(LOGO)
Aberdeen
Australia Equity
Fund, Inc.
Invests primarily in equity securities of Australian
companies listed on The Australian Stock Exchange.
Semi-Annual Report
April 30, 2002
Letter to Shareholders
June 21, 2002
Dear Shareholder,
We present this Semi-Annual Report which covers the
activities of Aberdeen Australia Equity Fund, Inc.
(the "Fund") for the six months ended April 30, 2002.
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, 2002, the Fund paid
a total of 48.75 cents per share, which equates to an
annualized cash distribution rate of 8.1%, based upon
the share price of $5.99 as of April 30, 2002. The
cash distribution for the current quarter of 2.5
cents per share was paid on April 12, 2002. Since
all distributions are paid after deducting applicable
withholding taxes, the effective distribution rate
may be higher for those U.S. investors who are able
to claim a tax credit.
On March 14, 2002, the Board of Directors determined
to discontinue the Fund's managed distribution
policy, in order to better enable the Investment
Manager to achieve the Fund's principal investment
objective of long-tem capital appreciation. The
Board of Directors also declared a quarterly
distribution of 2.5 cents per share, that was paid
April 12, 2002. It is the Board's intention that the
quarterly distribution of 2.5 cents per share be
maintained for 12 months, beginning with the April
12, 2002 distribution payment. This policy is
subject to regular review at the Board's quarterly
meetings. The next review is scheduled to take place
in September 2002.
On an annual basis, the Fund intends to distribute
its net realized capital gains, if any, by way of a
final distribution to be declared during the calendar
quarter ending December 31, 2002.
Net Asset Value Performance
For the six months ended April 30, 2002, the Fund's
total return based on NAV increased by 17.3% after
expenses (assuming reinvestment of distributions)
compared with an 11.5% increase, in US dollar terms,
in the S&P/ASX 200 Accumulation Index.
2 Aberdeen Australia Equity Fund, Inc.
Letter to Shareholders (continued)
Share Price Performance
The Fund's share price rose 13.2% over the six
months, from $5.29 on October 31, 2001 to $5.99 on
April 30, 2002. The Fund's share price on April 30,
2002, represented a discount of 11.9% to the NAV per
share of $6.80 on that date. On October 31, 2001,
the discount to NAV was 11.4%. At the date of this
report the share price was $6.42, representing a
discount of 10.7% to the NAV of $7.19.
Buy-Back Program
On March 19, 2001 the Fund announced the approval of
a share buy-back program. Purchases of shares under
this program commenced on June 6, 2001, and as of the
date of this report 134,700 shares have been
repurchased and cancelled.
Shareholders Elect Directors
At the Annual Meeting of Shareholders, Mr. Chris
Fishwick, Mr. Howard A. Knight, Mr. Hugh Young and
Sir David Rowe-Ham were elected by the holders of the
Fund's common stock as Class II Directors to serve
for a three-year term expiring at the 2005 Annual
Meeting of Shareholders.
Fund Investment Policy
The Securities and Exchange Commission has adopted a
rule under the Investment Company Act of 1940
regarding fund names. This rule requires funds with
names suggesting an investment focus to adopt a
policy to invest at least 80% of the fund's assets in
investments suggested by its name. In order to
comply with this rule, the directors of the Fund
adopted the following investment policy, at the June
19, 2002 Board meeting:
For as long as the name of the Fund remains Aberdeen
Australia Equity Fund, Inc., it shall be the policy
of the Fund normally to invest at least 80% of its
net assets plus the amount of any borrowings for
investment purposes, in equity securities, consisting
of common stock, preferred stock and convertible
stock, listed on the Australian Stock Exchange
Limited. This 80% investment policy is a non-
fundamental policy of the Fund and may be changed by
the Board of Directors upon 60 days prior written
notice to shareholders.
Aberdeen Australia Equity Fund, Inc. 3
Letter to Shareholders (continued)
This policy is consistent with the investment
policies of the Fund set forth in the Fund's
prospectus, as further amended by shareholders at the
Annual Meeting of Shareholders on May 14, 1998.
