[LOGO]
MANAGED BY
[LOGO] EQUITILINK
THE FIRST INTERNATIONAL
COMMONWEALTH MANAGEMENT
FUND LIMITED
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Annual Report October 31, 1999
Highlights
o 9.1% per annum cash distribution rate based on a share price of $10.38 on
October 31, 1999
o 90% invested in securities rated or deemed equivalent AA/Aa or better
o 4.4% of assets invested in Asian debt securities
[GRAPHIC OMITTED]
www.equitilink.com
NYSE - FCO
Managed by EquitiLink International
Management Limited
Advised by EquitiLink Australia Limited
ALL AMOUNTS ARE IN US DOLLARS UNLESS
OTHERWISE STATED
<PAGE>
letter to Shareholders
================================================================================
December 10, 1999
Dear Shareholder,
We are pleased to present this Annual Report which covers the activities
of The First Commonwealth Fund, Inc. (the "Fund") for the 12 months ended
October 31, 1999. Included in this report is a review of the Australian, New
Zealand, Canadian, United Kingdom and selected Asian economies and investment
markets, together with an overview of the Fund's investments prepared by the
Investment Manager, EquitiLink International Management Limited.
High Credit Quality: 90% of securities rated or deemed equivalent to AA/Aa or
better
The Fund's high credit quality has been maintained. 90.0% of assets are
rated AA/Aa or better, or are considered of equivalent quality by the Investment
Manager. An additional 5.6% is held in A rated securities.
Distributions: 9.1% annual cash distribution rate
Distributions to common shareholders for the year totaled 94.5 cents per
share. Based on the share price of $10.375 on October 31, 1999, the cash
distribution rate over the last 12 months was 9.1%. Since all distributions are
paid after deducting applicable withholding taxes, the effective distribution
rate may be higher for those US investors who are able to claim a tax credit.
On March 26, 1999, the Fund announced its intention to maintain its
monthly distribution of 7.75 cents per share for at least the next 12 months,
commencing with the April 1999 distribution and subject to quarterly review by
the Board. Under this policy, 7.75 cents per share was declared for the month of
December, to be paid on January 14, 2000.
Investment Performance: 7.4% per annum return since inception
The Fund's Net Asset Value (NAV) in US dollar terms returned 1.5% over the
twelve months to October 31, 1999. The appreciation of the Australian and
Canadian dollars was the main reason for the Fund's positive performance despite
higher bond yields in all Commonwealth bond markets. Asian investments had a
minor impact, given they represent a small percentage of the Fund. Since
inception, the Fund's NAV has returned 7.4% per annum to October 31, 1999.
1
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The First Commonwealth Fund, Inc.
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New Mandate: 4.4% of assets invested in Asian debt securities
In line with the Fund's new mandate, 4.4% of assets are now held in Asian
debt securities, a region which presents attractive opportunities. The
Investment Manager's medium-term target is to increase this to 10% of the Fund's
assets.
The ability to selectively invest in global debt securities should allow
the Fund to capitalize on higher interest rates and greater potential for future
capital gains than are currently available in the Commonwealth countries. This
supports our goal of providing a very competitive yield for our shareholders.
Share Price Performance: The Fund's discount to NAV narrows
As of October 31, 1999, the Fund's share price was $10.375, which
represented a discount of 14.5% to the NAV, having narrowed from 17.3% a year
ago. The total investment return, based on the Fund's share price at October 31,
1999 and assuming reinvestment of distributions, was 4.9% over the fiscal year.
Share Purchase
The EquitiLink Group recently purchased 328,066 shares of the Fund,
raising its holding to 3.5%. These shares were acquired for investment purposes,
in light of EquitiLink's confidence in the strong prospects for the Fund and its
effectiveness for investing in global bond markets.
Year 2000 Compliance
The EquitiLink Group has taken steps to determine that the computer
systems and equipment we use can deal with Year 2000 issues and we have sought
the same of the Fund's service providers.
For information on the Fund including weekly updates of share price, NAV,
and details of recent distributions, please telephone Investor Relations, toll
free on 1-800-543-6217 in the United States.
Yours sincerely,
/s/ Brian M. Sherman /s/ Laurence S. Freedman [LOGO]
THE FIRST
Brian M. Sherman Laurence S. Freedman COMMONWEALTH
Chairman President FUND
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Explore EquitiLink's Website
http//:www.equitilink.com
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2
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Dividend Reinvestment and Cash Purchase Plan The First Commonwealth Fund, Inc.
================================================================================
We invite you to participate in the Fund's Dividend Reinvestment and Cash
Purchase Plan (the "Plan") which allows you to automatically reinvest your
distributions in shares of the Fund's common stock at favorable commission
rates. Distributions made under the Plan are taxable to the same extent as are
cash distributions. The Plan also enables you to make additional cash
investments in shares of at least $100 per month. As a participant in the Plan,
you will have the convenience of:
Automatic reinvestment--the Plan Agent will automatically reinvest your
distributions, allowing you to gradually grow your holdings in the Fund;
Lower costs--shares purchased on your behalf under the Plan will be at
reduced brokerage rates;
Convenience--the Plan Agent will hold your shares in uncertificated form
and will provide a detailed record of your holdings at the end of each
distribution period.
If you would like further information on the Plan, please contact State
Street Bank and Trust Company, P.O. Box 8200, Boston, MA 02266, Tel:
1-800-426-5523.
3
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Report of the Investment Manager The First Commonwealth Fund, Inc.
================================================================================
Distributions
During the latest 12 month period, the Fund paid a total of 94.5 cents per
share in distributions to common shareholders, consisting of 12 monthly payments
of 7.75 cents per share and a special distribution of 1.5 cents. The Board's
policy is to provide investors with a stable monthly distribution out of current
income, supplemented by realized capital gains if required. On March 26, 1999,
the Fund announced its intention to maintain its monthly distribution of 7.75
cents per share for at least the next 12 months, commencing with the April
distribution and subject to quarterly review by the Board. Under this policy,
7.75 cents per share was declared for the month of December, to be paid on
January 14, 2000.
For Federal income tax purposes, the Board has determined that the monthly
distributions paid in September 1999 and October 1999 will be characterized as
long-term capital gains. Shareholders are advised to rely only on Form 1099-DIV,
which will be sent in January 2000, for definitive information with respect to
tax treatment of the Fund's distributions.
The dividend notice that was provided to shareholders for the November
1999 monthly distribution stated that the distribution was from long-term
capital gains. Based upon current information, this distribution is estimated to
be comprised of ordinary income and, to the extent that it is ultimately
determined that there is insufficient ordinary income, of long-term capital
gains, based on a determination of the Fund's annual distributable income for
the fiscal year ending October 31, 2000.
Based upon the October 31, 1999 share price of $10.375, and total
distributions of 94.5 cents per share paid over the past 12 months, the Fund
provided a cash distribution rate of 9.1%. At the date of this report, with the
share price at $9.63, and monthly distributions at 7.75 cents per share, the
annualized cash distribution rate to shareholders is 9.7% per annum. Since all
distributions are paid after deducting applicable withholding taxes, the
effective distribution rate may be higher for those US investors who are able to
claim a tax credit.
Net Asset Value (NAV) Performance
The Fund's NAV per share at October 31, 1999 was $12.14. The Fund's total
return based on NAV was 1.5% over the 12 months. Since inception, the Fund has
returned 7.4% per annum. All figures assume reinvestment of distributions. At
the date of this report, the NAV was $12.10 per share.
Share Price Performance
As of October 31, 1999, the Fund's share price as quoted on the New York
Stock Exchange was $10.375, which represented a discount of 14.5% to the NAV,
having narrowed from 17.3% a year ago. The total investment return, based on the
Fund's share price and assuming reinvestment of distributions, was 4.9% over the
fiscal year. At the date of this report, the share price was $9.63, representing
a discount of 20.5% to NAV.
Auction Market Preferred Stock (AMPS)
The Fund's US$30 million of AMPS continue to be well bid at the weekly
auctions. The average interest rate paid was 5.05% over the quarter, compared
with 5.27% for 30-day commercial paper over the same period. These rates have
increased since last quarter, because the US Federal Reserve raised interest
rates.
4
<PAGE>
Portfolio Composition The First Commonwealth Fund, Inc.
