(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
KOREA FUND, INC.
SEMIANNUAL REPORT
MARCH 31, 1995
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
FUND TALK 4 The manager's review of fund
performance, strategy, and outlook.
INVESTMENT SUMMARY 7 A summary of the fund's
investments.
INVESTMENTS 8 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 13 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 17 Notes to the financial statements.
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT
COMPANY
ACT OF 1940 THAT FROM TIME TO TIME THE FUND MAY PURCHASE AT MARKET PRICES
SHARES OF
ITS COMMON STOCK IN THE OPEN MARKET.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. IT IS NOT A PROSPECTUS,
CIRCULAR OR
REPRESENTATION INTENDED FOR USE IN THE PURCHASE OR SALE OF SHARES OF THE
FUND OR OF ANY
SECURITIES MENTIONED
IN THE REPORT.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
Although there have been a few positive market indications so far in 1995,
no one can predict what lies ahead for investors. Last year, stocks posted
below-average returns and bonds had one of the worst years in history. This
downturn followed a period in which the investing environment was generally
very positive.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
If you can leave your money invested over the long term, you can avoid the
results of the volatility that generally accompanies the stock market in
the short term, as we witnessed last year. You also can help to manage some
of the risks of investing through diversification. A stock fund is already
diversified because it invests in many issues. You can diversify even
further by placing some of your money in several different types of stock
funds or in other investment categories, such as bonds.
If you have a short investment time horizon, you might want to consider
moving some of your investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. Of course, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
Finally, no matter what your investment horizon or portfolio diversity, it
makes good sense to follow a regular investment plan - investing a certain
amount of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
Remember to contact your investment professional if you need help with your
investments.
Best regards,
Edward C. Johnson 3d
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Edward Bang, Portfolio Manager of Fidelity Advisor Korea
Fund, Inc.
Q. EDWARD, HOW HAS THE FUND PERFORMED?
A. From the time the fund began trading on October 31, 1994, through March
31, 1995, it had a total return of -14.29% based on net asset value. This
compares to a total return of -11.22% for the Korea Stock Exchange.
Remember, however, that this is a closed-end fund that trades on the New
York Stock Exchange. So we also need to look at the fund's market value
return, which reflects gains or losses in the fund's share price over the
period. The market value return was -28.33%. This means that if you bought
a share of the fund on October 31, 1994, at the initial offering price of
$15.00, you could sell it on March 31 for $10.75.
Q. WHY DID THE FUND POST A LOSS OVER THE PERIOD?
A. When the fund began trading and I started actively trading for it, the
Korean market was in a strong bull phase, poised for further rallying. I
wanted to participate in the strong market, so I fully invested the fund's
assets as quickly as possible. However, the market hit its peak shortly
after the fund opened, on November 7, 1994. Since then, the market's
average has declined about 15% through March 31, 1995.
Q. WHY DID THE MARKET DROP SO QUICKLY?
A. There were two main reasons. First, Korean interest rates started
increasing during the fourth quarter, with the three-year corporate bond
rate going from about 12.5% at the beginning of November to a peak in
February of about 15.7%. With interest rates on fixed-income securities so
attractive, many investors fled from equities. The second reason is a
result of one of the idiosyncrasies of the Korean market, namely limits on
foreign ownership of Korean stocks. On December 1, 1994, that limit
increased from 10% to 12% of the outstanding shares of any publicly traded
Korean stock. Knowing that demand would be strong when the change was
implemented on December 1, Korean investors effectively ramped up the stock
prices of Korean blue chip stocks. On December 1, these local investors
started selling heavily, causing most stock prices to drop.
Q. IS THE LIMITED FOREIGN OWNERSHIP LEVEL AN IMPORTANT FACTOR IN HOW YOU
INVEST?
A. It is the major issue in investing in Korea. It's a very restricted
market, and limited foreign ownership is one of its major weaknesses.
Nevertheless, there are a lot of opportunities in the Korean market, and I
have three options when looking to buy stocks of companies that I believe
have the potential to perform. First, if a company hasn't reached the 12%
limit in foreign ownership, I can place an order and freely trade the stock
as I would in most other markets. Second, I can buy or sell shares of
companies that already have reached the 12% level, because I can trade them
with other foreign investors in an "over-the-counter" market specifically
set up for foreign investors. The only drawback in this market is that the
stocks usually trade at a premium to the underlying stock price, which can
be as high as 30%. Finally, when the Korean government opens up more shares
to foreign ownership - which it has pledged to do by 1997 - I can then opt
to buy the shares of companies which I could not buy before, due to the
expansion of foreign ownership limits.
