2011年度中間決算短信

8681 コリア・エクイティ・ファンド

 2011年07月21日15時30分


平成 23 年7月 21 日
2011 年度

中間決算短信

上場会社名

コリア・エクイティ・ファンド・インク

コード番号



本社所在地



問合せ先







8681
アメリカ合衆国ニューヨーク州 10281
ニューヨーク市、トゥー・ワールド・フィナンシャル・センタ
ー ビルディングB
島崎法律事務所
責任者役職名 代理人弁護士
氏名 島 崎 文 彰
担当:荻原
TEL(03)5802-5860




(単位:別段の表示のない限り、米ドル)
半 期
(2011 年4月 30 日現在および同日終了した 6 ヵ月間)


純資産







増減率(%)

142,672,072

125,469,105

14%

16.12

11.19

44%

△562,746

△301,962



35,506,046

15,706,236

126%

3.66

1.43

156%

1株当り純資産
正味投資収益(損失)
実現・未実現利益(損失)
1株当り純利益(損失)

* 1株当り純利益(損失)は、期中の平均発行済み株式数に基づく。

(注)

四半期ベースの数値は発表していない。
本国において決算発表は行っていない。上記の数値は 2011 年4月 30 日に終了した半期の株主向け報
告書に基づいたものである。

2011 年4月 30 日現在の資産の配分状況は以下の通りであった。
97.8%
2.2%
100.0%

韓国の持分証券
負債控除後のその他の資産(純)
純資産

産業別では、19.9%がサービス、18.1%が自動車装置部品および 16.2%が家電に投資されていた。


配当金の推移
10 月 30 日終了年度
2006
2007
2008
2009
2010

配当金額
無 配
無 配
0.01951 ドル
0.01017 ドル
無 配

支払日(現地)


2008 年7月 18 日
2008 年 12 月 29 日






KOREA EQUITY FUND, INC.

June 28, 2011

To Our Shareholders:

We present the Semi-Annual Report of
Korea Equity Fund, Inc. (the “Fund”) for the
six months ended April 30, 2011.
The Net Asset Value per share (“NAV”)
of the Fund on April 30, 2011 was $16.12,
representing an increase of 31.1% during
the six months ended April 30, 2011. The
closing New York Stock Exchange (“NYSE”)
market price of the Fund on April 30, 2011
was $14.72, representing a discount of
8.68% to the NAV. The net assets of the
Fund amounted to $142,672,072 on April
30, 2011.
The Korea Composite Stock Price Index
(“KOSPI”) increased from 1,883.0 to
2,192.4, or 16.4% in local currency terms,
during the period. Including the South Korean won (“Won”) appreciation of 5.2% during the period, this represented a total increase of 22.5% in United State (“U.S.”)
dollar terms. The Fund’s NAV outperformed
the KOSPI, in U.S. dollar terms, by 8.6%
during the period. The Fund’s share price
(quoted on the NYSE), increased by 30.8%
during the six months.
For the quarter ended April 30, 2011, the
KOSPI increased by 10.9% in U.S. dollar
terms. The NAV of the Fund increased by

15.4%. The Fund outperformed the KOSPI,
in U.S. dollar terms, by 4.5% during the
quarter.

South Korean Economy
South Korea’s real gross domestic product (“GDP”) growth rate was 4.2% year-over
year (“yoy”) in the first quarter of 2011
(1Q11), boosted by exports, notwithstanding the slowing U.S. recovery and policy
tightening in China. Real GDP growth accelerated to 1.4% quarter-over quarter (“qoq”)
in 1Q11 from 0.5% qoq in 4Q10. Exports of
goods rose by 18.6% yoy, and facilities investment increased by 12% yoy over the
same period. However, exports in May grew
by 23.5% yoy, but were below market expectations, moderating slightly from the
25.1% yoy rise in April and below the
Bloomberg consensus expectation of
27.7% yoy. Export growth excluding ships,
which better reflects current demand, increased slightly to 23.5% yoy from the
23.2% yoy rise in April.
During the period under review, Consumer Price Index (“CPI”) headline inflation
rose from 3.3% in November 2010 and
peaked in March 2011 (4.7%) before de-

creasing to 4.1% in May 2011. Although
these numbers suggest that the CPI is
peaking, inflation has still not fallen below
the 3% level at which the government is
comfortable. Hence, the Fund expects rate
normalization will resume given that the
Bank of Korea has only raised interest rates
twice during the period (from 2.5% to
3.0%).
Consumer confidence has been declining
since November 2010 and bottomed out in
March 2011. In April the consumer confidence index was 100. With inflation above
4%, increasing interest rates and a volatile
equity market, consumer confidence is unlikely to rebound strongly in the near term.
The jobless rate has also been fairly stable,
hovering between 3% and 4%.
In recent by-elections held on April 27,
South Korea’s conservative governing
Grand National Party fared poorly. The
results were perceived as a mid-term evaluation of the government’s performance
ahead of next year’s general election in April
and presidential election in December 2012.
Hence, the government may focus on issues such as bringing down inflation and
increasing expenditure for social welfare
and public job creation. In addition, financial
regulators will likely strengthen prudential
regulations to limit household debt growth
and promote safer debt-repayment structures.

