<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 9095
Princeton, New Jersey 08540-9095
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 8200
Boston, Massachusetts 02266
AUCTION AGENT
Chase Manhattan Bank, N.A.
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 9095
Princeton, NJ 08540-9095
(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.
ANNUAL REPORT
OCTOBER 31, 1996
HIGHLIGHTS OF THIS REPORT
- - NET ASSET VALUE UP BY 19.0% OVER THE PAST
TWELVE MONTHS (ASSUMING REINVESTMENT OF
DISTRIBUTIONS).
- - CASH DISTRIBUTION RATE OF 8.5% OVER PAST TWELVE MONTHS.
- - 90.1% OF SECURITIES HELD RATED AAA AND AA OR JUDGED TO BE OF EQUIVALENT
QUALITY.
- - COMMONWEALTH BOND MARKETS HAVE PERFORMED WELL OVER THE PAST YEAR.
<PAGE>
- -------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- -------------------------------------------------------------------
December 13, 1996
Dear Shareholder:
We are pleased to present our Annual Report to shareholders for the twelve
months to October 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 performed well over the twelve months ended
October 31, 1996 as most economies slowed and inflation fell. In addition,
rising currencies enhanced returns for US investors. In local currency terms,
the Canadian bond market provided the best performance. In US dollar terms, the
Australian bond market was the best performer.
The Bank of Canada continued to lower official interest rates over the past
year as economic growth remained weak. In Australia a slowing economy and lower
inflation led to falling official interest rates. Official interest rates have
remained high in New Zealand. However, the Reserve Bank of New Zealand
encouraged lower short-term money market rates during the last quarter of the
year as the economy slowed. In the United Kingdom, the Bank of England surprised
the market by raising official interest rates in late October.
INVESTMENT PERFORMANCE
Assuming reinvestment of dividends, the Fund's Net Asset Value rose by 19.0%
over the twelve months and by 10.8% over the three months ended October 31,
1996. The Fund's share price return was 13.9% over the past year and 5.4% over
the past three months.
Distributions to common shareholders over the twelve months ended October 31,
1996 totaled US$1.015 consisting of five payments of US$0.0875 per share plus
seven payments of US$0.0825. Based on the October 31, 1996 share price of
US$11.875 this represents a cash distribution rate of 8.5% over the year to
October 31. 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 are
rated at least AA or AAA by Standard & Poor's or Aa or Aaa by Moody's, or, if
unrated was judged by the Investment Manager to be of equivalent quality.
<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 receive shares purchased at market price so long as the
market price available is less than 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 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 Laurence S. Freedman
Chairman President
<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 March 1997.
The Board's policy is to provide investors with a stable monthly distribution
out of current income, and supplemented with realized capital gains if required.
Based on the October 31, 1996 share price of US$11.875 and total distributions
of US$1.015 paid over the twelve months to that date, the annual cash
distribution rate was 8.5%. 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.
For Federal income tax purposes, the Board has determined that US$0.007697 of
the US$0.0825 per common share monthly distribution paid in October 1996 will be
characterized as long-term capital gains. Shareholders are advised to rely only
on Form 1099-DIV, which will be sent January 1997, for definitive information
with respect to the tax treatment of the Fund's distributions.
NET ASSET VALUE (NAV) PERFORMANCE
The NAV per share at October 31, 1996 was US$14.32. Assuming reinvestment of
distributions, the Fund achieved a 10.8% NAV return over the three months ended
October 31, 1996, a 14.8% NAV return over the six month period and a 19.0% NAV
return over the twelve month period. At the date of this report, the NAV was
US$14.30.
SHARE PRICE PERFORMANCE
As of October 31, 1996, the share price as quoted on the New York Stock
Exchange was US$11.875, which represents a discount of 17.1% to the NAV of
US$14.32. The total investment return, based on the Fund's share price and
assuming reinvestment of dividends, was 5.4% over the three months, 12.64% over
the six months and 13.9% over the year to October 31, 1996. At the date of this
report, the share price was US$12.125 representing a 15.21% 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 October 31, 1996 compared with 5.43% 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 JULY 31, 1996 OCTOBER 31, 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australia 44.7% 41.4% 33.9% 30.5%
- ---------------------------------------------------------------------------------------------------
Canada 17.9% 30.7% 33.3% 34.5%
- ---------------------------------------------------------------------------------------------------
New Zealand - 4.7% 7.6% 9.5%
- ---------------------------------------------------------------------------------------------------
United Kingdom 36.4% 22.6% 23.7% 24.1%
- ---------------------------------------------------------------------------------------------------
United States** 1.0% 0.6% 1.5% 1.4%
- ---------------------------------------------------------------------------------------------------
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.
A pie chart illustrating the following percentages:
Australia 30.5%
United States 1.4%
United Kingdom 24.1%
New Zealand 9.5%
Canada 34.5%
*Based upon the currency in which a bond is issued.
<PAGE>
MATURITY COMPOSITION
The maturity composition of the portfolio as of October 31, 1996 is summarized
in the table below. At October 31, 1996, the average maturity of the Fund's
assets was 7.1 years, compared with 7.1 years at July 31, 1996 and 7.3 years at
October 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 - OCTOBER 31,
1996
<TABLE>
<CAPTION>
LESS THAN 1 YEAR 1 - 5 YEARS 5 - 10 YEARS OVER 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australia 9.3% 20.6% 56.3% 13.8%
- --------------------------------------------------------------------------------
Canada 20.3% 21.4% 31.8% 26.5%
- --------------------------------------------------------------------------------
New Zealand 29.5% 27.2% 33.8% 9.5%
- --------------------------------------------------------------------------------
United Kingdom 6.9% 8.7% 34.3% 50.1%
- --------------------------------------------------------------------------------
United States 100.0% - - -
- --------------------------------------------------------------------------------
TOTAL FUND 15.7% 18.4% 39.6% 26.3%
- --------------------------------------------------------------------------------
</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 - OCTOBER 31,
1996
<TABLE>
<CAPTION>
SOVEREIGN STATE/ CASH OR
GOVT. PROVINCE EUROBOND CORPORATE EQUIVALENT
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Australia 16.1% 1.4% 5.6% 6.0% 1.4%
- -------------------------------------------------------------------------
Canada 12.4% 5.2% 9.8% 2.4% 4.7%
- -------------------------------------------------------------------------
New Zealand 5.9% - 1.3% 1.3% 1.0%
- -------------------------------------------------------------------------
United Kingdom 9.2% - 13.7% - 1.2%
- -------------------------------------------------------------------------
United States - - - - 1.4%
- -------------------------------------------------------------------------
TOTAL FUND 43.6% 6.6% 30.4% 9.7% 9.7%
- -------------------------------------------------------------------------
</TABLE>
<PAGE>
QUALITY OF INVESTMENTS
At October 31, 1996, 90.1% 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 - OCTOBER 31, 1996
<TABLE>
<CAPTION>
AAA/AAA AA/AA A/A
- ----------------------------------------------
<S> <C> <C> <C>
Australia 72.7% 27.3% -
- ----------------------------------------------
Canada 8.9% 78.2% 12.9%
- ----------------------------------------------
New Zealand 69.3% 30.7% -
- ----------------------------------------------
United Kingdom 40.3% 37.4% 22.3%
- ----------------------------------------------
TOTAL FUND 43.1% 47.0% 9.9%
- ----------------------------------------------
</TABLE>
A pie chart illustrating thefollowing percentages:
AAA/Aaa 43.1%
A/A 9.9%
AA/Aa 47.0%
<PAGE>
- -------------------------------------------------------------------
ECONOMIC, FIXED-INCOME AND CURRENCY MARKET REVIEW
- -------------------------------------------------------------------
AUSTRALIA
Recent Australian economic indicators have been weak. In particular,
unemployment is high and retail sales have fallen. Australia's inflation rate
continues to improve. In the September quarter headline inflation was 2.1% per
annum, with further falls likely because of lower mortgage interest rates.
