-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, NkgZvyA54ZKWzbna+7yj4WReWEAiwj4OTw2UzODrdkJDYkcQKrdQqTafJIK0wMAx SuoLj5Ed/GIYnILrjIUMzA== 0000203142-95-000004.txt : 19950615 0000203142-95-000004.hdr.sgml : 19950615 ACCESSION NUMBER: 0000203142-95-000004 CONFORMED SUBMISSION TYPE: NSAR-A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950228 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KOREA FUND INC CENTRAL INDEX KEY: 0000748691 STANDARD INDUSTRIAL CLASSIFICATION: 0000 IRS NUMBER: 133226146 STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: NSAR-A SEC ACT: 1940 Act SEC FILE NUMBER: 811-04058 FILM NUMBER: 95517093 BUSINESS ADDRESS: STREET 1: 345 PARK AVE STREET 2: C/O SCUDDER STEVENS & CLARK INC CITY: NEW YORK STATE: NY ZIP: 10154 BUSINESS PHONE: 6173305464 NSAR-A 1 N-SAR (3.0.A) PAGE 1 000 A000000 12/31/94 000 C000000 748691 000 D000000 N 000 E000000 NF 000 F000000 Y 000 G000000 N 000 H000000 N 000 I000000 3.0.a 000 J000000 U 001 A000000 THE KOREA FUND, INC. 001 B000000 811-4058 001 C000000 6172952567 002 A000000 345 PARK AVENUE 002 B000000 NEW YORK 002 C000000 NY 002 D010000 10154 003 000000 N 004 000000 N 005 000000 N 006 000000 N 007 A000000 N 007 B000000 0 013 A000001 COOPERS & LYBRAND L.L.P. 013 B010001 BOSTON 013 B020001 MA 013 B030001 02109 014 A000001 DAEWOO SECURITIES CO., INC. 014 B000001 8-00000000 014 A000002 SCUDDER INVESTOR SERVICES, INC. 014 B000002 8-298 020 A000001 DAEWOO SECURITIES 020 C000001 51 020 A000002 SUNKYONG 020 C000002 30 020 A000003 TONGYANG SECS 020 C000003 21 020 A000004 LUCKY SECURITIES 020 C000004 18 020 A000005 DAISHIN SECURITIES 020 C000005 13 020 A000006 DONGSUH SECURITIES 020 C000006 13 020 A000007 FIRST SECS KOREA 020 C000007 12 020 A000008 HYUNDAI SECURITIES 020 C000008 11 020 A000009 HOARE GOVETT 020 C000009 8 020 A000010 CORYO SECS CORP 020 C000010 8 021 000000 213 PAGE 2 022 A000001 DAEWOO SECURITIES 022 C000001 5017 022 D000001 7195 022 A000002 SUNKYONG 022 C000002 3840 022 D000002 4121 022 A000003 FIRST SECS KOREA 022 C000003 5044 022 D000003 1284 022 A000004 TONGYANG SECS 022 C000004 3756 022 D000004 2401 022 A000005 LUCKY SECURITIES 022 C000005 106 022 D000005 4039 022 A000006 HYUNDAI SECURITIES 022 C000006 1080 022 D000006 2356 022 A000007 DONGSUH SECURITIES 022 C000007 36 022 D000007 2886 022 A000008 DAISHIN SECURITIES 022 C000008 728 022 D000008 2167 022 A000009 BZW 022 C000009 2483 022 D000009 0 022 A000010 NIKKO SECS 022 C000010 2051 022 D000010 0 023 C000000 26372 023 D000000 33389 024 000000 N 055 A000000 N 055 B000000 N 056 000000 Y 057 000000 N 062 A000000 N 062 B000000 0.0 062 C000000 0.0 062 D000000 0.0 062 E000000 0.0 062 F000000 0.0 062 G000000 0.0 062 H000000 0.0 062 I000000 0.0 062 J000000 0.0 062 K000000 0.0 062 L000000 0.0 062 M000000 0.0 062 N000000 0.0 PAGE 3 062 O000000 0.0 062 P000000 0.0 062 Q000000 0.0 062 R000000 0.0 071 A000000 37361 071 B000000 33590 071 C000000 612016 071 D000000 11 072 A000000 6 072 B000000 971 072 C000000 52 072 D000000 0 072 E000000 0 072 F000000 3196 072 G000000 0 072 H000000 0 072 I000000 29 072 J000000 588 072 K000000 0 072 L000000 57 072 M000000 82 072 N000000 0 072 O000000 0 072 P000000 0 072 Q000000 0 072 R000000 44 072 S000000 67 072 T000000 0 072 U000000 0 072 V000000 0 072 W000000 42 072 X000000 4105 072 Y000000 0 072 Z000000 -3083 072AA000000 5532 072BB000000 0 072CC010000 60247 072CC020000 0 072DD010000 4274 072DD020000 0 072EE000000 0 073 A010000 0.0000 073 A020000 0.0000 073 B000000 0.1500 073 C000000 0.0000 074 A000000 9735 074 B000000 0 074 C000000 1451 074 D000000 41046 074 E000000 16135 074 F000000 546062 PAGE 4 074 G000000 0 074 H000000 0 074 I000000 0 074 J000000 0 074 K000000 0 074 L000000 1249 074 M000000 4 074 N000000 615682 074 O000000 4331 074 P000000 508 074 Q000000 0 074 R010000 0 074 R020000 0 074 R030000 0 074 R040000 850 074 S000000 0 074 T000000 609993 074 U010000 29540 074 U020000 0 074 V010000 20.65 074 V020000 0.00 074 W000000 0.0000 074 X000000 1532 074 Y000000 0 075 A000000 0 075 B000000 621493 076 000000 22.75 077 A000000 Y 077 B000000 N 077 C000000 Y 077 D000000 N 077 E000000 N 077 F000000 N 077 G000000 N 077 H000000 N 077 I000000 N 077 J000000 N 077 K000000 N 077 L000000 N 077 M000000 N 077 N000000 N 077 O000000 N 077 P000000 N 077 Q010000 Y 078 000000 N 080 A000000 ICI MUTUAL INSURANCE COMPANY 080 B000000 GULF INSURANCE COMPANY 080 C000000 60000 081 A000000 Y 081 B000000 70 082 A000000 N PAGE 5 082 B000000 0 083 A000000 N 083 B000000 0 084 A000000 N 084 B000000 0 085 A000000 Y 085 B000000 N SIGNATURE THOMAS F. MCDONOUGH TITLE SECRETARY EX-27 2
6 This schedule contains summary financial information extracted from The Korea Fund, Inc. Semiannual Report for the six month fiscal period ended December 31, 1994 and is qualified in its entirety by reference to such financial statements. 0 The Korea Fund, Inc. 6-MOS JUN-30-1994 JUL-01-1994 DEC-31-1994 288,166,281 604,694,016 1,248,654 9,738,904 0 615,681,574 4,331,159 0 1,357,616 5,688,775 0 291,446,229 29,540,356 29,474,985 (3,082,635) 0 5,059,579 0 316,569,626 609,992,799 52,086 970,644 0 4,105,365 (3,082,635) 5,531,549 60,246,522 62,695,436 0 0 (4,359,655) 0 0 0 65,371 60,054,169 0 3,887,685 0 0 3,196,290 0 4,105,365 621,492,853 18.66 (.10) 2.24 0 (.15) 0 20.65 1.31 0 0
EX-99 3 THE KOREA FUND PROXY AUGUST 29, 1994 The Korea Fund, Inc. 345 Park Avenue (at 51st Street) New York, New York 10154 (800) 349-4281 August 29, 1994 To the Stockholders: The Annual Meeting of Stockholders of The Korea Fund, Inc. (the "Fund") is to be held at 2:00 p.m., eastern time, on Thursday, October 13, 1994, at the offices of Scudder, Stevens & Clark, Inc., 25th Floor, 345 Park Avenue (at 51st Street), New York, New York 10154. Stockholders who are unable to attend this meeting are strongly encouraged to vote by proxy, which is customary in corporate meetings of this kind. A Proxy Statement regarding the meeting, a proxy card for your vote at the meeting and an envelope-postage prepaid-in which to return your proxy are enclosed. At the Annual Meeting the stockholders will elect three Directors, consider the ratification of the selection of Coopers & Lybrand as independent accountants, consider the approval of a new Investment Advisory, Management and Administration Agreement between the Fund and its investment adviser, Scudder, Stevens & Clark, Inc., and consider the approval of a new Research and Advisory Agreement between Scudder, Stevens & Clark, Inc. and the Korean adviser, Daewoo Capital Management Co., Ltd. There will be an opportunity to discuss matters of interest to you as a stockholder. Your Fund's Directors recommend that the stockholders vote in favor of each of the foregoing matters. Respectfully, /s/Nicholas Bratt /s/Juris Padegs Nicholas Bratt Juris Padegs President Chairman of the Board STOCKHOLDERS ARE URGED TO SIGN THE PROXY AND MAIL IT IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE SO AS TO ENSURE A QUORUM AT THE MEETING. THIS IS IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES. THE KOREA FUND, INC. Notice of Annual Meeting of Stockholders To the Stockholders of The Korea Fund, Inc.: Please take notice that the Annual Meeting of Stockholders of The Korea Fund, Inc. (the "Fund") has been called for 2:00 p.m., eastern time, on Thursday, October 13, 1994, at the offices of Scudder, Stevens & Clark, Inc., 25th Floor, 345 Park Avenue (at 51st Street), New York, New York 10154, for the following purposes: (1) To elect three Directors of the Fund to hold office for a term of three years or until their respective successors shall have been duly elected and qualified. (2) To ratify or reject the action taken by the Board of Directors in selecting Coopers & Lybrand as independent accountants for the fiscal year ending June 30, 1995. (3) To approve or disapprove a new Investment Advisory, Management and Administration Agreement between the Fund and Scudder, Stevens & Clark, Inc. (4) To approve or disapprove a new Research and Advisory Agreement between Scudder, Stevens & Clark, Inc. and Daewoo Capital Management Co., Ltd. To transact such other business as may properly come before the meeting or any adjournments thereof. Holders of record of the shares of common stock of the Fund at the close of business on August 9, 1994 are entitled to vote at the meeting or any adjournments thereof. By order of the Board of Directors, Thomas F. McDonough, Secretary August 29, 1994 IMPORTANT-We urge you to sign and date the enclosed proxy card and return it in the enclosed addressed envelope which requires no postage and is intended for your convenience. Your prompt return of the enclosed proxy card may save the Fund the necessity and expense of further solicitations to ensure a quorum at the Annual Meeting. If you can attend the meeting and wish to vote your shares in person at that time, you will be able to do so. PROXY STATEMENT GENERAL This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of The Korea Fund, Inc. (the "Fund") for use at the Annual Meeting of Stockholders, to be held at 2:00 p.m., eastern time, on Thursday, October 13, 1994, at the offices of Scudder, Stevens & Clark, Inc. (the "Adviser"), 25th Floor, 345 Park Avenue (at 51st Street), New York, New York 10154, and at any adjournments thereof. This Proxy Statement, the Notice of Annual Meeting of Stockholders and the proxy card are first being mailed to stockholders on or about August 29, 1994. Any stockholder giving a proxy has the power to revoke it by mail (addressed to the Secretary at the principal executive office of the Fund, 345 Park Avenue, New York, New York 10154) or in person at the meeting, by executing a superseding proxy or by submitting a notice of revocation to the Fund. All properly executed proxies received in time for the meeting will be voted as specified in the proxy or, if no specification is made, in favor of each proposal referred to in the Proxy Statement. The presence at any stockholders' meeting, in person or by proxy, of stockholders entitled to cast a majority of the votes entitled to be cast shall be necessary and sufficient to constitute a quorum for the transaction of business. For purposes of determining the presence of a quorum for transacting business at the Annual Meeting, abstentions and broker "non-votes" will be treated as shares that are present but which have not been voted. Broker "non-votes" are proxies received by the Fund from brokers or nominees when the broker or nominee has neither received instructions from the beneficial owner or other persons entitled to vote nor has discretionary power to vote on a particular matter. Accordingly, stockholders are urged to forward their voting instructions promptly. Abstentions and broker non-votes will not be counted in favor of, but will have no other effect on, the vote for proposals (1) and (2) that require the approval of a majority of shares voting at the Annual Meeting. Abstentions and broker non-votes will have the effect of a "no" vote for proposals (3) and (4) that require the approval of a specified percentage of the outstanding shares of the Fund or of such shares present at the Annual Meeting. Holders of record of the common stock of the Fund at the close of business on August 9, 1994 (the "Record Date"), will be entitled to one vote per share on all business of the meeting and any adjournments. There were 29,474,985 shares of common stock outstanding on the record date. (1) ELECTION OF DIRECTORS Persons named in the accompanying form of proxy intend in the absence of contrary instructions to vote all proxies for the election of the three nominees listed below as Directors of the Fund (Class of 1997) to serve for a term of three years, or until their successors are duly elected and qualified. All nominees have consented to stand for election and to serve if elected. If any such nominee should be unable to serve, an event not now anticipated, the proxies will be voted for such person, if any, as shall be designated by the Board of Directors to replace any such nominee. Your Fund's Directors recommend that the stockholders vote in favor of the election of the nominees listed on the following page. Information Concerning Nominees The following table sets forth certain information concerning each of the three nominees as a Director of the Fund. Each of the nominees is now a Director of the Fund. Unless otherwise noted, each of the nominees has engaged in the principal occupation listed in the following table for more than five years, but not necessarily in the same capacity.
