-----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, IRVlKtLD/Vzln2a2qNvWrdCfME6Uv0eV7lQA8Hyp0r9nn4cDSYrkc9Nfd9NwLWuH +HdHp9mYA5MGBS2Ha9leZg== 0000748691-97-000002.txt : 19970307 0000748691-97-000002.hdr.sgml : 19970307 ACCESSION NUMBER: 0000748691-97-000002 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970306 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: 97551354 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, 1996 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 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 ................................ 5 Investment Summary ............................... 6 Portfolio Summary ................................ 7 Investment Performance ........................... 8 Investment Portfolio ............................. 10 Financial Statements ............................. 21 Financial Highlights ............................. 24 Notes to Financial Statements .................... 25 Report of Independent Accountants ................ 28 Tax Information .................................. 29 Shareholder Meeting Results ...................... 30 Dividend Reinvestment and Cash Purchase Plan ............................... 31 Investment Manager ............................... 33 Korean Adviser ................................... 33 Officers and Directors ........................... 34 - -------------------------------------------------------------------------------- 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 The Korean stock market declined over the six months ended December 31, 1996. The Korean won fell over the period, further decreasing returns to U.S. dollar-based investors. In this environment, The Korea Fund provided a total return of -24.27% based on net asset value. O Declines of this scale in the stock market and the Korean won seem unwarranted, in our opinion, given the region's attractive long-term prospects. O The Fund maintained an emphasis on holdings in domestic industries such as telecommunications, finance, and consumer staples. Letter to Shareholders ================================================================================ Dear Shareholders: The Korean stock market fell over the six-month period ended December 31, 1996. The KOSPI declined from 823.53 to 651.22, a 20.92% decline in local terms. A widening trade deficit, smaller -than-expected declines in interest rates, and disappointing corporate earnings contributed to the already weak environment. In addition, the Korean won declined 4.35% versus the U.S. dollar. The Fund declined 24.27% on a total return basis, reflecting the decline in the Fund's net asset value from $18.52 to $13.55 and reinvestment of a $0.60 per share capital gain distribution. The Fund's publicly traded shares ended the period at $14.88, down from $21.13 six months ago. The Fund's NYSE price, an indicator of market interest, traded at a 9.8% premium over net asset value (NAV) as of December 31, 1996. Investment Environment The weak economic environment that characterized the beginning of the fiscal period continued throughout the six month period. The single most important influence on the markets was the trade deficit, which reached a record high during the period. Raising concerns of imbalance, this had an important negative psychological effect on investors. Inventories also rose at many companies, a sign of slowing growth. Smaller than expected declines in interest rates also held back the stock market. However, support for an improved environment is likely given the prospect of lower inflation and interest rates. The government has made lowering interest rates a top priority. Demand for cash by corporations has waned as investment has slowed, and Korea's membership in the Organization for Economic Cooperation and Development (OECD) should result in an improved credit standing and lower interest rates. On the corporate level, the collapse in the world price of semiconductors, those small computer chips that go into every PC, squeezed profit margins, causing related share prices to decline. Semiconductor companies represent a significant share of Korea's manufacturing industry and close to 30% of the country's exports. Because they also constitute a substantial component of the stock market indexes, semiconductor stock prices heavily influence the movements of the index. To focus too narrowly on the current problems in the economic and industrial environment would be shortsighted, given the potential opportunities presented by substantial changes currently underway in Korea. 3 ================================================================================ Government restructuring and deregulation are continuing to improve Korea's global competitiveness and transition to a fully market-based economy. This should mean more freedom for corporations with less government intervention. Korean companies have been under constraints while wages have risen and global competitiveness has slipped. More flexible employment practices should be especially beneficial to bank, brokerage, securities, and insurance companies, which historically have been heavily regulated. Recently President Kim announced that a committee will be formed to discuss deregulating financial companies. Significant in his announcement was that no government officials were appointed to the committee -- evidence of a genuine commitment to reform. We also think there are several additional reasons to believe that prospects for the Korean market will improve. Capital investment is slowing, which should reduce imports and shrink the trade deficit. In addition, as the won has declined, Korean products have become more price competitive, improving export potential. Valuations of stocks have also become more attractive, reaching levels comparable to those last seen in 1992. Investment Philosophy The Fund continued to rely on intensive fundamental research to identify well-managed companies with promising long-term growth prospects. We focus on those companies that we believe are positioned to perform well under a variety of economic conditions. We generally take a buy and hold approach, especially with respect to the Fund's top ten holdings. Portfolio Strategy During the six month period we remained focused on domestic industries in an effort to limit our exposure to export companies, which have been the most affected by the unfavorable market environment. This was difficult to accomplish since exporters constitute such a substantial component of the Korean economy. The Fund's top holdings are representative of many of the themes we have highlighted -- domestic industries such as telecommunications, finance, and consumer staples. These companies tend to be less affected by changes in globally competitive markets. Our long-term investment approach also means that we may not make significant changes to the portfolio if we believe the prospects for a holding remain favorable. We invest in companies that we believe will do well over the long-term and do not attempt to predict the short-term movements of the market. Looking Ahead Given the market's recent declines and our positive longer-term