- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
June 12, 1998
Dear Shareholder:
We are pleased to present our Semi-Annual Report to shareholders for the six
months ended April 30, 1998. The report includes a summary of developments in
bond and currency markets in Australia, Canada, New Zealand and the United
Kingdom.
INVESTMENT MARKETS
Commonwealth fixed-income markets recorded positive returns over the six
months to April 30, 1998. Markets were supported by the generally positive US
market and concerns about the deflationary impact of the Asian crisis. However,
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, 1998, from 6.54% to 5.83%. The strong Pound has
caused some slowing in economic growth and helped to contain inflationary
pressures. Since the end of April, the UK bond market has continued to perform
strongly, although the Pound has weakened. UK ten-year bond rates have fallen
0.21% to 5.62% at the date of this report.
The Australian fixed-income market strengthened over the six months to April
30, 1998 with ten-year government bond rates falling from 5.96% to 5.77%. The
market was supported by slower economic growth and continued low inflation.
Canadian rates also fell over the past six months. The New Zealand market lagged
the other Commmonwealth markets with the ten-year rate moving up from 6.54% to
6.76%.
Since the end of April, Commonwealth fixed-income markets have performed
strongly. Australian ten-year bond rates have fallen 0.20% to 5.57% at the date
of this report. Canadian ten-year bond rates fell 0.08% to 5.30% and New Zealand
ten-year bond rates fell 0.05% to 5.71% at the date of this report.
INVESTMENT PERFORMANCE
The Fund's total return based on Net Asset Value ('NAV') was 0.04% for the
six months and 5.8% for the year to April 30, 1998. The Fund's total return
based on share price was -6.4% for the six months but a positive 4.3% for the
year. The NAV and share price performance both assume reinvestment of
distributions.
The Fund continues to maintain a high quality portfolio, with 93% of assets
invested in securities where either the issue or the issuer are rated at least
'AA' by Standard & Poor's Rating Group or 'Aa' by Moody's Investors Service or,
if unrated, are judged to be of equivalent quality by the Investment Manager.
DISTRIBUTIONS
Distributions to common shareholders for the year through April 30, 1998
totalled US 98.5 cents per share. Based on the share price of US$11.19 at April
30, 1998, the cash distribution rate over the last 12 months was 8.8%. Since all
distributions are paid after deducting 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.
On March 12, 1998, the Board of Directors announced a cut in the Fund's
monthly distributions by US 0.5 cents per share per month to US 7.75 cents per
share, effective with the distribution payable on April 9, 1998. For many years,
the Fund has maintained its distributions well above its running yield by
distributing a combination of income and realized capital gains. While the
capital gains component of the portfolio still remains large, bond yields
1
<PAGE>
have continued to fall, resulting in a reduced reinvestment rate. At the date of
this report, with the share price at US$11.00, and monthly distributions at US
7.75 cents per share, the annualized distribution rate to shareholders would be
8.5% per annum. At its meeting held on June 11, 1998, the Board of Directors
resolved to continue paying a monthly distribution of US 7.75 cents per share
through to September when the Board will review the position at its next
quarterly meeting. The Board intends to maintain future distributions at as high
a level as is practicable in the then current economic climate.
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
- --------------------------------------------------------------------------------
We invite you to participate in the Fund's Dividend Reinvestment and Cash
Purchase Plan (the 'Plan'), which allows you to automatically reinvest your
distributions in shares of the Fund's common stock at favorable commission
rates. Distributions made under the Plan are taxable to the same extent as are
cash distributions. The Plan also enables you to make additional cash
investments in shares of at least $100 per month. As a Participant in the Plan,
you will also have the convenience of:
AUTOMATIC REINVESTMENT -- The Plan Agent will automatically reinvest your
distributions, allowing you to gradually grow your holdings in the Fund;
LOWER COSTS -- Shares purchased on your behalf under the Plan will be at
reduced brokerage rates;
CONVENIENCE -- The Plan Agent will hold your shares in uncertificated form
and will provide a detailed record of your holdings at the end of each
distribution period.
If you would like further information on the Plan, please contact State
Street Bank and Trust Company, P.O. Box 8200, Boston, MA 02266, Tel:
1-800-426-5523.
For information on the Fund including weekly updates of share price, NAV, and
details of recent distributions, please telephone Investor Relations, toll free
on 1-800-543-6217 in the United States.
Yours sincerely,
/s/ Brian M. Sherman /s/ Laurence S. Freedman
Brian M. Sherman Laurence S. Freedman
Chairman President
2
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF THE INVESTMENT MANAGER
- --------------------------------------------------------------------------------
PERFORMANCE
DISTRIBUTIONS
During the 12 months to April 30, 1998, the Fund paid a total of US 98.5
cents per share in distributions, consisting of 11 monthly payments of US 8.25
cents per share and 1 monthly payment of US 7.75 cents per share. The Board's
policy is to provide investors with a stable monthly distribution out of current
income, supplemented by realized capital gains if required. The Board revised
the current monthly distribution of US 8.25 cents per share in March 1998 down
to US 7.75 cents per share effective with the distribution payable on April 9,
1998. The current distribution rate of US 7.75 cents per share per month will be
reviewed at the next meeting of the Board to be held in September 1998.
Based upon the April 30, 1998 share price of US$11.19 and total distributions
of US 98.5 cents per share paid over the past 12 months, the shares provided a
cash distribution rate of 8.8%. At the date of this report, with the share price
at US$11.00, and monthly distributions at US 7.75 cents per share, the
annualized cash distribution rate to shareholders would be 8.5% per annum. Since
all distributions are paid after deducting 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 Fund's NAV per share at April 30, 1998 was US$13.40. The Fund's total
return based on NAV was 0.04% over the six months and 5.8% for the year to April
30, 1998. Since inception, the Fund has returned 8.7% per annum. All figures
assume reinvestment of distributions. At the date of this report, the NAV per
share was US$12.70.