Class of 1997 Nominees to serve until 1997 Annual Meeting of Stockholders Present Office with the Fund; Principal Occupation Shares or Employment and Year First Beneficially Directorships in Publicly Became a Owned June 30, Percent Name (Age) Held Companies Director 1994 (1) of Class - - - ---------- -------------- --------- -------- -------- Nicholas President and Director of 1984 1,828 (2) Less than Bratt the Fund; Managing Director 1/4 of 1% (46)*+ of Scudder, Stevens & Clark, Inc. Sang C. Lee Director of the Fund; 1988 _ _ (53) Chairman of the Boards, Markwood, Inc., Hub City, Inc., Brocker Manufacturing, Inc., Portfolio Companies of PITCAIRN GROUP L.P. (1989- 1992); Chairman, ICV, Inc. (1992-present); President, Scovill Fasteners, Inc. (1987-1989), Vice President, First City Capital Corporation and Executive Vice President, Scovill, Inc. (1986-1987). Wilson Director of the Fund; 1984 14,707 (3) Less than Nolen (67) Consultant (1989-present); 1/4 of 1% Corporate Vice President of Becton, Dickinson & Company, manufacturer of medical and scientific products (1973-1989); Director, Ecohealth, Inc., biotechnology company.
Information Concerning Continuing Directors The Board of Directors is divided into three classes, each serving a term of three years. The terms of Classes of 1995 and 1996 do not expire this year. The following table sets forth certain information regarding the Directors in such classes.
Class of 1995 Directors to serve until 1995 Annual Meeting of Stockholders Present Office with the Fund; Principal Occupation Shares or Employment and Year First Beneficially Directorships in Publicly Became a Owned June 30, Percent Name (Age) Held Companies Director 1994 (1) of Class - - - ---------- -------------- --------- -------- -------- Juris Chairman of the Board and 1991 1,158 Less than Padegs Director of the Fund; 1/4 of 1% (62)*+ Managing Director of Scudder, Stevens & Clark, Inc. Chang Hee Vice Chairman of the Board 1990 _ _ Kim (57)* and Director of the Fund; President and Chief Executive Officer, Daewoo Securities Co., Ltd. (1984- present). Sidney M. Director of the Fund; 1984 480 Less than Robbins Professor Emeritus of 1/4 of 1% (82) Finance, Adelphi University; Chase Manhattan Professor Emeritus of Financial Institutions, Columbia University Graduate School of Business; Visiting Professor of Finance, University of Hawaii; Director or Trustee of various Oppenheimer Funds and The Malaysia Fund, Inc. and Member, Board of Advisors, Olympus Private Placement Fund L.P.
Class of 1996 Directors to serve until 1996 Annual Meeting of Stockholders Present Office with the Fund; Principal Occupation Shares or Employment and Year First Beneficially Directorships in Publicly Became a Owned June 30, Percent Name (Age) Held Companies Director 1994 (1) of Class - - - ---------- -------------- --------- -------- -------- William H. Director of the Fund; 1984 452 Less than Gleysteen, President, The Japan 1/4 of 1% Jr. (68) Society, Inc. (1989- present); Vice President of Studies, Council on Foreign Relations (1987-1989); and United States Ambassador to Korea (1978-1981). Robert W. Director of the Fund; 1984 3,568 Less than Lear (77) Executive-in-Residence, 1/4 of 1% Visiting Professor, Columbia University Graduate School of Business; Director or Trustee, Cambrex Corporation, specialty chemicals manufacturer, Equitable Capital Partners Enhancement Yield Funds. Tai Ho Lee Director of the Fund; 1984 _ _ (71) Corporate Director; President and Chief Executive Officer, Hanjin Investment & Securities Co., Ltd. (1990-1991); Chairman, Daewoo Capital Management Co., Ltd. (1988- 1990); Chairman, Daewoo Securities Co., Ltd. (1983- 1988); Chairman and President, Daewoo Research Institute (1984-1988). All Directors and Officers as a group 22,193 (4) Less than 1/4 of 1% - - - ------------------ * Directors considered by the Fund and its counsel to be "interested persons" (which as used in this proxy statement is as defined in the Investment Company Act of 1940, as amended) of the Fund or of the Fund's investment advisers. Messrs. Bratt and Padegs are deemed to be interested persons because of their affiliation with the Fund's investment adviser, Scudder, Stevens & Clark, Inc., or because they are Officers of the Fund or both. Mr. Kim is deemed to be an interested person because of his affiliation with the Korean adviser, Daewoo Capital Management Co., Ltd. ("Daewoo Capital Management"), which is a wholly owned subsidiary of Daewoo Securities Co., Ltd., or because he is an Officer of the Fund or both. + Messrs. Bratt and Padegs are members of the Executive Committee of the Fund. (1) The information as to beneficial ownership is based on statements furnished to the Fund by the nominees and Directors. Unless otherwise noted, beneficial ownership is based on sole voting and investment power. (2) Mr. Bratt's total includes 1,009 shares held by members of his family as to which he shares voting and investment power. (3) Dr. Nolen's total includes 5,100 shares held in trust for his benefit. (4) Of which 16,084 are held with sole investment and voting power and 6,109 shares are held with no investment or voting power.
The Directors and Officers of the Fund may also serve in similar capacities for other funds managed by Scudder, Stevens & Clark, Inc. Section 30(f) of the Investment Company Act of 1940, as amended (the "1940 Act"), as applied to the Fund, requires the Fund's Officers, Directors, Adviser, Daewoo Capital Management Co., Ltd. (the "Korean Adviser"), affiliates of the Adviser or Korean Adviser, and persons who beneficially own more than ten percent of a registered class of the Fund's outstanding securities ("reporting persons"), to file reports of ownership of the Fund's securities and changes in such ownership with the Securities and Exchange Commission (the "SEC") and the New York Stock Exchange. Such persons are required by SEC regulations to furnish the Fund with copies of all such filings. Based solely upon its review of the copies of such forms received by it and written representations from certain reporting persons that no year-end reports were required for those persons, the Fund believes that during the fiscal year ended June 30, 1994, all filing requirements applicable to its reporting persons were complied with. According to filings with the SEC on Schedule 13G on February 15, 1994, BEA Associates, 153 East 53rd Street, New York, New York, reported (and disclaimed) beneficial ownership of 1,770,953 shares (6.2% of the Fund's outstanding stock) held in discretionary accounts managed by BEA Associates. Except as noted above, to the best of the Fund's knowledge, as of June 30, 1994 no other person owned beneficially more than 5% of the Fund's outstanding shares. Committees of the Board-Board Meetings The Board of Directors of the Fund met four times during the fiscal year ended June 30, 1994. Each Director attended at least 75% of the total number of meetings of the Board of Directors and of all committees of the Board on which they served as regular members. The Valuation Committee is considered to consist of regular members and alternates. The Directors, in addition to an Executive Committee, have an Audit Committee and a Nominating Committee. Audit Committee The Board has an Audit Committee consisting of those Directors who are not interested persons of the Fund, of the Adviser, or of the Korean Adviser ("Noninterested Directors"), as defined in the 1940 Act, which met once during the Fund's last fiscal year. The Audit Committee consists of Messrs. Gleysteen, Lear, S. C. Lee, T. H. Lee, Nolen and Robbins. The Audit Committee's function is to review with management and the independent accountants for the Fund, among other things, the scope of the audit and the controls of the Fund and its agents, to review and approve in advance the type of services to be rendered by independent accountants, to recommend the selection of independent accountants for the Fund to the Board for approval and in general to consider and report to the Board on matters regarding the Fund's accounting and bookkeeping practices. Nominating Committee The Board has a Nominating Committee consisting of Noninterested Directors. The Committee is charged with the duty of making all nominations for Noninterested members of the Board. Stockholders' recommendations as to nominees received by management are referred to the Committee for their consideration and action. Such recommendations should be submitted to the Committee, c/o Secretary, The Korea Fund, Inc., 345 Park Avenue, New York, NY 10154. The Committee met once during the Fund's last fiscal year. Executive Officers The following persons are Executive Officers of the Fund:
Present Office with the Fund; Principal Occupation or Year First Became Name (Age) Employment(1) an Officer(2) ----------- ---------------------------------- ------------- Juris Padegs (62) Chairman of the Board and 1984 Director; Managing Director of Scudder, Stevens & Clark, Inc. Chang Hee Kim (57) Vice Chairman and Director; 1990 President and Chief Executive Officer of Daewoo Securities Co., Ltd. Nicholas Bratt (46) President and Director; Managing 1984 Director of Scudder, Stevens & Clark, Inc. Jerard K. Hartman (61) Vice President; Managing Director 1986 of Scudder, Stevens & Clark, Inc. Kun-Ho Hwang (43) Vice President; Director, Planning 1984 Department of Daewoo Securities Co., Ltd. H. Jin Kim (44) Vice President; President of 1989 Daewoo America Co. David S. Lee (60) Vice President; Managing Director 1984 of Scudder, Stevens & Clark, Inc. John J. Lee (36) Vice President; Principal of 1994 Scudder, Stevens & Clark, Inc. Thomas F. McDonough (47) Secretary and Assistant Treasurer; 1984 Principal of Scudder, Stevens & Clark, Inc. Pamela A. McGrath (40) Vice President and Assistant 1990 Treasurer; Principal of Scudder, Stevens & Clark, Inc. Edward J. O'Connell (49) Treasurer and Assistant Secretary; 1984 Principal of Scudder, Stevens & Clark, Inc. Dong Wook Park (47) Vice President; Director of Daewoo 1986 Capital Management Co. Kathryn L. Quirk (41) Vice President and Assistant 1991 Secretary; Managing Director of Scudder, Stevens & Clark, Inc. Coleen Downs Dinneen (33) Assistant Secretary; Vice 1992 President of Scudder, Stevens & Clark, Inc. (1) Unless otherwise stated, all the Executive Officers have been associated with their respective companies for more than five years, although not necessarily in the same capacity. (2) The President, Treasurer and Secretary each hold office until his or her successor has been duly elected and qualified, and all other Officers hold offices at the pleasure of the Directors.
