(LOGO)
Invests primarily in equity securities of Australian companies
listed on The Australian Stock Exchange.
Aberdeen
Australia Equity
Fund, Inc.
Semi-Annual Report
April 30, 2001
Highlights
- Cash distribution rate of 13.3% p.a. based on a share price
of $5.66 as of April 30, 2001.
- Narrowing of the discount to NAV to 12.9%.
All amounts are U.S. dollars unless otherwise stated.
2 Aberdeen Australia Equity Fund, Inc.
Letter to Shareholders
June 15, 2001
Dear Shareholder,
We present this Semi-Annual Report which covers the activities
of Aberdeen Australia Equity Fund, Inc. (formerly known as The
First Australia Fund, Inc.) (the "Fund") for the six months
ended April 30, 2001. 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, Aberdeen Asset Managers (C.I.) Limited.
Quarterly distribution rate
For the 12 months ended April 30, 2001, the Fund paid a total
of 75 cents per share, which equates to an annualized cash
distribution rate of 13.3%, based upon the share price of $5.66
as of April 30, 2001. The cash distribution for the current
quarter of 17 cents per share was paid on April 12, 2001.
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"). On June 13,
2001, the Board of Directors declared a quarterly distribution
of 16.25 cents per share. Consistent with the Fund's
distribution policy, the Board of Directors intends to review
the distribution policy at its next regularly scheduled meeting
in September 2001.
Net Asset Value Performance
For the six months ended April 30, 2001, the Fund's NAV return
was 0.64% after expenses (assuming reinvestment of
distributions) compared with a 2.1% increase, in US dollar
terms, in the Benchmark (S&P/ASX 200 Accumulation Index). In
Australian dollar terms, the Fund's NAV increased by 2.7%,
compared with a rise of 4.0% in the Benchmark. The Australian
dollar depreciated slightly over the six-month period, to close
at US$0.51.
Aberdeen Australia Equity Fund, Inc. 3
Letter to Shareholders (continued)
Share Price Performance
The Fund's share price fell over the six months, from $5.88 on
October 31, 2000 to $5.66 on April 30, 2001. The discount to
the NAV of $6.50 on April 30, 2001 has narrowed over the six
months, to 12.9%.
Shareholders Elect Directors
At the Annual Meeting of Shareholders, Mr. Anthony E. Aaronson,
Mr. Neville J. Miles, Mr. Peter D. Sacks and Mr. John T. Sheehy
were elected by the holders of the Fund's common stock as Class
I Directors to serve for a three-year term.
Buy-Back Program
On March 19, 2001, the Fund announced the approval of a buy-
back program. Purchases of shares under this program commenced
on June 6, 2001, and as of the date of this Report, 27,200
shares have been repurchased.
For information about the Fund, including weekly updates of
share prices, NAV and details of recent distributions, please
contact Aberdeen Asset Management, Investor Relations by:
- calling toll free 1-800-522-5465 in the United States,
- emailing to InvestorRelations@aberdeen-asset.com, or
- visiting the website at www.aberdeen-asset.com/usa
For information about the Aberdeen Group, visit the Aberdeen
website at www.aberdeen-asset.com.
Yours sincerely,
Hugh Young
Chairman and President
4 Aberdeen Australia Equity Fund, Inc.
Your Board's policy is to provide investors with a stable
quarterly 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 of 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
April 12, 2001, are made up of 41% net investment income and
59% return of paid-in capital.
This estimated distribution composition will vary from quarter
to quarter because it may be materially impacted by future
realized gains and losses on securities and on fluctuations in
the value of the currencies in which Fund assets are
denominated.
In January 2002, 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.
5 Aberdeen Australia Equity Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
We invite you to participate in the Fund's Dividend
Reinvestment and Cash Purchase Plan (the "Plan"), which allows
you to automatically reinvest your distributions in shares of
the Fund's common stock at favorable commission rates.
