-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FxD3I6BIl3m1M4p+YgVfTcBm4I57oTdeQEAx0KZt2k8aLCZdERcI013jyzW6XAI+ +l6XGYGvVmXacfqveyPzWg== 0000950112-98-000827.txt : 19980630 0000950112-98-000827.hdr.sgml : 19980630 ACCESSION NUMBER: 0000950112-98-000827 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19980629 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST COMMONWEALTH FUND INC CENTRAL INDEX KEY: 0000876717 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133334183 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-06342 FILM NUMBER: 98656194 BUSINESS ADDRESS: STREET 1: 45 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10006 BUSINESS PHONE: 2129688800 MAIL ADDRESS: STREET 1: 45 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10006 N-30D 1 THE SEMI-ANNUAL REPORT FIRST COMMONWEALTH - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- June 12, 1998 Dear Shareholder: We are pleased to present our Semi-Annual Report to shareholders for the six months ended April 30, 1998. The report includes a summary of developments in bond and currency markets in Australia, Canada, New Zealand and the United Kingdom. INVESTMENT MARKETS Commonwealth fixed-income markets recorded positive returns over the six months to April 30, 1998. Markets were supported by the generally positive US market and concerns about the deflationary impact of the Asian crisis. However, currency movement detracted from the Fund's performance over the period with Commonwealth currencies, apart from the UK Pound, depreciating against the US dollar. The best performer in local currency terms and US dollar terms over the six-month period was the UK market. UK ten-year government bond rates fell over the six months to April 30, 1998, from 6.54% to 5.83%. The strong Pound has caused some slowing in economic growth and helped to contain inflationary pressures. Since the end of April, the UK bond market has continued to perform strongly, although the Pound has weakened. UK ten-year bond rates have fallen 0.21% to 5.62% at the date of this report. The Australian fixed-income market strengthened over the six months to April 30, 1998 with ten-year government bond rates falling from 5.96% to 5.77%. The market was supported by slower economic growth and continued low inflation. Canadian rates also fell over the past six months. The New Zealand market lagged the other Commmonwealth markets with the ten-year rate moving up from 6.54% to 6.76%. Since the end of April, Commonwealth fixed-income markets have performed strongly. Australian ten-year bond rates have fallen 0.20% to 5.57% at the date of this report. Canadian ten-year bond rates fell 0.08% to 5.30% and New Zealand ten-year bond rates fell 0.05% to 5.71% at the date of this report. INVESTMENT PERFORMANCE The Fund's total return based on Net Asset Value ('NAV') was 0.04% for the six months and 5.8% for the year to April 30, 1998. The Fund's total return based on share price was -6.4% for the six months but a positive 4.3% for the year. The NAV and share price performance both assume reinvestment of distributions. The Fund continues to maintain a high quality portfolio, with 93% of assets invested in securities where either the issue or the issuer are rated at least 'AA' by Standard & Poor's Rating Group or 'Aa' by Moody's Investors Service or, if unrated, are judged to be of equivalent quality by the Investment Manager. DISTRIBUTIONS Distributions to common shareholders for the year through April 30, 1998 totalled US 98.5 cents per share. Based on the share price of US$11.19 at April 30, 1998, the cash distribution rate over the last 12 months was 8.8%. Since all distributions are paid after deducting applicable Australian, Canadian, New Zealand and United Kingdom withholding taxes, the distribution rate is higher for those US investors who are able to claim a tax credit. On March 12, 1998, the Board of Directors announced a cut in the Fund's monthly distributions by US 0.5 cents per share per month to US 7.75 cents per share, effective with the distribution payable on April 9, 1998. For many years, the Fund has maintained its distributions well above its running yield by distributing a combination of income and realized capital gains. While the capital gains component of the portfolio still remains large, bond yields 1 have continued to fall, resulting in a reduced reinvestment rate. At the date of this report, with the share price at US$11.00, and monthly distributions at US 7.75 cents per share, the annualized distribution rate to shareholders would be 8.5% per annum. At its meeting held on June 11, 1998, the Board of Directors resolved to continue paying a monthly distribution of US 7.75 cents per share through to September when the Board will review the position at its next quarterly meeting. The Board intends to maintain future distributions at as high a level as is practicable in the then current economic climate. - -------------------------------------------------------------------------------- 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. As a Participant in the Plan, you will also have the convenience of: AUTOMATIC REINVESTMENT -- The Plan Agent will automatically reinvest your distributions, allowing you to gradually grow your holdings in the Fund; LOWER COSTS -- Shares purchased on your behalf under the Plan will be at reduced brokerage rates; CONVENIENCE -- The Plan Agent will hold your shares in uncertificated form and will provide a detailed record of your holdings at the end of each distribution period. If you would like further information on the Plan, please contact State Street Bank and Trust Company, P.O. Box 8200, Boston, MA 02266, Tel: 1-800-426-5523. For information on the Fund including weekly updates of share price, NAV, and details of recent distributions, please telephone Investor Relations, toll free on 1-800-543-6217 in the United States. Yours sincerely, /s/ Brian M. Sherman /s/ Laurence S. Freedman Brian M. Sherman Laurence S. Freedman Chairman President 2 - -------------------------------------------------------------------------------- REPORT OF THE INVESTMENT MANAGER - -------------------------------------------------------------------------------- PERFORMANCE DISTRIBUTIONS During the 12 months to April 30, 1998, the Fund paid a total of US 98.5 cents per share in distributions, consisting of 11 monthly payments of US 8.25 cents per share and 1 monthly payment of US 7.75 cents per share. The Board's policy is to provide investors with a stable monthly distribution out of current income, supplemented by realized capital gains if required. The Board revised the current monthly distribution of US 8.25 cents per share in March 1998 down to US 7.75 cents per share effective with the distribution payable on April 9, 1998. The current distribution rate of US 7.75 cents per share per month will be reviewed at the next meeting of the Board to be held in September 1998. Based upon the April 30, 1998 share price of US$11.19 and total distributions of US 98.5 cents per share paid over the past 12 months, the shares provided a cash distribution rate of 8.8%. At the date of this report, with the share price at US$11.00, and monthly distributions at US 7.75 cents per share, the annualized cash distribution rate to shareholders would be 8.5% per annum. Since all distributions are paid after deducting applicable Australian, Canadian, New Zealand and United Kingdom withholding taxes, the distribution rate is higher for those US investors who are able to claim a tax credit. NET ASSET VALUE (NAV) PERFORMANCE The Fund's NAV per share at April 30, 1998 was US$13.40. The Fund's total return based on NAV was 0.04% over the six months and 5.8% for the year to April 30, 1998. Since inception, the Fund has returned 8.7% per annum. All figures assume reinvestment of distributions. At the date of this report, the NAV per share was US$12.70. SHARE PRICE PERFORMANCE As of April 30, 1998, the Fund's share price as quoted on the New York Stock Exchange was US$11.19, which represented a discount of 16.5% to the NAV of US$13.40. The total investment return, based on the Fund's share price, assuming reinvestment of distributions, was -6.4% over the six months but a positive 4.3% over the year to April 30, 1998. Since inception, the share price return was 4.2% per annum. At the date of this report, the share price was US$11.00, representing a discount of 13.4% to NAV. AUCTION MARKET PREFERRED STOCK (AMPS) The Fund's US$30 million of AMPS continue to be well bid at the weekly auctions, maintaining a lower interest rate on average compared to the 30-day Commercial Paper rate. The average interest rate of auction results over the quarter was 5.4% compared with 5.5% for 30-day commercial paper over the same period. 3 PORTFOLIO COMPOSITION The following table and chart show the geographical composition of the portfolio, expressed as a percentage of the portfolio's total investments. The figures are based on the currencies in which the portfolio is invested. TABLE 1: THE FIRST COMMONWEALTH FUND, INC. -- GEOGRAPHIC ASSET ALLOCATION
COMMENCEMENT OF OPERATIONS* OCTOBER 31, 1997 JANUARY 31, 1998 APRIL 30, 1998 Australia 44.7% 25.7% 24.9% 25.5% Canada 17.9% 29.8% 29.8% 30.9% New Zealand -- 10.0% 9.3% 9.2% United Kingdom 36.4% 33.7% 35.6% 33.4% United States** 1.0% 0.8% 0.4% 1.0% TOTAL FUND 100.0% 100.0% 100.0% 100.0%
*February 28, 1992. **It is the policy of the Investment Manager to maintain a portion of the Fund's investments in US short-term securities to cover distributions and expenses. THE FIRST COMMONWEALTH FUND, INC. ASSET ALLOCATION AT APRIL 30, 1998 [PIE CHART] AUSTRALIA CANADA NEW ZEALAND UNITED KINGDOM UNITED STATES 25.5% 30.8% 9.3% 33.4% 1.0% 4 MATURITY COMPOSITION The following table shows the maturity composition of the portfolio. At April 30, 1998, the average maturity of the Fund's assets was 6.7 years, compared with 7.6 years at January 31, 1998 and 7.1 years at April 30, 1997. TABLE 2: THE FIRST COMMONWEALTH FUND, INC. -- MATURITY ANALYSIS -- APRIL 30, 1998
LESS THAN 1 YEAR 1 - 5 YEARS 5 - 10 YEARS OVER 10 YEARS Australia 9.5% 38.1% 46.4% 6.0% Canada 7.5% 35.7% 23.7% 33.1% New Zealand 18.6% 37.3% 44.1% -- United Kingdom 8.6% 15.1% 39.4% 36.9% United States 100.0% -- -- -- TOTAL FUND 10.3% 29.2% 36.4% 24.1%
The following table shows the sectoral exposure of the portfolio, spread between the various securities offered in the Commonwealth bond markets. TABLE 3: THE FIRST COMMONWEALTH FUND, INC. -- SECTORAL COMPOSITION -- APRIL 30, 1998
SOVEREIGN GOVT. STATE/ PROVINCE CASH OR BONDS BONDS EUROBONDS CORPORATE BONDS EQUIVALENT Australia 10.2% 5.2% 5.1% 3.5% 1.5% Canada 18.8% 3.4% 5.5% 1.5% 1.6% New Zealand 4.3% -- 2.2% 1.8% 1.0% United Kingdom 18.0% -- 15.3% -- 0.1% United States -- -- -- -- 1.0% TOTAL FUND 51.3% 8.6% 28.1% 6.8% 5.2%
5 QUALITY OF INVESTMENTS At April 30, 1998, 93% of the Fund's assets were invested in securities where either the issue or the issuer was rated at least 'AA' by Standard & Poor's Ratings Group or 'Aa' by Moody's Investors Service or, if unrated, were judged to be of equivalent quality by the Investment Manager. The remainder of the Fund was invested in securities where the issue or the issuer was rated, or deemed to be at least equivalent to, 'A' quality. TABLE 4: THE FIRST COMMONWEALTH FUND, INC. -- ASSET QUALITY -- APRIL 30, 1998 AAA/AAA AA/AA A/A Australia 73.1% 26.9% -- Canada 6.8% 87.3% 5.9% New Zealand 65.1% 15.6% 19.3% United Kingdom 54.0% 35.5% 10.5% TOTAL FUND 45.2% 47.6% 7.2% THE FIRST COMMONWEALTH FUND, INC. QUALITY OF ASSETS AT APRIL 30, 1998 [PIE CHART] A AA AAA 7.2% 47.6% 45.2% 6 - -------------------------------------------------------------------------------- ECONOMIC, FIXED-INCOME AND CURRENCY MARKET REVIEW - -------------------------------------------------------------------------------- AUSTRALIA Economy The Australian economy grew strongly through 1997. Inflation remained low, with underlying (core) inflation at a 1.4% annual rate. The Manager expects that the fall-out from the Asian crisis will dampen economic growth over the next year or so and could lead to some temporary upward pressure on inflation because of higher import prices. Australia's current account deficit is also likely to rise. Fixed Income The Australian bond market rallied over the six months to April 30, 1998. Australian ten-year bond yields finished at 5.77% down 0.19%. Ninety-day bank bill rates rose from 4.84% to 4.97%. The differential between Australian ten-year Government bond rates and US ten-year Government bond rates fell 0.03% to 0.10%. Since the end of April, the Australian fixed income market has performed strongly. Australian ten-year bond rates have fallen 0.20% to 5.57% at the date of this report. Currency The Australian dollar depreciated by 7.1% against the US dollar during the six-month period. At April 30, 1998, the Australian dollar was trading at US 65 cents. The dollar's weakness reflected continuing concerns about weaker commodity prices and a higher current account deficit, in the wake of the Asian economic crisis. As of the date of this report, the Australian dollar was trading at US 59 cents. CANADA Economy The Canadian economy grew strongly during the period with inflation at low levels. The unemployment rate has continued to fall. The Manager expects economic growth to remain firm in 1998, despite weaker Asian demand and higher official interest rates. Inflation should remain at the lower end of the Bank of Canada's 1 to 3% target range. Fixed Income The Canadian bond market rallied over the six month period, supported by low inflation, an improving fiscal position and a positive US bond market. The differential against ten-year US treasuries narrowed by 0.05% to be 0.29% below the US bond rate. The Canadian bond market has rallied further since the end of April, Canadian ten-year bond rates have fallen 0.08% to 5.30% at the date of this report. Currency The Canadian dollar depreciated by 2.1% against the US dollar over the six-month period. The Canadian dollar strengthened against other major currencies, including the Deutschemark and the Yen. At the end of April, the currency was trading at US 70 cents. On the date of this report, the Canadian dollar was trading at US 68 cents. NEW ZEALAND Economy Economic growth has continued to slow and the unemployment rate has risen, reflecting developments in Asia. The current account deficit has risen significantly while inflation has remained low. The Manager expects the easing in overall monetary conditions to cushion the impact of declining economic activity from Asia. The current account deficit is expected to remain high throughout 1998. The CPI is expected to remain within the Reserve Bank of New Zealand's 0 to 3% target range. 