(LOGO) (R)
The First Australia
Prime Income
Fund, Inc.
- ---------------------------------------------
- ----------------------
Annual Report
October 31, 1997
<PAGE>
LETTER TO
SHAREHOLDERS
December 12, 1997
Dear Shareholder,
We are pleased to present this annual
report which covers the activities of
The First Australia Prime Income Fund, Inc.
('the Fund') for the year ended
October 31, 1997. Included in this report is
a review of the Australian and New
Zealand economies and investment markets,
together with an overview of the
Fund's investments prepared by the Investment
Manager, EquitiLink International
Management Limited.
Investment Markets
The Australian bond market was one of the
strongest performing global markets
during the quarter. The market was supported
by a continuation of moderate
economic growth, low inflation and a
generally more positive US bond market.
Australian ten year bond yields fell from
6.34% to a low of 5.96%.
The Australian dollar fell by US4 cents to
US70 cents. The dollar's fall
followed concerns about weaker commodity
prices, expectations of cuts in
official interest rates and financial
instability in the South East Asian
economies. This had a negative effect on the
Fund's US dollar performance.
Investment Performance
Despite the strong performance of
Australian bonds, the Fund's Net Asset
Value ('NAV') in US dollar terms decreased by
4.4% over the quarter and 2.4%
over the year ended October 31, 1997, due to
the fall in the Australian dollar.
The Fund's share price return was -10.2% for
the quarter and -0.4% for the year.
The NAV and share price returns both assume
reinvestment of distributions.
Distributions
Distributions for the year to October 31,
1997 totalled US82 cents per share.
Based on the share price of US$8.13 at
October 31, 1997, the cash distribution
rate for the year was 10.1%. Since all
distributions are paid after deducting
Australian and New Zealand withholding taxes,
the effective yield is higher for
those US investors who are able to claim a
tax credit.
Dividend Reinvestment and Cash Purchase Plan
We invite you to participate in the Fund's
Dividend Reinvestment and Cash
Purchase Plan (the 'Plan') which allows you
to automatically reinvest your
distributions in shares of the Fund's common
stock at favorable commission
rates. The Plan also enables you to make
additional cash investment in shares of
at least US$100 per month. As a Participant
in the Plan, you will have the
convenience of:
Automatic reinvestment -- the Plan Agent
will automatically reinvest your
distributions, allowing you to gradually grow
your holdings in the Company;
Lower costs -- shares purchased on your
behalf under the Plan will be at
reduced brokerage rates;
Convenience -- the Plan Agent will hold
your shares in non-certificated form
and will provide a detailed record of your
holdings at the end of each
distribution period.
1
<PAGE>
The following chart shows the return
earned by shareholders who invested
US$10,000 on October 31, 1992 and have
participated in the Dividend Reinvestment
Plan.
[Chart to
come]
To request a brochure containing
information on the Plan, together with an
authorization form, please telephone the Plan
Agent, State Street Bank and Trust
Company, toll-free 1-800-451-6788.
For information on the Fund or the Fund's
Dividend Reinvestment and Cash
Purchase Plan, please telephone Investor
Relations at Dewe Rogerson, toll-free
at 1-800-323-9995.
Sincerely,
Laurence S. Freedman
Brian M. Sherman
Chairman
President
2
<PAGE>
REPORT OF THE
INVESTMENT MANAGER
PERFORMANCE
Distributions
During the year to October 31, 1997, the
Fund paid a total of US82 cents per
share in distributions, consisting of ten
monthly payments of US7 cents and two
monthly payments of US6 cents. The Board's
policy is to provide investors with a
stable monthly distribution out of current
income supplemented by realized
capital gains if required. The current
monthly distribution of US6 cents per
share was reviewed in December 1997 and has
remained unchanged. The next
distribution review is scheduled for the
meeting of the Board of Directors to be
held in March 1998.
Based upon the October 31, 1997 share
price of US$8.13 and total
distributions paid over the past 12 months,
the shares provided an annual cash
distribution rate of 10.1%. All distributions
are paid after deducting
Australian and New Zealand withholding taxes.
Net Asset Value Performance
The NAV per share of the Fund at October
31, 1997 was US$8.85. The NAV
decreased by 4.4% over the quarter and by
2.4% over the year to October 31,
1997, assuming reinvestment of distributions.
At the date of this report, the
NAV per share was US$7.99.
Share Price
At October 31, 1997 the share price was
US$8.13, representing a discount of
8.2% to the NAV. At the date of this report,
the share price closed at US$7.50,
representing a 6.1% discount to the NAV. The
Fund's total investment return,
based on share price and assuming
reinvestment of distributions, was -10.2% for
the quarter and -0.4% for the year ended
October 31, 1997.
Auction Market Preferred Stock (AMPS)
The Fund's AMPS continue to be well bid
with an average interest rate over
the quarter of 5.34%, compared with 5.54% for
30 day US Commercial Paper.
Quality of Investments
The Fund has maintained a high credit
quality. At October 31, 1997, 97% of
the Fund's investments were in securities
where either the issue or the issuer
was rated AA or better by Standard & Poor's,
Aa or better by Moody's Investors
Service, Inc. or, if unrated, were judged to
be of equivalent 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 following table shows the
ratings of securities held by the Fund as of
October 31, 1997.
Ratings Australia & New Zealand
U.S.
- ---------------------------------------------
- ---------
AAA/Aaa 70%
100 %
AA/Aa 27%
- --
A 3%
- --
- ---------------------------------------------
- ---------
Total 100%
100 %
- ---------------------------------------------
- ---------
3
<PAGE>
Portfolio Composition
The following table shows the geographic
composition of the Fund's
investments. During the quarter, the
portfolio increased its exposure to New
Zealand to 3%.
