THE KOREAN
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INVESTMENT
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FUND
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[GRAPHIC OMITTED]
Semi-Annual
Report
October 31, 1998
AllianceCapital [LOGO](R)
<PAGE>
LETTER TO SHAREHOLDERS The Korean Investment Fund
================================================================================
December 4, 1998
Dear Shareholder:
This semi-annual shareholder report for The Korean Investment Fund (the "Fund")
discusses investment results and market activity for the period ended October
31, 1998.
INVESTMENT RESULTS
The following table provides your Fund's investment results, based on net asset
value ("NAV"), for the three-, six- and 12-month periods ended October 31, 1998.
The Fund's performance is compared with that of its benchmark, the Korea
Composite Stock Price Index (the "KOSPI"). Your Fund's NAV ended the period at
US$3.03 per share, and the market price was US$3.313 per share as of October 31,
1998. This represents a 9.32% premium to NAV.
Relatively speaking, the Korean market has continued to be one of the strongest
performers among Asian region markets. Through this calendar year, we have
continued to focus on the Korean "nifty-hefty" such as Pohang Iron & Steel Co.,
SK Telecom Co., Ltd., LG Information & Communications, Samsung Display Devices,
and Samsung Electronics, because our analysis reflects that they are mostly
undervalued against their fundamental valuations. An overweight position in
those companies relative to their weightings in the KOSPI was the main reason
for the Fund's relative outperformance during the three-month period ended
October 31, 1998.
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INVESTMENT RESULTS*
Periods Ended October 31, 1998
Total Returns
3 Months 6 Months 12 Months
--------- -------- ---------
The Korean
Investment Fund 4.84% -12.93% -33.41%
Korea Composite
Stock Price Index 4.51% -7.48% -40.24%
* The Fund's investment results are total returns for the periods and are
based on net asset value as of October 31, 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 Korea Composite Stock Price Index (KOSPI) is a capitalization-weighted
index of 881 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.
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MACRO ECONOMY
The relative export environment continues to be unfavorable for Korea as exports
continue to decline. However, Korea continues to record a healthy trade and
current account surplus mainly due to a collapse in imports. We do not expect
imports to increase rapidly as Korean manufacturers continue to level down their
huge inventories and cut capital expenditures.
Korea's gross domestic product ("GDP") growth appears to have hit bottom as
second quarter real GDP growth was -6.6%, which resulted in growth for the first
half of 1998 of -5.3%. September industrial output of +0.3% year-on-year (vs.
- -11.8% year-on-year in July) is mainly due to an extra three days of holidays in
September of 1997 combined with increased semiconductor output (+72%
year-on-year). There does not seem to be any further deterioration in output,
and the year-on-year results seem to be stabilizing. However, we previously
thought that the inventory de-stocking (decreasing of inventories) cycle was
coming to an end, with 6.3% year-on-year de-stocking in August, but it actually
accelerated to -10.2% year-on-year in September. Nonetheless, the most recent
data suggests to us that the rate of contraction seems to be slowing.
1
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The Korean Investment Fund
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The seasonally adjusted unemployment rate rose from 8.1% in August to 8.4% in
September, despite increased social overhead capital projects and "pump-priming"
measures by the government intended to stimulate demand. The number of people
looking for work has also dropped, but unemployment will still increase further
with private consumption down by more than 0.1%.
Officially, in the second quarter of 1998, capital spending fell 52.4%
year-on-year (versus a decline of 40.7% in the first quarter), construction
investment declined 13.2% (vs. a decline of 7.7%), and household spending fell
12.9% (vs. a decline of 10.5%). Domestic consumption fell 28% year-on-year in
the first half of 1998 and appears set to fall further as unemployment
increases. Overall GDP contracted by 5.3% in the first half of 1998, and with
wholesale/retail sales having fallen 11.9% in September (vs. a decline of 16.7%
in July), indications are for a depressed outlook although things appear to be
getting no worse than they currently are.
CURRENCY & INTEREST RATES
As trade/current account surpluses continue to support it, currency continues to
be quite stable, particularly when the Japanese yen continues to stay strong.
Short-term volatility still remains as corporates try to take advantage of lower
rates ahead of a planned government bond issuance before the 1998 year end.