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 on 1-800-522-5465 in the United States,
E-mailing to InvestorRelations@aberdeen-asset.com, or
Visiting the website at www.aberdeen-asset.us
For information about the Aberdeen Group, visit the
Aberdeen website at www.aberdeen-asset.com.
Yours sincerely,
Hugh Young
Chairman and President
All amounts are U.S. dollars unless otherwise stated.
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 U.S. 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, 2001, including the
distribution paid on April 12, 2002, are made up of
39% net investment income and 61% return of paid-in
capital.
This estimated distribution composition may vary from
quarter to quarter because it may be materially
impacted by future realized gains and losses on
securities and fluctuations in the value of the
currencies in which Fund assets are denominated.
In January 2003, 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.
Aberdeen Australia Equity Fund, Inc. 5
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 the Plan Agent, State Street Bank & Trust
Company, P.O. Box 8200, Boston, MA 02266 or toll free
on 1-800-451-6788.
6 Aberdeen Australia Equity Fund, Inc.
Report of the Investment Manager
Investment Strategy
With the bottoming of the interest rate cycle across
the globe and the economic environment becoming less
bond friendly, the Fund took an underweight position
in the banking sector over the six months ended April
30, 2002. The Fund also maintained its underweight
position in the media sector, as media companies were
affected by falling advertising revenues, circulation
and subscriptions. The Fund's move towards more
defensive and value stocks resulted in continued
increased weighting in the insurance, utilities, wine
and gaming sectors. The Fund's underweight position
in resource stocks was also neutralized over the six-
month period, given the view that industrial
production (which is supplied by resource stocks) has
seen its low point and should increase in 2002. The
Fund continues to explore media stocks and other
cyclicals, which are expected to perform well as the
economic environment improves.
Portfolio Composition
The following chart summarizes the composition of the
Fund's portfolio, expressed as a percentage of net
assets. On April 30, 2002, the Fund held 96.3% of its
assets in equities, and 3.7% in short-term
investments.
(GRAPH)
Aberdeen Australia Equity Fund, Inc. 7
Selected Equity Holdings
The following notes highlight the Fund's top ten
long-term holdings at April 30, 2002.
6.2% of net assets
QBE Insurance Group Ltd is an international insurance
and reinsurance group, with operations in over 40
countries, underwriting most forms of commercial,
industrial and individual insurance policies. The
Group is involved in the management of seven Lloyd's
syndicates, together with the management of workers
compensation plans in New South Wales. The Group's
strategy is directed at growth through acquisitions,
customer retention and the development of new
products. QBE posted a loss of A$25 million for the
year to December 2001. The result was hurt by more
than A$1.5 billion in gross claims from the September
11th World Trade Center attacks. To restore its
balance sheet, QBE successfully raised A$663 million
from existing shareholders in October 2001. QBE will
now inject A$550 million into its Lloyds, European
company and Americas divisions that together
represent 70% of QBE's worldwide business.
6.2% of net assets
Rio Tinto Ltd is the third largest mining company in
the world, focused on developing resource operations
globally via acquisitions and organic growth. This
strategy has seen Rio Tinto make a number of
acquisitions in the last two years across five of its
core product groups. The North acquisition has
expanded Rio Tinto's iron ore business. Benefits are
expected to be derived from the existing Hammersley
iron ore operation's close proximity to North Robe
River operations in Western Australia. Despite the
weak economic environment and low base metal prices,
Rio Tinto posted a record result for the year to
December 2001, driven by higher prices for bulk
commodities, iron ore and coal.
5.7% of net assets
BHP Billiton Ltd is a major international resources
company with a global portfolio of assets. The group
has substantial interests in oil, gas, liquefied
natural gas, nickel, diamonds and silver. Its main
areas of operation are oil in Australia, the Gulf of
Mexico and the UK; global copper production, iron ore
mining and processing in Australia and South America;
coal mining and steel production in Australia. BHP
Billiton's focus is currently on portfolio management
and improving
8 Aberdeen Australia Equity Fund, Inc.
Selected Equity Holdings (continued)
the quality of the company's asset base. BHP Billiton
announced first-half results for the 2002 fiscal year
that were ahead of expectations, thus showing the
benefits of geographic and commodity diversification.
