FIRST AUSTRALIA PRIME INCOME FUND INC, N-30D, 2000-01-06

FIRST AUSTRALIA PRIME INCOME FUND INC
N-30D, 2000-01-06

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<PAGE>

(LOGO) (LOGO)
The First EQUITILINK
Australia MANAGED BY
Prime Income EQUITILINK
Fund, Inc. INTERNATIONAL
- ------------------------------ MANAGEMENT
LIMITED

Annual Report October 31, 1999

Highlights
- - 79% of assets rated A or better.
- - 12.0% cash distribution rate.
- - Share price return of 20.96% over the year.
- - 22.6% of assets invested in Asian debt securities.
- - Currency risk reduced by holding 15.4% of assets denominated in US dollars.

(LOGO)
www.equitilink.com
AMEX - FAX

Managed by EquitiLink International Management Limited.

Advised by EquitiLink Australia Limited.

ALL AMOUNTS ARE U.S. DOLLARS UNLESS
OTHERWISE STATED

<PAGE>

letter to Shareholders
- -------------------------------------------------------------------------------
Dear Shareholder, December 10, 1999
We are pleased to present this Annual Report which covers the activities of
The First Australia Prime Income Fund, Inc. (the Fund) for the twelve months
ended October 31, 1999. Included in this report is a review of Australian and
selected Asian economies and investment markets, together with an overview of
the Fund's investments prepared by the Investment Manager, EquitiLink
International Management Limited.

Investment Performance: Share Price return of 20.96% over the year
The Fund's share price return was 20.96% over the year to October 31, 1999,
assuming reinvestment of distributions. The Fund's share price was $6.00 on
October 31, 1999, representing a discount to Net Asset Value (NAV) of 3.2%.

The Fund's NAV declined by 5.2% over the year but has increased by 8.8% per
annum since inception, assuming reinvestment of distributions and
non-participation in rights issues. Higher interest rates in Australia
detracted from performance. The Investment Manager believes that bond yields
will rally again in the near-term as the fundamentals for Australian and Asian
bond markets remain strong. The Fund's NAV per share was $6.20 on October 31,
1999.

Expansion into Asia: 22.6% of assets invested in Asian debt securities
The Fund held a one-for-three rights offering in October 1998 to accelerate
Asian bond investment. The offering was well supported by Shareholders, with
over-subscription requests amounting to 11% of the offering. In total, $365
million was raised, increasing the assets of the Fund to $2.3 billion on
October 31, 1999.

The net proceeds of the offer have been fully invested in the Asian region.
Through these investments, the Fund has achieved greater diversification and
scope for capital gains, as well as higher yields compared with those currently
prevailing in Australia and New Zealand. On October 31, 1999, the Fund held
22.6% of its assets in Asian debt securities. Of the Asian component, 14.0%
is held in Yankee bonds, bringing the Fund's total US dollar exposure to 15.4%.
In this way, the currency risk of the portfolio has been reduced.

The Fund has maintained a high credit quality. On October 31, 1999, 79% of the
Fund's investments were in securities where either the issue or the issuer was
rated A or better, or judged by the Investment Manager to be of equivalent
quality.

Distributions: 12% cash distribution rate
Distributions for the year totaled 72 cents per common share. Based on the
share price of $6.00 as of October 31, 1999, the cash distribution rate for the
year was 12%. Since all distributions are paid after deducting applicable
withholding taxes, the effective yield is higher for those US investors who are
able to claim a tax credit.

On March 26, 1999, the Fund announced its intention to maintain its monthly
distribution of 6 cents per share for at least the next twelve months, subject
to quarterly review.

According to its distribution policy, the Fund may pay distributions in excess
of its net income from available realized net capital gains and, to the extent
necessary, paid-in capital. Over the year, 100% of the distributions were paid
out of ordinary income and net realized capital gains.

<PAGE>

The First Australia Prime Income Fund, Inc.
- -------------------------------------------------------------------------------
Year 2000 Compliance
The EquitiLink Group has taken steps to determine that the computer systems and
equipment we use can deal with Year 2000 issues and we have sought the same of
the Fund's service providers.

For information on the Fund, including weekly updates of share price, NAV, and
details of recent distributions, please telephone Investor Relations toll free
on 1-800-323-9995 in the United States.

Yours sincerely,

Laurence S. Freedman Brian M. Sherman
Chairman President

(LOGO)
The First
Australia
Prime Income
Fund, Inc.
2

<PAGE>

Dividend Reinvestment and Cash
Purchase Plan The First Australia Prime Income Fund, Inc.
- -------------------------------------------------------------------------------
We invite you to participate in the Fund's Dividend Reinvestment and Cash
Purchase Plan (the Plan) which allows you to automatically re-invest your
distributions in shares of the Fund's common stock at favorable commission
rates. Distributions made under the Plan are taxable to the same extent as
are cash distributions. The Plan also enables you to make additional cash
investments in shares of at least $100 per month. Under this arrangement, the
Plan Agent will purchase shares for you on the stock exchange or otherwise on
the open market on or about the 15th of each month.

As a Participant in the Plan, you will have the convenience of:

Automatic reinvestment - the Plan Agent will automatically reinvest your
distributions, allowing you to gradually grow your holdings in the Fund;

Lower costs - shares purchased on your behalf under the Plan will be at
reduced brokerage rates;

Convenience - the Plan Agent will hold your shares in uncertificated form and
will provide a detailed record of your holdings at the end of each
distribution period.

If you would like further information on the Plan, please contact State Street
Bank & Trust Company, P.O. Box 8200 Boston, MA 02261 Tel: toll-free on
1-800-451-6788.
3

<PAGE>

Report of the Investment Manager The First Australia Prime Income Fund, Inc.
- -------------------------------------------------------------------------------
Distributions
Distributions for the year totaled 72 cents per common share. Based on the
share price of $6.00 as of October 31, 1999, the cash distribution rate for the
year was 12.0%. Since all distributions are paid after deducting applicable
withholding taxes, the effective yield is higher for those US investors who are
able to claim a tax credit.

On March 26, 1999, the Fund announced its intention to maintain its monthly
distribution of 6 cents per share for at least the next twelve months, subject
to quarterly review.

According to its distribution policy, the Fund may pay distributions in excess
of its net income from available realized net capital gains and, to the extent
necessary, paid-in capital. Over the year, approximately 100% of the
distributions were paid out of net investment income.

Net Asset Value Performance
The Fund's NAV per share was $6.20 on October 31, 1999. The Fund's NAV declined
by 5.2% over the year assuming reinvestment of distributions and
non-participation in rights issues. Higher interest rates in Australia
detracted from performance. The Investment Manager believes that bond yields
will rally again in the near-term as the fundamentals for Australian and Asian
bond markets remain strong. Since inception, the Fund's NAV has increased by
8.8% per annum. As of the date of this report, the NAV per share was $6.21.

Share Price
The Fund's total investment return, based on share price and assuming
reinvestment of distributions, was 20.96% over the year to October 31, 1999.
Since inception the share price return has been 8.6% per annum. On October 31,
1999, the share price was $6.00, representing a discount to NAV of 3.2%. As
of the date of this report, the share price was $5.13, representing a 17.4%
discount to NAV.

Auction Market Preferred Stock (AMPS)
The Fund's AMPS continued to be well bid with a 5.04% average interest rate
over the quarter compared with an average 5.26% for 30-day US Commercial
Paper. These rates have increased since the last quarter as the US Federal
Reserve has increased interest rates.

Quality of Investments
As of October 31, 1999, 79% of the Fund's investments were in securities where
either the issue or the issuer was rated A or better by Standard & Poor's, and
Moody's Investors Service Inc. or, if unrated, was judged to be of equivalent
quality by the Investment Manager.

