<PAGE>
(R)
The First Australia
Prime Income
Fund, Inc.
- --------------------------------------------------
- -----------------
Semi-Annual Report
April 30, 1998
Highlights
- 10.7% cash distribution rate for the year.
- Shareholders attending the AGM approved
amendments to
the Fund's mandate including: allowing up to
35% of
assets to be invested in Asian debt
securities.
- NAV return of 10.5% per annum since
inception,
assuming reinvestment of distributions.
- Australian Dollar depreciation detracts from
performance.
<PAGE>
LETTER TO
SHAREHOLDERS
June 12, 1998
Dear Shareholder,
We are pleased to present this semi-annual
report which covers the activities
of The First Australia Prime Income Fund, Inc.
('the Fund') for the six months
ended April 30, 1998. 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.
Annual General Meeting
We are pleased with the positive outcome of the
Annual General Meeting which
was held on May 14, 1998. The Shareholders
attending voted to amend the Fund's
mandate, allowing it to invest up to 35% of its
assets in Asian debt securities
and to permit it to invest in certain derivative
securities. These amendments
were unanimously supported by the Board of
Directors. The ability to now
selectively invest in Asian debt securities should
allow the Fund to capitalize
on a high interest rate opportunity and the
potential for future capital gains.
This supports our goal of providing a very
competitive yield for our
Shareholders.
Investment Markets
The Australian bond market was strong over the
six months to April 30, 1998,
supported by slower economic growth and continued
low inflation. Australian
10-year bond yields finished the period at 5.77%,
down 0.19%. Ninety-day bank
bill rates rose from 4.84% to 4.97%. Since the end
of April, the bond market has
continued to perform strongly. Australian 10-year
bond yields have fallen 0.20%
to 5.57% at the date of this report. Over the same
period, 90-day bank bills
rates have risen 0.67% to 5.64% on market
expectations of an interest rate
increase to support the Australian dollar.
The New Zealand bond market weakened over the
period driven by a weaker New
Zealand dollar. Ten-year government bond rates
rose from 6.54% to 6.76%.
Slower economic growth, continued low inflation
and an improving Federal
budget position will support the Australian bond
market. However, bond yields
are vulnerable to any adverse movements in the
U.S. bond market.
The Australian dollar fell by US5 cents to US65
cents over the six months to
April 30, 1998. During this period the most
significant factors affecting the
currency were concerns about the Asian crisis and
the associated fall in
commodity prices. Since April 30, the Australian
dollar fell 9.5% to US59 cents
against the U.S. dollar.
Investment Performance
The Fund's Net Asset Value (NAV) in U.S. dollar
terms returned -7.8% over the
six months and -9.8% over the year to April 30,
1998, due to the fall in the
Australian dollar. Since inception the Fund's NAV
has returned 10.5% per annum
to April 30, 1998. The Fund's share price return
was -8.1% for the six months
and -13.8% for the year. Since inception the share
price return was 9.7% per
annum. The NAV and share price returns both assume
reinvestment of
distributions.
Distributions
Distributions for the year to April 30, 1998
totalled US76 cents per share.
Based upon the share price of US$7.125 at April
30, 1998, the cash distribution
rate for the year was 10.7%. Since all
distributions are paid after deducting
1
<PAGE>
Australian and New Zealand withholding taxes, the
effective yield is higher for
those U.S. investors who are able to claim a tax
credit. At its meeting held on
June 11, 1998, the Board of Directors resolved to
continue paying a monthly
distribution of US6 cents per share through
September when the Board will review
the position at its next quarterly meeting.
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 re-invest your
distributions in shares of the Fund's common stock
at favorable commission
rates. The Plan also enables you to make
additional cash investments in shares
of at least US$100 per month. Under this
arrangement, the Plan Agent will
purchase shares for you on the stock exchange or
otherwise on the open market on
or about the 15th of each month.
As a Participant in the Plan, you will have the
convenience of:
Automatic reinvestment -- the Plan Agent will
automatically reinvest your
distributions, allowing you to gradually grow your
holdings in the Fund;
Lower costs -- shares 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.
The following chart shows the return earned by
shareholders who invested
US$10,000 on April 30, 1986 and have participated
in the Dividend Reinvestment
Plan.
(CHART)
2
<PAGE>
To request a brochure containing information of
the Plan, together with an
authorization form, please telephone the Plan
Agent, State Street Bank & Trust
Company, toll-free on 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
on 1-800-323-9995.
Sincerely,
Laurence S. Freedman
Brian M. Sherman
Chairman
President
REPORT OF THE INVESTMENT
MANAGER
PERFORMANCE
Distributions
During the 12 months to April 30, 1998, the
Fund paid a total of US76 cents
per share in distributions, consisting of four
monthly payments of US7 cents per
share and eight monthly payments of US6 cents per
share. 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 June 1998. The Board will
review the Fund's current monthly distribution
rate of US6 cents per share at
the next meeting of the Board of Directors to be
held in September 1998.
Based upon the April 30, 1998 share price of
US$7.125 and total distributions
paid over the past 12 months, the shares provided
an annual cash distribution
rate of 10.7%. All distributions are paid after
deducting Australian and New
Zealand withholding taxes.
Net Asset Value Performance
The Net Asset Value (NAV) per share of the Fund
at April 30, 1998 was
US$7.79. Assuming reinvestment of distributions,
the NAV decreased by 7.8% over
the six months and by 9.8% over the year to April
30, 1998 principally as a
result of the decline in the Australian Dollar.
Since inception, the Fund's NAV
has returned 10.5% per annum to April 30, 1998. At
the date of this report, the
NAV per share was US$6.80.
Share Price
At April 30, 1998 the share price was US$7.125,
representing a discount of
8.5% to the NAV. At the date of this report, the
share price closed at US$6.625,
representing a 2.6% discount to the NAV. The
Fund's total investment return,
based on share price and assuming reinvestment of
distributions, was -8.1% for
the six months and -13.8% for the year to April
30, 1998. Since inception the
share price return was 9.7% per annum.
