KOREA CAPITAL FUND
SEMI-ANNUAL REPORT TO SHAREHOLDERS
FEBRUARY 29, 1996
<PAGE>
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Fellow Shareholders:
We are pleased to present you with this semi-annual report of Korea Capital Fund
(the "Fund") for the period ended February 29, 1996.
Reflecting on the completion of the first half of our fourth year of operation,
1995 has been another difficult year for the Fund. The Korean capital market
experienced a decline, but has recently shown very positive signs of economic
growth. The Gross National Product ("GNP") increased by more than 9% in real
terms with lower than 5% of overall price appreciation.
The Korea Capital Fund was down -7.86% for the year ended February 29, 1996
(-12.01% including a front-end sales charge of 4.5%). Comparatively, the Korea
Composite Stock Price Index was down -0.32% for the year ended February 29,
1996.
1996 promises to be a positive year for the Korea capital market. The Korean
government expects higher than 7% GNP increment for this calendar year while
maintaining low inflation. Furthermore, the Korean government announced its
plans to raise the limit on foreign investment to 14% in April 1996, and is
contemplating a limit of 20% in the near future. Korea Capital Fund is well
poised to take advantage of this plan.
We are bullish on the future of the Korea capital market, especially after the
general election in April 1996. The Korea Capita Fund will contribute to the
growth as well as share in the success. We look forward to putting our
investment strategy and dedication to work for you.
Respectfully submitted,
/s/ Indong Oh
Indong Oh
Chaiman of the Board
Principal Executive Officer
1
<PAGE>
KOREA CAPITAL FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
FEBRUARY 29, 1996
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<TABLE>
<CAPTION>
Shares Value ($U.S.)
------ -------------
<S> <C> <C> <C>
COMMON STOCK 66.21%
Automobile and Parts 2.27%
-------------------------------------------------
Mando Machinery Corp. 4,560 215,603
---------
Banks 16.80%
-------------------------------------------------
Boram Bank 5,000 72,839
Commercial Bank of Korea 30,000 346,943
Daegu Bank 12,181 189,902
Kook Min Bank (formerly Citizens National Bank) 35,038 752,205
Korea LT Credit Bank 8,564 235,290
---------
Total Banks 1,597,179
---------
Brokerage 6.00%
-------------------------------------------------
Daewoo Securities Co. 10,400 256,495
Hanshin Securities Co. 10,600 201,827
Shin Young Securities Co. 5,000 112,453
---------
Total Brokerage 570,775
---------
Building and Construction 0.07%
-------------------------------------------------
Daelim Industrial 379 6,732
---------
Cement 1.58%
-------------------------------------------------
Asia Cement Manufacturing 3,919 150,740
---------
Chemicals & Drugs 0.04%
-------------------------------------------------
Hanwha Chemical 260 3,455
Oriental Chemical Industries Co. 12 304
---------
Total Chemicals & Drugs 3,759
---------
Electronics 13.61%
-------------------------------------------------
LG Electronics Inc. (formerly Goldstar Co.) 32,678 856,046
Samsung Electronics 2,657 437,995
---------
Total Electronics 1,294,041
---------
Engineering & Construction 8.19%
-------------------------------------------------
Daewoo Corp. 9,371 104,182
Hyundai Engineering & Construction Co. 14,080 674,717
---------
Total Engineering & Construction 778,899
---------
Fire & Casualty Insurance 2.85%
-------------------------------------------------
Daehan Fire & Marine Insurance Co. 6,499 270,740
---------
Metals 0.00%
-------------------------------------------------
Korea Tungsten Mining Co. 5 129
---------
Miscellaneous 1.58%
-------------------------------------------------
Byucksan Corporation 10,000 149,511
Kolon Industries 14 315
---------
Total Miscellaneous 149,826
---------
Steel 0.10%
-------------------------------------------------
Hanil Iron & Steel Co. 256 9,814
---------
Transportation 1.63%
-------------------------------------------------
Korean Air 5,000 154,623
---------
Utilities 11.49%
-------------------------------------------------
Korea Electric Power Corp. 30,000 1,092,582
---------
TOTAL COMMON STOCK 6,295,442
---------
PREFERRED STOCK 3.36%
Non-Convertibles
--------------------------------------
Hyundai Engineering & Construction Co. 8,870 215,360
Kolon Industries, Inc. 164 1,805
Shin Poong Pharm Co. 6,000 101,974
---------
TOTAL PREFERRED STOCK 319,139
---------
REPURCHASE AGREEMENT 27.49%
State Street Bank & Trust Co.
