[LOGO]
Aberdeen
Commonwealth Income
Fund, Inc.
Annual Report
October 31, 2001
[GRAPHIC]
Invests primarily in fixed-income securities
denominated in the currencies of various
Commonwealth Countries
Letter to Shareholders
December 13, 2001
Dear Shareholder,
We present this Annual Report which covers the activities of Aberdeen
Commonwealth Income Fund, Inc. (the "Fund") for the year ended October 31, 2001.
Included in this report is a review of the Australian, Canadian, New Zealand,
United Kingdom and selected Asian economies and investment markets, together
with an overview of the Fund's investments prepared by the Investment Manager,
Aberdeen Asset Managers (C.I.) Limited.
High Credit Quality: 87.2% of Securities Rated or Deemed Equivalent to AA/Aa or
Better
The Fund's high credit quality has been maintained. Over 87.2% of assets are
rated AA/Aa or better, or are considered of equivalent quality by the Investment
Manager. An additional 9.1% is held in A rated securities.
Distributions: 9.3% Annual Cash Distribution Rate
Distributions to common shareholders for the year ended October 31, 2001 totaled
84.0 cents per share. Based on the share price of $9.00 on October 31, 2001, the
cash distribution rate over the last 12 months was 9.3%. Since all distributions
are paid after deducting applicable withholding taxes, the effective
distribution rate may be higher for those US investors who are able to claim a
tax credit.
On December 11, 2001, the Board of Directors declared a monthly distribution of
US 7.0 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 US 7.0
cents per share to US 6.0 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).
Aberdeen Commonwealth Income Fund, Inc. 1
Letter to Shareholders (continued)
The Board's policy is to provide investors with a stable monthly distribution
out of current income, supplemented by realized capital gains and, to the extent
necessary, paid-in capital. It is the Board's intention that the monthly
distribution of US 6.0 cents per share be maintained for 12 months, subject to
regular review at the Board's quarterly meetings, unless market conditions
require an earlier evaluation. The next review is scheduled to take place in
March 2002.
Investment Performance: 5.6% Per Annum Return Since Inception
The Fund's total return based on Net Asset Value ("NAV") increased by 7.4% over
the year ended October 31, 2001. Since inception, the Fund's total return based
on NAV has increased by 5.6% per annum to October 31, 2001. The Fund's market
price per share rose 1.4% over the year, from $8.88 on October 31, 2000 to $9.00
on October 31, 2001. The Fund's NAV per share was $9.99 on October 31, 2001,
representing a discount to the market price per share of 9.9%, compared with a
discount of 12.9% on October 31, 2000.
Implementation of Global Investment Strategy
In March 1999, the Fund's shareholders approved amendments to the Fund's
principal investment objective, investment policies and investment restrictions
to enable the Fund to invest up to 35% of its total assets in Global Debt
Securities. This strategy was proposed to be implemented in two phases. The
first phase involved the immediate investment of up to 20% of the Fund's assets
in Asian debt markets. On September 3, 2001, the Board of Directors authorized
the Investment Manager, in its discretion, to implement the second phase of the
global investment strategy. This will now allow the Fund to invest up to 35% of
its total assets in Global Debt Securities, with a view to enhancing yield.
Asian Investments: 5.7% of Total Assets Invested in Asian Debt Securities
As of October 31, 2001, 5.7% of the Fund's total assets were held in Asian debt
securities, a sector that presents attractive opportunities. The Fund's ability
to increase its investment in Asian markets remains constrained by the potential
realization of foreign exchange losses from a tax perspective.
2 Aberdeen Commonwealth Income Fund, Inc.
Letter to Shareholders (concluded)
For information about the Fund, including weekly updates of share price, NAV,
and details of recent distributions, contact Aberdeen Asset Management, Investor
Relations, by:
o calling toll free on 1-800-522-5465 or 1-212-968-8800 in the United
States,
o emailing to InvestorRelations@aberdeen-asset.com, or
o visiting the website at www.aberdeen-asset.com/usa
For information about the Aberdeen group, visit the Aberdeen website at
www.aberdeen-asset.com
Yours sincerely,
/s/ Martin J. Gilbert
Martin J. Gilbert
Chairman
All amounts are U.S. dollars unless otherwise stated.
Aberdeen Commonwealth Income Fund, Inc. 3
Your Board's policy is to provide investors with a stable monthly distribution
out of current income, supplemented by realized capital gains and, to the extent
necessary, paid-in capital.
The Fund is subject to U.S. corporate, tax and securities laws. Under U.S. tax
accounting rules, the amount of distributable income for each fiscal period
depends on the actual exchange rates during the entire year between the U.S.
dollar and the currencies in which Fund assets are denominated and on the
aggregate gains and losses realized by the Fund during the entire year.
Therefore the exact amount of distributable income for each fiscal year can only
be determined as at the end of the Fund's fiscal year, October 31. However,
under the U.S. Investment Company Act of 1940, the Fund is required to indicate
the source of each distribution to shareholders. This estimated distribution
composition may vary from month to month because it may be materially impacted
by future realized capital gains and losses on securities and fluctuations in
the value of the currencies in which Fund assets are denominated.
The distributions for the fiscal year ended October 31, 2001 were comprised of
41% net investment income and 59% return of capital. In January 2002, a Form
1099 DIV will be sent to shareholders, which will state the amount and
composition of distributions and provide information with respect to their
appropriate tax treatment.
4 Aberdeen Commonwealth Income Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
We invite you to participate in the Fund's Dividend Reinvestment and Cash
Purchase Plan ("the Plan") which allows you to automatically reinvest your
distributions in shares of the Fund's common stock at favorable commission
rates. Distributions made under the Plan are taxable to the same extent as are
cash distributions. The Plan also enables you to make additional cash
investments in shares of at least $100 per month. Under this arrangement, the
Plan Agent will purchase shares for you on the stock exchange or otherwise on
the open market on or about the 15th of each month unless shares of the Fund are
trading at a premium, in which case, the Fund will issue additional shares. As a
participant in the Plan, you will have the convenience of:
Automatic reinvestment--the Plan Agent will automatically reinvest your
distributions, allowing you to gradually grow your holdings in the Fund;
Lower costs--shares purchased on your behalf under the Plan will be at reduced
brokerage rates. Brokerage on share purchases is currently 2 cents per share;
Convenience--the Plan Agent will hold your shares in non-certificated form and
will provide a detailed record of your holdings at the end of each distribution
period.
To request a brochure containing information on the Plan, together with an
authorization form, please contact the Plan Agent, State Street Bank & Trust
Company, P.O. Box 8200 Boston, MA 02266 or call toll free on 1-800-426-5523.
Aberdeen Commonwealth Income Fund, Inc. 5
Report of the Investment Manager
Share Price Performance
On October 31, 2001, the Fund's market price per share was $9.00, which
represented a discount of 9.9% to the NAV of $9.99. At the date of this report,
the share price was $8.79 representing a discount of 10.7% to the NAV of $9.84.
Distributions
As noted in the Letter to Shareholders, the Board intends to reduce the Fund's
monthly distribution from US 7.0 cents per share to US 6.0 cents per share
beginning with the distribution payable on February 8, 2002 to shareholders of
record as of January 31, 2002. The Investment Manager continues its efforts to
reallocate the portfolio toward higher yielding Global Debt Securities, in
addition to fixed income securities denominated in the Commonwealth Currencies.
Further, with the expectation for an improving global economy in mid to late
2002, the Investment Manager anticipates improvement in the value of non-U.S.
Dollar currencies. Together, these factors may enhance the Fund's net investment
income and ability to realize capital gains. There can, however, be no assurance
that the Investment Manager's expectations will be met.
Auction Market Preferred Stock (AMPS)
The Fund's $30 million of AMPS continued to be well bid at the weekly auctions.
The average interest rate paid was 4.74% over the year ended October 31, 2001,
compared with 4.57% for 30-day U.S. commercial paper over the same period. These
rates have decreased since the year ended October 31, 2000, due to the lowering
of interest rates by the U.S. Federal Reserve over the period, and the current
interest rate is approximately 2.50%.
On September 3, 2001 the Board of Directors resolved to amend the Fund's
policies with respect to derivatives to enable the Investment Manager to use
interest rate swaps to hedge up to one third of the Fund's AMPS liabilities.
