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<SEC-DOCUMENT>0000950112-97-001790.txt : 19980102
<SEC-HEADER>0000950112-97-001790.hdr.sgml : 19980102
ACCESSION NUMBER:		0000950112-97-001790
CONFORMED SUBMISSION TYPE:	N-30D
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	19971031
FILED AS OF DATE:		19971231
SROS:			NONE

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			FIRST COMMONWEALTH FUND INC
		CENTRAL INDEX KEY:			0000876717
		STANDARD INDUSTRIAL CLASSIFICATION:	 []
		IRS NUMBER:				133334183
		STATE OF INCORPORATION:			MD
		FISCAL YEAR END:			1031

	FILING VALUES:
		FORM TYPE:		N-30D
		SEC ACT:		
		SEC FILE NUMBER:	811-06342
		FILM NUMBER:		97747374

	BUSINESS ADDRESS:	
		STREET 1:		45 BROADWAY
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10006
		BUSINESS PHONE:		2129688800

	MAIL ADDRESS:	
		STREET 1:		45 BROADWAY
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10006
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-30D
<SEQUENCE>1
<DESCRIPTION>THE FIRST COMMONWEALTH FUND, INC. ANNUAL REPORT
<TEXT>

<PAGE>

INVESTMENT MANAGER
EquitiLink International Management Limited
Union House, Union Street
St. Helier, Jersey, Channel Islands
INVESTMENT ADVISER
EquitiLink Australia Limited
Level 3, 190 George Street
Sydney, NSW 2000, Australia
CONSULTANT                                        
Wood Gundy, Inc.                                  
BCE Place, P.O. Box 500                           THE FIRST
Toronto, Ontario, MSJ 258                         COMMONWEALTH
Canada                                            FUND, INC.
ADMINISTRATOR                                     ------------------------------
Princeton Administrators, L.P.                     
Box 9095                                          ANNUAL REPORT
Princeton, New Jersey 08543-9095                  OCTOBER 31, 1997
CUSTODIAN AND TRANSFER AGENT                       
State Street Bank and Trust Company               
P.O. Box 8200                                         HIGHLIGHTS OF THIS
Boston, Massachusetts 02266                                REPORT
AUCTION AGENT                                     
Chase Manhattan Bank, N.A.                        o  NAV RETURN 1.0% FOR THE
55 Water Street                                      QUARTER, 5.8% FOR THE
New York, New York 10041                             YEAR.*
INDEPENDENT ACCOUNTANTS                           o  TOTAL RETURN BASED ON
Price Waterhouse LLP                                 SHARE PRICE 3.1% FOR
1177 Avenue of the Americas                       o  THE QUARTER, 13.8% FOR
New York, New York 10036                             THE YEAR.*
LEGAL COUNSEL                                     o  CASH DISTRIBUTION RATE
Dechert Price & Rhoads                               8.1% FOR THE YEAR.
30 Rockefeller Plaza                               
New York, New York 10112                           * ASSUMING REINVESTMENT
Stikeman Elliot                                      OF DISTRIBUTIONS
L40 Chifley Tower                                  
Chifley Square                                     -------------
Sydney, NSW 2000, Australia

The shares of The First Commonwealth Fund, Inc. are traded on the New York Stock
Exchange under the symbol 'FCO'. Information about the Fund's net asset value
and market price is published weekly in Barron's and in the Monday edition of
The Wall Street Journal.
 
   For a weekly update of the Fund's net asset value and share price, or to
receive more information on the Fund, call toll-free:
 
                                 1-800-543-6217
 
  This report, including the financial information herein, is transmitted to the
shareholders of The First Commonwealth Fund, Inc. for their information. It is
not a prospectus, circular or representation intended for use in the purchase of
shares of the Fund or any securities mentioned in the report. Past performance
results should not be considered a representation of future performance.
 
The First Commonwealth Fund, Inc.
Box 9095
Princeton, NJ 08543-9095
(609) 282-4600


<PAGE>
- --------------------------------------------------------------------------------
                             LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
 
                                                                December 5, 1997
 
Dear Shareholder:
 
   We are pleased to present our Annual Report to shareholders for the year
ended October 31, 1997. The report includes a summary of developments in bond
and currency markets in Australia, Canada, New Zealand and the United Kingdom.
 
INVESTMENT MARKETS
 
   Commonwealth bond markets were stronger over the year. Markets took a
positive lead from the US market, and also benefited from supportive
developments in individual countries.
 
   This saw Australian bonds rally in response to signs of continued moderate
growth, low inflation, and further interest rate cuts, Canadian bonds rally
despite stronger economic growth and higher interest rates, New Zealand bonds
rally despite relatively high short term interest rates, and UK bonds rally in
the wake of strong economic growth and higher interest rates, reflecting
confidence about the low inflation outlook and the likelihood of eventual entry
to the single European currency.
 
   Currency movements had a mixed impact on the Fund's performance. The
Australian, New Zealand and Canadian dollars all fell against the US dollar,
while the UK pound strengthened against the US dollar.
 
   The Australian and UK markets recorded the strongest performances in local
currency terms. The UK market also recorded the best performance in US dollar
terms.
 
INVESTMENT PERFORMANCE
 
   The Fund's Net Asset Value ('NAV') increased by 1.0% for the quarter and 5.8%
for the year to October 31, 1997. The total return based on share price was 3.1%
for the quarter and 13.8% for the year. Both the NAV and share price returns
assume reinvestment of distributions.
 
   The Fund continues to maintain a high quality portfolio, with over 93% of
assets invested in securities where either the issue or the issuer are rated at
least 'AA' by Standard & Poor's Corporation or 'Aa' by Moody's Investors
Service, Inc. or, if unrated, are judged to be of equivalent quality by the
Investment Manager.
 
DISTRIBUTIONS
 
   Distributions to common shareholders for the year totalled US$1.01. This
represents a cash distribution rate of 8.1% for the year, based on the share
price on October 31, 1997 of US$12.44. As all distributions are paid after
deducting applicable Australian, Canadian, New Zealand and United Kingdom
withholding taxes, the distribution rate is higher for those US investors who
are able to claim a tax credit.
 
                                       1
<PAGE>
- --------------------------------------------------------------------------------
                  DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
- --------------------------------------------------------------------------------
 
   We invite you to participate in the Fund's Dividend Reinvestment and Cash
Purchase Plan ('the Plan'), which allows you to automatically reinvest your
distributions in shares of the Fund's common stock at favorable commission
rates. Distributions made under the Plan are taxable to the same extent as are
cash distributions. The Plan also enables you to make additional cash
investments in shares of at least $100 per month. As a Participant in the Plan,
you will also have the convenience of:
 
   AUTOMATIC REINVESTMENT -- the Plan agent will automatically reinvest your
distributions, allowing you to gradually grow your holdings in the Fund;
 
   LOWER COSTS -- shares purchased on your behalf under the Plan will be at
reduced brokerage rates;
 
   CONVENIENCE -- the Plan Agent will hold your shares in uncertificated form
and will provide a detailed record of your holdings at the end of each
distribution period.
 
   If you would like further information on the Plan, please contact State
Street Bank and Trust Company, P.O. Box 8200, Boston, MA 02266, Tel:
1-800-426-5523.
 
   For information on the Fund including weekly updates of share price, NAV, and
details of recent distributions, please telephone investor relations, toll free
on 1-800-543-6217 in the United States.
 
Yours sincerely,
 

/s/ Brian M. Sherman                                /s/ Laurence S. Freedman

Brian M. Sherman                                    Laurence S. Freedman
Chairman                                            President

 
                                       2
<PAGE>
- --------------------------------------------------------------------------------
                        REPORT OF THE INVESTMENT MANAGER
- --------------------------------------------------------------------------------
 
PERFORMANCE
 
DISTRIBUTIONS
 
   The Fund continues to pay a monthly cash distribution of US 8.25 cents per
share. This distribution rate was re-affirmed at the December meeting of the
Board of Directors ('the Board'). The Board reviews the level of the
distributions on a regular basis with the next review scheduled for the Board
meeting to be held in March 1998. The Board's policy is to provide investors
with a stable monthly distribution out of current income and to supplement this
with realized capital gains if required.
 
