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<SEC-DOCUMENT>0001021408-01-001529.txt : 20010308
<SEC-HEADER>0001021408-01-001529.hdr.sgml : 20010308
ACCESSION NUMBER:		0001021408-01-001529
CONFORMED SUBMISSION TYPE:	PRE 14A
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20010419
FILED AS OF DATE:		20010307

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			FIRST AUSTRALIA PRIME INCOME FUND INC
		CENTRAL INDEX KEY:			0000790500
		STANDARD INDUSTRIAL CLASSIFICATION:	UNKNOWN SIC - 0000 [0000]
		IRS NUMBER:				133334183
		STATE OF INCORPORATION:			MD
		FISCAL YEAR END:			1031

	FILING VALUES:
		FORM TYPE:		PRE 14A
		SEC ACT:		
		SEC FILE NUMBER:	811-04611
		FILM NUMBER:		1563150

	BUSINESS ADDRESS:	
		STREET 1:		ONE SEAPORT PLAZA
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10292
		BUSINESS PHONE:		2122141250

	MAIL ADDRESS:	
		STREET 1:		ONE SEAPORT PLAZA
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10292
</SEC-HEADER>
<DOCUMENT>
<TYPE>PRE 14A
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>PRE 14 A
<TEXT>

<PAGE>

                           SCHEDULE 14A INFORMATION

                 Proxy Statement Pursuant to Section 14(a) of
                     the Securities Exchange Act of 1934

Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]

Check the appropriate box:

[X]  Preliminary Proxy Statement

[_]  Confidential, for Use of the Commission Only
     (as permitted by Rule 14a-6(e)(2))

[_]  Definitive Proxy Statement

[_]  Definitive Additional Materials

[_]  Soliciting Material Pursuant to Section 240.14a-12

                  THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
- --------------------------------------------------------------------------------
               (Name of Registrant as Specified In Its Charter)



- --------------------------------------------------------------------------------
   (Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X]  No Fee required.

[_]  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.


     (1) Title of each class of securities to which transaction applies:

     --------------------------------------------------------------------------


     (2) Aggregate number of securities to which transaction applies:

     --------------------------------------------------------------------------


     (3) Per unit price or other underlying value of transaction computed
         pursuant to Exchange Act Rule 0-11 (set forth the amount on which
         the filing fee is calculated and state how it was determined):

     --------------------------------------------------------------------------


     (4) Proposed maximum aggregate value of transaction:

     --------------------------------------------------------------------------


     (5) Total fee paid:

     --------------------------------------------------------------------------


[_]  Fee paid previously with preliminary materials.

[_]  Check box if any part of the fee is offset as provided by Exchange
     Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
     was paid previously. Identify the previous filing by registration statement
     number, or the Form or Schedule and the date of its filing.

     (1) Amount Previously Paid:

     --------------------------------------------------------------------------


     (2) Form, Schedule or Registration Statement No.:

     --------------------------------------------------------------------------


     (3) Filing Party:

     --------------------------------------------------------------------------


     (4) Date Filed:

     --------------------------------------------------------------------------
<PAGE>

[FAX LOGO]
                                                                Gateway Center 3
                                                             100 Mulberry Street
                                                       Newark, New Jersey  07102
                                                                  (800) 451-6788

                                                               March [   ], 2001

Dear Shareholder:

  The Annual Meeting of Shareholders is to be held at 2:00 p.m. (Eastern time),
on Thursday, April 19, 2001 at the offices of Prudential Securities
Incorporated, One Seaport Plaza, 35th Floor, New York, New York. A Proxy
Statement regarding the meeting, a proxy card for your vote at the meeting and
an envelope postage prepaid in which to return your proxy card are enclosed.

  At the Annual Meeting, the holders of the Fund's common stock will elect the
Fund's Class I Directors for a three-year term and the holders of the Fund's
preferred stock will vote separately as a single class to elect two additional
Directors. You are also being asked to consider and vote on proposed amendments
to the Fund's investment objective, policies, and restrictions. In addition, the
shareholders present will hear a report on the Fund. There will be an
opportunity to discuss matters of interest to you as a shareholder.

  Your Directors recommend that you vote in favor of each of the foregoing
matters.


                              [Signature]


                              Martin J. Gilbert
                              Chairman

YOU ARE URGED TO SIGN AND MAIL THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE
TO ASSURE A QUORUM AT THE MEETING. THIS IS IMPORTANT REGARDLESS OF THE SIZE OF
YOUR SHAREHOLDING.

Following the acquisition of the Fund's investment manager and investment
adviser by Aberdeen Asset Management, PLC, the name of the investment manager
was changed from EquitiLink International Management Limited to Aberdeen Asset
Managers (C.I.) Limited, and the name of the investment adviser was changed from
EquitiLink Australia Limited to Aberdeen Asset Management Limited.


            EFFECTIVE MAY 1, 2001, YOUR FUND WILL HAVE A NEW NAME:

                    ABERDEEN ASIA-PACIFIC INCOME FUND, INC.

                          Stock Exchange Symbol: FAX
<PAGE>

                  THE FIRST AUSTRALIA PRIME INCOME FUND, INC.

                               Gateway Center 3
                              100 Mulberry Street
                           Newark, New Jersey  07102

________________________________________________________________________________

                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
                                 April 19, 2001
________________________________________________________________________________

  NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of The First
Australia Prime Income Fund, Inc. (the "Fund") will be held at the offices of
Prudential Securities Incorporated, One Seaport Plaza, 35th Floor, New York, New
York, on Thursday, April 19, 2001, at 2:00 p.m. (Eastern time), for the
following purposes:

  (1)  To elect three Directors to serve as Class I Directors for a three-year
       term;

  (2)  To elect two Directors to represent the interests of the holders of
       preferred stock for the ensuing year;

  (3A) To amend the Fund's investment objective;

  (3B) To amend the Fund's investment policies and eliminate the requirement
       that shareholders approve changes in these policies; and

  (3C) To amend the Fund's investment restrictions; and

  (4)  To transact any other business as may properly come before the meeting or
       any adjournments or postponements thereof.

  The Board of Directors has fixed the close of business on March 5, 2001 as the
record date for the determination of shareholders entitled to vote at the
meeting or any adjournment or postponement thereof.

  In the event that the necessary quorum to transact business or the vote
required to approve or reject any proposal is not obtained at the meeting, the
persons named as proxies may propose one or more adjournments of the meeting, in
accordance with applicable law, to permit further solicitation of proxies. Any
such adjournment will require the affirmative vote of the holders of a majority
of the Fund's shares present in person or by proxy at the meeting. The persons
named as proxies will vote in favor of such adjournment those proxies which they
are entitled to vote in favor of any proposal and will vote against any such
adjournment those proxies to be voted against that proposal.

                                    By Order of the Board of Directors,

                                    Roy M. Randall, Secretary
Newark, New Jersey
March [  ], 2001

IMPORTANT: You are cordially invited to attend the meeting. Shareholders who do
not expect to attend the meeting in person are requested to complete, date and
sign the enclosed proxy card and
<PAGE>

return it promptly in the addressed envelope which requires no postage and is
intended for your convenience. Your prompt return of the enclosed proxy card may
save the Fund the necessity and expense of further solicitations to assure a
quorum at the meeting. The enclosed proxy is being solicited on behalf of the
Board of Directors of the Fund.
<PAGE>

PRELIMINARY COPY

                                PROXY STATEMENT

                  THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
                                Gateway Center 3
                              100 Mulberry Street
                           Newark, New Jersey  07102

                  ------------------------------------------

                         Annual Meeting of Shareholders
                                 April 19, 2001

                  ------------------------------------------

                                  INTRODUCTION

     This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of The First Australia Prime Income
Fund, Inc., a Maryland corporation (the "Fund"), to be voted at the Annual
Meeting of Shareholders of the Fund (the "Meeting") to be held at the offices of
Prudential Securities Incorporated, One Seaport Plaza, 35th Floor, New York, New
York, on Thursday, April 19, 2001, at [   ] p.m. (Eastern time). The approximate
mailing date for this Proxy Statement is March [__], 2001 or as soon as
practicable thereafter.

     All properly executed proxies received prior to the Meeting will be voted
at the Meeting in accordance with the instructions marked on the proxy card.
Unless instructions to the contrary are marked, proxies submitted by holders of
the Fund's common stock will be voted FOR Proposals 1, 3A, 3B and 3C, and
proxies submitted by holders of the Fund's preferred stock will be voted FOR
Proposals 2, 3A, 3B and 3C. The appointed proxies will vote in their discretion
on any other business as may properly come before the meeting or any
adjournments or postponements thereof. Any proxy may be revoked at any time
prior to its exercise by giving written notice to the Secretary of the Fund
(addressed to the Secretary at the principal executive office of the Fund,
Gateway Center 3, 100 Mulberry Street, Newark, New Jersey 07102).

     Shareholders may vote using the enclosed postage pre-paid proxy card.
Shareholders may also vote by telephone or internet. To vote by telephone or
internet, shareholders should follow the instructions contained on their proxy
card.

     The presence at the Meeting, in person or by proxy, of the stockholders
entitled to cast a majority of all the votes entitled to be cast at the Meeting
shall be necessary and sufficient to constitute a quorum for the transaction of
business with respect to the Fund. For purposes of determining the presence of a
quorum for transacting business at the Meeting, abstentions and broker non-votes
(that is, proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owner or other persons entitled to
vote shares on a particular proposal with respect to which the brokers or
nominees do not have discretionary power) will be treated as shares that are
present.

     Approval of the election of Class I Directors to the Board of Directors
(Proposal 1) will require the affirmative vote of a majority of the shares of
common stock present in person or by proxy at the Meeting. Approval of the
election of Preferred Directors to the Board of Directors (Proposal 2) will
require the affirmative vote of a majority of the shares of preferred stock
present in person or by proxy at the meeting. Proposals 3A, 3B and 3C each
require the affirmative vote of "a majority of the outstanding voting
securities" of the Common Stock and the Preferred Stock, voting together as a
single class, as well
<PAGE>

as the affirmative vote of "a majority of the outstanding voting securities" of
the Preferred Stock, voting together as a separate class, without regard to
series. The term "majority of the outstanding voting securities," as defined by
the Investment Company Act of 1940, as amended (the "1940 Act"), and as used in
this Proxy Statement, means: the affirmative vote of the lesser of (1) 67% of
the voting securities of the Fund present at the meeting, if more than 50% of
the outstanding shares of the Fund are present in person or by proxy, or (2)
more than 50% of the outstanding shares of the Fund. Abstentions are treated as
present and will have the effect of a vote "against" each proposal. For purposes
of Proposals 1 and 2, broker votes will be voted "for" each Proposal. For
purposes of Proposals 3A, 3B and 3C, broker non-votes cannot be voted on a
Proposal, but are treated as present and, therefore, will have the effect of a
vote "against" each Proposal.

     In the event that the necessary quorum to transact business at the Meeting
is not obtained or a quorum is present at the Meeting but sufficient votes to
approve the proposals are not received, the proxy holders may propose one or
more adjournments of the Meeting to permit further solicitation of proxies. Any
adjournment will require the affirmative vote of a majority of those shares
present at the Meeting in person or by proxy. If the necessary quorum is not
obtained, the persons named as proxies will vote in favor of the adjournment. If
a quorum is present, the proxy holders will vote those proxies required to be
voted "for" a proposal with respect to which insufficient votes for approval
have been received, in favor of such adjournment, and will vote those proxies
required to be voted "against" a proposal, against adjournment.

     The following table indicates which class of the Fund's shareholders is
being solicited with respect to each Proposal to be considered at the Meeting.

<TABLE>
<CAPTION>
                                                                                 Solicitation of
                                                               Solicitation of  Vote of Preferred
                                                               Vote of Common     Stockholders
                                                                Stockholders      (Series A-I)
                                                                ------------      ------------
<S>                                                            <C>              <C>
Proposal 1:
Election of Class I Directors...........................             Yes                No

Proposal 2:
Election of Preferred Directors.........................              No               Yes

Proposal 3A:
Approval of Amendment to the Fund's Investment
  Objective.............................................             Yes               Yes

Proposal 3B:
Approval of Amendment to the Fund's Investment
  Policies..............................................             Yes               Yes

Proposal 3C:
Approval of Amendment to the Fund's Investment
  Restrictions..........................................             Yes               Yes
</TABLE>

     The Board of Directors has fixed the close of business on March 5, 2001 as
the record date for the determination of shareholders entitled to notice of and
to vote at the Meeting and at any adjournment or postponement thereof.
Shareholders on the record date will be entitled to one vote for each share
held. As

                                      -2-
<PAGE>

of March 5, 2001, the Fund had outstanding 267,377,300 shares of common stock,
par value $0.01 per share; 3,000 shares of Auction Market Preferred Stock,
Series A, par value $0.01 per share; 3,000 shares of Auction Market Preferred
Stock, Series B, par value $0.01 per share; 2,000 shares of Auction Market
Preferred Stock, Series C, par value $0.01 per share; 4,000 shares of Auction
Market Preferred Stock, Series D, par value $0.01 per share; 2,000 shares of
Auction Market, Preferred Stock, Series E, par value $0.01 per share; 2,000
shares of Auction Market Preferred Stock, Series F, par value $0.01 per share;
3,000 shares of Auction Market Preferred Stock, Series G, par value $0.01 per
share; 2,500 shares of Auction Market Preferred Stock, Series H, par value $0.01
per share; and 2,500 shares of Auction Market Preferred Stock, Series I, par
value $0.01 per share.

     The Board of Directors of the Fund knows of no business other than that
mentioned in the Notice of the Meeting which will be presented for consideration
at the Meeting. If any other matter is properly presented, it is the intention
of the persons named on the enclosed proxy card to vote in accordance with their
best judgment.

     The Fund will furnish, without charge, a copy of the Fund's annual report
for its fiscal year ended October 31, 2000, and any more recent reports, to any
Fund shareholder upon request. To request a copy, please call or write to the
Fund's Administrator, Prudential Investments Fund Management LLC, Gateway Center
3, 100 Mulberry Street, Newark, NJ 07102, Telephone: 1-800-451-6788.

                  PROPOSAL 1:  ELECTION OF CLASS I DIRECTORS

     The Fund's By-laws provide that the Board of 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, after a transition period, will
serve for three years with one class being elected each year. Each year the term
of office of one class will expire. Anthony E. Aaronson and Neville J. Miles,
Directors who were elected to serve until the Meeting, and Beverley Hendry, who
was appointed to the Board in February 2001, have been nominated by the Board of
Directors of the Fund, including the Directors who are not interested persons of
the Fund, to serve as a Class I Director for a three-year term to expire at the
Annual Meeting of Shareholders to be held in 2004 and until their successors are
duly elected and qualified. Mr. Hendry was appointed to the Board by the Board
of Directors, including the Directors who are not interested persons of the
Fund, to fill a vacancy on the Board. The nominees have indicated an intention
to serve if elected and have consented to be named in this Proxy Statement.

     It is the intention of the persons named on the enclosed proxy card to vote
for the election of the persons listed below under Class I for a three-year
term. The Board of Directors of the Fund knows of no reason why any of these
nominees will be unable to serve, but in the event of any such inability, the
proxies received will be voted for such substituted nominees as the Board of
Directors may recommend.

     The following table sets forth certain information concerning each of the
Fund's nominees for election as a Director and each Director of the Fund. Each
of the Fund's nominees is currently a Director of the Fund.

