KOREA FUND INC, N-2, 1995-04-28

KOREA FUND INC
N-2, 1995-04-28

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<PAGE> 1

As filed with the Securities and Exchange Commission on April 28, 1995

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

Form N-2
Registration Statement Under The Securities Act of 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. / /
and/or

Registration Statement Under The Investment Company Act of 1940 /X/
Amendment No. 16
------------------------

THE KOREA FUND, INC.

(Exact Name of Registrant as Specified in Charter)

c/o Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, New York 10154
(Address of Principal Executive Offices (Number, Street, City, State, Zip Code))

Registrant's Telephone Number, including Area Code: (212) 326-6200
------------------------

JURIS PADEGS, CHAIRMAN OF THE BOARD
PAMELA A. MCGRATH, TREASURER
C/O SCUDDER, STEVENS & CLARK, INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154
(NAME AND ADDRESS (NUMBER, STREET, CITY, STATE, ZIP CODE) OF AGENTS FOR SERVICE)
------------------------

With copies to:

<TABLE>
<S> <C>
MEREDITH M. BROWN EARL D. WEINER
DEBEVOISE & PLIMPTON SULLIVAN & CROMWELL
875 THIRD AVENUE 125 BROAD STREET
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10004
</TABLE>

------------------------

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this registration statement.

If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. /X/
It is proposed that this filing will become effective pursuant to section
8(a).

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE OFFERING AMOUNT OF
BEING REGISTERED REGISTERED(1) PER SHARE(1) PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------
Common Stock, par value $.01
per share..................... 7,375,000 Shares $16.00 $118,000,000 $40,690
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>

(1) The Fund expects that the aggregate public offering price will be
approximately $118 million. The per share public offering price will be
determined as set forth in Rule 457(c) under the Securities Act of 1933 on
the basis of a discount from the average of the high and low prices for the
Fund's Common Stock on the New York Stock Exchange Composite Tape on April
27, 1995. The number of shares will be determined accordingly.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

THE KOREA FUND, INC.

FORM N-2

CROSS-REFERENCE SHEET
PARTS A AND B OF PROSPECTUS(1)

<TABLE>
<CAPTION>
FORM N-2 ITEM NUMBER PROSPECTUS CAPTION
- ---------------------------------------------------------- -----------------------------------
<C> <S> <C>
1. Outside Front Cover.................................. Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Page............. Cover Page
3. Fee Table and Synopsis............................... Prospectus Summary; Fee Table
4. Financial Highlights................................. Financial Highlights
5. Plan of Distribution................................. Cover Page; Prospectus Summary; The
Offer
6. Selling Shareholders................................. Not Applicable
7. Use of Proceeds...................................... Use of Proceeds
8. General Description of the Registrant................ Cover Page; Prospectus Summary; The
Fund; The Offer; Risk Factors and
Special Considerations;
Investment Objective and
Policies; Investment
Restrictions; Common Stock
9. Management........................................... Management of the Fund; Portfolio
Transactions and Brokerage;
Custodian; Dividend Paying Agent,
Transfer Agent and Registrar;
Common Stock
10. Capital Stock, Long-Term Debt, and Other Common Stock; Dividends and
Securities........................................... Distributions; Dividend
Reinvestment and Cash Purchase
Plan; Taxation
11. Defaults and Arrears on Senior Securities............ Not Applicable
12. Legal Proceedings.................................... Not Applicable
13. Table of Contents of the Statement of Additional Not Applicable
Information..........................................
14. Cover Page........................................... Not Applicable
15. Table of Contents.................................... Not Applicable
16. General Information and History...................... Not Applicable
17. Investment Objective and Policies.................... Investment Objective and Policies;
Investment Restrictions
18. Management........................................... Management of the Fund
19. Control Persons and Principal Holders of Common Stock
Securities...........................................
20. Investment Advisory and Other Services............... Management of the Fund; Custodian;
Dividend Paying Agent, Transfer
Agent and Registrar; Experts
21. Brokerage Allocation and Other Practices............. Portfolio Transactions and
Brokerage
22. Tax Status........................................... Taxation
23. Financial Statements................................. Financial Statements
</TABLE>

- ---------------
(1) Pursuant to General Instruction H of Form N-2, all information required to
be set forth in Part B: Statement of Additional Information has been
included in Part A: The Prospectus.

PART C

Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C to this Registration Statement.
<PAGE> 3

PROSPECTUS
SHARES

[LOGO] THE KOREA FUND, INC.

COMMON STOCK
---------------------------

The Korea Fund, Inc. (the "Fund") is issuing to its shareholders of record
(the "Record Date Shareholders") as of the close of business on ,
1995 (the "Record Date") rights (the "Rights") entitling the holders thereof to
subscribe for an aggregate of shares (the "Shares") of the Fund's Common
Stock (the "Offer") at the rate of share of Common Stock for each
Rights held and entitling such Record Date Shareholders to subscribe, subject to
certain limitations and subject to allotment, for any Shares not acquired by
exercise of primary subscription Rights. No fractional Rights will be issued.
The Rights are transferable and are expected to be listed for trading on the New
York Stock Exchange ("NYSE"). The Shares are expected to be listed for trading
on the NYSE, Pacific Stock Exchange ("PSE") and Osaka Stock Exchange ("OSE").
See "The Offer." THE SUBSCRIPTION PRICE PER SHARE (the "Subscription Price")
will be .

THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JUNE , 1995.

The Fund is a non-diversified, closed-end management investment company,
commenced operations in 1984 and, as of December 31, 1994, had net assets of
$609,992,799. The Fund's investment objective is to seek long-term capital
appreciation through investment in securities, primarily equity securities, of
Korean companies. It is expected that normally at least 80% of the Fund's net
assets will be invested in securities listed on the Korea Stock Exchange (the
"Stock Exchange"). No assurance can be given that the Fund's investment
objective will be realized. Investment in Korea involves certain considerations,
such as restrictions on foreign investment and repatriation of capital,
fluctuations of currency exchange rates, and political and economic risks, that
are not normally involved in investments in the United States. See "Investment
Objective and Policies" and "Risk Factors and Special Considerations."

Scudder, Stevens & Clark, Inc. (the "Manager") manages the Fund. Daewoo
Capital Management Co., Ltd. (the "Korean Adviser") acts as Korean adviser. The
address of the Fund is 345 Park Avenue, New York, New York 10154, and its
telephone number is (212) 326-6200.
---------------------------

The Fund's currently outstanding shares of Common Stock are, and the Shares
offered hereby will be, listed on the NYSE and the PSE under the symbol "KF" and
on the OSE under the symbol "8676." The Rights will trade on the NYSE under the
symbol "KF-RT". The Fund announced the Offer after the close of trading on the
NYSE on May , 1995. The net asset value per share of Common Stock at the close
of business on May , 1995 and , 1995 was $ and $ ,
respectively, and the last sale price of the Common Stock on the NYSE Composite
Tape on those dates was $ and $ , respectively.

---------------------------

As a result of the terms of the Offer, Record Date Shareholders who do not
fully exercise their Rights should expect that they will, upon the completion of
the Offer, own a smaller proportional interest in the Fund than would otherwise
be the case. An immediate substantial dilution of the aggregate net asset value
of the shares of Common Stock owned by Record Date Shareholders who do not fully
exercise their Rights is likely to be experienced as a result of the Offer. See
"The Offer" and "Risk Factors and Special Considerations."
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
Subscription Proceeds to
Price Sales Load(1) Fund(2)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Per Share................................... $
- -----------------------------------------------------------------------------------------------------------
Total....................................... $
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>

(1) In connection with the Offer, Lehman Brothers Inc. (the "Dealer Manager")
and other broker-dealers soliciting the exercise of Rights will receive
soliciting fees equal to % of the Subscription Price per Share. The Fund
has also agreed to pay the Dealer Manager a fee for financial advisory
services in connection with the Offer equal to % of the aggregate
Subscription Price, and has agreed to indemnify the Dealer Manager against
certain liabilities under the U.S. Securities Act of 1933, as amended.

(2) Before deduction of expenses incurred by the Fund, estimated at $ .
---------------------------

Prior to the Expiration Date, the Dealer Manager may offer Shares of Common
Stock, including Shares acquired through the purchase and exercise of Rights, at
prices it sets from time to time. Each price when set will not exceed the
greater of the last sale or current asked price of the Common Stock on the New
York Stock Exchange plus commissions, and an offering price set in any calendar
day will not be increased more than once during that day. Because the Dealer
Manager will determine the price, it may realize profits or losses independent
of any fees referred to below under "The Offer -- Distribution Agreements."
---------------------------

This Prospectus sets forth concisely information about the Fund that a
prospective investor ought to know before investing. Investors are advised to
read this Prospectus and to retain it for future reference.
---------------------------

The date of this Prospectus is , 1995.
<PAGE> 4

In this Prospectus, unless otherwise specified, all references to "billion"
are to one thousand million, to "trillion" are to one thousand billion, to
"Dollars," "US$" or "$" are to United States Dollars and to "Won" or "W" are to
Korean Won. On , 1995, the market average exchange rate as published
by the Korea Telecommunications and Clearings Institute was Won = $1.00.
No representation can be made as to whether the Won or Dollar amounts in this
Prospectus could have been or could be converted into Dollars or Won, as the
case may be, at such rates, at any other rates or at all. See "The Republic of
Korea -- Foreign Exchange" for information regarding the rates of exchange
between the Won and the Dollar for the five years prior to the date of this
Prospectus. Reference should be made to "Risk Factors and Special
Considerations -- Currency Fluctuations" for a better understanding of the
effect of the fluctuation of the exchange rate between the Won and the Dollar on
the Fund and the significance, in Dollar terms, of amounts set forth in this
Prospectus in Won and of amounts in comparison based on, or computed by
reference to, such currency.

Unless otherwise indicated, Dollar equivalent information in Won for a
period is based on the average of the daily exchange rates for the days in the
period, and Dollar information for Won as of a specified date is based on the
exchange rate for that date, as contained in International Financial Statistics,
International Monetary Fund.

Certain numbers in this Prospectus have been rounded for ease of
presentation. Since most calculations have been made on unrounded figures, the
sum of the component figures in many of the tables presented may not precisely
equal the totals shown.

AVAILABLE INFORMATION

The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the United States Securities
and Exchange Commission (the "Commission"). Such reports and other information
can be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and the
Commission's regional offices at 7 World Trade Center, New York, New York 10048
and 14th Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Fund's
shares of Common Stock are listed on the stock exchanges referred to on the
cover page of this Prospectus, and reports and other information concerning the
Fund can be inspected at such exchanges.

A Registration Statement on Form N-2 relating to the Shares has been filed
by the Fund with the Commission. This Prospectus does not contain all of the
information set forth in the Registration Statement, including any exhibits and
schedules thereto. For further information with respect to the Fund and the
Shares offered hereby, reference is made to the Registration Statement.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration Statement may be
inspected without charge at the Commission's principal office in Washington,
D.C., and copies of all or any part thereof may be obtained from the Commission
upon the payment of certain fees prescribed by the Commission.
---------------------------

IN CONNECTION WITH THIS OFFERING, THE DEALER MANAGER MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
RIGHTS AND THE COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE, ANY OTHER EXCHANGES ON WHICH THE COMMON STOCK AND/OR THE RIGHTS HAVE
BEEN ADMITTED TO TRADING PRIVILEGES, IN THE OVER-THE-COUNTER MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE> 5

EXPENSE INFORMATION

The following table sets forth certain fees and expenses of the Fund.

SHAREHOLDER TRANSACTION EXPENSES:

<TABLE>
<S> <C>
Sales Load (as a percentage of offering price)(1)(2)............................... .%
Dividend Reinvestment and Cash Purchase Plan....................................... (3)
</TABLE>

ANNUAL FUND OPERATING EXPENSES: Expenses paid by the Fund before it distributes
its net investment income, expressed as a percentage of the Fund's net assets
(based on estimated expenses for the fiscal year ending June 30, 1995).

<TABLE>
<S> <C>
Investment Management Fees......................................................... %
Other expenses..................................................................... %
-----
Total Annual Fund Operating Expenses....................................... %
=====
</TABLE>

EXAMPLE:(4)

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Based on the level of total Fund
operating expenses listed above, the
total expenses relating to a $1,000
investment in the Fund at the end of
each period, assuming a 5% annual
return, are listed below............. $ $ $ $
</TABLE>

- ---------------
(1) The Dealer Manager and the other broker-dealers soliciting the exercise of
Rights will receive soliciting fees equal to % of the Subscription Price
per Share. The Fund also has agreed to pay the Dealer Manager a fee for
financial advisory services in connection with the Offer equal to % of
the aggregate Subscription Price. These fees will be borne by all of the
Fund's shareholders, including those shareholders who do not exercise their
Rights.
(2) Does not include expenses of the Fund incurred in connection with the Offer,
estimated at %.
(3) There is no charge to participants for reinvesting dividends and capital
gains distributions (the Plan Agent's fees are paid by the Fund).
Participants are charged a $0.75 service fee for each voluntary cash
investment and a pro rata share of brokerage commissions on all open market
purchases.
(4) The Example assumes investment of all dividends and distributions at net
asset value, reflects all recurring and non-recurring fees including the
Sales Load and other expenses of the Fund incurred in connection with the
Offer, assumes that the percentage amounts listed under "Annual Fund
Operating Expenses" remain the same each year, and assumes that all of the
Rights are exercised.

The purpose of the foregoing table and example is to assist Rights holders
in understanding the various costs and expenses that an investor in the Fund
bears, directly or indirectly. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURN. ACTUAL FUND EXPENSES AND
RETURN VARY FROM YEAR TO YEAR AND MAY BE HIGHER OR LOWER THAN THOSE SHOWN. In
addition, while the example assumes reinvestment of all dividends and
distributions at net asset value, participants in the Fund's Dividend
Reinvestment and Cash Purchase Plan may receive shares issued at a price or
value different from net asset value. See "Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan."

The figure provided under "Other Expenses" is based upon estimated amounts
for the current fiscal year. For more complete descriptions of certain of the
Fund's costs and expenses, see "Investment Advisers."

3
<PAGE> 6

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus. Investors should
carefully consider information set forth under the heading "Risk Factors and
Special Considerations."

THE OFFER

The Korea Fund, Inc. (the "Fund") is issuing to its shareholders of record
(the "Record Date Shareholders") as of the close of business on , 1995
(the "Record Date") rights (the "Rights") to subscribe for an aggregate of
shares of Common Stock (the "Shares") of the Fund. Each Record Date
Shareholder is being issued Rights for each full share of Common Stock
owned on the Record Date. The Rights entitle the Record Date Shareholder to
acquire at the Subscription Price (as hereinafter defined) Share for each
Rights held. No fractional Rights will be issued. Any Record Date
Shareholder who is issued fewer than Rights may subscribe, at the
Subscription Price, for one full Share during the Subscription Period, which
commences on the date of this Prospectus and ends at 5:00 p.m. New York time, on
, 1995 (the "Expiration Date").

The Rights are evidenced by subscription certificates ("Subscription
Certificates") which will be mailed to Record Date Shareholders (except as
discussed below under "Foreign Restrictions" and "Dividend Reinvestment Plan
Participants"). A Record Date Shareholder's right to acquire during the
Subscription Period at the Subscription Price Share for each
Rights held is hereinafter referred to as the "Primary Subscription." Holders of
Rights acquired during the Subscription Period ("Rights Holders") may also
purchase Shares in the Primary Subscription. All Rights may be exercised
immediately upon receipt and until 5:00 p.m., New York time, on the Expiration
Date. (Record Date Shareholders and Rights Holders purchasing Shares in the
Primary Subscription are hereinafter referred to as "Exercising Rights
Holders.")

OVER-SUBSCRIPTION PRIVILEGE

Any Record Date Shareholder who fully exercises all Rights issued to him
(other than those Rights which cannot be exercised because they represent the
right to acquire less than one Share) is entitled to subscribe for Shares which
were not otherwise subscribed for by others on Primary Subscription (the "Over-
Subscription Privilege"). For purposes of determining the number of Shares a
Record Date Shareholder may acquire pursuant to the Offer, broker-dealers whose
Shares are held of record by Cede & Co. ("Cede"), nominee for The Depository
Trust Company ("DTC"), or by any other depository or nominee will be deemed to
be the holders of the Rights that are issued to Cede or such other depository or
nominee on their behalf. Shares acquired pursuant to the Over-Subscription
Privilege are subject to allotment, which is more fully discussed under "The
Offer -- Over-Subscription Privilege."

SUBSCRIPTION PRICE

The Subscription Price per Share (the "Subscription Price") is $ .

SOLICITING FEES

The Fund has agreed to pay broker-dealers, including Lehman Brothers Inc.
(the "Dealer Manager"), fees for their soliciting efforts equal to % of the
Subscription Price per share. See "The Offer -- Distribution Arrangements."

INFORMATION AGENT

The Information Agent for the Offer is:
Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005

Toll Free: (800) 223-2064

4
<PAGE> 7

or
Call Collect: (212) 509-6240

IMPORTANT DATES TO REMEMBER

<TABLE>
<CAPTION>
EVENT DATE
------------------------------------- ----------------------------------------
<S> <C>
Record Date.......................... , 1995
Subscription Period.................. , 1995 -- , 1995
Expiration Date...................... , 1995
Subscription Certificates and Payment
for Shares Due..................... , 1995
Notices of Guaranteed Delivery Due...
Subscription Certificates and Payment
Due Pursuant to Notice of
Guaranteed Delivery................
Confirmation Date.................... , 1995
</TABLE>

EXERCISING RIGHTS

Rights will be evidenced by Subscription Certificates (see Appendix B) and
may be exercised by completing a Subscription Certificate and delivering it,
together with payment, either by means of a notice of guaranteed delivery or a
check, to State Street Bank and Trust Company, Boston, Massachusetts (the
"Subscription Agent"). Exercising Rights Holders will have no right to rescind a
purchase after the Subscription Agent has received payment. See "The
Offer -- Exercise of Rights" and "The Offer -- Payment for Shares."

SALE OF RIGHTS

The Rights are transferable until the Expiration Date. The Rights are
expected to be listed for trading on the NYSE, and the Shares are expected to be
listed for trading on the NYSE, the PSE and the OSE. Although no assurance can
be given that a market for the Rights will develop, trading in the Rights on the
NYSE may be conducted until the close of trading on the NYSE on the last
Business Day (as defined below) prior to the Expiration Date. The Fund expects
that a market for the Rights will develop and that the value of the Rights, if
any, will be reflected by the market price. Rights may be sold by individual
holders or may be submitted to the Subscription Agent for sale by the Dealer
Manager. Any Rights to be submitted by the Subscription Agent to the Dealer
Manager for sale must be received by the Subscription Agent at or prior to 5:00
p.m., New York time, on , 1995, two Business Days prior to the
Expiration Date, due to normal settlement procedures. Trading of the Rights on
the NYSE will be conducted on a when-issued basis commencing on ,
1995 and thereafter on a regular way basis from , 1995 until and
including the last Business Day prior to the Expiration Date. If the
Subscription Agent receives Rights for sale in a timely manner, the Dealer
Manager will use its best efforts to sell the Rights on the NYSE. The Dealer
Manager will also attempt to sell any Rights submitted to it by the Subscription
Agent that a Record Date Shareholder is unable to exercise because such Rights
represent the right to subscribe for less than one Share. Any commissions will
be paid by the selling Record Date Shareholder. Neither the Fund nor the
Subscription Agent nor the Dealer Manager will be responsible if Rights cannot
be sold and none of them has guaranteed any minimum sale price for the Rights.
For purposes of this Prospectus, a "Business Day" shall mean any day on which
trading is conducted on the NYSE. Record Date Shareholders are urged to obtain a
recent trading price for the Rights on the NYSE from their broker, bank,
financial adviser or the financial press. Exercising Rights Holders' inquiries
should be directed to the Information Agent.

FOREIGN RESTRICTIONS

Subscription Certificates will not be mailed to Record Date Shareholders
whose record addresses are outside the United States (for these purposes the
United States includes its territories and possessions and the

5
<PAGE> 8

District of Columbia) ("Foreign Record Date Shareholders"). The Rights to which
such Subscription Certificates relate will be held by the Subscription Agent for
such Foreign Record Date Shareholders' accounts until instructions are received
to exercise, sell or transfer the Rights. If no instructions have been received
by 12:00 noon, New York time, two Business Days prior to the Expiration Date,
the Rights of those Foreign Record Date Shareholders will be transferred by the
Subscription Agent to the Dealer Manager who will use its best efforts to sell
the Rights on the NYSE. The net proceeds from the sale of those Rights by the
Dealer Manager will be remitted to the Foreign Record Date Shareholders.

DIVIDEND REINVESTMENT PLAN PARTICIPANTS

Subscription Certificates in respect of Dividend Reinvestment and Cash
Purchase Plan Shares will not be mailed to Record Date Shareholders enrolled in
the fund's Dividend Reinvestment and Cash Purchase Plan. Pursuant to the Plan,
State Street Bank and Trust Company, the Plan Agent, will sell the Rights and
apply the proceeds of the sale to the purchase of additional shares for the
account of the Plan participants. See "Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan."

USE OF PROCEEDS

The net proceeds of the Offer will be invested in accordance with the
policies set forth under "Investment Objective and Policies." The Board of
Directors of the Fund has determined that it would be in the best interests of
the Fund and its shareholders to increase the assets of the Fund available for
investment so that the Fund will be in a better position to take advantage of
investment opportunities that the Fund anticipates in Korea. In addition, the
Offer affords existing shareholders the opportunity to purchase additional
shares of the Fund's Common Stock at a price that may be below market value
without incurring any transaction costs. See "The Offer -- Purpose of the Offer"
and "Foreign Investment and Exchange Controls in Korea -- The Fund's License."

INFORMATION REGARDING THE FUND

The Fund is a non-diversified, closed-end management investment company
designed to facilitate international diversification for U.S. and other
investors who desire to participate in the Korean economy. The investment
objective of the Fund is to seek long-term capital appreciation through
investment in securities, primarily equity securities, of Korean companies. It
is expected that normally at least 80% of the Fund's net assets will be invested
in securities listed on the Stock Exchange. The Fund's investment objective is
subject to certain investment policies and restrictions described under
"Investment Objective and Policies" and "Investment Restrictions."

INFORMATION REGARDING THE MANAGER AND THE KOREAN ADVISER

Scudder, Stevens & Clark, Inc. (the "Manager"), a leading global investment
manager, acts as investment adviser to and manager of the Fund. As of January 1,
1995, the Manager and its affiliates had over $90 billion under their
supervision, of which more than $18 billion was invested in non-U.S. securities.
Daewoo Capital Management Co., Ltd., an investment advisory subsidiary of Daewoo
Securities Co., Ltd., acts as Korean adviser to the Manager. Daewoo Securities
Co., Ltd. is the largest Korean securities firm, based on paid-in equity and
total revenues in 1994. See "Investment Advisers."

Under the Investment Advisory and Management Agreement between the Manager
and the Fund, the Manager receives a monthly fee at an annual rate equal to
1.15% of the Fund's month-end net assets up to and including $50,000,000, 1.10%
of such net assets on the next $50,000,000, 1.00% of such net assets on the next
$250,000,000, 0.95% of such net assets on the next $400,000,000, and 0.90% of
such net assets in excess of $750,000,000. A portion of these fees are paid by
the Manager to the Korean Adviser. See "Investment Advisers."

6
<PAGE> 9

INFORMATION REGARDING THE CUSTODIAN

Brown Brothers Harriman & Co. acts as custodian for the Fund. The Seoul
branch of Citibank, N.A. acts as Subcustodian. See "Custodian."

RISK FACTORS AND SPECIAL CONSIDERATIONS

Dilution. An immediate substantial dilution of the aggregate net asset
value of the shares of Common Stock owned by Record Date Shareholders who do not
fully exercise their Rights is likely to be experienced as a result of the Offer
because the Subscription Price is likely to be less than the Fund's then-net
asset value per share, and the number of shares outstanding after the Offer is
likely to increase in a greater percentage than the increase in the size of the
Fund's assets. In addition, as a result of the terms of the Offer, Record Date
Shareholders who do not fully exercise their Rights should expect that they
will, at the completion of the Offer, own a smaller proportional interest in the
Fund than would otherwise be the case. Although it is not possible to state
precisely the amount of such a decrease in value, because it is not known at
this time what the net asset value per share will be at the Expiration Date,
such dilution could be substantial. For example, assuming that all Rights are
exercised and that the Subscription Price of $ is % below the
Fund's net asset value of $ per share, the Fund's net asset value per
share would be reduced by approximately $ per share.

Unrealized Appreciation. As of March 31, 1995, there was approximately
$272 million of net unrealized appreciation in the Fund's net assets of $559
million; if realized and distributed, or deemed distributed, such gains would be
taxable to shareholders. See "Taxation -- United States Federal Income Taxes --
Distributions."

Certain Risk Factors. Investing in securities of Korean companies and of
the Government (the "Government") of the Republic of Korea ("Korea," or the
"Republic") involves certain considerations not typically associated with
investing in securities of United States companies or the United States
government, including (1) restrictions imposed by the Government on foreign
investment, which may limit investment opportunities available to the Fund, (2)
restrictions on, and costs associated with, currency conversions and the
repatriation of the Fund's principal, income and gains, (3) fluctuations in the
rate of exchange between the Won and the Dollar, (4) potential price volatility
and lesser liquidity of the Korean securities markets, due in part to their
relatively small size and to competition from alternative investment
opportunities in Korea, (5) governmental involvement in and influence on the
private sector and (6) political and economic risks. In addition, Korean
accounting, auditing and financial reporting standards are not equivalent to
United States standards. Therefore, certain material disclosures (including
disclosures as to off-balance sheet financing) may not be made and less
information may be available with respect to investments in Korea than in the
United States. Supervision by governmental agencies and self-regulatory
organizations with respect to the securities industry in Korea differs from, and
in some respects is less than, such supervision in the United States. The Fund's
transaction costs are higher than the transaction costs for the typical
investment company investing in U.S. securities. See "Risk Factors and Special
Considerations."

The Government has exercised and continues to exercise substantial
influence over many aspects of the private sector. The Government from time to
time has informally influenced the payment of dividends and the prices of
certain products, encouraged companies to invest or to concentrate in particular
industries, induced mergers between stronger and weaker companies in industries
suffering from excess capacity, controlled access to credit on favorable terms,
encouraged institutional investment in Korean equity securities, and induced
private companies to publicly offer their securities. Such actions by the
Government in the future could have a significant effect on the market prices
and dividend yields of Korean equity securities.

7
<PAGE> 10

Commission, although high-level negotiations to ease tensions and resolve the
political division of the Korean peninsula have been carried on for several
years. On October 22, 1994, the United States and North Korea signed an
agreement to end the dispute over North Korea's nuclear program, which eased
tensions on the Korean peninsula. Depending on its nature and timing, if the
unification of North Korea with the Republic were to be effected, that
unification could entail substantial costs and dislocations to the economy of
the Republic, given the disparities between the economies of North Korea and of
the Republic.

The Fund is classified as a "non-diversified" investment company under the
U.S. Investment Company Act of 1940, as amended (the "1940 Act"), which means
that the Fund is not limited by the 1940 Act as to the percentage of its assets
that may be invested in the securities of a single issuer. As a non-diversified
investment company, the Fund may invest in a smaller number of issuers, and, as
a result, may be subject to greater risk with respect to portfolio securities.

Discount from Net Asset Value. While the Fund's shares have generally
traded at a premium in relation to net asset value, continued development of
alternatives to the Fund as a vehicle for investment in Korean securities by
United States investors may reduce or eliminate (or change to a discount) this
premium. See "Market and Net Asset Value Information" and "Net Asset Value."

Charter Provisions. Certain anti-takeover provisions will make a change in
the Fund's business or management more difficult without the approval of the
Fund's Board of Directors and may have the effect of depriving stockholders of
an opportunity to sell their shares at a premium above the prevailing market
price. See "Common Stock -- Special Voting Provisions."

8
<PAGE> 11

FINANCIAL HIGHLIGHTS

The following information includes selected data for a share of the Fund's
Common Stock outstanding throughout each period, based on the monthly average of
shares outstanding during the period, and other performance information derived
from the Fund's financial statements and market price data and has been audited
by Coopers & Lybrand L.L.P., independent accountants. This information should be
read in conjunction with the Financial Statements and Notes thereto that appear
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED FOR THE FISCAL YEARS ENDED JUNE 30,
DEC. 31, -----------------------------------------------------------------------------------
1994 1994 1993 1992 1991 1990 1989 1988(B) 1987(B)
-------- ------ ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

PER SHARE OPERATING
PERFORMANCES
Net Asset Value, Beginning of
Period...................... $18.66 $11.40 $ 10.75 $ 10.27 $ 14.45 $ 16.84 $ 13.97 $ 11.13 $ 7.46
-------- ------ ------- ------- ------- ------- ------- ------- -------
Net Investment Income
(Loss).................... (.10) (.03) .02 .08 .09 .04 .04 .11 .29
Net Realized and Unrealized
Gain (Loss) on Investments
and Won Related
Transactions.............. 2.24 7.13 .86 .78 (2.13) (1.99) 4.65 3.64 3.42
-------- ------ ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations.................. 2.14 7.10 .88 .86 (2.04) (1.95) 4.69 3.75 3.71
-------- ------ ------- ------- ------- ------- ------- ------- -------
Less Distributions From:
Net Investment Income....... -- (.01) (.04) (.06) -- (.08) (.11) (.29) (.01)
Net Realized Gains on
Investment Transactions... (.15) -- (.20) (.34) (2.20) (1.88) (1.74) (.68) (.03)
-------- ------ ------- ------- ------- ------- ------- ------- -------
Total Distributions........... (.15) (.01) (.24) (.40) (2.20) (1.96) (1.85) (.97) (.04)
-------- ------ ------- ------- ------- ------- ------- ------- -------
Antidilution Resulting from
Offering of Fourth Tranche
(Fiscal 1994), Third Tranche
(Fiscal 1990) and Second
Tranche (Fiscal 1986) and
Reinvestment of Dividends
for Shares at Market
Value....................... -- .22 .01 .02 .06 1.55 .03 .06 --
-------- ------ ------- ------- ------- ------- ------- ------- -------
Underwriting Expenditures and
Offering Costs.............. -- (.05) -- -- -- (.03) -- -- --
-------- ------ ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period...................... $20.65 $18.66 $ 11.40 $ 10.75 $ 10.27 $ 14.45 $ 16.84 $ 13.97 $ 11.13
====== ====== ======= ======= ======= ======= ======= ======= =======
Market Value, End of Period
............................ $22.75 $22.00 $ 15.00 $ 11.38 $ 14.13 $ 22.13 $ 31.63 $ 23.58 $ 23.38
====== ====== ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%)
Per Share Market Value (%).... 4.03* 46.74 34.54 (17.01) (23.57) (26.23) 48.15 5.46 110.89
Per Share Net Asset Value
(%)(a)...................... 11.32* 63.77 8.20 7.87 (14.91) (9.52) 33.21 31.17 49.77
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period ($
millions)................... 610 550 258 241 228 303 323 265 210
Ratio of Operating Expenses to
Average Net Assets (%)...... 1.31+ 1.37 1.52 1.52 1.47 1.44 1.54 1.53 1.47
Ratio of Net Investment Income
(Loss) to Average Net Assets
(%)......................... (.50)* (.18) .15 .70 .83 .21 .24 .92 3.25
Portfolio Turnover Rate (%)... 11.0+ 14.3 14.3 18.2 19.2 17.9 15.1 19.7 4.4

<CAPTION>
FOR THE PERIOD
AUG. 29, 1984
(COMMENCEMENT
OF OPERATIONS) TO
1986(B) JUNE 30, 1985
------- -----------------
<S> <C> <C>
PER SHARE OPERATING
PERFORMANCES
Net Asset Value, Beginning of
Period...................... $ 3.83 $ 3.72
------- ------
Net Investment Income
(Loss).................... .12 .18
Net Realized and Unrealized
Gain (Loss) on Investments
and Won Related
Transactions.............. 2.99 (.06)
------- ------
Total From Investment
Operations.................. 3.11 .12
------- ------
Less Distributions From:
Net Investment Income....... (.28) --
Net Realized Gains on
Investment Transactions... -- --
------- ------
Total Distributions........... (.28) --
------- ------
Antidilution Resulting from
Offering of Fourth Tranche
(Fiscal 1994), Third Tranche
(Fiscal 1990) and Second
Tranche (Fiscal 1986) and
Reinvestment of Dividends
for Shares at Market
Value....................... .83 --
------- ------
Underwriting Expenditures and
Offering Costs.............. (.03) (.01)
------- ------
Net Asset Value, End of
Period...................... $ 7.46 $ 3.83
======= =============
Market Value, End of Period
............................ $ 11.13 $ 4.92
======= =============
TOTAL RETURN (%)
Per Share Market Value (%).... 139.51 $ 23.00*
Per Share Net Asset Value
(%)(a)...................... 105.97 $ 3.00*
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period ($
millions)................... 141 58
Ratio of Operating Expenses to
Average Net Assets (%)...... 1.88 2.00+
Ratio of Net Investment Income
(Loss) to Average Net Assets
(%)......................... 2.37 5.63+
Portfolio Turnover Rate (%)... 6.8 --
</TABLE>

- ---------------
* Not annualized.

+ Annualized.

(a) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and capital gains distributions, if any,
were reinvested. These percentages are not an indication of the performance
of a shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value of
the Fund during each period.

(b) All per share and share outstanding amounts through the fiscal year ended
June 30, 1988 have been restated to reflect the 200% stock dividend paid on
October 11, 1988.

9
<PAGE> 12

MARKET AND NET ASSET VALUE INFORMATION

The Fund's outstanding Common Stock is, and the Shares will be, listed on
the NYSE, the PSE and the OSE. The Fund's shares commenced trading on the NYSE
on August 22, 1984, the PSE on April 22, 1987 and the OSE on December 20, 1991.
The following table shows for the periods indicated (1) the high and low sales
prices for transactions in the Fund's shares on the NYSE Composite Tape, (2) the
net asset value as determined on the date closest to each quotation and (3) the
discount or premium to net asset value (expressed as a percentage) represented
by the quotation.

<TABLE>
<CAPTION>
HIGH SALES NET ASSET PREMIUM LOW SALES NET ASSET PREMIUM
PERIOD PRICE VALUE (DISCOUNT) PRICE VALUE (DISCOUNT)
- -------------------------- ---------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jan. 1 - March 31, 1993... 15 3/8 11.29 36.2% 12 1/8 10.37 16.9%
April 1 - June 30, 1993... 16 1/4 11.36 43.0% 12 3/4 10.66 19.6%
July 1 - Sep. 30, 1993.... 15 7/8 11.59 37.0% 12 3/8 11.09 11.6%
Oct. 1 - Dec. 31, 1993.... 26 1/4 16.64 57.8% 14 11.47 22.1%
Jan. 1 - March 31, 1994... 26 7/8 20.35 32.1% 18 7/8 17.53 7.7%
April 1 - June 30, 1994... 24 19.03 26.1% 18 7/8 16.83 12.2%
July 1 - Sep. 30, 1994.... 27 5/8 21.12 30.8% 20 7/8 18.92 10.3%
Oct. 1 - Dec. 31, 1994.... 26 3/4 21.91 22.1% 19 7/8 20.69 (3.9%)
Jan. 1 - March 31, 1995... 22 1/8 21.10 14.9% 19 1/8 19.25 (0.6%)
</TABLE>

Although historically shares of other closed-end investment companies have
frequently traded at a discount from net asset value, the Fund's shares have
generally traded at a premium to its net asset value, although this premium has
been declining in recent years. On August 22, 1984, the first day of trading in
the Fund's shares, the shares closed at a premium over net asset value per share
of 16.5%. The Fund's premium reached a high of 159.0% on August 10, 1987. The
Fund's shares traded at a discount to net asset value (of 0.87%) for the first
time on March 26, 1992. The continued development of other alternatives to the
Fund as a vehicle for investment in Korean securities by United States investors
has been a primary factor in reducing the premium and may be expected to reduce
future premiums or contribute to a discount. See "Risk Factors and Special
Considerations -- Korean Investment Restrictions." On April 24, 1995, the last
price of the Fund's shares on the NYSE was $21.00, which represented a premium
of 2.89% above the net asset value per share of $20.41.

THE FUND

The Fund, incorporated in Maryland in May 1984, is a non-diversified,
closed-end management investment company registered under the 1940 Act. The Fund
commenced operations in August 1984, and has had four previous public offerings
totalling approximately $250 million in aggregate price to the public.

As of June , 1995, the Fund's net asset value was $ . The Fund's
investment objective is to seek long-term capital appreciation through
investment in securities, primarily equity securities, of Korean companies. The
Fund's policy is to invest at least 80% of its net assets in securities listed
on the Stock Exchange. As of June , 1995, % of the Fund's net assets were
invested in securities listed on the Stock Exchange.

The Fund is designed to facilitate international diversification by United
States and other investors who desire to participate in the Korean economy.
Because it invests primarily in the Korean securities markets, and due to the
risks inherent in international investments generally, the Fund should be
considered only as a vehicle for international diversification and not as a
complete investment program. The Fund's Manager is Scudder, Stevens & Clark,
Inc., a United States investment counsel firm. The Manager is a leading global
investment manager that has been active in international investment for over 40
years. Daewoo Capital Management Co., Ltd., a subsidiary of Daewoo Securities,
acts as Korean Adviser to the Manager.

10
<PAGE> 13

THE OFFER

TERMS OF THE OFFER

The Fund is issuing Rights to subscribe for the Shares to Record Date
Shareholders. Each Record Date Shareholder is being issued one transferable
Right for each share of Common Stock owned on the Record Date. No fractional
Rights will be issued. The Rights entitle the holders thereof to acquire at the
Subscription Price Share for each Rights held. Any Record Date
Shareholder who is issued fewer than
Rights may subscribe, at the Subscription Price, for one full Share. The Rights
are evidenced by Subscription Certificates which will be mailed to Record Date
Shareholders, except that Subscription Certificates will not be mailed to
Foreign Record Date Shareholders. The Rights to which such Subscription
Certificates relate will be held by the Subscription Agent for such Foreign
Record Date Shareholders' accounts until instructions are received to exercise,
sell or transfer the Rights. If no instructions have been received by 12:00
noon, New York time, two Business Days prior to the Expiration Date, the Rights
of those Foreign Record Date Shareholders will be transferred by the
Subscription Agent to the Dealer Manager, who will use its best efforts to sell
the Rights on the NYSE. The net proceeds from the sale of those Rights by the
Dealer Manager will be remitted to the Foreign Record Date Shareholders. See
"Sale of Rights -- Sales through Subscription Agent and Dealer Manager."

Completed Subscription Certificates may be delivered to the Subscription
Agent at any time during the Subscription Period, which commences on the date of
this Prospectus and ends at 5:00 p.m., New York time, on , 1995, the
Expiration Date. Parties that purchase Rights prior to the Expiration Date
("Rights Holders") may also purchase Shares in the Primary Subscription. All
Rights may be exercised immediately upon receipt and until 5:00 p.m. on the
Expiration Date.

Any Record Date Shareholder who fully exercises all Rights initially issued
to him (other than those Rights which cannot be exercised because they represent
the right to acquire less than one Share) is entitled to subscribe for Shares
which were not otherwise subscribed for by Exercising Rights Holders on the
Primary Subscription. Record Date Shareholders, such as broker-dealers, banks,
and other professional intermediaries, who hold shares on behalf of clients, may
participate in the Over-Subscription Privilege for a client if the client fully
exercises all Rights attributable to him. For purposes of determining the
maximum number of Shares an Exercising Rights Holder may acquire pursuant to the
Offer, broker-dealers whose Shares are held of record by Cede or by any other
depository or nominee will be deemed to be the holders of the Rights that are
issued to Cede or such other depository or nominee on their behalf. Shares
acquired pursuant to the Over-Subscription Privilege may be subject to
allotment, which is more fully discussed below under "Over-Subscription
Privilege."

Rights will be evidenced by Subscription Certificates (see Appendix B) and
may be exercised by completing a Subscription Certificate and delivering it,
together with payment, either by means of a notice of guaranteed delivery or a
check, to the Subscription Agent. The method by which Rights may be exercised
and Shares paid for is set forth below in "Exercise of Rights" and "Payment for
Shares." An Exercising Rights Holder will have no right to rescind a purchase
after the Subscription Agent has received payment. See "Payment for Shares"
below. Shares issued pursuant to an exercise of Rights will be listed on the
NYSE, PSE and OSE.

The Rights are transferable until the Expiration Date and will be admitted
for trading on the NYSE. Assuming a market exists for the Rights, the Rights may
be purchased and sold through usual brokerage channels, or delivered on or
before , 1995, to the Subscription Agent for sale through the Dealer
Manager. Although no assurance can be given that a market for the Rights will
develop, trading in the Rights on the NYSE may be conducted until and including
the close of trading on the last NYSE trading day prior to the Expiration Date.
The method by which Rights may be transferred is set forth below in "Sale of
Rights." The underlying Shares will also be admitted for trading on the NYSE,
PSE and OSE. Since fractional Shares will not be issued, Record Date
Shareholders who receive fewer than Rights will be entitled to purchase
one Share. Record Date Shareholders who, after exercising their Rights, are left
with fewer than Rights, will be unable to exercise such Rights and will
not be entitled to receive any cash, from the Fund, in

11
<PAGE> 14

lieu of such remaining Rights. However, the Subscription Agent will
automatically request the Dealer Manager to attempt to sell the number of Rights
which a Record Date Shareholder is unable to exercise for such reason after
return of a completed and fully exercised Subscription Certificate to the
Subscription Agent on or before , 1995, and the Subscription Agent
will remit the proceeds of any such sale, net of commissions, to the Record Date
Shareholder.

The distribution to Record Date Shareholders of transferable Rights which
themselves may have intrinsic value will also afford non-participating Record
Date Shareholders the potential of receiving a cash payment upon sale of such
Rights, receipt of which may be viewed as compensation for the possible dilution
of their interest in the Fund.

PURPOSE OF THE OFFER

The Board of Directors of the Fund has determined that it would be in the
best interests of the Fund and its shareholders to increase the assets of the
Fund available for investment so that the Fund will be in a better position to
take advantage of investment opportunities in Korea. On December 1, 1994, the
Korean government increased the limit on share ownership by foreign investors in
most Korean corporations by two percent to 12%. It is expected that the limit
will be increased to 15% during 1995. The Fund also anticipates that a number of
Korean companies in which the Fund currently owns shares will conduct rights
offerings in which the Fund may be able to participate. The Fund believes that
the proceeds of the Offer will permit it to take advantage of the new investment
opportunities that the Fund anticipates in Korea, without having to sell
existing portfolio holdings, which would in many cases involve incurring
substantial taxes on appreciated positions. In addition, the Offer affords
existing shareholders the opportunity to purchase additional shares of the
Fund's Common Stock at a price that may be below market value and/or net asset
value without incurring any transaction costs.