   Distributions to common shareholders over the past 12 months totalled
US$1.01, consisting of 12 payments of US 8.25 cents per share and a special
payment of US 2 cents per share in January 1997. Based on the October 31, 1997
share price of US$12.44 and total distributions of US$1.01 paid over the 12
months to that date, this represents an annual cash distribution rate of 8.1%.
Since all distributions are paid after deducting applicable Australian,
Canadian, New Zealand and United Kingdom withholding taxes, the distribution
rate is higher for those US investors who are able to claim a tax credit.
 
NET ASSET VALUE (NAV) PERFORMANCE
 
   The Net Asset Value per share at October 31, 1997 was US$13.94. Assuming
reinvestment of distributions, the Fund's NAV increased 1.0% over the quarter
and 5.8% over the year to October 31, 1997. Since inception, the Fund has
returned 9.4% per annum. At the date of this report, the NAV per share was
US$13.43.
 
SHARE PRICE PERFORMANCE
 
   As of October 31, 1997, the share price as quoted on the New York Stock
Exchange was US$12.44, which represented a discount of 10.78% to the NAV of
US$13.94. The total investment return, based on the Fund's share price, assuming
reinvestment of distributions, was 3.1% over the quarter and 13.8% over the year
to October 31, 1997. At the date of this report, the share price was US$12.50,
representing a discount of 6.92% to NAV.
 
AUCTION MARKET PREFERRED STOCK (AMPS)
 
   The Fund's US$30 million of AMPS continue to be well bid at the weekly
auctions, maintaining a lower interest rate on average compared to the 30-day
Commercial Paper rate. Weighted average auction results were 5.39% for the three
months ended October 31, 1997 compared with 5.54% for 30-day commercial paper
over the same period.
 
                                       3
<PAGE>
PORTFOLIO COMPOSITION
 
   The following table and chart show the geographical composition of the
portfolio, expressed as a percentage of the portfolio's total investments. The
figures are based on the currencies in which the portfolio is invested.

   TABLE 1: THE FIRST COMMONWEALTH FUND, INC. -- GEOGRAPHIC ASSET ALLOCATION
 

<TABLE>
<CAPTION>

                       COMMENCEMENT OF OPERATIONS*      OCTOBER 31, 1996        JULY 31, 1997       OCTOBER 31, 1997
<S>                    <C>                              <C>                     <C>                 <C>

 Australia                      44.7%                        30.5%                 31.4%                 25.7%
 Canada                         17.9%                        34.5%                 29.0%                 29.8%
 New Zealand                     --                           9.5%                  7.4%                 10.0%
 United Kingdom                 36.4%                        24.1%                 31.7%                 33.7%
 United States**                 1.0%                         1.4%                  0.5%                  0.8%
 TOTAL FUND                    100.0%                       100.0%                100.0%                100.0%
</TABLE>

 
 *February 28, 1992
**It is the policy of the Investment Manager to maintain a portion of the Fund's
  investments in US short-term securities to cover distribution payments and
  expenses.
                       THE FIRST COMMONWEALTH FUND, INC.
                      ASSET ALLOCATION AT OCTOBER 31, 1997
 
                                     [PIE CHART]

                            Canada              29.8%
                            New Zealand         10.0%
                            United Kingdom      33.7%
                            United States        0.8%
                            Australia           25.7%
 
                                       4
<PAGE>
MATURITY COMPOSITION
 
   The following table shows the maturity composition of the portfolio as of
October 31, 1997. At October 31, 1997, the average maturity of the Fund's assets
was 7.4 years, compared with 7.2 years at July 31, 1997 and 7.1 years at October
31, 1996. Overall, the Fund remains well positioned in medium to long term
maturities in each market.

 TABLE 2: THE FIRST COMMONWEALTH FUND, INC. -- MATURITY ANALYSIS -- 
                          OCTOBER 31, 1997
 
<TABLE>
<CAPTION>
                      LESS THAN 1 YEAR        1 - 5 YEARS         5 - 10 YEARS        OVER 10 YEARS
<S>                   <C>                     <C>                 <C>                 <C>

 Australia                     6.7%                42.2%                41.1%               10.0%
 Canada                        8.2%                45.6%                14.4%               31.8%
 New Zealand                  18.7%                35.4%                45.9%                --
 United Kingdom                7.1%                10.2%                52.6%               30.1%
 United States               100.0%                 --                   --                  --
 TOTAL FUND                    9.2%                31.4%                37.2%               22.2%
</TABLE>

 
   The following table shows the sectoral exposure of the portfolio, spread
between the various securities offered in the Commonwealth bond markets.

 TABLE 3: THE FIRST COMMONWEALTH FUND, INC. -- SECTORAL COMPOSITION -- 
                             OCTOBER 31, 1997
 
<TABLE>
<CAPTION>

                     SOVEREIGN GOVT. STATE/ PROVINCE                                        CASH OR
                          BONDS           BONDS          EUROBONDS     CORPORATE BONDS    EQUIVALENT
<S>                       <C>             <C>            <C>           <C>                <C>

 Australia                  12.6%            2.2%             6.8%             3.8%             0.3%
 Canada                     14.0%            4.4%             8.1%             1.8%             1.5%
 New Zealand                 5.5%             --              2.4%             1.0%             1.1%
 United Kingdom             17.4%             --             15.0%              --              1.3%
 United States                --              --               --               --              0.8%
 TOTAL FUND                 49.5%            6.6%            32.3%             6.6%             5.0%
</TABLE>

 
                                       5
<PAGE>
QUALITY OF INVESTMENTS
 
   At October 31, 1997, over 93% of the Fund's assets were invested in
securities where either the issue or the issuer was rated at least 'AA' by
Standard & Poor's or 'Aa' by Moody's Investors Service, Inc., or if unrated,
were judged to be of equivalent quality by the Investment Manager. The remainder
of the Fund was invested in securities where the issue or the issuer was rated,
or deemed at least equivalent to, 'A' quality.

TABLE 4: THE FIRST COMMONWEALTH FUND, INC. -- ASSET QUALITY -- OCTOBER 31, 1997
 

                             AAA/AAA              AA/AA               A/A
 Australia                     73.3%               25.8%               0.9%
 Canada                         8.8%               85.1%               6.1%
 New Zealand                   75.4%               16.0%               8.6%
 United Kingdom                53.7%               34.3%              12.0%
 TOTAL FUND                    47.5%               45.5%               7.0%

 
                       THE FIRST COMMONWEALTH FUND, INC.
                     QUALITY OF ASSETS AT OCTOBER 31, 1997


              [A PIE CHART ILLUSTRATING THE FOLLOWING PERCENTAGES:]

                        AAA/Aaa             47.5%
                        AA/Aa               45.5%
                        A/A                  7.0%
 
                                       6
<PAGE>
- --------------------------------------------------------------------------------
               ECONOMIC, FIXED-INCOME AND CURRENCY MARKET REVIEW
- --------------------------------------------------------------------------------
 
AUSTRALIA
 
Economy
 
   Recent economic data for Australia indicates some pick-up in activity with
low inflation, although unemployment remains high. Forward indicators point to
further strength in 1998. In the Manager's opinion growth should be supported by
continued low interest rates. However, the fall-out from the problems in South
East Asia is likely to lower the growth outlook over the next year or so. The
Manager expects that Australia's inflation will remain below 2% for most of
1998.
 
Fixed Income
 
   The Australian bond market was one of the strongest performing global markets
over the year. The market was supported by a continuation of moderate economic
growth, low inflation, cuts in official interest rates and a generally positive
US bond market. Australian ten year bond yields fell from 7.35% to a low of
5.96%. The differential between Australian ten year government bond rates and US
ten year government bond rates fell from 1.01% to 0.13% over the period.
 