================================================================================
GEOGRAPHIC COMPOSITION/CREDIT EXPOSURE
The table below shows the geographic composition of the Fund's total
investments as of October 31, 1999, compared with the previous quarter and one
year ago.
TABLE 1: THE FIRST COMMONWEALTH FUND, INC.--GEOGRAPHIC ASSET ALLOCATION
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October 31, 1999 July 31, 1999 October 31, 1998
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Australia 24.2% 24.3% 25.4%
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Canada 30.2% 29.2% 30.1%
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New Zealand 7.9% 8.1% 9.9%
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United Kingdom 33.2% 32.1% 33.7%
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United States* 0.1% 0.1% 0.9%
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Asia 4.4% 6.2% --
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Total Portfolio 100.0% 100.0% 100.0%
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* It is the policy of the Investment Manager to maintain a portion of the
Fund's investments in US short-term securities to cover distributions and
expenses.
CURRENCY COMPOSITION
The table below shows the currency composition of the Fund's total
investments as of October 31, 1999, compared with the previous quarter and one
year ago.
TABLE 2: THE FIRST COMMONWEALTH FUND, INC.--CURRENCY ALLOCATION
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October 31, 1999 July 31, 1999 October 31, 1998
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Australian Dollar 24.2% 24.3% 25.4%
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Canadian Dollar 30.2% 29.2% 30.1%
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New Zealand Dollar 7.9% 8.1% 9.9%
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British Pound 33.2% 32.1% 33.7%
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United States Dollar* 2.3% 2.2% 0.9%
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Asian Currencies 2.2% 4.1% --
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Total Portfolio 100.0% 100.0% 100.0%
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* Includes Asian Yankee bond investments.
5
<PAGE>
Portfolio Composition (continued) The First Commonwealth Fund, Inc.
================================================================================
MATURITY COMPOSITION
On October 31, 1999, the average maturity of the Fund's assets was 7.9
years, decreased from 8.8 years twelve months ago, to reduce the risk profile of
the Fund. The table below shows the maturity composition of the Fund's
investments:
TABLE 3: THE FIRST COMMONWEALTH FUND, INC.--MATURITY ANALYSIS
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Less than 1 year 1-5 years 5-10 years Over 10 years
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Australia 5.6% 40.6% 49.9% 3.9%
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Canada 11.9% 39.8% 10.8% 37.5%
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New Zealand 69.5% 17.5% 13.0% --
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United Kingdom 12.5% 25.3% 29.8% 32.4%
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United States 100.0% -- -- --
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Asia 1.2% 51.6% 27.1% 20.1%
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Total Portfolio 14.7% 34.0% 27.4% 23.9%
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SECTORAL COMPOSITION
The table below shows the sectoral composition of the Fund's total
investments at October 31, 1999:
TABLE 4: THE FIRST COMMONWEALTH FUND, INC.--SECTORAL COMPOSITION
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State/
Sovereign Province Corporate Cash or
Govt. Bonds Bonds Eurobonds Bonds Equivalent
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Australia 10.4% 7.2% 4.2% 1.9% 0.5%
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Canada 19.0% 3.2% 3.7% 1.2% 3.1%
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New Zealand 0.5% -- 1.1% 1.5% 4.8%
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United Kingdom 16.2% -- 12.2% -- 4.8%
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United States -- -- -- -- 0.1%
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Asia 1.7% -- -- 2.6% 0.1%
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Total Portfolio 47.8% 10.4% 21.2% 7.2% 13.4%
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6
<PAGE>
Portfolio Composition (concluded) The First Commonwealth Fund, Inc.
================================================================================
QUALITY OF INVESTMENTS
On October 31, 1999, 90.0% of the Fund's assets were invested in
securities where either the issue or the issuer was rated at least "AA" by
Standard & Poor's Ratings Group or "Aa" by Moody's Investors Service, Inc. or,
if unrated, were judged to be of equivalent quality by the Investment Manager.
TABLE 5: THE FIRST COMMONWEALTH FUND, INC.--ASSET QUALITY
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AAA/Aaa AA/Aa A BBB/Baa BB/Ba*
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Australia 80.8% 19.2% -- -- --
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Canada 1.8% 91.0% 7.2% -- --
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New Zealand 22.7% 60.5% 16.8% -- --
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United Kingdom 57.0% 34.7% 8.3% -- --
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Asia -- 9.9% -- 53.2% 36.9%
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Total Portfolio 42.2% 47.8% 5.6% 2.6% 1.8%
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* Below Investment Grade.
7
<PAGE>
Market Review and Outlook The First Commonwealth Fund, Inc.
================================================================================
Australia
Australian bond yields rose over the year in anticipation of a monetary
policy tightening by the Reserve Bank of Australia and in line with the trend in
global rates. Ten-year government bond yields increased over the year from 4.97%
to 6.63%. In early November, a 0.25% increase in official interest rates
occurred, which was less than the market expected.
The Australian dollar strengthened 2.3% against the US dollar over the
year. Expectations of stronger global industrial production and firmer commodity
prices have induced positive sentiment towards the currency, which closed the
period at 64.00 cents.
The resilience of Australian economic growth is a key positive for the
currency in the medium-term. Looking further out, improving global growth should
lead commodity prices higher, supporting the Australian dollar.
Canada
Canadian bond yields increased over the year in response to higher than
expected economic growth and inflation results. Ten-year government bond yields
rose over the year from 5.09% to 6.05%.
The Canadian dollar was the strongest of the Commonwealth currencies over
the year. Expectations of tighter monetary policy and firmer commodity prices
boosted the currency, which appreciated 5.0% against the US dollar to close the
period at 67.89 cents.
New Zealand
The New Zealand bond market corrected to a greater extent than the
Australian bond market, as there are continued fears that the New Zealand
central bank will raise interest rates. Ten-year government bond yields
increased from 5.38% to 7.08% over the year.
The New Zealand dollar has underperformed, especially in the latest
quarter, reflecting relatively easy monetary policy setting and political
uncertainty. The currency depreciated 4.0% against the US dollar, to close at
50.72 cents.
United Kingdom
Concerns about house price inflation led the Bank of England to raise
interest rates 0.25% late in the year. Ten-year government bond yields rose in
anticipation of this increase, from 5.06% to 5.41% over the year. In early
November, interest rates were increased a further 0.25%.
The British pound weakened sharply in early 1999, in line with significant
easings of monetary policy and slow economic growth. Despite rallying late in
the year, the British pound depreciated 2.4% against the US dollar, to close at
$1.6378.
8
<PAGE>
Market Review and Outlook (concluded) The First Commonwealth Fund, Inc.
================================================================================
Asia
Domestic and Yankee (US$ denominated) bonds
Asian domestic bond markets generally rallied over the year as monetary
conditions eased and investor sentiment improved. South Korea was an exception,
weakening due to corporate concerns. Daewoo, one of South Korea's largest
companies, faced possible bankruptcy. The Fund did not and does not hold any
Daewoo bonds.
US-dollar denominated Asian bonds (Yankees) rallied over the year as well.
Stronger economic growth has improved credit conditions in the region and this
has benefited the Yankee bond market.
The credit outlook for both Malaysia and India has recently been raised,
which should be positive for Yankees in the medium-term. Since the end of the
fiscal year, South Korea's credit rating has been upgraded.
Currencies
Asian currencies were mixed against the US dollar over the year.
The Fund held its largest Asian exposure in the South Korean won, but sold
this completely over the period due to the corporate debt problems noted above.
9
<PAGE>
Summary of Key Rates The First Commonwealth Fund, Inc.
================================================================================
The following table summarizes the movements of key interest rates and
currencies over the last three and twelve month periods.