<TABLE>
<CAPTION>
United
Date Australia
New Zealand States
<S> <C>
<C> <C>
- ---------------------------------------------
- ---------------------------
October 31, 1997 95%
3% 2%
July 31, 1997 99%
- -- 1%
April 30, 1997 98%
1% 1%
January 31, 1997 95%
5% --
October 31, 1996 94%
5% 1%
- ---------------------------------------------
- ---------------------------
</TABLE>
At October 31, 1997 the average maturity
of the Fund's assets, including
cash, was 5.7 years. This compares with 5.8
years at July 31, 1997 and 6.3 years
at October 31, 1996. The following table
shows the maturity composition of the
Fund's investments.
<TABLE>
<CAPTION>
- ---------------------------------------------
- ---------------------------------------------
- --
Under 1
to 5 5 Years to 10 Years
Date 1 Year
Years 10 Years and
Over
- ---------------------------------------------
- ---------------------------------------------
- --
<S> <C> <C>
<C> <C>
October 31, 1997 6%
43% 44% 7%
July 31, 1997 6%
41% 40% 13%
April 30, 1997 8%
44% 38% 10%
January 31, 1997 11%
42% 39% 8%
October 31, 1996 9%
29% 45% 17%
- ---------------------------------------------
- ---------------------------------------------
- --
</TABLE>
The following table shows the sectoral
composition of the portfolio at
October 31, 1997:
<TABLE>
<CAPTION>
- ---------------------------------------------
- ----------------------------------------
State
and Eurobonds & Commercial
Government* Semi
Govt.** Corporates Banks***
- ---------------------------------------------
- ----------------------------------------
<S> <C> <C>
<C> <C>
Australia 28%
23% 40% 4%
New Zealand 2% -
- - 1% --
United States -- -
- - -- 2%
<CAPTION>
----------- -------
- ----- ----------- ----------
Total 30%
23% 41% 6%
- ---------------------------------------------
- ----------------------------------------
* Includes government guaranteed debt.
** Includes State Government Guaranteed
Banks.
*** Includes cash held by the Fund's
custodian and repurchase agreements.
</TABLE>
4
<PAGE>
- ---------------------------------------------
- -----------------------------------
REVIEW AND OUTLOOK FOR THE
AUSTRALIAN AND NEW ZEALAND
FINANCIAL
MARKETS
- ---------------------------------------------
- -----------------------------------
AUSTRALIA
Economy
Recent economic data for Australia
indicate some pick-up in activity with low
inflation, although unemployment remains
high. Forward indicators point to
further strength in 1998. In the Manager's
opinion, growth should be supported
by continued low interest rates. However,
fallout from the problems in South
East Asia is likely to lower the growth
outlook over the next year or so. The
Manager expects that Australia's inflation
will remain below 2% for most of
1998.
Fixed Income
The Australian bond market was one of the
strongest performing global markets
over the quarter. The market was supported by
a continuation of moderate
economic growth, low inflation and a
generally positive US bond market.
Australian ten year bond yields fell from
6.34% to a low of 5.96%. The
differential between Australian ten year
Government bond rates and US ten year
Government bond rates fell from 0.33% to
0.13%.
Currency
The Australian dollar was generally weaker
over the quarter, depreciating by
5.4% against the U.S. dollar to US70 cents.
In trade weighted terms, the
Australian dollar fell by 2.1%. The
depreciation against major currencies
reflected concerns about weaker commodity
prices, expectations of further cuts
in official interest rates and, more
recently, the impact of economic and
financial instability in South East Asia. On
the date of this report, the
Australian dollar was trading at US66 cents.
NEW ZEALAND
Economy
The New Zealand economy has strengthened
after slowing sharply in early 1997 and
inflation remains low, however, recent
economic indicators have been mixed. The
Manager expects that the economy should pick-
up again in 1998, supported by the
recent easing in overall monetary conditions,
although the extent of a pick-up
may be tempered by the fall out from the
problems in South East Asia. Inflation
should remain below the top end of the
Reserve Bank of New Zealand's 0% to 3%
target range.
Fixed Income
New Zealand ten year government bond rates
fell from 6.66% to 6.54% over the
quarter. Despite more positive global market
developments, the New Zealand bond
market was constrained by relatively high
short term interest rates, reflecting
concerns about the weaker New Zealand dollar.
At October 31, 1997, 90 day bank
bills were 7.84%.
Currency
The New Zealand dollar depreciated by 4.6%
against the US dollar over the
quarter. At October 31, 1997, the dollar was
trading at US62 cents. On the date
of this report, the dollar was trading at
US60 cents.
5
<PAGE>
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, 1996
July 31, 1997 October 31, 1997
- ---------------------------------------------
- --------------------------------
<S> <C> <C>
<C>
Australia:
90 day Bank
Bills 6.53%
4.85% 4.84%
10 year Bonds 7.35%
6.34% 5.96%
New Zealand:
90 day Bank
Bills 8.84%
7.94% 7.84%
10 year Bonds 7.29%
6.66% 6.54%
<CAPTION>
- ---------------------------------------------
- --------------------------------
</TABLE>
EquitiLink International Management Limited
6
<PAGE>
- ---------------------------------------------
- -------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Portfolio of Investments
October 31, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------
- ------------
<C> <S>
<C>
Principal
Amount
Local
Currency
Value
(000) Description
(US$)
- ---------------------------------------------
- ------------
LONG-TERM INVESTMENTS--124.2%
AUSTRALIA--120.2%
Government and Semi-Government--
67.5%
Commonwealth of Australia--36.9%
Australian Capital
Territory,
A$ 10,000 12.00%, 11/15/01............ $
8,608,936
Commonwealth Bank of
Australia,
45,000 12.00%, 7/15/99.............