Currency
 
   The Australian dollar was generally weaker over the year, depreciating by
11.5% against the US dollar to US 70 cents. In trade weighted terms, the
Australian dollar fell by 2.6%. The depreciation against major currencies
reflected concerns about weaker commodity prices, expectations of further cuts
in official interest rates and, more recently, the impact of economic and
financial instability in South East Asia. On the date of this report, the dollar
was trading at US 67 cents.
 
CANADA
 
Economy
 
   The Canadian economy picked up strongly over the year, reflecting the earlier
cuts in official interest rates and the strength of the US economy. The
unemployment rate declined from 10.0% in late 1996 to 9.1% in October 1997. As
yet, there have been few signs of any inflationary pressures with the CPI at
1.6% in the year to September. The Manager expects that economic growth will
continue to remain strong though 1998, supported by domestic demand. Inflation
should remain within the Bank of Canada's 1% to 3% target range.
 
Fixed Income
 
   Canadian bond markets strengthened over the year with ten year bond yields
falling from 6.42% to 5.49%. The differential against ten year US treasuries
fell by 0.26% to be 0.34% below the US bond rate. The Canadian market was
supported by continued low inflation, an improving fiscal position and the
positive US bond market. These factors more than offset market concerns flowing
from stronger economic growth and higher official interest rates.
 
Currency
 
   The Canadian dollar depreciated by 4.7% against the US dollar over the year,
but strengthened against other major currencies, including the Deutschemark and
the Yen. At the end of October, the currency was trading at
US 71 cents. On the date of this report, the dollar was trading at US 70 cents.
 
NEW ZEALAND
 
Economy
 
   The New Zealand economy has strengthened after slowing sharply in early 1997
and inflation remains low. Recent economic indicators have been mixed with
figures showing a rise in unemployment. The Manager expects that the economy
will pick-up again in 1998, supported by the recent easing in overall monetary
conditions, although the extent of a pick-up may be tempered by the fall out
from the problems in South East Asia. Inflation should remain below the top end
of the Reserve Bank of New Zealand's 0% to 3% target range.
 
                                       7
<PAGE>
Fixed Income
 
   Over the year to October 31, 1997, New Zealand ten year government bond rates
fell from 7.29% to 6.54%. Despite more positive global market developments, the
New Zealand bond market was constrained by relatively high short term interest
rates reflecting official concerns about the weaker New Zealand dollar. At the
end of October, 90 day bank bills were 7.84%.
 
Currency
 
   The New Zealand dollar depreciated by 11.7% against the US dollar over the
year to October 31, 1997. The depreciation reflected the slowing in economic
growth and expectations of lower short term interest rates. At the end of
October, the currency was trading at US 62 cents. On the date of this report,
the New Zealand dollar was trading at US 60 cents.
 
UNITED KINGDOM
 
Economy
 
   UK economic growth was the strongest among the major European economies over
the year. Headline inflation rose to 3.6%, while core inflation remains at a
little over the Bank of England's 2.5% inflation target. Currency strength is
helping to restrain price pressures. The Manager expects that growth will slow
in 1998, reflecting higher interest rates and loss of competitiveness flowing
from the strong pound. Inflation may increase slightly.
 
Fixed Income
 
   The Gilt market was strong over the year to October 31, 1997. Ten year bond
yields fell from 7.62% to 6.54% during the year. Despite increases in official
interest rates, bond markets focused more on the lower longer term outlook for
inflation and the prospects for eventual UK entry into the European single
currency.
 
Currency
 
   The pound appreciated by 2.9% against the US dollar over the year helped by
strong UK economic growth and higher interest rates. The appreciation was more
pronounced against other major currencies, especially the Deutschemark. At the
end of October, the Pound was trading at US$1.67. On the date of this report,
the Pound was trading at US$1.65.
 
   The following table compares interest rates in Commonwealth countries' for
various periods since the Fund commenced operations.
 
<TABLE>
<CAPTION>

                                FEBRUARY 28, 1992
                                 (COMMENCEMENT
                                OF OPERATIONS)       OCTOBER 31, 1996        JULY 30, 1997       OCTOBER 31, 1997
<S>                            <C>                   <C>                 <C>                    <C>

 AUSTRALIA:
   90-day Bank Bills                   7.49%                 6.53%                 4.85%                 4.84%
   10-yr Government Bonds             10.14%                 7.35%                 6.34%                 5.96%
 CANADA:
   90-day Bank Bills                   7.15%                 3.11%                 3.24%                 3.97%
   10-yr Government Bonds              8.33%                 6.42%                 5.77%                 5.49%
 NEW ZEALAND:
   90-day Bank Bills                   7.48%                 8.84%                 7.94%                 7.84%
   10-yr Government Bonds              9.23%                 7.29%                 6.66%                 6.54%
 UNITED KINGDOM:
   90-day Bank Bills                  10.85%                 5.87%                 6.81%                 7.05%
   10-yr Government Bonds              9.26%                 7.62%                 6.96%                 6.54%
</TABLE>
 
Yield comparisons are direct and do not take into account fluctuations in
currency exchange rates.
 
                                   EQUITILINK INTERNATIONAL MANAGEMENT LIMITED
 

                                       8

<PAGE>

- -----------------------------------------------------------
PRINCIPAL                                         
 AMOUNT                                           
 LOCAL                                            
CURRENCY                                              VALUE
 (000)                DESCRIPTION                     (US$)
- -----------------------------------------------------------


             LONG-TERM INVESTMENTS - 92.5%
             AUSTRALIA - 24.7%
             GOVERNMENT AND SEMI-GOVERNMENT
             BONDS - 14.4%
             COMMONWEALTH OF AUSTRALIA - 12.3%
             Commonwealth of Australia,
  A$   2,000  12.00%, 7/15/99.................    1,560,005
       5,000  13.00%, 7/15/00.................    4,180,063
       3,000  10.00%, 10/15/02................    2,496,471
       1,000  9.00%, 9/15/04..................      825,498
       2,000  7.50%, 7/15/05..................    1,540,798
       4,000  10.00%, 2/15/06.................    3,537,246
       1,600  10.00%, 10/15/07................    1,454,827
       1,000  8.75%, 8/15/08..................      851,365
       4,000  7.50%, 9/15/09..................    3,145,527
                                               ------------
                                                 19,591,800
                                               ------------
             QUEENSLAND - 0.5%
             Queensland Treasury Corporation,
       1,000  8.00%, 9/14/07..................      793,038
                                               ------------
             SOUTH AUSTRALIA - 0.5%
             South Australia Finance
              Authority,
       1,000  12.50%, 10/15/00................      835,166
                                               ------------
             VICTORIA - 0.6%
             Treasury Corporation of
              Victoria,
       1,000  10.25%, 11/15/06................      896,691
                                               ------------
             WESTERN AUSTRALIA - 0.5%
             Western Australia Treasury
              Corporation,
       1,000  10.00%, 7/15/05.................      868,456
                                               ------------
             Total Australian government and
              semi-government bonds (cost
              US$23,457,842)..................   22,985,151
                                               ------------
             CORPORATE BONDS - 3.7%
             SERVICES - 3.7%
             Australian and Overseas
              Telecommunications Corporation,
       2,000  11.50%, 10/15/02................    1,732,171
       2,000  12.00%, 5/15/06.................    1,930,274
             First Australian National
              Mortgage
              Acceptance Corporation,
              Ser ies 22,
       2,884  11.40%, 12/15/01................    2,291,983
                                               ------------
             Total Australian corporate bonds
              (cost US$5,622,841).............    5,954,428
                                               ------------
 
