THE KOREAN INVESTMENT FUND
SEMI-ANNUAL REPORT
OCTOBER 31, 1999
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
November 30, 1999
Dear Shareholder:
This report provides investment results and market activity for The Korean
Investment Fund for the reporting period ended October 31, 1999.
INVESTMENT RESULTS
The following table provides your Fund's investment results, based on net asset
value, for the three-, six-, and twelve-month periods ended October 31, 1999.
For comparison, we have also included the performance for your Fund's benchmark
index, the Korea Composite Stock Price Index (the "KOSPI").
During the three-, six- and twelve-month periods ended October 31, 1999, the
Fund outperformed its benchmark index. The Fund's continued focus on sectors
such as technology, which has benefited from a fast economic recovery and a
growing overseas demand, has worked favorably for its performance. The Fund's
underweighting in the financial sector, which has again been hit hard due to
the outbreak of the Daewoo Group's financial crisis, has also contributed to
the Fund's outperformance during the reporting period.
INVESTMENT RESULTS*
Periods Ended October 31, 1999
TOTAL RETURNS
3 MONTHS 6 MONTHS 12 MONTHS
-------- -------- ---------
THE KOREAN INVESTMENT FUND -10.86% 21.30% 176.24%
KOREA COMPOSITE STOCK PRICE INDEX -13.76% 9.73% 138.30%
* THE FUND'S INVESTMENT RESULTS ARE TOTAL RETURNS FOR THE PERIODS AND ARE
BASED ON THE NET ASSET VALUE AS OF OCTOBER 31, 1999. ALL FEES AND EXPENSES
RELATED TO THE OPERATION OF THE FUND HAVE BEEN DEDUCTED. RETURNS FOR THE FUND
INCLUDE THE REINVESTMENT OF ANY DISTRIBUTIONS PAID DURING THE PERIOD. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
THE KOREA COMPOSITE STOCK PRICE INDEX IS A CAPITALIZATION-WEIGHTED INDEX
OF ALL DOMESTIC COMPANIES TRADED ON THE KOREA STOCK EXCHANGE. THE INDEX IS
UNMANAGED AND REFLECTS NO FEES OR EXPENSES. AN INVESTOR CANNOT INVEST DIRECTLY
IN AN INDEX.
THIRD QUARTER 1999--CONTINUING STRONG ECONOMIC GROWTH
In the third quarter of 1999, gross domestic product (GDP) grew 12.3%
year-on-year following 9.8% year-on-year growth in the second quarter.
Financial difficulties at the Daewoo Group, the second largest conglomerate in
Korea, did not slow the pace of Korea's rapid economic recovery from its 1998
recession. With stronger-than-expected economic growth continuing throughout
the year, economic growth forecasts for 1999 have been revised upward, and are
currently hovering at 9% to 10%. Meanwhile, the third quarter of 1999 has
probably seen the peak in GDP growth mainly because of a higher comparison
basis with the previous periods going forward rather than an underlying
deterioration. The consensus GDP growth forecast for 2000 is currently around
6%.
Exports continued to be the leading force for strong economic growth in the
third quarter. Supported by high overseas demand for semiconductors and telecom
equipment, exports surged 22.2% year-on-year (compared with 15% in the second
quarter). Brisk exports, in turn, have boosted the manufacturing sector
resulting in a return of confidence for both households and the corporate
sector, raising domestic demand. Total consumption rose 8.4% year-on-year
(compared with 7.3% in the second quarter) mainly driven by a 10.3% expansion
in private consumption with strong sales in consumer durables. Investment
spending also expanded 36.1% year-on-year (compared with 30% in the second
quarter) thanks to recovering facilities investment, which was up by 48%
year-on-year. Improving labor market conditions should further boost consumer
confidence in coming months. Unemployment continued to fall to 4.6% in October
of 1999 from 4.8% and 5.7% in September and August, respectively.