South Korean Stock Market
During the period under review, the
KOSPI rose from 1,883 to 2,192. The Auto-

mobile sector continued to outperform due
to global market share gains, which translated into strong quarterly earnings that
beat market expectations. Refining and
Petrochemical stocks were the best performers during the period, as oil refining
margins and petrochemical spreads surged
on the back of tight supply and strong demand. Construction stocks with overseas
exposure also performed well due to strong
order momentum. Shipbuilding companies
also outperformed as they continued to
dominate the high-end market against their
Chinese counterparts. Commodity stocks
also outperformed. Silver, which contributes
40% of its operating profit, soared during
the review period.
The Steel sector underperformed again
despite attractive valuations. Companies
were unable to raise prices and quarterly
earnings were poor. Consumer stocks with
exposure to China lagged behind due to
their rich valuations. Domestic retailers also
lagged behind even though they reported
strong operating data, as investors were
more concerned about a peak in growth
and rising inflation. Financial stocks caused
the biggest drag on the index. Banks were
hit by risk related to the mutual savings
banks (it is expected that the government
will exert pressure on major banks to bail
out these savings banks) and slower than
expected interest rate normalization during
the period. The Brokerage sector also underperformed due to increasing competition
within the industry. Transportation stocks
such as shippers and airlines also suffered
due to higher oil prices.

Portfolio Management Activity
Within the Technology sector, the Fund
added Crucialtec Co., Ltd. after meeting
with the company’s management. The Fund
believes that its leadership in the optical
track pad business will allow it to grow significantly as the Fund expects demand for
such devices to gain more traction from
new customers and products. The Fund
also bought Duksan Hi-Metal Co., Ltd.
given the growth potential of actual matrix
organic light emitting diode (“AMOLED”)
applications and consistent strong quarterly
earnings.
Changes in the Financial sector include
disposing of our position in Industrial Bank
of Korea as earnings are likely to peak in the
first half of this year, while its high non-performing loan (“NPL”) formation ratio remains a concern. We added Daegu Bank as
regional banks appear to have less regulatory risk vis-à-vis major banks at this stage.
The NPL coverage ratio has improved and
the apartment project financing loan balance has declined. The Fund also added
Samsung Card Co., Ltd. as it is a major
beneficiary of increasing consumption and
the restructuring of the Samsung Group will
be a key catalyst (required to sell its 26%
stake in Everland in 2012). The Fund also
added Daewoo Securities to the portfolio
which underperformed the market given intensified competition among brokerages.
The Fund also added Korea Zinc Co. to
the portfolio as demand for non-ferrous
metals should remain strong and completion of its capacity expansion should drive
earnings higher. It is a proxy to rising prices

in precious metals, towards which we are
positive given the inflationary environment.
During the review period, the Fund participated in the Doosan Engine Co., Ltd IPO.
The share price surged strongly during the
first few days of trading. The Fund locked in
the gains as it traded at a huge premium
over its peers. Mando Corp. was also removed from the portfolio as relative valuations became stretched relative to its peers.
As the Fund has an overweight position in
the Auto sector, we disposed of Mando
Corp. The Fund added Kia Motors Corporation during this period as it continued to deliver strong results and gain market share
overseas on new launches. Another stock
the Fund bought, Fila Korea Ltd., has strong
quarterly results reinforcing our positive
view of the company. Margin expansion
coupled with strong orders in the United
States should also drive earnings further.
Due to the surge in oil prices, the Fund disposed its position in Korea Airlines Co., Ltd.
and recognized a loss.

Investment Strategy
Asia equity markets face a number of
headwinds, the most serious being the ongoing European sovereign debt crises and
the unsustainable level of both the U.S.
budget and current account deficit. Inflation
appears to be peaking and this will be positive for the equity markets. In South Korea,
the Fund favors globally competitive companies that are emerging in three sectors, in
particular Automobiles, Technology, and
Heavy Industrial. Their global market shares

