-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T7WzvEdotF4MrJzuRAd1Tb8fUJ011wBFJdnU87ZqAsqew+I7Jt7umVeUD/PCjuF1 9BUgTUH/TCHyOX69KrULHQ== 0000748691-96-000002.txt : 19960306 0000748691-96-000002.hdr.sgml : 19960306 ACCESSION NUMBER: 0000748691-96-000002 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960305 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KOREA FUND INC CENTRAL INDEX KEY: 0000748691 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133226146 STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04058 FILM NUMBER: 96531204 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 N-30D 1 SEMIANNUAL REPORT - THE KOREA FUND, INC. THE KOREA FUND, INC. Semiannual Report December 31, 1995 A closed-end investment company seeking long-term appreciation of capital through investment in Korean securities. The Korea Fund, Inc. - -------------------- Investment objective and policies o long-term capital appreciation through investment in Korean securities Investment characteristics o investments in a broad spectrum of Korean industries o closed-end investment company o first United States investment company authorized to invest in Korean securities o a vehicle for international diversification through participation in the Korean economy General Information - ------------------- Executive offices The Korea Fund, Inc. 345 Park Avenue New York, NY 10154 Telephone: For Fund Information: 1-800-349-4281 Transfer agent, registrar and dividend reinvestment plan agent For account information: 1-800-426-5523 State Street Bank and Trust Company P.O. Box 8200 Boston, MA 02266-8200 Custodian Brown Brothers Harriman & Co. Subcustodian-Citibank, N.A.--Seoul office Legal counsel Debevoise & Plimpton Independent Accountants Coopers & Lybrand L.L.P. New York Stock Exchange Symbol--KF Contents - -------- In Brief 3 Letter to Shareholders 3 Other Information 6 Investment Summary 7 Portfolio Summary 8 Investment Performance 9 Investment Portfolio 11 Financial Statements 21 Financial Highlights 24 Notes to Financial Statements 25 Report of Independent Accountants 29 Tax Information 30 Shareholder Meeting Results 31 Dividend Reinvestment and Cash Purchase Plan 32 Investment Manager 34 Korean Adviser 34 Officers and Directors 35 Comparisons between changes in the Fund's net asset value per share and changes in the Korea Stock Exchange Index should be considered in light of the Fund's investment policy and objective, the characteristics and quality of the Fund's investments, the size of the Fund, and variations in the won/dollar exchange rate. This report is sent to the shareholders of The Korea Fund, Inc. for their information. It is not a prospectus, circular, or representation intended for use in the purchase or sale of shares of the Fund or of any securities mentioned in the report. 2 In Brief - -------- o Despite recent declines in the Korean stock market, The Korea Fund generated a positive total return of 2.70% for the six months ended December 31, 1995, the first half of its 1996 fiscal year. o The Fund added new investments in consumer- and infrastructure-related sectors as export-driven growth began to slow. o Taking advantage of the Fund's flexibility to invest in bonds, we invested up to the portfolio's 10% ceiling for bond investments as Korean interest rates declined to near all-time lows. Letter to Shareholders - ---------------------- Dear Shareholders: For the first half of the six-month fiscal period ended December 31, 1995, a number of positive factors combined to drive up prices of Korean stocks. For that period alone, The Korea Fund generated a total return (based on net asset value) of 12.65%. But revelations of corruption at the highest levels of government emerged during the period's final three months, taking a toll on the market. Despite receding stock prices, the Fund finished the period with a positive total return of 2.70%, reflecting an increase in net asset value (NAV) to $20.04 at the end of 1995 from $19.89 on June 30, and the reinvestment of $0.36 per share in capital gain distributions and $0.06 in income distributions. Meanwhile, your Fund, as listed on the New York Stock Exchange, remained among the few closed-end funds trading above NAV. On December 31, the Fund's market value was $22.00 -- a 9.8% premium above NAV. As with individual stocks, the Fund's stock-exchange-listed price is a barometer of market demand, which has remained consistently strong. Your Fund's six-month results surpassed that of the broader Korean stock market, which posted a total return of -1.28% for the same period, as measured by the Korean Stock Exchange Index. Meanwhile, the Korean won -- the movements of which tend to track those of the U.S. dollar -- remained essentially stable, ending the period 2.27% lower relative to the U.S. dollar. Investment Environment The hospitable conditions that characterized the investment landscape during the first half of the semiannual period were well grounded by several positive fundamental forces, including stable levels of inflation, falling interest rates, and an economy that remained on a healthy growth path. Brisk exports contributed to the escalating stock prices, as did aggressive corporate investments in facilities. By summer, however, the pace of capital investment had begun to taper off. Waning corporate demand for financing pushed the benchmark 3-year corporate bond rate to near-historic lows of around 12%. The slowing world economy, meanwhile, had begun to brake Korea's export-related growth. Companies that thrive on domestic infrastructure investment and consumption began moving to the fore. The market's upbeat mood all but vanished midway through the period. Headlines implicating former Korean presidents Roh and Chun in slush fund activities rendered the magnitude of political scandals impossible to ignore. The news halted the rise in stock prices across nearly all sectors with the exception of insurance, which had begun to turn the corner after a financially 3 difficult period. Though troubling, the investigation and arrest of the ex-presidents demonstrate the government's resolve to end such unsavory practices, paving the way for a structurally sounder marketplace. Government reforms, such as subjecting companies to fuller disclosure of their records, should help sever the traditional link between businesses and politicians. In short, Korea's capital markets stand to benefit as the country takes a democratic step forward. Also darkening investor sentiment was the economic situation in North Korea. Battered by catastrophic floods during the summer, North Korea watched its agricultural production plummet. But helping to temper the market's apprehension toward the deteriorating economy is the ongoing and increasing dialogue between North Korea and the United States. In addition, the likelihood that the United States will establish a liaison office in Pyongyang, the North Korean capital, is helping to curb any military threat. Meanwhile, the decline in value of the Japanese yen cast a shadow on the profitability of Korean export-oriented companies. In recent years, the yen's persistent strength afforded these companies a competitive upper hand. The now falling yen may mean Korean exports are less price competitive in the international marketplace. One positive: A weaker yen helps to ease the debt burden -- much of which is yen-denominated -- of Korean companies. Portfolio Strategy From a fundamental standpoint, the Fund's buy and hold framework remained unchanged during the six months. As always, our investment approach centers around a comprehensive research process designed to identify the best-managed Korean companies. We continued to focus on growing companies that we would favor under any market climate. The Fund's top 10 holdings, in fact, represent 53.1% of the portfolio. During the six-month period, withering capital investments in facilities accentuated our interest in companies that could benefit from declining interest rates. For instance, we added to existing holding Samsung Fire and Marine Insurance, which numbered among the handful of businesses that continued to produce gains amidst broad declines in the market. We also increased investments appreciably in bonds, up to the Fund's ceiling of 10%. This decision contributed positively to portfolio performance during the period. As the political scandal surfaced in September, we took advantage of opportunities created by falling stock prices to purchase solid companies selling below their true worth, in our estimation. For example, we acquired additional shares of Kumho Construction and LG Securities. We also selectively invested in the consumer sector, including such attractively-valued financial, chemical, and cosmetic stocks as Korea Exchange Bank, Hanwha, and Pacific Corp., respectively. Outlook The underpinnings vital to a healthy economy -- falling interest rates, stable inflation, and solid corporate earnings -- remain intact, though recent events are glaring reminders of the power wielded by investor sentiment. During 1995, Korea's GDP expanded at a respectable rate of more than 9%. Many Koreans tend to regard anything short of double-digit growth as recessionary, having become accustomed to the 12% and 13% annual growth rates typical during the past 20 years. Still, the economic growth of 7% to 7.5% we are anticipating for 1996 is decidedly strong relative to most other economies. Another reason for optimism: Recoveries taking shape around the globe should be helpful for Korean export growth, which has fallen from exceedingly high 4 levels. Exports remain the driving force of the Korean economy. Further, the likelihood is slim that interest rates will creep up, given the diminished demand for cash. Lower interest rates, of course, are good news for corporate bottom lines. Even more encouraging from a fundamental vantage point are government plans to open the Korean bond market this year to foreign investors - -- the first time in its history. (As you know, your Fund has participated in Korea's bond market since its launch in 1984. At that time, Scudder had procured special licenses directly from the Korean government to gain the privilege of investing in bonds.) This important market reform should foster greater stability as the influx of foreign money helps to check fluctuations in interest rates, which have varied by more than 20 percentage points during the past 10 years. While Korea today is no longer the emerging market it once was, the room for growth remains vast. Korea's stock market capitalization is only 50% of the country's GDP--lower than that of its Asian neighbors. And because its population is among the best educated in the world, Korea is particularly rich in human resources. Geographically, too, the country is well situated, located centrally in the midst of such economic powers as Japan, Russia, and China. In the four brief years since China and Korea commenced trading relations, China already has become Korea's third largest trading partner. At the moment, Korean stocks may face additional bouts of volatility until the vexing political distractions are fully laid to rest. The approaching elections in April could have positive