The strong economic growth has sparked concerns on inflationary pressure and
interest rate hikes. Given that the consumer price index in October 1999 only
rose 0.8% month-on-month (1.2% year-on-year), inflation doesn't seem to be a
major concern yet. The Bank of Korea has reaffirmed that it will continue its
loose monetary policy for the time being in order to stabilize financial
markets, which have been affected badly by the
1
THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
problems at the Daewoo Group and investment trust companies. In addition, given
the parliamentary elections scheduled for April 2000, it is unlikely that the
central bank will shift the monetary policy in the short run, however, a
gradual tightening is expected in the second half of 2000.
Given that usable foreign reserves reached over two times the amount of
short-term foreign debt over the quarter, we believe another sharp depreciation
in the Korean won is unlikely in the near future. Rather, the won seems to be
poised to appreciate as the current account surplus for the first nine months
of 1999 totaled US$19.2 billion and the full-year target of US$23 billion
should be met without difficulty. Foreign direct investments are increasing
fast and country-rating upgrades by the international rating agencies should
lead to more foreign investment in the financial markets. A stronger won could
provide some breathing room for the economy through lower import inflationary
pressure, thus allowing the Bank of Korea to take a more flexible stance on the
monetary policy, which in turn would lower the cost to handle non-performing
loans accumulated during the financial crisis. While the currency appreciation
would undermine the international competitiveness of Korean exporters, it seems
premature to worry about it as net terms of trade are still far above
pre-crisis levels.
DAEWOO CRISIS
Facing a renewed financial crisis caused by the financial difficulties in the
Daewoo Group, the government has come up with several measures to provide
sufficient liquidity into the system. With the government's firm commitment to
address the problems, investor confidence has been substantially restored. In
order to keep bond yields from soaring, the government formed the Bond Market
Stabilization Fund, which amounted to W20 trillion (later increased to W30
trillion), and public funds will be injected into the two largest ailing
investment trust companies in order to recapitalize their capital base.
The burden of handling the problems caused by the failure of the country's
second biggest conglomerate should be quite sizeable, though not unmanageable.
According to the appraisal by the outside accountants for twelve companies of
the Daewoo Group, the discrepancy between their book value and their real
market value was reportedly about W39.7 trillion. Daewoo Corporation had the
biggest gap, of W17.1 trillion, followed by Daewoo Motor (W10.8 trillion),
Daewoo Electronics (W3.2 trillion), and Daewoo Heavy Industries (W2.1
trillion). These four major Daewoo Group companies account for W33.2 trillion
or 84% of the total discrepancy. Based on major banks' proposed workout plans,
the government conservatively estimates W31.5 trillion in losses from W57
trillion credit exposure. Banks are going to take the biggest hit, well above
W12.5 trillion, followed by Seoul Surety Insurance (W3.4 trillion), securities
companies (W2.2 trillion) and investment trust companies (W1.7 trillion).
Assuming a 40% to 50% recovery rate, it is estimated that the total
restructuring costs of the Daewoo Group will be W30 trillion to W40 trillion,
or around 7% of GDP. However, given the fact that the Bank of Korea has
sterilized W45 trillion since the start of 1998 (roughly 80% of 1998's current
account surplus) via the issuance of monetary stabilization bonds and
withdrawal of foreign currency deposits at local banks, the government should
have little problem in raising the necessary funds.
As such, the fallout of Daewoo's failure will not cause a total collapse of the
financial markets. Nevertheless, there are still several points to be closely
watched such as final workout terms on major Daewoo Group companies, the
agreement with Daewoo's foreign creditors and the actual selling off of Daewoo
assets. In addition, in order to insure the strength and health of the
corporate and financial sectors, Korea needs to have uninterrupted
restructuring in these sectors, including investment trust companies, which are
just in the initial stage of the process.
MARKET MOVEMENT
The Daewoo crisis has hurt the stock market by way of weakening the investment
trust companies' ability to sustain the year-long increase in equity investing.
