock to cover over-allotments.
The number of shares of Common Stock
being offered is

6
<PAGE> 7

subject to reallocation between the U.S.
Offering and the International Offering
as may be mutually agreed by the U.S.
Underwriters and the International
Managers. See "Underwriting."

The closing of each offering is a
condition to the closing of the other
offering. The Fund cannot predict what
effect if any, the relative sizes of the
U.S. Offering and the International
Offering will have on the secondary
market in the United States or on the
market price of the Shares.

Listing............................ The Fund's Common Stock has been approved
for listing on the NYSE upon notice of
issuance.

Stock Symbol....................... "FAK"

Investment Manager, Investment
Adviser and Sub-Adviser............ Fidelity Management & Research Company, a
leading international investment manager,
will act as Investment Manager of the
Fund and will supervise the Fund's
investment program. The Fidelity
organization has more than 20 years
experience investing in Asia. Fidelity
International Investment Advisors ("FIIA"
or the "Investment Adviser"), the Fund's
Investment Adviser and an affiliate of
the Investment Manager, is responsible
for the day-to-day management of the
Fund's investments. Pursuant to the
Sub-Advisory Agreement, the Investment
Adviser has delegated certain of its
responsibilities for the day-to-day
management of the Fund to Fidelity
Investments Japan Limited (the
"Sub-Adviser"), which will manage the
Fund's portfolio through its Tokyo
office. As of August 31, 1994, the
Investment Manager, the Investment
Adviser, the Sub-Adviser and their
affiliates had over $270 billion under
management of which more than $50 billion
was invested in non-U.S. securities
(including over $15 billion in Asian
securities, over $550 million in
securities of Korean Issuers and over $7
billion managed from Asian offices).

The Investment Manager, together with the
Investment Adviser, the Sub-Adviser and
its other affiliates (sometimes
collectively referred to herein as
"Fidelity"), has extensive research
capabilities both worldwide, with over
300 investment professionals, as of
August 31, 1994, and within the Asian
region, and maintains offices in Hong
Kong, Singapore, Taiwan and Tokyo, which,
as of August 31, 1994, were staffed by 35
investment professionals.

7
<PAGE> 8

The Sub-Adviser, through its Tokyo
office, routinely researches and screens
for investment potential in Korean
companies. The Sub-Adviser seeks to
identify investments through management
contacts and on-site visits to companies
within Korea. In 1993, Fidelity conducted
over 170 company visits in Korea.

Edward S.J. Bang, who has served as a
Korean analyst for various Fidelity funds
since September 1993, will serve as the
Fund's principal portfolio manager. See
"Management of the Fund -- Investment
Manager, Investment Adviser and
Sub-Adviser."

Advisory Fees and Expenses......... The Fund will pay the Investment Manager
a monthly basic fee at an annual rate of
1.00% of the Fund's average daily net
assets for its services. The Investment
Manager will pay the Investment Adviser
60% of the fees paid by the Fund to the
Investment Manager. The Investment
Adviser will pay the Sub-Adviser a fee
equal to 50% of the fee paid to the
Investment Adviser with respect to any
Fund assets managed by the Sub-Adviser on
a discretionary basis, and 30% of the fee
paid to the Investment Adviser with
respect to any Fund assets managed by the
Sub-Adviser on a non-discretionary basis.
See "Management of the Fund --
Compensation and Expenses." The advisory
fee paid by the Fund is higher than those
paid by most U.S. investment companies
investing exclusively in the securities
of U.S. issuers, primarily because of the
additional time and expense required of
the Investment Manager, the Investment
Adviser and the Sub-Adviser in pursuing
the Fund's policy of investing in Korean
securities, including illiquid Korean
securities. In addition, the operating
expense ratio of the Fund can be expected
to be higher than that of a fund
investing primarily in securities of U.S.
issuers. It is expected, however, that
the Fund's investment advisory fee, as
well as its overall expense ratio, will
be comparable to those of many closed-end
management investment companies of
comparable size that invest primarily in
securities of issuers in a single foreign
country.

Administration..................... Fidelity Service Co. ("Service"), a
division of FMR Corp., the parent company
of the Investment Manager, will serve as
the Fund's administrator pursuant to the
terms of an Administration Agreement. The
Fund will pay to Service a monthly fee at
an annual rate of .20% of the Fund's
average daily net assets for its
services. See "Management of the Fund --
Administration."

Dividends and Distributions........ The Fund intends to distribute annually
to holders of Common Stock substantially
all of its net investment income, and to
distribute any net realized capital gains
at least annually.

Under the Fund's Dividend Reinvestment
and Cash Purchase Plan (the "Plan"), a
shareholder may elect to

8
<PAGE> 9

have all dividends and distributions
automatically reinvested in additional
shares of Common Stock of the Fund.
Participants also have the option of
making additional cash payments,
annually, to be used to acquire
additional shares of Common Stock of the
Fund in the open market. Shareholders
whose shares are held in the name of a
broker or nominee should contact such
broker or nominee to confirm that they
may participate in the Fund's Plan. See
"Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan."

Annual Tender Offers and Share
Repurchases...................... Shares of common stock of closed-end
investment companies frequently trade at
a discount from net asset value but may
trade at a premium. The Fund cannot
predict whether shares of its Common
Stock will trade at, below or above net
asset value. In recognition of the
possibility that the Fund's Common Stock
may trade at a discount from net asset
value, the Board of Directors of the Fund
has determined that annual tender offers
for shares of its Common Stock may help
reduce any market discount from net asset
value that may develop. In this
connection, during the first calendar
quarter of each calendar year commencing
in 1998, the Board of Directors of the
Fund has committed to conduct a tender
offer for shares of its Common Stock on
an annual basis under the circumstances
described below. During the fourth
quarter of the previous calendar year,
the Board of Directors will fix in
advance a period of 12 consecutive
calendar weeks beginning during such
fourth calendar quarter and ending in the
immediately following first quarter for
the purpose of calculating the average
trading price of the Fund's Common Stock.
In the event that the average of the
closing prices of the Common Stock of the
Fund on the last trading day in each week
during such 12 week period, on the
principal securities exchange where
listed, is below the initial offering
price of $15.00 per share and represents
a discount of 10% or more from the
average net asset value of the Fund as
determined on the same days in the same
period, a tender offer for up to 10% of
the then outstanding shares of Common
Stock of the Fund will be conducted
during such first calendar quarter. In
addition, the Board of Directors may
consider open market repurchases of its
Common Stock or converting the Fund into
an open-end investment company. No
assurance can be given that annual tender
offers or repurchases of shares of Common
Stock will reduce or eliminate any market
discount from net asset value of the
Fund's Common Stock. There are certain
risks associated with tender offers and
repurchases. See "Annual Tender Offers
and Share Repurchases," "Risk Factors and
Special Considerations" and "Taxation --
U.S. Federal Income Taxes."

9
<PAGE> 10

Custodian, Transfer Agent, Dividend
Paying Agent and Registrar......... The Chase Manhattan Bank, N.A. ("Chase")
will act as custodian for the Fund's
assets. Chase or the Fund will designate
foreign sub-custodians approved by the
Fund's Board of Directors in accordance
with the regulations of the Securities
and Exchange Commission (the "Commission"
or the "SEC"). The Hong Kong and Shanghai
Banking Corporation Limited, Seoul Branch
will serve as the Fund's sub-custodian
for its assets held in Korea. Chase or
the Fund may designate additional
sub-custodians. State Street Bank and
Trust Company will act as transfer agent,
dividend paying agent and registrar for
the Fund's Common Stock. See "Custodian,
Transfer Agent, Dividend Paying Agent and
Registrar."

Risk Factors and Special
Considerations..................... Because the Fund currently intends to
invest primarily in equity securities of
Korean Issuers, an investor in the Fund
should be aware of certain risks relating
to Korea, the Korean securities markets
and international investments generally
which are not typically associated with
U.S. domestic investments. Consistent
with its investment objective and
policies, the Fund may also invest in
part in Asian Issuers (Japan, Hong Kong
and Taiwan). The risk factors identified
below generally also apply to investments
the Fund may make in Asian Issuers,
although the specific nature of such
risks may vary according to the country
in which investments are made. See "Risk
Factors and Special Considerations --
Investments in Asian Issuers." In
particular, considerations and risks not
typically associated with investing in
securities of U.S. domestic companies
include (i) certain restrictions on
foreign investment in the Korean
securities markets which will preclude
investment in certain securities by the
Fund and limit investment opportunities
for the Fund; (ii) currency devaluations
and fluctuations in the rate of exchange
between the U.S. dollar and the Won with
the resultant fluctuations in the net
asset value of the Fund (which is
expressed in U.S. dollars); (iii)
substantial government involvement in,
and influence on, the economy and the
private sector; (iv) political, economic
and social uncertainty and instability,
including the potential for increasing
militarization in North Korea; (v) the
substantially smaller size and lower
trading volume of the securities markets
for Korean equity securities compared to
the U.S. securities markets, resulting in
a potential lack of liquidity and
increased price volatility; (vi) the risk
that the sale of portfolio securities by
the Korea Securities Market Stabilization
Fund (the "Stabilization Fund"), a fund
established in order to stabilize the
Korean securities markets, or other large
Korean institutional investors may
adversely impact the market value of
securities in the Fund's portfolio; (vii)
the risk that less information with
respect to Korean companies may be
available due to the fact that

10
<PAGE> 11

Korean accounting, auditing and financial
reporting standards are not equivalent to
those applicable to U.S. companies;
(viii) heavy concentration of market
capitalization and trading volume in a
small number of issuers, which result in
potentially fewer investment
opportunities for the Fund; (ix)
fluctuations in the prices and premium
valuations of securities held by the Fund
that are traded over the counter among
foreign investors; (x) controls on
foreign investment and limitations on
repatriation of invested capital and on
the Fund's ability to exchange Won for
U.S. dollars; (xi) the risk of
nationalization or expropriation of
assets or confiscatory taxation; (xii)
higher rates of inflation; (xiii) less
government supervision and regulation of
Korean securities markets and
participants in those markets; (xiv)
settlement delays; (xv) the risk that
dividends will be withheld at the source;
(xvi) unavailability of currency hedging
techniques in the Korean markets; (xvii)
the fact that companies in Korea may be
smaller, less seasoned and newly
organized; (xviii) the risk that it may
be more difficult to obtain and/or
enforce a judgment in a court in Korea
and outside the United States generally;
and (xix) the risk of taxation of the
Fund, its investments and its income by
Korea. See "Risk Factors and Special
Considerations."

Investments in Asian Issuers. In
addition, securities of Korean Issuers
and other Asian Issuers may be subject to
a greater degree of economic, political
and social instability than is the case
in the United States and Western European
countries. Such instability may result
from, among other things, the following:
(i) authoritarian governments or military
involvement in political and economic
decision-making, including changes in
government through extra-constitutional
means; (ii) popular unrest associated
with demands for improved political,
economic and social conditions; (iii)
internal insurgencies; (iv) hostile
relations with neighboring countries; and
(v) ethnic, religious and racial
disaffection. Such social, political and
economic instability could disrupt the
principal financial markets in which the
Fund invests and cause losses to the
Fund. See "Risk Factors and Special
Considerations."

Investment Restrictions and Foreign
Exchange Controls. Investment in
securities of Korean companies by foreign
investors is subject to significant
restrictions and controls. As a result,
the Fund may be limited in its
investments or precluded from investing
in certain Korean companies, which may
adversely affect the performance of the
Fund. Under the current regulations,
foreign investors are allowed to invest
in almost all shares listed on the KSE,
subject to certain ceilings on foreign
shareholdings and procedural
requirements. The percentage of each
class of a company's outstanding equity
shares that may be held by a particular
foreign investor, and by all foreign
investors

11
<PAGE> 12

as a group is generally limited to 3% and
10%, respectively. The 3% and 10%
limitations are reduced to 1% and 8%,
respectively, for certain
government-designated public
corporations, shares of which are listed
on the KSE. Further, the 10% limitation
may be increased in certain cases, as
determined by the KSEC. As of December
31, 1993, 165 companies listed on the KSE
had reached or exceeded the aggregate
foreign ownership limit (23.8% of all
companies listed on the KSE) and an
additional 159 companies were within 0.5%
of the limit. In addition as of June 30,
1994, of the 30 largest KSE-listed
companies (as measured by market
capitalization), which accounted for
approximately 51.5% of the aggregate
market capitalization of the KSE, nearly
all had reached the applicable maximum
aggregate foreign ownership limit.
Foreign investors are, however, generally
allowed to effect transactions with other
foreign investors through a securities
company in Korea but off the KSE
("foreign OTC transactions") in the
shares of companies that have reached or
exceeded the maximum aggregate foreign
ownership limit (or such limit less
odd-lot shares). Such transactions may,
and often do, occur at a premium over
prices on the KSE. There can be no
assurance that the Fund, if it purchases
such shares at a premium, will be able to
realize such premium on the sale of such
shares or that such premium will not be
adversely affected by changes in
regulations (including relaxation of the
limitations on foreign ownership) or
otherwise. See "Risk Factors and Special
Considerations -- Investment Restrictions
and Foreign Exchange Controls." In
determining the Fund's net asset value,
shares listed on the KSE which are traded
by foreign investors in foreign OTC
transactions may be valued at prices
above those at which they are trading on
the KSE at which it is expected such
securities may be sold by way of foreign
OTC transactions, as determined by or
under direction of a committee appointed
by the Board of Directors. See "Net Asset
Value."

The heavy concentration of market
capitalization and trading volume in a
relatively small number of issuers,
combined with U.S. regulatory
requirements, result in potentially fewer
investment opportunities for the Fund. As
of June 30, 1994, the 30 largest
companies by market capitalization
accounted for approximately 51.5% of the
aggregate market capitalization and from
January 1, 1994 through June 30, 1994
accounted for 38.9% of the average daily
trading volume of the KSE.

Exchange Rate Fluctuations. Because the
Fund will invest in equity securities of
Korean companies and, to the extent
permitted by applicable laws and
regulations, it may invest in
Won-denominated fixed income securities
(the market value of each of which is
determined in Won and the income from
which will likely be received in

12
<PAGE> 13

Won) and since the Fund's net asset value
will be reported and distributions from
the Fund will be made in U.S. dollars,
the value of the Fund's assets will be
adversely affected by a decline in the
value of the Won relative to the U.S.
dollar. The Fund is authorized to engage
in foreign currency hedging transactions,
which may involve special risks, although
such transactions, with certain
exceptions, are not currently permitted
under Korean law or regulations. Given
the restrictions, limitations and risks
associated with Won - U.S. dollar hedging
transactions, there can be no assurance
that the Fund will be able to effectively
hedge currency exchange rate risk. See
"Risk Factors and Special Considerations
-- Exchange Rate Fluctuations" and
"Appendix A -- General Characteristics
and Risks of Derivatives."

Substantial Government Influence on the
Private Sector. The Korean government
has historically exercised and continues
to exercise substantial influence over
many aspects of the private sector. The
Korean government from time to time has
informally influenced the payment of
dividends and the prices of certain
products, encouraged companies to invest
or to concentrate in particular
industries, induced mergers between
companies in industries suffering from
excess capacity and induced private
companies to publicly offer their
securities. The government has sought to
minimize excessive price volatility on
the KSE through various steps, including
the imposition of limitations on daily
price movements of securities.

Political and Economic Factors. The
value of the Fund's assets may be
adversely affected by political, economic
or social instability in Korea, and by
changes in Korean law or regulations. In
addition, 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 investment,
resource self-sufficiency and balance of
payments position, among others.

Political, economic and social
uncertainty and instability, including
the possibility of increased
militarization in North Korea, may also
adversely affect the value of the Fund's
assets. The United States maintains a
military force in Korea to help deter the
ongoing military threat from North Korean
forces. The situation remains a source of
tension, although negotiations to ease
tensions and resolve the political
division of the Korean peninsula have
been carried on from time to time. There
also have been efforts from time to time
to increase economic, cultural and
humanitarian contacts between North Korea
and Korea. There can be no assurance that
such negotiations or efforts will
continue to occur or will result in an
easing of tensions between North Korea
and Korea.

13
<PAGE> 14

Market Characteristics. The Korean
securities markets are smaller than the
securities markets of the United States.
As of June 30, 1994, the aggregate market
capitalization of equity securities
listed on the KSE totaled approximately
W 128.4 trillion ($159.4 billion), as
compared to approximately $4.4 trillion
on the NYSE on such date.

In 1990, the Stabilization Fund, a fund
operated by its contributors which
include substantially all of the KSE-
listed companies, Korean securities
companies and certain institutional
investors, was established by the
securities industry with government
co-operation in order to stabilize the
Korean securities markets primarily
through the purchase and sale of
securities. The size of the Stabilization
Fund is not officially reported. However,
as of January 1994, the Stabilization
Fund was reported by the financial press
to constitute approximately 5% of the
total listed equity market capitalization
of the KSE. The purchase or sale of
portfolio securities by the Stabilization
Fund could exert significant pressure on
the market prices of KSE-listed equity
securities in which the Fund may invest.

Thinly Traded Markets and Illiquid
Investments. To the extent permitted by
applicable law and regulations, the Fund
may invest up to 35% of its total assets
in illiquid equity or debt securities,
that is securities for which there is no
readily available market or no market at
all. Korean law does not currently permit
foreign investors such as the Fund to
acquire debt securities denominated in
Won or equity securities of companies
organized under the laws of Korea that
are not listed on the KSE, except for
purchases of non-guaranteed convertible
bonds listed on the KSE which are issued
by small and medium-sized companies, the
shares of which are listed on the KSE,
and participation in new issues of
certain low interest rate government and
public bonds each of which are subject to
certain investment ceilings and
procedural requirements. Investments in
securities for which there is no readily
available market may involve a high
degree of business and financial risk
that can result in substantial or total
loss of the Fund's investment in such
securities. Because of the absence of any
trading market for these investments, the
Fund may take longer to dispose of these
positions than it would for listed
securities. In addition to financial and
business risks, issuers whose securities
are not listed are not subject to the
same disclosure requirements applicable
to issuers whose securities are listed.
See "Risk Factors and Special
Considerations -- Thinly Traded Markets
and Illiquid Investments."

Settlement Procedures and
Delays. Settlement procedures in Korea
are somewhat less developed and reliable
than those in the United States and in
other developed securities markets, and
the Fund may experience settle-

14
<PAGE> 15

ment delays or other material
difficulties. Accordingly, the Fund may
be subject to significant delays or
limitations on the volume of trading
during any particular period as a result
of these factors. The foregoing factors
could impede the ability of the Fund to
effect portfolio transactions on a timely
basis and could have an adverse impact on
the net asset value of the shares of the
Fund's Common Stock and the price at
which the shares trade.

Debt Securities. The value of any debt
securities held by the Fund, and thus to
some degree the net asset value of the
Fund's Common Stock, generally will
fluctuate with (i) changes in the
perceived creditworthiness of the issuers
of those securities (ii) movements in
interest rates, and (iii) changes in
currency exchange rates. The extent of
the fluctuation will depend on various
other factors, including the maturity of
the Fund's investments, the extent to
which the Fund holds instruments
denominated in currencies other than the
U.S. dollar and the extent to which the
Fund hedges its interest rate and
currency exchange rate risks. The
Investment Adviser or the Sub-Adviser
will make independent evaluations as to
the creditworthiness of issuers of debt
securities that may differ from those of
internationally recognized credit rating
agency organizations, such as Moody's
Investors Service, Inc. ("Moody's") and
Standard & Poor's Ratings Group ("S&P").
The Fund's success in attaining its
investment objective with respect to
investments in debt securities will
depend largely on the Investment
Adviser's and the Sub-Adviser's
evaluation of the current and future
creditworthiness of issuers, and of
interest rate trends.

Debt Securities -- High Yield, High Risk
Securities. There is no limit on the
percentage of the Fund's debt securities
investments that may be low rated or
unrated. The Fund's investments in Korean
debt securities may have credit quality
below investment grade as determined by
internationally recognized credit rating
agency organizations. Debt securities
rated below investment grade (commonly
referred to as "junk bonds") are
considered to be speculative. Investment
in low rated securities typically
involves risks not associated with higher
rated securities, including, among
others, overall greater risk of failure
to pay interest and principal,
potentially greater sensitivity to
general economic conditions, greater
market price volatility and less liquid
secondary market trading. Certain of the
Fund's investments may be considered to
have extremely poor prospects of ever
attaining any real investment standing,
to have a current vulnerability to
default, to be unlikely to have the
capacity to pay interest and repay
principal when due in the event of
adverse business, financial or economic
conditions, or to be in default or not
current in the payment of interest or
principal. See "Risk Factors and Special
Considerations -- Debt Securities --

15
<PAGE> 16

High Yield, High Risk Securities" and
"Appendix B -- Debt Ratings."

Investment Practices. The Fund's
investment policies permit it to engage
in various investment practices that are
not presently available in Korea. To the
extent that they become available within
Korea or are available presently or in
the future outside Korea, the Fund may
use various investment practices that
involve special considerations, including
purchasing and selling options on
securities, financial futures, fixed
income and stock indices, currencies and
other financial instruments, entering
into financial futures contracts,
entering into interest rate transactions,
entering into currency transactions,
entering into equity swaps and related
transactions, entering into securities
transactions on a when-issued or delayed
delivery basis, entering into repurchase
agreements and lending portfolio
securities. See "Additional Investment
Activities," "Investment Objective and
Policies -- Other Investments," "Risk
Factors and Special Considerations --
Investment Practices" and "Appendix A --
General Characteristics and Risks of
Derivatives."

Non-Diversification. The Fund is
classified as a "non-diversified"
investment company under the Investment
Company Act of 1940, as amended (the
"1940 Act"), which means that the Fund is
not limited by the 1940 Act in the
proportion of its assets that may be
invested in the securities of a single
issuer. However, the Fund intends to
comply with the diversification
requirements imposed by the Internal
Revenue Code of 1986, as amended (the
"Code"), for qualification as a regulated
investment company. As a non-diversified
investment company, the Fund may invest a
greater proportion of its assets in the
securities of a smaller number of issuers
and, as a result, will be subject to
greater risk of loss with respect to its
portfolio securities. Moreover, because
the Fund is non-diversified and will
invest primarily in securities of Korean
Issuers, the Fund may be more susceptible
than a more widely-diversified fund to
any single economic, political or
regulatory occurrence. An investment in
the Fund is not a balanced investment
program by itself, and is intended to
provide diversification as part of a more
complete investment program.

Borrowings. The Fund may borrow for
temporary or emergency purposes and to
finance tender offers and share
repurchases. Borrowings by the Fund
create an opportunity for greater total
return but, at the same time increase
exposure to capital risk. In addition,
borrowed funds are subject to interest
costs which may offset or exceed the
return earned on investment of such
funds, and which, if the borrowed funds
are used to pay dividends or finance
share repurchases or tender offers, will
reduce the Fund's net income. Although
the Fund is permitted to borrow, as

16
<PAGE> 17

indicated above, the Fund has no present
intention of engaging in leveraging by
borrowing.

Withholding and Other Taxes. Income and
capital gains on securities held by the
Fund may be subject to withholding or
other taxes imposed by Korean or other
foreign governments, which would reduce
the return to the Fund on those
securities. The Fund does not intend to
engage in activities that will create a
permanent establishment in Korea within
the meaning of the Korea-U.S. Tax Treaty.
Therefore, the Fund generally will not be
subject to any Korean income taxes other
than Korean withholding taxes. These
taxes may be exempt or reduced if the
Korea-U.S. Tax Treaty applies to the
Fund. If the treaty provisions are not,
or cease to be, applicable to the Fund,
significant additional withholding taxes
would apply. Korean counsel to the Fund,
Shin & Kim, have given their opinion that
the treaty presently does apply to the
Fund if and so long as the Fund operates
as described herein. In addition, the
Fund has received written confirmation
from the Ministry of Finance of Korea
that, so long as all of the issued shares
of the Fund are listed on one or more
stock exchanges in the United States only
and they are traded on such exchanges by
the general public, the Fund will be
entitled to the benefits of the
Korea-U.S. Tax Treaty. See "Taxation --
Korean Taxes." The imposition of such
taxes and the rates imposed are subject
to change. The Fund may elect, when
eligible, to "pass-through" to the Fund's
shareholders, as a deduction or credit,
the amount of foreign taxes paid by the
Fund. The taxes passed through to
shareholders will be included in each
shareholder's income. Certain
shareholders, including some non-U.S.
shareholders, will not be entitled to the
benefit of a deduction or credit with
respect to foreign taxes paid by the
Fund. If a shareholder is eligible and
elects to credit foreign taxes, such
credit is subject to limitations. Other
foreign taxes, such as transfer taxes,
may be imposed on the Fund, but would not
give rise to a credit, or be eligible to
be passed through to shareholders. See
"Taxation."

Certain Provisions of the Articles of
Incorporation. The Fund's Articles of
Incorporation contain certain anti-
takeover provisions that may have the
effect of: (i) inhibiting the Fund's
possible conversion to open-end status by
requiring a 75% shareholder vote to make
such a conversion or to enter into a
business combination that would result in
such a conversion and (ii) limiting the
ability of other entities or persons to
acquire control of the Fund or to change
the composition of its Board of
Directors. Such provisions could have the
effect of depriving shareholders of an
opportunity to sell their shares of
Common Stock at a premium over prevailing
market prices by discouraging a third
party from seeking to obtain control of
the Fund. The

17
<PAGE> 18

Fund's Board of Directors has determined
that these provisions are in the best
interests of shareholders generally. See
"Risk Factors and Special Considerations"
and "Description of Capital Stock --
Special Voting Provisions."

Secondary Market and Net Asset Value
Discount. Prior to the Offering, there
has been no public market for the Fund's
Common Stock. There can be no assurance
that an active trading market will
develop or be sustained. The Fund cannot
predict what effect, if any, the relative
sizes of the U.S. Offering and the
International Offering will have on the
secondary market for the Shares of Common
Stock in the United States or on the
market price of the Shares. In addition,
shares of closed-end investment companies
frequently trade at a discount from net
asset value. This characteristic is a
risk separate and distinct from the risk
that the Fund's net asset value will
decrease as a result of its investment
activities and may be greater for
investors expecting to sell their shares
in a relatively short period following
completion of the Offering. It should be
noted that shares of some closed-end
funds have sold at a premium to net asset
value. The Fund cannot predict whether
its Shares will trade at, above or below
net asset value. The Fund is intended
primarily for long-term investors and
should not be considered as a vehicle for
short-term trading purposes. See "Risk
Factors and Special Considerations."

Transfer Restrictions. Investors who
purchase Shares at a reduced price will
be restricted from transferring such
Shares for a period of 90 days after the
closing of the Offering. There is no
restriction on the number of Shares that
may be purchased subject to the transfer
restriction described above, except that
the Underwriters have undertaken to
comply, with respect to non-restricted
Shares, with the distribution
requirements of the NYSE. See
"Underwriting." To the extent these
investors sell their Shares once the
transfer restriction is no longer
applicable, the market price of the
Fund's Common Stock could be adversely
affected. In addition, the transfer
restriction will reduce the number of
Shares of Common Stock available for sale
in the secondary market during the 90-day
restriction period.

Investors should carefully consider their
ability to assume the foregoing risks
before making an investment in the Fund.
An investment in shares of Common Stock
of the Fund may not be appropriate for
all investors and should not be
considered as a complete investment
program. See "Risk Factors and Special
Considerations."

18
<PAGE> 19
<TABLE>

SUMMARY OF EXPENSES

<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of offering price)........................... 6.00% 1
ANNUAL EXPENSES (as a percentage of net assets attributable to common shares)
Management Fees.......................................................... 1.00%
Other Expenses (estimated)............................................... .95%
Administration Fees................................................. .20%
Other Operating Expenses (estimated)................................ .75%
Total Annual Expenses (estimated)........................................ 1.95%
<FN>
- ---------------
(1) The sales load is reduced for certain transactions. See "Underwriting."
</TABLE>

THE PURPOSE OF THIS TABLE IS TO ASSIST THE INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT AN INVESTOR IN THE FUND WILL BEAR DIRECTLY OR
INDIRECTLY.

As of the date hereof, the Fund had not commenced investment operations.
The amount set forth in "Other Expenses" is, therefore, based on estimated
amounts for its first fiscal year, assuming no exercise of the over-allotment
options granted to the U.S. Underwriters. "Other Operating Expenses" will
include custodial and transfer agency fees, legal and accounting fees, printing
costs and listing fees. A portion of the Fund's expenses may be reduced as a
result of certain brokerage arrangements. For additional information with
respect to the expenses identified in the table above, see "Management of the
Fund."

<TABLE>
EXAMPLE

The following example demonstrates the projected U.S. dollar amount of
total cumulative expenses that would be incurred over various periods with
respect to a hypothetical investment in the Fund. These amounts are based upon
payment by an investor of a 6% sales load and payment by the Fund of operating
expenses at the levels set forth in the table above.

An investor would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) reinvestment of all dividends and
distributions at net asset value:

<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$ 79 $ 118 $ 159 $274
</TABLE>

THIS EXAMPLE AS WELL AS THE INFORMATION SET FORTH IN THE TABLE ABOVE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF THE FUTURE EXPENSES OF THE FUND, AND
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Moreover, while the
example assumes a 5% annual return, the Fund's performance will vary and may
result in a return greater or less than 5%. In addition, while the example
assumes reinvestment of all dividends and distributions at net asset value, this
may not be the case for participants in the Plan. See "Dividends and
Distributions; Dividend Reinvestment and Cash Purchase Plan."

19
<PAGE> 20

THE FUND

The Fund, incorporated in Maryland on May 25, 1994, is a non-diversified,
closed-end management investment company registered under the 1940 Act. The
Fund's investment objective is long-term capital appreciation. The Fund seeks to
achieve its objective by investing primarily in equity and debt securities of
Korean Issuers.

The address of the Fund is 82 Devonshire Street, Boston, Massachusetts
02109. The Fund's telephone number is (800) 426-5523.

INVESTMENT STRATEGY

Fidelity believes that the investment environment in Korea offers growth
potential for investors who can identify undervalued companies with strong
growth fundamentals. In order to identify the most attractive investment
opportunities, Fidelity undertakes extensive research through a "bottom-up"
method. The bottom-up method focuses on individual companies rather than sector
or general market trends. As part of its research, Fidelity visited over 170
Korean companies during 1993 to assess their growth potential. Fidelity believes
that the use of the bottom-up method will enable it to find fundamentally sound,
undervalued investments in Korea that offer long-term growth potential for
investors.

Fidelity will look for growth opportunities in blue chip stocks, either due
to increases in permitted foreign stock ownership or attractive valuations.
Fidelity will also look for undervalued companies with strong fundamentals
within the large number of medium-and smaller-sized companies, including
companies traded on the second trading section of the KSE. The weighting of the
Fund's portfolio of investments among blue chip, medium-and smaller-sized
companies will therefore depend on Fidelity's judgment of each company's
long-term growth potential.

Korean law generally restricts foreign ownership of any issuer to 10%. This
has given rise to an over-the-counter market in KSE-listed securities, in which
foreign investors trade 10% foreign-owned stocks, often at a premium to the KSE
price. The Fund may purchase securities at premium prices when, in Fidelity's
view, the issuer's growth potential justifies the premium.

INVESTMENT IN KOREA

Fidelity believes that attractive investment opportunities may be found in
Korea due to its highly diversified industrial base, large consumer population
and large and well educated labor force, together with the evolving process of
the liberalization and reform of the securities markets in Korea. Korea's
significant commitment to research and development generally, coupled with its
position as a leading exporter in the Asia Pacific region should contribute
significantly to the potential for growth in the Korean economy. Continued
liberalization of the securities markets along with an increase in the number of
shares of Korean companies that are available for investment by foreign
investors would enable the Fund to participate in Korea's economic growth
potential. There can be no assurance, however, that such liberalization or
economic growth will continue to occur or that the Fund will be able to
participate in and benefit from any future liberalization or economic growth.

It should be noted that there are significant risks accompanying the
potential for economic growth in Korea and the securities markets in Korea
present the possibility of substantial losses as well as the potential for
gains. The Korean market is especially susceptible to sudden price volatility in
addition to other risks generally associated with investing in foreign
countries. Korea's economy tends to be dominated by conglomerates, disclosure by
companies tends to be limited and wage rates are becoming relatively expensive.
The Korean government has, from time to time, undertaken various measures
alternatively to cool or support the market. Cooling measures include
restrictions on foreign stock ownership, requirements that investors make
entrustment deposits before investing, as well as other forms of intervention.
Fidelity believes that although interventions will continue they will not
preclude long-term growth. Moreover, Fidelity believes that if restrictions on
foreign ownership are liberalized, the Fund may be presented with favorable
investment opportunities. In addition, there have been reports of increased
militarization in North Korea, accompanied by

20
<PAGE> 21

a general economic decline in that country. Military action or the risk of
military action or the economic collapse of North Korea could have a material
adverse effect on Korea, and consequently, on the ability of the Fund to achieve
its investment objective. See "Risk Factors and Special Considerations."

USE OF PROCEEDS

The net proceeds of the Offering will be approximately $61,185,000 (or
approximately $70,491,000 if the U.S. Underwriters (as defined below) exercise
the over-allotment options in full) after payment of the sales load and
organizational and offering expenses.

The net proceeds of the Offering will be invested in accordance with the
Fund's investment objective and policies. The Fund anticipates that, under
current market conditions, the net proceeds of this Offering will be fully
invested in accordance with the Fund's investment objective and policies within
three months from the date hereof, and in any event, no later than six months
from the date hereof. However, depending on market conditions, it may not be in
the best interests of the shareholders of the Fund for such investments to be
made within the six-month time period because of the limitations on investment
imposed on the Fund as a foreign investor by Korean laws and the relatively
small market capitalization (approximately $159.4 billion as of June 30, 1994)
and low trading volume (approximately 34.7 million shares traded per day on
average during the first six months of 1994) of the Korean equity securities
markets. See "The Securities Markets of Korea." It may be necessary to make such
investments over a longer period of time in order to avoid disruption of Korean
securities markets and to minimize the Fund's impact on the prices and trading
of securities of Korean Issuers. Under such circumstances, the Fund will attempt
to invest at least 65% of its total assets in securities of Korean Issuers
within a one-year time period. Pending such investment, it is anticipated that
the proceeds will be invested in Temporary Investments (as defined below). See
"Investment Objective and Policies -- Temporary Investments." Offering expenses
estimated at $700,000 will be paid from the proceeds of the Offering and will be
charged to capital. Organizational costs of the Fund estimated at $155,000 will
be amortized on a straight-line basis for a five-year period beginning at the
commencement of operations of the Fund.

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is long-term capital appreciation. The Fund
will seek to achieve its objective through investment primarily in equity and
debt securities of Korean Issuers. As a matter of fundamental policy and under
normal market conditions, the Fund will invest at least 65% of its total assets
in equity and debt securities of Korean Issuers. Fidelity currently anticipates
that, once the Fund is fully invested, at least 80% of its net assets will be
invested in equity securities of Korean Issuers. As used herein, Korean Issuers
are entities that, as determined by Fidelity, (i) are organized under the laws
of Korea, (ii) regardless of where organized derive at least 50% of their
revenues or profits from goods produced or sold, investments made or services
performed or have at least 50% of their assets located in Korea, (iii) have the
primary trading market for their securities in Korea or (iv) are the government,
or its agencies or instrumentalities or other political subdivisions, of Korea.
The Fund will invest in companies that, in the opinion of Fidelity possess the
potential for growth. The Fund will not consider dividend income as a primary
factor in choosing securities, unless the Investment Adviser or the Sub-Adviser
believes the income will contribute to or is an indicator of the securities'
growth potential. Currently, foreign investors, including the Fund, are
permitted to invest in the following equity securities: (i) common and preferred
stock listed on the KSE; (ii) non-guaranteed convertible bonds listed on the KSE
of small and medium-sized companies, shares of which are listed on the KSE, with
foreign investors in the aggregate and a single foreign investor being allowed
to invest in up to 30% and 5%, respectively, of the listed value of each class
of such bonds; (iii) global or other types of depositary receipts representing
rights in shares of a Korean Issuer which are issued outside Korea; (iv)
convertible bonds denominated in non-Won currency and issued outside Korea; and
(v) equity warrants issued together with bonds denominated in non-Won currency
outside Korea. Although the Fund is authorized to engage in various strategies
to hedge its portfolio against adverse changes in the relationship between the
U.S. dollar and the Won, it is not currently permitted to do so in Korea under
Korean laws or

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<PAGE> 22

regulations, except as described below, and there can be no assurance that such
strategies will become permissible and available in Korea in the future.
Currently, under Korean law, the Fund may enter into forward transactions
between the Won and foreign currency with a foreign exchange bank in Korea up to
the amount of Won which the Fund holds in connection with its investment in
Korean shares plus the value of Korean shares which it has purchased and holds
in its portfolio. The Fund does not presently intend to engage in these
strategies outside of Korea but reserves the right to do so in the future.

The Fund's investment objective and policy of investing at least 65% of its
total assets in equity and debt securities of Korean Issuers is fundamental and
cannot be changed without the approval of a majority of the Fund's outstanding
voting securities, which, as used herein, means the lesser of (i) 67% of the
shares represented at a meeting at which more than 50% of the outstanding shares
are present in person or represented by proxy or (ii) more than 50% of the
outstanding shares. The Fund's investment policies that are not designated
fundamental policies may be changed by the Fund without shareholder approval.
The Fund is designed primarily for long-term investment, and investors should
not consider it a short-term trading vehicle. As with all investment companies,
there can be no assurance that the Fund's investment objective will be achieved.

Equity securities include common stocks, preferred stocks, American, global
or other types of depositary receipts, rights or warrants to purchase common or
preferred stock, equity interests in trusts, partnerships, joint ventures or
similar enterprises and debt securities convertible into common or preferred
stock.

Korean law currently permits foreign investors such as the Fund to acquire
debt securities denominated in Won to a very limited extent. As of July 1, 1994
foreign investors are allowed to participate in new issues of certain low
interest rate government or public bonds to be designated from time to time and
up to the limit determined from time to time by the KSEC, each denominated in
Won and in each case subject to certain procedural requirements. At the present
time, however, foreign investors are permitted to invest in debt securities
issued by Korean companies outside of Korea and denominated in currencies other
than the Won (including, for example, bonds (which may have attached warrants),
convertible bonds, floating rate notes and commercial paper). If, in the future,
additional Won-denominated debt securities become permissible investments for
foreign investors, the Fund may invest in such securities.

Debt securities may be unrated or be rated below instrument grade. The
Investment Adviser or the Sub-Adviser will make independent evaluations as to
the creditworthiness of issuers of debt securities that may differ from those of
internationally recognized credit rating agency organizations, such as Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P").
The Fund's success in attaining its investment objective with respect to
investments in debt securities will depend largely on the Investment Adviser's
and the Sub-Adviser's evaluation of the current and future creditworthiness of
issuers, and of interest rate trends. Sustained periods of deteriorating
economic conditions or rising interest rates are more likely to lead to a
weakening in the issuer's capacity to pay interest and repay principal than in
the case of higher-rated securities.

Most of the securities purchased by the Fund are expected to be traded on a
stock exchange or in an over-the-counter market. Subject to applicable laws and
regulations, the Fund, however, may invest up to 35% of its total assets in
illiquid securities, that is, equity or debt securities for which there is no
readily available market or no market at all. The Fund may therefore not be able
to readily sell such securities. Such securities are unlike securities that are
traded in the open market and which can be expected to be sold immediately.

The sale price of securities that are not readily marketable may be lower
or higher than the Fund's most recent estimate of their fair value. Generally,
less public information is available with respect to the issuers of these
securities than with respect to companies whose securities are traded on an
exchange. Securities not readily marketable are more likely to be issued by
start-up, small or family businesses and therefore subject to greater economic,
business and market risks than the listed securities of more well-established
companies. Adverse conditions in the public securities markets may at certain
times preclude a public offering of an issuer's securities. While Korean law
requires registration with a government agency of public offerings of
securities, that law does not contain restrictions like those contained in the
U.S. Securities Act of 1933, as amended (the "Securities Act") regarding the
length of time the securities must be held or manner of resale. There may also
be contractual restrictions on the resale of securities.

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<PAGE> 23

Up to 35% of the Fund's total assets may be invested in equity or debt
securities of Asian Issuers, if warranted, in Fidelity's judgment, by economic
or political conditions in Korea or by regulatory restrictions or overvaluation
in the Korean securities markets. Asian Issuers are issuers (other than issuers
meeting the definition of Korean Issuers as defined above), that, as determined
by Fidelity, (i) are organized under the laws of Hong Kong, Japan or Taiwan,
(ii) regardless of where organized derive at least 50% of their revenues or
profits from goods produced or sold, investments made, or services performed in
Hong Kong, Japan or Taiwan, (iii) have the primary trading market for their
securities in Hong Kong, Japan or Taiwan or (iv) are governments, or their
agencies, instrumentalities or other political sub-divisions, of Hong Kong,
Japan or Taiwan. The Fund may also hold other instruments described below and in
"Appendix A -- General Characteristics and Risks of Derivatives."

The Fund may invest its assets in a broad spectrum of industries. In
selecting industries and companies for investment, Fidelity may consider overall
growth prospects, financial condition, earnings, valuations, competitive
position, technology, research and development, productivity, labor costs, raw
material costs and sources, profit margins, return on investment, structural
changes in local economies, capital resources, the degree of government
regulation or deregulation, management and other factors.

Fidelity normally will invest the Fund's assets according to its investment
strategy. For temporary defensive purposes, the Fund may invest without
limitation in Temporary Investments and investment grade debt instruments,
including unrated securities of equivalent credit quality as determined by the
Investment Adviser or the Sub-Adviser, short-term indebtedness or cash
equivalents denominated in U.S. dollars or, if it becomes permissible for the
Fund to so invest, denominated in Won. The Fund may also at any time, with
respect to up to 35% of its total assets, invest funds in U.S.
dollar-denominated money market instruments as reserves for dividends and other
distributions to shareholders.

TEMPORARY INVESTMENTS

The Fund may hold and/or invest its assets without limitation in cash
and/or Temporary Investments (as defined below) pending initial investment in
accordance with the Fund's investment objective and policies and for temporary
defensive purposes. To the extent that the Fund invests in Temporary
Investments, it may not achieve its investment objective. In addition, for cash
management purposes, the Fund may invest its assets in cash and/or rated or
unrated short-term debt securities of any quality.

Temporary Investments include high grade debt securities (rated A or above
by S&P or A or above by Moody's or with an equivalent rating by other nationally
recognized securities rating organizations) or unrated securities judged by the
Investment Adviser or Sub-Adviser to be of equivalent quality, denominated in
U.S. dollars or in another freely convertible currency including: (1) short-term
(less than 12 months to maturity) and medium-term (not more than five years to
maturity) obligations issued or guaranteed by (a) the U.S. government, its
agencies or instrumentalities or (b) international organizations designated or
supported by multiple foreign governmental entities to promote economic
reconstruction or development ("supranational entities"); (2) U.S. finance
company obligations, corporate commercial paper and other short-term commercial
obligations; (3) obligations (including certificates of deposit, time deposits,
demand deposits and bankers' acceptances) of banks; and (4) repurchase
agreements with respect to securities in which the Fund may invest.

Repurchase agreements are contracts pursuant to which the seller of a
security agrees at the time of sale to repurchase the security at an agreed upon
price and date. When the Fund enters into a repurchase agreement, the seller
will be required to maintain the value of the securities subject to the
repurchase agreement, at not less than their repurchase price. Repurchase
agreements may involve risks in the event of insolvency or other default by the
seller, including possible delays or restrictions upon the Fund's ability to
dispose of the underlying securities. While it does not appear possible to
eliminate all risks from these transactions, it will be the Fund's policy to
limit repurchase agreement transactions to those parties whose creditworthiness
has been reviewed and found satisfactory by the Investment Manager.

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<PAGE> 24

OTHER INVESTMENTS

Illiquid Securities. The Fund may invest up to 35% of its total assets,
valued at the time of purchase, in illiquid securities, that is, securities for
which there is no readily available market, or no market at all. The Fund may be
unable to dispose of its holdings in illiquid securities at market prices and
may have to dispose of such securities over extended periods of time. See "Risk
Factors and Special Considerations -- Market Characteristics and -- Thinly
Traded Markets and Illiquid Investments." In many cases, illiquid securities
will be subject to contractual or legal restrictions on transfer. In addition,
issuers whose securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements that may be applicable if
their securities were publicly traded.

Although not all the securities held by the Fund will be illiquid, the Fund
anticipates that all or most of its portfolio securities generally will be less
liquid than those traded in U.S. securities markets.

Depositary Receipts. The Fund may invest in securities of Korean Issuers
through sponsored or unsponsored American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), and other types of Depositary Receipts (which,
together with ADRs and GDRs, are hereinafter referred to as "Depositary
Receipts"). Depositary Receipts may not necessarily be denominated in the same
currency as the underlying securities into which they may be converted. In
addition, the issuers of the stock of unsponsored Depositary Receipts are not
obligated to disclose material information in the United States and, therefore,
there may not be a correlation between such information and the market value of
the Depositary Receipts. ADRs are Depositary Receipts typically issued by a U.S.
bank or trust company which evidence ownership of underlying securities issued
by a foreign corporation. GDRs and other types of Depositary Receipts are
typically issued by foreign banks or trust companies, although they also may be
issued by U.S. banks or trust companies, and evidence ownership of underlying
securities issued by either a foreign or a U.S. corporation. Generally,
Depositary Receipts in registered form are designed for use in the U.S.
securities markets and Depositary Receipts in bearer form are designed for use
in securities markets outside the United States. For purposes of the Fund's
investment policies, the Fund's investments in ADRs, GDRs and other types of
Depositary Receipts will be deemed to be investments in the underlying
securities.

