THE KOREAN INVESTMENT FUND
ANNUAL REPORT
APRIL 30, 1999
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
June 21, 1999
Dear Shareholder:
We are pleased to provide this annual shareholder report for The Korean
Investment Fund (the "Fund"). This report provides investment results and
market activity for the period ended April 30, 1999.
INVESTMENT RESULTS
The following table provides your Fund's investment results, based on net asset
value ("NAV"), for the three-, six-, and twelve-month periods ended April 30,
1999. For comparison, we have also included the performance for your Fund's
benchmark, the Korea Composite Stock Price Index ("KOSPI"). Your Fund's NAV
ended the period at US$6.90 per share, and the market price was US$6.063 per
share as of April 30, 1999. This represents a 12.13% discount to NAV.
During the current reporting period, the Korean market posted one of the
strongest performances among Asian region markets as the region's foreign
exchange crisis subsided. Throughout the last twelve months, we continued to
focus on large-cap blue chips such as Pohang Iron & Steel Co., SK Telecom Co.,
Ltd., LG Information & Communications, Samsung Display Devices, and Samsung
Electronics because we feel that they continue to be undervalued. We believe
these companies will be the catalysts behind Korea's economic revival, and we
maintain an overweight position in these companies relative to their weightings
in the KOSPI. Going forward, we plan to further diversify your Fund's holdings,
while continuing to select the most undervalued shares as determined with
reference to our valuation models. From a long-term perspective, we remain
optimistic about the Korean equity market and believe there is still upside
potential from current levels should economic reforms persist and the new
social paradigm prove to be successful. Furthermore, we believe that there are
more signs of economic recovery in Korea. Cheaper valuations, low interest
rates and an economic recovery should lead to further inflows into local
equities.
INVESTMENT RESULTS*
Periods Ended April 30, 1999
TOTAL RETURNS
3 MONTHS 6 MONTHS 12 MONTHS
-------- -------- ---------
THE KOREAN INVESTMENT FUND 36.90% 127.72% 98.28%
KOREA COMPOSITE STOCK PRICE INDEX 30.21% 117.17% 100.92%
* THE FUND'S INVESTMENT RESULTS ARE TOTAL RETURNS FOR THE PERIODS AND ARE
BASED ON THE NET ASSET VALUE AS OF APRIL 30, 1999. 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 KOREA COMPOSITE STOCK PRICE INDEX IS A CAPITALIZATION-WEIGHTED INDEX
OF ALL DOMESTIC COMPANIES TRADED ON THE KOREA STOCK EXCHANGE. THE INDEX IS
UNMANAGED AND REFLECTS NO FEES OR EXPENSES. AN INVESTOR CANNOT INVEST DIRECTLY
IN AN INDEX.
ECONOMY
We expect the positive indicators that have come out of Korea in recent months
to continue. The principal rating agencies have already re-rated Korea to
investment grade, and we expect the next move to be a further upgrade.
The precipitous decline in output seen throughout 1998 appears to have ended as
preliminary first quarter 1999 gross domestic product ("GDP") data indicate the
economy grew 3.1% year-on-year, underpinned by improving private consumption
and a slowing inventory run-down. Contradicting the widely held myth that Asian
economies cannot recover without export growth, the Korean economy continued to
grow despite a decline in the U.S.-dollar value of exports of 5.0% year-on-year
in the first three months of 1999, and a sharp drop of 16% year-on-year in
February alone. The 18.4% industrial production growth recorded in March of
1999 suggests a relatively strong rebound is under way.
Domestic investment remained weak in the first quarter of 1999, which is not
surprising given that excess capacity still exists in many industries. We do
not expect a significant rebound in investment until late 1999, when we
anticipate that the financial condition of companies
1
THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
will improve and demand will begin to test current capacity.
Inflation remains low, and fears of an inflationary wage price spiral have not
been realized. The consumer price level in April of 1999 was a mere 0.4% higher
than a year ago, a much slower price increase than the 8.8% rise recorded in
April of 1998, and upstream price pressures remain weak. In addition, the
Producer Price Index fell 5.9% in February of 1999, a rapid reversal from the
15%-plus increases recorded in early 1998. As lower producer prices feed into
the production process, it is likely that consumer prices will also turn
negative, which should be positive for interest rates and the stock market.
