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CLOSED END
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The Korean
Investment Fund
Annual Report
April 30, 2000
AllianceCapital [LOGO](R)
The Investment Professional's Choice
<PAGE>
Investment Products Offered
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o Are Not FDIC Insured
o May Lose Value
o Are Not Bank Guaranteed
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LETTER TO SHAREHOLDERS
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LETTER TO SHAREHOLDERS
June 2, 2000
Dear Shareholder:
We are pleased to provide this shareholder update for The Korean Investment Fund
(the "Fund") for the annual reporting period ended April 30, 2000.
Investment Results
The following table provides the Fund's investment results, based on net asset
value (NAV) for the three-, six- and 12-month periods ended April 30, 2000. For
comparison, we have also included the performance for the Fund's benchmark
index, the Korea Composite Stock Price Index (the "KOSPI").
During the periods under review, the Fund outperformed its benchmark index. The
Fund comfortably outperformed for the last six- and 12-month periods due to its
continued focus on the leading technology and telecommunications companies in
Korea and its underweighting of the financial sector. However, recent aggressive
selling in the Korean stock market across the board has caused the Fund to drift
essentially in line with the overall market in the last 3 months.
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INVESTMENT RESULTS*
Periods Ended April 30, 2000
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Total Return
-------------------------
3 6 12
Months Months Months
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The Korean
Investment
Fund -19.90% 9.20% 32.46%
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Korea
Composite
Stock Price
Index -22.20% -5.93% 3.23%
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* The Fund's investment results represent total returns for the periods
shown and are based on the net asset value as of April 30, 2000. 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 stocks traded on the Korean Stock Exchange. The index is unmanaged and
reflects no fees or expenses. An investor cannot invest directly in an
index, and its results are not indicative of any specific investment,
including The Korean Investment Fund.
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Economic Review
After recording the strongest gross domestic product (GDP) growth since 1987 at
10.7% in 1999, the Korean economy continues its solid growth without signs of
overheating just yet. GDP growth in the first quarter of 2000 was 12.8%
year-on-year, the fourth
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THE KOREAN INVESTMENT FUND o 1
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LETTER TO SHAREHOLDERS
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consecutive double-digit quarterly increase in growth. Growth continued to be
supported by robust domestic demand, which was up 14% year-on-year. Facilities
investment was particularly strong in the first quarter of 2000, growing at a
rate of 63.6% year-on-year from 55% in the fourth quarter of 1999. Accelerating
strength in exports was another factor contributing to the strong growth, as
exports were up 25% year-on-year, compared to 21% in the previous quarter.
Private consumption remained resilient but eased moderately to a year-on-year
increase of 11.2%, down from 12.4% in the previous quarter.
The continued strong year-on-year growth comparisons exacerbated concerns of
possible overheating. However, GDP growth on a quarter-on-quarter basis appears
to have peaked in the second quarter of 1999 and is expected to slow further
from here. Seasonally adjusted GDP growth on a quarter-on-quarter basis in 1999
slowed from its peak of 4.1% in the second quarter, to 3.8% in the third
quarter, to 2.8% in the fourth quarter and finally to a mere 1.8% in the first
quarter of this year. Industrial production growth also slowed to 17.6%
year-on-year in March from 25.4% in February, helping to ease inflationary
pressures. In fact, consumer price index (CPI) inflation was stable in April at
1.0% year-on-year, and on a month-on-month basis it actually fell 0.3%.
While inflation remains benign, a tightening of policy is generally expected
given stronger-than-expected economic growth. However, the financial system
remains weak which is forcing the Bank of Korea to maintain sufficient liquidity
in the system to minimize the impact of the imminent restructuring of the
investment trust companies (ITC). This problem, combined with liquidity problems
at a couple of the major conglomerates should motivate the Bank of Korea to
maintain a relatively loose monetary policy in the short run. In the
medium-term, the Bank of Korea will need to raise call rates gradually in order
to narrow the current gap between short and long rates, while slowing GDP growth
implies declining inflationary pressure in the second half of 2000.