                                      -3-
<PAGE>

<TABLE>
<CAPTION>
                                                                                                       Shares
                                                                                                    Beneficially
                                                                                                      Owned and
                                                                                                     % of Total
                                 Principal Occupations and Employment for Past           Director    Outstanding
Name and Address                       Five Years and Other Directorships           Age   Since     on 1/31/01(1)
- ----------------                 ---------------------------------------------      ---   -----     -------------
<S>                            <C>                                                  <C>  <C>       <C>
                               Class I (Current Directors and Nominees for a Term
                               Expiring at the Annual Meeting to be held in 2004)

Anthony E. Aaronson++          Mr. Aaronson has extensive experience in the          63    1986           500
116 South Anita Avenue         management of private investments.  He served
Los Angeles, CA 90049          as Chairman of the Audit Committee of the Fund
                               from the inception of the Fund until 2000.

                               Director, The First Australia Fund, Inc. (since
                               1985); Anthony Aaronson (textile agent) (since
                               1993); Vice President, Textile Association of
                               Los Angeles (1996-1998).

Beverley Hendry*               Mr. Hendry has served as Executive Director of        47    2001             0
Suite 2210                     Aberdeen Asset Management PLC (parent
Nations Bank Tower             company of the Fund's Investment Manager and
1 Financial Plaza              Investment Adviser), since 1991.  He has also
Fort Lauderdale, FL  33394     served as Chief Executive Director of Aberdeen
                               Fund Managers, Inc. since 1995.

                                Director, Aberdeen Asset Management PLC
                               (since 1991); Director, Aberdeen Fund
                               Managers, Inc. (since 1995); Director, Aberdeen
                               Investment Services S.A. (since 1998); Director,
                               Aberdeen Fund Managers Ireland Limited (since
                               2000); Director, Phoenix Aberdeen International
                               Advisors LLC (since 1996); Director, Aberdeen
                               Asset Managers Ireland Limited (since 1999);
                               Director, The America Monthly Income Trust
                               (since 2000).

Neville J. Miles+/o/           Mr. Miles has over 20 years of international          54    1996         2,000
23 Regent Street               investment banking experience.  He was
Paddington, N.S.W. 2021        formerly head of Corporate Treasury at Westpac
Australia                      Banking Corporation and Managing Director of
                               Ord Minnett Securities Limited (stockbrokers).
                               Mr. Miles has extensive experience in the areas
                               of corporate acquisitions and equity offerings.

                               Director, The First Australia Fund, Inc. (since
                               1996); Director, The First Commonwealth Fund,
                               Inc. (since December 1999); Chairman and
                               Director, MTM Funds Management Limited
                               (property trust) (since 1998); Director, MaxiLink
                               Limited (investment company); Director,
                               EquitiLink eLink Limited (investment
                               company); Executive Director, EL&C Ballieu
                               Limited (stockbroker) (1994-1997); Executive
                               Director, Ord Minnett Securities Limited
                               (stockbroker)
</TABLE>

                                      -4-
<PAGE>

<TABLE>
<CAPTION>
                                                                                                       Shares
                                                                                                    Beneficially
                                                                                                      Owned and
                                                                                                     % of Total
                                 Principal Occupations and Employment for Past           Director    Outstanding
Name and Address                       Five Years and Other Directorships           Age   Since     on 1/31/01(1)
- ----------------                 ---------------------------------------------      ---   -----     -------------
<S>                              <C>                                                <C>  <C>        <C>
                                 (from 1988 to 1994).

                       Class II (Term Expiring at the Annual Meeting to be held in 2002)


Howard A. Knight                 Mr. Knight has over 30 years of experience in       59    1993             0
1266 East Main Street            financial markets and has been actively involved
Stamford, CT  06902              in the Australian financial markets for more than
                                 25 years. From 1991 to 1994, he served as
                                 President of Investment Banking, Equity
                                 Transactions and Corporate Strategy at
                                 Prudential Securities. Since 1996, Mr. Knight
                                 has served as Vice Chairman, Director and Chief
                                 Operating Officer of SBS Broadcasting SA
                                 (television and radio broadcasting), where he has
                                 been actively involved in investment
                                 management and capital markets.

                                 Director, The First Australia Fund, Inc. (since
                                 1993); Director, Lions Gate Entertainment Corp.
                                 (film production and distribution) (since 2000).

P. Gerald Malone                 Mr. Malone has been chairman or a director of       50    2001             0
48 Barmouth Road                 several companies in the health care industry
London, SW182DP                  since 1998.  He was Minister of Health between
United Kingdom                   1994 and 1997, and a Member of Parliament
                                 from Winchester between 1992 and 1997.

                                 Chairman (since 2000) and a Director (since
                                 1999), Regent GM Laboratories Ltd. (generic
                                 pharmaceutical manufacturer); Director, X-Fat
                                 UK Ltd. (developer of dietary supplement)
                                 (since 1998); Director, e-nutriceuticals inc.
                                 (parent company of X-Fat UK Ltd.) (since
                                 1998); Director, Chiltern Invadex plc
                                 (manufacturers of patient handling and
                                 showering equipment) (since 1998); Director
                                 Ultrasis plc (developers of health care software)
                                 (since 2000); Director, European Growth and
                                 Income Trust plc (investment trust) (since 2000).

Peter D. Sacks++                 Mr. Sacks' career has spanned 20 years in           54    1993           250
333 Yonge Street, Suite 706      executive positions in treasury management with
Toronto, Ontario M5E 1G4         CIBC, Chase Manhattan Bank and Midland
Canada                           Bank.  He is currently president and director of
                                 Toron Capital Markets, Inc., a company which
                                 he established in 1988 to design and manage
                                 customized hedging solutions for institutional
                                 clients with commodity risks and currency and
                                 interest rate exposures.
</TABLE>

                                      -5-
<PAGE>

<TABLE>
<CAPITON>
                                                                                                        Shares
                                                                                                     Beneficially
                                                                                                       Owned and
                                                                                                       % of Total
                               Principal Occupations and Employment for                   Director    Outstanding
Name and Address               Past Five Years and Other Directorships              Age    Since     on 1/31/01(1)
- ----------------               ----------------------------------------             ---   -------    -------------
<S>                            <C>                                                  <C>   <C>        <C>
                               Director, The First Australia Fund, Inc. (since
                               June 1999); Director, The First Commonwealth
                               Fund, Inc. (since 1992); Director, First Australia
                               Prime Income Investment Company Limited
                               (since December 1998); President, Toron Capital
                               Management Inc. (investment management)
                               (since 1997); President, Toron Capital Markets,
                               Inc. (currency and interest rate risk advice and
                               management) (since 1988); President and
                               Director, First Horizons Holdings Limited
                               (Canadian mutual fund distributor).

Brian M. Sherman*              Mr. Sherman is President of The First Australia       57      1986             0
G.P.O. Box 4306                Fund.  He has 35 years experience in
Sydney, N.S.W.  2001           international funds management, stockbroking
Australia                      and in particular 23 years in the funds
                               management industry in Australia, managing
                               money in equities and bonds.

                               Chairman (since 2000) and President (from 1986
                               to 2001) of the Fund; Vice President (from 1992
                               to 2000), Director (from 1992 to 2000) and
                               Chairman (from 1995 to 2000), The First
                               Commonwealth Fund, Inc.; President (from 1985
                               to 2001) and Director (from 1985 to 2000), The
                               First Australia Fund, Inc.; Joint Managing
                               Director (from 1986 to 2001) and Chairman
                               (from 1995 to 2001), First Australia Prime
                               Income Investment Company Limited;
                               Chairman, EquitiLink Limited (holding
                               company) (from 1986 to 2000); Chairman and
                               Joint Managing Director, EquitiLink Australia
                               Limited (from 1981 to 2000); Chairman and
                               Director, EquitiLink Holdings Limited (holding
                               company) (since 1998); Director, EquitiLink
                               International Management Limited (from 1985
                               to 2000); Joint Managing Director (from 1987 to
                               2000) and Director (since 1987), MaxiLink
                               Limited (investment company); Joint Managing
                               Director (from 1994 to 2000) and Director (since
                               1994), EquitiLink eLink Limited (investment
                               company) ; Director, Ten Group Pty. Limited
                               (since 1994); Director, Ten Network Holdings
                               Limited (commercial television operator) (since
                               1998); Director, Sydney Organizing Committee
                               for the Olympic Games.
</TABLE>

                                      -6-
<PAGE>

<TABLE>
<CAPTION>
                                                                                                         Shares
                                                                                                      Beneficially
                                                                                                       Owned and
                                                                                                       % of Total
                                 Principal Occupations and Employment for                  Director    Outstanding
Name and Address                 Past Five Years and Other Directorships             Age    Since     on 1/31/01(1)
- ----------------                 ----------------------------------------            ---    -----     -------------
<S>                              <C>                                                 <C>    <C>       <C>
                    Class III (Term Expiring at the Annual Meeting to be held in 2003)

David Lindsay Elsum,           Mr. Elsum has over 20 years of experience in          63      1986         1,053
 A.M.+                         investment and insurance markets. He is a
9 May Grove                    member of the Australian Securities and
South Yarra, Victoria 3141     Investment Commission Takeover Panel and a
Australia                      member of the Australian Government
                               Administrative Appeals Tribunal. Previously he
                               was founding Managing Director of Capel Court
                               Investment Bank and subsequently Chief
                               Executive of major public companies including
                               The MLC Limited (insurance) and President of
                               the State of Victoria Superannuation Fund
                               (pension fund management).

                               Director, The First Australia  Fund, Inc. (since
                               1985), The First Commonwealth Fund, Inc.
                               (since 1992) and First Australia Prime Income
                               Investment Company Limited (since 1986);
                               Director, MaxiLink Limited (investment
                               company); Chairman, Audit Victoria; Chairman,
                               Melbourne Wholesale Fish Market Ltd.;
                               Chairman, Queen Victoria Market; Chairman,
                               Stodart Investment Pty. Ltd.; Director,
                               EquitiLink eLink Limited (investment
                               company); Director, Financial Planning
                               Association Limited.

Martin J. Gilbert*             Mr. Gilbert is the Chief Executive and an             46      2001             0
One Albyn Place                Executive Director of Aberdeen Asset
Aberdeen, Scotland             Management PLC, which was established in
AB10 1YG                       1983 and is the parent company of the Fund's
                               Investment Manager and Investment Adviser.
                               He is one of the founding directors of Aberdeen
                               Asset Management PLC and has been involved
                               in the investment management industry since
                               1982 after he qualified as a chartered accountant.
                               He has been Chairman of the Board of the Fund
                               and of The First Commonwealth Fund, Inc. since
                               2001.

                               Director, Aberdeen Smaller Companies
                               Investment Trust PLC (since 1995); Director,
                               Aberdeen Asset Management Asia Limited
                               (since 1991); Director, Aberdeen Asset
                               Management Ireland Limited (since 1998);
                               Director, Aberdeen Asset Management PLC
                               (since 1983); Director, Aberdeen Asset
                               Managers Jersey Limited (since 1999); Director,
                               Aberdeen Asset Managers Limited (since 1987);
</TABLE>

                                      -7-
<PAGE>

<TABLE>
<CAPTION>
                                                                                                               Shares
                                                                                                            Beneficially
                                                                                                             Owned and
                                                                                                             % of Total
                                Principal Occupations and Employment for Past                  Director      Outstanding
        Name and Address            Five Years and Other Directorships               Age         Since      on 1/31/01(1)
        ----------------            ----------------------------------               ---         -----      -------------
        <S>                     <C>                                                  <C>       <C>          <C>
                                Director, Aberdeen Smaller Companies Investment
                                Trust PLC (since 1995); Director, Aberdeen Asset
                                Management Asia Limited (since 1991); Director,
                                Aberdeen Asset Management Ireland Limited (since
                                1998); Director, Aberdeen Asset Management PLC
                                (since 1983); Director, Aberdeen Asset Managers
                                Jersey Limited (since 1999); Director, Aberdeen
                                Asset Managers Limited (since 1987); Director,
                                Aberdeen Convertible Income Trust PLC (since
                                1995); Director, Aberdeen Development Capital
                                PLC since 1986); Director, Aberdeen Emerging
                                Economies Investment Trust PLC (1993); Director,
                                Aberdeen Football Club PLC (since 1997);
                                Director, Aberdeen Fund Managers Inc (since
                                1995); Director, Aberdeen Global Fund (since
                                1998); Director, Aberdeen Graham Asset
                                Management Limited (since 1999); Director,
                                Aberdeen International Fund Managers Limited
                                (since 1998); Director, Aberdeen Investment
                                Services S.A. (since 1998); Director, Aberdeen
                                International Fund PLC (since 1997); Director,
                                Aberdeen Property Investors Limited (since
                                2000); 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, 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, Grampain Enterprises Limited (since
                                1997); 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, New Asia (Isle of Man) Limited (since
                                1996); Director, Phoenix Aberdeen International
                                Advisors LLC (since 1996); Director, Pointon
                                York Nominees Limited (since 1994); Director,
                                Primary Health Properties PLC (since 1996);
                                Director, Property Management Employment
                                Services Limited (since 2000); 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, Scottish Medicine PLC
                                (since 1998); Director, Templar Hotels LTD
                                (1985-1989, reappointed 1990); Director, Tenon
                                Nominees (since 1987);
</TABLE>

                                      -8-
<PAGE>

<TABLE>
<CAPTION>
                                                                                                               Shares
                                                                                                            Beneficially
                                                                                                             Owned and
                                                                                                             % of Total
                                Principal Occupations and Employment for Past                  Director      Outstanding
        Name and Address            Five Years and Other Directorships               Age         Since      on 1/31/01(1)
        ----------------            ----------------------------------               ---         -----      -------------
        <S>                     <C>                                                  <C>       <C>          <C>
                                Director, The London Market Fund PLC (since
                                1999); Director, The Taverners Trust PLC (since
                                2000).

Peter J. O'Connell              Mr. O'Connell is involved in modern technology         47         1999             0
G.P.O. Box 10                   developments and has extensive business
Sydney, N.S.W. 2001             experience in the Asian region. Mr. O'Connell is
Australia                       also admitted as a solicitor in Australia.

                                Director, The First Australia Fund, Inc. (since
                                December 1999); Chief Executive Officer, Ten
                                Ventures Pty. Ltd. (technology development and
                                venture capital) (from 1999 to 2000); Consultant,
                                Rogny Pty. Ltd. (technology) (1999); Director of
                                Operations, Consolidated Press Holdings
                                Limited (from 1997 to 1999);Chief Executive
                                Officer, Hargrave Consultants Pty. Ltd.
                                (technology consulting) (from 1994 to 1997).

William J. Potter+.             Mr. Potter has extensive experience in                 52         1986            236
236 West 27th Street            investment banking and fund management,
New York, NY 10001              including senior positions with Toronto
                                Dominion Bank, Barclays Bank PLC and
                                Prudential Securities, Inc. as well as board of
                                director positions with investment funds
                                involving over $20 billion in assets since 1983.
                                Mr. Potter has been involved in the Australian
                                capital markets since 1974 including
                                management and board of director positions with
                                a noted Australian brokerage house. Mr. Potter is
                                President of a U.S. investment bank and has
                                securities licenses in the U.S. and Canada. Mr.
                                Potter also has extensive securities underwriting
                                experience in various capital markets with an
                                emphasis on natural resources.