The Korean won to U.S. dollar exchange rate is expected to appreciate slowly
over the long term. It is estimated that the Korean won, which is currently
about 1,200 won per dollar, is somewhat undervalued as measured by the real
effective exchange rate. The supply of the dollar is expected to outpace the
demand for the dollar as portfolio and direct investments from abroad should
increase, and the current account deficit should move to a surplus for the time
being. We forecast the won/dollar rate will reach W1,150/USD by the end of this
year. The country's sizeable official foreign exchange reserves of almost US$60
billion suggest that there should be no repetition of a balance-of-payments
shortfall, even though we see lackluster export prospects in 1999 and a sharply
reduced current account surplus.
Interest rates are currently at historical lows, but are expected to rise in
the second half of 1999 as money demand increases with the recovery of the
economy. However, this rise is expected to be limited. New issuance of
corporate bonds will be scarce as capacity utilization remains at an idle 70%,
and conglomerates are obliged to meet debt-to-equity ratios of 200% by the end
of 1999. Therefore, as corporate money demand will be sluggish, the rise of the
three-year corporate bond yield will be limited.
The Korean government's will to maintain a low interest rate environment is
also expected to keep corporate bond yields low. In addition, the new futures
exchange in Pusan and the implementation of the primary dealer system on July
1, 1999 have increased liquidity in Korea's bond market. The increased
liquidity has sparked bond buying among institutional and foreign investors,
thus keeping bond yields low. We expect the three-year Treasury bond yield and
three-year corporate bond yield to finish 1999 at 6.7% to 7.0%, and 7.7% to
8.0%, respectively.
MARKET MOVEMENT
For the six months ended April 30, 1999, the KOSPI more than doubled. Even
though the Korean market experienced a 14.5% correction in May of 1999, in our
view, Korea is the strongest market in the Asian region. Korea's excess money
supply was a big factor in the recent liquidity-driven rally. Absolute M3 money
supply growth was down 2.4 percentage points to 13.9% last year, but relative
money supply, compared with GDP growth and inflation, was abnormally large.
This excess money supply was directed to bond-type investment trust funds
(beneficiary certificates) last year. In 1998, the size of bond-type investment
trust funds swelled by more than W100 trillion, to W189 trillion, or US$83.3
billion, to US$157 billion.
Looking at bond-type investment trust funds, short-term funds with a maturity
of less than six months account for approximately 50% of all bond-type
investment trust funds, while medium-term funds (twelve months maturity),
long-term funds (eighteen months maturity) and others comprise the remaining
50%. Short-term funds are very sensitive to interest rates and are therefore
the most vulnerable to transfer into stocks. In the case of the short-term
funds, a greater interest spread increases the likelihood of the shift to
stocks. In this context, short-term bond investors will less likely shift to
stocks after July as the interest spread is declining and should disappear by
that time.
PORTFOLIO STRATEGY
Looking forward, for the second half of 1999 to the first half of 2000, we see
four major fundamental factors as important to the Korean stock market: i)
capital investment, ii) trade surplus, iii) inflation, and iv) the Japanese yen
to U.S. dollar exchange rate. We will continue to monitor these factors
throughout the coming quarters.
A source of worry concerns the way in which the weakest of the top five
chaebols, whose total debt expanded substantially last year, will be
restructured. During this period of adjustment, the Korean government needs to
2
THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
adhere to two basic principles. First, debt-to-equity swaps by domestic lenders
should be directed only to companies vital to the economy in terms of value
creation and employment. Second, if debt-to-equity swaps are undertaken, the
government ought to force a write-down of the major shareholders' capital while
protecting that of minority shareholders. In short, the principle of
responsibility and penalties must be maintained.
If the adjustment process is well handled, we believe Korea will see an
unprecedented degree of portfolio investment inflow. This would help support a
multi-year expansion of the market in the years ahead.
