OFFER TO PURCHASE FOR CASH
UP TO 2,996,371 OF THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK
OF
THE KOREA FUND, INC.
AT 98% OF NET ASSET VALUE PER SHARE
BY
THE KOREA FUND, INC.
THE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN TIME,
ON FEBRUARY 16, 2006, UNLESS THE OFFER IS EXTENDED.
THIS OFFER IS SUBJECT TO IMPORTANT TERMS AND CONDITIONS, INCLUDING THE
CONDITIONS LISTED UNDER "CERTAIN CONDITIONS OF THE OFFER."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS OFFER, PASSED UPON THE FAIRNESS
OR MERITS OF THE OFFER OR DETERMINED WHETHER THIS OFFER TO PURCHASE IS ACCURATE
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIME.
To the Shareholders of The Korea Fund, Inc.:
The Korea Fund, Inc., a non-diversified, closed-end management investment
company incorporated under the laws of the state of Maryland (the "Fund"), is
offering to purchase up to 2,996,371 of its issued and outstanding shares of
Common Stock, par value $0.01 per share (the "Shares"). As of January 17, 2006,
29,963,705 Shares were outstanding. The offer is for cash at a price equal to
98% of the net asset value ("NAV") per Share determined as of the close of the
regular trading session of the New York Stock Exchange, the principal market in
which the Shares are traded (the "NYSE"), on the business day after the day the
offer expires, and is upon the terms and subject to the conditions set forth in
this Offer to Purchase and the related Letter of Transmittal (which together
with any amendments or supplements thereto collectively constitute the "Offer").
The Offer will expire at 12:00 midnight, Eastern time, on February 16, 2006,
unless extended. The Shares are traded on the NYSE under the symbol "KF". The
NAV as of the close of the regular trading session of the NYSE on January 17,
2006 was $40.18 per Share and the last reported sale price on the NYSE on such
date for a Share was $37.75. Until the Offer expires, NAV quotations can be
obtained from Georgeson Shareholder Communications Inc. (the "Information
Agent") by calling (800) 843-0369 between the hours of 9:00 a.m. and 5:00 p.m.,
Eastern time, Monday through Friday (except holidays). Tendering shareholders
will not be obliged to pay brokerage fees or commissions or, except as set forth
in the Letter of Transmittal, stock transfer taxes on the purchase of Shares by
the Fund pursuant to the Offer. The Fund will pay all charges and expenses of
the Information Agent and The Colbent Corporation (the "Depositary"). The Fund
mailed this Offer to Purchase and the accompanying Letter of Transmittal to
record holders on or about January 19, 2006.
IMPORTANT INFORMATION
Shareholders who desire to tender their Shares should either: (a) properly
complete and sign the Letter of Transmittal, provide thereon the original of any
required signature guarantee(s) and mail or deliver it together with the
certificates for the Shares (in proper certificated or uncertificated form) and
any other documents required by the Letter of Transmittal; or (b) request their
broker, dealer, commercial bank, trust company or other nominee to effect the
transaction on their behalf. Shareholders who desire to tender Shares registered
in the name of such a brokerage firm or other financial intermediary must
contact that firm to effect a tender on their behalf. Tendering shareholders
will not be obligated to pay brokerage commissions in connection with their
tender of Shares, but they may be charged a fee by a brokerage firm or other
financial intermediary for processing the tender(s) on their behalf. The Fund
reserves the absolute right to reject tenders determined not to be in
appropriate form.
IF YOU DO NOT WISH TO TENDER YOUR SHARES, YOU NEED NOT TAKE ANY ACTION.
NEITHER THE FUND NOR ITS BOARD OF DIRECTORS NOR DEUTSCHE INVESTMENT MANAGEMENT
AMERICAS INC., THE FUND'S INVESTMENT MANAGER (THE "MANAGER"), NOR DEUTSCHE
INVESTMENTS TRUST MANAGEMENT COMPANY LIMITED, THE FUND'S SUBADVISER (THE
"SUBADVISER"), MAKES ANY RECOMMENDATION TO ANY SHAREHOLDER AS TO WHETHER TO
TENDER OR REFRAIN FROM TENDERING SHARES. NO PERSON HAS BEEN AUTHORIZED TO MAKE
ANY RECOMMENDATION ON BEHALF OF THE FUND, ITS BOARD OF DIRECTORS, THE MANAGER OR
THE SUBADVISER AS TO WHETHER SHAREHOLDERS SHOULD TENDER OR REFRAIN FROM
TENDERING SHARES PURSUANT TO THE OFFER OR TO MAKE ANY REPRESENTATION OR TO GIVE
ANY INFORMATION IN CONNECTION WITH THE OFFER OTHER THAN AS CONTAINED HEREIN OR
IN THE LETTER OF TRANSMITTAL. IF MADE OR GIVEN, ANY SUCH RECOMMENDATION,
REPRESENTATION OR INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND, ITS BOARD OF DIRECTORS, THE MANAGER OR THE SUBADVISER. SHAREHOLDERS
ARE URGED TO EVALUATE CAREFULLY ALL INFORMATION IN THE OFFER, CONSULT THEIR OWN
INVESTMENT AND TAX ADVISERS AND MAKE THEIR OWN DECISIONS WHETHER TO TENDER OR
REFRAIN FROM TENDERING THEIR SHARES.
THE FUND HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION") A TENDER OFFER STATEMENT ON SCHEDULE TO UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), RELATING TO THE OFFER.
TABLE OF CONTENTS
<Table>
1. PRICE; NUMBER OF SHARES..................................... 4
2. PURPOSE OF THE OFFER, PLANS OR PROPOSALS OF THE FUND........ 4
3. CERTAIN CONDITIONS OF THE OFFER............................. 6
4. PROCEDURES FOR TENDERING SHARES............................. 7
5. WITHDRAWAL RIGHTS........................................... 9
6. PAYMENT FOR SHARES.......................................... 10
7. SOURCE AND AMOUNT OF FUNDS.................................. 11
8. EFFECTS OF THE OFFER; CONSEQUENCES OF PARTICIPATION......... 11
9. PRICE RANGE OF SHARES; DIVIDENDS/DISTRIBUTIONS.............. 14
10. SELECTED FINANCIAL INFORMATION.............................. 14
11. INTEREST OF DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN
RELATED PERSONS............................................. 17
12. CERTAIN INFORMATION ABOUT THE FUND.......................... 18
13. ADDITIONAL INFORMATION...................................... 18
14. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES....... 19
15. CERTAIN KOREAN TAX CONSEQUENCES............................. 20
16. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS................. 21
17. AMENDMENTS; EXTENSION OF TENDER PERIOD; TERMINATION......... 21
18. MISCELLANEOUS............................................... 22
</Table>
i
SUMMARY TERM SHEET
This summary highlights important information concerning this tender offer.
To understand the tender offer fully and for a more complete discussion of the
terms and conditions of the tender offer, you should read carefully this entire
Offer to Purchase and the related Letter of Transmittal.
WHAT IS THE TENDER OFFER?
- The Korea Fund, Inc. is offering to purchase up to 2,996,371 shares of
common stock for cash at a price per share equal to 98% of the per share
net asset value as of the close of regular trading session of the New
York Stock Exchange on the business day after the day the tender offer
expires. Unless extended, the tender offer will expire at 12:00 midnight,
Eastern time, on February 16, 2006. The tender offer is subject to a
number of conditions. See "Certain Conditions of the Offer."
WHY IS THE FUND MAKING THIS TENDER OFFER?
- This tender offer is being made in connection with the program of tender
offers announced by the Board on December 15, 2004. Pursuant to this
program, the Fund plans to conduct six semi-annual tender offers for 10%
of the Fund's then-outstanding shares if the Fund's shares trade on the
New York Stock Exchange at an average weekly discount from net asset
value greater than 5% during a 13-week measuring period ending the last
day of the preceding half-year. This tender offer is the first such
tender offer. The average weekly discount of the Fund during the
measuring period ending December 31, 2005 was 5.63%.
The Fund is making the tender offer to provide shareholders with an
alternative source of liquidity for their investment in Fund shares and
as part of the Fund's continuous efforts to provide additional value to
shareholders. The tender offer provides a means for shareholders who wish
to sell a portion of their Fund shares to do so at close to net asset
value per share. See "Purpose of the Offer; Plans or Proposals of the
Fund."
WHY IS THE FUND OFFERING TO PAY ME CASH INSTEAD OF PORTFOLIO SECURITIES IN THIS
TENDER OFFER?
- Although the program of purchase offers announced by the Board on
December 15, 2004 originally contemplated in-kind purchase offers in
which tendering shareholders would receive a pro rata share of the Fund's
portfolio, rather than cash, the Fund has determined that a cash tender
offer will be more beneficial to Fund shareholders because it will
facilitate participation by smaller shareholders and result in lower
transaction costs.
WHEN WILL THE TENDER OFFER EXPIRE, AND MAY THE TENDER OFFER BE EXTENDED?
- The tender offer will expire at 12:00 midnight, Eastern time, on February
16, 2006, unless extended. The Fund may elect at any time to extend the
expiration date of the tender offer. If the tender offer is extended, the
Fund will issue a press release announcing the extension. See
"Amendments; Extension of Tender Period; Termination."
WHAT IS THE NET ASSET VALUE PER FUND SHARE AS OF A RECENT DATE?
- As of January 17, 2006, the net asset value per share was $40.18 and the
last reported sales price on the New York Stock Exchange for a share of
the Fund's common stock was $37.75. See "Price Range of Shares;
Dividends/ Distributions" for more information regarding the trading
range of the common stock and the Fund's net asset value per share during
the past two years. Before the tender offer expires, net asset value
quotations can be obtained from Georgeson Shareholder Communications Inc.
by calling (800) 843-0369 between 9:00 a.m. and 5:00 p.m., Eastern time,
Monday through Friday (except holidays).
WILL THE FUND'S NET ASSET VALUE PER SHARE BE HIGHER OR LOWER ON THE DATE THAT
THE PRICE TO BE PAID FOR TENDERED SHARES IS TO BE DETERMINED?
- No one can accurately predict the Fund's net asset value per share at a
future date.
HOW DO I TENDER MY SHARES?
- In order for your shares to be purchased in the tender offer, you must
follow the procedures set forth in "Procedures for Tendering Shares" and
in the Letter of Transmittal that accompanies this Offer to Purchase.
MUST I TENDER ALL OF MY SHARES?
- No. You may tender either all or any smaller number of shares you own
unless you own not more than 99 shares total, in which case you must
tender either all or none of your shares.
MAY I WITHDRAW MY SHARES AFTER I HAVE TENDERED THEM AND, IF SO, BY WHEN?
- Yes, you may withdraw your shares at any time prior to 12:00 midnight,
Eastern time, on February 16, 2006 or, if the offer is extended, at any
time prior to 5:00 p.m., Eastern time, on the new expiration date. In
order to be effective, the Depositary must receive your notice of
withdrawal prior to the expiration of the tender offer at one of the
addresses on the back cover of this Offer to Purchase. You may retender
withdrawn shares by following the tender procedures before the offer
expires, including any extension period. In addition, if we have not
accepted for payment shares you tendered, you may withdraw your tendered
shares at any time after March 17, 2006 and prior to their acceptance for
payment. See "Withdrawal Rights."
