(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
KOREA FUND, INC.
SEMIANNUAL REPORT
MARCH 31, 1997
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.
DIVIDENDS AND DISTRIBUTIONS 22 Dividend reinvestment and cash
purchase plan.
OTHER FUND INFORMATION 25
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
(photo_of_Edward_C_Johnson_3d)
DEAR SHAREHOLDER:
As the first quarter of 1997 came to an end, stock and bond markets
experienced the kind of short-term volatility that can affect them from
time to time. After climbing steadily upward for more than two years, stock
prices saw a sharp correction over the second half of March. Returns in the
bond market were essentially stagnant as the Federal Reserve Board
implemented a long-expected increase in short-term interest rates at the
end of March.
While it's impossible to predict the future direction of the markets with
any degree of certainty, there are certain basic principles that can help
investors plan for their future needs.
First, investors are encouraged to take a long-term view of their
portfolios. If you can afford to leave your money invested through the
inevitable up and down cycles of the financial markets, you will greatly
reduce your vulnerability to any single decline. We know from experience,
for example, that stock prices have gone up over longer periods of time,
have significantly outperformed other types of investments and have stayed
ahead of inflation.
Second, you can further manage your investing risk through diversification.
A stock mutual fund, for instance, is already diversified, because it
invests in many different companies. You can increase your diversification
further by investing in a number of different stock funds, or in such other
investment categories 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, it's important to
remember that there is no assurance that a money market fund will achieve
its goal of maintaining a stable net asset value of $1.00 per share, and
that these types of funds are neither insured nor guaranteed by any agency
of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it makes
good sense to follow a regular investment plan, investing a certain amount
of money in a fund at the same time each month or quarter and periodically
reviewing your overall portfolio. By doing so, you won't get caught up in
the excitement of a rapidly rising market, nor will you buy all your shares
at market highs. While this strategy - known as dollar cost averaging -
won't assure a profit or protect you from a loss in a declining market, it
should help you lower the average cost of your purchases.
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.
Q. HOW DID THE FUND PERFORM, HOKEUN?
A. For the six months that ended March 31, 1997, the fund had a total
return of -19.03%, based on net asset value. This compares to the -20.26%
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 -21.23% for the
past six months.
Q. WHAT'S BEEN HAPPENING IN THE KOREAN MARKET?
A. Unfortunately, the Korean market continued to be quite depressed over
the past six months. Several developments have triggered this environment,
perhaps most notably the poor performance of a few key commodity products.
Korea depends heavily on some of these products - including dynamic random
access memory (DRAM) chips, steel and petrochemicals - and these segments
suffered due to weak pricing trends. As a result, Korea's export trade has
been disappointing. Lastly, labor law disputes and the bankruptcies of
several important companies had substantial negative effects on the overall
fiscal condition of the country.
Q. HOW HAVE KOREAN CORPORATIONS COPED WITH THE COUNTRY'S PROBLEMS?
A. A lot of Korea's larger companies are very dependent on commodities, so
the downturn in that area has hit them hard. Bankruptcies, as I've
mentioned, have been prevalent and earnings have been very weak. Two of the
country's biggest steel producers - Hambo Group and Sammi Steel - have gone
bankrupt and typify the problems Korean corporations have encountered.
Fortunately, the fund did not have positions in either of these two stocks.
As the commodity and exporting situations continued to bottom out, Korean
corporate earnings growth slowed dramatically. As the period came to a
close, however, companies had begun to realize their respective problems
and appeared ready to take the steps to fix them.
Q. THE STRENGTH OF DRAMS IS A CRUCIAL ELEMENT TO THE ECONOMIC CONDITION OF
KOREA. ARE DRAMS SHOWING ANY SIGNS OF TURNING AROUND?
A. They are. Korea accounts for approximately 30% of the world's DRAM
market share, and three of the largest DRAM producers - Samsung, Hyundai
and LG Semicon - are based in Korea. As we entered the period, DRAM prices
were still trying to recover from a worldwide lack of chip demand and a
corresponding oversupply of inventory. Samsung, Hyundai and LG Semicon
decided to cut their production in order to raise DRAM prices and, with
Japanese DRAM producers following suit, began to see slight signs of a
recovery as the period closed. The fund continues to have positions in each
of the Korean DRAM companies I mentioned, so I'll be monitoring future
developments quite closely.