have risen over the years. The Fund also
likes consumer stocks with brand leadership and companies that are able to pass
on higher costs to customers. The Fund will
maintain underweight positions in highly
regulated sectors in an inflationary environment, such as Telecommunications and Financials, as earnings are unlikely to bring
any welcome earnings surprises.
Technology stocks continue to underperform on weak demand and selling prices remain flat. However, the Fund will look to increase its underweight position, as it is the
only cyclical sector that still trades well below its post-2000 average. Companies will
also benefit from the capital expenditure cycle, which should continue in the mediumterm. The Fund will continue to select companies that have strong earnings visibility
and are gaining market share against their
peers.
With further rate normalization in 2011
and a bottoming construction market, banks
should benefit. Valuations also remain attractive in the Financial sector. However, the
Fund believes regulatory risks will continue
to exert pressure on stock performance.
That said, the Fund will look to add weight in
this sector if any stocks discount the risks
excessively.
Automobile stocks remain one of the
Fund’s biggest overweight sector positions
and have again outperformed the market
during the period under review. Valuations
are above historical averages, but they are
not demanding either. The sector has consistently beaten market expectations in

terms of earnings and global sales. Market
share gains are an ongoing trend due to
stronger brand equity. The Fund will continue to monitor the sector closely and trim
our positions if valuations become excessive.
Among industrials, the Fund favor stocks
that are best positioned to benefit from
strong overseas order momentum. The
Fund expect this trend to continue as governments in emerging countries, such as
the Middle East in particular, have doubled
their budgets in building power plants and
other infrastructure projects. South Korean
companies have increased their overseas
market share tremendously over the last
decade and due to their strong track record,
more order wins should materialize. However, the Fund acknowledges margin pressure due to increasing competition. Most
construction stocks are still trading at midcycle valuations and hence, we are comfortable with our position.
We appreciate your continuing support of
your Fund.
Sincerely,

Shigeru Shinohara
President

AVAILABILITY OF QUARTERLY SCHEDULE OF INVESTMENTS
The Fund files its complete schedule of portfolio holdings with the Securities and
Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form
N-Q. The Fund’s Forms N-Q are available on the SEC’s Website at http://www.sec.gov.
The Fund’s Forms N-Q may also be reviewed and copied at the SEC’s Public Reference
Room in Washington, D.C. Information on the operation of the Public Reference Room
may be obtained by calling 1-800-SEC-0330.

PROXY VOTING
A description of the policies and procedures that the Fund uses to vote proxies relating
to portfolio securities is available (1) without charge, upon request, by calling toll-free
1-800-833-0018; and (2) on the SEC’s Website at http://www.sec.gov. Information about
how the Fund voted proxies relating to securities held in the Fund’s portfolio during the
most recent 12-month period ended June 30 is available (1) without charge, upon request,
by calling toll-free 1-800-833-0018; and (2) on the SEC’s Website at http://www.sec.gov.

SHAREHOLDERS ACCOUNT INFORMATION
Shareholders whose accounts are held in their own name may contact the Fund’s
transfer agent, Computershare Trust Company, N.A. at (800) 426-5523 for information concerning their accounts.

INTERNET WEBSITE
Nomura Asset Management U.S.A. Inc. has established an Internet Website which highlights its history, investment philosophy and process and products, which include the Fund.
The Internet web address is www.nomura.com. We invite you to view the Internet Website.

KOREA EQUITY FUND, INC.
FUND HIGHLIGHTS—APRIL 30, 2011

(Unaudited)
KEY STATISTICS:
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Asset Value per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Closing NYSE Market Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage increase in Net Asset Value per Share* . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage increase in NYSE Market Price* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$142,672,072
$16.12
$14.72
31.1%
30.8%
SOUTH
KOREAN WON

MARKET INDEX:

U.S.$

16.4%

22.5%

Percentage increase in Korea Composite Stock Price Index* . . . . . . . . . . . . . . . . . . .
*From November 1, 2010 through April 30, 2011

ASSET ALLOCATION:
Korean Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Assets Less Liabilities, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

97.8%
2.2%

Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100.0%

INDUSTRY DIVERSIFICATION:
% of
Net Assets

Services . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automotive Equipment and Parts . . . . . . . .
Consumer Electronics . . . . . . . . . . . . . . . . .
Miscellaneous Manufacturing . . . . . . . . . . .
Banking and Financial Services . . . . . . . . .

19.9
18.1
16.2
11.2
10.8

% of
Net Assets

Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chemicals and Pharmaceuticals . . . . . . . .
Wholesale . . . . . . . . . . . . . . . . . . . . . . . . . .
Oil and Gas . . . . . . . . . . . . . . . . . . . . . . . . .
Iron and Steel . . . . . . . . . . . . . . . . . . . . . . .