Transactions with and Remuneration of Directors and Officers The aggregate direct remuneration by the Fund of Directors not affiliated with Scudder, Stevens & Clark, Inc. or Daewoo Capital Management was $113,882, including expenses, during the fiscal year ended June 30, 1994. Each such unaffiliated Director currently receives fees, paid by the Fund, of $750 per Director's meeting attended and an annual fee of $4,500. Effective October 1, 1994, the annual fee will be $6,000. Each Director also receives $250 per committee meeting attended (other than Audit Committee meetings for which such Director receives a fee of $750). Scudder, Stevens & Clark, Inc., which supervises the Fund's investments and pays the compensation and certain expenses of its personnel who serve as Directors and Officers of the Fund, receives an investment advisory fee for its services. Several of the Fund's Officers and Directors are also Officers, Directors, employees or stockholders of Scudder, Stevens & Clark, Inc. and participate in the fees paid to that firm (see "Investment Adviser," page 12), although the Fund will make no direct payments to them other than for reimbursement of travel expenses in connection with the attendance of Board of Directors and committee meetings. Daewoo Capital Management, which acts as Korean Adviser, pays the compensation and certain expenses of the personnel of Daewoo Capital Management who serve as Directors or Officers of the Fund (see "Approval or Disapproval of a New Research and Advisory Agreement," page 19). The Fund will make no direct payments other than for reimbursement of travel expenses for one Director, officer or employee of Daewoo Capital Management or any of its affiliates who is not a resident in the United States and travel expenses of any other Director, officer or employee of Daewoo Capital Management or any of its affiliates who is a resident in the United States, in connection with the attendance of Board of Directors and committee meetings. Required Vote Election of each of the listed nominees for Director requires the affirmative vote of a majority of the votes cast at the meeting in person or by proxy. Your Fund's Directors recommend that the stockholders vote in favor of each nominee. (2) RATIFICATION OR REJECTION OF THE SELECTION OF INDEPENDENT ACCOUNTANTS At a meeting held July 19, 1994, the Board of Directors of the Fund, including a majority of the Noninterested Directors, selected Coopers & Lybrand to act as independent accountants for the Fund for the fiscal year ending June 30, 1995. Coopers & Lybrand are independent accountants and have advised the Fund that they have no direct financial interest or material indirect financial interest in the Fund. One or more representatives of Coopers & Lybrand are expected to be present at the Annual Meeting of Stockholders and will have an opportunity to make a statement if they so desire. Such representatives are expected to be available to respond to appropriate questions posed by stockholders and management. The Fund's financial statements for the fiscal year ended June 30, 1994 were audited by Coopers & Lybrand. In connection with its audit services, Coopers & Lybrand reviewed the financial statements included in the Fund's annual and semiannual reports to stockholders and its filings with the SEC. Required Vote Ratification of the selection of independent accountants requires the affirmative vote of a majority of the votes cast at the meeting in person or by proxy. Your Fund's Directors recommend that stockholders ratify the selection of Coopers & Lybrand as independent accountants. (3) APPROVAL OR DISAPPROVAL OF A NEW INVESTMENT ADVISORY, MANAGEMENT AND ADMINISTRATION AGREEMENT Scudder, Stevens & Clark, Inc. (the "Adviser"), 345 Park Avenue, New York, New York, acts as investment adviser to the Fund pursuant to an Investment Advisory and Management Agreement dated October 14, 1987 (the "present Agreement") between the Adviser and the Fund. The Directors recommend that the stockholders approve the proposed Investment Advisory, Management and Administration Agreement (the "proposed Agreement") in place of the present Agreement. At a meeting held on July 19, 1994, the Directors, including the Noninterested Directors, approved the terms of the proposed Agreement and its adoption subject to approval by stockholders. Set forth below is a description of the principal differences between the present Agreement and the proposed Agreement, as well as a description of those provisions which are the same under both Agreements. The proposed Agreement is attached hereto as Exhibit A. Rate of Compensation Under the Proposed Agreement The principal difference between the present Agreement and the proposed Agreement is the decrease in the fee schedule payable to the Adviser from (a) 1.15% of the first $50 million of net assets of the Fund, 1.10% of such assets in excess of $50 million up to and including $100 million and 1.00% of the excess over $100 million, to (b) 1.15% of the net assets of the Fund up to and including $50 million, 1.10% of such assets on the next $50 million, 1.00% of such assets on the next $250 million, 0.95% of such assets on the next $400 million and 0.90% of such assets in excess of $750 million. For purposes of computing the monthly fee for both Agreements, the value of the net assets of the Fund is determined as of the close of business on the last business day of each month. At the Fund's net current asset level the annual effective fee payable to the Adviser under the proposed Agreement would be reduced. Moreover, under the proposed Agreement, the Adviser would assume the obligation to provide certain administrative services to the Fund. Under both Agreements payment is made monthly to the Adviser within the ten (10) days next following the day as of which such payment is so computed. The proposed Agreement would remain in effect, subject to earlier termination, for two years from the day following its approval. In addition, several non-substantiative changes are contained in the proposed Agreement to better conform it to current Fund practices and industry standards. The present fee and the proposed fee are higher than those paid by many funds which invest primarily in U.S. securities primarily because of the Fund's objective of investing in Korean securities, the additional time and expenses required of the Adviser in pursuing such objective and the need to enable the Adviser to compensate the Korean Adviser for its services. The following table compares actual fees and expenses incurred under the present Agreement with the fees that would have been payable under the proposed Agreement during the last fiscal year of the Fund (unaudited).
Fees Payable Advisory Fees Under the Actually Proposed Year Ended Incurred (a) Agreement (b) $ Change (c) % Change ---------- ------------ -------------- ------------ -------- June 30, 1994 $4,507,935 $4,448,421 ($59,514) (1.32%) (a) Computed pursuant to the present fee schedule as described above. (b) Computed pursuant to the proposed fee schedule as described above. (c) Equals the difference between fees payable under the proposed Agreement and advisory fees actually incurred.
The ratio of operating expenses to average net assets for the year ended June 30, 1994 was 1.36% and if the proposed agreement had been in effect such ratio would have been 1.35%. As of June 30, 1994, the net assets of the Fund were approximately $550 million. There can be no assurance of the future size of the Fund. The Board of Directors has determined that the compensation to be paid to the Adviser under the proposed Agreement is fair and reasonable. In approving the proposed Agreement and the proposed Research Agreement described below, and recommending their approval by stockholders, the Directors of the Fund, including the Noninterested Directors, considering the best interests of stockholders of the Fund, took into account all such factors they deemed relevant. Such factors include the nature, quality and extent of the services furnished by the Adviser to the Fund; the necessity of the Adviser maintaining and enhancing its ability to continue to retain and attract capable personnel to serve the Fund; the investment record of the Adviser in managing the Fund; the experience of the Adviser in the field of international investing; possible economies of scale; the reduction in expenses to be realized from the proposed decrease in the investment advisory fee schedule; the Adviser's profitability from advising the Fund; comparative data as to investment performance, advisory fees and other fees, including administrative fees, and expense ratios, particularly fees and expense ratios of funds with foreign investments, including single country funds, advised by the Adviser and other investment advisers; the risks assumed by the Adviser; the advantages and possible disadvantages to the Fund of having an adviser which also serves other investment companies as well as other accounts; possible benefits to the Adviser from serving as adviser to the Fund; current and developing conditions in the financial services industry, including the entry into the industry of large and well capitalized companies which are spending and appear to be prepared to continue to spend substantial sums to engage personnel and to provide services to competing investment companies; the financial resources of the Adviser and the continuance of appropriate incentives to assure that the Adviser will continue to furnish high quality services to the Fund; similar factors regarding the Korean Adviser to the extent applicable; the requirement of the Fund's license to invest in Korean securities that there be a Korean adviser for the Fund approved by the Korean Minister of Finance; the Korean Adviser's position as a leading firm in Korea in developing investment research capabilities; information submitted by the Korean Adviser as to revenues and expenses; information relating to the execution of portfolio transactions for the Fund by an affiliate of the Korean Adviser; and various other factors. Description of the Proposed Agreement Under both Agreements the Adviser regularly makes investment decisions for the Fund, prepares and makes available to the Fund research and statistical data in connection therewith and supervises the acquisition and disposition of securities by the Fund, including the selection of broker/dealers to carry out the transactions, all in accordance with the Fund's investment objective and policies and in accordance with guidelines and directions from the Fund's Board of Directors. The Adviser also maintains or causes to be maintained for the Fund all books, records and reports and other information (not otherwise provided by third parties) required under the 1940 Act. In addition to the provision of portfolio management services and the payment of the Fund's office rent, required in both Agreements, under the proposed Agreement, the Adviser will render significant administrative services (not otherwise provided by third parties) including, but not limited to, preparing reports to and meeting materials for the Fund's Board of Directors and reports and notices to stockholders, preparing and making filings with the SEC and other regulatory and self-regulatory organizations, including preliminary and definitive proxy materials and post-effective amendments to the Fund's Registration Statement, providing assistance in certain accounting and tax matters and investor and public relations, monitoring the valuation of portfolio securities, calculation of net asset value and calculation and payment of distributions to stockholders, overseeing arrangements with the Fund's custodian, including the maintenance of books and records of the Fund and assisting the Fund as it may reasonably request in the conduct of the Fund's business, subject to the direction and control of the Fund's Board of Directors. The Directors believe it is desirable to include the responsibility for providing these services in the proposed Agreement. Under both the present and proposed Agreements, the Fund is responsible for all of its other expenses, including organization and certain offering expenses of the Fund but not including overhead or employee costs of the Adviser or of any one or more organizations retained by the Fund or by the Adviser as a Korean adviser of the Fund; legal expenses; auditing and accounting expenses; taxes and governmental fees; stock exchange listing fees; fees, dues and expenses incurred by the Fund in connection with membership in investment company trade organizations; fees and expenses of the Fund's custodians, subcustodians, transfer agents and registrars; payment for portfolio pricing or valuation services to pricing agents, accountants, bankers and other specialists, if any; expenses of preparing share certificates and other expenses in connection with the issuance, offering, distribution, sale or underwriting of securities issued by the Fund, if any; expenses relating to investor and public relations; expenses of registering or qualifying securities of the Fund for sale, if any; freight, insurance and other charges in connection with the shipment of the Fund's portfolio securities; brokerage commissions or other costs of acquiring or disposing of any portfolio securities of the Fund; expenses of preparing and distributing reports, notices and dividends to stockholders; certain expenses of the Fund's dividend reinvestment and cash purchase plan; costs of stationery; any litigation expenses; and costs of stockholders' and other meetings. The proposed Agreement also specifically provides that the Fund will pay fees payable to the Adviser and any advisors or consultants and pay telephone, telex, facsimile, postage and other communications expenses applicable to The Korea Fund. Under both Agreements the Adviser pays the reasonable salaries, fees and expenses of such of the Fund's Officers and employees and any fees and expenses of such of the Fund's Directors as are Directors, Officers or employees of the Adviser provided that the Fund and not the Adviser shall bear travel expenses of Directors and Officers of the Fund who are Directors, Officers or employees of the Adviser to the extent that such expenses relate to attendance at meetings of the Board of Directors of the Fund or any committees thereof or advisers thereto. During the fiscal year ended June 30, 1994, no compensation, direct or otherwise (other than through fees paid to the Adviser) was paid or became payable by the Fund to any of its Officers or Directors who were affiliated with the Adviser. Each Agreement provides that the Adviser shall not be liable for any act or omission, error of judgment or mistake of law, or for any loss suffered by the Fund in connection with matters to which such Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Adviser in the performance of its duties or from reckless disregard by the Adviser of its obligations and duties under such Agreement. Under both Agreements the Adviser agrees not to make a short sale of any capital stock of the Fund, or purchase any share of the capital stock of the Fund otherwise than for investment. Additionally, neither Agreement prohibits the Adviser from providing investment advisory services to, or entering into investment advisory agreements with other clients, including clients which may invest in Korean securities and, in providing such services, the Adviser may use information furnished by others. Conversely, information furnished by others to the Adviser in providing services to other clients may be useful to the Adviser in providing services to the Fund. If approved by the stockholders, the proposed Agreement will become effective on the day following such approval, the present Agreement will terminate and the proposed Agreement will remain in force for two years from that date. The proposed Agreement would continue in effect thereafter by its terms from year to year only so long as its continuance is specifically approved at least annually by the vote of a majority of the Noninterested Directors cast in person at a meeting called for the purpose of voting on such approval, and either by vote of the Directors or a majority of the Fund's outstanding voting securities, as defined below. The proposed Agreement may be terminated on 60 days' written notice, without penalty, by the Directors, by the vote of the holders of a majority of the Fund's outstanding voting securities, or by the Adviser, and automatically terminates in the event of its assignment. The present Agreement requires annual approval of its continuance and contains the same termination provisions as the proposed Agreement. The present Agreement will continue in effect until September 30, 1995 if this proposal is not approved. The present Agreement was last approved by the Directors on July 19, 1994 and by the stockholders on October 14, 1993. In reviewing the terms of the proposed Agreement and a new Research and Advisory Agreement and in discussions with the Adviser and the Korean Adviser, the Noninterested Directors received legal advice and have been represented, at the Fund's expense, by their independent counsel, Ropes & Gray. Counsel for the Fund is Debevoise & Plimpton, which also acts as counsel for the Adviser. Required Vote Approval of the proposed Agreement will require the affirmative vote of a majority of the Fund's outstanding voting securities which for the purpose of this proposal means (1) the holders of more than 50% of the outstanding shares of the Fund or (2) the holders of 67% or more of the shares present if more than 50% of the shares are present at the meeting in person or by proxy, whichever is less. If an affirmative vote of stockholders is not obtained, the present Agreement will continue in effect for a time pending consideration by the Directors of such further action as they may deem to be in the best interests of the stockholders. Your Fund's Directors recommend that stockholders vote to approve the proposed Agreement. The Fund's license to invest in Korean securities provides that, should the Adviser's or the Korean Adviser's services be terminated for any reason, the Fund must appoint a subsequent adviser, or the Adviser must appoint a subsequent Korean adviser, as the case may be, subject to approval by the Minister of Finance, within 120 days following such termination. The license provides that such approval will not be unreasonably withheld, but that the Minister of Finance will revoke the license if the Minister shall have determined that the Fund or the Adviser, as the case may be, has not sought in good faith to appoint a successor adviser or Korean adviser, as the case may be, reasonably acceptable to the Minister. In the event such license is terminated, the Board of Directors will consider appropriate actions, including termination of the Fund and liquidation of its assets. Investment Adviser The Adviser is a Delaware corporation. Daniel Pierce* is the Chairman of the Board of the Adviser. Edmond D. Villani# is the President of the Adviser. Stephen R. Beckwith#, Lynn S. Birdsong#, Nicholas Bratt#, Linda C. Coughlin#, Margaret D. Hadzima*, Jerard K. Hartman#, Richard A. Holt@, Dudley H. Ladd*, Douglas M. Loudon#, John T. Packard+, Juris Padegs# and Cornelia M. Small# are the other members of the Board of Directors of the Adviser. The principal occupation of each of the above named individuals is serving as a Managing Director of the Adviser. - - - ------------------ * Two International Place, Boston, Massachusetts # 345 Park Avenue, New York, New York + 101 California Street, San Francisco, California @ Two Prudential Plaza, 180 West Stetson, Suite 5400, Chicago, Illinois All of the outstanding voting and nonvoting securities of the Adviser are held of record by Stephen R. Beckwith, Juris Padegs, Daniel Pierce, and Edmond D. Villani in their capacity as the representatives (the "Representatives") of the beneficial owners of such securities, pursuant to a Security Holders' Agreement among the Adviser, the beneficial owners of securities of the Adviser, and the Representatives. Pursuant to the Security Holders' Agreement, the Representatives have the right to reallocate shares among the beneficial owners from time to time. Such reallocation will be at net book value in cash transactions. All Managing Directors of the Adviser own voting and nonvoting stock; all Principals own nonvoting stock. Messrs. Padegs and Bratt, who are Officers and Directors of the Fund, are Managing Directors of the Adviser. In addition, the following Directors or Officers of the Adviser or Korean Adviser or its affiliate are Officers of the Fund in the following capacities: Jerard K. Hartman, Kun-Ho Hwang, H. Jin Kim, David S. Lee, John J. Lee, Dong Wook Park and Kathryn L. Quirk, Vice Presidents; Pamela A. McGrath, Vice President and Assistant Treasurer; Edward J. O'Connell, Treasurer and Assistant Secretary; Thomas F. McDonough, Secretary and Assistant Treasurer; and Coleen Downs Dinneen, Assistant Secretary. Messrs. Hartman and David S. Lee and Ms. Quirk are Managing Directors and Messrs. John J. Lee, McDonough and O'Connell and Ms. McGrath are Principals of the Adviser. Ms. Dinneen is a Vice President of the Adviser. In addition to acting as adviser to individuals and other organizations, the Adviser, or an affiliate acts as investment adviser to all of the investment companies, including the Fund, listed below, and the separate series thereof. All of the investment companies listed below, except for The Argentina Fund, Inc., The Brazil Fund, Inc., The First Iberian Fund, Inc., The Korea Fund, Inc., The Latin America Dollar Income Fund, Inc., Montgomery Street Income Securities, Inc., Scudder New Asia Fund, Inc., Scudder New Europe Fund, Inc., and Scudder World Income Opportunities Fund, Inc., are open-end investment companies or mutual funds.