The benchmark three-year corporate bond yields continue to remain at around 10%
due to the threats by the Bank of Korea ("BoK") regarding another overnight call
rate cut, and we believe that the three-year corporate bond yield looks likely
to remain below 10% until year end. In our view, a short-term spike upwards
looks unlikely to occur despite corporate planning to issue over W5 trillion in
bonds over the next two weeks to repay foreign debt ahead of a perceived
crowding out by the Korean government. The government has issued about W3-4
trillion of the W15 trillion in bond issuance planned for the fourth quarter of
1998 as part of Korea's banking recapitalization plans. Furthermore, despite
October M2 growth of 27.3% year-on-year, bank lending continues to decline with
the real cost of borrowing for most corporates continuing to remain high except
for the top five Chaebols. Non-Chaebol companies are continuing to pay 500 to
600 basis points over the benchmark rate paid by the top five Chaebols, and
small- to medium-sized companies are still unable to obtain new loans. However,
non-Chaebol companies are finding it easier to roll over existing loans because
the bankruptcy risk for them has started to shrink due to increasing liquidity
and the government's policy to support small- to medium-sized companies.
Monetary growth has been the result of capital inflows combined with the
printing of money by the BoK. As a result, we continue to think that the Korean
won will remain well supported at current levels.
EQUITY REVIEW
Due to their relative lack of confidence in a Korean economic recovery, most
foreign equity investors have remained sidelined during the third quarter. There
has been very little progress in the financial sector since the initial bank
consolidations. The Korean government has earmarked W64 trillion for banking
sector recapitalization and reforms, which is well below even their own
conservative estimate of W158 trillion of non-performing loans.
During the third quarter of 1998, corporations continued to issue both debt and
rights in order to repay foreign exchange debt and to meet working capital
needs. However, interest rates continued to fall as the government was able to
negotiate with the IMF to loosen monetary policy. Also, the collapse of capital
expenditures by corporates, as well as increased default risk meant that money
was not flowing into the real economy but instead it circulated among financial
institutions. This prompted many financial institutions to seek higher credits
and many resorted to buying blue-chip corporate and government bonds thus
bringing down the benchmark rates.
PORTFOLIO STRATEGY
For the coming months, we will aim to reduce our cash position from 10% to
around 5%. We do not believe that the Korean economy has yet bottomed out from
its recession. However, we can see that the worst situation has passed as the
Korean won shows stable movement against U.S. dollar (around W1300-1400/USD),
and domestic interest rates have fallen below 10% per annum from over 25% per
annum at the beginning of this year. Assuming there continues to be sufficient
liquidity in the equity market, we believe that the market has less downside
risk for the time being.
2
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The Korean Investment Fund
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We will continue to focus on selective companies with clean balance sheets that
trade at prices below the values assigned by our discounted cash flow model. For
example, SK Telecom Co. has a proven track record of significant subscriber,
revenue, earnings before interest, taxes, depreciation, and amortization
("EBITDA"), and net profit growth in spite of Korea's economic malaise. For
1998, the company's EBITDA is expected to be W1.4 trillion (about US $1.7
billion) with a 46% compound annual growth rate since 1995. During the reporting
period, we have added to holdings in Keum Kang Development, Ltd., Korea
Chemical, Daeduck Electronics, Ltd., and Dongbu Insurance Co., Ltd. We reduced
our exposure to Kookmin Bank, Daegu Bank Ltd., Hyundai Motor Service Co., and
Mirae Corp.
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,
/s/ John D. Carifa
John D. Carifa
Chairman and Chief Executive Officer
/s/ Edward D. Baker
Edward D. Baker
Vice President
/s/ In Kee Oh
In Kee Oh
Vice President
3
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TEN LARGEST HOLDINGS
October 31, 1998 (unaudited) The Korean Investment Fund
================================================================================
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COMPANY U.S. $ VALUE PERCENT OF NET ASSETS
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SK Telecom (common stocks & warrants) $ 3,592,874 14.0%
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Pohang Iron & Steel Co. 2,385,934 9.3
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Samsung Electronics 1,764,218 6.9
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Samsung Display Devices 1,468,081 5.7
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LG Information & Communications 1,166,097 4.6
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Iljin Co. Ltd. 1,146,014 4.5