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 5.34%, compared with 5.51% for 30-
day U.S. Commercial Paper.
Quality of Investments
The Fund has maintained a high credit quality.
As of April 30, 1998, 98% 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 2% 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 April
30, 1998.
<TABLE>
<CAPTION>
Ratings Australia & New Zealand
U.S.
<S> <C>
<C>
- --------------------------------------------------
- ----
AAA 73
100
AA 25
- --
A 2
- --
- --------------------------------------------------
- ----
Total 100%
100 %
- --------------------------------------------------
- ----
</TABLE>
Portfolio Composition
The following table shows the geographic
composition of the Fund's
investments.
<TABLE>
<CAPTION>
United
Date Australia New
Zealand States
<S> <C> <C>
<C>
- --------------------------------------------------
- ----------------------
April 30, 1998 96%
3% 1%
January 31, 1998 95%
3% 2%
October 31, 1997 95%
3% 2%
July 31, 1997 99%
- -- 1%
April 30, 1997 98%
1% 1%
- --------------------------------------------------
- ----------------------
</TABLE>
At April 30, 1998 the average maturity of the
Fund's assets, including cash,
was 5.5 years. This compares with 5.6 years at
January 31, 1998 and 5.8 years at
April 30, 1997. 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>
April 30, 1998 7% 41%
46% 6%
January 31, 1998 6% 44%
42% 8%
October 31, 1997 6% 43%
44% 7%
July 31, 1997 6% 41%
40% 13%
April 30, 1997 8% 44%
38% 10%
- --------------------------------------------------
- ------------------------------------------
</TABLE>
4
<PAGE>
The following table shows the sectoral
composition of the portfolio at April
30, 1998:
<TABLE>
<CAPTION>
- --------------------------------------------------
- -----------------------------------
State and
Eurobonds & Commercial
Government* Semi Govt.**
Corporates Banks***
- --------------------------------------------------
- -----------------------------------
<S> <C> <C>
<C> <C>
Australia 27.2% 23.6%
39.4% 6.1%
New Zealand 1.6% --
1.3% 0.1%
United States -- --
- -- 0.7%
----------- ------------
- ----------- ----------
Total 28.8% 23.6%
40.7% 6.9%
- --------------------------------------------------
- -----------------------------------
* Includes government guaranteed debt.
** Includes State Government Guaranteed Banks.
*** Includes cash held by the Fund's custodian and
repurchase agreements.
</TABLE>
- --------------------------------------------------
- ------------------------------
REVIEW AND OUTLOOK FOR THE AUSTRALIAN
AND NEW ZEALAND
FINANCIAL MARKETS
- --------------------------------------------------
- ------------------------------
AUSTRALIA
Economy
The Australian economy slowed from mid-1997,
reflecting the impact of the
Asian crisis on export growth. Domestic demand
remained firm, supported by
private consumption and a housing sector recovery.
Inflation remained low, with
underlying (core) inflation at a 1.5% annualized
rate in the March quarter. The
Manager expects that the Asian crisis will
continue to dampen economic growth
through 1998. Higher import prices are expected to
lead to inflation drifting
back over 2%. The Manager also expects Australia's
current account deficit to
continue to be a negative influence throughout
1998.
Fixed Income
The Australian bond market was strong over the
six months to April 30, 1998.
Australian 10-year bond yields finished at 5.77%
down 0.19%. Ninety-day bank
bill rates rose from 4.84% to 4.97%. The positive
differential between
Australian 10-year Government bond rates and U.S.
10-year Government bond rates
fell 0.03% to 0.10%.
Slower economic growth, continued low inflation
and an improving Federal
Budget position will support the Australian bond
market. However, bond yields
are vulnerable to any adverse movements in the
U.S. bond market.
Since the end of April, the bond market has
performed strongly. Australian
10-year bond yields have fallen 0.20% to 5.57% at
the date of this report. Over
the same period, 90-day bank bills rates rose
0.67% to 5.64%, on market
expectations of an interest rate increase to
support the Australian dollar.
Currency
The Australian dollar depreciated by 7.1%
against the U.S. dollar. At April
30, 1998, the Australian dollar was trading at US
65 cents. The Australian
dollar's weakness reflected continuing concerns
about weaker commodity prices
and a higher current account deficit in the wake
of the Asian economic crisis.
Looking ahead, the dollar will remain vulnerable
to adverse events in the Asian
region. However, once the region stabilizes, any
improvements in commodity price
prospects should see renewed strength in the
Australian dollar. At the date of
this report, the Australian dollar was trading at
US59 cents.
5
<PAGE>
NEW ZEALAND
Economy
Economic growth has moderated and the
unemployment rate has risen to 7.1%,
reflecting developments in Asia. Looking ahead,
the Manager expects economic
activity to be supported by the easing in overall
monetary conditions. The
budget is likely to remain in surplus. The current
account deficit is expected
to remain high throughout 1998. The CPI is
forecast to remain within the Reserve
Bank of New Zealand's 0%-3% target range.
Fixed Income
Over the six months to April 30, 1998, New
Zealand 10-year government bond
rates rose from 6.54% to 6.76%. Bond market
weakness was associated with a drop
in the New Zealand dollar and an increase in short-
term interest rates. At the
end of April, 90-day bank bills were 8.64%. The
New Zealand market has shown
some strength in the more recent period. Since the
end of April, New Zealand
10-year bond rates have fallen 0.05% to 6.71% at
the date of this report.
Currency
The New Zealand dollar depreciated by 11.0%
against the U.S. dollar over the
six months to April 30, 1998. The weakness
reflected concerns about the Asian
economic crisis on New Zealand exports and the
current account deficit. At the
end of April, the currency was trading at US56
cents. On the date of this
report, the New Zealand dollar was trading at US50
cents.