================================================================================
October 31, 1999 July 31, 1999 October 31, 1998
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Australia
90 day bank bills 5.35% 4.91% 4.82%
10 year bonds 6.63% 6.24% 4.97%
Australian Dollar $ 0.64 $ 0.65 $ 0.62
Canada
90 day bank bills 4.78% 4.73% 4.75%
10 year bonds 6.05% 5.72% 5.09%
Canadian Dollar $ 0.68 $ 0.66 $ 0.64
New Zealand
90 day bank bills 5.29% 4.75% 4.62%
10 year bonds 7.08% 6.63% 5.38%
New Zealand Dollar $ 0.51 $ 0.53 $ 0.53
United Kingdom
90 day bank bills 5.29% 4.81% 6.70%
10 year bonds 5.41% 5.34% 5.06%
British Pound $ 1.64 $ 1.62 $ 1.68
South Korea
90 day bank bills 7.26% 7.52% 8.00%
5 year bonds 9.03% 8.81% 8.50%
South Korean Won* W 1200 W 1204 W 1319
Thailand
90 day bank bills 4.00% 3.25% 6.50%
10 year bonds 7.81% 7.74% N/A
Thai Baht* B 39 B 37 B 37
Philippines
90 day bank bills 9.75% 9.56% 15.34%
10 year bonds 15.31% 15.00% 18.46%
Philippines Peso* P 40 P 39 P 40
Hong Kong
90 day bank bills 6.63% 6.25% 7.25%
5 year bonds 7.04% 6.88% 7.37%
Hong Kong Dollar* HK$7.8 HK$7.8 HK$7.7
US$ Yankee Bonds**
South Korea 8.37% 8.41% 10.22%
Thailand 8.02% 8.37% 9.90%
Philippines 9.42% 9.29% 10.54%
* These currencies are quoted Asian currency per US dollar. The Australian,
New Zealand and Canadian dollars and the British pound are quoted US
dollars per currency.
** Ten-year sovereign issues.
Yield comparisons are direct and do not take into account fluctuations in
currency exchange rates.
EquitiLink International Management Limited
December 1999
10
<PAGE>
Portfolio of Investments October 31, 1999 The First Commonwealth Fund, Inc.
================================================================================
- -----------------------------------------------------------------
Principal Amount
Local Currency(a) Value
(000) Description (US$)
- -----------------------------------------------------------------
LONG-TERM INVESTMENTS--87.3%
AUSTRALIA--23.9%
Government and Semi-Government
Bonds--17.7%
Commonwealth of Australia--10.5%
Commonwealth of Australia,
A$ 1,000 13.00%, 7/15/00 .................. 674,938
1,500 12.00%, 11/15/01 ................. 1,070,746
3,000 10.00%, 10/15/02 ................. 2,122,234
2,000 9.50%, 8/15/03 ................... 1,421,542
3,000 10.00%, 2/15/06 .................. 2,269,786
2,600 10.00%, 10/15/07 ................. 2,016,835
2,700 8.75%, 8/15/08 ................... 1,975,398
3,000 7.50%, 9/15/09 ................... 2,047,181
2,250 5.75%, 6/15/11 ................... 1,337,270
----------
14,935,930
----------
New South Wales--1.6%
New South Wales Treasury
Corporation,
2,000 8.00%, 12/01/01 .................. 1,326,208
1,500 7.00%, 4/01/04 ................... 976,416
----------
2,302,624
----------
Queensland--3.3%
Queensland Treasury
Corporation,
3,000 8.00%, 8/14/01 ................... 1,983,936
2,000 8.00%, 5/14/03 (Global) .......... 1,346,560
1,000 8.00%, 9/14/07 ................... 685,478
1,000 8.00%, 9/14/07 (Global) .......... 687,168
----------
4,703,142
----------
South Australia--0.5%
South Australia Finance
Authority,
1,000 12.50%, 10/15/00 ................. 679,821
----------
Victoria--1.3%
Treasury Corporation of
Victoria,
2,500 10.25%, 11/15/06 ................. 1,905,360
----------
Western Australia--0.5%
Western Australia Treasury
Corporation,
1,000 10.00%, 7/15/05 .................. 740,000
----------
Total Australian government
and semi-government bonds
(cost US$27,882,236) ............. 25,266,877
----------
Corporate Bonds--2.0%
Services--2.0%
First Australian National
Mortgage Acceptance
Corporation,
Series 22,
1,911 11.40%, 12/15/01 ................. 1,314,719
Telstra Corp.,
2,000 11.50%, 10/15/02 ................. 1,444,608
Total Australian corporate
bonds
(cost US$3,179,369) .............. 2,759,327
----------
Eurobonds--4.2%
Financial Services--2.2%
Export Finance & Insurance
Corporation,
3,750 11.00%, 12/29/04 ................. 2,795,280
ING Mercantile Mutual
Bank Ltd.,
500 7.125%, 3/13/02 .................. 321,792
----------
3,117,072
----------
Semi-Government--0.7%
South Australia Finance
Authority,
500 12.50%, 5/08/01 .................. 346,592
Treasury Corporation of
Victoria,
1,000 9.00%, 6/27/05 ................... 698,560
----------
1,045,152
----------
Services--0.3%
State Electricity Commission
of Victoria,
535 10.50%, 5/27/03 .................. 381,605
----------
Supranational--1.0%
Eurofima,
2,000 9.875%, 1/17/07 .................. 1,462,400
----------
Total Australian eurobonds
(cost US$6,513,587) .............. 6,006,229
----------
Total Australian long-term
investments
(cost US$37,575,192) ............. 34,032,433
----------
See Notes to Financial Statements.
11
<PAGE>
Portfolio of Investments (continued) The First Commonwealth Fund, Inc.
October 31, 1999
================================================================================
- -----------------------------------------------------------------
Principal Amount
Local Currency(a) Value
(000) Description (US$)
- -----------------------------------------------------------------
CANADA--27.4%
Government and Provincial
Bonds--22.4%
Canada--19.1%
Canadian Government,
C$ 5,500 7.50%, 3/01/01 ................... 3,819,345
6,000 8.50%, 4/01/02 ................... 4,305,295
5,000 5.25%, 9/01/03 ................... 3,310,183
2,500 7.25%, 6/01/07 ................... 1,820,604
2,000 5.50%, 6/01/09 ................... 1,306,219
8,000 10.25%, 3/15/14 .................. 7,529,776
4,000 8.00%, 6/01/23 ................... 3,323,829
2,000 9.00%, 6/01/25 ................... 1,836,728
----------
27,251,979
----------
British Columbia--1.7%
Province of British Columbia,
1,000 10.15%, 8/29/01 .................. 726,999
2,000 9.50%, 1/09/12 ................... 1,697,909
----------
2,424,908
----------
Ontario--1.6%
Province of Ontario,
1,000 8.75%, 4/22/03 ................... 732,621
2,000 7.50%, 2/07/24 ................... 1,500,530
----------
2,233,151
----------
Total Canadian government
and provincial bonds
(cost US$33,881,999) ............... 31,910,038
----------
Corporate Bonds--1.3%
Diversified Industrials--0.8%
Bell Telephone Company
of Canada,
500 10.50%, 7/15/09 .................. 374,301
Imperial Oil Ltd.,
1,000 9.875%, 12/15/99 ................. 682,608
----------
1,056,909
----------
Financial Services--0.5%
Bank of Nova Scotia,
1,000 10.35%, 7/19/01 .................. 722,702
----------
Total Canadian
corporate bonds
(cost US$2,184,922) .............. 1,779,611
----------
Eurobonds--3.7%
Diversified Industrials--0.2%
Procter & Gamble Company,
500 10.875%, 8/15/01 ................. 363,069
----------
Financial Services--1.0%
Credit Local de France,
1,000 6.75%, 3/21/06 ................... 678,751
Rabobank Nederland N.V.,
1,000 9.00%, 12/22/00 .................. 699,796
----------
1,378,547
----------
Natural Resources--1.3%
Ontario Hydro,
500 8.50%, 5/26/25 ................... 418,456
Quebec Hydro,
1,500 7.00%, 6/01/04 ................... 1,036,864
Tokyo Electric Power Company,
500 10.50%, 6/14/01 .................. 359,538
----------
1,814,858
----------
Provincial and Municipal--0.8%
Metropolitan Municipality
of Toronto,
750 9.625%, 5/14/02 .................. 547,912
Ville de Montreal,
1,000 6.375%, 2/15/01 .................. 679,090
----------
1,227,002
----------
Supranational--0.4%
Canada (Cayman),
750 7.25%, 6/01/08 ....................... 525,204
----------
Total Canadian eurobonds
(cost US$5,772,699) .............. 5,308,680
----------
Total Canadian long-term
investments
(cost US$41,839,620) ............. 38,998,329
----------
See Notes to Financial Statements.
