<PAGE>
INVESTMENT MANAGER
EquitiLink International Management Limited
Union House, Union Street
St. Helier, Jersey, Channel Islands
INVESTMENT ADVISER
EquitiLink Australia Limited
190 George Street
Sydney, NSW 2000, Australia
CONSULTANT
Wood Gundy, Inc.
BCE Place, P.O. Box 500
Toronto, Ontario, MSJ 258
Canada
ADMINISTRATOR
Princeton Administrators, L.P.
Box 9011
Princeton, New Jersey 08543
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 8200
Boston, Massachusetts 02266
AUCTION AGENT
Chemical Bank
55 Water Street
New York, New York 10041
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Dechert Price & Rhoads
477 Madison Avenue
New York, New York 10022
Freehill, Hollingdale and Page
19-29 Martin Place
Sydney, NSW 2000, Australia
Box 9011
Princeton, NJ 08543
(609) 282-4600
The shares of The First Commonwealth Fund, Inc. are traded on the New York
Stock Exchange under the symbol "FCO". Information about the Fund's net asset
value and market price is published weekly in Barron's and in the Monday edition
of The Wall Street Journal.
For a weekly update of the Fund's net asset value and share price, or to
receive more information on the Fund, call toll-free:
1-800-543-6217
This report, including the financial information herein, is transmitted to the
shareholders of The First Commonwealth Fund, Inc. for their information. It is
not a prospectus, circular or representation intended for use in the purchase of
shares of the Fund or any securities mentioned in the report. Past performance
results should not be considered a representation of future performance.
THE FIRST
COMMONWEALTH
FUND, INC.
QUARTERLY REPORT
JANUARY 31, 1996
HIGHLIGHTS OF THIS REPORT
- - SHARE PRICE RETURN OF 27.1% OVER THE PAST
TWELVE MONTHS (WITH DIVIDENDS REINVESTED).
- - NET ASSET VALUE UP BY 20.8% OVER THE PAST
TWELVE MONTHS (ASSUMING REINVESTMENT OF DIVIDENDS).
- - CASH DISTRIBUTION RATE OF 8.8% OVER THE PAST
TWELVE MONTHS.
- - 89% OF SECURITIES HELD RATED AAA OR AA.
<PAGE>
- -------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- -------------------------------------------------------------------
March 15, 1996
Dear Shareholder:
I am pleased to present our Quarterly Report to shareholders for the three
months to January 31, 1996. The report includes a summary of developments in
fixed-income and currency markets in Australia, Canada, New Zealand and the
United Kingdom.
At the last Board meeting, which took place in December, Sir Roden Cutler
decided to retire from the post of Chairman of the Board, but will remain as a
Director of the Fund.
It is with sadness that the Board accepted his resignation, but we are pleased
that he is to remain on the Board. We will be better off for being able to
continue to utilize his wealth of knowledge.
Sir Roden was the inaugural Chairman of the Fund and, as such, has been pivotal
in assuring that the quality of the management of the Fund and all of its
endeavors have been of the highest calibre. After four years in the post, Sir
Roden felt that it was time to hand over the reins. Because of his enormous
wealth of knowledge, not only as to the affairs of the Fund, but as to the
global economy and investment markets in general, we are grateful that he will
continue to play an important role in the ongoing affairs of the Fund.
At the same Board meeting, the Directors elected me to succeed Sir Roden. I am
an inaugural Director of the Fund and am Chairman and Joint Managing Director of
EquitiLink Australia Limited, which is the investment adviser to the Fund. Given
Sir Roden's illustrious background, I will endeavor to continue the standard set
by him and hope to ensure the continuing long term performance of the Fund.
INVESTMENT MARKETS
Strengthening US and European bond markets, along with weaker growth trends,
provided a supportive environment for Commonwealth fixed-income markets during
this quarter. Over the three months ended January 31, 1996, Australian ten-year
Government bond yields fell from 8.8% to around 8.0%. In addition to weaker
domestic growth, the Australian bond market was assisted by a significant
improvement in the current account deficit and in the December quarter price
data, which showed that quarterly inflation may have peaked.
The Canadian bond and UK Gilt markets also rallied strongly. Weaker economic
activity and further evidence that inflation pressures have abated enabled the
Bank of Canada and the Bank of England to ease monetary policy over the quarter.
In Canada, the defeat of the Quebec separatist referendum helped bond sentiment.
The New Zealand market, while strengthening, did not fully participate in the
global rally, with sentiment undermined by some early signs of renewed economic
activity. In contrast to other central banks, the Reserve Bank of New Zealand
moved to tighten monetary conditions reflecting a perceived increase in
inflation risk.
Over the quarter, the Fund took advantage of such market movements by being
overweight and holding longer than benchmark average maturity in the two
best-performing bond markets (in local currency terms), namely Australia and
Canada.
