(LOGO)
Aberdeen
Australia Equity
Fund, Inc.
Invests primarily in equity securities of Australian
companies listed on The Australian Stock Exchange.
Annual Report
October 31, 2002
Letter to Shareholders
December 13, 2002
Dear Shareholder,
We present this Annual Report which covers the activities of Aberdeen
Australia Equity Fund, Inc. (the "Fund") for the year ended October
31, 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 Aberdeen Asset Managers (C.I.) Limited
(the "Investment Manager").
Quarterly Distribution Rate
A cash distribution for the current quarter of 2.5 cents per share
was paid on October 11, 2002.
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-term capital appreciation. 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 March 2003.
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 twelve months ended October 31, 2002, the Fund's total return
based on NAV was 19.0% after expenses (assuming reinvestment of
distributions) compared with 6.9%, in U.S. dollar terms, for the
S&P/ASX 200 Accumulation Index.
Share Price Performance
The Fund's share price rose 8.3% over the year, from $5.29 on October
31, 2001 to $5.73 on October 31, 2002. The Fund's share price on
October 31, 2002 represented a discount of 16.2% to the NAV per share
of $6.84 on that date. On October 31, 2001, the discount to NAV was 11.4%.
At the date of this report the share price was $5.99, representing a discount
of 11.3% to the NAV of $6.75.
2
Letter to Shareholders (continued)
(GRAPH)
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 370,700 shares have been
repurchased and cancelled.
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.com.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.
3
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.
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.
The distributions for the fiscal year ended October 31, 2002 were
comprised of $0.15 per share of net investment income and $0.07 per
share of realized long-term capital gains.
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.
4
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 EquiServe Trust Company, N.A.
(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, EquiServe
Trust Company, N.A., P.O. Box 43011, Providence, RI 02940-3011 or
toll free on 1-800-451-6788.
5
Report of the Investment Manager
Investment Strategy
The Investment Manager remains stock selective and value focused in
investments, preferring companies with good quality management, solid
cash flows and strong balance sheets. The bottom-up stock selection
process has led to a portfolio with underweight positions in media,
transport, health and biotech, while defensive sectors such as
gaming, utilities and alcohol are well represented. The Fund's
current stock holdings provide a defensive and domestic nature to the
portfolio, which the Investment Manager believes to be appropriate in
the current environment. Financial stocks within the portfolio
contributed positively to performance and benefited from a strong
weighting in QBE Insurance Group which was the best contributing
stock over the quarter. Utilities significantly out-performed the
overall index over the quarter and the Fund gained from its
overweight position in this sector. The overweight position in
Consumer Staples and the zero holding in Health Care also had a
positive asset allocation effect. Materials and Telecommunications
also produced gains. Of particular note were the contributions made
by Telecom Corporation of New Zealand and Iluka Resources. The Fund's
holding in Woodside Petroleum had a negative impact on performance.
Portfolio Composition
The following chart summarizes the composition of the Fund's
portfolio, expressed as a percentage of net assets. On October 31,
2002 the Fund held 95.2% of its assets in equities and 4.8% in short-
term investments (including other assets in excess of liabilities).
(GRAPH)
6
Selected Equity Holdings
The following notes highlight the Fund's top ten holdings at October
31, 2002.
6.9% of net assets
BHP Billiton Ltd is a major international resources company with a
global portfolio of high quality assets. BHP's new strategic
framework aims to focus on reducing operating costs, and free cash
flow on a normalized basis as a result of the cost cutting.
Management has identified $10 billion of mature growth potential
investment in the current portfolio. A high proportion of assets is
being invested in petroleum, reflecting the high growth opportunities
of the Exploration & Production sector, without some of the
regulatory and market constraints that impact growth in some metals
and mining sectors. The Company aims to substantially increase oil
and natural gas production within five years as it starts up new
fields in the Gulf of Mexico, Algeria and Australia. BHP's results
for the quarter ended September 30, 2002 showed continued strong
performance from its diversified asset base with earnings before
interest and tax of $819 million.
6.8% 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. Europe
represents over 58% of the Group's business. The Group's strategy is
directed at growth through acquisitions, customer retention and the
development of new products. As part of this strategy, International
General Insurance operations is expanding its geographic spread,
particularly in the growth markets of Asia, Eastern Europe and Latin
America. For the half year to June 30, 2002, QBE reported earnings of
$63 million after tax (compared to a loss of $13.7 million for the
half year to December 31, 2001) and an increase in net revenue from
policy sales of 18% to $1.5 billion as the Company increased prices
by more than a fifth and claims were lower than expected.
6.4% 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. Rio Tinto's strategy has seen the company make a
number of acquisitions in the last two years across five of its core
product groups. Rio's management is looking to increased benefits
from acquisitions to flow through over the next two years.
7
Selected Equity Holdings (continued)
5.4% of net assets
BRL Hardy Ltd is an Australian producer and exporter of wine. The
Company's wines are distributed worldwide through a network of sales
and marketing operations, and its brands include Hardys, Houghton,
Banrock, Station, Leasingham and Nobilo 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. In
June 2002 BRL formed a joint venture with South Africa's Stellenbosch
Vinegards. The joint venture arrangements will create a new branded
wine from Stellenbosch Vineyards, which will be marketed in Europe
through BRL's sales and marketing network. The Group announced
results for the six months ended June 30, 2002 with a 29% increase in
net profit before tax from $24 million to $31 million. The results
reflected higher sales and earnings from each of its three key world
wine markets -- Australasia, Europe and North America.
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4.8% of net assets
Australia & New Zealand Banking Group Ltd ("ANZ") consists of a
financial network extending across Asia and the Pacific. The network
offers financial services including retail and corporate banking,
project and structured finance, foreign exchange, unit trusts,
managed investments, trust funds, insurance, and fund management
services. ANZ's strategy has been refocused toward lower risk retail
operations in the Asia Pacific region. In early 2002 ANZ and ING
combined their wealth management divisions to become one of the
largest wealth management groups in Australia and New Zealand.