$2,614,000 at 4.00%
(Agreement dated February 29, 1996;
to be repurchased at $2,614,290 on
3/01/96; collateralized by U.S. Treasury
Notes due 4/30/98) (Value $2,722,738)
(Cost $2,614,000) 2,614,000
---------
TOTAL INVESTMENTS (Cost $9,391,139) 9,228,581
=========
OTHER ASSETS IN EXCESS OF LIABILITIES 2.94% 279,607
---------
NET ASSETS 100.00% $9,508,188
---------
See note to financial statements.
</TABLE>
2
<PAGE>
KOREA CAPITAL FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
AS OF FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
ASSETS
Investments in securities (Cost of $9,391,139) $ 9,228,581
Foreign currency (Cost of $285,153) 270,538
Cash 1,268
Receivables
Income Receivable 115,743
Deferred organizational costs 83,511
Receivable from manager and advisor 69,706
Other assets 1,532
-----------
Total Assets 9,770,879
LIABILITIES
Accrued expenses payable for:
Investment management fee 167,447
Advisory and administration fee 29,262
Distribution fees 4,972
Other accrued expenses 48,901
Other Payables 12,109
-----------
Total Liabilities 262,691
-----------
NET ASSETS $ 9,508,188
===========
COMPOSITION OF NET ASSETS
Paid in capital $12,229,077
Accumulated undistributed net investment loss (417,260)
Accumulated net realized loss (2,141,071)
Net unrealized depreciation on investments and
foreign currency (162,558)
-----------
Net Assets $ 9,508,188
===========
CAPITAL SHARES OUTSTANDING 1,097,181
-----------
NET ASSET VALUE PER SHARE $ 8.67
===========
MAXIMUM OFFERING PRICE PER SHARE $ 9.08
===========
See note to financial statements.
3
<PAGE>
KOREA CAPITAL FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE PERIOD ENDED FEBRUARY 29 , 1996
- --------------------------------------------------------------------------------
INCOME:
Dividend income $ 116,369
---------
TOTAL INCOME 116,369
EXPENSES:
Investment management fees 39,708
Advisory and administration fees 17,018
Sub-Administration fees 24,932
12b-1 fees 14,181
Custodian fees 20,609
Amortization of deferred organizational costs 26,113
Audit fees 4,883
Fund accounting fees 10,081
Shareholder reports fees 3,676
Transfer agent fees 1,828
Insurance fees 1,833
Legal fees 2,941
Trustees fees 1,795
Misc. expenses 3,748
---------
Gross expenses 173,346
Expense reimbursement (37,203)
---------
Total expenses 136,143
NET INVESTMENT LOSS ($ 19,774)
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gain (loss) on investments and foreign
currency transactions (780,527)
Net change in unrealized gain (loss) on depreciation on
investments and foreign currency transactions 232,704
---------
Net gain (loss) on investments (547,823)
---------
NET INCREASE IN NET ASSETS FROM OPERATIONS $(567,597)
=========
See note to financial statements.
4
<PAGE>
KOREA CAPITAL FUND
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year For the Period
Ended Ended
08/31/95 02/29/96
----------- --------------
<S> <C> <C>
Operations:
Net investment expense $ (53,597) $ (19,774)
Realized gain (loss) on securities and foreign currency (1,087,549) (780,527)
Net change in unrealized appreciation (depreciation) (489,745) 232,704
---------- ----------
Net increase (decrease) in net assets from operations (1,630,891) (567,597)
Distributions:
Capital gains (341,560) -
Return of Capital (474,207) -
---------- ----------
Total distributions (815,767) -
Capital Share Activity
Issued and Reinvested 355,055
Redeemed (33,437) (1,781,112)
---------- ----------
Net increase in net assets from capital share activity 321,618 (1,781,112)
---------- ----------
Total increase (decrease) in net assets (2,125,040) (2,348,709)
Net assets beginning of period 13,981,937 11,856,897
---------- ----------
Net assets end of period $11,856,897 $9,508,188
=========== ==========
See note to financial statements
</TABLE>
5
<PAGE>
KOREA CAPITAL FUND
FINANCIAL HIGHLIGHTS
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<TABLE>
<CAPTION>
For period For the year For the year For the period
ended ended ended ended
Description 08/31/93 * 08/31/94 08/31/95 02/29/96 **
----------- ---------- -------- -------- -----------
<S> <C> <C> <C> <C>
Beginning net asset value $10.00 $10.89 $11.18 $9.26
Net investment income (expense) (0.09)(1) (0.17)(1) (0.07)(1) (0.06)(1)
Net realized and unrealized gain (loss) on
securities and foreign currency 0.98(2) 1.00(2) (1.20)(2) (0.53)(2)
Distributions from capital gains -- (0.54)(3) (0.27)(3) --
Distributions from capital -- -- (0.38) --
Ending net asset value 10.89 11.18 9.26 8.67
====== ====== ====== =====
Total return 9.71% 7.64% -12.24% -6.37%
Net assets at end of period $10,046,655 $13,981,937 $11,856,897 $9,508,188
Ratio of expenses to average net assets 2.40%(4) 2.40%(4) 2.40%(4) 2.40%(4)
Ratio of net investment expense to average net assets 1.60%(4) 1.44%(4) -0.72%(4) -0.35%(4)
Portfolio turnover rate 139.00% 63.00% 60.59% 10.62%
</TABLE>
* Since October 1, 1992 (commencement of operation).
