SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
THE FIRST COMMONWEALTH FUND, INC.
-----------------------------------
(Name of Registrant as Specified In Its Charter)
----------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[FCO LOGO] 800 Scudders Mill Road
Plainsboro, New Jersey 08536
(609) 282-4600
February __, 1999
Dear Shareholder:
The Annual Meeting of Shareholders is to be held at 2:00 p.m. (Eastern
time), on Friday, March 26, 1999, at the offices of Prudential Securities
Incorporated, One Seaport Plaza, 35th Floor, New York, New York. A Proxy
Statement regarding the meeting, a proxy card for your vote at the meeting and
an envelope--postage prepaid--in which to return your proxy are enclosed.
At the Annual Meeting, the holders of the Fund's common stock will
elect the Fund's Class I Directors, the holders of the Fund's preferred stock
will vote separately as a single class to elect two additional Directors, and
the holders of both common and preferred stock will consider the ratification of
the selection of PricewaterhouseCoopers LLP as independent public accountants.
Shareholders will also consider a series of related proposals to amend the
Fund's principal investment objective, investment policies and investment
restrictions to allow the Fund to invest up to 35% of its total assets in Global
Debt Securities. In addition, the shareholders present will hear a report on the
Fund. There will be an opportunity to discuss matters of interest to you as a
shareholder.
Your Directors recommend that you vote in favor of each of the
foregoing matters.
BRIAN M. SHERMAN LAURENCE S. FREEDMAN
Chairman President
YOU ARE URGED TO SIGN AND MAIL THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE TO
ASSURE A QUORUM AT THE MEETING. THIS IS IMPORTANT REGARDLESS OF THE SIZE OF YOUR
SHAREHOLDING.
<PAGE>
THE FIRST COMMONWEALTH FUND, INC.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
-----------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
March 26, 1999
-----------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of The
First Commonwealth Fund, Inc. (the "Fund") will be held at the offices of
Prudential Securities Incorporated, One Seaport Plaza, 35th Floor, New York, New
York, on Friday, March 26, 1999, at 2:00 p.m. (Eastern time) for the following
purposes:
(1) To elect five Directors to serve as Class I Directors for a
three year term;
(2) To elect two Directors to represent the interests of the
holders of preferred stock for the ensuing year;
(3 To ratify the selection of PricewaterhouseCoopers LLP as
independent public accountants of the Fund for the fiscal year
ending October 31, 1999;
(4)(A) To amend the Fund's investment policies to allow the Fund to
invest up to 35% of its total assets in Global Debt
Securities;
(4)(B) To amend the Fund's principal investment objective and
investment policies regarding investments in high grade
fixed-income securities;
(4)(C) To amend the Fund's investment policies to allow the Fund to
invest up to 15% of its total assets in debt securities rated,
or judged by the Investment Manager to be, below investment
grade at the time of investment;
(4)(D) To amend the Fund's investment policies to allow the Fund to
invest in equity securities issued by certain U.S. registered
investment companies; and
(4)(E) To amend the Fund's investment policies and investment
restrictions to allow the Fund to use derivatives.
The Board of Directors has fixed the close of business on January 26,
1999 as the record date for the determination of shareholders entitled to vote
at the meeting or any adjournment thereof. The appointed proxies will vote in
their discretion on any other business as may properly come before the meeting
or any adjournments or postponements thereof.
In the event that the necessary quorum to transact business or the vote
required to approve or reject any proposal is not obtained at the meeting, the
persons named as proxies may propose one or more adjournments of the meeting, in
accordance with applicable law, to permit further solicitation of proxies. Any
such adjournment will require the affirmative vote of the holders of a majority
of the Fund's shares
<PAGE>
present in person or by proxy at the meeting. The persons named as proxies will
vote in favor of such adjournment those proxies which they are entitled to vote
in favor and will vote against any such adjournment those proxies to be voted
against that proposal.
By Order of the Board of Directors,
Roy M. Randall, Secretary
Plainsboro, New Jersey
February __, 1999
IMPORTANT: You are cordially invited to attend the meeting. Shareholders who do
not expect to attend the meeting in person are requested to complete, date and
sign the enclosed form of proxy and return it promptly in the addressed envelope
which requires no postage and is intended for your convenience. Your prompt
return of the enclosed proxy may save the Fund the necessity and expense of
further solicitations to assure a quorum at the meeting. The enclosed proxy is
being solicited on behalf of the Board of Directors of the Fund.
<PAGE>
PROXY STATEMENT
THE FIRST COMMONWEALTH FUND, INC.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
-----------
Annual Meeting of Shareholders
March 26, 1999
-----------
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of The First Commonwealth Fund,
Inc., a Maryland corporation (the "Fund"), to be voted at the Annual Meeting of
Shareholders of the Fund (the "Meeting") to be held at the offices of Prudential
Securities Incorporated, One Seaport Plaza, 35th Floor, New York, New York, on
Friday, March 26, 1999, at 2:00 p.m. (Eastern time). The approximate mailing
date for this Proxy Statement is February 12, 1999 or as soon as practicable
thereafter.
All properly executed proxies received prior to the Meeting will be
voted at the Meeting in accordance with the instructions marked on the proxy
card. Unless instructions to the contrary are marked, proxies submitted by
holders of the Fund's common stock will be voted in favor of Proposals 1, 3,
4(A), 4(B), 4(C), 4(D) and 4(E) and proxies submitted by holders of the Fund's
preferred stock will be voted in favor of Proposals 2, 3, 4(A), 4(B), 4(C), 4(D)
and 4(E). Any proxy may be revoked at any time prior to its exercise by giving
written notice to the Secretary of the Fund (addressed to the Secretary at the
principal executive office of the Fund, 800 Scudders Mill Road, Plainsboro, New
Jersey 08536).
The following table indicates which class of the Fund's shareholders is
being solicited with respect to each Proposal to be considered at the Meeting.
<TABLE>
<CAPTION>
Solicitation of Solicitation of Vote
Vote of Preferred
of Common Stockholders
Stockholders (Series W-7)
--------------- ---------------------
<S> <C> <C>
Proposal 1:
Election of Class I Directors Yes No
Proposal 2:
Election of Preferred Directors No Yes
Proposal 3:
Selection of Independent Public Accountants Yes Yes
Proposal 4(A):
Amendments to the Fund's Investment Policies to Allow the Fund to Yes Yes
Invest up to 35% of its Total Assets in Global Debt Securities
Proposal 4(B):
Amendments to the Fund's Principal Investment Objective and Investment Yes Yes
Policies Regarding Investments in High Grade Fixed-income Securities
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Solicitation of Solicitation of Vote
Vote of Preferred
of Common Stockholders
Stockholders (Series W-7)
---------------- ---------------------
<S> <C> <C>
Proposal 4(C)
Amendment to the Fund's Investment Policies to Allow the Yes Yes
Fund to invest up to 15% of its Total Assets in Debt Securities
Rated, or Judged by the Investment Manager to be, Below Investment
Grade at the Time of Investment
Proposal 4(D):
Amendment to the Fund's Investment Policies to allow the Fund to Invest Yes Yes
in Equity Securities Issued by Certain U.S. Registered Investment
Companies
Proposal 4(E):
Amendments to the Fund's Investment Policies and Investment Yes Yes
Restrictions to Allow the Fund to Use Derivatives
</TABLE>
The Board of Directors has fixed the close of business on January 26,
1999 as the record date for the determination of shareholders entitled to notice
of and to vote at the Meeting and at any adjournment thereof. Shareholders on
the record date will be entitled to one vote for each share held. As of January
26, 1999, the Fund had outstanding ____________________ shares of common stock,
par value $0.001 per share and 1,200 shares of Auction Market Preferred Stock,
Series W-7, par value $0.001 per share. [To the best knowledge of management of
the Fund, as of the record date, no persons or group beneficially owned more
than five percent of the outstanding shares of common or preferred stock of the
Fund.]
The Board of Directors of the Fund knows of no business other than that
mentioned in the Notice of the Meeting which will be presented for consideration
at the Meeting. If any other matter is properly presented, it is the intention
of the persons named in the enclosed proxy to vote in accordance with their best
judgment.
The Fund will furnish, without charge, a copy of the Fund's annual
report for its fiscal year ended October 31, 1998, and any more recent reports,
to any Fund shareholder upon request. To request a copy, please call or write to
the Fund's Administrator, Princeton Administrators, L.P., at 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, Telephone: 1-800-543-6217.
PROPOSAL 1: ELECTION OF CLASS I DIRECTORS
The Fund's Articles of Incorporation provide that the Board of
Directors to be elected by holders of the Fund's common stock will be divided
into three classes, as nearly equal in number as possible, each of which, after
a transition period, will serve for three years with one class being elected
each year. Each year the term of office of one class will expire. David L.
Elsum, Laurence S. Freedman, Michael R. Horsburgh, David Manor and E. Duff
Scott, Directors who were elected to serve until the Meeting, have been
nominated for a three year term to expire at the Annual Meeting of Shareholders
to be held in 2002 and until their successors are duly elected and qualified.
The nominees have indicated an intention to serve if elected and have consented
to be named in this Proxy Statement.
It is the intention of the persons named in the enclosed proxy to vote
in favor of the election of the persons listed below under Class I for a
three-year term. The Board of Directors of the Fund knows of no
2
<PAGE>
reason why any of these nominees will be unable to serve, but in the event of
any such inability, the proxies received will be voted for such substituted
nominees as the Board of Directors may recommend.
The following table sets forth certain information concerning each
nominee for election as a Director and each Director of the Fund. Each of the
nominees is currently a Director of the Fund.
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially
Owned and %
Present Office with the Fund, of Total
Name and Address Principal Occupation or Director Outstanding
of Each Director or Nominee Employment and Directorships Age Since on 10/31/98 (1)
--------------------------- ----------------------------- --- -------- ---------------
Class I (Current Directors and Nominees for a Term Expiring
at the Annual Meeting to be held in 2002)
<S> <C> <C> <C> <C>
David Lindsay Elsum, A.M.++ Director, The First Australia Fund, 61 1992 --
9 May Grove Inc. (since 1985), The First Australia
South Yarra, Victoria 3141 Prime Income Fund, Inc.(since 1986)and
Australia First Australia Prime Income Investment
Company Limited (since 1986);
Director, MaxiLink Limited; Chairman,
Audit Victoria; Chairman, Melbourne
Wholesale Fish Market Ltd.; Chairman,
Queen Victoria Market; Chairman,
Stodart Investment Pty. Ltd.;
Director, First Resources Development
Fund Limited; Director, Stateguard
Friendly Society; Member, Corporations
and Securities Panel of the Australian
Securities and Investments Commission;
Member, Federal Administrative Appeals
Tribunal; Adviser, TASA International
Executive Search; Chairman, Health
Computing Services Limited
(1990-1996); Director, IlTec Limited
(1993-1996); President, State
Superannuation Fund of Victoria
(1986-1993); Managing Director, The
MLC Limited (insurance) (1984-1985);
Managing Director, Renison Goldfields
Consolidated Limited (mining)
(1983-1984).
Laurence S. Freedman* President of the Fund (since 1992); 55 1992 --
Level 3 Vice President and Director (since
190 George Street 1985) and Chairman (since 1995), The
Sydney, N.S.W. 2000 First Australia Fund, Inc.; Vice
Australia President and Director (since 1986)and
Chairman (since 1995), The First
Australia Prime Income Fund, Inc.;
Joint Managing Director, First
Australia Prime Income Investment
Company Limited (since 1986); Founder
and Joint Managing Director,
3
<PAGE>
EquitiLink Australia Limited (since
1981); Director, EquitiLink Limited
(since 1986); Director, EquitiLink
Holdings Limited (since 1998);
Director, EquitiLink International
Management Limited (since 1985);
Chairman and Joint Managing Director,
MaxiLink Limited (since 1987);
Chairman and Joint Managing Director,
First Resources Development Fund
Limited (since 1994); Managing
Director, Link Enterprises
(International) Pty. Limited
(investment management company) (since
1980); Director, Telecasters North
Queensland Limited (since 1993);
Director, Ten Group Limited (since
1994); Director, Ten Network Holdings
Limited (since 1998); Manager of
Investments, Bankers Trust Australia
Limited (1978-1980); Investment
Manager, Consolidated Goldfields
(Australia) Limited (natural resources
investments) (1975-1978).
