(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
KOREA FUND, INC.
ANNUAL REPORT
SEPTEMBER 30, 1996
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
FUND TALK 4 The managers' 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 stocks have managed to post solid returns through the first nine
months of 1996, signs of strength in the economy have led to inflation
fears, causing some uncertainty in bond markets so far this year. In 1995,
both stock and bond markets posted strong results, while the year before,
stocks posted below-average returns and bonds had one of the worst years in
history.
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
NOTE TO SHAREHOLDERS: On October 1, 1996, after the period ended, Hokeun
Chung became sole portfolio manager of Fidelity Advisor Korea Fund, Inc.
Since December 11, 1995, he has co-managed the fund along with William
Ebsworth. During that time, however, Hokeun Chung handled day-to-day
operations of the fund.
Q. HOW DID THE FUND PERFORM, HOKEUN?
A. For the 12-month period ended September 30, 1996, the fund had a total
return of -15.13% based on net asset value. This compares to the -24.65%
return of the Korea Stock Exchange Composite Price Index (KOSPI) for the
same period. In terms of the fund's market value return - which represents
gains or losses in the fund's share price - it returned -5.62% for the past
year.
Q. WHAT'S HAPPENED IN THE KOREAN MARKET?
A. Unfortunately, the Korean stock market had one of the worst returns in
Asia. Several factors contributed to the negative returns of the market.
Korea's economic growth has slowed in comparison to 1995. GNP growth has
dropped in part because of deteriorating exports and construction spending.
Additionally, falling prices of cyclical commodities, combined with rising
prices for imported oil, substantially widened the country's trade deficit.
The Korean currency - the won - also depreciated to its lowest level
against
the U.S. dollar since 1987. This development hurt many Korean corporations
because they borrowed so heavily in dollar-denominated debt. Finally, while
some sectors of the Korean market had good earnings growth, on an aggregate
basis, Korean companies reported very disappointing results.
Q. WHAT SPECIFICALLY CONTRIBUTED TO THE POOR AGGREGATE PERFORMANCE OF
KOREAN CORPORATIONS?
A. Samsung Electronics - which is the world's largest manufacturer of DRAM
(dynamic random access memory) chips - was hurt by the worldwide depression
of chip prices in the face of falling demand and a sizable supply. While
demand has picked up recently, it was not enough to help the company during
the period. The weak Korean won against the U.S. dollar also eroded Korean
corporations' bottom lines as they are heavily geared to the U.S. debt. For
example, U.S.-dollar-denominated debt accounts for 54% of Korea Electric
Power Corp.'s total debt.
Q. WAS THERE A PARTICULAR SIZE OF COMPANY THAT YOU CONCENTRATED ON DURING
THE PERIOD?
A. I've reduced positions in small-capitalization companies (up to $1
billion market capitalization) and rotated into more liquid and
fundamentally attractive mid-cap companies ($1 billion to $5 billion). As
for large caps, there are only three companies with market capitalization
over $5 billion. During the period, the fund was underweighted in two of
them - Samsung Electronics and Pohang Iron & Steel - relative to the KOSPI.
Q. WHAT AREAS OF THE MARKET DID YOU EMPHASIZE?
A. Throughout the period, I emphasized the insurance, food and beverage,
utility and telecommunications areas. These areas are considered
"defensive" sectors - in that they have the potential to grow irrespective
of the country's economic climate - and many companies in these areas had
attractive valuations. Additionally, I began to add to the fund's position
in civil engineering and construction companies since it appeared the
government would increase infrastructure investments in order to boost the
economy. Also, more specifically, I began buying the stocks of banks based
in major Korean cities. These companies became attractive as they began to
confront and aggressively write off bad debt.
Q. CAN YOU GIVE US AN EXAMPLE FROM THE AREAS YOU JUST MENTIONED?
A. Sure. The fund's largest holding in the insurance area was Samsung Fire
& Marine Insurance. The company has performed relatively well on the
strength of a cyclical recovery in Korean insurance companies.
Q. WERE THERE ANY AREAS YOU AVOIDED?
A. With the exception of construction, I avoided cyclical industries such
as commodities, petrochemicals, shipbuilding and heavy machinery. The
stocks of companies in these areas were hurt as Korea's economic growth
appeared slower than expected.