We will focus on cyclicals such as chemical, steel, paper and technology
stocks, all of which have underperformed the market during the downward
economic cycle. We will also overweight selective small- and medium-sized
companies with relatively clean balance sheets that trade at prices that are
below the values assigned by our discounted cash flow model. During the
reporting period, we added holdings in Ottogi Corp., Il Jin Electric Co., Ltd.,
Baek Kwang Mineral Products Co., Daesung Industrial Co., Shinhan Bank, and
Samsung Electronics. We reduced our exposure to Dongbu Insurance Co., Ltd.,
Korea Chemical, Keumkang, Ltd., and Saehan Precision.
Thank you for your continued interest in The Korean Investment Fund. We look
forward to reporting to you on the developing market activity and the Fund's
investment results in the coming periods.
Sincerely,
John D. Carifa
Chairman and Chief Executive Officer
Edward D. Baker
Vice President
In Kee Oh
Vice President
3
TEN LARGEST HOLDINGS
APRIL 30, 1999 THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
U.S. $ PERCENT OF
COMPANY VALUE NET ASSETS
- -------------------------------------------------------------------------------
SK Telecom Co., Ltd. (common
stocks & warrants) $ 5,857,562 10.0%
Samsung Electronics 4,265,769 7.3
Iljin Co., Ltd. 3,852,336 6.6
Daesung Industrial Co. 3,029,028 5.2
Pohang Iron & Steel Co. 2,858,830 4.9
LG Information &
Communications, Ltd. 2,469,701 4.2
Shinhan Bank 2,204,459 3.8
Samsung Securities Co., Ltd. 2,172,121 3.8
Baek Kwang Mineral Products Co. 2,117,442 3.6
Samsung Fire & Marine
Insurance Co. 2,064,872 3.5
$30,892,120 52.9%
4
PORTFOLIO OF INVESTMENTS
APRIL 30, 1999 THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER INVESTMENTS-98.7%
TECHNOLOGY-23.9%
COMMUNICATION EQUIPMENT-13.3%
Iljin Corp., Ltd. 210,023 $ 3,852,336
LG Information & Communications, Ltd. 52,415 2,469,701
Samsung Electro-Mechanics Co. 60,991 1,436,894
------------
7,758,931
COMPUTER HARDWARE-3.3%
Chung Ho Computer Co. 90,000 1,946,151
SEMI-CONDUCTOR-7.3%
Samsung Electronics 55,469 4,265,769
------------
13,970,851
BASIC INDUSTRIES-18.0%
CHEMICALS-4.4%
Honam Petrochemical Corp. 50,000 925,536
Namhae Chemical Corp. 50,000 1,640,724
------------
2,566,260
DISTRIBUTION & WHOLESALE-2.7%
SK Global 200,000 1,539,756
FISHERIES-0.6%
Daerim Corp. (a) 20,000 350,021
MINING & METALS-8.5%
Baek Kwang Mineral Products Co. 122,760 2,117,442
Pohang Iron & Steel Co. 39,280 2,858,830
------------
4,976,272
REFINING-1.8%
SK Corp. 50,000 1,051,746
------------
10,484,055
UTILITY-18.0%
ELECTRIC POWER-2.0%
Korea Electric Power Corp. 40,000 1,151,031
GAS-5.2%
Daesung Industrial Co. 90,000 3,029,028
TELEPHONE-10.8%
Korea Network Corp. (a) 100,000 472,024
SK Telecom Co., Ltd. 1,200 1,004,628
ADR 165,114 2,290,957
Merrill Lynch Wts. 10/10/00 (a) 2,908 2,561,977
------------
6,329,586
------------
10,509,645
FINANCIAL SERVICES-17.4%
BANKING-8.1%
Housing & Commercial Bank (a) 50,000 1,177,955
Kookmin Bank 100,000 1,363,063
Shinhan Bank 200,000 2,204,459
------------
4,745,477
BROKERAGE & MONEY MANAGEMENT-5.8%
Dongwon Securities Co. 50,000 1,177,956
Samsung Securities Co., Ltd. (a) 56,121 2,172,121
------------
3,350,077
INSURANCE-3.5%
Samsung Fire & Marine Insurance Co. 4,462 2,064,872
------------
10,160,426
CAPITAL GOODS-8.3%
ELECTRICAL EQUIPMENT-5.6%
AUK Corp. 170,000 1,230,122
Daeduck Industries Co., Ltd. 1,500 18,805
Samsung Display Devices Co. 39,134 2,008,560
------------
3,257,487
5
PORTFOLIO OF INVESTMENTS (CONTINUED) THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
MACHINERY-2.7%
Il Jin Electric Co., Ltd. 100,000 $ 1,552,377
------------
4,809,864
CONSUMER MANUFACTURING-6.6%
AUTO & RELATED-2.2%
Dong Yang Power Systems Co. 150,000 845,603
Hyundai Motor Co., Ltd. (a) 22,844 381,534
Rts. 5/14/99 (a) 15,389 86,108
------------
1,313,245
BUILDING & CONSTRUCTION-4.4%
Keumkang, Ltd. 30,339 1,174,248