6.5
5.8
3.3
3.3
2.7

TEN LARGEST EQUITY HOLDINGS BY MARKET VALUE:
Issuer

Hyundai Mobis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Samsung Electronics Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Samsung Engineering Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LG Chem Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hyundai Engineering & Construction Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Korea Zinc Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hyundai Motor Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hyundai Heavy Industries Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
KB Financial Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lotte Shopping Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Market
Value

% of
Net Assets

$18,583,292
18,283,587
8,380,771
6,557,749
6,444,943
5,713,000
5,656,920
5,585,003
5,512,006
4,723,896

13.0
12.8
5.9
4.6
4.5
4.0
4.0
3.9
3.9
3.3

KOREA EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS
APRIL 30, 2011
(Unaudited)

Shares

Cost

Market
Value

% of
Net
Assets

KOREAN EQUITY SECURITIES
Automotive Equipment and Parts
Hyundai Mobis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automotive service components
Hyundai Motor Company . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Passenger cars, trucks, autoparts, and commercial vehicles
Kia Motors Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

55,328

$ 5,589,144

$18,583,292

13.0

24,529

889,589

5,656,920

4.0

21,420

1,215,241

1,541,094

1.1

7,693,974

25,781,306

18.1

230,600

3,535,963

3,861,852

2.7

78,380

1,973,528

1,653,617

1.1

102,461

4,661,351

5,512,006

3.9

89,224

3,842,509

4,440,957

3.1

14,013,351

15,468,432

10.8

9,062

878,999

1,725,328

1.2

13,225

2,677,448

6,557,749

4.6

3,556,447

8,283,077

5.8

119,377

1,875,862

2,552,055

1.8

11,228

1,299,114

1,087,241

0.8

21,884

11,040,144

18,283,587

12.8

33,512

739,408

1,117,746

0.8

14,954,528

23,040,629

16.2

Passenger cars, trucks, mini-buses, and commercial vehicles
Total Automotive Equipment and Parts . . . . . . . . . . . . . . . . . .

Banking and Financial Services
Daegu Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial banking services
Daewoo Securities, Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . .
Brokerage services
KB Financial Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial banking services
Samsung Card Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit card services
Total Banking and Financial Services . . . . . . . . . . . . . . . . . . .

Chemicals and Pharmaceuticals
Korea Kumbo Petrochemical Co., Ltd. . . . . . . . . . . . . . . . . . .
Synthetic resins
LG Chem Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Petrochemicals, plastic resins, and engineering plastics
Total Chemicals and Pharmaceuticals . . . . . . . . . . . . . . . . . . .

Consumer Electronics
CrucialTec Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Optic based input devices
Samsung Electro-Mechanics Co., Ltd. . . . . . . . . . . . . . . . . . .
Electronic components
Samsung Electronics Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . .
Consumer electronics, computers, and telecommunications
Silicon Works Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mixed-signal semiconductors
Total Consumer Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . .

See notes to financial statements.

KOREA EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS—(continued)
APRIL 30, 2011
(Unaudited)

Shares

Cost

Market
Value

% of
Net
Assets

Iron and Steel
POSCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hot and cold rolled steel products

8,732

$ 3,386,754

$ 3,823,339

2.7

34,981

607,342

744,555

0.5

123,375

510,216

717,962

0.5

14,470

3,348,224

5,713,000

4.0

11,158

3,251,618

5,585,003

3.9

57,840

1,500,741

2,118,572

1.5

28,530

1,230,822

1,086,374

0.8

10,448,963

15,965,466

11.2

5,878

421,278

1,275,853

0.9

22,843

1,526,072

3,408,765

2.4

1,947,350

4,684,618

3.3

6,419

974,911

1,378,267

1.0

11,000

1,605,700

1,582,824

1.1

11,009

1,174,786

1,617,077

1.1

10,336

2,573,609

4,723,896

3.3

6,329,006

9,302,064

6.5

Miscellaneous Manufacturing
Duksan Hi-Metal Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solder ball
Finetec Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Superconducting materials
Korea Zinc Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-ferrous metals
Hyundai Heavy Industries Co., Ltd. . . . . . . . . . . . . . . . . . . . .
Shipbuilding
Lock&Lock Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plastic food storage
Poongsan Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-ferrous metals
Total Miscellaneous Manufacturing . . . . . . . . . . . . . . . . . . . . .

Oil and Gas
SK Innovation Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Refines, markets, and distributes oil
S-Oil Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Refines crude oil
Total Oil and Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Retail
CJ Home Shopping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous products
GS Home Shopping Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cable television and internet based shopping
Hyundai Department Store Co., Ltd. . . . . . . . . . . . . . . . . . . . .
Department stores
Lotte Shopping Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Department and discount stores
Total Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

See notes to financial statements.

