[LOGO]
THE KOREA
FUND, INC.
Semiannual Report
December 31, 1999
A closed-end investment company
seeking long-term appreciation of capital
through investment in Korean securities.
<PAGE>
[LOGO] The Korea Fund, Inc.
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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
EquiServe
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 Stockholders .......................................... 3
Other Information ............................................... 6
Investment Summary .............................................. 8
Portfolio Summary ............................................... 9
Investment Performance .......................................... 10
Investment Portfolio ............................................ 12
Financial Statements ............................................ 20
Financial Highlights ............................................ 23
Notes to Financial Statements ................................... 24
Report of Independent Accountants ............................... 28
Dividend Reinvestment and
Cash Purchase Plan ........................................... 29
Stockholder Meeting Results ..................................... 31
Officers and Directors .......................................... 32
2
<PAGE>
[LOGO] The Korea Fund, Inc.
In Brief
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o Corporate restructuring, economic recovery, and the strong performance of
technology shares across all of the world's markets helped fuel a rally in
Korean equities during the latter half of 1999.
o The fund, which emphasizes large-cap stocks and holds an overweight
position in the technology sector, was well-positioned for the market
environment of the last six months.
Letter to Stockholders
- --------------------------------------------------------------------------------
Dear Stockholders:
Korea's stock market surged in the second half of 1999 behind the impressive
performance of the country's economy and the wealth of important changes taking
place at the corporate level. While a variety of risks remain in place, it is
becoming increasingly apparent that the embrace of the Western business model by
Korean corporations is translating into stronger earnings growth and a healthier
economic environment. Against this backdrop, the fund's shares trading on the
New York Stock Exchange rose 14.29% to $17.00 over the six-month period ended
December 31, 1999. The fund's net asset value rose 30.53% to $23.13 over the
same period, beating the fund's unmanaged benchmark, the KOSPI Index. Korea
Fund's discount to NAV was 26.50% as of December 31.
Dramatic Changes Boost Market Sentiment
Korea's economic recovery continues to unfold at a rapid pace. In the first
half of the year, real gross domestic product rose 7.3% year-over-year, forcing
an upward revision of full-year growth expectations for 1999 to 8%. Growth
leadership has passed from exports to private consumption as a result of
household sentiment having been boosted by higher wages and the wealth effect of
a strong equity market. Despite the strength of the economy, inflation has
remained under control and the interest rate environment has been favorable.
Korea's economy is rapidly making the transition away from the old,
chaebol-dominated system of the past. The country is emerging as a world leader
in the adoption and production of key elements of the "new economy," such as
mobile communications and the Internet. The market for service providers in the
technology area is exploding, and that process is motivating innovation and the
development of new technologies. These trends are sparking a significant
increase in the level of flexibility in the labor markets. While in the past
Korean companies generally offered lifetime employment, workers are now
demonstrating a willingness to leave their jobs for new opportunities. One
company that we visited reported that it is currently losing 400-500 people per
month, compared to the same number over the course of the average year during
the early `90s. Many of these people are setting up their own companies to take
advantage of the huge market for technology, a process that is creating a
dynamic, entrepreneurial business culture. These changes are being reflected in
the stock price performance of Internet-related companies, many of which rose
20-40 times in 1999. For Korea, this represents a stunning move away from the
practices that helped precipitate the financial crisis of 1997-98.
Equally as important, corporate restructuring is continuing at a furious
pace. The extent to which the process is accelerating was evidenced by the
government's reaction to Daewoo's announcement of a massive debt restructuring
in September. While in the past the tight relationship between Korea's
3
<PAGE>
[LOGO] The Korea Fund, Inc.
Letter to Stockholders
- --------------------------------------------------------------------------------
government and the chaebols would likely have resulted in a bailout of a
troubled company such as Daewoo, this time no such help was forthcoming.
Although the news sent Korea's financial markets into a brief tailspin, we
believe the event signaled a watershed development with respect to the
government's role in business. The fact that the company was forced to fend for
itself demonstrates that the government is serious about reform, and is willing
to let market forces dictate the fate of the chaebols even if doing so results
in short-term dislocations.
Another important change that we have discussed in the past was the growth of
the "equity culture" in Korea. Over the second half of the year, the phenomenal
gains in Internet and communications stocks sparked increased participation
among small investors, which mirrored developments in the United States. By the
end of the year, Korea ranked first in the world in terms of the percentage of
overall stock market volume that was accounted for by stocks traded over the
Internet. We believe that the growing participation of the small investor will
add further fuel to the reforms that are taking place on the corporate level.
Fund Strategy
The fund was well-positioned to benefit from the investment environment of
the last six months. We have written in the past about our emphasis on large-cap
stocks, the group that has best fit our investment requirements. Most notably,
large caps have offered a wealth of opportunities to invest in well-managed
companies with strong balance sheets, lower-than-average debt ratios, and
promising growth prospects. As a result, we benefited from the highly bifurcated
Korean stock market, where a small group of high-profile large caps --
particularly those in the technology sector -- soared while almost 70% of the
stocks in the broader market lost value. At the same time, many traditional
sectors -- such as financials -- underperformed. In this sense, the Korean stock
market is becoming increasingly correlated with the U.S. market. This trend
worked to our advantage since the fund is focused on large caps and is
overweight in the technology sector. With many quality companies down by as much
as 60% in 1999, it has also afforded us the opportunity to search for value in
beaten down areas of the market.
Two top holdings that performed well for us over the second half of last year
are names that we have mentioned frequently in the past -- SK Telecom (up 834%
in 1999) and Samsung Electronics (up 244%). SK Telecom is the number one
provider of phone service in Korea, and its recently announced merger with
Shinsegi Telecom should bolster this position. The company possesses tremendous
economies of scale and is well positioned to profit from new, high-growth areas
such as wireless Internet and wireless communications. SK Telecom has also
developed a new generation of communications products that includes the INT
2000, a handset that can be used anywhere in the world. We believe that the
combination of expanding revenue and declining costs makes the outlook for SK
Telecom extremely positive despite the stock's strong gain over the past year.