Shares of Other Investment Funds. The Fund may invest in investment funds
which invest principally in securities in which the Fund is authorized to
invest. The Fund does not intend to invest in such investment funds unless, in
the judgment of the Investment Adviser or the Sub-Adviser, the potential
benefits of such investment justify the payment of any applicable premium, sales
load and expenses. From time to time, such investment funds may be the sole
means by which the Fund may invest in securities of certain Korean Issuers. See
"Risk Factors and Special Considerations -- Investment Restrictions and Foreign
Exchange Controls." Under the 1940 Act, the Fund may invest a maximum of 10% of
its total assets in the securities of other investment companies. In addition,
under the 1940 Act, not more than 5% of the Fund's total assets may be invested
in the securities of any one investment company provided that the investment
does not represent more than 3% of the voting stock of the related acquired
investment company. To the extent the Fund invests in other investment funds,
the Fund's shareholders will indirectly incur certain duplicative fees and
expenses, including investment advisory fees and sales loads paid for
transactions in shares of such funds. For a discussion of possible consequences
under U.S. federal income tax laws of the Fund's investment in foreign
investment funds, see "Taxation -- U.S. Federal Income Taxes."

Rule 144A Securities. The Fund may purchase certain restricted securities
("Rule 144A securities") for which there is a secondary market of qualified
institutional buyers, as contemplated by Rule 144A under the Securities Act.
Rule 144A provides an exemption from the registration requirements of the
Securities Act for the resale of certain restricted securities to qualified
institutional buyers. One effect of Rule 144A is that certain Rule 144A
securities may be liquid, though there is no assurance that a liquid market for
any particular Rule 144A security will develop or be maintained. In promulgating
Rule 144A, the Commission stated that the ultimate responsibility for liquidity
determinations is that of an investment company's board of directors. However,
the Commission stated that the board may delegate the day-to-day function for
determining liquidity to a fund's investment adviser, provided that the board
retains sufficient oversight. The Board of Directors has adopted policies and
procedures for the purpose of determining whether securities that are

24
<PAGE> 25

eligible for resale under Rule 144A are liquid or illiquid securities. Pursuant
to those policies and procedures, the Board of Directors delegated to the
Investment Manager, the Investment Adviser or the Sub-Adviser the determination
as to whether a particular security is liquid or illiquid. For the purpose of
determining whether the Fund can invest in additional illiquid securities, if
any Rule 144A security previously determined to be liquid is later determined to
be illiquid, such security will be considered illiquid.

Convertible Securities. The Fund may invest in convertible securities
including securities that are unrated or rated below investment grade. See "Risk
Factors and Special Considerations -- Debt Securities -- High Yield, High Risk
Securities."

A convertible security might be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Fund is called for redemption,
the Fund may be required to permit the issuer to redeem the security, convert it
into the underlying common or preferred stock or sell it to a third party.

Warrants. The Fund may invest in warrants, which are securities
permitting, but not obligating, their holder to subscribe for other securities.
Warrants do not carry the right to dividends or voting rights with respect to
their underlying securities, and they do not represent any rights in the assets
of the issuer. An investment in warrants may be considered speculative. In
addition, the value of a warrant does not necessarily change with the value of
the underlying securities and a warrant ceases to have value if it is not
exercised prior to its expiration date. Currently, foreign investors, including
the Fund, are not permitted to invest in rights or warrants to purchase equity
securities issued in Korea.

Equity-Linked Debt Securities. The Fund may invest in equity-linked debt
securities. The amount of interest and/or principal payments which the issuer of
equity-linked debt securities is obligated to make is linked to the performance
of a specified index of equity securities and may be significantly greater or
less than payment obligations in respect of other types of debt securities. As a
result, equity-linked debt securities are more volatile than other types of debt
securities and an investment in equity-linked debt securities may be considered
speculative.

Loans and Other Direct Debt Instruments. The Fund may invest in loans and
other direct debt instruments. Loans and other direct debt instruments are
interests in amounts owed by a corporate, governmental or other borrower to
another party. They may represent amounts owed to lenders or lending syndicates
(loans and loan participations), to suppliers of goods or services (trade claims
or other receivables), or to other parties. Direct debt instruments involve the
risk of loss in case of default or insolvency of the borrower and may offer less
legal protection to the Fund in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lending bank
or other financial intermediary. Direct debt instruments may also include
standby financing commitments that obligate the Fund to supply additional cash
to the borrower on demand. Loans and other direct debt instruments are generally
illiquid and transfers are normally possible only through individually
negotiated private transactions. See "Risk Factors and Special Considerations --
Loans and Other Direct Debt Instruments."

Borrowings. The Fund may borrow for temporary or emergency purposes and to
finance tender offers and share repurchases. Borrowings by the Fund create an
opportunity for greater total return but, at the same time increase exposure to
capital risk. In addition, borrowed funds are subject to interest costs which
may offset or exceed the return earned on investment of such funds, and which,
if the borrowed funds are used to pay dividends or finance share repurchases or
tender offers, will reduce the Fund's net income. Although the Fund is permitted
to borrow, as indicated above, the Fund has no present intention of engaging in
leveraging by borrowing.

Reverse Repurchase Agreements. In a reverse repurchase agreement, the Fund
sells a portfolio instrument to another party, such as a bank or broker-dealer,
in return for cash and agrees to repurchase the instrument at a particular price
and time. While a reverse repurchase agreement is outstanding, the Fund will
maintain appropriate assets in a segregated custodial account to cover its
obligation under the agreement, which will consist only of liquid assets, such
as cash, U.S. government securities or other liquid high grade debt securities
("liquid assets"). The Fund will enter into reverse repurchase agreements only
with parties

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<PAGE> 26

whose creditworthiness has been found satisfactory by the Investment Manager,
the Investment Adviser or the Sub-Adviser. Such transactions may increase
fluctuations in the market value of the Fund's assets and may be viewed as a
form of leverage.

Real Estate-Related Instruments. The Fund may invest in real
estate-related instruments, including real estate investment trusts, commercial
and residential mortgage-backed securities, and real estate financings. Real
estate-related instruments are sensitive to factors such as changes in real
estate values and property taxes, interest rates, cash flow of underlying real
estate assets, overbuilding, and the management skill and creditworthiness of
the issuer. Real estate-related instruments may also be affected by tax and
regulatory requirements, such as those relating to the environment.

ADDITIONAL INVESTMENT ACTIVITIES

HEDGING AND DERIVATIVES

Certain investment practices in which the Fund is authorized to engage to
hedge market risk, such as certain currency hedging techniques, including
currency options and futures, options on such futures and forward foreign
currency transactions, and certain investment techniques, such as the lending of
portfolio securities, forward commitments, standby commitment agreements and the
purchase or sale of put and call options, are not currently permitted under
Korean laws or regulations. The Fund may engage in these hedging or investment
practices to the extent the practices become available in the future or with
respect to instruments outside Korea. See "Appendix A -- General Characteristics
and Risks of Derivatives" for a further discussion of currency hedging
techniques. The Fund is also authorized to manage the effective maturity or
duration of debt instruments held by the Fund, or to seek to increase the Fund's
income or gain. Although these strategies are regularly used by some investment
companies and other institutional investors, few of these strategies can
practicably be used to a significant extent by the Fund at the present time and
may not become available for extensive use in the future. Over time, techniques
and instruments may change as new instruments and strategies are developed or
regulatory changes occur.

Subject to the constraints described above, the Fund may purchase and sell
interest rate, currency or stock index futures contracts and enter into currency
forward contracts and currency swaps; it may purchase and sell (or write)
exchange listed and over-the-counter put and call options on debt and equity
securities, currencies, futures contracts, fixed income and stock indices and
other financial instruments and it may enter into interest rate transactions,
equity swaps and related transactions and other similar transactions which may
be developed to the extent the Investment Manager, the Investment Adviser or the
Sub-Adviser determines that they are consistent with the Fund's investment
objective and policies and applicable regulatory requirements (collectively,
these transactions are referred to herein as "Derivatives." See "Appendix A --
General Characteristics and Risks of Derivatives"). The Fund may enter into
futures contracts or options thereon for purposes other than bona fide hedging
if, immediately thereafter, the sum of the amount of its initial margin and
premiums on open contracts and options would not exceed 5% of the liquidation
value of the Fund's portfolio; provided, that in the case of an option that is
in-the-money at the time of the purchase, the in-the-money amount may be
excluded in calculating the 5% limitation. The Fund's interest rate transactions
may take the form of swaps, caps, floors and collars, currency forward
contracts, currency futures contracts, currency swaps and options on currency or
currency futures contracts.

Derivatives may be used to attempt to protect against possible changes in
the market value of securities held in or to be purchased for the Fund's
portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of those securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a substitute for
purchasing or selling particular debt or equity securities. The ability of the
Fund to utilize Derivatives successfully will depend on the Investment Adviser's
and the Sub-Adviser's ability to predict pertinent market movements, which
cannot be assured. These skills are different from those needed to select
portfolio securities. The use of Derivatives in certain circumstances will
require that the Fund segregate cash, liquid high grade debt obligations or
other

26
<PAGE> 27

assets to the extent the Fund's obligations are not otherwise "covered" through
ownership of the underlying security, financial instrument or currency.

A detailed discussion of Derivatives, including applicable requirements of
the Commodity Futures Trading Commission, the requirement to segregate assets
with respect to these transactions and special risks associated with such
strategies, appears in Appendix A. See also "Risk Factors and Special
Considerations -- Investment Practices."

The degree of the Fund's use of Derivatives may be limited by certain
provisions of the Code. See "Taxation."

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

The Fund may purchase securities on a when-issued or delayed delivery
basis. Securities purchased on a when-issued or delayed delivery basis are
purchased for delivery beyond the normal settlement date at a stated price. No
income accrues to the purchaser of a security on a when-issued or delayed
delivery basis prior to delivery. Such securities are recorded as an asset and
are subject to changes in value based upon changes in market prices. Purchasing
a security on a when-issued or delayed delivery basis can involve a risk that
the market price at the time of delivery may be lower than the agreed-upon
purchase price, in which case there could be an unrealized loss at the time of
delivery. The Fund generally will establish a segregated account in which it
will maintain liquid assets in an amount at least equal in value to the Fund's
commitments to purchase securities on a when-issued or delayed delivery basis.
If the value of these assets declines, the Fund will place additional liquid
assets in the account on a daily basis so that the value of the assets in the
account is equal to the amount of such commitments. As an alternative, the Fund
may elect to treat when-issued or delayed delivery securities as senior
securities representing indebtedness, which are subject to asset coverage
requirements under the 1940 Act.

PURCHASE OF SECURITIES ON MARGIN

The Fund does not currently intend to purchase securities on margin, except
that the Fund may obtain such short-term credits as are necessary for the
clearance of transactions, and provided that margin payments in connection with
futures contracts and options on futures contracts will not constitute
purchasing securities on margin. Current Korean laws and regulations do not
allow foreign investors such as the Fund to purchase Korean securities on
margin.

SHORT SALES "AGAINST THE BOX"

The Fund may from time to time sell securities short "against the box." If
the Fund enters into a short sale against the box, it will be required to set
aside securities equivalent in kind and amount to the securities sold short (or
securities convertible or exchangeable into such securities at no added cost)
and will be required to hold such securities while the short sale is
outstanding. The Fund will incur transaction costs, including interest expense,
in connection with opening, maintaining, and closing short sales against the
box. If the Fund engages in any short sales against the box it will incur the
risk that the security sold short will appreciate in value after the sale, with
the result that the Fund will lose the benefit of any such appreciation.

The Fund may enter into short sales with respect to stocks underlying its
convertible security holdings. For example, if the Investment Adviser or the
Sub-Adviser anticipates a decline in the price of the stock underlying a
convertible security the Fund holds, it may sell the stock short. If the stock
price subsequently declines, the proceeds of the short sale could be expected to
offset all or a portion of the effect of the stock's decline on the value of the
convertible security.

The Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by collateral deposited with the broker that
consists of cash, U.S. government securities or other liquid high grade debt
obligations. In addition, the Fund will place in a segregated account with its
custodian, or designated sub-custodian, an amount of cash, U.S. government
securities or other liquid high grade debt obligations equal to the difference,
if any, between (1) the market value of the securities sold at the time they
were sold short and (2) any cash, U.S. government securities or other liquid
high grade debt obligations deposited as collateral

27
<PAGE> 28

with the broker in connection with the short sale (not including the proceeds of
the short sale). Until it replaces the borrowed securities, the Fund will
maintain the segregated account daily at a level so that (1) the amount
deposited in the account plus the amount deposited with the broker (not
including the proceeds from the short sale) will equal the current market value
of the securities sold short and (2) the amount deposited in the account plus
the amount deposited with the broker (not including the proceeds from the short
sale) will not be less than the market value of the securities at the time they
were sold short. A lesser amount of assets may be set aside by the Fund if it
owns certain types of instruments, such as a call option on the security sold
short, that effectively "cover" the short sale.

Short sales by the Fund involve certain risks and special considerations.
Possible losses from short sales differ from losses that could be incurred from
a purchase of a security, because losses from short sales may be unlimited,
whereas losses from purchases can equal only the total amount invested. The Fund
is not currently permitted under Korean laws and regulations to engage in short
sales of Korean securities.

INVESTMENT RESTRICTIONS

The Fund's only fundamental policies, that is, policies that cannot be
changed without the approval of the holders of a majority of the Fund's
outstanding voting securities, are (i) its investment objective, (ii) its policy
that under normal market conditions, at least 65% of the Fund's total assets
will be invested in equity and debt securities of Korean Issuers, and (iii) the
following seven restrictions. As used herein, a "majority of the Fund's
outstanding voting securities" means the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (ii) more than 50% of the outstanding shares. The other policies
and investment restrictions referred to herein are not fundamental policies of
the Fund and may be changed by the Fund's Board of Directors without shareholder
approval. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of the Fund's assets that may be invested in any
security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Fund's acquisition of such security or other asset.
Accordingly, any subsequent change in values, assets, or other circumstances
will not be considered when determining whether the investment complies with the
Fund's investment policies and limitations. Under its fundamental policies, the
Fund may not:

(1) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities), if, as a result, more than 25% of the Fund's total
assets would be invested in companies whose principal business activities
are in the same industry;

(2) issue senior securities, except as permitted under the 1940 Act;

(3) borrow money, except that the Fund may borrow money for temporary
or emergency purposes or to finance tender offers and/or share repurchases
in an amount not exceeding 33 1/3% of its total assets (including the
amount borrowed) less liabilities (other than borrowings); any borrowings
that come to exceed this amount will be reduced promptly in accordance with
reasonable investment practice to the extent necessary to comply with the
33 1/3% limitation;

(4) underwrite securities issued by others, except to the extent that
the Fund may be considered an underwriter within the meaning of the
Securities Act in the disposition of restricted securities;

(5) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this will not prevent the
Fund from investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate business);

(6) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this will not prevent
the Fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by or indexed to, or
representing interests in, physical commodities or investing or trading in
derivative investments); or

(7) make any loan if, as a result, more than 33 1/3% of its total
assets would be lent to other parties, but this limitation does not apply
to purchases of debt securities or to repurchase agreements.

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<PAGE> 29

As a matter of non-fundamental policy, the Fund will not purchase any
portfolio securities while borrowings representing more than 5% of its total
assets are outstanding. To meet federal tax requirements for qualification as a
"regulated investment company," the Fund intends to limit its investments so
that at the close of each quarter of its taxable year: (a) with regard to at
least 50% of total assets, no more than 5% of total assets are invested in the
securities of a single issuer and the Fund will not hold more than 10% of the
outstanding voting securities of that issuer; and (b) no more than 25% of total
assets are invested in the securities of a single issuer. Limitations (a) and
(b) do not apply to "Government securities" as defined for federal tax purposes.

AFFILIATED FINANCIAL INSTITUTION TRANSACTIONS

The Fund may engage in transactions with financial institutions that are,
or may be considered to be, "affiliated persons" of the Fund under the 1940 Act.
These transactions may include, for example, repurchase agreements with
custodian banks; purchase of short-term obligations of, and repurchase
agreements with, the 50 largest U.S. banks (measured by deposits); municipal
securities; U.S. government securities with affiliated financial institutions
that are primary dealers in these securities; short-term currency transactions;
and short-term borrowings. In accordance with exemptive orders issued by the
SEC, the Board of Directors will establish and periodically review procedures
applicable to transactions involving affiliated financial institutions.

FUND'S RIGHTS AS A SHAREHOLDER

The Fund does not intend to direct or administer the day-to-day operations
of any company. The Fund, however, may exercise its rights as a shareholder and
may communicate its views on important matters of policy to management, the
Board of Directors, and shareholders of a company when the Investment Manager,
the Investment Adviser or the Sub-Adviser determines that such matters could
have a significant effect on the value of the Fund's investment in the company.
The activities that the Fund may engage in, either individually or in
conjunction with others, may include, among others, supporting or opposing
proposed changes in a company's corporate structure or business activities;
seeking changes in a company's directors or management; seeking changes in a
company's direction or policies; seeking the sale or reorganization of the
company or a portion of its assets; or supporting or opposing third party
takeover efforts. This area of corporate activity is increasingly prone to
litigation and it is possible that the Fund could be involved in lawsuits
related to such activities. The Investment Manager, the Investment Adviser or
the Sub-Adviser will monitor such activities with a view to mitigating, to the
extent possible, the risk of litigation against the Fund, and the risk of actual
liability if the Fund is involved in litigation. No guarantee can be made,
however, that litigation against the Fund will not be undertaken or liabilities
incurred.

RISK FACTORS AND SPECIAL CONSIDERATIONS

Investors should recognize that investing in securities of Korean Issuers
and other Asian Issuers involves certain risks and special considerations
including those set forth below, which are not typically associated with
investing in U.S. Securities. These include: (i) certain restrictions on foreign
investment in the Korean securities markets which will preclude investment in
certain securities by the Fund and limit investment opportunities for the Fund;
(ii) currency devaluations and fluctuations in the rate of exchange between the
U.S. dollar and the Won with the resultant fluctuations in the net asset value
of the Fund (which is expressed in U.S. dollars); (iii) substantial government
involvement in, and influence on, the economy and the private sector; (iv)
political, economic and social instability, including the potential for
increased militarization in North Korea; (v) the substantially smaller size and
lower trading volume of the securities markets for Korean equity securities
compared to the U.S. securities markets, resulting in a potential lack of
liquidity and increased price volatility; (vi) the risk that the sale of
portfolio securities by the Korea Securities Stabilization Fund (the
"Stabilization Fund"), a fund established in order to stabilize the Korean
securities markets, or other large Korean institutional investors may adversely
impact the market value of securities in the Fund's portfolio; (vii) the risk
that less information with respect to Korean companies may be available due to
the fact that Korean accounting, auditing and financial reporting standards are
not equivalent to those applicable to U.S. companies; (viii) heavy concentration
of market capitalization and trading volume in a small number

29
<PAGE> 30

of issuers, which result in potentially fewer investment opportunities for the
Fund; (ix) fluctuations in the prices and premium valuations of securities held
by the Fund that are traded over the counter among foreign investors; (x)
controls on foreign investment and limitations on repatriation of invested
capital and on the Fund's ability to exchange Wons for U.S. dollars; (xi) the
risk of nationalization or expropriation of assets or confiscatory taxation;
(xii) higher rates of inflation; (xiii) less government supervision and
regulation of Korean securities markets and participants in those markets; (xiv)
settlement delays; (xv) the risk that dividends will be withheld at the source;
(xvi) unavailability of currency hedging techniques in the Korean markets;
(xvii) the fact that companies in Korea may be smaller, less seasoned and newly
organized; (xviii) the risk that it may be more difficult to obtain and/or
enforce a judgment in a court outside the United States; and (xix) the risk of
taxation of the Fund, its investments and its income by Korea.

INVESTMENT RESTRICTIONS AND FOREIGN EXCHANGE CONTROLS

Investment in securities of Korean companies by foreign investors is
subject to significant restrictions and controls. As a result, the Fund may be
limited in its investments or precluded from investing in certain Korean
companies, which may adversely affect the performance of the Fund. Conversion of
Won into U.S. dollars or other foreign exchange, transfer of funds from Korea to
foreign countries and repatriation of foreign capital invested in Korea are
subject to certain regulatory requirements pursuant to foreign exchange control
laws and regulations. See "The Securities Markets of Korea -- Regulation of
Foreign Investment." Under the Foreign Exchange Management Act, if the Minister
of Finance of Korea deems that an event of emergency is likely to occur, he may
impose any necessary restrictions such as requiring foreign investors, including
the Fund, to obtain approval for the acquisition of Korean equity shares or for
the remittance overseas of the sale proceeds thereof.

On January 3, 1992, the Korean stock markets were opened to general
investment directly by foreign investors following the adoption and
implementation by the KSEC and the Ministry of Finance (the "MOF") of certain
regulations (as amended from time to time, the "New Regulations") that allow
foreign investors to directly purchase and sell equity shares listed on the KSE
subject to certain investment ceilings and procedural requirements. Pursuant to
the New Regulations, the percentage of each class of a company's outstanding
equity shares that may be held by a particular foreign investor and by all
foreign investors as a group is limited generally to 3% and 10%, respectively.
On October 5, 1994, the MOF announced that, effective December 1, 1994, such 10%
limit on aggregate foreign ownership will be increased to 12%. Certain
designated public corporations are subject to an aggregate 8% ceiling on
acquisitions of equity shares by foreigners. Of the Korean companies listed on
the KSE, Pohang Iron & Steel Co., Ltd. ("POSCO") and Korea Electric Power
Corporation ("KEPCO") have been so designated. On October 5, 1994, the MOF
announced that, in 1995, such 8% ceiling on acquisitions of equity shares by
foreigners applicable to POSCO and KEPCO will be increased to 10%. In addition
to the ceiling set by the KSEC, under the authority of the Securities and
Exchange Act (the "SEA"), the Articles of Incorporation of POSCO and KEPCO set a
1% ceiling on acquisition by a single investor of equity shares of their
respective common stock. The KSEC has authority to increase or decrease foreign
investment limits and from time to time has exercised such authority. The Korean
government has announced its intention to gradually raise the aggregate foreign
investment limit. While no specific date has been set for such action, the MOF
has targeted 1994-1995 as its goal. If, and when, the aggregate foreign
investment limit is raised, the Fund may have more flexibility in selecting
investments for its portfolio. There can be no assurance that the aggregate
foreign investment limit will be raised. As of July 1, 1994, foreign investors
are allowed (1) to invest in non-guaranteed convertible bonds listed on the KSE
which are issued by small and medium-sized companies the shares of which are
listed on the KSE, with foreign investors in the aggregate and a single foreign
investor being allowed to invest in up to 30% and 5% of the listed value of each
class of such bonds, respectively; and (2) to participate in new issues of
certain low interest rate government or public bonds to be designated from time
to time and up to the limit determined from time to time by the KSEC, each
denominated in Won and in each case subject to certain procedural requirements.

Securities acquired by foreign investors must be traded on the KSE, with
certain exceptions as described below. For transactions on the KSE, a foreign
investor must open a Won account for securities transactions

30
<PAGE> 31

with a securities company for stock investment and a separate account for bond
investment and at that time must present its investment registration card to the
securities company.

A foreign investor which intends to acquire shares must designate a foreign
exchange bank in Korea at which it must open a foreign currency account and a
Won account ("Foreign Currency Account" and "Won Account", respectively)
exclusively for stock investments and a separate set of such accounts for bond
investments. No approval is required for remittance into Korea and deposit of
foreign currency funds in the Foreign Currency Account. Upon confirmation by the
designated foreign exchange bank, foreign currency funds may be transferred from
the Foreign Currency Account at the time required to place a deposit for, or to
settle the purchase price of, a stock purchase transaction to a Won account
opened at a securities company. Funds in the Foreign Currency Account may be
remitted abroad without any governmental approval.

Dividends on shares, or interest on bonds, of Korean companies are paid in
Won. No governmental approval is required for foreign investors to receive
dividends or interest on, or the Won proceeds of the sale of, any such shares or
bonds to be paid, received and retained in Korea. Dividends paid on, and the Won
proceeds of the sale of, any such shares or bonds held by a non-resident of
Korea must be deposited either in a Won account with the investor's securities
company or its Won Account according to the type of investment (i.e., monies
relating to stock investment must be deposited at the stock account and monies
relating to bond investment must be placed in the bond account). Funds in the
investor's Won Account may be transferred to its Foreign Currency Account or
withdrawn for local living expenses (subject to a certain limitations), in each
case subject to approval by the investor's designated foreign exchange bank. In
addition, funds in the Won Account may be used for future investment in stocks
or bonds or for payment of the subscription price of new shares obtained through
the exercise of pre-emptive rights.

The repatriation of capital invested by foreign investors may be restricted
by the Korean government in its discretion in certain emergency circumstances
including, but not limited to, sudden fluctuations in interest rates or exchange
rates, extreme difficulty in stabilizing the balance of payments or a
substantial disturbance in the Korean financial or capital markets. It is
impossible to predict the extent to which foreign investment will continue to
increase in Korea or the Fund's ability to participate in such increased foreign
investment in light of the foreign holding limitations or governmental
restrictions that may be imposed in the future.

Foreign investors such as the Fund are unable to effect share purchase
transactions on the KSE in a security that has reached or exceeded the maximum
aggregate foreign ownership limit (or the limit less odd-lot shares). As of June
30, 1994, of the 30 largest KSE-listed companies (as measured by total market
capitalization), which accounted for approximately 51.5% of the aggregate market
capitalization of the KSE, nearly all had reached or exceeded the applicable
maximum aggregate foreign ownership limit. As of December 31, 1993, 165
companies of the 693 companies listed on the KSE had reached or exceeded the
applicable maximum aggregate foreign ownership limit (23.8% of all companies
listed on the KSE) and an additional 159 companies were within 0.5% of the
limit. At such date, 84.5% and 77.0% of the permitted foreign holding amount
were invested by foreign investors in terms of KSE market capitalization and the
number of shares, respectively. During 1992 and 1993, U.S.$10.3 billion was
invested in Korea by foreign investors for stock investment, of which U.S.$2.6
billion in stock investments was sold and repatriated outside Korea. During the
first six months in 1994, aggregate inflow of foreign stock investments totaling
U.S.$3.6 billion by foreign investors and aggregate sales and repatriation of
foreign stock investments equaled U.S.$2.5. The Korean government has
implemented a system to monitor foreign investment limits and transactions,
including the issuance of an investment registration card to each foreign
investor for stock investment and a separate card for bond investment. The Fund
has obtained the stock investment registration card and intends to apply to
obtain the bond investment registration card.

As of the end of 1993, foreign investors held 503.3 million shares, which
amounted to 8.74% of the total number of listed shares and 9.81% of total KSE
market capitalization at that time.

31
<PAGE> 32

The following table shows amounts of aggregate foreign inflow and outflow
related to stock investment for the periods indicated since 1992.

<TABLE>
<CAPTION>
INFLOW OUTFLOW
(IN MILLIONS (IN MILLIONS
OF U.S. DOLLARS) OF U.S. DOLLARS)
---------------- ----------------
<S> <C> <C> <C>
1992......................................... 2,735.5 662.5
1993......................................... 7,636.8 1,935.7
1994 Jan................................... 898.4 265.8
Feb................................... 749.3 300.5
Mar................................... 473.1 610.3
Apr................................... 300.1 379.6
May................................... 639.0 433.9
June(1)............................... 582.8 517.5
</TABLE>

- ---------------
(1) Preliminary.
Source: Monthly Review, July 1994, Securities Supervisory Board.

The following table shows the volume and value of transactions in stocks in
Korea by foreigners since 1992.

<TABLE>
<CAPTION>
ON THE KSE
SALES VOLUME SALES VALUE OUTSIDE THE KSE(1)
----------------------- ----------------------- SALES SALES
YEAR PURCHASE SALE PURCHASE SALE VOLUME VALUE
- ----- ---------- ---------- ---------- ---------- ------------ ------------
(IN MILLIONS OF WON) (IN MILLIONS (IN MILLIONS
(IN MILLIONS OF SHARES) OF SHARES) OF WON
<S> <C> <C> <C> <C> <C> <C> <C>
1992........... 123 52 2,385 877 2 113
1993........... 383 126 6,419 2,089 23 571
1994 Jan..... 41 10 639 193 4 160
Feb..... 20 7 448 124 7 195
Mar..... 12 22 199 383 14 409
Apr..... 16 17 331 309 6 125
May..... 24 16 370 255 8 210
June(2).. 21 22 326 375 11 262
</TABLE>

- ---------------
(1) Sales Volume and Sales Value are calculated on either purchase or sale side.
(2) Preliminary.
Source: Monthly Review, July 1994, Securities Supervisory Board.

Foreign investors may trade securities of Korean companies only through the
KSE except in certain limited circumstances, which include odd-lot trading of
securities, acquisition of shares by exercise of warrant, conversion rights
under convertible bonds or withdrawal rights under depositary receipts issued
outside of Korea by a Korean company, acquisition of shares as a result of
inheritance, donation, bequeathal or exercise of shareholders' rights
(preemptive rights or rights to participate in free distributions and receive
dividends), and direct transactions between foreigners involving the transfer of
a class of shares for which the ceiling on acquisition by foreigners in total
(as explained above) has been reached or exceeded ("foreign OTC transactions").
Odd-lot trading of shares outside the KSE must involve a licensed securities
company in Korea as the second party. For direct transfers of shares outside the
KSE between foreigners, a securities company licensed in Korea must act as an
intermediary. However, foreign investors such as the Fund are not permitted to
enter into such foreign OTC transactions with branches and subsidiaries of
foreign banks, securities companies and insurance companies. Foreign OTC
transactions typically occur at a premium over prices on the KSE. The Fund may
invest in shares of KSE-listed companies through such foreign OTC transactions,
and thus pay a premium over the share prices quoted on the KSE. There can be no
assurance that the Fund will be able to realize such premium if it sells the
shares to another foreign investor. Such premium may be affected by changes in
regulation and otherwise, including any change in the percentage of foreign
stock ownership permitted in KSE-listed companies. Foreign investors are
prohibited from engaging in margin transactions.

32
<PAGE> 33

Certificates evidencing securities acquired by the Fund must be kept in
custody with an eligible custodian in Korea. Only foreign exchange banks
(including Korean branches of foreign banks), securities companies (including
Korean branches of foreign securities companies) and the Korea Securities
Depository are eligible to act as a custodian of securities for a foreign
investor. Further, a foreign investor is required to have its custodian deposit
its securities with the Korea Securities Depository on a fungible basis for book
transfer unless otherwise approved by the Governor of the Securities Board
("Governor").

Unless otherwise approved by the Governor, a foreign investor such as the
Fund must appoint one or more standing proxies from among the Korea Securities
Depository, securities companies (including Korean branches of foreign
securities companies) which have obtained a license to act as standing proxy and
foreign exchange banks (including Korean branches of foreign banks) to exercise
shareholders' rights, apply to change a name on the shareholders' registry,
place an order to sell or purchase shares or engage in any matters related to
these activities, if any such activities are not conducted by the foreign
investor itself. The Fund has appointed SsangYong Investment & Securities Co.,
Ltd and also intends to appoint a subsidiary of the Fund's sub-custodian as
standing proxy. Because the Fund will be engaging in transactions with several
Korean brokers, it may need to appoint a number of standing proxies to
efficiently conduct its trading activities. Each such standing proxy appointed
will receive a commission for its services. If and only to the extent that a
standing proxy other than the Fund's custodian or sub-custodian were deemed to
have custody over certain assets of the Fund, the Fund may be required to obtain
relief from the Commission or a waiver or modification of the standing proxy
requirement from the KSEC or the Governor. There can be no assurance that such
relief, waiver or modification will be obtained.

EXCHANGE RATE FLUCTUATIONS

Fidelity currently anticipates that, once fully invested, at least 80% of
the Fund's total assets will be invested in equity securities of Korean Issuers.
As a result, most of the income received by the Fund, and assets held by the
Fund will be denominated in Won. The computation of net asset value and the
distribution of income by the Fund, however, will be made in U.S. dollars.
Therefore, the Fund's reported net asset value and its computation and
distribution of income in U.S. dollars will be affected adversely by reductions
in the value of the Won relative to the U.S. dollar. The Fund also will incur
costs of conversion between currencies. In addition, the computation of income
will be made on the date of its accrual by the Fund at the foreign exchange rate
in effect on that date, and thus, if the value of the Won falls relative to the
U.S. dollar between recognition of the income and the making of Fund
distributions, the Fund may be required to liquidate investments in order to
make distributions if the Fund has insufficient cash in U.S. dollars to meet
distribution requirements under the Code. Such liquidation of investments, if
required, may have adverse effects on the Fund's performance. In addition, if
the liquidated investments include securities that have been held less than
three months, such sales may jeopardize the Fund's status as a regulated
investment company under the Code. See "Taxation."

Prior to 1980, the value of the Won was fixed against the U.S. dollar. In
January 1980, the Korean government devalued the Won against the U.S. dollar by
16.6%, in part to enhance the competitiveness of Korean exports. From February
1980 to March 1990, the Won was traded on the basis of a floating exchange rate,
known as the concentration base rate, which was determined by The Bank of Korea
by reference to a multi-currency basket. In March 1990, The Bank of Korea
concentration base rate system was abolished, and since such date, the exchange
rate has been determined by averaging the previous day's inter-bank rates. This
system is known as the Market Average Exchange Rate System. Under this system,
foreign exchange rates are permitted to move each day within narrow ranges on
either side of the market average exchange rates announced by the Korea
Financial Telecommunications and Clearings Institute. Since October 1, 1993, the
permitted daily range of fluctuation was increased to plus or minus 1.0%. See
"The Securities Markets of Korea -- Recent Market and Economic Developments --
Financial Liberalization and Market Opening Plan" and "The Republic of Korea --
Foreign Exchange." The Won appreciated in value an aggregate of 23.74% relative
to the U.S. dollar between December 1985 and December 1989, and then depreciated
by 18.9% in value relative to the U.S. dollar between December 1989 and December
1993. See "The Republic of Korea."

33
<PAGE> 34

The Fund is permitted to engage in a variety of currency hedging
transactions, which may involve certain risks, although such transactions, with
certain exceptions, are not currently permitted under Korean law or regulations.
See "Investment Objective and Policies -- Other Investments," "Additional
Investment Activities" and "Appendix A -- General Characteristics and Risks of
Derivatives."

POLITICAL AND ECONOMIC FACTORS

The value of the Fund's assets may be adversely affected by political,
economic or social instability in Korea. Following World War II, the Korean
peninsula was partitioned. The demilitarized zone at the boundary between Korea
and North Korea was established after the Korean War of 1950-1953 and is
supervised by United Nations forces. The United States maintains a military
force in Korea to help deter the ongoing military threat from North Korean
forces. The situation remains a source of tension, although negotiations to ease
tensions and resolve the political division of the Korean peninsula have been
carried on from time to time. There also have been efforts from time to time to
increase economic, cultural and humanitarian contacts between North Korea and
Korea. There can be no assurance that such negotiations or efforts will continue
to occur or will result in an easing of tensions between North Korea and the
Republic. Tension between the two Koreas rose following the announcement in
March 1993 by North Korea of its intention to withdraw from the Nuclear
Non-Proliferation Treaty. Subsequent events involving, among other things, North
Korea's refusal to comply with the Nuclear Non-Proliferation Treaty and the
death on July 8, 1994 of North Korea's President, Kim Il-Sung, have caused the
level of tension between the two Koreas to fluctuate. No assurance can be given
that the level of tension with North Korea will not increase or change abruptly
as a result of future events, including political developments in North Korea
following the death of Kim Il-Sung, developments in the dispute concerning North
Korea's nuclear program (such as any moves to impose trade sanctions against
North Korea, further increasing political tensions and the risk of military
conflict) or developments related to proposed meetings between Korea and North
Korea. See "The Republic of Korea."

The heightened tensions between Korea and North Korea have depressed new
foreign investment in Korea and the availability of foreign financing for Korean
companies, and the uncertainty surrounding the situation may adversely affect
the economic climate in Korea. The tensions between North Korea and Korea also
may adversely affect both the prices of the Fund's portfolio securities and the
Fund's share price.

In addition, there have been reports of increased militarization in North
Korea, accompanied by a general economic decline in that country. Military
action or the risk of military action or the economic collapse of North Korea
could have a material adverse effect on Korea, and consequently, on the ability
of the Fund to achieve its investment objective.

The domestic political situation in Korea has undergone significant change
in recent years. Following the 1979 assassination of President Park Chung Hee,
General Chun Doo Hwan became President under an authoritarian regime which
emphasized social and political order, while encouraging renewed economic
growth. Following public demonstrations, Roh Tae Woo was democratically elected
as President in December 1987. In December 1992, the Korean people elected Kim
Young Sam as President. Kim Young Sam is the first popularly elected President
of Korea since 1960 not affiliated with the military.

With its lack of natural resources and with exports constituting a large
proportion of GNP, the Korean economy is significantly affected by changes in
commodity prices (particularly oil), changes in protectionist sentiment among
its trading partners and exchange rate movements. The rapid economic development
of Korea has in the past led to large foreign borrowings.

Korean companies tend to be substantially more leveraged than U.S. and
European companies. The high degree of leverage increases the risk of business
failures should adverse business conditions develop. In addition, Korean
accounting, auditing and financial reporting standards and practices are not
equivalent to those in the United States. Therefore, certain material
disclosures (including disclosures as to off-balance sheet financing loan
guaranties) may not be made, and less information may be available with respect
to investments in Korea than with respect to those in the United States.

34
<PAGE> 35

MARKET CHARACTERISTICS

Differences Between the U.S. and Korean Markets. The Korean securities
markets have substantially less volume than the NYSE, and equity and debt
securities of most Korean companies are less liquid and more volatile than
equity and debt securities of U.S. companies of comparable size. Many companies
traded on Korean securities markets are smaller, newer and less seasoned than
companies whose securities are traded on securities markets in the United
States. Investments in smaller companies involve greater risk than is
customarily associated with investing in larger companies. Smaller companies may
have limited product lines, markets or financial or managerial resources and may
be more susceptible to losses and risks of bankruptcy. Additionally, market
making and arbitrage activities are generally less extensive in such markets,
which may contribute to increased volatility and reduced liquidity of such
markets. Accordingly, the Korean securities markets may be subject to greater
influence by adverse events generally affecting the market, and by large
investors trading significant blocks of securities, than is usual in the United
States. To the extent that Korea experiences rapid increases in its money supply
and investment in equity securities for speculative purposes, the equity
securities traded in Korea may trade at price-earnings multiples higher than
those of comparable companies trading on securities markets in the United
States, which may not be sustainable. Korean securities markets may also be
subject to substantial governmental control, which may cause sudden or prolonged
disruptions in market prices unrelated to supply and demand considerations. This
may also be true of currency markets. The development of the Korean securities
markets may be attributed to, among other things, the Korean government's
extensive involvement in the private sector, including the securities markets.
The aggregate market capitalization of domestic equity securities listed on the
KSE was approximately W128.4 trillion (approximately U.S.$159.4 billion) at June
30, 1994, as compared to U.S.$4.4 trillion on the NYSE. As discussed above in
"Investment Restrictions and Foreign Exchange Controls," however, only a small
portion of the equity securities that compose this market capitalization may be
purchased by foreign investors.

The Korean government has from time to time taken measures to minimize
excessive price volatility on the KSE, including the imposition of limitations
on daily price movements of securities and varying margin requirements. Such
actions by the Korean government have had and in the future could have a
significant effect on the market prices and dividend yields of Korean equity
securities. In particular, during 1990, the Stabilization Fund, a partnership
operated by its contributors which include substantially all KSE-listed
companies, Korean securities companies and certain institutional investors, was
formed to stabilize the market through the purchase and sale of securities. The
size of the Stabilization Fund is not officially reported. However, as of
January 1994, the Stabilization Fund was reported by the financial press to
constitute approximately 5% of the total listed equity market capitalization of
the KSE. The purchase and sale of portfolio securities by the Stabilization Fund
could exert significant pressure on the market price of KSE-listed securities in
which the Fund may invest.

In an attempt to avoid market manipulation, regulations of the KSE require
that institutional investors, such as the Fund, place an "entrustment guarantee"
deposit in an amount equal to 20% of the purchase order price with the relevant
broker on or prior to placing a purchase order. Non-institutional investors are
required to place an entrustment guarantee deposit in an amount equal to 40% of
the purchase order price. The remaining purchase price must be paid on or prior
to the settlement date, which typically occurs two days after the date of
execution. The "entrustment guarantee" deposit requirement applies to both
Korean and foreign investors and will expose the Fund to the broker's credit
risk. If an entity other than the Fund's custodian or sub-custodian were deemed
to have custody over certain assets of the Fund, the Fund may be required to
obtain relief from the Commission or a waiver or modification of the entrustment
guarantee requirements from the KSE. There can be no assurance that such relief,
waiver or modification will be obtained.

There are currently a limited number of securities firms engaged in
securities underwriting and trading in Korea. In addition, under current Korean
laws and regulations, the Fund is prohibited from participating in initial
public offerings of securities except for certain low interest rate government
or public bonds to be designated from time to time by the KSEC as explained
above. Brokerage commissions and other transaction costs on the KSE are
generally higher than in the United States. In addition, security settlements
may in some instances be subject to delays and related administrative
uncertainties, including risk of loss associated with the credit of local
brokers.

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Government Supervision of Korean Securities Markets; Legal System. There
is less government supervision and regulation of securities exchanges, listed
companies and brokers in Korea than exists in the United States. Less
information, therefore, may be available to the Fund than in respect of
investments in the United States. Further, in Korea, less information may be
available to the Fund than to local market participants. Brokers in Korea may
not be as well capitalized as those in the United States, so that they are more
susceptible to financial failure in times of market, political, or economic
stress. In addition, existing laws and regulations are often inconsistently
applied. As legal systems in Korea develop, foreign investors may be adversely
affected by new laws and regulations, changes to existing laws and regulations
and preemption of local laws and regulations by national laws. In circumstances
where adequate laws exist, it may not be possible to obtain swift and equitable
enforcement of the law. Currently a mixture of legal and structural restrictions
affect the Korean securities markets.

Financial Information and Standards. Korean accounting, auditing and
financial standards and requirements differ, in some cases significantly, from
those applicable to U.S. issuers. In particular, the assets and profits
appearing on the financial statements of a Korean issuer may not reflect its
financial position or results of operations in accordance with U.S. generally
accepted accounting principles. In addition, for an issuer that keeps accounting
records in local currency, inflation accounting rules may require, for both tax
and accounting purposes, that certain assets and liabilities be restated on the
issuer's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits. Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the real condition of
those issuers and securities markets. Moreover, substantially less information
may be publicly available about issuers in Korea than is available about U.S.
issuers.

SUBSTANTIAL GOVERNMENT INFLUENCE ON THE PRIVATE SECTOR

The Korean government has historically exercised and continues to exercise
substantial influence over many aspects of the private sector. The Korean
government from time to time has informally influenced the payment of dividends
and the prices of certain products, encouraged companies to invest or to
concentrate in particular industries, induced mergers between companies in
industries suffering from excess capacity and induced private companies to
publicly offer their securities. In addition, the government has sought to
minimize excessive price volatility on the KSE through various steps, including
the imposition of limitations on daily price movements of securities. Such
actions by the government in the future could have a significant effect on the
market prices and dividend yields of equity securities, including those in the
Fund's portfolio.

The Korean government has attempted, through regulation or other measures,
to stabilize the securities market. These included measures intended to channel
additional funds from various financial institutions into investment in
KSE-listed securities. Another measure was to authorize securities "buy-back
funds" to be established as open-ended unit investment trusts with a limited
life of five years. Each such trust is managed by one of the three largest
Korean securities investment trust management companies. The stated objective of
the trusts is to invest in shares of the largest listed companies. However, it
is expected that each trust will invest in the shares of companies holding units
of such trust. Such trusts are generally restricted from investing in excess of
20% of their total assets in any class of shares of a company. The redemption
rights of unit holders are subject to certain restrictions for a period of three
years following subscription for the relevant units. Other measures taken
include tax incentives for small investors, regular government oversight to
ensure that financial institutions are not net sellers of shares and changes in
margin requirements for securities transactions. Indirect measures have included
from time to time urging institutional investors to act as net buyers to
forestall a significant decline in the market.