35,134,132
Commonwealth of Australia,
15,000 14.00%, 4/15/99.............
11,865,015
15,000 12.00%, 7/15/99.............
11,731,898
10,000 7.00%, 4/15/00..............
7,326,811
89,900 13.00%, 7/15/00.............
75,390,323
5,000 13.00%, 12/15/00............
4,283,684
40,000 8.75%, 1/15/01..............
30,937,953
48,000 12.00%, 11/15/01............
41,634,870
25,000 9.75%, 3/15/02..............
20,423,571
20,000 10.00%, 10/15/02............
16,701,003
100,000 9.00%, 9/15/04..............
82,897,222
75,000 10.00%, 2/15/06.............
66,633,338
96,000 10.00%, 10/15/07............
87,737,243
62,000 8.75%, 8/15/08..............
53,033,424
60,000 7.50%, 9/15/09..............
47,439,404
Northern Territory
Authority,
40,000 12.50%, 7/15/01.............
34,446,706
--
- ------------
636,225,533
--
- ------------
New South Wales--10.3%
New South Wales Treasury
Corporation,
50,000 11.50%, 7/1/99..............
38,697,245
30,000 7.00%, 2/1/00...............
21,887,683
57,000 12.00%, 12/1/01.............
49,213,757
65,000 7.00%, 4/1/04...............
48,361,740
20,000 12.60%, 5/1/06..............
20,036,861
--
- ------------
178,197,286
--
- ------------
- ---------------------------------------------
- ------------
Principal
Amount
Local
Currency
Value
(000) Description
(US$)
- ---------------------------------------------
- ------------
Queensland--1.8%
Queensland Treasury
Corporation,
A$ 10,000 8.00%, 7/14/99.............. $
7,362,857
10,000 8.00%, 8/14/01..............
7,603,163
20,000 8.00%, 5/14/03..............
15,449,162
--
- ------------
30,415,182
--
- ------------
South Australia--4.2%
Electricity Trust of South
Australia,
5,000 13.00%, 10/1/05.............
4,961,867
South Australian Financing
Authority,
30,000 12.50%, 10/15/00............
25,115,164
50,000 10.00%, 1/15/03.............
41,689,971
--
- ------------
71,767,002
--
- ------------
Tasmania--4.9%
Tasmanian Public Finance
Corporation,
15,000 8.25%, 11/15/99.............
11,165,703
13,000 12.50%, 1/15/01.............
11,001,255
75,000 9.00%, 11/15/04.............
61,572,415
--
- ------------
83,739,373
--
- ------------
Victoria--5.9%
Treasury Corporation of
Victoria,
5,000 10.25%, 9/15/99.............
3,833,341
36,000 12.50%, 10/15/03............
33,648,186
70,500 10.25%, 11/15/06............
63,565,143
--
- ------------
101,046,670
--
- ------------
Western Australia--3.5%
Western Australia Treasury
Corporation,
70,000 10.00%, 7/15/05.............
60,940,574
--
- ------------
Total Australian government
and semi-government
(cost US$1,159,357,779).....
1,162,331,620
--
- ------------
Eurobonds--42.5%
Banking and Finance--14.2%
Australia Industrial
Development Corporation,
5,000 8.75%, 7/20/04..............
4,001,022
5,000 9.50%, 9/22/04..............
4,157,119
</TABLE>
See
Notes to Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------
- ------------
<C> <S>
<C>
Principal
Amount
Local
Currency
Value
(000) Description
(US$)
- ---------------------------------------------
- ------------
Banking and Finance (cont'd.)
Bank Austria AG,
A$ 10,000 10.875%, 11/17/04........... $
8,794,351
Banque National de Paris,
14,000 9.00%, 8/13/02..............
11,017,638
Commerzbank Overseas
Finance,
5,000 10.50%, 1/19/00.............
3,875,602
10,000 10.25%, 4/28/00.............
7,779,423
Commonwealth Bank of
Australia,
10,000 9.00%, 8/15/05..............
8,215,248
Credit Locale de France,
20,000 8.75%, 7/23/01..............
15,408,942
5,000 10.25%, 4/12/05.............
4,339,457
Eksport Finance & Insurance,
4,000 7.00%, 6/28/00..............
2,899,133
19,000 11.00%, 12/29/04............
16,995,966
Federal National Mortgage
Association Global,
20,000 6.50%, 7/10/02..............
14,538,668
Finnish Eksport Credit,
2,925 9.25%, 12/30/99.............
2,209,962
GG Securities,
5,000 9.25%, 3/24/03..............
4,007,026
GMAC Australia Finance Ltd.
6,500 9.00%, 5/22/01..............
5,007,185
Merrill Lynch & Co.
Australia
15,000 7.10%, 3/8/99...............
10,810,124
Morgan Guaranty Trust,
10,000 8.00%, 4/18/01..............
7,506,626
National Australia Bank,
25,000 8.00%, 4/10/01..............
18,763,667
Primary Industry Bank of
Australia,
5,000 6.75%, 2/25/99..............
3,586,089
Rural & Industries Bank of
Western Australia,
5,000 8.75%, 9/9/99...............
3,717,885
Societe Generale Australia,
5,000 7.75%, 2/19/01..............
3,719,052
South Australia Financing
Authority,
5,000 11.25%, 10/23/01............
4,163,885
State Bank of New South
Wales,
5,000 12.25%, 2/26/01.............
