FIRST COMMONWEALTH FUND INC
N-30D, 1996-09-26
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<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.
P.O. Box 9095
Princeton, New Jersey 08543-9095
 
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
 
                                 P.O. Box 9095
                            Princeton, NJ 08543-9095
                                 (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
 JULY 31, 1996
 
 
 
 
 
 
 
 
                           HIGHLIGHTS OF THIS REPORT
 
- -NET ASSET VALUE UP BY 15.5% OVER THE PAST TWELVE MONTHS (ASSUMING REINVESTMENT
 OF DISTRIBUTIONS).
 
- -CASH DISTRIBUTION RATE OF 9.0% OVER PAST TWELVE MONTHS.
 
- -90% OF SECURITIES HELD RATED AAA AND AA OR JUDGED TO BE OF EQUIVALENT QUALITY.
 
 
<PAGE>
- -------------------------------------------------------------------
                             LETTER TO SHAREHOLDERS
- -------------------------------------------------------------------
 
 
                                                              September 13, 1996
 
Dear Shareholder:
 
 We are pleased to present our Quarterly Report to shareholders for the three
months to July 31, 1996. The report includes a summary of developments in
fixed-income and currency markets in Australia, Canada, New Zealand and the
United Kingdom.
 
INVESTMENT MARKETS
 
 Commonwealth fixed-income markets strengthened over the quarter, reflecting
generally positive domestic factors in each market. In local currency terms, the
Australian bond market had the strongest performance, followed by New Zealand,
Canada and the UK. In US dollar terms, performance was strongest in the UK
market, reflecting the stronger UK pound.
 
 In Australia there was further evidence of slower prices and wages growth,
allowing the Reserve Bank of Australia to reduce official interest rates late in
the quarter. The Bank of England and the Bank of Canada also lowered official
interest rates during the quarter ended July 31, 1996. Official interest rates
in New Zealand remained high against the backdrop of inflation in excess of the
Reserve Bank of New Zealand's target range.
 
INVESTMENT PERFORMANCE
 
 Assuming reinvestment of distributions, the Fund's Net Asset Value rose by 3.7%
over the three months and by 15.5% over the twelve months ended July 31, 1996.
The Fund's share price return was 6.9% over the three months and 13.0% over the
past year (assuming reinvestment of distributions).
 
 Distributions to common shareholders over the past twelve months totaled
US$1.030, consisting of eight payments of US$0.0875 per share plus four payments
of US$0.0825. Based on the July 31,1996 share price of US$11.50 this represents
a cash distribution rate of 9.0% over the past year. Since all distributions are
paid after the deduction of applicable Australian, Canadian, New Zealand and
United Kingdom withholding taxes, the effective yield is higher for those US
investors who are able to claim a tax credit.
 
 The Fund continues to maintain a high quality portfolio, with over 90% of the
Fund's assets invested in securities where either the issue or the issuer was
rated AA or AAA by Standard & Poor's or Aa or Aaa by Moody's, or was judged to
be of equivalent quality by the Fund's Investment Manager.
 
 
<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 dividends 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 application
valuation 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 valuation
date, participants will receive shares purchased at market price so long as the
market price available is less than the Net Asset Value per share. 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 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,
 
 
 
<TABLE>
<CAPTION>
 
<S>                                 <C>
 
Brian M. Sherman                    Laurence S. Freedman
Chairman                            President
 
 
 
</TABLE>
 
 
<PAGE>
- -------------------------------------------------------------------
                        REPORT OF THE INVESTMENT MANAGER
- -------------------------------------------------------------------
 
 
PERFORMANCE
 
 
DISTRIBUTIONS
 
 The Fund continues to pay a monthly cash distribution of US$0.0825 per share.
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 December
1996. The Board's policy is to provide investors with a stable monthly
distribution out of current income, supplemented by realized capital gains if
required.
 
 Based on the July 31, 1996 share price of US$11.50 and total distributions of
US$1.03 paid over the twelve months to that date, consisting of eight payments
of US $0.0875 per share plus four payments of US$0.0825 per share, the annual
cash distribution rate was 9.0%. 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 July 31, 1996 was US$13.20. Assuming reinvestment of
distributions, the Fund achieved a 3.7% NAV return over the past three months,
5.1% NAV return over the past six months and 15.5% over the past twelve months.
At the date of this report, the NAV was US$13.59.
 
