<PAGE>
DIRECTORS AND OFFICERS
Sir Robert C. Cotton
DIRECTOR AND CHAIRMAN OF THE BOARD
SYDNEY, AUSTRALIA
James J. Foley
DIRECTOR
BELMONT, MA
Leonard T. Hinde
DIRECTOR
MOSMAN, NSW, AUSTRALIA
The Earl of Limerick
DIRECTOR
LONDON, ENGLAND
G. William Miller
DIRECTOR AND DEPUTY CHAIRMAN OF THE BOARD
WASHINGTON, DC
Stephen K. West
DIRECTOR
NEW YORK, NY
Robert J. Goldstein
SECRETARY
SAN FRANCISCO, CA
Jennie W. Klein
TREASURER
SAN FRANCISCO, CA
INVESTMENT ADVISOR
KLEINWORT BENSON INVESTMENT
MANAGEMENT AMERICAS INC.
SAN FRANCISCO, CA
KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
Four Embarcadero Center
Suite 3000
San Francisco, CA 94111
(800) 237-4218
KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
SEMI-ANNUAL REPORT
APRIL 30, 1999
2520-SAR-4/99
<PAGE>
Kleinwort
Benson
Australian
Income Fund, Inc.
- ------------------------
Report to Shareholders
REPORT HIGHLIGHTS
- Australian dollar rose from US$0.625 to US$0.66 over the period.
- Australian economic growth remained robust.
- Inflation remained firmly under control.
- The yield on ten-year Australian government bonds rose from 5% to 5.7%.
- -----------------------------------------------
TO OUR SHAREHOLDERS,
Over the six months ended April 30, 1999, the value of the Fund increased,
due mainly to the recovery in the Australian and New Zealand dollars against the
U.S. currency. The Australian bond market did not perform particularly well over
the period. The New Zealand bond market also declined but outperformed its
Australian counterpart. However, the decline in bond values was surpassed by the
increase in value of the Australian and New Zealand currencies. The portfolio
continued to invest in a mix of Australian and New Zealand bonds, concentrating
on instruments exempt from withholding tax. The Fund's holdings in Australian
and New Zealand eurobonds generally outperformed government securities as funds
were switched back into non-government bonds globally. At April 30, 1999, the
Fund's closing market price was $6.875, a discount of 19.02% to its net asset
value of $8.49.
For the six months ended April 30, 1999, the Fund achieved a total return on
net asset value (with income reinvested) of 6.47%. The monthly dividend has been
maintained at US$0.04 per share since January 1999. The Fund generated a current
income yield of 7.0% for the twelve months ended April 30, 1999 (based on the
Fund's income distribution of $0.48 per share over the period divided by the
Fund's closing market price at April 30, 1999). The income yield for the period
was superior to the yields available on comparably rated US$ securities.
A further analysis of the Fund's performance since inception is provided on
page 3.
MARKET SUMMARY
- -----------------------------
Developments in the economies and financial markets of Australia and New
Zealand are discussed in more detail in the sections below. In summary, the
Australian economy surprised commentators by continuing to grow strongly, driven
by strong domestic demand. Inflation remained low, allowing the Reserve Bank of
Australia to reduce short rates in November 1998. The New Zealand economy
recovered from recession in the second half of 1998. Inflation continued to move
lower and appeared to have bottomed out. New Zealand monetary policy was altered
by the introduction of an official cash rate, a move discussed in more detail
below. The rate was set at 4.5%, a slight increase over the six-month period,
but rates had already fallen sharply over the previous year.
U.S. Treasury bonds fell over the period under review, setting a difficult
background for Australian and New Zealand markets. Australian bonds also fell,
pushed lower by the global background and by the strength of the Australian
economy, which led to expectations of relatively higher short rates. New Zealand
bonds outperformed their Australian and U.S. counterparts over the first half of
the Fund's financial year, but still declined slightly. The Australian and New
Zealand dollars both firmed over the period after a long period of decline.
Signs of a tentative recovery
<PAGE>
KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
in Asian economies improved export prospects for Australian and New Zealand
firms, but the major support was the leveling of the declining trend in
commodity prices seen in recent years.
