KOREA FUND INC, 497, 1995-06-05

KOREA FUND INC
497, 1995-06-05

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<PAGE> 1

PROSPECTUS

7,386,102 SHARES

[KOREA FUND THE KOREA FUND, INC.
LOGO]
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 June 5, 1995
(the "Record Date") rights (the "Rights") entitling the holders thereof to
subscribe for an aggregate of 7,386,102 shares (the "Shares") of the Fund's
Common Stock at the rate of one share of Common Stock for each four 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 (the foregoing being referred to hereinafter as the
"Offer"). 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 $15.50.

THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JUNE 21, 1995
UNLESS EXTENDED AS DESCRIBED HEREIN.

The Fund is a non-diversified, closed-end management investment company,
commenced operations in 1984 and, as of May 22, 1995, had net assets of
$573,114,427. The Fund's investment objective is to seek long-term capital
appreciation through investment in securities, primarily equity securities, of
Korean companies. It is the policy of the Fund normally to invest at least 80%
of the Fund's net assets 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. All questions relating to the Offer should
be directed to the Information Agent, Georgeson & Company Inc., toll free at
(800) 223-2064 or call collect at (212) 509-6240.

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

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 April 28, 1995. The net asset value per share of Common Stock at the
close of business on April 28, 1995 and June 2, 1995 was $20.58 and $20.25,
respectively, and the last sale price of the Common Stock on the NYSE Composite
Tape on those dates was $21.625 and $22.625, 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................................... $15.50 $0.5425 $14.9575
- -----------------------------------------------------------------------------------------------------------
Total....................................... $114,484,581 $4,006,960 $110,477,621
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</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 2.50% 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 1.00% 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 $860,000,
including up to an aggregate of $50,000 to be paid to the Dealer Manager in
reimbursement of its expenses.
---------------------------

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 NYSE
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 under "The Offer -- Distribution Arrangements."

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

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 June 5, 1995.

<PAGE> 2

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 May 22, 1995, the market average exchange rate as published by
the Korea Telecommunications and Clearings Institute was Won 760.70 = $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 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> 3

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)............................... 3.50%
Dividend Reinvestment and Cash Purchase Plan Fees.................................. (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>
Management Fees.................................................................... 1.01%
Other expenses..................................................................... .31%
-----
Total Annual Fund Operating Expenses....................................... 1.32%
=====
</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........ $ 48 $75 $ 105 $188
</TABLE>

- ---------------
(1) The Dealer Manager and the other broker-dealers soliciting the exercise of
Rights will receive soliciting fees equal to 2.50% 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 1.00% 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 $860,000.
(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 reinvestment 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> 4

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 June 5, 1995
(the "Record Date") transferable rights (the "Rights") to subscribe for an
aggregate of 7,386,102 shares of Common Stock (the "Shares") of the Fund. Each
Record Date Shareholder is being issued one Right for each full share of Common
Stock owned on the Record Date. For purposes of determining the number of Shares
a Record Date Shareholder may acquire pursuant to the Offer (as defined below),
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. The Rights entitle the Record Date
Shareholder to acquire at the Subscription Price (as hereinafter defined) one
Share for each four Rights held. No fractional Rights will be issued. Any Record
Date Shareholder who is issued fewer than four 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 City
time, on June 21, 1995 unless extended by the Fund (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"). A Record Date Shareholder's right
to acquire during the Subscription Period at the Subscription Price one Share
for each four 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
City 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" and, together with the Primary Subscription, the
"Offer"). 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 $15.50.

SOLICITING FEES

The Fund has agreed to pay broker-dealers, including Lehman Brothers Inc.
(the "Dealer Manager"), fees for their soliciting efforts equal to 2.5% of the
Subscription Price per Share. See "The Offer -- Distribution Arrangements."

4
<PAGE> 5

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

or
Call Collect: (212) 509-6240

IMPORTANT DATES TO REMEMBER

<TABLE>
<CAPTION>
EVENT DATE
----------------------------------------- --------------------------------
<S> <C>
Record Date June 5, 1995
Subscription Period June 5, 1995 -- June 21, 1995
Expiration Date June 21, 1995 (unless extended)
Subscription Certificates and Payment for
Shares Due June 21, 1995
Notices of Guaranteed Delivery Due June 21, 1995
Subscription Certificates and Payment
Due Pursuant to Notice of Guaranteed
Delivery June 26, 1995
Confirmation Date July 3, 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, either by means of a
notice of guaranteed delivery or a check. 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 New York Stock Exchange (the "NYSE"),
and the Shares are expected to be listed for trading on the NYSE, the Pacific
Stock Exchange (the "PSE") and the Osaka Stock Exchange (the "OSE"). The Fund
has used its best efforts to ensure that an adequate trading market for the
Rights will exist, 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 City time,
on June 19, 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 June 6, 1995 and thereafter on a regular way
basis from June 7, 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

5
<PAGE> 6

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 District of
Columbia) (such shareholders being referred to hereinafter as "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 City 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.

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
and/or net asset 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 the policy of the Fund normally to invest at least 80% of its net assets in
securities listed on the Korea Stock Exchange (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 December
31, 1994, the Manager and its affiliates had over $90 billion under their
supervision, of which more than $22 billion was invested in non-U.S. securities.
Daewoo Capital Management Co., Ltd., an investment advisory subsidiary of Daewoo
Securities Co., Ltd., ("Daewoo Securities") acts as Korean adviser to the
Manager (the "Korean Adviser"). Daewoo Securities 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

6
<PAGE> 7

$750,000,000. A portion of these fees are paid by the Manager to the Korean
Adviser. See "Investment Advisers."

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 $15.50 is 23.5% below the Fund's
net asset value of $20.25 per share on June 2, 1995, the Fund's net asset value
per share would be reduced by approximately $1.08 per share.

Unrealized Appreciation. As of May 22, 1995, there was approximately $266
million of net unrealized appreciation in the Fund's net assets of approximately
$573 million; if realized and distributed, or deemed distributed, such gains
would, in general, be taxable to shareholders, including holders at that time of
Shares acquired upon the exercise of the Rights. As of May 22, 1995, the Fund
had approximately $4.3 million of undistributed net investment income (all of
which represents realized short-term capital gains) with respect to its fiscal
year ending June 30, 1995, which the Fund expects to distribute to shareholders
of record after the end of such fiscal year (including holders at that time of
Shares acquired upon exercise of the Rights). As of May 22, 1995, the Fund also
had approximately $12 million of undistributed net realized long-term capital
gains, which the Fund expects to distribute to such shareholders. Such
distributions will, in general, be taxable to such shareholders. See
"Taxation -- United States Federal Income Taxes -- General," "-- Distributions"
and "-- Non-U.S. Shareholders."

Investments in Korea. 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

7
<PAGE> 8

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.

Although 45 years have passed since the Korean War (1950-1953), military
tension and political confrontation still characterize relations between North
Korea and the Republic. Large armies remain deployed on both sides of the
demilitarized zone. The United States still maintains a substantial military
force in Korea to reinforce its commitment to the Republic's security. Some
communication has occurred in recent years through intermittent North-South
talks and the more recent U.S. dialogue with North Korea, but the hostility and
extremist character of the North Korean regime continue to hobble contacts. In
signing an agreement with the United States on October 22, 1994 for provision of
light water nuclear power reactors, North Korea seemed prepared to address
international concern that it was developing nuclear weapons. Its subsequent
denial of a key understanding of the agreement, however, has renewed doubts and
rekindled anxiety that it will violate its obligations to the International
Atomic Energy Agency.

While not imminent, unification of North Korea and the Republic has become
a foreseeable contingency and source of considerable discussion. Given the
disparities between the economies of the North and South, unification could
entail substantial costs and dislocations to the economy of the Republic.

Non-Diversified Status. 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. The premium has generally been declining in recent years. 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 shareholders of
an opportunity to sell their shares at a premium above the prevailing market
price. See "Common Stock -- Special Voting Provisions."

8
<PAGE> 9

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
PERFORMANCE
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)*(c) (.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
PERFORMANCE
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 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.