Q. WHAT PARTICULAR CHALLENGES DO KOREAN CORPORATIONS FACE TODAY?
A. The profits of Korea's CHAEBOL - the country's 10 largest industrial
conglomerates - have fallen dramatically in the first half of 1996. This is
due in part to a slower economy, but also because these companies have some
of the highest production costs in the Asia-Pacific region. Much of this
has to do with high wage costs and rigid labor laws. For example, unlike
large companies in other industrialized nations, employment at the CHAEBOL
is regarded by many people as a job for life with such extensive benefits
as subsidized housing. Therefore, it would be very expensive and socially
difficult to cut production costs by eliminating jobs.
Q. WHAT'S YOUR OUTLOOK?
A. I have an optimistic outlook for the Korean economy given the
projections of an improving world economy and rising infrastructure
spending. As for the Korean equity market, it appears the weak corporate
earnings prospects for 1996 have already been priced into stock prices.
Therefore, I'm hopeful that we have seen a bottoming of stock prices.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: to achieve long-term
capital appreciation through
investments in equity and
debt securities of Korean
issuers
TRADING SYMBOL: FAK
START DATE: October 31,
1994
SIZE: as of September 30,
1996, more than $47 million
MANAGER: Hokeun Chung,
since October 1996;
co-manager, December
1995- October 1996; joined
Fidelity in 1994
(checkmark)
HOKEUN CHUNG ON FINANCIAL
DEREGULATION IN SOUTH KOREA:
"Over the past year, the South
Korean government has
made a number of proposals
to make the country's stock
market more attractive to
foreign investors. Last April,
for example, the government
raised the percentage of
shares of a company that a
foreign investor may own
from 15% to 18% and,
effective October 1, 1996,
that limit was raised to 20%."
During the past summer, the
South Korean Finance
Ministry issued a number of
proposals relative to the
nation's financial markets.
Should they become policy,
these proposals would:
(solid bullet) Eliminate government
control over the volume of
new stock in the market.
Companies and underwriters
would now be able to
determine the timing and
pricing of new equity issues.
(solid bullet) Allow prices to move in a
wider trading range. The
current daily price range of
6% would be lifted to 8%.
(solid bullet) Raise the financial
requirements that
companies must meet to be
listed on the Korean Stock
Exchange.
INVESTMENT CHANGES
TOP TEN STOCKS AS OF SEPTEMBER 30, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE STOCKS
6 MONTHS AGO
Korea Electric Power Corp. 12.7 13.7
Korea Mobile Telecommunications 5.2 4.1
Corp.
Samsung Fire & Marine Insurance 5.0 5.6
Sungmi Telecom Co. 3.9 2.4
Korea Exchange Bank 2.7 3.0
Shinhan Bank 2.6 2.4
Suheung Capsule Co. Ltd. 2.6 1.6
Shin Young Securities Co. 2.3 2.8
Hyundai Engineering & 2.2 2.8
Construction Co. Ltd.
Oriental Chemical Industries Co. Ltd. 2.0 1.5
TOP TEN MARKET SECTORS AS OF SEPTEMBER 30, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Finance 23.1 22.6
Utilities 18.5 18.3
Construction & Real Estate 12.6 13.4
Basic Industries 10.7 8.3
Technology 8.7 7.3
Durables 5.7 6.9
Nondurables 4.1 4.4
Energy 3.8 3.8
Industrial Machinery & Equipment 3.3 4.8
Health 3.0 2.0
INVESTMENTS SEPTEMBER 30, 1996
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 97.7%
