Edgar Filing: FIRST AUSTRALIA FUND INC

(LOGO)
The First
Australia
Fund, Inc.

(LOGO)
Managed by EquitiLink
International
Management
Limited

Annual Report October 31, 2000

Highlights
-- Aberdeen Asset Management PLC acquires the
Equitilink Group, enhancing the established team
with a depth of experience in Asian markets

-- Cash distribution rate of13.8% per annum

-- Discount to NAV at 14.3%

www.equitilink.com
AMEX - IAF

Managed by EquitiLink International Management Limited.

Advised by EquitiLink Australia Limited.

ALL AMOUNTS ARE U.S. DOLLARS UNLESS OTHERWISE STATED

letter to Shareholders

December 15, 2000

Dear Shareholder,

We present this Annual Report which covers the
activities of The First Australia Fund, Inc. (the
"Fund") for the year ended October 31, 2000.
Included in this Report is a review of the
Australian economy and investment markets, together
with an overview of the Fund's investments prepared
by the Investment Manager, EquitiLink International
Management Limited.

Acquisition of Investment Manager and Investment
Adviser by Aberdeen Asset Management PLC

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 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.

Quarterly distribution rate

In the fiscal year ended October 31, 2000, the Fund
paid a total of 81 cents per share, which equates
to an annualized cash distribution rate of 13.8%,
based upon the share price of $5.88 as at October
31, 2000. The cash distribution for the current
quarter of 19 cents per share was paid on October
13, 2000.

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. The
Fund makes quarterly distributions at an annual
rate of not less than 9% of the rolling average of
the Fund's prior four quarter-end Net Asset Values
(NAV). It is the intention of the Board to review
the distribution at its next regularly scheduled
quarterly meeting in March 2001.

NAV Performance

Over the fiscal year, the NAV fell by 12.0% after
expenses (assuming reinvestment of distributions)
compared with a 6.1% fall in the Benchmark (S&P/ASX
200 Accumulation Index) in the US dollar terms.
However, in Australian dollar terms, the Fund's NAV
increased by 9.1%, compared with a rise of 16.5% in
the Benchmark. The strength of the US dollar had an
adverse impact on the Australian dollar over the
year, which depreciated by 19.4% to close at 51.9
cents on October 31, 2000.

The First Australia Fund, Inc.

Share Price Performance

The Fund's share price fell 26.6% over the year, to
$5.88 on October 31, 2000. The discount to NAV
($6.86 on October 31, 2000) has widened over the
fiscal year, to 14.3%.

For information about the Fund, including weekly
updates of share prices, NAV and details of recent
distributions, please contact EquitiLink USA Inc.
Investor Relations, by:

-- calling toll free number 1-800-552-5465 in the United States,

-- emailing InvestorRelations@equitilinkny.com, or

-- visiting the website at www.equitilink.com.

Yours sincerely,

Laurence S. Freedman
Chairman

Brian M. Sherman
President

(LOGO)
The First
Australia
Fund, Inc.

Dividend Reinvestment and Cash Purchase Plan The First Australia Fund, Inc.

We invite you to participate in the Fund's Dividend
Reinvestment and Cash Purchase Plan ("the Plan"),
which allows you to automatically re-invest 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 are purchased on your behalf
under the Plan at low 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 1-800-451-6788.

Report of the Investment Manager The First Australia Fund, Inc.

Investment Strategy

The Fund increased its exposure to the Resources
sector over the year. It remains overweight
compared with the S&P/ASX 200 Accumulation Index.
This has benefited performance as the Resources
sector has outperformed the Industrial sector.

The Fund's exposure to the Industrial sector
remains slightly underweight. The Manager believes
that the industrial stocks, which are held in the
portfolio, continue to represent high growth
prospects and consistent dividend income.

The Fund will remain relatively fully invested.

Portfolio Composition

The following chart summarizes the composition of
the Fund's portfolio, expressed as a percentage of
net assets. On October 31, 2000, the Fund held 75%
of its net assets in industrial stocks, 20% in
resource stocks, and 5% in cash.

(GRAPH)

Distribution Policy

In the fiscal year ended October 31, 2000, a total
of 81 cents per share was paid to shareholders.
This equates to an annualized cash distribution
rate of 13.8%, based on the share price of $5.88 at
October 31, 2000.

Selected Equity Holdings The First Australia Fund, Inc.

The following notes highlight the Fund's top ten
holdings at October 31, 2000.