             EUROBONDS - 6.6%
             FINANCIAL SERVICES - 4.0%
             Commonwealth Bank of Australia,
   A$    975  12.75%, 1/07/98.................      692,018
             Credit Local de France,
       2,000  10.50%, 1/06/99.................    1,484,368
             Export Finance & Insurance
              Corporation,
       1,750  11.00%, 12/29/04................    1,557,973
             Ing Mercantile Mutual Bank Ltd.,
         500  7.125%, 3/13/02.................      365,834
             State Bank of New South Wales,
       1,000  10.50%, 4/30/99.................      751,823
             Toyota Motor Credit Corporation,
       2,000  10.75%, 3/06/98.................    1,426,535
                                               ------------
                                                  6,278,551
                                               ------------
             SEMI-GOVERNMENT - 0.8%
             South Australia Finance
              Authority,
         500  12.50%, 5/08/01.................      423,369
             Treasury Corporation of
              Victoria,
       1,000  9.00%, 6/27/05..................      819,294
                                               ------------
                                                  1,242,663
                                               ------------
             SERVICES - 0.7%
             State Electricity Commission of
              Victoria,
         972  9.25%, 7/27/99..................      725,661
         535  10.50%, 5/27/03.................      451,917
                                               ------------
                                                  1,177,578
                                               ------------
             SUPRANATIONAL - 1.1%
             Eurofima,
       2,000  9.875%, 1/17/07.................    1,756,005
                                               ------------
             Total Australian eurobonds
              (cost US$10,587,525)............   10,454,797
                                               ------------
             Total Australian long-term
              investments
              (cost US$39,668,208)............   39,394,376
                                               ------------

 
                                       9
<PAGE>
 

- -----------------------------------------------------------
PRINCIPAL                                         
 AMOUNT                                           
 LOCAL                                            
CURRENCY                                              VALUE
 (000)                DESCRIPTION                     (US$)
- -----------------------------------------------------------

             CANADA - 27.6%
             GOVERNMENT, PROVINCIAL AND MUNICIPAL
             BONDS - 17.9%
             CANADA - 13.6%
             Canadian Government,
  C$   3,000  7.50%, 3/01/01..................    2,301,621
       5,000  9.75%, 12/01/01.................    4,171,288
       5,000  8.50%, 4/01/02..................    4,041,169
       5,000  7.25%, 6/01/03..................    3,911,050
       5,000  10.25%, 3/15/14.................    5,202,645
       2,000  9.00%, 6/01/25..................    1,991,468
                                               ------------
                                                 21,619,241
                                               ------------
             ALBERTA - 1.7%
             City of Edmonton,
       1,000  9.625%, 2/13/12.................      953,712
             Province of Alber ta,
       2,000  10.25%, 8/22/01.................    1,677,190
                                               ------------
                                                  2,630,902
                                               ------------
             BRITISH COLUMBIA - 1.1%
             Province of British Columbia,
       1,000  10.15%, 8/29/01.................      835,182
       1,000  9.50%, 1/09/12..................      956,200
                                               ------------
                                                  1,791,382
                                               ------------
             ONTARIO - 1.5%
             Province of Ontario,
       1,000  8.75%, 4/22/03..................      827,005
       2,000  7.50%, 2/07/24..................    1,630,048
                                               ------------
                                                  2,457,053
                                               ------------
             Total Canadian government,
              provincial and municipal bonds
              (cost US$28,068,415)............   28,498,578
                                               ------------
             CORPORATE BONDS - 1.8%
             DIVERSIFIED INDUSTRIALS - 0.8%
             Bell Telephone Company of Canada,
         500  10.50%, 7/15/09.................      430,176
             Imperial Oil Ltd.,
       1,000  9.875%, 12/15/99................      781,783
                                               ------------
                                                  1,211,959
                                               ------------
 
             FINANCIAL SERVICES - 1.0%
             Bank of Nova Scotia,
  C$   1,000  10.35%, 7/19/01.................      831,129
             National Bank of Canada,
         500  10.875%, 6/01/98................      368,281
             Toronto Dominion Centre,
         500  10.70%, 5/12/98.................      366,788
                                               ------------
                                                  1,566,198
                                               ------------
             Total Canadian corporate bonds
              (cost US$3,103,827).............    2,778,157
                                               ------------
             EUROBONDS - 7.9%
             DIVERSIFIED INDUSTRIALS - 0.3%
             Procter & Gamble Company,
         500  10.875%, 8/15/01................      420,400
                                               ------------
             FINANCIAL SERVICES - 2.4%
             Credit Local de France,
       1,000  6.75%, 3/21/06..................      751,031
             General Electric Capital
              Corporation,
       1,000  10.125%, 4/29/98................      730,589
             International Bank for
              Reconstruction
              and Development,
       2,000  10.125%, 7/20/99................    1,549,758
             Rabobank Nederland N.V.,
       1,000  9.00%, 12/22/00.................      787,472
                                               ------------
                                                  3,818,850
                                               ------------
             NATURAL RESOURCES - 1.8%
             Ontario Hydro,
       1,000  9.00%, 6/24/02..................      819,468
         500  8.50%, 5/26/25..................      455,987
             Quebec Hydro,
       1,500  7.00%, 6/01/04..................    1,149,211
             Tokyo Electric Power Company,
         500  10.50%, 6/14/01.................      413,733
                                               ------------
                                                  2,838,399
                                               ------------
             PROVINCIAL AND MUNICIPAL - 0.8%
             City of Montreal,
       1,000  6.375%, 2/15/01.................      732,366
             Metropolitan Municipality of
              Toronto,
         750  9.625%, 5/14/02.................      621,267
                                               ------------
                                                  1,353,633
                                               ------------
 
                                       10
<PAGE>
 

- -----------------------------------------------------------
PRINCIPAL                                         
 AMOUNT                                           
 LOCAL                                            
CURRENCY                                              VALUE
 (000)                DESCRIPTION                     (US$)
- -----------------------------------------------------------

 
             SUPRANATIONAL - 2.6%
             Bayerische Vereinsbank AG,
   C$    500  7.125%, 7/29/99.................      368,849
             Canada (Cayman),
         750  7.25%, 6/01/08..................      584,604
             Kingdom of Sweden,
       3,250  7.00%, 12/01/08.................    2,485,104
             Republic of Finland,
       1,000  9.00%, 12/31/98.................      744,760
                                               ------------
                                                  4,183,317
                                               ------------
             Total Canadian eurobonds
              (cost US$12,387,521)............   12,614,599
                                               ------------
             Total Canadian long-term
              investments
              (cost US$43,559,763)............   43,891,334
                                               ------------
             NEW ZEALAND - 8.7%
             GOVER NMENT BONDS - 5.3%
             Government of New Zealand,
  NZ$  2,500  10.00%, 3/15/02.................    1,744,955
       5,000  8.00%, 4/15/04..................    3,329,320
       5,000  8.00%, 11/15/06.................    3,414,915
                                               ------------
             Total New Zealand government
              bonds
              (cost US$8,698,771).............    8,489,190
                                               ------------
             CORPORATE BONDS - 1.0%
             DIVERSIFIED INDUSTRIALS - 0.8%
             Electricity Corporation of
              New Zealand Ltd.,
       1,750  10.00%, 10/15/01................    1,184,710
                                               ------------
             FINANCIAL SERVICES - 0.2%
             Transpower Finance Ltd.,
         500  8.00%, 6/15/05..................      325,143
                                               ------------
             Total New Zealand corporate bonds
              (cost US$1,493,950).............   1,50 9,853
                                               ------------
             EUROBONDS - 2.4%
             FINANCIAL SERVICES - 2.4%
             International Bank for
              Reconstruction
              and Development,
       2,000  9.00%, 7/08/99..................    1,270,920
       1,000  7.00%, 9/18/00..................      619,885
             Primary Industry Bank of
              Australia Limited,
       1,000  8.25%, 3/27/00..................      633,124
 
