FIRST AUSTRALIA PRIME INCOME FUND INC, N-30D, 2001-01-08

FIRST AUSTRALIA PRIME INCOME FUND INC
N-30D, 2001-01-08

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<PAGE>

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

(LOGO)

Managed by
EquitiLink
International
Management
Limited

Annual Report October 31, 2000

Highlights
Highlights

- Aberdeen Asset Management
PLC acquires the Equitilink Group,
enhancing the established team
with a depth of experience
in Asian markets

- 30.4% of total assets invested in
Asian debt securities

- 17.8% of total assets are
denominated in US dollars

- 76.2% of total assets rated or
deemed equivalent
to A or better

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
----------------------------------------------------------------------------
December 15, 2000
Dear Shareholder,

We present this Annual Report which covers the
activities of The First Australia Prime Income
Fund, Inc., (the "Fund") for the year ended October
31, 2000. Included in this report is a review of
the 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.

Acquisition of Investment Manager and Investment
Adviser by Aberdeen Asset Management PLC

The Fund's shareholders voted at the Special
Shareholder Meeting held on November 29, 2000, to
approve a new management agreement with the
Investment Manager and a new investment advisory
agreement with the Investment Adviser in connection
with the proposed acquisition of the Investment
Manager and Investment Adviser by Aberdeen Asset
Management PLC. This acquisition is expected to
close on December 22, 2000. The new agreements will
become effective at the time of the acquisition.
Aberdeen Asset Management will bring the benefits
of a global structure, greater resources, and a
depth of experience in asset management.

Net Asset Value Performance

The Fund's Net Asset Value (NAV) return was -12.2%
for the 12 months to October 31, 2000, and 7.3% per
annum since inception, assuming reinvestment of
distributions. In Australian dollar terms, however,
the NAV return was 9.1% over the year. The strength
of the US dollar had an adverse impact on the
Australian dollar, which depreciated substantially
to close the fiscal year at US 51.9 cents.
The Fund's NAV per share was $4.78 on October 31,
2000.

Share Price Performance

The Fund's share price return was -26.7% over the
year to October 31, 2000 assuming reinvestment of
dividends. The Fund's share price was $3.86 on
October 31, 2000, representing a discount to NAV of
19.2%

Asia: 30.4% of total assets invested in Asian debt
securities

As of October 31, 2000, the Fund held 30.4% of its
total assets in Asian debt securities, which
substantially outperformed Australian dollar fixed
income investments. Of the Fund's total assets,
15.8% is held in Asian Yankee bonds, bringing the
Fund's total US dollar exposure to 17.8%, and
helping to reduce Asian currency risk.

Credit Quality: 76.2% of total assets rated or
deemed equivalent to A or better

The Fund's total investments have maintained a high
credit quality. As at October 31, 2000, 76.2% of
the portfolio was invested 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: 15.9% annual cash distribution rate
Distributions paid for the 12-month period ended
October 31, 2000, totaled 61.5 cents per share.
Based on the share price of $3.86 as of October 31,
2000, the cash distribution rate for the year was
15.9%. Since all distributions are paid after
deducting applicable withholding taxes, the
effective distribution rate may be higher for those
US investors who are able to claim a tax credit.

On March 17, 2000, the Board of Directors announced
a 4.5 cent per share monthly distribution. It is
the Board's intention that the monthly distribution
be maintained until March 2001, subject to regular
review at the Board's quarterly meetings, having
regard to market conditions, with the next review
to take place in March 2001. The Board's policy is
to provide investors with a stable monthly

<PAGE>

The First Australia Prime Income Fund, Inc.
----------------------------------------------------------------------------
distribution out of current income, supplemented by
realized capital gains and, to the extent
necessary, paid-in capital.

For information about the Fund, including weekly
updates of share price, NAV, and details of
distributions, please contact EquitiLink USA Inc.
Investor Relations, by:

* calling toll free on 1-800-522-5465 in the United States,
* email to [email protected], or
* visiting the website at www.equitlink.com.

Sincerely,

Laurence S. Freedman Brian M. Sherman
Chairman President

(LOGO)

The First
Australia
Prime Income
Fund, Inc.

Your Board's policy is to provide investors with a
stable monthly distribution out of current income,
supplemented by realized capital gains and, to the
extent necessary, paid-in capital.

The Fund is subject to U.S. corporate, tax and
securities laws. Under U.S. tax accounting rules,
the amount of distributable income for each fiscal
period depends on the actual exchange rates during
the entire year between the US dollar and the
currencies in which Fund assets are denominated and
on the aggregate gains and losses realized by the
Fund during the entire year.

Therefore the exact amount of distributable income
for each fiscal year can only be determined at the
end of the Fund's fiscal year, October 31.

However, under the U.S. Investment Company Act of
1940, the Fund is required to indicate the source
of each distribution to shareholders.

The Fund estimates that distributions for the
fiscal year commencing November 1, 2000, including
the distribution paid on December 15, 2000, will be
made up of 49% net investment income and 51% return
of paid-in capital.

This estimated distribution composition will vary
from month to month because it may be materially
impacted by future realized gains and losses on
securities and on fluctuations in the value of the
currencies in which Fund's assets are denominated.

In January 2001, a Form 1099 DIV will be sent to
shareholders, which will state the amount and
composition of distributions and provide
information with respect to their appropriate tax
treatment.
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 taxed 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.
Brokerage on share purchases is currently 2 cents
per share;

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.

To request a brochure containing information on the
Plan, together with an authorization form, please
contact the Plan Agent, State Street Bank & Trust
Company, P.O. Box 8200, Boston, MA 02266, or toll-
free on 1-800-451-6788.
3

<PAGE>

Report of the Investment Manager The First Australia Prime Income Fund, Inc.
----------------------------------------------------------------------------
Share Price Performance

On October 31, 2000, the Fund's share price was
$3.86, which represented a discount of 19.2% to the
NAV of $4.78. At the date of this report, the share
price was $3.97 representing a discount of 23.5% to
the NAV of $5.19.

Auction Market Preferred Stock (AMPS)

The Fund's $600 million of AMPS continue to be well
bid at the weekly auctions. The average interest
rate paid was 6.44% over the three months to
October 31, 2000, compared with 6.52% for 30-day
commercial paper over the same period. These rates
have increased since the three months ended July
31, 2000, because the US Federal Reserve raised
interest rates.

The Fund is a leveraged Fund. However, in recent
times the US dollar has strengthened against
virtually all other currencies in the world. This
has resulted in a negative impact for common
shareholders.

The Manager expects that in the medium to longer
term this situation will rectify itself and that
the AMPS process will be a positive contribution to
Fund performance.

Portfolio Composition
Quality of Investments

As of October 31, 2000, 76.2% of the Fund's assets
were invested in securities where either the issue
or the issuer was rated A or better by Standard &
Poor's Ratings Group, or Moody's Investors Service,
Inc. or, if unrated, were judged to be of
equivalent quality by the Investment Manager. The
following table shows the ratings of securities
held by the Fund as of October 31, 2000, compared
with the previous quarter and twelve months:

AAA/Aaa AA/Aa A BBB/Baa BB/Ba* B*
Date % % % % % %
---------------------------------------------------------------------
October 31, 2000 51.3 17.3 7.6 17.6 3.3 2.9
July 31, 2000 51.7 19.4 5.0 15.9 4.8 3.2
October 31, 1999 54.9 19.7 4.4 12.3 7.2 1.5
---------------------------------------------------------------------
* Below investment grade

Geographic Composition
The table below shows the geographical composition
of the Fund's total investments as of October 31,
2000 compared with the previous quarter and twelve
months:
Asia
Australia (including NZ) United States
Date % % %
---------------------------------------------------------------------
October 31, 2000 67.3 30.7 2.0
July 31, 2000 69.4 28.3 2.3
October 31, 1999 75.9 22.6 1.5
---------------------------------------------------------------------

