Directors and Officers
Sir Robert C. Cotton
Director and Chairman of the Board
Sydney, Australia
David M. Felder
Director and President
London, England
James J. Foley
Director
Belmont, MA
Leonard T. Hinde
Director
Cremorne, NSW, Australia
The Earl of Limerick
Director
London, England
Nigel S. MacEwan
Director
Darien, CT
G. William Miller
Director and Deputy Chairman of the Board
Washington, DC
Francis M. Harte
Treasurer and Principal Financial and
Accounting Officer
New York, NY
Michael Fortier
Secretary and Assistant Treasurer
New York, NY
Investment Advisor
Kleinwort Benson Investment
Management Americas Inc.
New York, NY
Kleinwort
Benson
Australian
Income Fund, Inc.
200 Park Avenue
New York, NY 10166
(800) 237-4218
Kleinwort
Benson
Australian
Income Fund, Inc.
Semi-Annual Report
April 30, 1996
<PAGE>
- ---------------------
Kleinwort
Benson
Australian Report to Shareholders
Income Fund, Inc.
- ---------------------
To Our Shareholders,
During the six months ended April 30, 1996, the total value of the Fund
appreciated, driven by the strength of the Australian and New Zealand dollars.
Bond market performance was mixed over the period. In Australia, a rally in the
first quarter of the Fund's fiscal year gave way to a decline in the second
quarter, while in New Zealand, the bond market was hurt by concerns about an
upcoming general election. Overall, however, the Fund achieved a total return of
6.27% (on a net asset value basis, with income reinvested) for the six months
ended April 30, 1996. On that date the Fund's closing market price was $9.125, a
discount of 10.45% to its net asset value of $10.19.
On June 10, 1996, the Fund's Board of Directors announced that the monthly
dividend would remain at $0.065 per share through year-end. As in previous
years, the Fund intends to distribute any additional net income with its final
1996 monthly distribution. Based on the income distributions over the past year,
including the 1995 year-end additional income payment of $0.11 per share, the
Fund's dividend yield is 9.8% and remains superior to comparable US$ based cash
and bond investments.
The Fund's management team has continued to work to reduce operating
expenses and we are pleased to note that the expense ratio through April was
down to an annualized 1.22% of average net assets, which represents a reduction
of 25% over the past five years.
As many of our shareholders know, the Fund was formed nearly 10 years ago
to provide US investors with a way to take advantage of the higher yields
available in Australian bonds. The Fund invests only in issuers or securities
rated AA or better with an objective of providing a high rate of current income.
Since its inception in 1986, the Fund has provided an annualized net asset value
return of 13.58%, while on a market value basis the return on the Fund's stock
has averaged 11.82%. (A further analysis of the Fund's performance follows on
page three.) The Board appreciates the continued confidence shown by our
shareholders, many of whom have been with us since 1986, and welcomes those of
you who have joined the Fund recently.
- --------------------------
MARKET SUMMARY
- --------------------------
A more comprehensive discussion of the major economic trends in Australia
and New Zealand is provided in the Economic Review, together with an analysis of
developments over the past six months in the debt and currency markets. In
summary, the Australian and New Zealand economies continued to slow into the
fourth quarter of 1995 and the start of 1996. However, there were signs of
underlying strength in the New Zealand economy, particularly in consumer demand,
and concerns over inflation have kept monetary conditions tight. In Australia,
there were indications towards the end of the period that stronger growth may be
possible in the second half of the year. Inflation appears to be at, or at least
close to, its peak in both countries, and is expected to fall into line with
Reserve Bank of Australia (RBA) and Reserve Bank of New Zealand (RBNZ) targets,
respectively, by the end of 1996.
Short-term interest rates have remained stable in Australia and risen in
New Zealand over the period under review, against a background of falling rates
in the US and Europe. Market expectations of a reduction
1
<PAGE>
- ---------------------
Kleinwort
Benson
Australian Report to Shareholders
Income Fund, Inc.
- ---------------------
in Australian rates receded over the period, as signs of future growth potential
emerged, and the money market now expects the next move in interest rates to be
upwards. In New Zealand, inflation remains stubborn, just above the 2% upper
limit of the RBNZ target band, and short-term rates are not expected to decline
until there are clear signs of lower inflationary pressures.
The Australian bond market performed well in the latter months of 1995 and
the first six weeks of 1996, and the Fund benefited from a slight extension of
average life of the portfolio early in the period. However, fears of strength in
the US economy have led markets down in the period since mid-February, with the
fall exacerbated by political worries in New Zealand, but dampened by better
domestic fundamentals in Australia. After the Australian market had factored in
the improved domestic conditions and reduced the yield premium to a historically
low 2% over US Treasuries, the Fund's average life was reduced marginally. The
Fund's returns were substantially augmented by the appreciation of the
Australian and New Zealand dollars.
The prospects for capital appreciation in Australian and New Zealand bonds
during the next half-year are favorable, provided the US economy does not
accelerate fast enough to drive up inflation. Nevertheless, there may be some
short-term political worries in New Zealand, although much political risk has
been factored into the market. In this environment, the Fund will maintain a
prudent investment policy, with a continuing emphasis on high income.
/s/ Robert Cotton
Sir Robert Cotton
Chairman
/s/ DM Felder
David M. Felder
President
June 10, 1996
- --------------------------------------------------------------------------------
PORTFOLIO SUMMARY
At April 30, 1996, the average maturity of the Fund's portfolio was 6.1
years, with an average duration of 4.2 years, while the average current
yield to maturity was 8.5%.