KOREA EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS—(continued)
APRIL 30, 2011
(Unaudited)
% of
Net
Assets

Shares

Cost

Market
Value

65,730

$ 1,603,569

$ 1,718,813

1.2

89,170

3,140,603

4,254,732

3.0

23,033

810,282

928,776

0.7

58,600

1,044,396

1,444,646

1.0

76,626

4,093,988

6,444,943

4.5

173,016

1,853,415

1,991,015

1.4

49,874

799,677

902,897

0.5

37,717

3,002,029

8,380,771

5.9

11,083

2,062,021

2,384,890

1.7

18,409,980

28,451,483

19.9

27,372

1,849,080

1,823,349

1.3

39,526

1,802,311

2,865,945

2.0

3,651,391

4,689,294

3.3

$84,391,744

$139,489,708

97.8

Services
CJ CGV Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Movie theaters
Dongbu Insurance Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-life insurance
Hana Tour Service Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Travel related services
Hotel Shilla Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hotels
Hyundai Engineering & Construction Co., Ltd. . . . . . . . . . . . .
General construction
Korean Reinsurance Company . . . . . . . . . . . . . . . . . . . . . . . .
Life and non-life insurance
S.M. Entertainment Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Korean rock and roll music
Samsung Engineering Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . .
Engineering and construction
Samsung Fire & Marine Insurance Co., Ltd. . . . . . . . . . . . . . .
Non-life insurance
Total Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Wholesale
Fila Korea Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Textile and apparel
Samsung C&T Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Import/export
Total Wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL SOUTH KOREAN EQUITY SECURITIES . . . . . . . . .

See notes to financial statements.

KOREA EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS—(continued)
APRIL 30, 2011
(Unaudited)

Shares

Market
Value

Cost

% of
Net
Assets

Investments in Foreign Currency
South Korea Won . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . KRW 191,840
Non-interest bearing Account
TOTAL INVESTMENTS IN FOREIGN CURRENCY . . . . . . . .

$

TOTAL INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

175

$

179

0.0

175

179

0.0

$84,391,919

$139,489,887

97.8

OTHER ASSETS LESS LIABILITIES, NET . . . . . . . . . . . . . .

3,182,185

2.2

NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$142,672,072

100.0

†Non-income producing security.

Portfolio securities and foreign currency holdings were translated
at the following exchange rate as of April 30, 2011.

South Korean Won

KRW

1,068.850 = USD $1.00

See notes to financial statements.

KOREA EQUITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2011
(Unaudited)

ASSETS:
Investments in securities, at market value (cost—$84,391,744) . . . . . . . . . . . . . . . . . . . . . . .
Investments in foreign currency, at market value (cost—$175) . . . . . . . . . . . . . . . . . . . . . . .
Receivable for dividends and interest, net of withholding taxes . . . . . . . . . . . . . . . . . . . . . .
Cash or cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$139,489,708
179
197,377
3,227,677

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

142,914,941

LIABILITIES:
Accrued management fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

98,544
144,325

Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

242,869

NET ASSETS:
Capital stock (par value of 8,849,912 shares of capital stock outstanding, authorized
100,000,000, par value $0.10 each) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated net realized gain on investments and foreign currency transactions . . . . . . . .
Unrealized net appreciation on investments and foreign currency transactions . . . . . . . . . .
Accumulated net investment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

884,991
62,604,008
24,807,990
55,105,892
(730,809)

Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$142,672,072

Net asset value per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 16.12

See notes to financial statements.

KOREA EQUITY FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2011
(Unaudited)
INCOME:
Dividend income (less $183,805 of withholding taxes) . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$930,165
828

Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 930,993

EXPENSES:
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual meeting expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors’ fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholder reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auditing and tax reporting fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer agency fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

575,600
552,326
98,700
81,900
50,500
45,480
42,770
20,570
13,650
7,503
4,740

INVESTMENT LOSS—NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,493,739
(562,746)

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Realized gain (loss) on investments and foreign currency transactions:
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized loss on foreign currency transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

26,995,867
(15,456)

Net realized gain on investments and foreign currency transactions . . . . . . . . . . . . . . .

26,980,411

Change in net unrealized appreciation on investments . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in net unrealized appreciation on translation of foreign currency
and other assets and liabilities denominated in foreign currency . . . . . . . . . . . . . . . .

5,969,858

Net realized and unrealized gain on investments and foreign currency transactions . . .

35,506,046

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . .

$34,943,300

See notes to financial statements.

2,555,777

KOREA EQUITY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Six
Months Ended
April 30, 2011
(Unaudited)

FROM INVESTMENT ACTIVITIES:
Net investment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gain (loss) on foreign currency transactions . . . . . . . . . . .
Change in net unrealized appreciation on investments
and foreign currency transactions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in net assets derived from investment operations . . . . . . . . .

$

(562,746)
26,995,867
(15,456)

For the Year
Ended
October 31, 2010

$

(803,305)
14,225,453
12,410

8,525,635

14,614,419

34,943,300

28,048,977

-

(1,483,505)
(1,483,505)

(28,297,607)
(28,297,607)

-

136,026,379

109,460,907

$142,672,072

$136,026,379

FROM DISTRIBUTIONS TO SHAREHOLDERS:
Decrease in net assets derived from capital stock transactions . . . . . .
Decrease in net assets derived from distribution to shareholders . . . .

