-----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, COMjKOiEfoGx0WGOT9KKoFBJEuSlwT49JFhwg2gOBJjPzPl2lnFLodfrCqARjXFl YpZl/OernU8sMyhBgcu/Kg== 0000748691-97-000007.txt : 19970912 0000748691-97-000007.hdr.sgml : 19970912 ACCESSION NUMBER: 0000748691-97-000007 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970902 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: SEC FILE NUMBER: 811-04058 FILM NUMBER: 97674329 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 ANNUAL REPORT - THE KOREA FUND, INC. THE KOREA FUND, INC. Annual Report June 30, 1997 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 6 Investment Summary 7 Portfolio Summary 8 Investment Performance 9 Investment Portfolio 11 Financial Statements 20 Financial Highlights 23 Notes to Financial Statements 24 Report of Independent Accountants 28 Tax Information 29 Shareholder Meeting Results 30 Dividend Reinvestment and Cash Purchase Plan 31 Officers and Directors 33 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 weak market environment that characterized most of the twelve-month period turned positive in May as prospects improved for many South Korean companies and deregulation of the financial markets continued. o The Korea Fund, Inc. successfully raised $145 million in new assets through a rights offering completed on April 18, 1997, which enhanced the Fund's participation in the improved investment environment. o While the Fund returned -24.40% on net asset value for the entire twelve-month period, shareholders that participated in the rights offering in April were able to increase their share ownership in the Fund at a crucial time of change in the Korean market. Shares of the Fund, which trade on the New York Stock Exchange, declined 26.11% over the same period. o The additional cash flow from the rights offering permitted Fund management to maintain and add to many existing positions in blue chip companies, which we believe have strong long-term prospects. Letter to Shareholders - -------------------------------------------------------------------------------- Dear Shareholders: After many months of waiting, the South Korean stock market rallied towards the end of the twelve-month period ended June 30, 1997. The KOSPI began the period at 823.53, declined to 651.22 on December 31, 1996, and closed the period on June 30, 1997 at 745.40 for a price return of -9.49% in local currency terms, with essentially all of the market's rebound occurring in May. The rebound was powered by a reduction in interest rates, a smaller trade deficit, improved corporate profits, and most importantly, further implementation of financial industry deregulation. The Korean won declined 9.80% versus the U.S. dollar during the twelve months, further reducing returns for U.S. dollar-based investors. The Fund's -24.40% return on net asset value for the twelve-month period reflects the change in net asset value from $18.52 to $13.22, a long-term capital gain distribution of 60 cents per share, and the net effect of the rights offering, which resulted in increased share ownership for participants. The Fund's publicly traded shares ended the period at $14.75, down from $21.13 twelve months ago. The NYSE price -- an indicator of market interest -- closed the period at an 11.6% premium over net asset value (NAV) on June 30, 1997. Investment Environment The pessimism of the first ten months of the period gave way to improved market sentiment in May. The more favorable environment was driven by rebounding prospects for the semiconductor industry, which constitutes a substantial portion of Korea's economic base and stock market capitalization. There were also several fundamental and structural changes to the Korean market that helped foster a more favorable environment. On May 1, the Korean government continued its deregulation of the financial markets by increasing the foreign ownership limit from 20% to 23% of shares outstanding. The higher ownership limit caused many foreign investors to add to existing positions, contributing to the stock market rally. There were other reasons for the buoyant attitude of investors in May. A decline in interest rates improved stock market liquidity. Corporate earnings were expected to recover, with lower interest rates contributing to efforts to reduce costs. In addition, the May trade deficit declined. However, a continuation of financial difficulties at major firms, including Kia Motors 3 (not held in the portfolio), took the wind out of the market's sails in June. While Kia Motors did not file for bankruptcy, conditions may worsen before they improve for the company. This event put a damper on the market just as the environment seemed to be turning up. Rights Offering The Fund successfully completed a rights offering on April 18, 1997, raising net proceeds of $145 million for investment in the Korean market. The rights offering commenced on March 31, 1997, making available rights to purchase 12,429,083 shares of the Fund's common stock at a subscription price of $12.00 per share. The Fund issued one right for each 1.01 shares held by shareholders as of March 31, 1997, rounded to the nearest whole right. In the primary subscription, three rights were required to purchase one new share. Of the 12,429,083 shares available in the offering, 12,104,661 were subscribed through the primary subscription. The remaining shares were issued at the same $12.00 subscription price on a pro rata basis to shareholders who elected to subscribe to the over-subscription privilege. At the close of business on April 24, 1997, the Fund included the net proceeds of the offering and the newly issued shares in the calculation of the Fund's net asset value. The oversubscribed rights offering was especially timely for the Fund. As Korean limits on stock ownership by foreigners were increased, the Fund took advantage of this opportunity by using cash from the Fund's rights offering to purchase additional shares of many companies currently held in the portfolio. Recently, many Korean companies have been making their own rights offerings, which requires the Fund to raise cash. By participating in these rights offerings, the Fund was able to avoid paying premiums for adding to existing positions. The Fund's rights offering also helped us avoid selling existing positions to raise cash for these rights offerings, which could have resulted in additional capital gains and potentially increased tax liability to shareholders. Increased Investment Flexibility As a result of our requests to the Korean government, the Fund was granted permission to invest in initial public offerings (IPOs). Before the Fund's license was amended to permit IPO investments, no foreign investor could participate in IPOs. In the past, this limitation has confined the Fund's investments to companies traded in the secondary market. Purchasing stocks at the IPO avoids payment of the usual premium associated with the secondary market. The Fund did not participate in any IPOs during the period, but we expect to in the future. In