UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-08002
KOREA EQUITY FUND, INC.
(Exact Name of Registrant as specified in charter)
Worldwide Plaza
309 West 49th Street
New York, NY 10019
(Address of Principal Executive Offices)
Nomura Asset Management U.S.A. Inc.
Worldwide Plaza
309 West 49th Street
New York, NY 10019
(Name and Address of Agent for Service)
Registrant’s telephone number, including area code: (800) 833-0018
| Date of fiscal year end: | October 31, 2016 |
| | |
| Date of reporting period: | April 30, 2016 |
KOREA EQUITY FUND, INC.
June 23, 2016
To Our Shareholders:
We present the Semi‑Annual Report of Korea Equity Fund, Inc. (the “Fund”) for the six months ended April 30, 2016.
The net asset value per share (“NAV”) of the Fund increased by 1.0% and the closing market price of the Fund (on the New York Stock Exchange) increased by 5.5% for the six months ended April 30, 2016, after giving effect to the reinvestment of income dividends, ordinary income distributions, and capital gain distributions. The closing market price of the Fund on April 30, 2016 was $7.84, representing a discount of 7.3% to the NAV of $8.46. The net assets of the Fund totaled $82,367,347 on April 30, 2016.
The Korea Composite Stock Price Index (“KOSPI”) decreased from 2,029.47 to 1,994.15, or 1.7% in local currency terms, during the six months ended April 30, 2016. Including the South Korean Won (“Won”) depreciation of 0.4% during the six months ended April 30, 2016, this represented a total decrease of 2.1% in United States (“U.S.”) dollar terms. The NAV of the Fund outperformed the KOSPI, in U.S. dollar terms, by 3.1% during the six months ended April 30, 2016.
For the quarter ended April 30, 2016, the KOSPI increased from 1,912.06 to 1,994.15, or 4.3% in local currency terms, which, including the Won appreciation of 5.4% for the quarter, represented a total increase of 10.3% in U.S. dollar terms. The NAV of the Fund increased by 7.4% and underperformed the KOSPI, in U.S. dollar terms, by 2.9%. The Fund’s share price increased by 12.0% during the quarter.
South Korean Economy
The Bank of Korea (“BOK”) left its policy interest rate unchanged at 1.50% in April 2016. This was based on the belief that the U.S. economy would continue its recovery even though the Korean domestic economy faced uncertain growth. Still, the BOK expects domestic demand to generate a modest recovery. The 2016 South Korean growth and inflation rate estimates were reduced to 2.8% and 1.2%, respectively, due to the sluggish global economic outlook. Despite the downward revision, the BOK’s maintaining the current cooperative rates to support the economic recovery.
In Korean politics, the ruling party won only 122 of the total 300 seats in the legislative elections on April 13, 2016. Prior to the election, the market expected the results would have a limited unfavorable impact to the ruling party’s economic reform plans, including implementation of quantitative easing and labor market restructuring. However, the prevalent belief has become that both the ruling party and the opposition party have more reasons to adopt accommodative policy measures to revive the economy in order to win the presidential election in 2017.
Korean exports decreased by 8.2% year‑over‑year (“yoy”) in March 2016, compared with consensus expectations of a decrease of 10.9% yoy. Exports to the U.S. decreased by 21.5% yoy, while exports to Europe increased by 1.1% yoy. Exports to Southeast Asian Nation countries de-
creased 20.7% yoy, while exports to China and Hong Kong decreased by 21.4% and 22.8% yoy, respectively.
South Korean Stock Market
The Precision Instruments sector outperformed due to earnings growth expectations driven by new product pipelines. The Iron and Steel sector also outperformed based on market expectations that steel prices would improve and provide earnings growth. The Electrical and Gas Utilities sectors continued to outperform based upon market consensus of better profitability and higher dividend payouts.
On the other hand, the Transportation sector underperformed given concerns of poor earnings and balance sheet weakness. The Wholesale sector underperformed as the market became concerned that a slowdown in same‑store sales growth would weaken earnings momentum. Additionally, the Telecommunication sector underperformed due to concerns of poor earnings amid a slowdown in average revenue per user (“ARPU”) growth. The Electronic Appliances and Components sector underperformed given concerns of weak memory prices creating slower earnings growth.
Portfolio Management Activity
The Fund added Korea Electric Power Corporation in November 2015 based on expectations of improved earnings from a fuel mix change, a government policy to encourage higher dividend payouts, and lessening market concerns of a possible temporary tariff cut. The Fund also added Mando Corporation in November 2015 based on expectations of improved earnings along with the high‑margin automobile component business. LG Chem, Ltd. was added in December 2015 given improved earnings expectations from more stable oil prices and a turnaround in its electric vehicle battery business. Additionally, the Fund added S-Oil Corporation in December 2015 as the stock may benefit from lower official selling prices of oil from the Middle East. POSCO was added in March 2016 because the Fund expects earnings improvements from better steel prices and lower raw material costs. The Fund added Innocean Worldwide Inc. in January 2016 because the company may be a beneficiary of rising marketing expenditures by the Hyundai Motor Group. The Fund also added Naver Corporation in January 2016 given improvements in its mobile advertising business and a possible listing by social network platform LINE. The Fund increased its position in Dongbu Insurance Co., Ltd. as it may benefit from an improving industry environment due to the easing of government regulations as well as an improving automobile loss ratio.
