THE KOREA FUND, INC.
Semiannual Report
December 31, 1996
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
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 ................................ 5
Investment Summary ............................... 6
Portfolio Summary ................................ 7
Investment Performance ........................... 8
Investment Portfolio ............................. 10
Financial Statements ............................. 21
Financial Highlights ............................. 24
Notes to Financial Statements .................... 25
Report of Independent Accountants ................ 28
Tax Information .................................. 29
Shareholder Meeting Results ...................... 30
Dividend Reinvestment and
Cash Purchase Plan ............................... 31
Investment Manager ............................... 33
Korean Adviser ................................... 33
Officers and Directors ........................... 34
- --------------------------------------------------------------------------------
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 The Korean stock market declined over the six months ended December 31, 1996.
The Korean won fell over the period, further decreasing returns to U.S.
dollar-based investors. In this environment, The Korea Fund provided a total
return of -24.27% based on net asset value.
O Declines of this scale in the stock market and the Korean won seem
unwarranted, in our opinion, given the region's attractive long-term
prospects.
O The Fund maintained an emphasis on holdings in domestic industries such as
telecommunications, finance, and consumer staples.
Letter to Shareholders
================================================================================
Dear Shareholders:
The Korean stock market fell over the six-month period ended December 31,
1996. The KOSPI declined from 823.53 to 651.22, a 20.92% decline in local terms.
A widening trade deficit, smaller -than-expected declines in interest rates, and
disappointing corporate earnings contributed to the already weak environment. In
addition, the Korean won declined 4.35% versus the U.S. dollar.
The Fund declined 24.27% on a total return basis, reflecting the decline in
the Fund's net asset value from $18.52 to $13.55 and reinvestment of a $0.60 per
share capital gain distribution. The Fund's publicly traded shares ended the
period at $14.88, down from $21.13 six months ago. The Fund's NYSE price, an
indicator of market interest, traded at a 9.8% premium over net asset value
(NAV) as of December 31, 1996.
Investment Environment
The weak economic environment that characterized the beginning of the fiscal
period continued throughout the six month period. The single most important
influence on the markets was the trade deficit, which reached a record high
during the period. Raising concerns of imbalance, this had an important negative
psychological effect on investors. Inventories also rose at many companies, a
sign of slowing growth.
Smaller than expected declines in interest rates also held back the stock
market. However, support for an improved environment is likely given the
prospect of lower inflation and interest rates. The government has made lowering
interest rates a top priority. Demand for cash by corporations has waned as
investment has slowed, and Korea's membership in the Organization for Economic
Cooperation and Development (OECD) should result in an improved credit standing
and lower interest rates.
On the corporate level, the collapse in the world price of semiconductors,
those small computer chips that go into every PC, squeezed profit margins,
causing related share prices to decline. Semiconductor companies represent a
significant share of Korea's manufacturing industry and close to 30% of the
country's exports. Because they also constitute a substantial component of the
stock market indexes, semiconductor stock prices heavily influence the movements
of the index.
To focus too narrowly on the current problems in the economic and industrial
environment would be shortsighted, given the potential opportunities presented
by substantial changes currently underway in Korea.
3
<PAGE>
================================================================================
Government restructuring and deregulation are continuing to improve Korea's
global competitiveness and transition to a fully market-based economy. This
should mean more freedom for corporations with less government intervention.
Korean companies have been under constraints while wages have risen and global
competitiveness has slipped. More flexible employment practices should be
especially beneficial to bank, brokerage, securities, and insurance companies,
which historically have been heavily regulated. Recently President Kim announced
that a committee will be formed to discuss deregulating financial companies.
Significant in his announcement was that no government officials were appointed
to the committee -- evidence of a genuine commitment to reform.
We also think there are several additional reasons to believe that prospects
for the Korean market will improve. Capital investment is slowing, which should
reduce imports and shrink the trade deficit. In addition, as the won has
declined, Korean products have become more price competitive, improving export
potential. Valuations of stocks have also become more attractive, reaching
levels comparable to those last seen in 1992.
Investment Philosophy
The Fund continued to rely on intensive fundamental research to identify
well-managed companies with promising long-term growth prospects. We focus on
those companies that we believe are positioned to perform well under a variety
of economic conditions. We generally take a buy and hold approach, especially
with respect to the Fund's top ten holdings.
Portfolio Strategy
During the six month period we remained focused on domestic industries in an
effort to limit our exposure to export companies, which have been the most
affected by the unfavorable market environment. This was difficult to accomplish
since exporters constitute such a substantial component of the Korean economy.
The Fund's top holdings are representative of many of the themes we have
highlighted -- domestic industries such as telecommunications, finance, and
consumer staples. These companies tend to be less affected by changes in
globally competitive markets. Our long-term investment approach also means that
we may not make significant changes to the portfolio if we believe the prospects
for a holding remain favorable. We invest in companies that we believe will do
well over the long-term and do not attempt to predict the short-term movements
of the market.
Looking Ahead
Given the market's recent declines and our positive longer-term outlook for
Korea, we believe that current valuations are particularly attractive. Nominal
gross domestic product is slowing down to a 6-6.5% annual growth rate, high by
world standards, but modest in the eyes of many Koreans. Slower growth is a sign
of maturity for Korea's economy after several years of 10%+ growth. A lower
growth rate should be more sustainable and healthy for the economy over the long
term.
While the country has many challenges ahead of it, Koreans have a strong
faith and tenacious drive to succeed. The well-educated population and nearly
100% literacy rate are valuable assets to the country. Considering these
strengths and the strong fundamentals we foresee among many Korean companies, we
believe the market will revive.
Sincerely,
/s/Nicholas Bratt /s/Juris Padegs
Nicholas Bratt Juris Padegs
President Chairman of the Board
4
<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 31.
Annual Meeting Election Results
At the October 7, 1996 Annual Meeting, the shareholders elected three
directors, and the selection of Coopers & Lybrand L.L.P. as the Fund's
independent accountants for the fiscal year ending June 30, 1997, was ratified.
Please see the table entitled "Shareholder Meeting Results" on page 30 for more
information.
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.
5
<PAGE>
THE KOREA FUND, INC.