[SIGNATURE]
Sir Robert Cotton
Chairman
June 4, 1999
----------------------------------------------------------------------------
PORTFOLIO SUMMARY
At April 30, 1999, the average maturity of the Fund's portfolio was 5.7
years with an average duration of 4.4 years and a current yield to
maturity of 5.6%. Securities rated AAA comprised 77.7% of the portfolio
with the remaining 22.3% in AA-rated securities.
- --------------------------------------------------------------------------------
2
<PAGE>
KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
PERFORMANCE FROM INCEPTION THROUGH APRIL 30, 1999
(UNAUDITED)
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FUND MARKET VALUE FUND NET ASSET VALUE U.S. INDEX AUSTRALIAN INDEX
<S> <C> <C> <C> <C>
11-86 $10,000 $10,000 $10,000 $10,000
04-87 $10,358 $11,193 $9,875 $11,592
04-88 $12,826 $14,526 $10,468 $15,204
04-89 $14,206 $15,447 $11,249 $16,478
04-90 $14,297 $16,178 $12,215 $17,599
04-91 $17,979 $20,823 $14,002 $23,151
04-92 $22,130 $23,536 $15,473 $26,661
04-93 $23,254 $25,320 $17,683 $29,103
04-94 $22,880 $26,383 $17,867 $30,218
04-95 $23,491 $27,673 $19,024 $32,064
04-96 $28,633 $33,183 $20,594 $39,349
04-97 $31,130 $36,501 $21,933 $44,094
04-98 $28,113 $34,176 $22,722 $42,114
04-99 $28,873 $36,780 $24,190 $45,846
</TABLE>
Since its inception in 1986, the Fund has achieved an average annualized return
on market value of 8.91%, on the basis noted below. On a net asset value basis,
which measures the performance of the Fund's underlying portfolio, the average
return has been 11.06% and has outpaced the Salomon Brothers US Government Bond
Index, which has averaged 7.98%. The Salomon Brothers Australian Government Bond
Index has averaged 13.09% since the Fund's inception, with the difference
between the Fund's net asset value performance and that of the index primarily
attributable to the Fund's operating and foreign tax expenses, which neither
index is subject to. After adjusting for these expenses, which have averaged
2.12% since inception, the Fund has slightly outperformed the Australian index.
<TABLE>
<CAPTION>
ANNUALIZED 6 10 SINCE
PERFORMANCE MONTHS* 1 YEAR 3 YEARS 5 YEARS YEARS INCEPTION+
<S> <C> <C> <C> <C> <C> <C>
Fund Market Value (1) 9.86% 2.70% 0.27% 4.75% 7.34% 8.91%
Fund Net Asset Value (2) 6.47% 7.62% 3.49% 6.87% 9.06% 11.06%
Salomon Brothers U.S. Gov't Bond Index (3) -1.12% 6.46% 8.02% 7.75% 8.71% 7.98%
Salomon Brothers Australian Gov't Bond Index (3) 6.57% 8.86% 5.42% 8.81% 10.83% 13.09%
</TABLE>
- --------------------------------------------------------------------------------
* Not Annualized
+ Fund commenced operations November 28, 1986.
(1) Based on market value per share, adjusted for rights offerings, and
assumes reinvestment of all distributions at reinvestment plan prices.
(2) Based on net asset value per share, adjusted for rights offerings, and
assumes reinvestment of all distributions at the ex-dividend date net
asset value. This measures the performance of the underlying Fund
portfolio and may not be indicative of returns to investors.
(3) The Salomon Brothers US and Australian Government Bond Indices are US$
based unmanaged indices.
Please remember that past performance may not be indicative of future
results.
3
<PAGE>
KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
ECONOMIC REVIEW
ECONOMIC REVIEW
- -----------------------------
The U.S. economy continued to outperform expectations with strong growth
continuing into the first half of fiscal 1999. A widening trade gap was a drag
on growth, but was outweighed by continued domestic strength. The European
economy remained weak over the early part of the year, particularly in Germany,
Italy and France. The Japanese economy showed no signs of a recovery, with
domestic consumption still fragile and government efforts to stimulate the
economy resulting in increased savings rather than consumption. Despite the
strength of the U.S. economy, and some evidence of firmer commodity prices, U.S.
inflation remained low. Inflation in Europe was also at very low levels, and in
Japan deflation has become well established. Against this background the U.S.