5.0% of net assets
BRL Hardy Ltd is the second largest wine producer in
Australia and is a major wine exporter. The company's
wines are distributed worldwide through a network of
sales and marketing operations, and its brands
include Hardys, Houghton, Banrock and Station Wines.
BRL's strategy is to provide a sufficient volume of
quality wine to satisfy demand in Australia and
overseas, prompting a vineyard expansion program. BRL
Hardy posted a record profit for the 2001 fiscal
year, driven by strong growth in Europe and in
Australasia.
4.8% of net assets
Australian Gas Light Company Ltd ("AGL") is an energy
investment, marketing and development company. AGL's
strategy is focused on new opportunities following
the deregulation of the Australian energy market. As
part of this strategy the company is undertaking a
shift away from its reliance on regulated assets
towards becoming an integrated energy service
provider.
4.8% of net assets
Leighton Holdings Ltd is one of Australia's largest
project development and construction groups. The
Group also produces over 60 million tons of coal
annually across Australia and Asia, positioning it at
the top end of international coal producers. The
Group consists of five operating companies. A strong
performance in the first half of 2002 saw Leighton
deliver a 14% rise in net profit. The result was
driven by an improved contribution from Asian
operations in particular. Leighton's strategy is
focused on diversifying its income stream both
geographically and operationally to reduce its
historical reliance on the Australian construction
market. Management is looking to growth in the
Group's Asian operations and infrastructure projects.
Selected Equity Holdings (continued)
Aberdeen Australia Equity Fund, Inc. 9
4.5% of net assets
Westpac Banking Corporation Ltd is a provider of
banking and financial services in Australia, New
Zealand and nine Pacific Island nations. The Company
also maintains offices in key financial centers
around the world. Westpac operates four main business
divisions, including Australian Retail Financial
Services, Westpac Institutional Bank, Westpac Trust
and Pacific Banking. Westpac's emphasis is on a
regional banking strategy in its core markets of
Australia, New Zealand and the Pacific. Westpac is
aiming at supplying more services and products to
existing customers, particularly in the fast growing
areas of housing and business lending and retail
funds management. The bank continues to focus on
technology and infrastructure as a means of improving
efficiency and reducing costs.
4.4% of net assets
Australia & New Zealand Banking Group Ltd ("ANZ") is
one of Australia's four largest banks, with a network
extending across Asia and the Pacific. The Bank
operates through 16 specialist business units and
provides retail and corporate banking, project and
structured finance, foreign exchange, unit trusts,
managed investments, trust funds, general and life
insurance, and fund management services. ANZ also
provides corporate and institutional banking services
in eleven Asian countries and retail banking services
in nine countries in the Pacific region. In May 2002
the Company established a joint venture with ING in
funds management and life insurance in Australia,
which will be 51% owned by ING and 49% by ANZ and
will supply funds management and insurance products
to ANZ's corporate and personal clients.
4.1% of net assets
Telstra Corporation Ltd is Australia's largest
telecommunications and information services company,
providing products and services that cover all
aspects of the telecommunications industry in
Australia. Telstra is the national universal service
provider, ensuring that telephone services are
reasonably accessible to all people in Australia. The
Company is 50.1% owned by the Australian Government.
Telstra is Australia's largest provider of internet
services and mobile telecommunications services, and
provides pay-TV services through Foxtel and Telstra
Saturn.
10 Aberdeen Australia Equity Fund, Inc.
Selected Equity Holdings (continued)
4.1% of net assets
Commonwealth Bank of Australia ("CBA") provides a
wide range of banking, financial and related services
primarily in Australia. CBA is Australia's largest
retail bank, providing a full range of financial
services to over 7 million retail customers in
Australia, and is a leading provider of home loans in
Australia, with over 23% of market share. In terms of
external funds under management, CBA is Australia's
largest fund manager, and the largest manager in
retail superannuation and allocated pension and
annuities by funds under management.