Summary of Key Market Rates
The following table summarizes the movements of
key interest rates and
currencies in Australia and New Zealand over the
last 12- and 6-month periods.
<TABLE>
<CAPTION>
- --------------------------------------------------
- -------------------------
April 30, 1997 October
31, 1997 April 30, 1998
- --------------------------------------------------
- -------------------------
<S> <C> <C>
<C>
Australia:
90 day bank
bills 5.91%
4.84% 4.97%
10 year Bonds 7.83%
5.96% 5.77%
Australian
Dollar US$0.78 US$
0.70 US$0.65
New Zealand:
90 day Bank
Bills 6.80%
7.84% 8.64%
10 year bonds 7.85%
6.54% 6.76%
NZ Dollar US$0.69 US$
0.62 US$0.56
</TABLE>
EquitiLink
International Management Limited
6
<PAGE>
- --------------------------------------------------
- --------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Portfolio of Investments
April 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------
- -------
Principal
Amount
Local
Currency
Value
(000) Description
(US$)
- --------------------------------------------------
- -------
<C> <S> <C>
LONG-TERM INVESTMENTS--127.8%
AUSTRALIA--123.8%
Government and Semi-Government--72.7%
Commonwealth of Australia--36.7%
Australian Capital
Territory,
A$ 10,000 12.00%, 11/15/01............ $
7,872,883
Commonwealth Bank of
Australia,
45,000 12.00%, 7/15/99.............
31,698,449
Commonwealth of Australia,
15,000 12.00%, 7/15/99.............
10,587,328
89,900 13.00%, 7/15/00.............
68,151,193
5,000 13.00%, 12/15/00............
3,880,635
40,000 8.75%, 1/15/01..............
28,428,700
48,000 12.00%, 11/15/01............
38,005,718
80,000 9.00%, 9/15/04..............
61,436,050
60,000 10.00%, 2/15/06.............
49,373,556
116,000 10.00%, 10/15/07............
98,169,310
87,000 8.75%, 8/15/08..............
69,136,940
80,000 7.50%, 9/15/09..............
58,876,226
Northern Territory
Authority,
40,000 12.50%, 7/15/01.............
31,407,721
-------
- -------
557,024,709
-------
- -------
New South Wales--13.9%
New South Wales Treasury
Corporation,
50,000 11.50%, 7/1/99..............
34,973,955
35,000 7.00%, 2/1/00...............
23,515,784
57,000 12.00%, 12/1/01.............
45,001,195
65,000 7.00%, 4/1/04...............
44,749,817
20,000 12.60%, 5/1/06..............
18,428,687
60,000 8.00%, 3/1/08...............
44,309,325
-------
- -------
210,978,763
-------
- -------
Queensland--1.9%
Queensland Treasury
Corporation,
10,000 8.00%, 7/14/99..............
6,751,883
10,000 8.00%, 8/14/01..............
7,029,628
20,000 8.00%, 5/14/03..............
14,354,952
-------
- -------
28,136,463
-------
- -------
- --------------------------------------------------
- -------
Principal
Amount
Local
Currency
Value
(000) Description
(US$)
- --------------------------------------------------
- -------
South Australia--4.3%
Electricity Trust of South
Australia,
A$ 5,000 13.00%, 10/1/05............. $
4,567,292
South Australian Financing
Authority,
30,000 12.50%, 10/15/00............
22,784,142
50,000 10.00%, 1/15/03.............
38,319,201
-------
- -------
65,670,635
-------
- -------
Tasmania--5.1%
Tasmanian Public Finance
Corporation,
15,000 8.25%, 11/15/99.............
10,244,155
13,000 12.50%, 1/15/01.............
9,979,455
75,000 9.00%, 11/15/04.............
56,708,231
-------
- -------
76,931,841
-------
- -------
Victoria--6.1%
Treasury Corporation of
Victoria,
5,000 10.25%, 9/15/99.............
3,484,690
36,000 12.50%, 10/15/03............
30,840,794
70,500 10.25%, 11/15/06............
58,720,318
-------
- -------
93,045,802
-------
- -------
Western Australia--4.7%
Western Australia Treasury
Corporation,
70,000 10.00%, 7/15/05.............
56,299,560
20,000 8.00%, 10/15/07.............
14,775,258
-------
- -------
71,074,818
-------
- -------
Total Australian government
and semi-government
(cost US$1,190,182,494).....
1,102,863,031
-------
- -------
Eurobonds--43.6%
Banking and Finance--12.4%
Australia Industrial
Development Corporation,
5,000 8.75%, 7/20/04..............
3,704,973
5,000 9.50%, 9/22/04..............
3,832,475
</TABLE>
See
Notes to Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------
- -------
Principal
Amount
Local
Currency
Value
(000) Description
(US$)
- --------------------------------------------------
- -------
<C> <S> <C>
Banking and Finance (cont'd.)
Bank Austria AG,
A$ 10,000 10.875%, 11/17/04........... $
8,072,742
Banque National de Paris,
14,000 9.00%, 8/13/02..............
10,164,635
Commerzbank Overseas
Finance,
5,000 10.50%, 1/19/00.............
3,529,824
10,000 10.25%, 4/28/00.............
7,101,392
Commonwealth Bank of
Australia,
10,000 9.00%, 8/15/05..............
7,567,188
Credit Locale de France,
20,000 8.75%, 7/23/01..............
14,173,096
5,000 10.25%, 4/12/05.............
3,996,110
Federal National Mortgage
Association Global,
20,000 6.50%, 7/10/02..............
13,458,048
Finnish Eksport Credit,
2,925 9.25%, 12/30/99.............
2,024,149
GMAC Australia Finance
Limited,
6,500 9.00%, 5/22/01..............
4,606,876
Morgan Guaranty Trust,
10,000 8.00%, 4/18/01..............
