(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
KOREA FUND, INC.
ANNUAL REPORT
SEPTEMBER 30, 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 CHANGES 7 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 8 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 14 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 18 Notes to the financial statements.
REPORT OF INDEPENDENT 22 The auditors' opinion.
ACCOUNTANTS
PROXY VOTING RESULTS 23 Shareholder proxy voting results.
DIVIDENDS AND DISTRIBUTIONS 24 Dividend reinvestment and cash
purchase plan.
OTHER FUND INFORMATION 27 Changes and updates.
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 the markets have been fairly positive this year, 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. HOW HAS THE FUND PERFORMED, EDWARD?
A. From the time the fund began trading on October 31, 1994, through
September 30, 1995, it had a total return of -9.47% based on net asset
value. This compares to a total return of -5.47% for the Korea Stock
Exchange Composite Price Index (KOSPI) for the same period. 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 -25.83%. That means 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 September 30 for $11.125.
Q. WHY DID THE FUND UNDERPERFORM THE BROAD MARKET?
A. Most of the underperformance came from the opening of the fund through
the first quarter of 1995. I fully invested the fund when it began trading,
which happened to be at the peak of the market. The market then fell
sharply. Year to date in 1995, however, the fund actually is performing
slightly better than the KOSPI.
Q. HOW HAS THE MARKET PERFORMED OVER THE PAST SIX MONTHS?
A. It has done relatively well. The main driver of the market has been a
drop in interest rates. They peaked at 15.7% in February, but dropped to
12.3% by the end of September.
Lower rates mean that the stock market becomes more attractive to
investors, because CDs and bond yields are less attractive. Another
positive development in the market was that on July 1 the government
increased the foreign ownership limit from 12% to 15% of the outstanding
shares of most publicly traded Korean stocks.
Q. WHAT STOCKS HAVE PERFORMED WELL FOR THE FUND?
A. Two members of the Samsung Group did well. I bought Samsung Fire and
Marine Insurance when the insurance underwriting cycle hit bottom. As
investors have recognized that business is getting better and that the
company therefore has better earnings potential, the stock has gone up. In
addition, I've added Samsung Electronics gradually over the past nine
months. This company is the largest manufacturer in the world of
semiconductor memory chips called DRAMs and has taken advantage of the
worldwide boom in demand for computers. Also on the technology front, Korea
Mobile Telecommunications has been a strong performer. It is the sole
cellular service provider in Korea.
The company's earnings potential will continue to be quite high because the
cellular penetration rate - the percentage of people who use cellular
phones - is a low 3.6% versus other industrialized countries' 10% level.
Further increases in penetration will be a function of rising disposable
income, declines in cellular phone rates and equipment costs, and worsening
traffic conditions.
Q. AND WHICH STOCKS HAVEN'T TURNED OUT AS WELL AS YOU WOULD HAVE LIKED?
A. Ssanyong Cement was one. I was attracted to the stock because of
continued strong infrastructure investment, and because management had said
recent cement price increases would help earnings. However, cement buyers
stood their ground and said they would not accept the higher prices.
Therefore, earnings were weaker than my expectations and I sold the stock.
Brokerage stocks - including Shin Young and Daewoo - also haven't done as
well as I had expected, although this sector has been one of the best
performing sectors during the past quarter. I believe that's because local
investors focused more on exporters and manufacturers. However, I'm
sticking with these investments because I find they still hold inherent
value. I find the sector to be oversold - inexpensive - and believe
earnings momentum will increase. That's because brokers will benefit both
from increased stock turnover and value of the
stocks traded. My investments here are a good example of my investment
horizon: while the stocks may have stalled a bit, I believe they will do
well over 12 to 18 months.
Q. YOU'VE MAINTAINED A LARGE INVESTMENT IN KOREA ELECTRIC POWER - ABOUT 18%
OF THE FUND AS OF SEPTEMBER 30. WHY IS THIS STOCK SO ATTRACTIVE? DOESN'T
SUCH A LARGE STAKE IN ONE STOCK MAKE IT A RISKY INVESTMENT?