Distributions made under the Plan are taxable to the same
extent as are cash distributions. The Plan also enables you to
make additional cash investments in shares of at least $100 per
month. Under this arrangement, State Street Bank & Trust
Company (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, unless shares of the Fund are trading at a
premium, in which case, the Fund will issue additional shares.
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 State
Street Bank & Trust Company, P.O. Box 8200, Boston MA 02266 or
toll free at 1-800-451-6788.
6 Aberdeen Australia Equity Fund, Inc.
Report of the Investment Manager
Investment Strategy
During the six months ended April 30, 2001, the Fund invested
some of the cash that it had accumulated over the quarter ended
January 31, 2001 and took profits on some of its investments as
they reached target valuations. With the global economy showing
signs of slowing, the Fund decreased its exposure to the
Resources sector during January.
As of April 30, 2001, the Fund has increased its holdings of
Industrial Equities. The Manager believes that the industrial
stocks held in the portfolio will continue to represent high
growth prospects and consistent dividend income. In the current
economic environment, the Manager believes that defensive
stocks provide the potential source of outperforming the
Benchmark.
Portfolio Composition
The following chart summarizes the composition of the Fund's
portfolio, expressed as a percentage of net assets. On April
30, 2001, the Fund held 83% of its net assets in industrial
stocks, 15% in resource stocks, and 2% in cash.
(GRAPH)
Distribution Policy
For the twelve months ended April 30, 2001, a total of 75 cents
per share was paid to shareholders. This equates to an
annualized cash distribution rate of 13.3%, based on the share
price of $5.66 at April 30, 2001.
7 Aberdeen Australia Equity Fund, Inc.
Selected Equity Holdings
The following notes highlight the Fund's top ten holdings at
April 30, 2001.
11.7% of net assets
News Corporation Ltd is a leading media company with worldwide
operations covering print and film media; broadcast, cable and
satellite TV; and book, newspaper and magazine publishing. 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.
The Manager intends to maintain an index weighting in the stock.
8.3% 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 the 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$3.4 billion, up 20%
from the previous fiscal year.
The Manager intends to maintain an overweight position in the stock.
8.0% 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. In May 2001,
8 Aberdeen Australia Equity Fund, Inc.
Selected Equity Holdings (continued)
BHP shareholders approved a proposed merger with Billiton PLC.
The merger is expected to proceed, subject to the satisfaction
of outstanding regulatory conditions. BHP made a net equity
profit of A$1.42 billion for the six months ended December 31,
2000, up 17.9% as compared to the corresponding period in the
previous year.
The Manager intends to maintain an overweight position in the stock.
7.2% of net assets
Australia & New Zealand 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 reported a net
profit for the first half of the 2000/2001 fiscal year of A$895
million, up 10% from the previous corresponding period.
The Manager intends to maintain an overweight position in the stock.
6.5% 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 net
profit for the first half of the 2000/2001 fiscal year of A$924
million, up 10% from the previous corresponding period.
The Manager intends to maintain an overweight position in the stock.
Aberdeen Australia Equity Fund, Inc. 9
Selected Equity Holdings (continued)
6.1% 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 first half of the 2000/2001 fiscal year rose
by 35% from the previous corresponding period, to A$1.135 billion.
The Manager intends to maintain a neutral weighting in the stock.
4.8% of net assets
Telstra Corporation Ltd is Australia's largest telecommunications
carrier providing products and services that cover all aspects
of the telecommunications industry in Australia. It has over
one million online customers, expanding at the current rate of
about 10,000 per week, and is Australia's largest provider of
mobile telecommunications services with 4.1 million MobileNet
customers. Telstra reported a net profit for the first half of
the 2000/2001 fiscal year of A$2.623 billion, up 31% from the
previous corresponding period.
The Manager intends to maintain an overweight position in the stock.