This gives the Investment Manager the flexibility to lock in historically low
U.S. dollar interest rates with respect to up to one third of the Fund's
outstanding Auction Market Preferred Stock.
6 Aberdeen Commonwealth Income Fund, Inc.
Report of the Investment Manager (concluded)
A significant type of risk associated with interest rate swaps is the risk that
the counterparty may default or experience 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 AMPS.
Over the past year, the impact of AMPS has been slightly positive, largely as a
result of the rally in Commonwealth bond yields over the year as the global
slowdown developed. In addition, U.S. monetary policy was eased more
aggressively than in the Commonwealth countries and global yield curves
steepened, opening up a positive yield differential between AMPS funding rates
and investment yields. Overall, the outlook over the medium-term for investment
markets and the portfolio in respect of these factors is considered by the
Manager to be favorable, and therefore AMPS are seen as having the potential to
continue to enhance total shareholder returns in the medium term.
Aberdeen Commonwealth Income Fund, Inc. 7
Portfolio Composition
Geographic Composition
The table below shows the geographic composition of the Fund's total investments
as of October 31, 2001, compared with the previous quarter and twelve months.
TABLE 1: ABERDEEN COMMONWEALTH INCOME FUND, INC.--
GEOGRAPHIC ASSET ALLOCATION
===============================================================================
October 31, 2001 July 31, 2001 October 31, 2000
% % %
-------------------------------------------------------------------------------
Australia 24.2 22.1 24.0
Canada 31.2 34.7 35.8
New Zealand 3.8 4.8 3.3
United Kingdom 31.3 29.2 29.4
United States* 3.8 3.7 3.8
Asia 5.7 5.5 3.7
-------------------------------------------------------------------------------
Total Portfolio 100.0 100.0 100.0
===============================================================================
* It is the policy of the Investment Manager to maintain a portion of the
Fund's investments in U.S. short-term securities to cover distributions
and expenses.
Currency Composition
The table below shows the currency composition of the Fund's total investments
as of October 31, 2001, compared with the previous quarter and twelve months.
TABLE 2: ABERDEEN COMMONWEALTH INCOME FUND, INC.--
CURRENCY ALLOCATION
===============================================================================
October 31, 2001 July 31, 2001 October 31, 2000
% % %
-------------------------------------------------------------------------------
Australian Dollar 24.2 22.1 24.0
Canadian Dollar 31.2 34.7 35.8
New Zealand Dollar 3.8 4.8 3.3
British Pound 31.3 29.2 29.4
United States Dollar* 3.8 3.7 3.8
Asia Currencies 5.7 5.5 3.7
-------------------------------------------------------------------------------
Total Portfolio 100.0 100.0 100.0
===============================================================================
* Includes Asian Yankee bond investments.
8 Aberdeen Commonwealth Income Fund, Inc.
Portfolio Composition (continued)
Maturity Composition
On October 31, 2001, the average maturity of the Fund's assets was 7.8 years,
compared with 8.3 years on October 31, 2000. The Fund's modified duration was
5.0 years on October 31, 2001, compared with 5.1 years on October 31, 2000. The
table below shows the maturity composition of the Fund's investments as of
October 31, 2001:
TABLE 3: ABERDEEN COMMONWEALTH INCOME FUND, INC.--
MATURITY ANALYSIS
================================================================================
Less than 1 year 1--5 years 5--10 years Over 10 years
% % % %
--------------------------------------------------------------------------------
Australia 23.3 20.5 43.8 12.4
Canada 24.4 16.7 12.9 46.0
New Zealand 62.2 14.0 23.8 --
United Kingdom 10.3 24.9 26.4 38.4
United States 100.0 -- -- --
Asia 36.9 51.6 11.5 --
--------------------------------------------------------------------------------
Total Portfolio 24.6 21.1 24.6 29.7
================================================================================
Sectoral Composition
The table below shows the sectoral composition of the Fund's total investments
as of October 31, 2001:
TABLE 4: ABERDEEN COMMONWEALTH INCOME FUND, INC.--
SECTORAL COMPOSITION
================================================================================
Sovereign Provincial/ Utilities/
Gov't. State Supranational Corporate Cash or
Bonds Bonds Bonds Bonds Equivalent
% % % % %
--------------------------------------------------------------------------------
Australia 9.7 9.1 1.8 2.3 1.3
Canada 20.8 5.5 0.3 0.6 4.0
New Zealand 0.3 -- 0.7 0.8 2.0
United Kingdom 22.9 -- 3.3 4.4 0.7
United States -- -- -- -- 3.8
Asia 3.8 0.6 0.2 0.1 1.0
--------------------------------------------------------------------------------
Total Portfolio 57.5 15.2 6.3 8.2 12.8
================================================================================
Aberdeen Commonwealth Income Fund, Inc. 9
Portfolio Composition (concluded)
Quality of Investments
On October 31, 2001, 87.2% of the Fund's assets were invested in securities
where either the issue or the issuer was rated at least "AA" by Standard &
Poor's Corporation or "Aa" by Moody's Investors Service, Inc. or, if unrated,
were judged to be of equivalent quality by the Investment Manager. The table
below shows the asset quality of the Fund's portfolio as of October 31, 2001.
TABLE 5: ABERDEEN COMMONWEALTH INCOME FUND, INC.--
ASSET QUALITY
================================================================================
AAA/Aaa AA/Aa A BBB/Baa BB/Ba*
% % % % %
--------------------------------------------------------------------------------
Australia 84.5 15.5 -- -- --
Canada 12.9 77.1 10.0 -- --
New Zealand 53.0 32.2 14.8 -- --
United Kingdom 65.1 19.7 15.2 -- --
United States 100.0 -- -- -- --
Asia 21.7 -- 11.6 66.7 --
--------------------------------------------------------------------------------
Total Portfolio 52.0 35.2 9.1 3.7 --
================================================================================
* Below investment grade.
10 Aberdeen Commonwealth Income Fund, Inc.
Market Review and Outlook
AUSTRALIA
The benchmark 10-year bond yield fell from 6.19% to 5.23% over the year ended
October 31, 2001. Bank bill yields fell over the year, closing at 4.29%. The
significant depreciation of the Australian dollar has been the most effective
economic response to the slow down in global growth. A weaker Australian dollar
directly benefits the export and tourism sectors, those sectors likely to be
affected by a softer external environment.
The widening of the differential between Australian and U.S. interest rates has
continued through 2001, reaching levels not seen since the mid 1990's. The
Investment Manager expects that this should be a key source of support to the
Australian currency in the near term, as will the likelihood of stronger growth
momentum in the domestic economy relative to the U.S.
The Australian dollar fluctuated over the year, closing at U.S. $0.50 on October
31, 2001.
CANADA
The latest Canadian GDP report saw Canada's output for the first half of 2001
increase by a small 1.2% annualized rate, and output for the second quarter
declining to the slowest rate in six years. Ongoing weakness in the U.S.
economy, coupled with softening domestic demand, led the Bank of Canada (the
"BoC") to cut rates by 25 basis points in August. Following the lead of the U.S.
Federal Reserve (the "Fed"), the BoC continued to cut rates by a further 50
basis points in September, after the terrorist attacks on the U.S. The
Investment Manager believes that the weaker U.S. and Canadian economies are now
likely to be accompanied by further easings by both the Fed and the BoC.
The Canadian dollar depreciated over the year, closing at U.S. $0.63.
NEW ZEALAND
New Zealand growth broadened in 2001, benefiting from the low New Zealand
dollar, higher commodity prices and strengthening domestic demand. Looking
ahead, New Zealand's growth is expected to slow into the first half of 2002, in
line with softer global and Australian activity. The recent terrorist attacks in
the U.S. have prompted sharp downward revisions to global growth expectations in
2001 and this has pressured the New Zealand dollar. As with the Australian
dollar, this is probably the most effective economic response to the slow down
in global growth however, as it will directly benefit the tourism and export
sectors that will feel the immediate effects of a softer external environment.
The New Zealand dollar fluctuated marginally over the year, closing at U.S.
$0.41.
Aberdeen Commonwealth Income Fund, Inc. 11
Market Review and Outlook (concluded)
UNITED KINGDOM
Given a weakening global background, the Bank of England (the "BoE") lowered its
forecast for economic growth in September, and sees core inflation falling to 2%
early next year, then rising closer to the 2.5% target by the end of next year.