The Manager and the Korean Adviser will benefit from the Offer because
their fees are based on the average daily net assets of the Fund. It is not
possible to state precisely the amount of additional compensation the Manager
and the Korean Adviser will receive as a result of the Offer because it is not
known how many Shares will be subscribed for and because the proceeds of the
Offer will be invested in additional portfolio securities which will fluctuate
in value. However, in the event that all the Rights are exercised in full and
net proceeds of the Offer are $ , the Manager and the Korean Adviser
would receive additional annual advisory fees of $ and $ ,
respectively. Three of the Fund's nine Directors who voted to authorize the
Offer are "interested persons" of the Fund as that term is defined in the 1940
Act. These three Directors could benefit indirectly from the Offer because of
their affiliations with the Manager or the Korean Adviser. See "Investment
Advisers" and "Directors and Officers."

The Fund may, in the future and at its discretion, choose to make
additional rights offerings from time to time for a number of shares and on
terms which may or may not be similar to the Offer. Any such future rights
offering will be made in accordance with the 1940 Act.

OVER-SUBSCRIPTION PRIVILEGE

Shares not subscribed for by Exercising Rights Holders will be offered, by
means of the Over-Subscription Privilege, to the Record Date Shareholders who
have exercised all exercisable Rights issued to them and who wish to acquire
more than the number of Shares for which the Rights issued to them are
exercisable. Record Date Shareholders, such as broker-dealers, banks, and other
professional intermediaries, who hold shares on behalf of clients, may
participate in the Over-Subscription Privilege for a client if the client fully
exercises all Rights attributable to him or her. Record Date Shareholders should
indicate on their Subscription Certificates how many Shares they are willing to
acquire pursuant to the Over-Subscription Privilege. If sufficient shares
remain, all over-subscriptions will be honored in full.

If subscriptions for Shares exceed the Shares available, the available
Shares will be allocated among those who over-subscribe based on the number of
Rights originally issued to them by the Fund, so that the number of Shares
issued to Record Date Shareholders who subscribe pursuant to the
Over-Subscription Privilege will generally be in proportion to the number of
Shares owned by them in the Fund on the Record

12
<PAGE> 15

Date. The percentage of remaining Shares each over-subscribing Record Date
Shareholder may acquire may be rounded up or down to result in delivery of whole
Shares. The allocation process may involve a series of allocations in order to
assure that the total number of Shares available for over-subscription is
distributed on a pro rata basis.

The Fund will not offer or sell any Shares which are not subscribed for
pursuant to the Primary Subscription or the Over-Subscription Privilege.

THE SUBSCRIPTION PRICE

The Subscription Price for the Shares to be issued pursuant to the Rights
will be $ . The Fund does not have the right to withdraw the Offer after the
Rights have been distributed.

The Fund announced the Offer before the close of trading on the NYSE on
, 1995. The net asset value per share of Common Stock at the close
of business on , 1995 and on , 1995 was and
, respectively, and the last reported sale price of a share of the
Fund's Common Stock on the NYSE on those dates was $ and $ ,
respectively. The Subscription Price of $ is approximately a % discount to
the Fund's net asset value per share on , 1995. Information about the
Fund's net asset value may be obtained by calling the Information Agent at (800)
223-2064 (toll free) or (212) 509-6240 (collect).

EXPIRATION OF THE OFFER

The Offer will expire at 5:00 p.m., New York time, on , 1995,
the Expiration Date. Rights will expire on the Expiration Date and thereafter
may not be exercised.

SUBSCRIPTION AGENT

The Subscription Agent, State Street Bank and Trust Company, will receive
for its administrative, processing, invoicing and other services as Subscription
Agent a fee estimated to be $ , and reimbursement for all out-of-pocket
expenses related to the Offer. The Subscription Agent is also the Fund's
dividend paying agent, transfer agent and registrar with respect to the Shares
and Plan Agent under the Fund's Dividend Reinvestment and Cash Purchase Plan.
Questions regarding the Subscription Certificates should be directed to State
Street Bank and Trust Company, Corporate Reorganization, P.O. Box 9061, Boston,
Massachusetts 02206-8200 (telephone ( ) - ). Shareholders may also
consult their brokers or nominees. Signed Subscription Certificates should be
sent to State Street Bank and Trust Company, by one of the methods described
below:

<TABLE>
<S> <C> <C>
(1) BY MAIL: P.O. Box 9061
Boston, MA 02205-8686

(2) BY HAND: 225 Franklin St. Concourse Level
Boston, MA 02110

(3) BY OVERNIGHT COURIER: c/o Boston Financial Data Services, Inc.
Corporate Stock Transfer Department
Two Heritage Drive
North Quincy, MA 02171

(4) BY FACSIMILE (TELECOPIER): 617-246-5735, with the original Subscription
Certificate to be sent by mail, hand or
overnight courier. Confirm facsimile by
telephone to ( ) .
</TABLE>

DELIVERY BY METHODS OTHER THAN THOSE STATED ABOVE WILL NOT CONSTITUTE GOOD
DELIVERY.

13
<PAGE> 16

INFORMATION AGENT

Any questions or requests for assistance may be directed to the Information
Agent at its telephone number and address listed below:

The Information Agent for the Offer is:

Georgeson & Company, Inc.
Wall Street Plaza
New York, New York 10005

Toll Free: (800) 223-2064

Call Collect: (212) 509-6240

The Information Agent will receive a fee estimated to be $ , and
reimbursement for all out-of-pocket expenses related to the Offer.

SALE OF RIGHTS

Sales through Subscription Agent and Dealer Manager. Record Date
Shareholders who do not wish to exercise any or all of their Rights may instruct
the Subscription Agent to sell any unexercised Rights through the Dealer
Manager. Subscription Certificates representing the Rights to be sold by the
Dealer Manager must be received by the Subscription Agent prior to ,
1995. Upon the timely receipt by the Subscription Agent of appropriate
instruction to sell Rights, the Subscription Agent will request the Dealer
Manager to use its best efforts to complete the sale and the Subscription Agent
will remit the proceeds of the sale, net of commissions, to the Record Date
Shareholders. If the Rights can be sold, sales of such Rights will be deemed to
have been effected at the weighted-average price received by the Dealer Manager
on the day such Rights are sold. The selling Record Date Shareholder will pay
all brokerage commissions incurred by the Dealer Manager. The Dealer Manager
will also attempt to sell all Rights which remain unclaimed as a result of
Subscription Certificates being returned by the postal authorities to the
Subscription Agent as undeliverable as of the fourth Business Day prior to the
Expiration Date. Such sales will be made net of commissions on behalf of the
non-claiming Record Date Shareholders. The Subscription Agent will hold the
proceeds from those sales for the benefit of such non-claiming Record Date
Shareholder until such proceeds are either claimed or escheat. There can be no
assurance that the Dealer Manager will be able to complete the sale of any such
Rights and neither the Fund nor the Subscription Agent nor the Dealer Manager
has guaranteed any minimum sales price for the Rights. All such Rights will be
sold at the market price, if any, on the NYSE.

Other Transfers. The Rights evidenced by a Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the accompanying instructions. A portion of the Rights evidenced
by a single Subscription Certificate (but not fractional Rights) may be
transferred by delivering to the Subscription Agent a Subscription Certificate
properly endorsed for transfer, with instructions to register such portion of
the Rights evidenced thereby in the name of the transferee and to issue a new
Subscription Certificate to the transferee evidencing such transferred Rights.
In such event, a new Subscription Certificate evidencing the balance of the
Rights will be issued to the Record Date Shareholder or, if the Record Date
Shareholder so instructs, to an additional transferee.

Record Date Shareholders wishing to transfer all or a portion of their
Rights should allow at least three Business Days prior to the Expiration Date
for (i) the transfer instructions to be received and processed by the
Subscription Agent; (ii) a new Subscription Certificate to be issued and
transmitted to the transferee or transferees with respect to transferred Rights,
and to the transferor with respect to retained Rights, if any; and (iii) the
Rights evidenced by such new Subscription Certificate to be exercised or sold by
the recipients thereof. Neither the Fund nor the Subscription Agent nor the
Dealer Manager shall have any liability to a transferee or transferor of Rights
if Subscription Certificates are not received in time for exercise or sale prior
to the Expiration Date.

14
<PAGE> 17

Except for the fees charged by the Subscription Agent and Dealer Manager
(which will be paid by the Fund), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection with
the purchase, sale or exercise of Rights will be for the account of the
transferor of the Rights, and none of such commissions, fees or expenses will be
paid by the Fund, the Subscription Agent or the Dealer Manager.

The Fund anticipates that the Rights will be eligible for transfer through,
and that the exercise of the Primary Subscription (but not the Over-Subscription
Privilege) may be effected through, the facilities of DTC (Rights exercised
through DTC are referred to as "DTC Exercised Rights"). The holder of a DTC
Exercised Right who was a Record Date Shareholder may exercise the
Over-Subscription Privilege in respect of such DTC Exercised Right by properly
executing and delivering to the Subscription Agent, at or prior to 5:00 p.m.,
New York time, on the Expiration Date, a DTC Participant Over-Subscription Form
(see Appendix D), together with payment of the Subscription Price for the number
of Shares for which the Over-Subscription Privilege is to be exercised. Copies
of the DTC Participant Over-Subscription Form may be obtained from the
Subscription Agent.

EXERCISE OF RIGHTS

Rights may be exercised by filling in and signing the reverse side of the
Subscription Certificate which accompanies this Prospectus and mailing it in the
envelope provided, or otherwise delivering the completed and signed Subscription
Certificate to the Subscription Agent, together with payment for the Shares as
described below under "Payment of Shares." Completed Subscription Certificates
must be received by the Subscription Agent prior to 5:00 p.m., New York time, on
the Expiration Date (unless payment is effected by means of a notice of
guaranteed delivery as described below under "Payment of Shares") at the offices
of the Subscription Agent at the address set forth above. Rights may also be
exercised through an Exercising Right Holder's broker, who may charge a fee in
connection with such exercise.

Nominees who hold shares of Common Stock for the account of others, such as
brokers, trustees or depositaries for securities, should notify the respective
beneficial owners of such shares of Common Stock as soon as possible to
ascertain such beneficial owners' intentions and to obtain instructions with
respect to the Rights. If the beneficial owner so instructs, the nominee should
complete the Subscription Certificate and submit it to the Subscription Agent
with the proper payment. In addition, beneficial owners of Common Stock or
Rights held through such a nominee should contact the nominee and request the
nominee to effect transactions in accordance with the beneficial owner's
instructions.

A Record Date Shareholder who is issued fewer than Rights may
subscribe, at the Subscription Price, for one full Share. Fractional Shares will
not be issued, and Record Date Shareholders who, upon exercising their rights,
are left with fewer than Rights will not be able to exercise such remaining
Rights. However, the Dealer Manager will automatically attempt to sell the
number of Rights which a Record Date Shareholder is unable to exercise for this
reason after the return of a completed and signed Subscription Certificate
received by the Subscription Agent on or before , 1995 and the
Subscription Agent will remit the proceeds of such sale net of commissions to
such Record Date Shareholder.

EXERCISE OF THE OVER-SUBSCRIPTION PRIVILEGE

Record Date Shareholders who fully exercise all Rights held by them on the
Expiration Date may participate in the Over-Subscription Privilege by indicating
on their Subscription Certificate the number of Shares they are willing to
acquire pursuant thereto. There is no limit on the number of Shares for which
Record Date Shareholders may seek to subscribe pursuant to the Over-Subscription
Privilege. If sufficient Shares remain after the Primary Subscription, all
over-subscriptions will be honored in full; otherwise the number of Shares
issued to each Record Date Shareholder participating in the Over-Subscription
Privilege will be allocated as described above under "Over-Subscription
Privilege."

Banks, brokers and other nominee holders of Rights will be required to
certify to the Fund, before any Over-Subscription Privilege may be exercised as
to any particular beneficial owner, as to the aggregate number of Rights
exercised pursuant to the Primary Subscription, and the number of Shares
subscribed for

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<PAGE> 18

pursuant to the Over-Subscription Privilege by such beneficial owner and that
such beneficial owner's Primary Subscription was exercised in full.

DISTRIBUTION ARRANGEMENTS

The Dealer Manager is Lehman Brothers Inc., 3 World Financial Center, New
York, New York 10285. Under the terms and subject to the conditions contained in
a Dealer Manager Agreement dated the date of this Prospectus, the Dealer Manager
provides marketing assistance and financial advisory services in connection with
the Offer and will solicit the exercise of Rights by Record Date Shareholders.
The Fund has agreed to pay the Dealer Manager a fee for its marketing and
financial advisory services equal to % of the aggregate subscription price
for the Shares (which, if all Shares are subscribed for, will result in a fee of
$ ) and to pay broker-dealers, including the Dealer Manager, fees for
their soliciting efforts (the "Soliciting Fees") equal to % of the
Subscription Price per Share. The Soliciting Fees will be paid either directly
to a broker-dealer designated on the applicable portion of the Subscription
Certificate, which may be the Dealer Manager, or directly to the Dealer Manager
on all undesignated exercises of Rights.

In addition, the Fund will indemnify the Dealer Manager with respect to
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.

Under applicable law, during the Subscription Period, the Dealer Manager
may bid for and purchase Rights for certain purposes. Those purchases would be
subject to certain price and volume limitations when the Common Stock is being
stabilized by the Dealer Manager or when the Dealer Manager owns the Rights
without an offsetting short position in the Common Stock. Those limitations
provide, among other things, that subject to certain exceptions, not more than
one bid to purchase Rights may be maintained in any one market at the same price
at the same time and that the initial bid for or purchase of Rights may not be
made at a price higher than the highest current independent bid price on the
NYSE. Any bid price may not be increased, subject to certain exceptions, unless
the Dealer Manager has not purchased any Rights for a full Business Day or the
independent bid price for those Rights on the NYSE has exceeded the bid price
for a full Business Day.

From the date of this Prospectus, the Dealer Manager may offer and sell
shares of Common Stock at prices it sets from time to time, which prices may be
higher or lower than the Subscription Price. Prior to the Expiration Date, each
of those prices when set will not exceed the higher of the last sale price or
current asked price of the Common Stock on the NYSE, plus, in each case, an
amount equal to an exchange commission, and any offering price set on any
calendar day will not be increased more than once during that day. Any offering
by the Dealer Manager may include Shares acquired or to be acquired through the
exercise of the Rights. As a result of those offerings, the Dealer Manager may
realize profits or losses independent of its financial advisory fee and any
Soliciting Fees it receives.

PAYMENT FOR SHARES

Exercising Rights Holders who acquire Shares on Primary Subscription and
Record Date Shareholders who acquire Shares pursuant to the Over-Subscription
Privilege may choose between the following methods of payment:

(1) An Exercising Rights Holder can send the Subscription Certificate
together with payment for the Shares acquired on Primary Subscription and
any additional shares subscribed for pursuant to the Over-Subscription
Privilege (for Record Date Shareholders) to the Subscription Agent.
Subscriptions will be accepted when payment, together with the executed
Subscription Certificate, is received by the Subscription Agent; such
payment and Subscription Certificates are to be received by the
Subscription Agent no later than 5:00 p.m., New York City time, on the
Expiration Date. The Subscription Agent will deposit all checks received by
it for the purchase of Shares into a segregated interest-bearing account of
the Fund (the interest from which will belong to the Fund) pending
proration and distribution of Shares. A PAYMENT PURSUANT TO THIS METHOD
MUST BE IN U.S. DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK LOCATED IN
THE UNITED STATES, MUST BE PAYABLE TO THE KOREA FUND, INC. AND MUST
ACCOMPANY AN EXECUTED

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<PAGE> 19

SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED.

(2) Alternatively, a subscription will be accepted by the Subscription
Agent if, prior to 5:00 p.m., New York time, on the Expiration Date, the
Subscription Agent has received a notice of guaranteed delivery by
facsimile (telecopy) or otherwise from a bank, a trust company, or an NYSE
member guaranteeing delivery of (i) payment of the full Subscription Price
for the Shares subscribed for on Primary Subscription and any additional
Shares subscribed for pursuant to the Over-Subscription Privilege (for
Record Date Shareholders), and (ii) a properly completed and executed
Subscription Certificate. The Subscription Agent will not honor a notice of
guaranteed delivery unless a properly completed and executed Subscription
Certificate and full payment for the Shares is received by the Subscription
Agent by the close of business on the third Business Day after the
Expiration Date (the "Protect Period").

Within five Business Days following the Protect Period (the "Confirmation
Date"), the Subscription Agent will send to each Exercising Rights Holder (or,
if the shares are held by Cede or any other depository or nominee, to Cede or
such other depository or nominee), the share certificates representing the
Shares purchased pursuant to the Primary Subscription (and, if applicable the
Over-Subscription Privilege), along with a letter explaining the allocation of
Shares pursuant to the Over-Subscription Privilege. Any excess payment to be
refunded by the Fund to a Record Date Shareholder who is not allocated the full
amount of Shares subscribed for pursuant to the Over-Subscription Privilege will
be mailed by the Subscription Agent. An Exercising Rights Holder will have no
right to rescind a purchase after the Subscription Agent has received payment,
either by means of a notice of guaranteed delivery or a check.

Nominees who hold shares of Common Stock for the account of others, such as
brokers, trustees or depositories for securities, should notify the respective
beneficial owners of such Shares as soon as possible to ascertain such
beneficial owners' intentions and to obtain instructions with respect to the
Rights. If the beneficial owner so instructs, the nominee should complete the
Subscription Certificate and submit it to the Subscription Agent with the proper
payment. In addition, beneficial owners of Common Stock or Rights held through
such a nominee should contact the nominee and request the nominee to effect
transactions in accordance with the beneficial owner's instructions.

DELIVERY OF SHARE CERTIFICATES

Certificates representing Shares purchased pursuant to the Primary
Subscription will be delivered to Exercising Rights Holders as soon as
practicable after the corresponding Rights have been validly exercised and full
payment for such Shares has been received and cleared. Certificates representing
Shares purchased pursuant to the Over-Subscription Privilege will be delivered
to Record Date Shareholders as soon as practicable after the Expiration Date and
all allocations have been effected.

FEDERAL INCOME TAX CONSEQUENCES

The U.S. Federal tax consequences to Record Date Shareholders with respect
to the Offer will be as follows:

1. The distribution of Rights will not result in taxable income nor
will the Record Date Shareholder realize taxable income as a result of the
exercise of the Rights.

2. The basis of a Right received by a Record Date Shareholder who
exercises or sells the Right will be zero if the fair market value of the
Right immediately after issuance is less than 15% of the fair market value
of the Common Stock with regard to which the Right is issued (unless the
Record Date Shareholder elects to allocate the basis of the Common Stock
between the Right and the Common Stock based upon their respective fair
market values immediately after the Right is issued). If the fair market
value immediately after issuance of a Right received by a Record Date
Shareholder who exercises or sells the Right is 15% or more of the fair
market value of the Common Stock with regard to which it is issued, the
basis of the Right will be a portion of the basis of the Common Stock,
based upon the respective fair market values of the Right and the Common
Stock immediately after the Right is issued. In the case of a Record Date
Shareholder who receives a Right and who allows the Right to expire, the
basis of the Right

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<PAGE> 20

will be zero. In the case of a purchaser of a Right in the market the basis
of the Right will be the purchase price for the Right.

3. The holding period of a Right received by a Record Date Shareholder
includes the holding period of the Common Stock.

4. Any gain or loss on the sale of a Right will be treated as a
capital gain or loss if the Right is a capital asset in the hands of the
seller. Such a capital gain or loss will be long- or short-term, depending
on how long the Right has been held, in accordance with paragraph 3 above.
A Right issued with regard to Common Stock will be a capital asset in the
hands of that person. If a Right is allowed to expire, there will be no
loss realized unless the Right had been acquired by purchase, in which case
there will be a loss equal to the basis of the Right.

5. If the Right is exercised by the Record Date Shareholder, the basis
of the Common Stock received will include the basis allocated to the Right
and the amount paid upon exercise of the Right.

6. If the Right is exercised, the holding period of the Common Stock
acquired begins on the date the Right is exercised.

7. Gain recognized by a non-U.S. shareholder on the sale of a Right
will be taxed in the same manner as gain recognized on the sale of Common
Stock. See "Taxation -- United States Federal Income Taxes -- Non-U.S.
Shareholders."

Proceeds from the sale of a Right may be subject to withholding of U.S.
taxes at the rate of 31% unless the seller's certified U.S. taxpayer
identification number (or certificate regarding the foreign status) is on file
with the Subscription Agent and the seller is not otherwise subject to U.S.
backup withholding. The 31% withholding tax is not an additional tax. Any amount
withheld may be credited against the seller's U.S. Federal income tax liability.

The foregoing is only a summary of the applicable federal income tax law
and does not include any state or local tax consequences of this transaction.
Investors should consult their tax advisers regarding specific questions as to
U.S. Federal, state or local taxes.

Under Korean law:

1. The issuance of the Rights by the Fund is not a taxable event and
will not result in the imposition of any Korean tax on either the Fund or
its shareholders.

2. The exercise of the Rights by the Record Date Shareholders and the
purchase of additional shares of the Fund's Common Stock as a result
thereof are not taxable events and will not result in the imposition of any
Korean tax on either the Fund or its shareholders.

USE OF PROCEEDS

The net proceeds of the Offer are estimated at approximately
$ after deducting expenses payable by the Fund of approximately
$ . The net proceeds of the Offer will be used by the Fund for
investment in accordance with its investment objective and policies. See
"Investment Objective and Policies." The Fund expects that it will invest the
proceeds (as was done with the proceeds of the Fund's previous offerings) in a
manner designed to avoid disruption of trading on the Stock Exchange by
investing in Korean securities over such period of time and in such amounts as
are intended to minimize market impact. The Manager currently expects that
investment of the proceeds should be substantially completed within six months
of the closing of the Offer. Pending investment, the proceeds will be
temporarily invested in short-term debt securities of the type described under
"Investment Objective and Policies."

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is to seek long-term capital
appreciation through investment in securities, primarily equity securities, of
Korean companies. This objective is a fundamental policy and may

18
<PAGE> 21

not be changed without the approval of the Minister of Finance and the approval
of a majority of the Fund's outstanding voting securities. As used in this
Prospectus, a "majority of the Fund's outstanding voting securities" means the
lesser of (i) 67% of the shares represented at a meeting at which more than 50%
of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares. While current income from dividends and interest may be a
consideration in selecting portfolio securities, it is not an objective of the
Fund. It is the policy of the Fund to invest at least 80% of its net assets in
securities listed on the Stock Exchange. As of , 1995, % of the
Fund's net assets were invested in securities listed on the Stock Exchange. It
is expected that the balance of the Fund's net assets normally will be invested
(subject to any applicable investment restrictions under the Fund's license and
Korean law) in debt securities of the Government and Korean corporations and in
recognized Korean money market instruments. See "Foreign Investment and Exchange
Controls in Korea." For purposes of the Fund's investment policy, equity
securities include common and preferred stock (including convertible preferred
stock), bonds, notes and debentures convertible into common and preferred stock,
stock purchase warrants and rights, equity interests in trusts, partnerships,
joint ventures, or similar enterprises and depositary receipts. At present, not
all of these types of securities are available for investment in Korea. To the
extent permitted by applicable law, and if a market for such investments
develops, the Fund reserves the right to invest in any of the above listed
equity securities, and may use its assets to enter into foreign currency
exchange contracts, currency and stock index futures contracts, covered call
options, repurchase agreements, delayed delivery transactions and futures
contracts. For further information concerning the other types of investments the
Fund may make, see Appendix A.

Pending investment in Korean securities, the Fund will invest the net
proceeds of the Offer in Dollar-denominated money market instruments of United
States issuers. These instruments will generally consist of: short-term (less
than 12 months to maturity) obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities; finance company and corporate
commercial paper; short-term corporate obligations; obligations (including
certificates of deposit and banker's acceptances) of U.S. banks (including
foreign branches of such banks) and savings and loan associations; and
repurchase agreements (agreements under which the seller agrees at the time of
sale to repurchase the security at an agreed time and price).

The Fund may invest its assets in a broad spectrum of Korean industries,
including, as conditions warrant from time to time, automobiles, cement,
chemicals, construction, electrical equipment, electronics, finance, food and
beverage, international trading, machinery, shipbuilding, steel and textiles. In
selecting industries and companies for investment, the Manager considers overall
growth prospects, competitive position in export markets, technology, research
and development, productivity, labor costs, raw material costs and sources,
profit margins, return on investment, capital resources, government regulation,
management and other factors. The Fund has invested principally in securities of
established companies, although investments may be made, to the extent permitted
by Korean law, in securities of new or little-known companies. To the extent
permitted by law, the Fund may also invest in stocks of securities-related
businesses listed on the Stock Exchange.

For defensive purposes, the Fund may vary from its investment policy.
During periods in which, in the opinion of the Manager, changes in Korean market
conditions, or other economic conditions or Korean political conditions warrant,
the Fund may reduce its position in equity securities and, subject to any
applicable restrictions under Korean law (which currently limit the amount of
Government and corporate bonds that the Fund may acquire up to 10% of the Fund's
net asset value), increase its position in debt securities or in short-term
indebtedness or hold cash. The Fund may also at any time invest funds as
reserves for dividends and other distributions for shareholders in
Dollar-denominated money market instruments such as those described above.
However, once invested in Won-denominated securities, the Fund's investment
principal may not be converted into Dollar-denominated securities except for
payment of expenses in excess of Fund income or in connection with the
termination of the Fund. See "Foreign Investment and Exchange Controls in
Korea -- The Fund's License."

Although the Fund is a non-diversified company under the 1940 Act, it is
subject to portfolio diversification requirements that are contained in its
investment restriction pertaining to contraction, which generally prevents it
from purchasing a security that would result in more than 25% of the Fund's net
assets being invested in a single industry; in the Fund's license and under
Korean law, under which the Fund may not buy generally more than 5% of a class
of an issuer's stock listed on the Stock Exchange and may not acquire

19
<PAGE> 22

Government and corporate bonds listed on the Stock Exchange (including those
held through repurchase agreements, convertible bonds and bonds with warrants)
in excess of 10% of its net asset value; and in the diversification requirements
applicable to regulated investment companies under the U.S. Internal Revenue
Code of 1986 (the "Code"). See "Investment Restrictions," "Foreign Investment
and Exchange Controls in Korea" and "Taxation -- United States Federal Income
Taxes." The Fund is also subject to the Securities and Exchange Commission of
Korea ("KSEC") rule providing generally that no more than 12% of the total
number of shares of stock of any class of an issuer listed on the Stock Exchange
may be held by all foreign investors in the aggregate. It is expected, however,
that the Government will raise that ceiling for foreign investment in issuers
listed on the stock exchange from 12% to 15% during 1995. The Fund, as a non-
diversified company under the 1940 Act, is permitted to hold a relatively
greater concentration in securities of particular companies. This flexibility
reduces diversification of risk and could result in greater fluctuation in the
Fund's net asset value. However, it also reflects the composition of the Korean
securities markets, in that securities of relatively few companies account for a
greater share of the total capitalization of such markets than is the case in
the United States.

The Fund intends to purchase and hold securities for long-term capital
appreciation and does not expect to trade in securities for short-term gain. The
Fund has undertaken with the Minister of Finance that the Fund's portfolio
turnover rate during any year will not exceed 40%. The 40% limit will be applied
on a year by year basis by references to sales or purchases of portfolio
securities during the whole of the Fund's fiscal year, which ends June 30th.
Subject to this 40% limit, the Fund will adjust its portfolio as it deems
advisable in view of prevailing or anticipated market conditions. A higher rate
of portfolio turnover generally involves correspondingly greater brokerage
commission expenses than a lower rate, which expenses must be borne by the Fund
and its shareholders. The Fund's annualized portfolio turnover rate for the six
months ended December 31, 1994 was 11%. The portfolio turnover rate is
calculated by dividing the lesser of sales or purchases of portfolio securities
by the average monthly value of the Fund's portfolio securities. For purposes of
this calculation, portfolio securities exclude all securities having a maturity
when purchased of one year or less.

Consistent with provisions of the 1940 Act and any administrative
exemptions that may be granted by the Commission, the Fund may invest in the
securities of other investment companies that invest in Korean securities.
Absent special relief from the Commission, the Fund may invest up to 10% of its
assets in the aggregate in shares of other investment companies and up to 5% of
its assets in any one investment company, as long as that investment does not
represent more than 3% of the voting stock of the acquired investment company.
As a shareholder in any investment company, the Fund will bear its ratable share
of such company's expenses, and will remain subject to payment of the Fund's
advisory and administrative fees with respect to assets so invested.

INVESTMENT RESTRICTIONS

The following seven restrictions are fundamental policies, which cannot be
changed without the approval of the holders of a majority of the Fund's
outstanding voting securities. If a percentage restriction on investment or use
of assets set forth below is adhered to at the time a transaction is effected,
later changes in percentage resulting from changing values will not be
considered a violation.

The Fund may not:

1. Purchase securities on margin, except such short-term credits as
may be necessary for clearance of transactions.

2. Make short sales of securities or maintain a short position.

3. Issue senior securities, borrow money or pledge its assets, except
that the Fund may borrow from a bank for temporary or emergency purposes in
amounts not exceeding 5% (taken at the lower of cost or current value) of
its total assets (not including the amount borrowed), and may also pledge
its assets to secure such borrowings.

20
<PAGE> 23

4. Purchase any security (other than obligations of the U.S.
government, its agencies or instrumentalities or of the Government, its
agencies or instrumentalities) if as a result more than 25% of the Fund's
total assets (taken at current value) would be invested in a single
industry; provided, however, that acquisition of securities of Korean
issuers shall not be deemed a purchase if effected upon exercise of rights
issued by such issuers and providing for an exercise price less than the
market price of such securities at the time of exercise.

5. Buy or sell commodities or commodity contracts or real estate or
interests in real estate, although it may purchase and sell securities
which are secured by real estate or commodities and securities of companies
which invest or deal in real estate or commodities.

6. Make loans, except through repurchase agreements (repurchase
agreements with a maturity of longer than seven days together with
securities which are not readily marketable being limited to 10% of the
Fund's total assets) to the extent permitted under applicable law.

7. Act as underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an
underwriter under applicable securities laws.

The following three additional restrictions are not fundamental policies of
the Fund and may be changed by the Board of Directors. The Fund may not:

i. Purchase any security if as a result the Fund would then hold more
than 5% of any class of securities of an issuer (taking all common stock
issues of an issuer as a single class, all preferred stock issues as a
single class, and all debt issues as a single class) or more than 5% of the
outstanding voting securities of an issuer, unless permitted by regulations
applicable to investments by foreigners or otherwise permitted by the
Minister of Finance or the KSEC.

ii. Make investments for the purpose of exercising control or
management.

iii. Participate on a joint and several basis in any trading account
in securities.

In addition to the restrictions described above, the Fund is subject to
additional restrictions imposed by the Fund's license, by Korean law and by the
Code's requirements for qualification as a regulated investment company.
Notwithstanding a change in the Fund's fundamental and other policies, the Fund
will continue to be subject to restrictions in the Fund's license and Korean
law. For discussions of Korean law restricting the Fund's investments and of the
Fund's license, see "Foreign Investment and Exchange Controls in Korea --
Foreign Investment Restrictions," and "-- The Fund's License." For a discussion
of the Code requirements, see "Taxation -- United States Federal Income Taxes."

Should any investment restriction imposed by the Fund's license, by Korean
law or by the Code be removed or liberalized, the Fund reserves the right to
invest accordingly, without shareholder approval, except to the extent that such
investment conflicts with the Fund's investment objective or Investment
Restrictions Nos. 1-7 above. The Fund will notify shareholders of a change in
any such restriction to the extent that the Manager believes that such a change
will result in a material change in the Fund's investment strategy.

As a means of earning income for periods as short as overnight, the Fund
may enter into repurchase agreements in the United States with any member bank
of the Federal Reserve System and any broker-dealer that is recognized as a
reporting government securities dealer whose creditworthiness has been
determined by the Manager to be of sufficiently high quality. In addition, the
Fund is permitted under Korean law to enter into repurchase agreements with
Korean banks and broker-dealers. If market conditions warrant, the Fund may,
subject to the approval of its Board of Directors, enter into such arrangements
in Korea.

RISK FACTORS AND SPECIAL CONSIDERATIONS

The Fund is a closed-end investment company designed for long-term
investment, and investors should not consider it a trading vehicle. See
"Investment Objective and Policies." Historically, shares of closed-end
investment companies have frequently traded at a discount from net asset value,
but have also traded at premiums. See "Market and Net Asset Value Information."
Regulatory authorities in Korea adopted

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<PAGE> 24

regulations in 1991 that since January 1992 have made it possible for
non-Koreans to invest, subject to certain limits, in Korean equity securities
listed on the Stock Exchange. These regulations have encouraged the formation of
other investment vehicles similar to the Fund. This and other similar
developments have affected and may further affect the trading price of the
Fund's shares.

Investing in securities of Korean companies and of the Government involves
certain considerations not typically associated with investing in securities of
United States companies or the United States government, including (1)
restrictions imposed by the Government on foreign investment, which may limit
investment opportunities available to the Fund, (2) restrictions on, and costs
associated with, currency conversions and on the repatriation of principal,
income or gains, (3) fluctuations in the rate of exchange between the Won and
the Dollar, (4) potential price volatility and lesser liquidity of the Korean
securities markets, due in part to their relatively small size and to
competition from alternative investment opportunities in Korea, (5) governmental
involvement in and influence on the private sector, (6) political and economic
risks and (7) Korean withholding taxes. In addition, Korean accounting, auditing
and financial reporting standards are not equivalent to United States standards
and, therefore, less information may be available with respect to investments in
Korea than in the United States. Supervision by governmental agencies and
self-regulatory organizations with respect to the securities industry in Korea
differs from, and in some respects is less than, such supervision in the United
States. Accordingly, the Fund's investment in Korean securities should be
considered more speculative than investments in securities of U.S. companies.

The Fund operates under a license granted by the Minister of Finance under
which it enjoys certain advantages over most other foreign investors but is also
subject to certain limitations which are more restrictive than those applicable
to other foreign investors. The Minister of Finance may, when it deems it to be
in the public interest, modify the Fund's license or revoke such license in
accordance with its terms in the event of non-compliance by the Fund with one or
more of the conditions of the license or as a result of a material violation by
the Fund of applicable Korean law. See "Foreign Investment and Exchange Controls
in Korea -- The Fund's License."

SPECIAL CONSIDERATIONS

An immediate substantial dilution of the aggregate net asset value of the
shares owned by Record Date Shareholders who do not fully exercise their Rights
may be experienced as a result of the Offer because the Subscription Price is
likely to be less than the then-net asset value per share, and the number of
shares outstanding after the Offer is likely to increase in a greater percentage
than the increase in the size of the Fund's assets. In addition, as a result of
the terms of the Offer, Record Date Shareholders who do not fully exercise their
Rights should expect that they will, at the completion of the Offer, own a
smaller proportional interest in the Fund than would otherwise be the case.
Although it is not possible to state precisely the amount of such a decrease in
value, because it is not known at this time what the net asset value per share
will be at the Expiration Date, such dilution could be substantial. For example,
assuming that all Rights are exercised and that the Subscription Price of
$ is % below the Fund's net asset value of $ per share,
the Fund's net asset value per share would be reduced by approximately
$ per share. The distribution to Record Date Shareholders of
transferable Rights which themselves may have intrinsic value will afford
non-participating Record Date Shareholders the potential of receiving a cash
payment upon sale of such Rights, receipt of which may be viewed as compensation
for the possible dilution of their interest in the Fund. No assurance can be
given, however, that a market for the Rights will develop or as to the value, if
any, that such Rights will have.

KOREAN INVESTMENT RESTRICTIONS

Investments by foreign investors in Korean stocks listed on the Stock
Exchange are generally subject to certain limitations, including a limit on the
percentage of shares of any class of equity security of an issuer held by a
particular foreign investor to 3% (which is increased to 5% for the Fund
pursuant to its license) and a limit on the percentage of shares of any class of
equity security of an issuer that may be acquired by all foreign investors as a
group, generally, to 12% or a higher or lower percentage which may be prescribed
for specific companies from time to time. It is expected that this amount will
be increased to 15% during 1995.

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<PAGE> 25

Additionally, certain companies in industries designated by the Minister of
Finance may further restrict, in their articles of incorporation, foreign
ownership of their shares. In general, foreigners are not allowed to acquire
equity securities of Korean companies that are not listed on the Stock Exchange
(unless otherwise approved pursuant to the Foreign Capital Inducement Act (the
"FCIA") or the Foreign Exchange Management Act ("FEMA")), nor are they allowed
to invest in bonds issued by the Government in Korea or corporate bonds issued
in Korea except for certain convertible bonds and certain government bonds.
Under its license to invest in Korea, however, the Fund may acquire bonds listed
on the Stock Exchange in an amount up to 10% of the Fund's net asset value. See
"Foreign Investment and Exchange Controls in Korea."

These limitations may preclude the Fund from making certain desired
investments, including making further purchases of securities of some of the
companies from time to time represented in its portfolio, and may limit the size
of investments that may be made. Furthermore, these limitations, as well as
purchasing programs by other foreign investors, could substantially increase the
prices of portfolio securities to the Fund above the prices that would be paid
by Korean investors, or that might be paid by foreign investors if these
limitations were relaxed or eliminated, for such securities. The same factors
could lengthen the time required to invest all of the proceeds from the Offer in
Korean securities.

The diversification of the Fund's portfolio as a result of these
limitations may involve investments in securities of companies that may be
smaller or less well-known than certain of the issuers now represented in the
Fund's portfolio. Such companies often do not have extensive operating histories
that generate significant information for investors. As a result, market prices
for these companies tend to be more volatile than for the more established
companies.

Until 1991, the Fund was the only investment fund publicly offered to
United States investors for investing in Korean securities and one of only a few
vehicles available for investment by foreigners in Korea. The Government's
adoption in 1991 of regulations permitting direct equity investment since
January 1992 by non-Koreans has encouraged other non-Korean investors (including
new investment funds) to take an increasingly active role in the Korean capital
markets and it is anticipated that other alternatives to the Fund as a vehicle
for investment in Korean securities by foreign investors will continue to
develop. Increased competition may reduce or eliminate (or change to a discount)
the premium relative to their net asset value at which the Fund's shares have
generally traded. The premium has declined in recent years. Such competition may
also adversely impact the Fund's ability to make investments in light of the
foreign holding limitations described above, and may cause the Fund to pay a
premium for investments that would not be paid by Korean investors. The ability
of foreign investors to invest in Korea may, however, result in broadened
investor interest in, and greater liquidity of, the Korean securities markets.

The Fund has undertaken with the Minister of Finance that the Fund's
portfolio turnover rate during any year will not exceed 40%. Although the Fund's
portfolio turnover rate to date has been substantially below this limit, the
limit could constrain the Manager's ability to redeploy the Fund's assets if,
for example, there were to occur an event or events such as (i) a major decline
in the value of the Fund's portfolio securities or (ii) a major disruption in
the Korean securities markets caused by adverse changes in the political or
economic climate. See "Investment Objective and Policies."

CURRENCY CONVERSION AND REPATRIATION

Conversion of Won into Dollars or other foreign currencies, transfer of
funds from Korea to foreign countries and repatriation of foreign capital
invested in Korea are subject to certain regulatory approvals pursuant to
foreign exchange management laws and regulations. Such conversions and transfers
of funds often entail significant transaction costs.

The repatriation by foreign investors of principal, income or gains that
arise from holding and disposing of Korean equity securities that are traded on
the Stock Exchange is subject to regulations issued by the Minister of Finance.
Such repatriation is generally permitted to foreign investors that have obtained
an approval from their designated bank for each repatriation. Unlike other
foreign investors, however, the Fund is, in general, currently permitted, with
the approval of its designated bank, to repatriate only income and gains. The
repatriation of principal by the Fund is restricted by the Fund's license from
the Minister of Finance. With

23
<PAGE> 26

respect to the repatriation of income and gains, the Fund expects to obtain the
requisite approvals from its Subcustodian, which is the Fund's designated bank.
There can be no assurance, however, that such approvals will be obtained.

If, because of restrictions on conversion or because of repatriation
problems, the Fund were unable to distribute substantially all of its net
investment income (including short-term capital gains) and long-term capital
gains within applicable time periods, the Fund could be subject to U.S. Federal
income and excise taxes which would not otherwise be incurred and may cease to
qualify for the favorable tax treatment afforded to regulated investment
companies under the Code, in which case it would become subject to U.S. Federal
income tax on all of its income and gains. See "Taxation -- United States
Federal Income Taxes."

CURRENCY FLUCTUATIONS

The market value of the Fund's Korean securities is generally determined in
Won, and substantially all of its income will be received or realized in Won.
The Fund will be required, however, to compute its net asset value and income,
and to distribute its income, in Dollars. The computations of the Fund's income
will be made as such income is received by the Fund using the currency exchange
rate in effect at such time. The distribution of such income in Dollars,
however, will occur on a date after such determination. Accordingly, any
reduction in the value of the Won relative to the Dollar during the time period
between the Fund's receipt of income in Won and its conversion of such income
into Dollars may require the Fund to liquidate additional securities in order to
make required distributions. Likewise, if the value of the Won falls relative to
the Dollar during the time period between the Fund's incurrence of expenses in
Dollars and the corresponding payment of such expenses, the amount of Won
required to be converted into Dollars to pay such expenses could be greater than
if such expenses originally had been incurred in Won. Reductions in the Won
relative to the Dollar will also adversely impact the Fund's net asset value.
Although the Fund may enter into forward currency exchange contracts and may
purchase and sell options on currencies in an effort to protect the Fund's
portfolio holdings against currency fluctuation risks, the Fund does not intend
fully or partially to hedge, on an ongoing basis, its portfolio holdings in such
a manner.

THE KOREAN SECURITIES MARKETS

The Korean securities markets are still relatively small in comparison to
the United States, Japanese and major European securities markets. In addition,
market capitalization and trading volume in Korea are concentrated in a limited
number of companies within a small number of industries. As a result, the Korean
securities markets are subject to greater price volatility and lesser liquidity
than is usual in the United States, Japanese and major European securities
markets. Because of these liquidity limitations, it may be more difficult for
the Fund to purchase and sell portfolio investments than would be the case in
the United States. Accordingly, in periods of rising market prices, the Fund may
be unable to participate fully in such price increases to the extent that it is
unable to acquire desired portfolio positions quickly; conversely, the Fund's
inability to dispose fully and promptly of positions in declining markets will
cause its net asset value to decline as the value of unsold positions is
determined by reference to lower prices.

The Korean securities markets have in the past been influenced by large
investors trading significant blocks of securities, and by the relative
attractiveness of alternative investment vehicles such as real estate and the
unofficial money market lending to business borrowers. Stock Exchange rules
confine daily movements in individual company share prices to fixed limits
around the previous day's closing price, so that the quoted closing price of a
security (if fixed by such a limit) may not necessarily represent the price at
which persons are willing to buy and to sell the security in the absence of such
a limit. These actions could have a significant effect on the market prices and
dividend yields of equity securities.

In 1990 certain institutional investors, Korean securities companies and
substantially all of the companies listed on the Stock Exchange formed the Korea
Securities Stabilization Fund (the "Stabilization Fund") for the purpose of
stabilizing the securities markets through the purchase and sale of securities.
As of March 31, 1995, the Stabilization Fund owned securities with a book value,
at cost, of approximately Won 3.6 trillion (approximately $4.6 billion) and held
cash reserves of approximately Won 2.2 trillion (approximately $2.8

24
<PAGE> 27

billion). In the aggregate, these holdings represented approximately 4% of the
total equity market capitalization of the Stock Exchange as of such date. Early
in 1994, the Stabilization Fund was ordered to sell a portion of its holdings. A
significant sale of its holdings could exert significant downward pressure on
the prices of Korean securities. See "The Korean Securities Market -- The Korea
Securities Stabilization Fund."

