Korea Bond Fund PLC
16 May 2000
KOREA BOND FUND PLC
General Information
The following information is derived from and should be read in
conjunction with the full text and definitions section of the Prospectus.
Korea Bond Fund plc (the 'Company') was incorporated on 31 May, 1996 under
the laws of the Republic of Ireland, and is listed on the London Stock Exchange.
The Company is a closed-ended investment Company with variable capital,
authorised by the Central Bank of Ireland (the 'Bank'), pursuant to the
provisions of Part XIII of the Companies Act, 1990.
The Company has been authorised as a closed-ended investment company,
which markets its Shares solely to professional investors. Accordingly,
some of the requirements of the Bank which are deemed necessary for the
protection of retail investors, in particular the conditions set down by
the Bank in relation to investment and leverage, do not apply to the
Company.
INVESTMENT OBJECTIVES AND POLICIES
The principal investment objective is to achieve a high level of income,
initially through the acquisition of a portfolio of five year bonds
issued by Korean corporations. If however, circumstances develop and the
Company disposes of this portfolio with the proceeds being reinvested in
other Korean debt securities, a secondary investment objective will be
capital appreciation.
The Company is required to invest, unless the Investment Manager
considers a higher level of liquidity to be appropriate on a temporary
basis, 80 per cent or more of the Net Asset Value of the Company in
Korean debt securities (including equity related debt instruments such as
convertible bonds) issued by national and local governmental bodies,
public sector, corporations, financial institution and private
corporations. This policy, which is required under the license granted to
the Company, the Ministry of Finance and Economy Korea (the 'License'),
may under certain circumstances not be fully consistent with otherwise
prudent investment policies. Until such time as the Company shall be
permitted to invest in unlisted bonds, such investments shall be in
listed bonds.
The investment objectives and policies set out above will, in the absence
of unforeseen circumstances, be adhered to for at least three years
following the listing of the Shares on the London Stock Exchange becoming
effective. Within the first three years following the listing of the
Shares on the London Stock Exchange, prior approval of the Shareholders
will also be required to any change to the investment objectives and to
any material change to the investment policy of the Company. Thereafter,
the Shareholders must approve any amendment in the investment objectives
of the Company and be notified of any amendment in its investment policy.
Prior approval of the Ministry of Finance and Economy and the Central
Bank will be required to amend the investment objectives and policy of
the Company at any time.
The Company may use forwards, swaps, futures, options, repurchase/reverse
repurchase and stocklending agreements relating to transferable securities
for the purpose of efficient portfolio management in accordance with the
limits laid down by the Central Bank. The Company may employ futures,
options, swaps and/or forwards for hedging purposes in any currency to provide
protection against exchange rate risks associated with all or part of its
underlying investments and proposed distributions or may employ forwards to
protect against interest rate risks in the context of the management of its
assets and liabilities.
Under the License, the Company may engage in currency forward transactions or
over-the-counter financial futures transactions involving Won and foreign
currencies with foreign exchange banks, subject to the limits of the Gross
Asset Value of the Company for the purpose of hedging against exchange rate and
interest rate risks arising from investments made by the Company and subject to
the limits of the Central Bank.
PRICES
Shareholders are not entitled to have their Shares redeemed or repurchased while
the Company remains closed-ended except in the case of a winding up of the
Company. Should the Company become open-ended then Shareholders may redeem their
Shares at the relevant Net Asset Value per Share. A repurchase charge is
payable on any repurchase of Shares effected at the rate of three per cent of
the relevant Net Asset Value per Share.
VALUATION
A Business Day is any day (except Saturday or Sunday) on which commercial banks
in Dublin, New York City, London and Seoul are open for business. Valuation
Day is the Thursday in each week or if Thursday is not a Business Day, the next
succeeding Business Day. Should the Company become open-ended, not less than ten
Business Days prior written notice must be given for a repurchase of Shares. All
deals should be addressed to the Administrator:
Deutsche International Fund Services (Ireland) Limited
George's Dock House
International Financial Services Centre
Dublin 1
Ireland
Telephone 353-1-6076300
Fax 353-1-6076489
DIVIDENDS
The Directors may declare any such dividends to the Shareholders as appear to
the Directors to be appropriate. No dividend may be declared or paid other than
from funds lawfully available for distribution. Surpluses arising from the
realisation of investments shall not be available for distribution as dividends.