- --------------------------------------------------------------------------------
2
<PAGE>
- ---------------------
Kleinwort
Benson
Australian Performance from Inception through April 30, 1996
Income Fund, Inc. (Unaudited)
- ---------------------
Growth of a Hypothetical $10,000 Investment
[The following table was represented as a line graph in the printed material]
Australian Index Net Asset Value Market Value U.S. Index
---------------- --------------- ------------ ----------
11/86 10000 10000 10000 10000
4/87 11592 11193 10358 9875
4/88 15204 14526 12826 10468
4/89 16478 15447 14206 11249
4/90 17599 16178 14297 12215
4/91 23151 20823 17979 14002
4/92 26661 23526 22130 15473
4/93 29103 25190 23254 17683
4/94 30218 26383 22880 17867
4/95 32064 27673 23491 19024
4/96 39349 33183 28633 20594
Since its inception in 1986, the Fund has achieved an average annualized return
on market value of 11.82%, on the basis noted below. On a net asset value basis,
which measures the performance of the Fund's underlying portfolio, the average
annualized return has been 13.58%. Both the market and net asset value
performance measures have outpaced the Salomon Brothers US Government Bond Index
which has averaged 7.97%. The Salomon Brothers Australian Government Bond Index
has averaged 15.66% since the Fund's inception, with the difference between the
Fund's net asset value performance and that of the index primarily attributable
to the Fund's operating and foreign tax expenses, which neither index is subject
to. After adjusting for these expenses, which have averaged 2.34% since
inception, the Fund has outperformed the Australian index as well.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Annualized 6 Since
Performance Months* 1 Year 3 Years 5 Years Inception+
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fund Market Value(1) 4.05% 21.89% 7.18% 9.75% 11.82%
- ---------------------------------------------------------------------------------------------------------
Fund Net Asset Value(2) 6.27% 19.91% 9.43% 9.77% 13.58%
- ---------------------------------------------------------------------------------------------------------
Salomon Brothers US Gov't Bond Index(3) -0.04% 8.25% 5.21% 8.02% 7.97%
- ---------------------------------------------------------------------------------------------------------
Salomon Brothers Australian Gov't Bond Index(4) 7.86% 22.72% 10.58% 11.19% 15.66%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
+ Fund commenced operations November 28, 1986.
* Not annualized.
(1) Based on market value per share, adjusted for rights offerings, and
assumes reinvestment of all distributions at reinvestment plan prices.
(2) Based on net asset value per share, adjusted for rights offerings, and
assumes reinvestment of all distributions at the ex-dividend date net
asset value. This measures the performance of the underlying Fund
portfolio and may not be indicative of returns to investors.
(3)(4) The Salomon Brothers US and Australian Government Bond Indices are US$
based unmanaged indices. Please remember that past performance may not be
indicative of future results.
Please remember that past performance may not be indicative of future results.
3
<PAGE>
- ---------------------
Kleinwort
Benson
Australian Economic Review
Income Fund, Inc.
- ---------------------
In the last quarter of 1995, global economic indicators suggested that
activity was slowing, and there were fears that a recession might ensue. Against
this background, short rates in the US and Europe declined, while in Japan rates
were held level given signs of economic recovery. There was a major shift in
sentiment in the first quarter of 1996, with clear signs that the US was not
falling into recession, and indeed some feared inflationary pressures due to a
marked tightening in the labor market. European economies remained weaker, with
the additional burden of the restrictive fiscal measures designed to fulfill the
Maastricht criteria for EMU membership. The Japanese recovery continued slowly,
with the ailing banking sector still requiring assistance from the government.
Australia
The slowdown evident in the Australian economy in the first half of 1995
continued through the remainder of the year. For the three months ended December
1995, GDP(A) -- the average measure of Gross Domestic Product -- rose just 0.5%,
giving a 3.1% rise for the full year. This represented a substantial decline
from the recent peak growth rate of 6.3% recorded for the 12 months ended
September 1994. However, GDP(A) rose 4.8% during the first quarter of 1996, well
ahead of market expectations. The volatile government and private consumption
components were strong, and inventory reductions were less of a negative factor
than had been expected. The strength was narrowly based, however, with little
growth outside the service and farm sectors.
Retail Trade and consumer sentiment have remained robust throughout the
slowdown in activity. Retail Trade has expanded in each month during Q4 1995 and
Q1 1996, growing 0.8% in the December quarter, and 1.4% in the March quarter,
leaving March sales up 8.1% on the year before. Some of the strength was
probably the traditional positive reaction to the election of a new government,
in early March.
Consumer confidence, as reflected in the Westpac/Melbourne Index, has been
strong over the period under review, with the index rising from 100 at the end
of October 1995, to 109.9 at the end of April 1996. A surge of 5.6% was recorded
in March, following the federal election. The Housing sector displayed continued
weakness in the last quarter of 1995, but there has been evidence of conditions
improving in recent months. Housing finance commitments for January and February
rose 7% and 5% respectively, and building approvals rose 9.5% in February, but
still remain 22% below year ago levels.
The labor market continued to tighten over the last quarter of 1995, with
an average monthly rise in full-time employment of 3,400, and the unemployment
rate fell to 8.1% in December. However, the first quarter of 1996 saw an average
monthly fall of 10,800 in full-time employment, and the rate rose to 8.5%, as
slower economic activity began to feed through. The recent weakening trend has
been displayed clearly in the ANZ job advertisements data, which fell in
February, March and April, to be 14.8% below the level of April last year.
The tightening labor market and resilient consumer activity of mid-1995
led to continuing inflationary pressures over the fourth quarter of 1995, with
the Consumer Price Index (CPI) increasing by 0.8%, up 5.1% on the level of a
year before, after a 5.1% annual rise in the third quarter. The Treasury's
underlying year-on-year measure of
4
<PAGE>
- ---------------------
Kleinwort
Benson
Australian Economic Review
Income Fund, Inc.
