- ------------------
Kleinwort
Benson
Australian Report to Shareholders
Income Fund, Inc.
- ------------------
- --------------------------------------------------------------------------------
Third Quarter Highlights
o Australian cash rates reduced from 5.5% to 5.0% in July.
o Australian underlying inflation remains low at 1.7% for the twelve
months ended June 1997.
o A$/US$ exchange rate at July 31, 1997 was 0.745.
o Yield spread between Australian and US ten year government bonds was
25 basis points at July 31, 1997.
- --------------------------------------------------------------------------------
To Our Shareholders,
Through the first nine months of the Fund's 1996/97 fiscal year, the Fund
achieved a moderate positive return against a background of a strong bond market
but a weaker Australian dollar. The Australian dollar failed to keep pace with a
strongly appreciating US currency which benefited from strong economic growth
and higher short-term rate expectations. In contrast, Australian growth
moderated from the strong pace achieved in 1996 while short-term interest rates
were reduced in stages. The currency was also adversely impacted by a fall in
the gold price. However, lower interest rates, in an environment of more
moderate economic activity, had a beneficial impact on the bond market which
appreciated over the period as a whole. Similarly in New Zealand, the currency
fell in response to easier monetary conditions (precipitating a reversal in
Reserve Bank policy) but lower interest rates had a positive impact on the bond
market.
The net result of these developments was that the appreciation on the
portfolio combined with the income generated outweighed the negative currency
impact. Over the nine month period ended July 31, 1997, the Fund's total return
based on net asset value and assuming reinvestment of dividends was 2.29%. The
Fund's return on a market value basis was higher at 6.25%, reflecting a
narrowing of the discount to net asset value. As noted in the April 1997
shareholder report, the Fund's monthly distribution rate will be maintained at
$0.065 per share through December, which provides a current yield of 8.61% based
on the Fund's stock price at July 31, 1997. On that date the market price was
$9.0625, a discount of 9.56% to the net asset value of $10.02. A further
analysis of the Fund's performance is provided on page three of this report.
- -------------------------
MARKET SUMMARY
- -------------------------
A more comprehensive discussion of the major trends in the Australian and
New Zealand economies, debt and foreign exchange markets is detailed in the
Economic Review. In summary, economic growth in Australia remained weak over the
first half of 1997, continuing the trend started in late 1996 following the
stronger pace seen earlier in that year. Inflation continued on a downward path
and there were signs of a moderation in wage pressures late in the period under
review. These factors allowed the Reserve Bank of Australia to reduce cash rates
from 6.5% to 5% in three 0.5% steps over the period. The New Zealand economy
remained weak over late
<PAGE>
- ------------------
Kleinwort
Benson
Australian
Income Fund, Inc.
- ------------------
1996 and the first half of 1997, with high short-term interest rates and a
strong New Zealand dollar subduing the domestic economy. The Reserve Bank of New
Zealand did allow short rates to decline over the first half of 1997, before
raising them slightly late in the period in the face of a sharp decline in the
New Zealand dollar.
The Australian bond market declined between November 1996 and April 1997
before rallying sharply through July. The US Treasury market provided a more
positive background for global bonds in the second quarter of 1997 but the
Australian bond market outperformed its US counterpart on continued improvements
in domestic fundamentals, highlighted by the reduction in Australian short-term
interest rates. The New Zealand bond market displayed a similar pattern,
recovering from the weakness of early 1997 to end July with yields below the
levels of late 1996. Again, ongoing weakness in the domestic economy and
improvements in the inflation outlook were supportive of the market. The
Australian and New Zealand dollars both declined over the second quarter of 1997
with short-term interest rates falling against a background of stable rates in
major global markets.
The Fund maintained a significant exposure to Australian bonds over the
majority of the period and continued to benefit from investing in eurobonds,
which are not subject to Australian withholding tax. Towards the end of the
period under review, with Australian bonds viewed as being reasonably fully
valued and risks remaining over the levels of the currency, the Fund's exposure
to New Zealand bonds was increased as a diversification. An attractive yield
increase was available, particularly into shorter duration NZ$ bonds and a
slightly more cautious approach was felt to be merited. The overall maturity of
the Fund was reduced as a result of this reallocation.