                                Director, The First Australia Fund, Inc. (since
                                1985), First Australia Prime Income Investment
                                Company Limited (since 1986) and The First
                                Commonwealth Fund, Inc. (since 1992);
                                President, Ridgewood Group International Ltd.
                                (international consulting/investment banking)
                                (since 1989); President, Ridgewood Capital
                                Funding, Inc. (NASD) (private placement
                                securities) (since 1989); Director, International
                                Panorama Inc.; Director, National Foreign Trade
                                Counsel; Director, Longevity International Ltd.;
                                Director, Alexandria Bancorp (banking group in
                                Cayman Islands); Partner, Sphere Capital
</TABLE>

                                      -9-
<PAGE>

<TABLE>
<CAPTION>
                                                                                                      Shares
                                                                                                   Beneficially
                                                                                                    Owned and
                                                                                                   % of Total
                           Principal Occupations and Employment for                   Director     Outstanding
    Name and Address       Past Five Years and Other Directorships           Age       Since      on 1/31/01(1)
    ----------------       ---------------------------------------           ---       -----      -------------
    <S>                    <C>                                               <C>      <C>         <C>
                           Partners (corporate consulting) (from 1989 to
                           1997).
</TABLE>

- ---------------------
*    Directors considered by the Fund and its counsel to be persons who are
     "interested persons" (which as used in this Proxy Statement is as defined
     in the Investment Company Act of 1940, as amended (the "1940 Act")) of the
     Fund or of the Fund's Investment Manager or Investment Adviser. Mr. Sherman
     is deemed to be an interested person because of his affiliation with 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. See "Further
     Information Regarding Directors and Officers -- Relationship of Directors
     and Nominees with the Investment Adviser and the Investment Manager."

+    Messrs. Elsum, Miles and Potter are members of the Contract Review
     Committee.

++   Messrs. Aaronson and Sacks are members of the Audit Committee.

 .    Messrs. Miles and Potter are members of the Nominating Committee.

(1)  The information as to beneficial ownership as of January 31, 2001 is based
     on statements furnished to the Fund by the Directors and nominees. All
     shares listed in this table were owned with sole voting and investment
     power. In the aggregate, all of the shares in the table represented less
     than one percent of the total shares of common stock outstanding as of
     January 31, 2001. The Directors of the Fund representing the common stock,
     as a group, owned less than one percent of the total shares of common stock
     outstanding as of January 31, 2001 and no shares of the Fund's preferred
     stock.

     Please also see the information contained below under the heading "Further
Information Regarding Directors and Officers."

     The Board of Directors recommends that holders of common stock vote FOR the
election of the three nominees to the Fund's Board of Directors.

                  PROPOSAL 2: ELECTION OF PREFERRED DIRECTORS

     The Fund has outstanding 3,000 shares of Auction Market Preferred Stock,
Series A, par value $0.01 per share; 3,000 shares of Auction Market Preferred
Stock, Series B, par value $0.01 per share; 2,000 shares of Auction Market
Preferred Stock, Series C, par value $0.01 per share; 4,000 shares of Auction
Market Preferred Stock, Series D, par value $0.01 per share; 2,000 shares of
Auction Market Preferred Stock, Series E, par value $0.01 per share; 2,000
shares of Auction Market Preferred Stock, Series F, par value $0.01 per share;
and 3,000 shares of Auction Market Preferred Stock, Series G, par value $0.01
per share; 2,500 shares of Auction Market Preferred Stock, Series H, par value
$0.01 per share; and 2,500 shares of Auction Market Preferred Stock, Series I,
par value $0.01 per share.

     Section 18 of the Investment Company Act of 1940, as amended (the "1940
Act"), requires that the holders of any preferred shares, voting separately as a
single class without regard to series, have the right to elect at least two
Directors at all times. Dr. Anton E. Schrafl and John T. Sheehy have been
nominated by the Board of Directors of the Fund, including the Directors who are
not interested persons of the Fund, to serve as Preferred Directors,
representing exclusively the holders of all series of the Fund's Preferred
Stock,

                                      -10-
<PAGE>

until the Annual Meeting of Shareholders to be held in 2002. The nominees have
indicated an intention to continue to serve if elected and have consented to be
named in this Proxy Statement.

     It is the intention of the persons named on the enclosed proxy card to vote
in favor of the election of the persons listed below. The Board of Directors of
the Fund knows of no reason why either of these nominees will be unable to
serve, but in the event of any such inability, the proxies received will be
voted for such substituted nominees as the holders of preferred stock shall
recommend, and if no such recommendations are made, such substituted nominees as
the Board of Directors may recommend.

     The following table sets forth certain biographical information concerning
each of the nominees as a Preferred Director of the Fund.

<TABLE>
<CAPTION>
                                                                                                       Shares
                                                                                                     Beneficially
                                                                                                      Owned and
                                                                                                      % of Total
                                Principal Occupations and Employment for Past           Director      Outstanding
        Name and Address        Five Years and Other Directorships             Age       Since       on 1/31/01(1)
        ----------------        ----------------------------------             ---       -----       -------------
<S>                          <C>                                               <C>      <C>          <C>
Dr. Anton E. Schrafl         Dr. Schrafl is currently Deputy Chairman of        69        1998              0
Talstrasse 83                "Holderbank" Financiere Glaris Ltd., a global
CH-8001 Zurich               manufacturer and distributor of cement and
Switzerland                  allied products.  He also serves on the Board of
                             Directors of Organogenesis, Inc., a medical
                             products company involved in cell culture, and
                             Apogee Technology Inc., a manufacturer of
                             digital amplifiers.

                             Director, The First Commonwealth Fund, Inc (since
                             1993); Director, First Australia Prime Income
                             Investment Company Limited.

John T. Sheehy++.            Mr. Sheehy has over 30 years' experience in        58         1986             0
235 Montgomery Street        investment banking with companies such as
Suite 300                    J.P. Morgan & Company and Bear, Stearns &
San Francisco, CA 94104      Co. Inc. His specialty areas include securities
                             valuation, public offerings and private placements
                             of debt and equity securities, mergers and
                             acquisitions and management buyout transactions.

                             Director, The First Australia Fund, Inc. (since
                             1985), The First Commonwealth Fund, Inc. (since
                             1992) and First Australia Prime Income Investment
                             Company Limited (since 1986); Managing Director,
                             The Value Group LLC (investment banking) (since
                             1997); Director, Video City, Inc. (video retail
                             merchandising) (since 1997); Managing Director,
                             Black & Company (investment banking) (1996-1997);
                             Managing Director, Sphere Capital Partners
                             (investment banking) (from 1987 to 1996); Director,
                             Sandy Corporation (corporate consulting,
                             communication and training) (from 1986 to January
                             1996).
</TABLE>

                                      -11-
<PAGE>

- ---------------------
++   Mr. Sheehy is a member of the Audit Committee.

 .    Mr. Sheehy is a member of the Nominating Committee.

(1)  As of January 31, 2001, the Preferred Directors of the Fund as a group
     owned no shares of the Fund's common or preferred stock.

     Please also see the information contained below under the heading "Further
Information Regarding Directors and Officers."

     The Board of Directors recommends that holders of preferred stock vote FOR
the election of the two nominees as Preferred Directors to the Fund's Board of
Directors.

             PROPOSAL 3A: TO AMEND THE FUND'S INVESTMENT OBJECTIVE

           PROPOSAL 3B: TO AMEND THE FUND'S INVESTMENT POLICIES AND
              ELIMINATE THE REQUIREMENT THAT SHAREHOLDERS APPROVE
                           CHANGES IN THESE POLICIES

           PROPOSAL 3C: TO AMEND THE FUND'S INVESTMENT RESTRICTIONS


     BACKGROUND

     Over the past few years, Australia has experienced a structural change,
which has led bond yields to fall to their lowest levels since financial markets
were deregulated in the early 1980s. As at December 31, 2000, Australian ten-
year government bonds were trading at 5.5%, a yield only modestly above US bonds
with comparable maturity (5.1%), and 2-year Australian bonds traded at yields
broadly equivalent to US Treasuries. The Investment Manager and Investment
Adviser expect that Australian bonds will continue to trade in a lower band and
at a narrower spread above US bonds, by historical standards, for the forseeable
future.

     At a special meeting of the Board held on March 9, 1998, the Investment
Manager and Investment Adviser proposed that the Fund's investment policies be
amended in several ways, to enable to Fund to invest up to 35% of its assets in
Asian debt securities ("1998 Proposal"). At the time, the Investment Manager and
the Investment Adviser indicated that in their view, the relatively high level
of interest rates available in Asian markets compared with interest rates
prevailing in Australia and New Zealand offered an attractive opportunity to
enhance the Fund's earnings above the prevailing rates. The Board recommended
that the shareholders of the Fund approve these changes in investment policies,
and the shareholders approved these changes at the annual meeting of
shareholders held on May 18, 1998.

     Asian bonds were introduced to the portfolio in 1998 to a maximum of 35%, a
strategy which has contributed significantly to yield, currency and capital
gains. The portfolio's Asian bond exposure has incorporated both US 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
two years.

     Yield Opportunities in Asia

     The introduction of Asian securities into the Fund has, to date, benefited
shareholders by providing the opportunity to enhance yields and to diversify
from the volatility of a single currency.

                                      -12-
<PAGE>

  With the Fund's Asian investments now totaling 30%, there is limited scope to
increase earnings with further investments in Asian debt securities under the
existing mandate.  The Investment Manager and Investment Adviser believe that it
would be desirable to extend the investment mandate to boost earnings. The
proposed investment policy would permit the Fund to increase its Asian debt
investments to up to 80% of total assets.

  Asian markets can be split broadly into two categories: domestic bond markets,
where governments and corporate entities issue into an Asian currency, and Asian
bonds denominated in US dollars, often called "Yankee bonds." More recently,
there has been an increase in issuance by Asian issuers into Yen and the Euro.
The domestic, or "local currency," bond markets are driven by the same sorts of
fundamental information that drives Australian bonds, for example, growth and
inflation expectations, and changes in monetary and fiscal policy. Because these
markets are domestic, the returns that investors receive is also a function of
changes in exchange rates as well. The US dollar "Yankee" market is, by
contrast, primarily a credit market, with only US dollar currency exposure and ,
as such, bonds trade like US corporate issues, as a yield spread, or premium, to
US Treasury yields. Bonds in this market are less affected by domestic factors,
such as inflation or monetary policy changes, and more by broad credit-specific
issues, such as the market demand for emerging market assets, than is generally
the case for domestic markets.

  At present, there are many yield opportunities in Asia in both the domestic
bond market and the Yankee market.  In the Korean domestic market, for example,
10 year bonds are trading around 7%, and lesser-credit corporate bonds are
trading between 10%-12%.  The Philippines' domestic 10 year bonds are currently
yielding over 15%.  Currently, in the Yankee market, the yield on the market as
a whole is 9%, with certain issuers offering double-digit yields.

  At the regular meeting of the Board held on December 12, 2000, the Fund's
Investment Manager and Investment Adviser sought approval in principle from the
Board to proceed with a proposal to increase the maximum proportion of the
Fund's assets invested in Asian debt securities.  The Investment Manager and
Investment Adviser indicated that, related to this proposal, the Investment
Manager and Investment Adviser would also recommend that the Fund: (1) 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 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 their view, the relatively higher level of interest rates available in
Asian markets compared with interest rates prevailing in Australia and New
Zealand offered an attractive opportunity to enhance the Fund's earnings above
the current rate.  The Board requested the Investment Manager and Investment
Adviser to develop a more complete report for the Board to consider, in
determining whether to recommend the  proposal of the Investment Manager and
Investment Adviser to shareholders for approval.

  The Investment Manager and the Investment Adviser subsequently submitted to
the Board a report (the "Aberdeen Report") which recommends amendments of the
Fund's investment objective, policies, and restrictions to permit substantially
broader investments in Asian debt securities.  As part of the proposal to be
approved by the Fund's shareholders, the Investment Manager and Investment
Adviser have proposed that the Fund be permitted to invest up to 80% of its
total assets in Asian debt securities.  The Aberdeen Report also recommended
that up to 35% of the Fund's total assets be invested in Asian debt securities.
rated below investment grade at the time of investment, and that the Fund be
permitted to invest up to 10% of its total assets in Asian debt securities rated
below B-, or if not rated, considered by the Investment Manager to be of
comparable quality.  In the event that any of the Fund's investments
subsequently exceeded these limits, the Fund will dispose of any such
investments in an orderly fashion.

                                      -13-
<PAGE>

In addition, the Investment Manager and Investment Adviser have proposed that
the percentage limitations on the Fund's investments in issuers or debt
securities which at the time of investment are rated AA and A, or are, in the
judgment of the Investment Manager, of equivalent quality, be reduced. The
Investment Manager and Investment Adviser have also proposed to expand the
categories of derivatives which may be used by the Fund. The Fund currently may
use derivatives to manage currency and interest rate risk, and to replicate, or
substitute for, physical securities in order to achieve transactional
efficiencies.

  At a special Board of Directors meeting on March 1, 2001, the Board approved
the proposals set forth in this proxy statement, including those which afford
the Board more flexibility to modify in the future the investment policies
(Proposal 3B), with limited or no approval required from Fund shareholders.  The
Board voted unanimously to recommend the adoption of these proposals by the
Fund's shareholders.

  SUMMARY OF PROPOSED CHANGES TO INVESTMENT POLICIES

  The Investment Manager and Investment Adviser propose to:

     .  Increase to a maximum of 80% the Fund's investments into Asia (currently
        35%);

     .  Reduce the minimum investment in Australian debt securities to 20%
        (currently 65%);

     .  Increase to a maximum of 35% the Fund's investments in Asian securities
        rated, or considered by the Investment Manager to be, below investment
        grade (currently 15%);

     .  Allow the Fund to invest to a maximum of 10% in securities rated, or
        considered by the Investment Manager to be, below B- (currently not
        allowed)

  The Investment Manager and Investment Adviser believe that increased levels of
investment in Asian debt securities would offer shareholders the potential to
further enhance the Fund's earnings.  It is therefore proposed that the Fund's
investment policies be amended to allow investment of up to 80% in Asian debt
securities (currently 35%), with the minimum investment in Australian debt
securities reduced to 20% (currently 65%).  The proposal, if approved by
shareholders, would result in a substantial change in the nature of the Fund, in
that it would over time become a more broadly-based Asian-Pacific investment
company. This has several implications for the way in which the Fund's
investments are managed. Consequently, the Investment Manager and Investment
Adviser have reviewed all aspects of the Fund's policies and proposed several
changes they believe are necessary to enable effective management of the Fund,
particularly its Asian component.

  .  The Investment Manager and Investment Adviser have proposed that, given the
prevailing credit ratings in Asia and the proposed increase in the Fund's Asian
investment levels, the Fund be permitted to invest up to 10% of its total assets
(currently 0%) in Asian debt securities rated below B-. In addition, the
Investment Manager and Investment Adviser propose that the total investment
permitted in securities rated below investment grade be increased from 15% to a
maximum limit of 35% of total assets. The resulting impact upon the Fund's
average credit quality is expected to be a lowering of the rating from AA- to
BBB+.

  .  The Investment Manager and Investment Adviser intend that the proposed
alterations to the Fund's portfolio and credit quality not have an adverse on
the Fund's preferred stock and its credit rating.

  .  One of the ways in which Asian debt markets have expanded in recent times
is the issue of

                                      -14-
<PAGE>

eurobonds in currencies other than the US dollar ("USD"). At certain times in
the economic and currency cycles, investment in these currencies may be
desirable. Accordingly, the Investment Manager and Investment Adviser have
proposed investment of up to 20% of total assets in Asian debt securities
denominated in any combination of Yen ("JPY"), Euro and British pound ("GBP").

  .  Asian debt markets have developed rapidly over the last few years in terms
of their depth and range of securities and derivatives. Amendments are therefore
appropriate to the Fund's derivative guidelines in order to provide flexibility
and access to these markets, as well as to enable efficient implementation of
the new mandate.

  .  The Investment Manager and Investment Adviser propose to include within the
Fund's investment policies the ability to invest in the following securities
which have developed over recent years:

          Secondary market bank loans: up to a limit of 10% of total Fund
     assets.  These loans are private transactions not subject to securities
     laws of traded on any exchange. Increasingly, however, they are being sold
     directly by banks to investors of traded by specialized brokers, especially
     when the loan becomes distressed, thereby adding liquidity to the market.