addition, the Fund's license now permits investment in up to 20% of assets in bonds, up from the old limit of 10%. This is important because it provides the Fund with significantly increased flexibility to pursue attractive investment opportunities. This includes convertible bonds, which we believe are attractive. The convertible bond market has been relatively illiquid and inefficient in the past, due to a limited number of investors. The Korean government has been expediting the process for opening the bond market to foreign investors, which should help this market become more efficient, increasing the potential for higher convertible bond values. As a result, we added selected convertible bonds to the portfolio during the period. Portfolio Strategy The Fund has continued to rely on intensive fundamental research to identify well-managed companies with promising long-term growth prospects. We focus on those companies we believe are positioned to perform well under a variety of economic conditions. We generally take a buy and hold approach, especially with 4 respect to the Fund's top ten holdings which represent approximately 43% of the portfolio. During the twelve-month period, we primarily focused on adding to existing positions as we sought to take advantage of the higher equity ownership limits. When the new limits went into effect in May, we added to our holdings of SK Telecom, Samsung Electronics, Samsung Fire & Marine, Pohang Iron and Steel, and Kookmin Bank. Many of these stocks were added without paying a premium, which typically has ranged from 15 to 50% above the market price. We also added a number of new names to the portfolio including small companies with relatively high growth rates, such as Daou Technology, a software developer, and Dae Duck Electronics in the communications area. Daou Technology develops software for relational database management systems including ATM switches, CD ROM titles, and the Internet. We believe the company has good growth potential. Dae Duck Electronics provides wireless telephone services. The company is experiencing rapid earnings growth, yet we believe the stock is an attractive value. We expect growth companies such as Daou and Dae Duck should give the Fund an increased growth orientation, especially when combined with increased ownership limits and the Fund's expanded ability to participate in the IPO market. Bank and brokerage stocks rallied strongly in May, and the Fund's performance lagged somewhat for the year ended June 30, 1997. These stocks currently have less attractive fundamentals in our opinion, and because we prefer to emphasize stocks with solid long-term prospects, we had limited exposure in this area. In retrospect, we were glad that we stayed with our long-term investment approach, as the rally in bank and brokerage stocks was short lived. Outlook We continue to have a positive long-term outlook for the Korean market. There are many indications that the economy is recovering: the trade deficit is falling, inventory growth has slowed, and wage increases have also been minimized recently. The Korean government is also expediting deregulation of many industries and implementing financial reform. As a result of less intervention by the government in business matters, Korean companies are expected to operate in a more efficient manner with improved profitability. Moreover, while uncertainties remain over the recent talks with North Korea, the mere fact that all parties have met for the first time since the original cease-fire is a major step for both countries. We believe these positive political developments are indicative of an improving environment that will benefit investors in Korean securities over the long term. Sincerely, /s/Nicholas Bratt /s/Juris Padegs Nicholas Bratt Juris Padegs President Chairman of the Board 5 Other Information - -------------------------------------------------------------------------------- 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. In addition to the Fund, Scudder also manages the assets of seven 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, Scudder Spain and Portugal Fund, Inc. 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. 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. 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 JUNE 30, 1997 - ----------------------------------------------------------------- HISTORICAL INFORMATION LIFE OF FUND
TOTAL RETURN (%) ------------------------------------------------------------------------------------- MARKET VALUE NET ASSET VALUE (a) INDEX (c) INDEX (d) ------------------- -------------------- ------------------- ------------------- AVERAGE AVERAGE AVERAGE AVERAGE CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL ------------------- -------------------- ------------------- ------------------- CURRENT QUARTER 4.98 - 3.40 - 11.07 - 10.05 - ONE YEAR -26.11 -26.11 -24.40 -24.40 -17.57 -17.57 -9.49 -9.49 THREE YEAR -23.32 -8.47 -18.92 -6.75 -27.30 -10.08 -5.20 -1.77 FIVE YEAR 51.38 8.65 43.68 7.52 20.59 3.82 35.03 6.19 TEN YEAR 10.68 1.02 108.49 7.62 65.50 5.17 81.03 6.11
- ----------------------------------------------------------------- PER SHARE INFORMATION AND RETURNS (a) YEARLY PERIODS ENDED JUNE 30 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. 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 ---------------------------------------------------------------------------------------------- NET ASSET VALUE (B)... $ 13.97 $ 16.84 $ 14.45 $ 10.27 $ 10.75 $ 11.40 $ 18.66 $ 19.89 $ 18.52 $ 13.22 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 (%)...... 31.57 33.21 -9.52 -14.91 7.87 8.20 63.77 13.00 -5.09 -24.40
(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 for 1988 has been adjusted for a 200% stock dividend paid in October 1988. (c) Korea Stock Price Index ("KOSPI") in U.S. Dollars. (d) Korea Stock Price Index ("KOSPI") in local terms. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE OF THE FUND. 7 PORTFOLIO SUMMARY as of June 30, 1997 - --------------------------------------------------------------------------- DIVERSIFICATION - --------------------------------------------------------------------------- Common Stocks 76% Convertible Bonds 9% Bonds 6% Cash Equivalents 5% Preferred Stocks 4% - -------------------------------------- 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 - -------------------------------------------------------------------------- Financial 17% Communications 16% Technology 14% Consumer Staples 8% Manufacturing 8% Durables 7% Utilities 6% Metals & Minerals 5% Construction 5% Other 14% - -------------------------------------- 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 (43% OF PORTFOLIO) - -------------------------------------------------------------------------- 1. SK TELECOM CO., LTD. (Formerly Korea Mobile Telecom) Mobile telecommunication services 2. SAMSUNG ELECTRONICS CO., LTD. Major electronics manufacturer 3. SAMSUNG FIRE & MARINE INSURANCE CO. Insurance company 4. KOREA ELECTRIC POWER CO. Electric utility 