SHARE PRICE PERFORMANCE
As of April 30, 1998, the Fund's share price as quoted on the New York Stock
Exchange was US$11.19, which represented a discount of 16.5% to the NAV of
US$13.40. The total investment return, based on the Fund's share price, assuming
reinvestment of distributions, was -6.4% over the six months but a positive 4.3%
over the year to April 30, 1998. Since inception, the share price return was
4.2% per annum. At the date of this report, the share price was US$11.00,
representing a discount of 13.4% to NAV.
AUCTION MARKET PREFERRED STOCK (AMPS)
The Fund's US$30 million of AMPS continue to be well bid at the weekly
auctions, maintaining a lower interest rate on average compared to the 30-day
Commercial Paper rate. The average interest rate of auction results over the
quarter was 5.4% compared with 5.5% for 30-day commercial paper over the same
period.
3
<PAGE>
PORTFOLIO COMPOSITION
The following table and chart show the geographical composition of the
portfolio, expressed as a percentage of the portfolio's total investments. The
figures are based on the currencies in which the portfolio is invested.
TABLE 1: THE FIRST COMMONWEALTH FUND, INC. -- GEOGRAPHIC ASSET ALLOCATION
<TABLE>
<CAPTION>
COMMENCEMENT OF OPERATIONS* OCTOBER 31, 1997 JANUARY 31, 1998 APRIL 30, 1998
<S> <C> <C> <C> <C>
Australia 44.7% 25.7% 24.9% 25.5%
Canada 17.9% 29.8% 29.8% 30.9%
New Zealand -- 10.0% 9.3% 9.2%
United Kingdom 36.4% 33.7% 35.6% 33.4%
United States** 1.0% 0.8% 0.4% 1.0%
TOTAL FUND 100.0% 100.0% 100.0% 100.0%
</TABLE>
*February 28, 1992.
**It is the policy of the Investment Manager to maintain a portion of the Fund's
investments in US short-term securities to cover distributions and expenses.
THE FIRST COMMONWEALTH FUND, INC.
ASSET ALLOCATION AT APRIL 30, 1998
[PIE CHART]
AUSTRALIA CANADA NEW ZEALAND UNITED KINGDOM UNITED STATES
25.5% 30.8% 9.3% 33.4% 1.0%
4
<PAGE>
MATURITY COMPOSITION
The following table shows the maturity composition of the portfolio. At April
30, 1998, the average maturity of the Fund's assets was 6.7 years, compared with
7.6 years at January 31, 1998 and 7.1 years at April 30, 1997.
TABLE 2: THE FIRST COMMONWEALTH FUND, INC. -- MATURITY ANALYSIS -- APRIL 30,
1998
<TABLE>
<CAPTION>
LESS THAN 1 YEAR 1 - 5 YEARS 5 - 10 YEARS OVER 10 YEARS
<S> <C> <C> <C> <C>
Australia 9.5% 38.1% 46.4% 6.0%
Canada 7.5% 35.7% 23.7% 33.1%
New Zealand 18.6% 37.3% 44.1% --
United Kingdom 8.6% 15.1% 39.4% 36.9%
United States 100.0% -- -- --
TOTAL FUND 10.3% 29.2% 36.4% 24.1%
</TABLE>
The following table shows the sectoral exposure of the portfolio, spread
between the various securities offered in the Commonwealth bond markets.
TABLE 3: THE FIRST COMMONWEALTH FUND, INC. -- SECTORAL COMPOSITION -- APRIL 30,
1998
<TABLE>
<CAPTION>
SOVEREIGN GOVT. STATE/ PROVINCE CASH OR
BONDS BONDS EUROBONDS CORPORATE BONDS EQUIVALENT
<S> <C> <C> <C> <C>
Australia 10.2% 5.2% 5.1% 3.5% 1.5%
Canada 18.8% 3.4% 5.5% 1.5% 1.6%
New Zealand 4.3% -- 2.2% 1.8% 1.0%
United Kingdom 18.0% -- 15.3% -- 0.1%
United States -- -- -- -- 1.0%
TOTAL FUND 51.3% 8.6% 28.1% 6.8% 5.2%
</TABLE>
5
<PAGE>
QUALITY OF INVESTMENTS
At April 30, 1998, 93% of the Fund's assets were invested in securities where
either the issue or the issuer was rated at least 'AA' by Standard & Poor's
Ratings Group or 'Aa' by Moody's Investors Service or, if unrated, were judged
to be of equivalent quality by the Investment Manager. The remainder of the Fund
was invested in securities where the issue or the issuer was rated, or deemed to
be at least equivalent to, 'A' quality.
TABLE 4: THE FIRST COMMONWEALTH FUND, INC. -- ASSET QUALITY -- APRIL 30, 1998
AAA/AAA AA/AA A/A
Australia 73.1% 26.9% --
Canada 6.8% 87.3% 5.9%
New Zealand 65.1% 15.6% 19.3%
United Kingdom 54.0% 35.5% 10.5%
TOTAL FUND 45.2% 47.6% 7.2%
THE FIRST COMMONWEALTH FUND, INC.
