Exhibib 99.(a)(l)(i)
OFFER TO PURCHASE FOR CASH
BY
Korea Equity Fund, Inc.
up to 2,212,479 of its Issued and Outstanding Shares of Common
Stock at 98% of Net Asset Value Per Share
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON DECEMBER 17, 2010, UNLESS THE OFFER IS EXTENDED. |
This tender offer is not conditioned on any minimum number of shares being tendered but is subject to other conditions as outlined in this offer to purchase and in the related letter of transmittal.
If we complete the tender offer, we will purchase shares at a price equal to 98% of the per share net asset value as of the close of regular trading on the New York Stock Exchange on the tender offer expiration date. The maximum number of Shares that we will purchase in the tender offer represents approximately 20% of the number of currently outstanding shares of common stock of Korea Equity Fund, Inc. (the “Fund”).
None of the Fund, its Board of Directors (the “Board of Directors”), Nomura Asset Management U.S.A. Inc., the Fund’s manager, Nomura Asset Management Co. Ltd., the Fund’s investment adviser, or Nomura Asset Management Hong Kong Limited or Nomura Asset Management Singapore Limited, the Fund’s sub-advisers (collectively, the Fund’s manager, investment adviser and sub-advisers are referred to as “Nomura Asset Management”) makes any recommendation as to whether to tender or not to tender shares in the offer. No person has been authorized to give any information or to make any representations in connection with the offer other than those contained in this offer to purchase and in the letter of transmittal, and, if given or made, such information or representations may not be relied upon as having been authorized by us, our directors, our officers or our investment manager.
You may direct questions and requests for assistance to Georgeson, Inc., the information agent for the tender offer, at its address and telephone number set forth on the back cover of this offer to purchase. Shareholders may obtain additional copies of this offer to purchase, the letter of transmittal, the notice of guaranteed delivery or any other tender materials from the information agent and may also contact their brokers, dealers, banks, trust companies or other nominees for copies of these documents.
IF YOU ARE NOT INTERESTED IN TENDERING ANY OF YOUR SHARES AT THIS TIME, YOU DO NOT NEED TO DO ANYTHING. SHAREHOLDERS ARE NOT REQUIRED TO PARTICIPATE IN THE OFFER.
November 17, 2010
Important procedures
If you want to tender all or part of your shares, you must do one of the following before the offer expires:
· | if your shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, contact the nominee and have the nominee tender your shares for you; or |
· | if you hold certificates in your own name, complete and sign a letter of transmittal according to its instructions, and deliver it, together with any required signature guarantees, the certificates for your shares and any other documents required by the letter of transmittal, to Computershare Trust Company, N.A., the depositary for the offer; or |
· | if you are an institution participating in The Depository Trust Company, which we call the “book-entry transfer facility” in this offer to purchase, tender your shares according to the procedure for book-entry transfer described in Section 2; or |
· | if you hold shares in the Fund’s dividend reinvestment plan, you may tender such shares by completing and signing a letter of transmittal, including the appropriate section for shares acquired through the dividend reinvestment plan. |
If you want to tender your shares, but:
· | your certificates for the shares are not immediately available or cannot be delivered to the depositary by the expiration of the offer; or |
· | you cannot comply with the procedure for book-entry transfer by the expiration of the offer; or |
· | your other required documents cannot be delivered to the depositary by the expiration of the offer, |
you can still tender your shares if you comply with the guaranteed delivery procedure described in Section 2. To tender your shares, you must follow the procedures described in this offer to purchase, the letter of transmittal and the other documents related to the tender offer. The Fund may reject any tender not fully in compliance with these procedures.
THIS TENDER OFFER HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE FAIRNESS OR MERITS OF THE TENDER OFFER OR ON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
ii
TABLE OF CONTENTS
Page | ||
SUMMARY TERM SHEET | 1 | |
INTRODUCTION | 5 | |
THE TENDER OFFER | 6 | |
1. | Terms of the Offer | 6 |
2. | Procedures for Tendering Shares | 6 |
3. | Withdrawal Rights | 10 |
4. | Acceptance for Payment and Payment | 11 |
5. | Certain U.S. Federal Income Tax Consequences | 12 |
6. | Net Asset Value and Market Price Range of the Shares; Dividends on the Shares | 15 |
7. | Source and Amount of Funds; Effect of the Offer | 16 |
8. | Purpose of the Offer | 18 |
9. | Information Concerning the Fund | 19 |
10. | Interest of Directors and Officers; Transactions and Arrangements Concerning the Shares | 20 |
11. | Legal Matters; Regulatory Approvals | 21 |
12. | Conditions to the Offer | 21 |
13. | Fees and Expenses | 22 |
14. | Summary of Selected Financial Information. | 22 |
15. | Miscellaneous | 24 |
iii
SUMMARY TERM SHEET
Securities Sought: | Up to 2,212,479 shares of common stock of the Fund, par value $0.10 per share (“Shares”) |
Price Offered Per Share: | 98% of net asset value as calculated as of 4:00 p.m., New York City time, on the expiration date of the offer |
Scheduled Expiration Date: | December 17, 2010 |
Purchaser: | Korea Equity Fund, Inc. (the “Fund”). This is an issuer tender offer. |
The following are some of the questions that you, as a shareholder, may have and answers to those questions.
We urge you to read carefully the remainder of this offer to purchase, the letter of transmittal and the other documents to which we have referred because the information in this summary term sheet is not complete. Additional important information is contained in the remainder of this offer to purchase and the letter of transmittal.
Who is offering to buy my Shares?
· | The Fund is offering to re-purchase Shares it previously issued. The Fund is a Maryland corporation. |
How much is the Fund offering to pay?
· | The Fund is offering to purchase up to 2,212,479 of its outstanding Shares for cash, at a price per share equal to 98% of the per share net asset value as of the close of regular trading on the New York Stock Exchange on December 17, 2010 (or if the tender offer is extended, on the date to which the tender offer is extended), upon the terms and subject to conditions set forth in this offer to purchase and the letter of transmittal. |
When will the tender offer expire and may the offer be extended?
· | The tender offer will expire at 5:00 pm, New York City time, on December 17, 2010, unless extended. We may extend the period of time the tender offer will be open by issuing a press release or making some other public announcement by no later than 9:00 a.m., New York City time, the next business day after the tender offer otherwise would have expired. See Section 1 of this offer to purchase. |
What is the net asset value per Share as of a recent date?
· | As of November 12, 2010, the net asset value per Share was $12.59. See Section 6 of this offer to purchase for additional information regarding net asset values and market prices. During the pendency of the tender offer, daily net asset value quotations can be obtained by calling the information agent toll free at (800) 868-1390, or for banks and brokers, by calling (212) 440-9800 between 9:00 a.m. and 11:00 p.m., New York City time, Monday through Friday (except holidays) and between 10:00 a.m. and 4:00 p.m., New York City time, Saturday (except holidays), or by visiting the Fund’s website at www.nomura.com. The other contents of the Fu nd’s website are not part of this offer to purchase. |
What was the market value of my Shares as of a recent date?
· | The Fund’s Shares are listed for trading under the symbol “KEF” on the New York Stock Exchange. On November 12, 2010, the closing price of the Shares reported on the New York Stock Exchange was $11.54 per share. Shares may trade at a discount or premium to net asset value and as such the price offered per share may be more or less than the current market price. We advise you to obtain a recent quotation for Shares in deciding whether to tender your Shares. See Section 6 of this offer to purchase. |
Is there a limit on the number of Shares I may tender?
· | No; however, only up to 2,212,479 of our outstanding Shares will be accepted for tender. See Section 1 of this offer to purchase. |
Must I tender all my Shares for purchase?
· | No. You may tender for purchase all or part of the Shares you own. |
In what order will the Fund purchase tendered Shares?
· | If the terms and conditions of the tender offer have been satisfied or waived and more than 2,212,479 Shares have been validly tendered and not validly withdrawn on or prior to the expiration of the offer, we will purchase Shares from all tendered Shares on a pro rata basis (disregarding fractions) in accordance with the number of Shares tendered by each shareholder (and not timely withdrawn). No special consideration or priority will be given to shares held in “odd lots.” Our present intention, if the tender offer is oversubscribed, is not to purchase more than 2,212,479 Shares. See Section 1 of this offer to purchase. |
If I decline to tender, how will the tender offer affect the Shares I hold?
· | Your percentage ownership interest in the Fund will increase after completion of the offer, assuming no other purchases of Shares. |
Is the tender offer the only way I can sell my Fund Shares?
· | No. You will continue to be able to sell your Shares, or purchase additional Shares, at the current market share price, in cash transactions on the New York Stock Exchange. |
Will I have to pay any fees or commissions?