A. Korea Electric Power made up about 12% of the KOSPI at the end of
September. When I started investing for the fund, I slightly overweighted
the stock, relative to the index. The proportionate size of the investment
has grown since then, through price appreciation. Beyond that, I find it to
be the cheapest utility stock in the Asia Pacific Region. The company's
valuation - stock price compared to other measures such as earnings - and
earnings are attractive and there is no competitive threat of new
independent power producers entering the market. I believe it's a great way
to take advantage of what's called "Korea, Inc." This phrase reflects the
robustness of Korea's combined export-oriented and domestic economy. As far
as the size of the investment is concerned, I don't find it to be a risk
since Korea Electric Power is considered one of the bluest of the blue chip
stocks in Korea. It has the largest market capitalization of any Korean
stock - $24 billion - providing it with a great deal of liquidity.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A. I continue to be very positive for three reasons. First, interest rates
continue to trend downward. Stocks should continue to become more
attractive than CDs and fixed-income investments. Second, due to declining
interest rates, liquidity in the stock market should improve, further
aiding optimistic investor sentiment. Finally, earnings momentum and
valuations are attractive compared to other Pacific Basin countries.
FUND FACTS
GOAL: to achieve long-term
capital appreciation through
investments in equity and
debt securities of Korean
issuers
START DATE: October 31,
1994
TRADING SYMBOL: FAK
SIZE: as of September 30,
1995, more than $55 million
MANAGER: Edward Bang,
since October 1994; joined
Fidelity in 1991
(checkmark)
EDWARD BANG ON THE POLITICAL
RISK POSED BY NORTH KOREA:
"The political risk posed by
North Korea is hard to read. I
try to keep a handle on it by
meeting quarterly with
government officials. It
appears that the
policy-makers are continuing
their de'tente policy with North
Korea, despite all the rhetoric.
This should be a positive
factor for the Korean
economy, the Korean market
and the country as a whole.
The recent credit upgrade
given the country by Standard
& Poor's in the second
quarter of this year is another
indication that the situation is
improving.
"At the same time, the North
Koreans tend to be
unpredictable. My feeling is
that if the North Koreans want
to survive economically, they
cannot pursue a policy of
isolationism and aggression.
They are becoming more
pragmatic, and their new
leader, Kim Jong Il, is pushing
through reforms.
Nevertheless, the hard-line
generals who are Korean War
veterans still pose a threat, as
they might try to revert to
hard-core Stalinism and
confrontation. But I believe
Kim Jong Il is politically astute
and appears to be
outmaneuvering them by
taking them out of major policy
functions. The political risk is
there, but I believe the
situation is better than it was a
year ago."
INVESTMENT CHANGES
TOP TEN STOCKS AS OF SEPTEMBER 30, 1995
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE STOCKS
6 MONTHS AGO
Korea Electric Power Corp. 17.6 17.7
Samsung Fire & Marine Insurance 3.7 1.3
Keum Kang Ltd. 3.7 4.7
Samsung Electro-Mechanics Co. 3.5 3.5
Shin Young Securities Co. 3.2 2.9
Samsung Electronics Co. Ltd. (vtg.) 3.0 0.9
Cheil Foods & Chemical Industries 2.5 3.1
Hyundai Engineering & 2.5 2.3
Construction Co. Ltd.
Korea Mobile Telecommunications 2.3 1.9
Corp.