GOVERNMENT INVOLVEMENT IN THE PRIVATE SECTOR

The Government has exercised and continues to exercise substantial
influence over many aspects of the private sector by legislation, regulation and
suasion. The Government from time to time has informally influenced the payment
of dividends and the prices of certain products, encouraged companies to invest
or to concentrate in particular industries, induced mergers between stronger and
weaker companies in industries suffering from excess capacity, controlled access
to credit on favorable terms, encouraged institutional investment in Korean
equity securities, and induced private companies to publicly offer their
securities. Such actions by the Government in the future could have a
significant effect on the market prices and dividend yields of Korean equity
securities.

POLITICAL AND ECONOMIC FACTORS

The partition of Korea following World War II created a political risk to
the Republic. The demilitarized zone at the boundary between the Republic and
North Korea established after the Korean War of 1950-1953 is still a border
dividing large concentrations of military force. The United States maintains a
military force in the Republic to help deter the ongoing military threat from
North Korean forces. The situation remains a source of tension, particularly in
light of North Korea's threats to withdraw from the Nuclear Nonproliferation
Treaty and its refusal to open its nuclear facilities to inspection by the
International Atomic Energy Commission, although high-level negotiations to ease
tensions and resolve the political division of the Korean peninsula have been
carried on for several years. Depending on its nature and timing, if the
unification of North Korea with the Republic were to be effected, that
unification could entail substantial costs and dislocations to the economy of
the Republic, given the disparities between the economies of North Korea and of
the Republic.

Recently, the tensions on the Korean peninsula have been somewhat reduced.
After almost four months of difficult negotiations, the United States and North
Korea signed an agreement on October 22, 1994 to end the dispute over North
Korea's nuclear program. In exchange, an international consortium will replace
North Korea's current graphite nuclear reactors with new light-water reactors,
which are considered less dangerous. In addition, the United States agreed to
establish diplomatic ties with North Korea. There can be no assurance, however,
that relations between North Korea and the United States, or between North Korea
and the Republic, will not deteriorate in the future.

The domestic political situation in Korea has been relatively stable in
recent years, although not without incident. Following the 1979 assassination of
President Park Chung Hee, General Chun Doo Hwan became President under an
authoritarian regime which emphasized social and political order, while
encouraging renewed economic growth. Following widespread public unrest, Roh Tae
Woo was elected democratically as President in December 1987. Inaugurated in
February 1988, he promoted internal liberalization as well as the
intensification of North-South contacts. Except for sporadic outbursts by a few
extreme groups, radical activism by students decreased following the 1987
revision of the Constitution to permit direct popular election of the President.
President Kim Young Sam, a civilian and former opposition leader was elected in
December 1992 and inaugurated in February 1993. Since his inauguration the
Government has announced its intention to pursue a wide-ranging program of
political and economic reforms.

The economy's real gross national product ("GNP") grew substantially in the
1980's with, until the late 1980's, moderate inflation. During the years
1989-1994, real GNP increased at annual rates of 6.9%, 9.6%, 9.1%, 5.0%, 5.8%
and 8.2%, respectively. The consumer price index ("CPI") rose during the same
six years at annual rates of 5.7%, 8.6%, 9.3%, 6.2%, 4.8% and 6.2%,
respectively.

With its lack of natural resources and with exports constituting a large
proportion of GNP, the Korean economy is significantly affected by changes in
commodity prices (particularly oil), changes in protectionist

25
<PAGE> 28

sentiment among its trading partners and exchange rate movements. Because Korea
relied heavily on foreign capital to finance its earlier development, its gross
foreign debt rose rapidly and by December 31, 1985 amounted to $46.8 billion,
one of the largest among the developing nations. With the growth in Korea's
export surplus, the total external debt was reduced substantially in the next
four years. At the end of 1989, the total external debt amounted to $29.4
billion. This figure increased, however, by $2.3 billion in 1990, by $7.4
billion in 1991, by $3.7 billion in 1992 and by $1.3 billion in 1993. With the
growth in foreign exchange reserves and in overseas investment, the country's
net external debt position declined from $35.5 billion at the end of 1985 to
$6.4 billion at the end of 1990. Korea's net external debt position increased to
$11.9 billion at the end of 1991, then decreased to $11.1 billion at the end of
1992 and to $8.0 billion at the end of 1993. Since 1990 Korea has had a negative
trade balance, reflecting, among other things, inflation and higher wages and
other costs in Korea, Korea's strong needs for capital goods and other imports,
and weakness in the Japanese economy and in the United States economy up to
1992. The increase in Korea's wages and other costs that has accompanied the
growth in the Korean economy has meant that many other countries now have
manufacturing costs that are lower than those in Korea, and Korean industry has
been seeking to produce more technologically advanced goods to enable the
continued growth of Korean exports.

Korean companies tend to be substantially more leveraged than U.S. and
European companies. The high degree of leverage increases the risk of business
failures should adverse business conditions develop.

NON-DIVERSIFIED STATUS

The Fund is classified as a "non-diversified" investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act as to the
percentage of its assets that may be invested in the securities of a single
issuer. As a non-diversified investment company, the Fund may invest in a
smaller number of issuers, and, as a result, may be subject to greater risk with
respect to its portfolio securities. However, the Fund has complied and intends
to continue to comply with the diversification requirements imposed by the Code
for regulated investment companies. See "Taxation -- United States Federal
Income Taxes."

UNREALIZED APPRECIATION

As of March 31, 1995, there was approximately $272 million of net
unrealized appreciation in the Fund's net assets of $559 million; if realized
and distributed, or deemed distributed, such gains would be taxable to
shareholders. See "Taxation -- United States Federal Income
Taxes -- Distributions."

TRANSACTION COSTS

The Fund's transaction costs are higher than the transaction costs for the
typical investment company investing in U.S. securities. In addition to
incurring transaction costs associated with converting currency to and from Won
and Dollars, the Fund incurs brokerage costs on its portfolio transactions at
commission rates that are generally uniform and higher than in the United
States. Moreover, whenever it sells equity securities outside the Stock
Exchange, the Fund is subject to a securities transaction tax of 0.5% of the
sales price for such securities. See "Portfolio Transactions and Brokerage."

DISCOUNT FROM NET ASSET VALUE

The shares of the Fund may trade at a discount from net asset value. This
is characteristic of shares of a closed-end fund and is a risk separate and
distinct from the risk of a decline in the net asset value as a result of a
fund's investment activities. In some cases, however, shares of closed-end funds
may trade at a premium. The Fund's shares have traded in the market above, at
and below net asset value since the commencement of the Fund's operations. The
Fund's shares have generally traded at a premium to net asset value, although
the premium has been gradually declining in recent years. See "Market and Net
Asset Value Information."

WITHHOLDING TAXES

The Fund will be subject to Korean income taxes, including withholding
taxes. The withholding taxes imposed on the Fund could change in the event of
changes in Korean or United States tax laws or changes in

26
<PAGE> 29

the terms of, or the Minister of Finance's interpretation of, the United
States-Korea income tax treaty or changes in relevant facts. See
"Taxation -- Korean Taxes." The Fund expects to be eligible to elect, and will
notify shareholders if it so elects, to "pass-through" to the Fund's
shareholders the amount of such taxes paid by the Fund. If the Fund makes such
an election, shareholders will be required to include in income their
proportionate shares of such amounts and may be entitled to claim a credit or
deduction for all or a portion of such amounts. See "Taxation" -- United States
Federal Income Taxes" for a discussion of the rules and limitations applicable
to the treatment of foreign income taxes under the U.S. Federal income tax laws.

INVESTMENT ADVISERS

GENERAL

The Fund's advisory structure reflects a bi-national United States-Korean
arrangement for providing investment advice and management to pursue the Fund's
investment objective of long-term capital appreciation through investing in
Korean securities. The Fund's Manager is Scudder, Stevens & Clark, Inc., a
United States investment counsel firm. The Korean Adviser is Daewoo Capital
Management Co., Ltd., a Korean firm which is a subsidiary of the largest Korean
securities firm, Daewoo Securities. The Fund may retain the services of advisers
or consultants with respect to Korean securities markets in addition to the
Korean Adviser when the Board of Directors determines it to be appropriate.

THE INVESTMENT MANAGER

Scudder, Stevens & Clark, Inc., an investment counsel firm whose address is
345 Park Avenue, New York, New York 10154, acts as investment adviser to and
manager and administrator for the Fund. The Manager is a leading global
investment manager with offices throughout the United States and subsidiaries in
London and Tokyo. The Manager was established in 1919 as a partnership and was
restructured as a Delaware corporation in 1985. The principal source of the
Manager's income is professional fees received from providing continuing
investment advice. The Manager provides investment counsel for many individuals
and institutions, including insurance companies, colleges, industrial
corporations, and financial and banking organizations.

The Manager has been active in international investment for over 40 years
and in emerging markets investment for over 20 years. As of December 31, 1994,
the Manager and its affiliates had in excess of $90 billion in assets under
their supervision, more than $22 billion of which was invested in non-U.S.
securities. As of that date, the Manager's clients included nine closed-end
United States investment companies with assets aggregating over $1.5 billion,
and more than 50 open-end United States investment company portfolios with
assets aggregating over $36 billion. The Manager's investment company clients,
in addition to the Fund, include:

- The Argentina Fund, Inc., which commenced operations in 1991 and invests
primarily in equity securities of Argentine companies.

- The Brazil Fund, Inc., which commenced operations in 1988 and invests
primarily in equity securities of Brazilian companies.

- The First Iberian Fund, Inc., which commenced operations in 1988 and
invests primarily in equity securities of Spanish and Portuguese
companies.

- The Japan Fund, Inc., which commenced operations in 1962 and invests
primarily in securities of Japanese companies.

- The Latin America Dollar Income Fund, Inc., which commenced operations in
1992 and invests primarily in dollar-denominated debt securities of Latin
American issuers.

- Scudder Latin America Fund, which commenced operations in 1992 and
invests in securities of Latin American issuers.

27
<PAGE> 30

- Scudder New Asia Fund, Inc., which commenced operations in 1987 and
invests primarily in equity securities of Asian companies.

- Scudder New Europe Fund, Inc., which commenced operations in 1990 and
invests primarily in securities of European companies.

- Scudder World Income Opportunities Fund, Inc., which commenced operations
in 1994 and invests primarily in income securities issued by corporate
and sovereign entities throughout the world.

The Manager has also recently sponsored and begun advising Scudder Global
Opportunities Funds -- Greater Korea Fund, a new open-end investment company
organized in Luxembourg (the "Luxembourg Fund"), which invests in Korean
securities with an investment objective similar to the Fund's, but without the
benefit of the Fund's license from the Minister of Finance.

The Manager also provides investment advisory services to the mutual funds
with assets aggregating over $11 billion that comprise the AARP Investment
Program from Scudder. With respect to this Program, the Manager manages a total
of eight investment company portfolios pursuing a variety of investment
objectives, including money market returns, growth, income, and tax-free income.
The Manager also manages accounts for several large pension plans.

The Manager maintains a research department with more than 50 professionals
who conduct ongoing studies of the factors that affect various industries,
companies and individual securities in the United States as well as abroad. The
proprietary research constitutes the primary source of the Manager's resources.
Included among the research department's personnel are 30 equity analysts.

The Fund is managed by a team of investment professionals, each of whom
plays an important part in the Fund's management process. Team members work
together to develop investment strategies and select securities for the Fund's
portfolio. They are supported by the Manager's large staff of economists,
research analysts, traders and other investment specialists who work in the
Manager's offices across the United States and abroad. The Manager believes its
team approach will benefit Fund investors by bringing together many disciplines
and leveraging the Manager's extensive resources.

Nicholas Bratt, a Managing Director of the Manager with over 20 years of
international investing experience, leads the Fund's portfolio management team
and sets the Fund's general investment strategies. Mr. Bratt has had these
responsibilities since the Fund commenced operations in 1984. John J. Lee has
been responsible for the day-to-day management of the Fund's portfolio since
1991. Mr. Lee, a Vice President of the Manager, served as a Korean specialist
for KPMG Peat Marwick for seven years prior to joining the Manager in 1991. In
addition to his portfolio management responsibilities for the Fund, Mr. Lee
serves as a Korean equity analyst in the Manager's International Department for
a number of client accounts.

In managing the Fund, the Manager utilizes reports, statistics and other
investment information from a wide variety of sources, including the Korean
Adviser and other brokers and dealers who may execute portfolio transactions for
the Fund and for clients of the Manager or the Korean Adviser. Investment
decisions, however, are based primarily on investigations and critical analyses
by its own research specialists and portfolio managers, as well as
investigations that may include visiting companies, touring facilities, and
interviewing suppliers and customers.

Certain investments may be appropriate for the Fund and also for other
clients advised by the Manager, including the Luxembourg Fund. Investment
decisions for the Fund and the Manager's other clients are made with a view to
achieving their respective investment objectives and after consideration of such
factors as their current holdings, availability of cash for investment and the
size of their investments generally. Frequently 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 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
Manager 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

28
<PAGE> 31

and sale orders for the Fund may be combined with those of other clients of the
Manager in the interest of the most favorable net results to the Fund. KSEC
regulations generally limit the percentage of any class of shares listed on the
Stock Exchange that may be held by all foreign investors as a group to 12%.
Accordingly, purchases for other non-Korean clients of the Manager, including
the Luxembourg Fund, may limit the amount of such class available for purchase
by the Fund. See "Risk Factors and Special Considerations -- Korean Investment
Restrictions."

INVESTMENT ADVISORY, MANAGEMENT AND ADMINISTRATION AGREEMENT

On October 13, 1994, the Fund's shareholders approved a new Investment
Advisory, Management and Administration Agreement (the "Agreement") with the
Manager. Under the Agreement, the Manager makes investment decisions, prepares
and makes available research and statistical data and supervises the acquisition
and disposition of securities by the Fund, 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 Manager maintains or causes
to be maintained for the Fund all books and records required to be maintained
under the 1940 Act to the extent such books and records are not maintained or
furnished by the Fund's custodian or other agents, and furnishes or causes to be
furnished all required reports or other information under Korean securities
laws, supplies the Fund with office space in New York and furnishes clerical
services in the United States related to research, statistical and investment
work. The Manager renders 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 shareholders, preparing and making filings with the Commission
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, monitoring the valuation of portfolio securities, calculation of net
asset value and calculation and payment of distributions to shareholders, and
overseeing arrangements with the Fund's Custodian, including the maintenance of
books and records of the Fund. The Manager also pays the reasonable salaries and
expenses of the Fund's officers and employees and any fees and expenses of the
Fund's directors who are directors, officers or employees of the Manager, except
that the Fund bears travel expenses (or an appropriate portion of those
expenses) 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 or any committees of or advisers to the
Board. Under the Agreement, the Manager may render similar services to others.

Under the Agreement the Fund pays or causes to be paid all of its other
expenses, including, among other things, the following: organization and certain
offering expenses (including out-of-pocket expenses but not 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 advisor of the Fund; legal expenses; auditing and
accounting expenses; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; stock exchange listing
fees; dues and expenses incurred 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 relating to investor and public
relations; expenses of registering or qualifying securities of the Fund for
sale; 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 shareholders;
expenses of the Dividend Reinvestment and Cash Purchase Plan (except for
brokerage expenses paid by participants in such Plan); costs of stationery; any
litigation expenses; and costs of shareholders' and other meetings.

For its services, the Manager receives a monthly fee, payable in Dollars,
at an annual rate of 1.15% of the Fund's month-end net assets up to and
including $50,000,000, 1.10% of such net assets on the next $50,000,000, 1.00%
of such net assets on the next $250,000,000, 0.95% of such net assets on the
next $400,000,000, and 0.90% of such net assets in excess of $750,000,000. This
fee is higher than advisory fees paid by most other investment companies,
primarily because of the Fund's objective of investing in Korean

29
<PAGE> 32

securities, the additional time and expenses required of the Manager in pursuing
such objective and the need to enable the Manager to compensate the Korean
Adviser for its services. The Manager pays the Korean Adviser a monthly fee at
an annual rate of 0.2875% of the Fund's month-end net assets up to and including
$50,000,000, 0.275% on the next $50,000,000, 0.25% of such net assets on the
next $250,000,000, 0.2375% of such net assets on the next $400,000,000, and
0.225% of such net assets in excess of $750,000,000. See "The Korean Adviser."
The Manager may retain the services of others, in addition to the Korean
Adviser, but at no additional cost to the Fund in connection with its services
to the Fund. During the fiscal years ended June 30, 1992, 1993 and 1994, the
fees paid to the Manager under the prior Agreement amounted to $2,646,895,
$2,543,469 and $4,507,935, respectively.

Under the Investment Advisory and Management Agreement between the Fund and
the Manager that was in effect prior to October 14, 1994, the Fund agreed to pay
the Manager a monthly fee equal to an annual rate of 1.15% of the first
$50,000,000 of month-end net assets of the Fund, 1.10% of such net assets in
excess of $50,000,000 up to and including $100,000,000, and 1.00% of the excess
over $100,000,000.

Under the Agreement, the Manager is permitted to provide investment
advisory services to other clients, including clients which may invest in Korean
securities and, in providing such services, may use information furnished by the
Korean Adviser and others. Conversely, information furnished by others to the
Manager in providing services to other clients may be useful to the Manager in
providing services to the Fund.

The Agreement by its terms will remain in effect for a period of two years
from October 14, 1994, and will continue in effect from year to year thereafter
if such continuance is specifically approved, at least annually, by a vote of a
majority of the members of the Board of Directors who are not interested persons
of the Manager, the Korean Adviser or the Fund, cast in person at a meeting
called for the purpose of voting on such approval, and by the affirmative vote
of either a majority of the Board of Directors or holders of a majority of the
Fund's outstanding voting securities. The Agreement may be terminated at any
time without payment of penalty by either party on 60 days' written notice. The
Agreement automatically terminates in the event of its assignment (as defined
under the 1940 Act), but does not terminate upon assignment to a corporate
successor to all or substantially all of the Manager's business, or a
wholly-owned subsidiary of such corporate successor, provided that such
assignment does not result in a change of actual control or management of the
Manager's business.

The Fund's license to invest in Korean securities provides that, should the
Manager's services be terminated for any reason, the Fund must appoint a
subsequent manager, subject to approval by the Minister of Finance, within 120
days following such termination. The license provides that such approval will
not unreasonably be withheld, but that the Minister of Finance will revoke the
license if the Minister shall have determined that the Fund has not sought in
good faith to appoint a successor manager 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.

The Agreement provides that the Manager is not 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 the Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Manager in the performance of its duties or from reckless disregard by the
Manager of its obligations and duties under the Agreement.

THE KOREAN ADVISER

Daewoo Capital Management Co., Ltd., whose address is 34-3 Youido-dong,
Yongdungpo-gu, Seoul, Korea, an investment adviser registered under the
Investment Advisers Act of 1940, acts as Korean Adviser to the Manager pursuant
to a Research and Advisory Agreement (the "Research Agreement") with the
Manager. The Korean Adviser has been in the business of providing investment
advisory services since it was organized in February 1988 under the laws of the
Republic. The Korean Adviser is a subsidiary of Daewoo Securities, Daewoo
Securities Building, 34-3 Youido-dong, Yongdungpo-gu, Seoul, Korea, the largest
Korean securities firm in terms of paid-in capital and revenues in 1994 and an
underwriter in the Fund's previous public offerings. The Korean Adviser acts as
Korean adviser to four investment companies organized outside the United States
to invest in Korean securities. Daewoo Securities is affiliated with Daewoo
Corporation, a

30
<PAGE> 33

conglomerate headquartered in Seoul, Korea. As of , 1995, Daewoo
Corporation and certain affiliates of Daewoo Corporation own approximately
% of Daewoo Securities. Orders for the purchase and sale of securities for
the Fund's portfolio may be placed with Daewoo Securities as well as with other
Korean brokers. See "Portfolio Transactions and Brokerage." See "Directors and
Officers" for information as to officers of the Fund who are officers of the
Korean Adviser.

Under the terms of the Research Agreement, the Korean Adviser provides such
information, investment recommendations, advice, research and assistance as the
Manager may, from time to time, reasonably request. The Korean Adviser may,
under the terms of the Research Agreement, render similar services to others,
including other investment companies. However, the Korean Adviser is required by
the Research Agreement to maintain a separate staff which prepares and makes
specific investment recommendations to the Manager. This information will be
evaluated by the Manager's research department and portfolio managers in light
of their own expertise and information from other sources, in determining
investment decisions for the Fund. See "Portfolio Transactions and Brokerage."

For its services, the Korean Adviser receives from the Manager a monthly
fee at the annual rate of 0.2875% of the Fund's month-end net assets up to and
including $50,000,000, 0.275% of such assets on the next $100,000,000, 0.250% of
such net assets on the next $250,000,000, 0.2375% of such net assets on the next
$400,000,000, and 0.225% of such net assets in excess of $750,000,000. 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 bears 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 attendance as a Fund director at meetings of the Board of Directors in the
United States and also bears 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. For the fiscal years ended June 30, 1992, 1993 and 1994, the aggregate
fees incurred by the Manager for the services of the Korean Adviser under the
Research Agreement amounted to $661,724, $632,474 and $ , respectively.

The Research Agreement provides that the Korean Adviser will not be liable
for any act or omission in the course of, connected with or arising out of any
services rendered under the Research Agreement except by reason of 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.

Because the Korean Adviser is a Korean corporation having substantially all
of its assets outside of the United States, it may be difficult for United
States investors to effect service of process upon the Korean Adviser within the
United States or to realize judgments of courts of the United States based upon
civil liabilities of the Korean Adviser under the federal securities laws and
other laws of the United States. There is substantial doubt as to the
enforceability in Korea of such civil remedies and criminal penalties as are
afforded by the federal securities laws in the United States.

Under the Research Agreement, the Manager has agreed to further the
development of the Korean Adviser's ability to provide services under the
Research Agreement. The Manager has also agreed not to furnish, without the
consent of the Korean Adviser, to persons other than the Manager'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.

The Research Agreement by its terms will remain in effect for a period of
two years from October 14, 1994, and will continue in effect from year to year
thereafter if such continuance is specifically approved at least annually by the
affirmative vote of a majority of the members of the Board of Directors who are
not parties to such agreement or interested persons of the Manager or the Korean
Adviser, cast in person at a meeting called for the purpose of voting on such
approval, and by the affirmative vote of either a majority of the Board of
Directors or the holders of a majority of the outstanding voting securities. The
Research Agreement may be terminated at any time without payment of penalty by
the Fund or the Korean Adviser on 60 days' written notice. The Research
Agreement automatically terminates in the event of the termination of

31
<PAGE> 34

the Fund's Agreement with the Manager or in the event the Research Agreement is
assigned (as defined under the 1940 Act), but shall not terminate upon
assignment to a corporate successor to all or substantially all of the Korean
Adviser's business, or a wholly-owned subsidiary of such corporate successor,
provided that such assignment does not result in a change of actual control or
management of the Korean Adviser's business.

The Fund's license to invest in Korean securities provides that, should the
Korean Adviser's services under the Research Agreement be terminated for any
reason, the Manager is required to appoint a subsequent Korean adviser, subject
to approval by the Minister of Finance, within 120 days following such
termination. The license provides that such approval will not unreasonably be
withheld, but that the Minister of Finance will revoke the license if the
Minister shall have determined that the Manager has not sought in good faith to
appoint a successor Korean adviser reasonably acceptable to the Minister. In the
event the Fund's license is terminated, the Board of Directors will consider
appropriate actions, including termination of the Fund and liquidation of its
assets.

FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN KOREA

Although the Government has allowed direct foreign investment in Korean
securities by foreigners who intended to or could participate in the management
of an invested enterprise under the FCIA and the FEMA and indirect foreign
investment in Korean securities such as through the Fund, the Korean securities
markets have historically been closed to other direct investment by foreign
investors. In December 1991, the Minister of Finance issued regulations, which
became effective January 3, 1992, that permitted direct investment by foreign
investors in Korean stocks listed on the Stock Exchange. Such investment,
however, is still subject to significant limitations under regulations issued by
the Minister of Finance and the KSEC.

FOREIGN INVESTMENT RESTRICTIONS

Since January 3, 1992, foreigners have been permitted to invest in all
shares listed on the Stock Exchange, subject to certain ceilings on foreign
shareholdings and procedural limitations. With certain limited exceptions,
foreign investors are only permitted to trade such shares on the Stock Exchange
itself. Foreign investors currently are prohibited from engaging in margin
transactions. In addition, a foreign investor is subject to certain specific
registration and reporting requirements, custody requirements and requirements
prescribing the use of certain types of entities as authorized standing proxies
to exercise shareholder's rights, to place orders to sell or purchase shares or
to take other related actions that it does not undertake directly.

In general, foreigners are not allowed to acquire equity securities of
Korean companies that are not listed on the Stock Exchange (unless otherwise
approved pursuant to the FCIA or the FEMA), nor are they allowed to invest in
bonds issued by the Government or corporate bonds issued in Korea. Under its
license to invest in Korea, however, the Fund may acquire bonds listed on the
Stock Exchange (including bonds held through repurchase agreements, convertible
bonds and bonds with warrants) in an amount up to 10% of the Fund's net asset
value (subject to the limitation that during any one month the Fund may not
trade bonds outside the Stock Exchange in excess of 30% of the total amount of
bonds traded by the Fund during that month (except for trading repurchase
agreements)).

Current regulations generally limit the percentage of any class of shares
of a listed issuer in which a single foreign investor and all foreign investors
in the aggregate may acquire beneficial ownership to 3% and 12%, respectively.
The KSEC, however, may increase or decrease these percentages if it deems
necessary for the public interest, protection of investors or industrial policy.
It is expected that in 1995, the limit on aggregate foreign investment will be
increased to 15%. Currently, the KSEC has authorized several exceptional
ceilings as follows: (1) subject to the approval by the KSEC of an application
submitted by a company whose shares are held by foreign investors under the FCIA
or the FEMA, (x) in which the percentage of such foreign shareholding is less
than 50%, a ceiling equal to the sum of (a) the current percentage of foreign
shareholding under the FCIA or the FEMA and (b) a percentage (up to 12%)
requested by such company or (y) in which the percentage of foreign shareholding
is 50% or more, a ceiling equal to the percentage requested by such company may
be established (provided that in the case of (x) above, the ceiling may not
equal or exceed

32
<PAGE> 35

50%) (2) an 8% ceiling (expected to be increased to 10% in 1995) on the
acquisition of shares by foreigners in the aggregate has been established for
certain corporations designated by the Minister of Finance (currently, only
Korea Electric Power Corporation ("KEPCO") and Pohang Iron & Steel Co., Ltd.
("POSCO") are subject to this lower ceiling); and (3) the 5% ceiling on the
acquisition of a class of shares by the Fund. These ceilings may be exceeded,
however, as a result of acquiring (i) shares obtained pursuant to the FCIA or
the FEMA, (ii) shares held by a depositary which issues depositary receipts
evidencing an interest in such shares, (iii) shares listed on the Stock Exchange
acquired as a result of conversion of, or exercise of warrants or withdrawal
rights under or attached to, equity-related securities issued overseas by Korean
companies (collectively, "Converted Shares"), or (iv) shares arising from the
exercise of shareholder's rights and other rights and shares obtained by way of
gift, inheritance or bequest; provided that the number of shares exceeding the
3% limit or, in the case of the Fund, the 5% limit (except in the cases of (i)
and (ii) above) must be sold within three months from the date of acquisition.

In calculating these ceilings, all foreign shareholdings (other than those
owned by certain foreigners treated as Korean nationals must be counted
regardless of whether the shares were purchased through the Stock Exchange, or
whether they are newly issued shares or outstanding shares. Newly issued shares
(including Converted Shares) are calculated as of the date of their listing on
the Stock Exchange. When applying a ceiling with respect to acquisitions by a
single foreign investor, each entity (including individuals, corporations,
foreign government agencies, and foreign funds, unit trusts and partnerships) is
entitled to a separate 3% limitation. However, all branches in Korea of any
foreign investor as a group are entitled to their own 3% limitation separate
from that of their head office. When calculating these ceilings, shares
purchased are deemed to be acquired at the time of placing the relevant order
and shares sold are deemed to be disposed of at the time of execution.

A foreigner who has acquired shares in excess of any ceiling described
above may not exercise its voting rights with respect to the shares exceeding
such limit, and the KSEC may take necessary corrective action with regard to
such foreigner pursuant to the Securities and Exchange Act of Korea (the "Act").
The Governor of the Securities Supervisory Board of Korea may, in its
discretion, disclose the numbers of shares of a class available for investment
by a single foreign investor and foreign investors in the aggregate, and provide
a list of shares that have reached or exceeded the ceiling on acquisition by
foreign investors in the aggregate. Currently, the Governor discloses this list
every morning on which trading occurs.

The Act generally imposes a 10% beneficial ownership limitation on the
total outstanding voting shares of a listed company that may be held by any one
individual or entity, including Korean nationals, without the approval of the
KSEC. Such 10% beneficial ownership limitation under the Act is scheduled to be
repealed effective January 1, 1997, except that certain designated public
corporations may, by their articles of incorporation, continue to impose such a
limit at a level not exceeding 3%. The KSEC rules also provide that a company
may not issue convertible bonds, bonds with warrants or depositary receipts
outside of Korea if the sum of (i) shares to be acquired by foreigners by the
exercise of the conversion rights, warrants or withdrawal rights for underlying
shares under the proposed issue and under any previously issued bonds, warrants
or depositary receipts and (ii) shares held by foreigners in excess of the
applicable ceiling (generally 12%) on aggregate foreign investment (except any
such excess held under the FCIA), in the aggregate, exceed or would exceed 15%
(or such greater percentage as may in exceptional circumstances be permitted by
the KSEC) of the issued capital of the issuer at the date of issue of the
relevant securities. If foreign investors hold or will hold upon exercise of
conversion rights, warrants or withdrawal rights 50% or more of the outstanding
shares of a company, the shares issuable upon exercise of conversion rights,
warrants or withdrawal rights by foreign investors must be non-voting shares to
the extent that shares held or to be held by foreign investors exceed or will
exceed this 50% limit. In addition, the Foreign Exchange Management Regulations
currently provide that the percentage of the outstanding shares of a company
(including shares which would be outstanding as a result of the conversion of
convertible bonds and the exercise of warrants attached to bonds or withdrawal
rights attached to depositary receipts) that may be held by non-residents or
foreigners, unless provided otherwise in any other relevant laws and regulations
(including those of the KSEC), is limited to 50%.

33
<PAGE> 36

Under the Act, certain companies in industries deemed important to Korea's
economy are generally authorized to adopt provisions in their articles of
incorporation restricting or prohibiting foreign ownership of such companies'
shares. At present, KEPCO and POSCO have adopted a provision in each of their
articles of incorporation restricting ownership of their shares by a single
foreigner to 1% of each class of their shares. Both KEPCO and POSCO are
significant within their respective industries in terms of size and quality of
their earnings and assets.

A foreign investor who intends to acquire shares must designate a single
bank and open Won and foreign currency accounts, exclusively for investment in
shares (respectively, "Won Account" and "Foreign Currency Account"). No approval
is required for remittance into Korea and deposit of foreign currency funds in
the Foreign Currency Account. With the confirmation of the designated bank,
foreign currency funds may be transferred to a Won account held with a broker
(i.e., securities company) only at the time Won funds are necessary for the
purchase of shares (i.e., payment of the deposit money at the time of placing an
order, and the remainder of the purchase price outstanding at the time of
settlement). Funds in the Foreign Currency Account may be remitted abroad
without any governmental approval.

Dividends on shares of Korean companies are paid in Won. No governmental
approval is required for foreign investors to receive dividends on, or the Won
proceeds of the sale of, any such shares to be paid, received and retained in
Korea. Dividends paid on, and the Won proceeds of the sale of, any such shares
held by a non-resident of Korea must be deposited either in a Won account with
the investor's securities company or its Won Account. Funds in the investor's
Won Account may be transferred to its Foreign Currency Account or withdrawn for
local living expenses (subject to a certain limitations), in each case subject
to approval of the investor's designated bank. In addition, funds in the Won
Account may be used for future investment in shares or for payment of the
subscription price of new shares obtained through the exercise of pre-emptive
rights.

As of March 20, 1995, certain designated securities companies are allowed
to open foreign currency accounts and Won accounts with foreign exchange banks
exclusively for accommodating foreign investors' stock investments in Korea.
Through such accounts, these designated securities companies may enter into
foreign exchange transactions on a limited basis, such as conversion of foreign
currency funds and Won funds, either as a counterparty to or on behalf of
foreign investors without such investors having to open their own accounts with
foreign exchange banks.

From July 1, 1994, foreign investors are allowed to invest in (i) Stock
Exchange listed non-guaranteed convertible bonds issued by listed small- and
medium-sized companies and (ii) low interest rate public bonds designated from
time to time by the KSEC, subject to certain ceilings and procedural
limitations.

THE FUND'S LICENSE

Under the Fund's license to invest in Korean securities, the Minister of
Finance has imposed certain restrictions on the Fund which provide, among other
things, that the Fund may not (1) purchase any equity security of a Korean
issuer if, as a result of such purchase, the Fund would then own more than 5% of
the outstanding shares of any class of stock of an issuer, unless permitted by
regulations applicable to investments by foreigners or otherwise permitted by
the KSEC; or (2) make investments in Korean securities for the purpose of
exercising control or management of the issuer. The Fund may acquire Government
and corporate bonds listed on the Stock Exchange (including bonds held through
repurchase agreements, convertible bonds and bonds with warrants) in amounts not
in excess of 10% of its net asset value. In addition, although the Fund may
repatriate income received from dividends and interest earned on, and net
realized capital gains from, its investments in Korean securities, it may not
repatriate principal except to the extent that Fund expenses exceed Fund income
or in the event of termination of the Fund. Before any repatriation, the Fund is
required to obtain approval from its designated bank in order to confirm that
the amount being remitted is consistent with the Fund's license. The Fund
currently obtains such approvals from the Subcustodian, which is the Fund's
designated bank. Were the Minister of Finance to revoke or modify the license
issued to the Fund or suspend foreign exchange transactions generally, the
Fund's shareholders could be adversely affected because of an inability to
repatriate funds. If for any reason the Fund was unable to distribute
substantially all of its net investment income (including short-term capital
gains) and long-term capital gains within applicable

34
<PAGE> 37

time periods, the Fund could be subject to U.S. Federal income and excise taxes
which would not otherwise be incurred and may cease to qualify for the favorable
tax treatment afforded to regulated investment companies under the Code, in
which case it would become subject to U.S. Federal income tax on all of its
income and gains. See "Taxation -- United States Federal Income Taxes."

The Fund's license to invest in Korean securities is also subject to the
condition that if the services of the Manager or the Korean Adviser are
terminated, the appointment of a successor is to be approved by the Minister of
Finance. See "Investment Advisers." Under a further condition, the Fund, the
Manager and the Korean Adviser are required to furnish to the Minister of
Finance and the KSEC information reasonably requested by the Minister of Finance
or the KSEC relating to the Fund's operations or for the purpose of determining
whether the Fund has complied with the conditions of the license and with Korean
securities laws.

The Minister of Finance may, when it deems it to be in the public interest,
modify the Fund's license to invest in Korean securities or, according to the
terms of the license, revoke it in the event of noncompliance by the Fund with
one or more conditions attached to the license or a material violation by the
Fund of applicable Korean law. In addition, the Minister of Finance or the KSEC
may issue orders imposing additional restrictions when deemed in the public
interest, for the protection of investors or in the interest of maintaining an
orderly securities market. The Minister of Finance has the authority, with prior
public notice of scope and duration, to suspend all foreign exchange
transactions when emergency measures are deemed necessary in case of a radical
change in the international or domestic economic situation. To date, the
Minister of Finance has not exercised this authority.

FURTHER OPENING OF THE KOREAN SECURITIES MARKET

In June 1993, the Minister of Finance announced a four year plan to further
open the securities markets to foreign investors. In the plan, the Government
announced its intention to gradually raise the ceilings on investments by
foreign shareholders in companies listed on the Stock Exchange. Also in 1994,
the Government partially opened the debt securities market, with foreigners
being allowed to invest in convertible bonds issued by small and medium-sized
companies and to participate in the primary market for certain public bonds.
Other measures under the plan include permitting international institutions to
issue Won-denominated debt securities, foreign investors to invest in funds
investing in debt securities and foreign investors to invest in non-guaranteed
long-term debt securities issued by small- and medium-sized companies.

The plan also provides for the easing of requirements for the establishment
of Korean branches of foreign securities companies and for further opening of
the securities industry to foreign participants. The plan also provides for
Korean investors to be permitted more opportunities to invest directly and
indirectly in foreign securities.

THE KOREAN SECURITIES MARKETS

BACKGROUND AND DEVELOPMENT

The development of the Korean securities market has been substantially
influenced by Government policy. Primarily as a result of this influence, the
number of listed companies on, and the market capitalization of, the Stock
Exchange increased significantly during the 1970's, 1980's and early 1990's.

The Government is expected to continue to encourage qualifying companies to
proceed with initial public offerings, although the number of such offerings has
declined in recent years and, since March 1990, the Government has lessened its
encouragement of new listings due to the general price decline on the Stock
Exchange. A large amount of public equity financing, together with other related
factors, could have a considerable impact on the market prices of listed Korean
equity securities.

35
<PAGE> 38

THE STOCK EXCHANGE

The Stock Exchange, established in 1956, is the only stock exchange in
Korea and has its only trading floor in Seoul. Both equity and debt securities
are traded on the Stock Exchange, although equity securities account for most of
the Stock Exchange's trading activity. Although the Stock Exchange market
capitalization and trading volume have increased substantially over the past ten
years, it is still small relative to Japanese, United States and major European
exchanges. The aggregate market value of equity securities was approximately
trillion Won (approximately $ billion) at , 1995, and average
daily trading value was approximately billion Won (approximately $
million) for the month ended , 1995.

For smaller companies that are unable to meet the Stock Exchange's listing
requirements, an over-the-counter market was established in April 1987 for
nonlisted securities. At the end of December 1994, the securities of 310
companies were registered on this over-the-counter market and the market
capitalization was 7,958.024 million Won. At the end of February 1995, the
securities of 312 companies were registered on the over-the-counter market and
the market capitalization was 8,418.879 million Won. This market is small and
unsophisticated by U.S. standards. To further its plan to develop the
over-the-counter market, the KSEC has adopted various regulations designed to
promote the trading of shares of small- and medium-sized companies on the
over-the-counter market.

Equity Market

The number of companies listed on the Stock Exchange, the corresponding
aggregate market value at the end of the periods indicated and the average daily
trading volume for those periods are set out in the following table:

<TABLE>
<CAPTION>
MARKET VALUE AT PERIOD
END AVERAGE DAILY TRADING VOLUME
---------------------- --------------------------------------
NUMBER OF IN IN IN IN IN
LISTED BILLIONS MILLIONS THOUSANDS MILLIONS THOUSANDS
YEAR COMPANIES OF WON OF DOLLARS OF SHARES OF WON OF DOLLARS
- -------------------------------- --------- -------- ----------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
1983............................ 328 3,490 4,387 9,325 5,941 7,658
1984............................ 336 5,148 6,222 14,847 10,642 13,204
1985............................ 342 6,570 7,381 18,925 12,315 14,154
1986............................ 355 11,994 13,924 3,402(1) 32,870 37,291
1987............................ 389 26,172 33,033 5,670(1) 70,185 85,324
1988............................ 502 64,544 94,348 10,367 198,364 271,185
1989............................ 626 95,477 140,490 11,757 280,967 418,442
1990............................ 669 79,020 110,301 10,866 183,692 259,540
1991............................ 686 73,118 96,106 14,022 214,263 292,170
1992............................ 688 84,712 107,448 24,028 308,246 394,858
1993............................ 693 112,665 139,420 35,130 574,000 715,113
1994............................ 699 151,217 191,729 36,862 776,255 966,167
1995(2)......................... 699 131,179 166,899 27,556 556,174 703,395
</TABLE>

- ---------------
(1) Equivalent to the trading volume after the consolidation of shares. From
1986 to 1987, shares were consolidated at the ratio of 10 to 1 or 5 to 1 to
improve the efficiency of trading. The actual trading volumes, before
consolidation of shares was completed, were 31,755 and 20,353 in 1986 and
1987 respectively.

(2) As of the end of February 1995 and during the period from January 1, 1995 to
February 28, 1995, as the case may be.

Source: Stock, Korea Stock Exchange.

36
<PAGE> 39

Equity securities listed on the Stock Exchange are divided into two
sections. The following table shows the number of listed companies and the
average daily trading volume for each of the two sections of the Stock Exchange:

<TABLE>
<CAPTION>
AVERAGE DAILY TRADING VOLUME
---------------------------------------------------------
NUMBER OF
LISTED COMPANIES IN THOUSANDS IN MILLIONS IN THOUSANDS
OF SHARES OF WON OF DOLLARS
----------------- ----------------- ----------------- -----------------
FIRST SECOND FIRST SECOND FIRST SECOND FIRST SECOND
YEAR SECTION SECTION SECTION SECTION SECTION SECTION SECTION SECTION
- ------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1987........................... 280 109 4,335 1,316 57,944 12,766 70,442 15,519
1988........................... 303 199 7,627 2,740 154,547 43,498 211,463 59,722
1989........................... 372 254 8,896 2,861 223,104 57,864 332,267 86,176
1990........................... 443 226 8,608 2,259 148,789 34,903 210,225 49,315
1991........................... 483 203 12,127 1,895 194,944 19,319 265,827 26,343
1992........................... 483 205 20,769 3,259 281,788 26,458 360,966 33,892
1993...........................
1994...........................
1995(1)........................
</TABLE>

- ---------------
(1) As of the end of February 1995 and during the period from January 1, 1994 to
February 28, 1995, as the case may be.

Source: Stock, Korea Stock Exchange.

For original listing on the Stock Exchange, a company must meet certain
requirements relating to size, history of operations, financial condition and
percentage of voting shares held or to be held by the public. Upon original
listing, a company's securities are traded on the second section of the Stock
Exchange. To be eligible for listing on the first section of the Stock Exchange,
a company must have been listed on the second section for at least one year and
must meet more stringent tests than those for original listing.

Purchases and sales of shares may be completed fully in cash or by means of
a margin transaction. Foreign investors, including the Fund, are currently
prohibited from engaging in margin transactions. At present, the margin
requirement is the amount equivalent to 40% of the total value of the stocks
purchased on margin or sold short. Only shares in the first section of the Stock
Exchange, except for the shares of a securities company which acts as a broker,
are eligible for margin transactions, and the margin requirements are varied
from time to time by the KSEC. According to statistics prepared by the
Securities Supervisory Board, margin transactions in 1994 amounted to % of
total trading volume by number of shares, and % of the trading volume of those
shares eligible for margin transactions.

