UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-4438
Exact name of registrant as specified Aberdeen Australia Equity
in charter: Fund, Inc.
Address of principal executive offices: Gateway Centre 3,
100 Mulberry Street,
Newark, New Jersey 07102
Name and address of agent for service: Mr Beverly Hendry,
300 S.E. 2nd Street, Suite #820,
Fort Lauderdale,
Florida 33301
Registrant's telephone number,
including area code: 973-367-1495
Date of fiscal year end: 10/31/03
Date of reporting period: 04/30/03
Item 1 -- Reports to Stockholders
(LOGO)
------------------
Aberdeen
Australia Equity
Fund, Inc.
Invests primarily in equity securities of Australian
companies listed on The Australian Stock Exchange.
Semi-Annual Report
April 30, 2003
Letter to Shareholders
June 13, 2003
Dear Shareholder,
We present this Semi-Annual Report which covers the
activities of Aberdeen Australia Equity Fund, Inc. (the
"Fund") for the six months ended April 30, 2003. 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.
Quarterly Distribution Rate
A cash distribution for the current quarter of 2.5 cents per
share was paid on April 11, 2003.
The 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. This policy is subject to regular review
at the Board's quarterly meetings. The next review is
scheduled to take place in September 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, 2003.
Net Asset Value Performance
For the six months ended April 30, 2003 the Fund's total
return based on NAV was 12.4% after expenses (assuming
reinvestment of distributions) compared with 13.7%, in U.S.
dollar terms, for the S&P/ASX 200 Accumulation Index.
Share Price Performance
The Fund's share price rose 11.2% over the six months, from
$5.73 on October 31, 2002 to $6.37 on April 30, 2003. The
Fund's share price on April 30, 2003 represented a discount
of 15.5% to the NAV per share of $7.54 on that date. On
October 31, 2002, the discount to NAV was 16.2%. At the
date of this report the share price was $7.15, representing
a discount of 13.0% to the NAV of $8.22.
(CHART)
Aberdeen Australia Equity Fund, Inc. 1
Letter to Shareholders (continued)
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
412,700 shares have been repurchased.
Corporate Governance
In January 2003 the Fund's Board of Directors adopted
amended and restated bylaws to enhance corporate governance,
including bylaws with respect to the qualification of
directors and procedural provisions with respect to the
conduct of stockholder meetings, and the Board of Directors
determined to be subject to the provisions of the Maryland
Control Share Acquisition Act. Any stockholder who would
like a copy of the Fund's charter or bylaws may obtain a
copy from the Securities and Exchange Commission ("SEC") by
calling the SEC at (202) 942-8090 or e-mailing the SEC at
publicinfo@sec.gov, or from the Fund.
Results of Annual Meeting of Shareholders
At the Annual Meeting of Shareholders held on Tuesday, April
15, 2003 (the "Annual Meeting"), Messrs. David L. Elsum,
Laurence S. Freedman, Peter J. O'Connell and William J.
Potter were elected by the holders of the Fund's common
stock as Class III Directors to serve for a three-year term
expiring at the 2006 Annual Meeting of Shareholders.
At the Annual Meeting, shareholders overwhelmingly approved
proposals affording the Fund the flexibility to leverage by
issuing preferred stock or debt obligations, and a proposal
to amend the Fund's Management Agreement and Investment
Advisory Agreement to provide that fees paid under those
agreements will be based on managed assets attributable to
both its common stock and any senior securities.
At the Annual Meeting, the holders of only 38.1% of the
Fund's outstanding shares voted with respect to a
shareholder proposal, with 19.6% voting for and 18.5% voting
against the proposal. The shareholder proposal asked the
Board to consider steps to permit shareholders to realize
net asset value for their shares. At the request of the
Board of Directors, the Investment Manager prepared a Report
analyzing whether or not it would be advisable to convert
the Fund to an open-end structure or to pursue another
alternative strategy that might provide shareholders the
opportunity to realize net asset value for their shares. In
the Report, attention was given to the impact of open-ending
or such other alternative strategies, on the Fund's
investment objective, net asset value, earnings and
distributions, expense ratios, investment performance and
management. The Report was considered by the Board of
Directors at its regularly scheduled meeting in June 2003.
The Board of Directors has determined that it is currently
not in the interests of the Fund or its shareholders to
convert the Fund to an open-end structure. The Board
believes that a better way in which Fund shareholders may
realize additional value for their shares is through the
proposed tender offer discussed below.