7 Fixed Income Over the six months to April 30, 1998, New Zealand ten-year Government bond rates rose from 6.54% to 6.76%. Bond market weakness was associated with a drop in the New Zealand dollar and an increase in short-term interest rates. At the end of April, 90-day bank bills were 8.64%. The New Zealand market has shown some strength in the more recent period. Since the end of April, New Zealand ten-year bond rates have fallen 0.05% to 6.71% at the date of this report. Currency The New Zealand dollar depreciated by 11.0% against the US dollar over the six months to April 30, 1998. The weakness reflected concerns about the Asian economic crisis on New Zealand exports and the current account deficit. At the end of April, the currency was trading at US 56 cents. On the date of this report, the New Zealand dollar was trading at US 50 cents. UNITED KINGDOM Economy UK economic growth slowed over the past six months, reflecting the stronger Pound and higher official short-term interest rates. The unemployment rate has fallen to 4.8%. Annual headline inflation was at 3.3% in March but core inflation remains around 2.5%, consistent with the Bank of England's inflation target. The Manager expects economic growth to continue to moderate over the next year or so, reflecting the full impact of higher official interest rates and the stronger Pound. Fixed Income The UK bond market was one of the strongest global bond markets over the six months to April 30, 1998. Ten-year government bond rates fell from 6.54% to 5.83%, despite concerns about higher official interest rates. The Gilt market continued to offer attractive yields compared with other European countries. Since the end of April, the UK bond market has continued to perform strongly. UK ten-year bond rates have fallen 0.21% to 5.62% at the date of this report. Currency The Pound was little changed against the US dollar over the period, although appreciated against other major currencies, including the Deutschemark. At April 30, 1998, the currency was trading at US$1.67. On the date of this report, the Pound was trading at $US1.63. 8 The following table compares interest rates in Commonwealth countries for various periods since the Fund commenced operations.
FEBRUARY 28, 1992 (COMMENCEMENT OF OPERATIONS) APRIL 30, 1997 OCTOBER 31, 1997 APRIL 30, 1998 AUSTRALIA: 90-day Bank Bills 7.49% 5.91% 4.84% 4.97% 10-yr Government Bonds 10.14% 7.83% 5.96% 5.77% CANADA: 90-day Bank Bills 7.15% 3.15% 3.97% 4.80% 10-yr Government Bonds 8.33% 6.63% 5.49% 5.38% NEW ZEALAND: 90-day Bank Bills 7.48% 6.80% 7.84% 8.64% 10-yr Government Bonds 9.23% 7.85% 6.54% 6.76% UNITED KINGDOM: 90-day Bank Bills 10.85% 6.29% 7.05% 7.19% 10-yr Government Bonds 9.26% 7.43% 6.54% 5.83%
Yield comparisons are direct and do not take into account currency exchange rates. EQUITILINK INTERNATIONAL MANAGEMENT LIMITED 9 - ---------------------------------------------- THE FIRST COMMONWEALTH FUND, INC. PORTFOLIO OF INVESTMENTS APRIL 30, 1998 (UNAUDITED) - ----------------------------------------------------------- PRINCIPAL AMOUNT LOCAL CURRENCY VALUE (000) DESCRIPTION (US$) - ----------------------------------------------------------- LONG-TERM INVESTMENTS - 92.4% AUSTRALIA - 23.3% GOVERNMENT AND SEMI-GOVERNMENT BONDS - 14.9% COMMONWEALTH OF AUSTRALIA - 9.9% Commonwealth of Australia, A$ 5,000 13.00%, 7/15/00................. 3,788,798 1,000 9.75%, 3/15/02.................. 752,092 3,000 10.00%, 10/15/02................ 2,309,828 1,000 9.00%, 9/15/04.................. 770,920 4,000 10.00%, 2/15/06................. 3,305,711 1,000 6.75%, 11/15/06................. 697,170 1,600 10.00%, 10/15/07................ 1,361,270 1,000 8.75%, 8/15/08.................. 799,521 2,000 7.50%, 9/15/09.................. 1,481,772 ------------ 15,267,082 ------------ NEW SOUTH WALES - 1.6% New South Wales Treasury Corporation, 2,000 8.00%, 12/01/01................. 1,412,061 1,500 7.00%, 4/01/04.................. 1,037,449 ------------ 2,449,510 ------------ QUEENSLAND - 1.9% Queensland Treasury Corporation, 2,000 8.00%, 5/14/03 (Global)......... 1,438,512 1,000 8.00%, 9/14/07.................. 743,557 1,000 8.00%, 9/14/07 (Global)......... 745,055 ------------ 2,927,124 ------------ SOUTH AUSTRALIA - 0.5% South Australia Finance Authority, 1,000 12.50%, 10/15/00................ 759,779 ------------ VICTORIA - 0.5% Treasury Cor poration of Victoria, 1,000 10.25%, 11/15/06................ 836,689 ------------ WESTERN AUSTRALIA - 0.5% Wester n Australia Treasur y Corporation, 1,000 10.00%, 7/15/05................. 807,860 ------------ Total Australian gover nment and semi-gover nment bonds (cost US$24,818,192).................. 23,048,044 ------------ CORPORATE BONDS - 3.4% SERVICES - 3.4% Australian and Overseas Telecommunications Corporation, A$ 2,000 11.50%, 10/15/02................ 1,588,096 2,000 12.00%, 5/15/06................. 1,763,350 First Australian National Mortgage Acceptance Cor poration, Ser ies 22, 2,597 11.40%, 12/15/01................ 1,908,515 ------------ Total Australian corporate bonds (cost US$5,410,161)............. 5,259,961 ------------ EUROBONDS - 5.0% FINANCIAL SERVICES - 2.5% Credit Local de France, 2,000 10.50%, 1/06/99................. 1,346,520 Export Finance & Insurance Corporation, 1,750 11.00%, 12/29/04................ 1,437,983 Ing Mercantile Mutual Bank Ltd., 500 7.125%, 3/13/02................. 339,187 State Bank of New South Wales, 1,000 10.50%, 4/30/99................. 684,205 ------------ 3,807,895 ------------ SEMI-GOVERNMENT - 0.7% South Australia Finance Author ity, 500 12.50%, 5/08/01................. 386,014 Treasury Cor poration of Victoria, 1,000 9.00%, 6/27/05.................. 758,183 ------------ 1,144,197 ------------ SERVICES - 0.7% State Electricity Commission of Victoria, 972 9.25%, 7/27/99.................. 662,546 535 10.50%, 5/27/03................. 417,827 ------------ 1,080,373 ------------ SUPRANATIONAL - 1.1% Eurofima, 2,000 9.875%, 1/17/07................. 1,623,864 ------------ Total Australian eurobonds (cost US$8,196,832)............. 7,656,329 ------------ Total Australian long-term investments (cost US$38,425,185)............ 35,964,334 ------------ 10 - ----------------------------------------------------------- PRINCIPAL AMOUNT LOCAL CURRENCY VALUE (000) DESCRIPTION (US$) - ----------------------------------------------------------- CANADA - 28.6% GOVERNMENT, PROVINCIAL AND MUNICIPAL BONDS - 21.7% CANADA - 18.4% Canadian Government, C$ 5,500 7.50%, 3/01/01.................. 4,076,154 6,000 8.50%, 4/01/02.................. 4,676,224 5,000 7.25%, 6/01/03.................. 3,802,797 4,000 8.75%, 12/01/05................. 3,380,979 2,500 7.25%, 6/01/07.................. 1,979,021 8,000 10.25%, 3/15/14................. 8,325,594 2,000 9.00%, 6/01/25.................. 2,032,867 ------------ 28,273,636 ------------ AL BERTA - 0.6% City of Edmonton, 1,000 9.625%, 2/13/12................. 944,895 ------------ BRITISH COLUMBIA - 1.1% Province of British Columbia, 1,000 10.15%, 8/29/01................. 800,280 1,000 9.50%, 1/09/12.................. 942,028 ------------ 1,742,308 ------------ ONTARIO - 1.6% Province of Ontario, 1,000 8.75%, 4/22/03.................. 800,000 2,000 7.50%, 2/07/24.................. 1,667,832 ------------ 2,467,832 ------------ Total Canadian gover nment, provincial and municipal bonds (cost US$32,627,776)............ 33,428,671 ------------ CORPORATE BONDS - 1.5% DIVERSIFIED INDUSTRIALS - 0.8% Bell Telephone Company of Canada, 500 10.50%, 7/15/09................. 414,860 Imperial Oil Ltd., 1,000 9.875%, 12/15/99................ 747,762 ------------ 1,162,622 ------------ FINANCIAL SERVICES - 0.7% Bank of Nova Scotia, C$ 1,000 10.35%, 7/19/01................. 796,923 National Bank of Canada, 500 10.875%, 6/01/98................ 351,179 ------------ 1,148,102 ------------ Total Canadian cor porate bonds (cost US$2,654,407)............. 