THE KOREA FUND, INC.
Semiannual Report
December 31, 1995
A closed-end investment company seeking long-term appreciation of capital
through investment in Korean securities.
<PAGE>
The Korea Fund, Inc.
- --------------------
Investment objective and policies
o long-term capital appreciation through investment in Korean securities
Investment characteristics
o investments in a broad spectrum of Korean industries
o closed-end investment company
o first United States investment company authorized to invest in Korean
securities
o a vehicle for international diversification through participation in the
Korean economy
General Information
- -------------------
Executive offices
The Korea Fund, Inc.
345 Park Avenue
New York, NY 10154
Telephone:
For Fund Information: 1-800-349-4281
Transfer agent, registrar and dividend
reinvestment plan agent
For account information: 1-800-426-5523
State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
Custodian
Brown Brothers Harriman & Co.
Subcustodian-Citibank, N.A.--Seoul office
Legal counsel
Debevoise & Plimpton
Independent Accountants
Coopers & Lybrand L.L.P.
New York Stock Exchange Symbol--KF
Contents
- --------
In Brief 3
Letter to Shareholders 3
Other Information 6
Investment Summary 7
Portfolio Summary 8
Investment Performance 9
Investment Portfolio 11
Financial Statements 21
Financial Highlights 24
Notes to Financial Statements 25
Report of Independent Accountants 29
Tax Information 30
Shareholder Meeting Results 31
Dividend Reinvestment and
Cash Purchase Plan 32
Investment Manager 34
Korean Adviser 34
Officers and Directors 35
Comparisons between changes in the Fund's net asset value per share and changes
in the Korea Stock Exchange Index should be considered in light of the Fund's
investment policy and objective, the characteristics and quality of the Fund's
investments, the size of the Fund, and variations in the won/dollar exchange
rate.
This report is sent to the shareholders of The Korea Fund, Inc. for their
information. It is not a prospectus, circular, or representation intended for
use in the purchase or sale of shares of the Fund or of any securities mentioned
in the report.
2
<PAGE>
In Brief
- --------
o Despite recent declines in the Korean stock market, The Korea Fund
generated a positive total return of 2.70% for the six months ended
December 31, 1995, the first half of its 1996 fiscal year.
o The Fund added new investments in consumer- and infrastructure-related
sectors as export-driven growth began to slow.
o Taking advantage of the Fund's flexibility to invest in bonds, we invested
up to the portfolio's 10% ceiling for bond investments as Korean interest
rates declined to near all-time lows.
Letter to Shareholders
- ----------------------
Dear Shareholders:
For the first half of the six-month fiscal period ended December 31, 1995, a
number of positive factors combined to drive up prices of Korean stocks. For
that period alone, The Korea Fund generated a total return (based on net asset
value) of 12.65%. But revelations of corruption at the highest levels of
government emerged during the period's final three months, taking a toll on the
market. Despite receding stock prices, the Fund finished the period with a
positive total return of 2.70%, reflecting an increase in net asset value (NAV)
to $20.04 at the end of 1995 from $19.89 on June 30, and the reinvestment of
$0.36 per share in capital gain distributions and $0.06 in income distributions.
Meanwhile, your Fund, as listed on the New York Stock Exchange, remained among
the few closed-end funds trading above NAV. On December 31, the Fund's market
value was $22.00 -- a 9.8% premium above NAV. As with individual stocks, the
Fund's stock-exchange-listed price is a barometer of market demand, which has
remained consistently strong.
Your Fund's six-month results surpassed that of the broader Korean stock
market, which posted a total return of -1.28% for the same period, as measured
by the Korean Stock Exchange Index. Meanwhile, the Korean won -- the movements
of which tend to track those of the U.S. dollar -- remained essentially stable,
ending the period 2.27% lower relative to the U.S. dollar.
Investment Environment
The hospitable conditions that characterized the investment landscape during
the first half of the semiannual period were well grounded by several positive
fundamental forces, including stable levels of inflation, falling interest
rates, and an economy that remained on a healthy growth path. Brisk exports
contributed to the escalating stock prices, as did aggressive corporate
investments in facilities. By summer, however, the pace of capital investment
had begun to taper off. Waning corporate demand for financing pushed the
benchmark 3-year corporate bond rate to near-historic lows of around 12%. The
slowing world economy, meanwhile, had begun to brake Korea's export-related
growth. Companies that thrive on domestic infrastructure investment and
consumption began moving to the fore.
The market's upbeat mood all but vanished midway through the period.
Headlines implicating former Korean presidents Roh and Chun in slush fund
activities rendered the magnitude of political scandals impossible to ignore.
The news halted the rise in stock prices across nearly all sectors with the
exception of insurance, which had begun to turn the corner after a financially
3
<PAGE>
difficult period. Though troubling, the investigation and arrest of the
ex-presidents demonstrate the government's resolve to end such unsavory
practices, paving the way for a structurally sounder marketplace. Government
reforms, such as subjecting companies to fuller disclosure of their records,
should help sever the traditional link between businesses and politicians. In
short, Korea's capital markets stand to benefit as the country takes a
democratic step forward.
Also darkening investor sentiment was the economic situation in North Korea.
Battered by catastrophic floods during the summer, North Korea watched its
agricultural production plummet. But helping to temper the market's apprehension
toward the deteriorating economy is the ongoing and increasing dialogue between
North Korea and the United States. In addition, the likelihood that the United
States will establish a liaison office in Pyongyang, the North Korean capital,
is helping to curb any military threat.
Meanwhile, the decline in value of the Japanese yen cast a shadow on the
profitability of Korean export-oriented companies. In recent years, the yen's
persistent strength afforded these companies a competitive upper hand. The now
falling yen may mean Korean exports are less price competitive in the
international marketplace. One positive: A weaker yen helps to ease the debt
burden -- much of which is yen-denominated -- of Korean companies.
Portfolio Strategy
From a fundamental standpoint, the Fund's buy and hold framework remained
unchanged during the six months. As always, our investment approach centers
around a comprehensive research process designed to identify the best-managed
Korean companies. We continued to focus on growing companies that we would favor
under any market climate. The Fund's top 10 holdings, in fact, represent 53.1%
of the portfolio.
During the six-month period, withering capital investments in facilities
accentuated our interest in companies that could benefit from declining interest
rates. For instance, we added to existing holding Samsung Fire and Marine
Insurance, which numbered among the handful of businesses that continued to
produce gains amidst broad declines in the market. We also increased investments
appreciably in bonds, up to the Fund's ceiling of 10%. This decision contributed
positively to portfolio performance during the period.
As the political scandal surfaced in September, we took advantage of
opportunities created by falling stock prices to purchase solid companies
selling below their true worth, in our estimation. For example, we acquired
additional shares of Kumho Construction and LG Securities. We also selectively
invested in the consumer sector, including such attractively-valued financial,
chemical, and cosmetic stocks as Korea Exchange Bank, Hanwha, and Pacific Corp.,
respectively.
Outlook
The underpinnings vital to a healthy economy -- falling interest rates,
stable inflation, and solid corporate earnings -- remain intact, though recent
events are glaring reminders of the power wielded by investor sentiment. During
1995, Korea's GDP expanded at a respectable rate of more than 9%. Many Koreans
tend to regard anything short of double-digit growth as recessionary, having
become accustomed to the 12% and 13% annual growth rates typical during the past
20 years. Still, the economic growth of 7% to 7.5% we are anticipating for 1996
is decidedly strong relative to most other economies.
Another reason for optimism: Recoveries taking shape around the globe should
be helpful for Korean export growth, which has fallen from exceedingly high
4
<PAGE>
levels. Exports remain the driving force of the Korean economy. Further, the
likelihood is slim that interest rates will creep up, given the diminished
demand for cash. Lower interest rates, of course, are good news for corporate
bottom lines. Even more encouraging from a fundamental vantage point are
government plans to open the Korean bond market this year to foreign investors
- -- the first time in its history. (As you know, your Fund has participated in
Korea's bond market since its launch in 1984. At that time, Scudder had procured
special licenses directly from the Korean government to gain the privilege of
investing in bonds.) This important market reform should foster greater
stability as the influx of foreign money helps to check fluctuations in interest
rates, which have varied by more than 20 percentage points during the past 10
years.