outlook for Korea, we believe that current valuations are particularly attractive. Nominal gross domestic product is slowing down to a 6-6.5% annual growth rate, high by world standards, but modest in the eyes of many Koreans. Slower growth is a sign of maturity for Korea's economy after several years of 10%+ growth. A lower growth rate should be more sustainable and healthy for the economy over the long term. While the country has many challenges ahead of it, Koreans have a strong faith and tenacious drive to succeed. The well-educated population and nearly 100% literacy rate are valuable assets to the country. Considering these strengths and the strong fundamentals we foresee among many Korean companies, we believe the market will revive. Sincerely, /s/Nicholas Bratt /s/Juris Padegs Nicholas Bratt Juris Padegs President Chairman of the Board 4 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 31. Annual Meeting Election Results At the October 7, 1996 Annual Meeting, the shareholders elected three directors, and the selection of Coopers & Lybrand L.L.P. as the Fund's independent accountants for the fiscal year ending June 30, 1997, was ratified. Please see the table entitled "Shareholder Meeting Results" on page 30 for more information. 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. 5 THE KOREA FUND, INC. INVESTMENT SUMMARY as of December 31, 1996 - ---------------------------------------------------------------- HISTORICAL INFORMATION TOTAL RETURN (%) LIFE OF FUND --------------------------------------------------------------- MARKET VALUE NET ASSET VALUE (a) INDEX (b) ------------------- -------------------- ------------------- AVERAGE AVERAGE AVERAGE CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL ------------------- -------------------- ------------------- CURRENT QUARTER -18.49 -- -17.72 -- -17.53 -- FISCAL YEAR TO DATE -27.17 -- -24.27 -- -20.92 -- ONE YEAR -30.06 -30.06 -30.01 -30.01 -26.24 -26.24 THREE YEAR -30.72 -11.51 -8.91 -3.06 -24.82 -9.07 FIVE YEAR 34.45 6.10 46.67 7.96 6.60 1.29 TEN YEAR 125.01 8.45 184.77 11.03 138.88 9.10 - ----------------------------------------------------------------- PER SHARE INFORMATION AND RETURNS (A) - ----------------------------------------------------------------- A chart in the form of a bar graph appears here, illustrating the Fund Total Return (%) and Index Total Return (%) with the exact data points listed in the table below. YEARLY PERIODS ENDED DECEMBER 31 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 ------------------------------------------------------------------------------- NET ASSET VALUE (b)............... $11.28 $15.93 $18.55 $11.10 $10.55 $10.62 $16.64 $20.65 $20.04 $13.55 INCOME DIVIDENDS.. $ .29 $ .11 $ .08 $ -- $ .06 $ .04 $ .01 $ -- $ .06 $ -- CAPITAL GAINS DISTRIBUTIONS..... $ .68 $ 1.74 $ 1.88 $ 2.20 $ .34 $ .20 $ -- $ .15 $ .36 $ .60 TOTAL RETURN (%)........ 44.48 55.97 22.79 -28.36 -2.05 2.71 56.77 24.84 4.26 -30.01
(a) Total investment returns reflect changes in net asset value per share during each period and assume 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 price. (b) Net asset value per share through 1988 has bee 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. 6 PORTFOLIO SUMMARY as of December 31, 1996 - --------------------------------------------------------------------------- DIVERSIFICATION - --------------------------------------------------------------------------- Common Stocks 86% Convertible Bonds 7% Preferred Stocks 4% Corporate Bonds 3% - -------------------------------------- 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 - -------------------------------------------------------------------------- Communications 24% Financial 17% Technology 10% Consumer Staples 7% Durables 7% Manufacturing 7% Construction 6% Utilities 5% Health 5% Other 12% - --------------------------------------------- 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 (51% OF PORTFOLIO) - -------------------------------------------------------------------------- 1. KOREA MOBILE TELECOM CORP. Mobile telecommunication company 2. SAMSUNG FIRE & MARINE INSURANCE CO. Insurance company 3. SAMSUNG ELECTRONICS CO., LTD. Major electronics manufacturer 4. KOREA ELECTRIC POWER CO. Electric Utility 5. SAMSUNG DISPLAY DEVICES Leading manufacturer of CRT and picture tubes 6. HANSOL PAPER MANUFACTURING CO., LTD. Korea's largest paper manufacturer 7. HYUNDAI MOTOR SERVICES CO., LTD. Auto parts and services 8. KEUM KANG CO., LTD. Construction company and manufacturer of building materials 9. YUKONG, LTD. Korea's leading oil refiner. 10. KOREA LONG TERM CREDIT BANK Major commercial bank 7 The Korea Fund, Inc. Investment Performance ================================================================================ THE ORIGINAL DOCUMENT CONTAINS A GRAPH HERE CHART DATA:
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* NYSE data points With Income With Caital Gains Change In Share Value Of Distributions Reinvested 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 92448 80261 52500 56670 92999 80738 52813 59211 83103 72148 45625 60998 67735 58805 37188 66080
8 The Korea Fund, Inc. Investment Performance ================================================================================ THE ORIGINAL DOCUMENT CONTAINS A GRAPH HERE
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* NAV data points With Income With Capital Gains Change in Net Asset Value of Distributions Reinvested 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 93916 81535 53333 87667 76110 49785 80692 70054 44301 66394 57642 36452
- ---------- The data set forth in these graphs 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 $10,000 investment was made at initial public offering price and at initial net asset value price. The Standard & Poor's 500 Stock Index is a widely followed, unmanaged index of 500 industrial, transportation, utility and financial companies widely regarded as representative of the equity market in general. 9 [Logo of The Korea Fund, Inc.] THE KOREA FUND, INC. INVESTMENT PORTFOLIO as of December 31, 1996
=================================================================================================================== Principal Market Amount(e) Value($) - ------------------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT 0.3% U.S.$1,469,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 12/31/96 at 6.7% to be repurchased at $1,469,547 on 1/2/97, collateralized by a $1,200,000 U.S. Treasury Note, 10%, 5/15/10 (Cost $1,469,000) .................................... 1,469,000 ---------- - ------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS 2.7% METALS & MINERALS 10,000,000,000 Korea Tungsten Exchange Bond, Zero Coupon with 36.03% bonus interest at maturity, 11/11/98 (c) (Cost $14,540,668) ................................... 13,036,414 - ------------------------------------------------------------------------------------------------------------------- CONVERTIBLE BONDS 7.2% CONSUMER STAPLES 1.4% Food & Beverage 0.7% 800,000,000 Crown Confectionery Co., 3% with 16.28% bonus interest at maturity, 12/31/97 (Major producer of snacks)(c)(f) ..................................... 1,003,179 2,000,000,000 Haitai Confectionery Co., 1% with 12.69% bonus interest at maturity, 6/30/98 (Major producer of snacks)(c)(f) ........................................ 2,265,580 ---------- 3,268,759 ---------- Textiles 0.7% U.S.$1,000,000 Kolon Industries, Inc., 0.250%, 12/31/04 (Leading manufacturer of nylon, polyester yarn and fabrics) ............................................. 555,000 2,400,000,000 Kukje Corp., 12% with 4.62% bonus interest at maturity, 12/31/97 (Shoe manufacturer)(c)(f) ......... 2,941,717 ---------- 3,496,717 ---------- HEALTH 0.8% Pharmaceuticals 3,000,000,000 Korea Green Cross Corp., 1% with 11.88% bonus interest at maturity, 12/31/97(Leading ethical drug producer)(c)(f) ................................. 3,560,253 400,000,000 Yuhan Corp., 5.5% with 25.41% bonus interest at maturity, 12/31/97 (Pharmaceutical company)(c)(f) .... 550,467 ---------- 4,110,720 ----------