Tae Young Corp. 30,000 1,368,111
------------
2,542,359
------------
3,855,604
CONSUMER SERVICES-2.7%
FOOD & BEVERAGE-2.7%
Ottogi Corp. 70,000 1,596,130
CONSUMER PRODUCTS-2.1%
RETAILING-2.1%
Shinsegae Department Store Co. 35,000 1,207,404
HEALTHCARE-1.7%
DRUGS-1.7%
Daewoong Pharmaceutical Corp. (a) 61,975 1,009,017
TOTAL INVESTMENTS-98.7%
(cost $41,781,106) 57,602,996
Other assets less liabilities-1.3% 744,738
NET ASSETS-100% $58,347,734
(a) Non-income producing security.
Glossary:
ADR - American Depositary Receipt.
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1999 THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $41,781,106) $ 57,602,996
Foreign cash, at value (cost $ 1,225,237) 1,218,566
Cash 193,643
Dividends receivable 17,133
Total assets 59,032,338
LIABILITIES
Payable for investment securities purchased 410,714
Management fee payable 37,553
Co-Manager fee payable 17,672
Other accrued expenses 218,665
Total liabilities 684,604
NET ASSETS $ 58,347,734
COMPOSITION OF NET ASSETS
Capital stock, at par $ 84,507
Additional paid-in capital 87,693,037
Accumulated net realized loss on investments and foreign
currency transactions (45,250,039)
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities 15,820,229
$ 58,347,734
NET ASSET VALUE PER SHARE (based on 8,450,704
shares outstanding) $6.90
See notes to financial statements.
7
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1999 THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends (net of foreign taxes
withheld of $86,381) $ 423,167
Interest 28,959 $ 452,126
EXPENSES
Management fee 266,494
Co-Manager fee 125,316
Custodian 221,652
Directors' fees and expenses 120,435
Audit and legal 77,170
Printing 44,976
Registration 14,061
Transfer agency 12,425
Miscellaneous 35,703
Total expenses 918,232
Net investment loss (466,106)
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investment transactions (17,307,529)
Net realized gain on foreign currency
transactions 132,683
Net change in unrealized appreciation
(depreciation) of:
Investments 46,558,055
Foreign currency denominated assets
and liabilities (8,371)
Net gain on investments and foreign currency
denominated assets and liabilities 29,374,838
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 28,908,732
See notes to financial statements.
8
STATEMENT OF CHANGES IN NET ASSETS THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
APRIL 30, APRIL 30,
1999 1998
------------ ------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment loss $ (466,106) $ (752,086)
Net realized loss on investments and
foreign currency transactions (17,174,846) (23,598,191)
Net change in unrealized appreciation
(depreciation) of investments and
foreign currency denominated assets
and liabilities 46,549,684 (9,797,009)
Net increase (decrease) in net assets
from operations 28,908,732 (34,147,286)
NET ASSETS
Beginning of year 29,439,002 63,586,288
End of year $ 58,347,734 $ 29,439,002
See notes to financial statements.
9
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999 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 accrued.
Net realized gain or loss on foreign currency transactions represents net
foreign exchange gains and losses from holding 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, 1999 and April 30, 1998 were
Won 1,188.50 to U.S. $1.00 and Won 1,366.50 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. Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in
10
THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
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 a net investment loss and foreign currency
transactions, resulted in a net decrease in accumulated net investment loss and
additional paid-in capital and a corresponding increase in accumulated net
realized loss on investments and foreign currency transactions. This
reclassification had no effect on net assets.