<PAGE>

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

Currency Composition
The table below shows the currency composition of
the Fund's total investments as of October 31,
2000, compared with the previous quarter and twelve
months:
Australian Asia Currencies
Dollar (including NZ) U.S. Dollar*
Date % % %
-----------------------------------------------------------------------------
October 31, 2000 67.3 14.9 17.8
July 31, 2000 69.4 14.2 16.4
October 31, 1999 76.0 8.6 15.4
-----------------------------------------------------------------------------
* Includes Asian Yankee Bonds: 15.8%: October
31,2000, 14.1%: July 31, 2000, and 14.0%:
October 31, 1999

Interest Rate Exposure
The table below shows the country composition of
the Fund's total investments as of October 31,
2000, according to interest rate risk compared with
the previous quarter and twelve months:
Asia
Australia (including NZ) United States
Date % % %
--------------------------------------------------------------------------
October 31, 2000 67.3 14.9 17.8
July 31, 2000 69.4 14.2 16.4
October 31, 1999 76.0 8.6 15.4
--------------------------------------------------------------------------

Maturity Composition
On October 31, 2000, the duration of the portfolio
was 3.7 years, reduced from 4.0 years as of October
31, 1999. The average maturity of the portfolio
was 6.1 years on October 31, 2000, increased from
6.6 years on October 31, 1999. The following table
shows the maturity composition of the Fund's
portfolio as of October 31, 2000, compared with the
previous quarter and twelve months:

Under 3 Years 3 to 5 Years 5 to 10 Years 10 Years & Over
Date % % % %
-------------------------------------------------------------------------------
October 31, 2000 39.4 14.5 34.8 11.3
July 31, 2000 34.6 17.9 36.9 10.6
October 31, 1999 32.6 12.5 46.9 8.0
-------------------------------------------------------------------------------

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, 2000:

Domestic Bonds US Bonds
Asia United States
Australia (including NZ) Yankees (Cash/Bonds)
% % % %
----------------------------------------------------------------------
Government* 17.9 7.9 3.2 0.0
Semi
Government** 25.0 0.7 2.3 0.0
Government Bank 0.4 3.0 1.6 0.0
Government
Corporation 0.7 0.0 0.0 0.0
Utility 0.0 0.2 0.2 0.0
Supernational 2.8 0.0 0.0 0.0
Bank/Finance
Company*** 15.8 0.7 3.0 2.0
Corporate 4.7 2.4 5.5 0.0
----------------------------------------------------------------------
* 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
After a prolonged period of robust growth, the
Australian economy appears set to moderate in
coming months. Although the external sector has
made a significant contribution to GDP, this is
expected to be partly offset by softening domestic
consumption and housing.

The Reserve Bank of Australia raised official
interest rates by 1.50% over the year, to 6.25% in
successive 0.25% moves, intending to sustain the
current expansion by dampening potential price
pressures. It is anticipated that the Bank is close
to completing its tightening phase. To date, wage
pressures remain muted, despite a cyclically low
unemployment rate.

Fixed Income
Bonds have strengthened over the past twelve
months, as US economic data suggested a
deceleration in GDP and global inflation pressures
remained benign. The benchmark ten-year bond closed
at 6.19% on October 31, 2000, down from 6.63% on
October 31, 1999. Bank bill yields rose strongly in
line with official interest rates, closing at 6.43%
on October 31, 2000.

Currency
The Australian dollar has weakened over the year,
largely as a consequence of investor preference for
US dollar-denominated investments. Economic
fundamentals remain buoyant in Australia, yet this
has not been reflected in the currency, which
closed at US 51.9 cents on October 31, 2000.

It is a widely held view that the Australian dollar
is undervalued. There are several key factors that
may bring about an appreciation in the currency.
With exports and capital expenditure maintaining
the current high rate of GDP expansion, there is a
strong likelihood that official interest rates will
rise in coming months, thus bringing the interest
differential with the US to at least parity.

The Current Account position has also improved
considerably, after peaking in 1999, and is
expected to continue to fall. In addition, the
broadening in the commodity price recovery should
result in a realignment of the Australian dollar's
historical relationship with commodity prices.

Asia
Economies
External demand has been the main driver of GDP
growth in Asia, with most countries recording
substantial Current Account surpluses. The sources
of growth have become more broadly-based, as
domestic consumption and business investment have
begun to improve.

Ongoing fiscal stimulus in Japan has helped
increase consumption, and is expected to have
broader multiplier effects through the country's
high dependence on the region's exports. The
liberalization of Asia's financial markets,
together with increasing competition and
microeconomic reform, has also boosted investor
confidence.
7

<PAGE>

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

Domestic Bond and Currency Markets
The Asian region has experienced only modest rises
in CPI, as productivity growth has offset wage
costs and oil price hikes, and this had a positive
effect on bond markets over the year. South Korea
was the strongest performing economy in Asia over
the past year. Positive economic developments also
emerged in Thailand, Malaysia and Singapore.
Political turmoil in the Philippines adversely
impacted bonds, however, and yields rose sharply.

Most Asian currencies depreciated against the US
dollar, with the exception of South Korea. The
Malaysian Ringgit remained pegged to the US dollar.

Asian Yankee (US$) Bond Market

Yankee bond yields fell in South Korea and Thailand
over the year, while yields rose sharply in the
Philippines. Credit upgrades throughout the region,
particularly in the past quarter, had a positive
effect on bond markets. In anticipation of the
credit improvement and the resulting market rally,
the proportion of Yankees held was increased, from
14.0% to 15.8%.
8

<PAGE>

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

The following table summarizes the movements of key
interest rates and currencies over the last three
and twelve month periods:
October 31, 2000 July 31, 2000 October 31, 1999
Australia
90 day bank bills 6.43% 6.35% 5.35%
10 year bonds 6.19% 6.24% 6.63%
Australian Dollar $ 0.52 $ 0.58 $ 0.64

New Zealand
90 day bank bills 6.65% 6.87% 5.29%
10 year bonds 6.69% 6.71% 7.08%
NZ Dollar $ 0.39 $ 0.45 $ 0.51

South Korea
90 day bank bills 7.11% 7.38% 7.26%
5 year bonds 7.95% 8.28% 9.03%
South Korean Won* W 1137 W 1117 W 1200

Thailand
90 day bank bills 3.00% 3.38% 4.00%
10 year bonds 5.31% 5.65% 7.81%
Thai Baht* B 44 B 41 B 39

Philippines
90 day bank bills 18.79% 9.21% 9.75%
10 year bonds 19.27% 14.57% 15.31%
Philippines Peso* P 52 P 45 P 40

Malaysia
90 day bank bills 3.50% 3.25% 3.35%
10 year bonds 5.68% 5.77% 6.50%
Malaysian Ringgit* R 3.8 R 3.8 R 3.8

Singapore
90 day bank bills 2.38% 2.26% 0.63%
10 year bonds 4.33% 4.53% 4.65%
Singapore Dollar* S$ 1.76 S$ 1.73 S$ 1.66

US$ Yankee Bonds**
South Korea 8.13% 8.20% 8.37%
Thailand 7.40% 8.00% 8.02%
Philippines 12.11% 11.14% 9.42%

* These currencies are quoted Asian currency per
U.S. dollar. The Australian and New Zealand dollars
are quoted U.S. dollars per currency.
** 7-10-year sovereign issues

