<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
June 13, 1997
Dear Shareholder:
We are pleased to present our Semi-Annual Report to shareholders for the
six months to April 30, 1997. 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 were generally weaker over the six
months to April 30, 1997. Markets took the lead from the US, which weakened as
signs of stronger growth emerged and official interest rates were increased.
Currency movement detracted from the Fund's performance over the period with
Commonwealth currencies, apart from the UK Pound, depreciating against the US
dollar.
The best performer in local currency terms and US dollar terms over the
six month period was the UK market. UK ten year government bond rates fell
over the six months to April 30, 1997 from 7.62% to 7.43%. A relatively strong
Pound has helped to contain inflationary pressures and the new Labour
Government has stated its commitment to maintaining a low inflationary
environment.
The Australian fixed income market weakened over the six months to April
30, 1997 with ten year bond rates rising from 7.35% to 7.83%. Rising US rates
and signs of stronger Australian growth led the market higher. New Zealand and
Canadian rates also rose over the past six months. The NZ market weakened the
most out of Commonwealth markets with the ten year rate moving up from 7.29%
to 7.85%. We anticipated this weakness and reduced exposure to this market
over this period. The New Zealand and Canadian fixed-income markets were
largely driven by developments in the United States.
INVESTMENT PERFORMANCE
This weakness in Commonwealth bond markets and currencies led to the
Fund's return, based on Net Asset Value being unchanged over the six months to
April 30, 1997. However, based on Net Asset Value, the Fund returned 14.8% for
the twelve months to April 30, 1997, reflecting stronger fixed income market
performance over the previous six months. The Fund's share price return was
2.2% over the past six months and 15.1% over the past year.
Distributions to common shareholders over the past twelve months totaled
US$1.01. Based on the April 30, 1997 share price of US$11.625, this represents
a cash distribution rate of 8.7% 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 92% of
the Fund's assets invested in securities where either the issue or the issuer
was rated at least 'AA' by Standard & Poor's Corporation or 'Aa' by Moody's
or, if unrated, are judged to be of equal quality by the Investment Manager.
1
<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 re-invest 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 applicable
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.
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
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 uncertificated 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
2
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF THE INVESTMENT MANAGER
- --------------------------------------------------------------------------------
PERFORMANCE
DISTRIBUTIONS
The Fund continues to pay a monthly cash distribution of US$0.0825 per
share. This distribution rate was re-affirmed at the June meeting of the Board
of Directors. 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 September 1997. The Board's policy is to provide investors with a stable
monthly distribution out of current income and to supplement this with
realized capital gains if required.
Distributions to common shareholders over the past twelve months totalled
US$1.01, consisting of twelve payments of US$0.0825 per share and a special
payment of US$0.02 in January 1997. Based on the April 30, 1997 share price of
US$11.625 and total distributions of US$1.01 paid over the twelve months to
that date, this represents an annual cash distribution rate of 8.7%. 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 April 30, 1997 was US$13.72. Assuming reinvestment of
dividends and distributions, the Fund's NAV remained unchanged over the six
months to April 30, 1997 and returned 14.8% over the year to this date. At the
date of this report, the NAV was US$14.06.
SHARE PRICE PERFORMANCE
As of April 30, 1997, the share price as quoted on the New York Stock
Exchange was US$11.625, which represented a discount of 15.3% to the NAV of
US$13.72. The total investment return, based on the Fund's share price and
assuming reinvestment of dividends and distributions, was 2.2% over the six
months to April 30, 1997 and 15.1% over the year ended April 30, 1997. At the
date of this report, the share price was US$11.875, representing a discount of
15.5% 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 5.21% for the
three months ended April 30, 1997 compared with 5.53% for 30-day commercial
paper over the same period.
3
<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. It is based upon the currencies in which the Fund is invested.
TABLE 1: THE FIRST COMMONWEALTH FUND, INC. -- GEOGRAPHIC ASSET ALLOCATION
<TABLE>
<CAPTION>
COMMENCEMENT OF OPERATIONS
(FEBRUARY 28, 1992) OCTOBER 30, 1996 JANUARY 31, 1997 APRIL 30, 1997
<S> <C> <C> <C> <C>
Australia 44.7% 30.5% 29.5% 32.2%
Canada 17.9% 34.5% 30.8% 28.7%
New Zealand -- 9.5% 9.9% 7.6%
United Kingdom 36.4% 24.1% 29.5% 30.7%
United States* 1.0% 1.4% 0.3% 0.8%
TOTAL FUND 100.0% 100.0% 100.0% 100.0%
</TABLE>
*It is the policy of the Investment Manager to maintain a portion of the
Fund's investments in US dollar short-term securities to cover distribution
payments and expenses.
THE FIRST COMMONWEALTH FUND, INC.
ASSET ALLOCATION AT APRIL 30, 1997
A pie chart illustrating the following percentages:
Canada 28.7%
New Zealand 7.6%
United Kingdom 30.7%
United States 0.8%
Australia 32.2%
4
<PAGE>
MATURITY COMPOSITION
The maturity composition of the portfolio as of April 30, 1997 is
summarized in the table below. At April 30, 1997 the average maturity of the
Fund's assets was 7.1 years, compared with 7.1 years at October 31, 1996 and
6.8 years at April 30, 1996. Overall, the Fund remains well positioned in
medium to long term maturities in each market.
