(logo)
THE KOREA FUND, INC.
Annual Report
June 30, 1998
A closed-end investment company
seeking long-term appreciation of capital
through investment in Korean securities.
<PAGE>
(logo) 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
PricewaterhouseCoopers LLP
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...................................... 20
Financial Highlights...................................... 23
Notes to Financial Statements............................. 24
Report of Independent Accountants......................... 28
Tax Information........................................... 29
Officers and Directors.................................... 29
Dividend Reinvestment and
Cash Purchase Plan..................................... 30
2
<PAGE>
(logo) The Korea Fund, Inc.
In Brief
================================================================================
o The International Monetary Fund bailout and the economic reforms instituted
by the new government began to stabilize the South Korean economy early in
1998; however, improving conditions were once again threatened in May and
June by the growing financial instability in Asia.
o The publicly traded stock price of The Korea Fund, Inc., declined 57.20% in
U.S. dollar terms for the 12 month period ended June 30, 1998. This compares
quite favorably with the performance of the South Korean stock market, which
declined 74.25% when measured in U.S. dollars over the same period.
o Throughout the year, management increased the Fund's holdings of fixed income
instruments, including government securities and high-quality corporate and
convertible bonds.
o For equity holdings, strong fundamental analysis dictated a focus on large,
export-driven companies and market leaders with below-average debt ratios.
(logo) Letter to Shareholders
================================================================================
Dear Shareholders:
The movements of the South Korean stock market were closely linked to
changing investor sentiment regarding the health of the economy. A precipitous
decline in the dollar adjusted, unmanaged Korea Stock Price Index (KOSPI) in
late 1997 accompanied the height of the crisis, only to be followed by a winter
rally with the introduction of the IMF agreement and important internal reforms.
By May, the escalating crises throughout much of Asia and the deepening
recession in Japan sparked a steep fourth quarter drop which soon brought the
market to its lowest level in 11 years. The South Korean market ended the year
as of June 30, 1998 at 297.88, a 60.03% decline in local currency terms for the
12-month period.
The Fund's net asset value declined by 57.41% during the last fiscal year,
closing the period at $5.63 per share. Its New York Stock Exchange share price
of $6.31, represented an 12.1% premium over NAV as of June 30, 1998.
Investment Environment
When the economic crises struck Asia in July 1997, Korea, one of the largest
and strongest economies in the region, was hard hit. The devaluation of the won
and rising interest rates drove out foreign capital and forced many highly
leveraged companies into bankruptcy. By November, the Korean government faced a
severe financial crisis, which forced it to accept the terms of a $55 billion
bailout from the International Monetary Fund.
With the infusion of $10 billion in capital from the IMF and eight nations in
late December, the process of restoring confidence began. The new government
elected from opposition parties for the first time, quickly rose to the
challenge and began instituting a series of much-needed financial reforms --
moving from what had become a rather corrupt process of capital allocation to a
free, more open market system.
Another important reform involved lifting restrictions on foreign investment.
All limitations were abolished, allowing 100% ownership of Korean
3
<PAGE>
(logo) The Korea Fund, Inc.
Letter to Shareholders
================================================================================
companies by foreign investors. This move should have a positive impact in the
future. So far, however, few investors have capitalized on the opportunity. Most
are waiting on the sidelines for signs of increased political stability both in
Korea and the Asian region as a whole.
A change in the paternalistic relationship between government and business
was evident by June of 1998 when the government closed the doors to five of the
nation's financially troubled banks and developed a private bailout plan with
stronger banking institutions. Previously, company failures of this magnitude
were unheard of, since the government regularly stepped in to shore up ailing
businesses.
These reforms and others have the strong support of the Korean public, which
is anxious to overcome the nation's economic problems. The current government
has a high approval rating, but it remains to be seen whether that support will
continue if the gross domestic product shrinks by 4% to 6% as expected,
unemployment increases, and living standards drop. Such changes may spark labor
strikes and civil unrest.
Throughout the year, interest rates in Korea have swung widely. At the height
of the crisis, short-term interest rates reached a high of 40%. Rates dropped to
20% in the spring, and ended the period at a low of 14%. Opinion is divided
about whether the recent interest rate decline has had a positive impact on the
stock market. The speed of the decline may have offset the beneficial effects of
lower interest rates.
All in all, the country has made progress in initiating reforms that will
provide a sound economic basis for the future, and should ultimately prove very
attractive to foreign investors. In the near term, continued caution is
necessary, as the trouble is far from over, and a recovery will be further
challenged by the current recession in Japan. As the country's major competitor,
Japan's financial crisis put additional downward pressure on the value of the
won and upward pressure on interest rates. The yen's weakness also threatens
Korea's competitiveness in world markets, and continues to suppress investor
interest in Asia.
Investment Strategy
Throughout this challenging period, your Fund's management continued to
emphasize sound fundamental research to identify financially strong,
well-managed companies with lower-than-average debt ratios and promising
prospects for long-term growth. Of particular interest to us were market
leaders, such as SK Telecom Co., Ltd., which hold dominant positions in their
economic sectors.
We also emphasized export-oriented companies, as the weaker won improved
Korea's competitive position in world markets. Examples include Pohang Iron &
Steel Co., Ltd, Samsung Electronics Co., Ltd., and Hankook Tire Mfg. Co, all of
which have been among our top ten holdings for the last 12 months.
Given the instability of the stock market and the high interest rate
environment, we increased our fixed income holdings, adding to our positions in
government securities, high-quality corporate bonds, and convertible debt during
the first six months of 1998. Most notably, we purchased Dae Yong Packaging
Convertible Bonds 5.00% with 41.567% bonus interest.
Before the crises peaked in December, we sold our equity interest in many
companies that we believed were too highly leveraged and at risk of bankruptcy.
These included Dong-Ah Construction and Shinho Electric.