2,310,724 ------------ EUROBONDS - 5.4% DIVERSIFIED INDUSTRIALS - 0.3% Procter & Gamble Company, 500 10.875%, 8/15/01................ 401,224 ------------ FINANCIAL SERVICES - 1.9% Credit Local de France, 1,000 6.75%, 3/21/06.................. 736,888 International Bank for Reconstruction and Development, 2,000 10.125%, 7/20/99................ 1,474,545 Rabobank Nederland N.V., 1,000 9.00%, 12/22/00................. 754,371 ------------ 2,965,804 ------------ NATURAL RESOURCES - 1.3% Ontar io Hydro, 500 8.50%, 5/26/25.................. 467,098 Quebec Hydro, 1,500 7.00%, 6/01/04.................. 1,121,119 Tokyo Electric Power Company, 500 10.50%, 6/14/01................. 395,979 ------------ 1,984,196 ------------ PROVINCIAL AND MUNICIPAL - 0.8% Metropolitan Municipality of Toronto, 750 9.625%, 5/14/02................. 596,591 Ville de Montreal, 1,000 6.375%, 2/15/01................. 709,790 ------------ 1,306,381 ------------ 11 - ----------------------------------------------------------- PRINCIPAL AMOUNT LOCAL CURRENCY VALUE (000) DESCRIPTION (US$) - ----------------------------------------------------------- SUPRANATIONAL - 1.1% Bayerische Vereinsbank AG, C$ 500 7.125%, 7/29/99................. 356,206 Canada (Cayman), 750 7.25%, 6/01/08.................. 577,579 Republic of Finland, 1,000 9.00%, 12/31/98................. 714,678 ------------ 1,648,463 ------------ Total Canadian eurobonds (cost US$8,533,004)............. 8,306,068 ------------ Total Canadian long-term investments (cost US$43,815,187)............ 44,045,463 ------------ NEW ZEALAND - 8.0% GOVER NMENT BONDS - 4.2% Gover nment of New Zealand, NZ$ 1,000 8.00%, 2/15/01.................. 560,877 5,000 8.00%, 4/15/04.................. 2,886,015 5,000 8.00%, 11/15/06................. 2,959,425 ------------ Total New Zealand government bonds (cost US$7,504,044)............. 6,406,317 ------------ CORPORATE BONDS - 1.7% DIVERSIFIED INDUSTRIALS - 1.5% Electricity Corporation of New Zealand Ltd., 1,750 10.00%, 10/15/01................ 1,017,956 2,500 8.00%, 2/15/03.................. 1,375,288 ------------ 2,393,244 ------------ FINANCIAL SERVICES - 0.2% Transpower Finance Ltd., 500 8.00%, 6/15/05.................. 280,251 ------------ Total New Zealand corporate bonds (cost US$2,948,045)............. 2,673,495 ------------ EUROBONDS - 2.1% FINANCIAL SERVICES - 2.1% International Bank for Reconstruction and Development, 2,000 9.00%, 7/08/99.................. 1,111,788 1,000 7.00%, 9/18/00.................. 555,200 Primary Industry Bank of Australia Limited, NZ$ 1,000 8.25%, 3/27/00.................. 551,730 Societe Generale New Zealand, 2,000 9.00%, 5/29/98.................. 1,109,773 ------------ Total New Zealand eurobonds (cost US$4,095,764)............. 3,328,491 ------------ Total New Zealand long-term investments (cost US$14,547,853)............ 12,408,303 ------------ UNITED KINGDOM - 32.5% GOVERNMENT BONDS - 17.6% United Kingdom Treasury, 1,000 8.00%, 12/07/00................. 1,737,941 1,000 8.00%, 6/10/03.................. 1,815,384 1,500 6.75%, 11/26/04................. 2,620,625 2,000 7.50%, 12/07/06................. 3,702,855 4,000 8.50%, 7/16/07.................. 7,915,026 3,700 8.00%, 12/07/15................. 7,663,019 750 8.00%, 6/07/21.................. 1,605,324 ------------ Total United Kingdom government bonds (cost US$24,261,020)............ 27,060,174 ------------ EUROBONDS - 14.9% DIVERSIFIED INDUSTRIALS - 3.4% Allied Domecq PLC, 1,000 10.625%, 2/25/99................ 1,713,390 British Gas PLC, 1,400 8.875%, 7/08/08................. 2,705,903 Rolls-Royce PLC, 500 11.625%, 7/30/98................ 843,113 ------------ 5,262,406 ------------ FINANCIAL SERVICES - 7.4% Abbey National Treasury Services PLC, 1,250 8.00%, 4/02/03.................. 2,209,646 Barclays Bank PLC, 1,000 9.875%, 5/29/49................. 1,997,562 Halifax Building Society, 1,500 11.00%, 1/17/14................. 3,519,763 12 - ----------------------------------------------------------- PRINCIPAL AMOUNT LOCAL CURRENCY VALUE (000) DESCRIPTION (US$) - ----------------------------------------------------------- L loyds Bank PLC, 1,000 7.375%, 3/11/04................. 1,736,374 Prudential Finance B.V., 1,000 9.375%, 6/04/07................. 1,987,115 ------------ 11,450,460 ------------ NATURAL RESOURCES - 1.2% Thames Water Utilities Finance PLC, 1,000 10.50%, 11/21/01................ 1,857,566 ------------ SUPRANATIONAL - 2.9% Republic of Finland, 1,000 8.00%, 4/07/03.................. 1,778,165 1,250 10.125%, 6/22/08................ 2,664,112 ------------ 4,442,277 ------------ Total United Kingdom eurobonds (cost US$19,672,210)............ 23,012,709 ------------ Total United Kingdom long-term investments (cost US$43,933,230)............ 50,072,883 ------------ Total long-term investments (cost US$140,721,455)........... 142,490,983 ------------ SHOR T-TERM INVESTMENTS - 5.0% AUSTRALIA - 1.5% Banque Nationale de Paris Fixed Deposit, 4.60%, 5/01/98 A$ 3,537 (cost US$2,304,084)............. 2,304,084 ------------ CANADA - 1.5% State Street Bank and Trust Company Time Deposit, 4.40%, 5/06/98 C$ 3,384 (cost US$2,354,408)............. 2,366,263 ------------ NEW ZEALAND - 1.0% Bankers Trust New Zealand Limited Call Account, NZ$ 2,750 9.90%, 5/01/98 (cost US$1,630,259)............. 1,476,605 ------------ UNITED KINGDOM - 0.1% State Street Bank and Trust Company Fixed Deposit, 7.00%, 5/05/98 91 (cost US$151,180)............... 151,488 ------------ UNITED STATES - 0.9% US$ 1,446 Repurchase Agreement, State Street Bank and Trust Company, 5.35% dated 4/30/98, due 5/01/98 in the amount of $1,446,215 (cost $1,446,000; collateralized by $1,450,000 U.S. Treasury Notes, 5.625% due 12/31/99; value $1,503,620)..................... 1,446,000 ------------ Total short-term investments (cost US$7,885,931)............. 7,744,440 ------------ TOTAL INVESTMENTS - 97.4% (cost US$148,607,386)........... 150,235,423 Other assets in excess of liabilities - 2.6%.............. 3,972,572 ------------ TOTAL NET ASSETS - 100.0%........ $154,207,995 ------------ ------------ See Notes to Financial Statements. 13 - -------------------------------------------------------------------------------- THE FIRST COMMONWEALTH FUND, INC. STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1998 (UNAUDITED) - -------------------------------------------------------------------------------- ASSETS Investments, at value (cost $148,607,386).............................................. $150,235,423 Foreign currency, at value (cost $828)................................................. 824 Cash................................................................................... 913 Receivable for investments sold........................................................ 3,588,388 Interest receivable.................................................................... 3,782,044 Prepaid expenses....................................................................... 69,592 ------------ Total assets.......................................................................... 157,677,184 ------------ LIABILITIES Payable for investments purchased...................................................... 2,392,418 Dividends payable - common stock....................................................... 718,131 Investment management fee payable...................................................... 94,374 Administration fee payable............................................................. 29,038 Accrued expenses and other liabilities................................................. 