          Convertible and other hybrid securities: up to a limit of 10% of total
     Fund assets. Convertible securities 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, and are also
     to be included.

          Asset-backed securities: up to a limit of 10% of total Fund assets.
     These 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.

  To summarize, the total portfolio will be subject to the following overall
geographic constraints:

                                                          Minimum   Maximum
  Australian securities                                     20%      100%
  New Zealand securities                                     0%       35%
  USD securities*                                            0%      100%
  Total Asian debt securities                                0%       80%
  Any Single Asian Country (except Korea)                    0%       20%
  Any Single Domestic Asian Market (except Korean)           0%       10%
  Total Korean securities                                    0%       40%
  Korean Domestic Market                                     0%       25%
  Asian securities denominated in USD                        0%       65%
  Asian securities denominated in JPY, GBP and/or EURO       0%       20%

  * for defensive purposes only

  To summarize, the total portfolio will be subject to the following overall
currency constraints:


                                                          Minimum   Maximum
  Australian Dollar                                         20%      100%
  New Zealand Dollar                                         0%       35%
  US Dollar                                                  0%      100%

                                      -15-
<PAGE>

  JPY, GBP and/Euro                                          0%       20%
  Any single Asian currency (except Korea)                   0%       10%
  Korean Won                                                 0%       25%

  Note that, as described further below, if shareholders approve Proposal 3B,
future changes can be made to the policies described above with approval only by
the Fund's Board of Directors.  No shareholder approval by either holders of the
Fund's Common Stock or its Preferred Stock would be required.

  BOARD CONSIDERATIONS

  In considering whether to recommend to shareholders that the Fund's investment
objective, policies and restrictions be amended, the Board took into account the
risks involved in such a strategy.  Although the goal of the Investment Manager
and the Investment Adviser is to have the Fund invest in Asian debt securities
in order to increase the Fund's yield without negatively impacting total return,
the Board was cognizant of the fact that the upheaval in Asian currency and bond
markets has significantly altered the investment landscape for investors in
these markets and that many investors in Asian debt securities have suffered
losses.

  The Board took into account that investment in Asian debt markets may expose
the Fund to greater interest rate risk, foreign exchange risk, credit risk,
political and economic risk ("event risk") and liquidity risk, than is currently
the case.  These risks, as well as risks associated with less transparent
accounting and auditing standards and less developed legal systems, can, the
Board recognized, increase the likelihood that losses in net asset value will
more than offset the positive effect of higher apparent yields.  In addition,
the Board noted that the Fund's total investment return may be expected to
become more volatile, and that the Fund's $600 million outstanding Auction
Market Preferred Stock could exacerbate this increased volatility.

  The Board considered the fact that investors who do not wish to assume the
greater risk associated with Asian investments would be able to sell their
holdings to investors who seek higher yields, while accepting the concomitant
increase in risk.

  The Board noted that at the Fund's inception in 1986, high interest rates in
Australia, which were then in the range of 12%-14%, were indicative of the
higher risk of investment in Australian debt as compared with investment in U.S.
debt at that time, reflecting the fact that the Fund's initial charter had been
to give U.S. investors exposure to higher interest rates that necessarily
reflect a risk premium.  The Board concluded that the proposed changes to the
Fund's investment policies and restrictions would be consistent with the Fund's
initial charter.

  The Aberdeen Report suggested several scenarios, which are 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 Aberdeen
Report discussed the possible negative factors associated with each of these
scenarios.  Given the current significant discount at which the shares of the
Fund trade in the market, it is unlikely that the Fund will be able to raise
additional capital in the current market.  If the Fund were to raise capital
through a rights offering to existing shareholders, the Fund would have to
consider the potential for NAV dilution  If the Fund determines to fund its
further investment into Asian debt securities through the sale or maturation of
existing portfolio securities, the Fund might incur substantial capital losses
and currency losses.  The Fund may also incur currency losses simply by taking
cash denominated in one currency and making it available for investment in Asian
debt securities denominated in a different currency.  The Fund also could incur
significant currency losses if its Australian dollar investments were no longer
a significant

                                      -16-
<PAGE>

part of the Fund's total assets. The Investment Manager and Investment Adviser
concluded that a combination of funding sources would be the most practical and
appropriate way for the Fund to increase its exposure into Asia. and that,
further, such a policy would be implemented gradually.

  The Board considered the funding scenarios presented by the Investment Manager
and Investment Adviser, and also noted that the Investment Manager and
Investment Adviser do not envisage investing the maximum allowable percentage of
80% of the Fund's assets into Asian debt securities immediately upon obtaining
shareholder approval of the Proposal.  The Investment Manager and Investment
Adviser propose to implement the increased investment in Asian debt securities
gradually, with an initial target of 50% investment in Asia over the next 18
months.

  Appendix A, which includes extracts from the Aberdeen Report, further
discusses the risks involved in Asian investment, risks associated with
derivatives, the Investment Manager and Investment Adviser's management of risk
from derivatives and their management of credit risk.  It also includes extracts
from the Aberdeen Report regarding the investment process the Investment Manager
and Investment Adviser propose to use to make investments in the Asian market,
and the outlook of the Investment Manager and Investment Adviser for Australian
bond yields.  Appendix B describes the rating systems of Standard & Poor's
Corporation and Moody's Investors Services, Inc.

    LEGAL ISSUES RELATED TO CHANGES IN INVESTMENT OBJECTIVE, POLICIES, AND
                                 RESTRICTIONS

  The 1940 Act requires that a registered investment company ("fund") adopt
certain policies that cannot be changed without the approval of a majority of
its shareholders, as defined in the 1940 Act.  Policies that cannot be changed
without shareholder approval are deemed "fundamental."  The matters on which a
fund must have a fundamental policy are: (1) its subclassification as an open-
end or closed-end fund under the 1940 Act (the Fund is a closed-end fund); (2)
its subclassification as a diversified or non-diversified fund (the Fund is a
diversified fund); and (3) its policies with respect to (a) borrowing money, (b)
issuance of senior securities, (c) engaging in the business of underwriting
securities issued by others, (d) concentrating its investments in a particular
industry or group of industries, (e) purchasing and selling real estate or
commodities, and (f) making loans to other persons.  Additionally, without
shareholder approval, a fund may not change its business so that it is no longer
an investment company.  A fund may determine, but is not required, to make any
other matter a fundamental policy.

  Because of the need to obtain shareholder approval for any change in a fund's
fundamental policies, funds generally attempt to minimize the number of their
policies that are fundamental in order to maintain the flexibility to adjust
their policies to changing market and other conditions.  Obtaining shareholder
approval for changes is costly and also delays a fund's ability to make these
adjustments.

  The Fund currently has designated its investment objective, a substantial
portion of its investment policies, and all its investment restrictions as
matters that cannot be changed without approval by the holders of both a
majority of the outstanding shares of the Fund's Common Stock and Preferred
Stock, voting together as a single class, and a majority of the outstanding
shares of the Fund's Preferred Stock, voting together as a separate class
without regard to series.  In connection with the proposed changes described
above to the Fund's investment policies, it is also proposed that changes in
these new investment policies would be subject to approval only by the Fund's
Board of Directors.  No approval would be required by either holders of the
Fund's Common Stock or Preferred Stock for future changes in the Fund's
investment policies, except for changes to its investment restrictions (see
Proposal 4C).  Any future change in the Fund's investment objective would
continue to require approval by majorities of both holders of Common Stock and
Preferred Stock, and holders of Preferred Stock voting separately.

                                      -17-
<PAGE>

  Finally, the Fund's Articles of Incorporation, as amended, and various
Articles Supplementary dealing with Preferred Stock (together, "Articles")
contain provisions that, in certain cases impose additional restrictions on the
Fund's investment activities, or impose requirements that are more restrictive
than those contained in the proposed Investment Restrictions, below.  Any such
additional or more restrictive provisions in the Articles, if applicable, will
control.  Among other things, so long as certain classes of Preferred Stock are
outstanding, the Fund may be limited in its ability to encumber its assets, to
engage in "short sales" or "hedging" or to enter into "futures contracts" or
"option contracts" (other than certain forward contracts) with respect to
certain Fund assets.

  Following are the proposals to change the Fund's investment objective, its
investment policies, and its investment restrictions.

            3A:  PROPOSED CHANGE TO THE FUND'S INVESTMENT OBJECTIVE

  The Fund's current investment objective, which cannot be changed without
approval by the holders of both a majority of the outstanding shares of the
Fund's Common Stock and Preferred Stock, voting together as a single class, and
a majority of the outstanding shares of the Fund's Preferred Stock, voting
together as a separate class without regard to series, is:

       To obtain current income through investment primarily in Australian debt
     securities.  The Fund may also achieve incidental capital appreciation.

  Because the Fund, subject to shareholder approval of these proposals and after
its portfolio is restructured in accordance with these proposals, will no longer
invest primarily in Australian debt securities, it is appropriate to change the
Fund's investment objective.  The proposed new investment objective may be
changed in the future only with approval by both a majority of the outstanding
shares of the Fund's Common Stock and Preferred Stock, voting together as a
single class, and by a majority of the outstanding shares of the Fund's
Preferred Stock, voting together as separate a class without regard to series.
The new investment objective would be:

       To obtain current income.  The Fund may also achieve incidental capital
     appreciation.

 The Board recommends that you vote FOR Proposal 3A.

           3B:  PROPOSED AMENDMENT OF THE FUND'S INVESTMENT POLICIES
                    AND ELIMINATION OF THE REQUIREMENT THAT
                 SHAREHOLDERS APPROVE CHANGES IN THESE POLICIES

  As noted above, the Fund has provided that the following four paragraphs
describing certain of its investment policies, cannot be changed without
approval by the holders of a majority of the outstanding shares of its Common
Stock and its 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.

       It is expected that normally at least 65% of the Fund's total assets will
     be invested in Australian dollar denominated debt securities of Australian
     banks, federal and state governmental entities and companies, and in
     Australian dollar denominated global or Eurobonds, whether or not the
     issuer is domiciled in Australia, which expose the Fund to the Australian
     interest rate structure and which are traded by reference to similar debt
     securities of Australian domiciled issuers.  To achieve its investment
     objective, the Fund may invest the balance of its total assets (1) in debt
     securities of Asian Country issuers,

                                      -18-
<PAGE>

     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) in
     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) in debt
     securities which are denominated in New Zealand dollars of issuers, whether
     or not domiciled in New Zealand, and (4) in U.S. debt securities. The
     maximum country exposure to any one Asian Country is limited to 15% of the
     Fund's total assets and the maximum currency exposure to any one Asian
     Country currency is limited to 10% of the Fund's total assets. The Fund
     will invest only in debt securities for which there is an active secondary
     market except that the Fund may invest up to 35% of its assets in Asian
     debt securities for which there is no established relevant market.

       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 will not invest in convertible debt securities.

       It is the Fund's policy to limit its investments as to at least 50% of
     its total assets, to issuers or debt securities which are, at the time of
     investment, rated AA or better by S&P, or Aa or better by Moody's, or
     which, in the opinion of the Investment Manager, are of equivalent quality.
     In addition, at least 65% of the Fund's investments must be rated, at the
     time of investment, A- or better by S&P or A3 or better by Moody's or be,
     in the Investment Manager's judgment, of equivalent quality. In order to
     accommodate investment in Asian markets, Asian debt securities may be
     purchased which, at the time of investment, are rated by S&P or Moody's, or
     are judged by the Investment Manager, to be the equivalent of at least B-
     by S&P or B3 by Moody's; provided, however, that in no event may more than
     15% of its total assets be invested in Asian debt securities which, at the
     time of investment, are rated below investment grade of BBB, but not less
     than B-, by S&P, or Baa, but not less than B3, by Moody's, or which, in the
     opinion of the Investment Manager, are of equivalent quality, and provided
     further; that with the approval of the Fund's Board of Directors, the
     ratings of other recognized rating services may be used.

       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.

  Because these four paragraphs above cannot be changed without approval both by
holders of the Fund's Common Stock and Preferred Stock voting together, and by
holders of its Preferred Stock voting separately as a class, it is not clear
that even the wording of these paragraphs may be changed without obtaining such
approval.

  The proposed new policies are set forth in Appendix D.  The principal
substantive changes from the current policies described in the four paragraphs
above are as follows:

                                      -19-
<PAGE>

   1.  Increase to a maximum of 80% the Fund's investments into Asia (currently
       35%).

   2.  Reduce to 20% (from 65%) the minimum required investment in Australian
       debt securities.

   3.  Increase to a maximum of 35% the Fund's investments in Asian securities
       rated below investment grade (currently 15%).

   4.  Allow the Fund to invest to maximum of 10% in securities rated below B-
       (currently not allowed).

   5.  Permit these policies, and descriptions of these policies, to be changed
       in the future without shareholder approval.

 The Board recommends that you vote FOR Proposal 3B.

                     3C:  PROPOSED INVESTMENT RESTRICTIONS

  The Fund would adopt new investment restrictions that could be changed only
with approval by the holders of both a majority of the outstanding shares of the
Fund's Common Stock and Preferred Stock, voting together as a single class, and
a majority of the outstanding shares of the Fund's Preferred Stock, voting
together as a separate class without regard to series.  These restrictions,
which are listed below, address only those matters regarding which a fund is
required by the 1940 Act to adopt policies that can be changed only with
approval by a majority of the fund's shareholders (as defined in the 1940 Act.).
The principal changes to the restrictions are: (i) to drop restrictions which
are not required by the 1940 Act, including restrictions on (a) purchasing
securities on margin; (b) making short sales and maintaining short positions;
and (c) investing for the purpose of exercising control or management; (2) to
make changes in certain of the Fund's other investment restrictions to reflect
changes in SEC views regarding those policies and to permit the Fund to take
advantage of future changes in SEC views; and (3) to change the Fund's
concentration policy to reflect the proposed expanded investments in Asian
securities (proposed policy B7, below).  The Fund's current investment
restrictions are contained in full in Appendix C.

  A. 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.

  B.  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 or pledge its assets, except that the Fund may
          borrow on an unsecured basis from banks for temporary or emergency
          purposes or for the clearance of transactions in amounts not exceeding
          10% of its total assets (not including the amount borrowed) and will
          not make additional investments while any such borrowings are
          outstanding;

                                      -20-
<PAGE>

            (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;

            (6) make loans to other persons, except as permitted under the
          Investment Company Act of 1940, 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 Investment Company Act of
          1940, 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.

  The Board recommends that you vote FOR Proposal 3C.

                     SELECTION OF INDEPENDENT ACCOUNTANTS

  The Board of Directors of the Fund, upon recommendation of the Audit
Committee, has selected PricewaterhouseCoopers LLP ("PwC"), independent
accountants, to audit the financial statements of the Fund for the fiscal year
ending October 31, 2001.

  Audit services performed by PwC during the most recent fiscal year included
the audit of the financial statements of the Fund. During the fiscal year ended
October 31, 2000, the fees for services rendered to the Fund by PwC were:

- --------------------------------------------------------------------------------
      Audit Fees    Financial Information Systems Design    All Other Fees*
                          and Implementation Fees
- --------------------------------------------------------------------------------

                                      -21-
<PAGE>

- --------------------------------------------------------------------------------

       $114,000                   $ None                        $176,000

- --------------------------------------------------------------------------------

* This amount includes fees for services rendered by PwC to the Fund, the
  Investment Manager and Investment Adviser, and entities controlling,
  controlled by, or under common control with, the Investment Manager and
  Investment Adviser that provide services to the Fund.