On behalf of the Board of Directors,
/s/ Sir Robert Cotton
Sir Robert Cotton
Chairman
/s/ David M. Felder
David M. Felder
President
August 19, 1997
- --------------------------------------------------------------------------------
PORTFOLIO SUMMARY
At July 31, 1997 the average maturity was 4.9 years, with an average
duration of 3.76 years. The current yield to maturity was 6.1%. Securities
rated AAA comprised 81% of the portfolio with the remaining 19% in AA
rated securities.
- --------------------------------------------------------------------------------
2
<PAGE>
- ------------------
Kleinwort
Benson
Australian Performance from Inception through July 31, 1997
Income Fund, Inc. (Unaudited)
- ------------------
Growth of a Hypothetical $10,000 Investment
[The following table was represented as a line chart in the printed material.]
Fund Net Fund
Australian Index Asset Value Market Value U.S. Index
---------------- ----------- ------------ ----------
11/86 $10,000 $10,000 $10,000 $10,000
7/87 12,064 11,623 9,751 9,899
7/88 16,159 15,350 13,511 10,566
7/89 16,312 15,314 14,020 12,198
7/90 19,746 17,997 15,518 12,918
7/91 23,722 21,209 19,341 14,210
7/92 28,251 24,940 23,573 16,360
7/93 29,616 25,738 22,937 18,153
7/94 30,540 26,796 23,634 18,123
7/95 33,835 28,982 24,749 19,880
7/96 40,351 33,955 28,846 20,888
7/97 $45,420 $37,341 $32,021 $23,013
Since its inception in 1986, the Fund has achieved an average annualized return
on market value of 11.53%, on the basis noted below. On a net asset value basis,
which measures the performance of the Fund's underlying portfolio, the average
return has been 13.15%. Both the market and net asset value performance measures
have outpaced the Salomon Brothers US Government Bond Index which has averaged
8.13%. The Salomon Brothers Australian Government Bond Index has averaged 15.24%
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 2.26% since inception, the
Fund has also outperformed the Australian index.
<TABLE>
<CAPTION>
Annualized 10 Since
Performance 9 Months* 1 Year 3 Years 5 Years Years Inception+
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fund Market Value(1) 6.25% 11.01% 10.65% 6.32% 12.63% 11.53%
- -------------------------------------------------------------------------------------------------------------------------
Fund Net Asset Value(2) 2.29% 9.97% 11.70% 8.41% 12.38% 13.15%
- -------------------------------------------------------------------------------------------------------------------------
Salomon Brothers US Gov't Bond Index(3) 6.20% 10.17% 8.29% 7.06% 8.80% 8.13%
- -------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Australian Gov't Bond Index(4) 3.75% 12.56% 14.15% 9.96% 14.18% 15.24%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
+ Fund commenced operations November 28, 1986.
(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.
3
<PAGE>
- ------------------
Kleinwort
Benson
Australian Economic Review
Income Fund, Inc.
- ------------------
- -----------------------------
ECONOMIC REVIEW
- -----------------------------
Global Background
Following an especially strong start in 1997, there were some signs that
US growth had slowed during the second quarter while consumer price inflation
fell still further. Against this background, and after having increased rates in
March from 5.25% to 5.5%, the Federal Reserve then left its key Federal Funds
rate unchanged. This stability provided the basis for a recovery in the bond
market. Long-term US yields had increased from 6.6% in November to 7.2% in April
and then fell to a low of 6.3% in July. In Europe, there was increasing momentum
in the German economy but continuing low inflation and a renewed rally in the US
led medium-term bond yields from the 6% level in early April to 5.5% at end
July. In Japan, the bond market continued to reflect the absence of inflationary
pressures and disappointment with the domestic economic recovery. Bond yields,
having traded in a narrow range between November 1996 and April 1997, moved
lower, ending July at 2.4%.