235,228 ------------ Total liabilities..................................................................... 3,469,189 ------------ TOTAL NET ASSETS....................................................................... $154,207,995 ------------ ------------ Total net assets were composed of: Common stock: Par value ($.001 per share, applicable to 9,266,209 shares issued).................... $ 9,266 Paid-in capital in excess of par...................................................... 127,309,915 Preferred stock ($.001 par value per share and $25,000 liquidation value per share applicable to 1,200 shares; Note 4)................................................... 30,000,000 ------------ 157,319,181 Distributions in excess of net investment income....................................... (67,941) Undistributed net realized gains on investment transactions............................ 1,040,939 Net unrealized appreciation on investments............................................. 9,041,540 Accumulated net realized foreign exchange losses....................................... (5,679,099) Net unrealized foreign exchange losses................................................. (7,446,625) ------------ TOTAL NET ASSETS....................................................................... $154,207,995 ------------ ------------ Net assets applicable to common shareholders........................................... $124,207,995 ------------ ------------ Net asset value per common share ($124,207,995 L 9,266,209 shares of common stock issued and outstanding).................................................. $ 13.40 ------------ ------------
See Notes to Financial Statements. 14 - -------------------------------------------------------------------------------- THE FIRST COMMONWEALTH FUND, INC. STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED) - -------------------------------------------------------------------------------- NET INVESTMENT INCOME Income Interest and discount earned (net of foreign withholding taxes of $109,711)............ $ 5,793,314 ----------- Expenses Investment management fee.............................................................. 502,532 Administration fee..................................................................... 154,625 Director's fees and expenses........................................................... 75,464 Independent accountants' fees and expenses............................................. 69,281 Custodian's fees and expenses.......................................................... 66,334 Reports to shareholders................................................................ 55,758 Auction agent's fees and expenses...................................................... 39,318 Legal fees and expenses................................................................ 22,281 Insurance expense ..................................................................... 21,200 Transfer agent's fees and expenses..................................................... 11,980 Registration fees...................................................................... 8,019 Excise tax ............................................................................ 6,056 Miscellaneous.......................................................................... 10,257 ----------- Total operating expenses............................................................. 1,043,105 ----------- Net investment income................................................................... 4,750,209 ----------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCIES Net realized gains on investment transactions.......................................... 1,075,702 Net change in unrealized appreciation/depreciation on investments...................... (194,954) ----------- Net gains on investments............................................................... 880,748 ----------- Net increase in total net assets resulting from operations before net foreign exchange losses................................................................................. 5,630,957 Net realized foreign exchange losses................................................... (2,218,934) Net change in unrealized foreign exchange losses....................................... (3,045,821) ----------- NET INCREASE IN TOTAL NET ASSETS RESULTING FROM OPERATIONS.............................................................. $ 366,202 ----------- -----------
See Notes to Financial Statements. 15 - -------------------------------------------------------------------------------- THE FIRST COMMONWEALTH FUND, INC. STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED) - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH (INCLUDING FOREIGN CURRENCY) Cash flows provided by operating activities Interest received (excluding amortization of $33,964)................................. $ 6,348,417 Operating expenses paid............................................................... (1,005,320) Sales of short-term portfolio investments, net........................................ (371,586) Purchases of long-term portfolio investments.......................................... (24,704,872) Proceeds from sales of long-term portfolio investments................................ 25,170,007 Other................................................................................. (41,792) ------------ Net cash provided by operating activities........................................... 5,394,854 ------------ Cash flows used for financing activities Dividends paid to common shareholders................................................. (4,540,103) Dividends paid to preferred shareholders.............................................. (822,240) ------------ Net cash used for financing activities.............................................. (5,362,343) ------------ Effect of exchange rate on cash........................................................ (31,688) ------------ Net increase in cash................................................................... 823 Cash at beginning of period........................................................... 914 ------------ Cash at end of period................................................................. $ 1,737 ------------ ------------ RECONCILIATION OF NET INCREASE IN TOTAL NET ASSETS RESULTING FROM OPERATIONS TO NET CASH (INCLUDING FOREIGN CURRENCY) PROVIDED BY OPERATING ACTIVITIES Net increase in total net assets resulting from operations............................. $ 366,202 ------------ Decrease in investments............................................................... 365,771 Net realized gains on investment transactions......................................... (1,075,702) Net realized foreign exchange losses.................................................. 2,218,934 Net change in unrealized appreciation/depreciation on investments..................... 194,954 Net change in unrealized foreign exchange losses...................................... 3,045,821 Decrease in interest receivable....................................................... 589,067 Increase in receivable for investments sold........................................... (2,698,604) Net increase in other assets.......................................................... (41,792) Increase in payable for investments purchased......................................... 2,392,418 Increase in accrued expenses and other liabilities.................................... 37,785 ------------ Total adjustments..................................................................... 5,028,652 ------------ Net cash provided by operating activities.............................................. $ 5,394,854 ------------ ------------