Q. HOW DO YOU DECIDE AMONG ALL OF THESE OPTIONS?
A. I focus my investment decisions on delicately balancing these three
options. Along with basic stock-picking strategies and weighing key
parameters of valuation - price relative to other measures, such as
earnings or cash flow - I am forced to take a long-term view when I invest
in Korea. If I want to take profits by selling a stock, there is no
guarantee that I'll be able to buy the stock later at lower levels, or even
that there will be foreign shares available. That's because foreign
investment trading patterns are unpredictable and the foreign
over-the-counter market can be somewhat
illiquid, meaning that at times it is difficult to find a foreign buyer
willing to pay a premium for filled stocks.
Q. WHAT ARE SOME OF THE POSITIVE INVESTMENT STORIES YOU'VE COME ACROSS?
A. All three that I'll mention were good valuation stories. First, there
was Cheil Foods & Chemical Industries. This is one of Korea's leading food
companies. I purchased the stock because I want to participate in Korea's
growing domestic consumption. The company is a market leader in major food
product groups, as well as being diversified. It also has good earnings
growth potential. Two other companies with growth potential that helped the
fund were Keum Kang, a building materials company, and Korea Electric
Power, Korea's sole electricity supplier and the fund's largest holding.
Q. AND WHICH STOCKS DISAPPOINTED YOU?
A. Two companies in the brokerage business, Daewoo Securities and Shin
Young Securities. I invested in both in the midst of the bull market,
because of their attractive earnings potential and valuation. Bull markets
usually benefit brokerage companies because of increased profits from
higher turnover volume. However, as interest rates started to increase, and
after activity slowed following December's market opening of an additional
2% to foreigners, the stock turnover in the Korean market has been
declining. As a result, earnings for these two companies haven't been as
buoyant as I'd like.
Q. WHAT'S YOUR OUTLOOK GOING FORWARD?
A. I'm very positive. It appears that the Korean economy will remain strong
and interest rates are on a downward trend, which should be positive for
the market long term. Additionally, inflation seems to be under control.
But most importantly, after the period, the Korean government announced -
as part of its plan to open fully the Korean stock market by 1997 - that it
will expand foreign ownership limits to 15% on July 1, 1995. This move
should create a larger universe of stocks in which the fund can invest.
FUND FACTS
GOAL: to achieve long-term
capital appreciation through
investments in equity and
debt securities of Korean
issuers
START DATE: October 31, 1994
SIZE: as of March 31, 1995,
more than $52 million
MANAGER: Edward Bang,
since October 1994; equity
analyst 1991-October 1994;
joined Fidelity in 1991
(checkmark)
EDWARD BANG ON HIS
INVESTMENT APPROACH:
"My investment approach is
very simple. Its cornerstone is
primary research, which
entails going out and meeting
with company management. I
visit as many companies as I
can as often as possible. In
1993, I visited 147
companies, about 26% of the
listed companies in Korea.
Last year, I visited an
additional 219, a little over
30%. That means I've visited
over 50% of the listed
companies in Korea. This
year I'll be visiting as many as
last year - including some
repeats, because things are
always changing - to get as
much primary information as
possible.
"I make so many visits
because Korea often is
categorized as an emerging
market. One characteristic of
an emerging market is that
information sources can be
inconsistent. I believe that
secondary information, from
brokers' reports for example,
may not be as accurate and
timely as what I hear directly
from management. It's
probably old news.
"In addition, while I tend to
favor growth stocks - those
of companies with the
potential for rapid future
earnings growth - valuation
has to be attractive. I traverse
the country visiting
companies in order to
discover solid companies with
strong, sustainable earnings
growth, hoping to beat my
competitors to the punch."
