[LOGO]
THE FIRST
COMMONWEALTH
FUND, INC.
--------------------------------------------------------------------------------
[LOGO]
EQUITILINK
MANAGED BY
EQUITILINK
INTERNATIONAL
MANAGEMENT
LIMITED
--------------------------------------------------------------------------------
Annual Report October 31, 2000
Highlights
o Aberdeen Asset Management PLC acquires the EquitiLink Group, enhancing the
established team with a depth of experience in Asian markets.
o 9.9% cash distribution rate for the previous 12 months based on a share
price of $8.88 on October 31, 2000
o 86.8% invested in securities rated or deemed equivalent to AA/Aa or better
o 3.7% of total 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 14, 2000
Dear Shareholder,
We present this Annual Report which covers the activities of The First
Commonwealth Fund, Inc. (the "Fund") for the twelve months ended October 31,
2000. Included in this report is a review of the Australian, Canadian, New
Zealand, 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.
New Investment Management and Advisory Agreements
The Fund's shareholders voted at the Special Shareholder Meeting held on
November 30, 2000, to approve a new management agreement with the Investment
Manager and a new investment advisory agreement with the Investment Adviser in
connection with the proposed acquisition of the Investment Manager and
Investment Adviser by Aberdeen Asset Management PLC. This acquisition is
expected to close on December 22, 2000. The new agreements will become effective
at the time of the acquisition. Aberdeen Asset Management will bring the
benefits of a global structure, greater resources, and a depth of experience in
asset management.
High Credit Quality: 86.8% of securities rated or deemed equivalent to AA/Aa or
better
The Fund's high credit quality has been maintained. Of total net assets,
86.8% are rated AA/Aa or better, or are considered of equivalent quality by the
Investment Manager. An additional 10.7% is held in A rated securities.
Distributions: 9.9% annual cash distribution rate
Distributions paid to common shareholders for the year ended October 31,
2000 totaled 87.75 cents per share. Based on the share price of $8.88 on October
31, 2000, the cash distribution rate over the last 12 months was 9.9%. 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 17, 2000, the Board of Directors announced a 7.0 cent per share
monthly distribution. It is the Board's intention that the monthly distribution
be maintained until March 2001, subject to regular review at the Board's
quarterly meetings, having regard to market conditions, with the next scheduled
review to take place in March 2001. The Board's policy is to provide investors
with a stable monthly distribution out of current income, supplemented by
realized capital gains and, to the extent necessary, paid-in capital.
Net Asset Value Performance: 5.5% per annum return since inception
The Fund's Net Asset Value (NAV) returned -7.8% over the twelve months to
October 31, 2000. This negative return was primarily due to the strength of the
US dollar, which had an adverse impact on Commonwealth countries over the year.
Since inception, the Fund's NAV has returned 5.5% per annum to October 31, 2000.
Asian Investments: 3.7% of total assets invested in Asian debt securities
As at October 31, 2000, 3.7% of the Fund's total assets were held in Asian
debt securities, a sector that presents attractive opportunities. The Fund's
ability to increase its investment in Asian markets remains constrained by
currency repatriation issues.
1
<PAGE>
The First Commonwealth Fund, Inc.
================================================================================
Share Price Performance
As at October 31, 2000, the Fund's share price was $8.88, which
represented a discount of 12.9% to the NAV of $10.20. The total investment
return, based on the Fund's share price at October 31, 2000 and assuming
reinvestment of distributions, was -6.1% over the year.
For information about the Fund, including weekly updates of share price,
NAV, and details of recent distributions, contact EquitiLink USA, Inc. Investor
Relations, by:
o calling toll free on 1-800-552-5465 or 1-212-968-8800 in the United
States,
o email to [email protected], or
o visiting the website at www.equitilink.com.
Yours sincerely,
/s/ Brian M. Sherman /s/ Laurence S. Freedman [LOGO]
THE FIRST
Brian M. Sherman Laurence S. Freedman COMMONWEALTH
Chairman President FUND, INC.
================================================================================
Your Board's policy is to provide investors with a stable monthly
distribution out of current income, supplemented by realized capital gains and,
to the extent necessary, paid-in capital.
The Fund is subject to U.S. corporate, tax and securities laws. Under U.S.
tax accounting rules, the amount of distributable income for each fiscal period
depends on the actual exchange rates during the entire year between the US
dollar and the currencies in which Fund assets are denominated and on the
aggregate gains and losses realized by the Fund during the entire year.
Therefore the exact amount of distributable income for each fiscal year
can only be determined as at the end of the Fund's fiscal year, October 31.
However, under the U.S. Investment Company Act of 1940, the Fund is
required to indicate the source of each distribution to shareholders.
The Fund estimates that distributions for the fiscal year commencing
November 1, 2000, including the distribution paid on December 15, 2000, will be
made up of 60.1% net investment income and 39.9% return of paid-in capital. For
the full prior fiscal year ended October 31, 2000, the Fund estimates that there
will be no return of paid-in capital.
This estimated distribution composition will vary from month to month
because it may be materially impacted by future realized capital gains and
losses on securities and fluctuations in the value of the currencies in which
Fund assets are denominated.
In January 2001, a Form 1099 DIV will be sent to shareholders which will
state the amount and composition of distributions and provide information with
respect to their appropriate tax treatment.
================================================================================
2
<PAGE>
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. Under this arrangement, the
Plan Agent will purchase shares for you on the stock exchange or otherwise on
the open market on or about the 15th of each 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. Brokerage on share purchases is currently 2 cents per
share;
Convenience--the Plan Agent will hold your shares in non-certificated form
and will provide a detailed record of your holdings at the end of each
distribution period.
To request a brochure containing information on the Plan, together with an
authorization form, please contact the Plan Agent, State Street Bank & Trust
Company, P.O. Box 8200, Boston, MA 02266, or toll-free on 1-800-426-5523.
3
<PAGE>
Report of the Investment Manager The First Commonwealth Fund, Inc.
================================================================================
Share Price Performance
On October 31, 2000, the Fund's share price was $8.88, which represented a
discount of 12.9% to the NAV of $10.20. The total investment return, based on
the Fund's share price at October 31, 2000 and assuming reinvestment of
distributions, was -6.1% over the fiscal year. At the date of this report, the
share price was $8.56 representing a discount of 19.8% to the NAV of $10.68.
Auction Market Preferred Stock (AMPS)
The Fund's $30 million of AMPS continue to be well bid at the weekly
auctions. The average interest rate paid was 6.44% over the three months ended
October 31, 2000, compared with 6.52% for 30-day commercial paper over the same
period.
The Fund is a leveraged fund. However, in recent times the US dollar has
strengthened against virtually all other currencies in the world and official
cash interest rates in the United States have risen to levels that exceed many
of those found in the Commonwealth countries. This has resulted in a negative
impact for common shareholders.