Samsung Electronics is another company that has benefited from the global
rally in tech stocks. Samsung has not only received a boost from the rebound in
the semiconductor cycle, but it also developed several leading edge technologies
that have given it a significant advantage over its competitors. Its exposure to
the telecom area has also provided a significant boost to earnings. Samsung has
a strong product management team and is well positioned within the sector due to
its diversified product mix. Even though the stock has come a
4
<PAGE>
[LOGO] The Korea Fund, Inc.
Letter to Stockholders
- --------------------------------------------------------------------------------
long way in recent months, we believe that its valuation remains attractive in
relation to its long-term prospects.
Outlook
Although we are optimistic on the outlook for Korea's stock market, we
caution investors to be prepared for a high level of volatility in the months
ahead. We have already witnessed an increase in the daily fluctuations of
Korea's market due to its increased correlation with the global technology
sector in general and the Nasdaq average in particular. While this trend could
be exacerbated in the coming months, particularly if the U.S. market were to
correct, we believe that such an event would represent a buying opportunity due
to the wealth of positive changes that are taking place in Korea. The increasing
flexibility of the labor market, the growth of the Internet, and the growing
focus on profitability among the largest corporations all bode well for both
corporate earnings and the prospects for Korea's economy. While there are likely
to be bumps on the road as the country moves away from the "old" economic modes,
we believe that the fundamental backdrop for further gains in the Korean stock
market remains in place.
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
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Investment Manager
The investment manager of The Korea Fund, Inc. is Scudder Kemper Investments
Inc. (the "Manager"), one of the most experienced investment management firms in
the world. Established in 1919, the firm manages investments for institutional
and corporate clients, retirement and pension plans, insurance companies, mutual
fund investors, and individuals. The Manager has offices throughout the United
States and has subsidiaries in the United Kingdom, Switzerland, Hong Kong, and
Japan.
The Manager has been a leader in international investment management for over
40 years. It manages Scudder International Fund, which was originally
incorporated in Canada in 1953 as the first foreign investment company
registered with the United States Securities and Exchange Commission. The
Manager's clients that invest primarily in foreign securities include thirty
open-end investment companies as well as portfolios for institutional investors.
The Manager also manages the assets of other closed-end investment companies
which invest primarily in foreign securities, including: The Argentina Fund,
Inc., The Brazil Fund, Inc., Scudder Global High Income Fund, Inc., and Scudder
New Asia Fund, Inc.
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 Manager. The Daewoo staff makes specific investment
recommendations, which are then evaluated by the Manager'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 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 Manager's large staff of economists, research analysts,
traders, and other investment specialists who work in the Manager's offices
across the United States and abroad. The Manager believes the 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 Manager's global
equity area. Nicholas Bratt, Portfolio Manager, has been a member of the fund
team since 1984 when the fund was launched and has over 27 years of experience
in worldwide investing. Mr. Bratt, who has been with the Manager since 1976, is
the Director of the Manager's Global Equity Group.
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 stockholders. Its
features are more fully described on page 29.
6
<PAGE>
Net Asset Value
The fund's NAV is published every weekday 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 stockholders, 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.
7
<PAGE>
[LOGO] The Korea Fund, Inc.
Investment Summary as of December 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Historical
Information
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 36.00 -- 52.47 -- 31.31 -- 22.95 --
One Year 83.78 83.78 141.19 141.19 93.04 93.04 82.78 82.78
Three Year 16.92 5.35 74.51 20.40 16.41 5.19 57.87 16.44
Five Year -15.05 -3.21 27.34 4.95 -30.77 -7.09 .07 .01
Ten Year -28.76 -3.33 79.61 6.03 -32.63 -3.87 13.01 1.23
- ------------------------------------------------------------------------------------------------------
</TABLE>
Per Share Information and Returns (a)
Yearly periods ended December 31
A chart in the form of a bar graph appears here, illustrating the Fund Total
Return (%) with the exact data points listed in the table below.
- -28.36 -2.05 2.71 56.77 24.84 4.26 -30.01 -66.50 115.99 141.19
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
--------------------------------------------------------------------------------------
Net Asset Value... $11.10 $10.55 $10.62 $16.64 $20.65 $20.04 $13.55 $ 4.44 $ 9.59 $23.13
Income Dividends.. $ -- $ .06 $ .04 $ .01 $ -- $ .06 $ -- $ -- $ -- $ --
Capital Gains
Distributions..... $ 2.20 $ .34 $ .20 $ -- $ .15 $ .36 $ .60 $ -- $ -- $ --
Total
Return (%)........ -28.36 -2.05 2.71 56.77 24.84 4.26 -30.01 -66.50 115.99 141.19
</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.
8
<PAGE>
[LOGO] The Korea Fund, Inc.
Portfolio Summary as of December 31, 1999
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Diversification
Common Stocks 89%
Preferred Stocks 6%
Convertible Bonds 3%
Corporate Bonds 1%
Repurchase Agreements 1%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------------
Sectors
Sector breakdown of the Fund's equity securities
Communications 44%
Technology 21%
Financial 11%
Consumer Staples 5%
Metals & Minerals 3%
Durables 3%
Manufacturing 3%
Utilities 3%
Energy 1%
Other 6%
----
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
76% of Portfolio
1. SK Telecom Co., Ltd.
Telecommunication services
2. Samsung Electronics Co., Ltd.
Electronics manufacturer
3. Samsung Fire & Marine Insurance
Co. Provider of insurance
products
4. Samsung Electro-Mechanics Co.,
Ltd. Manufacturer of precision
and electronic parts
5. Pohang Iron & Steel Co., Ltd.
Leading steel producer
6. Dacom Corp.
Provider of domestic long-distance and internet
services
7. Korea Electric Power Co.
Electricity supplier
8. Hyundai Motor Co., Ltd.
Manufacturer of passenger cars, trucks, special
purpose vehicles and autoparts
9. Housing & Commerical Bank
Housing finance, general and commerical bank
10. Cheil Jedang Corp.
Food producer
9
<PAGE>
[LOGO] The Korea Fund, Inc.