Underlying inflation had fallen to 2.4% per annum as of September 30, 1996. The
Reserve Bank of Australia has cut official interest rates by a total of 1.5% in
recent months because of the improved inflation outlook and the slow growth in
the Australian economy. While economic growth could remain subdued in the near
term, stronger growth is expected over the longer term as a lower interest rate
environment helps the housing sector to recover and encourages stronger business
investment. In addition, a firmer international economy should add support.
The combination of a positive international backdrop and improving domestic
fundamentals generated a strong Australian bond rally over the quarter ended
October 31, 1996. Australian ten-year Government bond yields fell by 0.96% over
the quarter and by 1.43% over the year to 7.35% on October 31, 1996. Continued
evidence of only moderate economic growth, a well-received August budget and
further declines in inflation and wage data drove the market rally. In addition,
the market expected another cut in official interest rates. (This expectation
was realized with the Reserve Bank of Australia reducing interest rates by 0.5%
on November 6 and 0.5% on December 11.) The differential between Australian and
US ten-year Government bonds was 1.01% on October 31, 1996.
Over the twelve months to the end of October, the Australian dollar appreciated
by 4.1% against the US dollar and in the quarter ended October 31, 1996 the
Australian dollar appreciated by 2.5% against the US dollar. The Australian
dollar has been supported by higher commodity prices, attractive interest rate
differentials and an improving current account deficit. At the end of October,
the currency was trading at US$0.7920. At the date of this report, the
Australian dollar was trading at US$0.7920.
CANADA
The Canadian economy remains soft despite low interest rates and a growing US
economy (the destination for approximately three quarters of Canada's exports).
Retail sales growth is low and the unemployment rate was 10% at the end of
October 1996. However, there are signs that activity could be on a firming
trend. The housing market is staging a tentative recovery and leading economic
indicators have picked up. Inflation has been moderate. Annual inflation has
responded to slowing growth, with core inflation in the lower half of the Bank
of Canada's 1% to 3% target range.
Canadian bond yields fell sharply during the quarter ended October 31, with
yields trading below US Treasuries. Domestic factors were generally positive,
with continued low inflation, moderate growth, a gradually improving fiscal
position and lower official interest rates boosting the bond market. The US
market also provided a supportive backdrop because of reduced concerns about
higher US interest rates.
Over the twelve months to the end of October, the Canadian dollar appreciated
by 0.3% against the US dollar. In the quarter ended October 31, 1996 the
Canadian dollar appreciated by 2.5% against the US dollar. The Canadian dollar
strengthened despite further interest rate cuts by the Bank of Canada. Positive
sentiment reflected attractive real interest differentials (although these
declined sharply over the quarter), continued low inflation and an improving
fiscal outlook. At the end of October, the currency was trading at US$0.7462. At
the date of this report, the Canadian dollar was trading at US$0.7357.
<PAGE>
NEW ZEALAND
The New Zealand economy grew by 2.1% per annum in the year to June 30, 1996 and
the economy is expected to slow in coming quarters. Inflation remains outside
the Reserve Bank of New Zealand's 0%-2% target range but is expected to decline
in 1997. Following the October 12 national election, the New Zealand First and
National Parties have formed a Coalition Government. No major policy changes are
envisaged, although the pace of economic reform could slow.
Positive international and domestic factors resulted in the New Zealand bond
market performing strongly over the past quarter. New Zealand ten-year
Government bond yields fell by 1.07% over the quarter ended July 31, 1996 but
rose by 0.06% over the year to 7.29% on October 31, 1996.
Over the twelve months to the end of October 1996, the New Zealand dollar
appreciated by 7.0% against the US dollar. In the quarter ended October 31, 1996
the New Zealand dollar appreciated 2.4% against the US dollar. At the end of
October, the currency was trading at US$0.7054. At the date of this report, the
New Zealand dollar was trading at US$0.7018.
UNITED KINGDOM
United Kingdom economic activity continues to be one of the strongest in
Europe, with 2.3% annual GDP growth in the September quarter. Consumer spending
has improved and business surveys point to a stronger outlook, with higher
output and orders. Core inflation was approximately 2.5% at the end of September
1996. However, rising underlying earnings and continued strong demand have
raised some inflation concerns. After some prompting from the Bank of England,
the Chancellor agreed to raise official interest rates by .25% to 6% on October
30, 1996.
Despite the official interest rate increase, the Gilt market benefited from the
contraction in European yield spreads and a positive US market. Ten-year bond
yields fell by 0.28% over the quarter and by 0.30% over the year to be 7.62% on
October 31, 1996.
Over the twelve months to the end of October, the Pound appreciated by 3.1%
against the US dollar. In the quarter ended October 31, 1996 the Pound
appreciated 4.4% against the US dollar. At the end of October, the currency was
trading at US$1.6248. At the date of this report, the Pound was trading at
US$1.6604.
The table below compares Commonwealth countries' interest rates for various
periods since the Fund commenced operations.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FEBRUARY 28, 1992
(COMMENCEMENT
OF OPERATIONS) OCTOBER 31, 1995 JULY 31, 1996 OCTOBER 31, 1996
- ----------------------------------------------------------------------------------------------------
AUSTRALIA:
90-day Bank Bills 7.49% 7.48% 6.93% 6.53%
10-yr Government Bonds 10.14% 8.78% 8.31% 7.35%
CANADA:
90-day Bank Bills 7.15% 5.92% 4.46% 3.11%
10-yr Government Bonds 8.33% 7.58% 7.90% 6.42%
NEW ZEALAND:
90-day Bank Bills 7.48% 8.10% 9.72% 8.84%
10-yr Government Bonds 9.23% 7.23% 8.36% 7.29%
UNITED KINGDOM:
90-day Bank Bills 10.85% 6.57% 5.61% 5.87%
10-yr Government Bonds 9.26% 7.92% 7.90% 7.62%
- ----------------------------------------------------------------------------------------------------
</TABLE>
Yield comparisons are direct and do not take into account fluctuations in
currency exchange rates.
