(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(REGISTERED TRADEMARK)
KOREA FUND, INC.
SEMIANNUAL REPORT
MARCH 31, 1998
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 12 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 16 NOTES TO THE FINANCIAL STATEMENTS.
DIVIDENDS AND DISTRIBUTIONS 20 DIVIDEND REINVESTMENT AND CASH
PURCHASE PLAN.
OTHER FUND INFORMATION 23
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:
In the first quarter of 1998, the U.S. stock and bond markets
responded differently to lingering uncertainty over the direction of
the U.S. and global economies. On the one hand, the U.S. stock market
soared to record heights as corporate earnings proved to be stronger
than expected and investors shrugged off concerns about the effects of
economic difficulties in Asia. On the other hand, two factors tempered
returns in the bond market. First, interest-rate levels were generally
positive, but were low enough to encourage a flood of new issuance
that dampened performance. Second, there were concerns that continued
economic strength might lead to eventual inflation, even though
inflation indicators remained benign during the quarter.
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, 1998, the fund had a total
return of -30.03%, based on net asset value. By comparison, the Korea
Stock Exchange Composite Index (KOSPI) returned -50.37% over the same
period. In terms of the fund's market value return, which represents
gains or losses in the fund's share price, the fund returned -23.64%
for the period. For the 12 months that ended March 31, 1998, the fund
returned -37.28% based on net asset value and -33.33% in market value
terms. The KOSPI returned -53.22% over the same time.
Q. WHAT FACTORS AFFECTED FUND PERFORMANCE OVER THE PAST SIX MONTHS?
A. The evolving state of the South Korean economy continued to play an
important role. The first three months of the period were
discouraging. The nation's currency - the Korean won - continued to
tumble relative to the dollar and corporate bankruptcies throughout
South Korea remained prevalent, putting enormous pressure on the
nation's banking system. Toward the end of 1997, however, help
appeared in the form of the International Monetary Fund, or IMF, which
stepped in to help South Korea with its foreign debt obligations.
Under the agreement, South Korea agreed to enact certain reforms -
including restructuring the country's debt, and its corporate and
financial sectors - and investors began to see rays of hope. The
market rebounded to perform quite well from January through the end of
March. During that time, the fund returned 33.33% in market value
terms.
Q. DID YOU UTILIZE ANY SPECIFIC STRATEGIES AGAINST THIS UNCERTAIN
ECONOMIC BACKDROP?
A. With the economy struggling and bankruptcies on the rise, it became
more important to find companies with good balance sheets. I tended to
favor companies with low debt-to-equity ratios, as well as those
involved in the exporting business. Many of the fund's top individual
positions - including Samsung Electronics, ultrasound manufacturer
Medison and sportswear apparel company Youngone - realize a
significant portion of their revenue from exports. With bankruptcies
plaguing the banking system, I also reduced the fund's bank-related
investments. Six months ago, around 8% of the fund's net assets were
invested in bank-related stocks; now, that number is closer to 3%.
Q. WHAT TYPES OF PROBLEMS HAVE KOREAN CORPORATIONS FACED DURING THIS
DIFFICULT ECONOMIC PERIOD?
A. With Korea's economy in a protracted downslide in recent years,
Korean corporations have had to work very hard to stay afloat.
Unfortunately, many companies have not been able to stay in business,
as evidenced by the rash of bankruptcies we continued to see. In
general, Korean corporations can perform capably if they have a solid
source of funding. In trying to improve their standing, however,
Korean companies often have their hands tied. Korea doesn't have the
luxury of possessing any unique natural resources, so many companies
have had to resort to overseas borrowing. The problem, however, is
that the government must approve any foreign borrowing agreements.
Tight borrowing restrictions - which have become somewhat more lenient
recently - have served as an obstacle to many of these companies. At
the same time, several companies that have borrowed frequently are so
saddled with debt that they've had to declare bankruptcy.