FROM CAPTIAL SHARE TRANSACTIONS:
Net assets value of shares distributed as part of tender offer . . . . . . .
Decrease in net assets derived from capital share transactions . . . . . .

NET ASSETS:
Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
End of period (including accumulated net investment loss of $730,809
and $168,063, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

See notes to financial statements.

KOREA EQUITY FUND, INC.

NOTES TO FINANCIAL STATEMENTS (Unaudited)
APRIL 30, 2011
1. Significant Accounting Policies
Korea Equity Fund, Inc. (the “Fund”) is registered
under the Investment Company Act of 1940 as a
non-diversified, closed-end investment management
company. The Fund was incorporated in Maryland on
September 7, 1993 and investment operations commenced on December 3, 1993. The Fund’s investment
objective is to seek long-term capital appreciation
through investments primarily in equity securities of
South Korean companies.
The following is a summary of significant accounting policies followed by the Fund. In the opinion of
management, all material adjustments, consisting of
normal recurring adjustments, considered necessary
for a fair presentation have been included.
The accompanying financial statements have been
prepared in accordance with U.S. generally accepted
accounting principles (“GAAP”) and are stated in
United States dollars. The following is a summary of
the significant accounting and reporting policies used
in preparing the financial statements.
(a) Valuation of Securities—Investments traded on
stock exchanges are valued at the last sale price on
the principal market on which such securities are
traded as of the close of business on the day the securities are being valued or, lacking any sales, at the
last available bid price. Securities traded in the U.S.
over-the-counter market (as opposed to the OTC market for foreign investors in South Korea) are valued at
the last reported sales price as of the close of business on the day the securities are being valued or, if
none is available, at the mean of the bid and offer
price at the close of the day or, if none is available, at
the last reported sales price available to the Fund. Securities for which market quotations are not readily
available and restricted securities are valued in good
faith at fair value using methods determined by the
Board of Directors. Short-term debt securities which
mature in 60 days or less are valued at amortized cost,
which approximates fair value, if their original maturity

at the date of purchase was 60 days or less, or by
amortizing their value on the 61st day prior to maturity
if their term to maturity at the date of purchase exceeded 60 days. Securities and other assets, including futures contracts and related options, are stated at
market value or otherwise at fair value as determined
in good faith by or under the direction of the Board of
Directors of the Fund.
(b) Foreign Currency Transactions—Transactions
denominated in South Korean Won (“Won”) are
recorded in the Fund’s records at the prevailing rate at
the time of the transaction. Asset and liability accounts that are denominated in Won are adjusted to
reflect the current exchange rate at the end of the
period. Transaction gains or losses resulting from
changes in the exchange rate during the reporting
period or upon settlement of foreign currency transactions are included in the results of operations for the
current period.
The net assets of the Fund are presented at the exchange rate and market values on April 30, 2011. The
Fund isolates that portion of the results of operations
arising as a result of changes in the foreign exchange
rates on investments from the fluctuations arising
from changes in the market prices of securities held at
April 30, 2011. Net unrealized foreign exchange gains
or losses includes gains or losses arising from
changes in the value of assets and liabilities including
investments in securities at April 30, 2011, resulting
from changes in the exchange rate. Net realized foreign exchange gains or losses include gains or losses
arising from sales of portfolio securities, sales and
maturities of short-term securities, currency gains or
losses realized between the trade and settlement
dates on securities transactions, the difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund’s books and
the U. S. dollar equivalent of the amounts actually received or paid.
(c) Security Transactions, Investment Income,
Distributions to Shareholders—Security transactions

KOREA EQUITY FUND, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued) (Unaudited)
are accounted for on the trade date. Dividend income
is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Realized gains
and losses on the sale of investments are calculated
on a first in first out basis.
Distributions from net investment income and net
realized capital gains are determined in accordance
with Federal income tax regulations, which may differ
from GAAP. To the extent these “book/tax” differences
are permanent in nature (i.e., that they result from
other than timing of recognition—“temporary”), such
amounts are reclassified within the capital accounts
based on their Federal tax-basis treatment; temporary
differences do not require reclassification. Dividends
and distributions which exceed net realized capital
gains for financial reporting purposes, but not for tax
purposes, are reported as distributions in excess of
net realized capital gains.
Pursuant to a securities lending agreement with
Brown Brothers Harriman & Co., the Fund may lend
securities to qualified institutions. It is the Fund’s
policy that, at origination, all loans are secured by collateral of at least 102% of the value of U.S. securities
loaned and 105% of the value of foreign securities
loaned. It is the Fund’s policy that collateral equivalent
to at least 100% of the market value of securities on
loan is maintained at all times. Collateral is provided in
the form of cash, which will be invested in certain
money market funds. The Fund is entitled to receive
all income on securities loaned, in addition to a portion of the income earned as a result of the lending
transaction. Although each security loan is fully collateralized, there are certain risks. On November 21,
2008, the Fund suspended its participation in the
securities lending program. The Fund may resume its
participation in the future. During the fiscal year ended
October 31, 2010, and semi-annual period ended
April 30, 2011, the Fund did not earn fees from lending fund portfolio securities, pursuant to the
securities lending agreement.
(d) Capital Account Reclassification—For the year
ended October 31, 2010, the Fund’s accumulated net