TABLE 2: THE FIRST COMMONWEALTH FUND, INC. -- MATURITY ANALYSIS -- APRIL 30,
1997
<TABLE>
<CAPTION>
LESS THAN 1 YEAR 1 - 5 YEARS 5 - 10 YEARS OVER 10 YEARS
<S> <C> <C> <C> <C>
Australia 11.0% 36.3% 46.5% 6.2%
Canada 7.1% 45.6% 17.4% 29.9%
New Zealand 8.3% 56.4% 35.3% --
United Kingdom 9.4% 12.6% 31.8% 46.2%
United States 100.0% -- -- --
TOTAL FUND 9.9% 33.0% 32.4% 24.7%
</TABLE>
The Fund's sectoral exposure is spread between the various securities
offered in the Commonwealth fixed-income markets and is summarized in the
table following.
TABLE 3: THE FIRST COMMONWEALTH FUND, INC. -- SECTORAL COMPOSITION -- APRIL
30, 1997
<TABLE>
<CAPTION>
SOVEREIGN GOVT.
BONDS STATE/ PROVINCE EUROBONDS CORPORATE BONDS CASH OR EQUIVALENT
<S> <C> <C> <C> <C>
Australia 13.2% 1.7% 8.4% 7.0% 1.9%
Canada 12.7% 4.2% 7.9% 2.3% 1.6%
New Zealand 4.4% -- 2.2% 0.8% 0.2%
United Kingdom 14.4% -- 13.9% -- 2.4%
United States -- -- -- -- 0.8%
TOTAL FUND 44.7% 5.9% 32.4% 10.1% 6.9%
</TABLE>
5
<PAGE>
QUALITY OF INVESTMENTS
At April 30, 1997, over 92% 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 or, if unrated,
were judged to be of equal quality by the Investment Manager. The remainder of
the Fund was invested in securities where the issue or the issuer was rated,
or deemed at least equivalent to be of 'A' quality (see Table 4).
TABLE 4: THE FIRST COMMONWEALTH FUND, INC. -- ASSET QUALITY -- APRIL 30, 1997
AAA/AAA AA/AA A/A
Australia 65.2% 34.8% --
Canada 9.3% 82.6% 8.1%
New Zealand 70.7% 29.3% --
United Kingdom 50.9% 32.0% 17.1%
TOTAL FUND 45.0% 47.4% 7.6%
THE FIRST COMMONWEALTH FUND, INC.
QUALITY OF ASSETS AT APRIL 30, 1997
AAA/Aaa 45.0%
AA/Aa 47.4%
A 7.6%
6
<PAGE>
- --------------------------------------------------------------------------------
ECONOMIC, FIXED-INCOME AND CURRENCY MARKET REVIEW
- --------------------------------------------------------------------------------
AUSTRALIA
The Australian economy continues to strengthen with the housing sector
showing signs of improvement and business confidence increasing. Investment is
also strong, particularly in non-residential construction. However, some areas
of weakness remain. The manufacturing and retail sectors still face difficult
trading conditions and the unemployment rate is 8.7%. The Australian official
cash rate is 5.5%, the Reserve Bank of Australia lowered rates a further 0.5%
on May 23. Australia's inflation remains low with underlying inflation at 2.1%
over the year to March 31, 1997 and headline inflation at 1.3% for this
period.
The Australian fixed income market performed strongly through to December,
supported by a further cut in official interest rates. However, the market
subsequently weakened as signs of stronger Australian economic growth emerged
and the US fixed income market weakened. Over the six months to April 30,
1997, ten year bond rates rose from 7.35% to 7.83% but 90 day bank bill rates
fell from 6.53% to 5.91%.
Over the six months to the end of April, the Australian dollar depreciated
by 1.4% against the US dollar to US$0.7810. The Australian dollar was volatile
over the period because of changing perceptions about the strength of
commodity prices and the future direction of interest rates. On the date of
this report, the Australian dollar was trading at US$0.7510.
CANADA
The Canadian economy continues to improve, reflecting the impact of low
interest rates and stronger US economic growth. Despite tighter fiscal policy,
private consumption spending, housing and business investment have grown
strongly. Inflation remains low, reflecting excess capacity in the economy,
limited wage pressures and the firm Canadian dollar.
Canadian bond yields rose during the six months ended April 30, 1997, with
ten year bond yields rising from 6.42% to 6.63%. Domestic factors remained
generally supportive, especially continued low inflation and a gradually
improving fiscal position. However, weakness in the US fixed income market
from mid-February flowed into the Canadian market and bond yields rose.
Over the six months to the end of April, the Canadian dollar depreciated
by 4.1% against the US dollar. The Canadian dollar strengthened against other
major currencies, particularly the Yen and Deutschemark. At the end of April,
the currency was trading at US$0.7155. On the date of this report, the
Canadian dollar was trading at US$0.7260.
NEW ZEALAND
Economic growth has slowed substantially in New Zealand from a peak of
over 6% in 1994 to 2.9% per annum in the December quarter 1996. High interest
rates have stunted growth and a rising New Zealand dollar has reduced the
competitiveness of New Zealand exporters. However, inflationary pressures
remain low with underlying inflation at 2.0% for the year to March 31, 1997.
Over the six months to April 30, 1997, ten year government bond rates rose
from 7.29% to 7.85%, reflecting weakness in the US fixed income market. Bond
rates rose despite slower domestic conditions. The rate for 90 day bank bills
fell over the six month period from 8.84% to 6.80%, in part reflecting the new
Government's announcement of a wider inflation target range.
7
<PAGE>
Over the six months to the end of April, the New Zealand dollar
depreciated by 1.7% against the US dollar. At the end of April, the currency
was trading at US$0.6932. On the date of this report, the New Zealand dollar
was trading at US$0.6896.
UNITED KINGDOM
Economic growth in the United Kingdom remains above its long term trend.