EQUITILINK INTERNATIONAL MANAGEMENT LIMITED
<PAGE>
THE FIRST COMMONWEALTH FUND, INC.
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
LOCAL CURRENCY VALUE
(000) DESCRIPTION (US$)
- -------------------------------------------------------------------
<S> <C> <C>
LONG-TERM INVESTMENTS - 91.0%
AUSTRALIA - 29.4%
GOVERNMENT AND SEMI-GOVERNMENT
BONDS - 17.7%
COMMONWEALTH OF AUSTRALIA - 16.3%
Commonwealth of Australia,
A$ 3,000 12.50%, 3/15/97. . . . . . . . . 2,426,299
1,000 7.00%, 8/15/98 798,468
2,000 12.00%, 7/15/99. . . . . . . . . 1,789,586
5,000 13.00%, 7/15/00. . . . . . . . . 4,746,176
5,000 10.00%, 10/15/02. . . . . . . . 4,506,721
1,000 9.00%, 9/15/04. . . . . . . . . 871,753
2,000 7.50%, 7/15/05. . . . . . . . . 1,602,549
6,000 10.00%, 2/15/06. . . . . . . . . 5,583,321
2,000 6.75%, 11/15/06 1,513,721
3,000 8.75%, 8/15/08. . . . . . . . . 2,616,528
--------------
26,455,122
--------------
VICTORIA - 0.6%
Treasury Corporation of Victoria,
1,000 10.25%, 11/15/06. . . . . . . . 939,249
--------------
WESTERN AUSTRALIA - 0.8%
Western Australia Treasury
Corporation,
1,500 10.00%, 7/15/05. . . . . . . . . 1,371,547
--------------
Total Australian government and
semi-government bonds
(cost US$27,016,865). . . . . . . 28,765,918
--------------
CORPORATE BONDS - 6.1%
SERVICES - 6.1%
Australian and Overseas
Telecommunications Corporation,
5,000 11.50%, 10/15/02. . . . . . . . 4,707,410
2,000 12.00%, 5/15/06. . . . . . . . . 2,037,673
First Australian National Mortgage
Acceptance Corporation,
Series 22,
A$ 3,563 11.40%, 12/15/01. . . . . . . . 3,077,757
--------------
Total Australian corporate bonds
(cost US$8,743,061). . . . . . . 9,822,840
--------------
EUROBONDS - 5.6%
FINANCIAL SERVICES - 2.0%
Commonwealth Bank of Australia,
975 12.75%, 1/07/98. . . . . . . . . 822,393
Export Finance & Insurance
Corporation,
1,750 11.00%, 12/29/04. . . . . . . . . 1,657,795
1,000 State Bank of New South Wales,
10.50%, 4/30/99. . . . . . . . . 853,380
--------------
3,333,568
--------------
SEMI-GOVERNMENT - 1.4%
South Australia Finance Authority,
500 12.50%, 5/08/01. . . . . . . . . 472,745
Treasury Corporation of Victoria,
1,000 10.50%, 12/12/01. . . . . . . . . 895,990
1,000 9.00%, 6/27/05 860,310
--------------
2,229,045
--------------
SERVICES - 1.1%
State Electricity Commission of
Victoria,
972 9.25%, 7/27/99. . . . . . . . . 812,164
500 11.00%, 4/09/02 458,370
535 10.50%, 5/27/03. . . . . . . . . 487,804
--------------
1,758,338
--------------
SUPRANATIONAL - 1.1%
Eurofima,
2,000 9.875%, 1/17/07. . . . . . . . . 1,825,164
--------------
Total Australian eurobonds
(cost US$8,172,953). . . . . . . 9,146,115
--------------
Total Australian long-term
investments
(cost US$43,932,879). . . . . . . 47,734,873
--------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
LOCAL CURRENCY VALUE
(000) DESCRIPTION (US$)
- -----------------------------------------------------------------------
<S> <C> <C>
CANADA - 30.0%
GOVERNMENT, PROVINCIAL AND MUNICIPAL
BONDS - 17.7%
CANADA - 12.5%
Canadian Government,
C$ 5,000 9.75%, 12/01/01. . . . . . . . . . . 4,407,924
5,000 8.50%, 4/01/02. . . . . . . . . . . . 4,217,654
5,000 7.25%, 6/01/03 3,984,480
5,000 10.25%, 3/15/14. . . . . . . . . . . 4,986,196
3,000 9.00%, 6/01/25 2,760,909
--------------
20,357,163
--------------
ALBERTA - 1.6%
City of Edmonton,
1,000 9.625%, 2/13/12. . . . . . . . . . . 904,343
Province of Alberta,
2,000 10.25%, 8/22/01. . . . . . . . . . . 1,782,570
--------------
2,686,913
--------------
BRITISH COLUMBIA - 1.6%
Province of British Columbia,
1,000 8.50%, 2/26/97. . . . . . . . . . . . 757,872
1,000 10.15%, 8/29/01 887,181
1,000 9.50%, 1/09/12. . . . . . . . . . . . 914,789
--------------
2,559,842
--------------
ONTARIO - 2.0%
Municipality of Halton,
1,000 10.125%, 12/21/99. . . . . . . . . . 856,962
Province of Ontario,
1,000 8.75%, 4/22/03. . . . . . . . . . . . 849,839
2,000 7.50%, 2/07/24 1,519,176
--------------
3,225,977
--------------
Total Canadian government,
provincial and municipal bonds
(cost US$28,249,655). . . . . . . . . 28,829,895
--------------
CORPORATE BONDS - 2.4%
DIVERSIFIED INDUSTRIALS - 1.3%
Bell Telephone Company of Canada,
500 10.50%, 7/15/09. . . . . . . . . . . 448,441
Imperial Oil Ltd.,
1,000 9.875%, 12/15/99. . . . . . . . . . . 846,889
Scotts Hospitality Incorporated,
1,000 10.95%, 4/16/01. . . . . . . . . . . 887,927
--------------
2,183,257
--------------
FINANCIAL SERVICES - 1.1%
Bank of Nova Scotia,
1,000 10.35%, 7/19/01. . . . . . . . . . . 882,704
National Bank of Canada,
C$ 500 10.875%, 6/01/98. . . . . . . . . . . 409,640
Toronto Dominion Centre,
500 10.70%, 5/12/98. . . . . . . . . . . 407,402
--------------
1,699,746
--------------
Total Canadian corporate bonds
(cost US$3,995,799). . . . . . . . . 3,883,003
--------------
EUROBONDS - 9.9%
DIVERSIFIED INDUSTRIALS - 0.3%
Procter & Gamble Company,
500 10.875%, 8/15/01. . . . . . . . . . . 446,314
--------------
FINANCIAL SERVICES - 4.0%
Credit Local de France,
2,500 6.75%, 3/21/06. . . . . . . . . . . . 1,865,393
Ford Credit Canada Ltd.,
2,500 9.625%, 11/20/96. . . . . . . . . . . 1,869,751
General Electric Capital Corporation,
1,000 10.125%, 4/29/98. . . . . . . . . . . 805,850
Guinness Finance B.V.,
500 9.625%, 10/29/98. . . . . . . . . . . 405,723
International Bank for Reconstruction
and Development,
1,000 10.125%, 7/20/99. . . . . . . . . . 845,620
Prudential Funding Corporation,
1,000 9.125%, 5/12/97. . . . . . . . . . . 766,609
--------------
6,558,946
--------------
NATURAL RESOURCES - 2.1%
Mobil Oil Canada Limited,
300 8.125%, 1/20/98. . . . . . . . . . . 233,450
Ontario Hydro,
1,000 9.00%, 6/24/02. . . . . . . . . . . . 855,320
500 8.50%, 5/26/25 423,631
Quebec Hydro,
1,500 7.00%, 6/01/04. . . . . . . . . . . . 1,153,373
Tokyo Electric Power Company,
500 10.625%, 12/20/96. . . . . . . . . . 375,980
500 10.50%, 6/14/01 440,233
--------------
3,481,987
--------------
PROVINCIAL AND MUNICIPAL - 0.9%
City of Montreal,
1,000 6.375%, 2/15/01. . . . . . . . . . . 756,454
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
LOCAL CURRENCY VALUE
(000) DESCRIPTION (US$)
- --------------------------------------------------------------------------
<S> <C> <C>
Metropolitan Municipality of Toronto,
C$ 750 9.625%, 5/14/02. . . . . . . . . . . 650,556
--------------
1,407,010
--------------
SUPRANATIONAL - 2.6%
Bayerische Vereinsbank AG,
500 7.125%, 7/29/99. . . . . . . . . . . 393,210
Canada (Cayman),
750 7.25%, 6/01/08. . . . . . . . . . . 570,139
Kingdom of Sweden,
3,250 7.00%, 12/01/08. . . . . . . . . . . 2,439,319
Republic of Finland,
1,000 9.00%, 12/31/98. . . . . . . . . . . 808,260
--------------
4,210,928
--------------
Total Canadian eurobonds