Q. WHAT STRATEGIES DID YOU EMPLOY IN MANEUVERING THE FUND THROUGH THIS
DIFFICULT PERIOD?
A. With the Korean economy slowing, I made a concerted effort not to own
any cyclical stocks. Cyclical stocks tend to parallel a country's economic
conditions and in this case, Korea's disappointing export business as well.
Instead, I focused my energies on finding opportunities in less cyclical,
domestic areas such as utilities, construction, banks and insurance
companies. I was also attracted to the domestic consumption area, including
food and beverage and retail stocks.
Q. WAS THERE A PARTICULAR SIZE OF COMPANY THAT YOU CONCENTRATED ON DURING
THE PERIOD?
A. I continued to reduce my positions in small-capitalization companies -
those with market capitalizations of $1 billion
or less - while simultaneously seeking more liquid, fundamentally
attractive mid-cap companies ($1 billion to $5 billion). In paring the
fund's small-cap positions, the number of holdings within the portfolio was
also reduced. Korea only has three large-cap companies - or those with
market caps beyond $5 billion - and I was underweighted relative to the
index in two of them: Samsung and Pohang Iron & Steel.
Q. CAN YOU GIVE US AN UPDATE ON FINANCIAL DEREGULATION OCCURRING IN SOUTH
KOREA?
A. Over the past year and a half, the South Korean government has been
quite proactive in attempting to make their market more enticing to foreign
investors. During this span, the percentage of shares of a South Korean
company that a foreign investor may own has jumped from 15% to 20%, and
will rise to 23% as of May 1, 1997. From the fund's perspective, this added
flexibility should generate a wider range of buying opportunities.
Q. WHICH INDIVIDUAL STOCKS PERFORMED WELL? WHICH AREAS WERE DISAPPOINTING?
A. The DRAM producers I mentioned performed reasonably well on the heels of
their late-period price rebound. I'd also point to the fund's stake in
Samsung as being a positive contributor to performance. Disappointments
included banks - which felt the brunt of some large-scale bankruptcy
proceedings - as well as a number of securities-related companies.
Q. WHAT'S YOUR OUTLOOK?
A. Lots of questions remain, but I can see the light at the end of the
economic tunnel. While we've stumbled through a very trying period, some
encouraging signs have begun to emerge. Cyclical prices have improved, and
while the Korean currency - the won - has more room to depreciate, I think
currency stabilization is on the horizon.
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 March 31, 1997,
more than $50 million
MANAGER: Hokeun Chung,
since October 1996; joined
Fidelity in 1994
(checkmark)
HOKEUN CHUNG DISCUSSES THE
LINKS BETWEEN KOREA AND
JAPAN:
"While I don't invest directly in
the Japanese market, I do
keep a close eye on
developments there. Korea
and Japan are, for all intents
and purposes, competing
quite aggressively against
each other in the world
exporting market. Thus, when
you consider the condition of
one country's economy, it's
important to know what's going
on in the other. The most
obvious example of this is the
value of each country's
currency. The Japanese yen
depreciated dramatically
throughout the period, and
this hurt Korean exporters
because Japanese products
were cheaper. The Korean
won also depreciated, but the
yen slid much more rapidly.
The perfect scenario is for
Japan and Korea to be
equally competitive, both in
terms of their respective
currencies and their
all-important exporting
businesses."