INVESTMENT SUMMARY
TOP TEN STOCKS AS OF MARCH 31, 1995
% OF FUND'S INVESTMENTS
Korea Electric Power Corp. 17.7
Keum Kang Ltd. 4.7
Samsung Electro-Mechanics Co. 3.5
Cheil Foods & Chemical 3.1
Industries
Shin Young Securities Co. 2.9
Hyundai Engineering &
Construction Co. Ltd. 2.3
Shinsegae Department Store 2.2
Pohang Iron & Steel Co. Ltd. 2.1
Korean Air 2.1
Ssangyong Cement Co. 2.0
TOP TEN MARKET SECTORS AS OF MARCH 31, 1995
% OF FUND'S INVESTMENTS
Utilities 19.6
Construction & Real Estate 18.4
Finance 14.3
Industrial Machinery & Equipment 11.8
Basic Industries 9.9
Durables 7.1
Nondurables 4.0
Retail & Wholesale 3.6
Energy 3.4
Transportation 3.2
INVESTMENTS MARCH 31, 1995 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 100%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 1.0%
SHIP BUILDING & REPAIR - 1.0%
Han Jin Heavy Industries Co. Ltd. (a) 5,940 $ 101,552
Samsung Heavy Industries Co. Ltd. 10,000 375,599
477,151
BASIC INDUSTRIES - 9.9%
CHEMICALS & PLASTICS - 4.4%
LG Chemical Ltd. 23,000 664,292
Oriental Chemical Industries Co. Ltd. (a) 26,000 858,697
Tongyang Nylon Co. (a) 16,000 665,199
2,188,188
IRON & STEEL - 4.2%
Dongkuk Steel Mill Co. (a) 20,100 583,137
Pohang Iron & Steel Co. Ltd. 11,000 1,060,038
Pusan Steel Pipe Co. (a) 13,260 417,327
2,060,502
METALS & MINING - 0.9%
Dae Chang Industrial Co. 10,500 198,549
Korea Iron & Steel Co Ltd. (a) 13,500 271,014
469,563
PAPER & FOREST PRODUCTS - 0.4%
Shin Poong Paper Manufacturing Co. (a) 3,000 216,034
TOTAL BASIC INDUSTRIES 4,934,287
CONSTRUCTION & REAL ESTATE - 18.4%
BUILDING MATERIALS - 9.5%
Hyundai Cement Co. Ltd. (a) 10,000 482,049
Keum Kang Ltd. (a) 25,000 2,318,353
Kohap Ltd. (a) 34,155 672,395
Kyung Dong Boiler Co. Ltd. (a) 4,600 253,206
Ssangyong Cement Co. (a) 30,900 1,000,518
4,726,521
CONSTRUCTION - 5.4%
Dong Ah Construction Industries Co. Ltd. (a) 25,000 794,586
Kumho Construction & Engineering Co. Ltd. (a) 70,000 901,179
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
CONSTRUCTION & REAL ESTATE - CONTINUED
CONSTRUCTION - CONTINUED
Kun Young Construction Corp. 50,000 $ 951,949
Samsung Construction Co. Ltd. 227 6,733
2,654,447
ENGINEERING - 3.5%
Hyundai Engineering & Construction Co. Ltd. 23,460 1,136,386
Tae Young Corp. (a) 8,700 608,470
1,744,856
TOTAL CONSTRUCTION & REAL ESTATE 9,125,824
DURABLES - 7.1%
AUTOS, TIRES, & ACCESSORIES - 6.3%
Asia Motors Co., Inc. 30,600 412,175
Dae Won Kang Up Co. (a) 12,193 394,800
Hyundai Motor Service Co. Ltd. (a) 10,100 532,405
Hyundai Motor Service Co. Ltd. (New) (a) 989 46,920
Kum Ho & Co., Inc. (a) 64,360 824,401
Mando Machinery Corp. (a) 14,000 902,992
3,113,693
TEXTILES & APPAREL - 0.8%
Baikyang Co. (a) 1,600 300,272
Han Chang Co. Ltd. (a) 40 2,124
Nam Yeung Corp. (a) 700 126,927
429,323
TOTAL DURABLES 3,543,016
ENERGY - 3.4%
COAL - 1.1%
Samchully Co. Ltd. (a) 8,000 549,152
OIL & GAS - 2.3%
Daesung Industrial Co. Ltd. (a) 5,000 303,717
Han Wha Energy 10,000 126,927
Ssangyong Oil Refining Ltd. (a) 15,000 452,662
Yukong Ltd. 5,500 249,103
1,132,409
TOTAL ENERGY 1,681,561
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - 14.3%
BANKS - 5.7%
Hana Bank (a) 20,800 $ 393,317
Hanil Bank (a) 20,000 225,359
Hyundai International Merchant Bank (a) 5,033 215,765
Korea Exchange Bank (a) 60,000 602,254
Korea Long Term Credit Bank (a) 15,000 474,765
