KOREA FUND INC — Proxy Solicitation & Information Statement 2007

Feb 16, 2007

PRE 14A 1 y30543pre14a.htm PRELIMINARY PROXY STATEMENT PRE 14A PAGEBREAK

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT

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THE KOREA FUND, INC.

(Name of Registrant as Specified In Its Charter)

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Dear Stockholders:

We are pleased to enclose the notice of and proxy statement for a Special Meeting of Stockholders of The Korea Fund, Inc. (NYSE: KF; the “Fund”) to be held at 4:00 p.m., Eastern time, on April 11, 2007, at the offices of Ropes & Gray LLP, 1211 Avenue of the Americas, New York, New York (the “Meeting”).

We are asking for your vote on the following matters:

| • | To approve a new investment management agreement for the Fund
with RCM Capital Management LLC (“RCM SF”); |
| --- | --- |
| • | To approve a new sub-advisory agreement between RCM SF and RCM Asia Pacific Limited (“RCM
AP”); and |
| • | To approve the issuance of Fund shares at a price below net
asset value in connection with a capital gains distribution
payable in Fund shares (valued at the lower of market price or
net asset value) or, at the election of the stockholder, in cash. |

We would like to provide you with some background information on the issues we are proposing to stockholders and ask for your vote on these important proposals affecting the Fund.

Proposed Manager Change

On my assuming the position of chairman of your Fund’s board of directors (the “Board”), following the Annual Stockholders Meeting in 2005, the Board clarified that the Fund’s investment policy is to “seek long term capital growth through seeking to outperform the Fund’s benchmark by active management across the large-, medium- and small-cap sectors of the Korean equity markets.” Simultaneously, the Board instigated certain changes in order to better monitor the Fund’s investment process and performance.

These changes included:

| • | the formation of an Investment Committee of the Board
specifically tasked with monitoring investment-related matters; |
| --- | --- |
| • | the development of a broader peer group against which to monitor
the Fund’s performance; and |
| • | the appointment of an independent specialist investment
consulting firm with a strong presence in Asia to provide the
Board with comprehensive quarterly analysis of both the style
and performance of your Fund’s portfolio. |

By the third quarter of 2006, the Board, working closely with its consultant, Mercer Investment Consulting’s Asia office, determined that it should consider alternative investment managers for the Fund. With the assistance of its independent investment consulting firm, the Board developed an initial list of some

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12 investment managers, all with proven expertise in the Korean equity market. The Board then reduced this initial list to a short list of five firms. Such reduction involved on-site due diligence by the consultant and in-person presentations by the consultant to the Board. In October 2006, the Board held in-person “beauty parades” with the five finalists. After these in-person presentations, the Board requested and reviewed considerable further due diligence materials from three of the finalists with the help of significant research and assistance from its consultant. At a subsequent in-person board meeting held over two days in early December 2006, after having given careful consideration to each of the finalists, including the Fund’s current investment manager, the Board unanimously recommended to pursue RCM SF as the Fund’s investment manager and RCM AP as a sub-adviser to the Fund, subject to further diligence and finalization of material terms, as well as approval by the Fund’s stockholders.

RCM SF and its affiliates (“RCM”) make up a global investment organization consisting of separate affiliated entities with offices in key financial centers around the world, including San Francisco, London, Frankfurt, Hong Kong, Tokyo and Sydney. As of December 31, 2006, these affiliated entities collectively advised or managed approximately $155 billion, including approximately $21 billion managed by RCM SF in San Francisco and approximately $10 billion managed by RCM AP in Hong Kong. RCM is part of the Allianz Global Investors Group. Research is at the cornerstone of RCM’s global investment process and this fundamental research is organized globally by industry sector. RCM includes a market research capability known as Grassroots sm that complements the fundamental research of its career analysts. RCM manages mutual funds and unit trusts, insurance funds, corporate funds, pension funds, endowment and charity funds and government institutional monies in North America, Europe and Asia Pacific.

The investment management business of RCM in the Asia Pacific region was established in Hong Kong in 1983 (formerly Thornton Management) providing international investors with specialist Asian equity management through a range of mutual finds and discretionary management services. Hong Kong remains RCM’s regional center with 37 investment professionals managing a range of Asian regional and single country portfolios. RCM in Asia Pacific also has offices in Tokyo and Sydney. The investment approach in Asia seeks to identify companies that can deliver superior risk adjusted returns as a result of a re-rating or through the identification of earnings drivers that are not thought to be discounted fully in the current price. Using its proprietary research, RCM builds portfolios stock by stock while taking account of the implied sector allocation for risk control purposes. The majority of active return is expected to be a result of stock levels considerations. From Hong Kong, RCM manages approximately $1 billion in Korean equities including dedicated funds organized for non-US investors.

In short, the Board identified RCM as possessing:

| • | impressive and focused research, at both the macro and micro
levels; |
| --- | --- |
| • | a concentrated portfolio construction methodology, driven by its
research; |
| • | a risk management process which is independent of the individual
portfolio manager; |
| • | a strong Asian presence; |
| • | a boutique asset management culture with strong and supportive
ownership by Allianz SE (parent company to RCM); |
| • | performance that has been historically successful in the Korean
stock market as well as other equity markets; |
| • | strong and well-integrated U.S. and local compliance
oversight; and |

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• infrastructure and marketing support from its affiliate, Allianz Global Investors Fund Management LLC, especially in the closed-end investment company field, a key growth area for the group.

Additional information regarding RCM and its affiliates is set out in the accompanying proxy statement.

Following negotiation of mutual satisfactory contract terms, the Board of Directors approved, on January 25, 2007, new investment management and sub-advisory agreements with RCM SF and RCM AP. These contracts are being submitted for your approval as described in the proxy statement. Beginning April 1, 2007, RCM SF and RCM AP will serve as the investment manager and sub-adviser, respectively, to the Fund pursuant to interim agreements, as permitted by the Investment Company Act of 1940, as amended (the “1940 Act”), pending stockholder approval of the new contracts.

Proposal to Declare Capital Gains Dividend in Stock

It has been the Fund’s investment manager’s style to “buy and hold” investments for a long period of time, and this approach has resulted in some very rewarding capital gains in the portfolio since its inception some 24 years ago. However, these gains have become such a large percentage of the total value of the Fund’s portfolio that the Board believes they have begun to inhibit the proactive investment decision-making necessary to sustain good performance in the future. As of December 31, 2006, unrealized capital gains represented approximately 81% of the Fund’s net assets. The Board expects that the Fund’s new manager will make substantial changes to the Fund’s current holdings, which in connection with the transition of the portfolio will likely result in the realization of a significant amount of capital gains. Under the U.S. Internal Revenue Code, any such realized gains must be distributed to stockholders at the end of the year in which they have been realized in order to avoid income and excise taxes. Paying such dividends in cash would likely require the sale of additional portfolio holdings during the current year, the capital gains realized from which would also need to be distributed. In short, this builds a so-called “cascading” effect — somewhat similar to a snowball running downhill, gaining size as it descends — which will cause the Fund to shrink and its expense ratio to increase. A potential way of mitigating this cascade is to pay out capital gains in Fund shares, with a cash alternative, which will more easily permit those stockholders wishing to maintain exposure to Korea to retain their positions. The expected capital gains distribution paid in Fund shares will be issued at the lower of the market value of Fund shares or net asset value of Fund shares. As the Fund’s shares are currently trading at a discount to net asset value, it is likely that those stockholders electing a pay out in Fund shares will receive such shares at a price below net asset value. By reinvesting the capital gains distribution in the Fund, stockholders will reduce the amount by which the Fund will shrink, thereby reducing the likelihood of an increase in the Fund’s expense ratio. Alternatively, stockholders wishing to raise cash may either sell stock or elect to accept the dividend in cash. Additional information on this issue is set out in the proxy statement.

The Board of Directors of the Fund unanimously believes the proposals are in the best interests of the Fund and its stockholders and recommends that you vote “for” the approval of the proposals described in the proxy statement.

Stockholders who are unable to attend the Meeting are strongly encouraged to vote by proxy, which is customary in corporate meetings of this kind. A proxy statement regarding the Meeting, a proxy card for your vote at the Meeting, and an envelope — postage prepaid — in which to return your proxy card are enclosed. You may also vote by touch-tone telephone or through the Internet by following the instructions on the enclosed proxy card.

Following this letter, we have included some questions and answers regarding the issues set out in this proxy statement. This information is intended to help you answer questions you may have and help you cast your

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votes, and is being provided as a supplement to, not a substitute for, the proxy statement, which we urge you to review carefully.

Your vote is very important to us and if you have concerns please feel free to contact me at (+44 7768 068 200). If we do not hear from you by [ ], 2007, our proxy solicitor may contact you.

Thank you for your attention, for your response and for your continued investment in the Fund.

Yours very sincerely,

Julian Reid

Chairman of the Board,

on behalf of the full Board

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STOCKHOLDERS ARE URGED TO SIGN AND DATE THE ENCLOSED PROXY CARD AND MAIL IT IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE SO AS TO ENSURE A QUORUM AT THE MEETING. THIS IS IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES.

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QUESTIONS AND ANSWERS REGARDING THE PROXY STATEMENT AND SPECIAL MEETING OF STOCKHOLDERS

While we encourage you to read the full text of the enclosed proxy statement, for your convenience, we have provided a brief overview of the matters to be voted on.

Q.	What am I being asked to vote on in this proxy statement?
A.	You are being asked to vote on proposals to:
	1. Approve a new investment management agreement between
the Fund and RCM Capital Management LLC (“RCM SF”),
pursuant to which RCM SF will become the Fund’s new
investment manager.
	2. Approve a new sub-advisory agreement between RCM SF and RCM Asia Pacific Limited (“RCM
AP”), pursuant to which RCM AP will become the Fund’s
new sub-adviser.
	3. Approve the issuance of Fund shares at a price below net
asset value in connection with a capital gains distribution to
be made in Fund shares (valued at the lower of market price or
net asset value) or, at the election of the stockholder, in cash.
	Proposed Manager Change
Q.	Why am I being asked to vote on new management agreements?
A.	On January 25, 2007, after careful consideration of
possible alternatives to the Fund’s investment management
arrangements, the Board of Directors, which consists entirely of
independent directors, unanimously determined that it would be
in the best interests of the Fund and its stockholders to select
RCM SF and RCM AP as the new investment advisers for the Fund
and approved, subject to stockholder approval, new investment
management and sub-advisory agreements. In addition, the Board of Directors, as permitted by
the Investment Company Act of 1940 (the “1940 Act”),
approved an interim investment management agreement between the
Fund and RCM SF, an interim sub-advisory agreement between RCM SF and RCM AP and a sub-administration agreement between RCM SF and Allianz Global Investors Fund
Management LLC (“AGIFM”), all of which will become
effective on April 1, 2007. Pursuant to the interim
agreements, RCM SF will serve as interim investment manager to
the Fund, and RCM AP will serve as interim sub-adviser to the Fund until the earlier of the date that shareholder
approval of the new agreements is obtained or August 29,
2007.
	RCM SF was founded as Rosenberg Capital Management and began
managing assets in 1970. RCM SF is a wholly owned indirect
subsidiary of Allianz SE, a publicly traded German insurance and
financial services company. RCM SF is a Delaware limited
liability company, located at Four Embarcadero Center,
San Francisco, California 94111.
	Although the Asia Pacific presence of RCM SF and its affiliates
(“RCM”) has been established in Hong Kong since
1983, RCM AP was formed in 2006 and licensed by the Hong Kong
SFC and U.S. Securities and Exchange Commission in January
of 2007. RCM AP is in the process of succeeding to all of
Allianz Global Investors Hong Kong Limited’s equity
management business in Hong Kong as part of a legal
restructuring by Allianz Global Investors of its group companies
in the Asia Pacific. RCM AP is a wholly owned indirect
subsidiary of Allianz SE. RCM AP is located at 21/F, Cheung Kong
Center, 2 Queen’s Road Central, Central, Hong Kong. The
assets under management to which it will

