<PAGE>
(R)
The First Australia
Prime Income
Fund, Inc.
- -------------------------------------------------------------------
Semi-Annual Report
April 30, 1997
Highlights
- - The Fund's share price return was 16.3% over the
past twelve months (assuming reinvestment of
dividends and distributions)
- - 97% of the Fund's investments rated AAA/AA
- - Cash distribution rate of 9.3% over the
twelve months to April 30, 1997
<PAGE>
LETTER TO SHAREHOLDERS
June 12, 1997
Dear Shareholder,
We are pleased to present this Semi-Annual Report which covers the activities
of The First Australia Prime Income Fund, Inc. for the six months ended April
30, 1997. 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.
Investment Performance
Weakness in the Australian dollar against the US dollar and modest
performance by the Australian fixed income market led to a Net Asset Value (NAV)
decline of 0.1% for the six months to April 30, 1997, assuming reinvestment of
dividends and distributions. For the year to April 30, 1997, the Fund's NAV
increased by 7.8%, again assuming reinvestment of dividends and distributions.
The Fund's share price return was 6.2% over the past six months and 16.3% over
the past twelve months to April 30, 1997, assuming reinvestment of dividends and
distributions.
Distributions
Distributions over the past twelve months totalled US$0.84 per share. Based
upon the share price of US$9.0625 at April 30, 1997, the cash distribution rate
over the twelve months to April 30, 1997 was 9.3%. Since all distributions are
paid after the deduction of Australian and New Zealand withholding taxes, the
effective yield is higher for those US investors who are able to claim a tax
credit.
Investment Markets
The Australian fixed income market performed strongly through to December,
supported by a further cut in official interest rates. However, the market
subsequently weakened on signs of stronger Australian economic growth and
weakness in the US fixed income market. Over the six months to April, ten year
government bond rates rose from 7.35% to 7.83%, but 90 day bank bill rates fell
from 6.53% to 5.91%. The New Zealand fixed income market also weakened over the
six months to April. Ten year government bond rates rose from 7.29% to 7.85%.
The Investment Manager anticipated this weakness and reduced exposure to New
Zealand over this period.
Prospects for the Australian fixed income market remain positive. This
reflects a low inflation outlook and an improving Federal budget position. In
addition, Australian bond rates remain higher than those available in the United
States.
Over the six months to the end of April, the Australian dollar depreciated by
1.4% against the US dollar to US$0.7816. The most significant factors affecting
currency were changing perceptions about the strength of commodity prices and
the future direction of interest rates. As of the date of this report, the
Australian dollar was trading at US$0.7513
1
<PAGE>
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.
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 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 on your behalf.
- 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.
The following chart shows that shareholders who invested US$10,000 on April
30, 1992 and have taken advantage of the Dividend Reinvestment Plan, have
achieved an outstanding compounded return.
(CHART)
How to Participate
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 re-register
your shares in your own name which will enable you to participate in the Plan.
2
<PAGE>
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,
Laurence S. Freedman
Brian M. Sherman
Chairman President
REPORT OF THE INVESTMENT MANAGER
PERFORMANCE
Distributions
During the twelve months to April 30, 1997, the Fund paid a total of US$0.84
per share in distributions, consisting of twelve monthly payments of US 7 cents
per share. The Board's policy is to facilitate payment of a stable monthly
distribution out of current income supplemented, if required, by any realized
capital gains. The current monthly distribution of US 7 cents per share was
reviewed in June by the Board and remains unchanged. The next dividend review is
scheduled for the meeting of the Board of Directors to be held in September
1997.
Based upon the April 30, 1997 share price of US$9.0625, and total
distributions paid over the past twelve months, the shares provided an annual
cash distribution rate of 9.3%. All 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 April 30, 1997 was
US$9.47. Assuming reinvestment of dividends and distributions, NAV decreased by
0.1% over the six months and increased by 7.8% over the past twelve months to
April 30, 1997. At the date of this report, the NAV per share was US$9.35.
Share Price Performance
At April 30, 1997 the share price was US$9.0625, representing a 4.3% discount
to NAV. At the date of this report, the share price closed at US$9.25,
representing a 1.1% discount to the NAV. The Fund's total investment return
based on share price, assuming reinvestment of dividends and distributions, was
6.2% for the six months and 16.3% for the past twelve months ended April 30,
1997.
3
<PAGE>
Auction Market Preferred Stock (AMPS)
The Fund's AMPS continue to be well bid with an average interest rate over
the quarter of 5.21%, compared with 5.53% for 30-day US Commercial Paper.
Quality of Investments
The Fund has maintained a high credit quality. At April 30, 1997, 97% of the
Fund's investments were in securities where either the issue or the issuer was
rated 'Aa' or better by Moody's Investors Service, Inc. or 'AA' or better by
Standard & Poors or, if unrated, were judged to be of equal quality by the
Investment Manager. The remaining 3% 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 April 30, 1997.
<TABLE>
<CAPTION>
Ratings Australia & New Zealand U.S.
<S> <C> <C>
- ------------------------------------------------------
AAA 71% 100 %
AA 26% --
A 3% --
- ------------------------------------------------------
Total 100% 100 %
- ------------------------------------------------------
</TABLE>
Portfolio Composition
The following table displays the geographic composition of the Fund's
investment portfolio over the twelve months to April 30, 1997.