<TABLE>
<CAPTION>
AAA/Aaa AA/Aa A BBB/Baa BB/Ba B
October 31, 1999 % % % % % %
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio 54.9 19.7 4.4 12.3 7.2 1.5
- -------------------------------------------------------------------------------
</TABLE>
4

<PAGE>

Report of the Investment Manager
(continued) The First Australia Prime Income Fund, Inc.
- -------------------------------------------------------------------------------

Geographic Composition/Credit Exposures
The table below shows the geographical composition (i.e. with Yankees
reallocated into country of issuance) of the Fund's total investments compared
with three months and one year ago:
<TABLE>
<CAPTION>
Asia
Australia (including NZ) United States
Date % % %
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
October 31, 1999 75.9 22.6 1.5
July 31, 1999 76.8 22.0 1.2
October 31, 1998 96.7 2.7 0.6
- -------------------------------------------------------------------------------
</TABLE>

Currency Composition
The table below shows the currency composition of the Fund's total
investments, compared with three months and one year ago:

<TABLE>
<CAPTION>
Australian Asia currencies
Dollar (including NZ) U.S. Dollar*
Date % % %
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
October 31, 1999 76.0 8.6 15.4
July 31, 1999 76.9 8.2 14.9
October 31, 1998 96.7 0.3 3.0
- -------------------------------------------------------------------------------
</TABLE>
* Includes 14.0% Asian Yankee Bonds (13.8% in July)

Interest Rate Exposure
The table below shows the country composition of the Fund's total investments
according to interest rate risk compared with three months ago:

<TABLE>
<CAPTION>
Asia
Australia (including NZ) United States
Date % % %
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
October 31, 1999 76.0 8.6 15.4
July 31, 1999 76.9 8.2 14.9
- -------------------------------------------------------------------------------
</TABLE>

Maturity Composition
On October 31, 1999, the modified duration of the portfolio was 4.0 years.
The average maturity of the portfolio was 6.6 years, increased from 4.9 years
over the twelve months.

<TABLE>
<CAPTION>
Under 3 Years 3 to 5 Years 5 to 10 Years 10 Years & Over
Date % % % %
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
October 31, 1999 32.6 12.5 46.9 8.0
- -------------------------------------------------------------------------------
</TABLE>
5

<PAGE>

Report of the Investment Manager
(continued) The First Australia Prime Income Fund, Inc.
- -------------------------------------------------------------------------------

Sectoral Composition

The following shows the sectoral composition of the portfolio at October 31,
1999:
<TABLE>
<CAPTION>
Domestic Bonds US Bonds
Ex-Australia Ex-Australia
Australia Local Yankee United States
% % % %
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government* 20.1 4.2 3.1 0.0
Semi Government** 30.1 0.9 2.1 0.0
Government Bank 0.7 1.3 2.5 0.0
Government Corporation 0.7 0.0 0.0 0.0
Utility 0.0 0.1 0.6 0.0
Supranational 3.4 0.4 0.0 0.0
Bank/Finance Company*** 15.9 1.4 1.6 0.0
Corporate 5.0 0.0 4.4 1.5
- ------------------------------------------------------------------------------------
</TABLE>

* Includes government guaranteed debt.
** Includes State Government Guaranteed Banks.
*** Includes cash held by the Fund's custodian and repurchase agreements.

<PAGE>

Market Review and Outlook The First Australia Prime Income Fund, Inc.
- -------------------------------------------------------------------------------

Australia

Economy
The Australian economy has continued to perform strongly over the past year
reflecting the benefits of stimulative monetary policy settings, large capital
investment projects surrounding the Olympics, the Asian economic recovery,
technology advancements and a competitive currency. Inflationary pressures
remain subdued although inflation is likely to edge higher through 2000.

The Reserve Bank of Australia is beginning to tighten monetary conditions,
reflecting the improvement in the global outlook. It is maintaining a
pre-emptive attitude to policy setting, dampening any new inflationary
pressure that could emerge in 2000.

Fixed Income
Australian bond yields rose over the year in anticipation of a monetary policy
tightening by the Reserve Bank of Australia and in line with the trend in
global rates. Ten-year government bond yields increased from 4.97% to 6.63%.
In early November, a 0.25% increase in official interest rates occurred, which
was less than the market generally expected.

Currency
The Australian dollar strengthened 2.3% against the US dollar over the year.
Expectations of stronger global industrial production and firmer commodity
prices have induced positive sentiment towards the currency, which closed the
period at 63.90 cents.

The resilience of Australian economic growth is a key positive for the currency
in the medium-term. Looking further out, improving global growth should lead
commodity prices higher, supporting the Australian dollar.

Asia

Economies
In 1999, the Asian region has staged a successful rebound from the recessed
conditions evident last year. Competitive Asian currencies, easy monetary
conditions, fiscal stimulus, stronger exports and production have driven the
strength of the recovery. So far this has been achieved with limited
inflationary pressure evident.

Domestic Bond and Currency Markets
Asian domestic bond markets generally rallied over the year as monetary
conditions eased and investor sentiment improved. South Korea was an
exception, weakening due to corporate concerns. Daewoo, one of South Korea's
largest companies, faced possible bankruptcy. The Fund did not hold and does
not hold any Daewoo bonds.

Asian currencies were mixed against the US dollar over the year.

Asian Yankee (US$) Bond Market
US-dollar denominated Asian bonds (Yankees) rallied over the year. Stronger
economic growth has improved credit conditions in the region and this has
benefited the Yankee bond market.

The credit outlook for both Malaysia and India has recently been raised, which
should be positive for Yankees in the medium-term. Since the end of the fiscal
year, South Korea's credit rating has been upgraded.

<PAGE>

Summary of Key Market RatesD The First Australia Prime Income Fund, Inc.
- -------------------------------------------------------------------------------

The following table summarises the movements of key interest rates and
currencies over the last three and twelve month periods.
<TABLE>
<CAPTION>
October 31, 1999 July 31, 1999 October 31, 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Australia
90 day bank bills 5.35% 4.91% 4.82%
10 year bonds 6.63% 6.24% 4.97%
Australian Dollar $ 0.64 $ 0.65 $ 0.62

New Zealand
90 day bank bills 5.29% 4.75% 4.62%
10 year bonds 7.08% 6.63% 5.38%
NZ Dollar $ 0.51 $ 0.53 $ 0.53

South Korea
90 day bank bills 7.26% 7.52% 8.00%
5 year bond 9.03% 8.81% 8.50%
South Korean Won* KRW 1200 KRW 1204 KRW 1319

Thailand
90 day bank bills 4.00% 3.25% 6.50%
10 year bond 7.81% 7.74% N/A
Thai Baht* THB 39 THB 37 THB 37

Philippines
90 day bank bills 9.75% 9.56% 15.34%
10 year bond 15.31% 15.00% 18.46%
Philippines Peso* PHP 40 PHP 39 PHP 40

Hong Kong
90 day bank bills 6.63% 6.25% 7.25%
5 year bond 7.04% 6.88% 7.37%
Hong Kong Dollar* HK$ 7.8 HK$ 7.8 HK$ 7.7

US$ Yankee Bonds**
South Korea 8.37% 8.41% 10.22%
Thailand 8.02% 8.37% 9.90%
Philippines 9.42% 9.29% 10.54%
</TABLE>

* These currencies are quoted Asian currency per U.S. dollar. The Australian
and New Zealand dollars are quoted U.S. dollars per currency.

** Ten-year sovereign issues

Yield comparisons are direct and do not take into account fluctuations in
currency exchange rates.