12
<PAGE>
Portfolio of Investments (continued) The First Commonwealth Fund, Inc.
October 31, 1999
================================================================================
- -----------------------------------------------------------------
Principal Amount
Local Currency(a) Value
(000) Description (US$)
- -----------------------------------------------------------------
NEW ZEALAND--3.2%
Corporate Bonds--2.1%
Diversified Industrials--1.0%
Electricity Corporation of
New Zealand Ltd.,
NZ$ 1,750 10.00%, 10/15/01 ................. 946,113
1,000 8.00%, 2/15/03 ................... 521,970
----------
1,468,083
----------
Financial Services--0.2%
Transpower Finance Ltd.,
500 8.00%, 6/15/05 ................... 256,065
----------
Services--0.9%
Housing New Zealand,
1,500 8.00%, 11/15/06 .................. 755,923
TCNZ Finance Limited,
1,000 9.25%, 7/01/02 ................... 525,764
----------
1,281,687
----------
Total New Zealand corporate
bonds
(cost US$3,490,310) .............. 3,005,835
----------
Eurobonds--1.1%
Financial Services--0.4%
Primary Industry Bank of
Australia Limited,
1,000 8.25%, 3/27/00 ................... 511,866
----------
Global--0.3%
Canadian Government,
1,000 6.625%, 10/03/07 ................. 472,102
----------
Supranational--0.4%
International Bank for
Reconstruction and
Development,
1,000 7.00%, 9/18/00 ................... 511,562
----------
Total New Zealand eurobonds
(cost US$1,777,527) .............. 1,495,530
----------
Total New Zealand long-term
investments
(cost US$5,267,837) .............. 4,501,365
----------
PHILIPPINES--0.6%
Government Bonds--0.6%
Philippine Government,
PHP 30,000 11.875%, 6/10/01 ................. 746,757
7,000 16.50%, 2/25/09 .................. 184,159
----------
Total Philippine long-term
investments
(cost US$999,077) ................ 930,916
----------
SINGAPORE--0.4%
Corporate Bonds--0.4%
Financial Services--0.4%
ABN Amro Bank N.V.,
SGD 1,000 4.72%, 10/14/2004 ............... 602,352
----------
Total Singapore long-term
investments
(cost US$592,558) ................ 602,352
----------
THAILAND--0.9%
Government Bonds--0.7%
Thailand Government,
THB 19,000 6.125%, 4/12/02 (b) .............. 506,902
20,000 8.00%, 12/08/06 (b) .............. 536,989
----------
Total Thailand government
bonds
(cost US$1,107,266) .............. 1,043,891
----------
Corporate Bonds--0.2%
Natural Resources--0.2%
Eastern Water Resources
Development and
Management Company
Limited,
10,000 9.00%, 07/22/04 (b) .............. 268,934
----------
Total Thailand corporate
bonds
(cost US$256,568) .................. 268,934
----------
Total Thailand long-term
investments
(cost US$1,363,834) .............. 1,312,825
----------
See Notes to Financial Statements.
13
<PAGE>
Portfolio of Investments (continued) The First Commonwealth Fund, Inc.
October 31, 1999
================================================================================
- -----------------------------------------------------------------
Principal Amount
Local Currency(a) Value
(000) Description (US$)
- -----------------------------------------------------------------
UNITED KINGDOM--28.7%
Government Bonds--16.4%
United Kingdom Treasury,
(pound) 250 8.00%, 12/07/00 .................... 418,622
1,000 7.00%, 11/06/01 .................... 1,664,987
1,500 8.00%, 6/10/03 ..................... 2,596,486
500 5.00%, 6/07/04 ..................... 785,325
1,500 6.75%, 11/26/04 .................... 2,528,927
2,000 7.50%, 12/07/06 .................... 3,574,990
500 5.75%, 12/07/09 .................... 841,010
600 8.00%, 12/07/15 .................... 1,309,323
3,000 8.00%, 6/07/21 ..................... 7,110,672
1,200 6.00%, 12/07/28 .................... 2,455,717
----------
Total United Kingdom
government bonds
(cost US$23,488,013) ............... 23,286,059
----------
Eurobonds--12.3%
Diversified Industrials--1.8%
British Gas PLC,
1,400 8.875%, 7/08/08 .................... 2,561,421
----------
Financial Services--6.4%
Abbey National Treasury
Services PLC,
1,250 8.00%, 4/02/03 ................... 2,103,959
Barclays Bank PLC,
1,000 9.875%, 5/29/49 .................. 1,846,947
Halifax Building Society,
1,500 11.00%, 1/17/14 .................. 3,396,142
Lloyds Bank PLC,
500 7.375%, 3/11/04 .................. 824,714
Prudential Finance B.V.,
500 9.375%, 6/04/07 .................. 930,352
----------
9,102,114
----------
Natural Resources--1.2%
Thames Water Utilities
Finance PLC,
1,000 10.50%, 11/21/01 ................. 1,738,525
----------
Supranational--2.9%
Republic of Finland,
1,000 8.00%, 4/07/03 ..................... 1,691,028
1,250 10.125%, 6/22/08 ................... 2,496,212
-----------
4,187,240
-----------
Total United Kingdom
eurobonds
(cost US$15,553,334) ............. 17,589,300
-----------
Total United Kingdom
long-term investments
(cost US$39,041,347) ............. 40,875,359
-----------
UNITED STATES--2.2%
Yankee Obligations--2.2%
Diversified Industrials--1.9%
Petroliam Nasional Berhad,
US$ 1,000 7.125%, 10/18/06 ................. 934,500
Reliance Industries Ltd.,
1,000 10.25%, 1/15/97 .................. 809,239
Samsung Electronics America,
1,000 9.75%, 5/01/03 ................... 1,030,293
-----------
2,774,032
-----------
Government--0.3%
Kingdom of Thailand,
500 7.07%, 9/30/13 ................... 417,630
-----------
Total US$ denominated
long-term investments
(cost US$3,255,784) .............. 3,191,662
-----------
Total long-term investments
(cost US$129,935,249) ............ 124,445,241
-----------
See Notes to Financial Statements.
14
<PAGE>
Portfolio of Investments (concluded) The First Commonwealth Fund, Inc.
October 31, 1999
================================================================================
- -----------------------------------------------------------------
Principal Amount
Local Currency(a) Value
(000) Description (US$)
- -----------------------------------------------------------------
SHORT-TERM INVESTMENTS--12.6%
Australia--0.4%
Banque Nationale de Paris
Fixed Deposit,
A$ 889 4.35%, 11/01/99
(cost US$569,171) .............. 569,171
------------
Canada--3.1%
State Street Bank and Trust
Company Time Deposit,
C$ 6,575 4.40%, 11/05/99
(cost US$4,467,904) ............ 4,463,657
------------
New Zealand--4.8%
State Street Bank and Trust
Company Time Deposit,
NZ$ 13,606 4.25%, 11/02/99
(cost US$7,001,611) ............ 6,900,927
------------
Philippines--0.1%
Philippine Treasury Bills,
PHP 3,000 0%, 03/01/00
(cost US$73,329) ............... 72,552
------------
United Kingdom--4.1%
State Street Bank and Trust
Company Fixed Deposit,
(pound)1,459 4.75%, 11/01/99 ................ 2,389,059
2,095 5.00%, 11/08/99 ................ 3,431,769
------------
(cost US$5,864,590) ............ 5,820,828
------------
United States--0.1%
US$ 100 Repurchase Agreement, State
Street Bank and Trust
Company, 5.05% dated
10/29/99, due 11/01/99 in
the amount of $100,042
(cost $100,000;
collateralized by $105,000
U.S. Treasury Notes, 5.50%
due 07/31/01; value
$107,247) ...................... 100,000
------------
Total short-term investments
(cost US$18,076,605) ........... 17,927,135
------------
Total Investments--99.9%
(cost US$148,011,854) .......... 142,372,376
Unrealized depreciation
on forward foreign
currency exchange
contracts--(0.0%) (c) .......... (4,625)
Other assets in excess of
liabilities--0.1% .............. 136,543
------------
Total Net Assets--100.0% ......... $142,504,294
============
(a) A$--Australian dollar
C$--Canadian dollar
NZ$--New Zealand dollar
PHP--Philippine peso
SGD--Singapore dollar
THB--Thai baht
(pound)--British pound
US$--United States dollar
(b) Securities pledged as collateral for forward foreign currency exchange
contracts.