Samsung Electronics Co. Ltd. 1.9 0.2
(bonus issue 3/95)
TOP TEN MARKET SECTORS AS OF SEPTEMBER 30, 1995
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Utilities 19.9 19.6
Finance 17.2 14.3
Construction & Real Estate 12.4 18.4
Industrial Machinery & Equipment 9.3 11.8
Durables 8.1 7.1
Technology 7.2 1.1
Basic Industries 6.9 9.9
Retail & Wholesale 3.6 3.6
Nondurables 3.6 4.0
Energy 3.1 3.4
INVESTMENTS SEPTEMBER 30, 1995
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 98.5%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 0.7%
SHIP BUILDING & REPAIR - 0.7%
Han Jin Heavy Industries Co. Ltd. (a) 5,940 $ 97,428
Samsung Heavy Industries Co. Ltd. 10,000 316,324
413,752
BASIC INDUSTRIES - 6.9%
CHEMICALS & PLASTICS - 3.4%
LG Chemical Ltd. 23,000 505,988
Oriental Chemical Industries Co. Ltd. 25,000 787,555
Oriental Chemical Industries Co. Ltd. (RFD) (New) (a) 1,000 29,680
Tongyang Nylon Co. 16,000 597,761
1,920,984
IRON & STEEL - 2.8%
Dongkuk Steel Mill Co. 8,100 222,481
Pohang Iron & Steel Co. Ltd. 5,000 496,257
Pusan Steel Pipe Co. 22,260 825,839
1,544,577
METALS & MINING - 0.4%
Dae Chang Industrial Co. (a) 10,500 202,291
Dong Yang Tin Plate Industries (a) 935 32,984
235,275
PAPER & FOREST PRODUCTS - 0.3%
Shin Poong Paper Manufacturing Co. 3,000 148,399
TOTAL BASIC INDUSTRIES 3,849,235
CONSTRUCTION & REAL ESTATE - 12.4%
BUILDING MATERIALS - 6.9%
KeumKang Ltd. 25,000 2,059,603
Kohap Ltd. (a) 34,155 569,102
Kyung Dong Boiler Co. Ltd. 13,100 648,008
Kyungwon Century Co. Ltd. (a) 15,000 546,732
3,823,445
CONSTRUCTION - 1.9%
Dong Ah Construction Industries Co. Ltd. 25,000 1,079,341
ENGINEERING - 3.6%
Hyundai Engineering & Construction Co. Ltd. (a) 25,460 1,369,079
Hyundai Engineering & Construction Co. Ltd. (RFD) (a) 1,743 65,609
Tae Young Corp. 8,700 594,572
2,029,260
TOTAL CONSTRUCTION & REAL ESTATE 6,932,046
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
DURABLES - 8.1%
AUTOS, TIRES, & ACCESSORIES - 6.5%
Asia Motors Co., Inc. 30,600 $ 434,184
Dae Won Kang Up Co. 12,193 341,252
Dong-A Precision Machinery (a) 5,100 124,811
Hyundai Motor Service Co. Ltd. 13,789 748,774
Hyundai Motor Service Co. Ltd. (New) (a) 17,000 1,031,546
Mando Machinery Corp. 14,000 917,349
3,597,916
TEXTILES & APPAREL - 1.6%
Baikyang Co. 3,250 505,480
Dainong Corp. (a) 24,000 293,673
Nam Yeung Corp. 700 99,779
898,932
TOTAL DURABLES 4,496,848
ENERGY - 3.1%
COAL - 1.0%
Samchully Co. Ltd. 8,000 538,401
OIL & GAS - 2.1%
Daesung Industrial Co. Ltd. 5,000 414,605
Han Wha Energy (a) 6,800 85,066
Ssangyong Oil Refining (a) 15,000 421,765
Yukong Ltd. 5,500 223,379
Yukong Ltd (New) 659 25,907
1,170,722
TOTAL ENERGY 1,709,123
FINANCE - 17.2%
BANKS - 7.1%
Commercial Bank of Korea Co. (a) 20,000 231,710
Hana Bank 20,800 465,712
Hanil Bank 20,000 279,497
Korea Exchange Bank 60,000 732,512
Korea Exchange Bank (RFD) (a) 45,000 515,491
Korea Long Term Credit Bank (a) 15,000 480,124
Shinhan Bank 41,000 1,009,388
Shinhan Bank (New) (a) 11,934 253,221
3,967,655
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - 1.0%
