<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 13, 1996.
SECURITIES ACT FILE NO 333-14049
INVESTMENT COMPANY ACT FILE NO. 811-8608
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
------------------------------------
Form N-2
<TABLE>
<S> <C>
Registration Statement Under the Securities Act of 1933 [X]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. [ ]
and/or
Registration Statement Under the Investment Company Act of 1940 [X]
Amendment No. 6 [X]
(check appropriate box or boxes)
</TABLE>
------------------------------------
FIDELITY ADVISOR KOREA FUND, INC.
(Exact Name of Registrant as Specified in Charter)
82 DEVONSHIRE STREET
BOSTON, MASSACHUSETTS 02109
(Address of Principal Executive Offices in United States)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 1-800-426-5523
------------------------------------
ARTHUR S. LORING
SECRETARY
FIDELITY ADVISOR KOREA FUND, INC.
82 DEVONSHIRE STREET
BOSTON, MASSACHUSETTS 02109
(Name and Address of Agent for Service)
------------------------------------
With copies to:
<TABLE>
<S> <C>
LAURENCE E. CRANCH, ESQ. THOMAS A. HALE, ESQ.
LEONARD B. MACKEY, JR., ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM
ROGERS & WELLS 333 WEST WACKER DRIVE
200 PARK AVENUE SUITE 2100
NEW YORK, NEW YORK 10166 CHICAGO, ILLINOIS 60606
</TABLE>
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this registration statement. If any securities being
registered on this form will be offered on a delayed or continuous basis in
reliance on Rule 415 under the Securities Act of 1933, other than securities
offered in connection with a dividend reinvestment plan, check the following
box. [ ] ------------------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
BEING REGISTERED REGISTERED PER SHARE PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
Common Stock
$.001 Par Value...... 100,000 Shares $10.375(1) $1,037,500(1) $315(2)
- -----------------------------------------------------------------------------------------------------------
Common Stock
$.001 Par Value...... 1,800,000 Shares $9.938(3) $17,888,400(3) $5,500
</TABLE>
- --------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, based on the
average of the high and low sales price reported on the New York Stock
Exchange on October 4, 1996.
(2) Previously paid.
(3) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, based on the
average of the high and low sales price reported on the New York Stock
Exchange on November 11, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
FIDELITY ADVISOR KOREA FUND, INC.
FORM N-2
CROSS-REFERENCE SHEET
PARTS A AND B OF THE PROSPECTUS
<TABLE>
<CAPTION>
ITEMS IN PART A OF FORM N-2 LOCATION IN PROSPECTUS
- --------------------------------------------- -----------------------------------------------
<S> <C> <C>
1. Outside Front Cover..................... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Page.................................. Inside Front and Outside Back Cover Page of
Prospectus
3. Fee Table and Synopsis.................. Fee Table
4. Financial Highlights.................... Financial Highlights
5. Plan of Distribution.................... Outside Front Cover Page of Prospectus; The
Offer; Distribution Arrangements
6. Selling Shareholders.................... Not Applicable
7. Use of Proceeds......................... Use of Proceeds
8. General Description of the Registrant... Outside Front Cover Page of Prospectus; Market
and Net Asset Value Information; The Fund;
Investment Objective and Policies; Additional
Investment Considerations; Risk Factors and
Special Considerations; Description of
Capital Stock
9. Management.............................. Management of the Fund; Description of Capital
Stock
10. Capital Stock, Long-Term Debt, and Other
Securities............................ Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan; Taxation;
Description of Capital Stock
11. Defaults and Arrears on Senior
Securities............................ Not Applicable
12. Legal Proceedings....................... Not Applicable
13. Table of Contents of the Statement of
Additional Information................ Table of Contents of Statement of Additional
Information
</TABLE>
<TABLE>
<CAPTION>
ITEMS IN PART B OF FORM N-2 LOCATION IN STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------- -----------------------------------------------
<S> <C> <C>
14. Cover Page.............................. Front Cover Page
15. Table of Contents....................... Table of Contents
16. General Information and History......... The Fund in the Prospectus
17. Investment Objective and Policies....... Investment Objective and Policies; Investment
Restrictions
18. Management.............................. Management of the Fund
19. Control Persons and Principal Holders of
Securities............................ Management of the Fund; Custodian, Transfer
Agent, Dividend Paying Agent and Registrar;
Experts in the Prospectus
20. Investment Advisory and Other
Services.............................. Management of the Fund; Custodian, Transfer
Agent, Dividend Paying Agent and Registrar;
Experts in the Prospectus
21. Brokerage Allocation and Other
Practices............................. Portfolio Transactions
22. Tax Status.............................. Taxation; Taxation in the Prospectus
23. Financial Statements.................... Financial Statements
</TABLE>
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C to this Registration Statement.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 13, 1996
FIDELITY ADVISOR KOREA FUND, INC.
1,469,031 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF
RIGHTS TO SUBSCRIBE FOR SUCH SHARES
------------------------
Fidelity Advisor Korea Fund, Inc. (the "Fund") is issuing to its
shareholders of record ("Record Date Shareholders"), as of the close of business
on November 15, 1996 (the "Record Date"), non-transferable rights ("Rights")
entitling the holders thereof to subscribe for an aggregate of 1,469,031 shares
(the "Shares") of the Fund's Common Stock, par value $.001 per share (the
"Common Stock"), at the rate of one share of Common Stock for every three Rights
held (the "Offer"). Record Date Shareholders will receive one Right for each
whole share of Common Stock held on the Record Date, and shareholders who fully
exercise their Rights will be entitled to subscribe for additional shares of
Common Stock pursuant to the Over-Subscription Privilege described herein. The
Fund may increase the number of shares of Common Stock subject to subscription
by up to 25% of the Shares, or up to an additional 367,257 shares of Common
Stock, for an aggregate total of 1,836,288 Shares. Fractional shares will not be
issued upon the exercise of Rights. The Rights are non-transferable and,
therefore, may not be purchased or sold. The Rights will not be admitted for
trading on the New York Stock Exchange (the "NYSE") or any other securities
exchange. See "The Offer." THE SUBSCRIPTION PRICE PER SHARE (THE "SUBSCRIPTION
PRICE") WILL BE 95% OF THE LOWER OF (i) THE AVERAGE OF THE LAST REPORTED SALES
PRICE OF A SHARE OF THE FUND'S COMMON STOCK ON THE NYSE ON THE DATE OF THE
EXPIRATION OF THE OFFER (THE "PRICING DATE") AND ON THE FOUR PRECEDING BUSINESS
DAYS AND (ii) THE NET ASSET VALUE PER SHARE AS OF THE PRICING DATE.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON DECEMBER 13, 1996
UNLESS EXTENDED AS DESCRIBED HEREIN (THE "EXPIRATION DATE").
The Fund announced the Offer after the close of trading on the NYSE on
October 11, 1996. Shares of the Fund's Common Stock trade on the NYSE under the
symbol "FAK." The Shares issued pursuant to the Offer will be listed for trading
on the NYSE, subject to notice of issuance. The net asset value per share of the
Fund's Common Stock at the close of business on October 11, 1996 (the last
trading date on which the Fund publicly reported its net asset value prior to
the announcement) and on November 8, 1996 (the last trading date on which the
Fund publicly reported its net asset value prior to the Record Date) was $11.10
and $9.56, respectively, and the last reported sales price of a share of the
Fund's Common Stock on the NYSE on those dates was $10.75 and $10.25,
respectively.
Upon completion of the Offer, shareholders who do not fully exercise their
Rights will own a smaller proportional interest in the Fund than they owned
prior to the Offer. In addition, because the Subscription Price per Share will
be less than the net asset value per share on the Pricing Date, completion of
the Offer will result in an immediate dilution of net asset value per share for
all shareholders. Such dilution will disproportionately affect non-exercising
shareholders. Such dilution is not currently determinable because it is not
known what the net asset value per share will be on the Pricing Date, what
proportion of the Shares will be subscribed for or what the Subscription Price
will be. If the Subscription Price per Share is substantially less than the net
asset value per share on the Pricing Date, such dilution could be substantial.
See "Risk Factors and Special Considerations--Dilution" and "The Offer--Terms of
the Offer." EXCEPT AS DESCRIBED HEREIN, SHAREHOLDERS WILL HAVE NO RIGHT TO
RESCIND THEIR SUBSCRIPTIONS AFTER RECEIPT OF THEIR PAYMENT FOR SHARES BY THE
SUBSCRIPTION AGENT (AS DEFINED HEREIN).
The Fund is a 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). See "Investment Objective and
Policies." INVESTMENT IN KOREAN ISSUERS INVOLVES RISKS THAT ARE NOT NORMALLY
INVOLVED IN INVESTMENT IN SECURITIES OF U.S. COMPANIES. IN ADDITION, ALTHOUGH
THE FUND CURRENTLY INTENDS TO CONTINUE INVESTING PRINCIPALLY IN EQUITY
SECURITIES, IT MAY INVEST WITHOUT LIMITATION IN HIGH RISK, HIGH YIELD DEBT
INSTRUMENTS THAT ARE LOW RATED OR UNRATED AND ARE PREDOMINATELY SPECULATIVE.
INVESTMENT IN THE FUND SHOULD BE CONSIDERED SPECULATIVE. SEE "INVESTMENT
OBJECTIVE AND POLICIES" AND "RISK FACTORS AND SPECIAL CONSIDERATIONS."
(Continued on the 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 RE-
PRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Estimated Estimated Estimated
Subscription Sales Load(2) Proceeds to
Price(1) Fund(3)(4)
- ----------------------------------------------------------------------------------------------------------------
Per Share.................................... $9.08 $0.34 $8.74
- ----------------------------------------------------------------------------------------------------------------
Total Maximum(5)............................. $13,338,801 $500,205 $12,838,596
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(Footnotes on the following page)
------------------------
PAINEWEBBER INCORPORATED
------------------------
LOGO THE DATE OF THIS PROSPECTUS IS NOVEMBER 13, 1996.
<PAGE> 4
(Continued from the previous page)
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing in the Fund. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated November 13, 1996 (the "SAI"), containing
additional information about the Fund, has been filed with the U.S. Securities
and Exchange Commission (the "Commission"), and is incorporated by reference in
its entirety into this Prospectus. A copy of the SAI, the table of contents of
which appears on page 60 of this Prospectus, may be obtained without charge by
calling the Fund's information agent, D.F. King & Co., Inc., toll-free at (800)
290-6430 or call collect at (212) 269-5550.
The Fund's investment manager is Fidelity Management & Research Company
(the "Investment Manager"). The Fund's investment adviser is Fidelity
International Investment Advisors (the "Investment Adviser"). The Fund's
investment sub-adviser is Fidelity Investments Japan Limited (the
"Sub-Adviser"). The Investment Manager, the Investment Adviser and the
Sub-Adviser, as well as Fidelity Service Co. ("Service"), the Fund's
administrator, will benefit from the Offer because their fees are based on the
average net assets of the Fund. See "Management of the Fund." The address of the
Fund is 82 Devonshire Street, Boston, Massachusetts 02109. The Fund's telephone
number is (800) 426-5523. LOGO is a registered trademark of FMR Corp.
------------------------
(Footnotes from the previous page)
(1) Estimated on the basis of 95% of the net asset value per share of the Fund's
Common Stock on November 8, 1996.
(2) In connection with the Offer, the Fund has agreed to pay PaineWebber
Incorporated (the "Dealer Manager"), and other broker-dealers soliciting
the exercise of Rights, solicitation fees equal to 2.50% of the
Subscription Price per Share for each Share issued pursuant to the exercise
of the Rights and the Over-Subscription Privilege. The Fund has also agreed
to pay the Dealer Manager a fee for financial advisory and marketing
services in connection with the Offer equal to 1.25% of the aggregate
Subscription Price for the Shares issued pursuant to the exercise of the
Rights and the Over-Subscription Privilege. The Fund and the Investment
Manager have agreed to indemnify the Dealer Manager and each Soliciting
Dealer against certain liabilities under the Securities Act of 1933, as
amended.
(3) Before deduction of offering expenses incurred by the Fund, estimated at
$500,000, which includes up to $100,000 to be paid to the Dealer Manager as
partial reimbursement for its expenses relating to the Offer.
(4) Funds received by check prior to the final due date of this Offer will be
deposited into a segregated interest-bearing account (which interest will
be paid to the Fund) pending proration and distribution of the Shares.
(5) Assumes all 1,469,031 Shares are purchased at the Estimated Subscription
Price. Pursuant to the Over-Subscription Privilege, the Fund may at the
discretion of the Board of Directors increase the number of Shares subject
to subscription by up to 25% of the Shares offered hereby. If the Fund
increases the number of Shares subject to subscription by 25%, the total
maximum Estimated Subscription Price, Estimated Sales Load and Estimated
Proceeds to Fund will be $16,673,495, $625,256 and $16,048,239,
respectively. ------------------------
Unless otherwise specified, references in this Prospectus to "dollars,"
"U.S.$," or "$" are to U.S. dollars and references to "Won" or "W" are to Korean
Won. On November 8, 1996, the market average exchange rate of the Won to the
U.S. dollar, as published by Reuters (the "Market Average Exchange Rate"), was
W831 = $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 and Special
Considerations--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> 5
FEE TABLE
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of the Subscription Price per Share)(1)....... 3.75%
ANNUAL EXPENSES (as a percentage of net assets attributable to common
shares)(2)
Management Fees(3)........................................................ 1.00%
Other Expenses(2)......................................................... 0.79%
Administration Fees(3).................................................. 0.20%
Other Operating Expenses................................................ 0.59%
Total Annual Expenses..................................................... 1.79%
</TABLE>
- ---------------
(1) The Fund has agreed to pay the Dealer Manager and the other broker-dealers
soliciting the exercise of Rights solicitation fees equal to 2.50% of the
Subscription Price per Share for each Share issued pursuant to the exercise
of the Rights and pursuant to the Over-Subscription Privilege. The Fund has
also agreed to pay the Dealer Manager a fee for financial advisory and
marketing services in connection with the Offer equal to 1.25% of the
aggregate Subscription Price for the Shares issued pursuant to the exercise
of the Rights and the Over-Subscription Privilege and to reimburse the
Dealer Manager for its expenses relating to the Offer up to an aggregate of
$100,000. In addition, the Fund has agreed to pay fees plus transaction
based charges to the Subscription Agent (as defined herein) and the
Information Agent (as defined herein), estimated to be $28,000 and $10,000,
respectively, for their services related to the Offer, which includes
reimbursement for their out-of-pocket expenses. These fees and expenses
will be borne by the Fund and indirectly by all of the Fund's shareholders,
including those shareholders who do not exercise their Rights.
(2) Amounts are based on the Fund's most recently completed fiscal year ended
September 30, 1996, except that "Other Expenses" are based on estimated
amounts for the Fund's current fiscal year and assume that (i) all of the
Rights are exercised and (ii) the Fund does not increase the number of
Shares subject to subscription pursuant to the Over-Subscription Privilege.
(3) See "Management of the Fund" herein and in the SAI.
THE FOREGOING FEE TABLE IS INTENDED TO ASSIST INVESTORS IN UNDERSTANDING
THE VARIOUS COSTS AND EXPENSES THAT AN INVESTOR IN THE FUND WILL BEAR DIRECTLY
OR INDIRECTLY.
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 3.75% 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:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$ 55 $ 92 $ 131 $ 240
</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 (as defined herein). See
"Dividends and Distributions; Dividend Reinvestment and Cash Purchase Plan."
3
<PAGE> 6
FINANCIAL HIGHLIGHTS
Set forth below is selected financial information, including ratios, for a
share of Common Stock outstanding throughout the periods indicated. The
information set forth below has been audited by Price Waterhouse LLP, the Fund's
independent accountants. Their report is included in the financial statements
and financial highlights of the Fund which are incorporated by reference in the
SAI. All of the information set forth below should be read in conjunction with
the financial statements and financial highlights of the Fund incorporated by
reference in the SAI.
<TABLE>
<CAPTION>
YEAR OCTOBER 31, 1994
ENDED (COMMENCEMENT OF
SEPTEMBER 30, OPERATIONS) TO
1996 SEPTEMBER 30, 1995
------------- ------------------
<S> <C> <C>
SELECTED PER SHARE DATA(E)
Net asset value, beginning of period.................... $ 12.62 $ 14.10
------------- ----------
Income from investment operations
Net investment income (loss).......................... (.08) (.02)
Net realized and unrealized gain (loss) on
investments........................................ (1.83) (1.30)
------------- ----------
Total from investment operations........................ (1.91) (1.32)
------------- ----------
Less distributions
From net investment income............................ -- --
From capital gains.................................... -- --
From returns of capital............................... -- --
------------- ----------
Total distributions..................................... -- --
------------- ----------
Offering expenses....................................... -- (.16)
------------- ----------
Net asset value, end of period.......................... $ 10.71 $ 12.62
========== ==============
Market value, end of period............................. $ 10.50 $ 11.125
========== ==============
TOTAL RETURN(B)(J)
Market value(G)......................................... (5.62)% (25.83)%(C)
Net asset value(D)...................................... (15.13)% (9.47)%(F)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)................. $47,181 $ 55,603
Ratio of expenses to average net assets................. 1.80% 1.88%(A)
Ratio of expenses to average net assets after expense
reductions............................................ 1.79%(I) 1.88%(A)
Ratio of net investment income (loss) to average net
assets................................................ (.68)% (.19)%(A)
Portfolio turnover rate................................. 28% 25%(A)
Average commission rate paid(H)......................... $ .1420
</TABLE>
- ---------------
(A) Annualized.
(B) Total returns for periods of less than one year are not annualized.
(C) Total market value return includes the one time sales load of 6.0% paid in
connection with the initial public offering.
(D) Total return based on net asset value reflects the effect of changes in the
net asset value on the performance of the Fund, and assumes dividends and
capital gains distributions, if any, were reinvested. This percentage is
not an indication of the performance of a shareholder's investment in the
Fund based on market value due to differences between the market price of
the stock and the net asset value of the Fund.
(E) Net investment income (loss) per share has been calculated based on average
shares outstanding during the period.
(F) Total net asset value return does not include the effect of the offering
expenses or the one time sales load.
(G) Total return based on market value reflects the effect of changes in the
Fund's market value and assumes dividends and capital gains distributions,
if any, were reinvested.
(H) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
(I) The Investment Manager or the Fund has entered into varying arrangements
with third parties who either paid or reduced a portion of the Fund's
expenses.
(J) The total return would have been lower had certain expenses not been
reduced during the period shown.
4
<PAGE> 7
MARKET AND NET ASSET VALUE INFORMATION
The Fund's currently outstanding shares of Common Stock are, and the Shares
offered by this Prospectus will be, listed on the NYSE. Shares of the Fund's
Common Stock commenced trading on the NYSE on October 26, 1994.
In the past, the Fund's shares have traded both at a premium and at a
discount in relation to net asset value. Although the Fund's shares recently
have traded at a premium above net asset value, there can be no assurance that
the shares will not trade at a discount. Shares of closed-end investment
companies frequently trade at a discount from net asset value. In recognition of
the possibility that the Fund's Common Stock may trade at a discount to net
asset value, the Fund may, commencing in 1998, undertake annual tender offers
for its shares of Common Stock which may reduce any market discount. See "Risk
Factors and Special Considerations" and "Annual Tender Offers and Share
Repurchases."
The following table shows for each of the periods indicated the high and
low market prices for shares of the Fund on the NYSE, high and low net asset
values per share and the premium or discount to net asset value per share at
which the Fund's shares were trading. Net asset value is calculated each day at
the close of the NYSE. See "Net Asset Value" in the SAI for information as to
the determination of the Fund's net asset value.
MARKET PRICE, NET ASSET VALUE PER SHARE AND PREMIUM/(DISCOUNT) OF FUND SHARES
<TABLE>
<CAPTION>
PREMIUM/(DISCOUNT)
TO NET ASSET
MARKET PRICE NET ASSET VALUE VALUE
------------------ ---------------- ----------------
FISCAL QUARTER ENDED HIGH LOW HIGH(1) LOW(1) HIGH(2) LOW(2)
- --------------------------------------- ------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1994...................... $ 15.125 $ 14.00 $13.76 $12.82 9.92% 9.20%
March 31, 1995......................... 14.50 10.25 12.74 12.04 13.81 (14.87)
June 30, 1995.......................... 10.875 9.75 11.64 11.27 (6.57) (13.49)
September 30, 1995..................... 11.375 9.875 12.91 11.43 (11.89) (13.60)
December 31, 1995...................... 11.750 10.625 13.02 11.86 (9.75) (10.41)
March 31, 1996......................... 11.625 10.875 12.15 11.58 (4.32) (6.09)
June 30, 1996.......................... 12.50 11.125 13.66 12.06 (8.49) (7.75)
September 30, 1996..................... 12.25 10.50 11.90 10.81 2.94 (2.87)
</TABLE>
- ---------------
Source: Bloomberg Financial and Fund Accounting Records.
(1) Based on the net asset value calculated at the close of business on the NYSE
trading day for which market price high and low information is provided.
(2) Calculated based on the information presented.
The last reported sales price, net asset value per share and percentage
premium to net asset value per share of the Common Stock on November 8, 1996
were $10.25, $9.56 and 7.22%, respectively. As of November 8, 1996, the Fund had
4,407,093 shares of Common Stock outstanding and the net assets of the Fund were
$42,148,361.
5
<PAGE> 8
THE OFFER
PURPOSE OF THE OFFER
The Board of Directors of the Fund has determined that the Offer is in the
best interest of the Fund and its shareholders because it represents an
opportunity to increase the assets of the Fund available for investment, thereby
enabling the Fund to take advantage more fully of existing and future investment
opportunities that may be available, consistent with the Fund's investment
objective of long-term capital appreciation through investment primarily in
equity and debt securities of Korean Issuers. The Fund's Board of Directors has
voted to approve the Offer.
In reaching its decision, the Board of Directors considered, among other
matters, advice provided by the Investment Manager that additional proceeds
would permit the Fund to take advantage of available investment opportunities
without selling portfolio securities the Investment Manager, the Investment
Adviser and the Sub-Adviser (collectively, "Fidelity") believe the Fund should
continue to hold. Fidelity believes that current valuation levels of certain
equity securities are particularly attractive in the Korean market given the
current level of the Korea Composite Stock Price Index, which has declined
approximately 30% from its 1994 high of 1,138.75, and that a number of
fundamentally sound Korean Issuers are trading at prices below book value or at
low price-to-earnings ratios as measured by Fidelity's earnings estimates. In
addition, Fidelity believes investment opportunities exist in Korea at this time
due to the government's recent increase in the percentage of a company's
outstanding equity securities allowed to be held by foreign investors and the
continued, gradual implementation of Korea's market reforms.
The Board of Directors also considered that the Offer provides shareholders
the exclusive opportunity to purchase Shares at a discount to both the market
price and net asset value per share. Furthermore, increasing the size of the
Fund through the Offer may result in certain economies of scale which could in
turn marginally lower the Fund's expenses as a percentage of average net assets.
The Board of Directors believes that any reduction in the Fund's expense ratio
resulting from the Offer would be of a long-term benefit to the Fund, and that a
well-subscribed rights offering could increase liquidity on the NYSE where
shares of the Fund's Common Stock are listed and traded. See "Management of the
Fund." There can be no assurance that the results described above will be
achieved.
The Fund's Investment Manager, Investment Adviser and Sub-Adviser, as well
as the Administrator, will benefit from the Offer because their fees are based
on the average net assets of the Fund. The Fund may, in the future and at its
discretion, choose to make additional rights offerings from time to time for a
number of shares and on terms which may or may not be similar to this Offer. Any
such future rights offering will be made in accordance with the requirements of
the Investment Company Act of 1940, as amended (the "1940 Act").
TERMS OF THE OFFER
The Fund is issuing to its shareholders of record ("Record Date
Shareholders"), as of the close of business on November 15, 1996 (the "Record
Date"), non-transferable rights ("Rights") entitling the holders thereof to
subscribe for an aggregate of 1,469,031 shares (the "Shares") of the Fund's
Common Stock, par value $.001 per share (the "Common Stock") (1,836,288) Shares
if the Fund increases the number of shares of Common Stock available by up to
25% in connection with the Over-Subscription Privilege described below). Each
shareholder is being issued one Right for each whole share of Common Stock owned
on the Record Date. The Rights entitle the holders thereof to subscribe for one
Share for every three Rights held (1 for 3). Fractional shares will not be
issued upon the exercise of Rights. Accordingly, Shares may be purchased in the
Primary Subscription only pursuant to the exercise of Rights in integral
multiples of three. Record Date Shareholders may request additional Shares
pursuant to the Over-Subscription Privilege as described below. Rights may be
exercised at any time during the Subscription Period, which commences on
November 15, 1996 and ends at 5:00 P.M., New York City time, on December 13,
1996 (referred to herein as the "Expiration Date"), unless extended by the Fund
until 5:00 P.M., New York City time, to a date not later than December 20, 1996.
A shareholder's right to acquire Shares during the Subscription Period at the
Subscription Price of one additional Share for every three Rights held is
hereinafter referred to as the
6
<PAGE> 9
"Primary Subscription." The Rights are evidenced by Subscription Certificates
("Subscription Certificates") that will be mailed to Record Date Shareholders,
except as discussed below under "Foreign Restrictions."
Shares not subscribed for in the Primary Subscription will be offered, by
means of the Over-Subscription Privilege, to those shareholders who have
exercised all Rights issued to them and who wish to acquire more than the number
of whole Shares they are entitled to purchase pursuant to the exercise of their
Rights. Shares acquired pursuant to the Over-Subscription Privilege are subject
to allotment and may be subject to increase, as more fully discussed below under
"Over-Subscription Privilege." For purposes of determining the maximum number of
Shares a shareholder may acquire pursuant to the Offer, shareholders whose
shares are held of record by Cede & Co. ("Cede"), as nominee for The Depository
Trust Company ("DTC"), or by any other depository or nominee will be deemed to
be the holders of the Rights that are issued to Cede or such other depository or
nominee on their behalf.
Since fractional shares will not be issued, shareholders who receive or
have remaining fewer than three Rights will be unable to purchase a Share upon
the exercise of such remaining Rights and will not be entitled to receive any
cash in lieu thereof. Such shareholders may, however, request additional Shares
pursuant to the Over-Subscription Privilege (as described below).
OVER-SUBSCRIPTION PRIVILEGE
To the extent shareholders do not exercise all the Rights issued to them,
any underlying Shares represented by such Rights will be offered by means of the
Over-Subscription Privilege to the shareholders who have exercised all the
Rights issued to them and who wish to over-subscribe for additional Shares. Only
shareholders who exercise all the Rights issued to them may indicate on the
Subscription Certificate, which they submit with respect to the exercise of the
Rights issued to them, how many Shares they desire to purchase pursuant to the
Over-Subscription Privilege. If sufficient Shares remain after completion of the
Primary Subscription, all over-subscription requests will be honored in full. If
sufficient Shares are not available after completion of the Primary Subscription
to honor all over-subscription requests, the Fund may, at the discretion of the
Board of Directors, issue shares of Common Stock up to an additional 25% of the
Shares available pursuant to the Offer (up to an additional 367,257 Shares) in
order to cover such over-subscription requests. Regardless of whether the Fund
issues such additional Shares, and to the extent Shares are not available to
honor all over-subscription requests, the available Shares will be allocated
among those who over-subscribe so that the number of Shares issued to such
shareholders will generally be in proportion to the number of shares of Common
Stock owned by such shareholders on the Record Date. The allocation process may
involve a series of allocations in order to assure that the total number of
Shares available for over-subscription is distributed on a pro rata basis.
Banks, brokers, trustees and other nominee holders of Rights will be
required to certify to the Subscription Agent, before any Over-Subscription
Privilege may be exercised with respect to any particular beneficial owner, as
to the aggregate number of Rights exercised pursuant to the Primary Subscription
and the number of Shares subscribed for pursuant to the Over-Subscription
Privilege by such beneficial owner and that such beneficial owner's Primary
Subscription was exercised in full. Nominee Holder Over-Subscription Forms and
Beneficial Owner Certification Forms will be distributed to banks, brokers,
trustees and other nominee holders with the Subscription Certificates.
The Fund will not offer or sell in connection with the Offer any Shares
that are not subscribed for pursuant to the Primary Subscription or the
Over-Subscription Privilege.
SUBSCRIPTION PRICE
The Subscription Price for the Shares to be issued pursuant to the Offer
will be 95% of the lower of (i) the average of the last reported sales price of
a share of the Fund's Common Stock on the NYSE on the date of the expiration of
the Offer (the "Pricing Date") and on the four preceding business days and (ii)
the net asset value per share as of the close of business on the Pricing Date.
For example, if the average of the last reported sales price of a share of the
Fund's Common Stock on the NYSE on the Pricing Date and on the four preceding
business days is $10.00, and the net asset value per share on the Pricing Date
is $9.00, the
7
<PAGE> 10
Subscription Price will be $8.55 (95% of $9.00). If, however, the average of the
last reported sales price on the NYSE on the Pricing Date and on the four
preceding business days is $8.00, and the net asset value per share on the
Pricing Date is $9.00, the Subscription Price will be $7.60 (95% of $8.00). See
"Market and Net Asset Value Information."
The Fund announced the Offer after the close of trading on the NYSE on
October 11, 1996. The net asset value per share of Common Stock at the close of
business on October 11, 1996 (the last trading date on which the Fund publicly
reported its net asset value prior to the announcement) and on November 8, 1996
(the last trading date on which the Fund publicly reported its net asset value
prior to the Record Date) was $11.10 and $9.56, respectively, and the last
reported sales price of a share of the Fund's Common Stock on the NYSE on those
dates was $10.75 and $10.25, respectively.
NON-TRANSFERABILITY OF RIGHTS
The Rights are non-transferable and, therefore, may not be purchased or
sold. The Rights will not be listed for trading on the NYSE or any other
securities exchange. However, the Shares to be issued pursuant to the Offer will
be listed for trading on the NYSE, subject to notice of issuance.
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 P.M., New York City time, on December 13,
1996, unless extended by the Fund until 5:00 P.M., New York City time, to a date
not later than December 20, 1996. The Rights will expire on the Expiration Date
and thereafter may not be exercised. Since the Expiration Date and the Pricing
Date will be the same date, shareholders who decide to acquire Shares in the
Primary Subscription or pursuant to the Over-Subscription Privilege will not
know the Subscription Price of the Shares when they make their decision. Any
extension of the Offer will be followed as promptly as practicable by
announcement thereof. Such announcement will be issued no later than 9:00 A.M.,
New York City time, on the next business day following the previously scheduled
Expiration Date. Without limiting the manner in which the Fund may choose to
make such announcement, the Fund will not, unless otherwise required by law,
have any obligation to publish, advertise or otherwise communicate any such
announcement other than by making a release to the Dow Jones News Service or
such other means of announcement as the Fund deems appropriate.
SUBSCRIPTION AGENT
The Subscription Agent is State Street Bank and Trust Company. The
Subscription Agent will receive for its administrative, processing, invoicing
and other services as subscription agent, a fee estimated to be approximately
$5,000, plus transaction based charges as well as reimbursement for all
out-of-pocket expenses related to the Offer estimated to be $23,000. The
Subscription Agent is also the Fund's transfer agent, dividend-paying agent and
registrar. Questions regarding the Subscription Certificates should be directed
to State Street Bank and Trust Company, Two Heritage Drive, North Quincy,
Massachusetts 02171 U.S.A. (800) 426-5523 (toll free); shareholders may also
consult their brokers or nominees. Completed Subscription Certificates must be
sent together with proper payment of the Estimated Subscription Price (as
defined below) for all Shares subscribed for in the Primary Subscription and the
Over-Subscription Privilege to State Street Bank and Trust Company by one of the
methods described below. Alternatively, Notices of Guaranteed Delivery may be
sent by facsimile to (617) 774-4519, to be received by the Subscription Agent
prior to 5:00 P.M., New York City time, on the Expiration Date. Facsimiles
should be confirmed by telephone at (617) 774-4511. The Fund will accept only
properly completed and executed Subscription Certificates actually received at
any of the addresses listed below, prior to 5:00 P.M., New York City time, on
the
8
<PAGE> 11
Expiration Date or by the close of business on the third business day after the
Expiration Date following timely receipt of a Notice of Guaranteed Delivery. See
"Payment for Shares" below.
(1) BY FIRST CLASS MAIL OR EXPRESS MAIL:
State Street Bank and Trust Company
Corporate Reorganization
P.O. Box 9061
Boston, Massachusetts 02205-8686
U.S.A.
(2) BY EXPRESS MAIL OR OVERNIGHT COURIER:
State Street Bank and Trust Company
Corporate Reorganization
Two Heritage Drive
North Quincy, Massachusetts 02171
U.S.A.
(3) BY HAND:
State Street Bank and Trust Company
Corporate Reorganization
225 Franklin Street--Concourse Level
Boston, Massachusetts 02110
U.S.A.
or
Bank of Boston
c/o Boston EquiServe
Corporate Reorganization
55 Broadway -- 3rd Floor
New York, New York 10006
U.S.A.
DELIVERY TO AN ADDRESS OTHER THAN ONE OF THE ADDRESSES LISTED ABOVE WILL NOT
CONSTITUTE VALID DELIVERY.
