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Regulatory Story
Company Weiss Korea Opportunity Fund Ltd
TIDM WKOF
Headline Annual Financial Report
Released 09:37 18-Apr-2019
Number 90936-DC97

Annual Financial Report

WEISS KOREA OPPORTUNITY FUND LTD.
LEI 213800GXKGJVWN3BF511
(Classified Regulated Information, under DTR 6 Annex 1 section 1.1)

ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

The Company has today, published its Annual Report and Audited Financial Statements for the year ended 31 December 2018. The Report will shortly be posted to Shareholders and will also be available from the Company's website www.weisskoreaopportunityfund.com.

For further information, please contact:

N+1 Singer
James Maxwell ? Nominated Adviser
James Waterlow ? Sales
+44 20 7496 3000
Northern Trust International Fund Administration Services (Guernsey) Limited
Samuel Walden


+44 1481 745385

Summary Information

The Company
Weiss Korea Opportunity Fund Ltd. (?WKOF? or the ?Company?) was incorporated with limited liability in Guernsey, as a closed-ended investment company on 12 April 2013. The Company?s Shares were admitted to trading on the Alternative Investment Market (?AIM?) of the London Stock Exchange (the ?LSE?) on 14 May 2013.

The Company is managed by Weiss Asset Management LP (the ?Investment Manager?), a Boston-based investment management company registered with the Securities and Exchange Commission in the United States of America.

Investment Objective and Dividend Policy
The Company's investment objective is to provide Shareholders with an attractive return on their investment, predominantly through long-term capital appreciation. The Company is geographically focussed on South Korean companies. Specifically, the Company invests primarily in listed preferred shares issued by companies incorporated in South Korea, which in many cases trade at a discount to the corresponding common shares of the same companies. Since the Company's Admission to AIM, the Investment Manager has assembled a portfolio of South Korean preferred shares that it believes are undervalued and could appreciate based on the criteria that it selects. The Company may, in accordance with its investment policy, also invest some portion of its assets in other securities, including exchange-traded funds, futures contracts, options, swaps and derivatives related to Korean equities, and cash and cash equivalents. The Company does not have any concentration limits.

The Company intends to return to Shareholders all dividends received, net of withholding tax, on an annual basis.

Investment Policy
The Company is geographically focused on South Korean companies. Some of the considerations that affect the Investment Manager?s choice of securities to buy and sell may include the discount at which a preferred share is trading relative to its respective common share, its dividend yield, its liquidity, and the weighting of its common share (if any) in the MSCI Korea 25/50 Net Total Return Index (the ?Korea Index?), among other factors. Not all of these factors will necessarily be satisfied for particular investments. The Investment Manager does not generally make decisions based on corporate fundamentals or its view of the commercial prospects of an issuer. Preferred shares are selected by the Investment Manager at its sole discretion, subject to the overall control of the board of directors of the Company (the ?Board?).

The Company purchased certain credit default swaps on the sovereign debt of South Korea and put options on iShares MSCI South Korea as general market and portfolio hedges, but generally did not hedge its exposure to interest rates or foreign currencies during the year ended 31 December 2018 (2017: Nil).

Realisation Opportunity
In accordance with the Company?s Articles of Association and its Admission Document, the Company shall offer all Shareholders the right to elect to realise some or all of the value of their Ordinary Shares (the ?Realisation Opportunity?), less applicable costs and expenses, on or prior to the fourth anniversary of Company?s admission to AIM and, unless it has already been determined that the Company be wound-up, every two years thereafter, being 15 May 2019 (the ?Realisation Date?). See Note 18 for further details.

On 20 March 2019, the Company announced that pursuant to the Realisation Opportunity, Shareholders who are on the register as at the record date may elect, during the Election Period, to redesignate all or part (provided that such part be rounded up to the nearest whole Ordinary Share) of their Ordinary Shares as Realisation Shares. The Election Period commenced on 15 April 2019 and closes at 1pm, 8 May 2019.

Subject to the aggregate NAV of the continuing Ordinary Shares at the close of business on the last Business Day before the Realisation Date being not less than £50 million, the Ordinary Shares held by the Shareholders who have elected for Realisation will be redesignated as Realisation Shares and the Portfolio will be split into two separate and distinct Pools, namely the Continuation Pool (comprising the assets attributable to the continuing Ordinary Shares) and the Realisation Pool (comprising the assets attributable to the Realisation Shares). If one or more Realisation Elections are duly made and the NAV of the continuing Ordinary Shares at the close of business on the last Business Day before the Reorganisation Date is less than £50 million, the Directors may propose an ordinary resolution for the winding up of the Company and may pursue a liquidation of the Company instead of splitting the Portfolio into the Continuation Pool and the Realisation Pool.

Share Buybacks
During the year ended 31 December 2018, the Company purchased none (2017: 5,000,000) of its own Shares at a consideration of £Nil (31 December 2017: £8,137,189) under its general buyback authority. The Shares purchased in 2017 were subsequently cancelled.

For additional information on Share buybacks refer to Note 18.

Shareholder Information
Northern Trust International Fund Administration Services (Guernsey) Limited (the ?Administrator?) is responsible for calculating the Net Asset Value (?NAV?) per Share of the Company. The unaudited NAV per Ordinary Share is calculated on a weekly basis and at the month end by the Administrator, and is announced by a Regulatory News Service and is available through the Company?s website www.weisskoreaopportunityfund.com.

Company financial highlights and performance summary for the year ended 31 December 2018

As at As at
31 December 2018 31 December 2017
£ £
Total Net Assets 126,489,595 161,264,280
NAV per share 1.4993 1.9115
Basic and diluted (loss)/earnings per share  (0.3780) 0.4364
Mid-Market Share price 1.47 1.82
Discount to NAV (2.0%) (4.8%)

As at close of business on 16 April 2019, the latest published NAV per Share had increased to £1.5542 (as at 9 April 2019) and the Share price stood at £1.52.

Total expense ratio
The annualised total expense ratio for the year ended 31 December 2018 was 1.89% (31 December 2017: 1.81%). The annualised total expense ratio includes charges paid to the Investment Manager and other expenses divided by the average NAV for the year. See Note 10 for details of such expenses.

Chairman?s Review

We are pleased to provide the 2018 Annual Financial Report on the Company. During the period from 31 December 2017 to 31 December 2018 (the ?Period?), the Company?s net asset value decreased by 20.24% [1], underperforming the reference MSCI Korea 25/50 Net Total Return Index (the ?Korea Index?), which decreased 15.24% in pounds sterling [2]. Since the admission of the Company to AIM in May 2013, the net asset value has increased by 62.35% [1] compared to the Korea Index returns of 38.15%.[2] As will be discussed in the Investment Manager?s report, the underperformance of the Company in 2018 can be largely attributed to the widening of preference share discounts.

The corporate governance reforms that have taken place so far in the South Korean market have proceeded more slowly than we would have wished. However, we have already seen significant changes to the way several South Korean companies are managed. The Board believes that in the long term, these changes will continue across the South Korean corporate landscape, and will serve as a catalyst for the narrowing of preference share discounts and the phasing out of the inefficient preference share structure, as we have seen in other countries. We look forward to the continued outperformance of the Company over the long term.

The Company recently announced that the Investment Manager intends to rebalance the portfolio towards preference shares trading at wider discounts. The Board fully supports this move.

A report from the Investment Manager follows.

In accordance with the Company?s Admission Document, the Company has announced that it is offering Shareholders the opportunity to elect to realise all or a part of their shareholding in the Company (the ?Realisation Opportunity?). A circular with full details of the Realisation Opportunity was published on 20 March 2019 [3]. If any Shareholders elect for realisation, then on the Realisation Date, the Company?s current portfolio will be divided into two pools: a Continuation Pool and a Realisation Pool. The Realisation Pool will be managed in accordance with an orderly realisation with the aim of making progressive returns of cash to holders of Realisation Shares [4].

All of the Directors and personnel associated with the Investment Manager (who collectively own 7.74% of the Company's issued share capital as at 17 April 2019) intend to continue their investment in the Company and do not intend to participate in the Realisation Opportunity in respect of all or any part of their respective shareholdings.

The Directors will be declaring a dividend to distribute the income received by the Company in respect of the year ended 31 December 2018. This dividend will be payable to all Shareholders regardless of any election they make under the Realisation Opportunity.

In addition to the Realisation Opportunity, the Company has an active share repurchase program as part of its discount management strategy. The Board is authorised to repurchase up to 40% of the Company's outstanding Ordinary Shares in issue as at 26 July 2018 (on which date the Company had 84,364,981 Ordinary Shares in issue). As the Company traded at a narrow discount or premium to net asset value in 2018, there were no share repurchases during the Period.

Since Admission almost six years ago, and as at the date of this document, the Company has repurchased 12,590,250 Ordinary Shares of the original 105,000,000 Ordinary Shares issued at Admission, at a discount to NAV. The Board also has in place standing instructions with the Company?s broker, N+1 Singer Advisory LLP, for the repurchase of the Company?s Shares during closed periods when the Board is not permitted to give individual instructions, typically around the preparation of the Annual and Half-Yearly Financial Reports. The Board intends to continue to aggressively repurchase Shares if the Company?s discount is greater than 5% of the Company?s net asset value. We will continue to keep Shareholders informed of any share repurchases through public announcements.

As discussed in previous communications, the Company has purchased certain derivatives as general market and portfolio hedges. Please see the Investment Manager?s commentary for more detail about these derivative securities owned by the Company.

If you would like to speak with the Investment Manager or learn about potential opportunities to meet with them, please contact the Company?s broker, N+1 Singer. I would like to thank Shareholders for their support, and look forward to the continued success of the Company in the future.

Norman Crighton
Chairman
17 April 2019

[1] This return includes the annual cash dividend paid to the Company?s Shareholders but does not assume such dividends are reinvested.
[2] MSCI total return indices are calculated as if any dividends paid by constituents are reinvested at their respective closing prices on the ex-date of the distribution.
[3] Additionally, unless it has already been determined that the Company will be wound-up, the Company will offer Shareholders subsequent opportunities to realise all or part of their shareholding every two years after the Realisation Opportunity, on or prior to the anniversary of Admission (14 May).
[4] As the Company detailed in its circular for the Realisation Opportunity, the mechanism for returning cash to the Shareholders that elect for realisation will be determined by the Board, in consultation with its advisors, once the results of the elections of Shareholders in the Realisation Opportunity are available. We note that the cash distributed to realising Shareholders will likely be different than the net asset value of the Company on the Realisation Date, in part due to transaction expenses associated with liquidating the Realisation Pool. If the Realisation Pool is of significant size, it is likely that a full cash distribution may take some considerable time.

Investment Manager?s Report

For the year ended 31 December 2018

In 2018 the performance of WKOF was disappointing. Including reinvested dividends, the return to an investor in the Company was down 20.50 per cent [5] (assuming dividends were not reinvested, the return was down 20.24 per cent [6]) compared to a return of -15.24 per cent [7] for the MSCI Korea 25/50 Net Total Return Index (the ?Korea Index?) over the same period, in each case calculated in sterling. The underperformance last year was in large part due to a widening of discounts, which we believe creates opportunities for the future.

We don?t presume to be able to explain short-run changes in market psychology, which tend to be the primary driver of discounts over time intervals of less than a couple of years. Over the long term, we expect prices to reflect fundamental value. This should provide a tailwind for Korean preference shares, driving their discounts to more reasonable levels.

Starting from its inception in May 2013, WKOF has significantly outperformed the Korean market. Including reinvested dividends, the total return to an investor in WKOF was 62.01% compared to returns of 38.15% for the Korea Index over the same period.

Past Returns versus Future Returns
We will discuss some of the fundamental explanations for recent market moves below. However, beginning with an ?academic? perspective, we note that one-year returns of fund managers are notoriously bad predictors of future one-year returns. Recent research published in the Journal of Portfolio Management has found that returns for periods as long as two, three, and five years also are poor predictors. [8] The authors found that at these time scales, past returns were negatively correlated with future returns. The negative correlation persists for up to five years, weakening over time, so that for five-year periods, past returns have almost no predictive power. The negative relationship held for a variety of specifications.

Since investors cannot rely on past returns for periods as long as five years to predict future returns, investors need to evaluate the investment thesis, and the expertise of the fund manager when selecting funds. We believe that our investment thesis of buying highly discounted Korean preference shares with the same or better economics as the corresponding ordinary shares continues to be valid. Therefore, the poor performance in the last year, driven by a widening of preferred share discounts, creates opportunities for the future. Exceptional profits are often due to the opportunities that became available in years when markets were doing poorly. When cheap stocks get cheaper this should be viewed as a reason to buy, not as a sell signal. We don?t see any fundamental reason why the prices of preference shares generally should have fallen relative to the ordinary shares.

Comments on the Korean Economy and Stock Market
The performance of the Korean stock market as a whole was poor in 2018. Prices of Korean stocks fell even more than prices in other markets. This poor performance was in the face of the relative strength of the Korean economy, which grew significantly faster than Japan?s and Western Europe?s, and roughly the same as the U.S. economy. Usually, the better-performing economies are not associated with the worst-performing stock markets. One possible explanation for the price fall of the South Korean market relative to other markets may be the threat of a U.S.-China trade war. Korean goods are major components of Chinese exports to the U.S., and thus a turndown in Chinese exports to the U.S. would have a disproportionate effect on the Korean economy. The imminent threat of a more serious U.S.-China trade war seems to have subsided, but U.S. policy has become exceptionally unpredictable. The current U.S. administration does not seem bound by previous norms nor constrained by Congress, so the risk of national security concerns being used to enforce tariffs or quotas is a serious threat to global investors.

More generally, investors may justifiably fear a slowdown of the Chinese economy, which would hurt the profits of Korean exporters. Since exports to China are a major contributor to Korean GDP, a fall in those exports would have knock-on effects throughout the Korean economy.

On the Korean domestic front, there was considerable turmoil?on 23 August, the appeals court sentenced the impeached president, Park Geun-hye, to 25 years in prison on corruption charges. The new administration increased the minimum wage by 10.9% for 2019 to 8,350 won (approximately $7.35) per hour. For comparison, the minimum wage in 2010 was 4,110 won per hour, and the minimum wage in the U.S. is currently $7.25 per hour (this is the federal minimum wage; state and local minimum wages can be significantly higher). These large increases in the minimum wage have been accompanied by increases in the labor force participation rate. The magnitude of the effect of a higher minimum wage on wages in manufacturing is unclear. A higher minimum wage may also push up demand. The net effect on profits is likely to vary by market segment. 