4.6% of net assets
Foster's Brewing Group Ltd is an international brewer,
marketer, and distributor of beer, wine, and other alcoholic
beverages. Foster's International, its key brand, supplies more
than 130 countries with its products. The company's other niche
beer brand, Carlton and United Breweries, accounts for over
half of the Australian beer market. In the year 2000, Foster's
Brewing Group Limited acquired Beringer Wine Estates, a wine
producer that owns six wineries in the coastal regions of
California, as well as an Italian winery, Castello do Gabbian.
Recently, the company reported a net equity profit for the
first half of the 2000/2001 fiscal year of A$293 million, up
20% from the previous corresponding period.
The Manager intends to maintain an overweight position in the stock.
10 Aberdeen Australia Equity Fund, Inc.
Selected Equity Holdings (continued)
4.5% of net assets
AMP Limited provides life insurance, superannuation, asset
management, pensions and other financial advisory services. The
group operates in 16 countries including Australia, Europe,
India, Japan, New Zealand, the UK and the US. AMP reported a
net equity profit for the fiscal year ended December 31, 2000
of A$1.149 billion, up 10% from the previous fiscal year.
The Manager intends to maintain an overweight position in the stock.
3.5% of net assets
F.H. Faulding & Company Limited develops, manufactures and
distributes pharmaceutical and healthcare products that are
sold in over 70 countries. FHF has manufacturing operations in
Australia, Brazil, Canada, China and the US. FHF also provides
retail management services to pharmacies and logistics
management services to hospitals. FHF reported a net equity
profit for the first half of the 2000/2001 fiscal year of
A$39.5 million, up 8% from the previous corresponding period.
The Manager intends to maintain an overweight position in the stock.
The Manager's intentions with respect to maintaining weighted
positions in stock are expressed as of the date of this report,
and the Manager reserves the right to change such intentions.
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.
As of April 30, 2001, the Fund had 31.0% of its assets invested
in the Banking and Finance Sector. At that date, the Sector
represented 22.8% of the S&P/ASX 200 Accumulation Index.
Aberdeen Australia Equity Fund, Inc. 11
Market Review and Outlook
Economy
Economic growth in Australia decelerated sharply through the
second half of 2000. This was primarily due to the pull-forward
of economic activity into the first half of 2000, following the
introduction of a goods and services tax. Through the year
2000, the composition of growth in the Australian economy
changed, with a strong external sector taking over from the
slowing domestic interest-sensitive sectors.
After maintaining steady policy since mid-2000, the Reserve
Bank of Australia ("RBA") commenced its easing cycle in
February 2001, suggesting a willingness to act aggressively in
the face of a softer global environment, in line with other
global central banks.
The Investment Manager anticipates that through the coming year
the Australian economy is likely to see the sources of growth
rotate again, as export growth eases and the housing sector
builds on recent signs of recovery following the sharp slowdown
experienced in the first few months of 2001.
Stock Market
The Australian stock market rose by 4.0% over the six months
ended April 30, 2001, with a 16.32% increase in the Resources
sector in Australian dollar terms. Large market capitalization
stocks are expected to continue to post solid returns, 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.
Currency
Short-term interest rate differentials have now moved back in
the Australian dollar's favor, as a result of the US Federal
Reserve Bank having aggressively cut the Fed Funds rate to 4.5%.
As the market continues to anticipate a more aggressive easing
cycle in the US than domestically, it is expected that interest
rate differentials should lend support to the Australian currency
in 2001.
The Australian dollar weakened over the six month period,
closing at US$0.51.