The Manager expects that in the medium to longer term this situation will
rectify itself and that the AMPS will contribute positively.
4
<PAGE>
Portfolio Composition The First Commonwealth Fund, Inc.
================================================================================
GEOGRAPHIC COMPOSITION
The table below shows the geographic composition of the Fund's total
investments as of October 31, 2000, compared with the previous quarter and
twelve months:
TABLE 1: THE FIRST COMMONWEALTH FUND, INC.--GEOGRAPHIC ASSET ALLOCATION
--------------------------------------------------------------------------------
October 31, 2000 July 31, 2000 October 31, 1999
% % %
--------------------------------------------------------------------------------
Australia 24.0 23.8 24.2
--------------------------------------------------------------------------------
Canada 35.8 35.1 30.2
--------------------------------------------------------------------------------
New Zealand 3.3 3.3 7.9
--------------------------------------------------------------------------------
United Kingdom 29.4 29.9 33.2
--------------------------------------------------------------------------------
United States* 3.8 2.1 0.1
--------------------------------------------------------------------------------
Asia 3.7 5.8 4.4
--------------------------------------------------------------------------------
Total Portfolio 100.0 100.0 100.0
--------------------------------------------------------------------------------
* 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, 2000, compared with the previous quarter and
twelve months:
TABLE 2: THE FIRST COMMONWEALTH FUND, INC.--CURRENCY ASSET ALLOCATION
--------------------------------------------------------------------------------
October 31, 2000 July 31, 2000 October 31, 1999
% % %
--------------------------------------------------------------------------------
Australian Dollar 24.0 23.8 24.2
--------------------------------------------------------------------------------
Canadian Dollar 35.8 35.1 30.2
--------------------------------------------------------------------------------
New Zealand Dollar 3.3 3.3 7.9
--------------------------------------------------------------------------------
British Pound 29.4 29.9 33.2
--------------------------------------------------------------------------------
United States Dollar* 3.8 4.7 2.3
--------------------------------------------------------------------------------
Asian Currencies 3.7 3.2 2.2
--------------------------------------------------------------------------------
Total Portfolio 100.0 100.0 100.0
--------------------------------------------------------------------------------
* Includes Asian Yankee bond investments.
5
<PAGE>
Portfolio Composition (continued) The First Commonwealth Fund, Inc.
================================================================================
MATURITY COMPOSITION
On October 31, 2000, the average maturity of the Fund's assets was 8.3
years, increased from 7.9 years on October 31, 1999. The Fund's duration was 5.1
years on October 31, 2000, compared with 4.9 years on October 31, 1999. The
table below shows the maturity composition of the Fund's total investments as of
October 31, 2000:
TABLE 3: THE FIRST COMMONWEALTH FUND, INC.--MATURITY ANALYSIS
--------------------------------------------------------------------------------
Less than 1 year 1-5 years 5-10 years Over 10 years
% % % %
--------------------------------------------------------------------------------
Australia 9.1 43.1 33.0 14.8
--------------------------------------------------------------------------------
Canada 25.7 22.9 12.4 39.0
--------------------------------------------------------------------------------
New Zealand 50.7 24.9 24.4 --
--------------------------------------------------------------------------------
United Kingdom 2.3 28.8 29.8 39.1
--------------------------------------------------------------------------------
United States 100.0 -- -- --
--------------------------------------------------------------------------------
Asia 2.0 82.8 15.2 --
--------------------------------------------------------------------------------
Total Portfolio 17.6 30.8 22.5 29.1
--------------------------------------------------------------------------------
SECTORAL COMPOSITION
The table below shows the sectoral composition of the Fund's total
investments as of October 31, 2000:
TABLE 4: THE FIRST COMMONWEALTH FUND, INC.--SECTORAL COMPOSITION
--------------------------------------------------------------------------------
State/ Utilities/
Sovereign Provincial Corporate Supranational Cash or
Govt. Bonds Bonds Bonds Bonds Equivalent
% % % % %
--------------------------------------------------------------------------------
Australia 10.5 10.5 1.4 0.8 0.8
--------------------------------------------------------------------------------
Canada 23.3 6.5 1.9 0.6 3.5
--------------------------------------------------------------------------------
New Zealand 0.3 -- 0.5 1.4 1.1
--------------------------------------------------------------------------------
United Kingdom 19.9 -- 5.9 3.2 0.4
--------------------------------------------------------------------------------
United States -- -- -- -- 3.8
--------------------------------------------------------------------------------
Asia 0.8 -- 2.6 0.1 0.2
--------------------------------------------------------------------------------
Total Portfolio 54.8 17.0 12.3 6.1 9.8
--------------------------------------------------------------------------------
6
<PAGE>
Portfolio Composition (concluded) The First Commonwealth Fund, Inc.
================================================================================
QUALITY OF INVESTMENTS
On October 31, 2000, 86.8% 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.
The table below shows the asset quality of the Fund's investments as of October
31, 2000:
TABLE 5: THE FIRST COMMONWEALTH FUND, INC.--ASSET QUALITY
--------------------------------------------------------------------------------
BB/Ba*
AAA/Aaa AA/Aa A BBB/Baa and below
% % % % %
--------------------------------------------------------------------------------
Australia 77.1 20.1 2.8 -- --
--------------------------------------------------------------------------------
Canada 11.4 77.0 11.6 -- --
--------------------------------------------------------------------------------
New Zealand 33.5 51.2 15.3 -- --
--------------------------------------------------------------------------------
United Kingdom 58.6 25.0 16.4 -- --
--------------------------------------------------------------------------------
United States 100.0 -- -- -- --
--------------------------------------------------------------------------------
Asia 16.1 0.2 15.5 68.2 --
--------------------------------------------------------------------------------
Total Portfolio 45.3 41.5 10.7 2.5 --
--------------------------------------------------------------------------------
* Below Investment Grade.
7
<PAGE>
Market Review and Outlook The First Commonwealth Fund, Inc.
================================================================================
Australia
After a prolonged period of robust growth, the Australian economy appears
set to moderate in coming months. Although the external sector has made a
significant contribution to GDP, softening domestic consumption and housing are
expected to partly offset this.
The Reserve Bank of Australia raised official interest rates by 1.50% over
the year in successive 0.25% increments, intending to sustain the current
expansion by dampening potential price pressures. It is anticipated that the
Bank is close to completing its tightening phase. To date, wages pressures
remain muted, despite a cyclically low unemployment rate.
Bonds have strengthened over the past twelve months, as US activity data
suggested a deceleration in GDP and global inflation pressures remained benign.
The benchmark ten-year bond closed the fiscal year at 6.19%, from 6.63% on
October 31, 1999. Bank bill yields rose strongly in line with official interest
rates, closing the fiscal year at 6.43%.
Largely as a consequence of investor preference for US dollar-denominated
investments, the Australian dollar has weakened over the year. Economic
fundamentals remain buoyant in Australia, yet this has not been reflected in the
currency.