(c) Forward foreign currency exchange contracts entered into as of October 31,
1999 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Purchases
Net Unrealized
Contracts to Receive In exchange For Settlement Date Value Appreciation
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PHP 5,887,000 US$ 145,000 1/21/00 US$ 145,819 US$ 819
THB 44,300,775 US$1,071,361 11/29/99 US$1,145,611 US$ 74,250
----------
US$ 75,069
---------
- ----------------------------------------------------------------------------------------------------
Sales
Net Unrealized
Contracts to Deliver In exchange For Settlement Date Value Depreciation
- ----------------------------------------------------------------------------------------------------
THB 50,000,000 US$1,213,298 11/29/99 US$1,292,99 US$(79,694)
----------
Total US$ (4,625)
==========
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
Statement of Assets and Liabilities The First Commonwealth Fund, Inc.
October 31, 1999
================================================================================
<TABLE>
<S> <C>
Assets
Investments, at value (cost $148,011,854) ........................................ $ 142,372,376
Foreign currency, at value (cost $1,443,734) ..................................... 1,447,232
Cash ............................................................................. 57,152
Interest receivable .............................................................. 3,244,372
Unrealized appreciation on forward foreign currency exchange contracts purchased . 75,069
Prepaid expenses and other assets ................................................ 50,467
-------------
Total assets .................................................................. 147,246,668
-------------
Liabilities
Payable for investments purchased ................................................ 3,431,769
Dividends payable--common stock .................................................. 718,131
Investment management fee payable ................................................ 94,745
Unrealized depreciation on forward foreign currency exchange contracts sold ...... 79,694
Directors' fees and expenses payable ............................................. 35,750
Administration fee payable ....................................................... 29,152
Accrued expenses and other liabilities ........................................... 353,133
-------------
Total liabilities ............................................................. 4,742,374
-------------
Total Net Assets ................................................................. $ 142,504,294
=============
Total net assets were composed of:
Common stock:
Par value ($.001 per share, applicable to 9,266,209 shares issued) ............ $ 9,266
Paid-in capital in excess of par .............................................. 127,652,659
Preferred stock ($.001 par value per share and $25,000 liquidation value per share
applicable to 1,200 shares; Note 5) ........................................... 30,000,000
-------------
157,661,925
Distributions in excess of net investment income ................................. (583,985)
Undistributed net realized gains on investment transactions ...................... 417
Net unrealized depreciation on investments ....................................... (247,417)
Accumulated net realized foreign exchange losses ................................. (8,935,392)
Net unrealized foreign exchange losses ........................................... (5,391,254)
-------------
Total Net Assets ................................................................. $ 142,504,294
=============
Net assets applicable to common shareholders ..................................... $ 112,504,294
=============
Net asset value per common share ($112,504,294/9,266,209 shares of common
stock issued and outstanding) ................................................. $ 12.14
=============
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
Statement of Operations For the Year Ended The First Commonwealth Fund, Inc.
October 31, 1999
================================================================================
<TABLE>
<S> <C>
Net Investment Income
Income
Interest and discount earned (net of foreign withholding taxes of $209,986) ... $ 10,397,912
-------------
Expenses
Investment management fee ..................................................... 972,558
Administration fee ............................................................ 299,248
Reports to shareholders ....................................................... 193,102
Independent accountant's fees and expenses .................................... 151,200
Legal fees and expenses ....................................................... 145,845
Custodian's fees and expenses ................................................. 124,336
Directors' fees and expenses .................................................. 124,005
Auction agent's fees and expenses ............................................. 79,325
Insurance expense ............................................................. 72,219
Management consulting services ................................................ 71,450
Transfer agent's fees and expenses ............................................ 26,138
Registration fees ............................................................. 16,170
Miscellaneous ................................................................. 55,447
-------------
Total operating expenses .................................................... 2,331,043
-------------
Net investment income ............................................................ 8,066,869
-------------
Realized and Unrealized Gains (Losses) on Investments and Foreign Currencies
Net realized gains on investment transactions ................................. 3,459,803
Net realized foreign exchange losses .......................................... (3,585,472)
-------------
(125,669)
-------------
Net change in unrealized appreciation/depreciation on investments ............. (11,206,934)
Net change in unrealized foreign exchange losses .............................. 4,903,685
-------------
(6,303,249)
-------------
Net loss on investments and foreign currencies ................................... (6,428,918)
-------------
Net Increase in Net Assets Resulting from Operations ............................. $ 1,637,951
=============
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
Statement of Cash Flows For the Year Ended The First Commonwealth Fund, Inc.
October 31, 1999
================================================================================
<TABLE>
<S> <C>
Increase (Decrease) in Cash (Including Foreign Currency)
Cash flows provided from operating activities
Interest received ............................................................. $ 10,808,035
Operating expenses paid ....................................................... (2,159,011)
Purchases of short-term portfolio investments, net ............................ (9,423,731)
Purchases of long-term portfolio investments .................................. (55,432,145)
Proceeds from sales of long-term portfolio investments ........................ 68,577,495
Other ......................................................................... (19,541)
-------------
Net cash provided from operating activities ................................. 12,351,102
-------------
Cash flows used for financing activities
Dividends paid to common shareholders ......................................... (8,755,845)
Dividends paid to preferred shareholders ...................................... (1,473,660)
-------------
Net cash used for financing activities ...................................... (10,229,505)
-------------
Effect of exchange rate on cash .................................................. (618,127)
-------------
Net increase in cash ............................................................. 1,503,470
Cash at beginning of year ..................................................... 914
-------------
Cash at end of year ........................................................... $ 1,504,384
=============
Reconciliation of Net Increase in Total Net Assets Resulting from Operations to
Net Cash (Including Foreign Currency) Provided From Operating Activities
Net increase in total net assets resulting from operations ....................... $ 1,637,951
-------------
Decrease in investments ....................................................... 286,571
Net realized gains on investment transactions ................................. (3,459,803)
Net realized foreign exchange losses .......................................... 3,585,472
Net change in unrealized appreciation/depreciation on investments ............. 11,206,934
Net change in unrealized foreign exchange losses .............................. (4,903,685)
Decrease in interest receivable ............................................... 480,549
Net increase in other assets .................................................. (19,541)
Increase in payable for investments purchased ................................. 3,364,622
Increase in accrued expenses and other liabilities ............................ 172,032
-------------
Total adjustments ............................................................. 10,713,151
-------------
Net cash provided from operating activities ...................................... $ 12,351,102
=============
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
Statements of Changes in Net Assets The First Commonwealth Fund, Inc.
================================================================================
<TABLE>
<CAPTION>
For the Year Ended October 31,
------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income ............................................ $ 8,066,869 $ 9,169,164
Net realized gains on investment transactions .................... 3,459,803 2,119,218
Net realized foreign exchange losses ............................. (3,585,472) (4,751,505)
Net change in unrealized appreciation/depreciation on investments (11,206,934) 1,723,023
Net change in unrealized foreign exchange losses ................. 4,903,685 (5,894,135)
------------- -------------
Net increase in total net assets resulting from operations .......... 1,637,951 2,365,765
------------- -------------
Dividends and distributions to shareholders
Dividends to common shareholders from net investment income ...... (5,744,630) (8,084,197)
Dividends to preferred shareholders from net investment income ... (1,076,897) (1,313,699)
Distributions to common shareholders from net realized gains on
investment transactions ........................................ (3,011,215) (718,017)
Distributions to preferred shareholders from net realized gains on
investment transactions ........................................ (396,763) (311,809)
------------- -------------
Net decrease in net assets resulting from dividends and distributions
to shareholders .................................................. (10,229,505) (10,427,722)
------------- -------------
Total decrease in net assets ........................................ (8,591,554) (8,061,957)
Total Net Assets
Beginning of year ................................................... 151,095,848 159,157,805
------------- -------------
End of year (including distributions in excess of net
investment income of ($583,985) and ($406,718), respectively) .... $ 142,504,294 $ 151,095,848
============= =============
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
Financial Highlights The First Commonwealth Fund, Inc.