QUALITY OF ASSETS AT APRIL 30, 1998
[PIE CHART]
A AA AAA
7.2% 47.6% 45.2%
6
<PAGE>
- --------------------------------------------------------------------------------
ECONOMIC, FIXED-INCOME AND CURRENCY MARKET REVIEW
- --------------------------------------------------------------------------------
AUSTRALIA
Economy
The Australian economy grew strongly through 1997. Inflation remained low,
with underlying (core) inflation at a 1.4% annual rate. The Manager expects that
the fall-out from the Asian crisis will dampen economic growth over the next
year or so and could lead to some temporary upward pressure on inflation because
of higher import prices. Australia's current account deficit is also likely to
rise.
Fixed Income
The Australian bond market rallied over the six months to April 30, 1998.
Australian ten-year bond yields finished at 5.77% down 0.19%. Ninety-day bank
bill rates rose from 4.84% to 4.97%. The differential between Australian
ten-year Government bond rates and US ten-year Government bond rates fell 0.03%
to 0.10%. Since the end of April, the Australian fixed income market has
performed strongly. Australian ten-year bond rates have fallen 0.20% to 5.57% at
the date of this report.
Currency
The Australian dollar depreciated by 7.1% against the US dollar during the
six-month period. At April 30, 1998, the Australian dollar was trading at US 65
cents. The dollar's weakness reflected continuing concerns about weaker
commodity prices and a higher current account deficit, in the wake of the Asian
economic crisis. As of the date of this report, the Australian dollar was
trading at US 59 cents.
CANADA
Economy
The Canadian economy grew strongly during the period with inflation at low
levels. The unemployment rate has continued to fall. The Manager expects
economic growth to remain firm in 1998, despite weaker Asian demand and higher
official interest rates. Inflation should remain at the lower end of the Bank of
Canada's 1 to 3% target range.
Fixed Income
The Canadian bond market rallied over the six month period, supported by low
inflation, an improving fiscal position and a positive US bond market. The
differential against ten-year US treasuries narrowed by 0.05% to be 0.29% below
the US bond rate. The Canadian bond market has rallied further since the end of
April, Canadian ten-year bond rates have fallen 0.08% to 5.30% at the date of
this report.
Currency
The Canadian dollar depreciated by 2.1% against the US dollar over the
six-month period. The Canadian dollar strengthened against other major
currencies, including the Deutschemark and the Yen. At the end of April, the
currency was trading at US 70 cents. On the date of this report, the Canadian
dollar was trading at US 68 cents.
NEW ZEALAND
Economy
Economic growth has continued to slow and the unemployment rate has risen,
reflecting developments in Asia. The current account deficit has risen
significantly while inflation has remained low. The Manager expects the easing
in overall monetary conditions to cushion the impact of declining economic
activity from Asia. The current account deficit is expected to remain high
throughout 1998. The CPI is expected to remain within the Reserve Bank of New
Zealand's 0 to 3% target range.
7
<PAGE>
Fixed Income
Over the six months to April 30, 1998, New Zealand ten-year Government bond
rates rose from 6.54% to 6.76%. Bond market weakness was associated with a drop
in the New Zealand dollar and an increase in short-term interest rates. At the
end of April, 90-day bank bills were 8.64%. The New Zealand market has shown
some strength in the more recent period. Since the end of April, New Zealand
ten-year bond rates have fallen 0.05% to 6.71% at the date of this report.
Currency
The New Zealand dollar depreciated by 11.0% against the US dollar over the
six months to April 30, 1998. The weakness reflected concerns about the Asian
economic crisis on New Zealand exports and the current account deficit. At the
end of April, the currency was trading at US 56 cents. On the date of this
report, the New Zealand dollar was trading at US 50 cents.
UNITED KINGDOM
Economy
UK economic growth slowed over the past six months, reflecting the stronger
Pound and higher official short-term interest rates. The unemployment rate has
fallen to 4.8%. Annual headline inflation was at 3.3% in March but core
inflation remains around 2.5%, consistent with the Bank of England's inflation
target. The Manager expects economic growth to continue to moderate over the
next year or so, reflecting the full impact of higher official interest rates
and the stronger Pound.
Fixed Income
The UK bond market was one of the strongest global bond markets over the six
months to April 30, 1998. Ten-year government bond rates fell from 6.54% to
5.83%, despite concerns about higher official interest rates. The Gilt market
continued to offer attractive yields compared with other European countries.
Since the end of April, the UK bond market has continued to perform strongly. UK
ten-year bond rates have fallen 0.21% to 5.62% at the date of this report.
Currency
The Pound was little changed against the US dollar over the period, although
appreciated against other major currencies, including the Deutschemark. At April
30, 1998, the currency was trading at US$1.67. On the date of this report, the
Pound was trading at $US1.63.
8
<PAGE>
The following table compares interest rates in Commonwealth countries for
various periods since the Fund commenced operations.
<TABLE>
<CAPTION>
FEBRUARY 28, 1992
(COMMENCEMENT
OF OPERATIONS) APRIL 30, 1997 OCTOBER 31, 1997 APRIL 30, 1998
<S> <C> <C> <C> <C>
AUSTRALIA:
90-day Bank Bills 7.49% 5.91% 4.84% 4.97%
10-yr Government Bonds 10.14% 7.83% 5.96% 5.77%
CANADA:
90-day Bank Bills 7.15% 3.15% 3.97% 4.80%
10-yr Government Bonds 8.33% 6.63% 5.49% 5.38%
NEW ZEALAND:
90-day Bank Bills 7.48% 6.80% 7.84% 8.64%
10-yr Government Bonds 9.23% 7.85% 6.54% 6.76%
UNITED KINGDOM:
90-day Bank Bills 10.85% 6.29% 7.05% 7.19%
10-yr Government Bonds 9.26% 7.43% 6.54% 5.83%
</TABLE>
Yield comparisons are direct and do not take into account currency exchange
rates.