HOW DO I WITHDRAW TENDERED SHARES?
- A notice of withdrawal of tendered shares must be timely received by the
Depositary which specifies the name of the shareholder who tendered the
shares, the number of shares being withdrawn (which must be all of the
shares tendered) and, as regards share certificates which represent
tendered shares that have been delivered or otherwise identified to the
Depositary, the name of the registered owner of such shares if different
than the person who tendered the shares. See "Withdrawal Rights."
MAY I PLACE ANY CONDITIONS ON MY TENDER OF SHARES?
- No.
WHAT IF MORE THAN 2,996,371 SHARES ARE TENDERED AND NOT TIMELY WITHDRAWN?
- The Fund is offering to purchase up to 2,996,371 shares of its common
stock. If shareholders tender more than 2,996,371 shares, the Fund will
purchase duly tendered shares from tendering shareholders on a pro rata
basis, disregarding fractions, based upon the number of shares each
shareholder tenders and does not timely withdraw except that, if a
shareholder owns beneficially or of record not more than 99 shares, the
Fund will purchase all shares tendered by such shareholder. The Fund does
not intend to increase the number of shares that it is offering to
purchase, even if shareholders tender more than 2,996,371 shares.
DOES THE FUND HAVE THE FINANCIAL RESOURCES TO MAKE PAYMENT FOR TENDERED SHARES?
- Yes. The Fund expects to pay for tendered shares with cash on hand and
proceeds from the sale of portfolio securities. The Fund is authorized to
borrow for temporary or emergency purposes, and, to the extent that the
Fund does not have sufficient resources through cash on hand and the
disposition of portfolio securities to purchase shares in the tender
offer, it intends to finance a portion of the Offer through temporary
borrowing. See "Source and Amount of Funds."
IF SHARES I TENDER ARE ACCEPTED BY THE FUND, WHEN WILL PAYMENT BE MADE?
- Payment for tendered shares, if accepted, will be made as soon as
possible after the expiration of the tender offer.
IS MY SALE OF SHARES IN THE TENDER OFFER A TAXABLE TRANSACTION?
- It is anticipated that U.S. shareholders (other than those who are tax
exempt) who sell shares in the tender offer will generally recognize gain
or loss for U.S. federal income tax purposes equal to the difference
between the cash they receive for the shares sold and their adjusted
basis in the shares sold. The sale date for tax purposes will be the date
the Fund accepts shares for purchase. See "Certain United States Federal
Income Tax Consequences" for a general summary of the U.S. federal income
tax consequences of a sale of shares pursuant to the tender offer,
including the possibility that different tax treatment may apply; the
differing rules for U.S. and non-U.S. shareholders; and the potential
imposition of withholding taxes on payments to non-U.S. Shareholders and
any tendering shareholders who have not completed and returned certain
required IRS forms. Please consult
2
your tax advisor for a full understanding of your individual tax
consequences, including potential state, local and foreign taxation.
UPON EXPIRATION, IS THE FUND REQUIRED TO COMPLETE THE TENDER OFFER AND PURCHASE
ALL SHARES TENDERED UP TO THE NUMBER OF SHARES TENDERED FOR?
- Yes, unless certain conditions described under "Certain Conditions of the
Offer" are not satisfied. The Fund also has the right to amend or
terminate the tender offer prior to the time the tender offer expires.
IS THERE ANY REASON SHARES TENDERED WOULD NOT BE ACCEPTED?
- In addition to those circumstances described under "Certain Conditions of
the Offer" in which the Fund is not required to accept tendered shares,
the Fund reserves the right to reject any and all tenders determined by
it not to be in appropriate form. The Fund may reject tenders of shares
if, for instance, the Letter of Transmittal does not include original
signature(s) or the original of any required signature guarantee(s).
HOW WILL TENDERED SHARES BE ACCEPTED FOR PAYMENT?
- Properly tendered shares, up to the number tendered for, will be accepted
for payment by a determination of the Fund's Board of Directors followed
by notice of acceptance to the Depositary, which is thereafter to make
payment as directed by the Fund with funds to be deposited with it by the
Fund. See "Payment for Shares."
WHAT ACTION NEED I TAKE IF I DECIDE NOT TO TENDER MY SHARES?
- None.
DOES THE FUND'S MANAGEMENT RECOMMEND THAT SHAREHOLDERS PARTICIPATE IN THE TENDER
OFFER, AND WILL THEY PARTICIPATE IN THE TENDER OFFER?
- None of the Fund, its Board of Directors, its investment manager or its
subadviser is making any recommendation to the Fund's shareholders
whether or not to tender shares in the tender offer. None of the Fund's
directors or officers intend to tender the shares they beneficially own
in the tender offer. See "Interests of Directors, Executive Officers and
Certain Related Persons."
WILL THERE BE ADDITIONAL OPPORTUNITIES TO TENDER SHARES TO THE FUND?
- The Fund plans to conduct up to five additional semi-annual tender offers
for 10% of the Fund's then-outstanding shares if the Fund's shares trade
on the New York Stock Exchange at an average weekly discount from net
asset value greater than 5% during a 13-week measuring period ending the
last day of the preceding half-year. See "Purpose of the Offer; Plans or
Proposals of the Fund."
HOW DO I OBTAIN MORE INFORMATION?
- Questions, requests for assistance and requests for additional copies of
the Offer to Purchase, the Letter of Transmittal and all other tender
offer documents should be directed to the Information Agent, toll free at
(800) 843-0369. If you do not own shares directly, you should obtain this
information and the documents from your broker, dealer, commercial bank,
trust company or other nominee, as appropriate.
3
1. PRICE; NUMBER OF SHARES. Upon the terms and subject to the conditions
of the Offer (including, if the Offer is extended or modified, the terms and
conditions of any such extension or amendment), the Fund will accept for payment
and purchase for cash up to 2,996,371 of its issued and outstanding Shares that
are properly tendered and not withdrawn in accordance with Section 5 prior to
12:00 midnight, Eastern time, on the Expiration Date. The term "Expiration Date"
shall mean February 16, 2006, unless the Fund, in its sole discretion, shall
extend the period the Offer is open, in which case Expiration Date shall mean
the last date the Offer, as so extended by the Fund, shall expire. The Fund
reserves the right in its sole discretion and for any reason to amend, extend or
terminate the Offer. (See Sections 3 and 17.) The Fund will not be obligated to
purchase Shares pursuant to the Offer under certain circumstances. (See Section
3.) The purchase price of the Shares will be 98% of their NAV per Share
determined as of the close of the regular trading session of the NYSE on the
business day after the Expiration Date. The Fund will not pay interest on the
purchase price under any circumstances.
The NAV as of the close of the regular trading session of the NYSE on
January 17, 2006 was $40.18 per Share and the last reported sale price of a
Share on the NYSE on that date was $37.75, representing a discount of 6.05% to
NAV. Prior to 5:00 p.m., Eastern time, on the Expiration Date, NAV quotations
can be obtained from the Information Agent by calling (800) 843-0369 between the
hours of 9:00 a.m. and 5:00 p.m., Eastern time, Monday through Friday (except
holidays).
The Offer is being made to all shareholders and is not conditioned upon
shareholders tendering in the aggregate any minimum number of Shares.
If more than 2,996,371 Shares are duly tendered pursuant to the Offer (and
not withdrawn as provided in Section 5), the Fund, subject to the conditions
listed in Section 3, will purchase Shares from tendering shareholders in
accordance with the terms and conditions specified in the Offer, on a pro rata
basis (disregarding fractions) based upon the number of Shares duly tendered
(and not subsequently withdrawn) by or on behalf of each shareholder; provided,
that the Fund will exclude from such pro rata reduction and accept all Shares
duly tendered in accordance with the terms and conditions specified in the Offer
by any shareholder who owns, beneficially or of record, an aggregate of not more
than 99 Shares and who promptly tenders such Shares by means of the Letter of
Transmittal. The Fund does not intend to increase the number of Shares offered
for purchase, even if more than 2,996,371 Shares are tendered by all
shareholders in the aggregate.
On January 17, 2006, there were 29,963,705 Shares issued and outstanding,
and there were 1,097 holders of record of Shares. Certain of these holders of
record were brokers, dealers, commercial banks, trust companies and other
institutions that held legal title to Shares as nominee on behalf of multiple
beneficial owners.
2. PURPOSE OF THE OFFER, PLANS OR PROPOSALS OF THE FUND. The Board of
Directors of the Fund (the "Board") considered and approved the Offer at a
meeting held on January 11, 2006.
The Fund is making the Offer to provide shareholders with an alternative
source of liquidity for their investment in Shares and as part of the Fund's
continuous efforts to provide additional value to shareholders. The Offer
provides a means for shareholders who want to sell a portion of their Shares to
do so at close to NAV per Share.
The Board for many years has sought to address the discount to net asset
value at which Shares of the Fund have traded in ways consistent with the best
interests of shareholders and applicable regulatory requirements. The Board has
considered a wide variety of strategies to address the discount. Past actions
taken by the Board have included the purchase of Shares pursuant to a cash
tender offer, a special in-kind dividend in the form of American Depository
Receipts representing shares of a Fund portfolio company, a market Share
buy-back program, purchases of Shares pursuant to the Fund's dividend
reinvestment plan, and efforts to increase publicity about the Fund.
On April 25, 2003, the Board announced that it would initiate a special
review of alternatives that would enable shareholders to receive value that
would be near net asset value for at least a portion of their Shares by April
2004. On January 21, 2004, the Board announced that the Fund would conduct a
tender offer and that the Board had approved a program of making additional
tender offers, one in the first quarter of 2005 and one in the first quarter of
2006, in each case for 10% of the outstanding Shares at a price of 95% of net
asset value if the Shares traded on the NYSE at an average weekly discount from
net asset value greater than 15% during a 13-week measuring period ending the
preceding December 31, and subject to fiduciary and other applicable
requirements (the "Previous Program"). On January 23, 2004, the Fund commenced a
cash tender offer for up to 10% of its outstanding Shares at a price equal to
95% of NAV per
4
Share as of the close of the regular trading session of the NYSE on the day
after the business day the offer expired. The tender offer expired on February
23, 2004. A total of 4,966,408.9739 Shares were accepted for payment under the
offer.
On December 15, 2004, the Fund announced its approval, subject to fiduciary
and other applicable requirements and regulatory approvals, of a purchase of 50%
of outstanding Shares at a price equal to 98% of the NAV per Share as of the day
after the date such offer expired. The Fund also announced its approval of a
plan to conduct six subsequent semi-annual purchase offers in accordance with
section 23(c)(2) under the Investment Company Act of 1940 (the "1940 Act") and
rule 13e-4 under Exchange Act, each for 10% of the then outstanding Shares at a
price equal to 98% of NAV per Share as of the day after the date each such offer
expires, if Shares trade on the NYSE at an average weekly discount from NAV
greater than 5% during a 13-week measuring period ending the last day of the
preceding half-year (the "Repurchase Program"). Payment for any Shares purchased
pursuant to the Repurchase Program would be made in-kind through a pro rata
distribution of securities from the Fund's portfolio on the day after the date
such offer expires. In light of the authorization by the Fund of the Repurchase
Program, the Fund announced the termination of the Previous Program.