The Fund may invest between 25% and 35% of its total
assets in the securities of any one industry group
if, at the time of the investment, that industry
group represents 20% or more of the S&P/ASX 200
Accumulation Index.
As of April 30, 2002, the Fund did not have more than
25% of its assets invested in any industry group.
Aberdeen Australia Equity Fund, Inc. 11
Market Review and Outlook
Economy
Confidence in Australia's ability to ride out the
global recession has been boosted by a number of
indicators showing the economy ended 2001 with
consumer spending and housing investment still strong
and the jobs market enjoying a tentative recovery.
GDP data revealed a 1.3% increase in GDP in the
fourth quarter of 2001, well above the market
consensus expectation of a 0.8% rise. Importantly, a
further run down in inventory levels in the quarter
is expected to require a boost to production, leading
to further solid growth in the first half of 2002.
The very low level of interest rates means that
housing finance for construction and building
approvals could remain at relatively high levels for
some time. The composition of growth is likely to
shift again in 2002 as export growth slows further,
impacted by a weaker global economy, while domestic
consumption is likely to remain supported by low
interest rates and positive real wages growth.
Despite the Australian stock market outperforming
major global markets in 2001, the domestic outlook is
clouded by the timing of a US-led economic recovery.
Stock Market
The Australian stock market made a strong start to
the new year, relative to world markets. A
comparatively strong local economic climate provided
the basis for the market's performance, with a number
of themes becoming prevalent, the most notable being
a rotation into cyclical stocks on growing conviction
of a recovering global economy. The more cyclical
sectors (engineering, resources, transport, paper &
packaging) outperformed over the six-month period
while defensive sectors (property trusts, healthcare,
consumer staples) underperformed.
Company reporting season, which provided positive
signs to suggest that the profit cycle has now
bottomed, dominated the first quarter of 2002.
Economic releases during the six-month period ended
April 30, 2002 almost uniformly surpassed
expectations, showing a surprising strength in labor
force numbers and continued strength in leading
indicators of housing.
Currency
Global reflation and signs of a global upturn
underpinned an appreciation of the Australian dollar
during the six-month period ended April 30, 2002. The
widening of the differential between Australian and
US interest rates continued over the
12 Aberdeen Australia Equity Fund, Inc.
quarter, reaching levels not seen since the mid
1990s. The Investment Manager expects that this
should be a key source of support to the currency in
the near term, as will the relative strength of
domestic fundamentals. There can be no assurances,
however, that the Investment Manager's expectations
will be met.
The Australian dollar rose over the six months,
closing at US $0.54 on April 30, 2002.