Investment Performance
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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 FROM 8/84 THROUGH 12/99:
CHANGE IN SHARE WITH CAPITAL WITH INCOME S&P 500
VALUE OF INITIAL GAINS DISTRIBUTION DISTRIBUTIONS TOTAL RETURN
INVESTMENT REINVESTED REINVESTED ($137,276)
--------------- ------------------ ------------- ------------
10942 10942 10942 10000
11983 11983 11983 9972
11875 11875 11875 10159
11458 11458 11458 11095
12292 12292 12292 11906
11250 11250 11787 11422
14692 14692 15393 13395
19692 19692 20632 15286
27817 27817 29440 16186
30625 30709 32537 15054
28333 28411 30103 15905
52917 53061 56221 19304
58438 58597 62087 20265
62396 63039 67523 21689
45938 47628 51016 16801
66563 69011 73921 17755
58958 61127 65476 18925
50000 54750 59075 18993
65625 74621 80516 19608
88125 100205 108121 21000
79063 89900 97003 22837
105000 123540 133542 25283
85938 102850 111177 25801
57188 68442 73983 25017
55313 66198 71557 26571
30625 41173 44506 22930
31250 44777 48402 24976
36563 52389 56630 28611
35313 50598 54694 28520
36250 52736 57251 30052
31563 46407 50380 32576
29688 43650 47387 31761
28438 41813 45392 32345
30625 45787 49876 33368
35000 52328 57001 35054
32188 48123 52421 36585
37500 56066 61073 36763
36250 54197 59037 37711
60000 89706 97766 38587
48125 71951 78417 37122
55000 82230 89619 37277
65313 98181 107003 39097
56875 85541 93227 39091
53438 80371 87592 42897
49063 73790 84754 46995
55313 84340 96871 50730
55000 84082 96850 53785
52500 80261 92448 56670
52813 80738 92999 59211
45625 72148 83103 60998
37188 58805 67735 66080
35938 56829 65548 67903
36875 59657 68716 79766
29525 47766 55020 85740
16400 26532 30561 88205
20313 32862 37852 100511
15781 25531 29408 103831
15313 24773 28535 119064
23125 37412 43093 127455
25781 41710 48043 119503
37188 60163 69299 137276
28448 50557 58234
32377 68757 79198
10
<PAGE>
[LOGO] The Korea Fund, Inc.
Investment Performance
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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 FROM 8/84 TO 12/99:
WITH CAPITAL CHANGE IN NET ASSET WITH INCOME
GAINS DISTRIBUTIONS VALUE OF INITIAL DISTRIBUTIONS
REINVESTED INVESTMENT REINVESTED
------------------- ------------------- -------------
10000 10000 10000
10072 10072 10072
10269 10269 10269
10197 10197 10197
10305 10305 10305
9624 9624 10083
12025 12025 12599
16030 16030 16796
20054 20054 21224
21667 21726 23020
21944 22004 23315
30000 30082 31873
29919 30001 31788
29122 29422 31515
30332 31447 33685
34776 36055 38620
37545 38926 41695
34346 37609 40580
42823 48693 52539
50726 57679 62236
45269 51474 55541
51425 60505 65403
49866 59679 64511
46667 55851 60372
38844 46489 50252
29570 39754 42973
29839 42755 46216
29086 41676 45050
27608 39558 42760
28737 41806 45385
28360 41699 45269
34032 50039 54323
28898 42489 46127
26398 39467 42992
28548 42683 46494
28763 43004 46844
30645 45817 49909
30780 46018 50128
44731 66877 72887
45914 68646 74814
50161 74996 81735
57661 86679 94468
55511 83489 90991
55591 83610 91123
53468 80416 92364
59409 90585 104044
53871 82356 94862
53333 81535 93916
49785 76110 87667
44301 70054 80692
36452 57642 66394
35188 55644 64093
35565 57537 66274
31559 51057 58810
11935 19310 22242
20430 33052 38071
15134 24485 28203
15323 24789 28554
25780 41707 48040
29220 47274 54452
47661 77108 88817
37124 65974 75993
47634 101157 116518
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 $10,000 investment was made at initial public offering price and
at initial net asset value price.
The Standard & Poor's 500 Stock Index is a widely followed, unmanaged index of
500 industrial, transportation, utility and financial companies widely regarded
as representative of the equity market in general.
11
<PAGE>
The Korea Fund, Inc.
Investment Portfolio as of December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Principal
Amount (d) Value ($)
- ------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 1.6%
<S> <C> <C>
Donaldson, Lufkin & Jenrette, 2.25%, to be repurchased at
$18,207,413 on 1/3/2000** (Cost $18,204,000) .....U.S.$ 18,204,000 18,204,000
-----------
- ------------------------------------------------------------------------------------------
CORPORATE BONDS 1.1%
Durables 0.2%
Woosung Tire Co., 9.5%, 5/27/2002 (b) ................... 3,000,000,000 2,593,376
-----------
Utilities 0.9%
Korea Electric Power Co., 6.375%, 12/1/2003 ........U.S.$ 10,000,000 9,512,500
-----------
Total Corporate Bonds (Cost $10,388,103) ................ 12,105,876
-----------
- ------------------------------------------------------------------------------------------
CONVERTIBLE BONDS 2.5%
Consumer Staples 0.5%
Food & Beverage
Halim & Co. Ltd., 5% with 42.27% bonus interest at
maturity, 12/31/2001 (b) (e) (g) ...................... 3,400,000,000 5,221,268
-----------
Durables 0.3%
Tires
Hankook Tire Manufacturing Co. Ltd., Zero Coupon with
5.83% bonus interest at maturity, 12/31/2002 (b) (e) ... 1,890,000,000 3,114,788
-----------
Manufacturing 0.1%
Containers & Paper
Dae Young Packaging Co. #20, 5% with 41.567% bonus
interest at maturity, 12/31/2000 (b) (e) ............... 1,000,000,000 1,128,815
-----------
Technology 0.6%
Electronic Components / Distributors 0.5%
Hyundai Electronics Industries Co. #86, Zero Coupon with
35.54% bonus interest at
maturity, 12/31/2000 (b) (e) .......................... 5,000,000,000 5,405,170
-----------
Semiconductors 0.1%
D.I. Corporation, 3% with 34.44% bonus interest at
maturity, 12/31/2000 (b) (e) .......................... 1,604,800,000 1,720,486
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
The Korea Fund, Inc.