METHOD OF EXERCISE OF RIGHTS
Rights are evidenced by Subscription Certificates that, except as described
below under "Foreign Restrictions," will be mailed to Record Date Shareholders
or, if a shareholder's shares of Common Stock are held by Cede or any other
depository or nominee on their behalf, to Cede or such depository or nominee.
Rights may be exercised by completing and signing the Subscription Certificate
that accompanies this Prospectus and mailing it in the envelope provided, or
otherwise delivering the completed and signed Subscription Certificate to the
Subscription Agent, together with payment in full for the Shares at the
Estimated Subscription Price (as defined below under "Payment for Shares").
Rights may also be exercised by contacting your broker, banker or trust company,
which can arrange, on your behalf, to guarantee delivery of payment and delivery
of a properly completed and executed Subscription Certificate pursuant to a
Notice of Guaranteed Delivery ("Notice of Guaranteed Delivery"). A fee may be
charged for this service. Fractional shares will not be issued and shareholders
who receive or who have remaining fewer than three Rights will not be able to
purchase a Share upon the exercise of such remaining Rights and will not be
entitled to receive any cash in lieu thereof. Such shareholders may, however,
request additional Shares pursuant to the Over-Subscription Privilege. Completed
Subscription Certificates must be received by the Subscription Agent prior to
5:00 P.M., New York City time, on the Expiration Date at one of the addresses
set forth above (unless the guaranteed delivery procedures are complied with as
described below under "Payment for Shares").
Shareholders Who Are Record Owners. Shareholders who are record owners can
choose between either option to exercise their Rights as described below under
"Payment for Shares". If time is of the essence,
9
<PAGE> 12
option (2) under "Payment for Shares" below will permit delivery of the
Subscription Certificate and payment after the Expiration Date.
Shareholders Whose Shares Are Held by a Nominee. Shareholders whose shares
are held by a nominee, such as a bank, broker or trustee, must contact that
nominee to exercise their Rights. In such case, the nominee will complete the
Subscription Certificate on behalf of the shareholder and arrange for proper
payment by one of the methods described below under "Payment for Shares".
Nominees. Nominees who hold shares of Common Stock for the account of
others should notify the beneficial owners of such shares as soon as possible to
ascertain such beneficial owners' intentions and to obtain instructions with
respect to the Rights. If the beneficial owner so instructs, the nominee should
complete the Subscription Certificate and submit it to the Subscription Agent
with the proper payment as described below under "Payment for Shares".
FOREIGN RESTRICTIONS
Subscription Certificates will not be mailed to shareholders whose record
addresses are outside the United States. For these purposes, the United States
includes its territories and possessions and the District of Columbia. Such
Record Date Shareholders will receive written notice of the Offer. The Rights to
which those Subscription Certificates relate will be held by the Subscription
Agent for such foreign shareholders' accounts until instructions are received to
exercise those Rights. If no instructions are received by the Expiration Date,
such Rights will expire.
INFORMATION AGENT
Any questions or requests for assistance may be directed to D.F. King &
Co., Inc. (the "Information Agent") at the telephone number and address listed
below:
The Information Agent for the Offer is:
D.F. King & Co., Inc.
77 Water Street
New York, New York
10005
Toll Free: (800)290-6430
or
Call Collect: (212)269-5550
Shareholders may also contact their brokers or nominees for information
with respect to the Offer.
The Information Agent will receive an estimated fee of approximately
$5,000, plus transaction based charges as well as reimbursement for all
out-of-pocket expenses related to the Offer estimated to be $5,000.
PAYMENT FOR SHARES
Shareholders who wish to acquire Shares in the Primary Subscription and
pursuant to the Over-Subscription Privilege may choose between the following
methods of payment:
(1) A shareholder may send the Subscription Certificate together with
payment for the Shares acquired in the Primary Subscription and for additional
Shares subscribed for pursuant to the Over-Subscription Privilege to the
Subscription Agent. Payment should be calculated on the basis of the Estimated
Subscription Price of $9.08 per Share for all Shares subscribed. To be accepted,
such payment, together with the properly completed and executed Subscription
Certificate, must be received by the Subscription Agent at the Subscription
Agent's office at one of the addresses set forth above prior to 5:00 P.M., New
York City time, on the Expiration Date. The Subscription Agent will deposit all
checks and money orders received by it prior to the final payment date into a
segregated interest-bearing account (which interest will be paid to the Fund)
10
<PAGE> 13
pending proration and distribution of the Shares. A PAYMENT PURSUANT TO THIS
METHOD MUST BE IN UNITED STATES DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK
OR BRANCH LOCATED IN THE UNITED STATES, MUST BE PAYABLE TO FIDELITY ADVISOR
KOREA FUND, INC. AND MUST ACCOMPANY A PROPERLY COMPLETED AND EXECUTED
SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED.
BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO
CLEAR, SHAREHOLDERS ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS
OF A CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
(2) Alternatively, a subscription will be accepted by the Subscription
Agent if, prior to 5:00 P.M., New York City time, on the Expiration Date, the
Subscription Agent has received a Notice of Guaranteed Delivery by facsimile
(telecopy) or otherwise from a bank, a trust company, or a NYSE member
guaranteeing delivery of (i) payment of the Estimated Subscription Price of
$9.08 per Share for the Shares subscribed for in the Primary Subscription and
for any additional Shares requested pursuant to the Over-Subscription Privilege,
and (ii) a properly completed and executed Subscription Certificate. The
Subscription Agent will not honor a Notice of Guaranteed Delivery unless a
properly completed and executed Subscription Certificate together with full
payment is received by the Subscription Agent by the close of business on the
third business day after the Expiration Date (December 18, 1996, unless the
Offer is extended) (the "Protect Period").
Within five business days after the Protect Period (December 26, 1996,
unless the Offer is extended) (the "Confirmation Date"), a confirmation will be
sent by the Subscription Agent to each subscribing shareholder (or, if the
shareholder's shares of Common Stock are held by Cede or any other depository or
nominee on such shareholder's behalf, to Cede or such depository or nominee),
showing (i) the number of Shares acquired in the Primary Subscription, (ii) the
number of Shares, if any, acquired pursuant to the Over-Subscription Privilege,
(iii) the per Share and total purchase price of the Shares, and (iv) any
additional amount payable by such shareholder to the Fund or any excess to be
refunded by the Fund to such shareholder, in each case based on the Subscription
Price as determined on the Pricing Date. If any shareholder exercises his or her
right to acquire Shares pursuant to the Over-Subscription Privilege, any such
excess payment which would otherwise be refunded to the shareholder will be
applied by the Fund toward payment for Shares acquired pursuant to the exercise
of the Over-Subscription Privilege. Any additional payment required from a
shareholder must be received by the Subscription Agent within ten business days
after the Confirmation Date (January 10, 1997, unless the Offer is extended).
Any excess payment to be refunded by the Fund to a shareholder will be mailed by
the Subscription Agent to such shareholder as promptly as possible. All payments
by a shareholder must be in U.S. dollars by money order or check drawn on a bank
or branch located in the United States and payable to FIDELITY ADVISOR KOREA
FUND, INC.
The Subscription Agent will deposit all checks received by it prior to the
final payment date into a segregated interest-bearing account (which interest
will be paid to the Fund) pending proration and distribution of the Shares.
Whichever of the two methods described above is used, issuance and delivery
of certificates for the Shares purchased are subject to collection of checks and
actual payment pursuant to any Notice of Guaranteed Delivery.
SHAREHOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR SUBSCRIPTION AFTER RECEIPT
OF THEIR PAYMENT FOR SHARES BY THE SUBSCRIPTION AGENT, EXCEPT AS PROVIDED BELOW
UNDER "NOTICE OF NET ASSET VALUE DECLINE."
If a shareholder who acquires Shares pursuant to the Primary Subscription
or the Over-Subscription Privilege does not make payment of any additional
amounts due by the tenth business day after the Confirmation Date, the Fund
reserves the right to take any or all of the following actions: (i) sell such
subscribed and unpaid-for Shares to other Record Date Shareholders, (ii) apply
any payment actually received toward the purchase of the greatest whole number
of Shares which could be acquired by such shareholder upon the exercise of the
Primary Subscription and/or Over-Subscription Privilege, and/or (iii) exercise
any and all other rights or remedies to which the Fund may be entitled.
11
<PAGE> 14
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE FUND WILL BE AT THE ELECTION AND RISK OF THE RIGHTS
HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES AND
PAYMENT BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION
DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS
TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF
CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Fund, whose determinations will
be final and binding. The Fund in its sole discretion may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Fund determines
in its sole discretion. The Fund will not be under any duty to give notification
of any defect or irregularity in connection with the submission of Subscription
Certificates or incur any liability for failure to give such notification.
NOTICE OF NET ASSET VALUE DECLINE
Pursuant to the regulatory requirements of the U.S. Securities and Exchange
Commission (the "Commission"), the Fund has undertaken to suspend the Offer
until it amends this Prospectus if, subsequent to November 13, 1996 (the
effective date of the Fund's Registration Statement), the Fund's net asset value
declines more than 10% from its net asset value as of that date. Accordingly,
the Expiration Date would be extended and the Fund would notify shareholders of
any such decline and permit shareholders to cancel their exercise of Rights.
DELIVERY OF SHARE CERTIFICATES
Certificates representing Shares acquired in the Primary Subscription will
be mailed promptly after the expiration of the Offer once full payment for such
Shares has been received and cleared. Certificates representing Shares acquired
pursuant to the Over-Subscription Privilege will be mailed as soon as
practicable after full payment for such Shares has been received and cleared and
all allocations have been completed. Participants in the Fund's Dividend
Reinvestment and Cash Purchase Plan (the "Plan") will have any Shares acquired
in the Primary Subscription and pursuant to the Over-Subscription Privilege
credited to their shareholder dividend reinvestment accounts in the Plan.
Participants in the Plan wishing to exercise Rights for the shares of Common
Stock held in their accounts in the Plan must exercise such Rights in accordance
with the procedures set forth above. Shareholders whose shares of Common Stock
are held of record by Cede or by any other depository or nominee on their behalf
or their broker-dealer's behalf will have any Shares acquired in the Primary
Subscription credited to the account of Cede or such other depository or
nominee. Shares acquired pursuant to the Over-Subscription Privilege will be
certificated and certificates representing such Shares will be sent directly to
Cede or such other depository or nominee. Stock certificates will not be issued
for Shares credited to Plan accounts.
FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER
For U.S. federal income tax purposes, neither the receipt nor the exercise
of the Rights by shareholders will result in taxable income to holders of Common
Stock, and no loss will be realized if the Rights expire without exercise.
A shareholder's holding period for a Share acquired upon exercise of a
Right begins with the date of exercise. The basis of a Right will be (a) to a
shareholder who exercises the Right (i) if the fair market value of the Right on
such date of distribution is less than 15% of the fair market value of the
Common Stock with regard to which it is issued, zero unless the holder elects,
by filing a statement with such investor's timely filed federal income tax
return for the year in which the Right is received, to allocate the basis of the
Common
12
<PAGE> 15
Stock between the Right and the Common Stock based on their respective fair
market values on such date of distribution and (ii) if the fair market value of
the Right on such date of distribution is 15% or more of the fair market value
of the Common Stock with regard to which it is distributed, a portion of the
basis in the Common Stock based upon the respective fair market values of the
Common Stock and the Right on such date of distribution and (b) to a shareholder
who allows the Right to expire, zero. A shareholder's basis for determining gain
or loss upon the sale of a Share acquired upon the exercise of a Right will be
equal to the sum of the shareholder's basis in the Right, if any, and the
Subscription Price per Share. A shareholder's gain or loss recognized upon a
sale of a Share acquired upon the exercise of a Right will be capital gain or
loss if the Share was held at the time of sale as a capital asset and will be
long-term capital gain or loss if the Share is held for more than one year.
The foregoing is a general summary of the material U.S. federal income tax
consequences of the Offer under the provisions of the U.S. Internal Revenue Code
of 1986, as amended (the "Code"), and Treasury regulations presently in effect
that are generally applicable to shareholders that are citizens or residents of
the United States, U.S. corporations, trusts, estates and any other person who
would be subject to U.S. federal income tax upon the sale or exchange of the
Common Stock acquired upon the exercise of the Rights, and does not cover
foreign, state or local taxes. The Code and such regulations are subject to
change by legislative or administrative action, which may be retroactive.
Shareholders should consult their tax advisers regarding specific questions as
to foreign, federal, state or local taxes. See "Taxation--U.S. Federal Income
Taxes" herein and in the SAI.
EMPLOYEE PLAN CONSIDERATIONS
Shareholders that are employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (including
corporate savings and 401(k) plans), Keogh or H.R. 10 plans of self-employed
individuals and Individual Retirement Accounts ("IRAs") (collectively, "Benefit
Plans") should be aware that additional contributions of cash to the Benefit
Plan (other than rollover contributions or trustee-to-trustee transfers from
other Benefit Plans) in order to exercise Rights would be treated as Benefit
Plan contributions and, when taken together with contributions previously made,
may subject a Benefit Plan, among other things, to excise taxes for excess or
nondeductible contributions. In the case of Benefit Plans qualified under
Section 401(a) of the Code, additional cash contributions could cause the
maximum contribution limitations of Section 415 of the Code or other
qualification rules to be violated.
Benefit Plans and other tax exempt entities, including governmental plans,
should also be aware that if they borrow in order to finance their exercise of
Rights, they may become subject to the tax on unrelated business taxable income
("UBTI") under Section 511 of the Code. If any portion of an IRA is used as
security for a loan, the portion so used is also treated as distributed to the
IRA depositor.
ERISA contains fiduciary responsibility requirements, and ERISA and the
Code contain prohibited transaction rules, that may impact the exercise of
Rights. Due to the complexity of these rules and the penalties for
noncompliance, Benefit Plans should consult with their counsel regarding the
consequences of their exercise of Rights under ERISA and the Code.
DILUTION
Upon the completion of the Offer, shareholders who do not fully exercise
their Rights will own a smaller proportional interest in the Fund than they
owned prior to the Offer. In addition, because the Subscription Price per Share
will be less than the net asset value per share of the Fund's Common Stock on
the Pricing Date, the completion of the Offer will result in an immediate
dilution of net asset value per share for all shareholders, which will
disproportionately affect shareholders who do not exercise their Rights in full.
Although it is not possible to state precisely the amount of such decrease in
net asset value per share because it is not known at this time what the net
asset value per share will be on the Expiration Date, or what proportion of the
Shares will be subscribed for, or what the Subscription Price will be, such
dilution could be substantial. For example, assuming all of the Shares are sold
at the Estimated Subscription Price and after deducting all expenses related to
the issuance of the Shares, the Fund's net asset value per share on November 8,
1996 would be reduced by approximately $0.29 or 3.04% (or, in the event that all
of the Rights are exercised and the Fund increases the number of Shares subject
to subscription by 25% pursuant to
13
<PAGE> 16
the Over-Subscription Privilege, by approximately $0.32 or 3.36%). See "Risk
Factors and Special Considerations--Dilution."
IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
EVENT DATE
- ---------------------------------------------------------------------- -------------------
<S> <C>
Record Date........................................................... November 15, 1996
Subscription Period................................................... November 15, 1996
December 13, 1996*
Expiration Date and Pricing Date...................................... December 13, 1996*
Subscription Certificates and Payment for Shares Due+................. December 13, 1996*
Notice of Guaranteed Delivery Due+.................................... December 13, 1996*
Payment for Guarantees of Delivery Due................................ December 18, 1996*
Confirmation to Participants.......................................... December 26, 1996*
Final Payment for Shares.............................................. January 10, 1997*
</TABLE>
- ---------------
* Unless the Offer is extended to a date not later than December 20, 1996.
+ A shareholder exercising Rights must deliver either (i) a Subscription
Certificate and payment for Shares or (ii) a Notice of Guaranteed Delivery, by
December 13, 1996.
14
<PAGE> 17
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, as defined below.
The Fund commenced operations on October 31, 1994 following an initial
public offering of 4,400,000 shares of its Common Stock. Since inception, the
Fund has not paid or declared dividends or capital gains distributions. As of
November 8, 1996, the value of the Fund's net assets was $42,148,361. As of
September 30, 1996, approximately 96.8% of the Fund's net assets were invested
in securities of Korean Issuers. The percentage of the Fund's net assets so
invested will fluctuate, subject to its investment objective and policies.
USE OF PROCEEDS
If 1,469,031 Shares are sold at the Estimated Subscription Price of $9.08
per Share, net proceeds of the Offer to the Fund will be approximately
$12,338,596, after deducting offering expenses payable by the Fund, including
the fees and expenses of the Dealer Manager and other offering expenses
estimated to total $500,000. If the Fund increases the number of Shares subject
to subscription by up to 25%, or 367,257 Shares, in order to satisfy
over-subscription requests, the additional net proceeds to the Fund will be
approximately $3,209,643. Fidelity has advised the Fund that it will invest the
net proceeds of the Offer in accordance with the Fund's investment objective and
the policies set forth under "Investment Objective and Policies" within six
months of the Expiration Date, depending on market conditions and the
availability of appropriate investments. Pending such investment, the proceeds
will be invested in Temporary Investments (as defined below). See "Investment
Objective and Policies--Temporary Investments."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term capital appreciation. The Fund
seeks 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. As of September 30, 1996,
approximately 96.8% of the Fund's net assets were invested in equity securities
of Korean Issuers, and Fidelity currently anticipates that at least 80% of the
proceeds of the Offer 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 invests in companies that, in the
opinion of Fidelity, possess the potential for growth. The Fund does not
consider dividend income as a primary factor in choosing securities, unless
Fidelity 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 securities of Korean Issuers: (i) common and preferred stock
listed on the Korea Stock Exchange (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) certain government or public
bonds with low interest rates comparable to international interest rates
acquired in the primary market; (iv) warrants representing the right to
subscribe for shares of a listed company; (v) certain Won-denominated bonds
issued by foreign corporations and sold outside of Korea; (vi) global or other
types of depositary receipts representing rights in shares of a Korean Issuer
which are issued outside Korea; (vii) convertible bonds denominated in non-Won
currency and issued outside Korea; and (viii) equity
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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 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. 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 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 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 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 sell
readily such securities. Such securities are unlike securities that are traded
in the open market and 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 similar to 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> 19
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" in the SAI.
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 (as defined below) and investment grade debt
instruments, including unrated securities of equivalent credit quality as
determined by Fidelity, 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 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 pending 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 any other
nationally recognized securities rating organization) or unrated securities
judged by Fidelity 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 Fidelity.
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<PAGE> 20
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--Risks of Investing in Korean and Other Asian
Issuers--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. The depositary bank may not have physical custody of the underlying
securities at all times and may charge fees for various services, including
forwarding dividends and corporate actions.
Shares of Other Investment Companies. The Fund may invest in investment
companies which invest principally in securities in which the Fund is authorized
to invest. The Fund does not intend to invest in such investment companies
unless, in the judgment of Fidelity, the potential benefits of such investment
justify the payment of any applicable premium, sales load and expenses. From
time to time, such investment companies may be the sole means by which the Fund
may invest in securities of certain Korean Issuers. See "Risk Factors and
Special Considerations--Risks of Investing in Korean and Other Asian
Issuers--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 companies, 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 investment
companies. 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.
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<PAGE> 21
However, the Commission stated that the board may delegate the day-to-day
function for determining liquidity to the investment company'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 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 and the Investment 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.
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 from banks and other investment companies
advised by the Investment Manager 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
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maintain appropriate assets in a segregated custodial account to cover its
obligation under the agreement, which will consist only of liquid assets that
are consistent with the interpretations of the Commission's staff ("liquid
assets"), which may include cash, U.S. government securities or other liquid
high grade debt securities. The Fund will enter into reverse repurchase
agreements only with parties whose creditworthiness has been found satisfactory
by Fidelity. 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 PRACTICES
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" in the SAI 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 Fidelity 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" in the SAI. 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 Fidelity's ability
to predict pertinent market movements, which cannot be assured. These skills are
different
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from those needed to select portfolio securities. The use of Derivatives in
certain circumstances will require that the Fund segregate liquid assets, which
may include cash, U.S. government securities or other liquid high grade debt
obligations 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 U.S. Commodity Futures Trading Commission and the U.S. Securities and
Exchange Commission, the requirement to segregate assets with respect to these
transactions and special risks associated with such strategies, appears in
Appendix A in the SAI. 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 Fidelity 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 liquid assets, which may include cash, U.S. government securities or
other liquid high grade debt obligations. In addition, the Fund will place in a
segregated account
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with its custodian, or designated sub-custodian, an amount of liquid assets
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 liquid assets deposited as
collateral 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 the (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. 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.
RISK FACTORS AND SPECIAL CONSIDERATIONS
DILUTION
An immediate dilution of the net asset value per share of Common Stock will
be experienced as a result of the Offer because the Subscription Price will be
less than the Fund's then net asset value per share (and the Fund will incur
expenses in connection with the Offer), and the number of shares outstanding
after the Offer will increase in a greater percentage than the increase in the
size of the Fund's assets. In addition, Record Date shareholders who do not
fully exercise their Rights should expect that they will, at the completion of
the Offer, own a smaller proportional interest in the Fund than would otherwise
be the case. Although it is not possible to state precisely the amount of such a
decrease in net asset value per share because it is not known at this time what
the net asset value per share will be on the Expiration Date, what proportion of
the Shares will be subscribed for or what the Subscription Price will be, such
dilution could be substantial. For example, assuming all of the Shares are sold
at the Estimated Subscription Price and after deducting all expenses related to
the issuance of the Shares, the Fund's net asset value per share on November 8,
1996 would be reduced by approximately $0.29 or 3.04% (or, in the event that all
of the Rights are exercised and the Fund increases the number of Shares subject
to subscription by 25% pursuant to the Over-Subscription Privilege, by
approximately $0.32 or 3.36%).
RISK OF INVESTING IN KOREAN AND OTHER ASIAN ISSUERS
Investors should recognize that investing in securities of Korean Issuers
and other Asian Issuers involves the potential for significant stock market
fluctuations as well as certain other 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 that 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 Korean 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 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) the heavy concentration of market capitalization and trading volume in a
small number of issuers, which results 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
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<PAGE> 25
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 tax
or dividends will be withheld at the source; (xvi) the limited availability 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 and Economy 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 securities or for the remittance overseas of the sale proceeds thereof.
Foreign investors are allowed to directly purchase and sell equity
securities listed on the KSE subject to certain investment ceiling and
procedural requirements. As of October 1, 1996, the limit on the percentages of
a company's outstanding equity securities that may be held by foreign investors
as a group was raised from 18% to 20%. 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, 1996, of the 30 largest KSE-listed
companies (as measured by total market capitalization), which accounted for
approximately 50.5% of the aggregate market capitalization of the KSE, nearly
all had reached or exceeded the applicable maximum aggregate foreign ownership
limit. As of September 24, 1996, 85 companies of the 724 companies listed on the
KSE had reached or exceeded the applicable maximum aggregate foreign ownership
limit (11.7% of all companies listed on the KSE). As of June 30, 1996, 13.4% and
11.2% of the permitted foreign holding amount were invested by foreign investors
in terms of KSE market capitalization and the number of shares, respectively.
During 1994 and 1995, approximately U.S.$18.7 billion was invested in Korea by
foreign investors for equity investment, of which approximately U.S.$14.5
billion in equity investments was sold and repatriated outside Korea. During the
first six months in 1996, aggregate inflow of foreign equity investments totaled
approximately U.S.$7.1 billion by foreign investors and aggregate sales and
repatriation of foreign equity investments equaled approximately U.S.$4.1
billion. 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 equity investment and a separate
card for debt investment. The Fund has obtained the equity investment
registration card and the debt investment registration card.
The Securities and Exchange Commission of Korea (the "KSEC") and the MOFE
have authority to increase or decrease foreign investment limits and from time
to time has exercised such authority. Subject to certain exceptions the
percentage of each class of a company's outstanding equity securities that may
be held by a single foreign investor and by all foreign investors as a group
currently is 5% and 20%, respectively. The Korean government has announced its
intention to gradually raise the aggregate foreign investment limit by 3% in
each of 1997, 1998 and 1999, and to consider in 2000 whether it will abolish
such limit. 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.
In addition to equity securities listed on the KSE, foreign investors are
allowed to invest in (i) non-guaranteed
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<PAGE> 26
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; (ii) certain
government or public bonds with low interest rates comparable to international
interest rates acquired in the primary market; (iii) warrants representing the
right to subscribe for shares of a listed company; (iv) certain Won-denominated
bonds issued by foreign corporations and sold outside of Korea; (v) global or
other types of depositary receipts representing rights in shares of a Korean
Issuer which are issued outside Korea; (vi) convertible bonds denominated in
non-Won currency and issued outside Korea; and (vii) equity warrants issued
together with bonds denominated in non-Won currency outside Korea.
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 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 that intends to acquire equity securities 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 equity investments and a separate set of such
accounts for debt 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 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 equity investment must be deposited at the stock account and monies
relating to debt 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 following a report to 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. In 1995, certain designated securities
companies were allowed to open Foreign Currency Accounts and Won Accounts with
foreign exchange banks exclusively for accommodating foreign investors' equity
investments in Korea.
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 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 upon the exercise of warrants, 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 exercising applicable conversion rights attached to certain eligible domestic
convertible bonds issued by small and medium-sized listed companies, 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
24
<PAGE> 27
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.
EXCHANGE RATE FLUCTUATIONS
Fidelity currently anticipates that, once the proceeds of the Offer are
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 and capital gains 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. Since June 1,
1996, the permitted daily range of fluctuation was increased to plus or minus
2.25%. See "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, depreciated by 18.9% in value relative to the U.S. dollar
between December 1989 and December 1993, and appreciated again by 4.13% in value
relative to the U.S. dollar between December 1993 and December 1995. See "The
Republic of Korea."
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" and "Additional
Investment Practices" herein and "Appendix A--General Characteristics and Risks
of Derivatives" in the SAI.
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 the two nations.
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. Recently,
25
<PAGE> 28
tension between Korea and North Korea increased following the discovery of a
North Korean submarine off the coast of Korea in September 1996 and the ensuing
manhunt for the submarine's crew members and North Korean commandos. No
assurance can be given that the level of tension will not increase or change
abruptly as a result of future events, including political 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 from time to time 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 Korea
and North Korea also may adversely affect 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.
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 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
26
<PAGE> 29
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 W134 trillion
(approximately U.S.$165 billion) at June 30, 1996, as compared to approximately
U.S.$6.65 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 Korea Securities Stabilization Fund
(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. On April 30, 1996, the contributors to the
Stabilization Fund adopted a resolution to liquidate the Stabilization Fund on
May 3, 1996. Such resolution provided that upon the liquidation of the
Stabilization Fund, its cash and liquid assets, amounting to approximately Won
1.3 trillion, would be distributed to its members by August 1996, while the
listed shares held by the Stabilization Fund, with an aggregate market value of
approximately Won 4.1 trillion (approximately 3% of the market capitalization of
equity securities listed on the KSE), would be deposited with the Korea
Securities Depositary and thereafter distributed to its members at the rate of
20% per annum beginning in May 1998. This schedule for distribution of listed
shares is subject to amendment in accordance with market conditions. The first
distribution of cash, in the amount of Won 922 billion, was made by the
Stabilization Fund to its members in September 1996. The remaining cash held by
the Stabilization Fund is scheduled to be distributed in February 1997.
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
27
<PAGE> 30
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.
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 an investment company that invests in the
U.S. equity market. In addition, the Fund may invest up to 35% of its total
assets in illiquid equity or debt securities, i.e., 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 are particularly acute in situations when 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 that 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 and the Investment
Adviser determine the liquidity of the Fund's investments and, through reports
from the Investment Manager, the Board monitors investments in illiquid
instruments. In determining the liquidity of the Fund's investments, the
Investment Manager and the Investment Adviser 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 below), 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
28
<PAGE> 31
(iv) are governments, or their agencies, instrumentalities or other political
sub-divisions of Hong Kong, Japan or Taiwan.
The risk factors identified herein with respect to Korean Issuers 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.
Hong Kong. In Hong Kong, the implementation of 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 Hong Kong in
July 1997. In particular, the PRC has stated that it intends to abolish Hong
Kong's Legislative Council and restructure the governmental system. Although the
PRC has committed by treaty to preserve the economic and social freedoms enjoyed
in Hong Kong for 50 years after regaining control of Hong Kong, the continuation
of the current economic system in Hong Kong after the reversion will depend on
the actions of the PRC government. 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 and electoral reforms. With the impending return of Hong Kong to the PRC,
sensitivity in Hong Kong to political developments and statements by public
figures in the PRC has increased. Business confidence in Hong Kong, therefore,
can be significantly affected by such developments and statements, which in turn
can affect markets and business performance. The Hong Kong stock market can be
particularly volatile and is sensitive both to developments in the PRC and to
the strength of other world markets.
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.
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 Fujian. 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
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investment permit. If Fidelity were to consider investing Fund assets in Taiwan,
it would be necessary to apply for such a permit on behalf of the Fund. 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 for
the Fund 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 friction 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 additional expenses in
seeking recovery. See "Appendix B--Debt Ratings" in the SAI 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 total return 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
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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 Fidelity'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, the
Commission's 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 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 Fidelity
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.
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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.
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.
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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 Practices." In addition, the
Fund's ability to engage in these investment practices may be limited by certain
rules and regulations in Korea. Derivatives (as defined below) 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 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" in the SAI.
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 single issuer or a smaller number of issuers and, as a result,
could be subject to greater risk of loss including losses due to changes in
financial condition or the market's assessment of a single issuer. The Fund,
however, intends to continue 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"
in the SAI.
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 applies to the Fund if and so long as the Fund
operates as described herein. The Fund has received written confirmation from
the Ministry of Finance and Economy of Korea (the "MOFE") 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 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
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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 share 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" herein and "--Other Taxation" in the SAI.
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."
NET ASSET VALUE DISCOUNT
Shares of closed-end investment companies frequently trade at a discount
from net asset value. This characteristic of shares of a closed-end investment
company is a risk separate and distinct from the risk that the Fund's net asset
value will decrease. Among the factors that may be expected to affect whether
shares of the Fund trade above or below net asset value are portfolio investment
results, the general performance of the Korean economy and Korean securities,
supply and demand for shares of the Fund and the development of alternatives to
the Fund as a vehicle through which United States and other foreign investors
may invest in Korean securities. The Fund cannot predict whether its shares will
trade at, below or above net asset value. The risk of purchasing shares of a
closed-end investment company that might trade at a discount is more pronounced
for investors who wish to sell their shares in a relatively short period of time
because, for those investors, realization of gain or loss on their investments
is likely to be more dependent upon the existence of a premium or discount than
upon portfolio performance. In recognition of the possibility that the Fund's
Common Stock may trade at a discount to the net asset value, the Fund may,
commencing in 1998, undertake annual tender offers for its shares of Common
Stock which may reduce any market discount. See "Annual Tender Offers and Share
Repurchases."
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."
EXPENSES
The operating expense ratio of the Fund is 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 "Fee Table." Brokerage commissions and transaction costs for transactions
both on and
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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.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The management of the Fund, including general supervision duties performed
by the Investment Manager under the Management Agreement, is the responsibility
of the Board of Directors. For certain information regarding the Directors and
officers of the Fund, see "Management of the Fund--Directors and Officers" in
the SAI.
Certain directors of the Fund reside outside the United States and
substantially all of the assets of such persons are located outside the United
States. None of the Directors of the Fund who reside outside the United States
have appointed an agent for service of process in the United States. It may not
be possible, therefore, for investors to effect service of process within the
United States upon such persons or to enforce against them, in the U.S. courts
or foreign courts, judgments obtained in U.S. courts predicated upon the civil
liability provisions of the Federal securities laws of the United States. In
addition, it is not certain that a foreign court would enforce, in original
actions, liabilities against such persons predicated solely upon the U.S.
securities 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 supervises the Fund's investment
program. The Investment Manager consults 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 monitors the
performance of the Fund's service providers, including the Fund's administrator,
transfer agent and custodian. The Investment Manager pays 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 committee 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, places purchase and sale orders for the Fund's
portfolio securities. The Advisory Agreement authorizes the delegation of these
responsibilities to the Sub-Adviser. Pursuant to a Sub-Investment 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 manages the Fund's portfolio through its Tokyo office. Hokeun
Chung is primarily responsible for the day-to-day management of the Fund's
portfolio. Mr. Chung has served as the Fund's portfolio manager since October
1996 after acting as co-portfolio manager since 1995. Mr. Chung joined Fidelity
Investments as an Analyst in 1994. Prior to joining Fidelity, Mr. Chung worked
as an Analyst from 1991 to 1992 and as a Senior Analyst from 1993 to 1994 at
W.I. Carr in Seoul. In addition, the Investment Adviser provides 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 of the Investment Adviser or the Sub-Adviser,
except that the Fund may bear travel expenses or an
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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 committee thereof.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that sets forth all employees' fiduciary
responsibilities regarding the Fund, 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 acts 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, 1996, the Investment Manager, the Investment Adviser, the
Sub-Adviser and their affiliates had over $425 billion under management, of
which more than $76 billion was invested in non-U.S. securities (including over
$18 billion in Asian securities, over $550 million in Korean securities and over
$11 billion managed from Asian offices). The Fidelity organization employs over
350 investment professionals worldwide. The Investment Manager is an investment
adviser registered under the Investment Advisers Act of 1940, as amended (the
"Advisers Act"). 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 their affiliates, has extensive research capabilities worldwide,
with over 350 investment professionals, as of September 30, 1996 and, within the
Asian region, with offices in Hong Kong, Singapore, Sydney, Taiwan and Tokyo,
which were staffed with over 60 investment professionals.