(cost US$15,425,814). . . . . . . . 16,105,185
--------------
Total Canadian long-term
investments
(cost US$47,671,268). . . . . . . . 48,818,083
--------------
NEW ZEALAND - 8.5%
GOVERNMENT BONDS - 5.9%
Government of New Zealand,
NZ$ 4,000 10.00%, 7/15/97. . . . . . . . . . . 2,856,333
3,000 10.00%, 3/15/02 2,365,575
4,000 8.00%, 4/15/04. . . . . . . . . . . 2,932,884
2,000 8.00%, 11/15/06 1,479,841
--------------
Total New Zealand government bonds
(cost US$9,106,334). . . . . . . . 9,634,633
--------------
CORPORATE BONDS - 1.3%
DIVERSIFIED INDUSTRIALS - 1.3%
Electricity Corporation of
New Zealand Ltd.,
2,750 10.00%, 10/15/01. . . . . . . . . . 2,105,304
--------------
Total New Zealand corporate bonds
(cost US$1,818,266). . . . . . . . . 2,105,304
--------------
EUROBONDS - 1.3%
FINANCIAL SERVICES - 1.3%
Primary Industry Bank of Australia
Limited,
1,000 8.25%, 3/27/00. . . . . . . . . . . 717,744
Societe Generale New Zealand Euro,
NZ$ 2,000 9.00%, 5/29/98. . . . . . . . . . . 1,435,489
--------------
Total New Zealand eurobonds
(cost US$1,999,911). . . . . . . . . 2,153,233
--------------
Total New Zealand long-term
investments
(cost US$12,924,511). . . . . . . . 13,893,170
--------------
UNITED KINGDOM - 23.1%
GOVERNMENT BONDS - 9.3%
United Kingdom Treasury,
(pound sterling)2,000 8.00%, 6/10/03. . . . . . . . . . . 3,354,197
2,000 6.75%, 11/26/04 3,099,306
2,000 7.50%, 12/07/06. . . . . . . . . . . 3,221,166
3,000 8.50%, 7/16/07 5,159,248
200 8.00%, 12/07/15. . . . . . . . . . . 328,717
--------------
Total United Kingdom
government bonds
(cost US$14,416,405). . . . . . . . 15,162,634
--------------
EUROBONDS - 13.8%
DIVERSIFIED INDUSTRIALS - 3.6%
Allied Domecq PLC,
1,000 10.625%, 2/25/99. . . . . . . . . . 1,738,536
British Airways PLC,
500 10.00%, 3/02/98. . . . . . . . . . . 841,890
British Gas PLC,
1,400 8.875%, 7/08/08. . . . . . . . . . . 2,351,606
Rolls-Royce PLC,
500 11.625%, 7/30/98. . . . . . . . . . 870,324
--------------
5,802,356
--------------
FINANCIAL SERVICES - 6.7%
Abbey National Treasury
Services PLC,
1,250 8.00%, 4/02/03. . . . . . . . . . . 2,061,465
Barclays Bank PLC,
1,000 9.875%, 5/29/49. . . . . . . . . . . 1,758,846
Bayerische Hypotheken--und
Wechsel--Bank AG,
500 10.25%, 2/06/97. . . . . . . . . . . 819,549
Halifax Building Society,
1,500 11.00%, 1/17/14. . . . . . . . . . . 2,903,436
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
LOCAL CURRENCY VALUE
(000) DESCRIPTION (US$)
- ---------------------------------------------------------------------------
<S> <C> <C>
Lloyds Bank PLC,
(pound sterling)1,000 7.375%, 3/11/04. . . . . . . . 1,559,808
Prudential Finance B.V.,
1,000 9.375%, 6/04/07. . . . . . . . 1,760,958
---------------
10,864,062
---------------
NATURAL RESOURCES - 1.1%
Thames Water Utilities
Finance PLC,
1,000 10.50%, 11/21/01. . . . . . . . 1,815,714
---------------
SUPRANATIONAL - 2.4%
Republic of Finland,
1,000 8.00%, 4/07/03. . . . . . . . . 1,657,296
1,250 10.125%, 6/22/08 2,335,650
---------------
3,992,946
---------------
Total United Kingdom eurobonds
(cost US$21,281,142). . . . . . 22,475,078
---------------
Total United Kingdom long-term
investments
(cost US$35,697,547). . . . . . 37,637,712
---------------
Total long-term investments
(cost US$140,226,205). . . . . 148,083,838
---------------
SHORT-TERM INVESTMENTS - 9.8%
AUSTRALIA - 1.4%
Banque National de Paris
Fixed Deposit,
A$2,816 6.60%, 11/01/96
(cost US$2,230,306). . . . . . 2,230,306
---------------
CANADA - 4.7%
C$ State Street Bank Time Deposit,
5,148 3.00%, 11/01/96. . . . . . . . 3,841,158
5,149 3.10%, 11/08/96 3,842,119
---------------
(cost US$7,672,417). . . . . . 7,683,277
---------------
NEW ZEALAND - 1.1%
Bankers Trust New Zealand
Limited Call Account,
NZ$2,510 9.80%, 11/01/96
(cost US$1,781,233). . . . . . 1,770,783
---------------
UNITED KINGDOM - 1.2%
(pound State Street Bank Fixed Deposit,
sterling) 585 5.6875%, 11/01/96. . . . . . . 950,591
585 6.00%, 11/08/96 951,183
---------------
(cost US$1,885,977). . . . . . 1,901,774
---------------
UNITED STATES- 1.4%
US$ 2,261 Repurchase Agreement, State
Street Bank and Trust
Company, 5.50% dated
10/31/96, due 11/01/96 in the
amount of $2,261,345
(cost $2,261,000;
collateralized by $2,245,000
U.S. Treasury Note, 6.25%
due 6/30/98; value
$2,310,107). . . . . . . . . . 2,261,000
---------------
Total short-term investments
(cost US$15,830,933). . . . . . 15,847,140
---------------
Total Investments - 100.8%
(cost US$156,057,138). . . . . 163,930,978
Liabilities in excess of other
Assets -- (0.8%). . . . . . . (1,270,786)
---------------
TOTAL NET ASSETS - 100.0%. . . $162,660,192
---------------
---------------
</TABLE>
<PAGE>
- -------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments, at value (cost $156,057,138). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $163,930,978
Foreign currency, at value (cost $723). . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720
Cash. . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Receivable for investments sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,484
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,547,215
Prepaid expenses. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,631
Deferred organization expenses. . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,980
--------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168,536,146
--------------
LIABILITIES
Payable for investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,793,302
Dividends payable - common stock. . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 764,462
Investment management fee payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,671
Administration fee payable. . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,053
Accrued expenses and other liabilities. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,466
--------------
Total liabilities. . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,875,954
--------------
TOTAL NET ASSETS. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $162,660,192
--------------
--------------
Total net assets were composed of:
Common stock:
Par value ($.001 per share, applicable to 9,266,209 shares issued). . . . . . . . . . . . . . . . . . . . . . . . $ 9,266
Paid-in capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,398,255
Preferred stock ($.001 par value per share and $50,000 liquidation value per share applicable to 600 shares; Note 30,000,000
4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --------------
157,407,521
Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,245,897
Accumulated net realized gains on investment transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,935