4.4% of net assets
National Australia Bank Ltd ("NAB") is a financial services group,
providing a comprehensive, integrated range of financial services
across 15 countries. NAB is ranked as one of the 50 largest banks in
the world. NAB is undergoing a strategic shift from a provider of
traditional banking services to an integrated global financial
services group. The Group has been restructured into three regional
banking operations and two internationally focused operations --
Wholesale Financial Services and Wealth Management. NAB has also
implemented a Group-wide productivity improvement program that it
hopes will deliver annual expense reductions of $204 million by
September 2004.
4.3% of net assets
Foster's Group Ltd's principal activities are the production and
marketing of alcoholic and non-alcoholic beverages, with Foster's
also holding major investments in licensed properties. Foster's Group
has won a ten-year contract to brew the Stella
8
Selected Equity Holdings (continued)
Arto's brand premium beer, which is the fourth-ranked imported
premium beer in Australia. With the acquisition of Beringer Blass in
February (a premium, multi-brand business) Foster's has achieved some
diversification from the traditional beer production and marketing
business. In 2002 sales from its global wine business exceeded beer
for the first time.
4.2% of net assets
Leighton Holdings Ltd is an Australian project development and
construction group. The Group also produces over 60 million tons of
coal annually across Australia and Asia. The Group consists of five
operating companies. Leighton hopes to deliver further growth in the
medium-term driven by increased work in Asia, particularly in the
Philippines. Management also hopes to achieve growth in the property
development market through to 2006, with road and rail projects
planned for NSW and Victoria over the next few years.
4.2% of net assets
Westpac Banking Corporation Ltd is a provider of banking and
financial services in Australia, New Zealand and nine Pacific Island
nations. Westpac operates four main business divisions, including
Australian Retail Financial Services, Westpac Institutional Bank,
Westpac Trust and Pacific Banking. Following Westpac's acquisition of
Rothschild Australia Asset Management in April 2002 and Bankers Trust
in September 20002, the company has confirmed its desire to become a
force in wealth management in Australia. The latter of the two
acquisitions is hoped by Westpac to become profitable within two
years.
4.2% of net assets
Commonwealth Bank of Australia ("CBA") provides financial services
including retail, business, fund management, insurance, investment
banking, brokerage services and financing, operating primarily in
Australia and New Zealand. While the bank has made some inroads into
Asia, its strategy is focused on the domestic market and the
expansion of financial services and non-interest income. Cost
controls have come through outsourcing non-core operations and
investment in e-commerce in order to improve efficiencies.
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 October 31, 2002, the Fund did not have more than 25% of its
assets invested in any industry group.
9
Market Review and Outlook
Economy
The Australian economy is currently in its eleventh year of
expansion. Recent economic data indicated that the economy's annual
growth rate was 3.8% in the second quarter of 2002. This result was
underpinned by strong consumer demand, with retail sales 8% higher
than the second quarter of 2001, and a strong housing sector, with
building approvals recently pulling back from 8 year highs. In the
labor market, employment growth is currently running at an annual
rate of 2% and the unemployment level has dropped to a 12-month low
of 6.2%. Business conditions improved throughout 2002 to reach their
highest levels since late 1999, reflecting better profitability and
employment and trading conditions at 2-year highs. Business
confidence has also strengthened in the face of weaker equity markets
and threats of war. Following two 0.25% tightenings earlier in 2002,
the Reserve Bank of Australia (RBA) has opted to leave interest rates
unchanged since June 2002, with its decisions likely to have been
influenced by uncertainty about the strength of the global recovery,
the threat of military action in Iraq and volatility in global equity
markets. This has maintained Australian interest rates at
historically low levels and an accommodative stance of monetary
policy, although the RBA still retains a bias to raise interest rates
further.
Stock Market
Following a strong first quarter of 2002 for equity markets, the
second quarter saw a rise in investor uncertainty over the prospects
for an economic recovery and the third quarter has seen the
Australian share market record its second largest quarterly fall in
ten years. This was principally driven by offshore factors, not least
the crisis of confidence suffered in the U.S. following a series of
bankruptcies and accounting scandals. Increasing concern over the
possibility of a war with Iraq towards the end of the quarter also
clouded global investor sentiment, economic forecasts and earnings
outlooks.
10
Currency
The Australian dollar surged through the first half of 2002 before
losing ground in July, with investors heading for the relative safety
of the Euro and the U.S. dollar as the equity market fallout prompted
renewed fears of a global recession. The Investment Manager's long-
held view that the Australian dollar would appreciate towards 56
cents was achieved, and exceeded, in recent months as an ebbing of
support for the U.S. dollar benefited peripheral currencies. The
widening of the differential between Australian and U.S. interest
rates continued throughout 2002, reaching levels not seen since the
mid 1990s. This should remain a key source of support to the
currency in the near term--particularly given the likelihood that an
easing in U.S. interest rates will see the differential widen further
- as will the relative strength of domestic fundamentals. The
Investment Manager retains the view that a target of 60 cents is
achievable over the next 12 months.
The Australian dollar rose during the year, closing at $0.55 on
October 31, 2002.