The Fund disposed of its positions in DoubleUGames Co., Ltd. and Hugel, Inc. in November and December 2015, respectively. The Fund participated in the initial public offerings (“IPOs”) of these companies based on expectations of earnings growth and took profits as the share prices surged and when valuations were believed to be stretched. The Fund sold its position in SK Telecom Co., Ltd. in December 2015 because the Fund was concerned that slowing ARPU growth would hurt the company’s earnings going forward. The Fund also sold its position in E‑mart Co., Ltd. in January 2016 as domestic discount store business growth has been slowing. Even though the company plans to shut down its business in China, the Fund believes this will take more time and will raise costs in the near term. The Fund disposed of its position in LG Household & Health Care, Ltd. in January 2016 due to concerns that a slowdown in Chinese visitors would damage the company’s cosmetic sales going forward. The Fund reduced its position in Korea Autoglass Corporation in order to take profits as the share price surged after listing.
Investment Strategy
The Fund believes that investors may have been overly pessimistic about the global economic outlook. The U.S. economy appears particularly resilient, with strong support from employment growth. China also appears to have bottomed out, as the official Purchasing Managers’ Index, which measures activity at large state owned enterprise manufacturers, rose above 50 for the first time since August 2015. Additionally, lending growth has also rebounded as has housing and infrastructure investment. On the other hand, Europe and Japan are providing little additional impetus for growth. Considering this tepid overall economic environment, the Fund believes monetary policy settings will remain broadly supportive of the financial markets. An additional positive argument for Asia Pacific equities is the very attractive valuations, especially when compared to returns available in the cash and bond markets. On the negative side, resumed strengthening of the U.S. dollar could cut short the Asian stock market rally, although this is not the Fund’s base case forecast.
The Fund continues to hold a positive opinion of the Korean equity market. Although the economic recovery could falter, the Fund believes many stocks are now cheap and underowned which should limit the equity market’s downside going forward. Korea’s relatively sound fiscal position and additional measures to stimulate domestic consumer sentiment should support the overall economy. The Fund also continues to have a positive view of stocks that generate stable cash flows with strong market positions. In this regard, the Fund maintains a positive view of automobile parts manufacturers. For the Electric & Electronic Equipment sector, the Fund expects to maintain the current exposure considering the attractive valuation and stable cash generation ability even though near-term earnings momentum does not seem especially promising. The Fund maintains a positive view of selected bank and insurance stocks, as it believes these stocks could benefit from a domestic economic recovery. The Fund expects to continue the current exposure to petrochemical stocks given the current expectations of earnings growth supported by stable oil prices. The Fund maintains its existing exposure to the Utility sector based upon beliefs of stable return on equity improvement and attractive valuations.
The Fund maintains its existing exposure to the Electronic Appliance and Components sector, maintaining an overweight position in SK Hynix, Inc. due to its stable cash flow generation and attractive valuations. The current underweight position in Samsung Electronics Co., Ltd. is expected to be maintained given the lack of a catalyst. The Fund maintains an overweight position in Ncsoft Corporation given its strong mobile game pipeline. The Fund maintains an overweight position in the Financing Business sector. The Fund expects the uncertain interest rate environment to be priced in, while valuations are in an attractive range for banks. The Fund also maintains overweight exposures to selected insurance stocks considering their ability to generate stable revenue and the improved regulatory environment.
The Fund reduced its exposure to the Chemicals sector and took profits following the share price rally. The Fund still has a positive view of Lotte Chemical Corporation and LG Chem Ltd. considering that earnings improvements are backed by more stable oil prices over the long term. Within the Iron and Steel sector, the Fund maintains a positive view of Korea Zinc, Co., Ltd. given stable earnings backed by capacity expansion and the possibility of tight supply. The Fund expects to keep the current exposure to the Transportation Equipment sector. Additionally, automobile parts manufacturers continue to offer stable earnings momentum and attractive valuations even though the Fund is relatively bearish towards the automobile original equipment manufacturers due to slower shipment growth. The Fund continues to maintain an underweight exposure to the Communication Services sector. Although regulatory risks and market competition have been improving, a slowdown in average ARPU would be a concern.
The Fund added exposure in the Electricity & Gas sector. The Fund has a positive view of the sector given earnings improvements aided by a change to its fuel mix, the easing of market concerns regarding a possible temporary tariff cut, and government policy to encourage higher dividend payouts. The Fund believes that attractive valuations should help to support share prices in this sector over the medium‑term. The Fund appreciates your continuing support.