All of the stock of the Investment Manager is owned by FMR Corp., its
parent company organized in 1972. The voting common stock of FMR Corp. is
divided into two classes. Class B is held predominantly by members of the Edward
C. Johnson 3d family and is entitled to 49% of the vote on any matter acted upon
by the voting common stock. Class A is held predominantly by non-Johnson family
member employees of FMR Corp. and its affiliates and is entitled to 51% of the
vote on any such matter. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under which all
Class B shares will be voted in accordance with the majority vote of Class B
shares. Under the 1940 Act, control of a company is presumed where one
individual or group of individuals owns more than 25% of the voting stock of
that company. Therefore, through their ownership of voting common stock and the
execution of the shareholders' voting agreement, members of the Johnson family
may be deemed, under the 1940 Act, to form a controlling group with respect to
FMR Corp.
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
Advisers Act 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
wholly-owned subsidiary of Fidelity International Limited ("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
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world. More than 25% of the voting stock of FIL is owned by trusts and
partnerships for the benefit of Johnson family members.
Sub-Adviser. Fidelity Investments Japan Limited ("FIJ"), the Fund's
Sub-Adviser, upon delegation by the Investment Adviser, provides advisory
services concerning the Fund's assets invested in Korean, Japanese and other
securities and is primarily responsible for the day-to-day management of the
Fund's portfolio. The Sub-Adviser is an affiliate of the Investment Manager and
is registered as an investment adviser under the Advisers Act. 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. The Sub-Adviser is a wholly-owned subsidiary of FIL.
COMPENSATION AND EXPENSES
As compensation for its services, the Investment Manager receives from the
Fund a monthly fee at an annual rate of 1.00% of the Fund's average daily net
assets. The Investment Adviser receives from the Investment Manager 60% of the
fees paid by the Fund to the Investment Manager. The Sub-Adviser receives 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. For the period
from October 31, 1994 to September 30, 1995 and for the fiscal year ended
September 30, 1996, the Investment Manager received aggregate compensation of
$487,825 and $536,280, respectively, of which the Investment Manager paid the
Investment Adviser aggregate compensation of $292,695 and $321,768,
respectively, and of which the Investment Adviser paid the Sub-Adviser aggregate
compensation of $146,348 and $160,884, respectively.
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 pays or causes 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
Commission; 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 Dealer Manager for certain of its expenses up to
$100,000. See "Distribution Arrangements."
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, 1997, 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
37
<PAGE> 40
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).
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., serves as the
Fund's administrator pursuant to an agreement with the Fund (the "Administration
Agreement"). As compensation for its services, Service receives 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. For the period
from October 31, 1994 to September 30, 1995 and for the fiscal year ended
September 30, 1996, Service received from the Fund aggregate compensation of
$113,855 and $107,388, respectively.
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.
THE REPUBLIC 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. 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. The statistical
information presented herein has been extracted from the various sources
described above without independent verification by the Fund, its Board of
Directors, the Investment Manager, the Investment Adviser or the Sub-Adviser.
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.
By 1995, the population of Korea had risen to approximately 45 million from
25 million in 1960. The proportion of the population engaged in agriculture and
forestry decreased over the same period, dropping to approximately 12% of the
economically active population in 1995. Correspondingly, the population segment
engaged in manufacturing was increasing, reaching approximately 23% of the
economically active population in 1995. 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-
38
<PAGE> 41
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 demonstrations 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. In August 1996, former Presidents Chun
and Roh were convicted on charges of treason and mutiny for their roles in the
military coup of 1980 and for accepting bribes during their tenure. Mr. Chun was
sentenced to death and Mr. Roh was sentenced to 22 and one half years in prison.
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 MOFE is primarily responsible for formulating economic policies,
including the Five Year Economic and Social Development Plans which have guided
economic policy since 1962. The MOFE exercises overall direction of the economy
by means of economic policies in cooperation with the various ministries. The
MOFE also implements fiscal, financial and monetary policies. To encourage
particular industries, the Government has used 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 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 has been promoting not only
fiscal, financial and administrative reforms and changes in prevailing patterns
of economic behavior, but also stable growth, globalization of the Korean
economy and improvement of the quality of life in Korea.
39
<PAGE> 42
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 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.
In 1990 and 1991, GNP rebounded and grew at a rate of 9.6% and 9.1%,
respectively. In 1992 and 1993, GNP grew at a lower growth rate of 5.0% and
5.8%, respectively. In 1994, GNP grew at a rate of 8.4% and in 1995, the GNP
grew at a rate of 8.7% based on preliminary figures published by the Bank of
Korea.
From 1989 through 1995, real GNP increased at an average annual rate of
7.8%. This high rate of growth was due to rapid growth in the export of goods
and services and in domestic fixed capital formation.
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 annual rate during such period 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 been 6.2% in 1992, 4.8% in 1993, 6.2% in
1994 and 4.5% in 1995.
The rate of increase in Korea's 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 18.8% in 1990, 17.5% in 1991,
15.2% in 1992, 12.2% in 1993, 12.7% in 1994 and 11.2% in 1995. These wage
increases put increased inflationary pressure on the economy, resulting in an
increase in consumer prices as described above.
In the period from 1989 to 1995, the economically active population of
Korea increased by 15.4% to 20.8 million, while the number of employees
increased 16.0% to 20.4 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 8.8% in 1990, 9.6% in 1991, 5.8% in
1992, 4.4% in 1993, 11.1% in 1994 and 11.9% in 1995. 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."
40
<PAGE> 43
ENERGY
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." The following table shows Korea's dependence on imports
for energy consumption for the years 1989 to 1995:
DEPENDENCE ON IMPORTS FOR ENERGY CONSUMPTION
<TABLE>
<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 93.6%
1993................................................... 126.9 120.2 94.8%
1994................................................... 137.2 132.2 96.4%
1995................................................... 150.4 145.6 96.8%
</TABLE>
- ---------------
Source: Monthly Energy Statistics, October 1996, Korea Energy Economics
Institute; Major Statistics of the Korean Economy, 1996, National
Statistical Office.
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 generally are 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.
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.
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 certain investment
and finance companies and joint-venture merchant banks. The financial sector
also includes a number of domestic and foreign insurance companies and mutual
savings companies.
In November 1991, the Korean government adopted a four-stage interest rate
deregulation plan. Pursuant to such plan, the Korean government has deregulated
interest rates on financial products on a gradual basis. The Korean government
set 1997 as the year for full deregulation of interest rates.
41
<PAGE> 44
MONEY SUPPLY
The following table shows the volume of the money supply for the period
1990 to 1995:
MONEY SUPPLY
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995
--------- --------- --------- ---------- ---------- ----------
(IN BILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Money Supply (M1)....... W15,805.3 W21,752.4 W24,586.3 W29,041.4 W32,510.6 W38,872.8
Quasi-Money(1).......... 52,802.2 61,883.5 71,672.3 83,177.8 100,668.1 115,072.6
--------- --------- --------- ---------- ---------- ----------
Money Supply (M2)....... W68,707.5 W83,745.9 W96,258.6 W112,219.2 W133,178.7 W153,845.4
--------- --------- --------- ---------- ---------- ----------
Percentage Increase over
Previous Year......... 17.2% 21.9% 14.8% 16.8% 18.7% 15.6%
</TABLE>
- ---------------
Source: Monthly Bulletin, January 1996, The Bank of Korea
(1) Comprising time and savings deposits and residents' foreign currency
deposits at monetary institutions.
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 1990
to 1995, export growth averaged 12.6%. In 1991, 1992, 1993, 1994 and 1995 export
growth was 10.5%, 6.6%, 7.3%, 16.8% and 30.3%, respectively. The increase in
export growth in 1994 and 1995 primarily was due to improved international
business conditions, such as the strong Japanese yen, the economic recovery in
developed countries and high consumer demand from Southeast Asia and China.
In 1986, Korea recorded the first substantial trade surplus in the nation's
history at U.S.$4.2 billion. The trade surplus nearly doubled to U.S.$7.7
billion in 1987 and increased to U.S.$11.4 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 was 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
recession in countries constituting important markets for Korean exports,
principally the United States, and by increased competition for Korea's exports
in certain markets. In 1993, Korea recorded a trade surplus of U.S.$1.9 billion
due to slow growth in imports of 2.5% compared with 7.3% growth in exports. In
1994, Korea sustained a U.S.$3.1 billion trade deficit due to rapid growth in
imports of 22.3% compared with 15.7% growth in exports.
In 1995, Korea sustained a U.S.$4.7 billion trade deficit as exports grew
31.5% over the previous year's level to U.S.$123.2 billion. The strong Japanese
yen, which made major Korean export items more price-competitive than comparable
Japanese products, and the worldwide economic recovery helped boost export
figures. Imports, however, increased 32.2% to U.S.$128.0 billion due to rapid
infrastructure investment which required the importation of greater capital
goods.
Korea's largest trading partners are the United States and Japan. In 1994,
the United States accounted for approximately 21.4% of Korea's total exports and
approximately 21.1% of Korea's total imports while Japan accounted for
approximately 14.1% of Korea's total exports and approximately 24.8% of Korea's
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 with the
import liberalization policy imposed by the World Trade Organization.
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<PAGE> 45
BALANCE OF PAYMENTS
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 of U.S.$2.0 billion and U.S.$0.5 billion, respectively. Since
1990, the deficit on the current account of Korea's balance of payments
increased to U.S.$8.7 billion in 1991 before decreasing to U.S.$4.5 billion in
1992 and recording a U.S.$0.4 billion surplus in 1993. Subsequently, Korea
incurred a deficit on the current account of its balance of payments of U.S.$4.5
billion in 1994 and U.S.$8.8 billion in 1995, with deficits in the visible and
invisible trade balances of U.S.$4.7 billion and U.S.$5.6 billion, respectively.
EXCHANGE CONTROLS
Only authorized foreign exchange banks are permitted to effect foreign
exchange transactions. Approval by the MOFE 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 MOFE, 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.
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.
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. 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. This information
has been extracted from the various sources described above without independent
verification by the Fund, its Board of Directors, the Investment Manager, the
Investment Adviser or the Sub-Adviser.
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
43
<PAGE> 46
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.
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 MOFE. In 1981, the
MOFE 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.
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 described below. Also 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 5% and 20%, respectively.
The KSEC and the MOFE, however, may increase or decrease these percentages if it
is deemed necessary for the public interest, protection of investors or
industrial policy.
In calculating these percentage 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 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 5% 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 5% 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.
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.
44
<PAGE> 47
Under the SEA, certain companies designated by the MOFE 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 their respective 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 only allowed to acquire up to 3% of the outstanding shares
having voting rights 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 scheduled 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 (collectively, "Overseas
Securities") if the sum of (i) the shares to be issued to foreign investors as a
result of the proposed issuance of Overseas Securities, (ii) shares to be
acquired by foreigners as a result of exercising the conversion rights, warrants
or withdrawal rights for underlying shares under any previously issued Overseas
Securities, (iii) the shares to be acquired by foreign investors as a result of
exercising applicable conversion rights attached to certain eligible domestic
convertible bonds issued by listed small or medium-sized companies, (iv) the
shares held by foreign investors in excess of the applicable ceiling on
aggregate foreign holding (subtracting therefrom shares held by foreign
investors under the Foreign Capital Inducement Act in excess of such applicable
ceiling) and (v) the shares acquired by exercise of conversion rights, warrants
or withdrawal rights under Overseas Securities which have not been included in
the calculation of the aggregate foreign ownership limit by reason of
application by the relevant company not to include such shares in the
determination of such ceiling and the report to the KSEC thereon exceeds or
would exceed 15% of the issued capital of the issuer at the date of execution of
the agreements for the issue of the relevant Overseas Securities plus the shares
referred to in (i) and (ii) above. 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 exercise of warrants, conversion rights
or withdrawal rights under Overseas Securities, (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
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.
In December 1995, the MOFE announced a plan to allow direct investment by
foreign investors in long-term non-guaranteed debt securities issued by small
and medium-sized companies commencing in 1997. The
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<PAGE> 48
plan also provides that during 1998 and 1999, the MOFE will increase foreign
investor's opportunities to invest in the Korean bond market, primarily in
long-term non-guaranteed debt securities.
Beginning May 1, 1996, foreign investors were permitted to invest in
warrants representing the right to subscribe for shares of a listed company,
subject to certain investment limitations.
On May 3, 1996, a stock index futures market was opened on the KSE. Foreign
investors have been allowed to invest in this market from its inception subject
to certain investment limitations.
A foreign investor who wishes to invest in shares or bonds or indexed
securities issued in Korea by Korean companies is required to register its
identity with the Securities Board prior to making any such investment,
provided, however, that such registration requirement does not apply to foreign
investors who acquire shares as a result of exercise of warrants, conversion
rights or withdrawal rights under Overseas Securities with the intention of
selling such shares within three months from the date of acquisition thereof.
Upon registration, the Securities Board will issue to the foreign investor an
Investment Registration Card which must be presented each time the foreign
investor opens a brokerage account with a securities company.
The MOFE 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 MOFE
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 MOFE 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 members (all Korean securities companies
and some Korean branches of foreign securities companies). 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 W134 trillion (approximately
U.S.$165 billion) at June 30, 1996.
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, 1991 and 1995, 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 W3.0 trillion to a high of approximately W95.5
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 W79.0
trillion at December 31, 1990 and decreased 7.5% to approximately W73.1 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 August 31, 1996 was W131 trillion.
Large groups of related companies referred to as "chaebols" are engaged in
a wide range of businesses and play a significant role in the Korean economy.
The Korean government has requested the chaebols to reduce their shareholdings
both within and outside of the chaebol groups. 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, generally increased from 1982
through 1994. However, in 1995, total trading volume was approximately W143
trillion, which represented a decrease of 37.8% from total trading volume of
W230 trillion in 1994. Trading activity in equity securities is concentrated in
relatively few securities. As of June 30,
46
<PAGE> 49
1996, the 30 most actively traded equity securities listed on the KSE accounted
for 50.5% of total trading volume.
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.
<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.................. 699 151,217 191,729 36,862 776,257 984,223
1995.................. 721 141,151 182,201 26,104 487,234 628,932
1996(2)............... 738 131,110 160,007 25,997 494,107 603,011
</TABLE>
- ---------------
(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 August 31, 1996 and during the period from January 1 to August 31,
1996, as the case may be.
Source: Stock, September 1996, Korea Stock Exchange.
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 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 1980's and has generally
fluctuated in the 1990's. The Index reached a low point of 459.07 on August 21,
1992 and reached its highest point of 1,138.75 on November 8, 1994. On December
31, 1995, the Index closed at 882.94, a 14% decrease from year end 1994. On
August 31, 1996, the Index was at 781.49.
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<PAGE> 50
The following table illustrates the market performance of the KSE as
measured by the Index from 1984 through June 30, 1996, 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)
<TABLE>
<CAPTION>
AVERAGE
---------------------------
PERIOD DIVIDEND PRICE/EARNINGS
YEAR HIGH LOW END YIELD(3) RATIO(4)
- ------------------------------------- ------- ------ ------- -------- --------------
<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................................. 1,138.75 855.37 1,027.37 1.4 18.0
1995................................. 1,016.77 847.09 882.94 1.4 17.9
1996(2).............................. 837.99 753.35 781.49 1.5 17.5
</TABLE>
- ---------------
(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) January through August 31, 1996.
(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 different
ratios.
(4) 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.
Source: Stock, September 1996, Korea Stock Exchange.
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.
TRADING, SETTLEMENT AND ENTRUSTMENT DEPOSIT PROCEDURES
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 "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 36 securities companies which act as brokers, but which may also buy and
sell as principals.
Currently, individual investors are required to make a 40% entrustment
guarantee deposit in cash or substitute securities with their Korean broker
prior to executing any trades. However, certain eligible institutional
investors, including the Fund, are exempted from such entrustment guarantee
deposit require-
48
<PAGE> 51
ments. To the extent the Fund was not exempted from such requirements, the Fund
would be exposed to the risk of the broker's insolvency prior to settlement.
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.
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.
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 1995, the total volume cleared was 4,334 million
shares, of which 4,252 million 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. 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 0.15%
of the value of shares sold on the KSE and 0.5% of the value of the shares sold
off the KSE (or, in the case of sales made through certain licensed broker
dealers in the over-the-counter market, 0.3%). 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."
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 MOFE 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 MOFE. The MOFE 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 Supervisory 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
49
<PAGE> 52
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.
DISTRIBUTION ARRANGEMENTS
PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York,
a broker-dealer and member of the National Association of Securities Dealers,
Inc., will act as the Dealer Manager for the Offer. Under the terms and subject
to the conditions contained in the Dealer Manager Agreement dated the date
hereof, the Dealer Manager will provide financial advisory and marketing
services in connection with the Offer and will solicit the exercise of Rights
and participation in the Over-Subscription Privilege by Record Date
Shareholders. The Offer is not contingent upon any number of Rights being
exercised. The Fund has agreed to pay the Dealer Manager a fee for financial
advisory and marketing services equal to 1.25% of the aggregate Subscription
Price for Shares issued pursuant to the exercise of the Rights and pursuant to
the Over-Subscription Privilege, and the Fund has also agreed to pay
broker-dealers, including the Dealer Manager, fees for their solicitation
efforts (the "Solicitation Fees") of 2.50% of the Subscription Price per Share
for each Share issued pursuant to the exercise of the Rights and pursuant to the
Over-Subscription Privilege as a result of their soliciting efforts.
Solicitation Fees will be paid to the broker-dealer designated on the applicable
portion of the Subscription Certificates or, in the absence of such designation,
to the Dealer Manager.
In addition, the Fund has agreed to reimburse the Dealer Manager up to an
aggregate of $100,000 for its reasonable expenses incurred in connection with
the Offer. The Fund and the Investment Manager have each agreed to indemnify the
Dealer Manager or contribute to losses arising out of certain liabilities
including liabilities under the Securities Act. The Dealer Manager Agreement
also provides that the Dealer Manager will not be subject to any liability to
the Fund in rendering the services contemplated by such Agreement except for any
act of bad faith, willful misconduct, or gross negligence of the Dealer Manager
or reckless disregard by the Dealer Manager of its obligations and duties under
such Agreement.
The Fund has agreed not to offer or sell, or enter into any agreement to
sell, any equity or equity related securities of the Fund or securities
convertible into such securities for a period of 180 days after the date of the
Dealer Manager Agreement, except for the Shares and Common Stock issued in
reinvestment of dividends or distributions or other limited circumstances.
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND
REINVESTMENT AND CASH PURCHASE PLAN
The Fund intends to distribute annually to shareholders substantially all
of its net investment income, if any, 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.
50
<PAGE> 53
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 NYSE trading day, then 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 a 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 NYSE or elsewhere, with the cash in respect of such dividend or
distribution, 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 in the Plan have the option of making additional payments to
the Plan Agent, annually, in any amount from $100 to $3,000, for investment in
the Fund's Common Stock. The Plan Agent will use all such funds received from
participants to purchase Fund shares in the open market on or about February 15
of each year. Any voluntary cash payments received more than 30 days prior to
such date will be returned by the Plan Agent, and interest will not be paid on
any invested cash payments. To avoid unnecessary cash accumulations, and also to
allow ample time for receipt and processing by the Plan Agent, it is suggested
that participants send in voluntary cash payments to be received by the Plan
Agent approximately ten days before an applicable purchase date as 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 in the account of
each Plan participant will be held by the Plan Agent in non-certificated form in
the name of the participant, and each shareholder's proxy will include those
shares purchased pursuant to the Plan. In the case of shareholders such as
banks, brokers or nominees, which hold shares for others who are the beneficial
owners, the Plan Agent will administer the Plan on the basis of the number of
shares certified from time to time by the shareholder as representing the total
amount registered in the shareholder's name and held for the account of
beneficial owners who are participating in the Plan.
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<PAGE> 54
There is no charge to participants for reinvesting dividends or capital
gains distributions. The Plan Agent's fees for the handling of the reinvestment
of dividends and 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's account will be charged
a pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
or 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 reinvestment of dividends and distributions will not relieve
participants of any income tax which may be payable on such dividends or
distributions. See "Taxation."
If shares are held in the shareholder's name and the shareholder wishes to
receive all dividends and capital gain distributions in cash rather than in
shares, such shareholder may withdraw from the Plan without penalty at any time
by contacting the Plan Agent. If shares are held in nominee name, the
shareholder should be able to withdraw from the Plan without penalty at any time
by sending written notice to its nominee. If a shareholder withdraws, such
shareholder will receive a share certificate for all full shares or, if
preferred, the Plan Agent will sell the shares and return the proceeds to the
shareholder, after the deduction of brokerage commissions. The Plan Agent will
convert any fractional shares to cash at the then-current market price and send
the shareholder a check for the proceeds. If a shareholder participates in the
Plan through a brokerage account, such shareholder may not be able to continue
as a participant if it transfers those shares to another broker. Shareholders
should contact their broker or nominee or the Plan Agent to determine the best
arrangement for their participation in the Plan.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to notice of the change 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 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 c/o the Plan Agent for
Fidelity Advisor Korea Fund, Inc., Two Heritage Drive, Quincy, Massachusetts
02171.
TAXATION
U.S. FEDERAL INCOME TAXES
The Fund intends to continue to qualify, and elect to be treated, as a
regulated investment company for each taxable year under the Code. The Fund
intends to distribute substantially all its investment company taxable income
and net capital gains each year (thereby avoiding the imposition of Federal
income and excise taxes on such distributed income and gain in the Fund). Such
distributions will be taxable as ordinary income and long-term capital gains,
respectively, to shareholders of the Fund who are subject to tax whether
received in shares or in cash. Distributions in excess of the Fund's earnings
and profits will first reduce the adjusted tax basis of a holder's shares and,
after such adjusted tax basis is reduced to zero, will constitute capital gains
to such holder (assuming such shares are held as a capital asset).
Notwithstanding the above, the Fund may decide to retain all or part of any net
capital gains for reinvestment. 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 35% of the amount retained. The Board of Directors of the Fund will
determine at least once a year whether to distribute any net capital gains
(which is 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
52
<PAGE> 55
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.
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 and (ii) the portion of the Fund's dividends and distributions
that represents income derived from foreign sources.
After the end of each taxable year, the Fund will notify shareholders of
the Federal income tax status of any distributions, or deemed distributions,
made by the Fund during such year. 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 treated as a return to capital.
For a further discussion of certain income tax consequences to the Fund and to
shareholders of the Fund, see "Taxation -- U.S. Federal Income Taxes" in the
SAI.
KOREAN TAXES
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 27.5% until December 31, 1998 and 26.875% thereafter and capital gains
(without deduction for capital losses) will be subject to withholding tax equal
to the lower of (i) 10% until December 31, 1998 and 10.75% thereafter of the
gross sales proceeds, or (ii) if satisfactory evidence of acquisition cost is
produced, 27.5% until December 31, 1998 and 26.875% thereafter of the
53
<PAGE> 56
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 10%
until December 31, 1998 and 7.5% thereafter of such amount, or a total of 16.5%
until December 31, 1998 and 16.125% thereafter) on dividends paid to the Fund by
Korean corporations, and generally 12% (plus a resident tax of 10% until
December 31, 1998 and 7.5% thereafter of such amount, or a total of 13.2% until
December 31, 1998 and 12.9% thereafter) 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, Korean counsel to the Fund, 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 MOFE 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 is listed on the NYSE and the Shares have been approved for
listing on the NYSE 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 will 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 0.15% 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 or where the shares are traded through
licensed broker-dealers on the over-the-counter market, in which case the tax is
payable at the rate of 0.3% 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,
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<PAGE> 57
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.
This tax treatment could change in the event of changes in Korean or U.S.
tax laws, changes in the terms of, or the MOFE's interpretation of, the Treaty,
or changes in relevant facts.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The authorized capital stock of the Fund is 100,000,000 shares of Common
Stock ($.001 par value). 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.
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 the
Offer, any future rights offering and the Plan. See "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 the 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 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.
The Board of Directors is 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
shareholders 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.
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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 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
shareholder 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 shareholder 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 shareholder 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 Common Stock 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 Fund's Common Stock 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 the Fund's Common Stock
will be conducted during such first calendar quarter, subject to certain
conditions described below. In addition, the Board of Directors may consider
from
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<PAGE> 59
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" in the SAI. 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 its 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 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.
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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, as amended 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 or
her 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.
A shareholder who sells all of his or her shares of Common Stock (including
shares attributed to him or her 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 or her 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
or her 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 that 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
58
<PAGE> 61
wish to sell in the ordinary course of its portfolio management, which may
adversely affect the Fund's return. 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, 270 Park Avenue, New York, New York 10017-2070,
acts as custodian for the Fund's assets. The Hong Kong and Shanghai Banking
Corporation, Seoul Branch serves as the Fund's sub-custodian for its assets held
in Korea. The Bank of New York and The Chase Manhattan Bank, each headquartered
in New York, New York, also may serve as a special purpose custodian of certain
assets in connection with the Fund's repurchase agreement transactions. State
Street Bank and Trust Company acts as the transfer agent, dividend paying agent
and registrar for the Fund's Common Stock.
EXPERTS
The financial statements of the Fund incorporated by reference in the SAI
have been so incorporated 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 Dealer Manager by Skadden, Arps, Slate, Meagher & Flom (Illinois),
Chicago, Illinois. Counsel for the Fund and the Dealer Manager will rely, as to
matters of Maryland law, on Piper & Marbury L.L.P., Baltimore, Maryland. With
respect to all matters of Korean law, counsel for the Fund and counsel for the
Dealer Manager will rely on Shin & Kim, Seoul, Korea.
FURTHER INFORMATION
The Fund has filed with the U.S. Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement under the U.S. Securities Act
of 1933, as amended, with respect to the Common Stock offered hereby. Further
information concerning the Shares and the Fund may be found in the Registration
Statement, of which this Prospectus constitutes a part. The Registration
Statement may be inspected without charge at the Commission's office in
Washington, D.C., and copies of all or any part thereof may be obtained from
such office after payment of the fees prescribed by the Commission. The
Commission maintains a Web site at http://www.sec.gov containing reports, proxy
and information statements and other information regarding registrants,
including the Fund, that file electronically with the Commission.
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TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
Investment Objective and Policies................................................... 2
Investment Restrictions............................................................. 2
Management of the Fund.............................................................. 4
Estimated Expenses.................................................................. 7
Portfolio Transactions.............................................................. 8
Net Asset Value..................................................................... 10
Taxation............................................................................ 11
Incorporation of Financial Statements by Reference.................................. 18
Appendix A--General Characteristics and Risks of Derivatives........................ A-1
Appendix B--Debt Ratings............................................................ B-1
</TABLE>
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- ---------------------------------------------------------
- ---------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, THE FUND'S
INVESTMENT MANAGER, INVESTMENT ADVISER OR SUB-ADVISER OR THE DEALER MANAGER.
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. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Fee Table................................ 3
Financial Highlights..................... 4
Market and Net Asset Value Information... 5
The Offer................................ 6
The Fund................................. 15
Use of Proceeds.......................... 15
Investment Objective and Policies........ 15
Additional Investment Practices.......... 20
Risk Factors and Special
Considerations......................... 22
Management of the Fund................... 35
The Republic of Korea.................... 38
The Securities Markets of Korea.......... 43
Distribution Arrangements................ 50
Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan.... 50
Taxation................................. 52
Description of Capital Stock............. 55
Annual Tender Offers and Share
Repurchases............................ 56
Custodian, Transfer Agent, Dividend
Paying Agent and Registrar............. 59
Experts.................................. 59
Legal Matters............................ 59
Further Information...................... 59
Table of Contents of Statement of
Additional Information................. 60
</TABLE>
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- ---------------------------------------------------------
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1,469,031 Shares of Common Stock
Issuable Upon Exercised
Rights to Subscribe for
Such Shares
LOGO
FIDELITY ADVISOR
KOREA FUND, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
PAINEWEBBER INCORPORATED
------------------------
NOVEMBER 13, 1996
---------------------------------------------------------
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<PAGE> 64
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT
CONSTITUTE A PROSPECTUS.
SUBJECT TO COMPLETION, DATED NOVEMBER 13, 1996
FIDELITY ADVISOR KOREA FUND, INC.
------------------------
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information ("SAI") is not a prospectus and
should be read in conjunction with the Prospectus, dated November 13, 1996 (the
"Prospectus"). This SAI does not include all information that a prospective
investor should consider before purchasing shares of Fidelity Advisor Korea
Fund, Inc. (the "Fund") and investors should obtain and read the Prospectus
prior to purchasing shares. A copy of the Prospectus may be obtained without
charge by calling the Fund's Information Agent, D. F. King & Co., Inc. at (800)
290-6430. This SAI incorporates by reference the entire Prospectus. Defined
terms used herein shall have the same meaning as provided in the Prospectus. The
date of this SAI is November 13, 1996.
------------------------
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
Investment Objective and Policies................................................... 2
Investment Restrictions............................................................. 2
Management of the Fund.............................................................. 4
Estimated Expenses.................................................................. 7
Portfolio Transactions.............................................................. 8
Net Asset Value..................................................................... 10
Taxation............................................................................ 11
Incorporation of Financial Statements by Reference.................................. 18
Appendix A--General Characteristics and Risks of Derivatives........................ A-1
Appendix B--Debt Ratings............................................................ B-1
</TABLE>
<PAGE> 65
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term capital appreciation. The
Fund seeks to achieve its objective through investment primarily in equity and
debt securities of Korean Issuers. There can be no assurance that the Fund's
investment objective will be achieved. See "Investment Objective and Policies"
in the Prospectus.
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.
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
2
<PAGE> 66
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
Commission, 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 or
the Investment 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
or the Investment 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.
3
<PAGE> 67
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The names, business addresses and ages 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 AND OTHER
NAME, ADDRESS AND AGE POSITION WITH FUND AFFILIATIONS
- --------------------------------- ------------------ ---------------------------------------
<S> <C> <C>
Edward C. Johnson 3d (66)*....... Director and Chief Executive Officer, Chairman and a
Fidelity Investments President Director of FMR Corp.; Chairman of
82 Devonshire Street Fidelity Investments Limited; Chairman
Boston, MA 02109 of Fidelity Investments Japan Limited;
Director and Chairman of the Board and
of the Executive Committee of FMR;
Chairman and a Director of FMR Texas
Inc., Fidelity Management & Research
(U.K.) Inc., and Fidelity Management &
Research (Far East) Inc.; Director or
Trustee and President of all Fidelity
U.S.-registered management investment
companies managed by FMR; Chairman of
each of the funds in the Fidelity Group
of International Funds and of Fidelity
Advisor World Funds.
J. Gary Burkhead (55)*........... Director and President of FMR; and President and a
Fidelity Investments Senior Vice Director of FMR Texas Inc., Fidelity
82 Devonshire Street President Management & Research (U.K.) Inc. and
Boston, MA 02109 Fidelity Management & Research (Far
East) Inc.; Director or Trustee and
Senior Vice President of all
U.S.-registered management investment
companies managed by FMR and of
Fidelity Advisor World Funds.
Helmert Frans van den Hoven Director Former Member, Supervisory Board, Royal
(73)............................. Dutch Petroleum Company; former
82 Devonshire Street Chairman, Supervisory Board ABN/Amro
Boston, MA 02109 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, Fidelity Advisor
Emerging Asia Fund, Inc. and of
Fidelity Advisor World Funds.
Bertram High Witham, Jr. (77).... Director Chairman and Director, Preferred
82 Devonshire Street Lodging System; Director, Bill Glass
Boston, MA 02109 Ministries; Trustee, Fidelity North
Carolina Capital Management Fund;
former Treasurer, IBM Co. (1973-1978);
Director of Fidelity Advisor Emerging
Asia Fund, Inc. and of Fidelity Advisor
World Funds.
</TABLE>
4
<PAGE> 68
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND OTHER
NAME, ADDRESS AND AGE POSITION WITH FUND AFFILIATIONS
- --------------------------------- ------------------ ---------------------------------------
<S> <C> <C>
David L. Yunich (79)............. Director Former Consultant, W.R. Grace & Company
82 Devonshire Street (1977-1995); former Director W.R. Grace
Boston, MA 02109 & Company (1977-1995); former Director,
New York Racing Association
(1977-1995); 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);
Trustee, Fidelity Investments
Charitable Gift Fund (1992); Director,
Fidelity Investments Charitable Gift
Fund Inc. (1994); Director, Fidelity
Advisor Emerging Asia Fund, Inc.;
Director, Fidelity Advisor World Funds.
William R. Ebsworth (38)......... Vice President Chief Investment Officer, Fidelity
Fidelity Investments Management Investments (Hong Kong); Director,
(H.K.) Ltd. Fidelity Investments Management (Hong
16th Floor Kong) Ltd.; Research Director, Fidelity
Citibank Tower Investments (Tokyo and Hong Kong)
3 Garden Road (1990-1991); Fund Manager and Analyst,
Central, Hong Kong Fidelity Investments (Boston and Tokyo)
(1986-1990); Vice President of Fidelity
Advisor Emerging Asia Fund, Inc.