While Korea today is no longer the emerging market it once was, the room for
growth remains vast. Korea's stock market capitalization is only 50% of the
country's GDP--lower than that of its Asian neighbors. And because its
population is among the best educated in the world, Korea is particularly rich
in human resources. Geographically, too, the country is well situated, located
centrally in the midst of such economic powers as Japan, Russia, and China. In
the four brief years since China and Korea commenced trading relations, China
already has become Korea's third largest trading partner.
At the moment, Korean stocks may face additional bouts of volatility until
the vexing political distractions are fully laid to rest. The approaching
elections in April could have positive near-term implications, should the
government decide to step up measures to support the economy, although the
eventual outcome of the elections is expected to have little impact on the
capital markets. More heartening still, the Ministry of Finance and Economy has
stated its intention to hasten efforts to relax limitations on foreign stock
ownership further, shifting the supply/demand balance favorably toward Korean
stocks.
Against this backdrop, we will continue to concentrate on consumer-oriented
companies and those that flourish from domestic infrastructure investments,
while paring back investments in companies that fail to remain well positioned
in Korea's evolving market environment.
We are pleased that you have chosen to invest in The Korea Fund, Inc. and we
welcome your questions or comments.
Respectfully,
/s/Nicholas Bratt /s/Juris Padegs
Nicholas Bratt Juris Padegs
President Chairman of the Board
5
<PAGE>
Other Information
- -----------------
A Team Approach to Investing
The Korea Fund, Inc. is managed by a team of Scudder investment professionals
who each play an important role in the Fund's management process. Team members
work together to develop investment strategies and select securities for the
Fund. They are supported by Scudder's large staff of economists, research
analysts, traders, and other investment specialists who work in Scudder's
offices across the United States and abroad. We believe our team approach
benefits Fund investors by bringing together many disciplines and leveraging
Scudder's extensive resources.
Lead Portfolio Manager John J. Lee has set Fund investment strategy and
overseen its daily operation since 1991, the year he joined Scudder's global
equity area. Nicholas Bratt, Portfolio Manager, has been a member of the
Portfolio team since 1984 and has over 20 years of experience in worldwide
investing. Mr. Bratt, who has been at Scudder since 1976, is the Director of
Scudder's Global Equity Department.
Dividend Reinvestment and Cash Purchase Plan
The Fund's Dividend Reinvestment and Cash Purchase Plan offers you a
convenient way to have your dividends and capital gain distributions reinvested
in shares of the Fund. We believe this Plan is attractive for shareholders. Its
features are more fully described on page 32.
Annual Meeting Election Results
At the October 11, 1995 Annual Meeting, the shareholders elected three
directors, including Hugh T. Patrick, who replaced Sidney M. Robbins, and the
selection of Coopers & Lybrand L.L.P. as the Fund's independent accountants for
the fiscal year ending June 30, 1996, was ratified. Shareholders also approved
the continuance of the Investment Advisory, Management and Administration
Agreement between the Fund and Scudder, Stevens & Clark, Inc. and the
continuance of the Research and Advisory Agreement between Scudder, Stevens &
Clark, Inc. and Daewoo Capital Management Co., Ltd. Please see the table
entitled "Shareholder Meeting Results" on page 31 for more information. Mr.
Robbins, who chose not to stand for reelection, was elected by the Board as
Emeritus Founding Director.
Net Asset Value
The Fund's NAV is published every Monday in The Wall Street Journal under the
heading "Closed End Funds." The Fund's NAV is also published in The New York
Times and Barron's.
As a service to overseas shareholders, the Fund's NAV is listed daily in
The Financial Times ("FT"). For your information, the NAV of the Fund and other
Scudder closed-end funds can be found in the "FT Managed Funds Service" section
under the heading "Other Offshore Funds" below the Scudder, Stevens & Clark,
Inc. banner.
6
<PAGE>
THE KOREA FUND, INC.
INVESTMENT SUMMARY AS OF DECEMBER 31, 1995
- -----------------------------------------------------------------
HISTORICAL
INFORMATION TOTAL RETURN (%)
LIFE OF FUND ---------------------------------------------------------------
MARKET VALUE NET ASSET VALUE (a) INDEX (c)
------------------- -------------------- -------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
------------------- -------------------- -------------------
CURRENT QUARTER -.02 -- -8.83 -- -10.15 --
FISCAL YEAR
TO DATE 14.27 -- 2.70 -- -1.28 --
ONE YEAR 3.89 3.89 4.26 4.26 -14.06 -14.06
THREE YEAR 69.91 19.33 104.03 26.83 30.14 9.18
FIVE YEAR 100.10 14.88 105.26 15.47 26.84 4.87
TEN YEAR 529.18 20.19 652.92 22.37 440.45 18.38
- -----------------------------------------------------------------
PER SHARE INFORMATION AND RETURNS (a)
YEARLY PERIODS ENDED DECEMBER 31
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) with the exact
data points listed in the table below.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
--------------------------------------------------------------------------------
NET ASSET VALUE(b).. $ 8.16 $11.28 $15.93 $18.55 $11.10 $10.55 $10.62 $16.64 $20.65 $20.04
INCOME DIVIDENDS.... $ .11 $ .29 $ .11 $ .08 $ -- $ .06 $ .04 $ .01 $ -- $ .06
CAPITAL GAINS
DISTRIBUTIONS....... $ .03 $ .68 $ 1.74 $ 1.88 $ 2.20 $ .34 $ .20 $ -- $ .15 $ .36
TOTAL RETURN (%).... 85.05 44.48 55.97 22.79 -28.36 -2.05 2.71 56.77 24.84 4.26
</TABLE>
(a) Total investment returns reflect changes in net asset value per share
during each period and assumes that dividends and capital gains
distributions, if any, were reinvested. These percentages are not an
indication of the performance of a shareholder's investment in the
Fund based on market.
(b) Net asset value per share through 1988 has been adjusted for a 200%
stock dividend paid in October 1988.
(c) Korea Stock Price Index ("KOSPI")
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE OF THE
FUND.
7
<PAGE>
THE KOREA FUND, INC.
PORTFOLIO SUMMARY AS OF DECEMBER 31, 1995
- ---------------------------------------------------------------------------
DIVERSIFICATION
Common Stocks 85%
Preferred Stocks 5%
Convertible Bonds 4%
Notes 3%
Corporate Bonds 2%
Cash Equivalents 1%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
- ---------------------------------------------------------------------------
SECTORS
Sector breakdown of the Fund's equity securities
Technology 23%
Communications 16%
Financial 15%
Durables 8%
Construction 7%
Consumer Staples 7%
Manufacturing 6%
Consumer Discretionary 5%
Health 3%
Other 10%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
- ---------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
1. SAMSUNG ELECTRONICS CO., LTD.
Major electronics manufacturer
2. KOREA MOBILE TELECOM
Mobile telecommunication company
3. SAMSUNG FIRE & MARINE INSURANCE CO.
Insurance company
4. HYUNDAI MOTOR SERVICES CO., LTD.
Auto parts and services
5. KOREA LONG TERM CREDIT BANK
Major commercial bank
6. SAMSUNG DISPLAY DEVICES
Leading manufacturer of CRT and picture tubes
7. KEUM KANG CO., LTD.
Construction company and manufacturer of building materials
8. CHEIL FOOD AND CHEMICAL CO., LTD.
Korea's largest sugar refiner and major integrated food processor
9. HANSOL PAPER MANUFACTURING CO., LTD.
Korea's largest paper manufacturer
10. HANKOOK TIRE MANUFACTURING CO., LTD.
Major tire manufacturer
8
<PAGE>
The Korea Fund, Inc.