Intention to Conduct Tender Offer
On February 19, 2003 the Fund, as part of its continuing
efforts to increase stockholder value, announced its
intention to conduct an in-kind tender offer to repurchase
up to 40% of the Fund's outstanding shares at a price of 90%
of the Fund's net asset value per share. The Fund has
submitted a request for a private letter ruling from the
United States Internal
2 Aberdeen Australia Equity Fund, Inc.
Letter to Shareholders (continued)
Revenue Service ("IRS") to the effect that the Fund will not
recognize any gain or loss on the repurchase of its shares
pursuant to the tender offer. The announcement of the
proposed tender offer indicated that the Fund's Board of
Directors contemplated that the tender offer will commence
in June 2003, with the expectation that the Fund may have
received by that time the private letter ruling from the IRS.
The Fund is aware that one large shareholder of the Fund
cannot participate in the proposed tender offer without
obtaining exemptive relief from the Securities and Exchange
Commission, and that such shareholder has applied to the
Securities and Exchange Commission for this relief. As
previously announced by the Fund, the Board of Directors
will attempt to coordinate the timing of the tender offer to
enable all shareholders to participate in the tender offer.
Full Value Partners, L.P. ("Full Value") filed a purported
class action on behalf of the Fund's stockholders, in
Newark, New Jersey federal court in March 2003 against both
the Fund and its Board of Directors. Full Value alleges
claims under various provisions of the Investment Company
Act of 1940 as well as under Maryland common law for
purported breaches of fiduciary duty owed to the
stockholders and alleged failures to disclose purportedly
material information for purposes of the proxy statement
related to the Fund's 2003 Annual Meeting of Stockholders.
Full Value seeks injunctive relief enjoining (i) the
effectuation of the proposed tender offer, (ii) the
enforcement of certain recently adopted bylaw amendments,
and (iii) overturning any "wrongful election" of directors
of the Fund. Unspecified damages, as well as costs and legal
fees, are also referenced. The Fund and its directors
believe that the claims are without merit and intend to
defend the claims vigorously. The Fund has filed a motion to
dismiss the complaint.
In an effort to provide more timely information to
shareholders, the market review and outlook will now be
published separately.
For information about the Fund, including a market review
and outlook, 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.
Aberdeen Australia Equity Fund, Inc. 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.
The Fund estimates that distributions for the fiscal year
commencing November 1, 2002, including the distribution paid
on April 11, 2003, are entirely comprised of net investment
income.
This estimated distribution composition may vary from
quarter to quarter because it may be materially impacted by
future realized gains and losses on securities and
fluctuations in the value of the currencies in which Fund
assets are denominated.
In January 2004, 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 Aberdeen Australia Equity Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
We invite you to participate in the Fund's Dividend
Reinvestment and Cash Purchase Plan ("the Plan"), which
allows you to automatically reinvest your distributions in
shares of the Fund's common stock at favorable commission
rates. Distributions made under the Plan are taxable to the
same extent as are cash distributions. The Plan also
enables you to make additional cash investments in shares of
at least $100 per month. Under this arrangement 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.
Aberdeen Australia Equity Fund, Inc. 5
Report of the Investment Manager
Portfolio Composition
The following chart summarizes the composition of the Fund's
portfolio expressed as a percentage of net assets. On April
30, 2003, the Fund held 92.2% of it assets in equities and
7.8% in short-term investments.
Aberdeen Australia Equity Fund
Asset Allocation as of April 30, 2003
(CHART)
6 Aberdeen Australia Equity Fund, Inc.
Selected Equity Holdings
The following were the Fund's top ten holdings at April 30, 2003.
Name of Security Percentage of Net Assets
---------------- ------------------------
QBE Insurance Group Limited 6.9%
Rio Tinto Limited 6.3%
Westpac Banking Corporation Limited 6.0%
BHP Billiton Limited 5.9%
Australia & New Zealand Banking Group Limited 5.6%
Leighton Holdings Limited 5.4%
Foster's Group Limited 4.4%
National Australia Bank Limited 4.3%
Telecom Corporation of New Zealand Limited 4.2%
Commonwealth Bank of Australia 4.2%
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 investment, that industry group represents 20% or more of
the S&P/ASX 200 Accumulation Index.
As of April 30, 2003, the Fund did not have more than 25% of
its assets in any industry group.
Aberdeen Asset Managers (C.I.) Limited, June 2003.