The Directors intend to distribute as dividends a substantial portion of
interest income or dividends received from the Company's investments less
expenses.
MINIMUM INVESTMENT
Any further issue of Shares is subject to a minimum investment of the
equivalent of EUR 125,000.
SHARES
The Shares were placed at a price per Share of US$10.37 and the Company
paid to the Lead Managers, out of the proceeds of the Placing, a combined
management commission and selling concession equal to US$0.25 per Share
for each Share subscribed in the Placing. The Lead Managers agreed to pay
the Company's preliminary expenses and all other costs of the Placing,
and the Company agreed, in consideration thereof, to pay the Lead
Managers US$0.12 per Share for each Share subscribed in the Placing as a
contribution to such costs and expenses. The Placing of 10,500,000 Shares
was underwritten by the Lead Managers.
COMPLIANCE WITH YEAR 2O00 ISSUES
Deutsche Bank AG, the Administrator and Registrar's ultimate holding company,
set up a global Year 2000 Project in 1996 which covers all consolidated Group
companies, including Deutsche International Fund Services (Ireland) Limited.
The Project was successfully implemented and no material problems have arisen
following the transition into the new millennium. The Project continues
monitoring the Year 2000 conformity of the Group's IT-infrastructure to address
any Year 2000 problems that may occur post January 1, 2000.
The Directors are aware of the continuing potential problem posed to
computer systems by the Year 2000 subsequent to the date change, its
potential impact on the Company's operations, and have considered the key
risks arising. If expenditure in connection with the Year 2000 project
becomes necessary subsequently, it will be borne by the Administrator.
ADDENDUM TO THE PROSPECTUS
An Addendum to the Prospectus was issued on 2 December, 1999 which allowed
for the Amendment of the definition of Valuation Point and was effective from
6 January, 2000.
CHANGE IN SPONSORING BROKER
With effect from 31 March, 2000 NCB Stockbrokers Ltd were appointed as a
Sponsoring Broker in replacement of Nomura International plc.
Investment Adviser's Report for the six months ended 31 March, 2000
The Korea Bond Fund returned in excess of 14% in US$ terms during the
semi-annual period ended 31 March, 2000. Recovery in domestic demand has
taken hold while strong global economic growth continues to propel
exports. The export price recovery, which began in the second part of
1999, has also taken hold and provides additional support for Korean
economic fundamentals. The pick up in activity in China has also helped
to improve prospects for the region.
The won appreciated during the period as officials opted for a stronger
exchange rate rather than substantially higher domestic interest rates
to control inflation. The current strength of the economic recovery has
begun to put some upward pressure on prices and will likely require a
degree of monetary tightening in the near term. Although the headline
inflation number has not moved dramatically the trend has clearly begun
to move higher. It is likely that going forward the government will
adopt a more balanced approach, using both a strong currency and higher
policy rates to keep inflation in check.
Direct investment, which increased to US$4.5 billion in 1999 from US$390
million in 1998, also offered a source of support for the won. These
inflows have been accelerating on the back of strong economic growth, up
approximately 10.7% in 1999, and increasing domestic demand, up an
impressive 12.5% during the year. Although it is likely that growth will
moderate in 2000, as monetary conditions are tightened, high private
sector savings indicate that domestic demand will continue to be an
important source of strength. This should help to attract further direct
investment, even in the face of somewhat tighter policy.
The spread on corporate bonds has widened to 300 basis points over three-month
rates in response to concern over higher inflation. As with many election
periods, the run-up to April's general election was marked by a
clear pro-growth economic policy. It is likely that the end of this cycle
will lead to a policy which is more directed at controlling inflationary
pressures. Although this policy is likely to slow growth from its current rate,
a more moderate level of economic activity combined with improved inflation
expectations should provide a more positive environment for the corporate bond
market over the medium term.
The financial position of the Korean government remains strong, with hard
currency reserves closing March 2000 at approximately US$84 billion, up from
US$52 billion at the end of 1998. Rising inflows from equity investments have
offset some of the decline in the current account surplus, leaving the
government in a strong balance of payment position. High reserves, a strong
balance of payments and moderate internal debt provide the government with
considerable policy flexibility in handling any economic imbalances.
The outlook for Korea remains positive. The main policy challenge for the
government in the next year will be to engineer a pre-emptive tightening of
monetary conditions which will curtail the building inflationary pressures.