Investment Performance
- -----------------------
CHART TYPE: LINE CHART
CHART TITLE:
KOREA FUND INVESTMENT PERFORMANCE
History (in terms of N.Y.S.E. Value) of a $10,000 Investment in Fund Shares
vs. the S&P 500 Index*
CHART DATA:
<TABLE>
<CAPTION>
Change In Share Value Of Initial Investment With Change In Share Value Of
Total Return Capital Gains Distribution Reinvested Initial Investment S&P 500 Total Return
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
10942 10942 10942 10000
11983 11983 11983 9972
11875 11875 11875 10159
11458 11458 11458 11095
12292 12292 12292 11906
11787 11250 11250 11422
15393 14692 14692 13395
20632 19692 19692 15286
29440 27817 27817 16186
32537 30709 30625 15054
30103 28411 28333 15905
56221 53061 52917 19304
62087 58597 58438 20265
67523 63039 62396 21689
51016 47628 45938 16801
73921 69011 66563 17755
65476 61127 58958 18925
59075 54750 50000 18993
80516 74621 65625 19608
108121 100205 88125 21000
97003 89900 79063 22837
133542 123540 105000 25283
111177 102850 85938 25801
73983 68442 57188 25017
71557 66198 55313 26571
44506 41173 30625 22930
48402 44777 31250 24976
56630 52389 36563 28611
54694 50598 35313 28520
57251 52736 36250 30052
50380 46407 31563 32576
47387 43650 29688 31761
45392 41813 28438 32345
49876 45787 30625 33368
57001 52328 35000 35054
52421 48123 32188 36585
61073 56066 37500 36763
59037 54197 36250 37711
97766 89706 60000 38587
78417 71951 48125 37122
89619 82230 55000 37277
107003 98181 65313 39097
93227 85541 56875 39091
87592 80371 53438 42897
84754 73790 49063 46995
96871 84340 55313 50730
96850 84082 55000 53785
</TABLE>
9
<PAGE>
The Korea Fund, Inc.
Investment Performance
- ----------------------
CHART TYPE: LINE CHART
CHART TITLE:
KOREA FUND INVESTMENT PERFORMANCE
History (in terms of Net Asset Value) of a $10,000 Investment in
Fund Shares*
CHART DATA:
<TABLE>
<CAPTION>
Change In Share Value Of Initial
Investment With Capital Gains Change In Share Value Of
Total Return Distribution Reinvested Initial Investment
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10000 10000 10000
10072 10072 10072
10269 10269 10269
10197 10197 10197
10305 10305 10305
10083 9624 9624
12599 12025 12025
16796 16030 16030
21224 20054 20054
23020 21726 21667
23315 22004 21944
31873 30082 30000
31788 30001 29919
31515 29422 29122
33685 31447 30332
38620 36055 34776
41695 38926 37545
40580 37609 34346
52539 48693 42823
62236 57679 50726
55541 51474 45269
65403 60505 51425
64511 59679 49866
60372 55851 46667
50252 46489 38844
42973 39754 29570
46216 42755 29839
45050 41676 29086
42760 39558 27608
45385 41806 28737
45269 41699 28360
54323 50039 34032
46127 42489 28898
42992 39467 26398
46494 42683 28548
46844 43004 28763
49909 45817 30645
50128 46018 30780
72887 66877 44731
74814 68646 45914
81735 74996 50161
94468 86679 57661
90991 83489 55511
91123 83610 55591
92364 80416 53468
104044 90585 59409
94862 82356 53871
<FN>
The data set forth above should not be construed as an indication of the record
of a shareholder's investment in the Fund based on market prices; nor should it
be construed as a representation of the future performance of the Fund's net
asset value.
* The Korea Fund, Inc. performance charts make the following key assumptions:
1. The data have been adjusted to reflect a 200% stock dividend paid in
October 1988.
2. Investment income and capital gains reinvested at the greater of the
following on the valuation date:
(a) Net asset value per share or
(b) 95% of the mean market price per share.
3. No adjustments have been made for U.S. income taxes. Korean taxes are
reflected.
4. Initial $10,000 investment was made at initial public offering price and at
initial net asset value price.
The Standard & Poor's 500 Stock Index is a widely followed, unmanaged index of
500 industrial, transportation, utility and financial companies widely regarded
as representative of the equity market in general.
</FN>
</TABLE>
10
<PAGE>
The Korea Fund, Inc.
Investment Portfolio as of December 31, 1995
================================================================================
<TABLE>
<CAPTION>
Principal Market
Amount (e) Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT 0.5%
U.S.$ 3,309,000 Repurchase Agreement with Donaldson, Lufkin &
Jenrette dated 12/29/95 at 5.85%, to be repurchased
at $3,311,151 on 1/2/96, collateralized by a
$3,277,000 U.S. Treasury Note, 7.625%, 4/30/96
(Cost $3,309,000) ................................... 3,309,000
------------
- --------------------------------------------------------------------------------------------------------------------------
NOTES 3.4%
19,750,000,000 Korea Development Bank, 10.17%, 1/26/96
(Cost $25,430,126) .................................. 25,322,022
------------
- --------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS 1.8%
METALS & MINERALS
10,000,000,000 Korea Tungsten Exchange Bond, Zero Coupon with
36.03% bonus interest at maturity, 11/11/98
(Cost $13,174,366) (c)............................... 13,050,960
------------
- --------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS 4.3%
CONSUMER DISCRETIONARY 0.4%
Apparel & Shoes 1,000,000,000 Shinwon, 6%, 12/31/96 (Major apparel
manufacturer) (c).................................... 2,376,732
------------
CONSUMER STAPLES 1.5%
Alcohol & Tobacco 0.5% 3,000,000,000 Jinro Ltd., 2% with 14.85% bonus interest
at maturity, 9/30/98 (Leading producer of Soju,
a distilled spirit) (c).............................. 3,722,463
------------
Food & Beverage 0.4% 800,000,000 Crown Confectionery Co., 3% with 16.28% bonus
interest at maturity, 12/31/97 (Major producer
of snacks) (c)....................................... 1,009,205
2,000,000,000 Haitai Confectionery Co., 1% with 13.13% bonus
interest at maturity, 6/30/98 (Major
producer of snacks) (c).............................. 2,236,822
------------
3,246,027
------------
Textiles 0.6% U.S.$ 2,000,000 Kolon Industries, Inc., 0.25%, 12/31/04 (Leading
manufacturer of nylon, polyester yarn and fabrics)... 1,030,000
2,400,000,000 Kukje Corp., 12% with 4.62% bonus interest at
maturity, 12/31/97 (Shoe manufacturer) (c)........... 3,211,352
------------
4,241,352
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
The Korea Fund, Inc.
Investment Portfolio (continued)
================================================================================
<TABLE>
<CAPTION>
Principal Market
Amount (e) Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH 0.5%
Pharmaceuticals 3,000,000,000 Korean Green Cross Corp., 1% with 11.88%
bonus interest at maturity, 12/31/97
(Pharmaceutical company) (c)......................... 3,532,852
400,000,000 Yuhan Corporation, 5.5% with 25.41%
bonus interest at maturity, 12/31/97
(Pharmaceutical company) (c)......................... 563,997
------------
4,096,849
------------
MANUFACTURING 0.6%
Containers & Paper 4,000,000,000 Hansol Paper Manufacturing Co., Ltd., 3%
with 28.24% bonus interest at maturity, 12/31/99
(Korea's largest paper manufacturer) (c)............. 4,680,556
------------
TECHNOLOGY 0.0%
Electronic Components/
Distributors CHF 500,000 Samsung Electromechanics Co., Ltd., 0.25%, 12/31/00
(Major electronics parts company).................... 268,945
------------
ENERGY 0.8%
Oil & Gas Production 3,000,000,000 Yukong, Ltd., 1% with 13.92% bonus interest at
maturity, 12/31/98 (Korea's largest oil refiner)(c).. 3,233,041
2,000,000,000 Yukong, Ltd., 2% with 8.15% bonus interest at
maturity, 12/31/97 (c)............................... 2,312,105
------------
5,545,146
------------
METALS & MINERALS 0.3%
Steel & Metals 1,000,000,000 Kangwon Industry, 6% with 19.52% bonus interest
at maturity, 6/30/97 (Steel company) (c)............. 1,431,552
500,000,000 Sammi Steel, 4% with 20.57% bonus interest
at maturity, 12/31/97 (Specialty steel company) (c).. 663,732
------------
2,095,284
------------
CONSTRUCTION 0.2%
Miscellaneous 1,000,000,000 Sungwon Construction, 5% with 21.11%
bonus interest at maturity, 12/31/97
(Construction company) (c)........................... 1,354,850
------------
TOTAL CONVERTIBLE BONDS (Cost $34,794,673) 31,628,204
------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PREFERRED STOCKS 4.5% Shares
------
<S> <C> <C> <C>
CONSUMER DISCRETIONARY 0.0%
Apparel & Shoes
4,000 Baik Yang Co. (Leading maker of under garments)........ 256,268
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Market
Shares Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER STAPLES 0.7%
Alcohol & Tobacco 0.1% 46,165 Oriental Brewery Co., Ltd. (Korea's largest brewery)... 404,669
------------
Food & Beverage 0.4% 73,690 Cheil Food and Chemical Co., Ltd. (Korea's largest
sugar refiner and major integrated food processor)... 2,574,282
52,280 Haitai Confectionery Co................................ 370,661
------------
2,944,943
------------
Package Goods
Cosmetics 0.1% 85,000 Pacific Corp. (Leading cosmetics producer).............. 932,452
------------
Textiles 0.1% 72,990 Sunkyong Industries, Ltd. (Leading producer of acetate
filament yarn, polyester yarns and fabrics)........... 1,063,212
------------
HEALTH 0.0%
Pharmaceuticals 10,000 Shinpoong Pharmaceutical Co. (Specialized drug
producer)............................................. 224,299
------------
FINANCIAL 1.2%
Insurance 0.3% 6,175 Samsung Fire & Marine Insurance Co. (Insurance
company) (d).......................................... 2,429,404
------------
Other Financial
Companies 0.9% 100,000 Boo Kook Securities (Securities company)............... 904,931
100,000 Boram Securities (Securities company).................. 966,806
244,900 L G Securities Co., Ltd. (Securities company).......... 2,683,403
71,000 Shin Young Securities (Securities company)............. 832,871
72,000 Ssangyong Investment and Securities
(Securities company)................................. 756,429
------------
6,144,440
------------
SERVICE INDUSTRIES 0.2%
Miscellaneous Commercial
Services 90,000 Sunkyong Ltd. (Leading trading company)................ 1,090,558
------------
DURABLES 0.6%
Automobiles 0.3% 106,358 Hyundai Motor Services Co., Ltd. (Auto parts and
service)............................................. 2,426,731
------------
Tires 0.3% 388,000 Korea Kumho Co. (Korea's largest tire manufacturer).... 2,250,725
------------
MANUFACTURING 0.2%
Chemicals 50,000 LG Chemicals, Ltd. (Leading producer of
petrochemicals and household products)............... 585,885
69,375 Oriental Chemical Industries Co., Ltd. (Manufacturer of
specialty chemicals)................................. 1,117,870
------------
1,703,755
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
The Korea Fund, Inc.