Samsung Securities Co. 12,300 $ 537,985
INSURANCE - 4.6%
Korea Reinsurance Co. 9,000 452,226
Samsung Fire & Marine Insurance 4,400 2,074,993
2,527,219
SECURITIES INDUSTRY - 4.5%
Daewoo Securities Co. Ltd. 20,991 714,410
Shin Young Securities Co. 64,660 1,809,672
Ssangyong Investment & Securities Co. Ltd. 30 672
2,524,754
TOTAL FINANCE 9,557,613
HEALTH - 2.5%
DRUGS & PHARMACEUTICALS - 1.7%
Suheung Capsule Co. Ltd. (a) 19,750 951,249
MEDICAL EQUIPMENT & SUPPLIES - 0.8%
Shinhung Co. Ltd. 16,580 461,874
TOTAL HEALTH 1,413,123
INDUSTRIAL MACHINERY & EQUIPMENT - 9.3%
ELECTRICAL EQUIPMENT - 5.3%
Ke Yang Electric Machinery 8,500 313,135
Samsung Electro-Mechanics Co. 39,000 1,929,185
Samsung Electro-Mechanics Co. (New) (a) 15,250 726,568
2,968,888
INDUSTRIAL MACHINERY & EQUIPMENT - 4.0%
Dae Dong Industrial Co. Ltd. 10,000 190,055
Hwacheon Machinery Works 8,200 268,992
Hyundai Precision Industry Co. Ltd. 30,900 720,008
Rocket Electric (a) 14,000 464,723
Ssangyong Heavy Industries Co. Ltd. 50,000 556,496
2,200,274
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 5,169,162
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - 1.7%
LODGING & GAMING - 1.7%
Hotel Shilla 60,000 $ 937,256
NONDURABLES - 3.6%
FOODS - 3.6%
Cheil Foods & Chemical Industries 21,876 1,415,305
Ottogi Foods Co. Ltd. 20,000 583,181
1,998,486
RETAIL & WHOLESALE - 3.6%
GENERAL MERCHANDISE STORES - 2.9%
Midopa Co. 27,000 400,677
Shinsegae Department Store 10,700 931,827
Shinsegae Department Store (New) (a) 3,244 270,263
1,602,767
TRADING COMPANIES - 0.7%
Daewoo Corp. (a) 2,500 36,449
Hae In Corp. 5,000 367,092
403,541
TOTAL RETAIL & WHOLESALE 2,006,308
TECHNOLOGY - 7.2%
ELECTRONIC INSTRUMENTS - 0.7%
Sungmi Telecom Co. (a) 4,000 390,523
ELECTRONICS - 6.5%
Samsung Display Devices Ltd. 9,700 842,771
Samsung Electronics Co. Ltd.:
(bonus issue 3/95) (a) 5,044 1,080,106
GDR (vtg.) (a) 26 3,120
GDR (vtg.) (New) (a) 5 598
(New) (a) 103 21,922
(vtg.) 7,120 1,671,976
3,620,493
TOTAL TECHNOLOGY 4,011,016
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TRANSPORTATION - 2.3%
AIR TRANSPORTATION - 1.7%
Korean Air 26,460 $ 959,674
SHIPPING - 0.6%
Global Enterprises (a) 4,450 341,773
TOTAL TRANSPORTATION 1,301,447
UTILITIES - 19.9%
CELLULAR - 2.3%
Korea Mobile Telecommunications Corp. 1,350 1,285,043
ELECTRIC UTILITY - 17.6%
Korea Electric Power Corp. 243,000 9,827,389
TOTAL UTILITIES 11,112,432
TOTAL COMMON STOCKS
(Cost $56,894,278) 54,907,847
REPURCHASE AGREEMENTS - 1.5%
MATURITY
AMOUNT
Investments in repurchase agreements,
(U.S. Treasury obligations) in a joint
trading account at 6.46% dated
9/29/95 due 10/2/95 $ 815,439 815,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $57,709,278) $ 55,722,847
LEGEND
1. Non-income producing
INCOME TAX INFORMATION
At September 30, 1995, the aggregate cost of investment securities for
income tax purposes was $57,709,338. Net unrealized depreciation aggregated
$1,986,491, of which $3,336,708 related to appreciated investment
securities and $5,323,199 related to depreciated investment securities.