Further complicating the situation is the Korean government's goal of keeping
the won from appreciating too quickly. Assuming a yen/U.S. dollar exchange rate
range of 105-110, the government is targeting the won to hover around 1,100
against the dollar to keep Korean exports competitive. During the first four
months of 2000, exports continued their strong growth of 27% year-on-year, but
imports outsurged exports--up by 50.6%--resulting in a sharp contraction in the
trade surplus to U.S. $0.8 billion from U.S. $7.0 billion for the same period of
1999. Higher oil prices and domestic demand, particularly in facilities
investment in the information technology sector, were the major reasons for the
recovery in imports. However, given weakening oil prices, peaking domestic
demand, and solid global demand for Korean electronic products, the trade
surplus should recover and is expected
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2 o THE KOREAN INVESTMENT FUND
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LETTER TO SHAREHOLDERS
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to meet the government's target of U.S. $8 billion in 2000. The trade surplus
was recently adjusted downward from U.S. $12 billion, reflecting a
weaker-than-expected trade surplus in the early part of 2000.
Looking forward, solid economic growth is expected to continue in 2000.
Following a strong 12.8% growth in the first quarter, the consensus economic
growth forecast for 2000 will need to be adjusted upwards from 6%-7% to over 8%.
Barring surprisingly higher oil prices in the second half of the year, the
government's target CPI inflation rate of 3% should be met. The economic outlook
had not changed sufficiently during the period under review to change our
positive investment outlook toward the Korean stock market.
The Second Round of Financial Restructuring
President Kim Dae-jung has expressed his strong desire to continue the pace of
reforms and restructuring following the completion of the National Assembly
elections. However, after two years of major restructuring efforts, Kim and his
government appear to be suffering from reform fatigue. Furthermore, the
President appears to be currently preoccupied with external issues, such as the
June summit with the North Korean leader. Weakening policy coordination among
the economic ministers has further led investors to doubt the government's
commitment to reforms.
We believe that the commitment to restructuring continues unabated. The long
awaited restructuring of the ITCs is imminent, accelerated by the upcoming
implementation of the mark-to-market requirements for their bond portfolios in
July 2000. Public funds of W5 trillion will be injected into the two biggest
ITCs by the end of June. Eventually, indirect government support of the Hyundai
ITC is likely, while the government seems willing to pressure the recalcitrant
Hyundai group to speed up its restructuring. The government estimates additional
restructuring costs to be about W30 trillion against a somewhat higher street
estimate of around W40-W45 trillion, which is a large, yet manageable, figure.
We believe the recent turbulence in the financial markets will serve as an
impetus for renewed reform efforts. The outbreak of liquidity problems in some
of the Hyundai group companies has added urgency to the situation. This requires
both the government and the Hyundai group to speed up the reforms in order to
contain the problems to a few other weaker members of the Hyundai group
companies.
First Quarter Earnings
In line with improving corporate governance in Korea, quarterly earnings were
reported by the listed companies for the first time in Korea. First quarter
earnings were well above expectations and a rush of earnings upgrades is now
taking place. While a direct comparison on a year-on-year basis is difficult
because of a lack of "official" corresponding figures for the previous year,
recurring profits of the 25 major listed companies are estimated to be 240% over
the same period for the previous year. More than 40% of the
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THE KOREAN INVESTMENT FUND o 3
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----------------------
LETTER TO SHAREHOLDERS
----------------------
major listed companies have beaten consensus estimates and a further 35% have
reported in line.
Stock Market
After recording an impressive 75% upturn in 1999, the Korean stock market has
been under pressure so far this year. The recent extreme volatility in the U.S.
stock market has had a direct influence on the Korean market. The KOSDAQ bubble
seems to have burst, precipitated by the weakening NASDAQ market and the
recognition that the business models of many KOSDAQ listed companies are
fragile. The stock market has suffered further turbulence over the restructuring
of the ITCs and, particularly, the problems related to the Hyundai ITC and the
potential for future burdens on the Hyundai group of companies. The already
fragile sentiment was hit further on the news of emergency loans to Hyundai
Engineering and Construction Company being arranged by its major creditor bank.
On the other hand, political developments, including the outcome of the National
Assembly election and the news of the June summit meeting between South and
North Korean leaders, have had little impact on the stock market.