Q. A QUICK GLANCE AT THE FUND'S INVESTMENTS REVEALS THAT CLOSE TO 40%
OF THE FUND IS INVESTED IN STOCKS OF FIVE COMPANIES: SAMSUNG FIRE &
MARINE, SAMSUNG ELECTRONICS, KOREA ELECTRIC POWER, SUHEUNG CAPSULE AND
MEDISON. IS THIS BY DESIGN?
A. It is. As corporate bankruptcies continued to mount, I felt it
would be wise to reduce the number of stocks in the portfolio. Six
months ago, the fund held approximately 70 names; at the end of the
period, that number had shrunk to around 50. As a result, I've placed
more confidence in these five stocks, all of which had attractive
balance sheets and are involved in exporting.
Q. YOU ALSO REDUCED THE FUND'S UTILITY-RELATED POSITIONS DURING THE
PERIOD, WHILE ADDING TO ITS HEALTH STOCK EXPOSURE. WHY?
A. Utility stocks are very cyclical in nature. In other words,
utility-stock performance tends to parallel the ups and downs of the
economy. Since South Korea's economy has been so unpredictable, I felt
decreasing the fund's utility exposure would be beneficial. In terms
of the health stock increase, much of that was due to a dual emphasis
on medical equipment and pharmaceutical stocks. These types of
companies are less dependent on the local economy, relying more
heavily on their exporting business. Suheung Capsule, which accounts
for roughly 6% of the fund's investments, is an example of this
strategy.
Q. WHICH STOCKS PERFORMED WELL? WHICH WERE DISAPPOINTING?
A. The fund's largest position at the end of the period - Samsung Fire
& Marine - performed very well. The company is regarded as the market
leader in the insurance field and it continued to focus on profits and
gaining market share. Suheung Capsule and Medison also contributed
positively. Disappointments included Cho Hung Bank and Commercial Bank
of Korea, both of which were severely affected by the rash of
bankruptcies. Construction stocks such as Lg Construction also
disappointed. The fund no longer holds positions in these bank and
construction stocks.
Q. WHAT'S YOUR OUTLOOK FOR THE COMING MONTHS?
A. While the economic situation seems to have turned a corner, I think
we may continue to see a fair amount of volatility in the market.
Foreign investors will likely be on the prowl for inexpensive
opportunities in South Korea, and that could create currency
fluctuations. For the time being, I'll continue to concentrate on
companies with attractive balance sheets as well as those that can
benefit from their export businesses.
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.
HOKEUN CHUNG DISCUSSES
IMPORTANT ECONOMIC REFORMS
IN KOREA:
"Much of the abrupt first-quarter
turnaround for Korean markets
can be traced to the IMF's
agreement to help South Korea pay
off its foreign debt. This
relationship - by which South
Korea has agreed to implement
a number of reforms - was seen
as positive by most investors. Now,
it's up to South Korea to go through
with these important changes.
"One change that South Korea will
put into effect involves the daily
fluctuation of the Korean won.
Much of the market's
underperformance over the past
couple of years has come on the
heels of currency problems. Going
forward, the government will
install a fluctuation ceiling
whereby the won can only
fluctuate to a certain point - up
or down - before it can't fluctuate
any more. South Korea has also
increased the amount that can be
invested by foreign investors from
23% to 55% of a company's shares.
South Korea is hoping that foreign
companies will merge with or
acquire certain Korean companies,
thus boosting their value.
"While these developments are
encouraging, they certainly aren't
a quick cure. Concerns still linger
about the health of individual
companies and bankruptcies
continue to be fairly common."