The accompanying notes are an integral part of the financial statements. 10
=================================================================================================================== Principal Market Amount(e) Value($) - ------------------------------------------------------------------------------------------------------------------- MANUFACTURING 0.9% 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)(f) ............ 4,590,973 ---------- ENERGY 1.1% Oil & Gas Production 2,000,000,000 Yukong, Ltd., 2% with 8.15% bonus interest at maturity, 12/31/97 (Korea's largest oil refiner)(c)(f) ........................................ 2,316,032 3,000,000,000 Yukong, Ltd., 1% with 13.92% bonus interest at maturity, 12/31/98(c)(f) .............................. 3,250,532 ---------- 5,566,564 ---------- METALS & MINERALS 0.4% Steel & Metals 1,000,000,000 Kangwon Industry, 6% with 19.52% bonus interest at maturity, 6/30/97 (Steel company)(c)(f) ............ 1,395,967 500,000,000 Sammi Steel, 4% with 20.57% bonus interest at maturity, 12/31/97 (Specialty steel company)(c)(f) ........................................ 654,779 ---------- 2,050,746 ---------- CONSTRUCTION 0.3% Miscellaneous 1,000,000,000 Sungwon Construction, 5% with 21.11% bonus interest at maturity, 12/31/97 (Construction company)(c)(f) .... 1,325,717 ---------- TRANSPORTATION 0.5% Marine Transportation 2,000,000,000 Hanjin Shipping, 0.125%, 11/30/99 (Container and bulk shipping)(c) ..................................... 2,199,640 ---------- UTILITIES 1.8% Electric Utilities 5,000,000,000 Korea Electric Power Co., 1% with 9.98% bonus interest at maturity, 12/31/97 (Electric utility)(c)(f) ........................................ 5,834,342 2,300,000,000 Korea Electric Power Co., Zero Coupon with 30.5% bonus interest at maturity, 12/31/98 (c)(f) ........... 2,761,902 ---------- 8,596,244 ---------- TOTAL CONVERTIBLE BONDS (Cost $40,698,801) .............. 35,206,080 ---------- - ------------------------------------------------------------------------------------------------------------------- PREFERRED STOCKS 4.2% Shares ------ CONSUMER DISCRETIONARY 0.2% Apparel & Shoes 0.2% 10,700 Baik Yang Co. (Leading maker of under garments) ......... 443,195 50,000 Shin Won Corp. (Major apparel manufacturer) ............. 436,686 ---------- 879,881 ----------
The accompanying notes are an integral part of the financial statements. 11 [Logo of The Korea Fund, Inc.] THE KOREA FUND, INC. INVESTMENT PORTFOLIO (continued)
=================================================================================================================== Market Shares Value($) - ------------------------------------------------------------------------------------------------------------------- Hotels & Casinos 0.0% 7,070 Hotel Shilla Co. (Hotel and resort operation) ............ 40,161 CONSUMER STAPLES 1.2% Alcohol & Tobacco 0.0% 580 Chosun Brewery Co., Ltd. (Brewery) ....................... 5,491 5,800 Jinro, Ltd. (Leading producer of soju, a distilled spirit) ................................................ 47,430 --------- 52,921 --------- Food & Beverage 0.3% 70,690 Cheil Food and Chemical Co., Ltd. (Korea's leading sugar refiner and major integrated food processor) ..... 1,254,852 --------- Package Goods/Cosmetics 0.2% 118,570 Pacific Corp. (Leading cosmetics producer) ............... 812,450 --------- Textiles 0.7% 184,000 Kohap (Leading maker of synthetic fabrics and yarns) ..... 622,769 225,910 Kolon Industries, Inc. ................................... 1,577,360 161,980 Sunkyong Industries, Ltd. (Leading producer of acetate filament yarn, polyester yarns and fabrics) ..... 1,054,308 --------- 3,254,437 --------- HEALTH 0.1% Pharmaceuticals 6,700 Korea Green Cross Corp. .................................. 197,432 4,700 Shinpoong Pharmaceutical Co., Ltd. (Specialized drug producer) ......................................... 49,670 --------- 247,102 --------- FINANCIAL 0.8% Insurance 0.4% 6,175 Samsung Fire & Marine Insurance Co. (Insurance company)(d) ............................................ 2,130,923 --------- Other Financial Companies 0.4% 87,310 Shin Young Securities (Medium-sized brokerage house) ..... 547,625 252,000 Ssangyong Investment & Securities (Leading brokerage house) ....................................... 1,371,834 --------- 1,919,459 --------- SERVICE INDUSTRIES 0.1% Miscellaneous Commercial Services 76,000 Sunkyong Ltd. (Leading trading company) .................. 496,473 --------- DURABLES 0.4% Automobiles 0.3% 99,130 Mando Machinery Corp. (Major auto parts manufacturer) .......................................... 1,466,420 --------- Tires 0.1% 74,650 Kumho Co. (Korea's largest tire manufacturer) ............ 335,704 ---------
The accompanying notes are an integral part of the financial statements. 12
=================================================================================================================== Market Shares Value($) - ------------------------------------------------------------------------------------------------------------------- MANUFACTURING 0.4% Chemicals 0.2% 3,700 Han Wha Co., Ltd. (Leading producer of explosives and petrochemicals) .................................... 26,404 92,285 Oriental Chemical Industries Co., Ltd. (Manufacturer of specialty chemicals) ................................ 944,693 14,095 Oriental Chemical Industries Co., Ltd. (New)(c) .......... 151,792 --------- 1,122,889 --------- Miscellaneous 0.1% 60,000 Jindo Corp. (Manufactures steel, aluminum and refrigerated container for the freight and other industries) ............................................ 362,130 --------- Containers & Paper 0.1% 60,000 Hansol Paper Co. (Leading producer of papers and newsprint) ............................................. 720,710 --------- Technology 0.4% Electronic Components/Distributors 9,918 Samsung Display Devices (Leading manufacturer of CRT and picture tubes) ................................. 278,173 50,000 Samsung Electromechanics Co., Ltd. (Major manufacturer of electronics) ........................... 644,970 37,039 Samsung Electronics Co., Ltd. (Major electronics manufacturer)(d) ....................................... 994,136 11,162 Samsung Electronics Co., Ltd. (New 1)(d) ................. 292,458 --------- 2,209,737 --------- ENERGY 0.0% Oil Companies 1,174 Ssangyong Oil Refining Co. (Major oil refiner)(c) ........ 11,178 --------- METALS & MINERALS 0.0% Steel & Metals 37,170 Kangwon Industry (Steel company) ......................... 237,096 --------- CONSTRUCTION 0.5% Building Materials 0.3% 80,000 Ssangyong Cement Industrial Co., Ltd. (Major cement company)(c) ..................................... 728,994 29,300 Sung Shin Cement Co., Ltd. (Major cement company) ........ 285,718 50,000 Tong Yang Cement Co., Ltd. (Major cement company) ........ 396,450 --------- 1,411,162 --------- Miscellaneous 0.2% 95,000 Hyundai Engineering & Construction Co. (Leading general contractor) .................................... 1,096,154 --------- TRANSPORTATION 0.1% Airlines 0.0% 20,520 Korean Air Co., Ltd. (Airline)(c) ........................ 167,560 ---------