(c) The ratio for the six months ended December 31, 1994 has not been
annualized; the Fund believes an annualized ratio would not be appropriate
because the Fund's dividend income is not earned ratably throughout the
fiscal year.

9
<PAGE> 10

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>
July 1 - Sept. 30, 1992... 12 7/8 10.31 24.9% 9 3/8 8.87 5.7%
Oct. 1 - Dec. 31, 1992.... 15 3/8 10.60 45.1% 11 3/4 9.63 22.0%
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 11.60 36.9% 12 3/8 10.64 16.3%
Oct. 1 - Dec. 31, 1993.... 26 1/4 16.64 57.8% 14 11.43 22.5%
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 5/8 20.53 10.2% 19 1/8 19.25 (0.6%)
April 1 - May 31, 1995.... 22 7/8 20.99 9.0% 20 5/8 19.64 5.0%
</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 June 2, 1995, the last
price of the Fund's shares on the NYSE Composite Tape was $22.625, which
represented a premium of 11.7% above the net asset value per share of $20.25.

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 $265 million in aggregate price to the public.

As of May 22, 1995, the Fund's aggregate net asset value was $573,114,427.
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 May 22, 1995, 98.9% 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> 11

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. 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. No fractional Rights will be issued. The Rights entitle the holders
thereof to acquire at the Subscription Price one Share for each four Rights
held. Any Record Date Shareholder who is issued fewer than four 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 City 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 City time, on June 21, 1995, the
Expiration Date (unless extended by the Fund). 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. 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, either by means of a notice
of guaranteed delivery or a check. 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 June 19, 1995, to the Subscription Agent for sale through the Dealer
Manager. The Fund has used its best efforts to ensure that an adequate trading
market for the Rights will exist, 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 four Rights will be
entitled to purchase one Share. Record Date Shareholders who, after exercising
their Rights, are left with fewer than four Rights,

11
<PAGE> 12

will be unable to exercise such Rights and will not be entitled to receive any
cash, from the Fund, in 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 June 19, 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, 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. The Fund 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. In addition, 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%. The
Minister of Finance and Economy has announced that this limit will be increased
to 15% effective July 1, 1995. 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 general, cause gains recognized by the Fund on appreciated
positions to become taxable to shareholders. 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 $109,617,621, the Manager and the Korean Adviser
would receive additional annual advisory fees (net, in the case of the Manager,
of the Korean Adviser's fee, which is paid by the Manager) of $781,026 and
$260,342, respectively, based on the amount of such proceeds. 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. 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 pursuant to the Over-Subscription Privilege
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. The percentage of remaining Shares each over-subscribing Record Date

12
<PAGE> 13

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 $15.50. The Fund does not have the right to withdraw the Offer after the
Rights have been distributed.

The Fund announced the Offer after the close of trading on the NYSE on
April 28, 1995. The net asset value per share of Common Stock at the close of
business on April 28, 1995 and on June 2, 1995 was $20.58 and $20.25,
respectively, and the last reported sale price of a share of the Fund's Common
Stock on the NYSE Composite Tape on those dates was $21.625 and $22.625,
respectively. The Subscription Price of $15.50 is approximately a 23.5% discount
to the Fund's net asset value per share on June 2, 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 City time, on June 21, 1995,
the Expiration Date (unless extended by the Fund). 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 $84,000, including 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 Department, P.O.
Box 9061, Boston, Massachusetts 02206-8200 (telephone (800) 426-3004).
Shareholders may also consult their brokers or nominees. Signed Subscription
Certificates (see Appendix B) 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
or
61 Broadway
Concourse Level
New York, NY 10006

(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) 774-4519, with the original
Subscription Certificate to be sent by mail,
hand or overnight courier. Confirm facsimile
by telephone to
(617) 774-4511.
</TABLE>

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

13
<PAGE> 14

INFORMATION AGENT

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

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 $22,500, and
reimbursement for all out-of-pocket expenses related to the Offer.

SALES 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 5:00 p.m.,
New York City time, on June 19, 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 instructions accompanying the Subscription Certificate. 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 five 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> 15

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 City 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 City
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 Rights 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 four 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 four 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 June 19, 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 (i) the aggregate number of Rights
exercised pursuant to the Primary Subscription, (ii) the number of Shares
subscribed for

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<PAGE> 16

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

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 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 City time, on the Expiration Date,
the Subscription Agent has received a notice of guaranteed delivery (see
Appendix C) by facsimile (telecopy) or otherwise from a bank, a trust
company, or a 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

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<PAGE> 17

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. Shares purchased by
participants in the Fund's Dividend Reinvestment and Cash Purchase Plan (the
"Plan") will be held by the Plan Agent in uncertificated form. See "Dividends
and Distributions; Dividend Reimbursement and Cash Purchase Plan."

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 equal to 1.00% of the
aggregate subscription price for the Shares (which, if all Shares are subscribed
for, will result in a fee of $1,144,846) for its marketing and financial
advisory services, including advice with respect to the advisability, timing,
size and Subscription Price of the Offer and the coordination of soliciting
efforts among soliciting dealers, the Subscription Agent and the Information
Agent. The Fund also has agreed to pay broker-dealers, including the Dealer
Manager, fees for their soliciting efforts (the "Soliciting Fees") equal to
2.50% 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. The Dealer Manager Agreement also provides that in rendering the
services contemplated by the Dealer Manager Agreement, the Dealer Manager will
not be subject to any liability to the Fund except in instances involving the
Dealer Manager's gross negligence or willful misconduct, or for any act or
omission on the part of any broker-dealer (other than the Dealer Manager or any
of its affiliates) or any other person.

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.

U.S. FEDERAL INCOME TAX CONSEQUENCES; KOREAN TAX CONSEQUENCES

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

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

17
<PAGE> 18

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 will be zero. In the case of a Rights Holder who
purchases 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.
If a Right is allowed to expire, there will be no loss realized unless the
Right was acquired by purchase, in which case there will be a loss equal to
the basis of the Right.

5. If a Right is exercised by the Record Date Shareholder or Rights
Holder, the basis of the Common Stock received will include the basis of
the Right (see paragraph 2 above) and the amount paid upon exercise of the
Right.

6. If a 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 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 U.S. Federal income tax
law and does not include any state, local or non-U.S. tax consequences with
respect to the Offer. Investors should consult their tax advisers regarding
specific questions as to U.S. Federal, state, local and non-U.S. 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 or
Rights Holders 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.

3. Any gain on the sale of a Right will not result in the imposition
of any Korean tax on a shareholder not domiciled in Korea.

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<PAGE> 19

NOTICE OF NET ASSET VALUE DECLINE

The Fund has, as required by the Commission's registration form, undertaken
to suspend the Offer until it amends this Prospectus if, subsequent to the
effective date of the Fund's Registration Statement, the Fund's net asset value
declines more than 10% from its net asset value as of that date.

USE OF PROCEEDS

The net proceeds of the Offer, assuming that all of the Rights are
exercised, are estimated at approximately $109,617,621 after deducting expenses
payable by the Fund of approximately $860,000. There can be no assurance that
all of the Rights will be exercised. 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 not be changed
without the approval of the Minister of Finance and Economy 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 normally to invest at least 80% of its net
assets in securities listed on the Stock Exchange. As of May 22, 1995, 98.9% 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,

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<PAGE> 20

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 (i) in its
investment restriction pertaining to concentration, 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; (ii) 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 Stock
Exchange-listed, underwritten or publicly offered Government and corporate bonds
(including those held through repurchase agreements, convertible bonds and bonds
with warrants) in excess of 10% of its net asset value; and (iii) in the
diversification requirements applicable to regulated investment companies under
the U.S. Internal Revenue Code of 1986, as amended (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. The Minister of Finance and Economy has announced,
however, that the Government will raise that ceiling for foreign investment in
shares of a class of an issuer listed on the Stock Exchange from 12% to 15%
effective July 1, 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 and Economy 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.

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<PAGE> 21

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.

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 and Economy 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.

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<PAGE> 22

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 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 and
Economy 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 and
Economy 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."

