<PAGE>
(LOGO)
The First
Australia
Fund, Inc.
(LOGO)
Managed by EquitiLink
International
Management
Limited
Semi-Annual Report April 30, 2000
Highlights
- Cash distribution rate of 12.8% p.a.
- Change of performance benchmark to ASX 200
- Brokerage on DRIP purchases reduced from 5
cents to 2 cents per share
(GRAPHIC)
www.equitilink.com
AMEX - IAF
Managed by EquitiLink International Management
Limited.
Advised by EquitiLink Australia Limited.
ALL AMOUNTS ARE U.S. DOLLARS UNLESS
OTHERWISE STATED
<PAGE>
letter to Shareholders
June 23, 2000
Dear Shareholder,
We present this Semi-Annual Report which covers the
activities of The First Australia Fund, Inc. (the
"Fund") for the six months ended April 30, 2000.
Included in this Report is a review of the
Australian economy and investment markets, together
with an overview of the Fund's investments prepared
by the Investment Manager, EquitiLink International
Management Limited.
Quarterly distribution rate continues: 12.8% for
the past year
Over the past 12 months, the Fund has paid a total
of 82.5 cents per share, which equates to an
annualized cash distribution rate of 12.8%, based
upon the share price of $6.44 as of April 30. With
these payments being made quarterly, investors are
assured of regular income. The cash distribution
for the current quarter of 20 cents per share was
paid on April 14, 2000.
Since all distributions are paid after deducting
applicable withholding taxes, the effective
distribution rate may be higher for those US
investors who are able to claim a tax credit. It is
the intention of the Board to continue to maintain
the Fund's distribution rate of 9% for the current
fiscal year ending October 31, 2000. The Fund makes
quarterly distributions at an annual rate, which is
a percentage of the rolling average of the Fund's
prior four quarter-end Net Asset Values (NAV).
NAV Performance: Negatively affected by strong US
dollar
In US dollar terms the NAV fell by 5.1% over the
six months, adversely affected by the recent
strength of the US dollar against the Australian
dollar, having appreciated by 9.6% during the six
months. In Australian dollar terms, the Fund's NAV
increased by 3.9% after expenses (assuming
reinvestment of distributions) despite highly
volatile stock markets.
Share Price Performance: Affected by sentiment
surrounding the strong US dollar
For the six month period ended April 30, 2000 the
total US dollar market return for the Fund has been
-14.7%, based upon the closing period share price
of $6.44. This compares with a flat return for the
Australian All Ordinaries Accumulation Index in US
dollar terms. The Fund's share price has been
affected by the sentiment surrounding the recent
strength of the US dollar against the Australian
dollar.
Performance Benchmark : Changed to ASX 200, no
change to investment process
The Board has approved a change in the performance
benchmark for the Fund to the S&P/ASX 200
Accumulation Index (ASX 200). This new Index
comprises the top 200 companies, listed on the
Australian Stock Exchange (ASX), by market
capitalization, and was introduced by the ASX on
April 3, 2000. This Index most closely represents
the universe of stocks that are considered for the
Fund, hence the investment process and management
(including compliance requirements) will not alter.
All future reports of the Fund will include the ASX
200 as the performance benchmark.
1
<PAGE>
letter to Shareholders
For information about the Fund, including weekly
updates of share prices, NAV and details of recent
distributions, please contact EquitiLink USA Inc.
Investor Relations, by:
- toll free on 1-800-552-5465 in the United States,
- e-mail to [email protected], or
- visit the website at www.equitilink.com.
Yours sincerely,
Laurence S. Freedman
Chairman
Brian M. Sherman
President
(LOGO)
The First
Australia
Fund, Inc.
2
<PAGE>
Dividend Reinvestment and Cash
Purchase Plan The First Australia Fund, Inc.
We invite you to participate in the Fund's Dividend
Reinvestment and Cash Purchase Plan
(the "Plan"), which allows you to automatically re-
invest your distributions in shares of the Fund's
common stock at favorable commission rates.
Distributions made under the Plan are taxable to
the same extent as are cash distributions. The Plan
also enables you to make additional cash
investments in shares of at least $100 per month.
Under this arrangement, the Plan Agent will
purchase shares for you on the stock exchange or
otherwise on the open market on or about the 15th
of each month.
As a Participant in the Plan, you will have the
convenience of:
Automatic reinvestment - the Plan Agent will
automatically reinvest your distributions, allowing
you to gradually grow your holdings in the Fund;
Lower costs - shares are purchased on your behalf
under the Plan at low brokerage rates;
Brokerage on share purchases was recently reduced
from 5 cents to 2 cents per share;
Convenience - the Plan Agent will hold your shares
in non-certificated form and will provide a
detailed record of your holdings at the end of each
distribution period.
To request a brochure containing information on the
Plan, together with an authorization form, please
telephone the Plan Agent, State Street Bank & Trust
Company, P.O. Box 8200, Boston, MA 02266, toll free
on 1-800-451-6788.
3
<PAGE>
Report of the Investment Manager The First Australia Fund, Inc.