President Moon has called for the National Pension Service to take a more active role in policing corporate governance at the chaebols (a South Korean conglomerate). The NPS has been shifting its allocation from bonds toward equities, making it a major shareholder for many Korean companies. The hope is that this higher equity position coupled with a more activist stance will induce Korean firms to emphasize the interests of shareholders rather than those of the founding family. The risk is that the NPS will become politicized and will be more responsive to the dictates of the ruling party. However, the government is concerned about the solvency of the NPS and thus is likely to have a common interest in increasing the profitability and dividend yields of the firms in which the NPS is invested.

Our analysis of the ratio of dividends and discounts suggests that higher payout ratios are generally associated with narrower discounts. As of 31 December 2018, WKOF?s gross dividend yield on the preferred shares in its portfolio was 3.8%.[9] By comparison, at 31 December 2018 the yield on the 10-year Korean sovereign debt was 1.94% (shorter maturities had slightly lower yields) and the S&P Korea Corporate Bond Index had a yield to maturity of 2.27%. We believe the higher yield on preference shares relative to bonds provides a strong incentive for investors seeking yield to move out of bonds and into the preference shares. Over the long run, this should provide a positive impetus for preference share prices.

Even after its large increase in dividends for 2018, Korea has perhaps the lowest dividend payout ratio of any major market. The table below is as of 31 March 2019. Note that the KOSPI 200 Index contains ordinary shares, not preference shares.

Index Name Dividend Payout P/E Ratio P/B Ratio
FTSE 100 (UK) 73.8% 14.8x 1.72x
TAIEX (Taiwan) 61.3% 14.2x 1.60x
S&P 500 (US) 45.8% 18.6x 3.36x
Shanghai Composite (China) 36.8% 14.1x 1.59x
Nikkei 225 (Japan) 32.7% 15.0x 1.63x
KOSPI 200 (South Korea) 20.6% 8.7x 0.89x

Looking forward, we expect the dividend payout ratios of Korean stocks to continue to converge closer to international norms. Higher dividend payout ratios may also increase the price of the ordinary shares. Dividend payouts are considered to be a positive signal. For companies with large cash holdings, dividend payouts also tend to increase the return on equity since the marginal return on cash is generally lower than the average return on equity. Indeed, the low dividend payout ratios for Korean stocks may explain their low valuations. Price to earnings and price to book ratios, which are lower in Korea than in comparable markets, would also likely converge to international norms as corporate governance improves and payout ratios increase. (Note that the price of insuring Korean sovereign debt against default implies very low geopolitical risk.) The timing of these changes is unclear. Generally, we have found that markets stay out of balance for longer than expected, but when they adjust, the adjustments are more rapid than we expected. However, the increase in dividend yields lowers the cost to waiting.

Portfolio Allocation
WKOF was established to enable investors to benefit from the large discounts of Korean preference shares relative to their underlying ordinary shares. Indeed, the vast majority of the return to WKOF investors since inception has been attributable to the discount narrowing of preference shares in the portfolio. Larger-discount Korean preference shares in general are often less liquid than smaller-discount Korean preference shares, but we believe that it is currently in the interest of shareholders to trade off liquidity for what we believe to be a portfolio with higher expected returns. We plan to rebalance the Company?s portfolio, over time, toward larger discount Korean preference shares, consistent with our view on the most attractive portfolio.

We note that one likely result of this shift will be a gradual reduction in our holding of Samsung Electronics (?Samsung?) preference shares, which were trading at a 19% discount as of 31 March 2019, and are the most liquid preference shares in South Korea. While it trades at a significantly narrower discount than the other preference shares in the WKOF portfolio, we do believe that Samsung looks undervalued on a fundamental basis. (This may be due to limitations on the ability of some institutions to allocate a share of their assets to Samsung that is proportionate to the representation of Samsung in the Korea Index.) However, even if Samsung ordinary shares were to outperform the market, it is not clear that its preference shares would also outperform. At a 19% discount, there is far less scope for outperformance from discount narrowing. We do, however, expect that we will generally continue to hold a meaningful position in Samsung as a relatively high-expected-return source of liquidity to enable us to purchase large blocks of other securities at attractive prices when those opportunities arise, as well as to repurchase shares of WKOF at the Board?s direction.

Investors may be concerned that the high discounts on preference shares reflect poor corporate governance, but we note that the ordinary shares are much more closely followed and more liquid than the preference shares. Consequently, we would expect that any problems with a Korean company would be at least as likely to be reflected in the price of its ordinary shares as in its preference shares, and discounts would not predict negative returns on ordinary shares, which is what we found in the historical data.

Portfolio Developments
During the fourth quarter, two portfolio companies made noteworthy announcements. The first, CJ Corp (?CJ?), announced in December its intent to conduct a bonus issuance of a new class of preferred shares to existing CJ common and preferred shareholders in April 2019. For each common share or preferred share held on the record date, the CJ shareholder will receive 0.15 new CJ preferred shares free of payment. While we typically view bonus issues and share dividends as neutral events that have similar economic impact to stock splits, the economic terms of the new preference shares are unusual. The new preference shares receive a yield equal to the common dividend yield plus 2% of par value, carry similar legal protections as other Korean preference shares, and are convertible to common shares in ten years. The new CJ preference shares are not the first instance of convertible preferred shares in Korea; however, previous convertible preference shares had typically been issued by companies with small market capitalization and traded on the Korean stock exchange with low liquidity.

Both the common and preferred share prices reacted positively to the news of the bonus dividend, with the preferred share price displaying a larger percentage impact because of its 50% discount relative to the common shares. Despite these share price movements, we currently have a neutral stance on the CJ bonus issue of new preferred shares for the following reasons. From an economic perspective, it is unclear why shareholders are better off receiving what is, in essence, a delayed stock dividend of new common shares. Normally, secondary offerings of stock are a negative signal for future stock price performance. Conversations with local brokers yielded rumors that a potential rationale behind the bonus issue was to facilitate inheritance and ownership transfer between the CEO and his son. We treat this claim with scepticism; the CEO is 58 years old, and the heir to the CJ Group is still in his early 30s, so any inheritance planning would likely still be at least a decade away, and using a bonus issue of convertible preference shares is fraught with uncertainty on pricing and legality. We do view optimistically the fact that the lengthy convertibility time frame opens up potential mispricing opportunities for the new preference shares, and we expect increased price volatility around the listing date of the new securities.

The second development was a small buyback of common and preference shares by Hyundai Motors. Only one per cent of shares were repurchased, so the economic impact was minor. What was more important was the precedent of the share buyback. In the U.S., share buybacks summed to about 2.8% of shares outstanding in 2018 [10], which exceeded stock dividends and was a significant fraction of total U.S. GDP. If Korea were to follow the U.S. model, that could have a major effect on return on equity for Korean firms and a concomitant effect on their share prices.

Comments on Hedging Against Economic Calamity
WKOF pursues its investment strategy with a portfolio that is generally long only. However, because of political tensions in Northeast Asia, the Board approved a hedging strategy on 5 September 2017. The purpose of the hedging strategy is to reduce exposure to extreme events that would be catastrophic to WKOF. Importantly, the Company has limited its use of hedging instruments to purchases of credit default swaps and put options: securities that we believe would generate high returns in an economic disaster, without introducing new risks into the portfolio or exacerbating existing risks. By contrast, if WKOF were to short EWY, which tracks the Korea Index, it would increase the risk of companies without preference shares outperforming the companies with preference shares, as well as the risk of an increase in the discount of preference shares to the underlying ordinary shares. These risks are not present in the hedges WKOF has purchased. The hedges are similar to insurance. The sum of the premia paid for the ?insurance? is the maximum potential cumulative loss to WKOF from hedging. These catastrophe hedges are not intended to make money. We expect that the Company?s hedges will lose money most of the time?as with any insurance policy. In contrast to the typical insurance contract, the expected return may in fact be positive depending on the probability distribution of ?bad events.? Since a probability distribution over a single event is never observed?only the realized outcome is observed?it is impossible to know whether these hedges had a positive or negative expected return.

The table below provides details about the hedges as of 31 December 2018. Note that outside of the general market and portfolio hedges described herein, WKOF has generally not hedged its exposure to interest rates or currencies.

(Please note the use of U.S. dollar in the tables below)

Number of Option Contracts Held on EWY Strike Price Total Cost to Maturity (USD) Maturity Date
1,000 $63 $382,041 1Q 2019
1,000 $65 $294,771 1Q 2019
2,000 $65 $614,081 1Q 2019
Total $1,290,893

   

Credit Default Swaps on South Korean Sovereign Debt Notional Value Total Cost to Maturity (USD) Annual Cost (USD) Price Paid as % of NAV (per Annum) Maturity Date Duration (Years)
5 yr CDS $20m $457,151 $91,430 45 bps 2023 5.0
2 yr CDS $80m $382,619 $191,309 23 bps 2020 2.0
Total $839,770 $282,739

Please see the Notes to the Financial Statements for more detailed information. Specifically, Note 16 for the net change in fair value of derivative financial instruments and the composition of options and credit default swaps held at year-end. Following year-end, the Company sold all of the EWY put options in January, and purchased new put options in March.

A Note on the WKOF Discount
We believe that the narrow discount over the past year is due both to the Board?s strong commitment to Share buybacks when WKOF is trading at a meaningful discount, as well as WKOF providing a unique product. WKOF enables investors who couldn?t otherwise access the Korean market to own deeply discounted Korean preference shares. Even large institutions, who might have access, would have difficulty buying a meaningful position in the more heavily discounted preference shares (which tend to be illiquid) within a reasonable time frame and cost. It took WKOF multiple months to accumulate its positions in those shares. It would be difficult for investors to replicate this portfolio at a reasonable cost.

Going Forward
        ?Change alone is unchanging?
        ?Heraclitus

Since the inception of the fund almost six years ago, conditions have changed somewhat. While the discounts are not as attractive as when we first launched the fund, the prospects for investors in WKOF continue to be highly favourable. We are not aware of any market segment that is as undervalued as Korean preference shares.

In the short run, markets are governed by the vagaries of investor whims. In the long run, prices generally reflect fundamental values. Long-run investors in Korean preference shares should have their patience rewarded.

Weiss Asset Management LP
17 April 2019

[5] This return includes all dividends paid to the Company?s Shareholders, and assumes that these dividends were reinvested in WKOF shares on the day cash was received, at the Company?s reported NAV for that date.
[6] This return includes the annual cash dividend paid to the Company?s Shareholders but does not assume such dividends are reinvested.
[7] MSCI total return indices are calculated as if any dividends paid by constituents are reinvested at their respective closing prices on the ex-date of the distribution.
[8] Cornell, Hsu, and Nanigian, ?Does Past Performance Matter in Investment Manager Selection?? Journal of Portfolio Management, Vol. 43, No. 4, 2017.
[9] Dividends are calculated as of their ex-dividend dates, which were in 2018; the dividend amounts were announced and paid during 2019.
[10] Sinead Carew, ?U.S. buyback market support may wane in 2019,? Reuters.com, 10 January 2019, https://www.reuters.com/article/us-usa-stocks-buybacks-analysis/u-s-buyback-market-support-may-wane-in-2019-idUSKCN1P41E1

Directors

The Company has three non-executive Directors, all of whom are considered independent of the Investment Manager and details are set out below.

Norman Crighton (aged 52)
Mr Crighton is Chairman of the Company. He is also a non-executive chairman of RM Secured Direct Lending plc and AVI Japan Opportunity Trust. Norman was, until May 2011, an investment manager at Metage Capital Limited where he was responsible for the management of a portfolio of closed-ended funds and has almost three decades experience in closed-ended funds having led teams at Olliff and Partners, LCF Edmond de Rothschild, Merrill Lynch, Jefferies International Limited and latterly Metage Capital Limited. His experience covers analysis and research as well as sales and corporate finance. Norman is British and resident in the United Kingdom. Norman was appointed to the Board in 2013.

Stephen Charles Coe (aged 53)
Stephen is currently Chairman of TOC Property Backed Lending Trust plc. He is also a director (and Chairman of the Audit Committee) of Raven Property Group Limited and Leaf Clean Energy Company. He has been involved with offshore investment funds and managers since 1990 with significant exposure to property, debt, emerging markets, and private equity investments.

He qualified as a Chartered Accountant with Price Waterhouse Bristol in 1990 and remained in audit practice, specialising in financial services, until 1997. From 1997 to 2003 he was a director of the Bachmann Group of fiduciary companies and Managing Director of Bachmann Fund Administration Limited, a specialist third party fund administration company. From 2003 to 2006 Stephen was a director with Investec in Guernsey and Managing Director of Investec Trust (Guernsey) Limited and Investec Administration Services Limited. He became self-employed in August 2006 providing services to financial services clients. Stephen is British and a resident in Guernsey. Stephen was appointed to the Board in 2013.

Robert Paul King (aged 55)
Rob is a non-executive director for a number of open and closed-ended investment funds including Tufton Oceanic Assets Limited (chairman), Chenavari Capital Solutions Limited (chairman), and CIP Merchant Capital Limited. Before becoming an independent non-executive director in 2011, he was a director of Cannon Asset Management Limited and their associated companies. Prior to this he was a director of Northern Trust International Fund Administration Services (Guernsey) Limited (formerly Guernsey International Fund Managers Limited) where he had worked from 1990 to 2007. He has been in the offshore finance industry since 1986 specialising in administration and structuring of offshore open and closed-ended investment funds. Rob is British and a resident in Guernsey. Rob was appointed to the Board in 2013.

Report of the Directors

The Directors of the Company present their Annual Report and Audited Financial Statements for the year ended 31 December 2018.

Principal Activity
The Company was incorporated with limited liability in Guernsey on 12 April 2013 as a company limited by shares and as an authorised closed-ended investment company. The Company?s Shares were admitted to trading on the AIM of the LSE on 14 May 2013. As an existing closed-ended fund, the Company is deemed to be granted an authorised declaration in accordance with Section 8 of the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended and Rule 6.02 of the Authorised Closed Ended Investment Schemes Rules 2008 on the same date as the Company obtained consent under the Control of Borrowing (Bailiwick of Guernsey) Ordinance 1959 to 1989.

Investment Objective and Investment Policy

The investment objective and investment policy of the Company is to provide Shareholders with an attractive return on their investment, predominantly though long-term capital appreciation, by investing primarily in listed South Korean preferred shares. The full investment objective and investment policy are detailed in the Summary Information.