It is a widely held view that the Australian dollar is undervalued. There
are several key factors that may bring about an appreciation of the currency.
With exports and capital expenditure maintaining the current high rate of GDP
expansion, there is a strong likelihood that official interest rates will rise
in coming months, thus bringing the interest differential with the US to at
least parity.
The current account position has also improved considerably, after peaking
in late 1999, and is expected to continue to fall. In addition, the broadening
in the commodity price recovery should result in a realignment of the Australian
dollar's historical relationship with commodity prices.
Canada
Although GDP growth has been well above other Commonwealth countries,
Canadian inflation has been well contained, with a reading of 2.7% for the
twelve months to September 30, 2000. Low unemployment has been a positive
influence on domestic consumption, with a thriving housing market and consumer
spending. Growth momentum is likely to be sustained into 2001, due to robust
consumer demand, a strengthening corporate sector and tight labor market
conditions. Bonds strengthened over the fiscal year, with yields falling from
6.05% on October 31, 1999 to 5.81% on October 31, 2000.
The Canadian dollar continued to be the strongest of the Commonwealth
currencies over the year. Robust economic growth was a boost to the currency,
which closed the fiscal year at US66.00 cents.
New Zealand
GDP growth has declined from a high of 5.6% to 4.5% in New Zealand over
the past year, as business confidence has deteriorated and domestic consumption
waned. Moderate inflation pressures are expected to result in further monetary
policy tightening in 2001. Bond yields declined over the fiscal year, closing at
6.69% on October 31, 2000, from 7.08% on October 31, 1999.
8
<PAGE>
Market Review and Outlook (concluded) The First Commonwealth Fund, Inc.
================================================================================
The New Zealand dollar has weakened, adversely impacted by investor
preference for the US dollar. Exports have benefited from the competitive
position of the currency, however, and external demand is likely to boost GDP
growth into 2001.
United Kingdom
GDP growth peaked at 3.2% early in 2000, and has since moderated to around
its long-run trend level of 2.9%. Inflation pressures abated towards mid-year,
as the surge in housing prices began to decelerate. The Bank of England raised
rates just 0.75% over the year, compared with 1.25% in the US, which also
reduced the likelihood of currency-induced import inflation.
The pound depreciated against the US dollar, to close the fiscal year
13.1% lower at $1.45.
Asia
Domestic and Yankee ($US denominated) bonds
The Asian region has experienced only modest rises in CPI, as productivity
growth has offset wages costs and oil price hikes, and this had a positive
effect on bond markets over the year. South Korea was the strongest performing
economy in Asia over the past year. Positive economic developments also emerged
in Thailand, Malaysia and Singapore. Political turmoil in the Philippines
adversely impacted bonds, however, and yields rose sharply.
Yankee bond yields fell in South Korea and Thailand over the fiscal year,
while yields rose sharply in the Philippines. Credit upgrades throughout the
region, particularly in the past quarter, had a positive effect on bond markets.
Currencies
During the fiscal year most Asian currencies depreciated against the US
dollar, with the exception of South Korea. The Malaysian Ringgit remained pegged
to the US dollar.
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, 2000 July 31, 2000 October 31, 1999
--------------------------------------------------------------------------------
Australia
90 day bank bills 6.43% 6.35% 5.35%
10 year bonds 6.19% 6.24% 6.63%
Australian Dollar $ 0.52 $ 0.58 $ 0.64
Canada
90 day bank bills 5.64% 5.65% 4.78%
10 year bonds 5.81% 5.89% 6.05%
Canadian Dollar $ 0.66 $ 0.67 $ 0.68
New Zealand
90 day bank bills 6.65% 6.87% 5.29%
10 year bonds 6.69% 6.71% 7.08%
NZ Dollar $ 0.39 $ 0.45 $ 0.51
United Kingdom
90 day bank bills 5.87% 5.90% 5.29%
10 year bonds 5.16% 5.22% 5.41%
British Pound $ 1.45 $ 1.50 $ 1.64
South Korea
90 day bank bills 7.11% 7.38% 7.26%
5 year bonds 7.95% 8.28% 9.03%
South Korean Won* W 1137 W 1117 W 1200
Thailand
90 day bank bills 3.00% 3.38% 4.00%
10 year bonds 5.31% 5.65% 7.81%
Thai Baht* B 44 B 41 B 39
Philippines
90 day bank bills 18.79% 9.21% 9.75%
10 year bonds 19.27% 14.57% 15.31%
Philippines Peso* P 52 P 45 P 40
Malaysia
90 day bank bills 3.50% 3.25% 3.35%
10 year bonds 5.68% 5.77% 6.50%
Malaysian Ringgit* R 3.8 R 3.8 R 3.8
Singapore
90 day bank bills 2.38% 2.26% 0.63%
10 year bonds 4.33% 4.53% 4.65%
Singapore Dollar* S$ 1.76 S$ 1.73 S$ 1.66
US$ Yankee Bonds**
South Korea 8.13% 8.20% 8.37%
Thailand 7.40% 8.00% 8.02%
Philippines 12.11% 11.14% 9.42%
* These currencies are quoted Asian currency per US dollar. The Australian,
New Zealand, Canadian dollars and British pound are quoted US dollars per
currency.
** 7-10-year sovereign issues.
EquitiLink International Management Limited
December 2000
10
<PAGE>
Portfolio of Investments October 31, 2000 The First Commonwealth Fund, Inc.