Share Price Performance -- affected by the strong US
dollar
During the period the US dollar continued to
strengthen dramatically against virtually every
major global currency. The Australian dollar was
not immune, with the US dollar appreciating 9.6%
over the past six months. As a result, market
sentiment has moved against the Fund. For the six
month period ended April 30, 2000 the total US
dollar market return for the Fund has been -14.7%,
based upon the closing period share price of $6.44.
This compares with a flat return for the Australian
All Ordinaries Accumulation Index in US dollars.
NAV Performance
In US dollar terms the NAV fell by 5.1% over the
six months, adversely affected by the recent
strength of the US dollar against the Australian
dollar, having appreciated by 9.6% during the six
months. In Australian dollar terms, the Fund's NAV
increased by 3.9% after expenses (assuming
reinvestment of distributions) despite highly
volatile stock markets.
This movement took place in extremely volatile
market conditions; Technology stocks took the brunt
of the downswing, dragging down blue chip and
growth stocks, regardless of their involvement in
"e-commerce". The Fund is overweight in Resource
stocks, which out-performed during the six months
reporting period assisting performance.
Currency
The US dollar rose 9.6% against the Australian
dollar over the past six months; the Australian
dollar closed the period at 58.5 cents. The
continuing strength of the US economy has seen the
US dollar appreciate against most major currencies
including the Australian dollar. This appreciation
by the US dollar against the Australian dollar
reflects the interest rate differential between
Australia and the USA, and expectations that the US
Federal Reserve will tighten monetary policy more
aggressively than the Reserve Bank of Australia.
The Manager anticipates that, during the year, US
interest rates are expected to move higher, slowing
the US economy. In this event, there are
expectations for the US dollar to reverse its
recent trend and for other currencies to strengthen
against it. The Australian dollar is expected to be
supported by the maintenance of strong growth in
the Australian economy, a broadening of the
commodity price recovery and strong tourism income
from the Olympics.
Performance Benchmark
The Board has approved a change in the performance
benchmark for the Fund to the S&P/ASX 200
Accumulation Index (ASX 200). This new Index
comprises the top 200 companies, listed on the
Australian Stock Exchange (ASX), by market
capitalization, and was introduced by the ASX on
April 3, 2000. This Index most closely represents
the universe of stocks that are considered for the
Fund, hence the investment process and management
(including compliance requirements) will not alter.
All future reports of the Fund will include the ASX
200 as the performance benchmark.
4
<PAGE>
Report of the Investment Manager
(continued) The First Australia Fund, Inc.
Investment Strategy
Over the six months cash was increased from 1.0% to
5.0%, in anticipation of short-term market
weakness. The Fund slightly decreased its exposure
to the Resource sector, but remains overweight
compared with the ASX All Ordinaries Index.
Exposure to the Industrials sector remains slightly
underweight. The Manager believes that industrial
stocks, which are held in the portfolio, represent
high growth prospects and consistent dividend
income.
The Fund will remain relatively fully invested.
Portfolio Composition
The following chart summarizes the composition of
the Fund's portfolio, expressed as a percentage of
net assets. On April 30, 2000 the Fund held 80% of
its net assets in industrial stocks, 15% in
resource stocks, and 5% in cash.
(GRAPH)
Distribution Policy
Over the past 12 months to April 30, 2000 a total
of 82.5 cents per share were paid to Shareholders.
Based on a share price of $6.75 as of the date of
this report, this equates to annualized cash
distribution rate of 12.2%.
It is the intention of the Board to continue to
maintain the Fund's distribution rate at 9% of NAV
for the current fiscal year ending October 31,
2000. The Fund makes quarterly distributions at an
annual rate, which is a percentage of the rolling
average of the Fund's prior four quarter-end net
asset values. The Fund's Board of Directors
determines the distribution rate at the
commencement of each year based on the Manager's
forecast of earnings and its outlook for the
Australian equity and currency markets.
5
<PAGE>
Selected Equity Holdings The First Australia Fund, Inc.
The following notes highlight the Fund's top ten
holdings at April 30, 2000.
15.9% of total assets
News Corporation Ltd is a global, vertically-
integrated entertainment and media company. It
produces film and television entertainment through
the Fox brand name and also has significant
interests in several major broadcast platforms such
as B-Sky-B in the UK and the Fox TV network in the
US. News Corporation has also entered into joint
venture arrangements with other
media/telecommunications companies in order to
reduce financial risk and expand its global market
presence. The Manager believes that the company is
undervalued relative to its US peers.
The Manager intends to maintain an Index weight
position in the stock.
10.3% of total assets
Telstra Corporation Ltd is Australia's dominant
telecommunications carrier providing a full range
of telecommunications services. The company will be
a leading beneficiary of the digital revolution in
Australia as the convergence of the internet,
media, telecommunications and technology sectors
continues. Deregulation of the Australian
telecommunications market has increased competition
and is eroding Telstra's market share in all areas
of operation. Profitability may come under pressure
in the medium term.
The Manager intends to reduce the weighting in this
stock.