             Societe Generale New Zealand,
  NZ$  2,000  9.00%, 5/29/98..................    1,249,115
                                               ------------
             Total New Zealand eurobonds
              (cost US$4,095,645).............    3,773,044
                                               ------------
             Total New Zealand long-term
              investments
              (cost US$14,288,366)............   13,772,087
                                               ------------
             UNITED KINGDOM - 31.5%
             GOVERNMENT BONDS - 16.9%
             United Kingdom Treasury,
       1,000  8.00%, 12/07/00.................    1,728,136
       2,000  8.00%, 6/10/03..................    3,556,104
       2,000  6.75%, 11/26/04.................    3,377,345
       2,000  7.50%, 12/07/06.................    3,555,843
       5,000  8.50%, 7/16/07..................    9,484,818
       2,700  8.00%, 12/07/15.................    5,230,468
                                               ------------
             Total United Kingdom government
              bonds
              (cost US$24,367,165)............   26,932,714
                                               ------------
             EUROBONDS - 14.6%
             DIVERSIFIED INDUSTRIALS - 3.8%
             Allied Domecq PLC,
       1,000  10.625%, 2/25/99................    1,735,323
             British Airways PLC,
         500  10.00%, 3/02/98.................      841,527
             British Gas PLC,
       1,400  8.875%, 7/08/08.................    2,602,147
             Rolls-Royce PLC,
         500  11.625%, 7/30/98................      858,253
                                               ------------
                                                  6,037,250
                                               ------------
             FINANCIAL SERVICES - 6.9%
             Abbey National Treasury
              Services PLC,
       1,250  8.00%, 4/02/03..................    2,163,926
             Barclays Bank PLC,
       1,000  9.875%, 5/29/49.................    1,952,761
             Halifax Building Society,
       1,500  11.00%, 1/17/14.................    3,330,565
 
                                       11
<PAGE>
 

- -----------------------------------------------------------
PRINCIPAL                                         
 AMOUNT                                           
 LOCAL                                            
CURRENCY                                              VALUE
 (000)                DESCRIPTION                     (US$)
- -----------------------------------------------------------

 
             Lloyds Bank PLC,
       1,000  7.375%, 3/11/04.................    1,687,235
             Prudential Finance B.V.,
       1,000  9.375%, 6/04/07.................    1,923,490
                                               ------------
                                                 11,057,977
                                               ------------
             NATURAL RESOURCES - 1.2%
             Thames Water Utilities
              Finance PLC,
       1,000  10.50%, 11/21/01................    1,848,223
                                               ------------
             SUPRANATIONAL - 2.7%
             Republic of Finland,
       1,000  8.00%, 4/07/03..................    1,739,504
       1,250  10.125%, 6/22/08................    2,579,463
                                               ------------
                                                  4,318,967
                                               ------------
             Total United Kingdom eurobonds
              (cost US$20,463,021)............   23,262,417
                                               ------------
             Total United Kingdom long-term
              investments
              (cost US$44,830,186)............   50,195,131
                                               ------------
             Total long-term investments
              (cost US$142,346,523)...........  147,252,928
                                               ------------
             SHORT-TERM INVESTMENTS - 4.9%
             AUSTRALIA - 0.3%
             Banque National de Paris Fixed
              Deposit,
              4.60%, 11/03/97
   A$    782  (cost US$547,857)...............      547,857
                                               ------------
 
             CANADA - 1.5%
             State Street Bank Time Deposit,
              3.00%, 11/05/97
  C$   3,260  (cost US$2,311,448).............    2,318,022
                                               ------------
             NEW ZEALAND - 1.0%
             Bankers Trust New Zealand
              Limited Call Account,
  NZ$  2,630  7.90%, 11/03/97
              (cost US$1,674,028).............    1,638,520
                                               ------------
             UNITED KINGDOM - 1.3%
             State Street Bank Fixed Deposit,
              7.50%, 11/07/97
       1,201  (cost US$2,000,849).............    2,008,052
                                               ------------
             UNITED STATES - 0.8%
  US$  1,204 Repurchase Agreement, State
              Street Bank and Trust
              Company, 5.40% dated
              10/31/97, due 11/03/97 in the
              amount of $1,204,542
              (cost $1,204,000;
              collateralized by $935,000
              U.S. Treasury Bonds, 8.75%
              due 2/15/19; value
              $1,234,323).....................    1,204,000
                                               ------------
             Total short-term investments
              (cost US$7,738,182).............    7,716,451
                                               ------------
             TOTAL INVESTMENTS - 97.4%
              (cost US$150,084,705)........... 154,9 69,379
             Unrealized depreciation on foreign
              currency exchange contracts-0.0%+        (135)
             Other assets in excess of
              liabilities - 2.6%..............    4,188,561
                                               ------------
             TOTAL NET ASSETS - 100.0%........ $159,157,805
                                               ------------
                                               ------------
 
- -------------------------------------------------------------------------------
I FOREIGN CURRENCY EXCHANGE CONTRACTS AS OF OCTOBER 31, 1997:
 

- -------------------------------------------------------------------------------
   CURRENCY         CURRENCY        EXPIRATION
   PURCHASED          SOLD             DATE             COST             VALUE
- -------------------------------------------------------------------------------
 United States     Australian        November
    dollar           dollar            1997           $105,150         $105,015
- -------------------------------------------------------------------------------

 
See Notes to Financial Statements.
 
                                       12
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
 
<TABLE>

<S>                                                                                       <C>
ASSETS
Investments, at value (cost $150,084,705)..............................................   $154,969,379
Foreign currency, at value (cost $701).................................................            701
Cash...................................................................................            213
Receivable for investments sold........................................................        882,857
Interest receivable....................................................................      4,362,307
Prepaid expenses.......................................................................         27,800
                                                                                          ------------
 Total assets..........................................................................    160,243,257
                                                                                          ------------
LIABILITIES
Dividends payable - common stock.......................................................        764,462
Investment management fee payable......................................................         99,833
Administration fee payable.............................................................         30,718
Unrealized depreciation on foreign currency exchange contracts.........................            135
Accrued expenses and other liabilities.................................................        190,304
                                                                                          ------------
 Total liabilities.....................................................................      1,085,452
                                                                                          ------------
TOTAL NET ASSETS.......................................................................   $159,157,805
                                                                                          ------------
                                                                                          ------------
Total net assets were composed of:
Common stock:
 Par value ($.001 per share, applicable to 9,266,209 shares issued)....................   $      9,266
 Paid-in capital in excess of par......................................................    127,309,915
Preferred stock ($.001 par value per share and $25,000 liquidation value per share
 applicable to 1,200 shares; Note 4)...................................................     30,000,000
                                                                                          ------------
                                                                                           157,319,181
Undistributed net investment income....................................................        497,862
Accumulated net realized losses on investment transactions.............................        (34,763)
Net unrealized appreciation on investments.............................................      9,236,494
Accumulated net realized foreign exchange losses.......................................     (3,460,165)
Net unrealized foreign exchange losses.................................................     (4,400,804)
                                                                                          ------------
TOTAL NET ASSETS.......................................................................   $159,157,805
                                                                                          ------------
                                                                                          ------------
Net assets applicable to common shareholders...........................................   $129,157,805
                                                                                          ------------
                                                                                          ------------
Net asset value per common share ($129,157,805 L 9,266,209 shares of common stock
 issued and outstanding)...............................................................   $      13.94
                                                                                          ------------
                                                                                          ------------
</TABLE>

 
See Notes to Financial Statements.
 