| | | |
| | | Sincerly, | |
| | | | |
| | | /s/ Yutaka Itabashi | |
| | | Yutaka Itabashi President | |
| | | | |
| | | | |
DISCLOSURES Sources: Nomura Asset Management U.S.A. Inc., Nomura Asset Management Singapore Limited, and Bloomberg L.P. Past performance is not indicative of future results. There is a risk of loss. The NAV price is adjusted for reinvestment of income dividends, ordinary income distributions, and capital gain distributions. The New York Stock Exchange’s closing market price is adjusted for reinvestment of income dividends, ordinary income distributions, and capital gain distributions. The Fund’s performance does not reflect sales commissions. This material contains the current opinions of the Fund’s manager, which are subject to change without notice. This material should not be considered investment advice. Statements concerning financial market trends are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions, and each investor should evaluate their ability to invest for the long term. Comparisons between changes in the Fund’s net asset value or market price per share and changes in the Korea Composite Stock Price Index should be considered in light of the Fund’s investment policy and objective, the characteristics and quality of the Fund’s investments, the size of the Fund, and variations in the South Korean Won/U.S. Dollar exchange rate. This report is for informational purposes only. Investment products offered are not FDIC insured, may lose value, and are not bank guaranteed. Indices are unmanaged. An index cannot be directly invested into. Certain information discussed in this report may constitute forwardlooking statements within the meaning of the U.S. federal securities laws. The Fund believes that the expectations reflected in such forwardlooking statements are based on reasonable assumptions and can give no assurance that the Fund’s expectations will be achieved. Forwardlooking information is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected. |
SHAREHOLDERS ACCOUNT INFORMATION Shareholders whose accounts are held in their own name may contact the Fund’s registrar Computershare Trust Company, N.A., at (800) 426‑5523 for information concerning their accounts. |
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 website of the Securities and Exchange Commission (“SEC”) 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 web site at http://www.sec.gov. Additional information about the Fund’s Board of Directors is available (1) without charge, upon request, by calling toll‑free 1‑800‑833‑0018; and (2) on the website of the SEC at http://www.sec.gov in the Fund’s most recent proxy statement filing. |
AVAILABILITY OF QUARTERLY SCHEDULE OF INVESTMENTS The Fund files a schedule of portfolio holdings with the 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 web site 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. |
FUND CERTIFICATION In September 2015, the Fund filed its Chief Executive Officer Certification with the New York Stock Exchange pursuant to Section 303A.12(a) of the New York Stock Exchange Corporate Governance Listing Standards. The Fund’s Chief Executive Officer and Chief Financial Officer Certifications pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002 were filed with the Fund’s Form N‑CSR and are available on the SEC’s web site at http://www.sec.gov. |
SHARE REPURCHASES Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940 Act that from time to time the Fund may repurchase shares of its common stock in the open market. |
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 http://funds.nomura‑asset.com. |
KOREA EQUITY FUND, INC.
FUND HIGHLIGHTS—APRIL 30, 2016 (Unaudited)
| KEY STATISTICS | | | |
| Net Assets | | $ | 82,367,347 | |
| Net Asset Value per Share | | | $8.46 | |
| Closing NYSE Market Price | | | $7.84 | |
| Percentage Change in Net Asset Value per Share*† | | | 1.0% | |
| Percentage Change in NYSE Market Price*† | | | 5.5% | |
| MARKET INDEX | | | | | | |
| Percentage Change in Market Index* | | SOUTH KOREAN WON | | | U.S.$ | |
Korea Composite Stock Price Index* | | | (1.7%) | | | | (2.1%) | |
| *From November 1, 2015 through April 30, 2016. | | | | | | | | |
| †Reflects the percentage change in share price adjusted for reinvestment of income dividends, ordinary income distributions, and capital gain distributions. | | | | | | | | |
| ASSET ALLOCATION | | | |
| South Korean Equity Securities | | | 99.0% | |
| Foreign Currency. | | | 0.9 | |