4,189,595
20,000 11.75%, 8/16/01.............
16,809,183
14,000 8.625%, 8/20/01.............
10,754,250
28,000 10.75%, 3/12/02.............
23,245,022
10,000 9.25%, 2/18/03..............
8,022,743
- ---------------------------------------------
- ------------
Principal
Amount
Local
Currency
Value
(000) Description
(US$)
- ---------------------------------------------
- ------------
State Bank of South
Australia,
A$ 10,000 11.00%, 4/10/02............. $
8,380,259
10,000 9.50%, 10/15/02.............
8,053,477
--
- ------------
244,968,599
--
- ------------
Diversified Industrials--0.6%
Australian National Railway,
4,000 9.50%, 2/25/99..............
2,962,375
Federal Airports
Corporation,
10,000 7.00%, 2/16/04..............
7,380,627
--
- ------------
10,343,002
--
- ------------
Semi-Government and Local
Government--19.6%
New South Wales Treasury
Corporation,
44,000 11.50%, 7/1/99..............
34,053,576
50,000 12.00%, 12/1/01.............
43,230,285
10,000 7.00%, 4/1/04...............
7,400,132
7,000 10.50%, 12/7/04.............
6,123,175
10,000 10.00%, 6/6/05..............
8,625,989
7,000 9.25%, 6/20/05..............
5,820,625
50,000 6.50%, 5/1/06...............
34,929,215
34,000 12.60%, 5/1/06..............
33,906,494
65,000 8.00%, 3/1/08...............
51,609,630
Province Aples Cotes D'Azur,
22,000 8.25%, 9/15/99..............
16,238,770
Province of Quebec,
16,000 9.50%, 10/2/02..............
12,773,612
Queensland Treasury
Corporation,
25,000 8.00%, 5/14/03..............
19,358,495
10,000 6.50%, 6/14/05..............
7,206,412
20,000 12.00%, 6/15/05.............
19,133,296
30,000 8.00%, 9/14/07..............
23,961,273
State Electricity Commission
of
Victoria,
7,000 9.25%, 9/18/03..............
5,711,153
Treasury Corporation of
Victoria,
10,000 8.25%, 10/15/03.............
7,847,123
--
- ------------
337,929,255
--
- ------------
Supranational Global--8.1%
Eurofima,
88,170 9.875%, 1/17/07.............
77,712,147
</TABLE>
See
Notes to Financial Statements.
8
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------
- ------------
<C> <S>
<C>
Principal
Amount
Local
Currency
Value
(000) Description
(US$)
- ---------------------------------------------
- ------------
Supranational Global (cont'd.)
European Bank of
Reconstruction &
Development,
A$ 65,000 9.00%, 10/15/02............. $
52,154,500
European Investment Bank,
3,000 10.25%, 10/1/01.............
2,302,423
10,000 7.25%, 4/22/02..............
7,420,165
--
- ------------
139,589,235
--
- ------------
Total Australian eurobonds
(cost US$716,693,006).......
732,830,091
--
- ------------
Corporate Bonds--10.2%
Asset Backed--0.1%
FANMAC 22,
2,060 11.40%, 12/15/01............
1,652,491
FANMAC 25,
480 10.33%, 6/15/02.............
379,940
--
- ------------
2,032,431
--
- ------------
Floating Rate Notes*--3.1%
Arms Fund II,
10,000 5.10%, 5/10/24..............
7,035,211
Crusade Trust,
4,755 5.17%, 7/10/29..............
3,349,854
GIO Australia Holdings
Limited,
4,500 5.34%, 11/16/98.............
3,171,284
Korean Long Term Credit
Bank,
15,000 5.0983%, 12/17/99...........
10,328,004
Puma Management Limited,
15,000 7.50%, 12/5/28..............
10,990,954
20,000 6.90%, 2/15/30..............
14,489,483
Residential Mortgage Backed
Trust,
4,916 5.1033%, 10/7/22............
3,477,058
--
- ------------
52,841,848
--
- ------------
Services--7.0%
AMP Shopping Centre Trust,
5,000 6.20%, 3/31/01..............
3,550,735
Federal Airports
Corporation,
15,000 10.50%, 7/15/99.............
11,580,758
Korea Development Bank,
8,000 7.50%, 8/9/99...............
5,796,040
Macquarie Bank Limited,
1,000 9.75%, 8/1/00...............
768,158
National Power PLC
20,000 8.00%, 2/21/07..............
15,255,512
- ---------------------------------------------
- ------------
Principal
Amount
Local
Currency
Value
(000) Description
(US$)
- ---------------------------------------------
- ------------
Telstra Corporation,
A$ 40,000 12.50%, 11/15/00............ $
33,512,181
20,000 11.50%, 10/15/02............
17,320,740
2,000 7.80%, 7/17/03..............
1,524,933
31,000 12.00%, 5/15/06.............
29,793,618
2,000 8.75%, 1/15/20..............
1,750,174
--
- ------------
120,852,849
--
- ------------
Total Australian corporate
bonds
(cost US$172,764,726).......
175,727,128
--
- ------------
Total Australian long-term
investments
(cost US$2,048,815,511).....
2,070,888,839
--
- ------------
NEW ZEALAND--4.0%
Government Bonds--2.8%
New Zealand Government
Bonds,
NZ$ 20,000 10.00%, 3/15/02.............
13,979,319
20,000 8.00%, 4/15/04..............
13,344,839
30,000 8.00%, 11/15/06.............
20,543,125
--
- ------------
Total New Zealand government
bonds
(cost US$48,247,564)........
47,867,283
--
- ------------
Eurobonds--1.2%
European Investment Bank,
6,000 9.00%, 7/16/99..............
