As filed with the Securities and Exchange Commission on October 8, 2002.
Investment Company Act File No. 811-04611
Securities Act File No. 333-_____________
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
|X| Registration Statement Under the Securities Act of 1933
[_] Pre-effective Amendment No. ____
[_] Post-effective Amendment No. ____
|X| Registration Statement Under the Investment Company Act of 1940
[X] Amendment No. 34
ABERDEEN ASIA-PACIFIC INCOME FUND, INC.
(Exact name of Registrant as Specified in Charter)
Gateway Center 3
100 Mulberry Street
Newark, NJ 07102
Registrant's telephone number, including Area Code: (800) 451-6788
Beverley Hendry
300 Las Olas Place
300 S.E. 2nd Street
Fort Lauderdale, FL 33301
(Name and Address of Agent for Service)
Copies to:
Thomas A. Hale, Esquire Sander M. Bieber, Esquire
Skadden, Arps, Slate, Meagher & Flom LLP Dechert
333 West Wacker Drive 1775 Eye Street, N.W.
Chicago, IL 60606 Washington, D.C. 20006
Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement
If any securities being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933, other
than securities offered in connection with a dividend reinvestment plan, check
the following box ......[_]
It is proposed that this filing will become effective (check appropriate box)
[_] when declared effective pursuant to Section 8(c)
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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Proposed Maximum
Title of Securities Amount Being Offering Price Per Proposed Maximum Amount of
Being Registered Registered Unit/1/ Offering Price Registration Fee
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Common Stock 100,000 $ 4.53 $ 453,000 $ 41.67
($.01 par value)
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(1) Estimated pursuant to Rule 457(c) on the basis of market value per share on
October 3, 2002.
The Registrant hereby amends this Registration Statement under the Securities
Act of 1933 on such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective in
accordance with the provisions of Section 8(a) of the Securities Act of 1933 or
until the Registration Statement shall become effective on such date as the
Commission, acting pursuant to Section 8(a), may determine.
SUBJECT TO COMPLETION -- PRELIMINARY PROSPECTUS DATED ________, 2002
The information contained in this Prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
PROSPECTUS
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ABERDEEN ASIA-PACIFIC INCOME FUND, INC.
[# of shares] Shares of Common Stock
Issuable Upon Exercise of Transferable Rights
to Subscribe for Such Shares of Common Stock
American Stock Exchange Symbol: FAX
Pacific Stock Exchange Symbol: FAX
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Aberdeen Asia-Pacific Income Fund, Inc. ("Fund") will issue to its common
stockholders ("Stockholders") of record as of the close of business on [Record
Date] ("Record Date"), transferable rights ("Rights") entitling the holders
thereof to subscribe for up to an aggregate of [# of shares] new shares
("Shares") of the Fund's common stock, par value $0.01 ("Common Stock"), at the
rate of one share of Common Stock for every __ Rights held ("Offer").
Stockholders of record on the Record Date ("Record Date Stockholders") will
receive one transferable Right for each share of Common Stock held as of the
Record Date. The number of Rights issued to a Record Date Stockholder will be
rounded up to the nearest number of Rights evenly divisible by __. In the case
of shares of Common Stock held of record by Cede & Co. ("Cede"), as nominee for
the Depository Trust Company ("DTC"), or any other depository or nominee, the
number of Rights issued to Cede or such other depository or nominee will be
adjusted to permit rounding up (to the nearest number of Rights evenly divisible
by __) of the Rights to be received by beneficial owners for whom it is the
holder of record only if Cede or such other depository or nominee provides to
the Fund on or before the close of business on ______, 2002 a written
representation of the number of Rights required for such rounding. Record Date
Stockholders who fully exercise their Rights may purchase the new Shares not
acquired by other Record Date Stockholders in this Offer, subject to certain
limitations and subject to allotment ("Over-Subscription Privilege"). Fractional
shares will not be issued upon the exercise of Rights. See "The Offer."
The Fund's Common Stock is listed on the American Stock Exchange ("AMEX") and
the Pacific Stock Exchange ("PSE") under the symbol "FAX." The Rights are
transferable and will be admitted for trading on the AMEX under the
symbol "FAX.R" during the course of the Offer. The subscription price per share
will be $____ ("Subscription Price"). THE OFFER WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON [EXPIRATION DATE], UNLESS EXTENDED ("EXPIRATION DATE"). For
additional information regarding the Offer, please call Georgeson Shareholder
Communications, Inc. ("Information Agent") at (866) 206-4933.
The Fund is a non-diversified, closed-end management investment company. The
Fund's investment objective is to seek current income. In June 2001, the Fund's
common and preferred stockholders approved a series of proposals allowing the
Fund to invest up to 80% of its assets in Asian debt securities. The Fund may
also achieve incidental capital appreciation. See "Investment Objective,"
"Investment Policies," and "Investment Restrictions." Investment in the Fund
involves certain risks and special considerations, including risks associated
with currency fluctuations and the Fund's leveraged capital structure. See "Risk
Factors and Special Considerations." The Fund's Investment Manager is Aberdeen
Asset Managers (C.I.) Limited ("Investment Manager"), an affiliate of Aberdeen
Asset Management Limited, the Fund's Investment Adviser ("Investment Adviser").
Prudential Investments LLC acts as the Fund's administrator ("Administrator").
The Administrator is an affiliate of Prudential Securities, Inc. The address of
the Fund is Gateway Center 3, 100 Mulberry Street, Newark, New Jersey 07102, and
its telephone number is (800) 451-6788.
The Fund announced the Offer after the close of trading on the AMEX on
__________, 2002. The net asset value ("NAV") per share of Common Stock at the
close of business on __________, 2002 [(the last trading date on which the Fund
publicly reported its NAV prior to the announcement)] and on __________ [(the
last trading date on which the Fund publicly reported its NAV prior to the date
of this Prospectus)] was $____ and $____, respectively, and the last reported
sales price per share of the Fund's Common Stock on the AMEX on those dates was
$____ and $____, respectively.
This Prospectus sets forth concisely the information about the Fund that a
Stockholder ought to know before investing. Additional information about the
Fund has been filed with the Securities and Exchange Commission ("SEC") and is
available upon written or oral request without charge. The SEC maintains a
website (http://www.sec.gov) that contains material incorporated by reference
and other information regarding the Fund.
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND TO RETAIN IT FOR FUTURE
REFERENCE.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS APPROVED OR DISAPPROVED THESE SECURITIES
OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
=======================================================================================================================
Estimated Estimated Proceeds to
Subscription Price Sales Load(1) Fund or Other Persons (2)
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Per Share ..................... $____ $____ $____
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Total Maximum ................. $__________ $__________ $__________
=======================================================================================================================
Footnotes set forth on next page
Dealer Managers
[Record Date + 2]
(continued from previous page)
------------
(1) In connection with the Offer, the Fund has agreed to pay[Dealer Managers]
("Dealer Managers") a fee for their financial advisory, marketing and
soliciting services equal to an aggregate of 3.75% of the aggregate
Subscription Price for the Shares issued pursuant to the Offer and to
reimburse the Dealer Managers for out-of-pocket expenses up to $150,000.
The Dealer Managers will reallow to certain broker-dealers in the selling
group formed by the Dealer Managers selling fees of 2.50% of the
Subscription Price for Shares issued pursuant to the Offer as a result of
their selling efforts. In addition, the Dealer Managers will reallow to
certain soliciting dealers that have solicited the exercise of Rights a
solicitation fee of 0.50% of the Subscription Price for Shares issued
pursuant to the Offer as a result of their soliciting efforts, subject to
a maximum. See "Distribution Arrangements." These fees and expense
reimbursement will be borne by the Fund and indirectly by all of the
Fund's Stockholders, including those who do not exercise their Rights. The
Fund and the Investment Manager have agreed to indemnify the Dealer
Managers against certain liabilities including liabilities under the
Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended.
(2) Before deduction of expenses incurred by the Fund, estimated to be
$___________, including $150,000 to be paid to the Dealer Managers for
reimbursement of their expenses.
As a result of the terms of the Offer, assuming that Rights are exercised,
Stockholders who do not fully exercise their Rights will, upon the completion of
the Offer, own a smaller proportional interest in the Fund than they owned prior
to the Offer. In addition, because the Subscription Price may be less than the
NAV per share at the expiration of the Offer and because the Fund will incur
expenses in connection with the Offer, the Offer is likely to result in a
dilution of the NAV per share for all existing Stockholders. Such dilution may
disproportionately affect non-exercising Stockholders. If the Subscription Price
were to be substantially less than the NAV per share at the expiration of the
Offer, such dilution could be substantial. The Offer includes the
Over-Subscription Privilege that may also result in substantial dilution of NAV
per share. See "The Offer" and "Risk Factors and Special Considerations."
In connection with this Offer, the Dealer Managers may effect transactions
which stabilize or maintain the market price of the Rights and the shares of
Common Stock of the Fund at levels above those which might otherwise prevail in
the open market. Such transactions may be effected on the AMEX, Nasdaq or
otherwise. Such stabilizing, if commenced, may be discontinued at any time.
Prior to the expiration of the Offer, the Dealer Managers may offer shares
of Common Stock, including Shares acquired through purchasing and exercising the
Rights, at prices it sets. The Dealer Managers may realize profits or losses
independent of any fees described in this Prospectus.
Unless otherwise specified, all references to currency in this Prospectus
may be abbreviated throughout this Prospectus as shown in the table below. On
[Record Date], the noon buying rates in New York City for cable transfers
payable in each currency per U.S. dollar, as certified for customs purposes by
the Federal Reserve Bank of New York, were as shown in the table below. See
"Risk Factors and Special Considerations - Currency Exchange Rate Fluctuations."
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Currency Abbreviations Currency per US$
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United States Dollar "U.S. dollar," "dollar," "US$" or "$" N/A
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Australian Dollar "A$" A$_____
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New Zealand Dollar "NZ$" NZ$_____
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South Korean Won "W" or "KRW" KRW_____
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Thai Baht "B" or "THB" THB_____
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Philippines Peso "P" or "PHP" PHP_____
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Malaysian Ringgit "R" or "MYR" MYR_____
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Singapore Dollar "S$" or "SGD" SGD_____
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information appearing elsewhere or incorporated by reference in
this Prospectus. Unless otherwise indicated, the information in this Prospectus
assumes that the Rights issued are all exercised. Also, unless otherwise
indicated, references in the Prospectus to "Stockholders" refer only to holders
of the Fund's Common Stock.
THE OFFER AT A GLANCE
--------------------------------------------------------------------------------
The Offer The Fund is issuing to Stockholders of
record on [Record Date] ("Record Date
Stockholders") one transferable Right for
each share of Common Stock held. A Record
Date Stockholder's right to acquire, during
the Subscription Period at the Subscription
Price, one Share for every __ Rights held
is hereinafter referred to as the "Primary
Subscription." The number of Rights to be
issued to a Record Date Stockholder on the
Record Date will be rounded up to the
nearest number of Rights evenly divisible
by __.
The first regular monthly distribution to
be paid on Shares acquired upon exercise of
Rights will be the first monthly
distribution the record date for which
occurs after the issuance of the Shares.
The Shares issued in the Offer will not be
entitled to the distribution to be declared
to Stockholders of record on [month day,
year] which is payable in [month year].
Whether a Stockholder is entitled to the
distribution to be declared to Stockholders
of record on [month day, year] which is
payable in [month year] will depend on the
date Shares are actually issued to the
Stockholder.
--------------------------------------------------------------------------------
Subscription Price The Subscription Price will be $____ per
Share.
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Over-Subscription Privilege Record Date Stockholders who fully exercise
all Rights issued to them (other than those
Rights which cannot be exercised because
they represent the right to acquire less
than one Share) are entitled to subscribe
for additional Shares which were not
subscribed for by other Record Date
Stockholders. If sufficient Shares are
available, all Record Date Stockholders'
Over-Subscription requests will be honored
in full. If these requests for Shares
exceed the Shares available, the available
Shares will be allocated pro rata among
Record Date Stockholders who over-subscribe
based on the number of Rights originally
issued to them by the Fund.
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Purpose of the Offer In June 2001, holders of the Fund's Common
Stock and preferred stock approved a series
of proposals allowing the Fund, among other
things, to:
. increase to a maximum of 80% the Fund's
investments in Asian debt securities;
. reduce the minimum investment in
Australian debt securities to 20%;
. increase to a maximum of 35% the Fund's
investments in Asian debt securities
rated, or considered by the Investment
Manager to be, below investment grade at
the time of investment;
. invest to a maximum of 10% in securities
rated, or considered by the Investment
Manager to be, below B-; and
. expand the categories of derivatives
which may be utilized by the Fund.
The net proceeds of this Offer will be used
to further implement this investment
flexibility and are intended to enable the
Fund to increase the Fund's net investment
income above the current level by taking
increased advantage of the relatively high
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1
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level of interest rates currently available
in Asian markets compared with interest
rates currently available in Australia. By
using the proceeds of this Offer rather
than reallocating assets currently in its
portfolio, the Fund would not necessarily
have to realize the substantial foreign
exchange losses that might otherwise be
realized if the portfolio were internally
restructured. This will, however, expose
the Fund to greater interest rate risk,
credit risk, political and economic risk
and liquidity risk, than the Fund has been
exposed to in the past, particularly in
light of the potential volatility in Asian
currency and bond markets. To the extent
that further Asian investments are made in
local currency denominated debt securities,
the Fund will also be exposed to greater
foreign exchange risk. However, to the
extent that further Asian investments are
U.S. dollar-denominated, the foreign
exchange risk to which the Fund's portfolio
is exposed will be mitigated. Also, as a
consequence of the Fund's increased
investment in Asian debt securities, the
overall credit quality of the securities in
the Fund's portfolio may be reduced.
The Investment Manager and Investment
Adviser believe that an increase in the
size of the Fund should result in an
incidental modest reduction in the Fund's
expense ratio, which would be of long-term
benefit to Stockholders. There can be no
assurance that the Offer will be successful
or that by increasing the size of the Fund,
the Fund's aggregate expenses and,
correspondingly, its expense ratio, will be
lowered.
--------------------------------------------------------------------------------
Sale of Rights The rights are transferable until the
expiration date of the offer. The rights
will be listed for trading on the AMEX
under the symbol "FAX.R" during the
course of the offering. The Fund will use
its best efforts to ensure that an adequate
trading market for the rights will exist.
No assurance can be given that a market for
the rights will develop. Trading in the
rights on the AMEX may be conducted until
the close of trading on the AMEX on the
last business day prior to the expiration
date of the offer.
--------------------------------------------------------------------------------
Use of Proceeds The Investment Manager and Investment
Adviser anticipate that investment of the
net proceeds of the Offer in Asian and New
Zealand debt securities, in accordance with
the Fund's investment objective and
policies, will take approximately two to
four months from their receipt by the Fund,
depending on market conditions and the
availability of appropriate securities. See
"Use of Proceeds."
--------------------------------------------------------------------------------
How to Obtain Subscription . Contact your bank, broker or nominee, or
Information
. Contact the Information Agent toll-free
at (866) 204-4933.
--------------------------------------------------------------------------------
How to Subscribe . Deliver a completed Subscription
Certificate and payment to the
Subscription Agent by the Expiration
Date, or
. If your shares are held in a brokerage
or bank account, have your broker or
bank deliver a Notice of Guaranteed
Delivery to the Subscription Agent by
the Expiration Date.
--------------------------------------------------------------------------------
Subscription Agent [name]
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2
IMPORTANT DATES TO REMEMBER
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Record Date........................................................................ [Record Date]
Subscription Period................................................................ [Start Subscription Period] -
[Expiration Date]
Expiration Date.................................................................... [Expiration Date]*
Deadline for Subscription Certificates and Payment for Shares+..................... [Payment Date]*
Deadline for Notice of Guaranteed Delivery+........................................ [Payment Date]*
Deadline for payment pursuant to Notice of Guaranteed Delivery..................... [Notice of Guar. Deliv. Date]*
Confirmation Mailed to Exercising Rights Holders................................... [Confirmation Date]*
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* Unless the Offer is extended.
+ A person exercising rights must deliver either (i) a Subscription Certificate
and payment for Shares or (ii) a Notice of Guaranteed Delivery by [Payment
Date], unless the Offer is extended.
THE FUND AT A GLANCE
--------------------------------------------------------------------------------
The Fund The Fund is a non-diversified, closed-end
management investment company organized as
a Maryland corporation. As of the Record
Date, the Fund's NAV per share was $____.
--------------------------------------------------------------------------------
AMEX and PSE Listed As of the Record Date, the Fund had _____
shares of Common Stock, par value $0.01,
outstanding. The Fund's Common Stock is
traded on the AMEX and PSE under the symbol
"FAX." As of the Record Date, the last
reported sales price of a share of the Fund
was $____. The Rights are transferable and,
therefore, will be admitted for trading on
the AMEX under the symbol "FAX.R" during
the course of the Offer.
--------------------------------------------------------------------------------
Stock Repurchase Program The Fund's shares have traded in the market
below, at and above NAV since the
commencement of the Fund's operations.
However, it is frequently the case that
Fund shares trade at a discount to net
asset value. In an effort to minimize the
spread between market value and net asset
value that may otherwise exist, 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%. When
the Fund repurchases its shares for a price
below their net asset value, the net asset
value of the remaining outstanding shares
will be enhanced. This may or may not
affect the market price of the shares.
Acquisitions of shares by the Fund may
increase the expense ratio, increase
interest expense and increase portfolio
turnover. For a discussion of the Fund's
historic discount/premium to net asset
value, see "The Fund - Description of
Common Stock." Through July 31, 2002, there
have been 2,723,300 shares repurchased and
cancelled under this program.
--------------------------------------------------------------------------------
Preferred Stock As of the Record Date, the Fund had 24,000
shares of Auction Market Preferred Stock,
par value $0.01 ("Preferred Stock"),
outstanding. The Preferred Stock has an
aggregate liquidation value of $600
million. See "The Fund - Description of
Preferred Stock."
Holders of Common Stock have generally
benefited from the Fund's issuance of the
Preferred Stock which commenced in 1989.
Since the fiscal quarter beginning August
1, 1997, there have been periods during
which the shrinking yield differential
between Australia and U.S. rates and a
depreciating Australian dollar have
resulted in the Preferred Stock having a
negative impact on returns to holders of
Common Stock. During the 12 months to July
31, 2002, the key investment trend was an
end to the unilateral strength of the U.S.
dollar. The Australian dollar and most
Asian currencies
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3
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strengthened against the U.S. dollar over the period, with the Australian dollar rising 7.5%.
Further, with U.S. interest rates at historic lows, the differential between the cost of the
Preferred Stock and the rates at which the Fund invests remains positive. Offsetting these impacts
slightly have been capital losses as bond yields have risen in line with signs of global recovery.
The proposed investment of a significant percentage of the Fund's total assets in higher yielding
Asian debt securities, as recommended by the Fund's Investment Manager and Investment Adviser, and
approved by Common and Preferred stockholders in June 2001, is expected to increase the Fund's net
investment income above the current level. See "The Offer - Purpose of the Offer."
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Investment Objective To seek current income. The Fund may also achieve incidental capital appreciation. For as long as
the name of the Fund remains Aberdeen Asia-Pacific Income 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 Asian debt securities, Australian debt securities and New Zealand debt
securities. 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 stockholders.
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Portfolio Structure To achieve its investment objective, the Fund may invest up to 80% of its total assets in "Asian
debt securities," which include: (1) debt securities of Asian Country issuers, including securities
issued by Asian Country governmental entities, as well as by banks, companies and other entities
which are located in Asian Countries, whether or not denominated in an Asian Country currency; (2)
debt securities of other issuers, denominated in, or linked to, the currency of an Asian Country,
including securities issued by supranational issuers, such as The World Bank and derivative debt
securities that replicate, or substitute for, the currency of an Asian Country; (3) debt securities
issued by entities which, although not located in an Asian Country, derive at least 50% of their
revenues from Asian Countries or have at least 50% of their assets located in Asian Countries; and
(4) debt securities issued by a wholly-owned subsidiary of an entity located in an Asian Country,
provided that the debt securities are guaranteed by the parent entity located in the Asian Country.
With reference to items (3) and (4) above, Asian debt securities may be denominated in an Asian
Country currency or in Australian, New Zealand or U.S. dollars. The maximum country exposure to any
one Asian Country (other than Korea) is limited to 20% of the Fund's total assets and the maximum
currency exposure to any one Asian Country currency (other than Korea) is limited to 10% of the
Fund's total assets. The maximum country exposure for Korea is limited to 40% of the Fund's total
assets, and the maximum currency exposure for Korea is limited to 25% of the Fund's total assets.
"Asian Countries" (each, an "Asian Country") include China, Hong Kong, India, Indonesia, Japan,
Malaysia, Pakistan, the Philippines, Singapore, South Korea, Taiwan, Thailand, and Vietnam, and
such other countries on the Asian continent approved for investment by the Board of Directors upon
the recommendation of the Investment Manager.
At least 20% of the Fund's total assets will be invested in "Australian debt securities," which
include: (1) debt securities of Australian issuers, including securities issued by Australian
governmental entities, as well as by banks, companies and other entities which are located in
Australia, whether or not denominated in the Australian dollar; (2) debt securities of other
issuers, denominated in, or linked to, the Australian dollar, including securities issued by
supranational issuers, such as The World Bank and derivative debt securities that replicate, or
substitute for, the Australian dollar; (3) debt securities issued by entities which, although not
located in Australia, derive at least 50% of their revenues from Australia or have at least 50% of
their assets located in Australia; and (4) debt securities issued by a wholly-owned subsidiary of
an entity located in Australia, provided that the debt securities are guaranteed by the parent
entity located in Australia. With reference to items (3) and (4) above, Australian debt securities
may be denominated in Australian, New Zealand or U.S. dollars.
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4
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The Fund may also invest in "New Zealand debt securities," which include: (1) debt securities of
New Zealand issuers, including securities issued by New Zealand governmental entities, as well as
by banks, companies and other entities which are located in New Zealand, whether or not denominated
in the New Zealand dollar; (2) debt securities of other issuers, denominated in, or linked to, the
New Zealand dollar, including securities issued by supranational issuers, such as The World Bank
and derivative debt securities that replicate, or substitute for, the New Zealand dollar; (3) debt
securities issued by entities which, although not located in New Zealand, derive at least 50% of
their revenues from New Zealand or have at least 50% of their assets located in Zealand; and (4)
debt securities issued by a wholly-owned subsidiary of an entity located in New Zealand, provided
that the debt securities are guaranteed by the parent entity located in New Zealand. With reference
to items (3) and (4) above, New Zealand debt securities may be denominated in Australian, New
Zealand or U.S. dollars. The maximum country exposure for New Zealand is limited to 35% of the
Fund's total assets, and the maximum currency exposure for New Zealand is limited to 35% of the
Fund's total assets.
During periods when, in the Investment Manager's judgment, economic conditions warrant a temporary
defensive investment policy, the Fund may temporarily invest up to 100% of its assets in U.S. debt
securities.
The Fund may invest up to 10% of the Fund's total assets in secondary market bank loans, and up to
an additional 10% of the Fund's total assets in convertible securities and other hybrid securities,
and up to an additional 10% of the Fund's total assets in asset-backed securities.
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Investment Guidelines In order to accommodate investment in Asian markets, the Fund may invest up to 35% of its total
assets in Asian debt securities rated by Standard & Poor's ("S&P") or Moody's Investors Service,
Inc. ("Moody's") (provided that, with the approval of the Fund's Board of Directors, the ratings of
other recognized rating services may be used), or judged by the Investment Manager to be, below
investment grade at the time of investment. The Fund may invest up to 35% of its total assets in
Asian debt securities much of which may be deemed to be illiquid.
The Fund may invest up to 10% of its total assets in securities rated by S&P or Moody's (provided
that, with the approval of the Fund's Board of Directors, the ratings of other recognized ratings
services may be used), or judged by the Investment Manager to be, below B- at the time of
investment. As a consequence of the Fund's increased investment in Asian debt securities, the
overall credit quality of the securities in the Fund's portfolio may be reduced.
The Fund may invest up to 80% of its total assets in Asian debt securities for which there is no
established relevant market.
The Fund may use derivatives to manage currency, credit and interest rate risk and as a substitute
for physical securities. The Investment Manager uses only exchange-traded (as opposed to
over-the-counter) interest rate derivatives in the Australian component of the Fund.
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Distributions The Fund pays distributions monthly out of current income supplemented by realized capital gains
and, to the extent necessary, return of paid-in capital. The current monthly cash distribution is
U.S. 3.5 cents per share of Common Stock. For the current fiscal year, the distributions to date
have exceeded net investment income and realized capital gains. However, under United States 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 31st. These monthly distributions may
be reinvested in additional full and fractional shares of
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5
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Common Stock through the Fund's Dividend Reinvestment and Cash Purchase Plan.
The first regular monthly distribution to be paid on Shares acquired upon exercise of Rights will
be the first monthly distribution the record date for which occurs after the issuance of the
Shares. The Shares issued in the Offer will not be entitled to the distribution to be declared to
Stockholders of record on [month day, year] which is payable in [month year]. Whether a Stockholder
is entitled to the distribution to be declared to Stockholders of record on [month day, year] which
is payable in [month year] will depend on the date Shares are actually issued to the Stockholder.
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Investment Manager and Aberdeen Asset Managers (C.I.) Limited ("Investment Manager") acts as the Fund's investment manager
Investment Adviser and Aberdeen Asset Management Limited ("Investment Adviser") acts as the Fund's investment
adviser. The Investment Manager and the Investment Adviser also serve in these capacities for
Aberdeen Asia-Pacific Income Investment Company Limited, a closed-end management investment
company, the shares of which are listed on the Toronto Stock Exchange ("TSX") under the symbol
"FAP," investing in debt securities of issuers in Australia, New Zealand and other Asian countries;
The First Asia Income Fund, a closed-end investment trust, the units of which are listed on the TSX
under the symbol "FAI.UN," investing primarily in debt securities of issuers in Australia, New
Zealand and Asian countries; Aberdeen Global Income Fund, Inc., a non-diversified, registered
closed-end management investment company, the shares of which are listed on the New York Stock
Exchange under the symbol "FCO," investing in global fixed income securities; and Aberdeen
Australia Equity Fund, Inc., a non-diversified, registered closed-end management investment
company, the shares of which are listed on the AMEX and the PSE under the symbol "IAF," investing
primarily in Australian listed equity securities. In addition, the Investment Manager currently
manages Aberdeen Scots Trust and Aberdeen G(7) Trust, each of which is a Canadian unit investment
trust.
Investment Experience. The Investment Manager and Investment Adviser, together with other
affiliates of Aberdeen Asset Management PLC, (collectively, the "Aberdeen Group") form a globally
diversified management firm. The Investment Manager and the Investment Adviser are parties to a
memorandum of understanding ("MOU") with three affiliated Aberdeen organizations, Aberdeen Asset
Management Asia Limited ("Aberdeen Singapore"), Aberdeen Asset Managers Limited ("Aberdeen UK") and
[name of Aberdeen Thailand entity] ("Aberdeen Thailand"). Pursuant to the MOU, the Investment
Manager and the Investment Adviser have retained the services of investment professionals from
Aberdeen Singapore, Aberdeen UK and Aberdeen Thailand to provide portfolio management and/or
trading services to the Fund, as well as other U.S. funds managed by the Investment Manager and the
Investment Adviser.
As of the date of this prospectus, the Aberdeen Group had approximately US $___ billion in assets
under management. Aberdeen Singapore is one of the largest dedicated managers/advisers on Asian
bonds globally, with approximately US $___ billion of such assets under management as of the date
of this prospectus. In Australia, the Aberdeen Group manages several Australian institutional
domestic bond mandates, in addition to advising the Fund and other listed closed-end funds.
------------------------------------------------------------------------------------------------------------------------------------
Compensation of the The Fund pays the Investment Manager a fee at the annual rate of 0.65% of the Fund's average weekly
Investment Manager and net assets applicable to the shares of Common Stock and the shares of Preferred Stock up to $200
Investment Adviser million, 0.60% of the assets between $200 million and $500 million, 0.55% of the assets between
$500 million and $900 million, 0.50% of the assets between $900 million and $1,750 million and
0.45% of the assets in excess of $1,750 million, computed based upon net asset value applicable to
shares of Common Stock and Preferred Stock at the end of each week and payable at the end of each
calendar month. Under the Advisory Agreement, the Investment Manager pays the Investment Adviser an
advisory fee at the annual rate of 0.25% of the Fund's average weekly net assets applicable to
shares of Common Stock and Preferred Stock up to $1,200 million and 0.20% of the assets in excess
of $1,200 million, computed based upon net asset value applicable to shares of Common Stock and
Preferred Stock at the end of each week and payable at the end of each calendar month.
The Fund's Investment Manager and Investment Adviser will benefit from the Offer because their fees
are based on the average net asset value applicable to shares of Common Stock and Preferred Stock
of the Fund.
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6
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Administrator The Fund's Administrator is Prudential Investments LLC. The Administrator is an affiliate of
Prudential Securities, Inc. The Fund pays the Administrator a fee computed at the annual rate of
0.15% of the Fund's average weekly net assets applicable to the Common Stock and Preferred Stock up
to $900 million, 0.10% of such assets between $900 million and $1,750 million and 0.07% of such
assets in excess of $1,750 million, computed based upon the net asset value applicable to the
Common Stock and Preferred Stock at the end of each week and payable at the end of each calendar
month. The Fund's Administrator will benefit from the Offer because its fee is based on the average
net assets applicable to Common and Preferred Stock of the Fund.
------------------------------------------------------------------------------------------------------------------------------------
7
RISK FACTORS AND SPECIAL CONSIDERATIONS AT A GLANCE
The following summarizes certain matters that should be considered, among
others, in connection with the Offer. For a more complete discussion of the risk
factors and special considerations involved in investing in the Fund's shares,
see "Risk Factors and Special Considerations."
------------------------------------------------------------------------------------------------------------------------------------
Dilution - Net Asset Value and Assuming that Rights are exercised, Record Date Stockholders who do not fully exercise their
Non-Participation in the Offer Rights should expect that they will, at the completion of the Offer, own a smaller proportional
interest in the Fund than would otherwise be the case if they exercised their Rights. It is not
possible to determine the extent of this dilution at this time because the Fund does not know
what proportion of the Shares will be purchased as a result of the Offer.
As of the date of this Prospectus, the Subscription Price per share for the Offer is less than
the Fund's NAV per share. Assuming that all Rights are exercised and there is no change in the
NAV per share, the aggregate net asset value of each Record Date Stockholder's shares of Common
Stock should decrease as a result of the Offer. The Fund cannot state precisely the amount of any
such decrease in NAV because it is not known at this time what the NAV per share will be on the
Expiration Date or what proportion of the Shares will be purchased as part of the Offer.
If you do not exercise the Rights issued to you, you may still transfer or sell these Rights as
set forth in this Prospectus. The cash you receive from transferring your Rights should serve as
partial compensation for any possible dilution of your interest in the Fund. There can be no
assurance, however, that a market for the Rights will develop or that the Rights will have any
value. See "Risk Factors and Special Considerations - Dilution - Net Asset Value and
Non-Participation in the Offer."
------------------------------------------------------------------------------------------------------------------------------------
Current Distribution Rate In February 1989, the Fund began to pay regular monthly distributions. These distributions have
been paid from net investment income and supplemented by realized capital gains and return of
paid-in capital. The amount of monthly distributions has been adjusted (principally downward)
from time to time to reflect the current interest rate environment. For the current fiscal year,
the distributions to date have exceeded the sum of net investment income and realized capital
gains. To the extent total distributions for the year exceed the Fund's net investment income,
the difference will be deemed for income tax purposes to have been distributed from realized
capital gains or will be treated as return of capital, as applicable. Although the Fund
anticipates that investment of the proceeds in higher yielding Asian debt securities will enable
the Fund to increase the Fund's net investment income above the current level, Stockholders are
cautioned that there can be no guarantee of future performance.
The Fund's investment in Asian debt securities involves risks and uncertainties so that actual
results may differ materially from those anticipated as a result of various factors. If the
anticipated results are not achieved, the Fund may not be able to maintain the current level of
monthly distributions. The Fund undertakes no obligation to update or revise the disclosure in
this Prospectus with regard to the effect of increased investment in Asia on the Fund's monthly
distributions, to reflect current events or circumstances after the date of this Prospectus or to
reflect the occurrence of unanticipated events.
The Board of Directors reviews the level of monthly distributions on a continuing basis at its
quarterly Board meetings. The first regular monthly distribution to be paid on Shares acquired
upon exercise of Rights will be the first monthly distribution the record date for which occurs
after the issuance of the Shares. The Shares issued in the Offer will not be entitled to the
distribution to be declared to Stockholders of record on [month day, year] which is payable in
[month year].
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8
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Whether a Stockholder is entitled to the distribution to be declared to Stockholders of record on
[month day, year] which is payable in [month year] will depend on the date Shares are actually
issued to the Stockholder.
------------------------------------------------------------------------------------------------------------------------------------
Interest Rate Fluctuations Fluctuations in interest rates in the relevant bond markets can affect the Fund's NAV and
distribution rate. The Fund's NAV is adversely affected during periods of rising interest rates
in those bond markets and is favorably affected during periods when interest rates fall. In
addition, the Fund may recognize capital losses, impacting its ability to supplement
distributable income, when bonds in the Fund's portfolio are sold or mature at a price which is
less than the Fund's cost.
Any overall downward trend in interest rates can also be expected ultimately to reduce available
yields to Fund Stockholders, which could in turn result in a reduction in the amount of the
Fund's monthly distributions. While interest rates in Australia and New Zealand were higher than
interest rates in the U.S. at the inception of the Fund in 1986, yields on Australian and New
Zealand debt securities have generally declined in recent years and are currently more comparable
to yields available in the United States. Although relatively high levels of interest rates are
currently available in Asian debt markets, there can be no assurance that these rates will
continue to be obtainable.
------------------------------------------------------------------------------------------------------------------------------------
Currency Exchange Rate To the extent that further Asian investments are made in local currency denominated debt
Fluctuations securities, the Fund will be exposed to greater foreign currency exchange risk. However, to the
extent that further Asian investments are U.S. dollar-denominated, the foreign currency exchange
risk to which the Fund's portfolio is exposed will be mitigated.
Currency exchange rates can fluctuate significantly over short periods and can be subject to
unpredictable changes based on a variety of factors including political developments and the
imposition of currency controls by foreign governments. See "Risk Factors and Special
Considerations - Currency Exchange Rate Fluctuations." A decline in the value of the currency in
which a portfolio security is denominated against the U.S. dollar will generally result in a
decline in the U.S. dollar value of the Fund's assets. If the decline occurs after the Fund has
accrued income but before it has been received, the Fund could be required to liquidate portfolio
securities to make distributions.
Currency exchange rate fluctuations can decrease or eliminate income available for distribution
or conversely increase income available for distribution. For example, if currency exchange
losses exceed net investment income for a taxable year, the Fund would not be able to make
ordinary income distributions. In that event, if distributions had been made before the losses
had been realized, they would be recharacterized either as a return of capital, thus reducing
each Stockholder's cost basis, or as a dividend from capital gains rather than ordinary income.
Currency fluctuations against the U.S. dollar in many foreign countries in which the Fund invests
have historically been profound and negative. Although exchange rates against the U.S. dollar
have been favorable in recent months, there can be no assurance that favorable exchange rates
will continue. Nor can there be any assurance that currency fluctuations against the U.S. dollar
will not return to being profound and negative. Although the Fund may hedge against currency
fluctuations with respect to foreign currencies, there can be no assurance that it can employ a
hedging strategy successfully, nor can there be any assurance that the Fund will employ a
currency hedge at any given time.
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9
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Risks Involved in Asian Proposals approved by Common and Preferred Stockholders in June 2001 permit the Fund to
Investment - Credit Risk invest up to 80% of its assets in Asian debt securities, including, with respect to 35% of its
total assets, Asian debt securities which, at the time of investment, are rated below investment
grade or, if unrated, are in the opinion of the Investment Manager, of equivalent quality.
However, the Fund may not invest more than 10% of its total assets in securities rated by S&P or
Moody's, or judged by the Investment Manager to be, below B- at the time of investment. Among
other things, investment in securities which are rated below investment grade requires skilled
credit analysis and reduces the overall credit quality of the Fund's portfolio. As of July 31,
2002, 12% of the debt securities held in the Fund's portfolio were rated below investment grade,
of which only 0.1% were rated below B-. See "Risk Factors and Special Considerations - Risks
Involved in Asian Investment - Credit Risk."
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Risks Involved in Asian The Fund's investments could in the future be adversely affected by any increase in taxes or by
Investment - Political and political, economic or diplomatic developments in Asian Countries. Moreover, accounting, auditing
Economic Risk and financial reporting standards and other regulatory practices and requirements vary from
those applicable to entities subject to regulation in the United States. See "Risk Factors and
Special Considerations - Risks Involved in Asian Investment - Political and Economic Risk."
------------------------------------------------------------------------------------------------------------------------------------
Risks Involved in Asian In some Asian countries, there is no established secondary market for securities. Therefore,
Investment - Liquidity Risks liquidity in these countries is generally low and transaction costs high. Reduced liquidity often
creates higher volatility, as well as difficulties in obtaining accurate market quotations for
financial reporting purposes and for calculating net asset values, and sometimes also an
inability to buy and sell securities. See "Risk Factors and Special Considerations - Risks
Involved in Asian Investment - Liquidity Risk."
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Use of Derivatives With respect to the Australian portion of the Fund's portfolio, the Fund may use derivatives to
manage currency and interest rate risk, and to replicate or substitute for physical securities.
In addition, with respect to the Asian portion of the Fund's portfolio, the Fund may also use
derivatives to manage credit risk.
The use of derivatives will expose the Fund to a variety of risks which include:
. an imperfect correlation between the price of derivatives and the movement of the securities
prices, interest rates or currency exchange rates being hedged or replicated;
. the possible absence of a liquid secondary market for any particular derivative at any time;
. the potential loss if the counterparty to the transaction does not perform as promised;
. the possible need to defer closing out certain positions to avoid adverse tax consequences,
as well as the possibility that derivative transactions may result in acceleration of gain,
deferral of losses or a change in the character of gain realized;
. the risk that the financial intermediary "manufacturing" the over-the-counter derivative,
being the most active market maker and offering the best price for repurchase, will not
continue to create a credible market in the derivative;
. because certain derivatives are "manufactured" by financial institutions, the risk that the
Fund may develop a substantial exposure to financial institution counterparties; and
. the risk that a full and complete appreciation of the complexity of derivatives and how
future value is affected by various factors including
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10
--------------------------------------------------------------------------------
changing interest rates, exchange rates
and credit quality is not attained.
See "Risk Factors and Special
Considerations - Use of Derivatives." In
general, derivatives will not be used to
leverage the Fund, although they may be
used to hedge the interest risk associated
with the Fund's outstanding leverage.
The Fund may also use interest rate swaps
to hedge the Fund's liability with respect
to the Preferred Stock. At present, the
Fund has been authorized by the Board of
Directors to hedge up to one-third of the
Fund's liability with respect to the
Preferred Stock. This allows the Fund to
lock in the relatively low current U.S.
dollar interest rates, if available, with
respect to up to one-third of the Fund's
outstanding Preferred Stock. A significant
type of risk associated with interest rate
swaps is the risk that the counterparty may
default or file for bankruptcy, in which
case the Fund would bear the risk of loss
of the amount expected to be received under
the swap agreement. There can be no
assurance that the Fund will have an
interest rate swap in place at any given
time, nor can there be any assurance that,
if an interest rate swap is in place, it
will be successful in hedging the Fund's
interest rate risk with respect to the
Preferred Stock. See "Portfolio Securities
- Derivative Securities - Swaps," "Risk
Factors and Special Considerations - Use of
Derivatives" and "Risk Factors and Special
Considerations - Preferred Stock - Leverage
Risk."
--------------------------------------------------------------------------------
Preferred Stock - Leverage Risk Investors should note that leverage
resulting from the issuance of Preferred
Stock creates risks for holders of Common
Stock, including higher volatility of both
the NAV and market value of the Common
Stock, and that fluctuations in the
dividend rates on Preferred Stock will
affect the yield to holders of Common
Stock. If the Fund is able to realize a net
return on its investment portfolio in
excess of the then current dividend rate of
the Preferred Stock, the effect of leverage
permits holders of Common Stock to realize
a higher current rate of return than if the
Fund were not leveraged. On the other hand,
if the current dividend rate on the
Preferred Stock exceeds the net return on
the Fund's investment portfolio, the Fund's
leveraged capital structure results in a
lower rate of return to holders of Common
Stock than if the Fund were not leveraged.
Similarly, because any decline in the NAV
of the Fund's investments will be borne
entirely by holders of Common Stock, the
effect of leverage in a declining market
results in a greater decrease in NAV to
holders of Common Stock than if the Fund
were not leveraged, which would likely be
reflected in a greater decline in the
market price for shares of Common Stock.
Moreover, because dividends and other
distributions on Preferred Stock are
payable in U.S. dollars, a decline in value
against the U.S. dollar of currencies in
which portfolio securities are denominated
also impacts negatively on the rate of
return to holders of Common Stock. If the
Fund's current investment income were not
sufficient to meet dividend requirements on
the Preferred Stock, it could be necessary
for the Fund to liquidate certain of its
investments, thereby reducing the NAV
attributable to the Fund's Common Stock.
See "Risk Factors and Special
Considerations - Preferred Stock - Leverage
Risk."
In order to reduce the risk that the
dividend requirements on the Preferred
Stock will exceed the net return of the
Fund's investment portfolio, the Fund may
use interest rate swaps to hedge the Fund's
liability with respect to the Preferred
Stock. At present, the Fund has been
authorized by the Board of Directors to
hedge up to one-third of the Fund's
liability with respect to the Preferred
Stock. This allows the Fund to lock in the
relatively low current U.S. dollar interest
rates with respect to up to one-third of
the Fund's outstanding Preferred Stock.
There can be no assurance that the Fund
will have an interest rate swap in place at
any given time, nor can there be any
assurance that, if an interest rate swap is
in place, it will be successful in hedging
the Fund's leverage risk with respect to
the Preferred Stock. See "Portfolio
Securities - Derivative Securities -
Swaps," "Risk Factors and Special
Considerations - Use of Derivatives" and
"Risk
--------------------------------------------------------------------------------
11
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Factors and Special Considerations -
Preferred Stock - Leverage Risk."
Holders of Common Stock have generally
benefited from the Fund's issuance of the
Preferred Stock which commenced in 1989.
Since the fiscal quarter beginning August
1, 1997, there have been periods during
which the shrinking yield differential
between Australia and U.S. rates and a
depreciating Australian dollar have
resulted in the Preferred Stock having a
negative impact on returns to holders of
Common Stock. During the 12 months to July
31, 2002, the key investment trend was an
end to the unilateral strength of the U.S.
dollar. The Australian dollar and most
Asian currencies strengthened against the
U.S. dollar over the period, with the
Australian dollar rising 7.5%. Further,
with U.S. interest rates at historic lows,
the differential between the cost of the
Preferred Stock and the rates at which the
Fund invests remains positive. Offsetting
these impacts slightly have been capital
losses as bond yields have risen in line
with signs of global recovery.
Because the Investment Manager's and the
Investment Adviser's fees are based on the
average net assets of the Fund, which
include the Preferred Stock, the Investment
Manager and Investment Adviser have
benefited from the Fund's determination not
to redeem the Preferred Stock.
The proposed increased investment of a
significant percentage of the Fund's total
assets in higher yielding Asian debt
securities, as recommended by the Fund's
Investment Manager and Investment Adviser,
and approved by Common and Preferred
Stockholders in June 2001, is expected to
increase the Fund's net investment income
above the current level. See "The Offer -
Purpose of the Offer." The implementation
of this strategy is proposed to occur
within approximately two to four months of
the completion of the Offer by a
combination of investing the net proceeds
of the Offer together with the proceeds
from the sale of existing Australian
portfolio securities. Stockholders are
cautioned that there can be no guarantee of
future performance and the Fund's
investment in Asian debt securities
involves risks and uncertainties, so that
actual results may differ materially from
those anticipated as a result of various
factors. The Fund undertakes no obligation
to update or revise the disclosure in this
Prospectus with regard to the effect of
increased investment in Asia on the Fund's
leverage to reflect current events or
circumstances after the date of this
Prospectus or to reflect the occurrence of
unanticipated events.
--------------------------------------------------------------------------------
Discount from Net Asset Value The Fund's shares have traded in the market
below, at and above NAV since the
commencement of the Fund's operations. This
characteristic of shares of closed-end
investment companies is a risk separate and
distinct from the risk that the Fund's NAV
will decrease. In the 12-month period ended
August 31, 2002, the Fund's shares have
traded in the market at an average discount
to NAV of 9.94%. As of August 31, 2002, the
discount to NAV had narrowed to 6.37%. See
"The Fund - Description of Common Stock."
--------------------------------------------------------------------------------
Foreign Custody The Fund generally holds its foreign
securities and cash in foreign banks and
securities depositories. Some foreign banks
and securities depositories may be recently
organized or new to the foreign custody
business. Regulatory oversight over their
operations may be limited or non-existent.
Also, the laws of certain countries may put
limits on the Fund's ability to recover its
assets if a foreign bank, depository or
issuer of a security, or any of their
agents, goes bankrupt. In addition, it is
often more expensive for the Fund to buy,
sell and hold securities in certain foreign
markets than in the United States. The
increased expense of investing in foreign
markets reduces the amount the Fund can
earn on its investments and typically
results in a higher operating expense ratio
for the Fund than for investment companies
invested only in the United States.
--------------------------------------------------------------------------------
12
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Non-Diversified Status The Fund is classified as a
"non-diversified" management investment
company under the 1940 Act, which means
that the Fund is not limited by the 1940
Act as to the proportion of its assets that
may be invested in the securities of a
single issuer. As a non-diversified
investment company, the Fund may invest a
greater proportion of its assets in the
obligations of a smaller number of issuers
and, as a result, will be subject to
greater risk with respect to its portfolio
securities. Although the Fund must
diversify its holdings in order to be
treated as a regulated investment company
under the provisions of the Internal
Revenue Code of 1986, as amended ("Code"),
the Fund may be more susceptible to any
single economic, political or regulatory
occurrence than would be the case if it had
elected to diversify its holdings
sufficiently to be classified as a
"diversified" management investment company
under the 1940 Act. See "Investment
Objective," "Investment Policies,"
Investment Restrictions" and "Taxation -
United States Taxes."
--------------------------------------------------------------------------------
Tax Considerations Withholding and/or other taxes may apply in
the countries in which the Fund invests,
which will reduce the Fund's cash return in
those countries. The Fund intends to elect,
when eligible, to "pass-through" to the
Fund's stockholders, as a deduction or
credit, the amount of foreign income and
similar taxes paid by the Fund. See
"Taxation."
--------------------------------------------------------------------------------
Anti-Takeover Provisions The Fund has provisions in its Articles of
Amendment and Restatement that could have
the effect of limiting the ability of other
entities or persons to acquire control of
the Fund. The By-Laws provide for a
staggered election of those Directors who
are elected by the holders of Common Stock,
with such Directors divided into three
classes, each having a term of three years.
Accordingly, only those Directors in one
class may be changed in any one year and it
would require two years to change a
majority of the Board of Directors. This
system of electing Directors may be
regarded as having an anti-takeover effect,
and may have the effect of maintaining the
continuity of management and thus may make
it more difficult for the Fund's
Stockholders to change the majority of
Directors.
Articles Supplementary approved by the
Board of Directors subject the Fund to
certain provisions of the Maryland General
Corporation Law with respect to unsolicited
takeovers. These provisions limit the
ability of stockholders to remove
directors, provide that the number of
directors may be fixed only by the Board,
provide that certain vacancies on the Board
of Directors may be filled only by the vote
of the remaining directors, and limit the
ability of stockholders to call a special
meeting of stockholders. See "Capital Stock
- Certain Provisions of the Articles,
By-Laws and Articles Supplementary."
--------------------------------------------------------------------------------
13
FUND EXPENSES
Shareholder Transaction Expenses
Sales Load (as a percentage of the Subscription Price)/(1)/ .......................... 3.75%
Dividend Reinvestment and Cash Purchase Plan Fees .................................... None
Annual Expenses (as a percentage of net assets attributable to the Common Stock/(2)/
Management Fee ....................................................................... 0.__%
Administrative Fee ................................................................... 0.__%
Other Expenses/(3)/ .................................................................. 0.__%
-----
Total Annual Expenses/(4)/ ........................................................... %
=====
____________________
(1) The Fund has agreed to pay the Dealer Managers a fee for their financial
advisory, marketing and soliciting services equal to an aggregate of 3.75%
of the aggregate Subscription Price for the Shares issued pursuant to an
aggregate of the Offer and to reimburse the Dealer Managers for their
out-of-pocket expenses up to $150,000. In addition, the Fund has agreed to
pay a fee to each of the Subscription Agent and the Information Agent
estimated to be $[______] and $327,000, respectively, which includes
reimbursement for their out-of-pocket expenses related to the Offer. Total
offering expenses are estimated to be $__________, which assumes that the
Offer is fully subscribed. These fees will be borne by the Fund and
indirectly by all of the Fund's Stockholders, including those who do not
exercise their Rights. See "Distribution Arrangements."
(2) Fees payable under the Management Agreement and Administration Agreement
are calculated on the basis of the Fund's average weekly net assets
applicable to the Fund's Common and Preferred Stock. See "Management
Agreement and Advisory Agreement" and "Administration Agreement." "Other
Expenses" have been estimated for the current fiscal year.
(3) Other Expenses include amounts paid to Aberdeen Asset Management Investor
Relations, an affiliate of the Fund's Investment Manager and Investment
Adviser, for investor relations services.
(4) The indicated ____% expense ratio assumes that the Offer is fully
subscribed, yielding estimated net proceeds of approximately $___________
(assuming a Subscription Price of $____) and that, as a result, based on
the Fund's net assets of $________ million attributable to holders of
Common Stock on [Record Date]; the net assets attributable to Stockholders
would be $_______ million. It also assumes that net assets attributable to
Stockholders will not increase or decrease due to currency fluctuations.
The indicated ratio reflects all expenses of the Offer.
The above table is intended to assist the Fund's investors in
understanding the various costs and expenses associated with investing in the
Fund through the exercise of Rights.
Hypothetical Example
An investor would directly or indirectly pay the following expenses on
a $1,000 investment in the Fund, assuming a 5% annual return:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$__ $__ $__8 $__
This Hypothetical Example assumes that all dividends and other
distributions are reinvested at NAV and that the percentage amounts listed under
Annual Expenses above remain the same in the years shown. (See also Note (4)
above for assumptions made in calculating the expenses in this Hypothetical
Example.) The above tables and the assumption in the Hypothetical Example of a
5% annual return are required by regulation of the SEC applicable to all
investment companies; the assumed 5% annual return is not a prediction of, and
does not represent, the projected or actual performance of the Fund's shares.
This Hypothetical Example reflects all recurring and non-recurring fees,
including underwriting discounts and commissions. For more complete descriptions
of certain of the Fund's costs and expenses, see "Management of the Fund,"
"Management Agreement and Advisory Agreement" and "Administration Agreement."
This Hypothetical Example should not be considered a representation of
past or future expenses, and the Fund's actual expenses may be greater or less
than those shown.
14
FINANCIAL HIGHLIGHTS
The following information, insofar as it relates to each year of the
10-year period ended October 31, 2001, has been audited by
PricewaterhouseCoopers LLP, independent accountants for the Fund, whose reports
thereon were unqualified. This information should be read in conjunction with
the Financial Statements and Notes thereto and incorporated by reference in this
Prospectus.
