(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
KOREA FUND, INC.
SEMIANNUAL REPORT
MARCH 31, 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.
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 were fairly positive in 1995, no one can predict what
lies ahead for investors. The previous 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. 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 Hokeun Chung, Portfolio Manager of Fidelity Advisor Korea
Fund, Inc.
NOTE TO SHAREHOLDERS: On December 11, 1995, William Ebsworth and Hokeun
Chung became co-managers of the fund, replacing Edward Bang. The following
is an interview with Hokeun Chung, who handles day-to-day operations of the
fund.
Q. HOW DID THE FUND PERFORM, HOKEUN?
A. For the six months ended March 31, 1996, the fund had a total return of
- -5.55% based on net asset value. This compares to the -13.77% 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 and losses
in the fund's share price - it returned 2.25% for the past six months.
Q. WHAT WERE SOME MAJOR DEVELOPMENTS IN THE KOREAN ECONOMY IN THE PAST SIX
MONTHS?
A. The Korean economy began to slow in the late third quarter and fourth
quarter of 1995. With the slowing of the economy, Korean investors tended
to avoid investing in the equity markets. With the slowing economy,
however, inflation was not a concern and the Korean won stabilized against
the dollar and the yen. The Korean government also announced several policy
measures supporting the financial markets. These included a 3% increase -
from 15% to 18% - in the amount permitted for foreign ownership of the
shares of most publicly traded Korean stocks and a decrease in a securities
trading tax, which took effect on April 1st. Additionally, the government
raised tariffs on imported crude oil in February, which recently had a very
positive effect on the country's trade deficit.
Q. WHY DID THE FUND PERFORM FAIRLY WELL RELATIVE TO THE OVERALL MARKET?
A. One reason was that the fund reduced its exposure to Samsung
Electronics, which is the world's largest manufacturer of DRAM
semiconductor memory chips. During the period, prices of semiconductors
fell worldwide as a supply glut developed. Additionally, since the
beginning of 1996, the fund was overweighted relative to the market in bank
stocks. Bank stocks - such as Korea Exchange Bank and Shinhan Bank -
performed well as lower interest rates spurred lending activity.
Q. WHAT OTHER AREAS OF THE MARKET DID YOU EMPHASIZE?
A. As the economy slowed, I concentrated on "defensive" areas such as
financial stocks, utilities and telecommunications. At the same time, since
I began managing the fund, I tried to avoid cyclical industries such as
textiles, steel and petrochemical companies.
Q. WOULD YOU GIVE SOME EXAMPLES?
A. Sure. In the financial area - in addition to the banking stocks -
Samsung Fire & Marine Insurance was an important holding for the fund.
Insurance companies benefited from the government allowing them to raise
auto insurance rates, as auto insurance had been a large burden on Korean
insurance companies' balance sheets. As for utilities, the fund continued
to hold a significant position in Korea Electric Power. The company - which
makes up about 11% of the Korean stock market's total capitalization -
traded inexpensively during the period relative to the regional utilities.
In the telecommunications area, Korea Mobile Telecommunications - which
enjoys monopoly status in the Korean market - saw very strong revenue
growth as its customer base increased.
Q. WERE THERE ANY PARTICULARLY DISAPPOINTING SECTORS OF THE MARKET?
A. As I alluded to before, cyclical - or economically sensitive - stocks
were hurt by the slowing economy. Unfortunately, in the three months I've
managed the fund, I did not have the opportunity to reduce the fund's
exposure to heavy machinery stocks quickly enough, and these stocks ended
up hurting the fund's performance.
Q. DOES NORTH KOREA'S RECENTLY HOSTILE RHETORIC TOWARDS THE SOUTH CONCERN
YOU AS AN INVESTOR?
A. I've always believed that if you are an investor in the Korean market
and you continuously focus on North Korea, then you probably shouldn't
invest in Korea. In fact, North Korea's posturing - which often causes
selling of securities by short-term investors - many times creates buying
opportunities for more long-term investors.