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<PAGE> 23

SPECIAL CONSIDERATIONS

Dilution. 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 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 $15.50 is 23.5% below the Fund's
net asset value of $20.25 per share on June 2, 1995, the Fund's net asset value
per share would be reduced by approximately $1.08 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, 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.

Unrealized Appreciation. As of May 22, 1995, there was approximately $266
million of net unrealized appreciation in the Fund's net assets of approximately
$573 million; if realized and distributed, or deemed distributed, such gains
would, in general, be taxable to shareholders, including holders at that time of
Shares acquired upon exercise of the Rights. As of May 22, 1995, the Fund had
approximately $4.3 million of undistributed net investment income (all of which
represents realized short-term capital gains) with respect to its fiscal year
ending June 30, 1995, which the Fund expects to distribute to shareholders of
record after the end of such fiscal year (including holders at that time of
Shares acquired upon exercise of the Rights). As of May 22, 1995, the Fund also
had approximately $12 million of undistributed net realized long-term capital
gains, which the Fund expects to distribute to such shareholders. Such
distributions will, in general, be taxable to such shareholders. See
"Taxation -- United States Federal Income Taxes -- General," "-- Distributions"
and "-- Non-U.S. Shareholders."

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. The Government has announced that it
will raise this amount to 15% commencing July 1, 1995. Additionally, certain
companies in industries designated by the Minister of Finance and Economy 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 certain
sections of 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, underwritten bonds or publicly offered bonds 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.

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<PAGE> 24

As of May 22, 1995, 64.6% of the Fund's investment portfolio consisted of
securities that have reached the aggregate foreign investment limit.

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 and Economy 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
and Economy. 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 and Economy. With 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."

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<PAGE> 25

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
(subject to receipt of requisite regulatory approvals) 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 Market Stabilization Fund (the "Stabilization Fund") for the purpose
of stabilizing the securities markets through the purchase and sale of
securities. The Stabilization Fund's securities holdings, cash balances and
trading activities are not publicly disclosed. 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

25
<PAGE> 26
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
Although 45 years have passed since North Korea's attack on the Republic
and the bitterness of the Korean War (1950-1953), military tension and political
confrontation still characterize relations between North Korea and the Republic.
Large armies remain deployed on both sides of the demilitarized zone. The United
States still maintains a substantial military force in Korea to reinforce its
commitment to the Republic's security. Some helpful change has occurred in
recent years through U.N. membership for both Koreas as well as Chinese and
Russian diplomatic relations with the Republic. Intermittent North-South talks
have also taken place and the United States has begun a dialogue with North
Korea which may eventually lead to normalization of relations. However,
hostility and the extremist character of the North Korean regime continue to
hobble contacts.
The major source of recent tension with North Korea has been international
concern that North Korea has violated its obligations to the International
Atomic Energy Agency and begun a nuclear weapons program. The tension was eased
when North Korea signed an agreement with the United States on October 22, 1994
to provide North Korea with light water nuclear power reactors to replace the
more dangerous nuclear plants then being constructed or envisaged. North Korea's
subsequent denial of a key understanding of the agreement, however, has renewed
doubts and rekindled anxiety that it will not meet its obligations under the
Nuclear Non-Proliferation Treaty.
While not imminent, unification of North Korea and the Republic has become
a foreseeable contingency and source of considerable discussion. Given the
disparities between the economies of the North and South, unification could
entail substantial costs and dislocations to the economy of the Republic. These
could be offset by lowered tensions and some economic benefits, such as lower
labor costs for the Republic.
The domestic situation in the Republic has been relatively stable in
contrast to the turbulence following the assassination of President Park Chung
Hee in 1979 and the military-dominated regime that succeeded him. Responding to
widespread popular unrest in 1987, the authorities permitted a genuinely
democratic election in which Roh Tae Woo was elected President. Despite his
military background, Roh Tae Woo's administration was marked with internal
liberalization, a more serious search for reduced tensions with North Korea, and
successful efforts to improve relations with North Korea's allies. Except for
sporadic outbursts, radical activism waned and both presidential and
parliamentary elections have proceeded freely. Almost immediately on taking
office in 1993 as the first civilian President in recent years, Kim Young Sam
carried out substantial economic reforms along with further political
liberalization. New changes in Government policy may result from three key
elections to be held during successive years beginning in 1995.
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 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, by $1.3 billion in 1993 and by $10.1 billion in the first
eleven months of 1994. 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. Korea's net external debt position increased to $10.4 billion at the end
of November 1994. Since 1990 Korea has had a negative trade balance, reflecting,
among other things,
26
<PAGE> 27

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.

POSSIBLE CHANGE OF CONTROL OF FUND AS A RESULT OF THE OFFER

The Offer could result in a change of control of the Fund, if existing
shareholders do not exercise their Rights. The 1940 Act provides that a person
that beneficially owns 25% of the voting securities of an investment company is
presumed to control such company. Currently, to the Fund's knowledge, no person
beneficially owns 25% of the Fund's Common Stock, its only class of voting
securities. Because the Rights are transferable, and because there is an
Over-Subscription Privilege, it is possible that either an existing shareholder
of the Fund or a person not currently a shareholder could own 25% or more of the
Fund's Common Stock upon completion of the Offer and thus have presumptive
control of the Fund. Control of the Fund could enable a person to exercise
substantial influence over the management of the Fund and its investment
decisions.

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."

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 the terms of, or the
Minister of Finance and Economy'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

27
<PAGE> 28

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.

- 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.

- Scudder International Fund, which was initially incorporated in Canada in
1953 and invests primarily in foreign equity securities.

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<PAGE> 29

- Scudder Pacific Opportunities Fund, which commenced operations in 1992
and invests in equity securities of Pacific Basin companies, excluding
Japan.

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 and Economy.

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 Fund is managed by a team of investment professionals who each play 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.

The Manager maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. 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 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% (to be increased to 15% effective July 1, 1995). 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."

29
<PAGE> 30

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 assists the Fund as
it may reasonably request in the conduct of the Fund's business, subject to the
direction and control of the Fund's Board of Directors. The 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 and investor public relations, 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, fees 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 adviser 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; 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 securities, the
additional time and expense 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

30
<PAGE> 31

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 the Board of Directors, by vote of holders of
a majority of the outstanding voting securities of the Fund, or by the Manager
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 and Economy,
within 120 days following such termination. The license provides that such
approval will not unreasonably be withheld, but that the Minister of Finance and
Economy 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,
Yongdung po-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, Yongdung po-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 conglomerate headquartered in Seoul, Korea. As of May 23, 1995,
Daewoo Corporation and certain affiliates of Daewoo Corporation own
approximately 13.17% 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.

31
<PAGE> 32

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 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 $50,000,000, 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, $635,867 and $1,126,976, 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 interested persons of the Fund, 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 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

32
<PAGE> 33

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 and Economy, within 120 days following
such termination. The license provides that such approval will not unreasonably
be withheld, but that the Minister of Finance and Economy 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 were until relatively recently closed to other direct investment by
foreign investors. In December 1991, the Minister of Finance and Economy 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 Economy 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 in Korea by the Government or corporate bonds issued in Korea.
Under its license to invest in Korea, however, the Fund may acquire Stock
Exchange-listed, underwritten or publicly offered bonds (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 listed on the Stock Exchange
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.
The Government has announced that it will raise the limit on aggregate foreign
investment to 15% commencing July 1, 1995. Currently, the KSEC has authorized
several exceptional ceilings as follows: (1) subject to prior report to the
Governor of the Securities Supervisory Board 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 (provided that in this
case the ceiling may not equal or exceed 50%) 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; (2) an 8% ceiling (according to the
Government's recent announcement to be increased to 10% commencing July 1, 1995)
on the acquisition of shares by foreigners in

33
<PAGE> 34

the aggregate has been established for certain corporations designated by the
Minister of Finance and Economy (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. The Government has
announced that commencing July 1, 1995, Converted Shares will not be included in
the calculation of the limit on aggregate foreign investment, upon election by
the relevant share issuing company not to include such Converted Shares in the
determination of such limit.

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 his
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.