Aberdeen Asset Managers (C.I.) Limited
June 2001
12 Aberdeen Australia Equity Fund, Inc.
Portfolio of Investments (unaudited)
April 30, 2001
Value
Shares Description (US$)
---------------------------------------------------
LONG-TERM INVESTMENTS--98.1%
Common and Preferred Stocks--98.1%
Diversified Industries--16.6%
86,609 Billabong International
Limited $ 224,978
1,740,000 Cable & Wireless Optus
Limited* 3,133,901
600,000 ERG Limited 456,615
690,233 F.H. Faulding & Company
Limited 3,887,106
331,016 Foodland Associated
Limited 1,437,575
2,045,000 Foster's Brewing Group
Limited 5,115,026
451,760 Leighton Holdings
Limited 1,673,622
721,000 Pacifica Group Limited 1,500,509
557,946 PaperlinX Limited 1,092,665
--------------
18,521,997
--------------
Resources and Mining--14.6%
816,318 BHP Limited 8,912,700
1,970,652 Delta Gold Limited 1,229,767
4,286,999 M.I.M. Holdings Limited 2,827,512
1,881,158 Oil Search Limited 1,297,991
442,250 WMC Limited 2,111,374
--------------
16,379,344
--------------
Services--66.9%
496,800 AMP Limited 5,041,029
980,000 Aristocrat Leisure
Limited 3,226,847
1,851,157 Austar United
Communications
Limited* 817,090
1,130,000 Australia & New Zealand
Banking Group Limited 8,032,010
414,000 Australian Gas Light
Company Limited 2,215,953
103,000 Brambles Industries
Limited 2,607,104
468,800 Commonwealth Bank of
Australia 6,859,469
1,019,815 Foundation Healthcare
Limited* 1,008,936
1,618,076 ISIS Communications
Limited* $ 77,988
95,000 Macquarie Bank Limited 1,438,236
608,000 National Australia Bank
Limited 9,284,910
500,000 News Corporation
Limited 4,724,950
1,039,000 News Corporation
Limited, Voting
Preferred Stock 8,328,759
2,635,762 Orbital Engine
Corporation Limited* 1,342,603
141,000 QBE Insurance Group
Limited 786,900
669,500 D ResMed, Inc.* 3,012,880
300,000 Solution 6 Holdings
Limited* 184,168
2,189,134 Stockford Limited* 1,865,904
1,591,866 Telstra Corporation
Limited 5,386,913
937,874 Vision Systems Limited 1,327,567
1,091,000 Westpac Banking
Corporation Limited 7,240,026
--------------
74,810,242
--------------
Total common and
preferred stocks (cost
$119,310,736) 109,711,583
--------------
Principal
Amount
(000)
---------
SHORT-TERM INVESTMENTS--1.9%
Demand Deposits--1.9%
A$
4,159 Banque Nationale de
Paris,
5.25%, 5/1/01 2,109,933
35 State Street Bank &
Trust Company,
3.625%, 5/1/01 17,895
--------------
Total demand deposits
(cost US$2,122,528) 2,127,828
--------------
--------------------------------------------------------------------------------
Total Investments--100% (cost $121,433,264; Note 3) 111,839,411
Liabilities in excess of other assets (55,544)
--------------------------------------------------------------------------------
Net Assets--100% $111,783,867
------------------------------
* Non-income producing security.
D Portion of security on loan; see Note 3.
See Notes to Financial Statements. Aberdeen Australia Equity Fund, Inc. 13
Statement of Assets and Liabilities (unaudited)
April 30, 2001
Assets
Investments, at value (cost $121,433,264).......................... $111,839,411
Foreign currency, at value (cost $179,214)......................... 180,270
Cash............................................................... 85,374
Receivable for investments sold.................................... 143,349
Other assets....................................................... 28,438
------------
Total assets................................................... 112,276,842
------------
Liabilities
Accrued expenses and other liabilities............................. 277,398
Payable for investments purchased.................................. 129,312
Investment management fee payable.................................. 82,052
Administration fee payable......................................... 4,213
------------
Total liabilities.............................................. 492,975
------------
Net Assets......................................................... $111,783,867
------------
------------
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............... (28,821)
Accumulated net realized loss on investments................... (5,042,157)
Net unrealized appreciation on investments..................... 7,403,583
Accumulated net realized and unrealized foreign exchange
losses......................................................... (43,423,302)
------------
Net assets..................................................... $111,783,867
------------
------------
Net asset value per share:
