(R)
The First Australia
Prime Income
Fund, Inc.
- -------------------------------------------------------------------
Annual Report
October 31, 1995
Highlights
- -----------------------------------------
- - Highlights for the year included a
successful rights offering in April and
new Auction Market Preferred Stock issued
in July 1995.
- - Shareholders who participated in the rights
offering received a return of 29.2% on their
new shares to October 31, 1995.
- - NAV return of 18.5% over past year (with
dividends and distributions reinvested).
- - Share price return of 24.3% over past six
months and 8.8% over the year to October
31, 1995 (with reinvestment of dividends and
distributions).
- - Cash distribution rate of 10.5% over past
twelve months.
<PAGE>
LETTER TO SHAREHOLDERS
December 12, 1995
Dear Shareholder,
We are pleased to present this Annual Report which covers the activities of
The First Australia Prime Income Fund, Inc. for the twelve months ended October
31, 1995. Included in this report is a review of the Australian and New Zealand
economies and investment markets, along with an overview of the Fund's
investments, prepared by the Investment Manager, EquitiLink International
Management Limited.
A highlight of the Fund's year was the completion of a one for five rights
offering in April, which resulted in primary and over-subscription requests
totalling approximately 124% of the new shares offered and generated net
proceeds of approximately US$224.6 million. The subscription price for the new
shares was US$7.64. Thus, between the date of issue of the new shares on May 5
and the end of the Fund's year on October 31, 1995, participating shareholders
received a return of 29.2% assuming reinvestment of dividends and distributions
on their new shares in share price terms.
In July, the Fund completed a successful issue of an additional series of
Auction Market Preferred Stock (AMPS) which generated net proceeds of
approximately US$73.6 million.
The Australian fixed income market strengthened throughout the Fund's
financial year reflecting the more positive global bond market environment,
particularly in the United States. By October 31, 1995, Australian government
ten year bond yields had moved to 8.8% from 10.5% at October 31, 1994, producing
strong gains for the portfolio. Evidence that the Reserve Bank of Australia's
anti-inflation stance was slowing economic growth, and signs of an improving
current account deficit underpinned the bond market's buoyancy.
The outlook is for economic growth in Australia to continue to moderate in
the last quarter of 1995 and for inflation to trend down during the first half
of 1996, with the current account deficit also diminishing and the Government
achieving a small Budget surplus. At October 31, 1995, Australian government ten
year bonds offered approximately 276 basis points more in yield than ten year
U.S. government bonds.
Over the last year, the Australian dollar strengthened by 2.5% against the
U.S. dollar. The stronger Australian dollar trend reflected the improvement in
the monthly current account deficit, a firmer outlook for global commodity
prices and the relatively high level of Australian interest rates. At the time
of this report the Australian dollar was trading at US$0.7396.
Assuming reinvestment of dividends and distributions, the Fund's Net Asset
Value (NAV) increased by 9.2% over the three months to the end of October 1995.
Over the past twelve months the NAV increased by 18.5%, assuming reinvestment
of
dividends and distributions. The Fund's share price return, again assuming
reinvestment of dividends and distributions, was 7.5% over the past three months
to October 31, 1995, 24.3% over the past six months and 8.8% over the past
twelve months.
Dividends and distributions to common shareholders over the last twelve
months totalled US$0.975, consisting of twelve payments of US7.5 cents per share
and a special payment of US7.5 cents per share in January, 1995. Based upon the
share price of $9.3125 at October 31, 1995, the cash distribution rate over the
past twelve months was 10.5%. Since all dividends and distributions are paid
after the deduction of Australian and New Zealand withholding taxes, the
effective yield is higher for those U.S. investors who are able to claim a tax
credit. The Board's policy is to
1
<PAGE>
facilitate payment of a stable monthly distribution out of current income and
supplemented by realized capital gains if required. The dividend is reviewed on
a quarterly basis with the next review to take place at the Board's meeting in
March, 1996.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
If you have not yet done so, we invite you to consider joining the Fund's
Dividend Reinvestment and Cash Purchase Plan to automatically reinvest your
dividends in shares of the Fund's common stock. The following chart shows that
shareholders who invested US$10,000 on October 31, 1990 and have taken advantage
of the Dividend Reinvestment Plan, have achieved an outstanding compounded
return.
A brochure containing information and an authorization form can be obtained
by contacting State Street Bank and Trust Company, PO Box 8200, Boston, MA
02266-8200, or by telephone at 1-800-451-6788.
If you wish to participate and your shares are held in your own name, simply
complete and mail the enrollment form in the back of the brochure or call State
Street Bank and Trust Company at the toll-free number and enroll by telephone.
If your shares are held in the name of a brokerage firm, bank or other nominee,
you should instruct your nominee to participate on your behalf. If your nominee
is unable to participate on your behalf, you should request it to reregister
your shares in your own name which will enable you to participate in the Plan.
The automatic reinvestment feature was designed because we believe that it
will allow individual investors the opportunity to use the Fund's monthly
dividends and distributions to maximize their total earnings efficiently and
simply. The potentially high current income earned by the Fund's investments in
Australia can be multiplied for you through the compounding effect created by
reinvestment of distributions.
[Chart to come]
2
<PAGE>
Other advantages of participation in the Plan include:
- Lower costs--You will build holdings in the Fund automatically, at reduced
or no brokerage cost.
- Convenience--You will receive a detailed account statement from State
Street Bank, your Plan Agent, showing total dividends and distributions,
date of investment, shares acquired and price per share, as well as the
total shares of record held by you and by the Plan Agent for you.
- Safety--As long as you participate in the Plan, State Street Bank, as your
Plan Agent, will hold the shares it has acquired for you in safekeeping,
in
non-certificated form. This convenience provides added protection against
loss, theft or inadvertent destruction of certificates.
Toll Free Information
Information on The First Australia Prime Income Fund, Inc. is available on
a
recorded message from a toll-free number in the United States. The message
includes weekly updates of share price, NAV, and details of recent distributions
and announcements by the Directors. The number is 1-800-323-9995 (outside New
York) and is toll-free for calls made from within the United States.
Sincerely,
Sir Roden Cutler Brian M. Sherman
Chairman President
3
<PAGE>
REPORT OF THE INVESTMENT MANAGER
PERFORMANCE
Dividends and Distributions
During the twelve months to October 31, 1995, the Fund paid a total of
US$0.975 in dividends and distributions to common shareholders, consisting of
twelve payments of US7.5 cents per share and a special payment of US7.5 cents
per share in January, 1995. The Board's policy is to facilitate payment of a
stable monthly distribution out of current income and supplemented by realized
capital gains if required. The next dividend review is scheduled for the meeting
of the Board of Directors in March, 1996.
Based upon the October 31, 1995 share price of US$9.3125, and total dividends
and distributions paid over the past twelve months, the shares offered an annual
cash distribution rate of 10.5%. All dividends and distributions are paid after
the deduction of Australian and New Zealand withholding taxes.
Net Asset Value (NAV) Performance
The Net Asset Value (NAV) per share of the Fund at October 31, 1995 was
US$9.36. Assuming reinvestment of dividends and distributions, NAV increased by
9.2% over the three months to October 31, 1995, and increased by 18.5% over the
past twelve months. At the date of this report, NAV per share was US$9.19.
Share Price Performance
At October 31, 1995 the share price was US$9.3125, representing a 0.51%
discount to NAV. At the date of this report, the share price closed at
US$9.3125, representing a 1.3% premium to the NAV. The Fund's share price
return, assuming reinvestment of dividends and distributions, was 7.5% for the
quarter ended October 31, 1995, 24.3% over the past six months and 8.8% over the
past year.