EQUITILINK INTERNATIONAL MANAGEMENT LIMITED
9
<PAGE>
- ----------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
PORTFOLIO OF INVESTMENTS
APRIL 30, 1998
(UNAUDITED)
- -----------------------------------------------------------
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- -----------------------------------------------------------
LONG-TERM INVESTMENTS - 92.4%
AUSTRALIA - 23.3%
GOVERNMENT AND SEMI-GOVERNMENT
BONDS - 14.9%
COMMONWEALTH OF AUSTRALIA - 9.9%
Commonwealth of Australia,
A$ 5,000 13.00%, 7/15/00................. 3,788,798
1,000 9.75%, 3/15/02.................. 752,092
3,000 10.00%, 10/15/02................ 2,309,828
1,000 9.00%, 9/15/04.................. 770,920
4,000 10.00%, 2/15/06................. 3,305,711
1,000 6.75%, 11/15/06................. 697,170
1,600 10.00%, 10/15/07................ 1,361,270
1,000 8.75%, 8/15/08.................. 799,521
2,000 7.50%, 9/15/09.................. 1,481,772
------------
15,267,082
------------
NEW SOUTH WALES - 1.6%
New South Wales Treasury
Corporation,
2,000 8.00%, 12/01/01................. 1,412,061
1,500 7.00%, 4/01/04.................. 1,037,449
------------
2,449,510
------------
QUEENSLAND - 1.9%
Queensland Treasury Corporation,
2,000 8.00%, 5/14/03 (Global)......... 1,438,512
1,000 8.00%, 9/14/07.................. 743,557
1,000 8.00%, 9/14/07 (Global)......... 745,055
------------
2,927,124
------------
SOUTH AUSTRALIA - 0.5%
South Australia Finance
Authority,
1,000 12.50%, 10/15/00................ 759,779
------------
VICTORIA - 0.5%
Treasury Cor poration of
Victoria,
1,000 10.25%, 11/15/06................ 836,689
------------
WESTERN AUSTRALIA - 0.5%
Wester n Australia Treasur y
Corporation,
1,000 10.00%, 7/15/05................. 807,860
------------
Total Australian gover nment and
semi-gover nment bonds (cost
US$24,818,192).................. 23,048,044
------------
CORPORATE BONDS - 3.4%
SERVICES - 3.4%
Australian and Overseas
Telecommunications Corporation,
A$ 2,000 11.50%, 10/15/02................ 1,588,096
2,000 12.00%, 5/15/06................. 1,763,350
First Australian National
Mortgage
Acceptance Cor poration,
Ser ies 22,
2,597 11.40%, 12/15/01................ 1,908,515
------------
Total Australian corporate bonds
(cost US$5,410,161)............. 5,259,961
------------
EUROBONDS - 5.0%
FINANCIAL SERVICES - 2.5%
Credit Local de France,
2,000 10.50%, 1/06/99................. 1,346,520
Export Finance & Insurance
Corporation,
1,750 11.00%, 12/29/04................ 1,437,983
Ing Mercantile Mutual Bank Ltd.,
500 7.125%, 3/13/02................. 339,187
State Bank of New South Wales,
1,000 10.50%, 4/30/99................. 684,205
------------
3,807,895
------------
SEMI-GOVERNMENT - 0.7%
South Australia Finance
Author ity,
500 12.50%, 5/08/01................. 386,014
Treasury Cor poration of
Victoria,
1,000 9.00%, 6/27/05.................. 758,183
------------
1,144,197
------------
SERVICES - 0.7%
State Electricity Commission of
Victoria,
972 9.25%, 7/27/99.................. 662,546
535 10.50%, 5/27/03................. 417,827
------------
1,080,373
------------
SUPRANATIONAL - 1.1%
Eurofima,
2,000 9.875%, 1/17/07................. 1,623,864
------------
Total Australian eurobonds
(cost US$8,196,832)............. 7,656,329
------------
Total Australian long-term
investments
(cost US$38,425,185)............ 35,964,334
------------
10
<PAGE>
- -----------------------------------------------------------
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- -----------------------------------------------------------
CANADA - 28.6%
GOVERNMENT, PROVINCIAL AND MUNICIPAL
BONDS - 21.7%
CANADA - 18.4%
Canadian Government,
C$ 5,500 7.50%, 3/01/01.................. 4,076,154
6,000 8.50%, 4/01/02.................. 4,676,224
5,000 7.25%, 6/01/03.................. 3,802,797
4,000 8.75%, 12/01/05................. 3,380,979
2,500 7.25%, 6/01/07.................. 1,979,021
8,000 10.25%, 3/15/14................. 8,325,594
2,000 9.00%, 6/01/25.................. 2,032,867
------------
28,273,636
------------
AL BERTA - 0.6%
City of Edmonton,
1,000 9.625%, 2/13/12................. 944,895
------------
BRITISH COLUMBIA - 1.1%
Province of British Columbia,
1,000 10.15%, 8/29/01................. 800,280
1,000 9.50%, 1/09/12.................. 942,028
------------
1,742,308
------------
ONTARIO - 1.6%
Province of Ontario,
1,000 8.75%, 4/22/03.................. 800,000
2,000 7.50%, 2/07/24.................. 1,667,832
------------
2,467,832
------------
Total Canadian gover nment,
provincial and municipal bonds
(cost US$32,627,776)............ 33,428,671
------------
CORPORATE BONDS - 1.5%
DIVERSIFIED INDUSTRIALS - 0.8%
Bell Telephone Company of Canada,
500 10.50%, 7/15/09................. 414,860
Imperial Oil Ltd.,
1,000 9.875%, 12/15/99................ 747,762
------------
1,162,622
------------
FINANCIAL SERVICES - 0.7%
Bank of Nova Scotia,
C$ 1,000 10.35%, 7/19/01................. 796,923
National Bank of Canada,
500 10.875%, 6/01/98................ 351,179
------------
1,148,102
------------
Total Canadian cor porate bonds
(cost US$2,654,407)............. 2,310,724
------------
EUROBONDS - 5.4%
DIVERSIFIED INDUSTRIALS - 0.3%
Procter & Gamble Company,
500 10.875%, 8/15/01................ 401,224
------------
FINANCIAL SERVICES - 1.9%
Credit Local de France,
1,000 6.75%, 3/21/06.................. 736,888
International Bank for
Reconstruction
and Development,
2,000 10.125%, 7/20/99................ 1,474,545
Rabobank Nederland N.V.,
1,000 9.00%, 12/22/00................. 754,371
------------
2,965,804
------------
NATURAL RESOURCES - 1.3%
Ontar io Hydro,
500 8.50%, 5/26/25.................. 467,098
Quebec Hydro,
1,500 7.00%, 6/01/04.................. 1,121,119
Tokyo Electric Power Company,
500 10.50%, 6/14/01................. 395,979
------------
1,984,196
------------
PROVINCIAL AND MUNICIPAL - 0.8%
Metropolitan Municipality of
Toronto,
750 9.625%, 5/14/02................. 596,591
Ville de Montreal,
1,000 6.375%, 2/15/01................. 709,790
------------
1,306,381
------------
11
<PAGE>
- -----------------------------------------------------------
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- -----------------------------------------------------------
SUPRANATIONAL - 1.1%
