Korea Capital Fund
Semi-Annual Report
to Shareholders
February 28, 1998
(Unaudited)
<PAGE>
KOREA CAPITAL FUND
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
Shares COMMON STOCKS--50.8% Market Value
- --------------------------------------------------------------------------------
Automobile/Truck Parts & Equipment--2.7%
4,530 Sam Lip Industrial $ 62,101
-------------
Banks--2.6%
1,190 Kookmin Bank * 7,574
10,000 Korea Merchant 52,020
-------------
59,594
-------------
Building & Construction--0.2%
3,000 Byucksan Corporation * 4,186
-------------
Cellular Telecommunications--5.3%
350 SK Telecom 119,952
-------------
Chemicals & Drugs--1.3%
1,500 Wooshin Industries 28,550
-------------
Distribution/Wholesale--4.2%
2,500 Daesun Industrial 41,310
5,000 Samyung Trading Co. 53,856
-------------
95,166
-------------
Electronic Components - Semiconductors--3.7%
5,000 LG Semiconductor 82,620
-------------
Electronics--6.5%
6,000 LG Electronics * 90,331
1,000 Samsung Electronics * 57,834
-------------
$148,165
-------------
Fisheries--3.4%
4,630 Donwon Industries Co. * 77,724
-------------
Food & Beverages--4.1%
4,630 Oriental Brewery Co. 62,622
3,000 Taihan Sugar Ind. * 30,294
-------------
92,916
-------------
Gas - Distribution--0.8%
1,000 Pusan City Gas Co. 16,952
-------------
Machinery & Equipment--2.3%
10,000 Daewoo Heavy Industries 52,142
-------------
Medical-5.3%
2,000 Chong Kun Dang Corporation 41,616
4,000 Whan In Pharmaceutical 78,336
-------------
119,952
-------------
See Accompanying Notes to Financial Statements.
<PAGE>
Shares COMMON STOCKS (Continued) Market Value
- --------------------------------------------------------------------------------
Metals--0.9%
1,000 Kong Wha Co. LTD $ 20,257
-------------
Power Conversion Supply Equipment--3.1%
560 Seondo Electric 71,286
-------------
Transportation--2.0%
18,330 Korea Airlines * 44,872
-------------
Wire & Cable Products--2.4%
6,000 Iljin Corporation 53,244
-------------
TOTAL COMMON STOCK
(Cost $1,579,914) 1,149,679
-------------
PREFERRED STOCKS--0.7%
- --------------------------------------------------------------------------------
Oil Refining & Marketing
27,180 Korea Kumho Petro
(Cost $54,761) 16,302
-------------
Principal REPURCHASE AGREEMENT--47.6%
- --------------------------------------------------------------------------------
$1,079,000 State Street Bank & Trust Co., 4.00%, dated
2/27/98, to be repurchased at $1,079,360 on
3/02/98; collateralized by U.S. Treasury Notes
due 04/30/99, Value $1,615,000)
(Cost $1,079,000) 1,079,000
--------------
TOTAL INVESTMENTS--99.1%
(Cost $2,713,675) 2,244,981
--------------
OTHER ASSETS IN EXCESS OF OTHER LIABILITIES--0.9% 19,286
--------------
NET ASSETS--100.0% $ 2,264,267
==============
- -------------------------------------------------------
*Non-income producing security.
See Accompanying Notes to Financial Statements.