Q. WHAT'S YOUR OUTLOOK?
A. Until the economy picks up, I plan to continue to concentrate on the
defensive areas of the market I outlined above. This may change, however,
if a world economic recovery lifts the Korean economy later this year. On
the political front, although the ruling New Korea Party narrowly failed to
gain a majority in the National Assembly (the election was held on April
11, after the end of the period), the decision removes the uncertainty of
an impending election. Analysts, however, anticipate there may be a
short-term correction in the Korean market if investors believe the
government may not continue its economic reform program.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGERS' 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
START DATE: October 31,
1994
TRADING SYMBOL: FAK
SIZE: as of March 31, 1996,
more than $52 million
MANAGERS: William Ebsworth
and Hokeun Chung, since
December 1995; joined
Fidelity in 1984 and 1994,
respectively
(checkmark)
HOKEUN CHUNG ON HIS
INVESTMENT STYLE:
"I worked with the fund's
previous manager, Edward
Bang, for about a
year-and-half before taking
over the fund. Therefore,
investors can expect
continuity in the management
of the fund.
"That said, I look for stocks
with strong growth potential
trading at attractive
valuations. I also look at
companies on a regional
basis; that is, I often consider
whether one area of the
country is economically better
than another. Additionally, I
consider a stock's liquidity -
which refers to the ease with
which one is able to buy and
sell securities in the market.
With that in mind, I may look to
add to the fund's position in the
more liquid mid-capitalization
stocks in order to balance its
significant position in
small-capitalization
companies."
INVESTMENT CHANGES
TOP TEN STOCKS AS OF MARCH 31, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE STOCKS
6 MONTHS AGO
Korea Electric Power Corp. 13.7 17.6
Samsung Fire & Marine Insurance Co. 5.6 3.7
Korea Mobile Telecommunications 4.1 2.3
Corp.
Keumkang Ltd. 3.2 3.7
Korea Exchange Bank 3.0 1.3
Hyundai Engineering &
Construction Co. Ltd. 2.8 2.5
Shin Young Securities Co. 2.8 3.2
Cheil Foods & Chemical Industries 2.6 2.5
Shinhan Bank 2.4 1.8
Sungmi Telecom Co. 2.4 0.7
TOP TEN MARKET SECTORS AS OF MARCH 31, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Finance 22.6 17.2
Utilities 18.3 19.9
Construction & Real Estate 13.4 12.4
Basic Industries 8.3 6.9
Technology 7.3 7.2
Durables 6.9 8.1
Industrial Machinery & Equipment 4.8 9.3
Nondurables 4.4 3.6
Energy 3.8 3.1
Retail & Wholesale 3.3 3.6
INVESTMENTS MARCH 31, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 98.8%
SHARES VALUE (NOTE 1)
BASIC INDUSTRIES - 8.3%
CHEMICALS & PLASTICS - 4.0%
LG Chemical Ltd. 23,000 $ 437,845
Oriental Chemical Industries Co. Ltd. 26,000 754,490
Oriental Chemical Industries Co. Ltd. (New) 1,031 26,927
Tongyang Nylon Co. (a) 16,000 488,846
Youl Chon Chemical Co. 12,000 357,431
2,065,539