Aberdeen Asset Managers (C.I.) Limited
December 2002
11
Portfolio of Investments
October 31, 2002
Value
Shares Description (US$)
---------------------------------------------------
LONG-TERM INVESTMENTS--95.2%
Common Stocks--95.2%
Diversified Industries--27.1%
2,920,000 Australian Agricultural
Company Limited $ 1,183,088
1,450,000 BRL Hardy Limited 6,212,931
285,000 Foodland Associated
Limited 3,013,361
1,880,000 Foster's Group Limited 4,956,359
936,000 Leighton Holdings
Limited 4,883,317
1,190,000 Lion Nathan Limited 3,441,089
2,000,000 Pacifica Group Limited 4,351,383
480,000 Woolworths Limited 3,279,522
--------------
31,321,050
--------------
Resources and Mining--16.7%
1,488,000 BHP Billiton Limited 8,002,726
1,438,448 Iluka Resources Limited 3,832,187
417,968 Rio Tinto Limited* 7,411,825
--------------
19,246,738
--------------
Services--51.4%
671,004 Aristocrat Leisure
Limited* 1,817,424
530,000 Australia & New Zealand
Banking Group Limited 5,539,077
530,000 Australian Gas Light
Company Limited 3,000,456
355,275 Australian Stock
Exchange Limited 2,267,638
2,530,664 AXA Asia Pacific
Holdings Limited 3,441,215
1,116,119 Collection House
Limited 1,901,780
288,000 Commonwealth Bank of
Australia $ 4,859,340
2,260,000 GasNet Australia Trust 2,445,988
266,000 National Australia Bank
Limited 5,074,257
1,850,000 QBE Insurance Group
Limited 7,906,308
487,000 TAB Queensland Limited 1,189,304
459,000 TABCORP Holdings
Limited 2,950,071
1,623,000 Telecom Corporation of
New Zealand Limited* 4,008,573
1,812,000 Telstra Corporation
Limited 4,787,143
618,000 Westpac Banking
Corporation Limited 4,870,663
503,000 Woodside Petroleum
Limited 3,355,704
--------------
59,414,941
--------------
Total common stocks
(cost $101,735,130) 109,982,729
--------------
Principal
Amount
(000)
---------
SHORT-TERM INVESTMENT--4.4%
Demand Deposit--4.4%
A$
9,208 Banque Nationale de
Paris,
4.50%, 10/1/02
(cost $5,059,107) 5,110,534
--------------
-------------------------------------------------------------------------------
Total Investments--99.6% (cost $106,794,237; Note 4) 115,093,263
Other assets in excess of liabilities--0.4% 396,508
-------------------------------------------------------------------------------
Net assets--100% $115,489,771
------------------------------
* Portion of security on loan, see Note 3.
12 Aberdeen Australia Equity Fund, Inc. See Notes to Financial Statements.
Statement of Assets and Liabilities
October 31, 2002
Assets
Investments, at value (cost $106,794,237)...................... $115,093,263
Foreign currency, at value (cost $139,100)..................... 138,184
Cash........................................................... 88,761
Receivable for investments sold................................ 367,692
Dividends and interest receivable.............................. 196,161
Other assets................................................... 105,741
------------
Total assets............................................... 115,989,802
------------
Liabilities
Accrued expenses and other liabilities......................... 307,371
Payable for investments purchased.............................. 104,403
Investment management fee payable.............................. 83,912
Administration fee payable..................................... 4,345
------------
Total liabilities.......................................... 500,031
------------
Net Assets..................................................... $115,489,771
------------
------------
Net assets were comprised of:
Common stock, $.01 par value............................... $ 168,935
Paid-in capital in excess of par........................... 136,697,780
------------
136,866,715
Accumulated net realized gain on investments............... 607,351
Net unrealized appreciation on investments................. 7,271,546
Accumulated net realized and unrealized foreign exchange
losses..................................................... (29,255,841)
------------
Net assets................................................. $115,489,771
------------
------------
Net asset value per share:
($115,489,771 / 16,893,498 shares of common stock issued
and outstanding)............................................. $6.84
------------
------------
See Notes to Financial Statements. Aberdeen Australia Equity Fund, Inc. 13
Statement of Operations
Year Ended October 31, 2002
Net Investment Income
Income
Dividends (net of foreign withholding taxes of $124,048)..... $ 4,466,184
Interest..................................................... 182,201
Income from securities loaned, net........................... 22,775
-----------
Total income................................................. 4,671,160
-----------
Expenses
Investment management fee.................................... 1,099,493
Custodian's fees and expenses................................ 181,000
Directors' fees and expenses................................. 140,000
Reports to shareholders...................................... 121,000
Legal fees and expenses...................................... 120,000
Insurance expense............................................ 87,000
Independent accountant's fees and expenses................... 75,000
Investor relations fees and expenses......................... 71,000
Administration fee........................................... 57,107
Transfer agent's fees and expenses........................... 42,000
Miscellaneous................................................ 11,149
-----------
Total operating expenses..................................... 2,004,749
-----------
Net investment income.......................................... 2,666,411
-----------
Realized and Unrealized Gains on Investments and Foreign Currencies
Net realized gain on investment transactions................... 4,690,241
Net increase in unrealized appreciation on investments......... 1,234,408
-----------
Net gain on investments........................................ 5,924,649
-----------
Net increase in net assets resulting from operations before net
foreign exchange gains....................................... 8,591,060
Net realized and unrealized foreign exchange gains............. 9,882,629
-----------
Net Increase In Net Assets Resulting From Operations........... $18,473,689
-----------
-----------
14 Aberdeen Australia Equity Fund, Inc. See Notes to Financial Statements.
Statement of Changes in Net Assets
Year Ended October 31,
----------------------------------------
2002 2001
------------------ ------------------
Increase (Decrease) in Net Assets
Operations
Net investment income.................. $ 2,666,411 $ 2,037,541
Net realized gains (losses) on
investment transactions.............. 4,690,241 (2,376,854)
Net increase (decrease) in unrealized
appreciation on investments.......... 1,234,408 (618,229)
------------------ ------------------
Net increase (decrease) in net assets
resulting from operations before net
foreign exchange gains (losses)...... 8,591,060 (957,542)
Net realized and unrealized foreign
exchange gains (losses).............. 9,882,629 (2,829,055)
------------------ ------------------
Net increase (decrease) in net assets
resulting from operations............ 18,473,689 (3,786,597)
Dividends to shareholders from net
investment income...................... (2,602,055) --
Tax return of capital.................... -- (11,592,876)
Distributions to shareholders from
long-term capital gains................ (1,207,190) --
Cost of Fund shares reacquired in
repurchase program (263,300 and 33,200
shares, respectively).................. (1,536,167) (200,299)
------------------ ------------------
Total increase (decrease)................ 13,128,277 (15,579,772)
Net Assets
Beginning of year........................ 102,361,494 117,941,266
------------------ ------------------
End of year(a)........................... $115,489,771 $102,361,494
------------------ ------------------
------------------ ------------------
------------------------------
(a) Includes undistributed net investment
income of:........................... $ -- $ 34,742
------------------ ------------------
See Notes to Financial Statements. Aberdeen Australia Equity Fund, Inc. 15
Notes to Financial Statements
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. In order to comply with a rule
adopted by the Securities and Exchange Commission under the Investment Company
Act of 1940 regarding fund names, the Board of Directors has adopted an
investment policy that, 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. 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.