Six Months
Ended
April 30, For the Year Ended October 31,
2002 2001 2000 1999 1998 1997
(unaudited)
Per Share Operating Performance:/(1)/
Net asset value per common share, beginning of
period......................................... $ 4.65 $ 4.78 $ 6.20 $ 7.33 $ 8.85 $ 9.93
---------- ---------- ---------- ---------- ---------- ----------
Net investment income.......................... 0.20 0.53 0.60 0.67 0.82 0.87
Net realized and unrealized gain (loss) on
investments and foreign currencies........ 0.16 (0.01) (1.28) (0.35) (1.45) (0.96)
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations.......... 0.36 0.52 (0.68) 0.32 (0.63) (0.09)
---------- ---------- ---------- ---------- ---------- ----------
Dividends from net investment income to
preferred stockholders.................... (0.02) (0.11) (0.13) (0.10) (0.17) (0.17)
Dividends from net investment income to common
stockholders.............................. (0.22) (0.22) (0.39) (0.63) (0.51) (0.82)
Tax return of capital distribution ............ -- (0.32) (0.21) -- -- --
Distributions from net capital and currency
gains to preferred stockholders........... -- -- (0.01) (0.02) -- --
Distributions from net capital and currency
gains to common stockholders.............. -- -- -- (0.09) (0.21) --
---------- ---------- ---------- ---------- ---------- ----------
Total dividends and distributions......... (0.24) (0.65) (0.74) (0.84) (0.89) (0.99)
---------- ---------- ---------- ---------- ---------- ----------
Capital reduction with respect to issuance of
shares.................................... -- -- -- (0.61) -- --
Increase resulting from Fund share
repurchase ............................... --/(2)/ --/(2)/ -- -- -- --
Net asset value per common
share, end of period ..................... $ 4.77 $ 4.65 $ 4.78 $ 6.20 $ 7.33 $ 8.85
========== ========== ========== ========== ========== ==========
Market value per common share,
end of period ............................ $ 4.45 $ 4.02 $ 3.86 $ 6.00 $ 5.625 $ 8.125
========== ========== ========== ========== ========== ==========
Number of shares of common stock outstanding
(000 omitted)............................. 264,699 266,782 267,377 267,377 194,744 194,744
Total Investment Return Based on:/(3)/
Market value.............................. 17.02% 18.74% (26.73)% 20.96% (23.19)% (0.42)%
Net asset value........................... 8.44% 10.91% (12.19)% (5.15)% (8.10)% (2.37)%
Ratios to Average Net Assets of Common
Stockholders/Supplementary Data:/(4)/
Expenses/(5)/.................................. 1.53% 1.51% 1.36% 1.26% 1.47% 1.25%
Net investment income available to common
stockholders.............................. 7.85% 8.48% 8.22% 8.34% 8.51% 7.39%
Portfolio turnover rate........................ 18% 47% 64% 89% 61% 85%
Net assets of common stockholders, end of
Period (000 omitted....................... $1,262,309 $1,241,841 $1,279,346 $1,657,365 $1,428,142 $1,723,025
Average net assets of common stockholders
(000 omitted)............................. $1,237,975 $1,299,044 $1,530,638 $1,775,894 $1,485,690 $1,848,378
Senior securities (preferred stock)
outstanding (000 omitted)................. $ 600,000 $ 600,000 $ 600,000 $ 600,000 $ 600,000 $ 600,000
Asset coverage of preferred stock
at period-end ............................ 312% 308% 316% 376% 338% 387%
1996 1995 1994 1993 1992
Per Share Operating Performance/(2)/
Net asset value per common share, beginning of
period......................................... $ 9.36 $ 8.82 $ 10.09 $ 9.61 $ 11.31
---------- ---------- ---------- ---------- --------
Net investment income.......................... 0.87 0.93 1.01 1.19 1.29
Net realized and unrealized gain (loss) on
investments and foreign currencies........ 1.13 1.16 (1.03) 0.58 (1.42)
---------- ---------- ---------- ---------- --------
Total from investment operations.......... 2.00 2.09 (0.02) 1.77 (0.13)
---------- ---------- ---------- ---------- --------
Dividends from net investment income to
preferred stockholders.................... (0.14) (0.17) (0.12) (0.11) (0.14)
Dividends from net investment income to common
stockholders.............................. (0.83) (0.83) (0.84) (1.08) (1.10)
Return of capital distribution tax ............ -- -- -- -- --
Distributions from net capital and currency
gains to preferred stockholders........... (0.02) (0.01) (0.01) (0.01) (0.01)
Distributions from net capital and currency
gains to common stockholders.............. (0.03) (0.15) (0.17) (0.08) (0.29)
---------- ---------- ---------- ---------- --------
Total dividends and distributions......... (1.02) (1.16) (1.14) (1.28) (1.54)
---------- ---------- ---------- ---------- --------
Capital reduction with respect to issuance of
shares.................................... (0.41) (0.39) (0.11) (0.01) (0.03)(6)
Increase resulting from Fund share
repurchase ............................... -- -- -- -- --
Net asset value per common share,
end of period ............................ $ 9.93 $ 9.36 $ 8.82 $ 10.09 $ 9.61
========== ========== ========== ========== ========
Market value per common share,
end of period ............................ $ 8.94 $ 9.31 $ 9.56 $ 10.25 $ 10.00
========== ========== ========== ========== ========
Number of shares of common stock outstanding
(000 omitted)............................. 194,560 155,079 123,476 104,036 101,804
Total investment return based on:/(3)/
Market value.............................. 5.59% 8.78% 3.32% 15.00% 4.11%
Net asset value........................... 16.73% 18.54% (3.19)% 17.80% (3.22)%
Ratios to Average Net Assets of Common
Stockholders/Supplementary Data:/(4)/
Expenses/(5)/.................................. 1.29% 1.47% 1.41% 1.44% 1.43%
Net investment income available to common
stockholders.............................. 7.71% 8.96% 9.48% 11.00% 10.89%
Portfolio turnover rate........................ 63% 50% 34% 23% 17%
Net assets of common stockholders, end of
period Period (000 omitted)............... $1,931,894 $1,452,205 $1,088,631 $1,050,084 $977,933
Average net assets of common stockholders
(000 omitted)............................. $1,627,916 $1,201,383 $1,174,394 $1,011,324 $938,072
Senior securities (preferred stock)
outstanding (000 omitted)................. $ 600,000 $ 475,000 $ 400,000 $ 350,000 $300,000
Asset coverage of preferred stock
at period-end ............................ 422% 406% 372% 400% 426%
15
-------------------------
/(1)/ Calculated based upon average shares outstanding during the period.
/(2)/ Less than $0.005 per share.
/(3)/ 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 years 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
years. 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 years.
/(4)/ 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 stockholders. Expense
ratios relative to the average net assets of common and preferred
stockholders are 1.03%, 1.03%, 0.98%, 0.95%, 0.95%, 0.94%, 1.05%,
1.05%, 1.07, and 1.08, respectively. Ratios to average net assets of
net investment income before preferred stock dividends are 8.86%,
10.76%, 10.52%, 9.79%, 10.72%, 9.17%, 9.16%, 10.83%, 10.68%, and
12.13%, respectively. Ratios to average net assets of preferred stock
dividends are 1.01%, 2.28%, 2.30%, 1.45%, 2.21%, 1.78%, 1.45%, 1.87%,
1.20% and 1.13%, respectively.
/(5)/ Includes expenses of both preferred and common stock.
/(6)/ Includes rights offering costs and dealer manager fees of $0.06 per
share offset by an increase to net asset value of $0.03 per share
resulting from issuing the shares at $9.75 per share.
Note: Contained above is operating performance for a share of Common Stock
outstanding, total investment return, ratios to average net assets of
Stockholders 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 Common Stock.
16
THE OFFER
Terms of the Offer
The Fund is issuing to Record Date Stockholders transferable Rights to
subscribe for an aggregate of [# of shares] Shares. Each Record Date Stockholder
is being issued one transferable Right for each whole share of Common Stock
owned on the Record Date. The number of Rights issued to a Record Date
Stockholder will be rounded up to the nearest number of Rights evenly divisible
by __. In the case of shares of Common Stock held of record by Cede & Co.
("Cede"), as nominee for the Depository Trust Company ("DTC"), or any other
depository or nominee, the number of Rights issued to Cede or such other
depository or nominee will be adjusted to permit rounding up (to the nearest
number of Rights evenly divisible by __) of the Rights to be received by
beneficial owners for whom it is the holder of record only if Cede or such other
depository or nominee provides to the Fund on or before the close of business on
______, 2002 a written representation of the number of Rights required for such
rounding.
The Rights entitle the Stockholder to acquire at the Subscription Price
one Share for every __ Rights held (1-for-__). Rights may be exercised at any
time during the Subscription Period, which commences on [Start Subscription
Period] and ends at 5:00 p.m., New York City time, on [Expiration Date], unless
extended by the Fund ("Expiration Date"). A Stockholder's right to acquire,
during the Subscription Period at the Subscription Price, one Share for every __
Rights held is hereinafter referred to as the "Primary Subscription." A
Stockholder who exercises Rights pursuant to the Primary Subscription is
hereinafter referred to as an "Exercising Stockholder." The Rights will be
listed for trading on the AMEX under the symbol "FAX.R" during the course of the
offering. The Shares, once issued, will be listed on the AMEX and the PSE under
the symbol "FAX." The Rights will be evidenced by subscription certificates
which will be mailed to Record Date Stockholders, except as discussed below
under "Foreign Stockholders."
The Rights are transferable among Record Date Stockholders and
non-Record Date Stockholders. Holders of Rights who are not Record Date
Stockholders ("Rights Holders") may purchase Shares in the Primary Subscription,
but are not entitled to subscribe for Shares pursuant to the Over-Subscription
Privilege described below. Record Date Stockholders and Rights Holders
purchasing Shares in the Primary Subscription and Record Date Stockholders who
purchase Shares pursuant to the Over-Subscription Privilege are hereinafter
referred to as "Exercising Rights Holders."
Shares not subscribed for in the Primary Subscription will be offered,
pursuant to the Over-Subscription Privilege, to those Record Date Stockholders
who have exercised all Rights issued to them and who wish to acquire more than
the number of Shares they are entitled to purchase pursuant to the exercise of
their Rights. Shares acquired pursuant to the Over-Subscription Privilege are
subject to allotment, as more fully discussed below under "The Offer-
Over-Subscription Privilege." For purposes of determining the number of Shares a
Stockholder may acquire pursuant to the Offer, broker-dealers, trust companies,
banks or others whose Shares are held of record by Cede or by any other
depository or nominee will be deemed to be the holders of the Rights that are
issued to Cede or the other depository or nominee on their behalf.
The first regular monthly distribution to be paid on Shares acquired
upon exercise of Rights will be the first monthly distribution the record date
for which occurs after the issuance of those Shares. The record date for
distributions is generally the last business day of the month in which the
distribution is declared. It is the Fund's present policy to pay distributions
on the Friday nearest the middle of the month following the record date for such
distribution. As a result of the timing of the Offer, with respect
17
to Shares issued in connection with Rights exercised before the end of the
Subscription Period, it is expected that the first distribution received by the
holders of those Shares will be paid in mid-[month year]. With respect to Shares
issued in connection with Rights exercised after the end of the Subscription
Period, it is expected that the first distribution received by the holders of
those Shares will be paid in mid-[month year].
There is no minimum number of Rights which must be exercised in order
for the Offer to close.
Background
The Fund seeks to maintain a stable monthly cash distribution
consistent with its investment objective of seeking current income. To this end,
in February 1989, the Fund began paying a regular monthly distribution in place
of the previous quarterly payments and, in September 1993, the Fund adopted a
policy of supplementing monthly distributions paid out of available net
investment income with realized capital gains. In September 1999, the Fund
adopted a managed distribution policy that calls for supplementing monthly
distributions paid out of available net investment income with realized capital
gains and returns of paid-in capital to the extent necessary to maintain a
stable monthly distribution rate. As interest rates have fallen in Australia, on
the basis of the advice of the Investment Manager and Investment Adviser, the
Fund's Board of Directors from time to time has reduced the level of monthly
distribution payments (principally downward) to reflect the then-current
interest rate environment. The last reduction occurred in February 2002, when
the regular monthly distribution was reduced from 4.5 cents per share of Common
Stock to 3.5 cents per share of Common Stock.
In August 1997, in order to address the prospect of declining
distributions, the Fund's Investment Manager and Investment Adviser, proposed to
the Board of Directors that the Fund's investment policies be expanded to enable
the Fund to invest up to 35% of its assets in Asian debt securities. The
Investment Manager and Investment Adviser indicated that in their view the
relatively high level of interest rates then available in Asian markets compared
with interest rates then available in Australia and New Zealand offered an
attractive opportunity to increase the Fund's net investment income above the
then current level, although they also emphasized that this would introduce an
extra element of risk in implementing the Fund's investment objective. After
in-depth consideration, the Fund's Board determined to recommend to the Fund's
Common and Preferred Stockholders that the Fund's investment policies and
investment structure be amended in order to enable the Fund to invest up to 35%
of its assets in Asian debt securities. That proposal was approved by the Common
and Preferred stockholders on May 14, 1998.
The introduction of Asian bonds into the portfolio in 1998 contributed
significantly to yield, currency and capital gains. The portfolio's Asian bond
exposure has incorporated both U.S. dollar denominated Asian bonds (Yankees) and
Asian currency-denominated bonds. This diversification has partly shielded the
portfolio from the negative impact of the depreciation, versus the U.S. dollar,
of the Australian dollar over the past four years. The Investment Manager and
Investment Adviser believed that it would be desirable to extend the investment
mandate to boost earnings.
In December 2000, the Investment Manager and Investment Adviser
proposed to the Board of Directors that the Fund's investment objective and
policies be further amended to permit the Fund to increase its investments in
Asian debt securities to 80% of the Fund's total assets. The Investment Manager
and Investment Adviser indicated that, related to this proposal, they would also
recommend that the Fund: (i) increase the percentage of the Fund's total assets
permitted to be invested in securities rated below investment grade; (ii) have
the ability to invest in securities rated below B-; (iii) increase its then
current geographic and currency limits; and (iv) adjust its derivatives
constraints in line with the proposed new geographic and currency limits. The
Investment Manager and Investment Adviser indicated that, in
18
their view, the relatively higher level of interest rates available in Asian
markets compared with interest rates then available in Australia and New Zealand
offered an attractive opportunity to enhance the Fund's earnings. The Investment
Manager and Investment Adviser suggested several scenarios, which were not
mutually exclusive, by which the Fund could implement an increased exposure into
Asia, including the sale of portfolio securities, the use of proceeds from
maturing Australian debt securities, or the raising of additional capital. The
Board considered the funding scenarios presented by the Investment Manager and
Investment Adviser, and also noted that the Investment Manager and Investment
Adviser did not envisage investing the maximum allowable percentage of 80% of
the Funds assets immediately upon obtaining stockholder approval of the
proposal. The Investment Manager and Investment Adviser proposed to implement
the increased investment in Asian debt securities gradually, with an initial
target of 50% investment in Asia over the 18 months following stockholder
approval.
Purpose of the Offer
Following approval by the Common and Preferred stockholders in June
2001, the Investment Manager and Investment Adviser began a thorough analysis of
how best to implement the increased investment in Asian debt securities in terms
of both the timing of investment and its appropriate funding. The Fund's
increased investment in Asian debt securities has been constrained by the fact
that the Fund could potentially have to realize significant foreign exchange
losses if Australian securities are sold or mature and the proceeds are
converted into the relevant Asian local currencies or into U.S. dollars in order
to purchase Asian debt securities. However, by using the proceeds of a rights
offering rather than reallocating assets currently in its portfolio, the Fund
would not necessarily have to realize the substantial foreign exchange losses
that might otherwise be realized if the portfolio were internally restructured.
At the regularly scheduled meeting of the Board of Directors held on
June 19, 2002, the Investment Manager proposed that the Directors consider
approval of a rights offering, and outlined the reasons therefor. The Directors
determined that, prior to the next regularly scheduled meeting of the Board of
Directors to be held in September 2002, the Rights Offering Committee of the
Board should evaluate a formal proposal of the Investment Manager and the
Investment Adviser. The Directors agreed that the Rights Offering Committee
should consider the benefits and costs to the Fund's existing stockholders,
including the dilutionary impact of a rights offering relative to the other
options available to the Fund, before making a recommendation to the Board. The
Rights Offering Committee is composed of four Directors: Messrs. Neville J.
Miles, William J. Potter, Peter D. Sacks and John T. Sheehy, who are not
"interested persons" (as that term is defined in Section 2(a)(19) of the 1940
Act) of the Fund, the Investment Manager, the Investment Adviser or the Dealer
Managers.
In August 2002, the Investment Manager and Investment Adviser jointly
prepared a lengthy written report addressing the timing of further investments
in Asian debt securities and the most appropriate method of funding any further
investments in light of then current market conditions ("Aberdeen Report"). The
Aberdeen Report concluded that further investments in Asian debt securities
should be funded using a combination of (i) the proceeds of selective selling of
existing Australian assets to purchase increased Asian and New Zealand domestic
bonds; and (ii) the proceeds of a rights offering to fund further investment in
Asian Yankee bonds. The Aberdeen Report presented a variety of ratios of number
of rights to number of outstanding shares for the Board of Directors to consider
when determining whether to approve the Offer.
The Aberdeen Report was first circulated to the members of the Rights
Offering Committee for their review. Subsequently, on August 22, 2002, the
Rights Offering Committee met with representatives of the Investment Manager and
the Investment Adviser to consider the Aberdeen Report. On August 27, 2002, the
Rights Offering Committee again met with representatives of the Investment
Manager and the Investment Adviser, together with representatives of a potential
dealer manager. During both of these
19
meetings, as well as on other occasions, the members of the Rights Offering
Committee had the opportunity to consult with counsel to the Independent
Directors of the Fund ("Independent Counsel"), as well as with counsel to the
Fund, the Investment Manager and the Investment Adviser ("Fund Counsel). After
extensive discussions, the Rights Offering Committee agreed to recommend to the
full Board that the Fund proceed with the Offer. The Aberdeen Report was then
circulated to the full Board of Directors, together with the recommendation of
the Rights Offering Committee.
The full Board considered the matter at its regular quarterly meeting
held on September 12, 2002. The members of the Rights Offering Committee
reviewed with the full Board the provisions of the Aberdeen Report, and
explained the reasons why the Committee had determined to recommend that the
Board approve the Offer. The Directors then engaged in an extensive discussion
regarding the proposal and the Aberdeen Report with representatives of the
Investment Manager and the Investment Adviser. During this meeting, as well as
on other occasions, the independent directors had the opportunity to consult
with Independent Counsel and Fund Counsel. The Board determined, by the
unanimous vote of all of the Directors who are not "interested persons" (as that
term is defined in Section 2(a)(19) of the 1940 Act) of the Fund, the Investment
Manager, the Investment Adviser or the Dealer Managers, as well as the unanimous
vote of the full Board, to authorize the Fund to engage in a rights offering.
The Directors authorized the members of the Rights Offering Committee to make
further determinations regarding the terms and structure of the Offer, upon
consultation with the representatives of the Investment Manager and the
Investment Adviser, the dealer managers, Independent Counsel and Fund Counsel.
On October 3, 2002, the members of the Rights Offering Committee met
with representatives of the Investment Manager, the Investment Adviser, a
potential dealer manager, Independent Counsel and Fund Counsel. A lengthy
discussion was held, during which the Committee determined that the reasons for
the Fund to engage in the Offer remained compelling. The Committee agreed to
recommend to the full Board that the Fund proceed with the Offer and file a
registration statement with the SEC. The Board subsequently unanimously approved
proceeding with the Offer and filing the registration statement.
The Investment Manager and Investment Adviser believe that an increase
in the size of the Fund should result in an incidental modest reduction in the
Fund's expense ratio, which would be of long-term benefit to Stockholders. The
Offer also seeks to reward Stockholders by giving them the right to purchase
additional Shares at a discount, although Stockholders who do not fully exercise
their Rights will own, upon completion of the Offer, a smaller proportional
interest in the Fund than they owned prior to the Offer. See "The Offer" and
"Risk Factors and Special Considerations."
THERE CAN BE NO ASSURANCE THAT THE FUND OR ITS STOCKHOLDERS WILL
ACHIEVE ANY OF THE FOREGOING OBJECTIVES OR BENEFITS THROUGH THE OFFER.
The Board of Directors has also considered the impact of the Offer on
the Fund's NAV per share. The Subscription Price per share is $____, which
represents a ____% discount to the Fund's NAV per share as of _________, 2002
[(the last trading date on which the Fund publicly reported its net asset value
prior to the date of this Prospectus)]. Assuming that all rights are exercised
and there is no change in the Fund's NAV per share, the Offer (after expenses)
should result in a decrease in the Fund's NAV per share, and, therefore, the
Offer (after expenses) is expected to result in a dilution to the Fund's NAV per
share, which could be substantial. Although the Fund has sought to restrict
potential dilution, the extent of dilution depends on the amount, if any, by
which the Subscription Price less fees paid to the Dealer Managers and other
expenses of the Offer represents a discount to NAV on the date new Shares are
issued.
20
In determining that the Offer was in the best interests of the Fund and
its stockholders, the Board of Directors retained the Dealer Managers to provide
the Fund with financial advisory, marketing and soliciting services related to
the Offer, including the structure, timing and terms of the Offer. In addition
to the foregoing, the Board of Directors considered, among other things, using a
variable pricing versus fixed pricing mechanism, the benefits and drawbacks of
conducting a non-transferable versus a transferable rights offering, the effect
on the Fund if the Offer is under-subscribed and the experience of the Dealer
Managers in conducting rights offerings.
The Fund has made five prior rights offerings which the Investment
Manager and Investment Adviser believe had a generally favorable effect on
returns to Common Stock holders. In each case, tactical investment of the
proceeds enabled the Fund to continue to make distributions despite declining
interest rates. In the case of the 1992 rights offering, the 1995 rights
offering, the 1996 rights offering and the 1998 rights offering, the Fund used
the net proceeds to capture higher yields then available, and in 1993 it sought
to reduce the Fund's exposure to long-term securities in order to reduce
volatility in the Fund's NAV in a period of changing market conditions.
In the case of the Fund's prior rights offerings in 1992, 1994, 1995
and 1996, the Fund sought to emphasize investment in the Australian Eurobond
market and to provide modest reductions in the Fund's expense ratio. In this
respect, overall, the Fund's investment in Australian dollar Eurobonds rose from
15.8% of its total assets at October 31, 1992, immediately prior to the
investment of the proceeds of the 1992 offering, to 24% of the Fund's total
assets at January 31, 1994, the last day of the quarter in which the proceeds of
the 1993 offer were invested. Prior to the 1995 rights offering, 33.8% of the
Fund's total assets were invested in Eurobonds. Following the investment of the
proceeds of that offering, the Fund's holding in Eurobonds represented 36.9% of
its assets. Immediately prior to the 1996 rights offering, 26.24% of the Fund's
total assets were invested in Eurobonds. Following the investment of the
proceeds of the 1996 rights offering, the Fund's holding in Eurobonds
represented 28.2% of its assets at October 31, 1996 and 30.8% of its assets at
April 30, 1997. The Fund intends to continue its investment approach of
emphasizing the Eurobond markets, where securities are exempt from the 10%
withholding tax imposed on domestic Australian issues. See "Taxation -
Australian Taxes."
The Fund's expense ratio was also favorably affected by the rights
offerings. For the six months ended April 30, 2002 and the ten fiscal years
ended October 31, 2001, 2000, 1999, 1998, 1997, 1996, 1995, 1994, 1993 and 1992,
the Fund's annualized expense ratios were, respectively, 1.53%, 1.51%, 1.36%,
1.26%, 1.47%, 1.25%, 1.29%, 1.47%, 1.41%, 1.44% and 1.43%, compared with expense
ratios of 1.59% and 1.54% for the 1991 and 1990 fiscal years. In the opinion of
the Investment Adviser, the expense ratios for the 1999, 1997, 1996, 1995, 1994
and 1992 fiscal years (which are the fiscal years in which the proceeds of the
1998, 1996, 1995, 1993 and 1992 rights offerings were invested) were favorably
affected by the rights offerings, since the proceeds served to offset a decrease
in the total net assets of the Fund in those years occasioned by unfavorable
currency and market value movements.
Although the Fund has sought to restrict potential dilution, the extent
of dilution depends on the amount, if any, by which the Subscription Price less
fees paid to the Dealer Managers and other expenses of the Offer represents a
discount to NAV on the date new Shares are issued. The dilution was $0.03 per
share in the 1992 offering, $0.11 per share in the case of the 1993 offering,
$0.38 per share in the case of the 1995 offering, $0.40 per share in the case of
the 1996 offering, and $0.61 per share in the case of the 1998 offering.
Because their fees are based on the magnitude of the Fund's assets, the
Fund's Investment Manager and Investment Adviser, as well as the Administrator,
will benefit from the Offer. See "Management Agreement and Advisory Agreement."
It is not possible to state precisely the amount of additional compensation
these entities will receive as a result of the Offer because it is not known how
21
many Shares will be subscribed for and because the net proceeds of the Offer
will be invested in additional portfolio securities which will fluctuate in
value.
Although the Board of Directors has no present intention of proposing
further rights offerings or further Preferred Stock offerings, the Board may
consider, from time to time, making additional offerings when, in its view,
investment opportunities are presented that lend themselves to the investment of
new funds and further rights offerings or further Preferred Stock offerings
would be in the best interests of the Fund and its stockholders. Any rights
offerings will be made in accordance with the 1940 Act, but may or may not be
made on terms similar to the Offer.
Over-Subscription Privilege
Shares not subscribed for by Record Date Stockholders or Rights Holders
("Excess Shares") will be offered, by means of the Over-Subscription Privilege,
to the Record Date Stockholders who have exercised all exercisable Rights issued
to them and who wish to acquire more than the number of Shares for which the
Rights issued to them are exercisable. Record Date Stockholders should indicate,
on the Subscription Certificate which they submit with respect to the exercise
of the Rights issued to them, how many Excess Shares they are willing to acquire
pursuant to the Over-Subscription Privilege. If sufficient Excess Shares remain,
all Record Date Stockholders over-subscription requests will be honored in full.
If Record Date Stockholder requests for Shares pursuant to the Over-Subscription
Privilege exceed the Excess Shares available, the available Excess Shares will
be allocated pro-rata among Record Date Stockholders who oversubscribe based on
the number of Rights originally issued to such Record Date Stockholders. The
percentage of remaining Shares each over-subscribing Exercising Stockholder may
acquire will be rounded down to result in delivery of whole Shares. The
allocation process may involve a series of allocations to assure that the total
number of Shares available for over-subscriptions is distributed on a pro-rata
basis.
Banks, brokers, trustees and other nominee holders of Rights will be
required to certify to the Subscription Agent, before any Over-Subscription
Privilege may be exercised with respect to any particular beneficial owner, as
to the aggregate number of Rights exercised pursuant to the Primary Subscription
and the number of Shares subscribed for pursuant to the Over-Subscription
Privilege by such beneficial owner and that such beneficial owner's Primary
Subscription was exercised in full. Nominee Holder Over-Subscription Forms and
Beneficial Owner Certification Forms will be distributed to banks, brokers,
trustees and other nominee holders with the Subscription Certificates.
The Fund will not offer or sell in connection with the Offer any Shares
that are not subscribed for pursuant to the Primary Subscription or the
Over-Subscription Privilege.
The Fund has been advised that certain Directors that own
shares in the Fund, who owned _____ shares in the aggregate on the Record Date,
intend to exercise all of the Rights initially issued to them. If additional
Shares remain after all over-subscriptions other than the over-subscriptions
submitted by these Directors are honored in full, such Directors may purchase
all or any of the remaining Shares. If additional Shares do not remain after all
over-subscriptions by Stockholders other than such Directors are honored, then
such Directors will not receive Shares pursuant to the Over-Subscription
Privilege. Rule 144 under the Securities Act of 1933, as amended ("1933 Act"),
generally provides that an "affiliate" of the Fund is entitled to sell, within
any three-month period, a number of shares that does not exceed the greater of
1% of the then outstanding shares of Common Stock or the average weekly reported
trading volume of the Common Stock during the four calendar weeks preceding the
sale. Sales under Rule 144
22
are also subject to certain restrictions on the manner of sale, to notice
requirements and to the availability of current public information about the
Fund. In addition, any profit resulting from a Director's sale of shares within
a period of less than six months from the purchases may have to be returned to
the Fund.
The Subscription Price
The Subscription Price for the Shares to be issued pursuant to the
Offer will be $____ per Share.
The Fund announced the Offer after the close of trading on the AMEX on
_______, 2002. The net asset value per share of Common Stock at the close of
business on _______, 2002 (the last trading date on which the Fund publicly
reported its net asset value prior to the announcement) and on ____________,
2002 (the last trading date on which the Fund publicly reported its net asset
value prior to the date of this Prospectus) was $_____ and $_____, respectively,
and the last reported sales price of a share of the Fund's Common Stock on the
AMEX on those dates was $_____ and $______, respectively.
Expiration of the Offer
The Offer will expire at 5:00 p.m., New York City time, on [Expiration
Date], 2002, unless extended by the Fund. The Rights will expire on the
Expiration Date and thereafter may not be exercised.
Any extension of the Offer will be followed as promptly as practicable
by announcement thereof, and in no event later than 9:00 a.m., New York City
time, on the next business day following the previously scheduled Expiration
Date. Without limiting the manner in which the Fund may choose to make such
announcement, the Fund will not, unless otherwise required by law, have any
obligation to publish, advertise or otherwise communicate any such announcement
other than by making a release to the Dow Jones News Service or such other means
of announcement as the Fund deems appropriate.
Subscription Agent
The subscription agent is [name] ("Subscription Agent"). The
Subscription Agent will receive for its administrative, processing, invoicing
and other services as Subscription Agent, a fee estimated to be approximately
$[_______] which includes reimbursement for all out-of-pocket expenses related
to the Offer. The Subscription Agent is also the Fund's transfer agent,
dividend-paying agent and registrar for the Common Stock. Questions regarding
the Subscription Certificates should be directed by mail to [name] [address] or
by telephone to [telephone number] (toll free). STOCKHOLDERS MAY ALSO SUBSCRIBE
FOR THE OFFER BY CONTACTING THEIR BROKER-DEALER, TRUST COMPANY, BANK, OR OTHER
NOMINEE.
Completed Subscription Certificates must be sent together with proper
payment of the Subscription Price for all Shares subscribed for in the Primary
Subscription and the Over-Subscription Privilege (for Record Date Stockholders)
to [name] by one of the methods described below. Alternatively, Notices of
Guaranteed Delivery may be sent by facsimile to (____) ____-______ to be
received by the Subscription Agent prior to 5:00 p.m., New York City time, on
the Expiration Date. Facsimiles should be confirmed by telephone at (____)
____-______. The Fund will accept only properly completed and executed
Subscription Certificates actually received at any of the addresses listed
below, prior to 5:00 p.m., New York City time, on the Expiration Date or by the
close of business on the third business day after the Expiration Date following
timely receipt of a Notice of Guaranteed Delivery. See "Payment for Shares"
below.
================================================================================
Subscription Certificate
Delivery Method Address/Number
================================================================================
23
================================================================================
Subscription Certificate
Delivery Method Address/Number
--------------------------------------------------------------------------------
By Notice of Guaranteed Delivery Contact your broker-dealer, trust company,
bank, or other nominee to notify the Fund
of your intent to exercise the Rights.
--------------------------------------------------------------------------------
By First Class Mail Only Aberdeen Asia-Pacific Income Fund, Inc.
[name of subscription agent]
(No Overnight /Express Mail) [address]
--------------------------------------------------------------------------------
By Hand to New York Delivery Window Aberdeen Asia-Pacific Income Fund, Inc.
Securities Transfer & Reporting Services,
Inc.
[name of subscription agent]
[address]
--------------------------------------------------------------------------------
By Express Mail or Overnight Courier Aberdeen Asia-Pacific Income Fund, Inc.
[name of subscription agent]
[address]
================================================================================
DELIVERY TO AN ADDRESS OTHER THAN ONE OF THE ADDRESSES LISTED ABOVE
WILL NOT CONSTITUTE VALID DELIVERY.
Information Agent
Any questions or requests for assistance concerning the method of
subscribing for Shares or for additional copies of this Prospectus or
Subscription Certificates or Notices of Guaranteed Delivery may be directed to
the Information Agent at its telephone number and address listed below:
The Information Agent for the Offer is:
Georgeson Shareholder
Communications, Inc.
17 State Street
New York, NY 10004
Toll Free: (800) ____-_____, Ext. ____
or
Call Collect: (____) _____-______
Stockholders may also contact their brokers or nominees for information
with respect to the Offer. The Information Agent will receive a fee estimated to
be $327,000, which includes reimbursement for its out-of-pocket expenses related
to the Offer.
Methods for Exercising Rights
Rights are evidenced by Subscription Certificates that, except as
described below under "Foreign Restrictions," will be mailed to Record Date
Stockholders or, if a Stockholder's shares are held by Cede or any other
depository or nominee on their behalf, to Cede or such depository or nominee.
Rights may be exercised by completing and signing the Subscription Certificate
that accompanies this Prospectus and mailing it in the envelope provided, or
otherwise delivering the completed and signed Subscription Certificate to the
Subscription Agent, together with payment in full for the Shares at the
Subscription
24
Price by the Expiration Date. Rights may also be exercised by contacting your
broker, banker or trust company, who can arrange, on your behalf, to guarantee
delivery of payment and delivery of a properly completed and executed
Subscription Certificate pursuant to a Notice of Guaranteed Delivery by the
close of business on the third Business day after the Expiration Date. A fee may
be charged for this service. Completed Subscription Certificates and related
payments must be received by the Subscription Agent prior to 5:00 p.m., New York
City time, on or before the Expiration Date (unless payment is effected by means
of a Notice of Guaranteed Delivery as described below under "Payment for
Shares") at the offices of the Subscription Agent at the address set forth
above. Fractional shares will not be issued upon the exercise of Rights.
Exercising Stockholders Who Are Record Owners. Exercising Stockholders
who are owners of record may choose either option set forth under "Payment for
Shares" below. If time is of the essence, alternative (2) will permit delivery
of the Subscription Certificate and payment after the Expiration Date.
Stockholders Whose Shares Are Held by a Nominee. Stockholders whose
shares of Common Stock are held by a nominee, such as a bank, broker or trustee,
must contact that nominee to exercise their Rights. In that case, the nominee
will complete the Subscription Certificate on behalf of the Stockholder and
arrange for proper payment by one of the methods set forth under "Payment for
Shares" below.
Nominees. Nominees who hold shares of Common Stock for the account of
others should notify the respective beneficial owners of the shares as soon as
possible to ascertain the beneficial owners' intentions and to obtain
instructions with respect to the Rights. If the beneficial owner so instructs,
the nominee should complete the Subscription Certificate and submit it to the
Subscription Agent with the proper payment as described below under "Payment for
Shares" below.
All questions as to the validity, form, eligibility (including times of
receipt and matters pertaining to beneficial ownership) and the acceptance of
subscription forms and the Subscription Price will be determined by the Fund,
which determinations will be final and binding. No alternative, conditional or
contingent subscriptions will be accepted. The Fund reserves the right to reject
any or all subscriptions not properly submitted or the acceptance of which
would, in the opinion of Fund's counsel, be unlawful.
Payment for Shares
Stockholders who wish to acquire Shares pursuant to the Offer may
choose between the following methods of payment:
1. An Exercising Rights Holder may send the Subscription
Certificate together with payment for the Shares acquired in the Primary
Subscription and any additional Shares subscribed for pursuant to the
Over-Subscription Privilege (for Record Date Stockholders) to the Subscription
Agent based on the Subscription Price of $____ per Share. To be accepted, the
payment, together with the executed Subscription Certificate, must be received
by the Subscription Agent at one of the Subscription Agent's offices set forth
above, prior to 5:00 p.m., New York City time, on the Expiration Date. The
Subscription Agent will deposit all funds received by it for the purchase of
Shares into a segregated interest-bearing account (the interest from which will
accrue to the benefit of the Fund) pending proration and distribution of Shares.
A PAYMENT PURSUANT TO THIS METHOD MUST BE IN U.S. DOLLARS BY MONEY ORDER OR
CHECK DRAWN ON A BANK OR BRANCH LOCATED IN THE UNITED STATES, MUST BE PAYABLE TO
ABERDEEN ASIA-PACIFIC INCOME FUND, INC. AND MUST ACCOMPANY A PROPERLY COMPLETED
AND EXECUTED SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE
ACCEPTED. EXERCISE BY THIS METHOD IS SUBJECT TO ACTUAL COLLECTION OF CHECKS BY
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED
PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, STOCKHOLDERS ARE
25
STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF A CERTIFIED OR
CASHIER'S CHECK OR MONEY ORDER.
2. Alternatively, an Exercising Rights Holder may acquire
Shares, and a subscription will be accepted by the Subscription Agent if, prior
to 5:00 p.m., New York City time, on the Expiration Date, the Subscription Agent
has received a Notice of Guaranteed Delivery by facsimile or otherwise from a
financial institution that is a member of the Securities Transfer Agents
Medallion Program, the Stock Exchange Medallion Program or the NYSE Medallion
Signature Program guaranteeing delivery of (i) payment of the Subscription Price
of $____ per Share for the Shares subscribed for in the Primary Subscription and
any additional Shares subscribed for pursuant to the Over-Subscription Privilege
(for Record Date Stockholders), and (ii) a properly completed and executed
Subscription Certificate. The Subscription Agent will not honor a Notice of
Guaranteed Delivery unless a properly completed and executed Subscription
Certificate and full payment for the Shares is received by the Subscription
Agent by the close of business on ___________, 2002, the third business day
after the Expiration Date.
On a date within eight business days following the Expiration Date
("Confirmation Date"), the Subscription Agent will send to each Exercising
Rights Holder (or, if shares of Common Stock are held by Cede or any other
depository or nominee, to Cede or such other depository or nominee) a
confirmation showing (i) the number of Shares purchased pursuant to the Primary
Subscription and (ii) the number of Shares, if any, acquired pursuant to the
Over-Subscription Privilege (for Record Date Stockholders). All payments by an
Exercising Rights Holder must be in U.S. dollars by money order or check drawn
on a bank or branch located in the United States and payable to ABERDEEN
ASIA-PACIFIC INCOME FUND, INC.
The Subscription Agent will deposit all funds received by it prior to
the final payment date into a segregated interest-bearing account (which
interest will accrue to the benefit of the Fund) pending proration and
distribution of the Shares.
WHICHEVER OF THE TWO METHODS DESCRIBED ABOVE IS USED, ISSUANCE OF THE
SHARES PURCHASED IS SUBJECT TO COLLECTION OF CHECKS AND ACTUAL PAYMENT. If a
holder of Rights who subscribes for Shares pursuant to the Primary Subscription
or Over-Subscription Privilege (for Record Date Stockholders) does not make
payment of any amounts due by the Expiration Date or the date guaranteed
payments are due under a notice of guaranteed delivery, the Subscription Agent
reserves the right to take any or all of the following actions: (i) find other
Record Date Stockholders for such subscribed and unpaid for Shares; (ii) apply
any payment actually received by it toward the purchase of the greatest whole
number of Shares which could be acquired by such holder upon exercise of the
Primary Subscription and/or Over-Subscription Privilege, and/or (iii) exercise
any and all other rights or remedies to which it may be entitled, including,
without limitation, the right to set off against payments actually received by
it with respect to such subscribed Shares.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE FUND WILL BE AT THE ELECTION AND RISK OF THE
EXERCISING RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00
P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL
CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO
PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY
ORDER.
All questions concerning the timeliness, validity, form and eligibility
of any exercise of Rights will be determined by the Fund, whose determinations
will be final and binding. The Fund in its sole
26
discretion may waive any defect or irregularity, or permit a defect or
irregularity to be corrected within such time as it may determine, or reject the
purported exercise of any Right. Subscriptions will not be deemed to have been
received or accepted until all irregularities have been waived or cured within
such time as the Fund determines in its sole discretion. The Subscription Agent
will not be under any duty to give notification of any defect or irregularity in
connection with the submission of Subscription Certificates or incur any
liability for failure to give such notification.
EXERCISING RIGHTS HOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR SUBSCRIPTION
AFTER RECEIPT OF THEIR PAYMENT FOR SHARES BY THE SUBSCRIPTION AGENT, EXCEPT AS
PROVIDED BELOW UNDER "NOTICE OF NAV DECLINE."
Sale of Rights
The Rights are Transferable until the Expiration Date. The Rights will be
listed for trading on the AMEX, subject to notice of issuance. The Fund will
use its best efforts to ensure that an adequate trading market for the Rights
will exist, although no assurance can be given that a market for the Rights will
develop. Trading in the Rights on the AMEX is expected to be conducted on a
"when issued" basis beginning on or about __________, 2002, until and including
on or about ___________, 2002, and thereafter are expected to trade on a
"regular-way" basis until and including ____________, 2002, the last business
day prior to the Expiration Date. Exercising Rights Holders are encouraged to
contact their broker, bank or financial advisor for more information about
trading of the rights.
Sales Through Subscription Agent and Dealer Managers. Record Date
Stockholders who do not wish to exercise any or all of their Rights may instruct
the Subscription Agent to sell any unexercised Rights through or to the Dealer
Managers. Subscription Certificates representing the Rights to be sold through
or to the Dealer Managers must be received by the Subscription Agent on or
before ____________, 2002, (or if the offer is extended, until two business days
prior to the Expiration Date). Upon the timely receipt by the Subscription Agent
of appropriate instructions to sell Rights, the Subscription Agent will ask the
Dealer Managers either to purchase or to use its best efforts to complete the
sale and the Subscription Agent will remit the proceeds of sale to the selling
Record Date Stockholder. If the Rights can be sold, sales of such Rights will be
deemed to have been effected at the weighted-average price received by the
Dealer Managers on the day such Rights are sold. The sale price of any Rights
sold to the Dealer Managers will be based upon the then current market price for
the Rights. The Dealer Managers will also attempt to sell all Rights which
remain unclaimed as a result of Subscription Certificates being returned by the
postal authorities to the Subscription Agent as undeliverable as of the fourth
business day prior to the Expiration Date. The Subscription Agent will hold the
proceeds from those sales for the benefit of such non-claiming Record Date
Stockholders until such proceeds are either claimed or revert to the state.
There can be no assurance that the Dealer Managers will purchase or be able to
complete the sale of any such Rights and neither the Fund nor the Dealer
Managers has guaranteed any minimum sales price for the Rights. If a Record Date
Stockholder does not utilize the services of the Subscription Agent and chooses
to use another broker-dealer or other financial institution to sell Rights, then
the other broker dealer or financial institution may charge a fee to sell the
Rights.
Other Transfers. The Rights evidenced by a Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the accompanying instructions. A portion of the Rights evidenced
by a single Subscription Certificate (but not fractional Rights) may be
transferred by delivering to the Subscription Agent a Subscription Certificate
properly endorsed for transfer, with instructions to register such portion of
the Rights evidenced thereby in the name of the transferee and to issue a new
Subscription Certificate to the transferee evidencing such transferred Rights.
In such event, a new Subscription Certificate evidencing the balance of the
Rights, if any, will be issued
27
to the Record Date Stockholder or, if the Record Date Stockholder so instructs,
to an additional transferee. The signature on the Subscription Certificate must
correspond with the name as written upon the face of the Subscription
Certificate in every particular, without alteration or enlargement, or any
change. A signature guarantee must be provided by an eligible financial
institution as defined in Rule 17Ad-15 of the Securities Exchange Act of 1934,
as amended ("1934 Act"), subject to the standards and procedures adopted by the
Fund.
Record Date Stockholders wishing to transfer all or a portion of their
Rights should allow at least five business days prior to the Expiration Date
for: (i) the transfer instructions to be received and processed by the
Subscription Agent; (ii) a new Subscription Certificate to be issued and
transmitted to the transferee or transferees with respect to transferred Rights,
and to the transferor with respect to retained Rights, if any; and (iii) the
Rights evidenced by such new Subscription Certificate to be exercised or sold by
the recipients thereof. Neither the Fund nor the Subscription Agent nor the
Dealer Managers shall have any liability to a transferee or transferor of Rights
if Subscription Certificates are not received in time for exercise or sale prior
to the Expiration Date.
Except for the fees charged by the Subscription Agent and Dealer Managers
(which will be paid by the Fund), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred or charged in
connection with the purchase, sale or exercise of Rights will be for the account
of the transferor of the Rights, and none of such commissions, fees or expenses
will be paid by the Fund, the Subscription Agent or the Dealer Managers.
The Fund anticipates that the Rights will be eligible for transfer through,
and that the exercise of the Primary Subscription (but not the Over-Subscription
Privilege) may be effected through, the facilities of DTC. Rights exercised
through DTC are referred to as "DTC Exercised Rights." Record Date Stockholders
of DTC Exercised Rights may exercise the Over-Subscription Privilege in respect
of such DTC Exercised Rights by properly executing and delivering to the
Subscription Agent, at or prior to 5:00 p.m., New York City time, on the
Expiration Date, a Nominee Holder Over-Subscription Subscription Certificate or
a substantially similar form satisfactory to the Subscription Agent, together
with payment of the Subscription Price for the number of Shares for which the
Over-Subscription Privilege is to be exercised.
Foreign Restrictions
Subscription Certificates will not be mailed to Record Date Stockholders
whose record addresses are outside the United States (the term "United States"
includes the states, the District of Columbia, and the territories and
possessions of the United States) ("Foreign Record Date Stockholders"). Foreign
Record Date Stockholders will receive written notice of he Offer. The Rights to
which such Subscription Certificates relate will be held by the Subscription
Agent for such Foreign Record Date Stockholders' accounts until instructions are
received to exercise the Rights. If no instructions have been received by 5:00
p.m., New York City time on __________, 2002, three business days prior to the
Expiration Date, the Rights of those Foreign Record Date Stockholders will be
transferred by the Subscription Agent to the Dealer Managers who will either
purchase the Rights or use their best efforts to sell the Rights. The net
proceeds, if any, from the sale of those Rights by or to the Dealer Managers
will be remitted to Foreign Record Date Stockholders.
Notice of NAV Decline
The Fund, as required by the SEC's registration form, will suspend the
Offer until it amends this Prospectus if, subsequent to the date of this
Prospectus, the Fund's NAV declines more than 10% from its
28
NAV as of that date. Accordingly, the Expiration Date would be extended and Fund
would notify Record Date Stockholders of the decline and permit Exercising
Rights Holders to cancel their exercise of Rights.
Delivery of Stock Certificates
Participants in the Fund's Dividend Reinvestment and Cash Purchase Plan
("Plan") will have any Shares that they acquire pursuant to the Offer credited
to their Stockholder dividend reinvestment accounts in the Plan. Stockholders
whose Shares are held of record by Cede or by any other depository or nominee on
their behalf or their broker-dealers' behalf will have any Shares that they
acquire credited to the account of Cede or the other depository or nominee. With
respect to all other Stockholders, stock certificates for all Shares acquired
will be mailed after payment for all the Shares subscribed for has cleared,
which may take up to 15 days from the date of receipt of the payment.
The first regular monthly distribution to be paid on Shares acquired upon
exercise of Rights will be the first monthly distribution the record date for
which occurs after the issuance of the Shares. The Shares issued in the Offer
will not be entitled to the distribution to be declared to Stockholders of
record on [month day, year] which is payable in [month year]. Whether a
Stockholder is entitled to the distribution to be declared to Stockholders of
record on [month day, year] which is payable in [month year] will depend on the
date Shares are actually issued to the Stockholder.
Federal Income Tax Consequences of the Offer
For Federal income tax purposes, neither the receipt nor the exercise of
the Rights by Stockholders will result in taxable income to holders of Common
Stock, and no loss will be realized if the Rights expire without exercise.
A Record Date Stockholder's basis in a Right will be zero unless either (i)
the fair market value of the Right on the date of distribution is 15% or more of
the fair market value of the Shares with respect to which the Right was
distributed, or (ii) the Record Date Stockholder elects, in his or her Federal
income tax return for the taxable year in which the Right is received, to
allocate part of the basis of the Shares to the Right. If either of clauses (i)
and (ii) is applicable, then if the Right is exercised, the Record Date
Stockholder will allocate his or her basis in the Shares with respect to which
the Right was distributed between the Shares and the Right in proportion to the
fair market values of each on the date of distribution.
The holding period of a Right received by a Record Date Stockholder
includes the holding period of the shares of Common Stock with regard to which
the Right is issued. If the Right is exercised, the holding period of the Shares
acquired begins on the date the Right is exercised.
If a Right is sold, a gain or loss will be realized by the holder in an
amount equal to the difference between the basis of the Right sold and the
amount realized on its disposition.
A Record Date Stockholder's basis for determining gain or loss upon the
sale of a Share acquired upon the exercise of a Right will be equal to the sum
of the Record Date Stockholder's basis in the Right, if any, and the
Subscription Price per Share. A Record Date Stockholder's gain or loss
recognized upon a sale of a Share acquired upon the exercise of a Right will be
capital gain or loss (assuming the Share was held as a capital asset at the time
of sale) and will be long-term capital gain or loss if the Share is held for
more than one year.
The foregoing is a general summary of the material U.S. federal income tax
consequences of the Offer under the provisions of the U.S. Internal Revenue Code
of 1986, as amended ("Code"), and
29
Treasury regulations presently in effect that are generally applicable to Record
Date Stockholders that are United States persons within the meaning of the Code,
and does not cover foreign, state or local taxes. The Code and Treasury
regulations are subject to change by legislative or administrative action, which
may be retroactive. Exercising Rights Holders should consult their tax advisors
regarding specific questions as to foreign, Federal, state or local taxes.
ERISA Considerations
Stockholders who are employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (including
corporate savings and 401(k) plans), Keogh or H.R. 10 plans of self-employed
individuals and individual retirement accounts (collectively, "Retirement
Plans") should be aware that additional contributions of cash to a Retirement
Plan (other than rollover contributions or trustee-to-trustee transfers from
other Retirement Plans) in order to exercise Rights would be treated as
contributions to the Retirement Plan and, when taken together with contributions
previously made, may result in, among other things, excise taxes for excess or
nondeductible contributions. In case of Retirement Plans qualified under Section
401(a) of the Code and certain other Retirement Plans, additional cash
contributions could cause the maximum contribution limitations of Section 415 of
the Code or other qualification rules to be violated. It may also be a
reportable distribution and there may be other adverse tax and ERISA
consequences if Rights are sold or transferred by a Retirement Plan.
Retirement Plans and other tax exempt entities, including governmental
plans, should also be aware that if they borrow in order to finance their
exercise of Rights, they may become subject to the tax on unrelated business
taxable income ("UBTI") under Section 511 of the Code. If any portion of an
Individual Retirement Account ("IRA") is used as security for a loan, the
portion so used is also treated as distributed to the IRA depositor.
ERISA contains fiduciary responsibility requirements, and ERISA and the
Code contain prohibited transaction rules that may impact the exercise of
Rights. Due to the complexity of these rules and the penalties for
noncompliance, Retirement Plans should consult with their counsel and other
advisers regarding the consequences of their exercise of Rights under ERISA and
the Code.
USE OF PROCEEDS
If [# of shares] Shares are sold at the Subscription Price of $________,
the net proceeds of the Offer are estimated to be approximately $____________,
after deducting commissions and expenses payable by the Fund estimated at
approximately $___________. The Investment Manager and Investment Adviser
anticipate that investment of the net proceeds in Asian and New Zealand debt
securities, in accordance with the Fund's investment objective and policies,
will take approximately two to four months from their receipt by the Fund,
depending on market conditions and the availability of appropriate securities.
See "The Offer - Purpose of the Offer," "Investment Objective and Policies" and
"Investment Restrictions."
Pending such investment, the proceeds will be invested in U.S. government
securities and other high-quality, short-term money market instruments, which is
not in accordance with the Fund's primary investment objective. The Fund invests
in various developing and developed markets whose liquidity may delay the
investment of the proceeds in a manner consistent with the Fund's primary
investment objective. There is a risk that the Fund will not be able to invest
all of the proceeds within four months. To the extent that the Fund is not able
to invest the proceeds within four months, the proceeds will continue to be
invested in U.S. government securities. As a result of this short-term
investment of the proceeds, a lower yield may be realized.
30
THE FUND
The Fund is a non-diversified, closed-end management investment company
registered under the 1940 Act. It commenced operations in April 1986 and was the
first publicly offered United States registered investment company organized to
invest primarily in Australian debt securities. The Fund's investment objective
is to seek current income. The Fund may also achieve incidental capital
appreciation. The Fund was incorporated under the laws of the State of Maryland
on March 14, 1986 under the name "The First Australia Prime Income Fund, Inc."
Effective May 1, 2001, the Fund's name was changed to "Aberdeen Asia-Pacific
Income Fund, Inc." to reflect the fact that the Fund's Investment Manager and
Investment Adviser had been acquired by Aberdeen Asset Management PLC in 2000,
and to further reflect the Fund's new investment objective and policies approved
by stockholders in 2001.
In May 1998, the Fund's Common and Preferred stockholders approved a series
of proposals allowing the Fund, among other things, to: (1) invest up to 35% of
its assets in Asian debt securities; (2) invest in Asian debt securities for
which there is no established relevant market; (3) invest up to 15% of its total
assets in Asian debt securities rated, or considered by the Investment Manager
to be, below investment grade at the time of investment, and to reduce the
percentage of its investments in debt securities which are, or are considered by
the Investment Manager to be, rated AA or A quality; and (4) utilize derivatives
in furtherance of its investment objective and policies.
In June 2001, the Fund's Common and Preferred Stockholders approved a
series of proposals allowing the Fund, among other things, to: (1) increase to a
maximum of 80% the Fund's investments in Asian debt securities; (2) reduce the
minimum investment in Australian debt securities to 20%; (3) increase to a
maximum of 35% the Fund's investments in Asian debt securities rated, or
considered by the Investment Manager to be, below investment grade at the time
of investment; (4) invest to a maximum of 10% in securities rated, or considered
by the Investment Manager to be, below B-; and (5) expand the categories of
derivatives which may be utilized by the Fund.
Description of Common Stock
The Fund is authorized to issue 400,000,000 shares of Common Stock. Each
share has equal voting, dividend, distribution and liquidation rights. The
shares outstanding and the Shares offered hereby, when issued and paid for
pursuant to the terms of the Offer, will be fully paid and non-assessable.
Shares of Common Stock are not redeemable and have no preemptive, conversion or
cumulative voting rights.
The number of shares of Common Stock outstanding as of July 31, 2002 was
264,654,000. The number of shares outstanding as of July 31, 2002 adjusted to
give effect to the Offer, assuming that all Rights are exercised and the
applicable Shares issued, would be __________.
The Fund's shares are publicly held and listed and traded on the AMEX and
the PSE. Prior to April 9, 2001, the NAV of the Fund was determined on the last
business day of each week. On April 9, 2001, the Fund began determining its NAV
on a daily basis. The following table sets forth for the quarters indicated the
highest and lowest Friday (or other last business day of a week) closing prices
on the AMEX per share of Common Stock and the NAV per share and the premium or
discount from NAV on the date of each of the high and low market prices for
periods through April 9, 2001. For periods ending after April 9, 2001, the table
sets forth for the quarters indicated the highest and lowest daily closing
prices on the AMEX per share of Common Stock and the NAV per share and the
premium or discount from NAV on the date of each of the high and low market
prices. The table also sets forth the number of shares traded on the AMEX during
the respective quarter.
31
NAV Per Share
on AMEX
Date of Market Price Per Share
Market Price and Related Premium (+)/ Reported
High and Low/(1)/ Discount (-)/(2)(3)/ AMEX
------------------- ------------------------------------
Quarter Ended High Low High Low Volume
------------- ------ ------ ---------------- --------------- --------------
January 31, 2000.......... 6.27 6.23 6.0625/(3.31)% 5.00/(19.74)% 65,951,500
April 30, 2000 ........... 5.99 5.57 5.1875/(13.40)% 4.25/(23.70)% 50,653,600
July 31, 2000............. 5.62 5.39 4.625/(17.70)% 4.125/(23.47)% 36,714,700
October 31, 2000.......... 5.58 4.88 4.625/(17.11)% 3.75/(23.16)% 39,986,000
January 31, 2001.......... 5.28 4.92 4.42/(16.29)% 3.83/(22.15)% 59,526,100
April 30, 2001............ 5.26 4.64 4.32/(17.87)% 3.68/(20.69)% 42,087,400
July 31, 2001............. 4.80 4.82 4.14/(13.75)% 3.83/(20.54)% 28,581,600
October 31, 2001.......... 4.91 4.51 4.40/(10.39)% 3.86/(14.41)% 30,914,100
January 31, 2002.......... 4.76 4.57 4.17/(12.39)% 3.84/(15.97)% 41,236,700
April 30, 2002............ 4.77 4.55 4.45/(6.71)% 3.97/(12.75)% 40,654,200
July 31, 2002............. 5.06 4.81 4.93/(2.57)% 4.28/(11.02)% 51,062,300
---------------------
(1) Based on the Fund's computations.