INVESTMENT SUMMARY as of December 31, 1996
- ----------------------------------------------------------------
HISTORICAL
INFORMATION TOTAL RETURN (%)
LIFE OF FUND ---------------------------------------------------------------
MARKET VALUE NET ASSET VALUE (a) INDEX (b)
------------------- -------------------- -------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
------------------- -------------------- -------------------
CURRENT QUARTER -18.49 -- -17.72 -- -17.53 --
FISCAL YEAR
TO DATE -27.17 -- -24.27 -- -20.92 --
ONE YEAR -30.06 -30.06 -30.01 -30.01 -26.24 -26.24
THREE YEAR -30.72 -11.51 -8.91 -3.06 -24.82 -9.07
FIVE YEAR 34.45 6.10 46.67 7.96 6.60 1.29
TEN YEAR 125.01 8.45 184.77 11.03 138.88 9.10
- -----------------------------------------------------------------
PER SHARE INFORMATION AND RETURNS (A)
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
YEARLY PERIODS ENDED DECEMBER 31
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
-------------------------------------------------------------------------------
NET ASSET VALUE
(b)............... $11.28 $15.93 $18.55 $11.10 $10.55 $10.62 $16.64 $20.65 $20.04 $13.55
INCOME DIVIDENDS.. $ .29 $ .11 $ .08 $ -- $ .06 $ .04 $ .01 $ -- $ .06 $ --
CAPITAL GAINS
DISTRIBUTIONS..... $ .68 $ 1.74 $ 1.88 $ 2.20 $ .34 $ .20 $ -- $ .15 $ .36 $ .60
TOTAL
RETURN (%)........ 44.48 55.97 22.79 -28.36 -2.05 2.71 56.77 24.84 4.26 -30.01
</TABLE>
(a) Total investment returns reflect changes in net asset value per share during
each period and assume that dividends and capital gains distributions, if
any, were reinvested. These percentages are not an indication of the
performance of a shareholder's investment in the Fund based on market price.
(b) Net asset value per share through 1988 has bee 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.
6
<PAGE>
PORTFOLIO SUMMARY as of December 31, 1996
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Common Stocks 86%
Convertible Bonds 7%
Preferred Stocks 4%
Corporate Bonds 3%
- --------------------------------------
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
- --------------------------------------------------------------------------
Communications 24%
Financial 17%
Technology 10%
Consumer Staples 7%
Durables 7%
Manufacturing 7%
Construction 6%
Utilities 5%
Health 5%
Other 12%
- ---------------------------------------------
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
(51% OF PORTFOLIO)
- --------------------------------------------------------------------------
1. KOREA MOBILE TELECOM CORP.
Mobile telecommunication company
2. SAMSUNG FIRE & MARINE INSURANCE CO.
Insurance company
3. SAMSUNG ELECTRONICS CO., LTD.
Major electronics manufacturer
4. KOREA ELECTRIC POWER CO.
Electric Utility
5. SAMSUNG DISPLAY DEVICES
Leading manufacturer of CRT and picture tubes
6. HANSOL PAPER MANUFACTURING CO., LTD.
Korea's largest paper manufacturer
7. HYUNDAI MOTOR SERVICES CO., LTD.
Auto parts and services
8. KEUM KANG CO., LTD.
Construction company and manufacturer of building materials
9. YUKONG, LTD.
Korea's leading oil refiner.
10. KOREA LONG TERM CREDIT BANK
Major commercial bank
7
<PAGE>
The Korea Fund, Inc.
Investment Performance
================================================================================
THE ORIGINAL DOCUMENT CONTAINS A GRAPH HERE
CHART DATA:
<TABLE>
<CAPTION>
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*
NYSE data points
With Income With Caital Gains Change In Share Value Of
Distributions Reinvested 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
92448 80261 52500 56670
92999 80738 52813 59211
83103 72148 45625 60998
67735 58805 37188 66080
</TABLE>
8
<PAGE>
The Korea Fund, Inc.
Investment Performance
================================================================================
THE ORIGINAL DOCUMENT CONTAINS A GRAPH HERE
<TABLE>
<CAPTION>
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*
NAV data points
With Income With Capital Gains Change in Net Asset Value of
Distributions Reinvested 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
93916 81535 53333
87667 76110 49785
80692 70054 44301
66394 57642 36452
</TABLE>
- ----------
The data set forth in these graphs 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 $10,000 investment was made at initial public offering price and at
initial net asset value price.
The Standard & Poor's 500 Stock Index is a widely followed, unmanaged index of
500 industrial, transportation, utility and financial companies widely regarded
as representative of the equity market in general.
9
<PAGE>
<PAGE>
[Logo of The Korea Fund, Inc.] THE KOREA FUND, INC.