near-term implications, should the government decide to step up measures to support the economy, although the eventual outcome of the elections is expected to have little impact on the capital markets. More heartening still, the Ministry of Finance and Economy has stated its intention to hasten efforts to relax limitations on foreign stock ownership further, shifting the supply/demand balance favorably toward Korean stocks. Against this backdrop, we will continue to concentrate on consumer-oriented companies and those that flourish from domestic infrastructure investments, while paring back investments in companies that fail to remain well positioned in Korea's evolving market environment. We are pleased that you have chosen to invest in The Korea Fund, Inc. and we welcome your questions or comments. Respectfully, /s/Nicholas Bratt /s/Juris Padegs Nicholas Bratt Juris Padegs President Chairman of the Board 5 Other Information - ----------------- A Team Approach to Investing The Korea Fund, Inc. is managed by a team of Scudder investment professionals who each play an important role in the Fund's management process. Team members work together to develop investment strategies and select securities for the Fund. They are supported by Scudder's large staff of economists, research analysts, traders, and other investment specialists who work in Scudder's offices across the United States and abroad. We believe our team approach benefits Fund investors by bringing together many disciplines and leveraging Scudder's extensive resources. Lead Portfolio Manager John J. Lee has set Fund investment strategy and overseen its daily operation since 1991, the year he joined Scudder's global equity area. Nicholas Bratt, Portfolio Manager, has been a member of the Portfolio team since 1984 and has over 20 years of experience in worldwide investing. Mr. Bratt, who has been at Scudder since 1976, is the Director of Scudder's Global Equity Department. Dividend Reinvestment and Cash Purchase Plan The Fund's Dividend Reinvestment and Cash Purchase Plan offers you a convenient way to have your dividends and capital gain distributions reinvested in shares of the Fund. We believe this Plan is attractive for shareholders. Its features are more fully described on page 32. Annual Meeting Election Results At the October 11, 1995 Annual Meeting, the shareholders elected three directors, including Hugh T. Patrick, who replaced Sidney M. Robbins, and the selection of Coopers & Lybrand L.L.P. as the Fund's independent accountants for the fiscal year ending June 30, 1996, was ratified. Shareholders also approved the continuance of the Investment Advisory, Management and Administration Agreement between the Fund and Scudder, Stevens & Clark, Inc. and the continuance of the Research and Advisory Agreement between Scudder, Stevens & Clark, Inc. and Daewoo Capital Management Co., Ltd. Please see the table entitled "Shareholder Meeting Results" on page 31 for more information. Mr. Robbins, who chose not to stand for reelection, was elected by the Board as Emeritus Founding Director. Net Asset Value The Fund's NAV is published every Monday in The Wall Street Journal under the heading "Closed End Funds." The Fund's NAV is also published in The New York Times and Barron's. As a service to overseas shareholders, the Fund's NAV is listed daily in The Financial Times ("FT"). For your information, the NAV of the Fund and other Scudder closed-end funds can be found in the "FT Managed Funds Service" section under the heading "Other Offshore Funds" below the Scudder, Stevens & Clark, Inc. banner. 6 THE KOREA FUND, INC. INVESTMENT SUMMARY AS OF DECEMBER 31, 1995 - ----------------------------------------------------------------- HISTORICAL INFORMATION TOTAL RETURN (%) LIFE OF FUND --------------------------------------------------------------- MARKET VALUE NET ASSET VALUE (a) INDEX (c) ------------------- -------------------- ------------------- AVERAGE AVERAGE AVERAGE CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL ------------------- -------------------- ------------------- CURRENT QUARTER -.02 -- -8.83 -- -10.15 -- FISCAL YEAR TO DATE 14.27 -- 2.70 -- -1.28 -- ONE YEAR 3.89 3.89 4.26 4.26 -14.06 -14.06 THREE YEAR 69.91 19.33 104.03 26.83 30.14 9.18 FIVE YEAR 100.10 14.88 105.26 15.47 26.84 4.87 TEN YEAR 529.18 20.19 652.92 22.37 440.45 18.38 - ----------------------------------------------------------------- PER SHARE INFORMATION AND RETURNS (a) YEARLY PERIODS ENDED DECEMBER 31 A chart in the form of a bar graph appears here, illustrating the Fund Total Return (%) with the exact data points listed in the table below. 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 -------------------------------------------------------------------------------- NET ASSET VALUE(b).. $ 8.16 $11.28 $15.93 $18.55 $11.10 $10.55 $10.62 $16.64 $20.65 $20.04 INCOME DIVIDENDS.... $ .11 $ .29 $ .11 $ .08 $ -- $ .06 $ .04 $ .01 $ -- $ .06 CAPITAL GAINS DISTRIBUTIONS....... $ .03 $ .68 $ 1.74 $ 1.88 $ 2.20 $ .34 $ .20 $ -- $ .15 $ .36 TOTAL RETURN (%).... 85.05 44.48 55.97 22.79 -28.36 -2.05 2.71 56.77 24.84 4.26
(a) Total investment returns reflect changes in net asset value per share during each period and assumes that dividends and capital gains distributions, if any, were reinvested. These percentages are not an indication of the performance of a shareholder's investment in the Fund based on market. (b) Net asset value per share through 1988 has been adjusted for a 200% stock dividend paid in October 1988. (c) Korea Stock Price Index ("KOSPI") PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE OF THE FUND. 7 THE KOREA FUND, INC. PORTFOLIO SUMMARY AS OF DECEMBER 31, 1995 - --------------------------------------------------------------------------- DIVERSIFICATION Common Stocks 85% Preferred Stocks 5% Convertible Bonds 4% Notes 3% Corporate Bonds 2% Cash Equivalents 1% ---- 100% ==== A graph in the form of a pie chart appears here, illustrating the exact data points in the above table. - --------------------------------------------------------------------------- SECTORS Sector breakdown of the Fund's equity securities Technology 23% Communications 16% Financial 15% Durables 8% Construction 7% Consumer Staples 7% Manufacturing 6% Consumer Discretionary 5% Health 3% Other 10% ---- 100% ==== A graph in the form of a pie chart appears here, illustrating the exact data points in the above table. - --------------------------------------------------------------------------- TEN LARGEST EQUITY HOLDINGS 1. SAMSUNG ELECTRONICS CO., LTD. Major electronics manufacturer 2. KOREA MOBILE TELECOM Mobile telecommunication company 3. SAMSUNG FIRE & MARINE INSURANCE CO. Insurance company 4. HYUNDAI MOTOR SERVICES CO., LTD. Auto parts and services 5. KOREA LONG TERM CREDIT BANK Major commercial bank 6. SAMSUNG DISPLAY DEVICES Leading manufacturer of CRT and picture tubes 7. KEUM KANG CO., LTD. Construction company and manufacturer of building materials 8. CHEIL FOOD AND CHEMICAL CO., LTD. Korea's largest sugar refiner and major integrated food processor 9. HANSOL PAPER MANUFACTURING CO., LTD. Korea's largest paper manufacturer 10. HANKOOK TIRE MANUFACTURING CO., LTD. Major tire manufacturer 8 The Korea Fund, Inc. Investment Performance - ----------------------- CHART TYPE: LINE CHART CHART TITLE: KOREA FUND INVESTMENT PERFORMANCE History (in terms of N.Y.S.E. Value) of a $10,000 Investment in Fund Shares vs. the S&P 500 Index* CHART DATA:
Change In Share Value Of Initial Investment With Change In Share Value Of Total Return Capital Gains Distribution Reinvested Initial Investment S&P 500 Total Return - ------------------------------------------------------------------------------------------------------------------------------------ 10942 10942 10942 10000 11983 11983 11983 9972 11875 11875 11875 10159 11458 11458 11458 11095 12292 12292 12292 11906 11787 11250 11250 11422 15393 14692 14692 13395 20632 19692 19692 15286 29440 27817 27817 16186 32537 30709 30625 15054 30103 28411 28333 15905 56221 53061 52917 19304 62087 58597 58438 20265 67523 63039 62396 21689 51016 47628 45938 16801 73921 69011 66563 17755 65476 61127 58958 18925 59075 54750 50000 18993 80516 74621 65625 19608 108121 100205 88125 21000 97003 89900 79063 22837 133542 123540 105000 25283 111177 102850 85938 25801 73983 68442 57188 25017 71557 66198 55313 26571 44506 41173 30625 22930 48402 44777 31250 24976 56630 52389 36563 28611 54694 50598 35313 28520 57251 52736 36250 30052 50380 46407 31563 32576 47387 43650 29688 31761 45392 41813 28438 32345 49876 45787 30625 33368 57001 52328 35000 35054 52421 48123 32188 36585 61073 56066 37500 36763 59037 54197 36250 37711 97766 89706 60000 38587 78417 71951 48125 37122 89619 82230 55000 37277 107003 98181 65313 39097 93227 85541 56875 39091 87592 80371 53438 42897 84754 73790 49063 46995 96871 84340 55313 50730 96850 84082 55000 53785
9 The Korea Fund, Inc. Investment Performance - ---------------------- CHART TYPE: LINE CHART CHART TITLE: KOREA FUND INVESTMENT PERFORMANCE History (in terms of Net Asset Value) of a $10,000 Investment in Fund Shares* CHART DATA:
Change In Share Value Of Initial Investment With Capital Gains Change In Share Value Of Total Return Distribution Reinvested Initial Investment - ------------------------------------------------------------------------------------------------------------------------------------ 10000 10000 10000 10072 10072 10072 10269 10269 10269 10197 10197 10197 10305 10305 10305 10083 9624 9624 12599 12025 12025 16796 16030 16030 21224 20054 20054 23020 21726 21667 23315 22004 21944 31873 30082 30000 31788 30001 29919 31515 29422 29122 33685 31447 30332 38620 36055 34776 41695 38926 37545 40580 37609 34346 52539 48693 42823 62236 57679 50726 55541 51474 45269 65403 60505 51425 64511 59679 49866 60372 55851 46667 50252 46489 38844 42973 39754 29570 46216 42755 29839 45050 41676 29086 42760 39558 27608 45385 41806 28737 45269 41699 28360 54323 50039 34032 46127 42489 28898 42992 39467 26398 46494 42683 28548 46844 43004 28763 49909 45817 30645 50128 46018 30780 72887 66877 44731 74814 68646 45914 81735 74996 50161 94468 86679 57661 90991 83489 55511 91123 83610 55591 92364 80416 53468 104044 90585 59409 94862 82356 53871 The data set forth above should not be construed as an indication of the record of a shareholder's investment in the Fund based on market prices; nor should it be construed as a representation of the future performance of the Fund's net asset value. * The Korea Fund, Inc. performance charts make the following key assumptions: 1. The data have been adjusted to reflect a 200% stock dividend paid in October 1988. 2. Investment income and capital gains reinvested at the greater of the following on the valuation date: (a) Net asset value per share or (b) 95% of the mean market price per share. 3. No adjustments have been made for U.S. income taxes. Korean taxes are reflected. 4. Initial $10,000 investment was made at initial public offering price and at initial net asset value price. The Standard & Poor's 500 Stock Index is a widely followed, unmanaged index of 500 industrial, transportation, utility and financial companies widely regarded as representative of the equity market in general.