Going Concern
In accordance with the Company?s Articles of Association and its Admission Document, the Company offered all Shareholders the right to elect to realise some or all of the value of their Ordinary Shares (the ?Realisation Opportunity?), less applicable costs and expenses, on or prior to the fourth anniversary of the Company?s admission to AIM and, unless it has already been determined that the Company be wound-up, every two years thereafter, being 15 May 2019 (the ?Realisation Date?). See Note 18 for further details.

On 20 March 2019, the Company announced that pursuant to the Realisation Opportunity, Shareholders who are on the register as at the record date may elect, during the Election Period, to redesignate all or part (provided that such part be rounded up to the nearest whole Ordinary Share) of their Ordinary Shares as Realisation Shares. The Election Period commenced on 15 April 2019 and closes at 1pm on 8 May 2019.

Subject to the aggregate NAV of the continuing Ordinary Shares at the close of business on the last Business Day before the Realisation Date being not less than £50 million, the Ordinary Shares held by the Shareholders who have elected for Realisation will be redesignated as Realisation Shares and the Portfolio will be split into two separate and distinct Pools, namely the Continuation Pool (comprising the assets attributable to the continuing Ordinary Shares) and the Realisation Pool (comprising the assets attributable to the Realisation Shares). If one or more Realisation Elections are duly made and the NAV of the continuing Ordinary Shares at the close of business on the last Business Day before the Reorganisation Date is less than £50 million, the Directors may propose an ordinary resolution for the winding up of the Company and may pursue a liquidation of the Company instead of splitting the Portfolio into the Continuation Pool and the Realisation Pool.

Currently, the Board does not know the number of Shareholders (or related Shares), who will take up the Realisation Opportunity. Based on the uncertainty of the offer and the fact that the assets of the Company consist mainly of securities that are readily realisable, whilst the Directors acknowledge that the liquidity of these assets needs to be managed, the Directors believe that the Company has adequate financial resources to meet its liabilities as they fall due in the foreseeable future and for at least twelve months from the date of this report, and that it is appropriate for the Financial Statements to be prepared on a going concern basis, given that the Board believes the Company will continue in existence post the Realisation Opportunity.

Viability Statement
In accordance with provision C.2.2 of the UK Corporate Governance Code (April 2016) (the ?UK Code?), published by the Financial Reporting Council in 2016, the Board has assessed the prospects of the Company over the three year period to 17 April 2022 (the ?Viability Period?). On 20 March 2019, the Company announced to offer all Shareholders the right to elect, during the Election Period, to realise some or all of the value of their Ordinary Shares, less applicable costs and expenses, on or prior to the Realisation Date. Currently, the Board does not know the number of Shareholders (or related Shares) who will take up the Realisation Opportunity. The Board, however, believes that the Company will continue in existence post Realisation Opportunity and considers that three years is an appropriate period of assessment of the viability of the Company for the purpose of giving assurance to Shareholders.

The Board and the Investment Manager believe that the investment opportunity provided by the Company remains compelling, but the viability of the Company is clearly contingent on the investment opportunity remaining in place, a matter which the Board monitors on an on-going basis. As the South Korean preference shares held by the Company trade at a discount compared with ordinary shares for the same companies, the Company remains attractive to long term investors over the Viability Period.

The Board?s assessment of the Company over the Viability Period has been made with reference to the Company?s current financial position and prospects, the Company?s strategy, and risk appetite, having considered the Company?s principal risks and uncertainties detailed below. The Board has also considered the Company?s likely cash flows and the liquidity of its portfolio.

It is noted that the Company currently has no gearing, though borrowing is permitted under its constitution. In the event that the Company did consider taking on debt, the Board would carefully assess the Company?s ability to meet the debt obligations as they become due.

It is possible to imagine a number of scenarios, such as war or political events, which could severely impact the liquidity of the Company?s investments.

The Board has assumed that the regulatory and fiscal regimes under which the Company operates will continue in broadly the same form during the Viability Period. The Board speaks with its Broker and legal advisers on a regular basis to understand issues impacting the Company?s regulatory and fiscal structure.

The Board considers the principal risks affecting the viability of the Company are as follows:

Notice period of Investment Manager
The Board has assumed that the Investment Manager will remain in place during the Viability Period; however, the Board acknowledges the risk of the Investment Manager serving a twelve month notice period under the Investment Management Agreement (?IMA?). To mitigate this risk, the Board meets and communicates regularly with the Investment Manager to review its performance and the Board?s relationship with the Investment Manager.

Failure of the Custodian to carry out its obligations to the Company
The Company?s assets are held in accounts maintained by the Company?s Custodian. Failure by the Custodian to carry out its obligations to the Company in accordance with the terms of the Custodian Agreement could have an impact on the viability of the Company. To mitigate this risk, the Board regularly receives reports from the Custodian, and through the Management and Engagement Committee, monitors the relationship with the Custodian.

Loss of license or listing
The Board has assumed that the Company will retain its regulatory status and listing throughout the Viability Period. The Company Secretary, Administrator, and Broker report to the Board at least quarterly on regulatory matters and confirm compliance with listing and other regulatory requirements.

Failure to implement and poor execution of the investment strategy
The Company maintains an investment policy as discussed in the Summary Information. The policy states that the Company must invest primarily in listed South Korean preference shares, and also states that investments in other types of securities are allowed as long as the investments track South Korean companies or the South Korean market as a whole. Failure to implement the investment strategy or poor execution by the Investment Manager would have an effect on the viability of the Company. The Board ensures that the policy is being implemented in the quarterly Board Meetings, where the Investment Manager presents reports to the Board detailing the current portfolio and investment performance.

The risks specifically associated with the South Korean economic and political climate are discussed in the Investment Manager?s Report.

Based on the Company?s processes for monitoring operating costs, the Share price discount, the Investment Manager?s compliance with the investment objective, asset allocation, the portfolio risk profile, liquidity risk, and the robust assessment of the principal risks and uncertainties facing the Company, the Board has concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the Viability Period to 17 April 2022.

International Tax Reporting
For purposes of the US Foreign Accounts Tax Compliance Act, the Company registered with the US Internal Revenue Service (?IRS?) as a Guernsey reporting Foreign Financial Institution (?FFI?) in November 2014, received a Global Intermediary Identification Number (2A7KNV.99999.SL.831), and can be found on the IRS FFI list.

The Common Reporting Standard (?CRS?) is a global standard for the automatic exchange of financial account information developed by the Organisation for Economic Co-operation and Development (?OECD?), which has been adopted by Guernsey and which came into effect on 1 January 2016.

The Board takes the necessary actions to ensure that the Company is compliant with Guernsey regulations and guidance in this regard.

Results and Dividends
The results for the year ended 31 December 2018 are set out in the Statement of Comprehensive Income. An annual dividend of 3.4155 pence per Share (£2,881,486) was approved on 8 June 2018 and paid on 13 July 2018 in respect of the year ended 31 December 2017. An annual dividend of 3.3262 pence per Share (£3,123,626) was approved on 4 May 2017 and paid on 2 June 2017 in respect of the year ended 31 December 2016.

The Board expects to declare an interim dividend on 1 May 2019 with a record date on 10 May 2019 for the year ended 31 December 2018 based on dividends received primarily from investments in South Korean preferred shares.

Shareholder Information
Further Shareholder information can be found in the Summary Information.

Investment Management
The Investment Manager of the Company is Weiss Asset Management LP, a Delaware limited partnership formed on 10 June 2003 (the ?Investment Manager?). The key terms of the IMA and specifically the fee charged by the Investment Manager are set out in Note 19 of the Financial Statements. The Board believes that the investment management fee is competitive with other investment companies with similar investment mandates.

The Board reviews, on an on-going basis, the performance of the Investment Manager and considers whether the investment strategy utilised is likely to achieve the Company?s investment objective.

Having considered the portfolio performance and investment strategy, the Board has unanimously agreed that the interests of the Shareholders as a whole are best served by the continuing appointment of the Investment Manager on the terms agreed.

Directors
The details of the Directors of the Company during the year and at the date of this Report are set out in the Directors section.

Directors? Interests
The Directors who held office at 31 December 2018 and up to the date of this Report held the following numbers of Ordinary Shares beneficially:

As at 31 December 2018 As at 31 December 2017
Ordinary % of issued Ordinary % of issued
 Shares share capital  Shares share capital
Norman Crighton 20,000 0.02% 20,000 0.02%
Stephen Coe 10,000 0.01% 10,000 0.01%
Robert King 15,000 0.02% 15,000 0.02%

There have been no changes in the interests of the above Directors during the year.

Substantial Interests
Disclosure and Transparency Rules (?DTRs?) are now comprised in the Financial Conduct Authority handbook. Section 5, the only section of the DTRs which applies to AIM-listed companies, requires substantial Shareholders to make relevant holding notifications to the Company. The Company must then disseminate this information to the wider market. Details of major Shareholders in the Company are shown below.

As at 31 December 2018
% of issued
Shareholders Shares share capital
Standard Life Aberdeen 13,148,100 15.58%
Ruffer LLP 11,500,000 13.63%
Banque Degroof Luxembourg 10,125,000 12.00%
Mount Capital 8,000,000 9.48%
Merrill Lynch Pierce Fenner & Smith 7,000,000 8.30%
Andrew M. Weiss 6,486,888 7.69%
City of London Investment Management Co. 6,022,626 7.14%
Lepercq de Neuflize Asset Management 5,746,077 6.81%
EdenTree Investment Management 5,170,000 6.13%

On 11 April 2019, City of London Investment Management Co notified the Company their shareholding had increased to 8,622,626, being 10.2% of issued share capital.

There have been no other notifications of significant changes to the substantial shareholdings at 17 April 2019.

As at 31 December 2017
% of issued
Shareholders Shares share capital
Standard Life Aberdeen 12,926,100 15.32%
Ruffer LLP 11,500,000 13.63%
Banque Degroof Luxembourg 10,125,000 12.00%
Mount Capital 8,000,000 9.48%
City of London Investment Management Co.  7,017,449 8.32%
Merrill Lynch Pierce Fenner & Smith  7,000,132 8.30%
Andrew M. Weiss 6,486,888 7.69%
Lepercq de Neuflize Asset Management 5,746,077 6.81%

Corporate Governance
The Company does not have a Main Market Listing on the LSE, and as such, the Company is not required to comply with the UK Code as issued by the Financial Reporting Council. However, the Board is committed to high standards of corporate governance and has implemented a framework for corporate governance which it considers to be appropriate for an investment company in order to comply with the main principles of the UK Code. By complying with the main principles of the UK Code, the Company is deemed to comply with the Code of Corporate Governance (the ?GFSC Code?) issued by the Guernsey Financial Services Commission.

The Board has considered the principles and recommendations of the UK Code, and considers that reporting against the UK Code will provide better information to Shareholders. To ensure on-going compliance with these principles, the Board receives a report from the Company Secretary at each quarterly meeting, identifying how the Company is in compliance and identifying any changes that might be necessary.

The Board, having reviewed the UK Code, considers that it has maintained procedures during the year ended 31 December 2018 and up to the date of this Report to ensure that it complies with the UK Code, except as explained elsewhere in this Annual Report and Financial Statements.

Role of the Board
The Board is the Company?s governing body and has overall responsibility for maximising the Company?s success by directing and supervising the affairs of the business and meeting the appropriate interests of Shareholders and relevant stakeholders, while enhancing the value of the Company and also ensuring protection of investors. A summary of the Board?s responsibilities is as follows:

The Board?s responsibilities for the Annual Report are set out in the Statement of Directors? Responsibilities.

The Board has engaged external companies to undertake the investment management, administrative, and custodial activities of the Company. Documented contractual arrangements are in place with these companies which define the areas where the Board has delegated responsibility to them.

The Board needs to ensure that the Annual Report and Financial Statements, taken as a whole, are fair, balanced, and understandable and provide the information necessary for Shareholders to assess the Company?s performance, business model, and strategy.

In seeking to achieve this, the Directors have set out the Company?s investment objective and investment policy, have explained how the Board and its delegated committees operate, have explained how the Directors review the risk environment within which the Company operates, and have set appropriate risk controls. Furthermore, throughout the Annual Report and Financial Statements, the Board has sought to provide further information to enable Shareholders to better understand the Company?s business and financial performance.

Composition and Independence of the Board
The Board currently comprises three non-executive Directors, all of whom are considered independent of the Investment Manager. The Directors of the Company are listed in the Directors section.

The Chairman is Mr Crighton. Biographies for Mr Crighton and all other Directors appear in the Directors section. In considering the independence of the Chairman, the Board has taken note of the provisions of the UK Code relating to independence, and has determined that Mr Crighton is an Independent Director.

The Board believes it has a good balance of skills and experience to ensure it operates effectively. The Chairman is responsible for leadership of the Board and ensuring its effectiveness.

As the Chairman is an Independent Director, no appointment of a Senior Independent Director has been made. The Company has no employees and therefore there is no requirement for a Chief Executive or a whistleblowing policy.

The Company holds a minimum of four Board Meetings per year to discuss general management, structure, finance, corporate governance, marketing, risk management, compliance, asset allocation and gearing, contracts, and performance. The quarterly Board Meetings are the principal source of regular information for the Board, enabling it to determine policy and to monitor performance, compliance, and controls. These meetings are supplemented by communication and discussions throughout the year.

A representative of the Investment Manager, Administrator, and Company Secretary may attend each Board Meeting either in person or by telephone, thus enabling the Board to fully discuss and review the Company?s operations and performance. Each Director has direct access to the Investment Manager and Company Secretary and may, at the expense of the Company, seek independent professional advice on any matter.

Attendance at the Board and other Committee Meetings during the year was as follows:

Number of Norman Robert Stephen
Meetings held Crighton King Coe
Quarterly Board Meetings 4 4 4 3
Audit Committee Meetings 3 3 3 3
Management Engagement Committee Meetings 1 1 1 1
Ad-hoc Board Meetings 2 2 2 2

Board Diversity
The Board considers the composition of the Board on an on-going basis.

Re-election
The Articles of Incorporation provide that one-third of the Directors retire by a voluntary rotation basis at each AGM. However, in order to meet the highest standards of corporate governance, the Directors have agreed to stand for election annually.