<TABLE>
INVESTMENT PORTFOLIO as of December 31, 1996
<CAPTION>
===================================================================================================================
Principal Market
Amount(e) Value($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT 0.3%
U.S.$1,469,000 Repurchase Agreement with Donaldson, Lufkin &
Jenrette dated 12/31/96 at 6.7% to be repurchased
at $1,469,547 on 1/2/97, collateralized by a
$1,200,000 U.S. Treasury Note, 10%, 5/15/10
(Cost $1,469,000) .................................... 1,469,000
----------
- -------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS 2.7%
METALS & MINERALS
10,000,000,000 Korea Tungsten Exchange Bond, Zero Coupon with
36.03% bonus interest at maturity, 11/11/98 (c)
(Cost $14,540,668) ................................... 13,036,414
- -------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS 7.2%
CONSUMER STAPLES 1.4%
Food & Beverage 0.7% 800,000,000 Crown Confectionery Co., 3% with 16.28% bonus
interest at maturity, 12/31/97 (Major producer
of snacks)(c)(f) ..................................... 1,003,179
2,000,000,000 Haitai Confectionery Co., 1% with 12.69% bonus
interest at maturity, 6/30/98 (Major producer of
snacks)(c)(f) ........................................ 2,265,580
----------
3,268,759
----------
Textiles 0.7% U.S.$1,000,000 Kolon Industries, Inc., 0.250%, 12/31/04 (Leading
manufacturer of nylon, polyester yarn and
fabrics) ............................................. 555,000
2,400,000,000 Kukje Corp., 12% with 4.62% bonus interest at
maturity, 12/31/97 (Shoe manufacturer)(c)(f) ......... 2,941,717
----------
3,496,717
----------
HEALTH 0.8%
Pharmaceuticals 3,000,000,000 Korea Green Cross Corp., 1% with 11.88% bonus
interest at maturity, 12/31/97(Leading ethical
drug producer)(c)(f) ................................. 3,560,253
400,000,000 Yuhan Corp., 5.5% with 25.41% bonus interest at
maturity, 12/31/97 (Pharmaceutical company)(c)(f) .... 550,467
----------
4,110,720
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================
Principal Market
Amount(e) Value($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MANUFACTURING 0.9%
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)(f) ............ 4,590,973
----------
ENERGY 1.1%
Oil & Gas Production 2,000,000,000 Yukong, Ltd., 2% with 8.15% bonus interest at
maturity, 12/31/97 (Korea's largest oil
refiner)(c)(f) ........................................ 2,316,032
3,000,000,000 Yukong, Ltd., 1% with 13.92% bonus interest at
maturity, 12/31/98(c)(f) .............................. 3,250,532
----------
5,566,564
----------
METALS & MINERALS 0.4%
Steel & Metals 1,000,000,000 Kangwon Industry, 6% with 19.52% bonus interest
at maturity, 6/30/97 (Steel company)(c)(f) ............ 1,395,967
500,000,000 Sammi Steel, 4% with 20.57% bonus interest
at maturity, 12/31/97 (Specialty steel
company)(c)(f) ........................................ 654,779
----------
2,050,746
----------
CONSTRUCTION 0.3%
Miscellaneous 1,000,000,000 Sungwon Construction, 5% with 21.11% bonus interest
at maturity, 12/31/97 (Construction company)(c)(f) .... 1,325,717
----------
TRANSPORTATION 0.5%
Marine Transportation 2,000,000,000 Hanjin Shipping, 0.125%, 11/30/99 (Container and
bulk shipping)(c) ..................................... 2,199,640
----------
UTILITIES 1.8%
Electric Utilities 5,000,000,000 Korea Electric Power Co., 1% with 9.98% bonus
interest at maturity, 12/31/97 (Electric
utility)(c)(f) ........................................ 5,834,342
2,300,000,000 Korea Electric Power Co., Zero Coupon with 30.5%
bonus interest at maturity, 12/31/98 (c)(f) ........... 2,761,902
----------
8,596,244
----------
TOTAL CONVERTIBLE BONDS (Cost $40,698,801) .............. 35,206,080
----------
- -------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS 4.2% Shares
------
CONSUMER DISCRETIONARY 0.2%
Apparel & Shoes 0.2% 10,700 Baik Yang Co. (Leading maker of under garments) ......... 443,195
50,000 Shin Won Corp. (Major apparel manufacturer) ............. 436,686
----------
879,881
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
[Logo of The Korea Fund, Inc.] THE KOREA FUND, INC.
<TABLE>
INVESTMENT PORTFOLIO (continued)
<CAPTION>
===================================================================================================================
Market
Shares Value($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hotels & Casinos 0.0% 7,070 Hotel Shilla Co. (Hotel and resort operation) ............ 40,161
CONSUMER STAPLES 1.2%
Alcohol & Tobacco 0.0% 580 Chosun Brewery Co., Ltd. (Brewery) ....................... 5,491
5,800 Jinro, Ltd. (Leading producer of soju, a distilled
spirit) ................................................ 47,430
---------
52,921
---------
Food & Beverage 0.3% 70,690 Cheil Food and Chemical Co., Ltd. (Korea's leading
sugar refiner and major integrated food processor) ..... 1,254,852
---------
Package Goods/Cosmetics 0.2% 118,570 Pacific Corp. (Leading cosmetics producer) ............... 812,450
---------
Textiles 0.7% 184,000 Kohap (Leading maker of synthetic fabrics and yarns) ..... 622,769
225,910 Kolon Industries, Inc. ................................... 1,577,360
161,980 Sunkyong Industries, Ltd. (Leading producer of
acetate filament yarn, polyester yarns and fabrics) ..... 1,054,308
---------
3,254,437
---------
HEALTH 0.1%
Pharmaceuticals 6,700 Korea Green Cross Corp. .................................. 197,432
4,700 Shinpoong Pharmaceutical Co., Ltd. (Specialized
drug producer) ......................................... 49,670
---------
247,102
---------
FINANCIAL 0.8%
Insurance 0.4% 6,175 Samsung Fire & Marine Insurance Co. (Insurance
company)(d) ............................................ 2,130,923
---------
Other Financial
Companies 0.4% 87,310 Shin Young Securities (Medium-sized brokerage house) ..... 547,625
252,000 Ssangyong Investment & Securities (Leading
brokerage house) ....................................... 1,371,834
---------
1,919,459
---------
SERVICE INDUSTRIES 0.1%
Miscellaneous Commercial
Services 76,000 Sunkyong Ltd. (Leading trading company) .................. 496,473
---------
DURABLES 0.4%
Automobiles 0.3% 99,130 Mando Machinery Corp. (Major auto parts
manufacturer) .......................................... 1,466,420
---------
Tires 0.1% 74,650 Kumho Co. (Korea's largest tire manufacturer) ............ 335,704
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================
Market
Shares Value($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MANUFACTURING 0.4%
Chemicals 0.2% 3,700 Han Wha Co., Ltd. (Leading producer of explosives
and petrochemicals) .................................... 26,404
92,285 Oriental Chemical Industries Co., Ltd. (Manufacturer
of specialty chemicals) ................................ 944,693
14,095 Oriental Chemical Industries Co., Ltd. (New)(c) .......... 151,792
---------
1,122,889
---------
Miscellaneous 0.1% 60,000 Jindo Corp. (Manufactures steel, aluminum and
refrigerated container for the freight and other
industries) ............................................ 362,130
---------
Containers & Paper 0.1% 60,000 Hansol Paper Co. (Leading producer of papers and
newsprint) ............................................. 720,710
---------
Technology 0.4%
Electronic Components/Distributors 9,918 Samsung Display Devices (Leading manufacturer of
CRT and picture tubes) ................................. 278,173
50,000 Samsung Electromechanics Co., Ltd. (Major
manufacturer of electronics) ........................... 644,970
37,039 Samsung Electronics Co., Ltd. (Major electronics
manufacturer)(d) ....................................... 994,136
11,162 Samsung Electronics Co., Ltd. (New 1)(d) ................. 292,458
---------
2,209,737
---------
ENERGY 0.0%
Oil Companies 1,174 Ssangyong Oil Refining Co. (Major oil refiner)(c) ........ 11,178
---------
METALS & MINERALS 0.0%
Steel & Metals 37,170 Kangwon Industry (Steel company) ......................... 237,096
---------
CONSTRUCTION 0.5%
Building Materials 0.3% 80,000 Ssangyong Cement Industrial Co., Ltd. (Major
cement company)(c) ..................................... 728,994
29,300 Sung Shin Cement Co., Ltd. (Major cement company) ........ 285,718
50,000 Tong Yang Cement Co., Ltd. (Major cement company) ........ 396,450
---------
1,411,162
---------
Miscellaneous 0.2% 95,000 Hyundai Engineering & Construction Co. (Leading
general contractor) .................................... 1,096,154
---------
TRANSPORTATION 0.1%
Airlines 0.0% 20,520 Korean Air Co., Ltd. (Airline)(c) ........................ 167,560
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
[Logo of The Korea Fund, Inc.] THE KOREA FUND, INC.