Billy W. Wilder (46)............. Vice President President, Fidelity Investments Japan
Fidelity Investments Japan Limited (1995); Director of Research,
Limited Fidelity Management & Research (Far
Shiroyama JT Mori Building East) Inc. (1992); Director of Research
19th Floor and General Manager, Schroder
4-3-1 Toranomon, Minato-ku Securities (Japan), Ltd. (1988-1992);
Tokyo 105 Japan Senior Analyst, Schroder Securities
(Japan), Ltd. (1986-1988); Manager,
Impedance Analysis Equipment Marketing,
Yokogawa-Hewlett-Packard, Ltd.
(1979-1986).
Arthur S. Loring (49)............ Secretary Senior Vice President and General
Fidelity Investments Counsel of FMR; Vice President--Legal
82 Devonshire Street of FMR Corp.; Vice President and Clerk
Boston, MA 02109 of Fidelity Distributors Corporation;
Secretary of all other registered
management investment companies managed
by FMR.
Kenneth A. Rathgeber (49)........ Treasurer Treasurer of all other registered
Fidelity Investments management investment companies managed
82 Devonshire Street by FMR and an employee of FMR; Vice
Boston, MA 02109 President, Goldman Sachs & Co. (1978-
1995), including Vice President of
Proprietary Accounting (1988-1992),
Global Co-Controller (1992-1994) and
Chief Operations Officer of Goldman
Sachs (Asia) LLC (1994-1995).
Stuart E. Fross (37)............. Assistant An employee of FMR Corp.
Fidelity Investments Secretary (1990-present); Assistant Secretary of
82 Devonshire Street Fidelity Advisor Emerging Asia Fund,
Boston, MA 02109 Inc.
</TABLE>
5
<PAGE> 69
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND OTHER
NAME, ADDRESS AND AGE POSITION WITH FUND AFFILIATIONS
- --------------------------------- ------------------ ---------------------------------------
<S> <C> <C>
John H. Costello (50)............ Assistant Assistant Treasurer of all other
Fidelity Investments Treasurer registered management investment
82 Devonshire Street companies managed by FMR and an
Boston, MA 02109 employee of FMR.
Pradip Darooka (40).............. Assistant Vice President of FMR (1996); Principal
Fidelity Investments Treasurer (1995-1996), Vice President
82 Devonshire Street (1993-1995), Morgan Stanley Group,
Boston, MA 02109 Inc.; Senior Manager (1990-1992), Price
Waterhouse LLP.
</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 or the Investment 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. For the fiscal year ended September 30, 1996, such fees and expenses
aggregated $39,135.
The following table sets forth the aggregate compensation paid by the Fund
to each director during the fiscal year ended September 30, 1996, as well as the
total compensation paid to each director by the Fund and other investment
companies advised by the Investment Manager or its affiliates (collectively, the
Fund Complex).
<TABLE>
<CAPTION>
ESTIMATED ANNUAL
AGGREGATE BENEFITS UPON TOTAL
COMPENSATION PENSION OR RETIREMENT RETIREMENT FROM COMPENSATION
FROM THE BENEFITS ACCRUED FROM THE FUND FROM THE
NAME OF DIRECTOR FUND* THE FUND COMPLEX** COMPLEX** FUND COMPLEX**
- ------------------------- ------------- ------------------------ ---------------- -----------------
<S> <C> <C> <C> <C>
Edward C. Johnson
3d***.................. $ 0 $0 $0 $ 0
J. Gary Burkhead***...... 0 0 0 0
H.F. Van den Hoven....... 12,000 0 0 24,000
Bertram H. Witham, Jr.... 12,000 0 0 55,350
David L. Yunich.......... 12,000 0 0 24,000
</TABLE>
- ---------------
* Includes compensation paid to Directors by the Fund. The Fund's Directors do
not receive any pension or retirement benefits from the Fund as compensation
for their services as Directors of the Fund.
** Including the Fund, as of September 30, 1996, there were 235 investment
companies in the Fund Complex. Messrs. Johnson and Burkhead are both
Directors or Trustees of 233 investment companies in the Fund Complex.
Messrs. van den Hoven and Yunich are Directors of two investment companies
in the Fund Complex, including the Fund. Mr. Witham is a Director or Trustee
of four investment companies in the Fund Complex, including the Fund. Under
a retirement program adopted in July 1988 by the open-end investment
companies in the Fund Complex (the "Open-End Funds"), Messrs. Witham and
Yunich, upon reaching age 72, became eligible to participate in a retirement
program under which they receive payments during their lifetime from a fund
based upon their basic trustees fees and length of service as trustee for
the Open-End Funds. During the year ended September 30, 1996, they each
received $50,000 in payments under that retirement program. The obligation
of the Open-End Funds to make such payments is not secured or funded.
*** Messrs. Johnson and Burkhead, who are "interested persons" of the Fund, do
not receive any compensation from the Fund or other investment companies in
the Fund Complex for their services as Directors or Trustees, and are
compensated by FMR.
The officers of the Fund conduct and supervise the daily business
operations of the Fund, while the directors 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.
The officers and Directors of the Fund, in the aggregate, own less than 1%
of the outstanding shares of Common Stock.
6
<PAGE> 70
To the knowledge of the Fund's management, based on a search of forms
required to be filed with the Fund and the Commission by holders of more than 5%
of the Fund's outstanding securities and other procedures, the following person
owned beneficially 5% or more of the Fund's outstanding shares at October 31,
1996:
<TABLE>
<CAPTION>
AMOUNT OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ----------------------------------------------------------------- -------------------- --------
<S> <C> <C>
Nippon Life Insurance Company.................................... 439,900 shares 9.98%
2-4-1, Tomioka, Urayasu
Chiba 279
Japan
</TABLE>
In addition, at the Fund's first annual stockholders meeting, the Board of
Directors were 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 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.
ESTIMATED EXPENSES
On the basis of the anticipated size of the Fund immediately following the
Offer and the actual expenses of the Fund since the commencement of operations
in October 1994, the Investment Manager estimates that the Fund's normal
operating expenses (exclusive of expenses related to the Offer and not including
the 25% over-allotment) for its fiscal year ending September 30, 1997 will be
approximately $990,035. While the foregoing estimate has been made in good faith
on the basis of information as to current prices available to the Investment
Manager, including estimates furnished by the Fund's agents, there can be no
assurance, given the nature of the Fund, that actual operating expenses for
fiscal 1997 will not be substantially more or less than such estimate. For the
period from October 31, 1994 to September 30, 1995 and for the fiscal year ended
7
<PAGE> 71
September 30, 1996 the operating expenses of the Fund, exclusive of amortization
of organizational expenses, amounted to $889,248 and $929,567, respectively.
The Fund's estimated annual operating expenses are higher than the annual
normal operating expenses of most other U.S. investment companies of comparable
size investing in the securities of U.S. issuers. This results from the fact
that (i) the advisory fees (reflecting the specialized nature of the Fund, the
nature of the advisory effort involved and the need for outside research
services) are higher than advisory fees paid by a number of other investment
companies, (ii) many other registered U.S. investment companies do not pay fees
to administrators in addition to fees paid to investment advisers, and (iii) the
fees charged by certain of the Fund's agents are higher (reflecting
communications and other costs associated with an investment company investing
in Korea, rather than in the United States) than fees charged by such agents for
services to a more typical investment company investing in the United States.
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.
In accordance with the policies described below, 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 the 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 securities traded on
the KSE will generally be higher than for U.S. securities 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; and the
availability of securities or the purchasers or sellers of securities. In
addition, such broker-dealers may furnish 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
the 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 the Sub-Adviser's investment staff
(for equity funds) 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 the Sub-Adviser in carrying out their
obligations to the Fund. The receipt of such research has not reduced the
Investment Adviser's or the Sub-Adviser's normal independent research
activities; however, it enables the Investment Adviser and the Sub-Adviser to
avoid the additional expenses
8
<PAGE> 72
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 its
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.
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 ("FBS"), subsidiaries of FMR Corp., if the commissions are
fair, reasonable, and comparable to commissions charged by non-affiliated,
qualified brokerage firms for similar services. From September 1992 through
December 1994, FBS operated under the name Fidelity Brokerage Services, Limited
("FBSL"). As of January 1995, FBSL was converted to an unlimited liability
company and assumed the name FBS.
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.
Section 11(a) of the Securities Exchange Act of 1934, as amended, prohibits
members of national securities exchanges from executing exchange transactions
for accounts which they or their affiliates manage, unless 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 Commission
rules.
The Board of Directors periodically reviews 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 reviews 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 Fund's portfolio turnover rates during the period from October 31, 1994
to September 30, 1995 and for the fiscal year ended September 30, 1996, were 25%
(annualized) and 28%, respectively. Because a high turnover rate increases
transaction costs and may increase taxable gains, the Investment Adviser and the
Sub-Adviser each carefully weighs the anticipated benefits of short-term
investing against these consequences. An increased turnover rate may be due to
short-term interest rate volatility or other special market conditions.
Brokerage commissions paid by the Fund during the period from October 31,
1994 to September 30, 1995 and for the fiscal year ended September 30, 1996,
were $376,929 and $142,449, respectively. No brokerage commissions were paid to
FBSI or FBS (formerly FBSL). For the fiscal year ended September 30, 1996, the
Fund paid $142,449 in brokerage commissions to firms providing research. The
approximate dollar amount of transactions on which brokerage commissions were
paid for the fiscal year ended September 30, 1996 was $29,083,249. The Fund pays
both commissions and spreads in connection with the placement of portfolio
transactions.
9
<PAGE> 73
From time to time the Board of Directors reviews 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 Fidelity. A particular security
may be held by one or more funds or accounts. Simultaneous transactions are
inevitable when several funds and accounts are managed by the same investment
adviser, particularly when the same security is suitable for the investment
objective of more than one fund or account.
When two or more funds or accounts managed by Fidelity 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 Fidelity to be equitable
for each fund. In some cases this system 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. It is the current opinion of
the Board of Directors that the desirability of retaining the Investment Adviser
and the Sub-Adviser outweighs any disadvantages that may be said to exist from
exposure to simultaneous transactions.
NET ASSET VALUE
Net asset value is 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 generally are 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
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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 Co. 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.
TAXATION
U.S. FEDERAL INCOME TAXES
The Fund intends to continue to qualify, and elect to be treated, as a
regulated investment company for each taxable year under the Code. To so qualify
the Fund must, among other things: (a) derive at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock or securities and gains from the sale or
other disposition of foreign currencies, or other income (including gains from
options, futures contracts and forward contracts) derived with respect to the
Fund's business of investing in stocks, securities or currencies; (b) derive
less than 30% of its gross income from the sale or other disposition of the
following assets held for less than three months--(i) stock and securities, (ii)
options, futures and forward contracts (other than options, futures and forward
contracts on foreign currencies), and (iii) foreign currencies (and options,
futures and forward contracts on foreign currencies) which are not directly
related to the Fund's principal business of investing in stocks and securities
(or options and futures with respect to stock or securities); and (c) diversify
its holdings so that, at the end of each quarter, (i) at least 50% of the value
of the Fund's total assets is represented by cash and cash items, U.S.
Government securities, securities of other regulated investment companies, and
other securities, with such other securities limited in respect of any one
issuer to an amount not greater in value than 5% of the Fund's total assets and
to not more than 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of the Fund's total assets is invested in
the securities (other than U.S. Government securities or securities of other
regulated investment companies) of any one issuer or of any two or more issuers
that the Fund controls and that are determined to be engaged in the same
business or similar or related businesses.
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 also "Passive Foreign Investment Companies" below. Investment company
taxable income includes dividends, interest and net short-term capital gains in
excess of net long-term capital losses, but does not include net capital gains
(which is 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
shareholders 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 capital gains, if any, that it distributes to
its shareholders. If the Fund retains for reinvestment or otherwise
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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 capital gains. 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 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 capital gains are not eligible for the
dividends received deduction. Under the Code, net 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 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
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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 sold and repurchased for fair
market value at the close of the taxable year) which may cause the Fund to
recognize income without receiving cash with which to make distributions in
amounts necessary to satisfy the 90% and 98% distribution requirements for
avoiding income and excise taxes.
The Fund 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.
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
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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 ("PFICs"), 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.
Legislation has been proposed in the U.S. Congress which would, in the case
of a PFIC having "marketable stock," permit U.S. stockholders, such as the Fund,
to elect to mark-to-market the PFIC stock annually. Otherwise, U.S. stockholders
would be treated substantially the same as under current law. Special rules
applicable to mutual funds would classify as "marketable stock" all stock in
PFICs held by the Fund. It is unclear if or when the proposed legislation will
become law and if it is enacted the form it will take. On March 31, 1992, the
U.S. Internal Revenue Service released proposed regulations providing a
mark-to-market election for regulated investment companies that would have
effects similar to the proposed legislation. These regulations would be
effective for taxable years ending after promulgation of the regulations as
final regulations. Whether, and to what extent, final regulations may be applied
retroactively by 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.
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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
and (ii) the portion of the Fund's dividends and distributions that represents
income derived from foreign sources.
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 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.
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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 27.5% until December 31, 1998 and 26.875% thereafter and capital gains
(without deduction for capital losses) will be subject to withholding tax equal
to the lower of (i) 10% until December 31, 1998 and 10.75% thereafter of the
gross sales proceeds, or (ii) if satisfactory evidence of acquisition cost is
produced, 27.5% until December 31, 1998 and 26.875% thereafter 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 10%
until December 31, 1998 and 7.5% thereafter of such amount, or a total of 16.5%
until December 31, 1998 and 16.125% thereafter) on dividends paid to the Fund by
Korean corporations, and generally 12% (plus a resident tax of 10% until
December 31, 1998 and 7.5% thereafter of such amount, or a total of 13.2% until
December 31, 1998 and 12.9% thereafter) 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 MOFE 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
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the benefits of the Treaty because Article 17(b) of the Treaty will not apply.
The Fund's Common Stock is listed on the NYSE, and the Shares have been approved
for listing on the NYSE 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 will 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 0.15% 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 or where the shares are traded through
licensed broker-dealers in the over-the-counter market, in which case the tax is
payable at the rate of 0.3% 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.
This tax treatment could change in the event of changes in Korean or U.S.
tax laws, changes in the terms of, or the MOFE'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.
17
<PAGE> 81
INCORPORATION OF FINANCIAL STATEMENTS BY REFERENCE
The Fund's Annual Report, which includes financial statements for the
fiscal year ended September 30, 1996, a copy of which either accompanies this
SAI or has previously been provided to the person to whom this SAI is being
sent, is incorporated by reference with respect to all information other than
the information set forth in the President's Message included therein. The Fund
will furnish, without charge, a copy of its Annual Report upon request to D.F.
King & Co., Inc., 77 Water Street, New York, New York 10005, toll free telephone
(800) 290-6430 or call collect (212) 269-5550.
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<PAGE> 82
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
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<PAGE> 83
segregated assets consisting of cash or liquid high grade debt securities having
a value not less than the exercise price.
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
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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
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 Investment Adviser and the Sub-Adviser
anticipate. 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,
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<PAGE> 85
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 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--Risks of
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<PAGE> 86
Investing in Korean and Other Asian Issuers--Thinly Traded Markets and Illiquid
Investments" and "Investment Objective and Policies--Other Investments" in the
Prospectus.
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
Commission, 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 liquid
assets 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" herein and in the Prospectus.
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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
midrange 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.
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<PAGE> 88
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.
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<PAGE> 89
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.
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PART C--OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
Portfolio of Investments at September 30, 1996.+
Statement of Assets and Liabilities at September 30, 1996.+
Statement of Operations for the year ended September 30, 1996.+
Statement of Changes in Net Assets for the year ended September 30,
1996 and for the period from October 31, 1994 (commencement of
operations) to September 30, 1995.+
Financial Highlights.+
Notes to Financial Statements.+
Report to Independent Accounts dated November 10, 1996.+
- ---------------
+ Incorporated by reference to the Fund's Annual Report for the year ended
September 30, 1996, filed on November 12, 1996.
(2) Exhibits
<TABLE>
<S> <C> <C> <C>
(a) -- Articles of Incorporation+
(b) -- By-Laws, as amended+
(c) -- Not applicable
(d) (1) -- Specimen certificate for Common Stock, par value $.001 per share+
(2) -- Form of Subscription Certificate**
(3) -- Form of Beneficial Owner Listing Certification**
(4) -- Form of Nominee Holder Over-Subscription Form/
Form of DTC Participant Over-Subscription Form**
(5) -- Form of Notice of Guaranteed Delivery**
(6) -- Form of Subscription Agent Agreement*
(7) -- Form of Information Agent Agreement*
(e) -- Dividend Reinvestment and Cash Purchase Plan+
(f) -- Not applicable
(g) (1) -- Investment Management Agreement dated October 25, 1994, between
Fidelity Advisor Korea Fund, Inc. and Fidelity Management & Research
Company+
(2) -- Investment Advisory Agreement dated October 25, 1994, among Fidelity
International Investment Advisors and Fidelity Management & Research
Company and Fidelity Advisory Korea Fund, Inc.+
(3) -- Sub-Investment Advisory Agreement among Fidelity International
Investment Advisors and Fidelity Investments Japan Limited and
Fidelity Advisor Korea Fund, Inc.+
(h) (1) -- Form of Dealer Manager Agreement*
(2) -- Form of Soliciting Dealer Agreement*
(i) -- Not applicable
</TABLE>
C-1
<PAGE> 91
<TABLE>
<S> <C> <C> <C>
(j) (1) -- Custodian Agreement, dated as of May 31, 1995, between Fidelity
Advisor Korea Fund, Inc. and The Chase Manhattan Bank+
(2) -- Fidelity Group Repo Custodian Agreement among The Bank of New York,
J.P. Morgan Securities, Inc., and the Fidelity Funds, as currently in
effect, was electronically filed and is incorporated herein by
reference to Exhibit 8(d) of Fidelity Institutional Cash Portfolios'
(File No. 2-74808) Post-Effective Amendment No. 31.
(3) -- Schedule 1 to the Fidelity Group Repo Custodian Agreement among The
Bank of New York, J.P. Morgan Securities, Inc., and the Fidelity
Funds, as currently in effect, was electronically filed and is
incorporated herein by reference to Exhibit 8(e) of Fidelity
Institutional Cash Portfolios' (File No. 2-74808) Post-Effective
Amendment No. 31.
(4) -- Fidelity Group Repo Custodian Agreement among The Chase Manhattan
Bank (formerly Chemical Bank), Greenwich Capital Markets, Inc., and
the Fidelity Funds, as currently in effect, was electronically filed
and is incorporated herein by reference to Exhibit 8(f) of Fidelity
Institutional Cash Portfolios' (File No. 2-74808) Post-Effective
Amendment No. 31.
(5) -- Schedule 1 to the Fidelity Group Repo Custodian Agreement among The
Chase Manhattan Bank (formerly Chemical Bank), Greenwich Capital
Markets, Inc., and the Fidelity Funds, as currently in effect, was
electronically filed and is incorporated herein by reference to
Exhibit 8(g) of Fidelity Institutional Cash Portfolios' (File No.
2-74808) Post-Effective Amendment No. 31.
(6) -- Joint Trading Account Custody Agreement between The Bank of New York
and the Fidelity Funds, as currently in effect, was electronically
filed and is incorporated herein by reference to Exhibit 8(h) of
Fidelity Institutional Cash Portfolios' (File No. 2-74808)
Post-Effective Amendment No. 31.
(7) -- First Amendment to Joint Trading Account Custody Agreement between
The Bank of New York and the Fidelity Funds, as currently in effect,
was electronically filed and is incorporated herein by reference to
Exhibit 8(i) of Fidelity Institutional Cash Portfolios' (File No.
2-74808) Post-Effective Amendment No. 31.
(k) (1) -- Transfer Agency and Service Agreement, dated as of October 25, 1994,
between Fidelity Advisor Korea Fund, Inc. and State Street Bank and
Trust Company+
(2) -- Administration Agreement, dated as of October 25, 1994, between
Fidelity Advisor Korea Fund, Inc. and Fidelity Service Co.+
(l) (1) -- Opinion and Consent of Rogers & Wells*
(2) -- Opinion and Consent of Piper & Marbury L.L.P.*
(3) -- Opinion and Consent of Shin & Kim*
(m) -- Not applicable
(n) -- Consent of Independent Accountants*
(o) -- Not applicable
(p) -- Not applicable
(q) -- Not applicable
(r) -- Financial Data Schedule*
</TABLE>
- ---------------
* Filed herewith.
**Previously filed.
+ Filed on October 11, 1996 pursuant to the EDGAR (Electronic Data Gathering,
Analysis and Retrieval) phase-in requirements.
ITEM 25. MARKETING ARRANGEMENTS
See Exhibit 2(h) to this Registration Statement.
C-2
<PAGE> 92
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement.
<TABLE>
<S> <C>
U.S. Securities and Exchange Commission registration fees............... $ 5,815
New York Stock Exchange listing fee..................................... 6,650
Printing................................................................ 102,000
Auditing and accounting fees............................................ 25,000
Dealer Manager's expenses allowance..................................... 100,000
Subscription Agent fee and expenses..................................... 28,000
Information Agent fee and expenses...................................... 10,000
Legal fees and expenses................................................. 200,000
NASD fee................................................................ 3,000
Miscellaneous........................................................... 19,535
--------
Total.............................................................. $500,000
========
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
As of the effective date of the Registration Statement:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
--------------------------------------------------------------------- --------------
<S> <C>
Common Stock, $.001 par value........................................ 3,207
</TABLE>
ITEM 29. INDEMNIFICATION
Section 2-418 of the General Corporation Law of the State of Maryland,
Article SEVENTH of the Fund's Articles of Incorporation, Article VII of the
Fund's By-Laws, the Dealer Manager Agreement and the Administration Agreement
provide for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Fund, pursuant to the foregoing provisions or
otherwise, the Fund has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Fund of
expenses incurred or paid by a director, officer or controlling person of the
Fund in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Fund will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT MANAGER AND INVESTMENT
ADVISER
The description of the business of Fidelity Management & Research Company
("FMR") and Fidelity International Investment Advisors ("FIIA") is set forth
under the caption "Management of the Fund" in the Prospectus forming part of
this Registration Statement.
C-3
<PAGE> 93
The information as to the directors and officers of FMR and FIIA is set
forth in their respective Form ADVs filed with the Securities and Exchange
Commission (File No. 801-7884) and (File No. 801-21347), each as amended as of
the date hereof is incorporated herein by reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
Fidelity Advisor Korea Fund, Inc.
82 Devonshire Street, Boston, Massachusetts 02109
(Fund's Articles of Incorporation and By-Laws)
Fidelity Management & Research Company
82 Devonshire Street, Boston, Massachusetts 02109
(with respect to its services as Investment Manager)
Fidelity International Investment Advisors
Pembroke Hall, 42 Crow Lane, Pembroke, Bermuda
(with respect to its service as Investment Adviser)
Fidelity Investments Japan Limited
19th Floor, Shiroyama JT Mori Building, 4-3-1 Toranamon,
Minato-ku, Tokyo 105, Japan
(with respect to its service as Sub-Adviser)
Fidelity Service Co.
82 Devonshire Street, Boston, Massachusetts 02109
(with respect to its services as Administrator)
The Chase Manhattan Bank
270 Park Avenue,
New York, New York 10017-2070
(with respect to its services as Custodian for the Fund's U.S. assets)
State Street Bank and Trust Company
Two Heritage Drive, Quincy, Massachusetts 02171
(with respect to its services as Transfer Agent)
ITEM 32. MANAGEMENT SERVICES
Not applicable
ITEM 33. UNDERTAKINGS
(a) The Fund undertakes to suspend offering its shares until it amends its
prospectus contained herein if (1) subsequent to the effective date of its
registration statement, the net asset value per share declines more than 10
percent from its net asset value per share as of the effective date of this
registration statement or (2) the net asset value increases to an amount greater
than its net proceeds as stated in the Prospectus.
(b) The Fund hereby undertakes:
(1) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of Prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by the Fund under Rule 497(h) under
the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective;
C-4
<PAGE> 94
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of Prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof; and
(3) To send by first class mail or other means designated to ensure
equally prompt delivery, within two business days of receipt of written
oral request, any Statement of Additional Information.
C-5
<PAGE> 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Boston, Massachusetts on the 12th day
of November, 1996.
FIDELITY ADVISOR KOREA FUND, INC.
/s/ EDWARD C. JOHNSON 3D
By:_________________________________
Edward C. Johnson 3d, President
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ---------------------------------- -------------------
<C> <S> <C>
/s/ EDWARD C. JOHNSON 3D Director and President November 12, 1996
- -------------------------------------
Edward C. Johnson 3d
/s/ J. GARY BURKHEAD Director and Senior Vice President November 12, 1996
- ------------------------------------- (Principal Executive Officer)
J. Gary Burkhead
* Treasurer (Principal Financial and November 12, 1996
- ------------------------------------- Accounting Officer)
Kenneth A. Rathgeber
* Director November 12, 1996
- -------------------------------------
H.F. Van den Hoven
* Director November 12, 1996
- -------------------------------------
Bertram H. Witham, Jr.
* Director November 12, 1996
- -------------------------------------
David L. Yunich
*BY: /s/ LAURENCE E. CRANCH
LAURENCE E. CRANCH
Attorney-in-Fact
</TABLE>
C-6
<PAGE> 1
Exhibit 2(d)6
STATE STREET BANK AND TRUST COMPANY
SUBSCRIPTION DISTRIBUTION AND ESCROW AGENCY AGREEMENT
This Subscription, Distribution and Escrow Agency Agreement (the
"Agreement") is made as of November , 1996 between Fidelity Advisor Korea
Fund, Inc. (the "Fund"), a Maryland corporation and State Street Bank and Trust
Company, a Massachusetts Trust Company, as subscription, distribution and escrow
agent (the "Agent").
WHEREAS, the Fund proposes to make a subscription offer by issuing
certificates or other evidence of subscription rights, in the form designated by
the Fund ("Subscription Certificates") to shareholders of record ("Record Date
Shareholders") of its Common Stock as of a record date specified by the Fund
(the "Record Date"), pursuant to which each Record Date Shareholder will have
certain non-transferable rights (the "Rights") to subscribe to shares of the
Fund's Common Stock, par value $.001 ("Common Stock"), as described in and upon
such terms as are set forth in the prospectus (the "Prospectus") included in the
Form N-2 Registration Statement filed by the Fund with the Securities and
Exchange Commission on November , as amended by any amendment filed with
respect thereto (the "Registration Statement");
WHEREAS, the Fund wishes the Agent to perform certain acts on behalf of
the Fund and the Agent is willing to so act, in connection with the distribution
of the Subscription Certificates and the issuance and exercise of the Rights to
subscribe therein set forth, all upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements set forth herein, the parties agree as follows:
1. Pursuant to the resolutions of its Board of Directors, the Fund hereby
appoints and authorizes the Agent to act on its behalf in accordance
with the provisions hereof, and the Agent hereby accepts such
appointment and agrees to so act.
2. (a) Each Subscription Certificate shall evidence the Rights of the
Record Date Shareholder therein named to purchase Common Stock
upon the terms and conditions therein and herein set forth.
(b) Upon the written advice of the Fund signed by its Senior Vice
President, Treasurer, Secretary or Assistant Secretary, as to
the Record Date, the Agent shall, from a list of the Fund's
Shareholders as of the Record Date, prepare and record
Subscription Certificates in the names of the Record Date
Shareholders, setting forth the number of Rights to subscribe
for shares of the Fund's Common Stock, par value $0.001 per
share, calculated on the basis of right(s) for each share
recorded on the Fund's books in the name of each such Record
Date Shareholder as of the Record Date. Each Subscription
Certificate shall be dated as of the Record Date and shall be
executed manually or by facsimile signature of a duly
authorized Officer of the Fund. Upon the written advice,
signed as aforesaid, as to the effective date of the
Registration Statement, the Agent shall as promptly as
practicable countersign and deliver the Subscription
Certificates, together with a copy of the Prospectus, to all
Record Date Shareholders. No Subscription Certificate shall be
valid for any purpose unless so executed. Should any Officer
whose signature has been placed upon any Subscription
Certificate cease to
<PAGE> 2
hold such office at any time thereafter, such event shall have
no effect on the validity of such Subscription Certificate.
3. (a) Each Subscription Certificate shall be irrevocable and
non-transferable. The Agent shall maintain a register of
Subscription Certificates and the holders of record thereof
(each of whom shall be deemed a "Record Date Shareholder"
hereunder for purposes of determining the rights of holders of
Subscription Certificates). Each Subscription Certificate
shall, subject to the provisions thereof, entitle the Record
Date Shareholder in whose name it is recorded to the
following:
(1) The right (the "Basic Subscription Right") to
purchase a number of shares of Common Stock equal to
____ share(s) of Common Stock for every ___
Subscription Rights; provided, however, that no
factional shares of Common Stock shall be issued; and
(2) The right (the "Oversubscription Right") to purchase
from the Fund additional shares of Common Stock,
subject to the availability of such shares and to
allotment of such shares as may be available among
Record Date Shareholders who exercise
Oversubscription Rights on the basis specified in the
Prospectus; provided, however, that a Record Date
Shareholder who has not exercised his Basic
Subscription Rights with respect to the full number
of shares that such Record Date Shareholder is
entitled to purchase by virtue of his Basic
Subscription Rights as of the Expiration Date, if
any, shall not be entitled to any Oversubscription
Rights.
(b) A Record Date Shareholder may exercise his Basic Subscription
Rights and Oversubscription Rights by delivery to the Agent at
its corporate office specified in the Prospectus of (i) the
Subscription Certificate with respect thereto, duly executed
by such Record Date Shareholder in accordance with and as
provided by the terms and conditions of the Subscription
Certificate, together with (ii) the purchase price of each
share of Common Stock subscribed for by exercise of such
Rights, in United States dollars in cash, by check, or bank
draft drawn on a bank in the continental United States or by
postal, telegraphic, or express money order, in each case
payable to the order of the Fund.
(c) Rights may be exercise at any time after the date of issuance
of the Subscription Certificates with respect thereto but no
later than 5:00 P.M. New York City Time on such date as the
Fund shall designate to the agent in writing (the "Expiration
Date"). For the purpose of determining the time of the
exercise of any Rights, delivery of any material to the Agent
shall be deemed to occur when such materials are received at
the corporate office of the Agent specified in the Prospectus.
(d) Notwithstanding the provisions of Section 3(b) and 3(c)
regarding delivery of any executed Subscription Certificate to
the Agent prior to 5:00 P.M. New York City Time on the
Expiration Date, if prior to such time the Agent receives
notice of guaranteed delivery by telegram or otherwise from a
bank, trust company or a New York Stock Exchange member
guaranteeing delivery of (i) full payment for shares purchased
and subscribed for by virtue of a Rights Holder's Rights, and
(ii) a properly completed and executed Subscription
Certificate, then such exercise of Basic Subscription Rights
and Oversubscription Rights shall be regarded as timely,
subject, however, to receipt of
2
<PAGE> 3
the duly executed Subscription Certificate and full payment
for the Common Stock by the Agent within three business days
after the Expiration Date (as defined in the Prospectus).
(e) Following the Expiration Date (the "Confirmation Date"), the
Agent shall send a confirmation to each Shareholder (or, if
shares of Common Stock on the Record Date are held by Cede &
Co. or any other depository or nominee, to Cede & Co. or such
other depository or nominee), showing (i) the number of shares
acquired pursuant to the Basic Subscription Rights, (ii) the
number of shares, if any, acquired pursuant to the
Oversubscription Rights, (iii) the per share and total
purchase price for the shares, (iv) any amount payable to the
Shareholder pursuant to Section 9, and (v) any excess to be
refunded by the Fund to such Shareholder, in each case based
on the Subscription Price. Any excess payment to be refunded
by the Fund to a Shareholder, shall be mailed by the Agent to
the Shareholder as promptly as possible after the Expiration
Date, as provided in Section 6 below.
4. If, after allocation of shares of Common Stock to persons exercising
Basic Subscription Rights, there remain unexercised Rights, then the
Agent shall allot the shares issuable upon exercise of such unexercised
Rights (the Remaining Shares") to person exercising Oversubscription
Rights, in the amounts of such oversubscription. If the number of
shares for which Oversubscription Rights have been exercised is greater
than the Remaining Shares, the Agent shall allot the Remaining Shares
to the persons exercising Oversubscription Rights pro rata based solely
on the number of Basic Subscription Rights exercised by each of them.
The Agent shall advise the Fund immediately upon the completion of the
allocation set forth above as to the total number of shares subscribed
and distributable.
5. (a) The Agent will deliver (i) certificates representing those
shares purchased pursuant to the exercise of Basic
Subscription Rights as soon as practicable after the
corresponding Rights have been validly exercised and full
payment for such shares has been received and cleared;
(ii) certificates representing those shares purchased pursuant
to the exercise of Oversubscription Rights as soon an
practicable after the Expiration Date and after all
allocations have been effected; (iii) in the case of each
Record Date Shareholder who subscribed, pursuant to the
exercise of Oversubscription Rights, for a greater number of
shares than was allotted to such Record Date Shareholder under
Section 4, as promptly as possible after the Expiration Date,
a refund (and interest on such) in the amount of the
difference between the purchase price delivered for the shares
subscribed for pursuant to the exercise of such
Oversubscription Rights and the purchase price of the shares
so allotted under Section 4 (an "Excess Payment"); (iv) in the
case of record shareholders who are participants in the
dividend reinvestment and cash purchase plan, within fifteen
business days after the expiration date, account statements
reflecting a credit of uncertified shares for their primary
and oversubscription shares unless such shareholders have
elected to receive certificates.