· | If you are the record owner of your Shares and you tender your Shares to us in the offer, you will not have to pay brokerage fees or similar expenses. You may be required to pay transfer taxes under certain circumstances described in the letter of transmittal. If you hold Shares through a bank or broker, you are responsible for paying any fees or expenses you incur in tendering your Shares in the offer. If you own your Shares through a broker or other nominee, and your broker tenders your Shares on your behalf, your broker or nominee may charge you a fee for doing so. You should consult your broker or nominee to determine whether any charges will apply . |
2
Does the Fund have the financial resources to make payment?
· | Yes. The Fund anticipates that the monies we use to purchase Shares in the offer will be obtained from cash and from sales of securities in the Fund’s investment portfolio. We do not expect to borrow money to finance the purchase of any tendered Shares. See Section 7 of this offer to purchase. |
If Shares I tender are accepted by the Fund, when will payment be made?
· | Payment for tendered Shares, if accepted, will be made in United States dollars promptly after the expiration date of the offer. See Section 4 of this offer to purchase. |
How do I tender my Shares?
· | To tender your Shares, you must complete one of the actions described under “Important Procedures” on the inside front cover page of this offer to purchase before the tender offer expires. |
· | If your Shares are held in street name (i.e., through a broker, dealer or other nominee), you must contact your nominee and request that your Shares be tendered in the offer. |
· | For additional information on the procedures for tendering your Shares, see Section 2 of this offer to purchase. |
May I tender Shares in the offer held in my Dividend Reinvestment Plan account?
· | Yes. Holders of Shares in the Dividend Reinvestment Plan may tender their Shares by completing the appropriate sections of the letter of transmittal. See Section 2. |
· | In connection with the offer, the Dividend Reinvestment Plan will be suspended for dividend distributions to be declared prior to the expiration of the offer. Any dividend that is declared will accordingly be paid in cash to all shareholders. We do not expect that a dividend will be declared prior to the expiration of the offer. We expect that the Dividend Reinvestment Plan will resume after the termination of the offer. |
Until what time can I withdraw previously tendered Shares?
· | You can withdraw Shares that you tender at any time until the expiration of the offer. Also, if we have not accepted your Shares for payment by January 14, 2011, you can withdraw Shares at any time after that date until we do accept your Shares for payment. See Section 1 and Section 3 of this offer to purchase. |
How do I withdraw previously tendered Shares?
· | You or your nominee must deliver a written notice of withdrawal with the required information to the depositary while you still have the right to withdraw the Shares. See Section 1 and Section 3 of this offer to purchase. |
3
Is there any reason Shares tendered for purchase would not be accepted?
· | In addition to those circumstances described under Section 12 in which the Fund is not required to purchase tendered Shares, the Fund reserves the right to reject any and all tendered Shares determined by the Fund not to have been tendered in the appropriate form. The Fund may reject tendered Shares if, for instance, the Letter of Transmittal does not include original signature(s) or the original signature(s)of any required signature guarantee(s). |
What action need I take if I decide not to tender my Shares?
· | None. |
Does the Fund’s Board of Directors encourage shareholders to participate in the tender offer?
· | None of the Fund, its Board of Directors or Nomura Asset Management is making any recommendation to tender or not to tender Shares in the offer. |
What are the United States federal income tax consequences of tendering Shares?
· | The receipt of cash for Shares pursuant to the offer will be a taxable transaction for United States federal income tax purposes. Depending on a shareholder’s particular circumstances, the sale of Shares pursuant to the offer will be treated either as a “sale or exchange” of those Shares, producing gain or loss equal to the difference, if any, between the amount of cash received and the shareholder’s adjusted tax basis in the Shares sold pursuant to the offer, or as the receipt of a distribution from the Fund, taxable as a dividend to the extent of such shareholder’s allocable share of the Fund’s “earnings and profits.” There is also a risk of tax consequences for shareholders whose percentage interests in the Fund increase as a result of the offer, including shareholders who do not tender any of their Shares. See Section 5 of this offer to purchase. |
To whom can I talk if I have questions about the tender offer?
· | You can call the information agent at (212) 440-9800 (for banks or brokers) or toll-free at (800) 868-1390. See the back cover of this offer to purchase. |
4
Dear Shareholder:
INTRODUCTION
Korea Equity Fund, Inc., a Maryland corporation registered under the Investment Company Act of 1940, as amended, as a closed-end, non-diversified management investment company, hereby offers to purchase up to 2,212,479 of the Fund’s outstanding shares of common stock (“Shares”) at a price per share, net to the seller in cash, equal to 98% of the net asset value per share in U.S. dollars as of the close of regular trading on the New York Stock Exchange on December 17, 2010, or such later date to which the offer is extended, upon the terms and subject to the conditions set forth in this offer to purchase and in the related letter of transmittal. The maximum number of Shares that we will purchase in the tender offer represents approximately 20% of the number of currently outstanding Shares.
This offer is open to all holders of Shares of the Fund and is not conditioned on any minimum number of Shares being tendered but is subject to other conditions as outlined in this offer to purchase and in the letter of transmittal. See Section 12 of this offer to purchase.
None of the Fund, its Board of Directors or Nomura Asset Management makes any recommendation as to whether you should tender or not tender Shares in the offer. No person has been authorized to give any information or to make any representations in connection with the offer other than those contained in this offer to purchase and in the letter of transmittal, and, if given or made, such information or representations should not be relied upon as having been authorized by the Fund, its Board of Directors or its investment manager.
As of November 12, 2010, there were 11,062,391 Shares issued and outstanding, and the net asset value was $12.59 per share. We do not expect that the number of Shares issued and outstanding will be materially different on the date the offer expires. Shareholders may contact the information agent, toll free at (800) 868-1390 or, for banks and brokers, at (212) 440-9800, or contact the Fund directly at its toll free number, (800) 833-0018, to obtain daily net asset value quotations for the Shares prior to 5:00 p.m., New York City time, on the expiration date.
Any Shares we acquire pursuant to the offer will become authorized but unissued Shares and generally will be available for issuance by the Fund without further shareholder action.
Tendering shareholders may be obligated to pay brokerage fees or commissions or, subject to instruction 6 of the letter of transmittal, transfer taxes on the purchase of Shares by the Fund. Shareholders may also be subject to other transaction costs, as described in Section 1.
Certain U.S. federal income tax consequences of the sale of Shares pursuant to the offer are described in Section 5 “Certain U.S. Federal Income Tax Consequences.”
This offer to purchase and the letter of transmittal contain important information and you should read them carefully and in their entirety before you make any decision with respect to the offer.
5
THE TENDER OFFER
1. Terms of the Offer
Upon the terms and subject to the conditions set forth in this offer to purchase and the letter of transmittal, the Fund will accept for payment, and pay for, up to 2,212,479 Shares, validly tendered prior to 5:00 p.m., New York City time, on December 17, 2010, or such later date to which the offer is extended, and not withdrawn as permitted by Section 3.
If the number of Shares properly tendered and not withdrawn prior to the expiration date is less than or equal to 2,212,479, we will, upon the terms and conditions of the offer, purchase all Shares so tendered. If more than 2,212,479 Shares are duly tendered pursuant to the offer (and not withdrawn as provided in Section 3), unless we determine not to purchase any Shares because one or more conditions described in Section 12 of this offer to purchase are not met, we will purchase Shares duly tendered on a pro rata basis (disregarding fractions) in accordance with the number of Shares duly tendered by or on behalf of each shareholder (and not withdrawn). On the letter of transmittal, you can designate in which order you wish your Shares to be purchased if, as a r esult of the proration provisions or otherwise, some but not all of your tendered Shares are purchased in the offer. If Shares duly tendered by or on behalf of a shareholder include Shares acquired through the Fund’s dividend reinvestment plan, the proration will be applied first against other Shares tendered and only thereafter, if and as necessary, with respect to Shares acquired through that plan. Except as described herein, withdrawal rights expire on the expiration date. The Fund does not contemplate extending the offer or increasing the number of Shares covered by the offer if more than 2,212,479 Shares are tendered.
Shareholders should consider the relative costs of tendering Shares at a 2% discount to net asset value pursuant to the offer or selling Shares at the market price with the associated transaction costs.
We expressly reserve the right, in our sole discretion, at any time or from time to time, to extend the period of time during which the offer is open by giving oral or written notice of such extension to the depositary. Any such extension will also be publicly announced by press release issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. If we make a material change in the terms of the offer or the information concerning the offer, or if we waive a material condition of the offer, we will extend the offer to the extent required by Rules 13e-4(d)(2) and 13(e)-4(e)(3) under the Securities Exchange Act of 1934, as amended (the “Exch ange Act”). During any such extension, all Shares previously tendered and not withdrawn will remain subject to the offer, subject to the right of any such tendering shareholder to withdraw his or her Shares.