<TABLE>
<CAPTION>
United
Date Australia New Zealand States
<S> <C> <C> <C>
- ------------------------------------------------------------------------
April 30, 1997 98% 1% 1%
January 31, 1997 95% 5% --
October 31, 1996 94% 5% 1%
July 31, 1996 97% 2% 1%
April 30, 1996 96% 3% 1%
- ------------------------------------------------------------------------
</TABLE>
The Fund's exposure to longer dated bonds was reduced slightly over the
quarter. The following table 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>
April 30, 1997 8% 52% 20% 20%
January 31, 1997 11% 53% 18% 18%
October 31, 1996 9% 45% 24% 22%
July 31, 1996 9% 43% 27% 21%
April 30, 1996 15% 43% 20% 22%
- --------------------------------------------------------------------------------------------
</TABLE>
At April 30, 1997 the average maturity of the Fund's assets, including cash,
was 5.8 years. This compares with 6.3 years at October 31, 1996 and 5.4 years at
April 30, 1996.
4
<PAGE>
The sectoral composition of the portfolio at April 30, 1997 was as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
State and Eurobonds & Commercial
Government* Semi Govt.** Corporates Banks***
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australia 28.9% 25.1% 41.2% 3.2%
New Zealand 0.5% -- 0.1% --
United States -- -- -- 1.0%
----------- ------------ ----------- ----------
Total 29.4% 25.1% 41.3% 4.2%
- -------------------------------------------------------------------------------------
</TABLE>
* Includes government guaranteed debt.
** Includes State Government Guaranteed Banks.
*** Includes cash held by the Fund's custodian and repurchase agreements.
- --------------------------------------------------------------------------------
REVIEW AND OUTLOOK FOR THE AUSTRALIAN AND NEW ZEALAND
FINANCIAL MARKETS
- --------------------------------------------------------------------------------
AUSTRALIA
Economy
The Australian economy continues to strengthen with the housing sector
showing signs of improvement and business confidence increasing. Investment is
also strong, particularly in non-residential construction. However, some areas
of weakness remain. The manufacturing and retail sectors still face difficult
trading conditions and the unemployment rate is 8.7%. The Australian official
interest rate is 5.5%, the Reserve Bank of Australia lowered rates by a further
0.5% on May 23. Australia's inflation remains low with underlying inflation at
2.1% over the year to March 31, 1997 and headline inflation at 1.3% for the
period. In coming months, economic growth is expected to strengthen further,
helped by lower official interest rates, continued solid business investment and
some improvement in international economic activity.
Fixed Income
The Australian fixed income market performed strongly through to December,
supported by a further cut in official interest rates. However, the market
subsequently weakened as signs of stronger Australian economic growth emerged
and the US fixed income market weakened. Over the six months to April 30, 1997,
ten-year bond rates rose from 7.35% to 7.83% but 90 day bank bill rates fell
from 6.53% to 5.91%. The differential of Australian ten year government bond
rates against US government bond rates rose by 0.10% to 1.11% over this period.
Looking forward, prospects for the Australian fixed income market remain
positive because of a low inflation outlook and an improving Federal budget
position.
Currency
Over the six months to the end of April, the Australian dollar depreciated by
1.4% against the U.S. dollar to US$0.7816. The Australian dollar was volatile
over the period because of changing perceptions about the strength of commodity
prices and the future direction of interest rates. On the date of this report,
the Australian dollar was trading at US$0.7513.
5
<PAGE>
NEW ZEALAND
Economy
Economic growth has slowed substantially in New Zealand from a peak of over
6% in 1994 to 2.9% per annum in the December quarter 1996. High interest rates
have stunted growth and a rising New Zealand dollar has reduced the
competitiveness of Kiwi exporters. However, inflationary pressures remain low
with underlying inflation at 2.0% for the year to March 31, 1997. After a period
of softer growth through 1997, the economy should pick up again in 1998,
supported by lower official interest rates and a firmer international economy.
Fixed Income
Over the six months to April 30, 1997, ten year government bond rates rose
from 7.29% to 7.85%, reflecting weakness in the US fixed income market. Bond
rates rose despite slower domestic conditions. The rate for 90 day bank bills
fell over the six month period from 8.84% to 6.80%, in part reflecting the new
Government's announcement of a wider inflation target range.
Currency
Over the six months to the end of April, the New Zealand dollar depreciated
by 1.9% against the US dollar. At the end of April, the currency was trading at
US$0.6933. On the date of this report, the New Zealand dollar was trading at
US$0.6912.