Bayerische Vereinsbank AG,
C$ 500 7.125%, 7/29/99................. 356,206
Canada (Cayman),
750 7.25%, 6/01/08.................. 577,579
Republic of Finland,
1,000 9.00%, 12/31/98................. 714,678
------------
1,648,463
------------
Total Canadian eurobonds
(cost US$8,533,004)............. 8,306,068
------------
Total Canadian long-term
investments
(cost US$43,815,187)............ 44,045,463
------------
NEW ZEALAND - 8.0%
GOVER NMENT BONDS - 4.2%
Gover nment of New Zealand,
NZ$ 1,000 8.00%, 2/15/01.................. 560,877
5,000 8.00%, 4/15/04.................. 2,886,015
5,000 8.00%, 11/15/06................. 2,959,425
------------
Total New Zealand government
bonds
(cost US$7,504,044)............. 6,406,317
------------
CORPORATE BONDS - 1.7%
DIVERSIFIED INDUSTRIALS - 1.5%
Electricity Corporation of
New Zealand Ltd.,
1,750 10.00%, 10/15/01................ 1,017,956
2,500 8.00%, 2/15/03.................. 1,375,288
------------
2,393,244
------------
FINANCIAL SERVICES - 0.2%
Transpower Finance Ltd.,
500 8.00%, 6/15/05.................. 280,251
------------
Total New Zealand corporate bonds
(cost US$2,948,045)............. 2,673,495
------------
EUROBONDS - 2.1%
FINANCIAL SERVICES - 2.1%
International Bank for
Reconstruction
and Development,
2,000 9.00%, 7/08/99.................. 1,111,788
1,000 7.00%, 9/18/00.................. 555,200
Primary Industry Bank of
Australia Limited,
NZ$ 1,000 8.25%, 3/27/00.................. 551,730
Societe Generale New Zealand,
2,000 9.00%, 5/29/98.................. 1,109,773
------------
Total New Zealand eurobonds
(cost US$4,095,764)............. 3,328,491
------------
Total New Zealand long-term
investments
(cost US$14,547,853)............ 12,408,303
------------
UNITED KINGDOM - 32.5%
GOVERNMENT BONDS - 17.6%
United Kingdom Treasury,
1,000 8.00%, 12/07/00................. 1,737,941
1,000 8.00%, 6/10/03.................. 1,815,384
1,500 6.75%, 11/26/04................. 2,620,625
2,000 7.50%, 12/07/06................. 3,702,855
4,000 8.50%, 7/16/07.................. 7,915,026
3,700 8.00%, 12/07/15................. 7,663,019
750 8.00%, 6/07/21.................. 1,605,324
------------
Total United Kingdom government
bonds
(cost US$24,261,020)............ 27,060,174
------------
EUROBONDS - 14.9%
DIVERSIFIED INDUSTRIALS - 3.4%
Allied Domecq PLC,
1,000 10.625%, 2/25/99................ 1,713,390
British Gas PLC,
1,400 8.875%, 7/08/08................. 2,705,903
Rolls-Royce PLC,
500 11.625%, 7/30/98................ 843,113
------------
5,262,406
------------
FINANCIAL SERVICES - 7.4%
Abbey National Treasury
Services PLC,
1,250 8.00%, 4/02/03.................. 2,209,646
Barclays Bank PLC,
1,000 9.875%, 5/29/49................. 1,997,562
Halifax Building Society,
1,500 11.00%, 1/17/14................. 3,519,763
12
<PAGE>
- -----------------------------------------------------------
PRINCIPAL
AMOUNT
LOCAL
CURRENCY VALUE
(000) DESCRIPTION (US$)
- -----------------------------------------------------------
L loyds Bank PLC,
1,000 7.375%, 3/11/04................. 1,736,374
Prudential Finance B.V.,
1,000 9.375%, 6/04/07................. 1,987,115
------------
11,450,460
------------
NATURAL RESOURCES - 1.2%
Thames Water Utilities
Finance PLC,
1,000 10.50%, 11/21/01................ 1,857,566
------------
SUPRANATIONAL - 2.9%
Republic of Finland,
1,000 8.00%, 4/07/03.................. 1,778,165
1,250 10.125%, 6/22/08................ 2,664,112
------------
4,442,277
------------
Total United Kingdom eurobonds
(cost US$19,672,210)............ 23,012,709
------------
Total United Kingdom long-term
investments
(cost US$43,933,230)............ 50,072,883
------------
Total long-term investments
(cost US$140,721,455)........... 142,490,983
------------
SHOR T-TERM INVESTMENTS - 5.0%
AUSTRALIA - 1.5%
Banque Nationale de Paris Fixed
Deposit,
4.60%, 5/01/98
A$ 3,537 (cost US$2,304,084)............. 2,304,084
------------
CANADA - 1.5%
State Street Bank and Trust
Company Time Deposit,
4.40%, 5/06/98
C$ 3,384 (cost US$2,354,408)............. 2,366,263
------------
NEW ZEALAND - 1.0%
Bankers Trust New Zealand
Limited Call Account,
NZ$ 2,750 9.90%, 5/01/98
(cost US$1,630,259)............. 1,476,605
------------
UNITED KINGDOM - 0.1%
State Street Bank and Trust
Company Fixed Deposit,
7.00%, 5/05/98
91 (cost US$151,180)............... 151,488
------------
UNITED STATES - 0.9%
US$ 1,446 Repurchase Agreement, State
Street Bank and Trust
Company, 5.35% dated
4/30/98, due 5/01/98 in the
amount of $1,446,215
(cost $1,446,000;
collateralized by $1,450,000
U.S. Treasury Notes, 5.625%
due 12/31/99; value
$1,503,620)..................... 1,446,000
------------
Total short-term investments
(cost US$7,885,931)............. 7,744,440
------------
TOTAL INVESTMENTS - 97.4%
(cost US$148,607,386)........... 150,235,423
Other assets in excess of
liabilities - 2.6%.............. 3,972,572
------------
TOTAL NET ASSETS - 100.0%........ $154,207,995
------------
------------
See Notes to Financial Statements.
13
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $148,607,386).............................................. $150,235,423
Foreign currency, at value (cost $828)................................................. 824
Cash................................................................................... 913
Receivable for investments sold........................................................ 3,588,388
Interest receivable.................................................................... 3,782,044
Prepaid expenses....................................................................... 69,592
------------
Total assets.......................................................................... 157,677,184
------------
LIABILITIES
Payable for investments purchased...................................................... 2,392,418
Dividends payable - common stock....................................................... 718,131
Investment management fee payable...................................................... 94,374
Administration fee payable............................................................. 29,038
Accrued expenses and other liabilities................................................. 235,228
------------