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| | succeed were approximately $9.5 billion as of
December 31, 2006. RCM AP has not previously managed a
U.S. registered investment company. |
| --- | --- |
| | Organized in 2000, AGIFM provides investment management,
advisory and fund administration services to a number of
closed-end and open-end investment company clients. AGIFM is a
wholly owned indirect subsidiary of Allianz SE. As of
December 31, 2006, AGIFM and its investment management
affiliates had approximately $691.9 billion in assets under
management. AGIFM has it principal offices at 1345 Avenue of the
Americas, New York, New York 10105. |
| Q. | Could you tell me more about RCM? |
| A. | RCM is a global investment organization consisting of separate
affiliated entities with offices in key financial centers around
the world, including San Francisco, London, Frankfurt, Hong
Kong, Tokyo and Sydney. As of December 31, 2006, these
affiliated entities collectively advised or managed
approximately $155 billion, including approximately
$21 billion managed by RCM SF in San Francisco and
approximately $10 billion managed by RCM AP in Hong Kong.
RCM is part of the Allianz Global Investors Group. Research is
at the cornerstone of RCM’s global investment process and
this fundamental research is organized globally by industry
sector. RCM includes a market research capability known as
Grassroots sm that complements the fundamental research of its career
analysts. RCM manages mutual funds and unit trusts, insurance
funds, corporate funds, pension funds, endowment and charity
funds and government institutional monies in North America,
Europe and Asia Pacific. |
| | The investment management business of RCM in the Asia Pacific
region was established in Hong Kong in 1983 (formerly Thornton
Management) providing international investors with specialist
Asian equity management through a range of mutual finds and
discretionary management services. Hong Kong remains RCM’s
regional center with 37 investment professionals managing a
range of Asian regional and single country portfolios. RCM in
Asia Pacific also has offices in Tokyo and Sydney. The
investment approach in Asia seeks to identify companies that can
deliver superior risk adjusted returns as a result of a
re-rating or through the identification of earnings drivers that
are not thought to be discounted fully in the current price.
Using its proprietary research, RCM builds portfolios stock by
stock while taking account of the implied sector allocation for
risk control purposes. The majority of active return is expected
to be a result of stock levels considerations. From Hong Kong,
RCM manages a total of approximately $1 billion in Korean
equities, including dedicated funds organized for non-U.S. investors. |
| | RCM’s single country research coverage, as in the case for
a dedicated Korea fund, is shared between the country
specialists and the regional sector analysts, representing a
subtle difference from RCM’s global approach. Country
specialists tend to cover those companies that relate to local
factors more than any regional (or global) factor and therefore
tend to follow the mid- and small-cap sectors more closely.
Sector specialists cover the larger capitalized names and
typically stocks that could be recommended for regional or
global portfolios. Coverage lists are set and agreed upon by
both the head of regional research and the regional Chief
Investment Officer. |
| | In short, the Board has identified RCM as having impressive and
focused research at both the macro- and micro-levels, a
concentrated portfolio construction methodology driven by its
research ideas, a strong management process that is independent
of the individual portfolio manager, U.S. management that
provides clear support for, and compliance control of, its Asian
operations and performance that has been historically successful. |

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Q.	Could you tell me about RCM’s investment style?
A.	RCM’s investment philosophy in Asia Pacific is to seek
out-performance over the investment cycle (typically 3 to
5 years) based upon researching and identifying growth
prospects of quality companies that are incorporated in the
portfolios using a disciplined investment methodology that
includes both risk and liquidity controls.
	Under this approach, RCM identifies stocks that fall into two
main categories: (i) companies that are expected to re-rate
as a result of the market’s not fully recognizing the
growth potential of the business, and (ii) companies that
will benefit from share price appreciation resulting from an
earnings surprise.
	RCM’s investment approach in Asia Pacific is predicated on
a bottom-up, fundamentally driven investment process by which RCM builds
portfolios based on the aggregate of individual stock
recommendations after taking account of the risk characteristics
at the total portfolio level.
	For further information regarding RCM’s investment style,
please see “Proxy Statement —
Proposal 1 — Description of Investment
Manager’s Investment Style.”
Q.	Will there be any significant changes to the Fund’s
portfolio management?
A.	The Board expects that RCM SF and RCM AP will manage the
Fund’s portfolio in line with their focused approach which
will result in the Fund having a more concentrated portfolio
than has previously been the case. As a result, the Board
expects that RCM SF and RCM AP will make substantial changes to
the Fund’s current holdings in connection with the
transition of the portfolio.
Q.	How do the proposed new agreements differ from the
Fund’s previous agreements?
A.	Other than its parties, term dates and fees (described below),
the rights and obligations under the new investment
management agreement (the “New Investment Management
Agreement”) between the Fund and RCM SF are substantially
identical to those under the Fund’s current investment
management agreement (the “Current Investment Management
Agreement”) with Deutsche Investment Management Americas
Inc. (“DeIM”). With regard to the new sub-advisory agreement between RCM SF and RCM AP (the “New Sub-Advisory Agreement”), in addition to its parties, term dates and
fees, the provisions of the New Sub-Advisory Agreement differ from those of the Fund’s current sub-advisory agreement (the “Current Sub-Advisory Agreement”) with Deutsche Investment Trust Management
Company Limited (“DeITMC”) by significantly expanding
the services to be provided by the sub-adviser. (See “Proxy Statement — Proposal 2” for
a detailed discussion of how the New Sub-Advisory Agreement differs from the Current Sub-Advisory Agreement with regard to sub-advisory fees and sub-advisory services.)
Q.	Will the Fund’s total advisory services fees
increase?
A.	Yes, fees will be higher, particularly relative to the recent
very favorable rates provided to the Fund. In consideration of
the services to be rendered under the New Investment Management
Agreement, the Fund will pay RCM SF a monthly fee which, on an
annual basis, is equal to 0.750% per annum of the value of
the Fund’s average daily net assets up to and including
$250 million of assets; 0.725% per annum of the
value of the Fund’s average daily net assets on the next
$250 million of assets; 0.700% per annum of the value
of the Fund’s average daily net assets on the next
$250 million of assets; 0.675% per annum of the value
of the Fund’s average daily net assets on the next
$250 million of assets; and 0.650% per annum of
the value of the Fund’s average daily net assets in excess
of $1 billion. Under the Current Investment Management
Agreement, the Fund paid DeIM a monthly fee which, on an annual
basis, is equal to 0.60% per annum of the value of the
Fund’s net assets up to and including $250 million

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| | of assets; 0.575% per annum of the value of the Fund’s
net assets on the next $250 million of assets;
0.55% per annum of the value of the Fund’s net assets
on the next $250 million of assets; 0.525% per annum
of the value of the Fund’s net assets on the next
$250 million of assets; and 0.50% per annum of the
value of the Fund’s net assets in excess of $1 billion. |
| --- | --- |
| | As of the end of the Fund’s last fiscal year, the Fund had
net assets of $1,048,086,586 and paid an aggregate fee to the
investment manager under its Current Investment Management
Agreement during such period equal to $6,195,529. Had the New
Investment Management Agreement been in effect during this
period, the Fund would have paid the investment manager an
aggregate fee equal to $7,989,875 during such period. Thus, the
aggregate fee under the New Investment Management Agreement
would have been 29% greater than the aggregate fee under the
Current Investment Management Agreement had the New Investment
Management Agreement been in effect during the Fund’s last
fiscal year. |
| | Fees payable under the New Sub-Advisory Agreement are paid by RCM SF, not the Fund. |
| | Until December 2004, the Fund paid DeIM 1.000% per annum of
the Fund’s net assets. At that time, DeIM voluntarily
agreed to reduce fees to 0.6000% per annum in response to
various pressures from the Board and certain major stockholders.
In comparison to the Fund’s Lipper peer group and the
Fund’s peer group identified by the Board, the total
advisory services fees under the proposed new advisory
agreements are still very competitive. |
| Q. | How does the Fund’s Board of Directors recommend I vote
on Proposals #1 and #2 — approval of the new
investment management and sub-advisory agreements? |
| A. | After careful consideration over an extended period of time of
possible alternatives to the previous management arrangements,
the Fund’s Board of Directors has unanimously determined
that it would be in the best interests of the Fund and its
stockholders to select RCM SF as the new investment manager and
RCM AP as the new sub-adviser for the Fund and recommends that you vote “FOR” the
approval of the New Investment Management Agreement and
“FOR” the approval of the New Sub-Advisory Agreement. |
| | Proposed Issuance of Fund Shares in Connection with a
Capital Gains Dividend |
| Q. | Why am I being asked to vote on the issuance of Fund shares
in connection with a capital gains dividend? |
| A. | Over a long period, the Fund has built up a high level of
unrealized capital gains which has made it difficult to pursue
ongoing active management — a fact that the Board
believes to be a possible cause for the Fund’s recent
underperformance relative to its benchmark. Although the Board
understands the reluctance of many stockholders to pay taxes on
capital gains distributions, it must also recognize that many
Fund stockholders are not subject to taxes, and thus balance the
interests of some stockholders in avoiding capital gains against
the interests of all stockholders in superior performance. In
addition, the proposed change in investment manager will likely
create additional realization of gains, especially while the
portfolio is transitioned to the new investment manager.
Thereafter, the Board and the investment manager intend to
monitor the gains more closely to provide a more even stream of
returns to stockholders without negatively affecting the
Fund’s total rate of return. |
| | A means of optimizing the return to stockholders of such capital
gains, and simultaneously reducing the
‘‘cascade’’ effect (see below) on the Fund,
is making a capital gains distribution to stockholders that is
payable in Fund shares (valued at the lower of market price or
net asset value) — which may be issued at |

