FIRST COMMONWEALTH FUND INC, N-30D, 1998-12-29

FIRST COMMONWEALTH FUND INC
N-30D, 1998-12-29

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<PAGE>
INVESTMENT MANAGER
EquitiLink International Management Limited
P.O. Box 578, 17 Bond Street
St. Helier, Jersey JE45XB
Channel Islands
INVESTMENT ADVISER
EquitiLink Australia Limited
Level 3, 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
PricewaterhouseCoopers 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, Elliott
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 general
information only. It does not have regard to the specific investment objectives,
financial situation and the particular needs of any specific person.

The First Commonwealth Fund, Inc.
Box 9095
Princeton, NJ 08543-9095
(609) 282-4600

THE FIRST
COMMONWEALTH
FUND, INC.
- --------------------------------------------------------

ANNUAL REPORT
OCTOBER 31, 1998

HIGHLIGHTS OF THIS REPORT
O 8.8% CASH DISTRIBUTION RATE FOR THE YEAR TO OCTOBER
31, 1998
O NAV RETURN 8.3% PER ANNUM SINCE INCEPTION ASSUMING
REINVESTMENT OF DISTRIBUTIONS
O 95% OF THE FUND'S ASSETS INVESTED IN SECURITIES RATED*
'AA'/'AA' OR BETTER

* or deemed by the Manager to be equivalent
ALL AMOUNTS ARE US DOLLARS
UNLESS OTHERWISE STATED

MANAGED BY EQUITILINK INTERNATIONAL
MANAGEMENT LIMITED

<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------

December 18, 1998

Dear Shareholder:

We are pleased to present our Annual Report to shareholders for the year
ended October 31, 1998. The report includes a summary of developments in bond
and currency markets in Australia, Canada, New Zealand and the United Kingdom.

INVESTMENT MARKETS

Investment conditions for the Fund were positive over the latest quarter.
All Commonwealth bond markets rallied, resulting in capital gains as bond yields
declined. With the exception of the Canadian dollar, all Commonwealth currencies
appreciated against the US dollar.

These positive investment conditions have translated into strong performance
of the Fund over the quarter.

Over the year to October 31, 1998, investment conditions were mixed.
Although bond markets rallied, the currencies of those countries weakened
against the US dollar, with the exception of the British pound sterling.

INVESTMENT PERFORMANCE

The Fund's total return based on NAV was 6.2% over the three months and 1.8%
over the year to October 31, 1998. Since inception, the Fund has returned 8.3%
per annum based on NAV. The Fund's total return based on share price was 1.0%
for the three months and -5.6% for the year. The NAV and share price performance
both assume reinvestment of distributions.

The Fund continues to maintain a high quality portfolio, with 95% of assets
invested in securities where either the issue or the issuer are rated at least
'AA' by Standard & Poor's Ratings 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 totalled 95.5 cents per
share. Based on the share price of $10.81 at October 31, 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 effective distribution rate is higher for those
US investors who are able to claim a tax credit.

At its meeting held on December 15, 1998, the Board of Directors resolved to
continue paying a monthly distribution of 7.75 cents per share through to March
1999 when the Board will review the position at its next quarterly meeting. It
also declared a special distribution of 1.5 cents payable on January 15, 1999 to
shareholders of record on December 31, 1998.

For Federal income tax purposes, the Board has determined that 7.75 cents
per common share monthly distribution paid in October 1998 will be characterized
as long-term capital gains. Shareholders are advised to rely only on Form
1099-DIV, which will be sent January 1999, for definitive information with
respect to the tax treatment of the Fund's distributions.

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,

Brian M. Sherman Laurence S. Freedman
Chairman President

1
<PAGE>
- --------------------------------------------------------------------------------
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.

2
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF THE INVESTMENT MANAGER
- --------------------------------------------------------------------------------

DISTRIBUTIONS

During the latest 12 month period, the Fund paid a total of 95.5 cents per
share in distributions to common shareholders, consisting of five monthly
payments of 8.25 cents per share and seven monthly payments of 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 distribution rate is reviewed quarterly by the Board.

Based upon the October 31, 1998 share price of $10.81, and total
distributions of 95.5 cents per share paid over the past 12 months, the Fund
provided a cash distribution rate of 8.8%. At the date of this report, with the
share price at $10.94 and monthly distributions at 7.75 cents per share, the
annualized cash distribution rate to shareholders is 8.50% per annum. Since all
distributions are paid after deducting applicable Australian, Canadian, New
Zealand and United Kingdom withholding taxes, the effective 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 October 31, 1998 was $13.07. Based on NAV, the
total return was 6.2% over the three months and 1.8% over the year. Since
inception, the Fund has returned 8.3% per annum. All figures assume reinvestment
of distributions. At the date of this report, the NAV was $13.42 per share.

SHARE PRICE PERFORMANCE

As of October 31, 1998, the Fund's share price as quoted on the New York Stock
Exchange was $10.81, which represented a discount of 17.3% to the NAV of $13.07.
The total investment return, based on the Fund's share price and assuming
reinvestment of distributions, was 1.0% over the three months and -5.6% over the
year. Since inception, the share price return has been 4.0% per annum. At the
date of this report, the share price was $10.94, representing a discount of
18.50% to NAV.

3
<PAGE>
PORTFOLIO COMPOSITION

The following table shows the geographical composition of the portfolio,
expressed as a percentage of 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>

OCTOBER 31,
OCTOBER 31, 1998 JULY 31, 1998 1997
<S> <C> <C> <C>
Australia 25.4% 25.5% 25.7%
Canada 30.1% 30.9% 29.8%
New Zealand 9.9% 9.3% 10.0%
United Kingdom 33.7% 34.1% 33.7%
United States* 0.9% 0.2% 0.8%
TOTAL FUND 100.0% 100.0% 100.0%
</TABLE>

*It is the policy of the Investment Manager to maintain a portion of US
short-term securities in the Fund's investments to cover distributions and
expenses.