Total Net Assets as of Management Compensation July 31, 1994 on an Annual Basis Based on the Name (000 omitted) Value of Average Daily Net Assets ------ ------------- ----------------------------------- Scudder California $385,000 Scudder California Tax Free Fund: Tax Free Trust 0.625 of 1%; 0.60 of 1% on net assets in excess of $200 million. Scudder California Tax Free Money Fund: 0.50 of 1%. Scudder Cash $1,676,900 0.50 of 1%; 0.45 of 1% on net assets Investment Trust in excess of $250 million; 0.40 of 1% on net assets in excess of $500 million; 0.35 of 1% on net assets in excess of $1 billion. Scudder $557,000 1%; 0.95 of 1% on net assets in excess Development Fund of $500 million; 0.90 of 1% on net assets in excess of $1 billion. Scudder Equity $1,349,400 Scudder Capital Growth Fund: 0.75 of Trust 1%; 0.65 of 1% on net assets in excess of $500 million; 0.60 of 1% on net assets in excess of $1 billion. Scudder Value Fund: 0.70 of 1%. Scudder Fund, Inc. $571,800 Managed Government Securities Fund: 0.40 of 1%; 0.35 of 1% on net assets in excess of $1.5 billion. Managed Cash Fund: 0.40 of 1%; 0.35 of 1% on net assets in excess of $1.5 billion. Managed Federal Securities Fund: 0.40 of 1%; 0.35 of 1% on net assets in excess of $1.5 billion. Managed Tax Free Fund: 0.40 of 1%; 0.35 of 1% on net assets in excess of $1.5 billion. Managed Intermediate Government Fund: 0.65 of 1%. Scudder Funds $2,645,800 Scudder Short Term Bond Fund: 0.60 of Trust 1%; 0.50 of 1% on net assets in excess of $500 million; 0.45 of 1% on net assets in excess of $1 billion; 0.40 of 1% on net assets in excess of $1.5 billion; 0.375 of 1% on net assets in excess of $2 billion and 0.35 of 1% on net assets in excess of $3 billion. Scudder Zero Coupon 2000 Fund: 0.60 of 1%. Scudder Global $3,364,900 Scudder Global Fund: 1%; 0.95% of 1% Fund, Inc. (1) on net assets in excess of $500 million. Scudder International Bond Fund: 0.85 of 1%. Scudder Short Term Global Income Fund: 0.75%; 0.70% of 1% on net assets in excess of $1 billion. Scudder Global Small Company Fund: 1.10%. Scudder Emerging Markets Income Fund: 1%. Scudder GNMA Fund $482,400 0.65 of 1%; 0.60 of 1% on net assets in excess of $200 million; 0.55 of 1% on net assets in excess of $500 million. Scudder $743,700 Federal Portfolio: 0.15 of 1%. Institutional Government Portfolio: 0.15 of 1%. Cash Fund, Inc. Portfolio: 0.15 of 1%. Tax-Free Portfolio: 0.15 of 1%. Scudder $3,403,700 Scudder International Fund: 1%; 0.90 International of 1% on net assets in excess of $200 Fund, Inc. (2) million; 0.85 of 1% on net assets in excess of $400 million; 0.80 of 1% on net assets in excess of $800 million. Scudder Latin America Fund: 1.25%. Scudder Pacific Opportunities Fund: 1.10%. Scudder Investment $1,978,000 Scudder Growth and Income Fund: 0.65 Trust (3) of 1%; 0.60 of 1% on net assets in excess of $200 million; 0.55 of 1% on net assets in excess of $400 million; 0.50 of 1% on net assets in excess of $900 million. Scudder Quality Growth Fund: 0.70 of 1%. Scudder Municipal $1,109,200 Scudder High Yield Tax Free Fund: 0.70 Trust of 1%; 0.65 of 1% on net assets in excess of $200 million. Scudder Managed Municipal Bonds: 0.55 of 1%; 0.50 of 1% on net assets in excess of $200 million; 0.475 of 1% on net assets in excess of $700 million. Scudder Mutual $130,500 Scudder Gold Fund: 1%. Funds, Inc. Scudder Portfolio $545,700 Scudder Income Fund: 0.65 of 1%; 0.60 Trust of 1% on net assets in excess of $200 million; 0.55 of 1% on net assets in excess of $500 million. Scudder Balanced Fund: 0.70 of 1%. Scudder State Tax $779,500 Scudder Massachusetts Limited Term Tax Free Trust Free Fund: 0.60 of 1%. Scudder Massachusetts Tax Free Fund: 0.60 of 1%. Scudder New York Tax Free Fund: 0.625 of 1%; 0.60 of 1% on net assets in excess of $200 million. Scudder New York Tax Free Money Fund: 0.50 of 1%. Scudder Ohio Tax Free Fund: 0.60 of 1%. Scudder Pennsylvania Tax Free Fund: 0.60 of 1%. Scudder Tax Free $235,200 0.50 of 1%; 0.48 of 1% on net assets Money Fund in excess of $500 million. Scudder Tax Free $907,200 Scudder Limited Term Tax Free Fund: Trust 0.60 of 1%. Scudder Medium Term Tax Free Fund: 0.60 of 1%; 0.50 of 1% on net assets in excess of $500 million. Scudder U.S. $367,900 0.50 of 1%. Treasury Money Fund Scudder Variable $938,500 Money Market Portfolio: 0.37 of 1%. Life Investment Capital Growth Portfolio: 0.475 of 1%. Fund Growth and Income Portfolio: 0.475 of 1%. Bond Portfolio: 0.475 of 1%. Balanced Portfolio: 0.475 of 1%. International Portfolio: 0.875 of 1%. The Japan Fund, $714,200 0.85 of 1% of the first $100 million Inc. of average daily net assets; 0.75 of 1% on assets in excess of $100 million up to and including $300 million; 0.70 of 1% on assets in excess of $300 million up to and including $600 million; 0.65 of 1% on assets in excess of $600 million. The Manager pays The Nikko International Capital Management Co., Ltd. for investment and research services: 0.15 of 1% up to $700 million of average daily net assets; 0.14 of 1% on assets in excess of $700 million, payable monthly during fiscal year 1994; 0.10 of 1% on average daily net assets, payable during fiscal year 1995. Total Net Assets as of Management Compensation July 31, 1994 on an Annual Basis Based on the Name (000 omitted) Value of Average Weekly Net Assets ------ ------------- ----------------------------------- The Argentina $130,800 1.30%; the Investment Manager pays Fund, Inc.* Sociedad General de Negocios y Valores S.A. for investment and research services 0.36 of 1%. The Brazil Fund, $326,400 1.30%; 1.25% on net assets in excess Inc.* of $150 million; and 1.20% on net assets in excess of $300 million; the Manager pays Banco Icatu S.A. for investment and research services 0.25 of 1%; 0.15 of 1% on net assets in excess of $150 million; and 0.05 of 1% on net assets in excess of $300 million. The First Iberian $59,500 1.00%. Fund, Inc.* The Latin America $75,100 1.20%. Dollar Income Fund, Inc.* Scudder New Asia $191,800 1.25%; 1.15% on net assets in excess Fund, Inc.* of $75 million; 1.10% on net assets in excess of $200 million. Scudder New Europe $185,100 1.25%; 1.15% on net assets in excess Fund, Inc.* of $75 million; 1.10% on net assets in excess of $200 million. Scudder World $47,000 1.20%. Income Opportunities Fund, Inc.* Total Net Assets as of Management Compensation July 31, 1994 on an Annual Basis Based on the Name (000 omitted) Value of Average Monthly Net Assets ------ ------------- ----------------------------------- The Korea Fund, $565,900 1.15%; 1.10% on net assets in excess Inc. (4)* of $50 million; 1% on net assets in excess of $100 million. The Investment Manager pays Daewoo Capital Management Co., Ltd. for investment and research services 0.2875 of 1%; 0.275 of 1% on net assets in excess of $50 million; 0.25 of 1% on net assets in excess of $100 million. Montgomery Street $186,300 0.50 of 1%; 0.45 of 1% on net assets Income Securities, in excess of $150 million; 0.40 of 1% Inc. * on net assets in excess of $200 million. - - - ---------- (1) On September 8, 1994, The Board of Directors of Scudder International Bond Fund will consider a new Investment Management Agreement, which includes a change in the rate of management compensation to: 0.85 of 1%; 0.80 of 1% on net assets exceeding $1 billion (2) On September 8, 1994, The Board of Directors of Scudder International Fund will consider a new Investment Management Agreement, which includes a change in the rate of management compensation to: 0.90 of 1%; 0.85 of 1% on net assets in excess of $500 million; 0.80 of 1% on net assets in excess of $1 billion; 0.75 of 1% on nets assets exceeding $2 billion. (3) On August 9, 1994, The Board of Trustees of Scudder Growth and Income Fund approved a change in the rate of management compensation to: 0.60 of 1%; 0.55 of 1% on net assets in excess of $500 million; 0.50 of 1% on net assets in excess of $1 billion; 0.475 of 1% on net assets exceeding $1.5 billion. (4) On July 19, 1994, The Board of Directors of The Korea Fund, Inc. approved, subject to stockholder ratification, a new Investment Advisory, Management and Administration Agreement, which includes a change in the rate of management compensation to: 1.15%; 1.10% on net assets in excess of $50 million; 1.00% on net assets in excess of $100 million; 0.95 of 1% on nets assets in excess of $350 million; 0.90% on net assets exceeding $750 million. * These funds are not subject to state imposed expense limitations.
The Adviser also provides investment advisory services to the mutual funds which compose the AARP Investment Program from Scudder (the "Program") with assets of approximately $12 billion. The eight funds which are series of the four AARP trusts and their assets and compensation rates are as follows:
Total Net Assets as of Individual Fund Fee Rate+++ July 31, 1994 --------------------------- Name (000 omitted) ------ ------------- AARP Cash $356,600 AARP High Quality Money Fund: 0.10 of Investment Funds 1%. AARP Income Trust $6,345,000 AARP GNMA and U.S. Treasury Fund: 0.12 of 1%. AARP High Quality Bond Fund: 0.19 of 1%. AARP Tax Free $2,122,300 AARP High Quality Tax Free Money Fund: Income Trust 0.10 of 1%. AARP Insured Tax Free General Bond Fund: 0.19 of 1%. AARP Growth Trust $3,019,300 AARP Growth and Income Fund: 0.19 of 1%. AARP Capital Growth Fund: 0.32 of 1%. AARP Balanced Stock and Bond Fund: 0.19 of 1%. - - - --------- +++ In addition to the Individual Fund Fee listed above, each of the eight AARP Funds pays the Adviser an Annual Base Fee in proportion to the ratio of its daily net assets to the daily net assets of all of the AARP Funds. The Annual Base Fee Rate is: 0.35 of 1% on net assets of the Program up to and including $2 billion; 0.33% on net assets of the Program in excess of $2 billion up to and including $4 billion; 0.30 of 1% on net assets of the Program in excess of $4 billion up to and including $6 billion; 0.28 of 1% on net assets of the Program in excess of $6 billion up to and including $8 billion; 0.26 of 1% on net assets of the Program in excess of $8 billion up to and including $11 billion; 0.25 of 1% on net assets of the Program in excess of $11 billion up to and including $14 billion; and 0.24 of 1% on net assets of the Program in excess of $14 billion.