Investment Portfolio
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Principal
Amount (d) Value ($)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Transportation 0.1%
Marine Transportation
Hyundai Merchant & Marine Co., Zero Coupon with 34.13%
bonus interest at
maturity, 12/31/2000 (b) (e) ......................... 1,500,000,000 1,604,682
-----------
Utilities 0.9%
Electric Utilities
Korea Electric Power Co. #6, 5% with 9.5% bonus interest
at maturity,
12/31/2000 (b) (e) ................................... 9,951,000,000 10,823,743
-----------
Total Convertible Bonds (Cost $27,590,758) ............. 29,018,952
-----------
- ------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------
PREFERRED STOCKS 5.9%
Consumer Discretionary 0.1%
Department & Chain Stores 0.1%
Shinsegae Department Store Co.* ........................ 20,784 1,089,078
-----------
Hotels & Casinos 0.0%
Hotel Shilla Co., Ltd.* ................................ 32,070 147,711
-----------
Consumer Staples 0.6%
Food & Beverage 0.6%
Cheil Jedang Corp. ..................................... 100,670 4,521,506
Cheil Jedang Corp. (2nd) ............................... 50,335 2,455,798
Nam Yang Dairy Products Co., Ltd. (g) .................. 1,160 153,236
-----------
7,130,540
-----------
Textiles 0.0%
BYC Co., Ltd. (g) ...................................... 1,430 49,115
-----------
Health 0.0%
Medical Supply & Specialty 0.0%
Medison Co., Ltd. ...................................... 20,000 135,271
-----------
Pharmaceuticals 0.0%
Korea Green Cross Corp. (New)* ......................... 3,137 91,997
-----------
Financial 1.4%
Insurance 0.9%
Samsung Fire & Marine Insurance Co. (g) ................ 533,850 9,873,052
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
The Korea Fund, Inc.
Investment Portfolio
- --------------------------------------------------------------------------------
Shares Value ($)
Other Financial Companies 0.5%
Dongwon Securities Co., Ltd. ............ 185,000 1,955,086
LG Investment & Securities Co., Ltd. .... 372,600 3,412,629
-----------
5,367,715
-----------
Durables 0.3%
Automobiles
Hyundai Motor Co., Ltd. ................. 360,000 2,349,273
Hyundai Motor Co., Ltd. (2nd)* .......... 238,592 1,460,339
-----------
3,809,612
-----------
Manufacturing 0.2%
Chemicals 0.2%
LG Chemical Co., Ltd. ................... 134,800 2,065,627
Oriental Chemical Industries Co., Ltd. .. 8,220 58,926
-----------
2,124,553
-----------
Diversified Manufacturing 0.0%
Kolon Industries, Inc. (2nd)* ........... 11,295 93,503
-----------
Technology 3.2%
Electronic Components / Distributors
Samsung SDI Co., Ltd. ................... 34,318 891,573
Samsung Electro-Mechanics Co., Ltd. ..... 180,000 5,453,104
Samsung Electronics Co., Ltd. (f) ....... 198,201 30,895,268
-----------
37,239,945
-----------
Construction 0.0%
Building Materials
Tong Yang Cement Co., Ltd. (2nd)* ....... 26,119 60,266
-----------
Transportation 0.1%
Airlines
Korean Airlines Co., Ltd. ............... 80,320 543,955
Korean Airlines Co., Ltd. (2nd) ......... 20,080 203,364
-----------
747,319
-----------
Total Preferred Stocks (Cost $31,357,142) 67,959,677
-----------
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
The Korea Fund, Inc.
Investment Portfolio
- --------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------
COMMON STOCKS 88.9%
Consumer Discretionary 0.7%
Department & Chain Stores 0.5%
Shinsegae Department Store Co. ...... 119,014 6,016,207
----------
Hotels & Casinos 0.2%
Hotel Shilla Co., Ltd.* ............. 378,391 2,565,928
----------
Consumer Staples 3.6%
Alcohol & Tobacco 0.4%
Korea Tobacco and Ginseng Corp. ..... 200,000 4,420,960
----------
Consumer Specialties 0.0%
Pacific Corp., Ltd. ................. 20,000 352,268
----------
Food & Beverage 2.5%
Cheil Jedang Corp. .................. 83,004 9,575,979
Halim & Co., Ltd. (g) ............... 2,808,988 6,901,876
Nam Yang Dairy Products Co., Ltd. (g) 43,390 8,330,269
Nhong Shim Co., Ltd. ................ 76,164 3,380,595
Pulmuone Co., Ltd. .................. 66,471 696,614
----------
28,885,333
----------
Package Goods / Cosmetics 0.1%
Hankook Cosmetics Co. ............... 500,000 691,325
----------
Textiles 0.6%
BYC Co., Ltd. (g) ................... 39,530 2,516,970
Daehan Synthetic Fiber Company* ..... 2,610 103,435
Tae Kwang Industry Co., Ltd. ........ 11,760 4,137,490
Vivien Corp. ........................ 10,000 325,848
----------
7,083,743
----------
Health 1.2%
Medical Supply & Specialty 0.4%
Medison Co., Ltd. ................... 329,760 4,806,277
----------
Pharmaceuticals 0.8%
Chong Kun Dang Corp. ................ 98,644 1,737,455
Daewoong Pharmaceutical Co. ......... 58,784 486,631
Korea Green Cross Corp. ............. 6,785 241,105
Yuhan Corporation ................... 207,042 6,527,612
----------
8,992,803
----------
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
The Korea Fund, Inc.