The Directors may at any time appoint any person to be a Director either to fill a casual vacancy or as an addition to the existing Directors. Any Director so appointed shall hold office only until, and shall be eligible for re-election at, the next AGM following their appointment, but shall not be taken into account in determining the Directors or the number of Directors who are to retire by a voluntary rotation basis at that meeting if it is an AGM.

Board Performance
The Board undertakes an evaluation of its own performance and that of individual Directors on an annual basis. In order to review its effectiveness, the Board carries out a process of formal self-appraisal. The Board considers how it functions as a whole and also reviews the individual performance of its members. This process is conducted by the respective Chairman reviewing each members? performance, contributions, and commitment to the Company by verbal discussion. This last took place in the Board Meeting held on 15 November 2018.

The Board considers it has a breadth of experience relevant to the Company, and the Directors believe that any changes to the Board?s composition can be managed without undue disruption.

Committees of the Board
The Board has established an Audit Committee and a Management and Engagement Committee. All Terms of Reference for both Committees are available from the Company Secretary upon request or on the Company?s website, www.weisskoreaopportunityfund.com.

Audit Committee
The Company has established an Audit Committee with formally delegated duties and responsibilities within written terms of reference. The Audit Committee is chaired by Mr Coe. The Audit Committee?s other members are Mr Crighton and Mr King. The Audit Committee meets formally at least twice a year.

Appointment to the Audit Committee is for a period of up to three years, which may be extended for two further three year periods.

The table in this report sets out the number of Audit Committee Meetings held during the year ended 31 December 2018 and the number of such meetings attended by each Audit Committee member.

A report of the Audit Committee detailing responsibilities and activities is presented in the Audit Committee Report.

Management and Engagement Committee
The Company has established a Management and Engagement Committee with formally delegated duties and responsibilities within written terms of reference. The Management and Engagement Committee is chaired by Mr King. The Management and Engagement Committee?s other members are Mr Crighton and Mr Coe. The Management and Engagement Committee meets formally once a year.

The principal duties of the Management and Engagement Committee are to review the performance of and contractual arrangements with the Investment Manager and all other service providers to the Company (other than the External Auditor).

During the Management and Engagement Committee meeting held on 15 November 2018, the quality of the services provided by the Investment Manager as well as the other service providers was reviewed. The Management and Engagement Committee also reviewed the fees of all other service providers (other than the External Auditor).

As at 31 December 2018, Directors? fees were: £30,000 payable to Mr Crighton as Chairman of the Board, £27,500 to Mr Coe as Chairman of the Audit Committee, and £24,000 to Mr King.

For the year ended     For the year ended    
31 December 2018 31 December 2017
£ £
Norman Crighton 30,000 30,000
Stephen Coe 27,500 27,500
Robert King 24,000 24,000

Nomination Committee
The Board does not have a separate Nomination Committee. The Board as a whole fulfils the function of a Nomination Committee. Any proposal for a new Director will be discussed and approved by the Board. The Board will determine whether an external search consultancy or open advertising is used in the appointments of non-executive Directors in the future.

Remuneration Committee
In view of its non-executive and independent nature, the Board considers that it is not appropriate for there to be a Remuneration Committee as anticipated by the UK Code because this function is carried out as part of the regular Board business. A Remuneration Report prepared by the Board is contained within the Directors? Remuneration Report. Directors? remuneration is considered on an annual basis.

Environmental Policy
Due to the Company?s listing on AIM, the Company is required to disclose its Environmental Policy, but this is not applicable due to the nature of its operations.

Internal Controls
The Board is ultimately responsible for establishing and maintaining the Company?s system of internal controls and for maintaining and reviewing the system?s effectiveness. The Company?s risk matrix continues to be the basis of the Company?s risk management process in establishing the Company?s system of internal financial and reporting controls. The risk matrix is prepared and maintained by the Board, which initially identifies the risks facing the Company and then collectively assesses the likelihood of each risk, the impact of those risks, and the strength of the controls operating over each risk. The Company?s system of internal controls is designed to manage rather than to eliminate the risk of failure to achieve the Company?s objectives, and by the internal controls? nature, can only provide reasonable and not absolute assurance against misstatement and loss. These controls aim to ensure that: assets of the Company are safeguarded; proper accounting records are maintained; and the financial information for publication is reliable.

The UK Code requires Directors to conduct at least annually a review of the Company?s system of internal controls, covering all controls including financial, operational, compliance, and risk management. The Board has evaluated the Company?s system of internal controls. In particular, it has prepared a process for identifying and evaluating the significant risks affecting the Company and the policies by which these risks are managed. The process has resulted in a low to medium risk assessment. 

The Board has delegated the management of the Company?s investment portfolio, administration, registrar, and corporate secretarial functions, which includes the independent calculation of the Company?s NAV and the production of the audited Annual Report and Financial Statements. Whilst the Board delegates these functions, it remains responsible for the functions it delegates and for the systems of internal control. Formal contractual agreements have been put in place between the Company and providers of these services. On an on-going basis, Board reports are provided at each quarterly Board Meeting from the Investment Manager, Administrator, Registrar, and Company Secretary, and a representative from the Investment Manager is asked to attend these meetings.

In common with most investment companies, the Company does not have an internal audit function. All of the Company?s management functions are delegated to the Investment Manager, Administrator, Registrar, and Company Secretary, which have their own internal audit and/or risk assessment functions.

The Company?s risk exposure and the effectiveness of its risk management and internal control systems are reviewed by the Audit Committee at its meetings and annually by the Board. The Board believes that the Company has adequate and effective systems in place to identify, mitigate, and manage the risks to which it is exposed.

Principal Risks and Uncertainties
In respect to the Company?s system of internal controls and reviewing its effectiveness, the Directors:

The principal risks and uncertainties which have been identified and the steps which are taken by the Board to mitigate them are as follows:

Investment Risks
The Company is exposed to the risk that its portfolio fails to perform in line with its investment objective and policy if markets move adversely or if the Investment Manager fails to comply with the investment policy. The Board reviews reports from the Investment Manager at the quarterly Board Meetings, with a focus on the performance of the portfolio in line with its investment policy. The Administrator is responsible for ensuring that all transactions are in accordance with the investment restrictions.

Operational Risks
The Company is exposed to the risk arising from any failures of systems and controls in the operations of the Investment Manager, Administrator, and the Custodian. The Board and its Committees regularly review reports from the Investment Manager and the Administrator on their internal controls. The Administrator will report to the Investment Manager any valuation issues which will be brought to the Board for final approval as required.

Accounting, Legal and Regulatory Risks
The Company is exposed to the risk that it may fail to maintain accurate accounting records, fail to comply with requirements of its Admission Document, and fail to meet listing obligations. The accounting records prepared by the Administrator are reviewed by the Investment Manager. The Administrator, Broker, and Investment Manager provide regular updates to the Board on compliance with the Admission Document and changes in regulation.

Discount Management
The Company is exposed to Shareholder dissatisfaction through inability to manage the Share price discount to NAV. The Board and its Broker monitor the Share price discount (or premium) continuously and have engaged in Share buybacks from time to time to help minimise any such discount. The Board believes that it has access to sufficiently liquid assets to help manage the Share price discount. The Company?s discount management programme is described within Note 18.

Liquidity of Investments
The Korean preferred shares typically purchased by the Company generally have smaller market capitalisations and lower levels of liquidity than their common share counterparts. These factors, among others, may result in more volatile price changes in the Company?s assets as compared to the South Korean stock market or other more liquid asset classes. This volatility could cause the NAV to go up or down dramatically.

In order to realise its investments, the Company will likely need to sell its holdings in the secondary market, which could prove difficult if adequate liquidity does not exist at the time, and could result in the values received by the Company being significantly less than their holding values. The liquidity of the market for preferred shares may vary materially over time. There can be no guarantee that a liquid market for the Company?s assets will exist or that the Company?s assets can be sold at prices similar to the published NAV. Illiquidity could also make it difficult or costly for the Company to purchase securities, and this could result in the Company holding more cash than anticipated. Furthermore, it is possible that South Korea could impose currency-exchange or capital controls on foreign investors, making it difficult or impossible for the Company to repatriate funds. The Investment Manager considers the liquidity of secondary trading in assessing and managing the liquidity of the Company?s investments. The Board reviews the Company?s resources and obligations on a regular basis with a view to ensuring that sufficiently liquid assets are held for the expected day to day operations of the Company. However, if the Company were required to liquidate a substantial portion of its assets at a single time, it is likely that the market impact of the necessary sale transactions would impact the value of the portfolio materially.

Fraud Risk
The Company is exposed to fraud risk. The Audit Committee continues to monitor the fraud, bribery, and corruption policies of the Company. The Board receives an annual confirmation from all service providers that there have been no instances of fraud or bribery.

Financial Risks
The financial risks, including market, credit, and liquidity risks, faced by the Company are set out in Note 20 of the Financial Statements. These risks and the controls in place to reduce the risks are reviewed at the quarterly Board Meetings.

Shareholder Engagement
The Directors welcome Shareholders? views and place great importance on communication with the Company?s Shareholders. Shareholders wishing to meet with the Chairman and other Board members should contact the Company?s Administrator.

The Investment Manager and Broker maintain a regular dialogue with institutional Shareholders, the feedback from which is reported to the Board.

The Company?s AGM provides a forum for Shareholders to meet and discuss issues of the Company and provides Shareholders with the opportunity to vote on the resolutions as specified in the Notice of AGM. The Notice of AGM and the results are released to the London Stock Exchange in the form of an announcement.

In addition, the Company maintains a website which contains comprehensive information, including links to regulatory announcements, Share price information, financial reports, investment objective, and investor contacts.

Auditor
The Auditor, KPMG Channel Islands Limited, has indicated their willingness to continue in office. Accordingly, a resolution for their reappointment will be proposed at the forthcoming AGM.

Statement of Directors? Responsibilities
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law they have elected to prepare the Financial Statements in accordance with International Financial Reporting Standards (?IFRS?) as adopted by the European Union and applicable law.

Under Company law the Directors must not approve the Financial Statements unless they are satisfied that the Financial Statements give a true and fair view of the state of affairs of the Company and of its profit or loss for that period. In preparing these Financial Statements, the Directors are required to:

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company?s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable the Directors to ensure that the Financial Statements comply with the Companies (Guernsey) Law, 2008. They are responsible for such internal control as they determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company?s website. Legislation in Guernsey governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

The Directors confirm that they have complied with the above requirements in preparing the Annual Report and Financial Statements and that to their best knowledge and belief:

We consider the Annual Report and Financial Statements, taken as a whole, to be fair, balanced, and understandable and provides the information necessary for Shareholders to assess the Company?s position and performance, business model, and strategy.

The Board of Directors confirms that, throughout the period covered by the Financial Statements, the Company complied with the GFSC Code through its compliance with the UK Code.

Disclosure of Information to the Auditor
The Directors who hold office at the date of approval of this Directors? Report confirm that, so far as they are aware, there is no relevant audit information of which the Company?s auditor is unaware, and that each Director has taken all the steps he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company?s auditor is aware of that information.

Signed on behalf of the Board by:

Norman Crighton
Chairman
17 April 2019

Stephen Coe
Director
17 April 2019

Directors? Remuneration Report

Introduction
An ordinary resolution for the approval of the Directors? Remuneration Report will be put to the Shareholders at the AGM to be held on 25 July 2019.

Remuneration Policy
All Directors are non-executive and a Remuneration Committee has not been established. The Board as a whole considers matters relating to the Directors? remuneration. No advice or services were provided by any external person in respect of the Board?s consideration of the Directors? remuneration.

The Company?s policy is that the fees payable to the Directors should reflect the time spent by the Directors on the Company?s affairs and the responsibilities borne by the Directors, and be sufficient to attract, retain, and motivate Directors of a quality required to run the Company successfully. The Chairman of the Board is paid a higher fee in recognition of his additional responsibilities, as is the Chairman of the Audit Committee. The policy is to review fee rates periodically, although such a review will not necessarily result in any changes to the rates, and account is taken of fees paid to directors of comparable companies. The Directors of the Company are remunerated for their services at such a rate as the Directors determine, provided that the aggregate amount of such fees does not exceed £200,000 per annum.

There are no long term incentive schemes provided by the Company and no performance fees are paid to Directors.

None of the Directors have a service contract with the Company, but each of the Directors is appointed by a letter of appointment which sets out the main terms of their appointment. Directors hold office until they retire by rotation or cease to be a Director in accordance with the Articles of Incorporation, by operation of law, or until they resign.

Remuneration
Directors are remunerated in the form of fees, payable quarterly in arrears, to the Director personally. No Director has been paid additional remuneration outside their normal Directors? fees and expenses.

As at 31 December 2018, Directors? fees were: £30,000 payable to Mr Crighton as Chairman of the Board, £27,500 to Mr Coe as Chairman of the Audit Committee, and £24,000 to Mr King.

For the year ended     For the year ended    
31 December 2018 31 December 2017
£ £
Norman Crighton 30,000 30,000
Stephen Coe 27,500 27,500
Robert King 24,000 24,000

Signed on behalf of the Board by:

Norman Crighton
Chairman
17 April 2019

Stephen Coe
Director
17 April 2019

Audit Committee Report

Dear Shareholders,

We present the Audit Committee?s Report for 2018, setting out the responsibilities of the Audit Committee and its key activities in 2018.

The Audit Committee has reviewed the Company?s financial reporting, significant areas of judgement and estimation within the Company?s Financial Statements, the independence and effectiveness of the External Auditor, and the internal control and risk management systems of the Company?s service providers. The Audit Committee considered whether the Annual Report and Financial Statements are fair, balanced, and understandable, and whether they provided the necessary information for Shareholders to assess the Company?s performance, business model, and strategy before recommending them to the Board for approval. In order to assist the Audit Committee in discharging these responsibilities, regular reports are received from the Investment Manager, Administrator, and External Auditor. Following its review of the independence and effectiveness of the Company?s External Auditor, the Audit Committee has recommended to the Board that KPMG Channel Islands Limited be reappointed as Auditor, which the Board has submitted for approval to the Company?s Shareholders.

A member of the Audit Committee will continue to be available at each AGM to respond to any Shareholder questions on the activities of the Audit Committee.

Responsibilities
The Audit Committee reviews and recommends the approval of the Financial Statements of the Company to the Board and is the forum through which the External Auditor reports to the Board of Directors. The External Auditor and the Audit Committee will meet together without representatives of either the Administrator or Investment Manager being present if either considers this to be necessary.