- ---------------------
inflation rose from 3.1% in September to 3.2% in December, above the 2-3% target
band of the RBA. However, inflation figures for the first quarter of 1996 were
well below market expectations and reflected the weakening of the economy in the
later part of 1995. In the first quarter 1996, CPI rose 0.4%, 3.7% above the
level of a year before, seeming to confirm that the Index peaked in the third
and fourth quarters of 1995. The underlying rate did increase again to a
year-on-year 3.3%, but given a weaker labor market and slower growth, this
figure is expected to be the peak for this economic cycle.
The RBA continued to target wage inflation as their primary concern with
respect to the price level. Over the period under review there was a moderation
in wage inflation, as measured by Average Weekly Ordinary Time Earnings (AWOTE),
and the current weakening of the labor market should extend this trend. AWOTE
for the quarter to February were up 0.4% on the previous quarter, 4.2% on 1995
levels, after a recent peak year-on-year rise of 5.1% in the quarter to August
1995. However, the RBA did note that both CPI and AWOTE figures were reflecting
a showdown in the latter half of 1995, rather than current trends. There were
several wage settlements towards the end of the period under review, in the
services sector, well above the rates reflected in the average earnings figures.
The balance of payments position improved over the period, led by trade
performance as the domestic economy slowed and trading partners began to
experience growth. The trade balance improved from a deficit of A$444mn in
November to a surplus of A$29mn in March, assisted by a strong improvement in
rural sector exports, as the farm sector recovered from the drought and world
wheat prices increased. The flow of income payments out of Australia declined
slightly, driving the current account deficit down from a revised A$2.14bn in
November, to A$1.51bn in March.
In the Federal Election on March 2, 1996 the liberal coalition under John
Howard won a convincing victory, gaining a clear mandate for proposed reforms in
the labor market, and continued fiscal and monetary prudence. New Treasurer
Peter Costello announced that the coalition government would be returning the
budget to balance by fiscal 1997/8 through a package of measures, firmly biased
towards expenditure reductions, rather than tax increases. Spending cuts of
A$4bn are expected in both 1996/7 and 1997/8, and further revenue is proposed
from asset sales, although Democrats in the Senate have already signaled their
opposition to the proposed sale of Telstra, the telecoms group. The Trade Unions
were expected to resist any reform to the labor market, but appear to be
grudgingly accepting that the new government has a mandate for reform.
New Zealand
Economic activity in New Zealand continued to slow in the period under
review, with monetary conditions remaining tight. GDP expanded by 0.6% in the
last quarter of 1995, giving a rise of 3.5% for the full year, the lowest since
June 1993, and significantly below the cyclical peak of 6.3% in June 1994. The
only sectors of the economy contributing significantly to growth were transport
and communications. Annual growth rates, while subdued by New Zealand standards,
continued to run at respectable levels, slightly above those of Australia.
5
<PAGE>
- ---------------------
Kleinwort
Benson
Australian Economic Review
Income Fund, Inc.
- ---------------------
While the current slowdown in activity should moderate future inflation,
there was RBNZ concern during the period under review over inflation levels. In
the last quarter of 1995 the CPI rose 0.6%, giving a total increase of 2.9% on
the previous year's levels, and the underlying rate remained at 2%, the top of
the RBNZ 0-2% target band. The increase in headline CPI decelerated in the first
quarter of 1996, rising 0.5%, 2.2% above the level at Q1 1995, but the
underlying measure increased to 2.1%, outside the target band. The major factors
in the rising CPI were higher tobacco prices, an increase in tertiary education
fees, and the housing sector, which continues to show strength. The rigid nature
of the inflation targets required the RBNZ to give an explanation of the breach
to Parliament, and the central bank responded that inflation would decline back
into the range in the next few quarters.
The political situation in New Zealand has become increasingly unclear in
recent months. An election has now been called for October 12, 1996 and the
result looks difficult to predict. The breakaway NZ First Party has been polling
well, and there is uncertainty over both a new electoral system and the
possibility of a coalition government in the event of a hung parliament. The
main market concern is that a center-left coalition might undermine the RBNZ
anti-inflation targets.
Debt Markets
Australian ten-year bond yields finished the period under review little
changed, falling from 8.80% at the end of October, to 8.72% at the end of April.
However, this masks two distinct trends in the bond market over the period. In
the first half, the Australian market was led upwards by a rising US Treasury
market, with yields on Australian ten-year bonds reaching a low of 7.96% in
mid-February. Since that time the market has been dominated by negative
sentiment in the US, and Australian yields have risen sharply, reaching a high
of 9.16%, before settling down below 9%. In relative terms Australian bonds
outperformed the US, with the yield premium falling from 250 basis points (2.5%)
to 200 basis points, on news of better Australian economic fundamentals. Cash
rates remained close to 7.5%, although expectations of an interest rate cut were
removed from the market when stronger overall G7 growth started to be predicted.
New Zealand ten-year bond yields also moved lower with US yields until
February, falling from 7.2% at the end of October to just below 7%. However, the
consequent sell-off was exacerbated by political concerns, and yields rose to
8.5%. The 90-day bill rate rose sharply over the period under review, from 8.2%
at the end of October to 9.45% in April, as the RBNZ maintained a stern response
to stubborn inflationary pressures.