Aberdeen Australia Equity Fund, Inc. 7
Portfolio of Investments (unaudited)
April 30, 2003
Value
Shares Description (US$)
------------------------------------------------
LONG-TERM INVESTMENTS--92.2%
Common Stocks--92.2%
Consumer Discretionary--6.9%
1,540,615 Pacifica Group Limited $ 3,613,994
773,000 TABCORP Holdings
LimitedD 5,125,632
--------------
8,739,626
--------------
Consumer Staples--12.6%
2,920,000 Australian Agricultural
Company Limited 1,735,276
236,000 Foodland Associated
Limited 2,908,307
1,978,000 Foster's Group Limited* 5,543,275
790,000 Lion Nathan Limited 2,792,143
360,000 Woolworths Limited 2,909,559
--------------
15,888,560
--------------
Energy--3.0%
533,000 Woodside Petroleum
Limited 3,820,973
--------------
Financials--32.0%
609,000 Australia & New Zealand
Banking Group Limited* 7,104,904
355,275 Australian Stock
Exchange Limited 2,555,787
2,740,000 AXA Asia Pacific
Holdings Limited 3,822,236
314,000 Commonwealth Bank of
Australia 5,346,627
266,000 National Australia Bank
Limited 5,407,880
1,632,000 QBE Insurance Group
LimitedD 8,718,467
765,000 Westpac Banking
Corporation Limited 7,613,664
--------------
40,569,565
--------------
Industrials--6.5%
1,508,471 Collection House
Limited 1,490,926
1,115,000 Leighton Holdings
Limited 6,779,587
--------------
8,270,513
--------------
Value
Shares Description (US$)
------------------------------------------------
Materials--15.5%
1,323,000 BHP Billiton Limited $ 7,481,529
1,626,000 Iluka Resources Limited 4,180,464
398,000 Rio Tinto Limited 7,912,233
--------------
19,574,226
--------------
Property--2.0%
1,165,000 Westfield Trust* 2,499,667
--------------
Telecommunication Services--8.2%
1,991,129 Telecom Corporation of
New Zealand LimitedD 5,355,869
1,932,000 Telstra Corporation
Limited 5,088,049
--------------
10,443,918
--------------
Utilities--5.5%
530,000 Australian Gas Light
Company Limited 3,789,520
2,260,000 GasNet Australia Trust 3,180,922
--------------
6,970,442
--------------
Total common stocks
(cost $97,870,523) 116,777,490
--------------
Principal
Amount
(000)
---------
SHORT-TERM INVESTMENTS--9.9%
Demand Deposit--9.5%
A$
19,179 Banque Nationale de
Paris, 4.50%, 5/1/03
(cost $11,756,365) 11,997,482
--------------
Repurchase Agreement--0.4%
US$
500 State Street Bank &
Trust Company, 1.05%,
dated 4/30/03, due
5/1/03 in the amount
of $500,015
(cost $500,000;
collateralized by
335,000 U.S. Treasury
Bonds, due 8/15/14;
value including
accrued interest
$515,259) 500,000
--------------
Total short-term
investments
(cost $12,256,365) 12,497,482
--------------
-------------------------------------------------------------------------------
Total Investments--102.1% (cost $110,126,888) 129,274,972
Liabilities in excess of other assets--(2.1)% (2,695,880)
-------------------------------------------------------------------------------
Net assets--100% $126,579,092
------------------------------
* Non-income producing security.
D Portion of security on loan; see Note 3.