THINLY TRADED MARKETS AND ILLIQUID INVESTMENTS

Compared to securities traded in the United States, generally all
securities of Korean Issuers may be considered to be thinly traded. Even
relatively widely held securities in Korea may not be able to absorb trades of a
size customarily transacted by institutional investors, without price
disruptions. Accordingly, the Fund's ability to reposition itself will be more
constrained than would be the case for a mutual fund that invests in the U.S.
equity market. The Fund, in addition, may invest up to 35% of its total assets
in illiquid equity or debt

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securities, that is, securities for which there is no readily available market,
or no market at all. Investment of the Fund's assets in relatively illiquid
securities may restrict the ability of the Fund to dispose of its investments in
a timely fashion and for a fair price as well as its ability to take advantage
of market opportunities. The risks associated with illiquidity will be
particularly acute in situations in which the Fund's operations require cash,
such as when the Fund repurchases shares, commences a tender offer, or pays
dividends or distributions, and could result in the Fund borrowing to meet
short-term cash requirements or incurring capital losses on the sale of illiquid
investments. Further, companies whose securities are not publicly traded are not
subject to the disclosure and other investor protection requirements which would
be applicable if their securities were publicly traded.

Illiquid investments are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they are
valued because of the absence of a market for such investments. Under the
supervision of the Board of Directors, the Investment Manager will determine the
liquidity of the Fund's investments and, through reports from the Investment
Manager, the Board will monitor investments in illiquid instruments. In
determining the liquidity of the Fund's investments, the Investment Manager may
consider various factors, including (1) the frequency of trades and quotations,
(2) the number of dealers and prospective purchasers in the marketplace, (3)
dealer undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Fund's rights and obligations
relating to the investment). In the absence of market quotations, illiquid
investments are priced at fair value as determined in good faith by a committee
appointed by the Board of Directors. If through a change in values, assets, or
other circumstances, the Fund were in a position where more than 35% of its
total assets were invested in illiquid securities, the Fund would seek to take
appropriate steps to protect liquidity.

SETTLEMENT PROCEDURES AND DELAYS

Settlement procedures in Korea are somewhat less developed and reliable
than those in the United States and in other developed securities markets, and
the Fund may experience settlement delays or other material difficulties.
Accordingly, the Fund may be subject to significant delays or limitations on the
volume of trading during any particular period as a result of these factors. The
foregoing factors could impede the ability of the Fund to effect portfolio
transactions on a timely basis and could have an adverse impact on the net asset
value of the shares of the Fund's Common Stock and the price at which the shares
trade.

INVESTMENTS IN ASIAN ISSUERS

Up to 35% of the Fund's total assets may be invested in equity and debt
securities of Asian Issuers, if warranted, in Fidelity's judgment, by economic,
political or regulatory conditions in Korea or valuations in the Korean
securities markets relative to such conditions. Asian Issuers are issuers (other
than issuers meeting the definition of Korean Issuers as defined above), that
(i) are organized under the laws of Hong Kong, Japan or Taiwan, (ii) regardless
of where organized, and as determined by Fidelity, derive at least 50% of their
revenues or profits from goods produced or sold, investments made, or services
performed in Hong Kong, Japan or Taiwan, (iii) have the primary trading market
for their securities in Hong Kong, Japan or Taiwan or (iv) are governments, or
their agencies, instrumentalities or other political sub-divisions of Hong Kong,
Japan or Taiwan.

The risk factors identified herein generally also apply to investments the
Fund may make in Asian Issuers, although the specific nature of such risks may
vary according to the country in which investments are made. In addition, Korea,
Hong Kong, Japan and Taiwan may be subject to greater degrees of economic,
political and social instability than is the case in the United States and
Western European countries. Such instability may result from, among other
things, the following: (i) authoritarian governments or military involvement in
political and economic decision-making, including changes in government through
extra-constitutional means; (ii) popular unrest associated with demands for
improved political, economic and social conditions; (iii) internal insurgencies;
(iv) hostile relations with neighboring countries; and (v) ethnic, religious and
racial disaffection. Such social, political and economic instability could
disrupt the principal financial markets in which the Fund invests and cause
losses to the Fund.

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<PAGE> 38

Hong Kong. In Hong Kong, British proposals to extend limited democracy
have caused a political rift with the Peoples Republic of China (the "PRC"),
which is scheduled to assume sovereignty over the colony in 1997. Although the
PRC has committed by treaty to preserve the economic and social freedoms enjoyed
in Hong Kong for fifty years after regaining control of Hong Kong, the
continuance of the current form of economic system in Hong Kong after the
reversion will depend on the actions of the government of the PRC. The PRC and
the United Kingdom have also yet to resolve their differences on certain issues
relating to the reversion of sovereignty, such as the nationality status of
certain ethnic minorities in Hong Kong, the construction of a new international
airport and most recently, electoral reforms. In addition, such reversion has
increased sensitivity in Hong Kong to political developments and statements by
public figures in the PRC. Business confidence in Hong Kong, therefore, can be
significantly affected by such developments and statements, which in turn can
affect markets and business performance.

Hong Kong's economy, followed by Taiwan's economy, is the most likely to be
affected by reform in the PRC. Hong Kong and Taiwan have been the leading
investors in the PRC. Because direct travel and investment from Taiwan to the
PRC is generally banned, Hong Kong has served as an important conduit for
Taiwanese trade and investment with the PRC. Rapid development of the PRC's
southern provinces has created a diversification of investment from Hong Kong.
Producers which originally sought to utilize low cost labor for export
production are now investing in facilities that produce an array of goods and
services aimed at meeting emerging consumer demand within the PRC. These include
finance, telecommunications, electricity production, leisure facilities and
consumer goods distribution.

The Hong Kong stock market can be volatile and is sensitive both to
developments in the PRC and to the strength of other world markets. As an
example, in 1989, the Hang Seng Index of the Hong Kong stock market rose to
3,310 in May from its previous year-end level of 2,687, but fell to 2,094 in
early June following the events at Tiananmen Square. The Hang Seng Index
gradually climbed in subsequent months, but fell by 181 points on October 16,
1989 (approximately 6.5%) following a substantial fall in the U.S. stock market,
and at the year end closed at a level of 2,837. More recently, the Hong Kong
stock market has shown its volatility with the Hang Seng Index dropping
approximately 26% to 9,029.91 on March 31, 1994 after reaching a record high of
12,201.09 on January 4, 1994 following a sustained bull run that began in
December 1992.

Japan. Japan currently has the second-largest GDP in the world. The
Japanese economy has grown substantially over the last three decades. Its growth
rate averaged over 5% in the 1970s and 1980s. However, in 1992, the growth rate
in Japan slowed to 0.6% and the budget showed a deficit of 1.5% percent of GDP.
Despite small rallies and market gains, Japan has been plagued with economic
sluggishness. Economic conditions have weakened considerably in Japan since
October 1992. The boom in Japan's equity and property markets during the
expansion of the late 1980s supported high rates of investment and consumer
spending on durable goods, but both of these components of demand have now
retreated sharply following the decline in asset prices. Profits have fallen
sharply, the previously tight labor market conditions have eased considerably,
and consumer confidence is low. The banking sector has experienced a sharp rise
in non-performing loans, and strains in the financial system are likely to
continue. The decline in interest rates and two large fiscal stimulus packages
should help to contain the recessionary forces, but substantial uncertainties
remain. The general government position has deteriorated as a result of
weakening economic growth, as well as stimulative measures taken recently to
support economic activity and to restore financial stability.

Although Japan's economic growth has declined significantly since 1990,
Fidelity believes many Japanese companies seem capable of rebounding due to
increased investments, smaller borrowings, increased product development and
continued government support. Growth has recovered in 1994. Japan's economic
growth in the early 1980s was due in part to government borrowings. Japan is
heavily dependent upon international trade and, accordingly, has been and may
continue to be adversely affected by trade barriers, and other protectionist or
retaliatory measures of, as well as economic conditions in, the United States
and other countries with which they trade. Industry, the most important sector
of the economy, is heavily dependent on imported raw materials and fuels.
Japan's major industries are in the engineering, electrical, textile, chemical,
automobile, fishing and telecommunication fields. Japan imports iron ore,
copper, and many forest products. Only 19% of its land is suitable for
cultivation. Japan's agricultural economy is subsidized and protected. Japan's
high

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volume of exports such as automobiles, machine tools, and semiconductors have
caused trade tensions with other countries, particularly the United States.
Attempts to approve trading agreements between the countries may reduce the
friction caused by the current trade imbalance.

Taiwan. As Taiwan's domestic labor costs have risen, Taiwanese
manufacturers have been aggressively relocating production facilities to the
southern PRC provinces of Guangdong and Fuijan. In addition, as costs in the
southern PRC have increased, Taiwanese manufacturers are developing facilities
further north, utilizing their historic ties to the region surrounding Shanghai.
If official relations between the PRC and Taiwan improve, Taiwan may eventually
replace Hong Kong as the PRC's largest regional trading partner.

In addition, in Hong Kong and Taiwan, there are restrictions on the percent
of permitted foreign investment in shares of certain companies, mainly those in
highly regulated industries, although in Taiwan there are limitations on foreign
ownership of shares of any listed company. Investment in Taiwan requires an
investment permit. The Investment Manager intends to apply for a permit on
behalf of the Fund and certain other funds managed by the Investment Manager.
The Fund may not be permitted to invest in Taiwan until such permit is issued.
Taiwan imposes a waiting period on the repatriation of investment capital for
certain foreign investors. These restrictions may in the future make it
undesirable to invest in Taiwan.

With respect to investments in Taiwan, it should be noted that Taiwan lacks
formal diplomatic relations with many nations, although it conducts trade and
financial relations with most major economic powers. Both the government of the
PRC and the government of the Republic of China in Taiwan claim sovereignty over
all of China. Although relations between Taiwan and the PRC are currently
peaceful, renewed frictions or hostility could interrupt operations of Taiwanese
companies in which the Fund invests and create uncertainty that could adversely
affect the value and marketability of its Taiwanese investments. Tension also
exists over the PRC's possession of nuclear capabilities and its proximity to
Taiwan.

DEBT SECURITIES -- HIGH YIELD, HIGH RISK SECURITIES

The Fund's investment policies do not limit the percentage of the Fund's
debt securities investments which may be invested in debt securities that are
unrated or rated below investment grade. Under current Korean laws and
regulations, the Fund is prohibited from investing in debt securities
denominated in Won except to a very limited extent as explained above. The
market value of debt securities generally varies in response to changes in
interest rates and the financial conditions of each issuer. During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. These changes in market value will be reflected
in the Fund's net asset value.

The Fund's investments in debt securities of Korean Issuers or of Asian
Issuers may generally be considered to have credit quality below investment
grade as determined by internationally recognized credit rating agency
organizations. Debt securities rated below investment grade (commonly referred
to as "junk bonds" when issued in the United States) are considered to be
speculative. Investment in low rated securities typically involves risks not
associated with higher rated securities, including, among others, overall
greater risk of timely and ultimate payment of interest and principal,
potentially greater sensitivity to general economic conditions, greater market
price volatility and less liquid secondary market trading. Certain of the Fund's
investments may be considered to have extremely poor prospects of ever attaining
any real investment standing, to have a current identifiable vulnerability to
default, to be unlikely to have the capacity to pay interest and repay principal
when due in the event of adverse business, financial or economic conditions, or
to be in default or not current in the payment of interest or principal.

Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in low rated debt securities prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities. If the issuer of
low rated debt securities defaults, the Fund may incur

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<PAGE> 40

additional expenses in seeking recovery. See "Appendix B -- Debt Ratings" for a
description of ratings of debt instruments.

LOANS AND OTHER DIRECT DEBT INSTRUMENTS

Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the borrower for payment of principal and interest.
Direct debt instruments may not be rated by any nationally recognized rating
service. If the Fund does not receive scheduled interest or principal payments
on such indebtedness, the Fund's share price and yield could be adversely
affected. Loans that are fully secured offer the Fund more protections than an
unsecured loan in the event of non-payment of scheduled interest or principal.
However, there is no assurance that the liquidation of collateral from a secured
loan would satisfy the borrower's obligation, or that the collateral can be
liquidated. Indebtedness of borrowers whose creditworthiness is poor involves
substantially greater risks, and may be highly speculative. Borrowers that are
in bankruptcy or restructuring may never pay off their indebtedness, or may pay
only a small fraction of the amount owed. Direct indebtedness of Korea will also
involve a risk that the governmental entities responsible for the repayment of
the debt may be unable, or unwilling, to pay interest and repay principal when
due.

Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to the Fund. For
example, if a loan is foreclosed, the Fund could become part owner of any
collateral, and would bear the costs and liabilities associated with owning and
disposing of the collateral. In addition, it is conceivable that under emerging
legal theories of lender liability, the Fund could be held liable as a
co-lender. Direct debt instruments may also involve a risk of insolvency of the
lending bank or other intermediary. Direct debt instruments that are not in the
form of securities may offer less legal protection to the Fund in the event of
fraud or misrepresentation. In the absence of definitive regulatory guidance,
the Fund relies on the Investment Manager's, the Investment Adviser's and the
Sub-Adviser's research in an attempt to avoid situations where fraud or
misrepresentation could adversely affect the Fund.

A loan is often administered by a bank or other financial institution that
acts as agent for all holders. The agent administers the terms of the loan, as
specified in the loan agreement. Unless, under the terms of the loan or other
indebtedness, the Fund has direct recourse against the borrower, it may have to
rely on the agent to apply appropriate credit remedies against a borrower. If
assets held by the agent for the benefit of the Fund were determined to be
subject to the claims of the agent's general creditors, the Fund might incur
certain costs and delays in realizing payment on the loan or loan participation
and could suffer a loss of principal or interest.

Direct indebtedness purchased by the Fund may include letters of credit,
revolving credit facilities, or other standby financing commitments obligating
the Fund to pay additional cash on demand. These commitments may have the effect
of requiring the Fund to increase its investment in a borrower at a time when it
would not otherwise have done so, even if the borrower's condition makes it
unlikely that the amount will ever be repaid. The Fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
potential obligations under standby financing commitments.

The Fund limits the amount of total assets that it will invest in any one
issuer. For purposes of these limitations, the Fund generally will treat the
borrower as the "issuer" of indebtedness held by the Fund. In the case of loan
participations where a bank or other lending institution serves as financial
intermediary between the Fund and the borrower, if the participation does not
shift to the Fund the direct debtor-creditor relationship with the borrower, SEC
interpretations require the Fund, in appropriate circumstances, to treat both
the lending bank or other lending institution and the borrower as "issuers" for
these purposes. Treating a financial intermediary as an issuer of indebtedness
may restrict the Fund's ability to invest in indebtedness related to a single
financial intermediary, even if the underlying borrowers represent many
different companies.

SWAP AGREEMENTS

Swap agreements can be individually negotiated and structured to include
exposure to a variety of different types of investments or market factors.
Depending on their structure, swap agreements may increase or decrease the
Fund's exposure to long-or short-term interest rates (in the United States or
abroad), foreign currency values, mortgage securities, corporate borrowing
rates, or other factors such as security prices or

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<PAGE> 41

inflation rates. Swap agreements can take many different forms and are known by
a variety of names. The Fund is not limited to any particular form of swap
agreement if the Investment Manager, the Investment Adviser or the Sub-Adviser
determines it is consistent with the Fund's investment objective and policies.

In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an agreed-
upon level, while the seller of an interest rate floor is obligated to make
payments to the extent that a specified interest rate falls below an agreed-upon
level. An interest rate collar combines elements of buying a cap and selling a
floor.

Swap agreements will tend to shift the Fund's investment exposure from one
type of investment to another. For example, if the Fund agreed to exchange
payments in U.S. dollars for payments in foreign currency, the swap agreement
would tend to decrease the Fund's exposure to U.S. interest rates and increase
its exposure to foreign currency and interest rates. Caps and floors have an
effect similar to buying or writing options. Depending on how they are used,
swap agreements may increase or decrease the overall volatility of the Fund's
investments and its share price and yield.

The most significant factor in the performance of swap agreements is the
change in the specific interest rate, currency, or other factors that determine
the amounts of payments due to and from the Fund. If a swap agreement calls for
payments by the Fund, the Fund must be prepared to make such payments when due.
In addition, if the counterparty's creditworthiness declined, the value of a
swap agreement would be likely to decline, potentially resulting in losses. The
Fund expects to be able to eliminate its exposure under swap agreements either
by assignment or other disposition, or by entering into an offsetting swap
agreement with the same party or a similarly creditworthy party.

The Fund will maintain appropriate liquid assets in a segregated custodial
account to cover its current obligations under swap agreements. If the Fund
enters into a swap agreement on a net basis, it will segregate assets with a
daily value at least equal to the excess, if any, of the Fund's accrued
obligations under the swap agreement over the accrued amount the Fund is
entitled to receive under the agreement. If the Fund enters into a swap
agreement on other than a net basis, it will segregate assets with a value equal
to the full amount of the Fund's accrued obligations under the agreement.

INDEXED SECURITIES

The Fund may purchase securities whose prices are indexed to the prices of
other securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators. Indexed securities typically, but
not always, are debt securities or deposits whose value at maturity or coupon
rate is determined by reference to a specific instrument or statistic.
Gold-indexed securities, for example, typically provide for a maturity value
that depends on the price of gold, resulting in a security whose price tends to
rise and fall together with gold prices. Currency-indexed securities typically
are short-term to intermediate-term debt securities whose maturity values or
interest rates are determined by reference to the values of one or more
specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed securities
may be positively or negatively indexed; that is, their maturity value may
increase when the specified currency value increases, resulting in a security
that performs similarly to a foreign currency-denominated instrument, or their
maturity value may decline when foreign currencies increase, resulting in a
security whose price characteristics are similar to a put on the underlying
currency. Currency-indexed securities may also have prices that depend on the
values of a number of different foreign currencies relative to each other.

To the extent that the Fund invests in indexed securities, it will be
subject to the risks associated with changes in the particular indices, which
may include reduced or eliminated interest payments and losses of invested
principal. Certain indexed securities may have the effect of providing a degree
of investment leverage, because they may increase or decrease in value at a rate
that is a multiple of the changes in applicable indices. As a result, the market
value of such securities will generally be more volatile than the market values
of fixed-rate securities.

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The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the United
States and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values may
decline substantially if the issuer's creditworthiness deteriorates. Recent
issuers of indexed securities have included banks, corporations, and certain
U.S. government agencies. Indexed securities may be more volatile than the
underlying instruments.

INVESTMENT PRACTICES

Certain risks and special considerations of certain of the investment
practices in which the Fund may engage are described above under "Investment
Objective and Policies" and "Additional Investment Activities." In addition, the
Fund's ability to engage in these investment practices may be limited by certain
rules and regulations in Korea. Derivatives involve special risks, including
possible default by the other party to the transaction, illiquidity and, to the
extent Fidelity's view as to certain market movements is incorrect, the risk
that the use of a Derivative could result in greater losses than if it had not
been used. Use of put and call options could result in losses to the Fund, force
the purchase or sale of portfolio securities at inopportune times or for prices
higher or lower than current market values, or cause the Fund to hold a security
it might otherwise sell. The use of currency transactions could result in the
Fund's incurring losses as a result of the imposition of exchange controls,
suspension of settlements, or the inability to deliver or receive a specified
currency in addition to exchange rate fluctuations. The use of options and
futures transactions entails certain special risks. In particular, the variable
degree of correlation between price movements of futures contracts and price
movements in the related portfolio position of the Fund could create the
possibility that losses on the derivative instrument will be greater than gains
in the value of the Fund's position. In addition, futures and options markets
could be illiquid in some circumstances and certain over-the-counter options
could have no markets. The Fund might not be able to close out certain positions
without incurring substantial losses. To the extent the Fund utilizes futures
and options transactions for hedging, such transactions should tend to minimize
the risk of loss due to a decline in the value of the hedged position and, at
the same time, limit any potential gain to the Fund that might result from an
increase in value of the position. Finally, the daily variation margin
requirements for futures contracts create a greater ongoing potential financial
risk than would purchases of options, in which case the exposure is limited to
the cost of the initial premium and transaction costs. Losses resulting from the
use of Derivatives will reduce the Fund's net asset value, and possibly income,
and the losses may be greater than if Derivatives had not been used. Additional
information regarding the risks and special considerations associated with
Derivatives appears in "Appendix A -- General Characteristics and Risks of
Derivatives."

NON-DIVERSIFICATION

The Fund is classified as a non-diversified investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the obligations of a single
issuer. Thus, the Fund may invest a greater proportion of its assets in the
securities of a smaller number of issuers and, as a result, could be subject to
greater risk of loss. The Fund, however, intends to comply with the
diversification requirements imposed by the Code for qualification as a
regulated investment company, which generally limits investments in any one
issuer to 25% of the Fund's total assets. See "Taxation -- U.S. Federal Income
Taxes" and "Investment Restrictions."

WITHHOLDING AND OTHER TAXES

The Fund may be subject to certain taxes, including withholding or other
taxes on income and capital gains, that are or may be imposed by Korea or other
foreign governments, which will reduce the return to the Fund. The Fund does not
intend to engage in activities that will create a permanent establishment in
Korea within the meaning of the Korea-U.S. Tax Treaty. Therefore, the Fund
generally will not be subject to any Korean income taxes other than Korean
withholding taxes. Exemptions or reductions in these taxes apply if the
Korea-U.S. Tax Treaty applies to the Fund. If the treaty provisions are not, or
cease to be, applicable to the Fund, significant additional withholding taxes
would apply. Korean counsel to the Fund, Shin & Kim, have given their opinion
that the treaty presently does apply to the Fund if and so long as the Fund
operates as

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described herein. The Fund has received written confirmation from the MOF that,
so long as all of the issued shares of the Fund are listed on one or more
publicly acknowledged stock exchanges in the United States only and they are
traded on such exchanges by the general public, the Fund will be entitled to the
benefits of the Treaty. See "Taxation -- Korean Taxes." The imposition of such
taxes and the rates imposed are subject to change. The Fund may elect, when
eligible, to "pass-through" to the Fund's shareholders such taxes that are
treated as income taxes for U.S. Federal income tax purposes. If the Fund makes
such election, shareholders will be required to include in income their
proportionate shares of the amount of non-U.S. income taxes paid by the Fund and
may be entitled to claim either a credit or deduction for all or a portion of
such taxes. See "Taxation -- U.S. Federal Income Taxes" below for a discussion
of the rules and limitations applicable to the treatment of non-U.S. income
taxes under the U.S. Federal income tax laws. Certain shareholders, including
some non-U.S. shareholders, will not be entitled to the benefit of a deduction
or credit with respect to non-U.S. income taxes paid by the Fund. If a
shareholder is eligible and elects to credit foreign taxes, such credit is
subject to limitations. Other foreign taxes, such as transfer taxes, may be
imposed on the Fund, but would not be eligible to be passed through to
shareholders as a credit or deduction. Also, additional U.S. Federal income
taxes and charges may be incurred as a result of any investment made in "passive
foreign investment companies." See "Taxation -- U.S. Federal Income Taxes" and
"-- Other Taxation."

CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION

The Fund's Articles of Incorporation include provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board of Directors. Such
provisions could have the effect of depriving shareholders of an opportunity to
sell their shares of Common Stock at a premium over prevailing market prices by
discouraging a third party from seeking to obtain control of the Fund. See
"Description of Capital Stock -- Special Voting Provisions."

SECONDARY MARKET AND NET ASSET VALUE DISCOUNT

The Fund is a newly organized company with no prior operating history.
Prior to the Offering, there has been no public market for the Fund's shares of
Common Stock. The Fund cannot predict what effect, if any, the relative sizes of
the U.S. Offering and the International Offering will have on the secondary
market trading for the Shares of Common Stock in the United States or on the
value of the Shares. There can be no assurance that an active trading market
will develop or be sustained. In addition, shares of closed-end investment
companies have in the past frequently traded at a discount from their net asset
values and initial offering prices. This characteristic of shares of a
closed-end fund is a risk separate and distinct from the risk that a fund's net
asset value will decrease. The Fund cannot predict whether its own Shares will
trade at, below or above net asset value. The risk of loss associated with
purchasing shares of a closed-end investment company is more pronounced for
investors who purchase in the initial public offering and who wish to sell their
shares of Common Stock in a relatively short period of time.

FOREIGN SUBCUSTODIANS AND SECURITIES DEPOSITORIES

Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and
securities depositories. Certain banks in foreign countries may not be eligible
sub-custodians for the Fund under such rules, in which event the Fund may be
precluded from purchasing securities in which it would otherwise invest, and
other banks that are eligible foreign sub-custodians may be recently organized
or otherwise lack extensive operating experience. In addition, in certain
countries, such as Korea, there may be legal restrictions or limitations on the
ability of the Fund to recover assets held in custody by foreign sub-custodians
in the event of the bankruptcy of the sub-custodian. The Fund also may
experience settlement delays or other material difficulties. See "Risk Factors
and Special Considerations -- Settlement Procedures and Delays."

TRANSFER RESTRICTIONS

Investors who purchase Shares at a reduced price will be restricted from
transferring such Shares for a period of 90 days after the closing of the
Offering. There is no restriction on the number of Shares that may be purchased
subject to the transfer restriction described above, except that the
Underwriters have undertaken to

43
<PAGE> 44

comply, with respect to non-restricted Shares, with the distribution
requirements of the NYSE. See "Underwriting." To the extent these investors sell
their Shares once the transfer restriction is no longer applicable, the market
price of the Common Stock could be adversely affected. In addition, the transfer
restriction will reduce the number of Shares available for sale in the secondary
market during the 90-day restriction period.

EXPENSES

The operating expense ratio of the Fund can be expected to be higher than
that of a fund investing primarily in the securities of U.S. issuers since the
expenses of the Fund (such as custodial, currency exchange and communication
costs) are higher. See "Summary of Expenses." Brokerage commissions and
transaction costs for transactions both on and off the KSE are generally higher
than in the United States. It is expected, however, that the Fund's investment
advisory fee, as well as its overall expense ratio, will be comparable to those
of many closed-end management investment companies of comparable size that
invest primarily in securities of issuers in a single foreign country.

44
<PAGE> 45

THE REPUBLIC OF KOREA

The information set forth herein has been extracted from various
governmental and private sources. The Fund, its Board of Directors, the
Investment Manager, the Investment Adviser and the Sub-Adviser make no
representation as to the accuracy of the information, nor has the Fund or its
Board of Directors attempted to verify the statistical information presented
herein. Statistical data may vary from source to source as a result of
differences in the underlying assumptions or methodology used. In addition, no
representation is made that any correlation will exist between the Republic of
Korea or its economy in general and the performance of the Fund.

GENERAL INFORMATION

GENERAL

The Republic of Korea ("Korea") was founded on August 15, 1948 following
elections held in southern Korea. Korea has since controlled and administered
the portion of the Korean peninsula that lies generally to the south of the 38th
parallel.

The Korean peninsula is approximately 620 miles long and 125 miles wide.
Korea has a land area of about 38,000 square miles (98,966 square kilometers),
approximately one-fourth of which is arable. It is bordered to the north by The
Democratic People's Republic of Korea ("North Korea") and to the east, west and
south by the East Sea, the Yellow Sea and the Korean Strait, respectively.

The country was under Japanese rule from 1910 until 1945 when, following
the Japanese surrender at the end of World War II, U.S. forces occupied the
southern half of the Korean peninsula and Soviet forces established a presence
in the northern half. In 1948 the United Nations General Assembly declared Korea
to be the only legal government in the Korean peninsula.

The Korean War of 1950-1953 began with the invasion of Korea by communist
forces from the North, and following a military stalemate, ended with an
armistice establishing a demilitarized zone in the vicinity of the 38th parallel
which became the boundary between Korea and North Korea. The armistice agreement
continues to be supervised by United Nations forces.

By 1993, the population of Korea had risen to approximately 44 million from
25 million in 1960. The proportion of the population engaged in agriculture and
forestry was decreasing over the same period, dropping to approximately 14
percent of the economically active population in 1993. Correspondingly, the
population segment engaged in manufacturing was increasing, reaching
approximately 24 percent of the economically active population in 1993. The
population density, at approximately 1,134 persons per square mile, is one of
the highest in the world. Over half the population lives in cities, the largest
of which is the capital Seoul, with a population of about 10.9 million in 1993.
Pusan is the second largest city (population around 3.9 million in 1993) and is
also Korea's largest port.

POLITICS AND FOREIGN RELATIONS

The early years of Korea were dominated by the successive presidencies of
Dr. Syngman Rhee, who was first elected in 1948 and re-elected in 1952, 1956 and
1960. President Rhee resigned shortly after his 1960 re-election, partly in
response to pressure from student-led demonstrations, and was succeeded by Yoon
Bo Sun. In 1961, a group of military leaders headed by Park Chung-Hee assumed
power. A civilian government was subsequently established, and Mr. Park was
formally elected President in October 1963. President Park served until 1979
when he was assassinated following a period of increasing strife between the
Government and its critics. Martial law was declared and an interim government
was formed under Prime Minister Choi Kyu-Ha who became the next President. After
clashes between the Government and its critics, President Choi resigned and was
succeeded in August 1980 by General Chun Doo Hwan.

Under the leadership of President Chun, a new Constitution, providing for
the indirect election of the President and for certain democratic reforms, was
approved in a national referendum and shortly thereafter, in early 1981,
President Chun was re-elected and inaugurated as President. In 1987, following
public demonstra-

45
<PAGE> 46

tions against the prospect of choosing President Chun's successor through
indirect elections in an electoral college, the Constitution was revised to
permit the direct election of the President. In December 1987, Roh Tae Woo was
elected President by a narrow plurality, after the opposition parties led by Kim
Young Sam and Kim Dae Joong failed to unite behind a single candidate. In
February 1990, members of two opposition political parties, including the party
led by Kim Young Sam, merged into the ruling Democratic Liberal Party led by
President Roh.

In December 1992, Kim Young Sam was elected President as the candidate of
the Democratic Liberal Party. This election of a civilian and former opposition
party leader as President significantly reduced the controversy concerning the
legitimacy of the political regime. President Kim has emphasized reform, the
liberalization of politics, deregulation and the revitalization of the economy
of Korea.

Relations between Korea and North Korea have been tense over most of
Korea's history. North Korea maintains a regular military force estimated at
close to one million troops, the majority of which are concentrated near the
northern border of the demilitarized zone. Korea maintains a state of military
preparedness along the southern border of the demilitarized zone. Korea has a
national conscription system and a regular military force consisting of
approximately 655,000 troops. In addition to the regular forces, there are
reserves of almost 3.2 million troops. The United States currently maintains
military forces of approximately 40,000 troops in Korea.

Political contacts between Korea and North Korea have increased in recent
years. Commencing in September 1990, the Prime Ministers of Korea and North
Korea have from time to time held talks in Seoul and Pyongyang to discuss
various matters. In December 1991, the Prime Ministers of Korea and North Korea
signed an "Agreement on Reconciliation, Nonaggression and Exchange and
Cooperation" in which the two sides agreed, among other things, to take further
steps toward conciliation, nonaggression and economic cooperation. The agreement
was put into force in February 1992. Tension between the two Koreas rose
following the announcement in March 1993 by North Korea of its intention to
withdraw from the Nuclear Non-Proliferation Treaty and North Korea's continuing
refusal to allow full inspection of its nuclear facilities by officials of the
International Atomic Energy Commission. Subsequent events involving, among other
things, North Korea's refusal to comply with the Nuclear Non-Proliferation
Treaty and the death on July 8, 1994 of North Korea's President, Kim Il-Sung,
have caused the level of tension between the two Koreas to fluctuate. No
assurance can be given that the level of tension with North Korea will not
increase or change abruptly as a result of future events, including political
developments in North Korea following the death of Kim Il-Sung, developments in
the dispute concerning North Korea's nuclear program (such as any moves to
impose trade sanctions against North Korea, further increasing political
tensions and the risk of military conflict) or developments related to proposed
meetings between Korea and North Korea. The Fund cannot predict the effect, if
any, of recent or future events in North Korea on the securities markets in
Korea or elsewhere.

Korea maintains diplomatic relations with most nations of the world.
Korea's strongest ties are with the United States and include a mutual defense
treaty and several agreements designed to promote Korea's economy. Korea's
relationship with Japan, now its largest trading partner after the United
States, is also increasingly important. Japan constitutes Korea's leading source
of imported capital goods, technology and direct foreign investment and provides
more than half of all foreign visitors to Korea.

Korea continues to seek improved relations with communist and formerly
communist countries. Since the beginning of 1989, Korea has established
diplomatic relations with Hungary, Poland, Yugoslavia, the Czech Republic,
Slovakia, Bulgaria, Rumania, Mongolia, and the People's Republic of China. In
January 1991, the Government announced an accord with the Soviet Union
contemplating a general purpose loan to the Soviet Union and loans for the
purchase of Korean products. Such loans were to be made available pursuant to
Korean bank facilities over the subsequent three year period. Advances of the
remaining loans to be made pursuant to the accord have been suspended by the
Government and discussions have been held with the Commonwealth of Independent
States, successor to the Soviet Union concerning possible lifting of such
suspension. Korea has also established diplomatic relations with the
Commonwealth of Independent States and its other members.

46
<PAGE> 47

GOVERNMENT

Governmental authority in Korea is highly centralized and is concentrated
in a strong Presidency. The Constitution provides for the direct election of the
President by popular vote. Under the Constitution, the term of office of the
President is five years and he may not be re-elected.

The President, who is Chief of State and head of government, is also
Chairman of the State Council (cabinet), which consists of the Prime Minister,
who is appointed by the President with the consent of the National Assembly, the
deputy prime ministers, the heads of the government ministries and ministers of
state. The President has the authority to select who shall serve in the State
Council on the recommendation of the National Assembly and also can appoint or
remove other government officials, including local officials such as governors
and mayors. The Prime Minister, by order of the President, is responsible for
the overall coordination of various ministries and agencies.

The President has the right to veto new legislation and to take emergency
measures in case of natural disaster, serious fiscal or economic crisis, state
of war or similar conditions. The President is required to notify the National
Assembly promptly of any such emergency measures taken, and to seek its
concurrence, failing which the emergency measures are automatically invalidated.

Legislative power is vested in the National Assembly, consisting of 299
members. About three-quarters (224) of the members of the National Assembly are
elected by popular vote for a term of four years, and the remaining seats (75)
are distributed proportionately among parties winning over 3% of the votes in
the direct election. The term of office of all members is set at four years. The
National Assembly enacts laws, approves treaties and approves the national
budget. Most legislation is drafted by the executive branch, which then submits
the bill to the National Assembly for approval. In the event of violation of the
constitution by the President, the Prime Minister, members of the State Council,
heads of executive ministries, judges, or other public officials, the National
Assembly has the power to pass a motion for impeachment.

Judicial power is vested in the Supreme Court, the Constitutional Court and
other lower courts at various levels. The highest court of Korea is the Supreme
Court which has the final power to review the constitutionality or legality of
administrative decrees, regulations or dispositions. There are 14 justices on
the Supreme Court.

The Constitutional Court consisting of nine members appointed by the
President for six year terms has the power to rule on the constitutionality of a
law, impeach public officials, dissolve political parties and review petitions
relating to the constitution. Disputes relating to the separation of powers
between the branches of national government, governmental agencies and local
autonomous entities are also resolved by the Constitutional Court.

Administratively, Korea is divided into nine provinces and six cities with
provincial status, Seoul, Pusan, Taegu, Inchon, Kwangju and Taejon. Local
governments are directed by the Government and principal officials are appointed
by the President. However, the Government has announced its intention to
introduce some measure of local autonomy. In March and June 1991, the Government
held local assembly elections at the county and province levels. The next local
assembly elections at the county and province levels are scheduled to be held in
April 1995 and will be accompanied by the first mayoral election for the
province of Seoul.

POLITICAL ORGANIZATIONS

Three opposition parties were officially formed in anticipation of the
Presidential elections of December 1987. The first election to the National
Assembly under the current constitution occurred in April 1988. In February
1990, two of the opposition parties and the ruling party led by President Roh
were each disbanded to form the Democratic Liberal Party (the "DLP"). Certain
members of the two opposition parties so disbanded established a new party,
which merged later into the other remaining opposition party forming a
consolidated new opposition party named the Democratic Party (the "DP"). The
last National Assembly elections were

47
<PAGE> 48

held on March 24, 1992 and the next election is scheduled to be held by April
11, 1996. As of August 31, 1993, the distribution of seats in the National
Assembly by parties was as follows:

<TABLE>
<CAPTION>
DLP DP OTHER TOTAL
--- --- ----- -----
<S> <C> <C> <C> <C>
Number of Seats.......................... 176 98 25 299
</TABLE>

INTERNATIONAL ORGANIZATIONS

Korea maintains membership in a number of supranational organizations,
including the International Monetary Fund, the International Bank for
Reconstruction and Development (the World Bank), the International Development
Association, the Asian Development Bank and the International Finance
Corporation. It is a party to the General Agreement on Tariffs and Trade. In
September 1991, Korea and North Korea became members of the United Nations.

THE ECONOMY

ECONOMIC POLICY AND THE FIVE YEAR PLANS

Korean industry and commerce are predominantly privately owned and
operated. The Government, however, is actively involved in establishing economic
policy objectives and implementing such policies with a view toward maintaining
national security, encouraging industrial development and improving living
standards. Economic, financial and business priorities can be influenced by the
Government through its control of approvals and licenses and through the
allocation of credit. However, such Government influence has gradually
diminished through deregulation and market self-regulation, in keeping with
Korea's liberalization policy.

The Economic Planning Board, headed by the Deputy Prime Minister, is
primarily responsible for formulating economic policies, including the Five Year
Economic and Social Development Plans which have guided economic policy since
1962. The Economic Planning Board exercises overall direction of the economy by
means of economic policies in cooperation with the various ministries. The
Ministry of Finance implements fiscal, financial and monetary policies. To
encourage particular industries, the Government uses such measures as financial
assistance and tax incentives.

The emphasis of the Five Year Plans has changed over the years from the
development of import substitution industries, the building up of infrastructure
and the development of industries with export potential to a focus on economic
stabilization, liberalization of the economy, reduction of restrictions on
direct foreign investment and improvements in social conditions. Since the
establishment of the Five Year Plans, the economy of Korea has changed from one
characterized by agricultural production and the export of raw materials,
textiles and clothing to one characterized by the production and export of
manufactured goods, particularly electronic products, ships, machinery and
steel. The new Government announced in early 1993 economic reform and
development programs to be implemented in a new Five Year Economic Plan for the
period through 1997. Pursuant to the Plan, the Government will promote fiscal,
financial and administrative reforms and changes in prevailing patterns of
economic behavior. The current plan anticipates enhancing the growth of the
economy by a variety of measures, including industrial structural adjustment,
the establishment of new competition rules and the development of the
information industry, small and medium-sized firms and the agriculture and
fishery sectors. The plan also anticipates fiscal reform in a number of areas
and further reform and liberalization of the financial sector. Growth in GNP is
projected to be maintained at or above 7% in real terms, with a balance of
payments surplus by 1995 and consumer price inflation reduced steadily to a rate
of under 4% per annum. The Plan is also intended to promote stable growth and
globalization of the Korean economy and to improve the quality of life in Korea.

GROSS NATIONAL PRODUCT

During the past two decades, the average annual real increase in GNP has
been approximately 9.0%. Such increase is attributable in part to Government
policies, as articulated in the Five Year Economic Plan, favoring export-led
growth and an industrious and well-trained labor force. During this period,
Korea made

48
<PAGE> 49

significant progress toward the transformation of its economy from one
characterized by agricultural production and the export of raw materials to that
of a modern industrial state.

The Korean economy has in recent years displayed high growth and, until
1988 when inflation accelerated, low inflation rates. In 1989, GNP growth slowed
by comparison to the previous two years, with GNP rising by 6.9%. This drop in
the GNP growth rate was largely attributable to appreciation of the Won and to
nationwide labor-management disputes which reduced the competitiveness of Korean
products in international markets. In 1990 and 1991, GNP rebounded and grew at a
rate of 9.6% and 9.1%, respectively, due in part to increased domestic demand.
In 1992, GNP grew at a rate of 5.0%. This low growth rate of GNP in 1992 was
affected by various factors, including the previous administration's policy of
cooling down the overheated economy to ensure stable growth. In 1993, GNP grew
at a rate of 5.6% based on preliminary figures published by the Bank of Korea.

The following table shows the composition of Korea's GNP at current market
prices and GNP in constant 1990 market prices from 1989 to 1993. Also shown is
the annual average increase in Korea's GNP.

GROSS NATIONAL PRODUCT

<TABLE>
<CAPTION>
AS %
OF GNP
1989 1990 1991 1992 1993(1) 1993
----------- ----------- ----------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
(BILLIONS OF WON)
Gross National Product at Current
Market Prices:
Private Consumption................. W 79,424.0 W 96,387.7 W 115,042.8 W 129,735.2 W 143,743.3 54.5%
General Government Consumption...... 15,237.4 18,187.0 22,169.5 26,110.3 28,563.2 10.8
Gross Domestic Fixed Capital
Formation......................... 47,625.3 66,568.7 82,946.5 87,907.0 94,322.3 35.7
Increase in Stocks.................. 2,538.7 (270.0) 973.0 35.2 (3,115.2) (1.2)
Exports of Goods and Services....... 48,828.7 53,467.0 60,735.0 69,432.7 78,007.1 29.6
Less Imports of Goods and
Services.......................... (44,784.8) (54,417.2) (66,049.7) (71,840.0) (76,948.9) (29.2)
Statistical Discrepancy............. 295.4 (384.3) (82.6) (988.2) 976.4 0.4
Expenditures on Gross Domestic
Product........................... 149,164.7 179,539.0 215,734.4 240,392.2 265,548.1 100.6
Net Factor Income from the Rest of
the World......................... (1,223.1) (1,276.9) (1,494.5) (1,687.6) (1,687.2) (0.6)
----------- ----------- ----------- ----------- ----------- -------
Total........................... W 147,941.6 W 178,262.1 W 214,239.9 W 238,704.6 W 263,860.9 100.0%
=========== =========== =========== =========== =========== ========
Percentage Increase of GNP over
Previous Year:
At Current Prices................. 12.6% 20.5% 20.2% 11.4% 10.5%
At Constant 1990 Market Prices.... 6.9% 9.6% 9.1% 5.0% 5.6%
</TABLE>

- ---------------
(1) Preliminary.
Source: Monthly Bulletin, July 1994, The Bank of Korea.

49
<PAGE> 50

From 1988 through 1993, real GNP increased at an average annual rate of
7.2%. This high rate of growth was due to rapid growth in the export of goods
and services and in domestic fixed capital formation. The growth in the volume
of exports has been achieved by diversification of geographical markets and a
shift in emphasis in the composition of exports from agricultural products, raw
materials and textile products to manufactured goods. In 1989 and 1990, as
growth in exports slowed compared to prior periods, domestic construction
expenditures and private consumption expenditures increased, primarily as a
result of the steady increase in income levels in recent years and the
concomitant demand for housing and consumption goods, particularly consumer
durables such as passenger cars and household electric appliances. See "Foreign
Trade and Balance of Payments -- Foreign Trade." The following table sets forth
the industrial origin of Korea's GNP in current prices for the years 1989 to
1993.

GROSS NATIONAL PRODUCT BY INDUSTRIAL SECTOR

<TABLE>
<CAPTION>
AS %
OF GNP
1989 1990 1991 1992 1993(1) 1993
----------- ----------- ----------- ----------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
(BILLIONS OF WON)
Primary Industries
Agriculture, Forestry and Fisheries.... W 14,380.6 W 15,592.4 W 16,549.8 W 17,805.8 W 18,785.0 7.1%
Secondary Industries
Mining and Quarrying................... 992.0 1,025.0 1,142.4 928.5 923.3 0.3
Manufacturing.......................... 46,252.9 52,351.0 61,527.3 66,710.1 71,960.0 27.3
Construction........................... 13,358.2 20,736.6 30,035.3 32,870.6 36,228.2 13.7
Tertiary Industries
Electricity, Gas and Water............. 3,731.5 3,888.7 4,506.7 5,285.2 6,080.4 2.3
Transport, Storage and Communication... 10,328.1 12,017.3 14,356.7 16,390.1 18,626.0 7.1
Wholesale and Retail Trade, Restaurants
and Hotels........................... 19,822.0 23,110.6 26,419.5 28,802.6 31,487.2 11.9
Financing, Insurance, Real Estate and
Business Services.................... 21,302.1 26,801.0 33,052.3 39,923.0 45,303.4 17.2
Public Administration and Defense...... 5,984.4 7,386.0 8,995.1 10,616.1 11,674.5 4.4
Community, Social and Personal
Services............................. 9,966.1 11,974.5 14,617.0 17,593.8 20,092.7 7.6
Net Private Household Services, Import
Duties and Bank Service Charges...... 3,046.6 4,655.9 4,532.3 3,466.1 4,387.5 1.7
Net Factor Income from the Rest of the
World................................ (1,223.1) (1,276.9) (1,494.5) (1,687.6) (1,687.2) (0.6 )
----------- ----------- ----------- ----------- ----------- ------
Total.............................. W 147,941.6 W 178,262.1 W 214,239.9 W 238,704.6 W 263,860.9 100.0%
=========== =========== =========== =========== =========== =======
</TABLE>

- ---------------
(1) Preliminary.
Source: Monthly Bulletin, July 1994, The Bank of Korea.

PRICES, WAGES AND EMPLOYMENT

During the 1960s and early 1970s, Korea experienced a period of
increasingly high inflation rates. Government measures successfully reduced
inflation rates from 1982 to 1987; inflation, as measured by the Consumer Price
Index, increased by an average of 2.8%. However, inflation, as measured by the
Consumer Price Index, began to accelerate from 3.0% in 1987 to 7.1% in 1988,
5.7% in 1989, 8.6% in 1990 and 9.3% in 1991. Recently, the rate of inflation has
decreased to 6.2% in 1992 and 4.8% in 1993.