Australian and New Zealand Dollars
The Australian dollar performed strongly over the period under review,
with its appreciation against the US dollar occurring in the period after
mid-January. Having started at US$0.755 at the beginning of November, the
currency fell to US$0.734 in January, before surging above US$0.785 at the end
of April. Support was provided by an improving current account balance, higher
commodity prices, and strong Japanese issuance of Australian dollar denominated
debt instruments. There was also a strong rebound in farm export volumes over
the period, which combined with a
6
<PAGE>
- ---------------------
Kleinwort
Benson
Australian Economic Review
Income Fund, Inc.
- ---------------------
large increase in farm commodity prices. The demand from Japan for Australian
exports was reflected in a particularly strong performance against the Yen.
Further currency support was provided by static Australian short rates, against
a background of US and European easing, and positive international sentiment to
the election of the liberal coalition government.
The New Zealand dollar was also strong over the last two quarters, rising
4.6% against the US dollar to finish April at US$0.687. The main support for the
currency was the increase in interest rates, at a time when, as noted above,
other major countries were cutting their short-term rates. The trade-weighted
currency index, vital to the setting of monetary conditions in New Zealand, also
strengthened, moving from 62.1 in November to 64.7 in April.
7
<PAGE>
- ---------------------
Kleinwort
Benson
Australian Portfolio of Investments and Cash on Deposit
Income Fund, Inc. April 30, 1996
- --------------------- (Unaudited)
<TABLE>
<CAPTION>
Long-Term Investments -- 97.1%
Principal Amount Value (US$)
- ---------------- ----------
<C> <S> <C> <C>
Australian Government and Semi-Government Bonds -- 67.6%
Australian Government Bonds -- 21.5%
A$ 6,000,000 Commonwealth Government Bond 12.5% due 9/15/97................... $ 4,990,206
12,000,000 Commonwealth Government Bond 12% due 11/15/01.................... 10,874,526
6,000,000 Commonwealth Government Bond 10% due 2/15/06..................... 5,104,504
-----------
.................................... 20,969,236
-----------
Semi-Government Bonds with Eurobond Structure -- 32.2%
A$12,700,000 Queensland Treasury Corp. 8% due 5/14/03...................... 9,573,734
6,700,000 South Australian Finance Authority 7.75% due 6/30/03................... 4,967,131
17,400,000 Queensland Treasury Corp. 6.5% due 6/14/05.................... 11,640,565
7,900,000 New South Wales Treasury Corp. 6.5% due 5/1/06..................... 5,209,062
-----------
.................................... 31,390,492
-----------
Other Semi-Government Bonds -- 13.9%
A$ 4,000,000 State Electricity Commission of Queensland 13% due 7/1/96...................... 3,172,051
4,000,000 Tasmanian Public Finance Corp. 13% due 11/1/96..................... 3,226,254
4,000,000 Western Australia Treasury Corp. 12.5% due 4/1/98.................... 3,381,793
4,000,000 Victorian Public Finance Authority 12.5% due 10/15/03.................. 3,765,141
-----------
.................................... 13,545,239
-----------
Total Australian Government and Semi-Government Bonds -- (Cost $56,184,689).......................... 65,904,967
-----------
Eurobonds -- 21.4%
A$ 2,500,000 Deutsche Bank Australia 9.75% due 4/8/97.................... 1,990,878
5,800,000 Toyota Motor Credit Corp. 10.75% due 3/6/98................... 4,732,742
2,500,000 Unilever Australia Ltd. 12% due 4/8/98...................... 2,081,708
6,000,000 Morgan Guaranty Trust Co. 8% due 4/18/01...................... 4,589,576
3,300,000 Export Finance & Insurance Corp. 9% due 3/26/03...................... 2,602,036
5,890,000 Eurofima 9.875% due 1/17/07.................. 4,869,801
-----------
Total Eurobonds -- (Cost $19,259,793) .................................... 20,866,741
-----------
Australian Corporate Bond -- 3.5%
A$ 4,000,000 National Australia Bank 12% due 7/15/99-- (Cost $3,121,382) 3,434,048
-----------
New Zealand Government Bond -- 4.6%
NZ$ 6,700,000 New Zealand Government Bond 8% due 11/15/06-- (Cost $4,315,706) 4,427,389
-----------
Total Long-Term Investments -- (Cost $82,881,570) .................................... 94,633,145
-----------
Cash on Deposit -- 0.9%
A$ 1,063,017 Brown Brothers Harriman & Co., upon demand at 6.4375% -- (Cost $836,829)........ 835,053
US$ 79,226 Brown Brothers Harriman & Co., upon demand at 4.5% -- (Cost $79,226)............ 79,226
-----------
Total Cash on Deposit -- (Cost $916,055) .................................... 914,279
-----------
Total Portfolio of Investments and Cash on Deposit -- 98.0% (Cost $83,797,625)....................... 95,547,424
Other Assets less Liabilities -- 2.0% .................................... 1,901,993
-----------
Net Assets -- 100.0% .................................... $97,449,417
===========
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
- ---------------------
Kleinwort
Benson
Australian Statements of Assets and Liabilities
Income Fund, Inc.
