THE KOREAN INVESTMENT FUND
ANNUAL REPORT
APRIL 30, 1998
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
June 26, 1998
Dear Shareholder:
This annual shareholder report for the Korean Investment Fund contains
investment results and market activity for the period ended April 30, 1998. We
are pleased to inform you that Edward D. Baker, a Senior Vice President of
Alliance Capital, the Fund's Investment Manager and Administrator, has become
co-manager of the Fund's investment portfolio. Mr. Baker, who has broad asset
allocation and portfolio coordination responsibilities at Alliance, has 23
years of investment experience. Prior to joining Alliance in 1995, Mr. Baker
was a Director of BARRA, Inc. Mr. Baker will be working in conjunction with In
Kee Oh, a Director of Orion Asset Management Co., Ltd., the Fund's Investment
Manager.
INVESTMENT RESULTS
The following table shows your Fund's investment results, based on net asset
value (NAV), for the three, six and 12-month periods ended April 30, 1998. The
Fund's performance is compared with its benchmark, the Korean Composite Stock
Price Index (KOSPI). Your Fund's NAV ended the period at US$3.48 per share, and
the market price was US$3.875 per share as of April 30, 1998. This represents
an 11.35% premium to NAV.
Most Asian markets were down over the six and 12-month periods ending April 30,
1998 while economic fundamentals deteriorated as a continuing result of the
Asian crisis. The primary reason for your Fund's outperformance over the six
and 12-month periods ended April 30, 1998, was overweight positions in SK
Telecom Co., Ltd., LG Information & Communications (LGIC), Samsung Electronics,
Kookmin Bank and Pohang Iron & Steel Co. relative to their weighting in the
KOSPI. However, for the three months ended April 30, 1998, the Fund
underperformed the market by 1.15% mainly due to some technology stocks and
auto shares including LGIC, Hyundai Motors, and SJM. Considering these
companies' positive business prospects, we still see their fundamentals as very
good, and we expect them to outperform the market in the months ahead.
INVESTMENT RESULTS*
Periods Ended April 30, 1998
TOTAL RETURNS
3 MONTHS 6 MONTHS 12 MONTHS
-------- -------- ---------
THE KOREAN INVESTMENT
FUND -15.12% -23.52% -53.72%
KOREAN COMPOSITE PRICE
INDEX -13.97% -35.41% -60.02%
* THE FUND'S INVESTMENT RESULTS ARE TOTAL RETURNS FOR THE PERIODS AND ARE
BASED ON THE NET ASSET VALUE AS OF APRIL 30, 1998. ALL FEES AND EXPENSES
RELATED TO THE OPERATION OF THE FUND HAVE BEEN DEDUCTED. RETURNS FOR THE FUND
INCLUDE THE REINVESTMENT OF ANY DISTRIBUTIONS PAID DURING THE PERIOD. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
THE KOREAN COMPOSITE STOCK PRICE INDEX (KOSPI) IS A
CAPITALIZATION-WEIGHTED INDEX OF 770 DOMESTIC COMPANIES TRADED ON THE KOREAN
STOCK EXCHANGE. THE INDEX IS UNMANAGED AND REFLECTS NO FEES OR EXPENSES. AN
INVESTOR CANNOT INVEST DIRECTLY IN AN INDEX.
MARKET ACTIVITY
After experiencing a big decline in the fourth quarter of 1997, the Korean
equity market partially recovered, mainly because of a fresh inflow of foreign
money. Foreign investors were the main supporters of the Seoul bourse this
year, and were the only net buyers. Local investors, including domestic
institutional investors, had to sell their holdings in order to secure cash.
However, at the end of April, foreign investors became net sellers, which was
the main catalyst in pulling down the index. This subsequent selloff may have
been the result of slower-than-expected corporate reform and increasing labor
strikes, but also reflects a weakening yen and concerns with another round of
possible currency devaluations. During the year-to-date period ended April 30,
1998, the KOSPI declined by 25.8% in local currency terms. The major laggards
were securities firms, banks, wholesale & retail, and automobiles, down 48.0%,
40.0%, 37.8%, and 48.0%, respectively. It is expected that the market will
regain its momentum after the gov-
1
THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
ernment reveals a more precise restructuring schedule in financial sectors
which is due at the end of June.