During last year we reduced our equity position in banks due to the
anticipated impact of numerous bad loans, selling Korea Exchange Bank, Hanil
Bank, and Housing and Commercial Bank of Korea. Within the financial services
sector, we increased our investment in property and casualty insurance companies
4
<PAGE>
(logo) The Korea Fund, Inc.
Letter to Shareholders
================================================================================
that profited from high returns on invested capital and growing consumer demand.
Samsung Fire & Marine Insurance Co., now our second largest holding, has
performed especially well, and has been the beneficiary of new business
resulting from industry consolidation.
Our careful structuring of the portfolio allowed us to outperform the KOSPI
for the 12-month period.
Outlook
Despite the continuing turmoil threatening its neighbors, the height of
Korea's economic crisis appears to have passed. Although the nation's problems
are far from over, we believe the reforms initiated during the past year
represent an important step toward greater stability.
With Korea's tremendous manufacturing capacity and well-educated workforce,
we believe the country offers long-term investors attractive growth prospects.
Over the shorter-term, however, continued interest rate and currency pressures,
negative GNP growth, a possible change in public sentiment, and the impact of
escalating economic problems in Japan call for a cautious, conservative
investment approach. As a result, we expect to continue to favor leading
companies with strong fundamentals, and hold a larger than normal position in
high-quality fixed income instruments.
Year 2000 Issue
Like other registered investment companies and financial and business
organizations worldwide, the Fund could be adversely affected if computer
systems on which the Fund relies, which primarily include those used by Scudder
Kemper Investments, Inc., its affiliates or other service providers, are unable
to correctly process date-related information on and after January 1, 2000. This
risk is commonly called the Year 2000 Issue. Failure to successfully address the
Year 2000 Issue could result in interruptions to and other material adverse
effects on the Fund's business and operations. Scudder Kemper Investments, Inc.
has commenced a review of the Year 2000 Issue as it may affect the Fund and is
taking steps it believes are reasonably designed to address the Year 2000 Issue,
although there can be no assurances that these steps will be sufficient. In
addition, there can be no assurances that the Year 2000 Issue will not have an
adverse effect on the companies whose securities are held by the Fund or on
global markets or economies generally.
Sincerely,
/s/Nicholas Bratt /s/Juris Padegs
Nicholas Bratt Juris Padegs
President Chairman of the Board
and Director
5
<PAGE>
(logo) The Korea Fund, Inc.
Other Information
================================================================================
Investment Manager
The investment manager and administrator of The Korea Fund, Inc. (the "Fund")
is Scudder Kemper Investments, Inc. (the "Adviser") formerly known as Scudder,
Stevens & Clark, Inc. Scudder Kemper Investments, Inc. is one of the largest and
most experienced investment management organizations worldwide, managing more
than $200 billion in assets globally for mutual fund investors, retirement and
pension plans, institutional and corporate clients, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
United States.
Korean Adviser
Daewoo Capital Management Co., Ltd., registered under the U.S. Investment
Advisers Act of 1940, acts as Korean adviser to Scudder Kemper Investments,
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 the Adviser. The Daewoo staff makes specific investment
recommendations, which are then evaluated by the Adviser's research department
and portfolio managers in light of their own expertise and information from
other sources in making investment decisions for the Fund.
A Team Approach to Investing
The Korea Fund, Inc. is managed by a team of the Adviser's 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 the Adviser's large staff of economists, research
analysts, traders, and other investment specialists who work in the Adviser's
offices across the United States and abroad. We believe our team approach
benefits Fund investors by bringing together many disciplines and leveraging its
extensive resources.
Lead Portfolio Manager John J. Lee has set Fund investment strategy and
overseen its daily operation since 1991, the year he joined the Adviser's global
equity area. Nicholas Bratt, Portfolio Manager, has been a member of the
Portfolio team since 1984 when the Fund was launched and has over 25 years of
experience in worldwide investing. Mr. Bratt, who has been with the Adviser
since 1976, is the Director of the Adviser'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 30.
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 Kemper Investments,
Inc. banner.
6
<PAGE>
THE KOREA FUND, INC.
INVESTMENT SUMMARY AS OF June 30, 1998
- -----------------------------------------------------------------
HISTORICAL
INFORMATION
LIFE OF FUND
<TABLE>
<CAPTION>
TOTAL RETURN (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------
MARKET VALUE NET ASSET VALUE (a) INDEX (b) INDEX (c)
------------------- -------------------- ------------------- -------------------
AVERAGE AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
------------------- -------------------- ------------------- -------------------
CURRENT QUARTER -22.31 -- -25.92 -- -37.60 -- -38.08 --
ONE YEAR -57.20 -57.20 -57.41 -57.41 -74.25 -74.25 -60.04 -60.04
THREE YEAR -65.30 -29.73 -69.47 -32.66 -81.61 -43.13 -66.70 -30.68
FIVE YEAR -51.85 -13.60 -43.49 -10.79 -76.72 -25.28 -60.22 -16.84
TEN YEAR -55.09 -7.69 -32.36 -3.83 -77.52 -13.86 -57.62 -8.23
</TABLE>
- -----------------------------------------------------------------
PER SHARE INFORMATION AND RETURNS (a)
YEARLY PERIODS ENDED JUNE 30, 1998
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>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
----------------------------------------------------------------------------------------------
NET ASSET VALUE... $16.84 $14.45 $10.27 $10.75 $11.40 $18.66 $19.89 $18.52 $13.22 $ 5.63
INCOME DIVIDENDS.. $ .11 $ .08 $ -- $ .06 $ .04 $ .01 $ -- $ .06 $ -- $ --
CAPITAL GAINS
DISTRIBUTIONS..... $ 1.74 $ 1.88 $ 2.20 $ .34 $ .20 $ -- $ .15 $ .36 $ .60 $ --
TOTAL
RETURN (%)........ 33.21 -9.52 -14.91 7.87 8.20 63.77 13.00 -5.09 -24.40 -57.41
</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) Korea Stock Price Index ("KOSPI") in U.S. Dollars.