8.0% of total assets
National Australia Bank Ltd is Australia's largest
full service banking group, with significant
operations in Australia, New Zealand, the UK and
US. NAB has grown its international retail banking
presence through acquisitions while maintaining
market leadership in Australia. As a further
expansion measure, the bank has set up an
international joint venture allowing its customers
to trade shares on the internet. NAB recently
announced an interim profit result, which was above
market expectations.
The Manager intends to maintain an overweight
position in the stock.
6.9% of total assets
BHP Company Ltd is one of the world's largest
mining companies with operations throughout the
world. Its main areas of operation are oil in
Australia, the Gulf of Mexico and UK; global copper
production, iron ore mining and processing in
Australia and South America; coal mining in
Australia and steel production in Australia. BHP is
currently finishing a major restructuring with
uneconomic assets sold or closed and stronger focus
upon generating returns for shareholders.
The Manager intends to maintain a slightly
overweight position in the stock.
6
<PAGE>
Selected Equity Holdings (continued) The First Australia Fund, Inc.
5.8% of total assets
ANZ Banking Group Ltd is Australia's fourth largest
banking group, offering retail and wholesale
banking services in Australia, New Zealand and
Asia. Recent management changes have focused on
cost control and growing non-interest income.
Domestic asset quality and interest margins are
trending favorably, underpinning a sound outlook
for profitability. ANZ expects to double the
number of its internet banking customers in the
next two years. The Manager believes that the
stock's valuation remains cheap relative to other
Australian banks.
The Manager intends to maintain an overweight
position in the stock.
5.3% of total assets
Colonial Ltd is a diverse financial services group
with operations in Australia, the United Kingdom
and Asia covering banking, funds management, life
insurance and investment products. Colonial was
the subject of a friendly takeover bid by
Commonwealth Bank of Australia. The combined
operation has created Australia's largest financial
services company offering traditional banking and
investment products. The deal was completed in
early June 2000.
The Manager accepted the takeover offer for the
stock.
4.7% of total assets
Westpac Banking Corporation is the second largest
banking group in Australia, offering retail and
wholesale banking services in Australia and New
Zealand. Management remains focused on optimizing
its domestic banking business and integrating
recent acquisitions. The Manager believes that the
sound capital management should drive earnings per
share growth. The company recently announced a
better than expected interim profit result.
The Manager intends to maintain an overweight
position in the stock.
3.6% of total assets
Foster's Brewing Group Ltd is an international
beverage group producing beer, wine and other
alcoholic beverages. The company released an
outstanding annual result in 1999 with profits
increasing in each of its major divisions. The
return on invested capital has increased
significantly over the past three years and the
Manager believes that the Fosters is well
positioned to continue this trend in the future.
The Manager intends to maintain an overweight
position in the stock.
7
<PAGE>
Selected Equity Holdings (continued) The First Australia Fund, Inc.
3.1% of total assets
Rio Tinto Ltd is one of the world's largest mining
companies with a dual listing structure in London
and Australia. It's operations span the globe
covering coal, copper, iron ore, aluminum borax and
titanium. Rio Tinto continues to produce strong and
stable earnings during commodity cycles and is well
positioned to take advantage of upturns in
commodity prices.
The Manager intends to maintain a modest
underweight position in the stock.
3.0% of total assets
AMP Ltd is one of Australia's largest financial
institutions. Its operations cover funds
management, life insurance and general insurance.
With the current rationalization occurring in the
Australian financial services industry, AMP is
viewed as a likely player either through a merger
or as a target of a takeover bid.
The Manager intends to maintain an Index weight
position in the stock.
The Manager's intentions with respect to
maintaining weighted positions in stock are
expressed as of the date of this report, and the
Manager reserves the right to change such
intentions.
The Fund may invest between 25% and 35% of its
total assets in the securities of any one industry
sector if, at the time of the investment, that
industry sector represents 20% or more of the
Australian All Ordinaries Index.
At April 30, 2000 the Fund did not have more than
25% of its assets invested in any industry sector.
8
<PAGE>
Market Review and Outlook The First Australia Fund, Inc.
Economy
The growth in the Australian economy has been
uninterrupted since 1992, one of its longest
periods of expansion. After strong growth at the
end of 1999, the economy has moderated slightly in
early 2000. However, it is forecasted by the
Federal Government to continue to grow at 3.75% for
the year to June 2001.
Inflation has risen to 2.8% mainly due to higher
oil prices, but is still well within expectations
and the Reserve Bank of Australia target range.
The Reserve Bank of Australia increased interest
rates by 1.00% during the six months to April 30,
2000 and by a further 0.25% in early May, taking
official interest rates to 6.00%. The Reserve Bank
of Australia is expected to maintain its pre-
exemptive approach and further tightenings of
monetary policy are forecast to occur during the
year.
Stockmarket
The Australian stockmarket has rallied over the six
months but has recently been affected by turbulence
surrounding the technology sector and US equity
markets.