On July 8, 2005, the Fund commenced a tender offer for up to 22,350,747
shares, representing approximately 50% of its issued and outstanding shares of
common stock in exchange for portfolio securities of the Fund at a price per
share equal to 98% of the net asset value per share as of the day after the day
the offer expires. On August 25, 2005, the Fund announced that it had accepted,
after adjusting for fractional shares in accordance with the terms of the offer,
the tender of 14,737,788 shares. This represented approximately 33% of the
Fund's outstanding shares.
The average weekly discount of the Fund during the 13-week measuring period
ending December 31, 2005 was 5.63%. On January 11, 2006, the Board met to
consider a 10% repurchase offer pursuant to the Repurchase Program. The Board
determined that although the Repurchase Program originally contemplated in-kind
purchase offers in which tendering shareholders would receive a pro rata share
of the Fund's portfolio, rather than cash, the Fund would conduct this tender
offer for cash consideration. The Board believes that using cash consideration
will facilitate participation by smaller shareholders and result in lower
transaction costs. The Board intends to evaluate on a case-by-case basis the
consideration for any future offers under the repurchase program, in light of
its experience and then-prevailing market and economic conditions.
The Board believes that maintaining the Fund's closed-end structure
provides the best means to achieve the Fund's investment objective of long-term
capital appreciation, especially given the emerging nature of the Korean capital
markets, the volatility and the limited liquidity of many of the Fund's holdings
and other relevant market conditions. The Board believes that the long-term and
recent performance of the Fund supports this view.
There can be no assurance that this Offer or any other actions taken by the
Board will reduce or eliminate any market price discount from NAV of the Fund's
Shares. The market price of the Fund shares will also be determined by, among
other things, the relative demand for and supply of Fund shares 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.
Any Shares acquired by the Fund pursuant to the Offer will become treasury
shares and will be available for issuance by the Fund without further
shareholder action (except as required by applicable law or the rules of
national securities exchanges on which the Shares are listed).
Except as set forth above, as referred to in Section 11 or in connection
with the operation of the Fund's Dividend Reinvestment Plan, the Fund does not
have any present plans or proposals and is not engaged in any negotiations that
relate to or would result in: (a) any extraordinary transaction, such as a
merger, reorganization or liquidation, involving the Fund or any of its
subsidiaries; (b) other than in connection with transactions in the ordinary
course of the Fund's operations and for purposes of funding the Offer, any
purchase, sale or transfer of a material amount of assets of the Fund or any of
its subsidiaries; (c) any material change in the Fund's present dividend policy,
or indebtedness or capitalization of the Fund; (d) changes to the present Board
or management of the Fund, including changes to the number or the term of
members of the Board, the filling of any existing vacancies on the Board or
changes to any material term of the employment contract of any executive
officer; (e) any other material change in the Fund's corporate structure or
business, including any plans or proposals to make any changes in the Fund's
investment policy for which a vote would be required
5
by Section 13 of the 1940 Act; (f) any class of equity securities of the Fund to
be delisted from a national securities exchange or to cease to be authorized to
be quoted in an automated quotations system operated by a national securities
association; (g) any class of equity securities of the Fund becoming eligible
for termination of registration pursuant to Section 12(g)(4) of the Exchange
Act; (h) the suspension of the Fund's obligation to file reports pursuant to
Section 15(d) of the Exchange Act; (i) the acquisition by any person of
additional securities of the Fund, or the disposition of securities of the Fund;
or (j) any changes in the Fund's charter, bylaws or other governing instruments
or other actions that could impede the acquisition of control of the Fund.
3. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision of
the Offer, and in addition to (and not in limitation of) the Fund's right to
extend, amend or terminate the Offer at any time in its sole discretion, the
Fund shall not be required to accept for purchase or, subject to the applicable
rules and regulations of the Commission, including Rule 14e-1(c) under the
Exchange Act, pay for, and may delay the acceptance for, payment of or payment
for any tendered Shares, if:
(a) the Fund is not able to liquidate portfolio securities in an
orderly manner and consistent with the Fund's investment objective and
policies or its status as a regulated investment company under the Internal
Revenue Code of 1986 (the "Code") in order to provide sufficient cash from
the disposition of portfolio securities to purchase Shares tendered
pursuant to the Offer;
(b) there shall be instituted, pending or threatened before any
governmental entity or court any action, proceeding, application or claim,
or there shall be any judgment, order or injunction sought or any other
action taken by any person or entity, which restrains, prohibits or
materially delays the making or consummation of the Offer, challenges the
acquisition by the Fund of any Shares pursuant to the Offer or the Board's
fulfillment of its fiduciary obligations in connection with the Offer or
the Repurchase Program, seeks to obtain any material amount of damages in
connection with the Offer or the Repurchase Program, or otherwise directly
or indirectly adversely effects the Offer, the Repurchase Program or the
Fund;
(c) there shall have occurred: (i) any general suspension of trading
in or limitation on prices for securities on the NYSE, the Stock Market
Division or the KOSDAQ Market Division of the Korea Exchange, or any other
exchange on which the Shares or portfolio securities held by the Fund are
traded; (ii) any declaration of a banking moratorium or similar action
materially adverse to the Fund by U.S. federal, state or local authorities
or any governmental authority of the Republic of South Korea ("Korea") or
any other foreign jurisdiction, or any suspension of payment material to
the Fund by banks in the United States, the State of New York, Korea or any
other jurisdiction; (iii) any limitation having a material adverse effect
on the Fund or the issuers of its portfolio securities that is imposed by
U.S. federal, state or local authorities, or by any governmental authority
of Korea or any other foreign jurisdiction, with respect to the extension
of credit by lending institutions or the convertibility of foreign
currencies; (iv) the commencement of war, armed hostilities, terrorist
action or any other international or national calamity directly or
indirectly involving the United States or Korea; or (v) any other event or
condition which, in the Board's judgment, would have a material adverse
effect on the Fund or its shareholders if the Offer were consummated; or
(d) the Board determines that effecting the Offer would be
inconsistent with applicable legal requirements or would constitute a
breach of the Board's fiduciary duty owed to the Fund or its shareholders.
The Board may modify these conditions in light of experience.
The foregoing conditions are for the Fund's sole benefit and may be
asserted by the Fund regardless of the circumstances giving rise to any such
condition (including any action or inaction of the Fund), and any such condition
may be waived by the Fund, in whole or in part, at any time and from time to
time in its reasonable judgment. The Fund's failure at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right; the
waiver of any such right with respect to particular facts and circumstances
shall not be deemed a waiver with respect to any other facts or circumstances;
and each such right shall be deemed an ongoing right which may be asserted at
any time and from time to time. Any determination by the Fund concerning the
events described in this Section 3 shall be final and binding.
The Fund reserves the right, at any time during the pendency of the Offer,
to amend, extend or terminate the Offer in any respect. (See Section 17.)
6
4. PROCEDURES FOR TENDERING SHARES.
A. PROPER TENDER OF SHARES. For Shares to be properly tendered pursuant to
the Offer, a shareholder must cause a properly completed and duly executed
Letter of Transmittal bearing original signature(s) and the original of any
required signature guarantee(s), and any other documents required by the Letter
of Transmittal, to be received by the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase and must either: (a) cause
certificates for tendered Shares to be received by the Depositary at such
address or cause such Shares to be delivered pursuant to the procedures for
book-entry delivery set forth below (and confirmation of receipt of such
delivery to be received by the Depositary), in each case before 12:00 midnight,
Eastern time, on the Expiration Date; or (b) (in lieu of the delivery of such
Share certificates prior to 12:00 midnight, Eastern time, on the Expiration
Date) such shareholder must comply with the guaranteed delivery procedures set
forth below. Letters of Transmittal and certificates representing tendered
Shares should not be sent or delivered to the Fund. Shareholders who desire to
tender Shares registered in the name of a broker, dealer, commercial bank, trust
company or other nominee must contact that firm to effect a tender on their
behalf.
Section 14(e) of the Exchange Act and Rule 14e-4 promulgated thereunder
make it unlawful for any person, acting alone or in concert with others,
directly or indirectly, to request a tender of Shares pursuant to the Offer
unless at the time of the request, and at the time the Shares are accepted for
payment, the person requesting the tender has a net long position equal to or
greater than the amount requested for tender in either: (a) Shares, and will
deliver or cause to be delivered such Shares for the purpose of tender to the
Fund within the period specified in the Offer; or (b) an equivalent security
and, upon the acceptance of his or her request to tender, will acquire Shares by
conversion, exchange, or exercise of such equivalent security to the extent
required by the terms of the Offer, and will deliver or cause to be delivered
the Shares so acquired for the purpose of requesting the tender to the Fund
prior to or on the Expiration Date. Section 14(e) and Rule 14e-4 provide a
similar restriction applicable to the request to tender or guarantee of a
request to tender on behalf of another person.
The acceptance of Shares by the Fund for purchase will constitute a binding
agreement between the participating shareholder and the Fund upon the terms and
subject to the conditions of the Offer, including the participating
shareholder's representation that the shareholder has a net long position in the
Shares being tendered for purchase within the meaning of Rule 14e-4 and that the
request to tender such Shares complies with Rule 14e-4.
B. SIGNATURE GUARANTEES AND METHOD OF DELIVERY. No signature guarantee is
required if: (a) the Letter of Transmittal is signed by the registered holder(s)
(including, for purposes of this document, any participant in The Depository
Trust Company ("DTC") book-entry transfer facility whose name appears on DTC's
security position listing as the owner of Shares) of the Shares tendered
thereby, unless such holder(s) has completed either the box entitled "Special
Payment Instructions" or the box entitled "Special Delivery Instructions" in the
Letter of Transmittal; or (b) the Shares tendered are tendered for the account
of a firm (an "Eligible Institution") which is a broker, dealer, commercial
bank, credit union, savings association or other entity and which is a member in
good standing of a stock transfer association's approved medallion program (such
as STAMP, SEMP or MSP). In all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution. (See Instruction 2 of
the Letter of Transmittal.)
If the Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered for purchase thereby, the signature(s) must correspond with the
name(s) as written on the face of the certificate(s) for the Shares tendered for
purchase without alteration, enlargement or any change whatsoever.
If any of the Shares tendered for purchase thereby are owned of record by
two or more joint owners, all such owners must sign the Letter of Transmittal.
If any of the Shares tendered for purchase are registered in different
names, it is necessary to complete, sign and submit as many separate Letters of
Transmittal as there are different registrations.
If the Letter of Transmittal or any certificates for Shares tendered for
purchase or stock powers relating to Shares tendered for purchase are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and proper evidence satisfactory to the
Fund of their authority so to act must be submitted together with the Letter of
Transmittal.
If the Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered for purchase, no endorsements of certificates or separate stock
powers with respect to such Shares are required unless payment is to be
7
made to, or certificates for Shares not purchased are to be issued in the name
of, a person other than the registered holder(s). Signatures on such
certificates or stock powers must be guaranteed by an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder(s) of the certificate(s) listed thereon, the certificate(s)
must be endorsed or accompanied by appropriate stock powers, in either case
signed exactly as the name(s) of the registered holder(s) appear(s) on the
certificate(s) for the Shares involved. Signatures on such certificates or stock
powers must be guaranteed by an Eligible Institution. (See subsection D of this
Section 4.)