Uneasiness in other Asian markets, which are more directly linked to U.S.
interest rate movements, added to the cautiousness on the part of foreign
investors. With the benchmark three-year corporate bond yield moving up from
around 8% to near 11%, funds have shifted from investment trust companies'
beneficiary certificates to bank deposits.
2
THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
Due to weak investor sentiment, two Korean banks had to shelve their attempts
to issue global depository receipts in order to boost their capital base.
Shares of financial institutions have been bombed, while those of some quality
banks and security companies managed to make a slight recovery later. Despite
continuing resilient economic activity, the stock market remained subdued,
resulting in the 13.76% decline in the KOSPI over the three months ended
October 31, 1999.
PORTFOLIO STRATEGY
With a growing clarity in the Daewoo restructuring, we believe the risks
related to Daewoo Group's failure have been mostly discounted in the market.
However, we believe that the expected improvement in corporate earnings
momentum resulting from the economic recovery and de-leveraging is not priced
in. According to the Financial Supervisory Board, the top four Korean
conglomerates will meet the government-imposed requirement of a 200%
debt-to-equity ratio by year-end. Despite still being slow, corporate
governance is improving. Benign liquidity conditions are expected to continue.
Therefore, we find valuations attractive and remain optimistic about the Korean
equity market. As of October 31, 1999, the Fund is nearly fully invested with
its cash position at less than 1% of total portfolio.
As for sectors, we will continue to overweight technology, telecommunication
and cyclicals. We believe that these sectors should benefit from increasing
demand not only domestically but also from the recovering of other Asian
countries. We will also continue to hold selective small- and medium-sized
companies with relatively clean balance sheets and strong cashflow that trade
at attractive valuations. During the reporting period, we added holdings in
Samsung Electro-Mechanics, Dacom, Cheil Communication, and Dongwon Fisheries.
We reduced our exposure to Shinsegae, Samsung Diplay Device, H&CB, Kookmin
Bank, Baek Kwang Mineral, Daesung Industry and Han Express.
Thank you for your continued interest in The Korean Investment Fund. We look
forward to reporting to you again on the developing activity in Korea and the
Fund's investment results.
Sincerely,
John D. Carifa
Chairman and Chief Executive Officer
Edward D. Baker
Vice President
3
TEN LARGEST HOLDINGS
OCTOBER 31, 1999 (UNAUDITED) THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
PERCENT OF
COMPANY U.S. $ VALUE NET ASSETS
- -------------------------------------------------------------------------------
Samsung Electronics $10,005,502 14.1%
SK Telecom Co., Ltd.
(common stocks & warrants) 8,605,575 12.2
Samsung Electro-Mechanics Co. 6,435,075 9.1
Pohang Iron & Steel Co., Ltd. 4,715,565 6.7
LG Information &
Communications, Ltd. 3,764,155 5.3
Iljin Corp. 3,522,924 5.0
Il Jin Electric Co., Ltd. 2,591,080 3.7
SK Global 2,372,247 3.3
Namhae Chemical Corp. 2,042,934 2.9
Samsung Fire & Marine
Insurance Co. 1,971,538 2.8
$46,026,595 65.1%
4
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1999 (UNAUDITED) THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER INVESTMENTS-99.7%
TECHNOLOGY-36.0%
COMMUNICATION EQUIPMENT-21.6%
Cheil Communications, Inc. 25,000 $ 1,502,709
Iljin Corp. 130,023 3,522,924
LG Information & Communications, Ltd. 51,308 3,764,155