- ---------------------
<TABLE>
<CAPTION>
April 30, 1996 October 31, 1995
-------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS:
Investments, at value (cost $82,881,570 and $77,935,601, respectively) .... $ 94,633,145 $ 88,025,738
Cash on deposit:
Foreign currency (cost $836,829 and $5,762,142, respectively) ........... 835,053 6,104,219
US dollars .............................................................. 79,226 53,069
Interest receivable ....................................................... 2,767,048 3,038,152
Prepaid expenses .......................................................... 6,159 6,524
Other assets .............................................................. 7,317 7,317
------------ ------------
Total assets ............................................................ 98,327,948 97,235,019
------------ ------------
LIABILITIES:
Dividends payable ......................................................... 621,637 621,637
Investment advisory fee payable ........................................... 56,655 56,525
Directors' fees and expenses payable ...................................... 17,378 14,215
Other accrued expenses .................................................... 182,861 152,643
------------ ------------
Total liabilities ..................................................... 878,531 845,020
------------ ------------
Net assets ............................................................ $ 97,449,417 $ 96,389,999
============ ============
NET ASSETS:
Net assets were comprised of:
Common stock, at $0.001 par ............................................. $ 9,564 $ 9,564
Paid-in capital ......................................................... 85,551,096 85,551,096
------------ ------------
85,560,660 85,560,660
Accumulated undistributed net investment income ........................... 245,215 1,066,228
Accumulated undistributed net realized gain (loss) on
investment and foreign currency transactions ............................ (191,204) (748,847)
Net unrealized appreciation on investments and foreign currencies ......... 11,834,746 10,511,958
------------ ------------
Net assets ............................................................ $ 97,449,417 $ 96,389,999
============ ============
Shares of common stock issued and outstanding ............................. 9,563,653 9,563,653
------------ ------------
Net asset value per share ................................................. $ 10.19 $ 10.08
============ ============
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
- ---------------------
Kleinwort
Benson
Australian Statements of Operations
Income Fund, Inc.
- ---------------------
(Unaudited)
<TABLE>
<CAPTION>
Six months ended April 30,
1996 1995
---- ----
<S> <C> <C>
NET INVESTMENT INCOME:
Investment Income:
Interest and discount earned (net of foreign withholding taxes of
$200,398 and $186,435, respectively) .......................... $ 4,544,769 $ 3,789,726
----------- -----------
Expenses:
Investment advisory fees ........................................ 335,761 258,590
Custodian fees .................................................. 96,413 84,608
Directors' fees and expenses .................................... 45,874 61,902
Audit and tax services .......................................... 24,120 29,684
Transfer agent fees ............................................. 23,842 23,892
Printing ........................................................ 17,472 17,376
Postage ......................................................... 12,376 12,127
Legal ........................................................... 10,010 9,955
Stock exchange listing fee ...................................... 8,084 8,196
Insurance ....................................................... 2,184 2,172
Miscellaneous ................................................... 7,820 9,181
----------- -----------
Total operating expenses ........................................ 583,956 517,683
----------- -----------
Net investment income* .......................................... 3,960,813 3,272,043
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investment transactions* ........................................ 7,297 (942,259)
Foreign currency transactions** ................................. 550,346 21,411
----------- -----------
Total net realized gain (loss) .................................. 557,643 (920,848)
----------- -----------
Change in unrealized appreciation (depreciation) on:
Investments* .................................................... (918,435) 1,241,352
Foreign currency denominated assets and liabilities** ........... 2,241,223 (160,387)
----------- -----------
Total net unrealized appreciation ............................... 1,322,788 1,080,965
----------- -----------
Net realized and unrealized gain on investments and
foreign currencies ............................................ 1,880,431 160,117
----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ......................................... $ 5,841,244 $ 3,432,160
=========== ===========
</TABLE>
* Net increase in net assets before foreign currency gain (loss) was
$3,049,675 and $3,571,136, respectively.
** Net realized and unrealized foreign currency gain (loss) was $2,791,569
and ($138,976), respectively.
See Notes to Financial Statements.
10
<PAGE>
- ---------------------
Kleinwort
Benson
Australian Statements of Changes in Net Assets
Income Fund, Inc.
- ---------------------
<TABLE>
<CAPTION>
Six months ended Fiscal year ended
April 30, 1996 October 31, 1995
-------------- ----------------
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income ........................................... $ 3,960,813 $ 7,109,470
Net realized gain (loss) on investment and
foreign currency transactions ................................. 557,643 (101,932)
Change in unrealized appreciation on investments and
foreign currency denominated assets and liabilities ........... 1,322,788 7,570,517
------------ ------------
Net increase in net assets resulting from operations ............ 5,841,244 14,578,055
------------ ------------
Distributions to shareholders:
From net investment income ...................................... (4,781,826) (7,337,713)
From net realized gain on investment and
foreign currency transactions ................................. -- (14,346)
------------ ------------
Net decrease in net assets resulting from
distributions to shareholders ................................. (4,781,826) (7,352,059)
------------ ------------
Capital stock transactions:
Net asset value of shares issued
through rights offering ....................................... -- 17,478,847
------------ ------------
Total increase in net assets .................................. 1,059,418 24,704,843
------------ ------------
NET ASSETS:
Beginning of period ............................................. 96,389,999 71,685,156
------------ ------------
End of period (including accumulated undistributed
net investment income of $245,215 and $1,066,228, respectively) $ 97,449,417 $ 96,389,999
============ ============
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
- ---------------------
Kleinwort
Benson
Australian Financial Highlights
Income Fund, Inc.