Federal Reserve carried out a 0.25% reduction in the Fed funds rate in mid
November, and then left rates unchanged over the remainder of the period under
review. The new European Central Bank cut rates from 3% to 2.5%. U.S. bonds fell
over the period on growing concerns over the strength of the economy, with
ten-year yields rising from 4.8% to 5.35% over the first six months of the
Fund's year. European bonds improved slightly and Japanese bonds fell,
displaying considerable volatility on fears over future government support for
the market.
AUSTRALIA
Australian economic growth exceeded market expectations in late 1998. GDP
expanded 1.1% in the December quarter, to be 4.7% above December 1998 levels,
and has now risen by more than 1% in each of the last five quarters. This growth
level was a result of strong domestic consumer spending, driven by an improving
employment situation and the availability of cheap credit. Government spending
also increased on the back of the greatly improved Australian fiscal position of
recent years. Investment spending was weaker, reflecting the completion of many
large projects associated with the Olympic Games in Sydney. The deflators
announced in the GDP data remained reasonably low and the household consumption
deflator at 1.7% in the year to December was very close to underlying CPI
inflation.
Retail sales were very strong and accelerated over late 1998 and early 1999,
highlighting domestic consumer spending as the ongoing engine of Australian
growth. Sales rose a massive 9.4% at current prices in the year to March 1999,
having previously risen 5.4% in the year to October 1998. There were problems
with the seasonal adjustment of the monthly figures around Christmas and Easter,
but the monthly trend increases have moved above 1%. However, there is still
little evidence of any significant increase in pricing power in the retail
sector. Consumer confidence rose very strongly over 1998 and declined slightly
over the first few months of 1999. The Westpac consumer sentiment index in April
1999 was up 10.7% on the April 1998 level.
The Australian labour market was slightly improved over the period under
review and the rate of unemployment fell from 8% in September 1998 to 7.5% in
April 1999. Much of this reduction was due to a reduction in the participation
rate with a low level of new jobs created. The strength of the domestic economy
had not fully fed into the labour market by end of first quarter 1999, with
retail sales and economic growth pointing to further job gains. The official
unemployment statistics are also inconsistent with the leading indicators of
employment, such as the ANZ job advertisement survey which has been indicating
much stronger employment growth for some time. Such divergence has been recorded
previously in the 1980s, but official unemployment figures look set to improve.
4
<PAGE>
KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
ECONOMIC REVIEW
Australian inflation moved modestly higher over the period under review in
underlying terms. The treasury underlying measure increased from 1.6% in the
year to September 1998 to 1.7% in the year to March 1999. Despite the weakness
of the Australian dollar over the past two years, there has been little evidence
of imported inflation. The currency rebounded in early 1999 and it is unlikely
that there will be any significant effect from the earlier currency weakness.
Such inflation as occurred was the result of domestic price pressures, which
remain weak relative to the strength of the Australian economy. Headline CPI
fell to 1.2% in the year to March 1999, from 1.6% to December 1998. This decline
was almost entirely due to the government health insurance rebate. Wage
inflation has been running well ahead of CPI inflation for several years, but
showed some signs of moderating in early 1999. Average weekly ordinary time
earnings were up 3.0% in the year to February 1999, down from a 4.2% rate
recorded over the year to November 1998. The Reserve Bank of Australia has often
cited wage growth of below 4.5% as consistent with its inflation objectives.
The Australian current account deficit deteriorated slightly in the final
quarter of 1998. The deficit of A$7,304mn in the September quarter widened to
A$7,868mn in the December quarter. The trade balance worsened on slower exports,
which had been very resilient in the face of the Asian economic crisis in
previous quarters. The deficit in the year to December represented 5.4% of GDP
and the first quarter of 1999 has seen some weakening in the trade position as
the strong economy pulls in higher imports.
NEW ZEALAND
Economic growth in New Zealand rebounded in the second half of 1998 from the
technical recession seen in the first half of the year. December quarter GDP
rose 0.7%, but was still down 0.4% over the year. The pace of growth was broadly
in line with market and Reserve Bank of New Zealand expectations. The growth was
driven by a surge in investment spending, a reflection of the dramatic drop in
New Zealand interest rates in recent quarters. Forestry and construction were
particularly strong, while the manufacturing sector was still subdued. As is
often the case in New Zealand recoveries, there was a strong rise in imports,
which detracted from fourth-quarter growth. Retail trade has continued to expand
over the early months of 1999, confirming the ongoing recovery of the domestic
economy, but improvements are not dramatic.