ECONOMIC TRENDS
First quarter 1998 Gross Domestic Product (GDP) growth fell by 3.8%
year-on-year in real terms mainly due to the weak domestic demand. This number
came as no surprise as various economic indicators released during the past
months have already suggested a sharply slowing economy. For the same period,
private con-sumption expenditure and government consumption expenditure fell,
year-on-year, by 10.3% and 4.3%, respectively. Gross domestic fixed capital
formation, on the other hand, dropped drastically, by 23% on the back of the
40.7% plunge in facility investment. Inventories also fell by 8.2% of GDP.
The shrinkage in domestic demand has more than offset the gain in the external
sector. For the first four months of 1998, the trade balance registered a
surplus of US$12.3 billion from a deficit of US$8.2 billion for the same period
last year, which was mainly the result of a sharp fall in imports. The plunge
in export prices by approximately 15% partially offset tremendous export volume
growth of 27.3% year-on-year. With regard to imports, the 35% plunge in import
value contributed to a 25.4% drop in volume for the period. The International
Monetary Fund (IMF) and the Korean government set the 1998 GDP growth target at
close to -1%. However, considering deteriorating terms of trade and
lower-than-expected domestic consumption, we believe that this target GDP
growth is not likely to be achieved.
Worries about foreign reserves have been eased somewhat. According to the Bank
of Korea, usable exchange reserves increased to US$31.48 billion as of May 15,
1998 from US$8.9 billion at the end of 1997. Besides the scheduled
disbursements of the IMF bailout, a large current account surplus during the
first four months of 1998 contributed to the restoration of foreign reserves.
The current level of foreign reserves meets 3.8 times monthly imports, versus
the IMF recommendation of three times.
The Korean won gained strength at the end of April 1998 (at Won 1,336.50/USD),
appreciating by over 20% from the end of 1997. Improving investor sentiment,
the successful rollover of short-term debt, and increasing foreign reserves
served to stabilize the Korean won. Lower U.S. dollar demand from private
entities caused by falling imports also contributed to the appreciation of the
won. While the chances of the won experiencing another blowout are lower at the
moment, the possibility might still be effected by external influences
including the direction of the Japanese yen and political developments in
Indonesia.
After hitting 30% per annum at the end of 1997, the benchmark three-year
corporate bond yield lowered to an 18% level. Improvements in the balance of
payments has helped to ease liquidity. Also, slow facilities investment and
capital inflow should lead to lower interest rates. Short-term demand for
funds, however, is still strong, given the highly-geared corporate burdens. The
IMF recently mentioned the possibility of lowering interest rates, subject to
the stabilizing of the Korean won currency movements. We see improvement in
Korea's sovereign rating, and particular progress in corporate restructuring,
as the two major factors in determining the direction of interest rates.
PORTFOLIO STRATEGY
With the compulsive restructuring in the financial sector, as well as in real
business sectors, there were significant mergers and acquisitions during the
last few months. We expect this trend to continue, as Korean companies need
more money from outside sources. For the coming few months, the market is
likely to be volatile as the reform programming evolves. However, the market
should present attractive valuations that will create upside once the Asian
crisis subsides. We expect to focus purchases on those companies having some
combination of the following elements: a clean balance sheet, good cash flow
and a position as a beneficiary of, or neutral to, won weakness and high
interest rates.
We continue to overweight SK Telecom Co., Ltd., LG Information & Communications
and Samsung Display Devices, which still offer excellent value at current
levels. We remain under-exposed to the construction, merchant banking, consumer
services and consumer manufacturing sectors. During the most recent reporting
period, we added to holdings in Pohang Iron & Steel Co., Namyang Dairy Products
Co., and Iljin Co., and reduced the Fund's exposure to Korea Exchange Bank, SK
Telecom Co., Ltd., ADR, and LG Semiconductor.