Shinhan Bank (a) 41,000 791,219
Shinhan Bank (New) (a) 7,528 129,675
2,832,354
CREDIT & OTHER FINANCE - 1.0%
Samsung Securities Co. (a) 12,300 504,999
INSURANCE - 2.3%
Korea Reinsurance Co. (a) 9,000 465,095
Samsung Fire & Marine Insurance Co. Ltd. (a) 2,200 662,515
1,127,610
SECURITIES INDUSTRY - 5.3%
Daewoo Securities Co. Ltd. 20,991 636,173
Dongsuh Securities Co. (a) 30,000 439,062
Shin Young Securities Co. (a) 74,560 1,458,174
Ssangyong Investment & Securities Co. Ltd. 3,919 70,553
Ssangyong Investment & Securities Co. Ltd. (New) (a) 385 7,330
2,611,292
TOTAL FINANCE 7,076,255
HEALTH - 0.9%
MEDICAL EQUIPMENT & SUPPLIES - 0.9%
Shinhung Co. Ltd. 16,000 431,032
INDUSTRIAL MACHINERY & EQUIPMENT - 11.8%
ELECTRICAL EQUIPMENT - 5.5%
Ke Yang Electric Machinery (a) 8,500 318,158
Samsung Electro-Mechanics Co. (a) 39,000 1,752,752
Samsung Electro-Mechanics Co. (New) (a) 15,250 673,520
2,744,430
INDUSTRIAL MACHINERY & EQUIPMENT - 6.3%
Dae Dong Industrial Co. Ltd. 10,000 207,227
Hwacheon Machinery Works 8,200 279,316
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
Hyundai Precision Industry Co. Ltd. (a) 30,900 $ 856,444
LG Industrial Systems Co. 26,160 908,027
Ssangyong Heavy Industries Co. Ltd. (a) 50,000 575,703
Tong Yang Moolsan (a) 16,000 281,829
3,108,546
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 5,852,976
MEDIA & LEISURE - 1.7%
LODGING & GAMING - 1.7%
Hotel Shilla (a) 60,000 839,270
NONDURABLES - 4.0%
FOODS - 4.0%
Cheil Foods & Chemical Industries 21,876 1,541,321
Ottogi Foods Co. Ltd. (a) 13,000 432,716
1,974,037
RETAIL & WHOLESALE - 3.6%
GENERAL MERCHANDISE STORES - 3.0%
Midopa Co. 30,000 427,406
Shinsegae Department Store 10,700 1,078,176
1,505,582
TRADING COMPANIES - 0.6%
Daewoo Corp. (a) 2,500 32,703
Hae In Corp. (a) 5,000 271,338
304,041
TOTAL RETAIL & WHOLESALE 1,809,623
TECHNOLOGY - 1.1%
ELECTRONICS - 1.1%
Samsung Electronics Co. Ltd. 2,926 436,569
Samsung Electronics Co. Ltd. (Bonus Issue) 579 85,954
522,523
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TRANSPORTATION - 3.2%
AIR TRANSPORTATION - 2.1%
Korean Air 31,460 $ 1,018,651
SHIPPING - 1.1%
Korea Line Corp. 16,000 542,935
TOTAL TRANSPORTATION 1,561,586
UTILITIES - 19.6%
CELLULAR - 1.9%
Korea Mobile Telecommunications Corp. (a) 1,350 947,392
ELECTRIC UTILITY - 17.7%
Korea Electric Power Corp. 243,000 8,783,609
TOTAL UTILITIES 9,731,001
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $57,719,401) $ 49,560,142
LEGEND
(a) Non-income producing
INCOME TAX INFORMATION
At March 31, 1995, the aggregate cost of investment securities for income
tax purposes was $57,719,401. Net unrealized depreciation aggregated
$8,159,259, of which $613,566 related to appreciated investment securities
and $8,772,825 related to depreciated investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
MARCH 31, 1995 (UNAUDITED)
ASSETS
Investment in securities, at value (cost $57,719,401) - $ 49,560,142
See accompanying schedule
Cash 2,484,632
Dividends and interest receivable 646,627
Deferred organization expenses 141,752
TOTAL ASSETS 52,833,153
LIABILITIES
Accrued management fee $ 46,002
Other payables and accrued expenses 159,769
TOTAL LIABILITIES 205,771
NET ASSETS $ 52,627,382
Net Assets consist of:
Paid in capital $ 61,405,364
Undistributed net investment income 305,171
Accumulated undistributed net realized gain (loss) on (932,150)