The Korea Composite Stock Price Index (the "KOSPI"), a broadly based
indicator of share price, was created in 1972. After several years of
volatility, the KOSPI was reset by the Stock Exchange in 1979. Movements in
stock prices for the last 10 years, as shown by the KOSPI (January 4, 1980 =
100), are set out in the table below, together with the associated dividend
yield and price-to-earnings ratios for listed securities as of the end of the
periods indicated. The dividend yield figures include cash actually paid, are
based on dividend paying companies only and are not weighted by the aggregate
market value of such companies.

37
<PAGE> 40

<TABLE>
<CAPTION>
AVERAGE
STOCK PRICES ------------------------------------
------------------- DIVIDEND YIELD(1) PRICE/EARNINGS
YEAR HIGH LOW ----------------- RATIO(2)
---------------------------------- -------- ------ (% OF MARKET --------------
VALUE AT 12/31)
<S> <C> <C> <C> <C>
1985.............................. 163.37 131.40 6.0 5.2
1986.............................. 279.67 153.85 4.8 7.6
1987.............................. 525.11 264.82 2.9 10.9
1988.............................. 922.56 527.89 2.6 11.2
1989.............................. 1,007.77 844.75 2.3 13.9
1990.............................. 928.82 566.27 2.6 12.8
1991.............................. 763.10 586.51 2.9 11.2
1992.............................. 691.48 459.07 2.5 10.9
1993.............................. 874.10 605.93 1.9 12.7
1994.............................. 1,138.75 855.37 1.4 16.2
1995(3)........................... 1,013.57 885.69
</TABLE>

- ---------------
(1) The dividend yield calculated on the basis of a weighted average for all
listed companies was 5.9%, 4.2%, 4.9%, 3.5%, 2.1%, 1.4%, 1.2%, 1.5%, 1.8%,
1.9%, 1.4% and 1.2% respectively, for the years ended December 31, 1983,
1984, 1985, 1986, 1987, 1988, 1989, 1990, 1991, 1992, 1993 and 1994. The
figures include only companies that paid dividends in the previous fiscal
year.

(2) Korean companies normally report earnings only on an annual basis. As a
result, the earnings used to calculate price-to-earnings ratios may not be
comparable to those customarily used in the United States. The figures do
not include companies that recorded losses in the previous year.

(3) January 1 through February 28, 1995

Source: Stock, Korea Stock Exchange.

After recording steady gains during most of the mid-1980's, the KOSPI rose
sharply during the first half of 1986, from 163.27 to 274.20 in July, when the
Government, concerned by the increasingly speculative nature of stock market
trading, introduced measures that caused a decline through most of October,
although the KOSPI recovered to close the year at 272.61.

The KOSPI continued to increase during 1987 and 1988, closing 1988 at
907.20. The increase in the KOSPI reflected Korea's rapid economic growth,
growing current account surplus, growth in savings, and the orderly election of
Roh Tae Woo to succeed Chun Doo Hwan as President of the Republic.

The KOSPI rose to a high of 1007.77 on April 1, 1989, but then underwent a
period of prolonged weakness, reaching a subsequent low of 459.07 on August 21,
1992. The KOSPI closed on September 20, 1993 at 695.12. Subsequently, the KOSPI
exhibited a volatile but generally rising pattern, reflecting, on the one hand,
such negative factors as the trade deficit and inflation and the August 1993
announcement (which caused a record one-day loss of 7.5% in the KOSPI) of
required disclosure of real names in financial transactions and, on the other
hand, such positive factors as the opening of the Korean stock market to foreign
investors, the depreciation of the Won (which tended to help the price
competitiveness of Korean goods in world markets), low oil prices, improved
labor-management relations, Government measures to support the stock market and
somewhat lower interest rates. The index reached an all-time high of 1,138.7 on
November 8, 1994, but has since trended down.

From 1983 to 1994, the dividend yield on the KOSPI declined from 8.3% to
1.4%. The substantial decline in the dividend yield is attributable to the
generally higher level in the market prices of securities listed on the Stock
Exchange and the common corporate practice of establishing dividend rates based
on the par value of shares and with reference to fixed deposit interest rates,
which have been declining since 1981.

In addition to the KOSPI, stock price indexes for the first and second
sections and for small-, medium-and large-sized companies are published. In
general, stock prices on the second section are more volatile than

38
<PAGE> 41

those on the first section and stock prices of small- and medium-sized companies
are more volatile than those of large companies.

Movements in individual company share prices of any category of shares on
one day are confined to 6% of the previous day's closing price of such shares,
rounded down as set forth below:

<TABLE>
<CAPTION>
ROUNDED DOWN TO
PREVIOUS DAY'S CLOSING PRICE (WON) (WON)
--------------------------------------------------------------------- ----------------
<S> <C>
Less than 10,000..................................................... 10
10,000 to less than 100,000.......................................... 100
100,000 to less than 500,000......................................... 500
500,000 or more...................................................... 1,000
</TABLE>

Such restrictions limit the maximum movement in the KOSPI on any day. As a
result, the quoted closing price of a listed security, if such closing price has
been fixed by the limit, may not necessarily represent the price at which
persons are willing to buy and to sell such security in the absence of such a
limit.

The following table shows the 30 largest companies listed on the Stock
Exchange, ranked by market capitalization as of , 1995. As of that date,
these companies represented % of the total market capitalization of all the
companies listed on the Stock Exchange.

<TABLE>
<CAPTION>
IN BILLIONS IN MILLIONS
COMPANY OF WON OF DOLLARS
--------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Korea Electric Power Corporation............................... 16,777 21,272
Samsung Electronics............................................ 6,716 8,515
Pohang Iron & Steel............................................ 6,008 7,617
Daewoo Heavy Industry.......................................... 4,389 5,565
LG Electronics................................................. 2,742 3,476
Korea Mobile Telecommunication................................. 2,327 2,950
Hyundai Motors................................................. 2,047 2,596
Shinhan Bank................................................... 2,012 2,552
Yukong......................................................... 1,952 2,475
Cho Hung Bank.................................................. 1,909 2,420
Samsung Heavy Industry......................................... 1,854 2,351
LG Chemical.................................................... 1,839 2,332
Hyundai Engineering & Construction............................. 1,778 2,254
Hanil Bank..................................................... 1,696 2,151
Daewoo Securities.............................................. 1,643 2,083
Daewoo......................................................... 1,562 1,980
Ssangyong Refinery............................................. 1,537 1,949
Dacon.......................................................... 1,531 1,941
Korea First Bank............................................... 1,430 1,813
Commercial Bank................................................ 1,339 1,698
Korea Exchange Bank............................................ 1,295 1,642
Korean Air..................................................... 1,239 1,571
Citizen Bank................................................... 1,235 1,566
Bank of Seoul.................................................. 1,219 1,546
Kia Motors..................................................... 1,186 1,503
Ssangyong Cement Industry...................................... 1,035 1,313
LG Securities.................................................. 1,022 1,296
Korea Long Term Credit Bank.................................... 1,022 1,295
Daewoo Electronics............................................. 956 1,212
Dong-A Construction Industry................................... 866 1,098
</TABLE>

- ---------------
Source: Stock, 1995, Korea Stock Exchange.

39
<PAGE> 42

The following table shows the volume of trading during the year ended
December 31, 1994 for the 30 most actively traded companies on the Stock
Exchange. The trading in shares of these companies accounted for % of all
shares traded during 1994.

<TABLE>
<CAPTION>
NO. OF SHARES IN BILLIONS IN MILLIONS
COMPANY (000) OF WON OF DOLLARS
------------------------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
Daewoo...........................................
Korea Electric Power.............................
Daewoo Heavy Industries..........................
Bank of Seoul....................................
Dongsuh Securities...............................
Commercial Bank of Korea.........................
Daewoo Electronics...............................
Lucky Securities.................................
Goldstar Electronics.............................
Daishin Securities...............................
Chohung Bank.....................................
Daewoo Securities................................
Hanil Bank.......................................
Sammi Steel......................................
Hyundai Eng. & Const. ...........................
Hanshin Securities...............................
Korea First Bank.................................
Saeil Heavy Ind. ................................
Sammi............................................
Coryo Securities.................................
Kohap............................................
The Kwangju Bank.................................
Han Bo Steel & General Const. ...................
Han Yang Chemical................................
Daelim Ind. .....................................
Hanil Synthetic Fiber Ind. ......................
Pohang Iron & Steel..............................
Byucksan Eng. & Const. ..........................
Kun Young........................................
Kukje............................................
</TABLE>

- ---------------
Source: Stock, Korea Stock Exchange.

Since 1980, the Government has reduced its interest in all listed companies
to less than 1%. With Government ownership down, institutional holders,
including banks and insurance companies, owned 28.8% of listed shares at
December 31, 1994. On that date, shareholders who individually owned 10,000
shares or more represented % of the total number of shareholders and owned
% of the total number of shares outstanding. (The number of shares and
shareholders of KEPCO and POSCO are not included.)

The Government has announced that it will open the stock index futures
market on the Stock Exchange floor in January 1996.

Bond Market

The market in Korea for listed bonds is less developed than the market for
listed equity securities. The official Korean bond market was established in
1968 pursuant to the Capital Market Promotion Act. In 1972, Korean corporations
began raising funds through underwritten public debt offerings. In line with the
sharp annual increases in the number of corporate bonds issued, the volume of
issues outstanding has also shown large increases. In addition, the Government
and other public bodies have had increasing recourse to the bond market with
both listed and unlisted bond volumes showing substantial growth. Volumes of
outstanding bond issues since 1987 are given in the following table.

40
<PAGE> 43

OUTSTANDING LISTED BOND ISSUES

<TABLE>
<CAPTION>
LISTED PUBLIC BONDS LISTED CORPORATE BONDS TOTAL LISTED BONDS
--------------------------- --------------------------- ---------------------------
IN BILLIONS IN MILLIONS IN BILLIONS IN MILLIONS IN BILLIONS IN MILLIONS
YEAR OF WON OF DOLLARS OF WON OF DOLLARS OF WON OF DOLLARS
- ------------------------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1987.................... 15,034 18,975 9,973 12,587 25,007 31,562
1988.................... 22,159 32,391 11,521 16,841 33,680 49,233
1989.................... 28,095 41,340 15,395 22,653 43,490 63,994
1990.................... 29,049 40,549 22,068 30,804 51,117 71,353
1991.................... 32,250 42,390 29,241 38,435 61,491 80,824
1992.................... 32,447 41,155 32,697 41,473 65,143 82,627
1993.................... 41,359 51,181 37,574 46,496 78,933 97,677
1994.................... 56,621 71,790 45,876 59,167 102,497 129,957
1995(1).................
</TABLE>

- ---------------
(1) January 1 through , 1995.

Source: Stock, Korea Stock Exchange.

Statistics are not regularly compiled with respect to unlisted public
bonds, although the volume outstanding is significant.

The secondary market in bonds listed on the Stock Exchange is relatively
inactive compared to the secondary market for equity securities listed on the
Stock Exchange. Details of trading value are given in the table below.

TRADING VALUE OF BONDS

<TABLE>
<CAPTION>
PUBLIC SECTOR BONDS CORPORATE SECTOR BONDS TOTAL BONDS
--------------------------- --------------------------- ---------------------------
IN BILLIONS IN MILLIONS IN BILLIONS IN MILLIONS IN BILLIONS IN MILLIONS
YEAR OF WON OF DOLLARS OF WON OF DOLLARS OF WON OF DOLLARS
- ------------------------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1987.................... 5,327 6,476 1,912 2,324 7,239 8,800
1988.................... 7,001 9,571 1,545 2,112 8,546 11,683
1989.................... 4,378 6,520 771 1,148 5,149 7,668
1990.................... 2,455 3,469 795 1,123 3,250 4,592
1991.................... 1,394 1,901 704 960 2,098 2,861
1992.................... 453 580 152 195 605 775
1993.................... 4 5 2 2 6 7
1994(1)................. 24 30 1,145 1,424 1,169 1,455
</TABLE>

- ---------------
(1) January 1 through , 1995.

Source: Stock, Korea Stock Exchange.

The table does not include over-the-counter trading. For bonds,
over-the-counter trading constitutes a substantially larger part of the overall
bond trading market than trading on the Stock Exchange.

THE KOREA SECURITIES STABILIZATION FUND

In 1990, substantially all of the companies listed on the Stock Exchange,
certain institutional investors (including banks and insurance companies) and
Korean securities companies that are members of the Stock Exchange contributed
capital to the Stabilization Fund for the purpose of stabilizing the securities
market through the purchase and sale of securities. As of March 31, 1995, the
Stabilization Fund owned securities with a book value of approximately Won 3.6
trillion (approximately $4.6 billion) and held cash reserves of approximately
Won 2.2 trillion (approximately $2.8 billion). These holdings, in the aggregate,
constituted approximately 4% of the total market capitalization of the Stock
Exchange as of that date. In August 1992 the Minister of Finance asked the
Stabilization Fund, together with banks, insurance companies and pension

41
<PAGE> 44

funds, to purchase an additional Won 3.9 trillion (approximately $5.0 billion)
worth of stocks in the succeeding 12 months. Early in 1994, the Stabilization
Fund was ordered to sell a portion of its holdings. A liquidation of the
securities held by the Stabilization Fund could exert significant downward
pressure on the market price of shares listed on the Stock Exchange.

MARKET REGULATION

The Minister of Finance establishes the basic policies governing the
overall operation of the Korean securities market. The official Korean
securities markets are principally regulated by the KSEC under the Act. The Act
is based on the United States securities laws and imposes restrictions on
insider trading, requires specified information to be made available to
investors and establishes rules regarding margin trading, proxy solicitation and
take-over bids, and also regulates the investment advisory business. Although
the KSEC is authorized to regulate and make decisions on all major issues
relating to the securities markets pursuant to the Act, all decisions of the
KSEC must be reported to the Minister of Finance. The Minister of Finance may
repeal any decision of the KSEC or suspend its enforcement. The day-to-day
management and implementation of the policies of the KSEC are conducted by the
Securities Supervisory Board.

The Act was amended fundamentally in 1976, 1983, 1987 and December 1991 to
broaden the scope and improve the effectiveness of official supervision of the
securities markets. As amended, the Act imposes restrictions on insider
training, requires specified information to be made available by listed
companies to investors and establishes rules regarding margin trading, proxy
solicitation and take-over bids.

The Act was most recently amended effective January 1994 in order to, among
other things, deregulate the securities markets by lifting (effective January 1,
1997) the 10% beneficial ownership limitation on the acquisition of shares of a
listed company by an individual Korean national. The January 1994 amendment also
permits listed companies to hold their own shares, improves the central
depository system and securities dispute conciliation committee, strengthens the
reporting requirements imposed on shareholders holding 5% or more of the issued
and outstanding shares of a listed company, and expands the scope of dissenting
shareholders entitled to request the issuer to purchase their shares under
certain circumstances, including at the time of merger or business transfer, to
include holders of non-voting shares. The Stock Exchange has announced that the
stock index futures market will be introduced in January 1996.

Companies listed on the Stock Exchange are required to file audited annual
and reviewed semi-annual reports with the KSEC and the Stock Exchange. Certain
material events, including the revocation of a business license, the suspension
of a bank account, a corporate dissolution or a change in capitalization, must
be disclosed by listed companies on the date they occur to the public through
the facilities of the Stock Exchange. Certain less material events, including a
change of business objective, the filing of a major lawsuit against the company
and notification of a tax investigation, must be disclosed within two days to
the Stock Exchange, which will disclose them, on the company's behalf, to the
public.

In Korea, banks, merchant banks and short-term finance companies as well as
securities companies are allowed to engage in underwriting. Generally,
securities companies can perform all kinds of securities business while banks,
merchant banks and short-term finance companies can engage only in the
underwriting business with respect to debt securities.

THE REPUBLIC OF KOREA

GENERAL INFORMATION

General

The Republic, founded on August 15, 1948, consists of the portion of the
Korean peninsula which lies generally to the south of the 38th parallel. The
Republic has a land area of about 38,000 square miles, of which approximately
one-fourth is arable. The Republic has a population of approximately 44 million,
with a literacy rate estimated to be over 90%. The capital, Seoul, with a
population of about ten million, is less than 40 miles south of the
demilitarized zone separating the Republic from North Korea.

42
<PAGE> 45

Politics and Foreign Relations

The country was under Japanese rule from 1910 until 1945 when, following
the Japanese surrender at the end of World War II, United States forces occupied
southern Korea and Soviet forces established a presence in the northern half of
the Korean peninsula. The 1948 elections in the south created the Republic of
Korea, and in the same year the United Nations General Assembly declared the
Republic to be the only legal government in the Korean peninsula.

The Korean War of 1950-1953 began with the invasion by communist forces
from the North and, following a military stalemate between the forces of North
Korea and the Republic, reinforced by Chinese and U.S. forces, respectively,
ended with an armistice establishing a demilitarized zone in the vicinity of the
38th parallel, which became the boundary between the Republic and North Korea.

In recent years, the Government has emphasized economic growth, responsible
fiscal and monetary policies, and improvement in relations with former communist
bloc countries. The Government also has taken steps to liberalize political
conditions in the Republic, supported by continued public support for such
reforms.

Relations between the Republic and North Korea remain tense, despite
growing contacts between the two. North Korea maintains a regular military force
estimated at more than 700,000, the majority of which are concentrated near the
northern border of the demilitarized zone. The Republic maintains a state of
military preparedness along the southern border of the demilitarized zone. The
Republic has a national conscription system and a regular military force of
approximately 600,000. In addition to the regular forces, there are substantial
reserves. The United States currently maintains military forces of approximately
40,000 in the Republic.

In December 1991, the Republic and North Korea signed an "Agreement on
Reconciliation, Nonaggression and Exchange and Cooperation" designed to
strengthen trade and diplomatic ties. In August 1992, the Republic and the
People's Republic of China officially established diplomatic relations. Despite
these developments, relations with North Korea have been strained recently
because of North Korea's threat to withdraw from the Nuclear Non-Proliferation
Treaty and its refusal to open its nuclear facilities to inspection by officials
of the International Atomic Energy Commission.

Depending on its nature and timing, if the unification of North Korea with
the Republic were to be effected, that unification could entail substantial
costs and dislocations to the economy of the Republic, given the disparities
between the economies of North Korea and the Republic.

The Republic maintains diplomatic relations with most nations. Recently,
the Republic established diplomatic ties with many communist and formerly
communist countries.

Government Organization

Governmental authority in the Republic is highly centralized and is
concentrated in a strong presidency. The Constitution provides for the direct
election of the President by popular vote. The President is the chief of state
and head of the Republic's government. Under the present Constitution, the term
of office of the President is five years and he may not be re-elected. The
President has the right to veto new legislation and to take emergency measures
in case of natural disaster, serious fiscal or economic crisis, state of war or
similar condition. The President is required to notify the National Assembly
promptly of any such emergency measures taken, and to seek its concurrence,
failing which the emergency measures are automatically invalidated.

43
<PAGE> 46

Legislative power is vested in the National Assembly. Three-quarters of the
members of the National Assembly are elected by popular vote for a term of four
years. The remaining seats are distributed proportionately among parties winning
five seats or more in the direct election. The National Assembly enacts laws and
approves treaties and the national budget. Most legislation is drafted by the
executive branch, which then submits the bill to the National Assembly for
enactment.

THE ECONOMY

Economic Policy and the Five-Year Plans

Industry and commerce in the Republic are predominantly privately owned and
operated. The Government, however, has been heavily involved in establishing
economic policy objectives and implementing such policies with a view toward
maintaining national security, encouraging industrial development and improving
living standards. Economic, financial and business priorities can be influenced
by the Government through its control of business-related approvals and licenses
and through the allocation of credit. Such Government influence has gradually
diminished through deregulation and market self-regulation, in keeping with the
Republic's economic liberalization policy.

The Economic Planning Board, headed by the Deputy Prime Minister, is
primarily responsible for formulating economic policies, including the Five-Year
Economic and Social Development Plans which have guided economic policy since
1962. The Economic Planning Board exercises overall direction of the economy by
means of economic policies in cooperation with the various Ministries. The
Minister of Finance implements fiscal, financial and monetary policies. To
encourage particular industries, the Government uses such measures as financial
assistance and tax incentives.

A five-year economic plan prepared by the Kim Young Sam administration
covers the years 1993 through 1997. Included in the plan are proposals to reduce
regulations on business activity, reform the financial system, liberalize
interest rates, increase emphasis on research and development and add emphasis
on the training and upgrading of labor force skills.

The 30 largest business groups of related companies in terms of total
consolidated assets, commonly referred to as "chaebol" -- the four largest of
which are Hyundai, Samsung, Daewoo and Lucky-Goldstar -- are engaged in a wide
range of businesses and play a significant role in the Korean economy. Each
chaebol company is prohibited from holding shares of companies within its group
and outside the group in excess of 25% of its net asset value. Also, each
chaebol company must reduce the amount of guarantees provided for the benefit of
companies within the same group to 200% of its shareholders equity by the end of
March 1996. The Bank of Korea limits the total loans by Korean commercial banks
to Korean companies that are members of a chaebol. A chaebol is permitted to
select up to three "core" companies (or, in certain cases, up to five such
companies) to which those limits would not apply. The Government's policy is to
encourage the growth of smaller and medium-sized companies.

44
<PAGE> 47

Selected Economic Data

The following table sets forth selected economic data relating to the
Republic for the indicated periods.

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Gross national product at current
market prices (billion Won)...... 147,942 178,262 214,240 238,705 263,801 302,867
Government budget surplus (billion
Won)............................. 444 755 (1,707) (689) 235
Growth in gross national product at
current prices (percentage
change).......................... 12.6% 20.5% 20.2% 11.4% 10.5% 14.8%
Growth in real gross national
product (percentage change)...... 6.9 9.6 9.1 5.0 5.8 8.2
Producer price index (percentage
change).......................... 1.5 4.2 4.7 2.2 1.5 2.7
Consumer price index (percentage
change).......................... 5.7 8.6 9.3 6.2 4.8 6.2
Wages (percentage change)(1)....... 21.0 19.0 17.5 15.2 12.1 12.7
Unemployment rate (percent)........ 2.6 2.4 2.3 2.4 2.8 2.4
Industrial production (percentage
change).......................... 3.2 8.8 9.6 5.8 4.4 11.1
Exports (billion Dollars)(2)....... 62.4 65.2 71.9 76.6 82.2 96.0
Imports (billion Dollars)(2)....... 61.5 69.8 81.5 81.8 83.8 102.4
Trade balance (billion
Dollars)(2)...................... 0.5 (4.7) (9.7) (5.1) (1.6) (6.3)
Current balance (billion
Dollars)(2)...................... 5.1 (2.2) (8.7) (4.5) 0.4 (4.8)
</TABLE>

- ---------------
(1) Monthly earnings of regular employees of all industries.

(2) Calculated on the basis of customs clearing date.

Source: Reports on Monthly Labor Survey, The Ministry of Labor; Monthly
Statistics of Korea, National Statistical Office; Monthly Bulletin, The
Bank of Korea.

Gross National Product

For the year ended December 31, 1994, the Republic's GNP was approximately
$377 billion. During the past two decades, the average annual increase in real
GNP has been approximately 8.0%. During this period the Republic made
significant progress towards the transformation of its economy from one
characterized by agricultural production and the export of raw materials to that
of a modern industrial state.

Following its recovery from a recession in 1980, the Korean economy has
been characterized by high growth and, until the acceleration of inflation
starting in 1988, by low inflation. From 1987 through 1994, real GNP increased
at an average annual rate of %. For the three years 1986 through 1988, GNP
growth averaged 12.8% a year. The rate of increase slowed in 1989 to 6.9%, but
then recovered to 9.6% in 1990. The Republic's real GNP grew at 9.1% in 1991,
5.0% in 1992, 5.8% in 1993 and 8.2% in 1994.

The slowdown in growth in 1989 was due to a deceleration in export growth
as a result of a deterioration in the Republic's international competitive
position. The subsequent increase in growth in 1990 and 1991 was due largely to
an increase in capital expenditures resulting from the pressures of rapidly
rising wages and consumer spending fueled by the increase in income levels of
recent years and the concomitant demand for housing and consumption goods,
particularly consumer durables such as passenger cars and household electric
appliances. In 1992, capital spending declined and the rate of increase in
consumer spending fell.

In accordance with Government policies to encourage industrialization, the
relative importance of the primary industries in the Republic's economy has
continued to decline. During the period from 1989 through 1994, the share of GNP
of the primary industries (agriculture, forestry and fishery industries)
declined from 9.0% in 1989 to 7.0% in 1994. The secondary industries
(manufacturing, mining, and construction) increased

45
<PAGE> 48

their share from 42.9% to % over the same period. The tertiary industries,
which include public utilities, transportation, communications, trade and
financial and other services, increased their relative shares of GNP from %
to % in this period.

Prices, Wages and Employment

Inflation, as measured by the CPI, rose to 7.1% in 1988, after five years
of increases of 3.5% per year or less. Inflation eased to 5.7% in 1989, but rose
to 8.6% in 1990 and 9.3% in 1991. The rate of increase slowed to 6.2% in 1992
and was 4.8% in 1993 and 6.2% in 1994.

The increase in inflation after 1987 was due in large part to rising labor
costs. Until laws relaxing constraints on the formation of labor unions and the
staging of strikes were passed in 1986 and 1987, labor unrest was rare in Korea.
Shortly after the passage of these laws, however, widespread labor unrest
erupted and the Korean work force won significant wage concessions to compensate
for increases in productivity achieved during the 1980's. Labor disputes in
Korea have decreased since 1990. Since 1987, wages have increased sharply.
Monthly wages in all industries rose 21.0% in 1989, 19.0% in 1990, 17.5% in
1991, 15.2% in 1992, 12.1% in 1993 and 12.7% in 1994. These wage increases can
be compared with increases in productivity of 12.7% in 1990, 13.3% in 1991,
10.2% in 1992, 7.7% in 1993 and 9.0% for the first three quarters of 1994.

Industry

Industrial production increased by 19.3% in 1987, 13.2% in 1988, 3.3% in
1989, 8.8% in 1990, 8.9% in 1991, 5.3% in 1992, % in 1993 and % in
1994. Because of the importance of exports to Korean industry, increases in
protectionist trade barriers by countries to which Korean companies export
products would adversely affect industrial production.

Manufacturing

The manufacturing sector has been the most rapidly growing sector of
Korea's economy in recent years. Performance has been particularly strong in
electronics and heavy industries (such as the iron and steel, machinery,
shipbuilding and automobile industries), reflecting the relative importance
attached to import substitution and export competition in these products.

The electronics industry grew at an average annual rate of approximately
12% during the period 1989 to 1994. This growth may be traced to both domestic
and overseas demand, as well as to Government encouragement of high technology
through tax incentives, loans at favorable interest rates and tariff protection.
With Government support, there has been significant growth within the electronic
parts and components sector, which in 1994 constituted approximately 52% of
total electronic goods production. In 1994 exports of electronic products
accounted for 32% of total exports.

Supported by large increases in domestic demand for steel, in turn due to
the growth of other heavy industry and large scale public investment in road,
harbor and housing construction, steel production increased from 21.9 million
tons in 1989 to 28.1 million tons in 1994.

The machinery industry, including machine tools, mining, construction and
agricultural machinery, has developed rapidly. Received orders of machinery have
increased from 8.0 billion Won in 1987 to billion Won in 1994.

Korea's share of world shipbuilding is second only to Japan's. As of
September 1994, merchant vessels under construction in Korea amounted to
3,151,000 gross registered tons, and new orders were received for gross
registered tons, reflecting the continued recovery in the Korean shipbuilding
industry in recent years from the effects of worldwide overcapacity in the
mid-1980s.

The Korean automobile industry made great progress in the 1980s with growth
occurring in both export and domestic markets. Total vehicle production more
than doubled from 1989 to 1994, increasing from approximately 1,128,000 to
approximately 2,311,700.

Textiles and apparel, which grew rapidly in the 1970s, grew more slowly in
the 1980s as a result of severe worldwide price competition and increased trade
barriers. The 1990's have also seen a continued decline in these products.

46
<PAGE> 49

Construction

Construction is one of Korea's major industries, accounting for 11.5% of
the Republic's GNP in 1994. Domestic construction orders increased from 13.453
billion Won (approximately $20.0 billion) in 1989 to 37.197 billion Won
(approximately $35.7 billion) in 1994, in large part as a result of the
Government's promotion of new housing projects. During the 1960s and 1970s, the
Korean construction industry grew substantially as a result of its activities
overseas. Overseas construction orders, which had dropped sharply during the
1980s, increased from $2.4 billion in 1989 to $6.8 billion in 1990 and decreased
to $3.0 billion in 1991, to $2.8 billion in 1992 but increased to $5.1 billion
in 1993.

Agriculture, Forestry and Fisheries

The contribution of agriculture, forestry and fisheries to the Republic's
GNP declined from 9.0% in 1989 to 7.0% in 1994 as a result of industrialization.

Because of geographical and physical constraints, crop yields are limited,
thereby necessitating dependence on imports for certain basic foodstuffs.

Energy

Korea has no domestic oil or gas production and is heavily dependent on
imported oil to meet its energy requirements. Demand for petroleum products in
the Republic has continued to grow, however, reflecting in part a rapid growth
in the number of cars and trucks and a shift from coal to petroleum products for
cooking and heating. The performance of the Korean economy is therefore broadly
affected by the price of oil, resulting in high inflation when world oil prices
have risen sharply. Any significant long-term increase in the price of oil may
increase inflationary pressures in the Korean economy and adversely affect the
Republic's balance of trade.

To reduce its dependence on oil imports, the Government has encouraged
efforts toward implementing an energy source diversification program with the
emphasis mainly on nuclear energy and coal. Implementation of this program would
provide the Republic with significant additional electrical generating capacity,
which at present is barely in excess of current power requirements. In 1993,
nine domestic nuclear reactor units produced mw hours of electricity,
accounting for % of total annual power generation. Under the Government's
program, 18 nuclear power plants have been scheduled to be completed during the
period from 1991 to 2006. Growing public resistance against nuclear power,
however, has become a major obstacle to accomplishing this program.

THE FINANCIAL SECTOR

The Republic's financial sector has grown to accommodate the development of
the economy and today comprises a banking system, a range of non-banking
institutions and a securities market.

Korean financial institutions may be divided into two main categories:
monetary institutions and other financial institutions. The former includes the
Bank of Korea and the deposit money banks that, in turn, may be divided into the
commercial banks and special banks according to their legal status and banking
business limits. Other financial institutions consist of life insurance
companies and development and investment companies.

The Bank of Korea, established in 1950, is the central bank and the sole
currency issuing bank in the Republic. Monetary and credit policies of the
central bank are formulated and controlled by a nine-member Monetary Board
comprised of the Minister of Finance, the Governor of the Bank of Korea and
seven other members. The Monetary Board determines maximum interest rates and
the rediscount rate of the Bank of Korea. It also fixes reserve requirement
ratios and exercises other normal methods of monetary control as well as
regulating the activities of banking institutions.

Korea's commercial banks have a high level of non-performing assets,
reflecting in part the high leverage typical of Korean companies and the decline
in several Korean industries, notably shipping and overseas

47
<PAGE> 50

construction during the 1980s. The Bank of Korea selectively extends
concessional loans (at 3% annual interest) to commercial banks burdened by such
non-performing loans.

In June 1993, the Government announced a plan for restructuring and
liberalizing the financial services industry. The plan includes accelerating the
1991 plan for deregulation of interest rates, changing the measures of monetary
control, liberalization of loans by banks, development and liberalization of
short-term financing markets, internationalization of the Won and reducing
restrictions on foreign currency transactions. The plan also includes opening
capital markets and financial industry liberalization programs. The financial
industry will be restructured through specialization as well as adjustments in
the business scope of financial service firms.

In addition to the officially regulated financial institutions described
above, there has been an unofficial money market or "curb" market, which
consists of individual brokers and professional money lenders who make or
arrange loans to business borrowers. The curb market is significantly less
important now than it was several years ago. The increase in interest rates on
officially regulated markets, the increase in number of lending institutions,
and increased price stability, as well as steps taken by the Government, have
contributed to the substantial decline of the curb market.

In August 1993, President Kim Young Sam issued an emergency presidential
decree requiring the use of real names in financial transactions. Effective from
that date, financial institutions must confirm, whenever they enter into
financial transactions with their clients, that those clients are using their
real names. By October 12, 1993, all financial assets previously held in
accounts registered under names other than those of the actual owners with
financial institutions were to be reregistered under the owners' real names.

On the day following the issuance of such decree, the KOSPI, the major
measure of changes in stock values on the Stock Exchange, declined 4.46% to
693.57. However, by August 20, 1993, the KOSPI had increased to close at 729.86.

In addition, the law to introduce the real-name system for real estate
transactions was legislated and will become effective starting July 1, 1995. The
main purpose of the law is to discourage real estate speculation and to prevent
property prices from rising out of control. The new law bans the current
practice of borrowing names for property registration, thereby avoiding taxes.

MONETARY POLICY

The Monetary Board, the supreme policy-making arm of the Bank of Korea, has
the responsibility for formulating and implementing monetary policy. It also
regulates the activities of banking institutions and the Bank of Korea. The
Government does, however, exert considerable influence on monetary policy. The
Minister of Finance is empowered to request reconsideration of resolutions
adopted by the Monetary Board and if such a request is rejected by the Monetary
Board, the President has the authority to make the final decision.

Monetary policy is implemented by influencing the reserve positions of
banking institutions, principally through changes in the terms and conditions of
rediscounts, open market operations and changes in reserve requirement ratios.
The Bank of Korea may also set or alter maximum interest rates on deposits and
loans and, in periods of extreme monetary expansion, directly control the volume
and nature of bank credit. In practice, the Bank of Korea's power to set
interest rates and impose direct credit controls has proven to be the most
effective means of implementing monetary policy. The Bank of Korea recently has
reduced the extent of such direct intervention, in line with the Government's
deregulation of interest rates.

Interest rates of banks and non-bank financial institutions have been
largely determined by monetary authorities, bank rates by the Monetary Board and
others by the Minister of Finance. In June 1993, the Government announced that
by the end of 1993 it will lift all restrictions on interest rates for loans,
long-term (not less than two years) deposits, short-term (less than two years)
corporate and financial debts, monetary stabilization bonds and public bonds. It
also announced that during 1994 to 1996, interest rates will be liberalized for
all deposits other than demand deposits, and that in 1997 limitations on
interest rates for demand deposits gradually will be lifted.

48
<PAGE> 51

FOREIGN TRADE AND BALANCE OF PAYMENTS

Foreign Trade

Foreign trade is vital to the economy of the Republic, which lacks natural
resources and must rely on extensive trading activity as a basis for growth.
Virtually all domestic requirements for petroleum, wood and rubber are imported,
as are the Republic's requirements for coal and iron ore. In addition, much of
the capital equipment that built up Korea's manufacturing base has been
imported. As a result, the Republic has typically had a trade deficit. With
rapid growth of exports, however, the trade deficits lessened and in 1986, a
substantial trade surplus of $3,131 million was achieved. The trade surplus
increased in 1987 and 1988, but fell sharply in 1989. Deficits have been
recorded since then: $4.647 million in 1990, $9.656 million in 1991, $5.143
million in 1992, $1.563 million in 1993 and $6.335 million in 1994. The decline
in the trade balance resulted from a combination of factors. The growth in
exports slowed as Korean exports became less competitive, due in large part to
the appreciation of the value of the Won and higher wage costs. At the same
time, the growth in imports accelerated as a result of increased consumer demand
and increased demand for capital goods, as well as from an increase in oil
prices in late 1990 as a result of the Persian Gulf crisis.

Korea's balance of trade would continue to be adversely affected if, among
other things, Korea's trading partners increased barriers against imports,
prices for essential natural resources imported by the Republic were to
increase, or economic slowdowns in the economies of the United States, Japan and
the other principal markets for Korean exports were to occur.

The Republic's largest trading partners are the United States and Japan. In
1994, the United States accounted for approximately 21.4% of Korea's total
exports and approximately 21.1% of Korea's total imports, while Japan accounted
for approximately 14.1% of Korea's total exports and approximately 21.1% of
Korea's total imports. Trade with China has increased in recent years, as
diplomatic relations between the two nations have improved. In 1994, China
accounted for 6.5% of Korea's exports and 5.3% of Korea's total imports.

Over 90% of Korea's exports are manufactured goods, machinery and
transportation equipment. The bulk of imports are commodities such as oil and
iron ore, although imports of consumer durables have grown in recent years
following the lowering of customs tariffs on many items as part of an import
liberalization program that began in 1984. From 1979 until the Gulf war, world
oil and commodity prices had risen more slowly than inflation rates, and several
of Korea's major imports (including oil, iron ore and coal) experienced price
weakness.

The following table summarizes the Republic's balance of trade from 1987 to
1994:

<TABLE>
<CAPTION>
EXPORTS PERCENTAGE PERCENTAGE
EXPORTS(1) IMPORTS(1) BALANCE AS % OF CHANGE CHANGE
(F.O.B.) (C.I.F.) OF TRADE(1) IMPORTS EXPORTS IMPORT
---------- ---------- ----------- ------------- ---------- ----------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
1987............................ 47,281 41,020 6,261 115.3 36.2 29.9
1988............................ 60,696 51,811 8,886 117.1 28.4 26.3
1989............................ 62,377 61,465 912 101.5 2.8 18.6
1990............................ 65,197 69,844 (4,828) 93.1 4.5 13.6
1991............................ 71,869 81,525 (9,655) 88.2 10.2 16.7
1992............................ 76,632 81,775 (5,144) 93.7 6.6 0.3
1993............................ 82,256 83,799 (1,563) 98.1 7.3 2.5
1994............................ 96,014 102,350 (6,336) 93.8 16.8 22.1
Annual 89-94.................... 9.0 10.7
</TABLE>

- ---------------
(1) Calculated on the basis of customs clearing date.

Source: Monthly Bulletin, The Bank of Korea.

49
<PAGE> 52

Balance of Payments

The following table sets forth certain information with respect to the
Republic's balance of payments for the periods indicated.

BALANCE OF PAYMENTS

<TABLE>
<CAPTION>
CLASSIFICATION 1989 1990 1991 1992 1993 1994
- ---------------------------------------------------------- ------ ------ ------ ------ ------ -------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Current Balance........................................... 5,055 (2,179) (8,728) (4,529) (385) (4,778)
Trade Balance........................................... 4,597 (2,004) (6,980) (2,146) (1,860) (3,082)
Exports(1).............................................. 61,409 63,124 69,582 75,169 80,950 93,676
Imports(1).............................................. 56,812 65,127 76,561 77,315 79,090 96,758
Invisible Trade Balance................................. 211 (451) (1,596) (2,614) (1,967) (2,295)
Unrequited Transfer (net)............................... 247 275 (152) 232 491 599
Long-Term Capital(2)...................................... (3,363) 548 4,186 7,232 8,900 6,133
Loans and Investment.................................... (1,105) 33 3,091 5,160 8,707 7,407
Others (net)............................................ (2,258) 514 1,095 2,072 192 (1,274)
Basic Balance............................................. 1,692 (1,632) (4,542) 2,704 9,284 1,355
Short-Term Capital........................................ 60 3,334 41 1,110 (2,021) 2,951
Errors and Omissions...................................... 701 (1,976) 760 1,084 721 (1,504)
Overall Balance........................................... 2,453 (274) (3,741) 4,898 6,542 2,802
Financial Account(3)...................................... (2,453) 274 3,741 (4,898) (6,542) (2,802)
Liabilities............................................. 966 1,487 8,430 1,947 674 8,353
Assets (decrease)....................................... (3,419) (1,213) (4,689) (6,816) (7,216) (11,156)
</TABLE>

- ---------------
(1) The entries are derived from trade statistics and valued on an FOB basis.

(2) The distinction between long-term and short-term capital is based on the
original maturity of one year.

(3) Includes borrowings from the International Monetary Fund, syndicated bank
loans and short-term finance from foreign commercial banks.

Source: Monthly Bulletin, The Bank of Korea.

Public Finance

The Economic Planning Board is responsible for the preparation of the
national budget. The Republic's fiscal year commences on January 1, and the
budget must be submitted to the National Assembly for its approval prior to the
commencement of the fiscal year.

The fiscal budget of the Government consists of a General Account and
Special Accounts. Revenues in the General Account include national taxes, stamp
duties and profits from government monopolies. Expenditures include those for
general administration, national defense, community service, education, health,
social security services, certain annuities and pensions, and local finance
which comprises the transfer of tax revenues to local governments.

Special Accounts are set up to aggregate the accounts of certain functions
of the Government to achieve more effective budgetary control and
administration. They include Government activities of a business nature, such as
communications, grain administration and government procurement.

50
<PAGE> 53

The following table sets out Government revenues and expenditures,
excluding Special Accounts, for the periods indicated:

CONSOLIDATED CENTRAL GOVERNMENT
REVENUES AND EXPENDITURES

<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994
------ ------ ------ ------ ------ ------ ------ ------
(IN BILLIONS OF WON)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Internal Taxes............ 10,012 12,545 15,211 19,134 24,030 30,099 34,178
Customs Duties............ 2,697 2,573 2,099 2,775 3,435 3,153 2,886
Defense Surtax............ 2,366 2,978 3,615 4,575 1,463 330 269
Education Surtax.......... 411 512 423 521 816 943 999
Monopoly Profits.......... 904 874 75 -- -- -- --
Government Enterprise
Receipts................ 285 332 408 591 810 1,042 902
Other..................... 2,487 4,134 7,017 6,493 8,775 10,699 13,894
------ ------ ------ ------ ------ ------ ------ ------
Total.............. 19,162 23,948 28,848 34,538 39,329 46,267 53,128
====== ====== ====== ====== ====== ====== ====== ======
Expenditures
General Expenses.......... 10,009 11,242 14,704 18,973 22,320 23,683 26,951
National Defense.......... 4,794 5,572 6,147 6,854 8,012 8,771 9,308
Fixed Capital Formation... 1,392 1,541 2,033 2,401 2,049 2,821 2,889
Other..................... 1,294 2,969 5,484 5,609 8,617 11,686 13,721
------ ------ ------ ------ ------ ------ ------ ------
Total.............. 17,488 21,323 28,367 33,837 40,997 46,980 52,870
====== ====== ====== ====== ====== ====== ====== ======
Net Lending................. 0.5 (73) 37 (54) 38 (5) 23
Budget Surplus.............. 1,674 2,698 444 755 (1,707) (689) 235
</TABLE>

- ---------------
Source: Monthly Bulletin, The Bank of Korea.

External Debt

Rapid development in the Republic's economy has in the past necessitated
large foreign borrowings. In 1985, with total external debt of $46.8 billion,
the Republic was the world's fourth largest debtor. Toward the end of the
1980's, however, domestic savings, generated largely by growing trade surpluses,
were large enough not only to finance domestic investment but also to pay down
foreign debt and to finance Korean lending and investment abroad. With the
disappearance of the trade surplus starting in 1990, the net outflow of capital
ceased and Korea is once again a net capital importer. Inflows of private
capital, however, have largely taken the place of foreign government lending. As
of November 1994, total external debt was $54.2 billion. The Republic's net
external debt declined from $22.4 billion at the end of 1987 to $10.4 billion at
the end of November 1994.