(c) Korea Stock Price Index ("KOSPI") in local terms.
Past results are not necessarily indicative of future performance of the
Fund.
7
<PAGE>
PORTFOLIO SUMMARY as of June 30, 1998
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Common Stocks 77%
Convertible Bonds 15%
Cash Equivalents 5%
Preferred Stocks 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 26%
Financial 17%
Technology 16%
Metals & Minerals 7%
Consumer Staples 5%
Manufacturing 5%
Utilities 5%
Health 4%
Durables 4%
Other 11%
- --------------------------------------
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
(66% OF PORTFOLIO)
- --------------------------------------------------------------------------
1. SK TELECOM CO., LTD.
Mobile telecommunication services
2. SAMSUNG FIRE & MARINE INSURANCE CO.
Insurance company
3. POHANG IRON & STEEL CO., LTD.
Leading steel producer
4. SAMSUNG ELECTRONICS CO., LTD.
Major electronics manufacturer
5. KOREA ELECTRIC POWER CO.
Electric utility
6. SAMSUNG DISPLAY DEVICES CO.
Leading manufacturer of CRT and picture tubes
7. SAMSUNG ELECTRO-MECHANICS CO., LTD.
Major electronics parts company
8. SK LTD.
Korea's leading oil refiner
9. KOOKMIN BANK
Major commercial bank
10. HANKOOK TIRE MANUFACTURING CO. LTD.
Major tire manufacturer
8
<PAGE>
The Korea Fund, Inc.
Investment Performance
- --------------------------------------------------------------------------------
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*
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE:
BAR CHART DATA:
WITH INCOME WITH CAPITAL CHANGE IN SHARE S&P 500
DISTRIBUTIONS GAINS DISTRIBUTION VALUE OF INITIAL TOTAL RETURN
REINVESTED REINVESTED INVESTMENT ($103,831)
------------- ------------------ --------------- ------------
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
65548 56829 35938 67903
68716 59657 36875 79766
55020 47766 29525 85740
30561 26532 16400 88205
37876 32882 20325 100511
29397 25521 15775 103831
9
<PAGE>
The Korea Fund, Inc.
Investment Performance
- --------------------------------------------------------------------------------
KOREA FUND INVESTMENT PERFORMANCE (Continued)
History (in terms of Net Asset Value) of a $10,000 Investment
in Fund Shares*
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE:
BAR CHART DATA:
WITH INCOME WITH CAPITAL CHANGE IN NET ASSET
DISTRIBUTIONS GAINS DISTRIBUTIONS VALUE OF INITIAL
REINVESTED REINVESTED INVESTMENT
------------- ------------------- -------------------
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
64093 55644 35188
66274 57537 35565
58810 51057 31559
22242 19310 11935
38071 33052 20430
28253 24528 15161
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 $10,000 investment was made at initial public offering price and at
initial net asset value price.
The Standard & Poor's 500 Stock Index is a widely followed, unmanaged index of
500 industrial, transportation, utility and financial companies widely regarded
as representative of the equity market in general.
10
<PAGE>
[LOGO] The Korea Fund, Inc.
Investment Portfolio as of June 30, 1998
================================================================================
<TABLE>
<CAPTION>
Principal Market
Amount (d) Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT 4.9%
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 6/30/1998 at 5.75%
to be repurchased at $11,256,798 on 7/1/1998, collateralized by a $11,145,000
U.S. Treasury Note, 5.375%, 1/31/2000 (Cost $11,255,000) ......................... 11,255,000 11,255,000
-----------
- ----------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS 14.7%
Consumer Staples 0.1%
Textiles
Kolon Industries, Inc., 0.25%, 12/31/2004 .......................................... U.S.$ 1,000,000 250,000
-----------
Media 0.8%
Print Media
Woongjin Publishing Co., Zero Coupon with 17% bonus interest at maturity,
4/15/1999 (b) (e) ................................................................ 2,500,000,000 1,876,934
-----------
Durables 1.0%
Telecommunications Equipment 0.6%
EnK Telecom Company, Zero Coupon with 35.114% bonus interest at
maturity, 12/31/2000 (b) (e) ..................................................... 2,000,000,000 1,317,927
-----------
Tires 0.4%
Hankook Tire Manufacturing Co. Ltd., Zero Coupon with 5.83% bonus
interest at maturity, 12/31/2002 (b) (e) ......................................... 1,890,000,000 997,499
-----------
Manufacturing 1.6%
Containers & Paper
Dae Young Packaging Co. #20, 5% with 41.567% bonus interest at maturity,
12/31/2000 (b) (e) ............................................................... 1,000,000,000 736,020
Hansol Paper Manufacturing Co., Ltd., 3% with 28.24% bonus interest
at maturity, 12/31/1999 (b) (e) .................................................. 4,000,000,000 3,046,462
-----------
3,782,482
-----------
Technology 2.7%
Electronic Components/Distributors 1.4%
Hyundai Electronics Industries Co. #86, Zero Coupon with 35.54% bonus interest
at maturity, 12/31/2000 (b) (e) .................................................. 5,000,000,000 3,305,302
-----------
Semiconductors 0.5%
D.I. Corporation, 3% with 34.44% bonus interest at maturity, 12/31/2000 (b) (e) .... 1,604,800,000 1,096,135
-----------
Miscellaneous 0.8%
Kasan Electronics, 5% with 14% bonus interest at maturity, 12/31/2000 (b) (e) ...... 3,000,000,000 1,804,709
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
[LOGO] The Korea Fund, Inc.