3,825,238
Federal National Mortgage
Association Global,
8,000 7.00%, 9/26/00..............
4,980,015
International Bank of
Reconstruction &
Development,
20,000 7.00%, 9/18/00..............
12,402,672
--
- ------------
Total New Zealand eurobonds
(cost US$21,568,545)
21,207,925
--
- ------------
Total New Zealand long-term
investments
(cost US$69,816,109)........
69,075,208
--
- ------------
Total long-term investments
(cost US$2,118,631,620).....
2,139,964,047
--
- ------------
SHORT-TERM INVESTMENTS--10.1%
AUSTRALIA--8.0%
Demand Deposit--5.6%
Banque National de Paris,
4.60%,
A$ 136,533 (cost US$96,763,661)........
95,935,148
--
- ------------
</TABLE>
See
Notes to Financial Statements.
9
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------
- ------------
<C> <S>
<C>
Principal
Amount
Local
Currency
Value
(000) Description
(US$)
- ---------------------------------------------
- ------------
Government and Semi-Government--
1.3%
Commonwealth of Australia--0.7%
Commonwealth of Australia,
A$ 5,000 13.00%, 4/15/98............. $
3,639,898
Telstra Corporation,
10,000 12.00%, 9/1/98..............
7,437,408
--
- ------------
11,077,306
--
- ------------
South Australia--0.6%
South Australian Financing
Authority,
15,000 12.50%, 3/15/98.............
10,825,290
--
- ------------
Total Australian government
and semi-government
(cost US$24,382,968)........
21,902,596
--
- ------------
Eurobonds--0.9%
Banking and Finance--0.4%
Commonwealth Bank of
Australia,
11,000 12.75%, 1/7/98..............
7,828,607
--
- ------------
Diversified Industrials--0.1%
Shell Australia,
1,786 10.00%, 12/19/97............
1,263,861
--
- ------------
Semi-Government and Local
Government--0.4%
New South Wales Treasury
Corporation,
10,000 7.50%, 2/1/98...............
7,075,404
--
- ------------
Total Australian eurobonds
(cost US$17,902,498)
16,167,872
--
- ------------
Corporate Bond--0.2%
Primary Industry Bank of
Australia,
5,000 8.00%, 5/15/98
(cost US$3,526,196).......
3,573,150
--
- ------------
Total Australian short-term
investments
(cost US$142,575,323).......
137,578,766
--
- ------------
NEW ZEALAND--0.1%
NZ$ 2,027 State Street Bank Call
Account,
6.35%,
(cost US$1,286,252).......
1,263,346
--
- ------------
- ---------------------------------------------
- ------------
Principal
Amount
Local
Currency
Value
(000) Description
(US$)
- ---------------------------------------------
- ------------
UNITED STATES--2.0%
$ 35,450 Repurchase Agreement,
State Street Bank & Trust
Co., 5.40%, dated
10/31/97, due 11/03/97 in
the amount of $35,465,953
(cost US$35,450,000;
collateralized by
US$28,220,000 United
States Treasury Bond, due
2/15/20; value including
accrued
interest-US$36,164,918)... $
35,450,000
--
- ------------
Total short-term investments
(cost US$179,311,575).......
174,292,112
--
- ------------
Total Investments--134.3%
(cost US$2,297,943,195;
Note 3)...................
2,314,256,159
Other assets in excess of
liabilities--0.5%.........
8,769,303
Liquidation value of
preferred
stock--(34.8%)............
(600,000,000)
--
- ------------
Net Assets Applicable to
Common
Shareholders--100%........
$1,723,025,462
--
- ------------
--
- ------------
</TABLE>
- ---------------
* The interest rate reflected for floating
rate notes is the rate in effect at
October 31, 1997.
See
Notes to Financial Statements.
10
<PAGE>
- ---------------------------------------------
- -------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Assets and Liabilities
October 31, 1997
- ---------------------------------------------
- -------------
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments, at value (cost
$2,297,943,195).....................
$2,314,256,159
Cash..................................
640,343
Interest receivable...................
53,703,350
Other assets..........................
159,581
----
- ----------
Total assets......................
2,368,759,433
----
- ----------
Liabilities
Payable for investments purchased.....
27,423,081
Dividends payable-common stock........
11,684,660
Withholding taxes payable.............
3,041,526
Investment management fee payable.....
1,206,591
Dividends payable-preferred stock.....
1,164,525
Accrued expenses and other
liabilities.........................
980,311
Administration fee payable............
233,277
----
- ----------
Total liabilities.................
45,733,971
----
- ----------
Total Net Assets......................
$2,323,025,462
----
- ----------
----
- ----------
Total net assets were composed of:
Common stock:
Par value ($.01 per share,
applicable to
194,744,328 shares)............. $
1,947,443
Paid-in capital in excess of
par...............................
1,672,575,425
Preferred stock ($.01 par value per
share and
$25,000 liquidation value per
share
applicable to 24,000 shares; Note
4)................................
600,000,000
----
- ----------
2,274,522,868
Undistributed net investment
income............................
796,639
Accumulated net realized gains on
investments.......................
9,209,133
Net unrealized appreciation on
investments.........................
159,849,272
Accumulated net realized and
unrealized foreign exchange
losses............................
(121,352,450)
----
- ----------
Total net assets....................
$2,323,025,462
----
- ----------
----
- ----------
Net assets applicable to common
shareholders......................
$1,723,025,462
----
- ----------
----
- ----------
Net asset value per common share:
($1,723,025,462 / 194,744,328 shares
of
common stock issued and
outstanding)........................