The Investment Manager believes that the BoE will maintain an aggressive stance
and will continue to ease policy in the current environment of decreasing
overseas demand and weak capital markets. UK domestic consumption remains the
only bright spot, as evidenced by recent consumer credit data.
The pound has fluctuated against the U.S. dollar over the year, closing at U.S.
$1.45.
ASIA
Domestic and Yankee (US$ denominated) bonds
Asian domestic bond yields fell over the year ended October 31, 2001, as many
Asian central banks eased interest rates in response to the global economic
slowdown. After the attacks in the U.S., Asian domestic yields continued to edge
down, as the consensus for deteriorating economic conditions and thus further
rate cuts persisted. The yields on U.S. dollar Asian bonds (Yankees) continued
to fall over the year ended October 31, 2001, in line with falling U.S. interest
rates.
Currencies
The Singapore dollar and Korean Won depreciated against the U.S. dollar over the
year, while the Philippine peso and Thai baht remained broadly unchanged. The
Malaysian ringgit remained pegged to the U.S. dollar.
12 Aberdeen Commonwealth Income Fund, Inc.
Summary of Key Rates
The following table summarizes the movements of key interest rates and
currencies over the last three and twelve month periods.
================================================================================
October 31, 2001 July 31, 2001 October 31, 2000
--------------------------------------------------------------------------------
Australia
90 day bank bills 4.29% 5.06% 6.43%
10 year bonds 5.23% 6.09% 6.19%
Australian Dollar $ 0.50 $ 0.51 $ 0.52
Canada
90 day bank bills 2.35% 4.03% 5.64%
10 year bonds 4.86% 5.66% 5.81%
Canadian Dollar $ 0.63 $ 0.65 $ 0.66
New Zealand
90 day bank bills 4.96% 5.81% 6.65%
10 year bonds 6.18% 6.69% 6.69%
NZ Dollar $ 0.41 $ 0.41 $ 0.39
United Kingdom
90 day bank bills 4.15% 4.95% 5.87%
10 year bonds 4.53% 5.01% 5.16%
British Pound $ 1.45 $ 1.43 $ 1.45
South Korea
90 day bank bills 4.53% 5.23% 7.11%
10 year bonds 6.85% 6.78% N/A
South Korean Won* (Won)1290 (Won)1298 (Won)1137
Thailand
90 day bank bills 2.50% 2.50% 2.50%
10 year bonds 5.55% 6.30% 5.31%
Thai Baht* (THB)44.7 (THB)45.7 (THB)44.0
Philippines
90 day bank bills 11.07% 9.78% 18.79%
10 year bonds 17.80% 15.99% 19.27%
Philippines Peso* (PHP)52 (PHP)54 (PHP)52
Malaysia
90 day bank bills 2.73% 2.80% 2.93%
10 year bonds 3.30% 4.17% 5.68%
Malaysian Ringgit* (MYR)3.8 (MYR)3.8 (MYR)3.8
Singapore
90 day bank bills 0.60% 2.13% 2.40%
10 year bonds 4.14% 4.17% 4.33%
Singapore Dollar* S$ 1.82 S$ 1.80 S$ 1.76
US$ Yankee Bonds**
South Korea 5.54% 6.40% 8.13%
Malaysia 6.57% 7.19% 8.03%
Philippines 10.19% 10.15% 12.11%
================================================================================
* These currencies are quoted Asian currency per U.S. dollar. The
Australian, Canadian and New Zealand dollars and the British pound are
quoted U.S. dollars per currency.
** Sovereign issues.
Aberdeen Asset Managers (C.I.) Limited
December 2001
Aberdeen Commonwealth Income Fund, Inc. 13
Portfolio of Investments
As of October 31, 2001
Principal
Amount
Local
Currency (a) Value
(000) Description (US$)