The weak growth of the first half of 1998 continued to hamper the New
Zealand labour market. Unemployment rose to 7.7% in the December quarter of
1998, up from 7.5% in the previous quarter. The positions that were created were
almost entirely part-time, highlighting the caution in the labour market. The
leading labour market indicators for early 1999 suggested that the effect of
slower growth in early 1998 may be reducing, and pointed to an improving labour
market in 1999. Overall, consumer confidence improved over the period under
review.
New Zealand CPI inflation continued to fall over the second half of 1998 and
early 1999. The core rate of CPI fell from 1.7% in September 1998 to 1.1% in
December 1998 and further to 1% in March 1999. Headline CPI figures were even
lower, reflecting the large decline in New Zealand interest rates over recent
quarters. Although direct mortgage costs are not included in the core rate,
other housing related costs were a key restraining influence over recent
quarters. Elsewhere in the economy, prices--although not moving ahead strongly--
are less subdued. The newly deregulated electricity market does not seem to be
suppressing energy prices significantly, with few users switching to new
suppliers. Following the rebound in the New Zealand dollar in recent months,
tradable goods inflation is unlikely to run significantly above domestic
inflation.
5
<PAGE>
KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
ECONOMIC REVIEW
The current account, which had been a concern over the period under review,
moderated in the final quarter of 1998. The September deficit was reported at
6.6% of GDP, and the December release was expected to deteriorate further.
However, the deficit fell to 6% of GDP in December 1998. The lower level of
corporate profits in New Zealand was a positive feature in the current account
data, given that all of the profit of the large foreign-owned companies like NZ
Telecom is counted as an outflow in the current account data.
DEBT MARKETS
The Reserve Bank of Australia became concerned that the Australian economy
would slow significantly in 1999, and with inflation low, they reduced the
target cash rate from 5% in December to 4.75%. Cash rates were then maintained
at that level over the remainder of the period under review. The Australian bond
market was little changed from November 1998 through January 1999, with ten-year
bond yields oscillating around 5%. Over the first quarter of 1999, the bond
market declined, with ten-year yields rising to 5.7%. The weakness was driven by
the ongoing and unexpected strength of the domestic economy and the consequent
dampening of rate cut expectations. The U.S. Treasury market also declined,
setting a more challenging environment for global bonds.
There was a fundamental change to the conduct of monetary policy in New
Zealand over the first half of the Fund's financial year. Cash rates fell to
2.8% in early 1999, but the Reserve Bank of New Zealand announced the
introduction of a formal cash rate target to replace the monetary conditions
index. Whilst the exchange rate will still be a major influence on monetary
policy, it will no longer be a strict determinant of policy. The alteration was
made because exchange rate volatility was feeding directly into interest rate
volatility under the old rigid formula. The cash rate was set at the end of
March 1999 at 4.5%. The New Zealand bond market declined over the period, with
the yield on ten-year government bonds rising from 5.5% in early November to
5.8% in April 1998. The sell-off was a result of lower global bond prices, but
New Zealand bonds did outperform both Australian and U.S. bonds.
AUSTRALIAN AND NEW ZEALAND DOLLARS
After a long period of decline, the Australian dollar rebounded in late 1998
and early 1999. The chief factor in the long decline had been the trend fall in
commodity prices and, in the case of certain commodities, the decline was partly
reversed over the period under review. Increasing oil prices have attracted much
attention, but certain key base metals have also recovered in early 1999. The
gold price has remained under pressure, with further gold sales expected from
central banks, but declines have become more modest. The currency had also been
undermined by the sharp fall in Asian currencies in 1998, and 1999 saw a sharp
recovery in the regions' currencies against the U.S. dollar. The Australian
dollar rose from US$0.625 in November 1998 to US$0.662 at the end of April 1999.
The ongoing strength of the domestic economy and increasing short-rate
expectations also supported the currency. The trade-weighted measure rose to a
lesser extent, as the currencies of Asian trading partners recovered.