2
THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
Thank you for your continued interest in The Korean Investment Fund. We look
forward to reporting to you on market activity and the Fund's investment
results in the coming periods.
Sincerely,
John D. Carifa
Chairman and Chief Executive Officer
Edward D. Baker
Portfolio Co-Manager
In Kee Oh
Portfolio Co-Manager
3
TEN LARGEST HOLDINGS
APRIL 30, 1998 THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
U.S. $ PERCENT OF
COMPANY VALUE NET ASSETS
- -------------------------------------------------------------------------------
Sk Telecom (common stocks & warrants) $ 4,157,802 14.1%
L G Information & Communications 3,061,510 10.4
Samsung Display Devices 2,065,854 7.0
Samsung Electronics 1,716,423 5.8
Kookmin Bank 1,555,951 5.3
Iljin Co. Ltd. 1,401,835 4.8
Samsung Fire & Marine Insurance Co. 1,236,869 4.2
Korea Exchange Bank 1,201,348 4.1
Nong Shim Co., Ltd. 1,162,258 3.9
Korea Electric Power Corp. 1,089,413 3.7
$ 18,649,263 63.3%
4
PORTFOLIO OF INVESTMENTS
APRIL 30, 1998 THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON STOCKS AND OTHER INVESTMENTS-90.1%
TECHNOLOGY-25.8%
COMMUNICATION EQUIPMENT-17.5%
Iljin Co. Ltd. 170,323 $ 1,401,835
Korea Electric Terminal Co. 5,000 277,591
LG Information & Communications 100,781 3,061,510
Samsung Electro-Mechanics Co. 20,000 419,005
------------
5,159,941
ELECTRICAL EQUIPMENT-0.7%
Daewoo Electronics Co. 50,000 187,804
SEMI-CONDUCTOR-7.6%
Mirae Corp. 180,792 527,564
Samsung Electronics 31,000 1,716,423
------------
2,243,987
------------
7,591,732
FINANCIAL SERVICES-20.0%
BANKING-12.3%
Daegu Bank, Ltd. 137,477 206,241
Kookmin Bank 246,098 1,555,951
Korea Exchange Bank 475,030 1,201,348
Shinhan Bank 168,539 655,745
------------
3,619,285
BROKERAGE & MONEY MANAGEMENT-2.1%
Dongwon Securities 140,000 628,507
INSURANCE-5.6%
Hyundai Fire & Marine Insurance Co. 25,000 238,496
Oriental Fire & Marine 40,640 170,284
Samsung Fire & Marine Insurance Co. 4,185 1,236,869
------------
1,645,649
------------
5,893,441
UTILITY-14.0%
ELECTRIC POWER-3.7%
Korea Electric Power Corp. 80,000 1,089,413
GAS-0.6%
Pusan City Gas Co., Ltd. 10,000 168,350
TELEPHONE-9.7%
SK Telecom Co., Ltd. 2,266 920,642
(ADR) 261,306 1,943,463
------------
2,864,105
------------
4,121,868
CAPITAL GOODS-9.8%
ELECTRICAL
EQUIPMENT-8.1%
Saehan Precision 23,615 310,979
Samsung Display Devices 41,519 2,065,854
------------
2,376,833
MACHINERY-1.7%
Daewoo Heavy Industries 100,000 494,575
------------
2,871,408
CONSUMER SERVICES-5.3%
FOOD & BEVERAGE-0.5%
Namyang Dairy Products Co. 2,000 138,421
OTHER-4.8%
Hyundai Motor Service Co. 30,000 107,744
Keum Kang Development 12,339 148,640
Nong Shim Co., Ltd. 26,690 1,162,258
------------
1,418,642
------------
1,557,063
BASIC INDUSTRIES-4.9%
CHEMICALS-3.2%
Korea Chemical 6,000 115,825
Namhae Chemical 50,000 823,045
------------
938,870
MINING & METALS-0.7%
Pohang Iron & Steel Co. 4,280 200,150
5
PORTFOLIO OF INVESTMENTS (CONTINUED) THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) U.S. $ VALUE
- -------------------------------------------------------------------------
PAPER & FOREST PRODUCT-1.0%
Tai Lim Packaging Industrial Co. 40,000 $ 305,275
------------
1,444,295
CONSUMER MANUFACTURING-4.8%
AUTO & RELATED-4.8%
Dong Yang Mechatronics Corp. 20,000 109,241