Australia
Australian GDP growth moderated over the early part of 1997, with first
quarter GDP(A) released at +0.9% over the quarter, to be 2.4% above year ago
levels. This compared to growth of 3.1% in the year to December 1996, and annual
growth of 4.5%-5% in the first half of 1996. The figures did show strength in
the housing sector and continued strength in business investment, along with a
strong performance in the farm sector. Elsewhere in the economy growth remained
weak, particularly in the manufacturing sector with output falling in the last
quarter of 1996 and the first quarter of 1997. Price deflators released with the
GDP reports were consistent with the benign inflation environment suggested by
CPI releases.
Retail sales were weak over the first half of 1997 with trend sales growth
oscillating between 2%-2.5% year on year. This represented a significant slowing
from the levels of around 5% seen in mid-1996. Sales fell by 0.5% over the June
quarter of 1997, and have shown particular weakness in New South Wales over
recent months. High unemployment and associated job insecurity were a major
factor in the weak domestic retailing environment. The Westpac consumer
confidence survey has reflected this weakness, falling from a peak of 109.9 in
February 1997 to 101.1 in the July reading, despite the reduction in mortgage
rates over that period. However, the effect of recent rate cuts is unlikely to
have been fully reflected in these figures.
Unemployment remained stubbornly high over the period under review at
around 8.6%. Total employment in July 1997 was only 0.9% above the July 1996
level and the job creation that did occur was concentrated in lower paid and
part-time areas, with full-time employment growth weak. The labor force
increased at an annual pace of 1.5%, highlighting the fact that unemployment
growth has been too low to reduce the unemployment rate. There was a moderate
upturn in the ANZ job advertisement series towards the end of the period under
review, but the
4
<PAGE>
- ------------------
Kleinwort
Benson
Australian Economic Review
Income Fund, Inc.
- ------------------
readings in this series have not indicated enough employment growth to make
inroads into the unemployment rate.
Australian CPI continued to decline over late 1996 and the first half of
1997 with competitive pressures strong and the domestic consumer background
soft. Headline CPI fell from 1.5% in the year to December 1996 to 1.3% in year
to March 1997 and again to 0.3% in the year to June 1997. A significant part of
this decline reflects the falling cost of mortgages over the period, but the
Treasury underlying rate, which excludes mortgage costs, has also declined, from
2.1% in the year to March 1997 to 1.7% in the year to June 1997. This represents
a level below the Reserve Bank's 2%-3% target range and suggests that inflation
is firmly in check. The strength of the Australian dollar over 1996 and early
1997 was a strong restraining influence on prices, particularly on the auto
sector, where the currency effect was compounded by the weakness of the Yen over
that period. This dampening effect has been removed by the recent weakness in
the Australian dollar and should not be a factor going forward.
Wage pressures remained the prime concern of the Reserve Bank of Australia
for the majority of the period under review, before showing some signs of
moderation in early summer 1997. Average weekly ordinary time earnings rose 4.3%
in the year to February 1997, close to the 4.5% level targeted by the Reserve
Bank as the maximum consistent with meeting its inflation target in the medium
term. However, in the year to May earnings rose 3.7%, and with the labor market
remaining weak, the Reserve Bank did not see wage pressures as an obstacle to
easing monetary policy. Wage settlements in certain sectors of the economy,
particularly services, did continue to cause concern, but there was evidence of
some moderation in those wages agreed by the new enterprise bargaining
agreements towards the end of the period. It was also encouraging to note that
the Australian Industrial Relations Council recognized the Reserve Bank's
anti-inflationary efforts when awarding a modest increase in "safety net" wages.
The current account balance improved slightly over the period under
review, with a deficit of A$4.78 billion for the first quarter of 1997 following
a deficit of A$5.26 billion for the December quarter of 1996. This performance
was led by an improvement in the trade balance, and the trade position continued
to improve in the June quarter, largely as a result of a bumper cereal crop. The
net income position also improved slightly over the period but remains the major
component of the current account deficit, highlighting the ongoing imbalance
between savings and investment in Australia. The current account was not seen as
a particular focus in the Australian bond and currency markets over the first
half of 1997, but may be of more concern if a recovering economy starts to draw
in imported goods.