The following table shows selected price and wage indices for the periods
indicated:

<TABLE>
<CAPTION>
INCREASE INCREASE INCREASE
PRODUCER OVER CONSUMER OVER OVER
PRICE PREVIOUS PRICE PREVIOUS WAGE PREVIOUS UNEMPLOYMENT
INDEX(1) YEAR INDEX(1) YEAR INDEX(1)(2) YEAR RATE(1)(3)
---------- -------- ---------- -------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(1990=100) (%) (1990=100) (%) (1985=100) (%) (%)
1989..................... 96.0 1.5 92.1 5.7 166.7 21.2 2.6
1990..................... 100.0 4.2 100.0 8.6 198.1 18.8 2.4
1991..................... 104.7 4.7 109.3 9.3 232.7 17.5 2.3
1992..................... 107.0 2.2 116.1 6.2 268.1 15.2 2.4
1993..................... 108.6 1.5 121.7 4.8 300.7 12.2 2.8
</TABLE>

- ---------------
(1) Average for year.
(2) Nominal wages index of earnings in all industries.
(3) Expressed as a percentage of the economically active population.
Source: Monthly Bulletin, July 1994, The Bank of Korea; Report on Monthly Labor
Survey, December 1993, The Ministry of Labor.

50
<PAGE> 51

The history of the labor movement in Korea is short. Until the mid-1980s,
the Korean labor movement had been constrained by labor laws and policies which
limited the ability of workers and their unions to take collective action. In
December 1986 and November 1987, these laws were amended, relaxing constraints
on the formation of democratic unions and the staging of strikes. In 1988 and
1989, backed by stronger labor unions, the Korean work force won significant
wage concessions as workers demanded higher pay to compensate for the large
increases in productivity that they achieved in the 1980s. Labor disputes in
Korea have decreased since 1990. Since 1987, wages have increased sharply. The
rate of increase in the Wage Index in recent years has greatly exceeded the
rates of increase in both the Producer Price Index and the Consumer Price Index.
Monthly wages in all industries rose 21.2% in 1989, 18.8% in 1990, 17.5% in
1991, 15.2% in 1992 and 12.2% in 1993. These wage increases can be compared with
increases in productivity of 7.5% in 1989, 12.7% in 1990, 13.3% in 1991, 10.2%
in 1992 and 7.8% in 1993. These wage increases put increased inflationary
pressure on the economy, resulting in an increase of 8.6% in consumer prices in
1990, 9.3% in 1991, 6.2% in 1992 and 4.8% in 1993.

Korea's labor force is one of the economy's principal assets. In the period
from 1988 to 1993, the economically active population of Korea increased by
16.7% to 19.8 million, while the number of employees increased 17.2% to 19.2
million. The economically active population over 15 years old as a percentage of
the total population over 15 years old has remained fairly stable at between 58%
and 61% over the past decade. The labor force is well educated, with literacy
being almost universal among workers under 50.

INDUSTRY

Industrial production increased by 3.3% in 1989, 8.8% in 1990, 9.6% in
1991, 5.8% in 1992 and 4.4% in 1993. Because of the importance of exports to
Korean industry, increases in protectionist trade barriers by countries to which
Korean industry exports products would adversely affect industrial production.
See "Foreign Trade and Balance of Payments -- Foreign Trade."

The following table sets forth production indices for the principal
industrial products of Korea for the years 1989-1993 and their relative
contribution to total industrial production:

INDUSTRIAL PRODUCTION

<TABLE>
<CAPTION>
1990 INDEX
WEIGHT(1) 1989 1990 1991 1992 1993
---------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Mining.......................................................... 184.5 109.7 100.0 99.8 85.9 79.9
Coal........................................................ 95.8 116.2 100.0 84.4 66.6 51.6
Metal ores.................................................. 4.9 117.2 100.0 94.8 95.8 69.3
Other mining & quarrying.................................... 83.8 97.4 100.0 117.6 107.3 112.9
Manufacturing................................................... 9,392.9 91.8 100.0 109.7 116.2 121.1
Food products & beverages................................... 709.9 94.3 100.0 108.4 110.9 112.7
Tobacco products............................................ 93.2 94.2 100.0 101.1 104.7 107.2
Textiles.................................................... 633.1 100.8 100.0 98.1 94.6 86.5
Wearing apparel & fur articles.............................. 343.3 103.5 100.0 95.1 86.5 73.3
Leather, luggage, saddlery harness, handbags & footwear..... 385.7 93.2 100.0 93.4 86.5 66.0
Wood & products of wood & cork.............................. 104.5 96.2 100.0 108.2 103.6 85.6
Pulp, paper & paper products................................ 227.7 94.9 100.0 103.9 110.5 119.5
Publishing, printing & reproduction of record media......... 223.4 92.2 100.0 103.1 114.6 110.6
Coke, refined petroleum products & nuclear fuel............. 379.8 93.6 100.0 128.8 164.0 179.4
Chemicals & chemical products............................... 826.5 86.6 100.0 116.3 138.1 152.3
Rubber & plastic products................................... 449.4 96.4 100.0 108.3 114.8 119.9
Non-metallic mineral products............................... 504.1 93.2 100.0 116.0 123.6 124.7
Basic metals................................................ 555.3 89.4 100.0 110.8 115.9 129.0
Fabricated metal products................................... 416.6 92.7 100.0 108.1 103.2 102.4
Machinery & equipment, n.e.c................................ 916.2 89.7 100.0 110.7 107.6 114.4
Office, accounting & computing machinery.................... 150.5 89.6 100.0 104.9 112.3 139.9
Electrical machinery & apparatus, n.e.c..................... 276.6 83.4 100.0 108.1 115.6 121.4
Radio, television & communication equipment................. 768.1 92.2 100.0 115.4 125.4 136.3
Medical precision & optical instruments, watches............ 118.9 104.0 100.0 105.8 106.1 118.0
Motor vehicles & trailers................................... 814.0 80.8 100.0 115.4 131.4 153.2
Other transport equipment................................... 205.6 89.7 100.0 118.0 147.3 136.3
Furniture & n.e.c........................................... 290.5 102.2 100.0 101.6 94.5 87.7
</TABLE>

51
<PAGE> 52

<TABLE>
<CAPTION>
1990 INDEX
WEIGHT(1) 1989 1990 1991 1992 1993
---------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Electricity & Gas............................................... 422.6 87.8 100.0 111.3 124.4 139.2
Electricity................................................. 410.8 87.8 100.0 110.4 121.6 134.2
Gas......................................................... 11.8 -- 100.0 152.2 219.6 315.3
---------- ----- ----- ----- ----- -----
All Items....................................................... 10,000.0 91.9 100.0 109.6 116.6 121.1
Percentage Increase of All Items Over Previous Year......... -- 3.3% 8.8% 9.6% 5.8% 4.4%
</TABLE>

- ---------------
(1) Index weights were established on the basis of an industrial census in 1990
and reflect the average annual value added by production in each of the
classifications shown, expressed as a percentage of total value added in the
mining, manufacturing and electricity and gas industries in that year.
Source: Monthly Statistics of Korea, June 1994, National Statistical Office,
Monthly Bulletin, July 1994, The Bank of Korea.

Manufacturing. The manufacturing sector has grown rapidly in recent years.
In 1992 and 1993, however, the production of manufactured goods increased only
5.9% and 4.2%, respectively, compared with 9.7% in 1991, as a result of overall
slow economic growth. Production activities, especially in the light industries,
were not brisk due to reduced price competitiveness in world markets. The heavy
chemical industry, which had shown steady growth including in export markets,
increased only 9.2% in 1992 and 8.4% in 1993, compared with 13.7% in 1991.

Performance has been particularly strong in the petrochemical,
semiconductor and automobile industries, which have experienced strong growth in
domestic and overseas markets.

The petrochemical industry in 1992 remained strong. Production grew by
35.7% over the previous year, as petrochemical facilities completed in 1991
became fully operational in 1992. Domestic demand increased 11.5% in 1992,
compared with a 5.8% increase in 1991, because of substantial growth in the
automobile and electronics industries. Exports in 1992 grew 95.7% with a surge
in demand from China attributable to the progressing industrialization of that
country. In 1993 the production of the petrochemical industry grew by 11.4%.

The electronics industry grew at an average annual rate of approximately
12.0% during the period 1987 to 1992. This growth may be traced to both domestic
and overseas demand, as well as to encouragement by the Korean government of
technology through tax incentives, loans at favorable interest rates and tariff
protection. Korea is among the world's largest producers of electronic products
and semiconductors. The electronics goods produced in Korea include personal
computers, videocassette recorders and compact disc players.

Semiconductor sales grew 30.4% from 1991 to 1992. Semiconductor exports
increased 20.2% from 1991 to 1992. Both domestic and overseas demand grew with
the recovery of the computer and communications industries in the United States
and with the growth of the computer and consumer electronics industries in
Southeast Asian countries.

The Korean automobile industry made significant progress in the 1980s. In
1984, Hyundai Motor, Korea's leading car manufacturer, began exporting cars to
Canada and in 1986 shipped its first cars to the United States. Daewoo Motors
began exporting cars to the United States in 1987, and Kia Motors began
exporting cars to the United States in 1988. Recently, exports to Europe and
Asia have become increasingly important as United States demand for Korean cars
has declined. Automobile manufacturers grew by 18.6% from 1,730,000 cars in 1992
to 2,051,000 cars in 1993. This growth reflects increasing domestic demand,
sales stimulated by the introduction of new models, and the diversification of
exports markets. Export growth, which faltered in 1989 and 1990, has since shown
gradual recovery.

The textiles and apparel industry, which grew rapidly in the early 1970s,
has grown more slowly in recent years as a result of severe worldwide price
competition and increased trade barriers.

Supported by large increases in domestic demand for steel due to the growth
of other heavy industry and large scale public investment in road, harbor and
housing construction, steel production increased from 16.8 million tons in 1987
to approximately 33.8 million tons in 1993. This growth has been achieved in
large part by the expansion of POSCO integrated facilities, which in 1993
produced approximately 22.5 million tons of crude steel. These increases in
production have permitted a substantial increase in iron and steel exports.

52
<PAGE> 53

The shipbuilding industry is an important aspect of the Korean economy.
Korea's share of world shipbuilding production is second only to Japan's.

Construction. The construction industry has become one of the major
industries in Korea, contributing 13.7% to Korea's GNP in 1993. Recently, the
domestic construction markets have expanded rapidly with orders rising, from
W 32,870.6 billion in 1992 to W 36,228.2 billion in 1993. In 1993, the amount of
new overseas construction orders under contract reached U.S.$5,117 million.

AGRICULTURE, FORESTRY AND FISHERIES

The contribution of agriculture, forestry and fisheries to Korea's GNP has
declined from 9.7% in 1989 to 7.1% in 1993 as a result of industrialization.

The Government's agricultural policy continues to emphasize increasing food
grain production, the development of irrigation systems, land consolidation and
reclamation, seed improvement, mechanization measures to combat drought and
flood damage, and increasing agricultural incomes. The Government has encouraged
the development of the fishing industry by encouraging the building of large
fishing vessels, and the modernization of fishing equipment, marketing
techniques and distribution outlets.

Owing to geographical and physical constraints, crop yields are limited,
thereby necessitating dependence on imports for certain basic foodstuffs.

ENERGY

<TABLE>
Korea has no domestic oil or gas production and is heavily dependent on
imported oil to meet its energy requirements. The performance of the Korean
economy is, therefore, broadly affected by the price of oil, resulting in high
inflation when world oil prices have risen sharply. Any significant long-term
increase in the price of oil may increase inflationary pressures on the Korean
economy and adversely affect Korea's balance of trade. See "Foreign Trade and
Balance of Payments -- Foreign Trade." The following table shows Korea's
dependence on imports for energy consumption for the years 1989 to 1993:

DEPENDENCE ON IMPORTS FOR ENERGY CONSUMPTION

<CAPTION>
TOTAL IMPORT
ENERGY DEPENDENCE
CONSUMPTION IMPORTS RATIO
----------- ------- ----------
(MILLION TONS OF OIL EQUIVALENTS)
<S> <C> <C> <C>
1989.............................. 81.7 69.8 85.5%
1990.............................. 93.2 81.9 87.9%
1991.............................. 103.6 94.6 91.3%
1992.............................. 116.0 108.5 94.8%
1993.............................. 126.6 119.8 94.6%
<FN>
- ---------------
Source: Monthly Energy Statistics, May 1994, Korea Energy Economics Institute;
Major Statistics of the Korean Economy, 1994, National Statistical Office.
</TABLE>

To reduce its dependence on oil imports, the Government has encouraged
efforts to implement an energy source diversification program, with primary
emphasis on nuclear energy. The total Korean nuclear power generating capacity
at the end of 1992 was 7,616 megawatts, accounting for 31.6% of total annual
power generation. Under the government's program, 18 nuclear power plants are
scheduled to be completed during the period from 1991 to 2006. Growing public
resistance against nuclear power, however, has become a major obstacle to
accomplishing this program. The following table sets out the primary sources of
energy consumed

53
<PAGE> 54
<TABLE>
in Korea, expressed in oil equivalents and as a percentage of total energy
consumption, for the period 1989 to 1993:

CONSUMPTION OF ENERGY BY SOURCE

<CAPTION>
COAL PETROLEUM NUCLEAR OTHER TOTAL
--------------- --------------- --------------- -------------- ----------------
QUANTITY % QUANTITY % QUANTITY % QUANTITY % QUANTITY %
-------- ---- -------- ---- -------- ---- -------- --- -------- -----
(MILLION TONS OF OIL EQUIVALENTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989............. 24.5 30.0 40.5 49.6 11.8 14.4 4.9 6.0 81.7 100.0
1990............. 24.4 26.2 50.2 53.9 13.2 14.2 5.4 5.8 93.2 100.0
1991............. 24.5 23.7 59.6 57.5 14.1 13.6 5.4 5.2 103.6 100.0
1992............. 23.6 20.4 71.7 61.8 14.1 12.2 6.5 5.6 116.0 100.0
1993............. 25.4 20.1 78.5 62.0 14.5 11.5 8.1 6.4 126.5 100.0
<FN>
- ---------------
Source: Monthly Energy Statistics, May 1994, Korea Energy Economics Institute;
Major Statistics of the Korean Economy, 1994, National Statistical Office.
</TABLE>

THE FINANCIAL SECTOR

Korea's financial sector has grown to accommodate the development of the
economy and today comprises a banking system, a range of non-banking financial
institutions and a securities market.

Korean financial institutions may be divided into two main categories:
monetary institutions and other financial institutions. Monetary institutions
are comprised of The Bank of Korea and deposit-taking banks. Deposit-taking
banks are in turn divided into commercial banks and special banks according to
their legal status and the banking businesses in which they may engage. Other
financial institutions consist of development institutions, life insurance
companies and investment companies.

Commercial banks are classified into city banks, regional banks and foreign
bank branches. City banks engage in both domestic and foreign business and are
owned by the private sector. Regional banks perform similar functions to the
city banks.

Korea's commercial banks have a high level of non-performing assets,
reflecting in part the high leverage typical of Korean companies and the decline
in several Korean industries, notably shipping and overseas construction during
the 1980s. The Bank of Korea selectively extends concessional loans to
commercial banks burdened by such non-performing loans.

Specialized banks are established by statutes and currently include:
Industrial Bank of Korea, The Citizens National Bank, The Korea Housing Bank,
National Agricultural Cooperative Federation, The National Federation of
Fisheries Cooperatives and National Livestock Cooperative Federation.

Other financial institutions are divided into development institutions,
investment institutions, savings institutions and insurance institutions.
Development institutions include The Korea Development Bank, The Export-Import
Bank of Korea and the Korea Long Term Credit Bank. There are 24 investment and
finance companies and six joint-venture merchant banks. The financial sector
also includes a number of domestic and foreign insurance companies and mutual
savings companies.

In June 1993, the Korean government announced a plan for restructuring and
liberalizing the financial services industry. The plan includes accelerating a
1991 plan for deregulation of interest rates, changing the measures of monetary
control, liberalization of loans by banks, development and liberalization of
short-term financing markets, internationalization of the Won and reducing
restrictions on foreign currency transactions. The plan also includes opening
capital markets and financial industry liberalization programs. The financial
industry will be restructured through specialization as well as adjustments in
the business scope of financial service firms.

In August 1993, the Government introduced a real-name financial
transactions system. Financial institutions are now required to confirm,
whenever they enter into financial transactions with their clients, that those
clients are using their real names. The system was introduced to increase
transparency in financial

54
<PAGE> 55

transactions and is expected by the Government to enhance the integrity and
efficiency of the Korean financial markets. See "The Securities Markets of Korea
- -- Recent Market and Economic Developments."

MONETARY POLICY

Established in 1950, The Bank of Korea is the central bank and the sole
currency issuing bank in Korea. Monetary and credit policies of The Bank of
Korea are formulated and controlled by a nine-member Monetary Board comprised of
the Minister of Finance, the Governor of The Bank of Korea and seven other
members. The Monetary Board regulates the activities of banking institutions and
sets and implements monetary policy. The Monetary Board determines maximum
interest rates and the rediscount rate of The Bank of Korea. It also fixes
reserve ratios and exercises other normal methods of monetary control as well as
regulating the activities of banking institutions.

Although The Bank of Korea has primary responsibility for monetary policy
in Korea, the Government, through the Ministry of Finance, does exert
considerable influence on monetary policy. For example, the Ministry of Finance
has the power to request the reconsideration of resolutions adopted by the
Monetary Board and, if such a request is rejected by the Monetary Board, the
President has the authority to override the Monetary Board's decision.

Monetary policy is implemented by influencing the reserve positions of
banking institutions, principally through changes in the terms and conditions of
discounts, open market operations and changes in reserve requirements. The Bank
of Korea also sets interest rates on certain types of deposits and loans and, in
periods of extreme monetary expansion, may directly control the volume and
nature of bank credit. In practice, The Bank of Korea's power to set interest
rates and to impose direct credit controls have proved to be the most effective
means of implementing monetary policy.

In December 1988, the Government deregulated interest rates on loans (other
than loans entailing government subsidies) and certain types of deposits
(including such money market instruments as certain types of commercial paper,
certificates of deposit, bank debentures, corporate bonds, cash management
accounts and development trust funds, but excluding traditional time deposits
and savings deposits).

In August 1991, the Monetary Board adopted a four-stage interest rate
deregulation plan in furtherance of the deregulation process. Pursuant to such
plan, the Government has recently further deregulated interest rates on other
financial products, including certain time deposits. In addition, The Bank of
Korea has indicated that it will rely increasingly on adjustments in the
discount rate and in reserve requirements to implement monetary policy, and less
frequently on direct restrictions on bank credit policies. In June 1993, the
Korean government announced that by the end of 1993 it would lift all
restrictions on interest rates for loans, long-term (not less than two years)
deposits, short-term (less than two years) corporate and financial debts,
monetary stabilization bonds and public bonds. It also announced that during
1994 to 1996, interest rates will be liberalized for all deposits other than
demand deposits, and that in 1997 limitations on interest rates for demand
deposits gradually will be lifted. The Korean government has also taken steps to
encourage Korean companies to replace debt with equity financing. See "The
Securities Markets of Korea -- Recent Market and Economic Developments."

MONEY SUPPLY

From 1983 to 1984, the Korean government, in an effort to consolidate a
foundation for price stability, maintained a tight control of monetary
aggregates. However, as economic growth slowed in 1985, the government reversed
its tight monetary policy and money supply increased 15.6% in 1985. In response
to greatly expanded economic activity, the money supply increased at a rate of
18.4% in 1986, 19.1% in 1987, 21.5% in 1988, 19.8% in 1989, 17.2% in 1990, 21.9%
in 1991, 14.9% in 1992 and 16.6% in 1993.

55
<PAGE> 56
<TABLE>
The following table shows the money supply for the period 1989 to 1993:

MONEY SUPPLY

<CAPTION>
DECEMBER 31,
---------------------------------------------------------------
1989 1990 1991 1992 1993
---------- ---------- ---------- ---------- -----------
(BILLIONS OF WON)
<S> <C> <C> <C> <C> <C>
Money Supply (M1)............. W 14,329.0 W 15,905.3 W 21,752.4 W 24,586.3 W 29,041.4
Quasi-money(1)................ 44,309.0 52,802.2 61,993.5 71,672.3 83,177.8
---------- ---------- ---------- ---------- -----------
Money Supply (M2)(2).......... W 58,638.0 W 68,707.5 W 83,745.9 W 96,258.6 W 112,219.2
Percentage Increase Over
Previous Year............ 19.8% 17.2% 21.9% 14.9% 16.6%
<FN>
- ---------------
(1) Comprising time and savings deposits and residents' foreign currency deposits at monetary institutions.
(2) Money supply is the sum of currency in circulation, demand deposits and quasi-money.
Source: Monthly Bulletin, July 1994, The Bank of Korea; Major Statistics of the Korean Economy,
June 1994, National Statistical Office.
</TABLE>

FOREIGN TRADE AND BALANCE OF PAYMENTS

FOREIGN TRADE

Foreign trade is vital to the economy of Korea, which lacks natural
resources and must rely on extensive trading activity as a base for growth.
Virtually all domestic requirements for petroleum, wood and rubber are imported,
as are much of Korea's requirements for coal and iron ore. Korea has a very high
ratio of exports as a percentage of GNP, and the international economic
environment is accordingly of crucial importance to Korea's economy. From 1989
to 1993, export growth averaged 6.3%. In 1991, 1992 and 1993 export growth was
10.5%, 6.6% and 7.3%, respectively. Such growth levels reflect reduced
international competitiveness resulting primarily from the continuation of the
relatively high value of the Won, domestic wage increases, increased foreign
competition, and economic slowdowns in countries constituting Korea's principal
export markets.

Korea's trade balance has been highly sensitive to world crude oil prices.
The country's trade deficit reached U.S.$4.4 billion in 1979, the year of the
second large oil price rise of that decade. After that year, Korea's balance of
trade improved. In 1986, Korea recorded the first substantial trade surplus,
U.S.$4.2 billion, in the nation's history. The trade surplus nearly doubled to
U.S.$7.7 billion in 1987 and increased to U.S.$11.5 billion in 1988. In 1989,
the trade surplus declined to U.S.$4.6 billion, due principally to the decline
in export growth. In 1990, 1991 and 1992, Korea recorded trade deficits of
U.S.$2.0 billion, U.S.$7.0 billion and U.S.$2.1 billion, respectively. The
balance of trade in 1990, 1991 and 1992 has been adversely affected by increases
in oil prices that occurred in late 1990 as a result of the Persian Gulf crisis,
by increased imports of machinery and other capital goods and consumer goods, by
the economic recession in countries constituting important markets for Korean
exports, principally the United States, and by increased competition for Korea's
exports in certain markets, principally exports to Japan from other Asian
countries. The balance of trade could continue to be adversely affected if,
among other things, Korea's trading partners increase barriers against imports,
prices for essential natural resources imported by Korea increased or the
economic slowdown continues in countries constituting important markets for
Korean exports. However, Korea recorded a trade surplus of U.S.$1.9 billion in
1993.

Korea's largest trading partners are the United States and Japan. In 1993,
the United States accounted for approximately 22.1% of Korea's total exports and
approximately 21.4% of Korea's total imports, while Japan accounted for
approximately 14.1% of Korea's total exports and approximately 23.9% of Korea's
total imports. No other trading partner accounted for over 8.0% of Korea's total
exports or total imports. Over 85% of Korea's exports are manufactured goods,
machinery and transportation equipment, whereas the bulk of imports are
commodities such as oil and iron ore, although imports of consumer durables have
grown in recent years following the lowering of customs tariffs on many items as
part of a five-year import liberalization program begun in 1984. From 1979 until
the recent Gulf War, world oil and commodity prices had risen more slowly than
inflation rates, and several of Korea's major imports (including oil, iron ore
and coal) experienced price weakness.

56
<PAGE> 57
<TABLE>
The following tables contain information regarding Korea's exports and imports by major commodity groups for the years 1989
to 1993, and the geographic distribution of Korea's foreign trade for each of the years 1989 through 1993.

EXPORTS BY MAJOR COMMODITY GROUPS (F.O.B.)(1)
<CAPTION>
AS % AS % AS % AS % AS %
1989 OF TOTAL 1990 OF TOTAL 1991 OF TOTAL 1992 OF TOTAL 1993 OF TOTAL
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(MILLIONS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Crude Materials.... $ 902.0 1.4% $ 990.6 1.5% $ 989.1 1.4% $ 1,072.6 1.4% $ 1,160.0 1.4%
Minerals (including
Fuels)........... 686.6 1.1 697.2 1.1 1,508.6 2.1 1,742.3 2.3 1,851.7 2.3
Chemicals 2,049.7 3.3 2,511.3 3.9 3,190.0 4.4 4,454.9 5.8 4,921.9 6.0
Manufactured
Goods............ 13,733.9 22.0 14,357.2 22.1 16,078.7 22.4 18,490.8 24.1 20,685.6 25.2
Machinery and
Transportation
Equipment........ 23,590.3 37.8 25,544.5 39.3 29,978.3 41.7 32,547.4 42.4 36,950.4 44.9
Miscellaneous
Manufactured
Goods............ 18,970.3 30.4 18,573.3 28.6 17,649.6 24.6 15,883.2 20.7 14,233.3 17.3
Others............. 2,444.4 3.9 2,341.63 3.6 2,475.8 3.4 2,440.2 3.2 2,433.0 3.0
--------- ----- --------- ----- -------- ----- --------- ----- --------- -----
Total.......... $62,377.2 100.0% $65,015.7 100.0% $71,870.1 100.0% $76,631.5 100.0% $82,235.9 100.0%
========= ===== ========= ===== ========= ===== ========= ===== ========= =====
<FN>
- ---------------
(1) These entries are derived from customs clearance statistics.
Source: Monthly Bulletin, July 1994, The Bank of Korea; Economic Statistics Yearbook, 1994, The Bank of Korea.
</TABLE>

<TABLE>
IMPORTS BY MAJOR COMMODITY GROUPS (C.I.F.)(1)
<CAPTION>
AS % AS % AS % AS % AS %
1989 OF TOTAL 1990 OF TOTAL 1991 OF TOTAL 1992 OF TOTAL 1993 OF TOTAL
---- -------- ---- -------- ---- -------- ---- -------- ---- --------
(MILLIONS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Crude Materials.... $ 8,728.2 14.2% $ 8,647.8 12.4% $ 8,900.2 10.9% $ 8,314.9 10.2% $8,869.5 10.6%
Minerals (including
Fuels)........... 7,627.1 12.4 11,023.2 15.8 12,747.9 15.6 14,636.1 17.9 15,052.6 18.0
Chemicals.......... 7,157.7 11.6 7,433.5 10.6 8,288.6 10.2 7,667.6 9.4 8,234.8 9.8
Manufactured
Goods............ 9,672.2 15.7 10,580.8 15.1 13,461.7 16.5 11,898.4 14.5 12,069.7 14.4
Machinery and
Transportation
Equipment........ 21,104.8 34.3 23,940.0 34.3 28,250.7 34.6 28,965.7 35.4 28,416.8 33.9
Miscellaneous
Manufactured
Goods............ 3,555.0 5.8 4,241.6 6.1 5,102.9 6.3 5,227.4 6.4 6,147.8 7.3
Others............. 3,610.2 5.9 3,976.8 5.7 4,772.9 5.9 5,065.2 6.2 5,009.1 6.0
--------- ----- --------- ------- --------- ----- --------- ----- --------- -----
Total.......... $61,464.8 100.0% $69,843.7 100.0% $81,524.9 100.0% $81,775.3 100.0% $83,800.1 100.0%
========= ====== ========= ======= ========= ===== ========= ===== ========= =====
<FN>
- ---------------
(1) These entries are derived from customs clearance statistics.
Source:Monthly Bulletin, July 1994, The Bank of Korea; Economic Statistics Yearbook, 1994, The Bank of Korea.
</TABLE>

<TABLE>
EXPORTS
<CAPTION>
COUNTRY 1988 1989 1990 1991 1992 1993
------- ---- ---- ---- ---- ---- ----
(PERCENTAGE OF TOTAL EXPORTS)
<S> <C> <C> <C> <C> <C> <C>

U.S.A........................ 35.3 33.1 29.8 25.8 23.6 22.0
Canada....................... 2.8 3.0 2.7 2.4 2.1 1.7
United Kingdom............... 3.2 3.0 2.7 2.5 2.4 2.0
France....................... 1.8 1.4 1.7 1.6 1.3 1.1
Germany...................... 3.9 3.4 4.4 4.4 3.8 4.4
Netherlands.................. 1.4 1.2 1.5 1.6 1.3 1.2
Japan........................ 19.8 21.6 19.4 17.2 15.1 14.1
Hong Kong.................... 5.9 5.4 5.8 6.6 7.7 7.8
Saudi Arabia................. 1.9 1.3 1.1 1.4 1.2 1.2
All Others................... 24.0 26.6 30.9 36.6 41.5 44.5
----- ----- ----- ----- ----- -----
Total(1)................ 100.0 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== ===== =====
</TABLE>

57
<PAGE> 58
<TABLE>

IMPORTS

<CAPTION>
COUNTRY 1988 1989 1990 1991 1992 1993
------- ---- ---- ---- ---- ---- ----
(PERCENTAGE OF TOTAL IMPORTS)
<S> <C> <C> <C> <C> <C> <C>
U.S.A........................ 24.6 25.9 24.3 23.2 22.4 21.4
Canada....................... 2.3 2.7 2.1 2.3 1.9 2.0
United Kingdom............... 1.8 1.5 1.8 1.9 1.7 1.7
France....................... 2.2 1.4 1.8 1.9 1.9 2.0
Germany...................... 4.0 4.3 4.7 4.5 4.6 4.7
Netherlands.................. 1.0 0.6 0.7 0.7 0.8 0.9
Japan........................ 30.7 28.4 26.6 25.9 23.8 23.9
Hong Kong.................... 1.1 1.0 0.9 0.9 1.0 1.1
Saudi Arabia................. 1.6 1.7 2.5 4.0 4.6 4.5
All Others................... 30.7 32.5 34.8 34.7 37.3 37.8
----- ----- ----- ----- ----- -----
Total(1)................ 100.0 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== ===== =====
<FN>
- ---------------
(1) Amounts may not add up due to rounding.
Source: Monthly Bulletin, July 1994, The Bank of Korea; Economic Statistics
Yearbook, 1994, The Bank of Korea.
</TABLE>

Following export surges in 1986, 1987 and the beginning of 1988, the export
growth rate began to decline under the influence of the "triple demerits" of an
appreciating Won, rising costs of raw materials and rising wages. To offset
these adverse trends, domestic enterprises have invested more in factory
automation, thereby accelerating the movement away from low value-added,
labor-intensive production. Efforts have also been made to diversify export
markets.

<TABLE>
The following table summarizes Korea's balance of trade from 1989 to 1993:

BALANCE OF TRADE

<CAPTION>
EXPORTS AS
BALANCE % OF
EXPORTS(1) IMPORTS(1) OF TRADE IMPORTS
----------- ----------- --------- ----------
(MILLIONS OF U.S. DOLLARS)
<S> <C> <C> <C> <C>
1989........................................ 61,408.7 56,811.5 4,597.2 109.1
1990........................................ 63,123.6 65,127.2 (2,003.6) 96.9
1991........................................ 69,581.5 76,561.3 (6,979.8) 90.9
1992........................................ 75,169.4 77,315.8 (2,146.4) 97.2
1993........................................ 80,949.9 79,089.7 1,860.2 102.4
Average Annual Percentage Growth Rate
1989-1993................................. 6.3% 10.7%
<FN>
- ---------------
(1) These entries are derived from trade statistics and are valued on a f.o.b.
basis.
Source: Economic Statistics Yearbook, 1994, The Bank of Korea.
</TABLE>

BALANCE OF PAYMENTS

From 1986 to 1989, Korea had a surplus on the current account of its
balance of payments. The surplus increased to U.S.$14.2 billion in 1988 before
declining to U.S.$5.1 billion in 1989. Korea incurred a deficit on the current
account of its balance of payments of U.S.$2.2 billion during 1990, with
deficits in the visible and invisible trade balances. In 1990, exports increased
by 2.8% to U.S.$63.1 billion. During the same period imports increased 14.6% to
U.S.$65.1 billion. The invisible trade balance decreased from a U.S.$0.2 billion
surplus in 1989 to a deficit of U.S.$0.5 billion in 1990. The deficit on the
current account of its balance of payments increased to U.S.$8.7 billion in
1991, U.S.$4.5 billion in 1992. The current account recorded a U.S.$0.4 billion
surplus in 1993, but is expected to record a deficit in 1994.

58
<PAGE> 59
<TABLE>
The following table sets forth certain information with respect to Korea's
balance of payments for the years 1989 to 1993:

BALANCE OF PAYMENTS

<CAPTION>
CLASSIFICATION 1989 1990 1991 1992 1993
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Current Balance...................... 5,054.6 (2,179.4) (8,727.7) (4,528.5) 384.6
Trade Balance................... 4,597.2 (2,003.6) (6,979.8) (2,146.4) 1,860.2
Exports(1)................. 61,408.7 63,123.6 69,581.5 75,169.4 80,949.9
Imports(1)................. 56,811.5 65,127.2 76,561.3 77,315.8 79,089.7
Invisible Trade Balance......... 210.8 (450.6) (1,595.5) (2,614.3) (1,966.8)
Unrequited Transfer (Net)....... 246.6 274.8 (152.4) 232.2 491.2
Long-Term Capital Balance(2)......... (3,362.5) 547.5 4,185.8 7,232.7 8,899.8
Loans and Foreign Investment.... (1,104.8) 33.3 3,091.2 5,160.3 8,707.4
Other (Net)..................... (2,257.7) 514.2 1,094.6 2,072.4 (676.9)
Basic Balance........................ 1,692.1 (1,631.9) (4,541.9) 2,704.2 9,284.4
Short-term Capital Balance(2)........ 60.3 3,333.7 41.2 1,109.9 (2,021.2)
Errors and Omissions................. 700.7 (1,975.7) 759.9 1,084.0 (721.0)
Overall Balance...................... 2,453.1 (273.9) (3,740.8) 4,898.1 6,542.2
Financial Account(3)................. (2,453.1) 273.9 3,740.8 (4,898.1) (6,542.2)
Liabilities..................... 966.3 1,486.6 8,429.8 1,947.4 673.7
Assets.......................... (3,419.4) (1,212.7) (4,689.0) (6,845.5) (7,215.9)
<FN>
- ------------------
(1) These entries are derived from trade statistics and are valued on a f.o.b.
basis.
(2) The distinction between long-term and short-term capital is based on an
original maturity of one year or more.
(3) Includes borrowings from the International Monetary Fund, syndicated bank
loans and short-term borrowings.
Source: Economic Statistics Yearbook, 1994, The Bank of Korea.
</TABLE>

<TABLE>
The following table shows Korea's total official reserves as of December 31
for the years 1989 to 1993:

TOTAL OFFICIAL RESERVES

<CAPTION>
1989 1990 1991 1992 1993
--------- --------- --------- --------- ---------
(MILLIONS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C>
Gold(1)............................. $ 31.6 $ 31.6 $ 32.3 $ 32.6 $ 33.3
Foreign Exchange(2)................. 14,977.8 14,459.1 13,306.0 16,639.9 19,704.2
--------- --------- --------- --------- ---------
Total Gold and Foreign
Exchange..................... 15,009.4 14,490.7 13,338.3 16,672.5 19,737.5
Reserve Position at IMF............. 234.2 317.3 364.9 439.3 466.7
Special Drawings Rights............. 1.6 14.3 29.8 42.1 58.2
--------- --------- --------- --------- ---------
Total Official Reserves........ $15,245.2 $14,822.4 $13,733.0 $17,153.9 $20,262.4
========= ========= ========= ========= =========
<FN>
- ------------------
(1) For this purpose, domestically-owned gold is valued at U.S.$42.22 per troy
ounce (31.1035 grams) and gold deposited overseas is calculated at cost of
purchase.
(2) Since January 1, 1988, foreign exchange holdings of domestic foreign
exchange banks have been excluded.
Source: Monthly Bulletin, July 1994, The Bank of Korea.
</TABLE>

EXCHANGE CONTROLS

Only authorized foreign exchange banks are permitted to effect foreign
exchange transactions. Approval by the Ministry of Finance is required to become
an authorized foreign exchange bank. Authorized foreign exchange banks can enter
into foreign exchange transaction contracts directly with overseas banks.

Authorization or approval, either by the Ministry of Finance, The Bank of
Korea or authorized foreign exchange banks, as applicable, is necessary for
overseas remittances, the issuance of international bonds and certain other
instruments, overseas investments and certain other transactions involving
foreign exchange payments in conformity with the Foreign Exchange Management Law
and Regulations thereunder unless such authorization or approval is exempted
under such regulations. Remittance of principal and profits to their home
countries by overseas investors is guaranteed under the Foreign Capital
Inducement Act.

59
<PAGE> 60

FOREIGN EXCHANGE

The Bank of Korea, prior to 1989, set daily exchange rates for the Won
based on a trade-weighted multi-currency basket system. This rate was known as
The Bank of Korea concentration base rate. In 1989, the Korean government
announced a three phase plan to produce a free-floating exchange rate system.
The first phase allowed the domestic banks to decide buying and selling rates of
foreign exchange within narrow limits of The Bank of Korea concentration base
rate. In the second phase, which took effect in March 1990, the trade-weighted
multi-currency basket system was replaced by a system whereby the foreign
exchange rates are determined by averaging the previous day's inter-bank rates
settled through the Korean Financial Telecommunications and Clearings Institute
("KFTCI"), weighted by trading volume. This system is known as the Market
Average Exchange Rate System. Under this system, foreign exchange rates are
permitted to move each day within narrow ranges on either side of that day's
published market average exchange rates announced by the KFTCI. In the third
phase, the Government intends to gradually enlarge the ranges through 1996 and
to remove controls on exchange rates by 1997.

<TABLE>
The following table shows the exchange rate between the Won and the U.S.
Dollar (in Won per U.S. Dollar) at the dates indicated:

EXCHANGE RATE

<CAPTION>
WON/U.S.
DOLLAR
EXCHANGE
RATE(1)
-------------
<S> <C>
December 31, 1990........................................................... 716.40
June 30, 1991............................................................... 723.10
December 31, 1991........................................................... 760.80
June 30, 1992............................................................... 790.20
December 31, 1992........................................................... 788.40
June 30, 1993............................................................... 803.70
December 31, 1993........................................................... 808.10
January 31, 1994............................................................ 808.10
February 28, 1994........................................................... 808.00
March 31, 1994.............................................................. 806.50
April 30, 1994.............................................................. 807.50
May 31, 1994................................................................ 806.10
June 30, 1994............................................................... 805.50
July 31, 1994............................................................... 802.60
August 31, 1994............................................................. 801.10
<FN>
- ---------------
(1) For all dates prior to March 31, 1990, exchange rates are The Bank of Korea
concentration base rates on such dates. Exchange rates for subsequent dates
are the market average exchange rates on such dates, as announced by the
Korea Financial Telecommunications and Clearings Institute.
Source: Monthly Bulletin, July 1994, The Bank of Korea.
</TABLE>

The market average exchange rate between the Won and the U.S. Dollar as of
a recent date is set forth on the inside cover page of this Prospectus.

GOVERNMENT FINANCE

Responsibility for the preparation of the national budget lies with the
Economic Planning Board, and the administration of the Government's finances is
the responsibility of the Ministry of Finance. The fiscal year commences on
January 1, and the budget must be submitted to the National Assembly for its
approval not later than 90 days prior to the commencement of the fiscal year.
Supplementary budgets revising the original budget may be submitted to the
National Assembly for its approval at any time during the fiscal year.

The fiscal budget of the Government consists of a General Account and
Special Accounts. Revenues in the General Account include national taxes, stamp
duties and profits from government monopolies. Expenditures include those for
general administration, national defense, community service, education, health,

60
<PAGE> 61

social security services, certain annuities and pensions and local finance which
comprises the transfer of tax revenues to local governments.

Special Accounts are set up to segregate the accounts of certain functions
of the Government to achieve more effective budgetary control and
administration. They include government activities of a business nature, such as
economic development, roads, monopolies, railways and communications and
administration of loans received from official international financial
organizations and from foreign governments.

<TABLE>
The following table sets forth Government revenues and expenditures for the
years 1989 through 1993:

CONSOLIDATED CENTRAL GOVERNMENT REVENUES AND EXPENDITURES

<CAPTION>
1989 1990 1991 1992 1993(1)
---- ---- ---- ---- -------
(BILLIONS OF WON)
<S> <C> <C> <C> <C> <C>
Revenues
Internal Taxes................ W 15,211.0 W 19,134.2 W 24,029.8 W 30,099.1 W 34,178.2
Customs Duties................ 2,099.1 2,774.5 3,435.3 3,153.4 2,885.9
Defense Surtax................ 3,614.7 4,575.1 1,462.5 329.7 269.1
Education Surtax.............. 423.4 521.3 816.0 943.2 998.3
Monopoly Profits.............. 74.6 -- -- -- --
Government Enterprises
Receipts (Net)............. 408.3 590.5 810.2 1,042.2 902.3
Others........................ 7,016.8 6,942.7 8,774.7 10,699.1 13,893.6
---------- ---------- ---------- ---------- ----------
Total Revenues.................. 28,847.9 34,538.3 39,328.5 46,266.6 53,127.9
---------- ---------- ---------- ---------- ----------
Expenditures
Defense....................... 6,147.4 6,854.0 8,012.0 8,770.8 9,308.1
General Expenses.............. 14,703.7 18,973.0 22,319.5 23,682.6 26,951.1
Fixed Capital Formation....... 2,032.5 2,401.0 2,048.8 2,821.4 2,889.1
Others........................ 5,483.5 5,609.0 8,616.6 11,685.6 13,721.3
---------- ---------- ---------- ---------- ----------
Total Expenditures............ 28,367.1 33,836.9 40,996.8 46,960.4 52,869.7
---------- ---------- ---------- ---------- ----------
Net Lending................... 37.0 (53.6) 38.4 (5.3) 23.3
Budget Surplus (Deficit)...... W 443.8 W 754.9 W (1,706.7) W (688.5) W 234.9
========== ========== ========== ========== ==========
<FN>
- ---------------
(1) Preliminary.
Source: Monthly Bulletin, July 1994, The Bank of Korea.
</TABLE>

The decrease in Defense Surtax Revenues after 1991, as compared to prior
years, is primarily attributable to the repeal of Korea's defense tax effective
January 1, 1991.

61
<PAGE> 62

THE SECURITIES MARKETS OF KOREA

The information set forth herein has been extracted from various government
and private publications, including publications issued by the government of the
Republic of Korea and the Korea Stock Exchange. Information was also gathered
from academic literature and interviews of government officials, stock exchange
officials and Korean securities market participants and professionals. Certain
statistical information regarding the Korean securities market has been prepared
by the Sub-Adviser based upon information derived from the foregoing sources.
The Fund, its Board of Directors, the Investment Manager, the Investment Adviser
and the Sub-Adviser make no representation as to the accuracy of the
information, nor has the Fund or its Board of Directors attempted to verify the
statistical information presented herein.

BACKGROUND AND DEVELOPMENT

The development of the Korean securities markets has been substantially
influenced by Korean government policy designed to stimulate the Korean economy
and investment in Korea. The Korea Stock Exchange (the "KSE") was established in
1956, at which time it functioned primarily as a market for the trading of
Korean government bonds, with only twelve equity securities and three government
bonds listed for trading. As part of the First Five-Year Economic Development
Plan (1962-1966), the Korean government adopted its first securities law to
regulate the primary and secondary markets. Beginning in 1968, the Korean
government passed additional measures to encourage Korean companies to list on
the KSE by means of a wide variety of tax, credit and other benefits only
available to listed companies and to facilitate trading on the KSE. Primarily as
a result of these measures, the number of listed companies on, and the market
capitalization of, the KSE increased significantly in the 1970s. In 1976, the
Securities and Exchange Act of Korea (the "SEA") was amended to provide for,
among other things, the establishment of the Securities and Exchange Commission
of Korea (the "KSEC") and its executive body, the Securities Supervisory Board
(the "Securities Board"). Since 1981, the Korean government has adopted or
announced measures to open the Korean securities markets to foreign investment.

RECENT MARKET AND ECONOMIC DEVELOPMENTS

Financial Liberalization and Market Opening Plan. The Ministry of Finance
of Korea (the "MOF") has adopted a Financial Liberalization and Market Opening
Plan (the "Liberalization Plan") for the Korean financial markets. The
Liberalization Plan's main focus is to deregulate and liberalize the financial
industry, traditionally tightly controlled by the government and to open Korean
securities markets. The first phase of the Liberalization Plan, which was
announced in March of 1992, liberalized the requirements for the issuance of
certificates of deposit, extended national treatment (i.e., treatment on a
parity with domestic financial institutions) to foreign financial institutions
operating in Korea for their investments in Korean securities and liberalized
the requirements regarding underlying transaction documents in foreign exchange
dealings.

The second phase of the Liberalization Plan, announced in June of 1992,
included allowing further openings of representative and branch offices of
foreign securities companies, expansion of overseas securities investments by
Korean institutional investors, establishment of representative offices of
foreign investment trust and advisory companies, and investment in the aggregate
by foreign entities in up to 10% of the equity ownership of Korean investment
trust and advisory companies.