Aberdeen Asset Managers (C.I.) Limited
June 2002
Aberdeen Australia Equity Fund, Inc. 13
Portfolio of Investments (unaudited)
April 30, 2002
Value
Shares Description (US$)
---------------------------------------------------
LONG-TERM INVESTMENTS--96.3%
Common Stocks--96.3%
Diversified Industries--28.1%
2,280,000 Australian Agricultural
Company Limited* 1,040,583
1,120,000 BRL Hardy Limited 5,833,280
387,000 Foodland Associated
Limited 3,756,925
1,853,000 Foster's Group Limited 4,706,084
1,000,000 Leighton Holdings
Limited 5,610,988
1,190,000 Lion Nathan Limited 3,066,982
1,150,000 National Foods Limited 1,864,781
2,000,000 Pacifica Group Limited 4,102,196
382,000 Woolworths Limited 2,693,092
--------------
32,674,911
--------------
Resources and Mining--17.1%
1,140,000 BHP Billiton Limited 6,610,764
1,417,000 Iluka Resources Limited 3,461,819
373,000 Rio Tinto Limited 7,230,013
513,316 WMC Limited 2,538,444
--------------
19,841,040
--------------
Services--51.1%
503,000 Australia & New Zealand
Banking Group Limited 5,126,102
1,086,456 Australian Gas Light
Company Limited 5,623,572
364,000 Australian Stock
Exchange Limited 2,634,598
2,080,000 AXA Asia Pacific
Holdings Limited 3,361,653
270,000 Commonwealth Bank of
Australia 4,762,360
2,150,000 GasNet Australia Trust* 2,239,563
250,000 National Australia Bank
Limited 4,664,637
1,850,000 QBE Insurance Group
Limited 7,261,263
1,639,316 TAB Queensland Limited 3,054,325
580,000 TABCORP Holdings
Limited 3,752,650
1,600,000 Telecom Corporation of
New Zealand Limited 3,470,759
1,750,000 Telstra Corporation
Limited 4,782,764
605,000 Westpac Banking
Corporation Limited 5,275,510
476,000 Woodside Petroleum
Limited 3,458,023
--------------
59,467,779
--------------
Total common stocks
(cost $100,251,105) 111,983,730
--------------
Principal
Amount
(000)
---------
SHORT-TERM INVESTMENT--3.4%
Demand Deposit--3.4%
A$
7,404 Banque Nationale de
Paris,
4.00%, 5/1/02
(cost $3,951,882) 3,975,362
--------------
-------------------------------------------------------------------------------
Total Investments--99.7% (cost $104,202,987; Note 4) 115,959,092
Other assets in excess of liabilities--0.3% 324,923
-------------------------------------------------------------------------------
Net assets--100% $116,284,015
------------------------------
* Non-income producing security.
14 Aberdeen Australia Equity Fund, Inc. See Notes to Financial Statements.
Statement of Assets and Liabilities (unaudited)
April 30, 2002
Assets
Investments, at value (cost $104,202,987).......................... $115,959,092
Receivable for investments sold.................................... 1,407,561
Dividends and interest receivable.................................. 35,830
Other assets....................................................... 45,983
------------
Total assets................................................... 117,448,466
------------
Liabilities
Payable to custodian............................................... 37,605
Payable for investments purchased.................................. 699,205
Accrued expenses and other liabilities............................. 337,306
Investment management fee payable.................................. 85,851
Administration fee payable......................................... 4,484
------------
Total liabilities.............................................. 1,164,451
------------
Net Assets......................................................... $116,284,015
------------
------------
Net assets were comprised of:
Common stock, $.01 par value................................... $ 171,079
Paid-in capital in excess of par............................... 137,907,563
------------
138,078,642
Overdistribution of net investment income...................... (1,731,987)
Accumulated net realized loss on investments................... (995,003)
Net unrealized appreciation on investments..................... 13,849,451
Accumulated net realized and unrealized foreign exchange
losses......................................................... (32,917,088)
------------
Net assets..................................................... $116,284,015
------------
------------
Net asset value per share:
($116,284,015 / 17,107,898 shares of common stock issued
and outstanding)................................................. $6.80
------------
------------
See Notes to Financial Statements. Aberdeen Australia Equity Fund, Inc. 15
Statement of Operations (unaudited)
Six Months Ended April 30, 2002
Net Investment Income
Income
Dividends (net of foreign withholding taxes of $49,290)........... $ 2,091,382
Interest.......................................................... 95,788
Income from securities loaned, net................................ 14,696
------------
Total income...................................................... 2,201,866
------------
Expenses
Investment management fee......................................... 540,426
Custodian's fees and expenses..................................... 92,000
Directors' fees and expenses...................................... 78,000
Reports to shareholders........................................... 65,000
Legal fees and expenses........................................... 60,000
Insurance expense................................................. 47,000
Independent accountant's fees and expenses........................ 37,000
Investor relations fees and expenses.............................. 35,000
Administration fee................................................ 27,888
Transfer agent's fees and expenses................................ 23,000
Miscellaneous..................................................... 4,551
------------
Total operating expenses.......................................... 1,009,865
------------
Net investment income............................................... 1,192,001
------------
Realized and Unrealized Gains on Investments and Foreign Currencies
Net realized gain on investment transactions........................ 1,787,679
Net increase in unrealized appreciation on investments.............. 7,812,313
------------
Net gain on investments............................................. 9,599,992
------------
Net increase in net assets resulting from operations before net
foreign exchange gains............................................ 10,791,993
Net realized and unrealized foreign exchange gains.................. 6,378,756
------------
Net Increase In Net Assets Resulting From Operations................ $ 17,170,749