The role of the Audit Committee includes:

The Audit Committee?s full terms of reference can be obtained by contacting the Company?s Secretary or on the Company?s website, www.weisskoreaopportunityfund.com.

Key Activities of the Audit Committee
The following sections discuss the assessments made by the Audit Committee during the year:

Financial Reporting
The Audit Committee?s review of the Annual Report and Audited Financial Statements focused on the following significant areas:

Valuation of Investments
The Company?s financial investments had a fair value of £120,312,836 as at 31 December 2018 and represent the vast majority of the net assets of the Company. The vast majority of the investments are listed and traded, and the valuation is by reference to the fair value measurement required by IFRS. The Audit Committee considered the fair value of the investments held by the Company as at 31 December 2018 to be reasonable from a review of the information provided by the Investment Manager and Administrator. All prices have been confirmed by the Administrator to independent pricing sources as at 31 December 2018.

The Investment Manager and Administrator confirmed to the Audit Committee that they were not aware of any material misstatements including matters relating to the Financial Statements? presentation, nor were they aware of any fraud or bribery relating to the Company?s activities. Furthermore, the External Auditor reported to the Audit Committee that no material misstatements were found in the course of their work.

Following a review of the presentations and reports from the Administrator and consulting where necessary with the External Auditor, the Audit Committee is satisfied that the Financial Statements appropriately address the critical judgements and key estimates made in the preparation of the Financial Statements (both in respect to the amounts reported and the disclosures). The Audit Committee is also satisfied that the significant assumptions used for determining the value of assets and liabilities have been appropriately scrutinised and challenged and are sufficiently robust.

Risk Management
The Audit Committee continued to consider the process for managing the risk of the Company and its service providers. Risk management procedures for the Company, as detailed in the Company?s risk assessment matrix, were reviewed and approved by the Audit Committee. A review of the risk matrix took place during the Audit Committee meeting of the 15 November 2018. Following the review, minor amendments were made.

Fraud, Bribery and Corruption
The Audit Committee continues to monitor the fraud, bribery, and corruption policies of the Company. The Board receives a confirmation from all service providers that there have been no instances of fraud or bribery.

The External Auditor
Independence, Objectivity and Fees
The independence and objectivity of the External Auditor are reviewed by the Audit Committee, which also reviews the terms under which the External Auditor is appointed to perform non-audit services. The Audit Committee has established pre-approval policies and procedures for the engagement of the External Auditor to provide audit and assurance services.

The External Auditor may not provide a service which:

As a general rule, the Company does not utilise the External Auditor for internal audit purposes, secondments, or valuation advice. Services such as tax compliance, tax structuring, private letter rulings, accounting advice, quarterly reviews, and disclosure advice are normally permitted but will be pre-approved by the Audit Committee.

The following table summarises the remuneration payable to KPMG Channel Islands Limited and to other KPMG member firms for audit and non-audit services:

For the year ended     For the year ended    
31 December 2018 31 December 2017
KPMG Channel Islands Limited £ £
Annual audit 28,300 27,500
Tax fees (UK Reporting Fund Status) - 6,125
28,300 33,625
KPMG LLP
Tax fees (UK Reporting Fund Status) 5,000 -

The Audit Committee does not consider KPMG Channel Islands Limited?s independence to be under threat. In making this assessment, the Audit Committee has concluded that the non-audit fees do not relate to prohibited services. In approving the non-audit services, the Audit Committee considered the safeguards put in place by KPMG Channel Islands Limited to reduce the threats to independence and objectivity to an acceptable level.

For the year ended 31 December 2018 the Company has engaged KPMG LLP to provide tax services, a separate entity to KPMG Channel Islands Limited.

KPMG Channel Islands Limited has been the External Auditor from the date of the initial listing on the London Stock Exchange. The UK Code introduced a recommendation that the external audit be put out to tender every ten years. The Audit Committee has noted this and will develop a plan for tendering at the appropriate time.

The Audit Committee has examined the scope and results of the audit, its cost effectiveness, and the independence and objectivity of the External Auditor, with particular regard to non-audit fees, and considers KPMG Channel Islands Limited, as External Auditor, to be independent of the Company.

Performance and Effectiveness
During the year, when considering the effectiveness of the External Auditor, the Audit Committee has taken into account the following factors:

Further to the above, at the conclusion of the 2018 audit fieldwork, the Audit Committee performed specific evaluation of the performance of the External Auditor through discussion with the Administrator and Investment Manager, as well as the audit team itself.

There were no significant adverse findings from this evaluation.

Reappointment of External Auditor
Consequent to this review process, the Audit Committee has recommended to the Board that a resolution be put to the 2019 AGM for the reappointment of KPMG Channel Islands Limited as External Auditor. The Board has accepted this recommendation.

Internal Control and Risk Management Systems
After consultation with the Investment Manager, Administrator, and External Auditor, the Audit Committee has considered the impact of the risk of the override of controls by its service providers, the Investment Manager, and Administrator.

The Audit Committee reviews externally prepared assessments of the control environment in place at the Administrator, with the Administrator providing a Service Organisation Controls Report on a bi-annual basis. The Audit Committee noted that the Management and Engagement Committee received a self-assessment from the Investment Manager and no issues were identified in this. Additionally, representatives of the portfolio managers meet with the Board of Directors annually to discuss and review the controls in place at the Investment Manager. No significant failings or weaknesses were identified in these reviews.

The Audit Committee has also reviewed the need for an internal audit function. The Audit Committee has decided that the systems and procedures employed by the Investment Manager, as well as the Administrator?s internal audit function provide sufficient assurance that a sound system of internal control, which safeguards the Company?s assets, is maintained. An internal audit function specific to the Company is therefore considered unnecessary.

In finalising the Financial Statements for recommendation to the Board for approval, the Audit Committee is satisfied that, taken as a whole, the Annual Report and Financial Statements are fair, balanced, and understandable. The Board has accepted this approval.

For any questions on the activities of the Audit Committee not addressed in the foregoing, a member of the Audit Committee remains available to attend each AGM to respond to such questions.

The Audit Committee Report was approved by the Board on 17 April 2019 and signed on behalf of the Audit Committee by:

Stephen Coe
Chairman, Audit Committee
17 April 2019

Independent Auditor?s Report
To the Members of Weiss Korea Opportunity Fund Ltd.

Our opinion is unmodified
We have audited the financial statements (the ?Financial Statements?) of Weiss Korea Opportunity Fund Ltd. (the ?Company?), which comprise the statement of financial position as at 31 December 2018, the statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information.

In our opinion, the accompanying financial statements:

Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Company in accordance with, UK ethical requirements including FRC Ethical Standards as applied to listed entities. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.

Emphasis of matter-material uncertainty related to going concern
We draw your attention to Note 2c to the Financial Statements, which describes the existence of a material uncertainty that may cast doubt about the Company?s ability to continue as a going concern.

We have considered the adequacy of the disclosure made in Note 2c to the Financial Statements concerning the Company?s ability to continue as a going concern. In accordance with the Company?s Articles of Association and its Admission Document to the Alternative Investment Market (?AIM?) of the London Stock Exchange, the Company shall offer all shareholders the right to elect to realise some or all of the value of their Ordinary Shares, less applicable costs and expenses, on or prior to the fourth anniversary of the Company?s AIM admission and every two years thereafter, being 15 May 2019. Subject to the aggregate net asset value of the continuing Ordinary Shares falling below the viable threshold disclosed in note 2c to the financial statements, the Directors may propose an ordinary resolution for the winding up of the Company.

This condition indicates the existence of a material uncertainty that may cast doubt about the Company?s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Company was unable to continue as a going concern.

Our opinion is not modified in this respect.

Key Audit Matters: our assessment of the risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the Financial Statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team.  These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.  In arriving at our audit opinion above, the key audit matter, was as follows:

Valuation of Financial assets at fair value through profit or loss (?Investments?)
£120,312,836 (2017: £154,236,177)
Refer the Audit Committee Report, note 2f (Significant Accounting Policies) and notes 12 and 21 (Disclosures)
The risk Our response

Basis:
As at 31 December 2018 the Company had invested 97.1% of its net assets in listed preferred shares issued by companies incorporated and listed in South Korea, which in certain cases may trade at a discount to the corresponding common shares of the same companies.
The Company?s listed investments are valued based on bid-market prices at the close of business of the relevant stock exchange on the reporting date obtained from third party pricing providers.

Risk:
The valuation of the Company?s investments, given they represent the majority of the Company?s net assets as at 31 December 2018, is a significant area of our audit.

Our audit procedures included:

Control evaluation:
We evaluated the design, implementation and operating effectiveness of the relevant controls over the valuation of investments.

Valuation procedures including use of a KPMG Specialist:
We have used our own valuation specialist to independently price investments to a third party data source and assessed the trading volumes behind such prices.

Assessing disclosures:
We also considered the Company?s investment valuation policies and their application as described in note 2f to the Financial Statements for compliance with IFRS in addition to the adequacy of disclosures in notes 12 and 21.

Our application of materiality and an overview of the scope of our audit
Materiality for the Financial Statements as a whole was set at £3,715,000, determined with reference to the benchmark of net assets of £126,489,595 of which it represents approximately 3% (2017: 3%).

We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding £185,000, in addition to other identified misstatements that warranted reporting on qualitative grounds.

Our audit of the Company was undertaken to the materiality level specified above, which has informed our identification of key audit matters and the associated audit procedures performed in those areas as detailed above.

We have nothing to report on the other information in the Annual Report
The directors are responsible for the other information presented in the Annual Report together with the Financial Statements. Our opinion on the Financial Statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether, based on our Financial Statements audit work, the information therein is materially misstated or inconsistent with the Financial Statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information.

Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention to in relation to:

Corporate governance disclosures
We are required to report to you if:

We have nothing to report on other matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:

Respective responsibilities

Directors? responsibilities 
As explained more fully in the Report of the Directors, the Directors are responsible for: the preparation of the Financial Statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Company?s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

Auditor?s responsibilities 
Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor?s report.  Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.  Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Statements.

A fuller description of our responsibilities is provided on the FRC?s website at www.frc.org.uk/auditorsresponsibilities.

The purpose of this report and restrictions on its use by persons other than the Company?s members as a body
This report is made solely to the Company?s members, as a body, in accordance with section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company?s members those matters we are required to state to them in an auditor?s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company?s members, as a body, for our audit work, for this report, or for the opinions we have formed.

KPMG Channel Islands Limited
Chartered Accountants, Guernsey
17 April 2019

Statement of Financial Position

As at As at
31 December 31 December
2018 2017
Notes £ £
Assets
Current assets
Financial assets at fair value through profit or loss 12,21 120,312,836 154,236,177
Derivative financial assets 16 1,706,418 104,433
Other receivables 15 2,636,504 2,363,108
Cash and cash equivalents 13 1,304,537 3,429,302
Margin account 14 2,252,688 3,409,040
Due from broker 2q - 1,947,339
Total assets 128,212,983 165,489,399
Liabilities
Current liabilities
Derivative financial liabilities 16 1,209,227 1,059,716
Due to broker 2q - 2,795,180
Other payables 17 514,161 370,223
Total liabilities 1,723,388 4,225,119
Net assets 126,489,595 161,264,280
Represented by:
Shareholders' equity and reserves
Share capital 18 72,080,642 72,080,642
Other reserves 2t 54,408,953 89,183,638
Total shareholders' equity 126,489,595 161,264,280
Net assets per share 6 1.4993 1.9115

The Notes to the Financial Statements form an integral part of these Financial Statements.

The Financial Statements were approved and authorised for issue by the Board of Directors on 17 April 2019.

Norman Crighton
Chairman

Stephen Coe
Director

Statement of Comprehensive Income

For the year ended For the year ended
31 December 2018 31 December 2017
Notes £ £
Income
Net changes in fair value of financial assets
  at fair value through profit or loss through profit or loss
7 (32,545,360) 40,321,769
Net changes in fair value of derivative financial
  instruments through profit or loss
8 607,612 (349,959)
Other income 9 4,437,519 3,890,487
Total (loss)/income (27,500,229) 43,862,297
Expenses
Operating expenses 10 (3,418,829) (3,447,900)
Total operating expenses (3,418,829) (3,447,900)
(Loss)/profit for the year before tax (30,919,058) 40,414,397
Withholding tax 2s (974,141) (855,683)
(Loss)/profit for the year after tax (31,893,199) 39,558,714
(Loss)/profit and total comprehensive income for the year  (31,893,199) 39,558,714
Basic and diluted (loss)/earnings per Share 5 (0.3780)                          0.4364

All items derive from continuing activities.

The Notes to the Financial Statements form an integral part of these Financial Statements.

Statement of Changes in Equity

Share Other
capital reserves Total
Notes £ £ £
Balance at 1 January 2018 72,080,642 89,183,638 161,264,280
Total comprehensive loss for the year  - (31,893,199) (31,893,199)
Transactions with Shareholders, recorded directly in equity 
Distributions paid 3  - (2,881,486) (2,881,486)
Balance at 31 December 2018 72,080,642 54,408,953 126,489,595
For the year ended 31 December 2017
Balance at 1 January 2017 93,626,149 52,748,550 146,374,699
Total comprehensive income for the year  - 39,558,714 39,558,714
Transactions with Shareholders, recorded directly in equity 
Repurchase of Ordinary Shares and cancelled on purchase 18 (8,137,189)  - (8,137,189)
Redemption of Realisation Shares 18 (13,408,318)  - (13,408,318)
Distributions paid 3 - (3,123,626) (3,123,626)
Balance at 31 December 2017 72,080,642 89,183,638 161,264,280

The Notes to the Financial Statements form an integral part of these Financial Statements.