As of May 22, 1995, 64.6% of the Fund's investment portfolio consisted of
securities that have reached the aggregate foreign investment limit.

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%. Under the Act, such designated public
corporations are also 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
investor (including Korean nationals) 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. 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. In addition, the Foreign Exchange Management
Regulations currently provide that the percentage of the

34
<PAGE> 35

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%.

A foreign investor who intends to acquire shares must designate a single
bank in Korea 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 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 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 and Economy 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
Stock Exchange-listed, underwritten or publicly offered Government and corporate
bonds (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
and Economy 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 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

35
<PAGE> 36

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 and Economy. 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 Economy and the KSEC information reasonably requested by the
Minister of Finance and Economy 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 and Economy may, when it deems it to be in the
public interest, modify the Fund's license to invest in Korean securities or,
according to the terms of the license, revoke it in the event of 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 and Economy 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 and Economy 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 and Economy has
not exercised this authority.

FURTHER OPENING OF THE KOREAN SECURITIES MARKET

In December 1994, the Minister of Finance and Economy announced a
three-phase plan to be implemented during the period from 1995 to 1999 to
liberalize foreign exchange transactions, including further opening of the
securities markets to foreign investors. In the plan, the Government announced
its intention to gradually raise the ceilings on investments by foreign
investors in companies listed on the Stock Exchange. The plan provides for the
further opening of the debt securities market step-by-step, by way of indirect
investment in debt securities through Korean investment trusts and investment in
long-term non-guaranteed bonds, together with issuance in Korea of
Won-denominated or foreign-currency-denominated debt securities by foreign
entities.

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.

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

36
<PAGE> 37

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 131 trillion Won (approximately $167 billion) at February 28,
1995, and average daily trading value was approximately 556 billion Won
(approximately $704 million) for the two months ended February 28, 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>
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 36,862 776,257 966,167
1995(2)......................... 699 131,179 166,899 27,556 556,175 703,473
</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.

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<PAGE> 38

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>
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......................... 482 211 28,568 6,562 497,280 76,768 619,533 95,640
1994......................... 460 239 30,047 6,815 673,555 102,702 839,143 127,950
1995(1)...................... 459 240 20,851 6,705 446,346 109,829 555,543 136,698
</TABLE>

- ---------------
(1) 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.

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 15.2% of
total trading volume by number of shares, and 19.0% 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.

38
<PAGE> 39

<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 1.2 18.9
</TABLE>

- ---------------
(1) The dividend yield calculated on the basis of a weighted average for all
listed companies was 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, 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. 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 KOSPI reached an
all-time high of 1,138.7 on November 8, 1994, but has since trended down. It
closed on May 22, 1995 at 864.13.

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

39
<PAGE> 40

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 December 31, 1994. As of that
date, these companies represented 49% 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 Co., Ltd. ................................. 6,716 8,515
Pohang Iron & Steel Co., Ltd. ................................. 6,007 7,617
Daewoo Heavy Industries, Inc. ................................. 4,389 5,565
LG Electronics, Inc. .......................................... 2,742 3,476
Korea Mobile Telecommunication Corp. .......................... 2,327 2,950
Hyundai Motor Company.......................................... 2,047 2,596
Shinhan Bank................................................... 2,012 2,552
Yukong Limited................................................. 1,952 2,475
Cho Hung Bank.................................................. 1,909 2,420
Samsung Heavy Industries Co., Ltd. ............................ 1,854 2,351
LG Chemical.................................................... 1,839 2,332
Hyundai Engineering & Construction Co., Ltd. .................. 1,778 2,254
Hanil Bank..................................................... 1,696 2,151
Daewoo Securities Co., Ltd. ................................... 1,643 2,083
Daewoo Corporation............................................. 1,562 1,980
Ssangyong Oil Refining Co., Ltd. .............................. 1,537 1,949
DACOM Corporation.............................................. 1,531 1,941
Korea First Bank............................................... 1,430 1,813
The Commercial Bank of Korea, Ltd. ............................ 1,339 1,698
Korea Exchange Bank............................................ 1,295 1,642
Korean Air Lines Co., Ltd. .................................... 1,239 1,571
Kookmin Bank................................................... 1,235 1,566
Bank of Seoul.................................................. 1,219 1,546
Kia Motors Corporation......................................... 1,186 1,503
SsangYong Cement Ind. Co., Ltd. ............................... 1,035 1,313
LG Securities Co., Ltd. ....................................... 1,022 1,296
Korea Long Term Credit Bank.................................... 1,022 1,295
Daewoo Electronics Co., Ltd. .................................. 956 1,212
Dong Ah Construction Industries Co., Ltd. ..................... 866 1,098
</TABLE>

- ---------------
Source: Fact Book, 1994 Facts and Figures, Korea Stock Exchange.

40
<PAGE> 41

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 32.3% 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>
The Commercial Bank of Korea, Ltd. .............. 247,024 1,980 2,464
LG Electronics, Inc. ............................ 233,607 6,247 7,775
Daewoo Heavy Industries, Ltd. ................... 200,578 2,834 3,527
Korea Electric Power Corporation................. 191,369 5,683 7,073
Cho Hung Bank.................................... 187,305 2,100 2,614
Daewoo Corporation............................... 176,496 2,831 3,524
Bank of Seoul.................................... 172,517 1,371 1,706
Korea First Bank................................. 139,095 1,677 2,087
Saeil Heavy Industries Co., Ltd. ................ 138,306 1,174 1,461
LG Chemical...................................... 131,652 2,545 3,168
Hanwha Chemical.................................. 130,253 1,805 2,247
Hyundai Engineering & Construction Co., Ltd. .... 120,067 4,751 5,913
Pohang Iron & Steel Co., Ltd. ................... 117,953 8,085 10,063
Daewoo Electronics Co., Ltd. .................... 108,376 1,475 1,836
Shinhan Bank..................................... 102,763 1,792 2,230
Yukong Limited................................... 100,715 4,044 5,033
Hanil Bank....................................... 99,626 1,036 1,289
Kohap Inc........................................ 93,197 1,106 1,377
Hyundai Motor Company............................ 89,419 3,611 4,494
Kukje Corporation................................ 82,585 721 897
Samsung Electronics Co., Ltd. ................... 77,416 7,117 8,859
Sammi Steel Co., Ltd. ........................... 76,833 700 871
SsangYong Oil Refining Co., Ltd. ................ 72,106 1,614 2,009
SsangYong Cement Ind. Co., Ltd. ................. 69,971 1,956 2,435
Kumho Construction & Engineering................. 64,818 760 946
Honam Petrochemical Corp......................... 64,210 833 1,037
Daelim Industrial Co., Ltd. ..................... 61,614 1,202 1,496
Korean Air Lines Co., Ltd. ...................... 59,723 1,514 1,885
Asia Motors Co., Ltd. ........................... 58,679 954 1,187
Sammi Corporation................................ 57,294 375 467
</TABLE>

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

Since 1980, the Government has reduced its interest in all listed companies
to less than 1.8%. 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 1.7% of the total number of shareholders and owned
81.2% of the total number of shares outstanding. (The number of shares and
shareholders of KEPCO and POSCO are not included.)

The Stock Exchange has announced that it will open a stock index futures
market on the Stock Exchange floor in January 1996, and that it will open a
stock index futures option market in early 1997.

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

41
<PAGE> 42

market with both listed and unlisted bond volumes showing substantial growth.
Volumes of outstanding bond issues since 1987 are given in the following table.

OUTSTANDING LISTED BOND ISSUES
AS OF DECEMBER 31

<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)................. 55,322 70,385 46,641 59,340 101,964 129,725
</TABLE>

- ---------------
(1) As of February 28, 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.................... 24 30 1,145 1,424 1,169 1,455
1995(1)................. 0 0 141 178 141 178
</TABLE>

- ---------------
(1) January 1 through February 28, 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 MARKET 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

42
<PAGE> 43

through the purchase and sale of securities. The Stabilization Fund's securities
holdings, cash balances and trading activities are not publicly disclosed. 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 and Economy 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 and Economy. The Minister of
Finance and Economy 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 trading,
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 a
stock index futures market will be introduced in January 1996, and that a stock
index futures option market will be introduced in early 1997.