 
SHARE PRICE PERFORMANCE
 
 As of July 31, 1996, the share price as quoted on the New York Stock Exchange
was US$11.50, which represented a discount of 12.9% to the then current NAV of
US$13.20. Total investment return, based on the Fund's share price and assuming
reinvestment of distributions, was 6.9% over the three months, 1.2% over the
past six months and 13.0% over the year, to July 31, 1996. At the date of this
report, the share price was US$11.50, representing a 15.38% discount to NAV.
 
 
AUCTION MARKET PREFERRED STOCK (AMPS)
 
 The Fund's US$30 million of 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 5.16% for the
quarter ended July 31, 1996 compared with 5.45% 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  APRIL 30, 1996   JULY 31, 1996
- ------------------------------------------------------------------------------------------------
 
<S>              <C>                          <C>              <C>              <C>
 
 Australia                  44.7%                  41.4%            35.8%           33.9%
- ------------------------------------------------------------------------------------------------
 
 Canada                     17.9%                  30.7%            31.3%           33.3%
- ------------------------------------------------------------------------------------------------
 
 New Zealand                   -                    4.7%             7.5%            7.6%
- ------------------------------------------------------------------------------------------------
 
 United Kingdom             36.4%                  22.6%            24.2%           23.7%
- ------------------------------------------------------------------------------------------------
 
 United States**             1.0%                   0.6%             1.2%            1.5%
- ------------------------------------------------------------------------------------------------
 
 TOTAL FUND                100.0%                  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 -- July 31, 1996*

A pie chart illustrating the following percentages:

Australia      33.9%
United States   1.5%
United Kingdom 23.7%
New Zealand     7.6%
Canada         33.3%
 
*Based upon the currency in which a bond is issued.
 
 
 
<PAGE>
MATURITY COMPOSITION
 
 The maturity composition of the portfolio as of July 31, 1996 is summarized in
the table below. At July 31, 1996, the average maturity of the Fund's assets was
7.1 years, compared with 6.8 years at April 30, 1996 and 7.5 years at July 31,
1995. Overall, in the opinion of the Investment Manager, the Fund remains well
positioned in medium- to long-term maturities in each market.
 
 
 TABLE 2: THE FIRST COMMONWEALTH FUND, INC. - MATURITY ANALYSIS - JULY 31, 1996
 
<TABLE>
<CAPTION>
 
                  LESS THAN 1 YEAR   1 - 5 YEARS   5 - 10 YEARS  OVER 10 YEARS
 
- --------------------------------------------------------------------------------
 
<S>              <C>                <C>           <C>           <C>
 
 Australia             9.1%             24.9%         60.1%          5.9%
 
- --------------------------------------------------------------------------------
 
 Canada               22.2%             16.5%         35.3%         26.0%
 
- --------------------------------------------------------------------------------
 
 New Zealand          34.5%             23.4%         36.3%           5.8%
 
- --------------------------------------------------------------------------------
 
 United Kingdom        8.9%              9.2%         35.2%         46.7%
 
- --------------------------------------------------------------------------------
 
 United States       100.0%               -             -              -
 
- --------------------------------------------------------------------------------
 
 TOTAL FUND           16.7%             17.9%         43.2%         22.2%
 
- --------------------------------------------------------------------------------
 
</TABLE>
 
 
 The Fund's sectoral exposure is spread among the various securities offered in
the Commonwealth countries' fixed-income markets and is summarized in the table
following.
 
 
  TABLE 3: THE FIRST COMMONWEALTH FUND, INC. - SECTORAL COMPOSITION - JULY 31,
                                      1996
 
<TABLE>
<CAPTION>
 
                  SOVEREIGN    STATE/                           CASH OR
                    GOVT.     PROVINCE  EUROBOND   CORPORATE   EQUIVALENT
 
- --------------------------------------------------------------------------
 
<S>              <C>         <C>       <C>        <C>         <C>
 
 Australia         20.3%       1.3%       5.7%       6.1%        0.5%
 
- --------------------------------------------------------------------------
 
 Canada            12.0%       5.5%       9.1%       2.4%        4.3%
 
- --------------------------------------------------------------------------
 
 New Zealand        4.2%         -        1.4%       1.7%        0.3%
 
- --------------------------------------------------------------------------
 
 United Kingdom     8.3%         -       13.8%         -         1.6%
 
- --------------------------------------------------------------------------
 
 United States        -          -          -          -         1.5%
 
- --------------------------------------------------------------------------
 
 TOTAL FUND        44.8%       6.8%      30.0%      10.2%        8.2%
 
- --------------------------------------------------------------------------
 
</TABLE>
 
 
 
 
<PAGE>
QUALITY OF INVESTMENTS
 
 At July 31, 1996, 90% of the Fund's assets were invested in securities where
either the issue or the issuer was rated at least "Aa" by Moody's Investors
Service Inc. or "AA" by Standard & Poor's Corporation or, if unrated, judged by
the Investment Manager to be of equivalent quality. The remainder of the Fund
was invested in securities where the issue or the issuer was rated, or judged by
the Investment Manager to be of "A" quality (see Table 4).
 