However, the sharp rise in the Pound is impacting on export orders. The
currency strength is helping to contain inflation pressures, at a time when
average earnings growth has increased. The May 1 general election resulted in
a landslide win for the Labour Party. The market reaction was generally
positive, reflecting the new government's commitment to low inflation and only
limited new spending initiatives. Cash rates in the UK are 6.5%, the Bank of
England raised rates by 0.25% on May 6 and June 9.
The Gilt market finished stronger over the six months to the end of April.
Ten-year bond rates fell from 7.62% to 7.43%. The market rallied through to
mid February but sold off in response to weakness in the US market. Continued
evidence of solid economic growth and concerns about further increases in
interest rates also dampened market sentiment. However, the Gilt market
continued to offer relatively attractive yields compared with other European
markets.
Despite some volatility, over the six months to the end of April, the
Pound finished broadly unchanged against the US dollar and was trading at
US$1.6232 on April 30. At the date of this report, the Pound was trading at
US$1.6358.
The table below compares Commonwealth's countries' interest rates for
various periods since the Fund commenced operations.
<TABLE>
<CAPTION>
FEBRUARY 28, 1992
(COMMENCEMENT APRIL 30, OCTOBER 30, JANUARY 31, APRIL 30,
OF OPERATIONS) 1996 1996 1997 1997
<S> <C> <C> <C> <C>
AUSTRALIA:
90-day Bank Bills 7.49% 7.55% 6.53% 5.64% 5.91%
10-yr Government Bonds 10.14% 8.71% 7.35% 7.41% 7.83%
CANADA:
90-day Bank Bills 7.15% 5.44% 3.11% 2.86% 3.15%
10-yr Government Bonds 8.33% 7.79% 6.42% 6.56% 6.63%
NEW ZEALAND:
90-day Bank Bills 7.48% 9.62% 8.84% 7.30% 6.80%
10-yr Government Bonds 9.23% 8.52% 7.29% 7.34% 7.85%
UNITED KINGDOM:
90-day Bank Bills 10.85% 5.90% 5.87% 6.03% 6.29%
10-yr Government Bonds 9.26% 8.03% 7.62% 7.40% 7.43%
</TABLE>
Yield comparisons are direct and do not take into account fluctuations in
currency exchange rates.
EQUITILINK INTERNATIONAL MANAGEMENT LIMITED
8
<PAGE>
- ---------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
PORTFOLIO OF INVESTMENTS
APRIL 30, 1997
(UNAUDITED)
- ---------------------------------------------------------------
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- ---------------------------------------------------------------
LONG-TERM INVESTMENTS - 91.9%
AUSTRALIA - 29.8%
GOVERNMENT AND SEMI-GOVERNMENT
BONDS - 14.7%
COMMONWEALTH OF AUSTRALIA - 13.0%
Commonwealth of Australia,
A$ 2,000 6.25%, 3/15/99................. 1,557,798
2,000 12.00%, 7/15/99................ 1,733,648
5,000 13.00%, 7/15/00................ 4,580,643
5,000 10.00%, 10/15/02............... 4,352,825
1,000 9.00%, 9/15/04................. 837,552
2,000 7.50%, 7/15/05................. 1,537,914
4,000 10.00%, 2/15/06................ 3,550,051
1,000 8.75%, 8/15/08................. 828,305
2,000 7.50%, 9/15/09................. 1,503,534
----------
20,482,270
----------
VICTORIA - 1.1%
State Electricity Commission of
Victoria,
1,000 12.00%, 10/22/98............... 842,996
Treasury Corporation of Victoria,
1,000 10.25%, 11/15/06............... 894,878
----------
1,737,874
----------
WESTERN AUSTRALIA-0.6%
Wester n Australia Treasury
Corporation,
1,000 10.00%, 7/15/05................ 878,024
----------
Total Australian gover nment and
semi-gover nment bonds (cost
US$22,815,907)................. 23,098,168
----------
CORPORATE BONDS - 6.8%
SERVICES - 6.8%
Australian and Overseas
Telecommunications Corporation,
5,000 11.50%, 10/15/02............... 4,560,739
2,000 12.00%, 5/15/06................ 1,950,532
First Australian National
Mortgage
Acceptance Cor poration,
Ser ies 22,
3,206 11.40%, 12/15/01............... 2,687,496
PUMA Masterfund P-6 Tranche 1F,
1,000 6.90%, 4/15/00................. 777,470
Westpac Securitization Trust 97-2,
Series A,
A$ 1,000 6.22%, 6/23/28 (a)............. 781,000
----------
Total Australian corporate bonds
(cost US$10,028,838)........... 10,757,237
----------
EUROBONDS - 8.3%
FINANCIAL SERVICES - 4.1%
Commonwealth Bank of Australia,
975 12.75%, 1/07/98................ 791,934
Credit Local de France,
2,000 10.50%, 1/06/99................ 1,649,863
Export Finance & Insurance
Corporation,
1,750 11.00%, 12/29/04............... 1,573,471
State Bank of New South Wales,
1,000 10.50%, 4/30/99................ 831,765
Toyota Motor Credit Corporation,
2,000 10.75%, 3/06/98................ 1,614,718
----------
6,461,751
----------
SEMI-GOVERNMENT - 2.0%
South Australia Finance
Author ity,
1,000 12.50%, 10/15/00............... 909,859
500 12.50%, 5/08/01................ 455,909
Treasury Corporation of Victoria,
1,000 10.50%, 12/12/01............... 863,005
1,000 9.00%, 6/27/05................. 822,979
----------
3,051,752
----------
SERVICES - 1.1%
State Electricity Commission of
Victoria,
972 9.25%, 7/27/99................. 794,242
500 11.00%, 4/09/02................ 441,265
535 10.50%, 5/27/03................ 467,453
----------
1,702,960
----------
SUPRANATIONAL - 1.1%
Eurofima,
2,000 9.875%, 1/17/07................ 1,749,440
----------
Total Australian eurobonds
(cost US$12,324,143)........... 12,965,903
----------
Total Australian long-term