9.3% of net assets

National Australia Bank Ltd is Australia's largest
full service banking group, with significant
operations in Australia, New Zealand, the UK and
US. NAB has grown its international retail banking
presence through acquisitions while maintaining
market leadership in Australia. As a further
expansion measure, the bank has acquired the
financial services of Lend Lease Corporation and
launched O2-E as its eCommerce subsidiary. NAB's
offshore activities include the purchase of
HomeSide Lending, one of the world's largest
specialist mortgage companies. The bank reported a
net profit for the fiscal year ended September 30,
2000, of A$3.4bn, up 20% from the previous year.

8.9% of net assets

News Corporation Ltd is a global, vertically
integrated entertainment and media company. It
produces film and television entertainment through
the Fox brand name and also has significant
interests in several major broadcast platforms such
as B-Sky-B in the UK and the Fox TV network in the
US. News Corporation intends to restructure it
global satellite platforms into one umbrella
entity, Sky Global Networks, Inc; an initial public
offering has been delayed until stock markets
stabilize. The company has also entered into joint
venture arrangements with other
media/telecommunications companies in order to
reduce financial risk and expand its global market
presence.

8.5% of net assets

BHP Ltd is one of the world's largest mining
companies with operations throughout the world. Its
main areas of operation are oil in Australia, the
Gulf of Mexico and UK; global copper production,
iron ore mining and processing in Australia and
South America; coal mining in Australia and steel
production in Australia. Its spin-off company,
OneSteel Ltd, listed in Australia in October 2000,
has reduced BHP's steel business to a concentration
in flat products. Net profit for the 13 months
ended June 30, 2000, was at A$2.0bn. The change in
reporting period aligns BHP financial year end with
other Australian companies.

8.1% of net assets

Telstra Corporation Ltd is Australia's largest
telecommunications carrier providing a full range
of telecommunications services. It has over one
million online customers, expanding at the current
rate of about 10,000 per week. A recent alliance
with Qantas, whereby customers will be offered co-
branded services including mobile phones and
internet access, is aimed at increasing revenue and
expanding the client base and offerings. Telstra's
net profit for the 2000 fiscal year rose 16% to
A$4.0bn.

Selected Equity Holdings (continued) The First Australia Fund, Inc.

7.4% of net assets

Westpac Banking Corporation is the second largest
banking group in Australia, offering retail and
wholesale banking services in Australia and New
Zealand. Management remains focused on optimizing
its domestic banking business and integrating
recent acquisitions. In addition to its commitment
to its already sizeable share of the small and
medium enterprise market, Westpac launched an
online service that provides an inexpensive and
convenient method of banking. The company announced
a better than expected net profit result for the
fiscal year ended September 30, 2000 of A$1.7bn, up
20% from the previous year.

7.1% of net assets

ANZ Banking Group Ltd is Australia's fourth largest
banking group, offering retail and wholesale
banking services in Australia, New Zealand and
Asia. It operates across 43 countries, specializing
in trade and project finance. A new strategy
adopted by the company intends to move to a
portfolio-based approach to growing the business.
This will permit management to focus on its key
businesses, and embrace new technology with a
strong customer focus. ANZ's net profit for the
2000 fiscal year increased by 15% from the previous
year, to A$1.7bn.

4.7% of net assets

Commonwealth Bank of Australia is Australia's
largest retail bank, with a dominant market
presence in home lending, stock brokerage through
its brokerage arm, Commonwealth Securities, and
funds management. The bank outsourced its
telecommunications operations in June, in order to
concentrate on its core banking business. Its
expansion strategy into Asia has resulted in a
number of alliances and acquisitions, most recently
in Indonesia. Net profit for the 2000 fiscal year
rose by 20% from the previous year, to A$1.7bn.

3.7% of net assets

Foster's Brewing Group Limited is an international
brewer, marketer, and distributor of beer, wine,
and other alcoholic beverages. Foster's
International, its key brand, supplies its products
to more than 130 countries. The company's other
niche beer brand, Carlton and United Breweries,
accounts for over half of the Australian beer
market. The company recently took a strategic stake
in one of the largest contract wine bottling
businesses in France, expected to result in cost
savings and expanded product offerings and make the
group one of the world's largest. contract wine
bottlers. Net profit for the 2000 fiscal year was
particularly strong in offshore markets, rising by
17% from the previous year, to A$428m.

3.7% of net assets

Qantas is the world's second oldest airline,
founded in 1920. It is the tenth largest global
airline, and the largest in Australia. Qantas has
codeshare arrangements with 18 airline partners,
including British Airways, which has a 25% interest
in the airline. The company owns a number of
distribution and holiday/tour businesses, and it
operates about 4,200 flights per week to 56
Australian and 64 overseas destinations. The net
profit for the 2000 fiscal year was A$435.3m, up
14% from the previous year.