10 The Korea Fund, Inc. Investment Portfolio as of December 31, 1995 ================================================================================
Principal Market Amount (e) Value ($) - -------------------------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT 0.5% U.S.$ 3,309,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 12/29/95 at 5.85%, to be repurchased at $3,311,151 on 1/2/96, collateralized by a $3,277,000 U.S. Treasury Note, 7.625%, 4/30/96 (Cost $3,309,000) ................................... 3,309,000 ------------ - -------------------------------------------------------------------------------------------------------------------------- NOTES 3.4% 19,750,000,000 Korea Development Bank, 10.17%, 1/26/96 (Cost $25,430,126) .................................. 25,322,022 ------------ - -------------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS 1.8% METALS & MINERALS 10,000,000,000 Korea Tungsten Exchange Bond, Zero Coupon with 36.03% bonus interest at maturity, 11/11/98 (Cost $13,174,366) (c)............................... 13,050,960 ------------ - -------------------------------------------------------------------------------------------------------------------------- CONVERTIBLE BONDS 4.3% CONSUMER DISCRETIONARY 0.4% Apparel & Shoes 1,000,000,000 Shinwon, 6%, 12/31/96 (Major apparel manufacturer) (c).................................... 2,376,732 ------------ CONSUMER STAPLES 1.5% Alcohol & Tobacco 0.5% 3,000,000,000 Jinro Ltd., 2% with 14.85% bonus interest at maturity, 9/30/98 (Leading producer of Soju, a distilled spirit) (c).............................. 3,722,463 ------------ Food & Beverage 0.4% 800,000,000 Crown Confectionery Co., 3% with 16.28% bonus interest at maturity, 12/31/97 (Major producer of snacks) (c)....................................... 1,009,205 2,000,000,000 Haitai Confectionery Co., 1% with 13.13% bonus interest at maturity, 6/30/98 (Major producer of snacks) (c).............................. 2,236,822 ------------ 3,246,027 ------------ Textiles 0.6% U.S.$ 2,000,000 Kolon Industries, Inc., 0.25%, 12/31/04 (Leading manufacturer of nylon, polyester yarn and fabrics)... 1,030,000 2,400,000,000 Kukje Corp., 12% with 4.62% bonus interest at maturity, 12/31/97 (Shoe manufacturer) (c)........... 3,211,352 ------------ 4,241,352 ------------
The accompanying notes are an integral part of the financial statements. 11 The Korea Fund, Inc. Investment Portfolio (continued) ================================================================================
Principal Market Amount (e) Value ($) - -------------------------------------------------------------------------------------------------------------------------- HEALTH 0.5% Pharmaceuticals 3,000,000,000 Korean Green Cross Corp., 1% with 11.88% bonus interest at maturity, 12/31/97 (Pharmaceutical company) (c)......................... 3,532,852 400,000,000 Yuhan Corporation, 5.5% with 25.41% bonus interest at maturity, 12/31/97 (Pharmaceutical company) (c)......................... 563,997 ------------ 4,096,849 ------------ MANUFACTURING 0.6% Containers & Paper 4,000,000,000 Hansol Paper Manufacturing Co., Ltd., 3% with 28.24% bonus interest at maturity, 12/31/99 (Korea's largest paper manufacturer) (c)............. 4,680,556 ------------ TECHNOLOGY 0.0% Electronic Components/ Distributors CHF 500,000 Samsung Electromechanics Co., Ltd., 0.25%, 12/31/00 (Major electronics parts company).................... 268,945 ------------ ENERGY 0.8% Oil & Gas Production 3,000,000,000 Yukong, Ltd., 1% with 13.92% bonus interest at maturity, 12/31/98 (Korea's largest oil refiner)(c).. 3,233,041 2,000,000,000 Yukong, Ltd., 2% with 8.15% bonus interest at maturity, 12/31/97 (c)............................... 2,312,105 ------------ 5,545,146 ------------ METALS & MINERALS 0.3% Steel & Metals 1,000,000,000 Kangwon Industry, 6% with 19.52% bonus interest at maturity, 6/30/97 (Steel company) (c)............. 1,431,552 500,000,000 Sammi Steel, 4% with 20.57% bonus interest at maturity, 12/31/97 (Specialty steel company) (c).. 663,732 ------------ 2,095,284 ------------ CONSTRUCTION 0.2% Miscellaneous 1,000,000,000 Sungwon Construction, 5% with 21.11% bonus interest at maturity, 12/31/97 (Construction company) (c)........................... 1,354,850 ------------ TOTAL CONVERTIBLE BONDS (Cost $34,794,673) 31,628,204 ------------ - --------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS 4.5% Shares ------ CONSUMER DISCRETIONARY 0.0% Apparel & Shoes 4,000 Baik Yang Co. (Leading maker of under garments)........ 256,268 ------------
The accompanying notes are an integral part of the financial statements. 12 ================================================================================
Market Shares Value ($) - -------------------------------------------------------------------------------------------------------------------------- CONSUMER STAPLES 0.7% Alcohol & Tobacco 0.1% 46,165 Oriental Brewery Co., Ltd. (Korea's largest brewery)... 404,669 ------------ Food & Beverage 0.4% 73,690 Cheil Food and Chemical Co., Ltd. (Korea's largest sugar refiner and major integrated food processor)... 2,574,282 52,280 Haitai Confectionery Co................................ 370,661 ------------ 2,944,943 ------------ Package Goods Cosmetics 0.1% 85,000 Pacific Corp. (Leading cosmetics producer).............. 932,452 ------------ Textiles 0.1% 72,990 Sunkyong Industries, Ltd. (Leading producer of acetate filament yarn, polyester yarns and fabrics)........... 1,063,212 ------------ HEALTH 0.0% Pharmaceuticals 10,000 Shinpoong Pharmaceutical Co. (Specialized drug producer)............................................. 224,299 ------------ FINANCIAL 1.2% Insurance 0.3% 6,175 Samsung Fire & Marine Insurance Co. (Insurance company) (d).......................................... 2,429,404 ------------ Other Financial Companies 0.9% 100,000 Boo Kook Securities (Securities company)............... 904,931 100,000 Boram Securities (Securities company).................. 966,806 244,900 L G Securities Co., Ltd. (Securities company).......... 2,683,403 71,000 Shin Young Securities (Securities company)............. 832,871 72,000 Ssangyong Investment and Securities (Securities company)................................. 756,429 ------------ 6,144,440 ------------ SERVICE INDUSTRIES 0.2% Miscellaneous Commercial Services 90,000 Sunkyong Ltd. (Leading trading company)................ 1,090,558 ------------ DURABLES 0.6% Automobiles 0.3% 106,358 Hyundai Motor Services Co., Ltd. (Auto parts and service)............................................. 2,426,731 ------------ Tires 0.3% 388,000 Korea Kumho Co. (Korea's largest tire manufacturer).... 2,250,725 ------------ MANUFACTURING 0.2% Chemicals 50,000 LG Chemicals, Ltd. (Leading producer of petrochemicals and household products)............... 585,885 69,375 Oriental Chemical Industries Co., Ltd. (Manufacturer of specialty chemicals)................................. 1,117,870 ------------ 1,703,755 ------------
The accompanying notes are an integral part of the financial statements. 13 The Korea Fund, Inc. Investment Portfolio (continued) ================================================================================
Market Shares Value ($) - -------------------------------------------------------------------------------------------------------------------------- TECHNOLOGY 0.7% Electronic Components/ Distributors 8,198 Samsung Display Devices (Leading manufacturer of CRT and picture tubes)............................... 450,190 823 Samsung Display Devices (New) (b)...................... 45,513 30,920 Samsung Electronics Co., Ltd. (Major electronics manufacturer) (d).................................... 3,658,983 6,119 Samsung Electronics Co., Ltd. (New) (b) (d)............ 711,232 ------------ 4,865,918 ------------ ENERGY 0.0% Oil Companies 1,174 Ssangyong Oil Refining Co. (Major oil refiner) (c)..... 18,631 ------------ METALS & MINERALS 0.1% Steel & Metals 53,950 Kangwon Industry....................................... 493,774 108,080 Sammi Steel Co. (Specialty steel producer)............. 564,259 ------------ 1,058,033 ------------ CONSTRUCTION 0.7% Building Materials 0.2% 9,130 Sung Shin Cement Co., Ltd. (Major cement company)...... 153,000 63,500 Tong Yang Cement Co., Ltd. (Major cement company)...... 1,023,203 ------------ 1,176,203 ------------ Miscellaneous 0.5% 95,000 Hyundai Engineering & Construction Co. (Leading general contractor).................................. 2,596,197 145,540 Kumho Construction and Engineering (Engineering and construction company)................................ 1,082,521 ------------ 3,678,718 ------------ TRANSPORTATION 0.1% Airlines 40,520 Korean Airlines Co., Ltd. (Airline).................... 767,830 ------------ TOTAL PREFERRED STOCKS (Cost $35,219,650).............. 33,436,789 ------------ - -------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS 85.5% Consumer Discretionary 4.0% Apparel & Shoes 0.4% 10,000 Baik Yang Co........................................... 1,289,075 30,000 Ssang Bang Wool Co. (Leading underwear manufacturer)... 1,550,757 ------------ 2,839,832 ------------ Department & Chain Stores 3.6% 165,730 Hwa Sung Industries (Department store)................. 6,024,603 81,604 Hwa Sung Industries (New) (b).......................... 2,735,036
The accompanying notes are an integral part of the financial statements. 14 ================================================================================