<PAGE>
KOREA CAPITAL FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
ASSETS
Investments in securities (Cost of $2,713,675) $ 2,244,981
Cash 280
Foreign currency (Cost of $66,175) 44,108
Interest receivable 240
Receivable for securities sold 61,196
Due from Advisor 35,798
Prepaid insurance 841
-----------
Total Assets 2,387,444
-----------
LIABILITIES
Due to Investment Manager 69,427
Accrued expenses 53,750
-----------
Total Liabilities 123,177
-----------
NET ASSETS $ 2,264,267
===========
COMPOSITION OF NET ASSETS
Paid in capital $ 8,896,797
Accumulated net investment expense ($462,474)
Accumulated net realized loss (5,680,095)
Net unrealized depreciation on investments and
foreign currency (489,961)
-----------
Net Assets $ 2,264,267
===========
CAPITAL SHARES OUTSTANDING 667,918
-----------
NET ASSET VALUE PER SHARE $ 3.39
===========
MAXIMUM OFFERING PRICE PER SHARE $ 3.55
===========
See Accompanying Notes to Financial Statements
<PAGE>
KOREA CAPITAL FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividend income (Net of withholding taxes) $ 1,096
Interest income 20,014
Other income 7
-----------
TOTAL INCOME 21,117
-----------
EXPENSES:
Investment management fees 10,115
Advisory and administration fees 4,335
Sub-Administration fees 11,901
12b-1 fees 3,612
Custodian fees 32,232
Fund Accounting fees 11,901
Audit fees 5,455
Transfer agent fees 3,968
Trustee fees 1,488
Legal fees 2,628
Miscellaneous fees 1,687
Registration fees 1,240
Shareholder reports fees 1,191
Insurance expenses 744
-----------
Gross expenses 92,497
Expense reimbursement (57,817)
-----------
Total expenses 34,680
-----------
NET INVESTMENT EXPENSE (13,563)
-----------
NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS
Net realized loss on investments and foreign
currency transactions (2,007,874)
Net change in unrealized loss on depreciation on
investments and foreign currency transactions (59,238)
-----------
NET LOSS ON INVESTMENTS (2,067,112)
-----------
NET DECREASE IN NET ASSETS FROM OPERATIONS ($2,080,675)
===========
See Accompanying Notes to Financial Statements
<PAGE>
KOREA CAPITAL FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
Period Ended Year Ended
02/28/98 08/31/97
----------- -----------
<S> <C> <C>
Operations:
Net investment expense $ (13,563) $ (35,099)
Realized loss on securities and foreign currency transactions (2,007,874) (1,883,607)
Net change in unrealized appreciation (depreciation) (59,238) 641,229
----------- -----------
Net decrease in net assets from operations (2,080,675) (1,277,477)
Capital Share Activity
Issued and Reinvested -- --
Redeemed -- (2,467,259)
----------- -----------
Net increase in net assets from capital share activity -- (2,467,259)
----------- -----------
Total decrease in net assets (2,080,675) (3,744,736)
Net assets beginning of year 4,344,942 8,089,678
----------- -----------
Net assets end of year $ 2,264,267 $ 4,344,942
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
KOREA CAPITAL FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the For the For the For the For the
period ended period ended period ended period ended period ended period ended
Description 02/28/98 08/31/97 08/31/96 08/31/95 08/31/94 08/31/93 *
- --------------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Beginning net asset value $ 6.51 $ 7.69 $ 9.26 $ 11.18 $ 10.89 $ 10.00
Net investment expense (0.02) (0.28) (0.15) (0.07) (0.17) (0.09)
Net realized and unrealized gain (loss)
on securities and foreign currency (3.09) (0.90) (1.42) (1.20) 1.00 0.98
Distributions from capital gains -- -- -- (0.27) (0.54) --
Return of capital -- -- -- (0.38) -- --
--------- -------- -------- -------- --------- ----------
Ending net asset value $ 3.40 $ 6.51 $ 7.69 $ 9.26 $ 11.18 $ 10.89
========= ======== ======== ======== ========= ==========
Total return (1) (47.77%) (15.34%) (16.68%) (12.24%) 7.52% 9.71%
Ratios/supplemental data:
Net assets at end of year (millions) $ 2.3 $ 4.3 $ 8.1 $ 11.9 $ 14.0 $ 10.0
Ratio of expenses to average net assets:
Before expense reimbursement 6.42% 3.32% 3.55% 2.63% 3.01% 5.59%(2)%
After expense reimbursement (3) 2.40% 2.40% 2.40% 2.40% 2.40% 2.40%(2)%
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement (4.96%) (1.53%) (2.20%) (0.65%) (2.04%) (4.79%(2)%)
After expense reimbursement (0.94%) (0.62%) (1.06%) (0.40%) (1.44%) (1.60%)(2)%)
Portfolio turnover rate 302.22% 257.43% 43.23% 60.59% 63.00% 139.00%
Average commission rate paid (4) $ 0.0612 $ 0.1186 $ 0.1408 -- -- --
</TABLE>
- ----------------------------------------------
*Since October 1, 1992 (commencement of operation).
(1) The Fund's sales charge is not included in the computation of total
returns.
(2) Annualized.
(3) Includes foreign taxes paid on dividends received.