<PAGE>
INVESTMENT PERFORMANCE
Assuming reinvestment of distributions, the Fund's Net Asset Value rose by 2.2%
over the quarter, by 9.9% over the six months and by 20.8% over the twelve
months ended January 31, 1996. The Fund's share price return, assuming
reinvestment of distributions, was 6.8% over the quarter, 11.7% over the past
six months and 27.1% over the past year.
DISTRIBUTION POLICY
Given recent movements in global interest rates, the Investment Manager
believes that a more conservative distribution policy should be adopted.
Accordingly, the Fund has announced a change in distribution policy under which
the regular monthly distribution will be reduced to US$0.0825 per share from
US$0.0875 per share, which it has paid since December 1993. The new monthly
dividend rates will take effect with the dividend payment to be made on April
12, 1996, to shareholders of record on March 29, 1996.
The level of the distribution is reviewed on a regular basis, with the next
review scheduled for the Board of Directors' meeting to be held in June 1996.
The Board's policy is to facilitate payment of a stable monthly distribution out
of current income and to supplement it with realized capital gains if required.
Distributions to common shareholders over the past twelve months totalled
US$1.050, consisting of twelve payments of US$0.0875 per share. Based on the
January 31, 1996 share price of US$11.875, this represents a cash distribution
rate of 8.8% over the past year. At the new monthly distribution level of
US$0.0825 per share the annual cash distribution rate is 8.7% based on the share
price on the date of this report of US$11.375. Since all distributions are paid
after the deduction of applicable Australian, Canadian, New Zealand and United
Kingdom withholding taxes, the distribution rate is higher for those US
investors who are able to claim a tax credit.
The Fund continues to maintain a high quality portfolio with 89% of the Fund's
assets invested in securities where either the issue or the issuer is rated at
least AA.
<PAGE>
- -------------------------------------------------------------------
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
- -------------------------------------------------------------------
We again invite you to consider joining the shareholders who currently
participate in the Fund's Automatic Dividend Reinvestment and Cash Purchase Plan
(the "Plan"), which allows you to automatically reinvest your distributions in
shares of the Fund's common stock. If the market price, plus any applicable
brokerage commissions, equals or exceeds the Net Asset Value on the payment
date, participants will receive new shares issued by the Fund at a discount of
up to 5% from the market price. If the market price is less than the Net Asset
Value, plus any applicable brokerage commissions, on the payment date,
participants receive shares purchased at market price. Distributions pursuant to
the Plan are taxable to the same extent as are cash dividends.
The Plan also enables you to make optional cash investments in Fund shares
through the Plan Agent at favorable commission rates. You may invest in any
amount of at least $100 monthly. The Plan Agent will purchase shares for you on
the New York Stock Exchange or otherwise on the open market on or about the
fifteenth of each month.
Other advantages of participation in the Plan include:
- - LOWER COSTS-You will build holdings in the Fund automatically, at reduced or
no brokerage cost.
- - CONVENIENCE-You will receive a detailed account statement from State Street
Bank and Trust Company, your Plan Agent, showing total dividends and
distributions, date of investment, shares acquired and price per share, as well
as the total shares of record held by you and by the Plan Agent for you.
- - SAFETY-As long as you participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will hold the shares it has acquired for you in
safekeeping, in non-certificated form. This convenience provides added
protection against loss, theft or inadvertent destruction of certificates.
Further information can be obtained by contacting State Street Bank and Trust
Company, P.O. Box 8200, Boston, MA 02266, Tel: 1-800-426-5523.
SHARES NOT REGISTERED IN YOUR OWN NAME:
If you wish to participate and your shares are held in the name of a brokerage
firm, bank or other nominee, you should instruct your nominee to participate on
your behalf. If your nominee is unable to participate, you should request it to
re-register your shares in your own name which will enable you to participate in
the Plan.
TOLL FREE INFORMATION
Information on The First Commonwealth Fund, Inc. is available by telephoning
toll-free, 1-800-543-6217 in the United States. Available information includes
weekly updates of share price, NAV, and details of recent distributions.
Yours sincerely,
Brian M. Sherman
Chairman
<PAGE>
- -------------------------------------------------------------------
REPORT OF THE INVESTMENT MANAGER
- -------------------------------------------------------------------
PERFORMANCE
DISTRIBUTIONS
The Fund has announced a reduction in the monthly distribution from US$0.0875
to US$0.0825 per share, commencing with the dividend declared on March 18, 1996
and payable on April 12, 1996. The level of the distribution is reviewed on a
regular basis, with the next review scheduled for the Board of Directors'
meeting to be held in June 1996. The Board's policy is to facilitate payment of
a stable monthly distribution out of current income and to supplement with
realized capital gains if required.
Based on the January 31, 1996 share price of US$11.875 and total distributions
of US$1.050 paid over the twelve months to that date, the shares offered an
annual cash distribution rate of 8.8%. Since all distributions are paid after
the deduction of applicable Australian, Canadian, New Zealand and United Kingdom
withholding taxes, the distribution rate is higher for those US investors who
are able to claim a tax credit.