investment loss was decreased by $635,242, the accumulated net realized loss was increased by $12,410
and paid in capital was decreased by $622,832. The
adjustments were a result of the reclassification of foreign exchange losses and net operating loss. These
had no impact on net assets.
(e) Income Taxes—A provision for United States income taxes has not been made since it is the intention
of the Fund to continue to qualify as a regulated investment company under the Internal Revenue Code
and to distribute within the allowable time limit all taxable income to its shareholders.
Under South Korean tax laws, a withholding tax is
imposed on dividends and interest income at the rate
of 16.5% and 13.2%, respectively, and such withholding taxes are reflected as a reduction of the related
revenue. There is no withholding tax on realized gains.
The Fund evaluates tax positions taken or expected to be taken in accordance with GAAP, to determine whether the tax positions are “more-likelythan-not” of being sustained by the applicable tax
authority. As of and during the six months ended April
30, 2011, the Fund did not have any liabilities for any
uncertain tax positions. The Fund recognizes interest
and penalties, if any, related to uncertain tax positions
as income tax expense in the statement of operations.
During the six months, the Fund did not incur any interest or penalties.
(f) Subscription for New Shares—As part of their
annual corporate action matters, certain South
Korean companies offer rights to their shareholders to
subscribe to new shares which are eligible for a portion of the dividends paid on existing shares in the
year of subscription. The Fund normally subscribes to
new share offerings by South Korean companies.
(g) Use of Estimates in Financial Statement Preparation—The preparation of financial statements in accordance with GAAP requires management to make
estimates and assumptions that affect the reported
amounts and disclosures in the financial statements.
Actual results could differ from these estimates.

KOREA EQUITY FUND, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued) (Unaudited)
(h) Concentration of Risk—A significant portion of
the Fund’s net assets consists of South Korean securities which involve certain considerations and risks not
typically associated with investments in the United
States. In addition to the smaller size, less liquidity and
greater volatility, the South Korean securities market is
less developed than the U.S. securities market and
there is often substantially less publicly available information about South Korean issuers than there is about
U.S. issuers. Future economic and political developments in South Korea could adversely affect the liquidity or value, or both, of securities in which the Fund is
invested. Further, the Fund may be exposed to currency devaluation and other exchange rate fluctuations.
(i) Indemnifications—Under the Fund’s organizational documents, its officers and directors are indemnified against certain liabilities arising from the performance of their duties to the Fund. Additionally, in the
normal course of business, the Fund enters into contracts that contain a variety of representations which
provide general indemnifications. The Fund’s maximum exposure under these agreements is unknown
as this would involve future claims that may be made
against the Fund that have not yet occurred. However,
based on the Fund’s experience, the Fund expects the
risk of loss to be remote.

2. Management Agreement and Transactions
With Affiliated Persons
Nomura Asset Management U.S.A. Inc. (“NAMU.S.A.” or the “Manager”) acts as the Manager of the
Fund pursuant to a management agreement. Under
the agreement, the Manager provides all office space,
facilities and personnel necessary to perform its duties. Pursuant to such management agreement, the
Manager has retained its parent company, Nomura
Asset Management Co., Ltd. (“NAM”), as investment
adviser for the Fund, and effective July 24, 2001, the
shareholders approved NAM retaining its whollyowned subsidiaries, Nomura Asset Management
Hong Kong Limited (“NAM-Hong Kong”) and Nomura
Asset Management Singapore Limited (“NAM-Singap
ore”), as investment sub-advisers for the Fund.
As compensation for its services to the Fund, the

Manager receives a monthly fee computed at the
annual rate of 0.85% of the Fund’s average weekly net
assets. This annual rate became effective as of
September 1, 2006 pursuant to an amendment of the
Fund’s management agreement with the Manager.
Under the management agreement, the Fund paid or
accrued fees to the Manager of $552,326 for the six
months ended April 30, 2011. Under the Investment
Advisory Agreement, the Manager informed the Fund
that NAM received sub-advisory fees of $326,293
from the Manager for the six months ended April 30,
2011. In addition, NAM-Hong Kong and NAM-Singapore received sub-advisory fees of $29,663 and
$148,315, respectively from NAM. At April 30, 2011,
the management fee payable to the Manager by the
Fund was $98,544.
Certain officers and/or directors of the Fund are
officers and/or directors of the Manager. Affiliates of
Nomura Holdings, Inc. (the Manager’s indirect parent)
did not earn any fees in commissions on the execution
of portfolio security transactions for the six months
ended April 30, 2011. The Fund pays each Director not
affiliated with the Manager an annual fee of $12,000
plus $1,500 per meeting attended or $1,000 per telephone meeting attended, together with such Director’s
actual expenses related to attendance at meetings.
The Chairman of the Board, presently Rodney A. Buck,
who is not affiliated with the Manager, is paid an additional annual fee of $5,000. The chair of the Audit
Committee, presently Mr. Chemidlin, receives an additional annual fee of $1,000. Such fees and expenses
for unaffiliated Directors aggregated $81,900 for the
six months ended April 30, 2011.