Selected Equity Holdings (continued) The First Australia Fund, Inc.

3.1% of net assets
Cable & Wireless Optus Ltd was formed in 1991 as
Australia's first privately owned
telecommunications carrier. It is currently the
second largest provider of telecommunications
services in Australia, with local, national and
international fixed line services available by
combining its own network infrastructure with
Telstra's. The company accounts for a significant
proportion of the mobile phone market and is the
sole via satellite pay TV carrier in Australia,
with transmission arrangements in place with Foxtel
and Austar. It is currently involved in the
generation of mobile data services for business
that will revolutionize the mobile phone's
capabilities.

The Fund may invest between 25% and 35% of its
total assets in the securities of any one industry
sector if, at the time of the investment, that
industry sector represents 20% or more of the
S&P/ASX 200 Accumulation Index.

At October 31, 2000, the Fund had 28.8% of its
assets invested in the Banking and Finance Sector.
At that date, the Sector represented 23.0% of the
S&P/ASX 200 Accumulation Index.

Market Review and Outlook The First Australia Fund, Inc.

Economy

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% moves, 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, wage
pressures remain muted, despite a cyclically low
unemployment rate.

Stock-market

The Australian stock market rose by 16.5% over the
year, with a 17.1% increase in the Resources
sector. With global industrial production slowing,
however, resources stocks are unlikely to perform
as well over the next twelve months. The recent
volatility in metal prices, particularly, has
caused a softening in investor sentiment in the
sector. Large market capitalization stocks are
expected to continue to post solid returns,
however, boosted by the competitive position of the
Australian dollar and diversified earnings bases.

Industrial stocks are likely to outperform their
resources counterparts in coming months as the
global growth cycle enters its mature stages.
Prospects for company profits remain positive, as
the Australian economy is still experiencing
relatively high levels of GDP growth.

Currency

The Australian dollar has weakened over the year,
largely as a consequence of investor preference for
US dollar-denominated investments. 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 in 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 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.

EquitiLink International Management Limited
December 2000

Portfolio of Investments October 31, 2000 The First Australia Fund, Inc.
--------------------------------------------------------------------------------

---------------------------------------------------------
Value
Shares Description (US$)
---------------------------------------------------------

LONG-TERM INVESTMENTS--95.1%
Common and Preferred Stocks--95.1%
Diversified Industries--12.3%
1,740,000 Cable & Wireless Optus
Limited*................... $ 3,672,484
200,000 ERG Limited.................. 976,279
331,016 Foodland Associated
Limited.................... 1,402,088
1,945,000 Foster's Brewing Group
Limited.................... 4,390,494
910,000 Leighton Holdings Limited.... 3,145,175
300,000 Orica Limited................ 898,797
------------
14,485,317
------------
Resources And Mining--20.5%
1,043,318 BHP Limited.................. 10,077,915
2,311,652 Delta Gold Limited........... 1,146,320
5,586,999 M.I.M. Holding Limited....... 3,087,982
3,665,000 Pasminco Limited............. 1,514,525
2,754,828 Oil Search Limited........... 2,205,660
260,830 OneSteel Limited*............ 123,953
256,921 Rio Tinto Limited............ 3,514,493
673,250 WMC Limited.................. 2,564,784
------------
24,235,632
------------
Services--62.3%
810,510 Austar United Communications
Limited*................... 1,611,875
1,130,000 Australia & New Zealand
Banking Group Limited...... 8,317,746
414,000 Australian Gas Light Co...... 2,486,240
376,900 Commonwealth Bank of
Australia.................. 5,589,289
1,618,076 ISIS Communications
Limited*................... 246,566
80,000 Macquarie Bank Limited....... 1,155,006
790,000 National Australia Bank
Limited.................... 10,936,397
400,000 News Corporation Limited..... 4,169,592
709,000 News Corporation Limited
Voting Preferred Stock..... 6,335,847
3,180,058 One Telephone Limited........ 969,169
2,635,762 Orbital Engine Corporation
Limited*................... 2,913,616
2,165,000 Qantas Airways Limited....... 4,339,123
1,177,879 ResMed, Inc.*................ 3,151,685
300,000 Solution 6 Holdings
Limited*................... 150,316
---------------------------------------------------------
Value
Shares Description (US$)
---------------------------------------------------------
2,670,000Pound Telstra Corporation
Limited.................... $ 8,683,371
576,262Pound Telstra Corporation Limited
Installment Receipts....... 898,958
1,540,000 Village Roadshow Limited
Voting Preferred Stock..... 1,065,953
1,357,520 Vision Systems Limited....... 1,682,945
1,281,000 Westpac Banking
Corporation................ 8,717,243
------------
73,420,937
------------
Total common and preferred
stocks (cost
$125,931,114).............. 112,141,886
------------
Principal
Amount
(000) SHORT-TERM INVESTMENTS--6.3%
----------
Demand Deposits--6.1%
A$ 14,101 Banque Nationale de Paris,
6.00%, 11/1/00............. 7,283,862
2 State Street Bank & Trust
Company,
5.00%, 11/1/00............. 1,182
------------
Total demand deposits
(cost US$7,677,507)........ 7,285,044
------------
Repurchase Agreement--0.2%
US$ 205 State Street Bank & Trust
Company, 6.40% dated
10/31/00, due 11/01/00 in
the amount of $205,036
(cost $205,000;
collateralized by $220,000
U.S. Treasury Notes, due
11/15/08; value including
accrued interest-
US$210,025)................ 205,000
------------
Total short-term investments
(cost US$7,882,507)........ 7,490,044
------------
Total Investments--101.4%
(cost $133,813,621)........ 119,631,930
Liabilities in excess of
other
assets--(1.4%)............. (1,690,664)
------------
Net Assets--100%............. $117,941,266
------------
------------