The following table summarizes the movements of key interest rates in
Australia and New Zealand over the past twelve and six month periods.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
April 30, 1996 October 31, 1996 April 30, 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Australia:
90 day Bank
Bills 7.35% 6.53% 5.91%
10 year Bonds 8.73% 7.35% 7.83%
New Zealand:
90 day Bank
Bills 9.41% 8.84% 6.80%
10 year Bonds 8.53% 7.29% 7.85%
- --------------------------------------------------------------------------
</TABLE>
EquitiLink International Management Limited
6
<PAGE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Portfolio of Investments
April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<C> <S> <C>
LONG-TERM INVESTMENTS--119.2%
AUSTRALIA--118.2%
Government and Semi-Government--68.1%
Commonwealth of Australia--37.6%
Australian Capital
Territory,
A$ 10,000 12.00%, 11/15/01............ $ 9,169,285
Commonwealth Bank of
Australia,
75,000 12.00%, 7/15/99............. 64,933,177
Commonwealth of Australia,
60,000 6.25%, 3/15/99.............. 46,762,016
15,000 14.00%, 4/15/99............. 13,319,062
15,000 12.00%, 7/15/99............. 13,013,540
10,000 7.00%, 4/15/00.............. 7,856,858
129,900 13.00%, 7/15/00............. 119,084,645
5,000 13.00%, 12/15/00............ 4,647,984
40,000 8.75%, 1/15/01.............. 32,980,227
48,000 12.00%, 11/15/01............ 44,375,522
25,000 9.75%, 3/15/02.............. 21,453,693
20,000 10.00%, 10/15/02............ 17,402,423
60,000 9.00%, 9/15/04.............. 50,256,506
45,000 7.50%, 7/15/05.............. 34,598,124
25,000 10.00%, 2/15/06............. 22,194,216
116,000 10.00%, 10/15/07............ 104,058,664
50,000 8.75%, 8/15/08.............. 41,409,926
Northern Territory
Authority,
40,000 12.50%, 7/15/01............. 36,952,872
Telecom,
10,000 12.00%, 9/1/98.............. 8,391,442
--------------
692,860,182
--------------
New South Wales--8.7%
New South Wales Treasury
Corporation,
30,000 7.00%, 2/1/00............... 23,504,197
57,000 12.00%, 12/1/01............. 52,574,047
85,000 7.00%, 4/1/04............... 63,311,747
20,000 12.60%, 5/1/06.............. 20,188,433
--------------
159,578,424
--------------
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
Queensland--4.7%
Queensland Treasury
Corporation,
A$ 10,000 8.00%, 7/14/99.............. $ 8,034,818
10,000 8.00%, 8/14/01.............. 8,027,472
45,000 8.00%, 5/14/03.............. 35,786,244
20,000 12.00%, 6/15/05............. 19,439,156
20,000 8.00%, 9/14/07.............. 15,569,050
--------------
86,856,740
--------------
South Australia--4.1%
Electricity Trust of South
Australia,
5,000 13.00%, 10/1/05............. 5,041,344
South Australian Financing
Authority,
30,000 12.50%, 10/15/00............ 27,258,265
50,000 10.00%, 1/15/03............. 43,251,661
--------------
75,551,270
--------------
Tasmania--4.7%
Tasmanian Public Finance
Corporation,
15,000 8.25%, 11/15/99............. 12,120,633
13,000 12.50%, 1/15/01............. 11,872,216
75,000 9.00%, 11/15/04............. 62,017,585
--------------
86,010,434
--------------
Victoria--5.0%
Treasury Corporation of
Victoria,
20,000 12.00%, 10/22/98............ 16,875,342
10,000 10.25%, 9/15/99............. 8,418,054
36,000 12.50%, 10/15/03............ 34,922,251
35,500 10.25%, 11/15/06............ 31,777,425
--------------
91,993,072
--------------
Western Australia--3.3%
Western Australia Treasury
Corporation,
70,000 10.00%, 7/15/05............. 61,273,388
--------------
Total Australian government
and semi-government
(cost US$1,203,551,473)..... 1,254,123,510
--------------
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<C> <S> <C>
Eurobonds--38.3%
Banking and Finance--11.4%
Australia Industrial
Development Corporation,
A$ 5,000 8.75%, 7/20/04.............. $ 4,058,636
Bank Austria AG,
10,000 10.875%, 11/17/04........... 8,897,624
Banque National de Paris,
14,000 9.00%, 8/13/02.............. 11,475,262
Commerzbank Overseas
Finance,
5,000 10.50%, 1/19/00............. 4,218,105
10,000 10.25%, 4/28/00............. 8,424,306
Commonwealth Bank of
Australia,
10,000 9.00%, 8/15/05.............. 8,201,501
Eksport Finance & Insurance,
4,000 7.00%, 6/28/00.............. 3,101,962
19,000 11.00%, 12/29/04............ 17,177,738
Finnish Eksport Credit,
2,925 9.25%, 12/30/99............. 2,398,818
GG Securities,
5,000 9.25%, 3/24/03.............. 4,115,662
Morgan Guaranty Trust,
10,000 8.00%, 4/18/01.............. 7,977,663
National Australia Bank,
25,000 8.00%, 4/10/01.............. 19,990,035
Primary Industry Bank of
Australia,
5,000 8.00%, 5/15/98.............. 3,969,246
5,000 6.75%, 2/25/99.............. 3,902,997
Rural & Industries Bank of
Western Australia,
5,000 8.75%, 9/9/99............... 4,049,148
Societe Generale Australia,
5,000 7.75%, 2/19/01.............. 3,944,252
South Australia Financing
Authority,
5,000 11.25%, 10/23/01............ 4,426,925
State Bank of New South
Wales,
10,500 12.25%, 2/26/01............. 9,508,560
20,000 11.75%, 8/16/01............. 18,056,350
14,000 8.625%, 8/20/01............. 11,417,129
28,000 10.75%, 3/12/02............. 24,510,668
10,000 9.25%, 2/18/03.............. 8,306,088
State Bank of South
Australia,
10,000 11.00%, 4/10/02............. 8,866,182
10,000 9.50%, 10/15/02............. 8,350,293