 
   TABLE 4: THE FIRST COMMONWEALTH FUND, INC. - ASSET QUALITY - JULY 31, 1996
<TABLE>
<CAPTION>
 
                  AAA/AAA    AA/AA      A/A
 
- ----------------------------------------------
 
<S>              <C>       <C>       <C>
 
 Australia        74.3%     25.7%        -
 
- ----------------------------------------------
 
 Canada            6.9%     79.7%     13.4%
 
- ----------------------------------------------
 
 New Zealand      70.0%     30.0%        -
 
- ----------------------------------------------
 
 United Kingdom   37.7%     38.9%     23.4%
 
- ----------------------------------------------
 
 TOTAL FUND       43.8%     46.3%      9.9%
 
- ----------------------------------------------
 
</TABLE>
 
The First Commonwealth Fund, Inc. 
Quality of Assets -- July 31, 1996

A pie chart illustrating the following percentages:

AAA  43.8%
AA   46.3%
A     9.9%
 
<PAGE>
- -------------------------------------------------------------------
               ECONOMIC, FIXED-INCOME AND CURRENCY MARKET REVIEW
- -------------------------------------------------------------------
 
 
AUSTRALIA
 
 Australian economic growth slowed significantly in the June quarter although
growth was still 4.5% for the year to the end of June. June quarter inflation
fell to 3.1% per annum, around its historical lows. The Reserve Bank of
Australia (RBA) announced a half percent cut in Australia's official cash rate
to 7.0% in late July 1996, the first change in interest rates since December
1994. The RBA's decision recognized the continuing low inflation environment and
Australia's moderate economic activity.
 
 The Australian fixed-income market performed well during the quarter ended July
31, 1996, outperforming other international bond markets. Australian ten-year
Government bond yields rallied from 8.7% at the end of April to 8.3% at the end
of July 1996. Moderate economic activity and the low inflation environment
supported the market. The greatest gains were made in bonds after the cut in
official interest rates in July.
 
 The Australian dollar depreciated over the quarter ended July 31, 1996, after
the strong gains made earlier in 1996. The dollar was negatively affected by a
decline in base metals prices and lower Australian cash rates. Over the past
three months to July 31, 1996, the Australian dollar depreciated 1.8% against
the US dollar. Expectations of a strengthening global economy and a pick-up in
base metal prices have seen the currency firm over recent weeks. At the end of
July, the currency was trading at US$0.7725. At the date of this report the
Australian dollar was trading at US$0.7950.
 
 
CANADA
 
 Canadian economic growth has been slow, despite substantial interest rate cuts
over the past year and stronger US growth. Inflation remains low. Annual
inflation has responded to slowing growth, with core inflation in the lower half
of the Bank of Canada's 1%-3% target range. Economic growth is expected to gain
momentum, with moderate demand and solid net export growth.
 
 Canadian ten-year Government bond yields fluctuated over the quarter ended July
31, 1996 but finished on a stronger note. This pattern reflected US
developments, in particular concerns about the prospects for higher US interest
rates. Domestic factors were generally positive with continued low inflation,
moderate growth, a gradually improving fiscal position and a further rate cut by
the Bank of Canada.
 
 The Canadian dollar depreciated 0.9% against the US dollar over the three
months ended July 31, 1996. The Canadian dollar experienced three distinct
phases during the quarter: weakness through most of May, strength through June
and weakness again during July. The mid-July cut in official interest rates was
associated with a weaker dollar, especially with expectations of higher US
interest rates. However, improvements in the trade and fiscal deficits provided
broader support to the Canadian dollar over the period. At the end of July, the
currency was trading at US$0.7281. At the date of this report, the Canadian
dollar was trading at US$0.7302.
 
 
 
<PAGE>
NEW ZEALAND
 
 Economic growth has continued to moderate over recent quarters. The March
quarter national accounts showed GDP growing at an annual rate of 2.8%.
Inflation continues to be moderate but remains above the Reserve Bank of New
Zealand's 0%-2% target range. The people of New Zealand will go the polls on
October 12, 1996 to elect a National Government. Recent pre-election polls
indicate the return of the National Party Government.
 