Market Shares Value ($) - -------------------------------------------------------------------------------------------------------------------------- 9,436 Keum Kang Development Industries Co., Ltd. (New) (Operator of department stores and hotels) (b)....... 159,345 114,577 Shinsegae (Major department store chain).............. 9,570,854 34,753 Shinsegae (New) (b).................................... 2,867,151 162,860 Taegu Department Store (Department store)............ 3,715,916 55,640 Taegu Department Store (New)........................... 1,276,690 ------------ 26,349,595 ------------ CONSUMER STAPLES 4.3% Alcohol & Tobacco 0.4% 19,000 Jinro, Ltd............................................. 440,864 3,486 Jinro, Ltd. (New) (c).................................. 74,813 120,740 Oriental Brewery Co., Ltd.............................. 2,723,753 ------------ 3,239,430 ------------ Food & Beverage 2.8% 198,413 Cheil Food and Chemical Co., Ltd...................... 13,606,924 39,900 Haitai Confectionery Co............................... 494,282 32,271 Nhong Shim Co......................................... 998,394 48,000 Pulmuone Co. (New) (Food producer).................... 2,165,646 118,658 Tongyang Confectionery (Major producer of snacks)..... 3,059,181 ------------ 20,324,427 ------------ Textiles 1.1% 31,895 Cheil Industries (New) (Korea's largest woolen yarn and fabric manufacturer) (b)......................... 735,959 79,739 Cheil Industries....................................... 1,860,491 9,390 Daehan Synthetic Fiber (Manufacturer of polyester yarns and synthetic fibers)................................ 1,149,919 33,500 Hankook Synthetics (Textile manufacturer).............. 2,202,385 3,040 Taekwang Industrial Co., Ltd. (Major producer of acrylic fiber)....................................... 1,990,744 16,500 Tongyang Nylon (Korea's largest producer of nylon filament yarn)....................................... 570,029 ------------ 8,509,527 ------------ HEALTH 2.0% Pharmaceuticals 72,632 Chong Kun Dang Co., Ltd. (Pharmaceutical company)...... 3,089,712 30,940 Daewoong Pharmaceutical Co. (Pharmaceutical company)............................................. 1,515,591 3,200 Daewoong Pharmaceutical Co. (New) (b).................. 148,501 4,840 Daewoong Pharmaceutical Co. (New) (b).................. 218,369 10,000 Korea Green Cross Corp................................. 1,054,463 138,121 Yuhan Corporation...................................... 8,101,199 16,065 Yuhan Corporation (New) (c)............................ 866,671 ------------ 14,994,506 ------------
The accompanying notes are an integral part of the financial statements. 15 The Korea Fund, Inc. Investment Portfolio (continued) ================================================================================
Market Shares Value ($) - ----------------------------------------------------------------------------------------------------- COMMUNICATIONS 15.4% Cellular Telephone 100,702 Korea Mobile Telecom (Mobile telecommunication company) (d) ..................................... 113,520,978 ----------- FINANCIAL 13.2% Banks 5.2% 240,028 Cheju Bank (Regional bank) ......................... 3,341,672 3,381 Daegu Bank (New) (Regional bank) ................... 47,942 242,929 Hanil Bank (Major commercial bank) ................. 2,592,913 103,170 Kookmin Bank (Major commercial bank) ............... 1,901,812 28,365 Kookmin Bank (New) ................................. 504,592 160,000 Korea Exchange Bank (Major commercial bank) ........ 1,784,080 268,454 Korea Exchange Bank (New) (b) ...................... 2,941,488 43,900 Korea First Bank (Major commercial bank) ........... 390,474 667,902 Korea Long Term Credit Bank (Major commercial bank) ................................. 18,855,371 253,180 Shin Han Bank (Major commercial bank) .............. 4,960,794 44,435 Shin Han Bank (New) (b) ............................ 842,017 ---------- 38,163,155 ---------- Insurance 6.6% 85,376 Daehan Fire & Marine Insurance Co., Ltd. (Insurance company) .............................. 3,543,806 44,656 Hyundai Fire and Marine Insurance (Insurance company) ......................................... 2,613,448 49,912 L G Insurance (Insurance company) .................. 5,018,549 68,967 Samsung Fire & Marine Insurance Co. (d) ............ 37,308,413 ---------- 48,484,216 ---------- Other Financial Companies 1.4% 19,989 Boo Kook Securities ................................ 255,096 87,191 Hanyang Securities (Securities company) ............ 1,045,280 1,224 Hyundai Securities (Securities company) ............ 21,301 100,763 L G Securities Co., Ltd. ........................... 1,792,497 123,010 Samsung Securities (Securities company) ............ 4,138,654 172,384 Ssangyong Investments and Securities ............... 3,111,023 ---------- 10,363,851 ---------- SERVICE INDUSTRIES 1.9% Miscellaneous Commercial Services 250,042 Samsung Co., Ltd. (Trading company) ................ 6,704,317 100,195 Samsung Co., Ltd. (New) (b) ........................ 2,609,009 156,060 Sunkyong Ltd. ...................................... 3,721,702 39,918 Sunkyong Ltd. (New) ................................ 915,940 ---------- 13,950,968 ----------
The accompanying notes are an integral part of the financial statements. 16 ================================================================================
Market Shares Value ($) - ----------------------------------------------------------------------------------------------------- DURABLES 7.0% Automobiles 4.8% 116,209 Hyundai Motor Co., Ltd. (Korea's largest auto manufacturer) ................................... 5,258,055 423,380 Hyundai Motor Services Co., Ltd. .................. 18,501,556 113,341 Mando Machinery Co. (Major auto parts manufacturer) 5,727,320 35,000 Samlip Industries (Auto parts manufacturer) (c) ... 1,579,117 90,000 Yoosung Enterprise (Leading manufacturer of engine parts) ................................... 4,350,628 ---------- 35,416,676 ---------- Leasing Companies 0.3% 93,000 Korea Development Leasing Co. (Largest leasing company in Korea) ....................... 2,385,691 ---------- Telecommunications Equipment 0.1% 4,610 LG Information & Communication (New) (Leading manufacturer of telecommunications equipment) ... 421,927 ---------- Tires 1.8% 194,916 Hankook Tire Manufacturing Co., Ltd. (Major tire manufacturer) ................................... 11,558,024 36,495 Hankook Tire Manufacturing Co., Ltd. (New) (c) .... 1,981,950 ---------- 13,539,974 ---------- MANUFACTURING 5.1% Chemicals 2.1% 15,000 Daeil Chemical Co. (Manufacturer of bandages and other medical products) ......................... 1,111,827 55,000 Hanwha Co. (Producer of explosives and petrochemicals) .... ............................ 921,689 37,540 Korea Chemical Co. (Paint company) . .............. 3,774,567 150,000 Korea Kumho Petrochemical (Leading producer of synthetic rubber) ............................... 1,759,588 117,000 Korea Kumho Petrochemical Co. (Leading producer of synthetic rubber) ............................... 1,063,294 271,853 L G Chemical (Korea's largest integrated chemical company) ............................... 5,186,496 47,400 Oriental Chemical Industries Co., Ltd. . .......... 1,435,901 2,647 Oriental Chemical Industries Co., Ltd. (New) (b) .. 80,186 ---------- 15,333,548 ---------- Containers & Paper 1.4% 50,000 Asia Paper Manufacturing Co. (Specialized maker of cardboard used for packaging) (c) ...... 1,366,420 210,712 Hansol Paper Manufacturing Co., Ltd. .............. 8,067,221 30,977 Hansol Paper Manufacturing Co., Ltd. (New) (c) .... 1,078,814 ---------- 10,512,455 ----------
The accompanying notes are an integral part of the financial statements. 17 The Korea Fund, Inc. Investment Portfolio (continued) ================================================================================
Market Shares Value ($) - ----------------------------------------------------------------------------------------------------- Diversified Manufacturing 0.9% 23,256 Hyundai Precision Industry Co. (Leading transport container manufacturer and machinery producer) .. 458,675 200,239 Samsung Heavy Industries Co., Ltd. (Machinery manufacturer) ................................... 5,136,650 30,070 Samsung Heavy Industries Co., Ltd. (New) (b) ...... 759,745 ----------- 6,355,070 ----------- Electrical Products 0.5% 114,086 Kyungwon Century Co., Ltd. (Major manufacturer of heating and cooling equipment) .. 3,911,940 ----------- Industrial Specialty 0.2% 17,890 Sam Sung Radiator Industrial Co. (Maker of radiators used in automobiles, agricultural machinery and heavy-duty vehicles) . 1,404,449 ----------- TECHNOLOGY 20.4% Electronic Components/ Distributors 20.1% 62,000 L G Electronics, Inc. (Major electronics manufacturer) ................ 2,157,912 109,643 L G Electronics, Inc. (GDR) ....................... 1,288,305 6,394 L G Electronics, Inc. (GDR) (New) ................. 102,304 137,767 Samsung Display Devices (b) ....................... 12,165,053 53,095 Samsung Display Devices (New) (b) ................. 4,517,267 167,073 Samsung Electromechanics Co., Ltd. ................ 8,399,416 65,331 Samsung Electromechanics Co., Ltd. (New) (b) ...... 3,242,338 523,910 Samsung Electronics Co., Ltd. (b) (d) ............. 96,177,941 103,682 Samsung Electronics Co., Ltd. (New) (b) (d) ....... 18,898,659 8,243 Samsung Electronics Co., Ltd. (New) (b) (d) ....... 1,507,861 ----------- 148,457,056 ----------- Electronic Data Processing 0.3% 70,000 Trigem Computer Inc. (Major personal computer manufacturer) ................................... 2,174,670 ----------- ENERGY 1.6% Oil & Gas Production 24,940 Samchully (Producer and distributor of anthracite and gas) ............................. 1,787,514 131,757 Ssangyong Oil Refining Co. ........................ 3,736,583 160,499 Yukong, Ltd. ...................................... 5,544,795 19,232 Yukong, Ltd. (New) (b) ............................ 661,933 ----------- 11,730,825 ----------- METALS & MINERALS 1.9% Steel & Metals 1,641 Hankook Core Co. (Steel company) .................. 25,384 165,000 Inchon Iron & Steel (Steel company) ............... 6,253,303 254,428 Kia Steel Co., Ltd. (Specialty steel company) ..... 1,967,861