Subject to the terms and conditions of the offer, we will pay the consideration offered or return the tendered securities promptly after the expiration or withdrawal of the offer. Any extension, delay or expiration will be followed as promptly as practicable by public announcement thereof.
Under no circumstances will interest be paid on the tender price for tendered Shares, regardless of any extension of or amendment to the offer or any delay in paying for such Shares.
2. Procedures for Tendering Shares
Proper Tender of Shares. For Shares to be properly tendered, either (1) or (2) below must happen:
(1) The depositary must receive all of the following prior to 5:00 p.m., New York City time, on the expiration date at the depositary’s address on the back page of this offer to purchase:
· | either (a) the certificates for the Shares, or (b) in the case of tendered Shares delivered in accordance with the procedures for book-entry transfer we describe below, a confirmation of receipt of the Shares; and |
6
· | either (a) a properly completed and executed letter of transmittal, including any required signature guarantees, or (b) in the case of a book-entry transfer, an “agent’s message” of the type we describe below; and |
· | any other documents required by the letter of transmittal. |
(2) You must comply with the guaranteed delivery procedure set forth below.
Endorsements and Signature Guarantees. Depending on how your Shares are registered and to whom you want payments or deliveries made, you may need to have your certificates endorsed and the signatures on the letter of transmittal and endorsement guaranteed by an “eligible guarantor institution,” as such term is defined in Rule 17Ad-15 under the Exchange Act. No endorsement or signature guarantee is required if:
· | the letter of transmittal is signed by the registered holder of the Shares tendered (which, for purposes of this Section 3, includes any participant in The Depository Trust Company, referred to as the “book-entry transfer facility,” whose name appears on a security position listing as the owner of the Shares) exactly as the name of the registered holder appears on the certificate(s) for the Shares and payment and delivery are to be made directly to that holder; or |
· | Shares are tendered for the account of a bank, broker, dealer, credit union, savings association or other entity that is a member in good standing of the Securities Transfer Agents Medallion Program or a bank, broker, dealer, credit union, savings association or other entity that is also an “eligible guarantor institution,” as such term is defined in Rule 17Ad-15 under the Exchange Act, each such entity, referred to as an “eligible guarantor institution.” See Instruction 1 of the letter of transmittal. |
If a certificate for Shares is registered in the name of a person other than the person executing the letter of transmittal or you are completing either the box captioned “Special Delivery Instructions” or the box captioned “Special Payment Instructions” in the letter of transmittal, then:
· | your certificates must be endorsed or accompanied by an appropriate stock power, in either case signed exactly as the name of the registered holder appears on the certificates; and |
· | the signature on (1) the letter of transmittal and (2) your endorsed certificates or stock power must be guaranteed by an eligible guarantor institution. |
Method of Delivery. Payment for Shares tendered and accepted for payment under the offer will be made only after timely receipt by the depositary of all of the following:
· | certificates for those Shares or a timely confirmation of the book-entry transfer of those Shares into the depositary’s account at the book-entry transfer facility as described below; |
· | one of (a) a properly completed and duly executed letter of transmittal, including any required signature guarantees, or (b) an agent’s message as described below in the case of a book-entry transfer; and |
· | any other documents required by the letter of transmittal. |
The method of delivery of all documents, including share certificates, the letter of transmittal and any other required documents, is at your election and risk. If you decide to make delivery by mail, we recommend you use registered mail with return receipt requested, properly insured. In all cases, sufficient time should be allowed to ensure timely delivery.
7
All deliveries made in connection with the offer, including a letter of transmittal and certificates for Shares, must be made to the depositary and not to the Fund, the Fund’s transfer agent, the information agent or the book-entry transfer facility. Any documents delivered to the Fund, the Fund’s transfer agent, the information agent or the book-entry transfer facility will not be forwarded to the depositary and, therefore, will not be deemed to have been properly tendered.
Book-Entry Delivery. The depositary will establish an account with respect to the Shares at the book-entry transfer facility for purposes of the offer within two business days after the date of this offer to purchase. Any institution that is a participant in the book-entry transfer facility’s system may make book-entry delivery of the Shares by causing that facility to transfer those Shares into the depositary’s account in accordance with that facility’s procedure for the transfer. Even if delivery of Shares is made through book-entry transfer into the depositary̵ 7;s account at the book-entry transfer facility, either (1) or (2) below must occur:
(1) The depositary must receive all of the following before or on the expiration date at the depositary’s address on the back page of this offer to purchase:
· | one of (a) a properly completed and executed letter of transmittal, including any required signature guarantees, or (b) an agent’s message as described below in the case of a book-entry transfer; and |
· | any other documents required by the letter of transmittal; or |
(2) The guaranteed delivery procedure described below must be followed.
Delivery of the letter of transmittal or any other required documents to the book-entry transfer facility does not constitute delivery to the depositary.
The term “agent’s message” means a message transmitted by the book-entry transfer facility to, and received by, the depositary, which states that the book-entry transfer facility has received an express acknowledgement from the participant in the book-entry transfer facility tendering the Shares that the participant in the book-entry transfer facility tendering the Shares has received and agrees to be bound by the terms of the letter of transmittal and that we may enforce that agreement against such participant.
Guaranteed Delivery. If you want to tender your Shares but your share certificates are not immediately available or cannot be delivered to the depositary before the expiration date, the procedure for book-entry transfer cannot be completed on a timely basis, or if time will not permit all required documents to reach the depositary before the expiration date, you can still tender your Shares, if all of the following conditions are satisfied:
· | the tender is made by or through an eligible guarantor institution; |
· | the depositary receives by mail, overnight courier or facsimile transmission, prior to the expiration time, a properly completed and duly executed notice of guaranteed delivery in the form we have provided with this offer to purchase, including (where required) signature guarantees by an eligible guarantor institution in the form set forth in the notice of guaranteed delivery; and |
· | the following are received by the depositary within three New York Stock Exchange trading days after the date of receipt by the depositary of the notice of guaranteed delivery, either: |
· | the certificates representing the Shares being tendered together with (a) a letter of transmittal relating thereto that has been validly completed and duly executed and includes all signature guarantees required thereon and (b) all other required documents; or |
8
· | in the case of any book-entry transfer of the Shares being tendered that is effected in accordance with the book-entry transfer procedures we describe above under “Book-Entry Delivery:” (a) a letter of transmittal relating thereto that has been validly completed and duly executed and includes all signature guarantees required thereon, or an agent’s message, (b) a book-entry confirmation relating to that transfer, and (c) all other required documents. |
Determination of Validity; Rejection of Shares; Waiver of Defects; No Obligation to Give Notice of Defects. We will determine, in our sole discretion, all questions as to the number of Shares to be accepted, and the validity, form, eligibility, including time of receipt, and acceptance for payment of any tender of Shares. Our determination will be final and binding on all parties. We reserve the absolute right to reject any or all tenders we determine not to be in proper form or the acceptance of or payment for which we determine may be unlawful. We also reserve the absolute right to waive any of the conditions of the offer and any defect or irregularity in the tender of any particular Shares or any particular shareholder. No tender of Shares will be deemed to be properly made until all defects or irregularities have been cured by the tendering shareholder or waived by us. None of the Fund, the depositary, the information agent, or any other person will be under any duty to give notice of any defects or irregularities in any tender, or incur any liability for failure to give any such notice. Our interpretation of the terms of and conditions to the offer, including the letter of transmittal and the instructions thereto, will be final and binding. By tendering S hares to us, you agree to accept all decisions we make concerning these matters and waive any right you might otherwise have to challenge those decisions.
Your Representation and Warranty; Our Acceptance Constitutes an Agreement. It is a violation of Rule 14e-4 promulgated by the Securities and Exchange Commission under the Exchange Act for a person, acting alone or in concert with others, directly or indirectly, to tender Shares for that person’s own account unless, at the expiration date, the person so tendering:
· | within the meaning of Rule 14e-4, has a “net long position” equal to or greater than the amount tendered in our Shares or in securities immediately convertible into, or exchangeable or exercisable for, our Shares; and |
· | will deliver or cause to be delivered the Shares within the period specified in the offer; or |
· | in the case of securities immediately convertible into, or exchangeable or exercisable for our Shares, acquires Shares by conversion, exchange or exercise of such securities, and, to the extent required by the terms of the offer, delivers or causes to be delivered the Shares within the period specified by the offer. |
Rule 14e-4 provides a similar restriction applicable to the tender or guarantee of a tender on behalf of another person.