(2) Highest and lowest Friday (or other last business day of the week) closing
market price per share as reported on the AMEX for periods through April 9,
2001. Highest and lowest daily closing market price per share as reported
on the AMEX for periods ending after April 9, 2001.
(3) "Related Premium(+)/Discount(-)" represents the premium or discount from
NAV of the shares on the date of the respective high and low market price
for the respective quarter.
On [Record Date], the per share NAV was $____ and the share market price
was $____, representing a ____% discount from such NAV.
The Fund's shares have traded in the market above, at and below NAV since
the commencement of the Fund's operations. The Fund cannot determine the reasons
for the Fund's shares trading at a premium or discount to NAV, nor can the Fund
predict whether its shares will trade in the future at a premium or discount to
NAV, and if so, the level of any premium or discount. Shares of closed-end
investment companies frequently trade at a discount from NAV.
The Fund's shares have traded in the market below, at and above NAV since
the commencement of the Fund's operations. However, it is frequently the case
that Fund shares trade at a discount to net asset value. In an effort to
minimize the spread between market value and net asset value that may otherwise
exist, 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%. Through July 31, 2002,
there have been 2,723,300 shares repurchased and cancelled under this program.
When the Fund repurchases its shares for a price below their net asset
value, the net asset value of the shares that remain outstanding will be
enhanced, but this does not necessarily mean that the market price of those
outstanding shares will be affected, either positively or negatively. Any
acquisition of shares by the Fund will decrease the total assets of the Fund and
therefore may increase the Fund's expense ratio. Furthermore, if the Fund
borrows to finance share repurchases, interest on such borrowings will reduce
the Fund's net investment income. If the Fund must liquidate a portion of its
investment portfolio in connection with a share repurchase, such liquidation
might be at a time when independent investment judgment would not dictate such
action, increasing the Fund's overall portfolio turnover and making it more
difficult for the Fund to achieve its investment objective.
32
Description of Preferred Stock
The Fund currently has outstanding an aggregate of 24,000 shares of
Preferred Stock. The Preferred Stock has been issued in nine series, Series A
through I. The first three series were issued on January 19, 1989, the fourth
series on August 1, 1989, the fifth series on December 16, 1992, the sixth
series on December 20, 1993, the seventh series on July 27, 1995 and the eighth
and ninth series on September 9, 1996. The shares of Preferred Stock are senior
securities having priority over the shares of Common Stock as to distribution of
assets and payment of dividends. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Fund, the holders of Preferred
Stock are entitled to receive a preferential liquidating distribution of $25,000
per share ("Liquidation Preference"), plus accrued and unpaid dividends (whether
or not declared), before any payment is made to holders of Common Stock. The
average market value of a share of Preferred Stock has been equal to the
Liquidation Preference. The following tables set forth certain information
relating to the Preferred Stock.
Preferred Stock, Series A-I
Total Amount of Asset Coverage Per Liquidation
Preferred Stock $25,000 Share of Preference Per
Period Ended Outstanding/(1)/ Preferred Stock/(2)/ $25,000 Share/(3)(4)/
------------ ---------------- -------------------- ---------------------
October 31, 1992........................... $300,000,000 $ 106,521 $25,000
October 31, 1993........................... $350,000,000 $ 100,006 $25,000
October 31, 1994........................... $400,000,000 $ 93,040 $25,000
October 31, 1995........................... $475,000,000 $ 101,432 $25,000
October 31, 1996........................... $600,000,000 $ 80,496 $25,000
October 31, 1997........................... $600,000,000 $ 71,793 $25,000
October 31, 1998........................... $600,000,000 $ 59,506 $25,000
October 31, 1999........................... $600,000,000 $ 69,057 $25,000
October 31, 2000........................... $600,000,000 $ 53,306 $25,000
October 31, 2001........................... $600,000,000 $ 51,743 $25,000
April 30, 2002............................. $600,000,000 $ 52,596 $25,000
-------------------
(1) Based on the number of shares of Preferred Stock outstanding multiplied by
the Liquidation Preference per share.
(2) Asset coverage per share of Preferred Stock is derived by subtracting the
aggregate Liquidation Preference of all of the series of Preferred Stock
outstanding ($300,000,000 through 1992, $350,000,000 in 1993, $400,000,000
in 1994, $475,000,000 in 1995 and $600,000,000 from 1996) from the total
assets of the Fund less (i) all liabilities and indebtedness not
represented by the Preferred Stock and (ii) any accrued but unpaid
dividends on the Preferred Stock as at the end of the fiscal periods
indicated. This sum is then divided by the number of shares of Preferred
Stock outstanding.
(3) Plus accrued and unpaid dividends, if any.
(4) The liquidation preference as of October 31, 1995 was $100,000 per share of
Preferred Stock, Series A-F, and $25,000 per share of Preferred Stock,
Series G. Effective April 25, 1996, by means of stock splits, the
liquidation preference of Preferred Stock, Series A-F was reduced to
$25,000 per share and an additional aggregate 12,000 shares of Preferred
Stock, Series A-F were issued.
The dividend rates on the outstanding Preferred Stock are established
through an auction process. The dividend rates on the series A-D shares are set
every 28 days and the dividend rates on the Series E, F, G, H and I shares are
set every seven days. Generally, the dividend rate has represented a discount
from the 30-day commercial paper rate. As of July 31, 2002, the annual dividend
rates on Series A through I were, respectively, 1.899%, 1.940%, 1.880%, 2.000%,
1.800%, 1.950%, 1.870%, 1.880% and 1.850%. At these rates, the annual return the
Fund's portfolio must experience (net of expenses) in order to cover dividend
payments on all series is 0.62%.
33
The Fund may use interest rate swaps to hedge the Fund's liability with
respect to the Preferred Stock. At present, the Fund has been authorized by the
Board of Directors to hedge up to one-third of the Fund's liability with respect
to the Preferred Stock. See "Portfolio Securities - Derivative Securities -
Swaps," "Risk Factors and Special Considerations - Use of Derivatives" and "Risk
Factors and Special Considerations - Preferred Stock - Leverage Risk."
The following table is designed to illustrate the effect on the return to a
holder of the Fund's Common Stock of the leverage obtained by the issuance of
the Preferred Stock, assuming hypothetical annual returns on the Fund's
portfolio of minus 10 to plus 10 percent. As can be seen, leverage generally
increases the returns to Stockholders when portfolio returns are positive and
decreases returns when the portfolio returns are negative. Actual returns may be
greater or less than those appearing in the table and may be enhanced or
diminished by fluctuations in foreign currency. See "Risk Factors and Special
Considerations - Preferred Stock - Leverage Risk."
Assumed Portfolio Return (net of expenses)........ -10% -5% 0% 5% 10%
Corresponding Common Stock Return(1).............. ____% ____% ____% ____% ____%
------------
(1) In order to compute "Corresponding Common Stock Return," the "Assumed
Portfolio Return" is multiplied by the total value of Fund assets as of the
beginning of the fiscal year (November 1, 2002) to obtain an assumed return
to the Fund. This rate is then reduced by the value of Preferred Stock
dividends that would be paid during the year ($__________) based on the
dividend rates in effect at the beginning of the fiscal year (for Series A
through I, respectively, ____%, ____%, ____%, ____%, ____%, ____%, ____%,
____%, and ____%) in order to determine the return available to holders of
the Fund's Common Stock. Return available to holders of the Fund's Common
Stock is then divided by the value of the Fund's net assets attributable to
holders of Common Stock as of the beginning of the fiscal year
($_____________) to determine "Corresponding Common Stock Return."
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek current income. The Fund may
also achieve incidental capital appreciation. The Fund's investment objective
may not be changed without the approval of the holders of a majority of the
outstanding shares of the Common Stock and the Preferred Stock, voting together
as a single class, as well as by the holders of a majority of the outstanding
shares of the Fund's Preferred Stock voting as a separate class without regard
to series. A majority vote, as defined by the 1940 Act, means the affirmative
vote of the lesser of (i) 67% of the relevant shares represented at a meeting at
which more than 50% of such shares are represented, or (ii) more than 50% of the
relevant shares.
For as long as the name of the Fund remains Aberdeen Asia-Pacific Income
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
Asian debt securities, Australian debt securities and New Zealand debt
securities. 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 stockholders.
INVESTMENT POLICIES
To achieve its investment objective, the Fund may invest up to 80% of its
total assets in "Asian debt securities," which include: (1) debt securities of
Asian Country issuers, including securities issued by Asian Country governmental
entities, as well as by banks, companies and other entities which are located in
Asian Countries, whether or not denominated in an Asian Country currency; (2)
debt securities of other issuers, denominated in, or linked to, the currency of
an Asian Country, including securities issued by supranational issuers, such as
The World Bank and derivative debt securities that replicate, or substitute for,
the currency of an Asian Country; (3) debt securities issued by entities which,
although not located in an Asian Country, derive at least 50% of their revenues
from Asian Countries or have at least 50% of
34
their assets located in Asian Countries; and (4) debt securities issued by a
wholly-owned subsidiary of an entity located in an Asian Country, provided that
the debt securities are guaranteed by the parent entity located in the Asian
Country. With reference to items (3) and (4) above, Asian debt securities may be
denominated in an Asian Country currency or in Australian, New Zealand or U.S.
dollars. The maximum country exposure to any one Asian Country (other than
Korea) is limited to 20% of the Fund's total assets and the maximum currency
exposure to any one Asian Country currency (other than Korea) is limited to 10%
of the Fund's total assets. The maximum country exposure for Korea is limited to
40% of the Fund's total assets, and the maximum currency exposure for Korea is
limited to 25% of the Fund's total assets.
"Asian Countries" (each, an "Asian Country") include China, Hong Kong,
India, Indonesia, Japan, Malaysia, Pakistan, the Philippines, Singapore, South
Korea, Taiwan, Thailand, and Vietnam, and such other countries on the Asian
continent approved for investment by the Board of Directors upon the
recommendation of the Investment Manager.
At least 20% of the Fund's total assets will be invested in "Australian
debt securities," which include: (1) debt securities of Australian issuers,
including securities issued by Australian governmental entities, as well as by
banks, companies and other entities which are located in Australia, whether or
not denominated in the Australian dollar; (2) debt securities of other issuers,
denominated in, or linked to, the Australian dollar, including securities issued
by supranational issuers, such as The World Bank and derivative debt securities
that replicate, or substitute for, the Australian dollar; (3) debt securities
issued by entities which, although not located in Australia, derive at least 50%
of their revenues from Australia or have at least 50% of their assets located in
Australia; and (4) debt securities issued by a wholly-owned subsidiary of an
entity located in Australia, provided that the debt securities are guaranteed by
the parent entity located in Australia. With reference to items (3) and (4)
above, Australian debt securities may be denominated in Australian, New Zealand
or U.S. dollars.
The Fund may also invest in "New Zealand debt securities," which include:
(1) debt securities of New Zealand issuers, including securities issued by New
Zealand governmental entities, as well as by banks, companies and other entities
which are located in New Zealand, whether or not denominated in the New Zealand
dollar; (2) debt securities of other issuers, denominated in, or linked to, the
New Zealand dollar, including securities issued by supranational issuers, such
as The World Bank and derivative debt securities that replicate, or substitute
for, the New Zealand dollar; (3) debt securities issued by entities which,
although not located in New Zealand, derive at least 50% of their revenues from
New Zealand or have at least 50% of their assets located in Zealand; and (4)
debt securities issued by a wholly-owned subsidiary of an entity located in New
Zealand, provided that the debt securities are guaranteed by the parent entity
located in New Zealand. With reference to items (3) and (4) above, New Zealand
debt securities may be denominated in Australian, New Zealand or U.S. dollars.
The maximum country exposure for New Zealand is limited to 35% of the Fund's
total assets, and the maximum currency exposure for New Zealand is limited to
35% of the Fund's total assets.
During periods when, in the Investment Manager's judgment, economic
conditions warrant a temporary defensive investment policy, the Fund may
temporarily invest up to 100% of its assets in U.S. debt securities.
The Fund may invest up to 10% of the Fund's total assets in secondary
market bank loans, and up to an additional 10% of the Fund's total assets in
convertible securities and other hybrid securities, and up to an additional 10%
of the Fund's total assets in asset-backed securities.
In order to accommodate investment in Asian markets, the Fund may invest
up to 35% of its total assets in Asian debt securities rated by S&P or Moody's
(provided that, with the approval of the Fund's
35
Board of Directors, the ratings of other recognized rating services may be
used), or judged by the Investment Manager to be, below investment grade at the
time of investment. The Fund may invest up to 35% of its total assets in Asian
debt securities much of which may be deemed to be illiquid.
The Fund may invest up to 10% of its total assets in securities rated by
S&P or Moody's (provided that, with the approval of the Fund's Board of
Directors, the ratings of other recognized ratings services may be used), or
judged by the Investment Manager to be, below B- at the time of investment.
The Fund may enter into repurchase agreements with banks and
broker-dealers pursuant to which the Fund may acquire a security for a
relatively short period (usually no more than a week) subject to the obligations
of the seller to repurchase and the Fund to resell such security at a fixed time
and price. The Fund will enter into repurchase agreements only with parties who
meet creditworthiness standards approved by the Fund's Board of Directors, i.e.,
banks or broker-dealers which have been determined by the Fund's Investment
Manager to present no serious risk of becoming involved in bankruptcy
proceedings within the period contemplated by the repurchase transaction.
The Fund may use derivatives to manage currency, interest rate and credit
risk and as a substitute for physical securities.
As a non-diversified company, there is no investment restriction on the
percentage of the Fund's assets that may be invested at any time in the
securities of any issuer. However, the Fund intends to limit its investments in
the securities of any issuer, except for securities issued or guaranteed as to
payment of principal and interest by Australian, New Zealand or Asian Country
governmental entities, to 5% of its total assets at the time of purchase. The
Fund may invest without limitation in securities of Australian governmental
entities and may, at the time of purchase, invest up to 35% of its total assets
in New Zealand governmental securities, invest up to 40% of its total assets in
Korean governmental securities, and invest up to 15% of its total assets in
governmental securities of any Asian Country (other than Korea). The Fund
intends to invest in a variety of debt securities, with differing issuers,
maturities and interest rates, and to comply with the diversification and other
requirements of the Code applicable to regulated investment companies so that
the Fund will not be subject to U.S. Federal income taxes on its net investment
income. The average U.S. dollar weighted maturity of the Fund's portfolio is not
expected to exceed 10 years.
PORTFOLIO SECURITIES
The principal types of debt securities in which the Fund is permitted to
invest include those described below. The list is not exclusive, but is
indicative of the kinds of securities which the Fund's investment objectives,
policies and restrictions permit it to buy.
Asian Debt Securities
"Asian debt securities" include: (1) debt securities of Asian Country
issuers, including securities issued by Asian Country governmental entities, as
well as by banks, companies and other entities which are located in Asian
Countries, whether or not denominated in an Asian Country currency; (2) debt
securities of other issuers, denominated in, or linked to, the currency of an
Asian Country, including securities issued by supranational issuers, such as The
World Bank and derivative debt securities that replicate, or substitute for, the
currency of an Asian Country; (3) debt securities issued by entities which,
although not located in an Asian Country, derive at least 50% of their revenues
from Asian Countries or have at least 50% of their assets located in Asian
Countries; and (4) debt securities issued by a wholly-owned subsidiary of an
entity located in an Asian Country, provided that the debt securities are
guaranteed by the parent entity located in the Asian Country. With reference to
items (3) and (4) above,
36
Asian debt securities may be denominated in an Asian Country currency or in
Australian, New Zealand or U.S. dollars. The maximum country exposure to any one
Asian Country (other than Korea) is limited to 20% of the Fund's total assets
and the maximum currency exposure to any one Asian Country currency (other than
Korea) is limited to 10% of the Fund's total assets. The maximum country
exposure for Korea is limited to 40% of the Fund's total assets, and the maximum
currency exposure for Korea is limited to 25% of the Fund's total assets. "Asian
Countries" (each, an "Asian Country") include China, Hong Kong, India,
Indonesia, Japan, Malaysia, Pakistan, the Philippines, Singapore, South Korea,
Taiwan, Thailand, and Vietnam, and such other countries on the Asian continent
approved for investment by the Board of Directors upon the recommendation of the
Investment Manager.
In order to accommodate investment in Asian markets, the Fund may invest
up to 35% of its total assets in Asian debt securities rated by S&P or Moody's
(provided that, with the approval of the Fund's Board of Directors, the ratings
of other recognized rating services may be used), or judged by the Investment
Manager to be, below investment grade at the time of investment. The Fund may
invest up to 35% of its total assets in Asian debt securities much of which may
be deemed to be illiquid. The Fund may invest up to 10% of its total assets in
securities rated by S&P or Moody's (provided that, with the approval of the
Fund's Board of Directors, the ratings of other recognized ratings services may
be used), or judged by the Investment Manager to be, below B- at the time of
investment. Debt securities rated below investment grade are sometimes referred
to as ",junk bonds." For information regarding the risks of investing in
securities rated below investment grade, see "Risk Factors and Special
Considerations - Risks Involved in Asian Investment - Credit Risk."
The Fund is also permitted to invest in Asian Yankee bonds in order to
gain exposure to certain Asian debt markets without exposing the fund to Asian
currency risk. Asian Yankee bonds are U.S. dollar-denominated debt securities
issued by obligors located in Asian countries. The bonds may be issued in the
United States and may be registered under U.S. securities law. Asian Yankee
bonds may be purchased from brokers operating in the United States, or may be
purchased outside the United States through offices located outside the United
States of brokers doing business in the United States. Asian Yankee bonds are
subject to credit risk relating primarily to the issuer of the bond and
liquidity risk relating to the specific issue. The bonds are also affected by
movements in U.S. interest rates.
Australian Securities and New Zealand Securities
Australian Governmental Entities. The Fund is permitted to invest in
Federal Commonwealth of Australia ("Commonwealth") government bonds and treasury
notes and state government and semi-government bonds and notes. Commonwealth
government bonds and treasury notes represent the obligations of the
Commonwealth and are sold by the Reserve Bank of Australia (the central bank)
through public tenders. Bonds have maturities up to approximately 13 years while
notes are issued in maturities of seven, 13 and 26 weeks. The Commonwealth also
guarantees as to payment of principal and interest similar debt obligations
issued by its instrumentalities. State government and semi-government bonds and
notes are issued by various states and state instrumentalities and, in the case
of state instrumentalities, are guaranteed by the applicable state government.
Maturities range from less than one year to approximately 20 years. Australian
federal and state government debt securities are frequently listed on the
Australian Stock Exchange Limited but most trading is by dealers in an active
public secondary market.
New Zealand Governmental Entities. The Fund is permitted to invest in New
Zealand government and treasury notes and state government and semi-government
bonds and notes. New Zealand government bonds and treasury notes represent the
obligations of the government of New Zealand and are sold through public
tenders. Bonds have maturities up to 10 years. The New Zealand government also
guarantees as to payment of principal and interest similar debt obligations
issued by its
37
instrumentalities. State government and semi-government bonds and notes are
issued by various states and state instrumentalities and, in the case of state
instrumentalities, are guaranteed by the applicable state government. Maturities
range from less than one year to 15 years. Federal and state government debt
securities are frequently listed on the stock exchanges but most trading is by
dealers in an active public secondary market.
Commercial Banks. The Fund is permitted to invest in bills of exchange,
certificates of deposit and promissory notes issued or guaranteed, as to payment
of principal and interest, by Australian and New Zealand commercial banks. These
commercial banks are generally comparable to U.S. banks and are subject to
regulation by Australian and New Zealand government authorities, respectively.
The Investment Manager and Investment Adviser do not believe that there are any
special risks associated with these securities arising out of the fact that they
are issued by banks. Bills of exchange are negotiable instruments, issued to
finance current transactions, which generally mature within six months and
which, are accepted or endorsed by a commercial bank and thus carry the bank's
credit. Certificates of deposit are negotiable instruments issued by commercial
banks with maturities ranging from a few days to several years. Promissory notes
are negotiable instruments endorsed and therefore guaranteed by a commercial
bank or backed by a bank letter of credit as to payment of principal and
interest. Maturities generally range up to 180 days. Bank bills, certificates of
deposit and promissory, notes are usually issued at a discount from face value
and are traded by dealers in an active public secondary market.
Companies. The Fund is permitted to invest in publicly-traded notes and
debentures or bills of exchange issued or guaranteed as to the payment of
principal and interest by Australian and New Zealand companies, whether or not
guaranteed or backed by a commercial bank. These securities have maturities
generally ranging from less than one year to five years and are traded by
dealers in an active public secondary market.
Australian Mortgage-Backed Securities. The Fund is permitted to invest in
Australian mortgage-backed securities, which represent part ownership by the
Fund in a pool of mortgage loans. These loans are made by private lenders and
may have guarantees from Australian federal and state governmental entities,
companies and agencies. The securities would have to satisfy the Fund's general
credit criteria to qualify for purchase. Characteristics of several of the major
mortgage-backed securities are summarized below:
FANMACs: FANMAC securities are securities issued by a trustee
against housing loans made through the New South Wales Department of
Housing and consist of a series of closed trusts or pools. The mortgage
manager is the First Australian National Mortgage Acceptance Corporation
Ltd. ("FANMAC"). FANMAC is owned 26% by the Government of the State of
New South Wales with the remainder owned by other institutions. The
Government of the State of New South Wales has provided the FANMAC Trust
with a guarantee as to availability of funds to meet payment. The
securities have been rated by Australian Ratings Pty. Ltd. ("Australia
Ratings") and S&P. FANMAC securities are subject to a call provision
under which borrowers (mortgagors) can repay early and the investors in a
particular pool can be repaid on a pro rata basis.
NMMC AUSSIE MACS and National Mortgage Market Bonds: National
Mortgage Market Corporation Ltd. ("NMMC") has issued both AUSSIE MACs,
which are medium-term bearer securities, and National Mortgage Market
Bonds. NMMC is a private company which is 26% owned by the Government of
the State of Victoria and 74% by private institutions. Both AUSSIE MACS
and National Mortgage Market Bonds are rated by Australian Ratings.
38
MTCs: Mortgage Trust Certificates ("MTCs") are securities issued
against specific mortgages by a trustee and are similar to "pass through"
certificates. MTCs are issued on a continuous basis, insured by
Australian insurance companies against both mortgage default and an early
call, and rated by Australian Ratings.
MMSs and ANNIE MAEs: MMSs are mortgage-backed securities issued by
MGICA Securities Ltd., a wholly-owned subsidiary of AMP Society Ltd., an
Australian insurance company. ANNIE MAEs are securities issued by
Australian National Mortgage Pool Agency Ltd., an affiliate of Bank of
America. Both MMSs and ANNIE MAEs are issued against pools of mortgages
and are rated by Australian Ratings.
Other Debt Securities including Australian Dollar Denominated Global or
Eurobonds. The Fund is permitted to invest in Australian and New Zealand
dollar-denominated debt securities, similar in nature to those described above,
regardless of the domicile of the issuers. Thus, the Fund is permitted to invest
in Australian and New Zealand dollar denominated global or Eurobonds that expose
the Fund to the Australian and New Zealand interest rate structure and which are
traded by reference to similar debt securities of Australian and New Zealand
domiciled issuers.
U.S. Securities
Government. The Fund is permitted to invest in U.S. government
securities, including obligations issued or guaranteed by U.S. government
agencies or instrumentalities, some of which are backed by the full faith and
credit of the U.S. Treasury (such as direct pass-through certificates of the
Government National Mortgage Association), some of which are supported by the
right of the issuer to borrow from the U.S. government (such as obligations of
Federal Home Loan Banks), and some of which are backed only by the credit of the
issuer itself. Government obligations do not generally involve the credit risks
associated with other types of interest bearing securities, although, as a
result, the yields available from U.S. government obligations are generally
lower than the yields available from corporate interest bearing securities. Like
other interest bearing securities, however, the value of Government obligations
changes as interest rates fluctuate.
Corporations and Banks. The Fund is permitted to invest for defensive and
other temporary purposes in U.S. corporate debt instruments rated at the time of
investment Aa or better by Moody's or AA or better by S&P, finance company and
corporate commercial paper, and other short-term obligations, in each case rated
at the time of investment Prime-1 or Prime-2 by Moody's or A-2 or better by S&P.
The Fund is also permitted to invest in obligations of U.S. Federal or state
chartered banks and bank holding companies rated at the time of investment Aa or
better by Moody's or AA or better by S&P (including certificates of deposit,
bankers' acceptances and other short-term debt obligations).
Derivative Securities
The Fund can use derivatives with respect to its Australian fixed income
securities to modify interest rate risk, and can use over-the-counter
derivatives to hedge Australian dollar currency risk associated with investments
by the Fund in Australia. With respect to its Asian debt securities, the Fund
will invest in derivatives for two main purposes: (1) to modify interest rate
risk and adjust currency risk within the portfolio, and (2) to enable the Fund
to replicate or substitute for a particular security in order to gain access to
a particular Asian market or security, where either the physical security is too
expensive, or there is an insufficient supply of the particular security.
Derivatives will not be utilized to leverage the Fund.
39
By directly investing into Asia, the Fund will take on exposure to the
currencies of the countries in which it holds securities. The Fund will seek to
manage currency risk when the perceived outlook for a particular currency is for
depreciation against other currencies. The most effective way of doing this is
through the use of currency forwards (and occasionally options), which provide
an efficient means of implementing currency strategies. Also, investment in
Asian Yankee bonds involves exposure to both fluctuations in U.S. interest rates
and the credit standing of a particular Asian issuer. There may be times when
the Fund wishes to reduce the U.S. interest rate exposure embedded in Asian
Yankee bonds. This can be done by selling U.S. Treasury Bond futures.
Investment in Asian fixed income securities may at certain times be more
efficiently achieved using derivative securities to replicate physical
securities. These types of derivatives carry identical market price risks to the
equivalent physical securities but provide a number of transactional benefits.
For example, by using derivatives, the Fund may be able to implement investment
decisions at lower costs, increase the after-tax yield, obtain prices that are
not available in the underlying cash market, or settle in U.S. dollars. In less
developed markets, liquidity and credit quality can be enhanced and transaction
costs reduced by using derivatives rather than the underlying securities. This
is due to the fact that the investor assumes the lower counterparty risk of the
issuer of the derivatives (for example, an international bank rated A- or
better), rather than that of a (local currency) domestic issuer. In certain
circumstances, due to lack of available direct investment opportunity or
government regulations, the only means of gaining exposure to particular Asian
countries is through derivatives.
The derivatives used for adjusting currency exposures or replicating
underlying securities and credit exposures are usually over-the-counter ("OTC")
securities. OTC securities carry credit risk associated with the counterparty
institution. See "Risk Factors and Special Considerations - Use of Derivatives."
To manage this risk, the Fund will only use counterparty institutions rated A-
or better by recognized international ratings agencies, except in the case of
Korean futures exchange margin accounts which, in some cases, are unrated. The
Fund will limit these Korean futures exchange margin accounts to 2% of total
assets. Only up to 10% of total assets may be put at risk in derivatives
transactions with any single counterparty (aggregate interest rate, currency and
credit derivatives exposure). A maximum of 20% of total assets may be at risk in
currency-linked notes. All futures and forwards are to be measured on a notional
exposure basis and, therefore, they will be cash-backed.
A maximum of 35% of total assets may be at risk in exchange-traded
derivatives. For derivatives traded on the Sydney Futures Exchange, the maximum
gross exposure (long positions + short positions) will be 20% of total assets
and the maximum net exposure (long positions-short positions) will be 15% of
total assets. A maximum of 20% of total assets may be at risk in derivatives
traded on the Chicago Board of Trade. A maximum of 7% of total assets may be at
risk in derivatives traded on any one Asian futures exchange. The Fund will only
use the exchange-traded (as opposed to over-the-counter) interest rate
derivatives in the Australian component of its portfolio.
The types of derivatives used by the Fund and the techniques employed may
change over time as new derivatives and strategies are developed or regulatory
changes occur. The Fund will not use derivatives where it would contravene the
guidelines set by the rating agencies for the Preferred Stock.
In general, derivatives will not be utilized to leverage the Fund,
although they may be used to hedge the interest rate risk associated with the
Fund's outstanding leverage. The Fund may use interest rate swaps to hedge the
Fund's liability with respect to the Preferred Stock. At present, the Fund has
been authorized by its Board of Directors to hedge up to one-third of the Fund's
liability with respect to the Preferred Stock. See "Portfolio Securities -
Derivative Securities - Swaps," "Risk Factors and Special Considerations - Use
of Derivatives" and "Risk Factors and Special Considerations - Preferred Stock -
Leverage Risk."
40
Forward Currency Contracts. The Fund may enter into forward currency
contracts. 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 cost to the Fund of engaging in forward currency contracts will vary
with factors such as the length of the contract period and the market conditions
then prevailing. Because forward currency contracts are usually conducted on a
principal basis, no fees or commissions are involved, although the price charged
in the transaction includes a dealer's markup. The use of forward currency
contracts in this manner is intended to fix a rate of exchange that can be
achieved at a certain time in the future.
Futures Contracts. The Fund may enter into futures contracts in U.S.
domestic markets or on exchanges located outside the United States for both
hedging and non-hedging purposes. Foreign markets may offer advantages such as
trading opportunities or arbitrage possibilities not available in the United
States. Foreign markets, however, may have greater risk potential than domestic
markets. For example, some foreign exchanges are principal markets so that no
common clearing facility exists and an investor may look only to the broker for
performance of the contract. In addition, any profits the Fund might realize in
trading could be eliminated by adverse changes in the exchange rate, or the Fund
could incur losses as a result of those changes. Transactions on foreign
exchanges may include both commodities which are traded on U.S. exchanges and
those which are not. Unlike trading on U.S. commodity exchanges, trading on
foreign commodity exchanges is not regulated by the Commodity Futures Trading
Commission ("CFTC").
Engaging in these transactions involves risk of loss to the Fund which
could adversely affect the value of the Fund's net assets. No assurance can be
given that a liquid market will exist for any particular futures contract at any
particular time. Many futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract prices could move to
the limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and potentially
subjecting the Fund to substantial losses.
Successful use of futures by the Fund also is subject to the Investment
Manager's and Investment Adviser's ability to predict correctly movements in the
direction of the relevant market, and, to the extent the transaction is entered
into for hedging purposes, to ascertain the appropriate correlation between the
transaction being hedged and the price movements of the futures contract. The
Fund may not use more than 5% of its assets for initial margin for speculative
commodity futures or options positions.
The Fund also may purchase and write options to buy or sell those futures
contracts in which it may invest. Such investment strategies will be used for
hedging purposes and for non-hedging purposes, subject to applicable law. An
option on a futures contract provides the holder with the right to enter into a
41
"long" position in the underlying futures contract, in the case of a call
option, or a "short" position in the underlying futures contract, in the case of
a put option, at a fixed exercise price up to a stated expiration date or, in
the case of certain options, on such date. Upon exercise of the option by the
holder, the contract market clearinghouse establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of futures contracts, such as payment of initial and variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting an offsetting purchase or
sale transaction, subject to the continued availability of a liquid secondary
market, which is the purchase or sale of an option of the same type (i.e., the
same exercise price and expiration date) as the option previously purchased or
sold. The difference between the premiums paid and received represents the
Fund's profit or loss on the transaction.
Options on futures contracts that are written or purchased by the Fund on
U.S. exchanges are traded on the same contract market as the underlying futures
contract, and, like futures contracts, are subject to regulation by the CFTC and
the performance guarantee of the exchange clearinghouse. The Fund may not use
more than 5% of its assets for initial margin for speculative commodity futures
or options positions.
Swaps. The Fund may enter into interest rate swaps, currency swaps and
other types of available swap agreements, including swaps on securities,
financial commodities and indices, and related types of derivatives, such as
caps, collars and floors. A swap is an agreement between two parties pursuant to
which each party agrees to make one or more payments to the other on regularly
scheduled dates over a stated term, based on different interest rates, currency
exchange rates, security or commodity prices, the prices or rates of other types
of financial instruments or assets or the levels of specified indices. Under a
typical swap, one party may agree to pay a fixed rate or a floating rate
determined by reference to a specified instrument, rate or index, multiplied in
each case by a specified amount (the "notional amount"), while the other party
agrees to pay an amount equal to a different floating rate multiplied by the
same notational amount. On each payment date, the obligations of parties are
netted, with only the net amount paid by one party to the other. All swap
agreements entered into by the Fund with the same counterparty are generally
governed by a single master agreement, which provides for the netting of all
amounts owed by the parties under the agreement upon the occurrence of an event
of default, thereby reducing the credit risk to which such party is exposed.
Swap agreements are typically individually negotiated and structured to
provide exposure to a variety of different types of investments or market
factors. Swap agreements may be entered into for hedging or non-hedging purposes
and, therefore, may increase or decrease the Fund's exposure to the underlying
instrument, rate, asset or index. Swap agreements can take many different forms
and are known by a variety of names. The Fund is not limited to any particular
form or variety of swap agreement if the Adviser determines it is consistent
with the Fund's investment objective and policies.
42
Secondary Market Bank Loans
The Fund may invest up to 10% of its total assets in these loans, which
are private transactions not subject to securities laws or traded on any
exchange. Increasingly, however, they are being sold directly by banks to
investors or traded by specialized brokers, especially when the loan becomes
distressed, thereby adding liquidity to the market.
Convertible and Other Hybrid Securities
The Fund may invest up to 10% of its total assets in these securities,
which are debt obligations that are convertible into common stock at some future
point in time. These are subject to the same rating criteria as other
fixed-income securities. Hybrid securities also include bonds with warrants
attached.
Asset Backed Securities
The Fund may invest up to 10% of its total assets in these securities,
which are securities whose principal and interest payments are collateralized by
pools of assets, such as mortgages, auto loans, credit card receivables, leases,
installment contracts and personal property.
Private Placements
Certain debt securities purchased by the Fund may have been placed
privately. These securities are somewhat less liquid than securities which are
widely traded by the public and there may be contractual restrictions on their
resale to the public. Therefore, although these securities may be resold in
privately negotiated transactions, the prices realized from such sales may be
less than what might have been realized on a more active public trading market.
Repurchase and Securities Lending Agreements
The Fund is permitted to invest in repurchase agreements with banks and
broker-dealers. A repurchase agreement is a contract under which the Fund
acquires a security for a relatively short period (usually no more than one
week) subject to the obligations of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the Fund's cost
plus interest). The Investment Manager monitors the value of such securities
daily to determine that the value equals or exceeds the repurchase price. Under
the 1940 Act, repurchase agreements are considered to be loans made by the Fund
which are collateralized by the securities subject to repurchase. Repurchase
agreements may involve risks in the event of default or insolvency of the
seller, including possible delays or restrictions upon the Fund's ability to
dispose of the underlying securities. The Fund will enter into repurchase
agreements only with parties who meet creditworthiness standards approved by the
Fund's Board of Directors, i.e., banks or broker-dealers which have been
determined by the Investment Manager to present no serious risk of becoming
involved in bankruptcy proceedings within the time frame contemplated by the
repurchase transaction.
43
The Fund may also lend to banks and broker-dealers portfolio securities
with an aggregate market value of up to 15% of its total assets when it deems
advisable. Any such loans must be secured by collateral (consisting of any
combination of cash, U.S. Government securities, irrevocable letters of credit
or other high-quality debt securities) in an amount at least equal (on a daily
marked-to-market basis) to the current market value of the securities loaned.
The Fund may terminate the loans at any time and obtain the return of the
securities. The Fund will continue to receive any interest or dividends paid on
the loaned securities and will continue to have voting rights with respect to
the securities. In connection with the lending of its portfolio securities, the
Fund is exposed to the risk of delay in recovery of the securities loaned or
possible loss of right in the collateral should the borrower become insolvent.
State Street Bank and Trust Company provides securities lending services for the
Fund pursuant to a Securities Lending Authorization Agreement. Under that
Agreement, State Street has the sole discretion to determine the
creditworthiness standards of the securities borrowers. Under most
circumstances, the Fund will be indemnified by State Street from any losses
which may be experienced in the event that the securities borrowers approved by
State Street default by delay or failure to return the borrowed securities.
Borrowings
The Fund has the ability to borrow money to the extent permitted, or as
not prohibited, by the 1940 Act. The 1940 Act requires the Fund to maintain
"asset coverage" of not less than 300% of its "senior securities representing
indebtedness," as those terms are defined and used in the 1940 Act.
INVESTMENT RESTRICTIONS
The Fund has elected to be classified as a non-diversified closed-end
management investment company and will invest its assets only in a manner
consistent with this classification under applicable law.
The Fund will not:
1. issue senior securities, except (a) insofar as the Fund may
be deemed to have issued a senior security in connection with any repurchase or
securities lending agreement or any borrowing agreement permitted by these
investment restrictions and (b) that the Fund may issue one or more series of
its preferred stock, if permitted by its Articles of Incorporation, including
Articles of Amendment and Articles Supplementary thereto;
2. borrow money, except as permitted under, or to the extent
not prohibited by, the 1940 Act, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
3. engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be an underwriter in
connection with the disposition of portfolio securities;
4. purchase or sell real estate, which term does not include
securities of companies that deal in real estate or mortgages or investments
secured by real estate or interests therein, except that the Fund reserves
freedom of action to hold and to sell real estate acquired as a result of the
Fund's ownership of securities;
5. purchase physical commodities or contracts relating to
physical commodities;
44
6. make loans to other persons, except as permitted under, or
to the extent not prohibited by, the 1940 Act, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time;
7. concentrate its investments in a particular industry or
group of industries, as those terms are used in the 1940 Act, as amended or
modified by regulatory authority having jurisdiction from time to time, except
that at any time the Fund has invested more than 25% of its total assets in
securities of issuers of a particular country, the Fund may invest more than 25%
of its assets, and up to the amount of its total assets invested in securities
of issuers of that country, in securities issued or guaranteed, as to payment of
principal and interest, by the government (including governmental subdivisions)
or governmental entities or instrumentalities of that country.
For purposes of Restriction 7, above, "securities of issuers of a
particular country" shall include: (a) securities of issuers located in that
country; (b) securities that are denominated in, or linked to, the currency of
that country, including securities of supranational issuers and derivative
securities that replicate, or substitute for, the currency of that country; (c)
securities of issuers that derive at least 50% of their revenues from that
country or have at least 50% of their assets located in that country; (d)
securities issued by a parent or subsidiary of, and guaranteed by, an entity
located in that country; (e) securities issued by the government (including
governmental subdivisions) or governmental entities or instrumentalities of that
country; and (f) repurchase agreements with respect to any of the foregoing
securities.
RISK FACTORS AND SPECIAL CONSIDERATIONS
This Prospectus contains certain forward-looking statements. Actual
results could differ materially from those projected in the forward-looking
statements as a result of uncertainties set forth below and elsewhere in the
Prospectus. Investing in the Shares involves certain risks and considerations
not typically associated with investing in the United States. The following
discusses risks and special considerations with respect to the Offer and with
respect to an investment in the Fund. In managing the Fund, the Investment
Manager and Investment Adviser will manage all risks in accordance with their
stated investment guidelines.
Dilution - Net Asset Value and Non-Participation in the Offer
Assuming that Rights are exercised, Record Date Stockholders who do not
fully exercise their Rights should expect that they will, at the completion of
the Offer, own a smaller proportional interest in the Fund than would otherwise
be the case if they exercised their Rights. The Fund cannot state precisely the
amount of any such dilution in share ownership because the Fund does not know at
this time what proportion of the Shares will be purchased as a result of the
Offer.
As of the date of this Prospectus, the Subscription Price per share for
the Offer is less than the Fund's NAV per share. Assuming that all Rights are
exercised and there is no change in the NAV per share, Stockholders would
experience an immediate dilution of the aggregate NAV of their shares of Common
Stock as a result of the Offer. The amount of any decrease in NAV is not
predictable because it is not known at this time what the NAV per share will be
at the Expiration Date or what proportion of the Shares will be purchased as a
result of the Offer. Such dilution could be substantial.
For example, assuming that all Rights are exercised at the Subscription
Price of $____ and the NAV per share at the Expiration Date was $____, the
Fund's NAV per share (after payment of the Dealer Managers and soliciting fees
and estimated offering expenses) would be reduced by approximately $____ per
share (or ____%).
45
The fact that the Rights are transferable may reduce the effects of any
dilution as a result of the Offer. You can transfer or sell your Rights. The
cash received from the sale of Rights is partial compensation for any possible
dilution. There can be no assurances, however, that a market for the Rights will
develop or the Rights will have any value in that market.
Current Distribution Rate
In February 1989, the Fund began to pay regular monthly distributions.
These distributions have been paid from net investment income and supplemented
by realized capital gains and return of paid-in capital. The amount of monthly
distributions has been adjusted (principally downward) from time to time to
reflect the current interest rate environment. For the current fiscal year, the
distributions to date have exceeded the sum of net investment income and
realized capital gains. To the extent total distributions for the year exceed
the Fund's net investment income, the difference will be deemed for income tax
purposes to have been distributed from realized capital gains or will be treated
as return of capital, as applicable. Although the Fund anticipates that
investment of the proceeds in higher yielding Asian debt securities will enable
the Fund to increase the Fund's net investment income above the current level,
Stockholders are cautioned that there can be no guarantee of future performance.
The Fund's investment in Asian debt securities involves risks and
uncertainties so that actual results may differ materially from those
anticipated as a result of various factors. If the anticipated results are not
achieved, the Fund may not be able to maintain the current level of monthly
distributions. The Fund undertakes no obligation to update or revise the
disclosure in this Prospectus with regard to the effect of increased investment
in Asia on the Fund's distribution rate, to reflect current events or
circumstances after the date of this Prospectus or to reflect the occurrence of
unanticipated events.
The Board of Directors reviews the level of distributions on a continuing
basis at its quarterly Board meetings. The first regular monthly distribution to
be paid on Shares acquired upon exercise of Rights will be the first monthly
distribution the record date for which occurs after the issuance of the Shares.
The Shares issued in the Offer will not be entitled to the distribution to be
declared to Stockholders of record on [month day, year] which is payable in
[month year]. Whether a Stockholder is entitled to the distribution to be
declared to Stockholders of record on [month day, year] which is payable in
[month year] will depend on the date Shares are actually issued to the
Stockholder.
Interest Rate Fluctuations
Fluctuations in interest rates in the relevant bond markets can affect
the Fund's NAV and distribution rate. The Fund's NAV is adversely affected
during periods of rising interest rates in those bond markets and is favorably
affected during periods when interest rates fall. Moreover, the Fund may
recognize capital losses, impacting its ability to supplement distributable
income, when bonds in the Fund's portfolio are sold or mature at a price which
is less than the Fund's cost.
In addition to fluctuation in interest rates, any overall downward trend
in interest rates can be expected to ultimately reduce available yields to Fund
Stockholders, which could in turn result in a reduction in the amount of the
Fund's monthly distributions. Although interest rates in Australia and New
Zealand were higher than interest rates in the U.S. at the inception of the Fund
in 1986, yields on Australian and New Zealand debt securities have generally
declined in recent years and are currently more comparable to yields available
in the U.S. Although relatively high levels of interest rates are currently
available in Asian debt markets, there can be no assurance that these rates will
continue to be obtainable.
46
Changes in the level of interest rates in the relevant markets in which the
Fund invests will affect the market price of its portfolio securities and the
net asset value of the Fund at any given time. These changes are usually more
substantial in Asian countries. The level of interest rate risk will vary from
country to country depending on political and economic factors and monetary
policy. See, e.g., "Appendix A - Economic Information - Asian Economic Data."
Currency Exchange Rate Fluctuations
The Fund may invest up to 80% of its assets in Asian debt securities,
including, but not limited to, debt securities which are denominated in, or
linked to, the currency of an Asian Country, and derivative debt securities that
replicate, or substitute for, the currency of an Asian Country (see "Portfolio
Securities - Asian Debt Securities"). In addition, at least 20% of the Fund's
total assets must be invested in Australian debt securities, including, but not
limited to, debt securities which are denominated in, or linked to the
Australian dollar, and derivative securities that replicate, or substitute for,
the Australian dollar.
Currency exchange rates can fluctuate significantly over short periods and
can be subject to unpredictable changes based on a variety of factors including
political developments and currency controls by foreign governments. A change in
the value of the currency in which a portfolio security is denominated against
the U.S. dollar will generally result in a change in the U.S. dollar value of
the Fund's assets. If the exchange rate for a foreign currency declines compared
to the U.S. dollar, the Fund's NAV would decline. In addition, although most of
the Fund's income will be received or realized primarily in foreign currencies,
the Fund will be required to compute and distribute its income in U.S. dollars.
Therefore, for example, if the exchange rate for a foreign currency declines
after the Fund's income has been accrued and translated into U.S. dollars, but
before the income has been received or converted into U.S. dollars, the Fund
could be required to liquidate portfolio securities to make distributions.
Similarly, if the exchange rate declines between the time the Fund incurs
expenses in U.S. dollars and the time the expenses are paid, the amount of
foreign currency required to be converted into U.S. dollars in order to pay the
expenses in U.S. dollars will be greater than the foreign currency equivalent of
the expenses at the time they were incurred.
Currency exchange rate fluctuations can decrease or eliminate income
available for distribution or conversely increase income available for
distribution. For example, in some situations, if certain currency exchange
losses exceed net investment income for a taxable year, the Fund would not be
able to make ordinary income distributions and all or a portion of distributions
made before the losses were realized but in the same taxable year would be
recharacterized as a return of capital to stockholders for U.S. Federal income
tax purposes thus reducing Stockholders' cost basis in their Fund shares, or as
capital gain, rather than as an ordinary income dividend.
The Investment Manager and Investment Adviser expect to hedge foreign
currency risks in accordance with their views by engaging in foreign currency
exchange transactions. These may include buying and selling foreign currency
options, foreign currency futures, options on foreign currency futures and swap
arrangements. Many of these activities constitute "derivatives" transactions.
See "Use of Derivatives" below. There can be no assurance that the Fund will
employ a currency hedge at any given time, nor can there be any assurance that
the Fund will be able to do this hedging successfully. Moreover, currency
fluctuations against the U.S. dollar in many foreign countries in which the Fund
invests have historically been profound and negative. Although exchange rates
against the U.S. dollar have been favorable in recent months, there can be no
assurance that favorable exchange rates will continue. Nor can there be any
assurance that currency fluctuations against the U.S. dollar will not return to
being profound and negative.
47
Investments made in the local currencies of an Asian country may not be
freely convertible into other currencies. Exchange rate fluctuations and local
currency devaluation could have a material effect on the value of these
securities. See "Appendix A - Economic Information - Asian Economic Data."
Risks Involved in Asian Investment
In June 2001, holders of the Fund's Common Stock and Preferred Stock
approved a series of proposals allowing the Fund, among other things, to (1)
increase to a maximum of 80% the Fund's investments in Asian debt securities;
(2) reduce the minimum investment in Australian debt securities to 20%; (3)
increase to a maximum of 35% the Fund's investments in Asian debt securities
rated, or considered by the Investment Manager to be, below investment grade at
the time of investment; (4) invest to a maximum of 10% in securities rated, or
considered by the Investment Manager to be, below B-; and (5) expand the
categories of derivatives which may be utilized by the Fund. Increased
investment in Asian debt markets will expose the Fund to greater foreign
exchange risk, interest rate risk, credit risk, political and economic risk
("event risk") and liquidity risk than would be the case if the Fund invested
only in Australian and New Zealand securities. The following summarizes the main
risks involved in investing in Asian bond and short-term money market securities
relative to similar types of securities in Australia and the U.S.
Credit Risk. The proposals approved by the holders of the Fund's Common
Stock and Preferred Stock in June 2001 permit the Fund to invest up to 35% of
its total assets in Asian debt securities which, at the time of investment, are
rated below investment grade (i.e., securities that have been rated below BBB-
by S&P or Baa3 by Moody's) or, if unrated, are in the opinion of the Investment
Manager, of equivalent quality. Among other things, investment in securities
which are rated below investment grade requires skilled credit analysis and
reduces the overall credit quality of the Fund's portfolio.
Investments in securities rated below investment grade are subject to
greater market fluctuations and risk of loss of income and principal than
investments in securities with investment grade credit ratings. The former will
generally provide higher yields due to the higher premia required by investors
for taking the associated credit risk.
Investments in debt securities expose the Fund to credit risk (that is, the
risk of default on interest and/or principal payments). Credit risk is
influenced by changes in general economic and political conditions and changes
in the financial condition of the issuers. During periods of economic downturn
or rising interest rates, issuers of securities with a low credit rating may
experience financial weakness that could affect their ability to make payments
of interest and principal.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may also decrease the value and liquidity of securities
with low credit ratings, especially in markets characterized by a low volume of
trading.
Unrated Securities. The Fund is permitted to invest in unrated debt
securities. Unrated securities, while not necessarily of lower quality than
rated securities, generally do not have a broad market. Before purchasing
an unrated security, the Investment Manager and Investment Adviser intend
to analyze the creditworthiness of the issuer of the security and of any
financial institution or other party responsible for payments on the
security in order to assign a rating to the security.
Below-Investment Grade Securities. Ratings of debt securities represent the
rating agency's opinion regarding their quality and are not a guarantee of
quality. Rating agencies attempt to evaluate the safety of principal and
interest payments and do not evaluate the risks of fluctuations
48
in market value. Because rating agencies may fail to make timely changes in
credit ratings in response to subsequent events, the Investment Manager and
Investment Adviser will continuously monitor the issuers of securities held
to determine whether the issuers have sufficient cash flows and profits to
meet principal and interest payments.
The achievement of the Fund's investment objective will be more dependent
on the Investment Manager or the Investment Adviser's own credit analysis
than might be the case for a fund which invests in higher quality bonds.
The Fund may retain a security the rating of which has been changed. The
market values of lower quality debt securities tend to reflect individual
developments of the issuer to a greater extent than do higher quality
securities, which react primarily to fluctuations in the general level of
interest rates.
Issuers of lower quality debt securities tend to be highly leveraged. Those
issuers may also not have available to them traditional methods of
financing. For example, during an economic downturn or a sustained period
of rising interest rates, highly leveraged issuers of lower quality
securities may experience financial stress. During these periods, issuers
may not have sufficient revenue to meet their interest payment obligations.
An issuer's ability to service debt obligations may also be adversely
affected by specific developments affecting the issuer, such as the
issuer's inability to meet specific projected business forecasts or the
unavailability of additional financing. Similarly, certain emerging market
governments that issue lower quality debt securities are among the largest
debtors to commercial banks, foreign governments and supranational
organizations such as The World Bank, and may not be able or willing to
make principal and/or interest repayments as they come due. The risk of
loss due to default by the issuer is significantly greater for the holders
of lower quality securities because these securities are generally
unsecured and are often subordinated to higher ranking creditors of the
issuer.
The Fund may also incur additional expense to the extent that it is
required to seek recovery on a default in the payment of principal or
interest on its portfolio holdings, and the Fund may have limited legal
recourse in the event of a default. Debt securities issued by governments
in emerging Asian markets can differ from debt obligations issued by
private entities in that remedies for defaults generally must be pursued in
the courts of the defaulting government, and legal recourse may be
diminished. Political conditions, in terms of a government's willingness to
meet the terms of its debt obligations, are also of considerable
significance. There can be no assurance that the holders of commercial bank
debt may not contest payments to the holders of debt securities issued by
governments in the event of default by the governments under commercial
bank loan agreements.
The Investment Manager and Investment Adviser will attempt to minimize the
speculative risks associated with investments in lower quality securities
through credit analysis and by carefully monitoring such current trends as
interest rates and political developments.
Management of Credit Risk. At the upper end of the credit rating spectrum,
recognized international ratings agencies such as S&P and Moody's provide
extensive risk credit analysis for investors. However, in emerging markets such
as those in Asia, where issues are often unrated or are at the lower end of the
credit risk spectrum, the Investment Manager and Investment Adviser believe that
opportunities exist for skilled analysts to add value through extensive company
research and detailed credit assessment.
The Investment Manager and Investment Adviser also consider external credit
assessments available from rating agencies such as S&P and Moody's, as well as
any reports on the issuer which may be available from brokers or other sources.
A chart showing the current S&P and Moody's credit ratings
49
on long-term foreign sovereign debt for the Asian countries in which the Fund
currently invests is included in Appendix A.
Low-credit debt can sometimes become equity. Due to the conversion of
convertible notes and warrants, the Fund may from time to time become an (often)
involuntary holder of equities until such stock can be sold as and when an
optimal price can be achieved, given market conditions. It may be in the
interests of stockholders for the Fund to hold such stock for short-term
periods.
Similarly, distressed companies can sometimes restructure via
debt-for-equity swaps in order to stay solvent and viable. In this case, the
investor becomes an involuntary equity holder and, once again, it may be in the
best interests of stockholders that the Fund hold such securities for short
periods of time, especially in extreme market conditions, until optimal prices
can be obtained.
Political and Economic Risk. The Fund's investments could in the future be
adversely affected by any increase in taxes or by political, economic or
diplomatic developments in the Asian Countries. Moreover, accounting, auditing
and financial reporting standards and other regulatory practices and
requirements vary from those applicable to entities subject to regulation in the
United States.
Securities of Asian issuers may involve different, and sometimes greater,
risks than securities of U.S. and Australian issuers. Asian economies are
considered to be more politically volatile than the traditional Western style
democracies. Investments in securities of issuers in Asian countries involve
greater political risk, including in some countries, the possibility of
expropriation, confiscatory taxation or nationalization of assets, and the
establishment of foreign exchange controls. Central authorities also tend to
exercise a high degree of control over the economies and in many cases have
ownership over core productive assets.