Michael R. Horsburgh Director, The First Australia Fund, 53 1994 --
21,22/FI Ssang Yong Tower 1985); Director, The First Australia
23-2 Yuido-dong Prime Income Fund, Inc. (since 1986);
Youngdungpo-gu, Executive Vice President, Hannuri
Seoul 150-010, Korea Securities & Investment (since October
1997); Director, The First Hungary
Fund; Director and Managing Director,
Carlson Investment Management, Inc.
(1991-October 1997); Director and
Chief Executive Officer, Horsburgh
Carlson Investment Management, Inc.
(1991-1996); Managing Director,
Barclays de Zoete Wedd Investment
Management (U.S.A.) (1990-1991);
Special Associate Director, Bear,
Stearns & Co. Inc. (1989-1990); Senior
Managing Director, Bear, Stearns & Co.
Inc. (1985-1989); General Partner,
Bear, Stearns & Co. Inc. (1981-1985);
previously, Limited Partner, Bear,
Stearns & Co. Inc.
4
<PAGE>
David Manor* Treasurer of the Fund; Director and 58 1992 --
P. O. Box 578 Treasurer, The First Australia Prime
17 Bond Street Income Fund, Inc. (since 1988);
St. Helier, Jersey Treasurer, The First Australia Fund,
Channel Islands JE4 5XB Inc. and First Australia Prime Income
Investment Company Limited; Executive
Director, EquitiLink Australia Limited
and EquitiLink Limited (1986-1998);
Director, EquitiLink International
Management Limited (since 1987).
E. Duff Scott+ Director, First Australia Prime Income 62 1992 --
8 Sunnydene Circle Investment Company Limited (since
Toronto, Ontario M4N 3J6 1989); President, Multibanc Financial
Canada Corporation and Multibanc NT Financial
Corporation (investment holding
companies) (since 1990); Chairman,
Peoples Jewelers Corporation (retail
jeweler) (since 1993); Chairman, QLT
Phototherapeutics (biopharmaceuticals)
(since 1991); Chairman,
Prudential-Bache Securities Canada
(investment banking) (1988-1990);
Chairman, The Toronto Stock Exchange
(1987-1989).
CLASS II (Term Expiring at the Annual Meeting to be held in 2000)
Rt. Hon. Malcolm Fraser, A.C., C.H.+ Director, The First Australia Fund, 68 1992 --
44/55 Collins Street Inc. (since 1985), The First Australia
Melbourne, Victoria 3000 Prime Income Fund, Inc. (since 1986)
Australia and First Australi Prime Income
Investment Company Limited (since
1986); International Consultant on
Political, Economic and Strategic
Affairs (since 1983); InterAction
Council for Former Heads of Government
(since 1987, Chairman since 1997);
Chairman, CARE Australia (since 1987);
Fellow, Center for International
Affairs, Harvard University;
International Council of Associates,
Claremont University; Consultant, The
Prudential Insurance Company of
America; Partner, Nareen Pastoral
Company (agriculture) (until 1998);
President, CARE International
(1990-1995); Member, ANZ International
Board of Advice (1987-1990);
Co-Chairman, Commonwealth Eminent
5
<PAGE>
Persons Group on Southern Africa
(1985- 1986); Chairman, United Nations
Committee on African Commodity
Problems (1989-1990);
Parliamentarian-Prime Minister of
Australia (1975-1983).
William J. Potter+++ Director, The First Australia Fund, 50 1992 --
236 West 27th Street Inc. (since 1985), The First Australia
New York, NY 10001 Prime Income Fund, Inc. (since 1986)
and First Australia Prime Income
Investment Company Limited (since
1986); President, Ridgewood Group
International Ltd. (investment
banking) (since 1989); Director,
Ridgewood Capital Funding, Inc.
(NASD); Director and Chairman of
Finance, National Foreign Trade
Association (USA); Director,
Alexandria Bancorp (banking group in
Cayman Islands); Director, Alexandria
Bancorp Limited; Director, Canadian
Health Foundation; Director, Columbus
Mills Ltd.; Director, E.C. Power,
Inc.; Director, Finanz Interlaken A.G.
(Swiss); Director, Impulsora del Fondo
Mexico; Director, International
Panorama Resources Ltd.; Consultant,
Trieste Futures Exchange, Inc.;
Partner, Sphere Capital Partners
(corporate consulting) (1989-1997);
Managing Director, Prudential-Bache
Securities Inc. (1984-1989); First
Vice President, Barclays Bank, plc
(1982-1984); previously, various
positions with Toronto Dominion Bank.
Peter D. Sacks++ Director, The First Australia Fund, 53 1992 --
33 Yonge Street Inc. (since December 1998); Director,
Suite 706 The First Australia Prime Income Fund,
Toronto, Ontario M5E 1G4 Inc. (since 1993); Director, First
Canada Australia Prime Income Investment
Company Limited (since December 1998);
President and Director, Toron Capital
Markets, Inc. (currency, interest rate
and commodity risk management) (since
1988); Director, Toron Capital
Management Ltd. (commodity trading
adviser) (since 1994); President and
Director, Toron Asset Management Inc.
(portfolio management)
6
<PAGE>
(since 1998); Director, First Horizons
Holdings Limited.
Brian M. Sherman* Vice President (since 1992) and 55 1992 --
Level 3 Chairman (since 1995) of the Fund;
190 George Street President and Director, The First
Sydney, N.S.W. 2000 Australia Fund, Inc. (since 1985) and
Australia The First Australia Prime Income Fund,
Inc. (since 1986); Joint Managing
Director (since 1986) and Chairman
(since 1995), First Australia Prime
Income Investment Company Limited;
Chairman, EquitiLink Limited (since
1986); Chairman and Joint Managing
Director, EquitiLink Australia Limited
(since 1981); Chairman and Director,
EquitiLink Holdings Limited (since
1998); Director, EquitiLink
International Management Limited
(since 1985); Joint Managing Director,
MaxiLink Limited (since 1987);
Executive Director, MaxiLink
Securities Limited (since 1987); Joint
Managing Director, First Resources
Development Fund Limited (since 1994);
Director, Telecasters North Queensland
Limited (since 1993); Director, Ten
Group Limited (since 1994); Director,
Ten Network Holdings Limited (since
1998); Director, Sydney Organizing
Committee for the Olympic Games.
CLASS III (Term Expiring at the Annual Meeting to be held in 2001)
Sir Roden Cutler, V.C., A.K., Chairman (1985-1995) and Director 82 1992 --
K.C.M.G., K.C.V.O., C.B.E., K.St.J. (since 1985), The First Australia
442 Edgecliff Road Fund, Inc.; Chairman (1986-1995) and
Edgecliff, N.S.W. 2027 Director (since 1986), The First
Australia Australia Prime Income Fund, Inc. and
First Australia Prime Income
Investment Company Limited; Australia
Director, Rothmans Holding Ltd.
(formerly Rothmans Pall Mall)
(tobacco) (1981-1994); Chairman, State
Bank of New South Wales (1981-1986);
Governor of New South Wales, Australia
(1966-1981).
7
<PAGE>
Michael Gleeson-White, A.O. * Director, First Australia Prime Income 73 1992 --
9A Wellington Street Investment Company Limited (since
Woollahra, N.S.W. 2025 1986); Director, MaxiLink Limited
Australia (since 1987); Deputy Chairman, Art
Gallery of New South Wales Foundation;
Director, Cleveland Shopping Centre
Pty. Ltd.; Consultant, EquitiLink
Limited (1990- 1996); Chairman, Bank
of Singapore (Australia) Limited
(1987-1990).
John T. Sheehy++ Director, The First Australia Fund, 56 1992 --
2700 Garden Road Inc. (since 1985), The First Australia
Suite G Prime Income Fund, Inc. (since 1986)
Monterey, CA 93940 and First Australia Prime Income
Investment Company Limited (since
1986); Managing Director, Black &
Company (broker-dealer and investment
bankers); Managing Director, The Value
Group LLC (merchant banking) (since
1997); Director, Greater Pacific Food
Holdings, Inc. (food industry
investment company) (since 1993);
Director, Sandy Corporation (corporate
consulting, communication and
training) (since 1986); Director,
Video City, Inc. (video retail
merchandising); Director, Sphere
Capital Advisors (investment adviser);
Partner, Sphere Capital Partners
(corporate consulting) (since 1987);
Associate Director, Bear, Stearns &
Co. Inc. (1985-1987); previously,
Limited Partner, Bear, Stearns & Co.
Inc.
Warren C. Smith Director, First Australia Prime Income 43 1992 --
1002 Sherbrooke St. West Investment Company Limited (since
Suite 1600 1993); Managing Editor, BCA
Montreal, Quebec H3A 3L6 Publications Ltd. (financial
Canada publications,including The Bank Credit
Analyst) (since 1982).
- ---------------------
* Directors considered by the Fund and its counsel to be persons who are
"interested persons" (which as used in this Proxy Statement is as defined
in the Investment Company Act of 1940, as amended (the "1940 Act")) of the
Fund or of the Fund's investment manager or investment adviser. Messrs.
Freedman, Sherman and Manor are deemed to be interested persons because of
their affiliation with the Fund's investment manager and investment
adviser, or because they are officers of the Fund or both. Mr.
Gleeson-White was considered an interested director because of his
affiliation with the Fund's investment adviser until August 12, 1998 when
he sold his remaining interest in the direct parent of the investment
adviser. See "Further Information Regarding
8
<PAGE>
Directors and Officers--Relationship of Directors or Nominees with the
Investment Adviser and the Investment Manager."
+ Messrs. Fraser, Potter and Scott are members of the Audit Committee.
++ Messrs. Elsum, Potter, Sacks and Sheehy are members of the Contract Review
Committee.
(1) The information as to beneficial ownership is based on statements
furnished to the Fund by the Directors and nominees. As of October 31,
1998, the Directors listed above as a group owned no shares of the Fund's
common or preferred stock.
</TABLE>
Please also see the information contained below under the heading
"Further Information Regarding Directors and Officers."
The Board of Directors recommends that holders of common stock vote FOR
the election of the five Class I nominees to the Fund's Board of Directors.
PROPOSAL 2: ELECTION OF PREFERRED DIRECTORS
The Fund has outstanding 1,200 shares of Auction Market Preferred
Stock, Series W-7, with an aggregate liquidation preference of $30,000,000.
Section 18 of the 1940 Act requires that the holders of any preferred
shares, voting separately as a single class without regard to series, have the
right to elect at least two Directors at all times. Dr. Anton E. Schrafl and
___________ have been nominated to fill the two preferred stock Board seats and
to represent exclusively the holders of all series of the Fund's preferred stock
(the "Preferred Directors") and to serve as Preferred Directors until the Annual
Meeting of Shareholders to be held in 2000. Dr. Schrafl and Mr. __________ are
currently Preferred Directors. The nominees have indicated an intention to serve
if elected and have consented to be named in this Proxy Statement.
It is the intention of the persons named in the enclosed proxy to vote
in favor of the election of the persons listed below. The Board of Directors of
the Fund knows of no reason why either of these nominees will be unable to
serve, but in the event of any such inability, the proxies received will be
voted for such substituted nominees as the Board of Directors may recommend.
The following table sets forth certain biographical information
concerning each of the nominees as a Preferred Director of the Fund.
9
<PAGE>
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially
Owned and %
Present Office With the Fund, of Total
Name and Address Principal Occupation or Director Outstanding
of Each Director or Nominee Employment and Directorships Age Since on 10/31/98 (1)
--------------------------- ----------------------------- --- -------- --------------
<S> <C> <C> <C> <C>
Dr. Anton E. Schrafl Director, The First Australia Prime 66 1993 --
Talstrasse 83 Income Fund, Inc. (since December
CH-8001 Zurich 1998); Director, First Australia
Switzerland Prime Income Investment Company
Limited; Deputy Chairman, "Holderbank"
Financiere Glaris A.G. (mfg. cement
and allied materials); Director,
Organogenesis, Inc. [add nominee]
- ---------------------
(1) As of October 31, 1998, the Preferred Directors of the Fund as a group
owned no shares of the Fund's common or preferred stock.
</TABLE>
Please also see the information contained below under the heading
"Further Information Regarding Directors and Officers."
The Board of Directors recommends that holders of preferred stock vote
FOR the election of the two nominees as Preferred Directors to the Fund's Board
of Directors.
PROPOSAL 3: SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Fund, including a majority of the
Directors who are not interested persons of the Fund, has selected
PricewaterhouseCoopers LLP, independent public accountants, to examine the
financial statements of the Fund for the fiscal year ending October 31, 1999.