<TABLE>
INVESTMENT PORTFOLIO (continued)
<CAPTION>
===================================================================================================================
Market
Shares Value($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trucking 0.1% 25,500 Global Enterprises Co., Ltd. (Container
transport company) .................................... 482,840
----------
TOTAL PREFERRED STOCKS (Cost $30,272,448) ............... 20,712,239
----------
- -------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 85.6%
CONSUMER DISCRETIONARY 3.5%
Apparel & Shoes 0.4% 52,083 Shin Won ................................................ 1,017,005
30,000 Ssang BangWool Co. (Leading underwear manufacturer) ..... 986,982
----------
2,003,987
----------
Department & Chain Stores 2.9% 182,591 Hwa Sung Industries (Department store) .................. 3,824,687
152,443 Shinsegae (Major department store chain) ................ 6,332,248
16,571 Shinsegae (New 1) ....................................... 607,930
214,599 Taegu Department Store (Department store) ............... 3,504,694
----------
14,269,559
----------
Hotels & Casinos 0.2% 100,000 Hotel Shilla Co. ........................................ 792,899
----------
CONSUMER STAPLES 4.7%
Alcohol & Tobacco 1.1% 3,020 Chosun Brewery Co., Ltd. ................................ 76,840
261,972 Jinro, Ltd. ............................................. 5,456,458
----------
5,533,298
----------
Food & Beverage 2.2% 133,855 Cheil Food and Chemical Co., Ltd. ....................... 5,385,882
120,000 Dongwon Industries Company (Leading deep-sea
fishing and processing company) ....................... 1,817,751
10,000 Haitai Confectionery Co. ................................ 112,426
32,271 Nhong Shim Co. (Manufacturer of instant noodles
and snacks) ........................................... 1,447,421
48,000 Pulmuone Co., Ltd. (Food producer) ...................... 1,755,266
----------
10,518,746
----------
Package Goods/Cosmetics 0.2% 50,000 Hankook Cosmetics Co. (Manufactures and sells
cosmetics) ............................................ 1,124,260
----------
Textiles 1.2% 1,200 Baik Yang Co. 127,811
20,356 Cheil Industries (Leading woolen yarn and fabric
manufacturer) ......................................... 238,490
30,000 Choongnam Spinning Co., Ltd. (Korea's leading
manufacturer of cotton yarn) .......................... 280,473
610 Daehan Synthetic Fiber (Manufacturer of polyester
yarns and synthetic fibers) ........................... 53,059
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================
Market
Shares Value($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
48,240 Hankook Synthetics Inc. (Textiles) ..................... 2,454,817
40,969 Kolon Industries, Inc. (New 1) ......................... 688,473
5,000 Vivien Corp. (Manufactures lingerie and other
women's undergarments) ............................... 313,609
3,040 Taekwang Industrial Co., Ltd. (Major producer of
acrylic fiber) ....................................... 1,093,680
29,600 Hyosung T&C, Ltd., (Korea's largest producer of nylon
filament yarn) ....................................... 735,621
-----------
5,986,033
-----------
HEALTH 3.7%
Pharmaceuticals 72,632 Chong Kun Dang Co., Ltd. (Pharmaceutical company) ...... 4,770,481
11,011 Daewoong Pharmaceutical Co. (Pharmaceutical
company) ............................................. 531,655
241,010 Dong-A Pharmaceutical (Pharmaceutical company) ......... 4,649,069
16,068 Korea Green Cross Corp. ................................ 1,197,969
126,621 Yuhan Corporation ...................................... 4,870,038
27,565 Yuhan Corporation (New 1)(c) ........................... 1,206,988
15,418 Yuhan Corporation (New 2)(c) ........................... 664,160
-----------
17,890,360
-----------
COMMUNICATIONS 23.0%
Cellular Telephone 112,706 Korea Mobile Telecom Corp. (Mobile
telecommunication services)(d)(h) .................... 111,911,056
-----------
FINANCIAL 15.7%
Banks 7.7% 435,650 Cheju Bank (Regional bank) ............................. 3,449,111
571,400 Cho Hung Bank (GDS) (Commercial bank) .................. 4,285,500
134,692 Kookmin Bank (Major commercial bank) ................... 1,864,966
3,381 Daegu Bank (Leading regional bank) ..................... 39,972
100,000 Hanil Bank (Major commercial bank) ..................... 686,391
461,044 Korea Exchange Bank (Major commercial bank) ............ 4,173,949
200,000 Korea First Bank (Major commercial bank) ............... 1,013,018
391,300 Korea Housing Bank (New 1) ............................. 5,464,308
584,315 Korea Long Term Credit Bank (Major
commercial bank) ..................................... 10,026,707
485,950 Shin Han Bank (Major commercial bank) .................. 6,613,521
-----------
37,617,443
-----------
Insurance 6.8% 45,356 Daehan Fire & Marine Insurance Co., Ltd.
(Insurance company) .................................. 1,100,353
44,656 Hyundai Fire and Marine Insurance (Insurance company) .. 1,448,017
49,912 LG Insurance Co., Ltd. (Insurance company) ............. 2,652,131
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
[Logo of The Korea Fund, Inc.] THE KOREA FUND, INC.