NOTE B: MANAGEMENT FEE 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 Funds 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 $250 during the year ended April 30, 1999.
Brokerage commissions paid on investment transactions for the year ended April
30, 1999 amounted to $286,144, none of which 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 $33,316,606 and $31,367,024, respectively,
for the year ended April 30, 1999. There were no purchases or sales of U.S.
government and government agency obligations for the year ended April 30, 1999.
At April 30, 1999, the cost of investments for federal income tax purposes was
$42,877,747. Accordingly, gross unrealized appreciation of investments was
$17,042,178 and gross unrealized depreciation of investments was $2,316,929
resulting in net unrealized appreciation of $14,725,249 (excluding foreign
currency transactions).
The Fund incurred and elected to defer post-October capital losses of $363,960.
At April 30, 1999, the Fund had a net capital loss carryover of $43,789,438, of
which $439,256 expires April 30, 2004, $2,493,384 expires April 30, 2005,
$11,524,297 expires April 30, 2006 and $29,332,501 expires April 30, 2007. 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, 1999, Alliance owned 9,000 shares.
During the year ended April 30, 1999 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,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $3.48 $7.52 $12.36 $12.66 $13.09
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (a) (.06) (.09) (.07) (.01) (.13)
Net realized and unrealized gain (loss)
on investments and foreign
currency transactions 3.48 (3.95) (4.77) .86 .28
Net increase (decrease) in net
asset value 3.42 (4.04) (4.84) .85 .15
LESS: DISTRIBUTIONS
Distributions from net realized
gains on investments and
foreign currency transactions -0- -0- -0- (.29) -0-
CAPITAL SHARE TRANSACTIONS
Dilutive effect of rights offering -0- -0- -0- (.80) (.48)
Offering costs charged to additional
paid-in capital -0- -0- -0- (.06) (.10)
Total capital share transactions -0- -0- -0- (.86) (.58)
Net asset value, end of year $6.90 $3.48 $7.52 $12.36 $12.66
Market value, end of year $6.063 $3.875 $7.125 $11.50 $12.375
TOTAL RETURN
Total investment return based on: (b)
Market value 56.46% (45.61)% (38.04)% (1.55)% (5.88)%
Net asset value 98.28% (53.72)% (39.16)% 4.00% (3.28)%
Net assets, end of year (000's omitted) $58,348 $29,439 $63,586 $104,421 $75,461
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets 2.93% 2.29% 2.11% 2.09% 2.00%
Ratio of net investment loss to average
net assets (1.49)% (1.60)% (.73)% (.53)% (.83)%
Portfolio turnover rate 102% 47% 32% 40% 34%
</TABLE>
(a) Based on average shares outstanding.
(b) 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 the market
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.
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, 1999, the results of 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 the 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 our audits, which included confirmation of securities
at April 30, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
June 14, 1999
13
ADDITIONAL INFORMATION (UNAUDITED) 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 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 paid subsequent
to written notice of the change set 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) no change in the person
primarily responsible for the day-
14
THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
to-day management of the Fund's portfolio, who is Edward Baker, the Vice
President of the Fund.
YEAR 2000
Many computer systems and applications in use today process transactions using
two-digit date fields for the year of the transaction, rather than the full
four digits. If these systems are not modified or replaced, transactions
occurring after 1999 could be processed as year "1900," which could result in
processing inaccuracies and computer system failures at or after the Year 2000.
This is commonly known as the Year 2000 problem. The Fund and its major service
providers, including Alliance, utilize a number of computer systems and
applications that have been either developed internally or licensed from third
party suppliers. In addition, the Fund and its major service providers,
including Alliance, are dependent on third party suppliers for certain systems
applications and for electronic receipt of information. Should any of computer
systems employed by the Fund or its major service providers fail to process
year 2000 related information properly, that could have a significant negative
impact on the Fund's operations and the services that are provided to the
Fund's stockholders. To the extent that the operations of issuers of securities
held by the Fund are impaired by the Year 2000 problem, or prices of securities
held by the Fund decline as a result of real or perceived problems relating to
the Year 2000, the value of the Fund's shares may be materially affected. In
addition, for the Fund's investments in foreign markets, it is possible that
foreign companies and markets will not be as prepared for Year 2000 as domestic
companies and markets.