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Samsung Fire & Marine Insurance Co. 1,046,646 4.1
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Nong Shim Co., Ltd. 1,010,940 3.9
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Namhae Chemical 909,435 3.5
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Samsung Securities 871,239 3.4
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$ 15,361,478 59.9%
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4
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PORTFOLIO OF INVESTMENTS
October 31, 1998 (unaudited) The Korean Investment Fund
================================================================================
Company Shares U.S. $ Value
- -------------------------------------------------------------
COMMON STOCKS &
OTHER INVESTMENTS-88.9%
TECHNOLOGY-18.7%
COMMUNICATION
EQUIPMENT-11.1%
Iljin Co., Ltd. .............. 210,023 $ 1,146,014
Korea Electric Terminal
Co. ....................... 5,000 138,689
LG Information &
Communications............. 50,781 1,166,097
Samsung Electro-
Mechanics Co. ............. 31,916 399,101
-----------
2,849,901
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SEMI-CONDUCTOR-7.6%
Mirae Corp. .................. 100,792 171,488
Samsung Electronics........... 43,109 1,764,218
-----------
1,935,706
-----------
4,785,607
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BASIC INDUSTRIES-17.5%
CHEMICALS-5.3%
Korea Chemical................ 20,000 447,139
Namhae Chemical (a)........... 60,000 909,435
-----------
1,356,574
-----------
CONTAINERS-1.9%
Tai Lim Packaging
Industrial Co. ............ 80,000 491,095
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MINING & METALS-9.3%
Pohang Iron & Steel Co. ...... 54,280 2,385,934
-----------
SHIPBUILDING-1.0%
Hanjin Heavy Industries....... 50,000 259,568
-----------
4,493,171
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FINANCIAL
SERVICES-15.4%
BANKING-3.3%
Korea Exchange Bank (a)....... 475,030 846,018
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BROKERAGE & MONEY
MANAGEMENT-6.5%
Dongwon Securities............ 140,000 775,597
Samsung Securities............ 120,000 871,239
-----------
1,646,836
-----------
INSURANCE-5.6%
Dongbu Insurance Co.,
Ltd. (a)................... 50,000 394,089
Samsung Fire & Marine
Insurance Co. ............. 4,185 1,046,646
-----------
1,440,735
-----------
3,933,589
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UTILITY-11.8%
ELECTRIC POWER-2.8%
Korea Electric Power
Corp. ..................... 40,000 712,391
-----------
GAS-0.7%
Pusan City Gas Co., Ltd. ..... 10,000 189,466
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TELEPHONE-8.3%
SK Telecom Co., Ltd........... 2,266 1,069,889
(ADR)...................... 101,306 1,044,718
-----------
2,114,607
-----------
3,016,464
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CAPITAL GOODS-9.3%
ELECTRICAL
EQUIPMENT-7.9%
Daeduck Electronics Co.,
Ltd. ...................... 5,000 250,095
Saehan Precision.............. 23,615 300,668
Samsung Display Devices....... 39,134 1,468,081
-----------
2,018,844
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MACHINERY-1.4%
Daewoo Heavy Industries....... 100,000 375,900
-----------
2,394,744
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CONSUMER
MANUFACTURING-5.7%
AUTO & RELATED-3.1%
Hyundai Motor Co., Ltd........ 47,844 580,147
SJM........................... 80,000 218,264
-----------
798,411
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BUILDING &
CONSTRUCTION-2.1%
Keum Kang Development,
Ltd. ...................... 47,339 538,147
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5
<PAGE>
PORTFOLIO OF INVESTMENTS (continued) The Korean Investment Fund
================================================================================
Company Shares U.S. $ Value
- -------------------------------------------------------------
BUILDING & RELATED-0.5%
Namyang Dairy Products
Co. ....................... 2,000 $ 128,837
-----------
1,465,395
-----------
CONSUMER
SERVICES-3.9%
FOOD & BEVERAGE-3.9%
Nong Shim Co., Ltd. .......... 21,690 1,010,940
-----------
HEALTHCARE-0.8%
DRUGS-0.8%
Dae Woong
Pharmaceutical............. 24,399 218,195
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WARRANTS-5.8%
COMMUNICATION
EQUIPMENT-5.8%
Merrill Lynch SK Telecom
Warrants, expiring
10/10/00 (a)............... 2,908 1,478,267
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Total Common Stocks and
Other Investments
(cost $40,223,328)......... 22,796,372
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Principal
Amount
Company (000) U.S. $ Value
- -------------------------------------------------------------
TIME DEPOSIT-1.2%
Dresdner
5.56%, 11/02/98
(cost $300,000)............ 300 300,000
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TOTAL INVESTMENTS-90.1%
(cost $40,523,328)......... 23,096,372
Other assets less
liabilities-9.9%........... 2,528,205
-----------
NET ASSETS-100%............... $25,624,577
===========
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(a) Non-income producing security.
Glossary:
ADR - American Depositary Receipt.
See notes to financial statements.