IRON & STEEL - 2.8%
Dongkuk Steel Mill Co. 8,100 161,534
Pohang Iron & Steel Co. Ltd. 5,175 431,728
Seah Steel Corp. (a) 25,705 805,693
Seah Steel Corp. (New) 2,570 56,387
1,455,342
METALS & MINING - 1.3%
Dae Chang Industrial Co. 10,500 120,805
Dong Yang Tin Plate Industries 935 26,535
Lg Metals Corp. 10,000 164,909
Young Poong Mining & Construction Corp. 10,000 348,993
661,242
PAPER & FOREST PRODUCTS - 0.2%
Shin Poong Paper Manufacturing Co. 3,000 99,712
TOTAL BASIC INDUSTRIES 4,281,835
CONSTRUCTION & REAL ESTATE - 13.4%
BUILDING MATERIALS - 6.3%
Keumkang Ltd. 23,000 1,646,239
Kohap Ltd. (a) 30,000 348,993
Kyung Dong Boiler Co. Ltd. 15,196 573,068
Kyungwon Century Co. Ltd. 15,000 504,315
Tong Yang Cement Co. 7,000 200,447
3,273,062
CONSTRUCTION - 3.3%
Dong Ah Construction Industries Co. Ltd. 31,644 1,181,829
LG Construction Co. 12,000 265,388
Sam Whan Corp. 10,000 253,116
1,700,333
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
CONSTRUCTION & REAL ESTATE - CONTINUED
ENGINEERING - 3.8%
Hyundai Engineering & Construction Co. Ltd. (a) 30,691 $ 1,463,438
Tae Young Corp. 8,700 500,480
1,963,918
TOTAL CONSTRUCTION & REAL ESTATE 6,937,313
DURABLES - 6.9%
AUTOS, TIRES, & ACCESSORIES - 5.6%
Asia Motors Co., Inc. (a) 30,000 266,539
Dae Won Kang Up Co. 10,000 212,208
Dong-A Precision Machinery 5,100 116,702
Hyundai Motor Co. Ltd. 17,000 990,414
Hyundai Motor Service Co. Ltd. 13,789 618,720
Mando Machinery Corp. 14,000 706,907
2,911,490
TEXTILES & APPAREL - 1.3%
Baikyang Co. 3,250 373,921
Dainong Corp. 30,720 219,920
Namyeung Vivien Corp. (a) 700 88,363
682,204
TOTAL DURABLES 3,593,694
ENERGY - 3.8%
COAL - 1.9%
Samchully Co. Ltd. 12,000 828,380
Samchully Co. Ltd. (New) 2,256 155,014
983,394
OIL & GAS - 1.9%
Daesung Industrial Co. Ltd. 5,000 370,889
Han Wha Energy (a) 6,800 61,285
Ssangyong Oil Refining 15,000 358,581
Yukong Ltd. 6,159 206,284
997,039
TOTAL ENERGY 1,980,433
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - 22.6%
BANKS - 10.5%
Cho Hung Bank Co. Ltd. 21,686 $ 289,701
Commercial Bank of Korea Co. (a) 38,000 425,056
Hana Bank 21,632 434,523
Hanil Bank 20,000 257,353
Kookmin Bank 21,821 514,527
Korea Exchange Bank (a) 110,000 1,544,233
KOREA Housing Bank (a) 4,090 112,413
Korea Long Term Credit Bank 15,000 435,220
Kyung Nam Bank (a) 15,000 191,755
Shinhan Bank 52,934 1,254,961
5,459,742
CREDIT & OTHER FINANCE - 0.8%
Samsung Securities Co. 12,300 407,248
INSURANCE - 7.0%
Dongbu Insurance Co. Ltd. (a) 5,000 194,951
International Fire & Marine Insurance 2,100 195,750
Korea Reinsurance Co. 9,360 370,930
Samsung Fire & Marine Insurance 4,400 2,899,979
3,661,610
SECURITIES INDUSTRY - 4.3%
Daewoo Securities Co. Ltd. 21,410 574,765
Hanshin Securities Co. Ltd. 10,000 199,425
Shin Young Securities Co. 64,660 1,446,533
Ssangyong Investment & Securities Co. Ltd. 23 470
2,221,193
TOTAL FINANCE 11,749,793
HEALTH - 2.0%
DRUGS & PHARMACEUTICALS - 2.0%
Dong-A Pharmaceutical Co. Ltd. (a) 8,060 213,285
Suheung Capsule Co. Ltd. 19,750 833,174