Samsung Electro-Mechanics Co. 133,084 6,435,075
------------
15,224,863
MISCELLANEOUS TECHNOLOGY-0.3%
Dae-A Lead Wire Co. (a) 6,270 89,907
Namsung Corp. 17,940 111,125
------------
201,032
SEMI-CONDUCTOR-14.1%
Samsung Electronics 60,008 10,005,502
------------
25,431,397
BASIC INDUSTRIES-20.7%
CHEMICALS-5.0%
L.G. Chemical, Ltd. 50,000 1,513,130
Namhae Chemical Corp. 65,000 2,042,934
------------
3,556,064
DISTRIBUTION & WHOLESALE-3.3%
SK Global 261,056 2,372,247
FISHERIES-0.8%
Dong Won Fisheries Co., Ltd. 50,000 518,966
MINING & METALS-10.0%
Baek Kwang Mineral Products Co. 103,100 1,074,406
Daihan Eunpakgy Industrial Co.(a) 100,000 1,267,195
Pohang Iron & Steel Co., Ltd. 39,280 4,715,565
------------
7,057,166
REFINING-1.6%
SK Corp. 58,870 1,128,812
------------
14,633,255
UTILITY-17.8%
ELECTRIC POWER-1.6%
Korea Electric Power Corp. 40,000 1,170,488
GAS-0.4%
Daesung Industrial Co. 10,000 256,774
TELEPHONE-15.8%
Dacom Corp. (a) 10,000 1,225,511
Korea Telecom Corp. (ADR) (a) 38,180 1,345,845
SK Telecom Co., Ltd. 1,475 1,703,105
ADR 202,914 2,650,564
Merrill Lynch
Wts. 10/10/00 (a) 3,573 4,251,906
------------
11,176,931
------------
12,604,193
FINANCIAL SERVICES-11.3%
BANKING-5.8%
H & CB (a) 30,000 792,830
Kookmin Bank 110,044 1,715,567
Shinhan Bank 150,000 1,588,162
------------
4,096,559
BROKERAGE & MONEY MANAGEMENT-2.7%
Samsung Securities Co., Ltd. 52,203 1,827,867
Rts. 11/23/99 (a) 12,529 132,654
------------
1,960,521
INSURANCE-2.8%
Samsung Fire & Marine Insurance Co. 44,620 1,971,538
------------
8,028,618
5
PORTFOLIO OF INVESTMENTS (CONTINUED) THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) U.S. $ VALUE
- -------------------------------------------------------------------------
CAPITAL GOODS-6.9%
ELECTRICAL EQUIPMENT-5.1%
Daeduck Industrial Co., Ltd. 2,232 $ 22,422
Il Jin Electric Co., Ltd. 120,000 2,591,080
Samsung Display Devices Co. 19,134 1,004,954
------------
3,618,456
MACHINERY-1.8%
Hwacheon Machine Works Co. 140,000 1,272,197
------------
4,890,653
CONSUMER MANUFACTURING-4.3%
AUTO & RELATED-2.0%
Hyundai Motor Co., Ltd. (a) 78,234 1,376,188
BUILDING & CONSTRUCTION-2.3%
Keumkang, Ltd. 30,339 1,644,047
------------
3,020,235
CONSUMER PRODUCTS-1.6%
RETAILING-1.6%
Shinsegae Department Store Co. 20,000 1,098,791
Rts. 12/01/99 (a) 3,496 13,858
------------
1,112,649
HEALTHCARE-1.0%
DRUGS-1.0%
Daewoong Pharmaceutical Corp. 100,150 681,304
TIME DEPOSIT-0.1%
Republic of London
5.19%, 11/01/99
(cost $100,000) $100 100,000
TOTAL INVESTMENTS-99.7%
(cost $47,926,855) 70,502,304
Other assets less liabilities-0.3% 217,876
NET ASSETS-100% $ 70,720,180
(a) Non-income producing security.
Glossary:
ADR - American Depositary Receipt
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999 (UNAUDITED) THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $47,926,855) $70,502,304
Cash 143,017
Foreign cash, at value (cost $72,688) 72,688
Receivable for investment securities sold 451,197
Dividends receivable 34,820
Total assets 71,204,026
LIABILITIES
Payable for investment securities purchased 206,352
Management fee payable 55,349
Co-Manager fee payable 26,046
Other accrued expenses 196,099
Total liabilities 483,846
NET ASSETS $70,720,180
COMPOSITION OF NET ASSETS
Capital stock, at par $ 84,507
Additional paid-in capital 87,693,037
Accumulated net investment loss (632,544)
Accumulated net realized loss on investments and
foreign currency transactions (39,000,350)
Net unrealized appreciation of investments and
foreign currency denominated assets and liabilities 22,575,530
$70,720,180
NET ASSET VALUE PER SHARE (based on
8,450,704 shares outstanding) $8.37
See notes to financial statements.