With their strong reliance on international trade, the Asian economies tend
to be sensitive both to economic changes in their own region and to changes
affecting their major trading partners. These include changes in growth,
inflation, foreign exchange rates, current account positions, government
policies, taxation and tariffs. See, e.g., "Appendix A - Economic Information -
Asian Economic Data."
Liquidity Risk. While the Fund ordinarily invests only in debt securities
for which there is an active secondary market, the Fund may invest in Asian debt
securities for which there is no established secondary market. The securities
markets that exist in emerging Asian countries are substantially smaller, less
developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries.
In some Asian countries, there is no established secondary market for
securities. Therefore, liquidity in these countries is generally low and
transaction costs high. Reduced liquidity often creates higher volatility, as
well as difficulties in obtaining accurate market quotations for financial
reporting purposes and for calculating net asset values, and sometimes also an
inability to buy and sell securities. Market quotations on many securities may
only by available from a limited number of dealers and may not necessarily
represent firm bids from those dealers or prices for actual sales.
In addition, the markets for below investment grade securities may be
substantially smaller, less developed, less liquid and more volatile than the
markets for prime rated securities, which may make obtaining accurate market
quotations for financial reporting purposes and for calculating net asset values
more difficult. Market quotations on many sub-investment grade securities may
only be available from a limited number of dealers and may not necessarily
represent firm bids from those dealers or prices for actual sales.
50
Tax Risk. Income earned on investments in Asian countries may be subject to
applicable withholding taxes and other taxes imposed by the governments of these
countries. There can be no assurance that foreign tax laws will not be changed
in a manner which adversely affects foreign investors.
Legal and Accounting Risk. The legal systems in many Asian countries are
less developed than those in more developed countries, with the administration
of laws and regulations often subject to considerable discretion. While the
development of the legal systems is a positive step, there is a risk that
foreign investors will be adversely affected by new laws or changes to existing
laws.
Accounting and auditing standards applied in certain Asian countries
frequently do not conform with the accepted international standards used in
Australia and the U.S. In some cases, accounting policies, for example the use
of the constant purchasing power method, can cause some distortion. Also,
substantially less financial information is generally publicly available about
issuers in Asian countries and, where available, may not be independently
verifiable.
Use of Derivatives
Consistent with its investment objective, the Fund may invest in a broad
array of financial instruments and securities in which the value of the
instrument or security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, an interest rate or a foreign
currency ("derivatives"). Derivatives are most often used to manage investment
risk, to increase or decrease exposure to an asset class or benchmark (as a
hedge or to enhance return), or to create an investment position directly (often
because it is more efficient or less costly than direct investment). There is no
guarantee that these results can be achieved through the use of derivatives and
any success in their use depends on a variety of factors including the ability
of the Investment Manager and Investment Adviser to predict correctly the
direction of interest rates, securities prices, currency exchange rates and
other factors.
The primary risk of derivatives is the same as the risk of the underlying
asset, namely that the value of the underlying asset may increase or decrease.
Adverse movements in the value of the underlying asset can expose the Fund to
losses. In addition, risks in the use of derivatives include:
. an imperfect correlation between the price of derivatives and the
movement of the securities prices, interest rates or currency exchange
rates being hedged or replicated;
. the possible absence of a liquid secondary market for any particular
derivative at any time;
. the potential loss if the counterparty to the transaction does not
perform as promised;
. the possible need to defer closing out certain positions to avoid
adverse tax consequences, as well as the possibility that derivative
transactions may result in acceleration of gain, deferral of losses or
a change in the character of gain realized;
. the risk that the financial intermediary "manufacturing" the
over-the-counter derivative, being the most active market maker and
offering the best price for repurchase, will not continue to create a
credible market in the derivative;
. because certain derivatives are "manufactured" by financial
institutions, the risk that the Fund may develop a substantial
exposure to financial institution counterparties; and
51
. the risk that a full and complete appreciation of the complexity of
derivatives and how future value is affected by various factors
including changing interest rates, exchange rates and credit quality
is not attained.
The Fund may use interest rate swaps to hedge the Fund's liability with
respect to the Preferred Stock. At present, the Fund has been authorized by its
Board of Directors to hedge up to one-third of the Fund's liability with respect
to the Preferred Stock. This allows the Fund to lock in the relatively low
current U.S. dollar interest rates with respect to up to one-third of the Fund's
outstanding Preferred Stock. A significant type of risk associated with interest
rate swaps is the risk that the counterparty may default or file for bankruptcy,
in which case the Fund would bear the risk of loss of the amount expected to be
received under the swap agreement. See "Portfolio Securities - Derivative
Securities - Swaps." There can be no assurance that the Fund will have an
interest rate swap in place at any given time, nor can there be any assurance
that, if an interest rate swap is in place, it will be successful in hedging the
Fund's interest rate risk with respect to the Preferred Stock.
Call or Buy-Back Features
Debt securities occasionally have call or buy-back features that would
permit an issuer to call or repurchase the security from the holder. The
Investment Manager and Investment Adviser anticipate that these securities could
be sold only to a limited number of dealers or institutional investors as there
may not be an established retail secondary market for many of these securities,
or where there is a market, the securities may not be easily tradable.
Preferred Stock - Leverage Risk
The Fund has issued US$600 million of Preferred Stock, which is tantamount
to borrowing this sum of money. The Preferred Stock creates an opportunity for
the holders of the Fund's Common Stock to experience greater capital
appreciation and higher yields, while at the same time increasing exposure to
capital risk. The net cost of the Preferred Stock is an expense which could
limit the Fund's net investment income in any given period.
Capital raised through leverage is subject to interest and other costs, and
these costs could exceed the income earned by the Fund on the proceeds of such
leverage. There can be no assurance that the Fund's income from the proceeds of
leverage will exceed these costs. However, the Investment Manager and Investment
Adviser seek to use leverage for the purposes of making additional investments
only if they believe, at the time of using leverage, that the total return on
the assets purchased with such funds will exceed interest payments and other
costs on the leverage. In the event of a default on one or more loans or other
interest-bearing instruments held by the Fund, the use of leverage would
exaggerate the effect on the Fund's net asset value. The holders of the Fund's
Preferred Stock and the Fund's lenders, if any, will have priority to the Fund's
assets over the holders of the Fund's Common Stock.
The Preferred Stock results in leveraging, which is usually considered
speculative and involves certain risks to the holders of Common Stock. These
risks include a higher volatility of the NAV of the Common Stock, potentially
more volatility in the market value of the Common Stock, and the relatively
greater effect on the NAV of the Common Stock caused by favorable or adverse
changes in currency exchange rates. In addition, fluctuations in the dividend
rates on the Preferred Stock will affect the return to holders of Common Stock,
with increases in the Preferred Stock dividend rates decreasing such return. So
long as the Fund is able to realize a higher net return on its investment
portfolio than the then-current dividend rate of the Preferred Stock, the effect
of leverage will be to cause holders of Common Stock to realize a higher current
rate of return than if the Fund were not leveraged. On the other hand, interest
52
rates on U.S. dollar-denominated and foreign currency denominated obligations
change from time to time as does their relationship to each other depending on
such factors as supply and demand forces, monetary and tax policies within each
country and investor expectations. Changes in such factors could cause the
relationship between such rates to change so that rates on U.S.
dollar-denominated obligations may substantially increase relative to the
foreign currency denominated obligations in which the Fund may be invested. To
the extent that the current dividend rate on the Preferred Stock approaches the
net return on the Fund's investment portfolio, the benefit of leverage to
holders of Common Stock will be reduced, and if the current dividend rate on the
Preferred Stock were to exceed the net return on the Fund's portfolio, the
Fund's leveraged capital structure would result in a lower rate of return to
holders of Common Stock than if the Fund were not leveraged. Further, because
any decline in the NAV of the Fund's investments will be borne entirely by
holders of Common Stock, in a declining market, the Fund's leverage would result
in a greater decrease in NAV to holders of Common Stock than if the Fund were
not leveraged. This would likely be reflected in a greater decline in the market
price for shares of Common Stock. If the Fund's current investment income were
not sufficient to meet dividend requirements on the Preferred Stock, it could be
necessary for the Fund to liquidate certain of its investments, thereby further
reducing the NAV attributable to the Fund's Common Stock.
In order to reduce the risk that the dividend requirements on the Preferred
Stock will exceed the net return of the Fund's investment portfolio, the Fund
may use interest rate swaps to hedge the Fund's liability with respect to the
Preferred Stock. At present, the Fund has been authorized by its Board of
Directors to hedge up to one-third of the Fund's liability with respect to the
Preferred Stock. This allows the Fund to lock in the relatively low current U.S.
dollar interest rates with respect to up to one-third of the Fund's outstanding
Preferred Stock. There can be no assurance that the Fund will have an interest
rate swap in place at any given time, nor can there be any assurance that, if an
interest rate swap is in place, it will be successful in hedging the Fund's
leverage risk with respect to the Preferred Stock. See "Risk Factors and Special
Considerations - Use of Derivatives."
During certain periods of the Fund's operations, Australian and New Zealand
long-term debt obligations have produced higher yields than U.S. short-term
obligations. The difference between the U.S. short-term rates paid by the Fund
on the Preferred Stock and the net Australian and New Zealand long-term debt
rates received by the Fund has, during such periods, provided holders of Common
Stock with a higher yield. Holders of Common Stock have generally benefited from
the Fund's issuance of the Preferred Stock which commenced in 1989. Since the
fiscal quarter beginning August 1, 1997, there have been periods during which
the shrinking yield differential between Australia and U.S. rates and a
depreciating Australian dollar have resulted in the Preferred Stock having a
negative impact on returns to holders of Common Stock. During the 12 months to
July 31, 2002, the key investment trend was an end to the unilateral strength of
the U.S. dollar. The Australian dollar and most Asian currencies strengthened
against the U.S. dollar over the period, with the Australian dollar rising 7.5%.
Further, with U.S. interest rates at historic lows, the differential between the
cost of the Preferred Stock and the rates at which the Fund invests remains
positive. Offsetting these impacts slightly have been capital losses as bond
yields have risen in line with signs of global recovery.
The proposed increased investment of a more significant percentage of the
Fund's total assets in higher yielding Asian debt securities is expected to
increase the Fund's net investment income above the current level. See "The
Offer - Purpose of the Offer." The implementation of this strategy is proposed
to occur within approximately two to four months of the completion of the Offer
by a combination of investing the net proceeds of the Offer together with the
proceeds from the sale of existing Australian portfolio securities. Stockholders
are cautioned that there can be no guarantee of future performance and the
Fund's investment in Asian debt securities involves risks and uncertainties, so
that actual results may differ materially from those anticipated as a result of
various factors. The Fund undertakes no obligation to update or revise the
disclosure in this Prospectus with regard to the effect of increased investment
in
53
global markets, including Asia, on the Fund's leverage to reflect current events
or circumstances after the date of this Prospectus or to reflect the occurrence
of unanticipated events.
The Fund has the authority to redeem the Preferred Stock for any reason and
may redeem all or part of the Preferred Stock if it anticipates that the Fund's
leveraged capital structure will result in a lower rate of return to holders of
the Common Stock than that obtainable if the Common Stock were unleveraged for
any significant amount of time. The Fund may also need to redeem all or a
portion of the Preferred Stock to the extent required by the 1940 Act, the terms
of the Preferred Stock or by rating agencies rating the Preferred Stock. The
leveraging of the Common Stock would be eliminated during any period that
Preferred Stock is not outstanding. See "The Fund - Description of Preferred
Stock."
Because the Investment Manager's and the Investment Adviser's fees are
based on the average net assets of the Fund which include the Preferred Stock,
the Investment Manager and Investment Adviser have benefited from the Fund's
determination not to redeem the Preferred Stock.
The Fund's leveraged capital structure creates special risks not associated
with unleveraged funds having similar investment objectives and policies. The
amounts borrowed pursuant to any credit facility or obtained through the
issuance of Preferred Stock may constitute a substantial lien and burden by
reason of their prior claim against the income of the Fund and against the net
assets of the Fund in liquidation. The holders of the Fund's Preferred Stock
have priority to the Fund's assets over the holders of the Fund's Common Stock
to the extent of the aggregate liquidation preference.
The Fund will not be permitted to declare dividends or other distributions,
including dividends and distributions with respect to Common Stock or Preferred
Stock, or purchase or redeem Common Stock or Preferred Stock unless (i) at the
time thereof the Fund meets certain asset coverage requirements and (ii) there
is no event of default under any credit facility program that is continuing. In
the event of a default under a credit facility program, the lenders may have the
right to cause a liquidation of the collateral and, if any such default is not
cured, the lenders may be able to control the liquidation as well. In addition,
the Fund will not be permitted to pay dividends on, or redeem or repurchase,
Common Stock unless all accrued dividends on the Preferred Stock, or accrued
interest on borrowings, if any, have been paid or set aside for payment.
The Fund may be subject to certain restrictions imposed by lenders to the
Fund or by guidelines of one or more rating agencies which may issue ratings for
the Fund's Preferred Stock. These restrictions impose asset coverage, fund
composition requirements or limits on investment techniques, such as the use of
financial derivative products, that are more stringent than those imposed by the
1940 Act. These covenants or guidelines could impede the Investment Manager from
fully managing the Fund's portfolio in accordance with the Fund's investment
objective and guidelines.
Net Asset Value Discount
Shares of closed-end investment companies frequently trade at a discount
from NAV. This characteristic is a risk separate and distinct from the risk that
NAV will decrease. The Fund's shares have frequently traded at prices below NAV
since the commencement of the Fund's operations. In the 12-month period ended
July 31, 2002, the Fund's shares have traded in the market at an average
discount to NAV of 10.29%. The Fund cannot predict whether its shares in the
future will trade at, below or above NAV. The risk that shares of a closed-end
fund might trade at a discount is more significant for investors who wish to
sell their shares in a relatively short period of time. For those investors,
realization of gain or loss on their investment is likely to be more dependent
upon the existence of a premium or discount than upon portfolio performance.
54
Foreign Custody
The Fund generally holds its foreign securities and cash in foreign banks
and securities depositories. Some foreign banks and securities depositories may
be recently organized or new to the foreign custody business. There may be
limited or no regulatory oversight over their operations. Also, the laws of
certain countries may put limits on the Fund's ability to recover its assets if
a foreign bank, depository or issuer of a security, or any of their agents, goes
bankrupt. In addition, it is often more expensive for the Fund to buy, sell and
hold securities in certain foreign markets than in the United States. The
increased expense of investing in foreign markets reduces the amount the Fund
can earn on its investments and typically results in a higher operating expense
ratio for the Fund than for investment companies invested only in the United
States.
Non-Diversified Status
The Fund is classified as a "non-diversified" management investment company
under the 1940 Act, which means that the Fund is not limited by the 1940 Act as
to the proportion of its assets that may be invested in the securities of a
single issuer. As a non-diversified investment company, the Fund may invest a
greater proportion of its assets in the obligations of a smaller number of
issuers and, as a result, will be subject to greater risk with respect to its
portfolio securities. Although, with respect to 50% of its assets, the Fund must
diversify its holdings in order to be treated as a regulated investment company
under the provisions of the Code, the Fund may be more susceptible to any single
economic, political or regulatory occurrence than would be the case if it had
elected to diversify its holdings sufficiently to be classified as a
"diversified" management investment company under the 1940 Act.
See "Taxation - United States Taxes."
Tax Considerations
The Fund intends to qualify and to continue to qualify as a regulated
investment company under the Code. If it so qualifies, it generally will be
relieved of U.S. Federal income tax on its net investment income and capital
gains, if any, which it generally distributes in accordance with requirements
under the Code. To the extent that the Fund has earnings available for
distribution, its distributions in the hands of stockholders generally are
expected to be treated as ordinary dividend income, although certain
distributions may be designated by the Fund as capital gain dividends which
would be treated as long-term capital gain. Dividends paid by the Fund (both
ordinary and capital) will not qualify for the corporate dividends-received
deduction. Distributions in excess of the Fund's investment company taxable
income and net capital gains will first reduce a stockholder's basis in his
shares and, after the stockholder's basis is reduced to zero, will constitute
capital gains to a stockholder who holds his shares as capital assets.
Subject to certain limitations imposed by the Code, foreign taxes withheld
from distributions or otherwise paid by the Fund may be creditable or deductible
by U.S. stockholders for U.S. income tax purposes, if the Fund is eligible to
and makes an election to treat the stockholders as having paid those taxes for
U.S. Federal income tax purposes. No assurance can be given that the Fund will
be eligible to make this election each year but it intends to do so if it is
eligible. If the election is made, the foreign withholding taxes paid by the
Fund will be includable in the U.S. Federal taxable income of stockholders.
Non-U.S. investors may not be able to credit or deduct the foreign taxes, but
they may be deemed to have additional income from the Fund, equal to their share
of the foreign taxes, that is subject to the U.S. withholding tax. Investors
should review carefully the information discussed under the heading "Taxation"
and should discuss with their tax advisers the specific tax consequences of
investing in the Fund.
55
Anti-Takeover Provisions
The Fund has provisions in its Articles of Amendment and Restatement, as
amended to date ("Articles") that could have the effect of limiting (i) the
ability of other entities or persons to acquire control of the Fund, (ii) the
Fund's freedom to engage in certain transactions, and (iii) the ability of the
Fund's Directors or stockholders to amend the Articles or effect changes in the
Fund's management.
The By-Laws provide for a staggered election of those Directors who are
elected by the holders of Common Stock, with such Directors divided into three
classes, each having a term of three years. Accordingly, only those Directors in
one class may be changed in any one year and it would require two years to
change a majority of the Board of Directors. This system of electing Directors
may have the effect of maintaining the continuity of management and, thus, make
it more difficult for the Fund's Stockholders to change the majority of
Directors. Other provisions require the approval of holders of 75% of the
outstanding shares of the Common Stock and Preferred Stock voting both together
as a single class and separately as to each class to approve certain
transactions including certain mergers, asset dispositions and conversion of the
Fund to open-end status. However, certain provisions of the 1940 Act may
nevertheless require a separate additional vote of the holders of Preferred
Stock.
Articles Supplementary approved by the Board of Directors subject the Fund
to certain provisions of the Maryland General Corporation Law with respect to
unsolicited takeovers. These provisions limit the ability of stockholders to
remove directors, provide that the number of directors may be fixed only by the
Board, provide that certain vacancies on the Board of Directors may be filled
only by the vote of the remaining directors, and limit the ability of
stockholders to call a special meeting of stockholders.
The foregoing provisions may be regarded as "anti-takeover" provisions and
may have the effect of depriving Stockholders of an opportunity to sell their
shares at a premium over prevailing market prices. See "Capital Stock - Certain
Provisions of the Articles, By-Laws and Articles Supplementary."
PORTFOLIO COMPOSITION
The following sets forth certain information with respect to the
composition of the Fund's investment portfolio (excluding $187,493,152 held in
U.S. dollar and Australian dollar denominated short-term investments) as of July
31, 2002 based on the then applicable exchange rates shown in the table below:
-------------------------------------------------------
Exchange Rates
-------------------------------------------------------
Currency Currency per US$1
-------------------------------------------------------
United States Dollar N/A
-------------------------------------------------------
Australian Dollar A$0.5443
-------------------------------------------------------
New Zealand Dollar NZ$0.4689
-------------------------------------------------------
South Korean Won KRW1188.09
-------------------------------------------------------
Thai Baht THB42.02
-------------------------------------------------------
Philippines Peso PHP51.28
-------------------------------------------------------
Malaysian Ringgit MYR3.80
-------------------------------------------------------
Singapore Dollar SGD1.76
------------------------------------------------------
56
The Portfolio
Number of Market Value % of long-
Australia Issues in U.S. dollars term assets
--------- ------ --------------- -----------
Commonwealth Government Bonds................................... 18 $372,029,347 22.4%
Australian Semi-Government Bonds................................ 19 286,450,900 17.3%
Australian Corporate Bonds...................................... 11 53,533,729 3.2%
A$ Eurobonds.................................................... 30 253,083,691 15.3%
------------ ----
Sub-total 965,097,667 58.2%
Number of Market Value % of long-
South Korea Issues in U.S. dollars term assets
----------- ------ --------------- -----------
South Korean Government Bonds................................... 7 76,335,006 4.6%
------------ ----
Sub-total 76,335,006 4.6%
Number of Market Value % of long-
Thailand Issues in U.S. dollars term assets
-------- ------ --------------- -----------
Thailand Government Bonds....................................... 10 28,357,999 1.7%
------------ ----
Sub-total 28,357,999 1.7%
Number of Market Value % of long-
Philippines Issues in U.S. dollars term assets
----------- ------ --------------- -----------
Philippines Government Bonds.................................... 2 11,137,742 0.7%
------------ ----
Sub-total 11,137,742 0.7%
Number of Market Value % of long-
Malaysia Issues in U.S. dollars term assets
-------- ------ --------------- -----------
Malaysian Government Bonds...................................... 3 12,241,136 0.7%
Malaysian Corporate Bonds....................................... 2 6,258,563 0.4%
------------ ----
Sub-total 18,499,699 1.1%
Number of Market Value % of long-
Singapore Issues in U.S. dollars term assets
--------- ------ --------------- -----------
Singapore Government Bonds...................................... 2 16,149,015 1.0%
------------ ----
Sub-total 16,149,015 1.0%
Number of Market Value % of long-
Europe Issues in U.S. dollars term assets
------ ------ --------------- -----------
European Corporate Bonds........................................ 1 4,209,045 0.3%
------------ ----
Sub-total 4,209,045 0.3%
Number of Market Value % of long-
Hong Kong Issues in U.S. dollars term assets
--------- ------ --------------- -----------
Hong Kong Corporate Bonds....................................... 1 1,908,423 0.1%
------------ ----
Sub-total 1,908,423 0.1%
Number of Market Value % of long-
Japan Issues in U.S. dollars term assets
----- ------ --------------- -----------
Japanese Government Bonds....................................... 2 12,373,057 0.7%
------------ ----
Sub-total 12,373,057 0.7%
Number of Market Value % of long-
United States Issues in U.S. dollars term assets
------------- ------ --------------- -----------
Yankee Bonds.................................................... 76 523,555,534 31.6%
------------ ----
57
Sub-total 523,555,534 31.6%
Total long-term investments $ 1,657,623,187 100%
Moody's and/or S&P Ratings* % of total market value of
--------------------------- long-term portfolio
--------------------------
Aaa/AAA......................................................... 46.5%
Aa/AA........................................................... 13.7%
A/A............................................................. 11.2%
BBB/Baa......................................................... 16.6%
BB/Ba........................................................... 9.1%
B............................................................... 2.8%
CCC............................................................. 0.1%
Total Portfolio Rated by Moody's and/or S&P..................... 100.0%
--------------------
* Reflects the lower of the Moody's or S&P rating. S&P rating categories
may be further modified by a, plus (+) or minus (-) in AA and A
ratings. Moody's rating categories may be further modified by 1
(highest), 2 or 3 (lowest) in Aa and A ratings.
MANAGEMENT OF THE FUND
Directors and Officers
The Fund's By-Laws provide that the Directors to be elected by holders
of the Fund's Common Stock will be divided into three classes, as nearly equal
in number as possible, each of which will serve for three years with one class
being elected each year. Each year, the term of one class expires. Section 18 of
the 1940 Act requires that the holders of the Preferred Stock, voting separately
as a single class without regard to series, have the right to elect at least two
Directors at all times. The officers of the Fund serve at the pleasure of the
Board of Directors.
Although the Fund is a Maryland corporation, certain of its Directors
and officers (Messrs. Elsum, Gilbert, Malone, Miles, O'Connell, Sacks, Schrafl,
Sherman, Pittard, Bignell and Randall) are non-residents of the United States
and have all, or a substantial part, of their assets located outside the United
States. None of the Directors or officers has authorized an agent for service of
process in the United States. As a result, it may be difficult for U.S.
investors to effect service of process upon the Directors and officers within
the United States or to effectively enforce judgments of courts of the United
States predicated upon civil liabilities of the Directors or officers under the
Federal securities laws of the United States. The Fund has been advised by
local counsel in each jurisdiction in which the Fund's directors and officers
reside, other than those listed below, that it is unlikely that the courts of
those jurisdictions would adjudge civil liability against Directors and officers
resident in those jurisdictions in an original action predicated solely on a
violation of the Federal securities laws of the United States. Although there is
no arrangement in place between those jurisdictions and the United States for
the reciprocal enforcement of judgments, a judgment against the Directors and
officers in an original action predicated on such provisions rendered by a court
in the United States would be enforceable by action or counterclaim or be
recognized by the courts of those jurisdictions as a defense to an action or as
conclusive of an issue in that action unless obtained by fraud or otherwise than
in accordance with the principles of natural justice or unless contrary to
public policy or unless the proceedings in the United States court were not duly
served on the defendant in the original action. There is doubt as to the
enforceability in Australia, Canada, _______, and _______, the countries in
which other Directors and officers are resident, of these civil liability
provisions, whether or not the liabilities are based upon judgments of courts in
the United States or are pursuant to original actions.
58
The By-Laws of the Fund provide that the Fund will indemnify Directors and
officers of the Fund against liabilities and expenses, including the advancement
of expenses actually and reasonably incurred in connection with claims or
litigation in which they may be involved because of their offices with the Fund.
Neither the Articles of Incorporation nor the By-Laws of the Fund protects or
indemnifies a Director or officer against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
The names of the Directors and officers of the Fund, their addresses, ages
and principal occupations during the past five years are provided in the tables
below. Directors that are deemed "interested persons" (as that term is defined
in Section 2(a)(19) of the 1940 Act) of the Fund, the Investment Manager, the
Investment Adviser and the Dealer Managers are included in the table titled
"Interested Directors." Directors who are not interested persons as described
above are referred to as Independent Directors.
Interested Directors
------------------------------------------------------------------------------------------------------------------------------
Number
Term of of Funds
Office in Fund
and Complex
Position(s) Length Overseen
Name, Address Held With of Time Principal Occupation(s) by Other Directorships Held by
and Age the Fund Served During Past Five Years Director Director
------------------------------------------------------------------------------------------------------------------------------
Martin J. Gilbert* Chairman of Term Mr. Gilbert is the Chief 2 Chairman of the Board and
One Albyn Place the Board expires Executive and an Executive Director, Aberdeen Global Income
Aberdeen, AB10 1YG Class III 2003; Director of Aberdeen Asset Fund, Inc. (since 2001);
United Kingdom Director Director Management PLC, which was Director, Aberdeen Asia-Pacific
since 2001 established in 1983 and is the Income Investment Company Limited
parent company of the Fund's (since 2000); Director, Aberdeen
Age: 47 Investment Manager and Asset Management Holdings Limited
Investment Adviser. He is one (since 2000); Director, Aberdeen
of the founding directors of Asian Smaller Companies
Aberdeen Asset Management PLC Investment Trust PLC (since
and has been involved in the 1995); Director, Aberdeen Asset
investment management industry Management Asia Limited (since
since 1982, after he qualified 1991); Director, Aberdeen Asset
as a chartered accountant. He Management Ireland Limited (since
has been Chairman of the Board 1998); Director, Aberdeen Asset
of the Fund and of Aberdeen Managers Jersey Limited (since
Global Income Fund, Inc. since 1999); Director, Aberdeen Asset
2001. He has been a Director Managers Limited (since 1987);
of Aberdeen Asset Management Director, Aberdeen Convertible
Limited (the Fund's Investment Income Trust PLC (since 1995);
Adviser) and Aberdeen Asset Director, Aberdeen Development
Managers (C.I.) Limited (the Capital PLC (since 1986);
Fund's Investment Manager) Director, Aberdeen Emerging Asia
since 2001. Investment Trust Limited (since
1990); Director, Aberdeen
Emerging Economies Investment
Trust PLC (since 1993); Director,
Aberdeen Football Club PLC (since
1997); Director, Aberdeen Fund
Managers, Inc. (since 1995);
Director, Aberdeen Global (since
1998); Director,
------------------------------------------------------------------------------------------------------------------------------
59
------------------------------------------------------------------------------------------------------------------------------
Number
Term of of Funds
Office in Fund
and Complex
Position(s) Length Overseen
Name, Address Held With of Time Principal Occupation(s) by Other Directorships Held by
and Age the Fund Served During Past Five Years Director Director
------------------------------------------------------------------------------------------------------------------------------
Aberdeen Graham Asset Management
Limited (since 1999); Director,
Aberdeen Growth VCT I PLC (since
2001); Director, Aberdeen
International Fund Managers
Limited (since 1998); Director,
Aberdeen International Fund PLC
(since 1997); Director, Aberdeen
Private Investors Limited (since
2001); Director, Aberdeen
Property Investors International
Limited (since 2001); Director,
Aberdeen Umbrella Cash Fund PLC
(since 1998); Director, Aberdeen
Unit Trust Managers Limited
(since 1987); Director, Aberdeen
Fund Managers Ireland Limited
(since 2000); Director, APFM
Wind-Up Limited (since 1994);
Director, Argosy Asset Management
Luxembourg SA (since 1991);
Director, Asset Value Investors
Limited (since 2001); Director,
Balgranach Properties Limited
(since 1998); Director, Bogey One
Limited (since 1998); Director,
Broadgate Investment Trust PLC
(since 1995); Director, Chaucer
Holdings PLC (since 1993);
Director, FirstGroup PLC (since
1995); Director, Grampian Country
Food Group Limited (since 1996);
Director, Healthcare Reform
Investment Trust PLC (since
1996); Director, Inner Workings
Group PLC (since 1999); Director,
Jersey Phoenix Trust Limited
(since 1999); Director, Lombard
International Assurance SA (since
1991); Director, Murray Johnstone
Holdings Limited (since 2001);
Director, Murray Johnstone
International Limited (since
2001); Director, Murray Johnstone
Limited (since 2001); Director,
Murray Johnstone Unit Trust
Management Limited (since 2001);
Director, New Asia (Isle of Man)
Limited (since 1996); Director,
Phoenix Aberdeen International
Advisors LLC (since 1996);
Director, Primary Health
Properties PLC (since 1996);
Director, Property Management
------------------------------------------------------------------------------------------------------------------------------
60
------------------------------------------------------------------------------------------------------------------------------------
Number
Term of of Funds
Office in Fund
and Complex
Position(s) Length Overseen
Name, Address Held With of Time Principal Occupation(s) During by
and Age the Fund Served Past Five Years Director Other Directorships Held by Director
------------------------------------------------------------------------------------------------------------------------------------
Employment Services Limited (since
2000); Director, Property Partners
(Two Rivers) Limited (since 2001);
Director, Property Partners (Whitgift)
Limited (since 2000); Director, Regent
Property Partners (Residential)
Limited (since 2000); Director, Regent
Property Partners (Retail Parks)
Limited (since 2000); Director, Regent
Retail Parks (St. John's
Wolverhampton) Limited (since 2001);
Director, Scottish Medicine PLC (since
1998); Director, Templar Hotels LTD
(since 1990); Director, Tenon Nominees
Limited (since 1987); Director, The
London Market Fund PLC (since 1999);
Director, The Tavemers Trust PLC
(since 2000); Director, Themis
Investment Management Limited (since
2000); Director, Aberdeen Emerging
Economies Investment Trust PLC (since
1993); Director, Aberdeen Growth VCT I
(since 2001); Director, Aberdeen
Property Investors UK Limited (since
2001); Director, Aberdeen
International India Opportunities Fund
(Mauritius) Limited; Director,
Aberdeen Latin American Investment
Trust PLC (from 1994 to 1998);
Director, Aberdeen New Thai Investment
Trust PLC (from 1989 to 2000);
Director, Aberdeen Investment Services
SA (from 1998 to 2000); Director,
Aberdeen High Income Trust PLC (from
1994 to 1999); Director, Aberdeen
Preferred Income Trust PLC (from 1997
to 1998); Director, Aberdeen Growth
VCT II PLC (from 2001 to 2002);
Director, AM Wind-Up Limited (1997 to
1998); Director, Aberdeen Property
Investors Limited (from 2000 to 2002);
Director, Arthur House (No 10) Limited
(from 1997 to 1998); Director, PFM
Developments Limited (during 1998);
Director, Prolific Objective Asset
Management Limited (during 1999);
Director, Prolific Objective Limited
(from 1997 to 1999); Director,
Prolific Technology
------------------------------------------------------------------------------------------------------------------------------------
61
------------------------------------------------------------------------------------------------------------------------------------
Number
Term of of Funds
Office in Fund
and Complex
Position(s) Length Overseen
Name, Address Held With of Time Principal Occupation(s) During by
and Age the Fund Served Past Five Years Director Other Directorships Held by Director
------------------------------------------------------------------------------------------------------------------------------------
Limited (from 1997 to 1998); Director,
Prolific Unit Trust Nominees Limited
(from 1997 to 1998); Director, The
Taverners Trust PLC (from 1996 to
2000); Director, UTM Wind-Up II
Limited (from 1997 to 2000); Director,
UTM Wind-Up Limited (from 1997 to
2000); Director, Aberdeen Atlas Fund
(from 1991 to 1999); Director,
Aberdeen Capital Management
International Limited (from 1998 to
1999); Director, Abtrust Pointon
Pension Fund Managers Limited (from
1995 to 2000); Director, Abtrust
Securities Limited (from 1991 to
1999); Director, Archer Dedicated PLC
(from 1995 to 1998); Director, Arthur
House (No 9) Limited (from 1990 to
1998); Director, Arthur House
Management Limited (from 1995 to
1999); Director, CGA Nominees Limited
(from 1991 to 1998); Director,
Criterion Properties PLC (from 1993 to
2000); Director, Easyfollow Limited
(from 1990 to 2000); Director,
Grampian Enterprise Limited (from 1997
to 2001); Director, Old Mutual
Services Company (IOM) Limited (during
2002); Director, Pointon York Nominees
Limited (from 1994 to 2001); Director,
Prosperity Investment Management
Limited (during 1998); Director, The
Turkey Trust PLC (from 1996 to 1998);
Director, Prosperity Unit Trust
Management Limited (from 1994 to
1998).
------------------------------------------------------------------------------------------------------------------------------------
62
------------------------------------------------------------------------------------------------------------------------------------
Number
Term of of Funds
Office in Fund
and Complex
Position(s) Length Overseen
Name, Address Held With of Time Principal Occupation(s) by Other Directorships Held by Director
and Age the Fund Served During Past Five Years Director
------------------------------------------------------------------------------------------------------------------------------------
Beverley Hendry* Class I Term as Mr. Hendry has served as 1 Director, Aberdeen Investment
Las Olas Place Director; Director Executive Director of Aberdeen Services S.A. (since 1998);
300 S.E. 2/nd/ Street, Assistant expires Asset Management PLC (parent Director, Aberdeen Fund Managers
Suite 820 Treasurer 2004; company of the Fund's Ireland Limited (since 2000);
Fort Lauderdale, FL Director Investment Manager and Director, Phoenix Aberdeen
33301 and Investment Adviser) since International Advisors LLC (since
officer 1991. He has also served as 1996); Director, Aberdeen Asset
Age: 48 since Chief Executive Director of Managers Ireland Limited (since
2001 Aberdeen Fund Managers, Inc. 1999); Director, The America Monthly
(affiliate of the Fund's Income Trust (since 2000).
Investment Manager and
Investment Adviser) since
1995. He has been a Director
of Aberdeen Asset Managers
(C.I.) Limited (the Fund's
Investment Manager) since 2001.
------------------------------------------------------------------------------------------------------------------------------------
Brian M. Sherman* Class II Term Mr. Sherman has 36 years 1 Vice President (from 1992 to 2000),
2 Paddington Street Director expires experience in international Director (from 1992 to 2000) and
Paddington, NSW 2005; funds management, stockbroking, Chairman (from 1995 to 2000),
2021 Australia Director and in particular, 24 years in Aberdeen Global Income Fund, Inc.;
since the funds management industry President (from 1985 to 2001) and
Age: 58 1986 in Australia, managing money in Director (from 1985 to 2000),
equities and bonds. He was Aberdeen Australia Equity Fund,
Chairman of the Fund from 2000 Inc.; Joint Managing Director (from
to 2001 and President of the 1986 to 2001) and Chairman (from
Fund to 2001. Until December 1995 to 2001), Director (since
2000, he was Chairman and Joint 1986), Aberdeen Asia-Pacific Income
Managing Director of the Fund's Investment Company Limited;
Investment Adviser, and a Chairman, Sherman Group Limited
Director of the Fund's (investment company) (since 2001);
Investment Manager. Mr. Sherman Joint Managing Director, EquitiLink
has been the President of the Limited (holding company) (from 1988
Board of Directors of the to 2000); Director, EquitiLink
Australian Museum since 2001. Holdings Pty. Limited (holding
company) (from 1998 to 2000);
Director, Aberdeen Leaders Limited
(investment company) (since 1987);
Director, EquitiLink eLink Limited
(investment company) (from 1998 to
2002); Director, Ten Network
Holdings Limited (television
network) (since 1998); Director,
EIML Australia Pty. Limited
(investment company) (from 1985 to
2000); Director, Telecasters North
Queensland Ltd. (from 1992 to 1998);
Director, Kirman Pty. Limited (since
1981); Director, Kirman Holdings
Pty. Limited (since 1993); Director,
Hestian Pty. Limited (since 1983);
Director, EquitiLink International
------------------------------------------------------------------------------------------------------------------------------------
63
-----------------------------------------------------------------------------------------------------------------------------
Number
Term of of Funds
Office in Fund
and Complex
Position(s) Length Overseen
Name, Address Held With of Time Principal Occupation(s) by Other Directorships Held by
and Age the Fund Served During Past Five Years Director Director
-----------------------------------------------------------------------------------------------------------------------------
Management
Limited (from 1985 to 2000).
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------
* Mr. Sherman is deemed to be an interested person because of his ownership
of securities of Aberdeen Asset Management PLC, the parent company of the
Fund's Investment Manager and Investment Adviser. Messrs. Gilbert and
Hendry are deemed to be interested persons because of their affiliation
with the Fund's Investment Manager and Investment Adviser.
Independent Directors
-----------------------------------------------------------------------------------------------------------------------------
Term of Number
Office of Funds
and in Fund
Length Complex
Position(s) of Overseen
Name, Address Held With Time Principal Occupation(s) by Other Directorships Held by
and Age the Fund Served During Past Five Years Director Director
-----------------------------------------------------------------------------------------------------------------------------
Anthony E. Aaronson Class I Term Mr. Aaronson has extensive 2 Director, Aberdeen
110 E. 9/th/ Street Director expires experience in the management Australia Equity Fund, Inc.
Suite 721B 2004; of private investments. He (since 1985); Tony Aaronson
Los Angeles, CA 90079 Director served as Chairman of the Textiles (since 1992).
since Audit Committee of the Fund
Age: 65 1986 from the inception of the Fund
until 2000. He was Vice
President of the Textile
Association of Los Angeles
from 1996 to 1998.
-----------------------------------------------------------------------------------------------------------------------------
David L. Elsum, A.M.++ Class III Term Mr. Elsum has over 20 years of 3 Director, Aberdeen
9 May Grove Director expires experience in investment and Australia Equity Fund, Inc.
South Yarra, Victoria 3141 2003; insurance markets. He was a (since 1985), Aberdeen
Australia Director member of the Corporations and Global Income Fund, Inc.
since Securities Panel of the (since 1992), and Aberdeen
Age: 64 1986 Australian Securities Asia-Pacific Income
Commission until 2000, was a Investment Company Limited
member of the Australian (since 1986); Chairman,
Federal Government Audit Victoria (government
Administrative Appeals statutory authority) (from
Tribunal until 2001, and has 1997 to 2000); Chairman,
been a member of the State of Melbourne Wholesale Fish
Victoria Regulator-General Market Pty. Ltd.; Chairman,
Appeal Panel since 2001. Mr. Queen Victoria Market Pty.
Elsum is Chairman of Stodart Ltd. (municipal market);
Investment Pty. Ltd. Director, Financial Planning
Previously, he was founding Association Limited
Managing Director of Capel (industry association);
Court Investment Bank. Director, Aberdeen Leaders
Subsequently, Mr. Elsum was Limited (investment company).
Chief Executive of several
major public companies
including The MLC Limited
(insurance) and President of
the State of Victoria
Superannuation Fund (pension
fund management).
-----------------------------------------------------------------------------------------------------------------------------
64
---------------------------------------------------------------------------------------------------------------------------------
Number
Term of of Funds
Office in Fund
and Complex
Position(s) Length Overseen
Name, Address Held With of Time Principal Occupation(s) by Other Directorships Held by
and Age the Fund Served During Past Five Years Director Director
---------------------------------------------------------------------------------------------------------------------------------
Howard A. Knight Class II Term Mr. Knight has over 30 years 2 Director, Aberdeen
421 Glenbrook Road, #2 Director expires of experience in financial Australia Equity Fund, Inc.
Stamford, CT 06906 2005; markets and has been actively (since 1993); Director,
Director involved in the Australian Lions Gate Entertainment
Age: 60 since financial markets for more Corp. (film production and
1993 than 25 years. From 1991 to distribution) (since 1998);
1994, he served as President Director, SBS Broadcasting
of Investment Banking, Equity SA (from 1993 to 2001);
Transactions and Corporate Director, Agaton Fitness AG
Strategy at Prudential (since 1996).
Securities. From 1996 to
2001, Mr. Knight served as
Vice Chairman and Chief
Operating Officer of SBS
Broadcasting SA (European
television and radio
broadcasting), where he was
actively involved in
investment management and
capital markets. Mr. Knight is
currently an independent
director and management
adviser.
---------------------------------------------------------------------------------------------------------------------------------
P. Gerald Malone Class II Term Mr. Malone has been chairman 1 Director, Aberdeen
48 Barmouth Road Director expires or a director of several Asia-Pacific Income
London, SW182DP 2005; companies in the health care Investment Company Limited
United Kingdom Director industry since 1998. He was (since 2001); Chairman
since Minister of Health between (since 2000) and Director
Age: 52 2001 1994 and 1997, and a Member of (since 1999), Regent GM
Parliament from Winchester Laboratories Ltd. (generic
between 1992 and 1997. pharmaceutical manufacturer);
Director, Chiltern Invadex plc
(manufacturers of patient
handling and showering equipment)
(since 1999); Director, Ultrasis
plc (developers of health care
software) (since 2000); Director,
European Growth and Income Trust
plc (investment trust) (since 2000);
Director, Quinta dos Pinhieros
Limited (real estate) (since 2001).
---------------------------------------------------------------------------------------------------------------------------------
65
-----------------------------------------------------------------------------------------------------------------------------
Number
Term of of Funds
Office in Fund
and Complex
Position(s) Length Overseen
Name, Address Held With of time Principal Occupation(s) During by Other Directorships Held by
and age the Fund Served Past Five Years Director Director
-----------------------------------------------------------------------------------------------------------------------------
Neville J. Miles* Class I Term Mr. Miles has over 20 years of 3 Director, Aberdeen Australia
2 Paddington Street Director expires international investment Equity Fund, Inc. (since 1996),
Paddington, NSW 2021 2004; banking experience. He was Aberdeen Global Income Fund,
Australia Director formerly head of Corporate Inc. (since 1999), and Aberdeen
since Treasury at Westpac Banking Asia-Pacific Income Investment
Age: 56 1996 Corporation and Managing Company Limited (since 2000);
Director of Ord Minnett Director, Aberdeen Leaders
Securities Limited Limited (investment company);
(stockbrokers). Mr. Miles has Executive Director, EL&C
extensive experience in the Ballieu Limited (stockbrokers)
areas of corporate (from 1994 to 1997); Director,
acquisitions and equity Ballyshaw Pty.
offerings. He is currently an Ltd.(investing/consulting);
investor and real estate Director, Dawnglade Pty. Ltd.
developer. (real estate investment);
Director, Villepen Pty. Ltd.
(real estate development)
(since 1999); Director, Sonic
Communications Pty. Ltd. (since
2000) Director, ComServe (since 2002).
-----------------------------------------------------------------------------------------------------------------------------
Peter J. O'Connell Class III Term Mr. O'Connell is involved in 2 Director, Aberdeen Australia
3 Spring Street Director expires modern technology developments Equity Fund, Inc. (since 1999);
Suite 8, Level 6 2003; and has extensive business Chief Executive Officer, Lang
Sydney, NSW 2000 Director experience in the Asian Holdings (Aust) Pty. Ltd.
Australia since region. Mr. O'Connell is (technology consulting) (since
1999 admitted as a solicitor in 2001); Chief Executive Officer,
Age: 49 Australia and he has been Ten Ventures Pty. Ltd.
Chief Executive Officer of (establishment of media-based
Smart Device Marketing Company internet businesses) (from 1999
since 2001. to 2000); Chief of Operations,
Consolidated Press Holdings
Pty. Limited (supervision of
private equity investments)
(from 1997 to 1999); Chief
Executive Officer (from 1994 to
1996) and Director (from
1994-1999), Hargrave
Consultants Pty. Ltd.
(technology consulting);
Director, A.C.N. 088 899 230
Limited (during 1999);
Director, ACP New Zealand
Mastheads Pty. Ltd. (from
1997-1998); Director, Shield
Telecommunications Ltd. (during
2001); Director, Aspinalls
London Limited (from
1997-1999); Director, Clonmel
Nominees Pty.
-----------------------------------------------------------------------------------------------------------------------------
66
------------------------------------------------------------------------------------------------------------------------------------
Number
Term of of Funds
Office in Fund
and Complex
Position(s) Length Overseen
Name, Address Held With of Time Principal Occupation(s) During by Other Directorships Held by
and Age the Fund Served Past Five Years Director Director
------------------------------------------------------------------------------------------------------------------------------------
Limited (from 1998-1999);
Director, Consolidated Meat
Group (from 1998-1999);
Director, Easycall (Asia)
Telecommunications Ltd.
(from 1997-2000); Director,
FAI Insurances Ltd. (from
1996-1999); Director,
Guzman Pty. Ltd. (from
1987-1999); Director,
Hargrave Consultants Pty.
Limited (1994-1999);
Director, Huntsman
Australia R&D Company Pty.
Limited (from 1998-1999);
Director, Manboom2 Pty.
Limited (from 1998-1999);
Director, Mangosports.com
Pty. Limited (from
2000-2002); Director,
Moneymakers Television Show
Pty. Limited (from
1995-2000); Director,
Moonstone Diamond
Corporation (from
1998-1999); Director, Optus
Communications Pty. Limited
(from 1992-1998); Chairman
and Director, Perisher Blue
Pty. Limited (from
1997-1999); Director, Sky
Television Pty. Limited
(from 1997-1999); Director,
TCom World Limited (from
2000-2001); Chairman and
Director, Ticketek Pty.
Limited (from 1996-1999);
Director, Vysden Resources
NL (from 1993-1998);
Director, V10 Corp.
Investments Pty. Ltd.
(during 2000); Director,
V10 Investments Pty. Ltd.
(during 2000).
----------------------------------------------------------------------------------------------------------------------------------
William J. Potter++* Class II Term Mr. Potter has extensive 3 Director, Aberdeen Australia
236 West 27/th/ Street Director expires experience in investment Equity Fund, Inc. (since 1985),
3/rd/ Floor 2003; banking and fund management. Aberdeen Global Income Fund, Inc.
New York, NY 10001 Director Mr. Potter has held senior (since 1992), and Aberdeen
since positions with Toronto Asia-Pacific Income Investment
Age: 54 1986 Dominion Bank, Barclays Bank Company Limited (since 1986);
PLC, and Prudential President, Ridgewood Group
Securities, Inc., as well as International Ltd. (international
board of director positions consulting and merchant banking
with investment funds company) (since 1989);
involving over $20 billion in President, Ridgewood Capital
assets since 1983. Mr. Potter Funding,
has been involved in the
Australian capital markets
since 1974,
-----------------------------------------------------------------------------------------------------------------------------------
67
---------------------------------------------------------------------------------------------------------------------------------
Number
Term of of Funds
Office in Fund
and Complex
Position(s) Length Overseen
Name, Address Held With of Time Principal Occupation(s) During By Other Directorship Held by
and Age the Fund Served Past Five Years Director Director
---------------------------------------------------------------------------------------------------------------------------------
including management and board Inc. (private placement securities
of director positions with a firm) (since 1989); Director,
noted Australian brokerage International Panorama,
house. Mr. Potter is Inc. (mining) (since
President of a U.S. investment 1994); Director, National
bank and has securities Foreign Trade Counsel
licenses in both the U.S. and (trade association) (since
Canada. Mr. Potter also has 1984); Director,
extensive securities Alexandria Bancorp (banking
underwriting experience in group in Cayman Islands)
various capital markets with (since 1991); [Director,
an emphasis on natural Vanstone Investments
resources. (software) (since 1990)];
Director, E.C. Power, Inc.
(energy company) (since
1996); Director, Serapec
S.A. (energy company)
(since 1996).
---------------------------------------------------------------------------------------------------------------------------------
Peter D. Sacks++ Class II Term Mr. Sacks is currently 3 Director, Aberdeen
445 King Street West, Director expires Managing Partner of Toron Australia Equity Fund, Inc.
4/th/ Floor 2005; Capital Markets, Inc., a (since 1999), Aberdeen
Toronto, Ontario M5V 1K4 Director company he established in 1998 Global Income Fund, Inc.
Canada since to design and manage (since 1992), and Aberdeen
1993 customized equity, fixed Asia-Pacific Income
income and currency portfolios Investment Company Limited
Age: 57 for individual and corporate. (since 1998); Director,
Mr. Sacks also serves on the First Horizon Holdings LTD
Boards of Directors of Toron (since 1998); Director,
Capital Markets, Inc., Toron First Horizon Capital Corp.
Capital Management, Ltd. and (since 1998); Director,
Toron Asset Management, Inc. Cirrus Financial Concepts
Inc (since 1998).
---------------------------------------------------------------------------------------------------------------------------------
Dr. Anton E. Schrafl Preferred Term Dr. Schrafl was Deputy 2 Director, Aberdeen Global
Wiesenstrasse 7 Stock expires Chairman of Holcim imited, Income Fund, Inc. (since
CH-8001 Zurich Director 2003; La global manufacturer and 1993) and Aberdeen
Switzerland Director distributor of cement and Asia-Pacific Income
since allied products until May Investment Company Limited
Age: 70 1998 2002. He also serves on the (since 1998).
Board of Directors of
Organogenesis, Inc., a medical
products company involved in
biotechnological tissue
engineering, and Apogee
Technology Inc., a
manufacturer of digital
amplifiers.
---------------------------------------------------------------------------------------------------------------------------------
John T. Sheehy * Preferred Term Mr. Sheehy has over 30 years' 3 Director, Aberdeen
560 Sylvan Avenue Stock expires experience in investment Australia Equity Fund, Inc.
Englewood Cliffs, NJ Director 2003; banking with companies such as (since 1985), Aberdeen
07632 Director J.P. Morgan & Company and Global Income Fund, Inc.
since Bear, Stearns & Co. Inc. His (since 1992), and Aberdeen
Age: 59 1986 specialty areas include Asia-Pacific Income
securities valuation, public Investment Company Limited
offerings and private (since 1986); Member, The
placements of debt and equity Value Group LLC (private
securities, mergers and equity) (since 1997);
acquisitions and management Director, Video City, Inc.
buyout transactions. He has (video retail merchandising)
been (since 1997);
---------------------------------------------------------------------------------------------------------------------------------
68
-----------------------------------------------------------------------------------------------------------------------------
Number
Term of of Funds
Office in Fund
and Complex
Position(s) Length Overseen
Name, Address Held With of Time Principal Occupation(s) During by Other Directorships Held by
and Age the Fund Served Past Five Years Director Director
-----------------------------------------------------------------------------------------------------------------------------
Senior Managing Director Managing Director,
of B.V. Murray and Company Black & Co. (investment
(investment banking) since banking) (from 1996 to
2001. 1997); Director, Cross
Point Foods, Corp. (from
2000 to 2001).
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------
+ Messrs. Elsum, Miles and Potter are members of the Contract Review
Committee.
++ Messrs. Aaronson, Sacks and Sheehy are members of the Audit and
Valuation Committee.
* Messrs. Miles, Potter and Sheehy are members of the Nominating
Committee.
Officers Who Are Not Directors
-------------------------------------------------------------------------------------------------------------------------------
Name, Address Position(s) Held Term of Office* and
and Age With the Fund Length of Time Served Principal Occupation(s) During Past Five Years
-------------------------------------------------------------------------------------------------------------------------------
Hugh Young President Since 2001 Managing Director (since 1991) of Aberdeen Asset
21 Church Street Management PLC (parent company of the Fund's
#01-01 Capital Square Two Investment Manager and Investment Adviser), Managing
Singapore 0490480 Director (since 1992) of Aberdeen Asset Management
Asia Limited (affiliate of the Fund's Investment
Age: 44 Manager and Investment Adviser), Managing Director
(since 2000) of Aberdeen International Fund Managers
Limited (affiliate of the Fund's Investment Manager
and Investment Adviser), Director (since 2001) of the
Investment Manager and the Investment Adviser,
President (since 2001) of the Fund and of Aberdeen
Australia Equity Fund, Inc. and Aberdeen Global Income
Fund, Inc.