NET ASSET VALUE (NAV) PERFORMANCE
The NAV per share at January 31, 1996 was US$13.12. Assuming reinvestment of
distributions, the Fund achieved a 2.2% NAV return over the past three months, a
9.9% NAV return over the past six months and a 20.8% NAV return over the past
twelve months. At the date of this report, the NAV was US$12.92.
SHARE PRICE PERFORMANCE
As of January 31, 1996, the share price as quoted on the New York Stock
Exchange was US$11.875, which represents a discount of 9.5% to the then current
NAV of US$13.12. Total investment return, based on the Fund's share price and
assuming reinvestment of distributions, was 6.8% over the quarter, 11.7% over
the past six months and 27.1% over the year to January 31, 1996. At the date of
this report, the share price was US$11.375, representing a 12.0% discount to
NAV.
AUCTION MARKET PREFERRED STOCK (AMPS)
The Fund's US$30 million in AMPS continues to be well bid at the weekly
auctions, maintaining a lower interest rate on average compared to the 30-day
commercial paper rate. Weighted average auction results were 5.4% for the
quarter ended January 31, 1996 compared with 5.8% for 30-day commercial paper
over the same period.
<PAGE>
PORTFOLIO COMPOSITION
The geographical composition of the portfolio, expressed as a percentage of the
Fund's total investments, is summarized in the following table and chart.
TABLE 1: THE FIRST COMMONWEALTH FUND, INC. - GEOGRAPHIC ASSET ALLOCATION
<TABLE>
<CAPTION>
COMMENCEMENT OF OPERATIONS
(FEBRUARY 28, 1992) OCTOBER 31, 1995 JANUARY 31, 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Australia 44.7% 41.4% 39.4%
- ----------------------------------------------------------------------------------
Canada 17.9% 30.7% 31.6%
- ----------------------------------------------------------------------------------
New Zealand - 4.7% 4.9%
- ----------------------------------------------------------------------------------
United Kingdom 36.4% 22.6% 23.3%
- ----------------------------------------------------------------------------------
United States* 1.0% 0.6% 0.8%
- ----------------------------------------------------------------------------------
TOTAL FUND 100.0% 100.0% 100.0%
- ----------------------------------------------------------------------------------
</TABLE>
*It is the policy of the Manager to maintain a portion of the Fund's investments
in US short-term securities to cover distribution payments and expenses.
The First Commonwealth Fund, Inc.
Asset Allocation as of January 31, 1996
A pie chart illustrating the following percentages:
Australia 39.4%
United States 0.8%
United Kingdom 23.3%
New Zealand 4.9%
Canada 31.6%
<PAGE>
MATURITY COMPOSITION
The maturity composition of the portfolio as of January 31, 1996 is summarized
in the table below. At January 31, 1996, the average maturity of the Fund's
assets was 7.6 years, compared with 7.3 years at October 31, 1995 and 7.0 years
at January 31, 1995. Overall, the Fund remains well positioned in medium- to
long-term maturities in each market.
TABLE 2: THE FIRST COMMONWEALTH FUND, INC. - MATURITY ANALYSIS - JANUARY 31,
1996
<TABLE>
<CAPTION>
LESS THAN 1 YEAR 1 - 5 YEARS 5 - 10 YEARS OVER 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australia 4.9% 19.3% 55.2% 20.6%
- --------------------------------------------------------------------------------
Canada 8.9% 15.5% 46.2% 29.4%
- --------------------------------------------------------------------------------
New Zealand 12.4% 38.2% 49.4% -
- --------------------------------------------------------------------------------
United Kingdom 9.2% 11.5% 35.8% 43.5%
- --------------------------------------------------------------------------------
United States 100.0% - - -
- --------------------------------------------------------------------------------
TOTAL FUND 8.3% 17.0% 47.1% 27.6%
- --------------------------------------------------------------------------------
</TABLE>
The Fund's sectoral exposure is spread between the various securities offered
in the Commonwealth fixed-income markets and is summarized in the table
following.
TABLE 3: THE FIRST COMMONWEALTH FUND, INC. - SECTORAL COMPOSITION - JANUARY 31,
1996
<TABLE>
<CAPTION>
SOVEREIGN STATE/ CASH OR
GOVT. PROVINCE EUROBOND CORPORATE EQUIVALENT
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Australia 15.2% 10.8% 5.5% 7.0% 0.9%
- --------------------------------------------------------------------------
Canada 12.6% 5.8% 10.0% 2.4% 0.8%
- --------------------------------------------------------------------------
New Zealand 2.4% - 0.5% 1.4% 0.6%
- --------------------------------------------------------------------------
United Kingdom 7.4% - 14.1% - 1.8%
- --------------------------------------------------------------------------
United States - - - - 0.8%
- --------------------------------------------------------------------------
TOTAL FUND 37.6% 16.6% 30.1% 10.8% 4.9%
- --------------------------------------------------------------------------
</TABLE>
<PAGE>
QUALITY OF INVESTMENTS
At January 31, 1996, 89% of the Fund's assets were invested in securities where
either the issue or the issuer is rated at least "AA" by Moody's Investors
Service Inc. or Standard & Poor's Corporation. The remainder of the Fund was
invested in "A" rated securities (see Table 4), except for one investment rated
BBB which, at the time of its purchase, was rated AA by Standard & Poor's
Corporation and was downgraded on November 29, 1995.