The accompanying notes are an integral part of the financial statements. 13 [Logo of The Korea Fund, Inc.] THE KOREA FUND, INC. INVESTMENT PORTFOLIO (continued)
=================================================================================================================== Market Shares Value($) - ------------------------------------------------------------------------------------------------------------------- Trucking 0.1% 25,500 Global Enterprises Co., Ltd. (Container transport company) .................................... 482,840 ---------- TOTAL PREFERRED STOCKS (Cost $30,272,448) ............... 20,712,239 ---------- - ------------------------------------------------------------------------------------------------------------------- COMMON STOCKS 85.6% CONSUMER DISCRETIONARY 3.5% Apparel & Shoes 0.4% 52,083 Shin Won ................................................ 1,017,005 30,000 Ssang BangWool Co. (Leading underwear manufacturer) ..... 986,982 ---------- 2,003,987 ---------- Department & Chain Stores 2.9% 182,591 Hwa Sung Industries (Department store) .................. 3,824,687 152,443 Shinsegae (Major department store chain) ................ 6,332,248 16,571 Shinsegae (New 1) ....................................... 607,930 214,599 Taegu Department Store (Department store) ............... 3,504,694 ---------- 14,269,559 ---------- Hotels & Casinos 0.2% 100,000 Hotel Shilla Co. ........................................ 792,899 ---------- CONSUMER STAPLES 4.7% Alcohol & Tobacco 1.1% 3,020 Chosun Brewery Co., Ltd. ................................ 76,840 261,972 Jinro, Ltd. ............................................. 5,456,458 ---------- 5,533,298 ---------- Food & Beverage 2.2% 133,855 Cheil Food and Chemical Co., Ltd. ....................... 5,385,882 120,000 Dongwon Industries Company (Leading deep-sea fishing and processing company) ....................... 1,817,751 10,000 Haitai Confectionery Co. ................................ 112,426 32,271 Nhong Shim Co. (Manufacturer of instant noodles and snacks) ........................................... 1,447,421 48,000 Pulmuone Co., Ltd. (Food producer) ...................... 1,755,266 ---------- 10,518,746 ---------- Package Goods/Cosmetics 0.2% 50,000 Hankook Cosmetics Co. (Manufactures and sells cosmetics) ............................................ 1,124,260 ---------- Textiles 1.2% 1,200 Baik Yang Co. 127,811 20,356 Cheil Industries (Leading woolen yarn and fabric manufacturer) ......................................... 238,490 30,000 Choongnam Spinning Co., Ltd. (Korea's leading manufacturer of cotton yarn) .......................... 280,473 610 Daehan Synthetic Fiber (Manufacturer of polyester yarns and synthetic fibers) ........................... 53,059
The accompanying notes are an integral part of the financial statements. 14
=================================================================================================================== Market Shares Value($) - ------------------------------------------------------------------------------------------------------------------- 48,240 Hankook Synthetics Inc. (Textiles) ..................... 2,454,817 40,969 Kolon Industries, Inc. (New 1) ......................... 688,473 5,000 Vivien Corp. (Manufactures lingerie and other women's undergarments) ............................... 313,609 3,040 Taekwang Industrial Co., Ltd. (Major producer of acrylic fiber) ....................................... 1,093,680 29,600 Hyosung T&C, Ltd., (Korea's largest producer of nylon filament yarn) ....................................... 735,621 ----------- 5,986,033 ----------- HEALTH 3.7% Pharmaceuticals 72,632 Chong Kun Dang Co., Ltd. (Pharmaceutical company) ...... 4,770,481 11,011 Daewoong Pharmaceutical Co. (Pharmaceutical company) ............................................. 531,655 241,010 Dong-A Pharmaceutical (Pharmaceutical company) ......... 4,649,069 16,068 Korea Green Cross Corp. ................................ 1,197,969 126,621 Yuhan Corporation ...................................... 4,870,038 27,565 Yuhan Corporation (New 1)(c) ........................... 1,206,988 15,418 Yuhan Corporation (New 2)(c) ........................... 664,160 ----------- 17,890,360 ----------- COMMUNICATIONS 23.0% Cellular Telephone 112,706 Korea Mobile Telecom Corp. (Mobile telecommunication services)(d)(h) .................... 111,911,056 ----------- FINANCIAL 15.7% Banks 7.7% 435,650 Cheju Bank (Regional bank) ............................. 3,449,111 571,400 Cho Hung Bank (GDS) (Commercial bank) .................. 4,285,500 134,692 Kookmin Bank (Major commercial bank) ................... 1,864,966 3,381 Daegu Bank (Leading regional bank) ..................... 39,972 100,000 Hanil Bank (Major commercial bank) ..................... 686,391 461,044 Korea Exchange Bank (Major commercial bank) ............ 4,173,949 200,000 Korea First Bank (Major commercial bank) ............... 1,013,018 391,300 Korea Housing Bank (New 1) ............................. 5,464,308 584,315 Korea Long Term Credit Bank (Major commercial bank) ..................................... 10,026,707 485,950 Shin Han Bank (Major commercial bank) .................. 6,613,521 ----------- 37,617,443 ----------- Insurance 6.8% 45,356 Daehan Fire & Marine Insurance Co., Ltd. (Insurance company) .................................. 1,100,353 44,656 Hyundai Fire and Marine Insurance (Insurance company) .. 1,448,017 49,912 LG Insurance Co., Ltd. (Insurance company) ............. 2,652,131
The accompanying notes are an integral part of the financial statements. 15 [Logo of The Korea Fund, Inc.] THE KOREA FUND, INC. INVESTMENT PORTFOLIO (continued)