Portfolio Strategy
Concerns over U.S. interest rate hikes and worries over the appropriate
valuations for the "new economy" stocks will keep the U.S. stock market volatile
in the short term, which will directly influence the Korean stock market.
Uncertainty related to the second round of reforms and restructuring, including
the outcome of the Hyundai group restructuring, will probably add more near-term
volatility to the Korean market.
While developments in the second round of financial and corporate restructuring
need to be monitored closely, the renewed commitment to reforms and
restructuring provides a strong investment case for the Korean stock market in
the longer term. In addition, Korea is currently enjoying the strongest economic
growth in Asia with the most attractive valuations. Earnings momentum is
accelerating, as seen in first quarter earnings, supported by deleveraging and
improving profitability. Korean companies are expected to generate returns on
equity higher than corporate bond yields for the first time in more than five
years. Further earnings upgrades are highly likely for the major listed
companies, which will make current cheap valuations more attractive.
Our strategy is to continue focusing on globally competitive technology
companies and leading telecommunication companies. We are emphasizing technology
companies with exceptionally strong revenue, good earnings per share visibility
and robust near-term business momentum. The dominant telecom companies with
cheap valuation multiples and dynamic growth potential also remain core
holdings.
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4 o THE KOREAN INVESTMENT FUND
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LETTER TO SHAREHOLDERS
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[PHOTO] John D. Carifa
[PHOTO] Edward D. Baker, III
Sun Hee Oh
Portfolio Managers, Edward D. Baker, and Sun Hee Oh, have over 24 years of
investment experience.
Thank you for your continued interest in The Korean Investment Fund. We look
forward to reporting to you soon on the developing activity in Korea and the
Fund's investment results and strategy.
Sincerely,
/s/ John D. Carifa
John D. Carifa
Chairman and President
/s/ Edward D. Baker, III
Edward D. Baker, III
Vice President
/s/ Sun Hee Oh
Sun Hee Oh
Vice President
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THE KOREAN INVESTMENT FUND o 5
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PERFORMANCE UPDATE
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PERFORMANCE UPDATE
THE KOREAN INVESTMENT FUND
GROWTH OF A $10,000 INVESTMENT
2/29/92* TO 4/30/00
[MOUNTAIN GRAPH OMITTED]
This chart illustrates the total value of an assumed $10,000 investment in The
Korean Investment Fund at net asset value (from 2/29/92 to 4/30/00) as compared
to the performance of an appropriate index. The chart assumes the reinvestment
of dividends and capital gains. Past performance is not indicative of future
results, and is not representative of future gain or loss in capital value or
dividend income.
The unmanaged Korea Composite Stock Price Index is a capitalization-weighted
index of stocks traded on the Korean Stock Exchange.
When comparing The Korean Investment Fund to the index shown above, you should
note that no charges or expenses are reflected in the performance of the index.
An investor cannot invest directly in an index its results are not indicative of
any specific investment, including The Korean Investment Fund.
* Closest month-end after Fund's inception date of 2/24/92.
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6 o THE KOREAN INVESTMENT FUND
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PERFORMANCE UPDATE
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PERFORMANCE UPDATE
THE KOREAN INVESTMENT FUND (NAV)
HISTORY OF RETURNS
YEARLY PERIODS ENDED 4/30
[BAR GRAPH OMITTED]
The Korean Investment Fund (NAV)--Yearly Periods Ended 4/30
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Korean Investment Korea Composite
Fund (NAV) Stock Price Index
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4/30/92* -1.43% -0.89%
4/30/93 -5.62% 14.43%
4/30/94 26.23% 22.93%
4/30/95 -3.28% 5.56%
4/30/96 0.28% 7.14%
4/30/97 -39.16% -37.45%
4/30/98 -53.72% -60.02%
4/30/99 98.28% 100.92%
4/30/00 32.46% 3.23%
Past performance is no guarantee of future results. The Fund's investment
results represent total returns and are based on the net asset value. 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. The Korea Composite Stock Price Index is a capitalization-weighted index
of stocks traded on the Korean Stock Exchange. The index is unmanaged and
reflects no fees or expenses. An investor cannot invest directly in an index,
and its results are not indicative of any specific investment, including the
Korean Investment Fund.