See Notes to Financial Statements. 16 - -------------------------------------------------------------------------------- THE FIRST COMMONWEALTH FUND, INC. STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEAR APRIL 30, ENDED 1998 OCTOBER 31, (UNAUDITED) 1997 ------------ ------------ INCREASE (DECREASE) IN TOTAL NET ASSETS Operations Net investment income.................................................. $ 4,750,209 $ 10,543,121 Net realized gains on investment transactions.......................... 1,075,702 137,489 Net change in unrealized appreciation/depreciation on investments...... (194,954) 4,973,642 ------------ ------------ Net increase in total net assets resulting from operations before net foreign exchange losses.............................................. 5,630,957 15,654,252 Net realized foreign exchange losses................................... (2,218,934) (92,892) Net change in unrealized foreign exchange losses....................... (3,045,821) (8,120,845) ------------ ------------ Net increase in total net assets resulting from operations.............. 366,202 7,440,515 ------------ ------------ Dividends and distributions to shareholders Dividends to common shareholders from net investment income............ (4,493,772) (9,219,249) Dividends to preferred shareholders from net investment income......... (822,240) (1,584,660) Distributions to common shareholders from net realized gains on investment transactions.............................................. -- (138,993) ------------ ------------ Net decrease in total net assets resulting from dividends and distributions to shareholders.......................................... (5,316,012) (10,942,902) ------------ ------------ Total decrease.......................................................... (4,949,810) (3,502,387) TOTAL NET ASSETS Beginning of period..................................................... 159,157,805 162,660,192 ------------ ------------ End of period (including distributions in excess of net investment income of $67,941 and undistributed net investment income of $497,862, respectively)................................................ $154,207,995 $159,157,805 ------------ ------------ ------------ ------------
See Notes to Financial Statements. 17 - -------------------------------------------------------------------------------- THE FIRST COMMONWEALTH FUND, INC. FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, FOR THE YEAR ENDED OCTOBER 31, 1998 (UNAUDITED) -------- -------------------------------------------- PER SHARE OPERATING PERFORMANCE: 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- Net asset value per common share, beginning of period.............................................. $ 13.94 $ 14.32 $ 13.13 $ 12.08 $ 13.42 $ 13.00 -------- -------- -------- -------- -------- -------- Net investment income............................... 0.51 1.14 1.16 1.19 1.16 1.19 Net realized and unrealized gains (losses) on investments and foreign currencies................. (0.48) (0.34) 1.21 1.10 (1.33) 0.55 -------- -------- -------- -------- -------- -------- Total from investment operations................... 0.03 0.80 2.37 2.29 (0.17) 1.74 -------- -------- -------- -------- -------- -------- Dividends from net investment income to common shareholders....................................... (0.48) (0.99) (1.00) (1.03) (0.98) (0.96) Dividends from net investment income to preferred shareholders....................................... (0.09) (0.17) (0.16) (0.18) (0.11) (0.08) Distributions from net realized gains on investment transactions to common shareholders................ -- (0.02) (0.01) (0.03) (0.07) (0.26) Distributions from net realized gains on investment transactions to preferred shareholders............. -- -- (0.01) -- (0.01) (0.02) -------- -------- -------- -------- -------- -------- Total dividends and distributions.................. (0.57) (1.18) (1.18) (1.24) (1.17) (1.32) -------- -------- -------- -------- -------- -------- Net asset value per common share, end of period..... $ 13.40 $ 13.94 $ 14.32 $ 13.13 $ 12.08 $ 13.42 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Market value, end of period......................... $11.1875 $12.4375 $ 11.875 $ 11.375 $ 10.375 $ 12.625 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Number of shares of common stock outstanding (000 omitted)...................................... 9,266 9,266 9,266 9,266 9,266 9,249 TOTAL INVESTMENT RETURN BASED ON:(1) Market value....................................... (6.39)%(2) 13.78% 13.89% 20.72% (10.19%) 2.65% Net asset value.................................... 0.04%(2) 5.76% 18.99% 19.67% (1.63%) 13.31% RATIO TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS(3)/SUPPLEMENTARY DATA: Net assets of common shareholders, end of period (000 omitted)...................................... $124,208 $129,158 $132,660 $121,654 $111,925 $124,146 Average net assets of common shareholders (000 omitted)........................................... 125,504 130,125 122,887 115,277 118,336 121,323 Operating expenses.................................. 1.68%(4) 1.63% 1.70% 1.71% 1.75% 1.73% Net investment income before preferred stock dividends.......................................... 7.63%(4) 8.10% 8.73% 9.56% 9.06% 9.03% Net investment income available to common shareholders....................................... 6.31%(4) 6.88% 7.47% 8.09% 8.12% 8.25% Preferred stock dividends and distributions......... 1.32%(4) 1.22% 1.26% 1.48% 0.94% 0.78% Portfolio turnover.................................. 19% 24% 30% 23% 34% 41% Senior securities (preferred stock) outstanding (000 omitted)...................................... $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000 Asset coverage on preferred stock at end of period............................................. 514% 530% 542% 505% 473% 514% - ---------------------------------------------------------------------------------------------------------------------------
(1) Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund's dividend reinvestment plan. Total investment return does not reflect brokerage commissions. Generally, total investment return based on net asset value will be higher than total investment return based on market value in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods. (2) Total investment returns for periods of less than one full year are not annualized. (3) Ratios are calculated on the basis of income, expenses and preferred share dividends applicable to both the common and preferred shares relative to the average net assets of common shareholders. (4) Annualized. See Notes to Financial Statements. 