------------------
Pound Expressed in number of shares into which position can be
exercised or converted.
* Non-income producing security.
9 See Notes to Financial Statements.

Statement of Assets and Liabilities
October 31, 2000 The First Australia Fund, Inc.
--------------------------------------------------------------------------------

Assets
Investments, at value (cost $133,813,621)................................................. $119,631,930
Foreign currency, at value (cost $870,327)................................................ 870,327
Cash...................................................................................... 231
Dividends and interest receivable......................................................... 174,637
Other assets.............................................................................. 33,839
------------
Total assets.......................................................................... 120,710,964
------------
Liabilities
Payable for investments purchased......................................................... 2,388,096
Accrued expenses and other liabilities.................................................... 275,452
Investment management fee payable......................................................... 87,420
Withholding taxes payable................................................................. 14,134
Administration fee payable................................................................ 4,596
------------
Total liabilities..................................................................... 2,769,698
------------
Net Assets $117,941,266
------------
------------
Net assets were comprised of:
Common stock, $.01 par value............................................................ $ 171,900
Paid-in capital in excess of par........................................................ 152,702,664
------------
152,874,564
Distributions in excess of net investment income........................................ (14,420)
Accumulated net realized loss on investments............................................ (140,423)
Net unrealized appreciation on investments.............................................. 6,655,367
Accumulated net realized and unrealized foreign exchange losses......................... (41,433,822)
------------
Net assets.............................................................................. $117,941,266
------------
------------
Net asset value per share:
($117,941,266 / 17,189,998 shares of common stock issued and outstanding)............... $6.86
------------
------------

10 See Notes to Financial Statements.

Statement of Operations
Year Ended October 31, 2000 The First Australia Fund, Inc.
--------------------------------------------------------------------------------

Net Investment Income

Income
Dividends (net of foreign withholding taxes of $126,410)............................ $4,510,823
Interest............................................................................ 243,351
Income from securities loaned, net.................................................. 19,314
----------------
Total income........................................................................ 4,773,488
----------------
Expenses
Investment management fee........................................................... 1,306,606
Custodian's fees and expenses....................................................... 240,000
Directors' fees and expenses........................................................ 195,000
Reports to Shareholders............................................................. 183,000
Independent accountant's fees and expenses.......................................... 113,000
Legal fees and expenses............................................................. 105,000
Administration fee.................................................................. 71,900
Transfer agent's fees and expenses.................................................. 45,000
Investor relations fees and expenses................................................ 42,000
Insurance expense................................................................... 12,000
Miscellaneous....................................................................... 35,456
----------------
Total operating expenses............................................................ 2,348,962
----------------
Net investment income before excise tax............................................... 2,424,526
Excise tax............................................................................ (41,391)
----------------
Net investment income................................................................. 2,383,135
----------------
Realized and Unrealized
Gains (Losses) on Investments
and Foreign Currencies
Net realized gain on investment transactions.......................................... 8,667,309
Net change in unrealized appreciation on investments.................................. (3,190,914)
----------------
Net gain on investments............................................................... 5,476,395
----------------
Net increase in net assets resulting from operations before net foreign exchange
losses.............................................................................. 7,859,530
Net realized and unrealized foreign exchange losses................................... (26,911,282)
----------------
Net Decrease In Net Assets
Resulting From Operations............................................................. ($19,051,752)
----------------
----------------