The accompanying notes are an integral part of the financial statements. 18 ================================================================================
Market Shares Value ($) - --------------------------------------------------------------------------------------------------------- 76,481 Kia Steel Co., Ltd. (New) (b) ...................... 581,680 68,200 Pohang Iron & Steel Co., Ltd. (Korea's largest steel producer) (d) ............. 4,947,588 72,463 Sammi Steel Co. .................................... 571,671 ----------- 14,347,487 ----------- CONSTRUCTION 5.7% Building Materials 3.8% 10,000 Asia Cement Manufacturing Co. (Major producer of cement) .............................. 430,551 24,000 Hanil Cement Manufacturer (Cement manufacturing company) ......................................... 1,392,201 224,337 Keum Kang Co., Ltd. (Construction company and manufacturer of building materials) .............. 16,743,941 216,207 Ssangyong Cement Industrial Co., Ltd. (Major cement company) ......................................... 6,047,943 63,000 Sung Shin Cement Co., Ltd. (Major cement company) .. 2,273,928 44,000 Tong Yang Cement Co., Ltd. ......................... 1,361,263 200 Tong Yang Cement Co., Ltd. Warrants (expire 8/18/96) (f) ............................. 45,000 ----------- 28,294,827 ----------- Miscellaneous 1.9% 11,605 Dong Ah Construction Industries Co., Ltd. (New) (Leading construction company) (c) .............. 370,215 38,510 Han Shin Construction (Construction company) ....... 259,133 132,000 Hyundai Engineering & Construction Co. ............. 6,057,622 13,287 Hyundai Engineering & Construction Co. (New) ....... 599,478 201,270 Kumho Construction and Engineering ................. 2,366,204 95,220 Samsung Engineering & Construction Co. (Engineering and construction company) ........................ 2,454,915 81,401 Samsung Engineering & Construction Co. (New) (b) ... 2,056,667 370 Sungwon Construction ............................... 7,441 864 Sungwon Construction (New) (b) ..................... 17,152 240 Sungwon Construction (New) (b) (c) ................. 4,460 ----------- 14,193,287 ----------- TRANSPORTATION 1.3% Airlines 0.3% 62,686 Korean Airlines Co., Ltd. .......................... 2,197,949 ----------- Marine Transportation 0.6% 73,000 Hyundai Merchant & Marine Co. (New) (Transportation company) ......................................... 2,183,178 82,526 Korea Line Corp. (Maritime transportation company) ......................................... 1,819,136 ----------- 4,002,314 -----------
The accompanying notes are an integral part of the financial statements. 19 The Korea Fund, Inc. Investment Portfolio (continued) ================================================================================
Market Shares Value ($) - --------------------------------------------------------------------------------------------------------- Trucking 0.4% 62,810 Korea Express Co., Ltd. (General freight transport company) .......................................... 2,202,297 26,346 Korea Express Co., Ltd. (New) (b) ................... 916,973 ----------- 3,119,270 ----------- UTILITIES 1.7% Electric Utilities 1.3% 180,900 Korea Electric Power Corp. (Electric utility) .......................................... 7,182,365 91,000 Korea Electric Power Corp. (ADR) (New) .............. 2,411,500 ----------- 9,593,865 ----------- Natural Gas Distribution 0.4% 37,600 Daesung Industrial (Natural gas distributor) ....... 2,762,746 ----------- TOTAL COMMON STOCKS (Cost $290,519,334) ............. 630,896,511 ----------- - --------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT PORTFOLIO -- 100.0% (Cost $402,447,149) (a) ........................... 737,643,486 ===========
(a) The cost for federal income tax purposes was $402,492,473. At December 31, 1995, net unrealized appreciation for all securities based on tax cost was $335,151,013. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of market value over tax cost of $370,309,199 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over market value of $35,158,186. (b) New shares issued during 1995, eligible for a pro rata share of 1995 dividends (Note A). (c) Securities valued in good faith by the Valuation Committee of the Board of Directors. The cost of these securities at December 31, 1995 was $52,016,832 (Note A). (d) Equity securities that have met the foreign-ownership limitation valued at a premium in good faith by the Valuation Committee of the Board of Directors. The cost of these securities at December 31, 1995 was $22,876,422 (Note A). (e) Principal amount stated in Korean won unless otherwise noted. CHF Swiss Francs. (f) Non-income producing. The accompanying notes are an integral part of the financial statements. 20 The Korea Fund, Inc. Financial Statements ================================================================================ STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1995 - --------------------------------------------------------------------------------
ASSETS Investments, at market (identified cost $402,447,149) (Note A)............ $ 737,643,486 Cash: U.S. dollars............................................................ 432 Won at market (identified cost $14,196,738) (Note A).................... 14,139,683 Dividends and interest receivable......................................... 950,871 Other assets.............................................................. 3,747 ------------- Total assets........................................................ 752,738,219 LIABILITIES Payables: Subscription rights purchased (Note A)............... $ 1,692,257 Distributions........................................ 4,269,682 Withholding taxes.................................... 1,583,067 Accrued management fee (Note C)...................... 640,493 Other accrued expenses (Note C)...................... 541,763 ----------- Total liabilities......................................... 8,727,262 ------------- Net assets, at market value............................................... $ 744,010,957 ============= NET ASSETS Net assets consist of: Accumulated distributions in excess of net investment income........... $ (3,028,676) Net unrealized appreciation (depreciation) on: Investments.......................................................... 335,196,337 Won.................................................................. (57,055) Won related transactions............................................. 29,662 Accumulated net realized gain.......................................... 6,401,728 Common stock........................................................... 371,277 Additional paid-in capital............................................. 405,097,684 ------------- Net assets, at market value............................................... $ 744,010,957 ============= Net asset value per share ($744,010,957 / 37,127,672 shares of common stock issued and outstanding, 50,000,000 shares authorized, $.01 par value)..................... $20.04 =============
The accompanying notes are an integral part of the financial statements. 21 The Korea Fund, Inc. Financial Statements (continued) ================================================================================ - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1995 - --------------------------------------------------------------------------------
INVESTMENT INCOME Income: Interest (net of withholding taxes of $287,951) (Note A)... $ 4,114,559 Expenses: Management fee (Note C) ................................... $ 3,809,107 Custodian and accounting fees (Note C) .................... 767,930 Directors' fees and expenses (Note C) ..................... 69,273 Legal ..................................................... 52,602 Auditing .................................................. 42,350 Reports to shareholders ................................... 76,148 Services to shareholders .................................. 44,473 Other ..................................................... 53,692 4,915,575 ------------ ------------ Net investment loss ............................................... (801,016) ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized gain (loss) during the period on: Investments ............................................... 9,465,911 Won related transactions .................................. (885,790) 8,580,121 ============ Net unrealized appreciation (depreciation) during the period on: Investments ............................................... 12,910,222 Won ....................................................... (98,785) Won related transactions .................................. 7,842 12,819,279 ============ ============ Net gain on investment transactions ............................... 21,399,400 ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................... $ 20,598,384 ============