Auction Market Preferred Stock (AMPS)
The Fund's AMPS continue to be well bid with an average interest rate over
the quarter of 5.76%, compared with 5.86% for 30 day U.S. Commercial Paper. On
July 27, 1995, a new issue of AMPS was completed, with net proceeds of
approximately $73.6 million. The proceeds were invested principally in medium
term bonds with an average yield of approximately 8.5% per annum.
Quality of Investments
The Fund has maintained a high credit quality. At October 31, 1995, 98% of
the Fund was invested in securities where either the issue or the issuer was
rated ``AA'' or better by Moody's Investors Service Inc. or Standard & Poor's.
The remaining 2% of the Fund was invested in securities where either the issue
or the issuer was rated ``A''. The table below shows the ratings of securities
held by the Fund as of October 31, 1995.
4
<PAGE>
<TABLE>
<CAPTION>
Ratings Australia & New Zealand U.S.
- ------------------------------------------------------
<S> <C> <C>
AAA 66% 100.0 %
AA 32% --
A 2% --
- ------------------------------------------------------
100.0% 100.0 %
- ------------------------------------------------------
</TABLE>
Portfolio Composition
The following table displays the geographical composition of the Fund's
investment portfolio over the twelve months to October 31, 1995.
<TABLE>
<CAPTION>
United
Date Australia New Zealand States
- ------------------------------------------------------------------------
<S> <C> <C> <C>
October 31, 1995 96% 3% 1%
July 31, 1995 93% 3% 4%
April 30, 1995 97% 2% 1%
January 31, 1995 97% 2% 1%
October 31, 1994 96% 2% 2%
- ------------------------------------------------------------------------
</TABLE>
The table following shows the maturity composition of the Fund's investments.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
- ---------------
Under 1 year to 6 years to
9 years
Date 1 year 6 years 9 years
and over
- -----------------------------------------------------------------------------
- ---------------
<S> <C> <C> <C>
<C>
October 31, 1995 7% 43% 21%
29%
July 31, 1995 11% 35% 29%
25%
April 30, 1995 7% 44% 33%
16%
January 31, 1995 6% 46% 33%
15%
October 31, 1994 5% 40% 40%
15%
<CAPTION>
- -----------------------------------------------------------------------------
- ---------------
</TABLE>
At October 31, 1995 the average maturity of the Fund's assets, including
cash, was 6.4 years. This compares with an average maturity of 6.4 years at
October 31, 1994 and 6.0 years at April 30, 1995.
The sectoral composition of the portfolio at October 31, 1995 was as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
- --------
State and Eurobonds &
Commercial
Government* Semi Govt.** Corporates
Banks***
- -----------------------------------------------------------------------------
- --------
<S> <C> <C> <C> <C>
Australia 29.3% 35.8% 31.1%
--
New Zealand 1.6% -- 1.1%
--
United States -- -- --
1.1%
<CAPTION>
----------- ------------ -----------
- ----------
Total 30.9% 35.8% 32.2%
1.1%
- -----------------------------------------------------------------------------
- --------
</TABLE>
* Includes supranational issues.
** Includes State Government Guaranteed Banks.
*** Includes cash held by the Fund's custodian and repurchase agreements.
5
<PAGE>
- --------------------------------------------------------------------------------
REVIEW AND OUTLOOK FOR THE AUSTRALIAN AND NEW ZEALAND
FINANCIAL MARKETS
- --------------------------------------------------------------------------------
AUSTRALIA
Economy
Economic growth moderated after peaking in the second half of 1994.
Australia's September quarter National Accounts showed annual GDP growth of
3.3%. While forward indicators suggest further moderation over the next three
months or so, there are some tentative signs amongst leading activity indicators
of a stronger growth outlook for 1996. The underlying inflation rate breached
the Reserve Bank's 2 to 3% target range in the September quarter, posting an
annual gain of 3.1%. Headline inflation is running at 5.1% reflecting, in part,
higher mortgage interest charges as a result of previous monetary policy moves.
Taxation changes have also boosted both the headline and underlying inflation
rates. The Reserve Bank has indicated that monetary policy will remain firm.
Fixed Income
The Australian bond market rallied strongly over the past quarter, with
government ten year bond yields falling from 9.4% to a low of 8.3%. The strength
reflected the positive global bond market environment and favorable domestic
economic fundamentals. Higher inflation data released in October pushed up
yields, with ten year government bonds finishing the quarter trading around
8.8%. Australian bonds continue to provide substantially higher yields than
comparable US fixed income securities.
Currency
Over the twelve months to the end of October, the Australian dollar
appreciated by 2.5% against the U.S. dollar. In the quarter ended October 31,
the Australian dollar appreciated 3.1% against the U.S. dollar. The stronger
Australian dollar trend reflects the sharp improvement in the monthly current
account deficit, a firmer outlook for commodity prices and supportive short-term
interest rates. At the end of October, the currency was trading at US$0.7608 and
on the date of this report it was at US$0.7396.
NEW ZEALAND
Economy
Tight monetary conditions in New Zealand are proving effective in slowing
growth from the rapid pace of 1994. September quarter inflation was at the top
end of the Reserve Bank of New Zealand's 0 to 2% target range but could
represent the peak in the current inflation cycle. The Bank has allowed monetary
conditions to ease as it expects inflation to trend lower.
Fixed Income
After weakening in the early part of the quarter, the New Zealand bond market
rallied strongly in line with global markets. Government ten year bond yields
fell to 7.2% by the end of October. Economic fundamentals remain positive for
the New Zealand bond market. New Zealand government ten year bonds yields remain
significantly below those available in Australia.
6
<PAGE>
Currency
After its strong performance over 1994 and the first half of 1995, the New
Zealand dollar has lost some momentum over recent months. Expectations of slower
growth and the Reserve Bank's decision to allow monetary conditions to ease have
removed some of the currency's appeal to foreign investors. Over the past twelve
months, the New Zealand dollar appreciated by 7.1% against the US dollar. At the
end of October, the currency was trading at US$0.6595 and at the time of this
report it was at US$0.6454.