EquitiLink International Management Limited
December 2000

<PAGE>

Portfolio of Investments
October 31, 2000 The First Australia Prime Income Fund, Inc.
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
--------------------------------------------------------
<C> <S> <C>
LONG-TERM INVESTMENTS--122.8%
AUSTRALIA--85.0%
Government and
Semi-Government--50.5%
Commonwealth of Australia--28.5%
Australia Postal
Corporation,
A$ 5,000 5.50%, 3/25/04........ $ 2,489,500
22,000 6.00%, 3/25/09........ 10,763,280
Australian Capital
Territory,
10,000 12.00%, 11/15/01...... 5,465,306
Commonwealth Bank of
Australia,
10,000 5.50%, 3/1/02......... 5,108,473
9,000 6.50%, 2/10/03........ 4,631,470
5,000 6.00%, 8/1/03......... 2,555,412
2,800 7.625%, 8/5/03........ 1,481,495
12,000 5.25%, 12/1/04........ 5,934,912
8,000 6.00%, 9/1/05......... 4,050,207
10,000 6.75%, 12/1/07........ 5,224,619
4,000 6.25%, 2/10/09........ 2,032,418
10,000 6.25%, 9/1/09......... 5,059,891
Commonwealth of Australia,
48,000 12.00%, 11/15/01...... 26,220,475
45,000 9.50%, 8/15/03........ 25,250,307
40,000 9.00%, 9/15/04........ 22,694,831
20,000 7.50%, 7/15/05........ 10,904,185
20,000 10.00%, 2/15/06....... 12,115,164
41,000 10.00%, 10/15/07...... 25,704,660
72,000 8.75%, 8/15/08........ 43,020,937
118,000 7.50%, 9/15/09........ 66,940,974
90,000 5.75%, 6/15/11........ 44,972,455
60,000 6.50%, 5/15/13........ 31,712,658
--------------
364,333,629
--------------
New South Wales--5.8%
New South Wales
Treasury
Corporation,
57,000 12.00%, 12/1/01....... 31,137,638
10,000 7.00%, 4/1/04......... 5,263,985
20,000 12.60%, 5/1/06........ 13,162,779
20,000 8.00%, 3/1/08......... 11,169,051
25,000 7.00%, 12/1/10........ 13,283,987
--------------
74,017,440
--------------
--------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
--------------------------------------------------------
Queensland--4.0%
Queensland Treasury
Corporation,
A$ 20,000 6.50%, 6/14/05........ $ 10,354,451
15,200 6.00%, 7/14/09........ 7,577,698
30,000 6.00%, 6/14/11........ 14,810,160
10,000 6.00%, 10/14/15....... 4,855,854
27,000 6.00%, 6/14/21........ 12,908,507
--------------
50,506,670
--------------
South Australia--3.2%
South Australian
Financing Authority,
22,000 10.00%, 1/15/03....... 12,182,997
53,000 7.50%, 10/15/07....... 28,723,558
--------------
40,906,555
--------------
Tasmania--0.4%
Tasmanian Public
Finance Corporation,
10,000 9.00%, 11/15/04....... 5,607,460
--------------
Victoria--4.8%
Treasury Corporation
of Victoria,
36,000 12.50%, 10/15/03...... 21,592,327
20,500 10.25%, 11/15/06...... 12,524,889
25,000 7.50%, 8/15/08........ 13,626,525
30,000 5.50%, 9/15/10........ 14,260,964
--------------
62,004,705
--------------
Western Australia--3.8%
Western Australia
Treasury
Corporation,
40,000 10.00%, 7/15/05....... 23,562,222
26,000 8.00%, 10/15/07....... 14,464,970
10,000 7.50%, 10/15/09....... 5,478,504
10,000 7.00%, 4/15/11........ 5,299,855
--------------
48,805,551
--------------
Total Australian
government and
semi-government
(cost US$851,298,074) 646,182,010
--------------
Eurobonds--28.4%
Banking and Finance--13.7%
Bank Austria AG,
11,278 10.875%, 11/17/04..... 6,638,323
Banque National de
Paris,
14,000 9.00%, 8/13/02........ 7,484,043
BHP Finance Limited,
5,000 7.50%, 7/15/05........ 2,616,868
</TABLE>

See Notes to Financial Statements 10

<PAGE>
Portfolio of Investments
October 31, 2000 The First Australia Prime Income Fund, Inc.
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
--------------------------------------------------------
<C> <S> <C>
Eurobonds (cont'd.)
Cable & Wireless Optus
Finance,
A$ 5,000 7.75%, 7/15/05........ $ 2,632,959
Commonwealth Bank of
Australia,
10,000 9.00%, 8/15/05........ 5,631,960
Credit Locale de
France,
5,000 10.25%, 4/12/05....... 2,899,258
Federal National
Mortgage Association
Global,
35,000 6.50%, 7/10/02........ 18,014,219
52,065 6.375%, 8/15/07....... 26,337,386
GE Capital Australia
Limited,
10,000 6.50%, 12/3/01........ 5,163,021
15,000 6.25%, 8/15/03........ 7,680,120
15,000 6.75%, 9/15/07........ 7,701,296
Interstar,
5,000 7.15%, 12/20/33....... 2,582,853
Jem Bonds Limited,
10,000 9.00%, 7/15/06........ 5,626,366
KFW International
Finance,
5,513 9.125%, 7/26/05....... 3,123,994
9,000 7.25%, 2/20/07........ 4,751,938
National Australia
Bank Limited,
10,000 6.00%, 8/9/02......... 5,109,026
10,000 6.25%, 10/15/02....... 5,129,574
Northern Territory
Authority,
18,000 6.50%, 7/15/05........ 9,239,323
5,000 10.03%, 8/9/05........ 2,908,089
Principal Financial
Global Fund,
10,000 7.00%, 7/15/05........ 5,142,410
Priority Trust,
2,000 6.00%, 10/15/30....... 1,018,058
Publishing & Broadcast
Finance Limited,
5,000 8.00%, 2/15/05........ 2,653,001
Puma,
5,000 7.47%, 2/21/33........ 2,616,739
State Bank of New
South Wales,
28,000 10.75%, 3/12/02....... 15,207,990
6,400 9.00%, 9/17/02........ 3,442,140
10,000 9.25%, 2/18/03........ 5,436,901
--------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
--------------------------------------------------------
State Bank of South
Australia,
A$ 10,000 11.00%, 4/10/02....... $ 5,457,335
Westfield Trust,
5,000 7.50%, 10/15/04....... 2,615,861
--------------
174,861,051
--------------
Semi-Government and Local
Government--10.0%
International Bank of
Reconstruction &
Development,
10,000 5.50%, 5/14/03........ 5,055,082
New South Wales
Treasury
Corporation,
25,000 8.00%, 12/1/01........ 13,124,515
50,000 12.00%, 12/1/01....... 27,286,108
7,000 10.50%, 12/7/04....... 4,102,912
34,000 12.60%, 5/1/06........ 22,393,865
7,000 9.25%, 6/20/05........ 3,977,797
40,000 8.00%, 3/1/08......... 22,461,040
Queensland Treasury
Corporation,
20,000 12.00%, 6/15/05....... 12,654,855
30,000 8.00%, 9/14/07........ 16,754,816
--------------
127,810,990
--------------
Services--0.2%
Compass Master,
5,000 7.09%, 9/15/40........ 2,599,745
--------------
Supranational Global--4.5%
Asian Development
Bank,
10,000 5.25%, 9/15/04........ 4,925,511
EFIC,
11,000 11.00%, 12/29/04...... 6,543,489
Eurofima,
36,170 9.875%, 1/17/07....... 21,582,937
European Bank of
Reconstruction &
Development,
34,000 9.00%, 10/15/02....... 18,319,126
Kingdom of Sweden,
8,287 7.875%, 4/23/07....... 4,505,333
Sigma Finance
Corporation,
5,000 7.50%, 8/15/03........ 2,626,192
--------------
58,502,588
--------------
Total Australian
eurobonds
(cost US$488,400,801) 363,774,374
--------------
</TABLE>