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, with requisite approvals from governmental authorities, banks,
merchant banks and short-term finance companies as well as securities companies
are allowed to engage in underwriting. Generally, securities companies are
allowed to perform all kinds of securities business while banks, merchant banks
and short-term finance companies are allowed to engage only in the underwriting
business with respect to debt securities.

43
<PAGE> 44

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 45 million,
with a literacy rate estimated to be over 90%. The capital, Seoul, with a
population of about eleven million, is less than 40 miles south of the
demilitarized zone separating the Republic from North Korea.

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 1,000,000, the majority of which is 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 the early 1990's, the Republic established diplomatic relations with
both China and Russia; both Koreas were admitted to the United Nations; and some
progress was made in North Korea's efforts to normalize its relations with the
United States and Japan. In December 1991, the Republic and North Korea signed
an "Agreement of Reconciliation, Non-Aggression and Exchange and Cooperation"
designed to encourage peaceful co-existence and normalization of ties with their
respective allies.

Almost immediately, however, tension mounted over evidence that North Korea
was engaged in a nuclear weapons program in violation of the 1991 agreement with
the Republic as well as obligations under the Nuclear Non-Proliferation Treaty,
which it had finally ratified after long delays. Tensions rose along with the
threat of international sanctions, but the sense of crisis eased with an abrupt
shift by North Korea's leader, Kim Il Sung, shortly before his death. This
permitted the United States and North Korea to sign an agreement on October 22,
1994 providing Korea with light water nuclear power reactors to replace the more
dangerous nuclear plants then being constructed or envisaged. The United States
also agreed to full normalization of relations with North Korea if the agreement
were successfully implemented. Nevertheless, North Korea's subsequent denial of
a key understanding, namely, that the new reactors would be of South Korean
origin, has renewed international doubts and rekindled anxiety that North Korea
will not carry out its obligations under the Nuclear Non-Proliferation Treaty.
Tension and confrontation still dominate North-South relations.

44
<PAGE> 45

unification could entail substantial costs and dislocations to the economy of
the Republic. These could be offset by lowered tensions and some economic
benefits, such as lower labor costs for the Republic.

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.

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 bills 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 Minister of Finance and Economy is primarily responsible for
formulating economic policies, including the Five-Year Economic and Social
Development Plans which have guided economic policy since 1962. The Minister of
Finance and Economy exercises overall direction of the economy by means of
economic policies in cooperation with the various Ministries. The Minister of
Finance and Economy also 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 LG -- 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.

In March 1995, the Government filed an application to become a member of
the Organization for Economic Cooperation and Development.

45
<PAGE> 46

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(3)
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Gross national product at current
market prices (billion Won)...... 147,942 178,262 214,240 238,705 265,518 302,867
Government budget surplus (billion
Won)............................. 444 755 (1,707) (689) 235 1,728
Growth in gross national product at
current prices (percentage
change).......................... 12.6 20.5 20.2 11.4 11.2 14.1
Growth in real gross national
product (percentage change)...... 6.9 9.6 9.1 5.0 5.6 8.2
Producer price index (percentage
change).......................... 1.5 4.2 4.7 2.2 1.5 2.8
Consumer price index (percentage
change).......................... 5.7 8.6 9.3 6.2 4.8 6.2
Wages (percentage change)(1)....... 21.1 18.8 17.5 15.2 12.2 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 65.0 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)...................... 0.9 (4.8) (9.7) (5.1) (1.6) (6.3)
Current balance (billion
Dollars)......................... 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.

(3) Preliminary.

Source: Monthly Statistics of Korea, National Statistical Office; Monthly
Bulletin, The Bank of Korea.

Gross National Product

In 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%. Over the four decades since the end of the
Korean War, the Republic has 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.

During the 1980's, the Korean economy was characterized by extremely high
growth with several years registering growth close to or above 12% and, until
late in the decade, relatively low inflation. In the past five years, growth has
moderated, in part in reaction to the extremely high growth rates of the late
1980's. In 1992 and 1993, Korea experienced a growth recession, the sharpest
downturn since 1980. A recovery began in mid-1993 and continued into 1994, when
real growth reached 8.2%

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 share of GNP of the secondary
industries (manufacturing, mining, and construction) declined from 42.4% to
41.6% over the same period. The tertiary industries, which include public
utilities, transportation, communications, trade and financial and other
services, increased their relative share of GNP from 41.1% to 44.0% in this
period.

46
<PAGE> 47

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 21.1% in 1989, 18.8% in 1990, 17.5% in
1991, 15.2% in 1992, 12.2% in 1993 and 12.7% in 1994. These wage increases can
be compared with increases in productivity of 12.7% in 1990, 13.8% in 1991,
10.4% in 1992, 8.1% in 1993 and 9.2% for the first three quarters of 1994.

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.

THE FINANCIAL SECTOR

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

In addition to 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 taxes 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

47
<PAGE> 48

Bank of Korea. The Government does, however, exert considerable influence on
monetary policy. The Minister of Finance and Economy 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. In November 1994, the Government announced a
plan to further reduce the employment of direct intervention as a means of
implementing its monetary policy, in order to encourage the liberalization of
financial institutions' activities.

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 and Economy. In November 1994, the Government
announced a plan for deregulation of interest rates, which accelerates the
Government's 1991 plan to reduce the use of direct intervention as a means of
implementing monetary policy. In accordance with the 1991 plan, at the end of
1993, all restrictions on interest rates for loans, (other than Bank of
Korea-supported policy loans), long-term (not less than two years) deposits,
certain short-term money market instruments, short-term (less than two years)
corporate and financial debt, monetary stabilization bonds and public bonds were
lifted. The 1994 plan provides that in 1995 interest rates will be liberalized
for other short-term money market instruments and Bank of Korea-supported policy
loans, in 1996 interest rates will be liberalized for all deposits other than
demand deposits, and beginning in 1997 limitations on interest rates for demand
deposits gradually will be lifted.

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: $4,828 million in 1990, $9,655 million in 1991, $5,144
million in 1992, $1,564 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

48
<PAGE> 49

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 1989 to
1994:

<TABLE>
<CAPTION>
EXPORTS PERCENTAGE PERCENTAGE
BALANCE AS % OF CHANGE CHANGE
EXPORTS(1) IMPORTS(1) OF TRADE(1) IMPORTS EXPORTS IMPORTS
---------- ---------- ----------- ------------- ---------- ----------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
1989............................ 62,377 61,465 912 101.5 2.8 18.6
1990............................ 65,016 69,844 (4,828) 93.1 4.2 13.6
1991............................ 71,870 81,525 (9,655) 88.2 10.5 16.7
1992............................ 76,632 81,775 (5,144) 93.7 6.6 0.3
1993............................ 82,236 83,800 (1,564) 98.1 7.3 2.5
1994............................ 96,013 102,348 (6,335) 93.8 16.8 22.1
Annual 89 through 94............ -- -- -- -- 7.7 10.6
</TABLE>

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

Source: Monthly Bulletin, The Bank of Korea.

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>
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(4)............................................... (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.

(4) Figures in parentheses indicate increases.

Source: Monthly Bulletin, The Bank of Korea.

49
<PAGE> 50

Public Finance

The Minister of Finance and Economy 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.