Net unrealized appreciation on investments. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,262,852
Accumulated net realized foreign exchange losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,078,054)
Net unrealized foreign exchange gains. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,720,041
--------------
TOTAL NET ASSETS. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $162,660,192
--------------
--------------
Net assets applicable to common shareholders.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $132,660,192
--------------
--------------
Net asset value per common share ($132,660,192/9,266,209 shares of common stock issued and outstanding). . . . . $ 14.32
--------------
--------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME
Income
Interest and discount earned (net of foreign withholding taxes of $462,626). . . . . . . . . $12,820,943
-----------
Expenses
Investment management fee. . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,434
Administration fee. . . . . . . . . 307,826
Reports to shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,614
Independent accountant's fees and expenses. . . . . . . . . . . . . . . . . . . . . . . . . 134,700
Custodian's fees and expenses. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,189
Directors' fees and expenses. . . . 97,688
Auction agent's fees and expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,732
Insurance expense. . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,070
Amortization of deferred organization expenses. . . . . . . . . . . . . . . . . . . . . . . 27,831
Transfer agent's fees and expenses. 22,487
Legal fees and expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,834
Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,170
Excise tax. . . . . . . . . . . . . 10,680
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,875
-----------
Total operating expenses. . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,090,130
-----------
Net investment income. . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,730,813
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain on investment transactions. . . . . . . . . . . . . . . . . . . . . . . . 11,273
Net change in unrealized appreciation/depreciation of investments. . . . . . . . . . . . . 6,534,459
-----------
Net gain on investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,545,732
-----------
Net increase in total net assets resulting from operations before net foreign exchange gains 17,276,545
Net realized foreign exchange gains. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,342,176
Net change in unrealized foreign exchange gains. . . . . . . . . . . . . . . . . . . . . . 2,299,515
-----------
NET INCREASE IN TOTAL NET ASSETS RESULTING FROM OPERATIONS. . . . . . . . . . . . . . . . . $21,918,236
-----------
-----------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
- -------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
INCREASE (DECREASE) IN CASH
(INCLUDING FOREIGN CURRENCY)
Cash flows provided by operating activities
Interest received. . . . . . . . . . . . . . . . . . . . . . . . . $ 12,814,260
Operating expenses paid. . - (2,111,790)
Purchases of short-term portfolio investments, net. . . . . . . . (4,011,368)
Purchases of long-term portfolio investments. . . . . . . . . . . (42,777,335)
Proceeds from sales of long-term portfolio investments. . . . . . 46,893,709
Other. . . . . . . . . . . 18,997
-----------
Net cash provided by operating activities. . . . . . . . . . . . 10,826,473
------------
Cash flows used for financing activities
Dividends paid to common shareholders. . . . . . . . . . . . . . . (9,333,300)
Dividends paid to preferred shareholders. . . . . . . . . . . . . (1,521,962)
Distributions paid to common shareholders. . . . . . . . . . . . . (71,323)
Distributions paid to preferred shareholders. . . . . . . . . . . (32,188)
------------
Net cash used for financing activities. . . . . . . . . . . . . . (10,958,773)
------------
Effect of exchange rate on cash. . . . . . . . . . . . . . . . . . 114,125
------------
Net decrease in cash. . . .. . . . . . . . . . . . . . . . . . . . (18,175)
Cash at beginning of year. 19,033
------------
Cash at end of year. . . .. . . . . . . . . . . . . . . . . . . . $ 858
------------
------------
RECONCILIATION OF NET INCREASE IN TOTAL NET ASSETS FROM OPERATIONS TO NET
CASH (INCLUDING FOREIGN CURRENCY) PROVIDED BY OPERATING ACTIVITIES
Net increase in total net assets resulting from operations. . . . $ 21,918,236
------------
Increase in investments. .. . . . . . . . . . . . . . . . . . . . (4,788,942)
Net realized gain on investment transactions. . . . . . . . . . . (11,273)
Net realized foreign exchange gains. . . . . . . . . . . . . . . (2,342,176)
Net change in unrealized appreciation/depreciation on investments (6,534,459)
Net change in unrealized foreign exchange gains. . . . . . . . . (2,299,515)
Decrease in interest receivable. . . . . . . . . . . . . . . . . 105,597
Increase in receivable for investments sold. . . . . . . . . . . (6,499)
Net decrease in other assets. . . . . . . . . . . . . . . . . . . 18,997
Increase in payable for investments purchased. . . . . . . . . . 4,788,167
Decrease in accrued expenses and other liabilities. . . . . . . . (21,660)
------------
Total adjustments. . . . .. . . . . . . . . . . . . . . . . . . . (11,091,763)
------------
Net cash provided by operating activities. . . . . . . . . . . . . $ 10,826,473
------------
------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
THE FIRST COMMONWEALTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C>
FOR THE YEAR
ENDED
OCTOBER 31,1996
------------------
INCREASE (DECREASE) IN TOTAL NET ASSETS
Operations
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,730,813
Net realized gain on investment transactions 11,273
Net change in unrealized appreciation/depreciation of investments. . . . . . . . . . . . . 6,534,459
-------------
Net increase in total net assets resulting from operations before net foreign
exchange gains. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,276,545
Net realized foreign exchange gains 2,342,176
Net change in unrealized foreign exchange gains. . . . . . . . . . . . . . . . . . . . . . 2,299,515
-------------
Net increase in total net assets resulting from operations. . . . . . . . . . . . . . . . 21,918,236
-------------
Dividends and distributions to shareholders
Dividends to common shareholders from net investment income. . . . . . . . . . . . . . . . (9,286,969)
Dividends to preferred shareholders from net investment income (1,521,962)
Distributions to common shareholders from net realized gains on investment transactions. . (71,323)