| Other Assets Less Liabilities, Net | | | 0.1 | |
| Net Assets | | | 100.0% | |
| INDUSTRY DIVERSIFICATION | | | | |
| | % of Net Assets | | | % of Net Assets |
| Electronic Appliances and Components | 23.2 | | Chemicals | 5.0 |
| Other Products | 13.3 | | Retail Trade | 3.7 |
| Insurance | 10.6 | | Transportation | 2.2 |
| Transportation Equipment | 9.1 | | Food | 2.0 |
| Financing Business | 7.4 | | Construction and Engineering | 1.2 |
| Media and Entertainment | 7.2 | | Precision Instruments | 1.2 |
| Wholesale | 6.6 | | Services | 1.0 |
| Iron and Steel | 5.3 | | | |
TEN LARGEST EQUITY HOLDINGS BY FAIR VALUE
Security | | Fair Value | | | % of Net Assets | |
Samsung Electronics Co., Ltd. | | | $8,741,741 | | | | 10.6 | |
Dongbu Insurance Co., Ltd. | | | 4,887,489 | | | | 5.9 | |
SK Hynix, Inc. | | | 3,935,059 | | | | 4.8 | |
Coway Co. Ltd. | | | 3,925,859 | | | | 4.8 | |
Hyundai Mobis Co., Ltd. | | | 3,850,081 | | | | 4.7 | |
Ncsoft Corporation | | | 3,847,413 | | | | 4.7 | |
Shinhan Financial Group Co., Ltd. | | | 3,752,832 | | | | 4.6 | |
Samsung Life Insurance Co., Ltd. | | | 3,382,184 | | | | 4.1 | |
Korea Zinc Co., Ltd. | | | 3,316,970 | | | | 4.0 | |
Korea Electric Power Corporation | | | 3,298,010 | | | | 4.0 | |
KOREA EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS
APRIL 30, 2016
(Unaudited)
| | | Shares | | | Cost | | | Fair Value | | | % of Net Assets | |
| SOUTH KOREAN EQUITY SECURITIES | | | | | | | | | | |
| | | | | | | | | | | | | |
| Chemicals | | | | | | | | | | | | |
LG Chem, Ltd. | | | 4,105 | | | $ | 1,113,594 | | | $ | 1,064,075 | | | | 1.3 | |
| Manufactures petrochemicals | | | | | | | | | | | | | | | | |
LG Chem, Ltd. Preferred | | | 1,460 | | | | 289,437 | | | | 251,665 | | | | 0.3 | |
| Manufactures petrochemicals | | | | | | | | | | | | | | | | |
Lotte Chemical Corporation | | | 9,510 | | | | 1,635,219 | | | | 2,427,778 | | | | 2.9 | |
| Manufactures petrochemical products | | | | | | | | | | | | | | | | |
SK Chemicals Co., Ltd. | | | 6,000 | | | | 408,251 | | | | 380,705 | | | | 0.5 | |
| Manufactures chemicals | | | | | | | | | | | | | | | | |
Total Chemicals | | | | | | | 3,446,501 | | | | 4,124,223 | | | | 5.0 | |
| | | | | | | | | | | | | | | | | |
| Construction and Engineering | | | | | | | | | | | | | | | | |
Doosan Infracore Co., Ltd. † | | | 57,400 | | | | 220,068 | | | | 392,262 | | | | 0.5 | |
| Manufactures industrial machinery | | | | | | | | | | | | | | | | |
Finetex EnE, Inc. † | | | 36,600 | | | | 224,831 | | | | 238,299 | | | | 0.3 | |
| Manufactures various heating and cooling systems | | | | | | | | | | | | | | | | |
Jusung Engineering Co., Ltd. † | | | 46,600 | | | | 310,584 | | | | 322,930 | | | | 0.4 | |
| Develops semiconductor manufacturing equipment | | | | | | | | | | | | | | | | |
| Total Construction and Engineering | | | | | | | 755,483 | | | | 953,491 | | | | 1.2 | |
| | | | | | | | | | | | | | | | | |
| Electronic Appliances and Components | | | | | | | | | | | | | | | | |
Coway Co. Ltd. | | | 45,620 | | | | 2,016,496 | | | | 3,925,859 | | | | 4.8 | |
| Manufactures household appliances | | | | | | | | | | | | | | | | |
Cuckoo Electronics Co., Ltd. | | | 9,530 | | | | 1,440,475 | | | | 1,734,209 | | | | 2.1 | |
| Manufactures household appliances | | | | | | | | | | | | | | | | |
Samsung Electronics Co., Ltd. | | | 8,045 | | | | 5,845,318 | | | | 8,741,741 | | | | 10.6 | |
| Produces consumer electronic products | | | | | | | | | | | | | | | | |
| Samsung Electronics Co., Ltd. Preferred | | | 810 | | | | 723,672 | | | | 737,347 | | | | 0.9 | |
| Produces consumer electronic products | | | | | | | | | | | | | | | | |
SK Hynix, Inc. | | | 160,166 | | | | 4,072,037 | | | | 3,935,059 | | | | 4.8 | |
| Semiconductor products | | | | | | | | | | | | | | | | |
| Total Electronic Appliances and Components | | | | | | | 14,097,998 | | | | 19,074,215 | | | | 23.2 | |
| | | | | | | | | | | | | | | | | |
| Financing Business | | | | | | | | | | | | | | | | |
Hana Financial Group Inc. | | | 29,900 | | | | 526,923 | | | | 669,362 | | | | 0.8 | |
| Banking and financial services | | | | | | | | | | | | | | | | |
Industrial Bank of Korea | | | 67,434 | | | | 771,458 | | | | 715,085 | | | | 0.9 | |
| Banking and financial services | | | | | | | | | | | | | | | | |
KB Financial Group Inc. | | | 30,925 | | | | 990,189 | | | | 939,272 | | | | 1.1 | |
| Provides various financial products and services | | | | | | | | | | | | | | | | |
See notes to financial statements.