INVESTMENT CHANGES
TOP TEN STOCKS AS OF MARCH 31, 1997
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE STOCKS
6 MONTHS AGO
Korea Electric Power Corp. 13.9 12.7
Samsung Electronics Co. Ltd. (vtg.) 4.0 0.7
Samsung Fire & Marine Insurance 3.6 5.0
S1 Corp. 2.7 0.0
SK Telecom Ltd. 2.3 0.0
Kookmin Bank 2.1 1.0
Suheung Capsule Co. Ltd. 2.0 2.6
Shin Sung Engineering Co. 1.7 0.0
Shinhan Bank 1.7 2.6
Sungmi Telecom Co. 1.6 3.9
TOP TEN MARKET SECTORS AS OF MARCH 31, 1997
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Finance 17.4 23.1
Utilities 16.8 18.5
Technology 13.8 8.7
Construction & Real Estate 9.9 12.6
Basic Industries 7.2 10.7
Durables 6.2 5.7
Health 5.8 3.0
Nondurables 4.4 4.1
Energy 4.0 3.8
Retail & Wholesale 3.1 2.2
INVESTMENTS MARCH 31, 1997 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 96.9%
SHARES VALUE (NOTE 1)
BASIC INDUSTRIES - 7.2%
CHEMICALS & PLASTICS - 4.3%
Han Wha Corp. 24,335 $ 296,205
Korea Chemical 5,810 447,672
LG Chemical Ltd. 40,000 486,879
Oriental Chemical Industries Co. Ltd. 23,031 537,519
Youl Chon Chemical Co. 13,000 420,994
2,189,269
IRON & STEEL - 1.7%
Dongkuk Steel Mill Co. 11,000 243,216
Pohang Iron & Steel Co. Ltd. 9,875 627,369
Seah Steel Corp. 569 12,962
883,547
METALS & MINING - 1.2%
Young Poong Mining & Construction Corp. 12,000 586,935
TOTAL BASIC INDUSTRIES 3,659,751
CONSTRUCTION & REAL ESTATE - 9.9%
BUILDING MATERIALS - 3.5%
Han Kuk Glass 10,000 154,104
Hanil Cement Manufacturing Co. Ltd. 8,800 391,111
Keumkang Ltd. 10,000 424,344
Kyung Dong Boiler Co. Ltd. 15,196 407,263
Kyungwon Century Co. Ltd. 15,000 368,509
1,745,331
CONSTRUCTION - 3.8%
Dae Ho Construction Co. Ltd. 14,000 356,449
Dong Ah Construction Industries Co. Ltd. 30,000 619,766
LG Construction Co. 40,000 580,681
Sam Whan Corp. 30,000 365,159
1,922,055
ENGINEERING - 2.6%
Hyundai Engineering & Construction Co. Ltd. (a) 30,000 619,766
Samsung Engineering Co. Ltd. 10,000 489,112
Tae Young Corp. 4,000 207,705
1,316,583
TOTAL CONSTRUCTION & REAL ESTATE 4,983,969
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
DURABLES - 6.2%
AUTOS, TIRES, & ACCESSORIES - 4.3%
Han Kook Tire Manufacturing Co. Ltd. 10,000 $ 395,310
Hyundai Motor Co. Ltd. 17,000 497,528
Hyundai Motor Service Co. Ltd. 18,579 431,539
Mando Machinery Corp. 17,000 594,193
SJM Co. Ltd. 5,000 268,007
2,186,577
TEXTILES & APPAREL - 1.9%
BYC Co. Ltd. 3,250 373,814
Youngone Corp. 15,000 296,483
Yurim Co. Ltd. (a) 30,000 276,382
946,679
TOTAL DURABLES 3,133,256
ENERGY - 4.0%
COAL - 1.8%
Daesung Resources Co. 4,500 425,126
Samchully Co. 7,000 501,061
926,187
OIL & GAS - 2.2%
Daesung Industrial Co. Ltd. 10,148 559,812
Yukong Ltd. 30,527 545,430
1,105,242
TOTAL ENERGY 2,031,429
FINANCE - 17.4%
BANKS - 9.2%
Cho Hung Bank Co. Ltd. 92,206 473,644
Commercial Bank of Korea Co. 60,000 290,787
Hana Bank 3,808 52,049
Housing & Commercial Bank 16,729 297,255
Kookmin Bank 61,821 1,061,416
Korea Exchange Bank 90,000 567,839
Korea Long Term Credit Bank 15,750 212,814
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
BANKS - CONTINUED
Korea Technology Banking Corp. 20,000 $ 511,446
Kyung Nam Bank 33,000 283,752
Shinhan Bank 61,254 878,282
4,629,284
CREDIT & OTHER FINANCE - 0.6%
Samsung Securities Co. Ltd. 20,000 297,041
INSURANCE - 5.0%
International Fire & Marine Insurance 6,480 342,271
LG Insurance Co. Ltd. 6,500 381,072
Samsung Fire & Marine Insurance 4,830 1,834,915
2,558,258
SECURITIES INDUSTRY - 2.6%
Daewoo Securities Co. Ltd. 36,410 353,326
Dongwon Securities Co. Ltd. 43,000 363,015
Shin Young Securities Co. 50,000 580,681
1,297,022
TOTAL FINANCE 8,781,605
HEALTH - 5.8%
DRUGS & PHARMACEUTICALS - 4.5%