SHARES VALUE (NOTE 1)
BASIC INDUSTRIES - 10.7%
CHEMICALS & PLASTICS - 5.9%
Han Wha Corp. (a) 15,000 $ 228,810
Han Wha Corp. (New) 2,335 24,933
Korea Chemical 1,820 148,729
LG Chemical Ltd. 15,000 187,046
Namhae Chemical Corp. 5,000 329,903
Oriental Chemical Industries Co. Ltd. 26,000 938,015
Oriental Chemical Industries Co. Ltd. (New) 1,031 35,698
Tongyang Nylon Co. 16,000 426,150
Youl Chon Chemical Co. 12,000 461,986
2,781,270
IRON & STEEL - 3.6%
Dongkuk Steel Mill Co. 8,100 156,901
Pohang Iron & Steel Co. Ltd. 9,875 707,151
Seah Steel Corp. 25,705 737,541
Seah Steel Corp. (New) 2,570 63,161
1,664,754
METALS & MINING - 1.0%
Young Poong Mining & Construction Corp. 6,000 475,787
PAPER & FOREST PRODUCTS - 0.2%
Shin Poong Paper Manufacturing Co. 3,000 94,431
TOTAL BASIC INDUSTRIES 5,016,242
CONSTRUCTION & REAL ESTATE - 12.6%
BUILDING MATERIALS - 5.0%
Han Kuk Glass 3,000 58,111
Keumkang Ltd. 16,000 912,349
Kohap Ltd. 15,000 127,119
Kyung Dong Boiler Co. Ltd. 15,196 535,356
Kyungwon Century Co. Ltd. 15,000 561,138
Tong Yang Cement Co. 7,000 159,322
2,353,395
CONSTRUCTION - 4.1%
Chonggu Housing & Construction Corp. 10,000 251,816
Dong Ah Construction Industries Co. Ltd. 31,644 858,143
Dong Ah Construction Industries Co. Ltd. (New) 2,788 71,894
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
CONSTRUCTION & REAL ESTATE - CONTINUED
CONSTRUCTION - CONTINUED
LG Construction Co. 24,000 $ 520,097
Sam Whan Corp. 10,000 203,390
1,905,340
ENGINEERING - 3.5%
Hyundai Engineering & Construction Co. Ltd. (a) 32,757 1,007,298
Hyundai Engineering & Construction Co. Ltd. (New) 1,907 41,049
Tae Young Corp. 6,700 562,930
1,611,277
TOTAL CONSTRUCTION & REAL ESTATE 5,870,012
DURABLES - 5.7%
AUTOS, TIRES, & ACCESSORIES - 4.0%
Dong-A Precision Machinery 5,100 112,990
Dong-A Precision Machinery RFD (a) 1,055 19,669
Hyundai Motor Service Co. Ltd. 13,789 442,383
Hyundai Motor Service Co. Ltd. (New) 1,790 40,199
Hyundai Motor Co. Ltd. 17,000 596,852
Mando Machinery Corp. 14,000 647,458
1,859,551
CONSUMER ELECTRONICS - 0.4%
LG Electronics 10,000 174,334
TEXTILES & APPAREL - 1.3%
BYC Co. Ltd. 3,250 401,332
Dainong Corp. 20,000 134,383
Vivien Corp. 1,050 99,153
634,868
TOTAL DURABLES 2,668,753
ENERGY - 3.8%
COAL - 1.9%
Samchully Co. 8,000 658,596
Samchully Co. (New) (bonus issue 3/96) 2,256 174,799
Samchully Co. (New) (subscription offer 3/96) 902 68,797
902,192
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
ENERGY - CONTINUED
OIL & GAS - 1.9%
Daesung Industrial Co. Ltd. 5,000 $ 354,116
Daesung Industrial Co. Ltd. (New) RFD (a) 3,148 216,854
Ssangyong Oil Refining 5,000 115,012
Yukong Ltd. 7,839 199,297
Yukong Ltd. (rights) (a) 485 -
885,279
TOTAL ENERGY 1,787,471
FINANCE - 23.1%
BANKS - 10.9%
Cho Hung Bank Co. Ltd. 27,186 296,216
Commercial Bank of Korea Co. 44,690 409,568
Hana Bank RFD 3,745 57,127
Hanil Bank 50,000 478,208
Housing & Commercial Bank (New) (a) 14,959 353,148
Korea Exchange Bank 110,000 1,266,465
Kookmin Bank 21,821 473,775
Korea Long Term Credit Bank 15,000 346,852
Kyung Nam Bank 15,000 190,678
Shinhan Bank 52,934 1,223,506
5,095,543
CREDIT & OTHER FINANCE - 0.8%
Samsung Securities Co. Ltd. 12,300 339,516
Samsung Securities Co. Ltd. (New) RFD (a) 1,968 47,651
387,167
INSURANCE - 6.6%
Dongbu Insurance Co. Ltd. (a) 5,000 190,678
International Fire & Marine Insurance 3,500 224,153
Korea Reinsurance Co. 9,360 273,094
Korea Reinsurance Co. (New) 2,199 58,037