* From inception (2/24/92 for Fund and 2/29/92 for Index)
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THE KOREAN INVESTMENT FUND o 7
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PORTFOLIO SUMMARY
-----------------
PORTFOLIO SUMMARY
April 30, 2000
INCEPTION DATE PORTFOLIO STATISTICS
2/24/92 Assets ($mil): $74.6
[The following table was represented by a pie chart in the printed material.]
SECTOR BREAKDOWN
13.84% Basic Industries
3.50% Capital Goods
3.54% Consumer Manufacturing
0.16% Consumer Products
2.84% Consumer Services
9.33% Financial Services
1.23% Healthcare
38.41% Technology
0.68% Transportation
25.12% Utility
1.35% Short-Term
All data as of April 30, 2000. The Fund's sector breakdown is expressed as a
percentage of total investments and may vary over time.
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8 o THE KOREAN INVESTMENT FUND
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TEN LARGEST HOLDINGS
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TEN LARGEST HOLDINGS
April 30, 2000
Percent of
Company U.S. $ Value Net Assets
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Samsung Electronics $ 10,815,409 14.5%
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SK Telecom Co., Ltd.
(common stocks & warrants) 9,415,738 12.6
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Samsung Electro-Mechanics Co. 5,992,649 8.0
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Korea Telecom Corp. 5,603,946 7.5
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Hyundai Electronics Industries Co. 2,696,103 3.6
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Pohang Iron & Steel Co., Ltd. 2,681,238 3.6
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LG Information & Communications, Ltd. 2,566,194 3.5
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SK Global 2,389,727 3.2
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Iljin Corp. 2,231,979 3.0
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Cheil Communications, Inc. 2,099,572 2.8
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$ 46,492,555 62.3%
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THE KOREAN INVESTMENT FUND o 9
<PAGE>
------------------------
PORTFOLIO OF INVESTMENTS
------------------------
PORTFOLIO OF INVESTMENTS
April 30, 2000
Company Shares U.S. $ Value
--------------------------------------------------------------------------------
Common Stocks & Other Investments-99.1%
Technology-38.0%
Communication Equipment-15.0%
Dae Ryung Industrial Co.(a)................. 40,000 $ 436,134
Iljin Corp. ................................ 650,115 2,231,979
LG Information & Communications, Ltd. ...... 33,308 2,566,194
Samsung Electro-Mechanics Co.(a)............ 88,084 5,992,649
---------------
11,226,956
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Computer Hardware-2.2%
Trigem Computer, Inc. ...................... 28,761 1,661,257
---------------
Semi-Conductor-20.8%
AUK Corp. .................................. 350,000 1,753,548
Hyundai Electronics Industries Co.(a)....... 170,000 2,696,103
Mirae Corp. ................................ 50,000 258,617
Samsung Electronics......................... 40,008 10,815,409
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15,523,677
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28,411,890
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Utility-24.9%
Electric Power-1.6%
Korea Electric Power Corp. ................. 40,000 1,171,435
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Telephone-23.3%
Dacom Corp.(a).............................. 11,000 1,595,855
Hansol M.com Co., Ltd.(a)................... 40,000 798,378
Korea Telecom Corp. ........................ 37,000 2,527,236
ADR...................................... 89,180 3,076,710
SK Telecom Co., Ltd. ....................... 4,250 1,129,759
ADR...................................... 68,214 2,187,111
Merrill Lynch Wts. 10/10/00(a)........... 2,273 6,098,868
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17,413,917
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18,585,352
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Basic Industries-13.7%
Chemicals-4.0%
L.G. Chemical, Ltd. ........................ 70,000 1,608,471
Namhae Chemical Corp. ...................... 73,600 1,406,010
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3,014,481
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Distribution & Wholesale-3.2%
SK Global................................... 204,000 2,389,727
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Fisheries-0.4%
Dong Won Fisheries Co., Ltd. ............... 52,500 276,752
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10 o THE KOREAN INVESTMENT FUND
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PORTFOLIO OF INVESTMENTS
------------------------