================================================================================
<TABLE>
<CAPTION>
For the Year Ended October 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value per common share,
beginning of year .............................. $ 13.07 $ 13.94 $ 14.32 $ 13.13 $ 12.08
--------- -------- -------- -------- --------
Net investment income ............................. 0.87 0.99 1.14 1.16 1.19
Net realized and unrealized gains (losses) on
investments and foreign currencies ............. (0.70) (0.73) (0.34) 1.21 1.10
--------- -------- -------- -------- --------
Total from investment operations ............... 0.17 0.26 0.80 2.37 2.29
--------- -------- -------- -------- --------
Dividends from net investment income to
common shareholders ............................ (0.62) (0.87) (0.99) (1.00) (1.03)
Dividends from net investment income to
preferred shareholders ......................... (0.11) (0.14) (0.17) (0.16) (0.18)
Distributions from net realized gains on investment
transactions to common shareholders ............ (0.33) (0.08) (0.02) (0.01) (0.03)
Distributions from net realized gains on investment
transactions to preferred shareholders ......... (0.04) (0.04) -- (0.01) --
--------- -------- -------- -------- --------
Total dividends and distributions .............. (1.10) (1.13) (1.18) (1.18) (1.24)
--------- -------- -------- -------- --------
Net asset value per common share, end of year ..... $ 12.14 $ 13.07 $ 13.94 $ 14.32 $ 13.13
========= ======== ======== ======== ========
Market value, end of year ......................... $ 10.375 $10.8125 $12.4375 $ 11.875 $ 11.375
========= ======== ======== ======== ========
Number of shares of common stock
outstanding (000 omitted) ...................... 9,266 9,266 9,266 9,266 9,266
Total investment return based on:(1)
Market value ................................... 4.89% (5.59)% 13.78% 13.89% 20.72%
Net asset value ................................ 1.53% 1.82% 5.76% 18.99% 19.67%
Ratio to Average Net Assets of Common
Shareholders(2)/Supplementary Data:
Net assets of common shareholders, end of
year (000 omitted) ............................. $ 112,504 $121,096 $129,158 $132,660 $121,654
Average net assets of common shareholders
(000 omitted) .................................. 119,257 122,266 130,125 122,887 115,277
Operating expenses ................................ 1.95% 1.70% 1.63% 1.70% 1.71%
Net investment income available to
common shareholders(2) ......................... 5.53% 6.17% 6.88% 7.47% 8.09%
Portfolio turnover ................................ 40% 36% 24% 30% 23%
Senior securities (preferred stock) outstanding
(000 omitted) .................................. $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000
Asset coverage on preferred stock at year end ..... 475% 504% 530% 542% 505%
</TABLE>
- --------------------------------------------------------------------------------
(1) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day
of each period reported. Dividends and distributions, if any, are assumed
for the purposes of this calculation to be reinvested at prices obtained
under the Fund's dividend reinvestment plan. Total investment return does
not reflect brokerage commissions. Generally, total investment return
based on net asset value will be higher than total investment return based
on market value in periods where there is an increase in the discount or a
decrease in the premium of the market value to the net asset value from
the beginning to the end of such periods. Conversely, total investment
return based on net asset value will be lower than total investment return
based on market value in periods where there is a decrease in the discount
or an increase in the premium of the market value to the net asset value
from the beginning to the end of such periods.
(2) Ratios are calculated on the basis of income and expenses applicable to
both the common and preferred shares relative to the average net assets of
common shareholders. Ratio of net investment income before preferred stock
dividends to average net assets of common shareholders is 6.76%, 7.50%,
8.10%, 8.73% and 9.56%, respectively.
See Notes to Financial Statements.
20
<PAGE>
Notes to Financial Statements The First Commonwealth Fund, Inc.
================================================================================
Note 1. Investment Objectives
The First Commonwealth Fund, Inc. (the "Fund") was incorporated in
Maryland on June 28, 1991, as a closed-end, non-diversified investment company.
From the Fund's inception to April 7, 1999 the Fund's investment objective
was to provide high current income by investing in high-grade fixed-income
securities denominated in the currencies of Australia, Canada, New Zealand and
the United Kingdom (the "Commonwealth Currencies"). On April 7, 1999,
shareholders approved an expansion of the Fund's principal investment objective,
investment policies and investment restrictions to enable the Fund to invest up
to 35% of its total assets in Global Debt Securities. Global Debt Securities
include securities of issuers located in, or securities denominated in the
currency of, countries other than Australia, Canada, New Zealand or the United
Kingdom.
The amendments include (a) modifying the Fund's investment objective to
provide that the market value weighted average credit quality of the Fund's
investments must be A or better at all times, (b) permitting the Fund 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, (c) permitting the Fund to
invest a portion of its assets in equity securities of other investment
companies that are registered under the Investment Company Act of 1940 and that
are themselves invested primarily in fixed-income securities, and (d) permitting
the Fund, with respect to the portion of the portfolio not denominated in a
Commonwealth Currency, 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. The Fund may also seek capital appreciation
only as a secondary investment objective.
The Fund's assets have generally been invested in a portfolio of
securities issued or guaranteed by the governments, territories, provinces and
states of Australia, Canada, New Zealand and the United Kingdom as well as
securities issued by corporations domiciled in those countries. The Fund will,
under normal circumstances, invest in debt securities in at least three of these
currencies and will not hold more than 50% of its assets in securities
denominated in any one Commonwealth Currency. The ability of issuers of debt
securities held by the Fund to meet their obligations may be affected by
economic developments in a specific industry, country or region.
Note 2. Accounting Policies
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.
Basis of Presentation: The financial statements of the Fund are prepared in
accordance with United States generally accepted accounting principles using the
United States dollar as both the functional and reporting currency. However, the
Commonwealth Currencies (excluding New Zealand) are the functional currencies
for Federal tax purposes (see Taxes below).
Foreign Currency Translation: Foreign currency amounts are translated into
United States dollars on the following basis:
(i) market value of investment securities, other assets and liabilities--at
the closing rates of exchange as reported by a major bank;
(ii) purchases and sales of investment securities, income and expenses--at the
rates of exchange prevailing on the respective dates of such transactions.
21
<PAGE>
Notes to Financial Statements (continued) The First Commonwealth Fund, Inc.
================================================================================
The Fund isolates that portion of the results of operations arising as a
result of changes in the foreign exchange rates from the fluctuations arising
from changes in the market prices of the securities held at fiscal period end.
Similarly, the Fund isolates the effect of changes in foreign exchange rates
from the fluctuations arising from changes in the market prices of portfolio
securities sold during the fiscal year.
Net realized foreign exchange losses of $3,585,472 for the year ended
October 31, 1999 includes realized foreign exchange gains and losses from sales
and maturities of portfolio securities, sales of foreign currencies, currency
gains or losses realized between the trade and settlement dates on securities
transactions and the difference between the amounts of interest, discount and
foreign withholding taxes recorded on the Fund's books and the US dollar
equivalent amounts actually received or paid. Net unrealized foreign exchange
gains of $4,903,685 at October 31, 1999 include changes in the value of
portfolio securities and other assets and liabilities arising as a result of
changes in the exchange rate.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of domestic origin,
including unanticipated movements in the value of the foreign currency relative
to the US dollar.
The exchange rates utilized by the Fund at October 31, 1999 were US$0.6400
to A$1.00, US$0.6789 to C$1.00, US$0.5072 to NZ$1.00, US$1.6378 to (pound)1.00,
US$0.0250 to PHP1.00, US$0.6000 to SGD1.00 and US$0.0259 to THB1.00.
Security Valuation: Investments are stated at market value. Investments for
which market quotations are readily available are valued at the last trade price
on or within one local business day of the date of determination as obtained
from a pricing source. If no such trade price is available, such investments are
valued at the quoted bid price or the mean between the quoted bid and asked
price on the date of determination as obtained from a pricing source. Securities
for which market quotations are not readily available are valued at fair value
in good faith using methods determined by or under the direction of the Fund's
Board of Directors.
Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost, if their term to maturity from date of purchase
was 60 days or less, or by amortizing their value on the 61st day prior to
maturity, if their original term to maturity exceeded 60 days.