6
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998 (unaudited) The Korean Investment Fund
================================================================================
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $40,523,328) ........................... $ 23,096,372
Cash ............................................................................. 51,872
Foreign cash, at value (cost $184,559) ........................................... 185,400
Receivable for investment securities sold ........................................ 2,763,578
Other assets ..................................................................... 3,677
------------
Total assets ..................................................................... 26,100,899
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LIABILITIES
Payable for investment securities purchased ...................................... 300,000
Co-Manager fee payable ........................................................... 21,050
Management fee payable ........................................................... 15,623
Other accrued expenses ........................................................... 139,649
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Total liabilities ................................................................ 476,322
------------
NET ASSETS .......................................................................... $ 25,624,577
============
COMPOSITION OF NET ASSETS
Capital stock, at par ............................................................ $ 84,507
Additional paid-in capital ....................................................... 89,209,358
Accumulated net investment loss .................................................. (1,537,813)
Accumulated net realized loss on investments and foreign currency transactions ... (44,702,709)
Net unrealized depreciation of investments and foreign currency denominated assets
and liabilities ................................................................ (17,428,766)
------------
$ 25,624,577
============
NET ASSET VALUE PER SHARE (based on 8,450,704 shares outstanding) ................... $ 3.03
============
</TABLE>
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See notes to financial statements.
7
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended October 31, 1998 (unaudited) The Korean Investment Fund
================================================================================
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest .......................................................... $ 15,415
EXPENSES
Management fee .................................................... $ 93,982
Co-Manager fee .................................................... 44,226
Custodian ......................................................... 92,629
Directors' fees and expense ....................................... 43,759
Audit and legal ................................................... 43,498
Printing .......................................................... 21,760
Registration ...................................................... 10,431
Transfer agency ................................................... 4,908
Miscellaneous ..................................................... 15,137
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Total expenses .................................................... 370,330
-----------
Net investment loss ............................................... (354,915)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investment transactions ...................... (16,780,277)
Net realized gain on foreign currency transactions ................ 20,078
Net change in unrealized appreciation (depreciation) of:
Investments ..................................................... 13,309,209
Foreign currency denominated assets and liabilities ............. (8,520)
-----------
Net loss on investments and foreign currency denominated assets
and liabilities ................................................. (3,459,510)
-----------
NET DECREASE IN NET ASSETS FROM OPERATIONS ........................... $(3,814,425)
===========
</TABLE>
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See notes to financial statements.
8
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS The Korean Investment Fund
================================================================================
<TABLE>
<CAPTION>
Six Months Ended Year Ended
October 31, 1998 April 30,
(unaudited) 1998
---------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment loss .................................................... $ (354,915) $ (752,086)
Net realized loss on investments and foreign currency transactions ..... (16,760,199) (23,598,191)
Net change in unrealized depreciation of investments and foreign
currency denominated assets and liabilities .......................... 13,300,689 (9,797,009)
------------ ------------
Net decrease in net assets from operations ............................. (3,814,425) (34,147,286)
NET ASSETS
Beginning of year ...................................................... 29,439,002 63,586,288
------------ ------------
End of period .......................................................... $ 25,624,577 $ 29,439,002
============ ============
</TABLE>
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See notes to financial statements.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1998 (unaudited) 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 October 31, 1998 and October 31, 1997
were Won 1,319.50 to U.S. $1.00 and Won 965.00 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
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The Korean Investment Fund
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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.
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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
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 $394 during the six months ended October 31, 1998.
Brokerage commissions paid on investment transactions for the six months ended
October 31, 1998 amounted to $61,342, 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 $6,878,934 and $7,009,231, respectively, for
the six months ended October 31, 1998. There were no purchases or sales of U.S.
government and government agency obligations for the six months ended October
31, 1998.
At October 31, 1998, the cost of investments for federal income tax purposes was
the same as the cost for financial reporting purposes, resulting in net
unrealized depreciation of investments of $17,426,956 (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 October 31, 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 October 31, 1998, Alliance owned 9,000 shares.
During the six months ended October 31, 1998 the Fund issued no shares of common
stock in connection with the Fund's dividend reinvestment plan.
- --------------------------------------------------------------------------------
NOTE E: Year 2000 and Euro
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. This is commonly known as the Year
2000 problem. In addition to the Year 2000 problem, the European Economic and
Monetary Union has established a single currency, the Euro Currency ("Euro")
that will replace the national currency of certain European countries effective
January 1, 1999. Computer systems and applications must be adapted in order to
be able to process Euro sensitive information accurately beginning in 1999.
Should any of the computer systems
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(continued) The Korean Investment Fund
================================================================================
employed by the Fund's major service providers fail to process Year 2000 or Euro
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
shareholders. In addition, to the extent that the operations of issuers of
securities held by the Fund are impaired by the Year 2000 problem or the Euro,
or prices of securities held by the Fund decline as a result of real or
perceived problems relating to the Year 2000 or the Euro, the value of the
Fund's shares may be materially affected.