FOREIGN EXCHANGE

From February 1980 until March 1990, exchange rates for the Won were set by
or, starting in 1989, closely linked to rates set by the Bank of Korea on the
basis of a trade-weighted multi-currency basket. Beginning in March 1990,
exchange rates for the Won have been closely linked to the rates calculated by
averaging the daily exchange rates used for interbank transactions settled
through the Korea Telecommunications and Clearings Institute (the "KTCI"),
weighted by trading volume. This rate is known as the market average exchange
rate and is published daily by the KTCI. The Government has enlarged the scope
of the discretionary power of foreign exchange banks to determine their own
exchange rates with reference to the market average exchange rate. The
Government has announced its intention to adopt a free-floating exchange rate
system by 1997.

51
<PAGE> 54

The following table shows exchange rates (the Bank of Korea concentration
base rate until February 28, 1990 and thereafter the market average exchange
rate) at the dates indicated below.

<TABLE>
<CAPTION>
EXCHANGE RATE
-------------------
(IN WON PER DOLLAR)
<S> <C>
June 30, 1988........................................................ 728.3
September 30, 1988................................................... 719.0
December 31, 1988.................................................... 684.1
March 31, 1989....................................................... 671.9
June 30, 1989........................................................ 667.2
September 30, 1989................................................... 670.0
December 31, 1989.................................................... 679.6
March 31, 1990....................................................... 702.1
June 30, 1990........................................................ 716.0
September 30, 1990................................................... 712.9
December 31, 1990.................................................... 716.4
March 31, 1991....................................................... 724.7
June 30, 1991........................................................ 723.1
September 30, 1991................................................... 741.5
December 31, 1991.................................................... 760.8
March 31, 1992....................................................... 775.1
June 30, 1992........................................................ 790.2
September 30, 1992................................................... 786.6
December 31, 1992.................................................... 788.4
March 31, 1993....................................................... 794.0
June 30, 1993........................................................ 803.7
September 30, 1993................................................... 808.8
December 31, 1993.................................................... 808.1
March 31, 1994....................................................... 806.5
June 30, 1994........................................................ 805.5
September 30, 1994................................................... 789.9
December 31, 1994.................................................... 788.7
March 31, 1995....................................................... 772.1
</TABLE>

- ---------------
Source: International Financial Statistics, International Monetary Fund; Monthly
Bulletin,
The Bank of Korea.

The market average exchange rate as of , 1995 was Won per
Dollar.

52
<PAGE> 55

DIRECTORS AND OFFICERS

The names of the individuals who serve as directors and officers of the
Fund are set forth below, together with their positions and their principal
occupations during at least the past five years and, in the case of the
directors, their positions with certain other international organizations and
publicly-held companies.

<TABLE>
<CAPTION>
POSITION(S) WITH PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS REGISTRANT DURING PAST FIVE YEARS
- ---------------------------- ---------------------- ------------------------------------------
<S> <C> <C>
Juris Padegs*(1)............ Chairman of the Board Managing Director of Scudder, Stevens &
and Director Clark, Inc.; serves on the Boards of an
additional 27 funds managed by Scudder,
Stevens & Clark, Inc.
Chang-Hee Kim*.............. Vice Chairman of the President and Chief Executive Officer,
Daewoo Securities Co., Ltd. Board and Director Daewoo Securities Co., Ltd.
34-3 Youido-dong (1984-present).
Yongdung po-gu
Seoul, Korea 150-010

Nicholas Bratt*(1).......... President and Director Managing Director of Scudder, Stevens &
Clark, Inc.; serves on the Boards of an
additional 13 funds managed by Scudder,
Stevens & Clark, Inc.

William H. Gleysteen, Director President, The Japan Society, Inc. (1989-
Jr. ...................... present); Vice President of Studies,
The Japan Society Council on Foreign Relations (1987-1989);
333 East 47th Street United States Ambassador to Korea
New York, NY 10017 (1978-1981).

Robert W. Lear.............. Director Executive-in-Residence, Visiting
429 Silvermine Road Professor, Columbia University Graduate
New Canaan, CT 06840 School of Business; Director or Trustee
Cambrex Corporation, specialty chemicals
manufacturer, Crane Company, fabricated
metals manufacturers, Equitable Capital
Partners Enhancement Yield Funds, Medusa
Corporation, cement manufacturer, and
WICAT Systems, Inc., learning systems
company.

Sang C. Lee................. Director Chairman, International Corporate
352 Stanwich Rd. Ventures, Inc. (1992-present); President
Greenwich, CT 06830 and Chief Executive Officer, Spectron
Corp. of America, Ltd., Chairman of the
Board, Markwood, Inc., Hub City, Inc.,
Brocker Manufacturing, Inc., Portfolio
Companies of PITCAIRN GROUP L.P.)
(1989-1992); President, Scovill Fasteners,
Inc. (1987-1989), Vice President, First
City Capital Corporation and Executive
Vice President, Scovill, Inc. (1986-1987).
</TABLE>

- ---------------

<TABLE>
<S> <C> <C>
* Directors considered by the Fund and its Counsel to be persons who are "Interested persons" as
defined in the 1940 Act, of the Fund, the Manager or the Korean Adviser.
</TABLE>

53
<PAGE> 56

<TABLE>
<CAPTION>
POSITION(S) WITH PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS REGISTRANT DURING PAST FIVE YEARS
- ---------------------------- ---------------------- ------------------------------------------
<S> <C> <C>
Tai Ho Lee.................. Director Chairman, Imjung Research Institute (1992-
301 World Villa T Present); President and Chief Executive
999 Bangbrae-Dong Officer, Hanjin Investment & Securities
Seocho-Gu Co., Ltd. (1990-1991); Chairman, Daewoo
Seoul, Korea Capital Management Co., Ltd. (1988-1990);
Chairman, Daewoo Securities Co., Ltd.
(1983-1988); Chairman and President,
Daewoo Research Institute (1984-1989).

Wilson Nolen................ Director Consultant (1989-present); Director,
1120 Fifth Avenue Ecohealth, Inc., biotechnology company.
New York, NY 10128

Sidney M. Robbins........... Director Professor Emeritus of Finance, Adelphi
50 Overlook Road University; Chase Manhattan Professor
Ossining, NY 10562 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.

Jerard K. Hartman(1)........ Vice President Managing Director of Scudder, Stevens &
Clark, Inc.

David S. Lee(2)............. Vice President Managing Director of Scudder, Stevens &
Clark, Inc.; serves on the boards of an
additional 29 funds managed by Scudder,
Stevens & Clark, Inc.

Kun-Ho Hwang................ Vice President Director, Planning Department of Daewoo
Daewoo Securities Co., Ltd. Securities Co., Ltd. (1990-Present);
34-3 Youido-dong General Manager, International Finance
Yongdung po-gu Department, Daewoo Securities Co., Ltd.
Seoul, Korea (1989-1991).

John J. Lee(1).............. Vice President Vice President of Scudder, Stevens &
Clark, Inc.; Korean Specialist, KPMG Peat
Marwick (1985-1991).

Dong Wook Park.............. Vice President General Manager, International Department
Daewoo Securities Co., Ltd. of Daewoo Capital Management
34-3 Youido-dong (1988-present); Manager, Deputy General
Yongdung po-gu Manager, Daewoo Research Institute
Seoul, Korea (1984-1988).

H. Jin Kim.................. Vice President President, Daewoo Securities (America)
Daewoo Securities Inc.
(America) Inc.
One World Trade Center
New York, NY 10048

Pamela A. McGrath(2)........ Treasurer Principal of Scudder, Stevens & Clark,
Inc.
</TABLE>

54
<PAGE> 57

<TABLE>
<CAPTION>
POSITION(S) WITH PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS REGISTRANT DURING PAST FIVE YEARS
- ---------------------------- ---------------------- ------------------------------------------
<S> <C> <C>
Kathryn L. Quirk(1)......... Vice President and Managing Director of Scudder, Stevens &
Assistant Secretary Clark, Inc.
Edward J. O'Connell(1)...... Vice President and Principal of Scudder, Stevens & Clark,
Assistant Treasurer Inc.
Thomas F. McDonough(2)...... Secretary and Principal of Scudder, Stevens & Clark,
Assistant Treasurer Inc.

Coleen Downs Dinneen(2)..... Assistant Secretary Vice President of Scudder, Stevens &
Clark, Inc.
</TABLE>

- ---------------
(1) Address: 345 Park Avenue, New York, NY 10154

(2) Address: Two International Place, Boston, MA 02110

The amount of shares in the Fund owned by the Fund's directors and officers
as a group is less than one percent of the Fund's outstanding stock.

The Fund's Board of Directors has an Executive Committee which may exercise
the powers of the Board to conduct the current and ordinary business of the Fund
while the Board is not in session. Currently, Messrs. Bratt and Padegs are
members of the Executive Committee.

Scudder is a Delaware corporation. Daniel Pierce, Two International Place,
Boston, Massachusetts, is the Chairman of the Board of Scudder. Edmond D.
Villani, 345 Park Avenue, New York, New York, is the President of Scudder.
Stephen R. Beckwith, 345 Park Avenue, New York, New York, Lynn S. Birdsong, 345
Park Avenue, New York, New York, Nicholas Bratt, 345 Park Avenue, New York, New
York, Linda C. Coughlin, 345 Park Avenue, New York, New York, Margaret D.
Hadzima, Two International Place, Boston, Massachusetts, Jerard K. Hartman, 345
Park Avenue, New York, New York, Richard A. Holt, Two Prudential Plaza, 180
North Stetson, Suite 5400, Chicago, Illinois, Dudley H. Ladd, Two International
Place, Boston, Massachusetts, Douglas M. Loudon, 345 Park Avenue, New York, New
York, John T. Packard, 101 California Street, San Francisco, California, Juris
Padegs, 345 Park Avenue, New York, New York, and Cornelia M. Small, 345 Park
Avenue, New York, New York, are the other members of the Board of Directors of
Scudder. The principal occupation of each of the above named individuals is
serving as a Managing Director of Scudder.

All the outstanding voting and nonvoting securities of the Manager are held
of record by Stephen R. Beckwith, Juris Padegs, Daniel Pierce and Edmond D.
Villani as representatives of the beneficial owners of such securities pursuant
to a Security Holders Agreement, under which such representatives have the right
to reallocate shares among the beneficial owners from time to time, at net book
value in cash transactions. All Managing Directors of the Manager own voting and
nonvoting stock; all Principals own nonvoting stock.

The officers of the Fund will conduct and supervise the daily business
operations of the Fund, while the directors, in addition to their functions set
forth under "Investment Advisers," will review such actions and decide on
general policy.

The Fund pays each of its directors who is not an affiliated person of the
Manager or the Korean Adviser, in addition to certain out-of-pocket expenses, an
annual fee of $4,500, plus $750 for each Board of Directors or audit committee
meeting, and for each meeting held for the purpose of considering arrangements
between the Fund and the Manager and between the Manager and the Korean Adviser,
and $250 for each other committee meeting attended. For the fiscal year ended
June 30, 1994, the aggregate amount for fees and expenses paid to such directors
amounted to $ .

The following Compensation Table provides, in tabular form, the following
data:

Column (1): All Directors who receive compensation from the Fund.

Column (2): Aggregate compensation received by a Director from the Fund.

55
<PAGE> 58

Columns (3) and (4): Pension or retirement benefits accrued or proposed be
paid by the Fund. The Fund does not pay its Directors such
benefits.

Column (5): Total compensation received by a Director from the Fund, plus
compensation received from all funds for which a Director serves in
a fund complex. The total number of funds from which a Director
receives such compensation is also provided.

COMPENSATION TABLE
FOR THE YEAR ENDED DECEMBER 31, 1994

<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE FROM
COMPENSATION PENSION OR RETIREMENT ESTIMATED ANNUAL FUND
NAME OF PERSON, FROM BENEFITS ACCRUED AS BENEFITS UPON AND FUND COMPLEX
POSITION FUND PART OF FUND EXPENSES RETIREMENT PAID TO DIRECTOR
- --------------------------- -------------- ---------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
William H. Gleysteen, Jr. $ 11,125 -- -- $110,213
Director (12 funds)
Robert W. Lear $ 11,125 -- -- $ 62,875
Director (10 funds)
Sang C. Lee $ 11,125 -- -- $ 11,125
Director (1 fund)
Tai Ho Lee $ 10,375 -- -- $ 10,375
Director (1 fund)
Dr. Wilson Nolen $ 11,125 -- -- $132,023
Director (15 funds)
Sidney M. Robbins $ 11,125 -- -- $ 11,125
Director (1 fund)
</TABLE>

Although the Fund is a Maryland corporation, certain of its directors and
officers are residents of Korea, and substantially all of the assets of such
persons may be located outside of the United States. As a result, it may be
difficult for United States investors to effect service of process upon such
directors or officers within the United States or to realize judgments of courts
of the United States based upon civil liabilities of such directors or officers
under the federal securities laws and other laws of the United States. There is
substantial doubt as to the enforceability in Korea of such civil remedies and
criminal penalties as are afforded by the federal securities laws in the United
States. No extradition treaty currently is in effect between the United States
and Korea which would subject the Fund's directors and officers to enforcement
of the criminal penalties of the federal securities laws.

The By-Laws of the Fund provide that the Fund will indemnify directors,
officers, employees or agents of the Fund against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Fund to the full extent permitted by law. However,
nothing in the Articles of Incorporation or the By-Laws of the Fund protects or
indemnifies a director, officer, employee or agent against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.

According to filings with the SEC on Schedule 13G on September 20, 1994,
BEA Associates Inc. reported (and disclaimed) beneficial ownership of 2,971,403
shares (10.1% of the Fund's outstanding stock). To the best of the Fund's
knowledge, as of March 31, 1995 no other person owned beneficially more than 5%
of the Fund's outstanding shares.

NET ASSET VALUE

The net asset value of shares of the Fund is computed as of the close of
regular trading on the NYSE on each day the NYSE is open for trading. The NYSE
is scheduled to be closed on the following holidays: New Year's Day, Presidents
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and

56
<PAGE> 59

Christmas. Net asset value per share is determined by dividing the value of the
total assets of the Fund, less all liabilities, by the total number of shares
outstanding.

An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent bid
quotation. An equity security which is traded on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") system is valued at its most
recent sale price. Lacking any sales, the security is valued at the high or
"inside" bid quotation. The value of an equity security not quoted on the NASDAQ
System, but traded in another over-the-counter market, is its most recent sale
price. Lacking any sales, the security is valued at the Calculated Mean. Lacking
a Calculated Mean, the security is valued at the most recent bid quotation.

Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities with
remaining maturities of sixty days or less are valued by the amortized cost
method, which the Board of Directors believes approximates market value. If it
is not possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Manager may calculate the price of
that debt security, subject to limitations established by the Board of
Directors.

An exchange traded options contract on securities, currencies, futures and
other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.

If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.

If, in the opinion of the Fund's valuation committee (the "Valuation
Committee"), the value of a portfolio asset as determined in accordance with
these procedures does not represent the fair market value of the portfolio
asset, the value of the portfolio asset is taken to be an amount which, in the
opinion of the Valuation Committee, represents fair market value on the basis of
all available information. The value of other portfolio holdings owned by the
Fund is determined in a manner which, in the discretion of the Valuation
Committee most fairly reflects fair market value of the property on the
valuation date.

Following the valuations of securities or other portfolio assets in terms
of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. Dollars is
calculated by converting the Local Currency into U.S. Dollars at the prevailing
currency exchange rate on the valuation date.

See "Market and Net Asset Value Information" for information as to the
relationship between the market price and net asset value per share of Common
Stock. Under the Fund's Articles of Incorporation, the Fund cannot become an
open-end investment company without the approval of (i) the Minister of Finance
and (ii) holders of two-thirds of the Fund's outstanding shares.

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DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT
AND CASH PURCHASE PLAN

The Fund intends to distribute to shareholders, at least annually,
substantially all of its net investment income and expects to distribute at
least annually any net long-term capital gains in excess of net short-term
capital losses (including any capital loss carryover). Net investment income
includes dividends, interest and any net short-term capital gains in excess of
net long-term capital losses (including any capital loss carryover), net of
expenses. See "Taxation -- United States Federal Income Taxes."

As of March 31, 1995, there was approximately $272 million of net
unrealized appreciation in the Fund's net assets of approximately $559 million.
As of March 31, 1995, the Fund had approximately $100,000 of undistributed net
investment income with respect to its fiscal year ending June 30, 1995, which
will be distributed to shareholders of record as of , 1995. As of
March 31, 1995, the Fund had net realized undistributed capital gains of
approximately $16.3 million, of which approximately $11.9 million were long-term
capital gains. If unrealized gains were realized and distributed (or deemed
distributed -- see "Taxation -- United States Federal Income Taxes -- General")
to the Fund's shareholders, such amounts would be taxable to all shareholders of
the Fund, including the holders of the Shares. See "Taxation -- United States
Federal Income Taxes -- Distributions."

Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
each shareholder will be deemed to have elected, unless State Street Bank and
Trust Company, the Plan Agent, is otherwise instructed in writing, to have all
distributions, net of any applicable U.S. withholding tax, automatically
reinvested by State Street Bank and Trust Company, the Plan Agent, in Fund
shares pursuant to the Plan. Shareholders who elect not to participate in the
Plan will receive all distributions, net of any applicable U.S. withholding tax,
in cash paid by check in Dollars mailed directly to the shareholder by State
Street Bank and Trust Company, as dividend paying agent. Participants in the
Plan may terminate their accounts under the Plan by written notice to the Plan
Agent. If such notice is received by the Plan Agent not less than ten days prior
to any dividend or distribution record date, the termination will be effective
immediately; otherwise such termination will be effective on the first trading
day after the payment date of such dividend on distribution. In the case of
shareholders, such as banks, brokers or nominees, which hold shares for others
who are the beneficial owners, the Plan Agent will administer the Plan on the
basis of the number of shares certified from time to time by the shareholder as
representing the total amount registered in the shareholder's name and held for
the account of beneficial owners who are to participate in the Plan. A
beneficial owner of shares registered in the name of a bank, broker or other
nominee should consult with such nominee as to participation in the Plan through
such nominee.

The Plan Agent serves as agent for the shareholders in administering the
Plan. If the directors of the Fund declare an income dividend or a capital gains
distribution payable either in the Fund's Common Stock or in cash, as
shareholders may have elected, non-participants in the Plan will receive cash
and participants in the Plan will receive Common Stock to be issued by the Fund.
If the market price per share on the valuation date equals or exceeds net asset
value per share on that date, the Fund will issue new shares to participants at
net asset value; provided, however, if the net asset value is less than 95% of
the market price on the valuation date, then the Fund will issue new shares to
participants at 95% of the market price. The valuation date will be the dividend
or distribution payment date or, if that date is not a NYSE trading day, the
next preceding trading day. If net asset value exceeds the market price of Fund
shares at such time, participants in the Plan will be deemed to have elected to
receive shares of stock from the Fund, valued at market price on the valuation
date. Participants reinvesting distributions in additional shares should be
treated for U.S. Federal income tax purposes as receiving a distribution in an
amount equal to the fair market value, determined as of the distribution date,
of the shares received (regardless of the net asset value of the shares on the
distribution date), and should have a cost basis in such shares equal to such
fair market value. If the Fund should declare an income dividend or capital
gains distribution payable only in cash, the Plan Agent will, as agent for the
participants, buy Fund shares in the open market, on the NYSE or elsewhere, for
the participants' account on, or shortly after, the payment date.

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Participants in the Plan have the option of making additional cash payments
to the Plan Agent, semi-annually, in any amount from $100 to $3,000, for
investment in the Fund's common stock. The Plan Agent will use all such funds
received from participants to purchase Fund shares in the open market on or
about February 15 and August 15. Any voluntary cash payments received more than
thirty days prior to these dates will be returned by the Plan Agent, and
interest will not be paid on any uninvested cash payments. To avoid unnecessary
cash accumulations, and also to allow ample time for receipt and processing by
the Plan Agent, it is suggested that participants send in voluntary cash
payments to be received by the Plan Agent approximately ten days before February
15 or August 15, as the case may be. A participant may withdraw a voluntary cash
payment by written notice, if the notice is received by the Plan Agent not less
than 48 hours before such payment is to be invested.

The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in non-certificated form in
the name of the participant, and each shareholder's proxy will include those
shares purchased pursuant to the Plan.

There is no charge to participants for reinvesting dividends or capital
gains distributions. The Plan Agent's fees for the handling of the reinvestment
of dividends and capital gains distributions will be paid by the Fund. There
will be no brokerage charges with respect to shares issued directly by the Fund
as a result of dividends or capital gains distributions payable either in stock
or in cash. However, each participant will pay a pro rata share of brokerage
commissions incurred with respect to the Plan Agent's open market purchases in
connection with voluntary cash payments made by the participant or reinvestment
of any dividends or capital gains distributions payable only in cash.

With respect to purchases from voluntary cash payments, the Plan Agent will
charge $0.75 for each such purchase for a participant, plus a pro rata share of
the brokerage commissions. Brokerage charges for purchasing small amounts of
stock for individual accounts through the Plan are expected to be less than the
usual brokerage charges for such transactions, because the Plan Agent will be
purchasing stock for all participants in blocks and prorating the lower
commission thus attainable.

The receipts of dividends and distributions under the Plan will not relieve
participants of any income tax (including withholding tax) which may be payable
on such dividends or distributions. See "Taxation -- United States Federal
Income Taxes."

Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund and the Plan Agent reserve the right to terminate the Plan
as applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to notice of the termination sent to the members of the Plan, in
the case of a dividend or distribution, at least 30 days before the record date
for such dividend or distribution. The Plan also may be amended by the Fund or
the Plan Agent, but (except when necessary or appropriate to comply with
applicable laws, rules or policies of a regulatory authority) only by at least
30 days' written notice to participants in the Plan. Additional information
about the Plan may be obtained from the Plan Agent, State Street Bank and Trust
Company, P.O. Box 8200, Boston, MA 02266-8200, telephone number (617) 328-5000
ext. 6406.

TAXATION

UNITED STATES FEDERAL INCOME TAXES

THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS A SUMMARY
INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY. IN VIEW OF THE INDIVIDUAL NATURE
OF TAX CONSEQUENCES, EACH SHAREHOLDER IS ADVISED TO CONSULT HIS OR HER OWN TAX
ADVISER WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF BEING A SHAREHOLDER OF
THE FUND, INCLUDING THE EFFECT AND APPLICABILITY OF U.S. FEDERAL, STATE, LOCAL,
NON-U.S. AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES THEREIN.

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General

The Fund has qualified and intends to continue to qualify to be treated as
a regulated investment company under the Code for each taxable year, although no
assurance can be given as to meeting the tests for such status.

To qualify as a regulated investment company, the Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to stock or securities loans, gains
from the sale or other disposition of stock or securities, and certain other
related income, including, generally, gains from options, futures and forward
contracts and foreign currency gains (under regulations which may be
promulgated, foreign currency gains which are not directly related to the Fund's
principal business of investing in stocks or securities may not be treated as
qualifying income for this purpose); (b) derive in each taxable year less than
30% of its gross income from the sale or other disposition of stock, securities,
options, futures, forward contracts and foreign currencies, held less than three
months (excluding, for this purpose, gains from foreign currencies (and options,
futures and forward contracts on foreign currencies) that are directly related
to the Fund's principal business of investing in stocks or securities or options
or futures thereon); and (c) diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash, U.S. government securities, securities of other
regulated investment companies, and other securities, with such other securities
of any one issuer qualifying, for purposes of this calculation, only if the
Fund's investment is limited to an amount not greater than 5% of the value of
the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
government securities or the securities of other regulated investment companies)
or of any two or more issuers that the Fund controls and that are determined to
be engaged in the same, similar or related businesses. Corporations owned or
controlled by the Korean Government will be treated as separate issuers for this
purpose, except that a debt obligation of such a corporation may be treated as
issued by the Korean Government if the obligation is backed by the full faith
and credit of the Korean Government. Proposed legislation would eliminate the
30% requirement; it is unclear whether, and in what form, such legislation might
be enacted.

As a regulated investment company, the Fund will not be subject to U.S.
Federal income tax on its income and capital gains, if any, that it distributes
to its shareholders, provided it distributes each taxable year at least 90% of
its "investment company taxable income," calculated without the deduction for
dividends paid, as determined for U.S. Federal income tax purposes ("net
investment income"). Net investment income includes dividends, interest, net
short-term capital gains in excess of any net long-term capital losses and any
capital loss carryovers from prior years, net of expenses, and, net gain or loss
on debt securities and futures contracts on debt securities, to the extent
attributable to fluctuations in currency exchange rates, and net gain or loss on
foreign currencies and foreign currency forward contracts. Dividend income
derived by a regulated investment company from its investments is required to be
taken into account for U.S. Federal income tax purposes as of the ex-dividend
date (rather than the payment date, which generally is later). Accordingly, the
Fund, in order to satisfy its distribution requirements, may be required to make
distributions based on earnings that have been accrued but not yet received.
Interest income from discount on indebtedness held by the Fund will also give
rise to such accrued earnings. The Fund intends to distribute to its
shareholders each year all of its net investment income as computed for U.S.
Federal income tax purposes. Korean exchange control or other regulations, which
may restrict repatriation of investment income, capital or the proceeds of
securities sales by foreign investors such as the Fund, may limit the Fund's
ability to make sufficient distributions to satisfy the 90% distribution
requirement and the calendar year distribution requirement described below. See
"Risk Factors and Special Considerations -- Investment and Repatriation
Restrictions" and "Other Taxation."

The Board of Directors will determine each year whether to distribute any
net long-term capital gains in excess of any net short-term capital losses
(including in such losses any capital loss carryovers from prior years) as
computed for U.S. Federal income tax purposes. The Fund presently expects to
distribute such excess to its shareholders each year. To the extent that the
Fund retains any part of such excess for investment, it will be subject to U.S.
Federal income tax on the amount retained at the then current rate,

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which currently is 35%. If any such amount is retained, the Fund expects to
designate such amount as undistributed capital gains in a notice to its
shareholders who (i) if subject to U.S. Federal income tax on long-term capital
gains, will be required to include in income for such tax purposes, as long-term
capital gains, their proportionate shares of such undistributed amount, and (ii)
will be entitled to credit their proportionate shares of taxes paid by the Fund
on such undistributed amount against their U.S. Federal income tax liabilities
and to claim refunds to the extent such proportionate shares of the tax exceed
such liabilities. For U.S. Federal income tax purposes, the tax basis of shares
owned by a shareholder of the Fund will be increased by 65% of the amount of
undistributed capital gains included in the shareholder's gross income.

The Fund will be subject to a non-deductible U.S. Federal 4% excise tax on
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with a calendar year distribution requirement. To avoid
application of the excise tax, the Fund intends to make its distributions in
accordance with such requirement. Exchange control or other regulations referred
to above, however, could limit the Fund's ability to satisfy such requirement.

Distributions

Dividend distributions paid out of the Fund's net investment income
(including short-term capital gains) will be taxable to a U.S. shareholder as
ordinary income, whether received in cash or reinvested in shares. Dividends
paid by the Fund will not qualify for the deduction (currently 70%) for
dividends received by corporations because the Fund's income is not expected to
consist of dividends paid by U.S. corporations. Distributions of net long-term
capital gains (i.e., capital gains from securities held for more than one year),
if any, are taxable as long-term capital gains, whether received in cash or
reinvested in shares, regardless of how long the shareholder has held the Fund's
shares and are not eligible for the dividends-received deduction. Dividends of
net investment income and distributions of net long-term capital gains paid by
the Fund that (i) are declared in October, November or December, (ii) are
payable to holders of record as of a date in such a month, and (iii) are paid
during the following January, will be treated by shareholders as if received on
December 31 of the calendar year in which declared. Shareholders subject to U.S.
Federal alternative minimum tax will be required to include distributions from
the Fund in alternative minimum taxable income.

The Fund has adopted a Dividend Reinvestment and Cash Purchase Plan.
Shareholders are deemed to have elected to participate in the Plan unless the
Plan Agent is otherwise instructed in writing. Participants in the Plan will
receive dividend and capital gain distributions in shares of the Fund, rather
than in cash, if the Fund's Board of Directors declares that payment may be made
in shares of the Fund or in cash. The Fund contemplates that distributions will
ordinarily be payable in shares or cash.

Shareholders reinvesting distributions in additional shares through
participation in the Plan should be treated for U.S. Federal income tax purposes
as receiving a distribution in an amount equal to the fair market value,
determined as of the distribution date, of the shares received (whether the fair
market value is less than or greater than the net asset value of the shares on
the distribution date), and should have a cost basis in such shares equal to
such fair market value. See "Dividends and Distributions; Dividend Reinvestment
and Cash Purchase Plan."

If the fair market value of a shareholder's shares is reduced below the
shareholder's cost for such shares as a result of a distribution by the Fund,
such distribution will be taxable for U.S. Federal income tax purposes even
though from an economic viewpoint it may represent a return of invested capital.
Investors should, therefore, consider the tax implications of buying shares in
the Fund prior to a distribution since the price of shares purchased at that
time may reflect the amount of the forthcoming distribution and the distribution
will nevertheless be taxable to the purchasing shareholder. As of March 31,
1995, there was approximately $272 million of net unrealized appreciation in the
Fund's net assets of approximately $559 million. As of March 31, 1995, the Fund
had approximately $100,000 of undistributed net investment income with respect
to its fiscal year ending June 30, 1995, which will be distributed to
shareholders of record as of , 1995. As of March 31, 1995, the Fund
had net realized undistributed capital gains of approximately $16.3 million, of
which approximately $11.9 million were long-term capital gains. If unrealized
gains were realized and

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distributed (or deemed distributed -- see "Taxation -- General") to the Fund's
shareholders, such amounts would be taxable to all shareholders of the Fund,
including the holders of the Shares. See "Distributions."

Shareholders will be notified as to the U.S. Federal income tax status of
any dividends, distributions and deemed distributions made by the Fund to its
shareholders.

Sale of Shares

Upon the sale or exchange of shares of the Fund, a U.S. shareholder will
realize a taxable gain or loss. Such gain or loss will be a capital gain or loss
if the shares are capital assets in the shareholder's hands, and will be
long-term or short-term depending upon whether the shareholder has held the
shares for more than one year. Under current U.S. law, the maximum rate for
long-term capital gains for individuals is 28% and short-term capital gains are
taxed at the same rate as ordinary income. Any loss realized on a sale or
exchange of Fund shares will be disallowed to the extent that the shares
disposed of are replaced, including, for example, pursuant to the Dividend
Reinvestment and Cash Purchase Plan, within a 61-day period beginning 30 days
before and ending 30 days after the date the shares are disposed of. In such a
case, a U.S. shareholder will adjust the basis of the shares acquired to reflect
the disallowed loss. Any loss realized by a U.S. shareholder on a disposition of
Fund shares held by the shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net long-term
capital gains received by the shareholder (and any amounts retained by the Fund
which were designated as undistributed capital gains) with respect to such
shares.

Non-U.S. Income Taxes

The Fund will be subject to Korean income taxes, including withholding
taxes, described below under "Korean Taxes." So long as more than 50% in value
of the Fund's total assets at the close of any taxable year in which it is a
regulated investment company consists of stocks or securities of non-U.S.
corporations, the Fund may elect to treat any such non U.S. income taxes paid by
it during such year (to the extent that such taxes are treated as income taxes
under U.S. Federal tax principles) as paid by its shareholders. The Fund has
qualified and expects to continue to qualify for this election annually. The
Fund will notify shareholders in writing each year if it makes the election and
of the amount of non U.S. income taxes, if any, to be treated as paid by the
shareholders and the amount to be treated by them as income from non-U.S.
sources. If the Fund makes the election, shareholders will be required to
include in income their proportionate shares of the amount of non U.S. income
taxes paid by the Fund for purposes of computing their U.S. income tax. U.S.
shareholders will be entitled to claim either a credit (subject to the
limitations discussed below) or, if they itemize their deductions, a deduction
for their shares of the non U.S. income taxes in computing their U.S. Federal
income tax liability. (For the treatment of non U.S. shareholders, see "Non-U.S.
Shareholders," below.) No deduction will be permitted for such income taxes in
computing the alternative minimum tax imposed on individuals. Shareholders that
are exempt from tax under Section 501(a) of the Internal Revenue Code, such as
pension plans, generally will derive no benefit from the Fund's election to pass
through the Fund's non U.S. income taxes to its shareholders. However, such
shareholders should not ordinarily be disadvantaged because the amount of
additional income they are deemed to receive generally will not be subject to
U.S. Federal income tax. Korean taxes imposed on dividends and interest qualify
as income taxes that the Fund may elect to treat as having been paid by its
shareholders, and the Fund believes that any capital gain tax, if any should be
imposed by Korea at some future date, should qualify for such treatment, but the
Korean Securities Transaction Tax is not such an income tax. See "Korean Taxes."

Generally, a credit for non U.S. income taxes is subject to the limitation
that it may not exceed the shareholder's U.S. Federal income tax (determined
without regard to the availability of the credit) attributable to his or her
total non U.S. source taxable income. For this purpose, the portion of
distributions paid by the Fund from its non-U.S. source income will be treated
as non U.S. source income. The Fund's gains from the sale of securities will
generally be treated as derived from U.S. sources, unless the foreign capital
gains tax were to be imposed on such gains, and certain currency fluctuation
gains and losses, including fluctuation gains from foreign currency denominated
debt securities, receivables and payables, will be treated as derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
Foreign non U.S.

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source "passive income," such as the portion of dividends received from the Fund
which qualifies as non U.S. source income. In addition, the foreign tax credit
is allowed to offset only 90% of the alternative minimum tax imposed on
corporations and individuals. Because of these limitations, shareholders may be
unable to claim a credit for the full amount of their proportionate shares of
the non U.S. income taxes paid by the Fund.

The foregoing is only a general description of the treatment of non U.S.
income taxes under the U.S. Federal income tax laws. Because the availability of
a credit or deduction depends on the particular circumstances of each
shareholder, shareholders are advised to consult their own tax advisers.

Backup Withholding

The Fund may be required to withhold for U.S. Federal income taxes 31% of
all distributions payable to shareholders who fail to provide the Fund with
their correct taxpayer identification number or to make required certifications,
or who have been notified by the Internal Revenue Service that they are subject
to backup withholding. Corporate shareholders and other shareholders specified
in the Internal Revenue Code are exempt from such backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against the shareholder's U.S. Federal income tax liability.

Non-U.S. Shareholders

U.S. Federal income taxation of a shareholder who, under the Code, is a
non-resident alien individual, a foreign trust or estate, foreign corporation,
or foreign partnership ("non-U.S. shareholder") depends on whether the income
from the Fund is "effectively connected" with a U.S. trade or business carried
on by such shareholder. Ordinarily, income from the Fund will not be treated as
so "effectively connected."

If the income from the Fund is not treated as "effectively connected" with
a U.S. trade or business carried on by the non-U.S. shareholder, dividends of
net investment income (which includes short-term capital gains), whether
received in cash or reinvested in shares, will be subject to a U.S. Federal
income tax of 30% (or lower treaty rate), which tax is generally withheld from
such dividends. See the definition of "net investment income" at "General,"
above. Under the Japan-United States Income Tax Treaty, the U.S. withholding
rate is generally 15% as to dividends paid by the Fund to "residents" of Japan
who do not have a "permanent establishment" in the United States with respect to
which the dividends are "effectively connected". Furthermore, such non-U.S.
shareholders may be subject to U.S. federal income tax at the rate of 30% (or
lower treaty rate) on their income resulting from the Fund's election (described
above) to "pass through" the amount of non-U.S. taxes paid by the fund, but may
not be able to claim a credit or deduction with respect to the non-U.S. income
taxes treated as having been paid by them.

A non-U.S. shareholder whose income is not treated as "effectively
connected" with a U.S. trade or business generally will not be subject to U.S.
Federal income taxation on distributions of net long-term capital gains, amounts
retained by the Fund which are designated as undistributed capital gains and any
gain realized upon the sale of Fund shares. The Fund will incur a U.S. Federal
income tax liability with respect to amounts retained by it that are designated
as undistributed capital gains. The non-U.S. shareholder may claim a credit with
respect to such taxes paid by the Fund and may claim a refund where such taxes
exceed such shareholder's U.S. Federal income tax liabilities, but must file a
tax return to do so. In addition, if the shareholder is treated as a
non-resident alien individual but is physically present in the United States for
more than 182 days during the taxable year, then in certain circumstances such
distributions of net long-term capital gains, amounts retained by the Fund which
are designated as undistributed capital gains, and gain from the sale of Fund
shares will be subject to a U.S. Federal income tax of 30% (or lower treaty
rate). In the case of a non-U..S. shareholder who is a non-resident alien
individual, the Fund may be required to withhold U.S. Federal income tax at a
rate of 31% of distributions (including distributions of net long-term capital
gains) unless IRS Form W-8 is provided. See "Backup Withholding."

If the income from the Fund is "effectively connected" with a U.S. trade or
business carried on by a non-U.S. shareholder, then distributions of net
investment income (which includes short-term capital gains), whether received in
cash or reinvested in shares, net long-term capital gains and amounts otherwise
includible in income, such as amounts retained by the Fund which are designated
as undistributed capital gains, and any

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gains realized upon the sale of shares of the Fund, will be subject to U.S.
Federal income tax at the graduated rates applicable to U.S. taxpayers. Non-U.S.
shareholders that are corporations may also be subject to the branch profits
tax.

Transfers of shares of the Fund by gift by a non-U.S. shareholder will
generally not be subject to U.S. Federal gift tax, but the value of shares of
the Fund held by such a shareholder at death will be includible in the
shareholder's gross estate for U.S. Federal estate tax purposes.

The income tax and estate tax consequences to a non-U.S. shareholder
entitled to claim the benefits of an applicable tax treaty may be different from
those described herein. Non-U.S. shareholders may be required to provide
appropriate documentation to establish their entitlement to the benefits of such
a treaty.

Non-U.S. shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in shares of
the Fund.

Foreign Exchange -- Related Transactions; Hedging Transactions

Debt securities denominated in foreign currencies (and, in some
circumstances, futures, options, forwards and other similar financial instrument
on foreign currencies) held by the Fund will be subject to special rules for
determining, among other things, the character and timing of income deduction,
gain, and loss attributable to foreign exchange gain or loss. In general, these
rules operate to treat as ordinary income or loss the portion of a gain or loss
so attributable. In addition, the hedging transactions which may be undertaken
by the Fund may result in "straddles" for U.S. Federal income tax purposes. The
straddle rules may affect the character and timing of income, deduction, gain or
loss recognized by the Fund. Certain hedging transactions may increase the
amount of short-term capital gain realized by the Fund, which is taxed as
ordinary income when distributed to shareholders. These rules may also require
the acceleration of the recognition of income or gain by the Fund before the
Fund receives the cash required to make distributions to shareholders. All of
these sales may affect the timing and amount of distributions to shareholders.
The gross income and diversification requirements applicable to regulated
investment companies, described above, may limit the extent to which the Fund
will be able to engage in transactions in options, futures and forward currency
exchange contracts.

Other Taxation

If the Fund purchases shares in certain foreign investment entities, called
"passive foreign investment companies," the Fund may be subject to U.S. Federal
income tax on a portion of any "excess distribution" or gain from the
disposition of such shares even if such income or gain is distributed as a
taxable dividend by the Fund to its shareholders. Additional charges in the
nature of interest may be imposed on the Fund in respect of deferred taxes
arising from such distributions or gains. Proposed regulations would generally
allow the Fund to elect to mark to market annually all of the stock of passive
foreign investments companies held by the Fund. Gain recognized pursuant to such
election is generally treated as ordinary income subject to the distribution
requirements discussed above. It is unclear, however, whether and in what form
such regulations might be promulgated in final form. If the Fund were to invest
in a passive foreign investment company which the Fund elected to treat as a
"qualified electing fund" under the Code, in lieu of the foregoing requirements,
the Fund would ordinarily be required to include in income each year a portion
of the ordinary earnings and net capital gains of the qualified electing fund,
even if not distributed to the Fund, and such amounts would be subject to the
90% and calendar year distribution requirements described above. Proposed
legislation would revise the passive foreign investment company rules in various
respects; it is unclear whether and in what form, such legislation might be
enacted.

Distributions from the Fund may be subject to additional U.S. Federal,
state, local and non-U.S. taxes depending on each shareholder's particular
situation. Shareholders should consult their own tax advisers with respect to
the particular tax consequences to them of an investment in the Fund and of the
possible impact of changes in applicable tax laws.

If the Fund did not qualify as a regulated investment company for any
taxable year, (i) it would be subject to U.S. Federal income tax at regular
corporate rates on its taxable income (which would be computed without deduction
for distributions paid to shareholders) and to certain state and local taxes,
(ii) its

64
<PAGE> 67

distributions to shareholders out of its current or accumulated earnings and
profits would be taxable to shareholders as ordinary dividend income (even if
derived from long-term capital gains) and subject to withholding in the case of
non U.S. shareholders and (iii) non-U.S. income taxes, and U.S. Federal income
taxes paid by the Fund on any undistributed long-term capital gains, would not
"pass through" to shareholders. In addition, if the Fund failed to qualify for
taxation as a regulated investment company for a period greater than one taxable
year, the Fund could be required to recognize any net built-in gains (the excess
of aggregate gains over aggregate losses that would have been realized if it had
been liquidated) if it were to qualify as a regulated investment company in a
later taxable year.

KOREAN TAXES

The following description of certain Korean tax matters relating to the
Fund and its shareholders represents the opinion of Shin & Kim, Korean counsel
to the Fund.

Under current Korean law, payments to non-residents of Korea (such as the
Fund) by Korean corporations in respect of income are subject to Korean
withholding tax, and capital gains derived by non-residents of Korea (such as
the Fund) with respect to stock and securities of Korean corporations are
subject to Korean withholding tax, unless exempted by relevant laws or tax
treaties.

The applicable withholding tax rate under the United States-Korea income
tax treaty, as presently in effect, generally is 15% (plus a resident tax of
7.5% of such amount, or a total of 16.125%) on dividends paid to the Fund by
Korean issuers, and generally 12% (plus a resident tax of 7.5% of such amount,
or a total of 12.9%) on interest paid to the Fund by Korean issuers. Under the
United States-Korea income tax treaty, as presently in effect, no withholding
tax will be applicable to capital gains realized by the Fund. This tax treatment
could change in the event of changes in Korean or United States tax laws or
changes in the terms of, or the Korean Minister of Finance and Economy's
interpretation of, the United States-Korea income tax treaty.

Notwithstanding the foregoing, the Tax Exemption and Reduction Control Law
(the "TERCL") exempts interest on bonds denominated in a non-Korean currency
from Korean income and corporation taxes. The residents' tax referred to above
is therefore eliminated with respect to such investments. The TERCL tax
exemptions will expire on December 31, 1998.

Under present Korean law, the Korean Inheritance and Gift Tax will not
apply to any testate, intestate or inter-vivos transfer of shares of the Fund to
the extent the deceased or the donee, as the case may be, is not domiciled in
Korea; Korean stamp duty will not apply to transfers of Fund shares, nor to the
Fund's portfolio securities transactions. The Korean Securities Transaction Tax
will not apply to the sale of securities made through the Stock Exchange by the
Fund. However, sales of Korean shares and certain other equity securities made
outside of the Stock Exchange will be subject to the Korean Securities
Transaction Tax. See "Portfolio Transactions and Brokerage."