------------------------------------------------------------------
LONG-TERM INVESTMENTS--86.1%
AUSTRALIA--22.7%
Government Bonds--7.9%
A$
Commonwealth of Australia,
1,500 12.00%, 11/15/01 ...................... 759,262
3,000 10.00%, 10/15/02 ...................... 1,600,162
2,000 9.50%, 8/15/03 ........................ 1,105,195
1,000 10.00%, 2/15/06 ....................... 612,943
1,500 6.75%, 11/15/06 ....................... 829,706
1,000 10.00%, 10/15/07 ...................... 640,610
3,000 8.75%, 8/15/08 ........................ 1,844,399
2,500 7.50%, 9/15/09 ........................ 1,459,240
1,500 6.50%, 5/15/13 ........................ 831,114
------------
Total Australian
government bonds
(cost US$12,479,058) .................. 9,682,631
------------
Semi-Government Bonds--9.0%
New South Wales--3.9%
New South Wales Treasury
Corporation,
2,000 8.00%, 12/01/01 ....................... 1,011,864
1,500 7.00%, 4/01/04 ........................ 801,897
4,200 7.00%, 12/01/10 ....................... 2,358,379
First Australian National
Mortgage Acceptance
Corporation, Series 22,
1,288 11.40%, 12/15/01 ...................... 654,911
------------
4,827,051
------------
Queensland--1.9%
Queensland Treasury Corporation,
2,000 8.00%, 5/14/03 (Global) ............... 1,068,036
1,000 8.00%, 9/14/07 (Global) ............... 580,519
1,250 6.00%, 6/14/21 ........................ 652,114
------------
2,300,669
------------
Victoria--1.5%
State Electricity Commission
of Victoria,
535 10.50%, 5/27/03 ....................... 294,422
Treasury Corporation of Victoria,
1,000 9.00%, 6/27/05 ........................ 572,695
1,500 10.25%, 11/15/06 ...................... 904,094
------------
1,771,211
------------
Western Australia--1.7%
Western Australia Treasury
Corporation,
3,500 8.00%, 6/15/13 ........................ 2,122,181
------------
Total Australian
semi-government bonds
(cost US$13,180,192) .................. 11,021,112
------------
Supranational--2.6%
Eurofima,
3,500 9.875%, 1/17/07 ....................... 2,156,053
Federal National Mortgage
Association, Series EMTN,
2,000 6.375%, 8/15/07 ....................... 1,071,576
------------
Total Australian dollar
supernational bonds
(cost US$3,221,689) ................... 3,227,629
------------
Utilities--0.9%
Telstra Corp.,
2,000 11.50%, 10/15/02 ...................... 1,077,209
------------
Total Australian utility bonds
(cost US$1,745,314) ................... 1,077,209
------------
14 Aberdeen Commonwealth Income Fund, Inc.
Portfolio of Investments (continued)
As of October 31, 2001
Principal
Amount
Local
Currency (a) Value
(000) Description (US$)
------------------------------------------------------------------
Banking and Finance--0.2%
A$
ING Mercantile Mutual Bank Ltd.,
500 7.125%, 3/13/02 ....................... 254,381
------------
Total Australian banking
and finance bonds
(cost US$379,514) ..................... 254,381
------------
Corporate Non-Banks--2.1%
Brisbane Airport Corporation, Ltd.,
4,000 7.30%, 6/30/10 ........................ 2,185,342
GE Capital Australia,
600 6.75%, 9/15/07 ........................ 325,353
------------
Total Australian corporate
non-bank bonds
(cost US$2,507,134) ................... 2,510,695
------------
Total Australian long-term
investments
(cost US$33,512,901) .................. 27,773,657
------------
CANADA--26.9%
Government Bonds--20.6%
C$
Canadian Government,
6,000 8.50%, 4/01/02 ........................ 3,877,764
5,000 5.25%, 9/01/03 ........................ 3,286,745
2,500 7.25%, 6/01/07 ........................ 1,801,242
2,000 5.50%, 6/01/09 ........................ 1,322,249
1,000 10.75%, 10/01/09 ...................... 873,824
3,000 10.25%, 3/15/14 ....................... 2,784,199
4,000 8.00%, 6/01/23 ........................ 3,333,241
8,000 9.00%, 6/01/25 ........................ 7,398,412
Canada (Cayman),
750 7.25%, 6/01/08 ........................ 535,354
------------
Total Canadian
government bonds
(cost US$27,436,077) .................. 25,213,030
------------
Semi-Government Bonds--5.4%
British Columbia--1.3%
Province of British Columbia,
2,000 9.50%, 1/09/12 ........................ 1,662,738
------------
Ontario--0.9%
Ontario Hydro,
500 8.50%, 5/26/25 ........................ 413,639
Province of Ontario,
1,000 8.75%, 4/22/03 ........................ 684,262
------------
1,097,901
------------
Quebec--2.8%
Quebec Hydro,
1,500 7.00%, 6/01/04 ........................ 1,029,143
1,000 2.512%, 1/28/05 (b) ................... 635,056
2,000 9.625%, 7/15/22 ....................... 1,757,343
------------
3,421,542
------------
Toronto--0.4%
Metropolitan Municipality
of Toronto,
750 9.625%, 5/14/02 ....................... 489,951
------------
Total Canadian
semi-government bonds
(cost US$7,117,360) ................... 6,672,132
------------
Utilities--0.3%
Bell Telephone Company
of Canada,
500 10.50%, 7/15/09 ....................... 334,791
------------
Total Canadian
utility bonds
(cost US$433,599) ..................... 334,791
------------
Aberdeen Commonwealth Income Fund, Inc. 15
Portfolio of Investments (continued)
As of October 31, 2001
Principal
Amount
Local
Currency (a) Value
(000) Description (US$)
------------------------------------------------------------------
Banking and Finance--0.6%
C$
Credit Local de France,
1,000 6.75%, 3/21/06 ........................ 688,619
------------
Total Canadian banking
and finance bonds
(cost US$709,119) ..................... 688,619
------------
Total Canadian
long-term investments
(cost US$35,696,155) .................. 32,908,572
------------
MALAYSIA--0.6%
Semi-Government Bonds--0.6%
MYR
Danamodal Nasional Berhad,
3,100 0.00%, 10/21/03 ....................... 770,513
------------
Total Malaysia
long-term investments
(cost US$740,333) ..................... 770,513
------------
NEW ZEALAND--1.8%
Government Bonds--0.3%
NZ$
Canadian Government,
1,000 6.625%, 10/03/07 ...................... 424,500
------------
Total New Zealand
government bonds
(cost US$557,544) ..................... 424,500
------------
Utilities--0.7%
Electricity Corporation of
New Zealand Ltd.,
1,000 8.00%, 2/15/03 ........................ 428,466
TCNZ Finance Limited,
1,000 9.25%, 7/01/02 ........................ 422,412
------------
Total New Zealand
utility bonds
(cost US$1,189,893) ................... 850,878
------------
Banking and Finance--0.2%
Transpower Finance Ltd.,
500 8.00%, 6/15/05 ........................ 221,378
------------
Total New Zealand
banking and finance bonds
(cost US$348,382) ..................... 221,378
------------
Corporate Non-Banks--0.6%
Housing New Zealand,
1,500 8.00%, 11/15/06 ....................... 674,999
------------
Total New Zealand
corporate non-bank bonds
(cost US$806,899) ..................... 674,999
------------
Total New Zealand
long-term investments
(cost US$2,902,718) ................... 2,171,755
------------
16 Aberdeen Commonwealth Income Fund, Inc.
Portfolio of Investments (continued)
As of October 31, 2001
Principal
Amount
Local
Currency (a) Value
(000) Description (US$)
------------------------------------------------------------------
PHILIPPINES--0.1%
Government Bonds--0.1%
PHP
Philippine Government,
7,000 16.50%, 2/25/09 ...................... 130,389
------------
Total Philippine
long-term investments
(cost US$204,198) .................... 130,389
------------
SINGAPORE--0.5%
Government Bonds--0.4%
SG$
Singapore Government,
100 3.00%, 11/01/02 ...................... 55,896
540 4.00%, 2/01/05 ....................... 316,132
50 4.00%, 3/01/07 ....................... 29,678
70 4.625%, 7/01/10 ...................... 43,515
------------
Total Singapore
government bonds
(cost US$444,966) .................... 445,221
------------
Utilities--0.1%
Singapore Power,
250 4.60%, 9/21/07 ....................... 150,979
------------
Total Singapore corporate
non-bank bonds
(cost US$144,047) .................... 150,979
------------
Total Singapore
long-term investments
(cost US$589,013) .................... 596,200
------------
SOUTH KOREA--3.0%
Government Bonds--1.3%
US$
EMBARC Ltd. Linked Note
Series 1-9,
2,000 5.660%, 8/18/03 (b)(c) ............... 1,640,920
------------
Government Banks--1.7%
EMBARC Ltd. Linked Note
Series 1-7,
2,600 5.044%, 6/28/02 (b)(d) ............... 2,052,102
------------
Total Korean
long-term investments
(cost US$4,257,612) .................. 3,693,022
------------
THAILAND--0.5%
Government Bonds--0.3%
THB
Thailand Government,
5,000 6.125%, 4/12/02 (e) .................. 113,554
550 8.25%, 10/14/03 (e) .................. 13,534
12,000 8.00%, 12/08/06 (e) .................. 313,391
------------
Total Thailand
government bonds
(cost US$491,869) .................... 440,479
------------
Utilities--0.1%
Eastern Water Resources
Development and Management
Company Limited,
4,000 9.00%, 7/22/04 (e) ................... 98,423
------------
Total Thailand utility bonds
(cost US$102,863) .................... 98,423
------------
Aberdeen Commonwealth Income Fund, Inc. 17
Portfolio of Investments (continued)
As of October 31, 2001
Principal
Amount
Local
Currency (a) Value
(000) Description (US$)
------------------------------------------------------------------
Corporate Non-Banks--0.1%
THB
Advanced Info Service
Public Company Limited,
5,200 6.50%, 3/20/03 (e) .................... 119,579
------------
Total Thailand corporate
non-bank bonds
(cost US$137,821) ..................... 119,579
------------
Total Thailand
long-term investments
(cost US$732,553) ..................... 658,481
------------
UNITED KINGDOM--30.0%
Government Bonds--22.6%
(pound)