($111,783,867 / 17,189,998 shares of common stock issued
and outstanding)................................................. $6.50
------------
------------
14 Aberdeen Australia Equity Fund, Inc. See Notes to Financial Statements.
Statement of Operations (unaudited)
Six Months Ended April 30, 2001
Net Investment Income
Income
Dividends (net of foreign withholding taxes of $31,529).... $ 2,017,460
Interest................................................... 272,554
Income from securities loaned, net......................... 8,183
------------------
Total income............................................... 2,298,197
------------------
Expenses
Investment management fee.................................. 567,642
Custodian's fees and expenses.............................. 107,000
Directors' fees and expenses............................... 83,000
Legal fees and expenses.................................... 59,000
Independent accountant's fees and expenses................. 58,000
Reports to Shareholders.................................... 58,000
Investor relations fees and expenses....................... 38,000
Administration fee......................................... 29,832
Transfer agent's fees and expenses......................... 23,000
Insurance expense.......................................... 5,000
Miscellaneous.............................................. 12,064
------------------
Total operating expenses................................... 1,040,538
------------------
Net investment income........................................ 1,257,659
------------------
Realized and Unrealized Gains (Losses) on Investments and
Foreign Currencies
Net realized gain on investment transactions................. 14,394
Net increase in unrealized appreciation on investments....... 748,216
------------------
Net gain on investments...................................... 762,610
------------------
Net increase in net assets resulting from operations before
net foreign exchange losses................................ 2,020,269
Net realized and unrealized foreign exchange losses.......... (1,989,480)
------------------
Net Increase In Net Assets Resulting From Operations......... $ 30,789
------------------
------------------
See Notes to Financial Statements. Aberdeen Australia Equity Fund, Inc. 15
Statement of Changes in Net Assets (unaudited)
Six Months Year
Ended Ended
April 30, 2001 October 31, 2000
------------------ ------------------
Increase (Decrease) in Net Assets
Operations
Net investment income.................. $ 1,257,659 $ 2,383,135
Net realized gain on investment
transactions......................... 14,394 8,667,309
Net increase (decrease) in unrealized
appreciation on investments.......... 748,216 (3,190,914)
------------------ ------------------
Net increase in net assets resulting
from operations before net foreign
exchange losses...................... 2,020,269 7,859,530
Net realized and unrealized foreign
exchange losses...................... (1,989,480) (26,911,282)
------------------ ------------------
Net increase (decrease) in net assets
resulting from operations............ 30,789 (19,051,752)
Dividends to shareholders from net
investment income...................... (1,243,239) (2,028,314)
Distributions in excess of net investment
income................................. (28,821) --
Distributions to shareholders from net
realized capital gains................. -- (11,895,151)
Distributions in excess of net realized
capital gains.......................... (4,916,128) --
------------------ ------------------
Total decrease........................... (6,157,399) (32,975,217)
Net Assets
Beginning of period...................... 117,941,266 150,916,483
------------------ ------------------
End of period............................ $111,783,867 $117,941,266
------------------ ------------------
------------------ ------------------
16 Aberdeen Australia Equity Fund, Inc. See Notes to Financial Statements.
Notes to Financial Statements (unaudited)
Aberdeen Australia Equity Fund, Inc. (formerly known as The First Australia
Fund, Inc.) (the 'Fund') is a closed-end, non-diversified 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 The Australian
Stock Exchange. 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 The Australian Stock Exchange 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 bank, 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 United States
financial institutions, it is the Fund's policy that its custodian or designated
subcustodians under triparty repurchase agreements, as the case may be, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction,
Aberdeen Australia Equity Fund, Inc. 17
Notes to Financial Statements (unaudited) (continued)
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.
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 April 30, 2001. 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 $1,989,480 for the six
months ended April 30, 2001 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
United States 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 April 30, 2001 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
United States dollar.