On June 30, 1993, the MOF announced the third phase of the Liberalization
Plan. The principal proposals under such phase relate to interest rate
deregulation, improvement of monetary control measures and the development of
money markets, improvement of credit control management, and foreign exchange
and capital market liberalization. Related proposals would further ease access
to the Korean securities industry for foreign securities companies and credit
rating agencies wishing to establish branches in Korea. Each area of
deregulation is to be phased in under three stages from 1993 to 1997.

The third phase of the Liberalization Plan also provides for capital market
liberalization on a step-by-step basis. The areas of regulation that the third
phase seeks to liberalize include direct investment by foreigners in Korean
companies, overseas investment in securities by Korean institutions and
individuals, limits on foreign investment in both equity and debt securities and
overseas borrowing by Korean companies. The third phase of

62
<PAGE> 63

the Liberalization Plan also provides for the gradual liberalization of
regulation on foreign equity participation in Korean banks.

Specifically, with respect to foreign investment in the Korean securities
market, the third phase of the Liberalization Plan provides for the gradual
raising of the aggregate foreign ownership limit (at present 10% per class of
shares until December 1, 1994 when the limit will become 12%) applicable to
equity securities of individual companies listed on the KSE, commencing in 1994.
Other measures provided for under the third phase of the Liberalization Plan
include permitting international institutions to issue Won-denominated debt
securities and permitting foreign investors to invest in funds investing in debt
securities and to acquire non-guaranteed long-term debt securities issued by
small and medium-sized companies and low interest rate national or public bonds.
As part of this process, as of July 1, 1994, foreign investors are allowed to
(i) invest directly in non-guaranteed convertible bonds listed on the KSE which
are issued by small or medium-sized listed companies, with foreign investors in
the aggregate and a single foreign investor being allowed to invest in up to 30%
and 5% of the listed amount of each such issue, respectively, and (ii)
underwrite certain low interest rate government or public bonds to be designated
by the KSEC from time to time up to the limit determined by the KSEC from time
to time, each denominated in Won and in each case subject to certain procedural
requirements.

In order to facilitate the conversion from the current system of direct
monetary controls to market-based controls, under the third phase of the
Liberalization Plan the MOF intends to accelerate the timetable to deregulate
the deposit and lending rates of banks and non-bank financial institutions, and
the interest rates on corporate bonds, financial debt instruments, monetary
stabilization bonds and government/public bonds. The deregulation of all lending
rates of both banks and non-bank financial institutions, except for rates on
certain loans regarded by the government as furthering policy goals, and of the
interest rates on corporate bonds with maturities of less than two years,
financial bonds, monetary stabilization bonds and government/public bonds
occurred as of November 1, 1993.

The MOF, pursuant to the third phase of the Liberalization Plan, seeks to
promote effective monetary control through the development of traditional
indirect monetary control measures. Such measures include the implementation of
rediscount policies, bank minimum reserve requirements and government open
market operations. The third phase of the Liberalization Plan seeks to develop
the money markets in order to allow the government to pursue indirect monetary
policies. Such development is intended to lead to a greater variety of
short-term instruments available for investment in the money markets.

Pursuant to the third phase of the Liberalization Plan, the MOF also seeks
to improve credit control management separately for large business conglomerates
and small and medium sized enterprises. With respect to large business
conglomerates, the credit control provisions focus on streamlining excessive
credit control. Lending to small and medium sized enterprises is currently
required at a certain ratio of the overall lending of financial institutions.
Under the third phase of the Liberalization Plan, the current compulsory lending
system to such companies will continue for the immediate future, but will be
gradually phased out as interest rate deregulation proceeds and the practice of
credit-based lending is established.

The third phase of the Liberalization Plan also reflects the MOF's
intention of pursuing more consistently the internationalization of the Won.
Under the third phase, regulations on foreign exchange transactions will be
relaxed and the foreign exchange market will be further developed. The third
phase of the Liberalization Plan provides for further expanding the daily range
of exchange rate fluctuations, which was increased as of October 1, 1993 from a
range of plus or minus 0.8% to a range of plus or minus 1.0%. It is anticipated
that such relaxation of controls will enhance the pricing function of the
exchange rate mechanism. The third phase of the Liberalization Plan would also
eliminate certain documentation requirements for foreign exchange transactions.

There can be no assurance that the provisions of the third phase of the
Liberalization Plan will be put into effect or have the intended impact.

Real-Name Financial Transaction System. On August 12, 1993, President Kim
Young Sam issued an Emergency Executive Order (the "Order") containing measures
designed to establish a real-name financial

63
<PAGE> 64

transaction system, to deter the use of false names in financial dealings and to
provide for the confidentiality of financial transactions. The announced purpose
of the Order is to protect the integrity of Korea's financial markets and to
achieve greater economic justice. The Order was ratified by the Korean National
Assembly as of August 19, 1993.

The Order applies to all financial transactions, including transactions
involving deposits, installment savings, checks, certificates of deposit, stocks
and bonds. Pursuant to the Order, in any transaction involving a financial
institution, the financial institution must verify the real name of the
counterparty before entering into the transaction. In addition, existing account
holders at financial institutions as of August 12, 1993 who did not confirm
their real names or convert aliases to real names by October 12, 1993 are
subject to severe penalties.

In order to provide for confidentiality of financial transactions, the
Order states that, unless otherwise approved by the relevant customer,
information about financial transactions may be made available only in
accordance with stipulated procedures and for such limited purposes as tax
investigations, court proceedings, regulatory supervision and mandatory
requirement.

The practice of engaging in financial transactions under false or borrowed
names had been prevalent in Korea. On the day following the issuance of the
Order, the Index, the major measure of changes in stock values on the KSE
declined 4.46% to 693.57. However, by August 20, 1993, the Index had increased
to close at 729.86.

REGULATION OF FOREIGN INVESTMENT

The Korean securities markets have historically been closed to direct
investment by most foreign investors although the Korean government has allowed
direct foreign investment by foreigners who intended to or could participate in
the management of an invested enterprise under the Foreign Capital Inducement
Act ("FCIA") and the Foreign Exchange Management Act ("FEMA"), and indirect
foreign investment in Korean securities such as through certain domestic trusts
of foreign investment funds specifically authorized by the MOF. In 1981, the MOF
announced its intention to gradually internationalize the Korean securities
markets. Since then, the Korean government has progressively implemented steps
to liberalize foreign investment in the Korean securities markets. Beginning on
January 3, 1992, foreign investors have been able to invest directly in equity
shares listed on the KSE, subject to certain restrictions that are described
below. At the present time, however, foreign investors, including the Fund,
generally are not permitted to make direct or indirect investments in
Won-denominated debt securities except that as of July 1, 1994 foreign investors
are allowed to purchase (i) non-guaranteed convertible bonds of listed small and
medium-sized companies, shares of which are listed on the KSE and (ii) certain
low interest rate government or public bonds to be designated by the KSEC from
time to time in the primary market subject to certain foreign holding limits and
procedural requirements as described below. In addition, foreign investors
currently may not participate in the purchase of shares through initial or
secondary public offerings (other than through rights issues).

The liberalization of the Korean securities markets has generally
progressed in gradual stages beginning with the authorization of indirect
investment by foreign investors in Korean securities through Korean investment
trusts and foreign investment funds, investing in Korean securities with a
specific license from the MOF. The first type of permitted indirect foreign
investments in Korea was a Korean unit investment trust established in late
1981. By June 30, 1994 there were a total of 39 such trusts aggregating
approximately U.S.$1,705 million outstanding including matching funds (which
invest in Korean and non-Korean securities markets). As of August 31, 1994,
three foreign investment funds had been licensed by the MOF to invest in Korean
securities subject to certain limitations. The units of such trusts or shares of
such funds have been offered to foreign investors to permit such investors to
participate in Korean securities markets by purchasing such units or shares.

Since 1985, a limited number of Korean companies have been permitted to
issue equity-related securities denominated in currencies other than Won,
including convertible bonds, bonds with equity warrants and depositary receipts,
to foreign investors outside of Korea as a means of raising capital. These types
of equity-related securities are convertible into the issuer's equity shares
listed on the KSE. In 1992, seven issues of convertible bonds, two issues of
bonds with equity warrants and one issue of depositary receipts representing

64
<PAGE> 65

equity shares, were made outside of Korea by companies listed on the KSE
aggregating U.S.$639 million. In 1993, eleven issues of convertible bonds, one
issue of bonds with equity warrants and three issues of depositary receipts were
made outside of Korea by companies listed on the KSE aggregating U.S.$916
million. During the first six months in 1994, thirteen issues of convertible
bonds, one issue of bonds with equity warrants and six issues of depositary
receipts, aggregating U.S.$780 million, were made.

Since January 3, 1992, foreigners have been permitted to invest in all
shares listed on the KSE, subject to the ceilings on foreign shareholdings and
procedural limitations set out below. Except as described below, foreign
investors are only permitted to trade such shares on the KSE itself and are
currently prohibited from engaging in margin transactions. In addition, a
foreign investor is subject to specific registration and reporting requirements,
custody requirements and requirements prescribing the use of certain types of
entities as proxies to exercise shareholder's rights, to place orders to sell or
purchase shares or to take other related action that it does not undertake
directly.

Current regulations generally limit the percentage of any class of shares
of a listed issuer in which a single foreign investor and all foreign investors
in the aggregate may acquire beneficial ownership to 3% and 10%, respectively.
The KSEC, however, may increase or decrease these percentages if it deems
necessary for the public interest, protection of investors or industrial policy.
Currently, the KSEC has authorized several exceptional ceilings, including the
following: (1) subject to the approval by the KSEC of an application submitted
by a company whose shares are held by foreign investors under the FCIA or
certain sections of the FEMA if such holdings by foreigners do not reach 25% of
the company's outstanding shares, a ceiling on acquisition of shares by
foreigners in the aggregate may be established separately for each such company,
depending on the shareholding of foreigners under the FCIA and the FEMA, but in
any case not equal to or exceeding 25%; (2) a special ceiling determined by any
company more than 50% of whose shares are held by foreigners under the FCIA or
certain sections of the FEMA; and (3) an 8% ceiling on the acquisition of shares
by foreigners in the aggregate established for certain corporations designated
by the Finance Minister (currently, only KEPCO and POSCO are subject to this
lower ceiling).

The Government has announced its intention to raise the aggregate foreign
ownership limit gradually during the period from 1994 to 1997. No assurances can
be given, however, as to whether or when such increase will be implemented and,
if and when implemented, to what levels such limit will be raised.

These ceilings may be exceeded, however, (i) as a result of acquiring
shares obtained pursuant to the FCIA or the FEMA, (ii) by a depositary acquiring
shares for the purpose of the issue of depositary receipts evidencing an
interest in such shares, (iii) as a result of acquiring shares listed on the KSE
upon conversion of, or exercise of warrants or withdrawal rights under or
attached to equity-related securities issued overseas by Korean companies
(collectively, "Converted Shares"), (iv) as a result of acquiring shares of a
small or medium-sized company through the exercise of a conversion right
attached to non-guaranteed convertible bonds listed on the KSE of such company,
or (v) by the acquisition of shares arising from the exercise of shareholder's
rights and other rights and shares obtained by way of gift, inheritance or
bequest; provided that the number of shares held by a single foreign investor
exceeding the 3% limit (except in the cases of (i) and (ii) above) must be sold
within three months from the date of acquisition.

In calculating these ceilings, all foreign shareholdings (other than those
owned by Korean branches and subsidiaries of certain foreign financial
institutions) must be counted regardless of whether the shares were purchased
through the KSE, or whether they are newly issued shares or outstanding shares.
Newly issued shares (including Converted Shares) are calculated as of the date
of their listing on the KSE. When applying a ceiling with respect to
acquisitions by a single foreign investor, each entity (including individuals,
corporations, foreign government agencies, and foreign funds, unit trusts and
partnerships) is entitled to a separate 3% limitation. In calculating the
holding of shares of a class in a particular company, foreign investors are
entitled to disregard holdings of shares held indirectly through an investment
in a Korean securities investment trust or through a holding in any funds or
investment trusts established overseas. All branches in Korea of any foreign
investor as a group are entitled to their own 3% limitation separate from that
of their head office. When calculating these ceilings, shares purchased are
deemed to be acquired at the time of placing the relevant order and shares sold
are deemed to be disposed of at the time of execution.

65
<PAGE> 66

A foreigner who has acquired shares in excess of any ceiling described
above may not exercise its voting rights with respect to the shares exceeding
such limit, and the KSEC may take necessary corrective action with regard to
such foreigner pursuant to the SEA. The Governor of the Securities Board may, at
his discretion, disclose the numbers of shares of a class available for
investment by a single foreign investor and foreign investors in the aggregate,
and provide a list of shares that have reached or exceeded the ceiling on
acquisition by foreign investors in the aggregate. Currently, the Governor
discloses this list every morning on which trading occurs. Orders for shares
made during a trading day which, if executed, will lead to the relevant ceiling
being exceeded would not be accepted by the KSE's trading system.

Under the SEA, certain companies designated by the MOF are generally
authorized to adopt provisions in their articles of incorporation restricting or
prohibiting foreign ownership of such companies' shares. At present, KEPCO and
POSCO have adopted a provision in each of their articles of incorporation
restricting ownership of their common shares by a single foreigner to 1% of
their common shares. In addition, under the Telecommunications Basic Act,
foreign investors are prohibited from acquiring any shares in Dacom Corporation.

The SEA generally imposes a 10% beneficial ownership limitation on the
total outstanding voting shares of a listed company that may be held by any one
individual or entity, including Korean nationals, without the approval of the
KSEC (which limitation is due to be repealed as of January 1, 1997). The KSEC
rules also provide that a company may not issue convertible bonds, bonds with
warrants or depositary receipts outside of Korea if the sum of (i) shares which
may be acquired by foreigners by the exercise of the conversion rights, warrants
or withdrawal rights for underlying shares under the proposed issue and under
any previously issued bonds, warrants or depositary receipts and (ii) shares
held by foreigners in excess of the applicable ceiling (generally 10%) on
aggregate foreign investment (except any such excess held under the FCIA), in
the aggregate, exceeds or would exceed 15% (or such greater percentage as may in
exceptional circumstances be permitted by the KSEC) of the issued capital of the
issuer at the date of issue of the relevant securities. If foreign investors
hold or will hold, upon exercise of conversion rights, warrants or withdrawal
rights, 50% or more of the outstanding shares of a company, the shares to be
issued, upon exercise of conversion rights, warrants or withdrawal rights by
foreign investors must be non-voting shares to the extent that shares held or
which may be held by foreign investors exceeds or will exceed this 50% limit. In
addition, the Foreign Exchange Management Regulations currently provide that the
percentage of the outstanding shares of a company (including shares which would
be outstanding as a result of the conversion of convertible bonds and the
exercise of warrants attached to bonds or withdrawal rights attached to
depositary receipts) that may be held by non-residents or foreigners, unless
provided otherwise in any other relevant laws and regulations (including those
of the KSEC), is limited to 50%.

Foreigners are permitted to trade shares only on the KSE, except that
foreigners may (i) acquire shares by gift or inheritance, (ii) acquire shares
pursuant to rights issues or pursuant to investments, convertible bonds or
depositary receipts issued outside Korea, (iii) buy and sell odd lots of shares
with Korean securities companies, (iv) buy and sell shares directly with other
foreigners once the relevant ceiling on aggregate foreign ownership in a class
of shares in a company (or such ceiling less the number of odd-lot shares) is
reached or exceeded through a Korean broker as an intermediary ("foreign OTC
transactions") and (v) trade shares off the KSE with the approval of the KSEC
for specific trades.

The Fund may acquire a substantial portion of its portfolio securities in
foreign OTC transactions involving premium prices in excess of the KSE price.
There can be no assurance that the Fund will be able to realize such premiums if
it sells the shares to another foreign investor. Such premiums may be affected
by changes in regulations and otherwise, including changes in the percentage of
foreign ownership permitted in KSE-listed companies.

Since July 1, 1994, foreigners have been permitted (1) to invest in
non-guaranteed convertible bonds listed on the KSE which are issued by small and
medium-sized companies the shares of which are listed on the KSE, with foreign
investors in the aggregate and a single foreign investor being allowed to invest
in up to 30% and 5% of the listed value of each class of such bonds,
respectively; and (2) to participate in new issues of certain low interest rate
government or public bonds to be designated from time to time by the KSEC up to

66
<PAGE> 67

the limit determined by the KSEC from time to time, each denominated in Won and
in each case subject to certain procedural requirements described below.

A foreign investor who wishes to invest in shares or bonds issued in Korea
by Korean companies is required to register its identity with the Securities
Board prior to making any such investment in shares or bonds, respectively. Upon
registration, the Securities Board will issue to the foreign investor an
Investment Registration Card for stock or bond, as the case may be, which must
be presented each time the foreign investor opens a brokerage account with a
securities company.

Upon a foreign investor's purchase or sale of shares or bonds through the
KSE, no separate report by the investor is required because the Investment
Registration Card system is designed to control and oversee foreign investment
through a computer system. However, a foreign investor's acquisition or sale of
shares or bonds outside the KSE (as discussed above) must be reported by the
foreign investor or his standing proxy to the Governor at the time of each such
acquisition or sale, and, upon request of such securities company, a copy of
that report must be submitted to the securities company with which the foreign
investor opened a brokerage account; provided, however, that a foreign investor
must ensure that his acquisition or sale of shares or bonds outside the KSE for
odd-lot trading or in a foreign OTC transaction is reported by the securities
company engaged to facilitate such transaction and his acquisition of shares as
a result of a rights issue, stock dividend and bonus issue is reported by the
company issuing the shares concerned.

A foreign investor must appoint one or more standing proxies from among the
Korea Securities Depository, foreign exchange banks (including domestic branches
of foreign banks) and securities companies (including domestic branches of
foreign securities companies) which have obtained a license to act as a standing
proxy to exercise rights as a holder of shares or bonds, place an order to sell
or purchase shares or bonds or perform any matters related to the foreign
activities if the foreign investor does not perform these activities himself.
However, a foreign investor may be exempted from complying with these standing
proxy rules with the approval of the Governor in cases in which such exemption
is deemed inevitable by reason of conflict between laws of Korea and the home
country of such foreign investor.

Certificates evidencing shares or bonds of Korean companies must be kept in
custody with an eligible custodian in Korea. Only foreign exchange banks
(including domestic branches of foreign banks), securities companies (including
domestic branches of foreign securities companies) and the Korea Securities
Depository are eligible to be a custodian of shares or bonds for a foreign
investor. A foreign investor must ensure that his custodian deposits such shares
or bonds with the Korea Securities Depository. However, a foreign investor may
be exempted from complying with this deposit requirement with the approval of
the Governor in circumstances where such compliance is made impracticable,
including cases where such compliance would contravene the laws of the home
country of such foreign investor.

A foreign investor who intends to acquire shares or bonds must designate a
single foreign exchange bank and open a Won Account and Foreign Currency
Account, for investment in shares and separately for investment in bonds. No
approval is required for remittance into Korea and the deposit of foreign
currency funds in the Foreign Currency Account. With the confirmation of the
investor's designated foreign exchange bank, foreign currency funds may be
transferred to a Won Account for stock investment or bond investment, as the
case may be, held with a broker (i.e., securities company) only at the time Won
funds are necessary for the purchase of shares or bonds, as the case may be
(i.e., for payment of the deposit money at the time of placing an order, and the
remainder of the purchase price outstanding at the time of settlement). Funds in
the Foreign Currency Account may be remitted abroad without any governmental
approval.

Dividends on shares or interest on bonds of Korean companies are paid in
Won. No governmental approval is required for foreign investors to receive
dividends or interest on, or the Won proceeds of the sale of, any such shares or
bonds, as the case may be, to be paid, received and retained in Korea. Dividends
or interest paid on, and the Won proceeds of the sale of, any such shares or
bonds, as the case may be, held by a non-resident of Korea must be deposited
either in a Won Account for stock investment or bond investment, as the case may
be, with the investor's securities company or its Won Account. Funds in the
investor's Won Account may be transferred to its Foreign Currency Account or
withdrawn for local living expenses (subject to certain limitations), in each
case subject to approval of the investor's designated foreign exchange bank. In
addition,

67
<PAGE> 68

funds in the Won Account may be used for future investment in shares or bonds or
for payment of the subscription price of new shares obtained through the
exercise of pre-emptive rights.

Foreign investors may, without any governmental approval, enter into
forward transactions between Won currency and foreign currency with a foreign
exchange bank in Korea to the extent necessary to hedge foreign exchange risk
resulting from their investment in Korean shares or bonds or holding of Won
currency for the purposes of such investment.

The MOF or the KSEC may issue orders imposing additional restrictions when
deemed in the public interest, for the protection of investors or in the
interest of maintaining an orderly securities market. Under the FEMA, the MOF
has the authority, with prior public notice of scope and duration, to suspend
all or a part of foreign exchange transactions when emergency measures are
deemed necessary in case of a radical change in the international or domestic
economic situation. To date, the MOF has not exercised this authority.

THE KOREA STOCK EXCHANGE

The KSE, established in 1956, is the only stock exchange in Korea and has
its only trading floor in Seoul. The KSE is a non-profit organization, the
shares of which are wholly-owned by its 32 member firms. Both equity and debt
securities are traded on the KSE. Although the KSE market capitalization and
trading volume have increased substantially over the past ten years, it is still
small relative to the U.S. exchanges. The aggregate market value of equity
securities listed on the KSE was approximately W 128.4 trillion (approximately
U.S.$159.4 billion) at June 30, 1994, and the average daily trading value of
such securities was W 548,048 million (approximately U.S.$710,400) for 1993.
Equity securities listed on the KSE are divided into two separate trading
sections

THE PRIMARY MARKETS

Equity Market

Securities companies with requisite MOF approval are permitted to
underwrite new issues, and managers of underwriting syndicates are required to
endorse two year profit forecasts submitted to the Securities Board. The KSEC
may issue warnings to lead managers or restrict their participation in the
managing of public offerings if the company's profits are less than 60% of the
forecasts in the first year and less than 50% of the forecasts in the second
year or if the company is declared bankrupt. All shares must have a par value,
but the offering price of a new issue will generally exceed par value. Before
June 1991, listed companies were, unless otherwise qualified, required to offer
100% of their issues at "market price" although it was possible to apply a
discount to the theoretical ex-rights price when establishing the "market
price." However, in an attempt to stimulate the securities market, the KSEC
repealed the rules requiring issues at "market price" in June 1991, and adopted
a new rule allowing the Chairman of the KSEC to impose a ceiling on any discount
from "market price." The Chairman has not yet published any such ceiling but may
do so in the future.

Listed companies may issue further shares for cash or non-cash
consideration; further issues are normally in the form of rights issues to
existing shareholders. However, by law, members of a listed company's employee
stock ownership association are entitled to subscribe up to 20% in aggregate of
any new shares publicly issued irrespective of whether or not they are already
shareholders. Companies may also issue shares without consideration as bonus
issues.

In common with other foreign investors, the Fund is not permitted to
subscribe for new issues otherwise than by exercising its rights in a rights
issue. It may not underwrite new issues or buy or sell rights.

68
<PAGE> 69

<TABLE>
The following table indicates the number and aggregate size of new issues
of equity through public offerings or rights issues during the past decade.

<CAPTION>
TOTAL EQUITY
INITIAL PUBLIC OFFERINGS OFFERINGS TO SHAREHOLDERS CAPITAL RAISED
------------------------------------ ------------------------------------ ----------------------------
IN MILLIONS IN THOUSANDS IN MILLIONS IN THOUSANDS IN MILLIONS IN THOUSANDS
YEAR NUMBER OF WON OF U.S. DOLLARS NUMBER OF WON OF U.S. DOLLARS OF WON OF U.S. DOLLARS
----- ------ ----------- --------------- ------ ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1984.................... 13 81,190 98,127 107 397,672 480,628 478,862 578,755
1985.................... 10 33,860 38,036 60 259,528 291,539 293,388 329,575
1986.................... 12 33,360 38,728 110 797,705 926,056 831,065 1,003,512
1987.................... 40 197,714 249,544 178 1,654,950 2,088,792 1,852,664 2,338,336
1988.................... 98 554,115 809,991 298 6,720,644 9,824,067 7,274,759 10,634,058
1989.................... 119 1,962,236 2,887,340 274 11,124,538 16,369,244 13,086,774 19,256,583
1990.................... 33 315,709 440,688 169 2,581,808 3,603,864 2,897,517 4,044,552
1991.................... 22 506,894 666,264 136 2,180,164 2,865,620 2,687,058 2,531,885
1992.................... 19 318,001 403,350 133 1,711,188 2,170,457 2,029,189 2,573,806
1993.................... 35 355,619 440,068 171 2,788,862 3,451,135 3,144,481 3,891,203
1994(1)................. 5 136,435 168,960 67 2,410,955 2,985,703 2,547,390 3,154,663
<FN>
- ---------------
(1) During the period from January 1 to April 30, 1994.
Source: Stock, July 1994, Korea Stock Exchange.
</TABLE>

Bond Market

Most corporate bonds which are issued domestically are issued through
public offerings which are underwritten by securities companies, banks,
investment and finance companies, merchant banks and certain other licensed
financial institutions. The majority of corporate bonds are guaranteed by banks
and other financial institutions, although an increasing number of corporate
bonds are issued without such guarantees. Since maturities are relatively short
(about half of all new issues of bonds tend to be for under four years), a
significant portion of new issues is required to refund maturing bonds.

<TABLE>
Levels of new issue activity in the corporate bond market are given in the
following table.

<CAPTION>
IN
NUMBER OF MILLIONS IN THOUSANDS
YEAR ISSUES OF WON OF U.S. DOLLARS
---- --------- --------- ---------------
<S> <C> <C> <C>
1984........................................ 872 1,804,063 2,180,400
1985........................................ 1,096 3,176,744 3,568,719
1986........................................ 900 2,728,871 3,167,949
1987........................................ 1,019 3,189,617 4,693,374
1988........................................ 1,063 4,244,320 6,204,239
1989........................................ 1,217 6,959,035 10,239,898
1990........................................ 1,776 11,083,555 15,471,182
1991........................................ 2,797 12,740,679 16,746,423
1992........................................ 2,382 11,137,260 14,126,405
1993........................................ 2,680 15,598,264 19,302,394
1994 through June 30........................ 1,402 10,540,060 13,052,708
<FN>
- ---------------
Source: Stock, July 1994, Korea Stock Exchange.
</TABLE>

Bonds are also issued by the public sector in the name of, or guaranteed
by, the MOF, The Bank of Korea or institutions owned by the Korean government.
Some of these are tax-exempt and not all of them are listed on the KSE. The Bank
of Korea has issued large volumes of Monetary Stabilization Bonds (which have
maturities of less than one year) principally to absorb excess liquidity in the
economy. Monetary Stabilization Bonds accounted for more than 40% of all
domestic bond issues, public and corporate, at December 31, 1993. Generally,
public bonds yield less than corporate bonds and are held mainly by
institutions.

THE SECONDARY MARKETS

The listing of securities is regulated by the Securities Listing Regulation
of the KSE, which classifies the four types of securities which may be listed as
equity securities, warrants to subscribe for new shares, beneficial certificates
and debt securities. A listing application and initial listing fee (except for
the listing of certain bonds) must be submitted to the KSE, which determines
whether an applicant is eligible for listing. The KSE is empowered to de-list
securities.

69
<PAGE> 70

Equity Market

Equity securities transactions may only be effected on the KSE through
securities companies acting as brokers or principals that are members of the
KSE. As of July 31, 1994, there were 32 member firms of the KSE. Currently all
32 members of the KSE are licensed in all three categories: dealing, brokering
and underwriting. Financial intermediaries including banks, short-term finance
companies and merchant banking corporations are not eligible for membership on
the KSE. However, they may engage in underwriting to a limited extent upon
obtaining a license from the MOF. Currently, foreign securities companies may
establish representative offices in Korea upon the approval of the MOF but their
participation in the securities business is prohibited. In addition, twelve
foreign securities firms have established branch offices in Korea to engage in
brokerage business or other securities business depending upon the respective
terms of MOF approval.

Information regarding individual securities, including bid and asked
quotations, trading volume, price-earnings ratios, earnings and yields, and the
composite stock price index and stock price indices by sector, is available
through a network of computer terminals located in offices of securities
companies in Korea. There is a small over-the-counter market, which is not open
to foreign investors.

The equity securities listed on the KSE are divided into two sections
within which the equity securities are traded. The main difference between the
two sections is that margin transactions are permitted only in the first trading
section (with the exception of securities issued by a securities company which
acts as a broker for the transaction concerned). A newly listed equity security
must be traded in the second trading section for at least one year after its
initial listing. Additional listing criteria must be met in order for an equity
security to be traded in the first trading section. As of December 31, 1992, the
securities of 483 companies listed on the KSE were traded in the first trading
section. An equity security trading in the first trading section that fails to
maintain certain criteria will be reassigned to the second trading section.

For initial listing on the KSE, equity securities must meet certain
requirements, including: (i) corporate existence for at least five years; (ii)
paid-in capital of at least W 3 billion; at least 300,000 outstanding shares and
stockholders' equity of at least W 5 billion; (iii) average annual sales revenue
for the last three accounting periods of at least W 15 billion and sales revenue
for the most recent accounting period of at least W 20 billion; (iv) the
provision of a favorable auditor's opinion (whether qualified or not) on the
company's financial statements for the last three accounting periods; (v) at
least 30% of the outstanding shares, including at least 30% of all voting
shares, must have been publicly offered for subscription or sale within six
months prior to the listing application date; (vi) a debt to equity ratio of
less than 150% of the average for the same industry sector; (vii) shares issued
by way of rights or bonus issues (including stock dividends) during the past
year must not exceed a specified percentage, and, with certain exceptions, the
stockholding ratio must not have been changed during the one year prior to the
listing application date; and (viii) the asset value per share and the earnings
value per share (as defined in the KSE regulations) must exceed 150% and 100% of
its par value, respectively.

The listing criteria a company must meet for its equity securities to be
traded on the first trading section of the KSE include the following: (i)
paid-in capital of at least W 5 billion as of the end of the most recent
accounting period; (ii) after-tax net profit for each of the last three
accounting periods must have been at least 10% of paid-in capital, or,
alternatively, the ratio of stated capital plus reserves to stated capital as of
the end of each such accounting period must have been at least 250%; (iii) debt
to equity ratio for each of the last three accounting periods must be no greater
than the average for the same industry section; (iv) liquidity ratio for each of
the last three accounting periods must have equalled or exceeded the average for
the same industry sector; (v) a dividend of at least 5% of the par value per
share must have been declared and paid to each stockholder holding voting shares
of less than 1% of the issued and outstanding shares in respect of at least two
out of the last three accounting periods; (vi) the provision of a favorable
auditor's opinion (whether qualified or not) on the company's financial
statements for the last three accounting periods; (vii) at least 40% of the
outstanding shares, excluding those held by the Korean government or certain
foreign investors ("Government and Foreign Owned Shares"), must be held by
certain institutional investors and a minimum number (400 to 500 depending on
the amount of the paid-in capital) of stockholders, each holding less than 1% of
the company's issued and outstanding shares; (viii) monthly average trading
volume on the KSE for the

70
<PAGE> 71

accounting period in which listing in the first trading section is to take place
must be at least 1% of the company's shares, excluding Government and Foreign
Owned Shares, if any; (ix) with the exception of the Korean government holding
shares of certain designated companies, no stockholder may own more than 51% of
the company's outstanding shares; and (x) the company's shares must have been
listed for at least one year in the second trading section.

Listed companies are required to submit both semi-annual and annual reports
to the KSE and the KSEC. Upon the occurrence of certain events such as the
revocation of a license for the main line of business, the suspension of a bank
account or conditions for corporate dissolution, direct disclosure of such event
must be made by listed companies to the public investors through the
broadcasting facilities located in the KSE. Within two days after certain less
material events such as a change of business objectives, the filing of a
significant lawsuit against the company or the notification of a tax
investigation, disclosure must be made to the KSE, which will be disseminated to
the public.

An over-the-counter market for non-listed securities was established in
April 1987 as a mechanism for smaller companies that are unable to meet the KSE
listing requirements to gain access to the securities markets. As of May 31,
1994, 220 Korean companies were registered on the over-the-counter market. This
market is not open to foreign investors.

Purchases and sales of shares may be completed fully in cash or by means of
a margin transaction. As of July 31, 1994, the margin requirement is the amount
equivalent to 40% of the total value of the stocks purchased on margin or sold
short. Only shares in the first trading section of the KSE, with certain
exceptions, may be purchased or sold by means of a margin transaction. The
margin requirements are varied from time to time by the KSE. According to
statistics prepared by the KSE, margin transactions in 1992 and 1993 amounted to
31.2% and 19.5%, respectively, of total trading volume by number of shares, and
36.2% and 24.0%, respectively, of the trading volume of those shares eligible
for margin transactions. Foreign investors, including the Fund, are not
permitted to engage in margin transactions, as discussed under "The Securities
Markets of Korea -- Regulation of Foreign Investment."

The KSE may require deposits in cash or substituted securities to be paid
in advance of settlement, in varying amounts depending on the type of investor.
Currently, the required deposit in cash or substitute securities from certain
institutional investors is 20% of the consideration payable. The figure for non-
institutional investors is 40%. A foreign investor may be treated as an
institutional investor in respect of the foregoing deposit requirement upon
designation as such by the KSE. The Fund will apply for such designation with
the KSE. The Fund has entered into custody account arrangements with the
Custodian, Subcustodian and the Fund's brokers, whereby funds required to be
deposited would be deposited, at a nominal interest rate, with the Subcustodian
on irrevocable instructions to pay them to the broker on settlement day against
the delivery of the relevant securities. Short selling of equity securities is
permitted on the KSE, but may not be effected by foreign investors including the
Fund under the KSEC Rules.

MARKET CAPITALIZATION AND TRADING VOLUME

The Korean securities markets, while relatively small as compared to the
securities markets of the United States, Japan and certain European countries,
have, with the exception of 1990 and 1991, been generally characterized by
gradual and consistent growth. The development of the Korean securities markets
may be attributed to, among other things, the Korean government's extensive
involvement in the private sector, including the securities markets. From 1982
to 1989, market capitalization of equity securities listed on the KSE increased
substantially from approximately W 3.0 trillion to a record high of
approximately W 95.5 trillion at December 31, 1989. During 1990 and 1991,
however, market capitalization did not continue such growth, and the total
market capitalization of equity securities listed on the KSE decreased 17.2% to
approximately W 79.0 trillion at December 31, 1990 and decreased 7.5% to
approximately W 73.1 trillion at December 31, 1991. Since the beginning of 1992
and the opening of the Korean securities markets to foreign investment, market
capitalization has generally increased, and as of June 30, 1994 was W 128.4
trillion.

Large groups of related companies referred to as "chaebol" are engaged in a
wide range of businesses and play a significant role in the Korean economy. The
Korean government has requested the chaebol companies

71
<PAGE> 72

to reduce their shareholdings both within and outside of the chaebol group. The
Korean government's policy is to encourage the growth of smaller and
medium-sized companies.

Total trading volume of equity securities listed on the KSE has fluctuated
widely, but also has, with the exception of 1990 and 1991, generally increased
from 1982 through 1993. In 1993, total trading volume was approximately W 169.9
trillion, which represented an increase of 87.5% from total trading volume of W
90.6 trillion in 1992. Trading activity in equity securities is concentrated in
relatively few securities. In 1993, the 30 most actively traded equity
securities listed on the KSE accounted for 28.8% of total trading volume.

<TABLE>
The number of companies listed, the corresponding aggregate market value at
the end of the periods indicated and the average daily trading volume for those
periods are set out in the following table.

<CAPTION>
MARKET VALUE AT
PERIOD END AVERAGE DAILY TRADING VOLUME/VALUE
NUMBER OF ----------------------------- --------------------------------------------
LISTED IN BILLIONS IN MILLIONS IN THOUSANDS IN MILLIONS IN THOUSANDS
YEAR COMPANIES OF WON OF U.S. DOLLARS OF SHARES OF WON OF U.S. DOLLARS
---- --------- ----------- --------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1984..................... 336 5,148 6,222 14,847 10,642 12,862
1985..................... 342 6,570 7,380 18,925 12,315 13,834
1986..................... 355 11,994 13,923 3,402(1) 32,870 38,159
1987..................... 389 26,172 33,033 56,701(1) 70,185 88,584
1988..................... 502 64,544 94,349 10,367 198,364 289,963
1989..................... 626 95,477 140,490 11,757 280,967 413,430
1990..................... 669 79,020 110,302 10,866 183,692 256,411
1991..................... 686 73,118 96,107 14,021 214,263 281,629
1992..................... 688 84,712 107,448 24,028 308,246 390,977
1993..................... 693 112,665 139,420 35,130 574,048 710,368
1994(2).................. 692 128,362 159,357 35,867 662,208 912,164
<FN>
- ---------------
(1) Equivalent to the trading volume after consolidation of shares. From 1986 to
1987, shares were consolidated at the ratio of 10 to 1 or 5 to 1 to improve
the efficiency of trading. The actual trading volumes, before consolidation
of shares was completed, were 31,755 and 20,353 in 1986 and 1987,
respectively.
(2) As of June 30, 1994 and during the period from January 1 to June 30, 1994,
as the case may be.
Source: Monthly Review, July 1994, Securities Supervisory Board.
</TABLE>

<TABLE>
The total trading volume of equity securities in 1993 was approximately W
10.4 trillion representing an increase of 47% from the 1992 level of W 7.1
trillion. In 1992, the total trading volume increased 73% from the 1991 level to
W 4.1 trillion. Trading activity, however, is concentrated in a limited number
of companies within a small number of industries. The 30 most actively traded
domestic equity securities accounted for 28.8% of total trading volume of
domestic equity securities for the year ended December 31, 1993. The following
table illustrates the annual trading volume of the 30 most actively traded
equity securities on the KSE for the year ended December 31, 1993.

<CAPTION>
ANNUAL TRADING
VOLUME
COMPANY (WON MILLIONS)
- ------------------------------------------------------------------------- ------------------
<S> <C>
Daewoo Heavy Ind. ....................................................... 3,244,470
Korea Electric Power Corporation......................................... 3,207,740
Pohang Iron & Steel Co., Ltd. ........................................... 2,821,601
Hyundai Motor............................................................ 2,438,805
Daewoo Corporation....................................................... 2,389,966
Samsung Electronics Co., Ltd. ........................................... 2,311,690
Daewoo Securities Co., Ltd. ............................................. 2,194,911
Dongsuh Securities Co., Ltd. ............................................ 2,067,358
The Korea Commercial Bank of Korea....................................... 2,052,412
Daishin Securities Co., Ltd. ............................................ 1,950,169
Lucky Securities Co., Ltd. .............................................. 1,924,933
</TABLE>

72
<PAGE> 73

<TABLE>
<CAPTION>
ANNUAL TRADING
VOLUME
COMPANY (WON MILLIONS)
- ------------------------------------------------------------------------- ------------------
<S> <C>
Goldstar Co., Ltd. ...................................................... 1,750,126
Daewoo Electronics....................................................... 1,709,620
Bank of Seoul............................................................ 1,675,062
Saeil Heavy Ind. ........................................................ 1,484,378
Hyundai Engineering & Const. ............................................ 1,428,796
Sammi Steel.............................................................. 1,420,201
Cho Hung Bank............................................................ 1,293,306
Asia Motor............................................................... 1,268,295
Coryo Securities Corporation............................................. 1,113,835
Lucky.................................................................... 1,033,161
SsangYong Motor.......................................................... 997,929
Poong San................................................................ 956,434
Sammi.................................................................... 942,677
Korea First Bank......................................................... 921,436
Hanbo Steel & General Const.............................................. 920,446
I.C.C. Corp. ............................................................ 866,229
Hanil Bank............................................................... 850,113
Kia Motors Corporation................................................... 810,011
Daelim Industrial........................................................ 805,225
----------
Total............................................................... 48,851,335
==========
<FN>
- ---------------
Source: Fact Book, 1994, Korea Stock Exchange.
</TABLE>

<TABLE>
The following tables set forth the number of listed companies, market
capitalization and trading volume of domestic equity securities in Korea through
June 30, 1994 and other selected countries.

<CAPTION>
EQUITY TRADING
MARKET VOLUME ON THE
NUMBER OF LISTED NUMBER OF CAPITALIZATION EXCHANGE
EQUITY ISSUES LISTED COMPANIES (WON BILLIONS) (WON BILLIONS)
---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
1984................................... 455 336 5,148.5 3,118.2
1985................................... 414 342 6,570.4 3,620.6
1986................................... 485 355 11,994.2 9,598.1
1987................................... 603 389 26,172.2 20,493.9
1988................................... 970 502 64,543.7 58,120.6
1989................................... 1,284 626 95,476.8 81,199.6
1990................................... 1,115 669 79,019.7 53,454.5
1991................................... 1,013 686 73,117.8 62,564.9
1992................................... 1,014 688 84,712.0 90,624.4
1993................................... 1,045 693 112,665.3 169,918.1
1994(1)................................ 925 692 128,362.0 90,231.6
<FN>
- ---------------
(1) January through June 30, 1994.
Source: Stock, July 1994, Korea Stock Exchange.
</TABLE>

73
<PAGE> 74
<TABLE>
<CAPTION>

MARKET ANNUAL
CAPITALIZATION TRADING
NUMBER OF DECEMBER 31, VALUE
LISTED U.S.$ U.S.$
COMPANIES BILLIONS BILLION
-------------- ----------- ----------------
EXCHANGE LOCAL INDEX 1983 1992 1983 1992 1983 1992
- ------------------------------- --------------------- ------ ------ ---- ---- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Hong Kong...................... Hang Seng n/a 413 17 172 5,116 90,611
India.......................... FE Bombay Index 3,118 6,700 7 65 2,377 20,597
Indonesia...................... JSE Composite 19 155 0.1 12 11 3,903
Korea.......................... KOSPI 328 688 4 107 2,260 116,101
Malaysia....................... KLSE Composite 204 366 23 94 3,398 21,730
Pakistan....................... SBP Index 327 628 1 8 n/a 980
Philippines.................... Manila Com/Ind Index 208 170 1 14 483 3,104
PRC............................ n/a -- 53 -- 18 -- 13,363
Singapore...................... DBS 50 118 163 16 49 5,588 14,084
Sri Lanka...................... CSE All Shares -- 190 -- 1 -- 114
Taiwan......................... TSE 119 256 8 101 9,081 240,667
Thailand....................... SET 88 305 1 58 381 72,060
<FN>
- ---------------
Source: Emerging Stock Markets Factbook 1993; International Finance Corp.
</TABLE>

GOVERNMENT INVOLVEMENT IN THE PRIVATE SECTOR

The Korean government has historically exercised and continues to exercise
substantial influence over many aspects of the private sector including the
securities markets, often viewing equity financing as a means of achieving
broader policy goals such as the diffusion of majority shareholder control in
large companies. The Korean government from time to time has influenced the
payment of dividends and the prices of certain products, encouraged companies to
invest in or to concentrate in particular industries, induced mergers between
companies in industries suffering from excess capacity and induced private
companies to publicly offer their securities. The KSE has also sought to
minimize excessive price volatility through various steps, including the
imposition of limitations on daily price movements of securities.

In May 1990, the Securities Market Stabilization Fund ("Stabilization
Fund"), a fund operated by its contributors which include substantially all of
the KSE-listed companies and Korean securities companies, as well as Korean
banks, insurance companies, and certain other institutional investors, was
established by the securities industry with government cooperation in order to
stabilize the market primarily through the purchase and sale of securities The
size of the Stabilization Fund is not officially reported. However, as of
January 1994, the Stabilization Fund was reported by the financial press to
constitute approximately 5% of the total listed equity market capitalization of
the KSE. The Stabilization Fund was initially established for a three-year
period, which has been extended for an additional three years to 1996. See "Risk
Factors and Special Considerations -- Market Characteristics."

In January and February of 1994, the Korean government announced a series
of measures designed to stabilize the securities market. Significant measures
include, among others, increasing the number of new listings on the KSE;
strengthening the guarantee deposit requirement for new listings on the KSE;
lowering the interest rate on deposits with securities companies; encouraging
institutional investors, including the Stabilization Fund, to sell listed stocks
in their possession; permitting short sales; lowering the ceiling on shares of a
single company which may be held by a securities investment trust; and raising
the securities transaction tax rate for sales effected on the KSE.

MARKET DATA

Market performance of the KSE is measured by a composite index and several
additional indices based on the first and second trading sections of the KSE,
industry sectors and the capitalization of individual stocks. The Korea
Composite Stock Price Index ("Index") is the major measure of changes in the
aggregate market

74
<PAGE> 75

value of all common stocks listed on the KSE. Under the current weighted market
value method of computing the Index, the market price of each listed common
stock is multiplied by the number of shares listed and then aggregated. Prior to
1983, the Index was determined through a simple average method of computation.

The Index generally increased through the 1980s but has generally decreased
from its high annual close in 1989. During 1992, the Index fluctuated widely
reaching a high point of 691.48 on February 8 and a low point of 459.07 on
August 21. On December 31, 1992, the Index closed at 678.44, an 11.1% increase
from year-end 1991. On December 31, 1993 and June 30, 1994, the Index closed at
866.18 and 933.36, respectively. At July 31, 1994 the Index was at 927.97. See
"The Securities Markets of Korea -- Recent Market and Economic Developments."