FUND FACTS
GOAL: to achieve long-term
capital appreciation through
investments in equity and debt
securities of Korean issuers
FUND NUMBER: 603
TRADING SYMBOL: FAK
START DATE: October 31, 1994
SIZE: as of March 31, 1998,
more than $31 million
MANAGER: Hokeun Chung,
since 1996; joined Fidelity
in 1994
(checkmark)
INVESTMENT CHANGES
TOP TEN STOCKS AS OF MARCH 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE STOCKS
6 MONTHS AGO
SAMSUNG FIRE AND MARINE INSURANCE 9.5 4.1
SAMSUNG ELECTRONICS CO. LTD. (VTG.) 9.5 7.1
KOREA ELECTRIC POWER CORP. 7.0 10.9
SUHEUNG CAPSULE CO. LTD. 6.2 1.7
MEDISON CO. LTD. 6.2 1.4
YOUNGONE CORP. 6.1 0.8
LG ELECTRONICS, INC. 5.0 4.2
POHANG IRON & STEEL CO. LTD. 4.2 3.1
S1 CORP. 3.8 2.3
SINDO RICOH CO. 3.2 1.2
TOP TEN MARKET SECTORS AS OF MARCH 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE MARKET SECTORS
6 MONTHS AGO
TECHNOLOGY 23.3 16.4
FINANCE 15.0 16.1
HEALTH 14.1 4.8
DURABLES 12.3 8.1
BASIC INDUSTRIES 10.3 10.6
UTILITIES 9.2 13.0
SERVICES 3.8 2.3
NONDURABLES 2.6 3.1
ENERGY 1.5 1.5
CONSTRUCTION & REAL ESTATE 1.4 7.2
INVESTMENTS MARCH 31, 1998 (UNAUDITED)
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
COMMON STOCKS - 96.6%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 0.6%
SHIP BUILDING & REPAIR - 0.6%
Hyundai Heavy Industries Co. Ltd. (a) 5,000 $ 185,920
BASIC INDUSTRIES - 10.3%
CHEMICALS & PLASTICS - 4.5%
Korea Chemical 5,000 117,329
Lg Chemical Ltd. 80,000 661,372
Rifa Industrial Co. 20,000 200,000
Youl Chon Chemical Co. 16,000 434,368
1,413,069
IRON & STEEL - 4.2%
Pohang Iron & Steel Co. Ltd. 22,245 1,344,337
METALS & MINING - 1.6%
Daesung Cable Co. 17,890 496,012
TOTAL BASIC INDUSTRIES 3,253,418
CONSTRUCTION & REAL ESTATE - 1.4%
BUILDING MATERIALS - 1.0%
Hankuk Glass Industry Co. Ltd. 20,000 317,690
ENGINEERING - 0.4%
Hyundai Engineering & Construction Co. Ltd. (a) 20,000 135,740
TOTAL CONSTRUCTION & REAL ESTATE 453,430
DURABLES - 12.3%
AUTOS, TIRES, & ACCESSORIES - 0.1%
Hyundai Motor Co. Ltd. 2,000 28,809
CONSUMER ELECTRONICS - 5.6%
Lg Electronics, Inc. 115,000 1,585,921
Saehan Precision Co. Ltd. (a) 10,000 184,838
1,770,759
TEXTILES & APPAREL - 6.6%
BYC Co. Ltd. 3,250 150,181
Youngone Corp. 70,000 1,920,579
2,070,760
TOTAL DURABLES 3,870,328
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
ENERGY - 1.5%
OIL & GAS - 1.5%
Daesung Industrial Co. Ltd. 10,000 $ 194,946
Ssangyong Oil Refining 30,000 270,758
465,704
FINANCE - 15.0%
BANKS - 2.8%
Hana Bank 30,000 184,116
Hana Bank rights 4/15/98 (a) 11,747 16,963
Housing & Commercial Bank 25,000 180,506
Kookmin Bank 40,000 303,249
Shinhan Bank 35,000 182,960
867,794
CREDIT & OTHER FINANCE - 0.5%
Samsung Securities Co. Ltd. 20,000 117,256
Samsung Securities Co Ltd. rights 5/19/98 (a) 16,001 30,269
147,525
INSURANCE - 9.5%
Samsung Fire & Marine Insurance 9,048 3,005,113
SECURITIES INDUSTRY - 2.2%