11 See Notes to Financial Statements.

Statement of Changes in Net Assets The First Australia Fund, Inc.
--------------------------------------------------------------------------------

Years Ended October 31,
Increase (Decrease) -----------------------------
in Net Assets 2000 1999
------------ ------------

Operations
Net investment income................................................. $ 2,383,135 $ 1,365,427
Net realized gain on investment transactions.......................... 8,667,309 11,961,602
Net change in unrealized appreciation on investments.................. (3,190,914) 5,798,730
------------ ------------
Net increase in net assets resulting from operations before net
foreign exchange gains (losses)..................................... 7,859,530 19,125,759
Net realized and unrealized foreign exchange gains (losses)........... (26,911,282) 3,834,019
------------ ------------
Net increase (decrease) in net assets resulting from operations....... (19,051,752) 22,959,778
Dividends to shareholders from net investment income.................... (2,028,314) (5,122,437)
Distributions to shareholders from net realized capital gains........... (11,895,151) (8,715,134)
------------ ------------
Total increase (decrease)............................................... (32,975,217) 9,122,207
Net Assets
Beginning of year....................................................... 150,916,483 141,794,276
------------ ------------
End of year............................................................. $117,941,266 $150,916,483
------------ ------------
------------ ------------

12 See Notes to Financial Statements.

Notes to Financial Statements The First Australia Fund, Inc.
--------------------------------------------------------------------------------
The First Australia Fund, Inc. (the 'Fund) is a closed-end, nondiversified
management investment company incorporated in Maryland on September 30, 1985.
The Fund's principal investment objective is long-term capital appreciation
through investment primarily in equity securities of Australian companies listed
on Australian stock exchanges. The Fund's secondary investment objective is
current income. It is expected that normally at least 65% of the Fund's total
assets will be invested in equity securities listed on Australian stock
exchanges and that current income will be derived primarily from dividends and
interest on Australian corporate and governmental securities. The ability of
issuers of debt securities, including foreign currency balances on deposit with
the Fund's Australian subcustodian banks, held by the Fund to meet their
obligations may be affected by economic or political developments in a specific
industry or region.

Note 1. 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.

Security Valuation: Investments are stated at value. Investments for which
market quotations are readily available are valued at the last reported sales
prices. If there is no sales price on the date of valuation, then investments
are valued at the most recently available sales price or at fair value as
determined in good faith 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.

Repurchase Agreements: In connection with transactions in repurchase
agreements with U.S. financial institutions, it is the Fund's policy that its
custodian take possession of 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.

Foreign Currency Translation: Australian dollar ('A$) amounts are translated
into United States dollars ('US$) on the following basis:

(i) market value of investment securities, other assets and liabilities at
the exchange rates at the end of the reporting period; and

(ii) purchases and sales of investment securities, income and expenses at
the rate of exchange prevailing on the respective dates of such
transactions.
13

Notes to Financial Statements (continued) The First Australia 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 securities held at October 31, 2000.
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 reporting period.

Net realized and unrealized foreign exchange losses of $26,911,282 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, the difference between the amounts of dividends,
interest and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid and changes in unrealized
foreign exchange gains and losses in the value of portfolio securities and other
assets and liabilities arising as a result of changes in the exchange rate.
Accumulated net realized and unrealized foreign exchange losses shown in the
composition of net assets at October 31, 2000 represent foreign exchange losses
for book purposes that have not yet been recognized for tax purposes.

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
U.S. dollar.

The exchange rate at October 31, 2000 was US$.5166 to A$1.00 for the
Australian dollar.

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.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on an accrual basis. Expenses are recorded on the accrual basis which
may require the use of certain estimates by management. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.

Dividends and Distributions: It is the Fund's current policy to pay regular
quarterly distributions at an annual rate, which is a percentage of the rolling
average of the Fund's prior four quarter-end net asset values. The distributions
will be made from net investment income, net realized capital gains and, to any
extent necessary, paid-in capital. Dividends and distributions are recorded on
the ex-dividend date. Income distributions and capital and currency gains
distributions are 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.