EquitiLink International Management Limited
December 1999
8
<PAGE>

Portfolio of Investments
October 31, 1999 The First Australia Prime Income Fund, Inc.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- --------------------------------------------------------
<C> <S> <C>
LONG-TERM INVESTMENTS--120.4%
AUSTRALIA--92.4%
Government and Semi-Government--53.1%
Commonwealth of Australia--30.0%
Australia Postal
Corp.,
A$ 5,000 5.50%, 3/25/04........ $ 3,043,810
22,000 6.00%, 3/25/09........ 12,910,845
Australian Capital Territory,
10,000 12.00%, 11/15/01...... 7,116,564
Commonwealth Bank of Australia,
10,000 5.50%, 3/1/02......... 6,287,765
5,000 6.00%, 8/1/03......... 3,138,635
2,800 7.625%, 8/5/03........ 1,831,871
12,000 5.25%, 12/1/04........ 7,198,977
8,000 6.00%, 9/1/05......... 4,893,391
10,000 6.75%, 12/1/07........ 6,320,914
4,000 6.25%, 2/10/09........ 2,578,999
20,000 6.25%, 9/1/09......... 12,123,533
Commonwealth of Australia,
5,000 13.00%, 12/15/00...... 3,459,061
30,000 8.75%, 1/15/01........ 19,881,680
48,000 12.00%, 11/15/01...... 34,246,747
50,000 9.50%, 8/15/03........ 35,498,508
55,000 9.00%, 9/15/04........ 39,129,665
20,000 7.50%, 7/15/05........ 13,463,781
20,000 10.00%, 2/15/06....... 15,102,501
56,000 10.00%, 10/15/07...... 43,314,455
92,000 8.75%, 8/15/08........ 67,095,881
117,000 7.50%, 9/15/09........ 79,554,912
85,000 5.75%, 6/15/11........ 50,286,698
Northern Territory Authority,
40,000 12.50%, 7/15/01....... 28,325,980
--------------
496,805,173
--------------
New South Wales--4.8%
New South Wales Treasury Corporation,
57,000 12.00%, 12/1/01....... 40,574,484
25,000 7.00%, 4/1/04......... 16,145,107
20,000 12.60%, 5/1/06........ 16,664,888
10,000 8.00%, 3/1/08......... 6,828,907
--------------
80,213,386
--------------
Queensland--2.7%
Queensland Treasury Corporation,
5,000 8.00%, 5/14/03........ 3,357,594
20,000 6.50%, 6/14/05........ 12,726,814
15,200 6.00%, 7/14/09........ 9,097,596
10,000 6.00%, 10/14/15....... 5,725,217
27,000 6.00%, 6/14/21........ 15,098,344
--------------
46,005,565
--------------
<CAPTION>
- --------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- --------------------------------------------------------
<C> <S> <C>
South Australia--3.6%
Electricity Trust of South Australia,
A$ 5,000 13.00%, 10/1/05....... $ 4,128,830
South Australian
Financing Authority,
40,000 10.00%, 1/15/03....... 28,209,125
40,000 7.50%, 10/15/07....... 26,500,587
--------------
58,838,542
--------------
Tasmania--3.0%
Tasmanian Public Finance Corporation,
28,000 12.50%, 1/15/01....... 19,265,005
45,000 9.00%, 11/15/04....... 31,541,889
--------------
50,806,894
--------------
Victoria--5.7%
Treasury Corporation of Victoria,
36,000 12.50%, 10/15/03...... 27,768,865
50,500 10.25%, 11/15/06...... 38,397,363
25,000 7.50%, 8/15/08........ 16,562,307
20,000 5.50%, 9/15/10........ 11,313,805
--------------
94,042,340
--------------
Western Australia--3.3%
Western Australia Treasury
Corporation,
40,000 10.00%, 7/15/05....... 29,546,877
36,000 8.00%, 10/15/07....... 24,545,821
--------------
54,092,698
--------------
Total long-term
Australian
government and
semi-government
(cost
US$963,659,783)..... 880,804,598
--------------
Eurobonds--33.2%
Banking and Finance--14.3%
Bank Austria AG,
21,278 10.875%, 11/17/04..... 15,783,476
Banque National de Paris,
14,000 9.00%, 8/13/02........ 9,410,616
BHP Finance Limited,
9,000 7.50%, 7/15/05........ 5,769,169
CitiGroup,
5,000 14.00%, 1/15/01....... 3,649,379
Commonwealth Bank of Australia,
10,000 9.00%, 8/15/05........ 6,971,219
Credit Locale de
France,
5,000 10.25%, 4/12/05....... 3,643,181
DSL Bank,
15,000 6.25%, 11/15/06....... 9,062,028
Federal National Mortgage
Association Global,
35,000 6.50%, 7/10/02........ 22,307,538
72,065 6.375%, 8/15/07....... 44,239,659
</TABLE>
9

<PAGE>

Portfolio of Investments
October 31, 1999 The First Australia Prime Income Fund, Inc.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- --------------------------------------------------------
<C> <S> <C>
Eurobonds (cont'd.)
Banking and Finance (cont'd.)
GE Capital Australia Limited,
A$ 10,000 6.50%, 12/3/01........ $ 6,408,908
5,000 6.25%, 8/15/03........ 3,144,107
15,000 6.75%, 9/15/07........ 9,367,333
GMAC Australia Finance Limited,
6,500 9.00%, 5/22/01........ 4,301,370
Jem Bonds Limited,
10,000 9.00%, 7/15/06........ 7,193,038
KFW International Finance,
5,513 9.125%, 7/26/05....... 3,846,909
9,000 7.25%, 2/20/07........ 5,778,177
Landesbank Baden
Wurttemberg,
15,000 6.25%, 12/15/04....... 9,265,561
National Australia Bank Limited,
10,000 6.00%, 8/9/02......... 6,302,247
1,000 6.3478%, 8/15/49...... 641,550
Northern Territory Authority,
5,000 10.03%, 8/9/05........ 3,653,020
Priority Trust,
2,000 6.00%, 10/15/30....... 1,283,484
State Bank of New South Wales,
5,000 12.25%, 2/26/01....... 3,433,399
20,000 11.75%, 8/16/01....... 13,878,148
28,000 10.75%, 3/12/02....... 19,419,320
6,400 9.00%, 9/17/02........ 4,318,248
10,000 9.25%, 2/18/03........ 6,822,821
State Bank of South Australia,
10,000 11.00%, 4/10/02....... 6,987,282
--------------
236,881,187
--------------
Semi-Government and Local
Government--12.9%
New South Wales Treasury
Corporation,
25,000 8.00%, 12/1/01........ 16,566,386
50,000 12.00%, 12/1/01....... 35,379,286
7,000 10.50%, 12/7/04....... 5,129,401
10,000 10.00%, 6/6/05........ 7,248,682
25,000 6.50%, 5/1/06......... 15,337,106
34,000 12.60%, 5/1/06........ 28,259,899
7,000 9.25%, 6/20/06........ 4,924,300
55,600 8.00%, 3/1/08......... 37,558,987
Queensland Treasury Corporation,
25,000 8.00%, 5/14/03........ 16,800,768
20,000 12.00%, 6/15/05....... 16,002,463
40,000 8.00%, 9/14/07........ 27,425,571
South Australia Financing Authority,
5,000 11.25%, 10/23/01...... 3,465,710
--------------
214,098,559
--------------
<CAPTION>
- --------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- --------------------------------------------------------
<C> <S> <C>
Services--0.2%
Compass Master,
A$ 5,000 7.09%, 9/15/04........ $ 3,197,734
--------------
Supranational Global--5.8%
Asian Development Bank,
10,000 5.25%, 9/15/04........ 5,974,593
EFIC,
19,000 11.00%, 12/29/04...... 14,203,109
Eurofima,
48,170 9.875%, 1/17/07....... 35,296,220
European Bank of
Reconstruction &
Development,
49,000 9.00%, 10/15/02....... 33,303,601
European Investment
Bank,
3,000 10.25%, 10/1/01....... 2,055,219
Kingdom of Sweden,
8,287 7.875%, 4/23/07....... 5,494,215
--------------
96,326,957
--------------
Total long-term
Australian eurobonds
(cost
US$609,146,962)..... 550,504,437
--------------
Corporate Bonds--6.1%
Asset Backed--0.1%
FANMAC 22,
1,334 11.40%, 12/15/01...... 922,612
FANMAC 25,
366 10.33%, 6/15/02....... 251,631
--------------
1,174,243
--------------
Floating Rate Notes*--0.2%
Crusade Trust,
2,395 5.25%, 7/10/29........ 1,528,282
Initial Corporate Obligation,
3,000 5.0483%, 9/19/03...... 2,061,669
--------------
3,589,951
--------------
Services--5.8%
ANZ Banking Group,
5,000 5.50%, 9/15/03........ 3,048,690
Austran Holdings Incorporated,
5,000 6.25%, 11/15/02....... 3,207,846
Merrill Lynch & Co.
Australia,
10,000 7.625%, 3/15/02....... 6,525,923
Sydney Airports Corporation,
2,000 6.35%, 3/15/04........ 1,236,140
</TABLE>
10