A tender of Shares under any of the procedures described above will constitute your acceptance of the terms and conditions of the offer, as well as your representation and warranty to us that:
· | you have a “net long position” in the Shares or equivalent securities at least equal to the Shares tendered; and |
· | the tender of Shares complies with Rule 14e-4. |
Our acceptance for payment of Shares tendered under the offer will constitute a binding agreement between you and us upon the terms and conditions of the offer described in this and related documents.
Return of Unpurchased Shares. If any tendered Shares are not purchased or are properly withdrawn, or if less than all Shares evidenced by a shareholder’s certificates are tendered, certificates for unpurchased
9
Shares will be returned promptly after the expiration or termination of the offer or the proper withdrawal of the Shares, as applicable. In the case of Shares tendered by book-entry transfer at the book-entry transfer facility, the Shares will be credited to the appropriate account maintained by the tendering shareholder at the book-entry transfer facility. In each case, we will not charge the shareholder for costs we incur returning or crediting the Shares to the shareholder.
Procedures for Participants in the Dividend Reinvestment Plan. Holders of Shares acquired through the Fund’s dividend reinvestment plan may instruct the depositary to tender such Shares by completing the appropriate section of the letter of transmittal. If a shareholder tenders Shares acquired through the dividend reinvestment plan, all such Shares credited to such shareholder’s account(s) will be tendered, unless the shareholder otherwise specifies in the letter of transmittal. If a shareholder does not complete the section of the letter of transmittal instructing the depo sitary to tender Shares acquired through the dividend reinvestment plan, no Shares acquired by that shareholder through the dividend reinvestment plan will be tendered.
Lost or Destroyed Certificates. If your certificate for part or all of your Shares has been lost, stolen, misplaced or destroyed, you should contact Computershare Trust Company, N.A., the transfer agent of the Fund, at (800) 426-5523 (toll free) or (781) 575-2879 (for calls made from outside the United States), for instructions as to obtaining an affidavit of loss. The affidavit of loss will then be required to be submitted together with the letter of transmittal prior to the expiration date in order for the Shares to be accepted for payment. A bond may be required to be pos ted by you to secure against the risk that the certificates may be subsequently recirculated. You are urged to contact the depositary immediately in order to receive further instructions, to permit timely processing of this documentation and for a determination as to whether you will need to post a bond.
Backup Withholding. In order to avoid “backup withholding” of U.S. federal income tax on payments of cash pursuant to the offer, a shareholder surrendering Shares in the offer must, unless an exemption applies, provide the depositary with such shareholder’s correct taxpayer identification number on a Substitute Form W-9, certify under penalties of perjury that such tax identification number is correct and provide certain other certifications. If a shareholder does not provide such shareholder’s correct taxpayer identification number or fails to provide the required certifications, the Internal Revenue Service may impose a penal ty on such shareholder and payment of cash to such shareholder pursuant to the offer may be subject to backup withholding of 28%. All shareholders surrendering Shares pursuant to the offer should complete and sign the main signature form and the Substitute Form W-9 included as part of the letter of transmittal to provide the information and certification necessary to avoid backup withholding. Certain shareholders (including, among others, all corporations, individual retirement accounts and certain foreign individuals and entities) are not subject to backup withholding; however, such shareholders should complete the Substitute Form W-9 to avoid possible erroneous backup withholding. Foreign shareholders should complete and sign the main signature form and an appropriate Form W-8 (instead of a Form W-9), a copy of which may be obtained from the depositary, in order to avoid backup withholding. See instruction 10 to the letter of transmittal.
3. Withdrawal Rights
Shares tendered pursuant to the offer may be withdrawn pursuant to the procedures set forth below at any time prior to the expiration of the offer and, unless already accepted for payment pursuant to the offer, at any time on or after January 14, 2011.
For a withdrawal to be effective, a written transmission notice of withdrawal must be timely received by the depositary at one of its addresses set forth on the back cover of this offer to purchase and must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of the Shares to be withdrawn, if different from the name of the person who tendered the Shares. If certificates for Shares have been delivered or otherwise
10
identified to the depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the depositary and, unless such Shares have been tendered by an eligible institution, any and all signatures on the notice of withdrawal must be guaranteed by an eligible institution. If Shares have been tendered pursuant to the book-entry transfer procedures described in Section 2, any notice of withdrawal must also specify the name and number of the account at the book-entry transfer facility to be credited with the withdrawn Shares and otherwise comply with the book-entry transfer facility’s procedures. Withdrawals of tenders of Shares may not be rescinded, and any Shares validly withdrawn will thereafter be deemed not validly tendered for purposes of the offer. However, withdrawn Shares may be retendered by again following one of the procedures described in Section 2 at any time prior to the expiration date.
All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by the Fund in its sole discretion, which determination will be final and binding. None of the Fund, the depositary, the information agent, or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification.
The method of delivery of any documents related to a withdrawal is at the risk of the withdrawing shareholder. Any documents related to a withdrawal will be deemed delivered only when actually received by the depositary. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery.
4. Acceptance for Payment and Payment
Upon the terms and subject to the conditions of the offer, we will accept for payment, and will pay cash for, Shares validly tendered on or before the expiration date, and not properly withdrawn in accordance with Section 3, promptly after the expiration date. In all cases, payment for Shares tendered and accepted for payment pursuant to the offer will be made only after timely receipt by the depositary of certificates for such Shares (unless such Shares are held in uncertificated form), a properly completed and duly executed letter of transmittal, and any other documents required by the letter of transmittal. We expressly reserve the right, in our sole discretion, to delay the acceptance for payment of, or payment for, Shares, in order to comply, in whole or in part with any applicable law.
For purposes of the offer, we will be deemed to have accepted for payment Shares validly tendered and not withdrawn as, if and when we give or cause to be given oral or written notice to the depositary of our acceptance for payment of such Shares pursuant to the offer. Payment for Shares accepted for payment pursuant to the offer will be made by deposit of the aggregate purchase price therefor with the depositary, which will act as agent for the tendering shareholders for purpose of receiving payments from the Fund and transmitting such payments to the tendering shareholders. Under no circumstances will interest on the purchase price for Shares be paid, regardless of any delay in making such payment.
In the event of proration, we will determine the proration factor and pay for those tendered Shares accepted for payment as soon as practicable after the expiration date. However, we expect that we will not be able to announce the final results of any proration or commence payment for any Shares purchased pursuant to the offer until at least five business days after the expiration date. Our determination of the proration factor will be final and binding on all parties.
If any tendered Shares are not accepted for payment pursuant to the terms and conditions of the offer for any reason, or are not accepted because of an invalid tender, or if certificates are submitted for more Shares than are accepted (i) certificates for such unpurchased Shares will be returned, without charge by us to the tendering shareholder, as soon as practicable following expiration or termination of the offer, (ii) Shares delivered pursuant to the book-entry delivery procedure (as defined in Section 2 above) will be credited to the appropriate account maintained within the book-entry transfer facility and (iii)
11
uncertificated Shares held by the Fund’s transfer agent pursuant to the Fund’s dividend reinvestment plan will be returned to the dividend reinvestment plan account maintained by the transfer agent.
If we are delayed in our acceptance for payment of, or in our payment for, Shares, or are unable to accept for payment or pay for Shares pursuant to the offer for any reason, then, without prejudice to our rights under this offer, the depositary may, on behalf of the Fund, retain tendered Shares, and such Shares may not be withdrawn, unless and except to the extent tendering shareholders are entitled to withdrawal rights as described in Section 3 of this offer to purchase.
The purchase price of the Shares will equal 98% of their net asset value (a 2% discount) as of the close of regular trading on the New York Stock Exchange on December 17, 2010, or such later date to which the offer is extended. Tendering shareholders may be required to pay brokerage commissions or fees. Under the circumstances set forth in instruction 6 of the letter of transmittal, shareholders may be subject to transfer taxes on the purchase of Shares by the Fund.
We normally calculate the net asset value of our Shares daily at the close of regular trading of the New York Stock Exchange. On November 12, 2010, the net asset value was $12.59 per share. The Shares are listed on the New York Stock Exchange. On November 12, 2010, the last sales price at the close of regular trading on the New York Stock Exchange was $11.54 per share, representing a 8.34% discount from net asset value. The net asset value of the Shares will be available daily until the expiration date, by calling the information agent, toll free at (800) 868-1390 or, for ban ks or brokers, at (212) 440-9800. or by visiting the Fund’s website at www.nomura.com or by calling the Fund’s toll free number at (800) 833-0018.