<TABLE>
INVESTMENT PORTFOLIO (continued)
<CAPTION>
===================================================================================================================
Market
Shares Value($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
68,967 Samsung Fire & Marine Insurance Co. (d)(h) .............. 27,831,653
----------
33,032,154
----------
Other Financial Companies 1.2% 14,638 Boo Kook Securities (Securities company) ................ 114,332
218,224 Hyundai Securities (Securities company) ................. 2,608,358
14,578 Hyundai Securities (New 1) .............................. 163,895
50,000 LG Securities Co., Ltd. (Securities company) ............ 508,876
145,000 Shinyoung Securities .................................... 2,402,367
27,081 Ssangyong Investment & Securities Co. ................... 258,952
----------
6,056,780
----------
SERVICE INDUSTRIES 0.9%
Miscellaneous
Commercial Services 243,132 Samsung Co., Ltd. (Trading company) ..................... 2,877,302
44,589 Samsung Co., Ltd. (New 1) ............................... 522,404
45,003 Sunkyong Ltd. ........................................... 655,073
6,515 Sunkyong Ltd. (New 1) ................................... 90,208
----------
4,144,987
----------
DURABLES 6.7%
Automobiles 4.6% 116,209 Hyundai Motor Co., Ltd. (Korea's largest auto
manufacturer) ......................................... 2,750,509
423,380 Hyundai Motor Services Co., Ltd. (Auto parts and
services) ............................................. 10,321,453
54,989 Hyundai Motor Services Co., Ltd. (New 1) ................ 1,301,515
113,341 Mando Machinery Corp. ................................... 3,822,745
35,000 Samlip Industries (Auto parts manufacturer) ............. 1,404,142
90,000 Yoosung Enterprise (Leading manufacturer of
engine parts) ......................................... 2,566,864
----------
22,167,228
----------
Leasing Companies 0.3% 93,000 Korea Development Leasing Co. (Largest leasing
company in Korea) ..................................... 1,309,704
----------
Telecommunications
Equipment 0.1% 5,490 LG Information & Communication (Leading
manufacturer of telecommunication equipment) .......... 350,840
5,050 LG Information & Communication (New 1) .................. 357,982
220 Sungmi Telecom Electronics (Leading manufacturer
of telecommunication equipment) ....................... 32,805
----------
741,627
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================
Market
Shares Value($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tires 1.7% 163,416 Hankook Tire Manufacturing Co., Ltd. (Major tire
manufacturer) ......................................... 6,265,892
42,995 Hankook Tire Manufacturing Co., Ltd. (New)(c) ........... 1,679,095
11,570 Hankook Tire Manufacturing Co., Ltd. (New 2)(c) ......... 449,108
----------
8,394,095
----------
MANUFACTURING 5.4%
Chemicals 1.5% 85,550 Hanwha Co., Ltd. ........................................ 931,432
13,894 Hanwha Co., Ltd. (New 1) ................................ 154,560
37,540 Korea Chemical Co. (Paint company) ...................... 2,576,710
210,009 LG Chemical Co. Ltd. (Korea's largest integrated
chemical company) ..................................... 2,025,531
50,047 Oriental Chemical Industries Co., Ltd. .................. 1,160,854
4,755 Oriental Chemical Industries Co., Ltd. (New 1) .......... 106,354
10,960 Oriental Chemical Industries Co., Ltd. (New 2) .......... 241,250
----------
7,196,691
----------
Containers & Paper 3.3% 100,000 Asia Paper Manufacturing Co. (Specialized maker of
cardboard used for packaging) ......................... 3,491,124
37,333 Asia Paper Manufacturing Co. (New 1) .................... 1,219,397
50,000 Dae Young Packaging Co. (New 1) (Leading producer
of corrugated board base and boxes) ................... 1,698,225
169,500 Hansol Paper Manufacturing Co., Ltd. .................... 4,553,432
145,807 Hansol Paper Manufacturing Co., Ltd. (New 1) ............ 3,796,159
20,000 Korea Export Packaging Co. (New 1) (Producer of
corrugated boards) .................................... 437,870
35,000 Shin Poong Paper Manufacturing Co., Ltd. (Leading
manufacturer of white duplex paperboard) .............. 849,112
----------
16,045,319
----------
Diversified Manufacturing 0.0% 22,339 Samsung Heavy Industries Co., Ltd. (New 1)
(Shipbuilder, major producer of machinery) ............ 224,976
----------
Electrical Products 0.6% 114,086 Kyungwon Century Co., Ltd. (Major manufacturer of
heating and cooling equipment) ........................ 2,902,780
----------
TECHNOLOGY 9.1%
EDP Peripherals 0.3% 41,240 Chung Ho Computer Co. (Manufacturer of cash
dispensers, on-line and automated teller machines) .... 1,674,002
----------
Electronic Components/
Distributors 8.2% 216,605 Samsung Display Devices ................................. 12,381,091
15,445 Samsung Display Devices (New 1) ......................... 875,521
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
[Logo of The Korea Fund, Inc.] THE KOREA FUND, INC.