Hyundai Motor Co., Ltd. 39,340 538,662
Pyung Hwa Industrial Co. 20,000 231,949
SJM 80,000 269,959
Sungmi Telecom Electronics Co. 7,922 263,770
------------
1,413,581
HEALTHCARE-1.1%
DRUGS-1.1%
Dae Woong Pharmaceutical 24,399 334,083
WARRANTS-4.4%
COMMUNICATION EQUIPMENT-4.4%
Merrill Lynch SK Telecom
Warrants, expiring 10/10/00 (a) 2,908 1,293,697
Total Common Stocks and Other Investments
(cost $57,257,333) 26,521,168
TIME DEPOSIT-4.4%
Rabobank 5.44%, 5/01/98
(cost $1,300,000) $1,300 1,300,000
TOTAL INVESTMENTS-94.5%
(cost $58,557,333) 27,821,168
Other assets less liabilities-5.5% 1,617,834
NET ASSETS-100% $ 29,439,002
(a) Non-income producing security.
Glossary:
ADR - American Depositary Receipt.
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998 THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $58,557,333) $ 27,821,168
Cash 1,314,314
Foreign cash, at value (cost $313,457) 324,421
Receivable for investment securities sold 418,713
Dividends and interest receivable 64,316
Other assets 14,061
Total assets 29,956,993
LIABILITIES
Payable for investment securities purchased 323,850
Management fee payable 21,370
Co-Manager fee payable 10,057
Other accrued expenses 162,714
Total liabilities 517,991
NET ASSETS $29,439,002
COMPOSITION OF NET ASSETS
Capital stock, at par $84,507
Additional paid-in capital 89,209,358
Accumulated net investment loss (1,182,898)
Accumulated net realized loss on investments and foreign
currency transactions (27,942,510)
Net unrealized depreciation of investments and foreign
currency denominated assets and liabilities (30,729,455)
$ 29,439,002
NET ASSET VALUE PER SHARE (based on 8,450,704 shares outstanding) $3.48
See notes to financial statements.
7
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1998 THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends (net of foreign taxes withheld
of $73,791) $ 306,328
Interest 21,152 $ 327,480
EXPENSES
Management fee 400,115
Co-Manager fee 188,291
Custodian 176,218
Directors' fees and expenses 148,420
Audit and legal 78,409
Printing 33,516
Registration 19,739
Transfer agency 12,067
Miscellaneous 22,791
Total expenses 1,079,566
Net investment loss (752,086)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investment transactions (22,371,219)
Net realized loss on foreign currency transactions (1,226,972)
Net change in unrealized appreciation (depreciation) of:
Investments (9,802,965)
Foreign currency denominated assets and liabilities 5,956
Net loss on investments and foreign
currency denominated assets and liabilities (33,395,200)
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (34,147,286)
See notes to financial statements.
8
STATEMENT OF CHANGES IN NET ASSETS THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
APRIL 30, APRIL 30,
1998 1997
------------ ------------
DECREASE IN NET ASSETS FROM OPERATIONS
Net investment loss $ (752,086) $ (564,942)
Net realized loss on investments and
foreign currency transactions (23,598,191) (4,130,840)
Net change in unrealized depreciation
of investments and foreign currency
denominated assets and liabilities (9,797,009) (36,139,044)
Net decrease in net assets
from operations (34,147,286) (40,834,826)
NET ASSETS
Beginning of year 63,586,288 104,421,114
End of year $ 29,439,002 $ 63,586,288
See notes to financial statements.