United Kingdom Treasury,
1,000 7.00%, 11/06/01 ....................... 1,454,786
1,500 8.00%, 6/10/03 ........................ 2,312,263
500 5.00%, 6/07/04 ........................ 740,136
1,250 8.50%, 12/07/05 ....................... 2,087,830
1,100 7.50%, 12/07/06 ....................... 1,811,467
500 5.75%, 12/07/09 ....................... 783,940
1,500 8.00%, 9/27/13 ........................ 2,858,821
600 8.00%, 12/07/15 ....................... 1,180,392
3,000 8.00%, 6/07/21 ........................ 6,328,770
2,350 6.00%, 12/07/28 ....................... 4,259,484
Republic of Finland,
1,000 8.00%, 4/07/03 ........................ 1,522,611
1,250 10.125%, 6/22/08 ...................... 2,306,413
------------
Total United Kingdom
government bonds
(cost US$29,697,591) .................. 27,646,913
------------
Utilities--3.1%
British Gas PLC,
1,400 8.875%, 7/08/08 ....................... 2,397,904
Thames Water Utilities
Finance PLC,
1,000 10.50%, 11/21/01 ...................... 1,458,189
------------
Total United Kingdom
utility bonds
(cost US$4,037,929) ................... 3,856,093
------------
Banking and Finance--4.3%
Abbey National Treasury
Services PLC,
1,250 8.00%, 4/02/03 ........................ 1,900,507
Barclays Bank PLC,
1,000 9.875%, 5/29/49 ....................... 1,776,791
Lloyds Bank PLC,
500 7.375%, 3/11/04 ....................... 764,643
Prudential Finance B.V.,
500 9.375%, 6/04/07 ....................... 855,174
------------
Total United Kingdom
banking and finance bonds
(cost US$5,061,377) ................... 5,297,115
------------
Total United Kingdom
long-term investments
(cost US$38,796,897) .................. 36,800,121
------------
Total long-term investments
(cost US$117,432,380) ................. 105,502,710
------------
18 Aberdeen Commonwealth Income Fund, Inc.
Portfolio of Investments (concluded)
As of October 31, 2001
Principal
Amount
Local
Currency (a) Value
(000) Description (US$)
------------------------------------------------------------------
SHORT-TERM INVESTMENTS--11.9%
Australia--1.2%
A$
Banque Nationale de Paris
Fixed Deposit,
2,895 4.25%, 11/01/01
(cost US$1,460,669) ................... 1,460,669
------------
Canada--4.1%
C$
State Street Bank and
Trust Company Time Deposit,
7,891 2.40%, 11/07/01
(cost US$4,999,367) ................... 4,973,528
------------
New Zealand--2.1%
NZ$
State Street Bank and
Trust Company Time Deposit,
6,075 4.40%, 11/07/01
(cost US$2,524,770) ................... 2,508,368
------------
United Kingdom--0.7%
(pound)
State Street Bank and
Trust Company Fixed Deposit,
610 4.00%, 11/07/01
(cost US$887,123) ..................... 887,123
------------
United States--3.8%
US$
4,710 Repurchase Agreement,
State Street Bank and Trust
Company, 2.48% dated
10/31/01, due 11/01/01 in
the amount of $4,710,324
(collateralized by $3,375,000
U.S. Treasury Bonds, 8.875% due
8/15/17; value $4,818,258)
(cost US$4,710,000) ................... 4,710,000
------------
Total short-term
investments
(cost US$14,581,929) .................. 14,539,688
------------
------------------------------------------------------------------
Total Investments--98.0% (cost US$132,014,309) 120,042,398
Unrealized depreciation on forward foreign currency
exchange contracts--0.0% (f) (1,037)
Other assets in excess of liabilities--2.0% 2,497,796
------------------------------------------------------------------
Total Net Assets--100.0% $122,539,157
==================================================================
(a) Portfolio securities are listed based on currency in which they are
traded;
A$--Australian dollar
C$--Canadian dollar
MYR--Malaysian Ringgit
NZ$--New Zealand dollar
PHP--Philippine peso
SG$--Singapore dollar
THB--Thailand Baht
(pound)--British pound
US$--United States dollar
(b) Coupon changes periodically upon a predetermined schedule. Stated interest
rate in effect at October 31, 2001.
(c) 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.
(d) 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.
(e) Securities, or a portion thereof, pledged as collateral for the forward
currency exchange contracts.
(f) Forward foreign currency exchange contracts entered into as of October 31,
2001 were as follows:
-----------------------------------------------------------------------------------------
Purchases
Net Unrealized
Contracts to Receive In exchange for Settlement Date Value Depreciation
-----------------------------------------------------------------------------------------
PHP 18,419,800 US$ 350,000 12/24/01 US$ 348,963 $(1,037)
=======
Aberdeen Commonwealth Income Fund, Inc. 19
Statement of Assets and Liabilities
October 31, 2001
Assets
Investments, at value (cost $132,014,309) .................................. $ 120,042,398
Foreign currency, at value (cost $1,015,464) ............................... 1,002,800
Cash ....................................................................... 806
Interest receivable ........................................................ 2,385,772
Prepaid expenses and other assets .......................................... 42,267
-------------
Total assets ............................................................. 123,474,043
-------------
Liabilities
Dividends and distributions payable--common stock .......................... 648,635
Investment management fee payable .......................................... 71,636
Administration fee payable ................................................. 22,042
Dividends payable--preferred stock ......................................... 15,876
Net unrealized depreciation on forward foreign exchange contracts .......... 1,037
Accrued expenses and other liabilities ..................................... 175,660
-------------
Total liabilities ........................................................ 934,886
-------------
Total Net Assets ........................................................... $ 122,539,157
=============
Total net assets were composed of:
Common stock:
Par value ($.001 per share, applicable to 9,266,209 shares issued) ....... $ 9,266
Paid-in capital in excess of par ......................................... 122,910,705
Preferred stock ($.001 par value per share and $25,000 liquidation value per
share applicable to 1,200 shares) ........................................ 30,000,000
-------------
152,919,971
Distributions in excess of investment income ............................... (664,511)
Accumulated net realized losses on investment transactions ................. (448,630)
Net unrealized appreciation on investments ................................. 706,495
Accumulated net realized foreign exchange losses ........................... (17,273,592)
Net unrealized foreign exchange losses ..................................... (12,700,576)
-------------
Total Net Assets ........................................................... $ 122,539,157
=============
Net assets applicable to common shareholders ............................... $ 92,539,157
=============
Net asset value per common share ($92,539,157/9,266,209 shares of
common stock issued and outstanding) ..................................... $ 9.99
=============
20 Aberdeen Commonwealth Income Fund, Inc.
Statement of Operations
For the Year Ended October 31, 2001
Net Investment Income
Income
Interest and discount earned (net of foreign withholding taxes of $170,270) $ 8,548,715
-----------
Expenses
Investment management fee ................................................. 807,872
Administration fee ........................................................ 248,576
Directors' fees and expenses .............................................. 155,146
Reports to shareholders ................................................... 132,678
Independent accountant's fees and expenses ................................ 112,030
Legal fees and expenses ................................................... 115,536
Custodian's fees and expenses ............................................. 98,587
Insurance expense ......................................................... 79,451
Auction agent's fees and expenses ......................................... 79,325
Investor Relations fees and expenses ...................................... 73,568
Registration fees ......................................................... 23,528
Transfer agent's fees and expenses ........................................ 19,210
Miscellaneous ............................................................. 39,213
-----------
Total operating expenses ............................................... 1,984,720
-----------
Net investment income ....................................................... 6,563,995
-----------
Realized and Unrealized Gains (Losses) on Investments and
Foreign Currencies
Net realized losses on investment transactions ............................ (420,172)
Net realized foreign exchange losses ...................................... (4,541,817)
-----------
(4,961,989)
-----------
Net change in unrealized appreciation of investments ...................... 3,076,210
Net change in unrealized foreign exchange losses .......................... 2,579,210
-----------
5,655,420
-----------
Net gain on investments and foreign currencies .............................. 693,431
-----------
Net Increase in Net Assets Resulting from Operations ........................ $ 7,257,426
===========
Aberdeen Commonwealth Income Fund, Inc. 21
Statement of Cash Flows
For the Year Ended October 31, 2001
Increase (Decrease) in Cash (Including Foreign Currency)
Cash flows provided from operating activities
Interest received ....................................................... $ 8,582,225
Operating expenses paid ................................................. (2,036,684)
Purchases of short-term portfolio investments, net ...................... (2,797,317)
Purchases of long-term portfolio investments ............................ (23,504,577)
Proceeds from sales of long-term portfolio investments .................. 29,790,107
Other ................................................................... 20,212
------------
Net cash provided from operating activities .......................... 10,053,966
------------
Cash flows used for financing activities
Dividends paid to common shareholders ................................... (7,782,866)
Dividends paid to preferred shareholders ................................ (1,413,792)
------------
Net cash used for financing activities ............................... (9,196,658)
------------
Effect of exchange rate on cash ........................................... (237,651)
------------
Net increase in cash ...................................................... 619,657
Cash at beginning of year ............................................... 383,949
------------
Cash at end of year ..................................................... $ 1,003,606
============
Reconciliation of Net Increase in Net Assets from
Operations to Net Cash (Including Foreign Currency)
Provided from Operating Activities
Net increase in total net assets resulting from operations .............. $ 7,257,426
------------
Decrease in investments ................................................. 2,992,080
Net realized losses on investments ...................................... 420,172
Net realized foreign exchange losses .................................... 4,541,817
Increase in unrealized depreciation on forward foreign exchange contracts 3,562
Net change in unrealized appreciation on investments .................... (3,076,210)
Net change in unrealized foreign exchange losses ........................ (2,579,210)
Decrease in interest receivable ......................................... 414,550
Decrease in receivable for investments sold ............................. 5,068,180
Net decrease in other assets ............................................ 20,212
Decrease in payable for investments purchased ........................... (4,956,649)
Decrease in accrued expenses and other liabilities ...................... (51,964)
------------
Total adjustments ....................................................... 2,796,540
------------
Net cash provided from operating activities ............................... $ 10,053,966