TABLE 4: THE FIRST COMMONWEALTH FUND, INC. - ASSET QUALITY - JANUARY 31, 1996
<TABLE>
<CAPTION>
AAA AA A BBB
- -----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Australia 69.3% 29.9% 0.8% -
- -----------------------------------------------------
Canada 48.3% 35.0% 14.6% 2.1 %
- -----------------------------------------------------
New Zealand 56.9% 43.1% - -
- -----------------------------------------------------
United Kingdom 34.4% 41.6% 24.0% -
- -----------------------------------------------------
TOTAL FUND 54.0% 34.8% 10.5% 0.7 %
- -----------------------------------------------------
</TABLE>
The First Commonwealth Fund, Inc.
Quality of Assets as of January 31, 1996
AAA 54.0%
AA 34.8%
A 10.5%
BBB 0.7%
<PAGE>
- -------------------------------------------------------------------
ECONOMIC, FIXED-INCOME AND CURRENCY MARKET REVIEW
- -------------------------------------------------------------------
AUSTRALIA
Australian economic growth has moderated. The September quarter National
Accounts painted a weak picture with annual growth of 3.3%, down from a peak of
over 6% in September 1994. Other indicators, including employment, retail sales
and imports, are now showing slower growth tendencies. Activity appears likely
to remain soft until the third quarter of 1996.
December price data suggest that quarterly inflation may have peaked with the
annual underlying rate just above the Reserve Bank's 2% to 3% target. The
headline rate has been boosted above 5%, in part reflecting higher mortgage
interest charges resulting from the monetary policy tightening over 1994.
However, with no further tightenings in monetary policy in the near term, the
headline rate should quickly converge to the underlying rate.
The Australian bond market continued to rally over the quarter, with ten-year
Government bond yields moving from 8.8% to around 8.0%. The positive global
environment, led by the United States Treasury market, generally weaker signs of
domestic activity and a substantial improvement in the current account deficit
were positive influences. The December inflation report lent support, confirming
the market's expectations that price pressures have peaked.
The Australian bond market should continue to be supported by a broader
recognition of a lower long-term inflation outlook and improvement in the
current account deficit. Australian bonds continue to provide higher yields than
comparable US fixed-income securities.
Over the past three months to the end of January, the Australian dollar
depreciated by 2.5% against the US dollar reflecting some uncertainty over the
global economic outlook and commodity prices. Since January 31, 1996, the
Australian dollar has strengthened reflecting attractive differentials between
Australian and other interest rates and stronger commodity prices. We expect
this stronger trend to continue, reflecting a continued improvement in the
Australian current account deficit, a firmer outlook for commodity prices and
supportive short-term interest rates. At the end of January, the currency was
trading at US$0.7418. On the date of this report, the Australian dollar was
trading at US$0.7720.
CANADA
The Canadian economy remained subdued over the quarter. There are some early
signs that the economy is stabilizing but at very low levels. Annual inflation
has moved back to within the Bank of Canada's 1% to 3% target band, responding
to the slowing in growth. Weaker growth and continued moderate inflation allowed
the Bank of Canada to ease monetary policy by 75 basis points over the quarter.
In line with global markets, the Canadian bond market rallied over the quarter.
Ten-year Government bond yields fell from 7.6% at the end of October to around
7.1% by the end of January. The defeat of the Quebec separatist referendum,
monetary policy easings, moderate inflation and weaker economic data were
positive influences on the market.
After strengthening following the defeat of the Quebec referendum, the Canadian
dollar has generally been softer with continued concern over the growth outlook
and narrow short-term interest rate differentials with the US. The Canadian
dollar depreciated by 1.4% against the US dollar over the quarter. At the end of
January the Canadian dollar was trading at US$0.7342 and at the time of this
report, it was at US$0.7311.
<PAGE>
NEW ZEALAND
Economic activity bottomed in the September quarter of 1995 and appears to be
regaining momentum, supported by lower mortgage rates and the anticipation of
lower tax rates. December quarter inflation remained at the top end of the
Reserve Bank of New Zealand's (RBNZ) 0% to 2% target band. The firming in the
economy and the perceived inflation risk prompted the RBNZ to encourage money
market rates to rise by around 25 basis points in January.
The New Zealand bond market did not fully participate in the global rally over
the quarter. Longer term fundamentals remain positive for the New Zealand bond
market: the Reserve Bank is clearly committed to its 0% to 2% inflation target
and the Government continues to display an exemplary fiscal performance.