--------------
209,345,150
--------------
Diversified Industrials--1.0%
Australian National Railway,
4,000 9.50%, 2/25/99.............. 3,264,994
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
Federal Airports
Corporation,
A$ 10,000 7.00%, 2/16/04.............. $ 7,436,452
National Power PLC,
10,000 8.00%, 2/21/07.............. 7,517,390
--------------
18,218,836
--------------
Semi-Government and Local
Government--16.1%
New South Wales Treasury Corporation,
94,000 11.50%, 7/1/99.............. 80,602,337
70,000 12.00%, 12/1/01............. 64,613,325
10,000 7.00%, 4/1/04............... 7,455,764
7,000 10.50%, 12/7/04............. 6,164,962
10,000 10.00%, 6/6/05.............. 8,630,989
50,000 6.50%, 5/1/06............... 34,117,429
34,000 12.60%, 5/1/06.............. 34,011,692
7,000 9.25%, 6/20/05.............. 5,828,344
15,000 8.00%, 3/1/08............... 11,643,376
Province Aples Cotes D'Azur,
22,000 8.25%, 9/15/99.............. 17,606,173
Province of Quebec,
16,000 9.50%, 10/2/02.............. 13,231,606
State Electricity Commission
of
Victoria,
7,000 9.25%, 9/18/03.............. 5,815,941
Treasury Corporation of
Victoria,
10,000 8.25%, 10/15/03............. 8,048,253
--------------
297,770,191
--------------
Supranational Global--9.8%
Credit Locale de France,
20,000 8.75%, 7/23/01.............. 16,282,845
5,000 10.25%, 4/12/05............. 4,353,662
Eurofima,
78,170 9.875%, 1/17/07............. 68,578,214
European Bank of
Reconstruction &
Development,
85,000 9.00%, 10/15/02............. 71,023,994
European Investment Bank,
23,000 10.25%, 10/1/01............. 19,814,837
--------------
180,053,552
--------------
Total Australian eurobonds
(cost US$667,454,784)....... 705,387,729
--------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<C> <S> <C>
Corporate Bonds--11.8%
Asset Backed--0.1%
FANMAC Limited,
A$ 526 10.33%, 6/15/02............. $ 444,405
Premier Trust 22,
2,290 11.40%, 12/15/01............ 1,973,785
--------------
2,418,190
--------------
Floating Rate Notes*--5.7%
Arms Fund II,
30,000 6.2633%, 5/10/24............ 23,446,659
GIO Australia Holdings
Limited,
14,500 6.385%, 11/16/98............ 11,372,896
Korean Long Term Credit
Bank,
15,000 6.2367%, 12/17/99........... 11,675,615
National Mutual Home Loans,
4,549 6.2783%, 12/1/23............ 3,563,400
Puma Management Limited,
20,000 6.14%, 12/5/28.............. 15,914,029
15,000 7.50%, 12/5/28.............. 11,831,653
20,000 6.90%, 2/15/30.............. 15,560,453
Rams Mortgage, Class A,
Series 2,
10,000 6.20%, 3/15/25.............. 7,866,198
Residential Mortgage Backed
Trust,
5,000 6.24%, 10/7/22.............. 3,927,354
--------------
105,158,257
--------------
Services--6.0%
Australian & Overseas
Telecommunication
Corporation,
45,000 12.50%, 11/15/00............ 40,928,546
20,000 11.50%, 10/15/02............ 18,198,749
2,000 7.80%, 7/17/03.............. 1,560,485
31,000 12.00%, 5/15/06............. 29,953,220
2,000 8.75%, 1/15/20.............. 1,584,259
Federal Airports
Corporation,
5,000 10.50%, 7/15/99............. 4,211,919
Korea Development Bank,
8,000 7.50%, 8/9/99............... 6,310,403
Macquarie Bank Limited,
1,000 9.75%, 8/1/00............... 825,776
Westpac WST,
8,000 6.22%, 6/23/28.............. 6,252,442
--------------
109,825,799
--------------
Total Australian corporate
bonds
(cost US$204,551,456)....... 217,402,246
--------------
Total Australian long-term
investments
(cost US$2,075,557,713)..... 2,176,913,485
--------------
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
NEW ZEALAND--1.0%
Corporate Bond--0.2%
Transport Power Finance
Limited,
NZ$ 5,000 8.00%, 3/15/02.............. $ 3,443,542
--------------
Eurobond--0.1%
Telecom New Zealand Finance,
1,500 9.25%, 7/1/02............... 1,083,561
--------------
Government Bond--0.7%
New Zealand Government Bond,
17,000 10.00%, 3/15/02............. 12,841,017
--------------
Total New Zealand long-term
investments
(cost US$17,260,155)........ 17,368,120
--------------
Total long-term investments
(cost US$2,092,817,868)..... 2,194,281,605
--------------
SHORT-TERM INVESTMENTS--11.2%
AUSTRALIA--9.9%
Demand Deposit--3.9%
Banque National de Paris,
Demand Deposit,
A$ 92,157 (cost US$71,358,275)........ 72,025,755
--------------
Eurobonds--2.9%
Banking and Finance--0.5%
Commonwealth Bank of
Australia,
11,000 12.75%, 1/7/98.............. 8,950,793
--------------
Diversified Industrials--0.1%
Shell Australia,
1,786 10.00%, 12/19/97............ 1,425,841
--------------
Semi-Government and Local
Government--1.9%
New South Wales Treasury
Corporation,
10,000 7.50%, 2/1/98............... 7,893,041
Queensland Treasury
Corporation,
35,000 8.00%, 5/14/97.............. 27,366,916
--------------
35,259,957
--------------
Supranational Global--0.4%
Credit Locale de France,
10,000 7.50%, 9/15/97.............. 7,843,142
--------------
Total Australian eurobonds
(cost US$50,571,404)........ 53,479,733
--------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
<C> <S> <C>
Government and Semi-Government--2.9%
Commonwealth of Australia--0.2%
Commonwealth of Australia,
A$ 5,000 13.00%, 4/15/98............. $ 4,158,956
--------------
New South Wales--0.9%
New South Wales Treasury
Corporation,
20,000 7.50%, 2/1/98............... 15,792,888
--------------
South Australia--1.3%