Statement of Cash Flows

For the year ended For the year ended
31 December 2018 31 December 2017
Notes £ £
Cash flows from operating activities
(Loss)/profit for the year (31,893,199) 39,558,714
Adjustments for:
Net change in fair value of financial assets held at fair value through profit or loss 7 32,545,360 (40,321,769)
Net change in fair value of derivative financial instruments held at fair value through profit or loss 8 (1,399,458) 349,959
Net change on NAV of Realisation Shares - 1,064,984
Realised loss/(gain) on closure of derivatives in the year 16 791,846 (54,048)
Effect of foreign exchange rate fluctuations 164,874 (21,796)
(Increase)/decrease in debtors 15 (273,396) 1,173,222
Increase/(decrease) in creditors 17 143,938 (836,576)
Net cash generated from operating activities 79,965 912,690
Cash flows from investing activities
Purchase of financial assets at fair value through profit or loss (23,512,302) (37,064,339)
Open of derivative financial instruments 16 (967,526) 378,812
Proceeds from the sale of financial assets at fair value through profit or loss 23,877,567 65,824,255
Closure of derivative financial instruments 16 122,665 280,560
Decrease/(increase) in margin account 1,156,352 (3,409,040)
Net cash generated from investing activities 676,756 26,010,248
Cash flows from financing activities
Repurchase of Ordinary Shares and cancelled on purchase 18 - (8,137,189)
Redemption of Realisation Shares - (14,473,302)
Distributions paid 3 (2,881,486) (3,123,626)
Net cash used in financing activities (2,881,486) (25,734,117)
Net (decrease)/increase in cash and cash equivalents (2,124,765) 1,188,821
Cash and cash equivalents at the beginning of the year 3,429,302 2,240,481
Cash and cash equivalents at the end of the year 1,304,537 3,429,302

The Notes to the Financial Statements form an integral part of these Financial Statements.

Notes to the Financial Statements

1.   General information
The Company was incorporated with limited liability in Guernsey, as a closed-ended investment company on 12 April 2013. The Company?s Shares were admitted to trading on AIM of the LSE on 14 May 2013.

The Investment Manager of the Company is Weiss Asset Management LP.

At the AGM held on 27 July 2016, the Board approved the adoption of the new Articles of Incorporation in accordance with Section 42(1) of the Companies (Guernsey) Law, 2008 (the ?Law?).

2.   Significant accounting policies

a)   Statement of compliance
The Financial Statements of the Company for the year ended 31 December 2018 have been prepared in accordance with IFRS adopted by the European Union and the AIM Rules of the London Stock Exchange. They give a true and fair view and are in compliance with the Law.

b)   Basis of preparation
The Financial Statements are prepared in pounds sterling (£), which is the Company?s functional and presentational currency. They are prepared on a historical cost basis modified to include financial assets at fair value through profit or loss.

c)   Going concern
In accordance with the Company?s Articles of Association and its Admission Document, the Company shall offer all Shareholders the right to elect to realise some or all of the value of their Ordinary Shares (the ?Realisation Opportunity?), less applicable costs and expenses, on or prior to the fourth anniversary of Company?s admission to AIM and, unless it has already been determined that the Company be wound-up, every two years thereafter, being 15 May 2019 (the ?Realisation Date?). See Note 18 for further details.

On 20 March 2019, the Company announced that pursuant to the Realisation Opportunity, Shareholders who are on the register as at the record date may elect, during the Election Period, to redesignate all or part (provided that such part be rounded up to the nearest whole Ordinary Share) of their Ordinary Shares as Realisation Shares. The Election Period commenced on 15 April 2019 and closes at 1pm, 8 May 2019.

Subject to the aggregate NAV of the continuing Ordinary Shares at the close of business on the last Business Day before the Realisation Date being not less than £50 million, the Ordinary Shares held by the Shareholders who have elected for Realisation will be redesignated as Realisation Shares and the Portfolio will be split into two separate and distinct Pools, namely the Continuation Pool (comprising the assets attributable to the continuing Ordinary Shares) and the Realisation Pool (comprising the assets attributable to the Realisation Shares). If one or more Realisation Elections are duly made and the NAV of the continuing Ordinary Shares at the close of business on the last Business Day before the Reorganisation Date is less than £50 million, the Directors may propose an ordinary resolution for the winding up of the Company and may pursue a liquidation of the Company instead of splitting the Portfolio into the Continuation Pool and the Realisation Pool.

Currently, the Board does not know the number of Shareholders (or related Shares) who will take up the Realisation Opportunity. Based on the material uncertainty of the offer and the fact that the assets of the Company consist mainly of securities that are readily realisable, whilst the Directors acknowledge that the liquidity of these assets needs to be managed, the Directors believe that the Company has adequate financial resources to meet its liabilities as they fall due in the foreseeable future and for at least twelve months from the date of this Report, and that it is appropriate for the Financial Statements to be prepared on a going concern basis, given that the Board believes the Company will continue in existence post the Realisation Opportunity.

d)   Standards, amendments and interpretations not yet effective
At the date of approval of these Financial Statements, the following standards and interpretations have not been applied in these Financial Statements, but were in issue and not yet effective.

IFRS 16 ?Leases? is effective for annual reporting periods beginning on or after 1 January 2019 with early adoption permitted, and replaces IAS 17 ?Leases?. The objective of IFRS 16 is to report information that faithfully represents lease transactions and provides a basis for users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. To meet that objective, a lessee should recognise assets and liabilities arising from a lease.

The Board anticipates that the adoption of this standard and interpretation in a future period will not have a material impact on the Financial Statements of the Company.

e)   Standards, amendments and interpretations effective during the year
The accounting policies adopted are consistent with those used in Financial Statements for the year ended 31 December 2017. IFRS 9 ?Financial Instruments? and IFRS 15 ?Revenue from contracts with customers? were applicable for financial reporting periods starting 1 January 2018. As such, these standards have been adopted by the Company. There were no other new standards, interpretations, or amendments to standards issued and effective for the year that materially impacted the Company.

IFRS 9 replaces IAS 39. IFRS 9 specifies how an entity should classify and measure financial assets, including some hybrid contracts. The standard requires all financial assets to be classified on the basis of the entity?s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of IAS 39. The standard applies a consistent approach to classifying financial assets and replaces the numerous categories of financial assets in IAS 39, each of which had its own classification criteria. The requirements for financial liabilities are mostly carried forward unchanged from IAS 39. However, some changes were made to the fair value option for financial liabilities to address the issue of own credit risk.

IFRS 9 replaces the incurred loss model in IAS 39 with an Expected Credit Loss (?ECL?) model.

The following table explains the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the financial assets at 1 January 2018. The classification and carrying amount of trade receivables remains the same under IFRS 9 as the expected credit losses on these financial assets have been assessed as immaterial. The application of IFRS 9 not had a material effect on these Financial Statements.

IAS 39 IFRS 9 Carrying amount under
IAS 39
Carrying amount under
IFRS 9
Classification Classification £ £
Cash and cash equivalents Loans and receivables Amortised cost 3,429,302 3,429,302
Margin account Loans and receivables Amortised cost 3,409,040 3,409,040
Other payables Amortised cost Amortised cost 370,223 370,223

General approach
With the exception of purchased or originated credit-impaired financial assets, expected credit losses are required to be measured through a loss allowance at an amount equal to:

The Company applied IFRS 9 prospectively, with an initial application date of 1 January 2018. The Company has not restated the comparative information, which continue to be reported under IAS 39.

IFRS 15 establishes a comprehensive framework for determining whether, how much, and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 ?Revenue?. IFRS 15 did not significantly impact the Financial Statements as the Company does not generate revenue under its scope. All of the Company?s income is accounted for in accordance with IFRS 9.

f)     Financial instruments
i)     Classification
Financial assets are classified into the following categories: financial assets at fair value through profit or loss and amortised cost.

The classification depends on the business model in which a financial asset is managed and its contractual cash flows.

Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities at amortised cost.

ii)  Recognition and measurement  
Financial assets at fair value through profit or loss (?investments?)

Financial assets and derivatives are recognised in the Company?s Statement of Financial Position when the Company becomes a party to the contractual provisions of the instrument.

Purchases and sales of investments are recognised on the trade date (the date on which the Company commits to purchase or sell the investment). Investments purchased are initially recorded at fair value, being the consideration given and excluding transaction or other dealing costs associated with the investment.

Subsequent to initial recognition, investments are measured at fair value. Gains and losses arising from changes in the fair value of investments and gains and losses on investments that are sold are recognised through profit

or loss in the Statement of Comprehensive Income within net changes in fair value of financial assets at fair value through profit or loss.

Financial assets at fair value through profit or loss (?derivatives: credit default swaps and options?)
Subsequent to initial recognition at fair value, credit default swaps and options are measured at fair value through profit and loss.

The fair values of the credit default swaps and options are based on traded prices. The valuation of the credit default swaps' and options' fair values means fluctuations will be reflected in the net changes in fair value of derivative instruments.

Derivatives are presented in the Statement of Financial Position as financial assets when their fair value is positive and as financial liabilities when their fair value is negative.

Other financial instruments
For other financial instruments, including other receivables and other payables, the carrying amounts as shown in the Statement of Financial Position approximate the fair values due to the short term nature of these financial instruments.

iii) Fair Value Measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Investments traded in active markets are valued at the latest available bid prices ruling at midnight, Greenwich Mean Time (?GMT?), on the reporting date. The Directors are of the opinion that the bid-market prices are the best estimate of fair value. Gains and losses arising from changes in the fair value of financial assets and financial liabilities at fair value through profit and loss are shown as net gains or losses on financial assets through profit or loss in Note 12 and are recognised in the Statement of Comprehensive Income in the period in which they arise. Gains and losses arising from changes in the fair value of derivative financial instruments are shown as net gains or losses on financial derivatives through profit or loss in Note 16 and are recognised in the Statement of Comprehensive Income in the period in which they arise.

iv) Derecognition of financial instruments
A financial asset is derecognised when: (a) the rights to receive cash flows from the asset have expired; (b) the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ?pass through arrangement?; or (c) the Company has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

On derecognition of a financial asset, the difference between the carrying amount of the asset using the average cost method and the consideration received (including any new asset obtained, less any new liability assumed) is recognised in profit or loss.

A financial liability is derecognised when the obligation under the liability is discharged, cancelled, or expired.

g)   Net changes in fair value of financial assets at fair value through profit or loss
Net changes in fair value of financial assets at fair value through profit or loss includes all realised and unrealised fair value changes and foreign exchange differences, but excludes dividend income.

h)   Income
Dividend income from equity investments is recognised through profit or loss in the Statement of Comprehensive Income when the relevant investment is quoted ex-dividend.

i)    Expenses
All expenses are accounted for on an accruals basis. Expenses incurred on the acquisition of financial assets at fair value through profit or loss and management fees are charged to the Statement of Comprehensive Income.

j)    Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash equivalents, which can include bank overdrafts and margin accounts, are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant changes in value. Cash, deposits with banks, and bank overdrafts are stated at their principal amount.

k)  Share capital
Ordinary Shares are classified as equity. Incremental costs directly attributable to the issue of these Shares are shown in equity as a deduction, net of tax, from the proceeds and disclosed in the Statement of Changes in Equity.

l)    Foreign currency translations
Functional and presentation currency
The Financial Statements of the Company are presented in the currency of the primary economic environment in which the Company operates (its ?functional currency?). The Directors have considered the currency in which the original capital was raised, distributions will be made, and ultimately the currency in which capital would be returned in a liquidation.

On the Statement of Financial Position date, the Directors believe that pounds sterling best represents the functional currency of the Company. For the purpose of the Financial Statements, the results and financial position of the Company are expressed in pounds sterling, which is the presentational currency of the Company. Monetary assets and liabilities, denominated in foreign currencies, are translated into pounds sterling at the exchange rate at the reporting date. Non-monetary assets denominated in foreign currencies that are measured at fair value are translated in pounds sterling at the exchange rate at the date on which the fair value was determined. Realised and unrealised gains or losses on currency translation are recognised in the Statement of Comprehensive Income. Foreign currency differences relating to investments at fair value through profit or loss are included within net changes in fair value of financial assets at fair value through profit or loss.

m)  Treasury shares
Where the Company purchases its own share capital, the consideration paid, which includes any directly attributable costs, is deducted through share capital. The difference between the total consideration and the total nominal value of all Shares purchased is recognised through other reserves, which is a distributable reserve.

If such Shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is recognised as an increase in equity and the resulting surplus or deficit on the transaction is transferred to or from other reserves.

Where the Company cancels treasury shares, no further adjustment is required to the share capital account at the time of cancellation. Shares held in treasury are excluded from calculations when determining NAV per Share and earnings per Share.

n)   Operating segments
The Board has considered the requirements of IFRS 8 ?Operating Segments? and is of the view that the Company is engaged in a single segment of business, being an investment strategy tied to listed preferred shares issued by companies incorporated in South Korea. The Board, as a whole, has been determined as constituting the chief operating decision maker of the Company.

The key measure of performance used by the Board to assess the Company?s performance and to allocate resources is the total return on the Company?s NAV, as calculated under IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in these Audited Financial Statements.

The Board of Directors is charged with setting the Company?s investment strategy in accordance with the investment policy. They have delegated the day to day implementation of this strategy to the Company?s Investment Manager but retain responsibility to ensure that adequate resources of the Company are directed in accordance with their decisions. The investment decisions of the Investment Manager are reviewed on a regular basis to ensure compliance with the policies and legal responsibilities of the Board. The Investment Manager has been given full authority to act on behalf of the Company, including the authority to purchase and sell securities and other investments on behalf of the Company and to carry out other actions as appropriate to give effect thereto.

Whilst the Investment Manager may make the investment decisions on a day to day basis regarding the allocation of funds to different investments, any changes to the investment strategy or major allocation decisions have to be approved by the Board, even though they may be proposed by the Investment Manager.

The Board therefore retains full responsibility as to the major decisions made on an on-going basis. The Investment Manager will always act under the terms of the Admission Document which cannot be significantly changed without the approval of the Board of Directors and where necessary, Shareholders.

o)   Other receivables
Other receivables are amounts due in the ordinary course of business. Other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

p)   Other payables
Other payables are obligations to pay for services that have been acquired in the ordinary course of business. Other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

q)   Due from and due to brokers
Amounts due from and due to brokers represent receivables for securities sold and payables for securities purchased that have been contracted for but not yet settled or delivered on the Statement of Financial Position date, respectively.

r)   Dividend distribution
Dividend distribution to the Company?s Shareholders is recognised as a liability in the Company?s Financial Statements and disclosed in the Statement of Changes in Equity in the period in which the dividends are proposed and approved by the Board.

s)   Taxation
The Company has been granted Exempt Status under the terms of The Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 to income tax in Guernsey. Its liability is an annual fee of £1,200 (2017: £1,200).

The amounts disclosed as taxation in the Statement of Comprehensive Income relate solely to withholding tax levied in South Korea on distributions from South Korean companies at an offshore rate of 22%.

t)    Other reserves
Total comprehensive income for the year is transferred to Other Reserves.

3.   Dividends to Shareholders
Dividends, if any, will be paid annually each year. An annual dividend of 3.4155 pence per Share (£2,881,486) was approved on 8 June 2018 and paid on 13 July 2018 in respect of the year ended 31 December 2017.