New Zealand
Economic growth in New Zealand was disappointing over late 1996 and early
1997 with few signs of recovery in more recent data. The production based
measure of GDP fell by 0.5% over the first quarter of 1997, to be up just 1.4%
in the year, after a
5
<PAGE>
- ------------------
Kleinwort
Benson
Australian Economic Review
Income Fund, Inc.
- ------------------
rise of 2.9% in the year to December 1996. The level of first quarter growth was
well below market and government expectations, and the breakdown of the figures
revealed the weakness in the domestic economy, particularly in the consumer
sector. There was some strength in primary industries and in construction, a
result of the ongoing strength of the housing sector. Consumer confidence
indicators remained subdued over the period under review. The Colmar Brunton
survey, which measures the proportion of consumers with positive/negative views
about future conditions, moved into negative territory in early 1997 and
remained there for the rest of the period. Retail sales figures also displayed
weakness in the first half of 1997.
The labor market softened in New Zealand during the period, with the
effects of several years of tight monetary policy continuing to subdue the
domestic economy. According to the Household labor force survey, employment
increased 0.2% in the June quarter of 1997, after a fall of 0.1% in the March
quarter, but failed to keep pace with the increase in the labor force. As a
result, the rate of unemployment rose to 6.7% in June from 6.5% in March. In
addition, reasonably strong job creation in the part-time sector has been
compensating for the loss of full-time jobs, which has undoubtedly increased the
level of job insecurity. The external sector provided some support for the
economy through an improving trade balance, but the overall current account
position continued to deteriorate. The March 1997 annual deficit of NZ$4.47
billion was larger than expected, and compares to a deficit of NZ$3.76 billion
for the year to December 1996. The trend deterioration in the current account,
in place since 1993, appears to be continuing.
Tight monetary conditions and the consequent slowing of the economy led to
a significant improvement in New Zealand inflation. Headline CPI fell from 1.8%
in the year to March 1997 to 1.1% in the year to June. More significantly, the
underlying rate of inflation fell from 2% in March to 1.5% in June, having been
at 2.4% in December 1996. The divergence between traded and non-traded goods
prices was again clear, with the high trade-weighted New Zealand dollar over
1996 and early 1997 exerting a strong downward pressure on traded goods prices.
The fall in the currency towards the end of the period under review will
probably have ended this disparity in coming quarters. The housing market, long
an inflationary problem in New Zealand, offered some signs of easing price
pressures, but signals remained mixed. Valuation NZ's house price index rose
3.9% over the first half of 1997, with the rise for the second quarter at a
modest 0.4%.
Debt Markets
The Australian bond market performed poorly over late 1996 and early 1997,
with the yield on ten year bonds rising from 7.4% in November 1996 to a peak of
above 8% in early April 1997. This weakness was largely a result of a negative
global bond environment triggered by weakness in the US Treasury market.
However, positive domestic fundamentals, particularly good news on wages and
inflation, asserted themselves, and the Australian bond market rallied strongly
over the rest of the period with ten year yields ending July at 6.34%. Shorter
maturity
6
<PAGE>
- ------------------
Kleinwort
Benson
Australian Economic Review
Income Fund, Inc.
- ------------------
bonds also rose sharply, driven by the reductions in official cash rates by the
Reserve Bank. The yield premium on Australian ten year bonds over ten year US
bonds declined over the period from over 1% to around 0.25% with investors
recognizing the more subdued economic picture in Australia.
The New Zealand bond market was subject to very similar influences over
the period under review. Having started the period at 7.2%, ten year bond yields
rose to 8.2% in April 1997, in line with a decline in global bond markets.
Yields subsequently fell to 6.75% at the end of July, with the New Zealand bond
market responding to an improved inflation outlook and subdued growth
expectations. Short-term interest rates in New Zealand were volatile, with the
Reserve Bank of New Zealand allowing them to fall sharply in spring and early
summer 1997, before raising rates to defend their monetary conditions target in
the face of a failing currency. The result was a move to an "inverted" yield
curve, with longer bond yields falling to levels below short-term rates.