Investment Portfolio
================================================================================
<TABLE>
<CAPTION>
Principal Market
Amount (d) Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Energy 1.0%
Oil & Gas Production
SK, Ltd., 1% with 13.92% bonus interest at maturity, 12/31/1998 (b) (e) ............ 3,000,000,000 2,306,465
-----------
Metals & Minerals 0.8%
Steel & Metals
Dong Yang Steel Pipe Company, Zero Coupon with 20.13% bonus interest
at maturity, 12/31/2000 (b) (e) .................................................. 3,000,000,000 1,757,707
-----------
Construction 0.5%
Miscellaneous
Dae Ho Construction, 4% with 27.8% bonus interest at maturity, 12/31/2000 (b) (e) .. 1,580,000,000 1,042,425
-----------
Transportation 1.1%
Marine Transportation
Hanjin Shipping Company, Zero Coupon with 35.25% bonus interest at maturity,
12/31/1999 (b) (e) ............................................................... 2,000,000,000 1,548,829
Hyundai Merchant & Marine Co., Zero Coupon with 34.13% bonus interest at
maturity, 12/31/2000 (b) (e) ..................................................... 1,500,000,000 981,275
-----------
2,530,104
-----------
Utilities 3.6%
Electric Utilities
Korea Electric Power Co., Zero Coupon with 30.5% bonus interest at maturity,
12/31/1998 (b) (e) ............................................................... 2,300,000,000 2,016,723
Korea Electric Power Co. #6, 5% with 9.5% bonus interest at maturity,
12/31/2000 (b) (e) ............................................................... 9,951,000,000 6,173,077
-----------
8,189,800
-----------
Miscellaneous 1.5%
Halim & Co. Ltd., 3% with 58.62% bonus interest at maturity, 12/31/2001 (b) (e) .... 5,000,000,000 3,540,503
-----------
Total Convertible Bonds (Cost $58,053,554) ......................................... 33,797,992
-----------
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares
----------
<S> <C> <C>
PREFERRED STOCKS 3.2%
Consumer Discretionary 0.0%
Apparel & Shoes
Shin Won Corporation ............................................................... 50,000 16,387
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
[LOGO] The Korea Fund, Inc.
Investment Portfolio
================================================================================
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hotels & Casinos
Hotel Shilla Co.* .................................................................. 22,070 24,272
-----------
Consumer Staples 0.5%
Food & Beverage 0.1%
Cheil Jedang Corp. ................................................................. 100,670 300,617
Nam Yang Dairy Products Co. (b) .................................................... 1,160 24,374
-----------
324,991
-----------
Package Goods/Cosmetics 0.2%
Pacific Corp. ...................................................................... 138,570 336,585
-----------
Textiles 0.2%
BYC Co., Ltd. ...................................................................... 14,130 113,205
Kolon Industries, Inc.* ............................................................ 225,910 222,126
SK Chemicals Co. Ltd. .............................................................. 78,360 36,526
-----------
371,857
-----------
Health 0.0%
Pharmaceuticals
Korea Green Cross Corp. ............................................................ 6,700 36,111
Korea Green Cross Corp. (New) ...................................................... 1,260 6,387
-----------
42,498
-----------
Financial 1.3%
Insurance 1.2%
Samsung Fire & Marine Insurance Co. ................................................ 28,385 2,646,235
-----------
Other Financial Companies 0.1%
Shin Young Securities Co. .......................................................... 137,310 320,023
-----------
Service Industries 0.0%
Miscellaneous Commercial Services
SK Global .......................................................................... 76,000 59,228
-----------
Durables 0.1%
Automobiles 0.1%
Hyundai Motor Co., Ltd.* ........................................................... 50,000 147,487
Mando Machinery Corp. .............................................................. 12,914 8,277
-----------
155,764
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
[LOGO] The Korea Fund, Inc.
Investment Portfolio
================================================================================
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Telecommunications Equipment 0.0%
Sungmi Telecom Electronics Co. ..................................................... 11,280 59,152
Sungmi Telecom Electronics Co. (New) ............................................... 406 2,108
-----------
61,260
-----------
Manufacturing 0.1%
Chemicals
LG Chemical Co., Ltd. .............................................................. 84,800 111,173
Oriental Chemical Industries Co., Ltd. ............................................. 116,380 194,956
-----------
306,129
-----------
Technology 1.1%
Electronic Components/Distributors
Samsung Display Devices Co. ........................................................ 34,318 367,425
Samsung Electro-Mechanics Co. ...................................................... 180,000 865,259
Samsung Electronics Co., Ltd. ...................................................... 98,201 1,180,129
-----------
2,412,813
-----------
Construction 0.0%
Building Materials
Sung Shin Cement Co., Ltd. ......................................................... 29,300 22,300
Tong Yang Cement Co., Ltd. ......................................................... 50,000 40,058
-----------
62,358
-----------
Miscellaneous
Tae Young Corporation .............................................................. 13,390 22,723
-----------
Transportation 0.1%
Airlines 0.1%
Korean Air Lines Co., Ltd. (2nd)* .................................................. 20,080 35,100
Korean Airlines Co., Ltd.* ......................................................... 80,320 93,599
-----------
128,699
-----------
Trucking 0.0%
Global Enterprises Co., Ltd. ....................................................... 25,500 55,717
-----------
Total Preferred Stocks (Cost $25,131,353) 7,347,539
-----------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
[LOGO] The Korea Fund, Inc.