18 - --------------------------------------------- THE FIRST COMMONWEALTH FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - --------------------------------------------- The First Commonwealth Fund, Inc. (the 'Fund') was incorporated in Maryland on June 28, 1991, as a closed-end, non-diversified investment company. The Fund's investment objective is to provide high current income by investing in high-grade fixed-income secur ities denominated in the currencies of Australia, Canada, New Zealand and the United Kingdom (the 'Commonwealth Currencies'). The Fund may also seek capital appreciation only as a secondary investment objective. It is expected that norma lly all of the Fund's assets will be invested in a portfolio of secur ities issued or guaranteed by the gover nments, territories, provinces and states of Australia, Canada, New Zealand and the United Kingdom as well as secur ities issued by cor porations domiciled in those countries. The Fund will, under nor mal circumstances, invest in debt securities in at least three of these currencies and will not hold more than 50% of its assets in secur ities denominated in any one Commonwealth Currency. The ability of issuers of debt secur ities held by the Fund to meet their obligations may be affected by economic developments in a specific industry, country or region. NOTE 1. ACCOUNTING The following is a summary of POLICIES significant accounting policies followed by the Fund in the preparation of its financial statements. Basis of Presentation: The financial statements of the Fund are prepared in accordance with United States generally accepted accounting principles using the United States dollar as both the functional and reporting currency. However, the Commonwealth Currencies (excluding New Zealand) are the functional currencies for Federal tax purposes (see Taxes below). Foreign Currency Translation: Australian dollar ('A$'), Canadian dollar ('C$'), New Zealand dollar ('NZ$') and United Kingdom pound (') amounts are translated into United States dollars on the following basis: (i) market value of investment securities, other assets and liabilities - at the closing rates of exchange as reported by a major bank; (ii) purchases and sales of investment securities, income and expenses - at the rates of exchange prevailing on the respective dates of such transactions. The Fund isolates that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of the securities held at fiscal period end. Similarly, the Fund isolates the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of portfolio securities sold during the fiscal year. Net realized foreign exchange losses of $2,218,934 for the six months ended April 30, 1998 includes realized foreign exchange gains and losses from sales and maturities of portfolio securities, sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the amounts of interest, discount and foreign withholding taxes recorded on the Fund's books and the US dollar equivalent amounts actually received or paid. Net unrealized foreign exchange losses of $3,045,821 for the six months ended April 30, 1998 include changes in the value of portfolio securities and other assets and liabilities arising as a result of changes in the exchange rates. Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of domestic origin, including unanticipated movements in the value of the foreign currency relative to the US dollar. The exchange rates of the Commonwealth Currencies utilized by the Fund at April 30, 1998 were US$0.6515 to A$1.00, US$0.6993 to C$1.00, US$0.5552 to NZ$1.00, and US$1.6716 to 1.00. Security Valuation: Investments are stated at value. Investments for which market quotations are readily available are valued at the last trade price on or within one local business day of the date of determination as obtained from a pricing source. If no such trade price is available, such investments are valued at the quoted bid pr ice or the mean between the quoted bid and asked price on the date of determination as obtained from a pr icing source. securities for which market 19 quotations are not readily available are valued at fair value in good faith using methods deter mined 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 amor tized cost, if their term to maturity from date of purchase was 60 days or less, or by amor tizing their value on the 61st day prior to maturity, if their original term to maturity exceeded 60 days. In connection with transactions in repurchase agreements with US financial institutions, it is the Fund's policy that its custodian/counterparty segregates the underlying collateral securities, the value of which exceeds the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, the collateral is valued on a daily basis to determine its adequacy. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited. Securities Transactions and Investment Income: Securities transactions are recorded on the trade date. Realized and unrealized gains and losses from security and currency transactions are calculated on the identi fied cost basis. Interest income is recorded on an accrual basis. Discounts on securities purchased are accreted on an effective yield basis over the estimated lives of the respective securities. Expenses are accrued on a daily basis. Forward Currency Contracts: The Fund is authorized to enter into forward currency contracts only for purposes of hedging against the effect that currency fluctuations may have on specific transactions. A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. The forward currency contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the forward currency contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. Dividends: Dividends and distributions to common shareholders are recorded on the ex-dividend date and are based upon net investment income and capital and currency gains determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for foreign currencies and loss deferrals. Dividends and distributions to preferred shareholders are accrued on a daily basis and are determined as described in Note 4. Reclassification of Capital Accounts: The Fund accounts and reports for distributions to shareholders in accordance with AICPA Statement of Position 93-2 Determination, Disclosure and Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by Investment Companies. For the year ended October 31, 1997, the Fund decreased undistributed net investment income by $487,247, decreased accumulated net realized gains on investments by $135,194 and decreased accumulated net realized foreign exchange losses by $710,781, resulting in a decrease to paid-in capital in excess of par by $88,340. Net investment income, net realized losses on investments and net assets were not affected by this change. Accumulated realized and unrealized foreign exchange losses shown in the composition of net assets represent foreign exchange losses for book purposes that have not yet been recognized for tax purposes. Taxes: For Federal income and excise tax purposes, substantially all of the Fund's transactions are accounted for using the functional currencies. Accordingly, only realized currency gains and losses resulting from the repatriation of any of the Commonwealth Currencies into US dollars or another Commonwealth Currency and realized currency gains and losses on non-Commonwealth currencies are recognized for tax purposes. No provision has been made for United States Federal income taxes because it is the Fund's policy to meet the requirements of the United States Internal Revenue Code applicable to regulated investment 20 companies and to distr ibute substantially all of its taxable income to shareholders. Provision has been made for United States excise taxes incurred during the fiscal year. Under the applicable foreign tax law, a withholding tax may be imposed on interest and discounts earned at various rates. Cash Flow Information: The Fund invests in securities and distributes dividends from net investment income and net realized gains on investment and currency transactions which are paid in cash or are reinvested at the discretion of shareholders. These activities are reported in the Statements of Changes in Net Assets and additional infor mation on