Investment Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Communications 44.2%
Cellular Telephone 40.0%
LG Information & Communication Ltd. ................. 83,398 13,807,859
SK Telecom Co., Ltd. (f) ............................ 59,675 213,894,540
SK Telecom Co., Ltd. (ADR) (f) ...................... 6,035,930 231,628,814
-------------
459,331,213
-------------
Telephone / Communications 4.2%
Dacom Corp. ......................................... 65,840 33,920,211
Daum Communications Corp.* .......................... 20,000 6,807,574
GoldBank Communications, Inc. ....................... 10,000 96,874
Korea Telecom Corp.* ................................ 50,000 7,881,990
-------------
48,706,649
-------------
Financial 9.8%
Banks 2.8%
Housing & Commercial Bank* .......................... 350,000 11,096,433
Housing & Commercial Bank (GDR)* .................... 189,997 5,652,411
Kookmin Bank ........................................ 255,022 3,997,703
Koram Bank .......................................... 1,065,000 8,066,050
Shin Han Bank ....................................... 267,597 2,898,673
-------------
31,711,270
-------------
Insurance 5.7%
Hyundai Marine & Fire Insurance Co. ................. 44,656 676,427
LG Insurance ........................................ 1,071,920 4,172,511
Oriental Fire & Marine Insurance Co. ................ 140,000 986,350
Samsung Fire & Marine Insurance Co. (g) ............. 1,745,520 55,647,577
Samsung Fire & Marine Insurance Co. (Rights)
(b) (g)* .......................................... 466,361 3,736,474
-------------
65,219,339
-------------
Other Financial Companies 1.3%
Dongwon Securities Co., Ltd. ........................ 230,000 4,962,572
Hyundai Securities .................................. 52,500 1,026,420
LG Investment & Securities Co., Ltd. ................ 225,000 3,824,306
LG Investment & Securities Co., Ltd. (Rights) (b)* .. 133,336 457,957
Samsung Securities Co., Ltd. ........................ 151,337 4,584,758
(b) (g)* 466,361 3,736,474
-------------
14,856,013
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
The Korea Fund, Inc.
Investment Portfolio
- --------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------
Service Industries 0.8%
Miscellaneous Commercial Services
S1 Corporation ......................... 219,260 3,784,673
SK Global, Ltd. ........................ 172,194 2,805,450
Samsung Co., Ltd.* ..................... 132,785 1,987,971
-----------
8,578,094
-----------
Durables 2.4%
Automobiles 1.4%
Hyundai Motor Co., Ltd. ................ 645,743 10,236,349
Hyundai Motor Co., Ltd. (GDR)* ......... 512,367 5,546,373
-----------
15,782,722
-----------
Tires 1.0%
Hankook Tire Manufacturing Co., Ltd.* .. 3,238,132 9,125,515
Woosung Tire Co.* ...................... 400,000 2,177,015
-----------
11,302,530
-----------
Manufacturing 2.3%
Chemicals 1.4%
Honam Petrochemical Corp. .............. 100,000 1,400,264
Korea Chemical Co., Ltd. ............... 51,440 3,352,321
Kumho Chemicals Inc.* .................. 197,040 1,214,690
LG Chemical Co., Ltd. .................. 321,949 10,178,749
Oriental Chemical Industries Co., Ltd. . 8,185 100,916
-----------
16,246,940
-----------
Diversified Manufacturing 0.2%
Hankook Synthetics Inc.* ............... 273,638 580,773
Samsung Heavy Industries Co., Ltd.* .... 271,211 1,311,271
-----------
1,892,044
-----------
Industrial Specialty 0.1%
Hankuk Glass Industries Co., Ltd. (GDR)* 122,937 507,115
Samsung Radiator Industrial Co. ........ 35,440 1,136,078
-----------
1,643,193
-----------
Machinery / Components / Controls 0.1%
HS R&A Co., Ltd. ....................... 200,000 1,495,376
-----------
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
The Korea Fund, Inc.
Investment Portfolio
- --------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------
Office Equipment / Supplies 0.2%
Sindo Ricoh Co., Ltd. .............. 51,000 1,502,378
-----------
Specialty Chemicals 0.1%
Korea Fine Chemical Co. ............ 83,333 1,497,132
-----------
Diversified Manufacturing 0.2%
Hyundai Heavy Industries ........... 66,587 2,521,568
-----------
Technology 16.9%
Electronic Components / Distributors
Dae Duck Electronics Co., Ltd. ..... 613,056 7,288,645
LG Electronics, Inc. ............... 100,000 4,139,146
Samsung Display Devices Co. ........ 265,306 11,028,131
Samsung Electro-Mechanics Co., Ltd. 816,005 54,256,607
Samsung Electronics Co., Ltd. (f) .. 500,759 117,306,820
-----------
194,019,349
-----------
Energy 1.3%
Oil & Gas Production
SK Corporation ..................... 354,614 10,743,040
Ssangyong Oil Refining Co. ......... 165,370 4,354,525
-----------
15,097,565
-----------
Metals & Minerals 3.3%
Steel & Metals
Pohang Iron & Steel Co., Ltd. (c) .. 164,762 19,769,989
Pohang Iron & Steel Co., Ltd. ...... 169,320 18,639,366
-----------
38,409,355
-----------
Construction 1.0%
Building Materials
Asia Cement Manufacturing Co. ...... 30,000 369,881
Keum Kang Co., Ltd. ................ 234,337 10,834,604
-----------
11,204,485
-----------
Transportation 0.2%
Airlines 0.1%
Korean Air Lines Co., Ltd. ......... 80,000 905,328
-----------
Marine Transportation 0.1%
Hyundai Merchant Marine ............ 199,698 1,303,181
-----------
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
The Korea Fund, Inc.