<TABLE>
INVESTMENT PORTFOLIO (continued)
<CAPTION>
===================================================================================================================
Market
Shares Value($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
236,962 Samsung Electromechanics Co., Ltd. ...................... 5,384,225
59,318 Samsung Electromechanics Co., Ltd. (New 1) .............. 1,312,718
235,220 Samsung Electronics Co., Ltd. ........................... 12,665,692
143,724 Samsung Electronics Co., Ltd. (New 1) ................... 7,381,801
----------
40,001,048
----------
Electronic Data Processing 0.6% 87,817 Trigem Computer Inc. (Major personal computer
manufacturer) ......................................... 2,702,062
----------
ENERGY 1.2%
Oil & Gas Production 55,833 Ssangyong Oil Refining Co. .............................. 1,222,379
245,644 Yukong, Ltd. ............................................ 4,651,248
----------
5,873,627
----------
METALS & MINERALS 2.0%
Coal Mining 0.3% 30,000 Dongwon Company Ltd. (Thermal coal mining) .............. 1,437,870
----------
Steel & Metals 1.7% 160,000 Inchon Iron & Steel Co. (Steel producer) ................ 2,575,148
70,857 Inchon Iron & Steel Co. (New 1) ......................... 1,123,649
72,313 Kia Steel Co., Ltd. (New 1) ............................. 315,781
68,200 Pohang Iron & Steel Co., Ltd. (Leading steel
producer)(d) .......................................... 4,035,907
----------
8,050,485
----------
CONSTRUCTION 5.3%
Building Materials 2.7% 10,000 Asia Cement Manufacturing Co.(Major producer of
cement) ............................................... 250,888
24,000 Hanil Cement Manufacturing Co., Ltd. (Cement
manufacturing company) ................................ 1,050,888
234,337 Keum Kang Co., Ltd. (Construction company and
manufacturer of building materials) ................... 10,676,893
68,915 Ssangyong Cement Industrial Co., Ltd. ................... 970,519
----------
12,949,188
----------
Homebuilding 0.3% 50,000 Chong Gu Housing & Construction Co. (Apartment
building construction company) ........................ 1,242,604
46,300 Keang Nam Enterprises (Apartment and urban
renewal construction company) ......................... 372,044
----------
1,614,648
----------
Miscellaneous 2.3% 139,125 Dong Ah Construction Industries Co., Ltd. (Leading
construction company) ................................. 2,963,609
4,659 Dong Ah Construction Industries Co., Ltd. (New 2) ....... 94,834
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================
Market
Shares Value($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
149,904 Hyundai Engineering & Construction Co. ................. 3,477,063
14,258 Hyundai Engineering & Construction Co. (New 1) ......... 313,845
30,870 Kumho Construction and Engineering (Engineering
and construction company) ............................ 233,808
135,350 LG Construction Co. (Major real estate developer and
construction company) ................................ 2,658,947
1,234 Sungwon Construction Co. ............................... 13,873
240 Sungwon Construction Co. (New) ......................... 2,542
20,000 Tae Young Corp. (Construction company) ................. 1,315,976
-----------
11,074,497
-----------
TRANSPORTATION 1.5%
Airlines 0.5% 158,146 Korean Air Co., Ltd. ................................... 2,433,015
-----------
Marine Transportation 0.1% 27,930 Hyundai Merchant & Marine Co. (Transportation
company) ............................................. 360,280
1,146 Korea Line Corp. (Maritime transportation company) ..... 13,155
-----------
373,435
-----------
Trucking 0.9% 179,156 Korea Express Co., Ltd. (General freight transport
company) ............................................. 4,303,984
-----------
UTILITIES 2.9%
Electric Utilities 1.6% 210,900 Korea Electric Power Co. ............................... 6,139,811
91,000 Korea Electric Power Co. (ADR) ......................... 1,865,500
-----------
8,005,311
-----------
Natural Gas Distribution 1.3% 12,900 Daehan City Gas Co. (Natural gas distributor) .......... 931,243
37,600 Daesung Industrial (Natural gas distributor) ........... 2,202,604
23,687 Daesung Industrial (New 1) ............................. 1,210,980
24,940 Samchully (Producer and distributor of anthracite
and gas) ............................................. 1,741,374
4,689 Samchully (New 1)(c) ................................... 338,496
1,875 Samchully (New 2) ...................................... 132,027
-----------
6,556,724
-----------
TOTAL COMMON STOCKS (Cost $296,131,802) ................ 416,913,878
-----------
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100.0%
(Cost $383,112,719)(a) ............................... 487,337,611
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
[Logo of The Korea Fund, Inc.] THE KOREA FUND, INC.
INVESTMENT PORTFOLIO (continued)
================================================================================
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $383,716,010. At December 31,
1996, net unrealized appreciation for all securities based on tax cost was
$103,621,601. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax
cost of $175,647,533 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$72,025,932.
(b) New shares issued during 1996, eligible for a pro rata share of 1996
dividends (See Note A to the Notes to Financial Statements).
(c) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $53,084,865 (10.43% of net assets).
Their values have been estimated by the Board of Directors in the absence
of readily ascertainable market values. However, because of the inherent
uncertainty of valuation, those estimated values may differ significantly
from the values that would have been used had a ready market for the
securities existed, and the difference could be material. The cost of
these securities at December 31, 1996 aggregated $59,806,632. These
securities may also have certain restrictions as to resale (See Note A to
the Notes to Financial Statements).
(d) Certain investments in Korean equity securities that have met the limit
for aggregate foreign ownership and for which premiums to the local stock
exchange prices are offered by prospective foreign investors. The
aggregate premium of $54,963,119 over the local share price of $92,233,014
for these securities valued by the Valuation Committee was approximately
10.80% of the Fund's net assets at December 31, 1996. The cost of these
securities at December 31, 1996 was $25,609,696 (See Note A to the Notes
to Financial Statements). Their values have been estimated by the Board of
Directors in the absence of readily ascertainable market values or other
market factors, respectively. However, because of the inherent uncertainty
of valuation, those estimated values may differ significantly from the
values that would have been used had a ready market for the securities
existed, and the difference could be material.
(e) Principal amount stated in Korean won unless otherwise noted. U.S.$ United
States Dollar.
(f) Bonus interest represents the amount available to be paid to the holder at
maturity in lieu of conversion.
(g) Non-income producing.
(h) At December 31, 1996, 28% of the Fund's net assets were invested in Korea
Mobile Telecom Corp. and Samsung Fire & Marine Insurance Co.
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
[Logo of The Korea Fund, Inc.] THE KOREA FUND, INC.
<TABLE>
FINANCIAL STATEMENTS
<CAPTION>
======================================================================================================
- ------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $383,112,719)(Note A) .... $487,337,611
Cash:
U.S. dollars .................................................. 14,113
Won at market (identified cost $22,049,372)(Note A) ........... 21,718,387
Receivables:
Dividends and interest ........................................ 1,041,520
Other assets ..................................................... 3,747
------------
Total assets ................................................ 510,115,378
LIABILITIES
Payables:
Accrued management fee (Note C) ................................ $495,693
Other accrued expenses and payables (Note C) ................... 476,792
--------
Total liabilities ............................................ 972,485
------------
Net assets, at market value ...................................... $509,142,893
============
NET ASSETS
Net assets consist of:
Accumulated net investment loss ................................ $ (1,427,032)
Net unrealized appreciation (depreciation) on:
Investments .................................................. 104,224,892
Won .......................................................... (330,985)
Won related transactions ..................................... (10,076)
Accumulated net realized loss ................................ (7,050,450)
Paid-in capital .............................................. 413,736,544
------------
Net assets, at market value ...................................... $509,142,893
============
NET ASSET VALUE per share ($509,142,893 / 37,570,917
shares of common stock issued and outstanding, 50,000,000 shares
authorized, $.01 par value) .................................... $13.55
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
21
<PAGE>
[Logo of The Korea Fund, Inc.] THE KOREA FUND, INC.