The exchange rate at April 30, 2001 was US$0.51 to A$1.00 for the Australian
dollar.
18 Aberdeen Australia Equity Fund, Inc.
Notes to Financial Statements (unaudited) (continued)
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.
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. 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
Aberdeen Australia Equity Fund, Inc. 19
Notes to Financial Statements (unaudited) (continued)
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.
Note 2. Agreements
Aberdeen Asset Managers (C.I.) Limited (formerly known as EquitiLink
International Management Limited) (the 'Investment Manager') serves as
investment manager to the Fund and Aberdeen Asset Management Limited (formerly
known as EquitiLink Australia Limited) (the 'Investment Adviser') serves as
investment adviser to the Fund pursuant to a management agreement and an
advisory agreement, respectively, each dated December 22, 2000. The Investment
Manager and the Investment Adviser are wholly owned subsidiaries of Aberdeen
Asset Management PLC.
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 $151,995 to the
Investment Adviser during the six months ended April 30, 2001.
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 in excess of $100 million.
Prudential Investments Fund Management LLC (the 'Administrator') serves as
administrator to the Fund pursuant to an agreement dated December 11, 1987 which
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.
Under terms of an Investor Relations Services Agreement, EquitiLink USA, Inc.
(doing business under the name Aberdeen Asset Management ('Aberdeen')), a wholly
owned subsidiary of the Investment Manager, serves as the Fund's investor
relations agent. This agreement provides Aberdeen with a monthly retainer fee of
$5,000 plus out of pocket expenses up to $3,000 per year. During the six months
ended April 30, 2001, the Fund incurred fees of approximately $30,000 for the
services of Aberdeen. As of April 30, 2001,
20 Aberdeen Australia Equity Fund, Inc.
20 Aberdeen Australia Equity Fund, Inc.
Notes to Financial Statements (unaudited) (continued)
$5,000 was due to Aberdeen. 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 six months ended April 30, 2001 aggregated $61,574,324 and $68,887,439,
respectively.
As of April 30, 2001, the Fund had securities on loan with an aggregate market
value of $2,700,116. As of this date, the collateral held for securities on loan
was comprised of U.S. Treasury securities with an aggregate market value of
$2,922,093.
The United States federal income tax basis of the Fund's investments at April
30, 2001 was $104,445,849 and accordingly, net unrealized appreciation for
United States federal income tax purposes was $7,393,562 (gross unrealized
appreciation--$16,462,979; gross unrealized depreciation--$9,069,417).
Note 4. Capital
There are 20 million shares of $.01 par value common stock authorized. At April
30, 2001 there were 17,189,998 shares issued and outstanding.
On March 1, 2001, the Board of Directors approved a stock repurchase program.
The stock repurchase program allows the Fund to repurchase up to 10% of its
common stock in the open market over a 12 month period if and when its discount
to net asset value exceeds 10%. Through April 30, 2001, there have been no share
repurchases under this program.
Note 5. Dividends And Distributions
The Board of Directors of the Fund declared on June 13, 2001 a dividend of
$0.1625 payable on July 13, 2001 to shareholders of record on June 29, 2001.
Distributions may be comprised of a combination of investment income, realized
capital gains, and to the extent necessary, paid in capital.
Note 6. Beneficial Ownership; Change of Control
On January 18, 2001, Mira L.P. ('Mira') acquired an aggregate of 2,742,461
shares of common stock of the Fund from EquitiLink Holdings Limited, EquitiLink
Limited, EquitiLink International Management Limited and EquitiLink USA, Inc.
(collectively, the 'Sellers', all of which were then affiliated with the Fund),
pursuant to a Stock Purchase Agreement dated as of November 10, 2000 by and
between Mira and the Sellers. As of April 30, 2001, Mira is the beneficial owner
of 31.7% of the outstanding shares of the Fund.