Success on this front should allow for a prolonged economic recovery, which will
provide an excellent investment environment for the Korea Bond Fund.
Scudder Kemper Investments, Inc. LG Investment Trust Management Co., Ltd
Foreign Adviser Korean Adviser
Date: 10 May, 2000
Portfolio of Investments as at 31 March, 2000
NOMINAL SECURITY* SERIES COUPON MATURITY VALUE US$ FUND%
15,000,000,000 CHOSUN BREWERY CO 84 11.00 19/09/2001 13,708,229 16.29
5,000,000,000 DAEHAN PULP CO 44 11.00 11/10/2001 4,577,627 5.45
15,000,000,000 DONGBU STEEL CO 36 11.00 30/09/2001 13,707,396 16.29
15,000,000,000 HANSOL PAPER CO 111 11.00 01/10/2001 13,733,421 16.32
5,000,000,000 KOOKMIN VENTURE
CAPITAL CO 5 11.00 01/10/2001 4,570,883 5.43
10,000,000,000 KUKJE CORPORATION 50 11.00 23/10/2001 9,139,219 10.86
15,000,000,000 LG CALTEX OIL
CORPORATION 88 11.00 17/10/2001 13,754,892 16.35
5,000,000,000 SHINMOORIM PAPER
MFG 28 11.00 09/09/2001 4,576,567 5.44
PORTFOLIO OF INVESTMENTS 77,768,234 92.43
Cash and bank balances 4,813,522 5.72
Debtors 1,667,779 1.98
Creditors (110,155) (0.13)
NET ASSET VALUE AS AT 31/03/2000 84,139,380 100.00
31/03/2000 31/03/1999 31/03/1998
Net Asset Value US$84,139,380 US$78,480,644 US$52,782,937
Number of Shares in Issue 10,500,000 10,500,000 10,500,000
Net Asset Value per Share US$8.01 US$7.47 US$5.03
Note: With the exception of LG Caltex Oil Corporation, which has its own
credit rating from Moody's, all other securities have been guaranteed by
a specific guarantor bank.
Note: Kukje Corporation defaulted on 31 August, 1998. Payments are being
made by the guarantor, Hanvit Bank, as successor to Hanil Bank. Hanvit
Bank merged with Commercial Bank of Korea and changed its name to Hanvit
Bank.
* All securities are admitted to official stock exchange listing or are
dealt in on another regulated market.
SECURITY GUARANTOR
CHOSUN BREWERY CO HANVIT BANK
DAEHAN PULP CO KOREA DEVELOPMENT BANK
DONGBU STEEL CO KOREA EXCHANGE BANK
HANSOL PAPER CO KOREA DEVELOPMENT BANK
KOOKMIN VENTURE CAPITAL CO KOOKMIN BANK
KUKJE CORPORATION HANVIT BANK
SHINMOOIM PAPER MFG KOREA DEVELOPMENT BANK
Statement of Total Return for the six months ended 31 March, 2000
Six months Six months
ended 31/03/00 ended 31/03/99
Note US$ US$ US$ US$
Net gains on investments during
the period 2 7,497,108 15,029,763
Gross income 3 4,356,631 3,990,189
Expenses 4 (466,233) (435,205)
Net income for the period 3,890,398 3,554,984
Total return for the period 11,387,506 18,584,747
Distributions 5 (7,875,000) (5,775,000)
Net increase in Shareholders' funds
from investment activities 3,512,506 12,809,747
Earnings per Share
(based on net income for the period) 37.05 cents 33.86 cents
Statement of Movements in Shareholders' Funds for the six months ended
31 March, 2000
Six months Six months
ended 31/03/00 ended 31/03/99
US$ US$
Net assets at the start of the period 80,626,874 65,670,897
Net increase in Shareholders' funds
from investment activities 3,512,506 12,809,747
Net assets at the end of the period 84,139,380 78,480,643
Balance Sheet as at 31 March, 2000
31/03/2000 31/03/1999
Note US$ US$
Portfolio of Investments 1(e), 9 77,768,234 71,825,345
Net current assets
Debtors 6 1,667,779 1,053,966
Cash and bank balances 7 4,813,522 5,699,959
--------- ---------
6,481,301 6,753,925
less
Creditors 8 (110,155) (98,626)
------- ------
Net current assets 6,371,146 6,655,299
--------- ---------
Net assets 84,139,380 78,480,644
========== ==========
Shareholders' Funds 84,139,380 78,480,644
========== ==========
Notes to the interim unaudited report for the six months ended 31 March, 2000
1. Accounting policies
a) Basis of amounting
The financial statements are prepared under the historical cost convention
as modified by the inclusion of securities at valuation. The financial
statements are prepared in US Dollars.