$8.85
----
- ----------
----
- ----------
</TABLE>
- ---------------------------------------------
- -------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Operations
Year Ended October 31, 1997
- ---------------------------------------------
- -------------
<TABLE>
<CAPTION>
Net Investment Income
<S> <C>
Income
Interest and discount earned (net of
foreign
withholding taxes of
$13,154,985)....................... $
192,743,394
---
- ----------
Expenses
Investment management fee............
12,637,375
Custodian's fees and expenses........
2,700,000
Administration fee...................
2,676,338
Auction agent's fees and broker
commissions..........................
1,670,000
Shareholder relations and
communications.......................
939,000
Transfer agent's fees and expenses...
650,000
Directors' fees and expenses.........
495,000
Independent accountant's fees and
expenses.............................
212,000
Legal fees and expenses..............
200,000
Insurance expense....................
126,000
Miscellaneous........................
76,000
---
- ----------
Total operating expenses.............
22,381,713
---
- ----------
Net investment income before excise
tax..................................
170,361,681
Excise tax...........................
(775,219)
---
- ----------
Net investment income..................
169,586,462
---
- ----------
Realized and Unrealized
Gains (Losses) on Investments
and Foreign Currencies
Net realized gains on investment
transactions.........................
9,798,919
Net change in unrealized appreciation
on investments.......................
76,842,257
---
- ----------
Net gains on investments...............
86,641,176
---
- ----------
Net increase in total net assets from
operations before net foreign
exchange losses......................
256,227,638
Net realized and unrealized foreign
exchange losses......................
(274,306,145)
---
- ----------
Net Decrease In Total Net Assets
Resulting From Operations.............. $
(18,078,507)
---
- ----------
---
- ----------
</TABLE>
See
Notes to Financial Statements.
11
<PAGE>
- ---------------------------------------------
- -------------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Cash Flows
Year Ended October 31, 1997
- ---------------------------------------------
- -------------
<TABLE>
<CAPTION>
Increase (Decrease) in Cash
(Including Foreign Currency)
<S> <C>
Cash flows used for operating
activities
Interest received (net of foreign
withholding taxes)............... $
201,548,852
Expenses paid......................
(23,462,720)
Purchases of short-term portfolio
investments, net.................
(13,898,728)
Purchases of long-term portfolio
investments........................
(1,924,595,090)
Proceeds from sales of long-term
portfolio
investments......................
1,961,228,646
Other..............................
(10,141)
-----
- ----------
Net cash provided from operating
activities.......................
200,810,819
-----
- ----------
Cash flows provided from financing
activities
Dividends and distributions paid to
preferred shareholders...........
(32,354,148)
Dividends and distributions paid to
common
shareholders.....................
(159,778,443)
-----
- ----------
Net cash used for financing
activities.......................
(192,132,591)
-----
- ----------
Effect of changes in exchange rate...
(9,069,831)
-----
- ----------
Net decrease in cash.................
(391,603)
Cash at beginning of year..........
1,031,946
-----
- ----------
Cash at end of year................ $
640,343
-----
- ----------
-----
- ----------
Reconciliation of Net Decrease in Total
Net Assets from Operations to Net Cash
(Including Foreign Currency) Provided
From Operating Activities
Net decrease in total net assets
resulting from
operations......................... $
(18,078,507)
-----
- ----------
Increase in investments............
(4,688,253)
Net realized gain on investment
transactions.......................
(9,798,919)
Net change in unrealized
appreciation on
investments......................
(76,842,257)
Net realized and unrealized foreign
exchange losses..................
274,306,145
Decrease in interest receivable....
9,392,189
Net increase in other assets.......
(10,141)
Increase in payable for investments
purchased........................
27,423,081
Decrease in accrued expenses and
other liabilities................
(892,519)
-----
- ----------
Total adjustments................
218,889,326
-----
- ----------
Net cash provided from operating
activities........................... $
200,810,819
-----
- ----------
-----
- ----------
</TABLE>
- ---------------------------------------------
- -------------
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 1997
1996
-------------- -
- -------------
<S> <C>
<C>
Operations
Net investment income... $ 169,586,462 $
149,191,364
Net realized gains on
investment
transactions.......... 9,798,919
3,752,308
Net change in unrealized
appreciation on
investments........... 76,842,257
104,837,565
-------------- -
- -------------
Net increase in total
net assets resulting
from operations before
net foreign exchange
gains (losses)........ 256,227,638
257,781,237
Net realized and
unrealized foreign
exchange gains
(losses).............. (274,306,145)
93,023,604
-------------- -
- -------------
Net increase (decrease) in
total net assets
resulting from
operations.............. (18,078,507)
350,804,841
-------------- -
- -------------
Dividends to shareholders
from net investment
income
Common shares........... (159,569,671)
(142,448,343)
Preferred shares........ (32,946,291)
(23,607,820)
-------------- -
- -------------
(192,515,962)
(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................. 1,725,751
5,241,634
-------------- -
- -------------
1,725,751
427,972,016
-------------- -
- -------------
Total increase
(decrease).............. (208,868,718)
604,689,070
Total Net Assets
Beginning of year......... 2,531,894,180
1,927,205,110
-------------- -
- -------------
End of year............... $2,323,025,462
$2,531,894,180
-------------- -
- -------------
-------------- -
- -------------
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
- ---------------------------------------------
- -------------
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 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 losses of $274,306,145 include
realized foreign exchange gains and losses
from sales and maturities of
portfolio securities, sales of foreign
currencies, currency gains or losses
realized between the trade and settlement
dates on securities transactions, the
difference between the amounts of interest,
discount and foreign withholding
taxes recorded on the Fund's books and the US
dollar equivalent amounts actually
received or paid and changes in unrealized
foreign exchange gains and losses in
the value of portfolio securities and other
assets and liabilities
13
<PAGE>
arising as a result of changes in the
exchange rate. Accumulated net realized
and unrealized foreign exchange losses shown
in the composition of net assets at
October 31, 1997 represent foreign exchange
losses for book purposes that have
not yet been recognized for tax purposes.