This appointment is subject to ratification or rejection by the shareholders of
the Fund.
Audit services performed by PricewaterhouseCoopers LLP during the most
recent fiscal year included examination of the financial statements of the Fund,
services related to filings with the Securities and Exchange Commission and
consultation on matters performed by the firm related to the preparation and
filing of tax returns. The Fund knows of no direct or indirect financial
interest of PricewaterhouseCoopers LLP in the Fund.
Representatives of PricewaterhouseCoopers LLP are expected to be
present at the Meeting and will have the opportunity to respond to questions
from shareholders and to make a statement if they so desire.
The Board of Directors recommends that shareholders vote FOR
ratification of the selection of PricewaterhouseCoopers LLP as independent
public accountants for the fiscal year ending October 31, 1999.
10
<PAGE>
PROPOSAL 4: AMENDMENT OF THE FUND'S
PRINCIPAL INVESTMENT OBJECTIVE,
INVESTMENT POLICIES AND INVESTMENT RESTRICTIONS
BOARD RECOMMENDATION
At a meeting of the Board held on December 15, 1998, the Fund's
Investment Manager and Investment Adviser (together, "EquitiLink") proposed that
the Fund's principal investment objective, investment policies and investment
restrictions be expanded to enable the Fund to invest up to 35% of its total
assets in Global Debt Securities (the "Proposal"). The Proposal reflected the
culmination of several months of internal evaluation at EquitiLink as to the
Fund's future in a setting in which low inflation, declining interest rates and
a moderate economic environment is expected to prevail in Australia, Canada, New
Zealand and the United Kingdom, as well as in other G7 markets. Although the
Fund would continue to invest at least 65% of its total assets in securities
denominated in the Australian Dollar, the Canadian Dollar, the New Zealand
Dollar, the Pound Sterling or any successor currency (the "Commonwealth
Currencies"), investment of a portion of the Fund's portfolio in Global Debt
Securities is believed by EquitiLink to offer the opportunity to achieve greater
diversification and scope for capital gains, as well as higher yields compared
with interest rates prevailing in Australia, Canada, New Zealand and the United
Kingdom. Related proposals, as discussed more completely below, would reduce the
average quality of its portfolio to A or better and permit the Fund to invest a
portion of its assets in below investment grade debt securities, to use
derivatives to manage currency and interest rate risk, as well as replicate or
substitute for physical securities, and to invest in the securities of other
investment companies that themselves invest in Global Debt Securities. For
purposes of this proxy statement, the term "Global Debt Securities" includes
securities of issuers located in, or securities denominated in the currency of,
countries other than Australia, Canada, New Zealand or the United Kingdom.
AFTER DISCUSSION, BY THE UNANIMOUS VOTE OF THE INDEPENDENT DIRECTORS,
AS WELL AS THE UNANIMOUS VOTE OF THE FULL BOARD, THE BOARD DETERMINED TO
RECOMMEND TO THE FUND'S SHAREHOLDERS THAT THE FUND'S PRINCIPAL INVESTMENT
OBJECTIVE, INVESTMENT POLICIES AND INVESTMENT RESTRICTIONS BE AMENDED IN ORDER
TO ENABLE THE FUND TO INVEST UP TO 35% OF ITS TOTAL ASSETS IN GLOBAL DEBT
SECURITIES.
RELATED ASPECTS OF THE PROPOSAL
As part of the proposal, EquitiLink has proposed that the Fund modify
its investment objective, which currently requires that at least 75% of the
Fund's investments be rated high quality at the time of investment, or judged by
the Investment Manager, to be of equivalent quality. The proposed modification
would provide that the market value weighted average credit quality of the
Fund's investments must be A or better at all times. See Proposal 4(B) below.
Bonds rated AAA or AA are considered high quality. S&P defines an A rating as:
"Bonds rated A have a very strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in the higher rated
categories." Moody's defines an A rating as: "Bonds which are rated A possess
many favorable investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future."
11
<PAGE>
EquitiLink has also proposed that the Fund be permitted to invest up to
15% of its total assets in debt securities rated below investment grade at the
time of investment, but not less than B- or if not rated, judged by the
Investment Manager to be of comparable quality. See Proposal 4(C) below. In the
event that any of the Fund's investments subsequently fall below B- the Fund
will dispose of them in an orderly fashion. If the Proposal is approved, the
Fund could invest in below investment grade debt securities across the entire
portfolio, including securities denominated in Commonwealth Currencies. In the
opinion of EquitiLink, this will give the Fund greater range to purchase higher
yielding instruments available both within the Commonwealth countries as well as
in other global markets. It will also facilitate investment in emerging markets
where credit ratings are more likely to be lower than investment grade.
EquitiLink has also proposed that the Fund be permitted to invest a
portion of its assets in the equity securities of other investment companies
that are registered under the 1940 Act and that are themselves invested
primarily in fixed-income securities. This will permit the Fund to take
advantage of the particular expertise of other funds that concentrate in a
global debt sector. See Proposal 4(D) below. The Fund intends to limit its
investments so that, as determined immediately after a securities purchase is
made: (i) not more than 5% of the value of its total assets will be invested in
the securities of any one investment company; (ii) not more than 10% of the
value of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (iii) not more than 3% in the aggregate of
the outstanding voting stock of any one investment company will be owned by the
Fund. In addition, in the case of investments in closed-end funds registered
under the 1940 Act, not more than 10% of the total outstanding voting stock of
the closed-end fund will be owned by the Fund and any other fund having the same
investment manager or adviser. As a shareholder of another investment company,
the Fund would bear, along with other shareholders, its pro rata portion of the
other investment company's expenses, including advisory fees. These expenses
would be in addition to the advisory and other expenses that a Fund bears in
connection with its own operations.
With respect to the portion of the portfolio not denominated in a
Commonwealth Currency, EquitiLink has proposed that the Fund be permitted to use
derivatives to manage both currency and interest rate risk and to replicate, or
substitute for, physical securities in order to achieve transactional
efficiencies. With respect to investments denominated in Commonwealth
Currencies, derivatives could only be used to manage interest rate risk. See
Proposal 4(E) below.
Appendix A discusses the risks involved with investing in higher
yielding securities, the risks involved in global investment, risks associated
with derivatives, and its management of risk from derivatives and its management
of credit risk, as well as EquitiLink's review of structural changes in the
Commonwealth bond markets. Appendix B describes S&P and Moody's ratings systems.
These related aspects of the Proposal require a vote of the
shareholders separate from the vote allowing the Fund to invest a portion of its
assets in Global Debt Securities. However, Proposal 4(A) cannot be fully or
properly implemented if Proposals 4(B), 4(C), 4(D) and 4(E) are not also
approved. As a result, unless all five parts of Proposal 4 are approved by
shareholders, EquitiLink will not implement any portion of Proposal 4 which is
approved by shareholders.
BOARD CONSIDERATIONS
In considering whether to recommend to shareholders that the Fund's
principal investment objective, investment policies and investment restrictions
be amended to permit investment of up to 35% of the Fund's total assets in
Global Debt Securities and, in that connection, to permit the Fund to invest a
12
<PAGE>
portion of its assets in below investment grade securities and reduce the
average quality of its portfolio, as well as to use derivatives, the Board
considered the risks involved.
The Board took into account that investment in certain global debt
markets, especially in emerging markets, may expose the Fund to greater interest
rate risk, foreign exchange risk, credit risk, political and economic risk
("event risk") and liquidity risk, than is currently the case. These risks, as
well as risks associated with less transparent accounting and auditing standards
and less developed legal systems, can, the Board recognized, increase the
likelihood that losses in net asset value may more than offset the positive
effect of higher apparent yields in these markets. In addition, the Board noted
that the Fund's total investment return may be expected to become more volatile,
and that the Fund's $30 million outstanding Auction Market Preferred Stock could
exacerbate this increased volatility.
The Board took into account that no more than 35% of the Fund's total
assets could be exposed to global debt markets, other than Australia, Canada,
New Zealand and the United Kingdom, and that EquitiLink would seek to mitigate
risk through an active management style operating within pre-set risk limits. It
also considered the fact that investors who do not wish to assume the greater
risk associated with global investments would be able to sell their holdings to
investors who seek higher yields, while accepting the concomitant increase in
risk.
The Board noted that at the Fund's inception in 1992, interest rates in
the Commonwealth Countries were then higher than interest rates prevailing in
the United States but that in more recent years improving economic fundamentals
in the Commonwealth Countries, including lower inflation budget deficit
containment and lower unemployment rates, have served to narrow or eliminate the
favorable spread over U.S. bond rates. Expanding the Fund's investment policies
to include investment in Global Debt Securities in markets with interest rates
currently significantly higher than prevailing rates in the United States, and
in lower quality bonds which generally offer higher yields, could provide a
means of improving the Fund's return.
The Board also noted that Equitilink indicated that, in light of the
prevailing uncertainties in global markets, it proposes to implement the new
strategy in two phases if it is approved by shareholders. Phase One would
involve, upon shareholder approval, immediately investing up to 20% of the
Fund's assets in Asian debt markets which EquitiLink believes currently
represent the most attractive sector because the reward is believed to be
commensurate with the risk. Phase One investments would be made through the
selective sale of existing securities and the reinvestment of the proceeds of
maturing securities. Phase Two could involve investment into global markets
outside Asia and the four Commonwealth countries, as well as investment in other
investment companies registered under the 1940 Act if believed justified by
EquitiLink and the Board. EquitiLink has advised that it currently believes that
Phase Two would be implemented most probably with the proceeds of a rights
offering.
The Fund's current principal investment objective is high current
income by investing in high grade fixed-income securities denominated in the
Commonwealth Currencies. As a secondary investment objective, the Fund seeks
capital appreciation, but only when consistent with its principal investment
objective. However, permitting the Fund to invest up to 35% of its total assets
in Global Debt Securities will require amendments to the Fund's principal
investment objective, as well as certain investment policies and investment
restrictions which require shareholder approval.
13
<PAGE>
PROPOSAL 4 (A): AMENDMENTS TO THE FUND'S INVESTMENT POLICIES TO ALLOW THE FUND
TO INVEST UP TO 35% OF ITS TOTAL ASSETS IN GLOBAL DEBT SECURITIES.
The Board of Directors has approved, subject to approval by the
shareholders, a change in certain of the Fund's investment policies which would
allow the Fund to invest up to 35% of its total assets in Global Debt
Securities.
It is proposed that the portion of the Fund's investment policies which
now reads:
"Except in anticipation of dividend or other payments to be made in
U.S. dollars, it is expected that normally all of the Fund's assets
will be invested in a portfolio of debt securities denominated in the
Commonwealth Currencies, namely, the Australian Dollar, the Canadian
Dollar, the New Zealand Dollar and the Pound Sterling or any successor
currency."
be amended to read as set forth below:
"Except in anticipation of dividend or other payments to be made in
U.S. dollars, it is expected that normally at least 65% of the Fund's
total assets will be invested in a portfolio of debt securities
denominated in the Commonwealth Currencies, namely, the Australian
Dollar, the Canadian Dollar, the New Zealand Dollar and the Pound
Sterling or any successor currency."
and that the following paragraph be added:
"The Fund may invest the balance of its assets (1) in the securities of
Developed Market and/or Emerging Market issuers, including securities
issued by Developed Market or Emerging Market governmental entities, as
well as by banks, companies and other entities which are located in
Developed Market or Emerging Market countries, whether or not
denominated in the currency of the Developed Market or Emerging Market
country, and (2) in debt securities of other issuers, denominated in,
or linked to, the currency of a Developed Market or Emerging Market
country, including securities issued by supranational issuers, such as
The World Bank, and derivative debt securities that replicate, or
substitute for, the currency of a Developed Market or Emerging Market
country. The maximum exposure to any one Developed Market country or
currency is limited to 25% of the Fund's total assets. The maximum
exposure to any Emerging Market country or currency is limited to 15%
of the Fund's total assets."
"Developed Markets" are those countries contained in the Salomon Smith
Barney World Government Bond Index, excluding Australia, Canada, New Zealand and
the United Kingdom (the "Commonwealth Countries"). "Emerging Markets" are those
countries which are not Developed Markets or Commonwealth Countries.
The Board of Directors recommends that shareholders vote FOR the
amendments to the Fund's investment policies to allow the Fund to invest up to
35% of its total assets in Global Debt Securities.