Taxes: For federal income and excise tax purposes, substantially all of the
Fund's transactions are accounted for using the Australian dollar as the
functional currency. Accordingly, only realized currency gains and losses
resulting from the repatriation of Australian dollars into United States dollars
are recognized for tax purposes.
14

Notes to Financial Statements (continued) The First Australia Fund, Inc.
--------------------------------------------------------------------------------
No provision has been made for United States income taxes because it is the
Fund's policy to continue to meet the requirements of the United States Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to shareholders. Provision has been made for United States
excise taxes incurred during the prior fiscal year. Australia imposes a
withholding tax of 15% on certain dividends and 10% on certain interest.

Securities Lending: The Fund may lend its securities to approved borrowers.

The loans are secured by collateral at least equal at all times to the market
value of the securities loaned. The Fund may bear the risk of delay in recovery
of, or even loss of rights in, the securities loaned should the borrower of the
securities fail financially. The Fund receives compensation for lending its
securities in the form of fees or it retains a portion of interest on the
investment of any cash received as collateral. The Fund also continues to
receive interest and dividends on the securities loaned and any gain or loss in
the market price of the securities loaned that may occur during the term of the
loan will be for the account of the Fund. As of October 31, 2000 no securities
were out on loan.

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.
During the year ended October 31, 2000, the Fund increased distributions in
excess of net investment income by $355,636, decreased accumulated net realized
losses on investments by $50,408, decreased accumulated realized and unrealized
foreign exchange losses by $483,259 and decreased paid-in capital in excess of
par by $178,031. Net investment income, net realized gains and net assets were
not affected by this change.

Note 2. Agreements

The Fund has agreements with EquitiLink International Management Limited (the
'Investment Manager), EquitiLink Australia Limited (the 'Investment Adviser),
and Prudential Investments Fund Management LLC (the 'Administrator). The
Investment Manager and the Investment Adviser are affiliated companies.

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, including the selection of and the placement of orders with brokers and
dealers to execute portfolio transactions on behalf of the Fund.

The Investment Manager pays fees to the Investment Adviser for its services
rendered. The Investment Manager informed the Fund that it paid $340,701 to the
Investment Adviser during the year ended October 31, 2000.

The management agreement provides the Investment Manager with a fee, computed
weekly and payable monthly, at the following annual rates: 1.10% of the Fund's
average weekly net assets up to $50 million, 0.90% of such assets between $50
million and $100 million and 0.70% of such assets
15

Notes to Financial Statements (continued) The First Australia Fund, Inc.
--------------------------------------------------------------------------------
in excess of $100 million. The administration agreement provides the
Administrator with a fee at the annual rate of the greater of $25,000 or 0.05%
of the Fund's average weekly net assets.

EquitiLink USA, Inc. ('EUSA), a wholly owned subsidiary of EquitiLink
International Management Limited, entered into an agreement on March 1, 2000 to
serve as the Fund's investor relations agent. This agreement provides EUSA with
a monthly retainer of $5,000 plus out-of-pocket expenses up to $3,000 per year.
During the year ended October 31, 2000, the Fund incurred fees of approximately
$40,000 for the services of EUSA. As of October 31, 2000, $10,000 was due to
EUSA. Investor relations expenses in the Statement of Operations include certain
out-of-pocket expenses.

Note 3. Portfolio Securities

Purchases and sales of investment securities, other than short-term
investments, for the year ended October 31, 2000 aggregated $165,887,450 and
$174,843,544, respectively.

The United States federal income tax basis of the Fund's investments at
October 31, 2000 was $113,010,505 and accordingly, net unrealized appreciation
for United States federal income tax purposes was $6,621,425 (gross unrealized
appreciation--$15,985,943; gross unrealized depreciation--$9,364,518).

Note 4. Capital

There are 20 million shares of $.01 par value common stock authorized. Of
the 17,189,998 shares issued and outstanding at October 31, 2000, the Investment
Manager and its affiliates owned 2,747,908 shares.

Note 5. Dividends And Distributions

The Board of Directors of the Fund approved on December 12, 2000 a
dividend of $0.19 which was comprised of $0.052 per share from ordinary income,
$0.022 per share from realized short-term capital gains and $0.116 per share
from realized long-term capital gains payable on January 12, 2001 to
shareholders of record on December 29, 2000.

Note 6. Subsequent Events

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
16

Notes to Financial Statements (continued) The First Australia Fund, Inc.
--------------------------------------------------------------------------------
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. This acquisition is expected
to close on December 22, 2000.