  At its most recent meeting in December 2000, the Audit Committee of the Fund
reviewed information presented by the Fund's independent accountants that
addressed the matters set forth in Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees.  Effective February 5, 2001, new
Securities and Exchange Commission rules generally require the disclosure in a
Fund's proxy statement of whether the Fund's Audit Committee considered whether
the provision of non-audit services to the Fund and of professional services to
the Fund's adviser and to entities controlling, controlled by, and under common
control with, the Fund's adviser that provide services to the Fund is compatible
with maintaining the independence of the Fund's independent accountants.
Because the Fund's Audit Committee has not met since these new rules became
effective, the Audit Committee has not expressly considered whether the
provision by the Fund's independent accountants of such services is compatible
with maintaining the independence of the Fund's accountants.  Nevertheless, the
Audit Committee is generally aware of the nature and extent of the fees earned
by the Fund's independent accountants from such non-audit services.

  The Fund knows of no direct or indirect interest of PwC in the Fund.
Representatives of PwC are expected to be present at the Meeting and will have
the opportunity to respond to questions from shareholders and to make a
statement if they so desire.

                                OTHER BUSINESS

  The Board of Directors knows of no business to be brought before the Meeting
other than as set forth above. If, however, any other matters properly come
before the Meeting, it is the intention of the persons named on the enclosed
proxy card to vote such proxies on such matters in accordance with their best
judgment.

             FURTHER INFORMATION REGARDING DIRECTORS AND OFFICERS

  Section 16(a) Beneficial Ownership Reporting Compliance.  Section 16(a) of the
Securities Exchange Act of 1934 (the "Exchange Act") and Section 30(h) of the
1940 Act, as applied to the Fund, require the Fund's officers, Directors, the
Investment Manager and Investment Adviser, affiliates of the Investment Manager
or Investment Adviser, and persons who beneficially own more than 10% of a
registered class of the Fund's outstanding securities ("Reporting Persons"), to
file reports of ownership of the Fund's securities and changes in such ownership
with the Securities and Exchange Commission and the American Stock Exchange.
Such persons are required by Securities and Exchange Commission regulations to
furnish the Fund with copies of all such filings.

  Based solely on its review of the copies of such forms received by it and
written representations from certain Reporting Persons that no year-end reports
were required for those persons, the Fund believes that during the fiscal year
ended October 31, 2000, its Reporting Persons complied with all applicable
filing requirements.

  Committees and Board of Directors Meetings.  The Board of Directors has a
standing Audit Committee, composed entirely of Directors who are not "interested
persons" of the Fund or the Fund's

                                      -22-
<PAGE>

Investment Manager or Investment Adviser, within the meaning of the 1940 Act,
and who are "independent" as defined in the American Stock Exchange listing
standards. The Audit 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 review
compliance of the Fund with regulations of the Securities and Exchange
Commission and the Internal Revenue Service, and other related matters.

  The Fund adopted an Audit Committee Charter on March 16, 2000, a copy of which
is attached to this Proxy Statement as Exhibit A.  The Audit Committee has
received the written disclosures and the letter required by Independence
Standards Board Standard No. 1 from PwC. the Fund's independent auditors, and
has discussed with PwC its independence.  The Audit 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 Statements on
Auditing Standards No. 61.  Based on the foregoing, the Audit 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, 2000.  The members of the Fund's Audit Committee
are Messrs. Anthony E. Aaronson, Peter D. Sacks, and John T. Sheehy.

  The Board of Directors also has a standing Contract Review Committee, composed
entirely of Directors who are not "interested persons" of the Fund or the Fund's
Investment Manager or Investment Adviser within the meaning of the 1940 Act.
The Contract Review Committee reviews and makes recommendations to the Board
with respect to entering into, renewal or amendment of the Management Agreement,
the Advisory Agreement, the Administration Agreement, the Investor Relations
Services Agreement and other agreements.

  In December 2000, the Fund established an interim Nominating Committee,
composed entirely of Directors who are not "interested persons" of the Fund or
the Fund's Investment Manager or Investment Adviser, within the meaning of the
1940 Act.  The interim Nominating Committee was actively engaged in the review
of all recent director appointments and nominations.  In March 2001, the Fund
established a permanent Nominating Committee.

  During the Fund's fiscal year ended October 31, 2000, the Board of Directors
held four regularly scheduled meetings and one special meeting, the Audit
Committee held two meetings, a special Due Diligence Committee, organized in
connection with the acquisition of the Investment Manager and the Investment
Adviser by Aberdeen Asset Management PLC, held three meetings, and the Contract
Review Committee held one meeting.  Each of the Directors then in office (except
Michael R. Horsburgh and Dr. Anton E. Schrafl) attended at least 75% of the
aggregate number of meetings of the Board of Directors and of all the Committees
of the Board on which he served.

  Officers of the Fund.  The officers of the Fund, all of whom serve at the
pleasure of the Board of Directors, are as follows: Hugh Young (age 42),
President (since 2001); David Manor (age 60), Treasurer (since 1987); Ouma
Sananikone (age 42), Vice President (since 2001) and Chief Investment Officer
(since 1995); Michael Karagianis (age 37), Assistant Vice President (since
2001); Barry G. Sechos (age 39), Assistant Treasurer (since 1995); Jack
Benintende (age 36), Assistant Treasurer (since 2000); Roy M. Randall (age 64),
Secretary (since inception); Allan S. Mostoff (age 68), Assistant Secretary
(since inception); Sander M. Bieber (age 51), Assistant Secretary (since 1999);
and Margaret A. Bancroft (age 62), Assistant Secretary (since 1989).

  The respective principal occupations and employment during the past five years
of the Fund's officers are as follows: Hugh Young, Managing Director (since
1991) of Aberdeen Asset Management PLC (parent company of the Fund's Investment
Manager and Investment Adviser), Managing Director (since 1992) of Aberdeen
Asset Management Asia Limited (affiliate of the Fund's Investment Manager and

                                      -23-
<PAGE>

Investment Adviser), Managing Director (since 2000) of Aberdeen International
Fund Managers Limited, Director (since 2001) of the Investment Manager and the
Investment Adviser, President (since 2001) of the Fund and of The First
Australia Fund, Inc. and The First Commonwealth Fund, Inc.; David Manor,
Managing Director (since 1998) of the Fund's Investment Manager, Executive
Director (from 1985 to 1998) of the Fund's Investment Adviser, Treasurer (since
inception) of The First Commonwealth Fund, Inc., Treasurer (since 1987) of The
First Australia Fund, Inc., Treasurer (since 1987) of The First Australia Prime
Income Fund, Inc.; Ouma Sananikone, Chief Executive Officer (since 1997),
Investment Director (since 1994), and a Director (since 2001) of the Fund's
Investment Adviser, Director (since 2000) of the Fund's Investment Manager, Vice
President (since 2001), Assistant Vice President (1995-2001) and Chief
Investment Officer (since 1995) of The First Commonwealth Fund, Inc., The First
Australia Fund, Inc., and The First Australia Prime Income Fund, Inc.; Barry G.
Sechos, General Counsel (since 1993) and a Director (since 1994) of the Fund's
Investment Adviser, Director (since 2000) of the Fund's Investment Manager,
Director (since 1998) of EquitiLink Holdings Limited; Michael Karagianis,
Assistant Vice President (since 2001) of The First Commonwealth Fund, Inc., The
First Australia Fund, Inc., and The First Australia Prime Income Fund, Inc.,
Director of Economics and Investment Strategy (since 1999) of the Fund's
Investment Adviser, Director of Portfolio Investment (1995-1999) of County
Investment Management; Jack Benintende, Vice President (since 2000) of
Prudential Investments, the Fund's Administrator, Senior Manager (1998-2000) and
Manager (1995-1998) of PricewaterhouseCoopers; Roy M. Randall, Partner (since
1997) of Stikeman, Elliott (law firm) and Partner (1981-1996) of Freehill
Hollingdale & Page (law firm); Allan S. Mostoff, Sander M. Bieber and Margaret
A. Bancroft, Partners of Dechert (law firm).

  Mr. Hugh Young, Ms. Ouma Sananikone, Mr. David Manor, Mr. Michael Karagianis
and Mr. Barry G. Sechos serve as executive officers of the Fund.  As of January
31, 2001, the executive officers of the Fund owned no shares of the Fund's
common or preferred stock..

  Relationship of Directors or Nominees with the Investment Adviser and the
Investment Manager.  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
dated December 22, 2000 and an advisory agreement dated December 22, 2000.

  The Investment Manager is a Jersey, Channel Islands corporation organized in
October 1985 with its registered office located at 17 Bond Street, St. Helier,
Jersey, Channel Islands. The Investment Adviser is a wholly-owned subsidiary of
Aberdeen Asset Management Holdings Limited (formerly known as EquitiLink
Limited)("AAMHL"), an Australian corporation. The registered offices of the
Investment Adviser and AAMHL are located at Level 3, 190 George Street, Sydney,
N.S.W., 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 at One Albyn
Place, Aberdeen, Scotland AB10 1YG.

  On December 22, 2000, all of the shares of EquitiLink International Management
Limited (the Investment Manager), of EquitiLink Limited ("EL", parent of
EquitiLink Australia Limited, the Investment Adviser), and of EquitiLink
International (Channel Islands) Limited ("EICIL") were transferred to Aberdeen
Asset Management PLC ("Aberdeen")(the "Aberdeen Transaction"), pursuant to a
Share Sale Agreement between Aberdeen on the one side and EquitiLink Holdings
Limited ("EHL", parent of EL), EIML Australia Pty Limited (parent of the
Investment Manager) 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.
Laurence S. Freedman and Brian M. Sherman were directors and the

                                      -24-
<PAGE>

principal shareholders of the Investment Manager, and Mr. David Manor was the
Managing Director of the Investment Manager and an affiliate of entities which
were also shareholders of the Investment Manager. Messrs. Freedman and Sherman
then also served as, respectively, Joint Managing Director, and Joint Managing
Director and Chairman of the Investment Adviser. In connection with the Aberdeen
Transaction, Messrs. Freedman and Sherman resigned as Joint Managing Directors
of the Investment Adviser and as directors of the Investment Manager. Messrs.
Freedman and Sherman are the principal shareholders of EquitiLink Holdings
Limited and of EIML Australia Pty Limited, of both of which Mr. Manor is also a
shareholder.

  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, the parent company of the
Investment Manager and Investment Adviser.  Mr. Gilbert is also a shareholder of
Aberdeen Asset Management PLC.  Mr. Beverley Hendry, a Director of the Fund,
also serves as an Executive Director of Aberdeen Asset Management PLC, and is a
shareholder of Aberdeen Asset Management PLC.

  Under the terms of an Investor Relations Services Agreement, EquitiLink USA,
Inc. (doing business under the name Aberdeen Asset Management), a wholly-owned
subsidiary of the Investment Manager, provides investor relations services to
the Fund for a monthly retainer of $10,000.

  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,
2000.  Officers of the Fund and Directors who are interested persons of the Fund
do not receive any compensation from the Fund or any other fund in the fund
complex.  In the column headed "Total Compensation From Fund and Associated
Funds 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, 2000.

                              Compensation Table
                          Fiscal Year Ended 10/31/00

<TABLE>
<CAPTION>
                                               Pension       Estimated         Total
                                            or Retirement      Annual       Compensation
                              Aggregate    Benefits Accrued   Benefits     From Fund and
                             Compensation     As Part of        Upon      Associated Funds
Name of Director              From Fund     Fund Expenses    Retirement  Paid to Directors
- ----------------              ---------     -------------    ----------  -----------------
<S>                          <C>           <C>               <C>         <C>
Anthony E. Aaronson........    $19,750           N/A            N/A          $33,250 (2)
Sir Roden Cutler*..........    $ [   ]           N/A            N/A          $ [   ] (3)
David Lindsay Elsum........    $16,769           N/A            N/A          $40,256 (3)
Rt. Hon. Malcolm Fraser**..    $11,331           N/A            N/A          $27,593 (3)
Laurence S. Freedman***....          0           N/A            N/A                0 (3)
Michael R. Horsburgh****...    $15,750           N/A            N/A          $35,250 (3)
Harry A. Jacobs, Jr.***....          0           N/A            N/A                0 (2)
Howard A. Knight...........    $16,750           N/A            N/A          $27,250 (2)
Neville J. Miles...........    $17,119           N/A            N/A          $39,456 (3)
Peter O'Connell............    $15,419           N/A            N/A          $25,056 (2)
William J. Potter..........    $18,250           N/A            N/A          $43,750 (3)
Peter D. Sacks.............    $18,256           N/A            N/A          $41,969 (3)
Dr. Anton E. Schrafl.......    $15,419           N/A            N/A          $25,419 (2)
John T. Sheehy.............    $19,250           N/A            N/A          $45,250 (3)
Brian M. Sherman...........          0           N/A            N/A                0 (3)
Preferred Directors:
</TABLE>

                                      -25-
<PAGE>

<TABLE>
<CAPTION>
                                                         Pension       Estimated         Total
                                                      or Retirement      Annual       Compensation
                                        Aggregate    Benefits Accrued   Benefits     From Fund and
                                       Compensation     As Part of        Upon      Associated Funds
Name of Director                        From Fund     Fund Expenses    Retirement  Paid to Directors
- ----------------                       ------------  ----------------  ----------  ------------------
<S>                                    <C>           <C>               <C>         <C>
David Manor**** ....................            0          N/A            N/A                0 (2)
Marvin Yontef***....................      $17,306          N/A            N/A          $17,306 (1)
</TABLE>

___________
*    Sir Roden Cutler retired from the Board of Directors effective December
     1999.
**   Rt. Hon. Malcolm Fraser resigned from the Board of Directors effective June
     2000.
***  Messrs. Laurence S. Freedman, Harry A. Jacobs, Jr. and Yontef Marvin
     resigned from the Board of Directors effective December 2000.
**** Messrs. Michael Horsburgh and David Manor resigned from the Board of
     Directors effective October 2000.

                             ADDITIONAL INFORMATION

     Administrator. The Fund's administrator is Prudential Investments, Gateway
Center 3, 100 Mulberry Street, Newark, NJ 07102.

     Expenses. The expense of preparation, printing and mailing of the enclosed
proxy card and accompanying Notice and Proxy Statement will be borne by the
Fund. The Fund will reimburse banks, brokers and others for their reasonable
expenses in forwarding proxy solicitation material to the beneficial owners of
the shares of the Fund. In order to obtain the necessary quorum at the Meeting,
supplementary solicitation may be made by mail, telephone, telegraph or personal
interview. Such solicitation may be conducted by, among others, officers,
Directors and employees of the Fund, the Investment Manager, the Investment
Adviser or State Street Bank and Trust Company, the Transfer Agent of the Fund.
Innisfree M&A ("Innisfree") may be retained to assist in the solicitation of
proxies. If retained, Innisfree will be paid approximately $[____] by the Fund
and the Fund will reimburse Innisfree for its related expenses.

     Solicitation and Voting of Proxies. Solicitation of proxies is being made
primarily by the mailing of this Proxy Statement with its enclosures on or about
March [__], 2001. As mentioned above, Innisfree may be engaged to assist in the
solicitation of proxies. As the meeting date approaches, certain shareholders of
the Fund may receive a call from a representative of Innisfree if the Fund has
not yet received their vote. Authorization to permit Innisfree to execute
proxies may be obtained by telephonic or electronically transmitted instructions
from shareholders of the Fund. Proxies that are obtained telephonically will be
recorded in accordance with the procedures set forth below. Management of the
Fund believes that these procedures are reasonably designed to ensure that the
identity of the shareholder casting the vote is accurately determined and that
the voting instructions of the shareholder are accurately determined.