11 See Notes to Financial Statements

<PAGE>
Portfolio of Investments
October 31, 2000 The First Australia Prime Income Fund, Inc.
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
--------------------------------------------------------
<C> <S> <C>
Corporate Bonds--6.1%
Asset Backed--0.1%
FANMAC 22,
A$ 1,089 11.40%, 12/15/01...... $ 587,938
FANMAC 25,
312 10.33%, 6/15/02....... 169,236
--------------
757,174
--------------
Banking and Finance--2.4%
Coles Myer Finance,
12,100 6.75%, 7/15/05........ 6,158,376
DSL Bank,
35,000 6.25%, 11/15/06....... 17,545,551
Lend Lease,
15,000 7.50%, 7/15/05........ 7,813,800
--------------
31,517,727
--------------
Floating Rate Notes*--0.2%
Crusade Trust,
1,646 6.3883%, 7/10/29...... 848,931
Initial Corporate
Obligation,
3,000 5.0483%, 9/19/03...... 1,550,301
--------------
2,399,232
--------------
Services--3.4%
ANZ Banking Group,
5,000 5.50%, 9/15/03........ 2,501,845
Austran Holdings
Incorporated,
5,000 6.25%, 11/15/02....... 2,555,024
Merrill Lynch & Co.
Australia,
10,000 7.625%, 3/15/02....... 5,224,852
Sydney Airports Corporation,
2,000 6.35%, 3/15/04........ 1,015,878
Telstra Corporation,
8,000 11.50%, 10/15/02...... 4,488,696
2,000 7.80%, 7/17/03........ 1,066,717
7,000 8.00%, 9/15/04........ 3,745,713
30,000 12.00%, 5/15/06....... 18,915,493
2,000 8.75%, 1/15/20........ 1,238,429
Westpac Banking Corporation,
5,000 7.00%, 8/2/10......... 2,561,494
--------------
43,314,141
--------------
--------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
--------------------------------------------------------
Total Australian
corporate bonds
(cost US$98,530,013) $77,988,274
--------------
Total Australian
long-term
investments
(cost US$1,438,228,888) 1,087,944,658
--------------
JAPAN--1.0%
Government Bonds--1.0%
Inchon Metropolitan City,
JPY 500,000 3.70%, 4/26/06........ 4,718,494
PTT Exploration &
Production,
900,000 3.35%, 9/19/07........ 8,307,755
--------------
Total Japan long-term
investments
(cost US$12,209,493) 13,026,249
--------------
KOREA--7.9%
Government Bonds--7.9%
Korea Credit Insurance Fund,
KRW 17,500,000 8.72%, 3/12/04........ 15,587,692
2,000,000 15.00%, 7/3/04........ 2,125,890
Korea Deposit
Insurance Fund
Bond,
10,000,000 9.90%, 10/23/03....... 9,190,330
Korea Development
Bank,
5,000,000 8.40%, 11/3/01........ 4,538,457
10,000,000 8.40%, 11/20/01....... 8,899,077
5,000,000 6.40%, 1/5/02......... 4,352,440
5,000,000 6.82%, 2/26/02........ 4,364,703
6,900,000 7.01%, 6/28/02........ 6,011,098
Korea Monetary
Stabilization Bond,
18,040,000 8.97%, 2/8/02......... 15,824,767
10,000,000 8.99%, 2/14/02........ 8,622,857
8,950,000 7.75%, 7/19/02........ 7,783,707
Korea Treasury Bond,
5,000,000 7.10%, 12/9/01........ 4,397,187
10,000,000 7.70%, 8/16/03........ 8,939,780
--------------
Total Korea long-term
investments
(cost US$99,563,643) 100,637,985
--------------
</TABLE>

See Notes to Financial Statements 12

<PAGE>
Portfolio of Investments
October 31, 2000 The First Australia Prime Income Fund, Inc.
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
--------------------------------------------------------
<C> <S> <C>
MALAYSIA--2.1%
Government Bonds--1.6%
Danamodal Nasional Berhad,
MYR 50,000 Zero Coupon,
10/21/03............ $ 11,235,526
Malaysia Government
Bonds,
2,000 4.427%, 3/31/03....... 530,485
16,900 5.00%, 4/15/05........ 4,443,477
16,890 6.844%, 10/1/09....... 4,789,146
--------------
Total Malaysia
government bonds
(cost US$20,792,223) 20,998,634
--------------
Corporate Bonds--0.5%
British American Tobacco
Corporation,
9,000 7.10%, 11/2/04........ 2,518,224
YTL Corporation Berhad,
13,000 8.50%, 6/29/04........ 3,751,184
--------------
Total Malaysia
corporate bonds
(cost US$6,315,789) 6,269,408
--------------
Total Malaysia
long-term
investments
(cost US$27,108,012) 27,268,042
--------------
PHILIPPINES--0.5%
Government Bonds--0.5%
Philippine Government
Bonds,
PHP 339,500 18.00%, 11/26/08
(cost US$8,589,669) 6,324,072
--------------
SINGAPORE--2.6%
Government Bonds--1.8%
Singapore Government
Bonds,
SGD 11,170 4.00%, 2/1/05......... 6,431,347
7,060 4.00%, 3/1/07......... 4,001,457
20,040 4.625%, 7/1/10........ 11,688,954
--------------
Total Singapore
government bonds
(cost US$22,078,038) 22,121,758
--------------
Corporate Bonds--0.8%
General Motors
Acceptance
Corporation,
1,000 3.95%, 4/25/03 572,611
--------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
--------------------------------------------------------
Singapore Power
Company,
SGD 750 4.60%, 9/21/07........ $ 433,015
Westpac Banking
Corporation,
16,600 3.54%, 3/15/02........ 9,522,863
--------------
Total Singapore
corporate bonds
(cost US$10,640,364) 10,528,489
--------------
Total Singapore
long-term
investments
(cost US$32,718,402) 32,650,247
--------------
THAILAND--2.2%
Government Bonds--2.0%
Eastern Water
Resources,(a)
THB 140,000 9.00%, 7/22/04........ 3,491,756
Export-Import Bank of
Thailand,(a)
80,000 7.25%, 5/6/04......... 1,985,111
Thailand Government
Bonds,
46,000 6.125%, 4/12/02....... 1,094,058
90,000 5.25%, 3/5/03(a)...... 2,145,049
164,000 8.25%, 10/14/03(a).... 4,259,654
60,000 6.25%, 6/15/04........ 1,496,256
343,100 8.50%, 10/14/05(a).... 9,395,459
4,000 8.00%, 12/8/06(a)..... 107,847
28,000 5.60%, 7/7/07......... 666,137
60,000 8.50%, 12/8/08........ 1,644,144
--------------
Total Thailand
government bonds
(cost US$27,911,712) 26,285,471
--------------
Corporate Bonds--0.2%
Advance Information
Services PLC,
96,000 6.25%, 3/31/03
(cost US$2,533,260) 2,227,945
--------------
Total Thailand
long-term
investments
(cost US$30,444,972) 28,513,416
--------------
UNITED STATES--21.5%
ASAT Finance LLC,
US$ 3,900 12.50%, 11/1/06....... 3,939,000
Bangkok Bank Public
Company,
10,250 8.75%, 3/15/07........ 8,712,500
</TABLE>