investments
(cost US$45,168,888)........... 46,821,308
----------
9
<PAGE>
- ---------------------------------------------------------------
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- ---------------------------------------------------------------
CANADA - 26.8%
GOVERNMENT, PROVINCIAL AND MUNICIPAL
BONDS - 16.7%
CANADA - 12.6%
Canadian Government,
C$ 2,000 7.50%, 3/01/01................. 1,512,879
5,000 9.75%, 12/01/01................ 4,107,398
5,000 8.50%, 4/01/02................. 3,945,335
5,000 7.25%, 6/01/03................. 3,747,496
5,000 10.25%, 3/15/14................ 4,690,183
2,000 9.00%, 6/01/25................. 1,743,417
----------
19,746,708
----------
ALBERTA - 1.6%
City of Edmonton,
1,000 9.625%, 2/13/12................ 864,840
Province of Alberta,
2,000 10.25%, 8/22/01................ 1,660,275
----------
2,525,115
----------
BRITISH COLUMBIA - 1.1%
Province of British Columbia,
1,000 10.15%, 8/29/01................ 826,774
1,000 9.50%, 1/09/12................. 867,988
----------
1,694,762
----------
ONTARIO - 1.4%
Province of Ontario,
1,000 8.75%, 4/22/03................. 798,011
2,000 7.50%, 2/07/24................. 1,431,025
----------
2,229,036
----------
Total Canadian gover nment,
provincial and municipal bonds
(cost US$27,286,179)........... 26,195,621
----------
CORPORATE BONDS - 2.3%
DIVERSIFIED INDUSTRIALS - 1.3%
Bell Telephone Company of Canada,
500 10.50%, 7/15/09................ 420,936
Imperial Oil Ltd.,
1,000 9.875%, 12/15/99............... 789,926
Scotts Hospitality Incorporated,
1,000 10.95%, 4/16/01................ 829,708
----------
2,040,570
----------
FINANCIAL SERVICES - 1.0%
Bank of Nova Scotia,
C$ 1,000 10.35%, 7/19/01................ 823,054
National Bank of Canada,
500 10.875%, 6/01/98............... 381,547
Toronto Dominion Centre,
500 10.70%, 5/12/98................ 379,687
----------
1,584,288
----------
Total Canadian cor porate bonds
(cost US$3,995,799)............ 3,624,858
----------
EUROBONDS - 7.8%
DIVERSIFIED INDUSTRIALS - 0.3%
Procter & Gamble Company,
500 10.875%, 8/15/01............... 414,997
----------
FINANCIAL SERVICES - 2.4%
Credit Local de France,
1,000 6.75%, 3/21/06................. 705,674
General Electr ic Capital
Corporation,
1,000 10.125%, 4/29/98............... 753,971
Inter national Bank for
Reconstruction
and Development,
2,000 10.125%, 7/20/99............... 1,576,588
Rabobank Neder l and N.V.,
1,000 9.00%, 12/22/00................ 778,120
----------
3,814,353
----------
NATURAL RESOURCES - 1.7%
Ontario Hydro,
1,000 9.00%, 6/24/02................. 796,007
500 8.50%, 5/26/25................. 405,552
Quebec Hydro,
1,500 7.00%, 6/01/04................. 1,084,001
Tokyo Electric Power Company,
500 10.50%, 6/14/01................ 410,078
----------
2,695,638
----------
PROVINCIAL AND MUNICIPAL - 0.9%
City of Montreal,
1,000 6.375%, 2/15/01................ 713,724
Metropolitan Municipality of
Toronto,
750 9.625%, 5/14/02................ 606,397
----------
1,320,121
----------
10
<PAGE>
- ---------------------------------------------------------------
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- ---------------------------------------------------------------
SUPRANATIONAL - 2.5%
Bayerische Vereinsbank AG,
C$ 500 7.125%, 7/29/99................ 369,383
Canada (Cayman),
750 7.25%, 6/01/08................. 537,976
Kingdom of Sweden,
3,250 7.00%, 12/01/08................ 2,312,625
Republic of Finland,
1,000 9.00%, 12/31/98................ 760,160
----------
3,980,144
----------
Total Canadian eurobonds
(cost US$12,372,731)........... 12,225,253
----------
Total Canadian long-term
investments
(cost US$43,654,709)........... 42,045,732
----------
NEW ZEALAND - 7.4%
GOVER NMENT BONDS - 4.3%
Gover nment of New Zealand,
NZ$ 1,000 10.00%, 7/15/97................ 697,494
2,500 10.00%, 3/15/02................ 1,886,336
5,000 8.00%, 4/15/04................. 3,480,417
1,000 8.00%, 11/15/06................ 698,205
----------
Total New Zealand government
bonds
(cost US$6,672,189)............ 6,762,452
----------
CORPORATE BONDS - 0.8%
DIVERSIFIED INDUSTRIALS - 0.8%
Electricity Cor poration of
New Zealand Ltd.,
1,750 10.00%, 10/15/01............... 1,287,195
----------
Total New Zealand corporate bonds
(cost US$1,145,567)............ 1,287,195
----------
EUROBONDS - 2.3%
FINANCIAL SERVICES - 2.3%
Inter national Bank for
Reconstruction
and Development,
2,000 9.00%, 7/08/99................. 1,414,128
Primary Industry Bank of
Australia Limited,
1,000 8.25%, 3/27/00................. 696,666
Societe Generale New Zealand,
NZ$ 2,000 9.00%, 5/29/98................. 1,400,264
----------
Total New Zealand eurobonds
(cost US$3,465,863)............ 3,511,058
----------
Total New Zealand long-term
investments
(cost US$11,283,619)........... 11,560,705
----------
UNITED KINGDOM - 27.9%
GOVERNMENT BONDS - 14.2%
United Kingdom Treasury,
1,000 8.00%, 12/07/00................ 1,670,382
2,000 8.00%, 6/10/03................. 3,387,415
2,000 6.75%, 11/26/04................ 3,165,240
2,000 7.50%, 12/07/06................ 3,291,038
5,000 8.50%, 7/16/07................. 8,785,570
1,200 8.00%, 12/07/15................ 2,031,232
----------
Total United Kingdom gover nment
bonds