============
22 Aberdeen Commonwealth Income Fund, Inc.
Statements of Changes in Net Assets
For the Year
Ended October 31,
-------------------------------------
2001 2000
----------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations
Net investment income ......................................... $ 6,563,995 $ 7,522,827
Net realized gains (losses) on investment transactions ........ (420,172) 2,020,497
Net realized gains on futures transactions .................... -- 28,352
Net realized foreign exchange losses .......................... (4,541,817) (5,683,079)
Net change in unrealized appreciation/depreciation
of investments ............................................. 3,076,210 (2,122,298)
Net change in unrealized foreign exchange losses .............. 2,579,210 (9,888,532)
------------- -------------
Net increase (decrease) in net assets resulting from operations . 7,257,426 (8,122,233)
------------- -------------
Dividends and distributions to shareholders
Dividends to common shareholders from net
investment income .......................................... (3,178,810) (6,591,924)
Dividends to preferred shareholders from net
investment income .......................................... (1,429,668) (1,514,672)
Tax return of capital ......................................... (4,604,057) --
Distributions to common shareholders from net realized gains
on investment transactions ................................. -- (1,468,931)
Distributions to preferred shareholders from net realized gains
on investment transactions ................................. -- (312,268)
------------- -------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ................................. (9,212,535) (9,887,795)
------------- -------------
Total decrease in net assets .................................... (1,955,109) (18,010,028)
Total Net Assets
Beginning of year ............................................... 124,494,266 142,504,294
------------- -------------
End of year (including distributions in excess of net
investment income of ($664,511) and ($684,022),
respectively) ................................................. $ 122,539,157 $ 124,494,266
============= =============
Aberdeen Commonwealth Income Fund, Inc. 23
Financial Highlights
For the Year Ended October 31,
-----------------------------------------------------------------------
2001 2000 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value per common share,
beginning of year ............................... $ 10.20 $ 12.14 $ 13.07 $ 13.94 $ 14.32
----------- ----------- ----------- ----------- -----------
Net investment income ............................. 0.71 0.81 0.87 0.99 1.14
Net realized and unrealized gains (losses)
on investments and foreign currencies ........... 0.07 (1.68) (0.70) (0.73) (0.34)
----------- ----------- ----------- ----------- -----------
Total from investment operations ................ 0.78 (0.87) 0.17 0.26 0.80
----------- ----------- ----------- ----------- -----------
Dividends from net investment income to
common shareholders ............................. (0.34) (0.71) (0.62) (0.87) (0.99)
Dividends from net investment income to
preferred shareholders .......................... (0.15) (0.16) (0.11) (0.14) (0.17)
Tax return of capital ............................. (0.50) -- -- -- --
Distributions from net realized gains on investment
transactions to common shareholders ............. -- (0.16) (0.33) (0.08) (0.02)
Distributions from net realized gains on investment
transactions to preferred shareholders .......... -- (0.04) (0.04) (0.04) --
----------- ----------- ----------- ----------- -----------
Total dividends and distributions ............... (0.99) (1.07) (1.10) (1.13) (1.18)
----------- ----------- ----------- ----------- -----------
Net asset value per common share, end of year ..... $ 9.99 $ 10.20 $ 12.14 $ 13.07 $ 13.94
=========== =========== =========== =========== ===========
Market value, end of year ......................... $ 9.00 $ 8.8750 $ 10.375 $ 10.8125 $ 12.4375
=========== =========== =========== =========== ===========
Number of shares of common stock
outstanding (000 omitted) ....................... 9,266 9,266 9,266 9,266 9,266
Total investment return based on:(1)
Market value .................................... 11.20% (6.11)% 4.89% (5.59)% 13.78%
Net asset value ................................. 7.40% (7.78)% 1.53% 1.82% 5.76%
Ratio to Average Net Assets of Common
Shareholders(2)/Supplementary Data:
Net assets of common shareholders, end of
period (000 omitted) ............................ $ 92,539 $ 94,494 $ 112,504 $ 121,096 $ 129,158
Average net assets of common shareholders
(000 omitted) ................................... 93,987 105,657 119,257 122,266 130,125
Operating expenses ................................ 2.11% 2.02% 1.95% 1.70% 1.63%
Net investment income available to
common shareholders(2) .......................... 5.46% 5.39% 5.53% 6.17% 6.88%
Portfolio turnover ................................ 17% 29% 40% 36% 24%
Senior securities (preferred stock)
outstanding (000 omitted) ....................... $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000
Asset coverage on preferred stock at year end ..... 408% 415% 475% 504% 530%
--------------------------------------------------------------------------------
(1) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day
of each period reported. Dividends and distributions, if any, are assumed
for the purposes of this calculation to be reinvested at prices obtained
under the Fund's dividend reinvestment plan. Total investment return does
not reflect brokerage commissions. Generally, total investment return
based on net asset value will be higher than total investment return based
on market value in 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.
(2) Ratios are calculated on the basis of income and expenses applicable to
both the common and preferred shares relative to the average net assets of
common shareholders. Ratio of net investment income before preferred stock
dividends to average net assets of common shareholders is 6.98%, 7.12%,
6.76%, 7.50% and 8.10%, respectively.
24 Aberdeen Commonwealth Income Fund, Inc.
Notes to Financial Statements
Note 1. Investment Objectives
Aberdeen Commonwealth Income Fund, Inc. (formerly known as The First
Commonwealth Fund, Inc.) (the "Fund") was incorporated in Maryland on June 28,
1991, as a closed-end, non-diversified investment company.
The Fund's principal investment objective is to provide high current income by
investing primarily in fixed-income securities denominated in Commonwealth
Currencies. As a secondary investment objective, the Fund seeks capital
appreciation, but only when consistent with its principal investment objective.
The Fund will seek to achieve its investment objective through investment in
securities denominated in the Commonwealth Currencies and in Global Debt
Securities. 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 2. 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. However, the Commonwealth Currencies (excluding New Zealand) are the
functional currencies for Federal tax purposes (see Taxes below).
Foreign Currency Translation: Foreign currency amounts are translated into
United States dollars on the following basis:
(i) market value of investment securities, other assets and liabilities--at
the closing rates of exchange as reported by a major bank;
(ii) purchases and sales of investment securities, income and expenses--at the
rates of exchange prevailing on the respective dates of such transactions.
The Fund isolates that portion of the results of operations arising as a result
of changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of the securities held at fiscal period end.
Similarly, the Fund isolates the effect of changes in foreign exchange rates
from the fluctuations arising from changes in the market prices of portfolio
securities sold during the fiscal year.
Aberdeen Commonwealth Income Fund, Inc. 25
Notes to Financial Statements (continued)
Net realized foreign exchange losses includes realized foreign exchange gains
and losses from sales and maturities of portfolio securities, sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the amounts of
interest, discount and foreign withholding taxes recorded on the Fund's books
and the U.S. dollar equivalent amounts actually received or paid. Net unrealized
foreign exchange gains include changes in the value of portfolio securities and
other assets and liabilities arising as a result of changes in the exchange
rate. Accumulated realized and unrealized foreign exchange losses shown in the
composition of net assets represent foreign exchange losses for book purposes
that have not yet been recognized for tax purposes.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin, including
unanticipated movements in the value of the foreign currency relative to the US
dollar.
The exchange rates of the Commonwealth Currencies utilized by the Fund at
October 31, 2001 were US$0.50 to A$1.00, US$0.63 to C$1.00, US$0.41 to NZ$1.00,
US$1.45 to (pound)1.00.
Security Valuation: Investments are stated at value. Investments for which
market quotations are readily available are valued at the last trade price on or
within one local business day of the date of determination as obtained from a
pricing source. If no such trade price is available, such investments are valued
at the quoted bid price or the mean between the quoted bid and asked price on
the date of determination as obtained from a pricing source. Securities for
which market quotations are not readily available are valued at fair value in
good faith using methods determined by or under the direction of the Fund's
Board of Directors.
Securities purchased with a maturity of less than 60 days are valued at
amortized cost. Securities purchased with a maturity of greater than 60 days are
valued at current market quotations until the 60th day prior to maturity. At
that time, the value of the security on the 61st day prior to maturity is
amortized on a straight-line basis to value the security for the remaining 60
days.
26 Aberdeen Commonwealth Income Fund, Inc.
Notes to Financial Statements (continued)
Repurchase Agreements: In connection with transactions in repurchase agreements
with US financial institutions, it is the Fund's policy that its
custodian/counterparty segregates the underlying collateral securities, the
value of which exceeds the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the collateral is valued on a daily basis to determine
its adequacy. If the seller defaults and the value of the collateral declines or
if bankruptcy proceedings are commenced with respect to the seller of the
security, realization of the collateral by the Fund may be delayed or limited.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses from
security and currency transactions are calculated on the identified cost basis.
Interest income is recorded on an accrual basis. Discounts on securities
purchased are accreted on an effective yield basis over the estimated lives of
the respective securities. Expenses are accrued on a daily basis.