Investment Portfolio
================================================================================
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 77.2%
Consumer Discretionary 0.7%
Department & Chain Stores 0.4%
Shinsegae Department Store ......................................................... 119,014 966,501
-----------
Hotels & Casinos 0.3%
Hotel Shilla Co.* .................................................................. 220,000 722,651
-----------
Consumer Staples 4.5%
Food & Beverage 2.9%
Cheil Jedang Corp. ................................................................. 19,337 266,183
Nam Yang Dairy Products Co. (g) .................................................... 43,390 2,831,569
Nhong Shim Co., Ltd. ............................................................... 76,164 3,295,078
Pulmuone Co., Ltd. (g) ............................................................. 100,450 337,272
-----------
6,730,102
-----------
Package Goods/Cosmetics 0.1%
Hankook Cosmetics Co. .............................................................. 50,000 273,125
-----------
Textiles 1.5%
BYC Co., Ltd. ...................................................................... 22,530 615,350
Dae Ha Fashion Co. (b) ............................................................. 10,000 52,320
Daehan Synthetic Fiber Company ..................................................... 2,610 60,830
Hankook Synthetics, Inc. ........................................................... 48,240 857,288
Kolon Industries, Inc.* ............................................................ 40,969 195,446
Tae Kwang Industry Company ......................................................... 5,540 1,291,187
Vivien Corp. ....................................................................... 15,000 356,154
-----------
3,428,575
-----------
Health 3.8%
Medical Supply & Specialty 1.1%
Medison Co., Ltd. .................................................................. 300,000 2,643,846
-----------
Pharmaceuticals 2.7%
Chong Kun Dang Corp. ............................................................... 112,578 1,803,872
Daewoong Pharmaceutical Co. ........................................................ 41,503 399,009
Korea Green Cross Corp. ............................................................ 26,543 593,496
Yuhan Corporation .................................................................. 169,604 3,372,316
-----------
6,168,693
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
[LOGO] The Korea Fund, Inc.
Investment Portfolio
================================================================================
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Communications 24.7%
Cellular Telephone 24.6%
SK Telecom Co., Ltd. (c) (f) ....................................................... 114,527 52,837,569
SK Telecom Co., Ltd. (f) ........................................................... 12,358 3,852,312
-----------
56,689,881
-----------
Telephone/Communications 0.0%
Sam Woo Communications Co. ......................................................... 15,059 112,970
-----------
Miscellaneous 0.1%
Communication Network Interface, Inc. .............................................. 20,000 174,800
-----------
Financial 14.6%
Banks 4.2%
Bank of Cheju* ..................................................................... 438,120 252,087
Daegu Bank* ........................................................................ 159,786 168,747
Hana Bank .......................................................................... 278,314 1,003,390
Housing & Commercial Bank (GDR) .................................................... 189,997 622,240
Kookmin Bank* ...................................................................... 1,309,559 4,864,349
Korea Long Term Credit Bank (New)* ................................................. 995,229 1,848,386
Shin Han Bank* ..................................................................... 270,543 898,526
-----------
9,657,725
-----------
Insurance 10.1%
Daehan Fire & Marine Insurance Co., Ltd. ........................................... 52,902 199,972
Hyundai Marine & Fire Insurance Co. ................................................ 44,656 305,729
LG Insurance Co., Ltd. ............................................................. 79,912 1,583,107
Oriental Fire & Marine Insurance Co. ............................................... 20,000 56,810
Samsung Fire & Marine Insurance Co. (g) ............................................ 126,590 21,113,700
-----------
23,259,318
-----------
Other Financial Companies 0.3%
Shin Young Securities .............................................................. 105,000 596,504
-----------
Service Industries 1.0%
Investment 0.2%
Dongwon Securities Co. ............................................................. 150,000 442,462
-----------
Miscellaneous Commercial Services 0.8%
S1 Corporation ..................................................................... 6,834 691,862
SK Global .......................................................................... 57,859 123,893
Samsung Co., Ltd. .................................................................. 387,609 1,030,425
-----------
1,846,180
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
[LOGO] The Korea Fund, Inc.
Investment Portfolio
================================================================================
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Durables 2.3%
Automobiles 1.1%
Hyundai Motor Services Co., Ltd. ................................................... 478,369 1,755,994
Mando Machinery Corp. .............................................................. 3,780 17,097
Samlip Industrial Company .......................................................... 35,000 201,384
Yoosung Enterprise Company ......................................................... 90,000 471,959
-----------
2,446,434
-----------
Tires 1.2%
Hankook Tire Manufacturing Co., Ltd. (g) ........................................... 158,045 2,877,731
-----------
Manufacturing 3.2%
Chemicals 1.1%
Korea Chemical Co. ................................................................. 71,440 1,019,828
LG Chemical Co., Ltd. .............................................................. 240,009 1,328,528
Oriental Chemical Industries Co., Ltd. ............................................. 8,185 47,393
-----------
2,395,749
-----------
Containers & Paper 0.3%
Dae Young Packaging Co. ............................................................ 16,950 99,996
Hansol Paper Manufacturing Co., Ltd. ............................................... 7 33
Korea Export Packaging Industries* ................................................. 29,214 130,857
Shin Poong Paper Manufacturing Co., Ltd. ........................................... 56,650 375,466
-----------
606,352
-----------
Diversified Manufacturing 0.3%
Samsung Heavy Industries Co., Ltd.* ................................................ 142,339 710,140
-----------
Electrical Products 0.1%
Century Corp. ...................................................................... 114,086 311,597
-----------
Industrial Specialty 0.3%
Hankuk Glass Industry Co., Ltd. (GDR) .............................................. 122,937 522,482
Samsung Radiator Industrial Co. .................................................... 15,440 247,400
-----------
769,882
-----------
Miscellaneous 1.1%
Hyundai Heavy Industries ........................................................... 120,000 2,534,596
-----------
Technology 11.4%
EDP Peripherals 0.2%
Chung Ho Computer Co. .............................................................. 42,477 340,311
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
[LOGO] The Korea Fund, Inc.