Company Shares U.S. $ Value
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Mining & Metals-4.3%
Baek Kwang Mineral Products Co. ............ 54,270 $ 496,364
Pohang Iron & Steel Co., Ltd. .............. 34,280 2,681,238
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3,177,602
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Refining-1.8%
SK Corp. ................................... 73,218 1,382,219
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10,240,781
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Financial Services-9.3%
Banking-5.6%
H & CB...................................... 73,000 1,249,831
Kookmin Bank................................ 110,044 1,189,933
Shinhan Bank................................ 180,000 1,727,416
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4,167,180
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Brokerage & Money Management-2.1%
Samsung Securities Co., Ltd. ............... 93,358 1,573,142
---------------
Insurance-1.6%
Samsung Fire & Marine Insurance Co. ........ 56,973 1,165,386
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6,905,708
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Capital Goods-3.5%
Electrical Equipment-2.3%
Il Jin Electric Co., Ltd. .................. 600,000 1,389,502
Shinsung Industrial Co., Ltd.(a)............ 50,000 297,364
---------------
1,686,866
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Machinery-1.2%
Hwacheon Machine Works Co. ................. 100,000 900,203
---------------
2,587,069
---------------
Consumer Manufacturing-3.5%
Auto & Related-3.5%
Hyundai Motor Co., Ltd. .................... 98,929 931,568
Kia Motors Corp.(a)......................... 300,000 1,362,469
Yoosung Enterprise Co. ..................... 26,500 322,370
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2,616,407
---------------
Consumer Services-2.8%
Advertising-2.8%
Cheil Communications, Inc. ................. 20,000 2,099,572
---------------
Healthcare-1.2%
Drugs-1.2%
Daewoong Pharmaceutical Corp. .............. 105,157 909,671
---------------
Transportation-0.7%
Miscellaneous Transportation-0.7%
Hanjin Transportation Co. .................. 40,000 501,014
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THE KOREAN INVESTMENT FUND o 11
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------------------------
PORTFOLIO OF INVESTMENTS
------------------------
Shares or
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
Consumer Products-0.2%
Retailing-0.2%
Shinsegae Department Store Co. pfd.......... 3,492 $ 117,842
---------------
Time Deposit-1.3%
First National Bank of Chicago
6.00%, 5/01/00
(cost $1,000,000)..................... $1,000 1,000,000
---------------
Total Investments-99.1%
(cost $64,443,832)....................... 73,975,306
Other assets less liabilities-0.9%.......... 646,259
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Net Assets-100%............................. $ 74,621,565
===============
(a) Non-income producing security.
Glossary:
ADR - American Depositary Receipt.
See notes to financial statements.
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12 o THE KOREAN INVESTMENT FUND
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---------------------------------
STATEMENT OF ASSETS & LIABILITIES
---------------------------------
STATEMENT OF ASSETS & LIABILITIES
April 30, 2000
Assets
Investments in securities, at value (cost $64,443,832) $ 73,975,306
Cash ................................................ 97,052
Foreign cash, at value (cost $829,635)............... 829,046
Dividends and interest receivable.................... 134,735
Prepaid expenses..................................... 21,571
---------------
Total assets......................................... 75,057,710
---------------
Liabilities
Payable for capital stock repurchased................ 67,568
Management fee payable............................... 64,082
Co-Manager fee payable............................... 28,178
Other accrued expenses............................... 276,317
---------------
Total liabilities.................................... 436,145
---------------
Net Assets........................................... $ 74,621,565
===============
Composition of Net Assets
Capital stock, at par................................ $ 81,684
Additional paid-in capital........................... 85,189,851
Accumulated net realized loss on investments and
foreign currency transactions..................... (20,180,570)
Net unrealized appreciation of investments and
foreign currency denominated assets and
liabilities ...................................... 9,530,600
---------------
$ 74,621,565
===============
Net Asset Value Per Share
(based on 8,168,404 shares outstanding)........... $ 9.14
===============
See notes to financial statements.