------------
------------
16 Aberdeen Australia Equity Fund, Inc. See Notes to Financial Statements.
Statement of Changes in Net Assets (unaudited)
Six Months Year
Ended Ended
April 30, 2002 October 31, 2001
-------------- ----------------
Increase (Decrease) in Net Assets
Operations
Net investment income.......................... $ 1,192,001 $ 2,037,541
Net realized gains (losses) on investment
transactions................................. 1,787,679 (2,376,854)
Net increase (decrease) in unrealized
appreciation on investments.................. 7,812,313 (618,229)
-------------- ----------------
Net increase (decrease) in net assets resulting
from operations before net foreign exchange
gains (losses)............................... 10,791,993 (957,542)
Net realized and unrealized foreign exchange
gains (losses)............................... 6,378,756 (2,829,055)
-------------- ----------------
Net increase (decrease) in net assets resulting
from operations.............................. 17,170,749 (3,786,597)
Dividends to shareholders from net investment
income......................................... (2,958,730) --
Tax return of capital............................ -- (11,592,876)
Cost of Fund shares reacquired in repurchase
program (48,900 and 33,200 shares,
respectively).................................. (289,498) (200,299)
-------------- ----------------
Total increase (decrease)........................ 13,922,521 (15,579,772)
Net Assets
Beginning of period.............................. 102,361,494 117,941,266
-------------- ----------------
End of period(a)................................. $116,284,015 $102,361,494
-------------- ----------------
-------------- ----------------
------------------------------
(a) Includes undistributed net investment income
of:.......................................... $ -- $ 34,742
-------------- ----------------
See Notes to Financial Statements. Aberdeen Australia Equity Fund, Inc. 17
Notes to Financial Statements (unaudited)
Aberdeen Australia Equity 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 accounting
principles generally accepted in the United States of America using the United
States dollar as both the functional and reporting currency.
Securities 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,
18 Aberdeen Australia Equity Fund, Inc.
Notes to Financial Statements (unaudited) (continued)
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral. 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, 2002. 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 gains (losses) include realized
foreign exchange gains (losses) from sales and maturities of portfolio
securities, sales of foreign currencies, currency gains (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 (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 gains (losses) shown in the composition
of net assets at April 30, 2002 represent foreign exchange gains (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, 2002 was US$0.54 to A$1.00 for the Australian
dollar.
Aberdeen Australia Equity Fund, Inc. 19
Notes to Financial Statements (unaudited) (continued)
Securities Transactions and Net Investment Income:
Securities transactions are recorded on the trade date. Realized and unrealized
gains (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 dividends from net investment income
supplemented by net realized foreign exchange gains, net realized capital gains
and return of capital distributions if necessary, on a quarterly basis. The Fund
will also declare and pay distributions at least annually from net realized
gains on investment transactions and net realized foreign exchange gains, if
any. Dividends and distributions to shareholders 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 accounting
principles generally accepted in the United States of America. 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 (losses) resulting from the
repatriation of Australian dollars into United States dollars are recognized for
tax purposes.
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 net income and capital gains, if any, to
shareholders. Therefore, no provision for United States income taxes is
required. Australia imposes a withholding tax of 15% on certain dividends and
10% on certain interest.
Securities Lending:
The Fund may lend its portfolio securities to qualified institutions. 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
20 Aberdeen Australia Equity Fund, Inc.
Notes to Financial Statements (unaudited) (continued)
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 April 30,
2002, there were no securities on loan.