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- 22 ================================================================================ - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------- Six Months Year Ended Ended December 31, June 30, INCREASE (DECREASE) IN NET ASSETS 1995 1995 - ------------------------------------------------------------------------------------------------------------------- Operations: Net investment loss (Note A) ........................................ $ (801,016) $ (615,149) Net realized gain from investment transactions (Note A) ............. 8,580,121 13,445,142 Net unrealized appreciation on investment transactions during the period (Note A) .................................. 12,819,279 64,721,917 ------------- ------------- Net increase in net assets resulting from operations ........................ 20,598,384 77,551,910 ------------- ------------- Distributions to shareholders from: Net investment income ($.06 per share) .............................. (2,227,660) -- ------------- ------------- Net realized gains from investment transactions ($.36 and $.15 per share, respectively) ..................... (13,231,772) (4,359,655) ------------- ------------- Fund share transactions: Net proceeds of shares issued in connection with the Fund's rights offering, net of broker and dealer manager fees of $4,006,960 and expenditures and offering costs of $860,000... -- 109,617,621 ------------- ------------- Reinvestment of distributions ....................................... 4,325,270 1,798,229 ------------- ------------- INCREASE IN NET ASSETS ...................................................... 9,464,222 184,608,105 Net assets at beginning of period ........................................... 734,546,735 549,938,630 ------------- ------------- NET ASSETS AT END OF PERIOD (including accumulated distributions in excess of net investment income of ($3,028,676) at December 31, 1995) .............. $ 744,010,957 $ 734,546,735 ============= ============= OTHER INFORMATION INCREASE IN FUND SHARES Shares outstanding at beginning of period ................................... 36,930,508 29,474,985 Shares issued in connection with the Fund's rights offering ......... -- 7,386,102 Shares issued to shareholders in reinvestment of distributions ...... 197,164 69,421 ------------- ------------- Shares outstanding at end of period ......................................... 37,127,672 36,930,508 ============= =============
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- 23 The Korea Fund, Inc. Financial Highlights ================================================================================ - -------------------------------------------------------------------------------- THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS AND MARKET PRICE DATA.
- -------------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEARS ENDED JUNE 30, DECEMBER 31, ------------------------------------------------------ 1995 1995(e) 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period ................... $ 19.89 $ 18.66 $ 11.40 $10.75 $ 10.27 $14.45 -------- -------- ------- ------ ------- ------ Income from investment operations (a): Net investment income (loss) ................... (.02) (.02) (.03) .02 .08 .09 Net realized and unrealized gain (loss) on investment transactions ................ .59 2.42(b) 7.13 .86 .78 (2.13) -------- -------- ------- ------ ------- ------ Total from investment operations ....................... .57 2.40 7.10 .88 .86 (2.04) -------- -------- ------- ------ ------- ------ Less distributions from: Net investment income .......................... (.06) -- (.01) (.04) (.06) -- Net realized gains on investment transactions... (.36) (.15) -- (.20) (.34) (2.20) -------- -------- ------- ------ ------- ------ Total distributions .................................... (.42) (.15) (.01) (.24) (.40) (2.20) -------- -------- ------- ------ ------- ------ Antidilution (dilution) resulting from the rights offering (1995), fourth tranche (1994), and reinvestment of distributions for shares at market value ................................... -- (1.02) .22 .01 .02 .06 -------- -------- ------- ------ ------- ------ Underwriting expenditures and offering costs ........... -- -- (.05) -- -- -- -------- -------- ------- ------ ------- ------ Net asset value, end of period ......................... $ 20.04 $ 19.89 $ 18.66 $11.40 $ 10.75 $10.27 ======== ======== ======= ====== ======= ====== Market value, end of period ............................ $ 22.00 $ 19.63 $ 22.00 $15.00 $ 11.38 $14.13 ======== ======== ======= ====== ======= ====== TOTAL RETURN Per share market value (%) ............................. 14.27** (5.43) 46.74 34.54 (17.01) (23.57) Per share net asset value (%) (c) ...................... 2.70** 13.00 63.77 8.20 7.87 (14.91) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period ($ millions) ................. 744 735 550 258 241 228 Ratio of operating expenses to average net assets (%) ................................. 1.28* 1.32 1.37 1.52 1.52 1.47 Ratio of net investment income (loss) to average net assets (%) (d) ..................... (.11)** (.10) (.18) .15 .70 .83 Portfolio turnover rate (%) ............................ 6.6* 10.5 14.3 14.3 18.2 19.2
* Annualized ** Not annualized (a) Based on monthly average of shares outstanding during each period. (b) Due to the timing and magnitude of the rights offering, the amount reported herein is not proportional to the aggregate value reported in the Statements of Operations and Changes in Net Assets and Note E to the financial statements. (c) Total investment returns reflect changes in net asset value per share during each period and assumes that dividends and capital gains distributions, if any, were reinvested. These percentages are not an indication of the performance of a shareholder's investment in the Fund based on market. (d) The ratio for the six months ended December 31, 1995 has not been annualized since the Fund believes it would not be appropriate because the Fund's dividend income is not earned ratably throughout the fiscal year (Note A). (e) Certain amounts have been reclassified to conform with fiscal 1996 presentations. - -------------------------------------------------------------------------------- 24 The Korea Fund, Inc. Notes to Financial Statements ================================================================================ A. SIGNIFICANT ACCOUNTING POLICIES The Korea Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended, as a non-diversified, closed-end management investment company. The policies described below are followed consistently by the Fund in the preparation of its financial statements in conformity with generally accepted accounting principles. SECURITY VALUATION. Portfolio securities which are traded on the Korean, U.S., or foreign stock exchanges are valued at the most recent sale price reported on the exchange on which the security is traded most extensively. If no sale occurred, the security is then valued at the calculated mean between the most recent bid and asked quotations. If there are no such bid and asked quotations, the most recent bid quotation is used. Short-term investments having a maturity of sixty days or less are valued at amortized cost. All other securities are valued at fair value as determined in good faith by the Valuation Committee of the Board of Directors including certain equity securities valued in good faith by the Valuation Committee amounting to $50,721,310 or 6.8% of the Fund's net assets at December 31, 1995, and certain investments in Korean equity securities that have met the limit for aggregate foreign ownership and for which premiums to the local stock exchange prices are offered by prospective foreign investors. The aggregate premium ($42,851,724) over the local share price ($236,309,335) for these securities valued by the Valuation Committee was approximately 5.8% of the Fund's net assets at December 31, 1995. Their values have been estimated by the Board of Directors in the absence of readily ascertainable market values or other market factors, respectively. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the securities existed, and the difference could be material. DIVIDEND INCOME. Korean-based corporations have generally adopted calendar year-ends, and their corporate actions are normally approved by their boards of directors and shareholders in the first quarter of each calendar year. Accordingly, dividend income from Korean equity investments is earned and received by the Fund primarily in the first calendar quarter of each year. As a result, the Fund, which has a June 30 year end, receives substantially less dividend income in the first half of its year than in the second half of such year. INCOME TAXES. The Fund's policy is to comply with the requirements of the Internal Revenue Code which are applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. The Fund, accordingly, paid no federal income taxes and no federal income tax provision was required. Under the United States-Korea income tax treaty, as presently in effect, the government of Korea imposes a nonrecoverable withholding tax and resident tax aggregating 16.125% on dividends and 12.9% on interest paid to the Fund by Korean issuers. Effective January 1, 1996, withholding taxes on dividends and interest were increased to 16.5% and 13.2%, respectively. Under the United States-Korea income tax treaty, there is no Korean withholding tax on realized capital gains. DISTRIBUTION OF INCOME AND GAINS. Distribution of net investment income is made annually. It is expected that net realized gains from investment transactions during any particular year in excess of available capital loss carryforwards which, if not distributed, would be taxable to the Fund, will be distributed to shareholders. An additional distribution may be made to the extent necessary to avoid the payment of a four percent federal excise tax. The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from generally accepted accounting principles. These differences relate primarily to 25 The Korea Fund, Inc. Notes to Financial Statements (continued) ================================================================================ foreign denominated investments. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. The Fund uses the identified cost method for determining realized gain or loss on investments for both financial and federal income tax reporting purposes. FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund are maintained in U.S. dollars. Foreign currency transactions are translated into U.S. dollars on the following basis: (i) market value of investment securities, other assets and liabilities at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. The Fund does not isolate that portion of gains and losses on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of the investments. Such fluctuations are included with the net realized and unrealized gains and losses from investments. Net realized gain (loss) from won related transactions includes net currency gains and losses between trade and settlement dates on securities transactions, gains and losses arising from the sales of won and gains and losses between the ex and payment dates on dividends, interest, and foreign withholding taxes. At December 31, 1995 the exchange rate for Korean won was U.S. $.001289 to W 1. SUBSCRIPTIONS FOR NEW SHARES. As part of their annual corporate action matters, certain Korean companies offer rights to their shareholders to subscribe to new shares which are eligible for a portion of the dividends paid on existing shares in the year of subscription. The Fund follows a policy of subscribing to new share offerings by Korean companies. OTHER. Investment security transactions are accounted for on a trade-date basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Interest income is recorded on the accrual basis. All original issue and acquisition discounts are accreted for both tax and financial reporting purposes. Certain amounts have been reclassified in the fiscal 1995 statement of changes in net assets, and financial highlights and unaudited quarterly results of operations data (Note E) to conform with fiscal 1996 presentation. B. PURCHASES AND SALES OF SECURITIES For the six months ended December 31, 1995, purchases and sales of investment securities (excluding short-term investments) aggregated $111,427,465 and $22,863,864, respectively. C. RELATED PARTIES Under the Management Agreement the Fund agrees to pay the Manager a monthly fee at an annual rate equal to 1.15% of the Fund's month-end net assets up to and including $50,000,000, 1.10% of such net assets on the next $50,000,000, 1% of such assets on the next $250,000,000, 0.95% of such net assets on the next $400,000,000, and 0.90% of such net assets in excess of $750,000,000. For the six months ended December 31, 1995, the fee pursuant to such agreements amounted to $3,809,107 which was equivalent to an annual effective rate of 0.99% of the Fund's average month-end net assets. Under the Advisory Agreement, the Manager pays the Korean Adviser a monthly fee, equal to an annual rate of 0.2875% of the first $50,000,000 of the Fund's month-end net assets, 0.275% of such net assets on the next $50,000,000, and 0.25% of such net assets on the next $250,000,000, 0.2375% of such net 26 ================================================================================ assets on the next $400,000,000, and 0.225% of such net assets in excess of $750,000,000. For the six months ended December 31, 1995, brokerage commissions on investment transactions amounting to $83,860 were paid by the Fund to Daewoo Securities Co., Ltd., the parent company of the Korean Adviser. Effective August 21, 1995, Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, assumed responsibility for determining the daily net asset value per share and maintaining the portfolio and general accounting records of the Fund. For the six months ended December 31, 1995, the amount charged to the Fund by SFAC aggregated $136,121, of which $31,242 is unpaid at December 31, 1995. The Fund pays each Director not affiliated with the Manager or the Korean Adviser $6,000 annually plus specified amounts for attended board and committee meetings. For the six months ended December 31, 1995, Directors' fees and expenses amounted to $69,273. D. FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN KOREA The Foreign Exchange Management Act, the Presidential Decree relating to such Act and the regulations of the Minister of Finance and Economy issued thereunder impose certain limitations and controls which generally affect foreign investors in Korea. The Fund has obtained from the Minister of Finance and Economy a license to invest in Korean securities and to repatriate income received from dividends and interest earned on, and net realized capital gain from, its investments in Korean securities and, upon termination of the Fund or for payment of expenses in excess of income, to repatriate investment principal. The Minister of Finance and Economy may, when it deems it to be in the public interest, modify the Fund's license to invest in Korean securities or, according to the terms of the license, revoke it in the event of the Fund's noncompliance with conditions of the license or a material violation of Korean law. The Minister of Finance and Economy or the Securities and Exchange Commission of Korea ("KSEC") may issue orders imposing additional restrictions, when deemed in the public interest, for the protection of investors or in the interest of maintaining an orderly securities market. Under the Foreign Exchange Management Act, the Minister of Finance and Economy has the power, with prior public notice of scope and duration, to suspend all or a part of foreign exchange transactions when emergency measures are deemed necessary in case of radical change in the international or domestic economic situation. The Fund could be adversely affected by delays in, or the refusal to grant, any required governmental approval for such transactions. Under current regulations of the Minister of Finance and the KSEC, foreigners are subject to certain restrictions with respect to investing in equity securities of Korean companies listed on the Korea Stock Exchange. In general, total foreign investment is limited to 15% of each class of a company's outstanding shares, while a single foreign investor may only invest up to 3% of each class of outstanding shares. Pursuant to its license, however, the Fund may invest in shares representing 5% of each class in general. 27 The Korea Fund, Inc. Notes to Financial Statements (continued) ================================================================================ E. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (000 OMITTED)
NET INCREASE (DECREASE) NET GAIN (LOSS) IN NET ASSETS INVESTMENT NET INVESTMENT ON INVESTMENT RESULTING QUARTER ENDED INCOME * INCOME (LOSS) TRANSACTIONS FROM OPERATIONS - ------------------- ----------------- -------------------- -------------------- --------------------- PER PER PER PER FISCAL 1996 TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE - ----------- ----- ----- ----- ----- ----- ----- ----- ----- September 30, 1995 $1,276 $ .03 $(1,164) $ (.03) $ 1,839 $ .05 $ 675 $ .02 December 31, 1995 2,839 .08 363 .01 19,560 .54 19,923 .55 ------ ------ ------- ------- -------- ------- -------- -------- Totals $4,115 $ .11 $ (801) $ (.02) $21,399 $ .59 $20,598 $ .57 ====== ====== ======= ======= ======== ======= ======== ======== - ------------------- ----------------- -------------------- -------------------- --------------------- PER PER PER PER FISCAL 1995 TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE - ----------- ----- ----- ----- ----- ----- ----- ----- ----- September 30, 1994 $1,331 $ .04 $ (605) $ (.03) $ 86,736 $ 2.96 $ 86,131 $ 2.93 December 31, 1994 750 .03 (1,420) (.04) (22,016) (.75) (23,436) (.79) March 31, 1995 5,151 .17 3,250 .11 (2,236) (.09) 1,014 .02 June 30, 1995 332 .01 (1,840) (.06) 15,683 .48 13,843 .42 ------ ------ ------- ------- -------- ------- -------- -------- Totals $7,564 $ .25 $ (615) $ (.02) $ 78,167 $ 2.60 $ 77,552 $ 2.58 ====== ====== ======= ======= ======== ======= ======== ========
*Net of Korean taxes withheld. 28 The Korea Fund, Inc. Report of Independent Accountants ================================================================================ TO THE BOARD OF DIRECTORS AND THE SHAREHOLDERS OF THE KOREA FUND, INC.: We have audited the accompanying statement of assets and liabilities of The Korea Fund, Inc. including the investment portfolio, as of December 31, 1995, and the related statement of operations for the six months then ended, the statements of changes in net assets for the six months then ended and for the year ended June 30, 1995, and the financial highlights for the six months ended December 31, 1995 and for each of the five years in the period ended June 30, 1995. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1995 by correspondence with the custodian. 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 and financial highlights referred to above present fairly, in all material respects, the financial position of The Korea Fund, Inc. as of December 31, 1995, the results of its operations for the six months then ended, the changes in its net assets for the six months then ended and for the year ended June 30, 1995, and the financial highlights for the six months ended December 31, 1995 and for each of the five years in the period ended June 30, 1995 in conformity with generally accepted accounting principles. Boston, Massachusetts COOPERS & LYBRAND L.L.P. February 16, 1996 29 The Korea Fund, Inc. Tax Information ================================================================================ By now shareholders for whom year-end tax reporting is required by the IRS should have received their Form 1099-DIV and tax information letter from the Fund. Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your Korea Fund account, please call 800-426-5523. 30 Shareholder Meeting Results - --------------------------- The Annual Meeting of Shareholders of The Korea Fund, Inc. was held on Wednesday, October 11, 1995, at the offices of Scudder, Stevens & Clark, Inc., 25th Floor, 345 Park Avenue, New York, New York. The four matters voted upon by Shareholders and the resulting votes for each matter are presented below. 1. The election of three Directors to hold office for a term of three years or until their respective successors shall have been duly elected and qualified.