The Year 2000 issue is a high priority for the Fund and Alliance. The Fund has
been advised that, during 1997, Alliance began a formal Year 2000 initiative
which established a structured and coordinated process to deal with the Year
2000 issue. As part of its initiative, Alliance established a Year 2000 project
office to manage the Year 2000 initiative, focusing on both information
technology and non-information technology systems. Alliance has also retained
the services of a number of consulting firms which have expertise in advising
and assisting with regard to Year 2000 issues. Alliance reports that by June
30, 1998 it had completed its inventory and assessment of its domestic and
international computer systems and applications, identified mission critical
systems and non-mission critical systems and determined which of these systems
are not Year 2000 compliant. All third party suppliers of mission critical
computer systems and applications have been contacted to verify whether their
systems and applications will be Year 2000 compliant and their responses are
being evaluated. Substantially all of those contacted have responded and
approximately 90% have informed Alliance that their systems and applications
are or will be Year 2000 compliant. Alliance will seek alternative solutions or
third party suppliers for all suppliers who do not furnish a satisfactory
response by June 30, 1999. The same process is being performed for non-mission
critical systems with estimated completion by June 30, 1999. Alliance had
remediated, replaced or retired all of its non-compliant mission critical
systems and applications which can impact the Fund. The same process is being
performed for non-mission critical systems and is estimated to be completed by
June 30, 1999. After each system has been remediated, it is tested with 1900
dates to determine if it still performs its intended business function
correctly. Next, each system undergoes a simulation test using dates occurring
after December 31, 1999. Inclusive of the replacement and retirement of some of
its systems, Alliance has completed these testing phases for approximately 98%
of mission critical systems and approximately 89% of nonmission critical
systems. Integrated systems tests will then be conducted to verify that the
systems will continue to work together. Full integration testing of all mission
critical and nonmission critical systems is estimated to be completed by June
30, 1999. Testing of interfaces with third-party suppliers has begun and will
continue throughout 1999. Alliance reports that it has completed an inventory
of its facilities and related technology applications and has begun to evaluate
and test these systems. Alliance reports that it anticipates that these systems
will be fully operable in the year 2000. Alliance, with the assistance of a
consulting firm, is developing Year 2000 specific contingency plans with
emphasis on mission critical functions. These plans seek to provide alternative
methods of processing in the event of a failure that is outside Alliance's
control. The estimated date for the completion of these plans is June 30, 1999.
15
THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
There are many risks associated with Year 2000 issues, including the risks that
the computer systems and applications used by the Fund and its major service
providers, including Alliance, will not operate as intended and that the
systems and applications of third party providers to the Fund and its service
providers will not be Year 2000 compliant. Likewise there can be no assurance
the compliance schedules outlined above will be met or that the actual cost
incurred will not exceed current cost estimates. Should the significant
computer systems and applications used by the Fund and its major service
providers or the systems of its important third party suppliers be unable to
process date sensitive information accurately after 1999, the Fund and Alliance
or its other service providers may be unable to conduct its normal business
operations and to provide shareholders with the required services. In addition,
the Fund and its service providers may incur unanticipated expenses, regulatory
actions and legal liabilities. The Fund and Alliance cannot determine which
risks, if any, are most reasonably likely to occur or the effects of any
particular failure to be Year 2000 compliant.
16
THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
BOARD OF DIRECTORS
JOHN D. CARIFA, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
KIM YONG NAM, PRESIDENT
HUGH-GIL YUM, SENIOR VICE PRESIDENT
DAVID H. DIEVLER (1)
WILLIAM H. FOULK, JR. (1)
DR. JAMES M. HESTER (1)
THE HON. JAMES D. HODGSON (1)
OFFICERS
ROBERT G. HEISTERBERG, EXECUTIVE VICE PRESIDENT--INVESTMENTS
YUNG CHUL PARK, EXECUTIVE VICE PRESIDENT--INVESTMENTS
EDWARD D. BAKER, III, VICE PRESIDENT
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
PRICEWATERHOUSECOOPERS 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.
The financial information included herein is taken from the records of the
Fund without audit by independent accountants who do not express an opinion
thereon.
17
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