5. Certain U.S. Federal Income Tax Consequences
The following discussion describes certain U.S. federal income tax consequences of the sale of Shares pursuant to the offer. This discussion deals only with Shares held as capital assets and does not deal with special situations, such as those of dealers in securities or commodities, traders in securities that elect to mark their holdings to market, insurance companies, persons holding Shares as a part of a hedging, conversion or constructive sale transaction or a straddle, or shareholders whose functional currency is not the U.S. dollar. Furthermore, the discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations, rulings and judi cial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified so as to result in U.S. federal income tax consequences different from those discussed below. Shareholders should consult their own tax advisors concerning the U.S. federal income tax consequences of participating or not participating in the offer in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction.
As used herein, a “U.S. Shareholder” means a shareholder that is (i) a citizen or resident of the United States, (ii) a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes), created or organized in or under the laws of the United States, any State thereof or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of the source of the income, or (iv) a trust if it (x) is subject to the supervision of a court within the U.S. and one or more U.S. persons has the authority to control all substantial decisions of the trust or (y) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. A “Non-U.S. Shareholder” is a shareholder that is neither a U.S. Shareholde r nor a partnership (or other entity treated as a partnership for U.S. federal income tax purposes).
The U.S. federal income tax treatment of a person that is a partner in a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) that holds our Shares generally will depend upon the status of the partner and the activities of the partnership. Partners in partnerships holding our Shares should consult their tax advisors.
12
U.S. Shareholders.
An exchange of Shares for cash in the offer will be a taxable transaction for U.S. federal income tax purposes. As a consequence of the exchange, depending on a shareholder’s particular circumstances, the sale of Shares pursuant to the offer will be treated either (1) as a “sale or exchange” producing gain or loss or (2) as the receipt of a distribution from the Fund taxable as a dividend to the extent of such shareholder’s allocable share of the Fund’s “earnings and profits.” Under Section 302(b) of the Code, a sale of Shares pursuant to the offer generally will be treated as a sale or exchange if the receipt of cash by the shareholder: (a) results in a complete termination of the shareholder’s interest in the Fund, (b) results in a “substantially disproportionat e” redemption with respect to the shareholder, or (c) is “not essentially equivalent to a dividend” with respect to the shareholder. For this purpose a “substantially disproportionate” redemption is one that reduces the shareholder’s percentage voting interest in the Fund by more than 20% and after which the shareholder owns a less-than-50% voting interest in the Fund. Also for this purpose, a redemption is “not essentially equivalent to a dividend” if it results in a “meaningful reduction” of a shareholder’s percentage interest in the Fund. Whether a reduction is “meaningful” depends on a shareholder’s particular facts and circumstances; in general, the smaller a shareholder’s percentage interest in the Fund, the more likely it is that any such reduction therein will be treated as “meaningful.”
In determining whether any of these tests has been met, Shares actually owned, as well as Shares considered to be owned by the shareholder by reason of certain constructive ownership rules set forth in Section 318 of the Code, generally must be taken into account. If any of these three tests for sale or exchange treatment under Section 302(b) is met, a shareholder will recognize gain or loss equal to the difference between the price paid by the Fund for the Shares purchased in the offer and the shareholder’s adjusted basis in such Shares. Any such gain or loss will be long-term capital gain or loss if the holding period for the Shares exceeds one year as of the date of the sale pursuant to the offer. The deductibility of capital losses is subject to limitations.
If the requirements of Section 302(b) of the Code are not met, amounts received by a shareholder who sells Shares pursuant to the offer will be taxable to the shareholder as a dividend to the extent of such shareholder’s allocable share of the Fund’s current or accumulated earnings and profits. To the extent that amounts received exceed such shareholder’s allocable share of the Fund’s current and accumulated earnings and profits for a taxable year, the distribution will first be treated as a non-taxable return of capital, causing a reduction in the adjusted basis of such shareholder’s Shares, and any amounts in excess of the shareholder’s adjusted basis will be treated as capital gain (which will be long-term capital gain if the holding period for the Shares exceeds one year as of the date of the deemed dividend). Any remaining adjusted basis in the Shares tendered to the Fund will be transferred to any remaining Shares held by such shareholder.
Provided that no tendering shareholder is treated as receiving a dividend as a result of selling Shares pursuant to the offer, shareholders who do not sell Shares pursuant to the offer will not realize any taxable income. In the event that any shareholder is deemed to receive a dividend as a result of selling Shares pursuant to the offer, there is a risk that shareholders whose percentage interests in the Fund increase as a result of the offer (whether because they do not tender Shares pursuant to the offer, or sell only a portion of their Shares but whose percentage interest in the Fund nevertheless increases as a result of the offer) may be deemed to have received a constructive distribution from the Fund under Section 305 of the Code, in an amount equal to the increase in such shareholder’s percentage ownership of the Fund that is taxable as a dividend to the extent of such shareholder’s allocable share of the Fund’s earnings and profits.
13
Non-U.S. Shareholders.
The U.S. federal income tax treatment of the sale of Shares by a Non-U.S. Shareholder pursuant to the offer will depend on whether such Non-U.S. Shareholder is treated, based on the Non-U.S. Shareholder’s particular circumstances, as having sold the Shares or as having received a dividend in respect of such Non-U.S. Shareholder’s Shares. The appropriate treatment of the sale of Shares will be determined in the manner described above with respect to the U.S. federal income tax treatment of a sale of Share pursuant to the offer in the case of U.S. Shareholders.
A Non-U.S. Shareholder that satisfies any of the Section 302 tests explained above will be treated as having sold the Shares pursuant to the offer. A Non-U.S. Shareholder will not generally be subject to U.S. federal income tax (and would be eligible to obtain a refund of any amounts withheld as described below) on gain recognized on a sale of Shares unless (1) the gain is effectively connected with a trade or business of the Non-U.S. Shareholder in the United States and, if certain tax treaties apply, is attributable to a permanent establishment in the United States maintained by such Non-U.S. Shareholder, or (2) in the case of an individual Non-U.S. Shareholder, the individual is present in the United States for 183 or more days in the taxable year of the disposition and certain other conditions are met. Individual Non-U.S. Shareholders who are treated, for U.S. federal income tax purposes, as having sold their Shares pursuant to the offer and that are present in the United States for 183 days or more during the year will be taxed on their gains from sales of their Shares, net of applicable U.S. gains and losses from sales or exchanges of other capital assets incurred during the year, at a flat rate of 30%. Other Non-U.S. Shareholders that are treated as having sold their Shares pursuant to the offer and that are subject to U.S. federal income tax on such sale (as described above) will generally be taxed on such disposition in the same manner in which a U.S. Shareholder would be taxed. If such Non-U.S. Shareholder is a corporation, it may also be required to pay a branch profits tax at a rate of 30% (or such lower rate as specified by an applicable tax treaty) on its effectively connected earnings and profits, as determined under the Code.
If a Non-U.S. Shareholder does not satisfy any of the Section 302 tests explained above, the full amount received by the Non-U.S. Shareholder with respect to the purchase of Shares pursuant to the offer will be treated as a distribution to the Non-U.S. Shareholder with respect to the Non-U.S. Shareholder’s Shares. The treatment, for U.S. federal income tax purposes, of such distribution as a dividend, a tax-free return of capital, or as a capital gain from the sale of Shares will be determined in the manner described above with respect to the U.S. federal income tax treatment of a purchase of Shares pursuant to the offer in the case of U.S. Shareholders As described more fully below, to the extent amounts received by a Non-U.S. Shareholder are treated as a dividend, such Non-U.S. Shareholder will be subje ct to withholding of U.S. federal income tax.
Because the Fund cannot predict whether any particular shareholder will be subject to sale or distribution treatment, the depositary will generally treat the cash received by a Non-U.S. Shareholder participating in the offer as a dividend distribution. Accordingly, the depositary will generally withhold U.S. federal income tax equal to 30% of the gross proceeds payable to the Non-U.S. Shareholder, unless (i) an exemption from, or a reduced rate of, withholding tax is available under a tax treaty or such gross proceeds are effectively connected with the conduct of a trade or business of the Non-U.S. Shareholder within the United States and (ii) the Non-U.S. Shareholder so certifies on the appropriate IRS Form W-8 as described below. In order to obtain a reduced rate of withholding under a tax treaty, a Non-U.S. Shareh older must deliver to the depositary before the payment a properly completed and executed IRS Form W-8BEN. In order to obtain an exemption from withholding on the grounds that the gross proceeds paid under the offer are effectively connected with the conduct of a trade or business within the United States, a Non-U.S. Shareholder must deliver to the depositary a properly completed and executed IRS Form W-8ECI. If tax is withheld, a Non-U.S. Shareholder may be eligible to obtain a refund of all or a portion of such tax withheld if such Non-U.S. Shareholder satisfies one of the Section 302 tests described
14
above or is otherwise able to establish that no withholding or a reduced amount of withholding is due. Backup withholding will generally not apply to amounts subject to the 30% or treaty-reduced rate of U.S. federal income tax withholding. Non-U.S. Shareholders are urged to consult their own tax advisors regarding the application of U.S. federal income tax withholding, including eligibility for a withholding tax reduction or exemption, and the refund procedure.