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on (8,151,003)
investments and assets and liabilities in foreign
currencies
NET ASSETS, for 4,407,093 shares outstanding $ 52,627,382
NET ASSET VALUE, ($52,627,382 (divided by) 4,407,093 shares) $11.94
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
OCTOBER 31, 1994 (COMMENCEMENT OF OPERATIONS) TO MARCH 31, 1995 (UNAUDITED)
INVESTMENT INCOME $ 627,235
Dividends
Interest 189,661
816,896
Less foreign taxes withheld (101,099)
TOTAL INCOME 715,797
EXPENSES
Management fee $ 232,174
Transfer agent fees 10,679
Administrative fees and expenses 45,975
Directors' compensation 37,578
Custodian fees and expenses 51,949
Audit 19,023
Amortization of organization expenses 13,248
TOTAL EXPENSES 410,626
NET INVESTMENT INCOME 305,171
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities (867,584)
Foreign currency transactions (64,566) (932,150)
Change in net unrealized appreciation (depreciation) on:
Investment securities (8,159,259)
Assets and liabilities in foreign currencies 8,256 (8,151,003)
NET GAIN (LOSS) (9,083,153)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ (8,777,982)
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C>
OCTOBER 31, 1994
(COMMENCEMENT
OF OPERATIONS) TO
MARCH 31, 1995
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 305,171
Net investment income
Net realized gain (loss) (932,150)
Change in net unrealized appreciation (depreciation) (8,151,003)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (8,777,982)
Share transactions 61,405,364
Net proceeds from sales of shares
TOTAL INCREASE (DECREASE) IN NET ASSETS 52,627,382
NET ASSETS
Beginning of period -
End of period (including undistributed net investment income of $ 52,627,382
$305,171)
OTHER INFORMATION 4,407,093
Shares sold
</TABLE>
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1994
(COMMENCEMENT
OF OPERATIONS) TO
MARCH 31, 1995
(UNAUDITED)
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 14.10
Income from Investment Operations
Net investment income .07
Net realized and unrealized loss (2.06)
Total from investment operations (1.99)
Offering expenses (.17)
Net asset value, end of period $ 11.94
Market value, end of period $ 10.75
TOTAL RETURN B
Market Value C (28.33)%
Net Asset Value D (14.29)% E
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 52,627
Ratio of expenses to average net assets 1.77% A
Ratio of net investment income to average net assets 1.31% A
Portfolio turnover rate 18% A
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C TOTAL MARKET VALUE RETURN INCLUDES THE ONE TIME SALES LOAD OF 6% PAID IN
CONNECTION WITH THE INITIAL PUBLIC OFFERING.
D TOTAL RETURN BASED ON NET ASSET VALUE REFLECTS THE EFFECT OF CHANGES IN
NET ASSET VALUE ON THE PERFORMANCE OF THE FUND, AND ASSUMES DIVIDENDS AND
CAPITAL GAINS DISTRIBUTIONS, IF ANY, WERE REINVESTED. THIS PERCENTAGE IS
NOT AN INDICATION OF THE PERFORMANCE OF A SHAREHOLDER'S INVESTMENT IN THE
FUND BASED ON MARKET VALUE DUE TO DIFFERENCES BETWEEN THE MARKET PRICE OF
THE STOCK AND THE NET ASSET VALUE OF THE FUND.
E TOTAL NET ASSET VALUE RETURN DOES NOT INCLUDE THE EFFECT OF THE OFFERING
EXPENSES OR THE ONE TIME SALES LOAD.
NOTES TO FINANCIAL STATEMENTS
For the period ended March 31, 1995 (Unaudited)
1. SIGNIFICANT ACCOUNTING
POLICIES.