<PAGE>

Portfolio of Investments
October 31, 1999 The First Australia Prime Income Fund, Inc.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- --------------------------------------------------------
<C> <S> <C>
Services (cont'd.)
Telstra Corporation,
A$ 30,000 12.50%, 11/15/00...... $ 20,433,157
18,000 11.50%, 10/15/02...... 12,988,247
2,000 7.80%, 7/17/03........ 1,332,043
7,000 8.00%, 9/15/04........ 4,659,239
51,000 12.00%, 5/15/06....... 40,821,945
2,000 8.75%, 1/15/20........ 1,482,150
--------------
95,735,380
--------------
Total Australian
corporate bonds
(cost
US$107,661,359)..... 100,499,574
--------------
Total Australian
long-term
investments
(cost US$1,680,468,104) 1,531,808,609
--------------
JAPAN--1.2%
Government Bonds--1.2%
Inchon Metropolitan City,
JPY500,000 3.70%, 4/26/06........ 4,940,342
PTT Exploration &
Production,
1,700,000 3.35%, 9/19/07........ 15,801,716
--------------
Total Japan long-term
investments
(cost US$19,183,475).. 20,742,058
--------------
KOREA--3.6%
Government Bonds--3.6%
Korea Credit Insurance Fund
KRW20,000,000 8.72%, 3/12/04........ 16,295,456
2,000,000 15.00%, 7/3/04........ 2,020,937
Korea Deposit
Insurance
Fund Bond,
10,000,000 9.90%, 10/03/03....... 8,556,482
Korea Development Bank,
10,000,000 8.40%, 11/20/01....... 8,486,728
Korea Monetary Stabilization
Bond,
14,020,000 7.40%, 12/14/00....... 11,544,462
5,000,000 6.58%, 1/11/01........ 4,051,809
5,000,000 6.70%, 4/19/01........ 4,050,467
Korea Treasury Bond,
5,000,000 7.10%, 12/9/01........ 4,129,983
--------------
Total Korea long-term
investments
(cost US$60,800,900).. 59,136,324
--------------
<CAPTION>
- --------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- --------------------------------------------------------
<C> <S> <C>
PHILIPPINES--1.9%
Government Bonds--1.9%
Philippine Government Bond,
PHP436,000 14.00%, 1/14/01....... $ 11,168,343
170,000 11.875%, 6/10/01...... 4,221,081
574,500 18.00%, 11/26/08...... 16,143,406
--------------
Total Philippines
long-term
investments
(cost US$30,546,212).. 31,532,830
--------------
THAILAND--2.1%
Government Bonds--2.1%
Eastern Water Resources,
THB95,000 9.00%, 7/22/04........ 2,557,002
Export-Import Bank of
Thailand,
80,000 7.25%, 5/6/04......... 2,114,775
Thailand Government Bonds,
50,000 5.25%, 3/5/03......... 1,290,225
70,000 8.25%, 10/14/03....... 1,968,514
658,100 8.50%, 10/14/05....... 18,427,123
244,000 8.00%, 12/8/06........ 6,556,800
90,000 8.50%, 12/8/08........ 2,431,897
--------------
Total Thailand long-
term investments
(cost US$36,409,007).. 35,346,336
--------------
UNITED STATES--19.2%
ASAT Finance LLC,
US$ 5,000 12.50%, 11/1/06....... 4,950,000
Bangkok Bank Public Company,
6,000 8.75%, 3/15/07........ 4,980,000
4,500 9.025%, 3/15/29....... 3,010,000
Bangkok Sentral Ng
Philipinas,
4,000 8.60%, 6/15/27........ 3,177,404
Commerce Asset Holding
Company
6,500 Zero Coupon,
6/17/02............. 4,972,500
Dao Heng Bank Limited,
14,000 7.75%, 1/24/07........ 12,291,719
Export-Import Bank Korea,
10,000 7.10%, 3/15/07........ 9,724,700
Globe Telecom Incorporated,
5,500 13.00%, 8/1/09........ 5,780,994
Honam Oil Refinery
Company Limited,
6,000 7.125%, 10/15/05...... 5,546,250
</TABLE>
11

<PAGE>

Portfolio of Investments
October 31, 1999 The First Australia Prime Income Fund, Inc.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- --------------------------------------------------------
<C> <S> <C>
UNITED STATES (cont'd.)
Industrial Bank of Korea,
US$ 20,000 8.375%, 9/30/02....... $ 19,987,500
International Bank of
Reconstruction &
Development,
5,000 5.50%, 5/14/03........ 3,103,172
Kingdom of Thailand,
3,000 7.07%, 9/30/13........ 2,614,620
Kookmin Bank,
6,000 6.66375%, 12/30/06.... 5,160,000
Korea Development Bank,
14,000 7.125%, 4/22/04....... 13,510,000
5,000 6.75%, 12/1/05........ 4,676,400
Korea Electric Power
Corporation,
16,000 10.00%, 4/1/01........ 16,521,792
5,000 7.75%, 4/1/13......... 4,486,005
LG Caltex Oil Corporation,
5,500 7.875%, 7/1/06........ 5,172,750
8,500 7.50%, 7/15/07........ 7,798,750
Malaysia,
18,500 8.75%, 6/1/09......... 18,740,685
National Power Corporation,
8,000 8.40%, 12/15/16....... 6,389,120
8,500 9.625%, 5/15/28....... 6,962,605
Petroliam Nasional Berhad,
3,000 7.125%, 10/18/06...... 2,824,446
7,000 7.75%, 8/15/15........ 6,011,180
5,000 7.625%, 10/15/26...... 4,323,765
PTT Exploration & Production,
20,500 7.625%, 10/1/06....... 19,185,000
Reliance Industries Limited,
19,000 10.25%, 1/15/97....... 15,483,106
Republic of
Philippines,
26,500 9.875%, 1/15/19....... 25,209,450
2,500 9.50%, 10/21/24....... 2,521,875
Republic of South Korea,
16,000 8.875%, 4/15/08....... 16,708,400
Samsung Electronics
America
Incorporated,
18,500 9.75%, 5/1/03......... 19,044,686
Shinhan Bank,
10,000 7.25%, 6/26/02........ 9,450,000
Sterlite Industries Limited,
6,000 6.58125%, 6/5/07...... 4,581,600
Telekom Malaysia,
9,000 7.875%, 8/1/25........ 7,788,933
<CAPTION>
- --------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- --------------------------------------------------------
<C> <S> <C>
Tenaga Nasional Berhad,
US$ 7,000 7.20%, 4/29/07........ $ 6,087,409
1,000 7.625%, 4/29/07....... 915,350
7,000 7.50%, 1/15/96........ 4,879,420
Windsor Petroleum
Transport
Corporation,
4,000 7.84%, 1/15/21........ 3,060,000
--------------
Total United States
long-term
investments
(cost
US$316,594,647)..... 317,631,586
--------------
Total long-term investments
(cost US$2,144,002,345) 1,996,197,743
--------------
SHORT-TERM INVESTMENTS--13.2%
Australia--10.9%
Demand Deposits--4.0%
Banque National de Paris,
A$ 102,408 Zero Coupon,
12/31/99............ 65,535,924
State Street Call Deposit,
28 Zero Coupon,
12/31/99............ 17,678
--------------
Total Australian
demand
deposit
(cost
US$65,922,703)...... 65,553,602
--------------
Government and Semi-Government--4.3%
Commonwealth of Australia--2.3%
Commonwealth of Australia,
54,900 13.00%, 7/15/00....... 37,066,113
--------------
New South Wales--0.2%
New South Wales Treasury
Corporation,
5,000 7.00%, 2/1/00......... 3,212,965
--------------
South Australia--1.2%
South Australian
Financing Authority,
30,000 12.50%, 10/15/00...... 20,391,784
--------------
Tasmania--0.6%
Tasmanian Public
Finance Corporation,
15,000 8.25%, 11/15/99....... 9,607,698
--------------
Total Australian government
and semi-government
(cost US$91,986,006).. 70,278,560
--------------
</TABLE>
12