(cost US$21,503,227)........... 22,330,877
----------
EUROBONDS - 13.7%
DIVERSIFIED INDUSTRIALS - 3.7%
Allied Domecq PLC,
1,000 10.625%, 2/25/99............... 1,706,389
Br itish Airways PLC,
500 10.00%, 3/02/98................ 829,861
Br itish Gas PLC,
1,400 8.875%, 7/08/08................ 2,352,017
Rolls-Royce PLC,
500 11.625%, 7/30/98............... 852,180
----------
5,740,447
----------
FINANCIAL SERVICES - 6.4%
Abbey National Treasury
Services PLC,
1,250 8.00%, 4/02/03................. 2,044,217
Barclays Bank PLC,
1,000 9.875%, 5/29/49................ 1,765,230
Halifax Building Society,
1,500 11.00%, 1/17/14................ 2,946,108
11
<PAGE>
---------------------------------------------------------------
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- ---------------------------------------------------------------
Lloyds Bank PLC,
1,000 7.375%, 3/11/04................ 1,568,417
Prudential Finance B.V.,
1,000 9.375%, 6/04/07................ 1,757,114
----------
10,081,086
----------
NATURAL RESOURCES - 1.1%
Thames Water Utilities
Finance PLC,
1,000 10.50%, 11/21/01............... 1,783,491
----------
SUPRANATIONAL - 2.5%
Republic of Finland,
1,000 8.00%, 4/07/03................. 1,641,461
1,250 10.125%, 6/22/08............... 2,333,350
----------
3,974,811
----------
Total United Kingdom eurobonds
(cost US$20,450,349)........... 21,579,835
----------
Total United Kingdom
long-term investments
(cost US$41,953,576)........... 43,910,712
----------
Total long-term investments
(cost US$142,060,792).......... 144,338,457
-----------
SHORT-TERM INVESTMENTS - 6.8%
AUSTRALIA - 2.0%
Banque National de Par is Fixed
Deposit,
5.60%, 5/01/97
A$ 3,909 (cost US$3,052,776)............ 3,052,776
----------
CANADA - 1.5%
State Street Bank Time Deposit,
2.80%, 5/02/97
C$ 3,383 (cost US$2,419,890)............ 2,420,929
----------
NEW ZEALAND - 0.2%
Bankers Trust New Zealand
Limited Call Account,
NZ$ 405 7.10%, 5/01/97
(cost US$278,165).............. 280,817
----------
UNITED KINGDOM - 2.3%
State Street Bank Fixed Deposit,
5.875%, 5/02/97
2,249 (cost US$3,652,526)............ 3,649,828
----------
UNITED STATES - 0.8%
US$ 1,242 Repurchase Agreement, State
Street Bank and Trust
Company, 5.20% dated
4/30/97, due 5/01/97 in the
amount of $1,242,179
(cost $1,242,000;
collateralized by $1,185,000
U.S. Treasury Notes, 7.50%
due 11/15/16; value
$1,271,673).................... 1,242,000
----------
Total short-term investments
(cost US$10,645,357)........... 10,646,350
----------
TOTAL INVESTMENTS - 98.7%
(cost US$152,706,149).......... 154,984,807
Other assets in excess of
liabilities - 1.3%............. 2,109,059
-----------
TOTAL NET ASSETS - 100.0%........ $157,093,866
-----------
-----------
(a) Stated interest rate in effect at 4/30/97; interest rate resets monthly.
See Notes to Financial Statements.
12
<PAGE>
- -------------------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments, at value (cost $152,706,149)................................ $ 154,984,807
Foreign currency, at value (cost $5,305)................................. 5,333
Cash..................................................................... 725
Receivable for investments sold.......................................... 717,467
Interest receivable...................................................... 3,953,288
Prepaid expenses......................................................... 40,101
-------------
Total assets........................................................... 159,701,721
-------------
LIABILITIES
Payable for investments purchased........................................ 1,470,420
Dividends payable - common stock......................................... 764,462
Investment management fee payable........................................ 92,202
Administration fee payable............................................... 28,370
Accrued expenses and other liabilities................................... 252,401
-------------
Total liabilities...................................................... 2,607,855
-------------
TOTAL NET ASSETS......................................................... $ 157,093,866
-------------
-------------
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 $25,000 liquidation
value per share applicable to 1,200 shares; Note 4) ................... 30,000,000
-------------
157,407,521
Undistributed net investment income...................................... 1,102,652
Accumulated net realized gains on investment transactions................ 181,102
Net unrealized appreciation on investments............................... 1,841,360
Accumulated net realized foreign exchange losses......................... (3,853,182)
Net unrealized foreign exchange gains.................................... 414,413
-------------
TOTAL NET ASSETS......................................................... $ 157,093,866
-------------
-------------
Net assets applicable to common shareholders............................. $ 127,093,866
-------------
-------------
Net asset value per common share ($127,093,866 L 9,266,209 shares
of common stock issued and outstanding)................................ $ 13.72
-------------
-------------
See Notes to Financial Statements.