================================================================================
--------------------------------------------------------------------------------
Principal Amount
Local Currency(a) Value
(000) Description (US$)
--------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--88.6%
AUSTRALIA--22.7%
Government Bonds--10.2%
Commonwealth of Australia,
A$ 1,500 12.00%, 11/15/01 ....................... 819,932
3,000 10.00%, 10/15/02 ....................... 1,660,279
2,000 9.50%, 8/15/03 ......................... 1,122,397
1,000 10.00%, 2/15/06 ........................ 605,658
1,000 10.00%, 10/15/07 ....................... 627,335
2,700 8.75%, 8/15/08 ......................... 1,614,349
2,500 7.50%, 9/15/09 ......................... 1,406,732
5,000 6.50%, 5/15/13 ......................... 2,642,148
----------
10,498,830
----------
Government Banks
Export Finance & Insurance
Corporation,
3,750 11.00%, 12/29/04 ....................... 2,234,260
----------
Total Australian
government bonds
(cost US$16,771,273) ................... 12,733,090
----------
Semi-Government Bonds--10.4%
New South Wales--2.8%
New South Wales Treasury
Corporation,
2,000 8.00%, 12/01/01 ........................ 1,051,368
1,500 7.00%, 4/01/04 ......................... 788,138
1,500 7.00%, 12/01/10 ........................ 796,748
First Australian National
Mortgage Acceptance
Corporation, Series 22,
1,568 11.40%, 12/15/01 ....................... 847,429
----------
3,483,683
----------
Queensland--3.9%
Queensland Treasury
Corporation,
3,000 8.00%, 8/14/01 ......................... 1,570,071
2,000 8.00%, 5/14/03
(Global) ............................ 1,073,810
1,000 8.00%, 9/14/07 ......................... 558,794
1,000 8.00%, 9/14/07
(Global) ............................ 560,485
500 6.00%, 7/14/09 ......................... 249,214
1,750 6.00%, 6/14/11 ......................... 863,244
----------
4,875,618
----------
South Australia--0.2%
South Australia Finance
Authority,
500 12.50%, 5/08/01 ........................ 265,712
----------
Victoria--3.0%
State Electricity Commission
of Victoria,
535 10.50%, 5/27/03 ........................ 301,270
Treasury Corporation
of Victoria,
1,000 9.00%, 6/27/05 ......................... 564,156
1,500 10.25%, 11/15/06 ....................... 916,399
4,000 5.50%, 9/15/10 ......................... 1,901,728
----------
3,683,553
----------
Western Australia--0.5%
Western Australia Treasury
Corporation,
1,000 10.00%, 7/15/05 ........................ 588,837
----------
Total Australian
semi-government bonds
(cost US$16,587,556) ................... 12,897,403
----------
Supranational--0.8%
Federal National Mortgage
Association, Series EMTN,
2,000 6.375%, 8/15/07 ........................ 1,011,034
----------
Total Australian
Supranational bonds
(cost US$1,027,326) .................... 1,011,034
----------
Corporate Banks--0.2%
ING Mercantile Mutual
Bank Ltd.,
500 7.125%, 3/13/02 ........................ 259,532
----------
Total Australian corporate
bank bonds
(cost US$379,513) ...................... 259,532
----------
Corporate Non-Banks--1.1%
GE Capital Australia,
600 6.75%, 9/15/07 ......................... 308,716
Telstra Corp.,
2,000 11.50%, 10/15/02 ....................... 1,122,624
----------
Total Australian corporate
non-bank bonds
(cost US$2,082,236) .................... 1,431,340
----------
Total Australian
long-term investments
(cost US$36,847,904) ................... 28,332,399
----------
See Notes to Financial Statements.
11
<PAGE>
Portfolio of Investments The First Commonwealth Fund, Inc.
(continued) October 31, 2000
================================================================================
--------------------------------------------------------------------------------
Principal Amount
Local Currency(a) Value
(000) Description (US$)
--------------------------------------------------------------------------------
CANADA--31.9%
Government Bonds--23.0%
Canadian Government,
C$ 5,500 7.50%, 3/01/01 ............................ 3,619,745
6,000 8.50%, 4/01/02 ............................ 4,065,825
5,000 5.25%, 9/01/03 ............................ 3,218,467
2,500 7.25%, 6/01/07 ............................ 1,755,816
2,000 5.50%, 6/01/09 ............................ 1,279,063
1,000 10.75%, 10/01/09 .......................... 868,340
3,000 10.25%, 3/15/14 ........................... 2,732,531
4,000 8.00%, 6/01/23 ............................ 3,301,560
8,000 9.00%, 6/01/25 ............................ 7,291,984
Canada (Cayman),
750 7.25%, 6/01/08 ............................ 513,220
----------
Total Canadian
government bonds
(cost US$31,636,807) ...................... 28,646,551
----------
Semi-Government Bonds--6.4%
British Columbia--1.9%
Province of British Columbia,
1,000 10.15%, 8/29/01 ........................... 675,792
2,000 9.50%, 1/09/12 ............................ 1,630,918
----------
2,306,710
----------
Montreal--0.5%
Ville de Montreal,
1,000 6.375%, 2/15/01 ........................... 654,450
----------
Ontario--0.9%
Ontario Hydro,
500 8.50%, 5/26/25 ............................ 410,409
Province of Ontario,
1,000 8.75%, 4/22/03 ............................ 695,424
----------
1,105,833
----------
Quebec--2.7%
Quebec Hydro,
1,500 7.00%, 6/01/04 ............................ 1,010,831
1,000 5.915%, 1/28/05 (b) ....................... 652,291
2,000 9.625%, 7/15/22 ........................... 1,757,750
----------
3,420,872
----------
Toronto--0.4%
Metropolitan Municipality
of Toronto,
750 9.625%, 5/14/02 ........................... 514,251
----------
Total Canadian
semi-government bonds
(cost US$8,738,528) ....................... 8,002,116
----------
Utilities--0.6%
Bell Telephone Company
of Canada,
500 10.50%, 7/15/09 ........................... 350,953
Tokyo Electric Power
Company,
500 10.50%, 6/14/01 ........................... 335,111
----------
Total Canadian utility bonds
(cost US$879,374) ......................... 686,064
----------
Corporate Banks--1.6%
Bank of Nova Scotia,
1,000 10.35%, 7/19/01 ........................... 672,766
Credit Local de France,
1,000 6.75%, 3/21/06 ............................ 663,024
Rabobank Nederland N.V.,
1,000 9.00%, 12/22/00 ........................... 656,536
----------
Total Canadian corporate
bank bonds
(cost US$2,412,722) ....................... 1,992,326
----------
Corporate Non-Banks--0.3%
Procter & Gamble Company,
500 10.875%, 8/15/01 .......................... 337,860
----------
Total Canadian corporate
non-bank bonds
(cost US$453,347) ......................... 337,860
----------
Total Canadian
long-term investments
(cost US$44,120,778) ...................... 39,664,917
----------
MALAYSIA--0.6%
Semi-Government Bonds--0.6%
Danamodal Nasional Berhad,
MYR 3,100 0.00%, 10/21/03 ........................... 707,145
----------
Total Malaysia long-term
investments
(cost US$704,786) ......................... 707,145
----------
See Notes to Financial Statements.
12
<PAGE>
Portfolio of Investments The First Commonwealth Fund, Inc.