Investment Portfolio
================================================================================
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Electronic Components/Distributors 11.0%
Dae Duck Electronics Co. ........................................................... 40,000 2,330,663
Samsung Display Devices Co. ........................................................ 268,922 7,344,915
Samsung Electro-Mechanics Co., Ltd. ................................................ 452,912 5,772,731
Samsung Electronics Co., Ltd. ...................................................... 322,475 9,981,928
-----------
25,430,237
-----------
Miscellaneous 0.2%
Daou Technology, Inc. .............................................................. 302,700 360,462
-----------
Energy 1.2%
Oil & Gas Production
Ssangyong Oil Refining Co. ......................................................... 15,370 104,109
SK Ltd. ............................................................................ 445,264 2,724,121
-----------
2,828,230
-----------
Metals & Minerals 6.3%
Steel & Metals
Inchon Iron & Steel Co. ............................................................ 23,585 83,312
Pohang Iron & Steel Co., Ltd. (c) (f) .............................................. 285,762 9,609,762
Pohang Iron & Steel Co., Ltd. (f) .................................................. 169,320 4,784,862
-----------
14,477,936
-----------
Construction 1.2%
Building Materials 0.9%
Asia Cement Manufacturing Co. ...................................................... 10,000 47,342
Keum Kang Co., Ltd. ................................................................ 234,337 2,013,967
-----------
2,061,309
-----------
Miscellaneous 0.3%
Hyundai Engineering & Construction Co.* ............................................ 43,051 169,006
Tae Young Corp. .................................................................... 70,000 591,406
-----------
760,412
-----------
Transportation 1.1%
Airlines 0.6%
Korean Air Lines Co., Ltd.* ........................................................ 524,932 1,353,430
-----------
Marine Transportation 0.5%
Hyundai Merchant Marine Co. ........................................................ 137,930 1,115,093
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
[LOGO] The Korea Fund, Inc.
Investment Portfolio
================================================================================
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities 1.2%
Electric Utilities 0.6%
Korea Electric Power Co. ........................................................... 70,900 756,508
Korea Electric Power Co. (ADR) ..................................................... 91,000 648,375
-----------
1,404,883
-----------
Natural Gas Distribution 0.6%
Daehan City Gas Co. ................................................................ 36,179 457,178
Daesung Industries Co. Ltd. ........................................................ 61,287 575,821
Samchully Company .................................................................. 31,504 390,071
-----------
1,423,070
-----------
Total Common Stocks (Cost $271,016,140) ............................................ 177,921,187
-----------
- ----------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $365,456,047) (a) ....................... 230,321,718
===========
</TABLE>
* Non-income producing security.
(a) The cost for federal income tax purposes was $367,079,731. At June 30,
1998, net unrealized depreciation for all securities based on tax cost was
$136,758,013. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax
cost of $49,773,064 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$186,531,077.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $33,624,686 (11.95% 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 June 30, 1998 aggregated $57,500,115. These securities
may also have certain restrictions as to resale (See Note A to the Notes
to Financial Statements).
(c) 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 $18,670,840 over the local share price of $43,776,491
for these securities valued by the Valuation Committee was approximately
6.64% of the Fund's net assets at June 30, 1998. The cost of these
securities at June 30, 1998 was $28,327,342 (See Note A to the Notes to
Financial Statements). Their values have been estimated by the Board of
Directors in the absence of readily ascertainable market values or other
market factors, respectively. However, because of the inherent uncertainty
of valuation, those estimated values may differ significantly from the
values that would have been used had a ready market for the securities
existed, and the difference could be material.
(d) Principal amount stated in Korean won unless otherwise noted. U.S.$
represents United States Dollar.
(e) Bonus interest represents the amount available to be paid to the holder at
maturity in lieu of conversion.
(f) At June 30, 1998, 25% of the Fund's net assets were invested in SK Telecom
Co., Ltd. and Pohang Iron & Steel Co., Ltd.
(g) Affiliated issuers (See Notes to Financial Statements).
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
[LOGO] The Korea Fund, Inc.
Financial Statements
================================================================================
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market:
Unaffiliated issuers (identified cost $336,139,228) ................................. $ 203,161,446
Affiliated issuers (identified cost $29,316,819) .................................... 27,160,272
----------------
Total investments, at market (identified cost $365,456,047) ......................... 230,321,718
Cash ................................................................................ 477
Won at market (identified cost $49,165,125) ......................................... 50,735,546
Receivables:
Investments sold .................................................................... 832,025
Dividends and interest .............................................................. 376,474
Other assets ........................................................................ 27,703
----------------
Total assets ........................................................................ 282,293,943
----------------
LIABILITIES
Payables:
Accrued management fee .............................................................. 219,741
Other payables and accrued expenses ................................................. 799,272
----------------
Total liabilities ................................................................... 1,019,013
----------------
Net assets, at market value ......................................................... $ 281,274,930
================
NET ASSETS
Net assets consist of:
Accumulated distributions in excess of net investment income ........................ (31,076,382)
Net unrealized appreciation (depreciation) on:
Investments ......................................................................... (135,134,329)
Won ................................................................................. 1,570,421
Won related transactions ............................................................ 24,843
Accumulated net realized loss ....................................................... (112,180,240)
Paid-in capital ..................................................................... 558,070,617
----------------
Net assets, at market value ......................................................... $ 281,274,930
================
Net asset value per share ($281,274,930 / 49,999,999 shares of common stock
issued and outstanding, 200,000,000 shares authorized, $.01 par value) ........... $5.63
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
20
<PAGE>
[LOGO] The Korea Fund, Inc.
Financial Statements
================================================================================
- --------------------------------------------------------------------------------
Statement of Operations
Year Ended June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Income:
Dividends -- Unaffiliated issuers ................................................... $ 2,137,838
Dividends -- Affiliated issuers ..................................................... 251,777
Interest ............................................................................ 8,386,760
Korean withholding tax .............................................................. (1,507,310)
----------------
9,269,065
----------------
Expenses:
Management fee ...................................................................... 4,121,646
Custodian and accounting fees ....................................................... 916,092
Directors' fees and expenses ........................................................ 105,805
Legal ............................................................................... 93,591
Auditing ............................................................................ 111,846
Reports to shareholders ............................................................. 121,508
Services to shareholders ............................................................ 69,876
Other ............................................................................... 76,774
----------------
5,617,138
----------------
Net investment income ............................................................... 3,651,927
----------------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) during the period on:
Investments ......................................................................... (114,279,722)
Won related transactions ............................................................ (21,904,488)
----------------
(136,184,210)
----------------
Net unrealized appreciation (depreciation) during the period on:
Investments ......................................................................... (248,853,581)
Won ................................................................................. 1,537,284
Won related transactions ............................................................ 27,803
----------------
(247,288,494)
----------------
Net gain (loss) on investment transactions .......................................... (383,472,704)
----------------
Net increase (decrease) in net assets resulting from operations ..................... $ (379,820,777)
=================
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
21
<PAGE>
[LOGO] The Korea Fund, Inc.