5. POHANG IRON & STEEL CO., LTD. Leading steel producer 6. HANSOL PAPER MANUFACTURING CO., LTD. Korea's leading paper manufacturer 7. YUKONG, LTD. Korea's leading oil refiner 8. SAMSUNG DISPLAY DEVICES CO. Leading manufacturer of CRT and picture tubes 9. SEWON CO., LTD. Producer of starch, corn sweeteners and amino acids 10. HYUNDAI MOTOR SERVICES CO., LTD. Auto parts and service 8 The Korea Fund, Inc. Investment Performance - -------------------------------------------------------------------------------- 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* THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE: BAR CHART DATA: WITH INCOME WITH CAPITAL CHANGE IN SHARE S&P 500 DISTRIBUTIONS GAINS DISTRIBUTION VALUE OF INITIAL TOTAL RETURN REINVESTED REINVESTED INITIAL ($79,766) ---------- ---------- ------- --------- 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 65548 56829 35938 67903 68716 59657 36875 79766 9 The Korea Fund, Inc. Investment Performance - -------------------------------------------------------------------------------- KOREA FUND INVESTMENT PERFORMANCE (Cont'd) History (in terms of N.Y.S.E. Value) of a $10,000 Investment in Fund Shares* THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE: BAR CHART DATA: WITH INCOME WITH CAPITAL CHANGE IN SHARE DISTRIBUTIONS GAINS DISTRIBUTION VALUE OF INITIAL REINVESTED REINVESTED INITIAL ---------- ---------- ------- 10000 10000 10000 10072 10072 10072 10269 10269 10269 10197 10197 10197 10305 10305 10305 10083 9624 9624 12599 12025 12025 16796 16030 16030 21224 20054 20054 23020 21726 21667 23315 22004 21944 31873 30082 30000 31788 30001 29919 31515 29422 29122 33685 31447 30332 38620 36055 34776 41695 38926 37545 40580 37609 34346 52539 48693 42823 62236 57679 50726 55541 51474 45269 65403 60505 51425 64511 59679 49866 60372 55851 46667 50252 46489 38844 42973 39754 29570 46216 42755 29839 45050 41676 29086 42760 39558 27608 45385 41806 28737 45269 41699 28360 54323 50039 34032 46127 42489 28898 42992 39467 26398 46494 42683 28548 46844 43004 28763 49909 45817 30645 50128 46018 30780 72887 66877 44731 74814 68646 45914 81735 74996 50161 94468 86679 57661 90991 83489 55511 91123 83610 55591 92364 80416 53468 104044 90585 59409 94862 82356 53871 93916 81535 53333 87667 76110 49785 80692 70054 44301 66394 57642 36452 64093 55644 35188 66274 57537 35565 10 [Logo of The Korea Fund, Inc.] Investment Portfolio as of June 30, 1997
============================================================================================================================= - ----------------------------------------------------------------------------------------------------------------------------- Principal Market Amount (d) Value ($) - ----------------------------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT 4.8% U.S.$ 31,138,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 6/30/97 at 5.9% to be repurchased at $31,143,103 on 7/1/97, collateralized by a $24,098,000 U.S. Treasury Note, 10.75%, 8/15/05 (Cost $31,138,000) ........................................... 31,138,000 ---------- - ----------------------------------------------------------------------------------------------------------------------------- BONDS 5.6% 10,000,000,000 Korea Tungsten Exchange Bond, Zero Coupon with 36.03% bonus interest at maturity, 11/11/98(b) (e) ........... 13,893,812 20,000,000,000 Republic of Korea Foreign Exchange Stabilization Bond, 1997-3, 12.61%, 8/20/97 ...................................... 22,527,175 ---------- TOTAL BONDS (Cost $37,652,710) 36,420,987 ---------- - ----------------------------------------------------------------------------------------------------------------------------- CONVERTIBLE BONDS 9.4% CONSUMER DISCRETIONARY 0.3% Recreational Products 1,000,000,000 Shin Ho Electronic & Communication Co., Zero Coupon, with 21.16% bonus interest at maturity 12/31/00 (b) (e) ............................................. 1,656,068 ---------- CONSUMER STAPLES 1.0% Food & Beverage 0.5% 800,000,000 Crown Confectionery Co., 3% with 16.28%bonus interest at maturity, 12/31/97 (b) (e) ....................... 1,000,170 2,000,000,000 Haitai Confectionery Co., 1% with 12.69% bonus interest at maturity, 6/30/98 (b) (e) ................................. 2,276,763 ---------- 3,276,933 ---------- Textiles 0.5% U.S.$ 1,000,000 Kolon Industries, Inc., 0.25%, 12/31/04 ......................... 515,000 2,400,000,000 Kukje Corp., 12% with 4.62% bonus interest at maturity, 12/31/97 (b) (e) ................................ 2,819,065 ---------- 3,334,065 ---------- HEALTH 0.6% Pharmaceuticals 3,000,000,000 Korea Green Cross Corp., 1% with 11.88% bonus interest at maturity, 12/31/97 (b) (e) ................................ 3,578,432 400,000,000 Yuhan Corp., 5.5% with 25.41% bonus interest at maturity, 12/31/97 (b) (e) ................................. 544,196 ---------- 4,122,628 ----------
The accompanying notes are an integral part of the financial statements. 11 [Logo of The Korea Fund, Inc.] Investment Portfolio (continued)
============================================================================================================================= - ----------------------------------------------------------------------------------------------------------------------------- Principal Market Amount (d) Value ($) - ----------------------------------------------------------------------------------------------------------------------------- DURABLES 0.6% Telecommunications Equipment 0.3% 2,000,000,000 En K Telecom Co., Zero Coupon with 35.114% bonus interest at maturity, 12/31/00 (b) (e) ....................... 2,103,041 ---------- Tires 0.3% 1,890,000,000 Hankook Tire Manufacturing Co. Ltd., Zero Coupon with 5.83% bonus interest at maturity, 12/31/02 (b) (e) ............................................. 2,137,632 ---------- Manufacturing 0.7% Containers & Paper 4,000,000,000 Hansol Paper Manufacturing Co., Ltd., 3% with 28.84% bonus interest at maturity, 12/31/99 (b) (e) .......... 4,582,495 ---------- TECHNOLOGY 1.0% Electronic Components/ Distributors 0.8% 5,000,000,000 Hyundai Electronics Industries Co., Zero Coupon with 35.54% bonus interest at maturity, 12/31/00 (b) (e) ......... 5,054,685 ---------- Semiconductors 0.2% 1,604,800,000 D.I. Corporation, 3% with 34.44% bonus interest at maturity, 12/31/00 (b) (e) ............................... 1,720,800 ---------- ENERGY 0.9% Oil & Gas Production 2,000,000,000 Yukong, Ltd., 2% with 8.15% bonus interest at maturity, 12/31/97 (b) (e) ............................................. 2,317,144 3,000,000,000 Yukong, Ltd., 1% with 13.92% bonus interest at maturity, 12/31/98 (b) (e) ............................................. 3,269,636 ---------- 5,586,780 ---------- METALS & MINERALS 0.7% Steel & Metals 3,000,000,000 Dong Yang Steel Pipe Co., Zero Coupon with 20.13% bonus interest at maturity, 12/31/00 (b) (e) ................. 3,626,333 500,000,000 Sammi Steel Co. Ltd., 4% with 20.57% bonus interest at maturity, 12/31/97 (b) (e) ................................ 650,548 ---------- 4,276,881 ---------- CONSTRUCTION 0.2% Miscellaneous 1,000,000,000 Sungwon Construction, 5% with 21.11% bonus interest at maturity, 12/31/97 (b) (e) ....................... 1,312,177 ---------- TRANSPORTATION 0.4% Marine Transportation 2,000,000,000 Hanjin Shipping Co., 0.125% with 35.25% bonus interest at maturity, 12/31/99 (b) (e) ........................ 2,362,417 ---------- UTILITIES 3.0% Electric Utilities 5,000,000,000 Korea Electric Power Co., 1% with 9.98% bonus interest at maturity, 12/31/97 (b) (e) ................................ 5,810,686