MATURITY COMPOSITION

The following table shows the maturity composition of the portfolio. On
October 31, 1998, the US dollar-weighted average maturity of the Fund's assets
was 8.8 years, compared with 7.4 a year earlier.
TABLE 2: THE FIRST COMMONWEALTH FUND, INC. -- MATURITY ANALYSIS -- OCTOBER 31,
1998
<TABLE>
<CAPTION>

LESS THAN 1 YEAR 1 - 5 YEARS 5 - 10 YEARS OVER 10 YEARS
<S> <C> <C> <C> <C>
Australia 8.6% 38.6% 48.8% 4.0%
Canada 9.8% 38.4% 12.3% 39.5%
New Zealand 15.9% 34.9% 49.2% --
United Kingdom 3.7% 18.1% 33.9% 44.3%
United States 100.0% -- -- --
TOTAL FUND 8.9% 30.9% 32.4% 27.8%
</TABLE>

4
<PAGE>
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 -- OCTOBER
31, 1998
<TABLE>
<CAPTION>

SOVEREIGN GOVT. STATE/ PROVINCE
BONDS BONDS EUROBONDS CORPORATE BONDS CASH OR EQUIVALENT
<S> <C> <C> <C> <C> <C>
Australia 9.4% 7.3% 4.9% 3.3% 0.5%
Canada 19.2% 3.2% 5.1% 1.2% 1.4%
New Zealand 5.0% -- 3.1% 1.3% 0.5%
United Kingdom 19.1% -- 14.5% -- 0.1%
United States -- -- -- -- 0.9%
TOTAL FUND 52.7% 10.5% 27.6% 5.8% 3.4%
</TABLE>

QUALITY OF INVESTMENTS

At October 31, 1998, 95% 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 -- OCTOBER 31, 1998
<TABLE>
<CAPTION>

AAA AA A
<S> <C> <C>
Australia 71.5% 28.5% --
Canada 6.4% 88.8% 4.8%
New Zealand 76.5% 17.3% 6.2%
United Kingdom 56.8% 34.3% 8.9%
United States 100.0% -- --
TOTAL FUND 47.5% 47.3% 5.2%
</TABLE>

5
<PAGE>
- --------------------------------------------------------------------------------
MARKET REVIEW AND OUTLOOK
- --------------------------------------------------------------------------------

AUSTRALIA

Economy

The Australian economy has weathered the Asian downturn well, with the
latest upwardly revised data showing growth of 4.4% over the year to June 1998
(previously 3.9%). This has been due mainly to the strength of services and
other domestically focussed parts of the economy, helped by low interest rates,
subdued real wages growth, modest employment growth and relatively healthy
consumer sentiment.

Exports have shown particular resilience, with product redirected away from
the Asian economies towards the US and Europe. The lower Australian dollar has
made exporters more price competitive on world markets.

Inflation remains at 35 year lows, with data released in the past three
months showing annual price growth of just 1.6%. The impact of a weaker currency
continues to be offset by competitive pressures and discounting from Asian
importers.

We expect modest domestic growth of around 3% for the current calendar year,
with further moderation into 1999. We see growth remaining positive, despite any
downturn.

Fixed Income

The environment of slowing growth and low inflation has been positive for
bonds, with 10-year yields closing October at 4.97%, down more than 1% over the
calendar year to date.

During the October quarter, yields initially weakened in line with a falling
Australian dollar but then improved as the currency bounced strongly off its low
and signs of slowing growth emerged.

Based on our expectations of moderating growth and Australia's excellent
inflation performance, we support the case for lower cash rates but see no
urgency for Australia's central bank to make such a move, given the resilience
of domestic activity.

Currency

Speculative trading by hedge funds increasd the volatility of the Australian
dollar against the US dollar during the October quarter. After reaching an
all-time low of 55 cents in late August, it rebounded strongly to end the period
13.6% higher, closing at 62 cents. The Australian currency rallied 2.5% against
the US dollar over the quarter, although it fell 11.4% over the year.

Although the currency, in trade weighted terms, remains 13% below its high
reached at the start of the year, it has most likely passed its low point. The
resilience of domestic growth is a key positive in the near term. Looking
further out, improving global growth will lead commodity prices higher, which
have traditionally been a significant influence on the Australian dollar due to
the nation's concentration of primary exports.

NEW ZEALAND

Economy

The combination of earlier high short-term interest rates and the downturn
in Asia pushed the New Zealand economy into technical recession in 1998. The
weakest sectors have been retail, housing and exports.

Another negative quarter is likely, with consumption, investment and
employment all lower over the period.

6
<PAGE>
Economic growth should recover into 1999 as sharply easier monetary
conditions stimulate domestic activity; short-term interest rates have recently
fallen by nearly 3%. The depreciation in the New Zealand dollar will also mean a
more competitive external sector.

Fixed Income

The sharp weakening in economic growth has provided a very positive
environment for bonds. Yields rallied strongly over the three months to October,
with 10-year Government bond yields falling over 0.7% to end the period at
5.38%.

Based on our expectations that growth will remain subdued into the new year,
we expect further positive performance from New Zealand bonds.

Within the 'dollar bloc' New Zealand bonds also look attractive, with yields
currently above those in Canada and Australia.

Currency

The New Zealand dollar traded in line with its Australian counterpart during
the three months to October. After initial weakness the currency rebounded
strongly to end the quarter up 3.7%.

During the period, Moody's lowered New Zealand's foreign currency rating.
Having been well anticipated, the move merely brought New Zealand into line with
Australia.