Dongwon Securities Co. Ltd. 30,000 142,960
Daewoo Securities Co. Ltd. (a) 30,000 185,199
Shin Young Securities Co. 50,000 379,062
707,221
TOTAL FINANCE 4,727,653
HEALTH - 14.1%
DRUGS & PHARMACEUTICALS - 7.3%
Korea Green Cross Corp. 8,347 342,920
Suheung Capsule Co. Ltd. 25,405 1,962,698
2,305,618
MEDICAL EQUIPMENT & SUPPLIES - 6.8%
Medison Co. Ltd. 228,000 1,958,990
Shinhung Co. Ltd. (a) 15,000 184,116
2,143,106
TOTAL HEALTH 4,448,724
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
INDUSTRIAL MACHINERY & EQUIPMENT - 1.3%
Daewoo Heavy Industries Ltd. 80,000 $ 410,108
MEDIA & LEISURE - 0.4%
LODGING & GAMING - 0.4%
Hotel Shilla 30,000 140,794
NONDURABLES - 2.6%
BEVERAGES - 1.1%
Lotte Chilsung Beverage Co. 7,000 353,791
FOODS - 1.5%
Nong Shim Co. 11,000 444,766
Tong Yang Confectionery Co. 505 3,664
448,430
TOTAL NONDURABLES 802,221
RETAIL & WHOLESALE - 0.8%
GENERAL MERCHANDISE STORES - 0.5%
Shinsegae Department Store 10,000 148,015
TRADING COMPANIES - 0.3%
Daewoo Corp. 30,000 115,885
TOTAL RETAIL & WHOLESALE 263,900
SERVICES - 3.8%
S1 Corp. 8,634 1,184,448
TECHNOLOGY - 23.3%
COMMUNICATIONS EQUIPMENT - 3.2%
Sindo Ricoh Co. 25,020 1,004,413
ELECTRONICS - 20.1%
Dae Duck Electronics Co. Ltd. 11,460 910,181
Hyundai Electronic Industries Co. Ltd. (a) 20,000 303,249
Lg Semicon Co. Ltd. 20,000 242,599
Mirae Corp. 250,000 879,062
Samsung Electronics Co. Ltd. (vtg.) 57,000 3,004,334
Samsung Display Devices Ltd. (a) 18,000 844,766
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
ELECTRONICS - CONTINUED
Samsung Display Devices Ltd. rights 5/11/98 (a) 2,584 $ -
Shin Sung Engineering Co. 7,000 140,000
6,324,191
TOTAL TECHNOLOGY 7,328,604
UTILITIES - 9.2%
CELLULAR - 2.2%
SK Telecom Ltd. 1,236 697,470
ELECTRIC UTILITY - 7.0%
Korea Electric Power Corp. 170,000 2,209,387
TOTAL UTILITIES 2,906,857
TOTAL COMMON STOCKS
(Cost $40,409,073) 30,442,109
CASH EQUIVALENTS - 3.4%
Taxable Central Cash Fund (b)
(Cost $1,061,211) 1,061,211 1,061,211
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $41,470,284) $ 31,503,320
LEGEND
(a) Non-income producing
(b) At period end, the seven-day yield of the Taxable Central Cash
Fund was 5.63%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
INCOME TAX INFORMATION
At March 31, 1998, the aggregate cost of investment securities for
income tax purposes was $41,470,284. Net unrealized depreciation
aggregated $9,966,964, of which $4,618,177 related to appreciated
investment securities and $14,585,141 related to depreciated
investment securities.
At September 30, 1997, the fund had a capital loss carryforward of
approximately $6,231,000 of which $3,725,000, and $,2,506,000 will
expire on September 30, 2004 and 2005, respectively.
The fund intends to elect to defer to its fiscal year ending Septemer
30, 1998 approximately $7,153,000 of losses recognized during the
period November 1, 1996 to September 30, 1997.