14
<PAGE>
PROPOSAL 4(B): AMENDMENTS TO THE FUND'S PRINCIPAL INVESTMENT OBJECTIVE AND
INVESTMENT POLICIES REGARDING INVESTMENTS IN HIGH GRADE FIXED-INCOME
SECURITIES.
The Board of Directors has approved, subject to the approval by the
shareholders, a change in the principal investment objective of the Fund and a
related change to the investment policies of the Fund. The Fund's principal
investment objective is high current income by investing in high grade
fixed-income securities denominated in the Commonwealth Currencies. Currently,
the Fund pursues this objective by investing at least 75% of its assets in
so-called high quality investments. To be considered high quality, an investment
(or issuer of an investment) must be rated, at the time of investment, not less
than Aa or Prime 2 by Moody's or AA or A-2 by S&P, or comparably rated by
another appropriate nationally or internationally recognized rating agency, or,
if unrated, judged by the Investment Manager to be of equivalent quality.
Primarily in order to be able to take advantage of higher interest
rates prevailing in those global debt markets where securities are not rated
high quality, the Board of Directors has approved, subject to the approval by
the shareholders, the following pair of changes:
It is proposed that the portion of the Fund's investment objectives
which now reads:
"The Fund's principal investment objective is to provide high current
income by investing in high grade fixed-income securities denominated
in the Commonwealth Currencies."
be amended to read as set forth below:
"The Fund's principal investment objective is to provide high current
income by investing in fixed-income securities denominated in the
Commonwealth Currencies."
It is also proposed that the investment policy of the Fund which now
reads:
"At least 75% of the Fund's investments (or the issuers of those
investments) will be rated, at the time of investment, high quality;
that is, rated not less than Aa or Prime 2 by Moody's, or AA or A-2 by
S&P, or comparably rated by another appropriate nationally or
internationally recognized rating agency, or, if unrated, judged by the
Investment Manager to be of equivalent quality."
be amended to read as set forth below:
"The market value weighted average of the Fund's investments (or the
issuers of those investments) will be rated not less than A2 by
Moody's, or A by S&P, or comparably rated by another appropriate
nationally or internationally recognized rating agency, or, if unrated,
judged by the Investment Manager to be of equivalent quality."
The Board of Directors recommends that shareholders vote FOR the
amendments to the Fund's principal investment objective and investment policies
regarding investments in high grade fixed-income securities denominated in the
Commonwealth Currencies.
15
<PAGE>
PROPOSAL 4(C): AMENDMENT TO THE FUND'S INVESTMENT POLICIES TO ALLOW THE FUND TO
INVEST UP TO 15% OF ITS TOTAL ASSETS IN DEBT SECURITIES RATED, OR JUDGED BY THE
INVESTMENT MANAGER TO BE, BELOW INVESTMENT GRADE AT THE TIME OF INVESTMENT.
The Board of Directors has approved, subject to approval by the
shareholders, additional changes in certain of the Fund's investment policies
regarding the quality of the Fund's investments. In Proposal 4(B) above, the
shareholders have been asked to approve a change to the Fund's investment
policies which would allow the Fund to maintain a market value weighted average
rating on its portfolio securities of not less than A2 by Moody's or A by S&P.
It is proposed that, in addition to changes proposed above, the portion
of the Fund's investment policies which now reads:
"The remainder of the Fund's investments (or issuers of those
investments) will be rated no less than A2 or A (or comparably rated)
by those rating agencies or, if unrated, judged by the Investment
Manager to be equivalent quality."
be amended to read as set forth below:
"Up to 15% of the Fund's investments (or the issuers of those
investments) may be rated below investment grade at the time of
investment; that is rated below Baa3 by Moody's or BBB- by S&P, or
comparably rated by another appropriate nationally or internationally
recognized rating agency, or if unrated, judged by the Investment
Manager to be of equivalent quality. All of the Fund's investments (or
the issuers of those investments) must be rated, at the time of
investment, B3 or better by Moody's, or B- or better by S&P, or
comparably rated by another appropriate nationally or internationally
recognized rating agency, or if unrated, judged by the Investment
Manager to be of equivalent quality."
For information regarding the potential risks of investing in below
investment grade securities, see "Risks Involved in Higher Yielding Investments"
and "Management of Credit Risk" in Appendix A.
The Board of Directors recommends that shareholders vote FOR the
amendment to the Fund's investment policies to allow the Fund to invest up to
15% of its total assets in debt securities rated, or judged by the
Investment Manager to be, below investment grade at the time of investment.
PROPOSAL 4(D): AMENDMENT TO THE FUND'S INVESTMENT POLICIES TO ALLOW THE FUND TO
INVEST IN EQUITY SECURITIES ISSUED BY CERTAIN U.S. REGISTERED INVESTMENT
COMPANIES.
The Board has also approved, subject to the approval of the
shareholders, an amendment to the Fund's investment policies to allow the Fund
to invest up to 10% of its assets in the equity securities of other investment
companies that are registered under the 1940 Act and that are themselves
invested primarily in fixed-income securities. This investment policy would
permit the Fund to take advantage of the particular expertise of other funds
that concentrate in a global debt sector.
It is proposed that the investment policies of the Fund be amended by
adding the following paragraph:
16
<PAGE>
"Subject to the limitations set forth in Section 12(d) of the
Investment Company Act of 1940, the Fund may invest up to 10% of its
total assets in equity securities issued by other investment companies
whose securities are registered under the 1940 Act and whose investment
objective is to invest primarily in fixed-income securities."
The Board of Directors recommends that shareholders vote FOR the
amendment to the Fund's investment policies to allow the Fund to invest in the
equity securities issued by certain U.S. registered investment companies.
PROPOSAL 4(E): AMENDMENTS TO THE FUND'S INVESTMENT POLICIES AND RESTRICTIONS TO
ALLOW THE FUND TO USE DERIVATIVES.
The Board has also approved a set of amendments to the Fund's
investment policies and restrictions which are necessary to permit the Fund to
use derivatives. This set of amendments also requires shareholder approval.
It is proposed that the investment policies of the Fund be amended by
adding the following paragraph:
"The Fund may, with respect to the Global Debt Securities portion of
its portfolio, use derivatives to manage currency and interest rate
risk and as a substitute for, or to replicate, physical securities. The
Fund may also use derivatives with respect to its investments
denominated in Commonwealth Currencies to manage interest rate risk
through investing in exchange traded interest rate derivatives."
It is also proposed that the investment restriction which now states
that the Fund may not:
"Make short sales of securities or maintain a short position."
be amended to provide that the Fund may not:
"Make short sales of securities or maintain a short position (other
than with respect to the use of derivatives)."
It is further proposed that the investment restriction which now states that the
Fund may not:
"(i) Purchase or sell real estate, except that it may purchase and sell
mortgage-backed securities, debt securities issued by real estate
investment trusts, and debt securities of companies which deal in real
estate or interest therein, (ii) purchase or sell commodities (other
than transactions in foreign currencies and forward currency contracts)
or (iii) invest in interests in oil, gas, or other mineral exploration
or development programs, except that it may purchase and sell debt
securities of companies that deal in oil, gas or other mineral
exploration or development programs."
be amended to provide that the Fund may not:
"(i) Purchase or sell real estate, except that it may purchase and sell
mortgage-backed securities, debt securities issued by real estate
investment trusts, and debt securities of companies which deal in real
estate or interest therein, (ii) purchase or sell commodities (other
than transactions in foreign currencies and forward currency contracts
or
17
<PAGE>
derivatives in accordance with the Fund's investment objectives and
policies) or (iii) invest in interests in oil, gas, or other mineral
exploration or development programs, except that it may purchase and
sell debt securities of companies that deal in oil, gas or other
mineral exploration or development programs."
For information regarding the potential risks of investing in
derivatives, see "Risks Associated with the Use of Derivatives" and "Management
of Risk from Derivatives" in Appendix A.
The Board of Directors recommends that shareholders vote FOR the
amendments to the Fund's investment policies and restrictions to allow the Fund
to use derivatives.
In addition to the proposed amendments to the Fund's investment
policies which require the approval of shareholders, the Fund's Board of
Directors has approved certain changes in its investment policies which do not
require the approval of shareholders. In order to give a complete statement of
the Fund's investment objectives, investment policies and investment
restrictions, Appendix C sets forth the entire text of the Fund's investment
objectives, investment policies and investment restrictions as they will read
upon amendment.
OTHER MATTERS
The Board of Directors knows of no business to be brought before the
Meeting other than as set forth above. If, however, any other matters properly
come before the Meeting, it is the intention of the persons named in the
enclosed proxy form to vote such proxies on such matters in accordance with
their best judgment.
FURTHER INFORMATION REGARDING DIRECTORS AND OFFICERS
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a)
of the Securities Exchange Act of 1934 (the "Exchange Act") and Section 30(h) of
the 1940 Act, as applied to the Fund, require the Fund's officers, Directors,
investment manager or adviser, affiliates of the investment manager or adviser,
and persons who beneficially own more than 10% of a registered class of the
Fund's outstanding securities ("Reporting Persons"), to file reports of
ownership of the Fund's securities and changes in such ownership with the
Securities and Exchange Commission and the New York Stock Exchange. Such persons
are required by Securities and Exchange Commission regulations to furnish the
Fund with copies of all such filings.
Based solely on its review of the copies of such forms received by it
and written representations from certain Reporting Persons that no year-end
reports were required for those persons, the Fund believes that during the
fiscal year ended October 31, 1998, its Reporting Persons complied with all
applicable filing requirements.
Committees and Board of Directors Meetings. The Board of Directors has
a standing Audit Committee, which consists of certain Directors who are not
interested persons of the Fund as defined in the 1940 Act. The principal purpose
of the Audit Committee is to review the scope and results of the annual audit
conducted by the Fund's independent public accountants and the evaluation by
such accountants of the accounting procedures followed by the Fund. The Board of
Directors also has a standing Contract Review Committee that reviews and makes
recommendations to the Board with respect to entering into, renewal or amendment
of the Management Agreement, the Advisory Agreement and the Administration
Agreement. The Board of Directors does not have a standing nominating or
compensation committee.
18
<PAGE>
During the Fund's fiscal year ended October 31, 1998, the Board of
Directors held four regularly scheduled meetings and four special meetings, the
Audit Committee held two meetings and the Contract Review Committee held one
meeting. Each of the Directors then in office attended at least 75% of the
aggregate number of regularly scheduled meetings of the Board of Directors and
all of the Committees of the Board on which he served. However, Dr. Schrafl
missed two special meetings and Mr. Horsburgh missed four special meetings
bringing their aggregate attendance at all board meetings below 75%.
Officers of the Fund. The officers of the Fund, all of whom serve at
the pleasure of the Board of Directors and, with the exceptions of Mr. Sechos
and Ms. Sananikone-Fletcher, all of whom have served the Fund since its
inception, are as follows: Laurence S. Freedman (age 55), President; Brian M.
Sherman (age 55), Sole Vice President; David Manor (age 58), Treasurer; Ouma
Sananikone-Fletcher (age 40), Assistant Vice President-Chief Investment Officer;
Barry G. Sechos (age 37), Assistant Treasurer; Roy M. Randall (age 62),
Secretary; Allan S. Mostoff (age 66), Assistant Secretary; and Margaret A.
Bancroft (age 60), Assistant Secretary.
The respective principal occupations during the past five years of the
Fund's officers are as follows: Messrs. Freedman, Sherman and Manor shown above
in the table of nominees and Directors under "Proposal 1: Election of Class I
Directors"; Ouma Sananikone-Fletcher, Investment Director, EquitiLink Australia
Limited (since 1994), Chief Executive Officer, EquitiLink Australia Limited
(since 1997), Director, EquitiLink Holdings Limited (since 1998) and Executive
Director, Banque Nationale de Paris (1986-1994); Barry G. Sechos, General
Counsel to EquitiLink Australia Limited (since 1993), Director, EquitiLink
Australia Limited (since 1994), Director, EquitiLink Holdings Limited (since
1998) and Solicitor, Allen, Allen & Hemsley (1986-1993); Roy M. Randall, Partner
of Stikeman, Elliott (Australian office of Canadian law firm) (since 1997) and
Partner, Freehill Hollingdale & Page (1981-1996); Allan S. Mostoff and Margaret
A. Bancroft, Partners of Dechert Price & Rhoads (U.S. law firm).
Relationship of Directors or Nominees with the Investment Adviser and
the Investment Manager. EquitiLink International Management Limited (the
"Investment Manager") serves as investment manager to the Fund and EquitiLink
Australia Limited (the "Investment Adviser") serves as investment adviser to the
Fund pursuant to a management agreement dated February 20, 1992 and an advisory
agreement dated February 20, 1992.