- ---------------------
<TABLE>
<CAPTION>
Six months
ended Fiscal year ended October 31,
April 30, 1996 1995 1994 1993 1992 1991
-------------- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value at beginning of period ... $ 10.08 $ 9.99 $ 10.45 $ 9.97 $ 11.77 $ 10.29
--------- --------- --------- --------- --------- ---------
Net investment income+ ................... 0.41 0.84 0.82 0.77 0.92 1.05
Net realized and unrealized gain (loss) on
investments and foreign currencies+ .... 0.20 0.82 (0.48) 0.47 (1.03) 1.44
--------- --------- --------- --------- --------- ---------
Total increase(decrease) from operations . 0.61 1.66 0.34 1.24 (0.11) 2.49
--------- --------- --------- --------- --------- ---------
Distributions to shareholders:
From net investment income ............... (0.50) (0.89) (0.78) (0.74) (1.02) (1.01)
From net realized gains on investment
and foreign currency transactions ...... -- -- (0.02) -- (0.56) --
--------- --------- --------- --------- --------- ---------
Total distributions to shareholders ...... (0.50) (0.89) (0.80) (0.74) (1.58) (1.01)
--------- --------- --------- --------- --------- ---------
Decrease in net assets from capital
stock transactions ..................... -- (0.65) -- (0.01) (0.08) --
--------- --------- --------- --------- --------- ---------
Offering expenses charged to capital ..... -- (0.03) -- (0.01) (0.03) --
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in net asset value 0.11 0.09 (0.46) 0.48 (1.80) 1.48
--------- --------- --------- --------- --------- ---------
Net asset value at end of period ......... $ 10.19 $ 10.08 $ 9.99 $ 10.45 $ 9.97 $ 11.77
========= ========= ========= ========= ========= =========
Per share market value at end of period .. $ 9.125 $ 9.25 $ 9.125 $ 9.75 $ 9.625 $ 11.00
Total investment return (1) .............. 4.05% 15.74% 1.77% 9.23% 2.00% 43.00%
Net asset value return (2) ............... 6.27% 17.93% 3.22% 12.65% (1.74)% 25.49%
Net assets at end of period (in 000's) ... $ 97,449 $ 96,390 $ 71,685 $ 74,958 $ 69,564 $ 74,651
Number of shares outstanding at
end of period (in 000's) ............... 9,564 9,564 7,173 7,173 6,979 6,345
RATIOS TO AVERAGE NET ASSETS:
Operating expenses ....................... 1.22%* 1.32% 1.40% 1.47% 1.48% 1.62%
Net investment income .................... 8.30%* 8.51% 7.88% 7.45% 8.20% 9.62%
Portfolio turnover ....................... 5.14% 56.55% 13.71% 9.69% 53.66% 11.39%
</TABLE>
(1) Based on market value per share, adjusted for reinvestment of
distributions at reinvestment plan prices and for rights offerings,
assuming full subscription by shareholder.
(2) Based on net asset value per share, adjusted for reinvestment of
distributions at the ex-dividend date net asset value and for rights
offerings, assuming full subscription by shareholder.
+ 1991 and 1992 figures restated to reflect reclassification of certain
realized and unrealized foreign exchange gain (loss) from a component of
net investment income to a component of net realized and unrealized gain
(loss) on investments and foreign currencies.
* Annualized.
See Notes to Financial Statements.
12
<PAGE>
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Kleinwort
Benson
Australian Notes to Financial Statements
Income Fund, Inc.
- ---------------------
April 30, 1996
(Unaudited)
The Kleinwort Benson Australian Income Fund, Inc. (the "Fund") was incorporated
in Maryland on August 12, 1986 and is registered as a closed-end,
non-diversified investment company under the Investment Company Act of 1940, as
amended.
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 accounting principles generally accepted in the United States
using the United States dollar as both the functional and reporting currency.
(For tax purposes the Fund generally uses the Australian dollar as its
functional currency -- see Taxes.) The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates of certain reported amounts in the financial statements. Actual
amounts could differ from those estimates.
Foreign Currency Translation: The books and records of the Fund are maintained
in United States dollars. Australian dollar ("A$") and New Zealand dollar
("NZ$") amounts are translated into United States dollars on the following
basis:
(i) market value of investment securities and other assets and liabilities --
at the current prevailing rate of exchange.
(ii) purchases and sales of investment securities and income and expenses -- at
the rates of exchange prevailing on the respective dates of such
transactions.
The investment securities of the Fund are presented at the foreign exchange
rates and market values at the close of the period. The Fund isolates that
portion of the results of operations arising as a result of changes in foreign
exchange rates from the fluctuations arising from changes in the market prices
of securities held or sold during the period.
The foreign currency transactions element of net realized gains or losses
represents net foreign exchange gains or losses from the disposition of
portfolio securities, foreign currencies and forward currency contracts and net
currency gains or losses realized between the trade and settlement dates on
securities transactions and between the amounts of interest, discount and
foreign withholding taxes recorded on the Fund's books and the US dollar
equivalent amounts actually received or paid. The foreign currency denominated
assets and liabilities element of the change in unrealized appreciation or
depreciation represents the change in the value of portfolio securities arising
as a result of changes in foreign exchange rates and the change in the value of
foreign currencies and other assets and liabilities arising as a result of
changes in foreign exchange rates.
The Australian and New Zealand dollar exchange rates at October 31, 1995 and
April 30, 1996, were US$0.76175 to A$1.00 and US$0.6601 to NZ$1.00, and
US$0.7856 to A$1.00 and US$0.6866 to NZ$1.00, respectively.
Investment Valuation: Investment securities are stated at value. Investments for
which market quotations are readily available are valued at the last reported
sales prices. If there is no sales price on the date of valuation, then
investments are valued at the most recently available sales price or at fair
value as 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
13
<PAGE>
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Kleinwort
Benson
Australian Notes to Financial Statements (Continued)
Income Fund, Inc.
- ---------------------
April 30, 1996
(Unaudited)
valued at amortized cost, if their term to maturity from date of purchase was 60
days or less, or by amortizing their value on the 61st day prior to maturity, if
their original term to maturity exceeded 60 days.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the level of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability. The abilities of the issuers of debt securities held by the Fund to
meet their obligations may be affected by economic or political developments in
a particular country.