7
STATEMENT OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 1999 (UNAUDITED) THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends (net of foreign taxes
withheld of $29,904) $137,058
Interest 3,551 $ 140,609
EXPENSES
Management fee 300,339
Co-Manager fee 143,528
Custodian 143,849
Directors' fees and expenses 105,672
Audit and legal 46,441
Printing 22,994
Transfer agency 6,939
Miscellaneous 3,391
Total expenses 773,153
Net investment loss (632,544)
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net realized gain on investment transactions 6,259,507
Net realized loss on foreign currency
transactions (9,818)
Net change in unrealized appreciation of:
Investments 6,753,559
Foreign currency denominated assets and
liabilities 1,742
Net gain on investments and foreign currency
denominated assets and liabilities 13,004,990
NET INCREASE IN NET ASSETS FROM OPERATIONS $12,372,446
See notes to financial statements.
8
STATEMENT OF CHANGES IN NET ASSETS THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
SIX MONTHS
ENDED YEAR ENDED
OCTOBER 31, 1999 APRIL 30,
(UNAUDITED) 1999
---------------- -------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment loss $ (632,544) $ (466,106)
Net realized gain (loss) on
investments and foreign currency
transactions 6,249,689 (17,174,846)
Net change in unrealized appreciation
(depreciation) of investments and
foreign currency denominated assets
and liabilities 6,755,301 46,549,684
Net increase in net assets from
operations 12,372,446 28,908,732
NET ASSETS
Beginning of year 58,347,734 29,439,002
End of period $70,720,180 $58,347,734
See notes to financial statements.
9
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999 (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 notrepresent 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 ofchanges 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, 1999 and October 31, 1998
were Won 1,199.50 to U.S. $1.00 and Won 1,319.50 to U.S. $1.00, respectively.
3. TAXES
It is the Fund's policy to meet the requirements of the U.S. Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to its
shareholders. Therefore, no provision for U.S. income or excise taxes is
required. Withholding taxes on foreign interest and dividends have been
provided for in accordance with the applicable tax requirements.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Investment transactions are accounted for on the date securities are
purchased or sold. Realized and unrealized gains and losses from investment and
foreign currency transactions are calculated on the identified cost basis.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in
10
THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
accordance with generally accepted accounting principles. To the extent these
differences are permanent, such amounts are reclassified within capital
accounts based on their federal tax basis treatment; temporary differences do
not require such reclassification.
NOTE B: MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an Investment Management and Administration Agreement, the
Fund pays Alliance Capital Management L.P. ("Alliance") a fee at an annualized
rate of .85 of 1% of the Fund's average weekly net assets. Such fee is
calculated weekly and paid monthly.
Under the terms of an Investment Management Agreement, the Fund pays Orion
Asset Management Co., Ltd. ("Orion") a fee at an annualized rate of .40 of 1%
of the Funds average weekly net assets. Such fee is calculated weekly and paid
monthly.
Under the terms of a Shareholder Inquiry Agency agreement with Alliance Fund
Services, Inc. ("AFS"), an affiliate of Alliance, the Fund reimburses AFS for
costs relating to servicing phone inquiries for the Fund. During the six months
ended October 31, 1999, there was no reimbursement paid to AFS.
Brokerage commissions paid on investment transactions for the six months ended
October 31, 1999 amounted to $188,628, of which $8,926 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 $22,971,101 and $23,184,858, respectively,
for the six months ended October 31, 1999. There were no purchases or sales of
U.S. government and government agency obligations for the six months ended
October 31, 1999.