(continued) October 31, 2000
================================================================================
--------------------------------------------------------------------------------
Principal Amount
Local Currency(a) Value
(000) Description (US$)
--------------------------------------------------------------------------------
NEW ZEALAND--2.2%
Government Bonds--0.3%
Canadian Government,
NZ$ 1,000 6.625%, 10/03/07 ............................ 383,219
---------
Total New Zealand
government bonds
(cost US$557,544) ........................... 383,219
---------
Utilities--1.4%
Electricity Corporation of
New Zealand Ltd.,
1,750 10.00%, 10/15/01 ............................ 715,451
1,000 8.00%, 2/15/03 .............................. 406,228
TCNZ Finance Limited,
1,000 9.25%, 7/01/02 .............................. 408,441
Transpower Finance Ltd.,
500 8.00%, 6/15/05 .............................. 204,017
---------
Total New Zealand
utility bonds
(cost US$2,683,632) ......................... 1,734,137
---------
Corporate Non-Banks--0.5%
Housing New Zealand,
1,500 8.00%, 11/15/06 ............................. 617,612
---------
Total New Zealand corporate
non-bank bonds
(cost US$806,898) ........................... 617,612
---------
Total New Zealand
long-term investments
(cost US$4,048,074) ......................... 2,734,968
---------
PHILIPPINES--0.2%
Government Bonds--0.2%
Philippine Government,
PHP 4,000 11.875%, 6/10/01 ............................ 75,219
7,000 16.50%, 2/25/09 ............................. 122,341
---------
Total Philippine long-term
investments
(cost US$310,182) ........................... 197,560
---------
SINGAPORE--0.4%
Government Bonds--0.3%
Singapore Government,
SGD 540 4.00%, 2/01/05 .............................. 311,004
50 4.00%, 3/01/07 .............................. 28,361
70 4.625%, 7/01/10 ............................. 40,750
---------
Total Singapore
government bonds
(cost US$387,233) ........................... 380,115
---------
Utilities--0.1%
Singapore Power,
250 4.60%, 9/21/07 .............................. 144,296
---------
Total Singapore
utilities bonds
(cost US$144,047) ........................... 144,296
---------
Total Singapore long-term
investments
(cost US$531,280) ........................... 524,411
---------
SOUTH KOREA--1.8%
Corporate Banks--1.8%
Korea Development Bank,
KRW 2,600,000 7.01%, 6/26/02 .............................. 2,284,429
---------
Total Korean long-term
investments
(cost US$2,304,216) ......................... 2,284,429
---------
THAILAND--0.6%
Government Bonds--0.4%
Thailand Government,
THB 5,000 6.125%, 4/12/02 (c) ......................... 118,939
550 8.25%, 10/14/03 ............................. 14,290
12,000 8.00%, 12/08/06 (c) ......................... 324,069
---------
Total Thailand
government bonds
(cost US$491,869) ........................... 457,298
---------
Utilities--0.1%
Eastern Water Resources
Development and
Management Company
Limited,
4,000 9.00%, 7/22/04 (c) .......................... 99,799
---------
Total Thailand utility bonds
(cost US$102,863) ........................... 99,799
---------
See Notes to Financial Statements.
13
<PAGE>
Portfolio of Investments The First Commonwealth Fund, Inc.
(continued) October 31, 2000
================================================================================
--------------------------------------------------------------------------------
Principal Amount
Local Currency(a) Value
(000) Description (US$)
--------------------------------------------------------------------------------
Corporate Non-Banks--0.1%
Advanced Info Service
Public Company
Limited,
THB 5,200 6.50%, 3/20/03 (c) ......................... 120,384
-----------
Total Thailand corporate
non-bank bonds
(cost US$137,821) .......................... 120,384
-----------
Total Thailand
long-term investments
(cost US$732,554) .......................... 677,481
-----------
UNITED KINGDOM--28.3%
Government Bonds--19.5%
United Kingdom Treasury,
(POUND) 250 8.00%, 12/07/00 ............................ 364,054
1,000 7.00%, 11/06/01 ............................ 1,469,868
1,500 8.00%, 6/10/03 ............................. 2,296,577
500 5.00%, 6/07/04 ............................. 710,882
1,250 8.50%, 12/07/05 ............................ 2,048,063
500 7.50%, 12/07/06 ............................ 799,824
500 5.75%, 12/07/09 ............................ 756,443
600 8.00%, 12/07/15 ............................ 1,145,346
3,000 8.00%, 6/07/21 ............................. 6,191,494
2,700 6.00%, 12/07/28 ............................ 4,781,677
Republic of Finland,
1,000 8.00%, 4/07/03 ............................. 1,507,944
1,250 10.125%, 6/22/08 ........................... 2,228,272
-----------
Total United Kingdom
government bonds
(cost US$27,013,391) ....................... 24,300,444
-----------
Utilities--3.1%
British Gas PLC,
1,400 8.875%, 7/08/08 ............................ 2,287,116
Thames Water Utilities
Finance PLC,
1,000 10.50%, 11/21/01 ........................... 1,507,799
-----------
Total United Kingdom
utility bonds
(cost US$4,037,621) ........................ 3,794,915
-----------
Corporate Banks--4.1%
Abbey National Treasury
Services PLC,
1,250 8.00%, 4/02/03 ............................. 1,875,665
Barclays Bank PLC,
1,000 9.875%, 5/29/49 ............................ 1,678,271
Lloyds Bank PLC,
500 7.375%, 3/11/04 ............................ 742,781
Prudential Finance B.V.,
500 9.375%, 6/04/07 ............................ 828,526
-----------
Total United Kingdom
corporate bank bonds
(cost US$5,039,452) ........................ 5,125,243
-----------
Corporate Non-Banks--1.6%
Capital Shopping Centers,
1,500 6.875%, 3/05/13 ............................ 2,001,412
-----------
Total United Kingdom
corporate non-bank
bonds
(cost US$2,144,612) ........................ 2,001,412
-----------
Total United Kingdom
long-term investments
(cost US$38,235,076) ....................... 35,222,014
-----------
Total long-term investments
(cost US$127,834,850) ...................... 110,345,324
-----------
SHORT-TERM INVESTMENTS--9.6%
Australia--0.7%
Banque Nationale de Paris
Fixed Deposit,
A$ 1,626 5.75%, 11/01/00
(cost US$840,631) .......................... 840,631
-----------
Canada--3.6%
State Street Bank and Trust
Company Time Deposit,
C$ 6,740 5.55%, 11/07/00
(cost US$4,409,594) ........................ 4,410,749
-----------
New Zealand--1.1%
State Street Bank
and Trust Company
Time Deposit,
NZ$ 3,548 6.10%, 11/07/00
(cost US$1,436,326) ........................ 1,409,359
-----------
United Kingdom--0.4%
State Street Bank
and Trust Company
Fixed Deposit,
(POUND) 319 5.75%, 11/07/00
(cost US$463,853) .......................... 463,853
-----------
See Notes to Financial Statements.
14
<PAGE>
Portfolio of Investments The First Commonwealth Fund, Inc.