The following table summarizes the movements of key interest rates in
Australia and New Zealand over the last twelve and three month periods.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
October 31, 1994 July 31, 1995 October 31, 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Australia:
90 day Bank
Bills 6.78% 7.62% 7.48%
10 year Bonds 10.51% 9.42% 8.78%
New Zealand:
90 day Bank
Bills 8.20% 8.90% 8.10%
10 year Bonds 9.03% 7.83% 7.23%
- ---------------------------------------------------------------------------
</TABLE>
EquitiLink International Management Limited
7
<PAGE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Portfolio of Investments
October 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<C> <S> <C>
LONG-TERM INVESTMENTS--121.0%
AUSTRALIA--118.5%
Government and Semi-government--80.5%
Commonwealth of Australia--36.9%
Australian Capital
Territory,
A$ 10,000 12.00%, 11/15/01............ $ 8,662,289
Commonwealth of Australia,
4,000 13.50%, 5/15/97............. 3,293,341
35,000 12.50%, 1/15/98............. 29,104,579
5,000 13.00%, 4/15/98............. 4,229,046
25,000 6.25%, 3/15/99.............. 18,065,139
15,000 14.00%, 4/15/99............. 13,419,215
35,000 12.00%, 7/15/99............. 29,959,868
50,000 7.00%, 4/15/00.............. 36,417,860
114,900 13.00%, 7/15/00............. 103,568,310
5,000 13.00%, 12/15/00............ 4,534,696
40,000 12.00%, 11/15/01............ 35,438,866
26,000 9.50%, 8/15/03.............. 20,790,347
125,000 7.50%, 7/15/05.............. 87,822,673
20,000 6.75%, 11/15/06............. 13,061,724
30,000 10.00%, 10/15/07............ 24,839,738
25,000 8.75%, 8/15/08.............. 18,750,428
Commonwealth Bank of
Australia,
75,000 12.00%, 7/15/99............. 63,994,302
Telecom,
14,000 12.00%, 9/1/98.............. 11,703,289
Treasury Adjustable Bond,
10,000 8.00%, 10/18/00 F.R.N....... 7,613,910
--------------
535,269,620
--------------
New South Wales--11.0%
New South Wales Treasury
Corporation,
55,400 12.50%, 4/1/97.............. 44,776,549
10,000 7.50%, 2/1/98............... 7,550,209
8,000 11.50%, 7/1/99.............. 6,736,893
27,000 12.00%, 12/1/01............. 23,858,377
10,000 7.00%, 4/1/04............... 6,826,105
30,000 6.50%, 5/1/06............... 18,877,443
54,000 12.60%, 5/1/06.............. 50,406,540
--------------
159,032,116
--------------
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
Northern Territory--2.4%
Northern Territory
Authority,
A$ 40,000 12.50%, 7/15/01............. $ 35,161,023
--------------
Queensland--7.2%
Queensland Treasury
Corporation,
35,000 8.00%, 5/14/97.............. 26,694,487
10,000 8.00%, 7/14/99.............. 7,576,251
10,000 8.00%, 8/14/01.............. 7,433,754
20,000 8.00%, 5/14/03.............. 14,587,077
20,000 6.50%, 6/14/05.............. 12,768,771
40,000 12.00%, 6/15/05............. 35,826,872
--------------
104,887,212
--------------
South Australia--6.2%
Electricity Trust of South
Australia,
5,000 13.00%, 10/1/05............. 4,701,159
South Australian Financing
Authority,
30,000 12.50%, 3/15/98............. 25,054,283
70,000 10.00%, 1/15/03............. 56,646,632
3,000 17.20%, 6/30/08............. 3,562,199
--------------
89,964,273
--------------
Tasmania--6.0%
Tasmanian Public Finance
Corporation,
13,000 12.50%, 1/15/01............. 11,520,599
94,000 9.00%, 11/15/04............. 71,299,931
5,000 11.00%, 4/15/06............. 4,219,117
--------------
87,039,647
--------------
Victoria--5.0%
Treasury Corporation of
Victoria,
30,000 12.50%, 7/15/00............. 26,468,910
36,000 12.50%, 10/15/03............ 33,080,089
15,500 10.25%, 11/15/06............ 12,757,804
--------------
72,306,803
--------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<C> <S> <C>
Western Australia--5.8%
Western Australia Treasury
Corporation,
A$ 10,000 12.50%, 4/1/98.............. $ 8,366,872
18,000 9.00%, 4/15/99.............. 14,066,159
34,000 12.00%, 8/1/01.............. 29,896,182
40,000 10.00%, 7/15/05............. 32,484,232
--------------
84,813,445
--------------
Total Australian government
and semi-government bonds
(cost US$1,125,144,156)..... 1,168,474,139
--------------
Eurobonds--22.8%
Diversified Industrials--1.1%
Australian National Railway,
4,000 9.50%, 2/25/99.............. 3,137,621
BMW Australia Finance,
1,700 10.25%, 3/17/97............. 1,322,999
Eksport Finance & Insurance,
8,000 11.00%, 12/29/04............ 6,776,942
Eksport Finans,
4,000 7.00%, 6/28/00.............. 2,825,651
Finnish Eksport Credit,
2,925 9.25%, 12/30/99............. 2,269,239
--------------
16,332,452
--------------
Natural Resources--0.4%
Mobil Australia Corp.,
1,000 12.00%, 4/18/97............. 798,677
Shell Australia,
5,000 10.125%, 4/1/97............. 3,890,947
1,786 10.00%, 12/19/97............ 1,401,641
--------------
6,091,265
--------------
Semi-Government--6.7%
Queensland Treasury
Corporation,
30,000 8.00%, 7/14/99.............. 22,653,890
45,000 8.00%, 8/14/01.............. 33,352,607
3,000 12.00%, 8/15/01............. 2,633,265
25,000 8.00%, 5/14/03.............. 18,147,876
15,000 10.50%, 5/15/03............. 12,336,904
South Australia Financing
Authority,
1,500 12.00%, 6/12/01............. 1,297,894
State Electricity Commission
of
Victoria,
1,000 12.25%, 5/30/01............. 872,490
3,000 11.00%, 4/9/02.............. 2,503,717
Tasmanian Public Finance
Authority,
2,000 10.75%, 11/20/01............ 1,646,533
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
Treasury Corporation of
Victoria,
A$ 2,000 11.00%, 3/12/02............. $ 1,667,942
--------------
97,113,118
--------------
Services--5.6%
Banque National de Paris,
14,000 9.00%, 8/13/02.............. 10,665,120
Commerzbank Overseas
Finance,
10,000 10.25%, 4/28/00............. 8,054,564
Commonwealth Bank of
Australia,
2,000 8.75%, 9/14/00.............. 1,538,592
Credit Lyonnais Australia,
5,000 8.625%, 12/29/97............ 3,801,801
GG Securities,
5,000 9.25%, 3/24/03.............. 3,830,084
McDonald's Australia,
1,000 10.50%, 11/5/98............. 800,534
Province Aples Cotes D'Azur,
12,000 8.25%, 9/15/99.............. 9,013,014
Province of Quebec,
16,000 9.50%, 10/2/02.............. 12,204,776
Rural & Industries Bank of
Western Australia,
5,000 8.75%, 9/9/99............... 3,843,436
2,000 7.75%, 6/9/03............... 1,418,026
State Bank of New South
Wales,
1,000 14.25%, 9/28/99............. 893,458
5,500 12.25%, 2/26/01............. 4,795,182
5,000 10.75%, 3/12/02............. 4,142,353
10,000 9.25%, 2/18/03.............. 7,744,311
State Bank of South
Australia,
10,000 9.50%, 10/15/02............. 7,812,631
--------------
80,557,882
--------------
Supranational Global--9.0%
Credit Locale de France,
10,000 7.50%, 9/15/97.............. 7,550,285
10,000 10.25%, 4/12/05............. 8,133,763
Eurofima,
56,170 9.875%, 1/17/07............. 45,137,790
European Bank of
Reconstruction &
Development,
50,000 9.00%, 10/15/02............. 38,462,884
European Investment Bank,
38,000 10.25%, 10/1/01............. 31,145,077
--------------
130,429,799
--------------
Total Australian eurobonds
(cost US$317,707,891)....... 330,524,516
--------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<C> <S> <C>
Corporate Bonds--15.2%
Asset-Backed--2.0%
FANMAC Limited,
Mortgage Series 25,
A$ 699 10.33%, 6/15/02............. $ 559,951
Premier Trust 22,
3,160 11.40%, 12/15/01............ 2,594,214
Mortgage Power Company,
15,000 8.4692%, 6/12/06 F.R.N...... 11,411,051
Securitized Australia
Mortgage Trust,
15,000 7.8324%, 11/15/25 F.R.N..... 11,378,756
Super Members Home Loan
Program,
5,000 7.8308%, 12/15/21 F.R.N..... 3,803,227
--------------
29,747,199
--------------
Services--13.2%
Australia Post,
20,000 7.62%, 3/25/99 F.R.N........ 15,214,735
Australian & Overseas
Telecommunication
Corporation,
55,350 12.50%, 11/15/00............ 48,915,148
40,000 11.50%, 10/15/02............ 34,192,375
2,000 7.80%, 7/17/03.............. 1,394,390
41,000 12.00%, 5/15/06............. 37,008,894
2,000 8.75%, 1/15/20.............. 1,389,856
10,000 10.50%, 1/15/20............. 7,986,017
2,000 12.50%, 1/15/20............. 1,941,951
Federal Airports
Corporation,
5,000 10.50%, 7/15/99............. 4,030,516
10,000 8.25%, 6/2/03............... 7,204,525
17,000 7.00%, 2/16/04.............. 11,151,755
Ford Credit Australia
Limited,
3,000 8.00%, 4/27/98 F.R.N........ 2,282,324
Gio Australia Holdings
Limited
14,500 7.99%, 11/16/98 F.R.N....... 11,031,345
Macquarie Bank Limited,
1,000 9.75%, 8/1/00............... 776,615
Primary Industry Bank of
Australia,
5,000 8.00%, 5/15/98.............. 3,782,191
5,000 6.75%, 2/25/99.............. 3,621,340
--------------
191,923,977
--------------
Total Australian corporate
bonds
(cost US$207,869,936)..... 221,671,176
--------------
Total Australian long-term
investments
(cost US$1,650,721,983)... 1,720,669,831
--------------
NEW ZEALAND--2.5%
Government Bonds--2.0%
New Zealand Government
Bonds,
NZ$ 5,000 10.00%, 7/15/97............. 3,432,929
20,000 10.00%, 3/15/02............. 15,058,234
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
Government Bonds (cont'd.)