Total liabilities..................................................................... 3,469,189
------------
TOTAL NET ASSETS....................................................................... $154,207,995
------------
------------
Total net assets were composed of:
Common stock:
Par value ($.001 per share, applicable to 9,266,209 shares issued).................... $ 9,266
Paid-in capital in excess of par...................................................... 127,309,915
Preferred stock ($.001 par value per share and $25,000 liquidation value per share
applicable to 1,200 shares; Note 4)................................................... 30,000,000
------------
157,319,181
Distributions in excess of net investment income....................................... (67,941)
Undistributed net realized gains on investment transactions............................ 1,040,939
Net unrealized appreciation on investments............................................. 9,041,540
Accumulated net realized foreign exchange losses....................................... (5,679,099)
Net unrealized foreign exchange losses................................................. (7,446,625)
------------
TOTAL NET ASSETS....................................................................... $154,207,995
------------
------------
Net assets applicable to common shareholders........................................... $124,207,995
------------
------------
Net asset value per common share ($124,207,995 L 9,266,209 shares of
common stock issued and outstanding).................................................. $ 13.40
------------
------------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
NET INVESTMENT INCOME
Income
Interest and discount earned (net of foreign withholding taxes of $109,711)............ $ 5,793,314
-----------
Expenses
Investment management fee.............................................................. 502,532
Administration fee..................................................................... 154,625
Director's fees and expenses........................................................... 75,464
Independent accountants' fees and expenses............................................. 69,281
Custodian's fees and expenses.......................................................... 66,334
Reports to shareholders................................................................ 55,758
Auction agent's fees and expenses...................................................... 39,318
Legal fees and expenses................................................................ 22,281
Insurance expense ..................................................................... 21,200
Transfer agent's fees and expenses..................................................... 11,980
Registration fees...................................................................... 8,019
Excise tax ............................................................................ 6,056
Miscellaneous.......................................................................... 10,257
-----------
Total operating expenses............................................................. 1,043,105
-----------
Net investment income................................................................... 4,750,209
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCIES
Net realized gains on investment transactions.......................................... 1,075,702
Net change in unrealized appreciation/depreciation on investments...................... (194,954)
-----------
Net gains on investments............................................................... 880,748
-----------
Net increase in total net assets resulting from operations before net foreign exchange
losses................................................................................. 5,630,957
Net realized foreign exchange losses................................................... (2,218,934)
Net change in unrealized foreign exchange losses....................................... (3,045,821)
-----------
NET INCREASE IN TOTAL NET ASSETS
RESULTING FROM OPERATIONS.............................................................. $ 366,202
-----------
-----------
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH
(INCLUDING FOREIGN CURRENCY)
Cash flows provided by operating activities
Interest received (excluding amortization of $33,964)................................. $ 6,348,417
Operating expenses paid............................................................... (1,005,320)
Sales of short-term portfolio investments, net........................................ (371,586)
Purchases of long-term portfolio investments.......................................... (24,704,872)
Proceeds from sales of long-term portfolio investments................................ 25,170,007
Other................................................................................. (41,792)
------------
Net cash provided by operating activities........................................... 5,394,854
------------
Cash flows used for financing activities
Dividends paid to common shareholders................................................. (4,540,103)
Dividends paid to preferred shareholders.............................................. (822,240)
------------
Net cash used for financing activities.............................................. (5,362,343)
------------
Effect of exchange rate on cash........................................................ (31,688)
------------
Net increase in cash................................................................... 823
Cash at beginning of period........................................................... 914
------------
Cash at end of period................................................................. $ 1,737
------------
------------
RECONCILIATION OF NET INCREASE IN TOTAL NET ASSETS RESULTING FROM OPERATIONS TO NET
CASH (INCLUDING FOREIGN CURRENCY) PROVIDED BY OPERATING ACTIVITIES
Net increase in total net assets resulting from operations............................. $ 366,202
------------
Decrease in investments............................................................... 365,771
Net realized gains on investment transactions......................................... (1,075,702)