b) Income recognition
Income on interest bearing securities together with bank deposit interest
is accounted for on an accruals basis. Income is shown net of any
withholding tax.
c) Realised gains and losses on investments
Realised gains and losses on sales of investments are calculated based
on the average book cost of the investment in local currency. The
associated foreign exchange movement between the date of purchase and
the date of sale on the sale of investments is included in net gains
or losses on investments in the Statement of Total Return.
d) Unrealised gains and losses on investments
Unrealised gains and losses on investments arising during the year are
taken to the Statement of Total Return.
e) Valuation of securities
Bonds - Each individual bond within the portfolio is valued on a
discounted basis by reference to the yield curves for bonds of similar
credit rating and duration. A spread of 50 basis points is added to
reflect the liquidity risk inherent in the bond. This procedure has been
approved by the Directors on the recommendation of the Investment Advisers.
f) Foreign exchange
Foreign currency assets and liabilities, including investments, are
translated into US dollars at the exchange rate prevailing at the
period end. The foreign exchange gain or loss based on the translation
of the original cost of the investments is included in net gains or
losses on investments in the Statement of Total Return. The gain or
loss arising on the translation of other assets and liabilities is
included in other gains or losses in the Statement of Total Return.
During the year the method of accounting for the foreign exchange
gains or losses on investments was changed to include these gains or
losses with the underlying capital gains or losses on investments, as
in the opinion of the Directors this is a more appropriate treatment
for these gains. These gains were previously shown as 'Other
Gains/Losses', and therefore there is no effect on the Total Return
for the year. Prior year comparative figures have been reinstated to
reflect this change.
9) Distribution policy
The Directors intend to distribute as dividends a substantial portion
of interest income or dividends received from the Company's
investments after payment of expenses. The Directors expect that
dividends, if any, will usually be paid annually in or about October
of each year, but the Directors may from time to time approve the
payment to Shareholders of such interim dividends as appear to the
Directors to be justified by the position of the Company,
2. Net gains on investments during the period
The net gains on investments during the period comprise:
Six months Six months
ended 31/03/00 ended 31/03/99
US$ US$
Gains realised on investments sold
during the period 0 0
Net unrealised depreciation at the
start of the period 29,544,811 43,020,358
Net unrealised depreciation at the
end of the period (22,047,703) (27,990,595)
__________ __________
Net gains on investments during the period 7,497,108 15,029,763
========== ==========
2. Gross income
Six months Six months
ended 31/03/00 ended 31/03/99
US$ US$
Income from investments 4,155,854 3,873,482
Bank interest 200,777 116,707
_________ _________
4,356,631 3,990,189
========= =========
4. Expenses Six months Six months
ended 31/03/00 ended 31/03/99
US$ US$
Payable to the Investment Manager
Investment Management fee (310,602) (278,372)
------- -------
Payable to the Administrator
Administration fee (41,379) (36,461)
------ ------
Payable to the Custodian
Custody fee (20,690) (18,230)
------ ------
Other expenses
Directors' fees (10,026) (9,972)
Audit fee (3,739) (4,634)
Sub-Custody fee (33,959) (41,262)
Other (45,838) (46,274)
------ ------
(93,562) (102,142)
Total expenses (466,233) (435,205)
======= ======
5. Distributions
Six months Six months
ended 31/03/00 ended 31/03/99
US$ US$
Undistributed income at 30 September 8,763,055 7,282,623
Distribution paid during the period* (7,875,000) (5,775,000)
Net income for the six months ended 31 March 3,890,398 3,554,984
_________ _________
Undistributed income at 31 March 4,778,453 5,062,607
========= =========
* Rate per Share US$0.75 US$0.55
6. Debtors
31/03/2000 31/03/1999
US$ US$
Accrued income 1,657,828 1,053,966
Other debtors 9,951 0
--------- ---------
1,667,779 1,053,966
========= =========
7. Cash and bank balances
31/03/2000 31/03/1999
US$ US$
Cash and bank balances 4,813,522 5,699,959
========= =========
All cash balances are held with Deutsche Bank A.G., London.