However, yields at the long end of the New Zealand curve remain significantly
below those available in Australia. The firming in monetary conditions imposed
by the Reserve Bank and some uncertainty over the inflation outlook limited the
market's rally. New Zealand Government ten-year bond yields fell from 7.2% to
7.0% over the three months to end January.
The New Zealand dollar maintained its strength over the quarter, appreciating
by 0.4% against the US dollar. The decision by major rating agencies to upgrade
New Zealand's foreign currency debt rating helped to buoy sentiment. The Reserve
Bank's call for firmer monetary conditions also added to the currency's appeal.
At the end of January, the currency was trading at $0.6618 and at the time of
this report the currency was trading at US$0.6832.
UNITED KINGDOM
Economic activity in the UK eased over 1995. However, there is emerging
evidence that the fourth quarter of 1995 may have been the turning point in
growth. Inflation pressures have declined, although annual inflation remains
above the Bank of England's 2.5% target. Softer growth has seen some easing in
inflation pressures, allowing the Bank of England to lower the base rate by 25
basis points in both December and January.
The UK Gilt market rallied strongly over the quarter. Stronger Continental
European markets, the monetary policy easing by the Bank of England, moderating
economic growth and clearer signs that inflation has peaked help to encourage
investors.
The Pound depreciated by 2.1% against the US dollar over the quarter in line
with the US dollar strength against the Deutschemark and the Yen. Political
tension undermined confidence in the Pound as Prime Minister Major's leadership
came into question following the defection of two Tory parliamentary members to
smaller opposition parties. At the end of January, the currency was trading at
US$1.5436 and at the time of this report, it was at US$1.5288.
<PAGE>
Movements of interest rates in the Commonwealth countries since the Fund
commenced operations are summarized in the table following.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FEBRUARY 28, 1992
(COMMENCEMENT OF OPERATIONS) OCTOBER 31, 1995 JANUARY 31, 1996
- ---------------------------------------------------------------------------------------------
AUSTRALIA:
90-day Bank Bills 7.49% 7.48% 7.35%
10-yr Government Bonds 10.14% 8.78% 8.03%
CANADA:
90-day Bank Bills 7.15% 5.92% 5.13%
10-yr Government Bonds 8.33% 7.58% 7.06%
NEW ZEALAND:
90-day Bank Bills 7.48% 8.10% 8.54%
10-yr Government Bonds 9.23% 7.23% 6.96%
UNITED KINGDOM:
90-day Bank Bills 10.85% 6.57% 6.09%
10-yr Government Bonds 9.26% 7.92% 7.49%
- ---------------------------------------------------------------------------------------------
</TABLE>
Yield comparisons are direct and do not take into account fluctuations in
currency exchange rates.
EQUITILINK INTERNATIONAL MANAGEMENT LIMITED
<PAGE>
THE FIRST COMMONWEALTH FUND, INC.
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
LOCAL CURRENCY VALUE
(000) DESCRIPTION (US$)
- --------------------------------------------------------------------
<S> <C> <C>
LONG-TERM INVESTMENTS - 94.7%
AUSTRALIA - 38.4%
GOVERNMENT AND SEMI-GOVERNMENT
BONDS - 26.0%
COMMONWEALTH OF AUSTRALIA - 15.2%
Commonwealth of Australia,
A$ 5,000 12.50%, 3/15/97. . . . . . . . . . 3,925,747
5,000 13.00%, 7/15/00. . . . . . . . . 4,473,874
5,000 10.00%, 10/15/02. . . . . . . . 4,122,989
5,000 7.50%, 7/15/05. . . . . . . . . . 3,594,849
5,000 10.00%, 2/15/06. . . . . . . . . 4,214,610
4,000 6.75%, 11/15/06. . . . . . . . . . 2,701,421
--------------
23,033,490
--------------
NEW SOUTH WALES - 6.8%
New South Wales Treasury
Corporation,
10,000 12.00%, 12/01/01. . . . . . . . . 8,848,987
2,000 7.00%, 4/01/04. . . . . . . . . . 1,383,156
-----------
10,232,143
--------------
SOUTH AUSTRALIA - 1.2%
South Australia Finance Authority,