     In all cases where a telephonic proxy is solicited, the Innisfree
representative is required to ask the shareholder for such shareholder's full
name, address, social security number or employer identification number, title
(if the person giving the proxy is authorized to act on behalf of an entity,
such as a corporation), the number of shares owned and to confirm that the
shareholder has received the Proxy Statement in the mail. If the information
solicited agrees with the information provided to Innisfree by the Fund, then
the Innisfree representative has the responsibility to explain the process, read
the proposals listed on the proxy card, and ask for the shareholder's
instructions on each proposal. The Innisfree representative, although he or she
is permitted to answer questions about the process, is not permitted to
recommend to the shareholder how to vote, other than to read any recommendation
set forth in the Proxy Statement. Innisfree will record the shareholder's
instructions on the card. Within 72 hours, Innisfree will send the shareholder a

                                      -26-
<PAGE>

letter or mailgram to confirm the shareholder's vote and asking the shareholder
to call Innisfree immediately if the shareholder's instructions are not
correctly reflected in the confirmation.

     If a shareholder wishes to participate in the Meeting of shareholders, but
does not wish to give a proxy by telephone, such shareholder may still submit
the proxy card originally sent with the Proxy Statement or attend in person. Any
proxy given by a shareholder, whether in writing, by telephone or via the
internet, is revocable. A shareholder may revoke the accompanying proxy or a
proxy given telephonically or via the internet at any time prior to its use by
filing with the Fund a written revocation or duly executed proxy bearing a later
date. In addition, any shareholder who attends the Meeting in person may vote by
ballot at the Meeting, thereby canceling any proxy previously given.

     Beneficial Ownership. To the best of the Fund's knowledge, as of the record
date, no persons or group beneficially owned more than five percent of the
outstanding shares of common stock or preferred stock of the Fund.

     Shareholder Proposals. If a shareholder intends to present a proposal at
the Annual Meeting of Shareholders of the Fund to be held in 2002 and desires to
have the proposal included in the Fund's proxy statement and form of proxy for
that meeting, the shareholder must deliver the proposal to the offices of the
Fund by [________], 2001.

     Shareholders wishing to present proposals at the Annual Meeting of
Shareholders of the Fund to be held in 2002 which they do not wish to be
included in the Fund's proxy materials should send written notice to the
Secretary of the Fund of such proposals no sooner than December 20, 2001 and no
later than January 19, 2002 in the form prescribed in the Fund's By-Laws.

                                    By Order of the Board of Directors,

                                    Roy M. Randall, Secretary

Gateway Center 3
100 Mulberry Street
Newark, New Jersey 07102
March [__], 2001

                                      -27-
<PAGE>

                                                                      APPENDIX A

  This Appendix A includes extracts from Aberdeen's Report which discussed risks
involved in Asian investment and risks associated with the use of derivatives,
as well as the management of risk from derivatives and management of credit
risk. It also contains the Investment Manager's Australian Review and Outlook
and Asian Market Review and Outlook. The derivatives exposure and counterparty
limits described in the extract concerning management of risk from derivatives
represent the Investment Manager's current policies, which may be amended in
consultation with the Board of Directors.

                      RISKS INVOLVED IN ASIAN INVESTMENT

  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 US. In managing the Fund, the Investment Manager and
Investment Adviser will manage all risks in accordance with their stated
investment guidelines.

  Interest Rate Risk.  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 where, for example, one-off 100
to 200 basis point interest rate changes are not uncommon. The level of interest
rate risk will vary from country to country depending on political and economic
factors and monetary policy.

  Foreign Exchange Risk.  Securities issued in Asian markets and denominated in
an Asian country currency are subject to fluctuation in value due to changes in
the value of the currency against the US dollar. A decline in the value of an
Asian currency compared to the US dollar will give rise to a currency loss to
the Fund. Income received from securities denominated in Asian currencies is
also translated into and distributed in US dollars, so that a decline in the
value of an Asian currency will result in a decline in income to the Fund.

  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.

  Currency exchange rates can fluctuate significantly over short periods and can
be subject to unpredictable change based on such factors as political
developments and currency controls by foreign governments. The Investment
Manager and the Investment Adviser expect to hedge foreign currency risks from
time to time 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. These activities constitute "derivatives" transactions. See
"Management of Derivatives" below.

  Credit Risk.  The Fund is currently permitted to invest up to 15% of total
assets in Asian debt securities which, at the time of investment, are rated
below investment grade, or, if unrated, are judged by the Investment Manager of
equivalent quality. Under the proposal, the Fund will be permitted to invest up
to 35% of total assets in Asian debt securities which, at the time of
investment, are rated below investment grade or, if unrated, are judged by the
Investment Manager, of equivalent quality. Among other things, investment in
securities which are below investment grade introduces an element of
speculation, 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.

                                      A-1
<PAGE>

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.  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 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.

  Lower quality debt securities tend to be highly leveraged. Their 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 such 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 supernational
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.

  Lower quality 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.

                                      A-2
<PAGE>

  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 the 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.

  Counterparty Risk.  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. To manage this risk, the Investment Manager and
Investment Adviser 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 Investment
Manager and Investment Adviser intend to limit these Korean futures exchange
margin accounts to 2% of total assets.

  Political and Economic Risk.  The Fund's investments could in the future be
affected by any increase in taxes or by political, economic or diplomatic
developments in the Asian countries, as well as Australia and New Zealand.
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 foreign issuers involve different, and sometimes greater, risks
than securities of US 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 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.

  Liquidity Risk.  While the Fund may ordinarily invest only in debt securities
for which there is an active secondary market, in order to give it the
flexibility to invest in Asian debt securities, the Fund may invest up to 80% of
its assets in Asian debt securities for which there is no established relevant
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

                                      A-3
<PAGE>

necessarily represent firm bids from those dealers or prices for actual sales.

  Tax Risk.  Income earned on investments in Asian countries may be subject to
applicable withholding taxes and other taxes imposed by the governments of such
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 US. 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.

  Leverage Risk.  The Fund has issued US$600 million of Auction Market Preferred
Stock (the "AMPS") which is tantamount to borrowing this sum of money. The AMPS
create an opportunity for the Fund's holders of 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 AMPS is an expense
which could limit the Fund's net investment income in any given period.


                           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 Asia, where issues are often
unrated or 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.
They have advised the Fund that the process of credit assessment in much of
Asia's developing debt markets is similar to that undertaken when considering an
equity investment, rather than a debt purchase.

  In debt investing, the Investment Manager and Investment Adviser determine the
likelihood of default (by assessing debt to equity levels, interest coverage,
etc.), and then compare that to the market price offered for that issuer. As
with stock investing, qualitative factors must be evaluated, including
management capability, in order to assess the likelihood that the issuer will
remain in business for the life of the security (i.e., to make interest payments
plus return of principal).

  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 on long-term
sovereign debt for the Asian Countries in which the Fund may invest is included
in Appendix B.

  Once a company has been fully assessed, the Investment Manager and Investment
Adviser determine whether the return on that company's security appears adequate
to compensate for the risks of investment.

  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 shareholders for the Fund to hold such stock for short time
periods.

                                      A-4
<PAGE>

  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
shareholders that the Fund hold such securities for short periods of time,
especially in extreme market conditions, until optimal prices can be obtained.

                              INVESTMENT PROCESS

  The Investment Manager believes that excess returns can be achieved in global
fixed income investments through duration and currency management relative to
benchmark, controlled yield curve positioning, and rigorous credit analysis. The
initial stage of portfolio construction is the application of in-house economic
analysis. This effectively involves establishing a view on economic growth and
inflation, leading to forecasts of interest rates, bond yields and exchange
rates.

  In particular, for Australian and Asian fixed income and currency management,
we believe the following to be true:

  Australasian bond, money and currency markets are not perfectly efficient.
Investors do not always rationally price interest rate and credit factors. In
Asian markets particularly, factors such as illiquidity, segmented markets,
changing risk tolerance and poor information mean that markets experience
periods of temporary mispricing. Furthermore, exchange rates can deviate
substantially from fair value due to factors such as central bank intervention,
speculation and capital flows.

  There are rewards available from intelligent research aimed at exploiting
market inefficiencies. Our approach is to use a combination of macro-economic
and market analysis as well as company-specific research to identify market
trends and temporary mispricing. Portfolios are then positioned to generate
returns above market benchmarks and superior to those of our competitors.

  Managing Australasian bonds, money market securities and currencies requires
specialist and dedicated skills. The region represents a complex set of
different but highly interactive economies, cultures and markets. In order to
understand the many issues which drive and influence the region's financial
markets, knowledge of a multitude of micro factors such as cultural
sensitivities, entrenched relationships, market practices, etc, is required.
This knowledge and understanding can only be built up through direct experience
in the region. Members of our team work in Australia and Asia, speak a number of
Asian languages and travel extensively within the region. We regard these as
essential components in the effective management of this asset class.

                                      A-5
<PAGE>

Research

  Research is both fundamental and technical.  Investment decisions are taken to
fully reflect our view on the future course of global economies, with particular
emphasis on the Australian and Asian region.  The illustration below details the
factors that we consider to be most important in both fundamental and technical
analysis, including research inputs.

<TABLE>
<CAPTION>
   Agenda                       Substantive Content                  Strategy                   Construction
   <S>                        <C>                                <C>                            <C>
   WEEKLY TEAM
   MEETINGS                   FUNDAMENTAL ANALYSIS

   . Specialist report on     . Global growth trends
     developments within
     their area               . Impact upon information
                                                                 Construct/revise
                                                                 overall strategy for
   . The rota covers          . Political timetable
     all areas pertinent to                                      . Duration
     fixed interest markets   . Response from interest rates                                      Translate into
                                policymakers                     . Yield Curve                    mandate-driven
   EXTERNAL                                                                                       asset allocation
   ANALYSIS                   TECHNICAL ANALYSIS                 . Credit

   . Regularly invite         . Supply profile - government      . Currency
     requests from market       and corporate
     to test our views
                              . Demand appetite structural
   . However, the               changes in regulations
     majority of research
     is conducted             . Flow of funds analysis
     internally
</TABLE>

  The following analysis is undertaken and reviewed constantly in order to
determine the country and currency structure of our portfolios:

   1. Economic analysis

      . Global economic analysis: Economic commentary and forecasts for the
      major global economies are collected from a diverse range of research
      houses and brokers. These are presented and discussed at the monthly
      investment strategy review meeting held in London, at which all heads of
      desks and our group strategist participate.

      . Asian and Australian economic analysis: The fund managers and our
      economist monitor economic developments throughout the region, Pertinent
      issues are presented and assessed at a monthly Asian economic review. A
      house view is developed for each country with forecasts for GDP,
      industrial production and inflation. These are compared with consensus
      forecasts in order to determine our key variances to market views.

      . Micro economic analysis: We assess and monitor the implementation of
      financial and corporate reforms throughout the region. In addition to
      using research produced by brokerage economists, we undertake regular
      Asian field trips, during which we talk directly with government officials
      and senior management at financial institutions and companies. This helps
      us assess whether government policy is being accepted and implemented by
      the local institutions.

      2. Political analysis

  Changing political dynamics often have a significant impact on financial
policy and markets in Australia and Asia.  As a result we need to be well
informed on political issues within the region.  To do

                                      A-6
<PAGE>

this, we monitor research from a range of brokers and independent research
houses. We also conduct our own research through direct contact with central
banks and government agencies.

      3. Valuation

  Fair value analysis is undertaken in order to determine whether securities'
prices are deviating significantly from their longer-term equilibrium value.  To
assess this, we look at:

      .   Real yield analysis for each bond and money market; and
      .   Purchasing power parity models for currency analysis.

      4. Technical analysis

  We undertake extensive technical analysis on bonds, bills and currencies in
order to monitor market momentum and key support/resistance levels.

  There are numerous other factors that influence market behavior and require
our analysis and understanding. These include:

      .   The supply/demand balance in bond and money markets;
      .   Central bank intervention in currency markets; and
      .   Equity market movements and consequent fund flows.

      5. Security Selection

  Having established the allocation to each country and currency, the focus
shifts to determining the best exposure within each market.  This involves
evaluating the relative value between government, quasi-government and corporate
securities.

      .   Government and Quasi government issues:

  Within most of the Australian and Asian bond and money markets there are a
range of government and quasi-government issuers.  These issuers, as well as
derivative markets, are monitored closely.  Our analysis concentrates on factors
such as the shape and structure of yield curves, pricing anomalies, liquidity
premiums and supply and demand for specific issues.

      .   Corporate/bank issues:

  We undertake extensive credit research in order to identify opportunities to
invest in corporate debt.  This entails conducting our own credit research,
including regular field trips to the relevant companies.  In addition, our
equity portfolio managers analyze many of the corporates included in our model
portfolio, and provide ongoing credit research.  We also review reports produced
by external credit analysts at brokerage houses, and speak frequently to them
for more in-depth information.  Our research covers the following:

      Fundamental analysis

      .   Industry analysis

  Examination of industry characteristics and trends.  We pay particular
attention to regulatory regimes and recent or potential changes to them.

                                      A-7
<PAGE>

      . Company analysis

       -  The company's competitive position within its industry;
       -  Corporate strategy; and
       -  Financial analysis, focusing on cash flow and the firm's capacity to
          service debt.

      . Market analysis

       -  Value relative to other similar credits; and
       -  Liquidity


                              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.

                 RISKS ASSOCIATED WITH THE USE OF DERIVATIVES

  Gains and losses on "derivatives" transactions depend on the ability of the
Investment Manager and Investment Adviser to predict correctly the direction on
interest rates, securities prices, currency exchange rates, or 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 prices of derivatives and the
      movements of the securities prices, interest rates or currency exchange
      rates being hedged (basis risk);

      . the possible absence of a liquid secondary market for any particular
      derivative at any time (liquidity risk);

      . the potential loss if the counterparty to the transaction does not
      perform as promised (counterparty risk);

      . the possible need to defer closing out certain positions to avoid
      adverse tax consequences (tax risk);

      . the risk that the financial intermediary "manufacturing" the 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 derivatives are "manufactured" by financial institutions for the
      most part, the risk that the Fund may develop a substantial exposure to
      financial institution counterparties; and

                                      A-8
<PAGE>

      . 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.

                      MANAGEMENT OF RISK FROM DERIVATIVES

  In expanding the Fund's investment parameters, it will be necessary for the
Investment Manager to be able to use derivative securities in Asia.  It would
also be beneficial to have access to certain interest-rate derivative
instruments in the Australian component of the Fund.

       The types of derivative activity anticipated under the new mandate
     include:

      . The ability to adjust Asian currency exposures in line with the
      Investment Manager's investment strategy. Adjustment would take place when
      considered prudent, based on the Investment Manager's assessment of future
      currency movements.

      . The scope to adjust duration, yield curve and credit positions
      synthetically.

      . Substitution/replication for physical securities to provide flexibility
      in managing capital gains on the Fund's underlying securities, and to
      minimize transaction costs and achieve transactional efficiency.

  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.

Asian derivatives. The use of derivative securities is a necessary prerequisite
to the expansion of the Fund's investment parameters into Asia.

  There are two broad areas for which derivatives are required for Asian
investing:

       1. Use of derivatives for adjusting exposures (adjustment/overlay)

      . Currency adjustment (overlays) - By directly investing into Asia, the
      Fund will take on exposure to the currencies of the countries in which it
      holds securities. The Investment Manager will need to be able to
      adequately 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 overlay strategies.

      . Interest rate and credit adjustment - Investment in Asian "Yankee bonds"
      involves exposure to both fluctuations in US interest rates and the credit
      standing of a particular Asian issuer. There may be times when the
      Investment Manager wishes to reduce the US interest rate exposure embedded
      in Asian Yankee bonds. This can be done by selling US Treasury Bond
      futures. The credit component can be managed using credit derivatives.