13 See Notes to Financial Statements

<PAGE>
Portfolio of Investments
October 31, 2000 The First Australia Prime Income Fund, Inc.
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
--------------------------------------------------------
<C> <S> <C>
UNITED STATES (cont'd.)
Bangkok Sentral Ng,
US$ 4,000 8.60%, 6/15/27........ $ 2,520,000
China Development
Bank,
4,000 8.25%, 5/15/09........ 4,168,528
China Telecom Limited,
3,000 7.875%, 11/2/04....... 2,995,869
Cho Hung Bank,
5,500 11.875%, 4/1/05....... 5,280,000
1,500 11.875%, 4/1/10....... 1,395,000
Commerce Asset
Holding Company,
500 Zero Coupon,
6/17/02............. 432,500
Dao Heng Bank Limited,
12,500 7.75%, 1/24/07........ 12,121,900
Export-Import Bank
Korea,
2,000 6.50%, 11/15/06....... 1,884,440
6,000 7.10%, 3/15/07........ 5,944,980
Flextronics
International
Limited,
2,500 9.875%, 7/1/10........ 2,518,750
Globe Telecom
Incorporated,
11,000 13.00%, 8/1/09........ 11,596,301
Hanvit Bank,
4,000 11.75%, 3/1/10........ 3,805,000
3,500 12.75%, 3/1/10........ 3,347,246
Industrial Bank of Korea,
15,000 8.375%, 9/30/02....... 15,098,805
Korea Development
Bank,
8,000 7.125%, 4/22/04....... 7,751,184
Korea Electric Power
Corporation,
9,000 7.75%, 4/1/13......... 8,401,770
12,500 7.00%, 2/1/27......... 11,733,000
Kowloon Canton Ry
Corporation,
11,500 8.00%, 3/15/10........ 11,755,300
LG Caltex Oil Corporation,
3,500 7.875%, 7/1/06........ 3,401,650
6,500 7.50%, 7/15/07........ 6,240,000
Malaysia,
7,500 8.75%, 6/1/09......... 7,810,500
National Power Corporation,
7,000 8.40%, 12/15/16....... 4,392,500
--------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
--------------------------------------------------------
Petroliam Nasional Berhad,
US$ 5,000 8.875%, 8/1/04........ $ 5,210,945
2,000 7.125%, 8/15/05....... 1,971,654
7,000 7.125%, 10/18/06...... 6,800,787
8,000 7.75%, 8/15/15........ 7,417,800
Philippine Long
Distance Telcom,
1,000 8.35%, 3/6/17......... 726,100
PTT Exploration &
Production,
6,500 7.625%, 10/1/06....... 6,291,150
Reliance Industries Limited,
17,500 10.25%, 1/15/97....... 13,333,950
Republic of
Philippines,
1,500 9.875%, 3/16/10....... 1,290,000
12,500 9.875%, 1/15/19....... 9,001,800
3,500 9.50%, 10/21/24....... 3,081,922
7,636 10.625%, 3/16/25...... 5,769,227
Republic of South Korea,
8,000 8.75%, 4/15/03........ 8,178,400
21,500 8.875%, 4/15/08....... 22,379,522
Sterlite Industries Limited,
8,000 7.3775%, 6/5/07....... 7,040,000
Telekom Malaysia,
3,000 7.875%, 8/1/25........ 2,672,400
Tenaga Nasional
Berhad,
1,000 7.625%, 4/29/07....... 962,290
5,000 7.50%, 11/1/25........ 4,203,500
7,000 7.50%, 1/15/96........ 5,247,550
Total Access
Communication
Public,
4,750 7.625%, 11/4/01....... 4,607,500
3,000 8.375%, 11/4/06....... 2,640,000
UBS AG (Jersey),
5,000 10.55%, 6/12/04....... 4,925,000
Windsor Petroleum
Transport
Corporation,
4,000 7.84%, 1/15/21........ 3,490,992
--------------
Total United States
long-term
investments
(cost US$277,468,944) 274,489,212
--------------
Total long-term
investments
(cost US$1,926,332,023) 1,570,853,881
--------------
</TABLE>

See Notes to Financial Statements 14

<PAGE>
Portfolio of Investments
October 31, 2000 The First Australia Prime Income Fund, Inc.
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
--------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS--19.7%
Australia--12.2%
Government and
Semi-Government--4.2%
Commonwealth of Australia--3.1%
Commonwealth of
Australia,
A$ 5,000 13.00%, 12/15/00...... $ 2,602,369
30,000 8.75%, 1/15/01........ 15,568,404
Northern Territory
Authority,
40,000 12.50%, 7/15/01....... 21,495,712
--------------
39,666,485
--------------
Tasmania--1.1%
Tasmanian Public
Finance Corporation,
28,000 12.50%, 1/15/01....... 14,635,731
--------------
Total Australian
government and
semi-government
(cost US$77,015,196) 54,302,216
--------------
Eurobonds--1.9%
Banking and Finance--1.5%
CitiGroup,
5,000 14.00%, 1/15/01....... 2,619,683
GMAC Australia Finance
Limited,
6,500 9.00%, 5/22/01........ 3,388,958
State Bank of New
South Wales,
5,000 12.25%, 2/26/01....... 2,622,932
20,000 11.75%, 8/16/01....... 10,714,291
--------------
19,345,864
--------------
Semi-Government and
Local Government--0.2%
South Australia
Financing Authority,
5,000 11.25%, 10/23/01...... 2,685,975
--------------
Supranational Global--0.2%
European Investment
Bank,
3,000 10.25%, 10/1/01....... 1,599,239
--------------
Total Australian
eurobonds
(cost US$37,934,967) 23,631,078
--------------
--------------------------------------------------------
Principal
Amount
Local
Currency Value
(000) Description (US$)
--------------------------------------------------------
Corporate Bonds--1.2%
Services--1.2%
Telstra Corporation,
A$ 30,000 12.50%, 11/15/00
(cost US$24,308,323) $15,531,910
--------------
Demand Deposits--4.9%
Banque National de
Paris,
120,540 6.00%, 11/1/00........ 62,265,059
State Street Call
Deposit,
29 5.00%, 11/1/00........ 14,880
--------------
Total Australian
demand deposits
(cost US$65,470,581) 62,279,939
--------------
Total Australian
short-term
investments
(cost US$204,729,067) 155,745,143
--------------
Korea--1.7%
Government Bonds--1.7%
Korea Monetary
Stabalization Bond,
KRW 10,000,000 7.49%, 3/2/01......... 8,800,114
4,880,000 7.45%, 3/22/01........ 4,255,446
5,000,000 6.70%, 4/19/01........ 4,385,143
Korea Treasury Bond,
5,000,000 9.09%, 10/21/01....... 4,481,011
--------------
Total Korea short-term
investments
(cost US$22,101,138) 21,921,714
--------------
Malaysia--0.1%
Government Bonds--0.1%
Negra Malaysia Bills,
MYR 7,000 Zero Coupon, 11/16/00
(cost US$1,828,897) 1,838,747
--------------
New Zealand--0.0%
Demand Deposit--0.0%
New Zealand Call
Deposit,
NZD 605 5.00%, 11/1/00
(cost US$314,416) 239,981
--------------
United States--5.7%
Demand Deposit--1.1%
State Street Euro
Dollar Time Deposit,
12,000 6.375%, 12/28/00...... 12,000,000
2,300 6.50%, 6/1/01......... 2,300,000
--------------
14,300,000
--------------
</TABLE>

15 See Notes to Financial Statements

<PAGE>
Statement of Assets and Liabilities
October 31, 2000 The First Australia Prime Income Fund, Inc.
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments, at value (cost $2,229,304,168).............................................. $1,823,678,264
Foreign currency, at value (cost $14,363,656)............................................ 14,185,624
Cash..................................................................................... 1,148,702
Interest receivable...................................................................... 37,763,407
Receivable for investments sold.......................................................... 24,923,325
Unrealized appreciation on forward currency contracts.................................... 2,302,726
Other assets............................................................................. 266,510
--------------
Total assets......................................................................... 1,904,268,558
--------------
Liabilities
Dividends payable-common stock........................................................... 12,031,979
Payable for investments purchased........................................................ 3,213,469
Unrealized depreciation on forward currency contracts.................................... 2,645,572
Withholding taxes payable................................................................ 2,177,313
Accrued expenses and other liabilities................................................... 1,732,846
Dividends payable-preferred stock........................................................ 1,619,265
Investment management fee payable........................................................ 814,951
Unrealized depreciation on interest rate and currency swaps.............................. 526,397
Administration fee payable............................................................... 158,616
--------------
Total liabilities.................................................................... 24,920,408
--------------
Total Net Assets......................................................................... $1,879,348,150
--------------
--------------
Total net assets were composed of:
Common stock:
Par value ($.01 per share, applicable to 267,377,298 shares)......................... $ 2,673,773
Paid-in capital in excess of par..................................................... 1,985,557,009
Preferred stock ($.01 par value per share and $25,000 liquidation value per share
applicable to 24,000 shares; Note 4)................................................. 600,000,000
--------------
2,588,230,782
Distributions in excess of net investment income....................................... (15,828,557)
Accumulated net realized loss on investments........................................... (844,740)
Net unrealized depreciation on investments............................................. (51,058,922)
Accumulated net realized and unrealized foreign exchange losses........................ (641,150,413)
--------------
Total net assets....................................................................... $1,879,348,150
--------------
--------------
Net assets applicable to common shareholders........................................... $1,279,348,150
--------------
--------------
Net asset value per common share:
($1,279,348,150 / 267,377,298 shares of
common stock issued and outstanding)................................................... $4.78
--------------
--------------
</TABLE>