South Australian Financing
Authority,
30,000 12.50%, 3/15/98............. 24,686,753
--------------
Western Australia--0.5%
Western Australia Treasury
Corporation,
10,000 12.50%, 4/1/98.............. 8,249,590
--------------
Total Australian government
and semi-government
(cost US$52,798,754)........ 52,888,187
--------------
Corporate Bond--0.2%
Floating Rate Note*
Ford Credit Australia
Limited,
5,000 6.44%, 4/27/98
(cost US$3,827,354)....... 3,919,031
--------------
Total Australian short-term
investments
(cost US$178,555,787)....... 182,312,706
--------------
- ---------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- ---------------------------------------------------------
UNITED STATES--1.3%
$ 24,950 Repurchase Agreement,
State Street Bank & Trust
Co., 6.875% dated 4/30/97
due 5/1/97 in the amount
of 24,954,765 (cost
US$24,950,000;
collateralized by
US$24,650,000 United
States Treasury Bill due
5/15/06; value including
accrued interest-
US$25,454,083)............ $ 24,950,000
--------------
Total short-term investments
(cost US$203,505,787)....... 207,262,706
--------------
Total Investments--130.4%
(cost US$2,296,323,655;
Note 3)................... 2,401,544,311
Other assets in excess of
other liabilities--2.2%... 40,023,237
Liquidation value of
preferred
stock--(32.6%)............ (600,000,000)
--------------
Net Assets Applicable to
Common Sharehold-
ers--100%................. $1,841,567,548
--------------
--------------
</TABLE>
- ---------------
* The interest rate reflected for floating rate notes is the rate in effect at
April 30, 1997.
See Notes to Financial Statements.
10
<PAGE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Assets and Liabilities
April 30, 1997
(Unaudited)
- ----------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at value (cost
$2,296,323,655)..................... $2,401,544,311
Foreign currency, at value (cost
$6,781,926)......................... 6,798,276
Cash.................................. 650,982
Interest receivable................... 59,001,115
Other assets.......................... 103,316
--------------
Total assets...................... 2,468,098,000
--------------
Liabilities
Dividends payable-common stock........ 13,619,183
Payable for investments purchased..... 6,246,096
Withholding taxes payable............. 3,301,365
Accrued expenses and other
liabilities......................... 1,408,118
Investment management fee payable..... 992,001
Dividends payable-preferred stock..... 777,532
Administration fee payable............ 186,157
--------------
Total liabilities................. 26,530,452
--------------
Total Net Assets...................... $2,441,567,548
--------------
--------------
Total net assets were composed of:
Common stock:
Par value ($.01 per share,
applicable to
194,559,756 shares)............. $ 1,945,598
Paid-in capital in excess of
par............................... 1,672,317,387
Preferred stock ($.01 par value per
share and
$25,000 liquidation value per
share
applicable to 24,000 shares; Note
4)................................ 600,000,000
--------------
2,274,262,985
Undistributed net investment
income............................ 15,313,312
Accumulated net realized gains on
investments....................... 2,577,833
Net unrealized appreciation on
investments......................... 43,460,946
Accumulated net realized and
unrealized foreign exchange
gains............................. 105,952,472
--------------
Total net assets.................... $2,441,567,548
--------------
--------------
Net assets applicable to common
shareholders...................... $1,841,567,548
--------------
--------------
Net asset value per common share:
($1,841,567,548 / 194,559,756 shares
of
common stock issued and
outstanding)........................ $9.47
--------------
--------------
</TABLE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Operations
Six Months Ended April 30, 1997
(Unaudited)
- ----------------------------------------------------------
<TABLE>
<S> <C>
Net Investment Income
Income
Interest and discount earned (net of
foreign
withholding taxes of $6,551,084).... $ 96,598,068
------------
Expenses
Investment management fee............. 6,305,177
Custodian's fees and expenses......... 1,364,000
Administration fee.................... 1,330,179
Auction agent's fees and broker
commissions........................... 785,000
Shareholder relations and
communications........................ 453,000
Transfer agent's fees and expenses.... 322,000
Directors' fees and expenses.......... 283,000
Independent accountant's fees and
expenses.............................. 106,000
Legal fees and expenses............... 98,000
Insurance expense..................... 48,000
Miscellaneous......................... 38,526
------------
Total operating expenses.............. 11,132,882
------------
Net investment income before excise
tax................................... 85,465,186
Excise tax............................ (775,219)
------------
Net investment income................... 84,689,967
------------
Realized and Unrealized
Gains on Investments
and Foreign Currencies
Net realized gains on investment
transactions.......................... 5,072,745
Net change in unrealized appreciation on
investments........................... (39,546,069)