6,927,068
National Australia Bank,
25,000 8.00%, 4/10/01..............
17,310,605
Rural & Industries Bank of
Western Australia,
5,000 8.75%, 9/9/99...............
3,408,899
Societe Generale Australia,
5,000 7.75%, 2/19/01..............
3,429,186
State Bank of New South
Wales,
5,000 12.25%, 2/26/01.............
3,810,699
20,000 11.75%, 8/16/01.............
15,332,968
14,000 8.625%, 8/20/01.............
9,911,810
28,000 10.75%, 3/12/02.............
21,333,299
10,000 9.25%, 2/18/03..............
7,380,840
State Bank of South
Australia,
5,000 7.25%, 6/15/00..............
3,377,055
10,000 11.00%, 4/10/02.............
7,690,270
10,000 9.50%, 10/15/02.............
7,417,107
-------
- -------
189,561,314
-------
- -------
Diversified Industrial--0.7%
Federal Airports
Corporation,
15,000 7.00%, 2/16/04..............
10,286,306
-------
- -------
- --------------------------------------------------
- -------
Principal
Amount
Local
Currency
Value
(000) Description
(US$)
- --------------------------------------------------
- -------
Semi-Government and Local
Government--20.6%
New South Wales Treasury
Corporation,
A$ 44,000 11.50%, 7/1/99.............. $
30,777,081
25,000 8.00%, 12/1/01..............
17,656,236
50,000 12.00%, 12/1/01.............
39,369,346
10,000 7.00%, 4/1/04...............
6,901,376
7,000 10.50%, 12/7/04.............
5,643,513
10,000 10.00%, 6/6/05..............
7,943,694
7,000 9.25%, 6/20/05..............
5,374,763
50,000 6.50%, 5/1/06...............
32,717,986
34,000 12.60%, 5/1/06..............
31,328,768
60,000 8.00%, 3/1/08...............
44,309,325
Province Aples Cotes D'Azur,
22,000 8.25%, 9/15/99..............
14,912,504
Province of Quebec,
10,000 9.50%, 10/2/02..............
7,367,022
Queensland Treasury
Corporation,
25,000 8.00%, 5/14/03..............
17,933,752
10,000 6.50%, 6/14/05..............
6,722,836
20,000 12.00%, 6/15/05.............
17,618,115
30,000 8.00%, 9/14/07..............
22,208,769
South Australia Financing
Authority,
5,000 11.25%, 10/23/01............
3,813,036
-------
- -------
312,598,122
-------
- -------
Supranational Global--9.9%
Eksportfinans,
4,000 7.00%, 6/28/00..............
2,689,330
19,000 11.00%, 12/29/04............
15,617,547
Eurofima,
88,170 9.875%, 1/17/07.............
71,833,589
European Bank of
Reconstruction &
Development,
69,000 9.00%, 10/15/02.............
50,708,005
European Investment Bank,
3,000 10.25%, 10/1/01.............
2,118,731
10,000 7.25%, 4/22/02..............
6,885,364
-------
- -------
149,852,566
-------
- -------
Total Australian eurobonds
(cost US$701,643,165).......
662,298,308
-------
- -------
</TABLE>
See
Notes to Financial Statements.
8
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------
- -------
Principal
Amount
Local
Currency
Value
(000) Description
(US$)
- --------------------------------------------------
- -------
<C> <S> <C>
Corporate Bonds--7.5%
Asset Backed--0.1%
FANMAC 22,
A$ 1,855 11.40%, 12/15/01............ $
1,371,253
FANMAC 25,
438 10.33%, 6/15/02.............
320,122
-------
- -------
1,691,375
-------
- -------
Floating Rate Notes*--0.8%
Crusade Trust,
4,156 5.74%, 7/10/29..............
2,718,200
Initial Corporate
Obligation,
3,000 5.2333%, 9/19/03............
1,958,720
Puma Management Limited,
10,000 7.50%, 2/5/00...............
6,759,096
-------
- -------
11,436,016
-------
- -------
Services--6.6%
AMP Shopping Centre Trust,
5,000 6.20%, 3/31/01..............
3,295,539
Bank Of Western Australia
Limited,
10,000 7.75%, 6/9/03...............
7,022,187
8,000 7.25%, 9/29/03..............
5,514,855
Federal Airports
Corporation,
15,000 10.50%, 7/15/99.............
10,407,316
Macquarie Bank Limited,
1,000 9.75%, 8/1/00...............
707,300
Merrill Lynch & Co.
Australia
10,000 7.625%, 3/15/02.............
6,895,619
National Power PLC,
20,000 8.00%, 2/21/07..............
14,061,019
Telstra Corporation,
30,000 12.50%, 11/15/00............
22,815,768
10,000 11.50%, 10/15/02............
7,935,352
2,000 7.80%, 7/17/03..............
1,417,133
21,000 12.00%, 5/15/06.............
18,442,134
2,000 8.75%, 1/15/20..............
1,618,964
-------
- -------
100,133,186
-------
- -------
Total Australian corporate
bonds
(cost US$117,989,177).......
113,260,577
-------
- -------
Total Australian long-term
investments
(cost US$2,009,814,836).....
1,878,421,916
-------
- -------
- --------------------------------------------------
- -------
Principal
Amount
Local
Currency
Value
(000) Description
(US$)
- --------------------------------------------------
- -------
NEW ZEALAND--4.0%
Government Bonds--2.2%
New Zealand Government
Bonds,
NZ$ 7,000 10.00%, 3/15/02............. $
4,226,529
20,000 8.00%, 4/15/04..............
11,582,091
30,000 8.00%, 11/15/06.............
17,824,803
-------
- -------
Total New Zealand government
bonds
(cost US$39,038,053)
33,633,423
-------
- -------
Eurobonds--1.8%
Federal National Mortgage
Association Global,
8,000 7.00%, 9/26/00..............