13
<PAGE>
- -------------------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1997
(UNAUDITED)
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest and discount earned (net of foreign
withholding taxes of $163,297)............................ $ 6,369,589
-----------
Expenses
Investment management fee................................... 519,947
Administration fee.......................................... 159,984
Custodian's fees and expenses............................... 69,255
Independent accountant's fees and expenses.................. 65,049
Reports to shareholders..................................... 62,012
Directors' fees and expenses................................ 46,432
Auction agent's fees and expenses........................... 44,667
Excise tax ................................................. 39,350
Insurance expense........................................... 24,021
Legal fees and expenses..................................... 23,551
Transfer agent's fees and expenses.......................... 11,391
Amortization of deferred organization expenses.............. 8,980
Registration fees........................................... 7,920
Miscellaneous............................................... 12,817
-----------
Total operating expenses.................................. 1,095,376
-----------
Net investment income......................................... 5,274,213
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain on investment transactions................ 218,160
Net change in unrealized appreciation/depreciation
of investments............................................ (2,421,492)
-----------
Net loss on investments..................................... (2,203,332)
-----------
Net increase in total net assets resulting from
operations before net foreign exchange gains/losses....... 3,070,881
Net realized foreign exchange gains......................... 224,872
Net change in unrealized foreign exchange loss.............. (3,305,628)
-----------
NET DECREASE IN TOTAL NET ASSETS
RESULTING FROM OPERATIONS................................... $ (9,875)
-----------
-----------
See Notes to Financial Statements.
14
<PAGE>
- -------------------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 1997
(UNAUDITED)
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
(INCLUDING FOREIGN CURRENCY)
Cash flows provided from operating activities
Interest received........................................... $ 6,793,105
Operating expenses paid..................................... (1,040,593)
Purchases of short-term portfolio investments, net.......... 192,710
Purchases of long-term portfolio investments................ (23,452,891)
Proceeds from sales of long-term portfolio investments...... 23,035,489
Other....................................................... 10,510
Net cash provided by operating activities................. 5,538,330
Cash flows used for financing activities
Dividends paid to common shareholders....................... (4,632,802)
Dividends paid to preferred shareholders.................... (784,656)
Distributions paid to common shareholders................... (138,993)
Net cash used for financing activities.................... (5,556,451)
Effect of exchange rate on cash............................... 23,321
Net increase in cash.......................................... 5,200
Cash at beginning of period................................. 858
Cash at end of period....................................... $ 6,058
RECONCILIATION OF NET DECREASE IN TOTAL NET ASSETS FROM
OPERATIONS TO NET CASH (INCLUDING FOREIGN
CURRENCY) PROVIDED FROM OPERATING ACTIVITIES
Net decrease in total net assets resulting from operations.... $ (9,875)
Decrease in investments..................................... 3,770,732
Net realized gain on investment transactions................ (218,160)
Net realized foreign exchange gains......................... (224,872)
Net change in unrealized appreciation/depreciation
on investments........................................... 2,421,492
Net change in unrealized foreign exchange losses............ 3,305,628
Decrease in interest receivable............................. 462,883
Increase in receivable for investments sold................. (708,721)
Net decrease in other assets................................ 10,510
Decrease in payable for investments purchased............... (3,326,070)
Increase in accrued expenses and other liabilities.......... 54,783
Total adjustments........................................... 5,548,205
Net cash provided by operating activities..................... $ 5,538,330
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
THE FIRST COMMONWEALTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
APRIL 30, 1997 ENDED OCTOBER
(UNAUDITED) 31, 1996
--------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN TOTAL NET ASSETS
Operations
Net investment income........................................ $ 5,274,213 $ 10,730,813
Net realized gain on investment transactions................. 218,160 11,273
Net change in unrealized appreciation/depreciation
of investments............................................. (2,421,492) 6,534,459
--------------- --------------
Net increase in total net assets resulting from
operations before net foreign exchange gains/losses........ 3,070,881 17,276,545
Net realized foreign exchange gains.......................... 224,872 2,342,176
Net change in unrealized foreign exchange gain/losses........ (3,305,628) 2,299,515
--------------- --------------
Net increase (decrease) in total net assets
resulting from operations.................................. (9,875) 21,918,236
--------------- --------------
Dividends and distributions to shareholders
Dividends to common shareholders from
net investment income...................................... (4,632,802) (9,286,969)
Dividends to preferred shareholders from
net investment income..................................... (784,656) (1,521,962)
Distributions to common shareholders from
net realized gains on investment transactions.............. (138,993) (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................ (5,556,451) (10,912,442)
--------------- --------------
Total increase (decrease)...................................... (5,566,326) 11,005,794
TOTAL NET ASSETS
Beginning of period............................................ 162,660,192 151,654,398
--------------- --------------
End of period (including undistributed net investment
income of $1,102,652 and $1,245,897, respectively)........... $ 157,093,866 $ 162,660,192
--------------- --------------
--------------- --------------
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
THE FIRST COMMONWEALTH FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE
SIX FOR THE
MONTHS PERIOD