The accompanying notes are an integral part of the financial statements. 12
========================================================================================================= - --------------------------------------------------------------------------------------------------------- Principal Market Amount (d) Value ($) - --------------------------------------------------------------------------------------------------------- 2,300,000,000 Korea Electric Power Co., Zero Coupon with 30.5% bonus interest at maturity, 12/31/98 (b) (e) ................. 2,832,589 9,951,000,000 Korea Electric Power Co., 5% with 9.5% bonus interest at maturity, 12/31/00 (b) (e) ....................... 11,206,081 ---------- 19,849,356 ---------- TOTAL CONVERTIBLE BONDS (Cost $68,752,783) ...................... 61,375,958 ---------- - ---------------------------------------------------------------------------------------------------------
PREFERRED STOCKS 4.0% Shares ------ CONSUMER DISCRETIONARY 0.1% Apparel & Shoes 0.1% 50,000 Shinwon Corp. ............................... 315,315 --------- Hotels & Casinos 0.0% 7,070 Hotel Shilla Co. ............................ 34,952 --------- CONSUMER STAPLES 0.8% Food & Beverage 0.2% 70,690 Cheil Jedang Corp. .......................... 1,194,088 10,000 Sewon Co., Ltd. ............................. 420,045 --------- 1,614,133 --------- Package Goods/Cosmetics 0.1% 118,570 Pacific Corp. ............................... 787,796 --------- Textiles 0.5% 10,700 BYC Co. Ltd. ................................ 477,162 225,910 Kolon Industries, Inc. ...................... 1,526,419 184,000 Kohap Co., Ltd. ............................. 476,577 172,870 Sunkyong Industries, Ltd. ................... 1,010,355 --------- 3,490,513 --------- HEALTH 0.1% Pharmaceuticals 6,901 Korea Green Cross Corp. ..................... 236,250 13,300 Shinpoong Pharmaceutical Co., Ltd. .......... 119,820 --------- 356,070 --------- FINANCIAL 1.2% Insurance 0.9% 23,385 Samsung Fire & Marine Insurance Co. (c) (f) . 5,806,748 --------- Other Financial Companies 0.3% 50,000 LG Securities Co., Ltd. ..................... 298,423 137,310 Shin Young Securities ....................... 827,262 202,000 Ssangyong Investment & Securities ........... 955,405 --------- 2,081,090 --------- SERVICE INDUSTRIES 0.1% Miscellaneous Commercial Services 76,000 Sunkyong Ltd. ............................... 376,577 ---------
The accompanying notes are an integral part of the financial statements. 13 [LOGO OF THE KOREA FUND, INC.] Investment Portfolio (continued)
================================================================================================================== - ------------------------------------------------------------------------------------------------------------------ Market Shares Value ($) - ------------------------------------------------------------------------------------------------------------------ DURABLES 0.3% Automobiles 0.2% 119,130 Mando Machinery Corp. ............................. 1,448,878 ---------- Telecommunications Equipment 0.1% 6,280 Sungmi Telecom Electronics Co. .................... 318,243 ---------- Tires 0.0% 74,650 Kum Ho Co., Ltd.* ................................. 232,861 ---------- MANUFACTURING 0.4% Chemicals 0.3% 31,700 Han Wha Co., Ltd. (b) ............................. 180,276 79,800 LG Chemical Co., Ltd. ............................. 458,311 116,380 Oriental Chemical Industries Co., Ltd. ............ 1,048,468 ---------- 1,687,055 ---------- Containers & Paper 0.1% 60,000 Hansol Paper Manufacturing Co., Ltd.(b) ........... 540,541 ---------- Miscellaneous 0.0% 60,000 Jindo Corp. ....................................... 233,108 ---------- TECHNOLOGY 0.6% Electronic Components/Distributors 14,318 Samsung Display Devices Co. ....................... 349,888 120,000 Samsung Electromechanics Co., Ltd. ................ 1,513,514 48,201 Samsung Electronics Co., Ltd. (c) (f) ............. 2,272,992 ---------- 4,136,394 ---------- METALS & MINERALS 0.0% Steel & Metals 37,170 Kangwon Industry ................................... 205,105 ---------- CONSTRUCTION 0.3% Building Materials 0.1% 75,000 Ssangyong Cement Industrial Co., Ltd. .............. 460,304 29,300 Sung Shin Cement Co., Ltd. ......................... 224,369 50,000 Tong Yang Cement Co., Ltd. ......................... 320,946 ---------- 1,005,619 ---------- Miscellaneous 0.2% 95,000 Hyundai Engineering & Construction Co. ............. 941,441 7,050 Tae Young Corp. .................................... 119,088 ---------- 1,060,529 ---------- TRANSPORTATION 0.1% Airlines 0.0% 22,320 Korean Airlines Co., Ltd. .......................... 150,811 ---------- Trucking 0.1% 25,500 Global Enterprises Co., Ltd. ....................... 410,642 ---------- TOTAL PREFERRED STOCKS (Cost $35,906,263) .......... 26,292,980 ---------- - ------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 76.2% Consumer Discretionary 2.3% Department & Chain Stores 2.0% 182,591 Hwa Sung Industries Co. ............................ 3,207,680 169,014 Shinsegae Department Store Co. ..................... 6,661,588
The accompanying notes are an integral part of the financial statements. 14 [LOGO OF THE KOREA FUND, INC.] Investment Portfolio (continued)
====================================================================================================== - ------------------------------------------------------------------------------------------------------ Market Shares Value ($) - ------------------------------------------------------------------------------------------------------ 225,328 Taegu Department Stores Co. ................ 3,476,344 ---------- 13,345,612 ---------- Hotels & Casinos 0.3% 170,000 Hotel Shilla Co.* .......................... 1,533,446 ---------- CONSUMER STAPLES 5.6% Food & Beverage 3.8% 89,990 Cheil Jedang Co. ........................... 4,215,748 120,000 Dongwon Industries Company.................. 1,621,622 22,670 Nam Yang Dairy Products..................... 2,655,045 46,718 Nhong Shim Co., Ltd......................... 1,999,194 48,000 Pulmuone Co., Ltd........................... 2,010,811 102,260 Sewon Co., Ltd. (g)......................... 12,149,133 ---------- 24,651,553 ---------- Package Goods/Cosmetics 0.2% 50,000 Hankook Cosmetics Co. ...................... 1,345,721 ---------- Textiles 1.6% 13,200 BYC Co., Ltd. .............................. 1,360,135 90,000 Choong Nam Spinning Co., Ltd.*.............. 1,114,865 10,000 Dae Ha Fashion Co.