The New Zealand dollar rose from US$0.53 at the start of November 1998 to
US$0.56 at the end of the period under review. The New Zealand dollar has less
direct links to the commodities that drove the improvement in the Australian
dollar, but the Australian currency is a major influence on the New Zealand
dollar. The better-than-expected New Zealand December current account was a
support to the currency, given the concerns that the balance of payments has
generated in recent years. The New Zealand dollar also benefited from the
recovery of the currencies of its Asian trading partners.
6
<PAGE>
KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
ECONOMIC REVIEW
7
<PAGE>
KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
PORTFOLIO OF INVESTMENTS
April 30, 1999
(Unaudited)
Long-Term Investments -- 97.1%
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (US$)
- ---------------------------------------------------------------------------------------------------------- -----------
<C> <S> <C> <C>
AUSTRALIAN GOVERNMENT AND SEMI-GOVERNMENT BONDS -- 63.1%
EUROBONDS -- 42.4%
A$ 2,000,000 State Bank of South Australia 9.5% due 10/15/02....................... $1,477,038
5,000,000 Australian Industrial Development Corp. 9.25% due 2/17/03....................... 3,694,391
3,300,000 Export Finance & Insurance Corp. 9% due 3/26/03.......................... 2,424,213
2,750,000 State Bank of South Australia 10.5% due 6/23/03....................... 2,127,887
1,500,000 South Australian Government Bond 7.25% due 9/22/03....................... 1,047,657
2,500,000 Australian Industrial Development Corp. 8.75% due 7/20/04....................... 1,866,903
21,400,000 Queensland Treasury Corp. 6.5% due 6/14/05........................ 14,859,227
1,200,000 Treasury Corp. of Victoria 9% due 6/27/05.......................... 917,532
1,000,000 Commonwealth Bank of Australia 9% due 8/15/05.......................... 756,438
6,000,000 New South Wales Treasury Corp. 6.5% due 5/01/06........................ 4,147,350
14,500,000 Queensland Treasury Corp. 6% due 7/14/09.......................... 9,743,624
-----------
43,062,260
-----------
DOMESTIC BONDS -- 20.7%
A$ 10,000,000 Commonwealth Government Bond 6.75% due 11/15/06...................... 7,166,031
6,000,000 Western Australia Treasury Corp. 8% due 7/15/03.......................... 4,334,515
4,000,000 Victoria Public Finance Authority 12.5% due 10/15/03...................... 3,385,910
7,500,000 Commonwealth Government Bond 8.75% due 8/15/08....................... 6,130,814
-----------
21,017,270
-----------
Total Australian Government and Semi-Government Bonds -- (Cost $60,689,536) 64,079,530
-----------
AUSTRALIAN EUROBONDS -- 16.7%
A$ 3,500,000 DSL Finance N.V. 10.25% due 4/7/00....................... 2,415,651
6,000,000 Morgan Guaranty Trust Co. 8% due 4/18/01.......................... 4,175,731
2,000,000 Bayerische Vereinsbank 8.75% due 5/17/01....................... 1,414,475
5,000,000 Nederlandse Waterschapsbank N.V. 7% due 3/15/02.......................... 3,434,764
4,000,000 National Australia Bank 7% due 7/23/04.......................... 2,775,803
3,500,000 Bayerische Vereinsbank 10.25% due 10/28/04..................... 2,732,465
-----------
Total Australian Eurobonds -- (Cost $18,220,338) 16,948,889
-----------
NEW ZEALAND EUROBONDS -- 16.4%
NZ$ 2,500,000 General Electric Capital Corp. 8.75% due 5/21/99....................... 1,403,147
4,000,000 European Investment Bank 8.5% due 5/30/01........................ 2,360,643
2,000,000 KFW International Finance 7.5% due 11/08/01....................... 1,160,963
3,000,000 KFW International Finance 7.625% due 4/29/02...................... 1,757,354
7,000,000 Federal National Mortgage Association (US) 7.25% due 6/20/02....................... 4,086,368
2,000,000 KFW International Finance 7.25% due 2/20/07....................... 1,425,273
8,400,000 I.B.R.D. 5.5% due 11/03/08....................... 4,429,607
-----------
Total New Zealand Eurobonds -- (Cost $17,139,239) 16,623,355
-----------
NEW ZEALAND GOVERNMENT BOND -- 0.9%
NZ$ 1,500,000 New Zealand Government Bond 7% due 7/15/09 -- (Cost $773,325)....... 917,175
-----------
TOTAL PORTFOLIO OF INVESTMENTS -- 97.1% (Cost $96,822,438) 98,568,949
OTHER ASSETS LESS LIABILITIES -- 2.9% 2,947,326
-----------
NET ASSETS -- 100.0% $101,516,275