2,000 12.50%, 5/15/06. . . . . . . . . 1,875,932
--------------
VICTORIA - 0.6%
Treasury Corporation of Victoria,
1,000 12.50%, 10/15/03. . . . . . . . . 926,793
--------------
WESTERN AUSTRALIA - 2.2%
Western Australia Treasury
Corporation,
4,000 10.00%, 7/15/05. . . . . . . . . 3,305,126
--------------
Total Australian government and
semi-government bonds
(cost US$38,535,822). . . . . . . 39,373,484
--------------
CORPORATE BONDS - 6.9%
SERVICES - 6.9%
Australian and Overseas
Telecommunications Corporation,
A$ 5,000 11.50%, 10/15/02. . . . . . . . . 4,342,691
2,000 12.00%, 5/15/06. . . . . . . . . 1,849,688
First Australian National Mortgage
Acceptance Corporation,
Series 22,
3,969 11.40%, 12/15/01. . . . . . . . . 3,228,238
General Property Trust,
1,500 8.25%, 5/31/96. . . . . . . . . . 1,117,808
--------------
Total Australian corporate bonds
(cost US$10,153,079). . . . . . . 10,538,425
--------------
EUROBONDS - 5.5%
DIVERSIFIED INDUSTRIALS - 1.4%
Shell Australia Limited,
635 12.25%, 3/07/96. . . . . . . . . . 474,120
State Electricity Commission of
Victoria,
972 9.25%, 7/27/99. . . . . . . . . . 751,227
500 11.00%, 4/09/02. . . . . . . . . 418,054
535 10.50%, 5/27/03. . . . . . . . . . 444,427
--------------
2,087,828
--------------
FINANCIAL SERVICES - 2.5%
Commonwealth Bank of Australia,
975 12.75%, 1/07/98. . . . . . . . . . 787,059
Export Finance & Insurance Corp.,
750 11.00%, 12/29/04. . . . . . . . . 643,776
South Australia Finance Authority,
500 12.50%, 5/08/01. . . . . . . . . . 437,584
State Bank of New South Wales,
1,000 10.50%, 4/30/99. . . . . . . . . . 797,940
Treasury Corporation of Victoria,
1,000 10.50%, 12/12/01. . . . . . . . . 817,507
500 9.00%, 9/04/02. . . . . . . . . . 385,020
--------------
3,868,886
--------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
LOCAL CURRENCY VALUE
(000) DESCRIPTION (US$)
- -----------------------------------------------------------------------
<S> <C> <C>
FLOATING RATE NOTES - 0.5%
Repackaged Sovereign
Investments S.A.,
A$ 1,000 7.7367%, 7/28/98 (a). . . . . . . . 744,833
--------------
SUPRANATIONAL - 1.1%
Eurofima,
2,000 9.875%, 1/17/07. . . . . . . . . . . 1,640,758
--------------
Total Australian eurobonds
(cost US$8,141,909). . . . . . . . . 8,342,305
--------------
Total Australian long-term
investments
(cost US$56,830,810). . . . . . . . 58,254,214
--------------
CANADA - 30.6%
GOVERNMENT AND PROVINCIAL BONDS - 18.2%
CANADA - 12.5%
Canadian Government,
C$ 5,000 9.75%, 12/01/01. . . . . . . . . . . 4,184,184
5,000 8.50%, 4/01/02. . . . . . . . . . . 3,964,917
5,000 7.25%, 6/01/03. . . . . . . . . . . 3,709,409
5,000 10.25%, 3/15/14. . . . . . . . . . . 4,588,286
3,000 9.00%, 6/01/25. . . . . . . . . . . 2,510,836
--------------
18,957,632
--------------
ALBERTA - 1.7%
City of Edmonton,
1,000 9.625%, 2/13/12. . . . . . . . . . . 825,239
Province of Alberta,
2,000 10.25%, 8/22/01. . . . . . . . . . 1,692,520
--------------
2,517,759
--------------
BRITISH COLUMBIA - 1.6%
Province of British Columbia,
1,000 8.50%, 2/26/97. . . . . . . . . . . 748,478
1,000 10.15%, 8/29/01. . . . . . . . . . 842,636
1,000 9.50%, 1/09/12. . . . . . . . . . . 841,911
--------------
2,433,025
--------------
ONTARIO - 2.4%
Municipality of Halton,
1,000 10.125%, 12/21/99. . . . . . . . . . 819,078
Province of Ontario,
1,000 8.75%, 4/16/97. . . . . . . . . . . 752,464
1,000 8.75%, 4/22/03. . . . . . . . . . . 790,229
2,000 7.50%, 2/07/24. . . . . . . . . . . 1,356,190
--------------
3,717,961
--------------
Total Canadian government and
provincial bonds
(cost US$29,073,866). . . . . . . . 27,626,377
--------------
CORPORATE BONDS - 2.4%
DIVERSIFIED INDUSTRIALS - 1.3%
Bell Telephone Company of Canada,
C$ 500 10.50%, 7/15/09. . . . . . . . . . . 421,861
Imperial Oil Ltd.,
1,000 9.875%, 12/15/99. . . . . . . . . . 813,642
Scotts Hospitality Incorporated,
1,000 10.95%, 4/16/01. . . . . . . . . . . 835,749