The fund has elected to defer to its fiscal year ending September 30, 1996
$3,644,000 of losses recognized during the period November 1, 1994 to
September 30, 1995.
For the period, dividends from foreign countries were $661,676 or $.15 per
share. Taxes accrued or paid to foreign countries were $106,672 or $.02 per
share.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
SEPTEMBER 30, 1995
ASSETS
Investment in securities, at value (including repurchase $ 55,722,847
agreements of $815,000) (cost $57,709,278) -
See accompanying schedule
Cash 405
Deferred organization expenses 128,278
TOTAL ASSETS 55,851,530
LIABILITIES
Accrued management fee $ 44,723
Other payables and accrued expenses 203,611
TOTAL LIABILITIES 248,334
NET ASSETS $ 55,603,196
Net Assets consist of:
Paid in capital $ 61,234,025
Accumulated undistributed net realized gain (loss) on (3,644,398)
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on (1,986,431)
investments
NET ASSETS, for 4,407,093 shares outstanding $ 55,603,196
NET ASSET VALUE ($55,603,196 (divided by) 4,407,093 shares) $12.62
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
OCTOBER 31, 1994 (COMMENCEMENT OF OPERATIONS) TO SEPTEMBER 30, 1995
INVESTMENT INCOME $ 661,676
Dividends
Interest 269,493
931,169
Less foreign taxes withheld (106,672)
TOTAL INCOME 824,497
EXPENSES
Management fee $ 487,825
Transfer agent fees 17,495
Administration fees and expenses 113,855
Directors' compensation 58,818
Custodian fees and expenses 122,568
Audit 56,239
Legal 25,165
Amortization of organization expenses 28,998
Reports to shareholders 5,681
Miscellaneous 1,602
TOTAL EXPENSES 918,246
NET INVESTMENT INCOME (LOSS) (93,749)
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities (3,644,362)
Foreign currency transactions (87,441) (3,731,803)
Change in net unrealized appreciation (depreciation) on (1,986,431)
investment securities
NET GAIN (LOSS) (5,718,234)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ (5,811,983)
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
OCTOBER 31, 1994
(COMMENCEMENT
OF OPERATIONS) TO
SEPTEMBER 30,
1995
INCREASE (DECREASE) IN NET ASSETS
Operations $ (93,749)
Net investment income (loss)
Net realized gain (loss) (3,731,803)
Change in net unrealized appreciation (depreciation) (1,986,431)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (5,811,983)
FROM OPERATIONS
Share transactions 61,415,179
Net proceeds from sales of shares
TOTAL INCREASE (DECREASE) IN NET ASSETS 55,603,196
NET ASSETS
Beginning of period -
End of period $ 55,603,196
OTHER INFORMATION 4,407,093
Shares sold
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1994
(COMMENCEMENT
OF
OPERATIONS) TO
SEPTEMBER 30,
1995
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 14.10
Income from Investment Operations
Net investment income (.02)G
Net realized and unrealized gain (loss) (1.30)
Total from investment operations (1.32)
Offering expenses (.16)
Net asset value, end of period $ 12.62
Market value, end of period $ 11.125
TOTAL RETURN B (25.83)%C
Market value F
Net asset value D (9.47)%
E
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 55,603
Ratio of expenses to average net assets 1.88% A
Ratio of net investment income to average net assets (.19)%
A
Portfolio turnover rate 25% 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
THE 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.
F TOTAL RETURN BASED ON MARKET VALUE REFLECTS THE EFFECTS OF CHANGES IN THE
FUND'S MARKET VALUE AND ASSUMES DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS,
IF ANY, WERE REINVESTED.
G NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
NOTES TO FINANCIAL STATEMENTS
For the period ended September 30, 1995
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 1940
Act), as 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 calendar 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 exchange quotations are readily
available are valued at the last sale price, or if no sale price, at the
closing bid price. Securities for which exchange 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 under the general supervision of the Board
of Directors by applying a percentage of the broker-quoted premium to the
local share price.
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 substantially 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 $157,276 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 $724,832 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 the 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 the 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. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for foreign
currency transactions and losses deferred due to wash sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). Accumulated undistributed net realized gain
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
(loss) on investments and foreign currency transactions may include
temporary book and tax basis differences that will reverse in a subsequent
period. Any taxable income or gain 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.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other affiliated
entities of FMR, may transfer uninvested cash balances into one or more
joint trading accounts. These balances are invested in one or more
repurchase agreements that mature in 60 days or less from the date of
purchase, and are collateralized by U.S. Treasury or Federal Agency
obligations.
REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery
of the underlying U.S. Treasury or Federal Agency Securities, the market
value of which is required to be at least equal to the repurchase price.
For term repurchase agreement transactions, the underlying securities are
marked-to-market daily and maintained at a value at least equal to the
repurchase price. FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $71,858,411 and $11,319,770, 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.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SUB-ADVISER FEE. FIIA, on behalf of the fund, has entered into a
sub-advisory agreement 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.
ADMINISTRATIVE FEE. Fidelity Service Co. (FSC), a division 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, FSC receives a
monthly fee at an annual rate of .20% of the fund's average net assets.
5. CONCENTRATION OF 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 (UNAUDITED).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT NET NET GAIN NET INCREASE
INCOME (a) INVESTMENT (LOSS) ON (DECREASE) IN
INCOME INVESTMENTS NET ASSETS
(LOSS) RESULTING FROM
OPERATIONS
1994 TO 1995 TOTAL PER TOTAL PER TOTAL PER TOTAL PER
SHARE SHARE SHARE SHARE
For the quarters ended:
December 31, 1994 $ 0 $ .00 $ (219,226) $ (.05) $ (4,906,862) $ (1.11) $ (5,126,088) $ (1.16)
(b)
March 31, 1995 $ 715,797 $ .16 $ 524,397 $ .12 $ (4,176,291) $ (.95) $ (3,651,894) $ (.83)
June 30, 1995 $ (95,729) $ (.02) $ (196,726) $ (.04) $ (1,179,016) $ (.27) $ (1,375,742) $ (.31)
September 30, 1995 $ 204,429 $ .05 $ (202,194) $ (.05) $ 4,543,935 $ 1.03 $ 4,341,741 $ .98
</TABLE>
H (a) NET OF FOREIGN TAXES WITHHELD.
I (b) FOR THE PERIOD OCTOBER 31, 1994 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1994.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Fidelity
Advisor Korea Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity Advisor Korea Fund, Inc. at September 30, 1995, and the results of
its operations, the changes in its net assets and the financial highlights
for the period October 31, 1994 (commencement of operations) to September
30, 1995, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fidelity Advisor
Korea Fund, Inc.'s management; our responsibility is to express an opinion
on these financial statements based on our audit. We conducted our audit of
these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at September 30, 1995 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
November 9, 1995
PROXY VOTING RESULTS
The annual meeting of the fund's shareholders was held on June 14, 1995.
The results of votes taken among shareholders on proposals are listed
below.
PROPOSAL 1
To elect two Class I Directors (Messrs. Johnson and Witham) to serve for a
term expiring on the date on which the annual meeting of shareholders is
held in 1998, or until their successors are duly elected and qualified; to
elect two Class II Directors (Messrs. Burkhead and Yunich) to serve for a
term expiring on the date on which the annual meeting of shareholders is
held in 1996, or until their successors are duly elected and qualified; and
to elect one Class III Director (Mr. van den Hoven) to serve for a term
expiring on the date on which the annual meeting of shareholders is held in
1997, or until his successor is duly elected and qualified.