Investment Transactions and Investment Income: Investment security transactions
are recorded on the trade date. Realized and unrealized gains and losses on
investments and foreign currencies are calculated on the identified cost basis.
Interest income is recorded on the accrual basis and interest receivable is
reflected in the Statement of Assets and Liabilities net of accrued withholding
taxes. Premiums and discounts on debt securities are amortized over the life of
the security.
Forward Currency Contracts: The Fund may enter into forward currency contracts
in order to hedge its exposure to changes in foreign currency exchange rates on
its foreign portfolio holdings. A forward contract is a commitment to purchase
or sell a foreign currency at a future date at a negotiated forward rate.
Forward currency contracts are valued based on the current forward rate of
exchange. Fluctuations in the value of such contracts are recorded as unrealized
foreign exchange gain or loss; realized gains or losses are included in net
realized gain or loss on foreign currency transactions.
Taxes: For Federal income tax purposes, substantially all of the Fund's
transactions are accounted for using the Australian dollar as the functional
currency. Accordingly, only realized currency gains and losses resulting from
the repatriation of A$ into US$ or NZ$ into A$ or US$ are recognized for tax
purposes.
No provision has been made for United States income taxes because it is the
Fund's policy to meet the requirements of the United States Internal Revenue
Code applicable to regulated investment companies and to distribute, within
allowable time limits, all of its taxable income to shareholders. As the Fund
uses the Australian dollar as its functional currency for tax purposes, there
are character differences between taxable income and net investment income and
net realized gain(loss) on investments and foreign currencies as computed for
financial statement purposes. Australia imposes a withholding tax of 10% on most
interest and discount earned. Eurobonds and New Zealand government bonds are
generally not subject to withholding taxes.
Dividends and Distributions: The Fund declares and pays dividends of net
investment income on a monthly basis. Distributions of net realized capital
gains, if any, are made annually. Dividends and distributions are recorded on
their ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with federal income tax regulations which may differ with generally accepted
accounting principles. These "book/tax" differences are either temporary or
permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their
tax-basis treatment; temporary differences do not require a reclassification.
Implementation of Statement of Position 93-2: During fiscal 1994, the Fund
adopted AICPA Statement of Position 93-2 Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain and
14
<PAGE>
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Kleinwort
Benson
Australian Notes to Financial Statements (Continued)
Income Fund, Inc.
- ---------------------
April 30, 1996
(Unaudited)
Return of Capital Distributions by Investment Companies ("SOP 93-2").
Accordingly, permanent book and tax basis differences relating to net investment
income and net realized gain (loss) on investments and foreign currencies have
been reclassified to paid-in capital. As of November 1, 1993, such cumulative
differences totalling $1,013,828 and $1,659,527 were reclassified from
accumulated undistributed net investment income and accumulated net realized
gains, respectively, to paid-in capital. Net investment income, net realized
gains and net assets were not affected by this change. At October 31, 1994,
permanent book and tax basis differences of $390 and $336,966 were reclassified
from accumulated undistributed net investment income and accumulated
undistributed net capital gains, respectively, to paid-in capital. At October
31, 1995, such reclassifications were ($543,061) and $637,215, respectively.
These differences relate primarily to redesignation of foreign currency gains
(losses) to ordinary income for tax purposes.
2. Agreements
The Fund's Advisory Agreement with Kleinwort Benson Investment Management
Americas Inc., the Investment Advisor, provides for a fee, computed weekly and
payable monthly, at an annual rate of 0.70% of the Fund's average annual net
assets. For the six months ended April 30, 1995 and 1996, the Investment Advisor
earned $258,590 and $335,761, respectively, under this agreement.
3. Portfolio Transactions
Purchases of investment securities, other than short-term investments, for the
year ended October 31, 1995 and the six months ended April 30, 1996, aggregated
$55,102,789 and $9,192,703, respectively. Sales of investment securities, other
than short-term investments, totaled $43,352,323, and $4,766,749 respectively,
during these periods. The portfolio of investments at October 31, 1995 was
substantially the same in terms of types of investments to that included herein
for April 30, 1996.
The United States Federal income tax basis of the Fund's investments and foreign
currency cash deposits at October 31, 1995 and April 30, 1996 was as listed
below. In addition, the Fund has a capital loss carryforward as of October 31,
1995 of $742,819 which expires in 2003. To the extent future capital gains are
offset by such capital losses, the Fund will not distribute such gains to
shareholders.
April 30, 1996 October 31, 1995
-------------- ----------------
Tax cost basis $ 89,064,864 $ 83,704,621
============ ============
Unrealized appreciation $ 6,557,274 $ 10,425,337
Unrealized depreciation (153,940) 0
------------ ------------
Net unrealized appreciation $ 6,403,334 $ 10,425,337
============ ============
4. Capital Stock
There are 100 million shares of $0.001 par value common stock authorized and
9,563,653 such shares outstanding. There were no transactions in shares of
common stock during the six months ended April 30, 1996. During April 1995,
2,390,913 shares of common stock were issued through a rights offering at a
subscription price of $7.39 per share. Gross proceeds to the Fund were
$17,668,847. Total offering costs of $190,000 were charged to capital.
15
<PAGE>
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Kleinwort
Benson
Australian Notes to Financial Statements
Income Fund, Inc.