------------
Net losses on investments............... (34,473,324)
------------
Net increase in total net assets from
operations before net foreign exchange
losses................................ 50,216,643
Net realized and unrealized foreign
exchange losses....................... (42,855,769)
------------
Net Increase In Total Net Assets
Resulting From Operations............... $ 7,360,874
------------
------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Cash Flows
Six Months Ended April 30, 1997
(Unaudited)
- ----------------------------------------------------------
<TABLE>
<S> <C>
Increase (Decrease) in Cash
(Including Foreign Currency)
Cash flows used for operating
activities
Interest received (net of foreign
withholding taxes)............... $ 100,365,594
Expenses paid...................... (12,047,792)
Purchases of short-term portfolio
investments, net................. (2,112,000)
Purchases of long-term portfolio
investments........................ (1,044,816,307)
Proceeds from sales of long-term
portfolio
investments...................... 1,045,108,586
Other.............................. 46,124
---------------
Net cash provided from operating
activities....................... 86,544,205
---------------
Cash flows provided from financing
activities
Dividends and distributions paid to
preferred shareholders........... (15,769,890)
Dividends and distributions paid to
common
shareholders..................... (81,712,466)
---------------
Net cash used for financing
activities....................... (97,482,356)
---------------
Effect of changes in exchange rate... 17,355,463
---------------
Net increase in cash................. 6,417,312
Cash at beginning of period........ 1,031,946
---------------
Cash at end of period.............. $ 7,449,258
---------------
---------------
Reconciliation of Net Increase in Total
Net Assets from Operations to Net Cash
(Including Foreign Currency) Provided
From Operating Activities
Net increase in total net assets
resulting from
operations......................... $ 7,360,874
---------------
Increase in investments............ (7,794,888)
Net realized gain on investment
transactions....................... (5,072,745)
Net change in unrealized
appreciation on
investments...................... 39,546,069
Net realized and unrealized foreign
exchange losses.................. 42,855,769
Decrease in interest receivable.... 4,094,424
Net decrease in other assets....... 46,124
Increase in payable for investments
purchased........................ 6,246,096
Decrease in accrued expenses and
other liabilities................ (737,518)
---------------
Total adjustments................ 79,183,331
---------------
Net cash provided from operating
activities........................... $ 86,544,205
---------------
---------------
</TABLE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Changes
in Net Assets
(Unaudited)
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended April Year Ended
Increase (Decrease) 30, October 31,
in Total Net Assets 1997 1996
<S> <C> <C>
-------------- --------------
Operations
Net investment income... $ 84,689,967 $ 149,191,364
Net realized gains on
investment
transactions.......... 5,072,745 3,752,308
Net change in unrealized
appreciation
(depreciation) on
investments........... (39,546,069) 104,837,565
-------------- --------------
Net increase in total
net assets resulting
from operations before
net foreign exchange
gains................. 50,216,643 257,781,237
Net realized and
unrealized foreign
exchange gains
(losses).............. (42,855,769) 93,023,604
-------------- --------------
Net increase in total net
assets resulting from
operations.............. 7,360,874 350,804,841
-------------- --------------
Dividends to shareholders
from net investment
income
Common shares........... (81,712,466) (142,448,343)
Preferred shares........ (15,975,040) (23,607,820)
-------------- --------------
(97,687,506) (166,056,163)
-------------- --------------
Distributions to
shareholders
from net realized
capital gains
Common shares........... -- (4,985,403)
Preferred shares........ -- (3,046,221)
-------------- --------------
-- (8,031,624)
-------------- --------------
Fund share transactions
Net proceeds from
issuance of preferred
shares................ -- 122,958,530
Net proceeds from rights
offering of Fund
shares................ -- 299,771,852
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions and in
connection with
dividends paid in
stock................. -- 5,241,634
-------------- --------------
-- 427,972,016
-------------- --------------
Total increase
(decrease).............. (90,326,632) 604,689,070
Total Net Assets
Beginning of period....... 2,531,894,180 1,927,205,110
-------------- --------------
End of period............. $2,441,567,548 $2,531,894,180
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
- ----------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
Notes to Financial Statements
(Unaudited)
- ----------------------------------------------------------
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 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 period;
(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 period 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 period.