C. BOOK-ENTRY DELIVERY. The Depositary has established an account with
respect to the Shares at DTC for purposes of the Offer. Any financial
institution that is a participant in the DTC system may make book-entry delivery
of tendered Shares by causing DTC to transfer such Shares into the Depositary's
account at DTC in accordance with DTC's procedures for such transfers. However,
although delivery of Shares may be effected through book-entry transfer into the
Depositary's account at DTC, a Letter of Transmittal (or a copy or facsimile
thereof) properly completed and bearing original signature(s) and the original
of any required signature guarantee(s), or an Agent's Message (as defined below)
in connection with a book-entry transfer and any other documents required by the
Letter of Transmittal, must in any case be received by the Depositary prior to
12:00 midnight, Eastern time, on the Expiration Date at one of its addresses set
forth on the back cover page of this Offer to Purchase, or the tendering
shareholder must comply with the guaranteed delivery procedures described below.
The term "Agent's Message" means a message from DTC transmitted to, and
received by, the Depositary forming a part of a timely confirmation of a
book-entry transfer of Shares (a "Book-Entry Confirmation") which states that:
(a) DTC has received an express acknowledgment from the DTC participant
tendering the Shares for purchase that are the subject of the Book-Entry
Confirmation; (b) the DTC participant has received and agrees to be bound by the
terms of the Letter of Transmittal; and (c) the Fund may enforce such agreement
against the DTC participant. Delivery of documents to DTC in accordance with
DTC's procedures does not constitute delivery to the Depositary.
D. GUARANTEED DELIVERY. Notwithstanding the foregoing, if a shareholder
desires to tender Shares pursuant to the Offer and the certificates for the
Shares to be tendered are not immediately available, or time will not permit the
Letter of Transmittal and all documents required by the Letter of Transmittal to
reach the Depositary prior to 12:00 midnight, Eastern time, on the Expiration
Date, or a shareholder cannot complete the procedures for delivery by book-entry
transfer on a timely basis, then such shareholder's Shares nevertheless may be
tendered, provided that all of the following conditions are satisfied:
(a) the tender is made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed
Delivery in the form provided by the Fund is received by the Depositary
prior to 12:00 midnight, Eastern time, on the Expiration Date; and
(c) the certificates for all such tendered Shares, in proper form for
transfer, or a Book-Entry Confirmation with respect to such Shares, as the
case may be, together with a Letter of Transmittal (or a copy or facsimile
thereof) properly completed and bearing original signature(s) and the
original of any required signature guarantee(s) (or, in the case of a
book-entry transfer, an Agent's Message) and any documents required by the
Letter of Transmittal, are received by the Depositary prior to 5:00 p.m.,
Eastern time, on the third NYSE trading day after the date of receipt by
the Depositary of a properly completed and duly executed Notice of
Guarantee Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile transmission or mail to the Depositary and must include a guarantee
by an Eligible Institution and a representation that the shareholder owns the
Shares tendered within the meaning of, and that the tender of the Shares
effected thereby complies with, Rule 14e-4 under the Exchange Act, each in the
form set forth in the Notice of Guaranteed Delivery.
THE METHOD OF DELIVERY OF ANY DOCUMENTS, INCLUDING SHARE CERTIFICATES, THE
LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, IS AT THE OPTION AND
SOLE RISK OF THE TENDERING SHAREHOLDER. IF DOCUMENTS ARE SENT BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
Shareholders have the responsibility to cause: (a) their shares to be tendered
(in proper certificated or uncertificated form); (b) the timely delivery of a
properly completed Letter of Transmittal (or a copy or facsimile thereof)
(including original signature(s) and the original of any required signature
guarantee(s)); and (c) the timely delivery of all other
8
documents required by the Letter of Transmittal. Timely delivery is a condition
precedent to acceptance of Shares for purchase pursuant to the Offer.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of Share certificates evidencing such Shares or a
Book-Entry Confirmation of the delivery of such Shares (if available), a Letter
of Transmittal (or a copy or facsimile thereof) properly completed and bearing
original signature(s) and the original of any required signature guarantee(s)
or, in the case of a book-entry transfer, an Agent's Message and any other
documents required by the Letter of Transmittal.
FAILURE OF A PARTICIPATING SHAREHOLDER TO SUBMIT THE DOCUMENTATION
DESCRIBED ABOVE WILL RESULT IN AN INVALID SUBMISSION OF SHARES FOR PARTICIPATION
IN THE OFFER AND, ACCORDINGLY, SUCH SHAREHOLDER'S SUBMITTED SHARES WILL NOT BE
ACCEPTED FOR PURCHASE.
E. DETERMINATIONS OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of tenders will be
determined by the Fund, in its sole discretion, which determination shall be
final and binding. The Fund reserves the absolute right to reject any or all
tenders determined not to be in appropriate form or to refuse to accept for
payment, purchase or pay for, any Shares if, in the opinion of the Fund's
counsel, accepting, purchasing or paying for such Shares would be unlawful. The
Fund also reserves the absolute right to waive any of the conditions of the
Offer or any defect in any tender, whether generally or with respect to any
particular Share(s) or shareholder(s). The Fund's interpretations of the terms
and conditions of the Offer (including the Letter of Transmittal and the
instructions thereto) shall be final and binding.
NEITHER THE FUND, ITS BOARD OF DIRECTORS, THE MANAGER, THE SUBADVISER, THE
INFORMATION AGENT, THE DEPOSITARY NOR ANY OTHER PERSON IS OR WILL BE OBLIGATED
TO GIVE ANY NOTICE OF ANY DEFECT OR IRREGULARITY IN ANY TENDER, AND NONE OF THEM
WILL INCUR ANY LIABILITY FOR FAILURE TO GIVE ANY SUCH NOTICE.
F. UNITED STATES FEDERAL INCOME TAX WITHHOLDING. To prevent U.S. federal
income tax backup withholding at a rate generally equal to 28% of the gross
payments made pursuant to the Offer, each participating U.S. Shareholder (as
defined below) should complete the Substitute Form W-9 included in the Letter of
Transmittal and provide such form to the Depositary. A "U.S. Shareholder" is, in
general, a shareholder that is: (a) an individual who is a citizen or resident
of the United States; (b) a corporation or partnership, or other entity taxed as
a corporation or partnership, created or organized in or under the laws of the
United States, any State thereof or the District of Columbia; (c) an estate the
income of which is subject to United States federal income taxation regardless
of the source of such income; or (d) a trust if a court within the United States
is able to exercise primary supervision over the administration of the trust and
one or more U.S. persons have the authority to control all substantial decisions
of the trust.
Participating Non-U.S. Shareholders (as defined below) must submit a Form
W-8BEN or other Form W-8, as appropriate, to the Depositary in order to avoid
backup withholding. (An exemption from backup withholding does not exempt a
non-U.S. Shareholder from the 30% (or lower applicable treaty rate) withholding
tax described under "Certain United States Federal Income Tax Consequences.")
For this purpose, a "Non-U.S. Shareholder" is any shareholder that is not a U.S.
Shareholder. Copies of Form W-8BEN are provided with the Letter of Transmittal
for Non-U.S. Shareholders. Other types of Form W-8 can be found on the IRS
website at www.irs.gov/formspubs/index.html.
5. WITHDRAWAL RIGHTS. At any time prior to 12:00 midnight, Eastern time,
on the Expiration Date, and, if the Shares have not by then been accepted for
payment by the Fund, at any time after March 17, 2006, any shareholder may
withdraw all, but not less than all, of the Shares that the shareholder has
tendered.
To be effective, a written notice of withdrawal of Shares tendered must be
timely received by the Depositary at one of its addresses set forth on the back
cover of this Offer to Purchase. Shareholders may also send a facsimile
transmission notice of withdrawal, which must be timely received by the
Depositary by 12:00 midnight, Eastern time, on February 16, 2006, and the
original notice of withdrawal must be delivered to the Depositary by overnight
courier or by hand the next day. Any notice of withdrawal must specify the
name(s) of the person having tendered the Shares to be withdrawn, the number of
Shares to be withdrawn (which may not be less than all of the Shares tendered by
the shareholder) and, if one or more certificates representing such Shares have
been delivered or otherwise identified to the Depositary, the name(s)
9
of the registered owner(s) of such Shares as set forth in such certificate(s) if
different from the name(s) of the person tendering the Shares. If one or more
certificates have been delivered to the Depositary, then, prior to the release
of such certificate(s), the certificate number(s) shown on the particular
certificate(s) evidencing such Shares must also be submitted and the signature
on the notice of withdrawal must be guaranteed by an Eligible Institution.
All questions as to the validity, form and eligibility (including time of
receipt) of notices of withdrawal will be determined by the Fund in its sole
discretion, which determination shall be final and binding. Shares properly
withdrawn will not thereafter be deemed to be tendered for purposes of the
Offer. Withdrawn Shares, however, may be re-tendered by following the procedures
described in Section 4 prior to 12:00 midnight, Eastern time, on the Expiration
Date. Except as otherwise provided in this Section 5, tenders of Shares made
pursuant to the Offer will be irrevocable.
NEITHER THE FUND, ITS BOARD OF DIRECTORS, THE MANAGER, THE SUBADVISER, THE
INFORMATION AGENT, THE DEPOSITARY NOR ANY OTHER PERSON IS OR WILL BE OBLIGATED
TO GIVE ANY NOTICE OF ANY DEFECT OR IRREGULARITY IN ANY NOTICE OF WITHDRAWAL,
NOR SHALL ANY OF THEM INCUR ANY LIABILITY FOR FAILURE TO GIVE ANY SUCH NOTICE.
6. PAYMENT FOR SHARES. For purposes of the Offer, the Fund will be deemed
to have accepted for payment and purchased Shares that are tendered (and not
withdrawn in accordance with Section 5) when, as and if it gives oral or written
notice to the Depositary of its acceptance of such Shares for payment pursuant
to the Offer. Under the Exchange Act, the Fund is obligated to pay for or return
tendered Shares promptly after the termination, expiration or withdrawal of the
Offer. Upon the terms and subject to the conditions of the Offer, the Fund will
pay for Shares properly tendered as soon as practicable after the Expiration
Date. The Fund will make payment for Shares purchased pursuant to the Offer by
depositing the aggregate purchase price therefor with the Depositary, which will
make payment to shareholders promptly as directed by the Fund. Upon the deposit
of funds with the Depositary for the purpose of making payment to validly
tendering shareholders, the Fund's obligation to make such payment shall be
satisfied and such tendering shareholders must thereafter look solely to the
Depositary for payment of the amounts owed to them by reason of the acceptance
of the Shares pursuant to the Offer. The Fund will not pay interest on the
purchase price under any circumstances.