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| | a discount to net asset value (see below). For those
stockholders wishing to receive such capital gains distribution
in cash, there is a cash alternative available on request. |
| --- | --- |
| | The Fund is seeking shareholder approval of the issuance of
these shares in order to ensure compliance with the New York
Stock Exchange rules requiring shareholder approval for
issuances in excess of 20% of the Fund’s outstanding shares
and for issuances to substantial security holders of the Fund,
and also as a protective matter to come within certain 1940 Act
provisions regarding issuances of Fund shares at a price below
net asset value. |
| Q. | What is ‘‘cascading’’ and what does it
mean for the Fund? |
| A. | Under the U.S. Internal Revenue Code (the
“Code”), the Fund is required each calendar year to
distribute at least 98% of its capital gain net income for the 12-month period ending on October 31st in order to avoid an
excise tax; in addition, the Fund would bear tax at the Fund
level on any net capital gain income that is not distributed. If
the Fund makes a capital gains distribution in cash and the Fund
remains fully invested, it will need to sell additional
portfolio securities to raise the cash to make the distribution.
These additional sales will cause the Fund to realize additional
capital gains that in turn must be distributed. As a result of
this “cascade,” the Fund would shrink, likely causing
an increase in the Fund’s expense ratio. |
| Q. | New Fund shares in connection with this proposed capital
gains dividend could be offered at a discount to net asset
value — why, and is it to stockholders’
benefit? |
| A. | It has been the Fund’s investment manager’s style to
‘‘buy and hold’’ investments for a long
period of time, and this approach has resulted in some very
rewarding capital gains in the portfolio since its inception
some 24 years ago. However, these unrealized capital gains
have become such a large percentage of the total value of the
Fund’s portfolio that the Board believes they have begun to
inhibit the proactive investment decision-making necessary to
sustain good performance in the future. As of December 31,
2006, unrealized capital gains represented approximately 81% of
the Fund’s net assets. The Board expects that the
Fund’s new manager will make substantial changes to the
Fund’s current holdings, which in connection with the
transition of the portfolio will likely result in the
realization of a significant amount of capital gains. Under the
Code, any such realized gains must be distributed to
stockholders at the end of the year in which they have been
realized in order to avoid income and excise taxes on the Fund.
Paying such dividends in cash would likely require the sale of
additional portfolio holdings during the current year, the
capital gains realized from which would also need to be
distributed. In short, this builds a so-called
“cascading” effect — somewhat similar to a
snowball running downhill, gaining size as it
descends — which will cause the Fund to shrink and its
expense ratio to increase. A potential way to mitigate this
cascade is to pay out capital gains in Fund shares, with a cash
alternative, which will more easily permit those stockholders
wishing to maintain exposure to Korea to retain their positions.
The expected capital gains distribution paid in Fund shares will
be issued at the lower of the market value of Fund shares or net
asset value of Fund shares. As the Fund’s shares are
currently trading at a discount to net asset value, it is likely
that those stockholders electing a pay out in Fund shares will
receive such shares at a price below net asset value. By
reinvesting the capital gains distribution in the Fund,
stockholders will reduce the amount by which the Fund will
shrink, thereby reducing the likelihood of an increase in the
Fund’s expense ratio. Alternatively, stockholders wishing
to raise cash may either sell stock or elect to accept the
dividend in cash. |

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| | The full amount of such capital gains distribution, whether
received in additional Fund shares or cash, will be reportable
by stockholders who are U.S. taxpayers as long-term capital
gain on their U.S. federal income tax returns. In addition,
whether paid in cash or additional Fund shares, the amounts
distributed will be net of any applicable withholding taxes. |
| --- | --- |
| Q. | How will the change in the Fund’s investment manager
impact the Fund’s management of the share price
discount? |
| A. | The Board is very aware of the concerns of share price discounts
relative to the net asset value and has already commenced
planning moves with the strong intent to managing any such
discount for the benefit of all shareholders. |
| Q. | How does the Fund’s Board of Directors recommend I vote
on Proposal #3 — the issuance of Fund’s
shares at a price below net asset value? |
| A. | The Board unanimously recommends that stockholders of the Fund
vote “FOR” the approval of the Fund’s ability to
issue its stock at a price below net asset value in connection
with its cash election dividend. |
| Q. | Will my vote make a difference? |
| A. | Your vote is needed to ensure that the proposals can be acted
upon. The Fund’s Board of Directors encourages all
stockholders to participate in the governance of their Fund. |
| Q. | Whom should I call if I have questions? |
| A. | If you need any assistance, or have any questions regarding the
proposals or how to vote your shares, please call
[ ] at
[ ]. |
| Q. | How do I go about voting my shares? |
| A. | Stockholders who are unable to attend the Meeting are strongly
encouraged to vote by proxy, which is customary in corporate
meetings of this kind. A proxy statement regarding the Meeting,
a proxy card for your vote at the Meeting, and an
envelope — postage prepaid — in which to
return your proxy card are enclosed. You may also vote by
touch-tone telephone or through the Internet by following the
instructions on the enclosed proxy card. |

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THE KOREA FUND, INC.

Notice of Special Meeting of Stockholders

To the Stockholders of The Korea Fund, Inc.:

Please take notice that a Special Meeting of Stockholders (the “Meeting”) of The Korea Fund, Inc. (the “Fund”) has been called to be held at the offices of Ropes & Gray LLP, 1211 Avenue of the Americas, New York, NY, on April 11, 2007 at 4:00 p.m., Eastern time, for the following purposes and to transact such other business, if any, as may properly come before the Meeting:

PROPOSAL 1: To approve a new investment management agreement for the Fund with RCM Capital Management LLC (“RCM SF”);

PROPOSAL 2: To approve a new sub-advisory agreement between RCM SF and RCM Asia Pacific Limited; and

PROPOSAL 3: To approve the issuance of Fund shares at a price below net asset value in connection with a capital gains distribution payable in Fund shares (valued at the lower of market price or net asset value) or, at the election of the stockholder, in cash.

The appointed proxies will vote in their discretion on any other business as may properly come before the Meeting or any adjournments or postponements thereof.

Holders of record of the shares of common stock of the Fund at the close of business on February 21, 2007 are entitled to vote at the Meeting or any adjournments or postponements thereof.

By order of the Board of Directors,

John Millette, Secretary

[ ], 2007

Begin box 1

IMPORTANT: We urge you to sign and date the enclosed proxy card and mail it in the enclosed postage-prepaid envelope or vote by touch-tone telephone or through the Internet, so as to ensure a quorum at the Meeting. This is important whether you own few or many shares. Your prompt voting may save the Fund the necessity and expense of further solicitations to ensure a quorum at the Meeting. If you can attend the Meeting and wish to vote your shares in person at that time, you will be able to do so.

If you have any questions concerning the procedures to be followed to vote your shares, please contact [ ] at [ ].

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PROXY STATEMENT

GENERAL

This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of The Korea Fund, Inc., a Maryland corporation (the “Fund”), for use at a Special Meeting of Stockholders to be held at the offices of Ropes & Gray LLP, 1211 Avenue of the Americas, New York, NY, on April 11, 2007 at 4:00 p.m., Eastern time, and at any adjournments or postponements thereof (collectively, the “Meeting”).

This Proxy Statement, the Notice of Special Meeting and the proxy card are first being mailed to stockholders on or about [ ], 2007 or as soon as practicable thereafter. If the enclosed proxy is executed and returned, or an Internet or telephonic vote is delivered, that vote may nevertheless be revoked at any time prior to its use by written notification received by the Fund (addressed to the Fund’s Secretary at the Fund’s principal executive offices, 345 Park Avenue, New York, NY 10154), by the execution of a later-dated proxy, by the Fund’s receipt of a subsequent valid Internet or telephonic vote, or by attending the Meeting and voting in person. Proxies voted by telephone or through the Internet may be revoked at any time before they are voted in the same manner that proxies voted by mail may be revoked. All properly executed proxies received in time for the Meeting will be voted as specified in the proxy or, if no specification is made, for the approval of the proposals named in the Proxy Statement and in the discretion of the proxy holders on any other matter that may properly come before the Meeting.

The presence at the Meeting, in person or by proxy, of stockholders entitled to cast a majority of the votes entitled to be cast shall be necessary and sufficient to constitute a quorum for the transaction of business. For purposes of determining the presence of a quorum for transacting business at the Meeting, abstentions and broker “non-votes” will be treated as shares that are present, but which have not been voted. Broker non-votes are proxies received by the Fund from brokers or nominees when the broker or nominee has neither received instructions from the beneficial owner or other persons entitled to vote nor has discretionary power to vote on a particular matter. Accordingly, stockholders are urged to forward their voting instructions promptly.

Approval of the new investment management and sub-advisory agreements requires the affirmative vote of the holders of a “majority of the outstanding voting securities” of the Fund. The term “majority of the outstanding voting securities,” as defined in the 1940 Act and as used in this Proxy Statement, means: the affirmative vote of the lesser of (i) 67% of the voting securities of the Fund present at the Meeting if more than 50% of the outstanding voting securities of the Fund are present in person or by proxy or (ii) more than 50% of the outstanding voting securities of the Fund.

Approval of an issuance of shares representing 20% or more of the Fund’s pre-issuance outstanding voting power, or an issuance to a substantial security holder of the Fund, requires the affirmative vote of a majority of the votes cast on the proposal, provided that the total vote cast on the proposal represents over 50% in interest of all securities entitled to vote on the proposal. In addition, approval of the Fund’s ability to sell its stock at a price below net asset value pursuant to Section 23(b)(2) of the 1940 Act requires the affirmative vote of a majority of the Fund’s common stockholders.

Abstentions will have the effect of an “against” vote on each of the proposals. Broker non-votes will have the effect of an “against” vote for each of the proposals if such vote is determined on the basis of obtaining the affirmative vote of more than 50% of the outstanding shares of a Fund. Broker non-votes will not constitute “for” or “against” votes for either of the proposals, and will be disregarded in determining the voting securities “present” if such vote is determined on the basis of the affirmative vote of 67% of the voting securities of the Fund present at the Meeting.

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Holders of record of the common stock of the Fund at the close of business on February 21, 2007 (the “Record Date”) will be entitled to one vote per share on all business of the Meeting and any adjournments or postponements. There were [ ] shares of common stock outstanding on the Record Date.

The Fund provides periodic reports to all stockholders, which highlight relevant information, including investment results and a review of portfolio changes. You may receive an additional copy of the Fund’s annual report for its fiscal year ended June 30, 2006 and a copy of any more recent semi-annual report, without charge, by calling (800) 349-4281 or writing the Fund at 345 Park Avenue, New York, New York 10154.

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PROPOSAL 1. APPROVAL OF NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE FUND AND RCM:

At the Meeting, you will be asked to approve a new investment management agreement (the “New Investment Management Agreement”) between the Fund and RCM Capital Management LLC (“RCM SF”). Beginning April 1, 2007, RCM SF will serve as the Fund’s interim investment manager pursuant to the interim investment management agreement that the Board of Directors approved on January 25, 2007. A general description of the proposed New Investment Management Agreement is included below. The form of the New Investment Management Agreement is attached hereto as Exhibit A.

On January 25, 2007, after careful consideration of possible alternatives to the Fund’s current management and sub-advisory arrangements, the Board of Directors determined that it would be in the best interests of the Fund and its stockholders to select RCM SF as the new investment manager for the Fund, succeeding Deutsche Investment Management Americas Inc. (“DeIM”). At this meeting, the Directors approved, subject to stockholder approval, the New Investment Management Agreement, pursuant to which RCM SF would become the Fund’s new investment manager. At the meeting, the Board of Directors also approved an interim investment management agreement, as permitted under the 1940 Act, pursuant to which RCM SF will serve as interim investment manager to the Fund beginning April 1, 2007. The terms of this interim investment management agreement are substantially identical to those of the New Investment Management Agreement, except that the compensation paid by the Fund to the investment manager under the interim agreement is identical to that paid under the Fund’s previous investment management agreement with DeIM (the “Current Investment Management Agreement”) and the termination provisions under the interim investment management agreement require a 10-day written notice instead of the 60-day written notice that the New Investment Management Agreement requires. The Board of Directors also approved new sub-advisory and interim sub-advisory agreements with RCM Asia Pacific Limited (“RCM AP”) (discussed below in Proposal 2) and a new sub-administration agreement with Allianz Global Investors Fund Management LLC (“AGIFM”), pursuant to which AGIFM will serve as the Fund’s sub-administrator beginning April 1, 2007.