<PAGE>

Portfolio of Investments
October 31, 1999 The First Australia Prime Income Fund, Inc.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- --------------------------------------------------------
<C> <S> <C>
Eurobonds--2.6%
Banking and Finance--2.5%
Commerzbank Overseas
Finance,
A$ 5,000 10.50%, 1/19/00....... $ 3,231,498
Federal National Mortgage
Association Global,
60,000 5.75%, 9/5/00......... 38,395,927
--------------
41,627,425
--------------
Supranational Global--0.1%
Finnish Eksport
Credit,
2,925 9.25%, 12/30/99....... 1,881,550
--------------
Total Australian
eurobonds
(cost
US$44,236,471)...... 43,508,975
--------------
Corporate Bonds--0.0%
Services--0.0%
Macquarie Bank Limited,
1,000 9.75%, 8/1/00
(cost US$730,136)... 659,347
--------------
Total Australian
short-
term investments
(cost
US$202,875,316)..... 180,000,484
--------------
Korea--0.0%
Government Bond--0.0%
Republic of South Korea,
KRW500,000 7.494%, 11/3/99
(cost $425,911)..... 416,957
--------------
New Zealand--0.3%
Demand Deposit--0.0%
New Zealand Call Deposit,
586 5.60%, 12/31/99....... 297,857
--------------
Eurobond--0.3%
International Bank of
Reconstruction &
Development,
NZ$ 10,000 7.00%, 9/18/00........ 5,128,732
--------------
Total New Zealand
short-term investments
(cost US$5,709,679)... 5,426,589
--------------
<CAPTION>
- --------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
- --------------------------------------------------------
<C> <S> <C>
Philippines--0.4%
Government Bonds--0.4%
Philippine Government
Bonds,
Zero Coupon,
PHP100,000 12/15/99.............. $ 2,461,615
167,000 Zero Coupon, 3/1/00... 4,028,681
--------------
Total Philippines
short-term
investments
(cost
US$6,586,798)....... 6,490,296
--------------
United States--1.6%
US$ 26,252 Repurchase Agreement,
State Street Bank &
Trust Company, 5.5%
due 11/1/99 in the
amount of
$26,263,053 (cost
$26,252,005; collat-
eralized by
$26,580,000 United
States Treasury
Bonds, due 7/31/01;
value including ac-
crued interest -
US$26,779,350)...... 26,252,005
--------------
Total short-term investments
(cost
US$241,849,709)..... 218,586,331
--------------
Total Investments--133.6%
(cost US$2,385,852,054;
Note 3) 2,214,784,074
Other assets in excess
of
liabilities--2.6%... 42,580,667
Liquidation value of
preferred
stock--(36.2%)...... (600,000,000)
--------------
Net Assets Applicable
to Common
Shareholders--100%.. $1,657,364,741
--------------
--------------
Net asset value per
common share
($1,657,364,741 /
267,377,298 shares
of common stock is-
sued and
outstanding)........ $ 6.20
--------------
--------------
</TABLE>
- ---------------
* The interest rate reflected for floating rate notes is the rate in effect at
October 31, 1999.
13

<PAGE>
Statement of Assets and
Liabilities October 31, 1999 The First Australia Prime Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments, at value (cost $2,385,852,054).............................................. $2,214,784,074
Foreign currency, at value (cost $32,035,188)............................................ 32,626,320
Interest receivable...................................................................... 51,009,419
Receivable for investments sold.......................................................... 18,279,835
Forward currency contracts-amount receivable from counterparties......................... 2,019,826
Cash deposits with broker for futures contracts.......................................... 600,000
Due from broker-variation margin......................................................... 874,842
Other assets............................................................................. 264,697
--------------
Total assets......................................................................... 2,320,459,013
--------------
Liabilities
Bank overdraft........................................................................... 4,306,046
Payable for investments purchased........................................................ 32,411,527
Dividends payable-common stock........................................................... 16,042,638
Withholding taxes payable................................................................ 2,788,711
Forward currency contracts-amount payable to counterparties.............................. 1,998,017
Accrued expenses and other liabilities................................................... 1,808,727
Dividends payable-preferred stock........................................................ 1,505,658
Investment management fee payable........................................................ 1,157,255
Unrealized depreciation on interest rate and currency swaps.............................. 846,979
Administration fee payable............................................................... 228,714
--------------
Total liabilities.................................................................... 63,094,272
--------------
Total Net Assets......................................................................... $2,257,364,741
--------------
--------------
Total net assets were composed of:
Common stock:
Par value ($.01 per share, applicable to 267,377,298 shares)......................... $ 2,673,773
Paid-in capital in excess of par..................................................... 2,041,268,207
Preferred stock ($.01 par value per share and $25,000 liquidation value per share
applicable to 24,000 shares; Note 4)................................................. 600,000,000
--------------
2,643,941,980
Distributions in excess of net investment income....................................... (20,337,026)
Accumulated net realized gains on investments.......................................... 2,422,519
Net unrealized appreciation on investments............................................. 31,910,156
Accumulated net realized and unrealized foreign exchange losses........................ (400,572,888)
--------------
Total net assets....................................................................... $2,257,364,741
--------------
--------------
Net assets applicable to common shareholders........................................... $1,657,364,741
--------------
--------------
Net asset value per common share:
($1,657,364,741 / 267,377,298 shares of
common stock issued and outstanding)................................................... $6.20
--------------
--------------
</TABLE>
14

<PAGE>
Statement of Operations The First Australia Prime Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
October 31,
Net Investment Income 1999
------------
<S> <C>
Income
Interest (net of foreign withholding taxes of $10,347,643).............................. $196,183,027
------------
Expenses
Investment management fee............................................................... 12,366,523
Custodian's fees and expenses........................................................... 2,830,000
Administration fee...................................................................... 2,638,126
Auction agent's fees and broker commissions............................................. 1,670,000
Shareholder relations and communications................................................ 920,000
Transfer agent's fees and expenses...................................................... 650,000
Directors' fees and expenses............................................................ 605,000
Independent accountant's fees and expenses.............................................. 230,000
Legal fees and expenses................................................................. 200,000
Insurance expense....................................................................... 182,000
Miscellaneous........................................................................... 40,118
------------
Total operating expenses................................................................ 22,331,767
------------
Net investment income..................................................................... 173,851,260
------------
Realized and Unrealized
Gains (Losses) on Investments
and Foreign Currencies
Net realized gain on:
Investment transactions................................................................. 38,680,272
Financial futures contracts............................................................. 719,555
------------
39,399,827
------------
Net change in unrealized appreciation (depreciation) on:
Investments............................................................................. (83,101,609)
Interest rate and currency swaps........................................................ (846,979)
Financial futures contracts............................................................. 155,286
------------
(83,793,302)
------------
Net loss on investments................................................................... (44,393,475)
------------
Net increase in total net assets from operations before net foreign exchange losses....... 129,457,785
Net realized and unrealized foreign exchange losses....................................... (47,603,693)
------------
Net Increase In Total Net Assets
Resulting From Operations................................................................. $ 81,854,092
------------
------------
</TABLE>
15