8 Aberdeen Australia Equity Fund, Inc. See Notes to Financial Statements.
Statement of Assets and Liabilities (unaudited)
April 30, 2003
Assets
Investments, at value (cost $110,126,888).......................... $129,274,972
Foreign currency, at value (cost $442,236)......................... 446,738
Cash............................................................... 735
Other assets....................................................... 43,119
------------
Total assets................................................... 129,765,564
------------
Liabilities
Payable for investments purchased.................................. 2,650,650
Accrued expenses and other liabilities............................. 442,331
Investment management fee payable.................................. 88,797
Administration fee payable......................................... 4,694
------------
Total liabilities.............................................. 3,186,472
------------
Net Assets......................................................... $126,579,092
------------
------------
Net assets were comprised of:
Common stock, $.01 par value................................... $ 167,773
Paid-in capital in excess of par............................... 136,011,023
------------
136,178,796
Overdistribution of net investment income...................... (101,107)
Accumulated net realized loss on investments................... (909,087)
Net unrealized appreciation on investments..................... 7,044,662
Accumulated net realized and unrealized foreign exchange
losses......................................................... (15,634,172)
------------
Net assets..................................................... $126,579,092
------------
------------
Net asset value per share:
($126,579,092 / 16,777,298 shares of common stock issued
and outstanding)................................................. $7.54
------------
------------
See Notes to Financial Statements. Aberdeen Australia Equity Fund, Inc. 9
Statement of Operations (unaudited)
Six Months Ended April 30, 2003
Net Investment Income
Income
Dividends (net of foreign withholding taxes of $77,354)........... $ 2,156,162
Interest.......................................................... 112,642
Income from securities loaned, net................................ 16,617
-----------
Total income...................................................... 2,285,421
-----------
Expenses
Investment management fee......................................... 559,219
Legal fees and expenses........................................... 301,000
Reports to shareholders........................................... 183,000
Public relations fees and expenses................................ 135,000
Directors' fees and expenses...................................... 91,000
Custodian's fees and expenses..................................... 85,000
Insurance expense................................................. 63,000
Investor relations fees and expenses.............................. 38,000
Independent auditor's fees and expenses........................... 37,000
Administration fee................................................ 28,838
Transfer agent's fees and expenses................................ 21,000
Miscellaneous..................................................... 5,638
-----------
Total operating expenses.......................................... 1,547,695
-----------
Net investment income............................................... 737,726
-----------
Realized and Unrealized Gains (Losses) on Investments and Foreign
Currencies
Net realized loss on investment transactions........................ (342,073)
Net decrease in unrealized appreciation on investments.............. (226,884)
-----------
Net loss on investments............................................. (568,957)
-----------
Net increase in net assets resulting from operations before net
foreign exchange gains............................................ 168,769
Net realized and unrealized foreign exchange gains.................. 13,621,669
-----------
Net Increase In Net Assets Resulting From Operations................ $13,790,438
-----------
-----------
10 Aberdeen Australia Equity Fund, Inc. See Notes to Financial Statements.
Statement of Changes in Net Assets (unaudited)
Six Months Year
Ended Ended
April 30, 2003 October 31, 2002
-------------- ----------------
Increase (Decrease) in Net Assets
Operations
Net investment income.......................... $ 737,726 $ 2,666,411
Net realized gains (losses) on investment
transactions................................. (342,073) 4,690,241
Net increase (decrease) in unrealized
appreciation on investments.................. (226,884) 1,234,408
-------------- ----------------
Net increase in net assets resulting from
operations before net foreign exchange
gains........................................ 168,769 8,591,060
Net realized and unrealized foreign exchange
gains........................................ 13,621,669 9,882,629
-------------- ----------------
Net increase in net assets resulting from
operations................................... 13,790,438 18,473,689
Dividends to shareholders from net investment
income......................................... (838,833) (2,602,055)
Distributions to shareholders from long-term
capital gains.................................. (1,174,365) (1,207,190)
Cost of Fund shares reacquired in repurchase
program (116,200 and 263,300 shares,
respectively).................................. (687,919) (1,536,167)
-------------- ----------------
Total increase................................... 11,089,321 13,128,277
Net Assets
Beginning of period.............................. 115,489,771 102,361,494
-------------- ----------------
End of period.................................... $126,579,092 $115,489,771
-------------- ----------------
-------------- ----------------
See Notes to Financial Statements. Aberdeen Australia Equity Fund, Inc. 11
Notes to Financial Statements (unaudited)
Aberdeen Australia Equity Fund, Inc. (the 'Fund') is a closed-end,
non-diversified management investment company incorporated in Maryland on
September 30, 1985. The Fund's principal investment objective is long-term
capital appreciation through investment primarily in equity securities of
Australian companies listed on The Australian Stock Exchange. The Fund's
secondary investment objective is current income. 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
12 Aberdeen Australia Equity Fund, Inc.
Notes to Financial Statements (unaudited) (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 April 30, 2003. 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. 13
Notes to Financial Statements (unaudited) (continued)
shown in the composition of net assets at April 30, 2003 represent foreign
exchange gains (losses) for book purposes that have not yet been recognized for
tax purposes.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin, including
unanticipated movements in the value of the foreign currency relative to the
United States dollar.