Aberdeen Australia Equity Fund, Inc. 21
Financial Highlights (unaudited)
Six Months
Ended
April 30, 2001
------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................................ $ 6.86
--------
Net investment income............................................... .07
Net realized and unrealized gain (loss) on investments and foreign
currencies........................................................ (.07)
--------
Total from investment operations.................................. --
--------
Dividends from net investment income................................ (.07)
Distributions in excess of net investment income.................... --D
Distributions from net capital and currency gains................... --
Distributions in excess of net capital and currency gains........... (.29)
--------
Total dividends and distributions................................. (.36)
--------
Capital reduction with respect to issuance of Fund shares........... --
--------
Net asset value, end of period...................................... $ 6.50
--------
--------
Market price per share, end of period............................... $ 5.66
--------
--------
TOTAL INVESTMENT RETURN BASED ONPound:
Market value........................................................ 2.33%
Net asset value..................................................... 0.64%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets............................. 1.76%*
Ratio of net investment income to average net assets................ 2.13%*
Portfolio turnover rate............................................. 52%
Net assets, end of period (000 omitted)............................. $111,784
Average net assets (000 omitted).................................... $119,326
------------------------------
* Annualized.
D Less than $0.005 per share.
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. Total returns for periods of less than a full
year are not annualized.
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.
22 Aberdeen Australia Equity Fund, Inc. See Notes to Financial Statements.
Financial Highlights (unaudited) (continued)
Year Ended October 31,
-----------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
$ 8.78 $ 8.25 $ 9.35 $ 10.98 $ 10.04
--------- --------- --------- --------- ---------
.14 .08 .21 .18 .20
(1.25) 1.26 (.41) (1.45) 1.25
--------- --------- --------- --------- ---------
(1.11) 1.34 (.20) (1.27) 1.45
--------- --------- --------- --------- ---------
(.12) (.30) (.23) (.17) (.23)
-- -- -- -- --
(.69) (.51) (.66) (.18) (.26)
-- -- -- -- --
--------- --------- --------- --------- ---------
(.81) (.81) (.89) (.35) (.49)
--------- --------- --------- --------- ---------
-- -- (.01) (.01) (.02)
--------- --------- --------- --------- ---------
$ 6.86 $ 8.78 $ 8.25 $ 9.35 $ 10.98
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
$ 5.875 $ 8.00 $ 6.5625 $ 7.44 $ 9.125
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
(17.31)% 34.91% (0.38)% (15.17)% 17.76%
(12.02)% 17.77% (0.34)% (11.37)% 15.55%
1.66% 2.58% 1.61% 1.39% 1.41%
1.66% .87% 2.38% 1.68% 1.86%
120% 143% 180% 270% 133%
$ 117,941 $ 150,916 $ 141,794 $ 159,422 $ 185,756
$ 143,801 $ 157,565 $ 149,827 $ 182,588 $ 178,756
See Notes to Financial Statements. Aberdeen Australia Equity Fund, Inc. 23
Supplemental Proxy Information (unaudited)
The Annual Meeting of Shareholders of the Aberdeen Australia Equity Fund, Inc.
was held on Thursday, April 19, 2001 at the offices of Prudential Securities
Incorporated, One Seaport Plaza, New York, New York. The meeting was held for
the following purpose:
To elect four Directors to serve as Class I Directors for a three-year term
expiring in 2004:
- Anthony E. Aaronson
- Neville J. Miles
- Peter D. Sacks
- John T. Sheehy
The results of the proxy solicitation on the above matter were as follows:
Votes
Director Votes for withheld
------------------- ----------- -------------
Anthony E. Aaronson 14,027,798 522,474
Neville J. Miles 13,961,496 588,776
Peter D. Sacks 14,004,071 546,201
John T. Sheehy 14,044,492 505,780
Directors whose term of office continued beyond this meeting are as follows:
Howard A. Knight, Hugh Young, Chris Fishwick, Sir David Rowe-Ham, David L.