=================================================================================================================== Market Shares Value($) - ------------------------------------------------------------------------------------------------------------------- 68,967 Samsung Fire & Marine Insurance Co. (d)(h) .............. 27,831,653 ---------- 33,032,154 ---------- Other Financial Companies 1.2% 14,638 Boo Kook Securities (Securities company) ................ 114,332 218,224 Hyundai Securities (Securities company) ................. 2,608,358 14,578 Hyundai Securities (New 1) .............................. 163,895 50,000 LG Securities Co., Ltd. (Securities company) ............ 508,876 145,000 Shinyoung Securities .................................... 2,402,367 27,081 Ssangyong Investment & Securities Co. ................... 258,952 ---------- 6,056,780 ---------- SERVICE INDUSTRIES 0.9% Miscellaneous Commercial Services 243,132 Samsung Co., Ltd. (Trading company) ..................... 2,877,302 44,589 Samsung Co., Ltd. (New 1) ............................... 522,404 45,003 Sunkyong Ltd. ........................................... 655,073 6,515 Sunkyong Ltd. (New 1) ................................... 90,208 ---------- 4,144,987 ---------- DURABLES 6.7% Automobiles 4.6% 116,209 Hyundai Motor Co., Ltd. (Korea's largest auto manufacturer) ......................................... 2,750,509 423,380 Hyundai Motor Services Co., Ltd. (Auto parts and services) ............................................. 10,321,453 54,989 Hyundai Motor Services Co., Ltd. (New 1) ................ 1,301,515 113,341 Mando Machinery Corp. ................................... 3,822,745 35,000 Samlip Industries (Auto parts manufacturer) ............. 1,404,142 90,000 Yoosung Enterprise (Leading manufacturer of engine parts) ......................................... 2,566,864 ---------- 22,167,228 ---------- Leasing Companies 0.3% 93,000 Korea Development Leasing Co. (Largest leasing company in Korea) ..................................... 1,309,704 ---------- Telecommunications Equipment 0.1% 5,490 LG Information & Communication (Leading manufacturer of telecommunication equipment) .......... 350,840 5,050 LG Information & Communication (New 1) .................. 357,982 220 Sungmi Telecom Electronics (Leading manufacturer of telecommunication equipment) ....................... 32,805 ---------- 741,627 ----------
The accompanying notes are an integral part of the financial statements. 16
=================================================================================================================== Market Shares Value($) - ------------------------------------------------------------------------------------------------------------------- Tires 1.7% 163,416 Hankook Tire Manufacturing Co., Ltd. (Major tire manufacturer) ......................................... 6,265,892 42,995 Hankook Tire Manufacturing Co., Ltd. (New)(c) ........... 1,679,095 11,570 Hankook Tire Manufacturing Co., Ltd. (New 2)(c) ......... 449,108 ---------- 8,394,095 ---------- MANUFACTURING 5.4% Chemicals 1.5% 85,550 Hanwha Co., Ltd. ........................................ 931,432 13,894 Hanwha Co., Ltd. (New 1) ................................ 154,560 37,540 Korea Chemical Co. (Paint company) ...................... 2,576,710 210,009 LG Chemical Co. Ltd. (Korea's largest integrated chemical company) ..................................... 2,025,531 50,047 Oriental Chemical Industries Co., Ltd. .................. 1,160,854 4,755 Oriental Chemical Industries Co., Ltd. (New 1) .......... 106,354 10,960 Oriental Chemical Industries Co., Ltd. (New 2) .......... 241,250 ---------- 7,196,691 ---------- Containers & Paper 3.3% 100,000 Asia Paper Manufacturing Co. (Specialized maker of cardboard used for packaging) ......................... 3,491,124 37,333 Asia Paper Manufacturing Co. (New 1) .................... 1,219,397 50,000 Dae Young Packaging Co. (New 1) (Leading producer of corrugated board base and boxes) ................... 1,698,225 169,500 Hansol Paper Manufacturing Co., Ltd. .................... 4,553,432 145,807 Hansol Paper Manufacturing Co., Ltd. (New 1) ............ 3,796,159 20,000 Korea Export Packaging Co. (New 1) (Producer of corrugated boards) .................................... 437,870 35,000 Shin Poong Paper Manufacturing Co., Ltd. (Leading manufacturer of white duplex paperboard) .............. 849,112 ---------- 16,045,319 ---------- Diversified Manufacturing 0.0% 22,339 Samsung Heavy Industries Co., Ltd. (New 1) (Shipbuilder, major producer of machinery) ............ 224,976 ---------- Electrical Products 0.6% 114,086 Kyungwon Century Co., Ltd. (Major manufacturer of heating and cooling equipment) ........................ 2,902,780 ---------- TECHNOLOGY 9.1% EDP Peripherals 0.3% 41,240 Chung Ho Computer Co. (Manufacturer of cash dispensers, on-line and automated teller machines) .... 1,674,002 ---------- Electronic Components/ Distributors 8.2% 216,605 Samsung Display Devices ................................. 12,381,091 15,445 Samsung Display Devices (New 1) ......................... 875,521
The accompanying notes are an integral part of the financial statements. 17 [Logo of The Korea Fund, Inc.] THE KOREA FUND, INC. INVESTMENT PORTFOLIO (continued)
=================================================================================================================== Market Shares Value($) - ------------------------------------------------------------------------------------------------------------------- 236,962 Samsung Electromechanics Co., Ltd. ...................... 5,384,225 59,318 Samsung Electromechanics Co., Ltd. (New 1) .............. 1,312,718 235,220 Samsung Electronics Co., Ltd. ........................... 12,665,692 143,724 Samsung Electronics Co., Ltd. (New 1) ................... 7,381,801 ---------- 40,001,048 ---------- Electronic Data Processing 0.6% 87,817 Trigem Computer Inc. (Major personal computer manufacturer) ......................................... 2,702,062 ---------- ENERGY 1.2% Oil & Gas Production 55,833 Ssangyong Oil Refining Co. .............................. 1,222,379 245,644 Yukong, Ltd. ............................................ 4,651,248 ---------- 5,873,627 ---------- METALS & MINERALS 2.0% Coal Mining 0.3% 30,000 Dongwon Company Ltd. (Thermal coal mining) .............. 1,437,870 ---------- Steel & Metals 1.7% 160,000 Inchon Iron & Steel Co. (Steel producer) ................ 2,575,148 70,857 Inchon Iron & Steel Co. (New 1) ......................... 1,123,649 72,313 Kia Steel Co., Ltd. (New 1) ............................. 315,781 68,200 Pohang Iron & Steel Co., Ltd. (Leading steel producer)(d) .......................................... 4,035,907 ---------- 8,050,485 ---------- CONSTRUCTION 5.3% Building Materials 2.7% 10,000 Asia Cement Manufacturing Co.(Major producer of cement) ............................................... 250,888 24,000 Hanil Cement Manufacturing Co., Ltd. (Cement manufacturing company) ................................ 1,050,888 234,337 Keum Kang Co., Ltd. (Construction company and manufacturer of building materials) ................... 10,676,893 68,915 Ssangyong Cement Industrial Co., Ltd. ................... 970,519 ---------- 12,949,188 ---------- Homebuilding 0.3% 50,000 Chong Gu Housing & Construction Co. (Apartment building construction company) ........................ 1,242,604 46,300 Keang Nam Enterprises (Apartment and urban renewal construction company) ......................... 372,044 ---------- 1,614,648 ---------- Miscellaneous 2.3% 139,125 Dong Ah Construction Industries Co., Ltd. (Leading construction company) ................................. 2,963,609 4,659 Dong Ah Construction Industries Co., Ltd. (New 2) ....... 94,834