3. Purchases and Sales of Investments
Purchases and sales of investments, exclusive of
investments in foreign currency and short-term securities, for the six months ended April 30, 2011 were
56,094,572 and $85,254,822, respectively.

KOREA EQUITY FUND, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued) (Unaudited)
4. Rights Offering

31, 2017.

The Fund issued to its shareholders of record as of
the close of business on January 19, 2007 transferable Rights to subscribe for up to an aggregate of
2,803,000 shares of Common Stock of the Fund at a
rate of one share of Common Stock for three Rights
held (“Primary Subscription”). During February 2007,
the Fund issued a total of 2,803,000 shares of Common Stock on exercise of such Rights at the subscription price of $9.76 per share, compared to a net
asset value per share of $12.30 and a market value
per share of $10.79. A sales load of 3.75% was included in the subscription price. Offering costs of approximately $600,000 and the sales load were
charged directly against the proceeds of the Rights
Offering.

6. Fair Value Measurements

As of October 31, 2010, net unrealized appreciation
on investments, for federal income tax purposes was
$46,279,452 consisting of $46,789,726 related to appreciated securities and $510,274 related to depreciated securities. The aggregate cost of investments, at
October 31, 2010 for federal income tax purposes
was $86,317,612.

In accordance with GAAP, fair value is defined as
the price that the Fund would receive to sell an asset
or pay to transfer a liability in an orderly transaction
between market participants at the measurement
date. GAAP also establishes a framework for measuring fair value, and a three-level hierarchy for fair value
measurements based upon the transparency of inputs
to the valuation of an asset or liability. Inputs may be
observable or unobservable and refer broadly to the
assumptions that market participants would use in
pricing the asset or liability. Observable inputs reflect
the assumptions market participants would use in
pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions
about the assumptions that market participants would
use in pricing the asset or liability developed based on
the best information available in the circumstances.
Each investment is assigned a level based upon the
observability of the inputs which are significant to the
overall valuation. The three-tier hierarchy of inputs is
summarized below.

At October 31, 2010 the components of accumulated earnings on a tax basis were as follows:

• Level 1—quoted prices in active markets for
identical investments

5. Federal Income Taxes

Accumulated capital losses
Unrealized appreciation on
investments
Total accumulated earnings

$(2,039,680)
46,279,452
$44,239,772

For Federal income tax purposes, there was no distribution for the fiscal year ended October 31, 2010,
and the total distribution paid for the fiscal year ended
October 31, 2009 in the amount of $114,026 was from
ordinary income.
During the year ended October 31, 2010 the Fund
utilized capital loss carryforwards of $14,225,453. The
Fund has a capital loss carryforward as of October 31,
2010 of $2,039,680, all of which expires on October

• Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
• Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining
the fair value of investments)
In January 2010, Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2 No. 2010-06 “Improving Disclosures about
Fair Value Measurements”. ASU 2010-06 requires reporting entities to make new disclosures about
amounts and reasons for significant transfers
in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that

KOREA EQUITY FUND, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued) (Unaudited)
fall in either Level 2 or Level 3, and information on
purchases, sales, issuance and settlements on a
gross basis in the reconciliation of activity in Level
3 fair value measurements. The new and revised
disclosures are required to be implemented for fiscal years beginning after December 2009 except
for the disclosures surrounding purchases, sales,
issuance and settlements, on a gross basis in the
reconciliation of Level 3 fair value measurements,
which are effective for fiscal years beginning after
December 15, 2010. The Fund adopted the applicable portion of the ASU 2010-06 for the year ended
October 31, 2011, and the impact of such adoption
is limited to additional disclosures in the financial
statements.
The following table summarizes the valuation of the
Fund’s investments by the above fair value hierarchy
levels as of April 30, 2011.

Level
Level 1 . . . . . . . . . .
Equity Securities*
Foreign Currency.
Level 2 . . . . . . . . . .
Level 3 . . . . . . . . . .
Total . . . . . . . . . . .

Investments in
Securities

Other
Financial
Instruments

$139,489,708
179
-0-0-

Origin: 2011年度中間決算短信

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