Distributions to preferred shareholders from net realized gains on investment transactions (32,188)
-------------
Net decrease in total net assets resulting from dividends and distributions to shareholders (10,912,442)
-------------
Total increase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,005,794
TOTAL NET ASSETS
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151,654,398
-------------
End of year (including undistributed net investment income of $1,245,897 and $606,190,
respectively). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 162,660,192
------------------
------------------
<CAPTION>
<S> <C>
FOR THE YEAR
ENDED
OCTOBER 31, 1995
------------------
INCREASE (DECREASE) IN TOTAL NET ASSETS
Operations
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,025,537
Net realized gain on investment transactions 217,129
Net change in unrealized appreciation/depreciation of investments. . . . . . . . . . . . . 8,676,748
-------------
Net increase in total net assets resulting from operations before net foreign
exchange gains. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,919,414
Net realized foreign exchange gains 465,362
Net change in unrealized foreign exchange gains. . . . . . . . . . . . . . . . . . . . . . 892,942
-------------
Net increase in total net assets resulting from operations. . . . . . . . . . . . . . . . 21,277,718
-------------
Dividends and distributions to shareholders
Dividends to common shareholders from net investment income. . . . . . . . . . . . . . . . (9,555,205)
Dividends to preferred shareholders from net investment income (1,673,395)
Distributions to common shareholders from net realized gains on investment transactions. . (289,661)
Distributions to preferred shareholders from net realized gains on investment transactions (29,939)
-------------
Net decrease in total net assets resulting from dividends and distributions to shareholders (11,548,200)
-------------
Total increase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,729,518
TOTAL NET ASSETS
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,924,880
-------------
End of year (including undistributed net investment income of $1,245,897 and $606,190,
respectively). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 151,654,398
------------------
------------------
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
- -------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FEBRUARY 28, 1992*
ENDED ENDED ENDED ENDED THROUGH
PER SHARE OPERATING OCTOBER 31, 1996 OCTOBER 31, 1995 OCTOBER 31, 1994 OCTOBER 31, 1993 OCTOBER 31, 1992
PERFORMANCE:
---------------- ------------------ ------------------ ------------------- -------------------
Net asset value per
common share, beginning
of period. . . . . . . $ 13.13 $ 12.08 $ 13.42 $ 13.00 $ 13.89 +
----------- ------------ ------------ ------------ -------------------
Net investment income. 1.16 1.19 1.16 1.19 0.83
Net realized and
unrealized gain (loss)
on investments
and foreign currencies 1.21 1.10 (1.33) 0.55 (0.76)
----------- ------------ ------------ ------------ -------------------
Total from investment
operations. . . . . . 2.37 2.29 (0.17) 1.74 0.07
----------- ------------ ------------ ------------ -------------------
Dividends from net
investment income to
common
shareholders. . . . . (1.00) (1.03) (0.98) (0.96) (0.80)
Dividends from net
investment income to
preferred
shareholders. . . . . (0.16) (0.18) (0.11) (0.08) (0.03)
Distributions in excess
of net investment
income. . . . . . . . -- -- -- -- (0.04)
Distributions from net
realized gains on
investment
transactions to common
shareholders. . . . . (0.01) (0.03) (0.07) (0.26) --
Distributions from net
realized gains on
investment
transactions to
preferred shareholders (0.01) -- (0.01) (0.02) --
----------- ------------ ------------ ------------ -------------------
Total dividends and
distributions. . . . (1.18) (1.24) (1.17) (1.32) (0.87)
----------- ------------ ------------ ------------ -------------------
Capital charge in
respect to issuance of
preferred shares. . . -- -- -- -- (0.09)
----------- ------------ ------------ ------------ -------------------
Net asset value per
common share, end of
period. . . . . . . . $ 14.32 $ 13.13 $ 12.08 $ 13.42 $ 13.00
----------- ------------ ------------ ------------ -------------------
----------- ------------ ------------ ------------ -------------------
Market value, end of
period. . . . . . . . $ 11.88 $ 11.38 $ 10.38 $ 12.63 $ 13.50
----------- ------------ ------------ ------------ -------------------
----------- ------------ ------------ ------------ -------------------
Number of shares of
common stock
outstanding (000
omitted). . . . . . . 9,266 9,266 9,266 9,249 9,176
TOTAL INVESTMENT RETURN BASED ON:(1)
Market value. . . . . 13.89% 20.72% (10.19%) 2.65% (4.50%)(2)
Net asset value. . . . 18.99% 19.67% (1.63%) 13.31% (0.69%)(2)
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS(3)/SUPPLEMENTARY DATA:
Net assets of common
shareholders, end of
period
(000 omitted). . . . $ 132,660 $ 121,654 $ 111,925 124,146 $ 119,302
Average net assets of
common shareholders
(000 omitted). . . . 122,887 115,277 118,336 121,323 125,794
Operating expenses. . 1.70% 1.71% 1.75% 1.73% 1.59%(4)
Net investment income
before preferred stock
dividends. . . . . . 8.73% 9.56% 9.06% 9.03% 8.72%(4)
Net investment income
available to common
shareholders. . . . . 7.47% 8.09% 8.12% 8.25% 8.43%(4)
Preferred stock
dividends and
distributions. . . . 1.26% 1.48% 0.94% 0.78% 0.29%(4)
Portfolio turnover. . 30% 23% 34% 41% 18%
Senior securities
(preferred stock)
outstanding (000
omitted). . . . . . . $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000
Asset coverage on
preferred stock at
period end. . . . . . 542% 505% 473% 514% 498%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------
(1)Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of each
period reported. Dividends and distributions, if any, are assumed for the
purposes of this calculation to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment return does not reflect
brokerage commissions. Generally, total investment return based on net asset
value will be higher than total investment return based on market value in
periods where there is an increase in the discount or a decrease in the premium
of the market value to the net asset value from the beginning to the end of
such periods. Conversely, total investment return based on net asset value will
be lower than total investment return based on market value in periods where
there is a decrease in the discount or an increase in the premium of the market
value to the net asset value from the beginning to the end of such periods.