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THE KOREAN INVESTMENT FUND o 13
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-----------------------
STATEMENT OF OPERATIONS
-----------------------
STATEMENT OF OPERATIONS
Year Ended April 30, 2000
Investment Income
Dividends (net of foreign taxes
withheld of $203,554)................ $ 1,012,238
Interest................................ 27,776 $ 1,040,014
---------------
Expenses
Management fee.......................... 695,072
Co-Manager fee.......................... 327,092
Custodian............................... 312,774
Directors' fees and expenses............ 143,776
Audit and legal......................... 104,455
Printing................................ 64,498
Transfer agency......................... 15,088
Registration............................ 11,545
Miscellaneous........................... 8,085
---------------
Total expenses.......................... 1,682,385
---------------
Net investment loss..................... (642,371)
---------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign
Currency Transactions
Net realized gain on investment
transactions......................... 25,069,469
Net realized gain on foreign currency
transactions......................... 21,375
Net change in unrealized
appreciation/depreciation of:
Investments........................ (6,290,416)
Foreign currency denominated assets
and liabilities.................. 787
---------------
Net gain on investments and
foreign currency denominated
assets and liabilities............... 18,801,215
---------------
Net Increase in Net Assets
from Operations...................... $ 18,158,844
===============
See notes to financial statements.
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14 o THE KOREAN INVESTMENT FUND
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----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
----------------------------------
STATEMENT OF CHANGES
IN NET ASSETS
Year Ended Year Ended
April 30, April 30,
2000 1999
-------------- --------------
Increase (Decrease) in Net Assets
from Operations
Net investment loss..................... $ (642,371) $ (466,106)
Net realized gain (loss) on investments
and foreign currency transactions.... 25,090,844 (17,174,846)
Net change in unrealized appreciation/
depreciation of investments and
foreign currency denominated assets
and liabilities...................... (6,289,629) 46,549,684
-------------- --------------
Net increase in net assets from
operations .......................... 18,158,844 28,908,732
Capital Stock Transactions
Net decrease............................ (1,885,013) -0-
-------------- --------------
Total increase.......................... 16,273,831 28,908,732
Net Assets
Beginning of year....................... 58,347,734 29,439,002
-------------- --------------
End of year............................. $ 74,621,565 $ 58,347,734
============== ==============
See notes to financial statements.
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THE KOREAN INVESTMENT FUND o 15
<PAGE>
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTES TO FINANCIAL STATEMENTS
April 30, 2000
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 accounting principles generally accepted in the United States 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 results 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) or on the
Nasdaq Stock Market, Inc. 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,
(but excluding securities traded on the Nasdaq Stock Market, Inc.) 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
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16 o THE KOREAN INVESTMENT FUND
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-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
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, 2000 and April 30, 1999 were
Won 1,109.75 to U.S. $1.00 and Won 1,188.50 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 or as soon as the fund is
informed of the dividend. 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 accordance with
accounting principles generally accepted in the United States. 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
--------------------------------------------------------------------------------
THE KOREAN INVESTMENT FUND o 17
<PAGE>
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
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 $420 during the year ended April 30, 2000.
Brokerage commissions paid on investment transactions for the year ended April
30, 2000 amounted to $418,203, of which $13,049 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 $53,009,760 and $56,426,332, respectively, for
the year ended April 30, 2000. There were no purchases or sales of U.S.
government and government agency obligations for the year ended April 30, 2000.
At April 30, 2000, the cost of investments for federal income tax purposes was
$65,544,218. Accordingly, gross unrealized appreciation of investments was
$23,209,648 and gross unrealized depreciation of investments was $14,778,560
resulting in net unrealized appreciation of $8,431,088 (excluding foreign
currency transactions).
At April 30, 2000, the Fund had a net capital loss carryover of $19,080,184,
which expires April 30, 2007. To the extent that any net capital loss carryover
is used to offset future capital gains, it is probable that these gains will not
be distributed to shareholders. The Fund utilized $24,709,254 of capital loss
carryover in the current year.
NOTE D
Capital Stock
There are 100,000,000 shares of $.01 par value common stock authorized. At April
30, 2000, 8,168,404 shares were outstanding. On April 24, 2000 the Fund
initiated a share repurchase program. For the year ended April 30, 2000, 282,300
shares were repurchased at a cost of $1,885,013 representing 3.34% of the
8,450,704 shares outstanding at April 24, 2000. This cost includes $16,938 in
commissions paid to Paine Webber Group, Inc. The average discount of market
price to net asset value of shares repurchased over the period April 25, 2000 to
April 28, 2000 was 29%.