The Investment Manager is a Jersey, Channel Islands corporation
organized in October 1985 with its registered office located at Level 2, 17 Bond
Street, St. Helier, Jersey, Channel Islands. The Investment Adviser is an
indirect wholly owned subsidiary of EquitiLink Holdings Limited, an Australian
corporation. The registered offices of the Investment Adviser and EquitiLink
Holdings Limited are located at Level 3, 190 George Street, Sydney, N.S.W.,
Australia.
Messrs. Freedman and Sherman, each a Director of the Fund, serve as
directors of the Investment Manager. Mr. Manor, a Director of the Fund, serves
as the Managing Director of the Investment Manager. In addition, Messrs.
Freedman and Sherman are the principal shareholders of the Investment Manager,
of which Mr. Manor is also a shareholder. Messrs. Freedman and Sherman
also serve as, respectively, Joint Managing Director and Joint Managing Director
and Chairman of the Investment Adviser. Messrs. Freedman and Sherman are the
principal shareholders of EquitiLink Holdings Limited, of which Mr. Manor is
also a shareholder.
On March 15, 1998, Mr. Gleeson-White sold 169,278 shares of EquitiLink
Limited, the direct parent of the Investment Adviser, for 70 cents per share. On
August 12, 1998, Mr. Gleeson-White sold his remaining 330,722 shares of
EquitiLink Limited to the major shareholders of the corporation for 65 cents
19
<PAGE>
per share as part of the privatization of EquitiLink Limited. Until August 1997,
Mr. Gleeson-White was also a shareholder of the Investment Manager.
Compensation of Directors and Certain Officers. The following table
sets forth information regarding compensation of Directors by the Fund and by
the fund complex of which the Fund is a part for the fiscal year ended October
31, 1998. Officers of the Fund and Directors who are interested persons of the
Fund do not receive any compensation from the Fund or any other fund in the fund
complex. In the column headed "Total Compensation From Registrant and Fund
Complex Paid to Directors," the number in parentheses indicates the total number
of boards in the fund complex on which the Director serves.
Compensation Table
Fiscal Year Ended 10/31/98
<TABLE>
<CAPTION>
Total
Pension or Compensation
Aggregate Retirement Estimated From Registrant
Compensation Benefits Accrued Annual and Fund
From As Part of Benefits Upon Complex Paid
Name of Person, Position Registrant Fund Expenses Retirement to Directors
------------------------ ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Sir Roden Cutler.......................... $16,000 N/A N/A $48,250(3)
David Lindsay Elsum....................... 16,500 N/A N/A 48,750(3)
Laurence S. Freedman...................... 0 N/A N/A 0(3)
Rt. Hon. Malcolm Fraser................... 18,000 N/A N/A 60,750(3)
Michael Gleeson-White+.................... 2,826 N/A N/A 2,826(1)
Michael R. Horsburgh...................... 12,000 N/A N/A 43,250(3)
David Manor............................... 0 N/A N/A 0(2)
William J. Potter......................... 17,500 N/A N/A 60,750(3)
Peter D. Sacks............................ 15,500 N/A N/A 26,250(2)
E. Duff Scott............................. 16,000 N/A N/A 16,000(1)
John T. Sheehy............................ 16,000 N/A N/A 59,250(3)
Brian M. Sherman.......................... 0 N/A N/A 0(3)
Warren C. Smith........................... 16,000 N/A N/A 16,000(1)
Preferred Directors:
Roger C. Maddock*......................... 0 N/A N/A 0(3)
Dr. Anton E. Schrafl...................... 13,000 N/A N/A 13,000(1)
- ---------------
+ Mr. Gleeson-White was considered an interested director because of his
affiliation with the Fund's investment adviser until August 12, 1998 when
he sold his remaining interest in the direct parent of the investment
adviser. As a result, the amount shown is for the period August 13, 1998
through October 31, 1998 only.
* Mr. Maddock resigned from the Board of Directors effective December, 1998.
</TABLE>
ADDITIONAL INFORMATION
Expenses. The expense of preparation, printing and mailing of the
enclosed form of proxy and accompanying Notice and Proxy Statement will be borne
by the Fund. The Fund will reimburse banks, brokers and others for their
reasonable expenses in forwarding proxy solicitation material to the beneficial
owners of the shares of the Fund. In order to obtain the necessary quorum at the
Meeting, supplementary solicitation may be made by mail, telephone, telegraph or
personal interview. Such solicitation may be conducted by, among others,
officers and employees of the Fund, the Investment Manager, the Investment
20
<PAGE>
Adviser or State Street Bank and Trust Company, the Transfer Agent of the Fund.
It is anticipated that the cost of such supplementary solicitation, if any, will
be nominal. Shareholder Communications Corporation ("SCC") may be retained to
assist in the solicitation of proxies. If retained, SCC will be paid
approximately $10,000 by the Fund and the Fund will reimburse SCC for its
related expenses.
Solicitation and Voting of Proxies. Solicitation of proxies is being
made primarily by the mailing of this Proxy Statement with its enclosures on or
about February 12, 1999. As mentioned above, SCC may be engaged to assist in the
solicitation of proxies. As the meeting date approaches, certain shareholders of
the Fund may receive a call from a representative of SCC if the Fund has not yet
received their vote. Authorization to permit SCC to execute proxies may be
obtained by telephonic or electronically transmitted instructions from
shareholders of the Fund. Proxies that are obtained telephonically will be
recorded in accordance with the procedures set forth below. Management of the
Fund believes that these procedures are reasonably designed to ensure that the
identity of the shareholder casting the vote is accurately determined and that
the voting instructions of the shareholder are accurately determined.
In all cases where a telephonic proxy is solicited, the SCC
representative is required to ask the shareholder for such shareholder's full
name, address, social security or employer identification number, title (if the
person giving the proxy is authorized to act on behalf of an entity, such as a
corporation), the number of shares owned and to confirm that the shareholder has
received the Proxy Statement in the mail. If the information solicited agrees
with the information provided to SCC by the Fund, then the SCC representative
has the responsibility to explain the process, read the proposals listed on the
proxy card, and ask for the shareholder's instructions on each proposal. The SCC
representative, although he or she is permitted to answer questions about the
process, is not permitted to recommend to the shareholder how to vote, other
than to read any recommendation set forth in the proxy statement. SCC will
record the shareholder's instructions on the card. Within 72 hours, SCC will
send the shareholder a letter or mailgram to confirm the shareholder's vote and
asking the shareholder to call SCC immediately if the shareholder's instructions
are not correctly reflected in the confirmation.
If a shareholder wishes to participate in the Meeting of shareholders,
but does not wish to give a proxy by telephone, such shareholder may still
submit the proxy card originally sent with the Proxy Statement or attend in
person. Any proxy given by a shareholder, whether in writing or by telephone, is
revocable. A shareholder may revoke the accompanying proxy or a proxy given
telephonically at any time prior to its use by filing with the Fund a written
revocation or duly executed proxy bearing a later date. In addition, any
shareholder who attends the Meeting in person may vote by ballot at the Meeting,
thereby canceling any proxy previously given.
Vote Required. The presence at any shareholders' meeting, in person or
by proxy, of the holders of a majority of the shares entitled to be cast shall
be necessary and sufficient to constitute a quorum for the transaction of
business. In the event that the necessary quorum to transact business or the
vote required to approve or reject any proposal is not obtained at the Meeting,
the persons named as proxies may propose one or more adjournments of the Meeting
in accordance with applicable law, to permit further solicitation of proxies
with respect to any proposal which did not receive the vote necessary for its
passage or to obtain a quorum. With respect to those proposals for which there
is represented a sufficient number of votes in favor, actions taken at the
Meeting will be effective irrespective of any adjournments with respect to any
other proposals. Any such adjournment will require the affirmative vote of the
holders of a majority of the Fund's shares present in person or by proxy at the
Meeting. The persons named as proxies will vote in favor of such adjournment
those proxies which they are entitled to vote in favor and will vote against any
such adjournment those proxies to be voted against that proposal. For purposes
of determining the presence of a quorum for transacting business at the Meeting,
abstentions and broker "non-votes" will be treated as
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<PAGE>
shares that are present but which have not been voted. Broker non-votes are
proxies received by the Fund from brokers or nominees when the broker or nominee
has neither received instructions from the beneficial owner or other persons
entitled to vote nor has discretionary power to vote on a particular matter.
Accordingly, shareholders are urged to forward their voting instructions
promptly.
Election of Class I Directors of the Board of Directors (Proposal 1)
will require the affirmative vote of a majority of the holders of the
outstanding common stock present or represented by proxy at the Meeting.
Approval of the election of Preferred Directors of the Board of Directors
(Proposal 2) will require the affirmative vote of the holders of a majority of
the outstanding shares of preferred stock present or represented by proxy at the
Meeting. Ratification of the selection of the independent public accountants
(Proposal 3) will require the affirmative vote of the holders of a majority of
the outstanding shares of both the common and preferred stock present or
represented by proxy at the Meeting, voting together as a single class. Approval
of the proposed amendments to the Fund's principal investment objective,
investment policies and investment restrictions to allow the Fund to invest up
to 35% of its total assets in Global Debt Securities (Proposals 4(A), 4(B) 4(C),
4(D) and 4(E)) will each require the affirmative vote of a "majority of the
outstanding voting securities" of the Fund. The term "majority of the
outstanding voting securities" as defined in the Investment Company Act of 1940,
as amended, and as used in this Proxy Statement means: the affirmative vote of
the lesser of (1) 67% of the voting securities of the Fund present at the
meeting if more than 50% of the outstanding shares of the Fund are present in
person or by proxy or (2) more than 50% of the outstanding shares of the Fund.
The outstanding voting securities of the Fund include both the common and
preferred shares voting together as a single class.
Abstentions will have the effect of a "no" vote on all proposals.
Broker non-votes will have the effect of a "no" vote for Proposals 4(A), 4(B),
4(C), 4(D) and 4(E) if such vote is determined on the basis of obtaining the
affirmative vote of more than 50% of the outstanding shares of the Fund. Broker
non-votes will not constitute "yes" or "no" votes and will be disregarded in
determining the voting securities "present" if such vote is determined on the
basis of the affirmative vote of 67% of the voting securities of the Fund
present at the Meeting with respect to Proposals 4(A), 4(B), 4(C), 4(D) and
4(E).
Shareholder Proposals. If a shareholder intends to present a proposal
at the Annual Meeting of Shareholders of the Fund to be held in 2000 and desires
to have the proposal included in the Fund's proxy statement and form of proxy
for that meeting, the shareholder must deliver the proposal to the offices of
the Fund by October 15, 1999.
Shareholders wishing to present proposals at the Annual Meeting of
Shareholders of the Fund to be held in 2000 which they do not wish to be
included in the Fund's proxy materials should sent written notice to the
Secretary of the Fund of such proposals by December 29, 1999 in the form
prescribed in the Fund's By-Laws.
By Order of the Board of Directors,
Roy M. Randall, Secretary
800 Scudders Mill Road
Plainsboro, New Jersey 08536
February __, 1999
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APPENDIX A
This Appendix A discusses risks involved in investing in below
investment grade and high yield securities, risks involved in investing in
Global Debt Securities and risks associated with the use of derivatives. It also
contains EquitiLink's current views on managing credit risk and the risks
associated with the use of derivatives and EquitiLink's review of structural
changes in the Commonwealth bond markets. The derivatives exposure and
counterparty limits described in the section concerning management of risk from
derivatives represent EquitiLink's current policies, which may be amended in
consultation with the Board of Directors.
RISKS INVOLVED IN HIGHER YIELDING INVESTMENTS
Investments in below investment grade and high yield securities
requires certain considerations not typically associated with investing in prime
quality securities issued by Australian, Canadian, New Zealand and United
Kingdom issuers. The following summarizes the main risks involved in investing
in below investment grade and high yield securities relative to similar types of
securities in Australia, Canada, New Zealand and the United Kingdom. In managing
the Fund, EquitiLink will manage all risks in accordance with the stated
investment guidelines.
Credit Risk. Under the proposal, the Fund will be permitted to invest
up to 15% of its total assets in securities rated below investment grade, i.e.
securities that have been rated below BBB- by S&P or Baa3 by Moody's.