<PAGE>
Statement of Cash Flows The First Australia Prime Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Increase (Decrease) in Cash October 31,
(Including Foreign Currency) 1999
---------------
<S> <C>
Cash flows used for operating activities
Interest received (net of foreign withholding taxes).................................. $ 189,601,738
Expenses paid......................................................................... (21,405,103)
Proceeds from sales of short-term portfolio investments, net.......................... (19,986,207)
Purchases of long-term portfolio investments.......................................... (2,193,178,850)
Proceeds from sales of long-term portfolio investments................................ 1,970,058,024
Other................................................................................. (129,992)
---------------
Net cash used for operating activities.............................................. (75,040,390)
---------------
Cash flows provided from financing activities
Dividends and distributions paid to preferred shareholders............................ (29,888,050)
Dividends and distributions paid to common shareholders............................... (187,803,355)
Net proceeds from rights offering..................................................... 365,420,287
---------------
Net cash provided from financing activities......................................... 147,728,882
---------------
Effect of changes in exchange rate...................................................... (45,148,933)
---------------
Net increase in cash.................................................................... 27,539,559
Cash at beginning of year............................................................. 780,715
---------------
Cash at end of year................................................................... $ 28,320,274
---------------
---------------
Reconciliation of Net Increase in Total
Net Assets from Operations to Net Cash
(Including Foreign Currency) Used For
Operating Activities
Net increase in total net assets resulting from operations.............................. $ 81,854,092
---------------
Increase in investments............................................................... (252,226,499)
Net realized gain on investment transactions.......................................... (39,399,827)
Increase in receivable for investments sold........................................... (18,279,835)
Increase in cash deposits with broker for futures contracts........................... (600,000)
Increase in forward currency contracts receivable..................................... (18,360)
Increase in appreciation on currency swap transactions................................ (874,842)
Net change in unrealized appreciation on investments.................................. 84,384,434
Net realized and unrealized foreign exchange losses................................... 47,603,693
Increase in interest receivable....................................................... (6,853,524)
Net increase in other assets.......................................................... (129,992)
Increase in payable for investments purchased......................................... 28,301,371
Increase in accrued expenses and other liabilities.................................... 1,198,899
---------------
Total adjustments................................................................... (156,894,482)
---------------
Net cash used for operating activities.................................................. $ (75,040,390)
---------------
---------------
</TABLE>
16

<PAGE>
Statement of Changes in Net Assets The First Australia Prime Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
October 31,
Increase (Decrease) --------------------------------
in Total Net Assets 1999 1998
-------------- --------------
<S> <C> <C>
Operations
Net investment income................................................ $ 173,851,260 $ 159,330,220
Net realized gains on investment transactions........................ 39,399,827 38,070,936
Net change in unrealized depreciation on investments................. (83,793,302) (44,145,814)
-------------- --------------
Net increase in total net assets resulting from operations before net
foreign exchange losses............................................ 129,457,785 153,255,342
Net realized and unrealized foreign exchange losses.................. (47,603,693) (275,093,837)
-------------- --------------
Net increase/decrease in total net assets resulting from operations.... 81,854,092 (121,838,495)
-------------- --------------
Dividends from net investment income
Common shares........................................................ (163,686,312) (99,121,808)
Preferred shares..................................................... (25,677,478) (32,832,845)
-------------- --------------
(189,363,790) (131,954,653)
-------------- --------------
Distributions from net realized capital gains
Common shares........................................................ (28,475,021) (41,090,710)
Preferred shares..................................................... (4,395,043) --
-------------- --------------
(32,870,064) (41,090,710)
-------------- --------------
Fund share transactions:
Net proceeds from rights offering of Fund shares..................... 365,420,287 --
Dividend reinvestment................................................ 4,182,612 --
-------------- --------------
369,602,899 --
-------------- --------------
Total increase/decrease................................................ 229,223,137 (294,883,858)
Total Net Assets
Beginning of year...................................................... 2,028,141,604 2,323,025,462
-------------- --------------
End of year(a)......................................................... $2,257,364,741 $2,028,141,604
-------------- --------------
-------------- --------------
(a) Including undistributed net investment income of................... $ -- $ 4,605,692
-------------- --------------
</TABLE>
17

<PAGE>
Notes to Financial Statements The First Australia Prime Income Fund, Inc.
- --------------------------------------------------------------------------------
The First Australia Prime Income Fund, Inc. (the 'Fund) was incorporated in
Maryland on March 14, 1986 as a closed-end, non-diversified 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 and companies, and in Australian dollar denominated global or Euro
Bonds, whether or not the issuer is domiciled in Australia, which expose the
Fund to the Australian interest rate structure and which are traded by reference
to similar debt securities of Australian domiciled issuers. To achieve its
investment objective, the Fund may invest the remainder of its assets in 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. The Fund may also invest 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; in debt securities which are denominated in New Zealand dollars
of issuers, whether or not domiciled in New Zealand; and in U.S. debt
securities. It is the Fund's policy to limit its investments, as to at least 50%
of its total assets, to issuers or debt securities which are, at the time of
investment, rated AA or better by S&P, or Aa or better by Moody's or which, in
the opinion of the Investment Manager, are of equivalent quality. In addition,
at least 65% of the Fund's investments must be rated, at the time of investment,
A- or better by S&P or A3 or better by Moody's or be, in the Investment
Manager's judgement, of equivalent quality. On September 9, 1999, the Board of
Directors of the Fund voted to expand the investment policies of the Fund to
allow investments in U.S. dollar-denominated securities issued by companies
which are not domiciled in an Asian country, if the issuing company is
wholly-owned by an Asian country company and the Asian country company
guarantees the security issued by its subsidiary. The ability of issuers of debt
securities, including foreign currency balances on deposit with the Fund's
sub-custodian 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 Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Basis of Presentation: The financial statements of the Fund are prepared in
accordance with United States generally accepted accounting principles using the
United States dollar as both the functional and reporting currency.
Security Valuation: Investments are stated at value. Investments for which
market quotations are readily available are valued 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
18

<PAGE>

Notes to Financial Statements
(continued) The First Australia Prime Income Fund, Inc.
- --------------------------------------------------------------------------------
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 takes 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$), New Zealand dollar
('NZ$) and Asian dollar 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 October 31, 1999.
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 $47,603,693 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
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, 1999 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, 1999 was US$0.6390 to A$1.00 for the
Australian dollar.
19

<PAGE>

Notes to Financial Statements
(continued) The First Australia Prime Income Fund, Inc.
- --------------------------------------------------------------------------------
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. Discounts on long-term
securities are recognized upon disposition. Expenses are recorded on the accrual
basis which may require the use of certain estimates by management. Actual
results could differ from those estimates.
Forward Currency Contracts: A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The Fund enters into forward currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings or on specific receivables and payables denominated in a foreign
currency. The contracts are valued daily at current exchange rates and any
unrealized gain or loss is included in net unrealized appreciation or
depreciation on investments. Gain or loss is realized on the settlement date of
the contract equal to the difference between the settlement value of the
original and renegotiated forward contracts. This gain or loss, if any, is
included in net realized gain (loss) on foreign currency transactions. Risks may
arise upon entering into these contracts from the potential inability of the
counterparties to meet the terms of their contracts.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities or commodities at
a set price for delivery on a future date. Upon entering into a financial
futures contract, the Fund is required to pledge to the broker an amount of cash
and/or other assets equal to a certain percentage of the contract amount. This
amount is known as the 'initial margin. Subsequent payments, known as 'variation
margin, are made or received by the Fund when the contract expires or is closed,
depending on the daily fluctuations in the value of the underlying security or
commodity. Such variation margin is recorded for financial statement purposes on
a daily basis as unrealized gain or loss. When the contract expires or is
closed, the gain or loss is realized and is presented in the statement of
operations as net realized gain (loss) on financial futures contracts.
The Fund invests in financial futures contracts in order to hedge existing
portfolio securities, or securities the Fund intends to purchase, against
fluctuations in value. Under a variety of circumstances, the Fund may not
achieve the anticipated benefits of the financial futures contracts and may
realize a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts and the underlying
assets.
Interest Rate and Currency Swap: An interest rate and currency swap is an
agreement between two parties which involves exchanging principal and fixed rate
interest payments in one currency for principal and fixed rate interest payments
in another currency for a specified period of time. Interest rate and currency
swaps involve the accrual and exchange of interest payments between the parties.
During the term of the swap, changes in the value of the swap are recognized
as unrealized gains or losses by 'marking-to-market to reflect the market value
of the swap. When the swap is
20

<PAGE>

Notes to Financial Statements
(continued) The First Australia Prime Income Fund, Inc.
- --------------------------------------------------------------------------------
terminated, the Fund will record a realized gain or loss equal to the
difference, if any, between the proceeds from (or cost of) the closing
transaction and the Fund's basis in the contract.
The Fund is exposed to credit loss in the event of non-performance by the
other party to the currency rate swap. However, the Fund does not anticipate
non-performance by any counterparty.
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, 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 or Asian country currencies 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. 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. To
reflect reclassifications arising from permanent book/tax differences for the
fiscal year ended October 31, 1999, the Fund decreased undistributed net
investment income by $9,430,188, decreased accumulated net realized gains on
investments by $7,338,341, increased accumulated net realized foreign exchange
gains by $16,761,648 and increased paid-in capital in excess of par by $6,881.
Net realized gains and net assets were not affected by this change.