*......................... 388,514 2,610 Daehan Synthetic Fiber Co................... 264,233 48,240 Hankook Synthetics Inc...................... 2,444,594 40,192 Hyosung T&C Co., Ltd........................ 1,131,532 40,969 Kolon Industries, Inc....................... 788,930 5,040 Taekwang Industrial Co., Ltd................ 1,986,486 15,000 Vivien Corp. ............................... 1,131,757 ---------- 10,611,046 ---------- HEALTH 3.0% Pharmaceuticals 79,420 Chong Kun Dang Co., Ltd. ................... 3,756,351 21,011 Daewoong Pharmaceutical Co.................. 934,611 245,830 Dong-A Pharmaceutical Co., Ltd.............. 6,450,269 16,550 Korea Green Cross Corp...................... 1,304,617 169,604 Yuhan Corporation........................... 7,200,530 ---------- 19,646,378 ---------- COMMUNICATIONS 13.9% Cellular Telephone 13.6% 111,092 SK Telecom Co., Ltd. (c) (f) ............... 82,899,903 11,998 SK Telecom Co .............................. 6,174,646 ---------- 89,074,549 ---------- Telephone/Communications 0.1% 12,000 Sam Woo Communications Co.* ................ 783,784 ---------- Miscellaneous 0.2% 20,000 Communication Network Interface Co.* ....... 1,186,937 ----------
The accompanying notes are an integral part of the financial statements. 15 [LOGO OF THE KOREA FUND, INC.] Investment Portfolio (continued)
========================================================================================================= - --------------------------------------------------------------------------------------------------------- Market Shares Value ($) - --------------------------------------------------------------------------------------------------------- FINANCIAL 14.1% Banks 6.9% 438,120 Bank of Cheju .......................................... 2,960,270 571,400 Cho Hung Bank (GDS) .................................... 4,142,650 159,786 Daegu Bank ............................................. 1,329,751 280,570 Hanil Bank ............................................. 1,579,786 405,860 Housing & Commercial Bank .............................. 6,764,333 130,676 Kookmin Bank (c) ....................................... 2,466,951 438,138 Kookmin Bank ........................................... 6,266,163 561,044 Korea Exchange Bank .................................... 3,696,067 150,000 Korea First Bank ....................................... 625,000 625,130 Korea Long Term Credit Bank ............................ 9,644,461 457,660 Shin Han Bank .......................................... 5,669,212 ---------- 45,144,644 ---------- Insurance 5.7% 48,984 Daehan Fire & Marine Insurance Co., Ltd. ............... 1,704,511 44,656 Hyundai Marine & Fire Insurance Co. .................... 1,805,350 79,912 L.G. Insurance Co., Ltd. ............................... 4,841,515 75,857 Samsung Fire & Marine Insurance Co. (c) (f) ............ 28,492,504 ---------- 36,843,880 ---------- Other Financial Companies 1.5% 100,000 Dongwon Securities Co. ................................. 1,317,568 232,802 Hyundai Securities* .................................... 3,539,220 150,000 LG Securities Co., Ltd.* ............................... 1,824,324 205,000 Shinyoung Securities ................................... 3,162,725 ---------- 9,843,837 ---------- SERVICE INDUSTRIES 0.7% Miscellaneous Commercial Services 287,721 Samsung Co., Ltd. ...................................... 3,985,325 54,595 Sunkyong Ltd. .......................................... 657,845 ---------- 4,643,170 ---------- DURABLES 5.6% Automobiles 3.4% 116,209 Hyundai Motor Co., Ltd. ................................ 3,481,035 478,369 Hyundai Motor Services Co., Ltd. ....................... 11,582,132 83,341 Mando Machinery Corp. .................................. 2,721,722 35,000 Samlip Industrial Co. .................................. 1,493,806 90,000 Yoosung Enterprise Co. ................................. 3,040,541 ---------- 22,319,236 ---------- Leasing Companies 0.2% 93,000 Korea Development Leasing Co. .......................... 1,026,351 ---------- Telecommunications Equipment 0.6% 22,050 LG Information & Communication Ltd. .................... 2,731,419
The accompanying notes are an integral part of the financial statements. 16
================================================================================================================== - ------------------------------------------------------------------------------------------------------------------ Market Shares Value ($) - ------------------------------------------------------------------------------------------------------------------ 10,890 Sungmi Telecom Electronics Co. ............ 1,348,986 ---------- 4,080,405 ---------- Tires 1.4% 218,481 Hankook Tire Manufacturing Co., Ltd. ...... 9,472,431 ---------- MANUFACTURING 6.1% Chemicals 1.8% 159,444 Han Wha Co., Ltd. ......................... 1,849,407 61,440 Korea Chemical Co. ........................ 5,043,892 240,009 LG Chemical Co., Ltd. ..................... 3,324,449 65,762 Oriental Chemical Industries Co., Ltd. .... 1,547,777 ---------- 11,765,525 ---------- Containers & Paper 2.5% 137,333 Asia Paper Manufacturing Co. .............. 3,696,237 50,934 Dae Young Packaging Co. ................... 2,466,399 325,218 Hansol Paper Manufacturing Co., Ltd. ...... 8,240,321 ---------- 29,214 Korea Export Packaging Industries ......... 536,248 55,000 Shin Poong Paper Manufacturing Co., Ltd. .. 1,517,455 ---------- 16,456,660 ---------- Diversified Manufacturing 0.5% 92,339 Samsung Heavy Industries Co., Ltd. ........ 973,303 70,000 Hyundai Heavy Industries* ................. 2,561,937 ---------- 3,535,240 ---------- Electrical Products 0.5% 114,086 Kyungwon Century Co., Ltd. ................ 3,250,423 ---------- Machinery/Components/Controls 0.8% 23,000 Mirae Co. ................................. 5,257,883 ---------- Miscellaneous 0.0% 1,200 Jindo Corp. ............................... 13,919 ---------- TECHNOLOGY 10.9% EDP Peripherals 0.2% 41,240 Chung Ho Computer Co. ..................... 1,346,802 ---------- Electronic Components/ Distributors 10.2% 20,000 Dae Duck Electronics Co. .................. 1,261,261 232,050 Samsung Display Devices ................... 12,046,740 296,280 Samsung Electromechanics Co., Ltd. ........ 8,141,027 395,432 Samsung Electronics Co., Ltd. (c) (f) ..... 43,323,851 87,817 Trigem Computer Inc. ...................... 2,037,196 ---------- 66,810,075 ---------- Miscellaneous 0.5% 30,270 Daou Technology Inc.* ..................... 2,948,598 ---------- ENERGY 1.1% Oil & Gas Production 295,264 Yukong, Ltd. .....,........................ 7,148,847 ---------- METALS & MINERALS 4.2% Coal Mining 0.3% 30,000 Dongwon Company Ltd.* ..................... 2,091,216 ----------
The accompanying notes are an integral part of the financial statements. 17 [LOGO OF THE KOREA FUND, INC.] Investment Portfolio (continued)