Director: Number of Votes: --------- ---------------- For Withheld Broker Non-Votes* ----- -------- ----------------- Juris Padegs 22,169,101 106,446 500 Chang-Hee Kim 22,164,425 111,122 500 Hugh T. Patrick 22,169,852 105,695 500 2. Ratification or rejection of the action taken by the Board of Directors in selecting Coopers & Lybrand L.L.P. as independent accountants for the fiscal year ending June 30, 1996. Number of Votes: ---------------- For Against Abstain Broker Non-Votes* ----- ------- ------- ----------------- 22,156,722 92,055 26,770 500 3. Approval or disapproval of the continuance of the Investment Advisory, Management and Administration Agreement between the Fund and Scudder, Stevens & Clark, Inc. Number of Votes: ---------------- For Against Abstain Broker Non-Votes* ----- ------- ------- ----------------- 20,660,747 112,977 384,671 1,117,652 4. Approval or disapproval of the continuance of the Research and Advisory Agreement between Scudder, Stevens & Clark, Inc. and Daewoo Capital Management Co., Ltd. Number of Votes: ---------------- For Against Abstain Broker Non-Votes* ----- ------- ------- ----------------- 20,660,393 114,958 378,044 1,122,652 - ------------------------------------------------------------------------------------------------------- * Broker non-votes are proxies received by the Fund from brokers or nominees when the broker or nominee neither has received instructions from the beneficial owner or other persons entitled to vote nor has discretionary power to vote on a particular matter.
31 Dividend Reinvestment and Cash Purchase Plan - -------------------------------------------- The Plan The Fund's Dividend Reinvestment and Cash Purchase Plan (the "Plan") offers you an automatic way to reinvest your dividends and capital gains distributions in shares of the Fund. The Plan also provides for cash investments in Fund shares of $100 to $3,000 semiannually through State Street Bank and Trust Company, the Plan Agent. Automatic Participation Each shareholder of record is automatically a participant in the Plan unless the shareholder has instructed the Plan Agent in writing otherwise. Such a notice must be received by the Plan Agent not less than 10 days prior to the record date for a dividend or distribution in order to be effective with respect to that dividend or distribution. A notice which is not received by that time will be effective only with respect to subsequent dividends and distributions. Shareholders who do not participate in the Plan will receive all distributions in cash paid by check in dollars mailed directly to the shareholder by State Street Bank and Trust Company, as dividend paying agent. Shares Held by a Nominee If your shares are held in the name of a brokerage firm, bank, or other nominee as the shareholder of record, please consult your nominee (or any successor nominee) to determine whether it is participating in the Plan on your behalf. Many nominees are generally authorized to receive cash dividends unless they are specifically instructed by a client to reinvest. If you would like your nominee to participate in the Plan on your behalf, you should give your nominee instructions to that effect as soon as possible. Pricing of Dividends and Distributions If the market price per share on the payment date for the dividend or distribution (the "Valuation Date") equals or exceeds net asset value per share on that date, the Fund will issue new shares to participants at the greater of the following on the Valuation Date: (a) net asset value, or (b) 95% of the mean market price. The Valuation Date will be the dividend or distribution payment date or, if that date is not a New York Stock Exchange trading date, the next preceding trading date. If the net asset value exceeds the market price of Fund shares at such time, participants in the Plan are considered to have elected to receive shares of stock from the Fund, valued at market price, on the Valuation Date. In either case, for Federal income tax purposes, the shareholder receives a distribution equal to the market value on Valuation Date of new shares issued. State and local taxes may also apply. If the Fund should declare an income dividend or net capital gains distribution payable only in cash, the Plan Agent will, as agent for the participants, buy Fund shares in the open market, on the New York Stock Exchange or elsewhere, for the participants' account on, or shortly after, the payment date. Voluntary Cash Purchases Participants in the Plan have the option of making additional cash payments to the Plan Agent, semiannually, in any amount from $100 to $3,000, for investment in the Fund's shares. The Plan Agent will use all such monies received from participants to purchase Fund shares in the open market on or about February 15 and August 15. Any voluntary cash payments received more than 30 days prior to these dates will be returned by the Plan Agent, and interest will not be paid on any uninvested cash payments. To avoid unnecessary cash accumulations, and also to allow ample time for receipt and processing by the Plan Agent, it is suggested that participants send in voluntary cash payments to be received by the Plan Agent approximately ten days before February 15, or August 15, as the case may be. A participant may withdraw a voluntary cash payment by written notice, if the notice is received by the Plan Agent not less than 48 hours before such payment is to be invested. 32 Participant Plan Accounts The Plan Agent maintains all participant accounts in the Plan and furnishes written confirmation of all transactions in the account, including information needed by participants for personal and tax records. Shares in the account of each plan participant will be held by the Plan Agent in non-certificated form in the name of the participant, and each participant will be able to vote those shares purchased pursuant to the Plan at a shareholder meeting or by proxy. No Service Fee to Reinvest There is no service fee charged to participants for reinvesting dividends or distributions from net realized capital gains. The Plan Agent's fees for the handling of the reinvestment of dividends and capital gains distributions will be paid by the Fund. There will be no brokerage commissions with respect to shares issued directly by the Fund as a result of dividends or capital gains distributions payable either in stock or in cash. However, participants will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with the reinvestment of any dividends or capital gains distributions payable only in cash. Costs for Cash Purchases With respect to purchases of Fund shares from voluntary cash payments, the Plan Agent will charge $0.75 for each such purchase for a participant. Each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases of Fund shares in connection with voluntary cash payments made by the participant. Brokerage charges for purchasing small amounts of stock for individual accounts through the Plan are expected to be less than the usual brokerage charges for such transactions, because the Plan Agent will be purchasing stock for all participants in blocks and pro-rating the lower commission thus attainable. Amendment or Termination The Fund and the Plan Agent each reserve the right to terminate the Plan. Notice of the termination will be sent to the participants of the Plan at least 30 days before the record date for a dividend or distribution. The Plan also may be amended by the Fund or the Plan Agent, but (except when necessary or appropriate to comply with applicable law, rules or policies of a regulatory authority) only by giving at least 30 days' written notice to participants in the Plan. A participant may terminate his account under the Plan by written notice to the Plan Agent. If the written notice is received 10 days before the record day of any distribution, it will be effective immediately. If received after that date, it will be effective as soon as possible after the reinvestment of the dividend or distribution. If a participant elects to sell his shares before the Plan is terminated, the Plan Agent will deduct a $2.50 fee plus brokerage commissions from the sale transaction. Plan Agent Address and Telephone Number You may obtain more detailed information by requesting a copy of the Plan from the Plan Agent. All correspondence (including notifications) should be directed to: The Korea Fund Dividend Reinvestment and Cash Purchase Plan, c/o State Street Bank and Trust Company, P.O. Box 8200, Boston, MA 02266-8200, 1-800-426-5523. 33 Investment Manager - ------------------ The investment manager and administrator of The Korea Fund, Inc. (the "Fund") is Scudder, Stevens & Clark, Inc. ("Scudder"), one of the most experienced investment management and investment counsel firms in the United States. Established in 1919, the firm provides investment counsel for individuals, investment companies and institutions. Scudder has offices throughout the United States and subsidiaries in London and Tokyo. Scudder has been a leader in international investment management for over 40 years. It manages Scudder International Fund, which was initially incorporated in Canada in 1953 as the first foreign investment company registered with the U.S. Securities and Exchange Commission. Scudder's investment company clients include nine other open-end investment companies which invest primarily in foreign securities. In addition to the Fund, Scudder also manages the assets of six other closed-end investment companies which invest in foreign securities and are traded on the New York Stock Exchange: The Argentina Fund, The Brazil Fund, The Latin America Dollar Income Fund, Scudder New Asia Fund, Scudder New Europe Fund, and Scudder World Income Opportunities Fund. Korean Adviser - -------------- Daewoo Capital Management Co., Ltd., registered under the U.S. Investment Advisers Act of 1940, acts as Korean adviser to Scudder, Stevens & Clark, Inc., the Fund's investment manager. Daewoo Capital Management Co., Ltd. is a subsidiary of Daewoo Securities Co., Ltd., the largest Korean securities firm, and an affiliate of Daewoo Research Institute. Daewoo Capital Management Co., Ltd. provides investment advice, research, and assistance to Scudder. The Daewoo staff makes specific investment recommendations, which are then evaluated by Scudder's research department and portfolio managers in light of their own expertise and information from other sources in making investment decisions for the Fund. 34 Officers and Directors - ---------------------- JURIS PADEGS* Chairman of the Board and Director CHANG-HEE KIM Vice Chairman of the Board and Director NICHOLAS BRATT* President and Director WILLIAM H. GLEYSTEEN, JR. Director ROBERT W. LEAR Director DR. SANG C. LEE Director TAI HO LEE Director DR. WILSON NOLEN Director HUGH T. PATRICK Director SIDNEY M. ROBBINS Emeritus Founding Director JERARD K. HARTMAN* Vice President KUN-HO HWANG Vice President YOUNG H. KIM Vice President JOHN J. LEE* Vice President DAVID S. LEE* Vice President DONG WOOK PARK Vice President THOMAS F. McDONOUGH* Secretary and Assistant Treasurer PAMELA A. McGRATH* Treasurer EDWARD J. O'CONNELL* Vice President and Assistant Treasurer KATHRYN L. QUIRK* Vice President and Assistant Secretary COLEEN DOWNS DINNEEN* Assistant Secretary *Scudder, Stevens & Clark, Inc. 35 -----END PRIVACY-ENHANCED MESSAGE-----