CANADA

Economy

Strong growth earlier in the reporting year has slowed under pressure from
low commodity prices and relatively high short-term interest rates. The Bank of
Canada perceived an inflation risk from a weakening currency causing it to
maintain tight monetary conditions through much of the year, including a 1% rise
in cash rates to 6% in late August. Inflation, however, has continued to fall,
down to 0.7% in September 1998, from 1.4% a year earlier. This brought a
reversal in the Bank of Canada's tight policy stance towards the end of the
October quarter, following the two US Federal Reserve's easings. The US moves
are unlikely to provide much stimulus to the Canadian economy and we see further
softening in growth.

Fixed Income

Tight monetary conditions tempered the rally in bonds until the market
anticipated a possible change to easier policy in the October quarter. The
10-year bond yield rallied only 0.03% to 5.46% in the first nine months of the
Fund's financial year, ahead of a 0.37% rally to 5.09% in the October quarter.
We expect further rallies, supported by weakening growth, very low inflation and
the prospect of further monetary easing.

Currency

Weak commodity prices caused the Canadian dollar to depreciate 8.7% over the
year and 1.9% over the quarter, ending at $0.65. We expect the weakening
Canadian economy and quite protracted monetary easing to extend the softening
currency trend.

7
<PAGE>
UNITED KINGDOM

Economy

Annual growth was very strong at 4% in the second half of 1997, leading to
core inflation running above the Bank of England's 2.5% target for much of the
reporting year and peaking at 3.2% in May. In response, the Bank of England
increased already high 7.25% short-term interest rates by 0.25% mid-year. This
was despite signs that growth was already starting to slow, particularly in the
manufacturing sector.

Core inflation fell to 2.5% in both August and September, but the Bank of
England responded in October with only a 0.25% easing back to 7.25%. Short-term
interest rates appear to be far too high and will weaken growth to the point of
requiring more substantial monetary policy easings.

Fixed Income

Bonds continued to rally during the October quarter as the market
anticipated a turn to much easier monetary policy. The 10-year bond rallied
0.77% to 5.77% in the first nine months of the Fund's financial year and
extended the rally another 0.71% to 5.06% in the latest quarter. Relatively
weaker British growth prospects compared with other Western European economies
point to British bonds rallying further.

Currency

High short-term rates have helped the pound to match the strength of the US
dollar through much of the year. Over the past twelve months through October,
1998, the pound was unchanged at $1.67. However, it has depreciated 2.5% from
its $1.71 peak recorded earlier in the October quarter. We expect weaker British
growth and accelerating monetary easing to further weaken Sterling.

The following table compares interest rates in Commonwealth countries for
various periods.
<TABLE>
<CAPTION>

OCTOBER 31, 1997 JULY 31, 1998 OCTOBER 31, 1998
AUSTRALIA:
<S> <C> <C> <C> <C>
90 day Bank Bills 4.8% 5.2% 4.8%
10 yr Government Bonds 5.9% 5.6% 5.0%
CANADA:
90 day Bank Bills 4.0% 5.0% 4.8%
10 yr Government Bonds 5.5% 5.5% 5.1%
NEW ZEALAND:
90 day Bank Bills 7.8% 7.1% 4.6%
10 yr Government Bonds 6.5% 6.1% 5.4%
UNITED KINGDOM:
90 day Bank Bills 7.1% 7.4% 6.7%
10 yr Government Bonds 6.5% 5.8% 5.1%
</TABLE>

Yield comparisons are direct and do not take into account fluctuations in
currency exchange rates.

8
<PAGE>
YEAR 2000 COMPLIANCE DISCLOSURE

Many computer systems and other electronically controlled equipment used by
companies and other business organizations throughout the world express dates
using only the last two digits of the year, and thus will require modification
or replacement to accommodate the Year 2000 and beyond in order to avoid
malfunctions and consequential widespread commercial disruption.

The Fund could be adversely affected if the computer systems and equipment
used by its service providers or the companies in which it invests, or other
organizations with which any of them deal, do not properly address this problem
before January 1, 2000. The Investment Manager and the Investment Adviser have
taken steps that they believe are reasonably designed to see that the computer
systems and equipment they use are adequate to deal with Year 2000 issues and to
seek the same of its suppliers and the Fund's other service providers. As of the
date of this report, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.

EQUITILINK INTERNATIONAL MANAGEMENT LIMITED

9
<PAGE>
- ----------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1998
<TABLE>
<CAPTION>

- ------------------------------------------------------------- -------------------------------------------------------------
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT
LOCAL LOCAL
CURRENCY VALUE CURRENCY VALUE
(000) DESCRIPTION (US$) (000) DESCRIPTION (US$)
- ------------------------------------------------------------- -------------------------------------------------------------

LONG-TERM INVESTMENTS - 94.9%
AUSTRALIA - 24.5%
GOVERNMENT AND SEMI-GOVERNMENT
BONDS - 16.4%
COMMONWEALTH OF AUSTRALIA - 9.2%
Commonwealth of Australia,
<S> <C> <C> <C> <C>
A$ 1,000 13.00%, 7/15/00................ 708,744
1,500 12.00%, 11/15/01............... 1,131,309
1,000 9.75%, 3/15/02................. 723,429
3,000 10.00%, 10/15/02............... 2,231,008
3,000 10.00%, 2/15/06................ 2,443,732
2,600 10.00%, 10/15/07............... 2,197,953
3,700 8.75%, 8/15/08................. 2,963,168
2,000 7.50%, 9/15/09................. 1,499,157
------------
13,898,500
------------
NEW SOUTH WALES - 1.6%
New South Wales Treasury
Corporation,
2,000 8.00%, 12/01/01................ 1,360,189
1,500 7.00%, 4/01/04................. 1,016,877
------------
2,377,066
------------
QUEENSLAND - 3.2%
Queensland Treasury Corporation,
3,000 8.00%, 8/14/01................. 2,027,409
2,000 8.00%, 5/14/03 (Global)........ 1,399,998
1,000 8.00%, 9/14/07................. 737,244
1,000 8.00%, 9/14/07 (Global)........ 738,811
------------
4,903,462
------------
SOUTH AUSTRALIA - 0.5%
South Australia Finance
Authority,
1,000 12.50%, 10/15/00............... 712,955
------------
VICTORIA - 1.4%
Treasury Cor poration of
Victoria,
2,500 10.25%, 11/15/06............... 2,053,533
------------
WESTERN AUSTRALIA - 0.5%
Wester n Australia Treasur y
Corporation,
1,000 10.00%, 7/15/05................ 789,262
------------
Total Australian gover nment and
semi-gover nment bonds (cost
US$25,682,230)................. 24,734,778
------------