Fidelity Advisor Korea Fund, Inc. (the fund), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the Act),
as a non-diversified closed-end management investment company. The fund
issued 7,093 shares of its common stock to Fidelity Management & Research
Company (FMR) on October 20, 1994 for an aggregate purchase price of
$100,011. On October 31, 1994, the fund issued 4,400,000 shares of common
stock in its initial public offering.
There are 100,000,000 shares of $.001 par value common stock authorized.
Commencing in the first calender quarter of 1998, and on each calendar
quarter thereafter, the Board of Directors of the fund may, under certain
circumstances, conduct a tender offer to repurchase ten percent of the
fund's outstanding shares of common stock at a price equal to the net asset
value per share at the time of repurchase.
The following summarizes the significant accounting policies of the fund:
SECURITY VALUATION. Securities for which quotations are readily available
are valued at the last sale price, or if no sale price, at the closing bid
price in the principal market in which such securities are normally traded.
Securities for which quotations are not readily available are valued
primarily using dealer-supplied valuations or at their fair value as
determined in good faith under consistently applied procedures under the
general supervision of the Board of Directors. Short-term securities
maturing within sixty days of their purchase date are valued at amortized
cost or original cost plus accrued interest, both of which approximate
current value.
Korean equity securities that have reached the limit for aggregate foreign
ownership and for which premiums to the local exchange prices may be paid
by foreign investors are valued at their fair value as determined in good
faith under consistently applied procedures under the general supervision
of the Board of Directors.
FOREIGN CURRENCY TRANSLATION.
The accounting records of the fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a
foreign currency are translated into U.S. dollars at the prevailing rates
of exchange at period end. Purchases and sales of securities, income
receipts, and expense payments are translated into U.S. dollars at the
prevailing exchange rate on the respective dates of the transactions.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward currency
contracts, disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions,
and the difference between the amount of net investment income accrued and
the U.S. dollar amount actually received. The effects of changes in foreign
currency exchange rates on investments in securities are included with the
net realized and unrealized gain or loss on investment securities.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
INCOME TAXES. The fund intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code. By so qualifying, the fund
will not be subject to U.S. federal income taxes to the extent that it
distributes all of its taxable income for its fiscal year. The fund may be
subject to foreign taxes on income, gains on investments or currency
repatriation. The fund accrues such taxes as applicable. The schedule of
investments includes information regarding income taxes under the caption
"Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign securities where the ex-dividend date
may have passed, are recorded as soon as the fund is informed of the
ex-dividend date. Interest income is accrued as earned. Investment income
is recorded net of foreign taxes withheld where recovery of such taxes is
uncertain.
EXPENSES. The fund incurred organization and offering expenses in
connection with its initial issuance of shares. The organization expenses
of $155,000 are being amortized on a straight-line basis for a five-year
period beginning at the commencement of operations of the fund. The
offering expenses of $734,647 were paid from the proceeds of the offering
and charged to capital.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date.
Pursuant to the fund's Dividend Reinvestment and Cash Purchase Plan (the
Plan), shareholders may elect to have all distributions automatically
reinvested in fund shares. Shareholders who do not participate in the Plan
will receive all distributions in cash paid by check in dollars. If the
market price per share on the valuation date equals or exceeds net asset
value per share on that date, the fund will issue new shares to
participants at net asset value. If the net asset value is less than 95% of
the market price on the valuation date, then shares will be issued at 95%
of the market price. The valuation date will be the dividend or
distribution payment date or, if that date is not a New York Stock Exchange
trading date, the next preceding trading date. If the net asset value
exceeds the market price of fund shares at such time, the Plan Agent will
purchase shares of stock valued at market price on the valuation date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. Permanent book and tax basis differences relating to
shareholder distributions will result in reclassifications to paid in
capital and may affect net investment income per share. Undistributed net
investment income and accumulated undistributed net realized gain (loss) on
investments and foreign currency transactions may include temporary book
and tax basis differences which will reverse in a subsequent period. Any
taxable income or gain
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
remaining at fiscal year end is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
The fund invests in new securities offered by some foreign companies by
making applications in the public offerings. The full or a portion of the
issue price is paid at the time of the application and recorded as
application money for new issues. Upon allotment, this amount plus the
remaining amount of issue price is recorded as cost of investments.