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(P) 1994(P)
------ ------ ------ ------ ------ ------ ------- ----------
(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 38,462
Customs Duties....... 2,697 2,573 2,099 2,775 3,435 3,153 2,886 3,449
Defense Surtax....... 2,366 2,978 3,615 4,575 1,463 330 269 80
Traffic Tax.......... -- -- -- -- -- -- -- 2,449
Education Surtax..... 411 512 423 521 816 943 999 1,205
Monopoly Profits..... 904 874 75 -- -- -- -- --
Special Agricultural
and Fishery Tax.... -- -- -- -- -- -- -- 186
Government Enterprise
Receipts........... 285 332 408 591 810 1,042 902 1,079
Other................ 2,487 4,134 7,017 6,493 8,775 10,699 13,894 7,601
------ ------ ------ ------ ------ ------ ------- ----------
Total......... 19,162 23,948 28,848 34,538 39,329 46,267 53,128 54,510
====== ====== ====== ====== ====== ====== ======== ===========
Expenditures
General Expenses..... 10,009 11,242 14,704 18,973 22,320 23,683 26,951 31,118
National Defense..... 4,794 5,572 6,147 6,854 8,012 8,771 9,308 10,056
Fixed Capital
Formation.......... 1,392 1,541 2,033 2,401 2,049 2,821 2,889 2,547
Other................ 1,294 2,969 5,484 5,609 8,617 11,686 13,721 9,053
------ ------ ------ ------ ------ ------ ------- ----------
Total......... 17,488 21,323 28,367 33,837 40,997 46,980 52,870 52,774
====== ====== ====== ====== ====== ====== ======== ===========
Net Lending............ 0.5 (73) 37 (54) 38 (5) 23 6
Budget Surplus......... 1,674 2,698 444 755 (1,707) (689) 235 1,730
</TABLE>

- ---------------
(P) Preliminary.

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

50
<PAGE> 51

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

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 recently announced that it would decide whether to
introduce a free-floating exchange rate system during 1996 and 1997 after
considering trends in the international monetary system.

The following table shows market average exchange rates at the dates
indicated below.

<TABLE>
<CAPTION>
EXCHANGE RATE
-------------------
(IN WON PER DOLLAR)
<S> <C>
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.

51
<PAGE> 52

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 ages and their positions with certain other international
organizations and publicly-held companies.

<TABLE>
<CAPTION>
POSITION(S) WITH PRINCIPAL OCCUPATION(S)
NAME, AGE AND ADDRESS REGISTRANT DURING PAST FIVE YEARS
- ---------------------------- ---------------------- ------------------------------------------
<S> <C> <C>
Juris Padegs*(1)............ Chairman of the Board Managing Director of Scudder, Stevens &
Age 63 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
Age 58

Nicholas Bratt*(1).......... President and Director Managing Director of Scudder, Stevens &
Age 46 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).
Age 69

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,
Age 78 Equitable Capital Partners Enhancement
Yield Funds, Welsh, Carson, Anderson &
Stowe (venture capital company), 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
Age 54 Corp. of America, Ltd., Chairman of the
Board, Markwood, Inc., Hub City, Inc. and
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>

52
<PAGE> 53

<TABLE>
<CAPTION>
POSITION(S) WITH PRINCIPAL OCCUPATION(S)
NAME, AGE 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);
Age 72 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
Age 68

Sidney M. Robbins........... Director Professor Emeritus of Finance, Adelphi
50 Overlook Road University; Chase Manhattan Professor
Ossining, NY 10562 Emeritus of Financial Institutions,
Age 83 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>

53
<PAGE> 54

<TABLE>
<CAPTION>
POSITION(S) WITH PRINCIPAL OCCUPATION(S)
NAME, AGE 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 $113,882. 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.

54
<PAGE> 55

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.

Columns (3) and (4): Pension or retirement benefits accrued or proposed to
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
the Scudder 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 March 28, 1995, BEA
Associates, 153 East 53rd Street, New York, New York, reported (and disclaimed)
beneficial ownership of 3,431,303 shares (11.6% of the Fund's outstanding stock)
held in discretionary accounts managed by BEA Associates. To the best of the
Fund's knowledge, as of April 30, 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 determined no less frequently
than weekly, on the last business day of each month, and at such other times as
the Board of Directors may determine, by dividing the
55
<PAGE> 56
value of the total assets of the Fund, less all liabilities, by the total number
of shares of Common Stock 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 taking into account such factors as the Manager deems
appropriate. This valuation method may not be used with respect to a particular
security for longer than ten consecutive trading days, or for securities with an
aggregate value that exceeds 5% of the Fund's net assets on a particular
valuation date.
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 currency 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 is calculated in terms of
Dollars by converting the Local Currency into Dollars at the prevailing currency
exchange rate on the valuation date.
The Fund currently values the securities in its portfolio that are already
at or over the limit for aggregate foreign ownership on the basis of prices on
the Stock Exchange, unless quotations are regularly available as to the prices
offered by prospective foreign purchasers in the over-the-counter market to
existing foreign holders of such shares.
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 Economy and (ii) holders of two-thirds of the Fund's outstanding shares.
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<PAGE> 57

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 May 22, 1995, there was approximately $266 million of net unrealized
appreciation in the Fund's net assets of approximately $573 million; if realized
and distributed, or deemed distributed, such gains would, in general, be taxable
to shareholders, including holders at that time of Shares acquired upon exercise
of the Rights. As of May 22, 1995, the Fund had approximately $4.3 million of
undistributed net investment income (all of which represents realized short-term
capital gains) with respect to its fiscal year ending June 30, 1995, which the
Fund expects to distribute to shareholders of record after the end of such
fiscal year (including holders at that time of Shares acquired upon exercise of
the Rights). As of May 22, 1995, the Fund also had approximately $12 million of
undistributed net realized long-term capital gains, which the Fund expects to
distribute to such shareholders. Such distributions will, in general, be taxable
to such shareholders. See "Taxation -- United States Federal Income
Taxes -- General," "-- Distributions" and "-- Non-U.S. Shareholders."

Pursuant to 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 or
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

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<PAGE> 58

participants, buy Fund shares in the open market, on the NYSE or elsewhere, for
the participants' account on, or shortly after, the payment date.

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 receipt 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

For a discussion of the U.S. Federal income tax consequences and the Korean
tax consequences to Record Date Shareholders and Rights Holders with respect to
the Offer, see "The Offer -- U.S. Federal Income Tax Consequences; Korean Tax
Consequences" above.

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 OWN TAX ADVISER
WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF BEING A

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<PAGE> 59

SHAREHOLDER OF THE FUND, INCLUDING THE EFFECT AND APPLICABILITY OF U.S. FEDERAL,
STATE, LOCAL AND NON-U.S. TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES THEREIN.

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 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 Government if the obligation is backed by the full faith and
credit of the 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 -- Currency Conversion and
Repatriation" 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

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<PAGE> 60

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,
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. See "Dividends and Distributions;
Dividend Reinvestment and Cash Purchase Plan."

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.

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 May 22, 1995,
there was approximately $266 million of net unrealized appreciation in the
Fund's net assets of approximately $573 million; if realized and distributed, or
deemed distributed, such gains would, in general, be taxable to shareholders,
including holders at that time of Shares acquired upon exercise of the Rights.
As of May 22, 1995, the Fund had

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approximately $4.3 million of undistributed net investment income (all of which
represents realized short-term capital gains) with respect to its fiscal year
ending June 30, 1995, which the Fund expects to distribute to shareholders of
record after the end of such fiscal year (including holders at that time of
Shares acquired upon exercise of the Rights). As of May 22, 1995, the Fund also
had approximately $12 million of undistributed net realized long-term capital
gains, which the Fund expects to distribute to such shareholders. Such
distributions will, in general, be taxable to such shareholders. See "General"
and "Non-U.S. Shareholders."

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. Federal income tax 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 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 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 the Korean capital gains tax, if imposed on the Fund 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."

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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 Korean capital
gains tax were to be imposed on such gains, in which case the Fund would expect
to elect to treat such gains as derived from a non-U.S. source. Additionally,
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 non-U.S. 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 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. 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 non-U.S. 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.

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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 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
instruments based on foreign currencies) held by the Fund, and gains or losses
attributable to fluctuations in exchange rates that occur between the time the
Fund accrues income or expense denominated in a foreign currency and the time
the Fund actually collects such income or pays such expense, will be subject to
special rules for determining, among other things, the character and timing of
income, deductions, gain, and loss attributable to foreign exchange gain or
loss. In general, these rules operate to treat as ordinary income or loss (to be
taken into account in computing net investment income) 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 rules 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

63
<PAGE> 64

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 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 would 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. More specifically, dividends and interest are subject to withholding
tax at the rate of 26.875% and capital gains (without deduction for capital
losses) are subject to withholding tax at a rate equal to the lower of (i)
10.75% of the gross sales proceeds, or (ii) if satisfactory evidence of
acquisition cost is produced, 26.875% of the difference between the gross sales
proceeds and the acquisition cost of the stock or security sold (excluding any
transaction charges, commissions, fees or taxes paid at the time of
acquisition).