At October 31, 1999, the cost of investments for federal income tax purposes
was the same as the cost for financial reporting purposes, resulting in net
unrealized appreciation of investments of $26,687,641 and gross unrealized
depreciation of investments of $4,112,192 resulting in net unrealized
appreciation of $22,575,449 (excluding foreign currency transactions).
The Fund incurred and elected to defer post-October capital losses of $363,960.
At October 31, 1999, the Fund had a net capital loss carryover of $43,789,438,
of which $439,256 expires April 30, 2004, $2,493,384 expires April 30, 2005,
$11,524,297 expires April 30, 2006 and $29,332,501 expires April 30, 2007. To
the extent that any net capital loss carryover or post-October loss is used to
offset future capital gains, it is probable that these gains will not be
distributed to shareholders.
NOTE D: CAPITAL STOCK
There are 100,000,000 shares of $.01 par value common stock authorized. Of the
8,450,704 shares outstanding at October 31, 1999, Alliance owned 9,000 shares.
During the six months ended October 31, 1999 the Fund issued no shares of
common stock in connection with the Fund's dividend reinvestment plan.
NOTE E: YEAR 2000
Many computer systems and applications that process transactions use 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 "19XX", which could result in processing
inaccuracies and computer system failures at or after the Year 2000. The Fund
and its major service providers, including Alliance, utilize a number of
computer systems and applications that have been either developed internally or
licensed from third-party suppliers. In addition, the Fund and its major
service providers, including Alliance, are dependent on third-party suppliers
for certain systems applications andfor the electronic receipt of information
critical to their businesses. Should any of the computer systems
11
NOTES TO FINANCIAL STATEMENTS
(CONTINUED) THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
employed by the Fund or its major service providers, including Alliance, fail
to process Year 2000 related information properly, that could have a
significant negative impact on the Fund's operations and the services that are
provided to the Fund's shareholders. To the extent that the operations of
issuers of securities held by the Fund are impaired by the Year 2000 problem,
the value of the Fund's shares may be materially affected. In addition, for the
Fund's investments in foreign markets, it is possible that foreign companies
and markets will not be as prepared for Year 2000 as domestic companies and
markets.
The Year 2000 issue is a high priority for the Fund and Alliance. During 1997,
Alliance began a formal Year 2000 initiative, which established a structured
and coordinated process to deal with the Year 2000 issue. As part of its
initiative, Alliance established a Year 2000 project office to manage the Year
2000 initiative focusing on both information technology and non-information
technology systems. The Year 2000 project office meets periodically with the
Audit Committee of the Board of Directors of Alliance Capital Management
Corporation, Alliance's general partner, and with Alliance's executive
management to review the status of the Year 2000 efforts. Alliance has also
retained the services of a number of consulting firms which have expertise in
advising and assisting with regard to Year 2000 issues. Alliance reports that
by June 30, 1998, Alliance had completed its inventory and assessment of its
domestic and international computer systems and applications, identified
mission critical systems (those systems where loss of their function would
result in immediate stoppage or significant impairment to core business units)
and nonmission critical systems and determined which of these systems is not
Year 2000 compliant. All third-party suppliers of mission critical computer
systems and applications and nonmission critical systems were contacted to
verify whether their systems and applications will be Year 2000 compliant and
their responses are being evaluated. All of those contacted have responded and
have informed Alliance that their systems and applications are or will be Year
2000 compliant. All mission and nonmission critical systems supplied by third
parties have been tested. Alliance expects all testing will be completed before
the end of 1999.
Alliance has remediated, replaced or retired all of its non-compliant mission
critical systems and nonmission critical systems and applications that can
affect the Fund. After each system has been remediated, it is tested with 19XX
dates to determine if it still performs its intended business function
correctly. Next, each system undergoes a simulation test using dates occurring
after December 31, 1999. Inclusive of the replacement and retirement of some of
its systems, Alliance has completed these testing phases for all mission
critical systems and nonmission critical systems. Integrated systems tests were
conducted to verify that the systems would continue to work together. Full
integration testing of all mission critical and nonmission critical systems is
complete. Testing of interfaces with third-party suppliers has been completed.