Resource Stocks performed well during the six
months and that should be maintained as world
industrial production is set to continue its
cyclical upswing, which should result in improving
commodity prices. The outlook for industrial
shares is also favorable, as inflationary pressures
remain benign and cost cutting, as well as
productivity improvements should help profit
growth.
Currency
The US dollar rose 9.6% against the Australian
dollar over the six months; the Australian dollar
closed the period at 58.5 cents. The recent
appreciation by the US dollar against the
Australian dollar reflects the following:
- the continuing strength of the US economy has
seen the US dollar appreciate against most major
currencies,
- the interest rate differential between Australia
and the USA,
- expectations that the US Federal Reserve will
tighten more aggressively than the Reserve Bank of
Australia and
- a sluggish commodity price recovery.
Over the year many of the above concerns are likely
to fade and we anticipate:
- growth in the Australian economy to remain
strong, at or above the world average,
- a broadening of the commodity price recovery,
particularly in the bulk and soft commodities,
- strong tourism income from the Olympics to
support the Australian dollar during the year.
EquitiLink International Management Limited
June 2000
9
<PAGE>
Portfolio of Investments April 30, 2000
(Unaudited) The First Australia Fund, Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------
Value
Shares Description (US$)
---------------------------------------------------------
<C> <S> <C>
LONG-TERM INVESTMENTS--95.1%
Common and Preferred Stocks--95.1%
Diversified Industries--14.3%
765,000 Cable & Wireless Optus
Limited*................... $ 2,472,909
200,000 ERG Limited.................. 952,816
963,900 Fairfax (John) Holdings
Limited.................... 2,789,066
331,016 Foodland Associated
Limited.................... 1,594,402
1,945,000 Foster's Brewing Group
Limited.................... 4,918,444
236,000 Lend Lease Corporation
Limited.................... 2,559,870
1,760,000 National Foods Limited....... 2,674,900
400,000 Orica Limited................ 1,582,961
------------
19,545,368
------------
Resources And Mining--15.4%
862,638 Broken Hill Proprietary
Company Limited............ 9,298,461
1,253,000 North Limited................ 2,157,039
282,771 Rio Tinto Limited............ 4,204,577
828,839 Sons of Gwalia Limited....... 2,107,565
791,250 WMC Limited.................. 3,288,554
------------
21,056,196
------------
Services--65.4%
457,000 AMP Limited.................. 4,007,089
1,130,000 Australia & New Zealand
Banking Group Limited...... 7,820,810
110,000 Brambles Industries
Limited.................... 3,099,283
1,389,000 Colonial Limited............. 7,178,360
110,000D Commonwealth Bank of
Australia.................. 1,676,957
980,000 ISIS Communications
Limited.................... 492,659
1,400,000 Jupiters Limited............. 2,225,966
427,200 Lang Corporation Limited*.... 2,110,131
790,000 National Australia Bank
Limited.................... 10,833,697
678,000 News Corporation Limited..... 8,618,479
1,209,000 News Corporation Limited
Voting Preferred Stock..... 13,017,798
1,910,000 Orbital Engine Corporation
Limited*................... 1,563,086
1,540,000 Qantas Airways Limited....... 3,303,759
300,000D Solution 6 Holdings
Limited*................... 919,088
2,670,000Pound Telstra Corporation Limited
Installment Receipts*...... 11,455,892
---------------------------------------------------------
Value
Shares Description (US$)
---------------------------------------------------------
1,010,000 Telstra Corporation Limited
International Receipts*.... $ 2,585,932
1,540,000D Village Roadshow Limited
Voting Preferred Stock..... 2,160,496
1,004,000 Westpac Banking Corporation
Limited.................... 6,414,687
------------
89,484,169
------------
Total common and preferred
stocks (cost
$131,567,454).............. 130,085,733
------------
Principal
Amount SHORT-TERM INVESTMENTS--4.1%
(000) Demand Deposits--3.9%
----------
A$ 9,126 Banque Nationale de Paris,
5.60%, 5/1/00.............. 5,334,772
2 State Street Bank & Trust
Company,
5.65%, 5/1/00.............. 1,306
------------
Total demand deposits
(cost US$5,416,127)........ 5,336,078
------------
Repurchase Agreement--0.2%
US$ 319 State Street Bank & Trust
Company, 5.88% dated
4/28/00, due 5/2/00 in the
amount of $319,200 (cost
$319,000; collateralized by
$325,000 U.S. Treasury
Notes, due 10/31/01; value
including accrued interest-
US$330,281)................ 319,000
------------
Total short-term investments
(cost US$5,735,127)........ 5,655,078
------------
Total Investments--99.2%
(cost $137,302,581; Note
3)......................... 135,740,811
Other assets in excess of
liabilities--0.8%.......... 1,022,796
------------
Net Assets--100%............. $136,763,607
------------
------------
</TABLE>
------------------
Pound Expressed in number of shares into which position can be
exercised or converted.
* Non-income producing security.
D Portion of securities on loan; see Note 3.
10 See Notes to Financial Statements.
<PAGE>
Statement of Assets and Liabilities
April 30, 2000 (Unaudited) The First Australia Fund, Inc.