New Zealand Government
Bonds,
NZ$ 15,000 8.00%, 11/15/06............. $ 10,479,918
--------------
Total New Zealand government
bonds
(cost US$28,065,179)...... 28,971,081
--------------
Eurobonds--0.5%
Telecom New Zealand Finance,
1,500 9.25%, 7/1/02............... 1,078,283
Transport Power Finance
Limited,
10,000 8.00%, 3/15/02.............. 6,765,284
--------------
Total New Zealand eurobonds
(cost US$7,756,955)......... 7,843,567
--------------
Total New Zealand long-term
investments
(cost US$35,822,134)...... 36,814,648
--------------
Total long-term investments
(cost US$1,686,544,117)..... 1,757,484,479
--------------
SHORT-TERM INVESTMENTS--6.7%
Australia--4.5%
Government and Semi-government--2.8%
Commonwealth of Australia--0.6%
Telecom,
A$ 10,000 13.00%, 2/1/96.............. 7,704,978
1,000 12.50%, 10/1/96............. 792,340
--------------
8,497,318
--------------
New South Wales--2.2%
New South Wales Treasury
Corporation,
10,500 8.50%, 3/1/96............... 8,004,352
State Bank of New South
Wales,
30,000 13.00%, 3/15/96............. 23,263,061
--------------
31,267,413
--------------
Total Australian government
and semi-government bonds
(cost US$39,247,333)...... 39,764,731
--------------
Eurobonds--0.9%
Services--0.1%
International Bank for
Reconstruction &
Development,
1,000 14.50%, 6/7/96.............. 788,238
Tasmanian Public Finance
Authority,
1,000 14.00%, 12/22/95............ 765,814
--------------
1,554,052
--------------
Supranational Global--0.8%
Swedish National Housing,
15,000 7.50%, 8/22/96.............. 11,384,461
--------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<C> <S> <C>
Total Australian eurobonds
(cost US$12,390,832)...... $ 12,938,513
--------------
Corporate Bonds--0.8%
Services
Macquarie Bank Limited,
A$ 10,000 14.20%, 1/3/96.............. 7,689,001
Securities Asset Funding
Entity,
5,000 12.10%, 7/10/96............. 3,912,820
ANZ Banking Group,
1,000 8.50%, 3/15/96.............. 763,117
--------------
Total Australian corporate
bonds
(cost US$13,269,956)...... 12,364,938
--------------
Total Australian short-term
investments
(cost US$64,908,121).... 65,068,182
--------------
NEW ZEALAND--0.8%
Corporate Bonds
National Bank of New
Zealand,
NZ$ 17,200 7.9179%, 1/30/96
(cost US$11,118,862)...... 11,118,862
--------------
United States--1.4%
US$ 20,763 Repurchase Agreement, State
Street Bank and Trust
Company, 5.78% 10/31/95,
due 11/1/95 in the amount
of $20,766,334 (cost
$20,763,000;
collateralized by
$20,640,000 United States
Treasury Note, 6.00%, due
12/31/97; value including
accrued interest
US$21,202,272)............ 20,763,000
--------------
Total short-term investments
(cost US$96,789,983)...... 96,950,044
--------------
Total Investments--127.7%
(cost US$1,783,334,100;
Note 3)................... 1,854,434,523
Other assets in excess of
other
liabilities--5.0%......... 72,770,587
Liquidation value of
preferred
stock--(32.7%)............ (475,000,000)
--------------
Net Assets Applicable to
Common
Shareholders--100%........ $1,452,205,110
--------------
--------------
</TABLE>
- ---------------
F.R.N.-Floating Rate Note. The interest rate reflected is the rate in effect at
October 31, 1995.
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Assets and Liabilities
October 31, 1995
- ----------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at value (cost
$1,783,334,100)..................... $1,854,434,523
Foreign currency, at value (cost
$50,373,077)........................ 50,683,528
Cash.................................. 89,340
Interest receivable................... 51,178,626
Other assets.......................... 74,590
--------------
Total assets...................... 1,956,460,607
--------------
Liabilities
Dividends payable-common stock........ 11,630,933
Payable for investments purchased..... 11,118,862
Withholding taxes payable............. 3,347,939
Accrued expenses and other
liabilities......................... 1,449,510
Dividends payable-preferred stock..... 719,474
Investment management fee payable..... 825,393
Administration fee payable............ 163,386
--------------
Total liabilities................. 29,255,497
--------------
Total Net Assets...................... $1,927,205,110
--------------
--------------
Total net assets were composed of:
Common stock:
Par value ($.01 per share,
applicable to
155,079,102 shares)............. $ 1,550,791
Paid-in capital in excess of
par............................. 1,370,164,651
Preferred stock ($.01 par value per
share and $100,000 liquidation
value per share applicable to
4,000 shares and $25,000 liquidation
value per share applicable to 3,000
shares; Note 4)................... 475,000,000
--------------
1,846,715,442
Undistributed net investment
income.............................. 12,065,169
Accumulated net realized gains on
investments....................... 5,217,167
Net unrealized depreciation on
investments......................... (21,830,550)
Accumulated net realized and
unrealized foreign exchange
gains............................. 85,037,882
--------------
Total net assets.................... $1,927,205,110
--------------
--------------
Net assets applicable to common
shareholders...................... $1,452,205,110
--------------
--------------
Net asset value per common share:
($1,452,205,110 / 155,079,102 shares
of common stock issued and
outstanding)........................ $9.36
--------------
--------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
11
<PAGE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Operations
Year Ended October 31, 1995
- ----------------------------------------------------------
<TABLE>
<S> <C>
Net Investment Income
Income
Interest and discount earned (net of
foreign
withholding taxes of
$11,591,620)....................... $147,796,119
------------
Expenses
Investment management fee............ 9,165,046
Custodian's fees and expenses........ 2,251,000
Administration fee................... 2,120,097
Auction agent's fees and expenses.... 1,230,000
Shareholder communications........... 810,000
Transfer agent's fees and expenses... 608,000
Directors' fees and expenses......... 460,000
Legal fees and expenses.............. 360,000
Independent accountant's fees and
expenses............................. 212,000
Insurance expense.................... 112,000
Miscellaneous........................ 55,483
------------
Total operating expenses............. 17,383,626
------------
Net investment income before excise
tax.................................. 130,412,493
Excise tax........................... (252,248)
------------
Net investment income.................. 130,160,245
------------
Realized and Unrealized
Gain on Investments
and Foreign Currencies
Net realized gain on investment
transactions......................... 18,189,710
Net change in unrealized depreciation
on investments....................... 89,317,008
------------
Net gain on investments................ 107,506,718
------------
Net increase in total net assets from
operations before net foreign
exchange gains....................... 237,666,963
Net realized and unrealized foreign
exchange gains....................... 54,519,666
------------
Net Increase In Total Net Assets
Resulting From Operations.............. $292,186,629
------------
------------
</TABLE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Cash Flows
Year Ended October 31, 1995
- ----------------------------------------------------------
<TABLE>
<S> <C>
Increase (Decrease) in Cash
(Including Foreign Currency)
Cash flows used for operating
activities
Interest received (net of foreign
withholding taxes)................. $ 140,412,986
Expenses paid........................ (16,867,851)
Sales of short-term portfolio
investments, net..................... 5,931,000
Purchases of long-term portfolio
investments.......................... (992,102,160)
Proceeds from sales of long-term
portfolio investments.............. 759,387,006
Other................................ 28,665
-------------
Net cash used for operating
activities....................... (103,210,354)
-------------
Cash flows provided from financing
activities
Net proceeds from issuance of
preferred shares................... 73,620,000
Net proceeds from rights offering.... 224,618,810
Dividends and distributions paid to
preferred shareholders............. (24,547,016)
Dividends and distributions paid to
common shareholders (net of
$7,688,453 paid in the issuance
of shares)......................... (124,854,077)
-------------
Net cash provided from financing
activities....................... 148,837,717
-------------