Net realized and unrealized foreign exchange losses of $42,855,769 include
realized foreign exchange gains and losses from sales and maturities of
portfolio securities, sales of foreign currencies, currency gains or losses
realized between the trade and settlement dates on securities transactions, the
difference between the amounts of interest, discount and foreign withholding
taxes recorded on the Fund's books and the US dollar equivalent amounts actually
received or paid and changes in unrealized foreign exchange gains and losses in
the value of portfolio securities and other assets and liabilities arising as a
result of changes in the exchange rate. Accumulated net realized and unrealized
foreign exchange gains shown in the composition of net assets at April 30, 1997
13
<PAGE>
represent foreign exchange gains for book purposes that have not yet been
recognized for tax purposes.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin, including
unanticipated movements in the value of the foreign currency relative to the
U.S. dollar.
The exchange rate at April 30, 1997 was US$.7816 to A$1.00 for the Australian
dollar and US$.6933 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. Expenses are recorded on
the accrual basis which may require the use of certain estimates by management.
Dividends and Distributions: It is the Fund's current policy to pay dividends
from net investment income supplemented by net realized foreign exchange gains
and net realized short-term capital gains if necessary, on a monthly basis. 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
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 six months ended April 30, 1997, the Fund increased undistributed net
investment income by $6,560,701, decreased accumulated net realized gains on
investments by $3,429,601, and decreased accumulated net realized foreign
exchange gains by $3,131,100. 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 management agreement provided 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, 0.50% of such assets between
$900 million and $1,750 million and 0.45% of such assets in excess of $1,750
million.
The Investment Manager pays fees to the Investment Adviser for their services
rendered. The Investment Manager informed the Fund that it paid $2,791,928 to
the Investment Adviser during the six months ended April 30, 1997.
The administration agreement provided 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
14
<PAGE>
up to $900 million, 0.10% of such assets between $900 million and $1,750 million
and 0.07% of such assets in excess of $1,750 million.
Note 3. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for the six months ended
April 30, 1997 aggregated $1,044,816,307 and $1,045,108,586, respectively.
The United States federal income tax basis of the Fund's investments at April
30, 1997 was $2,378,081,172 and accordingly, net unrealized appreciation for
United States federal income tax purposes was $23,463,139 (gross unrealized
appreciation--$51,747,622 ; gross unrealized depreciation--$28,284,483).
Note 4. Capital There are 200 million shares
of common stock authorized. Of the 194,559,756
common shares outstanding at April 30, 1997, the Investment Manager owned 42,606
shares.
During the fiscal year ended October 31, 1996 the Fund issued 38,911,951
shares of common stock (net proceeds $299,771,852) in connection with a rights
offering of the Fund's shares and issued 568,703 shares in connection with the
reinvestment of dividends and distributions paid to shareholders enrolled in the
dividend reinvestment plan.
The Preferred Stock have rights as determined by the Board of Directors. The
24,000 shares of Auction Market Preferred Stock ('Preferred Stock') outstanding
consist of nine series as follows: Series A--3,000 shares, Series B--3,000
shares, Series C--2,000 shares, Series D--4,000 shares, Series E--2,000 shares,
Series F--2,000 shares, Series G--3,000 shares, Series H--2,500 shares and
Series I--2,500 shares.
During the fiscal year ended October 31, 1996 the Fund issued $62,500,000
(net proceeds $61,479,265) in liquidation value per series for Series H and I
preferred shares.
Dividends on each series of Preferred Stock 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 I based on the
results of an auction. Dividend rates ranged from 4.75% to 6.00% during the six
months ended April 30, 1997. 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 May 19, 1997 and June
And Distributions 12, 1997 the Board of Direc-
tors of the Fund declared distributions from
undistributed net investment income of $.07 per common share payable on June 13,
1997 and July 11, 1997 to common shareholders of record on May 30, 1997 and June
30, 1997.
Subsequent to April 30, 1997, dividends and distributions declared and paid
on Preferred Stock totalled approximately $3,938,245 for the nine outstanding
preferred share series in the aggregate through June 12, 1997.