** For the six-months ended February 29, 1996.
1 Per share data is based on average number of shares outstanding at the end
of each period.
2 This amount may not agree with the change in aggregate gains and losses of
the securities in the portfolio for the period because of the timing of
sales and redemptions of the Fund's shares in relation to fluctuating
market values for each portfolio.
3 This data per share is calculated based on number of shares outstanding on
dividend ex-date.
4 Net of expense reimbursement. The ratios of total operating expenses to
average net assets before expense reimbursement for the periods ended
August 31, 1993, 1994 and 1995 were 5.59%, 3.01% and 2.63%, respectively.
The annualized ratio of total operating expenses to average net assets
before expense reimbursement for the period
See note to financial statements.
6
<PAGE>
KOREA CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS FEBRUARY 29, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Note 1. Significant Accounting Policies. Korea Capital Fund (the "Fund") is
a series of Korea Capital Trust (the "Trust"), an open-end registered
investment company under the Investment Company Act of 1940. The Fund
was incorporated in Massachusetts on August 24, 1992. The Fund seeks
long term capital appreciation by investing primarily in securities of
Korean issuers which are listed on the Korean Stock Exchange.
The following is a summary of significant accounting policies followed
by the Fund in the preparation of its financial statements.
1) Securities Valuation: Equity securities are valued at the last sale
price (for exchange-listed securities) or the last bid price (for
over-the-counter securities). Debt securities generally are valued at
the mean of representative quoted bid or asked prices.
In the event there are securities for which market quotations are not
readily available, they are valued at fair value as determined in good
faith by or under the direction of the Board of Trustees. There were no
such securities as of February 29, 1996. Assets or liabilities
initially quoted in Korean Won will be valued in U.S. dollars based on
the prevailing exchange rate on that day quoted by an independent
investment data service.
2) Securities Transactions: It is the Fund's policy to recognize security
transactions on the trade date. Dividend income is recognized on the
ex-dividend date and interest income is recorded on an accrual basis.
Distributions to shareholders are recorded on the ex-dividend date.
3) Foreign Currency Transactions: The books and records of the Fund are
maintained in United States dollars.
Investment securities and other assets and liabilities are translated
at the exchange rate on the valuation date, and purchases and sales of
investment securities, income and expenses are translated at the
exchange rate prevailing on the respective date
of such transactions.
4) Federal Income Taxes: It is the Fund's policy to continue to comply
with the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute substantially all of
its taxable income to its shareholders. Therefore, no federal income
tax provision is required.
7
<PAGE>
KOREA CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS -(Continued)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
Dividends and interest from non-U.S. sources received by the Fund are
generally subject to non-U.S. withholding taxes at a rate of 16.125%.
Such withholding taxes may be reduced or eliminated under the terms of
applicable United States income tax treaties, and the Fund intends to
undertake any procedural steps required to claim the benefits of such
treaties. If more than 50% in value of the Fund's total assets at the
close of any taxable year consists of stocks or securities of non-U.S.
corporations, the Fund is permitted and may elect to treat any non-U.S.
taxes paid by it as paid by its shareholders.
5) Deferred Organization Costs: These costs have been deferred and are
being amortized ratably on a straight line basis over a period of sixty
months from the date the Fund commenced investment operations. In the
even that any of the initial shares are redeemed by the holder during
the period of amortization of the Fund's organization costs, the
redemption proceeds will be reduced by any such unamortized
organization costs in the same proportion as the number of initial
shares being redeemed bears to those shares outstanding at the time of
redemption.