=========================================================================================================== - ----------------------------------------------------------------------------------------------------------- Market Shares Value ($) - ----------------------------------------------------------------------------------------------------------- Steel & Metals 3.9% 230,857 Inchon Iron & Steel Co. .................. 4,705,531 86,320 Pohang Iron & Steel Co., Ltd. (c) ........ 8,778,977 169,320 Pohang Iron & Steel Co., Ltd. ............ 12,126,973 ----------- 25,611,481 ----------- CONSTRUCTION 4.3% Building Materials 2.0% 10,000 Asia Cement Manufacturing Co. ............ 326,577 26,400 Hanil Cement Manufacturing Co., Ltd. ..... 1,424,054 234,337 Keum Kang Co., Ltd. ...................... 11,189,064 ----------- 12,939,695 ----------- Homebuilding 0.1% 47,226 Keang Nam Enterprises .................... 329,731 ----------- Miscellaneous 2.2% 143,784 Dong Ah Construction Industries Co., Ltd. 2,720,238 185,141 Hyundai Engineering & Construction Co. ... 4,753,620 205,350 LG Construction Co. ...................... 3,445,625 70,000 Tae Young Corp. .......................... 3,436,937 ----------- 14,356,420 ----------- TRANSPORTATION 1.9% Airlines 0.9% 300,146 Korean Air Co., Ltd.* .................... 5,644,638 ----------- Marine Transportation 0.3% 107,930 Hyundai Merchant & Marine Co. ............ 2,029,765 ----------- Trucking 0.7% 214,104 Korea Express Co., Ltd. .................. 4,798,051 ----------- UTILITIES 2.5% Electric Utilities 1.5% 260,900 Korea Electric Power Co. ................. 7,785,867 91,000 Korea Electric Power Co. (ADR) ........... 1,700,563 ----------- 9,486,430 ----------- Natural Gas Distribution 1.0% 36,179 Daehan City Gas Co. ...................... 1,625,610 61,287 Daesung Industrial, Ltd. ................. 3,209,285 31,504 Samchully Co. ............................ 2,022,216 ----------- 6,857,111 ----------- TOTAL COMMON STOCKS (Cost $366,290,407) .. 498,231,490 ----------- - ----------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT PORTFOLIO -- 100.0% (Cost $539,740,163) (a) ................ 653,459,415 ===========
* Non-income producing security (a) The cost for federal income tax purposes was $541,903,059. At June 30, 1997, net unrealized appreciation for all securities based on tax cost was $111,556,356. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of market value over tax cost of $183,479,052 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over market value of $71,922,696. The accompanying notes are an integral part of the financial statements. 18 ================================================================================ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (b) Securities valued in good faith by the Valuation Committee of the Board of Directors at fair value amounted to $75,475,587 (11.4% 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 June 30, 1997 aggregated $84,081,442. These securities may also have certain restrictions as to resale (See Note A to the Notes to Financial Statements). (c) 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 $43,935,662 over the local share price of $130,106,264 for these securities valued by the Valuation Committee was approximately 6.6% of the Fund's net assets at June 30, 1997. The cost of these securities at June 30, 1997 was $35,090,644 (See Note A to the Notes to Financial Statements). Their values have been estimated by the Board of Directors in the absence of readily ascertainable market values or other market factors, respectively. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the securities existed, and the difference could be material. (d) Principal amount stated in Korean won unless otherwise noted. U.S.$ United States Dollar. (e) Bonus interest represents the amount available to be paid to the holder at maturity in lieu of conversion. (f) At June 30, 1997, 26% of the Fund's net assets were invested in SK Telecom Co., Ltd., Samsung Electronics Co., Ltd. and Samsung Fire & Marine Insurance Co. (g) Affiliated issuer (See Notes to Financial Statements). The accompanying notes are an integral part of the financial statements. 19 [LOGO OF THE KOREA FUND, INC.] Financial Statements ================================================================================ - --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 - --------------------------------------------------------------------------------------------------------- ASSETS Investments, at market: Unaffiliated issuer (identified cost $528,289,205) ................ $641,310,282 Affiliated issuer (identified cost $11,450,958) ................... 12,149,133 Total investments, at market (identified cost $539,740,163) $653,459,415 Foreign currency at market (identified cost $17,927,599) .................. 17,960,736 Receivables: For investments sold .............................................. 1,949,464 Dividends and interest ............................................ 931,744 Other assets .............................................................. 31,798 ------------ Total assets .............................................. 674,333,157 LIABILITIES Payables: Payable for investments purchased ................................. 11,319,052 Accrued management fee ............................................ 549,349 Offering fees ..................................................... 394,728 Other payables and accrued expenses ............................... 974,321 ------------ Total liabilities ......................................... 13,237,450 ------------ Net assets, at market value ............................................... $661,095,707 ============ NET ASSETS Net assets consist of: Net unrealized appreciation (depreciation) on: Investments ............................................... $113,719,252 Won ....................................................... 33,137 Won related transactions .................................. (2,960) Accumulated net realized loss ..................................... (7,993,149) Paid-in capital ................................................... 555,339,427 ------------ Net assets, at market value ............................................... $661,095,707 ============ NET ASSET VALUE per share ($661,095,707/49,999,999 shares of common stock issued and outstanding, 50,000,000 shares authorized, $.01 par value) $ 13.22 ============