Effect of changes in exchange rate..... 852,330
-------------
Net increase in cash................... 46,479,693
Cash at beginning of year............ 4,645,594
-------------
Cash at end of year.................. $ 51,125,287
-------------
-------------
Reconciliation of Net Increase in Total
Net Assets from Operations to Net Cash
(Including Foreign Currency) Used For
Operating Activities
Net increase in total net assets
resulting from operations............ $ 292,186,629
-------------
Increase in investments.............. (237,903,017)
Increase in interest receivable...... (7,704,488)
Net decrease in other assets......... 28,665
Increase in accrued expenses and
other liabilities.................. 1,089,379
Increase in payable for investments
purchased.......................... 11,118,862
Net realized gain on investment
transactions....................... (18,189,710)
Net change in unrealized depreciation
on investments..................... (89,317,008)
Net realized and unrealized foreign
exchange gains..................... (54,519,666)
-------------
Total adjustments.................. (395,396,983)
-------------
Net cash used for operating
activities........................... $(103,210,354)
-------------
-------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
12
<PAGE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Changes in Net Assets
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31,
Increase (Decrease) -------------------------------
in Total Net Assets 1995 1994
<S> <C> <C>
-------------- --------------
Operations
Net investment income... $ 130,160,245 $ 125,416,048
Net realized gain on
investment
transactions.......... 18,189,710 29,213,379
Net change in unrealized
appreciation
(depreciation) on
investments........... 89,317,008 (310,171,836)
-------------- --------------
Net increase (decrease)
in total net assets
resulting from
operations before net
foreign exchange
gains................. 237,666,963 (155,542,409)
Net realized and
unrealized foreign
exchange gains........ 54,519,666 156,775,702
-------------- --------------
Net increase in total net
assets resulting from
operations.............. 292,186,629 1,233,293
-------------- --------------
Dividends to shareholders
from net investment
income
Common shares........... (114,007,842) (102,870,871)
Preferred shares........ (22,484,591) (14,114,110)
-------------- --------------
(136,492,433) (116,984,981)
-------------- --------------
Distributions to
shareholders
from net realized
capital gains
Common shares........... (20,904,930) (21,110,324)
Preferred shares........ (2,142,800) (1,577,675)
-------------- --------------
(23,047,730) (22,687,999)
-------------- --------------
Fund share transactions
Net proceeds from
issuance of preferred
shares................ 73,620,000 48,885,000
Net proceeds from rights
offering of Fund
shares................ 224,618,810 156,956,449
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions and in
connection with
dividends paid in
stock................. 7,688,453 21,145,354
-------------- --------------
305,927,263 226,986,803
-------------- --------------
Total increase............ 438,573,729 88,547,116
Total Net Assets
Beginning of year......... 1,488,631,381 1,400,084,265
-------------- --------------
End of year............... $1,927,205,110 $1,488,631,381
-------------- --------------
-------------- --------------
</TABLE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
Notes to Financial Statements
- ----------------------------------------------------------
The First Australia Prime Income Fund, Inc. (the ``Fund'') was incorporated
in Maryland on March 14, 1986 as a closed-end, non-diversified investment
company. The Fund's investment objective is current income through investment
primarily in Australian debt securities. The Fund may also achieve incidental
capital appreciation. It is expected that normally at least 65% of the Fund's
total assets will be invested in Australian dollar denominated debt securities
of Australian banks and federal and state governmental and corporate entities.
To achieve its investment objective, the Fund may invest the remainder of its
assets in debt securities of comparable quality which are denominated in
Australian or New Zealand dollars of other issuers, whether or not domiciled in
Australia or New Zealand, and in U.S. Government securities and corporate and
bank debt securities of U.S. issuers rated Aa or Prime-2 or better by Moody's
Investors Service, Inc. (``Moody's'') or AA or A-2 or better by Standard &
Poor's Corporation (``S&P''). It is the Fund's policy to limit its investments,
as to 65% of its total assets, to issuers of debt securities rated AA or better
by S&P--Australian Ratings Pty. Ltd. or S&P or Aa or better by Moody's or which,
in the judgement of the Investment Manager, are of equivalent quality. The
remainder of the Fund's investments will be rated A by those rating agencies or,
if unrated, will in the Investment Manager's judgement be of equivalent quality.
The ability of issuers of debt securities, including foreign currency balances
on deposit with the Fund's Australian and New Zealand subcustodian banks, 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 The following is a summary of
Policies 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 based on prices provided by
a
pricing service or the lower of the quotations from two leading Australian or
New Zealand brokers in the debt securities market, in the event that
See Notes to Financial Statements.
13
<PAGE>
a price cannot be obtained by the pricing service. Securities for which market
quotations are not readily available are valued at fair value using methods
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.
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$'') and New Zealand dollar
(``NZ$'') amounts are translated into United States dollars on the following
basis:
(i) market value of investment securities, other assets and liabilities
at
the exchange rates at the end of the fiscal year;
(ii) purchases and sales of investment securities, income and expenses at
the rates of exchange prevailing on the respective dates of such
transactions.
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 the securities held at fiscal year end.
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 fiscal year.
Net realized and unrealized foreign exchange gains of $54,519,666 include
realized foreign exchange gains and losses from sales and maturities of
portfolio securities, sales of foreign currencies, currency gains or losses
realized between the trade and settlement dates on securities transactions, the
difference between the amounts of interest, discount and foreign withholding
taxes recorded on the Fund's books and the US dollar equivalent amounts actually
received or paid and changes in unrealized foreign exchange gains and losses in
the value of portfolio securities and other assets and liabilities arising as
a
result of changes in the exchange rate. Accumulated net realized and unrealized
foreign exchange gains shown in the composition of net assets at October 31,
1995 represent foreign exchange gains for book purposes that have not yet been
recognized for tax purposes.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin, including
unanticipated movements in the value of the foreign currency relative to the
U.S. dollar.
The exchange rate at October 31, 1995 was US$.7608 to A$1.00 for the
Australian dollar and US$.6595 to NZ$1.00 for the New Zealand 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.
Interest income is recorded on an accrual basis. Discounts on short-term
securities are accreted over the life of the security.
Dividends and Distributions: It is the Fund's current policy to pay dividends
from net investment income monthly. The Fund will also declare and pay
distributions at least annually from net realized gains on investment
transactions and net realized foreign exchange gains, if any. Dividends and
distributions to common shareholders are recorded on the ex-dividend date.
Dividends and distributions to preferred shareholders are accrued on a weekly
basis and are determined as described in Note 4.
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, loss deferrals and recognition of
market discount.
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
or transactions in New Zealand dollars are recognized for tax purposes.
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 fiscal year. Australia and New Zealand impose
a
withholding tax of 10% on most interest and discount earned.