An annual dividend of 3.3262 pence per Share (£3,123,626) was approved on 4 May 2017 and paid on 2 June 2017 in respect of the year ended 31 December 2016.

4.   Significant accounting judgements, estimates and assumptions
The preparation of the Financial Statements in conformity with IFRS requires management to make judgements, estimates, and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expense, and the accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods.

Judgements
In the process of applying the Company?s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the Annual Financial Statements:

Functional currency
As disclosed in Note 2l, the Company?s functional currency is the pound sterling. Pound sterling is the currency in which the original capital was raised, distributions will be made, and ultimately the currency in which capital would be returned in a liquidation.

Going Concern ? Realisation Opportunity
As disclosed in Note 2c, currently, the Board does not know the number of Shareholders (or related Shares) who will take up the Realisation Opportunity. Based on the material uncertainty of the offer and the fact that the assets of the Company consist mainly of securities that are readily realisable, whilst the Directors acknowledge that the liquidity of these assets needs to be managed, the Directors believe that the Company has adequate financial resources to meet its liabilities as they fall due in the foreseeable future and for at least twelve months from the date of this Report, and that it is appropriate for the Financial Statements to be prepared on a going concern basis, given that the Board believes the Company will continue in existence post the Realisation Opportunity.

5.   Basic and diluted loss/earnings per Share
The basic and diluted loss per Share of £0.3780 (31 December 2017: earnings per Share of £0.4364) for the Company has been calculated based on the total comprehensive loss for the year of £31,893,199 (for the year ended 31 December 2017: £39,558,714 gain) and the weighted average number of Ordinary Shares in issue during the year of 84,364,981 (for the year ended 31 December 2017: 90,657,042).

6.   Net asset value per Ordinary Share
The net asset value of each Share of £1.4993 (as at 31 December 2017: £1.9115) is determined by dividing the net assets of the Company attributed to the Ordinary Shares of £126,489,595 (as at 31 December 2017: £161,264,280) by the number of Ordinary Shares in issue at 31 December 2018 of 84,364,981 (as at 31 December 2017: 84,364,981 Ordinary Shares in issue).

7.   Net changes in fair value on financial assets at fair value through profit or loss

For the year ended For the year ended
31 December 2018 31 December 2017
£ £
Realised gain on investments 4,905,671 19,636,258
Realised (loss)/gain on foreign currency (32,938) 44,380
Movement in unrealised (loss)/gain on investments (37,615,905) 20,707,305
Movement in unrealised exchange gain/(loss) on foreign currency 197,812 (66,174)
Net changes in fair value on financial assets at fair value through profit or loss
(32,545,360)

40,321,769

8.   Net changes in fair value on derivative financial instruments at fair value through profit or loss

For the year ended For the year ended
31 December 2018 31 December 2017
£ £
Realised loss on options (226,513) -
Realised loss on credit default swaps (565,333) -
Movement in unrealised gain/(loss) on options 923,716 (122,080)
Movement in unrealised gain/(loss) on credit default swaps 475,742 (227,879)
Net changes in fair value on financial derivatives at fair value through profit or loss
607,612 (349,959)

9.   Other income

For the year ended For the year ended
31 December 2018 31 December 2017
£ £
Dividend income 4,437,519 3,890,487

10. Operating expenses

For the year ended For the year ended
31 December 2018 31 December 2017
£ £
Investment Management fee (Note 19c) 2,108,383 2,301,814
Custodian fees 60,401 74,279
Audit fees 28,300 27,500
Administration and Secretarial fees 99,315 110,302
Directors' fees (Note 19a) 81,500 73,294
Tax services1 5,000 6,125
Professional fees 154,485 50,457
Transaction costs2 136,536 327,534
Financial Adviser, Nominated Adviser and Broker fees - 56,250
Sundry expenses 116,260 210,612
Derivative expense2 628,649 209,733
3,418,829 3,447,900

1 Fees of £5,000 were paid to KPMG LLP, in respect of tax services. For the year ended 31 December 2017, KPMG Channel Islands Limited were paid £6,125 to provide similar services.

2. Excluded from the TER calculation.

11. Operating segments
Information on realised gains and losses derived from sales of investments is disclosed in Note 7 of the Financial Statements. The Company is domiciled in Guernsey. Substantially all of the Company?s income is from its investment in listed preferred shares issued by companies incorporated in South Korea.

The Company has no assets classified as non-current assets. The Company is likely to have a high degree of portfolio concentration as South Korean preferred shares are concentrated with a small number of issuers.

12. Financial assets at fair value through profit or loss

As at As at
31 December 31 December
2018 2017
£ £
Cost of investments at beginning of the year 106,460,720 114,888,445
Purchases of investments in the year 20,717,121 39,707,611
Disposal of investments in the year (21,930,228) (67,771,594)
Realised gain on disposal of investments in the year 4,905,671 19,636,258
Cost of investments held at end of the year 110,153,284 106,460,720
Unrealised gain on investments 10,159,552 47,775,457
Financial assets at fair value through profit or loss 120,312,836 154,236,177

Financial assets are valued at the bid-market prices ruling as at the close of business at the Statement of Financial Position date, net of any accrued interest which is included in the Statement of Financial Position as an income related item. The Directors are of the opinion that the bid-market prices are the best estimate of fair value in accordance with the requirements of IFRS 13 ?Fair Value Measurement?. Movements in fair value are included in the Statement of Comprehensive Income.

13. Cash and cash equivalents

As at As at
31 December 31 December
2018 2017
£ £
Cash at bank 1,304,537 3,429,302

Cash at bank earns interest at floating rates based on daily bank deposit rates. The carrying value of cash at bank approximates the fair values due to the short term nature.

14. Margin account

As at As at
31 December 31 December
2018 2017
£ £
Margin account 2,252,688 3,409,040

The margin account represents a margin deposit of collateral held by Credit Suisse Securities (USA) LLC in relation to the credit default swaps. The carrying value of the margin account approximates the fair values due to the short term nature.

15. Other receivables

As at As at
31 December 31 December
2018 2017
£ £
Dividends receivable 2,632,690 2,358,843
Prepaid expenses 3,814 4,265
2,636,504 2,363,108

The Directors consider that the carrying amount of receivables approximate their fair value.

Dividends are presented net of withholding tax of £742,554 (2017: £665,315) which has previously been presented within Note 17. Other payables.

16. Derivative financial instruments

As at As at
31 December 31 December
2018 2017
£ £
Cost of derivatives at beginning of the year (605,324) -
Open of derivatives in the year 967,526 (378,812)
Closure of derivatives in the year (122,665) (280,560)
Realised (loss)/gain on closure of derivatives in the year (791,846) 54,048
Net cost of derivatives held at end of the year (552,309) (605,324)
Net changes in fair value on derivative financial instruments at fair value through profit or loss 1,049,500 (349,959)
Net fair value on derivative financial instruments at fair value through profit or loss 497,191 (955,283)

The following are the composition of the Company?s derivative financial instruments at year end:

As at As at
31 December 31 December
2018 2017
Assets Liabilities Assets Liabilities
Derivatives held for trading: £ £ £ £
Options 1,706,418 - 104,433 -
Credit default swaps - (1,209,227) - (1,059,716)
Total 1,706,418 (1,209,227) 104,433 (1,059,716)

17. Other payables

As at As at
31 December 31 December
2018 2017
£ £
Investment management fees payable (Note 19c) 316,144 188,494
Administration fee payable   18,138 20,747
Custody fee payable 15,993 11,526
Co-sec and Listing fee payable 2,561 4,580
Directors' fees payable (Note 19a) - 14,375
Audit fees payable 22,800 30,000
Other payables 138,525 100,501
514,161 370,223

The Directors consider that the carrying amount of payables approximate their fair value.

18. Share capital
The share capital of the Company consists of an unlimited number of Ordinary Shares of no par value.

As at As at
31 December 31 December
2018 2017
Authorised
Unlimited Ordinary Shares at no par value - -
Issued at no par value
84,364,981 (2017: 84,364,981) unlimited Ordinary Shares at no par value - -
Reconciliation of number of Shares
As at As at
31 December 31 December
2018 2017
No. of Shares No. of Shares
Ordinary Shares at the beginning of the year 84,364,981 97,409,750
Purchase of own Shares for cancellation - (5,000,000)
Purchase of Realisation Shares - (8,044,769)
Total Ordinary Shares in issue at the end of the year 84,364,981 84,364,981
Share capital account
As at As at
31 December 31 December
2018 2017
£ £
Share capital at the beginning of the year 72,080,642 93,626,149
Purchase of own Shares for cancellation - (8,137,189)
Purchase of Realisation Shares - (13,408,318)
Total Share capital at the end of the year 72,080,642 72,080,642

Ordinary Shares
The Company has a single class of Ordinary Shares, which were issued by means of an initial public offering on 14 May 2013, at 100 pence per Share.

The rights attached to the Ordinary Shares are as follows:

        a)     The holders of Ordinary Shares shall confer the right to all dividends in accordance with the Articles of Incorporation of the Company.
        b)    The capital and surplus assets of the Company remaining after payment of all creditors shall, on winding-up or on a return (other than by way of purchase or redemption of own Ordinary Shares) be divided amongst the Shareholders on the basis of the capital attributable to the Ordinary Shares at the date of winding up or other return of capital.
        c)     Shareholders present in person or by proxy or (being a corporation) present by a duly authorised representative at a general meeting have, on a show of hands, one vote and, on a poll, one vote for every Share.
        d)    On 20 March 2019, being 56 days before the sixth anniversary of admission to AIM, the Company published a circular, pursuant to the Realisation Opportunity, entitling the Shareholders to serve a written notice during the Election Period (a ?Realisation Election?), requesting that all or a part of the Ordinary Shares held by them be redesignated to Realisation Shares, subject to the aggregate NAV of the continuing Ordinary Shares on the last business day before the Reorganisation Date being not less than £50 million. A Realisation Notice, once validly given, is irrevocable unless the Board agrees otherwise. If any Shareholders elect to participate in the Realisation Opportunity, the Company?s current portfolio will be divided into two pools: the Continuation Pool and the Realisation Pool. If one or more Realisation Elections are duly made and the aggregate NAV of the continuing Ordinary Shares on the last business day before the Realisation Date is less than £50 million, the Directors may propose an ordinary resolution for winding up of the Company and may pursue a liquidation of the Company instead of splitting the Portfolio into the Continuation Pool and the Realisation Pool.

Share buyback and cancellation
During the year ended 31 December 2018, the Company purchased Nil of its own Shares (31 December 2017: 5,000,000) at a consideration of £Nil (31 December 2017: £8,137,189) under the Share buyback authority originally granted to the Company in 2014. The Shares purchased in 2017 were subsequently cancelled.

The Company has 84,364,981 Ordinary Shares in issue as at 31 December 2018 (as at 31 December 2017: 84,364,981).

At the AGM held on 26 July 2018, Shareholders approved the authority of the Company to buy back up to 40% of the issued Ordinary Shares to facilitate the Company?s discount management. Any Ordinary Shares bought back may be cancelled or held in treasury.

Realisation Opportunity
On 20 March 2019, the Company announced that pursuant to the Realisation Opportunity, Shareholders who are on the register as at the record date may elect, during the Election Period, to redesignate all or part (provided that such part be rounded up to the nearest whole Ordinary Share) of their Ordinary Shares as Realisation Shares, subject to the aggregate NAV of the continuing Ordinary Shares as at the close of business on the last business day before the Realisation Date being not less than £50 million. See Note 20 for further details.

19. Related party transactions and material agreements

Related party transactions

a)     Directors? remuneration and expenses
During the year ended 31 December 2018, Directors? fees of £81,500 (31 December 2017: £73,294) were charged to the Company and £Nil remained payable at the year-end (as at 31 December 2017: £14,375). For additional information refer to the Directors? Remuneration Report.

b)     Shares held by related parties
The Directors? Interests are set out in the Report of the Directors.

The Investment Manager is principally owned by Dr Andrew Weiss and certain members of the Investment Manager?s senior management team.

As at 31 December 2018, Dr Andrew Weiss and his immediate family members held an interest in 6,486,888 Ordinary Shares (as at 31 December 2017: 6,486,888) representing 7.69 per cent. (as at 31 December 2017: 7.69 per cent.) of the issued share capital of the Company.

As at 31 December 2018, employees of the Investment Manager, their respective immediate family members or entities controlled by them or their immediate family members held an interest in 2,718,333 Ordinary Shares (as at 31 December 2017: 2,718,733) representing 3.22 per cent. (as at 31 December 2017: 3.22 per cent.) of the issued share capital of the Company.

Material agreements

c)     Investment management fee
The Company?s Investment Manager is Weiss Asset Management LP. In consideration for its services provided by the Investment Manager under the IMA dated 8 May 2013, the Investment Manager is entitled to an annual management fee of 1.5% of the Company?s NAV accrued daily and payable within 14 days after each month end. The Investment Manager is also entitled to reimbursement of certain expenses incurred by it in connection with its duties.

The IMA will continue in force until terminated by the Investment Manager or the Company, giving to the other party thereto not less than 12 months? notice in writing.

For the year ended 31 December 2018, investment management fees and charges of £2,108,383 (for the year ended 31 December 2017: £2,301,814) were charged to the Company and £316,144 (as at 31 December 2017: £188,494) remained payable at the year-end.

20. Financial risk management
The Company?s objective in managing risk is the creation and protection of Shareholder value. Risk is inherent in the Company?s activities, but it is managed through an on-going process of identification, measurement, and monitoring.

The main risks arising from the Company?s financial instruments are market risk, foreign currency risk, interest rate risk, credit risk, and liquidity risk. The techniques and instruments utilised for the purposes of efficient portfolio management are those which are reasonably believed by the Board to be economically appropriate to the efficient management of the Company.

Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Company?s activities expose it primarily to the market risks of changes in market prices, interest rates, and foreign currency exchange rates. The Company?s investments are heavily concentrated in South Korean securities. As the Company?s investments are heavily concentrated in South Korean securities, the Company has entered into certain portfolio hedge positions which are intended to provide some level of protection against potential adverse geopolitical and macroeconomic conditions in South Korea.

Market price risk
The Company?s NAV is sensitive to movements in market prices. As at 31 December 2018, if market prices had been 5% higher or 5% lower with all other variables held constant, then the increase/decrease in NAV would have been £6,039,161 (as at 31 December 2017: £7,664,045). Actual trading results may differ from the above sensitivity analysis and those differences may be material.