Mr. Young holds the following positions: Director,
Aberdeen Australia Equity Fund, Inc. (since 2001);
Director, Aberdeen Asset Management Holdings Limited
(since 2000); Director, Aberdeen Asia Total Return
(since 1998); Director, Aberdeen Asian Smaller
Companies Investment Trust PLC (since 1995); Director,
Aberdeen Emerging Asia Investment Trust Limited (since
1990); Director, Aberdeen Asset Management Asia
Limited (since 1991); Director, Aberdeen India Fund
Limited (since 1996); Director, Aberdeen Islamic Fund
Managers Limited (since 2000); Director, Aberdeen New
Dawn Investment Trust PLC (since 1989); Director,
Aberdeen New Thai Investment Trust PLC (since 1989);
Director, Aberdeen International Fund Managers Limited
(since 1998); Director, Aberdeen International
Management Ireland Limited (since 2000); Director,
Apollo Europe Fund Limited (since 1996); Director,
Apollo Investment Management Limited (since 1994);
Director, Apollo Hedge Fund Limited (since 1996);
Director, Apollo Japan Fund Limited (since 1995);
Director, Apollo Tiger Fund Limited (since 1994);
Director, Apollo Californian Fund Limited (since
1997); Director, JF Philippine Fund Limited (since
1991); Director, Phoenix Aberdeen International
Advisors LLC (since 1996); Director,
-------------------------------------------------------------------------------------------------------------------------------
69
---------------------------------------------------------------------------------------------------------------------------
Apollo Protector Fund Limited (since 1994); Director,
Aberdeen Global (since 1998); Director, Aberdeen PCC
Limited (since 2000); Director, Aberdeen Guernsey
Limited (since 1999); Director, The London Market
Fund PLC (since 1999); Director, Aberdeen Goh Equity
Private PTE Limited (since 2001); Director, Murray
Johnstone Asia Limited (since 2000); Senior Vice
President, Phoenix-Aberdeen Series Fund (since 1996);
Director, Aberdeen Goh Private Equity Fund 1 Pte
Limited (since 2001); Director, MIMB Aberdeen Asset
Management Sdn Bhd (since 1998); Director, Aberdeen
Asset Management Company Limited (since 2002).
---------------------------------------------------------------------------------------------------------------------------
Christian Pittard Treasurer and Since 2001 Managing Director (since 2001) of the Fund's
P.O. Box 641 Assistant Investment Manager; Managing Director (since 1998) of
One Seaton Place Secretary Aberdeen Private Wealth; Chartered Accountant
St. Helier, Jersey JE4 8YJ (1994-1998), KPMG and Quorum Trust Group (1998).
Channel Islands
Mr. Pittard holds the following positions: Director,
Age: 29 Aberdeen Asset Managers Jersey Limited (since 1999);
Director, Aberdeen Guernsey Limited (since 2001);
Director, Aberdeen PCC Limited (since 2001);
Director, Beta Gran Caribe Limited (since 2001);
Director, Pelas Limited (since 2000); Director,
Insurance Development Holdings A.G. (since 2000).
---------------------------------------------------------------------------------------------------------------------------
Michael Karagianis Vice President, Since 2002 Vice President (since 2002) and Assistant Vice
One Bow Churchyard (formerly President (from 2001 to 2002) of the Fund; Director
London EC4M 9HH Assistant Vice of Economics and Investment Strategy (since 1999) of
United Kingdom President) the Fund's Investment Adviser; Director of Portfolio
Investment (1995-1999) of County Investment
Management; Director, Ashmede Pty. Ltd. (since 1997).
Age: 37
---------------------------------------------------------------------------------------------------------------------------
James Blair Assistant Vice Since 2002 Director, Head of Regional Fixed Income, Aberdeen
21 Church Street #01-01 President Asset Management Asia and Aberdeen Asset Management
Capital Square Two Limited; Director, Aberdeen Asset Management Asia
Singapore 049480 (since 2001); Director, Aberdeen Asset Management
Limited (since 2001); Director, Head of Fixed Income,
EquitiLink Investment Management (from 1997 to
Age: 36 2001).
---------------------------------------------------------------------------------------------------------------------------
Simon Bignell Assistant Since 2001 Director (since 2001) of the Fund's Investment
P.O. Box 641 Treasurer Manager; Assistant Treasurer (since 2001) of the
One Seaton Place Fund; Director (1995-2001) of Kleinwort Benson
St. Helier, Jersey JE4 8YJ (Jersey) Fund Managers Limited (fund administration).
Channel Islands
Age: 41
---------------------------------------------------------------------------------------------------------------------------
Timothy Sullivan Assistant Since 2001 Vice President, Aberdeen Fund Managers, Inc. (doing
45 Broadway, 31/st/ Floor Treasurer business under the name Aberdeen Asset Management
New York, NY 10006 Investor Relations) (investor relations service
provider and affiliate of the Fund's Investment
Age: 41 Manager and Investment Adviser); Managing Director
(1995-2002) of EquitiLink USA, Inc. (former investor
relations service provider and affiliate of the
Fund's Investment Manager and Investment Adviser);
Vice President (1997-1999) of the Bank of New York.
---------------------------------------------------------------------------------------------------------------------------
70
-------------------------------------------------------------------------------------------------------------------------
Jack Benintende Assistant Since 2000 Vice President (since 2000) of Prudential
Gateway Center 3 Treasurer Investments LLC, the Fund's Administrator; Senior
100 Mulberry Street Manager (1998-2000) and Manager (1995-1998) of
Newark, New Jersey PricewaterhouseCoopers LLP.
07102
Age: 38
-------------------------------------------------------------------------------------------------------------------------
Roy M. Randall Secretary Since 1986 Partner of Stikeman, Elliott, Australian counsel to
Level 40, Chifley Tower the Fund.
Two Chifley Square
Sydney, NSW 2000
Australia
Age: 66
-------------------------------------------------------------------------------------------------------------------------
Allan S. Mostoff Assistant Since 1986 Partner of Dechert, U.S. counsel to the Fund and
1775 Eye Street, N.W. Secretary the Investment Manager and Investment Adviser.
Washington, DC 20006
Age: 70
-------------------------------------------------------------------------------------------------------------------------
Sander M. Bieber Assistant Since 1999 Partner of Dechert, U.S. counsel to the Fund and
1775 Eye Street, N.W. Secretary the Investment Manager and Investment Adviser.
Washington, DC 20006
Age: 52
-------------------------------------------------------------------------------------------------------------------------
Margaret A. Bancroft Assistant Since 1989 Partner of Dechert, U.S. counsel to the Fund and
30 Rockefeller Plaza Secretary the Investment Manager and Investment Adviser.
New York, NY 10112
Age: 64
-------------------------------------------------------------------------------------------------------------------------
--------------------------
* Officers hold their positions with the Fund until a successor has been
duly elected and qualified. Officers are generally elected annually at
the meeting of the Board of Directors next following the annual meeting
of stockholders. The officers were last elected on June 19, 2002.
Ownership of Securities
As of the date of this Prospectus, the Fund's Directors and executive
officers, as a group, owned less than 1% of the Fund's outstanding shares of
Common Stock, and no shares of the Fund's Preferred Stock. The information as to
ownership of securities which appears below is based on statements furnished to
the Fund by its Directors and executive officers.
For the period ended December 31, 2001, the dollar range of equity
securities owned beneficially by each Director in the Fund and in any registered
investment companies overseen by the Director within the same family of
investment companies as the Fund is as follows:
71
Interested Directors
-------------------------------------------------------------------------------------------------------------------------
Aggregate Dollar Range of Equity
Securities in All Registered Investment
Dollar Range of Equity Companies Overseen by Director in
Name of Director Securities in the Fund Family of Investment Companies
-------------------------------------------------------------------------------------------------------------------------
Martin J. Gilbert 0 0
-------------------------------------------------------------------------------------------------------------------------
Beverley Hendry 0 0
-------------------------------------------------------------------------------------------------------------------------
Brian M. Sherman 0 10,001-50,000
-------------------------------------------------------------------------------------------------------------------------
Independent Directors
-------------------------------------------------------------------------------------------------------------------------
Aggregate Dollar Range of Equity
Securities in All Registered Investment
Dollar Range of Equity Companies Overseen by Director in
Name of Director Securities in the Fund Family of Investment Companies
-------------------------------------------------------------------------------------------------------------------------
Anthony E. Aaronson 1-10,000 10,001-50,000
-------------------------------------------------------------------------------------------------------------------------
David L. Elsum 1-10,000 10,001-50,000
-------------------------------------------------------------------------------------------------------------------------
Howard A. Knight 0 10,001-50,000
-------------------------------------------------------------------------------------------------------------------------
P. Gerald Malone 0 0
-------------------------------------------------------------------------------------------------------------------------
Neville J. Miles 1-10,000 10,001-50,000
-------------------------------------------------------------------------------------------------------------------------
Peter J. O'Connell 0 0
-------------------------------------------------------------------------------------------------------------------------
William J. Potter 1-10,000 1-10,000
-------------------------------------------------------------------------------------------------------------------------
Peter D. Sacks 1-10,000 1-10,000
-------------------------------------------------------------------------------------------------------------------------
Dr. Anton E. Schrafl 0 0
-------------------------------------------------------------------------------------------------------------------------
John T. Sheehy 0 10,001-50,000
-------------------------------------------------------------------------------------------------------------------------
Messrs. Hugh Young and Christian Pittard serve as executive officers of the
Fund. As of December 31, 2001, the executive officers of the Fund owned no
shares of the Fund's Common Stock or Preferred Stock.
Board Committees and Meetings
The Board of Directors has a standing Audit and Valuation Committee,
composed entirely of Directors who are not "interested persons" (as that term is
defined in Section 2(a)(19) of the 1940 Act) of the Fund or the Fund's
Investment Manager or Investment Adviser ("Independent Directors") and who are
"independent" as defined in the AMEX listing standards. The Audit and Valuation
Committee reviews both the audit and non-audit work of the Fund's independent
public accountants, submits recommendations to the Board of Directors as to the
selection of independent public accountants and reviews compliance of the Fund
with regulations of the SEC and the Internal Revenue Service, and other related
matters.
The Fund adopted an Audit Committee Charter on March 16, 2000, and on
December 11, 2001 amended this charter to be an Audit and Valuation Committee
Charter. The Audit and Valuation Committee has received the written disclosures
and the letter required by Independence Standards Board Standard No. 1 from
PricewaterhouseCoopers LLP ("PwC"), the Fund's independent accountants, and has
discussed with PwC its independence. The Audit and Valuation Committee has also
reviewed and discussed the audited financial statements with Fund management and
PwC, and discussed certain matters with PwC required to be discussed by
Statement on Auditing Standards No. 61. Based on the foregoing, the Audit and
Valuation Committee recommended to the Board of Directors that the Fund's
audited financial statements be included in the Fund's Annual Report to
Shareholders for the fiscal year ended October 31, 2001. The members of the
Fund's Audit and Valuation Committee are Messrs. Anthony E. Aaronson, Peter D.
Sacks, and John T. Sheehy.
72
The Board of Directors also has a standing Contract Review Committee,
composed entirely of Independent Directors. The Contract Review Committee
reviews and makes recommendations to the Board with respect to entering into,
renewal or amendment of the Fund's management agreement, advisory agreement,
administration agreement, investor relations services agreement and other
agreements. The members of the Fund's Contract Review Committee are Messrs.
David L. Elsum, Neville J. Miles and William J. Potter.
The Board of Directors also has a standing Nominating Committee, composed
entirely of Independent Directors. The Nominating Committee considers candidates
for service as Fund directors and remuneration to be paid to Fund directors. The
Nominating Committee will not consider nominees recommended by security holders.
The members of the Fund's Nominating Committee are Messrs. Neville J. Miles,
William J. Potter and John T. Sheehy.
During the Fund's fiscal year ended October 31, 2001, the Board of
Directors held four regularly scheduled meetings and two special meetings, the
Audit Committee held two meetings, the Contract Review Committee held one
meeting, and the Nominating Committee held one meeting.
Compensation of Directors and Certain Officers
The following table sets forth information regarding compensation of
Directors by the Fund and by the fund complex of which the Fund is a part for
the fiscal year ended October 31, 2001. Officers of the Fund and Directors who
are interested persons of the Fund do not receive any compensation directly from
the Fund or any other fund in the fund complex for performing their duties as
officers or directors, respectively. In the column headed "Total Compensation
From Fund and Fund Complex Paid to Directors," the number in parentheses
indicates the total number of boards in the fund complex on which the Director
serves or served at any time during the fiscal year ended October 31, 2001. In
June 2001, the Board of Directors, upon the recommendation of the Fund's
Nominating Committee, approved an increase in the fees payable to each
Independent Director of the Fund from a $13,750 per year retainer fee, a fee of
$1,000 per meeting for attendance at in-person Board meetings, and a fee of
$1,000 per meeting for attendance at telephonic Board meetings, to an aggregate
fee of $21,000 per year. Members of the Fund's Audit Committee, Contract Review
Committee, and Nominating Committee receive a fee of $500 per committee meeting
attended, and the Chairman of each of these Committees receives an additional
fee of $500 per committee meeting attended.
73
Compensation Table
Fiscal Year Ended October 31, 2001
Pension or Total
Retirement Extimated Compensation From
Aggregate Benefits Accrued Annual Fund and Fund
Compensation As Part of Benefits Upon Complex Paid to
Name of Director From Fund Fund Expenses Retirement Directors
--------------- -------------------- --------------- --------------------
Anthony E. Aaronson .............. $22,375 N/A N/A $ 39,125(2)
David L. Elsum.................... $21,875 N/A N/A $ 53,625(3)
Laurence S. Freedman*............. $ 0 N/A N/A $ 0(3)
Martin J. Gilbert................. $ 0 N/A N/A $ 0(2)
Beverley Hendry................... $ 0 N/A N/A $ 0(1)
Harry A. Jacobs, Jr.*............. $ 0 N/A N/A $ 0(2)
Howard A. Knight.................. $21,375 N/A N/A $ 37,125(2)
P Gerald Malone................... $15,937 N/A N/A $ 15,937(1)
Neville J. Miles.................. $22,375 N/A N/A $ 54,125(3)
Peter O'Connell................... $21,375 N/A N/A $ 37,125(2)
William J. Potter................. $21,875 N/A N/A $ 55,625(3)
Peter D. Sacks.................... $22,375 N/A N/A $ 55,125(3)
Dr. Anton E. Schrafl.............. $18,375 N/A N/A $ 32,375(2)
John T. Sheehy.................... $23,375 N/A N/A $ 57,125(3)
Brian M. Sherman++................ $ 0 N/A N/A $ 0(3)
Marvin Yontef*.................... $ 4,437 N/A N/A $ 4,437(1)
----------------------
* Messrs. Freedman, Jacobs and Yontef resigned from the Board of Directors
effective December 2000.
++ Mr. Sherman is paid consulting fees by the Fund's Investment Manager equal
to the fees paid to the Fund's independent directors. For the fiscal year
ended October 31, 2001, the amount of the consulting fees paid to Mr.
Sherman was $16,432.
CODE OF ETHICS
The Fund, the Investment Manager and the Investment Adviser have adopted a
joint code of ethics ("Code of Ethics") in accordance with Rule 17j-1 under the
1940 Act. Subject to certain conditions and restrictions, the Code of Ethics
permits personnel who are subject to the Code of Ethics to invest in securities,
including securities that may be purchased or held by the Fund.
The Fund's Dealer Managers have also each adopted a code of ethics in
accordance with Rule 17j-1 under the 1940 Act. Subject to certain conditions and
restrictions, each of these codes of ethics permits personnel who are subject to
it to invest in securities, including securities that may be purchased or held
by the Fund.
Each of these codes of ethics may be reviewed and copied at the Public
Reference Room of the SEC in Washington, D.C. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090.
These codes of ethics are also available on the EDGAR Database on the SEC's
Internet site at http://www.sec.gov. Copies of these codes of ethics may be
obtained, after paying a duplicating fee, by electronic request to
publicinfo@sec.gov, or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
74
MANAGEMENT AGREEMENT AND ADVISORY AGREEMENT
Aberdeen Asset Managers (C.I.) Limited ("Investment Manager") serves as
investment manager to the Fund pursuant to a management agreement dated December
21, 2000 ("Management Agreement"). The Investment Manager is a Jersey, Channel
Islands corporation organized in October 1985. The registered office of the
Investment Manager is located at 17 Bond Street, St. Helier, Jersey JE4 5XB,
Channel Islands. Aberdeen Asset Management Limited ("Investment Adviser") serves
as investment adviser to the Fund pursuant to an advisory agreement dated
December 21, 2000 ("Advisory Agreement"). The Investment Adviser is a
wholly-owned subsidiary of Aberdeen Asset Management Holdings Limited ("AAMHL"),
an Australian corporation. The registered offices of the Investment Adviser and
AAMHL are located at Level 6, 201 Kent Street, Sydney, NSW 2000, Australia. Both
the Investment Manager and AAMHL are wholly-owned subsidiaries of Aberdeen Asset
Management PLC, a United Kingdom corporation. The registered offices of Aberdeen
Asset Management PLC are located on One Albyn Place, Aberdeen, Scotland AB10
1YG.
Pursuant to the existing and previous management agreements and advisory
agreements with the Fund, the Investment Manager and Investment Adviser have
served in these capacities since the Fund was organized in 1986. The current
Management Agreement and Advisory Agreement (collectively, "Agreements") were
approved by the Fund's Board of Directors, and separately by a majority of the
Fund's Independent Directors, at an in-person meeting held on October 10, 2000,
and subsequently by the Fund's stockholders at a special meeting of stockholders
held on November 29, 2000. The approvals of the Agreements by the Fund's
Directors and stockholders occurred in connection with the acquisition of the
Investment Manager and the Investment Adviser ("Acquisition") by Aberdeen Asset
Management PLC ("Aberdeen"). The Agreements were executed upon the effectiveness
of the Acquisition. See "Management Agreement and Advisory Agreement -
Relationship of Certain Directors and Service Providers to Investment Manager
and Investment Adviser." The information considered by the Fund's Directors, as
well as by a specially appointed Due Diligence Committee of Independent
Directors, in connection with the Acquisition is discussed below under
"Management Agreement and Advisory Agreement - Considerations in Approving
Management Agreement and Advisory Agreement."
Each of the Investment Manager and the Investment Adviser has all, or a
substantial part of, its assets located outside the United States. As a result,
it may be difficult for U.S. investors to enforce judgments of the courts of the
United States against the Investment Manager and the Investment Adviser
predicated on the civil liability provisions of the Federal securities laws of
the United States. The Fund has been advised that there is substantial doubt as
to the enforceability in the courts of Australia of judgments against the
Investment Adviser predicated upon the civil liability provisions of the Federal
securities laws of the United States. The Fund also has been advised that it is
unlikely that the courts of Jersey would adjudge civil liability against the
Investment Manager in an original action predicated solely on the Federal
securities laws of the United States. However, although there is no arrangement
in place between Jersey and the United States for the reciprocal enforcement of
judgments, the Fund has been advised by Jersey counsel that a judgment rendered
by a court in the United States against the Investment Manager predicated upon a
violation of the Federal securities laws of the U.S. would be enforceable by
action or counterclaim or be recognized by the Jersey courts as a defense to an
action, or as conclusive of an issue in an action, unless obtained by fraud or
otherwise than in accordance with the principles of natural justice or unless
contrary to public policy or unless the proceedings in the United States court
were not duly served on the defendant in the original action. The Investment
Manager and the Investment Adviser are advised by U.S. counsel with respect to
the Federal securities laws of the United States.
75
Terms of the Management Agreement
The Management Agreement provides that the Investment Manager will manage,
in accordance with the Fund's stated investment objective, policies and
limitations and subject to the supervision of the Fund's Board of Directors, the
Fund's investments and make investment decisions on behalf of the Fund including
the selection of, and placing of orders with, brokers and dealers to execute
portfolio transactions on behalf of the Fund. The Management Agreement further
provides that the Investment Manager will not be liable for any error of
judgment or for any loss suffered by the Fund in connection with matters to
which the Management Agreement relates, except a loss resulting from a breach of
fiduciary duty with respect to receipt of compensation for services (in which
case any award of damages shall be limited as provided in the 1940 Act) or a
loss resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of, or from reckless disregard by the Investment Manager
of, its duties and obligations under the Management Agreement.
The Management Agreement provides that the Investment Manager may, at its
expense, employ, consult or associate with itself, such person or persons as it
believes necessary to assist it in carrying out its obligations thereunder,
provided, however, that if any such person would be an "investment adviser" (as
that term is defined under the 1940 Act) to the Fund, (a) the Fund is a party to
any contract with such a person and (b) the contract is approved by the Fund's
Directors, Independent Directors and stockholders, as required by the 1940 Act.
Management Fee. The Management Agreement provides that the Fund will pay
the Investment Manager a fee at the annual rate of 0.65% of the Fund's average
weekly net assets applicable to shares of Common Stock and Preferred Stock up to
$200 million, 0.60% of such assets between $200 million and $500 million, 0.55%
of such assets between $500 million and $900 million, 0.50% of such assets
between $900 million and $1,750 million, and 0.45% of such assets in excess of
$1,750 million, computed based upon net asset value applicable to shares of
Common Stock and Preferred Stock at the end of each week and payable at the end
of each calendar month. Because of the Fund's objective, its expense ratio, of
which this fee is a component, may be higher than that of closed-end investment
companies of comparable size investing in U.S. securities.
For the fiscal years ended October 31, 2001, 2000 and 1999, the Fund paid
or accrued on behalf of the Investment Manager aggregate management fees of
$10,220,699, $11,262,870, and $12,366,523, respectively. During the same
periods, the Investment Manager informed the Fund that it paid aggregate
advisory fees of $4,398,088, $4,861,276, and $5,352,389, respectively, to the
Investment Adviser.
Payment of Expenses. The Management Agreement obligates the Investment
Manager to bear all expenses of its employees, except as provided in the
following sentence, and overhead incurred in connection with its duties under
the Management Agreement and to pay all salaries and fees of the Fund's
Directors and officers who are interested persons (as defined in the 1940 Act)
of the Investment Manager. The Fund will bear all of its own expenses,
including: expenses of organizing the Fund; fees of the Fund's Independent
Directors; out-of-pocket expenses for all Directors and officers of the Fund,
including expenses incurred by the Manager's employees, who serve as Directors
and officers of the Fund, which may be reimbursed by the Fund under the Fund's
policy governing reimbursement of Fund-related expenses, and other expenses
incurred by the Fund in connection with meetings of Directors and stockholders;
interest expense; taxes and governmental fees including any original issue taxes
or transfer taxes applicable to the sale or delivery of shares or certificates
therefor; brokerage commissions and other expenses incurred in acquiring or
disposing of the Fund's portfolio securities; expenses in connection with the
issuance, offering, distribution, sale or underwriting of securities issued by
the Fund; expenses of registering and qualifying the Fund's shares for sale with
the SEC and in various states and foreign jurisdictions; auditing, accounting,
insurance and legal costs; custodian, dividend disbursing and transfer
76
agent expenses; and the expenses of stockholders' meetings and of the
preparation and distribution of proxies and reports to stockholders.
Duration and Termination. The Management Agreement took effect on December
21, 2000 and will continue in effect until December 21, 2002. The Management
Agreement provides that it will continue in effect for successive 12-month
periods, if not sooner terminated, provided that each continuance is
specifically approved annually by (1) the vote of the majority of the Fund's
Independent Directors cast in person at a meeting called for the purpose of
voting on such approval and (2) either (a) the vote of a majority of the
outstanding voting securities of the Fund, or (b) the vote of a majority of the
Fund's Board of Directors. The Management Agreement may be terminated at any
time by the Fund without the payment of any penalty, upon vote of a majority of
the Fund's Directors or a majority of the outstanding voting securities of the
Fund on 60 days written notice to the Investment Manager. The Management
Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act). In addition, the Investment Manager may terminate the
Management Agreement on 90 days written notice to the Fund.
Terms of the Advisory Agreement
The Advisory Agreement provides that the Investment Adviser will make
recommendations to the Investment Manager as to specific portfolio securities to
be purchased, retained or sold by the Fund and will provide or obtain such
research and statistical data as may be necessary in connection therewith. The
Advisory Agreement further provides that the Investment Adviser will give the
Investment Manager and the Fund the benefit of the Investment Adviser's best
judgment and efforts in rendering services under the Advisory Agreement.
The Advisory Agreement provides that neither the Investment Manager nor the
Investment Adviser will be liable for any error of judgment or for any loss
suffered by the Fund in connection with matters to which the Advisory Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect to
receipt of compensation for services (in which case any award of damages shall
be limited as provided in the 1940 Act) or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment Manager
or the Investment Adviser, as appropriate, in the performance of, or from
reckless disregard by such party of such party's obligations and duties under,
the Advisory Agreement.
Advisory Fee. Under the Advisory Agreement, the Investment Manager pays the
Investment Adviser an advisory fee at the annual rate of 0.25% of the Fund's
average weekly net assets applicable to the shares of Common and Preferred Stock
up to $1,200 million and 0.20% of such assets in excess of $1,200 million,
computed based upon net asset value applicable to shares of Common Stock and
Preferred Stock at the end of each week and payable at the end of each calendar
month.
Payment of Expenses. The Advisory Agreement obligates the Investment
Adviser to bear all expenses of its employees, except certain expenses incurred
by the Investment Adviser's employees who serve as officers and directors of the
Fund which are reimbursed by the Fund under the Fund's policy governing
reimbursement of Fund-related expenses. The Advisory Agreement also obligates
the Investment Adviser to bear all overhead incurred in connection with its
duties under the Advisory Agreement and to pay all salaries and fees of the
Fund's Directors and officers who are interested persons (as defined in the 1940
Act) of the Investment Adviser but who are not interested persons of the
Investment Manager.
Duration and Termination. The Advisory Agreement took effect on December
21, 2000 and will continue in effect until December 21, 2002. The Advisory
Agreement provides that it will continue in effect for successive 12-month
periods, if not sooner terminated, provided that each continuance is
77
specifically approved annually by (1) the vote of the majority of the Fund's
Independent Directors cast in person at a meeting called for the purpose of
voting on such approval and (2) either (a) the vote of a majority of the
outstanding voting securities of the Fund, or (b) the vote of a majority of the
Fund's Board of Directors. The Advisory Agreement may be terminated with respect
to the Fund at any time by the Fund without the payment of any penalty, upon
vote of a majority of the Fund's Directors or a majority of the outstanding
voting securities of the Fund on 60 days written notice to the Investment
Manager and the Investment Adviser. The Advisory Agreement will terminate
automatically as to any party in the event of its assignment (as defined in the
1940 Act) by that party. In addition, the Investment Manager or the Investment
Adviser may terminate the Advisory Agreement as to such party on 90 days written
notice to the Fund and the other party.
Considerations in Approving Management Agreement and Advisory Agreement
In connection with the Acquisition by Aberdeen of the Investment Manager
(then known as EquitiLink International Management Limited ("EIML")) and the
Investment Adviser (then known as EquitiLink Australia Limited ("EAL")), the
Fund's Board of Directors, as well as a specially appointed Due Diligence
Committee consisting of Independent Directors ("Due Diligence Committee"),
extensively reviewed information regarding the proposed Acquisition and its
implications for the Fund and its ongoing management. The Due Diligence
Committee requested and reviewed extensive information regarding the Acquisition
and its potential impact on EIML and EAL and on the management of the Fund
subsequent to the Acquisition. Members of the Due Diligence Committee and Fund
counsel met with Aberdeen representatives on various occasions and further
discussion was conducted in the course of a video conference among the Due
Diligence Committee, Aberdeen representatives and Fund counsel. The results of
the Due Diligence Committee's investigations were presented in a report to the
Board. The report discussed a variety of issues that the Due Diligence Committee
had specifically reviewed regarding the Acquisition, including the terms of the
Acquisition; Aberdeen's experience with closed-end funds; its experience with
other acquired entities; Aberdeen's strategic plans and their consistency with
Aberdeen's intentions regarding the Fund (including the Fund's Preferred Stock);
Aberdeen's business, financial and performance history and current status; its
regulatory history; and its plans for continuing the quality of service being
provided to the Fund.
At its meeting on October 10, 2000, the Board reviewed the Due Diligence
Committee's report. It also received assurances from EIML and EAL that the
quality of service to the Fund would be maintained subsequent to the
Acquisition. The Board also noted that Aberdeen would give the Fund access to
increased expertise in Asian investments and to the facilities of an
international management organization. In their separate deliberations with
respect to continuing to retain EIML and EAL as investment manager and
investment adviser of the Fund, respectively, subsequent to the Acquisition, the
Fund's Independent Directors considered comparative data on investment
performance, advisory fees and other fees and expense ratios, profitability and
ancillary benefits to EIML, EAL and their affiliates from their relationship to
the Fund, financial resources of EIML and EAL before and after the Acquisition,
and the incentives to assure both continuity of management and quality of
service to the Fund subsequent to the Acquisition. They also noted that the
Acquisition arrangements and applicable legal requirements provided assurances
that Fund fees and expenses would not be increased. In determining to approve
the Agreements to take effect subsequent to the Acquisition, the Board noted
that Aberdeen had built its own business internally, as well as through
acquisition, and that the Acquisition was consistent with Aberdeen's strategic
plans. The Board also reviewed information indicating the seriousness of
Aberdeen's support for the Fund, its experience with closed-end funds, and the
consistency of its investment philosophy with that of EIML and EAL. The Board
was informed that the Acquisition would be conducted in reliance on Section
15(f) under the 1940 Act. Among other things, this legal provision would require
that for at least three years subsequent to the Acquisition, at least 75% of the
Fund's directors not be persons affiliated with the Fund's previous or current
management, and that no "unfair
78
burden" be placed on the Fund for two years following the Acquisition. Based on
their review and evaluation of the information presented by the Due Diligence
Committee and at the meeting, the Fund's Independent Directors determined that
the Acquisition would cause no reduction in the quality of services to be
provided to the Fund and that it might provide certain benefits to the Fund. The
Agreements were therefore approved by the Independent Directors as well as by
the full Board.
Experience of the Investment Manager and Investment Adviser
General. The Fund's Investment Manager is Aberdeen Asset Managers (C.I.)
Limited, an investment management company organized in Jersey, Channel Islands.
The Investment Manager manages, in accordance with the Fund's stated investment
objective, policies and limitations and subject to the supervision of the Fund's
Board of Directors, the Fund's investments and makes investment decisions on
behalf of the Fund, including the selection of, and placing of orders with,
broker-dealers to execute portfolio transactions on behalf of the Fund and the
making of investments in U.S. dollar-denominated securities. The Investment
Manager's affiliate, Aberdeen Asset Management Limited, an Australian
corporation, acts as the Fund's Investment Adviser, makes recommendations to the
Investment Manager as to specific portfolio securities to be purchased, retained
or sold by the Fund, and providing or obtaining such research and statistical
data as may be necessary in connection therewith. The Investment Manager and the
Investment Adviser also serve in these capacities for Aberdeen Asia-Pacific
Income Investment Company Limited, a closed-end management investment company,
the shares of which are listed on the TSX, also investing primarily in
Australian and Asian debt securities, which commenced operations in 1986; The
First Asia Income Fund, a closed-end unit trust the units of which are listed on
the TSX, investing primarily in debt securities of issuers in Australia, New
Zealand and Asian countries, which commenced operations in 1997; Aberdeen Global
Income Fund, Inc., a non-diversified, closed-end management investment company
whose shares are traded on the NYSE, investing in global fixed income
securities, which commenced operations in 1992; and Aberdeen Australia Equity
Fund, Inc., a non-diversified closed-end management investment company, the
shares of which are listed on the AMEX and the PSE, investing primarily in
Australian listed equity securities, which commenced operations in 1985. The
Investment Manager also manages Aberdeen Scots Trust and Aberdeen G(7) Trust,
each of which is a Canadian unit investment trust. The Investment Manager and
the Investment Adviser are registered with the SEC under the Investment Advisers
Act of 1940, as amended.
The Investment Manager and Investment Adviser, together with other
affiliates of Aberdeen Asset Management PLC, (collectively, the "Aberdeen
Group") form a globally diversified management firm. The Investment Manager and
the Investment Adviser are parties to a memorandum of understanding ("MOU") with
three affiliated Aberdeen organizations, Aberdeen Asset Management Asia Limited
("Aberdeen Singapore"), Aberdeen Asset Managers Limited ("Aberdeen UK") and
[name of Aberdeen Thailand entity] ("Aberdeen Thailand"). Pursuant to the MOU,
the Investment Manager and the Investment Adviser have retained the services of
investment professionals from Aberdeen Singapore, Aberdeen UK and Aberdeen
Thailand to provide portfolio management and/or trading services to the Fund, as
well as other U.S. funds managed by the Investment Manager and the Investment
Adviser. Pursuant to the MOU, Aberdeen Singapore, Aberdeen UK and Aberdeen
Thailand are Participating Affiliates of the Investment Manager and the
Investment Adviser as that term is used in relief granted by the staff of the
SEC allowing U.S. registered advisers to use portfolio management and trading
resources of unregistered advisory affiliates subject to the control and
supervision of a registered adviser. The MOU also designates certain advisory
personnel of the Participating Affiliates as Aberdeen Affiliate Associated
Persons for purposes of supervision and control.
As of the date of this prospectus, the Aberdeen Group had approximately US
$___ billion in assets under management. The Aberdeen Group is one of the
largest dedicated managers/advisers on Asian bonds globally, with approximately
US $___ billion of such assets under management as of the date of this
prospectus. In Australia, the Aberdeen Group manages several Australian
institutional domestic bond mandates, in addition to advising the Fund and other
listed closed-end funds.
As noted above, both the Investment Manager and the Investment Adviser are
affiliates of Aberdeen Asset Management PLC ("Aberdeen"), which is subject to
regulation by the Financial Services Authority ("FSA") in the United Kingdom.
Beginning in December 2001, the FSA commenced a series of fact-finding exercises
in order to examine the split capital closed-end fund ("SCCEF") market. In May
2002, the FSA indicated it was continuing to study the SCCEF market. Aberdeen,
through affiliates, manages or advises 19 of 134 SCCEFs listed in the United
Kingdom, which as of August 31, 2002, represented 6.45% of the Aberdeen Group's
funds under management. Aberdeen is cooperating with the fact finding exercise
being conducted by the FSA. Aberdeen Unit Trust Managers Limited, an affiliate
of the Investment Manager and the Investment Adviser, manages Aberdeen
Progressive Growth Unit Trust, an authorized unit trust (i.e. mutual fund) which
invests primarily in zero dividend preference shares, a class of shares issued
by SCCEFs. In June 2002, Aberdeen informed investors in that fund that it was
Aberdeen's intention to present to them a capital restoration plan. Details of
this proposal continue to be under consideration, and are subject to formal
approval by Aberdeen's Board of Directors and shareholders. The Investment
Manager and the Investment Adviser do not believe that either of these matters
will impact their ability to continue to perform their services under their
respective agreements with the Fund.
Portfolio Management
The Investment Adviser provides the overall investment advice to the Fund,
on matters including broad investment structure, compliance testing, and
maintenance of tests pertaining to collateral, through a team of investment
managers/analysts employed, or supervised, by the Investment Adviser. Members of
the Investment Adviser's team based in Sydney, Australia provide investment
research and analysis with respect to the Australian and New Zealand components
of the Fund's portfolio. Input on interest rate strategy is also provided by a
team of investment professionals from Aberdeen UK, who also develop the Aberdeen
outlook for U.S. Treasuries. Investment research and analysis for the Asian
component of the Fund's portfolio is provided by a team of investment
managers/analysts employed by Aberdeen Singapore, with further analysis
regarding Thai domestic corporate bonds provided by investment managers/analysts
employed by Aberdeen Thailand. The equity analysts of Aberdeen Singapore also
provide expertise regarding regional corporate and bank issues.
The various teams meet individually, and confer with each other, regularly
to analyze economic, political and credit events, as well as developments in the
bond, currency, and various related markets. Members of the Sydney team,
together with members of the Singapore team, discuss and set the relative
weightings of the Fund's Australian, Asian and New Zealand securities.
79
Relationship of Certain Directors and Service Providers to Investment Manager
and Investment Adviser
Mr. Martin Gilbert, a Director of the Fund, also serves as a director of
the Investment Manager and the Investment Adviser and as the Chief Executive and
an Executive Director of Aberdeen Asset Management PLC ("Aberdeen"), the parent
company of the Investment Manager and Investment Adviser. Mr. Gilbert is also a
shareholder of Aberdeen. Mr. Beverley Hendry, a Director of the Fund, also
serves as an Executive Director of Aberdeen and is a shareholder of Aberdeen.
In connection with the Acquisition of the Investment Manager and Investment
Adviser by Aberdeen, all of the shares of the Investment Manager, of the parent
of the Investment Adviser, and of EquitiLink International (Channel Islands)
Limited ("EICIL") were transferred to Aberdeen, pursuant to a Share Sale
Agreement between (i) Aberdeen on the one side, and (ii) entities of which Mr.
Laurence S. Freedman, the former Chairman of the Fund, and Mr. Brian M. Sherman,
a Director and former President of the Fund, are the principal shareholders, and
the shareholders of EICIL, on the other side. Total consideration for the sale
was US $80 million, subject to certain adjustments. The consideration was paid
in a combination of cash and preference shares issued by Aberdeen. At the time
of the execution of the Share Sale Agreement, Messrs. Freedman and Sherman were
directors and the principal shareholders of the Investment Manager, and also
served as, respectively, Joint Managing Director, and Joint Managing Director
and Chairman, of the Investment Adviser. In connection with this sale, Messrs.
Freedman and Sherman resigned as Joint Managing Directors of the Investment
Adviser and as directors of the Investment Manager.
Effective as of March 1, 2000, EquitiLink USA. Inc. ("EUSA"), a
wholly-owned subsidiary of the Investment Manager, located at 45 Broadway, New
York, New York 10006, entered into an agreement to provide investor relations
services to the Fund ("Investor Relations Services Agreement"). Investor
relations services generally include (i) drafting, coordinating and distributing
press releases, monthly performance reviews, quarterly reports and letters to
shareholders on special issues; (ii) responding to shareholder letters and
requests for information; (iii) managing shareholder and broker toll-free
telephone services and mailing lists for the Fund; (iv) arranging and
coordinating communication between analysts and/or brokers and Fund management,
as well as, media interviews for Fund management with print, broadcast and
electronic reporters to discuss the Fund and the markets in which it invests;
and (v) providing quarterly reports to the Fund's Board of Directors on recent
investor relations activities.
Effective January 1, 2002, the rights of EUSA under the Investor Relations
Services Agreement were assigned to, and the obligations of EUSA thereunder were
assumed by, Aberdeen Fund Managers, Inc., an affiliate of the Investment Manager
and Investment Adviser, located at Las Olas Place, 300 South East 2/nd/ Street,
Suite 820, Fort Lauderdale, Florida 33301. Aberdeen Fund Managers, Inc., doing
business as Aberdeen Asset Management Investor Relations, has retained the
employees of EUSA, and provides services under the Investor Relations Services
Agreement, at 45 Broadway, New York, New York 10006. The Board of Directors of
the Fund, and the Independent Directors voting separately, approved this
assignment and assumption. For its services under the terms of the Investor
Relations Services Agreement, Aberdeen Asset Management Investor Relations
receives a monthly retainer of $10,000, plus reimbursement of reasonable
out-of-pocket expenses.
ADMINISTRATION AGREEMENT
Pursuant to an Administration Agreement effective as of December 9, 1988,
amended as of June 1, 1996 ("Administration Agreement"), Prudential Investments
LLC ("Administrator"), an affiliate of Prudential Securities Incorporated,
provides office facilities and personnel adequate to perform the
80
following services for the Fund: oversee the determination and publication of
the Fund's NAV in accordance with its policy as adopted from time to time by the
Board of Directors; oversee the maintenance of the books and records of the Fund
required under Rule 31a-1(b) (4) under the 1940 Act; prepare the Fund's U.S.
Federal, state and local income tax returns; prepare financial information for
the Fund's proxy statements and quarterly and annual reports to stockholders;
prepare the fund's periodic financial reports to the SEC; and respond to or
refer to the Fund's officers or transfer agent stockholder inquiries relating to
the Fund.
The Fund pays the Administrator a fee computed at the annual rate of 0.15%
of the Fund's average weekly net assets applicable to shares of Common Stock and
Preferred Stock up to $900 million, and 0.10% of such assets between $900
million and $1,750 million and 0.07% of such assets in excess of $1,750 million,
based upon NAV applicable to shares of Common Stock and Preferred Stock at the
end of each week and payable at the end of each calendar month. For the fiscal
years ended October 31, 2001, 2000 and 1999, the Fund paid the Administrator a
fee of $2,304,331, $2,466,446, and $2,638,126, respectively. The Administrator's
offices are located at Gateway Center 3, 100 Mulberry Street, Newark, New Jersey
07102.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Portfolio transactions of the Fund are primarily effected with dealers
acting as a principal for their own account. During the fiscal years ended
October 31, 2001, 2000 and 1999, the Fund paid no brokerage commissions.
The primary objective in placing orders for the purchase and sale of
securities for the Fund's portfolio is to obtain best execution taking into
account such factors as price, commission (if any), size of order, difficulty of
execution and skill required of the broker. In selecting broker-dealers to
execute the securities transactions, consideration will be given to such factors
as the price of security, the rate of the commission, the size and difficulty of
the order, the reliability, integrity, financial condition, general execution
and operational capabilities of competing broker-dealers, and the brokerage and
research services which they provide to the Fund.
Purchases and sales of fixed-income securities will usually be principal
transactions. Such portfolio securities normally will be purchased or sold from
or to issuers directly or to dealers serving as market makers for the securities
at a net price. Generally, transactions in fixed-income securities do not
involve brokerage commissions. The cost of executing the Fund's portfolio
securities transactions will consist primarily of dealer spreads and
underwriting commissions. The Fund will not engage in transactions with any
affiliated person in which such person acts as principal, except as may be
permitted by rule or order of exemption under the 1940 Act.
The Fund has authorized the Investment Adviser to pay higher commissions in
recognition of brokerage services which, in the opinion of the Investment
Manager, are necessary for the achievement of better execution, provided the
Investment Manager believes this to be in the best interest of the Fund. Subject
to best execution, orders may be placed with brokers who supply research, market
and statistical information ("research") to the Fund, the Investment Manager and
the Investment Adviser. The research may be used by the Investment Manager and
the Investment Adviser in advising other clients, and the Fund's commissions to
brokers supplying research may not represent the lowest obtainable commission
rates. Although research from brokers supplying research may be useful to the
Investment Manager and the Investment Adviser, it will be only supplementary to
their own efforts.
Some securities considered for investment by the Fund may also be
appropriate for other clients served by the Investment Manager. If purchase or
sale of securities consistent with the investment
81
policies of the Fund and one or more of these other clients served by the
Investment Manager is considered at or about the same time, transactions in such
securities will be allocated among the Fund and clients in a manner deemed fair
and reasonable by the Investment Manager. In making these allocations, the main
factors to be considered will be the respective investment objectives of the
Fund and other clients, the relative size of the portfolio holdings of the same
or comparable securities, the availability cash for investment by the Fund and
other clients, the size of investment commitments the Fund and other clients
generally hold, and opinions of the persons responsible for recommending
investments to the Fund and other clients.
NET ASSET VALUE OF COMMON STOCK
The Common Stock is listed on the AMEX and the PSE. The NAV per share of
Common Stock is generally determined each day during which the NYSE is open for
trading and each other day that the calculation of the NAV is required for
regulatory purposes ("Valuation Date"). The NAV per share is calculated by
dividing the value of net assets of the Fund (the value of its assets less its
liabilities, its accumulated and unpaid dividends (whether or not earned or
declared) on outstanding shares of Preferred Stock and the aggregate liquidation
value of such outstanding shares of Preferred Stock) by the total number of
shares of Common Stock outstanding.
The Board of Directors has approved procedures ("Pricing and Valuation
Procedures") to value the Fund's securities in order to determine the NAV. The
value of a security traded or dealt in upon any recognized securities exchange
for that security (and that is not subject to restrictions against sale by the
Fund on such exchanges) is to be determined as of the Valuation Date as the last
quoted sale price as of the Valuation Date, on the principal exchange (if sold
on the principal exchange on the Valuation Date) or on another recognized
exchange (if not sold on the principal exchange but sold on such other exchange
on the Valuation Date). If no sale occurred on the Valuation Date, the security
is to be valued at bid price unless there is no current bid in which case the
security is to be valued at the mean between the closing bid price and asked
price, provided that the spread between the bid price and the asked price is
determined to be reasonable. Securities not traded or dealt in upon any
recognized exchange, for which OTC market quotations are readily available, are
valued at the mean between the closing bid price and asked price, provided that
the spread between the bid and asked price is determined to be reasonable.
Securities and other assets for which market prices are not readily available
are valued at fair value, as determined by, or pursuant to, the Pricing and
Valuation Procedures.
The Pricing and Valuation Procedures provide that the aggregate value of
all foreign securities denominated in foreign currencies shall be incorporated
in the aggregate value of the respective currency portfolio and converted into
U.S. dollars according to the procedures normally employed by the Administrator
in calculating the Fund's NAV.
Shares of closed-end investment companies frequently trade at a discount
from NAV, but in certain instances have traded above NAV. The Fund's shares have
traded in the market below, at or above NAV since the commencement of the Fund's
operations. The Fund cannot predict whether its shares will trade above or below
NAV in the future.
DIVIDENDS AND DISTRIBUTIONS;
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
It is the Fund's present policy, which may be changed by the Board of
Directors, to provide investors with a stable monthly distribution of U.S. 3.5
cents per month out of current income, supplemented by realized capital gains
and, to the extent necessary, paid-in-capital; although there can be no
assurance that the Fund will continue to be able to do so. See "Risk Factors and
Special
82
Considerations -- Current Distribution Rate." Under United States 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 31st.
See "Taxation - United States Taxes."
The Fund distributes to stockholders, at least annually, substantially all
of its net investment income and net realized capital gains. Shares purchased
pursuant to the Offer will be issued after the record date for the monthly
distribution payable in [month year], and accordingly, the Fund will not pay
such monthly distribution with respect to such Shares.
Pursuant to the Fund's Dividend Reinvestment and Cash Purchase Plan
("Plan"), Stockholders may elect to have all distributions automatically
reinvested by [name], the Plan Agent, in Fund shares on a monthly basis.
Stockholders who do not participate in the Plan will receive all distributions
in cash paid by check in U.S. dollars mailed directly to the Stockholder.
Any Stockholder may enroll in the Plan by contacting the Plan Agent.
If shares are held of record by a Stockholder, the Stockholder can
participate directly in the Plan. If shares are held in the name of a brokerage
firm, bank, or other nominee, a Stockholder must instruct its nominee to
participate on the Stockholder's behalf. If the Stockholder's brokerage firm,
bank or other nominee is unable to participate on its behalf, the Stockholder
must request it to re-register such shares in the Stockholder's own name which
will enable the Stockholder's participation in the Plan.
The Plan Agent will administer the Plan on the basis of the number of
shares certified from time to time as representing the total amount registered
in a Stockholder's name or held by a nominee. Nominees should provide to the
Plan Agent a listing of participating beneficial owners.
If the Fund declares an income dividend or capital gains distribution
payable in stock to Stockholders who are not Plan participants, the participants
will receive that dividend or distribution in newly-issued shares on identical
terms and conditions.
In every other case Plan participants will receive shares on the following
basis: If the market price of the Fund's Common Stock plus any brokerage
commission is equal to or exceeds NAV, Stockholders will receive newly-issued
shares valued at the greater of NAV or 95% of current market price. If, on the
other hand, the NAV plus any brokerage commission exceeds the market price, the
Plan Agent will buy shares in the open market. If the market price plus any
applicable brokerage commission exceeds NAV before the Plan Agent has completed
its purchases, the Fund will issue new shares to complete the program. All
reinvestments are in full and fractional shares carried to three decimal places.
Participants in the Plan have the option of making additional cash payments
to the Plan Agent, in any amount of at least US$100 monthly. The Plan Agent will
use all funds received from participants (as well as any dividends and capital
gains distributions received in cash) to purchase Fund shares in the open market
on or about the fifteenth of each month. Interest will not be paid on any
uninvested cash payments. Cash payments received within five business days of
the investment date will be held by the Plan Agent until the following month's
investment date. A participant may withdraw a voluntary cash payment by written
notice, if the notice is received by the Plan Agent not less than 48 hours
before such payment is to be invested.
83
The Plan Agent maintains all Stockholder accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by Stockholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in non-certificated form in
the name of the participant, and each Stockholder's proxy will include those
shares purchased pursuant to the Plan.
There is no direct charge to Plan participants for reinvesting dividends or
capital gains distributions. The Plan Agent's fees for the handling of
reinvestment of dividends and distributions will be paid by the Fund. There are
no brokerage charges with respect to shares issued directly by the Fund as a
result of dividends or capital gains distributions payable either in stock or in
cash. However, each participant will pay a pro rata share of brokerage
commissions incurred with respect to the Plan Agent's open market purchases in
connection with the reinvestment of dividends or capital gains distributions.
With respect to purchases from voluntary cash payments, the Plan Agent will
charge a service fee of $0.75 for each such purchase from a participant, plus a
pro rata share of the brokerage commissions. Brokerage charges for purchasing
small amounts of stock for individual accounts through the Plan are expected to
be less than the usual brokerage charges for such transactions because the Plan
Agent will be purchasing stock for all participants in blocks and prorating the
lower commission thus attainable.
The automatic reinvestment of dividends and distributions will not relieve
Plan participants of any income tax that may be payable on such dividends or
distributions.
The Fund reserves the right to amend or terminate the Plan as applied to
any voluntary cash payments made and any dividend or distribution paid
subsequent to notice of the change sent to the members of the Plan at least 90
days before the record date for such dividend or distribution. The Plan also may
be amended or terminated by the Plan Agent by at least 90 days written notice to
members of the Plan. All correspondence concerning the Plan should be directed
to the Plan Agent at [address]1, Attention: Dividend Reinvestment Department.
TAXATION
The following is intended to be a general summary of certain tax
consequences that may result to the Fund and its stockholders. It is not
intended as a complete discussion of all such tax consequences, nor does it
purport to deal with all categories of investors. Investors are therefore
advised to consult with their tax advisers before making an investment in the
Fund. The summary is based on the laws in effect on the date of this Prospectus,
which are subject to change.
United States Taxes
Tax Treatment of the Fund - General. The Fund intends to continue to
qualify annually to be treated as a regulated investment company under the Code.
To qualify as a regulated investment company, the Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies ("Qualifying Income Requirement"); (b) diversify its
holdings so that, at the end of each quarter of the taxable year (i) at least
50% of the market value of the Fund's assets is represented by cash and cash
items, U.S. government securities, the securities of other regulated investment
companies and other securities, with such other securities of any one issuer
limited for purposes of this calculation to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting
84
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
government securities or the securities of other regulated investment
companies); and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest, and net
short-term capital gains in excess of net long-term capital losses) each taxable
year. The U.S. Treasury Department has authority to promulgate regulations
pursuant to which gains from foreign currency (and options, futures and forward
contracts on foreign currency) not directly related to a regulated investment
company's business of investing in stocks and securities would not be treated as
qualifying income for purposes of the Qualifying Income Requirement. To date,
such regulations have not been promulgated.
As a regulated investment company, the Fund generally will not be subject
to U.S. Federal income tax on its investment company taxable income and net
capital gains (net long-term capital gains in excess of the sum of net
short-term capital losses and capital loss carryovers from prior years), if any,
that it distributes to stockholders. However, the Fund would be subject to
corporate income tax (currently at a 35% rate) on any undistributed income. The
Fund intends to distribute to its stockholders, at least annually, substantially
all of its investment company taxable income and net capital gains. Amounts not
distributed on a timely basis in accordance with a calendar year distribution
requirement are subject to a non-deductible 4% excise tax. To prevent imposition
of the tax, the Fund must distribute during each calendar year an amount equal
to the sum of (1) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses (adjusted for certain ordinary
losses) for the 12-month period ending on October 31st of the calendar year, and
(3) all such ordinary income and capital gains for previous years that were not
distributed during such years. A distribution will be treated as having been
paid on December 31st if it is declared by the Fund in October, November or
December with a record date in such month and is paid by the Fund in January of
the following year. Accordingly, such distributions will be taxable to
stockholders in the calendar year in which the distributions are declared. To
prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement. The
Fund may distribute net capital gains at least annually and designate them as
capital gain dividends where appropriate, or, alternatively, the Fund may choose
to retain net capital gains and pay corporate income tax (and, possibly, an
excise tax) thereon. In the event that the Fund retains net capital gains, the
Fund would most likely make an election which would require each stockholder of
record on the last day of the Fund's taxable year to include in gross income for
U.S. Federal tax purposes his or her proportionate share of the Fund's
undistributed net capital gain. If such an election were made, each stockholder
would be entitled to credit his or her proportionate share of the tax paid by
the Fund against his or her Federal income tax liabilities and to claim a refund
to the extent that the credit exceeds such liabilities. Tax-qualified pension
plans and individual retirement accounts ("IRAs") (through their custodian or
trustee), as well as nonresident aliens and foreign corporations, can obtain a
refund of their proportionate shares of the tax paid by the Fund by filing a
U.S. Federal income tax return. In addition, the stockholder would be entitled
to increase the basis of the shares for U.S. Federal tax purposes by an amount
equal to 65% of his or her proportionate share of the undistributed net capital
gain.
If in any taxable year the Fund fails to qualify as a regulated investment
company under the Code, the Fund would be taxed in the same manner as an
ordinary corporation and distributions to its stockholders would not be
deductible by the Fund in computing its taxable income. In addition, in the
event of a failure to qualify, the Fund's distributions, to the extent derived
from the Fund's current or accumulated earnings and profits, would constitute
dividends (eligible for the corporate dividends-received deduction) which are
taxable to stockholders as ordinary income, even though those distributions
might otherwise (at least in part) have been treated in the stockholders' hands
as long-term capital gains. If the Fund fails to qualify as a regulated
investment company in any year, it must pay out its earnings and profits
accumulated in that year and may be required to recognize any net unrealized
gains on its entire portfolio in order to requalify as a regulated investment
company.
85
Distributions. For Federal income tax purposes, dividends paid by the Fund
out of its investment company taxable income will be taxable to a U.S.
stockholder as ordinary income. Because none of the Fund's income is expected to
consist of dividends paid by U.S. corporations, none of the dividends paid by
the Fund is expected to be eligible for the corporate dividends-received
deduction. To the extent that the Fund designates distributions of net capital
gains as capital gain dividends, such distributions will be taxable to a
stockholder as long-term gain, regardless of how long the stockholder has held
the Fund's shares, and are not eligible for the dividends-received deduction.