9
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1998 THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
The Korean Investment Fund, Inc. (the "Fund") was incorporated in the State of
Maryland on November 1, 1991 as a non-diversified, closed-end management
investment company. The financial statements have been prepared in conformity
with generally accepted accounting principles which require management to make
certain estimates and assumptions that affect the reported amounts of assets
and liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual reports could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sale price or if no sale occurred, at the
mean of the closing bid and asked price on that day. Readily marketable
securities traded in the over-the-counter market, securities listed on a
foreign securities exchange whose operations are similar to the U.S.
over-the-counter market, and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter, are valued at
the mean of the current bid and asked price. U.S. government and fixed income
securities which mature in 60 days or less are valued at amortized cost, unless
this method does not represent fair value. Securities for which current market
quotations are not readily available are valued at their fair value as
determined in good faith by, or in accordance with procedures adopted by, the
Board of Directors. Fixed income securities may be valued on the basis of
prices obtained from a pricing service when such prices are believed to reflect
the fair market value of such securities.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated into
U.S. dollars at the mean of the quoted bid and asked price of the respective
currency against the U.S. dollar on the valuation date. Purchases and sales of
portfolio securities are translated at the rates of exchange prevailing when
such securities were acquired or sold. Income and expenses are translated at
rates of exchange prevailing when earned or accrued.
Net realized gain or loss on foreign currency transactions represents net
foreign exchange gains and losses from holdings of foreign currencies, currency
gains or losses realized between the trade and settlement dates on security
transactions, and the difference between the amounts of dividends and foreign
taxes recorded on the Fund's books and the U.S. dollar equivalent amounts
actually received or paid. Net unrealized currency gains and losses from
valuing foreign currency denominated assets and liabilities at period end
exchange rates are reflected as a component of net unrealized
appreciation/depreciation of investments and foreign currency denominated
assets and liabilities. The Fund does not isolate that portion of the results
of operations arising as a result of changes in the foreign exchange rates from
the fluctuations arising from changes in the market prices of securities during
the fiscal year.
The exchange rates for the Korean Won at April 30, 1998 and April 30, 1997 were
Won 1,336.50 to U.S. $1.00 and Won 892 to U.S. $1.00, respectively.
3. TAXES
It is the Fund's policy to meet the requirements of the U.S. Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to its
shareholders. Therefore, no provision for U.S. income or excise taxes is
required. Withholding taxes on foreign interest and dividends have been
provided for in accordance with the applicable tax requirements.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Investment transactions are accounted for on the date securities are
purchased or sold. Realized and unrealized gains and losses from investment and
foreign currency transactions are calculated on the identified cost basis.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
10
THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within capital accounts based on their
federal tax basis treatment; temporary differences do not require such
reclassification. During the current fiscal year, permanent differences,
primarily due to foreign currency losses and a net investment loss, resulted in
a net increase in accumulated net investment loss and a corresponding decrease
in additional paid-in capital and accumulated net realized loss on investment
and foreign currency transactions. This reclassification had no effect on net
assets.
NOTE B: MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an Investment Management and Administration Agreement, the
Fund pays Alliance Capital Management L.P. ("Alliance") a fee at an annualized
rate of .85 of 1% of the Fund's average weekly net assets. Such fee is
calculated weekly and paid monthly.
Under the terms of an Investment Management Agreement, the Fund pays Orion
Asset Management Co., Ltd. ("Orion") a fee at an annualized rate of .40 of 1%
of the Fund's average weekly net assets. Such fee is calculated weekly and paid
monthly.
Under the terms of a Shareholder Inquiry Agency agreement with Alliance Fund
Services, Inc. ("AFS"), an affiliate of Alliance, the Fund reimburses AFS for
costs relating to servicing phone inquiries for the Fund. The Fund reimbursed
AFS $235 during the year ended April 30, 1998.