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at value (cost $137,302,581)................................................. $135,740,811
Foreign currency, at value (cost $223,397)................................................ 223,397
Receivable for investments sold........................................................... 2,288,979
Dividends and interest receivable......................................................... 62,246
Other assets.............................................................................. 18,207
------------
Total assets.......................................................................... 138,333,640
------------
Liabilities
Payable for investments purchased......................................................... 1,358,836
Accrued expenses and other liabilities.................................................... 98,452
Investment management fee payable......................................................... 98,074
Withholding tax payable................................................................... 9,314
Administration fee payable................................................................ 5,357
------------
Total liabilities..................................................................... 1,570,033
------------
Net Assets $136,763,607
------------
------------
Net assets were comprised of:
Common stock, $.01 par value............................................................ $ 171,900
Paid-in capital in excess of par........................................................ 152,855,695
------------
153,027,595
Distributions in excess of net investment income........................................ (9,314)
Accumulated net realized gains on investments........................................... 3,755,155
Net unrealized appreciation on investments.............................................. 10,055,993
Accumulated net realized and unrealized foreign exchange losses......................... (30,065,822)
------------
Net assets.............................................................................. $136,763,607
------------
------------
Net asset value per share:
($136,763,607 / 17,189,998 shares of common stock issued and outstanding)............... $7.96
------------
------------
</TABLE>
11 See Notes to Financial Statements.
<PAGE>
Statement of Operations Six Months Ended
April 30, 2000 (Unaudited) The First Australia Fund, Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Investment Income
<S> <C>
Income
Dividends (net of foreign withholding taxes of $75,161)............................. $ 2,411,295
Interest............................................................................ 57,304
Income from securities loaned, net.................................................. 5,954
----------------
Total income........................................................................ 2,474,553
----------------
Expenses
Investment management fee........................................................... 688,000
Shareholder relations and communications............................................ 112,000
Custodian's fees and expenses....................................................... 110,000
Directors' fees and expenses........................................................ 91,000
Independent accountant's fees and expenses.......................................... 56,000
Administration fee.................................................................. 38,500
Legal fees and expenses............................................................. 35,000
Transfer agent's fees and expenses.................................................. 20,000
Insurance expense................................................................... 12,000
Miscellaneous....................................................................... 13,474
----------------
Total operating expenses............................................................ 1,175,974
----------------
Net investment income before excise tax............................................... 1,298,579
Excise tax............................................................................ (25,000)
----------------
Net investment income................................................................. 1,273,579
----------------
Realized and Unrealized
Gain (Loss) on Investments
and Foreign Currencies
Net realized gain on investment transactions.......................................... 3,856,505
Net change in unrealized appreciation on investments.................................. 209,712
----------------
Net gain on investments............................................................... 4,066,217
----------------
Net increase in net assets resulting from operations before net foreign exchange
losses.............................................................................. 5,339,796
Net realized and unrealized foreign exchange losses................................... (12,273,089)
----------------
Net Decrease In Net Assets
Resulting From Operations............................................................. $ (6,933,293)
----------------
----------------
</TABLE>
12 See Notes to Financial Statements.
<PAGE>
Statement of Changes in Net Assets
(Unaudited) The First Australia Fund, Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) April 30, October 31,
in Net Assets 2000 1999
------------ ------------
<S> <C> <C>
Operations
Net investment income................................................. $ 1,273,579 $ 1,365,427
Net realized gain on investment transactions.......................... 3,856,505 11,961,602
Net change in unrealized appreciation on investments.................. 209,712 5,798,730
------------ ------------
Net increase in net assets resulting from operations before net
foreign exchange gain (loss)........................................ 5,339,796 19,125,759
Net realized and unrealized foreign exchange gain (loss).............. (12,273,089) 3,834,019
------------ ------------
Net increase (decrease) in net assets resulting from operations....... (6,933,293) 22,959,778
Dividends to shareholders from net investment income.................... (309,314) (5,122,437)
Distributions to shareholders from net realized capital gains........... (6,910,269) (8,715,134)
------------ ------------
Total increase (decrease)............................................... (14,152,876) 9,122,207
Net Assets
Beginning of period..................................................... 150,916,483 141,794,276
------------ ------------
End of period........................................................... $136,763,607 $150,916,483
------------ ------------
------------ ------------
</TABLE>
13 See Notes to Financial Statements.
<PAGE>
Notes to Financial Statements (Unaudited) The First Australia Fund, Inc.
--------------------------------------------------------------------------------
The First Australia Fund, Inc. (the 'Fund) is a closed-end, nondiversified
management investment company incorporated in Maryland on September 30, 1985.
The Fund's principal investment objective is long-term capital appreciation
through investment primarily in equity securities of Australian companies listed
on Australian stock exchanges. The Fund's secondary investment objective is
current income. It is expected that normally at least 65% of the Fund's total
assets will be invested in equity securities listed on Australian stock
exchanges and that current income will be derived primarily from dividends and
interest on Australian corporate and governmental securities. The ability of
issuers of debt securities, including foreign currency balances on deposit with
the Fund's Australian subcustodian bank, held by the Fund to meet their
obligations may be affected by economic or political developments in a specific
industry or region.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Basis of Presentation: The financial statements of the Fund are prepared in
accordance with United States generally accepted accounting principles using the
United States dollar as both the functional and reporting currency.