                                       13
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S>                                                                                        <C>

NET INVESTMENT INCOME
Income
 Interest and discount earned (net of foreign withholding taxes of $291,425)............   $12,660,021
                                                                                           -----------
Expenses
 Investment management fee..............................................................     1,043,461
 Administration fee.....................................................................       321,065
 Custodian's fees and expenses..........................................................       141,379
 Independent accountant's fees and expenses.............................................       126,550
 Reports to shareholders................................................................       114,050
 Directors' fees and expenses...........................................................        94,810
 Auction agent's fees and expenses......................................................        90,939
 Insurance expense .....................................................................        49,040
 Excise tax ............................................................................        39,350
 Legal fees and expenses................................................................        27,501
 Transfer agent's fees and expenses.....................................................        23,402
 Registration fees......................................................................        16,170
 Amortization of deferred organization expenses.........................................         8,980
 Miscellaneous..........................................................................        20,203
                                                                                           -----------
   Total operating expenses.............................................................     2,116,900
                                                                                           -----------
Net investment income...................................................................    10,543,121
                                                                                           -----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCIES
 Net realized gains on investment transactions..........................................       137,489
 Net change in unrealized appreciation/depreciation on investments......................     4,973,642
                                                                                           -----------
 Net gains on investments...............................................................     5,111,131
                                                                                           -----------
 Net increase in total net assets resulting from operations before net foreign exchange
 losses                                                                                     15,654,252
 Net realized foreign exchange losses...................................................       (92,892)
 Net change in unrealized foreign exchange losses.......................................    (8,120,845)
                                                                                           -----------
NET INCREASE IN TOTAL NET ASSETS
 RESULTING FROM OPERATIONS..............................................................   $ 7,440,515
                                                                                           -----------
                                                                                           -----------
</TABLE>
 
See Notes to Financial Statements.
 
                                       14
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S>                                                                                        <C>

INCREASE (DECREASE) IN CASH
 (INCLUDING FOREIGN CURRENCY)
Cash flows provided by operating activities
 Interest received.....................................................................   $ 12,618,047
 Operating expenses paid...............................................................     (2,114,235)
 Sales of short-term portfolio investments, net........................................      2,929,587
 Purchases of long-term portfolio investments..........................................    (37,231,967)
 Proceeds from sales of long-term portfolio investments................................     34,726,093
 Other.................................................................................         22,811
                                                                                          ------------
   Net cash provided by operating activities...........................................     10,950,336
                                                                                          ------------
Cash flows used for financing activities
 Dividends paid to common shareholders.................................................     (9,358,242)
 Dividends paid to preferred shareholders..............................................     (1,584,660)
                                                                                          ------------
   Net cash used for financing activities..............................................    (10,942,902)
                                                                                          ------------
Effect of exchange rate on cash........................................................         (7,378)
                                                                                          ------------
Net increase in cash...................................................................             56
 Cash at beginning of year.............................................................            858
                                                                                          ------------
 Cash at end of year...................................................................   $        914
                                                                                          ------------
                                                                                          ------------
 
RECONCILIATION OF NET INCREASE IN TOTAL NET ASSETS RESULTING FROM OPERATIONS TO NET
   CASH (INCLUDING FOREIGN CURRENCY) PROVIDED BY OPERATING ACTIVITIES
Net increase in total net assets resulting from operations.............................   $  7,440,515
                                                                                          ------------
 Decrease in investments...............................................................      6,024,411
 Net realized gains on investment transactions.........................................       (137,489)
 Net realized foreign exchange losses..................................................         92,892
 Net change in unrealized appreciation/depreciation on investments.....................     (4,973,642)
 Net change in unrealized foreign exchange losses......................................      8,120,845
 Decrease in interest receivable.......................................................         33,945
 Increase in receivable for investments sold...........................................       (883,315)
 Net decrease in other assets..........................................................         22,811
 Decrease in payable for investments purchased.........................................     (4,793,302)
 Increase in accrued expenses and other liabilities....................................          2,665
                                                                                          ------------
 Total adjustments.....................................................................      3,509,821
                                                                                          ------------
Net cash provided by operating activities..............................................   $ 10,950,336
                                                                                          ------------
                                                                                          ------------
</TABLE>
 
See Notes to Financial Statements.
 
                                       15
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>

                                                                           FOR THE YEAR    FOR THE YEAR
                                                                              ENDED           ENDED
                                                                           OCTOBER 31,     OCTOBER 31,
                                                                               1997            1996
                                                                           ------------    ------------
<S>                                                                        <C>             <C>

INCREASE (DECREASE) IN TOTAL NET ASSETS
Operations
 Net investment income..................................................   $ 10,543,121    $ 10,730,813
 Net realized gains on investment transactions..........................        137,489          11,273
 Net change in unrealized appreciation/depreciation on investments......      4,973,642       6,534,459
                                                                           ------------    ------------
 Net increase in total net assets resulting from operations before net
   foreign exchange gains/losses........................................     15,654,252      17,276,545
 Net realized foreign exchange gains/losses.............................        (92,892)      2,342,176
 Net change in unrealized foreign exchange gains/losses.................     (8,120,845)      2,299,515
                                                                           ------------    ------------
 Net increase in total net assets resulting from operations.............      7,440,515      21,918,236
                                                                           ------------    ------------
Dividends and distributions to shareholders
 Dividends to common shareholders from net investment income............     (9,219,249)     (9,286,969)
 Dividends to preferred shareholders from net investment income.........     (1,584,660)     (1,521,962)
 Distributions to common shareholders from net realized gains on
   investment transactions..............................................       (138,993)        (71,323)
 Distributions to preferred shareholders from net realized gains on
   investment transactions..............................................             --         (32,188)
                                                                           ------------    ------------
Net decrease in total net assets resulting from dividends and
 distributions to shareholders..........................................    (10,942,902)    (10,912,442)
                                                                           ------------    ------------
Total increase (decrease)...............................................     (3,502,387)     11,005,794
TOTAL NET ASSETS
Beginning of year.......................................................    162,660,192     151,654,398
                                                                           ------------    ------------
End of year (including undistributed net investment income of $497,862
   and $1,245,897, respectively)........................................   $159,157,805    $162,660,192
                                                                           ------------    ------------
                                                                           ------------    ------------

 
See Notes to Financial Statements.
 
                                       16
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
 

</TABLE>
<TABLE>
<CAPTION>

                                                                         FOR THE YEAR ENDED OCTOBER 31,
                                                            --------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:                              1997        1996        1995        1994        1993
                                                            --------    --------    --------    --------    --------
<S>                                                         <C>         <C>         <C>         <C>         <C>

Net asset value per common share, beginning of year......   $  14.32    $  13.13    $  12.08    $  13.42    $  13.00
                                                            --------    --------    --------    --------    --------
Net investment income....................................       1.14        1.16        1.19        1.16        1.19
Net realized and unrealized gains (losses) on investments
 and foreign currencies..................................      (0.34)       1.21        1.10       (1.33)       0.55
                                                            --------    --------    --------    --------    --------
 Total from investment operations........................       0.80        2.37        2.29       (0.17)       1.74
                                                            --------    --------    --------    --------    --------
Dividends from net investment income to common
 shareholders............................................      (0.99)      (1.00)      (1.03)      (0.98)      (0.96)
Dividends from net investment income to preferred
 shareholders............................................      (0.17)      (0.16)      (0.18)      (0.11)      (0.08)
Distributions from net realized gains on investment
 transactions to common shareholders.....................      (0.02)      (0.01)      (0.03)      (0.07)      (0.26)
Distributions from net realized gains on investment
 transactions to preferred shareholders..................         --       (0.01)      --          (0.01)      (0.02)
                                                            --------    --------    --------    --------    --------
 Total dividends and distributions.......................      (1.18)      (1.18)      (1.24)      (1.17)      (1.32)
                                                            --------    --------    --------    --------    --------
Net asset value per common share, end of year............   $  13.94    $  14.32    $  13.13    $  12.08    $  13.42
                                                            --------    --------    --------    --------    --------
                                                            --------    --------    --------    --------    --------
Market value, end of year................................   $12.4375    $ 11.875    $ 11.375    $ 10.375    $ 12.625
                                                            --------    --------    --------    --------    --------
                                                            --------    --------    --------    --------    --------
Number of shares of common stock outstanding (000
 omitted)................................................      9,266       9,266       9,266       9,266       9,249
TOTAL INVESTMENT RETURN BASED ON:(1)
 Market value............................................      13.78%      13.89%      20.72%     (10.19%)      2.65%
 Net asset value.........................................       5.76%      18.99%      19.67%      (1.63%)     13.31%
RATIO TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS(2)/SUPPLEMENTARY DATA:
Net assets of common shareholders, end of period (000
 omitted)................................................   $129,158    $132,660    $121,654    $111,925    $124,146
Average net assets of common shareholders (000 omitted)      130,125     122,887     115,277     118,336     121,323
Operating expenses.......................................       1.63%       1.70%       1.71%       1.75%       1.73%
Net investment income before preferred stock dividends...       8.10%       8.73%       9.56%       9.06%       9.03%
Net investment income available to common shareholders          6.88%       7.47%       8.09%       8.12%       8.25%
Preferred stock dividends and distributions..............       1.22%       1.26%       1.48%       0.94%       0.78%
Portfolio turnover.......................................         24%         30%         23%         34%         41%
Senior securities (preferred stock) outstanding
 (000 omitted)...........................................   $ 30,000    $ 30,000    $ 30,000    $ 30,000    $ 30,000
Asset coverage on preferred stock at year end............        530%        542%        505%        473%        514%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