FINANCIAL STATEMENTS
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STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998 (UNAUDITED)
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (COST $41,470,284) - $ 31,503,320
SEE ACCOMPANYING SCHEDULE
CASH 2,147
RECEIVABLE FOR INVESTMENTS SOLD 414,669
DIVIDENDS RECEIVABLE 266,755
INTEREST RECEIVABLE 4,643
DEFERRED ORGANIZATION EXPENSES 49,528
TOTAL ASSETS 32,241,062
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 494,958
ACCRUED MANAGEMENT FEE 26,412
OTHER PAYABLES AND ACCRUED EXPENSES 75,738
TOTAL LIABILITIES 597,108
NET ASSETS $ 31,643,954
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 74,104,864
ACCUMULATED NET INVESTMENT (LOSS) (5,457)
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON (32,532,071)
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS (9,923,382)
AND ASSETS AND LIABILITIES IN FOREIGN CURRENCIES
NET ASSETS, FOR 6,243,381 SHARES OUTSTANDING $ 31,643,954
NET ASSET VALUE, PRICE PER SHARE ($31,643,954 (DIVIDED BY) $5.07
6,243,381 SHARES)
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STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
INVESTMENT INCOME $ 322,812
DIVIDENDS
INTEREST 62,474
385,286
LESS FOREIGN TAXES WITHHELD (54,041)
TOTAL INCOME 331,245
EXPENSES
MANAGEMENT FEE $ 143,327
TRANSFER AGENT FEES 5,796
ADMINISTRATION FEES AND EXPENSES 28,700
DIRECTORS' COMPENSATION 27,256
CUSTODIAN FEES AND EXPENSES 65,238
AUDIT 33,517
AMORTIZATION OF ORGANIZATION EXPENSES 15,750
MISCELLANEOUS 18,259
TOTAL EXPENSES BEFORE REDUCTIONS 337,843
EXPENSE REDUCTIONS (1,141) 336,702
NET INVESTMENT INCOME (LOSS) (5,457)
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES (18,679,747)
FOREIGN CURRENCY TRANSACTIONS (78,132) (18,757,879)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES 5,051,785
ASSETS AND LIABILITIES IN FOREIGN CURRENCIES 43,454 5,095,239
NET GAIN (LOSS) (13,662,640)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ (13,668,097)
FROM OPERATIONS
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STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30,
(UNAUDITED) 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ (5,457) $ (318,430)
NET INVESTMENT INCOME (LOSS)
NET REALIZED GAIN (LOSS) (18,757,879) (7,744,899)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 5,095,239 (7,532,400)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (13,668,097) (15,595,729)
FROM OPERATIONS
SHARE TRANSACTIONS - 13,726,456
COMMON STOCKS ISSUED THROUGH RIGHTS OFFERING NET OF
SALES LOAD AND OFFERING EXPENSES
TOTAL INCREASE (DECREASE) IN NET ASSETS (13,668,097) (1,869,273)
NET ASSETS
BEGINNING OF PERIOD 45,312,051 47,181,324
END OF PERIOD (INCLUDING ACCUMULATED NET INVESTMENT $ 31,643,954 $ 45,312,051
LOSS OF $5,457 AND $0, RESPECTIVELY)
OTHER INFORMATION - 1,836,288
SHARES SOLD
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FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEARS ENDED OCTOBER 31, 1994
MARCH 31, 1998 SEPTEMBER 30, (COMMENCEMENT
OF OPERATIONS) TO
SEPTEMBER 30,
(UNAUDITED) 1997 1996 1995
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.26 $ 10.71 $ 12.62 $ 14.10
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (LOSS) F - (.06) (.08) (.02)
NET REALIZED AND UNREALIZED (2.19) (3.14) (1.83) (1.30)
GAIN (LOSS)
TOTAL FROM INVESTMENT OPERATIONS (2.19) (3.20) (1.91) (1.32)
DILUTION RESULTING FROM COMMON STOCK - (.19) - -
ISSUED THROUGH RIGHTS OFFERING
OFFERING EXPENSES - (.06) K - (.16)
NET ASSET VALUE, END OF PERIOD $ 5.07 $ 7.26 $ 10.71 $ 12.62
MARKET VALUE, END OF PERIOD $ 5.250 $ 6.875 $ 10.500 $ 11.125
TOTAL RETURN B, C (23.64)% (31.23)% D (5.62)% (25.83) D
MARKET VALUE H
NET ASSET VALUE E, G (30.03)% (28.08)% (15.13)% (10.50)%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 31,644 $ 45,312 $ 47,181 $ 55,603
RATIO OF EXPENSES TO AVERAGE NET ASSETS 2.34% A 1.88% 1.80% 1.88% A
RATIO OF EXPENSES TO AVERAGE 2.34% A 1.88% 1.79% I 1.88% A
NET ASSETS AFTER EXPENSE REDUCTIONS
RATIO OF NET INVESTMENT INCOME (LOSS) TO (.04)% A (.64)% (.68)% (.19)% A
AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 92% A 51% 28% 25% A
AVERAGE COMMISSION RATE J $ .0647 $ .1154 $ .1420