4,323,866
10,000 7.25%, 6/20/02..............
5,471,404
European Investment Bank,
6,000 9.00%, 7/16/99..............
3,351,068
International Bank of
Reconstruction &
Development,
26,000 7.00%, 9/18/00..............
14,191,814
-------
- -------
Total New Zealand Eurobonds
(cost US$30,834,696)........
27,338,152
-------
- -------
Total New Zealand long-term
investments
(cost US$69,872,749)........
60,971,575
-------
- -------
Total long-term investments
(cost US$2,079,687,585).....
1,939,393,491
-------
- -------
SHORT-TERM INVESTMENTS--12.1%
AUSTRALIA--10.9%
Demand Deposits--8.5%
A$ 107,419 Banque National de Paris,
4.60%.....................
70,118,658
90,000 State Street Call Deposit,
4.55%.....................
58,747,503
-------
- -------
Total Australian demand
deposits
(cost US$131,847,781).......
128,866,161
-------
- -------
Eurobonds--1.1%
Banking and Finance--0.9%
Merrill Lynch & Co.
Australia,
15,000 7.10%, 3/8/99...............
9,950,867
Primary Industry Bank of
Australia,
5,000 6.75%, 2/25/99..............
3,304,482
-------
- -------
13,255,349
-------
- -------
</TABLE>
See
Notes to Financial Statements.
9
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------
- -------
Principal
Amount
Local
Currency
Value
(000) Description
(US$)
- --------------------------------------------------
- -------
<C> <S> <C>
Diversified Industrials--0.2%
Australian National Railway,
A$ 4,000 9.50%, 2/25/99.............. $
2,700,265
-------
- -------
Total Australian eurobonds
(cost US$17,721,515)........
15,955,614
-------
- -------
Government and Semi-Government--1.3%
Commonwealth of Australia,
15,000 14.00%, 4/15/99.............
10,608,379
Primary Industry Bank of
Australia,
5,000 8.00%, 5/15/98..............
3,267,953
Telstra,
10,000 12.00%, 9/1/98..............
6,677,698
-------
- -------
Total Australian government
and semi-government
(cost US$23,466,473)........
20,554,030
-------
- -------
Total Australian short-term
investments
(cost US$173,035,769).......
165,375,805
-------
- -------
NEW ZEALAND--0.2%
NZ$ 4,396 State Street Bank Call
Account, 2.0%
(cost US$2,515,560).......
2,444,613
-------
- -------
- --------------------------------------------------
- -------
Principal
Amount
Local
Currency
Value
(000) Description
(US$)
- --------------------------------------------------
- -------
UNITED STATES--1.0%
US$ 15,134 Repurchase Agreement,
State Street Bank & Trust
Co., 5.35%, dated 4/30/98,
due 5/1/98 in the amount
of $15,136,249 (cost
US$15,134,000;
collateralized by
US$10,235,000 United
States Treasury Note, due
8/15/15; value including
accrued
interest-US$15,437,266)... $
15,134,000
-------
- -------
Total short-term investments
(cost US$190,685,329).......
182,954,418
-------
- -------
Total Investments--139.9%
(cost US$2,270,372,914)...
2,122,347,909
Liabilities in excess of
other
assets--(0.3%)............
(4,626,902)
Liquidation value of
preferred
stock--(39.6%)............
(600,000,000)
-------
- -------
Net Assets Applicable to
Common
Shareholders--100%........
$1,517,721,007
-------
- -------
-------
- -------
</TABLE>
- ---------------
* The interest rate reflected for floating rate
notes is the rate in effect at
April 30, 1998.
See
Notes to Financial Statements.
10
<PAGE>
<TABLE>
- --------------------------------------------------
- --------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Assets and Liabilities
April 30, 1998
(Unaudited)
- --------------------------------------------------
- --------
<CAPTION>
Assets
<S> <C>
Investments, at value (cost
$2,270,372,914).....................
$2,122,347,909
Interest receivable...................
48,687,343
Other assets..........................
80,654
---------
- -----
Total assets......................
2,171,115,906
---------
- -----
Liabilities
Bank overdraft........................
258,104
Payable for investments purchased.....
34,467,472
Dividends payable-common stock........
11,684,660
Withholding taxes payable.............
3,089,705
Accrued expenses and other
liabilities.........................
1,645,130
Dividends payable-preferred stock.....
1,185,284
Investment management fee payable.....
893,681
Administration fee payable............
170,863
---------
- -----
Total liabilities.................
53,394,899
---------
- -----
Total Net Assets......................
$2,117,721,007
---------
- -----
---------
- -----
Total net assets were composed of:
Common stock:
Par value ($.01 per share,
applicable to
194,744,328 shares)............. $
1,947,443
Paid-in capital in excess of
par...............................
1,672,384,757
Preferred stock ($.01 par value per
share and
$25,000 liquidation value per
share
applicable to 24,000 shares; Note
4)................................
600,000,000
---------
- -----
2,274,332,200
Distributions in excess of net
investment income.................
(11,749,838)
Accumulated net realized gains on
investments.......................
15,750,371
Net unrealized appreciation on
investments.........................
118,467,560
Accumulated net realized and
unrealized foreign exchange
losses............................
(279,079,286)
---------
- -----
Total net assets....................
$2,117,721,007
---------
- -----
---------
- -----
Net assets applicable to common
shareholders......................
$1,517,721,007
---------
- -----
---------
- -----
Net asset value per common share:
($1,517,721,007 / 194,744,328 shares
of
common stock issued and
outstanding)........................
$7.79
---------
- -----
---------
- -----
</TABLE>
<TABLE>
- --------------------------------------------------
- --------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Operations
Six Months Ended April 30, 1998
(Unaudited)
- --------------------------------------------------
- --------
<CAPTION>
Net Investment Income
<S> <C>
Income
Interest and discount earned (net of
foreign
withholding taxes of $5,314,359)... $
93,036,191
--------
- -----
Expenses
Investment management fee............