<PAGE>

Notes to Financial Statements
(continued) The First Australia Prime Income Fund, Inc.
- --------------------------------------------------------------------------------
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 $5,352,389 to
the Investment Adviser during the fiscal year ended October 31, 1999.
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 Securities
Purchases and sales of investment securities, other than short-term
investments, for the fiscal year ended October 31, 1999 aggregated
$2,222,822,207 and $1,948,938,032, respectively.
The Fund entered into two interest rate and foreign currency swaps on
February 16, 1999. Under the terms of the first swap, the Fund receives interest
at a rate of 11.50% based on a notional amount of KRW5,124,367,250 and pays
interest at a rate of 3.70% based on a notional amount of JPY500,000,000. Under
the terms of the second swap, the Fund receives interest at a rate of 13.05%
based on a notional amount of THB549,515,918 and pays interest at a rate of
3.35% based on a notional amount of JPY1,700,000,000. Net receipts on payments
of such amounts are exchanged semi-annually. At October 31, 1999 the unrealized
depreciation on currency swaps was $846,979. The swaps are scheduled to
terminate on April 26, 2006.
22

<PAGE>

Notes to Financial Statements
(continued) The First Australia Prime Income Fund, Inc.
- --------------------------------------------------------------------------------
At October 31, 1999 the Fund had outstanding forward currency contracts to
buy and sell foreign currency as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Current
Sale Contract Date Receivable Value Depreciation
- ----------------------------------------- --------------- ----------- ------------
<S> <C> <C> <C>
Thailand Baht
expiring 11/29/99 $34,828,146 $36,826,163 $1,998,017
--------------- ----------- ------------
--------------- ----------- ------------
</TABLE>

<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Current
Purchase Contract Date Payable Value Appreciation
- ----------------------------------------- --------------- ----------- ------------
<S> <C> <C> <C>
Philippine Peso
expiring 01/21/00 $ 5,709,000 $ 5,729,608 $ 20,608
Thailand Baht
expiring 11/29/99 29,020,556 31,019,774 1,999,218
--------------- ----------- ------------
$34,729,556 $36,749,382 $2,019,826
--------------- ----------- ------------
--------------- ----------- ------------
</TABLE>

During the year ended October 31, 1999, the Fund entered into financial
futures contracts. Details of open contracts at October 31, 1999 are as follows:
<TABLE>
<CAPTION>
Value at Value at Unrealized
Number of Expiration Trade October 31, Appreciation/
Contracts Type Date Date 1999 (Depreciation)
- --------- -------------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Short position:
55 U.S. Treasury 10 year $ 6,040,299 $ 6,034,531 $ 5,768
170 U.S. Treasury 10 year 19,503,569 19,310,938 192,631
15 U.S. Treasury 10 year 1,700,981 1,703,906 (2,925)
---------------
$ 195,474
---------------
---------------
Long position:
250 U.S. Treasury 5 year $27,028,469 $26,988,281 $ (40,188)
---------------
---------------
</TABLE>

The United States federal income tax basis of the Fund's investments at
October 31, 1999 was $2,182,202,677 and accordingly, net unrealized appreciation
for United States federal income tax purposes was $32,581,397 (gross unrealized
appreciation--$60,279,409; gross unrealized depreciation--$27,698,012).
Note 4. Capital
There are 400 million shares of common stock authorized. Of the 267,377,298
common shares outstanding at October 31, 1999, the Investment Manager owned
86,841 shares.
In connection with a rights offering, shareholders of record on September 25,
1998 were issued one-third of a non-transferable right for each full share of
common stock owned, entitling
23

<PAGE>

Notes to Financial Statements
(continued) The First Australia Prime Income Fund, Inc.
- --------------------------------------------------------------------------------
shareholders the opportunity to acquire one newly issued share of common stock
for every whole right held at a subscription price equal to a 5% discount from
the lesser of net asset value on the expiration date (October 22, 1998) or the
average market value on that date and the four business days preceding the
expiration date. On November 2, 1998 the Fund issued 71,991,921 shares of common
stock at $5.30 per share and estimated rights offering costs of $1,828,500 ($.01
per share) and brokerage and dealer-manager commissions of $14,308,394 ($.02 per
share) were charged to paid-in capital of the common shareholders resulting in
net proceeds to the Fund of $365,420,287. The net asset value per share of the
Fund's common shareholders was reduced by approximately $.61 per share as a
result of this share issuance. Prudential Securities Incorporated, an affiliate
of the Administrator, earned approximately $4,100,000 of the aforementioned
commissions with respect to its participation in the rights offering.
During the fiscal years ended October 31, 1999 and 1998 the Fund issued
641,049 and 0 shares, respectively in connection with the reinvestment of
dividends and distributions paid to shareholders enrolled in the dividend
reinvestment plan.
The Preferred Stock shareholders 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 4.25% to 5.69% during the
fiscal year ended October 31, 1999. 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.

<PAGE>

Notes to Financial Statements
(continued) The First Australia Prime Income Fund, Inc.
- --------------------------------------------------------------------------------
Note 5. Dividends And Distributions
On November 15, 1999 and December 13, 1999 the Board of Directors of the Fund
declared distributions from ordinary income of $.06 per common share payable on
December 14, 1999 and January 14, 2000 to shareholders of record on November 30,
1999 and December 31, 1999, respectively.
Subsequent to October 31, 1999, dividends and distributions declared and paid
on Preferred Stock totalled approximately $3,817,450 for the nine outstanding
preferred share series in the aggregate through December 10, 1999.

<PAGE>

Financial Highlights The First Australia Prime Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended October 31,
----------------------------------------------------------------------
1999* 1998* 1997* 1996* 1995*
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value per common share, beginning of year... $ 7.33 $ 8.85 $ 9.93 $ 9.36 $ 8.82
---------- ---------- ---------- ---------- ----------
Net investment income................................. .67 .82 .87 .87 .93
Net realized and unrealized gain (loss) on investments
and foreign currencies.............................. (.35) (1.45) (.96) 1.13 1.16
---------- ---------- ---------- ---------- ----------
Total from investment operations.................... .32 (.63) (.09) 2.00 2.09
---------- ---------- ---------- ---------- ----------
Dividends from net investment income to preferred
shareholders........................................ (.10) (.17) (.17) (.14) (.17)
Dividends from net investment income to common
shareholders........................................ (.63) (.51) (.82) (.83) (.83)
Distributions from net capital and currency gains to
preferred shareholders.............................. (.02) -- -- (.02) (.01)
Distributions from net capital and currency gains to
common shareholders................................. (.09) (.21) -- (.03) (.15)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions................... (.84) (.89) (.99) (1.02) (1.16)
---------- ---------- ---------- ---------- ----------
Capital charge in respect to issuance of shares....... (.61) -- -- (.41) (.39)
---------- ---------- ---------- ---------- ----------
Net asset value per common share, end of year......... $ 6.20 $ 7.33 $ 8.85 $ 9.93 $ 9.36
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Market price per common share, end of year............ $ 6.00 $ 5.625 $ 8.125 $ 8.94 $ 9.31
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL INVESTMENT RETURN BASED OND:
Market value.......................................... 20.96 % (23.19)% (0.42)% 5.59% 8.78%
Net asset value....................................... (5.15)% (8.10)% (2.37)% 16.73% 18.54%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS/SUPPLEMENTAL DATAPound:
ExpensesDD............................................ 1.26 % 1.47% 1.25% 1.29% 1.47%
Net investment income available to common
shareholders........................................ 8.34 % 8.51% 7.39% 7.71% 8.96%
Portfolio turnover rate............................... 89 % 61% 85% 63% 50%
Net assets of common shareholders, end of year (000
omitted)............................................ $1,657,365 $1,428,142 $1,723,025 $1,931,894 $1,452,205
Average net assets of common shareholders (000
omitted)............................................ $1,775,894 $1,485,690 $1,848,378 $1,627,916 $1,201,383
Senior securities (preferred stock) outstanding (000
omitted)............................................ $ 600,000 $ 600,000 $ 600,000 $ 600,000 $ 475,000
Asset coverage of preferred stock at year-end......... 376 % 338% 387% 422% 406%
</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%,
.95%, .94%, 1.05% and 1.05%, respectively. Ratios to average net assets
of net investment income before preferred stock dividends are 9.79%,
10.72%, 9.17%, 9.16% and 10.83%, respectively. Ratios to average net
assets of preferred stock dividends are 1.45%, 2.21%, 1.78%, 1.45% and
1.87%, 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.
26