 New Zealand bonds strengthened over the quarter ended July 31, 1996. Moderate
economic growth supported the market. However, some political concerns ahead of
the national election detracted from the performance of bonds.
 
 The New Zealand dollar experienced some weakness over the quarter ended July
31, 1996. Political concerns ahead of the October national election initially
led to the currency's decline. However as pre-election polls began to indicate a
return of the National Party Government, the currency retraced its losses. Over
the past three months to July 31, 1996, the New Zealand dollar appreciated 0.4%
against the US dollar. At the end of July the New Zealand dollar was trading at
US $0.6888. At the date of this report the New Zealand dollar was trading at
US$0.6962.
 
 
UNITED KINGDOM
 
 The UK's moderate economic growth continues to be stronger than most
continental European countries and inflation pressures continue to ease. The
Retail Price Index fell to an annual rate of 2.1% in June 1996. The official
interest rate was reduced by 0.25% in June to 5.75%.
 
 The UK ten year Gilt yields were generally stronger over the quarter ended July
31, 1996. The Bank of England's June rate cut led to a rally across the yield
curve, and evidence of moderate growth and easing inflation also supported the
rally.
 
 Despite lower official UK interest rates and concerns about higher United
States rates, the Pound firmed over the quarter ended July 31, 1996,
appreciating by 3.6% against the US dollar. There was also less market concern
evident about a possible change of government ahead of the national election
scheduled for 1997. At the end of July, the currency was trading at US$1.5568.
On the date of this report, the Pound was trading at US$1.5546.
 
 
<PAGE>
 The table below compares Commonwealth countries' interest rates for various
periods since the Fund's inception:
 
<TABLE>
<CAPTION>
 
<S>                        <C>              <C>             <C>               <C>             <C>
 
                             FEB. 28, 1992
                           (COMMENCEMENT OF
                              OPERATIONS)    JULY 31, 1995   OCTOBER 31, 1995  APRIL 30, 1996  JULY 31, 1996
 
- --------------------------------------------------------------------------------------------------------------
 
AUSTRALIA:
 
 
90-day Bank Bills               7.49%           7.49%            7.48%            7.55%           6.93%
 
 
10-yr Government Bonds         10.14%           9.42%            8.78%            8.71%           8.31%
 
 
CANADA:
 
 
90-day Bank Bills               7.15%           6.48%            5.92%            5.44%           4.46%
 
 
10-yr Government Bonds          8.33%           8.41%            7.58%            7.79%           7.90%
 
 
NEW ZEALAND:
 
 
90-day Bank Bills               7.48%           8.90%            8.10%            9.62%           9.72%
 
 
10-yr Government Bonds          9.23%           7.84%            7.23%            8.52%           8.36%
 
 
UNITED KINGDOM:
 
 
90-day Bank Bills              10.85%           6.74%            6.57%            5.90%           5.61%
 
 
10-yr Government Bonds          9.26%           8.20%            7.92%            8.03%           7.90%
 
- --------------------------------------------------------------------------------------------------------------
 
</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
JULY 31, 1996
(UNAUDITED)
 
<TABLE>
<CAPTION>
 
 
PRINCIPAL AMOUNT
 LOCAL CURRENCY                                           VALUE
      (000)                   DESCRIPTION                 (US$)
 
- --------------------------------------------------------------------
 
 
 
 
<S>               <C>                                 <C>
 
                  LONG-TERM INVESTMENTS - 92.4%
                  AUSTRALIA - 33.6%
                  GOVERNMENT AND SEMI-GOVERNMENT
                  BONDS - 21.7%
                  COMMONWEALTH OF AUSTRALIA - 20.5%
 
 
                  Commonwealth of Australia,
A$          5,000 12.50%, 3/15/97. . . . . . . . . .       3,989,557
            4,000  7.00%, 8/15/98. . . . . . . . . .       3,074,257
            2,000  12.00%, 7/15/99                         1,727,526
            5,000  13.00%, 7/15/00. . . . . . . . .        4,555,174
            5,000  10.00%, 10/15/02                        4,228,835
            1,000  9.00%,9/15/04. . . . . . . . . .          806,918
            5,000  7.50%, 7/15/05                          3,680,532
            9,000  10.00%, 2/15/06. . . . . . . . .        7,713,775
            2,000  6.75%, 11/15/06                         1,379,885
                                                      --------------
 
 
                                                          31,156,459
                                                      --------------
 
 
                  SOUTH AUSTRALIA - 1.2%
 
 
                  South Australia Finance Authority,
            2,000  12.50%, 5/15/06. . . . . . . . .        1,932,131
                                                      --------------
 