17 See Notes to Financial Statements.

<PAGE>
Statement of Operations The First Australia Prime Income Fund, Inc.
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
October 31,
Net Investment Income 2000
-------------
<S> <C>
Income
Interest (net of foreign withholding taxes of $9,559,464).............................. $ 181,811,904
-------------
Expenses
Investment management fee.............................................................. 11,262,870
Administration fee..................................................................... 2,466,446
Custodian's fees and expenses.......................................................... 2,300,000
Auction agent's fees and broker commissions............................................ 1,670,000
Reports to shareholders................................................................ 787,000
Transfer agent's fees and expenses..................................................... 650,000
Directors' fees and expenses........................................................... 605,000
Legal fees and expenses................................................................ 450,000
Independent accountant's fees and expenses............................................. 230,000
Insurance expense...................................................................... 200,000
Investor relations fees and expenses................................................... 83,000
Miscellaneous.......................................................................... 88,616
-------------
Total operating expenses............................................................... 20,792,932
-------------
Net investment income.................................................................... 161,018,972
-------------
Realized and Unrealized
Gains (Losses) on Investments
and Foreign Currencies
Net realized gain (loss) on:
Investment transactions................................................................ 3,026,700
Interest rate and currency swaps....................................................... (40,000)
Financial futures contracts............................................................ 405,879
-------------
3,392,579
-------------
Net change in unrealized appreciation (depreciation) on:
Investments............................................................................ (83,134,374)
Interest rate and currency swaps....................................................... 320,582
Financial futures contracts............................................................ (155,286)
-------------
(82,969,078)
-------------
Net loss on investments.................................................................. (79,576,499)
-------------
Net increase in total net assets from operations before net foreign exchange losses...... 81,442,473
Net realized and unrealized foreign exchange losses...................................... (262,673,773)
-------------
Net Decrease In Total Net Assets
Resulting From Operations................................................................ $(181,231,300)
-------------
-------------
</TABLE>

See Notes to Financial Statements. 18

<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) 2000
---------------
<S> <C>
Cash flows used for operating activities
Interest received (net of foreign withholding taxes).................................. $ 194,446,518
Expenses paid......................................................................... (21,281,215)
Proceeds from sales of short-term portfolio investments, net.......................... (32,165,560)
Purchases of long-term portfolio investments.......................................... (1,284,171,533)
Proceeds from sales of long-term portfolio investments................................ 1,438,882,928
Other................................................................................. (1,813)
---------------
Net cash provided from operating activities......................................... 295,709,325
---------------
Cash flows provided from financing activities
Dividends and distributions paid to preferred shareholders............................ (36,249,680)
Dividends and distributions paid to common shareholders............................... (164,432,663)
---------------
Net cash used for financing activities.............................................. (200,682,343)
---------------
Effect of changes in exchange rate...................................................... (108,012,930)
---------------
Net decrease in cash.................................................................... (12,985,948)
Cash at beginning of year............................................................. 28,320,274
---------------
Cash at end of year................................................................... $ 15,334,326
---------------
---------------
Reconciliation of Net Increase in Total
Net Assets from Operations to Net Cash
(Including Foreign Currency) Used For
Operating Activities
Net decrease in total net assets resulting from operations.............................. $ (181,231,300)
---------------
Decrease in investments............................................................... 156,547,886
Net realized gain on investment transactions.......................................... (3,392,579)
Decrease in cash deposits with broker for futures contracts........................... 600,000
Increase in unrealized depreciation on forward currency contracts..................... 364,655
Net change in unrealized depreciation on investments.................................. 82,969,078
Net realized and unrealized foreign exchange losses................................... 262,673,773
Decrease in interest receivable....................................................... 13,246,012
Decrease in due from broker-variation margin.......................................... 874,842
Net increase in other assets.......................................................... (1,813)
Decrease in payable for investments purchased......................................... (29,198,058)
Increase in receivable for investments sold........................................... (6,643,490)
Decrease in accrued expenses and other liabilities.................................... (1,099,681)
---------------
Total adjustments................................................................... 476,940,625
---------------
Net cash provided from operating activities............................................. $ 295,709,325
---------------
---------------
</TABLE>

19 See Notes to Financial Statements.

<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 2000 1999
-------------- --------------
<S> <C> <C>
Operations
Net investment income................................................ $ 161,018,972 $ 173,851,260
Net realized gains on investment transactions........................ 3,392,579 39,399,827
Net change in unrealized depreciation on investments................. (82,969,078) (83,793,302)
-------------- --------------
Net increase in total net assets resulting from operations before net
foreign exchange losses............................................ 81,442,473 129,457,785
Net realized and unrealized foreign exchange losses.................. (262,673,773) (47,603,693)
-------------- --------------
Net increase/decrease in total net assets resulting from operations.... (181,231,300) 81,854,092
-------------- --------------
Dividends from net investment income
Common shares........................................................ (103,990,974) (163,686,312)
Preferred shares..................................................... (35,131,943) (25,677,478)
-------------- --------------
(139,122,917) (189,363,790)
-------------- --------------
Tax return of capital distribution..................................... (56,431,030) --
-------------- --------------
Distributions from net realized capital gains
Common shares........................................................ -- (28,475,021)
Preferred shares..................................................... (1,231,344) (4,395,043)
-------------- --------------
(1,231,344) (32,870,064)
-------------- --------------
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).............................................. (378,016,591) 229,223,137
Total Net Assets
Beginning of year...................................................... 2,257,364,741 2,028,141,604
-------------- --------------
End of year............................................................ $1,879,348,150 $2,257,364,741
-------------- --------------
-------------- --------------
</TABLE>

See Notes to Financial Statements. 20

<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
21

<PAGE>
Notes to Financial Statements
(continued) The First Australia Prime Income Fund, Inc.
--------------------------------------------------------------------------------
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 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, 2000.
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 $262,673,773 for the
year ended October 31, 2000 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, 2000 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.
22

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.
23

<PAGE>
Notes to Financial Statements
(continued) The First Australia Prime Income Fund, Inc.
--------------------------------------------------------------------------------
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 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,
net realized short-term capital gains and return of capital distributions 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. The chart below summarizes the
withholding tax rates in effect on income at the period end.

Withholding
Country Tax Rate
------------------------------------------------
Australia 10%
Japan 10
Korea 12
Malaysia 30
New Zealand 10
Philippines 15
Singapore 30
Thailand 10

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
24

<PAGE>

Notes to Financial Statements
(continued) The First Australia Prime Income Fund, Inc.
--------------------------------------------------------------------------------
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, 2000, the Fund decreased distributions in excess
of net investment income by $39,043,444, decreased accumulated net realized
gains on investments by $5,428,494, decreased accumulated net realized and
unrealized foreign exchange losses by $22,096,248 and decreased paid-in capital
in excess of par by $55,711,198. Net realized gains and net assets were not
affected by this change.