Investments in these securities are subject to greater market fluctuations and
risk of loss of income and principal than investments in securities with
investment grade credit ratings. The former will generally provide higher yields
due to the higher premia required by investors for taking the associated higher
credit risk.
Investment in debt securities exposes the Fund to credit risk (being
the risk of default on interest and principal payments). Credit risk is
influenced by changes in general economic and political conditions and changes
in the financial condition of the issuers. During periods of economic downturn
or rising interest rates, issuers of securities with a low credit rating may
experience financial weakness that could affect their ability to make payments
of interest and principal.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may also decrease the value and liquidity of securities
with low credit ratings, especially in markets characterized by a low volume of
trading.
Unrated securities. Under the proposal, the Fund will be permitted to
invest in unrated debt securities. Unrated securities, while not necessarily of
lower quality than rated securities, generally do not have a broad market.
Before purchasing an unrated security, the Investment Manager intends to analyze
the creditworthiness of the issuer of the security and of any financial
institution or other party responsible for payments on the security in order to
assign a rating to the security.
Below investment grade securities. Ratings of debt securities represent
the rating agency's opinion regarding their quality and are not a guarantee of
quality. Rating agencies attempt to evaluate the safety of principal and
interest payments and do not evaluate the risks of fluctuations in market value.
Since rating agencies may fail to make timely changes in credit ratings in
response to subsequent events, the Investment Manager will continuously monitor
the issuers of securities held to determine whether the issuers have sufficient
cash flows and profits to meet principal and interest payments.
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The achievement of the Fund's investment objective will be more
dependent on EquitiLink's own credit analysis than might be the case for a fund
which invests in higher quality bonds. The Fund may retain a security the rating
of which has been changed. The market values of lower quality debt securities
tend to reflect individual developments of the issuer to a greater extent than
do higher quality securities, which react primarily to fluctuations in the
general level of interest rates.
Lower quality debt securities tend to be highly leveraged. Their
issuers may also not have available to them traditional methods of financing.
For example, during an economic downturn or a sustained period of rising
interest rates, highly leveraged issuers of lower quality securities may
experience financial stress. During such periods, issuers may not have
sufficient revenue to meet their interest payment obligations. The issuer's
ability to service debt obligations may also be adversely affected by specific
developments affecting the issuer, such as the issuer's inability to meet
specific projected business forecasts or the unavailability of additional
financing. The risk of loss due to default by the issuer is significantly
greater for the holders of lower quality securities because such securities are
generally unsecured and are often subordinated to higher ranking creditors of
the issuer.
Lower quality debt securities occasionally have call or buy-back
features that would permit an issuer to call or repurchase the security from the
holder. The Investment Manager anticipates that such securities could be sold
only to a limited number of dealers or institutional investors as there may not
be an established retail secondary market for many of these securities, or where
there is a market, the securities may not be easily tradable.
The Fund may also incur additional expense to the extent that it is
required to seek recovery on a default in the payment of principal or interest
on its portfolio holdings, and the Fund may have limited legal recourse in the
event of a default.
The Investment Manager will attempt to minimize the speculative risks
associated with investments in lower quality securities through credit analysis
and by carefully monitoring such current trends as interest rates and economic
developments.
Counterparty Risk. The derivatives used for adjusting currency
exposures or replicating underlying securities are usually over-the-counter
("OTC") securities. OTC securities carry credit risk associated with the
counterparty institution. To manage this risk, the Investment Manager will only
use counterparty institutions rated A- or better by recognized international
ratings agencies.
The counterparties for derivatives as proposed in the investment
guidelines are as follows:
o exchange traded derivatives--recognized derivatives exchanges such
as the Sydney Futures Exchange; and
o over-the-counter derivatives--financial institutions rated A- or
better by a recognized international rating agency.
Liquidity Risk. The markets for below investment grade securities may
be substantially smaller, less developed, less liquid and more volatile than the
markets for prime rated securities.
Reduced liquidity often creates higher volatility, as well as
difficulties in obtaining accurate market quotations for financial reporting
purposes and for calculating net asset values. Market quotations on many
securities may only by available from a limited number of dealers and may not
necessarily represent firm bids from those dealers or prices for actual sales.
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Leverage Risk. The Fund has issued US$30 million of Auction Market
Preferred Stock (the "AMPS") which is tantamount to borrowing this sum of money.
The AMPS create an opportunity for the Fund's holders of Common Stock to
experience greater capital appreciation and higher yields, while at the same
time increasing exposure to capital risk.
MANAGEMENT OF CREDIT RISK
At the upper end of the credit rating spectrum, recognized
international ratings agencies such as S&P and Moody's provide extensive risk
credit analysis for investors. However, in emerging markets, where issues are
often unrated or at the lower end of the credit risk spectrum, EquitiLink
believes that opportunities exist for skilled analysts to add value through
extensive company research and detailed credit assessment. The process of credit
assessment is similar to that undertaken when considering an equity investment,
rather than a debt purchase.
Credit analysis is akin to equity investing
At the macro and sectoral level. An equity strategist must determine if
the stock market as a whole is cheap or expensive. An assessment of each
individual sector must also be carried out. Similarly, a credit strategist must
determine if the credit market as a whole is cheap or expensive. As with stocks,
an assessment of each individual sector must also be carried out.
At the security level. In stock investing, the analyst determines "fair
value" for a stock price (discounting cash flows, price earnings ratios), then
compares that to the market price of the stock. The analyst also assesses
qualitative factors, such as management capability. The goal is for the stock to
rise in price.
In debt investing, the analyst determines the likelihood of default (by
assessing debt to equity levels, interest coverage, profitability, etc.), then
compares that to the market price offered for that issuer. As with stock
investing, the analyst must also assess qualitative factors, such as management
capability. The goal is to ensure that the issuer will remain in business for
the life of the security (i.e., to make interest payments plus return of
principal).
Analytical process
As a starting point, a view on the economic and individual sector
outlooks for each country is developed. This permits EquitiLink to take a view
on the weighting it should give to investment in a particular country based on
an analysis covering economic, political, foreign exchange and interest risk
factors identified with a country and a region. Factors such as the likelihood
of inflation, fiscal policies, the stability of a government and its willingness
to repay its obligations or the likelihood of instituting exchange controls are
taken into account as well as an assessment of the strength of a local currency.
While this level of analysis allows EquitiLink to determine exposure to local
currency and to sovereign debt, in the case of investing in debt instruments
issued by a corporations in a country, a detailed assessment of the individual
issuers in each market is undertaken. A summary of this process is set out
below.
Sector allocation. Consideration is given to the relevant sector and
the current exposure to this sector. Fund managers develop views on sectors from
the macro-economic research undertaken, and from periodic broker reports. They
look at a range of factors including an industry's life cycle, shorter-
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term cyclical developments and expected changes in government policy that could
affect the profitability.
Company analysis
Quantitative. Financial ratios and other data-related analysis provide
a broad indication of the capacity of a company to remain in business. Areas
researched include:
o liquidity--to determine near-term solvency. While financial ratios
vary across industries, two useful ratios in this category are the
current ratio (current assets/current liabilities) and the quick
ratio;
o cashflow--to determine whether a company's operating cash flows are
able to meet its investment and financing requirements;
o leverage--to determine the amount of leverage and the capacity to
finance the borrowings, two ratios are used: the debt-to-equity
ratio and the interest coverage ratio;
o credit structure--analysis of when a company's debt is maturing
(and/or is redeemable by the holders), this amount, whether this is
floating or fixed and the currency denomination, assists in
determining the extent to which a company is exposed to a potential
liquidity squeeze, as well as interest rate and foreign exchange
fluctuations; and
o profitability--ratios such as return-on-assets and return-on-equity
provide a means of assessing management's operational ability to
generate future earnings and the company's ability to earn an
adequate return on shareholder equity. This provides an indication
of whether the company will be able to raise capital in the future.
Qualitative. Fund managers perform qualitative research to gain a
thorough understanding of a company's growth and profit potential, financial
position, capital requirements, competitive position, management quality,
ownership structure and critical success factors. Issues considered include the
company's long-term strategy, the skills and experience of management, whether
there have been any recent changes, as well as details of related parties or
substantial shareholders.
Other forms of qualitative research include:
o a review of the company's share price over time;
o consideration of the terms of the debt, including right to recourse
and whether the debt is secured with assets; and
o comparison of the price of the security with similar issues, taking
into account credit ratings, maturity, country, industry and
business and financial risks.
External credit assessment. External credit assessment involves a
review of rating agency (S&P and Moody's) reports and recent broker reports on
the company. Fund managers will often contact the analysts who performed the
research for these reports to probe further into certain issues.
Once a company has been fully assessed, Fund managers determine whether
the return on a security is adequate to compensate for the risks of investment.
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RISKS INVOLVED IN GLOBAL INVESTMENT
Investments in Global Debt Securities require consideration of some of
the same risks that are inherent in investments in securities denominated in the
Commonwealth Currencies. However, when the investments are in Emerging Market
debt securities, these risks are heightened. The following summarizes the main
risks of investing in Global Debt Securities. As is the case for investments in
higher yielding securities, in managing the Fund, EquitiLink will manage all
risks in accordance with the stated investment guidelines.
Interest Rate Risk. Changes in the level of interest rates, in the
relevant markets in which the Fund invests will affect the market price of its
portfolio securities and the net asset value of the Fund at any given time.
These changes are usually more substantial in Emerging Market countries where
large interest rate changes are not uncommon. The level of interest rate risk
will vary from country to country depending on political and economic factors
and monetary policy.
Foreign Exchange Risk. Securities denominated in the currencies of a
Developed or Emerging Market country are subject to fluctuation in value due to
changes in the value of the currency against the U.S. dollar. Fluctuations in
the value of a Developed or Emerging Market currency compared to the U.S. dollar
will give rise to a gain or loss to the Fund. Income received from securities
denominated in Developed or Emerging Market currencies is also translated into
and distributed in U.S. dollars, so that a decline in the value of a Developed
or Emerging Market currency will result in a decline in income to the Fund.
Investments made in the local currencies of an Emerging Market country
may not be freely convertible into other currencies. Exchange rate fluctuations
and local currency devaluation could have a material effect on the value of
these securities.
Currency exchange rates can fluctuate significantly over short periods
and can be subject to unpredictable change based on such factors as political
developments and currency controls by foreign governments. EquitiLink expects to
hedge foreign currency risks in accordance with its views by engaging in foreign
currency exchange transactions. These may include buying and selling foreign
currency options, foreign currency futures, options on foreign currency futures
and swap arrangements. Many of these activities constitute "derivatives"
transactions. See "Management of Derivatives" below.
Political and Economic Risk. Securities of Emerging Market issuers
involve different, and sometimes greater, risks than securities of issuers in
Developed Markets and the Commonwealth Countries. Emerging Market economies are
considered to be more politically volatile than the traditional Western style
democracies. Investments in securities of issuers in Emerging Market countries
involve political risk, including in some countries, the possibility of
expropriation, confiscatory taxation or nationalization of assets, and the
establishment of foreign exchange controls. Central authorities also tend to
exercise a high degree of control over the economies and in many cases have
ownership over core productive assets.
With their strong reliance on international trade, the Emerging Market
economies tend to be sensitive both to economic changes in their own region and
to changes affecting their major trading partners. These include changes in
growth, inflation, foreign exchange rates, current account positions, government
policies, taxation and tariffs.
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Tax Risk. Income earned on investments in foreign countries may be
subject to applicable withholding taxes and other taxes imposed by the
governments of such countries. There can be no assurance that foreign tax laws
will not be changed in a manner which adversely affects foreign investors.
Legal and Accounting Risk. The legal systems in many Emerging Market
countries are less developed than those in more developed countries, with the
administration of laws and regulations often subject to considerable discretion.
While the development of the legal systems is a positive step, there is a risk
that foreign investors will be adversely affected by new laws or changes to
existing laws.
Debt securities issued by governments in Emerging Markets can differ
from debt obligations issued by private entities in that remedies for defaults
generally must be pursued in the courts of the defaulting government, and legal
recourse may be diminished. Political conditions, in terms of a government's
willingness to meet the terms of its debt obligations, are also of considerable
significance. There can be no assurance that the holders of commercial bank debt
may not contest payments to the holders of debt securities issued by governments
in the event of default by the governments under commercial bank loan
agreements.
Accounting and auditing standards applied in certain Emerging Market
countries frequently do not conform with the accepted international standards
used in the Commonwealth Countries and the U.S. In some cases accounting
policies, for example the use of the constant purchasing power method, can have
a distortive effect. Also, substantially less financial information is generally
publicly available about issuers in Emerging Market countries and, where
available, may not be independently verifiable.