 
                  Total Australian government and
                  semi-government bonds
                  (cost US$32,616,124). . . . . . .       33,088,590
                                                      --------------
 
 
                  CORPORATE BONDS - 6.1%
                  SERVICES - 6.1%
                  Australian and Overseas
                  Telecommunications Corporation,
            5,000  11.50%, 10/15/02. . . . . . . . .       4,435,232
            2,000  12.00%, 5/15/06. . . . . . . . .        1,879,570
 
 
 
                  First Australian National Mortgage
                  Acceptance Corporation,
                  Series 22,                               
            3,563  11.40%, 12/15/01. . . . . . . . .       2,967,409
                                                      --------------
 
                  Total Australian corporate bonds
                  (cost US$8,741,845). . . . . . . .       9,282,211
                                                      --------------
 
 
                  EUROBONDS - 5.8%
                  SERVICES - 1.1%
 
 
                  State Electricity Commission of
                   Victoria,
     A$       972  9.25%, 7/27/99. . . . . . . . . .         771,519
              500  11.00%, 4/09/02. . . . . . . . .          425,377
              535  10.50%, 5/27/03                           455,030
                                                      --------------
 
 
                                                           1,651,926
                                                      --------------
 
 
                  FINANCIAL SERVICES - 1.5%
                  Commonwealth Bank of Australia,
              975 12.75%, 1/07/98. . . . . . . . . .         800,262
 
 
                  Export Finance & Insurance Corp.,
              750 11.00%, 12/29/04. . . . . . . . .          655,505
 
 
 
                  State Bank of New South Wales,             
            1,000 10.50%, 4/30/99. . . . . . . . . .         815,992
                                                      --------------
 
                                                           2,271,759
                                                      --------------
 
 
                  FLOATING RATE NOTES - 0.5%
                  Repackaged Sovereign
                  Investments S.A.,
            1,000 7.76%, 7/28/98 (a). . . . . . . .          773,914
                                                      --------------
 
 
                  SEMI-GOVERNMENT - 1.6%
                  South Australia Finance Authority,
              500 12.50%, 5/08/01. . . . . . . . . .         444,187
 
 
 
                  Treasury Corporation of Victoria,          
            1,000 10.50%, 12/12/01. . . . . . . . .          832,369
              500 9.00%, 9/04/02                             394,477
            1,000 9.00%, 6/27/05. . . . . . . . . .          792,817
                                                       -------------
 
                                                           2,463,850
                                                      --------------
 
 
                  SUPRANATIONAL - 1.1%
                  Eurofima,
            2,000 9.875%, 1/17/07. . . . . . . . . .       1,667,750
                                                      --------------
 
 
                  Total Australian eurobonds
                  (cost US$8,389,409). . . . . . . .       8,829,199
                                                      --------------
 
 
                  Total Australian long-term
                  investments
                  (cost US$49,747,378). . . . . . .       51,200,000
                                                      --------------
 
 
</TABLE>
 
 
 
<PAGE>
<TABLE>
<CAPTION>
 
 
PRINCIPAL AMOUNT
 LOCAL CURRENCY                                              VALUE
      (000)                     DESCRIPTION                  (US$)
 
- -----------------------------------------------------------------------
 
 
 
 
<S>                <C>                                   <C>
 
 
                   CANADA - 29.2%
                   GOVERNMENT, PROVINCIAL AND MUNICIPAL BONDS - 17.7%
                   CANADA - 12.1%
 
 
                   Canadian Government,
C$          5,000  9.75%, 12/01/01. . . . . . . . . . .       4,078,200
            5,000  8.50%, 4/01/02                             3,879,059
            5,000  7.25%, 6/01/03. . . . . . . . . . .        3,631,498
            5,000  10.25%, 3/15/14                            4,425,149
            3,000  9.00%, 6/01/25. . . . . . . . . . .        2,412,189
                                                         --------------
 
 
                                                             18,426,095
                                                         --------------
 
 
                   ALBERTA - 1.6%
                   City of Edmonton,
            1,000  9.625%, 2/13/12. . . . . . . . . . .         803,116
 
 
                   Province of Alberta,
            2,000   10.25%, 8/22/01. . . . . . . . . .        1,656,473
                                                         --------------
 
 
                                                              2,459,589
                                                         --------------
 
 
                   BRITISH COLUMBIA - 1.6%
                   Province of British Columbia,
            1,000  8.50%, 2/26/97. . . . . . . . . . .          742,245
            1,000  10.15%, 8/29/01                              823,504
            1,000  9.50%, 1/09/12. . . . . . . . . . .          816,951
                                                         --------------
 