CORPORATE BONDS - 3.2%
SERVICES - 3.2%
Telstra Corp.,
A$ 2,000 11.50%, 10/15/02............... 1,518,675
2,000 12.00%, 5/15/06................ 1,720,328
First Australian National
Mortgage
Acceptance Cor poration,
Ser ies 22,
2,310 11.40%, 12/15/01............... 1,627,356
------------
Total Australian corporate bonds
(cost US$5,197,102)............ 4,866,359
------------
EUROBONDS - 4.9%
FINANCIAL SERVICES - 2.4%
Credit Local de France,
2,000 10.50%, 1/06/99................ 1,254,885
Export Finance & Insurance
Corporation,
1,750 11.00%, 12/29/04............... 1,393,280
Ing Mercantile Mutual Bank Ltd.,
500 7.125%, 3/13/02................ 328,882
State Bank of New South Wales,
1,000 10.50%, 4/30/99................ 638,328
------------
3,615,375
------------
SEMI-GOVERNMENT - 0.7%
South Australia Finance
Author ity,
500 12.50%, 5/08/01................ 364,648
Treasury Cor poration of
Victoria,
1,000 9.00%, 6/27/05................. 747,178
------------
1,111,826
------------
SERVICES - 0.7%
State Electricity Commission of
Victoria,
972 9.25%, 7/27/99................. 623,477
535 10.50%, 5/27/03................ 404,732
------------
1,028,209
------------
SUPRANATIONAL - 1.1%
Eurofima,
2,000 9.875%, 1/17/07................ 1,589,210
------------
Total Australian eurobonds
(cost US$8,197,233)............ 7,344,620
------------
Total Australian long-term
investments
(cost US$39,076,565)........... 36,945,757
------------
</TABLE>

10
<PAGE>
<TABLE>
<CAPTION>

CANADA - 28.2%
GOVERNMENT, PROVINCIAL AND MUNICIPAL
BONDS - 22.0%
CANADA - 18.8%
Canadian Government,
<S> <C> <C> <C> <C>
C$ 5,500 7.50%, 3/01/01................. 3,770,981
6,000 8.50%, 4/01/02................. 4,322,126
5,000 7.25%, 6/01/03................. 3,547,136
2,500 7.25%, 6/01/07................. 1,857,300
2,000 6.00%, 6/01/08................. 1,382,775
8,000 10.25%, 3/15/14................ 7,824,648
6,000 9.00%, 6/01/25................. 5,761,024
------------
28,465,990
------------
AL BERTA - 0.6%
City of Edmonton,
1,000 9.625%, 2/13/12................ 866,029
------------
BRITISH COLUMBIA - 1.1%
Province of British Columbia,
1,000 10.15%, 8/29/01................ 732,187
1,000 9.50%, 1/09/12................. 867,710
------------
1,599,897
------------
ONTARIO - 1.5%
Province of Ontario,
1,000 8.75%, 4/22/03................. 738,523
2,000 7.50%, 2/07/24................. 1,551,791
------------
2,290,314
------------
Total Canadian gover nment,
provincial and municipal bonds
(cost US$34,442,078)........... 33,222,230
------------
CORPORATE BONDS - 1.2%
DIVERSIFIED INDUSTRIALS - 0.7%
Bell Telephone Company of Canada,
500 10.50%, 7/15/09................ 377,150
Imperial Oil Ltd.,
1,000 9.875%, 12/15/99............... 679,620
------------
1,056,770
------------

FINANCIAL SERVICES - 0.5%
Bank of Nova Scotia,
C$ 1,000 10.35%, 7/19/01................ 727,725
------------
Total Canadian cor porate bonds
(cost US$2,184,922)............ 1,784,495
------------
EUROBONDS - 5.0%
DIVERSIFIED INDUSTRIALS - 0.2%
Procter & Gamble Company,
500 10.875%, 8/15/01............... 368,550
------------
FINANCIAL SERVICES - 1.8%
Credit Local de France,
1,000 6.75%, 3/21/06................. 691,032
Inter national Bank for
Reconst r uction
and Development,
2,000 10.125%, 7/20/99............... 1,339,648
Rabobank Neder l and N.V.,
1,000 9.00%, 12/22/00................ 696,690
------------
2,727,370
------------
NATURAL RESOURCES - 1.2%
Ontar io Hydro,
500 8.50%, 5/26/25................. 431,786
Quebec Hydro,
1,500 7.00%, 6/01/04................. 1,045,034
Tokyo Elect r ic Power Company,
500 10.50%, 6/14/01................ 362,085
------------
1,838,905
------------
PROVINCIAL AND MUNICIPAL - 0.8%
Metropolitan Municipality of
Toronto,
750 9.625%, 5/14/02................ 548,582
Ville de Montreal,
1,000 6.375%, 2/15/01................ 659,511
------------
1,208,093
------------
</TABLE>