--------------
2,071,252
--------------
FINANCIAL SERVICES - 1.1%
Bank of Nova Scotia,
1,000 10.35%, 7/19/01. . . . . . . . . . . 837,199
National Bank of Canada,
500 10.875%, 6/01/98. . . . . . . . . . 399,754
Toronto Dominion Centre,
500 10.70%, 5/12/98. . . . . . . . . . . 398,304
--------------
1,635,257
--------------
Total Canadian corporate bonds
(cost US$3,995,798). . . . . . . . . 3,706,509
--------------
EUROBONDS - 10.0%
DIVERSIFIED INDUSTRIALS - 0.3%
Procter & Gamble Company,
500 10.875%, 8/15/01. . . . . . . . . . 424,507
--------------
FINANCIAL SERVICES - 3.0%
Credit Local de France,
500 6.75%, 3/21/06. . . . . . . . . . . 341,150
Ford Credit Canada Ltd.,
2,500 9.625%, 11/20/96. . . . . . . . . . 1,864,308
General Electric Capital Corporation,
500 8.25%, 1/09/97. . . . . . . . . . . 371,068
1,000 10.125%, 4/29/98. . . . . . . . . . 787,112
Guinness Finance B.V.,
500 9.625%, 10/29/98. . . . . . . . . . 393,882
Prudential Funding Corporation,
1,000 9.125%, 5/12/97. . . . . . . . . . . 754,349
--------------
4,511,869
--------------
NATURAL RESOURCES - 2.4%
Mobil Oil Canada Limited,
300 8.125%, 1/20/98. . . . . . . . . . . 226,059
Ontario Hydro,
1,000 9.00%, 6/24/02. . . . . . . . . . . 802,769
500 8.50%, 5/26/25. . . . . . . . . . . 378,733
Quebec Hydro,
500 10.625%, 3/08/01. . . . . . . . . . 414,069
1,500 7.00%, 6/01/04. . . . . . . . . . . 1,047,586
Tokyo Electric Power Company,
500 10.625%, 12/20/96. . . . . . . . . . 377,392
500 10.50%, 6/14/01. . . . . . . . . . . 419,506
--------------
3,666,114
--------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
LOCAL CURRENCY VALUE
(000) DESCRIPTION (US$)
- --------------------------------------------------------------------------
<S> <C> <C>
SERVICES - 2.2%
Canadian National Railway
Company,
C$ 1,250 8.25%, 7/21/97. . . . . . . . . . . 934,419
City of Montreal,
500 11.25%, 3/07/96. . . . . . . . . . . 363,958
1,000 6.375%, 2/15/01. . . . . . . . . . . 699,478
Metropolitan Municipality of Toronto,
750 9.625%, 5/14/02. . . . . . . . . . . 612,297
Province of Ontario,
1,000 7.75%, 12/08/03. . . . . . . . . . . 747,536
--------------
3,357,688
--------------
SUPRANATIONAL - 2.1%
Bayerische Vereinsbank AG,
500 7.125%, 7/29/99. . . . . . . . . . . 375,091
Canada (Cayman),
750 7.25%, 6/01/08. . . . . . . . . . . 524,609
Kingdom of Sweden,
3,250 7.00%, 12/01/08. . . . . . . . . . . 2,216,059
--------------
3,115,759
--------------
Total Canadian eurobonds
(cost US$15,379,453). . . . . . . . 15,075,937
--------------
Total Canadian long-term
investments
(cost US$48,449,117). . . . . . . . 46,408,823
--------------
NEW ZEALAND - 4.2%
GOVERNMENT BONDS - 2.4%
Government of New Zealand,
NZ$ 3,000 10.00%, 7/15/97. . . . . . . . . . . 2,074,811
2,000 10.00%, 3/15/02. . . . . . . . . . . 1,531,053
--------------
Total New Zealand government
bonds (cost US$3,490,025). . . . . . 3,605,864
--------------
CORPORATE BONDS - 1.3%
DIVERSIFIED INDUSTRIALS - 1.3%
Electricity Corporation of
New Zealand Ltd.,
2,750 10.00%, 10/15/01. . . . . . . . . . 2,046,084
--------------
Total New Zealand corporate bonds
(cost US$1,818,266). . . . . . . . . 2,046,084
--------------
EUROBONDS - 0.5%
FINANCIAL SERVICES - 0.5%
Primary Industry Bank of Australia
Limited,
1,000 8.25%, 3/27/00. . . . . . . . . . . 690,497
--------------
Total New Zealand eurobonds
(cost US$589,733). . . . . . . . . . 690,497
--------------
Total New Zealand long-term
investments
(cost US$5,898,024). . . . . . . . . 6,342,445
--------------
UNITED KINGDOM - 21.5%
GOVERNMENT BONDS - 7.4%
United Kingdom Treasury,
(pound sterling)2,000 8.00%, 6/10/03. . . . . . . . . . . 3,145,338
2,000 6.75%, 11/26/04. . . . . . . . . . . 2,880,636
3,000 8.50%, 7/16/07. . . . . . . . . . . 4,833,873
200 8.00%, 12/07/15. . . . . . . . . . 307,280
--------------
Total United Kingdom
government bonds
(cost US$11,383,700). . . . . . . . 11,167,127