# OF % OF
SHARES VOTED SHARES VOTED
EDWARD C. JOHNSON 3RD (CLASS I DIRECTOR)
Affirmative 2,235,668 99.732
Withheld 6,000 00.268
TOTAL 2,241,668 100.000
BERTRAM H. WITHAM, JR. (CLASS I DIRECTOR)
Affirmative 2,235,668 99.732
Withheld 6,000 00.268
TOTAL 2,241,668 100.000
J. GARY BURKHEAD (CLASS II DIRECTOR)
Affirmative 2,235,668 99.732
Withheld 6,000 00.268
TOTAL 2,241,668 100.000
DAVID L. YUNICH (CLASS II DIRECTOR)
Affirmative 2,235,668 99.732
Withheld 6,000 00.268
TOTAL 2,241,668 100.000
HELMERT FRANS VAN DEN HOVEN (CLASS III DIRECTOR)
Affirmative 2,235,668 99.732
Withheld 6,000 00.268
TOTAL 2,241,668 100.000
PROPOSAL 2
To ratify the selection of Price Waterhouse LLP as independent accountants
of the fund.
# OF % OF
SHARES VOTED SHARES VOTED
Affirmative 2,235,168 99.710
Against 2,000 00.089
Abstain 4,500 00.201
TOTAL 2,241,668 100.000
DIVIDENDS AND DISTRIBUTIONS
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The fund intends to distribute annually to shareholders substantially all
of its net investment income from dividends and interest earnings and
expects to distribute any net realized capital gains at least annually.
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
adopted by the fund, shareholders may elect to have all distributions
automatically reinvested by State Street Bank and Trust Company (the "Plan
Agent") in fund shares, pursuant to the Plan. Shareholders who do not elect
to participate in the Plan will receive all distributions in cash paid by
check in U.S. dollars mailed directly to the shareholder by the Plan Agent.
Shareholders who would like additional information regarding the Plan or
wish to have distributions automatically reinvested should notify the fund,
c/o the Plan Agent for Fidelity Advisor Korea Fund, Inc., at Two Heritage
Drive, Quincy, Massachusetts 02171.
The Plan Agent will serve as agent for the shareholders in administering
the Plan. If the Directors of the fund declare an income dividend or a
capital gains distribution payable either in the fund's Common Stock or in
cash, as shareholders may have elected, non-participants in the Plan will
receive cash and participants in the Plan will receive Common Stock, to be
issued by the fund or purchased by the Plan Agent in the open market, as
provided below. 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 or, if the net asset value is
less than 95% of the market price on the valuation date, then new 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 day, then the next preceding trading day. If net
asset value exceeds the market price of fund shares at such time, or if the
fund should declare a dividend or capital gains distribution payable only
in cash, the Plan Agent will, as agent for the participants, buy fund
shares in the open market on the New York Stock Exchange or elsewhere, with
the cash in respect of such dividend or distribution, for the participant's
account on, or shortly after, the payment date.
Participants in the Plan have the option of making additional payments to
the Plan Agent, annually, in any amount from $100 to $3,000 for investment
in the fund's Common Stock. The Plan Agent will use all such funds received
from participants to purchase fund shares in the open market on or about
February 15 of each year. Any voluntary cash payments received more than
thirty days prior to such date will be returned by the Plan Agent, and
interest will not be paid on any uninvested cash payments. To avoid
unnecessary cash accumulations, and also to allow ample time for receipt
and processing by the Plan Agent, it is suggested that participants send in
voluntary cash payments to be received by the Plan Agent approximately ten
days before an applicable purchase date as specified above. A participant
may withdraw a voluntary cash payment by written notice if the notice is
received by the Plan Agent not less than forty-eight hours before such
payment is to be invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including
information needed by shareholders for personal and tax records. Shares in
the account of each Plan participant will be held by the Plan Agent in
non-certificated form in the name of the participant, and each
shareholder's proxy will include those shares purchased pursuant to the
Plan. In the case of shareholders such as banks, brokers or nominees, which
hold shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of shares certified from
time to time by the shareholder as representing the total amount registered
in the shareholder's name and held for the account of beneficial owners who
are participating in the Plan.