The Adviser (or an affiliate) also acts as investment adviser to the following foreign investment funds: Canadian High Income Fund, Christopher Columbus Fund, Christopher Columbus Fund II, Global Bond Fund 91, Global Bond Mother Fund, Hot Growth Companies Fund, Indosuez High Yield Bond Fund, Inverlatin Dollar Income Fund, The Latin America Income and Appreciation Fund N.V., Scudder Latin America Investment Trust, PLC, The ProMexico Fixed Income Dollar Fund, Inc., Scudder Floating Rate Fund for Fannie Mae Mortgage Securities, Global Balanced Fund, Scudder Global Opportunities Funds, Scudder Mortgage Fund, Sovereign High Yield Investment Company N.V., The Venezuela High Income Fund N.V. and The World Capital Fund. Certain investments may be appropriate for the Fund and also for other clients, including investment companies, advised by the Adviser. Investment decisions for the Fund and other clients are made with a view to achieving their respective investment objectives after consideration of such factors as their current holdings, availability of cash for investment and the size of their investments generally. A particular security may be bought or sold for only one client or in different amounts and at different times for more than one but less than for all clients. Likewise, a particular security may be bought for one or more clients when one or more other clients are selling the security. In addition, purchases or sales of the same security may be made for two or more clients on the same day. In such event, such transactions will be allocated among the clients in a manner believed by the Adviser to be equitable to each. In some cases, this procedure could have an adverse effect on the price or amount of the securities purchased or sold by the Fund. Purchase and sale orders for the Fund may be combined with those of other clients of the Adviser in the interest of the most favorable net results to the Fund. Directors, Officers and employees of the Adviser from time to time may have transactions with various banks, including the Fund's custodian bank. It is the Adviser's opinion that the terms and conditions of those transactions as have occurred were not influenced by existing or potential custodial or other Fund relationships. The Consolidated Statement of Condition as of December 31, 1993 and related Independent Auditors' Report dated February 11, 1994 for the Adviser is attached hereto as Exhibit C. Brokerage Commissions on Portfolio Transactions To the maximum extent feasible, the Adviser places orders for portfolio transactions for the Fund through Scudder Investor Services, Inc. (a corporation registered as a broker/dealer and a wholly owned subsidiary of the Adviser), which in turn places orders on behalf of the Fund with issuers, underwriters or other brokers and dealers. Scudder Investor Services, Inc. receives no commissions, fees or other remuneration from the Fund for this service. Allocation of brokerage will be supervised by the Adviser. The primary objective of the Adviser in placing orders for the purchase and sale of securities for the Fund's portfolio will be to obtain the most favorable net results taking into account such factors as price, commission, size of order, difficulty of execution and skill required of the executing broker/dealer. Orders for agency transactions may be placed with Daewoo Securities Co., Ltd., among other Korean brokers, when consistent with this above stated policy and subject to Rule 17e-1. The Adviser seeks to evaluate the overall reasonableness of brokerage commissions paid (to the extent applicable) through the familiarity of Scudder Investor Services, Inc. with commissions charged on comparable transactions, as well as by comparing commissions paid by the Fund to reported commissions paid by others. The Adviser reviews on a routine basis commission rates, and execution and settlement services performed, making internal and external comparisons. When it can be done consistently with the policy of obtaining the most favorable net results, it is the Adviser's practice to place such orders with brokers and dealers who supply market quotations to the Fund's custodian for portfolio evaluation purposes or who supply research, market and statistical information to the Adviser. The term "research, market and statistical information" includes advice as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities; and furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts. The Adviser is not authorized when placing portfolio transactions for the Fund to pay a brokerage commission or transaction cost in excess of that which another broker might have charged for executing the same transaction on account of the receipt of research, market or statistical information although it may do so in seeking to obtain the most favorable net results with respect to a particular transaction. The Adviser will not place orders with brokers or dealers on the basis that the broker or dealer has or has not sold shares of the Fund. Except for implementing the policy stated above, there is no intention to place portfolio transactions with any particular brokers or dealers or groups thereof. Although certain research, market and statistical information from brokers and dealers can be useful to the Fund and to the Adviser, it is the opinion of the Adviser that such information will be only supplementary to the Adviser's own research effort, since the information must still be analyzed, weighed and reviewed by the Adviser's staff. Such information may be useful to the Adviser in providing services to clients other than the Fund, and not all such information will be used by the Adviser in connection with the Fund. Conversely, such information provided to the Adviser by brokers and dealers through whom other clients of the Adviser effect securities transactions may be useful to the Adviser in providing services to the Fund. During the fiscal year ended June 30, 1994, the Fund paid total brokerage commissions of $603,866 of which $603,866 (100% of the total commission paid) resulted from orders placed with brokers and dealers who provided supplementary research, market and statistical information to the Fund or to the Adviser. Daewoo Securities Co. Ltd., with respect to portfolio transactions for the Fund, was paid $134,564 which amounted to 22.28% of total brokerage commissions paid. The aggregate amount of brokerage transactions was $219,346,542 for the fiscal year. The aggregate amount of brokerage transactions subject to brokerage commissions was $135,583,081 (61.81% of all brokerage transactions). The balance of such brokerage was not allocated to any particular broker or dealer or with regard to the above mentioned factors. (4) APPROVAL OR DISAPPROVAL OF A NEW RESEARCH AND ADVISORY AGREEMENT Daewoo Capital Management Co., Ltd. (the "Korean Adviser") acts as Korean Adviser to the Adviser, pursuant to a research and advisory agreement (the "present Research Agreement") with the Adviser. The Korean Adviser is an investment adviser registered under the United States Investment Advisers Act of 1940. The present Research Agreement is dated July 22, 1988 and its continuance was most recently approved by a vote of stockholders on October 14, 1993. At a meeting held on July 19, 1994, the Directors, including the Noninterested Directors, approved the terms of a new Research and Advisory Agreement (the "proposed Research Agreement") and its adoption subject to approval by stockholders. The Directors recommend that the stockholders approve the proposed Research Agreement in place of the present Research Agreement. Set forth below is a description of the principal difference between the present Research Agreement and the proposed Research Agreement as well as a description of those provisions which are the same under both Research Agreements. The proposed Research Agreement is attached hereto as Exhibit B. The principal difference between the present Research Agreement and the proposed Research Agreement is the decrease in the fee schedule payable to the Korean Adviser. In addition, the proposed Research Agreement would remain in effect, subject to earlier termination, for two years from the day following its approval. The fee schedule payable to the Korean Adviser under the present Research Agreement and the proposed Research Agreement, respectively, would change from: a monthly fee at the annual rate of (a) 0.2875% of the first $50 million of net assets, 0.2750% of such net assets in excess of $50 million, and 0.25 of 1% of such net assets in excess of $100 million, to (b) 0.2875% of the net assets of the Fund up to and including $50 million; 0.2750% of such assets on the next $50 million; 0.2500% of such assets on the next $250 million; 0.2375% of such assets on the next $400 million; and 0.2250% of such assets in excess of $750 million. For purposes of computing the monthly fee under both Research Agreements, the value of the net assets of the Fund is determined as of the close of business on the last business day of each month. The Fund's net assets on June 30, 1994 were approximately U.S. $550 million. The annual fee under both Research Agreements is payable monthly in U.S. dollars. For the period ended June 30, 1994, the Adviser paid the Korean Adviser an aggregate fee of $1,126,976 out of the amount of the fee received by the Adviser of the Fund described in Proposal (3). Under both the present and proposed Research Agreements, the Korean Adviser has agreed to pay fees and expenses of any Officer or Director of the Fund affiliated with it, except that the Fund shall bear travel expenses of one Director, Officer or employee of the Korean Adviser or any of its affiliates who is not a resident in the United States to the extent that such expenses relate to the attendance as a Fund Director at meetings of the Board of Directors in the United States and shall also bear the travel expenses of any other Director, Officer or employee of the Korean Adviser or of any of its affiliates who is a resident in the United States to the extent such expenses relate to his attendance as a Fund Director at meetings of the Board of Directors held outside of the United States. Under both the present and proposed Research Agreements, the Korean Adviser will not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with matters to which the research agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Korean Adviser in the performance of its duties or from reckless disregard by the Korean Adviser of its obligations and duties under the Research Agreement. Under both the present and proposed Research Agreements, the Adviser has agreed to further the development of the Korean Adviser's ability to provide services under the Research Agreement. The Adviser also agreed not to furnish, without the consent of the Korean Adviser, to persons other than the Adviser's personnel and the Fund's Directors and other representatives any tangible research material prepared by the Korean Adviser that is not publicly available and that has been marked confidential. If approved by stockholders, the proposed Research Agreement will become effective on the day following such approval, the present Research Agreement will terminate and the proposed Research Agreement will remain in force for two years from that date. The proposed Research Agreement would continue in effect thereafter by its terms from year to year only so long as its continuance is specifically approved at least annually by the affirmative vote of a majority of the Noninterested Directors cast in person at a meeting called for the purpose of voting on such approval, and by a majority vote of either the Fund's Board of Directors or of the Fund's outstanding voting securities. The proposed Research Agreement may be terminated at any time without penalty by the Fund on 60 days' written notice, and by the Korean Adviser, but only after written notice to the Fund, the Adviser and the Korean Securities Commission. The proposed Research Agreement automatically terminates in the event of termination of the Fund's agreement with the Adviser or in the event the Research Agreement is assigned, as defined under the 1940 Act. The present Research Agreement requires annual approval of its continuance and contains the same termination provisions as the proposed Research Agreement. The present Research Agreement will continue in effect until September 30, 1995 if this proposal is not approved. Korean Adviser The Korean Adviser was organized in February 1988 under the laws of the Republic of Korea. The Korean Adviser is wholly owned by Daewoo Securities Co., Ltd., Daewoo Securities Building, 34-3 Yoido-dong, Yongdungpo-gu, Seoul, Korea, the largest Korean securities firm in terms of paid-in capital and revenues in 1992 and an underwriter in the Fund's initial public offering in 1984, as well as the public offerings of a second, third and fourth tranche in 1986, 1989 and 1993, respectively. Daewoo Securities Co., Ltd. is affiliated with Daewoo Corporation, a conglomerate headquartered in Seoul, Korea. Daewoo Corporation and certain affiliates of Daewoo Corporation own approximately 12.1% of Daewoo Securities Co., Ltd. Orders for the purchase and sale of securities for the Fund's portfolio may be placed with Daewoo Securities Co., Ltd., as well as with other Korean brokers. The Korean Adviser has the following Board of Directors:
Name and Position with the Korean Adviser Principal Occupation Address -------- -------------------- ------- Keun Soo Lee President, Hyundai Apt. 92-1004 President Daewoo Capital Apkujung-dong Kangnam-gu, Seoul, Management Co., Ltd. The Republic of Korea Gon Sub Shim Managing Director, Koongjun Apt. B-1106 Director Daewoo Capital Bangbae-dong Management Co., Ltd. Seocho-gu, Seoul, The Republic of Korea Sung Mun Yoon Managing Director, Se Kwang Villa Director Daewoo Capital Na-201, 606-19 Management Co., Ltd. Sinsa-dong Kangnam-gu, Seoul The Republic of Korea Byung Ju Koh Auditor, Kyungnam Apt. 6-302 Auditor Daewoo Capital Banpo-dong Management Co., Ltd. Seocho-gu, Seoul The Republic of Korea
The Balance Sheets as of March 31, 1994 and 1993 and related Independent Auditors' Report dated May 2, 1994, for the Korean Adviser, is attached hereto as Exhibit D. Required Vote The proposed Research Agreement is being submitted to stockholders for approval; such approval will require the affirmative vote of a majority of the Fund's outstanding voting securities, as defined on page 11. If an affirmative vote of stockholders is not obtained, the present Research Agreement will not terminate and will continue in effect for the time being pending consideration by the Directors of such further action as they may deem to be in the best interests of the stockholders of the Fund. Your Fund's Directors recommend that the stockholders approve the proposed Research Agreement. Other Matters The Board of Directors knows of no business to be brought before the meeting other than as set forth above. If, however, any other matters properly come before the meeting, it is the intention of the persons named in the enclosed proxy form to vote such proxies on such matters in accordance with their best judgment. Miscellaneous Proxies will be solicited by mail and may be solicited in person or by telephone or telegraph by Officers of the Fund or personnel of the Adviser. The Fund has retained Corporate Investor Communications, Inc., 111 Commerce Road, Carlstadt, New Jersey, 07072-2586 to assist in the proxy solicitation. The cost of their services is estimated at $5,500. The expenses connected with the solicitation of the proxies and with any further proxies which may be solicited by the Fund's Officers or Corporate Investor Communications, Inc., in person, by telephone or by telegraph will be borne by the Fund. The Fund will reimburse banks, brokers, and other persons holding the Fund's shares registered in their names or in the names of their nominees, for their expenses incurred in sending proxy material to and obtaining proxies from the beneficial owners of such shares. The Annual Report for the fiscal year ended June 30, 1994 has been mailed to all stockholders who were stockholders of record on August 9, 1994, the Record Date for the Annual Meeting. In the event that sufficient votes in favor of any proposal set forth in the Notice of this meeting are not received by October 13, 1994, the persons named as attorneys in the enclosed proxy may propose one or more adjournments of the meeting to permit further solicitation of proxies. Any such adjournment will require the affirmative vote of the holders of a majority