Korea Equity Fund and JPMorgan China Region Fund Inc. areexploring a possible merger in which the latter will be the surviving fund.

The two funds' boards have entered into a nonbinding agreementto negotiate the possible transaction, which may or may not push through, KoreaEquity Fund said July 19.

If the deal pushes through, the surviving fund will berenamed The North East Asia Growth Fund. It will actively invest in equitysecurities in China, South Korea, Taiwan and Hong Kong, a move that will besubject to shareholder approval as it diverts from the fund's currentinvestment objective.

The new fund will also continue to make direct investment inChina A shares. It plans to adopt a more concentrated investment strategy undernormal investment conditions.

Following the merger, the combined fund will seek topurchase up to 50% of its issued shares at net asset value per share, minus theassociated costs.

The funds' board will consist of two members from the KoreaEquity Fund and four members from JPMorgan China Region Fund.

JF International Management Inc. will still be the fund'sinvestment adviser and its proposed benchmark would be the MSCI All Country FarEast excluding Japan Total Return Index.

The investment advisory fee would be 0.90% per annum of thefund's managed gross assets.

Korea Equity Fund is managed by