Chong Kun Dang Corp. 3,000 217,756
Choong Wae Pharmaceutical Corp. 8,000 251,033
Dong-A Pharmaceutical Co. Ltd. 13,221 264,272
Korea Green Cross Corp. 6,000 515,913
Suheung Capsule Co. Ltd. 15,000 1,026,801
2,275,775
MEDICAL EQUIPMENT & SUPPLIES - 1.3%
Medison Co. Ltd. 7,500 656,617
TOTAL HEALTH 2,932,392
INDUSTRIAL MACHINERY & EQUIPMENT - 2.3%
Hyundai Precision Industry Co. Ltd. 33,000 571,189
LG Industrial Systems Co. 15,000 244,556
Rocket Electric 13,000 355,667
1,171,412
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - 2.3%
LODGING & GAMING - 0.9%
Hotel Shilla 50,000 $ 446,678
PUBLISHING - 1.4%
Samseong Publishing 8,000 166,164
Woong Jin Publishing Co. Ltd. 8,300 556,114
722,278
TOTAL MEDIA & LEISURE 1,168,956
NONDURABLES - 4.4%
BEVERAGES - 0.4%
Chosun Brewery Co. Ltd. 7,085 191,718
FOODS - 3.1%
Cheil Foods & Chemical Industries 9,270 475,146
Haitai Confectionery 10,000 140,704
Miwon Co. Ltd. 20,000 388,610
Ottogi Foods Co. Ltd. 4,000 148,297
Tong Yang Confectionery Co. 15,000 393,635
1,546,392
HOUSEHOLD PRODUCTS - 0.9%
Han Kook Cosmetics Industriy 20,000 469,012
TOTAL NONDURABLES 2,207,122
RETAIL & WHOLESALE - 3.1%
GENERAL MERCHANDISE STORES - 0.9%
Shinsegae Department Store 12,000 471,692
RETAIL & WHOLESALE, MISCELLANEOUS - 0.9%
Hyosung T & C Co. Ltd. 20,000 448,911
TRADING COMPANIES - 1.3%
Hae In Corp. 8,000 413,624
Hyundai Housing & Industry Development Co. 15,000 234,506
648,130
TOTAL RETAIL & WHOLESALE 1,568,733
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
SERVICES - 2.6%
S1 Corp. 4,800 $ 1,342,714
TECHNOLOGY - 13.8%
COMMUNICATIONS EQUIPMENT - 1.9%
Lg Information & Communications Ltd. 6,942 687,921
Sindo Ricoh Co. 5,000 262,136
950,057
COMPUTERS & OFFICE EQUIPMENT - 0.8%
Korea Electric Terminal Co. Ltd. 3,000 405,360
ELECTRONIC INSTRUMENTS - 3.0%
Hung Chang Products Co. 9,000 718,593
Sungmi Telecom Co. 5,620 809,582
1,528,175
ELECTRONICS - 8.1%
Hyundai Electronic Industries Co. Ltd. 14,000 633,166
Lg Semicon Co. Ltd. (a) 18,000 538,694
Samsung Electronics Co. Ltd.:
(vtg.) 25,268 2,028,213
GDS (vtg.) 9 405
Shin Sung Engineering Co. 9,000 884,422
4,084,900
TOTAL TECHNOLOGY 6,968,492
TRANSPORTATION - 1.1%
AIR TRANSPORTATION - 0.4%
Korean Air 13,510 236,029
SHIPPING - 0.7%
Global Enterprises 4,450 346,857
TOTAL TRANSPORTATION 582,886
UTILITIES - 16.8%
CELLULAR - 2.3%
SK Telecom Ltd. 1,215 1,141,736
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UTILITIES - CONTINUED
ELECTRIC UTILITY - 14.5%
Korea Electric Power Corp. 242,500 $ 7,040,762
Kyung Nam Energy Co. Ltd. 10,000 316,025
7,356,787
TOTAL UTILITIES 8,498,523
TOTAL COMMON STOCKS
(Cost $63,135,426) 49,031,240
CASH EQUIVALENTS - 3.1%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 6.46%, dated
3/31/97 due 4/1/97 $ 1,558,280 1,558,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $64,693,426) $ 50,589,240
LEGEND
1. Non-income producing
INCOME TAX INFORMATION
At March 31, 1997, the aggregate cost of investment securities for income
tax purposes was $64,785,751. Net unrealized depreciation aggregated
$14,196,511, of which $3,012,520 related to appreciated investment
securities and $17,209,031 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.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
MARCH 31, 1997 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 50,589,240
agreements of $1,558,000) (cost $64,693,426) -
See accompanying schedule
Cash 52
Receivable for investments sold 713,411
Dividends receivable 268,717
Deferred organization expenses 81,028
TOTAL ASSETS 51,652,448
LIABILITIES
Payable for investments purchased $ 548,413
Accrued management fee 41,929
Other payables and accrued expenses 510,500