Samsung Fire & Marine Insurance 4,400 2,343,826
3,089,788
SECURITIES INDUSTRY - 4.8%
Dongwon Securities Co. Ltd. 35,000 584,746
Daewoo Securities Co. Ltd. 26,410 559,534
Shin Young Securities Co. 50,000 1,089,589
2,233,869
TOTAL FINANCE 10,806,367
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
HEALTH - 3.0%
DRUGS & PHARMACEUTICALS - 3.0%
Dong-A Pharmaceutical Co. Ltd. 8,060 $ 184,424
Suheung Capsule Co. Ltd. 19,750 1,217,040
1,401,464
INDUSTRIAL MACHINERY & EQUIPMENT - 3.3%
ELECTRICAL EQUIPMENT - 0.9%
Samsung Electro-Mechanics Co. Ltd. 10,000 263,923
Samsung Electro-Mechanics Co. Ltd. (New) (bonus issue 2/96) 6,844 170,686
434,609
INDUSTRIAL MACHINERY & EQUIPMENT - 2.4%
Hyundai Precision Industry Co. Ltd. 25,000 523,608
Keyang Electric Machinery Co. Ltd. 8,500 179,056
Keyang Electric Machinery Co. Ltd. (New) 1,704 30,532
Rocket Electric 10,000 376,513
1,109,709
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 1,544,318
MEDIA & LEISURE - 0.9%
LODGING & GAMING - 0.6%
Hotel Shilla 30,000 294,189
PUBLISHING - 0.3%
Samseong Publishing 5,000 110,775
TOTAL MEDIA & LEISURE 404,964
NONDURABLES - 4.1%
BEVERAGES - 0.7%
Chosun Brewery Co. Ltd. (a) 9,785 306,818
FOODS - 2.5%
Cheil Foods & Chemical Industries 12,000 688,620
Haitai Confectionery 15,000 159,806
Ottogi Foods Co. Ltd. 12,000 325,424
1,173,850
HOUSEHOLD PRODUCTS - 0.9%
Han Kook Cosmetics Industriy 15,000 432,203
TOTAL NONDURABLES 1,912,871
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - 2.2%
GENERAL MERCHANDISE STORES - 1.5%
Shinsegae Department Store 11,000 $ 625,908
Shinsegae Department Store (New) 1,547 82,407
708,315
TRADING COMPANIES - 0.7%
Daewoo Corp. 2,500 20,581
Hae In Corp. 5,000 293,584
314,165
TOTAL RETAIL & WHOLESALE 1,022,480
TECHNOLOGY - 8.7%
COMMUNICATIONS EQUIPMENT - 1.5%
Lg Information & Communications Ltd. 5,000 614,407
Lg Information & Communications Ltd. (New) (a) 912 109,308
723,715
ELECTRONIC INSTRUMENTS - 4.2%
Lg Cable & Machinery Ltd. 8,000 146,247
Lg Cable & Machinery Ltd. (rights) (a) 1,280 -
Sungmi Telecom Co. 7,300 1,811,744
1,957,991
ELECTRONICS - 3.0%
Samsung Electronics Co. Ltd.:
(vtg.) 4,000 313,802
(bonus issue 3/96) (a) 7,208 542,782
GDS (vtg.) (bonus issue 3/96) (a) 9 335
SAMSUNG Display Divices 8,000 496,852
SAMSUNG Display Divices (subscription offer 4/96) 751 45,005
1,398,776
TOTAL TECHNOLOGY 4,080,482
TRANSPORTATION - 1.1%
AIR TRANSPORTATION - 0.2%
Korean Air 4,460 97,191
SHIPPING - 0.9%
Global Enterprises 4,450 414,831
TOTAL TRANSPORTATION 512,022
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UTILITIES - 18.5%
CELLULAR - 5.2%
Korea Mobile Telecommunications Corp. 2,080 $ 2,431,787
ELECTRIC UTILITY - 13.3%
Korea Electric Power Corp. 180,000 5,949,154
Kyung Nam Energy Co. Ltd. 5,000 278,450
6,227,604
TOTAL UTILITIES 8,659,391
TOTAL COMMON STOCKS
(Cost $53,169,499) 45,686,837
REPURCHASE AGREEMENTS - 2.3%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.72%, dated
9/30/96 due 10/1/96 $ 1,073,170 1,073,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $54,242,499) $ 46,759,837
LEGEND
1. Non-income producing
INCOME TAX INFORMATION
At September 30, 1996, the aggregate cost of investment securities for
income tax purposes was $54,242,499. Net unrealized depreciation aggregated
$7,482,662, of which $4,592,806 related to appreciated investment
securities and $12,075,468 related to depreciated investment securities.