Financial Statements
================================================================================
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------
Increase (Decrease) in Net Assets 1998 1997
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ........................................... $ 3,651,927 $ 2,759,009
Net realized gain (loss) from investment transactions .................. (136,184,210) (13,461,174)
Net unrealized appreciation (depreciation) on investment
transactions during the period ...................................... (247,288,494) (146,389,055)
---------------- ----------------
Net increase (decrease) in net assets resulting from operations ........ (379,820,777) (157,091,220)
---------------- ----------------
Distributions to shareholders from net realized gains on investment
transactions ........................................................ -- (22,312,637)
---------------- ----------------
Fund share transactions:
Net Proceeds of shares issued in connection with the Fund's rights
offering, net of broker and dealer manager fees of $3,254,988 and
expenditures and offering costs of $757,113 ......................... -- 145,136,895
Reinvestment of distributions .......................................... -- 6,675,083
---------------- ----------------
Net increase (decrease) in net assets from Fund share transactions ..... -- 151,811,978
---------------- ----------------
Increase (decrease) in net assets ...................................... (379,820,777) (27,591,879)
Net assets at beginning of period ...................................... 661,095,707 688,687,586
---------------- ----------------
Net assets at end of period (including accumulated distributions in
excess of net investment income of $31,076,382 at June 30, 1998) .... $ 281,274,930 $ 661,095,707
================ ================
Other Information
Increase (decrease) in Fund Shares
Shares outstanding at beginning of period .............................. 49,999,999 37,188,528
Shares issued in connection with the Fund's rights offering ............ -- 12,429,083
Shares issued to shareholders in reinvestment of distributions ......... -- 382,388
---------------- ----------------
Net increase (decrease) in Fund shares ................................. -- 12,811,471
---------------- ----------------
Shares outstanding at end of period .................................... 49,999,999 49,999,999
================ ================
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
22
<PAGE>
[LOGO] The Korea Fund, Inc.
Financial Highlights
================================================================================
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements and market price data.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------------------
1998 1997 1996 1995 1994
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period .................. $ 13.22 $ 18.52 $ 19.89 $ 18.66 $ 11.40
------- ------- ------- ------- -------
Income from investment operations (a):
Net investment income (loss) .......................... .07 .07 .02 (.02) (.03)
Net realized and unrealized gain (loss) on
investment transactions ............................ (7.66) (4.48)(c) (.97) 2.42 7.13
------- ------- ------- ------- -------
Total from investment operations ...................... (7.59) (4.41) (.95) 2.40 7.10
------- ------- ------- ------- -------
Less distributions:
From net investment income ............................ -- -- (.02) -- (.01)
In excess of net investment income .................... -- -- (.04) -- --
From net realized gains on investment
transactions ....................................... -- (.60) (.36) (.15) --
------- ------- ------- ------- -------
Total distributions ................................... -- (.60) (.42) (.15) (.01)
------- ------- ------- ------- -------
Antidilution (dilution) resulting from the
rights offering (1997 and 1995), fourth
tranche (1994), and reinvestment of
distributions for shares at market value ........... -- (.29) -- (1.02) .22
------- ------- ------- ------- -------
Underwriting expenditures and offering costs .......... -- -- -- -- (.05)
------- ------- ------- ------- -------
Net asset value, end of period ........................ $ 5.63 $ 13.22 $ 18.52 $ 19.89 $ 18.66
======= ======= ======= ======= =======
Market value, end of period ........................... $ 6.31 $ 14.75 $ 21.13 $ 19.63 $ 22.00
======= ======= ======= ======= =======
Total Return
Per share market value (%) ............................ (57.20) (26.11) 9.73 (5.43) 46.74
Per share net asset value (%) (b) ..................... (57.41) (24.40) (5.09) 13.00 63.77
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................ 281 661 689 735 550
Ratio of operating expenses to average net
assets (%) ......................................... 1.38 1.28 1.28 1.32 1.37
Ratio of net investment income (loss) to
average net assets (%) ............................. .90 .46 .10 (.10) (.18)
Portfolio turnover rate (%) ........................... 24.3 12.9 32.6 10.5 14.3
Average commission rate paid (d) ...................... $ .0397 $ .1065 $ .1254 -- --
</TABLE>
(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) Due to the timing and magnitude of the rights offerings, the amounts
reported herein are not proportional to the aggregate value reported in the
Statement of Changes in Net Assets.
(d) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years ending on or after June 30, 1996.
- --------------------------------------------------------------------------------
23
<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 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 (b) and (c) of the
notes to the Investment Portfolio.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement, is equal to at least 100.5% of the repurchase price.
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, as amended, 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. At June 30, 1998, the Fund had a net tax basis capital
loss carryforward of approximately $14,335,000 which may be applied against any
realized net taxable capital gains of each succeeding year until fully utilized
or until June 30, 2006, the expiration date, whichever occurs first. In
addition, from November 1, 1997 through June 30, 1998, the Fund incurred
approximately $95,500,000 of net realized capital losses on investments and
approximately $31,000,000 on realized currency losses. As permitted by tax
regulations, the Fund intends to elect to defer these losses and treat them as
arising in the fiscal year ending June 30, 1999.
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 earned by the Fund from
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. During any particular year net realized gains from investment
transactions, in excess of available capital loss carryforwards,
24
<PAGE>
The Korea Fund, Inc.
Notes to Financial Statements
================================================================================
would be taxable to the Fund if not distributed and, therefore, will be
distributed to shareholders annually. 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 primarily relate to investments in 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.