TOTAL LIABILITIES 1,100,842
NET ASSETS $ 50,551,606
Net Assets consist of:
Paid in capital $ 74,390,030
Undistributed net investment income 141,492
Accumulated undistributed net realized gain (loss) on (9,861,860)
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on (14,118,056)
investments and assets and liabilities in foreign
currencies
NET ASSETS, for 6,243,381 shares outstanding $ 50,551,606
NET ASSET VALUE per share ($50,551,606 (divided by) $8.10
6,243,381 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
INVESTMENT INCOME $ 629,417
Dividends
Interest 55,180
684,597
Less foreign taxes withheld (105,101)
TOTAL INCOME 579,496
EXPENSES
Management fee $ 236,948
Transfer agent fees 3,944
Administration fees and expenses 47,432
Directors' compensation 18,164
Custodian fees and expenses 66,373
Audit 23,372
Legal 1,739
Amortization of organization expenses 15,750
Reports to shareholders 6,533
Miscellaneous 17,749
TOTAL EXPENSES 438,004
NET INVESTMENT INCOME 141,492
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities (3,634,277)
Foreign currency transactions (78,817) (3,713,094)
Change in net unrealized appreciation (depreciation) on:
Investment securities (6,621,524)
Assets and liabilities in foreign currencies (10,311) (6,631,835)
NET GAIN (LOSS) (10,344,929)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ (10,203,437)
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED MARCH 31, SEPTEMBER 30,
1997 1996
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 141,492 $ (365,584)
Net investment income (loss)
Net realized gain (loss) (3,713,094) (2,556,498)
Change in net unrealized appreciation (depreciation) (6,631,835) (5,499,790)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (10,203,437) (8,421,872)
FROM OPERATIONS
Share transactions
Common stock issued through rights offering net of 14,068,719 -
sales load
Offering expenses (495,000) -
Net proceeds from sales of shares 13,573,719 -
TOTAL INCREASE (DECREASE) IN NET ASSETS 3,370,282 (8,421,872)
NET ASSETS
Beginning of period 47,181,324 55,603,196
End of period (including undistributed net investment $ 50,551,606 $ 47,181,324
income of $141,492 and $0, respectively)
OTHER INFORMATION 1,836,288 -
Shares sold
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED OCTOBER 31, 1994
ENDED MARCH SEPTEMBER (COMMENCEMENT
31, 1997 30, OF OPERATIONS) TO
SEPTEMBER 30,
(UNAUDITED) 1996 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SELECTED PER-SHARE DATA F
Net asset value, beginning of period $ 10.71 $ 12.62 $ 14.10
Income from Investment Operations
Net investment income (loss) .03 (.08) (.02)
Net realized and unrealized gain (loss) (2.37) (1.83) (1.30)
Total from investment operations (2.34) (1.91) (1.32)
Dilution resulting from common stock issued (.19) - -
through rights offering
Offering expenses (.08) - (.16)
Net asset value, end of period $ 8.10 $ 10.71 $ 12.62
Market value, end of period $ 7.875 $ 10.50 $ 11.125
TOTAL RETURN B, C (21.23)% D (5.62)% (25.83)%
Market value H D
Net asset value E, G (19.03)% (15.13)% (9.47)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 50,552 $ 47,181 $ 55,603
Ratio of expenses to average net assets 1.87% A 1.80% 1.88% A
Ratio of expenses to average net assets after 1.87% A 1.79% I 1.88% A
expense reductions
Ratio of net investment income (loss) to .61% A (.68)% (.19)%
average A
net assets
Portfolio turnover rate 46% A 28% 25% A
Average commission rate J $ .1246 .1420
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
D TOTAL MARKET VALUE RETURN INCLUDES THE EFFECT OF THE SALES LOADS PAID IN
CONNECTION WITH THE INITIAL PUBLIC OFFERING AND RIGHTS OFFERING.