The ability of issuers of debt securities 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:
The Fund's Board of Directors has adopted Pricing and Valuation Procedures (the
'Procedures') to be used in determining the value of the assets held by the
Fund. In accordance with the Procedures, investments are stated at value.
Investments for which market quotations are readily available are valued at the
last trade price on the date of determination as obtained from a pricing source.
If no such trade price is available, such investments are valued at the quoted
bid price or the mean between the quoted bid and asked price on the date of
determination as obtained from a pricing source. 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.
Securities for which
16 Aberdeen Australia Equity Fund, Inc.
Notes to Financial Statements (continued)
market quotations are not readily available are valued at fair value in good
faith using methods set forth in the Procedures.
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, 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 October 31, 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)
Aberdeen Australia Equity Fund, Inc. 17
Notes to Financial Statements (continued)
shown in the composition of net assets at October 31, 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 October 31, 2002 was US$0.55 to A$1.00 for the Australian
dollar.
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. 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 quarterly distributions from net
investment income, which may be supplemented by net realized capital gains and,
to the extent necessary, return of paid-in capital, on a quarterly basis. 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. 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
18 Aberdeen Australia Equity Fund, Inc.
Notes to Financial Statements (continued)
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 in the form of other securities at least equal, at all
times, to the market value of the securities loaned. The Fund may bear the risk
of delay in recovery of, or even loss of rights in, the securities loaned should
the borrower of the securities fail financially. The Fund receives compensation
for lending its securities in the form of fees or it retains a portion of
interest on the investment of any cash received as collateral. The Fund also
continues to receive dividends on the securities loaned and any gain (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 (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. 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 $296,320 to the
Investment Adviser during the year ended October 31, 2002.
Prudential Investments LLC (the 'Administrator') serves as administrator to the
Fund pursuant to an agreement 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.
Aberdeen Australia Equity Fund, Inc. 19
Notes to Financial Statements (continued)
Under terms of an Investor Relations Services Agreement, Aberdeen Fund Managers,
Inc. ('Aberdeen'), an affiliate of the Fund's Investment Manager and Investment
Adviser, 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 year ended October 31, 2002, the Fund
incurred fees of approximately $60,000 for the services of Aberdeen. As of
October 31, 2002, $5,000 was due to Aberdeen. Investor relations fees and
expenses in the Statement of Operations include certain out-of-pocket expenses.
Note 3. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended October 31, 2002 aggregated $62,563,127 and $61,227,912,
respectively.
As of October 31, 2002, the Fund had securities on loan with an aggregate market
value of $6,638,144. The Fund received $7,269,298 in securities as collateral
for securities on loan in accordance with the Fund's securities lending
procedures.
Note 4. Distributions and Tax Information
Distributions to shareholders, which are determined in accordance with federal
income tax regulations and which may differ from generally accepted accounting
principles, are recorded on the ex-dividend date. In order to present
undistributed net investment income (loss) and accumulated net realized gains
(losses) on the Statement of Assets and Liabilities in a way that more closely
represents their tax character, certain adjustments have been made to paid-in
capital in excess of par, undistributed net investment income (loss) and
accumulated net realized gains (losses) on investments.
For the year ended October 31, 2002, the Fund decreased undistributed net
investment income by $99,098, decreased accumulated net realized gain on
investments by $93,018, decreased accumulated realized and unrealized foreign
exchange losses by $157,374 and increased paid-in capital in excess of par by
$34,742. Net investment income, net realized gains and net assets were not
affected by this change.
For the year ended October 31, 2002, the tax character of total dividends paid
was $2,602,055 of ordinary income and $1,207,190 of long-term capital gains. The
Fund utilized a capital loss carryforward of $2,467,381.
As of October 31, 2002, the accumulated undistributed long-term gains on a tax
basis were $1,145,495.
20 Aberdeen Australia Equity Fund, Inc.
Notes to Financial Statements (continued)
The United States federal income tax basis of the Fund's investments and the
net unrealized appreciation as of October 31, 2002 were as follows:
Net
Unrealized
Tax Basis Appreciation Depreciation Appreciation
---------------- ---------------- ---------------- ----------------
$108,306,499 $12,706,151 $(5,919,387) $6,786,764
The difference between book and tax basis is primarily attributable to deferred
losses on wash sales.
Note 5. Capital
There are 20 million shares of $.01 par value common stock authorized. At
October 31, 2002 there were 16,893,498 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
outstanding common stock in the open market during any 12 month period if and
when the discount to net asset value is at least 10%. The weighted average
discount for the year ended October 31, 2002 was 14.16%. During the fiscal years
ended October 31, 2002 and October 31, 2001, the Fund repurchased and cancelled
under this program 263,300 and 33,200 shares, respectively.
Note 6. Dividends and Distributions
The Board of Directors of the Fund approved on December 11, 2002 a quarterly
distribution of $0.025 per share of ordinary income and a special distribution
of $0.070 per share of long-term capital gains, payable on January 13, 2003 to
shareholders of record on December 31, 2002.
Note 7. Beneficial Ownership; Change of Control
Based on filings with the Securities and Exchange Commission, on October 17,
2002, Bankgesellschaft Berlin (A.G.) ('Bankgesellschaft') acquired 5,348,149
shares of common stock of the Fund from Mira L.P. in a private placement and
subsequently otherwise acquired an additional 22,000 shares of common stock of
the Fund. This number of shares represented 31.7% of the outstanding shares of
the Fund as at the date of this report. As of October 31, 2002, Bankgesellschaft
was the beneficial owner of 31.8% of the outstanding shares of the Fund.