Investment Portfolio
- --------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------
Utilities 1.2%
Electric Utilities 0.9%
Korea Electric Power Co. .................. 325,000 10,074,857
-------------
Natural Gas Distribution 0.3%
Daehan City Gas Co. ....................... 117,972 1,973,992
Samchully Company ......................... 31,504 1,040,423
-------------
3,014,415
-------------
Total Common Stocks (Cost $278,827,715) ... 1,020,129,840
-------------
- --------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0%
(Cost $366,367,718) (a) ................ 1,147,418,345
-------------
-------------
- --------------------------------------------------------------------------------
* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $369,103,969. At December 31,
1999, net unrealized appreciation for all securities based on tax cost was
$778,314,376. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$792,073,715 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $13,759,339.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $32,070,285 (2.8% of net assets). Their
values have been estimated by the Board of Directors in the absence of
readily ascertainable 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, 1999 aggregated $31,099,211. These securities may also have
certain restrictions as to resale (see Note A to the Notes to Financial
Statements).
(c) Investment in a Korean equity security that has met the limit for aggregate
foreign ownership and for which a premium to the local stock exchange price
is offered by prospective foreign investors. The aggregate premium of
$1,632,187 over the local share price of $18,137,802 for this security
valued by the Valuation Committee was approximately 0.1% of the Fund's net
assets at December 31, 1999. The cost of this security at December 31, 1999
was $8,578,291 (see Notes A and D to the Notes to Financial Statements).
Its value has been estimated by the Board of Directors in the absence of a
readily ascertainable value or other market factors, respectively. However,
because of the inherent uncertainty of valuation, this estimated value may
differ significantly from the value that would have been used had a ready
market for the security existed, and the difference could be material.
(d) Principal amount stated in Korean Won unless otherwise noted. U.S.$
represents United States Dollars.
(e) Bonus interest represents the amount available to be paid to the holder at
maturity in lieu of conversion.
(f) At December 31, 1999, 51.3% of the Fund's net assets were invested in SK
Telecom Co., Ltd. and Samsung Electronics Co., Ltd.
(g) Affiliated issuers (see Note F to the Notes to Financial Statements).
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
The Korea Fund, Inc.
Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities
December 31, 1999
- ------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value:
Unaffiliated issuers (cost $320,348,873) ..................................... $ 1,054,988,508
Affiliated issuers (cost $46,018,845) ........................................ 92,429,837
---------------
Total investments in securities, at value (cost $366,367,718) ................ 1,147,418,345
---------------
Won, at value (cost $1,773,490) .............................................. 1,773,490
Receivable for proceeds from maturities ...................................... 7,921,039
Dividends receivable ......................................................... 83,903
Interest receivable .......................................................... 764,295
Net receivable on closed forward currency exchange contracts ................. 2,432,409
Other assets ................................................................. 4,535
---------------
Total assets ................................................................. 1,160,398,016
---------------
LIABILITIES
Net payable on closed forward currency exchange contracts .................... 2,156,526
Accrued management fee ....................................................... 865,204
Other accrued expenses and payables .......................................... 773,521
---------------
Total liabilities ............................................................ 3,795,251
---------------
Net assets, at value ......................................................... $ 1,156,602,765
===============
NET ASSETS
Net assets consist of:
Undistributed net investment income (loss) ................................... $ (4,075,311)
Net unrealized appreciation (depreciation) on:
Investments ............................................................... 781,050,627
Won related transactions .................................................. 497,424
Accumulated net realized gain (loss) ......................................... (150,769,448)
Paid-in capital .............................................................. 529,899,473
---------------
Net assets, at value ......................................................... $ 1,156,602,765
===============
Net asset value per share ($1,156,602,765 / 49,999,999 shares of capital stock
outstanding, $.01 par value, 200,000,000 shares authorized) $ 23.13
===============
The accompanying notes are an integral part of the financial statements.
- ------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
The Korea Fund, Inc.
Financial Statements
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Statement of Operations
Six Months Ended December 31, 1999
- -------------------------------------------------------------------------------------------
Investment Income
<S> <C>
Dividends -- Unaffiliated issuers (net of foreign taxes withheld of $32,276) $ 316,389
Interest -- Unaffiliated issuers (net of foreign taxes withheld of $91,832) 1,968,739
Interest -- Affiliated issuers (net of foreign taxes withheld of $97,474) . 369,722
-------------
Total income .............................................................. 2,654,850
-------------
Expenses:
Management fee ............................................................ 4,422,372
Services to shareholders .................................................. 19,592
Custodian and accounting fees ............................................. 781,039
Auditing .................................................................. 60,342
Legal ..................................................................... 50,265
Directors' fees and expenses .............................................. 92,487
Reports to shareholders ................................................... 35,696
Other ..................................................................... 33,656
-------------
5,495,449
-------------
Net investment income (loss) .............................................. (2,840,599)
-------------
Realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) from:
Investments ............................................................... 10,093,223
Won related transactions .................................................. 6,507,915
-------------
16,601,138
-------------
Net unrealized appreciation (depreciation) during the period on:
Investments ............................................................... 259,882,646
Won related transactions .................................................. (3,226,437)
-------------
256,656,209
-------------
Net gain (loss) on investment transactions ................................ 273,257,347
-------------
Net increase (decrease) in net assets resulting from operations ........... $ 270,416,748
=============
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
The Korea Fund, Inc.
Financial Statements
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------
Six Months ended Year ended
Increase (Decrease) in Net Assets December 31, 1999 June 30, 1999
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................................... $ (2,840,599) $ 1,768,343
Net realized gain (loss) on investment transactions ........................ 16,601,138 (55,288,163)
Net unrealized appreciation (depreciation) on investment transactions
during the period ....................................................... 256,656,209 658,430,907
--------------- ---------------
Net increase (decrease) in net assets resulting from operations ............ 270,416,748 604,911,087
--------------- ---------------
Increase (decrease) in net assets .......................................... 270,416,748 604,911,087
Net assets at beginning of period .......................................... 886,186,017 281,274,930
--------------- ---------------
Net assets at end of period (including undistributed net investment
income (loss) of $(4,075,311) and accumulated distributions in excess of net
investment income of $1,234,712, respectively) ............................. $ 1,156,602,765 $ 886,186,017
=============== ===============
Other Information
Increase (decrease) in Fund Shares
Shares outstanding at beginning of period .................................. 49,999,999 49,999,999
--------------- ---------------
Shares issued to shareholders in reinvestment of distributions ............. -- --
--------------- ---------------
Net increase (decrease) in Fund shares ..................................... -- --
--------------- ---------------
Shares outstanding at end of period ........................................ 49,999,999 49,999,999
=============== ===============
The accompanying notes are an integral part of the financial statements.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
The Korea Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements and market price data.