In connection with transactions in repurchase agreements with US financial
institutions, it is the Fund's policy that its custodian/counterparty segregates
the underlying collateral securities, the value of which exceeds the principal
amount of the repurchase transaction, including accrued interest. To the extent
that any repurchase transaction exceeds one business day, the collateral is
valued on a daily basis to determine its adequacy. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by the
Fund may be delayed or limited.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses from
security and currency transactions are calculated on the identified cost basis.
Interest income is recorded on an accrual basis. Discounts on securities
purchased are accreted on an effective yield basis over the estimated lives of
the respective securities. Expenses are accrued on a daily basis.
22
<PAGE>
The First Commonwealth Fund, Inc.
================================================================================
Derivative Financial Instruments: The Fund is authorized to use derivatives to
manage both currency and interest rate risk for global debt securities. With
respect to investments denominated in Commonwealth currencies, derivatives can
only be used to manage interest rate risk. Losses may arise due to changes in
the value of the contract or if the counterparty does not perform under the
contract.
Forward Currency Contracts: A forward currency contract involves an obligation
to purchase and sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract agreed upon by the parties,
at a price set at the time of the contract. The foreign currency contract is
marked-to-market daily and the change in market value is recorded by the Fund as
an unrealized gain or loss. When the forward currency contract is closed, the
Fund records a realized gain or loss equal to the difference between the value
at the time it was opened and the value at the time it was closed.
Financial Futures Contracts: A futures contract is an agreement between two
parties to buy and sell a security for a set price on a future date. Upon
entering into a contract, the Fund deposits and maintains as collateral such
initial margin as required by the exchange on which the transaction is effected.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in the value of the contract.
Such receipts or payments are known as variation margin and are recorded by the
Fund as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
Options: When the Fund writes an option, an amount equal to the premium received
by the Fund is reflected as an asset and an equivalent liability. The amount of
the liability is subsequently marked to market to reflect the current market
value of the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from (or added to)
the proceeds of the security sold. When an option expires (or the Fund enters
into a closing transaction), the Fund realizes a gain or loss on the option to
the extent of the premiums received or paid (or gain or loss to the extent the
cost of the closing transaction exceeds the premium paid or received).
Dividends: Dividends and distributions to common shareholders are recorded on
the ex-dividend date and are based upon net investment income and capital and
currency gains determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for foreign currencies and loss deferrals.
Dividends and distributions to preferred shareholders are accrued on a daily
basis and are determined as described in Note 5.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with AICPA Statement of Position
93-2 Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. For
the year ended October 31, 1999, the Fund decreased undistributed net investment
income by $1,422,609, decreased accumulated net realized gains on investments by
$1,001,320 and decreased accumulated net realized foreign exchange losses by
$2,117,866, resulting in an increase to paid-in capital in excess of par by
$306,063. Net investment income, net realized losses on investments and net
assets were not affected by this change. Accumulated realized and
23
<PAGE>
Notes to Financial Statements (concluded) The First Commonwealth Fund, Inc.
================================================================================
unrealized foreign exchange losses shown in the composition of net assets
represent foreign exchange losses for book purposes that have not yet been
recognized for tax purposes.
Taxes: For Federal income and excise tax purposes, substantially all of the
Fund's transactions are accounted for using the functional currencies.
Accordingly, only realized currency gains and losses resulting from the
repatriation of any of the Commonwealth Currencies into US dollars or another
Commonwealth Currency and realized currency gains and losses on non-Commonwealth
currencies are recognized for tax purposes.
No provision has been made for United States Federal income taxes because
it is the Fund's policy to meet the requirements of the United States Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to shareholders. Under the applicable
foreign tax law, a withholding tax may be imposed on interest and discounts
earned at various rates.
Cash Flow Information: The Fund invests in securities and distributes dividends
from net investment income and net realized gains on investment and currency
transactions which are paid in cash or are reinvested at the discretion of
shareholders. These activities are reported in the Statements of Changes in Net
Assets and additional information on cash receipts and cash payments is
presented in the Statement of Cash Flows. Cash includes domestic and foreign
currency.
Use of Estimates: The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
Note 3. Agreements
The Fund has agreements with EquitiLink International Management Limited
(the "Investment Manager"), EquitiLink Australia Limited (the "Investment
Adviser"), and Princeton Administrators, L.P. (the "Administrator"). The
Investment Manager and the Investment Adviser are affiliated companies. The
Investment Manager has entered into an agreement with CIBC Wood Gundy Securities
Inc. (the "Consultant").
The Investment Manager makes investment decisions on behalf of the Fund on
the basis of recommendations and information furnished to it by the Investment
Adviser and the Consultant, including the selection of and the placement of
orders with brokers and dealers to execute portfolio transactions on behalf of
the Fund.
The management agreement provides the Investment Manager with a fee,
computed weekly and payable monthly, at the following annual rates: 0.65% of the
Fund's average weekly net assets up to $200 million, 0.60% of such assets
between $200 million and $500 million and 0.55% of such assets in excess of $500
million. The administration agreement provides the Administrator with a fee
computed and payable monthly at the annual rate of 0.20% of the Fund's average
weekly net assets, subject to a minimum annual payment of $150,000 ($12,500 per
month). The Investment Manager pays fees to the Investment Adviser and the
Consultant for their services rendered.
The Investment Manager informed the Fund that it paid $360,358 to the
Investment Adviser and $2,090 to the Consultant during the year ended October
31, 1999.
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term
investments, for the year
24
<PAGE>
The First Commonwealth Fund, Inc.
================================================================================
ended October 31, 1999 aggregated $55,432,145 and $68,577,241, respectively.
The United States federal income tax basis of the Fund's investments at
October 31, 1999 was $142,640,470 and accordingly, net unrealized depreciation
for United States federal income tax purposes was $268,094 (gross unrealized
appreciation--$3,162,937, gross unrealized deprecia-tion--$3,431,031).
Note 5. Capital
There are 300 million shares of $.001 par value common stock authorized.
Of the 9,266,209 shares outstanding at October 31, 1999, the Investment Manager
and its affiliates owned 189,800 shares.
There are 100 million shares of $.001 par value of Auction Market
Preferred Stock ("Preferred Stock") authorized. The preferred shares have rights
as determined by the Board of Directors. The 1,200 shares of Preferred Stock
outstanding consist of one series, W-7. The Preferred Stock has a liquidation
value of $25,000 per share plus any accumulated but unpaid dividends whether or
not declared.
Dividends on the Preferred Stock are cumulative at a rate typically reset
every seven days based on the results of an auction. Dividend rates ranged from
4.356% to 5.550% during the year ended October 31, 1999. Under the Investment
Company Act of 1940, the Fund may not declare dividends or make other
distributions on shares of common stock or purchase any such shares if, at the
time of the declaration, distribution or purchase, asset coverage with respect
to the outstanding Preferred Stock would be less than 200%.
The Preferred Stock is redeemable at the option of the Fund, in whole or
in part, on any dividend payment date at $25,000 per share plus any accumulated
but unpaid dividends. The Preferred Stock is also subject to mandatory
redemption at $25,000 per share plus any accumulated but unpaid dividends,
whether or not declared, if certain requirements relating to the composition of
the assets and liabilities of the Fund as set forth in the Articles of
Incorporation are not satisfied.
The holders of Preferred Stock have voting rights equal to the holders of
Common Stock (one vote per share) and will vote together with holders of shares
of common stock as a single class on matters concerning both classes of shares.
However, holders of Preferred Stock are also entitled to elect two of the Fund's
directors.
Note 6. Subsequent Dividends
Subsequent to October 31, 1999, the Board of Directors of the Fund
declared dividends from undistributed net investment income and long-term
capital gains of $0.0775 per common share payable on December 17, 1999 to common
shareholders of record on November 30, 1999, respectively.
Subsequent to October 31, 1999, dividends and distributions declared and
paid on preferred shares totaled approximately $182,736 for the outstanding
preferred share series through December 10, 1999.
25
<PAGE>
Report of Independent Accountants The First Commonwealth Fund, Inc.
================================================================================
To the Shareholders and the Board of Directors of
The First Commonwealth Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations, of cash flows and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The First Commonwealth Fund, Inc. (the "Fund") at October 31, 1999, the results
of its operations and its cash flows for the year then ended, the changes in its
net assets for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
December 14, 1999
26
<PAGE>
Federal Tax Information:
Dividends and Distributions (unaudited) The First Commonwealth Fund, Inc.