 
                                                              2,382,700
                                                         --------------
 
 
                   ONTARIO - 2.4%
                   Municipality of Halton,
            1,000  10.125%, 12/21/99. . . . . . . . . .         803,116
 
 
                   Province of Ontario,
            1,000   8.75%, 4/16/97. . . . . . . . . . .         746,323
            1,000   8.75%, 4/22/03. . . . . . . . . . .         776,686
            2,000   7.50%, 2/07/24. . . . . . . . . . .       1,328,819
                                                         --------------
 
 
                                                              3,654,944
                                                         --------------
 
 
                   Total Canadian government,
                   provincial and municipal bonds
                   (cost US$29,076,488). . . . . . . .       26,923,328
                                                         --------------
 
 
                   CORPORATE BONDS - 2.4%
                   DIVERSIFIED INDUSTRIALS - 1.3%
                   Bell Telephone Company of Canada,
              500  10.50%, 7/15/09. . . . . . . . . . .         411,752
 
 
                   Imperial Oil Ltd.,
            1,000  9.875%, 12/15/99. . . . . . . . . .          795,835
 
 
                   Scotts Hospitality Incorporated,
            1,000  10.95%, 4/16/01. . . . . . . . . . .         817,679
                                                         --------------
 
 
                                                              2,025,266
                                                         --------------
 
 
                   FINANCIAL SERVICES - 1.1%
                   Bank of Nova Scotia,
            1,000  10.35%, 7/19/01. . . . . . . . . . .         818,407
 
 
                   National Bank of Canada,
C$            500  10.875%, 6/01/98. . . . . . . . . .          394,277
 
 
                   Toronto Dominion Centre,
              500  10.70%, 5/12/98. . . . . . . . . . .         391,729
                                                         --------------
 
 
                                                              1,604,413
                                                         --------------
 
 
                   Total Canadian corporate bonds
                   (cost US$3,995,799). . . . . . . . .       3,629,679
                                                         --------------
 
 
                   EUROBONDS - 9.1%
                   DIVERSIFIED INDUSTRIALS - 0.3%
                   Procter & Gamble Company,
              500  10.875%, 8/15/01. . . . . . . . . .          413,208
                                                         --------------
 
 
                   FINANCIAL SERVICES - 3.4%
                   Credit Local de France,
              500  6.75%, 3/21/06. . . . . . . . . . .          332,205
 
 
                   Ford Credit Canada Ltd.,
            2,500  9.625%, 11/20/96. . . . . . . . . .        1,843,054
 
 
                   General Electric Capital Corporation,
              500  8.25%, 1/09/97. . . . . . . . . . .          368,607
            1,000  10.125%, 4/29/98                             773,627
 
 
                   Guinness Finance B.V.,
              500  9.625%, 10/29/98. . . . . . . . . .          386,377
 
 
                   International Bank for Reconstruction
                    and Development,
            1,000   10.125%, 7/20/99. . . . . . . . . .         798,391
 
 
                   Prudential Funding Corporation,
            1,000  9.125%, 5/12/97. . . . . . . . . . .         748,070
                                                         --------------
 
 
                                                              5,250,331
                                                         --------------
 
 
                   NATURAL RESOURCES - 2.1%
 
 
                   Mobil Oil Canada Limited,
              300  8.125%, 1/20/98. . . . . . . . . . .         224,316
 
 
                   Ontario Hydro,
            1,000  9.00%, 6/24/02. . . . . . . . . . .          785,496
              500  8.50%, 5/26/25                               370,977
 
 
                   Quebec Hydro,
            1,500  7.00%, 6/01/04. . . . . . . . . . .        1,043,578
 
 
                   Tokyo Electric Power Company,
              500  10.625%, 12/20/96. . . . . . . . . .         371,341
              500  10.50%, 6/14/01                              408,220
                                                         --------------
 
 
                                                              3,203,928
                                                         --------------
 
 
                   PROVINCIAL AND MUNICIPAL - 0.8%
                   City of Montreal,
            1,000  6.375%, 2/15/01. . . . . . . . . . .         695,355
 
 
</TABLE>
 
 
 
 
<PAGE>
<TABLE>
<CAPTION>
 
 
  PRINCIPAL AMOUNT
   LOCAL CURRENCY                                                VALUE
        (000)                      DESCRIPTION                   (US$)
 
- ---------------------------------------------------------------------------
 
 
 