-----------
-----------
</TABLE>
See Notes to Financial Statements
8
<PAGE>
KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
(UNAUDITED)
APRIL 30, OCTOBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS:
Investments, at value (cost
$96,822,438 and $98,864,788,
respectively)....................... $ 98,568,949 $ 97,731,879
Cash on deposit:
Foreign currency (cost $978,639 and
$3,265,545, respectively)......... 1,008,701 3,270,877
US dollars.......................... 39,386 14,711
Receivable for securities sold........ -- 2,179,814
Interest receivable................... 2,598,674 2,788,798
Other assets.......................... 3,324 14,577
------------ ------------
Total assets........................ 102,219,034 106,000,656
------------ ------------
LIABILITIES:
Payable for securities purchased...... -- 5,105,157
Dividends payable..................... 478,183 537,955
Investment advisory fee payable....... 58,088 57,806
Directors' fees and expenses
payable............................. 20,784 23,341
Other accrued expenses................ 145,704 229,512
------------ ------------
Total liablities.................... 702,759 5,953,771
------------ ------------
NET ASSETS.......................... $101,516,275 $100,046,885
------------ ------------
------------ ------------
NET ASSETS:
Net assets were comprised of:
Common stock, at $0.001 par......... $ 11,955 $ 11,955
Paid-in capital..................... 98,820,740 98,820,740
------------ ------------
98,832,695 98,832,695
Accumulated undistributed net
investment income................... 318,419 --
Accumulated net realized gain on
investment and foreign currency
transactions........................ 456,180 2,281,942
Net unrealized appreciation
(depreciation) on investments and
foreign currencies.................. 1,908,981 (1,067,752)
------------ ------------
NET ASSETS............................ $101,516,275 $100,046,885
------------ ------------
------------ ------------
Shares of common stock issued and
outstanding......................... 11,954,566 11,954,566
Net asset value per share............. $8.49 $8.37
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED APRIL 30,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
NET INVESTMENT INCOME:
Investment Income:
Interest and discount earned (net of
foreign withholding taxes of $98,587
and $178,922, respectively)......... $ 3,340,151 $ 4,103,824
------------ ------------
Expenses:
Investment advisory fees.............. 346,410 370,175
Directors' fees and expenses.......... 58,562 59,549
Custodian Fees........................ 58,124 101,615
Audit and tax services................ 25,810 26,245
Printing.............................. 18,512 18,824
Transfer agent fees................... 18,512 18,824
Postage............................... 16,020 16,290
Legal................................. 11,036 11,222
Stock exchange listing fee............ 13,452 8,708
Miscellaneous......................... 4,610 5,141
Insurance............................. 0 1,448
------------ ------------
Total operating expenses.............. 571,048 638,041
------------ ------------
NET INVESTMENT INCOME*................ 2,769,103 3,465,783
------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES:
NET REALIZED GAIN (LOSS) ON:
Investment transactions*.............. 507,829 658,774
Foreign currency transactions**....... (50,269) (2,721,890)
------------ ------------
Total net realized gain (loss)........ 457,560 (2,063,116)
------------ ------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) ON:
Investments*.......................... (3,487,285) (2,279,329)
Foreign currency denominated assets
and liabilities**................... 6,464,018 (5,303,620)
------------ ------------
Total net change in unrealized
appreciation (depreciation)......... 2,976,733 (7,582,949)
------------ ------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND FOREIGN
CURRENCIES.......................... 3,434,293 (9,646,065)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............. $ 6,203,396 $ (6,180,282)
------------ ------------
------------ ------------
</TABLE>
* Net increase in net assets before foreign currrency gain (loss) was
($210,353) and $1,845,228, respectively.
** Net realized and unrealized foreign currency gain (loss) was $6,413,749 and
($8,025,510), respectively.