In all cases, payment for Shares purchased pursuant to the Offer will be
made only after timely receipt by the Depositary of:
- (a) a Letter of Transmittal (or a copy thereof) properly completed and
duly executed and any required signature guarantee(s), or an Agent's
Message in connection with a book-entry transfer;
- (b) a certificate evidencing Shares or timely confirmation of a
book-entry transfer of such Shares into the Depositary's account at DTC
pursuant to the procedure set forth in Section 4; and
- (c) any other documents required by the Letter of Transmittal.
The Fund is paying the costs of conducting the Offer, which include the
costs of printing and mailing materials to shareholders, certain legal and
filing fees, certain taxes and the fees and expenses of the Depositary and
Information Agent. The Fund will pay all stock transfer taxes, if any, with
respect to the transfer and sale of Shares to it pursuant to the Offer and
deduct a corresponding amount from the purchase price paid to the participating
shareholder tendering such Shares. If tendered Shares are registered in the name
of any person other than the person signing the Letter of Transmittal, the
amount of any such transfer taxes (whether imposed on the registered owner or
such other person) payable on account of the transfer to such person of such
Shares will also be deducted from the purchase price, unless satisfactory
evidence of the payment of such taxes, or exemption therefrom, is submitted.
Brokers, dealers or other institutions also may charge fees to a participating
shareholder for processing a purchase request and sending it to the Depositary.
Certificates representing Shares tendered but not purchased will be
returned promptly following the termination, expiration or withdrawal of the
Offer, without further expense to the tendering shareholder. The Fund may not be
obligated to purchase Shares pursuant to the Offer under certain conditions.
(See Section 3.)
Any tendering shareholder or other payee who fails to complete fully and
sign either the appropriate type of Form W-8 or Substitute Form W-9 in the
Letter of Transmittal and provide that form to the Depositary may be subject to
federal backup withholding tax of 28% of the gross proceeds paid to such
shareholder or other payee pursuant to the Offer. See
10
Section 13 regarding this tax as well as possible withholding at the rate of 30%
(or lower applicable treaty rate) on the gross proceeds payable to tendering
Non-U.S. Shareholders.
7. SOURCE AND AMOUNT OF FUNDS. The actual cost of the Offer to the Fund
cannot be determined at this time because the number of Shares to be purchased
will depend on the number of Shares tendered, and the price will be based on the
NAV per Share on the business day after the Expiration Date. If the NAV per
Share on the business day after the Expiration Date were $40.18, which was the
NAV per Share on January 17, 2006, and if shareholders tender 10% of the Fund's
outstanding Shares pursuant to the Offer, the estimated payments by the Fund to
the shareholders would be approximately $117,997,089.98. (See the Pro Forma
Capitalization table in Section 8.)
The Fund anticipates that it will obtain the cash necessary to pay the
aggregate purchase price on Shares accepted for payment pursuant to the Offer
through the Fund's holdings of cash and the sale of portfolio securities. The
selection of which portfolio securities to sell will be made by the Manager,
taking into account investment merit, relative liquidity and applicable
investment restrictions and legal requirements. Because the Fund may sell
portfolio securities to raise cash for the purchase of Shares, during the
pendency of the Offer, and possibly for a short time thereafter, the Fund may
hold a greater than normal percentage of its assets in cash and cash
equivalents, which may effect the Fund's investment performance. The Fund may
also realize taxable gain upon the sale of such securities, which may increase
the taxable distribution to the shareholders with respect to the current fiscal
year. It is not possible to predict the amount of taxable gain the Fund will
recognize in liquidating portfolio securities. As of January 17, 2006, cash and
cash equivalents constituted approximately 0.93% of the Fund's total assets.
Although the Fund is authorized to borrow money to finance the purchase of
Shares, the Board believes that the Fund will have sufficient resources through
cash on hand and the disposition of assets to purchase Shares in the Offer
without utilizing such borrowing. However, the Fund reserves the right to
finance a portion of the Offer through temporary borrowing. The Fund is
authorized to borrow money for temporary or emergency purposes, and to the
extent the Fund does not have sufficient resources through cash on hand and the
disposition of portfolio securities to purchase Shares in the Offer, it intends
to finance a portion of the Offer through temporary borrowing. The Fund and
other investment companies or portfolios thereof advised by the Manager are
parties to a $1.1 billion revolving credit facility (the "Facility")
administered by J.P. Morgan Chase Bank. The Facility is intended primarily to
cover temporary or emergency needs of the Funds that otherwise might require the
untimely disposition of securities. The participants in the Facility are charged
an annual commitment fee which is allocated, pro rata based upon net assets,
among each of the participants. Interest is calculated at the Federal Funds Rate
plus 0.5 percent. The Fund may borrow up to a maximum of 5% of its net assets
under the Facility. The amounts available to be drawn down by the Fund under the
Facility will depend upon the level of borrowings by other funds that are
parties to the Facility, and accordingly it is possible that the Fund may not be
able to borrow under the Facility the amounts desired.
8. EFFECTS OF THE OFFER; CONSEQUENCES OF PARTICIPATION. THE OFFER MAY HAVE
CERTAIN ADVERSE CONSEQUENCES FOR TENDERING AND NON-TENDERING SHAREHOLDERS.
A. EFFECT ON NAV AND CONSIDERATION RECEIVED BY TENDERING SHAREHOLDERS. If
the Fund is required to sell a substantial amount of portfolio securities to
raise cash to finance the Offer, the market prices of portfolio securities being
sold and/or the Fund's remaining portfolio securities may decline and hence the
Fund's NAV may decline. If any such decline occurs, the Fund cannot predict what
its magnitude might be or whether such a decline would be temporary or continue
to or beyond the Expiration Date. Because the price per Share to be paid in the
Offer will be dependent upon the NAV per Share as determined on the business day
after the Expiration Date, if such a decline were to continue up to the business
day after the Expiration Date, the consideration received by tendering
shareholders would be reduced. In addition, the sale of portfolio securities
will cause the incurrence of increased brokerage and related transaction
expenses, and the Fund may receive proceeds from the sale of portfolio
securities less than their valuations by the Fund. Accordingly, obtaining the
cash to consummate the Offer may result in a decrease in the Fund's NAV per
Share, thereby reducing the amount of proceeds received by tendering
shareholders and the NAV per Share for non-tendering shareholders.
11
Shareholders should note, however, that the Offer may result in accretion
to the Fund's NAV per Share following the Offer, due to the fact that the
purchase price represents a 2% discount to the Fund's NAV per Share. The
potential accretion to the Fund's NAV per Share may offset in whole or in part
any decline in the Fund's NAV as discussed above.
The Fund will likely sell portfolio securities during the pendency of the
Offer to raise cash for the purchase of Shares. Thus, during the pendency of the
Offer, and possibly for a short time thereafter, the Fund will likely hold a
greater than normal percentage of its net assets in cash and cash equivalents.
The Fund will pay for tendered Shares it accepts for payment promptly after the
Expiration Date of this Offer. Because the Fund will not know the number of
Shares tendered until the Expiration Date, the Fund will not know until the
Expiration Date the amount of cash required to pay for such Shares. If on or
prior to the Expiration Date the Fund does not have, or believes it is unlikely
to have, sufficient cash to pay for all Shares tendered, it may terminate the
Offer (see Section 3) or extend the Offer to allow additional time to sell
portfolio securities and raise sufficient cash.
B. RECOGNITION OF CAPITAL GAINS BY THE FUND. As noted in Section 7, the
Fund expects that it will sell portfolio securities to finance the Offer and
that it will likely recognize gains on the sale of those securities. Under the
Code, in order to avoid the imposition of income and excise taxes on the Fund,
the Fund is generally required to distribute to its shareholders each year
substantially all of its "investment company taxable income" (which includes
ordinary income and net short term capital gains) and net long term capital
gains for the year. It is likely that the Fund's purchase of Shares pursuant to
the Offer will not be treated for U.S. federal income tax purposes as a
distribution by the Fund that would satisfy the annual distribution requirement.
(See Section 14.) As a result, if the Fund realizes substantial gains on the
disposition of portfolio securities to fund the purchase of shares, the Fund
will likely be required to increase the amount of its taxable distributions to
shareholders with respect to the current year. The Fund expects that any such
distribution will be declared by the Board in December, 2006 and distributed to
shareholders in January, 2007, in accordance with the Fund's regular practice.
If there is such a recognition and distribution of gains, the Fund's
shareholders on the record date for the distribution would be required to pay
taxes on a greater amount of income and capital gain distributions than
otherwise would be the case. In addition, to raise cash to make the
distribution, the Fund might need to sell additional portfolio securities, which
could require the Fund to realize and recognize additional capital gains. As an
alternative to actually distributing all its gains to shareholders, the Code
permits the Fund to: (a) retain all or part of its net long term capital gains;
(b) pay federal income tax on such retained amount; and (c) make a federal
income tax election to deem the retained amount (including U.S. tax paid by the
Fund) to have been distributed to shareholders and recontributed (net of the tax
amount) to the Fund. Such an election could mitigate the negative cash impact
the Fund would experience in connection with the additional distribution
requirements caused by the Offer. Shareholders would be required to include the
"deemed" distribution in income, but (a) could credit their share of the taxes
paid by the Fund against their own tax liability (and, if their share of the
taxes paid by the Fund exceeds their own U.S. federal tax liability, claim a
refund of the excess amount from the U.S. Treasury), and (b) would increase
their basis in their Fund shares by the net amount deemed distributed (i.e., the
gross retained amount, less the taxes paid by the Fund). Shareholders should
consult their tax advisers for additional information about the tax consequences
of a "deemed" distribution in their individual circumstances. It is not possible
to predict the amount of capital gains or losses that will be recognized by the
Fund on the sale of portfolio securities to finance the purchase of Shares
pursuant to the Offer. As of January 17, 2006, the Fund had unrealized gains of
approximately $910,701,187, unrealized losses of approximately $2,808,349,
resulting in net unrealized gains of approximately $907,892,838. The Fund does
not have any loss carry-forwards from prior years available to offset gains
generated in the current year. The Board of Directors of the Fund will determine
whether and to what extent the Fund will make an actual or deemed distribution
of capital gains to shareholders, based on the facts and circumstances of the
Fund at the time any distribution is required to be made.
In addition, some of the distributed gains may be realized on securities
held for one year or less, which could generate income taxable to the
non-tendering shareholders (or shareholders who sell less than all of their
Shares) at ordinary income rates. This could adversely affect the Fund's
after-tax performance.
C. TAX CONSEQUENCES OF PURCHASES TO STOCKHOLDERS. The Fund's purchase of
tendered Shares pursuant to the Offer will have tax consequences for tendering
shareholders and may have tax consequences for non-tendering shareholders. (See
Section 14.)
D. HIGHER EXPENSE RATIO AND LESS INVESTMENT FLEXIBILITY. If the Fund
purchases a substantial number of Shares pursuant to the Offer, the net assets
of the Fund will be reduced accordingly. The reduced net assets of the Fund as a
12
result of the Offer will result in a higher expense ratio for the Fund and
possibly in less investment flexibility for the Fund, depending on the number of
Shares purchased.