Investment Portfolio (continued)
================================================================================
<TABLE>
<CAPTION>
Market
Shares Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY 0.7%
Electronic Components/
Distributors 8,198 Samsung Display Devices (Leading manufacturer of
CRT and picture tubes)............................... 450,190
823 Samsung Display Devices (New) (b)...................... 45,513
30,920 Samsung Electronics Co., Ltd. (Major electronics
manufacturer) (d).................................... 3,658,983
6,119 Samsung Electronics Co., Ltd. (New) (b) (d)............ 711,232
------------
4,865,918
------------
ENERGY 0.0%
Oil Companies 1,174 Ssangyong Oil Refining Co. (Major oil refiner) (c)..... 18,631
------------
METALS & MINERALS 0.1%
Steel & Metals 53,950 Kangwon Industry....................................... 493,774
108,080 Sammi Steel Co. (Specialty steel producer)............. 564,259
------------
1,058,033
------------
CONSTRUCTION 0.7%
Building Materials 0.2% 9,130 Sung Shin Cement Co., Ltd. (Major cement company)...... 153,000
63,500 Tong Yang Cement Co., Ltd. (Major cement company)...... 1,023,203
------------
1,176,203
------------
Miscellaneous 0.5% 95,000 Hyundai Engineering & Construction Co. (Leading
general contractor).................................. 2,596,197
145,540 Kumho Construction and Engineering (Engineering and
construction company)................................ 1,082,521
------------
3,678,718
------------
TRANSPORTATION 0.1%
Airlines 40,520 Korean Airlines Co., Ltd. (Airline).................... 767,830
------------
TOTAL PREFERRED STOCKS (Cost $35,219,650).............. 33,436,789
------------
- --------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 85.5%
Consumer Discretionary 4.0%
Apparel & Shoes 0.4% 10,000 Baik Yang Co........................................... 1,289,075
30,000 Ssang Bang Wool Co. (Leading underwear manufacturer)... 1,550,757
------------
2,839,832
------------
Department & Chain
Stores 3.6% 165,730 Hwa Sung Industries (Department store)................. 6,024,603
81,604 Hwa Sung Industries (New) (b).......................... 2,735,036
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Market
Shares Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
9,436 Keum Kang Development Industries Co., Ltd. (New)
(Operator of department stores and hotels) (b)....... 159,345
114,577 Shinsegae (Major department store chain).............. 9,570,854
34,753 Shinsegae (New) (b).................................... 2,867,151
162,860 Taegu Department Store (Department store)............ 3,715,916
55,640 Taegu Department Store (New)........................... 1,276,690
------------
26,349,595
------------
CONSUMER STAPLES 4.3%
Alcohol & Tobacco 0.4% 19,000 Jinro, Ltd............................................. 440,864
3,486 Jinro, Ltd. (New) (c).................................. 74,813
120,740 Oriental Brewery Co., Ltd.............................. 2,723,753
------------
3,239,430
------------
Food & Beverage 2.8% 198,413 Cheil Food and Chemical Co., Ltd...................... 13,606,924
39,900 Haitai Confectionery Co............................... 494,282
32,271 Nhong Shim Co......................................... 998,394
48,000 Pulmuone Co. (New) (Food producer).................... 2,165,646
118,658 Tongyang Confectionery (Major producer of snacks)..... 3,059,181
------------
20,324,427
------------
Textiles 1.1% 31,895 Cheil Industries (New) (Korea's largest woolen yarn
and fabric manufacturer) (b)......................... 735,959
79,739 Cheil Industries....................................... 1,860,491
9,390 Daehan Synthetic Fiber (Manufacturer of polyester yarns
and synthetic fibers)................................ 1,149,919
33,500 Hankook Synthetics (Textile manufacturer).............. 2,202,385
3,040 Taekwang Industrial Co., Ltd. (Major producer of
acrylic fiber)....................................... 1,990,744
16,500 Tongyang Nylon (Korea's largest producer of nylon
filament yarn)....................................... 570,029
------------
8,509,527
------------
HEALTH 2.0%
Pharmaceuticals 72,632 Chong Kun Dang Co., Ltd. (Pharmaceutical company)...... 3,089,712
30,940 Daewoong Pharmaceutical Co. (Pharmaceutical
company)............................................. 1,515,591
3,200 Daewoong Pharmaceutical Co. (New) (b).................. 148,501
4,840 Daewoong Pharmaceutical Co. (New) (b).................. 218,369
10,000 Korea Green Cross Corp................................. 1,054,463
138,121 Yuhan Corporation...................................... 8,101,199
16,065 Yuhan Corporation (New) (c)............................ 866,671
------------
14,994,506
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
The Korea Fund, Inc.
Investment Portfolio (continued)
================================================================================
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMUNICATIONS 15.4%
Cellular Telephone 100,702 Korea Mobile Telecom (Mobile telecommunication
company) (d) ..................................... 113,520,978
-----------
FINANCIAL 13.2%
Banks 5.2% 240,028 Cheju Bank (Regional bank) ......................... 3,341,672
3,381 Daegu Bank (New) (Regional bank) ................... 47,942
242,929 Hanil Bank (Major commercial bank) ................. 2,592,913
103,170 Kookmin Bank (Major commercial bank) ............... 1,901,812
28,365 Kookmin Bank (New) ................................. 504,592
160,000 Korea Exchange Bank (Major commercial bank) ........ 1,784,080
268,454 Korea Exchange Bank (New) (b) ...................... 2,941,488
43,900 Korea First Bank (Major commercial bank) ........... 390,474
667,902 Korea Long Term Credit Bank (Major
commercial bank) ................................. 18,855,371
253,180 Shin Han Bank (Major commercial bank) .............. 4,960,794
44,435 Shin Han Bank (New) (b) ............................ 842,017
----------
38,163,155
----------
Insurance 6.6% 85,376 Daehan Fire & Marine Insurance Co., Ltd.