Distributions in excess of the Fund's investment company taxable income and net
capital gains will first reduce a stockholder's basis in his shares and, after
the stockholder's basis is reduced to zero, will constitute capital gains to a
stockholder who holds his shares as capital assets.
Stockholders participating in the Plan receiving a distribution in the form
of newly-issued shares will be treated for U.S. Federal income tax purposes as
receiving a distribution in an amount equal to the fair market value, determined
as of the distribution date, of the shares received and will have a cost basis
in each share received equal to the fair market value of a share of the Fund on
the distribution date. Stockholders participating in the Plan receiving a
distribution in the form of shares purchased by the Plan Agent in the open
market will be treated for U.S. Federal income tax purposes as receiving a
distribution of the cash that such stockholder would have received had it not
elected to have such distribution reinvested and will have a cost basis in such
shares equal to the amount of such distribution. Stockholders will be notified
annually as to the U.S. Federal tax status of distributions, and stockholders
receiving distributions in the form of newly-issued shares will receive a report
as to the fair market value of the shares received.
The Fund presently intends that it will designate as capital gain dividends
a proportionate part of the dividends paid to holders of Preferred and Common
Stock.
Under United States 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 31st.
Sale of Shares. Upon the sale or other disposition of shares of the Fund,
or upon receipt of a distribution in complete liquidation of the Fund, a
stockholder may realize a taxable gain or loss depending upon his basis in the
shares. The gain or loss generally will be treated as capital gain or loss if
the shares are capital assets in the stockholder's hands and generally will be
long-term or short-term gain, depending upon the stockholder's holding period
for the shares. Any loss realized on a sale or exchange will be disallowed to
the extent the shares disposed of are replaced within a period of 61 days
beginning 30 days before and ending 30 days after the shares are disposed of. In
that case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a stockholder on a disposition of Fund
shares held by the stockholder for six months or less will be treated as
long-term capital loss to the extent of any distributions of capital gain
dividends received by the stockholder with respect to the shares.
Issuance of Preferred Stock. The Internal Revenue Service has in a revenue
ruling taken the position that a regulated investment company which has two or
more classes of shares cannot effectively designate distributions made to each
class in any year, as consisting of more than that class's proportionate share
of particular types of income including capital gain and foreign source income.
When both Common Stock and Preferred Stock are outstanding, the Fund intends to
designate distributions made to each class as consisting of particular types of
income in accordance with the class's proportionate shares of such income. Thus,
the Fund intends to designate as capital gain dividends a proportionate part
86
of the dividends paid to holders of Preferred and Common Stock. Also, if the
Fund is eligible to and does elect to pass foreign taxes through to its
stockholders, the Fund intends to designate dividends paid to each class of
stockholders as consisting of a proportionate share of the foreign taxes paid by
the Fund.
If the Fund does not meet its asset maintenance requirements (See "Capital
Stock - Asset Coverage"), it may be required to suspend distributions to the
holders of its Common and/or Preferred Stock until such coverage is restored.
Suspension of distributions might prevent the Fund from qualifying as a
regulated investment company for Federal income tax purposes, or, if the Fund
retains such qualification, would cause the Fund to incur income and excise
taxes on its undistributed income. Further, the Fund may be required to redeem
Preferred Stock in order to restore asset coverage to an acceptable level. In
order to effect these redemptions, the Fund may be required to dispose of assets
for cash, and this may result in recognition of gain or loss to the Fund for tax
purposes. This gain or loss (or gain or loss from the remittance to the United
States of proceeds from the disposition of assets) may be treated, in whole or
in part for Federal income tax purposes, as gain or loss due to fluctuations in
foreign currency values, which under current law is ordinary rather than capital
in character. Ordinary gain or loss will increase, decrease, or possibly
eliminate the Fund's investment company taxable income distributable to holders
of Common Stock. For example, if losses attributable to foreign currency
fluctuations exceed other investment company taxable income during a taxable
year, the Fund would not be able to make ordinary income dividend distributions,
and all or a portion of distributions made would be treated as a return of
capital to stockholders for Federal income tax purposes, rather than as an
ordinary income dividend, reducing each stockholder's tax basis in his Fund
shares. Conversely, gain (including gain attributable to foreign currency
fluctuations) arising from the sale of Fund assets to redeem Preferred Stock
would increase the amounts required to be distributed to holders of Common Stock
in order for the Fund to retain its qualification as a regulated investment
company and/or to avoid imposition of income or excise taxes on the Fund.
Currency Fluctuations - "Section 988" Gains or Losses. Under the Code, the
gains or losses attributable to fluctuations in exchange rates which occur
between the time the Fund accrues receivables or liabilities denominated in a
currency which is not a functional currency for the Fund and the time the Fund
actually collects such receivables or pays such liabilities generally are
treated as ordinary income or ordinary loss. Similarly, on disposition of debt
securities denominated in a currency which is not a functional currency of the
Fund, gains or losses attributable to fluctuations in the value of the currency
between the date of acquisition of the security and the date of disposition are
also treated as ordinary gain or loss. These gains or losses, referred to under
the Code as "Section 988" gains or losses, may increase or decrease the amount
of the Fund's investment company taxable income to be distributed to its
stockholders as ordinary income.
The Fund uses the Australian dollar as its functional currency in
accounting for its investments in Australia, New Zealand and the Asian
Countries. Gains and losses on non-Australian investments will first be
translated into the Australian dollar equivalent, which may result in Section
988 gains or losses as described above, and then into their U.S. dollar
equivalent for purposes of computing U.S. tax liabilities. Because the
Australian dollar is the functional currency of the Fund, the Fund is not
required to take into account gains or losses attributable to fluctuations in
the value of this functional currency, which otherwise would be treated as
Section 988 gains or losses, described above. However, remittances from
Australia, New Zealand or any one of the Asian Countries to the United States
will result in recognition of ordinary gains or losses attributable to
fluctuations in the value of the Australian dollar.
Certain Securities Transactions.
Options, Futures and Forward Contracts. Any regulated futures
contracts and certain options (namely, non-equity options and dealer equity
options) in which the Fund may invest may be
87
"section 1256 contracts." Gains (or losses) on these contracts generally are
considered to be 60% long-term and 40% short-term capital gains or losses. Also,
Section 1256 contracts held by the Fund at the end of each taxable year (and on
certain other dates prescribed in the Code) are "marked to market" with the
result that unrealized gains or losses are treated as though they were realized.
Transactions in options, futures and forward contracts undertaken by
the Fund may result in "straddles" under the Code. The straddle rules may affect
the character of gains (or losses) realized by the Fund, and losses realized by
the Fund on positions that are part of a straddle may be deferred under the
straddle rules, rather than being taken into account in calculating the taxable
income for the taxable year in which the losses are realized. In addition,
certain carrying charges (including interest expense) associated with positions
in a straddle may be required to be capitalized rather than deducted currently.
Certain elections that the Fund may make with respect to its straddle positions
may also affect the amount, character and timing of the recognition of gains or
losses from the affected positions.
The straddle rules may increase the amount of short-term capital gain
realized by the Fund, which is taxed as ordinary income when distributed to
stockholders. Because application of the straddle rules may affect the character
of gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to stockholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Constructive Sales. Under certain circumstances, the Fund may
recognize gain from a constructive sale of an "appreciated financial position"
it holds if it enters into a short sale, forward contract or other transaction
that substantially reduces the risk of loss with respect to the appreciated
position. In that event, the Fund would be treated as if it had sold and
immediately repurchased the property and would be taxed on any gain (but not
loss) from the constructive sale. The character of gain from a constructive sale
would depend upon the Fund's holding period in the property. Loss from a
constructive sale would be recognized when the property was subsequently
disposed of, and its character would depend on the Fund's holding period and the
application of various loss deferral provisions of the Code. Constructive sale
treatment does not apply to transactions closed before the end of the 30th day
after the close of the taxable year, if certain conditions are met.
Foreign Withholding Taxes. Income received by the Fund from sources
within foreign countries may be subject to withholding and other taxes imposed
by such countries. For example, the Fund's interest income derived from
Australian sources generally is subject to a 10% Australian withholding tax. If
more than 50% of the value of the Fund's total assets at the close of its
taxable year consists of securities of foreign corporations, the Fund will be
eligible and intends to elect to "pass-through" to the Fund's stockholders the
amount of foreign taxes paid by the Fund. Pursuant to this election, a
stockholder will be required to include in gross income (in addition to taxable
dividends actually received) his proportionate share of the foreign taxes paid
by the Fund, and will be entitled either to deduct (as an itemized deduction)
his pro rata share of foreign taxes in computing his taxable income or to use it
as a foreign tax credit against his U.S. Federal income tax liability, subject
to limitations. No deduction for foreign taxes may be claimed by an individual
stockholder who does not itemize deductions. The deduction for foreign taxes is
not allowable in, computing alternative minimum taxable income of non-corporate
stockholders. A foreign stockholder may be subject to U.S. withholding tax on
such foreign taxes included in income, and may be unable to claim a deduction or
credit for such taxes. Each stockholder will be notified within 60 days after
the close of the Fund's taxable year whether the foreign taxes paid by the Fund
will "pass-through" for the year and of the amount of such taxes deemed paid by
the stockholder.
88
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the stockholder's U.S. tax attributable to his foreign source
taxable income. For this purpose, if the pass-through election is made, the
source of the Fund's income flows through to its stockholders. With respect to
the Fund, certain gain from the sale of securities will be treated as derived
from U.S. sources and currency fluctuation gains, including fluctuation gains
from certain foreign currency denominated debt securities, receivables and
payables, may be treated as ordinary income derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign source
passive income (as defined for purposes of the foreign tax credit), including
the foreign source passive income passed through by the Fund. Stockholders may
be unable to claim a credit for the full amount of their proportionate share of
the foreign taxes paid by the Fund. The foreign tax credit limitation rules do
not apply to certain electing individual taxpayers who have limited creditable
foreign taxes and no foreign source income other than passive investment-type
income. The foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend paying shares or the shares of the Fund
are held by the Fund or the stockholder, as the case may be, for less than 16
days (46 days in the case of Preferred Stock) during the 30-day period (90-day
period for Preferred Stock) beginning 15 days (45 days for Preferred Stock)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to "pass through" to
stockholders the ability to claim a deduction for the related foreign taxes. The
foreign tax credit can be used to offset only 90% of the alternative minimum tax
(as computed under the Code for purposes of this limitation) imposed on
corporations and individuals. If the Fund is not eligible to make the election
to "pass through" to its stockholders its foreign taxes, the foreign taxes it
pays will reduce its income and distributions by the Fund will be treated as
U.S. source income.
The foregoing is only a general description of the foreign tax credit and,
because application of the credit depends on the particular circumstances of
each stockholder, stockholders are advised to consult their own tax advisers.
Assuming that the Fund is eligible and does elect to pass foreign taxes
through to its stockholders, the Fund currently intends to designate Common and
Preferred stockholders' proportionate shares of foreign taxes in the same
proportion as the income subject to such taxes is distributed to each such
stockholder.
Backup Withholding. The Fund may be required to withhold U.S. Federal
income tax at the rate of 30% of all taxable distributions payable to
stockholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or when the Internal
Revenue Service has notified the Fund or a stockholder that the stockholder is
subject to backup withholding. Corporate stockholders and certain other
stockholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the stockholder's U.S. Federal. income tax liability.
Foreign Stockholders. The tax consequences to a foreign stockholder of an
investment in the Fund may be different from and more adverse than the tax
consequences to U.S. investors described herein. Foreign stockholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
Australian Taxes
The following discussion is based upon the advice of Stikeman, Elliott,
Australian counsel for the Fund and is a general and non-exhaustive summary of
Australian tax considerations which may be applicable to the Fund under current
law.
89
Under current Australian law, the Fund will be regarded as a non-resident
of Australia. Pursuant to the United States Australia Double Tax Agreement
("Agreement") and assuming the Fund to be a resident of the United States for
the purposes of the Agreement, the Fund will not be regarded as having a
permanent establishment in Australia if it has no fixed place of business or
place of management in Australia and if there is no person (other than a broker
or other agent of independent status) in Australia who has authority to conclude
contracts on behalf of the Fund and habitually exercises that authority. The
Fund does not intend to have a fixed place of business or place of management in
Australia or to give any person (other than a broker or other agent of
independent status) in Australia the authority to conclude contracts on behalf
of the Fund, and accordingly none of the Fund's profits arising from the
disposal of its assets should be subject to Australian taxes. The Fund will be
subject to an interest withholding tax at the rate of 10% on all interest
payments (including discounts on money market securities) under corporate debt
instruments, money market securities and Australian Commonwealth Government and
State Government securities (unless the particular issue qualifies for exemption
from interest withholding tax). Australian interest withholding tax does not
apply to interest on Eurodollar obligations issued by non-residents of Australia
where the interest is not an expense incurred by that person in carrying on
business in Australia at or through a permanent establishment in Australia of
that non-resident. See "Taxation - United States Taxes - Foreign Withholding
Taxes." Generally, the Fund will not be subject to a stamp duty on its
investments in government and semi-government securities, promissory notes and
bills of exchange.
New Zealand Taxes
The following discussion is based upon the advice of [New Zealand Counsel],
New Zealand counsel for the Fund and is a general and non-exhaustive summary of
New Zealand tax considerations which may be applicable to the Fund under current
New Zealand tax law.
Under current New Zealand law, the Fund will be regarded as a non-resident
of New Zealand and will be relieved of New Zealand taxes on business profits
under the Convention between the United States of America and New Zealand for
the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with
Respect to Taxes on Income ("Convention"), if the Fund does not have a permanent
establishment in New Zealand, and assuming the Fund to be a resident of the
United States as that phrase is defined in the Convention, and that the Fund's
principal class of shares will be the subject of regular and substantial trading
on a recognized stock exchange (as so defined).
Pursuant to the Convention, the Fund will not be regarded as having a
permanent establishment in New Zealand if it has no fixed place of business,
place of management, branch or office in New Zealand and if there is no person
(other than a broker, general commission agent, or other agent of independent
status acting, in each case, in the ordinary course of its business) who acts on
behalf of the Fund and has and habitually exercises in New Zealand an authority
to conclude contracts in the name of the Fund. The Fund does not intend to have
a fixed place of business, place of management, branch, or office in New Zealand
or to give any person (other than a broker, general commission agent, or other
agent of independent status acting, in each case, in the ordinary course of its
business) the authority to conclude contracts in the name of the Fund in New
Zealand, and accordingly none of the business profits or gains from the
alienation of debt securities, except for interest (as provided below), of the
Fund should be subject to New Zealand taxes. Interest (as defined for New
Zealand tax law purposes) paid to the Fund by an "approved issuer" on debt
obligations that the "approved issuer" has issued and in respect of which a
prescribed "approved issuer levy" has been paid, will be subject to New Zealand
interest non-resident withholding tax at the rate of zero percent. All other
interest (as so defined) paid to the Fund will be subject to a New Zealand
interest non-resident withholding tax at the rate of 10% on the gross amount of
all payments of interest (as so defined) deemed to be derived from New Zealand
under corporate debt instruments, money market securities and New Zealand
government and local authority debt securities,
90
except, in the latter two cases, where interest is payable out of New Zealand
and in the case of local authority debt securities the approval of the New
Zealand government has been given for that interest payable on such debt
securities to be exempted from New Zealand income tax.
The issue to and transfer by the Fund of debt instruments will not be
subject to New Zealand stamp duty or Goods and Services Tax.
Korean Taxes
[insert re: Korean taxes]
Other Taxes
The discussions above regarding Australian, New Zealand and Korean tax
issues describe the tax effects of the Fund's activities in the primary markets
in which the Fund invests. The Fund has not sought similar advice from counsel
in other jurisdictions in which the Fund invests or may invest in the future.
However, the Fund believes, but cannot represent, that its business profits
should not be subject to taxation in any jurisdiction not mentioned specifically
above provided that the Fund is not resident in any such jurisdiction and is not
carrying on a trade in such jurisdiction through a branch or agency for the
purposes of taxation in such jurisdiction. The Board of Directors of the Fund
intends to conduct the affairs of the Fund so that it does not become resident
in other country for tax purposes. There can be no assurance, however, that the
Fund will not become subject to taxation in any jurisdiction in which it
invests.
CAPITAL STOCK
General
Set forth below is information with respect to the Fund's outstanding
securities as of July 31, 2002:
Number of
Shares Held
by the Fund Number of Shares
Number of Shares or for its Issued and
Title of Class Authorized Account Outstanding
-------------- ---------- ------- -----------
Common Stock .................................. 400,000,000 shares -0- 264,654,000
Preferred Stock ............................... 100,000,000 shares -0- 24,000
Common Stock
The Fund's Articles authorize the issuance of up to 400,000,000 shares of
Common Stock. At July 31, 2002, there were 264,654,000 outstanding shares of
Common Stock of the Fund, all of which are fully paid and non-assessable. All
shares of Common Stock are equal as to dividends, assets and voting privileges
and have no conversion, preemptive or other subscription rights. In the event of
liquidation, each share of Common Stock is entitled to its proportion of the
Fund's assets after the payment of debts and expenses and after payment of the
aggregate liquidation preference to holders of Preferred Stock, including the
liquidation preference of $25,000 per share, plus accumulated but unpaid
dividends (whether or not earned or declared), on the outstanding shares of
Preferred Stock. Holders of shares of Common Stock are entitled to one vote per
share and do not have cumulative voting rights. The Fund
91
will hold regular annual meetings of stockholders in accordance with the laws of
Maryland and the rules of the AMEX.
The shares of the Fund's Common Stock commenced trading on the AMEX on
April 24, 1986. For the quarter ended July 31, 2002, the highest trading price
was $4.93 and the lowest trading price was $4.28. During the same period, the
net asset value ranged from a low of $4.81 to a high of $5.06. Total trading
volume during the period was 51,062,300 shares. On July 31, 2002, the closing
price on the AMEX was $4.50 and the net asset value was $4.92.
Preferred Stock
The Fund's Articles authorize the issuance of up to 100,000,000 shares of
Preferred Stock, $0.01 par value, in one or more series, with rights as
determined by the Board of Directors, by action by the Board of Directors
without the approval of the holders of Common Stock. As of July 31, 2002, an
aggregate of 24,000 shares of Preferred Stock in nine series, designated as
Series A, Series B, Series C, Series D, Series E, Series F, Series G, Series H
and Series I, with an aggregate liquidation preference of $600 million, was
outstanding. Under the 1940 Act, the Fund is permitted to have outstanding more
than one series of Preferred Stock so long as no single series has a priority
over another series as to the distribution of assets of the Fund or the payment
of dividends. Although the Fund has no current intention to issue additional
shares of Preferred Stock, it may issue additional shares of Preferred Stock at
a time the Board deems appropriate after completion of this Offer.
Beneficial Ownership
To the best of the Fund's knowledge, as of October 1, 2002, no person or
group beneficially owned more than 5% of the outstanding shares of Common Stock
or Preferred Stock of the Fund.
No Preemptive Rights
No holder of shares of the Fund has any preemptive right to acquire from
the Fund any capital stock of the Fund whether now or hereafter authorized.
Liquidation Preference
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Fund, the holders of shares of any series of Preferred Stock
would be entitled to receive a preferential liquidating distribution (to equal
the liquidation value of $25,000 per share plus accrued and unpaid dividends,
whether or not declared) before any distribution of assets is made to holders of
Common Stock. After payment of the full amount of the liquidating distribution
to which they are entitled, the Preferred Stockholders would not be entitled to
any further participation in any distribution of assets by the Fund.
Voting Rights
Except as otherwise required by applicable law, or by terms of the Fund's
Articles or as may be established at the time of the issuance of any series of
Preferred Stock, holders of shares of Preferred Stock, voting as a separate
class, are entitled to elect two of the Fund's Directors, and the remaining
Directors will be elected by holders of Common Stock. If at any time dividends
on shares of the Fund's Preferred Stock are unpaid in an amount equal to two
full years' dividends, the holders of outstanding shares of Preferred Stock,
voting as a separate class, will be entitled to elect a majority of the Fund's
Directors until all dividends in default have been paid or declared and set
apart for payment.
The terms of the Preferred Stock require a separate class vote of the
Preferred Stock with respect to matters which would affect adversely any
preferences, rights, or powers applicable to the Preferred Stock. Moreover, the
affirmative vote of the holders of a majority of the outstanding shares of
Preferred Stock, voting as a separate class, would be required to approve any
plan of reorganization adversely
92
affecting these shares or any action requiring a vote of security holders under
Section 13 (a) of the 1940 Act.
Redemption, Purchase and Sale of Preferred Stock by the Fund
The terms of the Preferred Stock provide that the shares are redeemable by
the Fund in whole or in part, at the liquidation value of $25,000 per share plus
accrued dividends per share, that the Fund may tender for or purchase shares of
Preferred Stock and that the Fund may subsequently resell any shares so tendered
for or purchased. Any redemption or purchase of shares of Preferred Stock by the
Fund will reduce the leverage applicable to shares of Common Stock, while any
resale of shares by the Fund will increase such leverage. The Fund may also need
to redeem all or a portion of the Preferred Stock pursuant to the requirements
of either the 1940 Act or the rating agencies rating the Preferred Stock. The
leveraging of the Common Stock would be eliminated during any period that
Preferred Stock is not outstanding.
Asset Coverage
Under the 1940 Act, the Fund is not permitted to issue shares of Preferred
Stock unless immediately after the issuance the asset coverage of the Fund's
portfolio is at least 200% of the liquidation value of the outstanding Preferred
Stock ($25,000 plus any accrued and unpaid dividends). In addition, the Fund is
not permitted to declare any cash dividend or other distribution on its Common
Stock unless, at the time of the declaration, the NAV of the Fund's portfolio
(determined after deducting the amount of any dividend or other distribution) is
at least 200% of the liquidation value of the Preferred Stock.
Under the terms of the Preferred Stock, the Fund may be required to suspend
distributions to holders of Common Stock in order to maintain the asset coverage
required by the 1940 Act. The suspension of distributions might prevent the Fund
from qualifying as a regulated investment company for Federal income tax
purposes, or, if the Fund retains the qualification, may cause the Fund to incur
income and excise taxes on its undistributed income. Further, the Fund may be
required to redeem Preferred Stock in order to restore asset coverage to an
acceptable level. In order to effect such redemptions, the Fund may be required
to dispose of assets for cash, which may result in recognition of gain or loss
to the Fund for tax purposes. This gain or loss may be treated, in whole or in
part for Federal income tax purposes, as gain or loss due to fluctuations in
foreign currency values, which under current law is ordinary rather than capital
in character. Ordinary gain or loss will increase, decrease, or possibly
eliminate the Fund's investment company taxable income distributable to holders
of Common Stock. For example, if losses attributable to foreign currency
fluctuations exceed other investment company taxable income during a taxable
year, the Fund would not be able to make ordinary dividend distributions, or
distributions made would be treated as a return of capital to stockholders for
Federal income tax purposes, rather than as an ordinary dividend, reducing each
stockholder's tax basis in his Fund shares. Conversely, gain (including gain
attributable to foreign currency fluctuations) arising from the sale of Fund
assets to redeem Preferred Stock would increase the amounts required to be
distributed to holders of Common Stock in order for the Fund to retain its
qualification as a regulated investment company and/or to avoid imposition of
income or excise taxes on the Fund. See "Taxation."
The Fund's outstanding Preferred Stock is currently rated Aa2 by Moody's
and AA by S&P. In order to retain these ratings, the Fund is required to
maintain portfolio holdings meeting specified guidelines of these rating
agencies. The guidelines impose asset coverage requirements that are more
stringent than those imposed by the 1940 Act.
93
Rating Agency Guidelines
The Fund intends that, so long as shares of Preferred Stock are
outstanding, the composition of its portfolio will reflect guidelines
established by the rating agencies in connection with the Fund's receipt of a
rating for the Preferred Stock of at least Aa2 from Moody's and at least AA from
S&P. Moody's and S&P issue ratings for various securities reflecting the
perceived creditworthiness of those securities. The guidelines are designed to
ensure that assets underlying outstanding debt or preferred stock will be
sufficiently varied and will be of sufficient quality and amount to justify
investment grade ratings. The guidelines do not have the force of law but have
been adopted by the Fund in order to receive the above-described ratings for
shares of Preferred Stock, which ratings are generally relied upon by
institutional investors in purchasing such securities. The guidelines provide a
set of tests for portfolio composition and asset coverage that supplement (and
in some cases are more restrictive than) the applicable requirements under the
1940 Act.
The Fund intends to maintain a portfolio value at least equal to the
discounted value of the assets in its portfolio which satisfies minimum values
set by each of the rating agencies. Upon any failure to do this, the Fund will
seek to alter the composition of its portfolio to satisfy the rating agency. To
the extent it is not able to do so in a timely basis, the Fund may redeem shares
of Preferred Stock in accordance with their terms.
A securities rating is not a recommendation to buy, sell or hold securities
and is subject to revision or withdrawal at any time by the assigning rating
agency. Each rating should be evaluated independently of any other rating.
Certain Provisions of the Articles, By-Laws and Articles Supplementary
The Fund has provisions in its Articles and By-Laws that could have the
effect of limiting (i) the ability of other entities or persons to acquire
control of the Fund, (ii) the Fund's freedom to engage in certain transactions,
and (iii) the ability of the Fund's Directors or stockholders to amend the
Articles or By-Laws or effect changes in the Fund's management. The provisions
of the Articles and By-Laws may be regarded as "anti-takeover" provisions.
Article Ninth of the Fund's Articles stipulates that a "fair price" be paid
for the Fund's shares in the event of a proposed merger or other business
combination which is not approved by either 75% of the Continuing Directors of
the Board of Directors (as defined therein) or the holders of 75% of the
outstanding shares of the Fund voting both as a single class and separately as
to each class ("Fair Price Provision"). The stipulated "fair price" is the
higher of:
94
i. the highest per share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid by an Interested Party
(as hereinafter defined) for any shares acquired by it (a) within the
two-year period immediately prior to the first public announcement of the
proposal of a business combination ("Announcement Date"), or (b) in the
transaction in which an Interested Party first becomes the beneficial owner
of voting shares of the Fund (a "Threshold Transaction"), whichever is
higher, and
ii. in the case of Common Stock, the NAV per share of Common Stock
on the Announcement Date or on the date of the Threshold Transaction,
whichever is higher, and in the case of any Preferred Stock, the highest
preferential amount per share to which the holders of shares of a class of
Preferred Stock would be entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Fund, regardless of whether the business combination to be consummated
constitutes such an event.
Article Ninth requires the same super-majority vote to amend the Articles
to "open-end" the Fund by making the Fund's Common Stock redeemable or to adopt
any stockholder proposal as to specific investment decisions with respect to the
Fund's assets. Stockholders of an open-end investment company may require the
company to redeem their shares in kind or in cash at any time (except in certain
circumstances authorized by the 1940 Act) at their NAV less any redemption
charge. If shares are redeemed in kind, stockholders may incur brokerage
commissions. Conversion to open-end status would require the redemption of all
outstanding shares of Preferred Stock.
An "Interested Party" includes any person, other than an investment company
advised by the Investment Manager or any of its affiliates, which proposes to
enter into a business combination with the Fund.
The By-Laws provide for a staggered election of those Directors who are
elected by the holders of Common Stock, with such Directors divided into three
classes, each having a term of three years. Accordingly, only those Directors in
one class may be changed in any one year and it would require two years to
change a majority of the Board of Directors. Such system of electing Directors
is intended to help maintain the continuity of management by making it more
difficult for the Fund's stockholders to change the majority of Directors. Other
provisions require the approval of holders of 75% of the outstanding shares of
the Common and Preferred Stock voting both together as a single class and
separately as to each class to approve certain transactions including certain
mergers, asset dispositions and conversion of the Fund to open-end status.
However, certain provisions of the 1940 Act may nevertheless require a separate
additional vote of the holders of Preferred Stock.
Articles Supplementary approved by the Board of Directors in August 2000
subject the Fund to certain provisions of Subtitle 8 of the Maryland General
Corporation Law with respect to unsolicited takeovers. These provisions (i)
provide that the stockholders of the Fund may remove any director by the
affirmative vote of at least two-thirds of all the votes entitled to be cast by
the stockholders generally in the election of directors, (ii) require that the
number of directors of the Fund shall be fixed only by the vote of the Board of
Directors, (iii) provide that a vacancy on the Board of Directors due to an
increase in the size of the Board or the death, resignation or removal of a
director, may be filled only by the affirmative vote of the majority of the
remaining directors in office, even if the remaining directors do not constitute
a quorum, and (iv) provide that the Secretary of the Fund may call a special
meeting of stockholders only on the written request of the stockholders entitled
to cast at least a majority of all votes entitled to be cast at the meeting.
95
The foregoing provisions may be regarded as "anti-takeover" provisions and
may have the effect of depriving Stockholders of an opportunity to sell their
shares at a premium over prevailing market prices.
CUSTODIAN, DIVIDEND PAYING AGENTS, TRANSFER AGENTS,
REGISTRARS AND AUCTION AGENT
Pursuant to a Custodian Contract dated April 11, 1986, as amended from time
to time, State Street Bank and Trust Company ("State Street"), One Heritage
Drive, North Quincy, Massachusetts 02171, acts as the Fund's custodian for
assets of the Fund held in the United States. The Board has delegated various
foreign custody responsibilities to State Street, as the "Foreign Custody
Manager" for the Fund to the extent permitted under the 1940 Act and the rules
thereunder. State Street has entered into agreements with foreign sub-custodians
in accordance with delegation instructions approved by the Board. State Street,
its branches and sub-custodian generally hold certificates for the securities in
their custody, but may, in certain cases, have book records with domestic and
foreign securities depositories, which in turn have book records with the
transfer agents of the issuers of the securities. See "Risk Factors and Special
Considerations - Foreign Custody."
[Name of transfer agent] [address], acts as the Fund's dividend paying
agent, transfer agent and registrar for the Fund's Common Stock. Bankers Trust,
4 Albany Street, New York, New York 10006, acts as Auction Agent for the
Preferred Stock and also acts as transfer agent, registrar, dividend disbursing
agent and redemption agent for the Preferred Stock.
EXPERTS
The financial statements, insofar as they relate to the periods through
October 31, 2001, included in this Prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, the Fund's independent accountants,
given on the authority of said firm as experts in accounting and auditing. The
principal place of business of PricewaterhouseCoopers LLP is located at 1177
Avenue of the Americas, New York, New York 10036. The audit services they
provide include examination of the financial statements of the Fund, services
relating to filings by the Fund with the SEC and consultation on matters related
to the preparation and filing of tax returns.
DISTRIBUTION ARRANGEMENTS
[Dealer Managers] will act as Dealer Managers for the Offer ("Dealer
Managers"). Under the terms and subject to the conditions contained in the
Dealer Manager Agreement dated [date on cover], among the Fund and the Dealer
Managers ("Dealer Manager Agreement"), the Dealer Managers will provide
financial advisory and marketing services in connection with the Offer and will
solicit the exercise of Rights and participation in the Over-Subscription
Privilege. The Offer is not contingent upon any number of Rights being
exercised. The Fund has agreed to pay the Dealer Managers a fee for their
financial advisory, marketing and soliciting services equal to 3.75% of the
aggregate Subscription Price for Shares issued pursuant to the Offer. The Dealer
Manager fee will be borne by the Fund and indirectly by all of the Fund's
Stockholders, including those who do not exercise their Rights.
The Dealer Managers will reallow to broker-dealers included in the selling
group to be formed and managed by the Dealer Managers ("Selling Group Members')
selling fees equal to 2.50% of the Subscription Price per Share for each Share
issued pursuant to the Offer as a result of their selling efforts. In addition,
the Dealer Managers will reallow to other broker-dealers that have executed and
delivered a soliciting dealer agreement and have solicited the exercise of
Rights, solicitation fees equal to 0.50% of
96
the Subscription Price per Share for each Share issued pursuant to the exercise
of Rights as a result of their soliciting efforts, subject to a maximum fee
based upon the number of shares of Common Stock held by each broker-dealer
through DTC on the Record Date. Fees will be paid to the broker-dealer
designated on the applicable portion of the Subscription Certificates or, in the
absence of such designation, to the Dealer Managers.
In addition, the Fund may reimburse the Dealer Managers up to an aggregate
of $150,000 for their reasonable expenses incurred in connection with the Offer.
The Fund has agreed to indemnify the Dealer Managers or contribute to losses
arising out of certain liabilities including liabilities under the 1933 Act. The
Dealer Manager Agreement also provides that the Dealer Managers will not be
subject to any liability to the Fund in rendering the services contemplated by
such Agreement except for any act of bad faith, willful misconduct or gross
negligence of the Dealer Managers or reckless disregard by the Dealer Managers
of their obligations and duties under such Agreement.
Prudential Investments LLC, an affiliate of Prudential Securities
Incorporated, acts as the Fund's Administrator and receives compensation from
the Fund in connection with its services. See "Administration Agreement."
Prior to the expiration of the Offer, the Dealer Managers may independently
offer for sale shares of Common Stock, including Shares acquired through
purchasing and exercising the Rights, at prices they set. The Dealer Managers
may realize profits or losses independent of any fees described in this
Prospectus.
In the ordinary course of their businesses, the Dealer Managers and their
respective affiliates may engage in investment banking or financial transactions
with the Fund, the Investment Manager, the Investment Adviser and their
affiliates.
The Fund will bear the expenses of the Offer, which will be paid from the
proceeds of the Offer. These expenses include, but are not limited to: the
expense of preparation and printing of the Prospectus for the Offer, the expense
of counsel and auditors in connection with the Offer, the out-of-pocket expenses
incurred by the Officers of the Fund and others in connection with the Offer.
The principal business address of [Dealer Manager 1] is _________________.
The principal business address of [Dealer Manager 2] is ______________________.
The principal business address of [Dealer Manager 3] is ______________________.
The principal business address of [Dealer Manager 4] is ______________________.
97
LEGAL MATTERS
The validity of the shares offered hereby will be passed on for the Fund by
Dechert, 1775 Eye Street, NW, Washington, DC 20006 and certain legal matters
relating to the offering will be passed on for the Dealer Managers by [Dealer
Managers' counsel], [address]. Dechert and [Dealer Managers' counsel] will rely
as to matters of Maryland law on the opinion of Venable, Baetjer and Howard, Two
Hopkins Plaza, Suite 1800, Baltimore, MD 21201-2978. Matters of Australian law
will be passed on for the Fund by Stikeman, Elliott, Level 40 Chifley Tower, 2
Chifley Square, Sydney, NSW 2000, Australia. Matters of New Zealand law will be
passed on for the Fund by [New Zealand Counsel], [address], New Zealand. Matters
of the law of Jersey, Channel Islands will be passed on for the Fund by [Jersey
Counsel], [address], Jersey, Channel Islands. Matters of United Kingdom law will
be passed on by [UK Counsel], [address], United Kingdom. Matters of Swiss Law
will be passed on for the Fund by [Swiss Counsel], [address], Switzerland.
Matters of the law of Singapore will be passed on by [Singapore Counsel],
[address], Singapore.
Roy M. Randall, a partner of Stikeman, Elliott in Australia, serves as
Secretary of the Fund. Margaret A. Bancroft, Sander M. Bieber and Allan S.
Mostoff, members of Dechert, each serves as Assistant Secretary to the Fund.
98
Portfolio of Investments
October 31, 2001
Principal
Amount
Local
Currency** Value
(000) Description (US$)
---------------------------------------------------
LONG-TERM INVESTMENTS--106.5%
AUSTRALIA--63.6%
Government and Semi-Government--45.8%
Commonwealth of Australia--23.4%
A$
Australia Postal Corporation
22,000 6.00%, 3/25/09 $ 11,432,154
Commonwealth Bank of Australia
5,000 6.00%, 8/1/03 2,595,537
2,800 7.625%, 8/5/03 1,486,526
12,000 5.25%, 12/1/04 6,181,279
8,000 6.00%, 9/1/05 4,224,019
10,000 6.75%, 12/1/07 5,491,313
4,000 6.25%, 2/10/09 2,074,114
10,000 6.25%, 9/1/09 5,344,842
Commonwealth of Australia
45,000 9.50%, 8/15/03 24,267,494
40,000 9.00%, 9/15/04 22,723,549
45,450 7.50%, 7/15/05 25,308,427
41,000 10.00%, 10/15/07 26,194,736
67,000 8.75%, 8/15/08 41,081,368
98,000 7.50%, 9/15/09 57,049,173
65,000 5.75%, 6/15/11 34,045,214
40,000 6.50%, 5/15/13 21,743,218
-------------
291,242,963
-------------
New South Wales--4.5%
New South Wales Treasury Corporation
20,000 12.60%, 5/1/06 13,162,363
20,000 8.00%, 3/1/08 11,603,586
55,000 7.00%, 12/1/10 30,687,706
-------------
55,453,655
-------------
Queensland--4.3%
Queensland Treasury Corporation
20,000 6.50%, 6/14/05 10,709,160
15,200 6.00%, 7/14/09 7,993,623
40,000 6.00%, 6/14/11 20,918,290
10,000 6.00%, 10/14/15 5,193,263
17,000 6.00%, 6/14/21 8,829,702
-------------
53,644,038
-------------
South Australia--3.4%
South Australian Financing Authority
20,000 10.00%, 1/15/03 10,765,725
55,000 7.50%, 10/15/07 31,068,704
-------------
41,834,429
-------------
Tasmania--0.5%
A$
Tasmanian Public Finance Corporation
10,000 9.00%, 11/15/04 $ 5,664,381
-------------
Victoria--5.8%
Treasury Corporation of Victoria
36,000 12.50%, 10/15/03 20,401,734
10,000 6.00%, 11/15/06 5,276,576
20,500 10.25%, 11/15/06 12,762,903
25,000 7.50%, 8/15/08 14,226,437
40,000 5.50%, 9/15/10 20,172,273
-------------
72,839,923
-------------
Western Australia--3.9%
Western Australia Treasury Corporation
26,000 8.00%, 10/15/07 15,041,025
50,000 7.50%, 10/15/09 28,616,052
10,000 7.00%, 4/15/11 5,563,429
-------------
49,220,506
-------------
Total Australian
government and
semi-government
(cost $688,070,064) 569,899,895
-------------
Eurobonds--14.8%
Banking and Finance--6.5%
Bank Austria AG
11,278 10.875%, 11/17/04 6,638,152
Commonwealth Bank of Australia
10,000 9.00%, 8/15/05 5,738,470
Federal National
Mortgage Association Global
52,065 6.375%, 8/15/07 27,795,994
GE Capital Australia Limited
23,000 6.25%, 8/15/03 11,951,797
Jem Bonds Limited
10,000 9.00%, 7/15/06 5,824,553
KFW International Finance
5,513 9.125%, 7/26/05 3,175,342
Northern Territory Authority
8,000 6.50%, 7/15/05 4,185,832
5,000 10.03%, 8/9/05 2,967,720
Principal Finance Global Fund
16,650 7.00%, 7/15/05 8,831,782
Progress Trust
2,000 6.00%, 10/15/30 1,022,805
Puma
5,000 7.47%, 2/21/33 2,616,019
-------------
80,748,466
-------------
See Notes to Financial Statements. Aberdeen Asia-Pacific Income Fund, Inc. 13
Portfolio of Investments (continued)
October 31, 2001
Principal
Amount
Local
Currency** Value
(000) Description (US$)
-------------------------------------------------------
Semi-Government and Local
Government--6.3%
A$
New South Wales Treasury Corporation
7,000 10.50%, 12/7/04 $ 4,104,988
34,000 12.60%, 5/1/06 22,447,761
7,000 9.25%, 6/20/06 4,049,098
40,000 8.00%, 3/1/08 23,140,642
Queensland Treasury Corporation
20,000 12.00%, 6/15/05 12,561,522
20,000 8.00%, 9/14/07 11,583,808
---------------
77,887,819
---------------
Supranational Global--2.0%
EFIC
2,000 11.00%, 12/29/04 1,187,806
Eurofima
8,170 9.875%, 1/17/07 5,004,533
20,000 6.50%, 8/22/11 10,713,526
European Investment Bank
5,000 6.00%, 7/15/05 2,627,721
Kingdom of Sweden
8,287 7.875%, 4/23/07 4,695,916
Quebec Province
1,500 5.75%, 2/15/06 771,820
---------------
25,001,322
---------------
Total Australian
eurobonds
(cost $228,389,294) 183,637,607
---------------
Corporate Bonds--3.0%
Banking and Finance--0.6%
DSL Bank
15,000 6.25%, 11/15/06 7,920,794
---------------
Floating Rate Notes*--0.1%
Crusade Trust
1,122 4.613%, 7/10/29 564,161
---------------
Services--2.3%
Melbourne Airport
2,000 6.75%, 6/15/08 1,056,105
Telstra Corporation
2,000 7.80%, 7/17/03 1,065,260
7,000 8.00%, 9/15/04 3,805,609
30,000 12.00%, 5/15/06 19,003,449
2,000 8.75%, 1/15/20 1,307,222
Westpac Banking Corporation
5,000 7.00%, 8/2/10 2,663,115
---------------
28,900,760
---------------
Total Australian
corporate bonds
(cost $47,587,023) $ 37,385,715
---------------
Total Australian
long-term investments
(cost $964,046,381) 790,923,217
---------------
JAPAN--1.0%
Government Bonds--1.0%
JPY
Inchon Metropolitan City
500,000 3.70%, 4/26/06 4,348,004
PTT Exploration & Production
900,000 3.35%, 9/19/07 7,808,034
---------------
Total Japan long-term
investments
(cost $12,209,493) 12,156,038
---------------
KOREA--4.0%
Government Bonds--4.0%
KRW
Korea Deposit Insurance Fund Bond
10,000,000 9.90%, 10/23/03 8,419,830
19,000,000 8.72%, 3/12/04 15,731,293
2,000,000 15.00%, 7/3/04 1,890,008
Korea Treasury Bonds
10,000,000 7.70%, 8/16/03 8,117,738
9,320,000 7.15%, 4/11/06 7,598,291
9,933,000 6.91%, 7/18/11 7,749,894
---------------
Total Korea long-term
investments
(cost $51,480,659) 49,507,054
---------------
MALAYSIA--1.3%
Government Bonds--0.8%
MYR
Malaysia Government Bonds
2,000 4.427%, 3/31/03 537,886
17,300 5.00%, 4/15/05 4,859,985
11,390 6.844%, 10/1/09 3,727,603
---------------
Total Malaysia
government bonds
(cost $8,355,799) 9,125,474
---------------
Corporate Bonds--0.5%
British American Tobacco Corporation
9,000 7.10%, 11/2/04 2,609,645
YTL Corporation Berhad
13,000 8.50%, 6/29/04 3,846,118
---------------
14 Aberdeen Asia-Pacific Income Fund, Inc. See Notes to Financial Statements.
Portfolio of Investments (continued)
October 31, 2001
Principal
Amount
Local
Currency** Value
(000) Description (US$)
-------------------------------------------------------
Total Malaysia
corporate bonds
(cost $6,315,790) $ 6,455,763
---------------
Total Malaysia
long-term investments
(cost $14,671,589) 15,581,237
---------------
PHILIPPINES--0.6%
Government Bonds--0.6%
PHP
Philippine Government Bond
372,800 18.00%, 11/26/08
(cost $9,306,966) 7,385,609
---------------
SINGAPORE--1.3%
Government Bonds--1.3%
SGD
Singapore Government Bonds
1,200 3.00%, 11/1/02 670,270
8,640 4.00%, 2/1/05 5,061,465
16,870 4.625%, 7/1/10 10,391,495
---------------
Total Singapore
government bonds
(cost $15,434,727) 16,123,230
---------------
Corporate Bonds--0.0%
General Motors
Acceptance
Corporation
1,000 3.95%, 4/25/03
(cost $580,135) 558,104
---------------
Total Singapore
long-term investments
(cost $16,014,862) 16,681,334
---------------
THAILAND--2.2%
Government Bonds--2.0%
THB
Eastern Water Resources
115,000 9.00%, 7/22/04 (a) 2,826,232
Export-Import Bank of Thailand
80,000 7.25%, 5/6/04 (a) 1,931,512
Thailand Government Bonds
34,400 8.25%, 10/14/03 (a) 846,359
185,000 6.25%, 6/15/04 (a) 4,459,743
363,100 8.50%, 10/14/05 (a) 9,576,135
44,000 8.00%, 12/8/06 (a) 1,147,992
68,000 5.60%, 7/7/07 (a) 1,598,834
85,000 8.50%, 12/8/08 (a) 2,299,716
---------------
Total Thailand
government bonds
(cost $26,497,861) $ 24,686,523
---------------
Corporate Bonds--0.2%
THB
Advance Information Services PLC
96,000 6.25%, 3/31/03 (a)
(cost $2,533,260) 2,193,531
---------------
Total Thailand
long-term investments
(cost $29,031,121) 26,880,054
---------------
UNITED STATES--32.5%
Government Bonds--6.6%
USD
United States Treasury Notes
79,000 4.625%, 5/15/06
(cost $82,022,813) 82,629,260
---------------
Yankee Bonds--25.9%
ASAT Finance LLC
3,900 12.50%, 11/1/06 3,042,000
Bangkok Bank Public Company
12,500 8.75%, 3/15/07 12,265,625
Bangkok Sentral Ng
4,000 8.60%, 6/15/27 2,757,000
China Development Bank
4,000 8.25%, 5/15/09 4,586,000
China Peoples Republic
3,000 6.80%, 5/23/11 3,251,964
China Telecom Limited
4,000 7.875%, 11/2/04 4,388,461
Cho Hung Bank
5,500 11.875%, 4/1/05 5,801,125
1,500 11.875%, 4/1/10 1,560,000
Citi Pacific Finance
4,750 7.625%, 6/1/11 4,745,531
CKWB (Cayman Islands) Limited
10,300 7.625%, 7/5/11 10,339,998
Dao Heng Bank Limited
4,500 7.75%, 1/24/07 4,921,150
DBS Group Holdings
5,000 7.125%, 5/15/11 5,239,742
Embarc Ireland Limited
5,500 7.70%, 8/18/03 (b) 4,526,530
Export-Import Bank Korea
2,000 6.50%, 11/15/06 2,214,020
6,000 7.10%, 3/15/07 6,461,580
Flextronics International Limited
2,500 9.875%, 7/1/10 2,612,500
See Notes to Financial Statements. Aberdeen Asia-Pacific Income Fund, Inc. 15
Portfolio of Investments (continued)
October 31, 2001
Principal
Amount
Local
Currency** Value
(000) Description (US$)
-------------------------------------------------------
USD
GH Water Supply Holdings Limited
1,900 7.00%, 6/22/08 $ 1,648,250
Globe Telecom Incorporated
9,000 13.00%, 8/1/09 9,690,750
Hanvit Bank
4,000 11.75%, 3/1/10 4,219,000
3,500 12.75%, 3/1/10 3,762,206
Hutchison Whampoa International Limited
6,000 7.00%, 2/16/11 6,146,575
Hyundai Motor Co. Limited
2,000 7.33%, 12/12/05 2,019,093
Industrial Finance Corporation
1,000 7.375%, 1/14/07 1,052,750
Korea Development Bank
8,000 7.125%, 4/22/04 8,532,152
Korea Electric Power Corporation
9,000 7.75%, 4/1/13 9,624,240
12,500 7.00%, 2/1/27 13,233,125
Kowloon Canton Ry Corporation
18,000 8.00%, 3/15/10 21,145,500
Kumgang Korea Chemical Co. Limited
2,000 7.625%, 6/20/08 2,051,133
LG Caltex Oil Corporation
5,000 7.50%, 7/15/07 5,131,584
3,000 7.75%, 7/25/11 3,176,014
Malaysia
5,000 8.75%, 6/1/09 5,629,500
13,000 7.50%, 7/15/11 13,432,770
National Power Corporation
7,000 8.40%, 12/15/16 5,212,984
Oversea-Chinese Banking Corporation
9,000 7.75%, 9/6/11 9,486,924
Petroliam Nasional Berhad
5,000 8.875%, 8/1/04 5,604,757
15,000 7.75%, 8/15/15 15,375,000
Philippine Long Distance Telcom
1,000 8.35%, 3/6/17 595,100
Pohang Iron & Steel Corporation
4,000 7.125%, 11/1/06 4,251,667
PTT Exploration & Production
6,500 7.625%, 10/1/06 6,936,875
Reliance Industries Limited
7,250 10.25%, 1/15/97 6,156,584
USD
Republic of Philippines
2,500 9.875%, 3/16/10 $ 2,419,321
12,500 9.875%, 1/15/19 10,000,000
3,500 9.50%, 10/21/24 3,487,168
7,636 10.625%, 3/16/25 6,624,118
Republic of South Korea
5,500 8.75%, 4/15/03 5,938,955
14,500 8.875%, 4/15/08 17,133,873
SK Corporation
3,900 7.50%, 5/31/06 4,112,141
Telekom Malaysia
3,000 7.875%, 8/1/25 2,743,500
Tenaga Nasional Berhad
7,750 7.625%, 4/1/11 7,569,795
5,000 7.50%, 11/1/25 3,928,000
11,000 7.50%, 1/15/96 8,270,900
Total Access Communication Public
7,000 8.375%, 11/4/06 6,160,000
----------------
Total United States
yankee bonds
(cost $303,722,914) 321,215,530
----------------
Total United States
long-term investments
(cost $385,745,727) 403,844,790
----------------
Total long-term
investments
(cost $1,482,506,798) 1,322,959,333
----------------
SHORT-TERM INVESTMENTS--39.8%
Australia--29.9%
Government and Semi-Government--4.4%
Commonwealth of Australia--2.1%
A$
Australian Capital Territory
10,000 12.00%, 11/15/01 5,047,245
Commonwealth Bank of Australia
10,000 5.50%, 3/1/02 5,053,861
Commonwealth of Australia
30,000 12.00%, 11/15/01 15,128,359
----------------
25,229,465
----------------
New South Wales--2.3%
New South Wales Treasury
Corporation
57,000 12.00%, 12/1/01 28,832,076
----------------
16 Aberdeen Asia-Pacific Income Fund, Inc. See Notes to Financial Statements.
Portfolio of Investments (continued)
As of October 31, 2001
Principal
Amount
Local
Currency** Value
(000) Description (US$)
---------------------------------------------------
Total Australian
government and
semi-government
(cost $90,922,398) $ 54,061,541
------------
Eurobonds--9.8%
Banking and Finance--5.3%
A$
Banque National de Paris
14,000 9.00%, 8/13/02 7,298,950
Federal National Mortgage Association
Global
35,000 6.50%, 7/10/02 17,897,119
GE Capital Australia Limited
10,000 6.50%, 12/3/01 5,040,000
15,000 7.00%, 10/15/02 7,745,886
National Australia Bank Limited
10,000 6.25%, 10/15/02 5,130,407
State Bank of New South Wales
28,000 10.75%, 3/12/02 14,408,823
6,400 9.00%, 9/17/02 3,352,708
State Bank of South Australia
10,000 11.00%, 4/10/02 5,173,997
------------
66,047,890
------------
Semi-Government and Local Government--3.1%
New South Wales Treasury
Corporation
25,000 8.00%, 12/1/01 12,613,709
50,000 12.00%, 12/1/01 25,295,207
------------
37,908,916
------------
Supranational Global--1.4%
European Bank of Reconstruction &
Development
34,000 9.00%, 10/15/02 17,900,696
------------
Total Australian
eurobonds
(cost $179,684,158) 121,857,502
------------
Corporate Bonds--0.8%
Asset Backed--0.0%
FANMAC 22
920 11.40%, 12/15/01 466,509
FANMAC 25
236 10.33%, 6/15/02 122,633
------------
589,142
------------
Services--0.8%
A$
Merrill Lynch & Co. Australia
10,000 7.625%, 3/15/02 $ 5,089,535
Telstra Corporation
8,000 11.50%, 10/15/02 4,293,004
------------
9,382,539
------------
Total Australian
corporate bonds
(cost $14,069,192) 9,971,681
------------
Demand Deposits--14.9%
Banque National de Paris Demand
Deposit
197,077 4.50%, 11/1/01 99,178,871
Dresdner Call Deposit
172,035 3.00%, 11/1/01 86,576,385
------------
Total Australian
demand deposits
(cost $190,902,025) 185,755,256
------------
Total Australian
short-term investments
(cost $475,577,773) 371,645,980
------------
Korea--3.7%
Government Bonds--3.7%
KRW
Korea Development Bank
10,000,000 8.40%, 11/20/01 7,762,742
5,000,000 6.40%, 1/5/02 3,886,057
5,000,000 6.82%, 2/26/02 3,901,511
Korea Monetary Stabilization Bond
19,040,000 8.97%, 2/8/02 14,931,431
10,000,000 8.99%, 2/14/02 7,847,792
4,409,000 7.75%, 7/19/02 3,493,287
Korea Treasury Bond
5,000,000 7.10%, 12/9/01 3,884,431
------------
Total Korea short-term
investments
(cost $51,149,139) 45,707,251
------------
New Zealand--0.4%
Demand Deposits--0.4%
NZD
New Zealand Call Deposit
12,166 4.00%, 11/1/01
(cost $5,526,796) 5,018,280
------------
See Notes to Financial Statements. Aberdeen Asia-Pacific Income Fund, Inc. 17
Portfolio of Investments (continued)
October 31, 2001
Principal
Amount
Local
Currency** Value
(000) Description (US$)
---------------------------------------------------
United States--5.8%
Yankee Bonds--1.8%
USD
Cho Hung Bank
7,500 8.84%, 1/7/02 $ 7,462,500
Embarc Ireland
6,900 7.01%, 6/28/02(c) 5,462,812
Industrial Bank of Korea
4,000 8.375%, 9/30/02 4,168,082
Total Access Communication Public
4,500 7.625%, 11/4/01 4,455,000
------------
Total United States
yankee bonds
(cost $21,729,572) 21,548,394
------------
Repurchase Agreement--4.0%
USD
49,594 State Street Bank &
Trust Company, 2.48%
due 11/1/01 in the
amount of $49,597,416
(cost $49,594,000;
collateralized by United
States Treasury Bond
8.875% due 8/15/17;
value including accrued
interest - $50,595,278) $ 49,594,000
------------
Total United States
short-term investments
(cost $71,323,572) 71,142,394
------------
Total short-term
investments
(cost $603,577,280) 493,513,905
------------
------------------------------------------------------------------------------
Total Investments--146.3% (cost $2,086,084,078) 1,816,473,238
Other assets in excess of liabilities--2.0% 25,368,059
Liquidation value of preferred stock--(48.3%) (600,000,000)
------------------------------------------------------------------------------
Net Assets Applicable to Common Shareholders--100% $ 1,241,841,297
------------------------------------------------------------------------------
Net asset value per common share ($1,241,841,297 / 266,781,600 shares of
common stock issued and outstanding) $ 4.65
------------------------------------------------------------------------------
------------------------------
* The interest rate reflected for floating rate notes is the rate in effect at
October 31, 2001.