Note 2. Agreements
Aberdeen Asset Managers (C.I.) Limited (the 'Investment Manager') serves as
investment manager to the Fund and Aberdeen Asset Management 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 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.
The Investment Manager pays fees to the Investment Adviser for its services
rendered. The Investment Manager informed the Fund that it paid $146,163 to the
Investment Adviser during the six months ended April 30, 2002.
Prudential Investments LLC (formerly known as 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, Aberdeen Fund Managers,
Inc. ('Aberdeen'), serves as the Fund's investor relations services provider.
This agreement provides Aberdeen with a monthly retainer fee of $5,000 plus out
of pocket expenses. During the six months ended April 30, 2002, the Fund
incurred fees of approximately $30,000 for
Aberdeen Australia Equity Fund, Inc. 21
Notes to Financial Statements (unaudited) (continued)
the services of Aberdeen. As of April 30, 2002, $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, 2002 aggregated $49,333,455 and $46,364,508,
respectively.
Note 4. Tax Information
The United States federal income tax basis of the Fund's investments and the net
unrealized appreciation as of April 30, 2002 were as follows:
Net
Unrealized
Tax Basis Appreciation Depreciation Appreciation
---------------- ---------------- ---------------- ----------------
$102,816,861 $15,659,904 $(2,517,673) $13,142,231
For federal income tax purposes, the Fund had a capital loss carryforward as of
October 31, 2001, of $2,467,381, which expires in 2009. Accordingly, no capital
gains distributions are expected to be paid to shareholders until net gains have
been realized in excess of such carryforward.
Note 5. Capital
There are 20 million shares of common stock authorized at $.01 par value per
share. At April 30, 2002 there were 17,107,898 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 during any 12 month period if and when the
discount to net asset value is at least 10%. Through April 30, 2002, there have
been 82,100 shares repurchased and cancelled under this program.
Note 6. Dividends and Distributions
The Board of Directors of the Fund declared on June 19, 2002 a distribution of
$0.025 per share payable on July 12, 2002 to shareholders of record on June 28,
2002. Distributions may be comprised of a combination of investment income,
realized capital gains and, to the extent necessary, paid-in capital.
22 Aberdeen Australia Equity Fund, Inc.
Notes to Financial Statements (unaudited) (continued)
Note 7. Beneficial Ownership
Based upon filings with the Securities and Exchange Commission as of February
12, 2001, Mira L.P. was the beneficial owner of 31.1% of the outstanding shares
of the Fund.
Aberdeen Australia Equity Fund, Inc. 23
Financial Highlights (unaudited)
Six Months
Ended
April 30, 2002
--------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................................... $ 5.97
--------------
Net investment income..................................................... .07
Net realized and unrealized gains (losses) on investments and foreign
currencies.............................................................. .93
--------------
Total from investment operations........................................ 1.00
--------------
Dividends from net investment income...................................... (.17)
Distributions from net capital and currency gains......................... --
Tax return of capital..................................................... --
--------------
Total dividends and distributions....................................... (.17)
--------------
Capital reduction with respect to issuance of Fund shares................. --
Increase resulting from Fund share repurchase............................. --D
--------------
Net asset value, end of period............................................ $ 6.80
--------------
--------------
Market price per share, end of period..................................... $ 5.99
--------------
--------------
TOTAL INVESTMENT RETURN BASED ONPound:
Market value.............................................................. 16.65%
Net asset value........................................................... 17.34%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets................................... 1.83%*
Ratio of net investment income to average net assets...................... 2.15%*
Portfolio turnover rate................................................... 43%
Net assets, end of period (000 omitted)................................... $116,284
Average net assets (000 omitted).......................................... $111,550
------------------------------
* Annualized.
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.
D Less than $0.005 per share.
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.