The accompanying notes are an integral part of the financial statements. 18
=================================================================================================================== Market Shares Value($) - ------------------------------------------------------------------------------------------------------------------- 149,904 Hyundai Engineering & Construction Co. ................. 3,477,063 14,258 Hyundai Engineering & Construction Co. (New 1) ......... 313,845 30,870 Kumho Construction and Engineering (Engineering and construction company) ............................ 233,808 135,350 LG Construction Co. (Major real estate developer and construction company) ................................ 2,658,947 1,234 Sungwon Construction Co. ............................... 13,873 240 Sungwon Construction Co. (New) ......................... 2,542 20,000 Tae Young Corp. (Construction company) ................. 1,315,976 ----------- 11,074,497 ----------- TRANSPORTATION 1.5% Airlines 0.5% 158,146 Korean Air Co., Ltd. ................................... 2,433,015 ----------- Marine Transportation 0.1% 27,930 Hyundai Merchant & Marine Co. (Transportation company) ............................................. 360,280 1,146 Korea Line Corp. (Maritime transportation company) ..... 13,155 ----------- 373,435 ----------- Trucking 0.9% 179,156 Korea Express Co., Ltd. (General freight transport company) ............................................. 4,303,984 ----------- UTILITIES 2.9% Electric Utilities 1.6% 210,900 Korea Electric Power Co. ............................... 6,139,811 91,000 Korea Electric Power Co. (ADR) ......................... 1,865,500 ----------- 8,005,311 ----------- Natural Gas Distribution 1.3% 12,900 Daehan City Gas Co. (Natural gas distributor) .......... 931,243 37,600 Daesung Industrial (Natural gas distributor) ........... 2,202,604 23,687 Daesung Industrial (New 1) ............................. 1,210,980 24,940 Samchully (Producer and distributor of anthracite and gas) ............................................. 1,741,374 4,689 Samchully (New 1)(c) ................................... 338,496 1,875 Samchully (New 2) ...................................... 132,027 ----------- 6,556,724 ----------- TOTAL COMMON STOCKS (Cost $296,131,802) ................ 416,913,878 ----------- - ------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT PORTFOLIO - 100.0% (Cost $383,112,719)(a) ............................... 487,337,611 ===========
The accompanying notes are an integral part of the financial statements. 19 [Logo of The Korea Fund, Inc.] THE KOREA FUND, INC. INVESTMENT PORTFOLIO (continued) ================================================================================ - -------------------------------------------------------------------------------- (a) The cost for federal income tax purposes was $383,716,010. At December 31, 1996, net unrealized appreciation for all securities based on tax cost was $103,621,601. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of market value over tax cost of $175,647,533 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over market value of $72,025,932. (b) New shares issued during 1996, eligible for a pro rata share of 1996 dividends (See Note A to the Notes to Financial Statements). (c) Securities valued in good faith by the Valuation Committee of the Board of Directors at fair value amounted to $53,084,865 (10.43% of net assets). Their values have been estimated by the Board of Directors in the absence of readily ascertainable market values. 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. The cost of these securities at December 31, 1996 aggregated $59,806,632. These securities may also have certain restrictions as to resale (See Note A to the Notes to Financial Statements). (d) 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 of $54,963,119 over the local share price of $92,233,014 for these securities valued by the Valuation Committee was approximately 10.80% of the Fund's net assets at December 31, 1996. The cost of these securities at December 31, 1996 was $25,609,696 (See Note A to the Notes to Financial Statements). Their values have been estimated by the Board of Directors in the absence of readily ascertainable market values or other market factors, respectively. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the securities existed, and the difference could be material. (e) Principal amount stated in Korean won unless otherwise noted. U.S.$ United States Dollar. (f) Bonus interest represents the amount available to be paid to the holder at maturity in lieu of conversion. (g) Non-income producing. (h) At December 31, 1996, 28% of the Fund's net assets were invested in Korea Mobile Telecom Corp. and Samsung Fire & Marine Insurance Co. The accompanying notes are an integral part of the financial statements. 20 [Logo of The Korea Fund, Inc.] THE KOREA FUND, INC. FINANCIAL STATEMENTS
====================================================================================================== - ------------------------------------------------------------------------------------------------------ STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996 - ------------------------------------------------------------------------------------------------------ ASSETS Investments, at market (identified cost $383,112,719)(Note A) .... $487,337,611 Cash: U.S. dollars .................................................. 14,113 Won at market (identified cost $22,049,372)(Note A) ........... 21,718,387 Receivables: Dividends and interest ........................................ 1,041,520 Other assets ..................................................... 3,747 ------------ Total assets ................................................ 510,115,378 LIABILITIES Payables: Accrued management fee (Note C) ................................ $495,693 Other accrued expenses and payables (Note C) ................... 476,792 -------- Total liabilities ............................................ 972,485 ------------ Net assets, at market value ...................................... $509,142,893 ============ NET ASSETS Net assets consist of: Accumulated net investment loss ................................ $ (1,427,032) Net unrealized appreciation (depreciation) on: Investments .................................................. 104,224,892 Won .......................................................... (330,985) Won related transactions ..................................... (10,076) Accumulated net realized loss ................................ (7,050,450) Paid-in capital .............................................. 413,736,544 ------------ Net assets, at market value ...................................... $509,142,893 ============ NET ASSET VALUE per share ($509,142,893 / 37,570,917 shares of common stock issued and outstanding, 50,000,000 shares authorized, $.01 par value) .................................... $13.55 ======
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- 21 [Logo of The Korea Fund, Inc.] THE KOREA FUND, INC. FINANCIAL STATEMENTS (continued)