cash receipts and cash payments is presented in the Statement of Cash Flows. Cash includes domestic and foreign currency. Use of Estimates: The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. NOTE 2. AGREEMENTS The Fund has agreements with EquitiLink International Management Limited (the 'Investment Manager'), EquitiLink Australia Limited (the 'Investment Adviser'), and Pr inceton Administrators, L.P. (the 'Administrator'). The Investment Manager and the Investment Adviser are affi liated companies. The Investment Manager has entered into an agreement with Wood Gundy, Inc. (the 'Consultant'). The Investment Manager makes investment decisions on behalf of the Fund on the basis of recommendations and information furnished to it by the Investment Adviser and the Consultant, including the selection of and the placement of orders with brokers and dealers to execute portfolio transactions on behalf of the Fund. The management agreement provides the Investment Manager with a fee, computed weekly and payable monthly, at the following annual rates: 0.65% of the Fund's average weekly net assets up to $200 million, 0.60% of such assets between $200 million and $500 million and 0.55% of such assets in excess of $500 million. The administration agreement provides the Administrator with a fee computed and payable monthly at the annual rate of 0.20% of the Fund's average weekly net assets, subject to a minimum annual payment of $150,000. The Investment Manager pays fees to the Investment Adviser and the Consultant for their services rendered. The Investment Manager informed the Fund that it paid $217,317 to the Investment Adviser and $7,984 to the Consultant during the six months ended April 30, 1998. NOTE 3. PORTFOLIO Purchases and sales of investment SECURITIES securities, other than short-term investments, for the six months ended April 30, 1998 aggregated $27,097,290 and $27,868,611, respectively. The United States federal income tax basis of the Fund's investments at April 30, 1998 was $141,836,389 and accordingly, net unrealized appreciation for United States federal income tax purposes was $8,399,034 (gross unrealized appreciation - $9,867,742, gross unrealized depreciation - $1,468,708). NOTE 4. CAPITAL There are 300 million shares of $.001 par value common stock authorized. Of the 9,266,209 shares outstanding at April 30, 1998, the Investment Manager owned 10,451 shares. There are 100 million shares of $.001 par value of Preferred Stock authorized. The preferred shares have rights as determined by the Board of Directors. The 1,200 shares of Auction Market Preferred Stock ('Preferred Stock') outstanding consist of one series, W-7. The Preferred Stock has a liquidation value of $25,000 per share plus any accumulated but unpaid dividends whether or not declared. Dividends on the Preferred Stock are cumulative at a rate typically reset every seven days based on the results of an auction. Dividend rates ranged from 5.205% to 5.90% during the six months ended April 30, 1998. Under the Investment Company Act of 1940, the Fund may not declare dividends or make other distributions on shares of common stock or purchase any such shares if, at the time of the declaration, distribution or purchase, asset coverage with 21 respect to the outstanding Preferred Stock would be less than 200%. The Preferred Stock is redeemable at the option of the Fund, in whole or in part, on any dividend payment date at $25,000 per share plus any accumu lated but unpaid dividends. The Preferred Stock is also subject to mandatory redemption at $25,000 per share plus any accumu lated but unpaid dividends, whether or not declared, if certain requirements relating to the composition of the assets and liabilities of the Fund as set forth in the Articles of Incorporation are not satisfied. The holders of Preferred Stock have voting rights equal to the holders of common stock (one vote per share) and will vote together with holders of shares of common stock as a single class. However, holders of Preferred Stock are also entitled to elect two of the Fund's directors. NOTE 5. SUBSEQUENT Subsequent to April 30, 1998, DIVIDENDS the Board of Directors of the Fund declared dividends from undistributed net investment income of $0.0775 per common share payable on May 29, 1998 and June 30, 1998 to common shareholders of record on May 19, 1998 and June 23, 1998, respectively. Subsequent to April 30, 1998 dividends and distributions declared and paid on preferred shares totaled approximately $183,984 for the outstanding preferred share series through June 12, 1998. 22 DIRECTORS Brian M. Sherman, Chairman Sir Roden Cutler David Lindsay Elsum Rt. Hon. Malcolm Fraser Laurence S. Freedman Michael Gleeson-White Michael R. Horsburgh Roger C. Maddock David Manor William J. Potter Peter D. Sacks Anton E. Schrafl E. Duff Scott John T. Sheehy Warren C. Smith OFFICERS Laurence S. Freedman, President Brian M. Sherman, Vice President David Manor, Treasurer Roy M. Randall, Secretary Ouma Sananikone-Fletcher, Assistant Vice President and Chief Investment Officer Barry G. Sechos, Assistant Treasurer Allan S. Mostoff, Assistant Secretary Margaret A. Bancroft, Assistant Secretary 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. The accompanying financial statements as of April 30, 1998, were not audited and, accordingly, no opinion is expressed on them. 23 INVESTMENT MANAGER EquitiLink International Management Limited THE FIRST Union House, Union Street COMMONWEALTH St. Helier, Jersey, Channel Islands FUND, INC. INVESTMENT ADVISER -------------------------- EquitiLink Australia Limited SEMI-ANNUAL REPORT Level 3, 190 George Street APRIL 30, 1998 Sydney, NSW 2000, Australia CONSULTANT Wood Gundy, Inc. HIGHLIGHTS OF THIS BCE Place, P.O. Box 500 REPORT Toronto, Ontario, MSJ 258 Canada O NAV RETURN 8.7% PER ADMINISTRATOR ANNUM SINCE INCEPTION* Princeton Administrators, L.P. O 8.8% CASH DISTRIBUTION Box 9095 RATE FOR THE YEAR TO Princeton, New Jersey 08543-9095 APRIL 30, 1998 CUSTODIAN AND TRANSFER AGENT O 93% OF THE FUND'S State Street Bank and Trust Company ASSETS INVESTED IN P.O. Box 8200 SECURITIES RATED Boston, Massachusetts 02266 'AA'/'AA' OR BETTER AUCTION AGENT O FUND HOLDS SPREAD OF Chase Manhattan Bank, N.A. HIGH QUALITY BONDS 55 Water Street ACROSS AUSTRALIA, NEW New York, New York 10041 ZEALAND, CANADA AND INDEPENDENT ACCOUNTANTS UNITED KINGDOM Price Waterhouse LLP 1177 Avenue of the Americas * ASSUMING REINVESTMENT New York, New York 10036 OF DISTRIBUTIONS LEGAL COUNSEL Dechert Price & Rhoads 30 Rockefeller Plaza New York, New York 10112 Stikeman Elliot L40 Chifley Tower Chifley Square Sydney, NSW 2000, Australia The shares of The First Commonwealth Fund, Inc. are traded on the New York Stock Exchange under the symbol 'FCO'. Information about the Fund's net asset value and market price is published weekly in Barron's and in the Monday edition of The Wall Street Journal. For a weekly update of the Fund's net asset value and share price, or to receive more information on the Fund, call toll-free: 1-800-543-6217 This report, including the financial information herein, is transmitted to the shareholders of The First Commonwealth Fund, Inc. for their information. It is not a prospectus, circular or representation intended for use in the purchase of shares of the Fund or any securities mentioned in the report. Past performance results should not be considered a representation of future performance. The First Commonwealth Fund, Inc. Box 9095 Princeton, NJ 08543-9095 (609) 282-4600 -----END PRIVACY-ENHANCED MESSAGE-----