15
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
Financial Highlights
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months
ended Years ended October 31,
April 30, ----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1997 1996* 1995* 1994 1993 1992
---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value per common share, beginning of
period......................................... $ 9.93 $ 9.36 $ 8.82 $ 10.09 $ 9.61 $ 11.31
---------- ---------- ---------- ---------- ---------- --------
Net investment income............................ .44 .87 .93 1.01 1.19 1.29
Net realized and unrealized gain (loss) on
investments and foreign currencies............. (.40) 1.13 1.16 (1.03) .58 (1.42)
---------- ---------- ---------- ---------- ---------- --------
Total from investment operations............... .04 2.00 2.09 (.02) 1.77 (.13)
---------- ---------- ---------- ---------- ---------- --------
Dividends from net investment income to preferred
shareholders................................... (.08) (.14) (.17) (.12) (.11) (.14)
Dividends from net investment income to common
shareholders................................... (.42) (.83) (.83) (.84) (1.08) (1.10)
Distributions from net capital and currency gains
to preferred shareholders...................... -- (.02) (.01) (.01) (.01) (.01)
Distributions from net capital and currency gains
to common shareholders......................... -- (.03) (.15) (.17) (.08) (.29)
---------- ---------- ---------- ---------- ---------- --------
Total dividends and distributions.............. (.50) (1.02) (1.16) (1.14) (1.28) (1.54)
---------- ---------- ---------- ---------- ---------- --------
Capital charge in respect to issuance of
shares......................................... -- (.41) (.39) (.11) (.01) (.03)
---------- ---------- ---------- ---------- ---------- --------
Net asset value per common share, end of
period......................................... $ 9.47 $ 9.93 $ 9.36 $ 8.82 $ 10.09 $ 9.61
---------- ---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- ---------- --------
Market price per common share, end of period..... $ 9.06 $ 8.94 $ 9.31 $ 9.56 $ 10.25 $ 10.00
---------- ---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- ---------- --------
TOTAL INVESTMENT RETURN BASED OND:
Market value..................................... 6.18% 5.59% 8.78% 3.32% 15.00% 4.11%
Net asset value.................................. (0.12)% 16.73% 18.54% (3.19)% 17.80% (3.22)%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS/SUPPLEMENTAL DATAPound:
ExpensesDD....................................... 1.25%** 1.29% 1.47% 1.41% 1.44% 1.43%
Net investment income before preferred stock
dividends...................................... 8.95%** 9.16% 10.83% 10.68% 12.13% 12.14%
Preferred stock dividends........................ 1.69% 1.45% 1.87% 1.20% 1.13% 1.25%
Net investment income available to common
shareholders................................... 7.26% 7.71% 8.96% 9.48% 11.00% 10.89%
Portfolio turnover rate.......................... 43% 63% 50% 34% 23% 17%
Net assets of common shareholders, end of period
(000 omitted).................................. $1,841,568 $1,931,894 $1,452,205 $1,088,631 $1,050,084 $977,933
Average net assets of common shareholders (000
omitted)....................................... $1,891,928 $1,627,916 $1,201,383 $1,174,394 $1,011,324 $938,072
Senior securities (preferred stock) outstanding
(000 omitted).................................. $ 600,000 $ 600,000 $ 475,000 $ 400,000 $ 350,000 $300,000
Asset coverage of preferred stock at period
end............................................ 407% 422% 406% 372% 400% 426%
</TABLE>
- ---------------
* Calculated based upon weighted average shares outstanding during
the year.
** Annualized.
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 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.
DD Includes expenses of both preferred and common stock.
Pound 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 periods 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.
16
<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). Generally, 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 of at
least $100 in Fund shares as frequently as monthly through the Plan Agent on the
open market. Participants must pay a service fee of $0.75 for each investment
and a pro rata share of the brokerage commissions.
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 some or all of their shares from the
Plan upon written notice to the Plan Agent and will receive certificates for
whole Shares and cash for fractional Shares. 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 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.
17
<PAGE>
Supplemental Proxy Information
The Annual Meeting of Shareholders of The First Australia Prime Income Fund,
Inc. (the 'Fund') was held on March 13, 1997 at the offices of Prudential
Securities Incorporated, One Seaport Plaza, New York, New York. The meeting was
held for the following purposes:
(1) To elect the following five Directors to serve as Class III
Directors for a three-year term expiring in 1999:
- Sir Roden Cutler
- David L. Elsum
- Laurence S. Freedman
- Michael R. Horsburgh
- William J. Potter
(2) To elect the following two Directors to represent the interests
of the holders of preferred stock for the ensuing year:
- David Manor
- Marvin Yontef
Directors whose term of office continued beyond this meeting
are as follows: Anthony E. Aaronson, Rt. Hon. Malcolm Fraser,
Harry A. Jacobs, Jr., Howard A. Knight, Roger C. Maddock,
Neville J. Miles, Peter D. Sacks, John T. Sheehy and Brian
M. Sherman;
(3) To ratify the selection of Price Waterhouse LLP as
independent public accountants of the Fund for
the fiscal year ending October 31, 1997;
(4) To Amend the Fund's charter and associated documents to
increase the number of authorized shares of
common stock; and
(5) To transact such other business as may properly come before
the meeting or any adjournment thereof.
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>
(1) Sir Roden Cutler 166,256,908 -- 4,763,261 --
David L. Elsum 166,571,145 -- 4,449,024 --
Laurence S. Freedman 166,536,867 -- 4,483,302 --
Michael R. Horsburgh 166,542,943 -- 4,477,225 --
William J. Potter 166,811,778 -- 4,208,392 --
(2) David Manor 19,452 -- 68 --
Marvin Yontef 19,452 -- 68 --
(3) Price Waterhouse LLP 167,365,595 1,853,176 -- 1,801,398
(4) Common stock increase 152,925,498 14,269,388 -- 3,825,283
(5) There was no other business voted upon at the Annual Meeting of
Shareholders.
18
<PAGE>
Directors
Anthony E. Aaronson
Sir Roden Cutler
David Lindsay Elsum
Rt. Hon. Malcolm Fraser
Laurence S. Freedman, Chairman
Michael R. Horsburgh
Harry A. Jacobs, Jr.
Howard A. Knight
Roger C. Maddock
David Manor
Neville J. Miles
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
The accompanying financial statements as of April 30, 1997 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 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
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
Auction Agent
The Chase Manhattan 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
Stikeman, Elliot
Level 32, Chifley Tower
2 Chifley Square
Sydney, NSW 2000, Australia
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
for information call toll-free (800) 362-3277
collect (973) 367-7409
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
</TABLE>