(Insurance company) .............................. 3,543,806
44,656 Hyundai Fire and Marine Insurance (Insurance
company) ......................................... 2,613,448
49,912 L G Insurance (Insurance company) .................. 5,018,549
68,967 Samsung Fire & Marine Insurance Co. (d) ............ 37,308,413
----------
48,484,216
----------
Other Financial
Companies 1.4% 19,989 Boo Kook Securities ................................ 255,096
87,191 Hanyang Securities (Securities company) ............ 1,045,280
1,224 Hyundai Securities (Securities company) ............ 21,301
100,763 L G Securities Co., Ltd. ........................... 1,792,497
123,010 Samsung Securities (Securities company) ............ 4,138,654
172,384 Ssangyong Investments and Securities ............... 3,111,023
----------
10,363,851
----------
SERVICE INDUSTRIES 1.9%
Miscellaneous Commercial
Services 250,042 Samsung Co., Ltd. (Trading company) ................ 6,704,317
100,195 Samsung Co., Ltd. (New) (b) ........................ 2,609,009
156,060 Sunkyong Ltd. ...................................... 3,721,702
39,918 Sunkyong Ltd. (New) ................................ 915,940
----------
13,950,968
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DURABLES 7.0%
Automobiles 4.8% 116,209 Hyundai Motor Co., Ltd. (Korea's largest auto
manufacturer) ................................... 5,258,055
423,380 Hyundai Motor Services Co., Ltd. .................. 18,501,556
113,341 Mando Machinery Co. (Major auto parts manufacturer) 5,727,320
35,000 Samlip Industries (Auto parts manufacturer) (c) ... 1,579,117
90,000 Yoosung Enterprise (Leading manufacturer of
engine parts) ................................... 4,350,628
----------
35,416,676
----------
Leasing Companies 0.3% 93,000 Korea Development Leasing Co. (Largest
leasing company in Korea) ....................... 2,385,691
----------
Telecommunications
Equipment 0.1% 4,610 LG Information & Communication (New) (Leading
manufacturer of telecommunications equipment) ... 421,927
----------
Tires 1.8% 194,916 Hankook Tire Manufacturing Co., Ltd. (Major tire
manufacturer) ................................... 11,558,024
36,495 Hankook Tire Manufacturing Co., Ltd. (New) (c) .... 1,981,950
----------
13,539,974
----------
MANUFACTURING 5.1%
Chemicals 2.1% 15,000 Daeil Chemical Co. (Manufacturer of bandages and
other medical products) ......................... 1,111,827
55,000 Hanwha Co. (Producer of explosives and
petrochemicals) .... ............................ 921,689
37,540 Korea Chemical Co. (Paint company) . .............. 3,774,567
150,000 Korea Kumho Petrochemical (Leading producer of
synthetic rubber) ............................... 1,759,588
117,000 Korea Kumho Petrochemical Co. (Leading producer of
synthetic rubber) ............................... 1,063,294
271,853 L G Chemical (Korea's largest integrated
chemical company) ............................... 5,186,496
47,400 Oriental Chemical Industries Co., Ltd. . .......... 1,435,901
2,647 Oriental Chemical Industries Co., Ltd. (New) (b) .. 80,186
----------
15,333,548
----------
Containers & Paper 1.4% 50,000 Asia Paper Manufacturing Co. (Specialized
maker of cardboard used for packaging) (c) ...... 1,366,420
210,712 Hansol Paper Manufacturing Co., Ltd. .............. 8,067,221
30,977 Hansol Paper Manufacturing Co., Ltd. (New) (c) .... 1,078,814
----------
10,512,455
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
The Korea Fund, Inc.
Investment Portfolio (continued)
================================================================================
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Diversified
Manufacturing 0.9% 23,256 Hyundai Precision Industry Co. (Leading transport
container manufacturer and machinery producer) .. 458,675
200,239 Samsung Heavy Industries Co., Ltd. (Machinery
manufacturer) ................................... 5,136,650
30,070 Samsung Heavy Industries Co., Ltd. (New) (b) ...... 759,745
-----------
6,355,070
-----------
Electrical Products 0.5% 114,086 Kyungwon Century Co., Ltd. (Major
manufacturer of heating and cooling equipment) .. 3,911,940
-----------
Industrial Specialty 0.2% 17,890 Sam Sung Radiator Industrial Co. (Maker
of radiators used in automobiles,
agricultural machinery and heavy-duty vehicles) . 1,404,449
-----------
TECHNOLOGY 20.4%
Electronic Components/
Distributors 20.1% 62,000 L G Electronics, Inc.
(Major electronics manufacturer) ................ 2,157,912
109,643 L G Electronics, Inc. (GDR) ....................... 1,288,305
6,394 L G Electronics, Inc. (GDR) (New) ................. 102,304
137,767 Samsung Display Devices (b) ....................... 12,165,053
53,095 Samsung Display Devices (New) (b) ................. 4,517,267
167,073 Samsung Electromechanics Co., Ltd. ................ 8,399,416
65,331 Samsung Electromechanics Co., Ltd. (New) (b) ...... 3,242,338
523,910 Samsung Electronics Co., Ltd. (b) (d) ............. 96,177,941
103,682 Samsung Electronics Co., Ltd. (New) (b) (d) ....... 18,898,659
8,243 Samsung Electronics Co., Ltd. (New) (b) (d) ....... 1,507,861
-----------
148,457,056
-----------
Electronic Data
Processing 0.3% 70,000 Trigem Computer Inc. (Major personal computer
manufacturer) ................................... 2,174,670
-----------
ENERGY 1.6%
Oil & Gas Production 24,940 Samchully (Producer and distributor of
anthracite and gas) ............................. 1,787,514
131,757 Ssangyong Oil Refining Co. ........................ 3,736,583
160,499 Yukong, Ltd. ...................................... 5,544,795
19,232 Yukong, Ltd. (New) (b) ............................ 661,933
-----------
11,730,825
-----------
METALS & MINERALS 1.9%
Steel & Metals 1,641 Hankook Core Co. (Steel company) .................. 25,384
165,000 Inchon Iron & Steel (Steel company) ............... 6,253,303
254,428 Kia Steel Co., Ltd. (Specialty steel company) ..... 1,967,861
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
76,481 Kia Steel Co., Ltd. (New) (b) ...................... 581,680
68,200 Pohang Iron & Steel Co., Ltd.
(Korea's largest steel producer) (d) ............. 4,947,588
72,463 Sammi Steel Co. .................................... 571,671
-----------
14,347,487
-----------
CONSTRUCTION 5.7%
Building Materials 3.8% 10,000 Asia Cement Manufacturing Co. (Major
producer of cement) .............................. 430,551
24,000 Hanil Cement Manufacturer (Cement manufacturing
company) ......................................... 1,392,201
224,337 Keum Kang Co., Ltd. (Construction company and
manufacturer of building materials) .............. 16,743,941
216,207 Ssangyong Cement Industrial Co., Ltd. (Major cement
company) ......................................... 6,047,943
63,000 Sung Shin Cement Co., Ltd. (Major cement company) .. 2,273,928
44,000 Tong Yang Cement Co., Ltd. ......................... 1,361,263
200 Tong Yang Cement Co., Ltd. Warrants
(expire 8/18/96) (f) ............................. 45,000
-----------
28,294,827
-----------
Miscellaneous 1.9% 11,605 Dong Ah Construction Industries Co., Ltd. (New)
(Leading construction company) (c) .............. 370,215
38,510 Han Shin Construction (Construction company) ....... 259,133
132,000 Hyundai Engineering & Construction Co. ............. 6,057,622
13,287 Hyundai Engineering & Construction Co. (New) ....... 599,478
201,270 Kumho Construction and Engineering ................. 2,366,204
95,220 Samsung Engineering & Construction Co. (Engineering
and construction company) ........................ 2,454,915
81,401 Samsung Engineering & Construction Co. (New) (b) ... 2,056,667
370 Sungwon Construction ............................... 7,441
864 Sungwon Construction (New) (b) ..................... 17,152
240 Sungwon Construction (New) (b) (c) ................. 4,460
-----------
14,193,287
-----------
TRANSPORTATION 1.3%
Airlines 0.3% 62,686 Korean Airlines Co., Ltd. .......................... 2,197,949
-----------
Marine Transportation 0.6% 73,000 Hyundai Merchant & Marine Co. (New) (Transportation
company) ......................................... 2,183,178
82,526 Korea Line Corp. (Maritime transportation
company) ......................................... 1,819,136
-----------
4,002,314
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
The Korea Fund, Inc.