  2. Derivatives as a substitute for physical securities
(replication/substitution).  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 Investment
Manager may be able to implement decisions at lower costs, increase the after-
tax yield, obtain prices that are not available in the underlying cash market,
or settle in US dollars.

                                      A-9
<PAGE>

  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 paper or
government regulations, the only means of gaining exposure to particular Asian
countries is through derivatives.

  Australian derivatives. The Investment Manager uses only exchange-traded (as
opposed to over-the-counter) interest rate derivatives in the Australian
component of the Fund. The Investment Manager will not use derivatives where
they would contravene the guidelines set by the rating agencies for AMPS issues.

  The Investment Manager proposes to use currency derivatives to hedge
Australian dollar currency risk associated with investments by the Fund in
Australia.


  Derivatives exposures and counterparty limits.  In general, derivatives will
not be utilized to leverage the Fund. All futures and forwards are to be
measured on a notional exposure basis and, therefore, they will be deemed to be
cash-backed.  All options positions are delta-adjusted.

  Counterparty limits.  When dealing in over-the-counter derivatives, all bank
counterparties must have a credit rating of at least A-.  The exception will be
Korean futures.  In Korea, brokerage houses with Korean futures exchanges
require deposits into margin accounts, and in many cases, these accounts are
with unrated entities.  A limit of 2% of total assets can be applied this way.
Only up to 7.5% of total assets may be put at risk in derivatives transactions
with any single counterparty.  A maximum of 20% of total assets may be at risk
in currency-linked notes.  In addition, a maximum of 10% of total assets may be
at risk to any single counterparty (aggregate interest rate, currency and credit
derivatives).

  Exchange-traded derivatives. 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.

                         AUSTRALIAN REVIEW AND OUTLOOK

  The deterioration in the value of the Australian dollar in 2000 from a peak
above US 67 cents early in the year is, the Investment Manager believes, a
function to a large extent of the apparent strength of the US dollar itself.
This is evidenced by the similar weakness being observed in currencies as
diverse as the Pound sterling, Euro and New Zealand dollar since the beginning
of 2000.  All have depreciated to a broadly similar degree.  The Investment
Manager believes that much of this has to do with the global redirection of
capital observed in 2000, towards US dollar assets and US bond markets in
particular.  The Investment Manager believes that this is favorable for other
global bond markets such as Australian and Asian bonds, but has nonetheless
undermined most global currencies versus the US.

  A significant factor that will influence the value of the Australian dollar
and many Asian currencies looking forward therefore will be the ultimate
direction of the US dollar.  The majority of global analyst views anticipate
that the medium term will see some weakness in the US dollar as investors look
for more attractive global investment opportunities outside of the US and the
significant US current account deficit becomes more difficult to finance.
Assuming that the global economy continues to grow at a respectable 3-3.5% in
2001, the Investment Manager believes that such a turnaround in the US dollar
would be positive, for the Australian dollar.

                                     A-10
<PAGE>

  There are domestic factors which, the Investment Manager believes, have also
negatively impacted on the performance of the Australian dollar in 2000 but are
likely to show improvement. One of the key drivers of this weakness has been
relative growth sentiment.  US growth has increasingly been driven by the
strength of its technology sector and this has seen expectations for future US
growth outstrip those for Australia which is tagged an "old style economy". This
is despite the fact that Australian domestic economic and productivity growth
has consistently outperformed expectations. Further, although the Australian
domestic economy is not a large producer of technology, it boasts an extremely
strong and rapid per capita take-up of technology.

  Negative interest rate differentials between the US and Australia, both short
and long-term, have also placed pressure on the Australian dollar.  Domestic
cash rates, which have traditionally been above those in the US, have been up to
0.50% below in the current tightening cycle.  The majority of economists are
forecasting this differential to return to parity as the U.S. Federal Reserve
potentially eases through 2001, and the Reserve Bank Of Australia maintains a
neutral policy stance.

  The Investment Manager believes that the combination of an improving terms of
trade and an increasingly competitive currency is powerful for the Australian
current account deficit.  This deficit has fallen below 5% of GDP from a peak
above 6% and exports are currently recording annual growth of 25%.  The
likelihood of further sizeable improvements in this deficit is a clear positive
for the Australian dollar going forward as it reduces the call on foreign
capital to finance the current account shortfall, a significant drag on the
Australian dollar in 2000.

  The latest expectations for the Australian dollar across a wide range of
analysts are for the currency to appreciate over the next year towards US 63-65
cents. This would represent a move of approximately 20% from current levels.

                        ASIAN MARKET REVIEW AND OUTLOOK

  Asia as a whole has completed a dramatic two years of economic recovery from
the height of the Asian Crisis of 1997/98.  Moving forward, it is the Investment
Manager's expectation that Asia will maintain its growth performance, albeit at
a somewhat more moderate pace.  The Investment Manager expects that there will
be greater differentiation in future Asian economic performance between those
economies which are either more robust or relatively advanced on the
restructuring path, such as Singapore, Taiwan, Korea and China, and those
economies that are less advanced in restructuring or exhibit fundamental
weakness, such as Indonesia (in which the Fund does not currently invest), the
Philippines and Thailand.

  The dramatic appreciation in oil prices in 2000 and the more recent concerns
expressed about global economic hard landings have renewed investor concerns
about the risk of Asia falling back into a regional downturn.  The Investment
Manager does not consider this prospect likely.  The Investment Manager believes
that the Asian macro environment has become more robust structurally than was
the case in 1997, with most Asian economies now operating floating exchange
rates and sizeable trade surpluses.  The strength of the global technology cycle
and the role of Asia in producing high tech equipment remains a key positive
moving forward.  The process of corporate and financial sector restructuring is
generally progressing well. This is enabling a more efficient and open transfer
of capital into and out of the region, as opposed to the generally quite
restrictive circumstances evident before the Asian crisis impacted.

  Of all the Asian crisis economies, South Korea has shown the most dramatic
resurgence over the past two years, with economic growth of 11% in 1999 and a
further 8-9% expected in 2000.  South Korea has made some of the most dramatic
moves towards restructuring of the Asian crisis economies, aimed at freeing up
regulatory constraints, reducing the power of the Chaebol, and enticing foreign
capital inflows.

                                     A-11
<PAGE>

  Singapore, fundamentally one of the most buoyant and open economies within the
region, was relatively insulated through the crisis and is now growing very
strongly.  Trade and capital flows are conducive to both the Korean Won and the
Singapore dollar which are likely to see relative outperformance against other
regional currencies.  Similarly Taiwan, while hit by domestic political turmoil,
maintains strong economic fundamentals.  A high dependency on technology
production is a key positive moving forward.

  Thailand and the Philippines remain the more difficult economies within the
region, outside of Indonesia. All three countries are struggling to generate
dynamic growth with both Thailand and Indonesia saddled with debt burdens and
all currently suffering political instability.  Monetary policies need to remain
supportive for growth while necessary structural changes are made to these
economies.  In the case of the Philippines, the Investment Manager believes that
much of the concern has already been factored into its bond market, with yield
levels exceptionally attractive.

  Chinese growth is accelerating in line with strong export performance and
stimulative monetary and fiscal conditions.  Deflation is an ongoing threat
given the extent of structural reform working through the Chinese economy.  The
Investment Manger believes that entry into the World Trade Organization is
likely to provide a longer-term boost to the Chinese economy, but in the near
term will necessitate an accelerated reform agenda.

  Hong Kong has emerged slowly from recession, but is now benefiting from North
Asian and Chinese trade in particular.  A need to maintain the Hong Kong dollar
peg has required the Hong Kong Monetary Authority to tighten policy in step with
the US Federal Reserve.  The Investment Manager believes that this is likely to
be a lingering drag on the interest rate sensitive sectors of the Hong King
economy.  However, trade and tourism have strengthened in line with a general
upturn in Asian confidence.

  Malaysia and India have shown economic performance under the influence of
stimulative interest rate settings and competitive exchange rates.  Malaysia in
particular has benefited from an undervalued exchange rate (relative to the rest
of Asia) and improved capital inflows following the relaxation of certain
capital controls imposed at the height of the Asian crisis.

  Over the past two years, yields on domestic Asian bonds have generally
declined significantly since the onset of the Asian crisis.  Improved
perceptions about, and the significant restructuring within, Asia has resulted
in a general lowering of risk premium and improved credit ratings.  In some
markets, notably Korea and the Philippines, yields are expected to further
decline as ongoing structural changes lower inflation and risk premium.  It is
expected that domestic Asian bond performance to be generally in line with
current yields.

  Asian analysts generally believe that many of the Asian currencies in which
the Fund invests are below their fair value versus the US dollar and are likely
to appreciate over time.  The spread on Asian US dollar denominated bonds should
continue to benefit from Asia's positive credit trends and Asian macroeconomic
improvement.

  Asian strong fundamentals, strong reserve positions, significant corporate and
banking sector restructuring should support Asian bond markets (both local
currency and US dollar Yankee) in the future.

                                     A-12
<PAGE>

                                                                      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 no 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:

                                      B-1
<PAGE>

  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 generic 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:  Bond 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.

                                      B-2
<PAGE>

                                                                      APPENDIX C

           CURRENT INVESTMENT OBJECTIVE, POLICIES, AND RESTRICTIONS

                       INVESTMENT OBJECTIVE AND POLICIES

Investment Objective and Policies

     The Fund's investment objective is current income through investment
primarily in Australian debt securities. The Fund may also achieve incidental
capital appreciation. The objective and the investment policies set forth in the
following four paragraphs and under the caption "Investment Restrictions" 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.

Portfolio Structure

     It is expected that normally at least 65% of the Fund's total assets will
be invested in Australian dollar denominated debt securities of Australian
banks, federal and state governmental entities and companies, and in Australian
dollar denominated global or Eurobonds, whether or not the issuer is domiciled
in Australia, which expose the Fund to the Australian interest rate structure
and which are traded by reference to similar debt securities of Australian
domiciled issuers. To achieve its investment objective, the Fund may invest the
balance of its total assets (1) in 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) in 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) in debt securities which are denominated in
New Zealand dollars of issuers, whether or not domiciled in New Zealand, and (4)
in U.S. debt securities. The maximum country exposure to any one Asian Country
is limited to 15% of the Fund's total assets and the maximum currency exposure
to any one Asian Country currency is limited to 10% of the Fund's total assets.
The Fund will invest only in debt securities for which there is an active
secondary market except that the Fund may invest up to 35% of its assets in
Asian debt securities for which there is no established relevant market.

     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
will not invest in convertible debt securities.

     It is the Fund's policy to limit its investments as to at least 50% of its
total assets, to issuers or debt securities which are, at the time of
investment, rated AA or better by S&P, or Aa or better by Moody's, or which, in
the opinion of the Investment Manager, are of equivalent quality. In addition,
at least 65% of the Fund's investments must be rated, at the time of investment,
A- or better by S&P or A3 or better by Moody's or be, in the Investment
Manager's judgment, of equivalent quality. In order to accommodate investment in
Asian markets, Asian debt securities may be purchased which, at the time of
investment, are rated by S&P or Moody's, or are judged by the Investment
Manager, to be the equivalent of at least B- by S&P or B3 by Moody's; provided,
however, that in no event may more than 15% of its total assets be invested in
Asian debt securities which, at the time of investment, are rated below
investment grade of BBB, but not less than B-, by S&P, or Baa, but not less than
B3, by Moody's, or which, in the opinion of the Investment Manager, are of
equivalent quality, and provided further; that with the approval of the

                                      C-1
<PAGE>

Fund's Board of Directors, the ratings of other recognized rating services may
be used.

     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, in respect of the Asian portion of its portfolio, use
derivatives to manage currency and interest rate risk and as a substitute for
physical securities. The Fund may also use derivatives with respect to its
Australian investments to manage interest rate risk through investing in
exchange traded interest rate derivatives. However, it will not use derivatives
to hedge Australian currency risk, except in connection with currency forward
contracts used in connection with the transfer of cash to the United States.

     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 or New Zealand commonwealth or
state governments or their instrumentalities, to 5% of its assets at the time of
purchase. The Fund may invest without limitation in securities of Australian
governments or governmental entities and may invest up to 25% of its assets at
the time of purchase in New Zealand government securities. 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. See
"Taxation - United States." The average U.S. dollar weighted maturity of the
Fund's portfolio is not expected to exceed 10 years.

                            INVESTMENT RESTRICTIONS

The Fund may not:

   1.  Purchase securities on margin, except such short-term credits as may be
       necessary for the clearance of transactions.

   2.  Make short sales of securities or maintain a short position (other than
       with respect to the use of derivatives).

   3.  (a) Issue senior securities, except (i) 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
       those investment restrictions and (ii) that the Fund may issue one or
       more series of its preferred stock, if permitted by the Articles; or (b)
       borrow money or pledge its assets, except that the Fund may borrow on an
       unsecured basis from banks for temporary or emergency purposes or for the
       clearance of transactions in amounts not exceeding 10% of its total
       assets (not including the amount borrowed) and will not make additional
       investments while any such borrowings are outstanding.

   4.  Buy or sell commodities, commodity contracts, real estate or interests in
       real estate (other than mortgage-backed securities or with respect to the
       use of derivatives).

   5.  Make loans (except that the Fund may purchase debt securities whether or
       not publicly traded or privately placed or may enter into repurchase and
       securities lending agreements consistent with

                                      C-2
<PAGE>

       the Fund's investment policies).

   6.  Make investments for the purpose of exercising control or management.

   7.  Act as an underwriter (except to the extent the Fund may be deemed to be
       an underwriter in connection with the sale of securities in the Fund's
       investment portfolio).

8.     Invest more than 25% of its total assets at the time of purchase in any
       one industry (including banking) except that the Fund will invest over
       25% of its total assets in securities issued or guaranteed, as to payment
       of principal and interest, by Australian governments or governmental
       entities. U.S. government securities are excluded from this restriction.

                                      C-3
<PAGE>

                                                                      APPENDIX D

         PROPOSED NEW INVESTMENT OBJECTIVE, POLICIES, AND RESTRICTIONS

  If Proposals 3A, 3B and 3C are approved by shareholders, the Fund's investment
objective, investment policies and investment restrictions would read in their
entirety as follows:

                             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.

                              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 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.

                                      D-1
<PAGE>

  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, or
judged by the Investment Manager to be, below investment grade at the time of
investment, and the Fund may invest up to 10% of its total assets in Asian debt
securities rated by S&P or Moody's, or judged by the Investment Manager to be,
below B- at the time of investment, provided that, with the approval of the
Fund's Board of Directors, the ratings of other recognized rating services may
be used.  The Fund may invest up to 35% of its total assets in Asian debt
securities which may be deemed to be illiquid.

  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 or Korean
governmental entities and may, at the time of purchase, invest up to 35% of its
total assets in New Zealand governmental securities and up to 15% of its total
assets in Asian Country (other than Korea) governmental securities.  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

                                      D-2
<PAGE>

not expected to exceed 10 years.

                            INVESTMENT RESTRICTIONS

A.   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.

B.   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 or pledge its assets, except that the Fund may borrow on
          an unsecured basis from banks for temporary or emergency purposes or
          for the clearance of transactions in amounts not exceeding 10% of its
          total assets (not including the amount borrowed) and will not make
          additional investments while any such borrowings are outstanding;

     (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;

     (6)  make loans to other persons, except as permitted under the Investment
          Company Act of 1940, 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 Investment Company Act of
          1940, 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

                                      D-3
<PAGE>

instrumentalities of that country; and (f) repurchase agreements with respect to
any of the foregoing securities.