<PAGE>
Report of Independent Accountants The First Australia Prime Income Fund, Inc.
- --------------------------------------------------------------------------------
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, 1999, 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, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
December 14, 1999
27

<PAGE>

Federal Tax Information:
Dividends and Distributions The First Australia Prime Income Fund, Inc.
- --------------------------------------------------------------------------------
As required by Internal Revenue Code regulations, we are to advise you within
60 days of the Fund's fiscal year end (October 31, 1999) as to the tax status of
dividends, distributions and foreign tax credits paid by the Fund during the
fiscal year. During fiscal year 1999, 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:
Foreign Source $ .6532 $.0360 $ .6172
United States .0091 -- .0091
Capital Gains:
ShortTerm .0667 -- .0667
LongTerm .0270 -- .0270
--------- -------------- --------------
$ .7560 $.0360 $ .7200
--------- -------------- --------------
--------- -------------- --------------
Preferred Shares
---------------------------------------------------------------------------
Series A:
Ordinary Income:
Foreign Source $1,122.73 $47.61 $ 1,075.12
United States 15.90 -- 15.90
Capital Gains:
LongTerm 183.13 -- 183.13
--------- -------------- --------------
$1,321.76 $47.61 $ 1,274.15
--------- -------------- --------------
--------- -------------- --------------
Series B:
Ordinary Income:
Foreign Source $1,143.41 $48.49 $ 1,094.92
United States 16.19 -- 16.19
Capital Gains:
LongTerm 183.13 -- 183.13
--------- -------------- --------------
$1,342.73 $48.49 $ 1,294.24
--------- -------------- --------------
--------- -------------- --------------
</TABLE>
28

<PAGE>
Federal Tax Information:
Dividends and Distributions
(continued) The First Australia Prime Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
Dividends
Foreign and
Gross Taxes Distributions
Preferred Shares Amount Paid Paid
<S> <C> <C> <C>
---------------------------------------------------------------------------
Series C:
Ordinary Income:
Foreign Source $1,021.50 $43.32 $ 978.18
United States 14.47 -- 14.47
Capital Gains:
LongTerm 183.13 -- 183.13
--------- -------------- --------------
$1,219.10 $43.32 $ 1,175.78
--------- -------------- --------------
--------- -------------- --------------
Series D:
Ordinary Income:
Foreign Source $1,136.16 $48.18 $ 1,087.98
United States 16.09 -- 16.09
Capital Gains:
LongTerm 183.13 -- 183.13
--------- -------------- --------------
$1,335.38 $48.18 $ 1,287.20
--------- -------------- --------------
--------- -------------- --------------
Series E:
Ordinary Income:
Foreign Source $1,065.52 $45.18 $ 1,020.34
United States 15.09 -- 15.09
Capital Gains:
LongTerm 183.13 -- 183.13
--------- -------------- --------------
$1,263.74 $45.18 $ 1,218.56
--------- -------------- --------------
--------- -------------- --------------
Series F:
Ordinary Income:
Foreign Source $1,045.23 $44.32 $ 1,000.91
United States 14.80 -- 14.80
Capital Gains:
LongTerm 183.13 -- 183.13
--------- -------------- --------------
$1,243.16 $44.32 $ 1,198.84
--------- -------------- --------------
--------- -------------- --------------
Series G:
Ordinary Income:
Foreign Source $1,066.84 $45.24 $ 1,021.60
United States 15.11 -- 15.11
Capital Gains:
LongTerm 183.13 -- 183.13
--------- -------------- --------------
$1,265.08 $45.24 $ 1,219.84
--------- -------------- --------------
--------- -------------- --------------
</TABLE>
29

<PAGE>

Federal Tax Information:
Dividends and Distributions
(continued) The First Australia Prime Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
Dividends
Foreign and
Gross Taxes Distributions
Preferred Shares Amount Paid Paid
<S> <C> <C> <C>
---------------------------------------------------------------------------
Series H:
Ordinary Income:
Foreign Source $1,091.74 $46.30 $ 1,045.44
United States 15.46 -- 15.46
Capital Gains:
LongTerm 183.13 -- 183.13
--------- -------------- --------------
$1,290.33 $46.30 $ 1,244.03
--------- -------------- --------------
--------- -------------- --------------
Series I:
Ordinary Income:
Foreign Source $1,078.59 $45.74 $ 1,032.85
United States 15.28 -- 15.28
Capital Gains:
LongTerm 183.13 -- 183.13
--------- -------------- --------------
$1,277.00 $45.74 $ 1,231.26
--------- -------------- --------------
--------- -------------- --------------
</TABLE>

Although the Fund has made the election required to make this foreign tax
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 advisors with respect to the tax consequences of their
investment in the Fund.
In January 2000 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 1999 federal income
tax returns.
30

<PAGE>
Other Information The First Australia Prime Income Fund, Inc.
- --------------------------------------------------------------------------------
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.

<PAGE>
Other Information (continued) The First Australia Prime Income Fund, Inc.
- --------------------------------------------------------------------------------
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.
Year 2000 Compliance Disclosure
Many computer systems and other electronically controlled equipment used by
companies and other business organizations throughout the world express dates
using only the last two digits of the year, and thus will require modification
or replacement to accommodate the Year 2000 and beyond in order to avoid
malfunctions and consequential widespread commercial disruption.
The Fund could be adversely affected if the computer systems and equipment
used by its service providers or the companies in which it invests, or other
organizations with which any of them deal, do not properly address this problem
before January 1, 2000. The Investment Manager and the Investment Adviser have
taken steps that they believe are reasonably designed to address that the
computer systems and equipment it uses are adequate to deal with Year 2000
issues and to seek the same of its suppliers and the Fund's other service
providers. As of the date of this report, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact to the Fund.

32
<PAGE>

Directors Officers
Laurence S. Freedman, Chairman Brian M. Sherman, President
Anthony E. Aaronson Laurence S. Freedman, Vice President
David Lindsay Elsum David Manor, Treasurer
Rt. Hon. Malcolm Fraser Roy M. Randall, Secretary
Michael R. Horsburgh Ouma Sananikone-Fletcher,
Harry A. Jacobs, Jr Assistant Vice President and
Howard A. Knight Chief Investment Officer
David Manor Barry G. Sechos, Assistant Treasurer
Neville J. Miles Peter W. Fortner, Assistant Treasurer
Peter J. O'Connell Allan S. Mostoff, Assistant Secretary
William J. Potter Margaret A. Bancroft, Assistant Secretary
Peter D. Sacks Sander Bieber, Assistant Secretary
Anton E. Schrafl
John T. Sheehy
Brian M. Sherman
Marvin Yontef

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
P.O. Box 578, 17 Bond Street
St. Helier, Jersey, JE4 5XB Channel Islands

INVESTMENT ADVISER
EquitiLink Australia Limited
Level 3, 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 ACCOUNYANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036

LEGAL COUNSEL
Dechert Price & Rhoads
1775 Eye Street N.W.
Washington, D.C. 20006-2401

Stikeman, Elliott
Level 40, Chifley Tower
2 Chifley Square
Sydney, NSW 2000, Australia

Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
For information call toll-free (800) 522-5465
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