================================================================================
During the year ended October 31, 1999, 92.45% of the ordinary income
distributions paid by the Fund qualify as foreign source income. Additionally,
3.15% of the ordinary income distributions is attributable to foreign
withholding taxes.
The foreign taxes paid or withheld represent taxes incurred by the Fund on
income received by the Fund from foreign sources. Foreign taxes paid or withheld
should be included in taxable income with an offsetting deduction from gross
income or as a credit for taxes paid to foreign governments. You should consult
your tax counsel or other tax advisors regarding the appropriate treatment of
foreign taxes paid.
Additionally, the following long-term capital gain distributions were paid
by the Fund during the year:
Common Shareholders Preferred Shareholders
- -------------------------------------------- --------------------------------
Record Date Payable Date Per Share Amount Month Paid Per Share Amount
- ----------- ------------ ---------------- ---------- ----------------
12/31/1999 01/15/1999 $.0925 07/1999 $ 14.90
06/30/1999 07/16/1999 $.0775 08/1999 $120.81
08/31/1999 09/10/1999 $.0775 09/1999 $ 96.12
09/30/1999 10/15/1999 $.0775 10/1999 $ 98.81
ADDITIONAL INFORMATION
During the year, there have been no material changes in the Fund's
investment objectives or fundamental policies that have not been approved by the
shareholders. There have been no changes in the Fund's charter or By-Laws that
would delay or prevent a change in control which have not been approved by
shareholders. There have been no changes in the principal risk factors
associated with investment in the Fund other than what was disclosed in the
proxy statement dated February 8, 1999. Fund manager, Alison Delaney currently
holds the position of Fixed Income Portfolio Manager with EquitiLink Australia
Limited. She took on her duties for The First Commonwealth Fund, Inc. in March
1999. Alison has over five years investment experience with significant
experience in international fixed-income management.
27
<PAGE>
Dividend Reinvestment and Cash Purchase Plan The First Commonwealth Fund, Inc.
================================================================================
Common shareholders are automatically enrolled in the Fund's Dividend
Reinvestment and Cash Purchase Plan (the "Plan"). Under the Plan, all
distributions of dividends and capital gains, net of any applicable withholding
tax, will automatically be reinvested by State Street Bank and Trust (the "Plan
Agent") in additional shares of common stock of the Fund unless an election is
made to receive distributions in cash. Generally, shareholders who do not
participate in the Plan will receive all distributions in cash paid by check in
United States dollars mailed directly to the shareholders of record (or if the
shares are held in street or other nominee name, then to the nominee) by the
Plan Agent. A shareholder whose shares are held by a broker or nominee that does
not provide a dividend reinvestment program may be required to have his shares
registered in his own name to participate in the Plan.
The Plan Agent serves as agent for the shareholders in administering the
Plan. Dividends and capital gains distributions payable to Plan participants
will be promptly invested. If the Fund declares a dividend or capital gain
distribution payable in stock to shareholders who are not Plan participants,
then Plan participants will receive that dividend or distribution in
newly-issued shares on identical terms and conditions.
In every other case, Plan participants will receive shares on the
following basis: If, on payable date, the market price of the Fund's common
stock plus any brokerage commission is equal to or exceeds net asset value per
share, Plan participants will receive newly-issued shares of the Fund valued at
the greater of net asset value per share or 95% of the then current market
price. If, on the other hand, the net asset value per share plus any brokerage
commissions exceed the market price at such time, the Plan Agent will buy shares
of common stock in the open market. If the market price plus any applicable
brokerage commission exceeds the net asset value per share as last determined
before the Plan Agent has completed its purchases, the Plan Agent will suspend
making open market purchases and shall invest the balance available in
newly-issued shares valued at the greater of net asset value per share as last
so determined or 95% of the then current market value.
There is no charge to participants for reinvesting dividends and capital
gain distributions, except for certain brokerage commissions, as described
below. The Plan Agent's fees for the handling of the reinvestment of dividends
and distributions are paid by the Fund. There will be no brokerage commissions
charged with respect to shares issued directly by the Fund. However, each
participant pays a pro rata share of brokerage commissions incurred with respect
to the Plan Agent's open market purchases in connection with the reinvestment of
dividends and distributions. The automatic reinvestment of dividends and
distributions does not relieve participants of any federal income tax that may
be payable on such dividends and distributions.
28
<PAGE>
Dividend Reinvestment and
Cash Purchase Plan (concluded) The First Commonwealth Fund, Inc.
================================================================================
The Plan also allows participants to make voluntary cash investments by
sending additional funds to the Plan Agent in any amount of at least $100 for
the purchase of shares on the open market. Voluntary payments will be invested
on or shortly after the 15th of the month, and in no event more than 45 days
after such date except where temporary curtailment or suspension of purchases is
necessary to comply with applicable provisions of federal securities law. Cash
investments may be commingled with the funds of other shareholders of the Fund
held by the Plan Agent and the average price (including brokerage commissions)
of all shares purchased by the Plan Agent will be the price per share allocable
to each participant. Participants will also be charged a service fee for each
voluntary cash investment.
Participants in the Plan may withdraw some or all of their shares from the
Plan upon written notice to the Plan Agent and will receive stock certificates
for all full shares. The Plan Agent will convert any fractional shares to cash
at the then-current market price and send a check to the participant for the
proceeds. If, by giving proper notice to the Plan Agent, participants request
cash, the Plan Agent will sell the shares and send the participant the proceeds,
less a service fee of $2.50 and less brokerage commissions.
The Fund reserves the right to amend or terminate the Plan either in full
or partially upon 90 days' written notice to shareholders of the Fund.
All questions concerning the Plan should be directed to the Plan Agent by
calling 1-800-426-5523.
29
<PAGE>
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<PAGE>
Directors Officers
================================================================================
Brian M. Sherman, Chairman Warren C. Smith
David Lindsay Elsum Laurence S. Freedman, President
Rt. Hon. Malcolm Fraser Brian M. Sherman, Vice President
Laurence S. Freedman David Manor, Treasurer
Michael Gleeson-White Roy M. Randall, Secretary
Michael R. Horsburgh Ouma Sananikone-Fletcher,
David Manor Assistant Vice President and
Neville J. Miles Chief Investment Officer
William J. Potter Barry G. Sechos, Assistant Treasurer
Peter D. Sacks Allan S. Mostoff, Assistant Secretary
Anton E. Schrafl Margaret A. Bancroft, Assistant Secretary
E. Duff Scott Sander M. Bieber, Assistant Secretary
John T. Sheehy
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase, from time to time, shares of its
common stock in the open market.
[RECYCLED LOGO] Printed on post-consumer recycled paper
31
<PAGE>
INVESTMENT MANAGER
EquitiLink International Management Limited
P.O. Box 578, 17 Bond Street
St. Helier, Jersey JE45XB
Channel Islands
INVESTMENT ADVISER
EquitiLink Australia Limited
Level 3, 190 George Street
Sydney, NSW 2000, Australia
CONSULTANT
CIBC Wood Gundy Securities Inc.
BCE Place, P.O. Box 500
Toronto, Ontario, MSJ 258
Canada
ADMINISTRATOR
Princeton Administrators, L.P.
Box 9095
Princeton, New Jersey 08543-9095
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
1 Heritage Drive
North Quincy, Massachusetts 02171
AUCTION AGENT
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, DC 20006
Stikeman, Elliott
Level 40 Chifley Tower
2 Chifley Square
Sydney, NSW 2000, Australia
The common shares of The First Commonwealth Fund, Inc. are traded on the New
York Stock Exchange under the symbol "FCO." Information about the Fund's net
asset value and market price is published weekly in Barron's and in the Monday
edition of The Wall Street Journal.
For a weekly update of the Fund's net asset value and share price, or to receive
more information on the Fund, call toll-free: 1-800-543-6217
This report, including the financial information herein, is transmitted to the
shareholders of The First Commonwealth Fund, Inc. for their general information
only. It does not have regard to the specific investment objectives, financial
situation and the particular needs of any specific person. Past performance is
no guarantee of future returns.
The First Commonwealth Fund, Inc.
Box 9095
Princeton, NJ 08543-9095
(609) 282-4600