<TABLE>
The following table illustrates the market performance of the KSE as
measured by the Index from 1984 through 1994, together with the associated
dividend yield and price-to-earnings ratios for listed securities as of the end
of the periods indicated.

KOREA COMPOSITE STOCK PRICE INDEX(1)

<CAPTION>
AVERAGE
------------------------------
PERIOD DIVIDEND PRICE/EARNINGS
YEAR HIGH LOW END YIELD(2)(3) RATIO(2)(3)
---- ---- --- ------ ----------- --------------
<S> <C> <C> <C> <C> <C>
1984................................. 142.46 114.37 142.46 5.7 4.5
1985................................. 163.37 131.40 163.37 6.0 5.2
1986................................. 279.67 153.85 272.61 4.8 7.6
1987................................. 525.11 264.82 525.11 2.9 10.9
1988................................. 922.56 527.89 907.20 2.6 11.2
1989................................. 1,007.77 844.75 909.72 2.3 14.4
1990................................. 928.82 566.27 696.22 2.6 13.3
1991................................. 763.10 586.51 610.92 2.9 11.7
1992................................. 691.48 459.07 678.44 2.5 11.4
1993................................. 874.10 605.93 866.18 1.9 14.1
1994 through June 30................. 974.26 855.37 933.36 1.4 16.2
<FN>
- ---------------
(1) The Index covers all common stocks listed on the KSE with a base date of
January 4, 1980 and a base index of 100. In 1983 the method of computing the
Index was changed from a price-weighted method to a market value method.
(2) Korean companies normally report earnings only on an annual basis. As a
result, the earnings used to calculate price/earnings ratios may not be
comparable to those customarily used in the United States. The figures do
not include companies that recorded losses in the previous years.
(3) Dividend Yield is derived from a simple average method by dividing the sum
of dividends per share for KSE-listed issues paying dividends during the
period by the sum of closing per share prices of such issues. Price/Earnings
Ratio, as published by the KSE, is derived from a simple average method by
dividing the sum of closing prices for KSE-listed stocks by the sum of the
earnings per share of the individual issues. Price/earnings ratios
calculated pursuant to a weighted market value method (the customary method
utilized in the United States) could indicate significantly higher ratios.
Source: Stock, July 1994, Korea Stock Exchange.
</TABLE>

Shares are quoted "ex-dividend" on the first trading day of the relevant
company's accounting period. Since the calendar year is the accounting period
for a large majority of all listed companies, this may account for the drop (if
any) in the Index between its closing level at the end of one calendar year and
its opening level at the beginning of the following calendar year.

Movements in individual company share prices are confined to fixed limits
around the previous day's closing price. Such restrictions limit the maximum
movement in the Index on any day. As a result, the quoted closing price of a
listed security, if such closing price has been fixed by the limit, may not
necessarily represent the price at which persons are willing to buy and to sell
such security in the absence of such a limit.

75
<PAGE> 76

<TABLE>
Movements in individual company share prices are confined to fixed limits
around the previous day's closing price as set forth below.

<CAPTION>
PREVIOUS DAY'S FLUCTUATION
CLOSING PRICE LIMIT
- ---------------------------------------------------------------------------------- -----------
(WON) (WON)
<S> <C>
Less than 3,000................................................................... 100
3,000 to less than 5,000.......................................................... 200
5,000 to less than 7,000.......................................................... 300
7,000 to less than 10,000......................................................... 400
10,000 to less than 15,000........................................................ 600
15,000 to less than 20,000........................................................ 800
20,000 to less than 30,000........................................................ 1,000
30,000 to less than 40,000........................................................ 1,300
40,000 to less than 50,000........................................................ 1,600
50,000 to less than 70,000........................................................ 2,000
70,000 to less than 100,000....................................................... 2,500
100,000 to less than 150,000...................................................... 3,000
150,000 to less than 200,000...................................................... 4,000
200,000 to less than 300,000...................................................... 6,000
300,000 to less than 400,000...................................................... 8,000
400,000 to less than 500,000...................................................... 10,000
500,000 or more................................................................... 12,000

- ---------------
Note: The fluctuation limits are different for designated administered issues.

</TABLE>

<TABLE>

The aggregate market capitalization of all equity securities of the 693
companies listed on the KSE as of December 31, 1993 was approximately W 112.7
trillion (approximately U.S.$139.4 billion). Market capitalization, along with
trading volume, is concentrated in a limited number of companies within a small
number of industries. As of December 31, 1993, the 30 largest companies by
market capitalization represented approximately 49.4% of the total market
capitalization of Korean equity securities. The following table illustrates the
30 largest companies on the KSE by market capitalization on December 31, 1993.

<CAPTION>
MARKET CAPITALIZATION
AT DECEMBER 31, 1993
--------------------------------
COMPANY (WON BILLIONS) (U.S. $ MIL.)
- ----------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Korea Electric Power Corporation................................. 13,322.6 16,486.3
Pohang Iron & Steel Co., Ltd..................................... 5,002.5 6,190.5
Samsung Electronics Co., Ltd..................................... 3,428.5 4,242.7
Hyundai Motor.................................................... 2,159.3 2,672.1
Goldstar Co., Ltd................................................ 1,926.1 2,383.5
Daewoo Securities Co., Ltd....................................... 1,699.6 2,103.2
Korea First Bank................................................. 1,560.0 1,930.5
Daewoo Corporation............................................... 1,554.5 1,923.7
Kia Motors Corporation........................................... 1,537.4 1,902.5
Korea Mobile Telecommunication................................... 1,445.9 1,789.3
Yukong Ltd. ..................................................... 1,442.0 1,784.5
Shinhan Bank..................................................... 1,403.5 1,736.8
Hanil Bank....................................................... 1,372.8 1,698.8
Cho Hung Bank.................................................... 1,352.0 1,673.1
Lucky Securities Co., Ltd........................................ 1,308.1 1,618.7
Daewoo Heavy Industry............................................ 1,297.9 1,606.1
</TABLE>

76
<PAGE> 77

<TABLE>
<CAPTION>
MARKET CAPITALIZATION
AT DECEMBER 31, 1993
--------------------------------
COMPANY (WON BILLIONS) (U.S. $ MIL.)
- ----------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Lucky............................................................ 1,225.6 1,516.7
Hyundai Engineering & Construction............................... 1,209.6 1,496.8
Bank of Seoul.................................................... 1,205.1 1,491.3
The Korea Commercial Bank of Korea............................... 1,118.0 1,383.5
Daishin Securities Co., Ltd...................................... 1,113.1 1,377.4
Dongsuh Securities Co., Ltd...................................... 1,112.5 1,376.7
SsangYong Refinery............................................... 985.5 1,219.5
Daewoo Electronics............................................... 951.9 1,178.0
Samsung Electron Devices......................................... 949.8 1,175.4
SsangYong Cement Industry........................................ 822.0 1,017.2
The Korea Long Term Credit Bank.................................. 815.3 1,008.9
Dong-A Construction Ind.......................................... 804.9 996.0
Korean Air....................................................... 783.7 969.8
SsangYong Investment & Securities Co., Ltd....................... 728.5 901.4
-------------- -------------
Total.................................................. 55,638.2 68,850.9

- ---------------
Note: (1) Under its articles of incorporation, each of KEPCO and POSCO provides
for a 1% ceiling on the acquisition by a single foreign investor of its
common shares.
Source: Factbook, 1994, Korea Stock Exchange.

</TABLE>

<TABLE>
The following table sets forth the market value, as of June 30, 1994, of
companies listed on the KSE by industry category, as classified by the KSE.

<CAPTION>
AGGREGATE
MARKET VALUE
NUMBER OF IN BILLIONS PERCENT OF
INDUSTRIES COMPANIES OF WON TOTAL VALUE
- --------------------------------------------------- --------- ------------ -----------
<S> <C> <C> <C>
Fishing............................................ 3 52.0 0.0
Mining............................................. 3 91.6 0.0
Foods and Beverages................................ 47 2,738.9 2.1
Textiles and Wearing Apparel....................... 61 4,550.0 3.5
Luggage, Handbags, Saddlery, Harness and
Footwear......................................... 15 444.3 0.3
Wood and Wood Products............................. 4 292.0 0.2
Paper and Paper Products........................... 25 1,216.7 0.9
Publishing, Printing, Reproduction of Recorded
Media............................................ 2 57.7 0.0
Chemicals and Chemical Products.................... 104 11,330.0 8.8
Non-metallic Minerals.............................. 25 3,315.6 2.5
Basic Metal Industries............................. 37 10,359.0 8.0
Fabricated Metal Products, Machinery and
Equipment........................................ 151 26,993.7 21.0
Other Manufactured Products........................ 10 380.0 0.2
Electricity and Gas................................ 2 16,398.5 12.7
Construction....................................... 46 8,315.2 6.4
Wholesale Trade.................................... 43 5,255.5 4.0
Retail Trade....................................... 6 1,118.2 0.8
Hotels and Restaurants............................. 1 225.1 0.1
Transport and Storage.............................. 15 2,002.9 1.5
Communication...................................... 2 2,978.4 2.3
</TABLE>

77
<PAGE> 78

<TABLE>
<CAPTION>
AGGREGATE
MARKET VALUE
NUMBER OF IN BILLIONS PERCENT OF
INDUSTRIES COMPANIES OF WON TOTAL VALUE
- --------------------------------------------------- --------- ------------ -----------
<S> <C> <C> <C>
Financial Institutions............................. 77 28,333.9 22.0
Insurance.......................................... 12 1,905.9 1.4
Recreational and Cultural Services................. 1 6.6 0.0
--- --------- -----
Total......................................... 692 128,361.7 100.0
=== ========= =====
- ---------------
Source: Stock, July 1994, Korea Stock Exchange.
</TABLE>

THE DEBT MARKET

The Korean listed bond market is less developed than the market for listed
equity securities. The Korean bond market is comprised of corporate bonds issued
by Korean corporations and public bonds including government bonds, municipal
bonds issued by city governments and special bonds issued by government-run
corporations. The majority of corporate bonds are guaranteed by banking
institutions. As of June 30, 1994, the total amount of listed corporate bonds
and listed public bonds was W 53.0 trillion and W 41.3 trillion, respectively.

The listing requirements for corporate bonds include, but are not limited
to: (i) the capital stock of the issuer must equal or exceed W 500 million; (ii)
the total face value amount issued must equal or exceed W 300 million; (iii)
less than one year has passed since issuance; (iv) a total unredeemed amount of
at least W 300 million at par value; (v) the issuer must be a listed or
registered company; and (vi) the bonds must be offered publicly. The following
table illustrates the total Won amount of all bond issues listed on the KSE for
1988 through 1993 and for 1994 through June 30.

<TABLE>

OUTSTANDING BOND ISSUES

<CAPTION>
LISTED PUBLIC BONDS LISTED CORPORATE BONDS TOTAL LISTED BONDS
----------------------------- ----------------------------- -----------------------------
IN BILLIONS IN MILLIONS IN BILLIONS IN MILLIONS IN BILLIONS IN MILLIONS
YEAR OF WON OF U.S. DOLLARS OF WON OF U.S. DOLLARS OF WON OF U.S. DOLLARS
- -------------------------- ----------- --------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1988...................... 22,159 32,391 11,521 16,841 33,680 49,233
1989...................... 28,095 41,340 15,395 22,653 43,490 63,994
1990...................... 29,049 40,549 22,068 30,804 51,117 71,353
1991...................... 32,250 42,390 29,241 38,435 61,491 80,824
1992...................... 32,447 41,156 32,697 41,473 65,143 82,627
1993...................... 41,359 51,181 37,574 46,497 78,932 97,676
As of June 30, 1994....... 52,978 65,770 41,296 51,268 94,274 117,038

- ---------------
Source: Stock, July 1994, Korea Stock Exchange.
</TABLE>

Statistics are not regularly compiled with respect to unlisted public
bonds, although there is a significant volume outstanding.

Until June 24, 1988, brokerage commissions were charged at a fixed rate of
0.3% for transactions in bonds. Since that date, brokerage commissions on
transactions in debt securities may be negotiated up to a maximum of 0.3%. A
further amendment to the regulations in June 1991 permits the KSE to alter the
maximum commission rate from time to time. No transaction tax is levied on bond
sales. Bonds may not be purchased on margin or sold short. For bonds,
over-the-counter trading constitutes a substantially larger part of the overall
bond trading market than trading on the KSE. In 1993, the value of bonds traded
on the KSE was W 5.5 billion, while the value of bonds traded in the
over-the-counter market was W 127,231.9 billion. The value of bonds traded on
the KSE is set forth in the following table. The table does not include
over-the-counter trading.

78
<PAGE> 79

<TABLE>
TRADING VALUE OF BONDS
<CAPTION>
PUBLIC SECTOR BONDS CORPORATE SECTOR BONDS TOTAL BONDS
----------------------------- ----------------------------- -----------------------------
IN BILLIONS IN MILLIONS IN BILLIONS IN MILLIONS IN BILLIONS IN MILLIONS
YEAR OF WON OF U.S. DOLLARS OF WON OF U.S. DOLLARS OF WON OF U.S. DOLLARS
- -------------------------- ----------- --------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1988...................... 7,001 10,234 1,545 2,258 8,545 12,491
1989...................... 4,378 6,442 771 1,134 5,149 7,577
1990...................... 2,455 3,427 795 1,110 3,250 4,537
1991...................... 1,394 1,832 704 925 2,098 2,758
1992...................... 453 575 152 193 605 767
1993...................... 4 5 2 2 6 7
1994 through June 30...... 22 27 228 283 250 310
- ---------------
Source: Stock, July 1994, Korea Stock Exchange.
</TABLE>

The number of bonds issues and the volume of issues outstanding have both
increased. However, the total trading volume during 1993 decreased sharply to
W 5.5 billion, about 1% of that of the previous year, while the volume in the
over-the-counter market recorded an increase of 76% in its annual rate.

Set forth below is information indicating the average annual yields for
various categories of bonds outstanding during the periods indicated.

<TABLE>
YIELDS ON BONDS
<CAPTION>
GOVERNMENT
BONDS SPECIFIC LAWS BONDS CORPORATE BONDS
-------- ---------------------------- -----------------------
COMPOUND DISCOUNT COMPOUND COUPON NON
YEAR BONDS BONDS BONDS BONDS GUARANTEED GUARANTEED
- ------------------------------------ -------- -------- -------- ------ ---------- ----------
(%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C>
1988................................ 13.02 15.61 14.62 14.54 14.49 14.59
1989................................ 14.39 15.92 15.40 15.41 15.23 15.29
1990................................ 15.27 16.19 16.00 16.34 16.40 16.41
1991................................ 16.70 18.47 18.26 18.37 18.84 18.73
1992................................ 16.56 16.93 17.20 17.20 17.13 18.07
1993................................ -- 13.69 -- -- 14.07 --

- ---------------
Source: Stock, July 1994, Korea Stock Exchange.
</TABLE>

OPTIONS AND FUTURES

Currently, the Korean securities markets do not provide mechanisms for the
purchase and sale of options and futures contracts. The KSE has announced that
stock index futures will be introduced in January 1996. Initially, however,
foreigners may not be permitted to invest in such future contracts.

TRADING, SETTLEMENT AND ENTRUSTMENT DEPOSIT PROCEDURES

The KSE is open Monday through Friday for trading between 9:40 a.m. - 11:40
a.m. and 1:20 p.m. - 3:20 p.m. It is also open on Saturday mornings. The KSE has
established a daily price change limitation schedule for shares traded on the
KSE based on the previous day's closing price. See "The Secondary Markets
- -- Equity Market -- Market Data." The KSE may suspend trading in the securities
of an individual company in certain circumstances. Share transactions are
effected through accounts with one of the 32 securities companies which act as
brokers, but which may also buy and sell as principals.

Currently, certain institutional investors, including the Fund, are
required to make a 20% entrustment guarantee deposit in cash or substitute
securities with their Korean broker prior to executing any trades. The Fund has
entered into custody account arrangements with the Subcustodian and the Fund's
brokers, whereby monies required to be advanced as the entrustment guarantee
deposit will deposited, at a nominal interest rate,

79
<PAGE> 80

with the Fund's brokers in accounts maintained by them at the Subcustodian on
instructions to pay the broker on settlement day against the delivery of the
relevant securities. To the extent that the Fund makes deposits with its brokers
in advance of delivery of securities, the Fund will be exposed to the risk of
the broker's insolvency prior to settlement. Although this risk cannot be
eliminated, the Manager will monitor broker creditworthiness. A broker's
insolvency could, nonetheless, cause the Fund to lose some or all of the
entrustment deposit.

All orders are transmitted directly and individually to the floor or the
Stock Market Automated Trading System ("SMATS") of the KSE via the computerized
order-routing system. In cases where the ordered issues are designated for
computerized trading, the system transmits the orders automatically to the
SMATS. Almost all of the transactions on the KSE are executed by the SMATS,
except a small number of issues designated as issues subject to manual matching.
As of the end of 1993, SMATS encompassed 895 stock issues, accounting for 97.0%
of the total trading volume. When a member firm inputs an order in the order-
routing terminal located at its offices, the order, via the order-routing
system, is fed directly into and recorded in the files of the SMATS by issue,
price, and time of order. Then the order is matched automatically under the
auction principle.

In the case of manually handled issues, however, the order-routing system
generates printouts on its system printer located at the member booth on the
floor of the KSE. Thereafter, floor representatives of a member firm submit the
order slips to the KSE clerk in the post who is in charge of matching the issues
concerned, who will match the best bid and offers according to the auction
principle.

Opening prices are determined by all bids and offers received during the
first five minutes of the trading session. The KSE has established procedures
for block sales of shares.

All securities transactions on the KSE are settled and cleared through the
Korea Securities Depository, a clearing and settlement agent of the KSE.
Transactions are classified either as regular way transactions, for which
settlement is due on the second business day following the day of contract, or
as cash transactions which are due on the day of contract. Shares and beneficial
certificates are traded as regular way transactions, while bonds may be traded
either as regular way or cash transactions. The delivery and receipt of
securities may be cleared by a book-entry clearing system of the Korea
Securities Depository. In 1993, the total volume cleared was 5.53 billion
shares, of which 5.394 billion were settled by way of book-entry deliveries.

TRANSACTION COSTS

Regulations of the KSE have established certain maximum brokerage
commission rates for all transactions effected on the KSE. The rates currently
provide for a commission of up to 0.6% for equity securities and up to 0.3% for
bonds and beneficial certificates. Each individual broker may determine
brokerage commissions within the established ranges. Each broker is required to
report its commission rate schedule and any deviation therefrom to the KSE seven
days prior to its application. Practically, there is generally no deviation in
commission rate schedules among Korean brokers. The same commission rates are,
in practice, applied to all trades in the same volume range. In addition, a
securities transaction tax is levied on the seller for most transactions at a
rate of 0.35% of the value of shares sold on the KSE and 0.5% of the value of
the shares sold off the KSE. From July 1, 1994, a special agricultural and
fishery tax is levied on the seller for most transactions at a rate of 0.15% of
the value of shares sold on the KSE. For detailed information, see "Taxation --
Korean Taxes."

SECURITIES FINANCING

The Korea Securities Finance Corporation (the "KSFC"), which was
established in 1955 to facilitate financing in the securities markets, is the
only institution authorized to engage in business specializing in securities
financing in Korea. The KSFC provides loans to underwriting groups and
securities collateral loans to the public. In March 1986 the KSFC suspended
credit extension for margin transactions as one measure to stabilize the
securities markets. Korean securities companies may extend credit for margin
transactions and provide for their clients subscription loans, purchase loans
and securities collateral financing by using their own resources or by borrowing
from the KSFC.

80
<PAGE> 81

The margin requirement as set by the KSE is 40% of the total of the sale or
purchase order value of the securities. The margin requirements are varied by
the KSE depending upon market conditions. Foreign investors, including the Fund,
are not permitted to engage in margin transactions or enjoy the benefit of other
loans or financing.

REGULATION

The MOF establishes the basic policies governing the overall operation of
the Korean securities markets. Although the KSEC is authorized to regulate and
make decisions on all major issues relating to the securities markets pursuant
to the SEA, all decisions of the KSEC must be reported to the MOF. The MOF may
repeal any decision of the KSEC or suspend its enforcement. The KSEC is composed
of nine commissioners, one of whom is appointed as chairman by the President.
The day-to-day management and implementation of the policies of the KSEC are
conducted by the Securities Board.

The SEA was originally enacted in 1962 and amended fundamentally in 1976,
1982, 1987 and 1991 to broaden the scope and improve the effectiveness of
official supervision of the securities markets. The 1987 amendment generally
improved the regulatory and disclosure requirements under the SEA, established a
more effective system for the transfer of securities through the use of a
book-entry system without the need for physical delivery of securities
certificates, and provided a statutory basis for futures trading on the KSE. As
amended, the SEA introduced restrictions on insider trading, required that
specified information be made available by listed companies to investors and
established rules regarding margin trading, proxy solicitation and takeover
bids. In addition, the 1987 amendments strengthened control over insider trading
and contained extensive new provisions which, for the first time, regulated the
investment advisory business. The 1991 amendments introduced stricter
restrictions on insider trading and supplemented the existing disclosure system.
The SEA and regulations promulgated thereunder currently require the initial
registration of companies and the filing of separate registration statements for
both initial and subsequent issues of securities and provide for the
administration and supervision of securities companies, investment advisory
companies, listed companies, and other securities-related institutions,
including foreign securities firms conducting business in Korea and domestic
securities companies conducting business abroad.

The SEA was amended most recently in January 1994, generally with effect
from April 1, 1994, in order to de-regulate the securities markets by lifting
the 10% individual limit on the acquisition of shares of a listed company (with
effect from January 1, 1997) and permitting listed companies to hold their own
shares subject to certain limitations, to improve the central depository system
and securities dispute conciliation committee, to strengthen the reporting
requirements imposed on shareholders holding 5% or more of the shares of a
listed company and to extend to holders of non-voting shares the right to
request the issuer to purchase their shares under certain circumstances,
including at the time of a merger or business transfer. The amendments also
provide detailed provisions for securities index futures transactions.

81
<PAGE> 82

MANAGEMENT OF THE FUND

DIRECTORS AND OFFICERS

The names of the directors and principal officers of the Fund are set forth
below, together with their positions and their principal occupations during the
past five years and, in the case of the directors, their positions with certain
other international organizations and publicly held companies.

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH FUND AND OTHER AFFILIATIONS
- --------------------------------- ----------------------- --------------------------------------
<S> <C> <C>
*Edward C. Johnson 3d Director and President Chairman, Chief Executive Officer and
FMR Corp. a Director of FMR Corp.; Director and
82 Devonshire Street Chairman of the Board and of the
Mail Stop F5A Executive Committee of FMR; Chairman
Boston, MA 02109 and a Director of FMR Texas Inc.
(1989), Fidelity Management & Research
(U.K.) Inc., and Fidelity Management &
Research (Far East) Inc.; Director or
Trustee and President of all other
registered management investment
companies advised by FMR, Chairman of
Fidelity International Limited;
Chairman of all other Funds in the
Fidelity Group of International Funds.
*J. Gary Burkhead Director and Senior President of FMR; and President and a
Fidelity Investments Vice President Director of FMR Texas Inc. (1989),
82 Devonshire Street Fidelity Management & Research (U.K.)
Mail Stop E14G Inc. and Fidelity Management &
Boston, MA 02109 Research (Far East) Inc.; Director or
Trustee and Senior Vice President of
all other registered management
investment companies managed by FMR.
Helmert Frans van den Hoven Director Former Member, Supervisory Board,
Marevista 35 Royal Dutch Petroleum Company; former
2202 BX Noordwijk Aan Zee Chairman, Supervisory Board ABN/Amro
The Netherlands Bank (1992-1994) and of Unilever N.V.
(1975-1984); Member, Supervisory
Boards, Hunter Douglass and Vendex
International; Director of a number of
other funds in the Fidelity Group of
International Funds; Director of
Fidelity Advisor Emerging Asia Fund,
Inc.
Bertram High Witham, Jr. Director Chairman and Director, Villager Compa-
89 Fox Hill Road nies; Director, System Control
Stamford, CT 06903 Technology, Bill Glass Ministries;
Trustee, Fidelity North Carolina
Management Fund; former Treasurer, IBM
Co. (1973-1978); Director of Fidelity
Advisor Emerging Asia Fund, Inc.
</TABLE>

82
<PAGE> 83

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH FUND AND OTHER AFFILIATIONS
- --------------------------------- ----------------------- ------------------------------------
<S> <C> <C>
David L. Yunich Director Director and Consultant, W.R. Grace
W.R. Grace & Company & Company (1977-present); Director,
1114 Avenue of the Americas New York Racing Association
New York, NY 10036 (1977-present); former Director,
Prudential Insurance Company of
America (1955-1991); Director, River
Bank America (1964-present); former
Director, NYNEX Corporation
(1970-1990); Trustee, Saratoga
Performing Arts Center, Boy Scouts
of America, and Carnegie Hall;
former President, Vice Chairman and
Director, R.H. Macy & Company
(1955-1978), Director of Fidelity
Advisor Emerging Asia Fund, Inc.

William Ebsworth Vice President Chief Investment Officer, Fidelity
Fidelity Investments Investments (Hong Kong)
Management (H.K.) Ltd. (1991-present); Director, Fidelity
16th Floor Investments Management (H.K.) Ltd.;
Citibank Tower Research Director, Fidelity
3 Garden Road Investments (Hong Kong) (1990-1991);
Central, Hong Kong Fund Manager, Fidelity Investments
(Boston and Tokyo) (1986-1990); Vice
President of Fidelity Advisor
Emerging Asia Fund, Inc.
</TABLE>
<TABLE>
<S> <C> <C>
Billy W. Wilder Vice President Director of Research, Fidelity
Fidelity Management & Management & Research (Far East)
Research (Far East) (1992-present); Director of Research
Shiroyama JT Mori Building and General Manager, Schroder
19th Floor Securities (Japan), Ltd.
4-3-1 Toranomon, Minato-ku (1988-1992); Senior Analyst,
Tokyo 105 Japan Schroder Securities (Japan), Ltd.
(1986-1988); Manager, Impedance
Analysis Equipment Marketing,
Yokogawa-Hewlett-Packard, Ltd.
(1979-1986).

Arthur S. Loring Secretary Senior Vice President and General
Fidelity Investments Counsel of FMR; Vice
82 Devonshire Street President -- Legal of FMR Corp.;
Mail Stop F5C Vice President and Clerk of Fidelity
Boston, MA 02109 Distributors Corporation; Secretary
of all other registered management
investment companies managed by FMR.
</TABLE>

83
<PAGE> 84

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH FUND AND OTHER AFFILIATIONS
- --------------------------------- ----------------------- ------------------------------------
<S> <C> <C>
Gary L. French Treasurer Treasurer of all other registered
Fidelity Investments management investment companies
82 Devonshire Street managed by FMR; Senior Vice
Mail Stop D8 President, Fund Accounting, Fidelity
Boston, MA 02109 Accounting & Custody Services Co.
(1991); Vice President, Fund
Accounting, Fidelity Accounting &
Custody Services Co. (1990); Senior
Vice President, Chief Financial and
Operations Officer, Huntington
Advisers, Inc. (1985-1990).

Stuart E. Fross Assistant Secretary An employee of FMR Corp. (1990-
Fidelity Investments present); Associate, Dechert Price &
82 Devonshire Street Rhoads (law firm) (1987-1990);
Mail Stop F5H Assistant Secretary of Fidelity
Boston, MA 02109 Advisor Emerging Asia Fund, Inc.

John Costello Assistant Treasurer Assistant Treasurer of all other
Fidelity Investments registered management investment
82 Devonshire Street companies
Mail Stop D8 managed by FMR and an employee of
Boston, MA 02109 FMR Co.

Leonard M. Rush Assistant Treasurer An employee of FMR Co.
Fidelity Investments
82 Devonshire Street
Mail Stop D8
Boston, MA 02109
</TABLE>

- ---------------
* Director who is an "interested person" of the Fund within the meaning of the
1940 Act.

Directors who are not "interested persons" (as defined in the 1940 Act) of
the Investment Manager, the Investment Adviser or the Sub-Adviser will be paid a
fee of $7,000 per year, plus up to $1,500 for every meeting of the Board
attended and $1,000 as an annual committee meeting fee. All directors will be
reimbursed for travel and out-of-pocket expenses incurred in connection with
meetings of the Board of Directors.

The officers of the Fund conduct and supervise the daily business
operations of the Fund, while the directors, in addition to their functions set
forth elsewhere under "Management of the Fund," review such actions and decide
on general policy.

The Fund also has an Audit Committee composed currently of Messrs. van den
Hoven, Witham and Yunich.

In addition, at the Fund's first annual stockholders meeting, the Board of
Directors will be classified into three classes, each with a term of three years
with only one class of directors standing for election in any year. Such
classification may prevent replacement of a majority of the directors for up to
a two-year period while the classification is in effect. Commencing on the date
of the annual meeting of stockholders in the year 2000, the Board of Directors
will no longer be divided into classes and each director will stand for election
at such meeting and at each annual meeting of stockholders held thereafter.

The Articles of Incorporation and By-Laws of the Fund provide that the Fund
will indemnify its directors and officers and will indemnify employees or agents
of the Fund against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their offices with the Fund
to the fullest extent permitted by law. Under Maryland law, a corporation may
indemnify any director or officer made a

84
<PAGE> 85

party to any proceeding by reason of service in that capacity unless it is
established that (1) the act or omission of the director or officer was material
to the matter giving rise to the proceeding and (A) was committed in bad faith
or (B) was the result of active and deliberate dishonesty; (2) the director or
officer actually received an improper personal benefit in money, property or
services; or (3) in the case of any criminal proceeding, the director or officer
had reasonable cause to believe that the act or omission was unlawful. In
addition, the Fund's Articles of Incorporation provide that the Fund's directors
and officers will not be liable to shareholders for money damages, except in
limited instances. Under Maryland law, a corporation may restrict or limit the
liability of directors or officers to the corporation or its stockholders for
money damages, except to the extent that (1) it is proved that the person
actually received an improper benefit or profit in money, property, or services,
or (2) a judgment or other final adjudication adverse to the person is entered
in a proceeding based on a finding in the proceeding that the person's action,
or failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. However, nothing
in the Articles of Incorporation, or By-Laws of the Fund protects or indemnifies
a director, officer, employee or agent against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.

The Fund's Articles of Incorporation and By-Laws provide that the Fund's
Board of Directors has the sole power to adopt, alter or repeal the Fund's
By-Laws.

INVESTMENT MANAGER, INVESTMENT ADVISER AND SUB-ADVISER

The Investment Manager is Fidelity Management & Research Company. Pursuant
to a management agreement (the "Management Agreement") between the Fund and the
Investment Manager, the Investment Manager will supervise the Fund's investment
program. The Investment Manager will consult with the Investment Adviser and the
Sub-Adviser on a regular basis regarding the Investment Adviser's and the Sub-
Adviser's decisions concerning the purchase, sale or holding of particular
securities. In addition to the foregoing, the Investment Manager will monitor
the performance of the Fund's service providers, including the Fund's
administrator, transfer agent and custodian. The Investment Manager will pay the
reasonable salaries and expenses of such of the Fund's officers and employees
and any fees and expenses of such of the Fund's directors who are directors,
officers or employees of the Investment Manager, except that the Fund may bear
travel expenses or an appropriate portion thereof of directors and officers of
the Fund who are directors, officers or employees of the Investment Manager to
the extent that such expenses relate to attendance at meetings of the Board of
Directors or any committees thereof.

Pursuant to an investment advisory agreement (the "Advisory Agreement")
among the Investment Manager, the Investment Adviser and the Fund, the
Investment Adviser is responsible on a day-to-day basis for investing the Fund's
portfolio in accordance with its investment objective, policies and limitations.
The Investment Adviser has discretion over investment decisions for the Fund
and, in that connection, will place purchase and sale orders for the Fund's
portfolio securities. The Advisory Agreement authorizes delegation of these
responsibilities to the Sub-Adviser. Pursuant to a Sub-Advisory Agreement (the
"Sub-Advisory Agreement"), the Investment Adviser has delegated certain of its
responsibilities for the day-to-day management of the Fund to the Sub-Adviser
which will manage the Fund's portfolio through its Tokyo office. Edward S.J.
Bang will be primarily responsible for the day-to-day management of the Fund's
portfolio. Mr. Bang will work with a team of professionals in Japan in managing
the Fund's portfolio. Mr. Bang has served as a Korean analyst for various
Fidelity funds since September 1993. He currently oversees approximately
U.S.$290 million of Korean equities for such funds. Mr. Bang joined Fidelity
Investments in August 1991, after graduating from the Wharton School, University
of Pennsylvania. Mr. Bang was initially a senior analyst covering four sectors
in the Japanese stock market. In September 1993, he was assigned to cover the
Korean stock market. Prior to studying at Wharton and joining Fidelity
Investments, Mr. Bang worked at The Boston Company's Institutional Investors
Group, managing pension portfolios in the U.S. stock market. In addition, the
Investment Adviser will make available research and statistical data to the
Fund. The Investment Adviser and the Sub-Adviser will pay the reasonable
salaries and expenses of such of the Fund's officers and employees and any fees
and expenses of such of the Fund's directors who are directors, officers or
employees

85
<PAGE> 86

of the Investment Adviser or the Sub-Adviser, except that the Fund may bear
travel expenses or an appropriate portion thereof of directors and officers of
the Fund who are directors, officers or employees of the Investment Adviser or
the Sub-Adviser to the extent that such expenses relate to attendance at
meetings of the Board of Directors or any committees thereof.

Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for personal
investing and restricts certain transactions. For example, all personal trades
require pre-clearance, and participation in initial public offerings are
prohibited. In addition, restrictions on the timing of personal investing
relative to trades by Fidelity funds and on short-term trading have been
adopted. Personal investing is monitored to protect shareholders' interests.

Investment Manager. Fidelity Management & Research Company will act as
Investment Manager of the Fund. The Fidelity investment management organization
was established in 1946. Today, the Fidelity organization is the largest mutual
fund company in the United States, and is known as an innovative provider of
high quality financial services to individuals and institutions. In addition to
its mutual fund business, the Fidelity organization operates one of the leading
discount brokerage firms in the United States, Fidelity Brokerage Services, Inc.
As of August 31, 1994, the Investment Manager, the Investment Adviser, the Sub-
Adviser and their affiliates had over $270 billion under management, of which
more than $35 billion was invested in non-U.S. securities (including over $15
billion in Asian securities, over $550 million in Korean securities and over $7
billion managed from Asian offices). The Fidelity organization employs over 375
investment professionals worldwide. The Investment Manager also manages the
Fidelity Advisor Emerging Asia Fund, Inc., a closed-end investment company.

The Investment Manager, together with the Investment Adviser, the
Sub-Adviser and its other affiliates, has extensive research capabilities both
worldwide, with over 300 investment professionals, as of August 31, 1994 and
within the Asian region, and maintains offices in Hong Kong, Singapore, Taiwan
and Tokyo which were staffed by 35 investment professionals. The Sub-Adviser,
through its Tokyo office researches and screens for investment potential in
Korean Issuers through management contacts and on-site visits. In 1993, Fidelity
conducted over 170 company visits in Korea.

FMR Corp. is the ultimate parent company of the Investment Manager. Through
ownership of voting common stock, members of the Edward C. Johnson 3d family
form a controlling group with respect to FMR Corp. Changes may occur in the
Johnson family group, through death or disability, which would result in changes
in each individual family member's holding of FMR Corp. stock. Such changes
could result in one or more family members becoming holders of over 25% of such
stock. FMR Corp. has received an opinion of special counsel that changes in the
composition of the Johnson family group under these circumstances would not
result in the termination of the Fund's management or distribution contracts
and, accordingly, would not require a shareholder vote to continue operation
under those contracts.

The Investment Manager's main offices are located at 82 Devonshire Street,
Boston, Massachusetts 02109.

Investment Adviser. Fidelity International Investment Advisors, the Fund's
Investment Adviser and an affiliate of the Investment Manager, has delegated
certain of its responsibilities for providing discretionary portfolio management
services to the Sub-Adviser. The Investment Adviser may, however, elect to
manage the portfolios directly through the Investment Adviser's office in Hong
Kong. The Investment Adviser is an investment adviser registered under the
Investment Advisers Act of 1940 and was organized in 1983 under the laws of
Bermuda. The Investment Adviser primarily provides investment advisory services
to U.S. investment companies investing throughout the world. The Investment
Adviser is a 98% owned subsidiary of Fidelity International Limited ("FIL"),
although it is contemplated that the Investment Adviser will become a 100% owned
subsidiary of FIL. The Investment Adviser's and FIL's main offices are located
at Pembroke Hall, 42 Crow Lane, Pembroke, Bermuda.

FIL is a Bermuda company formed in 1968 which primarily provides investment
advisory services to non-U.S. investment companies and institutional investors
investing in securities of issuers throughout the world.

86
<PAGE> 87

More than 25% of the voting stock of FIL is owned directly or indirectly by
Edward C. Johnson 3d and trusts for the benefits of Johnson family members.

Sub-Adviser. Fidelity Investments Japan Limited ("FIJ"), the Sub-Adviser,
will, acting upon delegation by the Investment Adviser, provide advisory
services concerning the Fund's assets invested in Japanese and other securities
and will be primarily responsible for the day-to-day management of the Fund's
portfolio. The Sub-Adviser is an affiliate of the Investment Manager and the
Investment Adviser and is registered as an investment adviser under the
Investment Advisers Act of 1940. The Sub-Adviser was formed on November 17, 1986
under the laws of Japan and its main offices are located at 19th Floor,
Shiroyama JT Mori Building, 4-3-1 Toranomon, Minato-ku, Tokyo 105, Japan. It is
a wholly-owned subsidiary of FIL.

COMPENSATION AND EXPENSES

As compensation for its services, the Investment Manager will receive from
the Fund a monthly fee at an annual rate of 1.00% of the Fund's average daily
net assets. The Investment Adviser will receive from the Investment Manager 60%
of the fees paid by the Fund to the Investment Manager. The Sub-Adviser will
receive from the Investment Adviser a fee equal to 50% of the fee paid to the
Investment Adviser with respect to any assets managed by the Sub-Adviser on a
discretionary basis and 30% of the fee paid to the Investment Adviser with
respect to any assets managed by the Sub-Adviser on a non-discretionary basis.
Currently, the Sub-Adviser has been delegated full discretion to manage the
entire portfolio.

Except for the expenses borne by the Investment Manager, the Investment
Adviser or the Sub-Adviser pursuant to the Management Agreement, the Advisory
Agreement and the Sub-Advisory Agreement, the Fund will pay or cause to be paid
all of its expenses including, among other things: organizational and offering
expenses (which will include out-of-pocket expenses, but not overhead or
employee costs, of the Investment Manager, the Investment Adviser and the
Sub-Adviser); expenses for legal, accounting and auditing services; taxes and
governmental fees; dues and expenses incurred in connection with membership in
investment company organizations; fees and expenses incurred in connection with
listing the Fund's shares on any stock exchange; costs of printing and
distributing shareholder reports, proxy materials, prospectuses, offering
circulars, stock certificates and distributions of dividends; charges of the
Fund's custodians, sub-custodians, registrars, transfer agents, dividend
disbursing agents and dividend reinvestment plan agents; payment for portfolio
pricing services to a pricing agent, if any; registration and filing fees of the
SEC; expenses of registering or qualifying securities of the Fund for sale in
the various states; freight and other charges in connection with the shipment of
the Fund's portfolio securities; fees and expenses of non-interested directors;
costs of shareholders' meetings; insurance; interest; brokerage costs; and
litigation and other extraordinary or nonrecurring expenses. The Fund will also
reimburse the Underwriters for certain of their expenses up to $200,000. See
"Underwriting."

DURATION AND TERMINATION; NON-EXCLUSIVE SERVICES

Unless earlier terminated as described below, each of the Management
Agreement, the Advisory Agreement and the Sub-Advisory Agreement will remain in
effect until October 25, 1996 and from year to year thereafter if approved
annually (i) by a majority of the non-interested directors of the Fund and (ii)
by the Board of Directors of the Fund or by a majority of the outstanding voting
securities of the Fund. The Management Agreement may be terminated upon 60 days'
written notice without penalty by the Fund's Board of Directors or by vote of a
majority of the outstanding voting securities of the Fund or by the Investment
Manager and will terminate in the event it is assigned (as defined in the 1940
Act). The Advisory Agreement may be terminated upon 60 days' written notice
without penalty by the Fund's Board of Directors or by vote of a majority of the
outstanding voting securities of the Fund or by the Investment Manager and will
terminate in the event it is assigned (as defined in the 1940 Act). The
Sub-Advisory Agreement may be terminated upon 60 days written notice without
penalty by the Fund's Board of Directors or by vote of a majority of the
outstanding voting securities of the Fund or by the Investment Adviser or the
Sub-Adviser and will terminate in the event it is assigned (as defined in the
1940 Act).

87
<PAGE> 88

The services of the Investment Manager, the Investment Adviser and the
Sub-Adviser are not deemed to be exclusive, and nothing in the relevant service
agreements will prevent any of them or their affiliates from providing similar
services to other investment companies and other clients (whether or not their
investment objectives and policies are similar to those of the Fund) or from
engaging in other activities.

ADMINISTRATION

Fidelity Service Co. ("Service"), a division of FMR Corp., will serve as
the Fund's administrator pursuant to an agreement with the Fund (the
"Administration Agreement"). As compensation for its services, Service will
receive from the Fund monthly fees at an annual rate of .20% of the Fund's
average daily net assets. Service is located at 82 Devonshire Street, Boston, MA
02109.

Service performs various administrative services, including providing the
Fund with the services of persons to perform administrative and clerical
functions, maintenance of the Fund's books and records, pricing and securities
lending services, preparation of various filings, reports, statements and
returns filed with government authorities, and preparation of financial
information for the Fund's proxy statements and semiannual and annual reports to
shareholders.

88
<PAGE> 89

PORTFOLIO TRANSACTIONS

The Fund has no obligation to deal with any brokers or dealers in the
execution of transactions in portfolio securities. Subject to policies
established by the Fund's Board of Directors, the Investment Adviser has
delegated to the Sub-Adviser primary responsibility for the Fund's portfolio
decisions and the placing of the Fund's portfolio transactions.

All orders for the purchase or sale of portfolio securities will be placed
on behalf of the Fund by the Sub-Adviser pursuant to authority contained in the
Sub-Advisory Agreement or by the Investment Adviser pursuant to authority
contained in the Investment Advisory Agreement. The Investment Adviser and the
Sub-Adviser also will be responsible for the placement of transaction orders for
other investment companies and accounts for which either of them or their
affiliates act as investment adviser. In selecting broker-dealers, subject to
applicable limitations of the federal securities laws, the Investment Adviser
and the Sub-Adviser will consider various relevant factors, including, but not
limited to the size and type of the transaction; the nature and character of the
markets for the security to be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer firm; the
broker-dealer's execution services rendered on a continuing basis; the
reasonableness of any commissions and arrangements for payment of Fund expenses.
The Fund anticipates that its portfolio transactions involving securities of
companies domiciled in Korea will be conducted primarily on the KSE and in
foreign OTC transactions. Commissions for foreign investments traded on the KSE
will generally be higher than for U.S. investments and may not be subject to
negotiation.

The Fund may execute portfolio transactions with broker-dealers who provide
research and execution services to the Fund or other accounts over which the
Investment Adviser, the Sub-Adviser or their affiliates exercise investment
discretion. Such services may include advice concerning the value of securities;
the advisability of investing in, purchasing, or selling securities; the
availability of securities or the purchasers or sellers of securities;
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and performance of accounts;
and effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement). The selection of such broker-dealers
generally is made by the Investment Adviser or Sub-Adviser, (to the extent
possible consistent with execution considerations) in accordance with a ranking
of broker-dealers determined periodically by the Investment Adviser's or
Sub-Adviser's investment staff based upon its assessment of the quality of
research and execution services provided.

The receipt of research from broker-dealers that execute transactions on
behalf of the Fund may be useful to the Investment Adviser or the Sub-Adviser in
rendering investment management services to the Fund or their other clients, and
conversely, such information provided by broker-dealers who have executed
transaction orders on behalf of other Investment Adviser or Sub-Adviser clients
may be useful to the Investment Adviser or Sub-Adviser in carrying out their
obligations to the Fund. The receipt of such research will not reduce the
Investment Adviser's or the Sub-Adviser's normal independent research
activities; however, it will enable the Investment Adviser and the Sub-Adviser
to avoid the additional expenses that could be incurred if the Investment
Adviser and the Sub-Adviser tried to develop comparable information through
their own efforts.

Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause the Fund
to pay such higher commissions, the Investment Adviser or the Sub-Adviser must
determine in good faith that such commissions are reasonable in relation to the
value of the brokerage and research services provided by such executing
broker-dealers, viewed in terms of a particular transaction or the Investment
Adviser's or the Sub-Adviser's overall responsibilities to the Fund and their
other clients. In reaching this determination, the Investment Adviser and the
Sub-Adviser will not attempt to place a specific U.S. dollar value on the
brokerage and research services provided, or to determine what portion of the
compensation should be related to those services.