<TABLE>
<CAPTION>
Six Months Ended Years Ended June 30,
December 31, ---------------------------------------------------------
1999 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period ......... $ 17.72 $ 5.63$ 13.22 $ 18.52 $ 19.89 $ 18.66
--------- ------- ------- ------- ------- -------
Income from investment operations
Net investment income (loss) (a) ............. (.06) .04 .07 .07 .02 (.02)
Net realized and unrealized gain (loss) on
investment transactions ................... 5.47 12.05 (7.66) (4.48) (.97) 2.42
--------- ------- ------- ------- ------- -------
Total from investment operations ............. 5.41 12.09 (7.59) (4.41) (.95) 2.40
--------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income ........................ -- -- -- -- (.06) --
Net realized gains on investment transactions -- -- -- (.60) (.36) (.15)
--------- ------- ------- ------- ------- -------
Total distributions .......................... -- -- -- (.60) (.42) (.15)
--------- ------- ------- ------- ------- -------
Antidilution (dilution) resulting from the
rights offering (1997 and 1995), and
reinvestment of distributions for shares at
market value -- -- -- (.29) -- (1.02)
--------- ------- ------- ------- ------- -------
Net asset value, end of period ............... $ 23.13 $ 17.72$ 5.63 $ 13.22 $ 18.52 $ 19.89
========= ======= ======= ======= ======= =======
Market value, end of period .................. $ 17.00 $ 14.88$ 6.31 $ 14.75 $ 21.13 $ 19.63
========= ======= ======= ======= ======= =======
Total Return
Per share market value (%) ................... 14.29** 135.64 (57.20) (26.11) 9.73 (5.43)
Per share net asset value (%) (b) ............ 30.53** 214.74 (57.41) (24.40) (5.09) 13.00
Ratios to Average Net Assets and Supplemental
Data
Net assets, end of period ($ millions) ....... 1,157 886 281 661 689 735
Ratio of expenses (%) ........................ 1.23* 1.36 1.38 1.28 1.28 1.32
Ratio of net investment income (loss) (%) .... .37 .90 .46 .10 (.10) (.32)(c)**
Portfolio turnover rate (%) .................. 27* 10 24 13 33 11
</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) The ratio for the six months ended December 31, 1999 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).
* Annualized
** Not annualized
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. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. Securities which are traded
on the 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. Money Market investments
purchased with an original 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.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Investment securities and other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
prevailing exchange rates at period end. Purchases and sales of investment
securities, income and expenses are translated into U.S. dollars at the
prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions
represent net gains and losses between trade and settlement dates on securities
transactions, the disposition of forward foreign currency exchange contracts and
foreign currencies, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed but
is included with net realized and unrealized gains and losses on investment
securities.
At December 31, 1999 the exchange rate for Korean Won was U.S. $.00088 to W 1.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, 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 is equal to at least the
principal amount of the repurchase price plus accrued interest.
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.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
Fund utilized forward contracts as a hedge against changes in the exchange rates
relating to foreign currency denominated assets.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Sales and
purchases of forward contracts having the same settlement date
24
<PAGE>
The Korea Fund, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
and broker are offset and any gain (loss) is realized on the date of offset;
otherwise, gain (loss) is realized on settlement date. Realized and unrealized
gains and losses which represent the difference between the value of a forward
contract to buy and a forward contract to sell are included in net realized and
unrealized gain (loss) from foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
Taxes. The Fund's policy is to comply with the requirements of the Internal
Revenue Code of 1986, as amended, which are applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes and no federal income tax
provision was required. In addition, from November 1, 1998 through June 30,
1999, the Fund incurred approximately $2,854,000 of net realized capital 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, 2000. At June 30,
1999, the Fund had a net tax basis capital loss carryforward of approximately
$162,828,000 which may be applied against any realized net taxable capital gains
of each succeeding year until fully utilized or until June 30, 2006
($14,335,000) and June 30, 2007 ($148,493,000), the respective expiration dates,
whichever occurs first.
Under the United States-Korea Income Tax Treaty (the "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 Treaty, there is no Korean withholding tax
on realized capital gains.
Distribution of Income and Gains. Distributions of net investment income, if
any, are made annually. Net realized gains from investment transactions, in
excess of available capital loss carryforwards, would be taxable to the Fund if
not distributed and, therefore, will be distributed to shareholders at least
annually.
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 and forward contracts. As a result, net
investment income (loss), 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.
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.
Investment Transactions and Investment Income. Investment transactions are
accounted for on trade date. Interest income is recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date. Realized gains and losses
from investment transactions are recorded on an identified cost basis. All
discounts are accreted for both tax and financial reporting purposes.
B. Purchases and Sales of Securities
---------------------------------
During the six months ended December 31, 1999, purchases and sales of investment
securities (excluding short-term investments) aggregated $119,550,958 and
$135,806,759, respectively.
25
<PAGE>
The Korea Fund, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
C. Related Parties
---------------
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Manager"), the Manager directs the
investments of the Fund in accordance with its investment objectives, policies,
and restrictions. The Manager 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 Manager 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 net assets on the next $250,000,000, 0.95%
of such net assets on the next $400,000,000, and 0.90% of such net assets in
excess of $750,000,000. For the six months ended December 31, 1999, the fee
pursuant to such Agreement amounted to $4,422,372 which was equivalent to an
annual effective rate of 0.97% of the Fund's average month-end net assets.