Net realized foreign exchange losses.................................................. 2,218,934
Net change in unrealized appreciation/depreciation on investments..................... 194,954
Net change in unrealized foreign exchange losses...................................... 3,045,821
Decrease in interest receivable....................................................... 589,067
Increase in receivable for investments sold........................................... (2,698,604)
Net increase in other assets.......................................................... (41,792)
Increase in payable for investments purchased......................................... 2,392,418
Increase in accrued expenses and other liabilities.................................... 37,785
------------
Total adjustments..................................................................... 5,028,652
------------
Net cash provided by operating activities.............................................. $ 5,394,854
------------
------------
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED FOR THE YEAR
APRIL 30, ENDED
1998 OCTOBER 31,
(UNAUDITED) 1997
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN TOTAL NET ASSETS
Operations
Net investment income.................................................. $ 4,750,209 $ 10,543,121
Net realized gains on investment transactions.......................... 1,075,702 137,489
Net change in unrealized appreciation/depreciation on investments...... (194,954) 4,973,642
------------ ------------
Net increase in total net assets resulting from operations before net
foreign exchange losses.............................................. 5,630,957 15,654,252
Net realized foreign exchange losses................................... (2,218,934) (92,892)
Net change in unrealized foreign exchange losses....................... (3,045,821) (8,120,845)
------------ ------------
Net increase in total net assets resulting from operations.............. 366,202 7,440,515
------------ ------------
Dividends and distributions to shareholders
Dividends to common shareholders from net investment income............ (4,493,772) (9,219,249)
Dividends to preferred shareholders from net investment income......... (822,240) (1,584,660)
Distributions to common shareholders from net realized gains on
investment transactions.............................................. -- (138,993)
------------ ------------
Net decrease in total net assets resulting from dividends and
distributions to shareholders.......................................... (5,316,012) (10,942,902)
------------ ------------
Total decrease.......................................................... (4,949,810) (3,502,387)
TOTAL NET ASSETS
Beginning of period..................................................... 159,157,805 162,660,192
------------ ------------
End of period (including distributions in excess of net investment
income of $67,941 and undistributed net investment income of
$497,862, respectively)................................................ $154,207,995 $159,157,805
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
SIX
MONTHS
ENDED
APRIL
30, FOR THE YEAR ENDED OCTOBER 31,
1998
(UNAUDITED)
-------- --------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value per common share, beginning of
period.............................................. $ 13.94 $ 14.32 $ 13.13 $ 12.08 $ 13.42 $ 13.00
-------- -------- -------- -------- -------- --------
Net investment income............................... 0.51 1.14 1.16 1.19 1.16 1.19
Net realized and unrealized gains (losses) on
investments and foreign currencies................. (0.48) (0.34) 1.21 1.10 (1.33) 0.55
-------- -------- -------- -------- -------- --------
Total from investment operations................... 0.03 0.80 2.37 2.29 (0.17) 1.74
-------- -------- -------- -------- -------- --------
Dividends from net investment income to common
shareholders....................................... (0.48) (0.99) (1.00) (1.03) (0.98) (0.96)
Dividends from net investment income to preferred
shareholders....................................... (0.09) (0.17) (0.16) (0.18) (0.11) (0.08)
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.................. (0.57) (1.18) (1.18) (1.24) (1.17) (1.32)
-------- -------- -------- -------- -------- --------
Net asset value per common share, end of period..... $ 13.40 $ 13.94 $ 14.32 $ 13.13 $ 12.08 $ 13.42
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Market value, end of period......................... $11.1875 $12.4375 $ 11.875 $ 11.375 $ 10.375 $ 12.625
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Number of shares of common stock outstanding
(000 omitted)...................................... 9,266 9,266 9,266 9,266 9,266 9,249
TOTAL INVESTMENT RETURN BASED ON:(1)
Market value....................................... (6.39)%(2) 13.78% 13.89% 20.72% (10.19%) 2.65%
Net asset value.................................... 0.04%(2) 5.76% 18.99% 19.67% (1.63%) 13.31%
RATIO TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS(3)/SUPPLEMENTARY DATA:
Net assets of common shareholders, end of period
(000 omitted)...................................... $124,208 $129,158 $132,660 $121,654 $111,925 $124,146
Average net assets of common shareholders (000
omitted)........................................... 125,504 130,125 122,887 115,277 118,336 121,323
Operating expenses.................................. 1.68%(4) 1.63% 1.70% 1.71% 1.75% 1.73%
Net investment income before preferred stock
dividends.......................................... 7.63%(4) 8.10% 8.73% 9.56% 9.06% 9.03%
Net investment income available to common
shareholders....................................... 6.31%(4) 6.88% 7.47% 8.09% 8.12% 8.25%
Preferred stock dividends and distributions......... 1.32%(4) 1.22% 1.26% 1.48% 0.94% 0.78%
Portfolio turnover.................................. 19% 24% 30% 23% 34% 41%
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 end of
period............................................. 514% 530% 542% 505% 473% 514%
- ---------------------------------------------------------------------------------------------------------------------------
</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.