See Notes to Financial Statements
10
<PAGE>
KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS FISCAL YEAR
ENDED ENDED
APRIL 30, OCTOBER 31,
1999 1998
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income................. $ 2,769,103 $ 6,320,317
Net realized gain (loss) on
investments and foreign currency
transactions........................ 457,560 (5,622,565)
Change in unrealized appreciation
(depreciation) on investments and
foreign currency denominated assets
and liabilities..................... 2,976,733 (5,945,608)
------------ ------------
Net increase (decrease) in net assets
resulting from operations........... 6,203,396 (5,247,856)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income............ (2,450,684) (6,455,466)*
From net realized gain on investments
and foreign currency transactions... (2,283,322) (1,888,821)*
------------ ------------
Net decrease in net assets resulting
from distributions to shareholders.. (4,734,006) (8,344,287)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................ 1,469,390 (13,592,143)
------------ ------------
NET ASSETS
Beginning of period................. 100,046,885 113,639,028
------------ ------------
End of period (including accumulated
undistributed net investment
income of $318,419 and $0,
respectively)..................... $101,516,275 $100,046,885
------------ ------------
------------ ------------
</TABLE>
* The Fund redesignated $537,955 from Distributions from net investment
income to Distributions from net realized gain on investments and foreign
currency transactions.
See Notes to Financial Statements.
11
<PAGE>
KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
ENDED FISCAL YEARS ENDED OCTOBER 31,
APRIL 30, ----------------------------------------------
1999 1998 1997 1996 1995 1994
----------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value at
beginning of
period............. $ 8.37 $ 9.51 $ 10.41 $ 10.08 $ 9.99 $ 10.45
----------- -------- -------- -------- ------- -------
Net investment
income............. 0.23 0.53 0.72 0.85 0.84 0.82
Net realized and
unrealized gain
(loss) on
investments and
foreign
currencies......... 0.29 (0.97) (0.82) 0.79 0.82 (0.48)
----------- -------- -------- -------- ------- -------
Total increase
(decrease) from
operations......... 0.52 (0.44) (0.10) 1.64 1.66 0.34
----------- -------- -------- -------- ------- -------
Distribution to
shareholders:
From net investment
income............. (0.21) (0.54) (0.78) (0.89) (0.89) (0.78)
From net realized
gains on investment
and
foreign currency
transactions....... (0.19) (0.16) (0.03) -- -- (0.02)
----------- -------- -------- -------- ------- -------
Total distributions
to shareholders.... (0.40) (0.70) (0.81) (0.89) (0.89) (0.80)
----------- -------- -------- -------- ------- -------
Decrease in net
assets from capital
stock
transactions....... -- -- -- (0.39) (0.65) --
----------- -------- -------- -------- ------- -------
Offering expenses
charged to
capital............ -- -- 0.01 (0.03) (0.03) --
----------- -------- -------- -------- ------- -------
Net increase
(decrease) in net
asset value........ 0.12 (1.14) (0.90) 0.33 0.09 (0.46)
----------- -------- -------- -------- ------- -------
Net asset value at
end of period...... $ 8.49 $ 8.37 $ 9.51 $ 10.41 $ 10.08 $ 9.99
----------- -------- -------- -------- ------- -------
----------- -------- -------- -------- ------- -------
Per share market
value at end of
period............. $ 6.875 $ 6.625 $ 8.3125 $ 9.125 $ 9.25 $ 9.125
----------- -------- -------- -------- ------- -------
----------- -------- -------- -------- ------- -------
Total investment
return (1)......... 9.86% (12.50)% (0.38)% 9.54% 15.74% 1.77%
Net asset value
return (2)......... 6.47% (4.45)% (0.95)% 16.90% 17.93% 3.22%
Net assets at end of
period (in
000's)............. $ 101,516 $100,047 $113,639 $124,501 $96,390 $71,685
Number of shares
outstanding at end
of
period (in
000's)............. 11,955 11,955 11,955 11,955 9,564 7,173
RATIOS TO AVERAGE NET
ASSETS:
Operating expenses... 1.15% 1.21% 1.14% 1.22% 1.32% 1.40%
Net investment
income............. 5.64% 6.25% 7.21% 8.22% 8.51% 7.88%
Portfolio turnover... 10.49% 37.05% 26.67% 16.00% 56.55% 13.71%
</TABLE>
(1) Based on market value per share, adjusted for reinvestment of distributions
at reinvestment plan prices and for rights offerings, assuming full
subscription by shareholder.