Aberdeen Australia Equity Fund, Inc. 21
Financial Highlights
Year
Ended
October 31, 2002
----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year..................................... $ 5.97
--------
Net investment income.................................................. .15
Net realized and unrealized gains (losses) on investments and foreign
currencies........................................................... .93
--------
Total from investment operations..................................... 1.08
--------
Dividends from net investment income................................... (.15)
Distributions from net capital and currency gains...................... (.07)
Tax return of capital.................................................. --
--------
Total dividends and distributions.................................... (.22)
--------
Capital reduction with respect to issuance of Fund shares.............. --
Increase resulting from Fund share repurchase.......................... .01
--------
Net asset value, end of year........................................... $ 6.84
--------
--------
Market price per share, end of year.................................... $ 5.73
--------
--------
TOTAL INVESTMENT RETURN BASED ONPound:
Market value........................................................... 12.55%
Net asset value........................................................ 19.04%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets................................ 1.76%
Ratio of net investment income to average net assets................... 2.33%
Portfolio turnover rate................................................ 56%
Net assets, end of year (000 omitted).................................. $115,490
Average net assets (000 omitted)....................................... $114,213
------------------------------
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.
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.
22 Aberdeen Australia Equity Fund, Inc. See Notes to Financial Statements.
Financial Highlights (continued)
Year Ended October 31,
---------------------------------------------------
2001 2000 1999 1998
--------- --------- --------- ---------
$ 6.86 $ 8.78 $ 8.25 $ 9.35
--------- --------- --------- ---------
.12 .14 .08 .21
(.33) (1.25) 1.26 (.41)
--------- --------- --------- ---------
(.21) (1.11) 1.34 (.20)
--------- --------- --------- ---------
-- (.12) (.30) (.23)
-- (.69) (.51) (.66)
(.68) -- -- --
--------- --------- --------- ---------
(.68) (.81) (.81) (.89)
--------- --------- --------- ---------
-- -- -- (.01)
--D -- -- --
--------- --------- --------- ---------
$ 5.97 $ 6.86 $ 8.78 $ 8.25
--------- --------- --------- ---------
--------- --------- --------- ---------
$ 5.29 $ 5.875 $ 8.00 $ 6.5625
--------- --------- --------- ---------
--------- --------- --------- ---------
1.06% (17.31)% 34.91% (0.38)%
(2.32)% (12.02)% 17.77% (0.34)%
1.80% 1.66% 2.58% 1.61%
1.77% 1.66% .87% 2.38%
50% 120% 143% 180%
$ 102,361 $ 117,941 $ 150,916 $ 141,794
$ 115,051 $ 143,801 $ 157,565 $ 149,827
See Notes to Financial Statements. Aberdeen Australia Equity Fund, Inc. 23
Report of Independent Accountants
To the Shareholders and Board of Directors of
Aberdeen Australia Equity Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Aberdeen Australia Equity Fund,
Inc. (the 'Fund') at October 31, 2002, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as 'financial statements') are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 2002 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
December 16, 2002
24 Aberdeen Australia Equity Fund, Inc.
Federal Tax Information:
Dividends and Distributions (Unaudited)
We are required by the Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (October 31, 2002) as to the federal income tax status of
dividends paid by the Fund during such fiscal year.
The Fund has elected to give the benefit of foreign tax credits to its
shareholders. Accordingly, shareholders who must report their gross income
dividends and distributions in a federal income tax return will be entitled to a
foreign tax credit or an itemized deduction in computing their United States
income tax liability. It is generally more advantageous to claim a credit rather
than take a deduction. For the fiscal year ended October 31, 2002 the Fund
intends on passing through approximately $89,000 of ordinary income
distributions as a foreign tax credit.
Net
Foreign Dividends and
Gross Taxes Distributions
Amount Paid Paid
------ ------- --------------
Australia
--dividends $.158 $.005 $ .153
United States
--long-term capital gains .07 -- .07
------ ------- ------
$.228 $.005 $ .223
------ ------- ------
------ ------- ------
In January 2003, you will be advised on IRS Form 1099 DIV or substitute 1099 DIV
as to the federal tax status of the dividends and distributions received by you
in calendar year 2002.
Aberdeen Australia Equity Fund, Inc. 25
Capital Structure (Unaudited)
SHARE CAPITAL
--------------------------------------------------------------------------------------------------------
Authorized Issued
--------------------------------------------------------------------------------------------------------
20,000,000 16,893,498 Common stock, at $0.01 par value per share
--------------------------------------------------------------------------------------------------------
CAPITAL HISTORY
--------------------------------------------------------------------------------------------------------
Common Stock
--------------------------------------------------------------------------------------------------------
December 15, 1985 10,810 Seed shares issued to Equitilink International
Management Ltd.
(former name of the Investment Manager of the
Fund) at $9.25.
December 19, 1985 6,000,000 Initial public offering of common stock at
$9.25.
Semi-Annual period ended (10,500) Buy back of common stock
December 31, 1987
Quarter ended June 30, (289,500) Buy back of common stock
1987
Quarter ended January 31, 295,630 Shares issued through dividend reinvestment
1988* program
Quarter ended April 30, 12,760 Shares issued through dividend reinvestment
1990 program
August 13, 1993 3,762,000 Rights offering of common stock at $8.74 per
share
May 20, 1994 6,113,250 Rights offering of common stock at $9.78 per
share
Quarter ended January 31, 848,706 Shares issued through dividend reinvestment
1995 program
Quarter ended January 31, 171,122 Shares issued through dividend reinvestment
1996 program
Quarter ended January 31, 144,988 Shares issued through dividend reinvestment
1997 program
Quarter ended January 31, 130,732 Shares issued through dividend reinvestment
1998 program
Quarter ended July 31, (33,200) Buy back of common stock
2001
Quarter ended January 31, (9,900) Buy back of common stock
2002
Quarter ended April 30, (39,000) Buy back of common stock
2002
Quarter ended July 31, (77,300) Buy back of common stock
2002
Quarter ended October 31, (137,100) Buy back of common stock
2002
--------------------------------------------------------------------------------------------------------
* The Fund changed fiscal year end from September 30 to October 31.