E. PRO FORMA EFFECTS ON CAPITALIZATION. The purchase by the Fund of its
own Shares will reduce the Fund's net assets (that is, its assets less its
liabilities). The following table sets forth the net assets of the Fund as of
January 17, 2006, adjusted to give effect to the offer (excluding expenses and
assuming the Fund purchases 10% of its outstanding Shares):
PRO FORMA CAPITALIZATION(1)
<Table>
<Caption>
ADJUSTMENT FOR
AS OF JANUARY 17, PURCHASE AT $39.38 PRO FORMA AS
2006 PER SHARE(2) ADJUSTED
----------------- ------------------ -----------------
Total net assets......................... $1,204,392,381.12 $(117,997,089.98) $1,086,395,291.14
Shares outstanding....................... 29,963,705 (2,996,371) 26,967,334
NAV per Share(3)......................... $ 40.18 $ 39.38 $ 40.29
</Table>
- ---------------
(1) This table assumes purchase by the Fund of 2,996,371 Shares, equal to 10% of
the Fund's outstanding Shares as of January 17, 2006, and no borrowing by
the Fund to finance the purchase.
(2) This amount represents 98% of the Fund's NAV as determined on January 17,
2006. Shares tendered pursuant to the Offer will be purchased at a 2%
discount to NAV on the business day after the Expiration Date, which may be
more or less than $40.18 per Share, and the pro forma NAV per Share also may
be more or less than that shown above.
(3) The NAV per Share of the Fund is determined as of the close of regular
trading on the NYSE no less frequently than weekly, at such times as the
Board may determine, and on the last business day of each month the NYSE is
open, by dividing the total assets of the Fund, less all liabilities, by the
total number of Shares outstanding.
13
9. PRICE RANGE OF SHARES; DIVIDENDS/DISTRIBUTIONS. The following table
sets forth, for the periods indicated, the high and low NAVs per Share and the
high and low closing sale prices per Share as reported on the NYSE Composite
Tape, and the amounts of cash dividends/distributions per Share paid during such
periods.
<Table>
<Caption>
NET ASSET VALUE MARKET PRICE
--------------- ------------- DIVIDENDS/
HIGH LOW HIGH LOW DISTRIBUTIONS
------ ------ ----- ----- -------------
Year (ending December 31)
2001(1)
1st Quarter....................................... 13.85 11.12 11.55 9.00 $1.406
2nd Quarter....................................... 13.58 10.53 10.99 8.52 0.015
3rd Quarter....................................... 13.10 10.74 10.69 8.61 0.000
4th Quarter....................................... 16.10 11.02 13.22 8.91 0.120
2002
1st Quarter....................................... 20.94 16.35 17.69 13.66 0.000
2nd Quarter....................................... 22.40 19.15 18.80 16.00 0.000
3rd Quarter....................................... 21.68 17.49 17.50 13.49 0.000
4th Quarter....................................... 19.56 15.73 15.99 12.45 0.851
2003
1st Quarter....................................... 17.52 13.17 14.26 11.36 0.000
2nd Quarter....................................... 18.07 13.50 15.46 11.70 0.000
3rd Quarter....................................... 20.26 17.80 17.11 15.00 0.000
4th Quarter....................................... 21.32 18.74 18.35 15.52 0.300
2004
1st Quarter....................................... 24.26 21.33 21.42 18.53 0.000
2nd Quarter....................................... 25.26 19.19 22.15 17.00 0.000
3rd Quarter....................................... 22.84 19.67 21.15 16.67 0.000
4th Quarter....................................... 26.08 21.60 24.17 19.39 0.650
2005
1st Quarter....................................... 30.21 24.67 28.97 22.80 0.000
2nd Quarter....................................... 28.88 26.83 27.90 25.00 0.000
3rd Quarter....................................... 35.42 29.14 33.40 27.09 0.000
4th Quarter....................................... 39.50 32.44 37.09 29.24 0.850
</Table>
- ---------------
(1) $70.3 million of the 2001 dividends represent the value of a special in-kind
distribution of SK Telecom securities.
As of the close of business on January 17, 2006, the Fund's NAV was $40.18
per Share, and the high, low and closing prices per Share on the NYSE on that
date were $39.02, $37.50 and $37.75, respectively. Prior to the expiration of
the Offer, NAV quotations can be obtained in the manner indicated in Section 1.
The tender of Shares, unless and until such tendered Shares are accepted
for payment and purchase, will not affect the record ownership of any such
tendered Shares for purposes of entitlement to any dividends payable by the
Fund.
10. SELECTED FINANCIAL INFORMATION. The table below is intended to help
you understand the financial performance of the Fund. This information, except
as indicated, has been derived from audited financial statements of the Fund,
which are incorporated herein by reference and included in the Fund's Annual
Report to shareholders. The Annual and Semi-Annual Reports may be obtained
without charge by writing to Georgeson Shareholder Communications, Inc., the
Information Agent, 17 State Street, New York, New York 10004, by calling (800)
843-0369 or on the Internet at www.sec.gov or at www.thekoreafund.com.
14
FINANCIAL HIGHLIGHTS
The following table includes per-Share performance data for a Share of the
Fund, total investment return, ratios to average net assets and other
supplemental data for each period indicated. This information has been derived
from information provided in the financial statements and market price data for
Fund shares.
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEARS ENDED JUNE 30,
------------------------------------------------
2005 2004 2003 2002 2001
------ ------ ------ ------ -------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.................. $21.55 $17.62 $20.20 $13.01 $ 20.04
Income (loss) from Investment operations..............
Net investment income (loss)(a)..................... 0.40 0.20 0.17 0.11 0.17
Net realized and unrealized gain (loss) on
investment transactions.......................... 7.80 3.90 (1.90) 7.20 (5.61)
Total from investment operations.................... 8.20 4.10 (1.73) 7.31 (5.44)
Less distributions from:
Net investment income............................... (0.45) (0.30) (0.18) -- (0.18)
Net realized gains on investment transactions....... (0.20) -- (0.67) (0.12) (1.41)
Total distributions................................. (0.65) (0.30) (0.85) (0.12) (1.59)
NAV accretion resulting from repurchases, shares
tendered and reinvestment of distributions for
shares at value..................................... -- .13 .00(b) .00(b) --
Net asset value, end of period........................ $29.10 $21.55 $17.62 $20.20 $ 13.01
Market value, end of period........................... $27.35 $18.85 $14.99 $16.44 $ 10.58
TOTAL RETURN
Per share net asset value(%).......................... $38.66 24.15 (8.34) 56.39 (25.01)
Per share market value(%)............................. $49.06 27.66 (4.29) 56.71 (13.16)
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions)................ 1,301 963 879 1,009 651
Ratio of expenses(%).................................. 1.13 1.27 1.26 1.21 1.23(d)
Ratio of net Investment Income (loss)(%).............. 1.58 0.94 0.99 0.69 1.18
Portfolio turnover rate(%)............................ 10 20 7 18 40
</Table>
- ---------------
(a) Based on average shares outstanding during the period.
(b) Amount is less than $.005 per share.
(c) Total return based on net asset value reflects changes in the Fund's net
asset value during the period. Total return based on market value reflects
changes in market value. Each figure includes reinvestments of
distributions. These figures will differ depending upon the level of any
discount from or premium to NAV at which the Fund's shares trade during the
period.
(d) Ratio of expenses before expense reductions was 1.24%.
15
SUMMARY OF SELECTED FINANCIAL INFORMATION
FOR THE PERIODS INDICATED BELOW
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2005 2004 2003 2002
-------------- ----------- ----------- --------------
(AUDITED) (AUDITED) (AUDITED) (AUDITED)
STATEMENT OF OPERATIONS
Investment Income............................ $ 30,727,238 $22,359,705 $19,480,512 $ 15,524,235
Expenses..................................... 12,780,386 12,887,255 10,912,038 9,971,639
Expense Reductions........................... (37,284) (23,592) (25,997) (53,600)
Net Expenses................................. 12,743,102 12,863,663 10,886,041 9,918,039
Net investment income........................ 17,984,136 9,496,042 8,594,471 5,606,196
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT TRANSACTIONS:
Net realized gain (loss) on:
Investments................................ 17,516,558 21,259,065 (14,779,335) 35,204,628
Won related transactions................... 4,017,087 1,206,876 2,529,855 2,542,733
Net unrealized appreciation (depreciation)
of:
Investments................................ 328,641,895 178,964,837 (80,479,942) 318,735,886
Won related transactions................... (1,394,566) 536,916 (2,624,557) 2,903,356
Net gain (loss) on investments
transactions............................... 348,780,974 201,967,694 (95,353,979) 359,386,603
Net Increase (Decrease) in Net Assets from
Operations................................. 366,765,110 211,463,736 (86,759,508) 364,992,799
STATEMENT OF ASSETS AND LIABILITIES
Total Assets............................... 1,302,640,599 968,795,808 880,321,849 1,010,855,407
Total Liabilities.......................... 1,798,950 5,663,295 1,679,413 1,974,679
Net Assets, at value....................... 1,300,841,649 963,132,513 878,642,436 1,008,880,728
Net asset value per share.................. 29.10 21.55 17.62 20.20
</Table>
16
SUMMARY OF ANNUAL NAV DISCOUNTS AND PREMIUMS
Shares have traded at varying relationships to per-Share net asset value.
The following table shows the relationship between price on the NYSE and net
asset value per-Share for the years indicated:
<Table>
<Caption>
PREMIUM OR DISCOUNT AS A PERCENTAGE
---------------------------------------------------
YEAR AVERAGE HIGH LOW
- ---- ------- ------------------- -------------------
1991.................................... 33.78% 54.92% (8/30/91) 15.57% (1/4/91)
1992.................................... 16.45 45.88 (11/20/92) -1.2 (5/22/92)
1993.................................... 28.26 44.23 (12/31/93) 10.27 (12/17/93)
1994.................................... 17.04 37.04 (1/7/94) -2.8 (12/9/94)
1995.................................... 4.15 13.52 (5/26/95) -5.15 (6/16/95)
1996.................................... 9.92 68.23 (1/3/96) 2.08 (6/7/96)
1997.................................... 7.89 38.89 (12/12/97) -17.69 (11/14/97)
1998.................................... 11.13 56.97 (1/2/98) -3.55 (12/31/98)
1999.................................... -16.07 3.75 (1/15/99) -29.12 (12/22/99)
2000.................................... -27.86 -17.44 (12/29/00) -35.48 (6/6/00)
2001.................................... -18.01 -12.7 (1/3/01) -21.74 (9/19/01)
2002.................................... -18.15 -11.61 (3/1/02) -24.16 (9/23/02)
2003.................................... -16.04 -12.41 (6/6/03) -16.68 (11/20/03)
2004.................................... -10.91 -5.94 (10/7/04) -15.98 (8/6/04)
2005.................................... -5.86 -2.37 12/2/05 -11.04 12/29/05
2006(1)................................. -6.56 -4.61 1/13/06 -9.14 1/3/06
</Table>
- ---------------
(1) Though January 17, 2006.
11. INTEREST OF DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN RELATED
PERSONS. Information, as of particular dates, concerning the Fund's directors
and executive officers, their remuneration, any material interest of such
persons in transactions with the Fund and other matters, is required to be
disclosed in proxy statements distributed to the Fund's shareholders and filed
with the Commission. The table below sets forth the number of Shares and
percentage of outstanding Shares beneficially owned by the directors and
officers of the Fund as of January 17, 2006.