(2) Based on net asset value per share, adjusted for reinvestment of
distributions at ex-dividend date net asset value and for rights offering,
assuming full subscription by shareholder.
See Notes to Financial Statements.
12
<PAGE>
KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
NOTES TO FINANCIAL STATEMENTS
April 30, 1999
(Unaudited)
The Kleinwort Benson Australian Income Fund, Inc. (the "Fund") was incorporated
in Maryland on August 12, 1986, and is registered as a closed-end, non-
diversified investment company under the Investment Company Act of 1940, as
amended.
1. ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
BASIS OF PRESENTATION: The financial statements of the Fund are prepared in
accordance with accounting principles generally accepted in the United States
using the U.S. dollar as both the functional and reporting currency. (For tax
purposes the Fund uses the Australian dollar as its functional currency -- see
TAXES.) The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates of certain
reported amounts in the financial statements. Actual amounts could differ from
those estimates.
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained
in U.S. dollars. Australian dollar ("A$") and New Zealand dollar ("NZ$") amounts
are translated into U.S. 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
security transactions 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. 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, 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, 1998, and
April 30, 1999, were US$0.6253 to A$1.00 and US$0.5296 to NZ$1.00, and US$0.6618
to A$1.00 and US$0.5601 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
valued at amortized cost, if their term to maturity from date of purchase was 60
days or less, or by amor-
13
<PAGE>
KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
NOTES TO FINANCIAL STATEMENTS
April 30, 1999
(Unaudited) Notes to Financial Statements
April 30, 1999
(Unaudited)
tizing their value on the 61st day prior to maturity, if their original term to
maturity exceeded 60 days.
MARKET AND CURRENCY RISK: 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 U.S. income taxes because it is the Fund's policy
to meet the requirements of the U.S. 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.
14
<PAGE>
KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
NOTES TO FINANCIAL STATEMENTS
April 30, 1999
(Unaudited) Notes to Financial Statements
April 30, 1999
(Unaudited)
At October 31, 1998, permanent book and tax basis differences of $164,183 and
$8,444,975 were reclassified to paid-in capital from accumulated undistributed
net investment income and accumulated undistributed net capital gains,
respectively. These differences relate primarily to redesignation of foreign
currency gains (losses) 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 up to $100,000,000 and at 0.65% thereafter. For the six months ended
April 30, 1998 and 1999, the Investment Advisor earned $370,175 and $346,410,
respectively.
3. PORTFOLIO TRANSACTIONS
Purchases of investment securities, other than short-term investments, for
the year ended October 31, 1998, and the six months ended April 30, 1999,
aggregated $36,608,281 and $10,298,007, respectively. Sales of investment
securities, other than short-term investments, totaled $37,573,285 and
$12,602,143, respectively, during these periods. The portfolio of investments at
October 31, 1998, was substantially the same in terms of types of investments to
that included herein for April 30, 1999.
The U.S. Federal income tax basis of the Fund's investments and foreign currency
cash deposits at October 31, 1998, and April 30, 1999, was as listed below.
During the year ended October 31, 1998, the Fund did not utilize any capital
loss carryforwards.
<TABLE>
<CAPTION>
APRIL 30,
1999 OCTOBER 31, 1998
------------- ----------------
<S> <C> <C>
Tax cost basis $96,267,676 $ 89,116,171
------------- ----------------
------------- ----------------
Unrealized appreciation $ 5,855,322 $ 9,314,574
Unrealized depreciation (2,673,471) (149,876)
------------- ----------------
Net unrealized appreciation $ 3,181,851 $ 9,164,698
------------- ----------------
------------- ----------------
</TABLE>
4. CAPITAL STOCK
There are 100 million shares of $0.001 par value common stock authorized and
11,954,566 such shares outstanding. There were no transactions in the Fund's
capital stock for the six months ended April 30, 1999.
15
<PAGE>
KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
FOREIGN TAX CREDITS (Unaudited)
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 for 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.
16