6. (a) All proceeds received by the Agent from Rights holders in
respect of the exercise of rights shall be held by the Agent,
on behalf of the Fund, in a segregated, interest-bearing
escrow account (the "Escrow Account") (the interest of which
shall be paid to the Fund) pending disbursement in the manner
described in Section 6(b) below.
(b) The Agent shall deliver all proceeds received in respect of
the exercise of the Rights (including interest earned thereon)
to the Fund as promptly as practicable, [but in no event later
than fifteen business days after the Confirmation Date.]
Proceeds held in
3
<PAGE> 4
respect of Excess Payments (including interest earned thereon)
shall be refunded to Record Date Shareholders entitled to such
a refund as promptly as possible after the Expiration Date.
7. The Agent shall promptly advise the Fund as to the date of delivery of
Common Stock hereunder and shall supply the Fund with a certified list
of Shareholders as of the Record Date.
8. The Agent shall account promptly to the Fund with respect to Rights
exercised and concurrently account for all monies received and returned
by the Agent with respect to the purchase of shares of Common Stock
upon the exercise of Rights.
9. In the event the Agent does not receive, within three business days
after the Expiration Date, any amount due from a Rights Holder as
specified in Section 3(e), then it shall take such action with respect
to such Rights Holder's Subscription Rights as may be instructed in
writing by the Fund, including without limitation (i) applying any
payment actually received by it toward the purchase of the greatest
whole number of shares of Stock which could be acquired with such
payment, and (ii) allocating the shares subject to such Subscription
Rights to one or more other Record Date Shareholders.
10. No Subscription Certificate shall entitle a Rights Holder to vote or
receive dividends or be deemed the holder of shares of Common Stock for
any purpose, nor shall anything contained in any Subscription
Certificate be construed to confer upon any Rights Holder any of the
rights of a shareholder of the Fund or any right to vote, give or
withhold consent to any action by the Fund (whether upon any
recapitalization, issue of stock, reclassification of stock,
consolidation, merger, conveyance or otherwise), receive notice of
meetings of other action affecting shareholders, or receive dividends
or otherwise, until the Rights evidenced thereby shall have been
exercised and the shares of Common Stock purchasable upon the exercise
thereof shall have become deliverable as provided in this Agreement and
in the Prospectus.
11. If any Subscription Certificate is lost, stolen, mutilated, or
destroyed, the Agent may, on such terms which will indemnify the Fund
as the Agent may in its discretion impose (which shall, in the case of
a Subscription Certificate include the surrender thereof), issue a new
Subscription Certificate of like denomination in substitution for the
Subscription Certificate so lost, stolen or mutilated or destroyed.
12. (a) The Fund covenants that all shares of Common Stock issued on
exercise of Rights set forth in the Subscription Certificates
will be validly issued, fully paid, nonassessable and free of
preemptive rights.
(b) The Fund shall furnish to the Agent written notice to the
effect that a registration statement under the Securities Act
of 1933, as amended (the "Act"), is then in effect with
respect to its shares of Common Stock issuable upon the
exercise of the Rights set forth in the Subscription
Certificates. Upon written advice to the Agent that the
Securities and Exchange Commission shall have issued or
threatened to have issued any order preventing or suspending
the use of the Prospectus, or if for any reason it shall be
necessary to amend or supplement the Prospectus in order to
comply with the Act, the Agent shall cease acting hereunder
until receipt of written instructions from the Fund and such
assurances as it may reasonably request that it may comply
with such instruction without violations of the Act.
4
<PAGE> 5
13. (a) Any corporation into which the Agent may be merged or
converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or
consolidation to which the Agent shall be a party, or any
corporation succeeding to the corporate trust business of the
Agent, shall be the successor to the Agent hereunder without
the execution or filing of any of the parties hereto, provided
that such corporation would be eligible for appointment as a
successor Agent. In case at the time such successor to the
Agent shall succeed to the agency created by this Agreement,
any of the Subscription Certificates shall have been
countersigned but not delivered, any such successor to the
Agent may adopt the countersignature of the original Agent and
deliver such Subscription Certificates so countersigned, and
in case at that time any of the Subscription Certificates
shall not have been countersigned, any successor to the Agent
may countersign such Subscription Certificates either in the
name of the predecessor Agent or in the name of the successor
Agent, and in all such cases such Subscription Certificates
shall have the full force provided in the Subscription
Certificates and in this Agreement.
(b) In case at any time the name of the Agent shall be changed and
at such time any of the Subscription Certificates shall have
been countersigned but not delivered, the Agent may adopt the
countersignature under its prior name and deliver Subscription
Certificates so countersignature under its prior name and
deliver Subscription Certificates so countersigned, and in
case at that time any of the Subscription Certificates shall
not have been countersigned, the Agent may countersign such
Subscription Certificates either in its prior name or in its
changed name, and in all such cases such Subscription
Certificates shall have the full force provided in the
Subscription Certificates and in this Agreement.
14. The Fund agrees to pay to the Agent such reasonable compensation for
all services rendered by it hereunder as set forth in Schedule A hereto
and in addition to its reasonable expenses and other disbursements
incurred in the exercise and performance of its duties hereunder.
15. The Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions:
(a) Whenever in the performance of its duties under this Agreement
the Agent shall deem it necessary or desirable that any fact
or matter be proved or established, prior to taking or
suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof is herein specifically
prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the Chairman of the
Board or President or a Vice President or the Secretary or
Assistant Secretary or the Treasurer of the Fund delivered to
the Agent, and such certificate shall be full authorization to
the Agent for any action taken or suffered in good faith by it
under the provisions of this Agreement in reliance upon such
certificate.
(b) The Agent agrees to indemnify and hold harmless the Fund from
any and all direct or indirect liabilities or losses resulting
from requests, directions, actions or inactions, of or by the
Agent or its officers, employees or agents regarding this
Agreement; provided, however, that such duty to indemnify and
hold harmless shall not apply to liabilities or losses
occasioned by or resulting from the gross negligence or
willful misconduct of the Fund or any of its employees or
agents. Such duty to indemnify and hold harmless shall survive
the termination of this Agreement.
5
<PAGE> 6
(c) The Fund agrees to indemnify and hold the Agent harmless from
any and all direct or indirect liabilities or losses arising
from any legal action caused by any untrue statement or
alleged untrue statement of a material fact contained in the
Fund's prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading; provided, however, that such duty to indemnify and
hold harmless shall not apply to liabilities or losses
occasioned by or resulting from the gross negligence or
willful misconduct of the Agent or any of its employees or
agents. Such duty to indemnify and hold harmless shall survive
the termination of this Agreement.
(d) The indemnifying party shall not be liable for indemnification
under this Section 15 unless the party seeking indemnification
shall have notified the indemnifying party in writing of the
commencement of any litigation or proceeding in respect of
which indemnity may be sought under this Section 15. With
respect to claims in such litigation or proceedings for which
indemnify may be sought, the indemnifying party shall be
entitled to participate in any such litigation or proceeding
and the indemnifying party shall be entitled to assume the
defense of such litigation or proceeding with counsel of their
choice at their own expense in respect of that portion of the
litigation for which the indemnifying party may be subject to
an indemnification obligation. If the indemnifying party is
not permitted to participate or control such litigation or
proceeding under applicable law or by a ruling of a court of
competent jurisdiction or otherwise, the party seeking
indemnification shall reasonably prosecute such litigation or
proceeding. In no event shall the party seeking
indemnification consent to the entry of any judgment or enter
into any settlement in any such litigation or proceeding
(including any threatened litigation or proceeding) without
providing the indemnifying party with adequate notice of any
such settlement or judgment, and without the indemnifying
party's prior written consent. The party seeking
indemnification shall submit written evidence to the
indemnifying party with respect to any cost or expense for
which the party seeking indemnification is seeking
indemnification in such form and detail as the indemnifying
party may reasonably request.
(e) Nothing herein shall preclude the Agent from acting in any
other capacity for the Fund or for any other legal entity.
(f) The Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties
hereunder from any officer or assistant officer of the Fund
and to apply to any such officer of the Fund for advice or
instructions in connection with its duties, and subject to the
notice requirements set forth above, shall be indemnified and
not be liable for any action taken or suffered by it in good
faith in accordance with instructions of any officer or
assistant officer.
(g) The Agent shall be indemnified and shall incur no liability
for or in respect of any action taken, suffered, or omitted by
it in reasonable reliance upon any Subscription Certificate or
certificate for Common Stock, instrument or assignment or
transfer, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, statement or other
paper or document that it reasonably believes to be genuine
and to be signed, executed and, where necessary, verified or
acknowledged, by the proper person or persons.
6
<PAGE> 7
(h) Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision of this
Agreement of for any consequential damages arising out of any
reasonable act or reasonable failure to act hereunder.
16. The Agent may, without the consent or concurrence of the Shareholders
in whose names Subscription Certificates are registered, by
supplemental agreement or otherwise, concur with the Fund in making any
changes or corrections in a Subscription Certificate that it shall have
been advised by counsel (who may be counsel for the Fund) is
appropriate to cure any ambiguity or to correct any defective or
inconsistent provision or clerical omission or mistake or manifest
error therein or herein contained, and which shall not be inconsistent
with the provisions of the Subscription Certificate except insofar as
any such changes may confer additional rights upon the Rights Holders.
17. Assignment
(a) Except as provided in Section (c) below, neither this
Agreement nor any rights or obligations hereunder may be
assigned by either party without the written consent of the
other party.
(b) This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and
assigns.
(c) The Agent may, without further consent on the part of the
Fund, subcontract for the performance hereof with (i) Boston
Equiserve Limited Partnership, a Delaware Limited Partnership,
which is fully registered as a transfer agent pursuant to
Section 17(c)(2) of the Securities Exchange Act of 1934
("Section A(c)(1)"), or (ii) the current third party vendor
utilized by BFDS; provided, however, that the Agent shall be
as fully responsible to the Fund for the acts and omissions of
any subcontractor as it is for its own acts and omissions.
18. All the covenants and provisions of this Agreement by or for the
benefit of the Fund or the Agent shall bind and inure to the benefit of
their respective successors and assigns hereunder.
19. The validity, interpretation and performance of this Agreement shall be
governed by law of the Commonwealth of Massachusetts, without giving
effect to the choice of law provisions thereof.
STATE STREET BANK AND FIDELITY ADVISOR KOREA FUND, INC.
TRUST COMPANY
By:_____________________________ By:________________________________
Vice President (Officer)
Dated:__________________________ Dated:_____________________________
7
<PAGE> 1
Exhibit 2(d)7
[D.F. King & Co., Inc. Letterhead]
November , 1996
Fidelity Advisor Korea Fund, Inc.
82 Devonshire Street
F5H
Boston, MA 02019
Attn: Stuart E. Fross
Assistant Secretary
Gentlemen:
This Letter Agreement sets forth the terms and conditions pursuant to
which Fidelity Advisor Korea Fund, Inc. (the "Company") has retained D.F. King &
Co., Inc. ("King") in connection with a proposed rights offering.
The Company proposes to issue to its shareholders of record
non-transferable rights ("Rights") entitling the holders thereof to subscribe
for shares of the Fund's Common Stock, par value $0.001 per share (the "Shares")
(the "Rights Offering"), upon the terms and subject to the conditions set forth
in the Company's Prospectus.
1. The Company hereby retains King as Information Agent for advisory
and consulting services in connection with the Rights Offering. The services to
be performed by King will include: (a) advice and consultation to the Company in
connection with the Rights Offering; (b) delivery of printed materials relating
to the Rights Offering including all amendments and supplements thereto
(collectively the "Rights Offering Materials") to the Fund's shareholders of
record and their nominees as requested; (c) responding to requests for
information pertaining to the Rights Offering; and (d) providing information
pertaining to the Rights Offering to any party requesting such information. In
connection with the aforementioned services, King is authorized to use the
Rights Offering Materials which the Company shall supply to King in sufficient
quantities as requested by King. In no event shall King make any recommendation,
either directly or indirectly, to anyone regarding the disposition of the Rights
issued pursuant to the Rights Offering. If such advice is requested of King,
King shall respond that it is not authorized to provide such advice and shall
recommend that the person requesting such advice consult his or her investment
advisor or broker.
2. The Company agrees to pay to King, as compensation for its services
as Information Agent, a fee of $5,000, of which $2,500 shall be due and payable
upon the execution and delivery of this Agreement and the balance of which shall
be due upon the completion, termination or abandonment, as the case may be, of
the Rights Offering. Further,
1
<PAGE> 2
Fidelity Advisor Korea Fund, Inc.
Fidelity Investments
November , 1996
Page 2
the Company agrees to pay King $3.00 for each completed outgoing telephone
contact, plus line charges, and $3.00 for each incoming telephone contact, each
in connection with the Rights Offering. In the event the Company requests King
to provide additional services, the Company agrees to pay King reasonable and
customary compensation, in an amount, if any, to be mutually agreed upon. The
Company further agrees to promptly reimburse King for all out-of-pocket expenses
(including counsel's fees and disbursements) incurred by King acting in its
capacity as Information Agent after the execution and delivery of this Agreement
and during the Rights Offering. The Company agrees and acknowledges that its
obligation under this paragraph 2 shall not in any way be conditioned upon the
commencement or successful consummation of the Rights Offering or dependent upon
the number of Shares subscribed for in the Rights Offering.
3. The Company agrees that King shall have the right to pass upon and
approve any and all references to King in the Rights Offering Materials. The
Company shall not file with the Securities and Exchange Commission (the
"Commission"), any other governmental or regulatory authority or body or any
court, or otherwise make public, any document containing any reference to King
unless and until King shall have approved such reference.
4. The Company represents and warrants to King that:
(i) this letter agreement is a valid and binding agreement on the
Company;
(ii) all necessary corporate action will be duly taken by the
Company prior to the commencement of the Rights Offering to
authorize the Rights Offering, and the sale of the Shares in
connection with the Rights Offering;
(iii) the Rights Offering, and the sale of the Shares in connection
with the Rights Offering, will comply in all material respects
with all applicable requirements of law including any
applicable rules or regulations of any governmental or
regulatory authority or body, and no consent or approval of,
or filing with, any governmental or regulatory authority or
body is required in connection with the making or consummation
of the Rights Offering (or, if any such consent, approval or
filing is required it will be duly obtained or made prior to
the commencement of the Rights Offering); and
(iv) the Rights Offering, the sale of the Shares in connection with
the Rights Offering, and the execution, delivery and
performance of this letter agreement, will not conflict with
or result in a breach of or constitute a default under: (a)
the Company's articles of incorporation or bylaws; or
<PAGE> 3
Fidelity Advisor Korea Fund, Inc.
Fidelity Investments
November , 1996
Page 3
(b) any agreement, indenture, mortgage, note or other instrument by
which the Company is bound other than such breaches and defaults
that do not, individually or in the aggregate, have a material
adverse effect on the operations of the Company.
5. The Company shall inform King promptly of the occurrence of any
event which would cause the Company not to proceed with, or to withdraw or
abandon, the Rights Offering. The Company shall inform King promptly of any
proposal or requirement to amend or supplement any of the Rights Offering
Materials.
6. (a) King agrees to indemnify and hold harmless the Company from any
and all direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions, of or by King or its officers, employees or
agents regarding this Agreement; provided, however, that such duty to indemnify
and hold harmless shall not apply to liabilities or losses occasioned by or
resulting from the gross negligence or willful misconduct of the Company or any
of its employees or agents. Such duty to indemnify and hold harmless shall
survive the termination of this Agreement.
(b) The Company agrees to indemnify and hold King harmless from any
and all direct or indirect liabilities or losses arising from any legal action
caused by any untrue statement or alleged untrue statement of a material fact
contained in the Company's prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
such duty to indemnify and hold harmless shall not apply to liabilities or
losses occasioned by or resulting from the gross negligence or willful
misconduct of King or any of its employees or agents. Such duty to indemnify and
hold harmless shall survive the termination of this Agreement.
(c) The indemnifying party shall not be liable for indemnification
under this Section 6 unless the party seeking indemnification shall have
notified the indemnifying party in writing of the commencement of any litigation
or proceeding in respect of which indemnity may be sought under this Section 6.
With respect to claims in such litigation or proceedings for which indemnify may
be sought, the indemnifying party shall be entitled to participate in any such
litigation or proceeding and the indemnifying party shall be entitled to assume
the defense of such litigation or proceeding with counsel of their choice at
their own expense in respect of that portion of the litigation for which the
indemnifying party may be subject to an indemnification obligation. If the
indemnifying party is not permitted to participate or control such litigation or
proceeding under applicable law or by a ruling of a court of competent
jurisdiction or otherwise, the party seeking indemnification shall reasonably
prosecute such litigation or proceeding. In no event shall the party seeking
indemnification consent to the entry of any judgment or enter into any
settlement in any such litigation or proceeding (including any
<PAGE> 4
Fidelity Advisor Korea Fund, Inc.
Fidelity Investments
November , 1996
Page 4
threatened litigation or proceeding) without providing the indemnifying party
with adequate notice of any such settlement or judgment, and without the
indemnifying party's prior written consent. The party seeking indemnification
shall submit written evidence to the indemnifying party with respect to any cost
or expense for which the party seeking indemnification is seeking
indemnification in such form and detail as the indemnifying party may reasonably
request.
7. The representations and warranties contained in paragraph 4 above
and the indemnity agreement contained in paragraphs 6 and 7 above shall remain
operative and in full force and effect regardless of: (i) the termination of
consummation of the Rights Offering; and (ii) any investigation made by or on
behalf of any party.
8. This agreement shall be construed and enforced in accordance with
the laws of the State of New York.
9. If any provision of this agreement shall be held illegal or
invalid by any court, this agreement shall be construed and enforced as if such
provision had not been contained herein and shall be deemed an agreement between
the parties hereto to the fullest extent permitted by law.
If the foregoing correctly sets forth the understanding between the
Company and King, please indicate acceptance thereof in the space provided below
for the purpose, whereupon this letter and the Company's acceptance shall
constitute a binding agreement between the parties hereto.
D. F. King & Co., Inc.
By:__________________________________
Vincent R. Di Costa
Senior Vice President
Accepted as of the date first above written:
FIDELITY ADVISOR KOREA FUND, INC.
By:___________________________________
Title:________________________________
<PAGE> 1
Exhibit 2(h)(1)
FIDELITY ADVISOR KOREA FUND, INC.
______________ Shares of Common Stock
Issuable Upon Exercise of Non-Transferable Rights
to Subscribe for Such Shares of Common Stock
DEALER MANAGER AGREEMENT
New York, New York
November __, 1996
PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
Fidelity Advisor Korea Fund, Inc., a Maryland corporation (the
"Company"), Fidelity Management & Research Company, a Massachusetts corporation
(the "Manager"), Fidelity International Investment Advisors, a Bermuda
corporation (the "Adviser"), and Fidelity Investments Japan Limited, an entity
organized under the laws of Japan (the "Sub-Adviser"), each confirm their
agreement with and appointment of Painewebber Incorporated (the "Dealer
Manager") to act as dealer manager in connection with the issuance by the
Company to the holders of record (the "Holders") at the close of business on the
record date set forth in the Prospectus (as defined herein) (the "Record Date")
4,407,093 non-transferable rights entitling such Holders to subscribe for
_________ shares (each a "Share" and, collectively, the "Shares") of common
stock, par value $.001 per share (the "Common Stock"), of the Company (the
"Offer"). Pursuant to the terms of the Offer, the Company is issuing each Holder
one non-transferable right (each a "Right" and, collectively, the "Rights") for
each share of Common Stock held by such Holder on the Record Date. Such Rights
entitle Holders to acquire during the subscription period set forth in the
Prospectus (the "Subscription Period"), at the price set forth in such
Prospectus (the "Subscription Price"), one Share for each ____ Rights exercised
on the terms and conditions set forth in such Prospectus. No fractional shares
will be issued. Any Holder who fully exercises all Rights initially issued to
such Holder will be entitled to subscribe for, subject to allocation, additional
Shares (the "Over-Subscription Privilege"). Pursuant to the Over-Subscription
Privilege, the Company
<PAGE> 2
may, at its discretion, increase the number of Shares subject to subscription by
up to 25%, or _______ Shares, for an aggregate total of ________ Shares.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form N-2 (Nos. 333-14049 and 811-8608)
and a related preliminary prospectus and preliminary statement of additional
information under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations of the Commission under the
Investment Company Act and the Securities Act (the "Rules and Regulations"), and
has filed such amendments to such registration statement on Form N-2, if any,
and such amended preliminary prospectuses and preliminary statements of
additional information as may have been required to the date hereof. If the
registration statement has not become effective, a further amendment to such
registration statement, including forms of a final prospectus and final
statement of additional information necessary to permit such registration
statement to become effective will promptly be filed by the Company with the
Commission. If the registration statement has become effective and any
prospectus or statement of additional information contained therein omits
certain information at the time of effectiveness pursuant to Rule 430A of the
Rules and Regulations, a final prospectus and final statement of additional
information containing such omitted information will promptly be filed by the
Company with the Commission in accordance with Rule 497(h) of the Rules and
Regulations. The registration statement, as amended at the time it becomes or
became effective, including financial statements and all exhibits and all
documents, if any, incorporated therein by reference, and any information deemed
to be included by Rule 430A, is called the "Registration Statement." The term
"Prospectus" means the final prospectus and final statement of additional
information in the forms filed with the Commission pursuant to Rule 497(c), (h)
or (j) of the Rules and Regulations, as the case may be, as from time to time
amended or supplemented pursuant to the Securities Act. The Prospectus and
letters to beneficial owners of the shares of Common Stock of the Company, forms
used to exercise rights, any letters from the Company to securities dealers,
commercial banks and other nominees and any newspaper announcements, press
releases and other offering materials and information that the Company may use,
approve, prepare or authorize for use in connection with the Offer, are
collectively referred to hereinafter as the "Offering Materials".
2
<PAGE> 3
1. Representations and Warranties.
(a) Each of the Company and the Manager represents and warrants to, and
agrees with, the Dealer Manager as of the date hereof, as of the date of the
commencement of the Offer (such later date being hereinafter referred to as the
"Representation Date") and as of the Expiration Date (as defined below) that:
(i) the Company meets the requirements for use of Form N-2
under the Securities Act and the Investment Company Act and the Rules
and Regulations. At the time the Registration Statement became or
becomes effective, the Registration Statement did or will contain all
statements required to be stated therein in accordance with and did or
will comply in all material respects with the requirements of the
Securities Act, the Investment Company Act and the Rules and
Regulations and did or will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
From the time the Registration Statement became or becomes effective
through the expiration date of the Offer set forth in the Prospectus
(the "Expiration Date"), the Prospectus and the other Offering
Materials will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this subsection
shall not apply to statements in or omissions from the Registration
Statement, Prospectus or Offering Materials made in reliance upon and
in conformity with information furnished to the Company in writing by
the Dealer Manager expressly for use in the Registration Statement,
Prospectus or Offering Materials.
(ii) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Maryland, has full corporate power and authority to conduct its
business as described in the Registration Statement and the Prospectus,
currently maintains all governmental licenses, permits, consents,
orders, approvals, and other authorizations (collectively, the
"Licenses and Permits") necessary to carry on its business as
contemplated in the Prospectus, and is duly qualified to do business as
a foreign corporation in each jurisdiction wherein it owns or
3
<PAGE> 4
leases real property or in which the conduct of its business requires
such qualification, except where the failure to obtain or maintain such
Licenses and Permits or to be so qualified would not result in a
material adverse effect upon the business, properties, financial
position or results of operations of the Company. The Company has no
subsidiaries.
(iii) the Company is registered with the Commission under the
Investment Company Act as a closed-end, non-diversified management
investment company, no order of suspension or revocation of such
registration has been issued or proceedings therefor initiated or, to
the knowledge of the Company, threatened by the Commission, all
required action has been taken under the Securities Act and the
Investment Company Act to consummate the issuance of the Rights and the
issuance and sale of the Shares by the Company upon exercise of the
Rights, and the provisions of the Company's charter and by-laws comply
as to form in all material respects with the requirements of the
Investment Company Act.
(iv) Price Waterhouse LLP, the accountants who certified the
financial statements of the Company set forth or incorporated by
reference in the Registration Statement and the Prospectus, are
independent public accountants as required by the Investment Company
Act and the Rules and Regulations.
(v) the financial statements of the Company set forth or
incorporated by reference in the Registration Statement and the
Prospectus present fairly in all material respects the financial
condition of the Company as of the dates or for the periods indicated
in conformity with generally accepted accounting principles applied on
a consistent basis; and the information set forth in the Prospectus
under the headings "Fee Table" and "Financial Highlights" presents
fairly in all material respects the information stated therein.
(vi) the Company has an authorized capitalization as set forth
in the Prospectus; the outstanding shares of Common Stock have been
duly authorized arid are validly issued, fully paid and non-assessable
and conform in all material respects to the description thereof in the
Prospectus under the heading "Description of Capital Stock"; the Rights
have been duly authorized by all requisite action on the part of the
Company for issuance pursuant to the Offer; the Shares have been duly
authorized by all
4
<PAGE> 5
requisite action on the part of the Company for issuance and sale
pursuant to the terms of the Offer and, when issued and delivered by
the Company pursuant to the terms of the Offer against payment of the
consideration set forth in the Prospectus, will be validly issued,
fully paid and non-assessable; the Shares and the Rights conform in all
material respects to all statements relating thereto contained in the
Registration Statement, the Prospectus and the other Offering
Materials; and the issuance of each of the Rights and the Shares is not
subject to any preemptive rights.
(vii) except as set forth in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus, (A) the Company has not incurred any
liabilities or obligations, direct or contingent, or entered into any
transactions, other than in the ordinary course of business, that are
material to the Company, (B) there has not been any material change in
the capital stock or long-term debt of the Company, or any material
adverse change, or any development involving a prospective material
adverse change, in the condition (financial or other), business,
prospects, net worth or results of operations of the Company (excluding
fluctuations in the Company's net asset value due to investment
activities in the ordinary course of business) and (C) there have been
no dividends or distributions paid or declared in respect of the
Company's capital stock.
(viii) except as set forth in the Registration Statement and
Prospectus, there is no pending or, to the knowledge of the Company,
threatened action, suit or proceeding to which the Company is a party
before or by any court or governmental agency, authority or body or any
arbitrator, whether foreign or domestic, which might result in any
material adverse change in the condition (financial or other), business
prospects, net worth or results of operations of the Company, or which
might materially and adversely affect the properties or assets thereof
of a character required to be disclosed in the Registration Statement
or the Prospectus.
(ix) there are no franchises, contracts or other documents of
the Company required to be described in the Registration Statement or
the Prospectus, or to be filed or incorporated by reference as exhibits
which are not described or filed or incorporated by reference therein
as permitted by
5
<PAGE> 6
the Securities Act, the Investment Company Act or the Rules and
Regulations.
(x) each of this agreement (the "Agreement"), the Subscription
Agency Agreement (the "Subscription Agency Agreement") dated as of
November __, 1996 between the Company and State Street Bank and Trust
Company (the "Subscription Agent"), the Information Agent Agreement
(the "Information Agent Agreement") dated as of November __, 1996
between the Company and D.F. King & Co. Inc. (the "Information Agent"),
the Management Agreement dated as of October 25, 1994 between this
Company and the Manager (the "Management Agreement"), the Investment
Advisory Agreement dated as of October 25, 1994 between the Company,
the Manager and the Adviser (the "Advisory Agreement"), the
Sub-Investment Advisory Agreement dated as of October 25, 1994 between
the Company, the Adviser and the Sub-Adviser (the "Sub-Advisory
Agreement"), the U.S. Custodian Agreement dated as of October 25, 1994
between the Company and The Chase Manhattan Bank, N.A. (the "Custodian
Agreement"), the Transfer Agency and Service Agreement dated as of
October 25, 1994 between the Company and State Street Bank and Trust
Company (the "Transfer Agency Agreement") and the Administration
Agreement between the Company and Fidelity Service Co. dated as of ,
199 International Limited (the "Administration Agreement")
(collectively, all the foregoing are the "Company Agreements") has been
duly authorized, executed and delivered by the Company; each of the
Company Agreements complies with all applicable provisions of the
Investment Company Act; and, assuming due authorization, execution and
delivery by the other parties thereto, each of the Company Agreements
constitutes a legal, valid, binding and enforceable obligation of the
Company, subject to the qualification that the enforceability of the
Company's obligations thereunder may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights, and to
general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
(xi) neither the issuance of the Rights, nor the issuance and
sale of the Shares, nor the performance and consummation by the Company
of any other of the transactions contemplated in the Company Agreements
or any sub-custodial arrangements entered into pursuant to the
Custodian Agreement, nor the consummation of the transactions
contemplated in the
6
<PAGE> 7
Registration Statement will conflict with, result in a breach or
violation of, or constitute a default under, or result in the creation
or imposition of any lien, charge or encumbrance upon any properties or
assets of the Company under the charter or by-laws of the Company, or
the terms and provisions of any agreement, indenture, mortgage, lease
or other instrument to which the Company is a party or by which it may
be bound or to which any of the property or assets of the Company is
subject, nor will such action result in any violation of any order,
law, rule or regulation of any court or governmental agency or body,
whether foreign or domestic, having jurisdiction over the Company or
any of its properties.
(xii) no consent, approval, authorization, notification or
order of, or filing with, any court or governmental agency or body,
whether foreign or domestic, is legally required for the consummation
by the Company of the transactions contemplated by the Company
Agreements or the Registration Statement, except such as have been
obtained, or if the registration statement filed with respect to the
Shares is not effective under the Securities Act as of the time of
execution hereof, such as may be required (and shall be obtained as
provided in this Agreement) under the Investment Company Act, the
Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and state securities laws.
(xiii) the Company either owns or possesses all governmental
licenses, permits, consents, orders, approvals or other authorizations
under the laws of the Republic of Korea ("Korea") to enable the Company
to invest in securities of Korean Issuers (as defined in the
Prospectus) as contemplated in the Prospectus. Neither the execution or
delivery by the Company nor the performance by the Company of any of
its obligations under the Company Agreements contravenes or constitutes
a default under any provision contained in any law, rule or regulation
of any Korean governmental or regulatory authority or any order or
regulation of any Korean court by which the Company or any of its
assets in Korea is bound or affected.
(xiv) the Common Stock has been duly listed on the New York
Stock Exchange and prior to their issuance the Shares will have been
duly approved for listing, subject to official notice of issuance, on
the New York Stock Exchange.
7
<PAGE> 8
(xv) the Company (A) has not taken, directly or indirectly,
any action designed to cause or to result in, or that has constituted
or which might reasonably be expected to constitute, the stabilization
or manipulation of the price of any security of the Company to
facilitate the issuance of the Rights or the sale or resale of the
Shares, (B) has not since the filing of the Registration Statement
sold, bid for or purchased, or paid anyone any compensation for
soliciting purchases of, shares of Common Stock of the Company (except
for the solicitation of exercises of the Rights pursuant to this
Agreement) and (C) will not, until the later of the expiration of the
Rights or the completion of the distribution (within the meaning of
Rule 10b-6 under the Exchange Act) of the Shares, sell, bid for or
purchase, pay or agree to pay to any person any compensation for
soliciting another to purchase any other securities of the Company
(except for the solicitation of the exercises of Rights pursuant to
this Agreement); provided that any action in connection with the
Company's dividend reinvestment and cash purchase plan will not be
deemed to be within the terms of this Section 1(a)(xv).
(xvi) the Company has complied in all previous tax years, and
intends to direct the investment of the proceeds of the offering
described in the Registration Statement and the Prospectus in such a
manner as to continue to comply with the requirements of Subchapter M
of the Internal Revenue Code of 1986, as amended ("Subchapter M of the
Code"), and has qualified and intends to continue to qualify as a
regulated investment company under Subchapter M of the Code.
(xvii) no taxes or charges of any kind are or will be payable
in or to Korea, or any political subdivision thereof, by the Dealer
Manager with respect to this Agreement or the solicitation of the
exercise of the Rights or the purchase or sale of the Shares hereunder.
(b) The Manager represents and warrants to, and agrees with,
the Dealer Manager as of the date hereof, as of the Representation Date and as
of the Expiration Date that:
(i) the Manager has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
Commonwealth of Massachusetts, has full corporate power and authority
to own its properties and conduct its business as described
8
<PAGE> 9
in the Registration Statement and the Prospectus, and is duly qualified
to do business as a foreign corporation in each jurisdiction wherein it
owns or leases real property or in which the conduct of its business
requires such qualification, except where the failure to be so
qualified does not involve a material adverse risk to the Manager's
business, properties, financial position or operations.
(ii) the Manager is duly registered as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers
Act"), and is not prohibited by the Advisers Act or the Investment
Company Act, or the rules and regulations under such Acts, from acting
as an investment adviser for the Company as contemplated in the
Prospectus, the Management Agreement and the Advisory Agreement.
(iii) each of this Agreement, the Management Agreement and the
Advisory Agreement has been duly authorized, executed and delivered by
the Manager and complies with all applicable provisions of the Advisers
Act and the Investment Company Act, and is, assuming due authorization,
execution and delivery by the other parties thereto, a legal, valid,
binding and enforceable obligation of the Manager, subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and
other laws of general applicability relating to or affecting creditors'
rights, and to general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law).