See Notes to Financial Statements.
18
<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'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 The following is a summary of
POLICIES 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) 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 year.
Net realized foreign exchange losses of $2,218,934 for the six months ended
April 30, 1998 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
losses of $3,045,821 for the six months ended April 30, 1998 include 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 April
30, 1998 were US$0.6515 to A$1.00, US$0.6993 to C$1.00, US$0.5552 to NZ$1.00,
and US$1.6716 to 1.00.
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 pr ice or the mean between the quoted bid and asked price on
the date of determination as obtained from a pr icing source. securities for
which market
19
<PAGE>
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 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 amor tized cost, if their term to maturity from date of purchase was
60 days or less, or by amor tizing 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
identi fied 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. Expenses are accrued on
a daily basis.
Forward Currency Contracts: The Fund is authorized to enter into forward
currency contracts only for purposes of hedging against the effect that currency
fluctuations may have on specific transactions.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. The forward currency contract is marked-to-market daily and the
change in market value is recorded by the Fund as an unrealized gain or loss.
When the forward currency contract is closed, the Fund records a realized gain
or loss equal to the difference between the value at the time it was opened and
the value at the time it was closed.
Dividends: Dividends and distributions to common shareholders are recorded on
the ex-dividend date and are based upon net investment income and capital and
currency gains determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for foreign currencies and loss deferrals.
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, 1997, the Fund decreased undistributed net investment
income by $487,247, decreased accumulated net realized gains on investments by
$135,194 and decreased accumulated net realized foreign exchange losses by
$710,781, resulting in a decrease to paid-in capital in excess of par by
$88,340. Net investment income, net realized 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 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 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
20
<PAGE>
companies and to distr ibute substantially 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.
Cash Flow Information: The Fund invests in securities and distributes dividends
from net investment income and net realized gains on investment and currency
transactions which are paid in cash or are reinvested at the discretion of
shareholders. These activities are reported in the Statements 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 $217,317 to the
Investment Adviser and $7,984 to the Consultant during the six months ended
April 30, 1998.
NOTE 3. PORTFOLIO Purchases and sales of investment
SECURITIES securities, other than
short-term investments, for the six months ended April 30, 1998
aggregated $27,097,290 and $27,868,611, respectively.
The United States federal income tax basis of the Fund's investments at April
30, 1998 was $141,836,389 and accordingly, net unrealized appreciation for
United States federal income tax purposes was $8,399,034 (gross unrealized
appreciation - $9,867,742, gross unrealized depreciation - $1,468,708).
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, 1998, the Investment Manager owned 10,451 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
1,200 shares of Auction Market Preferred Stock ('Preferred Stock') outstanding
consist of one series, W-7. The Preferred Stock has a liquidation value of
$25,000 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 5.205%
to 5.90% during the six months ended April 30, 1998. 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
21
<PAGE>
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 Subsequent to April 30, 1998,
DIVIDENDS the Board of Directors of the
Fund declared dividends from undistributed net investment
income of $0.0775 per common share payable on May 29, 1998 and June 30, 1998 to
common shareholders of record on May 19, 1998 and June 23, 1998, respectively.
Subsequent to April 30, 1998 dividends and distributions declared and paid on
preferred shares totaled approximately $183,984 for the outstanding preferred
share series through June 12, 1998.
22
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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 financial statements as of April 30, 1998, were not audited
and, accordingly, no opinion is expressed on them.
23
<PAGE>
INVESTMENT MANAGER
EquitiLink International Management Limited THE FIRST
Union House, Union Street COMMONWEALTH
St. Helier, Jersey, Channel Islands FUND, INC.
INVESTMENT ADVISER --------------------------
EquitiLink Australia Limited SEMI-ANNUAL REPORT
Level 3, 190 George Street APRIL 30, 1998
Sydney, NSW 2000, Australia
CONSULTANT
Wood Gundy, Inc. HIGHLIGHTS OF THIS
BCE Place, P.O. Box 500 REPORT
Toronto, Ontario, MSJ 258
Canada O NAV RETURN 8.7% PER
ADMINISTRATOR ANNUM SINCE INCEPTION*
Princeton Administrators, L.P. O 8.8% CASH DISTRIBUTION
Box 9095 RATE FOR THE YEAR TO
Princeton, New Jersey 08543-9095 APRIL 30, 1998
CUSTODIAN AND TRANSFER AGENT O 93% OF THE FUND'S
State Street Bank and Trust Company ASSETS INVESTED IN
P.O. Box 8200 SECURITIES RATED
Boston, Massachusetts 02266 'AA'/'AA' OR BETTER
AUCTION AGENT O FUND HOLDS SPREAD OF
Chase Manhattan Bank, N.A. HIGH QUALITY BONDS
55 Water Street ACROSS AUSTRALIA, NEW
New York, New York 10041 ZEALAND, CANADA AND
INDEPENDENT ACCOUNTANTS UNITED KINGDOM
Price Waterhouse LLP
1177 Avenue of the Americas * ASSUMING REINVESTMENT
New York, New York 10036 OF DISTRIBUTIONS
LEGAL COUNSEL
Dechert Price & Rhoads
30 Rockefeller Plaza
New York, New York 10112
Stikeman Elliot
L40 Chifley Tower
Chifley Square
Sydney, NSW 2000, Australia
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.
Box 9095
Princeton, NJ 08543-9095
(609) 282-4600