Under the Agreement, the Manager pays Daewoo Capital Management Co., Ltd. (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, 1999, there were no brokerage commissions
on investment transactions 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 six months ended
December 31, 1999 the amount charged to the Fund by SSC aggregated $7,500.
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 six months
ended December 31, 1999, the amount charged to the Fund by SFAC aggregated
$203,810, of which $35,573 is unpaid at December 31, 1999.
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, 1999, Directors' fees and
expenses amounted to $92,487.
D. Foreign Investment and Exchange Controls in Korea
-------------------------------------------------
The Foreign Exchange Transaction 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 may issue
orders when it deems that transactions can not be normally concluded due to
natural disaster, warfare, uprising, sudden change in economic conditions, or
other incidents similar thereto, or order the temporary
26
<PAGE>
The Korea Fund, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
closing of the securities market or take other necessary measures. Under the
Foreign Exchange Transaction 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.
In 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 certain
designated public corporations and telecommunication corporations. As of
December 31, 1999, two of the Fund's holdings had ownership limits still in
place: Pohang Iron & Steel, which had a foreign ownership limit of 30%, and SK
Telecom, which had a foreign ownership limit of 49%.
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, corporate bankruptcy 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.
At December 31, 1999, included in receivable for proceeds from maturities in the
statement of assets and liabilities is $1,006,091 (0.09% of net assets) due from
a company in the process of restructuring its debt. This amount has been valued
in good faith by the Valuation Committee of the Board of Directors.
F. Transactions in Securities of Affiliated Issuers
------------------------------------------------
An affiliated issuer is a company in which the Fund has ownership of at least 5%
of the voting securities. A summary of the Fund's transactions during the period
with companies which are or were affiliates are as follows:
<TABLE>
<CAPTION>
Purchases Sales
Affiliate Cost ($) Cost ($) Income ($) Value ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BYC Co., Ltd. -- 2,315,284 -- 2,566,085
Halim & Co., Ltd.* -- -- 369,722 12,123,144
Nam Yang Dairy Products Co. -- -- -- 8,483,505
Samsung Fire & Marine Insurance Co. -- 3,995,159 -- 69,257,103
-------------- ------------- ------------- --------------
-- 6,310,443 369,722 92,429,837
============== ============= ============= ==============
</TABLE>
* In December 1999 the Fund elected to convert a bond into shares of
common stock.
G. Line of Credit
--------------
The Fund and several Scudder Funds (the "Participants") share in a $1 billion
revolving credit facility for temporary or emergency purposes that otherwise
might require the untimely disposition of securities. The Participants are
charged an annual commitment fee which is allocated pro rata among each of the
Participants. Interest is calculated based on the market rates at the time of
the borrowing. The Fund may borrow up to a maximum of 5 percent of its net
assets under the agreement.
27
<PAGE>
The Korea Fund, Inc.
Report of Independent Accountants10.
- --------------------------------------------------------------------------------
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 investment portfolio, and the related statement 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, Inc. (the "Fund") at
December 31, 1999, the results of its operations, the changes in its net assets
and the financial highlights for each of the periods indicated therein, in
conformity with accounting principles generally accepted in the United States.
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 auditing standards generally accepted in the United States 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 December 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
February 23, 2000
28
<PAGE>
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 EquiServe, the Plan Agent.
Automatic Participation
Each stockholder of record is automatically a participant in the Plan unless
the stockholder 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.
Stockholders who do not participate in the Plan will receive all
distributions in cash paid by check in dollars mailed directly to the
stockholder by EquiServe, 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 stockholder 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 stockholder 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
29
<PAGE>
The Korea Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
- --------------------------------------------------------------------------------
not less 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 stockholder 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
EquiServe, P.O. Box 8200, Boston, MA 02266-8200,
1-800-426-5523.
30
<PAGE>
The Korea Fund, Inc.
Stockholder Meeting Results
- --------------------------------------------------------------------------------
The Annual Meeting of Stockholders of The Korea Fund, Inc. (the "Fund") was held
on October 20, 1999 at the office of Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY 10154. At the Meeting the following matters were voted upon
by the stockholders and the resulting votes are
presented below.
1. To elect three Directors of the Fund to hold office for a term of three
years or until their respective successors shall have been duly elected
and qualified.
<TABLE>
<CAPTION>
Number of Votes:
----------------
Director (Class I) For Withheld Broker Non-Votes*
-------- --- -------- -----------------
<S> <C> <C> <C>
Robert J. Callander 25,555,985 1,251,180 0
Tai Ho Lee 25,509,178 1,297,986 0
Kesop Yun 26,467,503 339,662 0
</TABLE>
2. To ratify or reject the action taken by the Board of Directors in
selecting PricewaterhouseCoopers LLP as the Fund's independent
accountants for the fiscal year ending June 30, 2000.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
26,647,201 83,759 76,205 0
- --------------------------------------------------------------------------------
* 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.
31
<PAGE>
The Korea Fund, Inc.
Officers and Directors
- --------------------------------------------------------------------------------
JURIS PADEGS*
Chairman of the Board and Director
ROBERT J. CALLANDER
Director
WILLIAM H. GLEYSTEEN, JR.
Honorary Director
DR. SANG C. LEE
Director
TAI HO LEE
Director
WILSON NOLEN
Director
HUGH T. PATRICK
Director
KESOP YUN
Director
SIDNEY M. ROBBINS
Emeritus Founding Director
NICHOLAS BRATT*
President
BRUCE H. GOLDFARB*
Vice President and Assistant Secretary
JUDITH A. HANNAWAY*
Vice President
DANIEL Y. K. KWAK
Vice President
JOHN J. LEE*
Vice President
ANN M. McCREARY*
Vice President
DONG WOOK PARK
Vice President
JOHN MILLETTE*
Vice President and Secretary
KATHRYN L. QUIRK*
Vice President and Assistant Secretary
JOHN R. HEBBLE*
Treasurer
CAROLINE PEARSON*
Assistant Secretary
* Scudder Kemper Investments, Inc.
32