PORTFOLIO TRANSACTIONS AND BROKERAGE

To the maximum extent feasible, the Manager places orders for portfolio
transactions through its affiliate, Scudder Investor Services, Inc. (the
"Distributor"), a corporation registered as a broker/dealer and a wholly owned
subsidiary of the Manager, which in turn places orders on behalf of the Fund
with issuers, underwriters or other brokers and dealers. The Distributor does
not receive any commission, fees or other remuneration from the Fund for this
service. Allocation of brokerage will be supervised by the Manager.

The primary objective of the Manager in placing orders for the purchase and
sale of securities for the Fund's portfolio is 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 broker/dealer. Orders for
agency transactions may be placed with Daewoo Securities Co., Ltd., among other
Korean brokers, when consistent with the above-stated policy and with Rule 17e-1
under the 1940 Act. The Manager seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid

65
<PAGE> 68

by the Fund to reported commissions paid by others. The Manager reviews, on a
routine basis, commission rates and execution and settlement services performed
by its brokers, and makes comparisons based on these factors among the Fund's
brokers and with other brokers.

When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Manager's practice to place such orders with
brokers and dealers who supply market quotations to the Fund or its agents for
portfolio evaluation purposes, or who supply research, market and statistical
information to the Fund or the Manager. 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 Manager 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 Manager 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 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 Manager, it is the opinion of
the management of the Fund that such information is only supplementary to the
Manager's own research effort, since the information must still be analyzed,
weighed and reviewed by the Manager's staff. Such information may be useful to
the Manager in providing services to clients other than the Fund, and not all
such information will be used by the Manager in connection with the Fund.
Conversely, such information provided to the Manager by brokers and dealers
through whom other clients of the Manager effect securities transactions may be
useful to the Manager in providing services to the Fund.

During the fiscal year ended June 30, 1994, the Fund paid total brokerage
commissions of $ , of which $ ( % of the total commission paid)
was, consistent with the policy of seeking to obtain the most favorable net
results available, placed with brokers and dealers who provided supplementary
research, market and statistical information to the Fund or to the Manager. Of
such commissions $ ( % of the Fund's total brokerage commissions for the
period) was paid to Daewoo Securities Co., Ltd. in respect of portfolio
transactions for the Fund, which amounted to % of the aggregate dollar volume
of the Fund's portfolio transactions during the year which involved the payment
of commissions. The balance of such brokerage commissions was not allocated to
any particular broker or dealer or with regard to the above-mentioned factors or
any other special factors. The aggregate amount of portfolio transactions
subject to brokerage commissions was $ ( % of all portfolio brokerage
transactions).

During the fiscal years ended June 30, 1992 and 1993, the Fund paid total
brokerage commissions of $ and $ , respectively. During the
same periods, the Fund paid Daewoo Securities Co., Ltd. brokerage commissions of
$ and $ , respectively.

Brokerage commissions on equity securities may be negotiated up to a
permitted maximum percentage of the sales value of the transaction. The Stock
Exchange is permitted to alter the maximum commission rate from time to time.
The rates currently provide for a maximum commission of 0.6% for equity
securities and 0.3% for bonds. Each broker is required to report its commission
rate schedule and any deviation therefrom to the KSEC at least seven days before
its effectiveness. As a result of this practice, there generally is no deviation
in commission rates schedules among Korean brokers and, in practice, securities
companies currently collect brokerage commissions of up to 0.5% of the sales
value for equity securities. A Securities Transaction Tax equal to 0.5% (in the
case of transactions outside the Stock Exchange) or 0.35% (in the case of
transactions on the Stock Exchange) of the sales proceeds is imposed upon a
seller of Korean equity securities in most cases. The Fund currently is not
required to pay such tax with respect to its sales on the Stock Exchange. It is,
however, required to pay such tax with respect to any sales it makes outside of
the Stock Exchange.

66
<PAGE> 69

COMMON STOCK

Shares of the Fund, when issued against payment therefor, will be fully
paid and non-assessable. All shares are equal as to earnings, assets and voting
privileges. There are no conversion, pre-emptive or other subscription rights.
In the event of liquidation, each share of Common Stock is entitled to its
proportion of the Fund's assets after debts and expenses. See "Risk Factors and
Special Considerations," above, for a description of possible restrictions on
repatriation. There are no cumulative voting rights for the election of
directors.

Set forth below is information with respect to the Common Stock as of March
31, 1995:

<TABLE>
<CAPTION>
AMOUNT HELD BY FUND AMOUNT OUTSTANDING
AMOUNT AUTHORIZED OR FOR ITS ACCOUNT (EXCLUSIVE OF FUND HOLDINGS)
- ----------------- ------------------- ----------------------------
<S> <C> <C>
50,000,000 shares 0 29,544,406
</TABLE>

The Fund has no present intention of offering additional shares, other than
pursuant to the Offer, except that additional shares may be issued under the
Dividend Reinvestment and Cash Purchase Plan. See "Dividends and Distributions;
Dividend Reinvestment and Cash Purchase Plan." Other offerings of its shares, if
made, will require approval of the Fund's Board of Directors. Any additional
offering will be subject to the requirements of the 1940 Act that shares may not
be sold at a price below the then-current net asset value (exclusive of
underwriting discounts and commissions) except in connection with an offering to
existing shareholders or with the consent of a majority of the Fund's
outstanding shares.

SPECIAL VOTING PROVISIONS

The Fund has provisions in its Articles of Incorporation and By-Laws that
could have the effect of limiting the ability of other entities or persons to
acquire control of the Fund, to cause it to engage in certain transactions or to
modify its structure, such as by turning it into an open-end investment company.
The Board of Directors is divided into three classes. At the annual meeting of
shareholders each year, the term of one class will expire and directors will be
elected to serve in that class for terms of three years. This provision could
delay for up to two years the replacement of a majority of the Board of
Directors. No director may be removed without cause by shareholders of the Fund.

The vote of the holders of two-thirds of the shares of the Fund is required
to authorize any of the following transactions:

(i) merger or consolidation of the Fund with or into any other
corporation, or the sale of substantially all of the Fund's assets to any
other corporation;

(ii) the dissolution of the Fund;

(iii) any shareholder proposal as to specified investment decisions
made or to be made with respect to the Fund's assets; and

(iv) any amendment to the Fund's Articles of Incorporation to make the
Fund's Common Stock a "redeemable security" (i.e., to cause the Fund to
become an open-end investment company).

Reference is made to the Articles of Incorporation and By-Laws of the Fund,
on file with the Commission, for the full text of these provisions. See "Further
Information." These provisions could have the effect of depriving shareholders
of an opportunity to sell their shares at a premium over prevailing market
prices by discouraging a third party from seeking to obtain control of the Fund
in a tender offer or similar transaction. The provisions in the Articles of
Incorporation were approved by the Fund's shareholders at the Fund's annual
meeting in 1988. The Board of Directors has determined that the foregoing voting
requirements, which are generally greater than the minimum requirements under
Maryland law and the 1940 Act, are in the best interests of shareholders
generally, and that the advantages obtained from better assuring stability and
continuity in corporate leadership outweigh any possible disadvantages of the
provisions.

67
<PAGE> 70

DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR

State Street Bank and Trust Company, P.O. Box 8200, Boston, Massachusetts
02206-8200, is the Fund's dividend paying agent, transfer agent and registrar
for the Fund's Common Stock.

CUSTODIAN

Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts
02109, is Custodian for the Fund. The Fund's portfolio securities, when invested
in securities of Korean issuers and other Won-denominated securities, and cash
and cash equivalents, when held in Korea, are held at the Seoul branch of
Citibank, N.A., acting as Subcustodian and one of the Fund's standing proxies in
Korea.

OFFICIAL DOCUMENTS

All of the documents, except Korean company annual reports, referred to
herein as the source of statistical information are public official documents of
the Republic of Korea, its Ministries, the Bank of Korea, the KSEC or the Stock
Exchange.

EXPERTS

The financial statements and financial highlights of the Fund as of
December 31, 1994 and for the six months then ended and as of June 30, 1994 and
for the year then ended, included in this Prospectus have been included herein
in reliance on the report of Coopers & Lybrand L.L.P., One Post Office Square,
Boston, Massachusetts 02109, independent accountants, given on the authority of
that firm as experts in accounting and auditing.

VALIDITY OF THE SHARES

The validity of the Shares offered hereby will be passed on for the Fund by
Debevoise & Plimpton, New York, New York and for the Dealer Manager by Sullivan
& Cromwell, New York, New York. Matters of Korean law will be passed on for the
Fund and for the Dealer Manager by Shin & Kim, Seoul, Korea.

FURTHER INFORMATION

Further information concerning the Fund and the Fund's Common Stock may be
found in the Registration Statement of which this Prospectus constitutes a part,
which is on file with the Commission.

68
<PAGE> 71

THE KOREA FUND, INC.

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND THE SHAREHOLDERS OF THE KOREA FUND, INC.:

We have audited the accompanying statements of assets and liabilities of
The Korea Fund, Inc. including the investment portfolios, as of December 31,
1994 and June 30, 1994, and the related statements of operations for the six
months ended December 31, 1994 and for the year ended June 30, 1994, the
statements of changes in net assets for the six months ended December 31, 1994
and for each of the two years in the period ended June 30, 1994, and the
financial highlights for the six months ended December 31, 1994 and for each of
the five years in the period ended June 30, 1994. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994 and June 30, 1994 by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
Korea Fund, Inc. as of December 31, 1994 and June 30, 1994, the results of its
operations for the six months ended December 31, 1994 and for the year ended
June 30, 1994, the changes in its net assets for the six months ended December
31, 1994 and for each of the two years in the period ended June 30, 1994, and
the financial highlights for the six months ended December 31, 1994 and for each
of the five years in the period ended June 30, 1994 in conformity with generally
accepted accounting principles.

As explained in Note A, the financial statements at December 31, 1994
include securities valued at $52,087,740 (8.5% of net assets) and equity
securities valued at a premium of $26,656,775 (4.4% of net assets) over local
stock exchange prices; the financial statements at June 30, 1994 include
convertible debt securities valued at $35,362,426 (6.4% of net assets) and
equity securities valued at a premium of $36,466,846 (6.6% of net assets) over
local stock exchange prices; all whose values have been estimated by the Board
of Directors in the absence of readily ascertainable market values or other
market factors, respectively. We have reviewed the procedures used by the Board
of Directors in arriving at their estimate of value of such securities and have
inspected underlying documentation, and, in the circumstances, we believe the
procedures are reasonable and the documentation appropriate. However, because of
the inherent uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready market for
the securities existed, and the difference could be material.

Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 14, 1995

F-1
<PAGE> 72

THE KOREA FUND, INC.

INVESTMENT PORTFOLIO AS OF DECEMBER 31, 1994

<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(E) VALUE($)
--------------- ------------
<S> <C> <C>
COMMERCIAL PAPER 0.2%
CIT Group Holdings Inc., 1/3/95 (Cost $1,450,512)............ 1,451,000 1,450,512
------------
CONVERTIBLE BONDS 6.8%
CONSUMER DISCRETIONARY 0.9%
APPAREL & SHOES
Shinwon, 6%, 12/31/96 (Major apparel manufacturer)(c)..... 2,000,000,000 5,461,626
------------
CONSUMER STAPLES 0.8%
FOOD & BEVERAGE 0.7%
Crown Confectionery Co., 3%, 12/31/97 (Major producer of
snacks)(c).............................................. 800,000,000 1,417,530
Haitai Confectionery Co., 1%, 6/30/98 (Major producer of
snacks)(c).............................................. 2,000,000,000 2,643,055
------------
4,060,585
------------
TEXTILES 0.1%
Kolon Industries, Inc., 0.25%, 12/31/04 (Leading
manufacturer of nylon, polyester yarn and fabrics)...... US$2,000,000 890,000
------------
HEALTH 1.3%
PHARMACEUTICALS 1.3%
Korean Green Cross Corp., 1%, 12/31/97 (Pharmaceutical
company)(c)............................................. 3,000,000,000 4,569,081
Kukje Corp. #40, 12%, 12/31/97 (Pharmaceutical
company)(c)............................................. 2,400,000,000 2,541,216
Yuhan Corporation, 5.5%, 12/31/97 (Pharmaceutical
company)(c)............................................. 400,000,000 532,395
------------
7,642,692
------------
DURABLES 0.4%
TIRES
Kumho Co., 4%, 12/31/97 (Korea's largest tire
manufacturer)(c)........................................ 2,000,000,000 2,317,361
------------
MANUFACTURING 1.8%
CONTAINERS & PAPER
Hansol Paper Manufacturing Co., Ltd., 3%, 12/31/99 (Paper
manufacturer)(c)........................................ 4,000,000,000 4,584,681
Hansol Paper Manufacturing Co., Ltd., 1%, 12/31/99(c)..... 2,500,000,000 2,865,426
Sepong, 7%, 12/31/96 (Paper manufacturer)(c).............. 1,000,000,000 3,783,756
------------
11,233,863
------------
TECHNOLOGY 0.2%
ELECTRIC COMPONENTS/DISTRIBUTORS
Anam Electronics, 5.5% 12/31/96 (major consumer
electronics company)(c)................................. 500,000,000 668,412
Anam Electronics, 6%, 12/31/96 (c)........................ 250,000,000 210,409
Samsung Electromechanics Co., Ltd., 0.25% 12/31/00 (Major
electronics parts company).............................. CHF 500,000 270,992
1,149,813
------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-2
<PAGE> 73

<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(E) VALUE($)
--------------- ------------
<S> <C> <C>
ENERGY 0.8%
OIL & GAS PRODUCTION
Yukong, Ltd., 1%, 12/31/98 (Korea's largest oil
refiner)(c)............................................. 3,000,000,000 3,839,016
Yukong, Ltd., 2%, 12/31/97(c)............................. 2,000,000,000 1,016,720
------------
4,855,736
------------
METALS AND MINERALS 0.3%
STEEL & METALS
Kangwon Industry, 6%, 6/30/97 (Steel company)(c).......... 1,000,000,000 724,120
Sammi Steel, 4%, 12/31/97 (Specialty steel company)(c).... 500,000,000 963,614
------------
1,687,734
------------
CONSTRUCTION 0.3%
MISCELLANEOUS
Sungwon Construction, 5%, 12/31/97 (Construction
company)(c)............................................. 1,000,000,000 1,747,057
------------
Total Convertible Bonds (Cost $38,948,910).............. 41,046,467
------------
</TABLE>

<TABLE>
<CAPTION>
SHARES
---------------
<S> <C> <C>
PREFERRED STOCKS 2.7%
CONSUMER STAPLES 0.3%
ALCOHOL & TOBACCO
Oriental Brewery Co., Ltd. (Korea's largest brewery)...... 1,110 14,339
------------

FOOD & BEVERAGE
Cheil Food and Chemical Co., Ltd. (Korea's largest sugar
refiner and major integrated food processor)............ 38,690 1,161,288
Haitai Confectionery Co................................... 52,280 536,307
------------
1,697,595
------------
FINANCIAL 0.7%
INSURANCE 0.2%
Samsung Fire and Marine Insurance (Insurance
company)(d)............................................. 6,175 998,511
------------
OTHER FINANCIAL COMPANIES 0.5%
Boo Kook Securities (Securities company).................. 100,000 1,342,452
Boram Securities (Securities company)..................... 100,000 1,228,470
Dongsuh Securities (Securities company)................... 50,000 633,232
Lucky Securities (Securities company)..................... 3,200 53,090
------------
3,257,244
------------
DURABLES 1.1%
AUTOMOBILES
Hyundai Motor Services Co., Ltd. (Auto parts and
services)............................................... 96,779 2,978,381
Hyundai Motor Services Co., Ltd. (New)(b)................. 9,677 297,810
Kumho Co. ................................................ 388,000 3,194,022
------------
6,470,213
------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-3
<PAGE> 74

<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
--------------- ------------
<S> <C> <C>
MANUFACTURING 0.0%
CHEMICALS
Oriental Chemical Industries Co., Ltd. (Manufacturer of
specialty chemicals).................................... 19,375 368,066
------------
TECHNOLOGY 0.5%
ELECTRONIC COMPONENTS/DISTRIBUTORS
Samsung Electron Devices (Korea's largest manufacturer of
CRT and picture tubes).................................. 8,198 358,195
Samsung Electronics Co., Ltd. (Major electronics
company)(d)............................................. 30,920 2,543,930
------------
2,902,125
------------
ENERGY 0.0%
OIL COMPANIES
Ssangyong Oil Refining Co. (Major oil refiner)............ 1,174 35,089
------------
CONSTRUCTION 0.1%
HOMEBUILDING
Kumho Construction and Engineering (Engineering and
construction company)................................... 45,540 392,188
------------
Total Preferred Stocks (Cost $16,756,797)............... 16,135,370
------------

COMMON STOCKS 90.3%
CONSUMER DISCRETIONARY 5.2%
APPAREL & SHOES 0.8%
Ssang Bang Wool Co. (Leading underwear manufacturer)...... 93,345 4,716,902
------------
DEPARTMENT & CHAIN STORES 4.4%
Hwa Sung Industries (Department store).................... 165,730 10,494,554
Shinsegae (Major department store chain).................. 114,577 11,826,273
Taegu Department Store (Department store)................. 110,343 4,388,007
------------
26,708,834
------------
CONSUMER STAPLES 6.2%
ALCOHOL & TOBACCO 0.5%
Oriental Brewery Co., Ltd................................. 114,991 2,898,076
------------
FOOD & BEVERAGE 4.7%
Cheil Food and Chemical Co., Ltd.......................... 282,098 18,685,063
Haitai Confectionery Co................................... 9,000 182,371
Lotte Chilsung Beverage Co. (Korea's largest producer of
non-alcoholic beverages)................................ 25,000 4,527,609
Nhong Shim Co. (Manufacturer of instant noodles and
snacks)................................................. 32,271 1,438,626
Tongyang Confectionery (Major producer of snacks)......... 70,531 2,974,522
Tongyang Confectionery (New)(b)........................... 16,927 718,154
------------
28,526,345
------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-4
<PAGE> 75

<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
--------------- ------------
<S> <C> <C>
TEXTILES 1.0%
Cheil Industries (Korea's largest woolen yarn and fabric
manufacturer)........................................... 70,000 2,189,716
Cheil Industries (New)(b)................................. 9,739 303,419
Sam Yang Co., Ltd. (Korea's largest manufacturer of
polyester staple fiber)................................. 30,000 1,253,799
Taekwang Industrial Co., Ltd. (Major producer of acrylic
fiber).................................................. 3,040 1,828,774
Tongyang Nylon (Korea's largest producer of nylon filament
yarn)................................................... 16,500 585,106
------------
6,160,814
------------
HEALTH 3.0%
PHARMACEUTICALS
Chong Kun Dang Co., Ltd. (Pharmaceutical company)......... 69,173 3,898,428
Daewoong Pharmaceutical Co. (Pharmaceutical company)...... 20,000 1,415,907
Yuhan Corporation......................................... 137,548 12,716,570
------------
18,030,905
------------
COMMUNICATIONS 11.9%
CELLULAR TELEPHONE
Korea Mobile Telecom (Mobile telecommunication
company)(d)............................................. 100,702 71,776,957
------------
FINANCIAL 12.4%
BANKS 5.6%
Cheju Bank (Regional bank)................................ 140,180 2,378,941
Cheju Bank (New)(b)(c).................................... 99,848 1,694,482
Hanil Bank (Major commercial bank)........................ 200,000 2,608,916
Hanil Bank (New)(b)....................................... 42,929 538,244
Korea Exchange Bank (Major commercial bank)............... 60,000 813,070
Korea First Bank (Major commercial bank).................. 36,000 501,520
Korea Long Term Credit Bank (Major commercial bank)....... 524,725 16,281,361
Korea Long Term Credit Bank (New)(b)...................... 112,696 3,411,138
Shin Han Bank (Major commercial bank)..................... 242,000 5,976,444
------------
34,204,116
------------
INSURANCE 4.9%
Daehan Fire and Marine Insurance (Insurance company)...... 63,380 2,030,793
Daehan Fire and Marine Insurance (New)(b)(c).............. 21,996 704,786
Hyundai Fire and Marine Insurance (Insurance company)..... 68,000 3,522,290
Hyundai Fire and Marine Insurance (New)(b)(c)............. 26,656 1,380,738
Lucky Insurance (Insurance company)....................... 49,912 2,654,894
Samsung Fire and Marine Insurance (d)..................... 67,867 19,081,147
------------
29,374,648
------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-5
<PAGE> 76

<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
--------------- ------------
<S> <C> <C>
OTHER FINANCIAL COMPANIES 1.9%
Boo Kook Securities....................................... 2,000 39,007
Boo Kook Securities (New)(b)(c)........................... 14,834 289,316
Dong Ah Securities (Securities company)................... 188,752 3,179,333
Hanyang Securities (Securities company)................... 120,000 1,854,103
Hanyang Securities (New)(b)(c)............................ 17,191 265,616
Hyundai Securities (Securities company)................... 40,800 1,085,106
Samsung Securities (Securities company)................... 8,510 366,439
Shinyoung Securities (Securities company)................. 40,000 1,200,608
Ssangyong Investments and Securities (Securities
company)................................................ 123,600 3,240,274
Ssangyong Investments and Securities (New)(b)............. 12,373 296,162
------------
11,815,964
------------
SERVICE INDUSTRIES 2.3%
MISCELLANEOUS COMMERCIAL SERVICES
Samsung Co., Ltd. (Trading company)....................... 227,863 9,032,563
Samsung Co., Ltd. (New)(b)................................ 22,179 862,329
Sunkyong Ltd. (Trading company)........................... 153,000 3,875,380
------------
13,770,272
------------
DURABLES 10.3%
AUTOMOBILES 9.7%
Hankook Tire Manufacturer Co., Ltd. (Major tire
manufacturer)........................................... 169,216 16,180,101
Hyundai Motor Co., Ltd. (Korea's largest auto
manufacturer)........................................... 116,209 5,931,133
Hyundai Motor Services Co., Ltd........................... 332,545 16,762,020
Hyundai Motor Services Co., Ltd. (New)(b)(c).............. 91,228 4,598,372
Mando Machinery Co. (Major auto parts manufacturer)....... 113,341 7,535,971
Samlip Industries (Auto parts manufacturer)............... 35,000 1,945,922
Yoosung Enterprise (Leading manufacturer of engine
parts).................................................. 90,000 5,596,505
------------
58,550,024
------------
LEASING COMPANIES 0.6%
Korea Development Leasing Co. (Largest leasing company in
Korea).................................................. 93,000 4,004,559
------------
MANUFACTURING 6.5%
CHEMICALS 2.1%
Korea Chemical Co. (Paint company)........................ 37,540 4,659,220
Lucky, Ltd. (Korea's largest integrated chemical
company)................................................ 217,056 6,322,553
Lucky, Ltd. (New)(b)...................................... 12,797 363,035
Oriental Chemical Industries Co., Ltd..................... 44,322 1,599,768
Oriental Chemical Industries Co., Ltd. (New)(b)........... 3,078 109,149
------------
13,053,725
------------
CONTAINERS & PAPER 1.9%
Hansol Paper Manufacturing Co., Ltd....................... 177,438 9,550,551
Hansol Paper Manufacturing Co., Ltd. (New)(b)............. 33,274 1,744,504
------------
11,295,055
------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-6
<PAGE> 77

<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
--------------- ------------
<S> <C> <C>
DIVERSIFIED MANUFACTURING 1.7%
Hyundai Precision Industry Co. (Leading transport
container manufacturer and machinery producer).......... 22,579 689,151
Samsung Heavy Industries Co., Ltd. (Machinery
manufacturer)........................................... 194,890 8,095,735
Samsung Heavy Industries Co., Ltd. (New)(b)............... 35,349 1,432,584
------------
10,217,470
------------
ELECTRICAL PRODUCTS 0.8%
Kyungwon Century Co., Ltd. (Major manufacturer of heating
and cooling equipment).................................. 77,000 3,257,092
Kyungwon Century Co., Ltd. (New)(b)....................... 37,086 1,362,074
------------
4,619,166
------------
MISCELLANEOUS 0.0%
Goldstar Industrial Systems Co. (New)(b).................. 1,030 43,699
------------
TECHNOLOGY 16.4%
ELECTRONIC COMPONENTS/DISTRIBUTORS 15.9%
Goldstar Co. (GDR) (Major electronics manufacturer)....... 109,643 1,672,056
Samsung Electromechanics Co., Ltd......................... 149,751 7,491,343
Samsung Electromechanics Co., Ltd. (New)(b)(c)............ 65,346 3,268,955
Samsung Electromechanics Co., Ltd. (New)(b)............... 17,322 844,601
Samsung Electron Devices.................................. 78,471 6,260,984
Samsung Electron Devices Co., Ltd. (New)(b)............... 9,896 751,976
Samsung Electronics Co., Ltd.(d).......................... 491,655 72,621,229
Samsung Electronics Co., Ltd. (New)(b)(d)................. 21,652 3,154,156
------------
96,065,300
------------
ELECTRONIC DATA PROCESSING 0.3%
Trigem Computer Inc. (Major personal computer
manufacturer)........................................... 50,000 1,899,696
------------
MISCELLANEOUS 0.2%
Youngchang Akki Co., Ltd. (Korea's largest and the world's
second largest manufacturer of pianos).................. 19,840 1,206,079
------------
ENERGY 2.3%
OIL & GAS PRODUCTION
Samchully (Producer and distributor of anthracite and
gas).................................................... 24,940 1,936,198
Ssangyong Oil Refining Co................................. 131,757 4,522,055
Yukong, Ltd............................................... 151,389 7,017,271
Yukong, Ltd. (New)(b)..................................... 9,110 415,350
------------
13,890,874
------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-7
<PAGE> 78

<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
--------------- ------------
<S> <C> <C>
METALS AND MINERALS 3.3%
STEEL & METALS
Dongkuk Steel Mill Co. (Steel company).................... 32,000 952,381
Dongkuk Steel Mill Co. (New)(b)........................... 22,940 656,591
Hankook Core Co. (Steel company).......................... 54,732 1,524,954
Inchon Iron & Steel (Steel company)....................... 165,000 7,209,347
Kia Steel Co., Ltd. (Specialty steel company)............. 249,440 3,348,612
Pohang Iron & Steel Co. (Korea's largest steel
producer)(d)............................................ 61,000 6,200,585
------------
19,892,470
------------
CONSTRUCTION 8.5%
BUILDING MATERIALS 6.1%
Hanil Cement Manufacturer (Cement manufacturing
company)................................................ 24,000 1,793,313
Keum Kang Co., Ltd. (Construction company and manufacturer
of building materials).................................. 244,337 21,970,526
Keum Kang Co., Ltd. (New)(b).............................. 58,010 1,395,884
Ssangyong Cement Industrial Co., Ltd. (Major cement
company)................................................ 197,307 7,546,443
Sung Shin Cement Co., Ltd. (Major cement company)......... 63,000 2,872,340
Tong Yang Cement Co., Ltd. (Major cement company)......... 34,000 1,248,734
Tong Yang Cement Co., Ltd. Warrants (expire 8/18/96)(f)... 200 145,000
------------
36,972,240
------------
MISCELLANEOUS 2.4%
Daeho Construction (Construction company)................. 91,913 3,724,944
Han Shin Construction (Construction company).............. 121,660 1,648,635
Han Shin Construction (New)(b)............................ 16,850 230,471
Kumho Construction and Engineering........................ 103,435 1,716,057
Lucky Development (New)(b)................................ 5,958 141,857
Samsung Construction Co. (Engineering and construction
company)................................................ 21,388 820,740
Samsung Construction Co. (New)(b)......................... 8,228 299,067
Sungwon Construction...................................... 132,450 5,720,042
------------
14,301,813
------------
TRANSPORTATION 0.8%
AIRLINES 0.3%
Korean Airlines Co., Ltd. (Airline)....................... 51,827 1,647,489
Korean Airlines Co., Ltd. (New)(b)........................ 6,565 199,544
------------
1,847,033
------------
MARINE TRANSPORTATION 0.4%
Korea Line Corp. (New) (Maritime transportation
company)(b)............................................. 80,000 2,360,689

TRUCKING 0.1%
Korea Express Co., Ltd. (General freight transport
company)................................................ 13,670 657,877
Korea Express Co., Ltd. (New)(b).......................... 3,555 167,035
------------
824,912
------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-8
<PAGE> 79

<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
--------------- ------------
<S> <C> <C>
UTILITIES 1.2%
ELECTRIC UTILITIES 0.8%
Korea Electric Power Co. (Electric Utility)............... 130,900 4,509,220

NATURAL GAS DISTRIBUTION 0.4%
Daesung Industrial (Natural gas distributor).............. 37,600 2,523,810
------------
Total Common Stocks (Cost $231,010,062)................. 546,061,667
------------
TOTAL INVESTMENT PORTFOLIO 100.0% (Cost $288,166,281)(a)....... 604,694,016
==========
</TABLE>

(a) The cost for federal income tax purposes was $288,166,281. At December 31,
1994, net unrealized appreciation for all securities based on tax cost was
$316,527,735. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost of
$335,318,466 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value of $18,790,731.

(b) New shares issued during 1994, eligible for a pro rata share of 1994
dividends (Note A).

(c) Securities valued in good faith by the Valuation Committee of the Board of
Directors. The cost of these securities at December 31, 1994 was $44,526,040
(Note A).

(d) Equity securities that have met the foreign-ownership limitation valued at a
premium in good faith by the Valuation Committee of the Board of Directors.
The cost of these securities at December 31, 1994 was $20,962,878 (Note A).

(e) Principal amount stated in Korean won unless otherwise noted. CHF Swiss
Francs.

(f) Non-income producing.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-9
<PAGE> 80

THE KOREA FUND, INC.

STATEMENT OF ASSETS AND LIABILITIES

DECEMBER 31, 1994

<TABLE>
<S> <C> <C>
ASSETS
Investments, at market (identified cost $288,166,281)(Note A)..... $604,694,016
Cash:
U.S. dollars.................................................... 582
Won at market (identified cost $9,695,806)(Note A).............. 9,734,575
Dividend and interest receivable.................................. 1,248,654
Other assets...................................................... 3,747
------------
Total assets............................................ 615,681,574
LIABILITIES
Payables:
Subscription rights purchased (Note A).......................... $4,331,159
Dividend payable................................................ 295,404
Accrued management fee (Note C)................................. 507,852
Other accrued expenses (Note C)................................. 554,360
----------
Total liabilities....................................... 5,688,775
------------
Net assets, at market value....................................... $609,992,799
===========
NET ASSETS
Net assets consist of:
Accumulated net investment loss................................. $ (3,082,635)
Accumulated net realized gain................................... 5,059,579
Net unrealized appreciation on:
Investments.................................................. 316,527,735
Won.......................................................... 38,769
Won related transactions..................................... 3,122
Common stock.................................................... 295,404
Additional paid-in capital...................................... 291,150,825
------------
Net assets, at market value....................................... $609,992,799
===========
NET ASSET VALUE per share ($609,992,799 / 29,540,356 shares of
common stock issued and outstanding, 50,000,000 shares
authorized, $.01 par value)..................................... $20.65
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-10
<PAGE> 81

THE KOREA FUND, INC.

STATEMENT OF OPERATIONS

SIX MONTHS ENDED DECEMBER 31, 1994

<TABLE>
<S> <C> <C>
INVESTMENT INCOME

Income:
Dividends (net of withholding taxes of $7,004) (Note A)......... $ 52,086
Interest (net of withholding taxes of $84,808) (Note A)......... 970,644
-----------
1,022,730
Expenses:
Management fee (Note C)......................................... $ 3,196,290
Directors' fees and expenses (Note C)........................... 82,451
Custodian fees.................................................. 587,538
Legal........................................................... 67,168
Services to shareholders........................................ 29,312
Reports to shareholders......................................... 57,136
Auditing........................................................ 43,925
Other........................................................... 41,545 4,105,365
----------- -----------
Net investment loss............................................... (3,082,635)
-----------

NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain during the period on:
Investments.................................................. 5,413,557
Won related transactions..................................... 117,992 5,531,549
-----------
Net unrealized appreciation during the period on:
Investments.................................................. 60,234,906
Won.......................................................... 9,042
Won related transactions..................................... 2,574 60,246,522
----------- -----------
Net gain on investment transactions............................. 65,778,071
-----------

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $62,695,436
==========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-11
<PAGE> 82

THE KOREA FUND, INC.

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
DECEMBER 31, JUNE 30,
1994 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment loss........................................... $ (3,082,635) $ (749,702)
Net realized gain from investment transactions................ 5,531,549 5,972,730
Net unrealized appreciation on investment transactions during
the period................................................. 60,246,522 179,703,180
------------ ------------
Net increase in net assets resulting from operations............ 62,695,436 184,926,208
------------ ------------
Distributions to shareholders from:
Net investment income ($.01 per share)........................ -- (325,166)
------------ ------------
Net realized gains from investment transactions ($.15 per
share)..................................................... (4,359,655) --
------------ ------------
Fund share transactions:
Net proceeds of shares issued in connection with the Fund's
fourth tranche offering, net of underwriting commissions of
$5,750,000 and expenditures and offering costs of
$1,618,000................................................. -- 107,631,989
------------ ------------
Reinvestment of distributions................................. 1,718,388 106,509
------------ ------------
INCREASE IN NET ASSETS.......................................... 60,054,169 292,339,540
Net assets at beginning of period............................... 549,938,630 257,599,090
------------ ------------
NET ASSETS AT END OF PERIOD (including accumulated net
investment loss of ($3,082,635) at December 31, 1994)......... $609,992,799 $549,938,630
=========== ===========
OTHER INFORMATION
INCREASE IN FUND SHARES
Shares outstanding at beginning of period....................... 29,474,985 22,604,432
Shares issued in connection with the Fund's fourth tranche
offering................................................... -- 6,865,671
Shares issued to shareholders in reinvestment of
distributions.............................................. 65,371 4,882
------------ ------------
Shares outstanding at end of period............................. 29,540,356 29,474,985
=========== ===========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-12
<PAGE> 83

THE KOREA FUND, INC.

FINANCIAL HIGHLIGHTS

The following table includes selected data for a share outstanding
throughout each period and other performance information derived from the
financial statements and market price data.

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
SIX MONTHS ENDED ---------------------------------------------
DECEMBER 31, 1994 1994 1993 1992 1991 1990
----------------- ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........ $ 18.66 $11.40 $10.75 $ 10.27 $ 14.45 $ 16.84
------- ------ ------ ------- ------- -------
Income from investment operations: (a)
Net investment income (loss).............. (.10) (.03) .02 .08 .09 .04
Net realized and unrealized gain (loss) on
investment transactions................. 2.24 7.13 .86 .78 (2.13) (1.99)
------- ------ ------ ------- ------- -------
Total from investment operations............ 2.14 7.10 .88 .86 (2.04) (1.95)
------- ------ ------ ------- ------- -------
Less distributions from:
Net investment income..................... -- (.01) (.04) (.06) -- (.08)
------- ------ ------ ------- ------- -------
Net realized gains on investment
transactions............................ (.15) -- (.20) (.34) (2.20) (1.88)
------- ------ ------ ------- ------- -------
Total distributions......................... (.15) (.01) (.24) (.40) (2.20) (1.96)
------- ------ ------ ------- ------- -------
Antidilution resulting from offering of
fourth tranche (1994), third tranche
(1990), and reinvestment of distributions
for shares at market value................ -- .22 .01 .02 .06 1.55
------- ------ ------ ------- ------- -------
Underwriting expenditures and offering
costs..................................... -- (.05) -- -- -- (.03)
------- ------ ------ ------- ------- -------
Net asset value, end of period.............. $ 20.65 $18.66 $11.40 $ 10.75 $ 10.27 $ 14.45
================== ====== ====== ======== ======== ========
Market value, end of period................. $ 22.75 $22.00 $15.00 $ 11.38 $ 14.13 $ 22.13
================== ====== ====== ======== ======== ========
TOTAL RETURN
Per share market value (%)................ 4.03* 46.74 34.54 (17.01) (23.57) (26.23)
Per share net asset value (%)(b).......... 11.32* 63.77 8.20 7.87 (14.91) (9.52)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions).... 610 550 258 241 228 303
Ratio of operating expenses to average net
assets (%).............................. 1.31** 1.37 1.52 1.52 1.47 1.44
Ratio of net investment income (loss) to
average net assets (%).................. (.50)** (.18) .15 .70 .83 .21
Portfolio turnover rate (%)............... 11.0** 14.3 14.3 18.2 19.2 17.9
</TABLE>

- ---------------
* Not annualized

** Annualized

(a) Based on monthly average of shares outstanding during each period.

(b) Total return based on per share net asset value reflects the effects of
changes in net asset value on the performance of the Fund during each
period, and assumes dividends and capital gains distributions, if any, were
reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value of
the Fund during each period.

F-13
<PAGE> 84

THE KOREA FUND, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1994

A. SIGNIFICANT ACCOUNTING POLICIES

The Korea Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as a non-diversified, closed-end management
investment company. The policies described below are followed consistently by
the Fund in the preparation of its financial statements in conformity with
generally accepted accounting principles.

Security Valuation. Portfolio securities which are traded on the Korean,
U.S. or foreign stock exchanges are valued at the most recent sale price
reported on the exchange on which the security is traded most extensively. If no
sale occurred, the security is then valued at the calculated mean between the
most recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation is used.

Short-term investments having a maturity of sixty days or less are valued
at amortized cost.

All other securities are valued at fair value as determined in good faith
by the Valuation Committee of the Board of Directors including certain
investments in Korean equity securities that have met the limit for aggregate
foreign ownership and for which premiums to the local stock exchange prices are
offered by prospective foreign investors. The aggregate premium ($26,656,775)
over the local share price ($149,719,740) for these securities valued by the
Valuation Committee was approximately 4.4% of the Fund's net assets at December
31, 1994. Securities valued in good faith by the Valuation Committee amounted to
$52,087,740 or 8.5% of the Fund's net assets at December 31, 1994.

Dividend Income. Korean-based corporations have generally adopted calendar
year-ends, and their corporate actions are normally approved by their Boards of
Directors and shareholders in the first quarter of each calendar year.
Accordingly, dividend income from Korean equity investments is earned and
received by the Fund primarily in the first calendar quarter of each year. As a
result, the Fund, which has a June 30 year end, receives substantially less
dividend income in the first half of its year than in the second half of such
year.

Income Taxes. The Fund's policy is to comply with the requirements of the
Internal Revenue Code which are applicable to regulated investment companies and
to distribute all of its taxable income to its shareholders. The Fund,
accordingly, paid no federal income taxes and no federal income tax provision
was required. Under the United States-Korea income tax treaty, as presently in
effect, the government of Korea imposes a nonrecoverable withholding tax and
resident tax aggregating 16.125% on dividends and 12.9% on interest paid to the
Fund by Korean issuers. Under the United States-Korea income tax treaty, there
is no Korean withholding tax on realized capital gains.

Distribution of Income and Gains. Distribution of net investment income is
made annually. It is expected that net realized gains from investment
transactions during any particular year in excess of available capital loss
carryforwards which, if not distributed, would be taxable to the Fund, will be
distributed to shareholders. An additional distribution may be made to the
extent necessary to avoid the payment of a four percent federal excise tax.

The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences relate primarily to foreign denominated investments. As a result,
net investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.

The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial and federal income tax reporting
purposes.

F-14
<PAGE> 85

Foreign Currency Translations. The books and records of the Fund are
maintained in U.S. dollars. Foreign currency transactions are translated into
U.S. dollars on the following basis:

(i) market value of investment securities, other assets and
liabilities at the daily rates of exchange, and

(ii) purchases and sales of investment securities, dividend and
interest income and certain expenses at the rates of exchange prevailing on
the respective dates of such transactions.

The Fund does not isolate that portion of gains and losses on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains and losses from investments.

Net realized gain (loss) from won related transactions includes net
currency gains and losses between trade and settlement dates on securities
transactions, gains and losses arising from the sales of won and gains and
losses between the ex and payment dates on dividends, interest, and foreign
withholding taxes. At December 31, 1994 the exchange rate for Korean won was
U.S. $.001266 to W 1.

Subscriptions for New Shares. As part of their annual corporate action
matters, certain Korean companies offer rights to their shareholders to
subscribe to new shares which are eligible for a portion of the dividends paid
on existing shares in the year of subscription. The Fund follows a policy of
subscribing to new share offerings by Korean companies.

Other. Investment security transactions are accounted for on a trade-date
basis. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. All original
issue discounts are accreted for both tax and financial reporting purposes.

B. PURCHASES AND SALES OF SECURITIES

For the six months ended December 31, 1994, purchases and sales of
investment securities (excluding short-term investments) aggregated $37,361,128
and $33,589,971, respectively.

C. RELATED PARTIES

On October 14, 1994, the Fund's shareholders approved a new Investment
Advisory and Management Agreement (the "Management Agreement") with Scudder,
Stevens & Clark, Inc. (the "Manager"). Under the Management Agreement the Fund
agrees to pay the Manager a monthly fee at an annual rate equal to 1.15% of the
Fund's month-end net assets up to and including $50,000,000, 1.10% of such net
assets on the next $50,000,000, 1% of such assets on the next $250,000,000,
0.95% of such net assets on the next $400,000,000, and 0.90% of such net assets
in excess of $750,000,000.

Under the Investment Advisory and Management Agreement (the "Agreement")
between the Fund and the Manager which was in effect prior to October 14, 1994,
the Fund agreed to pay the Manager a monthly fee equal to an annual rate of
1.15% of the first $50,000,000 of month-end net assets of the Fund, 1.10% of
such net assets in excess of $50,000,000 up to and including $100,000,000, and
1.00% of the excess over $100,000,000.

For the six months ended December 31, 1994, the fee pursuant to such
agreements amounted to $3,196,290 which was equivalent to an annual effective
rate of 1.02% of the Fund's average month-end net assets.

On October 14, 1994, the Fund's shareholders approved a new Research and
Advisory Agreement (the "Advisory Agreement") with Daewoo Capital Management
Co., Ltd. (the "Korean Adviser"), whereby the Korean Adviser provides such
investment advice, research and assistance as the Manager may from time to time
reasonably request.

Under the Advisory Agreement, the Manager pays the Korean Adviser a monthly
fee, equal to an annual rate of 0.2875% of the first $50,000,000 of the Fund's
month-end net assets, 0.275% of such net assets on the

F-15
<PAGE> 86

next $50,000,000, and 0.25% of such net assets on the next $250,000,000, 0.2375%
of such net assets on the next $400,000,000, and 0.225% of such net assets in
excess of $750,000,000.

Under the Research and Advisory Agreement (the "Research Agreement") which
was in effect prior to October 14, 1994, the Manager agreed to pay the Korean
Adviser a monthly fee equal to an annual rate of 0.2875% of the first
$50,000,000 of the Fund's month-end net assets, 0.275% of such net assets in
excess of $50,000,000 up to and including $100,000,000, and 0.25% of the excess
over $100,000,000.

For the six months ended December 31, 1994, brokerage commissions on
investment transactions amounting to $51,198 were paid by the Fund to Daewoo
Securities Co., Ltd., the parent company of the Korean Adviser.

The Fund pays each Director not affiliated with the Manager or the Korean
Adviser $4,500 annually plus specified amounts for attended board and committee
meetings. Effective October 1, 1994, the Fund pays each Director not affiliated
with the Manager or the Korean Adviser $6,000 annually plus specified amounts
for attended board and committee meetings. For the six months ended December 31,
1994, Directors' fees and expenses amounted to $82,451.

D. FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN KOREA

The Foreign Exchange Management Act, the Presidential Decree relating to
such Act and the regulations of the Minister of Finance issued thereunder impose
certain limitations and controls which generally affect foreign investors in
Korea. The Fund has obtained from the Minister of Finance a license to invest in
Korean securities and to repatriate income received from dividends and interest
earned on, and net realized capital gain from, its investments in Korean
securities and, upon termination of the Fund or for payment of expenses in
excess of income, to repatriate investment principal. The Minister of Finance
may, when it deems it to be in the public interest, modify the Fund's license to
invest in Korean securities or, according to the terms of the license, revoke it
in the event of the Fund's noncompliance with conditions of the license or a
material violation of Korean law. The Minister of Finance or the Securities and
Exchange Commission of Korea ("KSEC") may issue orders imposing additional
restrictions, when deemed in the public interest, for the protection of
investors or in the interest of maintaining an orderly securities market. Under
the Foreign Exchange Management Act, the Minister of Finance has the power, with
prior public notice of scope and duration, to suspend all or a part of foreign
exchange transactions when emergency measures are deemed necessary in case of
radical change in the international or domestic economic situation. The Fund
could be adversely affected by delays in, or the refusal to grant, any required
governmental approval for such transactions.

Under current regulations of the Minister of Finance and the KSEC,
foreigners are subject to certain restrictions with respect to investing in
equity securities of Korean companies listed on the Korea Stock Exchange. Until
December 1, 1994, total foreign investment was limited generally to 10% of each
class of a company's outstanding shares. Effective December 1, 1994, the general
limit was increased from 10% to 12%. A single foreign investor may only invest
up to 3% of each class of outstanding shares. Pursuant to its license, however,
the Fund may invest in shares representing 5% of each class in general.

E. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (000 OMITTED)

<TABLE>
<CAPTION>
NET INCREASE
(DECREASE)
NET GAIN (LOSS) IN NET ASSETS
INVESTMENT NET INVESTMENT ON INVESTMENT RESULTING
INCOME* INCOME (LOSS) TRANSACTIONS FROM OPERATIONS
QUARTER ENDED -------------- --------------- ---------------- ----------------
- ------------------- PER PER PER PER
FISCAL 1995 TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
- ------------------- ------ ----- ------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
September 30, 1994 $ 625 $.02 $(1,311) $(.04) $ 87,443 $2.97 $ 86,131 $2.93
December 31, 1994 398 .01 (1,772) (.06) (21,665) (.73) (23,436) (.79)
------ ----- ------- ----- -------- ----- -------- -----
Totals $1,023 $.03 $(3,083) $(.10) $ 65,778 $2.24 $ 62,695 $2.14
====== ==== ======= ===== ======== ===== ======== =====
</TABLE>

F-16
<PAGE> 87

<TABLE>
<CAPTION>
PER PER PER PER
FISCAL 1994 TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
- ------------------- ------ ----- ------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
September 30, 1993 $ 52 $ -- $ (878) $(.04) $ 2,205 $ .09 $ 1,327 $ .05
December 31, 1993 341 .02 (995) (.04) 124,881 4.82 123,886 4.78
March 31, 1994 4,432 .17 2,556 .10 10,248 .40 12,804 .50
June 30, 1994 231 -- (1,433) (.05) 48,342 1.82 46,909 1.77
------ ----- ------- ----- -------- ----- -------- -----
Totals $5,056 $.19 $ (750) $(.03) $185,676 $7.13 $184,926 $7.10
====== ==== ======= ===== ======== ===== ======== =====
</TABLE>

- ---------------
* Net of Korean taxes withheld.

F-17
<PAGE> 88

THE KOREA FUND, INC.

INVESTMENT PORTFOLIO AS OF JUNE 30, 1994

<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(E) VALUE($)
--------------- ------------
<S> <C> <C>
COMMERCIAL PAPER 0.2%
Cargill Inc., 4.35%, 7/1/94 (Cost $820,000).................. 820,000 820,000
------------
CONVERTIBLE BONDS 6.9%
CONSUMER DISCRETIONARY 0.6%
APPAREL & SHOES
Shinwon, 6%, 12/31/96 (Major apparel manufacturer)(c)..... 2,000,000,000 3,406,331
------------
CONSUMER STAPLES 0.4%
FOOD & BEVERAGE 0.2%
Crown Confectionery Co., 3%, 12/31/97 (Major producer of
snacks)(c).............................................. 800,000,000 993,172
------------
TEXTILES 0.2%
Kolon Industries, Inc., 0.25%, 12/31/04 (Leading
manufacturer of nylon, polyester, yarn and fabrics)..... US$2,000,000 1,200,000
------------
HEALTH 1.0%
PHARMACEUTICALS
Choongwae Pharmaceutical Corp., 3%, 12/31/97 (Leading
maker of prescription and over-the-counter drugs)(c).... 1,000,000,000 1,231,636
Korean Green Cross Corp., 1%, 12/31/97 (Pharmaceutical
company)(c)............................................. 3,000,000,000 3,708,359
Yuhan Corporation, 5.5%, 12/31/97 (Pharmaceutical
company)(c)............................................. 400,000,000 496,586
------------
5,436,581
------------
DURABLES 0.5%
AUTOMOBILES
Kumho Co., 4%, 12/31/97 (Korea's largest tire
manufacturer)(c)........................................ 2,000,000,000 2,482,930
------------
MANUFACTURING 2.0%
CONTAINERS & PAPER
Hansol Paper Manufacturing Co., Ltd., 3%, 12/31/99 (Paper
manufacturer)(c)........................................ 5,000,000,000 6,391,434
Hansol Paper Manufacturing Co., Ltd., 1%, 12/31/99(c)..... 2,500,000,000 3,128,181
Sepoong, 7%, 12/31/96 (Paper manufacturer)(c)............. 1,000,000,000 1,401,366
------------
10,920,981
------------
TECHNOLOGY 0.3%
ELECTRONIC COMPONENTS/DISTRIBUTORS
Anam Electronics, 5.5%, 12/31/96 (Major consumer
electronics company)(c)................................. 500,000,000 659,901
Anam Electronics, 6%, 12/31/96 (c)........................ 250,000,000 338,351
Samsung Electromechanics Co., Ltd., 0.25%, 12/31/00 (Major
electronics parts company).............................. CHF 500,000 362,170
------------
1,360,422
------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-18
<PAGE> 89

<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(E) VALUE($)
--------------- ------------
<S> <C> <C>
ENERGY 0.5%
OIL & GAS PRODUCTION
Yukong, Ltd., 2%, 12/31/97 (Korea's largest oil
refinery)(c)............................................ 2,000,000,000 2,482,930
------------
METALS AND MINERALS 0.6%
STEEL & METALS
Hangkook Core Co., 3%, 12/31/97 (Korea's largest steel
maker)(c)............................................... 850,000,000 1,055,245
Kangwon Industry, 6%, 6/30/97 (Steel company)(c).......... 1,000,000,000 1,241,465
Sammi Steel, 4%, 12/31/97 (Specialty steel company)(c).... 1,000,000,000 1,254,624
------------
3,551,334
------------
CONSTRUCTION 1.0%
HOMEBUILDING 0.3%
Daeho Construction, 6%, 11/18/96 (Construction
company)(c)............................................. 1,040,000,000 1,365,148
------------
MISCELLANEOUS 0.7%
Sungwon Construction, 4%, 12/31/97 (Construction
company)(c)............................................. 2,000,000,000 2,482,930
Sungwon Construction, 5%, 12/31/97(c)..................... 1,000,000,000 1,241,837
------------
3,724,767
------------
TOTAL CONVERTIBLE BONDS (COST $37,599,269).............. 36,924,596
------------
</TABLE>

<TABLE>
<CAPTION>
SHARES
---------------
<S> <C> <C>
PREFERRED STOCKS 3.4%
CONSUMER STAPLES 0.4%

FOOD & BEVERAGE
Cheil Food and Chemical Co., Ltd. (Korea's largest sugar
refiner and major integrated food processor)............ 38,690 1,724,359
Haitai Confectionery Co. (Major producer of snacks)....... 39,280 599,806
------------
2,324,165
------------
FINANCIAL 1.2%
INSURANCE 0.3%
Samsung Fire and Marine Insurance (Insurance
company)(d)............................................. 6,175 1,650,116
------------
OTHER FINANCIAL COMPANIES 0.9%
Boo Kook Securities (Securities company).................. 102,000 1,988,082
Boram Securities (Securities company)..................... 100,000 1,700,807
Hanyang Securities (Securities company)................... 70,000 1,155,804
------------
4,844,693
------------
DURABLES 0.9%
AUTOMOBILES
Hyundai Motor Services Co., Ltd. (Auto parts and
services)............................................... 96,779 4,938,072
MANUFACTURING 0.1%
CHEMICALS
Oriental Chemical Industries Co., Ltd. (Manufacturer of
specialty chemicals).................................... 19,375 418,529
------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-19
<PAGE> 90

<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
--------------- ------------
<S> <C> <C>
TECHNOLOGY 0.8%
DIVERSE ELECTRONIC PRODUCTS 0.6%
Samsung Electronics Co., Ltd. (Major electronics
company)(d)............................................. 30,920 3,427,802
------------
ELECTRONIC COMPONENTS/DISTRIBUTORS 0.2%
Samsung Electron Devices (Korea's largest manufacturer of
CRT and picture tubes).................................. 8,198 748,048
------------
ENERGY 0.0%
OIL COMPANIES
Ssangyong Oil Refining Co. (Major oil refiner)............ 1,174 29,441
------------
TOTAL PREFERRED STOCKS (COST $13,246,849)............... 18,380,866
------------
COMMON STOCKS 89.5%
CONSUMER DISCRETIONARY 4.8%
APPAREL & SHOES 0.9%
Ssang Bang Wool Co. (Leading underwear manufacturer)...... 133,445 5,003,152
------------
DEPARTMENT & CHAIN STORES 3.9%
Hwa Sung Industries (Department store).................... 165,730 7,077,731
Shinsegae (Major department store chain).................. 114,577 10,085,052
Taegu Department Store (Department store)................. 105,600 3,644,544
------------
20,807,327
------------
CONSUMER STAPLES 6.9%
ALCOHOL & TOBACCO 0.5%
Oriental Brewery Co., Ltd. (Korea's largest brewer)....... 114,991 2,855,146
------------
FOOD & BEVERAGE 4.5%
Cheil Food and Chemical Co., Ltd.......................... 282,098 16,600,180
Haitai Confectionery Co................................... 2,000 35,506
Lotte Chilsung Beverage Co. (Korea's largest producer of
non-alcoholic beverages)................................ 40,000 3,520,795
Nhong Shim Co. (Manufacturer of instant noodles and
snacks)................................................. 24,032 1,020,353
Nhong Shim Co. (New)(b)................................... 8,239 349,812
Tongyang Confectionery (Major producer of snacks)......... 70,531 2,320,387
------------
23,847,033
------------
TEXTILES 1.9%
Cheil Industries (Korea's largest woolen yarn and fabric
manufacturer)........................................... 70,000 2,650,528
Cheil Industries (New)(b)................................. 9,739 362,719
Chaongnam Spinning Co., Ltd. (Korea's largest manufacturer
of cotton yarn)......................................... 100,000 2,036,002
Sam Yang Co., Ltd. (Korea's largest manufacturer of
polyester staple fiber)................................. 50,000 1,849,783
Sunkyong Industrial (Major producer of polyester
products)............................................... 50,000 1,415,270
Taekwang Industrial Co., Ltd. (Major producer of acrylic
fiber).................................................. 3,040 1,678,699
Tongyang Nylon (Korea's largest producer of nylon filament
yarn)................................................... 16,500 456,797
------------
10,449,798
------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-20
<PAGE> 91

<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
--------------- ------------
<S> <C> <C>
HEALTH 2.0%
PHARMACEUTICALS
Chong Kun Dang Co., Ltd. (Pharmaceutical company)......... 69,056 3,309,201
Il-Dong Pharmaceutical Co. (Pharmaceutical company)....... 50,027 1,447,088
Yuhan Corporation......................................... 137,548 5,669,266
------------
10,425,555
------------
COMMUNICATIONS 11.1%
CELLULAR TELEPHONE
Korea Mobile Telecom (Korea's largest mobile
telecommunication company)(d)........................... 100,702 59,578,579
------------
FINANCIAL 13.4%
BANKS 5.7%
Cheju Bank (Regional bank)................................ 140,180 2,401,594
Hanil Bank (Major commercial bank)........................ 200,000 2,656,735
Korea First Bank (Major commercial bank).................. 120,000 1,772,812
Korea Long Term Credit Bank (Major commercial bank)....... 524,725 15,829,693
Korea Long Term Credit Bank (New)(b)...................... 112,696 3,217,887
Shin Han Bank (Major commercial bank)..................... 242,000 4,656,735
------------
30,535,456
------------
INSURANCE 5.6%
Daehan Fire and Marine Insurance (Insurance company)...... 43,380 1,642,570
Hyundai Fire and Marine Insurance (Insurance company)..... 70,000 3,884,544
Lucky Insurance (Insurance company)....................... 49,912 3,346,056
Samsung Fire and Marine Insurance (d)..................... 67,867 21,120,413
------------
29,993,583
------------
OTHER FINANCIAL COMPANIES 2.1%
Dong Ah Securities (Securities company)................... 188,752 3,397,770
Hanyang Securities (Securities company)................... 100,000 1,738,051
Hyundai Securities (Securities company)................... 40,800 1,170,056
Shinyoung Securities (Securities company)................. 40,000 1,157,045
Ssangyong Investments and Securities (Securities
company)................................................ 123,600 3,559,926
------------
11,022,848
------------
SERVICE INDUSTRIES 3.0%
MISCELLANEOUS COMMERCIAL SERVICES
Samsung Co., Ltd. (Trading company)....................... 227,863 10,664,724
Samsung Co., Ltd. (New)(b)................................ 22,179 1,038,049
Sunkyong Ltd. (Trading company)........................... 150,000 4,599,628
------------
16,302,401
------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-21
<PAGE> 92

<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
--------------- ------------
<S> <C> <C>
DURABLES 10.5%
AUTOMOBILES 9.6%
Hankook Tire Manufacturer Co., Ltd. (Major tire
manufacturer)........................................... 169,216 13,864,998
Hyundai Motor Co., Ltd. (Korea's largest auto
manufacturer)........................................... 116,209 5,741,922
Hyundai Motor Services Co., Ltd........................... 332,545 19,568,756
Mando Machinery Co. (Major auto parts manufacturer)....... 113,341 5,670,568
Samlip Industries (Auto parts manufacturer)............... 35,000 1,581,626
Yoosung Enterprise (Leading manufacturer of engine
parts).................................................. 90,000 4,882,682
------------
51,310,552
------------
LEASING COMPANIES 0.7%
Korea Development Leasing Co. (Largest leasing company in
Korea).................................................. 93,000 3,636,872
------------
TELECOMMUNICATIONS EQUIPMENT 0.2%
Daeryung Industries, Inc. (Telecommunications equipment
manufacturer)........................................... 37,000 1,272,377
------------
MANUFACTURING 7.2%
CHEMICAL 1.9%
Korea Chemical Co. (Paint company)........................ 37,540 3,728,367
Lucky, Ltd. (Korea's largest integrated chemical
company)................................................ 217,056 4,877,360
Oriental Chemical Industries Co., Ltd..................... 44,322 1,315,079
Oriental Chemical Industries Co., Ltd. (New)(b)........... 3,078 82,156
------------
10,002,962
------------
CONTAINERS & PAPER 1.7%
Hansol Paper Manufacturing Co., Ltd. ..................... 177,438 8,745,234
Shinpoong Paper Manufacturing Co., Ltd. (Paper
Manufacturer)........................................... 8,500 521,291
------------
9,266,525
------------
DIVERSIFIED MANUFACTURING 2.8%
Hyundai Precision Industry Co. (Leading transport
container manufacturer and machinery producer)(I)....... 22,579 636,305
Samsung Heavy Industries Co., Ltd. (Shipbuilding and
machinery manufacturer)................................. 284,890 14,147,238
------------
14,783,543
------------
ELECTRICAL PRODUCTS 0.6%
Kyungwon Century Co., Ltd. (Major manufacturer of heating
and cooling equipment).................................. 97,000 3,359,777
------------
WHOLESALE DISTRIBUTORS 0.2%
Haein (Distributor of heavy construction machinery)....... 21,631 1,063,423
------------
TECHNOLOGY 15.5%
COMPUTER SOFTWARE 0.2%
Trigem Computer Inc. (Major P.C. manufacturer)............ 50,000 1,173,184
------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-22
<PAGE> 93

<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
--------------- ------------
<S> <C> <C>
ELECTRONIC COMPONENTS/DISTRIBUTORS 14.9%
Samsung Electromechanics Co., Ltd......................... 149,751 7,752,473
Samsung Electromechanics Co., Ltd. (New)(b)............... 17,322 832,230
Samsung Electron Devices.................................. 78,471 8,280,615
Samsung Electronics Co., Ltd. (Major electronics
company)(d)(1).......................................... 491,655 62,407,530
------------
79,272,848
------------
MISCELLANEOUS 0.4%
Youngchang Akki Co., Ltd. (Korea's largest and the world's
second largest manufacturer of pianos).................. 50,000 2,222,222
------------
ENERGY 2.2%
OIL & GAS PRODUCTION
Samchully (Producer and distributor of anthracite and
gas).................................................... 24,940 1,257,063
Ssangyong Oil Refining Co................................. 131,757 3,418,648
Yukong, Ltd............................................... 151,389 6,427,689
Yukong, Ltd. (New)(b)..................................... 9,110 363,043
------------
11,466,443
------------
METALS AND MINERALS 3.3%
STEEL & METALS
Dongkuk Steel Mill Co. (Steel company).................... 32,000 1,128,243
Inchon Iron & Steel (Steel company)....................... 165,000 7,108,007
Kia Steel Co. Ltd. (Specialty steel manufacturer)......... 226,440 2,839,285
Pohang Iron & Steel Co. (Korea's leading steel
producer)(d)............................................ 61,000 6,496,443
------------
17,571,978
------------
CONSTRUCTION 7.5%
BUILDING MATERIALS 6.5%
Hanil Cement Manufacturer (Cement manufacturing
company)................................................ 24,000 1,480,819
Keum Kang Co. Ltd. (Construction company and manufacturer
of building materials).................................. 244,337 21,233,507
Keum Kang Co., Ltd. (New)(b).............................. 58,010 1,080,261
Ssangyong Cement Industrial Co., Ltd. (Major cement
company)................................................ 197,307 6,368,693
Sung Shin Cement Co., Ltd. (Major cement company)......... 63,000 2,737,430
Tong Yang Cement (Warrants expire 8/18/96)(f)............. 200 575,000
Tong Yang Cement Co., Ltd. (Major cement company)......... 34,000 1,321,167
------------
34,796,877
------------
HOMEBUILDING 0.2%
Kumho Construction and Engineering (Engineering and
construction company)................................... 70,400 1,075,009
------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-23
<PAGE> 94

<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
--------------- ------------
<S> <C> <C>
MISCELLANEOUS 0.8%
Han Shin Construction (Construction company).............. 121,660 1,525,470
Han Shin Construction (New)(b)............................ 16,850 188,268
Lucky Development (Major real estate developer and
construction company)................................... 64,032 1,558,072
Samsung Construction Co. (Engineering and construction
company)................................................ 21,388 894,818
4,166,628
------------
TRANSPORTATION 0.8%
AIRLINES 0.3%
Korean Airlines Co., Ltd. (Airline)....................... 51,827 1,499,155
------------
MARINE TRANSPORTATION 0.4%
Korea Line Corp. (New)(b) (Maritime transportation
company)................................................ 80,000 2,055,866

TRUCKING 0.1%
Korea Express Co., Ltd. (General freight transport
company)................................................ 13,670 633,012
------------

UTILITIES 1.3%
ELECTRIC UTILITIES 1.0%
Korea Electric Power Co. (Electric Utility)(f)............ 160,900 5,353,346

NATURAL GAS DISTRIBUTION 0.3%
Daesung Industrial (Natural gas distributor).............. 37,600 1,750,466
------------
TOTAL COMMON STOCKS (Cost $226,720,458)................. 478,553,943
------------

TOTAL INVESTMENT PORTFOLIO 100.0% (Cost $278,386,576)(a)....... 534,679,405
==========
</TABLE>

(a) The cost for federal income tax purposes was $278,386,576. At June 30, 1994,
net unrealized appreciation for all securities based on tax cost was
$256,292,829. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost of
$269,207,574 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value of $12,914,745.

(b) New shares issued during 1994, eligible for a pro rata share of 1994
dividends (Note A).

(c) Convertible debt securities valued in good faith by the Valuation Committee
of the Board of Directors. The cost of these securities at June 30, 1994 was
$35,234,045 (Note A).

(e) Principal amount stated in Korean Won unless otherwise noted. CHF Swiss
Francs.

(f) Non-income producing.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-24
<PAGE> 95

THE KOREA FUND, INC.

STATEMENT OF ASSETS AND LIABILITIES

JUNE 30, 1994

<TABLE>
<S> <C> <C>
ASSETS
Investments, at market (identified cost $278,386,576) (Note A)..... $534,679,405
Cash:
U.S. dollars..................................................... 594
Won at market (identified cost $16,292,109) (Note A)............. 16,321,836
Dividend and interest receivable................................... 520,944
Other assets....................................................... 3,747
------------
Total assets............................................. 551,526,526
LIABILITIES
Payable:
Subscription rights purchased (Note A)........................... $726,909
Accrued management fee (Note C).................................. 468,789
Other accrued expenses (Note C).................................. 392,198
--------
Total liabilities........................................ 1,587,896
------------
Net assets, at market value........................................ $549,938,630
===========
NET ASSETS
Net assets consist of:
Accumulated net realized gain (Note E)........................... $ 3,887,685
Net unrealized appreciation on:
Investments................................................... 256,292,829
Won........................................................... 29,727
Won related transactions...................................... 548
Common stock..................................................... 294,750
Additional paid-in capital (Note E).............................. 289,433,091
------------
Net assets, at market value........................................ $549,938,630
===========
Net asset value per share ($549,938,630 / 29,474,985 shares of
common stock issued and outstanding, 50,000,000 shares
authorized.
$.01 par value).................................................. $18.66
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-25
<PAGE> 96

THE KOREA FUND, INC.

STATEMENT OF OPERATIONS

YEAR ENDED JUNE 30, 1994

INVESTMENT INCOME

<TABLE>
<S> <C> <C>
Income:
Dividends (net of withholding taxes of $813,313) (Note
A)....................................................... $ 4,083,467
Interest (net of withholding taxes of $61,054) (Note A).... 972,177
------------
5,055,644

Expenses:
Management fee (Note C).................................... $ 4,507,935
Directors' fees and expenses (Note C)...................... 113,882
Custodian fees............................................. 816,802
Legal...................................................... 69,438
Services to shareholders................................... 52,665
Reports to shareholders.................................... 106,554
Auditing................................................... 76,589
Other...................................................... 61,481 5,805,346
------------ ------------
Net investment loss........................................... (749,702)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain (loss) during the period on:
Investments................................................ 6,028,966
Won related transactions................................... (56,236) 5,972,730
------------

Net unrealized appreciation during the period on:
Investments................................................ 179,668,926
Won........................................................ 31,575
Won related transactions................................... 2,679 179,703,180
------------ ------------
Net gain on investment transactions........................... 185,675,910
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $184,926,208
===========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-26
<PAGE> 97

THE KOREA FUND, INC.

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
1994 1993
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss).................................. $ (749,702) $ 351,525
Net realized gain (loss) from investment transactions......... 5,972,730 (1,475,139)
Net unrealized appreciation on investment transactions during
the period................................................. 179,703,180 20,762,568
------------ ------------
Net increase in net assets resulting from operations............ 184,926,208 19,638,954
------------ ------------
Distributions to shareholders from:
Net investment income ($.01 and $.04 per share,
respectively).............................................. (325,166) (913,967)
------------ ------------
Net realized gains from investment transactions ($.20 per
share)..................................................... -- (4,455,588)
------------ ------------
Fund share transactions:
Net proceeds of shares issued in connection with the Fund's
fourth tranche offering, net of underwriting commissions of
$5,750,000 and expenditures and offering costs of
$1,618,000................................................. 107,631,989 --
------------ ------------
Reinvestment of distributions................................. 106,509 1,874,357
------------ ------------
INCREASE IN NET ASSETS.......................................... 292,339,540 16,143,756
Net assets at beginning of period............................... 257,599,090 241,455,334
------------ ------------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $1,858,971 at June 30, 1993)............. $549,938,630 $257,599,090
=========== ===========
OTHER INFORMATION
INCREASE IN FUND SHARES
Shares outstanding at beginning of period....................... 22,604,432 22,450,639
Shares issued in connection with the Fund's fourth tranche
offering................................................... 6,865,671 --
Shares issued to shareholders in reinvestment of
distributions.............................................. 4,882 153,793
------------ ------------
Shares outstanding at end of period............................. 29,474,985 22,604,432
=========== ===========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

F-27
<PAGE> 98

THE KOREA FUND, INC.

FINANCIAL HIGHLIGHTS

The following table includes selected data for a share outstanding
throughout each period and other performance information derived from the
financial statements and market price data.

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................... $11.40 $10.75 $ 10.27 $ 14.45 $ 16.84
------ ------ ------- ------- -------
Income from investment operations: (a)
Net investment income (loss).......................... (.03) .02 .08 .09 .04
Net realized and unrealized gain (loss) on investment
transactions........................................ 7.13 .86 .78 (2.13) (1.99)
------ ------ ------- ------- -------
Total from investment operations........................ 7.10 .88 .86 (2.04) (1.95)
------ ------ ------- ------- -------
Less distributions from:
Net investment income................................. (.01) (.04) (.06) -- (.08)
------ ------ ------- ------- -------
Net realized gains on investment transactions......... -- (.20) (.34) (2.20) (1.88)
------ ------ ------- ------- -------
Total distributions..................................... (.01) (.24) (.40) (2.20) (1.96)
------ ------ ------- ------- -------
Antidilution resulting from offering of fourth tranche
(1994), third tranche (1990), and reinvestment of
distributions for shares at market value.............. .22 .01 .02 .06 1.55
------ ------ ------- ------- -------
Underwriting expenditures and offering costs............ (.05) -- -- -- (.03)
------ ------ ------- ------- -------
Net asset value, end of period.......................... $18.66 $11.40 $ 10.75 $ 10.27 $ 14.45
====== ====== ======== ======== ========
Market value, end of period............................. $22.00 $15.00 $ 11.38 $ 14.13 $ 22.13
====== ====== ======== ======== ========
TOTAL RETURN
Per share market value (%)............................ 46.74 34.54 (17.01) (23.57) (26.23)
Per share net asset value (%)(b)...................... 63.77 8.20 7.87 (14.91) (9.52)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions)................ 550 258 241 228 303
Ratio of operating expenses to average net assets
(%)................................................. 1.37 1.52 1.52 1.47 1.44
Ratio of net investment income (loss) to average net
assets (%).......................................... (.18) .15 .70 .83 .21
Portfolio turnover rate (%)........................... 14.3 14.3 18.2 19.2 17.9
</TABLE>

- ---------------
* Not annualized

** Annualized

(a) Based on monthly average of shares outstanding during each period.

F-28
<PAGE> 99

THE KOREA FUND, INC.

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1994

A. SIGNIFICANT ACCOUNTING POLICIES

All other securities are valued at fair value as determined in good faith
by the Valuation Committee of the Board of Directors including certain
investments in Korean equity securities that have met the limit for aggregate
foreign ownership and for which premiums to the local stock exchange prices are
offered by prospective foreign investors. The aggregate premium ($36,466,846)
over the local share price ($118,214,037) for these securities valued by the
Valuation Committee was approximately 6.6% of the Fund's net assets at June 30,
1994. Convertible debt securities valued in good faith by the Valuation
Committee amounted to $35,362.426 or 6.4% of the Fund's net assets at June 30,
1994.

The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial and federal income tax reporting
purposes.

F-29
<PAGE> 100

Foreign Currency Translations. The books and records of the Fund are
maintained in U.S. dollars, Foreign currency transactions are translated into
U.S. dollars on the following basis:

(i) market value of investment securities, other assets and
liabilities at the daily rates of exchange, and

(ii) purchases and sales of investment securities, dividend and
interest income and certain expenses at the rates of exchange prevailing on
the respective dates of such transactions.

Net realized gain (loss) from won related transactions includes net
currency gains and losses between trade and settlement dates on securities
transactions, gains and losses arising from the sales of won and gains and
losses between the ex and payment dates on dividends, interest, and foreign
withholding taxes. At June 30, 1994 the exchange rate for Korean won was U.S.
$.001241 to W 1.

B. PURCHASES AND SALES OF SECURITIES

For the year ended June 30, 1994, purchases and sales of investment
securities (excluding short-term investments) aggregated $173,201,434 and
$56,975,424, respectively.

C. RELATED PARTIES

Under the Fund's Investment Advisory and Management Agreement with Scudder,
Stevens & Clark, Inc. (the "Manager"), the Fund agrees to pay the Manager a fee
equal to an annual rate of 1.15% of the first $50,000,000 of month-end net
assets of the Fund, 1.10% of such net assets in excess of $50,000,000 up to and
including $100,000,000, 1.00% of the excess over $100,000,000, payable monthly.
For the year ended June 30, 1994, the fee pursuant to such agreement amounted to
$4,507,935, which was equivalent to an annual effective rate of 1.06% of the
Fund's average month-end net assets.

The Manager has a Research and Advisory Agreement (the "Research
Agreement") with Daewoo Capital Management Co., Ltd. (the "Korean Adviser"),
whereby the Korean Adviser provides such investment advice, research and
assistance as the Manager may from time to time reasonably request. Under the
Research Agreement, the Manager pays the Korean Adviser a monthly fee equal to
an annual rate of 0.2875% of the first $50,000,000 of the Fund's month-end net
assets, 0.275% of such net assets in excess of $50,000,000 up to and including
$100,000,000, and 0.25% of the excess over $100,000,000.

For the year ended June 30, 1994, brokerage commissions on investment
transactions amounting to $134,564 were paid by the Fund to Daewoo Securities
Co., Ltd., the parent company of the Korean Adviser.

The Fund pays each Director not affiliated with the Manager or the Korean
Adviser $4,500 annually plus specified amounts for attended board and committee
meetings. For the year ended June 30, 1994, Directors' fees and expenses
amounted to $113,882.

D. FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN KOREA

The Foreign Exchange Management Act, the Presidential Decree relating to
such Act and the regulations of the Minister of Finance issued thereunder impose
certain limitations and controls which

F-30

<PAGE> 101

generally affect foreign investors in Korea. The Fund has obtained from the
Minister of Finance a license to invest in Korean securities and to repatriate
income received from dividends and interest earned on, and net realized capital
gain from, its investments in Korean securities and, upon termination of the
Fund or for payment of expenses in excess of income, to repatriate investment
principal. The Minister of Finance may, when it deems it to be in the public
interest, modify the Fund's license to invest in Korean securities or, according
to the terms of the license, revoke it in the event of the Fund's noncompliance
with conditions of the license or a material violation of Korean law. The
Minister of Finance or the Securities and Exchange Commission of Korea ("KSEC")
may issue orders imposing additional restrictions, when deemed in the public
interest, for the protection of investors or in the interest of maintaining an
orderly securities market. Under the Foreign Exchange Management act, the
Minister of Finance has the power, with prior public notice of scope and
duration, to suspend all or a part of foreign exchange transactions when
emergency measures are deemed necessary in case of radical change in the
international or domestic economic situation. The Fund could be adversely
affected by delays in, or the refusal to grant, any required governmental
approval for such transactions.

Under current regulations of the Minister of Finance and the KSEC,
foreigners are subject to certain restrictions with respect to investing in
equity securities of Korean companies listed on the Korea Stock Exchange. In
general, total foreign investment is limited to 10% of each class of a company's
outstanding shares, while a single foreign investor may only invest up to 3% of
each class of outstanding shares. Pursuant to its license, however, the Fund may
invest in shares representing 5% of each class in general.

E. RECLASSIFICATION OF CAPITAL ACCOUNTS

As required, effective July 1, 1993, the Fund has adopted the provisions of
Statement of Position 93-2 "Determination, Disclosure and Financial Statement
Presentation of Income, Capital Gain and Return of Capital Distributions by
Investment Companies" ("SOP").

In implementing the SOP, the Fund has reclassified $1,549,517 to decrease
undistributed net investment income and $1,715,886 to decrease accumulated net
realized loss with a net decrease of $166,369 to additional paid-in capital.
These reclassifications, which have no impact on the net asset value of the
Fund, are primarily attributable to certain differences in the computation of
distributable income and capital gains under federal tax regulations versus
generally accepted accounting principles. The statement of changes in net assets
and financial highlights for prior periods have not been restated to reflect
this change in presentation.

F. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (000 OMITTED)

<TABLE>
<CAPTION>
NET INCREASE
(DECREASE)
NET GAIN (LOSS) IN NET ASSETS
INVESTMENT NET INVESTMENT ON INVESTMENT RESULTING
INCOME* INCOME (LOSS) TRANSACTIONS FROM OPERATIONS
QUARTER ENDED -------------- --------------- ---------------- ----------------
- ------------------- PER PER PER PER
FISCAL 1994 TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
- ------------------- ------ ----- ------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
September 30, 1993 $ 52 $ -- $ (878) $(.04) $ 2,205 $ .09 $ 1,327 $ .05
December 31, 1993 341 .02 (995) (.04) 124,881 4.82 123,886 4.78
March 31, 1994 4,432 .17 2,556 .10 10,248 .40 12,804 .50
June 30, 1994 231 -- (1,433) (.05) 48,342 1.82 46,909 1.77
------ ----- ------- ----- -------- ----- -------- -----
Totals $5,056 $.19 $ (750) $(.03) $185,676 $7.13 $184,926 $7.10
====== ==== ======= ===== ======== ===== ======== =====
</TABLE>

F-31

<PAGE> 102

<TABLE>
<CAPTION>
PER PER PER PER
FISCAL 1993 TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
- ------------------- ------ ----- ------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
September 30, 1992 $ 101 $ -- $ (748) $(.03) $(14,868) $(.66) $(15,616) $(.69)
December 31, 1992 29 -- (922) (.04) 18,545 .83 17,623 .79
March 31, 1993 3,875 .17 1,193 .05 2,759 .12 3,952 .17
June 30, 1993 26 .01 829 .04 12,851 .57 13,680 .61
------ ----- ------- ----- -------- ----- -------- -----
Totals $4,031 $.18 $ 352 $ .02 $ 19,287 $ .86 $ 19,639 $ .88
====== ==== ======= ===== ======== ===== ======== =====
</TABLE>

- ---------------
* Net of Korean taxes withheld.

F-32

<PAGE> 103

APPENDIX A

CERTAIN OTHER INVESTMENTS

The Fund reserves the right to invest the portion of its assets not
invested in equity securities of Korean issuers in debt securities of such
issuers or in foreign currency exchange contracts, covered call options, futures
contracts and repurchase agreements, in each case to the extent that a market
for such investments exists in Korea and to the extent that such investments are
permissible for the Fund under Korean and other applicable law. See "Foreign
Investment and Exchange Controls in Korea." In addition, the Fund reserves the
right to lend portfolio securities, to borrow, and to purchase and sell
securities on a delayed delivery basis, if permitted by Korean law.

FORWARD CONTRACTS AND OPTIONS ON CURRENCIES

In order to hedge against currency exchange rate risks, the Fund may enter
into forward currency exchange contracts and may purchase and sell options on
currencies in U.S. or foreign markets. It is not the intention of the Fund,
however, to fully or partially hedge the Fund's portfolio holdings against
currency risks on an on-going basis. A forward currency exchange contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
traded in the interbank market between currency traders (usually large
commercial banks). The Fund may either accept or make delivery of the currency
specified at the maturity of a forward contract or, prior to maturity, enter
into a closing transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts are usually
effected with the currency trader which is a party to the original forward
contract. A put option can give the Fund the right to sell a currency at the
exercise price on or before the expiration of the option. A call option can give
the purchaser of the option the right to purchase a currency at the exercise
price on or before the expiration of the option.

The Fund may enter into forward currency exchange contracts and options in
several circumstances. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in Won, or when the Fund anticipates
the receipt in Won of dividends or interest payments on a security that it
holds, the Fund may desire to "lock in" the Dollar price of the security or the
Dollar equivalent of such dividend or interest payment, as the case may be. In
addition, when the Manager believes that the Won may suffer a substantial
decline against the Dollar, it may enter into a forward contract to sell, for a
fixed amount of Dollars, the amount of Won approximating the value of some or
all of the Fund's portfolio securities denominated in Won. Under the FEMR, the
only forward contracts the Fund is permitted to enter into relate to the Won and
the Dollar. The Fund is permitted to enter into these contracts with any foreign
exchange bank in Korea in respect of the aggregate amount of the Fund's assets
in Korea whether in the form of securities or cash.

The Fund does not intend to enter into forward currency exchange contracts
and options on a regular basis, and will not do so if, as a result, the Fund
will have more than 20% of the value of its total assets committed to the
completion of such contracts and options. The Fund also will not enter into such
forward contracts and options or maintain a net exposure to such contracts and
options where the completion of the contracts and options would obligate the
Fund to deliver an amount of Won in excess of the value of the Fund's portfolio
securities or other assets denominated in Won. Further, the Fund generally will
not enter into a forward contract or option with a term of greater than one
year.

While the Fund may enter into forward currency exchange contracts and
options to reduce currency exchange rate risks, changes in currency prices may
result in a poorer overall performance for the Fund than if it had not engaged
in any such transactions. Moreover, there may be imperfect correlation between
the Fund's portfolio holdings of securities denominated in Won and forward
contracts and options entered into by the Fund. Such imperfect correlation may
prevent the Fund from achieving the intended hedge or expose the Fund to risk of
exchange loss. Further, the Fund's successful use of forward contracts and
options to reduce currency exchange rate risks will be subject to the Manager's
ability to predict correctly movements of

A-1
<PAGE> 104

exchange rates. No assurance can be given that the Manager's judgment in this
respect will be correct. The Manager's current expectation is to utilize forward
currency exchange contracts and options from time to time as, in its opinion,
currency exchange market conditions make it appropriate to do so. It is not the
intention of the Manager, however, to fully or partially hedge the Fund's
portfolio holdings against currency risks on an ongoing basis.

Certain provisions of the Code may limit the extent to which the Fund may
enter into forward contracts and options, and may also affect the character and
timing of income, gain or loss recognized by the Fund from such transactions.
See "Taxation -- United States Federal Income Taxes."

COVERED CALL OPTIONS

Although not currently permissible under Korean regulations, the Fund
reserves the right to write covered call options on securities to the extent
that such activity becomes permissible for the Fund. A "covered" call option
means that, so long as the Fund is obligated as the writer of the option, it
will own (a) the underlying securities subject to the option, or (b) securities
convertible or exchangeable without the payment of any consideration into the
securities subject to the option. As a matter of policy, the value of the
underlying securities on which options will be written at any one time will not
exceed 25% of the total assets of the Fund. In addition, as a matter of policy,
the Fund will neither purchase or write put options on securities nor purchase
call options on securities except in connection with closing purchase
transactions.

The Fund will receive a premium from writing call options, which increases
the Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, the Fund will limit
its opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as writer of the option continues. Thus, in some periods the Fund
will receive less total return and in other periods greater total return from
writing covered call options than it would have received from its underlying
securities had it not written call options.

REPURCHASE AGREEMENTS

Repurchase agreements are contracts under which the seller of a security
agrees at the time of sale to repurchase the security at an agreed upon price
and date. Such resale price reflects an agreed upon interest rate effective for
the period the security is held by the purchaser and is unrelated to the
interest rate on the instrument. Repurchase agreements can be viewed as loans
that are collateralized by the underlying security. Repurchase agreements may
involve risks in the event of insolvency or other default by the seller,
including possible delays and liquidation expenses or restrictions on the Fund's
ability to dispose of the underlying security, declines in its value and loss of
interest. The Manager intends to monitor the seller's compliance with its
obligation to maintain the value of the securities subject to the repurchase
agreement at not less than their repurchase price, and also to review the
creditworthiness of the Fund's counterparties in such transactions.

BORROWING

The Fund may borrow for temporary purposes, such as to obtain amounts
necessary to make distributions for qualification as a regulated investment
company under the Code or to avoid imposition of an excise tax under U.S.
Federal income tax laws or to pay the Fund's expenses outside Korea, as well as
for clearing transactions. Such temporary borrowings shall not exceed, at any
time, 5% of the value of the Fund's total assets. Borrowings by the Fund
increase exposure to capital risk and are subject to interest costs.

LENDING OF PORTFOLIO SECURITIES

To defray operating expenses, the Fund may generate income by lending
securities in its portfolio, to the extent permitted by Korean law, representing
up to 25% of its total assets, taken at market value, to securities firms and
financial institutions, provided that each loan is secured continuously by
collateral in the form of cash or U.S. government securities adjusted daily to
have a market value at least equal to the current market value of the securities
loaned. Such loans are terminable at any time, and the Fund will receive
payments representing the amount of any interest or dividends paid on the loaned
securities. In addition, it is anticipated

A-2
<PAGE> 105

that the Fund may share with the borrower some of the income received on the
collateral for the loan or the Fund will be paid a premium for the loan. The
risks in lending portfolio securities, as with other extensions of credit,
consist of possible delay in recovery of the securities or possible loss of
rights in the collateral should the borrower fail financially. In determining
whether the Fund will lend securities, the Manager will consider all relevant
factors and circumstances, including the creditworthiness of the borrower. Such
transactions are currently prohibited under Korean law.

DELAYED DELIVERY TRANSACTIONS

Although currently prohibited from doing so under Korean regulations, the
Fund may purchase and sell securities on a delayed delivery basis should such
activity become lawful in the future as a result of application by the Fund or
otherwise. Purchases or sales on a delayed delivery basis involve the purchase
(or sale) of securities at an agreed-upon price on a specified future date. In
such transactions, delivery of the securities occurs beyond the normal
settlement periods, but no payment or delivery is made by, and no interest
accrues to, the Fund prior to the actual delivery or payment by the other party
to the transaction. Due to fluctuations in the value of securities purchased or
sold on a delayed delivery basis, the returns obtained on such securities may be
higher or lower than the returns available in the market on the dates when the
investments are actually delivered to the buyers. The Fund will establish a
segregated account consisting of cash, U.S. government securities or other
high-grade debt obligations in an amount equal to the amount of its delayed
delivery commitments.

FUTURES CONTRACTS

Futures contracts are standardized contracts for the future delivery of a
currency, security or index at a future date for an agreed-upon price.
Currently, no futures markets exist in Korea. Should such markets develop and if
the Fund is permitted to participate in such markets, as a result of applicable
regulations, application by the Fund or otherwise, the Fund may invest
accordingly; provided that the Fund will not enter into futures contracts if
more than 20% of the value of the Fund's total assets would be committed to the
completion of such contracts or if doing so would violate restrictions imposed
by the Code.