Elsum, Lawrence S. Freedman, Peter J. O'Connell and William J. Potter.
A Special Meeting of Shareholders of the Fund was held on November 30, 2000, at
the Hilton Newark Gateway, Raymond Boulevard, Newark, New Jersey. The meeting
was held for the purpose of obtaining shareholder approval of a new management
agreement with the Fund's Investment Manager and a new investment advisory
agreement with the Fund's Investment Adviser. Shareholder approval of these
agreements was sought in order to permit the Investment Manager and Investment
Adviser to continue to provide services to the Fund following the acquisition of
the Investment Manager and Investment Adviser by Aberdeen Asset Management PLC.
The result of the proxy solicitation on this matter was as follows:
Votes For Votes Against Abstentions
----------- ------------- -----------
15,411,691 624,110 107,959
24 Aberdeen Australia Equity Fund, Inc.
Other Information (unaudited)
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. Dividends and capital gains
distributions payable to Plan participants will be promptly invested. If the
Plan declares an income dividend or capital gains 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 the market price of the Fund's common stock plus any brokerage
commission is equal to or exceeds net asset value, Plan participants will
receive newly issued shares valued at the greater of net asset value or 95% of
current market price. If, on the other hand, the net asset value plus any
brokerage commission exceeds the market price, the Plan Agent will buy shares in
the open market. If the market price plus any applicable brokerage commission
exceeds net asset value before the Plan Agent has completed its purchases, the
Fund will issue new shares to complete the program. All reinvestments are in
full and fractional shares carried to three decimal places.
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.
Aberdeen Australia Equity Fund, Inc. 25
Other Information (unaudited) (continued)
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.
26 Aberdeen Australia Equity Fund, Inc.
Directors Officers
Hugh Young, Chairman Hugh Young, President
Anthony E. Aaronson Ouma Sananikone, Vice President and
David Lindsay Elsum Chief Investment Officer
Chris Fishwick David Manor, Treasurer
Laurence S. Freedman Roy M. Randall, Secretary
Howard A. Knight Michael Karagianis, Assistant
Neville J. Miles Vice President
Peter J. O'Connell Beverley Hendry, Assistant Treasurer
William J. Potter Timothy Sullivan, Assistant Treasurer
Sir David Rowe-Ham Jack R. Benintende, Assistant Treasurer
Peter D. Sacks Allan S. Moscroff, Assistant Secretary
John T. Sheehy Margaret A. Bancroft, Assistant Secretary
Sander M. Bieber, Assistant Secretary
Christian Pittard, Assistant Secretary
The accompanying financial statements as of April 30, 2001 were
not audited and accordingly, no opinion is expressed on them.
This report, including the financial statements herein, is
transmitted to the shareholders of Aberdeen Australia Equity
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.
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.
Aberdeen Australia Equity Fund, Inc. 27
Corporate Information
Investment Manager Aberdeen Asset Managers (C.I.) Limited
P.O. Box 578, 17 Bond Street
St. Helier, Jersey, JE4 5XB Channel Islands
Investment Adviser Aberdeen Asset Management Limited
Level 6, 201 Kent Street
Sydney, NSW 2000, Australia
Administrator Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian & 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, NY 10036
Legal Counsel Dechert
1775 Eye Street N.W.
Washington, D.C. 20006-2401
Stikeman Elliott
Level 40, Chifley Tower
2 Chifley Square
Sidney, NSW 2000, Australia
Investor Relations Aberdeen Asset Management
45 Broadway, 31st Floor
New York, NY 10006
(800) 522-5465
(212) 968-8800
or e-mail us at
InvestorRelations@aberdeen-asset.com
(LOGO)
Aberdeen Asset Managers (C.I.) Limited
Shares of the Aberdeen Australia Equity 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 assets value and market price is published weekly in
Barron's and in the Monday edition of The Wall Street Journal.
003011103