5,849,801
Custodian's fees and expenses........
1,375,000
Administration fee...................
1,258,014
Auction agent's fees and broker
commissions..........................
835,000
Consulting fee.......................
500,000
Shareholder relations and
communications.......................
460,000
Transfer agent's fees and expenses...
340,000
Directors' fees and expenses.........
275,000
Independent accountant's fees and
expenses.............................
106,000
Legal fees and expenses..............
100,000
Insurance expense....................
73,000
Miscellaneous........................
37,562
--------
- -----
Total operating expenses.............
11,209,377
--------
- -----
Net investment income before excise
tax..................................
81,826,814
Excise tax...........................
(190,668)
--------
- -----
Net investment income..................
81,636,146
--------
- -----
Realized and Unrealized
Gains (Losses) on Investments
and Foreign Currencies
Net realized gains on investment
transactions.........................
7,973,012
Net change in unrealized depreciation
on investments.......................
(41,381,712)
--------
- -----
Net loss on investments................
(33,408,700)
--------
- -----
Net increase in total net assets from
operations before net foreign
exchange losses......................
48,227,446
Net realized and unrealized foreign
exchange losses......................
(166,842,135)
--------
- -----
Net Decrease In Total Net Assets
Resulting From Operations..............
$(118,614,689)
--------
- -----
--------
- -----
</TABLE>
See
Notes to Financial Statements.
11
<PAGE>
<TABLE>
- --------------------------------------------------
- --------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Cash Flows
Six Months Ended April 30, 1998
(Unaudited)
- --------------------------------------------------
- --------
<CAPTION>
Increase (Decrease) in Cash
(Including Foreign Currency)
<S> <C>
Cash flows used for operating
activities
Interest received (net of foreign
withholding taxes)................. $
98,100,377
Expenses paid........................
(10,710,550)
Proceeds from sales of short-term
portfolio investments, net.........
19,086,461
Purchases of long-term portfolio
investments..........................
(429,157,679)
Proceeds from sales of long-term
portfolio
investments........................
452,658,902
Other................................
78,927
--------
- -----
Net cash provided from operating
activities.........................
130,056,438
--------
- -----
Cash flows provided from financing
activities
Dividends and distributions paid to
preferred shareholders.............
(16,562,683)
Dividends and distributions paid to
common
shareholders.......................
(65,052,704)
Distributions to common shareholders
in excess of net investment
income.............................
(5,053,620)
--------
- -----
Net cash used for financing
activities.........................
(86,669,007)
--------
- -----
Effect of changes in exchange rate.....
(44,285,878)
--------
- -----
Net decrease in cash...................
(898,447)
Cash at beginning of period..........
640,343
--------
- -----
Cash at end of period................ $
(258,104)
--------
- -----
--------
- -----
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...........................
$(118,614,689)
--------
- -----
Decrease in investments..............
35,543,293
Net realized gain on investment
transactions.........................
(7,973,012)
Net change in unrealized depreciation
on
investments........................
41,381,712
Net realized and unrealized foreign
exchange losses....................
166,842,135
Decrease in interest receivable......
5,016,007
Net decrease in other assets.........
78,927
Increase in payable for investments
purchased..........................
7,044,391
Increase in accrued expenses and
other liabilities..................
737,674
--------
- -----
Total adjustments..................
248,671,127
--------
- -----
Net cash provided from operating
activities............................. $
130,056,438
--------
- -----
--------
- -----
</TABLE>
- --------------------------------------------------
- --------
THE FIRST AUSTRALIA PRIME INCOME
FUND, INC.
Statement of Changes
in Net Assets
(Unaudited)
- --------------------------------------------------
- --------
<TABLE>
<CAPTION>
Six Months
Ended Year
Ended
Increase (Decrease) April 30,
October 31,
in Total Net Assets 1998
1997
-------------- ------
- --------
<S> <C> <C>
Operations
Net investment income... $ 81,636,146 $
169,586,462
Net realized gains on
investment
transactions.......... 7,973,012
9,798,919
Net change in unrealized
appreciation
(depreciation) on
investments........... (41,381,712)
76,842,257
-------------- ------
- --------
Net increase in total
net assets resulting
from operations before
net foreign exchange
losses................ 48,227,446
256,227,638
Net realized and
unrealized foreign
exchange losses....... (166,842,135)
(274,306,145)
-------------- ------
- --------
Net decrease in total net
assets resulting from
operations.............. (118,614,689)
(18,078,507)
-------------- ------
- --------
Dividends to shareholders
from net investment
income
Common shares........... (65,052,704)
(159,569,671)
Preferred shares........ (16,583,442)
(32,946,291)
-------------- ------
- --------
(81,636,146)
(192,515,962)
Distributions to common
shareholders in excess
of net investment
income................ (5,053,620)
- --
-------------- ------
- --------
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
-------------- ------
- --------
Total decrease............ (205,304,455)
(208,868,718)
Total Net Assets
Beginning of period....... 2,323,025,462
2,531,894,180
-------------- ------
- --------
End of period............. $2,117,721,007
$2,323,025,462
-------------- ------
- --------
-------------- ------
- --------
</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,
nondiversified management 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. At
the annual meeting of
shareholders on May 14, 1998, shareholders voted
and approved a series of
related proposals to amend the Fund's investment
policies and restrictions to
allow the Fund to invest a portion of its assets
in Asian debt securities (see
Note 6).
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
reporting periods;
(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 April 30, 1998.
Similarly, the Fund isolates the effect of changes
in foreign exchange rates
from the fluctuations arising from changes in the
market prices of portfolio
securities sold during the reporting periods.