Security Valuation: Investments are stated at value. Investments for which
market quotations are readily available are valued at the last reported sales
prices. If there is no sales price on the date of valuation, then investments
are valued at the most recently available sales price or at fair value as
determined in good faith by or under the direction of the Fund's Board of
Directors.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
Repurchase Agreements: In connection with transactions in repurchase
agreements with U.S. financial institutions, it is the Fund's policy that its
custodian take possession of the underlying collateral securities, the value of
which exceeds the principal amount of the repurchase transaction, including
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the collateral is valued on a daily basis to determine its
adequacy. If the seller defaults and the value of the collateral declines or if
bankruptcy proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
Foreign Currency Translation: Australian dollar ('A$) amounts are translated
into United States dollars ('US$) on the following basis:
(i) market value of investment securities, other assets and liabilities at
the exchange rates at the end of the reporting period; and
(ii) purchases and sales of investment securities, income and expenses at
the rate of exchange prevailing on the respective dates of such
transactions.
14
<PAGE>
Notes to Financial Statements
(Unaudited) (continued) The First Australia Fund, Inc.
--------------------------------------------------------------------------------
The Fund isolates that portion of the results of operations arising as a
result of changes in the foreign exchange rates from the fluctuations arising
from changes in the market prices of securities held at April 30, 2000.
Similarly, the Fund isolates the effect of changes in foreign exchange rates
from the fluctuations arising from changes in the market prices of portfolio
securities sold during the reporting period.
Net realized and unrealized foreign exchange losses of $12,273,089 includes
realized foreign exchange gains and losses from sales and maturities of
portfolio securities, sales of foreign currencies, currency gains or losses
realized between the trade and settlement dates on securities transactions, the
difference between the amounts of dividends, interest and foreign withholding
taxes recorded on the Fund's books and the U.S. dollar equivalent amounts
actually received or paid and changes in unrealized foreign exchange gains and
losses in the value of portfolio securities and other assets and liabilities
arising as a result of changes in the exchange rate. Accumulated net realized
and unrealized foreign exchange losses shown in the composition of net assets at
April 30, 2000 represent foreign exchange losses for book purposes that have not
yet been recognized for tax purposes.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin, including
unanticipated movements in the value of the foreign currency relative to the
U.S. dollar.
The exchange rate at April 30, 2000 was US$.5845 to A$1.00 for the Australian
dollar.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses from
security and currency transactions are calculated on the identified cost basis.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on an accrual basis. Expenses are recorded on the accrual basis which
may require the use of certain estimates by management. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
Dividends and Distributions: It is the Fund's current policy to pay regular
quarterly distributions at an annual rate, which is a percentage of the rolling
average of the Fund's prior four quarter-end net asset values. The distributions
will be made from net investment income, net realized capital gains and, to any
extent necessary, paid-in capital. Dividends and distributions are recorded on
the ex-dividend date. Income distributions and capital and currency gains
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for foreign currencies.
Taxes: For federal income and excise tax purposes, substantially all of the
Fund's transactions are accounted for using the Australian dollar as the
functional currency. Accordingly, only realized currency gains and losses
resulting from the repatriation of Australian dollars into United States dollars
are recognized for tax purposes.
15
<PAGE>
Notes to Financial Statements
(Unaudited) (continued) The First Australia Fund, Inc.
--------------------------------------------------------------------------------
No provision has been made for United States income taxes because it is the
Fund's policy to continue to meet the requirements of the United States Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to shareholders. Provision has been made for United States
excise taxes incurred during the prior fiscal year. Australia imposes a
withholding tax of 15% on certain dividends and 10% on certain interest.
Securities Lending: The Fund may lend its securities to approved borrowers.
The loans are secured by collateral at least equal at all times to the market
value of the securities loaned. The Fund may bear the risk of delay in recovery
of, or even loss of rights in, the securities loaned should the borrower of the
securities fail financially. The Fund receives compensation for lending its
securities in the form of fees or it retains a portion of interest on the
investment of any cash received as collateral. The Fund also continues to
receive interest and dividends on the securities loaned and any gain or loss in
the market price of the securities loaned that may occur during the term of the
loan will be for the account of the Fund.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with AICPA Statement of Position
93-2: Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies.
During the six months ended April 30, 2000, the Fund increased distributions in
excess of net investment income by $959,974, increased accumulated net realized
gains on investments by $3,771,908, decreased accumulated realized and
unrealized foreign exchange losses by $2,786,934 and decreased paid-in capital
in excess of par by $25,000. Net investment income, net realized gains and net
assets were not affected by this change.
Note 2. Agreements
The Fund has agreements with EquitiLink International Management Limited (the
'Investment Manager), EquitiLink Australia Limited (the 'Investment Adviser),
and Prudential Investments Fund Management, LLC (the 'Administrator). The
Investment Manager and the Investment Adviser are affiliated companies.