11
<PAGE>
<TABLE>
<CAPTION>

SUPRANATIONAL - 1.0%
Bayerische Vereinsbank AG,
<S> <C> <C> <C> <C>
C$ 500 7.125%, 7/29/99................ 327,735
Canada (Cayman),
750 7.25%, 6/01/08................. 540,096
Republic of Finland,
1,000 9.00%, 12/31/98................ 649,916
------------
1,517,747
------------
Total Canadian eurobonds
(cost US$8,540,352)............ 7,660,665
------------
Total Canadian long-term
investments
(cost US$45,167,352)........... 42,667,390
------------
NEW ZEALAND - 9.2%
GOVER NMENT BONDS - 5.0%
Gover nment of New Zealand,
NZ$ 1,000 8.00%, 2/15/01................. 559,560
5,000 8.00%, 4/15/04................. 2,973,349
5,000 8.00%, 11/15/06................ 3,084,592
------------
6,617,501
------------
Housing New Zealand,
1,500 8.00%, 11/15/06................ 862,834
------------
Total New Zealand gover nment
bonds
(cost US$8,312,001)............ 7,480,335
------------
CORPORATE BONDS - 1.2%
DIVERSIFIED INDUSTRIALS - 1.0%
Electricity Cor poration of
New Zealand Ltd.,
1,750 10.00%, 10/15/01............... 1,026,075
1,000 8.00%, 2/15/03................. 562,890
------------
1,588,965
------------
FINANCIAL SERVICES - 0.2%
Transpower Finance Ltd.,
500 8.00%, 6/15/05................. 287,706
------------
Total New Zealand corporate bonds
(cost US$2,075,694)............ 1,876,671
------------
EUROBONDS - 3.0%
FINANCIAL SERVICES - 1.4%
Inter national Bank for
Reconst ruction
and Development,
2,000 9.00%, 7/08/99................. 1,080,987
1,000 7.00%, 9/18/00................. 538,538

Primary Industry Bank of
Australia Limited,
NZ$ 1,000 8.25%, 3/27/00................. 543,137
------------
2,162,662
------------
GLOBAL - 1.2%
Federal National Mortgage
Association,
3,500 7.00%, 9/26/00................. 1,884,789
------------
SUPRANATIONAL - 0.4%
European Investment Bank,
1,000 9.00%, 7/16/99................. 541,154
------------
Total New Zealand eurobonds
(cost US$4,989,224)............ 4,588,605
------------
Total New Zealand long-term
investments
(cost US$15,376,919)........... 13,945,611
------------
UNITED KINGDOM - 33.0%
GOVERNMENT BONDS - 18.8%
United Kingdom Treasur y,
1,250 8.00%, 12/07/00................ 2,206,363
500 8.00%, 6/10/03................. 939,907
1,500 6.75%, 11/26/04................ 2,747,574
2,000 7.50%, 12/07/06................ 3,881,567
6,850 8.00%, 12/07/15................ 15,326,799
750 8.00%, 6/07/21................. 1,767,855
750 6.00%, 12/07/28................ 1,492,050
------------
Total United Kingdom gover nment
bonds
(cost US$25,168,552)........... 28,362,115
------------
EUROBONDS - 14.2%
DIVERSIFIED INDUSTRIALS - 2.9%
Allied Domecq PLC,
1,000 10.625%, 2/25/99............... 1,694,376
British Gas PLC,
1,400 8.875%, 7/08/08................ 2,753,780
------------
4,448,156
------------
FINANCIAL SERVICES - 7.1%
Abbey National Treasury
Services PLC,
1,250 8.00%, 4/02/03................. 2,235,926
Barclays Bank PLC,
1,000 9.875%, 5/29/49................ 1,973,277
Halifax Building Society,
1,500 11.00%, 1/17/14................ 3,579,579
</TABLE>

12
<PAGE>
<TABLE>
<CAPTION>

<S> <C> <C> <C> <C> <C> <C>
L loyds Bank PLC,
500 7.375%, 3/11/04................ 871,304
Prudential Finance B.V.,
1,000 9.375%, 6/04/07................ 2,013,120
------------
10,673,206
------------
NATURAL RESOURCES - 1.2%
Thames Water Utilities
Finance PLC,
1,000 10.50%, 11/21/01............... 1,864,233
------------
SUPRANATIONAL - 3.0%
Republic of Finland,
1,000 8.00%, 4/07/03................. 1,813,905
1,250 10.125%, 6/22/08............... 2,741,828
------------
4,555,733
------------
Total United Kingdom eurobonds
(cost US$18,027,195)........... 21,541,328
------------
Total United Kingdom long-term
investments
(cost US$43,195,747)........... 49,903,443
------------
Total long-term investments
(cost US$142,816,583).......... 143,462,201
------------
SHOR T-TERM INVESTMENTS - 3.3%
AUSTRALIA - 0.5%
Banque Nat ionale de Par is Fixed
Deposit,
4.60%, 11/02/98
A$ 1,182 (cost US$735,070).............. 735,070
------------
CANADA - 1.3%
State Street Bank and Trust
Company Ti me Deposit,
4.875%, 11/05/98
C$ 3,167 (cost US$2,051,719)............ 2,047,474
------------

NEW ZEALAND - 0.5%
Bankers Trust New Zealand
Limited Call Account,
6.70%, 11/02/98
NZ$ 1,331 (cost US$699,384)................ 703,773
------------
UNITED KINGDOM - 0.1%
State Street Bank and Trust
Company Fixed Deposit,
40 7.00%, 11/02/98................ 67,057
40 7.125%, 11/09/98............... 67,147
------------
Total United Kingdom short-term
investments
(cost US$134,884).............. 134,204
------------
UNITED STATES - 0.9%
US$ 1,372 Repurchase Agreement, State
Street Bank and Trust
Company, 5.10% dated
10/30/98, due 11/02/98 in the
amount of $1,372,583
(cost $1,372,000;
collateralized by $1,295,000
U.S. Treasury Notes, 6.375%
due 8/15/02; value
$1,400,091).................... 1,372,000
------------
Total shor t-term investments
(cost US$4,993,057)............ 4,992,521
------------
TOTAL INVESTMENTS - 98.2%
(cost US$147,809,640).......... 148,454,722
Other assets in excess of
liabilities - 1.8%............. 2,641,126
------------
TOTAL NET ASSETS - 100.0%........ $151,095,848
------------
------------
</TABLE>

See Notes to Financial Statements.