Cash Flow Information: The Fund invests in securities and distributes dividends
from net investment income and net realized gains from investment and currency
transactions which are paid in cash or are reinvested at the discretion of
14
<PAGE>
shareholders. These activities are reported in the Statement of Changes in Net
Assets and additional information on cash receipts and cash payments is
presented in the Statement of Cash Flows. Cash includes domestic and foreign
currency.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with 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 fiscal year ended October 31, 1995, the Fund increased undistributed
net investment income by $10,559,903, decreased accumulated net realized gains
on investments by $2,500,322, decreased accumulated net realized foreign
exchange gains by $7,807,333 and decreased paid-in capital in excess of par by
$252,248. 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''), The Prudential Insurance Company of America (the ``Consultant''),
and Prudential Mutual Fund Management, Inc. (the ``Administrator''). The
Investment Manager and the Investment Adviser are affiliated companies; the
Administrator is an indirect wholly-owned subsidiary of the Consultant.
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 and the Consultant, including the selection of and the placement of
orders with brokers and dealers to execute portfolio transactions on behalf of
the Fund.
The management agreement provides the Investment Manager with a fee, computed
weekly and payable monthly, at the following annual rates: 0.65% of the Fund's
average weekly total net assets of common and preferred shareholders up to $200
million, 0.60% of such assets between $200 million and $500 million, 0.55% of
such assets between $500 million and $900 million and 0.50% of such assets in
excess of $900 million. The administration agreement provides the Administrator
with a fee at the annual rate of 0.15% of the Fund's average weekly total net
assets of common and preferred shareholders up to $900 million and 0.10% of such
assets in excess of $900 million. The Investment Manager pays fees to the
Investment Adviser and the Consultant for their services rendered. The
Investment Manager informed the Fund that it paid $3,952,767 to the Investment
Adviser and $701,026 to the Consultant during the fiscal year ended October 31,
1995.
Note 3. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for the fiscal year ended
October 31, 1995 aggregated $992,102,160 and $759,387,006, respectively.
The United States federal income tax basis of the Fund's investments at
October 31, 1995 was $1,878,746,238 and accordingly, net unrealized depreciation
for United States federal income tax purposes was $24,311,715 (gross unrealized
appreciation--$30,095,810; gross unrealized depreciation--$54,407,525).
Note 4. Capital There are 200 million shares
of common stock authorized. Of the 155,079,102
common shares outstanding at October 31, 1995, the Investment Manager owned
41,153 shares.
In connection with a rights offering, shareholders of record on March 17,
1995 were issued one-fifth of a non-transferable right for each full share of
common stock owned, entitling shareholders the opportunity to acquire one newly
issued share of common stock for every whole right held at a subscription price
equal to a 5% discount from the lesser of net asset value on the expiration date
(April 20, 1995) or the average market value on that date and the three business
days preceding the expiration date. On May 5, 1995 the Fund issued 30,723,350
shares of common stock at $7.64 per share. Rights offering costs of $1,305,345
($.01 per share) and brokerage and dealer-manager commissions of $8,802,239
($.06 per share) were charged to paid-in capital of common shareholders
resulting in net proceeds to the Fund of $224,618,810. The net asset value per
share of the Fund's common shareholders was reduced by approximately $0.38 per
share as a result of this share issuance. Prudential Securities Incorporated,
an
affiliate of the Consultant and the Administrator, and its financial advisors
earned approximately $1,772,000 of the aforementioned commissions with respect
to its participation in the rights offering.
The Fund also issued 177,377 shares during the fiscal year ended October 31,
1995 in connection with the reinvestment of dividends and distributions paid to
shareholders enrolled in the dividend reinvestment plan and 702,496 shares in
connection with a cash dividend paid in stock.
During the fiscal year ended October 31, 1994 the Fund issued 17,311,869
shares of common stock (net proceeds $156,956,449) in connection with a rights
offering of the Fund's shares. The Fund also issued 2,128,167 shares during the
fiscal year ended October 31, 1994 in connection with the reinvestment of
dividends and distributions paid to shareholders enrolled in the dividend
reinvestment plan.
15
<PAGE>
There are 100 million shares of $.01 par value of preferred stock authorized
with an aggregate liquidation preference of up to $500 million. The preferred
shares have rights as determined by the Board of Directors. The 7,000 shares of
Auction Market Preferred Stock (``Preferred Stock'') outstanding consist of
seven series as follows: Series A--750 shares, Series B--750 shares, Series
C--500 shares, Series D--1,000 shares, Series E--500 shares, Series F--500
shares and Series G--3,000 shares. Series F preferred shares wrere issued on
December 20, 1993, (net proceeds $48,885,000). On July 27, 1995 the Fund issued
$75,000,000 in liquidation value of Series G preferred shares. Preferred share
offering costs of $255,000 and underwriting discounts of $1,125,000 were charged
to paid-in capital of common shareholders resulting in net proceeds to the Fund
of $73,620,000. Prudential Securities Incorporated advised the Fund that it
received approximately $562,500 in underwriting fees in connection with the
Series G preferred share offering. The Series A through F Preferred Stock has
a
liquidation value of $100,000 per share plus any accumulated but unpaid
dividends and the Series G Preferred Stock has a liquidation value of $25,000
per share plus any accumulated but unpaid dividends.
Dividends on each series of preferred shares are cumulative at a rate
established at the initial public offering and are typically reset every 28 days
for Series A through D and every seven days for Series E through G based on the
results of an auction. Dividend rates ranged from 4.80% to 6.625% during the
fiscal year ended October 31, 1995. Under the Investment Company Act of 1940,
the Fund may not declare dividends or make other distributions on shares of
common stock or purchase any such shares if, at the time of the declaration,
distribution or purchase, asset coverage with respect to the outstanding
Preferred Stock would be less than 200%.
The Preferred Stock is redeemable at the option of the Fund, in whole or in
part, on any dividend payment date at liquidation value plus any accumulated but
unpaid dividends. The Preferred Stock is also subject to mandatory redemption
at
liquidation value plus any accumulated but unpaid dividends if certain
requirements relating to the composition of the assets and liabilities of the
Fund as set forth in the Articles of Incorporation are not satisfied.
The holders of Preferred Stock have voting rights equal to the holders of
common stock (one vote per share) and will vote together with holders of shares
of common stock as a single class. However, holders of Preferred Stock are also
entitled to elect two of the Fund's directors.
Note 5. Dividends On November 13, 1995 the
and Distributions Board of Directors of the Fund
declared a distribution from undistributed net
investment income of $.075 per common share payable on December 15, 1995 to
common shareholders of record on November 30, 1995. On December 12, 1995 the
Board of Directors of the Fund declared a distribution of $.075 per common share
comprised of $.032 per share from capital gains and $.043 per share from net
investment income payable on January 12, 1996 to shareholders of record on
December 29, 1995.
Subsequent to October 31, 1995, dividends and distributions declared and paid
on preferred shares totalled approximately $3,191,500 for the seven outstanding
preferred share series in the aggregate through December 12, 1995.
16
<PAGE>
Note 6.