- ---------------------
April 30, 1996
(Unaudited)
5. Quarterly Results of Operations (Unaudited):
<TABLE>
<CAPTION>
Net Realized and Unrealized Net Increase (Decrease)
Net Investment Gain (Loss) on Investments in Net Assets
Total Investment Income Income and Foreign Currencies Resulting from Operations
For the three ----------------------- ------ ---------------------- -------------------------
months ended Total* Per Share Total* Per Share Total* Per Share Total* Per Share
------------ ------ --------- ------ --------- ------ --------- ------ ---------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 April 30..... $2,355 $0.246 $1,956 $0.205 $ 672 $0.070 $2,628 $0.275
January 31... 2,390 0.250 2,005 0.211 1,208 0.125 3,213 0.336
1995 October 31... 2,352 0.236 1,954 0.196 5,029 0.543 6,984 0.739
July 31...... 2,262 0.227 1,883 0.190 2,280 0.255 4,162 0.445
April 30..... 1,979 0.276 1,621 0.226 (658) (0.092) 963 0.134
January 31... 2,011 0.280 1,651 0.230 818 0.114 2,469 0.344
1994 October 31... 1,929 0.269 1,584 0.221 (2,430) (0.339) (846) (0.117)
July 31...... 1,880 0.262 1,526 0.213 (392) (0.054) 1,134 0.158
April 30..... 1,783 0.248 1,420 0.198 (5,105) (0.712) (3,685) (0.514)
January 31... 1,735 0.242 1,368 0.190 4,494 0.627 5,862 0.817
</TABLE>
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* Thousands.
16
<PAGE>
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Kleinwort
Benson
Australian Dividend Reinvestment and Cash Purchase Plan
Income Fund, Inc. Foreign Tax Credits
- --------------------- Shareholder Meeting Results
Dividend Reinvestment and Cash
Purchase Plan
The Fund offers to shareholders a Dividend Reinvestment Plan which
provides participants with a prompt and simple way to reinvest their income
dividends and capital gain distributions in additional Fund shares. If you
choose to participate in the Plan, your income dividends and capital gain
distributions will automatically be reinvested in Fund shares at the lower of
market price or net asset value, at up to a 5% discount from market price, on
valuation date. The Plan also includes a Cash Purchase option which provides
Reinvestment Plan participants with the opportunity to make additional cash
investments in Fund shares directly through the Plan Agent.
The Plan is entirely voluntary and, subject to the terms and conditions of
the Plan, you may join or withdraw at any time. A brochure with more
information, including the full terms and conditions, and an application is
available from the Plan Agent, Boston EquiServe (formerly known as Bank of
Boston), telephone (800) 730-6001.
If you wish to participate and your shares are registered in your name,
simply complete and return the application form at the back of the brochure. If
your shares are held in the name of a brokerage firm, bank or other nominee,
your shares may need to be re-registered in your own name in order for you to
participate. Please consult your broker to determine what needs to be done to
arrange for you to join the Plan.
Foreign Tax Credits
The Fund will generally elect to treat all foreign taxes paid by it as
having been paid proportionately by its shareholders. As a result, the Form
1099-DIV's issued to shareholders by the Fund will likely include an amount of
foreign taxes paid by the Fund on the behalf of its shareholders. Shareholders
can generally use the foreign tax amount to either claim a deduction or a tax
credit on their U.S. Federal tax return.
The Fund issues its 1099-DIV tax forms in January of each year. In
February, the Fund will inform shareholders of the breakdown between foreign
taxes, dividends and distributions paid for the preceding calendar year.
Shareholders whose shares are held in "street name" should contact their broker
for foreign tax credit reporting information.
Shareholder Meeting Results
The Fund's Annual General Meeting of Shareholders was held on February 9,
1996. Issues presented for the approval of shareholders were (1) the election of
one class of one Director (Nigel S. MacEwan); and (2) the ratification of the
selection of Price Waterhouse LLP as Independent Accountants for the Fund for
the fiscal year ending October 31, 1996.
The election of Director and the selection of accountants were approved by
shareholders by large margins. There were 9,563,653 shares eligible to vote at
the meeting and voting results were as follows:
Number of Shares Voted
----------------------
Issue For Against Abstained
- ----- --- ------- ---------
Election of Director:
Nigel S. MacEwan 8,260,357 154,305 -
Selection of Indepen-
dent Accountants 8,285,767 40,597 88,298
Other Directors whose term of office continued after the meeting include
Sir Robert C. Cotton, David M. Felder, James J. Foley, Leonard T. Hinde, The
Earl of Limerick and G. William Miller.
17
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Article 6 FDS for period ended April 30, 1996
Kleinwort Benson Australian Income Fund, Inc.
</LEGEND>
<CIK> 0000799125
<NAME> KLEINWORT BENSON AUSTRALIAN INCOME FUND, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 82882
<INVESTMENTS-AT-VALUE> 94633
<RECEIVABLES> 2767
<ASSETS-OTHER> 928
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 98328
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 879
<TOTAL-LIABILITIES> 97449
<SENIOR-EQUITY> 9564
<PAID-IN-CAPITAL-COMMON> 85551
<SHARES-COMMON-STOCK> 9564
<SHARES-COMMON-PRIOR> 9564
<ACCUMULATED-NII-CURRENT> 245
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (191)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11835
<NET-ASSETS> 97449
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4545
<OTHER-INCOME> 0
<EXPENSES-NET> (584)
<NET-INVESTMENT-INCOME> 3961
<REALIZED-GAINS-CURRENT> 558
<APPREC-INCREASE-CURRENT> 1322
<NET-CHANGE-FROM-OPS> 5841
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4782)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1059
<ACCUMULATED-NII-PRIOR> 1066
<ACCUMULATED-GAINS-PRIOR> (749)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 336
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 584
<AVERAGE-NET-ASSETS> 95932
<PER-SHARE-NAV-BEGIN> 10.08
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> 0.20
<PER-SHARE-DIVIDEND> 0.50
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.19
<EXPENSE-RATIO> 1.22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