Investment Portfolio (continued)
================================================================================
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trucking 0.4% 62,810 Korea Express Co., Ltd. (General freight transport
company) .......................................... 2,202,297
26,346 Korea Express Co., Ltd. (New) (b) ................... 916,973
-----------
3,119,270
-----------
UTILITIES 1.7%
Electric Utilities 1.3% 180,900 Korea Electric Power Corp. (Electric
utility) .......................................... 7,182,365
91,000 Korea Electric Power Corp. (ADR) (New) .............. 2,411,500
-----------
9,593,865
-----------
Natural Gas
Distribution 0.4%
37,600 Daesung Industrial (Natural gas distributor) ....... 2,762,746
-----------
TOTAL COMMON STOCKS (Cost $290,519,334) ............. 630,896,511
-----------
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $402,447,149) (a) ........................... 737,643,486
===========
</TABLE>
(a) The cost for federal income tax purposes was $402,492,473. At December 31,
1995, net unrealized appreciation for all securities based on tax cost was
$335,151,013. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax
cost of $370,309,199 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$35,158,186.
(b) New shares issued during 1995, eligible for a pro rata share of 1995
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, 1995 was
$52,016,832 (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, 1995 was
$22,876,422 (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.
20
<PAGE>
The Korea Fund, Inc.
Financial Statements
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments, at market (identified cost $402,447,149) (Note A)............ $ 737,643,486
Cash:
U.S. dollars............................................................ 432
Won at market (identified cost $14,196,738) (Note A).................... 14,139,683
Dividends and interest receivable......................................... 950,871
Other assets.............................................................. 3,747
-------------
Total assets........................................................ 752,738,219
LIABILITIES
Payables:
Subscription rights purchased (Note A)............... $ 1,692,257
Distributions........................................ 4,269,682
Withholding taxes.................................... 1,583,067
Accrued management fee (Note C)...................... 640,493
Other accrued expenses (Note C)...................... 541,763
-----------
Total liabilities......................................... 8,727,262
-------------
Net assets, at market value............................................... $ 744,010,957
=============
NET ASSETS
Net assets consist of:
Accumulated distributions in excess of net investment income........... $ (3,028,676)
Net unrealized appreciation (depreciation) on:
Investments.......................................................... 335,196,337
Won.................................................................. (57,055)
Won related transactions............................................. 29,662
Accumulated net realized gain.......................................... 6,401,728
Common stock........................................................... 371,277
Additional paid-in capital............................................. 405,097,684
-------------
Net assets, at market value............................................... $ 744,010,957
=============
Net asset value per share ($744,010,957 / 37,127,672
shares of common stock issued and outstanding,
50,000,000 shares authorized, $.01 par value)..................... $20.04
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
The Korea Fund, Inc.
Financial Statements (continued)
================================================================================
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C> <C>
Income:
Interest (net of withholding taxes of $287,951) (Note A)... $ 4,114,559
Expenses:
Management fee (Note C) ................................... $ 3,809,107
Custodian and accounting fees (Note C) .................... 767,930
Directors' fees and expenses (Note C) ..................... 69,273
Legal ..................................................... 52,602
Auditing .................................................. 42,350
Reports to shareholders ................................... 76,148
Services to shareholders .................................. 44,473
Other ..................................................... 53,692 4,915,575
------------ ------------
Net investment loss ............................................... (801,016)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) during the period on:
Investments ............................................... 9,465,911
Won related transactions .................................. (885,790) 8,580,121
============
Net unrealized appreciation (depreciation) during the period on:
Investments ............................................... 12,910,222
Won ....................................................... (98,785)
Won related transactions .................................. 7,842 12,819,279
============ ============
Net gain on investment transactions ............................... 21,399,400
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................... $ 20,598,384
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
22
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
December 31, June 30,
INCREASE (DECREASE) IN NET ASSETS 1995 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment loss (Note A) ........................................ $ (801,016) $ (615,149)
Net realized gain from investment transactions (Note A) ............. 8,580,121 13,445,142
Net unrealized appreciation on investment transactions
during the period (Note A) .................................. 12,819,279 64,721,917
------------- -------------
Net increase in net assets resulting from operations ........................ 20,598,384 77,551,910
------------- -------------
Distributions to shareholders from:
Net investment income ($.06 per share) .............................. (2,227,660) --
------------- -------------
Net realized gains from investment transactions
($.36 and $.15 per share, respectively) ..................... (13,231,772) (4,359,655)
------------- -------------
Fund share transactions:
Net proceeds of shares issued in connection with the Fund's rights
offering, net of broker and dealer manager fees of
$4,006,960 and expenditures and offering costs of $860,000... -- 109,617,621
------------- -------------
Reinvestment of distributions ....................................... 4,325,270 1,798,229
------------- -------------
INCREASE IN NET ASSETS ...................................................... 9,464,222 184,608,105
Net assets at beginning of period ........................................... 734,546,735 549,938,630
------------- -------------
NET ASSETS AT END OF PERIOD (including accumulated distributions in excess
of net investment income of ($3,028,676) at December 31, 1995) .............. $ 744,010,957 $ 734,546,735
============= =============
OTHER INFORMATION
INCREASE IN FUND SHARES
Shares outstanding at beginning of period ................................... 36,930,508 29,474,985
Shares issued in connection with the Fund's rights offering ......... -- 7,386,102
Shares issued to shareholders in reinvestment of distributions ...... 197,164 69,421
------------- -------------
Shares outstanding at end of period ......................................... 37,127,672 36,930,508
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
23
<PAGE>
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>
- --------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED JUNE 30,
DECEMBER 31,
------------------------------------------------------
1995 1995(e) 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ................... $ 19.89 $ 18.66 $ 11.40 $10.75 $ 10.27 $14.45
-------- -------- ------- ------ ------- ------
Income from investment operations (a):
Net investment income (loss) ................... (.02) (.02) (.03) .02 .08 .09
Net realized and unrealized gain (loss) on
investment transactions ................ .59 2.42(b) 7.13 .86 .78 (2.13)
-------- -------- ------- ------ ------- ------
Total from investment operations ....................... .57 2.40 7.10 .88 .86 (2.04)
-------- -------- ------- ------ ------- ------
Less distributions from:
Net investment income .......................... (.06) -- (.01) (.04) (.06) --
Net realized gains on investment transactions... (.36) (.15) -- (.20) (.34) (2.20)
-------- -------- ------- ------ ------- ------
Total distributions .................................... (.42) (.15) (.01) (.24) (.40) (2.20)
-------- -------- ------- ------ ------- ------
Antidilution (dilution) resulting from the rights
offering (1995), fourth tranche (1994), and
reinvestment of distributions for shares at
market value ................................... -- (1.02) .22 .01 .02 .06
-------- -------- ------- ------ ------- ------
Underwriting expenditures and offering costs ........... -- -- (.05) -- -- --
-------- -------- ------- ------ ------- ------
Net asset value, end of period ......................... $ 20.04 $ 19.89 $ 18.66 $11.40 $ 10.75 $10.27
======== ======== ======= ====== ======= ======
Market value, end of period ............................ $ 22.00 $ 19.63 $ 22.00 $15.00 $ 11.38 $14.13
======== ======== ======= ====== ======= ======
TOTAL RETURN
Per share market value (%) ............................. 14.27** (5.43) 46.74 34.54 (17.01) (23.57)
Per share net asset value (%) (c) ...................... 2.70** 13.00 63.77 8.20 7.87 (14.91)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ................. 744 735 550 258 241 228
Ratio of operating expenses to average
net assets (%) ................................. 1.28* 1.32 1.37 1.52 1.52 1.47
Ratio of net investment income (loss) to
average net assets (%) (d) ..................... (.11)** (.10) (.18) .15 .70 .83
Portfolio turnover rate (%) ............................ 6.6* 10.5 14.3 14.3 18.2 19.2
</TABLE>
* Annualized ** Not annualized
(a) Based on monthly average of shares outstanding during each period.
(b) Due to the timing and magnitude of the rights offering, the amount
reported herein is not proportional to the aggregate value reported in the
Statements of Operations and Changes in Net Assets and Note E to the
financial statements.
(c) Total investment returns reflect changes in net asset value per share
during each period and assumes that dividends and capital gains
distributions, if any, were reinvested. These percentages are not an
indication of the performance of a shareholder's investment in the Fund
based on market.
(d) The ratio for the six months ended December 31, 1995 has not been
annualized since the Fund believes it would not be appropriate because the
Fund's dividend income is not earned ratably throughout the fiscal year
(Note A).