Brokerage commissions paid on investment transactions for the year ended April
30, 1998 amounted to $193,065, of which $14,467 was paid to Tong Yang
Securities Co., Ltd., an affiliate of Orion.
NOTE C: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term and U.S.
government securities) aggregated $21,041,413 and $24,967,395, respectively,
for the year ended April 30, 1998. There were no purchases or sales of U.S.
government or government agency obligations for the year ended April 30, 1998.
At April 30, 1998, the cost of investments for federal income tax purposes was
$59,490,682. Accordingly, gross unrealized appreciation of investments was
$816,747 and gross unrealized depreciation of investments was $32,486,261,
resulting in net unrealized depreciation of investments of $31,669,514
(excluding foreign currency transactions).
The Fund incurred and elected to defer post-October currency losses of
$1,182,898 and capital losses of $12,552,224. At April 30, 1998, the Fund had a
net capital loss carryover of $14,456,937, of which $439,256 expires April 30,
2004, $2,493,384 expires April 30, 2005, and $11,524,297 expires April 30,
2006. To the extent that any net capital loss carryover or post-October loss is
used to offset future capital gains, it is probable that these gains will not
be distributed to shareholders.
NOTE D: CAPITAL STOCK
There are 100,000,000 shares of $.01 par value common stock authorized. Of the
8,450,704 shares outstanding at April 30, 1998, Alliance owned 9,000 shares.
During the year ended April 30, 1998 the Fund issued no shares of common stock
in connection with the Fund's dividend reinvestment plan.
11
FINANCIAL HIGHLIGHTS THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 7.52 $12.36 $12.66 $13.09 $10.37
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (.09)(a) (.07)(a) (.01)(a) (.13)(a) (.09)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (3.95) (4.77) .86 .28 2.81
Net increase (decrease) in net
asset value (4.04) (4.84) .85 .15 2.72
LESS: DISTRIBUTIONS
Distributions from net realized gains
on investments and foreign currency
transactions -0- -0- (.29) -0- -0-
CAPITAL SHARE TRANSACTIONS
Dilutive effect of rights offering -0- -0- (.80) (.48) -0-
Offering costs charged to additional
paid-in capital -0- -0- (.06) (.10) -0-
Total capital share transactions -0- -0- (.86) (.58) -0-
Net asset value, end of year $ 3.48 $ 7.52 $12.36 $12.66 $13.09
Market value, end of year $3.875 $7.125 $11.50 $12.375 $13.375(b)
TOTAL RETURN
Total investment return based on: (c)
Market value (45.61)% (38.04)% (1.55)% (5.88)% 10.31%(b)
Net asset value (53.72)% (39.16)% 4.00% (3.28)% 26.23%
Net assets, end of year (000's omitted) $29,439 $63,586 $104,421 $75,461 $55,078
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets 2.29% 2.11% 2.09% 2.00% 2.26%
Ratio of net investment loss to average
net assets (1.60)% (.73)% (.53)% (.83)% (.82)%
Portfolio turnover rate 47% 32% 40% 34% 14%
Average commission rate (d) $.0623 $.1277 -- -- --
</TABLE>
(a) Based on average shares outstanding.
(b) Restated.
(c) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day of
each period reported. Dividends and distributions, if any, are assumed for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Rights offerings, if any, are assumed for
purposes of this calculation, to be fully subscribed under the terms of the
rights offering. Generally, total investment return based on net asset value
will be higher than total investment return based on market value in periods
where there is an increase in the discount or a decrease in the premium of the
market value to the net asset value from the beginning to the end of such
periods. Conversely, total investment return based on the net asset value will
be lower than total investment return based on market value in periods where
there is a decrease in the discount or an increase in the premium of the market
value to the net asset value from the beginning to the end of such periods.
Total investment return for a period of less than one year is not annualized.