<TABLE>
FINANCIAL STATEMENTS (continued)
<CAPTION>
============================================================================================================
- ------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest (net of withholding taxes of $122,623) ..................... $ 2,543,583
Dividends (net of withholding taxes of $46,223) (Note A) ............ 117,777
-------------
2,661,360
Expenses:
Management fee (Note C) ............................................. $ 3,077,808
Custodian and accounting fees (Note C) .............................. 701,947
Directors' fees and expenses (Note C) ............................... 88,802
Legal ............................................................... 37,732
Auditing ............................................................ 60,459
Reports to shareholders ............................................. 38,922
Services to shareholders ............................................ 41,774
Other ............................................................... 40,948 4,088,392
------------- -------------
Net investment loss ................................................... (1,427,032)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized loss during the period on:
Investments ......................................................... (2,375,037)
Won related transactions ............................................ (3,850,414) (6,225,451)
-------------
Net unrealized appreciation (depreciation) during the period on:
Investments ......................................................... (158,292,765)
Won ................................................................. 2,042,692
Won related transactions ............................................ (4,580) (156,254,653)
------------- -------------
Net loss on investment transactions ................................... (162,480,104)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS .................... $(163,907,136)
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
22
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================
- ------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------
SIX MONTHS YEAR
ENDED ENDED
DECEMBER 31, JUNE 30,
INCREASE (DECREASE) IN NET ASSETS 1996 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) .......................................... $ (1,427,032) $ 738,094
Net realized gain (loss) from investment transactions ................. (6,225,451) 24,164,248
Net unrealized appreciation (depreciation) on investment transactions
during the period ................................................... (156,254,653) (60,906,538)
------------- ------------
Net decrease in net assets resulting from operations .................... (163,907,136) (36,004,196)
------------- ------------
Distributions to shareholders:
From net investment income ............................................ -- (738,094)
------------- ------------
In excess of net investment income .................................... -- (1,489,524)
------------- ------------
From net realized gains on investment transactions .................... (22,312,637) (13,231,733)
------------- ------------
Fund share transactions:
Reinvestment of distributions ......................................... 6,675,080 5,604,398
------------- ------------
DECREASE IN NET ASSETS .................................................. (179,544,693) (45,859,149)
Net assets at beginning of period ....................................... 688,687,586 734,546,735
------------- ------------
NET ASSETS AT END OF PERIOD (including accumulated net investment loss
of $1,427,032 at December 31, 1996) ................................... $ 509,142,893 $688,687,586
============= ============
OTHER INFORMATION
INCREASE IN FUND SHARES
Shares outstanding at beginning of period ............................... 37,188,528 36,930,508
Shares issued to shareholders in reinvestment of distributions ........ 382,389 258,020
------------- ------------
Shares outstanding at end of period ..................................... 37,570,917 37,188,528
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
23
<PAGE>
[Logo of The Korea Fund, Inc.] THE KOREA FUND, INC.
<TABLE>
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.
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED JUNE 30,
DECEMBER 31, --------------------------------------------------------
1996 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period..................... $ 18.52 $19.89 $18.66 $11.40 $10.75 $ 10.27
------- ------ ------ ------ ------ -------
Income from investment operations (a):
Net investment income (loss)........................... (.04) .02 (.02) (.03) .02 .08
Net realized and unrealized gain (loss) on
investment transactions.............................. (4.34) (.97) 2.42 7.13 .86 .78
------- ------ ------ ------ ------ -------
Total from investment operations......................... (4.38) (0.95) 2.40 7.10 .88 .86
------- ------ ------ ------ ------ -------
Less distributions:
From net investment income............................. -- (.02) -- (.01) (.04) (.06)
In excess of net investment income..................... -- (.04) -- -- -- --
From net realized gains on investment transactions..... (.60) (.36) (.15) -- (.20) (.34)
------- ------ ------ ------ ------ -------
Total distributions...................................... (.60) (.42) (.15) (.01) (.24) (.40)
------- ------ ------ ------ ------ -------
Antidilution (dilution) resulting from the rights
offering (1995), fourth tranche (1994), and
reinvestment of distributions for shares at market
value.................................................. .01 -- (1.02) .22 .01 .02
------- ------ ------ ------ ------ -------
Underwriting expenditures and offering costs............. -- -- -- (.05) -- --
------- ------ ------ ------ ------ -------
Net asset value, end of period........................... $ 13.55 $18.52 $19.89 $18.66 $11.40 $ 10.75
======= ====== ====== ====== ====== =======
Market value, end of period.............................. $ 14.88 $21.13 $19.63 $22.00 $15.00 $ 11.38
======= ====== ====== ====== ====== =======
TOTAL RETURN
Per share market value (%)............................... (24.27)** 9.73 (5.43) 46.74 34.54 (17.01)
Per share net asset value (%)(b)......................... (27.17)** (5.09) 13.00 63.77 8.20 7.87
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions)................... 509 689 735 550 258 241
Ratio of operating expenses to average net assets (%).... 1.32* 1.28 1.32 1.37 1.52 1.52
Ratio of net investment income (loss) to average
net assets (%)(c)...................................... (.23)** .10 (.10) (.18) .15 .70
Portfolio turnover rate (%).............................. 7.1* 32.6 10.5 14.3 14.3 18.2
Average commission rate paid (d)......................... $ .0853 $.1254 $ -- $ -- $ -- $ --
<FN>
(a) Based on monthly average of shares outstanding during each period.
(b) Total investment returns reflect changes in net asset value per share during each period and assume that dividends and
capital gains distributions, if any, were reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market price.
(c) The ratio for the six months ended December 31, 1996 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).
(d) Average commission rate paid per share of common and preferred stocks is calculated for fiscal years ending on or after
June 30, 1996.