 
(1) Total investment return is calculated assuming a purchase of common stock on
    the opening of the first day and a sale on the closing of the last day of
    each period reported. Dividends and distributions, if any, are assumed for
    the purposes of this calculation to be reinvested at prices obtained under
    the Fund's dividend reinvestment plan. Total investment return does not
    reflect brokerage commissions. Generally, total investment return based on
    net asset value will be higher than total investment return based on market
    value in periods where there is an increase in the discount or a decrease in
    the premium of the market value to the net asset value from the beginning to
    the end of such periods. Conversely, total investment return based on net
    asset value will be lower than total investment return based on market value
    in periods where there is a decrease in the discount or an increase in the
    premium of the market value to the net asset value from the beginning to the
    end of such periods.
(2) Ratios are calculated on the basis of income, expenses and preferred share
    dividends applicable to both the common and preferred shares relative to the
    average net assets of common shareholders.
 
See Notes to Financial Statements.
 
                                       17
<PAGE>
- ---------------------------------------------
THE FIRST COMMONWEALTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- ---------------------------------------------
 
The First Commonwealth Fund, Inc. (the 'Fund') was incorporated in Maryland on
June 28,1991, as a closed-end, non-diversified investment company.
 
The Fund's investment objective is to provide high current income by investing
in high-grade fixed-income secur ities denominated in the currencies of
Australia, Canada, New Zealand and the United Kingdom (the 'Commonwealth
Currencies'). The Fund may also seek capital appreciation only as a secondary
investment objective. It is expected that norma lly all of the Fund's assets
will be invested in a portfolio of secur ities issued or guaranteed by the
gover nments, territories, provinces and states of Australia, Canada, New
Zealand and the United Kingdom as well as securities issued by corporations
domiciled in those countries. The Fund will, under normal circumstances, invest
in debt securities in at least three of these currencies and will not hold more
than 50% of its assets in securities denominated in any one Commonwealth
Currency. The ability of issuers of debt securities held by the Fund to meet
their obligations may be affected by economic developments in a specific
industry, country or region.
 
NOTE 1. ACCOUNTING  The following is a summary of
POLICIES            significant accounting policies
                    followed by the Fund in the preparation of its financial
statements.
 
Basis of Presentation: The financial statements of the Fund are prepared in
accordance with United States generally accepted accounting principles using the
United States dollar as both the functional and reporting currency. However, the
Commonwealth Currencies (excluding New Zealand) are the functional currencies
for Federal tax purposes (see Taxes below).
 
Foreign Currency Translation: Australian dollar ('A$'), Canadian dollar ('C$'),
New Zealand dollar ('NZ$') and United Kingdom pound (') amounts are translated
into United States dollars on the following basis:
 
   (i) market value of investment securities, other assets and liabilities -
   at the closing rates of exchange as reported by a major bank;
 
   (ii) purchases and sales of investment securities, income and expenses - at
   the rates of exchange prevailing on the respective dates of such
   transactions.
 
 The Fund isolates that portion of the results of operations arising as a result
of changes in the foreign exchange rates from the fluctuations arising from
changes in the mar ket prices of the securities held at fiscal period end.
Similarly, the Fund isolates the effect of changes in foreign exchange rates
from the fluctuations arising from changes in the market prices of portfolio
securities sold during the fiscal year.
 
 Net realized foreign exchange losses of $92,892 for the year ended October 31,
1997 includes realized foreign exchange gains and losses from sales and
maturities of portfolio secur ities, sales of foreign currencies, currency gains
or losses realized between the trade and settlement dates on secur ities
transactions and the difference between the amounts of interest, discount and
foreign withholding taxes recorded on the Fund's books and the US dollar
equivalent amounts actually received or paid. Net unrealized foreign exchange
losses of $8,120,845 for the year ended October 31, 1997 includes changes in the
value of portfolio securities and other assets and liabilities arising as a
result of changes in the exchange rate.
 
 Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin, including
unanticipated movements in the value of the foreign currency relative to the US
dollar.
 
 The exchange rates of the Commonwealth Currencies utilized by the Fund at
October 31, 1997 were US$0.7010 to A$1.00, US$0.7110 to C$1.00, US$0.6230 to
NZ$1.00, and US$1.6726 to 1.00.
 
Security Valuation: Investments are stated at value. Investments for which
market quotations are readily available are valued at the last trade pr ice on
or within one local business day of the date of determination as obtained from a
pricing source. If no such trade price is available, such investments are valued
at the quoted bid pr ice or the mean between the quoted bid and asked price on
the date of determination as obtained from a pricing source. Securities for
which market quotations are not readily available are valued at fair
 
                                       18
<PAGE>
value in good faith using methods deter mined by or under the direction of the
Fund's Board of Directors.
 
 Short-term secur ities which mature in more than 60 days are valued at current
market quotations. Short-term secur ities which mature in 60 days or less are
valued at amortized cost, if their term to maturity from date of purchase was
60 days or less, or by amortizing their value on the 61st day prior to
maturity, if their original term to maturity exceeded 60 days.
 
 In connection with transactions in repurchase agreements with US financial
institutions, it is the Fund's policy that its custodian/counterparty segregates
the underlying collateral securities, the value of which exceeds the principal
amount of the repurchase transaction, including accrued interest. To the extent
that any repurchase transaction exceeds one business day, the collateral is
valued on a daily basis to determine its adequacy. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the secur ity, realization of the collateral by
the Fund may be delayed or limited.
 
Securities Transactions and Investment Income:
Securities transactions are recorded on the trade date. Realized and unrealized
gains and losses from security and currency transactions are calculated on the
identi fied cost basis. Interest income is recorded on an accrual basis.
Discounts on secur ities purchased are accreted on an effective yield basis over
the estimated lives of the respective secur ities. Expenses are accrued on a
daily basis.
 
Forward Currency Contracts: The Fund is authorized to enter into forward
currency contracts only for purposes of hedging against the effect that currency
fluctuations may have on specific transactions.
 
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. The forward currency contract is marked-to-market daily and the
change in market value is recorded by the Fund as an unrealized gain or loss.
When the forward currency contract is closed, the Fund records a realized gain
or loss equal to the difference between the value at the time it was opened and
the value at the time it was closed.
 
Dividends: Dividends and distributions to common shareholders are recorded on
the ex-dividend date and are based upon net investment income and capital and
currency gains determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for foreign currencies and loss deferrals.
Dividends and distributions to preferred shareholders are accrued on a daily
basis and are determined as described in Note 4.
 
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with AICPA Statement of Position
93-2 Determination, Disclosure and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. For
the year ended October 31, 1997, the Fund decreased undistributed net investment
income by $487,247, decreased accumulated net realized gains on investments by
$135,194 and decreased accumulated net realized foreign exchange losses by
$710,781, resulting in a decrease to paid-in capital in excess of par by
$88,340. Net investment income, net realized losses on investments and net
assets were not affected by this change. Accumulated realized and unrealized
foreign exchange losses shown in the composition of net assets at October 31,
1997 represent foreign exchange losses for book purposes that have not yet been
recognized for tax purposes.
 