--------------------------------------------------------------------------------
18 o THE KOREAN INVESTMENT FUND
<PAGE>
--------------------
FINANCIAL HIGHLIGHTS
--------------------
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Year
<TABLE>
<CAPTION>
Year Ended April 30,
2000 1999 1998 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ....... $ 6.90 $ 3.48 $ 7.52 $ 12.36 $ 12.66
---------------------------------------------------------------
Income From Investment Operations
Net investment loss(a) ................... (.07) (.06) (.09) (.07) (.01)
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ........................... 2.22 3.48 (3.95) (4.77) .86
---------------------------------------------------------------
Net increase (decrease) in net asset
value .................................. 2.15 3.42 (4.04) (4.84) .85
---------------------------------------------------------------
Less: Distributions
Distributions from net realized gains on
investments and foreign currency
transactions ........................... -0- -0- -0- -0- (.29)
---------------------------------------------------------------
Capital Share Transactions
Dilutive effect of rights offering ....... -0- -0- -0- -0- (.80)
Anti-dilutive effect of share repurchase
program ................................ .09 -0- -0- -0- -0-
Offering costs charged to additional
paid-in capital ........................ -0- -0- -0- -0- (.06)
---------------------------------------------------------------
Total capital share transactions ......... .09 -0- -0- -0- (.86)
---------------------------------------------------------------
Net asset value, end of year ............. $ 9.14 $ 6.90 $ 3.48 $ 7.52 $ 12.36
===============================================================
Market value, end of year ................ $ 6.438 $ 6.063 $ 3.875 $ 7.125 $ 11.50
===============================================================
Total Return
Total investment return based on:(b)
Market value ........................... 6.18% 56.46% (45.61)% (38.04)% (1.55)%
Net asset value ........................ 32.46% 98.28% (53.72)% (39.16)% .28%
Net assets, end of year (000's omitted) .. $ 74,622 $ 58,348 $ 29,439 $ 63,586 $ 104,421
Ratios/Supplemental Data
Ratio of expenses to average net assets .. 2.06% 2.93% 2.29% 2.11% 2.09%
Ratio of net investment loss to average
net assets ............................. (.71)% (1.49)% (1.60)% (.73)% (.53)%
Portfolio turnover rate .................. 68% 102% 47% 32% 40%
</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.
--------------------------------------------------------------------------------
THE KOREAN INVESTMENT FUND o 19
<PAGE>
---------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
REPORT OF INDEPENDENT
ACCOUNTANTS
To the Shareholders and
Board of Directors of
The Korean Investment Fund, Inc.
In our opinion, the accompanying statement of assets & 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, 2000, 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 accounting principles generally accepted in the
United States. 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 auditing standards generally accepted in
the United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe our audits,
which included confirmation of securities at April 30, 2000 by correspondence
with the custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
June 16, 2000
--------------------------------------------------------------------------------
20 o THE KOREAN INVESTMENT FUND
<PAGE>
----------------------
ADDITIONAL INFORMATION
----------------------
ADDITIONAL INFORMATION
(unaudited)
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,
--------------------------------------------------------------------------------
THE KOREAN INVESTMENT FUND o 21
<PAGE>
----------------------
ADDITIONAL INFORMATION
----------------------
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-to-day management of the Fund's portfolio, who
is Edward Baker, the Vice President of the Fund.
--------------------------------------------------------------------------------
22 o THE KOREAN INVESTMENT FUND
<PAGE>
----------------------------
GLOSSARY OF INVESTMENT TERMS
----------------------------
GLOSSARY OF INVESTMENT TERMS
benchmark
A standard by which a fund's performance can be measured. A benchmark is usually
an unmanaged index, such as the Standard & Poor's 500 Stock Index or the Lehman
Brothers Aggregate Bond Index.
bond
Bonds are issued by governments or corporations when they need to raise cash.
Bonds are sold, or issued, to investors and have a maturity date, which is the
date the issuer is obligated to repay the investor for the principal, or face
amount, of the Bond. Bonds also pay interest until maturity. Bonds are also
called fixed-income securities
common stock
A type of security that represents ownership in a public company.
Consumer Price Index (CPI)
An index that measures the cost of living. The CPI is published by the U.S.