(concluded) October 31, 2000
================================================================================
--------------------------------------------------------------------------------
Principal Amount
Local Currency(a) Value
(000) Description (US$)
--------------------------------------------------------------------------------
United States--3.8%
US$ 4,735 Repurchase Agreement, State
Street Bank and Trust
Company, 6.40% dated
10/31/00, due 11/01/00
in the amount of $4,735,842
(collateralized by $5,060,000
U.S. Treasury Notes, 4.75%
due 11/15/08; value
$4,830,565) ................................. 4,735,000
12 HSBC CNY Linked
Certificate of Deposit
0.00%, 1/12/01 .............................. 11,662
------------
Total United States
Short-Term Investments
(cost US$4,746,658) ......................... 4,746,662
------------
Total short-term investments
(cost US$11,897,062) ........................ 11,871,254
------------
Total Investments--98.2%
(cost US$139,731,912) ....................... 122,216,578
Unrealized appreciation
on forward foreign
currency exchange
contracts--0.0% (d) ......................... 2,525
Other assets in excess of
liabilities--1.8% ........................... 2,275,163
------------
Total Net Assets--100.0% ...................... $124,494,266
============
(a) A$--Australian dollar
C$--Canadian dollar
NZ$--New Zealand dollar
KRW--South Korean Won
MYR--Malaysian Ringgit
PHP--Philippine peso
SGD--Singapore dollar
THB--Thai Baht
(POUND)--British pound
US$--United States dollar
(b) Coupon changes periodically upon a predetermined schedule. Stated interest
rate in effect at October 31, 2000.
(c) Securities pledged as collateral for forward foreign currency exchange
contracts.
(d) Forward foreign currency exchange contracts entered into as of October 31,
2000 were as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Purchases
Net Unrealized
Contracts to Receive In exchange for Settlement Date Value Depreciation
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PHP 7,739,757 US$169,464 11/06/00 US$150,412 $(19,052)
THB 7,867,425 US$190,000 11/14/00 US$179,049 (10,951)
THB 8,355,000 US$200,000 11/20/00 US$190,146 (9,854)
THB 3,260,043 US$ 80,060 12/01/00 US$ 74,244 (5,816)
--------
$(45,673)
--------
--------------------------------------------------------------------------------------------------------
<CAPTION>
Sales
Net Unrealized
Contracts to Deliver In exchange for Settlement Date Value Appreciation
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PHB 7,739,757 US$170,209 11/06/00 US$150,412 $ 19,797
THB 7,840,825 US$190,000 11/14/00 US$178,444 11,556
THB 8,313,000 US$200,000 11/20/00 US$189,190 10,810
THB 3,250,436 US$ 80,060 12/01/00 US$ 74,025 6,035
--------
$ 48,198
--------
Total $ 2,525
========
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
Statement of Assets and Liabilities The First Commonwealth Fund, Inc.
October 31, 2000
================================================================================
<TABLE>
<S> <C>
Assets
Investments, at value (cost $139,731,912) ..................................................... $122,216,578
Foreign currency, at value (cost $398,245) .................................................... 383,204
Cash .......................................................................................... 745
Receivable for investments sold ............................................................... 5,055,872
Interest receivable ........................................................................... 2,689,080
Net unrealized appreciation on forward foreign exchange contracts ............................. 2,525
Prepaid expenses and other assets ............................................................. 62,479
------------
Total assets ............................................................................... 130,410,483
------------
Liabilities
Payable for investments purchased ............................................................. 4,946,281
Dividends payable--common stock ............................................................... 648,634
Investment management fee payable ............................................................. 71,967
Administration fee payable .................................................................... 22,143
Accrued expenses and other liabilities ........................................................ 227,192
------------
Total liabilities .......................................................................... 5,916,217
------------
Total Net Assets .............................................................................. $124,494,266
============
Total net assets were composed of:
Common stock:
Par value ($.001 per share, applicable to 9,266,209 shares issued) ......................... $ 9,266
Paid-in capital in excess of par ........................................................... 127,653,616
Preferred stock ($.001 par value per share and $25,000 liquidation value per share
applicable to 1,200 shares; Note 5) ........................................................ 30,000,000
------------
157,662,882
Distributions in excess of net investment income .............................................. (684,022)
Undistributed net realized gains on investment transactions ................................... 313,884
Net unrealized depreciation on investments .................................................... (2,369,715)
Accumulated net realized foreign exchange losses .............................................. (15,148,977)
Net unrealized foreign exchange losses ........................................................ (15,279,786)
------------
Total Net Assets .............................................................................. $124,494,266
============
Net assets applicable to common shareholders .................................................. $ 94,494,266
============
Net asset value per common share ($94,494,266/9,266,209 shares of common
stock issued and outstanding) .............................................................. $ 10.20
============
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
Statement of Operations For the Year Ended The First Commonwealth Fund, Inc.
October 31, 2000
================================================================================
<TABLE>
<S> <C>
Net Investment Income
Income
Interest and discount earned (net of foreign withholding taxes of $223,361) $ 9,659,503
------------
Expenses
Investment management fee ................................................. 885,578
Administration fee ........................................................ 272,485
Directors' fees and expenses .............................................. 141,906
Independent accountant's fees and expenses ................................ 129,050
Legal fees and expenses ................................................... 127,695
Reports to shareholders ................................................... 123,197
Insurance expense ......................................................... 103,347
Custodian's fees and expenses ............................................. 102,536
Investor Relations fees and expenses ...................................... 84,096
Auction agent's fees and expenses ......................................... 79,522
Transfer agent's fees and expenses ........................................ 20,067
Registration fees ......................................................... 16,170
Miscellaneous ............................................................. 51,027
------------
Total operating expenses ................................................ 2,136,676
------------
Net investment income ........................................................ 7,522,827
------------
Realized and Unrealized Gains (Losses) on Investments and Foreign Currencies
Net realized gains on investment transactions ............................. 2,020,497
Net realized gains on futures transactions ................................ 28,352
Net realized foreign exchange losses ...................................... (5,683,079)
------------
(3,634,230)
------------
Net change in unrealized depreciation on investments ...................... (2,122,298)
Net change in unrealized foreign exchange losses .......................... (9,888,532)
------------
(12,010,830)
------------
Net loss on investments and foreign currencies ............................... (15,645,060)
------------
Net Decrease in Net Assets Resulting from Operations ......................... $ (8,122,233)
============
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
Statement of Cash Flows For the Year Ended The First Commonwealth Fund, Inc.