Net realized and unrealized foreign exchange
losses of $166,842,135 include
realized foreign exchange gains and losses from
sales and maturities of
portfolio securities, sales of foreign currencies,
currency gains or losses
realized between the trade and settlement dates on
securities transactions, the
difference between the amounts of interest,
discount and foreign withholding
taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts
actually received or paid and changes in
unrealized foreign exchange gains and
losses in the value of portfolio securities and
other assets and liabilities
13
<PAGE>
arising as a result of changes in the exchange
rate. Accumulated net realized
and unrealized foreign exchange losses shown in
the composition of net assets at
April 30, 1998 represent foreign exchange losses
for book purposes that have not
yet been recognized for tax purposes.
Foreign security and currency transactions may
involve certain considerations
and risks not typically associated with those of
domestic origin, including
unanticipated movements in the value of the
foreign currency relative to the
U.S. dollar.
The exchange rate at April 30, 1998 was
US$.6528 to A$1.00 for the Australian
dollar and US$.5561 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 prior 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, 1998, the
Fund decreased undistributed net
investment income by $7,492,857, decreased
accumulated net realized gains on
investments by $1,431,774, increased accumulated
net realized foreign exchange
gains by $9,115,299 and decreased paid in capital
in excess of par by $190,668.
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 management agreement provides the
Investment Manager with a fee, computed
weekly and payable monthly, at the following
annual rates: 0.65% of the Fund's
average weekly total net assets of common and
preferred shareholders up to $200
million, 0.60% of such assets between $200 million
and $500 million, 0.55% of
such assets between $500 million and $900 million,
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 services
rendered. The Investment Manager informed the Fund
that it paid $2,394,335 to
the Investment Adviser during the six months ended
April 30, 1998.
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
14
<PAGE>
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, 1998 aggregated $436,202,070 and
$422,004,646, respectively.
The United States federal income tax basis of
the Fund's investments at April
30, 1998 was $2,005,044,315 and accordingly, net
unrealized appreciation for
United States federal income tax purposes was
$117,303,594 (gross unrealized
appreciation--$127,718,420; gross unrealized
depreciation--$10,414,826).
Note 4. Capital There are 400
million shares
of common stock
authorized. Of the 194,744,328
common shares outstanding at April 30, 1998, the
Investment Manager owned 58,052
shares.
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.
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
5.06% to 6.00% during the six
months ended April 30, 1998. 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 18, 1998 and
June
And Distributions 12, 1998 the Board
of Direc-
tors of the Fund
declared distributions from
income of $.06 per common share payable on June
12, 1998 and July 10, 1998 to
shareholders of record on May 29, 1998 and June
30, 1998.
Subsequent to April 30, 1998, dividends and
distributions declared and paid
on Preferred Stock totalled approximately
$3,943,860 for the nine outstanding
preferred share series in the aggregate through
June 12, 1998.
Note 6. Amendments At the annual
meeting of
to Investment shareholders held on
May 14,
Policies 1998, shareholders
approved
amendments that
allow the Fund to invest up to 35%
of its total assets in (1) debt securities of
Asian country issuers, including
securities issued by Asian country governmental
entities, as well as by banks,
companies and other entities which are located in
Asian countries, whether or
not denominated in an Asian country currency, (2)
in debt securities of other
issuers, denominated in, or linked to, the
currency of an Asian country,
including securities issued by supranational
issuers, such as The World Bank and
derivative debt securities that replicate or
substitute for, the currency of an
Asian country, (3) in debt securities which are
denominated in New Zealand
dollars of issuers, whether or not domiciled in
New Zealand, and (4) in U.S.
debt securities. The maximum country exposure to
any one Asian country currency
is limited to 15% of the Fund's total assets and
the maximum currency exposure
to any one Asian country currency is limited to
10% of the Fund's total assets.
Shareholders approved amendments that would
allow the Fund to invest up to
35% of its assets in Asian debt securities for
which there is no established
relevant market. Shareholders also approved
amendments to allow the Fund to
invest up to 15% of its total assets in Asian debt
securities rated below
investment grade. In addition, shareholders
approved amendments to the Fund's
investment restrictions to allow the Fund to use
derivatives and be able to
purchase mortgage backed securities.
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:
1998* 1997* 1996* 1995*
1994
- ---------- ---------- ---------- -----
- ----- ----------
<S>
<C> <C> <C> <C>
<C>
Net asset value per common share, beginning of
period........................................
$ 8.85 $ 9.93 $ 9.36 $
8.82 $ 10.09
- ---------- ---------- ---------- -----
- ----- ----------
Net investment income...........................
.42 .87 .87 .93
1.01
Net realized and unrealized gain (loss) on
investments and foreign currencies............
(1.03) (.96) 1.13 1.16
(1.03)
- ---------- ---------- ---------- -----
- ----- ----------
Total from investment operations..............
(.61) (.09) 2.00 2.09
(.02)
- ---------- ---------- ---------- -----
- ----- ----------
Dividends from net investment income to
preferred shareholders........................
(.09) (.17) (.14) (.17)
(.12)
Dividends from net investment income to common
shareholders..................................
(.33) (.82) (.83) (.83)
(.84)
Dividends in excess of net investment income to
common shareholders...........................
(.03) -- -- --
- --
Distributions from net capital and currency
gains to preferred shareholders...............
- -- -- (.02) (.01)
(.01)
Distributions from net capital and currency
gains to common shareholders..................
- -- -- (.03) (.15)
(.17)
- ---------- ---------- ---------- -----
- ----- ----------
Total dividends and distributions.............
(.45) (.99) (1.02) (1.16)
(1.14)
- ---------- ---------- ---------- -----
- ----- ----------
Capital charge in respect to issuance of
shares........................................
- -- -- (.41) (.39)
(.11)
- ---------- ---------- ---------- -----
- ----- ----------
Net asset value per common share, end of
period........................................