Taxes: For Federal income and excise tax purposes, substantially all of the
Fund's transactions are accounted for using the functional currencies.
Accordingly, only realized currency gains and losses resulting from the
repatriation of any of the Commonwealth Currencies into US dollars or another
Commonwealth Currency and realized currency gains and losses on
non-Commonwealth currencies are recognized for tax purposes.
 
 No provision has been made for United States Federal income taxes because it is
the Fund's policy to meet the requirements of the United States Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders. Provision has been made for United
 
                                       19
<PAGE>
States excise taxes incurred during the fiscal year. Under the applicable
foreign tax law, a withholding tax may be imposed on interest and discounts
earned at various rates.
 
Cash Flow Information: The Fund invests in securities and distributes dividends
from net investment income and net realized gains on investment and currency
transactions which are paid in cash or are reinvested at the discretion of
shareholders. These activities are reported in the Statements of Changes in Net
Assets and additional information on cash receipts and cash payments is
presented in the Statement of Cash Flows. Cash includes domestic and
foreign currency.
 
Use of Estimates: The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
 
NOTE 2. AGREEMENTS  The Fund has agreements with
                    EquitiLink International Management Limited (the 'Investment
Manager'), EquitiLink Australia Limited (the 'Investment Adviser'), and
Pr inceton Administrators, L.P. (the 'Administrator'). The Investment Manager
and the Investment Adviser are affiliated companies. The Investment Manager has
entered into an agreement with Wood Gundy, Inc. (the 'Consultant').
 
 The Investment Manager makes investment decisions on behalf of the Fund on the
basis of recommendations and information furnished to it by the Investment
Adviser and the Consultant, including the selection of and the placement of
orders with brokers and dealers to execute portfolio transactions on behalf of
the Fund.
 
 The management agreement provides the Investment Manager with a fee, computed
weekly and payable monthly, at the following annual rates: 0.65% of the Fund's
average weekly net assets up to $200 million, 0.60% of such assets between $200
million and $500 million and 0.55% of such assets in excess of $500 million. The
administration agreement provides the Administrator with a fee computed and
payable monthly at the annual rate of 0.20% of the Fund's average weekly net
assets, subject to a minimum annual payment of $150,000. The Investment Manager
pays fees to the Investment Adviser and the Consultant for their services
rendered.
 
The Investment Manager informed the Fund that it paid $393,888 to the Investment
Adviser and $14,123 to the Consultant during the year ended October 31, 1997.
 
NOTE 3. PORTFOLIO   Purchases and sales of investment 
SECURITIES          securities, other than short-term 
                    investments, for the year ended 
October 31, 1997 aggregated $37,231,967 and $35,615,877, respectively.
 
The United States federal income tax basis of the Fund's investments at October
31, 1997 was $145,522,385 and accordingly, net unrealized appreciation for
United States federal income tax purposes was $9,446,994 (gross unrealized
appreciation - $10,134,799 gross unrealized depreciation - $687,805).
 
NOTE 4. CAPITAL     There are 300 million shares of
                    $.001 par value common stock authorized. Of the 
9,266,209 shares outstanding at October 31, 1997, the Investment Manager 
owned 10,165 shares.
 
 There are 100 million shares of $.001 par value of Preferred Stock authorized.
The preferred shares have rights as determined by the Board of Directors. On
December 3, 1996, the effective date, each share of Preferred Stock with a
liquidation value of $50,000 that was then outstanding became two shares of
Preferred Stock, each having a liquidation value of $25,000 per share plus any
accumu lated but unpaid dividends whether or not declared. The total number of
outstanding shares of Preferred Stock has increased from 600 shares to 1,200
shares. The 1,200 shares of Auction Market Preferred Stock ('Preferred Stock')
outstanding consist of one series, W-7.
 
 Dividends on the Preferred Stock are cumulative at a rate typically reset every
seven days based on the results of an auction. Dividend rates ranged from 4.999%
to 5.60% during the year ended October 31, 1997. Under the Investment Company
Act of 1940, the Fund may not declare dividends or make other distributions on
shares of common stock or
 
                                       20
<PAGE>
purchase any such shares if, at the time of the declaration, distribution or
purchase, asset coverage with respect to the outstanding Preferred Stock would
be less than 200%.
 
 The Preferred Stock is redeemable at the option of the Fund, in whole or in
part, on any dividend payment date at $25,000 per share plus any accumu lated
but unpaid dividends. The Preferred Stock is also subject to mandatory
redemption at $25,000 per share plus any accumu lated but unpaid dividends,
whether or not declared, if certain requirements relating to the composition of
the assets and liabilities of the Fund as set forth in the Articles of
Incorporation are not satisfied.
 
 The holders of Preferred Stock have voting rights equal to the holders of
common stock (one vote per share) and will vote together with holders of shares
of common stock as a single class. However, holders of Preferred Stock are also
entitled to elect two of the Fund's directors.
 
NOTE 5. SUBSEQUENT  Subsequent to October 31, 1997, 
DIVIDENDS           the Board of Directors of
                    the Fund declared dividends from 
undistributed net investment income of $0.0825 and $0.0825 per common share 
payable on December 12, 1997 and January 16, 1998 to common shareholders of 
record on November 28, 1997 and December 31, 1997, respectively.
 
Subsequent to October 31, 1997 dividends and distributions declared and paid on
preferred shares totaled approximately $160,500 for the outstanding preferred
share series through December 5, 1997.
 
                                       21
<PAGE>
- --------------------------------------------------------------------------------
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
 
To the Shareholders and the Board of Directors of
The First Commonwealth Fund, Inc.
 
   In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations, of cash flows and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The First Commonwealth Fund, Inc. (the 'Fund') at October 31, 1997, the results
of its operations and its cash flows for the year then ended, the changes in its
net assets for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as 'financial statements') are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1997 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
 
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
December 12, 1997
 
- --------------------------------------------------------------------------------
              FEDERAL TAX INFORMATION: DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
 
During the year ended October 31, 1997, 98.89% of the ordinary income
distributions paid monthly by the Fund qualify as foreign source income.
Additionally, 3.03% of the ordinary income distributions was attributable to
foreign withholding taxes.
 
The foreign taxes paid or withheld represent taxes incurred by the Fund on
income received by the Fund from foreign sources. Foreign taxes paid or withheld
should be included in taxable income with an offsetting deduction from gross
income or as a credit for taxes paid to foreign governments. You should consult
your tax counsel or other tax advisors regarding the appropriate treatment of
foreign taxes paid.
 
Additionally, the following long-term capital gain distribution was paid by the
Fund during the year:
 

COMMON SHAREHOLDERS
RECORD DATE                 PAYABLE DATE       PER SHARE AMOUNT
12/31/96                      01/17/97              $.0150

 
                                       22
<PAGE>
DIRECTORS
 
Brian M. Sherman, Chairman
Sir Roden Cutler
David Lindsay Elsum
Rt. Hon. Malcolm Fraser
Laurence S. Freedman
Michael Gleeson-White
Michael R. Horsburgh
Roger C. Maddock
David Manor
William J. Potter
Peter D. Sacks
Anton E. Schrafl
E. Duff Scott
John T. Sheehy
Warren C. Smith
 
OFFICERS
Laurence S. Freedman, President
Brian M. Sherman, Vice President
David Manor, Treasurer
Roy M. Randall, Secretary
Ouma Sananikone-Fletcher,
Assistant Vice President and
Chief Investment Officer
Barry G. Sechos, Assistant Treasurer
Allan S. Mostoff, Assistant Secretary
Margaret A. Bancroft, Assistant Secretary
 
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase, from time to time, shares of its
common stock in the open market.
 
                                       23



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