Backup Federal Income Tax Withholding.
Backup withholding will be imposed on the gross proceeds paid to a tendering U.S. Shareholder unless the U.S. Shareholder provides such U.S. Shareholder’s taxpayer identification number (i.e., employer identification number or social security number) to the depositary, certifies as to no loss of exemption from backup withholding, complies with applicable requirements of the backup withholding rules or is otherwise exempt from backup withholding. Therefore, each tendering U.S. Shareholder should complete and sign the Substitute Form W-9 included as part of the letter of transmittal so as to provide the information and certification necessary to avoid backup withholding. Certain U.S. Shareholders (including, among others, all corporations) are not subject t o these backup withholding requirements; however, such U.S. Shareholders should complete the Substitute Form W-9 to avoid erroneous backup withholding. In addition, Non-U.S. Shareholders are subject to these backup withholding requirements. In order for a Non-U.S. Shareholder to qualify as an exempt recipient, that Non-U.S. Shareholder must submit an appropriate IRS Form W-8 or a Substitute Form W-8. Such statements can be obtained from the depositary.
To prevent backup U.S. federal income tax withholding, each shareholder who does not otherwise establish an exemption from such withholding must provide the depositary with the shareholder’s correct taxpayer identification number and provide certain other information by completing the Substitute Form W-9 included in the letter of transmittal.
6. Net Asset Value and Market Price Range of the Shares; Dividends on the Shares
The Shares are traded on the New York Stock Exchange. The following table sets forth for the periods indicated the net asset value (as of the last day of each such period), and the high and low price per share on the New York Stock Exchange during each such period:
Fiscal Quarter Ended | High | Low | Net Asset Value | |||||||||
October 31, 2010 | $11.48 | $9.74 | $12.30 | |||||||||
July 31, 2010 | 10.12 | 8.47 | 10.86 | |||||||||
April 30, 2010 | 10.10 | 8.41 | 11.19 | |||||||||
January 31, 2010 | 9.68 | 8.37 | 9.88 | |||||||||
October 31, 2009 | 9.20 | 7.54 | 9.76 | |||||||||
July 31, 2009 | 7.94 | 6.60 | 9.06 | |||||||||
April 30, 2009 | 6.5001 | 4.16 | 7.50 | |||||||||
January 31, 2009 | 6.13 | 3.95 | 5.98 | |||||||||
October 31, 2008 | 10.09 | 4.30 | 6.50 | |||||||||
15
The tender of Shares, unless and until such tendered Shares are accepted for purchase, will not affect the record ownership of any such tendered Shares for purposes of entitlement to any dividends payable by the Fund.
On November 12, 2010, the net asset value was $12.59 per share and the last reported sales price on the New York Stock Exchange was $11.54 per share, representing an 8.34% discount from net asset value. Shareholders are urged to obtain current market quotations for the Shares.
7. Source and Amount of Funds; Effect of the Offer
Cost to the Fund. 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 tendered, and the price will be based on the net asset value per share on the expiration date. If the net asset value per share on the expiration date were the same as the net asset value per share on November 12, 2010, and if shareholders tender 2,212,479 Shares, the maximum number of securities we will purchase pursuant to the offer, the estimated payment by the Fund to the shareholders would be approximately $27,301,991. See the Pro Forma Capitalization Table below.
The monies we use to purchase Shares in the offer will be obtained from cash and from sales of securities in the Fund’s investment portfolio. There are no financing conditions to this offer.
Effect on Net Asset Value and Consideration Received by Tendering Shareholders.
The offer may have certain adverse consequences for tendering and non-tendering shareholders.
The sale of portfolio securities will cause the Fund to incur 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 net asset value per share, thereby reducing the amount of proceeds received by tendering shareholders and the net asset value per share for non-tendering shareholders. In addition, if the Fund were 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 net asset value may decline.
Shareholders should note, however, that the offer may result in a small accretion to the Fund’s net asset value per share following the offer, due to the fact that the tender price would represent a 2% discount to the Fund’s net asset value per share at that time. There is no guarantee that the potential accretion to the Fund’s net asset value per share will offset, in whole or in part, the expenses of the offer.
The Fund will likely sell portfolio securities during the pendency of the offer to raise cash for the purchase of Shares. During the pendency of the offer, consequently, and possibly after that, 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 extend the offer to allow additional time to sell portfolio securities and raise sufficient cash.
Recognition of Capital Gains by the Fund. As noted above, the Fund will likely be required to sell portfolio securities to finance the offer. If the Fund’s tax basis for the securities sold is less than the sale proceeds, the Fund will recognize capital gains. The Fund would expect to declare and distribute any such gains to shareholders of record (reduced by any net capital losses realized during or carried forward to, after offset against any short-term gains, as indicated below, the fiscal year). In addition, some of the
16
distributed gains may be realized on securities held for one year or less, which (to the extent not reduced by available capital loss carryforwards) would generate income taxable to the non-tendering shareholders at ordinary income rates. This recognition and distribution of gains, if any, would have certain negative consequences. First, shareholders remaining at the time of a declaration of distributions would be required to pay taxes on a higher amount of distributions than otherwise would be the case. Second, to raise cash to make the distributions, the Fund might need to sell additional portfolio securities thereby possibly being forced to realize and recognize additional capital gains. It is impossible to predict what the amount of unrealized gains or losses would be in the Fund’s por tfolio at the time that the Fund is required to liquidate portfolio securities (and the amount of capital gains or losses that would be realized and recognized). As of April 30, 2010, there was net unrealized appreciation on investments and foreign currency transactions of $41,162,252 in the Fund’s portfolio as a whole, and as of October 31, 2009, there were net capital loss carryforwards of $16,265,133 that for tax purposes would offset future gains actually realized.
Tax Consequences of Repurchases to Shareholders. Our purchase of tendered Shares pursuant to the offer will have tax consequences for tendering shareholders and may have tax consequences for non-tendering shareholders (or in certain cases tendering shareholders whose percentage interests in the Fund nonetheless increase as a result of the offer). See Section 5 of this offer to purchase.
Higher Expense Ratio and Less Investment Flexibility. If we purchase 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 result of the offer will result in a higher expense ratio for the Fund and possibly in less investment flexibility for the Fund.
Reduction in Shares Outstanding. Our purchase of Shares in the offer will reduce the number of our Shares that might otherwise trade publicly and may reduce the number of our shareholders. Assuming the offer is fully subscribed, we will have approximately 8,849,912 Shares outstanding following the purchase of Shares tendered in the offer. The actual number of Shares outstanding will depend on the number of Shares tendered and purchased in the offer. This may reduce the volume of trading in the Shares and make it more difficult to buy or sell significant amounts of Shares without affecting the market price, which could adversely affect continuing shareholders.
The Shares are currently “margin securities” under the rules of the Federal Reserve Board. This has the effect, among other things, of allowing brokers to extend credit on the collateral of the Shares. We believe that, following the purchase of Shares pursuant to the offer, the Shares will continue to be “margin securities” for purposes of the Federal Reserve Board’s margin regulations.
Our Shares are registered under the Exchange Act, which requires, among other things, that we furnish specific information to our shareholders and to the Securities and Exchange Commission and comply with the Securities and Exchange Commission’s proxy rules in connection with meetings of our shareholders. We believe that our purchase of Shares in the offer will not result in the Shares becoming eligible for deregistration under the Exchange Act.
Pro Forma Effects on Capitalization. The following table sets forth the net assets of the Fund as of November 12, 2010, adjusted to give effect to the offer (excluding expenses and assuming we repurchase 2,212,479 outstanding Shares):
17
Pro Forma Capitalization (1)
As of November 12, 2010 | Adjustment for Purchase at $12.34 Per Share (2) | Pro Forma as Adjusted | ||||||||||
Total net assets | $139,293,947 | ($27,301,981) | $111,991,956 | |||||||||
Shares outstanding | 11,062,391 | (2,212,479) | 8,849,912 | |||||||||
Net asset value per share (3) | $12.59 | $12.65 |
———————————
(1) This table assumes purchase by the Fund of 2,212,479 Shares, equal to approximately 20% of the Fund’s outstanding Shares as of November 12, 2010. This table does not give effect to the estimated expenses of the offer of $250,000.
(2) This amount represents 98% of the Fund’s net asset value as determined on November 12, 2010. Shares tendered pursuant to the offer will be purchased at a 2% discount to net asset value on the expiration date, which may be higher or lower, and the actual net asset value per share also may be higher or lower than that shown above.