Quarterly Data
(Unaudited)
<TABLE>
<CAPTION>
Net realized and
Net increase
unrealized
(decrease) Dividends
gains (losses) on
in net assets and
Net investment investments and
resulting from distributions
income foreign currencies
operations Common
Per Per
Per
Quarterly Total common
common common shares
period income Amount share Amount share
Amount share Amount
- ----------- ----------- ----------------------
- ----------------------- ----------------------- -----------
<S> <C> <C> <C> <C> <C>
<C> <C> <C>
11/1/93 to
1/31/94 $35,611,751 $31,643,294 $.26 $ 96,221,242 $ .78
$127,864,536 $1.04 $32,858,529
2/1/94 to
4/30/94 35,940,426 31,877,989 .26 (134,738,538) (1.10
) (102,860,549) (.84 ) 31,166,968
5/1/94 to
7/31/94 35,375,916 31,328,526 .25 (35,788,451) (.29
) (4,459,925) (.04 ) 30,382,609
8/1/94 to
10/31/94 35,030,311 30,566,239 .24 (49,877,008) (.42
) (19,310,769) (.18 ) 29,573,089
11/1/94 to
1/31/95 34,633,348 30,535,230 .22 35,683,598 .26
66,218,828 .48 37,148,664
2/1/95 to
4/30/95 34,066,973 29,863,113 .21 (16,000,067) (.12
) 13,863,046 .09 27,980,044
5/1/95 to
7/31/95 38,962,050 34,485,255 .25 44,665,313 .32
79,150,568 .57 34,892,032
8/1/95 to
10/31/95 40,133,748 35,276,647 .25 97,677,540 .70
132,954,187 .95 34,892,032
<CAPTION>
Common
share price
on the
Preferred shares American
Per Per Stock
Quarterly common common Exchange
period share Amount share High Low
- ----------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
11/1/93 to
1/31/94 $.27 $3,056,070 $.03 $11 $10
2/1/94 to
4/30/94 .25 3,507,996 .03 11 9 7/8
5/1/94 to
7/31/94 .25 4,301,424 .03 10 13/16 10
8/1/94 to
10/31/94 .24 4,826,295 .04 10 5/8 9
11/1/94 to
1/31/95 .30 5,561,027 .05 9 9/16 8
2/1/95 to
4/30/95 .225 6,112,523 .05 8 7/8 7 1/2
5/1/95 to
7/31/95 .225 6,021,369 .04 9 7 13/16
8/1/95 to
10/31/95 .225 6,932,472 .04 9 7/16 8 3/4
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended October 31,
- -------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1995* 1994
1993 1992 1991
----------
- ---------- ---------- -------- --------
<S> <C> <C>
<C> <C> <C>
Net asset value per common share, beginning of
year............................................... $ 8.82 $
10.09 $ 9.61 $ 11.31 $ 10.02
----------
- ---------- ---------- -------- --------
Net investment income................................ .93
1.01 1.19 1.29 1.40
Net realized and unrealized gain (loss) on
investments and foreign currencies................. 1.16
(1.03) .58 (1.42) 1.37
----------
- ---------- ---------- -------- --------
Total from investment operations................... 2.09
(.02) 1.77 (.13) 2.77
----------
- ---------- ---------- -------- --------
Dividends from net investment income to preferred
shareholders....................................... (.17)
(.12) (.11) (.14) (.24)
Dividends from net investment income to common
shareholders....................................... (.83)
(.84) (1.08) (1.10) (1.24)
Distributions from net capital and currency gains to
preferred shareholders............................. (.01)
(.01) (.01) (.01) --
Distributions from net capital and currency gains to
common shareholders................................ (.15)
(.17) (.08) (.29) --
----------
- ---------- ---------- -------- --------
Total dividends and distributions.................. (1.16)
(1.14) (1.28) (1.54) (1.48)
----------
- ---------- ---------- -------- --------
Capital charge in respect to issuance of shares...... (.39)
(.11) (.01) (.03) --
----------
- ---------- ---------- -------- --------
Net asset value per common share, end of year........ $ 9.36 $
8.82 $ 10.09 $ 9.61 $ 11.31
----------
- ---------- ---------- -------- --------
----------
- ---------- ---------- -------- --------
Market price per common share, end of year........... $ 9.31 $
9.56 $ 10.25 $ 10.00 $ 10.94
----------
- ---------- ---------- -------- --------
----------
- ---------- ---------- -------- --------
TOTAL INVESTMENT RETURN BASED ON(D):
Market value......................................... 8.78%
3.32% 15.00% 4.11% 38.36%
Net asset value...................................... 18.54%
(3.19)% 17.80% (3.22)% 27.62%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS/SUPPLEMENTAL DATA#:
Expenses(D)(D)....................................... 1.47%
1.41% 1.44% 1.43% 1.59%
Net investment income before preferred stock
dividends.......................................... 10.83%
10.68% 12.13% 12.14% 13.42%
Preferred stock dividends............................ 1.87%
1.20% 1.13% 1.25% 2.31%
Net investment income available to common
shareholders....................................... 8.96%
9.48% 11.00% 10.89% 11.11%
Portfolio turnover rate.............................. 50%
34% 23% 17% 83%
Net assets of common shareholders, end of period (000
omitted)........................................... $1,452,205
$1,088,631 $1,050,084 $977,933 $972,569
Average net assets of common shareholders (000
omitted)........................................... $1,201,383
$1,174,394 $1,011,324 $938,072 $899,175
Senior securities (preferred stock) outstanding (000
omitted)........................................... $ 475,000 $
400,000 $ 350,000 $300,000 $300,000
Asset coverage of preferred stock at year end........ 406%
372% 400% 426% 424%
</TABLE>
- ---------------
* Calculated based upon weighted average shares outstanding during the
year.
(D) Total investment return is calculated assuming a purchase of common
stock on the first day and a sale on the last day of each year
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.
(D)(D) Includes expenses of both preferred and common stock.
# Ratios calculated on the basis of income, expenses and preferred share
dividends applicable to both the common and preferred shares relative
to the average net assets of common shareholders.
NOTE: Contained above is operating performance for a share of common stock
outstanding, total investment return, ratios to average net assets of
common shareholders and other supplemental data for each of the years
indicated. This information has been determined based upon financial
information provided in the financial statements and market value data
for the Fund's common shares.
See Notes to Financial Statements.
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
The First Australia Prime Income Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations, of cash
flows and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of The First Australia Prime
Income Fund, Inc. (the ``Fund'') at October 31, 1995, the results of its
operations and its cash flows for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as ``financial statements'') are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1995 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
December 11, 1995
19
<PAGE>
FEDERAL TAX INFORMATION:
DIVIDENDS AND DISTRIBUTIONS
As required by Internal Revenue Code regulations, we are to advise you within
60 days of the Fund's fiscal year end (October 31, 1995) as to the tax status
of
dividends, distributions and foreign tax credits paid by the Fund during the
fiscal year. During fiscal year 1995, the Fund paid dividends from net
investment income and short-term capital gains which are taxable as ordinary
income. These dividends do not qualify for the 70% dividends received deduction
for corporations. The Fund also paid distributions from long-term capital gains
which are taxable as such.
The Fund has elected to give the benefit of foreign tax credits to its
shareholders in the amount designated below on a per share basis. Accordingly,
shareholders who must report their gross income dividends and distributions in
a
federal income tax return will be entitled to a foreign tax credit, or an
itemized deduction, in computing their U.S. income tax liability. It is
generally more advantageous to claim a credit rather than to take a deduction.