<Table>
<Caption>
NUMBER OF SHARES
NAME AND POSITION* BENEFICIALLY OWNED
- ------------------ ------------------
Julian Reid, Chairman....................................... 0
Kenneth C. Froewiss, Director*.............................. 1000
Ronaldo A. da Frota Nogueira, Director*..................... 4000
Christopher Russell, Director............................... 0
Kesop Yun, Director......................................... 0
Vincent Esposito, President and Chief Executive Officer..... 0
John Millette, Secretary.................................... 0
Kathleen Sullivan D'Eramo, Assistant Treasurer.............. 0
Caroline Pearson, Assistant Secretary....................... 0
Paul H. Schubert, Chief Financial Officer and Treasurer..... 0
Scott McHugh, Assistant Treasurer........................... 0
Terrence Gray, Vice President............................... 0
Elisa Metzger, Chief Legal Officer.......................... 0
</Table>
- ---------------
* Percentage of shares beneficially owned equal less than 1/4 of 1% of Shares of
the Fund. The total percentage of shares beneficially owned by all directors
and executive officers equal less than 1/4 of 1% of Shares of the Fund.
17
Except for repurchases by the Fund in the open market shown below, neither
the Fund nor, to the best of the Fund's knowledge, any of the Fund's directors
or officers, or associates of any of the foregoing, has effected any transaction
in Shares, except for dividend reinvestment, during the past 60 days. Except as
set forth in this Offer to Purchase, neither the Fund, nor, to the best of the
Fund's knowledge, any of the Fund's directors or officers, is a party to any
contract, arrangement, understanding or relationship with any other person
relating, directly or indirectly to the Offer with respect to any securities of
the Fund, including, but not limited to, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any such
securities, joint ventures, loan or option arrangements, puts or calls,
guaranties of loans, guaranties against loss or the giving or withholding of
proxies, consents or authorizations. None of the Fund's directors or officers
intend to tender their Shares pursuant to the Offer. Based upon information
provided or available to the Fund, no other director, officer or affiliate of
the Fund intends to tender Shares pursuant to the Offer. The Offer does not,
however, restrict the purchase of Shares pursuant to the Offer from any such
person.
During the 60 days prior to the date of this Offer to Purchase, the Fund
did not purchase any Shares in the open market.
12. CERTAIN INFORMATION ABOUT THE FUND. The Fund is a Maryland corporation
with its principal executive offices located at 345 Park Avenue, New York, NY
10154 (telephone number (800) 349-4281). The Fund is a closed-end, non-
diversified, management investment company. The Fund first issued Shares to the
public on August 22, 1984. As a closed-end investment company, the Fund differs
from an open-end investment company (i.e., a mutual fund) in that it does not
redeem its Shares at the election of a shareholder and does not continuously
offer its Shares for sale to the public. The Fund's investment objective is
long-term capital appreciation through investment in Korean equity securities.
The Manager is a corporation organized under the laws of Delaware and a
registered investment adviser under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"). The Manager and its predecessors have served as
investment manager to the Fund since its inception. The Manager's principal
business address is 345 Park Avenue, New York, NY 10154.
The Manager is part of Deutsche Asset Management. Deutsche Asset Management
is the marketing name in the United States for the asset management activities
of Deutsche Bank AG, The Manager, Deutsche Asset Management Inc., Deutsche Asset
Management Investment Services Ltd., Deutsche Bank Trust Company Americas and
Scudder Trust Company. Deutsche Asset Management is a global asset management
organization with over $699 billion in assets under management as of June 30,
2004. The Manager is an indirect wholly-owned subsidiary of Deutsche Bank AG.
Deutsche Bank AG is a global banking institution engaged in financial services,
including investment management, mutual fund, retail, private and commercial
banking, investment banking and insurance.
The Manager, the predecessor of which is Scudder, Stevens & Clark, Inc.
("Scudder"), is an investment counseling firm established as a partnership in
1919. Scudder reorganized from a partnership to a corporation on June 28, 1985.
On December 31, 1997, Zurich Insurance Company ("Zurich") acquired a majority
interest in Scudder, and Zurich Kemper Investments, Inc., a Zurich subsidiary,
became part of Scudder. Scudder's name changed to Scudder Kemper Investments,
Inc. On January 1, 2001, the Manager changed its name from Scudder Kemper
Investments, Inc. to Zurich Scudder Investments, Inc. On April 5, 2002, 100% of
the Manager was acquired by Deutsche Bank AG. Upon the closing of this
transaction, the Manager changed its name from Zurich Scudder Investments, Inc.
to Deutsche Investment Management Americas Inc.
The Subadviser is a wholly owned subsidiary of Deutsche Bank AG. The
address of the Subadviser is 3rd Floor, Seian Building, 116 Shinmoonro-1 Ka,
Changro-ku, Seoul, Korea. The Subadviser is registered as an investment adviser
under the Advisers Act and began serving as Subadviser to the Fund on July 9,
2002. The Subadviser renders investment advisory and management services with
regards to that portion of the Fund's portfolio allocated to it by the Manager.
13. ADDITIONAL INFORMATION. The Fund has filed with the Commission an
Issuer Tender Offer Statement on Schedule TO, including the exhibits thereto
("Schedule TO"), which provides certain additional information relating to the
Offer. You may inspect and obtain a copy of Schedule TO at the prescribed rates
at the Commission's public reference facilities at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549; 233 Broadway, New York, New York 10279 and
Citicorp Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of the Schedule TO may also be obtained by mail at the
prescribed rates from the Public Reference Branch of the Commission at 450 Fifth
18
Street, N.W., Washington, D.C. 20549. The Fund's filings are also available to
the public on the Commission's website at www.sec.gov.
14. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES. The following
discussion is a general summary of certain U.S. federal income tax consequences
of a sale of Shares pursuant to the Offer based on current U.S. federal income
tax law, including the Code, applicable Treasury regulations and IRS rulings.
Different rules may apply to particular shareholders depending upon their
individual circumstances. Shareholders should consult their own tax advisers
with respect to the tax consequences of a sale of Shares pursuant to the Offer,
including potential tax consequences in jurisdictions where the shareholder is a
citizen, resident or domiciliary.
A. CONSEQUENCES TO U.S. SHAREHOLDERS OF PARTICIPATING IN THE OFFER. It is
anticipated that U.S. Shareholders (as such term is defined in Section 4.F,
above), other than tax-exempt persons, who sell Shares pursuant to the Offer
will generally recognize gain or loss for U.S. federal income tax purposes equal
to the difference between the amount of cash they receive and their adjusted tax
basis in the Shares sold. The sale date for such tax purposes will be the date
the Fund accepts the Shares for purchase. This gain or loss will be capital gain
or loss if the Shares sold are held by the participating U.S. Shareholder at the
time of sale as capital assets, and will be treated as either long-term or
short-term capital gain or loss depending on whether the Shares have been held
at that time for more or less than one year, as applicable. Gain or loss must be
calculated separately for each block of Shares (i.e., Shares acquired at the
same cost in a single transaction) sold pursuant to the Offer. Any long-term
capital gain realized by a non-corporate U.S. Shareholder that is not a tax-
exempt person will be taxed at a maximum rate of 15%. Capital losses recognized
by a U.S. Shareholder are generally available only to offset capital gains of
the U.S. Shareholder but not ordinary income (except in the case of individuals,
who may offset up to $3,000 of ordinary income each year with capital losses).
The ability of a U.S. Shareholder to carry back or carry forward capital losses
is limited.
Under the Code's "wash sale" rules, loss recognized on Shares sold pursuant
to the Offer will ordinarily be disallowed to the extent a U.S. Shareholder
acquires other Shares within 30 days before or after the date the purchased
Shares are purchased pursuant to the Offer. In that event, the basis and holding
period of the Shares acquired would be adjusted to reflect the disallowed loss.
The foregoing U.S. federal income tax treatment is based on the assumption
that the continuing ownership interest in the Fund of each participating U.S.
Shareholder (including shares constructively owned by such participating U.S.
Shareholder pursuant to the provisions of Section 318 of the Code) will be
sufficiently reduced to qualify the purchase as a sale rather than a
distribution for U.S. federal income tax purposes, pursuant to Section 302(b) of
the Code. It is therefore possible that the cash received for Shares purchased
by the Fund would be taxable to U.S. Shareholders (that are not tax-exempt
persons) as a distribution by the Fund, rather than as a gain from the sale of
the Shares. In that event, the cash received by a U.S. Shareholder would be
taxable as a dividend to the extent of the U.S. Shareholders' allocable share of
the Fund's current or accumulated earnings and profits. Any excess cash received
over the cash portion so taxable as a dividend would constitute a non-taxable
return of capital to the extent of the U.S. Shareholders' tax basis in the
Shares sold, and any remaining excess cash would be treated as either long-term
or short-term capital gain from the sale of the Shares (if the Shares are held
as capital assets), depending on how long the Shares were held. If the purchase
is treated for a U.S. Shareholder as a distribution by the Fund rather than a
sale of shares, the portion of the distribution treated as a dividend would, in
the case of a U.S. Shareholder who is an individual and meets certain holding
period and other requirements, qualify as "qualified dividend income" eligible
for the reduced maximum federal tax rate of 15% (5% for individuals in the 15%
bracket) only to the extent deemed to be paid out of "qualified dividend income"
received by the Fund. Qualified dividend income is, in general, dividend income
from taxable U.S. corporations and certain foreign corporations (including a
foreign corporation incorporated in a country having a comprehensive tax treaty
with the United States, or the stock of which is readily tradable on an
established securities market in the United States). Dividends received by the
Fund from non-passive Korean corporations will generally qualify as "qualified
dividend income." Any portion of the distribution treated as a dividend that did
not qualify for the reduced rate would be taxable to U.S. Shareholders that are
not tax-exempt persons at regular federal tax rates of up to 35%. If the receipt
of cash by a participating U.S. Shareholder is taxable as a distribution, such
U.S. Shareholder's remaining tax basis in the purchased Shares would generally
be added to the tax basis of the Shares that the U.S. Shareholder continued to
hold following completion of the Offer. Corporate U.S. Shareholders are
particularly urged to consult their own tax advisers regarding participation in
the Offer in their particular circumstances.
19
B. CONSEQUENCES TO U.S. SHAREHOLDERS WHO DO NOT PARTICIPATE IN THE
OFFER. The Fund's purchase of Shares pursuant to the Offer generally will have
no U.S. federal income tax consequences to non-participating U.S. Shareholders.
However, if any portion of such purchase by the Fund is treated as a
distribution rather than as payment in exchange for shares, as described above,
the non-participating U.S. Shareholders may be deemed to have received a
constructive taxable dividend of Fund stock under Section 305(c) of the Code.
C. BACKUP WITHHOLDING. Under the U.S. backup withholding rules, the
Depositary may be required to withhold 28% of the gross proceeds paid to any
U.S. Shareholder unless either: (a) such U.S. Shareholder has completed and
submitted to the Depositary an IRS Form W-9 (or Substitute Form W-9), providing
such U.S. Shareholder's employer identification number or social security
number, as applicable, and certifying under penalties of perjury: (i) that such
number is correct; and (ii) that: (X) the U.S. Shareholder is exempt from backup
withholding, (Y) the U.S. Shareholder has not been notified by the IRS that such
U.S. Shareholder is subject to backup withholding as a result of an under-
reporting of interest or dividends, or (Z) the IRS has notified the U.S.