With respect to the Year 2000, the Fund has been advised that the Adviser
("Alliance") began to address the Year 2000 issue several years ago in
connection with the replacement or upgrading of certain computer systems and
applications. During 1997, Alliance began a formal Year 2000 initiative, which
established a structured and coordinated process to deal with the Year 2000
issue. Alliance reports that it has completed its assessment of the Year 2000
issues on its domestic and international computer systems and applications.
Currently, management of Alliance expects that the required modifications for
the majority of its significant systems and applications that will be in use on
January 1, 2000, will be completed and tested by the end of 1998. Full
integration testing of these systems and testing of interfaces with third-party
suppliers will continue through 1999. At this time, management of Alliance
believes that the costs associated with resolving this issue will not have a
material adverse effect on its operations or on its ability to provide the level
of services it currently provides to the Fund.
With respect to the Euro, the Fund has been advised that Alliance has
established a project team to assess changes that will be required in connection
with the introduction of the Euro. Alliance reports that its project team has
assessed all systems, including those developed or managed internally, as well
as those provided by vendors, in order to determine the modifications that will
be required to process accurately transactions denominated in Euro after 1998.
At this time, management of Alliance expects that the required modifications for
the introduction of the Euro will be completed and tested before the end of
1998. Management of Alliance believes that the costs associated with resolving
this issue will not have a material adverse effect on its operations or on its
ability to provide the level of services it currently provides to the Fund.
The Fund and Alliance have been advised by the Fund's Transfer Agent and
Custodian that they are also in the process of reviewing their systems with the
same goals. As of the date of this report, the Fund and Alliance have no reason
to believe that the Transfer Agent and Custodian will be unable to achieve these
goals.
12
<PAGE>
FINANCIAL HIGHLIGHTS The Korean Investment Fund
================================================================================
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Six Months
Ended
October 31, Year Ended April 30,
1998 ====================================================================
(unaudited) 1998 1997 1996 1995 1994
=========== ========== ========== ========== ========== ==========
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year ....... $ 3.48 $ 7.52 $ 12.36 $ 12.66 $ 13.09 $ 10.37
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net investment loss ...................... (.04)(a) (.09)(a) (.07)(a) (.01)(a) (.13 )(a) (.09)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .......................... (.41) (3.95) (4.77) .86 .28 2.81
-------- -------- -------- -------- -------- --------
Net increase (decrease) in net asset
value ................................. (.45) (4.04) (4.84) .85 .15 2.72
-------- -------- -------- -------- -------- --------
Less: Distributions
Distributions from net realized gains on
investments and foreign currency
transactions .......................... -0- -0- -0- (.29) -0- -0-
-------- -------- -------- -------- -------- --------
Capital Share Transactions
Dilutive effect of rights offering ....... -0- -0- -0- (.80) (.48) -0-
Offering costs charged to additional
paid-in capital ....................... -0- -0- -0- (.06) (.10) -0-
-------- -------- -------- -------- -------- --------
Total capital share transactions ......... -0- -0- -0- (.86) (.58) -0-
-------- -------- -------- -------- -------- --------
Net asset value, end of period ........... $ 3.03 $ 3.48 $ 7.52 $ 12.36 $ 12.66 $ 13.09
======== ======== ======== ======== ======== ========
Market value, end of period .............. $ 3.313 $ 3.875 $ 7.125 $ 11.50 $ 12.375 $ 13.375(b)
======== ======== ======== ======== ======== ========
Total Return
Total investment return based on: (c)
Market value .......................... (14.50)% (45.61)% (38.04)% (1.55)% (5.88)% 10.31%(b)
Net asset value ....................... (12.93)% (53.72)% (39.16)% 4.00% (3.28)% 26.23%
Net assets, end of period (000's
omitted) .............................. $ 25,625 $ 29,439 $ 63,586 $104,421 $ 75,461 $ 55,078
Ratios/Supplemental Data
Ratio of expenses to average net assets .. 3.33%(d) 2.29% 2.11% 2.09% 2.00% 2.26%
Ratio of net investment loss to average
net assets ............................ (3.18)%(d) (1.60)% (.73)% (.53)% (.83)% (.82)%
Portfolio turnover rate .................. 65% 47% 32% 40% 34% 14%
</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 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.
Total investment return for a period of less than one year is not
annualized.
(d) Annualized.
13
<PAGE>
The Korean Investment Fund
================================================================================
BOARD OF DIRECTORS
John D. Carifa, Chairman and Chief Executive Officer
Jung-Jin Lee, President
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
Robert 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.
14
<PAGE>
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<PAGE>
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 York Times 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
AllianceCapital [LOGO](R)
(R) These registered service marks used under license from the
owner, Alliance Capital Management L.P.
KORSR