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- 20 ================================================================================ - --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS YEAR ENDED JUNE 30, 1997 - --------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Income: Dividends (net of withholding taxes of $1,209,823) ........ $ 5,454,088 Interest (net of withholding taxes of $862,784) ........... 4,958,952 ------------- 10,413,040 Expenses: Management fee ............................................ $ 5,914,297 Custodian and accounting fees ............................. 1,172,623 Directors' fees and expenses .............................. 167,979 Legal ..................................................... 79,500 Auditing .................................................. 110,719 Reports to shareholders ................................... 84,176 Services to shareholders .................................. 71,658 Other ..................................................... 53,079 7,654,031 ------------ ------------- Net investment income ............................................. 2,759,009 ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized loss during the period on: Investments ............................................... (7,756,119) Won ....................................................... (5,420,236) Won related transactions .................................. (284,819) (13,461,174) ------------ Net unrealized appreciation (depreciation) during the period on: Investments ............................................... (148,798,405) Won ....................................................... 2,406,814 Won related transactions .................................. 2,536 (146,389,055) ------------ ------------- Net loss on investment transactions ............................... (159,850,229) ------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................... $(157,091,220) =============
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- 21 [LOGO OF THE KOREA FUND, INC.] Financial Statements (continued) ================================================================================ - --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS - ------------------------------------------------------------------------------------------------------- YEARS ENDED JUNE 30, ----------------------------- INCREASE (DECREASE) IN NET ASSETS 1997 1996 - ------------------------------------------------------------------------------------------------------- Operations: Net investment income (loss) ................................. $ 2,759,009 $ 738,094 Net realized gain (loss) from investment transactions ........ (13,461,174) 24,164,248 Net unrealized appreciation (depreciation) on investment transactions during the period ............. (146,389,055) (60,906,538) ------------- ------------- Net increase (decrease) in net assets resulting from operations ...... (157,091,220) (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: Net Proceeds of shares issued in connection with the Fund's rights offering, net of broker and dealer manager fees of $3,254,988 and expenditures and offering costs of $757,113 .............. 145,136,895 -- Reinvestment of distributions ................................ 6,675,083 5,604,398 ------------- ------------- Net increase (decrease) in net assets from Fund share transactions .............................. 151,811,978 5,604,398 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS .................................... (27,591,879) (45,859,149) Net assets at beginning of period .................................... 688,687,586 734,546,735 ------------- ------------- NET ASSETS AT END OF PERIOD .......................................... $ 661,095,707 $ 688,687,586 ============= ============= OTHER INFORMATION INCREASE IN FUND SHARES Shares outstanding at beginning of period ............................ 37,188,528 36,930,508 Shares issued in connection with the Fund's rights offering .. 12,429,083 -- Shares issued to shareholders in reinvestment of distributions ................................................ 382,388 258,020 ------------- ------------- Net increase (decrease) in Fund shares ............................... 12,811,471 258,020 ------------- ------------- Shares outstanding at end of period .................................. 49,999,999 37,188,528 ============= =============
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- 22 [LOGO OF 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. - --------------------------------------------------------------------------------
YEARS ENDED JUNE 30, ------------------------------------------------------ 1997 1996 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period ............................ $18.52 $19.89 $18.66 $11.40 $10.75 ------ ------ ------ ------ ------ Income from investment operations (a): Net investment income (loss) .................................. .07 .02 (.02) (.03) .02 Net realized and unrealized gain (loss) on investment transactions ..................................... (4.48)(c) (.97) 2.42 7.13 .86 ------ ------ ------ ------ ------ Total from investment operations ................................ (4.41) (0.95) 2.40 7.10 .88 ------ ------ ------ ------ ------ Less distributions: From net investment income .................................... -- (.02) -- (.01) (.04) In excess of net investment income ............................ -- (.04) -- -- -- From net realized gains on investment transactions ............ (.60) (.36) (.15) -- (.20) ------ ------ ------ ------ ------ Total distributions ............................................. (.60) (.42) (.15) (.01) (.24) ------ ------ ------ ------ ------ Antidilution (dilution) resulting from the rights offering (1997 and 1995), fourth tranche (1994), and reinvestment of distributions for shares at market value ................... (.29) -- (1.02) .22 .01 ------ ------ ------ ------ ------ Underwriting expenditures and offering costs .................... -- -- -- (.05) -- ------ ------ ------ ------ ------ Net asset value, end of period .................................. $13.22 $18.52 $19.89 $18.66 $11.40 ====== ====== ====== ====== ====== Market value, end of period ..................................... $14.75 $21.13 $19.63 $22.00 $15.00 ====== ====== ====== ====== ====== TOTAL RETURN Per share market value (%) ...................................... (26.11) 9.73 (5.43) 46.74 34.54 Per share net asset value (%)(b) ................................ (24.40) (5.09) 13.00 63.77 8.20 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period ($ millions) .......................... 661 689 735 550 258 Ratio of operating expenses to average net assets (%) ........... 1.28 1.28 1.32 1.37 1.52 Ratio of net investment income (loss) to average net assets (%) ................................................ .46 .10 (.10) (.18) .15 Portfolio turnover rate (%) ..................................... 12.9 32.6 10.5 14.3 14.3 Average commission rate paid (d) ................................ $.1065 $.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) Due to the timing and magnitude of the rights offering, the amounts reported herein are not proportional to the aggregate value reported in the Statements of Changes in Net Assets. (d) Average commission rate paid per share of common and preferred stocks is calculated for fiscal years ending on or after June 30, 1996. - -------------------------------------------------------------------------------- 23 [LOGO OF 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 (b) and (c) of the notes to the Investment Portfolio. Repurchase Agreements. The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund, through its custodian, receives delivery of the underlying securities, the amount of which at the time of purchase and each subsequent business day is required to be maintained at such a level that the market value, depending on the maturity of the repurchase agreement, is equal to at least 100.5% of the repurchase price. 