Note 2. Agreements

The Fund has agreements with EquitiLink International Management Limited (the
'Investment Manager), EquitiLink Australia Limited (the 'Investment Adviser) and
Prudential Investments Fund Management LLC (the 'Administrator). The Investment
Manager and the Investment Adviser are affiliated companies.

The Investment Manager makes investment decisions on behalf of the Fund on
the basis of recommendations and information furnished to it by the Investment
Adviser, including the selection of and the placement of orders with brokers and
dealers to execute portfolio transactions on behalf of the Fund.

The management agreement 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 its services
rendered. The Investment Manager informed the Fund that it paid $4,861,276 to
the Investment Adviser during the fiscal year ended October 31, 2000.

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 the Investment Manager
for certain compliance related administrative services provided.

EquitiLink USA, Inc. ('EUSA), a wholly owned subsidiary of EquitiLink
International Management Limited, entered into an agreement on March 1, 2000 to
serve as the Fund's investor
25

<PAGE>
Notes to Financial Statements
(continued) The First Australia Prime Income Fund, Inc.
--------------------------------------------------------------------------------
relations agent. This agreement provides EUSA with a monthly retainer of $10,000
plus out of pocket expenses up to $3,000 per year. During the year ended October
31, 2000, the Fund incurred fees of approximately $80,000 for the services of
EUSA. As of October 31, 2000, $20,000 was due to EUSA. Investor relations fees
and expenses in the Statement of Operations include certain out-of-pocket
expenses.

Note 3. Portfolio Securities

Purchases and sales of investment securities, other than short-term
investments, for the fiscal year ended October 31, 2000 aggregated
$1,253,420,220 and $1,442,133,839, 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 THB290,920,192 and pays interest at a rate of
3.35% based on a notional amount of JPY900,000,000. Net receipts or payments of
such amounts are exchanged semi-annually. At October 31, 2000 the unrealized
depreciation on currency swaps was $471,513. The swaps are scheduled to
terminate on April 26, 2006.

The Fund entered into an interest rate swap agreement on September 1, 2000.
Under the terms of the agreement, the Fund receives a floating rate of interest
based on a notional value of SGD 4,000,000 and pays interest at a rate of 4.835%
based on a notional value of SGD 4,000,000. Net receipts of payments of such
amounts are exchanged semi-annually. At October 31, 2000 the unrealized
depreciation on interest rate swaps was $54,884. The swap is scheduled to
terminate on September 6, 2010.

Net interest income of $1,343,429 on interest rate and currency swaps during
the year is included in interest income in the Statement of Operations.

At October 31, 2000 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 Appreciation
----------------------------------------- --------------- ----------- ------------
<S> <C> <C> <C>
Philippine Peso
expiring 11/06/00 $ 5,169,158 $ 4,585,046 $ 584,112
expiring 11/07/00 2,305,249 2,066,829 238,420
Thailand Baht
expiring 11/14/00 7,795,000 7,304,328 490,672
expiring 11/20/00 6,000,000 5,664,521 335,479
expiring 12/01/00 7,511,654 6,930,578 581,076
--------------- ----------- ------------
$28,781,061 $26,551,302 $ 2,229,759
--------------- ----------- ------------
--------------- ----------- ------------
</TABLE>

<PAGE>
Notes to Financial Statements
(continued) The First Australia Prime Income Fund, Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Current Appreciation
Purchase Contract Date Payable Value (Depreciation)
----------------------------------------- --------------- ----------- ------------
<S> <C> <C> <C>
South Korean Won
expiring 12/04/00 $12,000,000 $12,042,198 $ 42,198
expiring 12/04/00 10,000,000 10,030,769 30,769
expiring 12/28/00 12,000,000 11,847,033 (152,967)
Philippine Peso
expiring 11/06/00 5,146,523 4,585,047 (561,476)
expiring 11/07/00 2,280,696 2,066,829 (213,867)
expiring 2,280,626 1,896,707 (383,919)
Thailand Baht
expiring 11/14/00 7,795,000 7,329,108 (465,892)
expiring 11/20/00 6,000,000 5,693,141 (306,859)
expiring 12/01/00 7,511,654 6,951,062 (560,592)
--------------- ----------- ------------
$65,014,499 $62,441,894 $(2,572,605)
--------------- ----------- ------------
--------------- ----------- ------------
</TABLE>

The United States federal income tax basis of the Fund's investments at
October 31, 2000 was $1,874,864,713 and accordingly, net unrealized depreciation
for United States federal income tax purposes was $51,186,449 (gross unrealized
appreciation--$12,578,066; gross unrealized depreciation--$63,764,515).

For federal income tax purposes, the Fund had a capital loss carryforward as
of October 31, 2000 of approximately $191,000 which expires in 2007.
Accordingly, no capital gains distributions are expected to be paid to
shareholders until future net gains have been realized in excess of such
carryforward.

Note 4. Capital

There are 400 million shares of common stock authorized. Of the 267,377,298
common shares outstanding at October 31, 2000, the Investment Manager owned
94,984 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 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
27

<PAGE>
Notes to Financial Statements
(continued) The First Australia Prime Income Fund, Inc.
--------------------------------------------------------------------------------
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, 2000 and 1999 the Fund issued 0 and
641,049 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 4.5% to 6.7% during the fiscal
year ended October 31, 2000. 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 And Distributions

On November 16, 2000 and December 13, 2000 the Board of Directors of the Fund
declared distributions of $.045 per common share payable on December 15, 2000
and January 12, 2001 to shareholders of record on November 30, 2000 and December
29, 2000, respectively.

Subsequent to October 31, 2000, dividends and distributions declared and paid
on Preferred Stock totaled approximately $4,957,345 for the nine outstanding
preferred share series in the aggregate through December 15, 2000.
28

<PAGE>
Notes to Financial Statements
(continued) The First Australia Prime Income Fund, Inc.
--------------------------------------------------------------------------------
Note 6. Subsequent Events

On September 7, 2000 at a telephonic meeting of the Board of Directors, the
directors were informed that the Investment Management businesses of the
EquitiLink Group ('EquitiLink), including the operations of the Fund's
Investment Manager and Investment Adviser, were proposed to be acquired by
Aberdeen Asset Management PLC ('Aberdeen). Under applicable law, the Fund's
management agreement with the Investment Manager and its investment advisory
agreement with the Investment Adviser would automatically terminate at the time
of the Aberdeen acquisition.

On October 10, 2000, the Board of Directors of the Fund, including directors
who are not 'interested persons (as defined under the Investment Company Act of
1940, as amended) of Aberdeen or EquitiLink, voted to approve a new management
agreement with the Investment Manager and a new investment advisory agreement
with the Investment Adviser (collectively, the 'New Agreements) and to recommend
approval of the New Agreements by Fund shareholders. At a special meeting of
shareholders held on November 29, 2000, the Fund's shareholders approved the New
Agreements. The terms and conditions of the New Agreements are substantially the
same as each of the current agreements, except for the new initial two-year
terms and the effective dates of the New Agreements. There will be no changes in
the rates of fees charged to the Fund under the New Agreements. This acquisition
is expected to close on December 22, 2000.
29