(4) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. This amount may vary from period
to period and fund to fund depending on the mix of trades executed in
various markets where trading practices and commission rate structures may
differ.
<PAGE>
KOREA CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
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 quoted bid 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. Assets or
liabilities initially quoted in Korean Won will be valued in U.S.
dollars based on the prevailing exchange rate on the valuation date.
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.
Dividends and interest from non-U.S. sources received by the Fund are
generally subject to non-U.S. withholding taxes. 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) Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE>
KOREA CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
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 for the period ended February 28, 1998 were as follows:
Shares Amount
------ ------
Shares sold/reinvested 0 $ 0
Shares redeemed 0 0
------------ -------------
Net decrease 0 $ 0
============ =============
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 period ended
February 28, 1998, the Fund incurred $4,335 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 the period ended February 28, 1998, the
Fund incurred $10,115 in management fees.
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. For its services as distributor, Daehan receives
a fee calculated as 0.25% of the Average Daily Net Assets which
amounted to $3,612 for the period ended February 28, 1998.
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. Of this limitation, Daehan and the Manager have
agreed to reimburse 30% and 70%, respectively. For the period ended
February 28, 1998, this amount was $57,817.
As of February 28, 1998, the Fund had the following receivables and
payables with Daehan and the Manager:
<TABLE>
<CAPTION>
Daehan Manager
------ -------
<S> <C> <C>
Receivable for expense reimbursement $ 44,956 $ 179,368
Payable for advisory and administration/management fees (9,158) (248,794)
---------------------------
Net receivable/(payable) $ 35,798 $ (69,427)
===========================
</TABLE>
Related Party Transactions. As of February 28, 1998, the Fund shares owned by
the Fund's sub-custodian, Bank of Seoul, totaled approximately 630,344 shares of
667,918 outstanding.
<PAGE>
KOREA CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
Note 4. Investment Transactions. Purchases and sales of securities, other than
short-term investments, for the period ended February 28, 1998 were $5,354,543
and $5,749,053, respectively.
The gross unrealized appreciation and depreciation for book purposes of
portfolio securities at February 28, 1998 was:
Unrealized appreciation $ 69,827
Unrealized depreciation (538,521)
------------
Net unrealized depreciation $ (468,694)
============
Note 5. Repurchase Agreements. The Fund may enter into repurchase agreements
with government securities dealers recognized by the Federal Reserve Board, with
member banks of the Federal Reserve System or with such other brokers or dealers
that meet the credit guidelines established by the Board of Trustees. The Fund
will always receive and maintain, as collateral, securities whose market value,
including accrued interest, will be at least equal to 100% of the dollar amount
invested by the fund in each agreement, and the Fund will make payment for such
securities only upon physical delivery or upon evidence of book entry transfer
to the account of the custodian. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral.
If the seller defaults and the value of the collateral declines, or if
bankruptcy proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
Note 6. Off Balance Sheet Risks. As of February 28, 1998, the Fund held
approximately 80% of its total net assets in Korean equities. Accordingly, this
investment style involves consideration of certain factors not typically
associated with investing in securities of U.S. issuers. The securities market
of Korea is substantially smaller and less developed than that of the United
States. As a result, there may be greater price fluctuations. Disclosure and
regulatory standards in Korea are less stringent than U.S. standards.
Furthermore, there is a lower level of monitoring the regulation of the markets
and investor activities by the Korean governing agencies. As these balances
represent significant portions of the Fund's net assets, certain market and
currency exchange fluctuations as well as the Korean economic and political
situations, may have a significant impact on the Fund's net asset value. It is
the Fund's policy to continuously monitor its exposure to these risks.
Note 7. Liquidation of the Fund. The Board of Trustees have adopted a plan of
liquidation as of March 20, 1998.
<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 Streeet
Boston, Massachusetts 02110
o Sub-Custodian
BANK OF SEOUL
101-1 Namdaemun-no, No. 2 Ga
Chung-Gu, Seoul, Korea
o Auditors
GEORGE S. BAY & CO.
3701 Wilshire Blvd., Suite 510
Los Angeles, CA 90010
o Fund Accountant, Transfer Agent
AMERICAN DATA SERVICES
150 Motor Parkway, Suite 109
Hauppauge, NY 11788
o Legal Counsel
PAUL, HASTINGS, JANOFSKY & WALKER
555 S. Flower St. 23rd Floor
Los Angeles, CA 90071