Were there to be a major change in the political or economic environment in South Korea, the movement in market prices may be significantly and materially higher than the above. Refer to the Investment Manager?s Report for a discussion of potential political and economic changes.

Foreign currency risk
Foreign currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates.

The Company does not hedge its exposure to foreign currency (predominantly Korean won (KRW)) and NAV per Share will fluctuate with movements in foreign exchange rates.

As at 31 December 2018, the Company held the following assets and liabilities in foreign currencies:

As at As at
31 December 31 December
2018 2017
Amounts in Sterling KRW USD KRW USD
Assets
Monetary assets 3,402,192 2,611,598 6,384,528 4,116,269
Non-monetary assets 120,312,836 1,706,418 154,236,177 104,433
123,715,028 4,318,016 160,620,705 4,220,702
Liabilities
Monetary liabilities - - (2,795,180) -
Non-monetary liabilities - (1,209,227) - (1,059,716)
- (1,209,227) (2,795,180) (1,059,716)

Amounts in the above table are based on the carrying value of monetary assets and liabilities.

The table below summarises the sensitivity of the Company?s monetary and non-monetary assets and liabilities to changes in foreign exchange movements at 31 December 2018.

Reasonable As at Reasonable As at
possible 31 December possible 31 December
shift in rate 2018 shift in rate 2017
2018 £ 2017 £
Currency
KRW
Monetary assets +/- 5% 170,110 +/- 5% 319,226
Non-monetary assets +/- 5% 6,015,642 +/- 5% 7,711,809
Monetary liabilities +/- 5% - +/- 5% (139,759)
US Dollars
Monetary assets +/- 5% 130,580 +/- 5% 205,813
Non-monetary assets +/- 5% 85,321 +/- 5% 5,222
Non-monetary liabilities +/- 5% (60,461) +/- 5% (52,986)

Interest rate risk
The Company holds limited cash and margin balances in interest-bearing accounts of £3,557,225 as at 31 December 2018 (as at 31 December 2017: £6,838,342) and does not invest in interest-bearing securities and instruments. Accordingly, interest rate risk is considered very low.

The tables below summarise the Company?s exposure to interest rate risk as of 31 December 2018:                          

Total
As at
Floating Fixed Non-Interest 31 December
rate rate bearing 2018
£ £ £ £
Financial Assets
Investments designated at fair value
through profit or loss - - 120,312,836 120,312,836
Derivative financial assets - - 1,706,418 1,706,418
Other receivables - - 2,636,504 2,636,504
Cash and cash equivalents 1,304,537 - - 1,304,537
Margin account 2,252,688 - - 2,252,688
3,557,225 - 124,655,758 128,212,983
Total
As at
Floating Fixed Non-Interest 31 December
rate rate bearing 2018
£ £ £ £
Financial Liabilities
Derivative financial liabilities - - 1,209,227 1,209,227
Other payables - - 514,161 514,161
- - 1,723,388 1,723,388

The tables below summarise the Company?s exposure to interest rate risk as of 31 December 2017:

Total
As at
Floating Fixed Non-Interest 31 December
rate rate bearing 2017
£ £ £ £
Financial Assets
Investments designated at fair value
through profit or loss - - 154,236,177 154,236,177
Derivative financial assets - - 104,433 104,433
Other receivables - - 2,363,108 2,363,108
Cash and cash equivalents 3,429,302 - - 3,429,302
Margin account 3,409,040 - - 3,409,040
Due from broker - - 1,947,339 1,947,339
6,838,342 - 158,651,057 165,489,399
Total
As at
Floating Fixed Non-Interest 31 December
rate rate bearing 2017
£ £ £ £
Financial Liabilities
Derivative financial liabilities - - 1,059,716 1,059,716
Due to broker - - 2,795,180 2,795,180
Other payables - - 370,223 370,223
- - 4,225,119 4,225,119

Credit risk
Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company. Credit risk is limited to the carrying value of financial assets at 31 December 2018 as follows:

As at As at
31 December 31 December
2018 2017
£ £
Other receivables 2,636,504 2,363,108
Cash and cash equivalents 1,304,537 3,429,302
Margin account 2,252,688 3,409,040
Due from broker - 1,947,339
6,193,729 11,148,789

The Company is exposed to material credit risk in respect of cash and cash equivalents. The credit risk from cash and cash equivalents is mitigated as the majority of cash is placed within a margin account held with Credit Suisse Securities (USA) LLC, a subsidiary of Credit Suisse (USA), Inc (?CS?). As at 31 December 2018, CS had a credit rating of A (as at 31 December 2017: A) from Standard & Poor?s and A1 (as at 31 December 2017: A1) from Moody?s. Other cash and cash equivalents are held with Northern Trust (Guernsey) Limited which is a wholly owned subsidiary of The Northern Trust Corporation (?TNTC?). TNTC is publicly traded and a constituent of the S&P 500. As at 31 December 2018, TNTC had a credit rating of A+ (as at 31 December 2017: A+) from Standard & Poor?s and A2 (as at 31 December 2017: A2) from Moody?s.

Liquidity risk
Liquidity risk is the risk that the Company may not be able to generate sufficient cash resources to settle its obligations in full as they fall due or can only do so on terms that are materially disadvantageous.

The Company?s investments are relatively liquid and the Company holds sufficient cash balances (or liquid investments) to meet its obligations as they fall due. The Board reviews its resources and obligations on a regular basis to ensure sufficient liquid assets are held.

As at 31 December 2018, the Company had no significant financial liabilities other than payables arising directly from investing activity:

Total
As at
Less than 1 31 December
 month 1-3 months 3-12 months 2018
£ £ £ £
Derivative financial liabilities 1,209,227 - - 1,209,227
Other payables 514,161 - - 514,161
1,723,388 - - 1,723,388
Total
As at
Less than 1 31 December
 month 1-3 months 3-12 months 2017
£ £ £ £
Derivative financial liabilities 1,059,716 - - 1,059,716
Due to broker 2,795,180 - - 2,795,180
Other payables 370,223 - - 370,223
4,225,119 - - 4,225,119

Capital risk management
The fair value of the Company?s financial assets and liabilities approximate their carrying amounts at the reporting date.

The Company?s objective when managing capital is to maintain an optimal capital structure in order to reduce the cost of capital. The Company may borrow capital, but as at 31 December 2018 there were no borrowings (as at 31 December 2017: £Nil).

The gearing ratio below is calculated as total liabilities divided by total equity.

As at As at
31 December 31 December
2018 2017
£ £
Total assets 128,212,983 165,489,399
Less: Total liabilities (1,723,388) (4,225,119)
Net Asset Value 126,489,595 161,264,280
Gearing Ratio 1.36% 2.62%

The Board considers the above gearing ratio to be adequate, since total borrowings refer only to amounts due to brokers, derivative liabilities, and other payables.

Share buybacks
The Directors have general Shareholder authority to purchase in the market up to 40 per cent. of the Ordinary Shares in issue from time to time following Admission. The Directors intend to seek annual renewal of this authority from Shareholders at each general meeting of the Company.

Pursuant to this authority, and subject to Guernsey law and discretion of the Directors, the Company may repurchase Ordinary Shares in the market on an on-going basis at a discount to NAV with a view to increasing the NAV per Ordinary Share and assisting in controlling the discount to NAV per Ordinary Share in relation to the price at which such Ordinary Shares may be trading.

Purchases by the Company will be made only at prices below the estimated prevailing NAV per Ordinary Share based on the last published NAV but taking account of movements in investments, stock markets, and currencies, in consultation with the Investment Manager and at prices where the Directors believe such purchases will result in an increase in the NAV per Ordinary Share of the remaining Ordinary Shares.

The Directors will consider repurchasing Ordinary Shares when the price per Ordinary Share plus the pro forma cost to the Company per Share repurchased is less than 95 per cent. of the NAV per Ordinary Share. The pro forma cost per Share should include any brokerage commission payable and costs of realising portfolio securities to fund the purchase. The Directors may, at their discretion, also consider repurchasing Ordinary Shares at a smaller discount to NAV per Ordinary Share, provided that such purchase would be accretive to NAV per Ordinary Share for any continuing Shareholders.

Realisation Opportunity
On 20 March 2019, the Company announced that pursuant to the Realisation Opportunity, Shareholders who are on the register as at the record date may elect, during the Election Period, to redesignate all or part (provided that such part be rounded up to the nearest whole Ordinary Share) of their Ordinary Shares as Realisation Shares, subject to the aggregate NAV of the continuing Ordinary Shares at the close of business on the last Business Day before the Realisation Date being not less than £50 million. The Ordinary Shares held by the Shareholders who have elected for Realisation will be redesignated as Realisation Shares and the Portfolio will be split into two separate and distinct Pools, namely the Continuation Pool (comprising the assets attributable to the continuing Ordinary Shares) and the Realisation Pool (comprising the assets attributable to the Realisation Shares).

With effect from the Realisation Date, the assets in the Realisation Pool will be managed in accordance with an orderly realisation programme with the aim of making progressive returns of cash, as soon as practicable, to those Shareholders who have elected to receive Realisation Shares. Ordinary Shares held by Shareholders who do not submit a valid and complete election in accordance with the Articles during the Election Period will remain Ordinary Shares.

Unless it has already been determined that the Company will be wound-up, every two years after the Realisation Date, the Directors will propose further realisation opportunities for Shareholders who have not previously elected to realise their Ordinary Shares using a similar mechanism to that described above.

If the weighted average discount on the Portfolio is less than 25 per cent. over any 90-day period, then the Directors shall propose an ordinary resolution for the winding up of the Company. If one or more Realisation Elections are duly made and the NAV of the continuing Ordinary Shares at the close of business on the last Business Day before the Reorganisation Date is less than £50 million, the Directors may propose an ordinary resolution for the winding up of the Company and may pursue a liquidation of the Company instead of splitting the Portfolio into the Continuation Pool and the Realisation Pool.

21. Fair value measurement
IFRS 13 ?Fair Value Measurement? requires the Company to establish a fair value hierarchy that prioritises the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy under IFRS 13 ?Fair Value Measurement? are set as follows:

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety.

If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement requires judgement, considering factors specific to the asset or liability.

The determination of what constitutes ?observable? requires significant judgement by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The following table presents the Company?s financial assets and liabilities by level within the valuation hierarchy as of 31 December 2018:

Total
As at
31 December
Level 1 Level 2 Level 3 2018
£ £ £ £
Financial assets/(liabilities) at fair value through  
profit or loss:
    Korean preferred shares 120,312,836 - - 120,312,836
    Financial derivative assets 1,706,418 - - 1,706,418
    Financial derivative liabilities - (1,209,227) - (1,209,227)
Total net assets 122,019,254 (1,209,227) - 120,810,027
Total
As at
31 December
Level 1 Level 2 Level 3 2017
£ £ £ £
Financial assets/(liabilities) at fair value through  
profit or loss:
    Korean preferred shares 142,619,928 3,908,155 - 146,528,083
    Korean exchange traded funds 7,708,094 - - 7,708,094
    Financial derivative assets 45,180 59,253 - 104,433
    Financial derivative liabilities - (1,059,716) - (1,059,716)
Total net assets 150,373,202 2,907,692 - 153,280,894

The Company recognises transfers between levels of the fair value hierarchy as of the end of the reporting year during which the transfers have occurred. During the year ended 31 December 2018, financial assets of £Nil were transferred from Level 1 to Level 2 (for the year ended 31 December 2017: £3,908,155).

Investments whose values are based on quoted market prices in active markets, and are therefore classified within Level 1, include Korean preference shares and exchange traded options.

The Company holds investments in derivative financial instruments which are classified as Level 2 within the fair value hierarchy. These consist of credit default swaps with a fair value of (£1,209,227) (as at 31 December 2017: (£1,059,716)).

As at 31 December 2018, Level 2 financial derivative assets of £Nil were held (as at 31 December 2017: £59,253).

The following tables analyse within the fair value hierarchy the Company?s assets and liabilities not measured at fair value at 31 December 2018 and 31 December 2017 but for which fair value is disclosed.

Total
As at
31 December
2018
Assets Level 1 Level 2 Level 3 £
Cash and cash equivalents 1,304,537 - - 1,304,537
Margin account 2,252,688 - - 2,252,688
Other receivables 2,632,690 3,814 - 2,636,504
6,189,915 3,814 - 6,193,729
Liabilities
Other payables - 514,161 - 514,161
- 514,161 - 514,161
As at
31 December
2017
£
Assets Level 1 Level 2 Level 3 £
Cash and cash equivalents 3,429,302 - - 3,429,302
Margin account 3,409,040 - - 3,409,040
Other receivables 2,358,843 4,265 - 2,363,108
Due from broker - 1,947,339 - 1,947,339
Total 9,197,185 1,951,604 - 11,148,789
Liabilities
Due to broker - 2,795,180 - 2,795,180
Other payables - 370,223 - 370,223
Total - 3,165,403 - 3,165,403

The assets and liabilities included in the above table are carried at amortised cost; their carrying values are a reasonable approximation of fair value.

Cash and cash equivalents include cash in hand and deposits held with banks.

Amounts due to brokers and other payables represent the contractual amounts and obligations due by the Company for settlement of trades and expenses. Amounts due from brokers and other receivables represent the contractual amounts and rights due to the Company for settlement of trades and income.

22. NAV reconciliation
The Company announces its NAV to the LSE after each weekly and month end valuation point. The following is a reconciliation of the NAV per Share attributable to participating Shareholders as presented in these Financial Statements, using IFRS to the NAV per Share reported to the LSE:

As at 31 December 2018 As at 31 December 2017
NAV per NAV per
Participating Participating
NAV  Share NAV  Share
£ £ £ £
Net Asset Value reported to the LSE 123,860,752 1.4682 158,912,591 1.8836
Adjustment to accruals and cash (3,847) - (7,154) (0.0001)
Adjustment for dividend income 2,632,690 0.0312 2,358,843 0.0280
Net Assets Attributable to Shareholders per Financial Statements 126,489,595 1.4993 161,264,280 1.9115

The published NAV per Share of £1.4682 (as at 31 December 2017: £1.8836) is different from the accounting NAV per Share of £1.4993 (as at 31 December 2017: £1.9115) due to the adjustments noted above.

23. Subsequent events
These Financial Statements were approved for issuance by the Board on 17 April 2019. Subsequent events have been evaluated until this date.

No further subsequent events have occurred.


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