of the shares present in person or by proxy at the session of the meeting to be adjourned. The persons named as attorneys in the enclosed proxy will vote in favor of such adjournment those proxies which they are entitled to vote in favor of the proposal for which further solicitation of proxies is to be made. They will vote against any such adjournment those proxies required to be voted against such proposal. The costs of any such additional solicitation and of any adjourned session will be borne by the Fund. Stockholder Proposals Any proposal by a stockholder of the Fund intended to be presented at the 1995 meeting of stockholders of the Fund must be received at 345 Park Avenue, New York, New York 10154 not later than May 1, 1995. By order of the Board of Directors, Thomas F. McDonough Secretary 345 Park Avenue New York, New York 10154 August 29, 1994 EXHIBIT A INVESTMENT ADVISORY, MANAGEMENT AND ADMINISTRATION AGREEMENT AGREEMENT, dated and effective as of _____, 1994 between THE KOREA FUND, INC., a Maryland corporation (herein referred to as the "Fund"), and SCUDDER, STEVENS & CLARK, INC., a Delaware corporation (herein referred to as the "Manager"). WITNESSETH: That in consideration of the mutual covenants herein contained, it is agreed by the parties as follows: 1. The Manager hereby undertakes and agrees, upon the terms and conditions herein set forth, (i) to make investment decisions for the Fund, to prepare and make available to the Fund research and statistical data in connection therewith and to supervise the acquisition and disposition of securities by the Fund, including the selection of brokers or dealers to carry out the transactions, all in accordance with the Fund's investment objectives and policies and in accordance with guidelines and directions from the Fund's Board of Directors; (ii) to assist the Fund as it may reasonably request in the conduct of the Fund's business, subject to the direction and control of the Fund's Board of Directors; (iii) to maintain or cause to be maintained for the Fund all books and records required under the Investment Company Act of 1940, as amended (the "1940 Act"), and to furnish or cause to be furnished all required reports or other information under Korean securities laws, to the extent that such books, records and reports and other information are not maintained or furnished by the Custodian or other agents of the Fund; (iv) to furnish at the Manager's expense for the use of the Fund such office space and facilities as the Fund may require for its reasonable needs in the City of New York and to furnish at the Manager's expense clerical services in the United States related to research, statistical and investment work; (v) to render to the Fund administrative services such as preparing reports to and meeting materials for the Fund's Board of Directors and reports and notices to stockholders, preparing and making filings with the Securities and Exchange Commission (the "SEC") and other regulatory and self-regulatory organizations, including preliminary and definitive proxy materials and post-effective amendments to the Fund's Registration Statement, providing assistance in certain accounting and tax matters and investor and public relations, monitoring the valuation of portfolio securities, calculation of net asset value and calculation and payment of distributions to stockholders, and overseeing arrangements with the Fund's custodian, including the maintenance of books and records of the Fund; and (vi) to pay the reasonable salaries, fees and expenses of such of the Fund's officers and employees (including the Fund's shares of payroll taxes) and any fees and expenses of such of the Fund's directors as are directors, officers or employees of the Manager; provided, however, that the Fund, and not the Manager, shall bear travel expenses (or an appropriate portion thereof) of directors and officers of the Fund who are directors, officers or employees of the Manager to the extent that such expenses relate to attendance at meetings of the Board of Directors of the Fund or any committees thereof or advisers thereto. The Manager shall bear all expenses arising out of its duties hereunder but shall not be responsible for any expenses of the Fund other than those specifically allocated to the Manager in this paragraph 1. In particular, but without limiting the generality of the foregoing, the Manager shall not be responsible, except to the extent of the reasonable compensation of such of the Fund's employees as are directors, officers or employees of the Manager whose services may be involved, for the following expenses of the Fund: organization and certain offering expenses of the Fund (including out-of-pocket expenses, but not including overhead or employee costs of the Manager or of any one or more organizations retained by the Fund or by the Manager as a Korean adviser of the Fund); legal expenses; auditing and accounting expenses; telephone, telex, facsimile, postage and other communication expenses; taxes and governmental fees; stock exchange listing fees; fees, dues and expenses incurred by the Fund in connection with membership in investment company trade organizations; fees and expenses of the Fund's custodians, subcustodians, transfer agents and registrars; payment for portfolio pricing or valuation services to pricing agents, accountants, bankers and other specialists, if any; expenses of preparing share certificates and other expenses in connection with the issuance, offering, distribution, sale or underwriting of securities issued by the Fund; expenses of registering or qualifying securities of the Fund for sale; expenses relating to investor and public relations; freight, insurance and other charges in connection with the shipment of the Fund's portfolio securities; brokerage commissions or other costs of acquiring or disposing of any portfolio securities of the Fund; expenses of preparing and distributing reports, notices and dividends to stockholders; costs of stationery; costs of stockholders' and other meetings; litigation expenses; or expenses relating to the Fund's dividend reinvestment and cash purchase plan. 2. In connection with the rendering of the services required under paragraph 1, the Fund and the Manager have entered into an agreement dated the date hereof with Daewoo Capital Management Co., Ltd. to furnish investment advisory services to the Manager pursuant to such agreement. The Manager may also contract with or consult with such banks, other securities firms or other parties in Korea or elsewhere as it may deem appropriate to obtain information and advice, including investment recommendations, advice regarding economic factors and trends, advice as to currency exchange matters, and clerical and accounting services and other assistance, but any fee, compensation or expenses to be paid to any such parties shall be paid by the Manager, and no obligation shall be incurred on the Fund's behalf in any such respect. 3. The Fund agrees to pay to the Manager in United States dollars, as full compensation for the services to be rendered and expenses to be borne by the Manager hereunder, a monthly fee, which, on an annual basis, is equal to 1.15% per annum of the value of the Fund's net assets up to and including $50 million; 1.10% per annum of the value of the Fund's net assets on the next $50 million of assets; 1.00% per annum of the value of the Fund's net assets on the next $250 million of assets; 0.95% per annum of the value of the Fund's net assets on the next $400 million of assets; and 0.90% per annum of the value of the Fund's net assets in excess of $750 million. For purposes of computing the monthly fee, the value of the net assets of the Fund shall be determined as of the close of business on the last business day of each month; provided, however, that the fee for the period from the end of the last month ending prior to termination of this Agreement, for whatever reason, to date of termination shall be based on the value of the net assets of the Fund determined as of the close of business on the date of termination and the fee for such period through the end of the month in which such proceeds are received shall be prorated according to the proportion which such period bears to a full monthly period. Each payment of a monthly fee to the Manager shall be made within the ten days next following the day as of which such payment is so computed. The value of the net assets of the Fund shall be determined pursuant to the applicable provisions of the Articles of Incorporation and By-laws of the Fund. 4. The Manager agrees that it will not make a short sale of any capital stock of the Fund or purchase any share of the capital stock of the Fund otherwise than for investment. 5. Nothing herein shall be construed as prohibiting the Manager from providing investment advisory services to, or entering into investment advisory agreements with, other clients (including other registered investment companies), including clients which may invest in securities of Korean issuers, or from utilizing (in providing such services) information furnished to the Manager by Daewoo Capital Management Co., Ltd. and others as contemplated by sections 1 and 2 of this Agreement; nor shall anything herein be construed as constituting the Manager an agent of the Fund. 6. The Manager may rely on information reasonably believed by it to be accurate and reliable. Neither the Manager nor its officers, directors, employees or agents shall be subject to any liability for any act or omission, error of judgment or mistake of law, or for any loss suffered by the Fund, in the course of, connected with or arising out of any services to be rendered hereunder, except by reason of willful misfeasance, bad faith, or gross negligence on the part of the Manager in the performance of its duties or by reason of reckless disregard on the part of the Manager of its obligations and duties under this Agreement. Any person, even though also employed by the Manager, who may be or become an employee of the Fund and paid by the Fund shall be deemed, when acting within the scope of his employment by the Fund, to be acting in such employment solely for the Fund and not as an employee or agent of the Manager. 7. This Agreement shall remain in effect for a period of two years from the date hereof, and shall continue in effect thereafter, but only so long as such continuance is specifically approved at least annually by the affirmative vote of (i) a majority of the members of the Fund's Board of Directors who are not interested persons of the Fund or of the Manager or of any entity regularly furnishing investment advisory services with respect to the Fund pursuant to an agreement with the Fund or the Manager, cast in person at a meeting called for the purpose of voting on such approval, and (ii) a majority of the Fund's Board of Directors or the holders of a majority of the outstanding voting securities of the Fund. This Agreement may nevertheless be terminated at any time without penalty, on 60 days' written notice, by the Fund's Board of Directors, by vote of holders of a majority of the outstanding voting securities of the Fund, or by the Manager. This Agreement shall automatically be terminated in the event of its assignment, provided that an assignment to a corporate successor to all or substantially all of the Manager's business or to a wholly-owned subsidiary of such corporate successor which does not result in a change of actual control or management of the Manager's business shall not be deemed to be an assignment for the purposes of this Agreement. Any such notice shall be deemed given when received by the addressee. 8. This Agreement may not be transferred, assigned, sold or in any manner hypothecated or pledged by either party hereto, except as permitted under the 1940 Act. It may be amended by mutual agreement, but only after authorization of such amendment by the affirmative vote of (i) the holders of a majority of the outstanding voting securities of the Fund, and (ii) a majority of the members of the Fund's Board of Directors who are not interested persons of the Fund or of the Manager or of any entity regularly furnishing investment advisory services with respect to the Fund pursuant to an agreement with the Fund or the Manager, cast in person at a meeting called for the purpose of voting on such approval. 9. This Agreement shall be construed in accordance with the laws of the State of New York, provided, however, that nothing herein shall be construed as being inconsistent with the 1940 Act. As used herein, the terms "interested person," "assignment," and "vote of a majority of the outstanding voting securities" shall have the meanings set forth in the 1940 Act. IN WITNESS WHEREOF, the parties have executed this Agreement by their officers thereunto duly authorized as of the day and year first written above. THE KOREA FUND, INC. By: ____________________ Title: President SCUDDER, STEVENS & CLARK, INC. By: ____________________ Title: Managing Director EXHIBIT B Scudder, Stevens & Clark, Inc. 345 Park Avenue New York, New York 10154 RESEARCH AND ADVISORY AGREEMENT ________, 1994 Daewoo Capital Management Co., Ltd. 34-3, Youido-dong Yongdungpo-gu Seoul, Korea Dear Sirs: We have entered into an Investment Advisory, Management and Administration Agreement (the "Management Agreement") dated as of __________________, 1994 with The Korea Fund, Inc., a Maryland corporation (the "Fund"), pursuant to which we act as investment adviser to and manager of the Fund. A copy of the Management Agreement has been previously furnished to you. In furtherance of such duties to the Fund, and with the approval of the Fund, we wish to avail ourselves of your investment advisory services. Accordingly, with the acceptance of the Fund, we hereby agree with you as follows for the duration of this Agreement: 1. You agree to furnish to us such information, investment recommendations, advice and assistance, as we shall from time to time reasonably request. In that connection, you agree to continue to maintain a separate staff within your organization to furnish such services exclusively to us. In addition, for the benefit of the Fund, you agree to pay the fees and expenses of any directors or officers of the Fund who are directors, officers or employees of you or of any of your affiliates, except that the Fund shall bear travel expenses of one (but not more than one) director, officer or employee of you or any of your affiliates who is not a resident in the United States to the extent such expenses relate to his attendance as a director at meetings of the Board of Directors of the Fund in the United States and shall also bear the travel expenses of any other director, officer or employee of you or of any of your affiliates who is resident in the United States to the extent such expenses relate to his attendance as a director at meetings of the Board of Directors outside of the United States. 2. We agree to pay in United States dollars to you, as compensation for the services to be rendered by you hereunder, a monthly fee which, on an annual basis, is equal to 0.2875% per annum of the value of the Fund's net assets up to and including $50 million; 0.2750% per annum of the value of the Fund's net assets on the next $50 million of assets; 0.2500% per annum of the value of the Fund's net assets on the next $250 million of assets; 0.2375% per annum of the value of the Fund's net assets on the next $400 million of assets; and 0.2250% per annum of the value of the Fund's net assets in excess of $750 million. For purposes of computing the monthly fee, the value of the net assets of the Fund shall be determined as of the close of business on the last business day of each month; provided, however, that the fee for the period from the end of the last month ending prior to termination of this Agreement, for whatever reason, to date of termination shall be based on the value of the net assets of the Fund determined as of the close of business on the date of termination and the fee for such period through the end of the month in which such proceeds are received shall be prorated according to the proportion which such period bears to a full monthly period. Each payment of a monthly fee shall be made by us to you within the fifteen days next following the day as of which such payment is so computed. The value of the net assets of the Fund shall be determined pursuant to the applicable provisions of the Certificate of Incorporation and By-laws of the Fund. We agree to work with you, in order to make our relationship as productive as possible for the benefit of the Fund, to further the development of your ability to provide the services contemplated by Section 1. To this end we agree to work with you to assist you in developing your research techniques, procedures and analysis. We have furnished you with informal memoranda, copies of which are attached to this Agreement, reflecting our understanding of our working procedures with you, which may be revised as you work with us pursuant to this Agreement. We agree not to furnish, without your consent, to any person other than our personnel and directors and representatives of the Fund any tangible research material that is prepared by you, that is not publicly available, and that has been stamped or otherwise clearly indicated by you as being confidential. 