One goal of the Board of Directors in changing the Fund’s investment manager was to engage an investment manager that would manage the Fund’s portfolio more actively than has previously been the case. Should the New Investment Management Agreement be approved by the stockholders, it is expected that RCM SF and RCM AP will make substantial changes to the Fund’s current holdings, which in connection with the transition of the portfolio will likely result in the realization of a significant amount of capital gains. As of December 31, 2006, the Fund had approximately $697,643,794 in net unrealized long-term capital gains. See Proposal 3 below for the Fund’s proposed plan to address certain of the consequences to the Fund that realizing these capital gains may have on the Fund’s future operation.

DESCRIPTION OF THE CURRENT INVESTMENT MANAGEMENT AGREEMENT

Investment Manager’s Responsibilities. Under the Current Investment Management Agreement, DeIM, as investment manager, provides the Fund with continuing investment management services. The investment manager makes investment decisions, prepares and makes available research and statistical data and supervises the acquisition and disposition of securities by the Fund, all in accordance with the Fund’s investment objectives and policies and in accordance with guidelines and directions from the Fund’s Board of Directors. The investment manager assists the Fund as it may reasonably request in the conduct of the Fund’s business, subject to the direction and control of the Fund’s Board of Directors. The investment manager is required to maintain or cause to be maintained for the Fund all books, records and reports and any other information required to be

THE KOREA FUND, INC. 3

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maintained under the 1940 Act to the extent such books, records and reports and any other information are not maintained by the Fund’s custodian or other agents of the Fund. The investment manager also supplies the Fund with office space in New York and furnishes clerical services in the United States related to research, statistical and investment work. The investment manager renders to the Fund administrative services such as preparing reports to, and meeting materials for, the Fund’s Board of Directors and reports and notices to Fund stockholders, preparing and making filings with the U.S. Securities and Exchange Commission (the “SEC”) and other regulatory and self-regulatory organizations, including preliminary and definitive proxy materials and post-effective amendments to the Fund’s registration statement, providing assistance in certain accounting and tax matters and investor public relations, monitoring the valuation of portfolio securities, calculation of net asset value and calculation and payment of distributions to stockholders, and overseeing arrangements with the Fund’s custodian. The investment manager agrees to pay reasonable salaries, fees and expenses of the Fund’s officers and employees and any fees and expenses of the Fund’s Directors who are directors, officers or employees of the investment manager, except that the Fund bears travel expenses (or an appropriate portion of those expenses) of Directors and officers of the Fund who are directors, officers or employees of the investment manager to the extent that such expenses relate to attendance at meetings of the Board of Directors or any committees of or advisors to the Board. During the Fund’s most recent fiscal year, no compensation, direct or otherwise (other than through fees paid to the investment manager), was paid or became payable by the Fund to any of its officers or Directors who were affiliated with the investment manager.

Under the Current Investment Management Agreement, to the extent permissible by law, the investment manager is authorized to appoint certain of its affiliates as sub-advisers to perform certain of the investment manager’s duties. In such cases, the investment manager is also authorized to adjust the duties, the amount of assets to be managed and the fees paid to any such affiliated sub-advisers. These affiliated sub-advisers must be entities that the investment manager controls, is controlled by, or is under common control with, and any such appointments are subject to the further approval of the Independent Directors and the full Board. Stockholders of the Fund that are affected by any adjustment would receive prompt notice following approval by the Directors. The management fee rates paid by the Funds do not increase as a result of any such action; all fees incurred by a sub-adviser continue to be the responsibility of the investment manager. The investment manager retains full responsibility for the actions of any such sub-adviser or delegates.

Fund Expenses. Under the Current Investment Management Agreement, the Fund pays or causes to be paid all of its other expenses, including, among others, the following: organization and certain offering expenses (including out-of-pocket expenses, but not including overhead or employee costs of the investment manager or of any one or more organizations retained by the Fund or by the investment manager as Korean adviser to the Fund); legal expenses; auditing and accounting expenses; telephone, facsimile, postage and other communications expenses; taxes and governmental fees; stock exchange listing fees; fees, dues and expenses incurred in connection with membership in investment company trade organizations; fees and expenses of the Fund’s custodians, subcustodians, transfer agents and registrars, and accounting agents; payment for portfolio pricing or valuation services to pricing agents, accountants, bankers and other specialists, if any; expenses of preparing share certificates and other expenses in connection with the issuance, offering, distribution, sale or underwriting of securities issued by the Fund; expenses of registering or qualifying securities of the Fund for sale; expenses related to investor and public relations; freight, insurance and other charges in connection with the shipment of the Fund’s portfolio securities; brokerage commissions or other costs of acquiring or disposing of any portfolio securities of the Fund; expenses of preparing and distributing reports, notices and dividends to stockholders; expenses of the dividend reinvestment and cash purchase plan (except for brokerage expenses

4 THE KOREA FUND, INC.

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paid by participants in such plan); costs of stationery; any litigation expenses; and costs of stockholders’ and other meetings.

Compensation Paid to the Investment Manager. In return for the services provided by the investment manager as investment manager, and the expenses it assumes under the Current Investment Management Agreement, the Fund pays DeIM a monthly fee which, on an annual basis, is equal to 0.60% per annum of the value of the Fund’s net assets up to and including $250 million of assets; 0.575% per annum of the value of the Fund’s net assets on the next $250 million of assets; 0.55% per annum of the value of the Fund’s net assets on the next $250 million of assets 0.525% per annum of the value of the Fund’s net assets on the next $250 million of assets; and 0.50% per annum of the value of the Fund’s net assets in excess of $1 billion. As of the end of the Fund’s last fiscal year, the Fund had net assets of $1,048,086,586 and paid an aggregate fee to the investment manager under its Current Investment Management Agreement during such period equal to $6,195,529.

Non-Exclusivity. Under the Current Investment Management Agreement, the investment manager is permitted to provide investment advisory services to other clients, including clients which may invest in securities of Korean issuers and, in providing such services, may use information furnished by advisors and consultants to the Fund and others. Conversely, information furnished by others to the investment manager in providing services to other clients may be useful to the investment manager in providing services to the Fund.

Termination of the Agreement. The Current Investment Management Agreement may be terminated at any time without payment of penalty by the Fund’s Board of Directors, by vote of holders of a majority of the outstanding voting securities of the Fund, or by the investment manager on 60 days’ written notice. The Current Investment Management Agreement automatically terminates in the event of its assignment (as defined under the 1940 Act), provided that an assignment to a corporate successor to all or substantially all of the investment manager’s business or to a wholly owned subsidiary of such corporate successor which does not result in a change of actual control or management of the investment manager’s business shall not be deemed to be an assignment for the purposes of the Current Investment Management Agreement.

Liability of the Investment Manager. The Current Investment Management Agreement provides that the investment manager is not liable for any act or omission, error of judgment or mistake of laws or for any loss suffered by a Fund in connection with matters to which the Current Investment Management Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the investment manager in the performance of its duties or from reckless disregard by the investment manager of its obligations and duties under the Current Investment Management Agreement. The Current Investment Management Agreement also contains provisions that provide that DeIM shall use its best efforts to seek the best overall terms available in executing transactions for the Fund and selecting brokers and dealers and shall consider on a continuing basis all factors it deems relevant, including the consideration of the brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) provided to the Fund and/or other accounts over which DeIM or an affiliate exercises investment discretion. In addition, with respect to the allocation of investment and sale opportunities among the Fund and other accounts or funds managed by DeIM, the Current Investment Management Agreement provides that DeIM shall allocate such opportunities in accordance with procedures believed by DeIM to be equitable to each entity.

THE KOREA FUND, INC. 5

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Additional Information About the Investment Management Agreements

The date of the Current Investment Management Agreement is April 5, 2002. The date when the Current Investment Management Agreement was last approved by the stockholders of the Fund is March 28, 2002. The date when the New Investment Management Agreement was approved by the Directors of the Fund is January 25, 2007. The termination date (unless continued) of the New Investment Management Agreement is September 30, 2008.

Description of New Investment Management Agreement and Differences Between the Current and New Investment Management Agreement

The New Investment Management Agreement for the Fund will be dated as of April 11, 2007. The New Investment Management Agreement will be in effect for an initial term ending on September 30, 2008, and may be continued thereafter from year to year only if specifically approved at least annually by the vote of “a majority of the outstanding voting securities” (as defined below under “Required Vote”) of the Fund, or by the Board and, in either event, the vote of a majority of the Independent Directors, cast in person at a meeting called for such purpose.

Other than its parties, term dates and fees (described below), the rights and obligations under the New Investment Management Agreement of the Fund are substantially identical to those under the Current Investment Management Agreement. Unlike the Current Investment Management Agreement, however, the New Investment Management Agreement does not expressly provide that the investment manager will furnish office space, facilities and clerical services as the Fund may require for its reasonable needs because the parties agree that such provision refers to services that RCM SF, as investment manager, typically provides for its clients and that the other provisions of the New Investment Management Agreement obligate RCM SF to provide such services to the Fund.

Comparison of Fees

In consideration of the services to be rendered under the New Investment Management Agreement, the Fund will pay RCM SF a monthly fee which, on an annual basis, is equal to 0.750% per annum of the value of the Fund’s average daily net assets up to and including $250 million of assets; 0.725% per annum of the value of the Fund’s average daily net assets on the next $250 million of assets; 0.700% per annum of the value of the Fund’s average daily net assets on the next $250 million of assets; 0.675% per annum of the value of the Fund’s average daily net assets on the next $250 million of assets; and 0.650% per annum of the value of the Fund’s average daily net assets in excess of $1 billion.

As described above, under the Current Investment Management Agreement, the Fund paid DeIM a monthly fee which, on an annual basis, is equal to 0.60% per annum of the value of the Fund’s net assets up to and including $250 million of assets; 0.575% per annum of the value of the Fund’s net assets on the next $250 million of assets; 0.55% per annum of the value of the Fund’s net assets on the next $250 million of assets; 0.525% per annum of the value of the Fund’s net assets on the next $250 million of assets; and 0.50% per annum of the value of the Fund’s net assets in excess of $1 billion.

As of the end of the Fund’s last fiscal year, the Fund had net assets of $1,048,086,586 and paid an aggregate fee to the investment manager under its Current Investment Management Agreement during such period equal to $6,195,529. Had the New Investment Management Agreement been in effect during this period, the Fund would have paid the investment manager an aggregate fee equal to $7,989,875 during such period. Thus, the aggregate fee under the New Investment Management Agreement would have been 29% greater than the

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aggregate fee under the Current Investment Management Agreement had the New Investment Management Agreement been in effect during the Fund’s last fiscal year.

The following table provides a comparison of the fees paid to the investment manager during the Fund’s last fiscal year under the Current Investment Management Agreement with the fees that the Fund would have paid the investment manager during that same period had the New Investment Management Agreement been in effect.