ENDED FOR THE FOR THE FOR THE FOR THE FEBRUARY
APRIL 30, YEAR YEAR YEAR YEAR 28, 1992*
1997 ENDED ENDED ENDED ENDED THROUGH
OCTOBER OCTOBER OCTOBER OCTOBER OCTOBER
PER SHARE OPERATING PERFORMANCE: (UNAUDITED) 31, 1996 31, 1995 31, 1994 31, 1993 31, 1992
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value per common share, beginning of
period........................................... $ 14.32 $ 13.13 $ 12.08 $ 13.42 $ 13.00 $ 13.89
--------- --------- --------- --------- --------- ---------
Net investment income............................ 0.57 1.16 1.19 1.16 1.19 0.83
Net realized and unrealized gain (loss) on
investments and foreign currencies............. (0.57) 1.21 1.10 (1.33) 0.55 (0.76)
--------- --------- --------- --------- --------- ---------
Total from investment operations................ 0.00 2.37 2.29 (0.17) 1.74 0.07
--------- --------- --------- --------- --------- ---------
Dividends from net investment income to common
shareholders................................... (0.50) (1.00) (1.03) (0.98) (0.96) (0.80)
Dividends from net investment income to preferred
shareholders................................... (0.08) (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................................... (0.02) (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............... (0.60) (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......................................... $ 13.72 $ 14.32 $ 13.13 $ 12.08 $ 13.42 $ 13.00
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Market value, end of period...................... $ 11.63 $ 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 9,266 9,249 9,176
TOTAL INVESTMENT RETURN BASED ON:(1)
Market value.................................... 2.16%(2) 13.89% 20.72% (10.19%) 2.65% (4.50%)(2)
Net asset value................................. (0.02)%(2) 18.99% 19.67% (1.63%) 13.31% (0.69%)(2)
RATIO TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS(3)/SUPPLEMENTARY DATA:
Net assets of common shareholders, end of period
(000 omitted).................................. $ 127,094 $ 132,660 $ 121,654 $ 111,925 $ 124,146 $ 119,302
Average net assets of common shareholders
(000 omitted).................................. 131,025 122,887 115,277 118,336 121,323 125,794
Operating expenses............................... 1.69%(4) 1.70% 1.71% 1.75% 1.73% 1.59%(4)
Net investment income before preferred stock
dividends...................................... 8.12%(4) 8.73% 9.56% 9.06% 9.03% 8.72%(4)
Net investment income available to common
shareholders................................... 6.91%(4) 7.47% 8.09% 8.12% 8.25% 8.43%(4)
Preferred stock dividends and distributions...... 1.21%(4) 1.26% 1.48% 0.94% 0.78% 0.29%(4)
Portfolio turnover............................... 16% 30% 23% 34% 41% 18%
Senior securities (preferred stock) outstanding
(000 omitted).................................. $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000
Asset coverage on preferred stock at period
end............................................ 524% 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
(UNAUDITED)
- -------------------------------------------------------------------------------
The First Commonwealth Fund, Inc. (the 'Fund') was incorporated in Maryland on
June 28,1991, as a closed-end, non-diversified 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 $100,036 on February 18, 1992.
The Fund's investment objective is to provide high current income by investing
in high-grade fixed-income secur ities denominated in the currencies of
Australia, Canada, New Zealand and the United Kingdom (the 'Commonwealth
Currencies'). The Fund may also seek capital appreciation only as a secondary
investment objective. It is expected that norma lly all of the Fund's assets
will be invested in a portfolio of secur ities issued or guaranteed by the
gover nments, territories, provinces and states of Australia, Canada, New
Zealand and the United Kingdom as well as secur ities issued by cor porations
domiciled in those countries. The Fund will, under nor mal circumstances,
invest in debt securities in at least three of these currencies and will not
hold more than 50% of its assets in secur ities denominated in any one
Commonwealth Currency. The ability of issuers of debt secur ities held by the
Fund to meet their obligations may be affected by economic developments in a
specific industry, country or region.
NOTE 1. ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.
Basis of Presentation: The financial statements of the Fund are prepared in
accordance with United States generally accepted accounting principles using
the United States dollar as both the functional and reporting currency.
However, the Commonwealth Currencies (excluding New Zealand) are the
functional currencies for Federal tax purposes (see Taxes below).
Foreign Currency Translation: Australian dollar ('A$'), Canadian dollar
('C$'), New Zealand dollar ('NZ$') and United Kingdom pound (') amounts are
translated into United States dollars on the following basis:
(i) mar ket value of investment secur ities, other assets and liabilities
- at the closing rates of exchange as reported by a major bank;
(ii) purchases and sales of investment secur ities, 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 mar ket 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 mar ket prices of
portfolio securities sold during the fiscal period.
Net realized foreign exchange gains of $224,872 for the six months ended
April 30, 1997 includes realized foreign exchange gains and losses from sales
and maturities of portfolio secur ities, sales of foreign currencies, currency
gains or losses real ized between the trade and sett lement dates on
secur ities 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 loss of $3,305,628 for the six months ended April 30, 1997 includes
changes in the value of portfolio securities and other assets and liabilities
arising as a result of changes in the exchange rate.
Foreign secur ity and currency transactions may involve certain
considerations and risks not typically associated with those of domestic
or i g in, 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
April 30, 1997 were US$0.7810 to A$1.00, US$0.7155 to C$1.00, US$0.6932 to
NZ$1.00, and US$1.6232 to 1.00.
18
<PAGE>
Security Valuation: Investments are stated at value. Investments for which
market quotations are readily available are valued at the last trade pr ice 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 pr ice or the mean between the quoted bid and asked
price on the date of determination as obtained from a pr icing source.
Secur ities for which market quotations are not readily available are valued
at fair value in good faith using methods deter mined by or under the
direction of the Fund's Board of Directors.