October 31, 2000
================================================================================
<TABLE>
<S> <C>
Increase (Decrease) in Cash (Including Foreign Currency)
Cash flows provided from operating activities
Interest received .......................................................... $ 9,974,412
Operating expenses paid .................................................... (2,328,154)
Sales of short-term portfolio investments, net ............................. 1,241,660
Purchases of long-term portfolio investments ............................... (29,650,762)
Proceeds from sales of long-term portfolio investments ..................... 29,479,816
Proceeds from futures transactions ......................................... 28,352
Proceeds from forward foreign exchange contracts ........................... 49,597
Other ...................................................................... (19,183)
------------
Net cash provided from operating activities .............................. 8,775,738
------------
Cash flows used for financing activities
Dividends paid to common shareholders ...................................... (8,130,352)
Dividends paid to preferred shareholders ................................... (1,826,940)
------------
Net cash used for financing activities ................................... (9,957,292)
------------
Effect of exchange rate on cash ............................................... 61,119
------------
Net increase in cash .......................................................... (1,120,435)
Cash at beginning of year .................................................. 1,504,384
------------
Cash at end of year ........................................................ $ 383,949
============
Reconciliation of Net Decrease in Net Assets from Operations to Net Cash
(Including Foreign Currency) Provided From Operating Activities
Net decrease in total net assets resulting from operations .................... $ (8,122,233)
------------
Decrease in investments .................................................... 4,495,276
Net realized gains on investment and futures transactions .................. (2,048,849)
Net realized foreign exchange losses ....................................... 5,683,079
Net change in unrealized depreciation on investments ....................... 2,122,298
Net change in unrealized foreign exchange losses ........................... 9,888,532
Proceeds from futures transactions ......................................... 28,352
Proceeds from forward foreign exchange contracts ........................... 42,426
Decrease in receivable on forward foreign currency exchange contracts closed 7,171
Decrease in interest receivable ............................................ 433,647
Increase in receivable for investments sold ................................ (5,068,180)
Net increase in other assets ............................................... (19,183)
Increase in payable for investments purchased .............................. 1,524,880
Decrease in accrued expenses and other liabilities ......................... (191,478)
------------
Total adjustments .......................................................... 16,897,971
------------
Net cash provided from operating activities ................................... $ 8,775,738
============
</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,
--------------------------------
2000 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income ............................................ $ 7,522,827 $ 8,066,869
Net realized gains on investment transactions .................... 2,020,497 3,459,803
Net realized gains on futures transactions ....................... 28,352 --
Net realized foreign exchange losses ............................. (5,683,079) (3,585,472)
Net change in unrealized appreciation/depreciation of investments (2,122,298) (11,206,934)
Net change in unrealized foreign exchange losses ................. (9,888,532) 4,903,685
------------ ------------
Net increase (decrease) in net assets resulting from operations ..... (8,122,233) 1,637,951
------------ ------------
Dividends and distributions to shareholders
Dividends to common shareholders from net investment income ...... (6,591,924) (5,744,630)
Dividends to preferred shareholders from net investment income ... (1,514,672) (1,076,897)
Distributions to common shareholders from net realized gains on
investment transactions ....................................... (1,468,931) (3,011,215)
Distributions to preferred shareholders from net realized gains on
investment transactions ....................................... (312,268) (396,763)
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders .................................................. (9,887,795) (10,229,505)
------------ ------------
Total decrease in net assets ........................................ (18,010,028) (8,591,554)
Total Net Assets
Beginning of year ................................................... 142,504,294 151,095,848
------------ ------------
End of year (including distributions in excess of net
investment income of ($684,022) and ($583,985), respectively) .... $124,494,266 $142,504,294
============ ============
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
Financial Highlights The First Commonwealth Fund, Inc.
================================================================================
<TABLE>
<CAPTION>
For the Year Ended October 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value per common share,
beginning of year .............................. $ 12.14 $ 13.07 $ 13.94 $ 14.32 $ 13.13
-------- -------- -------- -------- --------
Net investment income ............................. 0.81 0.87 0.99 1.14 1.16
Net realized and unrealized gains (losses) on
investments and foreign currencies ............. (1.68) (0.70) (0.73) (0.34) 1.21
-------- -------- -------- -------- --------
Total from investment operations ............... (0.87) 0.17 0.26 0.80 2.37
-------- -------- -------- -------- --------
Dividends from net investment income to
common shareholders ............................ (0.71) (0.62) (0.87) (0.99) (1.00)
Dividends from net investment income to
preferred shareholders ......................... (0.16) (0.11) (0.14) (0.17) (0.16)
Distributions from net realized gains on investment
transactions to common shareholders ............ (0.16) (0.33) (0.08) (0.02) (0.01)
Distributions from net realized gains on investment
transactions to preferred shareholders ......... (0.04) (0.04) (0.04) -- (0.01)
-------- -------- -------- -------- --------
Total dividends and distributions .............. (1.07) (1.10) (1.13) (1.18) (1.18)
-------- -------- -------- -------- --------
Net asset value per common share, end of year ..... $ 10.20 $ 12.14 $ 13.07 $ 13.94 $ 14.32
======== ======== ======== ======== ========
Market value, end of year ......................... $ 8.875 $ 10.375 $10.8125 $12.4375 $ 11.875
======== ======== ======== ======== ========
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 ................................... (6.11)% 4.89% (5.59)% 13.78% 13.89%
Net asset value ................................ (7.78)% 1.53% 1.82% 5.76% 18.99%
Ratio to Average Net Assets of Common
Shareholders(2)/Supplementary Data:
Net assets of common shareholders, end of
period (000 omitted) ........................... $ 94,494 $112,504 $121,096 $129,158 $132,660
Average net assets of common shareholders
(000 omitted) .................................. 105,657 119,257 122,266 130,125 122,887
Operating expenses ................................ 2.02% 1.95% 1.70% 1.63% 1.70%
Net investment income available to
common shareholders(2) ......................... 5.39% 5.53% 6.17% 6.88% 7.47%
Portfolio turnover ................................ 29% 40% 36% 24% 30%
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 ..... 415% 475% 504% 530% 542%
--------------------------------------------------------------------------------------------------------------------------
</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 years 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 years. 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 years.
(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 7.12%, 6.76%,
7.50%, 8.10% and 8.73%, 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.
As modified, the Fund's investment objective allows (a) the market value
weighted average credit quality of the Fund's investments must be A or better at
all times, (b) the Fund may 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) the Fund may 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) the Fund, with respect to the portion of the portfolio not denominated
in a Commonwealth Currency, may 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 accounting principles generally accepted in the United States
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.
The Fund isolates that portion of the results of operations arising as a
result of changes in the
21
<PAGE>
Notes to Financial Statements (continued) The First Commonwealth Fund, Inc.
================================================================================
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 $5,683,079 for the year ended
October 31, 2000 includes realized foreign exchange gains and losses from sales
and maturities of portfolio securities, sales of foreign currencies, currency
gains or losses realized between the trade and settlement dates on securities
transactions and the difference between the amounts of interest, discount and
foreign withholding taxes recorded on the Fund's books and the US dollar
equivalent amounts actually received or paid. Net unrealized foreign exchange
losses of $9,888,532 for the year ended October 31, 2000 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 of the Commonwealth Currencies utilized by the Fund at
October 31, 2000 were US$0.5171 to A$1.00, US$0.6545 to C$1.00, US$0.3972 to
NZ$1.00 and US$1.4533 to (pound)1.00.
Security Valuation: Investments are stated at value. Investments for which
market quotations are readily available are valued at the last trade price on or
within one local business day of the date of determination as obtained from a
pricing source. If no such trade price is available, such investments are valued
at the quoted bid 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.