The exchange rate at April 30, 2003 was US$0.63 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 or 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 including the amortization of premiums or accretion of discounts
on debt securities 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 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 or 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
14 Aberdeen Australia Equity Fund, Inc.
Notes to Financial Statements (unaudited) (continued)
taxable net income and capital gains, if any, to shareholders. Therefore, no
provision for United States income taxes is required. Australia imposes a
withholding tax of 15% on certain dividends and 10% on certain interest.
Securities Lending:
The Fund may lend its portfolio securities to qualified institutions. The loans
are secured by collateral 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 or loss in
the market price of the securities loaned that may occur during the term of the
loan will be for the account of the Fund.
Note 2. Agreements
Aberdeen Asset Managers (C.I.) Limited (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 $150,190 to the
Investment Adviser during the six months ended April 30, 2003.
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. 15
Notes to Financial Statements (unaudited) (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 service provider. This
agreement provides Aberdeen with a monthly retainer fee of $5,000 plus
out-of-pocket expenses. During the six months ended April 30, 2003, the Fund
incurred fees of approximately $30,000 for the services of Aberdeen. As of April
30, 2003, $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 six months ended April 30, 2003 aggregated $12,668,789 and $17,949,182,
respectively.
As of April 30, 2003, the Fund had securities on loan with an aggregate market
value of $9,796,115. The Fund received $10,328,529 in securities as collateral
for securities on loan in accordance with the Fund's securities lending
procedures.
Note 4. Tax Information
The United States federal income tax basis of the Fund's investments and the net
unrealized appreciation as of April 30, 2003 was as follows:
Net
Unrealized
Tax Basis Appreciation Depreciation Appreciation
---------------- ---------------- ---------------- ----------------
$122,715,092 $13,338,917 $6,779,037 $6,559,880
The difference between book and tax basis is primarily attributable to deferred
losses on wash sales and foreign currency transactions.
Note 5. Capital
There are 20 million shares of $.01 par value common stock authorized. At April
30, 2003 there were 16,777,298 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 six months ended April 30, 2003 was 13.03%. The weighted
average discount for the year ended October 31, 2002 was 14.16%. During the six
months ended April 30, 2003 and the fiscal year ended October 31,
16 Aberdeen Australia Equity Fund, Inc.
Notes to Financial Statements (unaudited) (concluded)
2002, the Fund repurchased and cancelled under this program 116,200 and 263,300
shares, respectively.
Note 6. Dividends and Distributions
The Board of Directors of the Fund approved on June 11, 2003 a quarterly
distribution of $0.025 per share of ordinary income payable on July 11, 2003 to
shareholders of record on June 30, 2003.
Note 7. Beneficial Ownership; Change of Control
Based on filings with the Securities and Exchange Commission, on May 21, 2003,
Bankgesellschaft Berlin (A.G.) owned 5,374,949 shares of common stock. This
number of shares represented 32.0% of the outstanding shares of the Fund as of
the date of this report.
Note 8. Litigation
Full Value Partners, L.P. ('Full Value') filed a purported class action on
behalf of the Fund's stockholders, in Newark, New Jersey federal court in March
2003 against both the Fund and its Board of Directors. Full Value alleges claims
under various provisions of the Investment Company Act of 1940 as well as under
Maryland common law for purported breaches of fiduciary duty owed to the
stockholders and alleged failures to disclose purportedly material information
for purposes of the proxy statement related to the Fund's 2003 Annual Meeting of
Stockholders. Full Value seeks injunctive relief enjoining (i) the effectuation
of the proposed tender offer, (ii) the enforcement of certain recently adopted
bylaw amendments, and (iii) overturning any 'wrongful election' of directors of
the Fund. Unspecified damages, as well as costs and legal fees, are also
referenced. The Fund and its directors believe that the claims are without merit
and intend to defend the claims vigorously. The Fund has filed a motion to
dismiss the complaint.
Aberdeen Australia Equity Fund, Inc. 17
Financial Highlights (unaudited)
Six Months
Ended
April 30, 2003
--------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................................... $ 6.84
--------------
Net investment income..................................................... .04
Net realized and unrealized gains (losses) on investments and foreign
currencies.............................................................. .77
--------------
Total from investment operations........................................ .81
--------------
Dividends from net investment income...................................... (.05)
Distributions from net realized capital and currency gains................ (.07)
Tax return of capital..................................................... --
--------------
Total dividends and distributions....................................... (.12)
--------------
Capital reduction with respect to issuance of Fund shares................. --
Increase resulting from Fund share repurchase............................. .01
--------------
Net asset value, end of period............................................ $ 7.54
--------------
--------------
Market price per share, end of period..................................... $ 6.37
--------------
--------------
TOTAL INVESTMENT RETURN BASED ON#:
Market value.............................................................. 13.30%
Net asset value........................................................... 12.35%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets................................... 2.67%*
Ratio of net investment income to average net assets...................... 1.27%*
Portfolio turnover rate................................................... 11%
Net assets, end of period (000 omitted)................................... $126,579
Average net assets (000 omitted).......................................... $116,920
------------------------------
* Annualized.