(2)Total investment returns for periods of less than one full year are not
annualized.
(3)Ratios are calculated on the basis of income, expenses and preferred share
dividends applicable to both the common and preferred shares relative to the
average net assets of common shareholders.
(4)Annualized.
*Commencement of investment operations.
+Net of offering costs of $0.16 charged to paid-in capital in respect to
issuance of common shares.
See Notes to Financial Statements.
17
<PAGE>
- ------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------
The First Commonwealth Fund, Inc. (the "Fund") was incorporated in Maryland on
June 28, 1991, as a closed- end, nondiversified investment company. The Fund had
no operations prior to February 28, 1992 other than the sale to EquitiLink
International Management Limited (the "Investment Manager") of 7,120 shares of
common stock for $100,036 on February 18, 1992.
The Fund's investment objective is to provide high current income by investing
in high-grade fixed-income securities denominated in the currencies of
Australia, Canada, New Zealand and the United Kingdom (the "Commonwealth
Currencies"). The Fund may also seek capital appreciation only as a secondary
investment objective. It is expected that normally all of the Fund's assets will
be invested in a portfolio of securities issued or guaranteed by the
governments, territories, provinces and states of Australia, Canada, New Zealand
and the United Kingdom as well as securities issued by corporations domiciled in
those countries. The Fund will, under normal circumstances, invest in debt
securities in at least three of these currencies and will not hold more than 50%
of its assets in securities denominated in any one Commonwealth Currency. At
least 75% of the Fund's investments will be rated, at the time of investment,
not less than Aa by Moody's or AA by S&P, or comparably rated by another
appropriate nationally or internationally recognized rating agency, or, if
unrated, judged by the Investment Manager to be of equivalent quality. The
remainder of the Fund's investments will be rated no less than A2 or A by those
rating agencies or, if unrated, judged by the Investment Manager to be of
equivalent quality. The ability of issuers of debt securities held by the Fund
to meet their obligations may be affected by economic developments in a specific
industry, country or region.
NOTE 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 United States generally accepted accounting principles using the
United States dollar as both the functional and reporting currency. However, the
Commonwealth Currencies (excluding New Zealand) are the functional currencies
for Federal tax purposes (see Taxes below).
Foreign Currency Translation: Australian dollar ("A$"), Canadian dollar ("C$"),
New Zealand dollar ("NZ$") and United Kingdom pound ("(pound sterling)") amounts
are translated into United States dollars on the following basis:
(i) market value of investment securities, other assets and liabilities - at
the closing rates of exchange as reported by a major bank;
(ii) purchases and sales of investment securities, income and expenses - at
the rates of exchange prevailing on the respective dates of such
transactions.
The Fund isolates that portion of the results of operations arising as a result
of changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of the securities held at fiscal period end.
Similarly, the Fund isolates the effect of changes in foreign exchange rates
from the fluctuations arising from changes in the market prices of portfolio
securities sold during the fiscal period.
Net realized foreign exchange gains of $2,342,176 for the year ended October
31, 1996 includes realized foreign exchange gains and losses from sales and
maturities of portfolio securities, sales of foreign currencies, currency gains
or losses realized between the trade and settlement dates on securities
transactions and the difference between the amounts of interest, discount and
foreign withholding taxes recorded on the Fund's books and the US dollar
equivalent amounts actually received or paid. Net unrealized foreign exchange
gains of $2,299,515 for the year ended October 31, 1996 includes changes in the
value of portfolio securities and other assets and liabilities arising as a
result of changes in the exchange rates.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin, including
unanticipated movements in the value of the foreign currency relative to the US
dollar.
The exchange rates of the Commonwealth Currencies utilized by the Fund at
October 31, 1996 were US$0.7920 to A$1.00, US$0.7462 to C$1.00, US$0.7054 to
NZ$1.00, and US$1.6248 to (pound sterling)1.00.
<PAGE>
Security Valuation: Investments are stated at value. Investments for which
market quotations are readily available are valued at the last trade price on or
within one local business day of the date of determination as obtained from a
pricing source. If no such trade price is available, such investments are valued
at the quoted bid price or the mean between the quoted bid and asked price on
the date of determination as obtained from a pricing source. Securities for
which market quotations are not readily available are valued at fair value in
good faith using methods determined 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 amortizing their value on the 61st day prior to maturity, if
their original term to maturity exceeded 60 days.
In connection with transactions in repurchase agreements with US financial
institutions, it is the Fund's policy that its custodian/counterparty segregates
the underlying collateral securities, the value of which exceeds the principal
amount of the repurchase transaction, including accrued interest. To the extent
that any repurchase transaction exceeds one business day, the collateral is
valued on a daily basis to determine its adequacy. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by the
Fund may be delayed or limited.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses from
security and currency transactions are calculated on the identified cost basis.
Interest income is recorded on an accrual basis. Discounts on securities
purchased are accreted on an effective yield basis over the estimated lives of
the respective securities.
Dividends: Dividends and distributions are recorded on the ex-dividend date and
are determined based upon tax basis net investment income and capital and
currency gains of the Fund. Dividends and distributions to preferred
shareholders are accrued on a daily basis and are determined as described in
Note 4.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with AICPA Statement of Position
93-2 Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. For
the year ended October 31, 1996, the Fund increased undistributed net investment
income by $717,825, increased accumulated net realized gains on investments by
$194,173 and increased accumulated net realized foreign exchange losses by
$701,585, resulting in a decrease to paid-in capital in excess of par by
$210,413. Net investment income, net realized and unrealized losses on
investments and net assets were not affected by this change. Accumulated
realized and unrealized foreign exchange losses shown in the composition of net
assets at October 31, 1996, represent foreign exchange losses for book purposes
that have not yet been recognized for tax purposes.
Taxes: For Federal income and excise tax purposes, substantially all of the
Fund's transactions are accounted for using the functional currencies.
Accordingly, only realized currency gains and losses resulting from the
repatriation of any of the Commonwealth Currencies into US dollars or another
Commonwealth Currency and realized currency gains and losses on non-Commonwealth
currency transactions into Commonwealth currencies are recognized for tax
purposes.
No provision has been made for United States Federal income taxes because it is
the Fund's policy to meet the requirements of the United States Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders. Under the applicable foreign tax law, a
withholding tax may be imposed on interest and discounts earned at various
rates.
Deferred Organization Expenses: A total of $138,857 was incurred in connection
with the organization of the Fund. These costs were deferred and are being
amortized ratably over a period of sixty months from the date the Fund commenced
investment operations.