KOREA EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS—(Continued)
APRIL 30, 2016
(Unaudited)
| | | Shares | | | Cost | | | Fair Value | | | % of Net Assets | |
| Shinhan Financial Group Co., Ltd. | | | 102,868 | | | $ | 3,812,710 | | | $ | 3,752,832 | | | | 4.6 | |
| Provides various financial products and services | | | | | | | | | | | | | | | | |
Total Financing Business | | | | | | | 6,101,280 | | | | 6,076,551 | | | | 7.4 | |
| | | | | | | | | | | | | | | | | |
| Food | | | | | | | | | | | | | | | | |
| Lotte Chilsung Beverage Co., Ltd. | | | 970 | | | | 1,903,095 | | | | 1,667,787 | | | | 2.0 | |
| Alcoholic and non‑alcoholic beverages | | | | | | | | | | | | | | | | |
Total Food | | | | | | | 1,903,095 | | | | 1,667,787 | | | | 2.0 | |
| | | | | | | | | | | | | | | | | |
| Insurance | | | | | | | | | | | | | | | | |
Dongbu Insurance Co., Ltd. | | | 79,885 | | | | 3,513,471 | | | | 4,887,489 | | | | 5.9 | |
| Non‑life insurance | | | | | | | | | | | | | | | | |
| Samsung Fire & Marine Insurance Co., Ltd. | | | 1,945 | | | | 360,321 | | | | 499,928 | | | | 0.6 | |
| Non‑life insurance | | | | | | | | | | | | | | | | |
| Samsung Life Insurance Co., Ltd. | | | 35,390 | | | | 3,513,495 | | | | 3,382,184 | | | | 4.1 | |
| Life insurance | | | | | | | | | | | | | | | | |
Total Insurance | | | | | | | 7,387,287 | | | | 8,769,601 | | | | 10.6 | |
| | | | | | | | | | | | | | | | | |
| Iron and Steel | | | | | | | | | | | | | | | | |
Korea Zinc Co., Ltd. | | | 7,670 | | | | 2,114,261 | | | | 3,316,970 | | | | 4.0 | |
| Non‑ferrous metal products | | | | | | | | | | | | | | | | |
POSCO | | | 4,930 | | | | 875,837 | | | | 1,034,819 | | | | 1.3 | |
| Integrated steel producer | | | | | | | | | | | | | | | | |
Total Iron and Steel | | | | | | | 2,990,098 | | | | 4,351,789 | | | | 5.3 | |
| | | | | | | | | | | | | | | | | |
| Media and Entertainment | | | | | | | | | | | | | | | | |
Grand Korea Leisure Co., Ltd. | | | 21,000 | | | | 490,221 | | | | 528,771 | | | | 0.6 | |
| Operates foreigners‑exclusive casinos | | | | | | | | | | | | | | | | |
Innocean Worldwide Inc. | | | 13,520 | | | | 819,344 | | | | 973,494 | | | | 1.2 | |
| Provides marketing and communication services | | | | | | | | | | | | | | | | |
Naver Corporation | | | 935 | | | | 496,958 | | | | 552,463 | | | | 0.7 | |
| Engages in online media | | | | | | | | | | | | | | | | |
Ncsoft Corporation | | | 19,250 | | | | 3,083,299 | | | | 3,847,413 | | | | 4.7 | |
| Online gaming | | | | | | | | | | | | | | | | |
Total Media and Entertainment | | | | | | | 4,889,822 | | | | 5,902,141 | | | | 7.2 | |
| | | | | | | | | | | | | | | | | |
| Other Products | | | | | | | | | | | | | | | | |
Interojo Co., Ltd. | | | 67,750 | | | | 937,434 | | | | 2,439,135 | | | | 2.9 | |
| Manufactures contact lens | | | | | | | | | | | | | | | | |
| Korea Electric Power Corporation | | | 61,145 | | | | 2,964,528 | | | | 3,298,010 | | | | 4.0 | |
| Transmission and distribution of electricity | | | | | | | | | | | | | | | | |
See notes to financial statements.
KOREA EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS—(Continued)
APRIL 30, 2016
(Unaudited)
| | | Shares | | | Cost | | | Fair Value | | | % of Net Assets | |
KT&G Corporation | | | 20,440 | | | $ | 1,833,704 | | | $ | 2,194,262 | | | | 2.6 | |
| Produces cigarettes | | | | | | | | | | | | | | | | |
LG Corp. | | | 6,900 | | | | 420,549 | | | | 410,108 | | | | 0.5 | |
| Electronics, chemicals, household products, and telecommunications | | | | | | | | | | | | | | | | |
LIG Nex1 Co., Ltd. | | | 9,190 | | | | 847,710 | | | | 716,259 | | | | 0.9 | |
| Develops weapon systems | | | | | | | | | | | | | | | | |
Medy‑Tox Inc. | | | 1,280 | | | | 561,213 | | | | 472,556 | | | | 0.6 | |
| Manufactures biopharmaceuticals | | | | | | | | | | | | | | | | |
S‑Oil Corporation | | | 10,674 | | | | 701,523 | | | | 811,424 | | | | 1.0 | |
| Oil refining and marketing company | | | | | | | | | | | | | | | | |
Yuhan Corporation | | | 2,500 | | | | 614,334 | | | | 637,126 | | | | 0.8 | |
| Manufactures pharmaceutical products | | | | | | | | | | | | | | | | |
Total Other Products | | | | | | | 8,880,995 | | | | 10,978,880 | | | | 13.3 | |
| | | | | | | | | | | | | | | | | |
| Precision Instruments | | | | | | | | | | | | | | | | |
i‑SENS, Inc. † | | | 24,862 | | | | 711,528 | | | | 777,907 | | | | 0.9 | |
| Develops and produces medical devices | | | | | | | | | | | | | | | | |