Shareholder that the U.S. Shareholder is no longer subject to backup
withholding; or (b) an exception applies under applicable law. In order to avoid
the possibility of backup withholding, all participating U.S. Shareholders
should provide the Depositary with an IRS Form W-9 (or Substitute Form W-9). A
Substitute Form W-9 is included as part of the Letter of Transmittal for U.S.
Shareholders.
D. CONSEQUENCES TO NON-U.S. SHAREHOLDERS OF PARTICIPATING IN THE
OFFER. The U.S. federal income taxation of a Non-U.S. Shareholder (as such term
is defined in Section 4.F, above) on a sale of Shares pursuant to the Offer
depends on whether such transaction is "effectively connected" with a trade or
business carried on in the United States by the Non-U.S. Shareholder, as well as
the tax characterization of the transaction as either a sale of the Shares or a
distribution by the Fund, as discussed above with respect to U.S. Shareholders
participating in the Offer. If the sale of Shares pursuant to the Offer is
effectively connected with a Non-U.S. Shareholder's conduct of a trade or
business in the U.S., the transaction will be treated and taxed to the non-U.S.
Shareholder in the same manner as if the Shares involved were tendered by a U.S.
Shareholder, as described above. In that event, the Non-U.S. Shareholder should
deliver to the Depositary a properly completed and executed IRS Form W-8ECI to
obtain an exemption from the possible imposition of the 30% (or lower applicable
treaty rate) withholding tax described below.
If the sale of Shares pursuant to the Offer is not effectively connected
with a Non-U.S. Shareholder's conduct of a trade or business in the United
States, and gives rise to taxable gain, any gain realized by the Non-U.S.
Shareholder upon the sale of Shares pursuant to the Offer will generally not be
subject to U.S. federal income tax, provided, however, that such a gain will be
subject to U.S. federal income tax at the rate of 30% (or lower applicable
treaty rate) if the Non-U.S. Shareholder is a non-resident alien individual who
is physically present in the United States for more than 182 days during the
taxable year of the sale. If, however, the receipt of cash by a participating
Non-U.S. Shareholder is treated for U.S. tax purposes as a distribution by the
Fund, under the rules described above with respect to U.S. Shareholders
participating in the offer, the portion of the distribution treated as a
dividend to the Non-U.S. Shareholder would be subject to U.S. federal tax, which
may be withheld from the amount distributed at the rate of 30% (or lower
applicable treaty rate) if the dividend does not constitute effectively
connected income.
Participating Non-U.S. Shareholders could be subject to 28% backup
withholding, as described with respect to participating U.S. Shareholders above,
regardless of how they are taxed with respect to the purchase of their tendered
shares. In order to avoid the possibility of backup withholding, each Non-U.S.
Shareholder must provide the Depositary with a completed IRS Form W-8BEN, or
another type of Form W-8 appropriate to the particular Non-U.S. Shareholder.
Copies of Form W-8BEN are provided with the Letter of Transmittal for Non-U.S.
Shareholders. Other types of Form W-8 can be found on the IRS website at
www.irs.gov/formspubs/index.html.
Participating Non-U.S. Shareholders should consult their own tax advisers
regarding other possible tax consequences of a sale of Shares in their
particular circumstances.
15. CERTAIN KOREAN TAX CONSEQUENCES. The following discussion is a general
summary of certain Korean tax consequences of a participating shareholder's sale
of Shares pursuant to the Offer. Different rules may apply to particular
shareholders depending upon their individual circumstances. Shareholders should
consult their own tax advisers with respect to tax consequences of a sale of
Shares pursuant to the Offer, including, in the case of a Korean shareholder,
potential tax consequences in Korean jurisdictions where such shareholder is a
resident or domiciliary. No Korean tax will be payable upon the sale of Shares
pursuant to the purchase offer by participating shareholders that are not: (a)
residents
20
of Korea; or (b) foreign corporations that maintain a permanent establishment in
Korea to which any income arising from the sale of Shares would be attributable.
16. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS. The Fund is not aware of
any other approval or action by any government or governmental, administrative
or regulatory authority or agency, domestic or foreign, that would be required
to effect the Offer. Should any such approval or other action be required, the
Fund presently contemplates that such approval or other action will be sought.
The Fund is unable to predict whether it may determine that it is required to
delay the acceptance for payment of, or payment for, Shares tendered pursuant to
the Offer pending the outcome of any such matter. There can be no assurance that
any such approval or other action, if needed, would be obtained without
substantial conditions or that the failure to obtain any such approval or other
action might not result in adverse consequences to the Fund's business. The
Fund's obligations under the Offer to accept for payment and pay for Shares are
subject to certain conditions described in Section 3.
The Offer has not been and will not be registered under the Securities and
Exchange Law of Japan. Neither the Financial Services Agency of Japan nor any
other authority or securities exchange in Japan has approved or disapproved of
the Offer, passed upon the merits of the Offer or determined whether this Offer
is accurate or complete. Shareholders who participate the Offer from Japan may
be required to file a post facto report(s) under the Foreign Exchange and
Foreign Trade Law of Japan of the transfer of shares to the Fund and/ or receipt
of payment, depending on the amount of the shares tendered and/or the amount of
cash received through the Offer. Participating Japanese shareholders should
consult their own legal and tax advisors regarding possible legal requirements
as well as possible tax consequences of participating the Offer in their
particular circumstances.
17. AMENDMENTS; EXTENSION OF TENDER PERIOD; TERMINATION. Subject to the
applicable rules and regulations of the Commission, the Fund expressly reserves
the right, in its sole discretion, at any time and from time to time, to extend
the period during which the Offer is open for any reason, including the failure
to satisfy any of the conditions specified in Section 3, and thereby delay
acceptance for payment of, and payment for, any Shares, by giving oral or
written notice of such extension to the Depositary. There can be no assurance
that the Fund will exercise its right to extend the Offer. During any such
extension, all Shares previously tendered and not properly withdrawn will remain
subject to the Offer, subject to the rights of a tendering shareholder to
withdraw such shareholder's Shares. (See Section 5.)
Subject to the applicable rules and regulations of the Commission, the Fund
also expressly reserves the right, in its sole discretion, at any time and from
time to time, to: (a) terminate the Offer and not accept for payment (or pay
for) any Shares if any of the conditions referred to in Section 3 has not been
satisfied or upon the occurrence and during the continuance of any of the events
specified in Section 3; and (b) waive any condition or amend the Offer in any
respect, in each case by giving oral or written notice of termination, waiver or
amendment to the Depositary and by making a public announcement thereof. The
Fund acknowledges: (a) that Rule 14e-1(c) under the Exchange Act requires the
Fund to pay the consideration offered or return the Shares tendered promptly
after the termination or withdrawal of the Offer; and (b) that the Fund may not
delay acceptance for payment of, or payment for, any Shares upon the occurrence
of any of the conditions specified in Section 3 without extending the period
during which the Offer is open.
Any extension, termination or amendment will be followed as promptly as
practicable by a public announcement thereof, such announcement, in the case of
an extension, to be made no later than 9:00 a.m., Eastern time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Fund may choose to make any public announcement, except
as provided by applicable law (including Rules 13e-4(c), 13e-4(e) and 14e-1
under the Exchange Act, which require that material changes be promptly
disseminated to holders of Shares), the Fund will have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a release to the PR Newswire.
If the Fund makes a material change in the terms of the Offer or the
information concerning the Offer, or waives a material condition of the Offer,
the Fund will disseminate additional tender offer materials (including by public
announcement as set forth above) and extend the Offer to the extent required by
Rules 13e-4(e) and 13e-4(f) under the Exchange Act. The minimum period during
which the Offer must remain open following material changes in the terms of the
Offer or information concerning the Offer, other than a change in price or a
change in percentage of securities sought, will depend upon the facts and
circumstances, including the relative materiality of the changes. With respect
to a change in price or, subject to certain limitations, a change in the
percentage of securities sought, a minimum ten business day period from the date
of such change is generally required to allow for adequate dissemination of such
change to
21
stockholders. Accordingly, if, prior to the Expiration Date, the Fund decreases
the number of Shares being sought, increases the consideration offered pursuant
to the Offer or adds a dealer's soliciting fee, and if the Offer is scheduled to
expire at any time earlier than the period ending on the tenth business day from
the date that notice of such increase, decrease or addition is first published,
sent or given to stockholders, the Offer will be extended at least until the
expiration of such ten business day period. For purposes of the Offer, a
"business day" means any day other than a Saturday, Sunday or a federal holiday
and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern
time.
18. MISCELLANEOUS. The Offer is not being made to, nor will the Fund
accept tenders from, or on behalf of, owners of Shares in any jurisdiction in
which the making of the Offer or its acceptance would not comply with the
securities or "blue sky" laws of that jurisdiction. The Fund is not aware of any
jurisdiction in which the making of the Offer or the acceptance of tenders of,
purchase of, or payment for, Shares in accordance with the Offer would not be in
compliance with the laws of such jurisdiction. The Fund, however, reserves the
right to exclude shareholders in any jurisdiction in which it is asserted that
the Offer cannot lawfully be made or tendered Shares cannot lawfully be
accepted, purchased or paid for. So long as the Fund makes a good-faith effort
to comply with any state law deemed applicable to the Offer, the Fund believes
that the exclusion of holders residing in any such jurisdiction is permitted
under Rule 13e-4(f)(9) promulgated under the Exchange Act. In any jurisdiction
where the securities, blue sky or other laws require the Offer to be made by a
licensed broker or dealer, the Offer shall be deemed to be made on the Fund's
behalf by one or more brokers or dealers licensed under the laws of such
jurisdiction.
22
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal and Share certificates and any other
required documentation should be sent or delivered by each shareholder or the
shareholder's broker, dealer, commercial bank, trust company or other nominee to
the Depositary at one of the addresses set forth below.
The Depositary for the Offer is:
THE COLBENT CORPORATION
<Table>
By Registered, Certified or
Express Mail or
By First Class Mail: Overnight Courier: By Hand:
The Colbent Corporation The Colbent Corporation The Colbent Corporation
Attn: Corporate Actions Attn: Corporate Actions Attn: Corporate Actions
POB 859208 161 Bay State Drive 161 Bay State Drive
Braintree, MA 02185-9208 Braintree, MA 02184 Braintree, MA 02184
</Table>
Questions or requests for assistance or for additional copies of the Offer
to Purchase, the Letter of Transmittal or other material in connection with the
Offer may be directed to the Information Agent at its address and telephone
number set forth below. Shareholders may also contact their brokers, dealer,
commercial bank or trust company for assistance concerning the Offer.
The Information Agent for the Offer is:
GEORGESON SHAREHOLDER COMMUNICATIONS INC.
17 State Street
New York, New York 10004
Toll Free: (800) 843-0369
Call Collect: (212) 440-9800
THE KOREA FUND, INC.
January 19, 2006