RISKS ASSOCIATED WITH THE USE OF DERIVATIVES
Gains and losses on "derivatives" transactions depend on EquitiLink's
ability to predict correctly the direction on interest rates, securities prices,
currency exchange rates, or other factors. Risks in the use of these derivatives
include:
o imperfect correlation between the prices of derivatives and the
movements of the securities prices, interest rates or currency
exchange rates being hedged (basis risk);
o the possible absence of a liquid secondary market for any
particular derivative at any time (liquidity risk);
o the potential loss if the counterparty to the transaction does not
perform as promised (counterparty risk); and
o the possible need to defer closing out certain positions to avoid
adverse tax consequences as well as the possibility that
derivative transactions may result in deferral of losses or a
change in the character of gain realized (tax risk).
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MANAGEMENT OF RISK FROM DERIVATIVES
In expanding the Fund's investment parameters, it will be necessary for
the Investment Manager to be able to use interest rate and currency derivative
securities.
The types of derivative activity anticipated under the new mandate
include:
o The ability to adjust country and currency exposures in line with
EquitiLink's investment strategy. Adjustment would take place when
considered prudent.
o The scope to adjust duration and yield curve positions
synthetically.
o Substitution/replication for physical securities to provide
flexibility in managing capital gains or losses on the Fund's
underlying securities, and to minimize transaction costs and
achieve transactional efficiency.
Global derivatives. The use of derivative securities is a necessary
prerequisite to the expansion of the Fund's investment parameters into Global
Debt Securities.
There are two broad areas for which derivatives are required for
investing in Global Debt Securities:
1. Use of derivatives for adjusting exposures (adjustment/overlay)
o Currency adjustment (overlays)--By directly investing into
Developed or Emerging Markets, the Fund will take on exposure to
the currencies of the countries in which it holds securities. If
investing globally, the Investment Manager will need to be able to
adequately manage this currency risk when the perceived outlook
for a particular currency is for depreciation against other
currencies. The most effective way of doing this is through the
use of currency forwards (and occasionally options), which provide
an efficient means of implementing currency overlay strategies.
o Interest rate adjustment--Investment in securities denominated in
Developed Market or Emerging Market currencies necessarily means
taking on interest rate risk. This risk, particularly in respect
of the Developed Markets, can often best be managed through the
use of interest rate derivatives in those respective countries.
Investment in "Yankee bonds" involves exposure to both
fluctuations in U.S. interest rates and the credit standing of a
particular issuer. There may be times when EquitiLink wishes to
reduce the U.S. interest rate exposure embedded in Yankee bonds.
This can be done by selling U.S. Treasury Note or Bond futures.
2. Derivatives as a substitute for physical securities
(replication/substitution). Investment in global fixed-income securities may at
certain times be more efficiently achieved using derivative securities to
replicate physical securities. These types of derivatives carry identical market
price risks to the equivalent physical securities but provide a number of
transactional benefits. For example, by using derivatives, the Investment
Manager may be able to implement decisions at lower costs, increase the
after-tax yield, obtain prices that are not available in the underlying cash
market, or settle in U.S. dollars.
In less developed markets, liquidity and credit quality can be enhanced
and transaction costs reduced by using derivatives rather than the underlying
securities. This is due to the fact that the investor
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assumes the lower counterparty risk of the issuer of the derivatives (for
example, an international bank rated A- or better), rather than that of a (local
currency) domestic issuer. In certain circumstances, due to lack of available
paper or government regulations, the only means of gaining exposure to a
particular country or countries is through derivatives.
Australian, Canadian and United Kingdom derivatives. When the Fund was
launched in February 1992, Australian, Canadian and United Kingdom derivatives
markets were still in their infancy and the use of derivatives as a management
tool was not widespread. As a result, the Fund's investment parameters did not
permit derivatives to be used in managing the portfolio.
With the emergence of efficient domestic interest rate derivatives
markets in the relevant Commonwealth Countries, it would now be more
advantageous for the Fund to be permitted to hold cash-backed interest rate
derivatives. The use of derivatives for the Fund would allow the Investment
Manager to modify interest rate risk, with the benefit of low transaction costs.
Importantly, the use of derivatives would also enable the Investment Manager to
adjust the Fund's duration or its positioning along the yield curve without the
need to sell physical securities. This would be an advantage at times when the
sale of physical securities may have an adverse impact on distributions, for
example, where it would result in the realization of sizable capital gains or
losses, or the sale of high coupon securities.
The Investment Manager proposes that only the use of exchange-traded
(as opposed to over-the-counter) interest rate derivatives be allowed in the
Australian, Canadian and United Kingdom component of the Fund. The Investment
Manager will not use derivatives where they would contravene the guidelines set
by the rating agencies for AMPS issues.
The Investment Manager does not propose to use currency derivatives to
hedge Australian dollar, Canadian dollar or Pound Sterling currency risk
associated with investments by the Fund in these markets. The Investment Manager
believes that using currency derivatives for this purpose would alter the
fundamental charter of the Fund, namely that investors assume exposure primarily
to the Commonwealth Currencies as part of their investment in the Fund. However,
where the outlook for a particular Commonwealth Currency is considered by the
Investment Manager to be better than an alternate currency that the Fund can
invest in, the Fund would have the scope to use derivatives to hedge that
currency into a Commonwealth Currency or into the U.S. dollar.
Derivatives will not be used to magnify risk (versus physical
investing) or to expose the Fund to a large contingent liability.
Derivatives exposures and counterparty limits. In general, derivatives
will not be utilized to leverage the Fund. All futures and forwards are to be
measured on a notional exposure basis and, therefore, they will be deemed to be
cash-backed.
Over-the-counter derivatives. When dealing in over-the-counter
derivatives, all bank counterparties must have a credit rating of at least A-.
Only up to 5% of total assets may be put at risk in derivatives transactions
with any single counterparty (aggregate interest rate and currency derivatives
exposure ). A maximum of 10% of total assets may be at risk in currency-linked
notes and a maximum of 2.5% of total assets may be at risk to any single
counterparty in currency forwards which can be settled only in U.S. dollars.
Exchange-traded derivatives. A maximum of 40% of total assets may be at
risk in exchange-traded derivatives. For Australian, Canadian and United Kingdom
derivatives, the maximum gross
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exposure (long positions + short positions) will be 25% of total assets and
the maximum net exposure (long positions - short positions) will be 20% of total
assets. A maximum of 35% of total assets may be at risk in derivatives traded on
the Chicago Board of Trade. A maximum of 7% of total assets may be at risk in
derivatives traded on any one other futures exchange.
STRUCTURAL CHANGES IN THE COMMONWEALTH BOND MARKETS
The Investment Manager believes that Commonwealth bond yields are
likely to remain low by historical standards and that the differential between
Commonwealth and US bond yields will remain narrow for some time. The
implications for this are twofold: first, while the fundamentals remain positive
for Commonwealth bonds, further significant capital gains are unlikely; and
second, there is likely to be less yield enhancement out of the Commonwealth
bond markets than has been seen in the past.
Consumer Price Inflation (Year Average)
- ---------------------------------------
Year to 9/98 Latest
1991 1995 Available
---- ---- -------------------
Australia 3.2% 5.0% 1.3%
Canada 5.6% 1.8% 0.7%
New Zealand 2.6% 2.9% 1.7%
United Kingdom 5.9% 3.5% 3.2%
Inflation rates in the key Commonwealth countries have fallen
dramatically over the past 20 years. An important factor underpinning this
development has been the greater global focus by Governments and Central Banks
on inflation containment, particularly via the adoption of specific inflation
targets or ranges. Structural reforms have also played a key role, with an
increased use of technology and more flexible wage systems resulting in a more
productive labor force and a containment of costs. Further, this has all
occurred within an increasingly competitive global pricing environment. These
developments are also expected to ensure that inflation remains well contained
for some considerable time.
Monetary Policy (Domestic Cash Rates)
- -------------------------------------
1991 1995 Current (12/98)
---- ---- ---------------
Australia 12.00% 7.50% 4.75%
Canada 11.00% 5.50% 4.95%
New Zealand 12.30% 9.00% 3.38%
United Kingdom 14.00% 6.50% 6.00%
A more intense focus on inflation by global central banks kept real
cash rates higher over the early and mid 1990s. Signs that a new low inflation
environment has become entrenched has seen Commonwealth cash rates fall sharply
over the latter part of the decade as they have become a more flexible tool of
policy. Widespread emphasis on fiscal reform across Commonwealth markets has
also relieved some pressure from monetary policy.
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10 Year Bond Yields
- -------------------
1991 1995 Current (12/98)
---- ---- ---------------
Australia 12.05% 8.22% 5.02%
Canada 10.30% 7.08% 4.91%
New Zealand 12.26% 7.23% 5.47%
United Kingdom 6.00% 7.42% 4.36%
Given the rapid price growth of the 1980s and early 1990s, inflationary
expectations--and hence longer term bond yields--took some time to adjust to the
lower inflation regime. Ten year Commonwealth bond yields are now, however,
close to or below 5%, factoring in the belief that inflation will remain well
contained in the medium term. This lower inflation outlook provides a solid
valuation anchor for Commonwealth bonds. In addition, the process of fiscal
reform has reduced the call of Commonwealth Governments on their respective bond
markets, reducing supply and, as a result, bond yields.
A-10
<PAGE>
APPENDIX B
BOND RATINGS
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements
because their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Unrated: When no rating has been assigned or when no rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
B-1
<PAGE>
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be formed;
if a bond is called for redemptions; or for other reasons.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
Standard & Poor's Corporation
AAA: Bonds rated AAA have the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a very strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in the higher rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB: Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B: Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
CCC: Bonds rated CCC have a currently identifiable vulnerability to
default, and are dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, they are not likely
to pay interest and repay principal.
Plus (+) or Minus (-) The ratings from "AA" to "B" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
B-2
<PAGE>
APPENDIX C
NEW INVESTMENT OBJECTIVES AND POLICIES
If Proposals 4(A), 4(B), 4(C), 4(D), and 4(E) are approved by
shareholders, the Fund's investment objectives, investment policies and
investment restrictions would read in their entirety as follows:
INVESTMENT OBJECTIVES AND POLICIES
The Fund's principal investment objective is to provide high current
income by investing in fixed-income securities denominated in the Commonwealth
Currencies. As a secondary investment objective, the Fund seeks capital
appreciation, but only when consistent with its principal investment objective.
The Fund's investment objectives, the Fund's policies with respect to the credit
quality of its assets set forth below and the limitations set forth below in
"Investment Restrictions" are fundamental policies that may not be changed
without the approval of a majority of the Fund's outstanding voting securities.
A "majority of the Fund's outstanding voting securities" means the lesser of (i)
67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented, or (ii) more than 50% of the outstanding
shares.
The Investment Manager will select fixed-income securities which, in
the Investment Manager's judgment, will achieve the Fund's investment
objectives. With respect to investments denominated in the currencies of
Australia, New Zealand and Asian countries, the Investment Manager will base
such selections primarily upon the recommendation of the Investment Adviser. In
recommending and selecting investments for the Fund, the Investment Manager's
and Investment Adviser's personnel will draw on their substantial experience in
managing portfolios with investments in debt securities traded in Australia,
Canada, New Zealand and the United Kingdom and on their relationships with such
entities as CBIC Wood Gundy Inc.
Portfolio Structure
Except in anticipation of dividend or other payments to be made in U.S.
dollars, it is expected that normally at least 65% of the Fund's total assets
will be invested in a portfolio of debt securities denominated in the
Commonwealth Currencies, namely, the Australian Dollar, the Canadian Dollar, the
New Zealand Dollar and the Pound Sterling or any successor currency. The Fund
will, under normal circumstances, invest in debt securities denominated in at
least three of these currencies and will not hold more than 50% of its assets in
any one Commonwealth Currency.
The Fund may invest the balance of its assets (1) in the securities of
Developed Market and/or Emerging Market issuers, including securities issued by
Developed Market or Emerging Market governmental entities, as well as by banks,
companies and other entities which are located in Developed Market or Emerging
Market countries, whether or not denominated in the currency of the Developed
Market or Emerging Market country, and (2) in debt securities of other issuers,
denominated in, or linked to, the currency of a Developed Market or Emerging
Market country, including securities issued by supranational issuers, such as
The World Bank, and derivative debt securities that replicate, or substitute
for, the currency of a Developed Market or Emerging Market country. The maximum
exposure to any one Developed Market country or currency is limited to 25% of
the Fund's total assets. The maximum exposure to any Emerging Market country or
currency is limited to 15% of the Fund's total assets.