(iv) neither the performance by the Manager of its obligations
under this Agreement, the Management Agreement or the Advisory
Agreement nor the consummation of the transactions contemplated therein
or in the Registration Statement nor the fulfillment of the terms
thereof will conflict with, result in a breach or violation of, or
constitute a default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any properties or assets of the
Manager under the charter or by-laws of the Manager, or the terms and
provisions of any agreement, indenture, mortgage, lease or other
instrument to which the Manager is a party or by which it may be bound
or to which any of the property or assets of the Manager is subject,
nor will such action result in any violation of any order, law, rule or
regulation of any court or governmental agency or body, whether foreign
or domestic, having jurisdiction over the Manager or any of its
properties.
9
<PAGE> 10
(v) except as set forth in the Registration Statement and
Prospectus, there is no pending or, to the best knowledge of the
Manager, threatened action, suit or proceeding to which the Manager is
a party before or by any court or governmental agency, authority or
body or any arbitrator, whether foreign or domestic, which might result
in any material adverse change in the condition (financial or other),
business prospects, net worth or results of operations of the Manager,
or which might materially and adversely affect the properties or assets
thereof of a character required to be disclosed in the Registration
Statement or Prospectus.
(vi) the Manager does not require any governmental licenses,
permits, consents, orders, approvals or other authorizations under the
laws of Korea to enable the Manager to continue to supervise
investments in securities of Korean Issuers as contemplated in the
Prospectus. Neither the execution or delivery by the Manager nor the
performance by the Manager of any of its obligations under this
Agreement, the Management Agreement and the Advisory Agreement will
contravene or constitute a default under any provision contained in any
law, rule or regulation of any Korean governmental or regulatory
authority or any order or regulation of any Korean court by which the
Company or any of its assets in Korea is bound or affected.
(vii) no consent, approval, authorization, notification or
order of, or any filing with, any court or governmental agency or body
is required under federal law or the laws of any other jurisdiction in
the United States or Korea for the consummation by the Manager of the
transactions contemplated by this Agreement, the Management Agreement
or the Advisory Agreement.
(viii) the Manager (A) has not taken, directly or indirectly,
any action designed to cause or to result in, or that has constituted
or which might reasonably be expected to constitute, the stabilization
or manipulation of the price of any security of the Company to
facilitate the issuance of the Rights or the sale or resale of the
Shares, (B) has not since the filing of the Registration Statement
sold, bid for or purchased, or paid anyone any compensation for
soliciting purchases of, shares of Common Stock of the Company (except
for the solicitation of exercises of Rights pursuant to this Agreement)
and (C) will not, until the later of the expiration of the Rights or
the completion of the distribution
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(within the meaning of Rule 10b-6 under the Exchange Act) of the
Shares, sell, bid for or purchase, pay or agree to pay any person any
compensation for soliciting another to purchase any other securities of
the Company (except for the solicitation of exercises of Rights
pursuant to this Agreement); provided that any action in connection
with the Company's dividend reinvestment and cash purchase plan will
not be deemed to be within the terms of this Section 1(b)(viii).
(c) Each of the Manager and the Adviser represents and
warrants to, and agrees with, the Dealer Manager as of the date hereof, as of
the Representation Date and as of the Expiration Date that:
(i) the Adviser has been duly incorporated and is validly
existing as a company in good standing under the laws of Bermuda, has
full corporate power and authority to own its properties and conduct
its business as described in the Registration Statement and the
Prospectus, and is duly qualified to do business as a foreign
corporation in each jurisdiction wherein it owns or leases real
property or in which the conduct of its business requires such
qualification, except where the failure to be so qualified does not
involve a material adverse risk to its business, properties, financial
position or results of operations of the Adviser.
(ii) the Adviser is duly registered as an investment adviser
under the Advisers Act, and is not prohibited by the Advisers Act or
the Investment Company Act, or the rules and regulations under such
Acts, from acting as an investment adviser for the Company as
contemplated in the Prospectus, the Advisory Agreement and the
Sub-Advisory Agreement.
(iii) each of this Agreement, the Advisory Agreement and the
Sub-Advisory Agreement has been duly authorized, executed and delivered
by the Adviser and complies with all applicable provisions of the
Advisers Act and the Investment Company Act, and is, assuming due
authorization, execution and delivery by the other parties thereto, a
legal, valid, binding and enforceable obligation of the Adviser,
subject as to enforcement to bankruptcy, insolvency, reorganization,
moratorium and other laws of general applicability relating to or
affecting creditors' rights, and to general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law).
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<PAGE> 12
(iv) neither the performance by the Adviser of its obligations
under this Agreement, the Advisory Agreement or the Sub-Advisory
Agreement nor the consummation of the transactions contemplated therein
or in the Registration Statement nor the fulfillment of the terms
thereof will conflict with, result in a breach or violation of, or
constitute a default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any properties or assets of the
Adviser under the charter or by-laws of the Adviser, or the terms and
provisions of any agreement, indenture, mortgage, lease or other
instrument to which the Adviser is a party or by which it may be bound
or to which any of the property or assets of the Adviser is subject,
nor will such action result in any violation of any order, law, rule or
regulation of any court or governmental agency or body, whether foreign
or domestic, having jurisdiction over the Adviser or any of its
properties.
(v) except as set forth in the Registration Statement and
Prospectus, there is no pending or, to the best knowledge of the
Adviser, threatened action, suit or proceeding to which the Adviser is
a party before or by any court or governmental agency, authority or
body or any arbitrator, whether foreign or domestic, which might result
in any material adverse change in the condition (financial or other),
business prospects, net worth or results of operations of the Adviser,
or which might materially and adversely affect the properties or assets
thereof of a character required to be disclosed in the Registration
Statement or Prospectus.
(vi) the Adviser does not require any governmental licenses,
permits, consents, orders, approvals or other authorizations under the
laws of Korea to enable the Adviser to continue to supervise or direct
investments in securities of Korean Issuers as contemplated in the
Prospectus. Neither the execution or delivery by the Adviser nor the
performance by the Adviser of any of its obligations under this
Agreement, the Advisory Agreement and the Sub-Advisory Agreement will
contravene or constitute a default under any provision contained in any
law, rule or regulation of any Korean governmental or regulatory
authority or any order or regulation of any Korean court by which the
Company or any of its assets in Korea is bound or affected.
(vii) no consent, approval, authorization, notification or
order of, or any filing with, any
12
<PAGE> 13
court or governmental agency or body is required under Federal law or
the laws of any other jurisdiction in the United States or Korea for
the consummation by the Adviser of the transactions contemplated by
this Agreement, the Advisory Agreement or the Sub-Advisory Agreement.
(viii) the Adviser (A) has not taken, directly or indirectly,
any action designed to cause or to result in, or that has constituted
or which might reasonably be expected to constitute, the stabilization
or manipulation of the price of any security of the Company to
facilitate the issuance of the Rights or the sale or resale of the
Shares, (B) has not since the filing of the Registration Statement
sold, bid for or purchased, or paid anyone any compensation for
soliciting purchases of, shares of Common Stock of the Company (except
for the solicitation of exercises of Rights pursuant to this Agreement)
and (C) will not, until the later of the expiration of the Rights or
the completion of the distribution (within the meaning of Rule 10b-6
under the Exchange Act) of the Shares, sell, bid for or purchase, pay
or agree to pay any person any compensation for soliciting another to
purchase any other securities of the Company (except for the
solicitation of exercises of Rights pursuant to this Agreement);
provided that any action in connection with the Company's dividend
reinvestment and cash purchase plan will not be deemed to be within the
terms of this Section 1(c) (viii).
(d) Each of the Manager and the Sub-Adviser represents and
warrants to, and agrees with, the Dealer Manager as of the date hereof, as of
the Representation Date and as of the Expiration Date that:
(i) the Sub-Adviser has been duly incorporated and is validly
existing as a corporation under the laws of Japan, has full corporate
power and authority to own its properties and conduct its business as
described in the Registration Statement and the Prospectus, and is duly
qualified to do business as a foreign corporation in each jurisdiction
wherein it owns or leases real property or in which the conduct of its
business requires such qualification, except where the failure to be so
qualified does not involve a material adverse risk to its business,
properties, financial position or results of operations of the
Sub-Adviser.
(ii) the Sub-Adviser is duly registered as an investment
adviser under the Advisers Act, and is
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<PAGE> 14
not prohibited by the Advisers Act or the Investment Company Act, or
the rules and regulations under such Acts, from acting as an investment
adviser for the Company as contemplated in the Prospectus and the
Sub-Advisory Agreement.
(iii) each of this Agreement and the Sub-Advisory Agreement
have been duly authorized, executed and delivered by the Sub-Adviser
and complies with all applicable provisions of the Advisers Act and the
Investment Company Act, and is, assuming due authorization, execution
and delivery by the other parties thereto, a legal, valid, binding and
enforceable obligation of the Sub-Adviser, subject as to enforcement to
bankruptcy, insolvency, reorganization, moratorium and other laws of
general applicability relating to or affecting creditors' rights, and
to general principles of equity (regardless of whether enforceability
is considered in a proceeding in equity or at law).
(iv) neither the performance by the Sub-Adviser of its
obligations under this Agreement or the Advisory Agreement nor the
consummation of the transactions contemplated therein or in the
Registration Statement nor the fulfillment of the terms thereof will
conflict with, result in a breach or violation of, or constitute a
default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any properties or assets of the Sub-Adviser
under the charter or by-laws of the Sub-Adviser, or the terms and
provisions of any agreement, indenture, mortgage, lease or other
instrument to which the Sub-Adviser is a party or by which it may be
bound or to which any of the property or assets of the Sub-Adviser is
subject, nor will such action result in any violation of any order,
law, rule or regulation of any court or governmental agency or body,
whether foreign or domestic, having jurisdiction over the Sub-Adviser
or any of its properties.
(v) except as set forth in the Registration Statement and
Prospectus, there is no pending or, to the best knowledge of the
Sub-Adviser, threatened action, suit or proceeding to which the
Sub-Adviser is a party before or by any court or governmental agency,
authority or body or any arbitrator, whether foreign or domestic, which
might result in any material adverse change in the condition (financial
or other), business prospects, net worth or results of operations of
the Sub-Adviser, or which might materially and adversely affect the
properties
14
<PAGE> 15
or assets thereof of a character required to be disclosed in the
Registration Statement or Prospectus.
(vi) the Sub-Adviser does not require any governmental
licenses, permits, consents, orders, approvals or other authorizations
under the laws of Japan or Korea to enable the Sub-Adviser to continue
to direct investments in securities of Korean Issuers as contemplated
in the Prospectus. Neither the execution or delivery by the Sub-Adviser
nor the performance by the Sub-Adviser of any of its obligations under
this Agreement or the Sub-Advisory Agreement will contravene or
constitute a default under any provision contained in any law, rule or
regulation of any Korean governmental or regulatory authority or any
order or regulation of any Korean court by which the Company or any of
its assets in Korea is bound or affected.
(vii) no consent, approval, authorization, notification or
order of, or any filing with, any court or governmental agency or body
is required under Federal law or the laws of any other jurisdiction in
the United States or Korea for the consummation by the Sub-Adviser of
the transactions contemplated by this Agreement or the Sub-Advisory
Agreement.
(viii) the Sub-Adviser (A) has not taken, directly or
indirectly, any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company to facilitate the issuance of the Rights or the sale or resale
of the Shares, (B) has not since the filing of the Registration
Statement sold, bid for or purchased, or paid anyone any compensation
for soliciting purchases of, shares of Common Stock of the Company
(except for the solicitation of exercises of Rights pursuant to this
Agreement) and (C) will not, until the later of the expiration of the
Rights or the completion of the distribution (within the meaning of
Rule 10b-6 under the Exchange Act) of the Shares, sell, bid for or
purchase, pay or agree to pay any person any compensation for
soliciting another to purchase any other securities of the Company
(except for the solicitation of exercises of Rights pursuant to this
Agreement); provided that any action in connection with the Company's
dividend reinvestment plan will not be deemed to be within the terms of
this Section 1(d) (viii).
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<PAGE> 16
(e) Any certificate required by this Agreement that is signed
by any officer of the Company, the Manager, the Adviser or the Sub-Adviser and
delivered to the Dealer Manager or counsel for the Dealer Manager shall be
deemed a representation and warranty by the Company, the Manager, the Adviser or
the Sub-Adviser, as the case may be, to the Dealer Manager, as to the matters
covered thereby.
2. Agreement to Act as Dealer Manager.
(a) On the basis of the representations and warranties
contained herein, and subject to the terms and conditions of the Offer:
(i) The Company hereby appoints the Dealer Manager and other
soliciting dealers entering into a Soliciting Dealer Agreement, in the
form attached hereto as Exhibit A, with the Dealer Manager (the
"Soliciting Dealers"), and the Dealer Manager hereby agrees to solicit,
in accordance with the Securities Act, the Investment Company Act and
the Exchange Act, and its customary practice, the exercise of the
Rights, subject to the terms and conditions of this Agreement, the
procedures described in the Registration Statement, the Prospectus and,
where applicable, the terms and conditions of such Soliciting Dealer
Agreement; and
(ii) The Company agrees to furnish, or cause to be furnished,
to the Dealer Manager, lists, or copies of those lists, showing the
names and addresses of, and number of shares of Common Stock held by,
Holders as of the Record Date, and the Dealer Manager agrees to use
such information only in connection with the Offer, and not to furnish
the information to any other person except for securities brokers and
dealers that have been requested by the Dealer Manager to solicit
exercises of Rights.
(b) The Dealer Manager agrees to provide to the Company, in
addition to the services described in paragraph (a) of this Section 2, financial
advisory and marketing services in connection with the Offer. No advisory fee,
other than the fees provided for in Section 3 of this Agreement and the
reimbursement of the Dealer Manager's out-of-pocket expenses as described in
Section 5 of this Agreement, will be payable by the Company, or any other party
hereto, to the Dealer Manager in connection with the financial advisory, and
marketing services provided by the Dealer Manager pursuant to this Section 2(b).
16
<PAGE> 17
(c) The Company and the Dealer Manager agree that the Dealer
Manager is an independent contractor with respect to the solicitation of the
exercise of Rights and the performance of financial advisory and marketing
services for the Company contemplated by this Agreement.
(d) In rendering the services contemplated by this Agreement,
the Dealer Manager will not be subject to any liability to the Company or the
Manager or any of their affiliates, for any act or omission on the part of any
soliciting broker or dealer (except with respect to the Dealer Manager acting in
such capacity) or any other person, and the Dealer Manager will not be liable
for acts or omissions in performing its obligations under this Agreement, except
for any losses, claims, damages, liabilities and expenses that are finally
judicially determined to have resulted primarily from the bad faith, willful
misconduct or gross negligence of the Dealer Manager or by reason of the
reckless disregard of the obligations and duties of the Dealer Manager under
this Agreement.
3. Dealer Manager and Solicitation Fees. In full payment for
the financial advisory and marketing services rendered and to be rendered
hereunder by the Dealer Manager, the Company agrees to pay the Dealer Manager a
fee (the "Dealer Manager Fee") equal to 1.25% of the aggregate Subscription
Price for the Shares issued pursuant to the exercise of Rights and the
Over-Subscription Privilege. In full payment for the soliciting efforts to be
rendered hereunder, the Company agrees to pay fees (the "Solicitation Fees") to
either the Soliciting Dealer or the Dealer Manager equal to 2.50% of the
Subscription Price per Share for each Share issued pursuant to the exercise of
Rights and the Over-Subscription Privilege (such Solicitation Fees paid to the
Dealer Manager are in addition to the Dealer Manager Fee). The Company agrees to
pay the Solicitation Fees to the broker-dealer designated on the applicable
portion of the form used by the Holder to exercise Rights and the
Over-Subscription Privilege, provided that such broker-dealer has entered into a
Soliciting Dealer Agreement, and if no broker-dealer is so designated or a
broker-dealer is otherwise not entitled to receive compensation pursuant to the
terms of the Soliciting Dealer Agreement, then to pay the Dealer Manager the
Solicitation Fee for Shares issued pursuant to the exercise of Rights and the
Over-Subscription Privilege. Payment to the Dealer Manager by the Company will
be in the form of a wire transfer of same day funds to an account or accounts
identified by the Dealer Manager. Such payment will be made on each date on
which the Company issues Shares after the Expiration Date. Payment to a
Soliciting Dealer will be made
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<PAGE> 18
by the Company directly to such Soliciting Dealer by check to an address
identified by such Soliciting Dealer. Such payments shall be made on the tenth
business day following the day of final payment for Shares as set forth in the
Prospectus.
4. Other Agreements.
(a) The Company covenants with the Dealer Manager as follows;
(i) The Company will use its best efforts to cause the
Registration Statement to become effective under the Securities Act,
and will advise the Dealer Manager promptly as to the time at which
the Registration Statement and any amendments thereto (including any
post-effective amendment) becomes so effective.
(ii) The Company will notify, and confirm the notice in
writing to, the Dealer Manager immediately (A) of the effectiveness of
the Registration Statement and any amendment thereto (including any
post-effective amendment), (B) of the receipt of any comments from the
Commission, (C) of any request by the Commission for any amendment to
the Registration Statement or any amendment or supplement to the
Prospectus or for additional information, (D) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that
purpose, and (E) of the suspension of the qualification of the Shares
or the Rights for offering or sale in any jurisdiction. The Company
will make every reasonable effort to prevent the issuance of any stop
order described in subsection (D) hereunder and, if any such stop order
is issued, to obtain the lifting thereof at the earliest possible
moment.
(iii) The Company will give the Dealer Manager notice of its
intention to file any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement
to the Prospectus (including any revised prospectus which the Company
proposes for use by the Dealer Manager in connection with the Offer,
which differs from the prospectus on file at the Commission at the time
the Registration Statement becomes effective, whether or not such
revised prospectus is required to be filed pursuant to Rule 497(c) or
Rule 497(h) of the Rules and Regulations), whether pursuant to the
Investment Company Act, the Securities Act, or otherwise, and will
furnish the Dealer Manager with copies of any
18
<PAGE> 19
such amendment or supplement a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not file any such
amendment or supplement to which the Dealer Manager or counsel for the
Dealer Manager shall reasonably object.
(iv) The Company will, without charge, deliver to the Dealer
Manager, as soon as practicable, the number of copies (one of which is
manually executed) of the Registration Statement as originally filed
and of each amendment thereto as it may reasonably request, in each
case with the exhibits filed therewith.
(v) The Company will, without charge, furnish to the Dealer
Manager, from time to time during the period when the Prospectus is
required to be delivered under the Securities Act, such number of
copies of the Prospectus (as amended or supplemented) as the Dealer
Manager may reasonably request for the purposes contemplated by the
Securities Act or the Rules and Regulations.
(vi) If any event shall occur as a result of which it is
necessary, in the reasonable opinion of counsel for the Dealer Manager,
to amend or supplement the Registration Statement or the Prospectus in
order to make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a Holder, the
Company will forthwith amend or supplement the Prospectus by preparing
and filing with the Commission (and furnishing to the Dealer Manager a
reasonable number of copies of) an amendment or amendments of the
Registration Statement or an amendment or amendments of or a supplement
or supplements to the Prospectus (in form and substance satisfactory to
counsel for the Dealer Manager), at the Company's expense, which will
amend or supplement the Registration Statement or the Prospectus so
that the Prospectus will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a
Holder, not misleading.
(vii) The Company will endeavor, in cooperation with the
Dealer Manager and its counsel, to assist such counsel to qualify the
Rights and the Shares for offering and sale under the applicable
securities laws of such states and other jurisdictions of the United
States as the Dealer Managed may
19
<PAGE> 20
designate and maintain such qualifications in effect for the duration
of the Offer; provided, however, that the Company will not be obligated
to file any general consent to service of process, or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in
which it is not now so qualified. The Company will file such statements
and reports as may be required by the laws of each jurisdiction in
which the Rights and the Shares have been qualified as above provided.
(viii) The Company will make generally available to its
security holders as soon as practicable, but no later than 60 days
after the close of the period covered thereby, an earnings statement
(in form complying with the provisions of Rule 158 of the Rules and
Regulations of the Securities Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter
next following the "effective" date (as defined in said Rule 158) of
the Registration Statement.
(ix) For a period of 180 days from the date of this Agreement,
the Company will not, without the prior consent of the Dealer Manager,
offer or sell, or enter into any agreement to sell, any equity or
equity related securities of the Company or securities convertible into
such securities, other than the Rights and the Shares and the Common
Stock issued in reinvestment of dividends or distributions.
(x) The Company will apply the net proceeds from the Offer as
set forth under "Use of Proceeds" in the Prospectus.
(xi) The Company will use its best efforts to cause the Shares
to be duly authorized for listing by the New York Stock Exchange prior
to the time the Shares are issued.
(xii) The Company will use its best efforts to maintain its
qualification as a regulated investment company under Subchapter M of
the Code.
(xiii) The Company will advise or cause the Subscription Agent
to advise the Dealer Manager and each Soliciting Dealer from day to day
during the period of, and promptly after the termination of, the Offer,
as to the names and addresses of all Holders exercising Rights, the
total number of Rights exercised by each Holder during the immediately
preceding day, indicating the total number of
20
<PAGE> 21
Rights verified to be in proper form for exercise, rejected for
exercise and being processed and, for the Dealer Manager and each
Soliciting Dealer, the number of Rights exercised on subscription
certificates indicating the Dealer Manager or such Soliciting Dealer,
as the case may be, as the broker-dealer with respect to such exercise,
and as to such other information as the Dealer Manager may reasonably
request; and will notify the Dealer Manager and each Soliciting Dealer,
not later than 5:00 P.M., New York City time, on the first business day
following the Expiration Date, of the total number of Rights exercised
and Shares related thereto, the total number of Rights verified to be
in proper form for exercise, rejected for exercise and being processed
and, for the Dealer Manager and each Soliciting Dealer, the number of
Rights exercised on subscription certificates indicating the Dealer
Manager or such Soliciting Dealer, as the case may be, as the
broker-dealer with respect to such exercise, and as to such other
information as the Dealer Manager may reasonably request.
(b) None of the Company, the Manager, the Adviser or the
Sub-Adviser will take, directly or indirectly, any action designed to cause or
to result in, or that has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of any security of
the Company to facilitate the issuance of the Rights or the sale or resale of
the Shares; provided that any action in connection with the Company's dividend
reinvestment and cash purchase plan will not be deemed to be within the meaning
of this Section 4(b).
5. Payment of Expenses.
(a) The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including, but not limited
to, expenses relating to (i) the printing and filing of the Registration
Statement as originally filed and of each amendment thereto, (ii) the
preparation, issuance and delivery of the certificates for the Shares and
subscription certificates relating to the Rights, (iii) the fees and
disbursements of the Company's counsel (including the fees and disbursements of
local counsel) and accountants, (iv) the qualification of the Rights and the
Shares under securities laws in accordance with the provisions of Section
4(a)(vii) of this Agreement, including filing fees and the preparation of the
Blue Sky Survey by counsel to the Dealer Manager, (v) the printing or other
production and delivery to the Dealer Manager of copies of the Regis-
21
<PAGE> 22
tration Statement as originally filed and of each amendment thereto and of the
Prospectus and any amendments or supplements thereto, (vi) the printing and
other production and delivery of copies of the Blue Sky Survey, (vii) the fees
and expenses incurred with respect to filing with the National Association of
Securities Dealers, Inc., (viii) the fees and expenses incurred in connection
with the listing of the Shares on the New York Stock Exchange, (ix) the printing
or other production, mailing and delivery expenses incurred in connection with
Offering Materials and (x) the fees and expenses incurred with respect to the
Information Agent.
(b) In addition to any fees that may be payable to the Dealer
Manager under this Agreement, the Company agrees to reimburse the Dealer Manager
upon request made from time to time for its reasonable expenses incurred in
connection with its activities under this Agreement, including the reasonable
fees and disbursements of its legal counsel (excluding Blue Sky fees and
expenses which are paid directly by the Company), in an amount up to $100,000.
(c) If this Agreement is terminated by the Dealer Manager in
accordance with the provisions of Section 6 or Section 9(a)(i), 9(a)(ii) or
9(a)(iii) , the Company agrees to reimburse the Dealer Manager for all of its
reasonable out-of-pocket expenses incurred in connection with its performance
hereunder, including the reasonable fees and disbursements of counsel for the
Dealer Manager. In the event the transactions contemplated hereunder are not
consummated, the Company agrees to pay all of the costs and expenses set forth
in paragraphs (a) and (b) of this Section 5 which the Company would have paid if
such transactions had been consummated.
6. Conditions of the Dealer Manager's Obligations. The
obligations of the Dealer Manager hereunder are subject to the accuracy of the
respective representations and warranties of the Company, the Manager, the
Adviser and the Sub-Adviser contained herein, to the performance by the Company,
the Manager, the Adviser and the Sub-Adviser of their respective obligations
hereunder, and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 5:30 P.M., New York City time, on the Record Date, or at such later
time and date as may be approved by the Dealer Manager; the Prospectus and any
amendment or supplement thereto shall have been filed with the Commission in the
manner and within the time period required by Rule 497(c), (e),
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<PAGE> 23
(h) or (j), as the case may be, under the Securities Act; no stop order
suspending the effectiveness of the Registration Statement or any amendment
thereto shall have been issued, and no proceedings for that purpose shall have
been instituted or threatened or, to the knowledge of the Company, the Adviser
or the Dealer Manager, shall be contemplated by the Commission; and the Company
shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement, the Prospectus or
otherwise).
(b) On the Representation Date and the Expiration Date, the
Dealer Manager shall have received:
(1) The favorable opinions, dated the Representation Date and
the Expiration Date, of Rogers & Wells, counsel for the Company, in
form and substance satisfactory to counsel for the Dealer Manager to
the effect that:
(i) the Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Maryland, has full corporate power and
authority to conduct its business as described in the
Registration Statement and the Prospectus, currently maintains
all governmental licenses, permits, consents, orders,
approvals, and other authorizations necessary under U.S. or
New York or Maryland state law to carry on its business as
contemplated in the Prospectus (except that counsel need
express no opinion as to securities or "blue sky" laws of any
state) and the Company is duly qualified to do business as a
foreign corporation in each jurisdiction wherein it owns or
leases real property or in which the conduct of its business
requires such qualification, except where the failure to be so
qualified would not result in a material adverse effect upon
the business, properties, financial position or results of
operations of the Company.
(ii) the Company is registered with the Commission
under the Investment Company Act as a closed-end,
non-diversified management investment company, to the best
knowledge of such counsel, no order of suspension or
revocation of such registration has been issued or proceedings
therefor initiated or threatened by the Commission, all
required action has been taken under the Securities Act and
the Investment Company Act to make the public offering
23
<PAGE> 24
and consummate the issuance of the Rights and the issuance and
sale of the Shares by the Company upon exercise of the Rights,
and the provisions of the Company's charter and by-laws comply
as to form in all material respects with the requirements of
the Investment Company Act.
(iii) the Company's authorized capitalization is as
set forth in the Prospectus; the outstanding shares of Common
Stock have been duly authorized and are validly issued, fully
paid and non-assessable and conform in all material respects
to the description thereof in the Prospectus under the heading
"Description of Capital Stock"; the Rights have been duly
authorized by all requisite action on the part of the Company
for issuance pursuant to the Offer; the Shares have been duly
authorized by all requisite action on the part of the Company
for issuance and sale pursuant to the terms of the Offer and,
when issued and delivered by the Company pursuant to the terms
of the Offer against payment of the consideration set forth in
the Prospectus, will be validly issued, fully paid and
non-assessable; the Shares and the Rights conform in all
material respects to all statements relating thereto contained
in the Registration Statement, the Prospectus and the other
Offering Materials; and the issuance of each of the Rights and
the Shares is not subject to any preemptive rights.
(iv) except as set forth in the Registration
Statement and Prospectus, to the best knowledge of such
counsel, there is no pending or threatened action, suit or
proceeding to which the Company is a party before or by any
U.S., New York or Maryland state court or governmental agency,
authority or body or any arbitrator, whether foreign or
domestic, which might result in any material adverse change in
the condition (financial or other), business prospects, net
worth or results of operations of the Company, or which might
materially and adversely affect the properties or assets
thereof of a character required to be disclosed in the
Registration Statement or the Prospectus.
(v) to the best knowledge of such counsel after due
inquiry of corporate officers, there are no franchises,
contracts or other documents of the Company required to be
described in the
24
<PAGE> 25
Registration Statement or the Prospectus, or to be filed or
incorporated by reference as exhibits which are not described
or filed or incorporated by reference therein as permitted by
the Securities Act, the Investment Company Act or the Rules
and Regulations.
(vi) each of the Company Agreements has been duly
authorized, executed and delivered by the Company; and
complies in all material respects with all applicable
provisions of the Investment Company Act; and each such
agreement, assuming due and valid authorization, execution and
delivery by the other parties thereto, constitutes a legal,
valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except to
the extent such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights and
general principles of equity and except to the extent that the
enforceability of the indemnification and contribution
provisions contained in this Agreement may be limited under
U.S. federal and state securities laws.
(vii) neither the issuance of the Rights, nor the
issuance and sale of the Shares, nor the performance and
consummation by the Company of any other of the transactions
contemplated in this Agreement nor the consummation of the
transactions contemplated in the Registration Statement will
conflict with or violate the charter or by-laws of the Company
or, to the best knowledge of such counsel, after due inquiry,
conflict with, result in a breach or violation of, or
constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any
properties or assets of the Company under the terms and
provisions of any agreement, indenture, mortgage, lease or
other instrument to which the Company is a party or by which
it may be bound or to which any of the property or assets of
the Company is subject, nor, to the best knowledge of such
counsel, will such action result in any violation of any
order, law, rule or regulation of any U.S., New York or
Maryland state court or governmental agency or body having
jurisdiction over the Company or any of its properties.
25
<PAGE> 26
(viii) no consent, approval, authorization,
notification or order of, or any filing with, any U.S., New
York or Maryland state court or governmental agency or body,
whether foreign or domestic, is required for the consummation
by the Company of the transactions contemplated by the Company
Agreements or the Registration Statement, except (A) such as
have been obtained and (B) such as may be required under the
blue sky laws of any jurisdiction in connection with the
transactions contemplated hereby.
(ix) the Common Stock has been duly listed on the New
York Stock Exchange and the Shares have been duly approved for
listing, subject to official notice of issuance, on the New
York Stock Exchange.
(x) the Registration Statement is effective under the
Securities Act; any required filing of the Prospectus or any
supplement thereto pursuant to Rule 497(c), (e), (h) or (j)
required to be made to the date hereof has been made in the
manner and within the time period required by Rule 497(c),
(e), (h) or (j), as the case may be; no stop order suspending
the effectiveness of the Registration Statement has been
issued, and no proceedings for that purpose have been
instituted or threatened; and the Registration Statement, the
Prospectus and each amendment thereof or supplement thereto
(other than the financial statements, the notes thereto and
the schedules and other financial and statistical data
contained therein or omitted therefrom, as to which such
counsel need express no opinion) as to their respective
effective or issue dates comply as to form in all material
respects with the applicable requirements of the Securities
Act and the Investment Company Act and the Rules and
Regulations.
(xi) the statements in the Prospectus under the
heading "Taxation" (other than those contained under
"Taxation -- Korean Taxes") fairly present the information
disclosed therein all material respects.
In rendering such opinion, such counsel may rely as to matters of Maryland law
on the opinion of Piper & Marbury L.L.P. and as to matters of fact, to the
extent they deem
26
<PAGE> 27
proper, on certificates of responsible officers of the Company and public
officials.
Such counsel shall also have stated that, while they have not
themselves checked the accuracy and completeness of or otherwise verified, and
are not passing upon and assume no responsibility for the accuracy or
completeness of, the statements contained in the Registration Statement or the
Prospectus, in the course of their review and discussion of the contents of the
Registration Statement and Prospectus with certain officers and employees of the
Company and its independent accountants, no facts have come to their attention
which cause them to believe that the Registration Statement, on the date it
became effective, contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to make
the statements contained therein not misleading or that the Prospectus, as of
its date and on the Representation Date or the Expiration Date, as the case may
be, contained any untrue statement of a material fact or omitted to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(2) The favorable opinions, dated the Representation Date and
the Expiration Date, of Arthur S. Loring, counsel for the Manager, in
form and substance satisfactory to counsel for the Dealer Manager to
the effect that:
(i) The Manager is duly registered as an investment
adviser under the Advisers Act and is not prohibited by the
Advisers Act or the Investment Company Act, or the rules and
regulations under such Acts, from acting as an investment
adviser for the Company as contemplated in the Prospectus.
(ii) Each of this Agreement and the Management
Agreement complies with all applicable provisions of the
Advisers Act and the Investment Company Act.
(iii) Except as set forth in the Registration
Statement and Prospectus, to the best knowledge of counsel,
there is no pending or threatened action, suit or proceeding
to which the Manager is a party before or by any U.S. or state
court or governmental agency, authority or body or any
arbitrator which might result in any material adverse change
in the Manager's condition (financial or other), business
pros-
27
<PAGE> 28
pects, net worth or operations or which might materially and
adversely affect the properties or assets thereof of a
character required to be disclosed in the Registration
Statement or Prospectus.