============================================================================================================ - ------------------------------------------------------------------------------------------------------------ STATEMENT OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1996 - ------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME Income: Interest (net of withholding taxes of $122,623) ..................... $ 2,543,583 Dividends (net of withholding taxes of $46,223) (Note A) ............ 117,777 ------------- 2,661,360 Expenses: Management fee (Note C) ............................................. $ 3,077,808 Custodian and accounting fees (Note C) .............................. 701,947 Directors' fees and expenses (Note C) ............................... 88,802 Legal ............................................................... 37,732 Auditing ............................................................ 60,459 Reports to shareholders ............................................. 38,922 Services to shareholders ............................................ 41,774 Other ............................................................... 40,948 4,088,392 ------------- ------------- Net investment loss ................................................... (1,427,032) ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized loss during the period on: Investments ......................................................... (2,375,037) Won related transactions ............................................ (3,850,414) (6,225,451) ------------- Net unrealized appreciation (depreciation) during the period on: Investments ......................................................... (158,292,765) Won ................................................................. 2,042,692 Won related transactions ............................................ (4,580) (156,254,653) ------------- ------------- Net loss on investment transactions ................................... (162,480,104) ------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS .................... $(163,907,136) =============
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 1996 1996 - ----------------------------------------------------------------------------------------------------------- Operations: Net investment income (loss) .......................................... $ (1,427,032) $ 738,094 Net realized gain (loss) from investment transactions ................. (6,225,451) 24,164,248 Net unrealized appreciation (depreciation) on investment transactions during the period ................................................... (156,254,653) (60,906,538) ------------- ------------ Net decrease in net assets resulting from operations .................... (163,907,136) (36,004,196) ------------- ------------ Distributions to shareholders: From net investment income ............................................ -- (738,094) ------------- ------------ In excess of net investment income .................................... -- (1,489,524) ------------- ------------ From net realized gains on investment transactions .................... (22,312,637) (13,231,733) ------------- ------------ Fund share transactions: Reinvestment of distributions ......................................... 6,675,080 5,604,398 ------------- ------------ DECREASE IN NET ASSETS .................................................. (179,544,693) (45,859,149) Net assets at beginning of period ....................................... 688,687,586 734,546,735 ------------- ------------ NET ASSETS AT END OF PERIOD (including accumulated net investment loss of $1,427,032 at December 31, 1996) ................................... $ 509,142,893 $688,687,586 ============= ============ OTHER INFORMATION INCREASE IN FUND SHARES Shares outstanding at beginning of period ............................... 37,188,528 36,930,508 Shares issued to shareholders in reinvestment of distributions ........ 382,389 258,020 ------------- ------------ Shares outstanding at end of period ..................................... 37,570,917 37,188,528 ============= ============
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- 23 [Logo of The Korea Fund, Inc.] 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, -------------------------------------------------------- 1996 1996 1995 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period..................... $ 18.52 $19.89 $18.66 $11.40 $10.75 $ 10.27 ------- ------ ------ ------ ------ ------- Income from investment operations (a): Net investment income (loss)........................... (.04) .02 (.02) (.03) .02 .08 Net realized and unrealized gain (loss) on investment transactions.............................. (4.34) (.97) 2.42 7.13 .86 .78 ------- ------ ------ ------ ------ ------- Total from investment operations......................... (4.38) (0.95) 2.40 7.10 .88 .86 ------- ------ ------ ------ ------ ------- Less distributions: From net investment income............................. -- (.02) -- (.01) (.04) (.06) In excess of net investment income..................... -- (.04) -- -- -- -- From net realized gains on investment transactions..... (.60) (.36) (.15) -- (.20) (.34) ------- ------ ------ ------ ------ ------- Total distributions...................................... (.60) (.42) (.15) (.01) (.24) (.40) ------- ------ ------ ------ ------ ------- Antidilution (dilution) resulting from the rights offering (1995), fourth tranche (1994), and reinvestment of distributions for shares at market value.................................................. .01 -- (1.02) .22 .01 .02 ------- ------ ------ ------ ------ ------- Underwriting expenditures and offering costs............. -- -- -- (.05) -- -- ------- ------ ------ ------ ------ ------- Net asset value, end of period........................... $ 13.55 $18.52 $19.89 $18.66 $11.40 $ 10.75 ======= ====== ====== ====== ====== ======= Market value, end of period.............................. $ 14.88 $21.13 $19.63 $22.00 $15.00 $ 11.38 ======= ====== ====== ====== ====== ======= TOTAL RETURN Per share market value (%)............................... (24.27)** 9.73 (5.43) 46.74 34.54 (17.01) Per share net asset value (%)(b)......................... (27.17)** (5.09) 13.00 63.77 8.20 7.87 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period ($ millions)................... 509 689 735 550 258 241 Ratio of operating expenses to average net assets (%).... 1.32* 1.28 1.32 1.37 1.52 1.52 Ratio of net investment income (loss) to average net assets (%)(c)...................................... (.23)** .10 (.10) (.18) .15 .70 Portfolio turnover rate (%).............................. 7.1* 32.6 10.5 14.3 14.3 18.2 Average commission rate paid (d)......................... $ .0853 $.1254 $ -- $ -- $ -- $ -- (a) Based on monthly average of shares outstanding during each period. (b) Total investment returns reflect changes in net asset value per share during each period and assume 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 price. (c) The ratio for the six months ended December 31, 1996 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). (d) Average commission rate paid per share of common and preferred stocks is calculated for fiscal years ending on or after June 30, 1996. * Annualized ** Not annualized