13
PAGE 14

THE FIRST COMMONWEALTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
<TABLE>
<CAPTION>

ASSETS
<S> <C> <C>
Investments, at value (cost $147,809,640).............................................................. $ 148,454,722
Foreign currency, at value (cost $596)................................................................. 595
Cash................................................................................................... 319
Interest receivable.................................................................................... 3,742,483
Prepaid expenses....................................................................................... 23,755
Total assets......................................................................................... 152,221,874
LIABILITIES
Dividends payable - common stock....................................................................... 718,131
Investment management fee payable...................................................................... 97,617
Administration fee payable............................................................................. 30,036
Payable for investments purchased...................................................................... 67,147
Accrued expenses and other liabilities................................................................. 213,095
Total liabilities.................................................................................... 1,126,026
TOTAL NET ASSETS....................................................................................... $ 151,095,848
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..................................................................... 127,346,596
Preferred stock ($.001 par value per share and $25,000 liquidation value per share applicable to 1,200
shares; Note 4)........................................................................................ 30,000,000
157,355,862
Distributions in excess of net investment income....................................................... (406,718)
Undistributed net realized gains on investment transactions............................................ 949,912
Net unrealized appreciation on investments............................................................. 10,959,517
Accumulated net realized foreign exchange losses....................................................... (7,467,786)
Net unrealized foreign exchange losses................................................................. (10,294,939)
TOTAL NET ASSETS....................................................................................... $ 151,095,848
Net assets applicable to common shareholders........................................................... $ 121,095,848
Net asset value per common share ($121,095,848 L 9,266,209 shares of common stock issued and
outstanding)......................................................................................... $ 13.07
</TABLE>

See Notes to Financial Statements.

14
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

NET INVESTMENT INCOME
<S> <C> <C> <C> <C> <C> <C>
Income
Interest and discount earned (net of foreign withholding taxes of $216,053)........................... $ 11,246,734
--------------
Expenses
Investment management fee............................................................................. 992,425
Administration fee.................................................................................... 305,362
Directors' fees and expenses.......................................................................... 172,324
Independent accountant's fees and expenses............................................................ 152,300
Custodians' fees and expenses......................................................................... 129,248
Reports to shareholders............................................................................... 97,807
Auction agent's fees and expenses..................................................................... 79,313
Legal fees and expenses............................................................................... 41,748
Insurance expense..................................................................................... 40,083
Transfer agent's fees and expenses.................................................................... 25,242
Registration fees..................................................................................... 16,170
Excise tax............................................................................................ 6,056
Miscellaneous......................................................................................... 19,492
--------------
Total operating expenses............................................................................ 2,077,570
--------------
Net investment income................................................................................... 9,169,164
--------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCIES
Net realized gains on investment transactions......................................................... 2,119,218
Net change in unrealized appreciation/depreciation of investments..................................... 1,723,023
--------------
Net gains on investments.............................................................................. 3,842,241
--------------
Net increase in total net assets resulting from operations before net foreign exchange losses......... 13,011,405
Net realized foreign exchange losses.................................................................. (4,751,505)
Net change in unrealized foreign exchange losses...................................................... (5,894,135)
--------------
NET INCREASE IN TOTAL NET ASSETS
RESULTING FROM OPERATIONS............................................................................. $ 2,365,765
--------------
--------------
</TABLE>

See Notes to Financial Statements.

15
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
INCREASE (DECREASE) IN CASH
(INCLUDING FOREIGN CURRENCY)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided from operating activities
Interest received.................................................................................... $ 11,861,507
Operating expenses paid.............................................................................. (2,057,677)
Sales of short-term portfolio investments, net....................................................... 1,970,791
Purchases of long-term portfolio investments......................................................... (53,502,672)
Proceeds from sales of long-term portfolio investments............................................... 52,265,889
Other................................................................................................ 4,045
---------------
Net cash provided from operating activities........................................................ 10,541,883
---------------
Cash flows used for financing activities
Dividends paid to common shareholders................................................................ (8,848,545)
Dividends paid to preferred shareholders............................................................. (1,625,508)
---------------
Net cash used for financing activities............................................................. (10,474,053)
---------------
Effect of exchange rate on cash........................................................................ (67,830)
---------------
Net increase in cash................................................................................... 0
Cash at beginning of year............................................................................ 914
---------------
Cash at end of year.................................................................................. $ 914
---------------
---------------

RECONCILIATION OF NET INCREASE IN TOTAL NET ASSETS RESULTING FROM OPERATIONS TO NET CASH (INCLUDING
FOREIGN CURRENCY) PROVIDED FROM OPERATING ACTIVITIES
Net increase in total net assets resulting from operations............................................. $ 2,365,765
---------------
Decrease in investments.............................................................................. (289,393)
Net realized gains on investment transactions........................................................ (2,119,218)
Net realized foreign exchange losses................................................................. 4,751,505
Net change in unrealized appreciation/depreciation on investments.................................... (1,723,023)
Net change in unrealized foreign exchange losses..................................................... 5,894,135
Decrease in interest receivable...................................................................... 681,243
Decrease in receivable for investments sold.......................................................... 889,784
Net decrease in other assets......................................................................... 4,045
Increase in payable for investments purchased........................................................ 67,147
Increase in accrued expenses and other liabilities................................................... 19,893
---------------
Total adjustments.................................................................................... 8,176,118
---------------
Net cash provided from operating activities............................................................ $ 10,541,883
---------------
---------------
</TABLE>

See Notes to Financial Statements.