In November 2000, a revised AICPA Audit and Accounting Guide, Audits of
Investment Companies, was issued, and is effective for fiscal years beginning
after December 15, 2000. The revised Guide will require the Fund to amortize
premium 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 of amortization that would have been recognized had 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 initial adjustment
required upon adoption of premium and discount amortization will decrease the
recorded costs of its investments (but not their market value) by $3,549,925.
Additionally, had this principle been in effect during the year ended October
31, 2001, the Fund estimates that net investment income would have decreased by
approximately $0.11 per share (1.1% of net assets) and realized and unrealized
gain (loss) per share would have increased (decreased) by the same amount.
Because the Fund determines its required
Aberdeen Commonwealth Income Fund, Inc. 27
Notes to Financial Statements (continued)
distributions under Federal income tax laws, adoption of this principle will not
affect the amount or composition of distributions paid to shareholders.
Derivative Financial Instruments: The Fund is authorized to use derivatives to
manage both currency and interest rate risk for global debt securities. With
respect to investments denominated in Commonwealth currencies, derivatives can
only be used to manage interest rate risk. Losses may arise due to changes in
the value of the contract if the counterparty does not perform under the
contract.
Forward Currency Contracts: A forward currency contract involves an obligation
to purchase and 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 foreign currency contract is
marked-to-market daily and the change in market value is recorded by the Fund as
an unrealized gain or loss. When the forward currency contract is closed, the
Fund records a realized gain or loss equal to the difference between the value
at the time it was opened and the value at the time it was closed.
Financial futures contracts: A futures contract is an agreement between two
parties to buy and sell a security for a set price on a future date. Upon
entering into a contract, the Fund deposits and maintains as collateral such
initial margin as required by the exchange on which the transaction is effected.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in the value of the contract.
Such receipts or payments are known as variation margin and are recorded by the
Fund as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed. As
of October 31, 2001, there were no open futures contracts.
Options: When the fund writes an option, an amount equal to the premium received
by the Fund is reflected as an asset and an equivalent liability. The amount of
the liability is subsequently marked to market to reflect the current market
value of the option written. When a security is purchased or sold through an
exercise of an option, the related
28 Aberdeen Commonwealth Income Fund, Inc.
Notes to Financial Statements (continued)
premium paid (or received) is added to (or deducted from) the basis of the
security acquired or deducted from (or added to) the proceeds of the security
sold. When an option expires (or the Fund enters into a closing transaction),
the Fund realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the closing
transaction exceeds the premium paid or received). As of October 31, 2001, there
were no open option contracts.
Dividends: Dividends and distributions to common shareholders are recorded on
the ex-dividend date. These are based upon net investment income, capital and
currency gains and, to the extent necessary, return of capital. This is
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 and
loss deferrals. Dividends and distributions to preferred shareholders are
accrued on a daily basis and are determined as described in Note 5.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with AICPA Statement of Position
93-2 Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. For
the year ended October 31, 2001, the Fund decreased distributions in excess of
net investment income by $2,668,051, increased accumulated net realized losses
on investments by $342,342 and decreased accumulated net realized foreign
exchange losses by $2,417,202, resulting in a decrease to paid-in capital in
excess of par by $4,742,911. Net investment income, net realized losses on
investments and net assets were not affected by this change.
Taxes: For Federal income and excise tax purposes, substantially all of the
Fund's transactions are accounted for using the functional currencies.
Accordingly, only realized currency gains and losses resulting from the
repatriation of any of the Commonwealth Currencies into US dollars or another
Commonwealth Currency and realized currency gains and losses on non-Commonwealth
currencies are recognized for tax purposes.
No provision has been made for United States of America Federal income taxes
because it is the Fund's policy to meet the requirements of the United States of
America Internal Revenue Code applicable
Aberdeen Commonwealth Income Fund, Inc. 29
Notes to Financial Statements (continued)
to regulated investment companies and to distribute substantially all of its
taxable income to shareholders. Under the applicable foreign tax law, a
withholding tax may be imposed on interest and discounts earned at various
rates.
Cash Flow Information: The Fund invests in securities and distributes dividends
from net investment income and net realized gains on investment and currency
transactions which are paid in cash or are reinvested at the discretion of
shareholders. These activities are reported in the Statements of Changes in Net
Assets and additional information on cash receipts and cash payments is
presented in the Statement of Cash Flows. Cash includes domestic and foreign
currency.
Use of Estimates: The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Note 3. Agreements
The Fund has agreements with Aberdeen Asset Managers (C.I.) Limited (formerly
known as EquitiLink International Management Limited) (the "Investment
Manager"), Aberdeen Asset Management Limited (formerly known as EquitiLink
Australia Limited) (the "Investment Adviser"), and Princeton Administrators,
L.P. (the "Administrator"). The Investment Manager and the Investment Adviser
are wholly-owned subsidiaries of Aberdeen Asset Management Plc. The Investment
Manager has entered into an agreement with CIBC World Markets, Inc. (the
"Consultant").
The Investment Manager makes investment decisions on behalf of the Fund on the
basis of recommendations and information furnished to it by the Investment
Adviser and the Consultant, including the selection of and the placement of
orders with brokers and dealers to execute portfolio transactions on behalf of
the Fund.
The management agreement provides the Investment Manager with a fee, computed
weekly and payable monthly, at the following annual rates: 0.65% of the Fund's
average weekly net assets up to $200 million, 0.60% of such assets between $200
million and $500 million and 0.55% of such assets in excess of $500 million. The
administration agreement provides the Administrator with a fee computed and
payable monthly at the annual rate of 0.20% of the Fund's
30 Aberdeen Commonwealth Income Fund, Inc.
Notes to Financial Statements (continued)
average weekly net assets, subject to a minimum annual payment of $150,000
($12,500 per month). The Investment Manager pays fees to the Investment Adviser
and the Consultant for their services rendered.
The Investment Manager informed the Fund that it paid $306,388 to the Investment
Adviser and $12,000 to the Consultant during the year ended October 31, 2001.
Effective March 1, 2000, the Fund entered into an agreement with EquitiLink USA,
Inc. (doing business under the name Aberdeen Asset Management ("AAM")), a
wholly-owned subsidiary of Aberdeen Asset Managers (C.I.) Limited, to provide
investor relations services. This agreement provides AAM with a monthly retainer
of $4,000 plus out of pocket expenses. For the year ended October 31, 2001, the
Fund paid AAM $55,747.
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended October 31, 2001 aggregated $18,547,928 and $24,718,365,
respectively.
The United States of America federal income tax basis of the Fund's investments
at October 31, 2001 was $119,355,870 and accordingly, net unrealized
appreciation for United States federal income tax purposes was $686,528 (gross
unrealized appreciation--$3,078,234, gross unrealized depreciation--$2,391,706.)
For federal income tax purposes, the Fund had a capital loss carryforward as of
October 31, 2001 of approximately $428,662 which expires in 2009. Accordingly,
no capital gains distributions are expected to be paid to shareholders until
future net gains have been realized in excess of such carryforward.
Note 5. Capital
There are 300 million shares of $.001 par value common stock authorized and
9,266,209 shares outstanding at October 31, 2001.
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,
Aberdeen Commonwealth Income Fund, Inc. 31
Notes to Financial Statements (concluded)
there have been no share repurchases through this program.
There are 100 million shares of $.001 par value of Auction Market Preferred
Stock ("Preferred Stock") authorized. The preferred shares have rights as
determined by the Board of Directors. The 1,200 shares of Preferred Stock
outstanding consist of one series, W-7. The Preferred Stock has a liquidation
value of $25,000 per share plus any accumulated but unpaid dividends whether or
not declared.
Dividends on the Preferred Stock are cumulative at a rate typically reset every
seven days based on the results of an auction. Dividend rates ranged from 2.760%
to 6.634% 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 $25,000 per share plus any accumulated but
unpaid dividends. The Preferred Stock is also subject to mandatory redemption at
$25,000 per share plus any accumulated but unpaid dividends, whether or not
declared, if certain requirements relating to the composition of the assets and
liabilities of the Fund as set forth in the Articles of Incorporation are not
satisfied.
The holders of Preferred Stock have voting rights equal to the holders of common
stock (one vote per share) and will vote together with holders of shares of
common stock as a single class. However, holders of Preferred Stock are also
entitled to elect two of the Fund's directors.