 
<S>                   <C>                                    <C>
 
 
                      Metropolitan Municipality of Toronto,         
C$                750 9.625%, 5/14/02. . . . . . . . . . .          597,968
                                                             --------------
 
                                                                  1,293,323
                                                             --------------
 
 
                      SUPRANATIONAL - 2.5%
 
 
                      Bayerische Vereinsbank AG,
                  500 7.125%, 7/29/99. . . . . . . . . . .          369,008
 
 
                      Canada (Cayman),
                  750 7.25%, 6/01/08. . . . . . . . . . . .         509,229
 
 
                      Kingdom of Sweden,
                3,250 7.00%, 12/01/08. . . . . . . . . . .        2,168,087
 
 
                      Republic of Finland,
                1,000 9.00%, 12/31/98. . . . . . . . . . .          766,776
                                                             --------------
 
 
                                                                  3,813,100
                                                             --------------
 
 
                      Total Canadian eurobonds
                      (cost US$14,385,216). . . . . . . . .      13,973,890
                                                             --------------
 
 
                      Total Canadian long-term
                      investments
                      (cost US$47,457,503). . . . . . . . .      44,526,897
                                                             --------------
 
 
                      NEW ZEALAND - 7.3%
                      GOVERNMENT BONDS - 4.2%
                      Government of New Zealand,
NZ$             3,000 10.00%, 7/15/97. . . . . . . . . . .        2,087,416
                2,000 8.00%, 7/15/98                              1,365,987
                3,000 10.00%, 3/15/02. . . . . . . . . . .        2,210,308
                1,000 8.00%, 11/15/06                               670,694
                                                             --------------
 
 
                      Total New Zealand government
                      bonds (cost US$6,218,527). . . . . .        6,334,405
                                                             --------------
 
 
                      CORPORATE BONDS - 1.7%
                      DIVERSIFIED INDUSTRIALS - 1.3%
                      Electricity Corporation of
                      New Zealand Ltd.,
                2,750 10.00%, 10/15/01. . . . . . . . . . .       1,988,946
                                                             --------------
 
 
                      FINANCIAL SERVICES - 0.4%
                      Bank of New Zealand,
                1,000 7.50%, 7/15/99. . . . . . . . . . . .         665,105
                                                             --------------
 
 
                      Total New Zealand corporate bonds
                      (cost US$2,487,959). . . . . . . . .        2,654,051
                                                             --------------
 
 
                      EUROBONDS - 1.4%
                      FINANCIAL SERVICES - 1.4%
                      International Bank for Reconstruction
                       and Development,
                2,000  12.50%, 7/25/97. . . . . . . . . . .       1,426,946
                                                             --------------
 
 
 
                      Primary Industry Bank of Australia
                       Limited,                                     
NZ$             1,000  8.25%, 3/27/00. . . . . . . . . . .          678,468
                                                             --------------
 
                      Total New Zealand eurobonds
                      (cost US$2,012,512). . . . . . . . .        2,105,414
                                                             --------------
 
 
                      Total New Zealand long-term
                      investments
                      (cost US$10,718,998). . . . . . . . .      11,093,870
                                                             --------------
 
 
                      UNITED KINGDOM - 22.3%
                      GOVERNMENT BONDS - 8.4%
                      United Kingdom Treasury,
(pound sterling)2,000 8.00%, 6/10/03. . . . . . . . . . . .       3,182,683
                2,000 6.75%, 11/26/04                             2,918,027
                1,000  7.50%, 12/07/06. . . . . . . . . . .       1,513,015
                3,000  8.50%, 7/16/07                             4,848,459
                  200  8.00%, 12/07/15. . . . . . . . . . .         305,522
                                                             --------------
 
 
                      Total United Kingdom
                      government bonds
                      (cost US$12,892,153). . . . . . . . .      12,767,706
                                                             --------------
 
 
                      EUROBONDS - 13.9%
                      DIVERSIFIED INDUSTRIALS - 3.6%
                      Allied Domecq PLC,
                1,000 10.625%, 2/25/99. . . . . . . . . . .       1,675,584
 
 
                      British Airways PLC,
                  500 10.00%, 3/02/98. . . . . . . . . . .          815,374
 
 
                      British Gas PLC,
                1,400 8.875%, 7/08/08. . . . . . . . . . .        2,176,904
 
 
                      Rolls-Royce PLC,
                  500 11.625%, 7/30/98. . . . . . . . . . .         845,576
                                                             --------------
 
 
                                                                  5,513,438
                                                             --------------
 
 
 
                      FINANCIAL SERVICES - 6.7%
                      Abbey National Treasury Services PLC,
                1,250 8.00%, 4/02/03. . . . . . . . . . . .       1,950,865
 