Bureau of Labor Statistics.
index
A compilation of securities of similar types of companies that is used to
measure the investment performance of securities within that specific market. An
index is often used as a benchmark for a mutual fund. An investor cannot invest
directly in an index.
monetary policy
The regulation of the money supply and interest rates by a country's central
bank with the purpose of controlling inflation and stabilizing currency.
net asset value (NAV)
The value of a mutual fund's total assets, minus its liabilities, divided by the
number of shares outstanding.
portfolio
The collection of securities that make up a Fund's or an investor's investments.
yield
The rate of return on an asset, usually referring to dividend or interest
payments, expressed as a percentage of current market price.
--------------------------------------------------------------------------------
THE KOREAN INVESTMENT FUND o 23
<PAGE>
----------------
ALLIANCE CAPITAL
----------------
ALLIANCE CAPITAL
The Investment Professional's Choice
Alliance Capital is a leading global investment management firm with over $394
billion in assets under management. In recognition of our far-reaching
investment capabilities, Alliance Capital has been selected by employee benefit
plans for 28 of the FORTUNE 100 companies and public retirement funds in 33
states as well as by hundreds of foundations, endowments and foreign
institutions. By sharing this institutional money management experience with
millions of mutual fund investors as well, Alliance stands out as a "manager of
choice" for thousands of investment professionals around the world.
At Alliance Capital, we place a premium on investment research. We carefully
select securities based on our proprietary research, conducted by over 276
investment professionals in 22 investment offices worldwide. Our commitment to
this process means that our mutual fund shareholders have their portfolios
managed by the same experienced analysts and portfolio managers who manage the
pension funds of some of America's largest institutional investors.
All information on Alliance Capital is as of 3/31/00.
--------------------------------------------------------------------------------
24 o THE KOREAN INVESTMENT FUND
<PAGE>
------------------
BOARD OF DIRECTORS
------------------
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
Sun Hee 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 LLP
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.
--------------------------------------------------------------------------------
THE KOREAN INVESTMENT FUND o 25
<PAGE>
--------------------------------
ALLIANCE CAPITAL FAMILY OF FUNDS
--------------------------------
ALLIANCE CAPITAL FAMILY OF FUNDS
Domestic Equity Funds
Balanced Shares
Conservative Investors Fund
Disciplined Value Fund
Growth & Income Fund
Growth Fund
Growth Investors Fund
Health Care Fund
Premier Growth Fund
Quasar Fund
Real Estate Investment Fund
Technology Fund
The Alliance Fund
Utility Income Fund
Global & International Equity Funds
All-Asia Investment Fund
Global Small Cap Fund
Greater China '97 Fund
International Fund
International Premier Growth Fund
New Europe Fund
Worldwide Privatization Fund
Select Investor Series
Premier Portfolio
Technology Portfolio
Fixed Income Funds
Corporate Bond Portfolio
Global Dollar Government Fund
Global Strategic Income Trust
High Yield Fund
Limited Maturity Government Fund
Mortgage Securities Income Fund
Multi-Market Strategy Trust
North American Government Income Trust
Quality Bond Portfolio
U.S. Government Portfolio
Municipal Income Funds
National
Insured National
Arizona
California
Insured California
Florida
Massachusetts
Michigan
Minnesota
New Jersey
New York
Ohio
Pennsylvania
Virginia
Alliance also offers AFD Exchange Reserves, which serves as the money market
fund exchange vehicle for the Alliance mutual funds.
To obtain a prospectus for any Alliance Capital fund, call your investment
professional, or call Alliance at (800) 227-4618.
--------------------------------------------------------------------------------
26 o THE KOREAN INVESTMENT FUND
<PAGE>
------------------------------
SUMMARY OF GENERAL INFORMATION
------------------------------
SUMMARY OF GENERAL
INFORMATION
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 o 27
<PAGE>
NOTES
--------------------------------------------------------------------------------
28 o THE KOREAN INVESTMENT FUND
<PAGE>
The Korean Investment Fund
1345 Avenue of the Americas
New York, NY 10105
AllianceCapital [LOGO](R)
The Investment Professional's Choice
(R) These registered service marks used under license from the owner, Alliance
Capital Management L.P.