		Approximate — Net Assets	Aggregate Fee — Paid by
		as of the	Fund to
		End of the	Investment
Agreement	Management
Fee	Last Fiscal
Year	Manager
Current Investment Management
Agreement	As a percentage of the Fund’s
net assets: 0.60% up to $250 million; 0.575% on the next $250 million; 0.55% on the next $250 million; 0.525% on the next $250 million; 0.50% over $1 billion	$ 1,048,086,586	$ 6,195,529
New Investment Management Agreement	As a percentage of the Fund’s
average daily net assets: 0.750% up to $250 million; 0.725% on the next $250 million; 0.700% on the next $250 million; 0.675% on the next $250 million; 0.650% over $1 billion	$ 1,048,086,586	$ 7,989,875

The following example is intended to help you compare the expenses you would pay on a $1000 investment under the Current Investment Management Agreement with those under the New Investment Management Agreement, assuming a 5% annual return:

| Example:
You would pay the following expenses on a — $1,000
investment, assuming a 5% annual return | 1 year | 3 years | 5 years | 10 years |
| --- | --- | --- | --- | --- |
| Under the Current Investment
Management Agreement | $ [ ] | $ [ ] | $ [ ] | $ [ ] |
| Under the New Investment Management
Agreement | $ [ ] | $ [ ] | $ [ ] | $ [ ] |

THE KOREA FUND, INC. 7

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Board Considerations

In the summer of 2006, the Board commenced a comprehensive review of the Fund’s current investment management arrangements with DeIM. The Board’s review included conducting a request for proposals process for potential new managers for the Fund with assistance of an independent consultant to the Board. In December 2006, the Board announced that the Directors had unanimously agreed to pursue negotiations with RCM SF and affiliated entities to provide investment management and administrative services to the Fund.

On January 25, 2007, the Board unanimously approved an interim Investment Management Agreement with RCM SF as the Fund’s investment manager, an interim Sub-Advisory Agreement between RCM SF and RCM AP and an interim sub-administration agreement between RCM SF and AGIFM, each effective as of April 1, 2007, and unanimously voted to recommend that the New Investment Management Agreement and Sub-Advisory Agreement be approved by stockholders.

In reaching its decision to recommend that stockholders approve the New Investment Management Agreement and New Sub-Advisory Agreement, the Board considered the following factors, among others:

| • | RCM AP’s investment performance relative to the investment
performance of the Fund, both absolute and relative to various
benchmarks and industry peer groups. In this regard, the Board
observed that RCM AP’s performance had outperformed the
Fund and its benchmark in recent 1 year, 3 year and
5 year periods based on performance information provided by
the Fund’s investment consulting firm, Mercer Investment
Consulting. The Board also observed that RCM AP had performed
well relative to other funds in its Lipper peer group and the
Fund’s peer group identified by the Board. |
| --- | --- |
| • | The resources and operations of RCM SF and its affiliates,
including the experience and professional qualifications of RCM
SF-affiliated personnel that would be providing compliance and
other services to the Fund. The Board noted that, pursuant to
the Current and New Investment Management Agreement, Current and
New Sub-Advisory Agreement and sub-administration agreement, RCM SF, RCM AP and AGIFM will provide similar
services to those provided by DeIM and its affiliates. |
| • | With regard to the New Investment Management Agreement, New Sub-Advisory Agreement and sub-administration agreement, the Board considered its terms and conditions, as
well as the fee rates that would be applicable to the
arrangements. The interim agreements have identical fee terms as
to those currently in place. The permanent agreements
recommended to be approved by stockholders call for an increase
in fees but are still below average for comparable closed-end
funds. The Board concluded that any economies of scale to be
enjoyed by RCM SF were properly reflected in the fee
arrangements for the benefit of the Fund’s stockholders,
and that in light of the Fund’s closed-end structure there
were limited opportunities for future material asset growth. In
particular, the Board considered that the current tax position
of the Fund is expected to lead to a reduction in the
Fund’s net assets in the coming years. |
| • | RCM SF and its affiliates’ personnel (including
particularly those personnel with responsibilities for providing
services to the Fund), resources, policies and investment
processes. In this regard, the Board concluded that the quality
and range of services provided by RCM SF and its affiliates
should benefit the Fund and its stockholders. |
| • | The nature, scope and quality of the services proposed to be
provided by RCM SF and its affiliates to the Fund. In this
regard, the Board considered, among other things, that the types
of services to be provided under the previous Investment
Advisory, Management and Administration Agreement were
comparable to those typically found in agreements of such type,
and the proposed New Investment Management |

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Agreement, New Sub-Advisory Agreement and sub-administration agreement would result in a comparable level of services.

| • | The estimated costs of the services to, and profits realized by,
RCM SF and its affiliates from their relationships with the
Fund. In this regard, the Board considered that RCM SF’s
future profitability would likely be lower than its estimated
current profitability as a result of the reduction in the
Fund’s net assets due to the Fund’s current tax
position noted above. |
| --- | --- |
| • | The investment management fee rates paid to RCM SF relative to
those payable for similar accounts advised by RCM SF, including
differences in the scope of services typically provided to
mutual funds relative to institutional accounts. The Directors
noted that the fee rates paid by the Fund were lower than the
applicable Lipper peer group (based on data provided by Mercer
Investment Consulting). The Board gave a lesser weight to fees
paid by similar institutional accounts advised by RCM SF, in
light of the material differences in the scope of services
provided to mutual funds as compared to those provided to
institutional accounts. Taking into account the foregoing, the
Board concluded that the proposed new fee schedule represents
reasonable compensation in light of the nature, extent and
quality of the investment services being provided to the Fund. |
| • | The practices of RCM SF and RCM AP regarding the selection and
compensation of brokers and dealers executing portfolio
transactions for the Fund, including RCM AP’s soft dollar
practices. The Board considered that a portion of the
Fund’s brokerage may be allocated to affiliates of RCM SF,
subject to compliance with applicable SEC rules. The Board also
reviewed and approved, subject to ongoing review by the Board, a
plan whereby a limited portion of the Fund’s brokerage may
in the future be allocated to brokers who acquire (and provide
to RCM SF and its affiliates) research services from third
parties that are generally useful to RCM SF and its affiliates
in managing client portfolios. The Board indicated that it will
monitor the allocation of the Fund’s brokerage to ensure
that the principle of “best price and execution”
remains paramount in the portfolio trading process. |
| • | RCM SF’s commitment to and record of compliance, including
its written compliance policies and procedures. In this regard,
the Board considered the significant attention and resources
dedicated by RCM SF to documenting its compliance
processes. The Board noted in particular (i) the experience
and seniority of the Fund’s chief compliance officer, who
reports to the Board; (ii) the large number of compliance
personnel who report to the Fund’s chief compliance
officer; and (iii) the substantial commitment of resources
by RCM SF to compliance matters. |

Based on all of the foregoing, the Board determined to approve the Fund’s New Investment Management Agreement and New Sub-Advisory Agreement and concluded that the Agreements were in the best interests of the Fund’s stockholders.

In reaching this conclusion the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, many of which were in executive session with only the Directors and their counsel present. It is possible that individual Director may have weighed these factors differently in reaching their individual decisions to approve the New Investment Management Agreement and Sub-Advisory Agreement.

Information about RCM SF

RCM SF and its affiliates (“RCM”) make up a global investment organization consisting of separate affiliated entities with offices in key financial centers around the world, including San Francisco, London, Frankfurt,

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Hong Kong, Tokyo and Sydney. As of December 31, 2006, these affiliated entities collectively advised or managed approximately $155 billion, including approximately $21 billion managed by RCM SF in San Francisco and approximately $10 billion managed by RCM AP in Hong Kong. RCM is part of the Allianz Global Investors Group.

RCM SF is a wholly owned subsidiary of RCM US Holdings LLC, located at Four Embarcadero Center, San Francisco, CA 94111. RCM US Holdings LLC is a wholly owned subsidiary of Allianz Global Investors AG, located at Nyphenburger Strasse 112-116, 80636 Munich, Germany. Allianz Global Investors AG is a wholly owned subsidiary of Allianz SE, located at Koeniginstrasse 28, Munich, Germany.

The name, address and principal occupation of each of RCM SF’s principal executive officers and members of its Management Committee are as follows:

| Name | Address | Positions with
RCM SF |
| --- | --- | --- |
| Udo Frank | c/o RCM, Four Embarcadero
Center, San Francisco, CA 94111 | Chief Executive Officer &
Member of RCM Management Committee |
| Andreas Utermann | c/o RCM, 155 Bishopsgate, London EC2M 3AD | Global Chief Investment Officer |
| Peter J. Anderson | c/o RCM, Four Embarcadero
Center, San Francisco, CA 94111 | Chief Investment Officer &
Member of RCM Management Committee |
| Robert J. Goldstein | c/o RCM, Four Embarcadero
Center, San Francisco, CA 94111 | Chief Operating Officer, General
Counsel and Member of RCM Management Committee |
| Gregory M. Siemons | c/o RCM, Four Embarcadero
Center, San Francisco, CA 94111 | Chief Compliance Officer |

To the Board’s knowledge, there are currently no officers or directors of the Fund who are also officers, employees, or directors of or owners of a membership interest in RCM SF. In connection with the proposed transition of the Fund’s investment advisory arrangements, it has been proposed that the following employees of RCM SF’s affiliates will serve as officers of the Fund:

| Name of
Employee (RCM Affiliate Employer) | Proposed Position
at the Fund |
| --- | --- |
| Robert J. Goldstein (an employee of
RCM SF) | President |
| Youse Guia (an employee of Allianz
Global Investors of America LP) | Chief Compliance Officer |
| Brian Shlissel (an employee of
AGIFM) | Treasurer |
| Larry Altadonna (an employee of
AGIFM) | Assistant Treasurer |
| Thomas Fuccillo (an employee of
Allianz Global Investors of America LP) | Secretary |
| Lagan Srivastava (an employee of
Allianz Global Investors of America LP) | Assistant Secretary |

To the Board’s knowledge, no director of the Fund has any material interest, direct or indirect, in any material transactions since the beginning of the most recently completed fiscal year, or in any material proposed transactions, to which RCM SF or any of its parents or subsidiaries was or is to be a party.

Description of RCM’s Investment Style

RCM’s investment philosophy in Asia Pacific is to seek out-performance over the investment cycle (typically 3 to 5 years) based upon researching and identifying growth prospects of quality companies that are incorporated in the portfolios using a disciplined investment methodology that includes both risk and liquidity controls.

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Under this approach, RCM identifies stocks that fall into two main categories: (i) companies that are expected to re-rate as a result of the market’s not fully recognizing the growth potential of the business, and (ii) companies that are expected to benefit from share price appreciation resulting from an earnings surprise.

RCM’s investment approach in Asia Pacific is predicated on a bottom-up, fundamentally driven investment process by which RCM builds portfolios based on the aggregate of individual stock recommendations after taking account of the risk characteristics at the total portfolio level.

Portfolio Construction

Portfolio construction is predominately judgmentally-driven focusing on using the best investment ideas from the research process. The portfolio manager looks to add value by taking active positions versus the benchmark where the bottom-up stock selection process identifies investment opportunities. Traders address pricing spreads and liquidity issues when discussing investment proposals with investment managers.