Foreign security and currency transactions
may involve certain considerations
and risks not typically associated with those
of domestic origin, including
unanticipated movements in the value of the
foreign currency relative to the
U.S. dollar.
The exchange rate at October 31, 1997 was
US$.7026 to A$1.00 for the
Australian dollar and US$.6232 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 fiscal year ended October 31,
1997, the Fund increased undistributed
net investment income by $1,975,989,
decreased accumulated net realized gains on
investments by $1,524,475, increased
accumulated net realized foreign exchange
gains by $1,014,354 and decreased paid in
capital in excess of par by
$1,465,868. 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.
On March 13, 1997, the Fund terminated its
consultant agreement with the
Prudential Insurance Company of America (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
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
14
<PAGE>
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 and Consultant for
their services rendered. The Investment
Manager informed the Fund that it paid
$5,602,463 to the Investment Adviser and
$84,081 to the Consultant during the
fiscal year ended October 31, 1997.
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,
0.10% of such assets between $900
million and $1,750 million and 0.07% of such
assets in excess of $1,750 million.
During the year, the Administrator remitted
$240,000 to Professional Consulting
Services Limited for administrative services
provided.
Note 3. Portfolio Purchases and
sales of invest-
Securities ment
securities, other than
short-term
investments, for the fiscal year ended
October 31, 1997 aggregated $1,952,018,171
and $1,955,554,450, respectively.
The United States federal income tax basis
of the Fund's investments at
October 31, 1997 was $2,155,570,844 and
accordingly, net unrealized appreciation
for United States federal income tax purposes
was $158,685,315 (gross unrealized
appreciation--$164,113,964; gross unrealized
depreciation--$5,428,649).
Note 4. Capital There are 400
million shares
of common stock
authorized. Of the 194,744,328
common shares outstanding at October 31,
1997, the Investment Manager owned
56,240 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.
During the fiscal year ended October 31,
1997 the Fund issued 184,572 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 4.86% to 6.25% during the
fiscal year ended October 31, 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 November 17,
1997 and
And Distributions December 12,
1997 the Board
of Directors of
the Fund declared distributions
from undistributed net investment income of
$.06 per common share payable on
December 12, 1997 and January 16, 1998 to
common shareholders of record on
November 28, 1997 and December 31, 1997.
Subsequent to October 31, 1997, dividends
and distributions declared and paid
on Preferred Stock totalled approximately
$4,122,785 for the nine outstanding
preferred share series in the aggregate
through December 12, 1997.
15
<PAGE>
- ---------------------------------------------
- -----------------------------------
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
Financial Highlights
- ---------------------------------------------
- -----------------------------------
<TABLE>
<CAPTION>
Years ended October 31,
- ---------------------------------------------
- -------------------------
PER SHARE OPERATING PERFORMANCE:
1997* 1996* 1995*
1994 1993
<S>
<C> <C> <C>
<C> <C>
- ---------- ---------- ----------
- ---------- ----------
Net asset value per common share, beginning
of
year.........................................
... $ 9.93 $ 9.36 $ 8.82
$ 10.09 $ 9.61
- ---------- ---------- ----------
- ---------- ----------
Net investment
income.............................
.87 .87 .93
1.01 1.19
Net realized and unrealized gain (loss) on
investments and foreign
currencies.............. (.96)
1.13 1.16 (1.03)
.58
- ---------- ---------- ----------
- ---------- ----------
Total from investment
operations................ (.09)
2.00 2.09 (.02)
1.77
- ---------- ---------- ----------
- ---------- ----------
Dividends from net investment income to
preferred
shareholders.................................
... (.17) (.14)
(.17) (.12) (.11)
Dividends from net investment income to
common
shareholders.................................
... (.82) (.83)
(.83) (.84) (1.08)
Distributions from net capital and currency
gains
to preferred
shareholders.......................
- -- (.02) (.01)
(.01) (.01)
Distributions from net capital and currency
gains
to common
shareholders..........................
- -- (.03) (.15)
(.17) (.08)
- ---------- ---------- ----------
- ---------- ----------
Total dividends and
distributions............... (.99)
(1.02) (1.16) (1.14)
(1.28)
- ---------- ---------- ----------
- ---------- ----------
Capital charge in respect to issuance of
shares... -- (.41)
(.39) (.11) (.01)
- ---------- ---------- ----------
- ---------- ----------
Net asset value per common share, end of
year..... $ 8.85 $ 9.93 $
9.36 $ 8.82 $ 10.09
- ---------- ---------- ----------
- ---------- ----------
- ---------- ---------- ----------
- ---------- ----------
Market price per common share, end of
year........ $ 8.125 $ 8.94 $
9.31 $ 9.56 $ 10.25
- ---------- ---------- ----------
- ---------- ----------
- ---------- ---------- ----------
- ---------- ----------
TOTAL INVESTMENT RETURN BASED OND:
Market
value......................................
(0.42)% 5.59% 8.78%
3.32% 15.00%
Net asset
value...................................
(2.37)% 16.73% 18.54%
(3.19)% 17.80%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS/SUPPLEMENTAL DATAPound:
ExpensesDD...................................