At September 30, 1996, the fund had a capital loss carryforward of
approximately $3,725,000 all of which will expire on September 30, 2004.
The fund intends to elect to defer to its fiscal year ending September 30,
1997 approximately $2,332,000 of losses recognized during the period
November 1, 1995 to September 30, 1996.
For the period, interest and dividends from foreign countries were
$674,079. Taxes accrued or paid to foreign countries were $109,971.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
SEPTEMBER 30, 1996
ASSETS
Investment in securities, at value (including repurchase $ 46,759,837
agreements of $1,073,000) (cost $54,242,499) -
See accompanying schedule
Cash 320
Receivable for investments sold 764,580
Dividends receivable 4,549
Deferred organization expenses 96,778
TOTAL ASSETS 47,626,064
LIABILITIES
Payable for investments purchased $ 150,634
Accrued management fee 40,400
Other payables and accrued expenses 253,706
TOTAL LIABILITIES 444,740
NET ASSETS $ 47,181,324
Net Assets consist of:
Paid in capital $ 60,816,311
Accumulated undistributed net realized gain (loss) on (6,148,766)
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on (7,486,221)
investments and assets and liabilities in foreign
currencies
NET ASSETS, for 4,407,093 shares outstanding $ 47,181,324
NET ASSET VALUE per share ($47,181,324 (divided by) 4,407,093 $10.71
shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED SEPTEMBER 30, 1996
INVESTMENT INCOME $ 674,079
Dividends
Interest 31,375
705,454
Less foreign taxes withheld (109,971)
TOTAL INCOME 595,483
EXPENSES
Management fee $ 536,280
Transfer agent fees 12,266
Administration fees and expenses 107,388
Directors' compensation 39,135
Custodian fees and expenses 137,633
Audit 74,349
Legal 6,755
Amortization of organization expenses 31,500
Reports to shareholders 2,563
Miscellaneous 16,979
Total expenses before reductions 964,848
Expense reductions (3,781) 961,067
NET INVESTMENT INCOME (LOSS) (365,584)
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities (2,504,428)
Foreign currency transactions (52,070) (2,556,498)
Change in net unrealized appreciation (depreciation) on:
Investment securities (5,496,231)
Assets and liabilities in foreign currencies (3,559) (5,499,790)
NET GAIN (LOSS) (8,056,288)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ (8,421,872)
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED OCTOBER 31, 1994
SEPTEMBER 30, (COMMENCEMENT
1996 OF OPERATIONS) TO
SEPTEMBER 30,
1995
INCREASE (DECREASE) IN NET ASSETS
Operations $ (365,584) $ (93,749)
Net investment income (loss)
Net realized gain (loss) (2,556,498) (3,731,803)
Change in net unrealized appreciation (depreciation) (5,499,790) (1,986,431)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (8,421,872) (5,811,983)
FROM OPERATIONS
Share transactions - 61,415,179
Net proceeds from sales of shares
TOTAL INCREASE (DECREASE) IN NET ASSETS (8,421,872) 55,603,196
NET ASSETS
Beginning of period 55,603,196 -
End of period $ 47,181,324 $ 55,603,196
OTHER INFORMATION - 4,407,093
Shares sold
</TABLE>
FINANCIAL HIGHLIGHTS
YEAR ENDED OCTOBER 31, 1994
SEPTEMBER 30, (COMMENCEMENT
OF OPERATIONS) TO
SEPTEMBER 30,
1996 1995
<TABLE>
<CAPTION>
<S> <C> <C>
SELECTED PER-SHARE DATA E
Net asset value, beginning of period $ 12.62 $ 14.10
Income from Investment Operations
Net investment income (loss) (.08) (.02)
Net realized and unrealized gain (loss) (1.83) (1.30)
Total from investment operations (1.91) (1.32)
Offering expenses - (.16)
Net asset value, end of period $ 10.71 $ 12.62
Market value, end of period $ 10.50 $ 11.125
TOTAL RETURN B, J
Market value G (5.62)% (25.83)%
C
Net asset value D (15.13)% (9.47)% F
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 47,181 $ 55,603
Ratio of expenses to average net assets 1.80% 1.88% A
Ratio of expenses to average net assets after expense 1.79% I 1.88% A
reductions
Ratio of net investment income (loss) to average net assets (.68)% (.19)%
A
Portfolio turnover rate 28% 25% A
Average commission rate H $ .1420
</TABLE>
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 NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
F TOTAL NET ASSET VALUE RETURN DOES NOT INCLUDE THE EFFECT OF THE OFFERING
EXPENSES OR THE ONE TIME SALES LOAD.
