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