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. In addition, from November 1, 1996 through June 30, 1997, the Fund incurred approximately $5,831,000 of realized long-term capital losses. As permitted by tax regulations, the Fund intends to elect to defer these losses and treat them as arising in the year ending June 30, 1998. 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 earned by the Fund from 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 24 ================================================================================ - -------------------------------------------------------------------------------- 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. 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 June 30, 1997 the exchange rate for Korean won was U.S. $0.001126 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 year ended June 30, 1997, purchases and sales of investment securities (excluding short-term investments) aggregated $261,809,208 and $69,310,088, 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 year ended June 30, 1997, the fee pursuant to such agreement amounted to $5,914,297 which was equivalent to an annual effective rate of .99% of the Fund's average month-end net assets. On June 26, 1997, the Adviser entered into an agreement with The Zurich Insurance Company ("Zurich"), an international insurance and financial services organization, pursuant to which Zurich will acquire a majority interest in the Adviser, and the Adviser will form a new global investment organization by combining with Zurich's subsidiary, Zurich Kemper Investments, Inc. and change its name to Scudder Kemper Investments, Inc. Subject to the receipt of the required regulatory and shareholder 25 [LOGO OF THE KOREA FUND, INC.] Notes to Financial Statements (continued) ================================================================================ - -------------------------------------------------------------------------------- approvals, the transaction is expected to close in the fourth quarter of 1997. 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 year ended June 30, 1997, brokerage commissions on investment transactions amounting to $54,442 were paid by the Fund to Daewoo Securities Co., Ltd., the parent company of the Korean Adviser. 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 year ended June 30, 1997, the amount charged to the Fund by SFAC aggregated $310,882, of which $29,173 is unpaid at June 30, 1997. 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 year ended June 30, 1997, Directors' fees and expenses amounted to $167,979. 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 May 1, 1997, total foreign investment was limited generally to 20% of each class of a company's outstanding shares, while a single foreign investor could only invest up to 5% of each class of outstanding shares. At May 1, 1997, the limits were increased from 20% to 23% and 5% to 6%, 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 26 ================================================================================ - -------------------------------------------------------------------------------- revaluation of currency, high rates of inflation, Korean taxes, 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. F. SUBSEQUENT EVENT On July 22, 1997, shareholders approved an amendment to the Articles of Incorporation of the Fund which increased the number of authorized shares of common stock from 50,000,000 to 200,000,000. G. TRANSACTION IN SECURITIES OF AFFILIATED ISSUER An affiliated issuer is a company in which the Fund has ownership of at least 5% of the voting securities. A summary of the Fund's transactions during the period with companies which are or were affiliates are as follows:
Purchases Sales Dividend Market Affiliate Cost Cost Income Value ---------------------------------------------------------------------------- Sewon Co., Ltd $11,450,958 -- -- $12,149,133 =====================================================
27 [LOGO OF 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 June 30, 1997, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. 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 June 30, 1997 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 June 30, 1997, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with generally accepted accounting principles. Boston, Massachusetts COOPERS & LYBRAND L.L.P. August 21, 1997 28 [LOGO OF THE KOREA FUND, INC.] Tax Information ================================================================================ - -------------------------------------------------------------------------------- The Fund paid distributions of $0.60 per share from net long-term capital gains during the year ended June 30, 1997. 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 may make an election under Section 853 of the Internal Revenue Code. This election would allow shareholders to treat their proportionate share of foreign taxes paid by the Fund as having been paid directly by them. Additionally, shareholders would 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 $2,072,607 during the year ended June 30, 1997. During the fiscal year ended June 30, 1997, the Fund recognized $2,072,607 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 Tuesday, July 22, 1997, at the offices of Scudder, Stevens & Clark, Inc., 25th Floor, 345 Park Avenue, New York, New York. The three 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* Nicholas Bratt 28,626,425 905,806 0 Dr. Sang C. Lee 28,974,273 557,958 0 Wilson Nolen 28,983,168 549,063 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, 1998.
Number of Votes: For Against Abstain Broker Non-Votes* 28,452,403 85,312 994,516 0
3. Approval or disapproval of an amendment to the Certificate of Incorporation of the Fund increasing the number of authorized shares of common stock of the Fund from 50 million to 200 million.
Number of Votes: For Against Abstain Broker Non-Votes* 25,847,663 3,353,080 331,488 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 8200, Boston, MA 02266-8200, 1-800-426-5523. 32 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 DR. SANG C. LEE Director TAI HO LEE Director WILSON NOLEN Director HUGH T. PATRICK Director ROBERT W. LEAR Emeritus Founding Director SIDNEY M. ROBBINS Emeritus Founding Director JERARD K. HARTMAN* Vice President KUN-HO HWANG Vice President YOUNG H. KIM Vice President DAVID S. LEE* Vice President JOHN J. LEE* Vice President DONG WOOK PARK Vice President THOMAS F. McDONOUGH* Vice President, Secretary and Assistant Treasurer PAMELA A. McGRATH* Vice President and Treasurer EDWARD J. O'CONNELL* Vice President and Assistant Treasurer KATHRYN L. QUIRK* Vice President and Assistant Secretary *Scudder, Stevens & Clark, Inc. 33 (This page intentionally left blank.) 34 -----END PRIVACY-ENHANCED MESSAGE-----