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<PAGE> 90

The Investment Adviser and the Sub-Adviser are authorized to use research
services provided by and to place portfolio transactions with brokerage firms
that have provided assistance in the distribution of shares of the Fund or
shares of other Fidelity funds to the extent permitted by law. The Investment
Adviser and the Sub-Adviser may use research services provided by and place
agency transactions with Fidelity Brokerage Services, Inc. ("FBSI") and Fidelity
Brokerage Services, Ltd. ("FBSL"), subsidiaries of FMR Corp., if the commissions
are fair, reasonable, and comparable to commissions charged by non-affiliated,
qualified brokerage firms for similar services.

The Investment Adviser and the Sub-Adviser may allocate brokerage
transactions to the Fund's custodians, acting as a broker-dealer, or the other
broker-dealers who have entered into arrangements with the Investment Manager,
the Investment Adviser or the Sub-Adviser under which the broker-dealer
allocates a portion of the commissions paid by the Fund toward payment of the
Fund's expenses, such as transfer agency fees or custodian fees. The transaction
quality must, however, be comparable to those of other qualified broker-dealers
and the commissions comparable to those of other broker-dealers, when the
broker-dealer will allocate a portion of the commissions paid to payment of the
Fund's expenses.

Section 11(a) of the Securities Exchange Act of 1934 prohibits members of
national securities exchanges from executing exchange transactions for accounts
which they or their affiliates manage, except if certain requirements are
satisfied. Pursuant to such requirements, the Board of Directors has authorized
FBSI to effect Fund portfolio transactions on national securities exchanges in
accordance with approved procedures and applicable SEC rules.

The Board of Directors periodically will review the Investment Adviser's
and the Sub-Adviser's performance of their responsibilities in connection with
the placement of portfolio transactions on behalf of the Fund and review the
commissions paid by the Fund over representative periods of time to determine if
they are reasonable in relation to the benefits to the Fund.

The Investment Adviser may, in its sole discretion and without a
shareholder vote, terminate its delegation to the Sub-Adviser of some or all of
its responsibilities with respect to portfolio transactions. If this were to
occur the Investment Adviser would perform these responsibilities directly under
the Investment Advisory Agreement in the manner described herein.

From time to time the Board of Directors will review whether the recapture
for the benefit of the Fund of some portion of the brokerage commissions or
similar fees paid by the Fund on portfolio transactions is legally permissible
and advisable. The Fund seeks to recapture soliciting broker-dealer fees on the
tender of portfolio securities, but at present no other recapture arrangements
are in effect. The Board of Directors intends to continue to review whether
recapture opportunities are available and are legally permissible and, if so, to
determine in the exercise of their business judgment, whether it would be
advisable for the Fund to seek such recapture.

Investment decisions for the Fund are made independently from those for
other funds and accounts advised or managed by the Investment Adviser or the
Sub-Adviser. When two or more funds or accounts managed by the Investment
Adviser or the Sub-Adviser are simultaneously engaged in the purchase or sale of
the same security, the prices and amounts are allocated in accordance with a
formula considered by the Investment Adviser or the Sub-Adviser to be equitable
to each fund. In some cases this system could adversely affect the size of the
position obtained for or disposed of by the Fund and could have a detrimental
effect on the price or value of a security as far as the Fund is concerned. In
other cases, however, the ability of the Fund to participate in volume
transactions will produce better executions and prices for the Fund. In
addition, because of different investment objectives, a particular security may
be purchased for one or more funds or accounts when one or more funds or
accounts are selling the same security. It is the current opinion of the Board
of Directors that the desirability of retaining FIIA and FIJ as Investment
Adviser and Sub-Adviser, respectively, to the Fund outweighs any disadvantages
that may be said to exist from exposure to simultaneous transactions.

It is expected that the annual portfolio turnover rate of the Fund will not
normally exceed 150%. The portfolio turnover rate is calculated by dividing the
lesser of sales or purchases of portfolio securities by the average monthly
value of the Fund's portfolio securities. For purposes of this calculation,
portfolio securities exclude all securities having a maturity when purchased of
one year or less.

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<PAGE> 91

DIVIDENDS AND DISTRIBUTIONS; DIVIDEND
REINVESTMENT AND CASH PURCHASE PLAN

The Fund intends to distribute annually to shareholders substantially all
of its net investment income, and to distribute any net realized capital gains
at least annually. Net investment income for this purpose is income other than
net realized long-and short-term capital gains net of expenses.

Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
shareholders whose shares of Common Stock are registered in their own names may
elect to have all distributions automatically reinvested by State Street Bank
and Trust Company (the "Plan Agent") in Fund shares pursuant to the Plan.
Shareholders who do not elect to participate in the Plan will receive
distributions in cash paid by check in U.S. dollars mailed directly to the
shareholder by State Street Bank and Trust Company, as dividend paying agent. In
the case of shareholders, such as banks, brokers or nominees, that hold shares
for others who are beneficial owners, the Plan Agent will administer the Plan on
the basis of the number of shares certified from time to time by the
shareholders as representing the total amount registered in such shareholders'
names and held for the account of beneficial owners that have not elected to
receive distributions in cash. Investors that own shares registered in the name
of a bank, broker or other nominee should consult with such nominee as to
participation in the Plan through such nominee, and may be required to have
their shares registered in their own names in order to participate in the Plan.

The Plan Agent serves as agent for the shareholders in administering the
Plan. If the directors of the Fund declare an income dividend or a capital gains
distribution payable either in the Fund's Common Stock or in cash,
nonparticipants in the Plan will receive cash and participants in the Plan will
receive Common Stock, to be issued by the Fund or purchased by the Plan Agent in
the open market, as provided below. If the market price per share on the
valuation date equals or exceeds net asset value per share on that date, the
Fund will issue new shares to participants at net asset value; provided,
however, if the net asset value is less than 95% of the market price on the
valuation date, then such shares will be issued at 95% of the market price. The
valuation date will be the dividend or distribution payment date or, if that
date is not a New York Stock Exchange trading day, the next preceding trading
day. If net asset value exceeds the market price of Fund shares at such time, or
if the Fund should declare an income dividend or capital gains distribution
payable only in cash, the Plan Agent will, as agent for the participants, buy
Fund shares in the open market, on the New York Stock Exchange or elsewhere, for
the participants' accounts on, or shortly after, the payment date. If, before
the Plan Agent has completed its purchases, the market price exceeds the net
asset value of a Fund share, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Fund's shares, resulting in the
acquisition of fewer shares than if the distribution had been paid in shares
issued by the Fund on the dividend payment date. Because of the foregoing
difficulty with respect to open-market purchases, the Plan provides that if the
Plan Agent is unable to invest the full dividend amount in open-market purchases
during the purchase period or if the market discount shifts to a market premium
during the purchase period, the Plan Agent will cease making open-market
purchases and will receive the uninvested portion of the dividend amount in
newly issued shares at the close of business on the last purchase date.

Participants have the option of making additional cash payments to the Plan
Agent, annually, in any amount from $100 to $3,000, for investment in the Fund's
Common Stock. The Plan Agent will use all such funds received from participants
to purchase Fund shares in the open market on or about February 15. Any
voluntary cash payment received more than 30 days prior to this date will be
returned by the Plan Agent, and interest will not be paid on any invested cash
payment. To avoid unnecessary cash accumulations, and also to allow ample time
for receipt and processing by the Plan Agent, it is suggested that participants
send in voluntary cash payments to be received by the Plan Agent approximately
ten days before an applicable purchase date specified above. A participant may
withdraw a voluntary cash payment by written notice, if the notice is received
by the Plan Agent not less than 48 hours before such payment is to be invested.

The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in an account, including information
needed by shareholders for personal and tax records. Shares

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in the account of each Plan participant will be held by the Plan Agent in the
name of the participant, and each shareholder's proxy will include those shares
purchased pursuant to the Plan.

There is no charge to participants for reinvesting dividends or capital
gains distributions or voluntary cash payments. The Plan Agent's fees for the
reinvestment of dividends and capital gains distributions and voluntary cash
payments will be paid by the Fund. There will be no brokerage charges with
respect to shares issued directly by the Fund as a result of dividends or
capital gains distributions payable either in stock or in cash. However, each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases in connection with the
reinvestment of dividends and capital gains distributions and voluntary cash
payments made by the participant. Brokerage charges for purchasing small amounts
of stock for individual accounts through the Plan are expected to be less than
the usual brokerage charges for such transactions, because the Plan Agent will
be purchasing stock for all participants in blocks and prorating the lower
commission thus attainable.

The receipt of dividends and distributions under the Plan will not relieve
participants of any income tax which may be payable on such dividends or
distributions. See "Taxation."

Experience under the Plan may indicate that changes in the Plan are
desirable. Accordingly, the Fund and the Plan Agent reserve the right to
terminate the Plan as applied to any voluntary cash payments made and any
dividend or distribution paid subsequent to notice of the termination sent to
members of the Plan at least 30 days before the record date for such dividend or
distribution. The Plan also may be amended by the Fund or the Plan Agent, but
(except when necessary or appropriate to comply with applicable law, rules or
policies of a regulatory authority) only by at least 30 days' written notice to
participants in the Plan. All correspondence concerning the Plan should be
directed to the Plan Agent at Two Heritage Drive, Quincy, Massachusetts 02171.

TAXATION

U.S. FEDERAL INCOME TAXES

The Fund intends to elect to qualify as a regulated investment company
under the Code. To so qualify the Fund must, among other things: (a) derive at
least 90% of its gross income from dividends, interest, payment with respect to
securities loans, gains from the sale or other disposition of stock or
securities and gains from the sale or other disposition of foreign currencies,
or other income (including gains from options, futures contracts and forward
contracts) derived with respect to the Fund's business of investing in stocks,
securities or currencies; (b) derive less than 30% of its gross income from the
sale or other disposition of the following assets held for less than three
months -- (i) stock and securities, (ii) options, futures and forward contracts
(other than options, futures and forward contracts on foreign currencies), and
(iii) foreign currencies (and options, futures and forward contracts on foreign
currencies) which are not directly related to the Fund's principal business of
investing in stocks and securities (or options and futures with respect to stock
or securities); and (c) diversify its holdings so that, at the end of each
quarter, (i) at least 50% of the value of the Fund's total assets is represented
by cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and other securities, with such other securities
limited in respect of any one issuer to an amount not greater in value than 5%
of the Fund's total assets and to not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of the Fund's
total assets is invested in the securities (other than U.S. Government
securities or securities of other regulated investment companies) of any one
issuer or of any two or more issuers that the Fund controls and that are
determined to be engaged in the same business or similar or related businesses.

As a regulated investment company, the Fund will not be subject to U.S.
federal income tax on its investment company taxable income that it distributes
to its shareholders, provided that at least 90% of its investment company
taxable income for the taxable year is distributed to its shareholders; however,
the Fund will be subject to tax on its income and gains to the extent that it
does not distribute to its shareholders an amount equal to such income and
gains. See "Passive Foreign Investment Companies" below. Investment company
taxable income includes dividends, interest and net short-term capital gains in
excess of net long-

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term capital losses, but does not include net long-term capital gains in excess
of net short-term capital losses. The Fund intends to distribute annually to its
shareholders substantially all of its investment company taxable income. If
necessary, the Fund may borrow money temporarily or liquidate assets to make
such distributions. Dividend distributions of investment company taxable income
(including distributions from short-term capital gains) are taxable to a U.S.
shareholder as ordinary income to the extent of the Fund's current and
accumulated earnings and profits, whether paid in cash or in shares. Since the
Fund will not invest in the stock of domestic corporations, distributions to
corporate shareholders of the Fund will not be entitled to the deduction for
dividends received by corporations. If the Fund fails to satisfy the 90%
distribution requirement or fails to qualify as a regulated investment company
in any taxable year, it will be subject to tax in such year on all of its
taxable income, whether or not the Fund makes any distributions to its
shareholders.

As a regulated investment company, the Fund also will not be subject to
U.S. federal income tax on its net long-term capital gains, if any, that it
distributes to its shareholders. If the Fund retains for reinvestment or
otherwise an amount of such net long-term capital gains, it will be subject to a
tax of up to 35% of the amount retained. The Board of Directors of the Fund will
determine at least once a year whether to distribute any net long-term capital
gains in excess of net short-term capital losses and capital loss carryovers
from prior years. The Fund expects to designate amounts retained as
undistributed capital gains in a notice to its shareholders who, if subject to
U.S. federal income taxation on long-term capital gains, (a) will be required to
include in income for U.S. federal income tax purposes, as long-term capital
gains, their proportionate shares of the undistributed amount, and (b) will be
entitled to credit against their U.S. federal income tax liabilities their
proportionate shares of the tax paid by the Fund on the undistributed amount and
to claim refunds to the extent that their credits exceed their liabilities. For
U.S. federal income tax purposes, the basis of shares owned by a shareholder of
the Fund will be increased by an amount equal to 65% of the amount of
undistributed capital gains included in the shareholder's income. Distributions
of net long-term capital gains, if any, by the Fund are taxable to its
shareholders as long-term capital gains whether paid in cash or in shares and
regardless of how long the shareholder has held the Fund's shares. Such
distributions of net long-term capital gains are not eligible for the dividends
received deduction. Under the Code, net long-term capital gains will be taxed at
a rate no greater than 28% for individuals and 35% for corporations.
Shareholders will be notified annually as to the U.S. federal income tax status
of their dividends and distributions.

Shareholders receiving dividends or distributions in the form of additional
shares pursuant to the Plan should be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of money
that the shareholders receiving cash dividends or distributions will receive,
and should have a cost basis in the shares equal to such amount.

If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the Fund, the distribution will be taxable even if
it, in effect, represents a return of invested capital. Investors considering
buying shares just prior to a dividend or capital gain distribution payment date
should be aware that, although the price of shares purchased at that time may
reflect the amount of the forthcoming distribution, those who purchase just
prior to the record date for a distribution will receive a distribution which
will be taxable to them. The amount of capital gains realized and distributed
(which from an investment standpoint may represent a partial return of capital
rather than income) in any given year will be the result of investment
performance, among other things, and can be expected to vary from year to year.

If the Fund is the holder of record of any stock on the record date for any
dividends payable with respect to such stock, such dividends are included in the
Fund's gross income not as of the date received but as of the later of (a) the
date such stock became ex-dividend with respect to such dividends (i.e., the
date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date the Fund acquired such stock.
Accordingly, in order to satisfy its income distribution requirements, the Fund
may be required to pay dividends based on anticipated earnings, and shareholders
may receive dividends in an earlier year than would otherwise be the case.

Under the Code, the Fund may be subject to a 4% excise tax on a portion of
its undistributed income. To avoid the tax, the Fund must distribute annually at
least 98% of its ordinary income (not taking into account any capital gains or
losses) for the calendar year and at least 98% of its capital gain net income
for the

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12-month period ending, as a general rule, on October 31 of the calendar year.
For this purpose, any income or gain retained by the Fund that is subject to
corporate income tax will be treated as having been distributed at year-end. In
addition, the minimum amounts that must be distributed in any year to avoid the
excise tax will be increased or decreased to reflect any under-distribution or
over-distribution, as the case may be, in the previous year. For a distribution
to qualify under the foregoing test, the distribution generally must be declared
and paid during the year. Any dividend declared by the Fund in October, November
or December of any year and payable to shareholders of record on a specified
date in such a month shall be deemed to have been received by each shareholder
on December 31 of such year and to have been paid by the Fund not later than
December 31 of such year, provided that such dividend is actually paid by the
Fund during January of the following year.

The Fund will maintain accounts and calculate income by reference to the
U.S. dollar for U.S. federal income tax purposes. If the Fund's dividends exceed
its taxable income in any year, which is sometimes the result of currency
related losses, all or a portion of the Fund's dividends may be a return of
capital to shareholders for tax purposes. Furthermore, exchange control
regulations may restrict the ability of the Fund to repatriate investment income
or the proceeds of sales of securities. These restrictions and limitations may
limit the Fund's ability to make sufficient distributions to satisfy the 90%
distribution requirement and avoid the 4% excise tax.

The Fund's transactions in foreign currencies, forward contracts, options
and futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund, defer Fund losses, and affect the
determination of whether capital gains and losses are characterized as long-term
or short-term capital gains or losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. These provisions
also may require the Fund to mark-to-market certain types of the positions in
its portfolio (i.e., treat them as if they were closed out) which may cause the
Fund to recognize income without receiving cash with which to make distributions
in amounts necessary to satisfy the 90% and 98% distribution requirements for
avoiding income and excise taxes.

The Fund may make investments that accrue income that is not matched by a
current receipt of cash by the Fund, such as investments in certain obligations
having original issue discount (i.e., an amount equal to the excess of the
stated redemption price of the security at maturity over its issue price), or
market discount (i.e., an amount equal to the excess of the stated redemption
price of the security at maturity over its basis immediately after it was
acquired) if the Fund elects to accrue market discount on a current basis. In
addition, income may continue to accrue for federal income tax purposes with
respect to a non-performing investment. Any of the foregoing income would be
treated as income earned by the Fund and therefore would be subject to the
distribution requirements of the Code. Because such income may not be matched by
a concurrent receipt of cash to the Fund, the Fund may be required to dispose of
other securities to be able to make distributions to its investors. See the
discussion of distribution requirements above. The extent to which the Fund may
liquidate securities at a gain may be limited by the 30% limitation discussed
above.

Upon the sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending upon the amount realized and the shareholder's
basis in the shares. Such gain or loss will be treated as a capital gain or loss
if the shares are capital assets in the shareholder's hands, and will be
long-term if the shareholder's holding period for the shares is more than 12
months and otherwise will be short-term. Any loss realized on a sale or exchange
will be disallowed to the extent that the shares disposed of are replaced
(including replacement through the reinvesting of dividends and capital gains
distributions in the Fund) within a period of 61 days beginning 30 days before
and ending 30 days after the disposition of the shares. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized by a shareholder on the sale of Fund shares held by the
shareholder for six months or less will be treated for federal income tax
purposes as a long-term capital loss to the extent of any distributions of
long-term capital gains received by the shareholder with respect to such shares.

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An amount received by a shareholder from the Fund in exchange for shares of
the Fund (pursuant to a repurchase of shares in a tender offer or otherwise)
generally will be treated as a payment in exchange for the shares tendered,
which may result in taxable gain or loss as described above. However, if the
amount received by a shareholder exceeds the fair market value of the shares
tendered, or if a shareholder does not tender all of the shares of the Fund
owned or deemed to be owned by the shareholder, all or a portion of the amount
received may be treated as a dividend taxable as ordinary income or as a return
of capital. In addition, if a tender offer is made, shareholders who do not
tender their shares could be deemed, under certain circumstances, to have
received a taxable distribution as a result of their increased proportionate
interest in the Fund.

Backup Withholding

The Fund may be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividends and redemption proceeds paid to
non-corporate shareholders. This tax may be withheld from dividends if (i) the
shareholder fails to furnish the Fund with the shareholder's correct taxpayer
identification number (ii) the IRS notifies the Fund that the shareholder has
failed to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (iii) when required to do so, the
shareholder fails to certify that he or she is not subject to backup
withholding. Redemption proceeds may be subject to withholding under the
circumstances described in (i) above. Backup withholding is not an additional
tax. Any amounts withheld under the backup withholding rules from payments made
to a shareholder may be credited against such shareholder's federal income tax
liability.

Passive Foreign Investment Companies

The Fund intends to make investments which may, for federal income tax
purposes, constitute investments in shares of foreign corporations. If the Fund
purchases shares in certain foreign passive investment entities described in the
Code as passive foreign investment companies ("PFIC"), the Fund will be subject
to U.S. federal income tax on a portion of any "excess distribution" (the Fund's
ratable share of distributions in any year that exceeds 125% of the average
annual distribution received by the Fund in the three preceding years or the
Fund's holding period, if shorter, and any gain from the disposition of such
shares), even if such income is distributed as a taxable dividend by the Fund to
its shareholders. Additional charges in the nature of interest may be imposed on
the Fund in respect of deferred taxes arising from such "excess distributions."
If the Fund were to invest in a PFIC and elect to treat the PFIC as a "qualified
electing fund" under the Code (and if the PFIC were to comply with certain
reporting requirements), in lieu of the foregoing requirements the Fund would be
required to include in income each year its pro rata share of the PFIC's
ordinary earnings and net realized capital gains, whether or not such amounts
were actually distributed to the Fund. Such amounts would be subject to the 90%
and calendar year distribution requirements described above.

Legislation pending in the U.S. Congress would unify and, in certain cases,
modify the anti-deferral rules contained in various provisions of the Code,
including the provisions dealing with PFICs, related to the taxation of U.S.
shareholders of foreign corporations. In the case of a passive foreign company,
as defined in the proposed legislation ("PFC"), having "marketable stock," the
proposed legislation would require U.S. shareholders, such as the Fund, owning
less than 25% of a PFC that is not U.S.-controlled to mark-to-market the PFC
stock annually, unless the shareholders elected to include in income currently
their proportionate shares of the PFC's income and gain. Otherwise, U.S.
shareholders would be treated substantially the same as under current law.
Special rules applicable to mutual funds would classify as "marketable stock"
all stock in PFCs held by the Fund. It is unclear if or when the proposed
legislation will become law and if it is enacted, the form it will take.
Moreover, on April 1, 1992, proposed regulations of the IRS were published
providing a mark-to-market election for regulated investment companies that
would have effects similar to the proposed legislation. These regulations would
be effective for taxable years ending after promulgation of the regulations as
final regulations. The IRS subsequently issued a notice indicating that final
regulations will provide that regulated investment companies may elect the
mark-to-market election for tax years ending after March 31,

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1992 and before April 1, 1993. Whether and to what extent the notice will apply
to taxable years of the Fund is unclear.

Foreign Tax Credits

The Fund may be subject to certain taxes, including withholding taxes,
imposed by Korea and possibly other foreign countries with respect to its income
and capital gains. If the Fund qualifies as a regulated investment company, if
certain distribution requirements are satisfied and if more than 50% of the
value of the Fund's total assets at the close of any taxable year consists of
stock or securities of foreign corporations, which for this purpose may include
obligations of foreign governmental issuers, the Fund may elect, for U.S.
federal income tax purposes, to treat any foreign country's income or
withholding taxes paid by the Fund that can be treated as income taxes under the
U.S. income tax principles, as paid by its shareholders. The Fund expects to
qualify for and make this election. For any year that the Fund makes such an
election, each shareholder will be required to include in its income an amount
equal to its allocable share of such income taxes paid by the Fund to a foreign
country's government and shareholders will be entitled, subject to certain
limitations, to credit their portions of these amounts against their U.S.
federal income tax due, if any, or to deduct their portions from their U.S.
taxable income, if any. No deductions for foreign taxes paid by the Fund may be
claimed, however, by non-corporate shareholders (including certain foreign
shareholders described below) who do not itemize deductions. Shareholders that
are exempt from tax under Section 501(a) of the Code, such as pension plans,
generally will derive no benefit from the Fund's election. However, such
shareholders should not be disadvantaged either because the amount of additional
income they are deemed to receive equal to their allocable share of such foreign
countries' income taxes paid by the Fund generally will not be subject to U.S.
federal income tax.

The amount of foreign taxes that may be credited against a shareholder's
U.S. federal income tax liability generally will be limited, however, to an
amount equal to the shareholder's U.S. federal income tax rate multiplied by its
foreign source taxable income. For this purpose, the Fund generally expects that
the capital gains it distributes, whether as dividends or capital gains
distributions, will not be treated as foreign source taxable income. In
addition, this limitation must be applied separately to certain categories of
foreign source income, one of which is foreign source "passive income." For this
purpose, foreign source "passive income" includes dividends, interest, capital
gains and certain foreign currency gains. As a consequence, certain shareholders
may not be able to claim a foreign tax credit for the full amount of their
proportionate share of foreign taxes paid by the Fund. Each shareholder will be
notified within 60 days after the close of the Fund's taxable year whether,
pursuant to the election described above, the foreign taxes paid by the Fund
will be treated as paid by its shareholders for that year and, if so, such
notification will designate (i) such shareholder's portion of the foreign taxes
paid to such country and (ii) the portion of the Fund's dividends and
distributions that represents income derived from sources within such country.

Foreign Shareholders

U.S. taxation of a shareholder who, as to the United States, is a foreign
investor depends, in part, on whether the shareholder's income from the Fund is
"effectively connected" with a U.S. trade or business carried on by the
shareholder.

If the foreign investor is not a resident alien and the income from the
Fund is not effectively connected with a United States trade or business carried
on by the foreign investor, distributions of net investment income and net
realized short-term capital gains will be subject to a 30% (or lower treaty
rate) U.S. withholding tax. Furthermore, such foreign investors may be subject
to an increased U.S. tax on their income resulting from the Fund's election
(described above) to "pass-through" amounts of foreign taxes paid by the Fund,
but will not be able to claim a credit or deduction in the United States with
respect to the foreign taxes treated as having been paid by them. Distributions
of net realized long-term capital gains, amounts retained by the Fund which are
designated as undistributed capital gains, and gains realized upon the sale of
shares of the Fund will not be subject to U.S. tax unless a foreign investor who
is a nonresident alien individual is physically present in the United States for
more than 182 days during the taxable year and, in the case of a gain realized
upon the sale of Fund shares, unless (i) such gain is attributable to an office
or fixed place of business in the

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United States or (ii) such nonresident alien individual has a tax home in the
United States and such gain is not attributable to an office or fixed place of
business located outside the United States. A determination by the Fund not to
distribute long-term capital gains may reduce a foreign investor's overall
return from an investment in the Fund, since the Fund will incur a U.S. federal
tax liability with respect to retained long-term capital gains, thereby reducing
the amount of cash held by the Fund that is available for distribution, and the
foreign investor may not be able to claim a credit or deduction with respect to
such taxes. In the case of a foreign investor who is a nonresident alien
individual, the Fund may be required to withhold U.S. federal income tax at a
rate of 31%, unless the foreign investor files an appropriate form certifying
under penalty of perjury as to his nonresident alien status.

If a foreign investor is a resident alien or if dividends or distributions
from the Fund are effectively connected with a U.S. trade or business carried on
by the foreign investor, dividends of net investment income, distributions of
net short-term and long-term capital gains, amounts retained by the Fund that
are designated as undistributed capital gains and any gains realized upon the
sale of shares of the Fund will be subject to U.S. income tax at the rates
applicable to U.S. citizens or domestic corporations. If the income from the
Fund is effectively connected with a U.S. trade or business carried on by a
foreign investor that is a corporation, then such foreign investor also may be
subject to the 30% branch profits tax.

The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Shareholders may be required to provide appropriate documentation
to establish their entitlement to the benefits of such a treaty. Foreign
investors are advised to consult their own tax advisers with respect to (a)
whether their income from the Fund is or is not effectively connected with a
U.S. trade or business carried on by them (b) whether they may claim the
benefits of an applicable tax treaty and (c) any other tax consequences to them
of an investment in the Fund.

OTHER TAXATION

Distributions also may be subject to state, local and foreign taxes
depending on each shareholder's particular position.

THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS A SUMMARY
INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY. IN VIEW OF THE INDIVIDUAL NATURE
OF TAX CONSEQUENCES, EACH SHAREHOLDER IS ADVISED TO CONSULT HIS OWN TAX ADVISER
WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO HIM OF PARTICIPATION IN THE
FUND, INCLUDING THE EFFECT AND APPLICABILITY OF STATE, LOCAL, FOREIGN, AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.

Ordinary income and capital gain dividends may also be subject to state and
local taxes.

KOREAN TAXES

The following description of certain Korean tax matters relating to the
Fund and its shareholders represents the opinion of Shin & Kim, Korean counsel
to the Fund.

Under current Korean law, payments to non-residents of Korea (such as the
Fund) by Korean corporations in respect of income are subject to Korean
withholding tax and capital gains derived by non-residents of Korea (such as the
Fund) with respect to stock and securities of Korean corporations are subject to
withholding tax, unless exempted by relevant laws or tax treaties. More
specifically, dividends and interest will be subject to withholding tax at the
rate of 26.875% and capital gains (without deduction for capital losses) will be
subject to withholding tax equal to the lower of (i) 10.75% of the gross sales
proceeds, or (ii) if satisfactory evidence of acquisition cost is produced,
26.875% of the difference between the gross sales proceeds and the acquisition
cost of the stock or security sold (excluding any transaction charges,
commissions, fees or taxes paid at the time of acquisition).

The applicable withholding tax rate under the U.S.-Korea Income Tax Treaty
presently in effect (the "Treaty"), is generally 15% (plus a resident tax of
7.5% of such amount, or a total of 16.125%) on dividends

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paid to the Fund by Korean corporations, and generally 12% (plus a resident tax
of 7.5% of such amount, or a total of 12.9%) on interest paid to the Fund by
Korean corporations. Under the Treaty, no withholding tax will be applicable to
capital gains realized by the Fund.

The reduced tax rate and exemption under the provisions of the Treaty will
not apply to the dividend, interest and capital gain income derived by the Fund
from Korean corporations if both (i) the Fund is, by reason of the existence of
special measures under U.S. federal income tax law with respect to those types
of income, subject to U.S. federal income tax in an amount substantially less
than the U.S. federal income tax generally imposed on corporate profits (Article
17(a) of the Treaty), and (ii) at least 25% of the Fund's outstanding shares are
held of record or otherwise determined to be owned, directly or indirectly, by
one or more persons who are not individual residents of the United States
(Article 17(b) of the Treaty).

Questions have recently been raised as to whether the U.S. regulated
investment company provisions contained in the Code constitute "special
measures" for purposes of Article 17(a) of the Treaty. Regardless of the
resolution of these questions, under Article 17(b) of the Treaty, the Fund will
qualify for the benefits of the Treaty so long as less than 25% of the Fund's
outstanding shares are determined to be held other than by individual residents
of the United States.

Shin & Kim have given their opinion that the Treaty presently applies to
the Fund if and so long as the Fund operates as described herein. The Fund has
received written confirmation from the MOF that, so long as all of the issued
shares of the Fund are listed on one or more publicly acknowledged stock
exchanges in the United States only and they are traded on such exchanges by the
general public, the Fund will be entitled to the benefits of the Treaty because
Article 17(b) of the Treaty will not apply. The Fund's Common Stock has been
approved for listing on the New York Stock Exchange upon notice of issuance. In
order to qualify for the benefits of the Treaty, the Fund will not apply to list
the Fund's shares on any stock exchange outside the United States.

Notwithstanding the foregoing, the Tax Exemption and Reduction Control Law
(the "TERCL") exempts interest on bonds denominated in a non-Korean currency
from Korean income and corporation taxes. The residents' tax referred to above
is therefore eliminated with respect to such investments. The TERCL tax
exemptions expire on December 31, 1998.

Under present Korean law, the Korean Inheritance and Gift Tax will not
apply to any testate, intestate or inter-vivos transfer of shares of the Fund to
the extent the deceased or the donee, as the case may be, is not domiciled in
Korea. Korean stamp duty will not apply to transfers of Korean securities, nor
to the Fund's portfolio securities transactions.

A securities transaction tax is payable on the transfer by the Fund of
shares and certain other equities (throughout this paragraph, collectively,
"shares") issued by a Korean company at the rate of 0.35% of the sale price of
the shares (except in certain circumstances in which case no tax is charged, and
where the shares are traded outside the KSE, in which case the tax is payable at
the rate of 0.5% of the sale price) unless (i) the shares are listed on a
foreign stock exchange and the sales are executed on such exchange; or (ii)
those sales are executed between non-residents without a permanent establishment
in Korea, the non-resident transferor did not own 10% or more of the total
issued and outstanding shares of the issuer of such shares at any time during
the five years before the year within which the transfer occurs, and the
non-resident transferor does not sell such shares through a securities company
in Korea (which latter condition cannot be fulfilled under current KSEC
regulations which require all sales of Korean securities off the KSE to be
through a Korean securities company). Effective from July 1, 1994, the Korean
government introduced an additional agricultural and fishery special tax on
securities transactions on the KSE which is equal to 0.15% of the sale price of
the shares and which will remain effective for a period of ten years thereafter.
The transferor of the shares pays the securities transaction tax. When the
transfer is made through a securities company only, such securities company will
make the withholding. Where the transfer is effected by a non-resident
individual or a non-resident corporation without a permanent establishment in
Korea otherwise than through the Korea Securities Depository or a securities
company, the transferee is required to withhold the securities transaction tax.

98
<PAGE> 99

This tax treatment could change in the event of changes in Korean or U.S.
tax laws, changes in the terms of, or the MOF's interpretation of, the Treaty,
or changes in relevant facts.

NOTICES

Shareholders will be notified annually by the Fund of the dividends,
distributions and deemed distributions made by the Fund to its shareholders.
Furthermore, shareholders will be sent, if appropriate, various written notices
after the close of the Fund's taxable year regarding certain dividends,
distributions and deemed distributions that were paid (or that were treated as
having been paid) by the Fund to its shareholders during the preceding taxable
year.

PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISERS
CONCERNING FOREIGN, FEDERAL, STATE AND LOCAL TAX MATTERS, AND WITH RESPECT TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE FUND.

NET ASSET VALUE

Net asset value will be determined daily by dividing the value of the net
assets of the Fund (the value of its assets less its liabilities including
borrowings, exclusive of capital stock and surplus) by the total number of
shares of Common Stock outstanding. Portfolio securities will be valued by
various methods depending on the primary market or exchange on which they trade.
Most equity securities for which the primary market is the United States will be
valued at the last sale price or, if no sale has occurred, at the closing bid
price. Equity securities for which the primary market is outside the United
States will be valued using the official closing price or the last sale price in
the principal market where they are traded. If the last sale price (on the local
exchange) is unavailable, the last evaluated quote or last bid price normally
will be used. Shares listed on the KSE which are traded by foreign investors in
foreign OTC transactions may be valued at prices at which it is expected such
shares may be sold, as determined by or under the direction of a committee
appointed by the Board of Directors, provided that the committee determines that
such valuations are accurate; otherwise such KSE shares will be valued using the
procedures for listed securities. Short-term securities will be valued either at
amortized cost or at original cost plus accrued interest, both of which
approximate current value. Convertible securities and fixed-income securities
will be valued primarily by a pricing service that uses a vendor security
valuation matrix which incorporates both dealer-supplied valuations and
electronic data processing techniques. This two-fold approach is believed to
more accurately reflect fair value because it takes into account appropriate
factors such as institutional trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics, and
other market data, without exclusive reliance upon quoted, exchange, or
over-the-counter prices. Use of pricing services has been approved by the Board
of Directors.

Securities and other assets for which there is no readily available market
will be valued in good faith by a committee appointed by the Board of Directors.
The procedures set forth above need not be used to determine the value of the
securities owned by the Fund if, in the opinion of a committee appointed by the
Board of Directors, some other method (e.g., closing over-the-counter bid prices
in the case of debt instruments traded on an exchange) would more accurately
reflect the fair market value of such securities.

Generally, the valuation of foreign and domestic equity securities, as well
as corporate bonds, U.S. government securities, money market instruments, and
repurchase agreements, will be substantially completed each day at the close of
the NYSE. The values of any such securities held by the Fund are determined as
of such time for the purpose of computing the Fund's net asset value. Foreign
security prices are furnished by independent brokers or quotation services which
express the value of securities in their local currency. Fidelity Service
Company gathers all exchange rates daily at the close of the NYSE using the last
quoted price on the local currency and then translates the value of foreign
securities from their local currency into U.S. dollars. Any changes in the value
of forward contracts due to exchange rate fluctuations and days to maturity are
included in the calculation of net asset value. If an extraordinary event that
is expected to materially affect the value of a portfolio security occurs after
the close of an exchange on which that security is traded, then the security
will be valued as determined in good faith by a committee appointed by the Board
of Directors.

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<PAGE> 100

DESCRIPTION OF CAPITAL STOCK

COMMON STOCK

The authorized capital stock of the Fund is 100,000,000 shares of Common
Stock ($.001 par value). The Common Stock, when issued, will be fully paid and
nonassessable. All shares of Common Stock are equal as to dividends,
distributions and voting privileges. There are no conversion, preemptive or
other subscription rights. In the event of liquidation, each share of Common
Stock is entitled to its proportion of the Fund's assets after payment of all
debts and expenses and any preferential liquidating distributions to holders of
any preferred stock issued by the Fund. There are no cumulative voting rights
for the election of directors. Prior to the Offering, the Investment Manager
will own 100% of the outstanding shares of Common Stock of the Fund and,
consequently, will be a controlling person of the Fund until the shares offered
hereby are issued and sold.

The Fund's Board of Directors has the authority to classify and reclassify
any authorized but unissued shares of capital stock and to establish the rights
and preferences of such unclassified shares. The Fund has no present intention
of offering additional shares of its Common Stock except in connection with any
future rights offering and the Plan. See "Future Rights Offering" and "Dividends
and Distributions: Dividend Reinvestment and Cash Purchase Plan." Other
offerings of its Common Stock, if made, will require approval of the Fund's
Board of Directors. Any additional offering will be subject to the requirements
of the 1940 Act that shares of Common Stock may not be sold at a price below the
then current net asset value (exclusive of underwriting discounts and
commissions) except in connection with an offering to existing shareholders or
with the consent of a majority of the Fund's outstanding Common Stock.

SPECIAL VOTING PROVISIONS

The Fund presently has provisions in its Articles of Incorporation and
By-Laws which may have the effect of limiting the ability of other entities or
persons to acquire control of the Fund, to cause it to engage in certain
transactions, or to modify its structure.

Under these provisions, a director may be removed from office only for
cause by vote of at least 75% of the shares of capital stock entitled to be
voted on the matter. Also conversion of the Fund from a closed-end to an
open-end investment company requires approval of 75% of the entire Board of
Directors and the affirmative vote of holders of at least 75% of the Common
Stock outstanding unless it is approved by a vote of 75% of the Continuing
Directors (as defined below), in which event such conversion requires the
approval of the holders of a majority of the outstanding Common Stock. A
"Continuing Director" is any member of the Board of Directors of the Fund who is
not a person or affiliate of a person who enters or proposes to enter into a
Business Combination (as defined below) with the Fund (an "Interested Party")
and who has been a member of the Board of Directors for a period of at least 12
months, or has been a member of the Board of Directors since April 1, 1994, or
is a successor of a Continuing Director who is unaffiliated with an Interested
Party and is recommended to succeed a Continuing Director by a majority of the
Continuing Directors then on the Board of Directors of the Fund.

In addition, at the Fund's first annual stockholders meeting, the Board of
Directors will be classified into three classes, each with a term of three years
with only one class of directors standing for election in any year. Commencing
on the date of the annual meeting of stockholders in the year 2000, the Board of
Directors will no longer be divided into classes and each director will stand
for election at such meeting and at each annual meeting of stockholders held
thereafter. Such classification may prevent replacement of a majority of the
directors for up to a two-year period while the classification is in effect.

Additionally, the affirmative vote of 75% of the entire Board of Directors
and the holders of at least (i) 75% of the Common Stock and (ii) in the case of
a Business Combination (as defined below), 66% of the Common Stock other than
Common Stock held by an Interested Party who is (or whose affiliate is) a party
to a Business Combination (as defined below) or an affiliate or associate of the
Interested Party, are required to authorize any of the following transactions:

(i) merger, consolidation or statutory share exchange of the Fund with
or into any other person;

(ii) issuance or transfer by the Fund (in one or a series of
transactions in any 12 month period) of any securities of the Fund to any
person or entity for cash, securities or other property (or combination
thereof) having an aggregate fair market value of $1,000,000 or more,
excluding issuances or transfers of

100
<PAGE> 101

debt securities of the Fund, sales of securities of the Fund in connection
with a public offering, issuances of securities of the Fund pursuant to a
dividend reinvestment plan adopted by the Fund and issuances of securities
of the Fund upon the exercise of any stock subscription rights distributed
by the Fund and portfolio transactions effected by the Fund in the ordinary
course of its business;

(iii) sale, lease, exchange, mortgage, pledge, transfer or other
disposition by the Fund (in one or a series of transactions in any 12 month
period) to or with any person or entity of any assets of the Fund having an
aggregate fair market value of $1,000,000 or more except for portfolio
transactions (including pledges of portfolio securities in connection with
borrowings) effected by the Fund in the ordinary course of its business
(transactions within clauses (i), (ii) and (iii) above being known
individually as a "Business Combination");

(iv) the voluntary liquidation or dissolution of the Fund, or an
amendment to the Fund's Articles of Incorporation, to terminate the Fund's
existence; or

(v) unless the 1940 Act or federal law requires a lesser vote, any
stockholder proposal as to specific investment decisions made or to be made
with respect to the Fund's assets as to which stockholder approval is
required under federal or Maryland law.

However, the stockholder vote described above will not be required with
respect to the foregoing transactions (other than those set forth in (v) above)
if they are approved by a vote of 75% of the Continuing Directors. In that case,
if Maryland law requires stockholder approval, the affirmative vote of a
majority of the votes entitled to be cast thereon shall be required.

Reference is made to the Articles of Incorporation and By-Laws of the Fund,
on file with the Commission, for the full text of these provisions. See "Further
Information."

ANNUAL TENDER OFFERS AND SHARE REPURCHASES

In recognition of the possibility that the Fund's Shares might trade at a
discount to net asset value, the Board of Directors of the Fund has determined
that it would be in the best interests of the shareholders of the Fund to take
action to attempt to reduce or eliminate a market value discount from net asset
value. To that end, the Board of Directors of the Fund has determined that
annual tender offers for shares of its Common Stock may help reduce any market
discount that may develop. In this connection, during the first calendar quarter
of each calendar year commencing in 1998, the Board of Directors of the Fund has
committed to conduct a tender offer for shares of its Common Stock on an annual
basis under certain circumstances. During the fourth quarter of the previous
calendar year, the Board of Directors will fix in advance a period of 12
consecutive calendar weeks beginning during such fourth calendar quarter and
ending in the immediately following first quarter for the purpose of calculating
the average trading price of the Fund's Common Stock. In the event that the
average of the closing prices of the Common Stock of the Fund for the last
trading day in each week during such 12-week period, on the principal securities
exchange where listed, is below the initial offering price of $15.00 per share
and represents a discount of 10% or more from the average net asset value of the
Fund as determined on the same days in the same period, a tender offer for up to
10% of the then outstanding shares of Common Stock of the Fund will be conducted
during such first calendar quarter, subject to certain conditions described
below. In addition, the Board of Directors may consider from time to time open
market repurchases of the Fund's Common Stock or converting the Fund into an
open-end investment company.

Subject to the Fund's investment restrictions with respect to borrowings,
the Fund may incur debt to finance tender offers and/or repurchases. See
"Investment Restrictions." Interest on any such borrowings will reduce the
Fund's net investment income, and any such borrowings are subject to special
considerations.

No assurance can be given that annual tender offers or repurchases of
shares of its Common Stock will reduce or eliminate any market discount from net
asset value of the Fund's Common Stock. The Fund anticipates that the market
price of its Common Stock will from time to time vary from net asset value. The
market price of the Fund's Common Stock will, among other things, be determined
by the relative demand for and supply of shares of its Common Stock in the
market, the Fund's investment performance, the Fund's dividends and yield and
investor perception of the Fund's overall attractiveness as an investment as
compared with other investment alternatives. Nevertheless, the fact that the
Fund's Common Stock may be subject to tender offers at net asset value from time
to time may reduce the spread between market price and net asset

101
<PAGE> 102

value that might otherwise exist. In the opinion of the Investment Manager,
sellers may be less inclined to accept a significant discount if they have a
reasonable expectation of being able to recover net asset value in conjunction
with an annual tender offer.

Although the Board of Directors believes that tender offers and repurchases
of shares of Common Stock generally would have a favorable effect on the market
price of the Fund's Common Stock, the repurchase of shares of Common Stock by
the Fund will decrease the total assets of the Fund and, therefore, have the
effect of increasing the Fund's expense ratio. Because of the nature of the
Fund's investment objective and policies and the Fund's portfolio, the
Investment Manager does not anticipate that tender offers and repurchases should
have a materially adverse effect on the Fund's investment performance and does
not anticipate any material difficulty in disposing of sufficient portfolio
securities in order to consummate tender offers and repurchases.

Although the Board of Directors has committed to annual tender offers under
the circumstances set forth above, it is the Board of Directors' announced
policy, which may be changed by the Board of Directors, that the Fund cannot
accept tenders or effect repurchases if (1) such transactions, if consummated,
would (a) result in the delisting of the Fund's Common Stock from the NYSE (the
NYSE having advised the Fund that it would consider delisting if the aggregate
market value of the Fund's outstanding shares is less than $5,000,000, the
number of publicly held shares of Common Stock falls below 600,000 or the number
of round-lot holders falls below 1,200) or (b) impair the Fund's status as a
regulated investment company under the Code (which would make the Fund subject
to U.S. federal income taxes on all of its income and gains in addition to the
taxation of shareholders who receive distributions from the Fund); (2) the
amount of shares of Common Stock tendered would require liquidation of such a
substantial portion of the Fund's securities that the Fund would not be able to
liquidate portfolio securities in an orderly manner in light of the existing
market conditions and such liquidation would have an adverse effect on the net
asset value of the Fund to the detriment of non-tendering shareholders; (3)
there is any (a) in the Board of Directors' judgment, material legal action or
proceeding instituted or threatened challenging such transactions or otherwise
materially adversely affecting the Fund, (b) suspension of or limitation on
prices for trading securities generally on the NYSE or other national securities
exchange(s), or the NASDAQ National Market System, (c) declaration of a banking
moratorium by Federal or state authorities or any suspension of payment by banks
in the United States or New York State, (d) limitation affecting the Fund or the
issuers of its portfolio securities imposed by federal or state authorities on
the extension of credit by lending institutions, (e) commencement of war, armed
hostilities or other international or national calamity directly or indirectly
involving the United States, or (f) in the Board of Directors' judgment, other
event or condition which would have a material adverse effect on the Fund or its
shareholders if Shares were repurchased; or (4) the Board of Directors
determines that effecting any such transaction would constitute a breach of
their fiduciary duty owed to the Fund or its shareholders. The Board of
Directors may modify these conditions in light of experience.