16
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

FOR THE YEAR
ENDED FOR THE YEAR
OCTOBER 31, ENDED OCTOBER
1998 31, 1997
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN TOTAL NET ASSETS
Operations
Net investment income.............................................................. $ 9,169,164 $ 10,543,121
Net realized gains on investment transactions...................................... 2,119,218 137,489
Net change in unrealized appreciation/depreciation on investments.................. 1,723,023 4,973,642
--------------- ---------------
Net increase in total net assets resulting from operations before net foreign
exchange losses.................................................................. 13,011,405 15,654,252
Net realized foreign exchange losses............................................... (4,751,505) (92,892)
Net change in unrealized foreign exchange gains (losses)........................... (5,894,135) (8,120,845)
--------------- ---------------
Net increase in total net assets resulting from operations......................... 2,365,765 7,440,515
--------------- ---------------
Dividends and distributions to shareholders
Dividends to common shareholders from net investment income........................ (8,084,197) (9,219,249)
Dividends to preferred shareholders from net investment income..................... (1,313,699) (1,584,660)
Distributions to common shareholders from net realized gains on investment
transactions..................................................................... (718,017) (138,993)
Distributions to preferred shareholders from net realized gains on investment
transactions..................................................................... (311,809) --
--------------- ---------------
Net decrease in total net assets resulting from dividends and distributions to
shareholders....................................................................... (10,427,722) (10,942,902)
--------------- ---------------
Total decrease....................................................................... (8,061,957) (3,502,387)
TOTAL NET ASSETS
Beginning of year.................................................................... 159,157,805 162,660,192
--------------- ---------------
End of year (including (distributions in excess of) undistributed net investment
income of $(406,718) and $497,862, respectively)................................... $ 151,095,848 $ 159,157,805
--------------- ---------------
--------------- ---------------
</TABLE>

See Notes to Financial Statements.

17
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

FOR THE YEAR ENDED OCTOBER 31,
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE: 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
Net asset value per common share, beginning of year..... $ 13.94 $ 14.32 $ 13.13 $ 12.08 $ 13.42
---------- ---------- ---------- ---------- ----------
Net investment income................................... 0.99 1.14 1.16 1.19 1.16
Net realized and unrealized gains (losses) on
investments and foreign currencies.................... (0.73) (0.34) 1.21 1.10 (1.33)
---------- ---------- ---------- ---------- ----------
Total from investment operations...................... 0.26 0.80 2.37 2.29 (0.17)
---------- ---------- ---------- ---------- ----------
Dividends from net investment income to common
shareholders.......................................... (0.87) (0.99) (1.00) (1.03) (0.98)
Dividends from net investment income to preferred
shareholders.......................................... (0.14) (0.17) (0.16) (0.18) (0.11)
Distributions from net realized gains on investment
transactions to common shareholders................... (0.08) (0.02) (0.01) (0.03) (0.07)
Distributions from net realized gains on investment
transactions to preferred shareholders................ (0.04) -- (0.01) -- (0.01)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions..................... (1.13) (1.18) (1.18) (1.24) (1.17)
---------- ---------- ---------- ---------- ----------
Net asset value per common share, end of year........... $ 13.07 $ 13.94 $ 14.32 $ 13.13 $ 12.08
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Market value, end of year............................... $ 10.8125 $ 12.4375 $ 11.875 $ 11.375 $ 10.375
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Number of shares of common stock outstanding (000
omitted).............................................. 9,266 9,266 9,266 9,266 9,266
TOTAL INVESTMENT RETURN BASED ON:(1)
Market value.......................................... (5.59)% 13.78% 13.89% 20.72% (10.19)%
Net asset value....................................... 1.82% 5.76% 18.99% 19.67% (1.63)%
RATIO TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS(2)/SUPPLEMENTARY DATA:
Net assets of common shareholders, end of period (000
omitted).............................................. $ 121,096 $ 129,158 $ 132,660 $ 121,654 $ 111,925
Average net assets of common shareholders (000
omitted).............................................. 122,266 130,125 122,887 115,277 118,336
Operating expenses...................................... 1.70% 1.63% 1.70% 1.71% 1.75%
Net investment income before preferred stock
dividends............................................. 7.50% 8.10% 8.73% 9.56% 9.06%
Net investment income available to common
shareholders.......................................... 6.17% 6.88% 7.47% 8.09% 8.12%
Preferred stock dividends and distributions............. 1.33% 1.22% 1.26% 1.48% 0.94%
Portfolio turnover...................................... 36% 24% 30% 23% 34%
Senior securities (preferred stock) outstanding
(000 omitted)......................................... $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000
Asset coverage on preferred stock at year end........... 504% 530% 542% 505% 473%
- --------------------------------------------------------------------------------------------------------------------
</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) 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.

See Notes to Financial Statements.

<PAGE>
- --------------------------------------------------------

THE FIRST COMMONWEALTH FUND, INC.

NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------

The First Commonwealth Fund, Inc. (the 'Fund') was incorporated in Maryland on
June 28,1991, as a closed-end, 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.

The following is a summary ofNOTE 1. ACCOUNTING
significant accounting policiesPOLICIES
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 year.

Net realized foreign exchange losses of $4,751,505 for the year ended October
31, 1998 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
losses of $5,894,135 for the year ended October 31, 1998 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
October 31, 1998 were US$0.6220 to A$1.00, US$0.6466 to C$1.00, US$0.5286 to
NZ$1.00, and US$1.6776 to 1.00.