The Investment Manager makes investment decisions on behalf of the Fund on
the basis of recommendations and information furnished to it by the Investment
Adviser, including the selection of and the placement of orders with brokers and
dealers to execute portfolio transactions on behalf of the Fund.
The Investment Manager pays fees to the Investment Adviser for their services
rendered. The Investment Manager informed the Fund that it paid $177,330 to the
Investment Adviser during the six months ended April 30, 2000.
The management agreement provides the Investment Manager with a fee, computed
weekly and payable monthly, at the following annual rates: 1.10% of the Fund's
average weekly net assets up to $50 million, 0.90% of such assets between $50
million and $100 million and 0.70% of such assets
16
<PAGE>
Notes to Financial Statements
(Unaudited) (continued) The First Australia Fund, Inc.
--------------------------------------------------------------------------------
in excess of $100 million. The administration agreement provides the
Administrator with a fee at the annual rate of the greater of $25,000 or 0.05%
of the Fund's average weekly net assets.
EquitiLink USA, Inc. ('EUSA), a wholly owned subsidiary of EquitiLink
International Management Limited, entered into an agreement on March 1, 2000 to
serve as the Fund's investor relations agent. This agreement provides EUSA with
a monthly retainer of $5,000 plus out of pocket expenses up to $3,000 per year.
During the period ended April 30, 2000, the fund incurred fees of approximately
$10,000 for the services of EUSA. As of April 30, 2000 this amount was due to
EUSA. Shareholder relations and communications expenses in the Statement of
Operations include certain out-of-pocket and shareholder reporting expenses paid
to nonaffiliates.
Note 3. Portfolio Securities
Purchases and sales of investment securities, other than short-term
investments, for the six months ended April 30, 2000 aggregated $93,389,799 and
$99,505,615, respectively.
As of April 30, 2000, the Fund had securities on loan with an aggregate
market value of $2,471,855. As of this date, the collateral held for securities
on loan was comprised of securities with an aggregate market value of
$2,619,925.
The United States federal income tax basis of the Fund's investments at April
30, 2000 was $137,616,263 and accordingly, net unrealized depreciation for
United States federal income tax purposes was $1,875,453 (gross unrealized
appreciation--$9,387,556; gross unrealized depreciation--$11,263,009).
Note 4. Capital
There are 20 million shares of $.01 par value common stock authorized. Of the
17,189,998 shares issued and outstanding at April 30, 2000, the Investment
Manager and its affiliates owned 2,748,737 shares.
Note 5. Dividends And Distributions
On June 8, 2000 the Board of Directors of the Fund declared a $.20 dividend
comprised of $.09 per share from ordinary income, and a distribution of $.11 per
share from realized long-term capital gains payable on July 14, 2000 to
shareholders of record on June 30, 2000.
17
<PAGE>
Financial Highlights (Unaudited) The First Australia Fund, Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Years Ended October 31,
April 30, ------------------------------------------------------------
2000 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
---------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 8.78 $ 8.25 $ 9.35 $ 10.98 $ 10.04 $ 11.76
---------- -------- -------- -------- -------- --------
Net investment income................... .07 .08 .21 .18 .20 .22
Net realized and unrealized gain (loss)
on investments and foreign
currencies............................ (.47) 1.26 (.41) (1.45) 1.25 (.71)
---------- -------- -------- -------- -------- --------
Total from investment operations...... (.40) 1.34 (.20) (1.27) 1.45 (.49)
---------- -------- -------- -------- -------- --------
Dividends from net investment income.... (.02) (.30) (.23) (.17) (.23) (.22)
Distributions from net capital and
currency gains........................ (.40) (.51) (.66) (.18) (.26) (.94)
---------- -------- -------- -------- -------- --------
Total dividends and distributions..... (.42) (.81) (.89) (.35) (.49) (1.16)
---------- -------- -------- -------- -------- --------
Capital reduction with respect to
issuance of Fund shares............... -- -- (.01) (.01) (.02) (.07)
---------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 7.96 $ 8.78 $ 8.25 $ 9.35 $ 10.98 $ 10.04
---------- -------- -------- -------- -------- --------
---------- -------- -------- -------- -------- --------
Market price per share, end of period... $ 6.4375 $ 8.00 $ 6.5625 $ 7.44 $ 9.125 $ 8.19
---------- -------- -------- -------- -------- --------
---------- -------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN BASED ONPound:
Market value............................ (14.69)% 34.91% (0.38)% (15.17)% 17.76% (7.84)%
Net asset value......................... (3.88)% 17.77% (0.34)% (11.37)% 15.55% (2.70)%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net
assets................................ 1.58%* 2.58% 1.61% 1.39% 1.41% 1.50%
Ratio of net investment income to
average net assets.................... 1.67%* .87% 2.38% 1.68% 1.86% 2.24%
Portfolio turnover rate................. 63% 143% 180% 270% 133% 45%
Net assets, end of period (000
omitted).............................. $136,764 $150,916 $141,794 $159,422 $185,756 $168,111
Average net assets (000 omitted)........ $153,106 $157,565 $149,827 $182,588 $178,756 $162,228
</TABLE>
---------------
* Annualized.