..... 1.25% 1.29%
1.47% 1.41% 1.44%
Net investment income before preferred stock
dividends....................................
... 9.17% 9.16%
10.83% 10.68% 12.13%
Preferred stock
dividends.........................
1.78% 1.45% 1.87%
1.20% 1.13%
Net investment income available to common
shareholders.................................
... 7.39% 7.71%
8.96% 9.48% 11.00%
Portfolio turnover
rate........................... 85%
63% 50% 34%
23%
Net assets of common shareholders, end of
year
(000
omitted)...................................
$1,723,025 $1,931,894 $1,452,205
$1,088,631 $1,050,084
Average net assets of common shareholders
(000
omitted).....................................
... $1,848,378 $1,627,916 $1,201,383
$1,174,394 $1,011,324
Senior securities (preferred stock)
outstanding
(000
omitted)...................................
$ 600,000 $ 600,000 $ 475,000
$ 400,000 $ 350,000
Asset coverage of preferred stock at year
end..... 387% 422%
406% 372% 400%
</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.
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. Expense ratios
relative to the
average net assets of common and
preferred shareholders
are .95%, .94%, 1.05%, 1.05% and
1.07%, respectively.
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.
16
<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,
1997, 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, 1997 by
correspondence with the custodian and brokers
and the application of alternative
auditing procedures where confirmations from
brokers were not received, provide
a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
December 12, 1997
17
<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, 1997) as to the tax status of
dividends, distributions and foreign tax
credits paid by the Fund during the
fiscal year. During fiscal year 1997, the
Fund paid dividends from net
investment 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>
Net
Dividends
Foreign and
Gross Taxes Distributions
Common Shares
Amount Paid Paid
<S>
<C> <C> <C>
----------------------------
- ---------------------------------------------
- ---
Ordinary Income:
Australia
$ .8446 $ .047 $ .7976
United States
.0037 -- .0037
New Zealand
.0187 -- .0187
Capital Gains:
- -- -- --
- --------- ------- -------------
$ .8670 $ .0470 $ .8200
- --------- ------- -------------
- --------- ------- -------------
<CAPTION>
Preferred Shares
----------------------------
- ---------------------------------------------
- ---
<S>
<C> <C> <C>
Series A:
Ordinary Income:
Australia
$1,394.75 $ 80.49 $1,314.26
United States
6.12 -- 6.12
New Zealand
30.87 -- 30.87
Capital Gains:
- -- -- --
- --------- ------- -------------
$1,431.74 $ 80.49 $1,351.25
- --------- ------- -------------
- --------- ------- -------------
Series B:
Ordinary Income:
Australia
$1,400.36 $ 80.82 $1,319.54
United States
6.14 -- 6.14
New Zealand
30.99 -- 30.99
Capital Gains:
- -- -- --
- --------- ------- -------------
$1,437.49 $ 80.82 $1,356.67
- --------- ------- -------------
- --------- ------- -------------
Series C:
Ordinary Income:
Australia
$1,496.63 $ 86.37 $1,410.26
United States
6.56 -- 6.56
New Zealand
33.12 -- 33.12
Capital Gains:
- -- -- --
- --------- ------- -------------
$1,536.31 $ 86.37 $1,449.94
- --------- ------- -------------
- --------- ------- -------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Net
Dividends
Foreign and
Gross Taxes Distributions
Common Shares
Amount Paid Paid
----------------------------
- ---------------------------------------------
- ---
<S>
<C> <C> <C>
Series D:
Ordinary Income:
Australia
$1,419.88 $ 81.94 $1,337.94
United States
6.23 -- 6.23
New Zealand
31.42 -- 31.42
Capital Gains:
- -- -- --
- --------- ------- -------------
$1,457.53 $ 81.94 $1,375.59
- --------- ------- -------------
- --------- ------- -------------
Series E:
Ordinary Income:
Australia
$1,329.23 $ 79.60 $1,299.63
United States
6.05 -- 6.05
New Zealand
30.52 -- 30.52
Capital Gains:
- -- -- --
- --------- ------- -------------
$1,415.80 $ 79.60 $1,336.20
- --------- ------- -------------
- --------- ------- -------------
Series F:
Ordinary Income:
Australia
$1,392.31 $ 80.35 $1,311.96
United States
6.11 -- 6.11
New Zealand
30.81 -- 30.81
Capital Gains:
- -- -- --
- --------- ------- -------------
$1,429.23 $ 80.35 $1,348.88
- --------- ------- -------------
- --------- ------- -------------
Series G:
Ordinary Income:
Australia
$1,410.50 $ 81.40 $1,329.10
United States
6.19 -- 6.19
New Zealand
31.22 -- 31.22
Capital Gains:
- -- -- --
- --------- ------- -------------
$1,447.91 $ 81.40 $1,336.51
- --------- ------- -------------
- --------- ------- -------------
Series H:
Ordinary Income:
Australia
$1,417.05 $ 81.78 $1,335.27
United States
6.21 -- 6.21
New Zealand
31.36 -- 31.36
Capital Gains:
- -- -- --
- --------- ------- -------------
$1,454.62 $ 81.78 $1,372.84
- --------- ------- -------------
- --------- ------- -------------
Series I:
Ordinary Income:
Australia
$1,405.56 $ 81.12 $1,324.44
United States
6.16 -- 6.16
New Zealand
31.11 -- 31.11
Capital Gains:
- -- -- --
- --------- ------- -------------
$1,442.83 $ 81.12 $1,361.71
- --------- ------- -------------
- --------- ------- -------------
</TABLE>
19
<PAGE>
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 1998 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 1997 federal income
tax returns.
20
<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.
21
<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
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)
367-7403
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