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-dividend and payment dates on dividends, interest, and foreign withholding
taxes. At June 30, 1998 the exchange rate for Korean won was U.S. $0.000728
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 year ended June 30, 1998, purchases and sales of investment securities
(excluding short-term investments) aggregated $91,019,732 and $104,364,932,
respectively.
25
<PAGE>
The Korea Fund, Inc.
Notes to Financial Statements
================================================================================
C. Related Parties
Under the Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. (the "Adviser"), the Adviser directs the investments of the
Fund in accordance with its investment objectives, policies, and restrictions.
The Adviser determines the securities, instruments and other contracts relating
to investments to be purchased, sold or entered into by the Fund. In addition to
portfolio management services, the Adviser provides certain administrative
services in accordance with the Agreement. The management fee payable under the
Agreement is equal to an annual rate of 1.15% of the Fund's month-end net assets
up to and including $50,000,000, 1.10% of such net assets on the next
$50,000,000, 1% 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 year ended June 30, 1998, the fee pursuant to such
Agreement amounted to $4,121,646 which was equivalent to an annual effective
rate of 1.01% of the Fund's average month-end net assets.
Under the 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 year ended June 30, 1998, brokerage commissions on investment
transactions amounting to $41,314 were paid by the Fund to Daewoo Securities
Co., Ltd., the parent company of the Korean Adviser.
Scudder Service Corporation ("SSC"), a subsidiary of the Manager, provides
shareholder communications services for the Fund. For the year ended June 30,
1998 the amount charged to the Fund by SSC aggregated $15,000, of which $1,250
is unpaid at June 30, 1998.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Manager, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
June 30, 1998, the amount charged to the Fund by SFAC aggregated $235,920, of
which $14,230 is unpaid at June 30, 1998.
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 year ended June 30, 1998, Directors' fees and expenses
amounted to $105,805.
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 or to repatriate from investment principal up
to 10% of the net asset value (taken at current value) of the Fund (except upon
termination of the Fund, or for expenses in excess of Fund income, in which case
the foregoing restriction shall not apply). 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
Financial Supervisory Commission ("FSC") may issue orders imposing additional
restrictions, when deemed in
26
<PAGE>
The Korea Fund, Inc.
Notes to Financial Statements
================================================================================
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.
On May 25, 1998, the Korean Minister of Finance and Economy and the FSC
abolished certain restrictions with respect to investing in equity securities of
Korean companies listed on the Korea Stock Exchange, with the exception of
public corporations and telecommunication corporations. As of June 30, 1998, two
of the Fund's holdings had ownership limits still in place: Pohang Iron and
Steel, which had a foreign ownership limit of 30%, and SK Telecom, which had a
foreign ownership limit of 33%; provided that the ownership limit relating to
the shares of Pohang Iron and Steel has been abolished as of July 2, 1998,
pursuant to the amendment to the license of the Fund.
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, Korean taxes, 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.
F. Transactions in Securities of Affiliated Issuers
An affiliated issuer is a company in which the Fund has ownership of at least 5%
of the voting securities. A summary of the Fund's transactions during the period
with companies which are or were affiliates are as follows:
<TABLE>
<CAPTION>
Purchases Sales Dividend Market
Affiliate Cost ($) Cost ($) Income ($) Value ($)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hankook Tire Manufacturing Co., Ltd. 966,542 803,586 115,796 2,877,731
Nam Yang Dairy Products Co. 2,266,317 -- 18,842 2,831,569
Pulmuone Co., Ltd. 437,080 -- 16,202 337,272
Samsung Fire & Marine Insurance Co. 12,895,883 73,615 100,937 21,113,700
Sewon Co., Ltd. -- 11,450,958 -- --
---------------- ------------- ------------- ----------------
16,565,822 12,328,159 251,777 27,160,272
================ ============= ============= ================
</TABLE>
27
<PAGE>
The Korea Fund, Inc.
Report of Independent Accountants
================================================================================
To the Board of Directors and the Shareholders of The Korea Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Korea Fund (the "Fund") at June
30, 1998, the results of its operations for the year then ended and the changes
in its net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
August 21, 1998
28
<PAGE>
The Korea Fund, Inc.
Tax Information
================================================================================
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 may make an
election under Section 853 of the Internal Revenue Code. This election would
allow shareholders to treat their proportionate share of foreign taxes paid by
the Fund as having been paid directly by them. Additionally, shareholders would
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 earned income in and paid taxes to the Republic of Korea of $1,507,310
($.03 per share) during the year ended June 30, 1998.
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.
Officers and Directors
================================================================================
JURIS PADEGS*
Chairman of the Board and Director
CHANG HEE KIM
Vice Chairman of the Board and Director
ROBERT J. CALLANDER
Director
WILLIAM H. GLEYSTEEN, JR.
Director
DR. SANG C. LEE
Director
TAI HO LEE
Director
WILSON NOLEN
Director
HUGH T. PATRICK
Director
ROBERT W. LEAR
Emeritus Founding Director
SIDNEY M. ROBBINS
Emeritus Founding Director
NICHOLAS BRATT*
President
BRUCE H. GOLDFARB*
Vice President and Assistant Secretary
JUDITH A. HANNAWAY*
Vice President
JERARD K. HARTMAN*
Vice President
KUN-HO HWANG
Vice President
YOUNG H. KIM
Vice President
JOHN J. LEE*
Vice President
DONG WOOK PARK
Vice President
THOMAS F. McDONOUGH*
Vice President, Secretary and Treasurer
KATHRYN L. QUIRK*
Vice President and Assistant Secretary
JOHN R. HEBBLE*
Assistant Treasurer
CAROLINE PEARSON*
Assistant Secretary
* Scudder Kemper Investments, Inc.
29
<PAGE>
(logo) The Korea Fund, Inc.
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
30
<PAGE>
(logo) The Korea Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
================================================================================
than 48 hours before such payment is to be invested.
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.
31
<PAGE>
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