24 Aberdeen Australia Equity Fund, Inc. See Notes to Financial Statements.
Financial Highlights (unaudited) (continued)
Year Ended October 31,
----------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
---------------- ---------------- ---------------- ---------------- ----------------
$ 6.86 $ 8.78 $ 8.25 $ 9.35 $ 10.98
-------- -------- -------- -------- --------
.12 .14 .08 .21 .18
(.33) (1.25) 1.26 (.41) (1.45)
-------- -------- -------- -------- --------
(.21) (1.11) 1.34 (.20) (1.27)
-------- -------- -------- -------- --------
-- (.12) (.30) (.23) (.17)
-- (.69) (.51) (.66) (.18)
(.68) -- -- -- --
-------- -------- -------- -------- --------
(.68) (.81) (.81) (.89) (.35)
-------- -------- -------- -------- --------
-- -- -- (.01) (.01)
--D -- -- -- --
-------- -------- -------- -------- --------
$ 5.97 $ 6.86 $ 8.78 $ 8.25 $ 9.35
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
$ 5.29 $ 5.875 $ 8.00 $ 6.5625 $ 7.44
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
1.06% (17.31)% 34.91% (0.38)% (15.17)%
(2.32)% (12.02)% 17.77% (0.34)% (11.37)%
1.80% 1.66% 2.58% 1.61% 1.39%
1.77% 1.66% .87% 2.38% 1.68%
50% 120% 143% 180% 270%
$102,361 $117,941 $150,916 $141,794 $159,422
$115,051 $143,801 $157,565 $149,827 $182,588
See Notes to Financial Statements. Aberdeen Australia Equity Fund, Inc. 25
Supplemental Proxy Information (unaudited)
The Annual Meeting of Shareholders of Aberdeen Australia Equity Fund, Inc. was
held on Thursday, March 21, 2002 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 II Directors for a three-year term
expiring in 2005:
- Chris Fishwick
- Howard A. Knight
- Sir David Rowe-Ham
- Hugh Young
The results of the proxy solicitation on the above matter were as follows:
Votes
Director Votes for withheld
------------------- ----------- -------------
Chris Fishwick 15,230,376 479,956
Howard A. Knight 15,236,732 473,600
Sir David Rowe-Ham 15,229,110 481,222
Hugh Young 15,230,376 479,956
Directors whose term of office continued beyond this meeting are as follows:
Anthony E. Aaronson, David L. Elsum, Laurence S. Freedman, Neville J.
Miles, Peter J. O'Connell, William J. Potter, Peter D. Sacks and John T.
Sheehy.
26 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 Company (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. 27
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.
28 Aberdeen Australia Equity Fund, Inc.
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Directors Officers
Hugh Young, Chairman Hugh Young, President
Anthony E. Aaronson Christian Pittard, Treasurer and
David L. Elsum Assistant Secretary
Chris Fishwick Roy M. Randall, Secretary
Laurence S. Freedman Michael Karagianis, Vice President
Howard A. Knight James Blair, Assistant Vice President
Neville J. Miles Beverley Hendry, Assistant Treasurer
Peter J. O'Connell Timothy Sullivan, Assistant Treasurer
William J. Potter Simon Bignell, Assistant Treasurer
Sir David Rowe-Ham Jack R. Benintende, Assistant Treasurer
Peter D. Sacks Allan S. Mostoff, Assistant Secretary
John T. Sheehy Margaret A. Bancroft, Assistant Secretary
Sander M. Bieber, Assistant Secretary
The accompanying financial statements as of April 30,
2002 were not audited and accordingly, no opinion is
expressed thereon.
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.
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 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, DC 20006-2401
Stikeman Elliott
Level 40, Chifley Tower
Two Chifley Square
Sydney, NSW 2000, Australia
Investor Relations Aberdeen Asset Management
45 Broadway, 31st Floor
New York, NY 10006
(800) 522-5465 or (212) 968-8800
InvestorRelations@aberdeen-asset.com
(LOGO)
Aberdeen
ASSET MANAGERS
Aberdeen Asset Managers (C.I.) Limited
Shares of 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 asset value and market price
is published weekly in Barron's and in the Monday edition
of The Wall Street Journal.
003011103