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

19
<PAGE>
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. 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, 1998, the Fund decreased undistributed net investment
income by $675,848, decreased accumulated net realized gains on investments by
$104,717 and decreased accumulated net realized foreign exchange losses by
$743,884, resulting in an increase to paid-in capital in excess of par by
$36,681. 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 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

20
<PAGE>
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.

The Fund has agreements withNOTE 2. AGREEMENTS
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 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 $359,989 to the Investment
Adviser and $13,453 to the Consultant during the year ended October 31, 1998.

Purchases and sales of invest-NOTE 3. PORTFOLI
ment secur ities, other than short-SECURITIES
term investments, for the year ended October 31, 1998
aggregated $53,502,672 and $51,019,414, respectively.

The United States federal income tax basis of the Fund's investments at October
31, 1998 was $137,538,563 and accordingly, net unrealized appreciation for
United States federal income tax purposes was $10,916,159 (gross unrealized
appreciation - $11,672,454 gross unrealized depreciation - $756,295).

There are 300 million shares ofNOTE 4. CAPITAL
$.001 par value common stock authorized. Of the 9,266,209
shares outstanding at October 31, 1998, the Investment Manager owned 10,766
shares.

There are 100 million shares of $.001 par value of Auction Market Preferred
Stock ('Preferred Stock') authorized. The preferred shares have rights as
determined by the Board of Directors. The 1,200 shares of 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
4.875% to 5.90% during the year ended October 31, 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 respect
to the outstanding Preferred Stock would be less than 200%.

21
<PAGE>
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, whether or not declared. 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.

Subsequent to October 31,NOTE 5. SUBSEQUENT
1998, the Board of Directors ofDIVIDENDS
the Fund declared dividends from undistributed net
investment income of $0.0775 per common share payable on December 11, 1998 to
common shareholders of record on November 30, 1998.

Subsequent to October 31, 1998 dividends and distributions declared and paid on
preferred shares totaled approximately $198,492 for the outstanding preferred
share series through December 18, 1998.

<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------

To the Shareholders and the Board of Directors of
The First Commonwealth Fund, Inc.

In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations, of cash flows and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The First Commonwealth Fund, Inc. (the 'Fund') at October 31, 1998, the results
of its operations and its cash flows for the year then ended, the changes in its
net assets for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as 'financial statements') are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
December 15, 1998

23
<PAGE>
- --------------------------------------------------------------------------------
SUPPLEMENTAL PROXY INFORMATION
- --------------------------------------------------------------------------------

The Annual Meeting of Shareholders of The First Commonwealth Fund, Inc. was held
on Thursday, May 14, 1998 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>
- --------------------------------------------------------------------------------------------------------------------
VOTES
VOTES FOR WITHHELD
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. To elect the following four directors to Sir Roden Cutler 7,222,098 115,951
serve as Class III directors for a three- Michael Gleeson-White 7,222,154 115,895
year term expiring in 2001: John T. Sheehy 7,234,679 103,369
Warren C. Smith 7,236,079 101,969
Class I and Class II Directors whose term
of office continued beyond this meeting
are as follows: David Lindsay Elsum, Rt.
Hon. Malcolm Fraser, Laurence S.
Freedman, Michael R. Horsburgh, David
Manor, William J. Potter, Peter D. Sacks,
E. Duff Scott, Brian M. Sherman.
- --------------------------------------------------------------------------------------------------------------------
VOTES
VOTES FOR AGAINST
- --------------------------------------------------------------------------------------------------------------------
2. To elect the following two Directors to Roger C. Maddock 612 0
represent the interests of the holders of Dr. Anton E. Schrafl 612 0
preferred stock for the ensuing year:
- --------------------------------------------------------------------------------------------------------------------
VOTES
VOTES FOR AGAINST ABSTENTIONS
- --------------------------------------------------------------------------------------------------------------------
3. To ratify the selection of Price Common 7,254,548 18,948 64,552
Waterhouse LLP as independent public Preferred 611 0 1
accountants for the fiscal year ending
October 31, 1998:
</TABLE>

24
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION: DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------

During the year ended October 31, 1998, 100% of the ordinary income
distributions paid monthly by the Fund qualify as foreign source income.
Additionally, 2.70% of the ordinary income distributions was attributable to
foreign withholding taxes.

The foreign taxes paid or withheld represent taxes incurred by the Fund on
income received by the Fund from foreign sources. Foreign taxes paid or withheld
should be included in taxable income with an offsetting deduction from gross
income or as a credit for taxes paid to foreign governments. You should consult
your tax counsel or other tax advisors regarding the appropriate treatment of
foreign taxes paid.

Additionally, the following long-term capital gain distributions were paid by
the Fund during the year:

COMMON SHAREHOLDERS
RECORD DATE PAYABLE DATE PER SHARE AMOUNT
09/30/98 10/9/98 $0.0775
PREFERRED SHAREHOLDERS
MONTH PAID PER SHARE AMOUNT
08/98 $ 30.81
09/98 $130.27
10/98 $ 98.76

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
During the year, there have been no material changes in the Fund's investment
objectives or fundamental policies that have not been approved by the
shareholders. There have been no changes in the Fund's charter or By-Laws that
would delay or prevent a change in control of the Fund which have not been
approved by shareholders. There have been no changes in the principal risk
factors associated with investment in the Fund. Fund manager, Yazdiar Mody
currently holds the position of Senior Fixed Interest Portfolio Manager with
EquitiLink Australia Limited. He took on his duties for The First Commonwealth
Fund, Inc. in June 1998. Yazdiar has significant experience in international
fixed-income management. He has over ten years investment experience.
- --------------------------------------------------------------------------------

25
<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.