Alliance reports that it has completed an inventory of itsfacilities and
related technology applications and hassubstantially completed and tested these
systems. Alliance reports that it anticipates that these systems will be fully
operable in the Year 2000. Alliance has deferred certain other planned
information technology projects until after the Year 2000 initiative is
completed. Such delay is not expected to have a material adverse effect
onAlliance's financial condition or results of operations. Alliance, with the
assistance of a consulting firm, has developed Year 2000 specific contingency
plans with emphasis on mission critical functions. These plans seek to provide
alternative methods of processing in the event of a failure.
The current cost estimate to Alliance of the Year 2000 initiative is
approximately $45 million. These costs consist principally of modification and
testing and costs to develop formal Year 2000 specific contingency plans. These
costs, which will generally be expensed as incurred, will be funded from
Alliance's operations and the issuance of debt. Through September 30, 1999,
Alliance had incurred approximately $41.0 million of costs related to the Year
2000 initiative. At this time, management of Alliance believes that the costs
associated with resolving the Year 2000 issue will not have a material adverse
effect on Alliance's results of operations, liquidity or capital resources.
There are many risks associated with Year 2000 issues, including the risks that
the computer systems and applications used by the Fund and its major service
providers
12
THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
will not operate as intended and that the systems and applications of
third-party providers to the Fund and itsservice providers will not be Year
2000 compliant. Likewise, there can be no assurance the compliance schedules
outlined above will be met or that actual costs incurred will not exceed
current cost estimates. Should the significant computer systems and
applications used by the Fund or its major service providers, or the systems of
their important third-party suppliers, be unable to process date-sensitive
information accurately after 1999, the Fund and its service providers may be
unable to conduct their normal business operations and to provide shareholders
with required services. In addition, the Fund and its service providers may
incur unanticipated expenses, regulatory actions and legal liabilities. The
Fund and Alliance cannot determine which risks, if any, are most reasonably
likely to occur or the effects of any particular failure to be Year 2000
compliant. Certain statements provided by Alliance in this section entitled
"Year 2000," as such statements relate to Alliance, are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. To the fullest extent permitted by law, the foregoing Year 2000
discussion is a "Year 2000 Readiness Disclosure" within the meaning of The Year
2000 Information and Readiness Disclosure Act, 15 U.S.C. Sec. 1 (1998).
NOTE F: SUPPLEMENTAL PROXY INFORMATION
The Annual Meeting of Shareholders of the Korean Investment Fund was held on
August 17, 1999. The description of each proposal and number of shares are as
follows:
SHARES VOTED
SHARES WITHOUT
VOTED FOR AUTHORITY
- -------------------------------------------------------------------------------
1. To elect directors: Class One Directors
(term expires 2002)
David H. Dievler 5,484,507 87,839
William H. Foulk, Jr. 5,486,107 86,239
The Hon. James D. Hodgson 5,485,407 86,939
Class Two Director
(term expires 2000)
Hugh-Gil Yum 5,482,519 89,827
Class Three Director
(term expires 2001)
Kimyong Nam 5,483,969 88,377
SHARES SHARES SHARES VOTED
VOTED FOR VOTED AGAINST ABSTAIN
- -------------------------------------------------------------------------------
2. To ratify the
selection of
PricewaterhouseCoopers
LLP as the Fund's
independent auditors
of the Fund's fiscal
year ending
April 30, 2000 5,537,199 28,617 6,530
13
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,
1999 --------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $6.90 $3.48 $7.52 $12.36 $12.66 $13.09
INCOME FROM INVESTMENT OPERATIONS