--------------
EUROBONDS - 14.1%
DIVERSIFIED INDUSTRIALS - 2.2%
Allied Domecq PLC,
1,000 10.625%, 2/25/99. . . . . . . . . . 1,648,575
British Airways PLC,
500 10.00%, 3/02/98. . . . . . . . . . . 798,816
Rolls-Royce PLC,
500 11.625%, 7/30/98. . . . . . . . . . 832,728
--------------
3,280,119
--------------
NATURAL RESOURCES - 1.1%
Thames Water Utilities Finance
PLC,
1,000 10.50%, 11/21/01. . . . . . . . . . 1,714,440
--------------
SERVICES - 9.8%
Abbey National Treasury Services
PLC,
1,250 8.00%, 4/02/03. . . . . . . . . . . 1,909,999
Barclays Bank PLC,
1,000 9.875%, 5/12/49. . . . . . . . . . . 1,618,356
Bayerische Hypotheken--und
Wechsel--Bank AG,
500 10.25%, 2/06/97. . . . . . . . . . . 781,333
British Gas PLC,
1,400 8.875%, 7/08/08. . . . . . . . . . . 2,133,924
Halifax Building Society,
1,500 11.00%, 1/17/14. . . . . . . . . . . 2,696,004
Lloyds Bank PLC,
1,000 7.375%, 3/11/04. . . . . . . . . . . 1,439,376
Prudential Finance B.V.,
1,000 9.375%, 6/04/07. . . . . . . . . . . 1,625,967
Republic of Finland,
1,250 10.125%, 6/22/08. . . . . . . . . . 2,147,760
Swedish Export Credit Corp.,
300 10.375%, 3/08/96. . . . . . . . . . 453,504
--------------
14,806,223
--------------
SUPRANATIONAL - 1.0%
Republic of Finland,
1,000 8.00%, 4/07/03. . . . . . . . . . . 1,541,112
--------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
LOCAL CURRENCY VALUE
(000) DESCRIPTION (US$)
- ------------------------------------------------------------------------
<S> <C> <C>
Total United Kingdom eurobonds
(cost US$21,768,315). . . . . . 21,341,894
----------------
Total United Kingdon long-term
investments
(cost US$33,152,015). . . . . . 32,509,021
----------------
Total long-term investments
(cost US$144,329,966). . . . . . 143,514,503
----------------
SHORT-TERM INVESTMENTS - 4.9%
AUSTRALIA - 0.9%
Banque National de Paris Fixed
Deposit,
A$1,779 7.10%, 2/01/96
(cost US$1,323,384). . . . . . . 1,323,384
----------------
CANADA - 0.8%
State Street Bank Time Deposit,
C$1,796 5.00%, 2/02/96
(cost US$1,303,043). . . . . . . 1,301,532
----------------
NEW ZEALAND - 0.6%
National Bank of New Zealand Call
Deposit,
NZ$1,336 8.30%, 2/01/96
(cost US$883,625). . . . . . . . 896,409
----------------
UNITED KINGDOM - 1.8%
State Street Bank Fixed Deposit,
(pound 924 6.125%, 2/01/96. . . . . . . . . 1,392,474
sterling) 925 6.1875%, 2/06/96. . . . . . . . 1,394,343
----------------
(cost US$2,789,213). . . . . . 2,786,817
----------------
UNITED STATES- 0.8%
US$ 1,162 Repurchase Agreement, State
Street Bank and Trust
Company, 5.65% dated
1/31/96, due 2/01/96 in the
amount of $1,162,182
(cost $1,162,000;
collateralized by $840,000 U.S.
Treasury Bond, 10.75% due
8/15/05; value $1,191,744). . . 1,162,000
----------------
Total short-term investments
(cost US$7,461,265). . . . . . . 7,470,142
----------------
TOTAL INVESTMENTS - 99.6%,
(cost US$151,791,231). . . . . . 150,984,645
Other assets in excess of
liabilities - 0.4%. . . . . . . 557,838
----------------
TOTAL NET ASSETS - 100.0%. . . . $151,542,483
----------------
----------------
</TABLE>
(a) Stated interest rate in effect at 1/31/96; interest rate resets quarterly.
<PAGE>
DIRECTORS
Sir Roden Cutler
David Lindsay Elsum
Rt. Hon. Malcolm Fraser
Laurence S. Freedman
Michael Gleeson-White
Michael R. Horsburgh
Roger C. Maddock
David Manor
William J. Potter
Peter D. Sacks
Anton E. Schrafl
E. Duff Scott
John T. Sheehy
Brian M. Sherman
Warren C. Smith
OFFICERS
Laurence S. Freedman, President
Brian M. Sherman, Vice President
David Manor, Treasurer
Roy M. Randall, Secretary
Ouma Sananikone-Fletcher, Assistant Vice President and Chief Investment Officer
Barry G. Sechos, Assistant Treasurer
Allan S. Mostoff, Assistant Secretary
Margaret A. Bancroft, Assistant Secretary
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase, from time to time, shares of its
common stock in the open market.
<PAGE>