(e) Certain amounts have been reclassified to conform with fiscal 1996
presentations.
- --------------------------------------------------------------------------------
24
<PAGE>
The Korea Fund, Inc.
Notes to Financial Statements
================================================================================
A. SIGNIFICANT ACCOUNTING POLICIES
The Korea Fund, Inc. (the "Fund") is registered under the Investment Company Act
of 1940, as amended, as a non-diversified, closed-end management investment
company. The 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 equity
securities valued in good faith by the Valuation Committee amounting to
$50,721,310 or 6.8% of the Fund's net assets at December 31, 1995, and 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 ($42,851,724)
over the local share price ($236,309,335) for these securities valued by the
Valuation Committee was approximately 5.8% of the Fund's net assets at December
31, 1995. Their values have been estimated by the Board of Directors in the
absence of readily ascertainable market values or other market factors,
respectively. However, because of the inherent uncertainty of valuation, those
estimated values may differ significantly from the values that would have been
used had a ready market for the securities existed, and the difference could be
material.
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. Effective January 1, 1996, withholding taxes on
dividends and interest were increased to 16.5% and 13.2%, respectively. 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
25
<PAGE>
The Korea Fund, Inc.
Notes to Financial Statements (continued)
================================================================================
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.
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, 1995 the exchange rate for Korean won was U.S. $.001289 to
W 1.
SUBSCRIPTIONS FOR NEW SHARES. As part of their annual corporate action matters,
certain Korean companies offer rights to their shareholders to subscribe to
new shares which are eligible for a portion of the dividends paid on existing
shares in the year of subscription. The Fund follows a policy of subscribing
to new share offerings by Korean companies.
OTHER. Investment security transactions are accounted for on a trade-date
basis. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. All
original issue and acquisition discounts are accreted for both tax and financial
reporting purposes. Certain amounts have been reclassified in the fiscal 1995
statement of changes in net assets, and financial highlights and unaudited
quarterly results of operations data (Note E) to conform with fiscal 1996
presentation.
B. PURCHASES AND SALES OF SECURITIES
For the six months ended December 31, 1995, purchases and sales of investment
securities (excluding short-term investments) aggregated $111,427,465 and
$22,863,864, respectively.
C. RELATED PARTIES
Under the Management Agreement the Fund agrees to pay the Manager a monthly fee
at an annual rate equal to 1.15% of the Fund's month-end net assets up to and
including $50,000,000, 1.10% of such net assets on the next $50,000,000, 1% of
such assets on the next $250,000,000, 0.95% of such net assets on the next
$400,000,000, and 0.90% of such net assets in excess of $750,000,000. For the
six months ended December 31, 1995, the fee pursuant to such agreements amounted
to $3,809,107 which was equivalent to an annual effective rate of 0.99% of the
Fund's average month-end net assets.
Under the Advisory Agreement, the Manager pays the Korean Adviser a monthly
fee, equal to an annual rate of 0.2875% of the first $50,000,000 of the Fund's
month-end net assets, 0.275% of such net assets on the next $50,000,000, and
0.25% of such net assets on the next $250,000,000, 0.2375% of such net
26
<PAGE>
================================================================================
assets on the next $400,000,000, and 0.225% of such net assets in excess of
$750,000,000.
For the six months ended December 31, 1995, brokerage commissions on investment
transactions amounting to $83,860 were paid by the Fund to Daewoo Securities
Co., Ltd., the parent company of the Korean Adviser.
Effective August 21, 1995, Scudder Fund Accounting Corporation ("SFAC"), a
subsidiary of the Adviser, assumed responsibility for determining the daily
net asset value per share and maintaining the portfolio and general accounting
records of the Fund. For the six months ended December 31, 1995, the amount
charged to the Fund by SFAC aggregated $136,121, of which $31,242 is unpaid
at December 31, 1995.
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, 1995, Directors' fees and
expenses amounted to $69,273.
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 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 15% 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.
27
<PAGE>
The Korea Fund, Inc.
Notes to Financial Statements (continued)
================================================================================
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
QUARTER ENDED INCOME * INCOME (LOSS) TRANSACTIONS FROM OPERATIONS
- ------------------- ----------------- -------------------- -------------------- ---------------------
PER PER PER PER
FISCAL 1996 TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
- ----------- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
September 30, 1995 $1,276 $ .03 $(1,164) $ (.03) $ 1,839 $ .05 $ 675 $ .02
December 31, 1995 2,839 .08 363 .01 19,560 .54 19,923 .55
------ ------ ------- ------- -------- ------- -------- --------
Totals $4,115 $ .11 $ (801) $ (.02) $21,399 $ .59 $20,598 $ .57
====== ====== ======= ======= ======== ======= ======== ========
- ------------------- ----------------- -------------------- -------------------- ---------------------
<CAPTION>
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 $1,331 $ .04 $ (605) $ (.03) $ 86,736 $ 2.96 $ 86,131 $ 2.93
December 31, 1994 750 .03 (1,420) (.04) (22,016) (.75) (23,436) (.79)
March 31, 1995 5,151 .17 3,250 .11 (2,236) (.09) 1,014 .02
June 30, 1995 332 .01 (1,840) (.06) 15,683 .48 13,843 .42
------ ------ ------- ------- -------- ------- -------- --------
Totals $7,564 $ .25 $ (615) $ (.02) $ 78,167 $ 2.60 $ 77,552 $ 2.58
====== ====== ======= ======= ======== ======= ======== ========
</TABLE>
*Net of Korean taxes withheld.
28
<PAGE>
The Korea Fund, Inc.
Report of Independent Accountants
================================================================================
TO THE BOARD OF DIRECTORS AND THE SHAREHOLDERS OF THE KOREA FUND, INC.:
We have audited the accompanying statement of assets and liabilities of The
Korea Fund, Inc. including the investment portfolio, as of December 31, 1995,
and the related statement of operations for the six months then ended, the
statements of changes in net assets for the six months then ended and for the
year ended June 30, 1995, and the financial highlights for the six months ended
December 31, 1995 and for each of the five years in the period ended June 30,
1995. 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, 1995 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, 1995, the results of its operations
for the six months then ended, the changes in its net assets for the six months
then ended and for the year ended June 30, 1995, and the financial highlights
for the six months ended December 31, 1995 and for each of the five years in
the period ended June 30, 1995 in conformity with generally accepted accounting
principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 16, 1996
29
<PAGE>
The Korea Fund, Inc.
Tax Information
================================================================================
By now shareholders for whom year-end tax reporting is required by the IRS
should have received their Form 1099-DIV and tax information letter from the
Fund.
Please consult a tax advisor if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Korea Fund account, please call 800-426-5523.
30
<PAGE>
Shareholder Meeting Results
- ---------------------------
The Annual Meeting of Shareholders of The Korea Fund, Inc. was held on
Wednesday, October 11, 1995, at the offices of Scudder, Stevens & Clark, Inc.,
25th Floor, 345 Park Avenue, New York, New York. The four matters voted upon by
Shareholders and the resulting votes for each matter are presented below.
1. The election of three Directors to hold office for a term of three years or
until their respective successors shall have been duly elected and
qualified.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Director: Number of Votes:
--------- ----------------
For Withheld Broker Non-Votes*
----- -------- -----------------
Juris Padegs 22,169,101 106,446 500
Chang-Hee Kim 22,164,425 111,122 500
Hugh T. Patrick 22,169,852 105,695 500
2. Ratification or rejection of the action taken by the Board of Directors in
selecting Coopers & Lybrand L.L.P. as independent accountants for the
fiscal year ending June 30, 1996.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
----- ------- ------- -----------------
22,156,722 92,055 26,770 500
3. Approval or disapproval of the continuance of the Investment Advisory,
Management and Administration Agreement between the Fund and Scudder,
Stevens & Clark, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
----- ------- ------- -----------------
20,660,747 112,977 384,671 1,117,652
4. Approval or disapproval of the continuance of the Research and Advisory
Agreement between Scudder, Stevens & Clark, Inc. and Daewoo Capital
Management Co., Ltd.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
----- ------- ------- -----------------
20,660,393 114,958 378,044 1,122,652
- -------------------------------------------------------------------------------------------------------
<FN>
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary
power to vote on a particular matter.