On November 10, 2000, EquitiLink Holdings Limited ('EL), an affiliate of
the Investment Manager, entered into a stock purchase agreement with Mira, L.P.
('Mira), pursuant to which EL agreed to sell, or to cause one of its affiliates
to sell, to Mira, and Mira agreed to buy from EL, or such affiliate, 2,742,461
shares of common stock of the Fund, adjusted to reflect any stock dividends,
splits, combinations or other corporate actions. The sale is to be concluded
subsequent to the satisfaction of certain conditions. Assuming Mira continues to
hold the Fund shares it presently owns, following the share sale Mira will own
31.8% of the Fund's outstanding shares.
17

Financial Highlights The First Australia Fund, Inc.
--------------------------------------------------------------------------------

Years Ended October 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996

---------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 8.78 $ 8.25 $ 9.35 $ 10.98 $ 10.04
---------- -------- -------- -------- --------
Net investment income......................... .14 .08 .21 .18 .20
Net realized and unrealized gain (loss) on
investments and foreign currencies.......... (1.25) 1.26 (.41) (1.45) 1.25
---------- -------- -------- -------- --------
Total from investment operations............ (1.11) 1.34 (.20) (1.27) 1.45
---------- -------- -------- -------- --------
Dividends from net investment income.......... (.12) (.30) (.23) (.17) (.23)
Distributions from net capital and currency
gains....................................... (.69) (.51) (.66) (.18) (.26)
---------- -------- -------- -------- --------
Total dividends and distributions........... (.81) (.81) (.89) (.35) (.49)
---------- -------- -------- -------- --------
Capital reduction with respect to issuance of
Fund shares................................. -- -- (.01) (.01) (.02)
---------- -------- -------- -------- --------
Net asset value, end of year.................. $ 6.86 $ 8.78 $ 8.25 $ 9.35 $ 10.98
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Market price per share, end of year........... $ 5.875 $ 8.00 $ 6.5625 $ 7.44 $ 9.125
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN BASED ONPound:
Market value.................................. (17.31)% 34.91% (0.38)% (15.17)% 17.76%
Net asset value............................... (12.02)% 17.77% (0.34)% (11.37)% 15.55%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets....... 1.66% 2.58% 1.61% 1.39% 1.41%
Ratio of net investment income to average net
assets...................................... 1.66% .87% 2.38% 1.68% 1.86%
Portfolio turnover rate....................... 120% 143% 180% 270% 133%
Net assets, end of year (000 omitted)......... $117,941 $150,916 $141,794 $159,422 $185,756
Average net assets (000 omitted).............. $143,801 $157,565 $149,827 $182,588 $178,756

---------------
Pound Total investment return is calculated assuming
a purchase of common stock on the first day and a sale on the last
day of each period reported. Dividends and distributions are
assumed, for 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.
NOTE: Contained above is operating performance for a share of
common stock outstanding, total investment return, ratios
to average net assets and other supplemental data for each
of the periods indicated. This information has been
determined based upon financial information provided
in the financial statements and market value data for the
Fund's shares.

18 See Notes to Financial Statements.

Report of Independent Accountants The First Australia Fund, Inc.
--------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
The First Australia Fund, Inc.

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The First Australia Fund, Inc. (the
'Fund) at October 31, 2000, the results of its operations 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
December 12, 2000
19

Federal Tax Information:
Dividends and Distributions (Unaudited) The First Australia Fund, Inc.
--------------------------------------------------------------------------------
As required by Internal Revenue Code regulations, we are to advise you within
60 days of the Fund's fiscal year end (October 31, 2000) as to the tax status of
dividends, distributions and foreign tax credits paid by the Fund during the
fiscal year. During fiscal year 2000, the Fund paid dividends from net
investment income which are taxable as ordinary income. However, these dividends
do not qualify for the 70% dividends received deduction for corporations. The
Fund also paid distributions from long-term capital gains which are taxable as
such.

The Fund has elected to give the benefit of foreign tax credits to its
shareholders in the amount designated below on a per share basis. Accordingly,
shareholders who must report their gross income dividends and distributions in a
federal income tax return will be entitled to a foreign tax credit, or an
itemized deduction, in computing their U.S. income tax liability. It is
generally more advantageous to claim a credit rather than to take a deduction.
The following table allocates the dividends and distributions paid by their
sources:

Net
Foreign Dividends and
Gross Taxes Distributions
Amount Paid Paid
------ ------- ---------------

Australia --dividends $.095 $.009 $.086
--interest .006 .001 .005
United
States --short-term capital gains .156 -- .156
--long-term capital gains .563 -- .563
------ ------- ------
$.820 $.010 $.810
------ ------- ------
------ ------- ------

Although the Fund has made the election required to make this foreign credit
or deduction available to you, the amount of allowable tax credit is subject to
Section 904 of the Internal Revenue Code. Shareholders are advised to consult
their own tax advisers with respect to the tax consequences of their investment
in the Fund.