Australian and New Zealand Dollars
In the early part of 1997, the Australian dollar retained the levels that
it appreciated to in 1996, supported by strong Japanese demand for Australian
dollar assets and by signs of recovery in the domestic economy. However, when
these signs gave way to continued weakness and the Reserve Bank continued to
reduce short-term interest rates, the Australian dollar declined sharply and
remained weak through the end of July. Having reached US$0.80 in the spring of
1997, the currency fell to the US$0.74 level in the summer and has remained
around that level. The concern over lower short rates at a time when rates were
stable in the main global markets was compounded by a decline in the gold price,
a key export commodity for the Australian economy. The decline in the currency
in trade-weighted terms was less severe than the fall against the US dollar,
given the dollar's continued appreciation against the Yen and the DM.
The New Zealand dollar was supported over the early part of the period
under review by continued high short-term interest rates relative to other major
markets, and retained the US$0.69 level until June 1997. The currency then fell
sharply against the US dollar when it became apparent that the Reserve Bank of
New Zealand, having witnessed a significant improvement in inflation, was
prepared to let monetary conditions ease significantly. The apparent stagnation
in the domestic economy led to expectations of further easing to come, and the
New Zealand dollar declined to US$0.65 at the end of July. The decline of the
currency seemed to receive the implicit support of the government, which had
been concerned about its effect on exporters for some time.
7
<PAGE>
- ------------------
Kleinwort
Benson
Australian Portfolio of Investments and Cash on Deposit
Income Fund, Inc. July 31, 1997
- ------------------ (Unaudited)
<TABLE>
<CAPTION>
Long-Term Investments -- 96.7%
Principal Amount Value (US$)
- ---------------- ----------
<C> <S> <C> <C>
Australian Government and Semi-Government Bonds -- 62.6%
Australian Government Bonds -- 17.6%
A$ 6,000,000 Commonwealth Government Bond 12.5% due 9/15/97................... $ 4,509,552
12,000,000 Commonwealth Government Bond 12% due 11/15/01.................... 11,007,313
6,000,000 Commonwealth Government Bond 10% due 2/15/06..................... 5,539,071
------------
.................................... 21,055,936
------------
Government and Semi-Government Bonds with Eurobond Structure -- 37.5%
A$ 2,000,000 State Bank of South Australia 9.50% due 10/15/02.................. 1,689,780
5,000,000 Australian Industrial Development Corp. 9.25% due 2/17/03................... 4,211,408
1,300,000 State Bank of New South Wales 9.25% due 2/18/03................... 1,093,513
16,450,000 Queensland Treasury Corp. 8% due 5/14/03...................... 13,340,883
2,750,000 State Bank of South Australia 10.50% due 6/23/03.................. 2,442,581
22,400,000 Queensland Treasury Corp. 6.5% due 6/14/05.................... 16,801,608
2,200,000 Treasury Corp. of Victoria 9% due 6/27/05...................... 1,887,860
1,000,000 Commonwealth Bank of Australia 9% due 8/15/05...................... 854,302
3,500,000 New South Wales Treasury Corp. 6.5% due 5/1/06..................... 2,616,670
------------
.................................... 44,938,605
------------
Other Semi-Government Bonds -- 7.5%
A$ 6,500,000 Western Australia Treasury Corp. 12.5% due 4/1/98.................... 5,080,615
4,000,000 Victorian Public Finance Authority 12.5% due 10/15/03.................. 3,937,156
------------
.................................... 9,017,771
------------
Total Australian Government and Semi-Government Bonds -- (Cost $65,691,588).......................... 75,012,312
------------
Australian Eurobonds -- 20.7%
A$ 5,800,000 Toyota Motor Credit Corp. 10.75% due 3/6/98................... 4,459,385
2,500,000 Unilever Australia Ltd. 12% due 4/8/98...................... 1,945,810
3,500,000 DSL Finance N.V. 10.25% due 4/7/00................... 2,882,333
6,000,000 Morgan Guaranty Trust Co. 8% due 4/18/01...................... 4,749,091
2,000,000 Bayerische Vereinsbank AG 8.75% due 5/17/01................... 1,620,099