Pound Total investment return is calculated assuming a
purchase of common stock on the first day and a sale on the last
day of each period reported. Dividends and distributions
are assumed, for purposes of this calculation, to be
reinvested at prices obtained under the Fund's dividend
reinvestment plan. Total investment return does not
reflect brokerage commissions. Total returns for periods
of less than a full year are not annualized.
NOTE: Contained above is operating performance for a
share of common stock outstanding, total investment return, ratios
to average net assets and other supplemental data for each
of the periods indicated. This information has been
determined based upon financial information provided
in the financial statements and market value data for the
Fund's shares.
18
<PAGE>
Supplemental Proxy Information (Unaudited) The First Australia Fund, Inc.
--------------------------------------------------------------------------------
The Annual Meeting of Shareholders of The First Australia Fund, Inc. (the
'Fund) was held on Wednesday, March 22, 2000 at the offices of Prudential
Securities Incorporated, One Seaport Plaza, New York, New York. The meeting was
held for the following purposes:
<TABLE>
<S> <C>
(1a) To elect five Directors to serve as Class I Directors for a three-year term expiring in
2003:
- David Lindsay Elsum
- Laurence S. Freedman
- Michael R. Horsburgh
- William J. Potter
- Peter J. O'Connell
(1b) To elect one Director to serve as Class I Director for a term to expire in 2001:
- Peter D. Sacks
Directors whose term of office continued beyond this meeting are as follows: Anthony E.
Aaronson, Rt. Hon. Malcolm Fraser, Harry A. Jacobs, Howard A. Knight, Richard H. McCoy,
Nevile J. Miles, John T. Sheehy and Brian M. Sherman;
To ratify the selection of PricewaterhouseCoopers LLP as independent public accountants of
(2)
the Fund for the fiscal year ending October 31, 2000;
</TABLE>
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Director/Auditor Votes for Votes against Votes withheld Abstentions
------------------------------------ ------------ -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
(1a) David Lindsay Elsum 12,691,646 -- 363,800 --
Laurence S. Freedman 12,689,349 -- 366,097 --
Michael R. Horsburgh 12,691,584 -- 363,862 --
William J. Potter 12,685,887 -- 369,559 --
Peter J. O'Connell 12,682,871 -- 372,575 --
(1b) Peter D. Sacks 12,571,031 -- 484,415 --
(2) PricewaterhouseCoopers LLP 12,760,036 159,821 -- 135,588
</TABLE>
19
<PAGE>
Directors Officers
Laurence S. Freedman, Chairman Brian M. Sherman, President
Anthony E. Aaronson Laurence S. Freedman, Vice President
David Lindsay Elsum Ouma Sananikone,
Rt. Hon. Malcolm Fraser Assistant Vice President and
Michael R. Horsburgh Chief Investment Officer
Harry A. Jacobs, Jr. David Manor, Treasurer
Howard A. Knight Roy M. Randall, Secretary
Richard H. McCoy Barry G. Sechos, Assistant Treasurer
Neville J. Miles Peter W. Fortner, Assistant Treasurer
Peter J. O'Connell Allan S. Mostoff, Assistant Secretary
William J. Potter Margaret A. Bancroft, Assistant Secretary
Peter D. Sacks Sander Bieber, Assistant Secretary
John T. Sheehy
Brian M. Sherman
The accompanying financial statements as of April
30, 2000 were not audited and accordingly, no
opinion is expressed on them.
This report, including the financial statements
herein, is transmitted to the shareholders of The
First Australia Fund for their general information
only. It does not have regard to the specific
investment objectives, financial situation and the
particular needs of any specific person.
Notice is hereby given in accordance with Section
23(c) of the Investment Company Act of 1940 that
the Fund may purchase, from time to time, shares of
its common stock in the open market.
20
<PAGE>
Investment Manager
EquitiLink International Management Limited
P.O Box 578, 17 Bond Street
St. Helier, Jersey, JE4 5XB Channel Islands
Investment Adviser
EquitiLink Australia Limited
190 George Street
Sydney, NSW 2000, Australia
Administrator
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian and Transfer Agent
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
Legal Counsel
Dechert Price & Rhoads
1775 Eye Street N.W
Washington, D.C. 20006-2401
Stikeman Elliott
Level 40, Chifley Tower
2 Chifley Square
Sydney, NSW 2000, Australia
Investor Relations
EquitiLink USA, Inc.
45 Broadway, 31st Floor
New York, NY 10006
(800) 522-5465
e-mail us at [email protected]
Shares of The First Australia Fund, Inc. are traded
on the American Stock Exchange and on the Pacific
Stock Exchange under the symbol "IAF". Information
about the Fund's net asset value and market price
is published weekly in Barron's and in the Monday
edition of The Wall Street Journal.
318652104