The applicable withholding tax rate under the United States-Korea income
tax treaty, as presently in effect (the "Treaty"), 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 Treaty, as presently in effect, no withholding tax will be
applicable to capital gains realized by the Fund.

The reduced tax rate and exemption under the provisions of the Treaty will
not apply to the dividend, interest and capital gain income derived by the Fund
from Korean corporations if both (i) the Fund is, by reason of the existence of
special measures under United States Federal income tax law with respect to
those types of income, subject to United States Federal income tax in an amount
substantially less than the United States Federal income tax generally imposed
on corporate profits (Article 17(a) of the Treaty), and (ii) at least 25% of the
Fund's outstanding shares are held of record or otherwise determined to be
owned, directly or indirectly, by one or more persons who are not individual
residents of the United States (Article 17(b) of the Treaty).

Questions have been raised as to whether the United States regulated
investment company provisions contained in the Code constitute "special
measures" for purposes of Article 17(a) of the Treaty. Regardless of the
resolution of these questions, under Article 17(b) of the Treaty, the Fund will
qualify for the benefits of the Treaty so long as less than 25% of the Fund's
outstanding shares are determined to be held other than by individual residents
of the United States.

In 1993, the Fund received written confirmation from the Minister of
Finance and Economy that, so long as the number of shares allocated to the
underwriters of countries other than the United States is less than

64
<PAGE> 65

25% of the total number of publicly offered shares (aggregating the total number
of shares allocated to underwriters by the Fund in all of its public offerings),
the Fund will continue to be entitled to the benefits of the Treaty (as it has
been until now), because Article 17(b) of the Treaty does not apply.

Recently, the Fund has received written confirmation from the Minister of
Finance and Economy that if and so long as the number of shares which have been
underwritten by underwriters which are outside of the country of residence of
the Fund throughout this Fund's four prior public offerings is less than 25% of
the total number of shares which have been publicly offered, the current
offering takes place in the form of a capital increase through an issue of
rights to subscribe for new shares to be offered to its existing shareholders,
and the certificates which evidence the right to subscribe for newly issued
shares are listed only on stock exchanges within the United States, the
applicability of the Treaty to the Fund will continue to be acknowledged.

The Fund has satisfied the foregoing requirements with respect to all of
its outstanding shares publicly offered. In order to continue to qualify for the
benefits of the Treaty, the Fund will proceed with this offering in a manner so
as to satisfy the remaining requirements and intends to satisfy all of these
requirements in all future public offerings of its shares (if any).

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, no Korean tax will be payable on gain realized
upon a sale of shares of the Fund, or upon the receipt of distributions from the
Fund, if the seller, or recipient of the distributions, as the case may be, is
not domiciled in Korea and 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."

This tax treatment could change in the event of changes in Korean or United
States tax laws, changes in the terms of, or the Minister of Finance and
Economy's interpretation of, the Treaty, or changes in relevant facts.

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, 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 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

65
<PAGE> 66

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 $603,866, of which $603,866 (100% of the total commission paid)
resulted from orders placed with brokers and dealers who provided supplementary
research, market and statistical information to the Fund or to the Manager.
Daewoo Securities, with respect to portfolio transactions for the Fund, was paid
$134,564, which amounted to 22.3% of total brokerage commissions paid. The
aggregate amount of brokerage transactions was $219,346,542 for the fiscal year.
The aggregate amount of brokerage transactions subject to brokerage commissions
was $135,583,081 (61.8% of all brokerage transactions). The aggregate dollar
amount of transactions subject to brokerage commissions that were effected
through Daewoo Securities was $31,418,176 (23.2% of the aggregate dollar amount
of transactions subject to brokerage commissions).

During the fiscal years ended June 30, 1992 and 1993, the Fund paid total
brokerage commissions of $316,155 and $263,779, respectively. During the same
periods, the Fund paid Daewoo Securities with respect to portfolio transactions
brokerage commissions of $82,901 and $49,238, respectively, which represented
26.2% and 18.7%, respectively, of the total commissions paid for each respective
period.

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. In addition, a special
agricultural and fishery tax equal to 0.15% of the sales proceeds is imposed in
the case of transactions on the Stock Exchange. The Fund currently is not
required to pay such taxes with respect to its sales on the Stock Exchange. It
is, however, required to pay the Securities Transaction Tax with respect to any
sales it makes outside of the Stock Exchange.

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

66
<PAGE> 67

Fund's assets after debts and expenses. See "Risk Factors and Special
Considerations -- Currency Conversion and Repatriation," 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 June
2, 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
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.

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.

67
<PAGE> 68

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> 69

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> 70

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)............ US$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> 71

<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> 72

<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> 73

<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> 74

<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> 75

<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> 76

<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
--------------- ------------
<S> <C> <C>
</TABLE>

<TABLE>
<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 Development Co.................................. 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> 77

<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> 78

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> 79

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> 80

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> 81

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)(c)* (.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> 82

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> 83

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 13, 1994, the Fund's shareholders approved a new Investment
Advisory, Management and Administration 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, 1.00% 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 13, 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> 84

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

Under current regulations of the Minister of Finance and Economy and the
KSEC, foreigners are subject to certain restrictions with respect to investing
in equity securities of Korean companies listed on the Korea Stock Exchange.
Until 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> 85

<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> 86

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).................. US$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
------------
</TABLE>

<TABLE>
<S> <C> <C>
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> 87

<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> 88

<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
------------
</TABLE>

<TABLE>
<S> <C> <C>
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
Choongnam 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> 89

<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> 90

<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
--------------- ------------
<S> <C> <C>
</TABLE>

<TABLE>
<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)(f)....... 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> 91

<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
--------------- ------------
<S> <C> <C>
</TABLE>

<TABLE>
<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)(f).......................................... 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 Development Co.................................. 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> 92

<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> 93

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
Payables:
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> 94

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> 95

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> 96

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>

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

F-28
<PAGE> 97

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> 98

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, and 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

F-30
<PAGE> 99

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

Under current regulations of the Minister of Finance and Economy and the
KSEC, foreigners are subject to certain restrictions with respect to investing
in equity securities of Korean companies listed on the Korea Stock Exchange. 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> 100

<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> 101

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.

Certain provisions of the Code, however, may limit the extent to which the
Fund may enter into forward contracts, options and futures, 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."

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 FEMA, the
only forward contracts the Fund is permitted to enter into relate to the Won and
the Dollar; options contracts on Won currency or Won-denominated assets are not
permitted without approval from the Minister of Finance and Economy. The Fund is
permitted to enter into forward contracts with any foreign exchange bank in
Korea in respect of the aggregate amount of the Fund's Won-denominated 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

A-1
<PAGE> 102

it had not engaged in any such transactions. Moreover, there may be an 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 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.

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

A-2
<PAGE> 103

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 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. The Stock Exchange has announced
that in 1996 it will open a stock index futures market and that in 1997 it will
open a stock index futures option market, both on the Stock Exchange floor.
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

A-3
<PAGE> 104

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.

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> 105

APPENDIX B

[Form of Subscription Certificate]

THE KOREA FUND, INC.

SUBSCRIPTION CERTIFICATE FOR COMMON SHARES

VOID IF NOT EXERCISED AT OR BEFORE 5:00 P.M.,

(NEW YORK CITY TIME) ON JUNE 21, 1995, THE EXPIRATION DATE

THIS SUBSCRIPTION CERTIFICATE IS TRANSFERABLE

RIGHTS

AND MAY BE DIVIDED AT THE OFFICE
OF THE SUBSCRIPTION AGENT

EXPIRATION DATE: JUNE 21, 1995

SUBSCRIPTION PRICE: U.S.$15.50 PER COMMON SHARE

THIS SUBSCRIPTION CERTIFICATE MAY BE USED TO
SUBSCRIBE FOR SHARES OR MAY BE ASSIGNED OR
CUSIP 500634 11 8
SOLD. FULL INSTRUCTIONS APPEAR ON THE BACK
OF THIS SUBSCRIPTION CERTIFICATE.