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.
EquiServe Trust Company, N.A. (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,
EquiServe Trust Company, N.A., P.O. Box 43011, Providence, RI 02940-3011.
28 Aberdeen Australia Equity Fund, Inc.
This page intentionally left blank
Management of the Fund (Unaudited)
Board of Directors Information
The names of the Directors and officers of the Fund, their addresses, ages and
principal occupations during the past five years are provided in the tables
below. Directors that are deemed 'interested persons' (as that term is defined
in Section 2(a)(19) of the Investment Company Act of 1940, as amended) of the
Fund, the Investment Manager or the Investment Adviser are included in the table
below under the heading 'Interested Directors.' Directors who are not interested
persons as described above are referred to in the table below under the heading
'Independent Directors.'
Interested Directors
Number of
Funds in
Term of Fund
Position(s) Office Complex* Other
Held With and Length of Principal Occupation(s) Overseen by Directorships Held
Name, Address and Age the Fund Time Served During Past Five Years Director by Director
-----------------------------------------------------------------------------------------------------------------------------------
Laurence S. Freedman, A.M.** Class III Term expires Mr. Freedman has over 35 3 EquitiLink Holdings Pty.
25 Lime Street Director 2003; Director years of experience in Limited (holding company);
Suite 405 since 1985 funds management with a Aberdeen Leaders Limited
Sydney, NSW 2000 focus on global investment (investment company); TEN
Australia analysis. Prior to Network Holdings Limited
Age: 59 founding EquitiLink in (television network); EIML
1981, he was Director of Australia Pty. Limited
Investment at BT Australia (investment company); Link
Limited. Mr. Freedman's Enterprises
areas of fund management (International) Pty. Ltd.;
specialization include Link Traders Pty. Ltd.;
investment in resource and Link Traders (Aust) Pty.
development companies, Ltd.; Letota Pty. Ltd.
international economies
and the geo-political
impact on investment
markets. He was Chairman
of the Fund from 1995 to
2001 and President of the
Fund from its inception
until 2000. Mr. Freedman
was founder of the Fund's
Investment Adviser, and
until December 2000, he
was Joint Managing
Director of the Fund's
Investment Adviser, and a
Director of the Fund's
Investment Manager.
Mr. Freedman was also
Chairman from 1995 to
2000, Vice-President from
1986 to 2001, and Director
from 1986 to 2000, of
Aberdeen Asia-Pacific
Income Fund, Inc.;
Chairman from 2000 to
2001, President from 1992
to 2001 and a Director
since 1992 of Aberdeen
Global Income Fund, Inc.
Joint Managing Director
from 1986 to 2000 of
Aberdeen Asia-Pacific
Income Investment Company
Limited; and Joint
Managing Director from
1986 to 2000 of EquitiLink
Limited (holding company).
30 Aberdeen Australia Equity Fund, Inc. Aberdeen Australia Equity Fund, Inc. 31
Management of the Fund (Unaudited) (continued)
Number of
Funds in
Term of Fund
Position(s) Office Complex* Other
Held With and Length of Principal Occupation(s) Overseen by Directorships Held
Name, Address and Age the Fund Time Served During Past Five Years Director by Director
-----------------------------------------------------------------------------------------------------------------------------------
Hugh Young** Chairman of Term as Mr. Young has been 1 Mr. Young is a director of
21 Church Street the Board, Director Managing Director of foreign funds advised by
Pound01-01 Capital Square Two Class II expires 2005; Aberdeen Asset Management entities affiliated with
Singapore 049480 Director; Director since PLC (parent company of the the Investment Manager and
Age: 44 President 2001 Fund's Investment Manager the Investment Adviser.
and Investment Adviser)
(from 1991 to 2002);
Managing Director of
Aberdeen Asset Management
Asia Limited (affiliate of
the Fund's Investment
Manager and Investment
Adviser) (since 1992);
Managing Director of
Aberdeen International
Fund Managers Limited
(affiliate of the Fund's
Investment Manager and
Investment Adviser) (since
2000); Director of the
Investment Manager and the
Investment Adviser (since
2001); President (since
2001) of the Fund and of
Aberdeen Asia-Pacific
Income Fund, Inc. and
Aberdeen Global Income
Fund, Inc.
---------------------------
* Aberdeen Asia-Pacific Income Fund, Inc. and Aberdeen
Global Income Fund, Inc. have a common Investment Manager
and Investment Adviser with the Fund, and may thus be
deemed to be part of the same 'Fund Complex' as the Fund.
** Mr. Freedman is deemed to be an interested person because
of his ownership of securities of Aberdeen Asset
Management PLC, the parent company of the Fund's
Investment Manager and Investment Adviser. Mr. Young is
deemed to be an interested person because of his
affiliation with the Fund's Investment Manager and
Investment Adviser.
Independent Directors
Number of
Funds in
Term of Fund
Position(s) Office Complex* Other
Held With and Length of Principal Occupation(s) Overseen by Directorships Held
Name, Address and Age the Fund Time Served During Past Five Years Director by Director
-----------------------------------------------------------------------------------------------------------------------------------
Anthony E. Aaronson Class I Term expires Mr. Aaronson is owner of 2 Aberdeen Asia-Pacific
110 E. 9th Street Director 2004; Director Tony Aaronson Textiles. He Income Fund, Inc.
Suite 721B since 1985 was Director of the
Los Angeles, CA 90079 Textile Association of Los
Age: 65 Angeles from 1997 to 2000.
Mr. Aaronson has extensive
experience in the
management of private
investments. He served as
Chairman of the Audit
Committee of the Fund from
the inception of the Fund
until 2000.