Members of the relevant sector research team, the designated portfolio manager, and often a representative from the Grassroots research team, register opinions and vote on stocks. These votes are recorded and re-evaluated at regular and frequent intervals. Managers look for stocks which show good potential for both secular and internal earnings growth. Through extensive research and local market awareness, RCM aims to identify both local and international trends and avoid predictable threats to a business, whether technological, regulatory, or via competition.

Idea Generation

Stock ideas at RCM are generated at the market and sector level from the stock universe. Managers look for stocks that show good potential for both secular and internal earnings growth. Through extensive research and local market awareness, RCM aims to avoid predictable threats to a business, whether technological, regulatory, or via competition.

In general, the decision at RCM to create a new position is driven by a disciplined team process based around a stock rating system. All stocks are rated on a 1 to 5 basis for considered inclusion within an equity portfolio. This systematic stock analysis ensures consistency on a global basis across RCM’s different offices.

Except as otherwise indicated earlier, RCM’s fundamental research and disciplined screening criteria are applied to each and every security proposed for inclusion in portfolios. For all stocks in the universe, RCM derives target relative P/Es to arrive at a 12-month total risk adjusted return projection. If a stock is found to have a positive relative valuation (risk/return), it becomes a “outperformer”. If negative, estimates are re-assessed, the stock monitored for possible dips in price, presenting a buying opportunity, or the idea is discarded. All outperformers are then compared to current holdings, to see if any of them have higher positive projected returns, and should therefore be purchased.

RCM’s primary sell discipline is derived from the use of a valuation system that not only flags potential outperformers, but also continually monitors for stocks which develop negative risk/return ratios. Unless the process can justify a higher P/E target, higher earnings estimates or lower specific risk, a stock is flagged as “underperformer” when it shows insufficient returns relative to the market and other stocks. There are typically three occurrences that trigger RCM’s sell discipline: 1) growth is compromised; 2) quality (management or financial) is compromised and/or 3) a low risk/return.

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Normally, stocks are chosen for their growth prospects and therefore analysts naturally monitor stocks for their long-term suitability for equity portfolios. 12-18 months would be considered the minimum holding period although in general RCM’s investment philosophy is geared toward a long-term three-year period.

Once recommendations have been made, they are entered onto RIMS Express, the central repository for global analysis at RCM. Company fundamentals are entered, along with the analyst’s recommendations and a calculation of target price and hence percentage upside. In this way the fund manager can differentiate between votes with the same rank, on an absolute basis. The database within the proprietary system RIMS as detailed above has also been constructed to include information acquired through external systems such as IBES, Trapeze and FirstCall.

Research analysts are the primary source of investment ideas; however, RCM uses other tools to assist. Quantitative tools monitoring consensus earnings expectations are applied. Some external research is assessed which accounts for approximately 10% of RCM’s total research. Analysts are responsible for communicating ideas and recommendations to the equity team. Grassroots SM is used for cross validation and from time to time generates ideas.

Risk Management

Risks are assessed at the overall portfolio, country, industry, style and individual stock levels. Risk review ensures that overall portfolio risks adhere to internal investment guidelines and are in line with return expectations.

Reporting to the CIO, RCM’s risk manager reviews portfolio risk with the CIO and fund managers on bi-weekly basis. On a quarterly basis, RCM’s Global CIO and global risk manager conduct portfolio risk reviews with the CIO, risk manager and fund managers in Asia to address risk control issues.

Central to portfolio construction is risk management which ensures that client’s guidelines are adhered to. Using Wilshire, APT and Style Research, the Performance & Risk Reporting Department (“PRR”) ensures that RCM’s equity teams are continuously monitored to achieve truth in labeling, meeting risk and performance targets and providing transparency and accountability with respect to performance metrics. The PRR is responsible for the calculation and analysis of portfolio returns.

Required Vote

Approval of the New Investment Management Agreement requires the affirmative vote of a “majority of the outstanding voting securities.” The term “majority of the outstanding voting securities,” as defined in the 1940 Act and as used in this Proxy Statement, means the affirmative vote of the lesser of (i) 67% of the voting securities of the Fund present at the Meeting if more than 50% of the outstanding voting securities of the Fund are present in person or by proxy or (ii) more than 50% of the outstanding voting securities of the Fund.

The directors of The Korea Fund unanimously recommend that stockholders of The Korea Fund vote FOR the approval of the New Investment Management Agreement.

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PROPOSAL 2. APPROVAL OF NEW SUB-ADVISORY AGREEMENT BETWEEN RCM AND RCM AP:

At the Meeting, you will be asked to approve a new sub-advisory agreement between RCM SF and RCM AP (the “New Sub-Advisory Agreement”). Beginning April 1, 2007, RCM AP will serve as the Fund’s interim sub-adviser pursuant to the interim sub-advisory agreement that the Board of Directors approved on January 25, 2007. A general description of the proposed New Sub-Advisory Agreement is included below. The form of the New Sub-Advisory Agreement is attached hereto as Exhibit B.

As discussed under Proposal 1 above, on January 25, 2007, after careful consideration of possible alternatives to the Fund’s management and sub-advisory arrangements, the Board of Directors, including a majority of the Independent Directors, determined that it would be in the best interests of the Fund and its stockholders to approve, subject to Stockholder approval, the New Sub-Advisory Agreement, pursuant to which RCM AP would become the Fund’s new sub-adviser, succeeding Deutsche Investment Trust Management Company Limited (“DeITMC”). At the meeting, the Board of Directors also approved an interim sub-advisory agreement, as permitted under the 1940 Act, pursuant to which RCM AP will serve as interim sub-adviser to the Fund beginning April 1, 2007. The terms of this interim sub-advisory agreement are substantially identical to those of the New Sub-Advisory Agreement, except that the compensation paid by the investment manager to the sub-adviser under the interim agreement is identical to that paid under the Fund’s previous sub-advisory agreement with DeITMC (the “Current Sub-Advisory Agreement”) and the termination provisions under the interim sub-advisory agreement require a 10-day written notice instead of the 60-day written notice that the New Sub-Advisory Agreement requires.

Description of the Current Sub-Advisory Agreement

The Current Sub-Advisory Agreement provides that DeITMC shall furnish DeIM with information, investment recommendations, advice and assistance, as DeIM from time to time reasonably requests. In addition, the Current Sub-Advisory Agreement provides that DeITMC shall maintain a separate staff within its organization to furnish such services exclusively to DeIM. For the benefit of the Fund, DeITMC has agreed to pay the fees and expenses of any Directors or officers of the Fund who are directors, officers or employees of DeITMC or its affiliates, except that the Fund has agreed to bear certain travel expenses of such Director, officer or employee to the extent such expenses relate to the attendance as a Director at a Board meeting of the Fund.

In return for the services it renders under the Current Sub-Advisory Agreement, DeITMC is paid by DeIM monthly compensation which, on an annual basis, is equal to 0.2875% of the value of the Fund’s net assets up to and including $50 million; 0.2750% of the value of such assets on the next $50 million; 0.2500% of the value of such assets on the next $250 million; 0.2375% of such assets on the next $400 million; and 0.2250% of such assets in excess of $750 million. During the fiscal year ended June 30, 2006, the fees paid by DeIM to DeITMC, pursuant to the Current Sub-Advisory Agreement, amounted to $3,403,137.

The Current Sub-Advisory Agreement further provides that DeITMC shall not be liable for any act or omission in the course of, connected with or arising out of any services to be rendered under the Current Sub-Advisory Agreement, except by reason of willful misfeasance, bad faith or gross negligence on the part of DeITMC in the performance of its duties or from reckless disregard by DeITMC of its obligations and duties under the Current Sub-Advisory Agreement.

The Current Sub-Advisory Agreement may be terminated without penalty upon sixty (60) days’ written notice by either party, or by a majority vote of the outstanding voting securities of the Fund, and automatically terminates in the event of the termination of the Fund’s currently effective investment advisory, management and administration agreement or in the event of its assignment.

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Description of New Sub-Advisory Agreement and Comparison of New Sub-Advisory Agreement and Current Sub-Advisory Agreement

In addition to its parties, term dates and fees (described below), the provisions of the New Sub-Advisory Agreement of the Fund differ from those of Current Sub-Advisory Agreement by significantly expanding the services to be provided by the Sub-Adviser. Provisions of the New Sub-Advisory Agreement that have such an effect include:

| • | RCM AP’s obligation to furnish continuously an investment
program for the Fund and shall make investment decisions on
behalf of the Fund and place all orders for the purchase and
sale of the Fund’s portfolio securities. In the performance
of its duties, RCM AP will (i) comply with the provisions
of the Fund’s Articles of Incorporation, as amended, and
Amended and Restated By-Laws, including any amendments thereto,
and the investment objectives, policies and restrictions of the
Fund, (ii) use its best efforts to safeguard and promote
the welfare of the Fund and (iii) comply with other
policies which the Fund’s Board of Directors or RCM SF, as
the case may be, may from time to time determine. RCM AP and RCM
SF will each make its officers and employees available to the
other from time to time at reasonable times to review the
investment policies of the Fund and to consult with each other
and any other sub-adviser(s) to the Fund regarding the investment affairs of the Fund. |
| --- | --- |
| • | RCM AP’s obligation to be responsible, either directly or
through others it selects, for the daily monitoring of the
investment activities and portfolio holdings of the Fund’s
portfolio in connection with the Fund’s compliance with the
Fund’s investment objectives, policies and restrictions.
RCM AP will also cooperate with and provide sufficient
information to RCM SF to assist with its monitoring of the
investment activities and portfolio holdings of the Fund in
connection with the Fund’s overall compliance with the
Investment Company Act of 1940, the Fund’s compliance with
its investment objectives, policies and restrictions, and the
Fund’s satisfaction of quarterly diversification
requirements for qualification as a regulated investment company
under the Internal Revenue Code of 1986 and the rules and
regulations thereunder. |
| • | RCM AP’s obligation, at its expense, either directly or
through others that it selects, to furnish (i) all
necessary investment and management facilities, including
salaries of personnel, required for it to execute its duties
faithfully and (ii) administrative facilities, including
bookkeeping, clerical personnel and equipment necessary for the
efficient conduct of the Fund’s investment affairs,
including verification and oversight of the pricing of the
portfolio securities and other instruments comprising the
Fund’s portfolio (but excluding determination of net asset
value and shareholder accounting services). |
| • | RCM AP’s obligation, in the selection of brokers or dealers
and the placing of orders for the purchase and sale of portfolio
investments for the Fund, to seek to obtain for the Fund the
most favorable price and execution available, except to the
extent RCM AP may be permitted to pay higher brokerage
commissions for brokerage and research services as described
below. In using its best efforts to obtain for the Fund the most
favorable price and execution available, RCM AP, bearing in mind
the Fund’s best interests at all times, shall consider all
factors it deems relevant, including by way of illustration,
price, the size of the transaction, the nature of the market for
the security, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker or
dealer involved and the quality of service rendered by the
broker or dealer in other transactions. Subject to such policies
as the Fund’s Board of Directors may determine, RCM AP
shall not be deemed to have acted unlawfully or to have breached
any duty created by the New Sub-Advisory Agreement or otherwise solely by reason of its having caused the
Fund to pay a broker or dealer that provides brokerage and
research services to RCM AP an amount of commission for
effecting a portfolio investment transaction |

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in excess of the amount of commission another broker or dealer would have charged for effecting that transaction, if RCM AP determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of either that particular transaction or RCM AP’s overall responsibilities with respect to the Fund and to other RCM AP clients as to which RCM AP exercises investment discretion. RCM SF agrees with RCM AP that any entity or person associated with RCM AP which is a member of a national securities exchange is authorized to effect any transaction on such exchange for the account of the Fund which is permitted by Section 11(a) of the Securities Exchange Act of 1934.