The following table allocates the dividends and distributions paid by their
sources:
<TABLE>
<CAPTION>
Dividend
Foreign
and
Gross Taxes
Distributions
Common Shares Amount Paid
Paid
- --------------------------------------------------------------------------------
<S> <C> <C>
<C>
Ordinary Income:
Australia $ 0.8790 $0.0770
$ 0.8020
United States 0.0065 --
0.0065
New Zealand 0.0165 --
0.0165
Capital Gains: Short-Term 0.004 --
0.004
Long-Term 0.146 --
0.146
--------- -------
-------------
$ 1.0520 $0.0770
$ 0.9750
--------- -------
-------------
--------- -------
-------------
</TABLE>
<TABLE>
<CAPTION>
Preferred Shares
- --------------------------------------------------------------------------------
<S> <C> <C>
<C>
Series A:
Ordinary Income:
Australia $5,017.55 $474.73
$4,542.82
United States 42.30 --
42.30
New Zealand 106.84 --
106.84
Capital Gains: Long-Term 641.31 --
641.31
--------- -------
-------------
$5,808.00 $474.73
$5,333.27
--------- -------
-------------
--------- -------
-------------
Series B:
Ordinary Income:
Australia $5,023.97 $475.27
$4,548.70
United States 42.35 --
42.35
New Zealand 106.96 --
106.96
Capital Gains: Long-Term 641.31 --
641.31
--------- -------
-------------
$5,814.59 $475.27
$5,339.32
--------- -------
-------------
--------- -------
-------------
Series C:
Ordinary Income:
Australia $4,958.95 $469.82
$4,489.13
United States 41.86 --
41.86
New Zealand 105.73 --
105.73
Capital Gains: Long-Term 641.31 --
641.31
--------- -------
-------------
$5,747.85 $469.82
$5,278.03
--------- -------
-------------
--------- -------
-------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Dividend
Foreign
and
Gross Taxes
Distributions
Preferred Shares Amount Paid
Paid
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Series D:
Ordinary Income:
Australia $5,057.16 $478.06
$4,579.10
United States 42.59 --
42.59
New Zealand 107.59 --
107.59
Capital Gains: Long-Term 641.31 --
641.31
--------- -------
- -------------
$5,848.65 $478.06
$5,370.59
--------- -------
- -------------
--------- -------
- -------------
Series E:
Ordinary Income:
Australia $4,949.38 $469.01
$4,480.37
United States 41.79 --
41.79
New Zealand 105.55 --
105.55
Capital Gains: Long-Term 641.31 --
641.31
--------- -------
- -------------
$5,738.03 $469.01
$5,269.02
--------- -------
- -------------
--------- -------
- -------------
Series F:
Ordinary Income:
Australia $4,984.69 $471.97
$4,512.72
United States 42.05 --
42.05
New Zealand 106.22 --
106.22
Capital Gains: Long-term 641.31 --
641.31
--------- -------
- -------------
$5,774.27 $471.97
$5,302.30
--------- -------
- -------------
--------- -------
- -------------
Series G:
Ordinary Income:
Australia $ 105.54 $ 22.30
$ 83.24
United States 1.99 --
1.99
New Zealand 5.02 --
5.02
Capital Gains: Long-term 160.33 --
160.33
--------- -------
- -------------
$ 272.88 $ 22.30
$ 250.58
--------- -------
- -------------
--------- -------
- -------------
</TABLE>
Although the Fund has made the election required to make this credit or
deduction available to you, the amount of allowable tax credit is subject to
Section 904 of the Internal Revenue Code. Shareholders are advised to consult
their own tax advisers with respect to the tax consequences of their investment
in the Fund.
In January 1996 shareholders will receive Form 1099-DIV, or substitute
1099-DIV, which will reflect the amount of dividends and distributions and
foreign taxes to be used by calendar year taxpayers on their 1995 federal
income tax returns.
21
<PAGE>
OTHER INFORMATION
Dividend Reinvestment and Cash Purchase Plan. Shareholders may elect to have
all distributions of dividends and capital gains automatically reinvested in
Fund shares pursuant to the Fund's Dividend Reinvestment and Cash Purchase Plan
(the Plan). Shareholders who do not participate in the Plan will receive all
distributions in cash paid by check in United States dollars mailed directly to
the shareholders of record (or if the shares are held in street or other nominee
name, then to the nominee) by the custodian, as dividend disbursing agent.
Shareholders who wish to participate in the Plan should contact the Fund at
(800) 451-6788.
State Street Bank & Trust Co. (the Plan Agent) serves as agent for the
shareholders in administering the Plan. Dividends and capital gains
distributions payable to Plan Participants will be promptly invested. If the
Fund declares an income dividend or capital gains distribution payable in stock
to shareholders who are not Plan participants, then Plan participants will
receive that dividend or distribution in newly issued shares on identical terms
and conditions.
In every other case Plan Participants will receive shares on the following
basis: If the market price of the Fund's common stock plus any brokerage
commission is equal to or exceeds net asset value, Plan participants will
receive newly issued shares valued at the greater of net asset value or 95% of
current market price. If, on the other hand, the net asset value plus any
brokerage commission exceeds the market price, the Plan Agent will buy shares
in
the open-market. If the market price plus any applicable brokerage commission
exceeds net asset value before the Plan Agent has completed its purchases, the
Fund will issue new shares to complete the program. All reinvestments are in
full and fractional shares carried to three decimal places.
There is no charge to participants for reinvesting dividends or capital gain
distributions, except for certain brokerage commissions, as described below. The
Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Fund. There will be no brokerage commissions
charged with respect to shares issued directly by the Fund. However, each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases in connection with the
reinvestment of dividends and distributions. The automatic reinvestment of
dividends and distributions will not relieve participants of any federal income
tax that may be payable on such dividends and distributions.
The Plan also allows participants to make optional cash investments in Fund
shares through the Plan Agent on the open market.
The Fund reserves the right to amend or terminate the Plan either in full or
partially upon 90 days' written or telephone notice to shareholders of the Fund.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent and will receive certificates for whole Shares and cash for
fractional Shares either in full or partially. In the alternative, by giving
proper notice to the Plan Agent, participants may receive cash in lieu of shares
in an amount which is reduced by brokerage commissions incurred in connection
with the sale of shares and a $2.50 service fee.
All correspondence concerning the Plan should be directed to the Plan Agent,
State Street Bank & Trust Company, P.O. Box 8200, Boston, MA 02266-8200.
22
<PAGE>
Directors
Anthony E. Aaronson
John A. Calvert-Jones
Sir Roden Cutler
David Lindsay Elsum
Rt. Hon. Malcolm Fraser
Laurence S. Freedman
Michael R. Horsburgh
Harry A. Jacobs, Jr.
Howard A. Knight
Roger C. Maddock
David Manor
William J. Potter
Peter D. Sacks
John T. Sheehy
Brian M. Sherman
Marvin Yontef
Officers
Brian M. Sherman, President
Laurence S. Freedman, Vice President
Ouma Sananikone-Fletcher, Assistant Vice President
and Chief Investment Officer
David Manor, Treasurer
Roy M. Randall, Secretary
Eugene S. Stark, Assistant Treasurer
Barry G. Sechos, Assistant Treasurer
Kenneth T. Kozlowski, Assistant Treasurer
Allan S. Mostoff, Assistant Secretary
Margaret A. Bancroft, Assistant Secretary
This report, including the financial statements herein, is transmitted to the
shareholders of The First Australia Prime Income Fund, Inc. for their
information. This is not a prospectus, circular or representation intended for
use in the purchase of shares of the Fund or any securities mentioned in this
report.
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.
<PAGE>
- ------------------------------------------------------
Investment Manager
EquitiLink International Management Limited
Union House, Union Street
St. Helier, Jersey, Channel Islands
Investment Adviser
EquitiLink Australia Limited
190 George Street
Sydney, NSW 2000, Australia
Consultant
The Prudential Insurance Company of America
Prudential Plaza
Newark, New Jersey 07101
Administrator
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, New York 10292
Custodian and Transfer Agent
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Auction Agent
Chemical Bank
450 West 33rd Street
New York, New York 10001
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
Legal Counsel
Dechert Price & Rhoads
1500 K Street N.W.
Washington, D.C. 20005
Freehill, Hollingdale and Page
19-29 Martin Place
Sydney, NSW 2000, Australia
One Seaport Plaza
New York, NY 10292
for information call toll-free (800) 451-6788
collect (212) 214-5572
or for information regarding net asset value
(800) 451-6788
The common shares of The First Australia Prime Income Fund, Inc. are
traded on the American Stock Exchange and on the Pacific Stock Exchange
under the symbol ``FAX''. 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.
For a weekly update of the Fund's net asset value and share price, or to
receive more information on the Fund, call toll-free:
1-800-323-9995
318653102
<PAGE>