THE REGISTERED OWNER OF THIS
SUBSCRIPTION CERTIFICATE, NAMED BELOW,
OR ASSIGNEE, IS ENTITLED TO THE NUMBER
OF RIGHTS TO SUBSCRIBE FOR COMMON
STOCK, $0.01 PAR VALUE, OF THE KOREA
FUND, INC. (THE "FUND") SHOWN ABOVE,
IN THE RATIO OF ONE SHARE OF COMMON
STOCK FOR EACH FOUR RIGHTS, PURSUANT
TO THE PRIMARY SUBSCRIPTION AND UPON
THE TERMS AND CONDITIONS AND AT THE
PRICE FOR EACH SHARE OF COMMON STOCK
SPECIFIED IN THE PROSPECTUS DATED JUNE
5, 1995 RELATING THERETO.

IF YOU SUBSCRIBE FOR FEWER THAN ALL
THE SHARES REPRESENTED BY THIS
SUBSCRIPTION CERTIFICATE, THE
SUBSCRIPTION AGENT WILL ISSUE A NEW
SUBSCRIPTION CERTIFICATE REPRESENTING
THE BALANCE OF THE UNEXERCISED RIGHTS,
PROVIDED THAT THE SUBSCRIPTION AGENT
HAS RECEIVED YOUR SUBSCRIPTION
CERTIFICATE AND PAYMENT PRIOR TO 5:00
P.M., NEW YORK CITY TIME, ON JUNE 14,
1995. NO NEW SUBSCRIPTION CERTIFICATE
WILL BE ISSUED AFTER SUCH DATE.

IMPORTANT: COMPLETE APPROPRIATE
FORM ON REVERSE.

DATE: JUNE 5, 1995

THE KOREA FUND, INC.

CHAIRMAN OF THE BOARD

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

SUBSCRIPTION AGENT

BY: AUTHORIZED SIGNATURE

REGISTERED OWNER: CONTROL NUMBER

B-1
<PAGE> 106

PLEASE FILL IN ALL APPLICABLE INFORMATION

EXPIRATION DATE: JUNE 21, 1995

TO: STATE STREET BANK AND TRUST COMPANY
ATTENTION: CORPORATE REORGANIZATION DEPARTMENT

<TABLE>
<S> <C>
By Mail: By Facsimile:
P.O. Box 9061 (617) 774-4519,
Boston, MA 02205-8686 With the original Subscription Certificate to be sent by
mail, hand or overnight courier. Confirm facsimile by
telephone to (617) 774-4511
By Overnight Courier: By Hand:
c/o Boston Financial Data Services, Inc. 225 Franklin Street 61 Broadway
Corporate Stock Transfer Department Concourse Level or Concourse Level
Two Heritage Drive Boston, MA 02110 New York, NY 10006
North Quincy, MA 02171
</TABLE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A. PRIMARY SUBSCRIPTION divided by 4 = X $15.50 = $ (1)
----------------- ---------------- ----------------- ------------
(RIGHTS (NO. OF SHARES) (SUBSCRIPTION
EXERCISED) PRICE)
B. OVER-SUBSCRIPTION X $15.50 = $ (2)
PRIVILEGE ---------------- ----------------- ------------
(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 THE BOX 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: ------------------------------
- --------------------------------------------------------------------------------

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

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.

B-2
<PAGE> 107

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 Reorganization Department

<TABLE>
<S> <C>
By Mail: By Facsimile:
P.O. Box 9061 (617) 774-4519,
Boston, MA 02205-8686 with the original Subscription Certificate to
be sent by mail, hand or overnight courier.
Confirm facsimile by telephone to (617)
774-4511
By Overnight Courier: By Hand:
c/o Boston Financial Data Services, 225 Franklin 61 Broadway
Inc. Street or Concourse Level
Corporate Stock Transfer Department Concourse Level New York, NY 10006
Two Heritage Drive Boston, MA 02110
North Quincy, MA 02171
</TABLE>

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
City time, on the Expiration Date (unless extended). Failure to do so will
result in a forfeiture of the Rights.

C-1
<PAGE> 108

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 June 26, 1995, of
(a) a properly completed and executed Subscription Certificate, 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 Certificate.

BROKER ASSIGNED CONTROL #

THE KOREA FUND, INC.

<TABLE>
<S> <C> <C> <C> <C>
1. Primary Number of Rights to be Number of Shares on Primary Payment to be made in
Subscription exercised Subscription requested for connection with Primary
which you are guaranteeing Subscription
delivery of Rights and payment
----------------------- Rights ----------------------- Shares $ ----------------------------
(Rights divided by four)

2. Over-Subscription Number of Shares on Over- Payment to be made in
Privilege Subscription Privilege connection with
requested for which you are Over-Subscription Privilege
guaranteeing payment
----------------------- Shares $ ----------------------------

3. Totals Total number of Rights to be $ ----------------------------
delivered Total Payment
----------------------- Rights
</TABLE>

Method of delivery (circle one)

A. Through DTC

B. Direct to State Street Bank and Trust Company, as Subscription Agent.

Please assign a unique control number for each guarantee submitted. This
number needs to be referenced on any direct delivery of Rights or any delivery
through DTC. In addition, please note that if you are guaranteeing for
Over-Subscription Privilege Shares and are a DTC participant, you must also
execute and forward to State Street Bank and Trust Company a DTC Participant
Over-Subscription Form.

<TABLE>
<S> <C>
- ------------------------------------------- -------------------------------------------
Name of Firm Authorized Signature
- ------------------------------------------- -------------------------------------------
DTC Participant Number Title
- ------------------------------------------- -------------------------------------------
Address Name (Please Type or Print)
- ------------------------------------------- -------------------------------------------
Zip Code Phone Number
- ------------------------------------------- -------------------------------------------
Contact Name Date
</TABLE>

C-2
<PAGE> 109

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 CERTIFICATES.
------------------------

THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE FUND'S
PROSPECTUS DATED JUNE 5, 1995 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY
REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE FUND'S
INFORMATION AGENT.

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

VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00
P.M., NEW YORK TIME, ON JUNE 21, 1995 UNLESS EXTENDED BY THE FUND (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 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 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
$15.50 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 (unless such date is
extended by the Fund) 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 (Broker-Assigned
Control # );

/ / is being delivered to the Subscription Agent herewith; or

/ / had been delivered separately to the Subscription Agent.

D-1
<PAGE> 110

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

PLEASE ATTACH A BENEFICIAL OWNER LISTING CONTAINING THE RECORD DATE
POSITION OF PRIMARY RIGHTS OWNED, THE NUMBER OF PRIMARY SHARES SUBSCRIBED AND
THE NUMBER OF OVERSUBSCRIPTION SHARES, IF APPLICABLE, REQUESTED BY EACH SUCH
OWNER.

D-2
<PAGE> 111

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

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............................ 19
INVESTMENT OBJECTIVE AND POLICIES.......... 19
INVESTMENT RESTRICTIONS.................... 21
RISK FACTORS AND SPECIAL CONSIDERATIONS.... 22
INVESTMENT ADVISERS........................ 28
FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN
KOREA.................................... 33
THE KOREAN SECURITIES MARKETS.............. 36
THE REPUBLIC OF KOREA...................... 44
DIRECTORS AND OFFICERS..................... 52
NET ASSET VALUE............................ 55
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND
REINVESTMENT AND CASH PURCHASE PLAN...... 57
TAXATION................................... 58
PORTFOLIO TRANSACTIONS AND BROKERAGE....... 65
COMMON STOCK............................... 66
DIVIDEND PAYING AGENT, TRANSFER AGENT AND
REGISTRAR................................ 67
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.

7,386,102 SHARES OF COMMON STOCK

ISSUABLE UPON EXERCISE OF RIGHTS
TO SUBSCRIBE FOR SUCH SHARES

[KOREA FUND LOGO]

---------------------------
PROSPECTUS
---------------------------

June 5, 1995

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