Note 6. Subsequent Dividends
Subsequent to October 31, 2001, the Board of Directors of the Fund declared a
distribution of $ 0.07 per common share payable on December 14, 2001 to common
shareholders of record on November 30, 2001.
Subsequent to October 31, 2001, dividends and distributions declared and paid on
preferred shares totaled approximately $86,112 for the outstanding preferred
share series through December 13, 2001.
32 Aberdeen Commonwealth Income Fund, Inc.
Report of Independent Accountants
To the Shareholders and the Board of Directors of
Aberdeen Commonwealth 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 Commonwealth Income
Fund, Inc. (the "Fund," formerly known as The First Commonwealth 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 10036
December 13, 2001
Aberdeen Commonwealth Income Fund, Inc. 33
Federal Tax Information: Dividends and Distributions
Common Shareholders:
Of the monthly cash distributions paid by the Fund during the taxable year ended
October 31, 2001, 39.03% represents income from foreign sources. Additionally,
1.42% of the monthly cash distributions is attributable to foreign withholding
taxes.
Preferred Shareholders:
Of the ordinary income distributions paid by the Fund during the taxable year
ended October 31, 2001, 94.99% represents income from foreign sources.
Additionally, 4.81% of the ordinary income distributions is attributable to
foreign withholding taxes.
The foreign taxes paid or withheld represent taxes incurred by the Fund on
interest received from foreign sources. Foreign taxes paid or withheld should be
included as foreign source taxable income with an offsetting deduction from
gross income or as a credit for taxes paid to foreign governments. You should
consult your tax advisor regarding the appropriate treatment of foreign taxes
paid.
ABERDEEN COMMONWEALTH INCOME FUND, INC.
34 Aberdeen Commonwealth Income Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
Common shareholders are automatically enrolled in the Fund's Dividend
Reinvestment and Cash Purchase Plan (the "Plan"). Under the Plan, all
distributions of dividends and capital gains, net of any applicable withholding
tax, will automatically be reinvested by State Street Bank and Trust (the "Plan
Agent") in additional shares of common stock of the Fund unless an election is
made to receive distributions in cash. Generally, shareholders who do not
participate in the Plan will receive all distributions in cash paid by check in
United States dollars mailed directly to the shareholders of record (or if the
shares are held in street or other nominee name, then to the nominee) by the
Plan Agent. A shareholder whose shares are held by a broker or nominee that does
not provide a dividend reinvestment program may be required to have his shares
registered in his own name to participate in the Plan.
The Plan Agent serves as agent for the shareholders in administering the Plan.
Dividends and capital gains distributions payable to Plan participants will be
promptly invested. If the Fund declares a dividend or capital gain distribution
payable in stock to shareholders who are not Plan participants, then Plan
participants will receive that dividend or distribution in newly-issued shares
on identical terms and conditions.
In every other case, Plan participants will receive shares on the following
basis: If, on payable date, the market price of the Fund's common stock plus any
brokerage commission is equal to or exceeds net asset value per share, Plan
participants will receive newly-issued shares of the Fund valued at the greater
of net asset value per share or 95% of the then current market price. If, on the
other hand, the net asset value per share plus any brokerage commissions exceed
the market price at such time, the Plan Agent will buy shares of common stock in
the open market. If the market price plus any applicable brokerage commission
exceeds the net asset value per share as last determined before the Plan Agent
has completed its purchases, the Plan Agent will suspend making open market
purchases and shall invest the balance available in newly-issued shares valued
at the greater of net asset value per share as last so determined or 95% of the
then current market value.
There is no charge to participants for reinvesting dividends and capital gain
distributions, except for certain brokerage commissions, as described below. The
Plan Agent's fees for the handling of the reinvestment of dividends and
distributions are paid by the Fund. There will be no brokerage commissions
charged with respect to shares issued directly
Aberdeen Commonwealth Income Fund, Inc. 35
Dividend Reinvestment and
Cash Purchase Plan (concluded)
by the Fund. However, each participant pays a pro rata share of brokerage
commissions incurred with respect to the Plan Agent's open market purchases in
connection with the reinvestment of dividends and distributions. The automatic
reinvestment of dividends and distributions does not relieve participants of any
federal income tax that may be payable on such dividends and distributions.
The Plan also allows participants to make voluntary cash investments by sending
additional funds to the Plan Agent in any amount of at least $100 for the
purchase of shares on the open market. Voluntary payments will be invested on or
shortly after the 15th of the month, and in no event more than 45 days after
such date except where temporary curtailment or suspension of purchases is
necessary to comply with applicable provisions of federal securities law. Cash
investments may be commingled with the funds of other shareholders of the Fund
held by the Plan Agent and the average price (including brokerage commissions)
of all shares purchased by the Plan Agent will be the price per share allocable
to each participant. Participants will also be charged a service fee for each
voluntary cash investment.
Participants in the Plan may withdraw some or all of their shares from the Plan
upon written notice to the Plan Agent and will receive stock certificates for
all full shares. The Plan Agent will convert any fractional shares to cash at
the then-current market price and send a check to the participant for the
proceeds. If, by giving proper notice to the Plan Agent, participants request
cash, the Plan Agent will sell the shares and send the participant the proceeds,
less a service fee of $2.50 and less brokerage commissions.
The Fund reserves the right to amend or terminate the Plan either in full or
partially upon 90 days' written notice to shareholders of the Fund.
All questions concerning the Plan should be directed to the Plan Agent by
calling 1-800-426-5523.
36 Aberdeen Commonwealth Income Fund, Inc.
Directors
Martin J. Gilbert, Chairman
David L. Elsum
Laurence S. Freedman
Neville J. Miles
William J. Potter
Sir David Rowe-Ham
Peter D. Sacks
Anton E. Schrafl
E. Duff Scott
John T. Sheehy
Warren C. Smith
Hugh Young
Officers
Hugh Young, President
Christian Pittard, Treasurer and Assistant Secretary
Roy M. Randall, Secretary
Michael Karagianis, Assistant Vice President
Beverley Hendry, Assistant Treasurer
Timothy Sullivan, Assistant Treasurer
Simon Bignell, Assistant Treasurer
Allan S. Mostoff, Assistant Secretary
Margaret A. Bancroft, Assistant Secretary
Sander M. Bieber, Assistant Secretary
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase, from time to time, shares of its
common stock in the open market.
[RECYCLE LOGO] Printed on post-consumer recycled paper
Aberdeen Commonwealth Income Fund, Inc. 37
Corporate Information
Investment Manager Aberdeen Asset Managers (C.I.) Limited
P.O. Box 578, 17 Bond Street
St. Helier, Jersey JE45XB
Channel Islands
Investment Advisor Aberdeen Asset Management Limited
Level 6, 201 Kent Street
Sydney, NSW 2000, Australia
Consultant CIBC World Markets, Inc.
BCE Place, Canada Trust Tower
P.O. Box 500
Toronto, Ontario, M5J 2S8
Canada
Administrator Princeton Administrators, L.P.
P.O. Box 9095
Princeton, New Jersey 08543-9095
Custodian & Transfer Agent State Street Bank and Trust Company
1 Heritage Drive
North Quincy, Massachusetts 02171
Auction Agent Deutsche Bank
Four Albany Street
New York, New York 10006
Independent Accountants PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel Dechert
1775 Eye Street, N.W.
Washington, DC 20006
Stikeman Elliott
Level 40 Chifley Tower
2 Chifley Square
Sydney, NSW 2000, Australia
Investor Relations Aberdeen Asset Management
45 Broadway, 31st Floor
New York, New York 10006
1-800-522-5465 or 1-212-968-8800
InvestorRelations@aberdeen-asset.com
[LOGO]
Aberdeen
ASSET MANAGERS
Aberdeen Asset Managers (C.I.) Limited
The common shares of Aberdeen Commonwealth Income Fund, Inc. are traded on the
New York Stock Exchange under the symbol "FCO." Information about the Fund's
net asset value and market price is published weekly in Barron's and
in the Monday edition of The Wall Street Journal.
This report, including the financial information herein, is transmitted to the
shareholders of Aberdeen Commonwealth Income Fund, Inc. for their general
information only. It does not have regard to the specific investment
objectives, financial situation and the particular needs of any
specific person. Past performance is no guarantee of
future returns.