Rayence Co., Ltd. † | | | 13,105 | | | | 283,726 | | | | 251,630 | | | | 0.3 | |
| Manufactures digital X‑ray imaging system components | | | | | | | | | | | | | | | | |
Total Precision Instruments | | | | | | | 995,254 | | | | 1,029,537 | | | | 1.2 | |
| | | | | | | | | | | | | | | | | |
| Retail Trade | | | | | | | | | | | | | | | | |
GS Retail Co., Ltd. | | | 13,340 | | | | 584,421 | | | | 622,891 | | | | 0.8 | |
| Operates various convenience stores | | | | | | | | | | | | | | | | |
Hyundai Green Food Co., Ltd. | | | 101,666 | | | | 1,559,377 | | | | 1,770,195 | | | | 2.1 | |
| Food service company | | | | | | | | | | | | | | | | |
Lotte Shopping Co., Ltd. | | | 2,805 | | | | 592,717 | | | | 665,893 | | | | 0.8 | |
| Operates department stores and discount stores | | | | | | | | | | | | | | | | |
Total Retail Trade | | | | | | | 2,736,515 | | | | 3,058,979 | | | | 3.7 | |
| | | | | | | | | | | | | | | | | |
| Services | | | | | | | | | | | | | | | | |
SK Holdings Co., Ltd. | | | 4,301 | | | | 984,610 | | | | 840,853 | | | | 1.0 | |
| Information technology services | | | | | | | | | | | | | | | | |
Total Services | | | | | | | 984,610 | | | | 840,853 | | | | 1.0 | |
| | | | | | | | | | | | | | | | | |
| Transportation | | | | | | | | | | | | | | | | |
AJ Rent a Car Co., Ltd. † | | | 69,305 | | | | 772,446 | | | | 653,267 | | | | 0.8 | |
| Car rental company | | | | | | | | | | | | | | | | |
| CJ Korea Express Corporation † | | | 4,500 | | | | 499,433 | | | | 763,897 | | | | 0.9 | |
| Transportation of freight and cargo | | | | | | | | | | | | | | | | |
Hyundai Glovis Co., Ltd. | | | 2,590 | | | | 410,793 | | | | 429,493 | | | | 0.5 | |
| Provides logistic services | | | | | | | | | | | | | | | | |
Total Transportation | | | | | | | 1,682,672 | | | | 1,846,657 | | | | 2.2 | |
See notes to financial statements.
KOREA EQUITY FUND, INC.
SCHEDULE OF INVESTMENTS—(Continued)
APRIL 30, 2016
(Unaudited)
| | | | | | Cost | | | Fair Value | | | % of Net Assets | |
| Transportation Equipment | | | | | | | | | | | | |
Hyundai Mobis Co., Ltd. | | | 16,934 | | | $ | 4,366,596 | | | $ | 3,850,081 | | | | 4.7 | |
| Manufactures automotive parts | | | | | | | | | | | | | | | | |
Hyundai Motor Company | | | 3,900 | | | | 550,169 | | | | 488,449 | | | | 0.6 | |
| Manufactures motor vehicles and parts | | | | | | | | | | | | | | | | |
| Hyundai Motor Company Preferred | | | 13,900 | | | | 1,199,879 | | | | 1,181,616 | | | | 1.4 | |
| Manufactures motor vehicles and parts | | | | | | | | | | | | | | | | |
Korea Autoglass Corporation | | | 64,140 | | | | 604,109 | | | | 968,451 | | | | 1.2 | |
| Manufactures automotive glasses | | | | | | | | | | | | | | | | |
Mando Corporation | | | 6,220 | | | | 844,255 | | | | 1,023,303 | | | | 1.2 | |
| Manufactures automobile parts | | | | | | | | | | | | | | | | |
Total Transportation Equipment | | | | | | | 7,565,008 | | | | 7,511,900 | | | | 9.1 | |
| | | | | | | | | | | | | | | | | |
| Wholesale | | | | | | | | | | | | | | | | |
Hansae Co., Ltd. | | | 26,988 | | | | 668,025 | | | | 1,213,055 | | | | 1.5 | |
| Manufactures and distributes apparels | | | | | | | | | | | | | | | | |
iMarketKorea Inc. | | | 37,320 | | | | 866,630 | | | | 552,095 | | | | 0.7 | |
| Industrial business to business electronic commerce | | | | | | | | | | | | | | | | |
Samchuly Bicycle Co., Ltd. | | | 37,790 | | | | 621,614 | | | | 732,205 | | | | 0.9 | |
| Manufactures bicycles | | | | | | | | | | | | | | | | |
Youngone Corporation | | | 72,440 | | | | 2,940,395 | | | | 2,889,330 | | | | 3.5 | |
| Outdoor sportswear and shoes | | | | | | | | | | | | | | | | |
Total Wholesale | | | | | | | 5,096,664 | | | | 5,386,685 | | | | 6.6 | |
| TOTAL SOUTH KOREAN EQUITY SECURITIES | | | | | | $ | 69,513,282 | | | $ | 81,573,289 | | | | 99.0 | |
| INVESTMENT IN FOREIGN CURRENCY | | | | | | | | | | | | | | | | |
South Korean Won | | | | | | $ | 759,502 | | | $ | 753,500 | | | | 0.9 | |
| Non‑interest bearing account | | | | | | | | | | | | | | | | |
| TOTAL INVESTMENT IN FOREIGN CURRENCY | | | | | | | 759,502 | | | | 753,500 | | | | 0.9 | |
TOTAL INVESTMENTS | | | | | | $ | 70,272,784 | | | $ | 82,326,789 | | | | 99.9 | |
| | | | | | | | | | | | | | | | | |
| OTHER ASSETS LESS LIABILITIES, NET | | | | | | | | | | | 40,558 | | | | 0.1 | |
NET ASSETS | | | | | | | | | | $ | 82,367,347 | | | | 100.0 | |
†Non‑income producing security.