</FN>
</TABLE>
31
<PAGE>
Dividend Reinvestment and Cash Purchase Plan
- --------------------------------------------
The Plan
The Fund's Dividend Reinvestment and Cash Purchase Plan (the "Plan") offers
you an automatic way to reinvest your dividends and capital gains distributions
in shares of the Fund. The Plan also provides for cash investments in Fund
shares of $100 to $3,000 semiannually through State Street Bank and Trust
Company, the Plan Agent.
Automatic Participation
Each shareholder of record is automatically a participant in the Plan unless
the shareholder has instructed the Plan Agent in writing otherwise. Such a
notice must be received by the Plan Agent not less than 10 days prior to the
record date for a dividend or distribution in order to be effective with respect
to that dividend or distribution. A notice which is not received by that time
will be effective only with respect to subsequent dividends and distributions.
Shareholders who do not participate in the Plan will receive all
distributions in cash paid by check in dollars mailed directly to the
shareholder by State Street Bank and Trust Company, as dividend paying agent.
Shares Held by a Nominee
If your shares are held in the name of a brokerage firm, bank, or other
nominee as the shareholder of record, please consult your nominee (or any
successor nominee) to determine whether it is participating in the Plan on your
behalf. Many nominees are generally authorized to receive cash dividends unless
they are specifically instructed by a client to reinvest. If you would like your
nominee to participate in the Plan on your behalf, you should give your nominee
instructions to that effect as soon as possible.
Pricing of Dividends and Distributions
If the market price per share on the payment date for the dividend or
distribution (the "Valuation Date") equals or exceeds net asset value per share
on that date, the Fund will issue new shares to participants at the greater of
the following on the Valuation Date: (a) net asset value, or (b) 95% of the mean
market price. The Valuation Date will be the dividend or distribution payment
date or, if that date is not a New York Stock Exchange trading date, the next
preceding trading date. If the net asset value exceeds the market price of Fund
shares at such time, participants in the Plan are considered to have elected to
receive shares of stock from the Fund, valued at market price, on the Valuation
Date. In either case, for Federal income tax purposes, the shareholder receives
a distribution equal to the market value on Valuation Date of new shares issued.
State and local taxes may also apply. If the Fund should declare an income
dividend or net capital gains distribution payable only in cash, the Plan Agent
will, as agent for the participants, buy Fund shares in the open market, on the
New York Stock Exchange or elsewhere, for the participants' account on, or
shortly after, the payment date.
Voluntary Cash Purchases
Participants in the Plan have the option of making additional cash payments
to the Plan Agent, semiannually, in any amount from $100 to $3,000, for
investment in the Fund's shares. The Plan Agent will use all such monies
received from participants to purchase Fund shares in the open market on or
about February 15 and August 15. Any voluntary cash payments received more than
30 days prior to these dates will be returned by the Plan Agent, and interest
will not be paid on any uninvested cash payments. To avoid unnecessary cash
accumulations, and also to allow ample time for receipt and processing by the
Plan Agent, it is suggested that participants send in voluntary cash payments to
be received by the Plan Agent approximately ten days before February 15, or
August 15, as the case may be. A participant may withdraw a voluntary cash
payment by written notice, if the notice is received by the Plan Agent not less
than 48 hours before such payment is to be invested.
32
<PAGE>
Participant Plan Accounts
The Plan Agent maintains all participant accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by participants for personal and tax records. Shares in the account of
each plan participant will be held by the Plan Agent in non-certificated form in
the name of the participant, and each participant will be able to vote those
shares purchased pursuant to the Plan at a shareholder meeting or by proxy.
No Service Fee to Reinvest
There is no service fee charged to participants for reinvesting dividends or
distributions from net realized capital gains. The Plan Agent's fees for the
handling of the reinvestment of dividends and capital gains distributions will
be paid by the Fund. There will be no brokerage commissions with respect to
shares issued directly by the Fund as a result of dividends or capital gains
distributions payable either in stock or in cash. However, participants will pay
a pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of any
dividends or capital gains distributions payable only in cash.
Costs for Cash Purchases
With respect to purchases of Fund shares from voluntary cash payments, the
Plan Agent will charge $0.75 for each such purchase for a participant. Each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases of Fund shares in connection
with voluntary cash payments made by the participant.
Brokerage charges for purchasing small amounts of stock for individual
accounts through the Plan are expected to be less than the usual brokerage
charges for such transactions, because the Plan Agent will be purchasing stock
for all participants in blocks and pro-rating the lower commission thus
attainable.
Amendment or Termination
The Fund and the Plan Agent each reserve the right to terminate the Plan.
Notice of the termination will be sent to the participants of the Plan at least
30 days before the record date for a dividend or distribution. The Plan also may
be amended by the Fund or the Plan Agent, but (except when necessary or
appropriate to comply with applicable law, rules or policies of a regulatory
authority) only by giving at least 30 days' written notice to participants in
the Plan.
A participant may terminate his account under the Plan by written notice to
the Plan Agent. If the written notice is received 10 days before the record day
of any distribution, it will be effective immediately. If received after that
date, it will be effective as soon as possible after the reinvestment of the
dividend or distribution.
If a participant elects to sell his shares before the Plan is terminated, the
Plan Agent will deduct a $2.50 fee plus brokerage commissions from the sale
transaction.
Plan Agent Address and Telephone Number
You may obtain more detailed information by requesting a copy of the Plan
from the Plan Agent. All correspondence (including notifications) should be
directed to: The Korea Fund Dividend Reinvestment and Cash Purchase Plan, c/o
State Street Bank and Trust Company, P.O. Box 8200, Boston, MA 02266-8200,
1-800-426-5523.
33
<PAGE>
Investment Manager
- ------------------
The investment manager and administrator of The Korea Fund, Inc. (the "Fund")
is Scudder, Stevens & Clark, Inc. ("Scudder"), one of the most experienced
investment management and investment counsel firms in the United States.
Established in 1919, the firm provides investment counsel for individuals,
investment companies and institutions. Scudder has offices throughout the United
States and subsidiaries in London and Tokyo.
Scudder has been a leader in international investment management for over 40
years. It manages Scudder International Fund, which was initially incorporated
in Canada in 1953 as the first foreign investment company registered with the
U.S. Securities and Exchange Commission. Scudder's investment company clients
include nine other open-end investment companies which invest primarily in
foreign securities.
In addition to the Fund, Scudder also manages the assets of six other
closed-end investment companies which invest in foreign securities and are
traded on the New York Stock Exchange: The Argentina Fund, The Brazil Fund, The
Latin America Dollar Income Fund, Scudder New Asia Fund, Scudder New Europe
Fund, and Scudder World Income Opportunities Fund.
Korean Adviser
- --------------
Daewoo Capital Management Co., Ltd., registered under the U.S. Investment
Advisers Act of 1940, acts as Korean adviser to Scudder, Stevens & Clark, Inc.,
the Fund's investment manager. Daewoo Capital Management Co., Ltd. is a
subsidiary of Daewoo Securities Co., Ltd., the largest Korean securities firm,
and an affiliate of Daewoo Research Institute.
Daewoo Capital Management Co., Ltd. provides investment advice, research, and
assistance to Scudder. The Daewoo staff makes specific investment
recommendations, which are then evaluated by Scudder's research department and
portfolio managers in light of their own expertise and information from other
sources in making investment decisions for the Fund.
34
<PAGE>
Officers and Directors
- ----------------------
JURIS PADEGS*
Chairman of the Board and Director
CHANG-HEE KIM
Vice Chairman of the Board and Director
NICHOLAS BRATT*
President and Director
WILLIAM H. GLEYSTEEN, JR.
Director
ROBERT W. LEAR
Director
DR. SANG C. LEE
Director
TAI HO LEE
Director
DR. WILSON NOLEN
Director
HUGH T. PATRICK
Director
SIDNEY M. ROBBINS
Emeritus Founding Director
JERARD K. HARTMAN*
Vice President
KUN-HO HWANG
Vice President
YOUNG H. KIM
Vice President
JOHN J. LEE*
Vice President
DAVID S. LEE*
Vice President
DONG WOOK PARK
Vice President
THOMAS F. McDONOUGH*
Secretary and Assistant Treasurer
PAMELA A. McGRATH*
Treasurer
EDWARD J. O'CONNELL*
Vice President and Assistant Treasurer
KATHRYN L. QUIRK*
Vice President and Assistant Secretary
COLEEN DOWNS DINNEEN*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
35