G TOTAL RETURN BASED ON MARKET VALUE REFLECTS THE EFFECT OF CHANGES IN THE
FUND'S MARKET VALUE AND ASSUMES DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS,
IF ANY, WERE REINVESTED.
H FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED
IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES
MAY DIFFER.
I FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
J THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended September 30, 1996
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 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 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 financial statements have been prepared in conformity with generally
accepted accounting principles which permit management to make certain
estimates and assumptions at the date of the financial statements. 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 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.
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. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not 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 fund shares. Shareholders who do not participate in the Plan will
receive all distributions in cash paid by check in U.S. 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, net operating losses, and losses deferred due to
excise tax regulations.
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 (loss) and
realized and unrealized gain (loss). Accumulated undistributed net realized
gain (loss) on investments and foreign
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
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 Fidelity Management & Research Company (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 $14,468,354 and $15,688,783, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment manager, FMR receives a monthly
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. EXPENSE REDUCTIONS.
The fund has entered into an arrangement with its custodian whereby
interest earned on uninvested cash balances was used to offset a portion of
the fund's expenses. During the period, the fund's custodian fees were
reduced by $3,781 under this arrangement.
6. SUBSEQUENT EVENT.
On October 11, 1996, the fund filed a registration statement with the SEC
regarding a proposed rights offering to holders of the fund's common stock.
The record date for the proposed rights offering will be the close of
business on November 15, 1996. As indicated in the registration statement,
the fund proposes issuing to its record-date shareholders non-transferable
rights that entitle shareholders to subscribe for shares of the fund's
common stock. The terms of the proposed rights offering will be determined
before the registration statement becomes effective. The Board of Directors
of the fund have not yet approved this proposed rights offering.
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, 1996, the results of its
operations for the year then ended, and the changes in its net assets and
the financial highlights for the periods indicated, 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 audits. We conducted our audits 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 audits, which
included confirmation of securities at September 30, 1996 by correspondence
with the custodian and brokers and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
November 7, 1996
PROXY VOTING RESULTS
The annual meeting of the fund's shareholders was held on June 19, 1996.
The results of votes taken among shareholders on proposals are listed
below.
PROPOSAL 1
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 1999, or until their successors are duly elected and qualified.
# OF % OF
SHARES VOTED SHARES VOTED
J. GARY BURKHEAD (CLASS II DIRECTOR)
Affirmative 2,528,738 94.482
Withheld 147,690 5.518
TOTAL 2,676,428 100.000
DAVID L. YUNICH (CLASS II DIRECTOR)
Affirmative 2,528,638 94.478
Withheld 147,790 5.522
TOTAL 2,676,428 100.000
PROPOSAL 2
To ratify the selection of Price Waterhouse LLP as independent accountants
of the fund.
# OF % OF
SHARES VOTED SHARES VOTED
Affirmative 2,525,928 94.071
Against 25,400 .946
Abstain 133,800 4.983
TOTAL 2,685,128 100.000
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 October 1, 1996, the Korean-law restriction on
foreign ownership of any issuer was increased from 18% to 20%.
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 The Chase
Manhattan 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 H. Costello, Assistant Treasurer
Pradip Darooka, Assistant Treasurer
TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
State Street Bank and Trust Company
Boston, MA
CUSTODIAN
The Chase Manhattan Bank
New York, NY
LEGAL COUNSEL
Rogers & Wells
New York, NY
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
Boston, MA
(registered trademark)