- -------------------------------------------------------------------------------- 24 [Logo of The Korea Fund, Inc.] 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 Fund's financial statements are prepared in accordance with generally accepted accounting principles which require the use of management estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements. 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. See notes (c) and (d) of the notes to the Investment Portfolio. 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 16.5% on dividends and 13.2% on interest paid to the Fund by Korean issuers. 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 foreign denominated investments and certain securities sold at a loss. 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. 25 [Logo of The Korea Fund, Inc.] THE KOREA FUND, INC. NOTES TO FINANCIAL STATEMENTS (continued) ================================================================================ 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, 1996 the exchange rate for Korean won was U.S. $0.001189 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. B. PURCHASES AND SALES OF SECURITIES --------------------------------- For the six months ended December 31, 1996, purchases and sales of investment securities (excluding short-term investments) aggregated $81,446,217 and $19,897,158, 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, 1996, the fee pursuant to such agreement amounted to $3,077,808 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 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, 1996, brokerage commissions on investment transactions amounting to $38,143 were paid by the Fund to Daewoo Securities Co., Ltd., the parent company of the Korean Adviser. 26 ================================================================================ Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is responsible 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, 1996, the amount charged to the Fund by SFAC aggregated $168,114, of which $25,702 is unpaid at December 31, 1996. 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, 1996, Directors' fees and expenses amounted to $88,802. 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 Economy 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. Until October 1, 1996, total foreign investment was limited generally to 18% of each class of a company's outstanding shares, while a single foreign investor could only invest up to 4% of each class of outstanding shares. At October 1, 1996, the limits were increased from 18% to 20% and 4% to 5%, respectively. Pursuant to its license, however, the Fund may invest in shares representing 7% of each class in general. E. INVESTING IN THE KOREAN MARKET ------------------------------ Investing in the Korean market may involve special risks and considerations not typically associated with investing in the United States. These risks include revaluation of currency, high rates of inflation, repatriation restrictions on income and capital, and future adverse political and economic developments. Moreover, securities issued in this market may be less liquid, subject to government ownership controls, delayed settlements, and their prices more volatile than those of comparable securities in the United States. 27 [Logo of The Korea Fund, Inc.] 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, 1996, 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, 1996, and the financial highlights for the six months ended December 31, 1996 and for each of the five years in the period ended June 30, 1996. 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, 1996 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, 1996, 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, 1996, and the financial highlights for the six months ended December 31, 1996 and for each of the five years in the period ended June 30, 1996 in conformity with generally accepted accounting principles. Boston, Massachusetts COOPERS & LYBRAND L.L.P. February 24, 1997 28 [Logo of The Korea Fund, Inc.] THE KOREA FUND, INC. TAX INFORMATION ================================================================================ The Fund paid distributions of $0.60 per share from net long-term capital gains during the six month period ended December 31, 1996. Due to the nature of its investments, the Fund pays foreign taxes to the Republic of Korea throughout the year. As in prior years, the Fund intends to make an election under Section 853 of the Internal Revenue Code. This election will allow shareholders to treat their proportionate share of foreign taxes paid by the Fund as having been paid directly by them. Additionally, shareholders will be required to report their proportionate share of such taxes paid as gross income (in addition to other amounts of reportable distributions paid by the Fund). The Fund paid taxes to the Republic of Korea of $0.035 per share during the period ended December 31, 1996. Pursuant to an election made by the Fund under Section 853 of the Internal Revenue Code, shareholders may treat their proportionate share of such taxes as having been paid by them. During the same period, the Fund recognized $0.172 per share of foreign source income, all of which was derived from the Republic of Korea. 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. 29 Shareholder Meeting Results ================================================================================ The Annual Meeting of Shareholders of The Korea Fund, Inc. was held on Monday, October 7, 1996, at the offices of Scudder, Stevens & Clark, Inc., 25th Floor, 345 Park Avenue, New York, New York. The two 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* --- -------- ----------------- Robert J. Callander 18,759,612 221,197 0 William H. Gleysteen, Jr. 18,763,650 217,159 0 Tai Ho Lee 18,753,071 227,738 0
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, 1997.
Number of Votes: ---------------- For Against Abstain Broker Non-Votes* --- ------- ------- ----------------- 18,885,752 72,184 22,873 0
- -------------------------------------------------------------------------------- * 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. 30 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. 31 ================================================================================ 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 8209, Boston, MA 02266-8209, 1-800-426-5523. 32 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 Advisor ================================================================================ 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. 33 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 ROBERT J. CALLANDER 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* Vice President, Secretary and Assistant Treasurer PAMELA A. McGRATH* Vice President andTreasurer EDWARD J. O'CONNELL* Vice President and Assistant Treasurer KATHRYN L. QUIRK* Vice President and Assistant Secretary - ---------- * Scudder, Stevens & Clark, Inc. 34 -----END PRIVACY-ENHANCED MESSAGE-----