# Total investment return is calculated assuming a purchase of common stock on the
first day and a sale on the last day of each period reported. Dividends and
distributions are assumed, for purposes of this calculation, to be reinvested at
prices obtained under the Fund's dividend reinvestment plan. Total investment return
does not reflect brokerage commissions. Total returns for periods less than a full
year are not annualized.
D Less than $0.005 per share.
NOTE: Contained above is operating performance for a share of common stock outstanding,
total investment return, ratios to average net assets and other supplemental data
for each of the periods indicated. This information has been determined based upon
financial information provided in the financial statements and market value data for
the Fund's shares.
18 Aberdeen Australia Equity Fund, Inc. See Notes to Financial Statements.
Financial Highlights (unaudited) (concluded)
Year Ended October 31,
----------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
---------------- ---------------- ---------------- ---------------- ----------------
$ 5.97 $ 6.86 $ 8.78 $ 8.25 $ 9.35
-------- -------- -------- -------- --------
.15 .12 .14 .08 .21
.93 (.33) (1.25) 1.26 (.41)
-------- -------- -------- -------- --------
1.08 (.21) (1.11) 1.34 (.20)
-------- -------- -------- -------- --------
(.15) -- (.12) (.30) (.23)
(.07) -- (.69) (.51) (.66)
-- (.68) -- -- --
-------- -------- -------- -------- --------
(.22) (.68) (.81) (.81) (.89)
-------- -------- -------- -------- --------
-- -- -- -- (.01)
.01 --D -- -- --
-------- -------- -------- -------- --------
$ 6.84 $ 5.97 $ 6.86 $ 8.78 $ 8.25
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
$ 5.73 $ 5.29 $ 5.875 $ 8.00 $ 6.5625
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
12.55% 1.06% (17.31)% 34.91% (0.38)%
19.04% (2.32)% (12.02)% 17.77% (0.34)%
1.76 1.80% 1.66% 2.58% 1.61%
2.33 1.77% 1.66% .87% 2.38%
56% 50% 120% 143% 180%
$115,490 $102,361 $117,941 $150,916 $141,794
$114,213 $115,051 $143,801 $157,565 $149,827
See Notes to Financial Statements. Aberdeen Australia Equity Fund, Inc. 19
Supplemental Proxy Information (unaudited)
The Annual Meeting of Shareholders of Aberdeen Australia Equity Fund, Inc. (the
'Fund') was held on Tuesday, April 15, 2003 at the offices of Prudential
Financial, Inc., 751 Broad Street, Newark, New Jersey. The meeting was held for
the following purposes:
(1) To elect four Directors to serve as Class III Directors for a three-year
term expiring in 2006.
- David L. Elsum
- Laurence S. Freedman
- Peter J. O'Connell
- William J. Potter
Directors whose term of office continued beyond this meeting are as
follows:
Anthony E. Aaronson, Howard A. Knight (since deceased), Neville J. Miles,
Peter D. Sacks, John T. Sheehy and Hugh Young.
(2) To amend the Fund's charter to increase the number of authorized shares of
stock, to authorize an undesignated class of preferred stock and to
authorize the Board of Directors to classify and reclassify any unissued
shares of preferred stock into one or more classes or series of preferred
or common stocks.
(3) To amend the Fund's fundamental borrowing policy.
(4A) To amend the Fund's Management Agreement to provide that fees paid
thereunder to the Investment Manager will be based on all managed assets.
(4B) To amend the Fund's Investment Advisory Agreement to provide that fees
paid thereunder to the Investment Adviser will be based on all managed
assets.
(5) To consider a stockholder proposal that the stockholders of the Fund ask
the Board of Directors to consider taking the steps necessary to convert
the Fund to an open-end fund or otherwise permit stockholders to realize
net asset value for their shares.