                                      D-4
<PAGE>

                                                                       EXHIBIT A

                  The First Australia Prime Income Fund, Inc.
                            Audit Committee Charter
                            -----------------------
Mission
- -------

     The mission of the Audit Committee (the "Committee") of The First Australia
Prime Income Fund, Inc. (the "Fund") is to oversee the Fund's accounting and
financial reporting policies and practices, its internal controls and, as
appropriate, the internal controls of certain service providers, and the quality
and objectivity of the Fund's financial statements.  The Committee will also
report to the Board of Directors (the "Board"), if necessary, any relationships
between the auditor and the Fund, or any other relationships, which come to the
Committee's attention that may adversely affect the independence of the auditor.

     The function of the Committee in this capacity is oversight; it is the
responsibility of the Fund and the Manager to maintain appropriate systems for
accounting and internal control, and the responsibility of the Fund's
independent auditors to plan and carry out a proper audit.

     The independent auditors are directly accountable to the Committee and to
the Board.

Committee Membership
- --------------------

     The Committee shall be composed of at least three independent directors
with the qualifications indicated below.  The President of the Fund, although
not a member of the Committee, will nonetheless be expected to play a
significant role in assisting the Committee to discharge its responsibilities,
including ensuring adequate access to, and support from, the staff of the Fund's
investment manager, EquitiLink International Management Limited (the "Manager"),
and the staff of the Fund's investment adviser, EquitiLink Australia Limited
(the "Adviser").

Qualifications of Committee Members
- -----------------------------------

     The Committee must have at least three independent directors.  A director
with any of the

                                       1
<PAGE>

following five relationships will not be considered independent for this
purpose:

     (1) employment by the Fund or any of its affiliates for the current year or
any of the past three years;

     (2) acceptance of any compensation from the Fund or any of its affiliates
in excess of $60,000 during the previous fiscal year, other than compensation
for board service, benefits under a tax-qualified retirement plan, or non-
discretionary compensation;

     (3) member of the immediate family of an individual who is, or has been in
any of the past three years, employed by the Fund or any of its affiliates as an
executive officer.  Immediate family includes a person's spouse, parents,
children, siblings, mothers and fathers-in-law, brothers and sisters-in-law,
sons and daughters-in-law, and anyone who resides in such person's home;

     (4) partnership in, or being a controlling shareholder or an executive
officer of, any for-profit business organization to which the Fund made, or from
which the Fund received, payments (other than those arising solely from
investments in the Fund's securities) that exceed 5% of the Fund's gross income
for that year, or $200,000, whichever is more, in any of the past three years;
or

     (5) employment as an executive of another entity where any of the Fund's
executives serve on that entity's compensation committee.

     One member of the Committee may be a non-independent director, under
limited and exceptional circumstances, if the Board determines that membership
on the Committee by that non-independent director is required by the best
interests of the Fund and its shareholders.  To be eligible for this
consideration, the non-independent director may not be a current employee or
immediate family member of an employee of the Fund.  If such a determination is
made, the Board must disclose, in the Fund's next

                                       2
<PAGE>

annual proxy statement subsequent to making the determination, the nature of the
relationship and the reasons for the determination.

     Each member of the Committee must be able to read and understand basic
financial statements, including the Fund's balance sheet, income statement and
statement of cash flows, or must become able to do so within a reasonable period
of time after his or her appointment to the Committee.  At least one member of
the Committee must have past employment experience in finance or accounting,
requisite professional certification in accounting, or any other comparable
experience or background which result in that individual's having financial
sophistication, including, but not limited to, being or having been a chief
executive officer, chief financial officer or other senior officer with
financial oversight responsibilities.

Duties and Powers
- -----------------

     To carry out its mission, the Committee shall, to the extent it deems
appropriate, carry out the following functions:

1.  to recommend annually to the Board the selection, retention, or termination
    of independent auditors and, in connection therewith, to evaluate the
    independence of the auditors, including whether the auditors provide any
    consulting, auditing, or tax services to the Manager and to receive the
    auditors' specific representations as to their independence,

2.  delineating all relationships between the auditor and the Fund, consistent
    with Independence Standards Board ("ISB") Standard No. 1./1/ This should
    include information on whether the independent auditor performs any
    significant non-auditing services for the Fund. The Committee is

                                       3
<PAGE>

    responsible for actively engaging in a dialogue with the auditor with
    respect to any disclosed relationships or services that may impact the
    objectives and independence of the auditor and for taking, or recommending
    that the full Board take, appropriate action to oversee the independence of
    the outside auditor;

3.  to recommend new independent auditors, should it prove necessary, subject to
    ratification by the Board and shareholder approval, if required;

4.  to meet with the Fund's independent auditors, including private meetings, as
    necessary (i) to review the arrangements for and scope of the annual audit
    and any special audits, and the fees proposed to be charged in connection
    with such services, (ii) to discuss any matters of concern relating to the
    Fund's financial statements, including any adjustments to such statements
    recommended by the auditors, or other results of said audit(s), including
    matters required to be discussed by the Statements on Auditing Standards
    ("SAS") No. 61,/2/ (iii) to consider the auditors' comments with respect to
    the Fund's financial policies, procedures and internal accounting controls
    and management's responses thereto, (iv) to review the form of opinion the
    auditors propose to render to the Board and shareholders, and (v) to review
    the performance of the auditor;

5.  to consider the effect upon the Fund of any changes in accounting principles
    or practices proposed by management or the auditors;

6.  to review the fees charged by the auditors for audit and non-audit services;

7.  to confer with the officers of the Fund to the extent necessary in its
    review of the internal controls, accounting practices, fiscal structure and
    fiscal reporting of the Fund, and as appropriate report to the

- --------------------------------------------------------------------------------
/1/   ISB Standard No. 1 requires the auditor to annually: (1) disclose to the
Committee, in writing, all relationships between the auditor and its related
entities and the Fund and its related entities that in the auditor's
professional judgment may reasonably be thought to bear on independence; (2)
confirm in the letter that, in its professional judgment, it is independent of
the Fund within the meaning of the Securities Acts administered by the SEC; and
(3) discuss the auditor's independence with the audit committee.

/2/   SAS 61 requires independent auditors to communicate certain matters
related to the conduct of an audit to those who have responsibility for
oversight of the financial reporting process, specifically the audit committee.
Among the matters to be communicated to the audit committee are: (1) methods
used to account for significant unusual transactions; (2) the effect of
significant accounting policies in controversial or emerging areas for which
there is a lack of authoritative guidance or consensus; (3) the process used by
management in formulating particularly sensitive accounting estimates and the
basis for the auditor's conclusions regarding the reasonableness of those
estimates; and (4) disagreements with management over the application of
accounting principles, the basis for management's accounting estimates, and the
disclosures in the financial statements.

                                       4
<PAGE>

     Board concerning the business of the Committee;

8.   to establish rules and procedures necessary for the Committee to fulfill
     its responsibilities and conduct its business;

9.   to investigate improprieties or suspected improprieties and Fund
     operations, as they are presented to the Committee or brought to the
     attention of the Committee;

10.  to review the Fund's financial reporting practices, including (i)
     accounting policies and practices and significant judgments that may affect
     the financial statements of the Fund and the selection made from among
     alternative accounting treatments; (ii) effects of changes in accounting
     standards that may significantly affect financial reporting practices;
     (iii) reasons for major year-to-year variations in financial statements;
     and (iv) reports of any significant accounting accruals, reserves,
     estimates made by management, and provisions for contingent liabilities;

11.  to review the Fund's system of internal controls, including (i) the
     security of tangible and intangible Fund assets and the security of
     computer systems and facilities; (ii) instances of employee defalcation and
     violations of the Code of Ethics and other Fund policies and procedures;
     and (iii) reports from Fund legal counsel with respect to compliance with
     laws and regulations, significant litigation, and possible impact on
     financial results;

12.  to review the Fund's tax compliance and status, including the status of the
     Fund's position relative to tax audits and significant issues disputed by
     tax authorities; and

13.  to report its activities to the full Board on a regular basis and to make
     such recommendations with respect to the above and other matters as the
     Committee may deem necessary or appropriate.

Other Powers and Responsibilities
- ---------------------------------

1.   The Committee normally shall meet in person twice yearly, in June and
     December, prior to the meetings of the full Board, and at such other time
     or times as the Committee or Board may determine appropriate or necessary,
     and is empowered to hold special meetings as circumstances require.

                                       5
<PAGE>

2.   Each December, the Committee shall issue a report indicating whether the
     Committee (i) reviewed and discussed the financial statements with
     management; (ii) discussed the matters required by SAS 61, as modified or
     supplemented; and (iii) received from the auditors the letter and written
     disclosure required by ISB Standard No. 1, and discussed with the auditors
     their independence. The Committee's report should also indicate whether the
     audit committee, based on its review and its discussions with management
     and the auditors, recommends to the Board that the financial statements be
     included in the Fund's annual report for the last fiscal year.

3.   The Committee shall have the resources and authority appropriate to
     discharge its responsibilities, including authority to utilize Fund counsel
     and to retain experts or other persons with specific competence at the
     expense of the Fund.

4.   The Committee shall review this Charter at least annually and recommend any
     changes to the full Board of Directors.


March 16, 2000

                                       6
<PAGE>

                                      PROXY

                   THE FIRST AUSTRALIA PRIME INCOME FUND, INC.

            THIS PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

                Annual Meeting of Shareholders -- April 19, 2001

The undersigned hereby appoints Beverley Hendry, William J. Potter, and Michael
Karagianis, and each of them, the proxies of the undersigned, with power of
substitution to each of them, to vote all shares of the common stock of The
First Australia Prime Income Fund, Inc. which the undersigned is entitled to
vote at the Annual Meeting of Shareholders of The First Australia Prime Income
Fund, Inc. to be held at One Seaport Plaza, New York, New York on April 19, 2001
at 2:00 p.m. (Eastern time), and at any adjournment or postponement thereof. By
signing this proxy card on the reverse side, the undersigned authorizes the
appointed proxies to vote in their discretion on any other business which may
properly come before the meeting or any adjournments or postponements thereof.

- --------------------------------------------------------------------------------
                   PLEASE VOTE, DATE AND SIGN ON REVERSE AND
                    RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Please sign exactly as your name(s) appear(s) on the books of the Fund. Joint
owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
- --------------------------------------------------------------------------------

HAS YOUR ADDRESS CHANGED?                   DO YOU HAVE ANY COMMENTS?

- -------------------------------------       ------------------------------------
- -------------------------------------       ------------------------------------
- -------------------------------------       ------------------------------------
<PAGE>

(X) PLEASE MARK VOTES
AS IN THIS EXAMPLE

- --------------------------------------------------------------------------------
                   THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
- --------------------------------------------------------------------------------
                                  COMMON STOCK

Mark box at right if an address change or comment has been noted on          / /
the reverse side of this card.

                                                           Date ________________
                   Please be sure to sign and date this Proxy
- --------------------------------------------------------------------------------

___________ Shareholder sign here _____________Co-owner sign here_______________

This proxy, when properly executed, will be voted in the manner directed. If no
direction is made, this proxy will be voted FOR Items (1), (3A), (3B) and (3C).

(1)      The election of three Directors to serve as
         Class I Directors for a three-year term:

<TABLE>
<CAPTION>
                                                For All Nominees   Withhold   For All Except
         <S>                                    <C>                <C>        <C>
         Anthony E. Aaronson                          /   /          /   /         /   /
         Beverley Hendry                              /   /          /   /         /   /
         Neville J. Miles                             /   /          /   /         /   /

         NOTE: IF YOU DO NOT WISH YOUR SHARES VOTED "FOR" A PARTICULAR NOMINEE,
         MARK THE "FOR ALL EXCEPT" BOX AND STRIKE A LINE THROUGH THE NAME(S) OF
         THE NOMINEE(S). YOUR SHARES WILL BE VOTED FOR THE REMAINING
         NOMINEE(S).

(3A)     To amend the Fund's investment                For          Against       Abstain
         objective                                    /   /          /   /         /   /

(3B)     To amend the Fund's investment policies and   For          Against       Abstain
         eliminate the requirement that shareholders  /   /          /   /         /   /
         approve changes in these policies

(3A)     To amend the Fund's investment                For         Against       Abstain
         restrictions                                 /   /         /   /         /   /
</TABLE>

The appointed proxies will vote in their discretion on any other business as may
properly come before the meeting or any adjournments or postponements thereof.

RECORD DATE SHARES:
<PAGE>

                                      PROXY

                   THE FIRST AUSTRALIA PRIME INCOME FUND, INC.

            THIS PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

                Annual Meeting of Shareholders -- April 19, 2001

The undersigned hereby appoints Beverley Hendry, William J. Potter, and Michael
Karagianis, and each of them, the proxies of the undersigned, with power of
substitution to each of them, to vote all shares of the preferred stock of The
First Australia Prime Income Fund, Inc. which the undersigned is entitled to
vote at the Annual Meeting of Shareholders of The First Australia Prime Income
Fund, Inc. to be held at One Seaport Plaza, New York, New York on April 19, 2001
at 2:00 p.m. (Eastern time), and at any adjournment or postponement thereof. By
signing this proxy card on the reverse side, the undersigned authorizes the
appointed proxies to vote in their discretion on any other business which may
properly come before the meeting or any adjournments or postponements thereof.

- --------------------------------------------------------------------------------
                   PLEASE VOTE, DATE AND SIGN ON REVERSE AND
                    RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Please sign exactly as your name(s) appear(s) on the books of the Fund. Joint
owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
- --------------------------------------------------------------------------------

HAS YOUR ADDRESS CHANGED?                   DO YOU HAVE ANY COMMENTS?

- -------------------------------------       ------------------------------------
- -------------------------------------       ------------------------------------
- -------------------------------------       ------------------------------------
<PAGE>

(X) PLEASE MARK VOTES
AS IN THIS EXAMPLE

- --------------------------------------------------------------------------------
                   THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
- --------------------------------------------------------------------------------

                    AUCTION MARKET PREFERRED STOCK SERIES A-I

Mark box at right if an address change or comment has been noted on      /  /
the reverse side of this card.

                                                            Date _______________
                   Please be sure to sign and date this Proxy
- --------------------------------------------------------------------------------

____________ Shareholder sign here _____________ Co-owner sign here ____________

This proxy, when properly executed, will be voted in the manner directed. If no
direction is made, this proxy will be voted FOR Items (2), (3A), (3B), and (3C).

(2)      The election of two Directors to
         represent the interests of the holders
         of preferred stock for the ensuing year:

<TABLE>
<CAPTION>
                                                For All Nominees   Withhold     For All Except
         <S>                                    <C>                <C>          <C>
         Dr. Anton E. Schrafl                         /   /         /    /          /   /
         John T. Sheehy                               /   /         /    /          /   /

         NOTE: IF YOU DO NOT WISH YOUR SHARES VOTED "FOR" A PARTICULAR NOMINEE,
         MARK THE "FOR ALL EXCEPT" BOX AND STRIKE A LINE THROUGH THE NAME(S) OF
         THE NOMINEE(S). YOUR SHARES WILL BE VOTED FOR THE REMAINING NOMINEE(S).


(3A)     To amend the Fund's investment              For           Against        Abstain
         objective                                  /   /           /   /          /   /

(3B)     To amend the Fund's investment policies     For           Against        Abstain
         and eliminate the requirement that         /   /           /   /          /   /
         shareholders approve changes in these
         policies

(3A)     To amend the Fund's investment              For           Against        Abstain
         restrictions                               /   /           /   /          /   /
</TABLE>

The appointed proxies will vote in their discretion on any other business as may
properly come before the meeting or any adjournments or postponements thereof.

RECORD DATE SHARES:
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