** Portfolio securities are listed in currency in which they
are traded.
A$--Australian dollar
JPY--Japanese Yen
KRW--South Korean Won
MYR--Malaysian Ringgit
NZD--New Zealand dollar
PHP--Philippine peso
SGD--Singapore dollar
THB--Thailand Baht
USD--United States dollar
(a) Securities pledged as collateral.
(b) Value of security is linked to the value of Government of Korea 7.70%,
8/16/03 and the movement of the South Korean Won.
(c) Value of security is linked to the value of Korea Development Bank 7.01%,
6/26/02 and the movement of the South Korean Won.
18 Aberdeen Asia-Pacific Income Fund, Inc. See Notes to Financial Statements.
Statement of Assets and Liabilities
October 31, 2001
Assets
Investments, at value (cost $2,086,084,078) ................... $ 1,816,473,238
Foreign currency, at value (cost $9,056,207) .................. 9,910,620
Cash .......................................................... 295,618
Interest receivable ........................................... 32,087,918
Unrealized appreciation on interest rate and currency
swaps ....................................................... 910,310
Other assets .................................................. 421,891
Unrealized appreciation on forward currency contracts ......... 256,655
---------------
Total assets .............................................. 1,860,356,250
---------------
Liabilities
Dividends and distributions payable-common stock .............. 12,005,172
Payable for investments purchased ............................. 1,780,465
Withholding taxes payable ..................................... 1,502,782
Accrued expenses and other liabilities ........................ 1,392,964
Dividends payable-preferred stock ............................. 858,317
Investment management fee payable ............................. 787,081
Administration fee payable .................................... 154,281
Unrealized depreciation on forward currency contracts ......... 33,891
---------------
Total liabilities ......................................... 18,514,953
---------------
Total Net Assets .............................................. $ 1,841,841,297
===============
Total net assets were composed of:
Common stock:
Par value ($.01 per share, applicable to 266,781,600
shares) ................................................. $ 2,667,816
Paid-in capital in excess of par .......................... 1,897,699,485
Preferred stock ($.01 par value per share and $25,000
liquidation value per share applicable to 24,000
shares; Note 4) ........................................... 600,000,000
---------------
2,500,367,301
Distributions in excess of net investment income ............ (14,366,271)
Accumulated net realized loss on investments ................ (1,256,709)
Net unrealized appreciation on investments .................. 17,359,333
Accumulated net realized and unrealized foreign
exchange losses ........................................... (660,262,357)
---------------
Total net assets ............................................ $ 1,841,841,297
===============
Net assets applicable to common shareholders ................ $ 1,241,841,297
===============
Net asset value per common share: ($1,241,841,297 /
266,781,600 shares of common stock issued and
outstanding) ................................................ $ 4.65
===============
See Notes to Financial Statements. Aberdeen Asia-Pacific Income Fund, Inc. 19
Statement of Operations
Year Ended October 31, 2001
Net Investment Income
Income
Interest (net of foreign withholding taxes of
$6,646,088) ............................................. $ 159,437,344
-------------
Expenses
Investment management fee ............................... 10,220,699
Custodian's fees and expenses ........................... 2,350,000
Administration fee ...................................... 2,304,331
Auction agent's fees and broker commissions ............. 1,670,000
Reports to shareholders ................................. 810,000
Directors' fees and expenses ............................ 611,000
Transfer agent's fees and expenses ...................... 600,000
Legal fees and expenses ................................. 450,000
Insurance expense ....................................... 226,000
Independent accountant's fees and expenses .............. 178,000
Investor relations fees and expenses .................... 140,000
Miscellaneous ........................................... 65,018
-------------
Total operating expenses ................................ 19,625,048
-------------
Net investment income ..................................... 139,812,296
-------------
Realized and Unrealized Gains (Losses) on Investments
and Foreign Currencies
Net realized gain on:
Investment transactions ................................. 3,740,038
-------------
Net change in unrealized appreciation (depreciation) on:
Investments ............................................. 66,981,548
Interest rate and currency swaps ........................ 1,436,707
-------------
68,418,255
-------------
Net gain on investments ................................... 72,158,293
-------------
Net increase in total net assets from operations
before net foreign exchange losses ...................... 211,970,589
Net realized and unrealized foreign exchange
losses .................................................. (73,152,895)
-------------
Net Increase In Total Net Assets Resulting From
Operations ................................................ $ 138,817,694
=============
20 Aberdeen Asia-Pacific Income Fund, Inc. See Notes to Financial Statements.
Statement of Cash Flows
Year Ended October 31, 2001
Increase (Decrease) in Cash (Including Foreign
Currency)
Cash flows used for operating activities
Interest received (net of foreign withholding taxes) .......... $ 164,438,302
Expenses paid ................................................. (19,997,135)
Purchases of short-term portfolio investments, net ............ (4,306,775)
Purchases of long-term portfolio investments .................. (770,159,197)
Proceeds from sales of long-term portfolio investments ........ 940,610,773
Other ......................................................... (155,381)
-------------
Net cash provided from operating activities ................. 310,430,587
-------------
Cash flows provided from financing activities
Dividends and distributions paid to preferred shareholders .... (30,424,686)
Dividends and distributions paid to common shareholders ....... (144,274,866)
Cost of Fund shares reacquired in repurchase program .......... (2,412,750)
-------------
Net cash used for financing activities ...................... (177,112,302)
-------------
Effect of changes in exchange rate .............................. (138,446,373)
-------------
Net decrease in cash ............................................ (5,128,088)
Cash at beginning of year ..................................... 15,334,326
-------------
Cash at end of year ........................................... $ 10,206,238
=============
Reconciliation of Net Increase in Total Net Assets
from Operations to Net Cash (Including Foreign
Currency) Provided From Operating Activities
Net increase in total net assets resulting from operations ...... $ 138,817,694
-------------
Decrease in investments ....................................... 143,220,090
Net realized gain on investment transactions .................. (3,740,038)
Increase in unrealized appreciation on forward
currency contracts ............................................ (565,610)
Net change in unrealized appreciation on investments .......... (68,418,255)
Net realized and unrealized foreign exchange losses ........... 73,152,895
Decrease in interest receivable ............................... 5,675,489
Net increase in other assets .................................. (155,381)
Increase in payable for investments purchased ................. (1,433,004)
Decrease in receivable for investments sold ................... 24,923,325
Decrease in accrued expenses and other liabilities ............ (1,046,618)
-------------
Total adjustments ........................................... 171,612,893
-------------
Net cash provided from operating activities ..................... $ 310,430,587
=============
See Notes to Financial Statements. Aberdeen Asia-Pacific Income Fund, Inc. 21
Statement of Changes in Net Assets
Year Ended October 31,
----------------------------------------
2001 2000
------------------ ------------------
Increase (Decrease) in Net Assets
Operations
Net investment income ..................... $ 139,812,296 $ 161,018,972
Net realized gains on
investment transactions ................. 3,740,038 3,392,579
Net change in unrealized
appreciation (depreciation)
on investments .......................... 68,418,255 (82,969,078)
------------------ ------------------
Net increase in total net
assets resulting from
operations before net foreign
exchange losses ......................... 211,970,589 81,442,473
Net realized and unrealized
foreign exchange losses ................. (73,152,895) (262,673,773)
------------------ ------------------
Net increase/decrease in total
net assets resulting from
operations ................................ 138,817,694 (181,231,300)
------------------ ------------------
Dividends from net investment
income
Common shares ............................. (58,797,328) (103,990,974)
Preferred shares .......................... (29,663,738) (35,131,943)
------------------ ------------------
(88,461,066) (139,122,917)
------------------ ------------------
Tax return of capital
distribution .............................. (85,450,731) (56,431,030)
------------------ ------------------
Distributions from net realized
capital gains
Common shares ............................. -- --
Preferred shares .......................... -- (1,231,344)
------------------ ------------------
-- (1,231,344)
------------------ ------------------
Cost of Fund shares reacquired in
repurchase program (595,700 and
0 shares, respectively) ................... (2,412,750) --
------------------ ------------------
Total decrease .............................. (37,506,853) (378,016,591)
Total Net Assets
Beginning of period ......................... 1,879,348,150 2,257,364,741
------------------ ------------------
End of period ............................... $ 1,841,841,297 $ 1,879,348,150
================== ==================
22 Aberdeen Asia-Pacific Income Fund, Inc. See Notes to Financial Statements.
Notes to Financial Statements
Aberdeen Asia-Pacific Income Fund, Inc. (formerly known as the First Australia
Prime Income Fund, Inc.) (the `Fund') was incorporated in Maryland on March 14,
1986 as a closed-end, non-diversified management investment company. The Fund's
investment objective is to seek current income. The Fund may also achieve
incidental capital appreciation. The Fund will seek to achieve its investment
objective through investment in Asian debt securities and Australian debt
securities. There can be no assurance that the Fund will achieve its objectives.
The ability of issuers of debt securities held by the Fund to meet their
obligations may be affected by economic developments in a specific industry,
country 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.
Security Valuation:
Investments are stated at value. Investments for which market quotations are
readily available are valued based on prices provided by a pricing service or
the lower of the quotations from two leading brokers in the relevant debt
securities market, in the event that a price cannot be obtained by the pricing
service. Securities for which market quotations are not readily available are
valued at fair value using methods determined in good faith by or under the
direction of the Fund's Board of Directors.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
Repurchase Agreements:
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian takes 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 collateral is
valued on a daily basis to determine its adequacy. If the seller defaults and
the value of the collateral declines
Aberdeen Asia-Pacific Income Fund, Inc. 23
Notes to Financial Statements (continued)
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$"), New Zealand dollar ("NZD") and Asian currency amounts
are translated into United States dollars on the following basis:
(i) market value of investment securities, other assets and liabilities--at the
exchange rates at the end of the reporting periods;
(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 October 31, 2001.
Similarly, the Fund isolates the effect of changes in foreign exchange rates
from the fluctuations arising from changes in the market prices of portfolio
securities sold during the reporting periods.
Net realized and unrealized foreign exchange losses include realized foreign
exchange gains and losses from sales and maturities of portfolio securities,
sales of foreign currencies, currency gains or losses realized between the trade
and settlement dates on securities transactions, the difference between the
amounts of interest, discount and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent amounts actually received or paid
and changes in unrealized foreign exchange gains and losses in the value of
portfolio securities and other assets and liabilities arising as a result of
changes in the exchange rate. Accumulated net realized and unrealized foreign
exchange losses shown in the composition of net assets at October 31, 2001
represent foreign exchange losses for book purposes that have not yet been
recognized for tax purposes.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin, including
unanticipated movements in the value of the foreign currency relative to the
U.S. dollar.
The exchange rate at October 31, 2001 was US$.50 to A$1.00 for the Australian
dollar.
Securities Transactions and Investment Income:
Securities transactions are recorded on the trade date. Realized and unrealized
gains
24 Aberdeen Asia-Pacific Income Fund, Inc.
Notes to Financial Statements (continued)
and losses from security and currency transactions are calculated on the
identified cost basis. Interest income is recorded on an accrual basis.
Discounts on short-term securities are accreted over the life of the security.
Original issue discount is accreted over the life of the security based upon the
effective yield. Market discounts on long-term securities are recognized upon
disposition. Expenses are recorded on the accrual basis which may require the
use of certain estimates by management. Actual results could differ from those
estimates.
In November 2000, a revised AICPA Audit and Accounting Guide, Audits of
Investment Companies (the "Guide"), was issued, and is effective for the fiscal
years beginning after December 15, 2000. The revised Guide requires the Fund to
amortize market discount and premiums on all fixed-income securities. Upon
initial adoption, the Fund will be required to adjust the cost of its
fixed-income securities by the cumulative amount that would have been recognized
had the amortization been in effect from the purchase date of each holding.
Adopting this accounting principle will not affect the Fund's net asset value,
but will change the classification of certain amounts between interest income
and realized and unrealized gain/loss in the Statement of Operations. The Fund
estimates that the initial adjustment required upon adoption of market discount
and premium amortization will decrease the recorded cost of its investments (but
not their market value) by approximately $53,371,000. Additionally, had this
principle been in effect during the year ended October 31, 2001, the Fund
estimates that net investment income would have increased by approximately $0.05
per share (1.0% of net assets), and realized and unrealized gain per share would
have decreased by the same amount. Because the Fund determines its required
distributions under Federal income tax laws, adoption of this principle will not
affect the amount or composition of distributions paid to shareholders.
Forward Currency Contracts:
A forward currency contract is a commitment to purchase or sell a foreign
currency at a future date at a negotiated forward rate. The Fund enters into
forward currency contracts in order to hedge its exposure to changes in foreign
currency exchange rates on its foreign portfolio holdings or on specific
receivables and payables denominated in a foreign currency. The contracts are
valued daily at current exchange rates and any unrealized gain or loss is
included in net unrealized appreciation or depreciation. Gain or loss is
realized on the settlement date of the contract equal to the difference between
the settlement value of the original and renegotiated forward contracts. This
gain or loss, if any, is included in net realized gain (loss) on
Aberdeen Asia-Pacific Income Fund, Inc. 25
Notes to Financial Statements (continued)
foreign currency transactions. Risks may arise upon entering into these
contracts from the potential inability of the counterparties to meet the terms
of their contracts.
Financial Futures Contracts:
A financial futures contract is an agreement to purchase (long) or sell (short)
an agreed amount of securities or commodities at a set price for delivery on a
future date. Upon entering into a financial futures contract, the Fund is
required to pledge to the broker an amount of cash and/or other assets equal to
a certain percentage of the contract amount. This amount is known as the
`initial margin.' Subsequent payments, known as `variation margin,' are made or
received by the Fund when the contract expires or is closed, depending on the
daily fluctuations in the value of the underlying security or commodity. Such
variation margin is recorded for financial statement purposes on a daily basis
as unrealized gain or loss. When the contract expires or is closed, the gain or
loss is realized and is presented in the statement of operations as net realized
gain (loss) on financial futures contracts.
The Fund invests in financial futures contracts in order to hedge existing
portfolio securities, or securities the Fund intends to purchase, against
fluctuations in value. Under a variety of circumstances, the Fund may not
achieve the anticipated benefits of the financial futures contracts and may
realize a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts and the underlying
assets.
Interest Rate and Currency Swap:
An interest rate and currency swap is an agreement between two parties which
involves exchanging principal and fixed rate interest payments in one currency
for principal and fixed rate interest payments in another currency for a
specified period of time. Interest rate and currency swaps involve the accrual
and exchange of interest payments between the parties.
During the term of the swap, changes in the value of the swap are recognized as
unrealized gains or losses by `marking-to-market' to reflect the market value of
the swap. When the swap is terminated, the Fund will record a realized gain or
loss equal to the difference, if any, between the proceeds from (or cost of) the
closing transaction and the Fund's basis in the contract.
26 Aberdeen Asia-Pacific Income Fund, Inc.
Notes to Financial Statements (continued)
The Fund is exposed to credit loss in the event of non-performance by the other
party to the currency rate swap. However, the Fund does not anticipate
non-performance by any counterparty.
Dividends and Distributions:
It is the Fund's current policy to pay dividends from net investment income
supplemented by net realized foreign exchange gains, net realized short-term
capital gains and return of capital distributions if necessary, on a monthly
basis. The Fund will also declare and pay distributions at least annually from
net realized gains on investment transactions and net realized foreign exchange
gains, if any. Dividends and distributions to common shareholders are recorded
on the ex-dividend date. Dividends and distributions to preferred shareholders
are accrued on a weekly basis and are determined as described in Note 4.
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, loss deferrals
and recognition of market discount.
Taxes:
For federal income and excise tax purposes, the Fund's transactions are
accounted for using the Australian dollar as the functional currency.
Accordingly, only realized currency gains and losses resulting from the
repatriation of Australian dollars into United States dollars or transactions in
New Zealand dollars or Asian country currencies are recognized for tax purposes.
No provision has been made for United States income taxes because it is the
Fund's policy to continue to meet the requirements of the United States Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to shareholders. The chart below summarizes the
withholding tax rates in effect on interest income at the period end.
Withholding
Country Tax Rate
-------------------------------------
Australia 10%
Japan 10
Korea 12
Malaysia 30
New Zealand 10
Aberdeen Asia-Pacific Income Fund, Inc. 27
Notes to Financial Statements (continued)
Withholding
Country Tax Rate
-------------------------------------
Philippines 15%
Singapore 30
Thailand 10
Cash Flow Information:
The Fund invests in securities and distributes dividends from net investment
income and net realized gains from investment and currency transactions which
are paid in cash or are reinvested at the discretion of shareholders. These
activities are reported in the Statement of Changes in Net Assets and additional
information on cash receipts and cash payments is presented in the Statement of
Cash Flows. Cash includes domestic and foreign currency.
Reclassification of Capital Accounts:
The Fund accounts and reports for distributions to shareholders in accordance
with Statement of Position 93-2: Determination, Disclosure, and Financial
Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies. To reflect reclassifications arising from
permanent book/tax differences for the fiscal year ended October 31, 2001, the
Fund decreased distributions in excess of net investment income by $35,561,787,
decreased accumulated net realized gains on investments by $4,152,007, decreased
accumulated net realized and unrealized foreign exchange losses by $54,040,951
and decreased paid-in capital in excess of par by $85,450,731. Net realized
gains and net assets were not affected by this change.
Note 2. Agreements
Aberdeen Asset Managers (C.I.) Limited (formerly known as EquitiLink
International Management Limited) (the `Investment Manager') serves as
investment manager to the Fund and Aberdeen Asset Management Limited (formerly
known as EquitiLink Australia Limited) (the `Investment Adviser') serves as
investment adviser to the Fund pursuant to a management agreement and an
advisory agreement, respectively, each dated December 22, 2000. The Investment
Manager and the Investment Adviser are wholly owned subsidiaries of Aberdeen
Asset Management PLC.
The Investment Manager makes investment decisions on behalf of the Fund on the
basis of recommendations and information furnished to it by the Investment
Adviser, including the selection of and the placement of orders with brokers and
dealers to execute portfolio transactions on behalf of the Fund.
28 Aberdeen Asia-Pacific Income Fund, Inc.
Notes to Financial Statements (continued)
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 total net assets of common and preferred shareholders up to $200
million, 0.60% of such assets between $200 million and $500 million, 0.55% of
such assets between $500 million and $900 million, 0.50% of such assets between
$900 million and $1,750 million and 0.45% of such assets in excess of $1,750
million.
The Investment Manager pays fees to the Investment Adviser for its services
rendered. The Investment Manager informed the Fund that it paid $4,398,088 to
the Investment Adviser during the year ended October 31, 2001.
Prudential Investments LLC (formerly known as Prudential Investments Fund
Management LLC) (the "Administrator") serves as administrator to the Fund
pursuant to an agreement dated December 9, 1988. The administration agreement
provides the Administrator with a fee at the annual rate of 0.15% of the Fund's
average weekly total net assets of common and preferred shareholders up to $900
million, 0.10% of such assets between $900 million and $1,750 million and 0.07%
of such assets in excess of $1,750 million. During the year, the Administrator
remitted $240,000 to the Investment Manager for certain compliance related
administrative services provided.
Under terms of an Investor Relations Services Agreement, EquitiLink USA, Inc.
(doing business under the name Aberdeen Asset Management ("Aberdeen")), a wholly
owned subsidiary of the Investment Manager, serves as the Fund's investor
relations services provider. This agreement provides Aberdeen with a monthly
retainer fee of $10,000 plus out-of-pocket expenses. During the year ended
October 31, 2001, the Fund incurred fees of approximately $120,000 for the
services of Aberdeen. As of October 31, 2001, $10,000 of this amount was due to
Aberdeen. Investor relations fees and expenses in the Statement of Operations
include certain out-of-pocket expenses.
Note 3. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended October 31, 2001 aggregated $772,757,360 and $919,735,488,
respectively.
The Fund entered into two interest rate and foreign currency swaps on February
16, 1999. Under the terms of the first swap, the Fund receives interest at a
rate of 11.50% based on a notional amount of KRW5,124,367,250 and pays interest
at a rate of 3.70% based on a notional amount of JPY500,000,000. Under the terms
of
Aberdeen Asia-Pacific Income Fund, Inc. 29
Notes to Financial Statements (continued)
the second swap, the Fund receives interest at a rate of 13.05% based on a
notional amount of THB290,920,192 and pays interest at a rate of 3.35% based on
a notional amount of JPY900,000,000. Net receipts or payments of such amounts
are exchanged semi-annually. At October 31, 2001 the unrealized appreciation on
currency swaps was $1,230,392. The swaps are scheduled to terminate on April 26,
2006.
The Fund entered into an interest rate swap agreement on September 1, 2000.
Under the terms of the agreement, the Fund receives a floating rate of interest
based on a notional value of SGD 4,000,000 and pays interest at a fixed rate of
4.835% based on a notional value of SGD 4,000,000. Net receipts of payments of
such amounts are exchanged semi-annually. At October 31, 2001 the unrealized
depreciation on this interest rate swap was $320,082. The swap is scheduled to
terminate on September 6, 2010.
Net interest income of $912,607 on interest rate and currency swaps during the
period is included in interest income in the Statement of Operations.
At October 31, 2001 the Fund had outstanding forward currency contracts to buy
and sell foreign currency as follows:
Value at
Foreign Currency Settlement Current
Sale Contract Date Receivable Value Appreciation
--------------------------- --------------- ----------- --------------
Australian Dollar
settlement date 11/1/01 $ 7,582,875 $ 7,548,750 $ 34,125
Thailand Baht
settlement date 12/17/01 7,100,000 7,083,799 16,201
----------- ----------- --------
$14,682,875 $14,632,549 $ 50,326
=========== =========== ========
Value at
Foreign Currency Settlement Current Appreciation
Purchase Contract Date Payable Value (Depreciation)
--------------------------- --------------- ----------- --------------
Indian Rupee
settlement date 2/4/02 $ 6,600,000 $ 6,734,746 $134,746
Philippine Peso
settlement date 12/24/01 10,136,000 10,104,130 (31,870)
South Korean Won
settlement date 1/30/02 3,700,000 3,728,660 28,660
Taiwan Dollar
settlement date 1/24/02 6,581,000 6,621,381 40,381
Thailand Baht
settlement date 11/26/01 836,000 833,979 (2,021)
settlement date 12/17/01 7,100,000 7,100,395 395
30 Aberdeen Asia-Pacific Income Fund, Inc.
Notes to Financial Statements (continued)
Value at
Foreign Currency Settlement Current Appreciation
Purchase Contract Date Payable Value (Depreciation)
--------------------------- --------------- ----------- --------------
Yuan Renminbi
settlement date 1/24/02 6,581,000 6,583,147 2,147
----------- ----------- --------
$41,534,000 $41,706,438 $172,438
=========== =========== ========
The United States federal income tax basis of the Fund's investments at October
31, 2001 was $1,801,280,426 and accordingly, net unrealized appreciation for
United States federal income tax purposes was $15,192,812 (gross unrealized
appreciation--$47,117,106; gross unrealized depreciation--$31,924,294).
For federal income tax purposes, the Fund had a capital loss carryforward as of
October 31, 2000 of approximately $191,000 of which $191,000 was utilized to
offset the Fund's net taxable gains realized in the year ended October 31, 2001.
Note 4. Capital
There are 400 million shares of common stock authorized. At October 31, 2001,
there were 266,781,600 common shares issued and outstanding.
The Preferred Stock shareholders have rights as determined by the Board of
Directors. The 24,000 shares of Auction Market Preferred Stock ("Preferred
Stock") outstanding consist of nine series as follows: Series A--3,000 shares,
Series B--3,000 shares, Series C--2,000 shares, Series D--4,000 shares, Series
E--2,000 shares, Series F--2,000 shares, Series G--3,000 shares, Series H--2,500
shares and Series I--2,500 shares.
Dividends on each series of Preferred Stock are cumulative at a rate established
at the initial public offering and are typically reset every 28 days for Series
A through D and every seven days for Series E through I based on the results of
an auction. Dividend rates ranged from 6.8% to 2.6% during the year ended
October 31, 2001. 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 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 liquidation value plus any accumulated but
unpaid dividends. The Preferred Stock is also subject to mandatory redemption at
liquidation value plus any accumulated but unpaid dividends 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.
Aberdeen Asia-Pacific Income Fund, Inc. 31
Notes to Financial Statements (continued)
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.
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%. Through October 31, 2001,
there had been 595,700 shares repurchased and cancelled under this program.
Note 5. Dividends And Distributions
On November 12, 2001, the Board of Directors declared a monthly distribution of
4.5 cents per share payable on December 14, 2001 to all shareholders of record
as of November 30, 2001 (ex-dividend date of November 28, 2001).
On December 11, 2001, the Board of Directors declared a monthly distribution of
4.5 cents per share payable on January 11, 2002 to all shareholders of record as
of December 31, 2001 (ex-dividend date of December 27, 2001). The Fund also
announced that the Board intends to reduce the monthly distribution from 4.5
cents per share to 3.5 cents per share, beginning with the distribution payable
on February 8, 2002 to all shareholders of record as of January 31, 2002
(ex-dividend date January 29, 2002).
Subsequent to October 31, 2001, dividends and distributions declared and paid on
Preferred Stock totaled approximately $2,173,635 for the nine outstanding
preferred share series in the aggregate through December 21, 2001.
32 Aberdeen Asia-Pacific Income Fund, Inc.
Financial Highlights
Year Ended
October 31, 2001
----------------
PER SHARE OPERATING PERFORMANCE*:
Net asset value per common share, beginning of period .............. $ 4.78
----------
Net investment income .............................................. .53
Net realized and unrealized gain (loss) on investments and
foreign currencies ............................................... (.01)
----------
Total from investment operations .................................. .52
----------
Dividends from net investment income to preferred
shareholders ..................................................... (.11)
Dividends from net investment income to common
shareholders ..................................................... (.22)
Tax return of capital distribution ................................. (.32)
Distributions from net capital and currency gains to
preferred shareholders ........................................... --
Distributions from net capital and currency gains to common
shareholders ....................................................... --
----------
Total dividends and distributions ................................. (.65)
----------
Capital reduction with respect to issuance of shares ............... --
Increase resulting from Fund share repurchase ...................... --##
----------
Net asset value per common share, end of period .................... $ 4.65
==========
Market price per common share, end of period ....................... $ 4.02
==========
TOTAL INVESTMENT RETURN BASED ON+:
Market value ....................................................... 18.74%
Net asset value .................................................... 10.91%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS/SUPPLEMENTAL DATA#:
Expenses++ ......................................................... 1.51%
Net investment income available to common shareholders ............. 8.48%
Portfolio turnover rate ............................................ 47%
Net assets of common shareholders, end of period (000 omitted) ..... $1,241,841
Average net assets of common shareholders (000 omitted) ............ $1,299,044
Senior securities (preferred stock) outstanding (000 omitted) ...... $ 600,000
Asset coverage of preferred stock at period-end .................... 308%
------------------------------
* Calculated based upon average shares outstanding during the period.
+ 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.
++ Includes expenses of both preferred and common stock.
# Ratios 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. Expense ratios relative to
the average net assets of common and preferred shareholders are 1.03%,
.98%, .95%, .95% and .94%, respectively. Ratios to average net assets of
net investment income before preferred stock dividends are 10.76%,10.52%,
9.79%, 10.72% and 9.17%, respectively. Ratios to average net assets of
preferred stock dividends are 2.28%, 2.30%, 1.45%, 2.21% and 1.78%,
respectively.
## Less than $0.005 per share.
34 Aberdeen Asia-Pacific Income Fund, Inc. See Notes to Financial Statements.
Financial Highlights (continued)
Year Ended October 31,
-----------------------------------------------------------
2000 1999 1998 1997
----------- ----------- ----------- -----------
$ 6.20 $ 7.33 $ 8.85 $ 9.93
----------- ----------- ----------- -----------
.60 .67 .82 .87
(1.28) (.35) (1.45) (.96)
----------- ----------- ----------- -----------
(.68) .32 (.63) (.09)
----------- ----------- ----------- -----------
(.13) (.10) (.17) (.17)
(.39) (.63) (.51) (.82)
(.21) -- -- --
(.01) (.02) -- --
-- (.09) (.21) --
----------- ----------- ----------- -----------
(.74) (.84) (.89) (.99)
----------- ----------- ----------- -----------
-- (.61) -- --
-- -- -- --
----------- ----------- ----------- -----------
$ 4.78 $ 6.20 $ 7.33 $ 8.85
=========== =========== =========== ===========
$ 3.86 $ 6.00 $ 5.625 $ 8.125
=========== =========== =========== ===========
(26.73)% 20.96% (23.19)% (0.42)%
(12.19)% (5.15)% (8.10)% (2.37)%
1.36% 1.26% 1.47% 1.25%
8.22% 8.34% 8.51% 7.39%
64% 89% 61% 85%
$ 1,279,346 $ 1,657,365 $ 1,428,142 $ 1,723,025
$ 1,530,638 $ 1,775,894 $ 1,485,690 $ 1,848,378
$ 600,000 $ 600,000 $ 600,000 $ 600,000
316% 376% 338% 387%
NOTE: Contained above is operating performance for a share of common stock
outstanding, total investment return, ratios to average net assets of
common shareholders and other supplemental data for each of the years
indicated. This information has been determined based upon financial
information provided in the financial statements and market value data for
the Fund's common shares.
See Notes to Financial Statements. Aberdeen Asia-Pacific Income Fund, Inc. 35
Report of Independent Accountants
To the Shareholders and Board of Directors of
Aberdeen Asia-Pacific Income Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations, of cash
flows and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Aberdeen Asia-Pacific Income
Fund, Inc. (the `Fund,' formerly known as The First Australia Prime Income Fund,
Inc.) at October 31, 2001, the results of its operations and its cash flows for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as `financial statements') are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 2001 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
December 21, 2001
36 Aberdeen Asia-Pacific Income Fund, Inc.
Portfolio of Investments (unaudited)
April 30, 2002
Principal
Amount
Local
Currency** Value
(000) Description (US$)
---------------------------------------------------
LONG-TERM INVESTMENTS--124.1%
AUSTRALIA--75.0%
Government and Semi-Government--52.1%
Commonwealth of Australia--30.6%
A$
Australia Postal Corporation
22,000 6.00%, 3/25/09 $ 11,540,031
Commonwealth Bank of Australia
5,000 6.00%, 8/1/03 2,709,758
2,800 7.625%, 8/5/03 1,541,488
12,000 5.25%, 12/1/04 6,384,865
8,000 6.00%, 9/1/05 4,323,328
10,000 6.75%, 12/1/07 5,552,489
4,000 6.25%, 2/10/09 2,142,431
10,000 6.25%, 9/1/09 5,371,917
Commonwealth of Australia
45,000 9.50%, 8/15/03 25,491,069
40,000 9.00%, 9/15/04 23,169,612
45,450 7.50%, 7/15/05 25,775,142
10,000 10.00%, 2/15/06 6,163,351
50,000 6.75%, 11/15/06 27,974,401
71,000 10.00%, 10/15/07 45,492,309
77,000 8.75%, 8/15/08 47,389,710
108,000 7.50%, 9/15/09 62,980,347
95,000 5.75%, 6/15/11 49,717,233
60,000 6.50%, 5/15/13 32,953,597
---------------
386,673,078
---------------
New South Wales--4.4%
New South Wales Treasury Corporation
20,000 12.60%, 5/1/06 13,277,145
20,000 8.00%, 3/1/08 11,766,763
55,000 7.00%, 12/1/10 30,774,794
---------------
55,818,702
---------------
Queensland--4.3%
Queensland Treasury Corporation
20,000 6.50%, 6/14/05 10,977,456
15,200 6.00%, 7/14/09 8,062,113
40,000 6.00%, 6/14/11 20,939,457
10,000 6.00%, 10/14/15 5,106,858
17,000 6.00%, 6/14/21 8,560,623
---------------
53,646,507
---------------
South Australia--2.5%
South Australian Financing Authority
55,000 7.50%, 10/15/07 31,449,589
---------------
Tasmania--0.5%
A$
Tasmanian Public Finance Corporation
10,000 9.00%, 11/15/04 $ 5,780,714
---------------
Victoria--5.9%
Treasury Corporation of Victoria
36,000 12.50%, 10/15/03 21,266,752
10,000 6.00%, 11/15/06 5,385,690
20,500 10.25%, 11/15/06 12,878,096
25,000 7.50%, 8/15/08 14,357,016
40,000 5.50%, 9/15/10 20,320,905
---------------
74,208,459
---------------
Western Australia--3.9%
Western Australia Treasury Corporation
26,000 8.00%, 10/15/07 15,219,578
50,000 7.50%, 10/15/09 28,787,323
10,000 7.00%, 4/15/11 5,588,974
---------------
49,595,875
---------------
Total Australian government
and semi-government
(cost $740,529,683) 657,172,924
---------------
Eurobonds--19.3%
Banking and Finance--10.0%
ANZ Banking Corporation
10,000 6.75%,3/22/12 5,266,973
Bank Austria AG
11,278 10.875%, 11/17/04 6,755,183
BHP Finance Limited
5,000 6.25%, 8/15/08 2,621,378
Commonwealth Bank of Australia
10,000 9.00%, 8/15/05 5,854,676
Dexia Municipal Agency
15,000 6.00%, 10/15/07 7,982,812
Federal National Mortgage Association Global
52,065 6.375%, 8/15/07 28,263,120
GE Capital Australia Limited
45,000 6.25%, 8/15/03 24,374,705
10,000 6.25%, 4/15/05 5,393,448
10,000 6.75%, 9/15/07 5,437,182
Jem Bonds Limited
10,000 9.00%, 7/15/06 5,938,681
KFW International Finance
5,513 9.125%, 7/26/05 3,234,802
Northern Territory Authority
8,000 6.50%, 7/15/05 4,240,468
See Notes to Financial Statements. Aberdeen Asia-Pacific Income Fund, Inc. 15
Portfolio of Investments (unaudited) (continued)
April 30, 2002
Principal
Amount
Local
Currency** Value
(000) Description (US$)
-------------------------------------------------------
A$
5,000 10.03%, 8/9/05 $ 3,008,473
10,000 5.75%, 9/14/07 5,283,564
Principal Finance Global Fund
16,650 7.00%, 7/15/05 9,135,804
Progress Trust
2,000 6.00%, 10/15/30 1,078,609
Puma
5,000 7.47%, 2/21/33 2,732,471
----------------
126,602,349
----------------
Semi-Government and Local
Government--6.3%
New South Wales Treasury Corporation
7,000 10.50%, 12/7/04 4,173,461
34,000 12.60%, 5/1/06 22,603,295
7,000 9.25%, 6/20/06 4,111,617
40,000 8.00%, 3/1/08 23,455,950
Queensland Treasury Corporation
20,000 12.00%, 6/15/05 12,666,444
20,000 8.00%, 9/14/07 11,711,555
----------------
78,722,322
----------------
Supranational Global--3.0%
EFIC
2,000 11.00%, 12/29/04 1,207,581
Eurofima
8,170 9.875%, 1/17/07 5,062,766
30,000 6.50%, 8/22/11 16,190,692
European Investment Bank
19,000 6.00%, 7/15/05 10,269,790
Kingdom of Sweden
8,287 7.875%, 4/23/07 4,776,290
Quebec Province
1,500 5.75%, 2/15/06 795,378
----------------
38,302,497
----------------
Total Australian
eurobonds
(cost $277,509,590) 243,627,168
----------------
Corporate Bonds--3.6%
Banking and Finance--0.6%
DSL Bank
15,000 6.25%, 11/15/06 8,103,435
----------------
Floating Rate Notes*--0.0%
Crusade Trust
911 4.6133%, 7/10/29 488,514
----------------
Services--3.0%
A$
GPT Management Limited
10,000 6.50%, 10/15/07 $ 5,324,237
ING Office Finance
4,500 6.25%, 8/19/08 2,395,259
Melbourne Airport
2,000 6.75%, 6/15/08 1,083,463
Telstra Corporation
2,000 7.80%, 7/17/03 1,104,242
7,000 8.00%, 9/15/04 3,934,363
30,000 12.00%, 5/15/06 19,390,126
2,000 8.75%, 1/15/20 1,265,807
Westpac Banking Corporation
5,000 7.00%, 8/2/10 2,696,389
----------------
37,193,886
----------------
Total Australian
corporate bonds
(cost $53,578,406) 45,785,835
----------------
Total Australian
long-term investments
(cost $1,071,617,679) 946,585,927
----------------
EUROPEAN COMMUNITY--0.3%
Corporate Bonds--0.3%
EUR
Oversea - Chinese Banking
Corporation
4,000 7.25%, 9/6/11
(cost $3,548,626) 3,766,472
----------------
HONG KONG--0.2%
Corporate Bonds--0.2%
HKD
GH Water Supply Holdings Limited
16,794 8.00%, 12/22/10
(cost $1,832,847) 1,959,498
----------------
JAPAN--0.9%
Government Bonds--0.9%
JPY
Inchon Metropolitan City
500,000 3.70%, 4/26/06 4,147,194
PTT Exploration & Production
900,000 3.35%, 9/19/07 7,447,427
----------------
Total Japan long-term
investments
(cost $11,925,954) 11,594,621
----------------
16 Aberdeen Asia-Pacific Income Fund, Inc. See Notes to Financial Statements.
Portfolio of Investments (unaudited) (continued)
April 30, 2002
Principal
Amount
Local
Currency** Value
(000) Description (US$)
---------------------------------------------------
KOREA--5.5%
Government Bonds--5.5%
KRW
Korea Deposit Insurance Fund Bond
10,000,000 9.99%, 10/23/03 $ 8,170,472
19,000,000 8.72%, 3/12/04 15,520,961
2,000,000 15.00%, 7/3/04 1,835,169
Korea Treasury Bonds
10,000,000 5.88%, 7/6/03 7,759,360
10,000,000 7.70%, 8/16/03 7,930,914
19,170,000 7.15%, 4/11/06 15,096,903
16,674,000 6.91%, 7/18/11 12,646,753
----------------
Total Korea long-term
investments
(cost $70,585,301) 68,960,532
----------------
MALAYSIA--1.2%
Government Bonds--0.7%
MYR
Malaysia Government Bonds
17,300 5.00%, 4/15/05 4,784,991
11,390 6.844%, 10/1/09 3,450,983
----------------
Total Malaysia
government bonds
(cost $7,649,399) 8,235,974
----------------
Corporate Bonds--0.5%
British American Tobacco Corporation
9,000 7.10%, 11/2/04 2,546,973
YTL Corporation Berhad
13,000 8.50%, 6/29/04 3,729,249
----------------
Total Malaysia
corporate bonds
(cost $6,169,119) 6,276,222
----------------
Total Malaysia
long-term investments
(cost $13,818,518) 14,512,196
----------------
PHILIPPINES--0.7%
Government Bonds--0.7%
PHP
Philippine Government Bond
372,800 18.00%, 11/26/08
(cost $9,090,832) 9,314,651
----------------
SINGAPORE--1.2%
Government Bonds--1.2%
SGD
Singapore Government Bonds
6,000 4.00%, 2/1/05 3,489,307
20,872 4.625%, 7/1/10 12,194,583
----------------
Total Singapore
long-term investments
(cost $15,217,268) $ 15,683,890
----------------
THAILAND--2.0%
Government Bonds--2.0%
THB
Eastern Water Resources
115,000 9.00%, 7/22/04 2,953,984
Export-Import Bank of Thailand
80,000 7.25%, 5/6/04 2,002,190
Thailand Government Bonds
34,400 8.25%, 10/14/03 862,215
185,000 6.25%, 6/15/04 4,597,060
363,100 8.50%, 10/14/05 9,877,774
44,000 8.00%, 12/8/06 1,205,932
68,000 5.60%, 7/7/07 1,696,641
85,000 8.50%, 12/8/08 2,419,308
----------------
Total Thailand
long-term investments
(cost $25,882,506) 25,615,104
----------------
UNITED STATES--37.1%
Yankee Bonds--37.1%
USD
AES China Generating Co. Limited
5,200 10.125%, 12/15/06 4,888,000
Bangkok Bank Public Company
12,500 8.75%, 3/15/07 13,468,750
5,250 9.025%, 3/15/29 5,070,000
Bangkok Sentral Ng
4,000 8.60%, 6/15/27 3,397,575
Cable & Wireless Optus Finance
5,800 8.00%, 6/22/10 6,453,722
China Development Bank
4,000 8.25%, 5/15/09 4,505,240
China Telecom Limited
4,000 7.875%, 11/2/04 4,309,773
Cho Hung Bank
7,500 6.95%, 1/7/05 8,137,500
7,000 11.875%, 4/1/10 8,116,875
CKWB (Cayman Islands) Limited
14,200 7.625%, 7/5/11 14,400,554
CLP Power HK Finance
2,500 6.25%, 5/8/12 2,504,161
CNOOC Finance Limited
4,875 6.375%, 3/8/12 4,906,200
Dao Heng Bank Limited
4,500 7.75%, 1/24/07 4,793,856
See Notes to Financial Statements. Aberdeen Asia-Pacific Income Fund, Inc. 17
Portfolio of Investments (unaudited) (continued)
April 30, 2002
Principal
Amount
Local
Currency** Value
(000) Description (US$)
-------------------------------------------------------
USD
DBS Capital Funding Corporation
7,000 7.657%, 3/15/11 $ 7,247,800
DBS Group Holdings
5,000 7.125%, 5/15/11 5,065,000
Embarc Ireland Limited(a)
5,500 7.70%, 8/18/03 4,385,150
Export-Import Bank Korea
2,000 6.50%, 11/15/06 2,048,600
6,000 7.10%, 3/15/07 6,337,680
Flextronics International Limited
2,500 9.875%, 7/1/10 2,700,000
GH Water Supply Holdings Limited
1,900 7.00%, 6/22/08 1,847,372
Globe Telecom Incorporated
9,000 13.00%, 8/1/09 10,597,500
3,250 9.75%, 4/15/12 3,367,975
Hanvit Bank
4,000 11.75%, 3/1/10 4,609,904
3,500 12.75%, 3/1/10 4,126,252
Hutchison Whampoa International Limited
6,000 7.00%, 2/16/11 6,161,217
Hysan Limited
6,500 7.00%, 2/1/12 6,512,188
Hyundai Motor Co. Limited
2,000 7.33%, 12/12/05 2,079,338
Industrial Finance Corporation
1,000 7.375%, 1/14/07 1,021,761
Jardine Strategic Finance Limited
3,500 6.375%, 11/8/11 3,403,468
Kia Motors Corporation
4,000 9.375%, 7/11/06 4,275,336
Kingdom of Thailand
2,700 7.07%, 9/30/13 2,533,256
Korea Development Bank
8,000 7.125%, 4/22/04 8,452,265
3,000 5.25%, 11/16/06 2,992,500
Korea Electric Power Corporation
9,000 7.75%, 4/1/13 9,588,240
12,500 7.00%, 2/1/27 12,838,625
Kowloon Canton Ry Corporation
18,000 8.00%, 3/15/10 20,111,040
Kumgang Korea Chemical Co. Limited
2,000 7.625%, 6/20/08 2,062,358
LG Caltex Oil Corporation
5,000 7.50%, 7/15/07 4,973,816
3,000 7.75%, 7/25/11 3,024,900
Malaysia
5,000 8.75%, 6/1/09 5,729,500
22,000 7.50%, 7/15/11 23,324,620
MEI Euro Finance Limited
4,000 10.00%, 3/19/07 $ 3,946,000
National Power Corporation
7,000 8.40%, 12/15/16 5,976,901
Oversea - Chinese Banking Corporation
13,000 7.75%, 9/6/11 13,275,320
PCCW-HKTC Capital Limited
8,000 7.75%, 11/15/11 7,924,096
People's Republic of China
1,000 6.80%, 5/23/11 1,056,871
10,000 9.00%, 1/15/96 10,318,690
Petroliam Nasional Berhad
5,000 8.875%, 8/1/04 5,489,263
15,000 7.75%, 8/15/15 15,920,250
Philippine Long Distance Telcom
2,000 10.625%, 5/15/07 2,038,400
1,000 11.375%, 5/12/12 1,017,500
1,000 8.35%, 3/6/17 775,608
Pohang Iron & Steel Corporation
4,000 7.125%, 11/1/06 4,238,732
PTT Exploration & Production
6,500 7.625%, 10/1/06 6,927,750
Quezon Power (Philippines) Limited
4,137 8.86%, 6/15/17 3,109,473
Reliance Industries Limited
7,250 10.25%, 1/15/97 6,389,657
Republic of Philippines
6,000 8.375%, 3/12/09 6,075,000
2,500 9.875%, 3/16/10 2,709,375
14,100 9.375%, 1/18/17 14,720,400
2,000 6.50%*, 12/1/17 1,830,000
19,350 9.875%, 1/15/19 20,195,053
3,500 9.50%, 10/21/24 3,787,452
9,936 10.625%, 3/16/25 10,780,560
Republic of South Korea
14,500 8.875%, 4/15/08 16,878,000
Singapore Telecom
2,600 6.375%, 12/1/11 2,582,277
SK Corporation
3,900 7.50%, 5/31/06 4,117,829
Telekom Malaysia
3,000 7.875%, 8/1/25 2,960,700
Telekomunikasi Selular Finance Limited
4,000 9.75%, 4/30/07 4,010,000
Tenaga Nasional Berhad
7,750 7.625%, 4/1/11 7,533,000
5,000 7.50%, 11/1/25 4,590,000
14,000 7.50%, 1/15/96 11,949,000
18 Aberdeen Asia-Pacific Income Fund, Inc. See Notes to Financial Statements.
Portfolio of Investments (unaudited) (continued)
April 30, 2002
Principal
Amount
Local
Currency** Value
(000) Description (US$)
-------------------------------------------------------
USD
Thai Farmers Bank PLC
2,400 8.25%, 8/21/16 $ 2,314,080
Total Access Communication Public
7,000 8.375%, 11/4/06 6,872,600
----------------
Total United States
long-term investments
(cost $426,690,137) 468,679,704
----------------
Total long-term
investments
(cost $1,650,209,668) 1,566,672,595
----------------
SHORT-TERM INVESTMENTS--19.8%
AUSTRALIA--10.6%
Government and Semi-Government--0.9%
South Australia--0.9%
A$
South Australian Financing Authority
20,000 10.00%, 1/15/03
(cost $17,401,576) 11,111,690
----------------
Eurobonds--4.9%
Banking and Finance--3.4%
Banque National de Paris
14,000 9.00%, 8/13/02 7,599,542
Federal National Mortgage Association
Global
35,000 6.50%, 7/10/02 18,855,495
GE Capital Australia Limited
15,000 7.00%, 10/15/02 8,127,558
National Australia Bank Limited
10,000 6.25%, 10/15/02 5,402,599
State Bank of New South Wales
6,400 9.00%, 9/17/02 3,487,262
----------------
43,472,456
----------------
Supranational Global--1.5%
European Bank of Reconstruction &
Development
34,000 9.00%, 10/15/02 18,590,480
----------------
Total Australian
eurobonds
(cost $76,543,408) 62,062,936
----------------
Corporate Bonds--0.4%
Asset Backed--0.0%
FANMAC 25
216 10.33%, 6/15/02 116,541
----------------
Services--0.4%
A$
Telstra Corporation
8,000 11.50%, 10/15/02 $ 4,419,930
----------------
Total Australian
corporate bonds
(cost $6,249,058) 4,536,471
----------------
Demand Deposits--4.4%
Banque National de Paris Demand
Deposit
103,138 4.00%, 5/1/02
(cost $54,353,228) 55,378,350
----------------
Total Australian
short-term investments
(cost $154,547,270) 133,089,447
----------------
KOREA--0.9%
Government Bonds--0.9%
KRW
Korea Monetary Stabilization Bond
4,409,000 7.75%, 7/19/02 3,431,664
Korea Treasury Bonds
10,000,000 7.10%, 11/10/02 7,818,863
----------------
Total Korea short-term
investments
(cost $11,587,575) 11,250,527
----------------
MALAYSIA--0.0%
Government Bonds--0.0%
MYR
Malaysia Government Bonds
2,000 4.427%, 3/31/03
(cost $524,537) 533,494
----------------
NEW ZEALAND--0.3%
Demand Deposits--0.3%
NZD
New Zealand Call Deposit
7,441 4.00%, 5/1/02
(cost $3,345,220) 3,329,904
----------------
SINGAPORE--0.1%
Government Bonds--0.1%
SGD
Singapore Government Bonds
1,200 3.00%, 11/1/02
(cost $692,132) 669,612
----------------
See Notes to Financial Statements. Aberdeen Asia-Pacific Income Fund, Inc. 19
Portfolio of Investments (unaudited) (continued)
April 30, 2002
Principal
Amount
Local
Currency** Value
(000) Description (US$)
---------------------------------------------------
Corporate Bonds--0.0%
SGD
General Motors Acceptance
Corporation
1,000 3.95%, 4/25/03
(cost $580,136) $ 559,393
------------
Total Singapore
short-term investments
(cost $1,272,268) 1,229,005
------------
THAILAND--0.2%
Corporate Bonds--0.2%
THB
Advance Information Services PLC
96,000 6.25%, 3/31/03
(cost $2,533,260) 2,284,909
------------
UNITED STATES--7.7%
Yankee Bonds--1.2%
USD
Embarc Ireland
6,900 7.01%, 6/28/02(b) 5,454,472
Industrial Bank of Korea
4,000 8.375%, 9/30/02 4,082,373
Republic of South Korea
5,500 8.75%, 4/15/03 5,809,375
------------
Total United States
yankee bonds
(cost $15,726,622) 15,346,220
------------
Repurchase Agreement--6.5%
USD
82,116 State Street Bank &
Trust Company 1.77%
due 5/1/02 in the
amount of $82,119,982
(cost $82,116,000;
collateralized by United
States Treasury Bond
5.625% due 5/15/08;
value including accrued
interest - $83,766,800) $ 82,116,000
------------
Total United States
short-term investments
(cost $97,842,622) 97,462,220
------------
Total short-term
investments
(cost $271,652,752) 249,179,506
------------
-------------------------------------------------------------------------------
Total Investments--143.9% (cost $1,921,862,420) 1,815,852,101
Other assets in excess of liabilities--3.6% 46,457,159
Liquidation value of preferred stock--(47.5%) (600,000,000)
-------------------------------------------------------------------------------
Net Assets Applicable to Common Shareholders--100% $ 1,262,309,260
-------------------------------------------------------------------------------
Net asset value per common share ($1,262,309,260 / 264,698,700 shares of
common stock issued and outstanding) $ 4.77
-------------------------------------------------------------------------------
------------------------------------
* The interest rate reflected for floating rate notes is the rate in effect at
April 30, 2002.
** Portfolio securities are listed in currency in which they are
traded.
A$--Australian dollar
EUR--Euro
HKD--Hong Kong Dollar
JPY--Japanese Yen
KRW--South Korean Won
MYR--Malaysian Ringgit
NZD--New Zealand dollar
PHP--Philippine peso
SGD--Singapore dollar
THB--Thailand Baht
USD--United States dollar
(a) Value of security is linked to the value of Government of Korea 7.70%,
8/16/03 and the movement of the South Korean won.
(b) Value of security is linked to the value of Korea Development Bank 7.01%,
6/2/02 and the movement of the South Korean
See Notes to Financial Statements.