Cash Flow Information: The Fund invests in securities and distributes dividends
from net investment income and net realized gains from investment and currency
transactions which are paid in cash or are reinvested at the discretion of
shareholders. These activities are reported in the Statement of Changes in Net
Assets and additional information on cash receipts and cash payments is
presented in the Statement of Cash Flows. Cash includes domestic and foreign
currency.
<PAGE>
Use of Estimates: The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 2. AGREEMENTS
The Fund has agreements with EquitiLink International Management Limited (the
"Investment Manager"), EquitiLink Australia Limited (the "Investment Adviser"),
and Princeton Administrators, L.P. (the "Administrator"). The Investment Manager
and the Investment Adviser are affiliated companies. The Investment Manager has
entered into an agreement with Wood Gundy, Inc. (the "Consultant").
The Investment Manager makes investment decisions on behalf of the Fund on the
basis of recommendations and information furnished to it by the Investment
Adviser and the Consultant, including the selection of and placement of orders
with brokers and dealers to execute portfolio transactions on behalf of the
Fund.
The management agreement provides the Investment Manager with a fee, computed
weekly and payable monthly, at the following annual rates: 0.65% of the Fund's
average weekly net assets up to $200 million, 0.60% of such assets between $200
million and $500 million and 0.55% of such assets in excess of $500 million. The
administration agreement provides the Administrator with a fee computed and
payable monthly at the annual rate of 0.20% of the Fund's average weekly net
assets, subject to a minimum annual payment of $150,000. The Investment Manager
pays fees to the Investment Adviser and the Consultant for their services
rendered.
The Investment Manager informed the Fund that it paid $382,217 to the Investment
Adviser and $14,525 to the Consultant during the year ended October 31, 1996.
NOTE 3. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments,
for the year ended October 31, 1996 aggregated $42,777,335 and $46,893,709,
respectively.
The United States federal income tax basis of the Fund's investments at October
31, 1996 was $159,722,827 and accordingly, net unrealized appreciation for
United States federal income tax purposes was $4,208,151 (gross unrealized
appreciation - $6,694,222; gross unrealized depreciation - $2,486,071).
NOTE 4. CAPITAL
There are 300 million shares of $.001 par value common stock authorized. Of the
9,266,209 shares outstanding at October 31, 1996, the Investment Manager owned
9,587 shares.
There are 100 million shares of $.001 par value of preferred stock authorized.
The preferred shares have rights as determined by the Board of Directors. The
600 shares of Auction Market Preferred Stock ("Preferred Stock") outstanding
consist of one series, W-7. The preferred stock has a liquidation value of
$50,000 per share plus any accumulated but unpaid dividends whether or not
declared.
Dividends on the preferred stock are cumulative at a rate typically reset every
seven days based on the results of an auction. Dividend rates ranged from 4.70%
to 6.00% during the year ended October 31, 1996. Under the Investment Company
Act of 1940, the Fund may not declare dividends or make other distributions on
shares of common stock or purchase any such shares if, at the time of the
declaration, distribution or purchase, asset coverage with respect to the
outstanding Preferred Stock would be less than 200%.
The Preferred Stock is redeemable at the option of the Fund, in whole or in
part, on any dividend payment date at $50,000 per share plus any accumulated but
unpaid dividends. The Preferred Stock is also subject to mandatory redemption at
$50,000 per share plus any accumulated but unpaid dividends, whether or not
declared, if certain requirements relating to the composition of the assets and
liabilities of the Fund as set forth in the Articles of Incorporation are not
satisfied.
The holders of Preferred Stock have voting rights equal to the holders of
common stock (one vote per share) and will vote together with holders of shares
of common stock as a single class. However, holders of Preferred Stock are also
entitled to elect two of the Fund's directors.
NOTE 5. SUBSEQUENT EVENTS/DIVIDENDS
Subsequent to October 31, 1996, the Board of Directors of the Fund declared a
dividend from undistributed net investment income of $0.0825 per common share
payable on December 13, 1996 to common shareholders of record on November 29,
1996.
In addition, the Board of Directors of the Fund declared a dividend from
undistributed net investment income of $0.0825 per common share and a special
year-end distribution of
<PAGE>
$0.02 per share compromised of undistributed net investment income of $0.005 and
from accumulated long-term capital gains of $0.0150 per common share payable on
January 17, 1997 to common shareholders of record on December 31, 1996.
Subsequent to October 31, 1996, dividends and distributions declared and paid on
preferred shares totaled approximately $180,996 for the outstanding preferred
share series through December 13, 1996.
At the March 14, 1996 Annual Meeting of Shareholders of the Fund, the Fund's
shareholders voted to decrease the liquidation value of the Fund's shares of
Preferred Stock, in order to effect a stock split.
On December 3, 1996, the effective date, each share of Preferred Stock with a
liquidation value of $50,000 that was then outstanding became two shares of
Preferred Stock, each having a liquidation value of $25,000. The total number of
outstanding shares of Preferred Stock has increased from 600 shares to 1,200
shares.
- ------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- ------------------------------------------------------------------
To the Shareholders and the Board of Directors of
The First Commonwealth Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations, of cash
flows and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of The First Commonwealth Fund,
Inc. (the "Fund") at October 31, 1996, the results of its operations and its
cash flows for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the four years in the period then ended and for the period February 28, 1992
(commencement of operations) through October 31, 1992, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1996 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
December 13, 1996
<PAGE>
- ------------------------------------------------------------------
FEDERAL TAX INFORMATION: DIVIDENDS AND DISTRIBUTIONS
- ------------------------------------------------------------------
During the year ended October 31, 1996, 94.43% of the ordinary income
distributions paid monthly by the Fund qualifies as foreign source income.
Additionally, 4.15% of the ordinary income distributions was attributable to
foreign withholding taxes.
The foreign taxes paid or withheld represent taxes incurred by the Fund on
income received by the Fund from foreign sources. Foreign taxes paid or withheld
should be included in taxable income with an offsetting deduction from gross
income or as a credit for taxes paid to foreign governments. You should consult
your tax counsel or other tax advisors regarding the appropriate treatment of
foreign taxes paid.
The following table summarizes the long-term capital gain distributions paid by
the Fund during the year.
<TABLE>
<CAPTION>
<S> <C> <C>
COMMON SHAREHOLDERS
RECORD DATE PAYABLE DATE PER SHARE AMOUNT
9/30/96 10/11/96 $0.007697
PREFERRED SHAREHOLDERS
MONTH PAID PER SHARE AMOUNT
10/96 $53.65
</TABLE>
ADDITIONAL INFORMATION
During the period, there have been no material changes in the Fund's investment
objectives or fundamental policies that have not been approved by the
shareholders. There have been no changes in the Fund's charter or By- Laws that
would delay or prevent a change in control of the Fund which have not been
approved by shareholders. There have been no changes in the principal risk
factors associated with investment in the Fund. Fund manager, Nancy Chu, joined
EquitiLink from SBC Funds management. She took on her duties for The First
Commonwealth Fund, Inc. in March 1996. Nancy has significant experience in
international fixed-income management. She has three years investment
experience.
<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.