3,300,000 Export Finance & Insurance Corp. 9% due 3/26/03...................... 2,749,107
2,000,000 Bayerische Vereinsbank AG 10.25% due 10/28/04................. 1,793,191
5,000,000 Eurofima 9.875% due 1/17/07.................. 4,566,482
------------
Total Australian Eurobonds -- (Cost $23,112,840) .................................... 24,765,498
------------
Australian Corporate Bond -- 2.8%
A$ 4,000,000 National Australia Bank 12% due 7/15/99-- (Cost $3,174,322) 3,335,381
------------
New Zealand Bonds -- 10.6%
NZ$ 5,000,000 Province of Alberta 8.00% due 10/30/98.................. 3,259,799
2,500,000 General Electric Capital Corp. 8.75% due 5/21/99................... 1,657,570
4,000,000 European Investment Bank 8.50% due 5/30/01................... 2,721,822
7,000,000 New Zealand Government Bond 10% due 3/15/02..................... 5,110,796
------------
Total New Zealand Bonds -- (Cost $12,904,430) .................................... 12,749,987
------------
Total Long-Term Investments -- (Cost $104,883,180) .................................... 115,863,178
------------
Cash on Deposit -- 1.9%
A$ 3,022,852 Brown Brothers Harriman & Co., upon demand at 4.0625%........................... 2,252,781
US$ 23,408 Brown Brothers Harriman & Co., upon demand at 4.25%............................. 23,408
------------
Total Cash on Deposit -- (Cost $2,318,102) .................................... 2,276,189
------------
Total Portfolio of Investments and Cash on Deposit -- 98.6% (Cost $107,201,282)...................... 118,139,367
Other Assets less Liabilities -- 1.4% .................................... 1,685,677
------------
Net Assets -- 100.0% .................................... $119,825,044
============
</TABLE>
8
<PAGE>
- ------------------
Kleinwort
Benson
Australian Financial Summary
Income Fund, Inc. for the Nine Months ended July 31, 1996
- ------------------ (Unaudited)
Net Asset Value
Total Net Assets Per Share
---------------- ---------
Beginning of period, November 1, 1996 ......... $ 124,501,149 $ 10.41
------------- ---------
Operations:
Net investment income* ...................... 6,646,483 0.56
Net realized gain on:
Investment transactions* .................. 1,219,124 0.10
Foreign currency transactions** ........... 339,823 0.03
Change in unrealized appreciation on:
Investments* .............................. 1,752,557 0.15
Foreign currency denominated assets
and liabilities** ....................... (7,342,032) (0.62)
------------- ---------
Net change in net assets from operations .... 2,615,955 0.22
Dividends paid from net investment income ... (7,352,060) (0.62)
Rights offering proceeds .................... 60,000 0.01
------------- ---------
Net decrease in net asset value ............. (4,676,105) (0.39)
------------- ---------
End of period, July 31, 1997 .................. $ 119,825,044 $ 10.02
============= =========
* Net increase in net assets from operations before net foreign currency
loss was $9,618,164, equal to $0.81 per share.
** Net realized and unrealized foreign currency loss was ($7,002,209), equal
to ($0.59) per share.
The financial statements contained in this report were not audited and,
accordingly, no opinion is expressed on them.
9
<PAGE>
- ------------------
Kleinwort
Benson
Australian Dividend Reinvestment and Cash Purchase Plan
Income Fund, Inc. Foreign Tax Credits
- ------------------
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, telephone (800) 730-6001.
If you wish to participate and your shares are registered in your name,
simply complete and return the application form. 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.
10
<PAGE>
Directors and Officers
Sir Robert C. Cotton -----------------------
Director and Chairman of the Board Kleinwort
Sydney, Australia Benson
Australian
David M. Felder Income Fund, Inc.
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
New Canaan, CT
G. William Miller
Director and Deputy Chairman of the Board
Washington, DC
Stephen K. West
Director
New York, NY
Michael Fortier
Secretary and Treasurer
New York, NY
Investment Advisor
Kleinwort Benson Investment
Management Americas Inc.
New York, NY
Kleinwort
Benson
Australian
Income Fund, Inc.
75 Wall Street Quarterly Report
New York, NY 10005 July 31, 1997
(800) 237-4218
2520-Q3-7/97