(3) The net asset value per share of the Fund is normally determined on each day that the New York Stock Exchange is open, as of the close of regular trading on the New York Stock Exchange, and is determined by dividing the total net assets of the Fund by the number of Shares outstanding.
8. Purpose of the Offer
Purpose
The purpose of the offer is to enhance liquidity for shareholders seeking to exit the Fund at a price reflecting a smaller discount to net asset value than may be currently available in the market. The offer is being made pursuant to an enhanced Discount Management Plan adopted by the Board of Directors of the Fund in August 2010 that provides for a tender offer of up to 20 percent of the Fund’s outstanding Shares. The Board of Directors had previously adopted a Discount Management Plan that contemplated open-market purchases on the New York Stock Exchange. Pursuant to the original Discount Management Plan, the Fund repurchased an aggregate of 149,609 Shares on the New York Stock Exchange during the period from July 1, 2010 through August 13, 2010. During the Fund’s solicitation of proxies for its annual meeting of shareholders held on September 15, 2010, the Board of Directors received feedback that a significant number of shareholders favored a means for greater liquidity than was provided under the open market purchase program and the Board of Directors at that time announced its plan for this tender offer. The enhanced Discount Management Plan also contemplates that the Board of Directors will annually evaluate whether, taking into account the Fund’s performance, trading discount from net asset value and other relevant factors, the Fund should make an additional tender offer for between 5 and 15 percent of its outstanding Shares.
None of the Fund, its Board of Directors or Nomura Asset Management makes any recommendation to any shareholder as to whether to tender or refrain from tendering any of such shareholder’s Shares, and none of such persons has authorized any person to make any such recommendation. Shareholders are urged to evaluate carefully all information in this offer to purchase, consult their own investment and tax advisors and make their own decisions whether to tender Shares.
18
Use of Securities Acquired
Shares acquired pursuant to the offer will be canceled and returned to the status of authorized but unissued Shares.
Plans
Except as indicated in this offer to purchase, the Fund has no present plans or proposals which relate to or would result in (1) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Fund, (2) any purchase, sale or transfer of a material amount of assets of the Fund, (3) any material change in the present dividend policy, or indebtedness or capitalization of the Fund, except that the Fund’s dividend reinvestment plan may be temporarily suspended in connection with this offer, (4) any change to the Fund’s present Board of Directors or management, including, but not limited to, any plans or proposals to change the number or the term of directors or to fill any existing vacancies on the Board of Directors or to change any material term of the employment contract of any executive of ficer, (5) any other material changes in the Fund’s corporate structure or business, including any plans or proposals to make any changes in its investment policy for which a vote would be required by Section 13 of the Investment Company Act of 1940, (6) any class of equity securities of the Fund being delisted from a national securities exchange or ceasing to be authorized to be quoted in an automated quotations system operated by a national securities association, (7) any class or equity securities of the Fund becoming eligible for termination of registration under Section 12(g)(4) of the Exchange Act, (8) the suspension of the Fund’s obligation to file reports under Section 15(d) of the Exchange Act, (9) the acquisition by any person of additional securities of the Fund, or the disposition of securities of the Fund, or (10) 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.
The Fund’s Board of Directors intends to continue to review the Fund’s investment performance, capitalization, management and prospects. Accordingly, the Fund reserves the right to change its plans and intentions at any time, as it deems appropriate.
9. Information Concerning the Fund
The Fund is a closed-end, non-diversified investment company organized as a Maryland corporation. The Shares were first issued to the public in 1993. As a closed-end investment company, the Fund differs from an open-end investment company 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 (see Section 8 of this offer to purchase). Instead, the Shares trade on the secondary market through their listing on the NYSE. The Fund’s investment objective is to provide shareholders with long-term capital appreciation through investment primarily in equity securities of Korean companies. The principal executive offices of the Fund are located at Two World Financial Center, Building B, New York, New York 1 0281. The Fund’s business telephone number is (800) 833-0018.
Nomura Asset Management U.S.A. Inc. (“NAM USA”) is the Fund’s manager, and has retained its parent, Nomura Asset Management Co. Ltd., (“NAM”), as the Fund’s investment adviser. Nomura Asset Management Hong Kong Limited (NAM-Hong Kong”) and Nomura Asset Management Singapore Limited (“NAM-Singapore”), subsidiaries of NAM, act as investment sub-advisers for the Fund. The amounts paid by the Fund to NAM USA and its affiliates for these services are disclosed in the Fund’s financial statements and the notes to the financial statements, which can be found in the Fund’s annual and semi-annual reports.
The Fund is subject to the information and reporting requirements of the Investment Company Act of 1940 and is obligated to file reports and other information with the Securities and Exchange Commission relating to its business, financial condition and other matters. The Fund has also filed a tender offer
19
statement on Schedule TO with the Securities and Exchange Commission. Such reports and other information should be available for inspection at the public reference room at the Securities and Exchange Commission’s office, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The Fund’s filings are also available to the public on the Securities and Exchange Commission’s internet site (http://www.sec.gov). Copies may be obtained, by mail, upon payment of the Securities and Exchange Commission’s customary charges, by writing to its Public Reference Section at 100 F Street, N.E., Washington, D.C. 20549.
10. Interest of Directors and Officers; Transactions and Arrangements Concerning the Shares
The directors and officers of the Fund and the aggregate number and percentage of the Shares each of them beneficially owns as of November 12, 2010 is set forth in the table below. The address of each of them is in care of the Fund at Two World Financial Center, Building B, New York, New York 10281.
Name and Position | Aggregate Number of Shares Beneficially Owned | Percentage of Shares Beneficially Owned |
Non-Interested Directors: | ||
Rodney A. Buck | 4,000 | * |
David B. Chemidlin | 0 | 0% |
Phillip Goldstein** | 5,000 | * |
E. Han Kim | 0 | 0% |
Chor Weng Tan | 5,251 | * |
Interested Director: | ||
Shigeru Shinohara *** | 0 | 0% |
Officers: | ||
Kenneth L. Munt, Vice President | 0 | 0% |
Hiroyuki Nakano, Vice president | 0 | 0% |
Rita Chopra-Brathwaite, Treasurer | 0 | 0% |
Neil A. Daniele, Secretary and Chief Compliance Officer | 0 | 0% |
——————————————
* | Less than 1% |
** | Mr. Goldstein is a principal in various private investment funds, the general partner of each of which Mr. Goldstein is a principal. These private investment funds beneficially own 663,912 Shares of the Fund. Special Opportunities Fund, a registered closed-end fund which is advised by Brooklyn Capital Management, LLC, of which Mr. Goldstein is a principal, owns 68,639 Shares of the Fund. |
*** | Mr. Shinohara is also the President of the Fund. Mr. Shinohara is also president of Nomura Asset Management U.S.A. Inc., which owns 12,481.4025 Shares of the Fund. |
20
We know of no agreement, arrangement or understanding, contingent or otherwise or whether or not legally enforceable, between (a) the Fund, any of the Fund’s officers or directors, any person controlling the Fund or any executive officer, trustee or director of any corporation or other person ultimately in control of the Fund and (b) any person with respect to any securities of the Fund (including any agreement, arrangement or understanding concerning the transfer or the voting of any such securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss, or the giving or withholding of proxies, consents or authorizations).
We have been advised by Mr. Goldstein that he may tender Shares pursuant to the offer, and it is our understanding that the private investment funds and Special Opportunities Fund may also tender Shares pursuant to the offer. We have been advised by each of our other directors and officers that such individuals do not intend to tender any Shares owned by them in the tender offer. Any Shares tendered by Mr. Goldstein, or any associate of Mr. Goldstein, will be subject to the same terms and conditions as the other Shares tendered pursuant to the offer.
11. Legal Matters; Regulatory Approvals
Except as described in this offer to purchase, we are not aware of any license or regulatory permit that appears to be material to our business that might be adversely affected by our acquisition of Shares as contemplated by the offer or of any approval or other action by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, that would be required for our acquisition or ownership of Shares as contemplated by the offer. Should any such approval or other action be required, we currently contemplate that we will seek approval or such other action. We cannot predict whether we may determine that we are required to delay the acceptance for payment of, or payment for, Shares tendered in response to the offer, pending the outcome of any such matters. There can be n o assurance that any approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that the failure to obtain any approval or other action might not result in adverse consequences to our business. Our obligation to accept for payment and pay for Shares under the offer is subject to various conditions. See Section 12.