8. Creditors
31/03/2000 31/03/1999
US$ US$
Accrued expenses (110,155) (98,626)
======= ======
9. Investment in bonds
The Company's portfolio consists of five year bonds issued by Korea
Corporations. LG Securities Co., Limited ('LGS') arranged for certain
Korean Corporations to issue such bonds in 1996, just prior to or
during the time when the Company was assembling its bond portfolio.
The Company's bond portfolio was purchased, in its entirety, from LGS
at LGS's costs of acquisition and funding. These bonds are currently
listed on the Korea Stock Exchange. The Company is the sole holder of
these bonds.
10.Exchange rates
The following US$ exchange rate as at 31 March, 2000 has been used in
this report:
KSWN 1,105.25
11.Soft commission arrangements
There were no soft commission arrangements in existence during the
period under review.
12.Portfolio changes
There have been no purchases or sales of securities during the period
under review.
13.Approval of the interim unaudited report
The interim unaudited report was approved by the Board of Directors
on 16 May, 2000.
Other Information
INVESTMENT MANAGER
Korea Bond Fund Management Co., Limited
Ugland House
PO Box 309
South Church Street
George Town
Grand Cayman
Cayman Islands
British West Indies
INVESTMENT ADVISERS
Foreign Adviser Korean Adviser
Scudder Kemper Investments, Inc. LG Investment Trust Management Co.,Ltd
345 Park Avenue 34-6, Yoido-dong, Youngdeungpo-ku
New York Seoul 150-010
New York 10154-0010 Korea
USA
Korean Adviser
Kyobo Investment Trust Management Co., Ltd
The Korean Securities Dealers Association
Building
11th Floor
34, Yoido-dong. Youngdeungpo-ku
Seoul 150-010
Korea
ADMINISTRATOR & REGISTRAR
Deutsche International Fund Services (Ireland) Limited
George's Dock House
International Financial Services Centre
Dublin 1
Ireland
CUSTODIAN
Deutsche International Custodial Services (Ireland) Limited
George's Dock House
International Financial Services Centre
Dublin 1
Ireland
SUB-CUSTODIAN IN KOREA
Deutsche Bank A.G.. Seoul Branch
Sei An Building 110-700
116, Shinmoonro 1-Ka Chong- Ro-Ka
Seoul
Korea
AUDITORS AND IRISH TAX ADVISERS
PricewaterhouseCoopers
Chartered Accountants
George's Quay
Dublin 2
Ireland
LEGAL ADVISERS
To the Company and the lead Managers as to Irish Law
Dillon Eustace
Grand Canal House
1 Upper Grand Canal Street
Dublin 4
Ireland
To the Company and the Lead Managers as to English Law
Slaughter and May
35 Basinghall Street
London
EC2V 5D8
United Kingdom
To the Company as to Korean Law
Kim & Chang
Seyang Building
223, Naeja-dong, Chongro-ku
Seoul 100-053
Korea
To the Lead Managers as to Korean Law
Shin & Kim
Samdo Building
4th Floor
1-170, Soonhwa-dong, Chung-ku
Seoul 100-130, Korea
To the Company and the Lead Managers as to United States law
Davis Polk & Wardell
Akasaka Twin Tower East
13th Floor
17-22, Akasaka 2-chome, Minato-ku
Tokyo 107
Japan
To the Investment Manager as to United States Law
Debevoise & Plimpton
875 Third Avenue
New York
New York 10022
USA
To the Investment Manager as to Cayman Islands Law
Maples & Calder
Ugland House
PO Box 309
South Church Street
Grand Cayman
Cayman Island
British West Indies
SECRETARY
Tudor Trust limited
Grand Canal House
1 Upper Grand Canal Street
Dublin 4
Ireland
DIRECTORS
Juris Padegs
Suk-Ryong Lee
Yasushi li
David Dillon
Paul McNaughton
LEAD MANAGERS
LG Securities Co.,Ltd
34-6 Yoido-dong, Youngdeungpo-ku
Seoul 150-010
Korea
Nomura International plc
Nomura House
1 St. Martin's le Grand
London EC1A 4NP
United Kingdom
REGISTERED OFFICE
George's Dock House
International Financial Services Centre
Dublin 1
Ireland
SPONSORING BROKER
NCB Stockbrokers Ltd
3 George's Dock
International Financial Services Centre
Dublin 1
Ireland