Statement of Assets and Liabilities (unaudited)
April 30, 2002
Assets
Investments, at value (cost $1,921,862,420) ................................... $ 1,815,852,101
Foreign currency, at value (cost $25,272,180) ................................. 26,408,726
Cash .......................................................................... 9,144,984
Interest receivable ........................................................... 30,476,112
Unrealized appreciation on interest rate and currency swaps ................... 2,810,247
Unrealized appreciation on forward currency contracts ......................... 546,760
Other assets .................................................................. 255,374
---------------
Total assets .............................................................. 1,885,494,304
---------------
Liabilities
Payable for investments purchased ............................................. 9,634,369
Dividends payable-common stock ................................................ 9,264,454
Withholding taxes payable ..................................................... 1,439,070
Accrued expenses and other liabilities ........................................ 1,190,369
Investment management fee payable ............................................. 790,029
Dividends payable-preferred stock ............................................. 712,013
Administration fee payable .................................................... 154,740
---------------
Total liabilities ......................................................... 23,185,044
---------------
Preferred stock ($.01 par value per share and $25,000 liquidation
value per share applicable to 24,000 shares; Note 5) ........................ 600,000,000
---------------
Net Assets Applicable to Common Shareholders .................................. $ 1,262,309,260
===============
Total net assets were composed of:
Common stock:
Par value ($.01 per share, applicable to 264,698,700 shares) .............. $ 2,646,987
Paid-in capital in excess of par .......................................... 1,889,417,415
---------------
1,892,064,402
Distributions in excess of net investment income ............................ (80,598,479)
Accumulated net realized loss on investments ................................ (887,366)
Net unrealized appreciation on investments .................................. 14,886,857
Accumulated net realized and unrealized foreign exchange losses ............. (563,156,154)
---------------
Net Assets Applicable to Common Shareholders .................................. $ 1,262,309,260
===============
Net asset value per common share: ($1,262,309,260 / 264,698,700
shares of common stock issued and outstanding) .............................. $ 4.77
===============
See Notes to Financial Statements. Aberdeen Asia-Pacific Income Fund, Inc. 21
Statement of Operations (unaudited)
Six Months Ended April 30, 2002
Net Investment Income
Income
Interest (net of foreign withholding taxes of $2,909,147) ...... $ 63,828,932
------------
Expenses
Investment management fee ...................................... 4,935,300
Administration fee ............................................. 1,122,976
Custodian's fees and expenses .................................. 1,050,000
Auction agent's fees and broker commissions .................... 800,000
Reports to shareholders ........................................ 375,000
Directors' fees and expenses ................................... 308,000
Transfer agent's fees and expenses ............................. 225,000
Legal fees and expenses ........................................ 225,000
Insurance expense .............................................. 147,000
Independent accountant's fees and expenses ..................... 90,000
Investor relations fees and expenses ........................... 88,000
Miscellaneous .................................................. 45,493
------------
Total operating expenses ....................................... 9,411,769
------------
Net investment income ............................................ 54,417,163
------------
Realized and Unrealized Gains (Losses) on Investments
and Foreign Currencies
Net realized gain on:
Investment transactions ........................................ 369,343
------------
Net change in unrealized appreciation (depreciation) on:
Investments .................................................... (57,675,488)
Interest rate and currency swaps ............................... 1,832,109
------------
(55,843,379)
------------
Net loss on investments .......................................... (55,474,036)
------------
Net decrease in total net assets from operations before net
foreign exchange gains ......................................... (1,056,873)
Net realized and unrealized foreign exchange gains ............... 97,106,203
Dividends on Preferred Stock ..................................... (6,207,876)
------------
Net Increase In Net Assets Applicable to Common
Shareholders Resulting From Operations ........................... $ 89,841,454
============
22 Aberdeen Asia-Pacific Income Fund, Inc. See Notes to Financial Statements.
Statement of Cash Flows (unaudited)
Six Months Ended April 30, 2002
Increase (Decrease) in Cash (Including Foreign
Currency)
Cash flows used for operating activities
Interest received (excluding premium amortization
of $4,401,239) ............................................... $ 69,778,265
Expenses paid .................................................. (9,610,957)
Proceeds from sales of short-term portfolio investments, net ... 109,923,115
Purchases of long-term portfolio investments ................... (282,629,667)
Proceeds from sales of long-term portfolio investments ......... 280,478,100
Dividends and distributions paid to preferred shareholders ..... (6,354,180)
Other .......................................................... 166,517
--------------
Net cash provided from operating activities .................. 161,751,193
--------------
Cash flows used for financing activities
Dividends and distributions paid to common shareholders ........ (63,811,310)
Cost of Fund shares reacquired in repurchase program ........... (8,302,899)
--------------
Net cash used for financing activities ....................... (72,114,209)
--------------
Effect of changes in exchange rate ............................... (64,289,512)
--------------
Net increase in cash ............................................. 25,347,472
Cash at beginning of period .................................... 10,206,238
--------------
Cash at end of period .......................................... $ 35,553,710
==============
Reconciliation of Net Increase in Total Net Assets
from Operations to Net Cash (Including Foreign
Currency) Provided From Operating Activities
Net increase in total net assets resulting from operations ....... $ 89,841,454
--------------
Decrease in investments ........................................ 110,850,755
Net realized gain on investment transactions ................... (369,343)
Increase in unrealized appreciation on forward
currency contracts ............................................. (323,996)
Net change in unrealized appreciation on investments ........... 55,843,379
Net realized and unrealized foreign exchange gains ............. (97,106,203)
Decrease in interest receivable ................................ 1,611,806
Net decrease in other assets ................................... 166,517
Increase in payable for investments purchased .................. 7,853,904
Decrease in accrued expenses and other liabilities ............. (262,900)
Dividends and distributions paid to preferred shareholders ..... (6,354,180)
--------------
Total adjustments ............................................ 71,909,739
--------------
Net cash provided from operating activities ...................... $ 161,751,193
==============
See Notes to Financial Statements. Aberdeen Asia-Pacific Income Fund, Inc. 23
Statement of Changes in Net Assets (unaudited)
Six Months Year
Ended Ended
April 30, 2002 October 31, 2001
------------------ ------------------
Increase (Decrease) in Net Assets
Operations
Net investment income ................ $ 54,417,163 $ 139,812,296
Net realized gains on
investment transactions ............ 369,343 3,740,038
Net change in unrealized
appreciation (depreciation)
on investments ..................... (55,843,379) 68,418,255
-------------- --------------
Net increase/decrease in total
net assets resulting from
operations before net foreign
exchange gains (losses) ............ (1,056,873) 211,970,589
Net realized and unrealized
foreign exchange gains (losses) .... 97,106,203 (73,152,895)
Dividends on Preferred Stock ......... (6,207,876) (29,663,738)
-------------- --------------
Net increase in total net assets
resulting from operations ............ 89,841,454 109,153,956
-------------- --------------
Dividends from net investment income
Common shares ........................ (61,070,592) (58,797,328)
-------------- --------------
Tax return of capital
distribution ......................... -- (85,450,731)
-------------- --------------
Cost of Fund shares reacquired in
repurchase program (2,082,900
and 595,700 shares,
respectively) ........................ (8,302,899) (2,412,750)
-------------- --------------
Total increase (decrease) in net
assets applicable to common
shareholders ......................... 20,467,963 (37,506,853)
Total Net Assets Applicable to
Common Shareholders
Beginning of period(a) ................. 1,241,841,297 1,279,348,150
-------------- --------------
End of period .......................... $1,262,309,260 $1,241,841,297
============== ==============
(a) Amounts have been restated to conform to new requirements under generally
accepted accounting principles.
24 Aberdeen Asia-Pacific Income Fund, Inc. See Notes to Financial Statements.
Notes to Financial Statements (unaudited)
Aberdeen Asia-Pacific Income Fund, Inc. (the "Fund") was incorporated in
Maryland on March 14, 1986 as a closed-end, non-diversified management
investment company. The Fund's investment objective is to seek current income.
The Fund may also achieve incidental capital appreciation. The Fund will seek to
achieve its investment objective through investment in Asian debt securities and
Australian debt securities. There can be no assurance that the Fund will achieve
its objectives. The ability of issuers of debt securities held by the Fund to
meet their obligations may be affected by economic developments in a specific
industry, country 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.
Security Valuation:
Investments are stated at value. Investments for which market quotations are
readily available are valued based on prices provided by a pricing service or
the lower of the quotations from two leading brokers in the relevant debt
securities market, in the event that a price cannot be obtained by the pricing
service. Securities for which market quotations are not readily available are
valued at fair value using methods determined in good faith by or under the
direction of the Fund's Board of Directors.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
Repurchase Agreements:
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian takes 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 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.
Aberdeen Asia-Pacific Income Fund, Inc. 25
Notes to Financial Statements (unaudited) (continued)
Foreign Currency Translation:
Australian dollar ("A$"), New Zealand dollar ("NZD") and Asian currency amounts
are translated into United States dollars on the following basis:
(i) market value of investment securities, other assets and liabilities--at the
exchange rates at the end of the reporting periods;
(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 April 30, 2002.
Similarly, the Fund isolates the effect of changes in foreign exchange rates
from the fluctuations arising from changes in the market prices of portfolio
securities sold during the reporting periods.
Net realized and unrealized foreign exchange gains include realized foreign
exchange gains and losses from sales and maturities of portfolio securities,
sales of foreign currencies, currency gains or losses realized between the trade
and settlement dates on securities transactions, the difference between the
amounts of interest, discount and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent amounts actually received or paid
and changes in unrealized foreign exchange gains and losses in the value of
portfolio securities and other assets and liabilities arising as a result of
changes in the exchange rate. Accumulated net realized and unrealized foreign
exchange gains shown in the composition of net assets at April 30, 2002
represent foreign exchange gains 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
U.S. dollar.
The exchange rate at April 30, 2002 was US$.54 to A$1.00 for the Australian
dollar.
Securities Transactions and Investment Income:
Securities transactions are recorded on the trade date. Realized and unrealized
gains and losses from security and currency transactions are calculated on the
identified cost basis. Interest income is recorded on an accrual basis.
Discounts on short-term
26 Aberdeen Asia-Pacific Income Fund, Inc.
Notes to Financial Statements (unaudited) (continued)
securities are accreted over the life of the security. Original issue discount
is accreted over the life of the security based upon the effective yield. Market
discounts on long-term securities are recognized upon disposition. Expenses are
recorded on the accrual basis which may require the use of certain estimates by
management. Actual results could differ from those estimates.
Changes in Accounting Principles:
As required, effective November 1, 2001, the Fund adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies and began amortizing
premiums on debt securities for financial statement reporting purposes. This
change had no impact on the net asset value of the Fund. Prior to November 1,
2001, the Fund did not amortize premiums on debt securities. Upon initial
adoption, the Fund was required to adjust the cost of its fixed-income
securities by the cumulative amounts of amortization that would have been
recognized had the amortization been in effect from the purchase date of each
holding. Adopting the accounting principle does not affect the Fund's net asset
value, but changes the classification of certain amounts between interest income
and realized and unrealized gain (loss) in the Statement of Operations. The
cumulative adjustment upon adoption resulted in an increase to distributions in
excess of net investment income and an increase to unrealized appreciation on
investments of $53,370,903. Because the Fund determines its required
distributions under Federal income tax laws, adoption of this principle does not
affect the amount or composition of distributions paid to shareholders.
In July 2001, a Securities and Exchange Commission staff announcement, Emerging
Issues Task Force Discussion ("EITF D-98"), Classification and Measurement of
Redeemable Securities, was issued providing new guidance related to the
presentation of preferred shares in financial statements. EITF D-98 is required
to be applied beginning with fiscal quarters ending after December 15, 2001 on a
retroactive basis, by restating the prior year's financial statements. In
accordance with the announcement, the Fund has presented its preferred shares
outside of net assets and has presented dividends to preferred shareholders (on
such preferred shares) in the net change in net assets attributable to common
shareholders resulting from operations for all periods presented. Therefore,
beginning net assets attributable to common shareholders have been restated and
dividend activity related to preferred shares has been reclassified from the
capital activity in the statements of changes in net assets and the financial
highlights to operating activity. The application of EITF
Aberdeen Asia-Pacific Income Fund, Inc. 27
Notes to Financial Statements (unaudited) (continued)
D-98 related entirely to presentation and had no impact on net asset value or
the allocation of net income or capital gains or losses to common shareholders.
Forward Currency Contracts:
A forward currency contract is a commitment to purchase or sell a foreign
currency at a future date at a negotiated forward rate. The Fund enters into
forward currency contracts in order to hedge its exposure to changes in foreign
currency exchange rates on its foreign portfolio holdings or on specific
receivables and payables denominated in a foreign currency. The contracts are
valued daily at current exchange rates and any unrealized gain or loss is
included in net unrealized appreciation or depreciation on investments. Gain or
loss is realized on the settlement date of the contract equal to the difference
between the settlement value of the original and renegotiated forward contracts.
This gain or loss, if any, is included in net realized gain (loss) on foreign
currency transactions. Risks may arise upon entering into these contracts from
the potential inability of the counterparties to meet the terms of their
contracts.
Financial Futures Contracts:
A financial futures contract is an agreement to purchase (long) or sell (short)
an agreed amount of securities or commodities at a set price for delivery on a
future date. Upon entering into a financial futures contract, the Fund is
required to pledge to the broker an amount of cash and/or other assets equal to
a certain percentage of the contract amount. This amount is known as the
`initial margin.' Subsequent payments, known as `variation margin,' are made or
received by the Fund when the contract expires or is closed, depending on the
daily fluctuations in the value of the underlying security or commodity. Such
variation margin is recorded for financial statement purposes on a daily basis
as unrealized gain or loss. When the contract expires or is closed, the gain or
loss is realized and is presented in the statement of operations as net realized
gain (loss) on financial futures contracts.
The Fund invests in financial futures contracts in order to hedge existing
portfolio securities, or securities the Fund intends to purchase, against
fluctuations in value. Under a variety of circumstances, the Fund may not
achieve the anticipated benefits of the financial futures contracts and may
realize a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts and the underlying
assets.
28 Aberdeen Asia-Pacific Income Fund, Inc.
Notes to Financial Statements (unaudited) (continued)
Securities Lending:
The Fund's investment policies permit the Fund to lend to banks and
broker-dealers, portfolio securities with an aggregate market value of up to 15%
of the Fund's total assets when it deems advisable. Pursuant to a securities
lending agreement (`Agreement') between the Fund and State Street Bank and Trust
Company (`State Street'), any loans made under the Agreement must be secured by
collateral (consisting of any combination of cash, U.S. Government securities,
irrevocable letters of credit or other hiqh-quality debt securities) in an
amount at least equal (on a daily marked-to-market basis) to the current market
value of the securities loaned. A proposed amendment to the Agreement provides
that the cash collateral may be invested in State Street Navigator Securities
Lending Trust, an affiliate of State Street, and proceeds from this investment
would be divided 70% as to the Fund and 30% as to State Street.
The Agreement also provides that the Fund may terminate the loans at any time
and obtain the return of the securities, and that the Fund will continue to
receive any interest or dividends obtained on any of the loaned securities and
will continue to have voting rights with respect to the securities.
In the event the Fund lends its portfolio securities, the Fund may be exposed to
counterparty risk, which may result in the delay in recovery of the loaned
securities or possible loss of right in the collateral should the borrower
become insolvent. However, under the proposed amendment to the Agreement, State
Street will indemnify the Fund in the case of borrower default.
Interest Rate and Currency Swap:
An interest rate and currency swap is an agreement between two parties which
involves exchanging principal and fixed rate interest payments in one currency
for principal and fixed rate interest payments in another currency for a
specified period of time. Interest rate and currency swaps involve the accrual
and exchange of interest payments between the parties.
During the term of the swap, changes in the value of the swap are recognized as
unrealized gains or losses by `marking-to-market' to reflect the market value of
the swap. When the swap is terminated, the Fund will record a realized gain or
loss equal to the difference, if any, between the proceeds from (or cost of) the
closing transaction and the Fund's basis in the contract.
Aberdeen Asia-Pacific Income Fund, Inc. 29
Notes to Financial Statements (unaudited) (continued)
The Fund is exposed to credit loss in the event of non-performance by the other
party to the currency rate swap. However, the Fund does not anticipate
non-performance by any counterparty.
Dividends and Distributions:
It is the Fund's current policy to pay dividends from net investment income
supplemented by net realized foreign exchange gains, net realized short-term
capital gains and return of capital distributions if necessary, on a monthly
basis. The Fund will also declare and pay distributions at least annually from
net realized gains on investment transactions and net realized foreign exchange
gains, if any. Dividends and distributions to common shareholders are recorded
on the ex-dividend date. Dividends and distributions to preferred shareholders
are accrued on a weekly basis and are determined as described in Note 4.
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, loss deferrals
and recognition of market discount.
Taxes:
For federal income and excise tax purposes, the Fund's transactions are
accounted for using the Australian dollar as the functional currency.
Accordingly, only realized currency gains and losses resulting from the
repatriation of Australian dollars into United States dollars or transactions in
New Zealand dollars or Asian country currencies are recognized for tax purposes.
No provision has been made for United States income taxes because it is the
Fund's policy to continue to meet the requirements of the United States Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to shareholders. The chart below summarizes the
withholding tax rates in effect on interest income at the period end.
Withholding
Country Tax Rate
------------------------------------
Australia 10%
Japan 10
Korea 12
Malaysia 30
New Zealand 10
30 Aberdeen Asia-Pacific Income Fund, Inc.
Notes to Financial Statements (unaudited) (continued)
Withholding
Country Tax Rate
------------------------------------
Philippines 15%
Singapore 30
Thailand 10
Cash Flow Information:
The Fund invests in securities and makes distributions to common shareholders
from net investment income and net realized gains from investment and currency
transactions, and to the extent necessary, from return of paid-in capital. These
distributions are paid in cash or are reinvested at the discretion of
shareholders. These activities are reported in the Statement of Changes in Net
Assets and additional information on cash receipts and cash payments is
presented in the Statement of Cash Flows. Cash includes domestic and foreign
currency.
Note 2. Agreements
Aberdeen Asset Managers (C.I.) Limited (the "Investment Manager") serves as
investment manager to the Fund and Aberdeen Asset Management Limited (the
`Investment Adviser') serves as investment adviser to the Fund pursuant to a
management agreement and an advisory agreement, respectively, each dated
December 22, 2000. The Investment Manager and the Investment Adviser are wholly
owned subsidiaries of Aberdeen Asset Management PLC.
The Investment Manager makes investment decisions on behalf of the Fund on the
basis of recommendations and information furnished to it by the Investment
Adviser, including the selection of and the placement of orders with brokers and
dealers to execute portfolio transactions on behalf of the Fund.
The management agreement provides the Investment Manager with a fee, computed
weekly and payable monthly, at the following annual rates: 0.65% of the Fund's
average weekly total net assets of common and preferred shareholders up to $200
million, 0.60% of such assets between $200 million and $500 million, 0.55% of
such assets between $500 million and $900 million, 0.50% of such assets between
$900 million and $1,750 million and 0.45% of such assets in excess of $1,750
million.
The Investment Manager pays fees to the Investment Adviser for its services
rendered. The Investment Manager informed the Fund that it paid $2,137,975 to
the Investment Adviser during the period ended April 30, 2002.
Aberdeen Asia-Pacific Income Fund, Inc. 31
Notes to Financial Statements (unaudited) (continued)
Prudential Investments LLC (formerly known as Prudential Investments Fund
Management LLC) (the "Administrator") serves as administrator to the Fund
pursuant to an agreement dated December 9, 1988. The administration agreement
provides the Administrator with a fee at the annual rate of 0.15% of the Fund's
average weekly total net assets of common and preferred shareholders up to $900
million, 0.10% of such assets between $900 million and $1,750 million and 0.07%
of such assets in excess of $1,750 million. During the six months, the
Administrator remitted $120,000 to the Investment Manager for certain compliance
related administrative services provided.
Under terms of an Investor Relations Services Agreement, Aberdeen Asset
Management ("Aberdeen"), a wholly owned subsidiary of the Investment Manager,
serves as the Fund's investor relations services provider. This agreement
provides Aberdeen with a monthly retainer fee of $10,000 plus out-of-pocket
expenses. During the six months ended April 30, 2002, the Fund incurred fees of
approximately $60,000 for the services of Aberdeen. As of April 30, 2002,
$10,000 of this amount 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, 2002 aggregated $348,280,447 and
$280,478,100, respectively.
The Fund entered into two interest rate and foreign currency swaps on February
16, 1999. Under the terms of the first swap, the Fund receives interest at a
rate of 11.50% based on a notional amount of KRW5,124,367,250 and pays interest
at a rate of 3.70% based on a notional amount of JPY500,000,000. Under the terms
of the second swap, the Fund receives interest at a rate of 13.05% based on a
notional amount of THB290,920,192 and pays interest at a rate of 3.35% based on
a notional amount of JPY900,000,000. Net receipts or payments of such amounts
are exchanged semi-annually. At April 30, 2002 the unrealized appreciation on
currency swaps was $2,892,540. The swaps are scheduled to terminate on April 26,
2006.
The Fund entered into an interest rate swap agreement on September 1, 2000.
Under the terms of the agreement, the Fund receives a floating rate of interest
based on a notional value of SGD 4,000,000 and pays interest at a fixed rate of
4.835%
32 Aberdeen Asia-Pacific Income Fund, Inc.
Notes to Financial Statements (unaudited) (continued)
based on a notional value of SGD 4,000,000. Net receipts of payments of such
amounts are exchanged semi-annually. At April 30, 2002 the unrealized
depreciation on this interest rate swap was $150,121. The swap is scheduled to
terminate on September 6, 2010.
Net interest income of $426,341 on interest rate and currency swaps during the
period is included in interest income in the Statement of Operations. At April
30, 2002 the Fund had outstanding forward currency contracts to buy and sell
foreign currency as follows:
Value at
Foreign Currency Settlement Current
Sale Contract Date Receivable Value Appreciation
--------------------------- --------------- ----------- --------------
Thailand Baht
settlement date 6/18/02 $ 7,100,000 $ 7,099,935 $ 65
=========== =========== ========
Value at
Foreign Currency Settlement Current
Purchase Contract Date Payable Value Appreciation
--------------------------- --------------- ----------- --------------
Indian Rupee
settlement date 5/6/02 $ 6,867,000 $ 6,928,729 $ 61,729
Philippine Peso
settlement date 5/23/02 3,660,000 3,698,291 38,291
settlement date 6/26/02 6,306,264 6,381,893 75,629
settlement date 7/29/02 10,400,000 10,429,525 29,525
South Korean Won
settlement date 6/28/02 16,700,000 16,780,326 80,326
settlement date 7/9/02 6,500,000 6,745,578 245,578
Taiwan Dollar
settlement date 7/25/02 7,500,000 7,501,081 1,081
Thailand Baht
settlement date 6/18/02 7,100,000 7,109,779 9,779
Yuan Renminbi
settlement date 7/24/02 3,680,000 3,684,757 4,757
----------- ----------- --------
$68,713,264 $69,259,959 $546,695
=========== =========== ========
Aberdeen Asia-Pacific Income Fund, Inc. 33
Notes to Financial Statements (unaudited) (continued)
Note 4. Tax Information
The United States federal income tax basis of the Fund's investments and the net
unrealized appreciation as of April 30, 2002 were as follows:
Net
Tax Basis Unrealized
of Investments Appreciation Depreciation Depreciation
-------------- ------------ ------------ ------------
$1,818,513,877 $41,121,460 $(43,783,236) $(2,661,776)
The difference between book basis and tax basis was primarily attributable to
deferred losses on wash sales and methodologies governing currency conversion.
Note 5. Capital
There are 400 million shares of common stock authorized. At April 30, 2002,
there were 264,698,700 common shares issued and outstanding.
The Preferred Stock shareholders have rights as determined by the Board of
Directors. The 24,000 shares of Auction Market Preferred Stock ("Preferred
Stock") outstanding consist of nine series as follows: Series A--3,000 shares,
Series B--3,000 shares, Series C--2,000 shares, Series D--4,000 shares, Series
E--2,000 shares, Series F--2,000 shares, Series G--3,000 shares, Series H--2,500
shares and Series I--2,500 shares.
Dividends on each series of Preferred Stock are cumulative at a rate established
at the initial public offering and are typically reset every 28 days for Series
A through D and every seven days for Series E through I based on the results of
an auction. Dividend rates ranged from 2.7% to 1.7% during the six months ended
April 30, 2002. 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 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 liquidation value plus any accumulated but
unpaid dividends. The Preferred Stock is also subject to mandatory redemption at
liquidation value plus any accumulated but unpaid dividends 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.
34 Aberdeen Asia-Pacific Income Fund, Inc.
Notes to Financial Statements (unaudited) (continued)
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.
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%. Through April 30, 2002,
there had been 2,678,600 shares repurchased and cancelled under this program.
Note 6. Dividends and Distributions
On May 13, 2002 and June 19, 2002, the Board of Directors declared a monthly
distribution of 3.5 cents per share payable on June 7, 2002 and July 12, 2002 to
all shareholders of record as of May 31, 2002 and June 28, 2002 (ex-dividend
dates May 29, 2002 and June 26, 2002, respectively).
Subsequent to April 30, 2002, dividends and distributions declared and paid on
Preferred Stock totaled approximately $1,053,210 for the nine outstanding
preferred share series in the aggregate through June 21, 2002.
Aberdeen Asia-Pacific Income Fund, Inc. 35
Financial Highlights (unaudited)
Six Months
Ended
April 30, 2002
----------------
PER SHARE OPERATING PERFORMANCE*:
Net asset value per common share, beginning of period ............................ $ 4.65
-------------
Net investment income ............................................................ .20
Net realized and unrealized gain (loss) on investments and foreign currencies .... .16
-------------
Total from investment operations ................................................ .36
-------------
Dividends from net investment income to preferred shareholders ................... (.02)
Dividends from net investment income to common shareholders ...................... (.22)
Tax return of capital distribution ............................................... --
Distributions from net capital and currency gains to preferred shareholders ...... --
Distributions from net capital and currency gains to common shareholders ......... --
-------------
Total dividends and distributions ............................................... (.24)
-------------
Capital reduction with respect to issuance of shares ............................. --
Increase resulting from Fund share repurchase .................................... --##
-------------
Net asset value per common share, end of period .................................. $ 4.77
=============
Market price per common share, end of period ..................................... $ 4.45
=============
TOTAL INVESTMENT RETURN BASED ON+:
Market value ..................................................................... 17.02%
Net asset value .................................................................. 8.44%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS/SUPPLEMENTAL DATA#:
Expenses++ ....................................................................... 1.53%
Net investment income available to common shareholders ........................... 7.85%
Portfolio turnover rate .......................................................... 18%
Net assets of common shareholders, end of period (000 omitted) ................... $ 1,262,309
Average net assets of common shareholders (000 omitted) .......................... $ 1,237,975
Senior securities (preferred stock) outstanding (000 omitted) .................... $ 600,000
Asset coverage of preferred stock at period-end .................................. 312%
------------------------------
* Calculated based upon average shares outstanding during the period.
+ 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.
++ Includes expenses of both preferred and common stock.
# Ratios 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. Expense ratios relative to
the average net assets of common and preferred shareholders are 1.03%,
1.03%, .98%, .95%, .95% and .94%, respectively. Ratios to average net
assets of net investment income before preferred stock dividends are 8.86%,
10.76%, 10.52%, 9.79%, 10.72% and 9.17%, respectively. Ratios to average
net assets of preferred stock dividends are 1.01%, 2.28%, 2.30%, 1.45%,
2.21% and 1.78%, respectively.
## Less than $0.005 per share.
36 Aberdeen Asia-Pacific Income Fund, Inc. See Notes to Financial Statements.
Financial Highlights (unaudited) (continued)
Year Ended October 31,
---------------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
$ 4.78 $ 6.20 $ 7.33 $ 8.85 $ 9.93
----------- ----------- ----------- ----------- -----------
.53 .60 .67 .82 .87
(.01) (1.28) (.35) (1.45) (.96)
----------- ----------- ----------- ----------- -----------
.52 (.68) .32 (.63) (.09)
----------- ----------- ----------- ----------- -----------
(.11) (.13) (.10) (.17) (.17)
(.22) (.39) (.63) (.51) (.82)
(.32) (.21) -- -- --
-- (.01) (.02) -- --
-- -- (.09) (.21) --
----------- ----------- ----------- ----------- -----------
(.65) (.74) (.84) (.89) (.99)
----------- ----------- ----------- ----------- -----------
-- -- (.61) -- --
--## -- -- -- --
----------- ----------- ----------- ----------- -----------
$ 4.65 $ 4.78 $ 6.20 $ 7.33 $ 8.85
=========== =========== =========== =========== ===========
$ 4.02 $ 3.86 $ 6.00 $ 5.625 $ 8.125
=========== =========== =========== =========== ===========
18.74% (26.73)% 20.96% (23.19)% (0.42)%
10.91% (12.19)% (5.15)% (8.10)% (2.37)%
1.51% 1.36% 1.26% 1.47% 1.25%
8.48% 8.22% 8.34% 8.51% 7.39%
47% 64% 89% 61% 85%
$ 1,241,841 $ 1,279,346 $ 1,657,365 $ 1,428,142 $ 1,723,025
$ 1,299,044 $ 1,530,638 $ 1,775,894 $ 1,485,690 $ 1,848,378
$ 600,000 $ 600,000 $ 600,000 $ 600,000 $ 600,000
308% 316% 376% 338% 387%
NOTE: Contained above is operating performance for a share of common stock
outstanding, total investment return, ratios to average net assets of
common shareholders and other supplemental data for each of the years
indicated. This information has been determined based upon financial
information provided in the financial statements and market value data for
the Fund's common shares.
See Notes to Financial Statements. Aberdeen Asia-Pacific Income Fund, Inc. 37
APPENDIX A
ECONOMIC INFORMATION
APPENDIX B
BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements
because their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Unrated: When no rating has been assigned, or when a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be formed;
if a bond is called for redemptions; or for other reasons.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each general
rating classification from Aa through B. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
STANDARD & POOR'S CORPORATION
AAA: Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a very strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in the higher rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB: Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B: Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
CCC: Bonds rated CCC have a currently identifiable vulnerability to
default, and are dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, they are not likely
to pay interest and repay principal.
Plus (+) or Minus (-): The ratings from "AA to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the Offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Fund, the Investment Adviser or any of the Dealer Managers.
This Prospectus does not constitute an offer to sell or the solicitation of any
offer to buy any security other than the shares of Common Stock offered by this
Prospectus, nor does it constitute an offer to sell or a solicitation of any
offer to buy the shares of Common Stock by anyone in any jurisdiction in which
such offer or solicitation is not authorized, or in which the person making such
offer or solicitation is not qualified to do so, or to any such person to whom
it is unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that information contained herein is correct as of any time
subsequent to the date hereof. However, if any material change occurs while this
Prospectus is required by law to be delivered, the Prospectus will be amended or
supplemented accordingly.
--------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary ...................................................
Fund Expenses ........................................................
Financial Highlights .................................................
The Offer ............................................................
Use of Proceeds ......................................................
The Fund .............................................................
Investment Objective .................................................
Investment Policies ..................................................
Investment Restrictions ..............................................
Portfolio Securities .................................................
Risk Factors and Special Considerations ..............................
Portfolio Composition ................................................
Comparison of Fund Total Returns to the Fund's Bond Indices ..........
Management of the Fund ...............................................
Code of Ethics .......................................................
Management Agreement and Advisory Agreement ..........................
Administration Agreement .............................................
Portfolio Transactions and Brokerage .................................
Net Asset Value of Common Stock ......................................
Dividend and Distributions: Dividend Reinvestment and
Cash Purchase Plan .................................................
Taxation .............................................................
Capital Stock ........................................................
Custodian, Dividend Paying Agents, Transfer Agents,
Registrars and Auction Agent .......................................
Experts ..............................................................
Distribution Arrangements ............................................
Legal Proceedings ....................................................
Legal Matters ........................................................
Financial Statements ................................................. F-1
Report of Independent Accountants ....................................
Appendix A ........................................................... A-1
Appendix B ........................................................... B-1
Until ________, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
Prospectus. This delivery requirement is in addition to the obligation of
dealers to deliver a Prospectus when acting as Underwriters and with respect to
their unsold allotments or subscriptions.
[# of shares]
Shares of Common Stock
ABERDEEN ASIA-PACIFIC
INCOME FUND, INC.
Managed by
Aberdeen Asset Managers (C.I.)
Limited
Issuable Upon Exercise of
Transferable Rights to
Subscribe for Such
Shares of Common Stock
--------------------------------
P R O S P E C T U S
--------------------------------
Dealer Managers
[record date +2]
103
PART C
Item 24. Financial Statements and Exhibits
1. Financial Statements:
(i) Portfolio of Investments as of October 31, 2001
(ii) Statement of Assets and Liabilities as of October 31, 2001
(iii) Statement of Operations for the fiscal year ended October 31, 2001
(iv) Statement of Cash Flows for the fiscal year ended October 31, 2001
(v) Statement of Changes in Net Assets for the fiscal years ended
October 31, 2001 and October 31, 2000
(vi) Notes to the Financial Statements
(vii) Financial Highlights
(viii) Report of Independent Accountants
(i) Portfolio of Investments as of April 30, 2002
(ii) Statement of Assets and Liabilities as of April 30, 2002
(iii) Statement of Operations for the six months ended April 30, 2002
(iv) Statement of Cash Flows for the six months ended April 30, 2002
(v) Statement of Changes in Net Assets for the six months ended April
30, 2002 (unaudited) and fiscal year ended October 31, 2001
(audited)
(vi) Notes to the Financial Statements
(vii) Financial Highlights
2. Exhibits:
(a)(1) Articles of Amendment and Restatement dated December 9, 1988.
(a)(2) Articles Supplementary Creating Auction Market Preferred Stock, Series A,
B and C dated January 17, 1989.
(a)(3) Articles Supplementary Creating Auction Market Preferred Stock, Series D
dated July 25, 1989.
(a)(4) Certificate of Correction dated August 8, 1989.
(a)(5) Articles of Amendment dated May 20, 1991.
(a)(6) Articles Supplementary Creating Auction Market Preferred Stock, Series E
dated December 18, 1992.
(a)(7) Articles Supplementary Creating Auction Market Preferred Stock, Series
F dated December 15, 1993.
(a)(8) Articles Supplementary Creating Auction Market Preferred Stock, Series G
dated July 25, 1995 (Previously filed as Exhibit (d)(2) to
Post-Effective Amendment No. 25 to Registrant's Registration Statement
filed with the Securities and Exchange Commission ("SEC") via EDGAR on
July 14, 1995 and incorporated herein by reference).
(a)(9) Articles of Amendment dated April 25, 1996 (Previously filed as Exhibit
(a)(3) to Post-Effective Amendment No. 27 to Registrant's Registration
Statement on Form N-2 filed with the SEC via EDGAR on May 1, 1996 and
incorporated herein by reference).
(a)(10) Articles Supplementary Creating Auction Market Preferred Stock, Series H
and I dated September 9, 1996 (Previously filed as Exhibit (d)(2) to
Post-Effective Amendment No. 28 to Registrant's Registration Statement
filed with the SEC via EDGAR on July 19,1996 and incorporated herein by
reference).
(a)(11) Amendment to Articles Supplementary dated November 15, 1996 (Previously
filed as Exhibit (a)(5) to Post-Effective Amendment No. 33 to
Registrant's Registration Statement on Form N-2 filed with the SEC via
EDGAR on August 30, 2001 ("PEA 33") and incorporated herein by
reference).
(a)(12) Articles of Amendment dated July 28, 1997 (Previously filed as Exhibit
(a)(4) to Post-Effective Amendment No. 30 to Registrant's Registration
Statement on Form N-2 filed with the SEC via EDGAR on August 19, 1998
and incorporated herein by reference).
(a)(13) Amendment to Articles Supplementary dated November 1998 (Previously
filed as Exhibit (a)(6) to PEA 33 and incorporated herein by reference).
(a)(14) Amendment to Articles Supplementary dated November 21, 1998 (Previously
filed as Exhibit (a)(7) to PEA 33 and incorporated herein by reference).
(a)(15) Amendment to Articles Supplementary dated November 17, 1999 (Previously
filed as Exhibit (a)(8) to PEA 33 and incorporated herein by reference).
(a)(16) Articles Supplementary dated August 16, 2000 (Previously filed as
Exhibit (a)(9) to PEA 33 and incorporated herein by reference).
(a)(17) Articles Supplementary dated August 16, 2000.
(a)(18) Articles of Amendment dated April 19, 2001.
(a)(19) Amendment to Articles Supplementary dated September 12, 2002.
(b) By-Laws as Amended and Restated through September 12, 2002.
(c) Not Applicable.
C-2
(d)(1) Form of Share Certificate for Common Stock.*
(d)(2) Form of Share Certificate for Auction Market Preferred Stock.*
(d)(3) Form of Subscription Certificate.*
(d)(4) Form of Nominee Holder Over-Subscription Form.*
(d)(5) Form of Beneficial Owner Certificate.*
(d)(6) Form of Subscription Rights Agency Agreement.*
(e) Dividend Reinvestment and Cash Purchase Plan.*
(f) Not applicable.
(g)(1) Investment Advisory Agreement dated December 21, 2000 (Previously filed
as Exhibit (g)(6) to PEA 33 and incorporated herein by reference).
(g)(2) Management Agreement dated December 21, 2000 (Previously filed as
Exhibit (g)(5) to PEA 33 and incorporated herein by reference).
(h)(1) Form of Dealer Manager Agreement.*
(h)(2) Form of Selling Group Agreement.*
(h)(3) Form of Soliciting Dealer Agreement.*
(i) Not applicable.
(j)(1) Custodian Contract between the Registrant and State Street Bank and
Trust Company ("State Street") dated April 11, 1986.
(j)(2) Amendment No. 1 to Custody Agreement between Registrant and State
Street dated 1986.
(j)(3) Amendment No. 2 to Custody Agreement between the Registrant and State
Street dated November 26, 1986.
(j)(4) Amendment No. 3 to Custodian Agreement dated December 4, 1998.
(k)(1) Transfer Agency Agreement between the Registrant and State Street dated
April 11, 1986.
C-3
(k)(2) Administration Agreement between the Registrant and Prudential Mutual
Fund Management, Inc. (now known as Prudential Investments LLC) dated
December 9, 1988.
(k)(3) Amendment to Administration Agreement effective June 1, 1996
(Previously filed as Exhibit (k)(3) to Post-Effective Amendment No. 31
to Registrant's Registration Statement on Form N-2 filed with the SEC
via EDGAR on September 28, 1998 and incorporated herein by reference).
(k)(4) Investor Relations Services Agreement dated as of March 1, 2000.
(k)(5) Assignment and Assumption of Investor Relations Services Agreement
dated as of January 1, 2002.
(l) Opinion and Consent of Fund Counsel.*
(m) Forms ADV-NR of the Investment Manager and the Investment Adviser.*
(n)(1) Opinion and Consent of UK counsel.*
(n)(2) Opinion and Consent of Swiss counsel.*
(n)(3) Opinion and Consent of Singapore counsel.*
(n)(4) Opinion and Consent of New Zealand counsel.*
(n)(5) Opinion and Consent of Canadian counsel.*
(n)(6) Opinion and Consent of Jersey, Channel Islands counsel to the
Investment Manager.*
(n)(7) Opinion and Consent of counsel to Underwriter.*
(n)(8) Opinion and Consent of Maryland counsel.*
(n)(9) Opinion and Consent of PricewaterhouseCoopers LLP, Independent
Accountants.*
(o) Not applicable.
(p) Not applicable.
(q) Not applicable.
(r)(1) Code of Ethics for Registrant, Investment Adviser and Investment
Manager.
C-4
(r)(2) Codes of Ethics for Dealer Managers.*
(s) Powers of Attorney.
-----------
* To be filed by further pre-effective amendment.
Item 25. Marketing Arrangements
See Delaer Manager Agreement to be filed as Exhibit (h)(1)
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth estimated expenses to be incurred in connection
with the offering described in the Registration Statement:
Registration fees $ ______
Printing $ ______
Fees and expenses of qualification under state securities $ ______
laws (including fees of counsel)
Legal fees and expenses $ ______
Reimbursement of Dealer Manager expenses $ ______
Auditing fees and expenses $ ______
American Stock Exchange listing fees $ ______
Pacific Stock Exchange listing fees $ ______
Subscription Agent fees and expenses $ ______
Information Agent fees and expenses $ ______
Engraving and printing stock certificates $ ______
NASD Fee $ ______
Marketing Costs $ ______
Miscellaneous $ ______
Total $ ______
Item 27. Persons Controlled by or Under Common Control
None.
Item 28. Number of Holders of Securities
NUMBER OF
RECORD
TITLE OF CLASS HOLDERS
Common Stock ($.01 par value per share)
Auction Market Preferred Stock, Series A ($.01 par value per share) 1
Auction Market Preferred Stock, Series B ($.01 par value per share) 1
C-5
Auction Market Preferred Stock, Series C ($.01 par value per share) 1
Auction Market Preferred Stock, Series D ($.01 par value per share) 1
Auction Market Preferred Stock, Series E ($.01 par value per share) 1
Auction Market Preferred Stock, Series F ($.01 par value per share) 1
Auction Market Preferred Stock, Series G ($.01 par value per share) 1
Auction Market Preferred Stock, Series H ($.01 par value per share) 1
Auction Market Preferred Stock, Series I ($.01 par value per share) 1
Item 29. Indemnification
Section 2-418 of the General Corporate Law of Maryland, the state in which the
Registrant was organized, empowers a corporation, subject to certain
limitations, to indemnify its directors and officers against expenses (including
attorney's fees, judgments, fines and certain settlements), including the
advancement of expenses, actually and reasonably incurred by them in connection
with any suit or proceeding to which they are a party. In order to obtain
advancements on expenses a director or officer must, among other requirements
stated in the Registrant's By-laws, provide a written affirmation of good faith
belief that the standard of conduct necessary for indemnification has been met
and a written undertaking to repay any advance if it is determined that such
standard was not met. Indemnification of directors and officers will not be
provided when a director of officer shows willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of their
office. The indemnification of directors and officers continues after such
person has ceased being a director or officer, with regard to the duties
performed while employed or in offices with the Registrant, and the benefits of
indemnification inure to the heirs, executors and administrators of such person.
Employees and agents who are not directors or officers of the Registrant may be
indemnified.
Article IX of the Registrant's By-Laws (as amended to date) provides:
Section 1. Indemnification of Directors and Officers. The Corporation shall
indemnify its Directors and officers to the fullest extent permitted
by the Maryland General Corporation Law and the Investment Company
Act of 1940, as amended (the "1940 Act"). The Corporation shall
indemnify its Directors and officers who, while serving as Directors
or officers, also serve at the request of the Corporation as a
director, officer, partner, trustee, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan to the fullest extent consistent
with law. The indemnification and other rights provided by this
Article shall continue as to a person who has ceased to be a Director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. This Article shall not protect any
such person against any liability to the Company or any stockholder
thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office
("disabling conduct").
C-6
Section 2. Advances. Any current or former Director or officer of the
Corporation seeking indemnification within the scope of this Article
shall be entitled to advances from the Corporation for payment of the
reasonable expenses incurred by him in connection with the matter as
to which he is seeking indemnification in the manner and to the
fullest extent permissible under the Maryland General Corporation Law
and the 1940 Act, without a preliminary determination of entitlement
to indemnification (except as provided below). The person seeking
advances shall provide to the Corporation a written affirmation of
his good faith belief that the standard of conduct necessary for
indemnification by the Corporation has been met and a written
undertaking to repay any such advance if it should ultimately be
determined that the standard of conduct has not been met. In
addition, at least one of the following additional conditions shall
be met: (i) the person seeking advances shall provide security in
form and amount acceptable to the Corporation for his undertaking;
(ii) the Corporation is insured against losses arising by reason of
the advance; or (iii) a majority of a quorum of Directors of the
Corporation who are neither "interested persons" as defined in
section 2(a)(19) of the 1940 Act nor parties to the proceeding
("disinterested non-party directors"), or independent legal counsel,
in a written opinion, shall have determined, based on a review of
facts readily available to the Corporation at the time the advance is
proposed to be made, that there is reason to believe that the person
seeking indemnification will ultimately be found to be entitled to
indemnification.
Section 3. Procedure. At the request of any person claiming indemnification
under this Article, the Board of Directors shall determine, or cause
to be determined, in a manner consistent with the Maryland General
Corporation Law and the 1940 Act, whether the standards required by
this Article have been met. Indemnification shall be made only
following: (i) a final decision on the merits by a court or other
body before whom the proceeding was brought that the person to be
indemnified was not liable by reason of disabling conduct or (ii) in
the absence of such a decision, a reasonable determination, based
upon a review of the facts, that the person to be indemnified was not
liable by reason of disabling conduct by (A) the vote of a majority
of a quorum of disinterested non-party directors or (B) an
independent legal counsel in a written opinion.
Section 4. Indemnification of Employees and Agents. Employees and agents who are
not officers or Directors of the Corporation may be indemnified, and
reasonable expenses may be advanced to such employees or agents, as
may be provided by action of the Board of Directors or by contract,
subject to any limitations imposed by the Investment Company Act of
1940, as amended.
Section 5. Other Rights. The Board of Directors may make further provision
consistent with law for indemnification and advance of expenses to
Directors, officers, employees and agents by resolution, agreement or
otherwise. The indemnification provided by this Article shall not be
deemed exclusive of any other right, with respect to indemnification
or otherwise, to which those seeking indemnification may be entitled
under any insurance or other agreement or resolution of stockholders
or disinterested directors or otherwise.
C-7
Section 6. Amendments. References in the Article are to the Maryland General
Corporation Law and to the Investment Company Act of 1940, as
amended. No amendment of these By-Laws shall affect any right of any
person under this Article based on any event, omission or proceeding
prior to the amendment.
Section 7. Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a Director, officer, employee or
agent of the Corporation or who, while a Director, officer, employee
or agent of the Corporation, is or was serving at the request of the
Corporation as a Director, officer, partner, trustee, employee or
agent of another foreign or domestic corporation, partnership, joint
venture, trust, other enterprise or employee benefit plan, against
any liability asserted against and incurred by such person in any
such capacity or arising out of such person's position; provided that
no insurance may be purchased by the Corporation on behalf of any
person against any liability to the Corporation or to its
stockholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
Reference is made to Section 7 of the Dealer Manager Agreement, filed as Exhibit
(h)(1), for provisions relating to limitation of liability of the Investment
Manager and Investment Adviser. Reference is made to Section 3 of the Management
Agreement, filed on August 30, 2001 as Exhibit (g)(5) to PEA 33, for provisions
relating to limitation of liability of the Investment Manager. Reference is made
to Section III of the Advisory Agreement, filed on August 30, 2001 as Exhibit
(g)(6) to PEA 33, for provisions relating to limitation of liability of the
Investment Adviser.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
C-8
Item 30. Business and Other Connections of Investment Adviser
--------------------------------------------------------------------------------
Name, Principal Business Address Capacity, Name of Company (Description of
Company).
--------------------------------------------------------------------------------
Chong Yoon Chou Director, Aberdeen Asset Management Asia Ltd.
Level 6, 201 Kent Street (Funds management company); Alternate
Sydney NSW 2000 Australia Director, MIDF Aberdeen Asset Management Sdn
Bhd (Funds management company - JV with
Aberdeen Asia).
--------------------------------------------------------------------------------
Christopher Fishwick Director, Aberdeen Asia-Pacific Income
No. 1 Seaton Place Investment Company Limited; Director,
St. Helier, Jersey JE4 8YJ Aberdeen Asset Management PLC; Director,
Aberdeen Asset Managers Jersey Limited;
Director, Aberdeen Australia Equity Income
Fund; Director, Aberdeen Convertible Income
Trust PLC
Alternate to; Director, Aberdeen Graham Asset
Management Limited; Director, Aberdeen High
Income Trust PLC; Director, Aberdeen
Preferred Income Trust PLC; Director, Chaucer
Holdings PLC; Director, European Growth &
Income Trust PLC; Director, Jersey Phoenix
Trust Limited; Director, Leverage Income Fund
Limited; Director, Phoenix-Aberdeen
International Advisors LLC; Director, Real
Estate Opportunities Limited; Director
The Enhanced Zero Trust PLC; Director, The
European Technology and Income Company
Limited; Director, The First Australia Fund
Inc; Director, The Media and Income Trust
PLC; Director, The Smaller Companies
Investment Trust PLC; Director, The Taverners
Trust PLC; Director, The Technology and
Income Trust Limited; Director, Themis
Investment Management Limited; Director,
Treasury Holdings LImited; Director, Aberdeen
Preferred Securities PLC; Director, Aberdeen
Unit Trust Managers Limited.
--------------------------------------------------------------------------------
Alan Goodson Director, Aberdeen Asset Managers Jersey
No. 1 Seaton Place Limited (Fund Management); Officer, Aberdeen
St. Helier, Jersey JE4 8YJ Prime Wealth Management Limited (Private
Client Asset Management).
--------------------------------------------------------------------------------
Melissa Hall Director and Officer, Aberdeen Asset
Level 6, 201 Kent Street Management Holdings Limited (EL) (Holding
Sydney NSW 2000 Australia Company); Director and Officer, AESOT Pty
Ltd. (Trustee Company); Officer, EquitiLink
Holdings Limited (Holding Company); Officer,
Aberdeen Leaders Limited (ML) (Listed
Company); Officer, EquitiLink eLink Limited
(FRDF) (Listed Company); Director and
Officer, En Holdings Ltd. (Trustee Company);
Officer, EquitiLink Pacific Ltd. (Dormant
Company); Officer, EquitiLink Portfolio
Management (Subsidiary Company); Officer,
Aberdeen Asset Management Limited (EAL)
(Subsidiary); Officer, EL Retirement Fund
(Trustee Company); Director and Officer,
Sarrun Pty Ltd. (Trustee Company).
--------------------------------------------------------------------------------
Christian Hamon Director, Trident Fund Services (Jersey)
No. 1 Seaton Place Limited (Fund Administration Services).
St. Helier, Jersey JE4 8YJ
--------------------------------------------------------------------------------
Charles Macrae Employee, Aberdeen Asset Management PLC (Head
Level 6, 201 Kent Street of Aberdeen's company secretarial unit based
Sydney NSW 2000 Australia in London, overseeing the provision of
services to Aberdeen's UK and Jersey
registered closed end funds); Officer,
Aberdeen Asset Management Holdings Limited
(Holding company for the Australian
Subsidiary).
--------------------------------------------------------------------------------
Joe Tham Officer, Aberdeen Asset Management Holdings
--------------------------------------------------------------------------------
C-9
--------------------------------------------------------------------------------
Level 6, 201 Kent Street Limited (EL) (Holding company of Australian
Sydney NSW 2000 Australia Subsidiary); Officer, AESOT Pty Ltd. (Trustee
Company for Aberdeen employee share ownership
scheme); Officer, Aberdeen Leaders Limited
(Closed end listed investment company);
Officer, EquitiLink eLink Limited (FRDF)
(Closed end listed investment company);
Officer, Chifley Financial Services Limited
(Financial Services Company previously owned
by Aberdeen); Officer, Chifley Operating
Services Limited (Financial Services Company
previously owned by Aberdeen).
--------------------------------------------------------------------------------
Item 31. Location of Accounts and Records
Prudential Investments LLC Aberdeen Asset Managers (C.I.) State Street Bank and Trust
100 Mulberry Street Limited Company
Gateway Center 3 P.O. Box 578, 17 Bond Street One Heritage Drive
Newark, NJ 07102-4077 St. Helier, Jersey North Quincy, MA 02171
For records pursuant to Rule JE4 5XB Channel Islands For all other records.
31a-1(b)(4). For records pursuant to Rule
31a-1(b)(5),(6),(9),(10) and (11)
and Rule 31a-1(f).
Item 32. Management Services
Not applicable.
Item 33. Undertakings
(1) The Registrant undertakes to suspend the offering of its shares
until it amends its prospectus if (a) subsequent to the effective
date of its Registration Statement, the NAV of its shares declines
more than 10% from its NAV as of the effective date of the
Registration Statement or (b) the NAV increases to an amount greater
than its net proceeds as stated in the prospectus.
(2) Not applicable.
(3) The Registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the
results of the subscription offer, the transactions by underwriters
during the subscription period, amount of unsubscribed securities to
be purchase by underwriters, and the terms of any
C-10
subsequent reoffering thereof. The Registrant further hereby
undertakes to file a post-effective amendment to set forth the terms
of any public offering made by the underwriters of the securities
being registered if such terms differ from those set forth on the
cover page of the prospectus.
(4) Not applicable.
(5) (a) The Registrant hereby undertakes that for the purpose of
determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant under Rule 497(h) under
the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(b) The Registrant hereby undertakes that for the purposes of
determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(6) The Registrant undertakes to send by first class mail or other
means designed to ensure equally prompt delivery, within two
business days of receipt of a written or oral request, any Statement
of Additional Information.
C-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the District of Columbia on this 8th day of October, 2002.
ABERDEEN ASIA-PACIFIC INCOME FUND, INC.
*
------------
Hugh Young
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated:
* President (Principal
----------------
Hugh Young Executive Officer) October 8, 2002
Treasurer and
Assistant Secretary
* (Principal Financial
---------------- and Accounting
Christian Pittard Officer) October 8, 2002
-----------------
*
----------------
Martin J. Gilbert Chairman, Director October 8, 2002
*
----------------
Anthony E. Aaronson Director October 8, 2002
*
----------------
David L. Elsum Director October 8, 2002
*
----------------
Beverley Hendry Director October 8, 2002
*
----------------
Howard A. Knight Director October 8, 2002
*
----------------
P. Gerald Malone Director October 8, 2002
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*
----------------
Neville J. Miles Director October 8 2002
*
----------------
Peter J. O'Connell Director October 8 2002
*
----------------
William J. Potter Director October 8 2002
*
----------------
Peter D. Sacks Director October 8 2002
*
----------------
Anton E. Schrafl Director October 8, 2002
*
----------------
John T. Sheehy Director October 8, 2002
*
----------------
Brian M. Sherman Director October 8, 2002
*By /s/ Sander M. Bieber
--------------------
Sander M. Bieber
as Attorney-in-Fact
C-13
Exhibit Index
(a)(1) Articles of Amendment and Restatement dated December 9, 1988.
(a)(2) Articles Supplementary Creating Auction Market Preferred Stock, Series
A, B and C dated January 17, 1989.
(a)(3) Articles Supplementary Creating Auction Market Preferred Stock, Series
D dated July 25, 1989.
(a)(4) Certificate of Correction dated August 8, 1989.
(a)(5) Articles of Amendment dated May 20, 1991.
(a)(6) Articles Supplementary Creating Auction Market Preferred Stock, Series
E dated December 18, 1992.
(a)(7) Articles Supplementary Creating Auction Market Preferred Stock, Series
F dated December 15, 1993.
(a)(17) Articles Supplementary dated August 16, 2000.
(a)(18) Articles of Amendment dated April 19, 2001.
(a)(19) Amendment to Articles Supplementary dated September 12, 2002.
(b) By-Laws as Amended and Restated through September 12, 2002.
(j)(1) Custodian Contract between the Registrant and State Street Bank and
Trust Company ("State Street") dated April 11, 1986.
(j)(2) Amendment No. 1 to Custody Agreement between Registrant and State
Street dated 1986.
(j)(3) Amendment No. 2 to Custody Agreement between the Registrant and State
Street dated November 26, 1986.
(j)(4) Amendment No. 3 to Custodian Agreement dated December 4, 1998.
(k)(1) Transfer Agency Agreement between the Registrant and State Street dated
April 11, 1986.
(k)(2) Administration Agreement between the Registrant and Prudential Mutual
Fund Management, Inc. (now known as Prudential Investments LLC) dated
December 9, 1988.
(k)(4) Investor Relations Services Agreement dated as of March 1, 2000.
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(k)(5) Assignment and Assumption of Investor Relations Services Agreement
dated as of January 1, 2002.
(r)(1) Code of Ethics for Registrant, Investment Adviser and Investment
Manager.
(s) Powers of Attorney.
C-15