(iv) No consent, approval, authorization,
notification or order of, or any filing with, any U.S. or
state court or governmental agency or body is required for the
consummation by the Manager of the transactions contemplated
by this Agreement or the Management Agreement.
(v) Each of the Company Agreements to which the
Manager is a party has been duly authorized, executed and
delivered by the Manager, and, assuming due authorization,
execution and delivery by the other parties thereto, each of
the Company Agreements to which the Manager is a party
constitutes a legal, valid, binding and enforceable obligation
of the Manager subject to the qualification that the
enforceability of the obligations of the Manager thereunder
may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws of general applicability relating
to or affecting creditors' rights.
(vi) The Manager has been duly incorporated and is
validly existing and in good standing under the laws of the
jurisdiction of its domicile, has full power and authority
(corporate and other) to own its properties and conduct its
business as described in the Registration Statement and the
Prospectus, and is duly qualified to do business as a foreign
corporation in each jurisdiction wherein it owns or leases
real property or in which the conduct of its business
requires such qualification, except where the failure to be
so qualified does not involve a material adverse risk to the
Manager's business, properties, financial position or
operations.
(vii) neither the performance by the Manager of its
obligations under this or the other Company Agreements to
which the Manager is a party nor the consummation of the
transactions contemplated therein or in the Registration
Statement nor the fulfillment of the terms thereof will
conflict with or violate the charter, by-laws or similar
organizational documents of the Manager to the best knowledge
of
28
<PAGE> 29
such counsel, after due inquiry, conflict with, result in a
breach or violation of, or constitute a default under, or
result in the creation or imposition of any lien, charge or
encumbrance upon any properties or assets of the Manager under
the terms and provisions of any agreement, indenture,
mortgage, lease or other instrument to which the Manager is a
party or by which it may be bound or to which any of the
property or assets of the Manager is subject, nor will such
action result in any violation of any order, law, rule or
regulation of any U.S. or State court or governmental agency
or body, having jurisdiction over the Manager or any of its
properties.
In rendering such opinion, such counsel may rely as to matters of fact, to the
extent such counsel deems proper, on certificates of responsible officers of the
Manager and public officials.
Such counsel shall also have stated that, while he has not
himself checked the accuracy and completeness of or otherwise verified, and is
not passing upon and assume no responsibility for the accuracy or completeness
of, the statements contained in the Registration Statement or the Prospectus, in
the course of his review and discussion of the contents of the Registration
Statement and Prospectus with certain officers and employees of the Manager and
its independent accountants, no facts have come to his attention which cause him
to believe that the Registration Statement, on the date it became effective,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
contained therein not misleading or that the Prospectus, as of its date and on
the Representation Date or the Expiration Date, as the case may be, contained
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(3) (a) The favorable opinions, dated the Representation Date
and the Expiration Date, of Sullivan & Worcester, U.S. counsel for the
Adviser, in form and substance satisfactory to counsel for the Dealer
Manager to the effect that:
(i) The Adviser is duly registered as an investment
adviser with the Commission under the Advisers Act and is not
prohibited by the Advisers Act or the Investment Company Act,
or
29
<PAGE> 30
the rules and regulations under such Acts, from acting as an
investment adviser for the Company as contemplated in the
Prospectus, the Advisory Agreement and Sub-Advisory Agreement.
(ii) Each of this Agreement, the Advisory Agreement
and Sub-Advisory Agreement complies with all applicable
provisions of the Advisers Act and the Investment Company Act.
(iii) Except as set forth in the Registration
Statement and Prospectus, to the best knowledge of counsel,
there is no pending or threatened action, suit or proceeding
to which the Adviser is a party before or by any U.S. or state
court or governmental agency, authority or body or any
arbitrator which might result in any material adverse change
in the Adviser's condition (financial or other), business
prospects, net worth or operations or which might materially
and adversely affect the properties or assets thereof of a
character required to be disclosed in the Registration
Statement or Prospectus.
(iv) No consent, approval, authorization,
notification or order of, or any filing with, any U.S. or
state court or governmental agency or body is required for
the consummation by the Adviser of the transactions
contemplated by this Agreement, the Advisory Agreement or the
Sub-Advisory Agreement.
(v) Each of this Agreement, the Advisory Agreement
and the Sub-Advisory Agreement constitutes a legal, valid,
binding and enforceable obligation of the Adviser subject to
the qualification that the enforceability of the obligations
of the Adviser thereunder may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors'
rights.
(vi) Neither the performance by the Adviser of its
obligations under this Agreement, the Advisory Agreement or
the Sub-Advisory Agreement nor the consummation of the
transactions contemplated therein or in the Registration
Statement nor the fulfillment of the terms thereof will, to
the best knowledge of such counsel, after due inquiry,
conflict with, result in a breach or violation of, or consti-
30
<PAGE> 31
tute a default under, or result in the creation or imposition
of any lien, charge or encumbrance upon any properties or
assets of the Adviser under the terms and provisions of any
agreement, indenture, mortgage, lease or other instrument to
which the Adviser is a party or by which it may be bound or to
which any of the property or assets of the Adviser is subject,
nor will such action result in any violation of any order,
law, rule or regulation of any U.S. or State court or
governmental agency or body, having jurisdiction over the
Adviser or any of its properties.
In rendering such opinion, such counsel may rely as to matters of Bermuda law on
the opinion of Conyers, Dill & Pearman, and matters of fact, to the extent such
counsel deems proper, on certificates of responsible officers of the Adviser and
public officials.
Such counsel shall also have stated that, while they have not
themselves checked the accuracy and completeness of or otherwise verified, and
are not passing upon and assume no responsibility for the accuracy or
completeness of, the statements contained in the Registration Statement or the
Prospectus, in the course of their review and discussion of the contents of the
Registration Statement and Prospectus with certain officers and employees of the
Adviser and its affiliates, no facts have come to their attention which cause
them to believe that the Registration Statement as it relates to the Adviser, on
the date it became effective, contained any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or necessary
to make the statements contained therein not misleading or that the Prospectus
as it relates to the Adviser, as of its date and on the Representation Date or
the Expiration Date, as the case may be, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) The favorable opinions, dated the Representation Date and
the Expiration Date, of Conyers, Dill & Pearman, Bermuda counsel for
the Adviser, in form and substance satisfactory to counsel for the
Dealer Manager to the effect that:
(i) Except as set forth in the Registration Statement
and Prospectus, to the best knowledge of counsel, there is no
pending or threatened action, suit or proceeding to
31
<PAGE> 32
which the Adviser is a party before or by any Bermuda court or
governmental agency, authority or body or any arbitrator which
might result in any material adverse change in the Adviser's
condition (financial or other), business prospects, net worth
or operations or which might materially and adversely affect
the properties or assets thereof of a character required to be
disclosed in the Registration Statement or Prospectus.
(ii) No consent, approval, authorization,
notification or order of, or any filing with, any Bermuda
court of governmental agency or body is required for the
consummation by the Adviser of the transactions contemplated
by this Agreement, the Advisory Agreement or the Sub-Advisory
Agreement.
(iii) Each of this Agreement, the Advisor Agreement
and the Sub-Advisor Agreement has been duly authorized,
executed and delivered by the Adviser, and assuming due
authorization, execution and delivery by the other parties
thereto, each of this Agreement, the Advisor Agreement and the
Sub-Advisor Agreement constitutes a legal, valid, binding and
enforceable obligation of the Adviser subject to the
qualification that the enforceability of the obligations of
the Adviser thereunder may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors'
rights.
(iv) The Adviser has been duly incorporated and is
validly existing and in good standing under the laws of the
jurisdiction of its domicile, has full power and authority
(corporate and other) to own its properties and conduct its
business as described in the Registration Statement and the
Prospectus, and the Adviser is duly qualified to do business
as a foreign corporation in each jurisdiction wherein it owns
or leases real property or in which the conduct of its
business requires such qualification, except where the failure
to be so qualified does not involve a material adverse risk
to its business, properties, financial position or results of
operations of the Adviser.
32
<PAGE> 33
(v) neither the performance by the Adviser of its
obligations under this or the other Company Agreements to
which the Adviser is a party nor the consummation of the
transactions contemplated therein or in the Registration
Statement nor the fulfillment of the terms thereof will
conflict with or violate the charter, by-laws or similar
organizational documents of the Adviser or, to the best
knowledge of such counsel, after due inquiry, conflict with,
result in a breach or violation of, or constitute a default
under, or result in the creation or imposition of any lien,
charge or encumbrance upon any properties or assets of the
Adviser under the terms and provisions of any agreement,
indenture, mortgage, lease or other instrument to which the
Adviser is a party or by which it may be bound or to which any
of the property or assets of the Adviser is subject, nor will
such action result in any violation of any order, law, rule or
regulation of any Bermuda court or governmental agency or
body, having jurisdiction over the Adviser or any of its
properties.
In rendering such opinion, such counsel may rely as to matters of U.S. law on
the opinion of Sullivan & Worcester, and matters of fact, to the extent such
counsel deems proper, on certificates of responsible officers of the Adviser and
public officials.
(c) The favorable opinions, dated the Representation Date and
the Expiration Date, of Slaughter and May, Hong Kong counsel for the
Adviser, in form and substance satisfactory to counsel for the Dealer
Manager to the effect that:
(i) Except as set forth in the Registration Statement
and Prospectus, to the best knowledge of counsel, there is no
pending or threatened action, suit or proceeding affecting the
Adviser or to which the Adviser is a party before or by any
Hong Kong court or governmental agency, authority or body or
any arbitrator which might result in any material adverse
change in the Adviser's condition (financial or other),
business prospects, net worth or operations or which might
materially and adversely affect the properties or assets
thereof of a character required to be disclosed in the
Registration Statement or Prospectus.
33
<PAGE> 34
(ii) No consent, approval, authorization,
notification or order of, or any filing with, any Hong Kong
court of governmental agency or body is required for the
consummation by the Adviser of the transactions contemplated
by this Agreement, the Advisory Agreement or the Sub-Advisory
Agreement.
(iii) Neither the performance by the Adviser of its
obligations under this or the other Company Agreements to
which the Adviser is a party nor the consummation of the
transactions contemplated therein or in the Registration
Statement nor the fulfillment of the terms thereof will, to
the best knowledge of such counsel, after due inquiry,
conflict with, result in a breach or violation of, or
constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any
properties or assets of the Adviser under the terms and
provisions of any agreement, indenture, mortgage, lease or
other instrument to which the Adviser is a party or by which
it may be bound or to which any of the property or assets of
the Adviser is subject, nor will such action result in any
violation of any order, law, rule or regulation of any U.S. or
State court or governmental agency or body, having
jurisdiction over the Adviser or any of its properties.
In rendering such opinion, such counsel may rely as to matters of fact, to the
extent such counsel deems proper, on certificates of responsible officers of the
Adviser and public officials.
(4) (a) The favorable opinions, dated the Representation Date
and the Expiration Date, of Sullivan & Worcester, U.S. counsel for the
Sub-Adviser, in form and substance satisfactory to counsel for the
Dealer Manager to the effect that:
(i) The Sub-Adviser is duly registered as an
investment adviser with the Commission under the Advisers Act
and is not prohibited by the Advisers Act or the Investment
Company Act, or the rules and regulations under such Acts,
from acting as an investment adviser for the Company as
contemplated in the Prospectus and the Sub-Advisory Agreement.
(ii) Each of this Agreement and the Sub-Advisory
Agreement complies with all applicable
34
<PAGE> 35
provisions of the Advisers Act and the Investment Company Act.
(iii) Except as set forth in the Registration
Statement and Prospectus, to the best knowledge of counsel,
there is no pending or threatened action, suit or proceeding
to which the Sub-Adviser is a party before or by any U.S. or
state court or governmental agency, authority or body or any
arbitrator which might result in any material adverse change
in the Sub-Adviser's condition (financial or other), business
prospects, net worth or operations, or which might materially
and adversely affect the properties or assets thereof of a
character required to be disclosed in the Registration
Statement or Prospectus.
(iv) No consent, approval, authorization,
notification or order of, or any filing with, any U.S. or
state court or governmental agency or body is required for
the consummation by any of the Sub-Adviser of the transactions
contemplated by this Agreement or the Sub-Advisory Agreement.
(v) Each of this Agreement and the Sub-Advisory
Agreement constitutes a legal, valid, binding and enforceable
obligation of the Sub-Adviser subject to the qualification
that the enforceability of the obligations of the Sub-Adviser
thereunder may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights.
(vi) Neither the performance by the Sub-Adviser of
its obligations under this Agreement or the Sub-Advisory
Agreement nor the consummation of the transactions
contemplated therein or in the Registration Statement nor the
fulfillment of the terms thereof will, to the best knowledge
of such counsel, after due inquiry, conflict with, result in a
breach or violation of, or constitute a default under, or
result in the creation or imposition of any lien, charge or
encumbrance upon any properties or assets of the Sub-Adviser
under the terms and provisions of any agreement, indenture,
mortgage, lease or other instrument to which the Sub-Adviser
is a party or by which it may be bound or to which any of the
property or assets of the Sub-Adviser is subject, nor will
35
<PAGE> 36
such action result in any violation of any order, law, rule or
regulation of any U.S. or State court or governmental agency
or body, having jurisdiction over the Sub-Adviser or any of
its properties.
In rendering such opinion, such counsel may rely as to matters of Japanese law
on the opinion of Adachi, Henderson, Miyatake & Fujita, and matters of fact, to
the extent such counsel deems proper, on certificates of responsible officers of
the Sub-Adviser and public officials.
Such counsel shall also have stated that, while they have not
themselves checked the accuracy and completeness of or otherwise verified, and
are not passing upon and assume no responsibility for the accuracy or
completeness of, the statements contained in the Registration Statement or the
Prospectus, in the course of their review and discussion of the contents of the
Registration Statement and Prospectus with certain officers and employees of the
Sub-Adviser and its affiliates, no facts have come to their attention which
cause them to believe that the Registration Statement as it relates to the
Sub-Adviser, on the date it became effective, contained any untrue statement of
a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements contained therein not misleading or
that the Prospectus as it relates to the Sub-Adviser, as of its date and on the
Representation Date or the Expiration Date, as the case may be, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(b) The favorable opinions, dated the Representation Date and
the Expiration Date, of Adachi, Henderson, Miyatake & Fujita, Japanese
counsel for the Sub-Adviser, in form and substance satisfactory to
counsel for the Dealer Manager, to the effect that:
(i) Except as set forth in the Registration Statement
and Prospectus, to the best knowledge of counsel, there is no
pending or threatened action, suit or proceeding to which the
Sub-Adviser is a party before or by any Japanese court or
governmental agency, authority or body or any arbitrator which
might result in any material adverse change in the condition
(financial or other), business pros-
36
<PAGE> 37
pects, net worth or results of operations of the Sub-Adviser,
or which might materially and adversely affect the properties
or assets thereof of a character required to be disclosed in
the Registration Statement or Prospectus.
(ii) No consent, approval, authorization,
notification or order of, or any filing with, any Japanese
court or governmental agency or body is required for the
consummation by any of the Sub-Adviser of the transactions
contemplated by this Agreement or the Sub-Advisory Agreement.
(iii) Each of this Agreement and the Sub-Advisory
Agreement has been duly authorized, executed and delivered by
the Sub-Adviser, and, assuming due authorization, execution
and delivery by the other parties thereto, each of this
Agreement and the Sub-Advisory Agreement constitutes a legal,
valid, binding and enforceable obligation of the Sub-Adviser
subject to the qualification that the enforceability of the
obligations of the Sub-Adviser thereunder may be limited by
bankruptcy, insolvency, reorganization, moratorium and
similar laws of general applicability relating to or affecting
creditors' rights.
(iv) The Sub-Adviser has been duly incorporated and
is validly existing under the laws of the jurisdiction of its
domicile, has full power and authority (corporate and other)
to own its properties and conduct its business as described in
the Registration Statement and the Prospectus.
(v) Neither the performance by the Sub-Adviser of its
obligations under this Agreement or the Sub-Advisory Agreement
nor the consummation of the transactions contemplated therein
or in the Registration Statement nor the fulfillment of the
terms thereof will conflict with or violate the Articles of
Incorporation, Regulation of the Board of Directors or similar
organizational documents of the Sub-Adviser to the best
knowledge of such counsel, after due inquiry, conflict with,
result in a breach or violation of, or constitute a default
under, or result in the creation or imposition of any lien,
charge or encumbrance upon any properties or assets of the
Sub-Adviser under the terms and provisions of any agreement,
37
<PAGE> 38
indenture, mortgage, lease or other instrument to which the
Sub-Adviser is a party or by which it may be bound or to which
any of the property or assets of the Sub-Adviser is subject,
nor will such action result in any violation of any order,
law, rule or regulation of any Japanese court or governmental
agency or body, having jurisdiction over the Sub-Adviser or
any of its properties.
In rendering such opinion, such counsel may rely as to matters of U.S. law on
the opinion of Sullivan & Worcester, and matters of fact, to the extent such
counsel deems proper, on certificates of responsible officers of the Sub-Adviser
and public officials.
(5) The favorable opinions, dated the Representation Date and
the Expiration Date, of Shin and Kim, Korean counsel for the Company,
the Manager, the Adviser and the Sub-Adviser, or the opinion of other
counsel of good standing who is satisfactory to counsel for the Dealer
Manager, in form and substance satisfactory to counsel for the Dealer
Manager, to the effect that:
(i) Except as set forth in the Registration Statement
and Prospectus, to the best knowledge of such counsel, there
is no pending or threatened action, suit or proceeding to
which the Company is a party before or by any court or
governmental agency, authority or body or any arbitrator of
Korea which might result in any material adverse change in the
condition (financial or other), business prospects, net worth
or results of operations of the Company, or which might
materially and adversely affect the properties or assets
thereof of a character required to be disclosed in the
Registration Statement or the Prospectus.
(ii) Neither the issuance of the Rights, nor the
issuance and sale of the Shares, nor the performance and
consummation by the Company of any other of the transactions
contemplated in this Agreement nor the consummation of the
transactions contemplated in the Registration Statement will
conflict with, result in a breach or violation of, or
constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any
properties or assets of the Company under the
38
<PAGE> 39
terms and provisions of any agreement, indenture, mortgage,
lease or other instrument to which the Company is a party or
by which it may be bound or to which any of the property or
assets of the Company is subject, nor will such action result
in any violation of any order, law, rule or regulation of any
court or governmental agency or body of Korea having
jurisdiction over the Company or any of its properties.
(iii) To the knowledge of such counsel, the Company
Agreements are still in full force and effect and, to such
counsel's knowledge, neither the Company nor any other party
to any such agreement is in default thereunder and, to the
knowledge of such counsel, no event has occurred which with
the passage of time or the giving of notice or both would
constitute a default thereunder. To the knowledge of such
counsel, the Company is not currently in breach of, or in
default under, any other written agreement or instrument to
which it or its property is bound or affected.
(iv) No consent, approval, authorization,
notification or order of, or any filing with, any court or
governmental agency or body of Korea is required for the
consummation by the Company of the transactions contemplated
by the Company Agreements or the Registration Statement,
except (A) such as have been obtained and (B) such as may be
required as disclosed in the Prospectus.
(v) The Company either owns or possesses all
governmental licenses, permits, consents, orders, approvals or
other authorizations under the laws of Korea to enable the
Company to continue to invest in securities of Korean Issuers
as contemplated in the Prospectus. Neither the execution or
delivery by the Company nor the performance by the Company of
any of its obligations under the Company Agreements
contravenes or constitutes a default under any provision
contained in any law, rule or regulation of any Korean
governmental or regulatory authority or any order or
regulation of any Korean court by which the Company or any of
its assets in Korea is bound or affected.
(vi) No taxes or charges of any kind are or will be
payable in or to Korea, or any political subdivision thereof,
by the Dealer
39
<PAGE> 40
Manager with respect to the Dealer Manager Agreement or the
solicitation of the exercise of the Rights or the purchase or
sale of the Shares hereunder.
(vii) The statements in the Prospectus under the
heading "Taxation-Korean Taxes", insofar as such statements
describe or summarize Korean tax laws, treaties, doctrines or
practices, fairly summarize the matters therein described.
(viii) Neither the performance by the Manager, the
Adviser or the Sub-Adviser, as the case may be, of its
obligations under this or the other Company Agreements to
which the Manager, Adviser or Sub-Adviser, as the case may be,
is a party nor the consummation of the transactions
contemplated therein or in the Registration Statement nor the
fulfillment of the terms thereof will conflict with, result in
a breach or violation of, or constitute a default under, or
result in the creation or imposition of any lien, charge or
encumbrance upon any properties or assets of the Manager, the
Adviser or the Sub-Adviser, as the case may be, under the
terms and provisions of any agreement, indenture, mortgage,
lease or other instrument to which the Manager, the Adviser or
the Sub-Adviser, as the case may be, is a party or by which it
may be bound or to which any of the property or assets of the
Manager, the Adviser or the Sub-Adviser, as the case may be,
is subject, nor will such action result in any violation of
any order, law, rule or regulation of any court or
governmental agency or body, whether foreign or domestic, of
Korea having jurisdiction over the Manager, the Adviser or the
Sub-Adviser, as the case may be, or any of its properties.
(ix) Except as set forth in the Registration
Statement and Prospectus, to the best knowledge of counsel,
there is no pending or threatened action, suit or proceeding
affecting the Manager, the Adviser or the Sub Adviser, as the
case may be, or to which the Manager, the Adviser or the Sub
Adviser, as the case may be, is a party before or by any court
or governmental agency, authority or body or any arbitrator of
Korea which might result in any material adverse change in the
condition (financial or other), business prospects, net worth
or re-
40
<PAGE> 41
sults of operations of the Manager, the Adviser or the
Sub-Adviser, as the case may be, or which might materially and
adversely affect the properties or assets thereof of a
character required to be disclosed in the Registration
Statement or Prospectus.
(x) None of the Manager, the Adviser or the
Sub-Adviser require any governmental licenses, permits,
consents, orders, approvals or other authorizations under the
laws of Korea to enable the Manager, the Adviser or the
Sub-Adviser, as the case may be, to continue to direct
investments in securities of Korean companies as contemplated
in the Prospectus. Neither the execution or delivery by the
Manager, the Adviser or the Sub-Adviser, as the case may be,
nor the performance by the Manager, the Adviser or the
Sub-Adviser, as the case may be, of any of its obligations
under the Company Agreements to which Manager, the Adviser or
the Sub-Adviser, as the case may be, is a party will
contravene or constitute a default under any provision
contained in any law, rule or regulation of any Korean
governmental or regulatory authority or any order or
regulation of any Korean court by which the Manager, the
Adviser or the Sub-Adviser, as the case may be, or any of its
assets in Korea is bound or affected.
(xi) Except as disclosed in the Prospectus, no
consent, approval, authorization, notification or order of, or
any filing with, any court or governmental agency or body is
required under Korean law for the consummation by the Manager,
the Adviser or the Sub-Adviser, as the case may be, of the
transactions contemplated by this Agreement or Company
Agreements to which Manager, the Adviser or the Sub-Adviser,
as the case may be, is a party.
In rendering such opinion, such counsel may rely as to matters of fact, to the
extent such counsel deems proper, on certificates of responsible officers of the
Company, the Manager, the Adviser, the Sub-Adviser and public officials.
Such counsel shall also have stated that, while they have not
themselves checked the accuracy and completeness of or otherwise verified, and
are not passing upon and assume no responsibility for the accuracy or
completeness of, the statements contained in the Regis-
41
<PAGE> 42
tration Statement or the Prospectus, in the course of their review and
discussion of the contents of the Registration Statement and Prospectus with
certain officers and employees of the Company, the Manager, the Adviser, the
Sub-Adviser and its independent accountants, no facts have come to their
attention which cause them to believe that the Registration Statement, on the
date it became effective, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements contained therein not misleading or that the Prospectus, as
of its date and on the Representation Date or the Expiration Date, as the case
may be, contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(c) The Dealer Manager shall have received from Skadden, Arps,
Slate, Meagher & Flom, counsel for the Dealer Manager, such opinion or opinions,
dated the Representation Date and the Expiration Date, with respect to the
Offer, the Registration Statement, the Prospectus and other related matters as
the Dealer Manager may reasonably require, and the Company shall have furnished
to such counsel such documents as they reasonably request for the purpose of
enabling them to pass upon such matters.
(d) The Company shall have furnished to the Dealer Manager
certificates of the Company, signed by the Chairman of the Board, the President,
the Treasurer or a Vice President of the Company, dated the Representation Date
and the Expiration Date, to the effect that the signer(s) of such certificate
carefully examined the Registration Statement, the Prospectus, any supplement to
the Prospectus and this Agreement and that, to the best of their knowledge:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Representation Date or the Expiration Date, as the case may be,
with the same effect as if made on the Representation Date or the
Expiration Date, as the case may be, and the Company has complied with
all the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Representation Date or the
Expiration Date, as the case may be;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued
42
<PAGE> 43
and no proceedings for that purpose have been instituted or, to the
Company's knowledge, threatened; and
(iii) since the date of the most recent balance sheet included
or incorporated by reference in the Prospectus, there has been no
material adverse change in the condition (financial or other),
earnings, business, prospects, net worth or results of operations of
the Company (excluding fluctuations in the Company's net asset value
due to investment activities in the ordinary course of business),
except as set forth in or contemplated in the Prospectus.
(e) Each of the Manager, the Adviser and the Sub-Adviser shall
have furnished to the Dealer Manager certificates of the Manager, the Adviser
and the Sub-Adviser, as the case may be, signed by the Chairman, President,
Treasurer, Vice President or a Director, dated the Representation Date and the
Expiration Date, to the effect that the signer of such certificate has read the
Registration Statement, the Prospectus, any supplement to the Prospectus and
this Agreement and, to the best knowledge of such signer, the representations
and warranties of the Manager, the Adviser and the Sub-Adviser, as the case may
be, in this Agreement are true and correct in all material respects on and as of
the Representation Date or the Expiration Date, as the case may be, with the
same effect as if made on the Representation Date or the Expiration Date, as the
case may be.
(f) Price Waterhouse LLP shall have furnished to the Dealer
Manager letters, dated the Representation Date and the Expiration Date, in form
and substance satisfactory to the Dealer Manager and Price Waterhouse LLP, and
stating in effect that:
(i) they are independent accountants with respect to the
Company within the meaning of the Securities Act and the applicable
published Rules and Regulations;
(ii) in their opinion, the audited financial statements
examined by them and included or incorporated by reference in the
Registration Statement comply as to form in all material respects with
the applicable accounting requirements of the Securities Act and the
Investment Company Act and the respective published Rules and
Regulations with respect to registration statements on Form N-2;
43
<PAGE> 44
(iii) they have performed specified procedures, not
constituting an audit in accordance with generally accepted auditing
standards, including a reading of the latest available unaudited
financial information of the Company, a reading of the minute books of
the Company, inquiries of officials of the Company responsible for
financial and accounting matters and on the basis of such inquiries and
procedures nothing came to their attention that caused them to believe
that at a specified date not more than five business days prior to the
Representation Date, there was any change in the capital stock, any
decrease in net assets or any increase in long-term debt of the Company
as compared with amounts shown in the most recent statement of assets
and liabilities included or incorporated by reference in the
Registration Statement, except as the Registration Statement discloses
has occurred or may occur, or they shall state any specific changes,
increases or decreases;
(iv) in addition to the procedures referred to in clause (iii)
above, they have compared certain dollar amounts (or percentages as
derived from such dollar amounts) and other financial information
regarding the operations of the Company appearing in the Registration
Statement, which have previously been specified by the Dealer Manager
and which shall be specified in such letter, and have found such items
to be in agreement with, the accounting and financial records of the
Company.
(g) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, there shall not have
been (i) any change, increase or decrease specified in the letter or letters
referred to in paragraph (f) of this Section 6, or (ii) any change, or any
development involving a prospective change, in or affecting the business or
properties of the Company, the effect of which, in any case referred to in
clause (i) or (ii) above, is, in the reasonable judgment of the Dealer Manager,
so material and adverse as to make it impractical or inadvisable to proceed with
the Offer as contemplated by the Registration Statement and the Prospectus.
(h) Prior to the Representation Date, the Company shall have
furnished to the Dealer Manager such further information, certificates and
documents as the Dealer Manager may reasonably request.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material
44
<PAGE> 45
respects when and as provided in this Agreement, or if any of the opinions and
certificates mentioned above or elsewhere in this Agreement shall not be in all
material respects satisfactory in form and substance to the Dealer Manager and
its counsel, this Agreement and all obligations of the Dealer Manager hereunder
may be canceled at, or at any time prior to, the Representation Date by the
Dealer Manager. Notice of such cancellation shall be given to the Company in
writing or by telephone confirmed in writing.
7. Indemnification and Contribution.
(a) Each of the Company and the Manager, jointly and
severally, will indemnify and hold harmless the Dealer Manager, the directors,
officers, employees and agents of the Dealer Manager and each person, if any,
who controls the Dealer Manager within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act against any and all losses,
claims, damages and liabilities, joint or several (including any investigation,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim asserted), to
which they, or any of them, may become subject under the Securities Act, the
Exchange Act, the Investment Company Act, the Advisers Act or other statutory
law or regulation, at common law or otherwise, whether foreign or domestic,
insofar as such losses, claims, damages or liabilities arise out of or are based
on any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or the Prospectus, and any amendment or supplement
thereto, or the omission or alleged omission to state in any or all such
documents a material fact required to be stated therein or necessary to make the
statements in it not misleading (in the case of the Prospectus, in light of the
circumstances under which such statements were made), provided, however, that
neither the Company nor the Manager will be liable to the extent that such loss,
claim, damage or liability arises from an untrue statement or omission or
alleged untrue statement or omission (1) made in reliance on and in conformity
with information furnished in writing to the Company by the Dealer Manager
expressly for use in the document, or (2) if a copy of the Prospectus was not
sent or given to the purchaser of Shares at or before the written confirmation
of the sale to such person in any case where such delivery is required by the
Securities Act. This indemnity agreement will be in addition to any liability
that the Company or the Manager might otherwise have.
45
<PAGE> 46
(b) The Dealer Manager will indemnify and hold harmless the
Company and the Manager, the directors, officers and each person, if any, who
controls the Company or the Manager within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, to the same extent as the
foregoing indemnity from the Company or the Manager to the Dealer Manager, but
only insofar as losses, claims, damages or liabilities arise out of or are based
on any untrue statement or omission or alleged untrue statement or omission made
in reliance on and in conformity with information furnished in writing to the
Company by the Dealer Manager expressly for use in preparation of the documents
in which the statement or omission is made or alleged to be made. This indemnity
agreement will be in addition to any liability that the Dealer Manager might
otherwise have.
(c) Any party that proposes to assert the right to be
indemnified under this Section 7 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made, promptly notify each such indemnifying party in writing of the
commencement of such action, enclosing a copy of all papers served, but the
omission to so notify such indemnifying party will not, except to the extent set
forth below, relieve it from liability that it may have to any indemnified
party. No indemnification provided for in Section 7(a) or (b) hereof shall be
available to any party who shall fail to give notice as provided in this Section
7(c) if the party to whom notice was not given was unaware of the proceeding to
which such notice would have related and was prejudiced by the failure to give
such notice, but the omission so to notify such indemnifying party of such
action shall not relieve it from any liability that it may have to any
indemnified party for contribution or otherwise on account of the provisions in
Section 7(a) or (b). If any such action is brought against any indemnified party
and it notifies the indemnifying party of its commencement, the indemnifying
party will be entitled to participate in, and, to the extent that it elects by
delivering written notice to the indemnified party promptly after receiving
notice of the commencement of the action from the indemnified party, jointly
with any other indemnifying party similarly notified, to assume the defense of
the action, with counsel reasonably satisfactory to the indemnified party, and,
after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below and
except for the reasonable costs of investigation subsequently incurred by the
indemnified party in connection with the defense.
46
<PAGE> 47
The indemnified party will have the right to employ its counsel in any such
action, but the fees and expenses of such counsel will be at the expense of such
indemnified party unless (1) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (2) the indemnified
party has reasonably concluded that there may be legal defenses available to it
or other indemnified parties that are different from or in addition to those
available to the indemnifying party (in which case the indemnifying party will
not have the right to direct the defense of such action on behalf of the
indemnified party) or (3) the indemnifying party has not in fact employed
counsel to assume the defense of such action within a reasonable time after
receiving notice of the commencement of the action, in each of which cases the
reasonable fees and expenses of counsel will be at the expense of the
indemnifying party or parties. All such fees and expenses will be reimbursed
promptly as they are incurred upon submission in writing to the indemnifying
party with regard to any cost or expense for which the indemnified party is
seeking indemnification in such form and detail as the indemnifying party may
reasonably request. An indemnifying party will not be liable for any settlement
of any action or claim effected without its written consent or, in connection
with any proceeding or related proceeding in the same jurisdiction, for the fees
and expenses of more than one separate counsel for all indemnified parties
except to the extent provided herein.
(d) In no case shall the indemnification provided in this
Section 7 be available to protect any person against any liability to which any
such person would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of its or his obligations or duties
hereunder, or by reason of its or his reckless disregard of its or his
obligations and duties hereunder.