 
                      Barclays Bank PLC,
                1,000 9.875%, 5/29/49. . . . . . . . . . .        1,635,613
 
 
                      Bayerische Hypotheken--und
                      Wechsel--Bank AG,
                  500 10.25%, 2/06/97. . . . . . . . . . .          793,968
 
 
                      Halifax Building Society,
                1,500 11.00%, 1/17/14. . . . . . . . . . .        2,673,804
 
 
</TABLE>
 
 
 
 
<PAGE>
<TABLE>
<CAPTION>
 
 
   PRINCIPAL AMOUNT
    LOCAL CURRENCY                                            VALUE
        (000)                     DESCRIPTION                 (US$)
 
- -----------------------------------------------------------------------------
 
 
 
 
<S>                    <C>                               <C>             <C>
 
                       Lloyds Bank PLC,
(pound sterling) 1,000 7.375%, 3/11/04. . . . . . . . .        1,461,524
 
 
                       Prudential Finance B.V.,
                 1,000 9.375%, 6/04/07. . . . . . . . .        1,636,664
                                                         ----------------
                                                              10,152,438
                                                         ----------------
 
 
                       NATURAL RESOURCES - 1.1%
                       Thames Water Utilities Finance
                        PLC,
                 1,000  10.50%, 11/21/01. . . . . . . .        1,733,964
                                                         ----------------
 
 
                       SUPRANATIONAL - 2.5%
                       Republic of Finland,
                 1,000 8.00%, 4/07/03. . . . . . . . .         1,566,608
                 1,250 10.125%, 6/22/08                        2,169,790
                                                         ----------------
                                                               3,736,398
                                                         ----------------
 
 
                       Total United Kingdom eurobonds
                       (cost US$21,275,506). . . . . .        21,136,238
                                                         ----------------
 
 
                       Total United Kingdom long-term
                       investments
                       (cost US$34,167,659). . . . . .        33,903,944
                                                         ----------------
 
 
                       Total long-term investments
                       (cost US$142,091,538). . . . . .      140,724,711
                                                         ----------------
 
 
                       SHORT-TERM INVESTMENTS - 8.2%
                       AUSTRALIA - 0.5%
                       Banque National de Paris Fixed
                       Deposit,
              A$   932 7.10%, 8/01/96
                       (cost US$720,033). . . . . . . .          720,033
                                                         ----------------
 
 
                       CANADA - 4.3%
                       State Street Bank Time Deposit,
              C$ 4,480 4.25%, 8/01/96. . . . . . . . .         3,262,159
                 4,482 4.25%, 8/06/96                          
                       (cost US$6,527,376). . . . . . .        3,263,315
                                                         ----------------
                                                               6,525,474
                                                         ----------------
 
 
                       NEW ZEALAND - 0.3%
                       National Bank of New Zealand Call
                       Deposit,
             NZ$   693 9.60%, 8/01/96
                       (cost US$475,667). . . . . . . .          477,653
                                                         ----------------
 
 
                       UNITED KINGDOM - 1.6%
                       State Street Bank Fixed Deposit,
(pound           1,569 5.625%, 8/05/96
sterling)               (cost US$2,443,065). . . . . .         2,443,065
                                                         ----------------
 
 
 
                       UNITED STATES - 1.5%
US$              2,314 Repurchase Agreement, State
                       Street Bank and Trust
                       Company, 5.40% dated
                       7/31/96, due 8/01/96 in the
                        amount of $2,314,347
                        (cost $2,314,000;
                        collateralized by $2,095,000
                        U.S. Treasury Bond, 8.50%
                        5/15/21; value $2,360,411). . .        2,314,000
                                                         ----------------
 
 
                       Total short-term investments
                       (cost US$12,480,141). . . . . .        12,480,225
                                                         ----------------
 
 
                       TOTAL INVESTMENTS - 100.6%
                       (cost US$154,571,679). . . . . .      153,204,936
 
 
                       Liabilities in excess of other
                        assets--(0.6%). . . . . . . . .         (928,372)
                                                         ----------------
 
 
                       TOTAL NET ASSETS - 100.0%. . . .     $152,276,564
                                                         ----------------
                                                         ----------------
 
 
</TABLE>
 
 
(a) Stated interest rate in effect at 7/31/96; interest rate resets quarterly.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
<PAGE>
                       THIS PAGE INTENTIONALLY LEFT BLANK
 
 
<PAGE>
DIRECTORS
 
Brian M. Sherman, Chairman
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
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>


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