The recent history of Matthews Korea Fund demonstrates the importance in global investing of choosing the right market at the right time.

The $200 million fund, which invests customer assets only in stocks of South Korean companies, is the top-performing U.S. stock fund of the 5,307 ranked by Bloomberg Fund Performance, surging 266 percent in the past year. That's after the fund lost 65 percent of its value in 1997, making it one of the worst-performing U.S. funds.

Over the past year, Korea's economy and stock market rebounded to the world's top position.

"There is enormous change going on in Korea," said Paul Matthews, 43, who has managed the fund since its inception in February 1995. "Companies are concentrating on maximizing returns to shareholders, and this is something new." For example, many companies have discarded a time-honored system of offering their employees employment for life, Matthews pointed out.

The government of Korean President Kim Dae Jung, elected in 1997, is pushing companies to promote investor-friendly policies and has increased to 100 percent from 26 percent the amount of stock in Korean companies that can be owned by foreign investors.

"Kim has virtually eliminated the restrictions for foreign investors," Matthews said. "Kim's zeal for reform has opened the market. His objective has been to make the Korean economy more competitive."

Matthews follows the investment strategy of finding stocks offering growth at a reasonable price.

"Growth stocks were hard to find last year," Matthews said. "We adopted a value approach last summer. That has worked well for us."

In May, South Korea reported that its economy expanded 4.6 percent in the first quarter of this year, surpassing expectations and underlining the speed of its rebound from last year's slump. The economy shrank 5.8 percent last year.

To be sure, there are some ominous economic and political issues in Korea, including the exchange of gunfire last week between North and South Korean forces in the Yellow Sea. And some investors, including Julian Robertson's Tiger Management LLC, which owns Korean and other Asian stocks, have challenged family-owned Korean companies, or chaebol, for failing to account for the interests of outside shareholders.

The Matthews Korea Fund holds 40 to 50 stocks most of the time, about half with a market value of $200 million to $1 billion, about a third with a value of under $200 million and 25 percent with a market cap of more than $1 billion, Matthews said.

Matthews said his fund is likely to concentrate on large-company stocks in the future. These stocks are leading the rise on Korea's stock market. In late 1997, at the low point for Korea's economy, only five Korean companies had a market capitalization (price per share times the number of shares outstanding) above $1 billion. Now, more than 25 are that large, Matthews said.

The 10 largest stocks in the fund "would all be considered blue chips and are among the leaders in recognizing shareholders' trust," Matthews said.

He said the fund has a potential universe of 720 listed companies in Korea. Of the total, about half have the size and record of success to be considered legitimate investments for the fund.

"Restructuring is the major theme among the companies we invest in," Matthews said. "Technology and telecommunications companies are big investment themes."

As in the United States, corporate restructuring in Korea is characterized by companies firing employees, pushing them to take early-retirement programs and selling non-core assets.

The risks are potentially great when it comes to owning shares in a mutual fund that invests solely in a country as volatile as Korea.

But the fund has gained 60 percent in the past six months and 59 percent in the past three months. Still, investors would be wise to remember that the fund lost two-thirds of its clients' money in 1997. Those who joined the fund when it debuted in January 1995 lost 18 percent through March 31 this year, according to the research firm Morningstar Inc.

Matthews has been president and chief investment officer of Matthews International Capital Management since 1991. He previously served as president of G.T. Capital Holdings.

Matthews has many research resources. Six analysts are frequently in Korea to scrutinize investment prospects for the fund. Matthews himself lived in Hong Kong for eight years during the 1980s and became well acquainted with Korea during that time.

The fund didn't pay capital gains last year. The fund's expense ratio is 2.06 percent, or $20.60 for each $1,000 invested. The average expense ratio for Pacific area funds, excluding Japan, is 2.24 percent, according to Morningstar.

The fund's I shares carry no load. The A shares carry a front load of 4.95 percent of the amount purchased.