Portfolio securities and foreign currency holdings were translated
at the following exchange rate as of April 30, 2016.
| South Korean Won | KRW | 1,145.77 = USD $1.00 |
See notes to financial statements.
KOREA EQUITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2016
(Unaudited)
| ASSETS: | | | |
| Investments in South Korean Equity securities, at fair value (cost—$69,513,282) | | $ | 81,573,289 | |
Investment in foreign currency, at fair value (cost—$759,502) | | | 753,500 | |
Receivable for investments sold | | | 412,699 | |
Prepaid expenses | | | 57,384 | |
Cash and cash equivalents | | | 243,584 | |
Total Assets | | | 83,040,456 | |
| LIABILITIES: | | | |
Payable for investments purchased | | | 408,479 | |
Accrued legal fee | | | 124,895 | |
Accrued management fee | | | 55,567 | |
Accrued directors’ fees and expenses | | | 12,356 | |
Other accrued expenses | | | 71,812 | |
| | | | 673,109 | |
| NET ASSETS: | | | |
| Capital stock (9,740,623 shares of capital stock outstanding, 100,000,000 shares authorized, par value $0.10 each) | | | 974,062 | |
Paid‑in capital | | | 67,768,066 | |
| Accumulated net realized gain on investments and foreign currency transactions | | | 44,699 | |
| Net unrealized appreciation on investments and foreign currency transactions | | | 12,054,004 | |
Accumulated net investment income | | | 1,526,516 | |
Net Assets | | $ | 82,367,347 | |
Net asset value per share | | $ | 8.46 | |
See notes to financial statements.
KOREA EQUITY FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2016
(Unaudited)
| INCOME: | | | | | | |
| Dividend income (net of $202,629 of withholding taxes) | | $ | 1,025,426 | | | | |
Interest income | | | 190 | | | | |
Total Income | | | | | | $ | 1,025,616 | |
| EXPENSES: | | | | | | | | |
Management fee | | | 334,560 | | | | | |
Legal fees | | | 141,851 | | | | | |
Directors’ fees and expenses | | | 83,286 | | | | | |
Custodian fees | | | 42,173 | | | | | |
Auditing and tax reporting fees | | | 34,752 | | | | | |
Other expenses | | | 39,459 | | | | | |
Total Expenses | | | | | | | 676,081 | |
INVESTMENT INCOME—NET | | | | | | | 349,535 | |
| | |
| REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY: | |
| Realized gain on investments and foreign currency transactions: | | | | | | | | |
Net realized gain on investments | | | | | | | 1,965,756 | |
| Net realized gain on foreign currency transactions | | | | | | | 2,391 | |
| Net realized gain on investments and foreign currency transactions | | | | | | | 1,968,147 | |
| Net change in unrealized depreciation on investments | | | | | | | (2,451,728 | ) |
| Net change in unrealized appreciation on foreign currency transactions and translation | | | | | | | 825,202 | |
| Net realized and unrealized gain on investments and foreign currency transactions and translation | | | | | | | 341,621 | |
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | | | | | | $ | 691,156 | |
See notes to financial statements.
KOREA EQUITY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
| | | For the Six Months Ended April 30, 2016 (Unaudited) | | | For the Year Ended October 31, 2015 | |
| FROM OPERATIONS: | | | | | | |
Net investment income (loss) | | $ | 349,535 | | | $ | (249,305 | ) |
Net realized gain on investments | | | 1,965,756 | | | | 4,053,778 | |
| Net realized gain (loss) on foreign currency transactions | | | 2,391 | | | | (101,080 | ) |
| Net change in unrealized depreciation on investments | | | (2,451,728 | ) | | | (2,020,587 | ) |
| Net change in unrealized appreciation (depreciation) on foreign currency transactions and translation | | | 825,202 | | | | (3,641,172 | ) |
| Net increase (decrease) in net assets resulting from operations | | | 691,156 | | | | (1,958,366 | ) |
| FROM DISTRIBUTIONS TO SHAREHOLDERS: | | | | | | | | |
Ordinary income distribution | | | (1,193,226 | ) | | | — | |
Capital gain distribution | | | (1,754,286 | ) | | | (865,941 | ) |
| Decrease in net assets derived from distributions to shareholders | | | (2,947,512 | ) | | | (865,941 | ) |
| NET ASSETS: | | | | | | | | |
Beginning of period | | | 84,623,703 | | | | 87,448,010 | |
| End of period (including accumulated net investment income of $1,526,516 and $1,176,981, respectively) | | $ | 82,367,347 | | | $ | 84,623,703 | |
See notes to financial statements.