Comparison of Fees

In consideration of the services to be rendered under the New Sub-Advisory Agreement, RCM SF will pay RCM AP a monthly fee which, on an annual basis, is equal to 0.4000% per annum of the value of the Fund’s average daily net assets.

As described above, under the Current Sub-Advisory Agreement, DeIM paid DeITMC a monthly fee which, on an annual basis, is equal to 0.2875% of the value of the Fund’s net assets up to and including $50 million; 0.2750% of the value of such assets on the next $50 million; 0.2500% of the value of such assets on the next $250 million; 0.2375% of such assets on the next $400 million; and 0.2250% of such assets in excess of $750 million.

As of the end of the Fund’s last fiscal year, the Fund had net assets of $1.048 billion, and the investment manager paid an aggregate fee to the Sub-Adviser under its Current Sub-Advisory Agreement during such period equal to $3,403,137. Had the New Sub-Advisory Agreement been in effect during this period, the investment manager would have paid the Sub-Adviser an aggregate fee equal to $4,532,231 during such period. Thus, the aggregate fee under the New Sub-Advisory Agreement would have been 33% greater than the aggregate fee under the Current Sub-Advisory Agreement had the New Sub-Advisory Agreement been in effect during the Fund’s last fiscal year.

Board Considerations

Because RCM SF pays all sub-advisory fees under the New Sub-Advisory Agreement and remains fully responsible under the New Investment Management Agreement for the provision of such services as described above, the Board’s considerations in its approving the New Sub-Advisory Agreement are incorporated with its considerations in its approving the New Investment Management Agreement (See “Proposal 1 — Board Considerations”).

Information about Sub-Adviser

RCM AP was formed in 2006 and licensed by the Hong Kong SFC and the U.S. Securities and Exchange Commission in January of 2007. RCM AP is in the process of succeeding to all of Allianz Global Investors Hong Kong Limited’s equity management business in Hong Kong as part of a legal restructuring by Allianz Global Investors of its group companies in the Asia Pacific. RCM AP is located at 21/F, Cheung Kong Center, 2 Queen’s Road Central, Central, Hong Kong the assets under management to which it will succeed to were approximately $10 billion as of December 31, 2006.

RCM AP is a wholly owned subsidiary of Allianz Global Investors Asia Pacific GmbH (“AGIAP”) of Nymphenburger Str. 112-116, D-80636, Munich,Germany. AGIAP is a German company that is wholly owned by Allianz Global Investors AG of Nymphenburger Str. 112-116, D-80636, Munich,Germany (“AGI”).

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RCM AP has its principal office at 21/F Cheung Kong Center, 2 Queen’s Road, Central, Hong Kong. AGI acts as a holding company for the asset management business of Allianz SE. AGI is wholly owned by Allianz SE (“Allianz”) (74.47% is held directly by Allianz and the remaining share is held via Allianz-Argos 6 Vermögensverwaltungsgesellschaft mbH, which is wholly owned by Allianz Finanzbeteiligungs GmbH, which in turn is a wholly owned subsidiary of Allianz). Allianz’s principal executive offices are located at Koeniginstrasse 28, D-80802, Munich, Germany.

The name, address and principal occupation of each of RCM AP’s principal executive officers and directors are as follows:

| Name | Address | Positions with
RCM AP |
| --- | --- | --- |
| Mark Konyn | 21/F Cheung Kong Center, 2 Queen’s Road, Central, Hong Kong | Director & Chief Executive
Officer |
| Steve Bryant | 21/F Cheung Kong Center, 2 Queen’s Road, Central, Hong Kong | Director & Chief Operating
Officer |
| Raymond Chan | 21/F Cheung Kong Center, 2 Queen’s Road, Central, Hong Kong | Director & Chief
Investment Officer & Chairman of the Hong Kong Balanced
Investment Committee |
| Kent Rossiter | 21/F Cheung Kong Center, 2 Queen’s Road, Central, Hong Kong | Director & Head of
Regional Asia Pacific Trading |

To the Board’s knowledge, there are currently no officers or directors of the Fund who are also officers, employees, or directors of or owners of a material interest in RCM AP. In connection with the proposed transition of the Fund’s investment advisory arrangements, it has been proposed that the following employees of RCM AP’s affiliates will serve as officers of the Fund:

| Name of
Employee (RCM AP Affiliate Employer) | Proposed Position
at the Fund |
| --- | --- |
| Robert J. Goldstein (an employee of
RCM SF) | President |
| Youse Guia (an employee of Allianz
Global Investors of America LP) | Chief Compliance Officer |
| Brian Shlissel (an employee of
AGIFM) | Treasurer |
| Larry Altadonna (an employee of
AGIFM) | Assistant Treasurer |
| Thomas Fuccillo (an employee of
Allianz Global Investors of America LP) | Secretary |
| Lagan Srivastava (an employee of
Allianz Global Investors of America LP) | Assistant Secretary |

To the Board’s knowledge, no director of the Fund has any material interest, direct or indirect, in any material transactions since the beginning of the most recently completed fiscal year, or in any material proposed transactions, to which RCM AP or any of its parents or subsidiaries was or is to be a party.

REQUIRED VOTE

Approval of the New Sub-Advisory Agreement requires the affirmative vote of a “majority of the outstanding voting securities.” The term “majority of the outstanding voting securities,” as defined in the 1940 Act and as used in this Proxy Statement, means: the affirmative vote of the lesser of (i) 67% of the voting securities of the Fund present at the Meeting if more than 50% of the outstanding voting securities of the Fund are present in person or by proxy or (ii) more than 50% of the outstanding voting securities of the Fund.

The directors of The Korea Fund unanimously recommend that stockholders of The Korea Fund vote FOR the approval of the New Sub-Advisory Agreement.

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PROPOSAL 3. APPROVAL OF ISSUANCE OF FUND SHARES AT A PRICE BELOW NET ASSET VALUE IN CONNECTION WITH A CAPITAL GAINS DISTRIBUTION PAYABLE IN FUND SHARES OR, AT THE ELECTION OF THE STOCKHOLDER, IN CASH:

As discussed above in Proposal 1, it is expected that RCM SF and RCM AP will make substantial changes to the Fund’s current holdings, which in connection with the transition of the portfolio will likely result in the realization of a significant amount of capital gains. As a result, the Fund will realize large amounts of long-term capital gains. Under the U.S. Internal Revenue Code (the “Code”), the Fund is required each calendar year to distribute at least 98% of its capital gain net income for the 12-month period ending on October 31st in order to avoid an excise tax; in addition, the Fund would bear tax at the Fund level on any net capital gain income that is not distributed. If the Fund makes a capital gains distribution in cash and the Fund remains fully invested, it will need to sell additional portfolio securities to raise the cash to make the distribution. These additional sales will cause the Fund to realize additional capital gains that in turn must be distributed. As a result of this “cascade,” the Fund would shrink, likely causing an increase in the Fund’s expense ratio.

In an effort to reduce the need for the Fund to raise cash to make the distribution (and thereby reduce the effect of any “cascade”), the Fund intends to make all or part of its capital gains distribution in newly issued Fund shares or, at the election of the stockholder, in cash (a “Cash Election Dividend”). Stockholders that do not make any election, or whose elections are not received before an appropriate deadline, would receive the distribution in Fund shares.

Shares issued pursuant to the Cash Election Dividend would be issued at the lower of ( i ) market price as of a date close to the payment date and ( ii ) net asset value (“NAV”) on the pricing date, but not less than 95% of the closing price on that date. Because the Fund shares have typically traded at a discount to NAV, it is likely that the shares issued pursuant to the Cash Election Dividend would be issued at a price below NAV.

The full amount of the Cash Election Dividend, whether received in additional Fund shares or cash, will be reportable by stockholders who are U.S. taxpayers as long-term capital gain on their U.S. federal income tax returns. In addition, whether paid in cash or additional Fund shares, the amounts distributed will be net of any applicable withholding taxes.

If the shares are issued at less than NAV, the issuance of such shares will result in dilution of the aggregate NAV of the shares of the Fund held by those stockholders who elect to receive the Cash Election Dividend in cash, and such stockholders will, upon completion of the Fund’s payment of the Cash Election Dividend, own a smaller proportional interest in the Fund.

Rule 312.03 of the New York Stock Exchange (“NYSE”) requires that NYSE-listed companies such as the Fund obtain shareholder approval prior to issuing an amount of shares representing 20% or more of the voting power outstanding prior to the issuance of such shares. Rule 312.03 also requires the Fund to obtain shareholder approval prior to issuing shares to any substantial security holder of the Fund. Depending on the identity and number of Fund shares held by persons electing to receive cash in the Cash Election Dividend, the dividend could involve an issuance of 20% or more of the Fund’s pre-issuance outstanding shares, and it could also involve an issuance of shares to a substantial stockholder of the Fund. See “Additional Information” below for disclosure as to stockholders beneficially owning more than 5% of the Fund’s outstanding shares.

In addition, Section 23(b) of the Investment Company Act of 1940 (the “1940 Act”) restricts registered closed-end funds such as the Fund from issuing their stock at a price below NAV, although, among other exceptions, it permits such issuances “with the consent of a majority of its common stockholders.” At the

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Meeting, you will be asked to approve the Fund’s ability to issue its stock at a price below NAV in connection with its intended Cash Election Dividend. While the Fund does not believe that Section 23(b) requires stockholder approval for the Fund to pay a Cash Election Dividend, the Fund believes that obtaining stockholder approval would better ensure the Fund’s compliance with this provision of the 1940 Act. In other words, except to the extent required under the NYSE rules, any decision of the Fund’s Board of Directors to pay a Cash Election Dividend is not conditioned on the results of the stockholders’ vote on this proposal.

REQUIRED VOTE

Under the rules of the NYSE, an issuance of shares representing 20% or more of the Fund’s pre-issuance outstanding voting power, or an issuance to a substantial security holder of the Fund, requires approval by a majority of the votes cast on the proposal, provided that the total vote cast on the proposal represents over 50% in interest of all securities entitled to vote on the proposal. In addition, approval of the Fund’s ability to sell its stock at a price below NAV pursuant to Section 23(b)(2) of the 1940 Act requires the affirmative vote of a majority of its common stockholders.

The directors of The Korea Fund unanimously recommend that stockholders of The Korea Fund vote FOR the approval of the Fund’s ability to sell its stock at a price below NAV in connection with its Cash Election Dividend.

Additional Information

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 30(h) of the 1940 Act, as applied to a closed-end management investment company, require the Fund’s Directors and executive officers, the Fund’s investment manager (RCM SF, beginning April 1, 2007), affiliates of the Fund’s investment manager, the Fund’s sub-adviser (RCM AP, beginning April 1, 2007), and persons who beneficially own more than ten percent of a registered class of the Fund’s outstanding securities (all such persons collectively, “Reporting Persons”) to file reports of ownership of the Fund’s securities and changes in such ownership with the Securities and Exchange Commission (the “SEC”). Such persons are required by SEC regulations to furnish the Fund with copies of all such filings.