3. You agree that you will not make a short sale of any capital stock of the Fund, or purchase any share of the capital stock of the Fund otherwise than for investment. 4. Your services to us are not to be deemed exclusive and you are free to render similar services to others, except as otherwise provided in Section 1 hereof. 5. Nothing herein shall be construed as constituting you an agent of us or of the Fund. 6. You represent and warrant that you are registered as an investment adviser under the U.S. Investment Advisers Act of 1940, as amended. You agree to maintain such registration in effect during the term of this Agreement. 7. Neither you nor any affiliate of yours shall receive any compensation in connection with the placement or execution of any transaction for the purchase or sale of securities or for the investment of funds on behalf of the Fund, except that you or your affiliates may receive a commission, fee or other remuneration for acting as broker in connection with the sale of securities to or by the Fund, if permitted under the U.S. Investment Company Act of 1940, as amended. 8. We and the Fund agree that you may rely on information reasonably believed by you to be accurate and reliable. We and the Fund further agree that neither you nor your officers, directors, employees or agents shall be subject to any liability for any act or omission in the course of, connected with or arising out of any services to be rendered hereunder except by reason of willful misfeasance, bad faith or gross negligence in the performance of your duties or by reason of reckless disregard of your obligations and duties under this Agreement. 9. This Agreement shall remain in effect for a period of two years from the date hereof and shall continue in effect thereafter, but only so long as such continuance is specifically approved at least annually by the affirmative vote of (i) a majority of the members of the Fund's Board of Directors who are not interested persons of the Fund, you or us, cast in person at a meeting called for the purpose of voting on such approval, and (ii) a majority of the Fund's Board of Directors or the holders of a majority of the outstanding voting securities of the Fund. This Agreement may nevertheless be terminated at any time, without penalty, by the Fund's Board of Directors or by vote of holders of a majority of the outstanding voting securities of the Fund, upon 60 days' written notice delivered or sent by registered mail, postage prepaid, to you, at your address given above or at any other address of which you shall have notified us in writing, or by you upon 60 days' written notice to us and to the Fund, and shall automatically be terminated in the event of its assignment or of the termination (due to assignment or otherwise) of the Management Agreement, provided that an assignment to a corporate successor to all or substantially all of your business or to a wholly-owned subsidiary of such corporate successor which does not result in a change of actual control or management of your business shall not be deemed to be an assignment for purposes of this Agreement. Any such notice shall be deemed given when received by the addressee. 10. This Agreement may not be transferred, assigned, sold or in any manner hypothecated or pledged by either party hereto. It may be amended by mutual agreement, but only after authorization of such amendment by the affirmative vote of (i) the holders of a majority of the outstanding voting securities of the Fund; and (ii) a majority of the members of the Fund's Board of Directors who are not interested persons of the Fund, you or us, cast in person at a meeting called for the purpose of voting on such approval. 11. Any notice hereunder shall be in writing and shall be delivered in person or by facsimile (followed by mailing such notice, air mail postage paid, the day on which such facsimile is sent). Addressed If to Scudder, Stevens & Clark, Inc., to: Scudder, Stevens & Clark, Inc. 345 Park Avenue New York, NY 10154 Attention: President (Facsimile No. 212-319-7813) If to Daewoo Capital Management Co., Ltd., to: 34-3, Youido-dong Yongdungpo-gu, Seoul, Korea Attention: Chairman (Facsimile No. 011-822-784-0826) or to such other address as to which the recipient shall have informed the other party. Notice given as provided above shall be deemed to have been given, if by personal delivery, on the day of such delivery, and if by facsimile and mail, the date on which such facsimile and confirmatory letter are sent. 12. This Agreement shall be construed in accordance with the laws of the State of New York, provided, however, that nothing herein shall be construed as being inconsistent with the U.S. Investment Company Act of 1940, as amended. As used herein the terms "interested person," "assignment," and "vote of a majority of the outstanding voting securities" shall have the meanings set forth in the U.S. Investment Company Act of 1940, as amended. If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart hereof and return the same to us. Very truly yours, SCUDDER, STEVENS & CLARK, INC. By _________________________ President The foregoing agreement is hereby accepted as of the date first above written. DAEWOO CAPITAL MANAGEMENT CO., LTD. By _________________________ Chairman Accepted: THE KOREA FUND, INC. By _________________________ President EXHIBIT C SCUDDER, STEVENS & CLARK, INC. Consolidated Statement of Condition December 31, 1993
ASSETS Current assets Cash and cash equivalents $11,689,984 Short term investments 50,196,591 Investment advisory fees receivable 36,806,144 Service fees receivable 5,005,051 Expense reimbursement from funds 1,399,751 Income taxes receivable 4,502,214 Receivables for fund shares 5,466,585 Other current assets 4,840,317 ------------ Total current assets 119,906,637 Investments available for sale 9,095,068 Other investments 2,222,345 Fixed assets, net of accumulated depreciation and 33,756,800 amortization Other assets 5,554,131 ------------ Total assets $170,534,981 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses $19,572,911 Short term borrowing 13,000,000 Payables for fund shares 5,466,585 Deferred lease obligations 1,566,163 Total current liabilities 39,605,659 Deferred lease obligations 6,844,331 ------------ Deferred income taxes 8,675,236 ------------ Total liabilities 55,125,226 ------------ Stockholders' equity Common stock, par value $.01 per share: Class A: Authorized 9,250 shares, issued and outstanding 8,712 87 shares Class B: Authorized 8,000,000 shares, issued and outstanding 60,505 6,050,546 shares Capital in excess of par value 58,784,982 Unrealized securities gains on investments available 1,343,658 for sale, net Cumulative translation adjustment 264,316 Retained earnings 54,956,207 ------------ Total stockholders' equity 115,409,755 ------------ Total liabilities and stockholders' equity $170,534,981 ============
See accompanying notes to consolidated statement of condition. SCUDDER, STEVENS & CLARK, INC. Notes to Consolidated Statement of Condition December 31, 1993 (1) Summary of Significant Accounting Policies Organization, Principles of Consolidation Scudder, Stevens & Clark, Inc. (the "Parent") serves as a registered investment adviser to individuals, institutions and investment companies. Its principal subsidiaries include Scudder Investor Services, Inc., a registered broker/dealer which acts as principal underwriter and administrator for a group of investment companies managed by the Parent; Scudder Service Corporation which acts as transfer agent for these investment companies; and Scudder Trust Company which acts as the trustee/custodian of IRA, Keogh and other retirement plans primarily invested in mutual funds managed or administered by the Parent and also sponsors collective investment trusts and New Hampshire investment trusts. The consolidated statement of condition includes the accounts of Scudder, Stevens & Clark, Inc. and its subsidiaries (the "Company"). All significant intercompany transactions have been eliminated in consolidation. Cash Equivalents Cash equivalents represent primarily investments in affiliated Scudder money market mutual funds amounting to $6,712,700 at December 31, 1993. The Company is the investment manager for these funds. Investment Securities The Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as of December 31, 1993. The adoption of this standard did not have a material impact on the Company's financial position. The following summarizes the Company's accounting for its investments: a. Short Term Investments Short term investments consist of shares of short and medium term bond funds advised by the Company. The Company does not intend to hold these investments over the long term and carries them for liquidity purposes and investment income and to realize gains from market fluctuations. The investments are carried at market value. Gains and losses on redemptions are calculated on the first in, first out cost method. b. Investments Available for Sale Investments available for sale consist of various equity and bond funds advised by the Company and U.S. Treasury obligations. The Company intends to hold these securities for the foreseeable future unless liquidity needs demand or market conditions make it advantageous to liquidate them. The investments are carried at market value, with unrealized gains and losses net of deferred income taxes recognized as an adjustment to stockholders' equity. Gains and losses on redemptions and sales are calculated on the first in, first out cost method. In determining cost basis, premiums and discounts are amortized on a level yield basis. c. Other Investments Other investments consist of seed money required for various mutual funds advised by the Company which will be held until permitted to be liquidated, normally 5 years, and equity interests in joint ventures and other miscellaneous equity investments which will be held indefinitely. These investments are carried at cost unless their value is permanently impaired. Financial Instruments In the course of its activities, the Company deals in financial instruments such as cash, various receivables, investment securities, and expenses payable. Due to the short term nature of all financial instruments except for investment securities, the market value of such instruments approximates the carrying value of the instruments. Market values of investment securities have been disclosed in the financial statements and footnotes. Fund Share Transactions Sales of fund shares are recorded on a trade date basis. Fixed Assets Fixed assets are carried at cost less accumulated depreciation and amortization. Deferred Lease Obligations The Company recognizes lease obligations in connection with landlord incentive rental terms or payments and premature lease terminations. Income Taxes The Company files a consolidated federal income tax return. The Parent and its subsidiaries file separate state and local income tax returns. Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for Income Taxes," which requires a change from the deferred method of accounting for timing differences in the recognition of revenues and expenses for tax and financial reporting purposes to the "asset and liability method." Under the asset and liability method, deferred income taxes are recognized for the tax consequences of temporary differences between the financial statements and the tax bases of assets and liabilities. The adoption of this standard did not have a material impact on the Company's financial position. (2) Related Party Transactions The Company serves as an investment manager to various related investment companies. Certain stockholders of the Company are members of the Boards of Directors of these investment companies. At December 31, 1993, investment advisory fees receivable and service fees receivable from affiliated mutual funds were $22,470,588. The Company pays certain expenses on behalf of affiliated mutual funds for which it is reimbursed. At December 31, 1993, the amounts due to the Company relating to these expenses were $1,399,751. In addition, the Company absorbs expenses of mutual funds whose expenses exceed statutory or Company imposed limitations. At December 31, 1993, the Company owed $1,195,345 to these funds related to these expense limitations. (3) Investments Available for Sale
The following table presents information relating to the Company's investments available for sale at December 31, 1993. Gross Unrealized Cost Market Value Gains (Losses) Shares of mutual $4,738,294 $7,126,039 $2,453,988 $(66,243) funds U.S. Treasury 1,939,156 1,937,354 _ (1,802) obligations Other 20,529 31,675 11,146 _ ------ ------ ------ ------ $6,697,979 $9,095,068 $2,465,134 $(68,045) ========== ========== ========== =========
U.S. Treasury obligations mature in two years or less in 1993. (4) Other Investments
The following table presents information relating to the Company's other investments at December 31, 1993. Gross Unrealized Cost Market Value Gains (Losses) Other securities $1,849,060 $3,114,960 $1,265,900 $_ Shares of mutual 373,285 418,809 50,215 (4,691) funds (restricted) ------- ------- ------ ------ $2,222,345 $3,533,769 $1,316,115 $(4,691) ========== ========== ========== ========
(5) Fixed Assets
Fixed assets at December 31, 1993 consisted of the following: Furniture and fixtures $15,340,356 Office equipment 33,904,357 Leasehold improvements 18,220,875 ---------- 67,465,588 Less accumulated depreciation and amortization 33,708,788 ---------- Fixed assets, net $33,756,800 ===========
(6) Short Term Borrowing The Company borrowed $13,000,000 under an unsecured $20,000,000 line of credit from a commercial bank at an average rate of 4.85% to mature February 8, 1994. (7) Employee Benefit Plans The Company sponsors the Scudder, Stevens & Clark Profit Sharing and 401(k) Plan Trust and Scudder Defined Benefit Plan and Trust. Scudder, Stevens & Clark Profit Sharing and 401(k) Plan Trust ("PSk") The profit sharing part of PSk covers all employees of the Parent and participating affiliates (the "Employer") who have worked 1,000 hours during each year after the first year of employment. Employer contributions made to the profit sharing part of PSk are completely discretionary and dependent upon profits. The final determination as to the amount of contribution for any year is made by the Board of Directors of the Parent. Employer contributions are allocated to the profit sharing accounts of eligible participants based on a percentage of such participants' compensation exclusive of commissions. Combined contributions to PSk for any calendar year are limited by statute to $30,000 per participant. Employees are eligible to participate in the 401(k) part of PSk after three months of service. The Employer makes no contributions to the 401(k) part of PSk, employee participation in which is voluntary. Eligible participants may contribute to either or both the profit sharing or 401(k) parts of PSk to a combined maximum of 7% of defined compensation. Scudder Defined Benefit Plan and Trust ("DBP") Effective February 1, 1986, the Employer adopted a noncontributory defined benefit plan covering employees who have worked 1,000 hours during each year after the first year of employment. In general, benefits under DBP are based on a participant's years of service with the Employer after January 31, 1986 and such participant's compensation exclusive of commissions. The funding policy is to contribute annually to DBP the maximum amount that can be deducted for federal income tax purposes. The Parent and its participating affiliates contribute the amount necessary to fund DBP with regard to each entity's employees. The following table sets forth the plan's funded status and the basis for the amounts recognized in the Company's consolidated financial statements at December 31, 1993.