KOREA EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
| 1. | Significant Accounting Policies |
Korea Equity Fund, Inc. (the “Fund”) is registered under the Investment Company Act of 1940, as amended (the “Investment Company Act”), as a non‑diversified, closed‑end management investment 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 accompanying financial statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and are stated in United States dollars. The Fund is an investment company that follows the accounting and reporting guidance in accordance with FASB Accounting Standards Codification Topic 946. 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 over‑the‑counter market for foreign investors in South Korea) are valued at the last reported sales price as of the close of business on such 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. However, the Board of Directors of the Fund may from time to time utilize a valuation method other than amortized cost when appropriate, for example, when the credit worthiness of the issuer is impaired or for other reason. Securities and other assets, including futures contracts and related options, are stated at fair 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 rates and fair values on April 30, 2016. The Fund does isolate 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, 2016. Net realized gains or losses on investments include gains or losses arising from sales of portfolio securities and sales and maturities of short‑term securities. Net realized gains or losses on foreign currency transactions arise from sales of foreign currencies, currency gains or losses realized on securities transactions between trade and settlement date, and 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, and Distributions to Shareholders—Security transactions are accounted for on the trade date. Dividend income and distributions are recorded on the ex‑dividend dates 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.
KOREA EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS—(Continued) (Unaudited)
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 shall be 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 fair value of securities on loan must be maintained at all times (when applicable). Collateral is provided in the form of cash, which would 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 13, 2015 and semi‑annual period ended April 30, 2016, the Fund did not earn any fees from lending fund portfolio securities, pursuant to the securities lending agreement.
(d) Capital Account Reclassification—For the year ended October 31, 2015, the Fund’s accumulated net investment loss was decreased by $1,616,745, and the accumulated net realized gain on investments and foreign currency transactions was decreased by $1,616,745. These adjustments were a result of the reclassification of foreign exchange losses and net operating loss. These adjustments had no impact on net assets.
(e) Income Taxes—A provision for U.S. 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 the tax treaty between South Korea and the U.S., a withholding tax is imposed on dividends and interest income at the rate of 16.5%, and such withholding taxes are reflected as a reduction of the related revenue. There is no withholding tax on realized gains.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Fund’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years), and has concluded that no provision for income tax is required in the Fund’s financial statements. 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 ended April 30, 2016 and for the prior three tax years, 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.
(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 U.S. 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 and as such, no additional accruals were recorded on the Statement of Assets and Liabilities.
| 2. | Management Agreement and Transactions With Affiliated Persons |
Nomura Asset Management U.S.A. Inc. (“NAM‑USA” 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 Nomura Asset Management Hong Kong Limited (“NAM‑Hong Kong”) and Nomura Asset Management Singapore Limited (“NAM‑Singapore”) 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. Under the management agreement, the Fund incurred fees to the Manager of $334,560 for the six months ended April 30, 2016. Under the investment advisory agreement, NAM earned investment advisory fees of $195,946 from the Manager, not the Fund, for the six months ended April 30, 2016. Under the investment sub‑advisory agreements, NAM‑Hong Kong and NAM‑Singapore earned sub‑advisory fees of $19,595 and $88,176, respectively, from NAM, not the Fund, for the six months ended April 30, 2016. At April 30, 2016, the management fee payable to the Manager by the Fund was $55,567.
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, 2016. The Fund pays each Director not affiliated with the Manager an annual fee of $17,000 plus $2,000 per meeting attended. In addition, the Fund pays each Director not affiliated with the Manager $1,000 per telephone meeting attended together along with 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 Chairman of the Audit Committee, presently David B. Chemidlin, is paid an additional annual fee of $2,000. Such fees and expenses for unaffiliated Directors aggregated $83,286 for the six months ended April 30, 2016.
KOREA EQUITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS—(Continued) (Unaudited)
| 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, 2016 were $24,715,881 and $27,435,487, respectively.
As of October 31, 2015, net unrealized appreciation on investments, exclusive of investment in foreign currency, for Federal income tax purposes was $12,955,453, of which $15,366,688 related to appreciated securities and $2,411,235 related to depreciated securities. The cost of investments, exclusive of investment in foreign currency of $1,205,677 at October 31, 2015, for Federal income tax purposes was $70,997,367.
At October 31, 2015, the components of accumulated earnings on a tax basis were as follows:
| Unrealized appreciation on investments and foreign currency transactions | | | 12,950,295 | (a) |
Undistributed ordinary income | | | 2,271,385 | |
Undistributed long‑term capital gains | | | 659,895 | |
Total accumulated earnings | | $ | 15,881,575 | |
(a) The difference between book basis and tax basis unrealized appreciation is attributable to the tax deferral of losses on wash sales.
The Fund paid an ordinary income distribution of $0.2349 per share ($2,288,072) and a long‑term capital gains distribution of $0.0677 per share ($659,440) to shareholders of record as of December 21, 2015. The distribution was paid on December 28, 2015.
The Fund paid a long‑term capital gains distribution of $0.0889 per share ($865,941) to shareholders of record as of December 22, 2014. The distribution was paid on December 29, 2014.
The Fund paid a long‑term capital gains distribution of $1.252 per share ($12,195,260) to shareholders of record as of December 30, 2013. The distribution was paid on January 17, 2014.
The tax character of distributions paid during the fiscal years ended October 31, 2015 and October 31, 2014 were as follows:
| | | October‑15 | | | October‑14 | |
| Ordinary Income | | $ | 0 | | | $ | 0 | |
| Capital Gains | | $ | 865,941 | | | $ | 12,195,260 | |
| 5. | Fair Value Measurements |
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 under 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.
| · | Level 1—quoted prices in active markets for identical investments |
| · | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| · | Level 3—significant unobservable inputs (in- |