$ 7.79 $ 8.85 $ 9.93 $
9.36 $ 8.82
- ---------- ---------- ---------- -----
- ----- ----------
- ---------- ---------- ---------- -----
- ----- ----------
Market price per common share, end of period....
$ 7.125 $ 8.125 $ 8.94 $
9.31 $ 9.56
- ---------- ---------- ---------- -----
- ----- ----------
- ---------- ---------- ---------- -----
- ----- ----------
TOTAL INVESTMENT RETURN BASED OND:
Market value....................................
(8.12)% (0.42)% 5.59%
8.78% 3.32%
Net asset value.................................
(7.77)% (2.37)% 16.73%
18.54% (3.19)%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS/SUPPLEMENTAL DATAPound:
ExpensesDD......................................
1.44%** 1.25% 1.29% 1.47%
1.41%
Net investment income before preferred stock
dividends.....................................
10.35%** 9.17% 9.16%
10.83% 10.68%
Preferred stock dividends.......................
2.10%** 1.78% 1.45% 1.87%
1.20%
Net investment income available to common
shareholders..................................
8.25%** 7.39% 7.71% 8.96%
9.48%
Portfolio turnover rate.........................
21% 85% 63% 50%
34%
Net assets of common shareholders, end of period
(000 omitted).................................
$1,517,721 $1,723,025 $1,931,894
$1,452,205 $1,088,631
Average net assets of common shareholders (000
omitted)......................................
$1,590,108 $1,848,378 $1,627,916
$1,201,383 $1,174,394
Senior securities (preferred stock) outstanding
(000 omitted).................................
$ 600,000 $ 600,000 $ 600,000 $
475,000 $ 400,000
Asset coverage of preferred stock at period
end...........................................
353% 387% 422% 406%
372%
<CAPTION>
PER SHARE OPERATING PERFORMANCE:
1993
<S>
<C>
- ----------
Net asset value per common share, beginning of
period........................................
$ 9.61
- ----------
Net investment income...........................
1.19
Net realized and unrealized gain (loss) on
investments and foreign currencies............
.58
- ----------
Total from investment operations..............
1.77
- ----------
Dividends from net investment income to
preferred shareholders........................
(.11)
Dividends from net investment income to common
shareholders..................................
(1.08)
Dividends in excess of net investment income to
common shareholders...........................
- --
Distributions from net capital and currency
gains to preferred shareholders...............
(.01)
Distributions from net capital and currency
gains to common shareholders..................
(.08)
- ----------
Total dividends and distributions.............
(1.28)
- ----------
Capital charge in respect to issuance of
shares........................................
(.01)
- ----------
Net asset value per common share, end of
period........................................
$ 10.09
- ----------
- ----------
Market price per common share, end of period....
$ 10.25
- ----------
- ----------
TOTAL INVESTMENT RETURN BASED OND:
Market value....................................
15.00%
Net asset value.................................
17.80%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS/SUPPLEMENTAL DATAPound:
ExpensesDD......................................
1.44%
Net investment income before preferred stock
dividends.....................................
12.13%
Preferred stock dividends.......................
1.13%
Net investment income available to common
shareholders..................................
11.00%
Portfolio turnover rate.........................
23%
Net assets of common shareholders, end of period
(000 omitted).................................
$1,050,084
Average net assets of common shareholders (000
omitted)......................................
$1,011,324
Senior securities (preferred stock) outstanding
(000 omitted).................................
$ 350,000
Asset coverage of preferred stock at period
end...........................................
400%
</TABLE>
- ---------------
* Calculated based upon weighted average
shares outstanding during
the period.
** 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. Expense ratios
relative to the
average net assets of common and preferred
shareholders
are 1.05% .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
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 May 14, 1998 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 four Directors to
serve as Class I Directors
for a three-year term expiring in 2001:
- Anthony E. Aaronson
- Roger C. Maddock
- Neville J. Miles
- John T. Sheehy
(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: Sir Roden Cutler, David
Lindsay Elsum, Rt. Hon.
Malcolm Fraser, Laurence S. Freedman,
Michael R. Horsburgh,
Harry A. Jacobs, Jr., Howard A. Knight,
William J. Potter,
Peter D. Sacks 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, 1998.
(4a) To approve an amendment to the Fund's
investment policies to
allow the Fund to invest up to 35% of its
assets in Asian
debt securities.
(4b) To approve an amendment to the Fund's
investment policies
regarding Australian debt securities.
(4c) To approve an amendment to the Fund's
investment policy
regarding liquidity.
(4d) To approve an amendment to the Fund's
investment policies
to allow the Fund to invest up to 15% of
its total assets in Asian debt securities
rated or
considered by the Investment Manager to
be, below
investment grade at the time of
investment and to
reduce the percentage of its investments
in debt
securities which are, or considered by
the Investment
Manager to be, rated AA or A quality.
(4e) To approve an amendment to the Fund's
investment
restrictions to allow the Fund to use
derivatives
and to generally be able to purchase
mortgage-backed securities.
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) Anthony E. Aaronson
150,784,570 -- 6,165,974
- --
Roger C. Maddock
150,860,935 -- 6,089,609
- --
Neville J. Miles
150,812,399 -- 6,138,146
- --
John T. Sheehy
150,838,587 -- 6,111,958
- --
(2) David Manor
12,033 -- 46
- --
Marvin Yontef
12,033 -- 46
- --
(3) Price Waterhouse LLP
150,600,645 3,257,337 34
3,104,607
(4a) Asian Investment Policy
85,844,813 13,464,613 209
4,826,100
(4b) Amend Australian debt
Policies
88,966,213 9,700,833 75
5,468,616
(4c) Liquidity Policy
86,779,485 11,492,533 72
5,863,646
(4d) Rating Policies
82,034,752 16,770,291 40
5,330,651
(4e) Derivatives Policy
85,967,966 15,817,669 54
5,350,050
</TABLE>
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
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, 1998 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-
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