(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on which
commissions are charged. This amount includes commissions paid to foreign
brokers which may materially affect the rate shown. Amounts paid in foreign
currencies have been converted into U.S. dollars using the prevailing exchange
rate on the date of the transaction.
12
REPORT OF INDEPENDENT ACCOUNTANTS THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF THE KOREAN INVESTMENT 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 Korean Investment Fund, Inc.
(the "Fund") at April 30, 1998, the results of its operations for the year then
ended, 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 April 30, 1998 by correspondence with the custodian and brokers,
and the application of alternative auditing procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
New York, New York
June 22, 1998
13
ADDITIONAL INFORMATION THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
Shareholders whose shares are registered in their own names may elect to be
participants in the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
pursuant to which dividends and capital gain distributions to shareholders will
be paid in or reinvested in additional shares of the Fund. State Street Bank
and Trust Company (the "Agent") will act as agent for participants under the
Plan. Shareholders whose shares are held in the name of a broker or nominee
should contact such broker or nominee to determine whether or how they may
participate in the Plan.
If the Board declares an income distribution or determines to make a capital
gain distribution payable either in shares or in cash, as holders of the Common
Stock may have elected, non-participants in the Plan will receive cash and
participants in the Plan will receive the equivalent in shares in Common Stock
of the Fund valued as follows:
(i) If the shares of Common Stock are trading at net asset value or at a
premium above net asset value at the time of valuation, the Fund will issue new
shares at the greater of net asset value or 95% of the then current market
price.
(ii) If the shares of Common Stock are trading at a discount from net asset
value or at a premium above net asset value at the time of valuation, the Agent
will receive the dividend or distribution in cash and apply it to the purchase
of the Fund's shares of Common Stock in the open market on the New York Stock
Exchange or elsewhere, for the participants' accounts. Such purchases will be
made on or shortly after the payment date for such dividend or distribution and
in no event more than 30 days after such date except where temporary
curtailment or suspension of purchase is necessary to comply with Federal
securities laws. If, before the Agent has completed its purchases, the market
price exceeds the net asset value of a share of Common Stock, the average
purchase price per share paid by the Agent may exceed the net asset value of
the Fund's shares of Common Stock, resulting in the acquisition of fewer shares
than if the dividend or distribution had been paid in shares issued by the Fund.
The Agent will maintain all shareholders' accounts in the Plan and furnish
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Agent in non-certificate form in the name of
the participant, and each shareholder's proxy will include those shares
purchased or received pursuant to the Plan.
There will be no charges with respect to shares issued directly by the Fund to
satisfy the dividend reinvestment requirements. However, each participant will
pay a pro rata share of brokerage commissions incurred with respect to the
Agent's open market purchases of shares. In each case, the cost per share of
shares purchased for each shareholder's account will be the average cost,
including brokerage commissions, of any shares purchased in the open market
plus the cost of any shares issued by the Fund.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income taxes that may be payable (or required to be
withheld) on dividends and distributions.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan as applied to any
voluntary cash payments made and any dividend or distribution paid subsequent
to written notice of the change sent to participants in the Plan at least 90
days before the record date for such dividend or distribution. The Plan may
also be amended or terminated by the Agent on at least 90 days' written notice
to participants in the Plan. All correspondence concerning the Plan should be
directed to the Agent at State Street Bank and Trust Company, PO Box 366,
Boston, Massachusetts 02101.
Since the filing of the most recent amendment to the Fund's registration
statement with the Securities and Exchange Commission, there have been (i) no
material changes in the Fund's investment objectives or policies, (ii) no
changes to the Fund's charter or by-laws that would delay or prevent a change
of control of the Fund, (iii) no material changes in the principal risk factors
associated with investment in the Fund, and (iv) a change in the person
primarily responsible for the day-to-day management of the Fund's portfolio,
who is Edward D. Baker.