TOTAL HEALTH 1,046,459
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
INDUSTRIAL MACHINERY & EQUIPMENT - 4.8%
ELECTRICAL EQUIPMENT - 1.9%
Ke Yang Electric Machinery 8,500 $ 231,448
Samsung Electro-Mechanics Co. Ltd. 15,000 548,418
Samsung Electro-Mechanics Co. Ltd.:
(bonus issue 3/96) 2,290 58,608
(bonus issue 2/96) 4,094 148,373
986,847
INDUSTRIAL MACHINERY & EQUIPMENT - 2.9%
Dae Dong Industrial Co. Ltd. 10,000 138,063
Hyundai Precision Industry Co. Ltd. 30,900 628,073
Rocket Electric 14,000 434,899
Ssangyong Heavy Industries Co. Ltd. 40,000 306,807
1,507,842
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 2,494,689
MEDIA & LEISURE - 1.4%
LODGING & GAMING - 1.2%
Hotel Shilla 48,700 622,563
PUBLISHING - 0.2%
Samseong Publishing (a) 5,000 129,115
TOTAL MEDIA & LEISURE 751,678
NONDURABLES - 4.4%
BEVERAGES - 0.7%
Chosun Brewery Co. Ltd. 9,785 349,383
FOODS - 3.5%
Cheil Foods & Chemical Industries 22,313 1,354,896
Ottogi Foods Co. Ltd. 20,000 439,757
1,794,653
HOUSEHOLD PRODUCTS - 0.2%
Han Kook Cosmetics Industriy 5,000 118,888
TOTAL NONDURABLES 2,262,924
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - 3.3%
GENERAL MERCHANDISE STORES - 2.6%
Midopa Co. (a) 20,000 $ 219,879
Shinsegae Department Store 14,234 1,009,891
Shinsegae Department Store (New) 1,547 103,034
1,332,804
TRADING COMPANIES - 0.7%
Daewoo Corp. 2,500 27,645
Hae In Corp. 5,000 325,983
353,628
TOTAL RETAIL & WHOLESALE 1,686,432
TECHNOLOGY - 7.3%
COMMUNICATIONS EQUIPMENT - 0.7%
Lg Information & Communications Ltd. 4,000 393,736
ELECTRONIC INSTRUMENTS - 2.7%
Lg Cable & Machinery Ltd. 8,000 157,494
Sungmi Telecom Co. (a) 7,300 1,231,832
1,389,326
ELECTRONICS - 3.9%
SAMSUNG Display Devices 9,700 868,009
SAMSUNG Display Devices (New) 194 15,624
Samsung Electronics Co. Ltd.:
(vtg.) 7,329 861,960
GDS (vtg.) (a) 31 1,798
(bonus issue 3/96) 2,208 258,499
GDS (vtg.) (bonus issue 3/96) 9 522
2,006,412
TOTAL TECHNOLOGY 3,789,474
TRANSPORTATION - 2.3%
AIR TRANSPORTATION - 1.7%
Korean Air 26,460 853,972
SHIPPING - 0.6%
Global Enterprises 4,450 329,377
TOTAL TRANSPORTATION 1,183,349
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UTILITIES - 18.3%
CELLULAR - 4.1%
Korea Mobile Telecommunications Corp. 1,790 $ 2,123,515
ELECTRIC UTILITY - 14.2%
Korea Electric Power Corp. 170,000 7,105,560
Kyung Nam Energy Co. Ltd. 5,000 281,240
7,386,800
TOTAL UTILITIES 9,510,315
TOTAL COMMON STOCKS
(Cost $56,236,359) 51,268,388
REPURCHASE AGREEMENTS - 1.2%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.40%, dated
3/29/96 due 4/1/96 $ 619,279 619,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $56,855,359) $ 51,887,388
LEGEND
(1.) Non-income producing
INCOME TAX INFORMATION
At March 31, 1996, the aggregate cost of investment securities for income
tax purposes was $56,855,359. Net unrealized depreciation aggregated
$4,967,971, of which $4,005,078 related to appreciated invest- ment
securities and $8,973,049 related to depreci- ated investment securities.