Based on a review of reports filed by the Fund’s Directors and executive officers, the Fund’s investment manager, officers and Directors of the investment manager, and affiliated persons of the Fund’s investment manager, and written representations by the Reporting Persons that no year-end reports were required for such persons, all filings required by Section 16(a) of the Exchange Act for the fiscal year ended June 30, 2006 were timely; however, John Robbins, the Chief Compliance Officer of the Fund’s previous investment manager, filed a Form 3 twenty-seven days late. As a convenience to the Directors, the Fund’s investment manager assists the Directors in making their Section 16 filings.

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According to a Schedule 13F filing made with the SEC on June 30, 2006, the following stockholder owned beneficially more than 5% of the Fund’s outstanding common stock:

| Title of
Class | Name and Address
of Beneficial Owner | Amount and Nature
of — Beneficial
Ownership | Percent of
Class |
| --- | --- | --- | --- |
| Common Stock | City of London Investment Group,
PLC c/o City of London Investment Management Company, Limited, 10 Eastcheap, London, EC3M ILX, England | 6,527,452 shares 1 | 24.21% |

1 City of London Investment Group, PLC held sole voting power and sole investment power with respect to the above number of shares. City of London Investment Group, PLC held 6,527,452 shares, or 24.21% of the Fund’s outstanding stock, through its control of City of London Investment Management Company Limited.

Except as noted above, to the best of the Fund’s knowledge, as of [ ], no other person owned beneficially more than 5% of the Fund’s outstanding stock.

Stockholder Communications with Directors

The Fund has established procedures for stockholders to send communications to the Board of Directors. Communications should be sent in writing to the Board of Directors of The Korea Fund, Inc., c/o Thomas J. Fuccillo, Secretary to the Fund, Allianz Global Investors, 1345 Avenue of the Americas, New York, New York 10105. The Secretary of the Fund will promptly forward copies of all written correspondence to the Directors.

Service Providers

Beginning April 1, 2007, RCM SF will serve as the Fund’s interim investment manager under the interim management agreement. The address of RCM SF is Four Embarcadero Center, San Francisco, California 94111.

Beginning April 1, 2007, RCM AP will serve as the Fund’s interim sub-adviser under the interim sub-advisory agreement between RCM SF and RCM AP. The address of RCM AP is 21/F., Cheung Kong Center, 2 Queen’s Road Central, Central, Hong Kong.

Beginning April 1, 2007, AGIFM will serve as the Fund’s sub-administrator under the sub-administration agreement between RCM SF and AGIFM. The address of AGIFM is 1345 Avenue of the Americas, New York, New York 10105.

Other Matters

The Board of Directors does not know of any matters to be brought before the Meeting other than those mentioned in this Proxy Statement. The appointed proxies will vote on any other business that comes before the Meeting or any adjournment or postponement thereof in their discretion.

Miscellaneous

Proxies will be solicited by mail and may be solicited in person or by telephone by officers of the Fund or personnel of RCM SF. The Fund has retained [ ], [Address] to assist in the proxy solicitation. [ ] will be paid a fee not to exceed $[ ] plus expenses. The costs and expenses connected with the solicitation of proxies by the Fund’s officers or [ ], in person or by telephone, will be borne by the Fund. The Fund will

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reimburse banks, brokers, and other persons holding the Fund’s shares registered in their names or in the names of their nominees, for their expenses incurred in sending proxy material to and obtaining proxies from the beneficial owners of such shares.

Solicitation of proxies is being made primarily by the mailing of this Proxy Statement with its enclosures on or about [ ], 2007. As mentioned above, [ ] will assist in the solicitation of proxies.

As the meeting date approaches, certain stockholders may receive telephone calls from representatives of [ ] if their votes have not been received. Authorization to permit [ ] to execute proxies may be obtained by telephonic instructions or electronically transmitted instructions from stockholders of the Fund. If proxies are obtained telephonically, they will be recorded in accordance with procedures that are consistent with applicable law and that the Fund believes are reasonably designed to ensure that both the identity of the stockholder casting the vote and the voting instructions of the stockholder are accurately determined.

If a stockholder wishes to participate in the Meeting, but does not wish to give a proxy by telephone, the stockholder may still submit the proxy card originally sent with this Proxy Statement. Should stockholders require additional information regarding the proxy or a replacement proxy card, they may contact [ ] toll-free at 1-800-[ ]. Any proxy given by a stockholder is revocable until voted at the Meeting. See “Proxy Statement — General.”

In the event that sufficient votes in favor of any proposal set forth in the Notice of this Meeting are not received by [ ], 2007, the persons named as appointed proxies on the enclosed proxy card may propose one or more adjournments of the Meeting to permit further solicitation of proxies. Any such adjournment will require the affirmative vote of a majority of the votes entitled to be cast at the session of the Meeting to be adjourned. The persons named as appointed proxies on the enclosed proxy card will vote in favor of such adjournment those proxies which they are entitled to vote in favor of the proposal for which further solicitation of proxies is to be made. They will vote against any such adjournment those proxies required to be voted against such proposal. The costs of any such additional solicitation and of any adjourned session will be borne by the Fund.

Stockholder Proposals

Stockholders wishing to submit proposals pursuant to Rule 14a-8 under the Exchange Act for inclusion in the proxy statement for the Fund’s 2007 annual meeting of stockholders, which is expected to be held in October 2007, should send their written proposals to Secretary of the Fund, c/o Allianz Global Investors Fund Management LLC, 1345 Avenue of the Americas, New York, NY 10105, by May 4, 2007. The timely submission of a proposal does not guarantee its inclusion.

For nominations of candidates for election as Directors (other than nominations made by or at the recommendation of the Directors) or other business to be properly brought before the annual meeting by a stockholder, the stockholder must comply with the Fund’s By-Laws, which, among other things, require that the stockholder must give timely notice thereof in writing to the Secretary of the Fund, the stockholder must be a stockholder of record, and the notice must contain the information about the nomination or other business that is required by the Fund’s By-Laws. To be timely, any such notice must be delivered to or mailed by certified mail, return receipt requested, and received at the principal executive offices of the Fund not later than 90 days nor more than 120 days prior to the date of the meeting; provided, however, that if less than 100 days’ notice or prior public disclosure is given or made to stockholders, any such notice by a stockholder to be timely must be so received not later than the close of business on the 10th day following the earlier of

20 THE KOREA FUND, INC.

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the day on which such notice of the date of the annual or special meeting was given or such public disclosure was made.

The Fund may exercise discretionary voting authority with respect to stockholder proposals for the 2007 meeting of stockholders that are not included in the proxy statement and form of proxy, if notice of such proposals is not received by the Fund at the above address within the time frame indicated above. Even if timely notice is received, the Fund may exercise discretionary voting authority in certain other circumstances. Discretionary voting authority is the ability to vote proxies that stockholders have executed and returned to the Fund on matters not specifically reflected on the form of proxy.

By order of the Board of Directors,

John Millette

Secretary

345 Park Avenue

New York, NY 10154

[ ], 2007

THE KOREA FUND, INC. 21

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Exhibit A

FORM OF INVESTMENT MANAGEMENT AGREEMENT

THE KOREA FUND, INC. A-0.1

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Exhibit B

FORM OF SUB-ADVISORY AGREEMENT

THE KOREA FUND, INC. B-0.1

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TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE

THE KOREA FUND, INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS Special Meeting of Stockholders — April 11, 2007

P

R

O

X

Y

The undersigned hereby appoints Thomas Fuccillo, Brian Schlissel and Lagan Srivastava, and each of them, the proxies of the undersigned, with full power of substitution in each of them, to represent the undersigned and to vote all shares of The Korea Fund, Inc. that the undersigned is entitled to vote at the Special Meeting of Stockholders of The Korea Fund, Inc. at 4:00 p.m., Eastern time, on April 11, 2007, at the offices of Ropes & Gray LLP, 1211 Avenue of the Americas, New York, New York, and at any adjournment or postponement thereof. The undersigned acknowledges receipt of the Notice of Special Meeting of Stockholders and accompanying Proxy Statement and revokes any proxy previously given with respect to the meeting.

THIS PROXY, IF PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED. IF NO INSTRUCTIONS ARE INDICATED ON A PROPERLY EXECUTED PROXY, THE UNDERSIGNED’S VOTE WILL BE CAST “FOR” EACH PROPOSAL.

PLEASE SIGN AND RETURN PROMPTLY IN ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED.

SEE REVERSE SIDE

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THE KOREA FUND, INC. OFFERS STOCKHOLDERS OF RECORD THREE WAYS TO VOTE YOUR PROXY

Your telephone or Internet vote authorizes the named proxies to vote your shares in the same manner as if you had returned your proxy card. We encourage you to use these cost effective and convenient ways of voting, 24 hours a day, 7 days a week.

TELEPHONE VOTING

This method of voting is available for residents of the U.S. and Canada. On a touch tone telephone, call TOLL FREE 1-[ ]-[ ], 24 hours a day, 7 days a week. You will be asked to enter ONLY the CONTROL NUMBER shown below. Have your voting instruction card ready, then follow the prerecorded instructions. Your vote will be confirmed and cast as you direct. Available until [ ] p.m. Eastern time on [ ], 2007.

INTERNET VOTING

Visit the Internet voting Web site at [ ]. Enter the COMPANY NUMBER AND CONTROL NUMBER shown below and follow the instructions on your screen. You will incur only your usual Internet charges. Available until [ ] p.m. Eastern time on [ ], 2007.

VOTING BY MAIL

Simply sign and date your proxy card and return it in the postage-paid envelope to [ ]., [Address]. If you are voting by telephone or the Internet, please do not mail your proxy card.

COMPANY NUMBER CONTROL NUMBER

6 DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED ONLY IF YOU ARE VOTING BY MAIL 6

x Please mark votes as in this example

The Board of Directors of the Fund recommends that Stockholders vote “FOR” Proposal 1.

1.	THE APPROVAL OF THE NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE FUND AND RCM CAPITAL MANAGEMENT LLC — FOR	AGAINST	ABSTAIN
	o	o	o
The Board of Directors of the Fund recommends that Stockholders vote “FOR” Proposal 2.
2.	THE APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT BETWEEN RCM CAPITAL MANAGEMENT, LLC, AND RCM ASIA PACIFIC LIMITED
	FOR	AGAINST	ABSTAIN
	o	o	o

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THE APPROVAL OF THE ISSUANCE OF FUND SHARES AT A PRICE BELOW NET ASSET VALUE IN CONNECTION WITH A CAPITAL GAINS DISTRIBUTION PAYABLE IN FUND SHARES (VALUED AT THE LOWER OF MARKET PRICE OR NET ASSET VALUE) OR, AT THE ELECTION OF THE STOCKHOLDER, IN CASH
FOR	AGAINST	ABSTAIN
o	o	o
The Proxies are authorized to vote in their discretion on any other business which may properly come before the
meeting and any adjournments or postponements thereof.
Date:		, 2007
Signature(s)
Signature(s)
PLEASE SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE YOUR FULL TITLE AS SUCH.

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