12. Conditions to the Offer
Notwithstanding any other provision of the offer, the Fund will not accept tenders during any period when (a) such transactions, if consummated, would (i) result in the delisting of the Fund’s Shares from the New York Stock Exchange or (ii) impair, jeopardize or cause the loss of the Fund’s status as a regulated investment company under the Code (which would make the Fund a taxable entity, causing the Fund’s income to be taxed at the Fund level in addition to the taxation of shareholders who receive distributions from the Fund); (b) there is any (i) legal or regulatory action or proceeding instituted or threatened challenging such transaction, (ii) suspension of or limitation on prices for trading securities generally on the New York Stock Exchange or other national securities exchanges, or the Stock Market Division or t he KOSDAQ Market Division of the Korea Exchange (KRX), or any other exchange on which the Shares or portfolio securities held by the Fund are traded, (iii) declaration of a banking moratorium by federal or state authorities or any suspension of payment by banks in the United States or New York State, (iv) limitation affecting the Fund imposed by federal or state authorities on the extension of credit by lending institutions, or (v) outbreak or escalation of hostilities, declaration by the United States of a national emergency or war, or other calamity or crisis the effect of which on financial markets is such as to make it, in the good faith judgment of the Board of Directors of the Fund, impractical or inadvisable to proceed with the offer; or (c) the Board of Directors of the Fund determines in good faith that effecting any such transaction would constitute a breach of its fiduciary duty owed to the Fund or its shareholders.
The foregoing conditions are for the sole benefit of the Fund and may be asserted by the Fund regardless of the circumstances giving rise to any such conditions or may be waived by the Fund in whole or in part at any time and from time to time in its sole discretion. The failure by the Fund at any time to exercise
21
any of the foregoing rights shall not be deemed a waiver of any such right 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 12 shall be final and binding on all parties.
A public announcement shall be made of a material change in, or waiver of, such conditions, and the offer may, in certain circumstances, be extended in connection with any such change or waiver.
If the offer is suspended or postponed, the Fund will provide notice to shareholders of such suspension or postponement.
13. Fees and Expenses
We have retained Georgeson, Inc. to act as information agent and Computershare Trust Company, N.A. to act as depositary in connection with the offer. The information agent may contact holders of Shares by mail, telephone, telegraph and in person and may request that brokers, dealers, commercial banks, trust companies and other nominee shareholders forward materials relating to the offer to beneficial owners. The information agent and the depositary will each receive reasonable and customary compensation for their services, will be reimbursed by us for specified out-of-pocket expenses and will be indemnified against certain liabilities in connection with the offer, including certain liabilities under the federal securities laws.
We will not pay fees or commissions to any broker, dealer, commercial bank, trust company or other person for soliciting any Shares under the offer, other than as described above. We will, however, on request, reimburse brokers, dealers, commercial banks, trust companies and other persons for customary handling and mailing expenses incurred in forwarding the offer and related materials to the beneficial owners for whom they act as nominees. No broker, dealer, commercial bank or trust company has been authorized to act as our agent or as an agent of our investment manager, information agent or depositary for purposes of the offer.
14. Summary of Selected Financial Information
Set forth below is a summary of selected financial information for the Fund for the fiscal years ended October 31, 2009 and October 31, 2008 and unaudited financial information for the six month period ended April 30, 2010. The financial information for the fiscal years ended October 31, 2009 and October 31, 2008 is excerpted from the Fund’s audited financial statements. The Fund’s audited financial statements for the fiscal years ended October 31, 2009 and October 31, 2008 are included in that Fund’s 2009 and 2008 Annual Reports, respectively, which are incorporated by reference into this Offer to Purchase. The financial information with respect to the six month period ended April 30, 2010 is excerpted from the Fund’s unaudited financial statements, which are included in the Fund’s 2010 Semi-Annual Reports. The Fund’s 2010 Semi-Annual Report is incorporated by reference into this Offer to Purchase. More comprehensive financial information is included in the Fund’s audited financial statements, copies of which have been filed with the Securities and Exchange Commission (the “SEC”). You may request a copy of the Fund’s Annual Report at no charge at www.nomura.com or by calling 1-800-833-0018 between 8:00 a.m. and 6:00 p.m., New York City Time, any business day. The summary of the Fund’s selected financial information set forth below is qualified in its entirety by reference to such Annual Reports and the financial information, the notes thereto and related material contained therein.
22
SUMMARY OF SELECTED FINANCIAL INFORMATION
For the Six Months Ended April 30, 2010 (Unaudited) | For the Year Ended October 31, 2009 | For the Year Ended October 31, 2008 | ||||||||||
STATEMENT OF OPERATIONS | ||||||||||||
Total income | $ | 1,209,991 | $ | 1,096,493 | $ | 2,273,881 | ||||||
Total expenses | 908,029 | 1,375,013 | 1,838,642 | |||||||||
Net investment income | $ | 301,962 | $ | (278,520 | ) | $ | 435,239 | |||||
REALIZED AND UNREALIZED GAIN (LOSS) | ||||||||||||
Net realized gain (loss) from investments, swaps, and foreign currency transactions | $ | 6,509,822 | $ | (16,683,963 | ) | $ | 114,848 | |||||
Net change in unrealized appreciation/depreciation on investments, swaps, foreign currency and unfunded corporate loans | $ | 4,203,097 | $ | 16,751,969 | $ | (26,654,923 | ) | |||||
ASSETS AND LIABILITIES | ||||||||||||
Total assets | $ | 126,541,652 | $ | 109,714,361 | $ | 82,208,105 | ||||||
Total liabilities | 1,072,547 | 253,454 | 9,268,419 | |||||||||
Net assets | $ | 125,469,105 | $ | 109,460,907 | $ | 72,939,686 | ||||||
Net asset value per share | $ | 11.19 | $ | 9.76 | $ | 6.51 | ||||||
Shares of capital stock outstanding | 11,212,000 | 11,212,000 | 11,212,000 | |||||||||
FINANCIAL HIGHLIGHTS | ||||||||||||
Net investment income | $ | 0.03 | $ | (0.02 | ) | $ | 0.04 | |||||
Net realized and unrealized gain (loss) | 1.40 | 3.28 | (9.93 | ) | ||||||||
Per Share Operating Performance | $ | 1.43 | $ | 3.26 | $ | (9.89 | ) | |||||
Dividends from net investment income | $ | 0.00 | $ | (0.01 | ) | $ | (0.02 | ) | ||||
Ratios to Average Net Assets | ||||||||||||
Total expenses | 1.59 | %* | 1.64 | % | 1.36 | % | ||||||
Net investment income | 0.53 | % | (0.33 | %) | 0.32 | % | ||||||
*Annualized | ||||||||||||
23
15. Miscellaneous
The offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. We are not aware of any jurisdiction where the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction where the making of the offer is not in compliance with any applicable law, we will make a good faith effort to comply with the applicable law.
In accordance with Rule 13e-4 under the Exchange Act, we have filed with the Securities and Exchange Commission a Tender Offer Statement on Schedule TO that contains additional information with respect to the offer. The Schedule TO, including the exhibits and any amendments thereto, may be examined, and copies may be obtained, at the places and in the manner set forth in Section 9.
We have not authorized any person to make any recommendation on our behalf regarding whether you should tender or refrain from tendering your Shares in the offer. We have not authorized any person to provide any information or make any representation in connection with the offer, other than those contained in this offer to purchase or in the letter of transmittal. You should not rely upon any recommendation, information or representation that is given or made to you as having been authorized by the Fund, our investment manager, the Fund’s transfer agent, the depositary or the information agent.
KOREA EQUITY FUND, INC.
November 17, 2010
24
The letter of transmittal, certificates for Shares and any other required documents should be sent or delivered by each Fund shareholder or the shareholder’s broker, dealer, commercial bank, trust company or nominee to the depositary as follows:
The Depositary for the Tender Offer is:
By First Class Mail: | By Registered, Certified or Express Mail, or Overnight Courier: |
Computershare | Computershare |
c/o Voluntary Corporate Actions | c/o Voluntary Corporate Actions |
P.O. Box 43011 | Suite V |
Providence, RI 02940-3011 | 250 Royall Street |
Canton, MA 02021 | |
Delivery of the letter of transmittal to an address other than as set forth above will not constitute a valid delivery to the depositary.
Any questions, requests for assistance or requests for additional copies of this offer to purchase, the letter of transmittal or the notice of guaranteed delivery may be directed to the information agent at the telephone number or address set forth below. You may also contact your broker, dealer, commercial bank, trust company or nominee for assistance concerning the offer. To confirm delivery of Shares, shareholders are directed to contact the depositary.
The Information Agent for the Tender Offer is:
199 Water Street, 26th Floor
New York, NY 10038
Banks and Brokers Call: (212) 440-9800
All Others Call: (800) 868-1390