The fund intends to elect 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.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
MARCH 31, 1996 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 51,887,388
agreements of $619,000) (cost $56,855,359) -
See accompanying schedule
Cash 279
Receivable for investments sold 319,691
Dividends receivable 483,759
Deferred organization expense 112,528
TOTAL ASSETS 52,803,645
LIABILITIES
Accrued management fee $ 43,188
Other payables and accrued expenses 213,628
TOTAL LIABILITIES 256,816
NET ASSETS $ 52,546,829
Net Assets consist of:
Paid in capital $ 61,234,025
Undistributed net investment income 134,788
Accumulated undistributed net realized gain (loss) on (3,851,200)
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on (4,970,784)
investments and assets and liabilities in foreign
currencies
NET ASSETS, for 4,407,093 shares outstanding $ 52,546,829
NET ASSET VALUE, ($52,546,829 (divided by) 4,407,093 shares) $11.92
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
INVESTMENT INCOME $ 718,175
Dividends
Interest 21,595
739,770
Less foreign taxes withheld (116,501)
TOTAL INCOME 623,269
EXPENSES
Management fee $ 267,665
Transfer agent fees 4,789
Administration fees and expenses 53,569
Directors' compensation 19,247
Custodian fees and expenses 68,166
Registration fees 16,295
Audit 39,681
Legal 2,232
Amortization of organization expenses 15,750
Miscellaneous 1,087
TOTAL EXPENSES 488,481
NET INVESTMENT INCOME 134,788
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities (178,793)
Foreign currency transactions (28,009) (206,802)
Change in net unrealized appreciation (depreciation) on:
Investment securities (2,981,540)
Assets and liabilities in foreign currencies (2,813) (2,984,353)
NET GAIN (LOSS) (3,191,155)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ (3,056,367)
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS OCTOBER 31, 1994
ENDED MARCH (COMMENCEMENT
31,1996 OF
(UNAUDITED) OPERATIONS) TO
SEPTEMBER 30,
1995
INCREASE (DECREASE) IN NET ASSETS
Operations $ 134,788 $ (93,749)
Net investment income (loss)
Net realized gain (loss) (206,802) (3,731,803)
Change in net unrealized appreciation (depreciation) (2,984,353) (1,986,431)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (3,056,367) (5,811,983)
FROM OPERATIONS
Share transactions - 61,415,179
Net proceeds from sales of shares
TOTAL INCREASE (DECREASE) IN NET ASSETS (3,056,367) 55,603,196
NET ASSETS
Beginning of period 55,603,196 -
End of period (including undistributed net investment $ 52,546,829 $ 55,603,196
income of $134,788 and $0, respectively)
OTHER INFORMATION - 4,407,093
Shares sold
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS OCTOBER 31, 1994
ENDED MARCH (COMMENCEMENT
31, 1996 OF OPERATIONS) TO
SEPTEMBER 30,
(UNAUDITED) 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 12.62 $ 14.10
Income from Investment Operations
Net investment income (loss) .03 G (.02) G
Net realized and unrealized gain (loss) (.73) (1.30)
Total from investment operations (.70) (1.32)
Offering expenses - (.16)
Net asset value, end of period $ 11.92 $ 12.62
Market value, end of period $ 11.375 $ 11.125
TOTAL RETURN B 2.25% (25.83)% C
Market value F
Net asset value D (5.55)% (9.47)% E
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 52,547 $ 55,603
Ratio of expenses to average net assets 1.83% A 1.88% A
Ratio of net investment income (loss) to average net .51% A (.19)% A
assets
Portfolio turnover rate 30% A 25% A
Average commission rate H $ .1564 -
</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 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 EFFECT 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.
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.
NOTES TO FINANCIAL STATEMENTS
For the period ended March 31, 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Korea Fund, Inc. (the fund), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the 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 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
(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.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
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 $7,736,714 and $8,215,900, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
basic fee that is computed daily at an annual rate of 1.00% of the fund's
average net assets.
ADVISER FEE. FMR and the fund entered into an investment advisory agreement
with Fidelity International Investment Advisors (FIIA), an affiliate of
FMR, pursuant to which FIIA is responsible for the management of the fund's
portfolio in accordance with the fund's investment policies and for making
decisions to buy or sell securities. FMR pays FIIA a portion of its
management fee.
SUB-ADVISER FEE. FIIA, on behalf of the fund, has entered into a
sub-advisory 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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES -
CONTINUED
ADMINISTRATIVE FEE - CONTINUED
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.
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
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)