Futures contract positions are typically liquidated by entering into an
offsetting transaction on an exchange. If an offsetting contract is not entered
into prior to the maturity of a contract, the parties must take or make delivery
of the underlying commodity against payment of the agreed-upon price, except in
the case of certain futures contracts, including foreign currency and stock
index contracts, which generally are settled by payments of cash.

Commodity futures exchanges generally impose daily limits on permitted
fluctuations in the price of the futures contracts traded thereon. Consequently,
in a period of widely fluctuating prices, it may be difficult for the Fund to
liquidate a position. The Fund will enter into a futures contract only if in the
Manager's view a liquid market exists for such contracts. There can, however, be
no assurance that the Fund will be able to close out a contract in a particular
case in a timely manner or at all, in which case the Fund may suffer a loss.

While the Fund may enter into futures contracts for hedging purposes,
changes in prices may result in a poorer overall performance for the Fund than
if it had not engaged in any such transaction. In the case of stock index
futures contracts, there may be an imperfect correlation between the Fund's
portfolio holdings of securities denominated in Won and futures contracts
entered into by the Fund. This imperfect correlation may prevent the Fund from
achieving the intended hedge or expose the Fund to risk of losses.

The Fund does not intend to enter into futures contracts to protect the
value of its portfolio securities on a regular basis. The Fund also will not
enter into such futures contracts or maintain a net exposure to such contracts
where the consummation of the contracts would obligate the Fund to deliver an
amount of currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency. Further, the Fund generally will not
enter into a futures contract with a term of greater than one year.

A-3
<PAGE> 106

At present the Fund is prohibited by the U.S. Commodity Exchange Act from
purchasing or selling Korean stock index futures contracts. The Fund reserves
the right to purchase and sell such contracts should such activities become
lawful in the future, as a result of an application by the Fund or otherwise.

If permitted to trade in stock index futures, the Fund may sell stock index
futures contracts in anticipation of or during a market decline to attempt to
offset the decrease in market value of equity securities in its portfolio that
might otherwise result. When the Fund is not fully invested in stocks and
anticipates a significant market advance, it may purchase stock index futures to
gain rapid market exposure that may in part or entirely offset increases in the
cost of the stocks that it intends to purchase. In a substantial majority of
these transactions, the Fund will purchase such securities upon termination of
the futures position but, under unusual market conditions, a futures position
may be terminated without the corresponding purchase of stocks. No assurance can
be given that the Manager will be able to make successful use of stock index
futures, if permitted to trade in them.

A-4
<PAGE> 107

APPENDIX B

[FORM OF SUBSCRIPTION CERTIFICATE]
SUBSCRIPTION CERTIFICATE FOR
THE KOREA FUND, INC.
CONTROL NUMBER
SUBSCRIPTION CERTIFICATE FOR COMMON SHARES
VOID IF NOT EXERCISED AT OR BEFORE 5:00 P.M.,
(NEW YORK CITY TIME) ON , 1995, THE EXPIRATION DATE

THIS SUBSCRIPTION CERTIFICATE IS TRANSFERABLE
AND MAY BE DIVIDED AT THE OFFICE
OF THE SUBSCRIPTION AGENT
SHARES
EXPIRATION DATE: , 1995
SUBSCRIPTION PRICE: U.S.$ PER COMMON SHARE
THIS SUBSCRIPTION CERTIFICATE MAY BE USED TO
SUBSCRIBE FOR SHARES OR MAY BE ASSIGNED OR
SOLD. FULL INSTRUCTIONS APPEAR ON THE BACK
OF THIS SUBSCRIPTION CERTIFICATE.
CUSIP

REGISTERED OWNER:

IF YOU SUBSCRIBE FOR FEWER THAN
ALL THE SHARES REPRESENTED BY THIS
SUBSCRIPTION
THE REGISTERED OWNER OF THIS SUBSCRIPTION
CERTIFICATE, NAMED ABOVE, OR ASSIGNEE, IS
ENTITLED CERTIFICATE, THE SUBSCRIPTION AGENT WILL ISSUE A NEW
SUBSCRIPTION CERTIFICATE
TO THE NUMBER OF RIGHTS TO SUBSCRIBE FOR
COMMON STOCK, $0.01 PAR VALUE, OF THE
KOREA REPRESENTING THE BALANCE OF THE UNSUBSCRIBED RIGHTS, PROVIDED THAT
THE
FUND, INC. (THE "FUND") SHOWN ABOVE, IN
THE RATIO OF SHARE OF COMMON STOCK
FOR SUBSCRIPTION AGENT HAS RECEIVED YOUR SUBSCRIPTION CERTIFICATE AND
PAYMENT
EACH RIGHTS, PURSUANT TO THE
PRIMARY SUBSCRIPTION RIGHT AND UPON THE
TERMS AND PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON , 1995. NO
NEW
CONDITIONS AND AT THE PRICE FOR EACH
SHARE OF COMMON STOCK SPECIFIED IN THE
PROSPECTUS SUBSCRIPTION CERTIFICATE WILL BE ISSUED AFTER SUCH DATE.
DATED , 1995 RELATING THERETO.
IMPORTANT: COMPLETE
APPROPRIATE FORM ON REVERSE.

DATE:

THE KOREA FUND, INC.

SECRETARY
CHAIRMAN OF THE BOARD

COUNTERSIGNED: STATE STREET BANK &
TRUST COMPANY
(BOSTON, MASSACHUSETTS)

BY: SUBSCRIPTION AGENT

AUTHORIZED SIGNATURE
<PAGE> 108

PLEASE FILL IN ALL APPLICABLE INFORMATION

EXPIRATION DATE , 1995

TO: STATE STREET BANK AND TRUST COMPANY
ATTENTION: CORPORATE STOCK TRANSFER DEPARTMENT

<TABLE>
<S> <C>
By Mail: By Facsimile:
P.O. Box 9061 (617) 246-5735,
Boston, MA 02205-8686 With the original Subscription Certificate to be
sent by mail, hand or overnight courier. Confirm
facsimile by telephone to ( )
By Overnight Courier: By Hand:
c/o Boston Financial Data Services, Inc. 225 Franklin Street
Corporate Stock Transfer Department Concourse Level
Two Heritage Drive Boston, MA 02110
North Quincy, MA 02171
A. PRIMARY SUBSCRIPTION X $ = $ (1)
---------------- ------------------- --------------
(NO. OF SHARES) (SUBSCRIPTION
PRICE)
B. OVER-SUBSCRIPTION PRIVILEGE X $ = $ (2)
---------------- ------------------- --------------
(NO. OF SHARES) (SUBSCRIPTION
PRICE)
C. AMOUNT OF CHECK ENCLOSED (OR = $
AMOUNT IN NOTICE OF GUARANTEED --------------
DELIVERY), PAYABLE TO THE KOREA
FUND, INC.
D. SELL ANY REMAINING RIGHTS / /
E. SELL ALL OF MY RIGHTS / /
(1) IF YOU FULLY EXERCISE YOUR RIGHTS, THE SUBSCRIPTION AGENT WILL REQUEST THAT THE DEALER
MANAGER ATTEMPT TO SELL ANY RIGHTS YOU ARE UNABLE TO EXERCISE BECAUSE SUCH RIGHTS
REPRESENT THE RIGHT TO SUBSCRIBE FOR LESS THAN ONE SHARE.
(2) THE OVER-SUBSCRIPTION PRIVILEGE CAN BE EXERCISED ONLY BY A RECORD DATE SHAREHOLDER, AS
DESCRIBED IN THE PROSPECTUS, AND ONLY IF THE RIGHTS ISSUED TO HIM ARE EXERCISED TO THE
FULLEST EXTENT POSSIBLE.
F. NAME OF SOLICITING DEALER: / / LEHMAN BROTHERS INC.
/ / OTHER:
</TABLE>

- --------------------------------------------------------------------------------

SECTION 1. TO SUBSCRIBE: I HEREBY IRREVOCABLY SUBSCRIBE FOR THE FACE AMOUNT
OF COMMON STOCK INDICATED AS THE TOTAL OF A AND B HEREON UPON THE TERMS AND
CONDITIONS SPECIFIED IN THE PROSPECTUS RELATED HERETO, RECEIPT OF WHICH IS
ACKNOWLEDGED. I HEREBY AGREE THAT IF I FAIL TO PAY FOR THE SHARES OF COMMON
STOCK FOR WHICH I HAVE SUBSCRIBED, THE FUND MAY EXERCISE ANY OF THE REMEDIES SET
FORTH IN THE PROSPECTUS.

TO SELL: IF I HAVE CHECKED EITHER THE BOX ON LINE D OR ON LINE E, I
AUTHORIZE THE SALE OF RIGHTS BY THE DEALER MANAGER ACCORDING TO THE PROCEDURES
DESCRIBED IN THE PROSPECTUS.

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
SIGNATURE OF SUBSCRIBER(S)

- --------------------------------------------------------------------------------
ADDRESS FOR DELIVERY OF SHARES

IF PERMANENT CHANGE OF ADDRESS, CHECK HERE / /

PLEASE GIVE YOUR TELEPHONE NUMBER ( )
- ------------------------------

TAX I.D. NUMBER OR SOCIAL SECURITY NUMBER:
- ----------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 109

SECTION 2. TO TRANSFER RIGHTS (EXCEPT PURSUANT TO D AND E ABOVE). FOR VALUE
RECEIVED, OF THE RIGHTS REPRESENTED BY THE SUBSCRIPTION FORM ARE ASSIGNED
TO:

- -------------------------------------------------------
(PRINT FULL NAME OF ASSIGNEE)

- -------------------------------------------------------
(PRINT FULL ADDRESS)

- -------------------------------------------------------
SIGNATURE(S) OF ASSIGNOR(S)

IMPORTANT: THE SIGNATURE(S) MUST CORRESPOND IN EVERY PARTICULAR, WITHOUT
ALTERATION, WITH THE NAME(S) AS PRINTED ON YOUR SUBSCRIPTION
FORM.

YOUR SIGNATURE MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION WHICH IS
A PARTICIPANT IN A RECOGNIZED SECURITIES GUARANTEE PROGRAM.

<TABLE>
<S> <C>
SIGNATURE -----------------------------------------------------------
GUARANTEED (NAME OF BANK OR FIRM)
BY -----------------------------------------------------------
(SIGNATURE OF OFFICER AND TITLE)
</TABLE>

PROCEEDS FROM THE SALE OF RIGHTS MAY BE SUBJECT TO WITHHOLDING OF U.S.
TAXES UNLESS THE SELLER'S CERTIFIED U.S. TAXPAYER IDENTIFICATION NUMBER (OR
CERTIFICATE REGARDING FOREIGN STATUS) IS ON FILE WITH THE SUBSCRIPTION AGENT AND
THE SELLER IS NOT OTHERWISE SUBJECT TO U.S. BACKUP WITHHOLDING.
<PAGE> 110

APPENDIX C

[FORM OF NOTICE OF GUARANTEED DELIVERY]

NOTICE OF GUARANTEED DELIVERY FOR SHARES OF COMMON
STOCK OF THE KOREA FUND, INC.
SUBSCRIBED FOR UNDER THE PRIMARY SUBSCRIPTION
AND THE OVER-SUBSCRIPTION PRIVILEGE

As set forth in the Prospectus under "The Offer -- Payment for Shares,"
this form or one substantially equivalent hereto may be used as a means of
effecting subscription and payment for all Shares of the Fund's Common Stock.
Such form may be delivered by hand or sent by facsimile transmission, or
overnight courier or mail to the Subscription Agent.

The Subscription Agent is:

STATE STREET BANK AND TRUST COMPANY
Attention: Corporate Stock Transfer Department

DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS
VIA A TELECOPY FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE, DOES NOT
CONSTITUTE A VALID DELIVERY.

The New York Stock Exchange member firm or bank or trust company which
completes this form must communicate the guarantee and the number of Shares
subscribed for (under both the Primary Subscription and the Over-Subscription
Privilege) to the Subscription Agent, and must deliver this Notice of Guaranteed
Delivery of Payment, guaranteeing delivery of (a) payment in full for all
subscribed Shares and (b) a properly completed and signed copy of the
Subscription Certificate to the Subscription Agent prior to 5:00 p.m., New York
time, on the Expiration Date. Failure to do so will result in a forfeiture of
the Rights.

C-1
<PAGE> 111

GUARANTEE

The undersigned, a member firm of the New York Stock Exchange or a bank or
trust company having an office or correspondent in the United States, guarantees
delivery to the Subscription Agent by the close of business on ,
1995, of (a) a properly completed and executed Subscription Form, and (b)
payment of the full Subscription Price for Shares subscribed for on Primary
Subscription and any additional Shares subscribed for pursuant to the
Over-Subscription Privilege, as subscription for such Shares is indicated herein
or in the Subscription Form.

Number of Rights to be delivered
- ----------------------

Method of delivery (circle one) A. Through DTC*
B. Directly to Subscription Agent

<TABLE>
<S> <C>
- ------------------------------------------------------ ------------------------------------------------------
Number of Shares on Primary Subscription Number of Shares on Over-Subscription Privilege

- ------------------------------------------------------ ------------------------------------------------------
Name of Firm Authorized Signature

- ------------------------------------------------------ ------------------------------------------------------
Address Title

Name ----------------------------------------------
- ------------------------------------------------------
Zip Code (Please Type or Print)

- ------------------------------------------------------ ------------------------------------------------------
Contact Name Telephone Number
</TABLE>

* IF THE RIGHTS ARE DELIVERED THROUGH DTC, A REPRESENTATIVE OF STATE STREET BANK
AND TRUST COMPANY WILL TELEPHONE YOU WITH A PROTECT IDENTIFICATION NUMBER,
WHICH NEEDS TO BE RELAYED BY YOU TO DTC.

C-2
<PAGE> 112

APPENDIX D

[FORM OF DTC PARTICIPANT OVER-SUBSCRIPTION FORM]

THE KOREA FUND, INC.
RIGHTS OFFERING

DTC PARTICIPANT OVER-SUBSCRIPTION FORM

THIS FORM IS TO BE USED ONLY BY THE DEPOSITORY TRUST COMPANY PARTICIPANTS TO
EXERCISE THE OVER-SUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO
WHICH THE PRIMARY SUBSCRIPTION PRIVILEGE WAS EXERCISED AND DELIVERED THROUGH THE
FACILITIES OF THE DEPOSITORY TRUST COMPANY. ALL OTHER EXERCISES OF
OVER-SUBSCRIPTION PRIVILEGES MUST BE EFFECTED BY THE DELIVERY OF THE
SUBSCRIPTION FORMS.
------------------------

THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE FUND'S
PROSPECTUS DATED , 1995 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN
BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE FUND,
THE INFORMATION AGENT, THE DEALER MANAGER AND THE SUBSCRIPTION AGENT.
------------------------

VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00
P.M., NEW YORK TIME, ON , 1995 (THE "EXPIRATION DATE").
------------------------

1. The undersigned hereby certifies to the Fund and the Subscription Agent
that it is a participant in The Depository Trust Company ("DTC") and that it has
either (i) exercised the Primary Subscription Privilege in respect of Rights and
delivered such exercised Rights to the Subscription Agent by means of transfer
to the DTC account of the Subscription Agent or (ii) delivered to the
Subscription Agent a Notice of Guaranteed Delivery in respect of the exercise of
the Primary Subscription Privilege and will deliver the Rights called for in
such Notice of Guaranteed Delivery to the Subscription Agent by means of
transfer to such DTC account of the Subscription Agent. The undersigned hereby
certifies to the Fund and the Subscription Agent that it owned Shares of
Common Stock on the Record Date.

2. The undersigned hereby exercises the Over-Subscription Privilege to
purchase, to the extent available, shares of Common Stock and certifies to
the Fund and the Subscription Agent that such Over-Subscription Privilege is
being exercised for the account or accounts of persons (which may include the
undersigned) on whose behalf all Primary Subscription Rights have been
exercised.

3. The undersigned understands that payment of the Subscription Price of
$ per share for each share of Common Stock subscribed for pursuant to the
Over-Subscription Privilege must be received by the Subscription Agent at or
before 5:00 p.m. New York City time on the Expiration Date and represents that
such payment, in the aggregate amount of $ either (check appropriate box):

/ / has been or is being delivered to the Subscription Agent pursuant to
the Notice of Guaranteed Delivery referred to above

or
in the case of funds not delivered pursuant to a Notice of Guaranteed
Delivery, is or was delivered in the manner set forth below (check
appropriate box and complete relating thereto):

/ /uncertified check

/ /certified check

/ /bank draft

D-1
<PAGE> 113

4. The undersigned understands that in the event it is not allocated the
full amount of Shares oversubscribed for above, any excess payment to be
refunded by the Fund will be mailed to it by the Subscription Agent as provided
in the Prospectus.

- --------------------------------------
Primary Subscription Confirmation
Number

- --------------------------------------
DTC Participant Number

- --------------------------------------
Name of DTC Participant

By:
- --------------------------------------
Name:
Title:

Contact Name:

- --------------------------------------

Phone Number:

- --------------------------------------

Dated:

- ---------------------------------, 1995

D-2
<PAGE> 114

- ------------------------------------------------------
- ------------------------------------------------------

NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND, THE MANAGER OR THE DEALER MANAGER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION...................... 2
EXPENSE INFORMATION........................ 3
PROSPECTUS SUMMARY......................... 4
FINANCIAL HIGHLIGHTS....................... 9
MARKET AND NET ASSET VALUE INFORMATION..... 10
THE FUND................................... 10
THE OFFER.................................. 11
USE OF PROCEEDS............................ 18
INVESTMENT OBJECTIVE AND POLICIES.......... 18
INVESTMENT RESTRICTIONS.................... 20
RISK FACTORS AND SPECIAL CONSIDERATIONS.... 21
INVESTMENT ADVISERS........................ 27
FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN
KOREA.................................... 32
THE KOREAN SECURITIES MARKETS.............. 35
THE REPUBLIC OF KOREA...................... 42
DIRECTORS AND OFFICERS..................... 53
NET ASSET VALUE............................ 56
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND
REINVESTMENT AND CASH PURCHASE PLAN...... 58
TAXATION................................... 59
PORTFOLIO TRANSACTIONS AND BROKERAGE....... 65
COMMON STOCK............................... 67
DIVIDEND PAYING AGENT, TRANSFER AGENT AND
REGISTRAR................................ 68
CUSTODIAN.................................. 68
OFFICIAL DOCUMENTS......................... 68
EXPERTS.................................... 68
VALIDITY OF THE SHARES..................... 68
FURTHER INFORMATION........................ 68
FINANCIAL STATEMENTS....................... F-1
CERTAIN OTHER INVESTMENTS.................. A-1
FORM OF SUBSCRIPTION CERTIFICATE........... B-1
FORM OF NOTICE OF GUARANTEED DELIVERY...... C-1
FORM OF DTC PARTICIPANT OVER-SUBSCRIPTION
FORM..................................... D-1
</TABLE>

NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE FUND SINCE THE DATE HEREOF.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------

THE KOREA FUND, INC.

SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF RIGHTS
TO SUBSCRIBE FOR SUCH SHARES
---------------------------
PROSPECTUS
---------------------------

, 1995
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 115

THE KOREA FUND, INC.
PART C -- OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(1) Financial Statements:

The following Financial Statements have been included as part of Item 23:

<TABLE>
<C> <C> <S>
(i) -- Investment Portfolio as of June 30, 1994 and as of December 31, 1994
(ii) -- Statement of Assets and Liabilities as of June 30, 1994 and as of December 31,
1994
(iii) -- Statement of Operations for the fiscal year ended June 30, 1994 and for the
six months ended December 31, 1994
(iv) -- Statements of Changes in Net Assets for the fiscal year ended June 30, 1994
and for the six months ended December 31, 1994
(v) -- Financial Highlights for each of the years ended June 30, 1990 through 1994
and for the six months ended December 31, 1994
(vi) -- Notes to Financial Statements for the fiscal year ended June 30, 1994 and for
the six months ended December 31, 1994.
(vii) -- Report of Independent Accountants
</TABLE>

(2) Exhibits:

<TABLE>
<C> <C> <S> <C>
a. (i) -- Articles of Incorporation as of May 15, 1984. (Incorporated by reference to
Exhibit 1 to the Fund's original Registration Statement on Form N-2,
Registration No. 2-91879 (the "Registration Statement").)
a. (ii) -- Amendment dated November 14, 1986, to the Articles of Incorporation dated
May 15, 1984. (Incorporated by reference to Exhibit 1(a)(2) to Amendment 6
to the Registration Statement.)
a. (iii) -- Amendment dated December 1, 1988, to the Articles of Incorporation, as
amended November 14, 1986. (Incorporated by reference to Exhibit 1(a)(3) to
Amendment No. 8 to the Registration Statement ("Amendment No. 8").)
a. (iv) -- Amendment dated October 29, 1990 to the Articles of Incorporation as amended
December 1, 1988. (Incorporated by reference to Exhibit 1(D) to Amendment
No. 11 to the Registration Statement ("Amendment No. 11").)
b. (i) -- By-Laws dated May 31, 1984 as amended through May 19, 1988. (Incorporated by
reference to Exhibit 2 to Amendment No. 8.)
b. (ii) -- Amendment dated August 22, 1989, to the By-Laws. (Incorporated by reference
to Exhibit 2(B) to Amendment No. 11.)
b. (iii) -- Amendment dated April 27, 1990, to the By-Laws. (Incorporated by reference
to Exhibit 2(C) to Amendment No. 11.)
b. (iv) -- Amendment dated April 26, 1991, to the By-Laws. (Incorporated by reference
to Exhibit 2(D) to Amendment No. 12 to the Registration Statement
("Amendment No. 12").)
b. (v) -- Amendment dated July 29, 1992, to the By-Laws. (Incorporated by reference to
Exhibit 2(E) to Amendment No. 13 to the Registration Statement ("Amendment
No. 13").)
b. (vi) -- Restated By-Laws dated April 15, 1993. (Incorporated by reference to Exhibit
b(vi) to Amendment No. 14 to the Registration Statement.)
c. -- Not applicable.
</TABLE>

(i)
<PAGE> 116

<TABLE>
<C> <C> <S> <C>
d. -- Specimen certificate representing shares of Common Stock, par value $.01 per
share. (Incorporated by reference to Exhibit 4 to the Amendment No. 2 to the
Registration Statement ("Amendment No. 2").)
e. -- Dividend Reinvestment and Cash Purchase Plan (Incorporated by reference to
Exhibit 10(C) to Amendment No. 11.)
f. -- Not applicable.
g. (i) -- Investment Advisory and Management Agreement, dated October 14, 1987,
between the Fund and Scudder, Stevens & Clark, Inc. (the "Manager").
(Incorporated by reference to Exhibit 6(a)(1) to Amendment No. 7 to the
Registration Statement ("Amendment No. 7").)
g. (ii) -- Research and Advisory Agreement, dated July 22, 1988, between the Manager
and Daewoo Capital Management Co., Ltd. (the "Korean Adviser").(Incorporated
by reference to Exhibit 6(b)(1) to Amendment No. 7.)
g. (iii) -- Investment Advisory and Management Agreement, dated October 14, 1994,
between the Fund and the Manager.
g. (iv) -- Research and Advisory Agreement, dated October 14, 1994, between the Manager
and the Korean Adviser.
h. -- Form of Dealer Manager Agreement.*
i. -- Not applicable.
j. (i) -- Custodian Agreement (the "Custodian Agreement"), dated August 20, 1984,
between the Fund and Brown Brothers Harriman & Co. (the "Custodian").
(Incorporated by reference to Exhibit 9(a)(1) to Amendment No. 2).
j. (ii) -- Fee Schedule relating to the Custodian Agreement. (Incorporated by reference
to Exhibit 9(a)(2) to Amendment No. 7.)
j. (iii) -- Amendment No. 1, dated October 23, 1985, to the Custodian Agreement.
(Incorporated by reference to Exhibit 9(a)(3) to Amendment No. 2.)
j. (iv) -- Subcustodian Agreement (the "Subcustodian Agreement"), dated August 20,
1984, between the Custodian and Citibank, N.A. (Incorporated by reference to
Exhibit 9(b)(1) to Amendment No. 2.)
j. (v) -- Amendment dated October 23, 1992 to the Subcustodian Agreement dated August
20, 1984.*
k. (i) -- Agency Agreement (the "Agency Agreement") dated August 6, 1984, between the
Fund and State Street Bank and Trust Company. (Incorporated by reference to
Exhibit 10(a)(1) to Amendment No. 2.)
k. (ii) -- Fee Schedule relating to the Agency Agreement. (Incorporated by reference to
Exhibit 10(a)(2) to Amendment No. 2.)
l. -- Opinion of Debevoise & Plimpton, and consent to use of the same.*
m. -- Not applicable.
n. (i) -- Opinion of Shin & Kim, and consent to use of the same.*
n. (ii) -- Consent of Coopers & Lybrand L.L.P.
n. (iii) -- License, Approval and Confirmation, dated June 22, 1984, issued by the
Minister of Finance of the Republic of Korea. (Incorporated by reference to
Exhibit 12(E) to the Registration Statement.)
---------------
* To be filed by amendment.
</TABLE>

(ii)
<PAGE> 117

<TABLE>
<C> <C> <S> <C>
n. (iv) -- Amendment, dated April 11, 1986, to License, Approval and Confirmation,
dated June 22, 1984, issued by the Minister of Finance of the Republic of
Korea. (Incorporated by reference to Exhibit 12(F) to Amendment No. 3 to the
Registration Statement.)
n. (v) -- Amendment, dated August 2, 1989, to License, Approval and Confirmation,
dated June 22, 1984, issued by the Minister of Finance of the Republic of
Korea, as amended April 11, 1986. (Incorporated by reference to Exhibit
12(G) to Amendment 10 to the Registration Statement.)
n. (vi) -- Amendment, dated October 7, 1992, to License, Approval and Confirmation,
dated June 22, 1984, issued by the Minister of Finance of the Republic of
Korea, as amended April 11, 1986 and August 2, 1989. (Incorporated by
reference to Exhibit 12(H) to Amendment No. 13.)
n. (vii) -- Amendment, dated October 20, 1993, to License, Approval and Confirmation,
dated June 22, 1984, issued by the Minister of Finance of the Republic of
Korea, as amended April 11, 1986, August 2, 1989 and October 7, 1992.
(Incorporated by reference to Exhibit n(vii) to Amendment No. 15 to the
Registration Statement.)
n. (viii) -- Amendment, dated , 1995, to License, Approval and Confirmation, dated June
22, 1984, issued by the Minister of Finance of the Republic of Korea, as
amended April 11, 1986, August 2, 1989, October 7, 1992, and October 20,
1993.*
o. -- Not applicable.
p. -- Not applicable.
q. -- Not applicable.
r. -- Financial Data Schedule.
Other Exhibit: Powers of Attorney.
</TABLE>

- ---------------
* To be filed by amendment.

ITEM 25. MARKETING ARRANGEMENTS

See Section of Dealer Manager Agreement filed as Exhibit h to this
Registration Statement.*

ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses expected to be
incurred in connection with the offering described in this Registration
Statement:

<TABLE>
<S> <C>
SEC Registration fees...................................................... *
Stock Exchange listing fees................................................ *
NASD Fees.................................................................. *
Printing (other than stock certificates) and related delivery expenses..... *
Engraving and printing stock certificates.................................. *
Underwriters expense reimbursement......................................... *
Fees and expenses of qualification under state securities laws (including
fees of counsel)......................................................... *
Accounting fees and expenses............................................... *
Legal fees and expenses.................................................... *
Travel and related out-of-pocket expenses and miscellaneous................ *
-------
Total............................................................ $
=======
</TABLE>

- ---------------

* To be filed by amendment.

(iii)
<PAGE> 118

ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

None.

ITEM 28. NUMBER OF HOLDERS OF SECURITIES

Common Stock, par value $.01 per share: 1,519 record holders as of April
21, 1995.

ITEM 29. INDEMNIFICATION

The information under Item 3 of Part II of Amendment No. 13 is herein
incorporated by reference.

ITEM 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER

Information as to the directors and officers of the Manager and Korean
Adviser is included in their respective Forms ADV, File Nos. 801-00252 and
801-32282 respectively, filed with the Commission and is incorporated herein by
reference thereto.

ITEM 31. LOCATION OF ACCOUNTS AND RECORDS

Certain accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules promulgated thereunder will be
maintained by Scudder, Stevens & Clark, Inc., 345 Park Avenue, New York, New
York 10154. Records relating to the duties of the Registrant's custodian will be
maintained by Brown Brothers Harriman & Co., 40 Water Street, Boston,
Massachusetts, and those relating to the duties of the transfer agent will be
maintained by State Street Bank and Trust Company, Heritage Drive, North Quincy,
Massachusetts.

ITEM 32. MANAGEMENT SERVICES

Not applicable.

ITEM 33. UNDERTAKINGS

(a) Registrant undertakes to suspend offering of the shares covered hereby
until it amends its prospectus contained herein if (1) subsequent to the
effective date of this Registration Statement, its net asset per share declines
more than 10 percent from its net asset value per share as of the effective date
of this Registration Statement, or (2) its net asset value increases to an
amount greater than its net proceeds as stated in the prospectus contained
herein.

(b) Registrant undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of the Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains the form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

(iv)
<PAGE> 119

(1) To file, during any period in which offers or sales are being made
pursuant to Rule 415, a posteffective amendment to this registration
statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and

(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(v)
<PAGE> 120

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, and State of New York, on the 28th day of
April, 1995.

THE KOREA FUND, INC.
(Registrant)

By: /S/ JURIS PADEGS
---------------------------------------
Juris Padegs
Chairman of the Board

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------- ---------------
<C> <S> <C>
/s/ JURIS Chairman of the Board (Principal April 28, 1995
PADEGS Executive Officer) and Director
- ------------------------------------------
Juris Padegs
* Treasurer (Principal Financial April 28, 1995
- ------------------------------------------ and Accounting Officer)
Pamela A. McGrath
* Director April 28, 1995
- ------------------------------------------
Chang Hee Kim
* Director April 28, 1995
- ------------------------------------------
Nicholas Bratt
* Director April 28, 1995
- ------------------------------------------
William H. Gleysteen, Jr.
Director April 28, 1995
- ------------------------------------------
Robert W. Lear
* Director April 28, 1995
- ------------------------------------------
Sang C. Lee
Director April 28, 1995
- ------------------------------------------
Tai Ho Lee
* Director April 28, 1995
- ------------------------------------------
Wilson Nolen
Director April 28, 1995
- ------------------------------------------
Sidney M. Robbins

* /s/ JURIS
PADEGS
- ------------------------------------------
Juris Padegs
as Attorney-in-Fact
</TABLE>

(vi)
<PAGE> 121

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGES
---- ----------------------------------------------------------------- ------------
<C> <C> <S> <C> <C>
a. (i) -- Articles of Incorporation as of May 15, 1984. (Incorporated by
reference to Exhibit 1 to the Fund's original Registration
Statement on Form N-2, Registration No. 2-91879 (the
"Registration Statement").)......................................
a. (ii) -- Amendment dated November 14, 1986, to the Articles of
Incorporation dated May 15, 1984. (Incorporated by reference to
Exhibit 1(a)(2) to Amendment 6 to the Registration Statement.)...
a. (iii) -- Amendment dated December 1, 1988, to the Articles of
Incorporation, as amended November 14, 1986. (Incorporated by
reference to Exhibit 1(a)(3) to Amendment No. 8 to the
Registration Statement ("Amendment No. 8").).....................
a. (iv) -- Amendment dated October 29, 1990 to the Articles of Incorporation
as amended December 1, 1988. (Incorporated by reference to
Exhibit 1(D) to Amendment No. 11 to the Registration Statement
("Amendment No. 11").)...........................................
b. (i) -- By-Laws dated May 31, 1984 as amended through May 19, 1988.
(Incorporated by reference to Exhibit 2 to Amendment No. 8.).....
b. (ii) -- Amendment dated August 22, 1989, to the By-Laws. (Incorporated by
reference to Exhibit 2(B) to Amendment No. 11.)..................
b. (iii) -- Amendment dated April 27, 1990, to the By-Laws. (Incorporated by
reference to Exhibit 2(C) to Amendment No. 11.)..................
b. (iv) -- Amendment dated April 26, 1991, to the By-Laws. (Incorporated by
reference to Exhibit 2(D) to Amendment No. 12 to the Registration
Statement ("Amendment No. 12").).................................
b. (v) -- Amendment dated July 29, 1992, to the By-Laws. (Incorporated by
reference to Exhibit 2(E) to Amendment No. 13 to the Registration
Statement ("Amendment No. 13").).................................
b. (vi) -- Restated By-Laws dated April 15, 1993. (Incorporated by reference
to Exhibit b(vi) to Amendment No. 14 to the Registration
Statement.)......................................................
c. -- Not applicable...................................................
d. -- Specimen certificate representing shares of Common Stock, par
value $.01 per share. (Incorporated by reference to Exhibit 4 to
the Amendment No. 2 to the Registration Statement ("Amendment No.
2").)............................................................
e. -- Dividend Reinvestment and Cash Purchase Plan (Incorporated by
reference to Exhibit 10(C) to Amendment No. 11.).................
f. -- Not applicable...................................................
g. (i) -- Investment Advisory and Management Agreement, dated October 14,
1987, between the Fund and Scudder, Stevens & Clark, Inc. (the
"Manager"). (Incorporated by reference to Exhibit 6(a)(1) to
Amendment No. 7 to the Registration Statement ("Amendment No.
7").)............................................................
g. (ii) -- Research and Advisory Agreement, dated July 22, 1988, between the
Manager and Daewoo Capital Management Co., Ltd. (the "Korean
Adviser").(Incorporated by reference to Exhibit 6(b)(1) to
Amendment No. 7.)................................................
g. (iii) -- Investment Advisory and Management Agreement, dated October 14,
1994, between the Fund and the Manager...........................
</TABLE>
<PAGE> 122

<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGES
---- ----------------------------------------------------------------- ------------
<C> <C> <S> <C> <C>
g. (iv) -- Research and Advisory Agreement, dated October 14, 1994, between
the Manager and the Korean Adviser...............................
h. -- Form of Dealer Manager Agreement.*...............................
i. -- Not applicable...................................................
j. (i) -- Custodian Agreement (the "Custodian Agreement"), dated August 20,
1984, between the Fund and Brown Brothers Harriman & Co. (the
"Custodian"). (Incorporated by reference to Exhibit 9(a)(1) to
Amendment No. 2).................................................
j. (ii) -- Fee Schedule relating to the Custodian Agreement. (Incorporated
by reference to Exhibit 9(a)(2) to Amendment No. 7.).............
j. (iii) -- Amendment No. 1, dated October 23, 1985, to the Custodian
Agreement. (Incorporated by reference to Exhibit 9(a)(3) to
Amendment No. 2.)................................................
j. (iv) -- Subcustodian Agreement (the "Subcustodian Agreement"), dated
August 20, 1984, between the Custodian and Citibank, N.A.
(Incorporated by reference to Exhibit 9(b)(1) to Amendment No.
2.)..............................................................
j. (v) -- Amendment dated October 23, 1992 to the Subcustodian Agreement
dated August 20, 1984.*..........................................
k. (i) -- Agency Agreement (the "Agency Agreement") dated August 6, 1984,
between the Fund and State Street Bank and Trust Company.
(Incorporated by reference to Exhibit 10(a)(1) to Amendment No.
2.)..............................................................
k. (ii) -- Fee Schedule relating to the Agency Agreement. (Incorporated by
reference to Exhibit 10(a)(2) to Amendment No. 2.)...............
l. -- Opinion of Debevoise & Plimpton, and consent to use of the
same.*...........................................................
m. -- Not applicable...................................................
n. (i) -- Opinion of Shin & Kim, and consent to use of the same.*..........
n. (ii) -- Consent of Coopers & Lybrand L.L.P...............................
n. (iii) -- License, Approval and Confirmation, dated June 22, 1984, issued
by the Minister of Finance of the Republic of Korea.
(Incorporated by reference to Exhibit 12(E) to the Registration
Statement.)......................................................
n. (iv) -- Amendment, dated April 11, 1986, to License, Approval and
Confirmation, dated June 22, 1984, issued by the Minister of
Finance of the Republic of Korea. (Incorporated by reference to
Exhibit 12(F) to Amendment No. 3 to the Registration
Statement.)......................................................
n. (v) -- Amendment, dated August 2, 1989, to License, Approval and
Confirmation, dated June 22, 1984, issued by the Minister of
Finance of the Republic of Korea, as amended April 11, 1986.
(Incorporated by reference to Exhibit 12(G) to Amendment 10 to
the Registration Statement.).....................................
n. (vi) -- Amendment, dated October 7, 1992, to License, Approval and
Confirmation, dated June 22, 1984, issued by the Minister of
Finance of the Republic of Korea, as amended April 11, 1986 and
August 2, 1989. (Incorporated by reference to Exhibit 12(H) to
Amendment No. 13.)...............................................
---------------
* To be filed by amendment.
</TABLE>
<PAGE> 123

<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGES
---- ----------------------------------------------------------------- ------------
<C> <C> <S> <C> <C>
n. (vii) -- Amendment, dated October 20, 1993, to License, Approval and
Confirmation, dated June 22, 1984, issued by the Minister of
Finance of the Republic of Korea, as amended April 11, 1986,
August 2, 1989 and October 7, 1992. (Incorporated by reference to
Exhibit n(vii) to Amendment No. 15 to the Registration
Statement.)......................................................
n. (viii) -- Amendment, dated , 1995, to License, Approval and Confirmation,
dated June 22, 1984, issued by the Minister of Finance of the
Republic of Korea, as amended April 11, 1986, August 2, 1989,
October 7, 1992, and October 20, 1993.*..........................
o. -- Not applicable...................................................
p. -- Not applicable...................................................
q. -- Not applicable...................................................
r. -- Financial Data Schedule..........................................
Other Exhibit: Powers of Attorney.
...................................................................................
</TABLE>

- ---------------
* To be filed by amendment.

<PAGE> 1
INVESTMENT ADVISORY, MANAGEMENT AND
ADMINISTRATION AGREEMENT
AGREEMENT, dated and effective as of October 14, 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
<PAGE> 2
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.
<PAGE> 3
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
<PAGE> 4
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: /s/ Nicholas Bratt
----------------------
Title: President

SCUDDER, STEVENS & CLARK, INC.

By: /s/ David S. Lee
------------------------
Title: Managing Director

<PAGE> 1
SCUDDER, STEVENS & CLARK, INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154

RESEARCH AND ADVISORY AGREEMENT

October 14, 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 October 14, 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 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.

<PAGE> 2
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 Adisers 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, Steven & Clark, Inc., to:

Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, NY 10154

Attention: President
(Facsimile No. 212-319-7813)

<PAGE> 3
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 /s/ Edmond D. Villani
---------------------------
President

The foregoing agreement is hereby accepted as of the date first above written.

DAEWOO CAPITAL MANAGEMENT CO., LTD.

By /s/
--------------------------
Chairman

Accepted:

THE KOREA FUND, INC.

By /s/ Nicholas Bratt
-------------------------
President

<PAGE> 1

CONSENT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of The Korea Fund, Inc.:

We consent to the inclusion in Amendment No. 16 to the Registration
Statement of The Korea Fund, Inc. on Form N-2 (File No. 811-4058) of our report
dated February 14, 1995 on our audits of the financial statements and financial
highlights of the Fund for the six months ended December 31, 1994, and for the
year ended June 30, 1994, which are included in the Registration Statement. We
also consent to the reference to our Firm under the captions "Financial
Highlights" and "Experts" in the Prospectus.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
April 28, 1995

<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>

<PAGE> 1
POWER OF ATTORNEY

The undersigned, Treasurer and Principal Financial and Accounting Officer of
THE KOREA FUND, INC., a Maryland corporation (the "Corporation"), does hereby
constitute and appoint Juris Padegs, Kathryn L. Quirk, Edward J. O'Connell and
Thomas F. McDonough, and each of them, as his true and lawful attorneys-in-fact
and agents with full power of substitution and resubstitution, to execute and
deliver in his name and on his behalf in any and all capacities:

(a) one or more Registration Statements of the Corporation on an
appropriate form proposed to be filed with the Securities and Exchange
Commission ("SEC") for the purposes of registering shares of common
stock of the Corporation, $0.01 par value, (the "Securities") and
rights entitling the holders of Securities to subscribe for additional
Securities ("Rights") under the Securities Act of 1933, the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, as
amended, respectively;

(b) any and all supplements and amendments (including without
limitation, post-effective amendments) to such Registration Statements:

and any and all other documents and instruments in connection with the issuance
of the Rights and the Securities which such attorneys-in-fact and agenst, or
any of them, deem necessary or advisable to enable the Corporation to comply
with (a) the federal securities laws of the United States of America and the
rules, regulations and requirements of the SEC in respect to any thereof, (b)
the securities or Blue Sky laws of any state or other governmental subdivision
of the United States of America and (c) the foreign investment and securities
laws of Korea, Japan and any other foreign jurisdiction; and the undersigned
does hereby grant unto such attorneys-in-fact, and each of them full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might and could do in person, and ratify and confirm as his own
acts and deeds all that such attorneys-in-fact and agents, and each of them,
shall do or cause to be done by virtue hereof. Each one of such
attorneys-in-fact and agents shall have, and may exercise, all of the powers
hereby conferred.

IN WITNESS WHEREOF, the undersigned has hereunto subscribed this power
of attorney, this 28th day of April, 1995.

/s/ Pamela A. McGrath
-------------------------------------

<PAGE> 2
POWER OF ATTORNEY

The undersigned, a Director of THE KOREA FUND, INC., a Maryland
corporation (the "Corporation"), does hereby constitute and appoint Juris
Padegs, Kathryn L. Quirk, Edward J. O'Connell and Thomas F. McDonough, and each
of them, as his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, to execute and deliver in his name and on his
behalf in any and all capacities:

(b) any and all supplements and amendments (including without
limitation, post-effective amendments) to such Registration Statements:

IN WITNESS WHEREOF, the undersigned has hereunto subscribed this power
of attorney, this 27th day of April, 1995.

/s/ Chang Hee Kim
-------------------------------------

<PAGE> 3
POWER OF ATTORNEY

(b) any and all supplements and amendments (including without
limitation, post-effective amendments) to such Registration Statements:

IN WITNESS WHEREOF, the undersigned has hereunto subscribed this power
of attorney, this 27th day of April, 1995.

/s/ Nicholas Bratt
-------------------------------------

<PAGE> 4
POWER OF ATTORNEY

(b) any and all supplements and amendments (including without
limitation, post-effective amendments) to such Registration Statements:

IN WITNESS WHEREOF, the undersigned has hereunto subscribed this power
of attorney, this 26th day of April, 1995.

/s/ William H. Gleysteen, Jr.
-------------------------------------

<PAGE> 5
POWER OF ATTORNEY

(b) any and all supplements and amendments (including without
limitation, post-effective amendments) to such Registration Statements:

IN WITNESS WHEREOF, the undersigned has hereunto subscribed this power
of attorney, this 26th day of April, 1995.

/s/ Sang C. Lee
-------------------------------------

<PAGE> 6
POWER OF ATTORNEY

(b) any and all supplements and amendments (including without
limitation, post-effective amendments) to such Registration Statements:

IN WITNESS WHEREOF, the undersigned has hereunto subscribed this power
of attorney, this 26th day of April, 1995.

/s/ Wilson Nolen
-------------------------------------