32 Aberdeen Australia Equity Fund, Inc. Aberdeen Australia Equity Fund, Inc. 33
Management of the Fund (Unaudited) (continued)
Number of
Funds in
Term of Fund
Position(s) Office Complex* Other
Held With and Length of Principal Occupation(s) Overseen by Directorships Held
Name, Address and Age the Fund Time Served During Past Five Years Director by Director
-----------------------------------------------------------------------------------------------------------------------------------
David L. Elsum, A.M. Class III Term expires Mr. Elsum has over 20 3 Aberdeen Global Income
9 May Grove Director 2003; Director years of experience in Fund, Inc.; Aberdeen
South Yarra, Victoria 3141 since 1985 investment and insurance Asia-Pacific Income Fund,
Australia markets. He was a member Inc.; Aberdeen
Age: 65 of the Corporations and Asia-Pacific Income
Securities Panel of the Investment Company
Australian Securities Limited; Melbourne
Commission until 2000, a Wholesale Fish Market Pty.
member of the Australian Ltd.; Queen Victoria
Federal Government Market Pty. Ltd.
Administrative Appeals (municipal market);
Tribunal until 2001, Financial Planning
Chairman of Audit Victoria Association Limited
(government statutory (industry association);
authority) from 1997 to Aberdeen Leaders Limited
2000, and has been a (investment company).
member of the State of
Victoria Regulator-General
Appeal Panel since 2001.
Mr. Elsum is Chairman of
Stodart Investment Pty.
Ltd. Previously, he was
founding Managing Director
of Capel Court Investment
Bank, and Chief Executive
of several major public
companies, including The
MLC Limited (insurance)
and President of the State
of Victoria Superannuation
Fund (pension fund
management).
Howard A. Knight Class II Term expires Mr. Knight has over 30 2 Aberdeen Asia-Pacific
421 Glenbrook Road, Pound2 Director 2005; Director years of experience in Income Fund, Inc.; Lions
Stamford, CT 06906 since 1993 financial markets and has Gate Entertainment Corp.
Age: 60 been actively involved in (film production and
the Australian financial distribution); Agaton
markets for more than 25 Fitness AG.
years. From 1991 to 1994,
he served as President of
Investment Banking, Equity
Transactions and Corporate
Strategy at Prudential
Securities. From 1996 to
2001, Mr. Knight served as
Vice Chairman and Chief
Operating Officer of SBS
Broadcasting SA (European
television and radio
broadcasting), where he
was actively involved in
investment management and
capital markets. Mr.
Knight is currently an
independent director and
management adviser.
34 Aberdeen Australia Equity Fund, Inc. Aberdeen Australia Equity Fund, Inc. 35
Management of the Fund (Unaudited) (continued)
Number of
Funds in
Term of Fund
Position(s) Office Complex* Other
Held With and Length of Principal Occupation(s) Overseen by Directorships Held
Name, Address and Age the Fund Time Served During Past Five Years Director by Director
-----------------------------------------------------------------------------------------------------------------------------------
Neville J. Miles Class I Term expires Mr. Miles has over 20 3 Aberdeen Asia-Pacific
2 Paddington Street Director 2004; Director years of international Income Fund, Inc.;
Paddington, NSW 2021 Australia since 1996 investment banking Aberdeen Global Income
Age: 56 experience. He was Fund, Inc.; Aberdeen
formerly head of Corporate Asia-Pacific Income
Treasury at Westpac Investment Company
Banking Corporation and Limited; Aberdeen Leaders
Managing Director of Ord Limited (investment
Minnett Securities Limited company).
(stockbrokers). Mr. Miles
has extensive experience
in the areas of corporate
acquisitions and equity
offerings.
Mr. Miles is currently an
investor and real estate
developer. He has served,
for over five years, as a
Director of Ballyshaw Pty.
Ltd.
(investing/consulting) and
Dawnglade Pty. Ltd. (real
estate investment), and
has served as a Director
of Villepen Pty. Ltd.
(real estate investment
company) since 1999; Sonic
Communications Pty. Ltd.
since 2000, and Commsecure
Limited since 2002.
Peter J. O'Connell Class III Term expires Mr. O'Connell is involved 2 Aberdeen Asia-Pacific
3 Spring Street Director 2003; Director in modern technology Income Fund, Inc.
Suite 8, Level 6 since 1999 developments, has
Sydney, NSW 2000 extensive business
Australia experience in the Asian
Age: 49 region, and has served as
an international mergers
and acquisitions lawyer in
this region. Mr. O'Connell
is admitted as a solicitor
in Australia and he has
been Chief Executive
Officer of Smart Device
Marketing Company since
2001. Mr. O'Connell has
also served as Chief
Executive Officer of Lang
Holdings (Aust) Pty. Ltd.
(technology consulting)
since 2001; and Chief
Executive Officer of Ten
Ventures Pty. Ltd.
(establishment of
media-based internet
businesses) from 1999
until 2000. Mr. O'Connell
was Chief of Operations of
Consolidated Press
Holdings Pty. Limited
(supervision of private
equity investments) from
1997 to 1999; Chief
Executive Officer (from
1994 to 1996) and Director
(from 1994 to 1999) of
Hargrave Consultants Pty.
Ltd., (technology
consulting).
36 Aberdeen Australia Equity Fund, Inc. Aberdeen Australia Equity Fund, Inc. 37
Management of the Fund (Unaudited) (continued)
Number of
Funds in
Term of Fund
Position(s) Office Complex* Other
Held With and Length of Principal Occupation(s) Overseen by Directorships Held
Name, Address and Age the Fund Time Served During Past Five Years Director by Director
-----------------------------------------------------------------------------------------------------------------------------------
William J. Potter Class II Term expires Mr. Potter has extensive 3 Aberdeen Global Income
236 West 27th Street Director 2003; Director experience in investment Fund, Inc.; Aberdeen
3rd Floor since 1985 banking and fund Asia-Pacific Income Fund,
New York, NY 10001 management. Mr. Potter has Inc.; Aberdeen
Age: 54 held senior positions with Asia-Pacific Income
Toronto Dominion Bank, Investment Company
Barclays Bank PLC, and Limited; National Foreign
Prudential Securities, Trade Counsel (trade
Inc., as well as board of association); Alexandria
director positions with Bancorp (banking group in
investment funds involving Cayman Islands; E.C.
over $20 billion in assets Power, Inc. (energy
since 1983. Mr. Potter has company); Alexandria
been involved in the Funds.