Defined Benefit Plan: Actuarial present value of benefit obligations: Accumulated benefit obligation including vested benefits of $(8,721,044) $7,274,399 ============ Projected benefit obligation for service rendered to date $(11,241,787) Plan assets at fair value 10,897,542 ------------ Plan assets less than projected benefit obligations (344,245) Unrecognized net loss from past experience different from 1,671,673 that assumed and effects of changes in assumptions Prior service cost not yet recognized in net periodic 160,508 pension cost Unrecognized net assets at February 1, 1987 amortized over 34,964 15 years ------------ Prepaid pension cost $1,522,900 ============
At December 31, 1993, essentially all plan assets were invested in related Scudder mutual funds primarily through the Scudder Balanced Fund. The straight line amortization method is used in calculating prior service cost. Gains and losses are amortized only if they are outside of the 10% corridor of the larger of projected benefit obligation or fair value of plan assets. The weighted average discount rate and rate of increase in future compensation levels used in determining the projected benefit obligation were 7.5% and 6%, respectively. The expected long term rate of return on plan assets, net of expenses, was 8.5%. In addition, the Company established a defined contribution plan in London to cover local employees. The Company does not provide any other postretirement benefits to its employees. (8) Stockholders' Equity The Company has two classes of common stock, Class A voting shares and Class B nonvoting shares. The Company has the option to convert any (but not all) shares of Class A common stock into an equal number of shares of Class B common stock, and to convert any or all Class B common stock into Class A common stock. (9) Income Taxes
The components of income taxes receivable and deferred income taxes at December 31, 1993 are as follows: Income taxes receivable: Federal $2,639,473 State and local 1,862,741 ------------ $4,502,214 ============ Deferred income taxes: Federal $(6,109,967) State and local (2,565,269) ------------ $(8,675,236) ============
The components of the net deferred tax liability at December 31, 1993 are as follows: Deferred tax liabilities relating to: Accrual to cash adjustment (Parent only) $7,325,143 Unrealized gain on investments available for sale 1,053,430 Pension contribution 700,418 Foreign exchange 151,929 ---------- Total deferred liabilities 9,230,920 ---------- Deferred tax assets relating to: Depreciation 274,345 Unrealized loss on short term investments 169,243 Compensation expense 112,096 ---------- Total deferred tax assets 555,684 ---------- Net deferred tax liability $8,675,236 ==========
(10) Commitments
Minimum rentals under noncancelable operating leases for office space and equipment at December 31, 1993 are as follows: Year ending December 31 1994 $24,300,055 1995 22,220,816 1996 21,419,054 1997 16,219,558 1998 15,463,942 Later years 143,521,297 ------------ 243,144,722 Less minimum future rentals under noncancelable operating 1,191,207 subleases ------------ Total net minimum payment required $241,953,515 ============ Such rentals are subject to escalation clauses.
INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Scudder, Stevens & Clark, Inc. We have audited the accompanying consolidated statement of condition of Scudder, Stevens & Clark, Inc. and subsidiaries as of December 31, 1993. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of condition is free of material misstatement. An audit of a statement of condition includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of condition. An audit of a statement of condition also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement of condition presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated statement of condition referred to above presents fairly, in all material respects, the consolidated financial position of Scudder, Stevens & Clark, Inc. and subsidiaries as of December 31, 1993 in conformity with generally accepted accounting principles. KPMG Peat Marwick New York, New York February 11, 1994 EXHIBIT D DAEWOO CAPITAL MANAGEMENT CO., LTD. Balance Sheets March 31, 1994 and 1993 (in thousands of Won, except share data)
1994 1993 ASSETS Current assets: Cash and cash equivalents W 1,116,137 3,097,371 Marketable securities, at cost which approximates 2,808,779 918,031 market Accrued income 185,397 52,621 Prepaid expenses and other current assets (Note 359,274 334,130 2) ---------- ---------- Total current assets 4,469,587 4,402,153 ---------- ---------- Furniture and equipment, at cost (Note 3) 466,069 424,868 Less accumulated depreciation 313,183 289,782 ---------- ---------- Net furniture and equipment 152,886 135,086 Other assets (Note 4) 2,575,130 2,358,062 ---------- ---------- W 7,197,603 6,895,301 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Unearned income W 719,300 648,155 Accounts payable_other (Notes 5 and 6) 202,432 333,077 Taxes withheld 25,879 25,449 ---------- ---------- Total current liabilities 947,611 1,006,681 ---------- ---------- Retirement and severance benefits 1,156,398 908,376 ---------- ---------- Total liabilities 2,104,009 1,915,057 ---------- ---------- Stockholders' equity: Common stock of W5,000 par value Authorized-1,760,000 shares Issued-1,000,000 shares 5,000,000 5,000,000 Retained earnings (deficit) 93,594 (19,756) ---------- ---------- Total stockholders' equity 5,093,594 4,980,244 ---------- ---------- W 7,197,603 6,895,301 ========== ==========
DAEWOO CAPITAL MANAGEMENT CO., LTD. Notes to Financial Statements March 31, 1994 and 1993 (1) Summary of Significant Accounting Policies (a) Basis of Presenting Financial Statements Daewoo Capital Management Co., Ltd. (the "Company") was established in 1988 for the purpose of conducting investment advisory services for clients and other related businesses. The Company is a subsidiary of Daewoo Securities Co., Ltd., which owns 99.9% of the Company's shares. The Company maintains its books of account in conformity with generally accepted financial accounting standards in the Republic of Korea. However, the accompanying financial statements have been prepared in a manner to reflect the adjustments which, management believes, are necessary to conform them with United States generally accepted accounting principles. (b) Marketable Securities Marketable securities, primarily government bonds, are stated at cost. Accrued interest amounting to W127,734 thousand at March 31, 1994 and W124,912 thousand at March 31,1993 on these securities are accounted for as accrued income in the accompanying financial statements. (c) Furniture and Equipment Furniture and equipment are stated at cost. Depreciation is provided on the declining-balance method over the estimated useful lives of the related assets. (d) Retirement and Severance Benefits Employees who have been with the Company for more than one year are entitled to lump-sum payments based on current rates of pay and length of service when they leave the Company. Provision has been made in the accompanying balance sheets for the estimated accrued liability under the plan which would be payable if all employees left the Company at the balance sheet date, in accordance with generally accepted financial accounting standards in the Republic of Korea. A part of the liability is covered by severance insurance and deposits with insurance company are included in other assets. Under the national pension scheme of Korea, effective January 1, 1993, the Company is required to transfer a certain percentage of retirement benefits of employees to the National Pension Fund. The amount transferred will reduce the retirement and severance benefits payable to the employees when they leave the Company and is reflected as a direct deduction from the retirement and severance benefits account in the accompanying balance sheets. The Company did not adopt Statement of Financial Accounting Standards (SFAS) No. 87, "Employers' accounting for Pensions." However, the Company believes that the adoption of SFAS No. 87 would not have a material effect on the Company's results of operations or financial condition. DAEWOO CAPITAL MANAGEMENT CO., LTD. Notes to Financial Statements, Continued March 31, 1994 and 1993 (1) Summary of Significant Accounting Policies, Continued (e) Income Taxes SFAS No. 109, "Accounting for Income Taxes," was issued by the United States Financial Accounting Standards Board (FASB) in February 1992, which requires a change from the deferred method to the asset and liability method of accounting for income taxes and is effective for fiscal years beginning after December 15, 1992. The Company has determined that the effect on the financial statements of compliance with SFAS No. 109 is insignificant, and the Company has not implemented the provisions of SFAS No. 109 in the preparation of the financial statements. (f) Foreign Currency Translation Foreign currency items are translated at current rates of exchange. Foreign exchange adjustments are charged or credited to income as they occur. (g) Recognition of Operating Revenues Service fees for investment advisory activities are realized over the terms of the applicable investment advisory contracts. (h) Cash Equivalents Cash and cash equivalents in the statements of cash flows consist of cash on hand, passbook accounts and time deposits. For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. (2) Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets at March 31, 1994 and 1993 are summarized as follows:
Won (thousands) --------------- 1994 1993 ------ ------ Accounts receivable W 352,110 282,074 Prepaid income taxes 5,349 50,859 Prepaid insurance and others 1,815 1,197 ---------- ---------- W 359,274 334,130 ========== ==========
DAEWOO CAPITAL MANAGEMENT CO., LTD. Notes to Financial Statements, Continued March 31, 1994 and 1993 (3) Furniture and Equipment Furniture and equipment at March 31, 1994 and 1993 are summarized as follows:
Won (thousands) --------------- 1994 1993 ------ ------ Vehicles W 85,492 72,027 Furniture and fixtures 380,577 352,841 ---------- ---------- 466,069 424,868 Less accumulated depreciation 313,183 289,782 ---------- ---------- W 152,886 135,086 ========== ==========
(4) Other Assets Other assets at March 31, 1994 and 1993 are summarized as follows:
Won (thousands) --------------- 1994 1993 ------ ------ Loans to staff W 276,626 224,440 Deposits for severance benefits 516,918 376,131 Telephone rights 2,644 1,814 Membership 142,800 142,800 Rental deposits 1,586,142 1,562,877 Operation key money 50,000 50,000 ---------- ---------- W 2,575,130 2,358,062 ========== ==========
Operation key money represents money deposited in Korea Securities Financing Corporation as key money for managing the investment advisory business in conformity with the applicable Republic of Korea Securities Exchange Act. Such amount cannot be withdrawn until such time as the Company ceases its business. Operation key money bears interest at 10% per annum. DAEWOO CAPITAL MANAGEMENT CO., LTD. Notes to Financial Statements, Continued March 31, 1994 and 1993 (5) Transactions and Balances with Related Parties Transactions and balances with related companies as of and for the years ended March 31, 1994 and 1993 are as follows:
Won (thousands) --------------- 1994 1993 ------ ------ Daewoo Securities Co., Ltd. Rental deposits W 1,578,951 1,562,877 Accounts payable-rental expense 8,611 7,803 Rental expenses for the period 95,619 93,601 Daewoo Research Institute Accounts payable-professional fees 175,093 242,743 Professional fees for the period 494,784 603,940
(6) Income taxes The Company is subject to a number of taxes based upon earnings which result in a normal tax rate of approximately 21.50% for amounts up to W100,000 thousand and 36.55% for amounts over W100,000 thousand. A reconciliation between the provision for income taxes at normal tax rate and the actual provision for income taxes for the year ended March 31,1994 is as follows:
Won (thousands) Provision for income taxes at normal tax rate W 41,916 Timing differences: Retirement and severance benefits 24,568 Accrued income (30,927) Permanent differences: Entertainment 6,412 Other 538 ---------- Actual provision for income taxes W 42,507 ==========
Net deferred income tax benefits of W19,439 thousand at March 31, 1994 resulting from the temporary difference items are not reflected on the accompanying financial statements. INDEPENDENT AUDITORS' REPORT The Board of Directors Daewoo Capital Management Co., Ltd. We have audited the accompanying balance sheets of Daewoo Capital Management Co., Ltd. as of March 31, 1994 and 1993, and the related statements of earnings and retained earnings (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with United States generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Daewoo Capital Management Co., Ltd. at March 31, 1994 and 1993, and the results of its operations and its cash flows for the years then ended in conformity with United States generally accepted accounting principles. Seoul, Korea KPMG San Tong & Co. May 2, 1994 -----END PRIVACY-ENHANCED MESSAGE-----