<PAGE>
Financial Highlights The First Australia Prime Income Fund, Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended October 31,
----------------------------------------------------------------------
2000* 1999* 1998* 1997* 1996*
<S> <C> <C> <C> <C> <C>
---------- ---------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value per common share, beginning of year... $ 6.20 $ 7.33 $ 8.85 $ 9.93 $ 9.36
---------- ---------- ---------- ---------- ----------
Net investment income................................. .60 .67 .82 .87 .87
Net realized and unrealized gain (loss) on investments
and foreign currencies.............................. (1.28) (.35) (1.45) (.96) 1.13
---------- ---------- ---------- ---------- ----------
Total from investment operations.................... (.68) .32 (.63) (.09) 2.00
---------- ---------- ---------- ---------- ----------
Dividends from net investment income to preferred
shareholders........................................ (.13) (.10) (.17) (.17) (.14)
Dividends from net investment income to common
shareholders........................................ (.39) (.63) (.51) (.82) (.83)
Tax return of capital distribution.................... (.21) -- -- -- --
Distributions from net capital and currency gains to
preferred shareholders.............................. (.01) (.02) -- -- (.02)
Distributions from net capital and currency gains to
common shareholders................................. -- (.09) (.21) -- (.03)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions................... (.74) (.84) (.89) (.99) (1.02)
---------- ---------- ---------- ---------- ----------
Capital charge in respect to issuance of shares....... -- (.61) -- -- (.41)
---------- ---------- ---------- ---------- ----------
Net asset value per common share, end of year......... $ 4.78 $ 6.20 $ 7.33 $ 8.85 $ 9.93
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Market price per common share, end of year............ $ 3.86 $ 6.00 $ 5.625 $ 8.125 $ 8.94
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL INVESTMENT RETURN BASED OND:
Market value.......................................... (26.73)% 20.96% (23.19)% (0.42)% 5.59%
Net asset value....................................... (12.19)% (5.15)% (8.10)% (2.37)% 16.73%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS/SUPPLEMENTAL DATAPound:
ExpensesDD............................................ 1.36 % 1.26% 1.47% 1.25% 1.29%
Net investment income available to common
shareholders........................................ 8.22 % 8.34% 8.51% 7.39% 7.71%
Portfolio turnover rate............................... 64 % 89% 61% 85% 63%
Net assets of common shareholders, end of year (000
omitted)............................................ $1,279,346 $1,657,365 $1,428,142 $1,723,025 $1,931,894
Average net assets of common shareholders (000
omitted)............................................ $1,530,638 $1,775,894 $1,485,690 $1,848,378 $1,627,916
Senior securities (preferred stock) outstanding (000
omitted)............................................ $ 600,000 $ 600,000 $ 600,000 $ 600,000 $ 600,000
Asset coverage of preferred stock at year-end......... 316 % 376% 338% 387% 422%
</TABLE>

---------------
* Calculated based upon 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 .98%,
.95%, .95%, .94% and 1.05%, respectively.
Ratios to average net assets of net investment income before preferred
stock dividends are 10.52%, 9.79%, 10.72%, 9.17% and 9.16%,
respectively. Ratios to average net assets of preferred stock dividends
are 2.30%, 1.45%, 2.21%, 1.78% and 1.45%, respectively.
NOTE: Contained above is operating performance for a share of common stock
outstanding, total investment return, ratios to average net assets of
common shareholders and other supplemental data for each of the years
indicated. This information has been determined based upon financial
information provided in the financial statements and market value data
for the Fund's common shares.
See Notes to Financial Statements. 30

<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, 2000, 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 accounting
principles generally accepted in the United States of America. 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 auditing
standards generally accepted in the United States of America 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, 2000 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
December 15, 2000
31

<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, 2000) as to the tax status of
dividends, distributions and foreign tax credits paid by the Fund during the
fiscal year. During fiscal year 2000, the Fund paid dividends and distributions
to common shareholders of $.39 and $.21 of net investment income and return of
capital, respectively. During fiscal year 2000, the Fund paid amounts for
dividends and distributions to preferred shareholders from net investment income
and capital gains as shown in the table below. 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>
-----------------------------------------------------------------------
Distributions:
Foreign Source $ .6259 $.0360 $ .5899
United States .0101 -- .0101
--------- -------- --------------
$ .6360 $.0360 $ .6000
--------- -------- --------------
--------- -------- --------------
<CAPTION>
Preferred Shares
-----------------------------------------------------------------------
<S> <C> <C> <C>
Series A:
Ordinary Income:
Foreign Source $1,527.43 $75.90 $ 1,451.53
United States 23.34 23.34
Capital Gains:
LongTerm 51.31 51.31
--------- -------- --------------
$1,602.08 $75.90 $ 1,526.18
--------- -------- --------------
--------- -------- --------------
Series B:
Ordinary Income:
Foreign Source $1,539.54 $76.50 $ 1,463.04
United States 23.52 23.52
Capital Gains:
LongTerm 51.31 51.31
--------- -------- --------------
$1,614.37 $76.50 $ 1,537.87
--------- -------- --------------
--------- -------- --------------
</TABLE>
32

<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 $1,532.43 $76.15 $ 1,456.28
United States 23.41 23.41
Capital Gains:
LongTerm 51.31 51.31
--------- -------------- --------------
$1,607.15 $76.15 $ 1,531.00
--------- -------------- --------------
--------- -------------- --------------
Series D:
Ordinary Income:
Foreign Source $1,527.39 $75.90 $ 1,451.49
United States 23.34 23.34
Capital Gains:
LongTerm 51.31 51.31
--------- -------------- --------------
$1,602.04 $75.90 $ 1,526.14
--------- -------------- --------------
--------- -------------- --------------
Series E:
Ordinary Income:
Foreign Source $1,521.52 $75.61 $ 1,445.91
United States 23.25 23.25
Capital Gains:
LongTerm 51.31 51.31
--------- -------------- --------------
$1,596.08 $75.61 $ 1,520.47
--------- -------------- --------------
--------- -------------- --------------
Series F:
Ordinary Income:
Foreign Source $1,445.57 $71.83 $ 1,373.74
United States 22.09 22.09
Capital Gains:
LongTerm 51.31 51.31
--------- -------------- --------------
$1,518.97 $71.83 $ 1,447.14
--------- -------------- --------------
--------- -------------- --------------
Series G:
Ordinary Income:
Foreign Source $1,498.55 $74.46 $ 1,424.09
United States 22.90 22.90
Capital Gains:
LongTerm 51.31 51.31
--------- -------------- --------------
$1,572.76 $74.46 $ 1,498.30
--------- -------------- --------------
--------- -------------- --------------
</TABLE>
33

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 2001 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 2000 federal income
tax returns.
34

<PAGE>
Supplemental Proxy Information
(Unaudited) The First Australia Prime Income Fund, Inc.
--------------------------------------------------------------------------------
The Fund's shareholders voted at a Special Shareholder Meeting held on
November 29, 2000, to approve a new management agreement with the Investment
Manager and a new investment advisory agreement with the Investment Adviser in
connection with the proposed acquisition of the Investment Manager and
Investment Adviser by Aberdeen Asset Management PLC.

The results of the proxy solicitation on the above matter was as follows:

Votes for 228,606,637
Votes against 17,427,907
Abstentions 3,591,094
35

<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.

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.
36

<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
Harry A. Jacobs, Jr Roy M. Randall, Secretary
Howard A. Knight Ouma Sananikone,
Neville J. Miles Assistant Vice President and
Peter J. O'Connell Chief Investment Officer
William J. Potter Jack Benintende, Assistant Treasurer
Peter D. Sacks Barry G. Sechos, Assistant Treasurer
Anton E. Schrafl Allan S. Mostoff, Assistant Secretary
John T. Sheehy Margaret A. Bancroft, Assistant Secretary
Brian M. Sherman Sander M. Bieber, Assistant Secretary
Marvin Yontef

This report, including the financial statements
herein, is transmitted to the shareholders of The
First Australia Prime Income Fund, Inc. for their
general information only. It does not have regard
to the specific investment objectives, financial
situation and the particular needs of any specific
person.

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
BankersTrust Company
Four Albany Street
New York, New York 10006

INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036

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

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

INVESTOR RELATIONS
EquitiLink USA, Inc.
45 Broadway, 31st Floor
New York, NY 10006
(800) 522-5465
(212) 968-8800
or e-mail at [email protected]

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.

318653102