* Annualized ** Not annualized
</FN>
</TABLE>
- --------------------------------------------------------------------------------
24
<PAGE>
[Logo of The Korea Fund, Inc.] THE KOREA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
A. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
The Korea Fund, Inc. (the "Fund") is registered under the Investment Company Act
of 1940, as amended, as a non-diversified, closed-end management investment
company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Portfolio securities which are traded on the Korean, U.S.,
or foreign stock exchanges are valued at the most recent sale price reported on
the exchange on which the security is traded most extensively. If no sale
occurred, the security is then valued at the calculated mean between the most
recent bid and asked quotations. If there are no such bid and asked quotations,
the most recent bid quotation is used.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost.
All other securities are valued at fair value as determined in good faith by
the Valuation Committee of the Board of Directors. See notes (c) and (d) of
the notes to the Investment Portfolio.
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 16.5% on dividends and 13.2% 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 and certain
securities sold at a loss. As a result, net investment income (loss) and net
realized gain (loss) on investment transactions for a reporting period may
differ significantly from distributions during such period. Accordingly, the
Fund may periodically make reclassifications among certain of its capital
accounts without impacting the net asset value of the Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
25
<PAGE>
[Logo of The Korea Fund, Inc.] THE KOREA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
================================================================================
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, 1996 the exchange rate for Korean won was U.S. $0.001189 to W 1.
SUBSCRIPTIONS FOR NEW SHARES. As part of their annual corporate action matters,
certain Korean companies offer rights to their shareholders to subscribe to new
shares which are eligible for a portion of the dividends paid on existing shares
in the year of subscription. The Fund follows a policy of subscribing to new
share offerings by Korean companies.
OTHER. Investment security transactions are accounted for on a trade-date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. All original
issue and acquisition discounts are accreted for both tax and financial
reporting purposes.
B. PURCHASES AND SALES OF SECURITIES
---------------------------------
For the six months ended December 31, 1996, purchases and sales of investment
securities (excluding short-term investments) aggregated $81,446,217 and
$19,897,158, 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, 1996, the fee pursuant to such agreement amounted
to $3,077,808 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 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, 1996, brokerage commissions on investment
transactions amounting to $38,143 were paid by the Fund to Daewoo Securities
Co., Ltd., the parent company of the Korean Adviser.
26
<PAGE>
================================================================================
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the six months
ended December 31, 1996, the amount charged to the Fund by SFAC aggregated
$168,114, of which $25,702 is unpaid at December 31, 1996.
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, 1996, Directors' fees and
expenses amounted to $88,802.
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
October 1, 1996, total foreign investment was limited generally to 18% of each
class of a company's outstanding shares, while a single foreign investor could
only invest up to 4% of each class of outstanding shares. At October 1, 1996,
the limits were increased from 18% to 20% and 4% to 5%, respectively. Pursuant
to its license, however, the Fund may invest in shares representing 7% of each
class in general.
E. INVESTING IN THE KOREAN MARKET
------------------------------
Investing in the Korean market may involve special risks and considerations not
typically associated with investing in the United States. These risks include
revaluation of currency, high rates of inflation, repatriation restrictions on
income and capital, and future adverse political and economic developments.
Moreover, securities issued in this market may be less liquid, subject to
government ownership controls, delayed settlements, and their prices more
volatile than those of comparable securities in the United States.
27
<PAGE>
[Logo of The Korea Fund, Inc.] 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, 1996,
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, 1996, and the financial highlights for the six months ended
December 31, 1996 and for each of the five years in the period ended June 30,
1996. 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, 1996 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, 1996, 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, 1996, and the financial highlights for the
six months ended December 31, 1996 and for each of the five years in the period
ended June 30, 1996 in conformity with generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 24, 1997
28
<PAGE>
[Logo of The Korea Fund, Inc.] THE KOREA FUND, INC.
TAX INFORMATION
================================================================================
The Fund paid distributions of $0.60 per share from net long-term capital gains
during the six month period ended December 31, 1996.
Due to the nature of its investments, the Fund pays foreign taxes to the
Republic of Korea throughout the year. As in prior years, the Fund intends to
make an election under Section 853 of the Internal Revenue Code. This election
will allow shareholders to treat their proportionate share of foreign taxes paid
by the Fund as having been paid directly by them. Additionally, shareholders
will be required to report their proportionate share of such taxes paid as gross
income (in addition to other amounts of reportable distributions paid by the
Fund).
The Fund paid taxes to the Republic of Korea of $0.035 per share during the
period ended December 31, 1996. Pursuant to an election made by the Fund under
Section 853 of the Internal Revenue Code, shareholders may treat their
proportionate share of such taxes as having been paid by them. During the same
period, the Fund recognized $0.172 per share of foreign source income, all of
which was derived from the Republic of Korea.
Please consult a tax advisor if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Korea Fund account, please call 800-426-5523.
29
Shareholder Meeting Results
================================================================================
The Annual Meeting of Shareholders of The Korea Fund, Inc. was held on Monday,
October 7, 1996, at the offices of Scudder, Stevens & Clark, Inc., 25th Floor,
345 Park Avenue, New York, New York. The two 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>
Director: Number of Votes:
--------- ----------------
<S> <C> <C> <C>
For Withheld Broker Non-Votes*
--- -------- -----------------
Robert J. Callander 18,759,612 221,197 0
William H. Gleysteen, Jr. 18,763,650 217,159 0
Tai Ho Lee 18,753,071 227,738 0
</TABLE>
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, 1997.
<TABLE>
<CAPTION>
Number of Votes:
----------------
<S> <C> <C> <C> <C>
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
18,885,752 72,184 22,873 0
</TABLE>
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary
power to vote on a particular matter.
30
<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.
31
<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 8209, Boston, MA 02266-8209,
1-800-426-5523.
32
<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 Advisor
================================================================================
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.
33
<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
ROBERT J. CALLANDER
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*
Vice President, Secretary and Assistant Treasurer
PAMELA A. McGRATH*
Vice President andTreasurer
EDWARD J. O'CONNELL*
Vice President and Assistant Treasurer
KATHRYN L. QUIRK*
Vice President and Assistant Secretary
- ----------
* Scudder, Stevens & Clark, Inc.
34
<PAGE>