2. OPERATING POLICIES.
FORWARD FOREIGN CURRENCY CONTRACTS. The fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage
the fund's currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell are used to
hedge the fund's investments against currency fluctuations. Also, a
contract to buy or sell can offset a previous contract. Losses may arise
from changes in the value of the foreign currency or if the counterparties
do not perform under the contracts' terms.
The U.S. dollar value of forward foreign currency contracts is determined
using forward currency exchange rates supplied by a quotation service.
Purchases and sales of forward foreign currency contracts having the same
settlement date and broker are offset and any realized gain (loss) is
recognized on the date of offset; otherwise, gain (loss) is recognized on
settlement date.
3. PURCHASES AND SALES
OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $62,185,904 and $3,598,919, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment manager, FMR receives a monthly
basic fee that is computed daily at an annual rate of 1.00% of the fund's
average net assets.
ADVISER FEE. FMR and the fund entered into an investment advisory agreement
with Fidelity International Investment Advisors (FIIA), an affiliate of
FMR, pursuant to which FIIA is responsible for the management of the fund's
portfolio in accordance with the fund's investment policies and for making
decisions to buy or sell securities. FMR pays FIIA a portion of its
management fee.
SUB-ADVISER FEE. FIIA, on behalf of the fund, has entered into a
sub-advisory agreements with Fidelity Investments Japan Limited (FIJ), an
affiliate of FMR, to provide advisory services concerning fund assets
invested in Japanese and other securities. FIIA pays FIJ a portion of its
fee based on the assets managed by FIJ.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
ADMINISTRATIVE FEE. Fidelity International Limited (FIL), an affiliate of
FMR Corp., has entered into a Fund Management Agreement with the fund to
provide, or arrange to provide, administrative services to the fund
including maintaining the fund's accounting records. As the fund's
administrative manager, FIL receives a monthly fee at an annual rate of
..20% of the fund's average net assets. FIL has contracted all of these
services to Fidelity Service Co., a division of FMR Corp.
5. CREDIT RISK.
As the capital market in Korea is developing, investments in Korean
securities may involve greater risks than investments in more developed
markets and the prices of such investments may be volatile. The
consequences of political, social or economic changes in this market may
have disruptive effects on the market prices of the fund's investments and
the income they generate, as well as the fund's ability to repatriate such
amounts.
6. QUARTERLY RESULTS OF OPERATIONS.
NET INCREASE
NET NET (DECREASE)
INVESTMENT GAIN IN NET ASSETS
INVESTMENT INCOME (LOSS) ON RESULTING
INCOME (a) (LOSS) INVESTMENTS FROM OPERATIONS
PER PER PER PER
1994 TO 1995 TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
For the quarters ended:
December 31, 1994 (b) $ 0 $ .00 $ (219,226) $ (.05) $ (4,906,862) $ (1.11)
$ (5,126,088) $ (1.16)
March 31, 1995 $ 715,797 $ .16 $ 524,397 $ .12 $ (4,176,291) $ (.95) $
(3,651,894) $ (.83)
(a) NET OF FOREIGN TAXES WITHHELD.
(b) FOR THE PERIOD OCTOBER 31, 1994 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1994.
ADDRESS
Fidelity Advisor Korea Fund, Inc.
82 Devonshire Street
Boston, MA
1-800-426-5523
INVESTMENT MANAGER
Fidelity Management &
Research Company
Boston, MA
INVESTMENT ADVISER
Fidelity International
Investment Advisors
Pembroke, Bermuda
SUB-ADVISER
Fidelity Investments Japan Limited
Tokyo, Japan
DIRECTORS AND OFFICERS
Edward C. Johnson 3d, Director and President
J. Gary Burkhead, Director and
Senior Vice President
Helmert Frans van den Hoven, Director
Bertram H. Witham, Jr., Director
David L. Yunich, Director
William Ebsworth, Vice President
Billy W. Wilder, Vice President
Arthur S. Loring, Secretary
Gary L. French, Treasurer
Stuart E. Fross, Assistant Secretary
John Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
State Street Bank and Trust Company
Boston, MA
CUSTODIAN
Chase Manhattan Bank, N.A.
New York, NY
LEGAL COUNSEL
Rogers & Wells
New York, NY
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
Boston, MA
(registered trademark)