Net investment loss(a) (.07) (.06) (.09) (.07) (.01) (.13)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 1.54 3.48 (3.95) (4.77) .86 .28
Net increase (decrease) in
net asset value 1.47 3.42 (4.04) (4.84) .85 .15
LESS: DISTRIBUTIONS
Distributions from net realized gains
on investments and foreign currency
transactions -0- -0- -0- -0- (.29) -0-
CAPITAL SHARE TRANSACTIONS
Dilutive effect of rights offering -0- -0- -0- -0- (.80) (.48)
Offering costs charged to additional
paid-in capital -0- -0- -0- -0- (.06) (.10)
Total capital share transactions -0- -0- -0- -0- (.86) (.58)
Net asset value, end of period $8.37 $6.90 $3.48 $7.52 $12.36 $12.66
Market value, end of period $6.563 $6.063 $3.875 $7.125 $11.50 $12.375
TOTAL RETURN
Total investment return based on: (b)
Market value 8.25% 56.46% (45.61)% (38.04)% (1.55)% (5.88)%
Net asset value 21.30% 98.28% (53.72)% (39.16)% 4.00% (3.28)%
Net assets, end of period
(000's omitted) $70,720 $58,348 $29,439 $63,586 $104,421 $75,461
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average
net assets 2.17%(c) 2.93% 2.29% 2.11% 2.09% 2.00%
Ratio of net investment loss to
average net assets (1.77)%(c) (1.49)% (1.60)% (.73)% (.53)% (.83)%
Portfolio turnover rate 66% 102% 47% 32% 40% 34%
</TABLE>
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day of
each period reported. Dividends and distributions, if any, are assumed for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Rights offerings, if any, are assumed for
purposes of this calculation, to be fully subscribed under the terms of the
rights offering. Generally, total investment return based on net asset value
will be higher than total investment return based on market value in periods
where there is an increase in the discount or a decrease in the premium of the
market value to the net asset value from the beginning to the end of such
periods. Conversely, total investment return based on the net asset value will
be lower than total investment return based on market value in the market
periods where there is a decrease in the discount or an increase in the premium
of the market value to the net asset value from the beginning to the end of
such periods. Total investment return for a period of less than one year is not
annualized.
(c) Annualized.
14
THE KOREAN INVESTMENT FUND
_______________________________________________________________________________
BOARD OF DIRECTORS
JOHN D. CARIFA, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
KIM YONG NAM, PRESIDENT
HUGH-GIL YUM, SENIOR VICE PRESIDENT
DAVID H. DIEVLER (1)
WILLIAM H. FOULK, JR. (1)
DR. JAMES M. HESTER (1)
THE HON. JAMES D. HODGSON (1)
OFFICERS
ROBERT G. HEISTERBERG, EXECUTIVE VICE PRESIDENT--INVESTMENTS
YUNG CHUL PARK, EXECUTIVE VICE PRESIDENT--INVESTMENTS
EDWARD D. BAKER, III, VICE PRESIDENT
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.
15
THE KOREAN INVESTMENT FUND
Summary of General Information
POLICIES AND OBJECTIVES
The investment objective of the Fund is to seek long-term capital appreciation
through investment primarily in equity securities of Korean companies.
SHAREHOLDER INFORMATION
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transaction section of newspapers under the designation
KoreanInvFd. The Fund's NYSE trading symbol is "KIF". Weekly comparative net
asset value (NAV) and market price information about the Fund is published each
Monday in THE WALL STREET JOURNAL, each Sunday in THE NEW YORKTIMES and each
Saturday in BARRON'S, and other newspapers in a table called "Closed-End Funds".
DIVIDEND REINVESTMENT PLAN
Under the Fund's Dividend Reinvestment Plan, all shareholders will
automatically have their dividends and other distributions from the Fund
invested in additional shares of the Fund unless a shareholder elects to
receive cash.
For questions concerning shareholder account information, or if you would like
a brochure describing the Dividend Reinvestment Plan, please call State Street
Bank and Trust Company at 1-800-219-4218.
THE KOREAN INVESTMENT FUND
1345 Avenue of the Americas
New York, New York10105
ALLIANCE CAPITAL
R THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM THE OWNER, ALLIANCE
CAPITAL MANAGEMENT L.P.
KORSR1099