Australian capital markets
since 1974, including
management and board of
director positions with a
noted Australian brokerage
house. Mr. Potter is
President of a U.S.
investment bank and has
securities licenses in
both the U.S. and Canada.
Mr. Potter also has
extensive securities
underwriting experience in
various capital markets
with an emphasis on
natural resources.
Mr. Potter is currently
President of Ridgewood
Group International Ltd.,
an international
consulting and merchant
banking company, and
President of Ridgewood
Capital Funding, Inc., a
private placement
securities firm.
Peter D. Sacks Class II Term expires Mr. Sacks is currently 3 Aberdeen Asia-Pacific
445 King Street West, Director 2005; Director Managing Partner of Toron Income Fund, Inc.;
4th Floor since 1999 Capital Markets, Inc., a Aberdeen Global Income
Toronto, Ontario M5V 1K4 company he established in Fund, Inc.; Aberdeen
Canada 1988 to design and manage Asia-Pacific Income
Age: 57 customized equity, fixed Investment Company
income and currency Limited; Aberdeen G7
portfolios for individual Trust; First Horizon
and corporate clients. Mr. Holdings Ltd.; First
Sacks also serves on the Horizon Capital Corp.;
Boards of Directors of Cirrus Financial Concepts
Toron Capital Markets, Inc.
Inc. (portfolio
management), Toron Capital
Management, Ltd. and Toron
Asset Management, Inc.
38 Aberdeen Australia Equity Fund, Inc. Aberdeen Australia Equity Fund, Inc. 39
Management of the Fund (Unaudited) (continued)
Number of
Funds in
Term of Fund
Position(s) Office Complex* Other
Held With and Length of Principal Occupation(s) Overseen by Directorships Held
Name, Address and Age the Fund Time Served During Past Five Years Director by Director
-----------------------------------------------------------------------------------------------------------------------------------
John T. Sheehy Class III Term expires Mr. Sheehy has over 30 3 Aberdeen Global Income
560 Sylvan Avenue Director 2003; Director years' experience in Fund, Inc.; Aberdeen
Englewood Cliffs, NJ 07632 since 1985 investment banking with Asia-Pacific Income Fund,
Age: 60 companies such as J.P. Inc.; Aberdeen
Morgan & Company and Bear, Asia-Pacific Income
Stearns & Co. Inc. His Investment Company
specialty areas include Limited.
securities valuation,
public offerings and
private placements of debt
and equity securities,
mergers and acquisitions
and management buyout
transactions. He has been
Senior Managing Director
of B.V. Murray and Company
(investment banking) since
2001, and Managing Member
of The Value Group LLC
(private equity) since
1997.
---------------------------
* Aberdeen Asia-Pacific Income Fund, Inc. and Aberdeen
Global Income Fund, Inc. have a common Investment Manager
and Investment Adviser with the Fund, and may thus be
deemed to be part of the same 'Fund Complex' as the Fund.
Information Regarding Officers who are not Directors
Term of
Position(s) Office**
Held With and Length of Principal Occupation(s)
Name, Address and Age the Fund* Time Served During Past Five Years
----------------------------------------------------------------------------------------
Michael Karagianis Vice Since 2002 Vice President (since
One Bow Churchyard President 2002) and Assistant Vice
London EC4M 9HH President (from 2001 to
United Kingdom 2002) of the Fund;
Age: 37 Director of Economics and
Investment Strategy of the
Fund's Investment Adviser
(since 1999); Director of
Portfolio Investment of
County Investment
Management (from 1995 to
1999).
Christian Pittard Treasurer Since 2001 Managing Director of the
P.O. Box 641 and Fund's Investment Manager
One Seaton Place Assistant (since 2001); Managing
St. Helier, Jersey JE4 8YJ Secretary Director of Aberdeen
Channel Islands Private Wealth Management
Age: 29 (affiliate of the Fund's
Investment Manager and
Investment Adviser);
Chartered Accountant, KPMG
(from 1994 to 1998) and
Quorum Trust Group (1998).
40 Aberdeen Australia Equity Fund, Inc. Aberdeen Australia Equity Fund, Inc. 41
Management of the Fund (Unaudited) (continued)
Term of
Position(s) Office**
Held With and Length of Principal Occupation(s)
Name, Address and Age the Fund* Time Served During Past Five Years
----------------------------------------------------------------------------------------
Roy M. Randall Secretary Since 1986 Partner of Stikeman,
Level 40, Chifley Tower Elliott, Australian
Two Chifley Square counsel to the Fund.
Sydney, NSW 2000
Australia
Age: 66
---------------------------
* The named officer holds the same position(s) with
Aberdeen Asia-Pacific Income Fund, Inc. and Aberdeen
Global Income Fund, Inc., both of which may be deemed to
be part of the same 'Fund Complex' as the Fund.
** Officers hold their positions with the Fund until a
successor has been duly elected and qualified. Officers
are generally elected annually at the meeting of the
Board of Directors next following the annual meeting of
stockholders. The officers were last elected on June 19,
2002.
42 Aberdeen Australia Equity Fund, Inc. Aberdeen Australia Equity Fund, Inc. 43
Directors Officers
Hugh Young, Chairman Hugh Young, President
Anthony E. Aaronson Michael Karagianis, Vice President
David L. Elsum Christian Pittard, Treasurer and
Laurence S. Freedman Assistant Secretary
Howard A. Knight Roy M. Randall, Secretary
Neville J. Miles James Blair, Assistant Vice President
Peter J. O'Connell Beverley Hendry, Assistant Treasurer
William J. Potter Timothy Sullivan, Assistant Treasurer
Peter D. Sacks Simon Bignell, Assistant Treasurer
John T. Sheehy Jack R. Benintende, Assistant Treasurer
Allan S. Mostoff, Assistant Secretary
Margaret A. Bancroft, Assistant Secretary
Sander M. Bieber, Assistant Secretary
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.
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 State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent EquiServe Trust Company, N.A.
P.O. Box 43011
Providence, RI 02940-3011
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