Any tender offer made by the Fund for its shares of Common Stock will be at
a price equal to the net asset value of the Common Stock on a date subsequent to
the Fund's receipt of all tenders. During the pendency of any tender offer by
the Fund, the Fund will calculate daily the net asset value of the Common Stock
and will establish procedures which will be specified in the tender offer
documents, to enable shareholders to ascertain readily such net asset value.
Each offer will be made and shareholders notified in accordance with the
requirements of the Securities Exchange Act of 1934 and the 1940 Act, either by
publication or mailing or both. Each offering document will contain such
information as is prescribed by such laws and the rules and regulations
promulgated thereunder, including information for shareholders to consider in
deciding whether to tender shares of Common Stock and detailed instructions on
how to tender such shares of Common Stock. When a tender offer is authorized to
be made by the Fund's Board of Directors, a shareholder wishing to accept the
offer will be required to tender all (but not less than all) of the shares of
Common Stock owned by such shareholder (or attributed to him for U.S. federal
income tax purposes under Section 318 of the Code) unless the Fund has received
a ruling from the Internal Revenue Service, or an opinion satisfactory to it,
that a tender of less than all of a shareholder's shares of Common Stock will
not cause certain adverse tax consequences with respect to non-tendering
shareholders. There can be no assurance that the Fund will receive such a ruling
or opinion.

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<PAGE> 103

A shareholder who sells all of his shares of Common Stock (including shares
attributed to him for U.S. Federal income tax purposes under Section 318 of the
Code) pursuant to a tender offer or open-market repurchase by the Fund will
realize a taxable gain or loss, treated as described in "Taxation -- U.S.
Federal Income Taxes." A shareholder who sells less than all of his shares of
Common Stock (including shares so attributed) may be treated as receiving a
dividend from the Fund in the amount of some or all of the proceeds of sale; in
that event, the amount of proceeds not treated as a dividend would be a return
of capital, reducing the shareholder's basis in his shares of Common Stock
(including the shares sold pursuant to the tender offer or repurchase) and a
gain (treated as a capital gain for a shareholder owning the shares as a capital
asset) to the extent of any amount in excess of such basis. Also, in the case of
open-market repurchases, it is possible that shareholders who do not have their
shares of Common Stock repurchased would be treated as having received a
dividend distribution as a result of their proportionate increase in the
ownership of the Fund.

The Fund will not specify a record date for the tender offer which will not
permit a shareholder of record on the effective date of the tender offer to
tender its shares of Common Stock. The Fund will purchase all shares of Common
Stock tendered in accordance with the terms of the offer unless it determines to
accept none of them (based upon one of the conditions set forth above), or
unless more shares are tendered than the Fund is required to purchase, in which
case the Fund will purchase the shares tendered on a pro rata basis. Each person
tendering shares of Common Stock will pay to the Fund a reasonable service
charge, currently anticipated to be $25.00, but subject to change, to help
defray certain costs, including the processing of tender forms, effecting
payment, postage and handling. It is the position of the staff of the Commission
that such service charge may not be deducted from the proceeds of the purchase.
The Fund's transfer agent will receive the fee as an offset to these costs. The
Fund expects that the cost to the Fund of effecting a tender offer will exceed
the aggregate of all service charges received from those who tender their shares
of Common Stock. Such excess costs associated with the tender will be charged
against capital. Tendered shares of Common Stock that have been accepted and
purchased by the Fund will be recorded and reported as an offset to
shareholders' equity and accordingly will reduce the Fund's total assets.

In order to finance share repurchases, the Fund currently anticipates that
it will liquidate a portion of its investments. Although the Fund has no current
intention to incur debt in order to finance share repurchases, it is permitted
to borrow to finance such repurchases. If the Fund does borrow to finance share
repurchases, this would have the effect of leveraging on the Fund.

If the Fund must liquidate portfolio securities in order to purchase shares
of Common Stock tendered, the Fund may realize gains and losses. Such gains may
be realized on securities held for less than three months. Because the Fund, as
a regulated investment company under the Code, may not derive 30% or more of its
gross income from the sale or disposition of stocks and securities held less
than three months, such gains would reduce the ability of the Fund to sell other
securities held for less than three months that the Fund may wish to sell in the
ordinary course of its portfolio management, which may adversely affect the
Fund's yield. See "Taxation -- U.S. Federal Income Taxes." The portfolio
turnover rate of the Fund may or may not be affected by the Fund's repurchases
of Shares pursuant to a tender offer.

CUSTODIAN, TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR

The Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New
York 10036, will act as custodian for the Fund's assets. The Hong Kong and
Shanghai Banking Corporation, Seoul Branch will serve as the Fund's
sub-custodian for its assets held in Korea. State Street Bank and Trust Company
will act as the transfer agent, dividend paying agent and registrar for the
Fund's Common Stock.

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<PAGE> 104

<TABLE>
UNDERWRITING

Subject to the terms and conditions contained in the Underwriting Agreement
(the "Underwriting Agreement"), the Fund has agreed to sell an aggregate of
2,200,000 shares of Common Stock to each of the U.S. Underwriters named below
(the "U.S. Underwriters"), and each of the U.S. Underwriters, for whom Baring
Securities, Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Dillon,
Read & Co. Inc., Cowen & Company, Legg Mason Wood Walker, Incorporated, Rauscher
Pierce Refsnes, Inc. and Raymond James & Associates, Inc. are acting as the
representatives (the "U.S. Representatives"), have severally agreed to purchase
the respective number of shares of Common Stock set forth opposite its name
below:

<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------------- ---------
<S> <C>
Baring Securities Inc. ........................................... 189,554
Donaldson, Lufkin & Jenrette Securities Corporation............... 189,554
Dillon, Read & Co. Inc. .......................................... 189,554
Cowen & Company................................................... 189,554
Legg Mason Wood Walker, Incorporated.............................. 189,553
Rauscher Pierce Refsnes, Inc. .................................... 189,553
Raymond James & Associates, Inc. ................................. 189,553
Bear, Stearns & Co. Inc. ......................................... 27,500
CS First Boston Corporation....................................... 27,500
Alex. Brown & Sons Incorporated................................... 27,500
A.G. Edwards & Sons, Inc. ........................................ 27,500
Kidder, Peabody & Co. Incorporated................................ 27,500
Lazard Freres & Co. .............................................. 27,500
Lehman Brothers Inc. ............................................. 27,500
Oppenheimer & Co., Inc. .......................................... 27,500
PaineWebber Incorporated.......................................... 27,500
Prudential Securities Incorporated................................ 27,500
Robertson, Stephens & Company, L.P. .............................. 27,500
Salomon Brothers Inc ............................................. 27,500
Wertheim Schroder & Co. Incorporated.............................. 27,500
Advest, Inc. ..................................................... 13,750
Arnhold and S. Bleichroeder, Inc. ................................ 13,750
Robert W. Baird & Co. Incorporated................................ 13,750
Black & Company, Inc. ............................................ 13,750
J.C. Bradford & Co. .............................................. 13,750
Branch, Cabell & Company.......................................... 13,750
JW Charles Securities, Inc. ...................................... 13,750
The Chicago Corporation........................................... 13,750
Crowell, Weedon & Co. ............................................ 13,750
Dain Bosworth Incorporated........................................ 13,750
Fahnestock & Co. Inc.............................................. 13,750
First of Michigan Corporation..................................... 13,750
J.J.B. Hilliard, W.L. Lyons, Inc. ................................ 13,750
Huntleigh Securities Corporation.................................. 13,750
Interstate/Johnson Lane Corporation............................... 13,750
Janney Montgomery Scott Inc. ..................................... 13,750
Kemper Securities, Inc. .......................................... 13,750
Ladenburg, Thalmann & Co. Inc. ................................... 13,750
C.J. Lawrence/Deutsche Bank Securities Corporation................ 13,750
Luther, Smith & Small Inc. ....................................... 13,750
McDonald & Company Securities, Inc. .............................. 13,750
Mesirow Financial, Inc. .......................................... 13,750
Morgan Keegan & Company, Inc. .................................... 13,750
The Ohio Company.................................................. 13,750
</TABLE>

104
<PAGE> 105

<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------------- ---------
<S> <C>
Parker/Hunter Incorporated........................................ 13,750
Pennsylvania Merchant Group Ltd................................... 13,750
Piper Jaffray Inc. ............................................... 13,750
Principal Financial Securities, Inc. ............................. 13,750
Roney & Co........................................................ 13,750
Scott & Stringfellow, Inc. ....................................... 13,750
The Seidler Companies Incorporated................................ 13,750
Southwest Securities, Inc. ....................................... 13,750
Sutro & Co. Incorporated.......................................... 13,750
Tucker Anthony Incorporated....................................... 13,750
Wheat First Butcher Singer........................................ 13,750
Cadaret, Grant & Co., Inc. ....................................... 6,875
Commonwealth Equity Services, Inc. ............................... 6,875
Gibraltar Securities Co. ......................................... 6,875
Hanmi Securities, Inc. ........................................... 6,875
Nathan & Lewis Securities, Inc. .................................. 6,875
---------
Total........................................................... 2,200,000
=========
</TABLE>

<TABLE>
Subject to the terms and conditions set forth in the International
Underwriting Agreement (the "International Underwriting Agreement"), and
concurrently with the sale of 2,200,000 Shares of Common Stock to the U.S.
Underwriters, the Fund has agreed to sell an aggregate of 2,200,000 shares of
Common Stock, for offer and sale to non-U.S. and non-Canadian investors, to each
of the International Managers named below (the "International Managers" and
together with the U.S. Underwriters, the "Underwriters"), for whom Baring
Brothers & Co., Limited, Donaldson, Lufkin & Jenrette Securities Corporation,
Cowen & Company, Lucky Securities International Ltd., SsangYong Securities
Europe Limited and KDB Securities Co., Ltd. are acting as representatives (the
"International Representatives" and together with the U.S. Representatives, the
"Representatives"), have severally agreed to purchase the respective numbers of
shares of Common Stock set forth opposite its name below:

<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
---------------------- ---------
<S> <C>
Baring Brothers & Co., Limited.................................... 500,000
Donaldson, Lufkin & Jenrette Securities Corporation............... 500,000
Cowen & Company................................................... 100,000
Lucky Securities International Ltd................................ 500,000
SsangYong Securities Europe Limited............................... 500,000
KDB Securities Co., Ltd........................................... 100,000
---------
Total........................................................... 2,200,000
=========
</TABLE>

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<PAGE> 106

Baring Securities Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation are the Global Coordinators of the Offering (the "Global
Coordinators").

The U.S. Underwriting Agreement and the International Underwriting
Agreement (collectively, the "Underwriting Agreements") provide that, if any of
the foregoing shares are purchased by the U.S. Underwriters pursuant to the U.S.
Underwriting Agreement or by the International Managers pursuant to the
International Underwriting Agreement, all the shares of Common Stock agreed to
be purchased by the U.S. Underwriters or the International Managers, as the case
may be, pursuant to their respective Underwriting Agreements must be so
purchased, and that the obligations of the U.S. Underwriters or the
International Managers thereunder are subject to approval of certain legal
matters by counsel and to various other conditions. The offering price,
underwriting discounts and commissions for the U.S. Offering and the
International Offering are identical. The closing of each Offering is a
condition to the closing of each other Offering.

The Representatives have advised the Fund that they propose to offer the
shares of Common Stock directly to the public at the public offering price set
forth on the cover page hereof except that the price will be reduced to $14.77
for purchases in transactions (as defined below) of 200,000 or more shares of
Common Stock, subject to the following. Purchasers who agree to purchase shares
of Common Stock at the reduced price will be restricted from selling, assigning
or otherwise transferring or contracting to sell, assign or otherwise transfer
those shares for a period of 90 days after the closing of the Offering. There is
no restriction on the number of shares that may be purchased subject to the
transfer restriction, except that the Underwriters have undertaken to comply,
with respect to non-restricted shares, with the distribution requirements of the
NYSE. The certificates evidencing shares of Common Stock purchased at the
reduced price will contain a legend stating the transfer restriction. Investors
must pay for any shares of Common Stock purchased in the initial public offering
on or before October 31, 1994. The sales loads of $.90 and $.67 are equal to
6.00% and 4.54%, respectively, of the initial public offering price.

The Representatives have also advised the Fund that they propose to offer
shares of Common Stock to certain dealers (who may include Underwriters) at the
initial offering price per share set forth above less a concession not to exceed
$.65 per share ($.48 per share for purchases in single transactions (as defined
below) of 200,000 or more shares of Common Stock). Such dealers may reallow a
concession not to exceed $.10 per share of Common Stock to other dealers. After
the initial public offering, the public offering price, the concession to
selected dealers and the reallowance to other dealers may be changed by the
Representatives.

The term "single transaction," as used herein, refers to a single purchase
by an individual or to concurrent purchases, which in the aggregate are at least
equal to the prescribed amounts, by an individual, his parents, spouse, siblings
and children purchasing shares for his or their own account and to single
transactions by a trustee, money manager, or other fiduciary purchasing shares
for one or more trust estates, one or more fiduciary accounts and/or his own
account. The term "single transaction" also includes purchases by any "company,"
as that term is defined in the 1940 Act, its directors, senior executive
officers and controlling shareholders; provided, however, that it does not
include purchases by any such company which has not been in existence for at
least six months or which has no purpose other than the purchase of shares of
the Fund or shares of other registered investment companies at a discount; and
provided further, that it does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein are credit
cardholders of a company, policyholders of an insurance company or noninvestment
advisory customers of a bank.

The Investment Manager has agreed to pay the Underwriters a sales incentive
fee in an amount up to .30%, dependent on the value of Shares sold by each
Underwriter.

The Fund has granted the U.S. Underwriters options, exercisable by the U.S.
Representatives, to purchase up to an aggregate of 660,000 shares of Common
Stock at the initial public offering price, less the underwriting discounts and
commissions set forth on the cover page hereof. Such options, which expire 30
days after the date hereof, may be exercised one or more times solely to cover
over-allotments. To the extent that the U.S. Representatives exercise such
options, each of the U.S. Underwriters will be obligated, subject to certain
conditions, to purchase approximately the same percentage of the option shares
that the

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<PAGE> 107

number of shares of Common Stock to be purchased initially by that U.S.
Underwriter bears to the total number of shares to be purchased initially by the
U.S. Underwriters.

The U.S. Underwriters and the International Managers have entered into an
Agreement Between U.S. Underwriters and International Managers. Pursuant to this
Agreement, each U.S. Underwriter has agreed that, as part of the distribution of
the 2,200,000 Shares (plus any of the 660,000 Shares to cover over-allotments)
of Common Stock offered in the U.S. Offering, (a) it is not purchasing any of
such Shares for the account of anyone other than a U.S. or Canadian Person and
(b) it has not offered or sold, and will not offer, sell, resell or deliver,
directly or indirectly, any of such Shares or distribute any prospectus relating
to the U.S. Offering to any person other than a U.S. or Canadian Person; and
each International Manager has agreed that, as part of the distribution of the
2,200,000 Shares of Common Stock offered in the International Offering, (a) it
is not purchasing any of such Shares for the account of any U.S. or Canadian
Person and (b) it has not offered or sold, and will not offer, sell, resell or
deliver, directly or indirectly, any of such Shares or distribute any prospectus
relating to the International Offering to any U.S. or Canadian Person. The
foregoing limitations do not apply to stabilization transactions or to certain
other transactions specified in the Underwriting Agreements and the Agreement
Between U.S. Underwriters and International Managers, including (i) certain
purchases and sales between the U.S. Underwriters and the International
Managers, (ii) certain offers, sales, resales, deliveries or distributions to or
through investment advisors or other persons exercising investment discretion,
(iii) purchases, offers or sales by a U.S. Underwriter who is also acting as an
International Manager, or by an International Manager who is also acting as a
U.S. Underwriter and (iv) other transactions specifically approved by the U.S.
Underwriters and the International Managers. As used herein, "U.S. or Canadian
Person" means any individual who is resident in the United States or Canada, or
any corporation, pension, profit-sharing or other trust or other entity
organized under or governed by the laws of the United States or Canada or of any
political subdivision thereof (other than a foreign branch of any U.S. or
Canadian Person), and includes any U.S. or Canadian branch of a person other
than a U.S. or Canadian Person. "United States" means the United States of
America (including the District of Columbia) and its territories, its
possessions and all areas subject to its jurisdiction.

Pursuant to the Agreement Between U.S. Underwriters and International
Managers, sales may be made between the U.S. Underwriters and the International
Managers of such number of Shares as may be mutually agreed. The price of any
Shares so sold shall be the public offering price as then in effect for the
Shares of Common Stock being sold by the U.S. Underwriters and the International
Managers, less an amount not greater than the selling concession allocable to
such Shares. To the extent that there are sales between the U.S. Underwriters
and the International Managers pursuant to the Agreement Between U.S.
Underwriters and International Managers, the number of Shares initially
available for sale by the U.S. Underwriters or by the International Managers may
be more or less than the amount specified on the cover page hereof.

Each International Manager has represented and agreed that (i) it has not
offered or sold, and will not offer or sell, in the United Kingdom, by means of
any document, any Shares other than to persons whose ordinary business it is to
buy or sell shares or debentures, whether as principal or agent (except under
circumstances which do not constitute an offer to the public within the meaning
of the Companies Act 1985 of Great Britain); (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Shares in, from or otherwise
involving the United Kingdom, and (iii) it has only issued or passed on, and
will only issue or pass on to any person in the United Kingdom, any document
received by it in connection with the issue of the Common Stock, to any person
if that person is of a kind described in Article 9(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1988 or to any person to
whom the document may otherwise lawfully be issued or passed on.

Each International Manager has further represented and agreed that it has
not offered or sold, and agrees not to offer or sell, resell or deliver,
directly or indirectly, in Japan or to or for the account of any resident
thereof, any of the Shares, except for offers or sales to International Managers
or dealers and except pursuant to an exemption from the registration
requirements of the Securities and Exchange Law of Japan and otherwise in
compliance with applicable provisions of Japanese law.

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<PAGE> 108

Purchasers of the Shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page hereof.

Prior to the Offering, there has been no public market for the Fund's
Common Stock. There can be no assurance that an active trading market will
develop for the Common Stock or that the Common Stock will trade in the public
market subsequent to the offering at or above the initial public offering price.

In each of the Underwriting Agreements, the Fund, the Investment Manager,
the Investment Adviser and the Sub-Adviser have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments that the Underwriters may be
required to make in respect thereof.

The Fund's Common Stock has been approved for listing on the NYSE upon
notice of issuance under the symbol "FAK." In order to satisfy one of the
requirements for listing of the Common Stock on the NYSE, the Underwriters have
undertaken to distribute the shares of Common Stock in a manner which complies
with NYSE distribution criteria (including to sell lots of 100 or more
non-restricted shares of Common Stock to a minimum of 2,000 beneficial holders
worldwide).

The Fund anticipates that certain of the Underwriters may, from time to
time, act as brokers or dealers in connection with the execution of portfolio
transactions after they have ceased to be Underwriters and, subject to certain
restrictions, may from time to time act as brokers or dealers while they are
Underwriters.

The Fund has agreed to pay the Underwriters up to $200,000 in partial
reimbursement of actual expenses incurred in connection with the Offering.

The Fund cannot predict what effect, if any, the relative sizes of the U.S.
Offering and the International Offering will have on secondary market trading of
the shares of Common Stock in the United States or on the market price of the
Shares.

EXPERTS

The financial statement of the Fund included herein has been so included in
reliance on the report of Price Waterhouse LLP, 160 Federal Street, Boston,
Massachusetts 02110, the Fund's independent accountants, given on the authority
of said firm as experts in auditing and accounting.

LEGAL MATTERS

The validity of the Shares offered hereby will be passed on for the Fund by
Rogers & Wells, New York, New York and certain legal matters will be passed upon
for the Underwriters by Simpson Thacher & Bartlett (a partnership which includes
professional corporations). Counsel for the Fund and the Underwriters will rely,
as to matters of Maryland law, on Piper & Marbury, Baltimore, Maryland. With
respect to all matters of Korean law, counsel for the Fund and counsel for the
Underwriters will rely on Shin & Kim, Seoul, Korea.

FURTHER INFORMATION

Further information concerning these securities and their issuer may be
found in the Fund's Registration Statement (which includes the Fund's
prospectus) on file with the Commission. Current holdings and recent investment
strategies will be described in the Fund's financial reports, which are sent to
shareholders twice a year.

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
FIDELITY ADVISOR KOREA FUND, INC.

In our opinion, the accompanying statement of assets and liabilities
presents fairly, in all material respects, the financial position of Fidelity
Advisor Korea Fund, Inc. (the "Fund") at October 20, 1994 in conformity with
generally accepted accounting principles. This financial statement is the
responsibility of the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this financial statement in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.

Price Waterhouse LLP
Boston, Massachusetts
October 21, 1994

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<PAGE> 110
<TABLE>
FIDELITY ADVISOR KOREA FUND, INC. (NOTE 1)

STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 20, 1994

<S> <C>
Assets:
Cash.................................................................... $100,011
Deferred organization expenses (Note 2)................................. 155,000
--------
Total Assets......................................................... $255,011
Liabilities:
Accrued organization expenses (Note 2).................................. $155,000
Commitments (Notes 2 and 3)............................................. --
--------
Total Liabilities.................................................... $155,000
--------
Net Assets (7,093 shares of $.001 par value shares of common stock issued
and outstanding; 100,000,000 shares authorized)......................... $100,011
========
Net asset value per share................................................. $ 14.10
========
</TABLE>

NOTES TO FINANCIAL STATEMENT

NOTE 1

Fidelity Advisor Korea Fund, Inc. (the "Fund") was incorporated as a
Maryland corporation on May 25, 1994 and has had no operations to date other
than matters relating to its organization and registration as a non-diversified,
closed-end management investment company under the Investment Company Act of
1940, as amended, and the sale and issuance to Fidelity Management & Research
Company (the "Investment Manager") of 7,093 shares of its common stock for an
aggregate purchase price of $100,011. The books and records of the Fund will be
maintained in U.S. dollars.

NOTE 2

Organization expenses relating to the Fund incurred and to be incurred by
the Investment Manager will be reimbursed by the Fund. Such expenses, estimated
at $155,000, will be deferred and amortized on a straight-line basis for a
five-year period beginning at the commencement of operations of the Fund.
Offering costs, estimated at $700,000, will be paid from the proceeds of the
offering and charged to capital at the time of the issuance of such shares.

NOTE 3

The Fund will enter into a management agreement with the Investment
Manager, pursuant to which the Investment Manager will, among other things,
supervise the Fund's investment program and monitor the performance of the
Fund's service providers.

The Investment Manager will enter into an investment advisory agreement
with Fidelity International Investment Advisors (the "Investment Adviser"), an
affiliate of the Investment Manager, pursuant to which the Investment Adviser is
responsible for the management of the Fund's portfolio in accordance with the
Fund's investment policies and for making decisions to buy, sell, or hold
particular securities.

Pursuant to a Sub-Advisory Agreement, the Investment Adviser has delegated
certain of its responsibilities for the day-to-day management of the Fund to
Fidelity Investments Japan Limited (the "Sub-Adviser"), which will manage the
Fund's portfolio through its Tokyo office.

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<PAGE> 111
Fidelity Service Co., a division of FMR Corp., the parent company of the
Investment Manager, will serve as the Fund's administrator pursuant to the terms
of an Administration Agreement. The Fund will pay Fidelity Service Co. a monthly
fee at an annual rate of .20% of the Fund's average daily net assets for its
services.

The Fund will pay the Investment Manager a monthly fee for its management
services at an annual rate of 1.00% of the Fund's average daily net assets. The
Investment Manager will pay the Investment Adviser a monthly fee for its
advisory services equal to 60% of the fees paid by the Fund to the Investment
Manager. The Investment Adviser will pay the Sub-Adviser a fee equal to 50% of
the fee paid to the Investment Adviser with respect to assets managed by the
Sub-Adviser on a discretionary basis and 30% of the fee paid to the Investment
Adviser with respect to assets managed by the Sub-Adviser on a non-discretionary
basis.

Certain officers and/or directors of the Fund are officers and/or directors
of the Investment Manager, the Investment Adviser, or the Sub-Adviser.

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<PAGE> 112

APPENDIX A

GENERAL CHARACTERISTICS AND RISKS OF DERIVATIVES

The following investment practices in which the Fund is authorized to
engage are generally not currently permitted under Korean laws or regulations.

A detailed discussion of Derivatives (as defined below) that may be used by
the Investment Adviser or the Sub-Adviser on behalf of the Fund follows below.
The Fund will not be obligated, however, to use any Derivatives and makes no
representation as to the availability of these techniques at this time or at any
time in the future. "Derivatives," as used in this Appendix A, refers to
interest rate, currency or stock index futures contracts, currency forward
contracts and currency swaps, the purchase and sale (or writing) of exchange
listed and over-the-counter ("OTC") put and call options on debt and equity
securities, currencies, interest rate, currency or stock index futures and fixed
income and stock indices and other financial instruments, entering into various
interest rate transactions such as swaps, caps, floors, collars, entering into
equity swaps, caps, floors or trading in other types of derivatives.

The Fund's ability to pursue certain of these strategies may be limited by
the U.S. Commodity Exchange Act, as amended, applicable regulations of the
Commodity Futures Trading Commission ("CFTC") thereunder and the federal income
tax requirements applicable to regulated investment companies which are not
operated as commodity pools.

PUT AND CALL OPTIONS ON SECURITIES AND INDICES

The Fund may purchase and sell put and call options on debt and equity
securities and indices based upon the prices of debt or equity securities or
other market or economic factors that may affect securities in which the Fund
may invest, such as commodity price levels or rates of inflation. A put option
on a security gives the purchaser of the option the right to sell and the writer
the obligation to buy the underlying security at the exercise price during the
option period. The Fund may also purchase and sell options on indices based upon
the prices of debt or equity securities ("index options"). Index options are
similar to options on securities except that, rather than taking or making
delivery of securities underlying the option at a specified price upon exercise,
an index option gives the holder the right to receive cash upon exercise of the
option if the level of the index upon which the option is based is greater, in
the case of a call, or less in the case of a put, than the exercise price of the
option. The purchase of a put option on a security would be designed to protect
against a substantial decline in the market value of a security held by the
Fund. A call option on a security gives the purchaser of the option the right to
buy and the writer the obligation to sell the underlying security at the
exercise price during the option period. The purchase of a call option on a
security would be intended to protect the Fund against an increase in the price
of a security that it intended to purchase in the future. In the case of either
put or call options that it has purchased, if the option expires without being
sold or exercised, the Fund will experience a loss in the amount of the option
premium plus any related commissions. When the Fund sells put and call options,
it receives a premium as the seller of the option. The premium that the Fund
receives for writing the option will serve as a partial hedge, in the amount of
the option premium, against changes in value of the securities in its portfolio.
During the term of the option, however, a covered call seller has, in return for
the premium on the option, given up the opportunity for capital appreciation
above the exercise price of the option if the value of the underlying security
increases, but has retained the risk of loss should the price of the underlying
security decline. Conversely, a secured put seller retains the risk of loss
should the market value of the underlying security decline below the exercise
price of the option, less the premium received on the sale of the option. The
Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC Options") which are privately negotiated with the
counterparty to such contract. U.S. listed options are issued by the Options
Clearing Corporation ("OCC"), which guarantees the performance of the
obligations of the parties to such options.

All such call options sold (written) by the Fund will be "covered" as long
as the call is outstanding (i.e., the Fund will own the instrument subject to
the call or other securities or assets acceptable under applicable segregation
and coverage rules). All such put options sold (written) by the Fund will be
secured by segregated assets consisting of cash or liquid high grade debt
securities having a value not less than the exercise price.

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The Fund's ability to close out its position as a purchaser or seller of an
exchange listed put or call option is dependent upon the existence of a liquid
secondary market. Among the possible reasons for the absence of a liquid
secondary market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities; (iv)
interruption of the normal operations on an exchange; (v) inadequacy of the
facilities of an exchange or the OCC to handle current trading volume; or (vi) a
decision by one or more exchanges to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options on that exchange that had been listed by the OCC as
a result of trades on that exchange would generally continue to be exercisable
in accordance with their terms. OTC Options are purchased from or sold to
dealers, financial institutions or other counterparties which have entered into
direct agreements with the Fund. With OTC Options, such variables as expiration
date, exercise price and premium will be agreed upon between the Fund and the
counterparty, without the intermediation of a third party such as the OCC. If
the counterparty fails to make or take delivery of the securities underlying an
option it has written, or otherwise settle the transaction in accordance with
the terms of that option as written, the Fund would lose the premium paid for
the option as well as any anticipated benefit of the transaction. The Fund must
rely on the credit quality of the counterparty rather than the guarantee of the
OCC. OTC Options with foreign brokers in Korea subject the Fund to the credit of
such brokers which may be weak, making such options speculative.

The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying markets that cannot be
reflected in the option markets.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

Characteristics. The Fund may purchase and sell futures contracts on
interest rates and indices of debt and equity securities or other financial
indicators and purchase and sell (write) put and call options on such futures
contracts traded on recognized domestic exchanges as a hedge against anticipated
interest rate changes or movements in equity markets. The sale of a futures
contract creates an obligation by the Fund, as seller, to deliver the specific
type of financial instrument called for in the contract at a specified future
time for a specified price. Options on futures contracts are similar to options
on securities except that an option on a futures contract gives the purchaser
the right in return for the premium paid to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put).

Margin Requirements. At the time a futures contract is purchased or sold,
the Fund must allocate cash or securities as a deposit payment ("initial
margin"). It is expected that the initial margin that the Fund will pay may
range from approximately 1% to approximately 5% of the value of the instruments
underlying the contract. In certain circumstances, however, such as during
periods of high volatility, the Fund may be required by an exchange to increase
the level of its initial margin payment. Additionally, initial margin
requirements may be increased in the future pursuant to regulatory action. An
outstanding futures contract is valued daily and the payment in cash of
"variation margin" may be required, a process known as "marking to the market."
Transactions in listed options and futures are usually settled by entering into
an offsetting transaction, and are subject to the risk that the position may not
be able to be closed if no offsetting transaction can be arranged.

Limitations on Use of Futures Contracts and Options on Futures
Contracts. The Fund's use of futures contracts and options on futures contracts
will in all cases be consistent with applicable regulatory requirements and in
particular, the rules and regulations of the CFTC.

The Fund may enter into futures contracts or options thereon for purposes
other than bona fide hedging if, immediately thereafter, the sum of the amount
of its initial margin and premiums on open contracts and options would not
exceed 5% of the liquidation value of the Fund's portfolio; provided, further,
that in the case of an option that is in-the-money at the time of the purchase,
the in-the-money amount may be excluded in calculating the 5% limitation. Also,
when required, a segregated account of cash or cash equivalents will be
maintained and marked to market in an amount equal to the market value of the
contract. The Investment

A-2
<PAGE> 114

Adviser and the Sub-Adviser may be required to comply with such different
standards as may be established from time to time by CFTC (or Korean regulators)
rules and regulations with respect to the purchase and sale of futures contracts
and options thereon.

CURRENCY TRANSACTIONS

The Fund may deal in forward currency contracts and other currency
transactions such as futures contracts, options, options on futures contracts
and swaps for any purpose consistent with its investment objective and policies.
Currency transactions include currency forward contracts, exchange listed
currency futures contracts, exchange listed and OTC options on currencies and
currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. The Fund may enter into currency
transactions with counterparties that are determined to be creditworthy by
Fidelity.

The following discussion summarizes some, but not all, of the possible
currency management strategies involving forward contracts, options on
currencies and futures on currencies that could be used by the Fund. Transaction
hedging is entering into a currency transaction with respect to specific assets
or liabilities of the Fund, which will generally arise in connection with the
purchase or sale of the Fund's portfolio securities or the receipt of income
from them. Position hedging is entering into a currency transaction with respect
to portfolio security positions denominated or generally quoted in that
currency.

The Fund may cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the fund expects
to have portfolio exposure. To reduce the effect of currency fluctuations on the
value of existing or anticipated holdings of portfolio securities, the Fund may
also engage in proxy hedging. Proxy hedging is often used when the currency to
which the Fund's portfolio is exposed is difficult to hedge or to hedge against
the U.S. dollar. Proxy hedging entails entering into a forward contract to sell
a currency whose changes in value are generally considered to be well correlated
with a currency or currencies in which some or all of the Fund's portfolio
securities are or are expected to be denominated, and to buy U.S. dollars.
Currency transactions can result in losses to the Fund if the currency being
hedged fluctuates in value to a degree or in a direction that is not
anticipated. Further, the risk exists that the perceived linkage between various
currencies may not be present or may not be present during the particular time
that the Fund is engaging in proxy hedging. If the Fund enters into a currency
hedging transaction, the Fund will comply with the asset segregation
requirements described below. The Fund may enter into forward contracts to shift
its investment exposure from one currency into another currency that is expected
to perform better relative to the U.S. dollar. For example, if the Fund held
investments denominated in or otherwise exposed to the Japanese Yen, the Fund
could enter into forward contracts to sell Japanese Yen and purchase Hong Kong
Dollars. This type of strategy, sometimes known as a "cross-hedge," will tend to
reduce or eliminate exposure to the currency that is sold, and increase exposure
to the currency that is purchased, much as if the Fund had sold a security
denominated in one currency and purchased an equivalent security denominated in
another. Cross-hedges protect against losses resulting from a decline in the
hedged currency, but will cause the Fund to assume the risk of fluctuations in
the value of the currency it purchases.

Successful use of forward currency contracts will depend on the Investment
Adviser and the Sub-Adviser's skill in analyzing and predicting currency values.
Forward contracts may substantially change the Fund's investment exposure to
changes in currency exchange rates, and could result in losses to the Fund if
currencies do not perform as the Sub-Adviser anticipates. For example, if a
currency's value rose at a time when the Investment Adviser and the Sub-Adviser
had hedged the Fund by selling that currency in exchange for U.S. dollars, the
Fund would be unable to participate in the currency's appreciation. If the
Investment Adviser or the Sub-Adviser hedges currency exposure through proxy
hedges, the Fund could realize currency losses from the hedge and the security
position at the same time if the two currencies do not move in tandem.
Similarly, if the Investment Adviser or the Sub-Adviser increases the Fund's
exposure to a foreign currency, and that currency's value declines, the Fund
will realize a loss. There is no assurance that the Investment

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Adviser's or the Sub-Adviser's use of forward currency contracts will be
advantageous to the Fund, or that they will hedge at an appropriate time.

Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be adversely affected by
government exchange controls, limitations or restrictions on repatriation of
currency, and manipulations or exchange restrictions imposed by governments.
These forms of governmental actions can result in losses to the Fund if it is
unable to deliver or receive currency or monies in settlement of obligations and
could also cause hedges it has entered into to be rendered useless, resulting in
full currency exposure as well as incurring transaction costs. Buyers and
sellers of currency futures are subject to the same risks that apply to the use
of futures generally. Further, settlement of a currency futures contract for the
purchase of most currencies must occur at a bank based in the issuing nation.
Trading options on currency futures is relatively new, and the ability to
establish and close out positions on these options is subject to the maintenance
of a liquid market that may not always be available. Currency exchange rates may
fluctuate based on factors extrinsic to that country's economy.

INTEREST RATE TRANSACTIONS

The Fund may enter into interest rate swaps and may purchase or sell
interest rate caps and floors. The Fund would enter into these transactions
primarily to preserve a return or spread on a particular investment or portion
of its portfolio, to manage the duration of its portfolio or to protect against
any increase in the price of the securities the Fund anticipates purchasing at a
later date or for any other purpose consistent with its objective.

The Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending on whether it is hedging its
assets or liabilities, and will usually enter into interest rate swaps on a net
basis, i.e., the two payments are netted out, with the Fund receiving or paying,
as the case may be, only the net amount of the two payments on the payment date.
If there is a default by the other party to such a transaction, the Fund will
have contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps and floors are more recent
innovations for which standardized documentation has not yet been developed and,
accordingly, they are less liquid than swaps.

EQUITY SWAPS AND RELATED TRANSACTIONS

The Fund may enter into equity swaps and may purchase or sell equity caps
and floors. The Fund would enter into these transactions primarily to preserve a
return or spread on a particular investment or portion of its portfolio, or to
protect against any increase in the price of the securities the Fund anticipates
purchasing at a later date or for any other purpose consistent with its
objective.

The Fund may enter into equity swaps, caps and floors on either an
asset-based or liability-based basis, depending on whether it is hedging its
assets or liabilities, and will usually enter in equity swaps on a net basis,
i.e., the two payment streams are netted out, with the Fund receiving or paying,
as the case may be, only the net amount of the two payments on the payment date.
If there is a default by the other party to such a transaction, the Fund will
have contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps and floors are more recent
innovations for which standardized documentation has not yet been developed and,
accordingly, they are less liquid than swaps. Equity swaps, caps and floors
generally will be considered illiquid. In such instances, investment in such
equity swaps, caps and floors will be governed by the Fund's policy on
investment in illiquid securities and such securities will be included in the
35% limit on investment in illiquid securities by the Fund. The staff of the
Securities and Exchange Commission has taken the position that equity swaps,
caps and floors are illiquid securities. See "Risk Factors and Special
Considerations -- Thinly Traded Markets and Illiquid Investments" and
"Investment Objective and Policies -- Other Investments."

A-4
<PAGE> 116

RISKS OF DERIVATIVES

The use of Derivatives involves special risks, including possible default
by the other party to the transaction, illiquidity and, to the extent the
Investment Adviser's or the Sub-Adviser's view as to certain market movements is
incorrect, the risk that the use of Derivatives could result in losses greater
than if such investment strategies had not been used. The use of currency
transactions could result in the Fund's incurring losses as a result of the
imposition of exchange controls, suspension of settlements, or the inability to
deliver or receive a specified currency. The use of options and futures
transactions entails certain special risks. In particular, the variable degree
of correlation between price movements in the related portfolio position of the
Fund could create the possibility that losses on the hedging instrument are
greater than gains in the value of the Fund's position. In addition, futures and
options markets could be illiquid in some circumstances and certain
over-the-counter options could have no markets. As a result, in certain markets,
the Fund might not be able to close out a position without incurring substantial
losses. Although the Fund's use of futures and options transactions for hedging
purposes should tend to minimize the risk of loss due to a decline in the value
of the hedged position at the same time it will tend to limit any potential gain
to the Fund that might result from an increase in value of the position.
Finally, the daily variation margin requirements for futures contracts create a
greater ongoing potential financial risk than would purchases of options, in
which case the exposure is united to the cost of the initial premium and
transaction costs. Losses resulting from Derivatives will reduce the Fund's net
asset value, and possibly income, and the losses can be greater than if the
Derivatives had not been used.

When conducted outside the United States, the use of Derivatives may not be
regulated as rigorously as in the United States, may not involve a clearing
mechanism and related guarantees, and will be subject to the risk of
governmental actions affecting trading in, or the prices of, foreign securities,
currencies and other instruments. The value of positions taken as part of
non-U.S. Hedging also could be adversely affected by: (1) other complex foreign
political, legal and economic factors; (2) lesser availability of data on which
to make trading decisions in the United States; (3) delays in the Fund's ability
to act upon economic events occurring in foreign markets during non-business
hours in the United States; (4) the imposition of different exercise and
settlement terms and procedures and margin requirements than in the United
States; and (5) lower trading volume and liquidity.

SEGREGATION AND COVER REQUIREMENTS

Many of the Derivatives which may be used by the Fund are subject to
segregation and coverage requirements established by either the CFTC or the SEC,
with the result that, if the Fund does not hold the instrument underlying the
futures contract or option or another offsetting position, the Fund may be
required to segregate on an ongoing basis with its custodian, cash, U.S.
government securities, or other liquid high grade debt obligations in an amount
at least equal to the Fund's obligations with respect to such instruments. Such
amounts will fluctuate as the market value of the obligations increases or
decreases. The segregation requirement can result in the Fund maintaining
positions it would otherwise liquidate and consequently segregating assets with
respect thereto at a time when it might be disadvantageous to do so. In
addition, with respect to futures contracts purchased by the Fund, the Fund will
also be subject to the segregation requirements with respect to the value of the
instruments underlying the futures contract. In general, those Derivatives in
which the Fund may invest which involve the possibility of leverage are subject
to segregation and coverage requirements that do not require offsetting
positions and are not subject to such requirements.

OTHER LIMITATIONS

The degree of the Fund's use of Derivatives may be limited by certain
provisions of the Code. See "Taxation."

A-5
<PAGE> 117

APPENDIX B

DEBT RATINGS

A description of the rating policies of Moody's and S&P with respect to
bonds and debentures appears below.

MOODY'S INVESTORS SERVICE'S CORPORATE BOND RATINGS

Aaa -- Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.

Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

A -- Bonds which are rated A possess many favorable investment qualities
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.

Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B -- Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance and
other terms of the contract over any long period of time may be small.

Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.

Ca -- Bonds which are rated Ca represent obligations which are speculative
in high degree. Such issues are often in default or have other marked
shortcomings.

C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

Moody's applies numerical modifiers "1", "2" and "3" to certain of its
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.

STANDARD & POOR'S CORPORATE BOND RATINGS

AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to repay principal and pay
interest.

B-1
<PAGE> 118

AA -- Bonds rated AA also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and differs from AAA
issues only in small degree.

A -- Bonds rated A have a strong capacity to repay principal and pay
interest, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.

BBB -- Bonds rated BBB are regarded as having an adequate capacity to repay
principal and pay interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for higher rated categories.

BB-B-CCC-CC-C -- Bonds rated BB, B, CCC and CC, and C are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.

CI -- Bonds rated CI are income bonds on which no interest is being paid.

D -- Bonds rated D are in default. The D category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired unless S&P believes that such payments
will be made during such grace period. The D rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.

The ratings set forth above may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.

MOODY'S INVESTORS SERVICE'S COMMERCIAL PAPER RATINGS

Prime-1 -- Issuers (or related supporting institutions) rated Prime-1 have
a superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and well-
established access to a range of financial markets and assured sources of
alternate liquidity.

Prime-2 -- Issuers (or related supporting institutions) rated Prime-2 have
a strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is maintained.

Prime-3 -- Issuers (or related supporting institutions) rated Prime-3 have
an acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.

Not Prime -- Issuers rated Not Prime do not fall within any of the Prime
rating categories.

B-2
<PAGE> 119

STANDARD & POOR'S COMMERCIAL PAPER RATINGS

A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. The four categories are as follows:

A-1 -- This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.

A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".

A-3 -- Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.

B -- Issues rated "B" are regarded as having only speculative capacity for
timely payment.

C -- This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.

D -- Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.

B-3
<PAGE> 120
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND,
THE FUND'S INVESTMENT MANAGER, INVESTMENT ADVISER OR SUB-ADVISER OR ANY
UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE FUND SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. HOWEVER, IF
ANY MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE
DELIVERED, THIS PROSPECTUS WILL BE SUPPLEMENTED OR AMENDED ACCORDINGLY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED THEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
------------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
-----
<S> <C>
Summary................................... 3
Summary of Expenses....................... 19
The Fund.................................. 20
Investment Strategy....................... 20
Investment in Korea....................... 20
Use of Proceeds........................... 21
Investment Objective and Policies......... 21
Additional Investment Activities.......... 26
Investment Restrictions................... 28
Risk Factors and Special Considerations... 29
The Republic of Korea..................... 45
The Securities Markets of Korea........... 62
Management of the Fund.................... 82
Portfolio Transactions.................... 89
Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan..... 91
Taxation.................................. 92
Net Asset Value........................... 99
Description of Capital Stock.............. 100
Annual Tender Offers and Share
Repurchases............................. 101
Custodian, Transfer Agent, Dividend Paying
Agent and Registrar..................... 103
Underwriting.............................. 104
Experts................................... 108
Legal Matters............................. 108
Further Information....................... 108
Report of Independent Accountants......... 109
Statement of Assets and Liabilities....... 110
Appendix A: General Characteristics and
Risks of Derivatives.................... A-1
Appendix B: Debt Ratings.................. B-1
</TABLE>

UNTIL NOVEMBER 19, 1994, ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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4,400,000 SHARES

FIDELITY ADVISOR
KOREA FUND, INC.

COMMON STOCK
--------------
PROSPECTUS
--------------

BARING SECURITIES INC.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

DILLON, READ & CO. INC.
COWEN & COMPANY
LEGG MASON WOOD WALKER
INCORPORATED

RAUSCHER PIERCE REFSNES, INC.
RAYMOND JAMES & ASSOCIATES, INC.
October 25, 1994
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