In January 2001 shareholders will receive Form 1099-DIV, or substitute
1099-DIV, which will reflect the amount of dividends and distributions and
foreign taxes to be used by calendar year taxpayers on their 2000 federal income
tax returns.

Supplemental Proxy Information (Unaudited) The First Australia Fund, Inc.
--------------------------------------------------------------------------------
The Fund's shareholders voted at a 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.

The results of the proxy solicitation on the above matter was as follows:

Votes for 15,411,691
Votes against 624,110
Abstentions 107,959
21

Other Information (Unaudited) The First Australia Fund, Inc.
--------------------------------------------------------------------------------
Dividend Reinvestment and Cash Purchase Plan. Shareholders may elect to have
all distributions of dividends and capital gains automatically reinvested in
Fund shares pursuant to the Fund's Dividend Reinvestment and Cash Purchase Plan
(the Plan). Generally, shareholders who do not participate in the Plan will
receive 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 custodian, as dividend
disbursing agent. Shareholders who wish to participate in the Plan should
contact the Fund at (800) 451-6788.

State Street Bank & Trust Co. (the Plan Agent) serves as agent for the
shareholders in administering the Plan. If the Fund declares a dividend or
capital gains distribution and the net asset value per share of the Fund's
common stock exceeds the market price per share on the distribution payable
date, Plan participants will receive shares purchased on the open market with
the proceeds of the distribution. In all other cases, Plan participants will
receive a number of newly-issued shares determined by dividing the dollar amount
of the distributions by the net asset value per share of the Fund's common stock
on the distribution payable date, provided that the discount from current market
price will not exceed 5%.

There is no charge to participants for reinvesting dividends or 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 will be paid by the Fund. There will be no brokerage commissions
charged with respect to shares issued directly by the Fund. However, each
participant will pay 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 will not relieve participants of any federal income
tax that may be payable on such dividends and distributions.

The Plan also allows participants to make optional cash investments of at
least $100 in Fund shares as frequently as monthly through the Plan Agent on the
open market. Participants must pay a service fee of $0.75 for each investment
and a pro rata share of the brokerage commissions.

The Fund reserves the right to amend or terminate the Plan either in full or
partially upon 90 days' written or telephone notice to shareholders of the Fund.

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 certificates for
whole shares and cash for fractional shares. In the alternative, by giving
proper notice to the Plan Agent, participants may receive cash in lieu of shares
in an amount which is reduced by brokerage commissions in connection with the
sale of shares and a $2.50 service fee.

All correspondence concerning the Plan should be directed to the Plan Agent,
State Street Bank & Trust Company, P.O. Box 8200, Boston, MA 02266-8200.
22

Directors Officers

Laurence S. Freedman, Chairman Brian M. Sherman, President
Anthony E. Aaronson Laurence S. Freedman, Vice President
David Lindsay Elsum Ouma Sananikone, Assistant Vice President
Michael R. Horsburgh and Chief Investment Officer
Harry A. Jacobs, Jr. David Manor, Treasurer
Howard A. Knight Roy M. Randall, Secretary
Richard H. McCoy Barry G. Sechos, Assistant Treasurer
Neville J. Miles Jack R. Benintende, Assistant Treasurer
Peter J. O'Connell Allan S. Mostoff, Assistant Secretary
William J. Potter Margaret A. Bancroft, Assistant Secretary
Peter D. Sacks Sander M. Bieber, Assistant Secretary
John T. Sheehy
Brian M. Sherman

This report, including the financial statements
herein, is transmitted to the shareholders of The
First Australia Fund 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.

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.

Investment Manager
EquitiLink International Management Limited
P.O Box 578, 17 Bond Street
St. Helier, Jersey, JE4 5XB Channel Islands

Investment Adviser
EquitiLink Australia Limited
190 George Street
Sydney, NSW 2000, Australia

Administrator
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077

Custodian and Transfer Agent
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171

Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036

Legal Counsel
Dechert
1775 Eye Street N.W.
Washington, D.C. 20006-2401

Stikeman Elliott
Level 40, Chifley Tower
2 Chifley Square
Sydney, NSW 2000, Australia

Investor Relations
EquitiLink USA, Inc.
45 Broadway, 31st Floor
New York, NY 10006
(800) 522-5465 or
(212) 968-8800
e-mail us at InvestorRelations@equitilinkny.com

Shares of The First Australia Fund, Inc. are traded
on the American Stock Exchange and on the Pacific
Stock Exchange under the symbol "IAF". 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.

318652104