There is no charge to participants for reinvesting dividends or capital
gains distributions. The Plan Agent's fees for the handling of the
reinvestment of dividends and distributions and voluntary cash payments
will be paid by the fund. There will be no brokerage charges with respect
to shares issued directly by the fund as a result of dividends or capital
gains distributions payable either in stock or in cash. However, each
participant's account will be charged a prorata share of brokerage
commissions incurred with respect to the Plan Agent's open market purchases
in connection with the reinvestment of dividends or capital gains
distributions and voluntary cash payments made by the participant.
Brokerage charges for purchasing small amounts of stock for individual
accounts through the Plan are expected to be less than the usual brokerage
charges for such transactions, because the Plan Agent will be purchasing
stock for all participants in blocks and prorating the lower commission
thus attainable.
The reinvestment of dividends and distributions will not relieve
participants of any income tax which may be payable on such dividends and
distributions.
If your shares are held in your own name and you wish to receive all
dividends and capital gain distributions in cash rather than in shares, you
may withdraw from the Plan without penalty at any time by contacting the
Plan Agent. If your shares are held in nominee name, you should be able to
withdraw from the Plan without penalty at any time by sending written
notice to your nominee. If you withdraw, you will receive a share
certificate for all full shares or, if you wish, the Plan Agent will sell
your shares and send you the proceeds, after the deduction of brokerage
commissions. The Plan Agent will convert any fractional shares to cash at
the then-current market price and send you a check for the proceeds. Please
note that, if you participate in the Plan through a brokerage account, you
may not be able to continue as a participant if you transfer those shares
to another broker. Contact your broker or nominee or the Plan Agent to see
what is the best arrangement for you to participate in the Plan.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the fund reserves the right to amend or terminate the Plan as
applied to any voluntary cash payment made and any dividend or distribution
paid subsequent to notice of the change sent to members of the Plan at
least 30 days before the record date for such dividend or distribution. The
Plan also may be amended by the fund or Plan Agent by at least 30 days'
written notice to all participants in the Plan. All correspondence
concerning the Plan should be directed c/o the Plan Agent for Fidelity
Advisor Korea Fund, Inc., at Two Heritage Drive, Quincy, Massachusetts
02171.
OTHER FUND INFORMATION
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two classes.
Class B is held predominantly by members of the Edward C. Johnson 3d family
and is entitled to 49% of the vote on any matter acted upon by the voting
common stock. Class A is held predominantly by non-Johnson family member
employees of FMR Corp. and its affiliates and is entitled to 51% of the
vote on any such matter. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under which
all Class B shares will be voted in accordance with the majority vote of
Class B shares. Under the Investment Company Act of 1940 (1940 Act),
control of a company is presumed where one individual or group of
individuals owns more than 25% of the voting stock of that company.
Therefore, through their ownership of voting common stock and the execution
of the shareholders' voting agreement, members of the Johnson family may be
deemed, under the 1940 Act, to form a controlling group with respect to FMR
Corp.
FOREIGN OWNERSHIP LIMIT CHANGE. Korean law restricts foreign ownership of
Korean stocks. Effective July 1, 1995, the Korean-law restriction on
foreign ownership of any issuer was increased from 12% to 15%.
CUSTODIAN. The Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New
York, New York 10036, is custodian of the assets of the fund. The custodian
is responsible for the safekeeping of the fund's assets and the appointment
of the subcustodian banks and clearing agencies. The custodian takes no
part in determining the investment policies of the fund or in deciding
which securities are purchased or sold by the fund. However, the fund may
invest in obligations of the custodian and may purchase securities from or
sell securities to the custodian. The Bank of New York and Chemical Bank,
each headquartered in New York, also may serve as a special purpose
custodian of certain assets of the fund in connection with pooled
repurchase agreement transactions.
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
Kenneth A. Rathgeber, 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)