(e) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 7 is
applicable in accordance with its terms but for any reason is held to be
unavailable from the Company, the Manager or the Dealer Manager, the Company or
the Manager and the Dealer Manager will contribute to the total losses, claims,
damages and liabilities (including any investigation, legal and other expenses
reasonably incurred in connection with, and any amount paid in settlement of,
any action or any claims asserted, but after deducting any contribution received
by the Company, the Manager or from persons other than the Dealer Manager, such
as persons who control the Company or the Manager within the meaning
47
<PAGE> 48
of the Securities Act or the Exchange Act, officers of the Company who signed
the Registration Statement and directors of the Company, who may also be liable
for contribution) to which the Company, the Manager or the Dealer Manager may be
subject in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other hand from the offering of the Shares or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other hand in connection with the statements or omissions or alleged
statements or omissions that resulted in the losses, claims, damages or
liabilities, joint or several (including any investigation, legal or other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted), for which
contribution is sought. The relative benefits received by the Company or the
Manager (treated jointly for this purpose as one person) on the one hand and the
Dealer Manager on the other hand shall be deemed to be in the same proportion as
the total proceeds from the offering (before deducting expenses) received by the
Company bear to the total fees received by the Dealer Manager. The relative
fault of the parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, the Manager or the Dealer Manager, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such statement or omission and any other equitable
considerations appropriate in the circumstances. Notwithstanding any other
provisions of this Section 7, (1) the Dealer Manager will not be responsible for
any amount in excess of the fees paid by the Company pursuant to Section 3
hereof and (2) no person found guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, any person who controls a
party to this Agreement within the meaning of the Securities Act will have the
same rights to contribution as that party, and each officer of the Company who
signed the Registration Statement and each director of the Company will have the
same rights to contribution as the Company, subject in each case to clause (i)
of the first sentence of this Subsection 7(e). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
48
<PAGE> 49
action against such party in respect of which a claim for contribution may be
made under this Section 7, notify such party or parties from whom contribution
may be sought, but the omission so to notify will not relieve the party or
parties from whom contribution may be sought from any other obligation it or
they may have otherwise than under this Section 7. No party will be liable for
contribution with respect to any action or claim settled without its written
consent.
(f) The Company and the Manager agree to indemnify each
Soliciting Dealer and controlling persons to the same extent and subject to the
same conditions and to the same agreements, including with respect to
contribution, provided for in subsections (a), (b), (c), (d) and (e) of this
Section 7.
(g) The Company and the Manager acknowledge that the
statements under the caption "Distribution Arrangements" in the Prospectus
constitute the only information furnished in writing to the Company by the
Dealer Manager expressly for use in such document, and the Dealer Manager
confirms that such statements are correct.
8. Representations, Warranties and Agreements to Survive
Delivery. The respective agreements, representations, warranties, indemnities
and other statements of the Company or its officers, of the Adviser and of the
Dealer Manager set forth in or made pursuant to this Agreement shall survive the
Expiration Date and will remain in full force and effect, regardless of any
investigation made by or on behalf of Dealer Manager or the Company or any of
the officers, directors or controlling persons referred to in Section 7 hereof,
and will survive delivery of and payment for the Shares pursuant to the Offer.
The provisions of Sections 5 and 7 hereof shall survive the termination or
cancellation of this Agreement.
9. Termination of Agreement.
(a) This Agreement shall be subject to termination in the
absolute discretion of the Dealer Manager, by notice given to the Company prior
to the expiration of the Offer, if prior to such time (i) financial, political,
economic, currency, banking or social conditions in the United States or Korea
shall have undergone any material change the effect of which on the financial
markets makes it, in the Dealer Manager's judgment, impracticable or inadvisable
to proceed with the Offer, (ii) there has occurred any outbreak or material
escalation of hostilities or other calamity or crisis the
49
<PAGE> 50
effect of which on the financial markets of the United States or Korea is such
as to make it, in the Dealer Manager's judgment, impracticable or inadvisable to
proceed with the Offer, (iii) trading in the shares of Common Stock shall have
been suspended by the Commission or the New York Stock Exchange, (iv) trading in
securities generally on the New York Stock Exchange shall have been suspended or
limited or (v) a banking moratorium shall have been declared either by Federal
or New York State authorities.
(b) If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party
except as provided in Section 5.
10. Notices. All communications hereunder will be in writing
and effective only on receipt, and, if sent to the Dealer Manager, will be
mailed, delivered or telegraphed and confirmed to PaineWebber Incorporated, 1285
Avenue of the Americas, New York, New York 10019; or if sent to the Company or
the Manager, the Adviser or the Sub-Adviser, will be mailed, or delivered or
telegraphed and confirmed to them at: 82 Devonshire Street, Boston,
Massachusetts 02109, Attn: Arthur S. Loring, Esq., Facsimile No.: (617) 476-0932
with a copy to Rogers & Wells, 200 Park Avenue, New York, New York 10166
(Facsimile No.: 212-878-8375), attention of Laurence E. Cranch, Esq.
11. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and will
inure to the benefit of the officers and directors and controlling persons
referred to in Section 7 hereof, and no other person will have any right or
obligation hereunder.
12. Applicable Law. This Agreement will be governed by and
construed in accordance with the laws of the State of New York without reference
to choice of law principles thereof.
13. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
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<PAGE> 51
If the foregoing is in accordance with your understanding of
our agreement, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among the Company,
the Manager, the Adviser, the Sub-Adviser and the Dealer Manager.
Very truly yours,
Fidelity Advisor Korea Fund, Inc.
By:_________________________
Name:
Title:
Fidelity Management & Research Company
By:_________________________
Name:
Title:
Fidelity International Investment
Advisors
By:_________________________
Name:
Title:
Fidelity Investments Japan Limited
By:_________________________
Name:
Title:
51
<PAGE> 52
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
PaineWebber Incorporated
By:__________________
Name:
Title:
52
<PAGE> 53
Exhibit A
FIDELITY ADVISOR KOREA FUND, INC.
Rights Offering for Shares of Common Stock
SOLICITING DEALER AGREEMENT
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
December __, 1996.(1)
To Securities Dealers and Brokers:
Fidelity Advisor Korea Fund, Inc. (the "Company") is issuing
to its shareholders of record ("Record Date Shareholders") as of the close of
business on November __, 1996 (the "Record Date") non-transferable rights
("Rights") to subscribe for an aggregate of up to _______ shares of Common Stock
(the "Shares") of the Company upon the terms and subject to the conditions set
forth in the Company's Prospectus (the "Prospectus") dated November __, 1996
(the "Offer"). Each such Record Date Shareholder is being issued one Right for
each full share of Common Stock owned on the Record Date. The Rights entitle the
Record Date Shareholder, during the Subscription Period (as hereinafter defined)
to acquire at the Subscription Price (as hereinafter defined), one Share for
each ______ Rights held in the primary subscription. No fractional Shares will
be issued. The Subscription Price will be ____% of the lower of (i) the average
of the last reported sales price of a share of the Company's Common Stock on the
New York Stock Exchange on the date of the expiration of the Offer (the "Pricing
Date") and the four preceding business days and (ii) the net asset value per
share as of the Pricing Date. The Subscription Period will commence on November
__, 1996 and end on the Expiration Date. (With respect to the Offer, the term
"Expiration Date" means 5:00 p.m., New York City time, on December __, 1996,
unless and until the Company shall, in its sole discretion, have extended the
period for which the Offer is open, in which event the term "Expiration Date"
with respect to the Offer will mean the latest time and date on which the Offer,
as so extended by the Company, will expire.) Any Record Date Shareholder who
fully exercises all Rights issued to him is entitled to subscribe for Shares
which were not otherwise subscribed for by others on primary subscription (the
"Over-Subscription Privilege"). Shares acquired
- ----------
(1) Unless extended to a date no later than December __, 1996.
<PAGE> 54
pursuant to the Over-Subscription Privilege are subject to allocation, as more
fully discussed in the Prospectus.
For the duration of the Offer, the Company has agreed to pay
Solicitation Fees to any qualified broker or dealer executing a Soliciting
Dealer Agreement who solicits the exercise of Rights in connection with the
Offer and who complies with the procedures described below (a "Soliciting
Dealer"). Upon timely delivery to State Street Bank and Trust Company, the
Company's Subscription Agent for the Offer, of payment for Shares purchased
pursuant to the exercise of Rights and of properly completed and executed
documentation as set forth in this Soliciting Dealer Agreement, a Soliciting
Dealer will be entitled to receive Solicitation Fees equal to 2.50% of the
Subscription Price per Share so purchased; provided, however, that no payment
shall be due with respect to the issuance of any Shares until payment therefor
is actually received. A qualified broker or dealer is a broker or dealer which
is a member of a registered national securities exchange in the United States or
the National Association of Securities Dealers, Inc. ("NASD") or any foreign
broker or dealer not eligible for membership who agrees to conform to the Rules
of Fair Practice of the NASD, including Sections 2730, 2740, 2420 and 2750
thereof, in making solicitations in the United States to the same extent as if
it were a member thereof.
The Company has agreed to pay the Solicitation Fees payable to
the undersigned Soliciting Dealer and to indemnify such Soliciting Dealer on the
terms set forth in the Dealer Manager Agreement, dated November __, 1996, among
PaineWebber Incorporated as the Dealer Manager, the Company and others (the
"Dealer Manager Agreement"). Solicitation and other activities by Soliciting
Dealers may be undertaken only in accordance with the applicable rules and
regulations of the Securities and Exchange Commission and only in those states
and other jurisdictions where such solicitations and other activities may
lawfully be undertaken and in accordance with the laws thereof. Compensation
will not be paid for solicitations in any state or other jurisdiction in which
the opinion of counsel to the Company or counsel to the Dealer Manager, such
compensation may not lawfully be paid. No Soliciting Dealer shall be paid
Solicitation Fees with respect to Shares purchased pursuant to an exercise of
Rights for its own account or for the account of any affiliate of the Soliciting
Dealer, except that the Dealer Manager shall receive the Solicitation Fees with
respect to Shares purchased pursuant to an exercise of Rights for its own
account provided that such Shares are offered and sold by the Dealer Manager to
its clients. No Soliciting Dealer or any other person is authorized by
A-2
<PAGE> 55
the Company or the Dealer Manager to give any information or make any
representations in connection with the Offer other than those contained in the
Prospectus and other authorized solicitation material furnished by the Company
through the Dealer Manager. No Soliciting Dealer is authorized to act as agent
of the Company or the Dealer Manager in any connection or transaction. In
addition, nothing herein contained shall constitute the Soliciting Dealers
partners with the Dealer Manager or with one another, or agents of the Dealer
Manager or of the Company, or create any association between such parties, or
shall render the Dealer Manager or the Company liable for the obligations of any
Soliciting Dealer. The Dealer Manager shall be under no liability to make any
payment to any Soliciting Dealer, and shall be subject to no other liabilities
to any Soliciting Dealer, and no obligations of any sort shall be implied.
In order for a Soliciting Dealer to receive Solicitation Fees,
the Subscription Agent must have received from such Soliciting Dealer no later
than 5:00 p.m., New York City time, on the Expiration Date, either (i) a
properly completed and duly executed Subscription Certificate with respect to
Shares purchased pursuant to the exercise of Rights and full payment for such
Shares; or (ii) a Notice of Guaranteed Delivery guaranteeing delivery to the
Subscription Agent by close of business on the third business day after the
Expiration Date, of (a) full payment for such Shares and (b) a properly
completed and duly executed Subscription Certificate with respect to Shares
purchased pursuant to the exercise of Rights. Solicitation Fees will only be
paid after receipt by the Subscription Agent of a properly completed and duly
executed Soliciting Dealer Agreement designating the Soliciting Dealer in the
applicable portion hereof. In the case of a Notice of Guaranteed Delivery,
Solicitation Fees will only be paid after delivery in accordance with such
Notice of Guaranteed Delivery has been effected. Solicitation Fees will be paid
by the Company to the Soliciting Dealer by check to an address designated by the
Soliciting Dealer below by the tenth business day after final payment for Shares
as set forth in the Prospectus.
All questions as to the form, validity and eligibility
(including time of receipt) of this Soliciting Dealer Agreement will be
determined by the Company, in its sole discretion, which determination shall be
final and binding. Unless waived, any irregularities in connection with a
Soliciting Dealer Agreement or delivery thereof must be cured within such time
as the Company shall determine. None of the Company, the Dealer Manager, the
Subscription Agent, the Information Agent for the
A-3
<PAGE> 56
Offer, D.F. King & Co. Inc. or any other person will be under any duty to give
notification of any defects or irregularities in any Soliciting Dealer Agreement
or incur any liability for failure to give such notification.
The acceptance of Solicitation Fees from the Company by the
undersigned Soliciting Dealer shall constitute a representation by such
Soliciting Dealer to the Company that: (i) it has received and reviewed the
Prospectus; (ii) in soliciting purchases of Shares pursuant to the exercise of
the Rights, it has complied with the applicable requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the applicable rules and
regulations thereunder, any applicable securities laws of any state or
jurisdiction where such solicitations were made, and the applicable rules and
regulations of any self-regulatory organization or registered national
securities exchange; (iii) in soliciting purchases of Shares pursuant to the
exercise of the Rights, it has not published, circulated or used any soliciting
materials other than the Prospectus and any other authorized solicitation
material furnished by the Company through the Dealer Manager; (iv) it has not
purported to act as agent of the Company or the Dealer Manager in any connection
or transaction relating to the Offer; (v) the information contained in this
soliciting Dealer Agreement is, to its best knowledge, true and complete; (vi)
it is not affiliated with the Company; (vii) it will not accept Solicitation
Fees paid by the Company pursuant to the terms hereof with respect to Shares
purchased by the soliciting Dealer pursuant to an exercise of Rights for its own
account; (viii) it will not remit, directly or indirectly, any part of
Solicitation Fees paid by the Company pursuant to the terms hereof to any
beneficial owner of Shares purchased pursuant to the Offer; and (ix) it has
agreed to the amount of the Solicitation Fees and the terms and conditions set
forth herein with respect to receiving such Solicitation Fees. By returning a
Soliciting Dealer Agreement and accepting Solicitation Fees, a Soliciting Dealer
will be deemed to have agreed to indemnify the Company and the Dealer Manager
against losses, claims, damages and liabilities to which the Company may become
subject as a result of the breach of such Soliciting Dealer's representations
made herein and described above. In making the foregoing representations,
Soliciting Dealers are reminded of the possible applicability of Rule 10b-6
under the Exchange Act if they have bought, sold, dealt in or traded in any
Shares for their own account since the commencement of the Offer.
A-4
<PAGE> 57
Upon expiration of the Offer, no Solicitation Fees will be
payable to Soliciting Dealers with respect to Shares purchased thereafter.
Capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Dealer Manager Agreement or, if not defined
therein, in the Prospectus.
This Soliciting Dealer Agreement will be governed by the laws
of the State of New York.
Please execute this Soliciting Dealer Agreement below
accepting the terms and conditions hereof and confirming that you are a member
firm of the NASD or a foreign broker or dealer not eligible for membership who
has conformed to the Rules of Fair Practice of the NASD, including Sections
2730, 2740, 2420 and 2750 thereof, in making solicitations of the type being
undertaken pursuant to the Offer in the United States to the same extent as if
you were a member thereof, and certifying that you have solicited the purchase
of the Shares pursuant to exercise of the Rights, all as described above, in
accordance with the terms and conditions set forth in this Soliciting Dealer
Agreement. Please forward two executed copies of this Soliciting Dealer
Agreement to Fidelity Advisor Korea Fund, Inc., c/o Arthur S. Loring, Esq. (Tel.
No.: (617) 563-7000; Facsimile No.: (617) 476-0932). A signed copy of this
Soliciting Dealer Agreement will be promptly returned to the Soliciting Dealer
at the address set forth below.
A-5
<PAGE> 58
Very truly yours,
PaineWebber Incorporated
By:____________________________
Name:
Title:
ACCEPTED AND CONFIRMED BY SOLICITING DEALER
_______________________________ _______________________________
Printed Firm Name Address
_______________________________ _______________________________
Authorized Signature Area Code and Telephone Number
_______________________________
Name and Title
Dated: ________________________
Payment of the Solicitation Fee shall be mailed by check to the following
address:
Names of Bank or
other Recipient
Institution: __________________
Address: ____________________
Attention: ____________________
A-6
<PAGE> 1
Exhibit 2(h)(2)
FIDELITY ADVISOR KOREA FUND, INC.
Rights Offering for Shares of Common Stock
SOLICITING DEALER AGREEMENT
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
December __, 1996.(1)
To Securities Dealers and Brokers:
Fidelity Advisor Korea Fund, Inc. (the "Company") is issuing
to its shareholders of record ("Record Date Shareholders") as of the close of
business on November __, 1996 (the "Record Date") non-transferable rights
("Rights") to subscribe for an aggregate of up to _______ shares of Common Stock
(the "Shares") of the Company upon the terms and subject to the conditions set
forth in the Company's Prospectus (the "Prospectus") dated November __, 1996
(the "Offer"). Each such Record Date Shareholder is being issued one Right for
each full share of Common Stock owned on the Record Date. The Rights entitle the
Record Date Shareholder, during the Subscription Period (as hereinafter defined)
to acquire at the Subscription Price (as hereinafter defined), one Share for
each ______ Rights held in the primary subscription. No fractional Shares will
be issued. The Subscription Price will be ____% of the lower of (i) the average
of the last reported sales price of a share of the Company's Common Stock on the
New York Stock Exchange on the date of the expiration of the Offer (the "Pricing
Date") and the four preceding business days and (ii) the net asset value per
share as of the Pricing Date. The Subscription Period will commence on November
__, 1996 and end on the Expiration Date. (With respect to the Offer, the term
"Expiration Date" means 5:00 p.m., New York City time, on December __, 1996,
unless and until the Company shall, in its sole discretion, have extended the
period for which the Offer is open, in which event the term "Expiration Date"
with respect to the Offer will mean the latest time and date on which the Offer,
as so extended by the Company, will expire.) Any Record Date Shareholder who
fully exercises all Rights issued to him is entitled to subscribe for Shares
which were not otherwise subscribed for by others on primary subscription (the
"Over-Subscription Privilege"). Shares acquired
- ----------
(1) Unless extended to a date no later than December __, 1996.
<PAGE> 2
pursuant to the Over-Subscription Privilege are subject to allocation, as more
fully discussed in the Prospectus.
For the duration of the Offer, the Company has agreed to pay
Solicitation Fees to any qualified broker or dealer executing a Soliciting
Dealer Agreement who solicits the exercise of Rights in connection with the
Offer and who complies with the procedures described below (a "Soliciting
Dealer"). Upon timely delivery to State Street Bank and Trust Company, the
Company's Subscription Agent for the Offer, of payment for Shares purchased
pursuant to the exercise of Rights and of properly completed and executed
documentation as set forth in this Soliciting Dealer Agreement, a Soliciting
Dealer will be entitled to receive Solicitation Fees equal to 2.50% of the
Subscription Price per Share so purchased; provided, however, that no payment
shall be due with respect to the issuance of any Shares until payment therefor
is actually received. A qualified broker or dealer is a broker or dealer which
is a member of a registered national securities exchange in the United States or
the National Association of Securities Dealers, Inc. ("NASD") or any foreign
broker or dealer not eligible for membership who agrees to conform to the Rules
of Fair Practice of the NASD, including Sections 2730, 2740, 2420 and 2750
thereof, in making solicitations in the United States to the same extent as if
it were a member thereof.
The Company has agreed to pay the Solicitation Fees payable to
the undersigned Soliciting Dealer and to indemnify such Soliciting Dealer on the
terms set forth in the Dealer Manager Agreement, dated November __, 1996, among
PaineWebber Incorporated as the Dealer Manager, the Company and others (the
"Dealer Manager Agreement"). Solicitation and other activities by Soliciting
Dealers may be undertaken only in accordance with the applicable rules and
regulations of the Securities and Exchange Commission and only in those states
and other jurisdictions where such solicitations and other activities may
lawfully be undertaken and in accordance with the laws thereof. Compensation
will not be paid for solicitations in any state or other jurisdiction in which
the opinion of counsel to the Company or counsel to the Dealer Manager, such
compensation may not lawfully be paid. No Soliciting Dealer shall be paid
Solicitation Fees with respect to Shares purchased pursuant to an exercise of
Rights for its own account or for the account of any affiliate of the Soliciting
Dealer, except that the Dealer Manager shall receive the Solicitation Fees with
respect to Shares purchased pursuant to an exercise of Rights for its own
account provided that such Shares are offered and sold by the Dealer Manager to
its clients. No Soliciting Dealer or any other person is authorized by
A-2
<PAGE> 3
the Company or the Dealer Manager to give any information or make any
representations in connection with the Offer other than those contained in the
Prospectus and other authorized solicitation material furnished by the Company
through the Dealer Manager. No Soliciting Dealer is authorized to act as agent
of the Company or the Dealer Manager in any connection or transaction. In
addition, nothing herein contained shall constitute the Soliciting Dealers
partners with the Dealer Manager or with one another, or agents of the Dealer
Manager or of the Company, or create any association between such parties, or
shall render the Dealer Manager or the Company liable for the obligations of any
Soliciting Dealer. The Dealer Manager shall be under no liability to make any
payment to any Soliciting Dealer, and shall be subject to no other liabilities
to any Soliciting Dealer, and no obligations of any sort shall be implied.
In order for a Soliciting Dealer to receive Solicitation Fees,
the Subscription Agent must have received from such Soliciting Dealer no later
than 5:00 p.m., New York City time, on the Expiration Date, either (i) a
properly completed and duly executed Subscription Certificate with respect to
Shares purchased pursuant to the exercise of Rights and full payment for such
Shares; or (ii) a Notice of Guaranteed Delivery guaranteeing delivery to the
Subscription Agent by close of business on the third business day after the
Expiration Date, of (a) full payment for such Shares and (b) a properly
completed and duly executed Subscription Certificate with respect to Shares
purchased pursuant to the exercise of Rights. Solicitation Fees will only be
paid after receipt by the Subscription Agent of a properly completed and duly
executed Soliciting Dealer Agreement designating the Soliciting Dealer in the
applicable portion hereof. In the case of a Notice of Guaranteed Delivery,
Solicitation Fees will only be paid after delivery in accordance with such
Notice of Guaranteed Delivery has been effected. Solicitation Fees will be paid
by the Company to the Soliciting Dealer by check to an address designated by the
Soliciting Dealer below by the tenth business day after final payment for Shares
as set forth in the Prospectus.
All questions as to the form, validity and eligibility
(including time of receipt) of this Soliciting Dealer Agreement will be
determined by the Company, in its sole discretion, which determination shall be
final and binding. Unless waived, any irregularities in connection with a
Soliciting Dealer Agreement or delivery thereof must be cured within such time
as the Company shall determine. None of the Company, the Dealer Manager, the
Subscription Agent, the Information Agent for the
A-3
<PAGE> 4
Offer, D.F. King & Co. Inc. or any other person will be under any duty to give
notification of any defects or irregularities in any Soliciting Dealer Agreement
or incur any liability for failure to give such notification.
The acceptance of Solicitation Fees from the Company by the
undersigned Soliciting Dealer shall constitute a representation by such
Soliciting Dealer to the Company that: (i) it has received and reviewed the
Prospectus; (ii) in soliciting purchases of Shares pursuant to the exercise of
the Rights, it has complied with the applicable requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the applicable rules and
regulations thereunder, any applicable securities laws of any state or
jurisdiction where such solicitations were made, and the applicable rules and
regulations of any self-regulatory organization or registered national
securities exchange; (iii) in soliciting purchases of Shares pursuant to the
exercise of the Rights, it has not published, circulated or used any soliciting
materials other than the Prospectus and any other authorized solicitation
material furnished by the Company through the Dealer Manager; (iv) it has not
purported to act as agent of the Company or the Dealer Manager in any connection
or transaction relating to the Offer; (v) the information contained in this
soliciting Dealer Agreement is, to its best knowledge, true and complete; (vi)
it is not affiliated with the Company; (vii) it will not accept Solicitation
Fees paid by the Company pursuant to the terms hereof with respect to Shares
purchased by the soliciting Dealer pursuant to an exercise of Rights for its own
account; (viii) it will not remit, directly or indirectly, any part of
Solicitation Fees paid by the Company pursuant to the terms hereof to any
beneficial owner of Shares purchased pursuant to the Offer; and (ix) it has
agreed to the amount of the Solicitation Fees and the terms and conditions set
forth herein with respect to receiving such Solicitation Fees. By returning a
Soliciting Dealer Agreement and accepting Solicitation Fees, a Soliciting Dealer
will be deemed to have agreed to indemnify the Company and the Dealer Manager
against losses, claims, damages and liabilities to which the Company may become
subject as a result of the breach of such Soliciting Dealer's representations
made herein and described above. In making the foregoing representations,
Soliciting Dealers are reminded of the possible applicability of Rule 10b-6
under the Exchange Act if they have bought, sold, dealt in or traded in any
Shares for their own account since the commencement of the Offer.
A-4
<PAGE> 5
Upon expiration of the Offer, no Solicitation Fees will be
payable to Soliciting Dealers with respect to Shares purchased thereafter.
Capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Dealer Manager Agreement or, if not defined
therein, in the Prospectus.
This Soliciting Dealer Agreement will be governed by the laws
of the State of New York.
Please execute this Soliciting Dealer Agreement below
accepting the terms and conditions hereof and confirming that you are a member
firm of the NASD or a foreign broker or dealer not eligible for membership who
has conformed to the Rules of Fair Practice of the NASD, including Sections
2730, 2740, 2420 and 2750 thereof, in making solicitations of the type being
undertaken pursuant to the Offer in the United States to the same extent as if
you were a member thereof, and certifying that you have solicited the purchase
of the Shares pursuant to exercise of the Rights, all as described above, in
accordance with the terms and conditions set forth in this Soliciting Dealer
Agreement. Please forward two executed copies of this Soliciting Dealer
Agreement to Fidelity Advisor Korea Fund, Inc., c/o Arthur S. Loring, Esq. (Tel.
No.: (617) 563-7000; Facsimile No.: (617) 476-0932). A signed copy of this
Soliciting Dealer Agreement will be promptly returned to the Soliciting Dealer
at the address set forth below.
A-5
<PAGE> 6
Very truly yours,
PaineWebber Incorporated
By:____________________________
Name:
Title:
ACCEPTED AND CONFIRMED BY SOLICITING DEALER
_______________________________ _______________________________
Printed Firm Name Address
_______________________________ _______________________________
Authorized Signature Area Code and Telephone Number
_______________________________
Name and Title
Dated: ________________________
Payment of the Solicitation Fee shall be mailed by check to the following
address:
Names of Bank or
other Recipient
Institution: __________________
Address: ____________________
Attention: ____________________
A-6
<PAGE> 1
[Rogers & Wells Letterhead]
November 12, 1996
Fidelity Advisor Korea Fund, Inc.
82 Devonshire Street
Boston, Massachusetts 02109
Ladies and Gentlemen:
We have acted as counsel for Fidelity Advisor Korea Fund, Inc., a Maryland
corporation (the "Fund"), in connection with the preparation and filing with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, of a Registration Statement
on Form N-2 (File Nos. 333-14049 and 811-8608) (the "Registration Statement")
relating to the Fund's issuance of non-transferable rights (the "Rights") to
subscribe for up to 1,469,031 shares of Common Stock of the Fund, par value
$0.001 per share (the "Shares").
In so acting, we have examined and relied upon originals or copies,
certified or otherwise identified to our satisfaction, of such corporate
records, documents, certificates and other instruments as in our judgment are
necessary or appropriate to enable us to render the opinions expressed below.
Based upon the foregoing, and on such examination of law as we have deemed
necessary, we are of the opinion that:
1. The Fund has been duly incorporated and is validly existing in good
standing under the laws of the State of Maryland.
2. The issuance of the Rights and the sale of the Shares have been duly
authorized and, when issued as contemplated in the Registration Statement, the
Rights will be legally issued and, when issued and paid for as contemplated in
the Registration Statement, the Shares will be legally issued, fully paid and
non-assessable.
We consent to the filing of this opinion with the Securities and Exchange
Commission as an Exhibit to the Registration Statement and to the reference to
this firm under the heading "Legal Matters" in the Prospectus included in such
Registration Statement. In giving this consent, we do not admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities and Exchange Act of 1933, as amended, or the rules and regulations of
the Securities and Exchange Commission thereunder.
As to certain matters governed by the laws of the State of Maryland, we
have relied on the opinion of Piper & Marbury, L.L.P., a copy of which is
attached hereto.
Very truly yours,
/s/ Rogers & Wells
<PAGE> 1
[PIPER & MARBURY L.L.P. LETTERHEAD]
November 12, 1996
Rogers & Wells
200 Park Avenue
New York, New York 10166
Re: FIDELITY ADVISOR KOREA FUND, INC.
Ladies and Gentlemen:
We have acted as Maryland counsel to Fidelity Advisor Korea Fund,Inc.,
a Maryland corporation (the "Company"), in connection with the Company's
Registration Statement on Form N-2, including all amendments or supplements
thereto, filed with the Securities and Exchange Commission ( the "Commission")
under the Securities Act of 1933, as amended (the "Act"), and the Investment
Company Act of 1940, as amended (File Nos. 333-14049 and 811-8608) and the
issuance of additional shares of the Company's Common Stock, par value of $0.001
per share (the "Shares"), pursuant to the Company's non-transferable Rights
Offering.
In this capacity, we have examined the Company's charter and
by-laws,the proceedings of the Board of Directors of the Company relating to
the issuance of the Shares and such other statutes, certificates, instruments
and documents relating to the Company and matters of law as we have deemed
necessary to the issuance of this opinion. In such examination, we have assumed
the genuineness of all signatures, the conformity of final documents in all
material respects to the versions thereof submitted to us in draft form, the
authenticity of all documents submitted to us as originals, and the conformity
with originals of all documents submitted to us as copies.
Based upon the foregoing, and limited in all respects to applicable
Maryland law, we are of the opinion and advise you that:
1. The Company has been duly incorporated and is validly existing as
a corporation under the laws of the State of Maryland.
2. The Shares to be issued by the Company pursuant to the
Registration Statement have been duly authorized and, when issued as
contemplated in the Registration Statement, will be validly issued, fully paid
and non-assessable.
You may rely upon this opinion in rendering your opinion to the Company
which is to be filed as an exhibit to the Registration Statement. We hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement. In giving our consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Act or the
Rules and Regulations of the Commission thereunder.
Very truly yours,
/s/ Piper & Marbury L.L.P.
<PAGE> 1
[Shin & Kim Letterhead]
November 12, 1996
Fidelity Advisor Korea Fund, Inc.
82 Devonshire Street
Boston, MA 02109
U.S.A.
Re: Fidelity Advisor Korea Fund, Inc.
SEC File No. 333-14049
--------------------------------------
Ladies and Gentlemen:
We have acted as Korean counsel to Fidelity Advisor Korea Fund, Inc.
in connection with the preparation and filing of a registration statement on
Form N-2 (the "Registration Statement") relating to the offering of up to
1,469,031 shares of common stock.
As such counsel, it is our opinion that the conclusions based on
Korean tax law expressed under the heading "Taxation-Korean Taxes" in the
Prospectus (the "Prospectus") contained in the Registration Statement and in the
Statement of Additional Information contained in the Registration Statement are
true and correct.
We consent to the use of this letter as an exhibit to the Registration
Statement and to the reference to us in the Prospectus under the section
captioned "Legal Matters". In giving our consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the Rules and Regulations of the
Securities and Exchange Commission thereunder.
Sincerely yours,
/s/ Shin & Kim
Shin & Kim
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting part of this Pre-Effective
Amendment No. 1 to the registration statement (Securities Act of 1933 No.
333-14049 and Investment Company Act of 1940 No. 811-8608) on Form N-2 (the
"Registration Statement") of our report dated September 30, 1996, relating to
the financial statements and financial highlights appearing in the September 30,
1996 Annual Report to Shareholders of The Fidelity Advisor Korea Fund, Inc.
which is incorporated by reference into the Registration Statement.
We also consent to the references to us under the headings "Financial
Highlights" and "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
November 12, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 54,242,499
<INVESTMENTS-AT-VALUE> 46,759,837
<RECEIVABLES> 769,129
<ASSETS-OTHER> 96,778
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 47,626,064
<PAYABLE-FOR-SECURITIES> 150,634
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 294,106
<TOTAL-LIABILITIES> 444,740
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 60,816,311
<SHARES-COMMON-STOCK> 4,407,093
<SHARES-COMMON-PRIOR> 4,407,093
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,148,766)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (7,486,221)
<NET-ASSETS> 47,181,324
<DIVIDEND-INCOME> 564,108
<INTEREST-INCOME> 31,375
<OTHER-INCOME> 0
<EXPENSES-NET> 961,067
<NET-INVESTMENT-INCOME> (365,584)
<REALIZED-GAINS-CURRENT> (2,556,498)
<APPREC-INCREASE-CURRENT> (5,499,790)
<NET-CHANGE-FROM-OPS> (8,421,872)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (8,421,872)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (3,644,398)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 536,280
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 964,848
<AVERAGE-NET-ASSETS> 53,654,817
<PER-SHARE-NAV-BEGIN> 12.62
<PER-SHARE-NII> (.08)
<PER-SHARE-GAIN-APPREC> (1.83)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 00
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<PER-SHARE-NAV-END> 10.71
<EXPENSE-RATIO> 1.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