E 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.
F NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
G TOTAL NET ASSET VALUE RETURN DOES NOT INCLUDE THE EFFECT OF DILUTION,
OFFERING EXPENSES OR SALES LOADS. IF THE OFFERING EXPENSES ASSOCIATED WITH
THE INITIAL PUBLIC OFFERING AND RIGHTS OFFERING WERE TAKEN INTO ACCOUNT,
TOTAL RETURNS BASED ON NET ASSET VALUE WOULD HAVE BEEN (19.76)% FOR THE SIX
MONTHS ENDED MARCH 31, 1997, (15.13)% FOR THE ONE YEAR ENDED SEPTEMBER 30,
1996, AND (10.50)% FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS TO
SEPTEMBER 30, 1995.
H 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.
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.
J 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, 1997 (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.
There are 100,000,000 shares of $.001 par value common stock authorized.
Commencing in the first calendar quarter of 1998, and in the first calendar
quarter of each year thereafter, the Board of Directors of the fund may,
under certain circumstances, conduct a tender offer to repurchase a maximum
of 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.
In January 1997, the fund completed a rights offering, including the
exercise of an over-allotment option, resulting in the issuance of an
additional 1,836,288 shares of common stock. Each shareholder was issued
one right for each share of the fund's common stock held as of November 15,
1996, the record date. For every three rights issued, shareholders were
entitled to purchase one new share of the fund's common stock at a
subscription price of $7.96 per share.
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 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 with remaining maturities of sixty days or less for which
quotations are not readily available 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. Income receipts
and expense payments are translated into U.S. dollars at the prevailing
exchange rate on the respective dates of the transactions. Purchases and
sales of securities are translated into U.S. dollars at the contractual
currency exchange rates established at the time of each trade.
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, 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. Non-cash dividends included in dividend income, if any,
are recorded at the fair market value of the securities received. 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 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. In addition, the fund incurred
offering expenses in connection with its rights offering of approximately
$495,000 which were paid from the proceeds of the offering and charged to
capital.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Certain foreign currency gains (losses) are taxable as
ordinary income and, therefore, increase (decrease) taxable ordinary income
available for distribution.
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.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions may
include temporary book and tax basis differences which will reverse in a
subsequent period. Any taxable income or gain 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 (SEC), 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 for U.S.
Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
Securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are marked-to-market
daily and maintained at a value at least equal to the principal amount of
the repurchase agreement (including accrued interest). 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 $23,772,491 and $10,172,287, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a 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 Company, Inc. (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.
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.
RIGHTS OFFERING. In January 1997, the fund completed a rights offering to
holders of the fund's common stock. The primary rights offering was
oversubscribed and, pursuant to the terms of the offering, the Board of
Directors of the fund determined to exercise the offering's over-allotment
option. Through the primary rights offering and the exercise of the
over-allotment option, a total of 1,836,288 new shares were acquired by
holders of the fund's common stock.
FOREIGN OWNERSHIP LIMIT CHANGE. Korean law restricts foreign ownership of
Korean stocks. On October 1, 1996, the Korean law restriction on foreign
ownership of any issuer was increased from 18% to 20%. Effective May 1,
1997, the Korean law restriction on foreign ownership of any issuer was
increased to 23%.
CUSTODIAN. The Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, 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
Edward H. Malone, 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)