C-1
<PAGE>
The Fund may, with respect to the Global Debt Securities portion of its
portfolio, use derivatives to manage currency and interest rate risk and as a
substitute for, or to replicate, physical securities. The Fund may also use
derivatives with respect to its investments denominated in Commonwealth
Currencies to manage interest rate risk through investing in exchange traded
interest rate derivatives.
Subject to the limitations set forth in Section 12(d) of the Investment
Company Act of 1940, the Fund may invest up to 10% of its total assets in equity
securities issued by other investment companies whose securities are registered
under the 1940 Act and whose investment objective is to invest primarily in
fixed-income securities.
The market value weighted average of the Fund's investments (or the
issuers of those investments) will be rated not less than A2 by Moody's, or A by
S&P, or comparably rated by another appropriate nationally or internationally
recognized rating agency, or, if unrated, judged by the Investment Manager to be
of equivalent quality. Up to 15% of the Fund's investments (or the issuers of
those investments) may be rated below investment grade at the time of
investment; that is rated below Baa3 by Moody's or BBB- by S&P, or comparably
rated by another appropriate nationally or internationally recognized rating
agency, or if unrated, judged by the Investment Manager to be of equivalent
quality. All of the Fund's investments (or the issuers of those investments)
must be rated, at the time of investment, B3 or better by Moody's, or B- or
better by S&P, or comparably rated by another appropriate nationally or
internationally recognized rating agency, or if unrated, judged by the
Investment Manager to be of equivalent quality.
The Fund will not concentrate investments in any one industry except
that the Fund will concentrate, under normal market conditions, more than 25% of
its assets in debt securities issued or guaranteed by the governments,
territories, provinces and states of Australia, Canada, New Zealand the United
Kingdom taken as a group (and their instrumentalities and agencies, including
government-owned entities).
The Fund believes it is appropriate to treat all of the governments of
the four countries as a separate industry or group of related industries because
of the commonality of economic and political characteristics and risk levels
among the four Commonwealth countries, including similar constitutional, legal
and financial systems.
During periods when, in the Investment Manager's judgment, changes in
the markets of Australia, Canada, New Zealand, or the United Kingdom or other
economic conditions warrant, or to meet liquidity or distribution requirements,
the Fund may invest without limit in U.S. Government securities and short-term
debt obligations of U.S. banks and corporations rated not less than Aa or Prime
2 by Moody's or AA or A-2 by S&P for temporary defensive purposes. Although P-2
and A-2 ratings denote issuers with a strong (Moody's) or satisfactory (S&P)
ability to repay short-term debt in a timely manner, the relative degree of
safety is not as high as the very highest rating categories. In addition, the
Fund may enter into repurchase agreements and lending agreements involving these
securities.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies of the Fund, which
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities. If a percentage restriction on investment
or use of assets set forth below is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing values will not be
considered a violation.
C-2
<PAGE>
The Fund may not:
1. Purchase securities on margin, except such short-term credits
as may be necessary or routine for the clearance or settlement of transactions
and except that the Fund may engage in transactions in options on foreign
currencies and forward contracts and post margin in connection therewith
consistent with its investment policies.
2. Make short sales of securities or maintain a short position (other
than with respect to the use of derivatives).
3. Issue senior securities except (i) insofar as the Fund may be
deemed to have issued a senior security in connection with any repurchase or
securities lending agreement or any borrowing permitted by these investment
restrictions, and (ii) that the Fund may issue one or more series of a class of
preferred shares pursuant to its Articles.
4. Borrow money, or pledge, hypothecate, mortgage or otherwise
encumber its assets, except that the Fund may borrow for temporary or emergency
purposes, if after such borrowing there is asset coverage of at least 300% as
defined in the 1940 Act. For the purposes of this restriction, collateral
arrangements with respect to transactions in options on foreign currencies and
forward contracts are not deemed a pledge of assets or the issuance of a senior
security.
5. Purchase any security (except as provided below) if as a result
more than 25% of the total value of its assets would then be invested in
securities of issuers in a particular industry, except that the Fund will, under
normal circumstances, invest more than 25% of its assets in securities issued or
guaranteed by the governments, territories, provinces or states of Australia,
Canada, New Zealand and the United Kingdom (and their instrumentalities and
agencies, including government-owned entities) or repurchase agreements with
respect thereto. This restriction does not apply to securities issued or
guaranteed by the U. S. Government or its agencies and instrumentalities (or
repurchase agreements with respect thereto).
6. Make loans except through the purchase of debt obligations and the
entering into of repurchase and securities lending agreements in accordance with
the Fund's investment objectives and policies.
7. Act as an underwriter of other issuer's securities (except to the
extent the Fund may be deemed to be an underwriter in connection with the sale
of securities in the Fund's investment portfolio).
8. (i) Purchase or sell real estate, except that it may purchase
and sell mortgage-backed securities, debt securities issued by real estate
investment trusts, and debt securities of companies which deal in real estate or
interests therein, (ii) purchase or sell commodities (other than transactions in
foreign currencies and forward currency contracts or derivatives in accordance
with the Fund's investment objectives and policies) or (iii) invest in interests
in oil, gas, or other mineral exploration or development programs, except that
it may purchase and sell debt securities of companies that deal in oil, gas or
other mineral exploration or development programs.
C-3
<PAGE>
PROXY THE FIRST COMMONWEALTH FUND, INC. PROXY
THIS PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Annual Meeting of Shareholders - March 26, 1999
The undersigned hereby appoints Sir Roden Cutler, Brian M. Sherman and Laurence
S. Freedman, and each of them, the proxies of the undersigned, with power of
substitution to each of them, to vote all shares of the common stock of The
First Commonwealth Fund, Inc. which the undersigned is entitled to vote at the
Annual Meeting of Shareholders of The First Commonwealth Fund, Inc. to be held
at One Seaport Plaza, New York, New York on March 26, 1999 at 2:00 p.m., New
York City time, and at any adjournment or postponement thereof.
------------------------------------------------------------------------------
| PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED |
| ENVELOPE. |
------------------------------------------------------------------------------
------------------------------------------------------------------------------
| Please sign exactly as your name(s) appear(s) on the books of the Fund. |
| Joint owners should each sign personally. Trustees and other fiduciaries |
| should indicate the capacity in which they sign, and where more than one |
| name appears, a majority must sign. If a corporation, this signature |
| should be that of an authorized officer who should state his or her title. |
------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ------------------------------ -----------------------------------
- ------------------------------ -----------------------------------
- ------------------------------ -----------------------------------
<PAGE>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
---------------------------------
THE FIRST COMMONWEALTH FUND, INC.
---------------------------------
Unless otherwise specified in the boxes provided, the undersigned's vote will
be cast FOR items (1), (3), 4(A), 4(B), 4(C), 4(D) and 4(E).
Mark box at right if an address change or comment has been noted
on the reverse side of this card. [ ]
------------------
Please be sure to sign and date this Proxy. | Date |
------------------------------------------------------------------------------|
| |
| |
| |
---------Shareholder sign here ------------------- Co-owner sign here --------
(1) The election of five Directors to serve as Class I Directors
for a three-year terms:
<TABLE>
<CAPTION>
For All With- For
Nominees hold All Except
-------- ----- ----------
<S> <C> <C> <C>
David L. Elsum
Laurence S. Freedman
Michael R. Horsburgh [ ] [ ] [ ]
David Manor
E. Duff Scott
NOTE: If you do not with your shares voted "For" a particular nominee, mark the
"For All Except" box and strike a line through the name(s) of the
nominee(s). Your shares will be voted for the remaining nominee(s).
For Against Abstain
--- ------- -------
(3) Ratification of the selection of PricewaterhouseCoopers LLP
as independent public accountants. [ ] [ ] [ ]
4(A) Approval of amendments to the Fund's investment policies to
allow the Fund to invest up to 35% of its total assets in
Global Debt Securities. [ ] [ ] [ ]
4(B) Approval of amendments to the Fund's principal investment
objective and investment policies regarding investments in
high grade fixed-income securities. [ ] [ ] [ ]
4(C) Approval of an amendment to the Fund's investment policies to
allow the Fund to invest up to 15% of its total assets in debt
securities rated, or judged by the Investment Manager to be,
below investment grade at the time of investment. [ ] [ ] [ ]
4(D) Approval of an amendment to the Fund's investment policies to
allow the Fund to invest in equity securities issued by
certain U.S. registered investment companies. [ ] [ ] [ ]
4(E) Approval of amendments to the Fund's investment policies and
investment restrictions to allow the Fund to use derivatives. [ ] [ ] [ ]
The appointed proxies will vote in their discretion on any other business
as may properly come before the meeting or any adjournments or
postponements thereof.
RECORD DATE SHARES:
</TABLE>
<PAGE>
PROXY THE FIRST COMMONWEALTH FUND, INC. PROXY
THIS PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Annual Meeting of Shareholders - March 26, 1999
The undersigned hereby appoints Sir Roden Cutler, Brian M. Sherman and Laurence
S. Freedman, and each of them, the proxies of the undersigned, with power of
substitution to each of them, to vote all shares of the Auction Market Preferred
Stock, Series W-7, of The First Commonwealth Fund, Inc. which the undersigned is
entitled to vote at the Annual Meeting of Shareholders of The First Commonwealth
Fund, Inc. to be held at One Seaport Plaza, New York, New York on March 26, 1999
at 2:00 p.m., New York City time, and at any adjournment or postponement
thereof.
------------------------------------------------------------------------------
| PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED |
| ENVELOPE. |
------------------------------------------------------------------------------
------------------------------------------------------------------------------
| Please sign exactly as your name(s) appear(s) on the books of the Fund. |
| Joint owners should each sign personally. Trustees and other fiduciaries |
| should indicate the capacity in which they sign, and where more than one |
| name appears, a majority must sign. If a corporation, this signature |
| should be that of an authorized officer who should state his or her title. |
------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ------------------------------ -----------------------------------
- ------------------------------ -----------------------------------
- ------------------------------ -----------------------------------
<PAGE>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
---------------------------------
THE FIRST COMMONWEALTH FUND, INC.
---------------------------------
AUCTION MARKET PREFERRED STOCK
SERIES W-7
Unless otherwise specified in the boxes provided, the undersigned's vote will be
cast FOR items (2), (3), 4(A), 4(B), 4(C), 4(D) and 4(E).
Mark box at right if an address change or comment has been noted
on the reverse side of this card. [ ]
------------------
Please be sure to sign and date this Proxy. | Date |
------------------------------------------------------------------------------|
| |
| |
| |
---------Shareholder sign here ------------------- Co-owner sign here --------
(2) The election of two Directors to represent the interests
of Preferred Stock for the ensuing year.
Nominees:
<TABLE>
<CAPTION>
For All With- For
Nominees hold All Except
-------- ----- ----------
<S> <C> <C> <C>
xxxxxxxx xxxxxxxx
Dr. Anton E. Schrafl [ ] [ ] [ ]
INSTRUCTION: To withhold authority to vote for any individual, mark the
"For All Except" box and strike a line through the name(s) of the
nominee(s) in the list above.
For Against Abstain
--- ------- -------
(3) Ratification of the selection of PricewaterhouseCoopers LLP
as independent public accountants. [ ] [ ] [ ]
4(A) Approval of amendments to the Fund's investment policies to
allow the Fund to invest up to 35% of its total assets in
Global Debt Securities. [ ] [ ] [ ]
4(B) Approval of amendments to the Fund's principal investment
objective and investment policies regarding investments in
high grade fixed-income securities. [ ] [ ] [ ]
4(C) Approval of an amendment to the Fund's investment policies to
allow the Fund to invest up to 15% of its total assets in debt
securities rated, or judged by the Investment Manager to be,
below investment grade at the time of investment. [ ] [ ] [ ]
4(D) Approval of an amendment to the Fund's investment policies to
allow the Fund to invest in equity securities issued by
certain U.S. registered investment companies. [ ] [ ] [ ]
4(E) Approval of amendments to the Fund's investment policies and
investment restrictions to allow the Fund to use derivatives. [ ] [ ] [ ]
The appointed proxies will vote in their discretion on any other business
as may properly come before the meeting or any adjournments or
postponements thereof.
RECORD DATE SHARES:
</TABLE>