The results of voting on the above matters were as follows:
Votes Votes
Directors For Withheld
------------------------ ----------- ---------
(1) David L. Elsum 13,309,417 2,277,079
Laurence S. Freedman 13,268,685 2,317,811
Peter J. O'Connell 13,362,285 2,224,210
William J. Potter 13,356,112 2,230,383
Votes Votes Broker
For Against Abstentions Non-Votes
---------- --------- ----------- ---------
(2) Amendment of Charter 8,641,895 3,041,057 377,628 3,525,916
(3) Amendment of Borrowing
Policy 8,681,895 3,156,089 222,593 3,525,919
(4A) Amendment of Management
Agreement 12,102,598 3,079,038 404,855 5
(4B) Amendment of Investment
Advisory Agreement 12,063,703 3,118,196 404,591 6
(5) Stockholder Proposal 3,293,248 3,099,291 5,668,136 3,525,821
20 Aberdeen Australia Equity Fund, Inc. See Notes to Financial Statements.
Directors Officers
Hugh Young, Chairman Hugh Young, President
Anthony E. Aaronson Beverly Hendry, Vice President
David L. Elsum Christian Pittard, Treasurer and
Laurence S. Freedman Assistant Secretary
Neville J. Miles Roy M. Randall, Secretary
Peter J. O'Connell Timothy Sullivan, Assistant Treasurer
William J. Potter Simon Bignell, Assistant Treasurer
Peter D. Sacks Jack R. Benintende, Assistant Treasurer
John T. Sheehy Sander M. Bieber, Assistant Secretary
The accompanying Financial Statements as of April 30, 2003
were not audited and accordingly, no opinion expressed
thereon.
Notice is hereby given in accordance with Section 23(c) of
the Investment Company Act of 1940 that the Fund may
purchase, from time to time, shares of its common stock in
the open market.
Aberdeen Australia Equity Fund, Inc.
Corporate Information
Investment Manager Aberdeen Asset Managers (C.I.) Limited
P.O. Box 578, 17 Bond Street
St. Helier, Jersey, JE4 5XB Channel Islands
Investment Adviser Aberdeen Asset Management Limited
Level 6, 201 Kent Street
Sydney, NSW 2000, Australia
Administrator Prudential Investments LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian 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 Auditors PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel Dechert LLP
1775 I Street N.W.
Washington, DC 20006-2401
The Seidler Law Firm
Level 40, Chifley Tower
Two Chifley Square
Sydney, NSW 2000, Australia
Investor Relations Aberdeen Asset Management
45 Broadway, 31st Floor
New York, NY 10006
1-800-522-5465 or 1-212-968-8800
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.
This report, including the financial information 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.
Past performance is no guarantee of future returns.
Item 2 -- Code of Ethics -- Not required in this filing
Item 3 -- Audit Committee Financial Expert -- Not required in this filing
Item 4 -- Principal Accountant Fees and Services -- Not required in this
filing
Item 5 -- Reserved
Item 6 -- Reserved
Item 7 -- Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies -- Not required in this filing
Item 8 -- Reserved
Item 9 -- Controls and Procedures
(a) It is the conclusion of the registrant's principal executive
officer and principal financial officer that the effectiveness of
the registrant's current disclosure controls and procedures (such
disclosure controls and procedures having been evaluated within
90 days of the date of this filing) provide reasonable assurance
that the information required to be disclosed by the registrant
has been recorded, processed, summarized and reported within the
time period specified in the Commission's rules and forms and
that the information required to be disclosed by the registrant
has been accumulated and communicated to the registrant's
principal executive officer and principal financial officer in
order to allow timely decisions regarding required disclosure.
(b) There have been no significant changes in the registrant's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10 -- Exhibits
(a) Code of Ethics -- Not required in this filing
(b) Certifications pursuant to Section 302 of the Sarbanes-Oxley
Act -- Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Aberdeen Australia Equity Fund, Inc.
By: /s/ Hugh Young
--------------
Hugh Young,
President of
Aberdeen Australia Equity Fund, Inc.
Date: July 1, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: /s/_Hugh Young
---------------------
Hugh Young,
President of
Aberdeen Australia Equity Fund, Inc.
Date: July 1, 2003
By: /s/ Christian Pittard
---------------------
Christian Pittard,
Treasurer of
Aberdeen Australia Equity Fund, Inc.
Date: July 1, 2003
Attached hereto as an exhibit are the certifications pursuant to
Section 906 of the Sarbanes-Oxley Act.