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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 (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
D TOTAL MARKET VALUE RETURN INCLUDES THE EFFECT OF THE SALES LOAD 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
SHAREHOLDER'S INVESTMENT IN THE FUND BASED ON THE MARKET VALUE DUE TO
DIFFERENCES BETWEEN THE MARKET PRICE OF THE STOCK AND THE NET ASSET
VALUE OF THE FUND.
F NET INVESTMENT INCOME (LOSS) 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
OR SALES LOAD.
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.
K OFFERING EXPENSES PER SHARE HAS BEEN REDUCED BY $.02 DUE TO A
REDUCTION TO OFFERING EXPENSES ACCRUED IN CONNECTION WITH THE INITIAL
ISSUANCE OF SHARES.
NOTES TO FINANCIAL STATEMENTS
For the period ended March 31, 1998 (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. The Board of Directors of the fund may, in the first
calendar quarter of each year and, 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
Trustees. 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. 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 foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
date and settlement on purchases and sales of securities. 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 which are accrued based upon the fund's
understanding of the tax rules and regulations that exist in the
markets in which it invests. 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 $486,185 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, capital loss
carryforwards and losses deferred due to wash sales and excise tax
regulations.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS -
CONTINUED
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Accumulated net investment loss 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(the 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.
TAXABLE CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by
the SEC, the fund may invest in the Taxable Central Cash Fund (the
Cash Fund) managed by Fidelity Investments Money Management, Inc.
(formerly FMR Texas Inc.), an affiliate of FMR. The Cash Fund is an
open-end money market fund available only to investment companies and
other accounts managed by FMR and its affiliates. The Cash Fund seeks
preservation of capital, liquidity, and current income by investing in
U.S. Treasury securities and repurchase agreements for these
securities. Income distributions from the Cash Fund are declared daily
and paid monthly from net interest income. Income distributions
received by the fund are recorded as interest income in the
accompanying financial statements.
3. PURCHASES AND SALES
OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $13,043,413 and $12,518,433, 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.
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.
5. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses. For the period, the fund's expenses
were reduced by $1,075 under this arrangement.
In addition, the fund has entered into an arrangement with its
custodian whereby credits realized as a result of uninvested cash
balances were used to reduce a portion of the fund's expenses. During
the period, the fund's custodian fees were reduced by $66 under this
arrangement.
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%. This limit was raised to 55%
effective December 30, 1997 for securities traded on the Korean Stock
Exchange and effective April 1, 1998 for securities traded over the
counter.
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.
BORROWING RESTRICTION. The Fund has deleted its non-fundamental policy
restricting the purchase of portfolio securities while borrowings
representing more than 5% of its total assets are outstanding.
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
Robert C. Pozen, 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
Eric D. Roiter, Secretary
Richard A. Silver, 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
The Chase Manhattan Bank
New York, NY
LEGAL COUNSEL
Rogers & Wells
New York, NY
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
Boston, MA
(registered trademark)