Note 2. Capital Stock Transactions. The Fund is authorized to issue an
unlimited number of shares of beneficial interest with a par value of
$0.01. Transactions of capital stock during the semi-annual period
ended February 29, 1996 were as follows:
Shares Amount
------ ------
Shares sold/reinvested 0 0
Shares redeemed (183,112) (1,780,988)
Note 3. Transactions with Affiliates
Advisory and Administration Agreement: The Trust, on behalf of the
Fund, has approved an Investment Advisory and Administration Agreement
with Daehan Securities, Inc. ("Daehan"). The Investment Advisory fee is
computed daily and paid monthly by the Fund at the annualized rate of
.30% of the Fund's average daily net assets. For the six-month period
ended February 29, 1996, the Fund incurred $17,018 in advisory and
administration fees.
Investment Management Agreement: The Trust, on behalf of the Fund, has
approved a Management Agreement with Korea Investment Management Europe
Ltd. (the "Manager"). Management fees are computed daily and paid
quarterly by the Fund at the annualized rate of .70% of the Fund's
average daily net assets. For
8
<PAGE>
KOREA CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
the six-month period ended February 29, 1996, the Fund incurred $39,708
in management fees.
The Provident Bank provides the Fund with transfer agency and fund
accounting services. State Street Bank and Trust Company and Bank of
Seoul serve as custodian and sub-custodian, respectively. For the
six-month period ended February 29, 1996, the Fund incurred $1,828,
$10,081, and $20,609 in transfer agency, fund accounting, and custodian
services, respectively.
Distribution Agreements: The Trust has approved an agreement with
Daehan whereby Daehan shall be the principal underwriter for the sale
of shares of the Fund.
Expense Limitations: Daehan and the Manager have undertaken to limit
the Fund's expenses to the annual level of 2.4% of the Fund's average
net assets, exclusive of brokerage commissions, interest, taxes and
extraordinary expenses.
As of February 29, 1996, the Fund had the following payables with
Daehan and the Manager:
<TABLE>
<CAPTION>
Daehan Manager
------ -------
<S> <C> <C>
Receivable for expense reimbursement $48,784 $20,922
Payable for advisory and administration/management fees $29,262 $167,447
</TABLE>
As of February 29, 1996, the Fund shares owned by the Fund's advisor,
administrator and trustees and the Fund's sub-custodian, Bank of Seoul,
totaled approximately 54,622 and 630,334 shares, respectively, of
1,097,081 outstanding.
In addition, the Fund has an investment in Korea Long-Term Credit Bank,
which owns approximately 7.93% of the outstanding shares of the Fund at
February 29, 1996.
Note 4. Investment Transactions. Purchases and sales of securities, other than
short-term investments, for the period ended February 29, 1996 were
$1,012,946 and $3,801,515, respectively.
The gross unrealized appreciation and depreciation of portfolio
securities at February 29, 1996 was:
Unrealized appreciation $ 876,174
Unrealized depreciation (1,038,732)
-------------
Net unrealized depreciation $ (162,558)
=============
9
<PAGE>
KOREA CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
Note 5. Off Balance Sheet Risks. The Fund invests primarily in securities
listed on the Korea Stock Exchange. Such investments may entail risk
due to the potential of political and economic instability in Korea or
its region. In addition, foreign exchange fluctuation could affect the
value of positions held. It is the Fund's policy to continuously
monitor its exposure to these risks.
10
<PAGE>
KOREA CAPITAL FUND
3360 W. Olympic Blvd., Los Angeles, CA 90019
(213) 734-5000
o Investment Adviser and Administrator
DAEHAN SECURITIES, INC.
3360 West Olympic Blvd.
Los Angeles, CA 90019
o Investment Manager
KOREA INVESTMENT MANAGEMENT EUROPE, LTD.
3rd Floor, Fengate House 14 Philpot Lane London, EC3M 8AJ , U.K.
o Principal Underwriter and Distributor
DAEHAN SECURITIES, INC.
3360 West Olympic Blvd.
Los Angeles, CA 90019
o Sub-Administrator
INVESTMENT COMPANY ADMINISTRATION CORPORATION
2025 E. Financial Way, Ste 101
Glendora, CA 91741
o Custodian
STATE STREET BANK & TRUST COMPANY
225 Franklin Street
Boston, Massachusetts 02110
o Sub-Custodian
BANK OF SEOUL
101-1 Namdaemun-no, No. 2 Ga
Chung-Gu, Seoul, Korea
o Auditors
ERNST & YOUNG, L.L.P.
515 S. Flower Street
Los Angeles, CA 90071
o Fund Accountant, Transfer Agent
THE PROVIDENT BANK
One East Fourth Street
Cincinnati, Ohio 45269
o Legal Counsel
PAUL, HASTINGS, JANOFSKY & WALKER
555 S. Flower St. 23rd Floor
Los Angeles, CA 90071
11