14
THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
SUPPLEMENTAL PROXY INFORMATION (UNAUDITED)
The Annual Meeting of Shareholders of The Korean Investment Fund, Inc. was held
on Thursday, August 7, 1997. The description of each proposal and number of
shares are as follows:
SHARES SHARES
VOTED FOR WITHHELD AUTHORITY
- -------------------------------------------------------------------------------
1. To elect directors: Class Two Directors
(term expires 2000)
John D. Carifa 4,660,107 87,231
Dong Hoon Shin 4,656,206 91,132
SHARES SHARES SHARES VOTED
VOTED FOR VOTED AGAINST ABSTAIN
- -------------------------------------------------------------------------------
2. To ratify the selection of
Price Waterhouse LLP
as the Fund's independent
auditors for the Fund's
fiscal year ending
April 30, 1998: 4,535,231 24,431 187,677
15
THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
BOARD OF DIRECTORS
JOHN D. CARIFA, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
THAE S. KHWARG, SENIOR VICE PRESIDENT
DAVID H. DIEVLER (1)
WILLIAM H. FOULK, JR. (1)
DR. JAMES M. HESTER (1)
THE HON. JAMES D. HODGSON (1)
OFFICERS
JUNG-JIN LEE, PRESIDENT
ROBERT HEISTERBERG, EXECUTIVE VICE PRESIDENT--INVESTMENTS
YUNG CHUL PARK, EXECUTIVE VICE PRESIDENT--INVESTMENTS
IN KEE OH, VICE PRESIDENT
THOMAS BARDONG, VICE PRESIDENT
EDMUND P. BERGAN, JR., SECRETARY
MARK D. GERSTEN, TREASURER & CHIEF FINANCIAL OFFICER
VINCENT S. NOTO, CONTROLLER
INVESTMENT MANAGER AND ADMINISTRATOR
ALLIANCE CAPITAL MANAGEMENT L.P.
1345 Avenue of the Americas
New York, NY 10105
CUSTODIAN
BROWN BROTHERS HARRIMAN & CO.
40 Water Street
Boston, MA 02109-3661
LEGAL COUNSEL
SEWARD & KISSEL
One Battery Park Plaza
New York, NY 10004
INVESTMENT MANAGER
ORION ASSET MANAGEMENT CO., LTD.
590 Madison Avenue
New York, NY 10022
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036-2798
TRANSFER AGENT, DIVIDEND PAYING AGENT, AND REGISTRAR
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110-1520
(1) Member of the Audit Committee.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its common stock in the open market.
This report, including the financial statement herein is transmitted to
the shareholders of The Korean Investment Fund for their information. This is
not a prospectus, circular or representation intended for use in the purchase
of shares of the Fund or any securities mentioned in this report.
16
THE KOREAN INVESTMENT FUND
Summary of General Information
POLICIES AND OBJECTIVES
The investment objective of the Fund is to seek long-term capital appreciation
through investment primarily in equity securities of Korean companies.
SHAREHOLDER INFORMATION
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transaction section of newspapers under the designation
KoreanInvFd. The Fund's NYSE trading symbol is "KIF". Weekly comparative net
asset value (NAV) and market price information about the Fund is published each
Monday in THE WALL STREET JOURNAL, each Sunday in THE NEW YORKTIMES and each
Saturday in BARRON'S, and other newspapers in a table called "Closed-End Funds".
DIVIDEND REINVESTMENT PLAN
Under the Fund's Dividend Reinvestment Plan, all shareholders will
automatically have their dividends and other distributions from the Fund
invested in additional shares of the Fund unless a shareholder elects to
receive cash.
For questions concerning shareholder account information, or if you would like
a brochure describing the Dividend Reinvestment Plan, please call State Street
Bank and Trust Company at 1-800-219-4218.
THE KOREAN INVESTMENT FUND
1345 Avenue of the Americas
New York, New York 10105
ALLIANCE CAPITAL
R THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM THE OWNER, ALLIANCE
CAPITAL MANAGEMENT L.P.
KORAR