Securities purchased with a maturity of less than 60 days are valued at
amortized cost. Securities purchased with a maturity of greater than 60 days are
valued at current market quotations until the 60th day prior to maturity. At
that time, the value of the security on the 61st day prior to maturity is
amortized on a straight-line basis to value the security for the remaining 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. Premiums on securities purchased are recognized when
sold or at maturity. 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. As
of October 31, 2000, there were no open futures contracts.
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). As of
October 31, 2000, there were no options held.
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 accounting principles generally accepted in the United States. 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, 2000, the Fund increased undistributed net investment
income by $483,732, increased accumulated net realized gains on investments by
$45,817 and increased accumulated net realized foreign exchange losses by
$530,506, resulting in an increase to paid-in capital in excess of par
23
<PAGE>
Notes to Financial Statements (continued) The First Commonwealth Fund, Inc.
================================================================================
by $957. Net investment income, net realized losses on investments and net
assets were not affected by this change. Accumulated realized and unrealized
foreign exchange losses shown in the composition of net assets represent foreign
exchange losses for book purposes that have not yet been recognized for tax
purposes.
Taxes: For Federal income and excise tax purposes, substantially all of the
Fund's transactions are accounted for using the functional currencies.
Accordingly, only realized currency gains and losses resulting from the
repatriation of any of the Commonwealth Currencies into US dollars or another
Commonwealth Currency and realized currency gains and losses on non-Commonwealth
currencies are recognized for tax purposes.
No provision has been made for United States Federal income taxes because
it is the Fund's policy to meet the requirements of the United States Internal
Revenue Code applicable to regulated investment 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 World Markets, 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.
Effective March 1, 2000, the Fund entered into an agreement with
EquitiLink USA, Inc. ("EUSA"), a wholly-owned subsidiary of EquitiLink
International Management Limited, to provide investor
24
<PAGE>
The First Commonwealth Fund, Inc.
================================================================================
relations services. This agreement provides EUSA with a monthly retainer of
$4,000 plus out of pocket expenses. For the year ended October 31, 2000, the
Fund paid EUSA $37,070.
The Investment Manager informed the Fund that it paid $327,225 to the
Investment Adviser and $12,000 to the Consultant during the year ended October
31, 2000.
On September 7, 2000 at a telephonic meeting of the Board of Directors,
the directors were informed that the investment management businesses of the
EquitiLink Group ("EquitiLink"), including the operations of the Fund's
Investment Manager and Investment Adviser, were proposed to be acquired by
Aberdeen Asset Management PLC ("Aberdeen"). Under applicable law, the Fund's
management agreement with the Investment Manager and its investment advisory
agreement with the Investment Adviser would automatically terminate at the time
of the Aberdeen acquisition.
On October 10, 2000 the Board of Directors of the Fund, including
directors who are not "interested persons" (as defined under the Investment
Company Act of 1940, as amended) of Aberdeen or EquitiLink, voted to approve a
new management agreement with the Investment Manager and a new investment
advisory agreement with the Investment Adviser (collectively the "New
Agreements") and to recommend approval of the New Agreements by Fund
Shareholders. At a special meeting of Shareholders held on November 30, 2000,
the Fund's Shareholders approved the New Agreements. The terms and conditions of
the New Agreements are substantially the same as each of the current agreements,
except for the new initial two-year terms and the effective dates of the New
Agreements. There will be no changes in the rates of fees charged to the Fund
under the New Agreements.
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term
investments, for the year ended October 31, 2000 aggregated $34,607,411 and
$34,575,199, respectively.
The United States federal income tax basis of the Fund's investments at
October 31, 2000 was $124,604,641 and accordingly, net unrealized depreciation
for United States federal income tax purposes was $2,388,063 (gross unrealized
appreciation--$1,090,046, gross unrealized depreciation--$3,478,109.)
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, 2000, the Investment Manager
and its affiliates owned 417,534 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
4.70% to 6.85% during the year ended October 31, 2000. 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%.
25
<PAGE>
Notes to Financial Statements (concluded) The First Commonwealth Fund, Inc.
================================================================================
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. However, holders of Preferred Stock are also
entitled to elect two of the Fund's directors.
Note 6. Subsequent Distributions
Subsequent to October 31, 2000, the Board of Directors of the Fund
declared distributions from undistributed net investment income and long-term
capital gains of $0.07 per common share payable on December 15, 2000 to common
shareholders of record on November 30, 2000.
Subsequent to October 31, 2000, dividends and distributions declared and
paid on preferred shares totaled approximately $189,192 for the outstanding
preferred share series through, December 12, 2000.
26
<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, 2000, 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 accounting principles generally accepted in the United States of America.
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 auditing standards generally accepted in the United States of America 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, 2000 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
10036 December 12, 2000
27
<PAGE>
Federal Tax Information:
Dividends and Distributions (unaudited) The First Commonwealth Fund, Inc.
================================================================================
During the year ended October 31, 2000, 96.37% of the ordinary income
distributions paid by the Fund qualify as foreign source income. Additionally,
2.67% 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:
<TABLE>
<CAPTION>
Common Shareholders Preferred Shareholders
----------------------------------------------------- --------------------------------
Record Date Payable Date Per Share Amount Month Paid Per Share Amount
----------- ------------ ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
10/29/1999 11/12/1999 $.0022 08/2000 $ 14.23
07/31/2000 08/11/2000 $.0163 09/2000 $123.50
08/31/2000 09/15/2000 $.0700 10/2000 $122.49
09/29/2000 10/13/2000 $.0700
</TABLE>
28
<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.
29
<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.
30
<PAGE>
Directors Officers
================================================================================
Brian M. Sherman, Chairman Laurence S. Freedman, President
David Lindsay Elsum Brian M. Sherman, Vice President
Laurence S. Freedman David Manor, Treasurer
Michael Gleeson-White Roy M. Randall, Secretary
Neville J. Miles Ouma Sananikone, Assistant Vice President and
William J. Potter Chief Investment Officer
Peter D. Sacks Barry G. Sechos, Assistant Treasurer
Anton E. Schrafl Allan S. Mostoff, Assistant Secretary
E. Duff Scott Margaret A. Bancroft, Assistant Secretary
John T. Sheehy Sander M. Bieber, Assistant Secretary
Warren C. Smith
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.
This report, including financial statements 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.
[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 World Markets, Inc.
BCE Place, Canada Trust Tower
P.O. Box 500
Toronto, Ontario, M5J 2S8
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
Boston, Massachusetts 02171
AUCTION AGENT
Bankers Trust Company
Four Albany Street
New York, New York 10006
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Dechert
1775 Eye Street, N.W.
Washington, DC 20006
Stikeman Elliott
Level 40 Chifley Tower
2 Chifley Square
Sydney, NSW 2000, Australia
INVESTOR RELATIONS
EquitiLink USA, Inc.
45 Broadway, 31st Fl
New York, NY 10006
1-800-522-5465 or 1-212-968-8800
[email protected]
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.