Short-term secur ities which mature in more than 60 days are valued at
current market quotations. Short-term secur ities which mature in 60 days or
less are valued at amor tized cost, if their term to matur ity from date of
purchase was 60 days or less, or by amor tizing their value on the 61st day
prior to matur ity, if their ori ginal 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 secur ity,
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 identi fied cost
basis. Interest income is recorded on an accrual basis. Discounts on
secur ities purchased are accreted on an effective yield basis over the
estimated lives of the respective secur ities.
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 April 30, 1997 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 real ized currency gains and losses on
non-Commonwealth currencies are recogn ized 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 distr ibute
all of its taxable income to shareholders. Provision has been made for United
States excise taxes incurred during the fiscal year. 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. All such costs have been
19
<PAGE>
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 infor mation on cash receipts and cash
payments is presented in the Statement of Cash Flows. Cash includes domestic
and foreign currency.
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 Pr inceton Administrators, L.P. (the 'Administrator'). The
Investment Manager and the Investment Adviser are affi liated 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 the 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 $194,301 to the
Investment Adviser and $6,980 to the Consultant during the six months ended
April 30,1997.
NOTE 3. PORTFOLIOS SECURITIES
Purchases and sales of investment securities, other than short-term investments,
for the six months ended April 30, 1997 aggregated $24,920,123 and
$23,750,679, respectively.
The United States federal income tax basis of the Fund's investments at April
30, 1997 was $153,195,854 and accordingly, net unrealized appreciation for
United States federal income tax purposes was $1,788,952 (gross unrealized
appreciation - $4,321,173 gross unrealized depreciation - $2,532,221).
NOTE 4. CAPITAL
There are 300 million shares of $.001 par value common stock authorized. Of the
9,266,209 shares outstanding at April 30, 1997, the Investment Manager
owned 9,880 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. 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 liquation value of $25,000 per share
plus any accumu lated but unpaid dividends whether or not declared. The total
number of outstanding shares of Preferred Stock has increased from 600 shares
to 1,200 shares. The 1,200 shares of Auction Market Preferred Stock
('Preferred Stock') outstanding consist of one series, W-7.
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 5.00% to 5.60% during the six months ended April 30, 1997. Under the
Investment Company Act of 1940, the Fund may not declare dividends or
20
<PAGE>
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 $25,000 per share plus any accumu lated
but unpaid dividends. The Preferred Stock is also subject to mandatory
redemption at $25,000 per share plus any accumu lated 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 DIVIDENDS
Subsequent to April 30, 1997, the Board of Directors of the Fund declared
dividends from undistributed net investment income of $0.0825 and $0.0825 per
common share payable on June 13, 1997 and July 11, 1997 to common shareholders
of record on May 30, 1997 and June 30, 1997, respectively.
Subsequent to Apr il 30, 1997, dividends and distributions declared and paid
on preferred shares totaled approximately $185,544 for the outstanding
preferred share series through June 13, 1997.
21
<PAGE>
- --------------------------------------------------------------------------------
SUPPLEMENTAL PROXY INFORMATION
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of The First Commonwealth Fund was held on
Thursday March 13, 1997 at the offices of Prudential Securities Incorporated,
One Seaport Plaza, New York, New York. The description of each proposal and
number of shares voted at the meeting are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
VOTES
VOTES FOR WITHHELD
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. To elect the following four Directors to Rt. Hon. Malcolm Fraser 8,592,023 136,299
serve as Class II directors for a three- William J. Potter 8,591,623 136,699
year term expiring in 2000: Peter D. Sacks 8,591,923 136,399
Brian M. Sherman 8,592,323 135,999
Class I and Class III Directors whose
term of office continued beyond this
meeting are as follows: Sir Roden Cutler,
David Lindsay Elsum, Laurence S.
Freedman, Michael R. Horsburgh, David
Manor, E. Duff Scott, John T. Sheehy,
Warren C. Smith, and Michael
Gleeson-White.
- -------------------------------------------------------------------------------------------------------------------
VOTES
VOTES FOR AGAINST
- -------------------------------------------------------------------------------------------------------------------
2. To elect the following two Directors to Roger C. Maddock 1,104 0
represent the interests of the holders of Dr. Anton E. Schrafl 1,104 0
preferred stock for the ensuing year:
- -------------------------------------------------------------------------------------------------------------------
VOTES
VOTES FOR AGAINST ABSTENTIONS
- -------------------------------------------------------------------------------------------------------------------
3. To ratify the selection of Price
Waterhouse LLP as independent public
accountants of the Fund for the fiscal
year ending October 31, 1997: Common 8,587,955 45,086 95,281
Preferred 1,079 20 5
- -------------------------------------------------------------------------------------------------------------------
22
</TABLE>
<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.
The accompanying financials as of April 30, 1997 were not audited and
accordingly, no opinion is expressed on them.
23
<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 08543-9095
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
30 Rockefeller Plaza
New York, New York 10112
Stikeman Elliot
L32 Chifley Tower
Chifley Square
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.
- ---------------------------------
SEMI-ANNUAL REPORT
APRIL 30, 1997
HIGHLIGHTS OF THIS REPORT
THE NET ASSET VALUE INCREASED BY 14.8% AND THE SHARE
PRICE INCREASED BY 15.1% OVER THE PAST TWELVE MONTHS
(ASSUMING REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS).
CASH DISTRIBUTION RATE OF 8.7% OVER PAST TWELVE MONTHS.
OVER 92% OF SECURITIES HELD RATED AAA AND AA OR JUDGED
TO BE OF EQUIVALENT QUALITY.
