Aberdeen Asia Pacific Fund, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

 

Investment Company Act file number:    811-04611
Exact name of registrant as specified in charter:    Aberdeen Asia-Pacific Income Fund, Inc.
Address of principal executive offices:   

1735 Market Street, 32nd Floor

Philadelphia, PA 19103

Name and address of agent for service:   

Ms. Andrea Melia

Aberdeen Asset Management Inc.

1735 Market Street 32nd Floor

Philadelphia, PA 19103

Registrant’s telephone number, including area code:    800-522-5465
Date of fiscal year end:    October 31
Date of reporting period:    October 31, 2014


Item 1 – Reports to Stockholders

The Report to Shareholders is attached herewith.


LOGO


Managed Distribution Policy (unaudited)

 

 

 

The Board of Directors of the Fund has authorized a managed distribution policy (“MDP”) of paying monthly distributions at an annual rate set once a year. It is the Board’s intention that a monthly distribution of $0.035 per share be maintained for 12 months beginning with the June 30, 2014 distribution payment. With each distribution, the Fund will issue a notice to shareholders and an accompanying press release which will provide detailed information regarding the amount and composition of the distribution and other information required by the Fund’s MDP exemptive order. The Fund’s Board of Directors may amend or terminate the MDP at any time without prior notice to shareholders; however, at this time, there are no reasonably foreseeable circumstances that might cause the termination of the MDP. You should not draw any conclusions about the Fund’s investment performance from the amount of distributions or from the terms of the Fund’s MDP.

Distribution Disclosure Classification (unaudited)

 

 

The Fund’s policy is to provide investors with a stable monthly distribution out of current income, supplemented by realized capital gains and, to the extent necessary, paid-in capital.

The Fund is subject to U.S. corporate, tax and securities laws. Under U.S. tax rules, the amount applicable to the Fund and character of distributable income for each fiscal period depends on the actual exchange rates during the entire year between the U.S. Dollar and the currencies in which Fund assets are denominated and on the aggregate gains and losses realized by the Fund during the entire year.

Therefore, the exact amount of distributable income for each fiscal year can only be determined as of the end of the Fund’s fiscal year, October 31. Under Section 19 of the Investment Company Act of 1940, as amended (the “1940 Act”), the Fund is required to indicate the sources of certain distributions to shareholders. The estimated distribution composition may vary from month to month because it may be materially impacted by future income, expenses and realized gains and losses on securities and fluctuations in the value of the currencies in which the Fund’s assets are denominated.

The distributions for the fiscal year ended October 31, 2014 consisted of 100% net investment income.

In January 2015, a Form 1099-DIV will be sent to shareholders, which will state the amount and composition of distributions and provide information with respect to their appropriate tax treatment for the 2014 calendar year.

Dividend Reinvestment and Direct Stock Purchase Plan (unaudited)

 

 

Computershare Trust Company, N.A., (“Computershare”) the Fund’s transfer agent, sponsors and administers a Dividend Reinvestment and Direct Stock Purchase Plan (the “Plan”), which is available to shareholders.

The Plan allows registered stockholders and first time investors to buy and sell shares and automatically reinvest dividends and capital gains through the transfer agent. This is a cost-effective way to invest in the Fund.

Please note that for both purchases and reinvestment purposes, shares will be purchased in the open market at the current share price and cannot be issued directly by the Fund.

For more information about the Plan and a brochure that includes the terms and conditions of the Plan, please call Computershare at 1-800-647-0584 or visit www.computershare.com/buyaberdeen.


Letter to Shareholders (unaudited)

 

 

 

Dear Shareholder,

We present this Annual Report which covers the activities of Aberdeen Asia-Pacific Income Fund, Inc. (the “Fund”) for the year ended October 31, 2014. The Fund’s principal investment objective is to seek current income. The Fund may also achieve incidental capital appreciation.

Total Return Performance

The Fund’s total return, based on net asset value (“NAV”), net of fees, was 2.3% for the year ended October 31, 2014 and 8.7% per annum since inception, assuming the reinvestment of dividends and distributions. The Fund’s total return for the fiscal year ended October 31, 2014 and per annum since inception is based on the reported NAV on each annual period end.

Share Price and NAV

For the one year ended October 31, 2014, based on market price, the Fund’s total return was -2.2%, assuming reinvestment of dividends and distributions. The Fund’s share price decreased by 8.7% over the one year period, from $6.44 on October 31, 2013 to $5.88 on October 31, 2014. The Fund’s share price on October 31, 2014 represented a discount of 10.6% to the NAV per share of $6.58 on that date, compared with a discount of 6.5% to the NAV per share of $6.89 on October 31, 2013.

Portfolio Allocation

As of October 31, 2014, the Fund held 40.0% of its total investments in Australian debt securities, 54.8% in Asian debt securities, 3.1% in European debt securities, 1.7% in U.S. debt securities and 0.4% in Canadian debt securities.

Of the Fund’s total investments, 39.8% were held in U.S. Dollar-denominated bonds issued by foreign issuers, bringing the Fund’s U.S. Dollar exposure to 44.0%. The rest of the Fund’s currency exposure was 42.2% in the Australian Dollar and 13.8% in various Asian currencies.

Credit Quality

As of October 31, 2014, 63.7% of the Fund’s total investments were invested in securities where either the issue or the issuer was rated A or better by Standard & Poor’s1 or Moody’s Investors Services, Inc.2, or, if unrated, judged by Aberdeen Asset Management Asia Limited (the “Investment Manager”) to be of equivalent quality.

Portfolio Management

The Fund is managed by Aberdeen’s Asia-Pacific fixed income team. The Asia-Pacific fixed income team works in a truly collaborative fashion; all team members have both portfolio management and research responsibilities. The team is jointly and primarily responsible for the day-to-day management of the Fund.

Managed Distribution Policy

Distributions to common shareholders for the twelve-months ended October 31, 2014 totaled $0.42 per share. Based on the share price of $5.88 on October 31, 2014, the distribution rate over the twelve-month period ended October 31, 2014 was 7.1%. Since all distributions are paid after deducting applicable withholding taxes, the effective distribution rate may be higher for those U.S. investors who are able to claim a tax credit.

On November 11, 2014 and December 9, 2014 the Fund announced that it will pay on November 28, 2014 and January 12, 2015 a distribution of US $0.035 per share to all shareholders of record as of November 24, 2014 and December 31, 2014, respectively.

The Fund’s policy is to provide investors with a stable monthly distribution out of current income, supplemented by realized capital gains and, to the extent necessary, paid-in capital, which is a non-taxable return of capital. It is the Board’s intention that a monthly distribution of $0.035 per share be maintained for twelve months, beginning with the June 30, 2014 distribution payment. This policy is subject to regular review at the Board’s quarterly meetings, unless market conditions require an earlier evaluation. The next annual review is scheduled to take place in June 2015.

Fund’s Leverage

The table below summarizes certain key terms of the Fund’s current leverage:

 

     

Amount

($ in millions)

     Maturity  

Revolving Credit Facility

   $ 150         April 9, 2017   

7-year Series A Senior Secured Notes

   $ 100         June 12, 2020   

10-year Series B Senior Secured Notes

   $ 100         June 12, 2023   

5-year Term Loan A

   $ 100         June 12, 2018   

3-year Term Loan B

   $ 100         June 12, 2016   

10-year Series A Mandatory Redeemable Preferred Shares

   $ 50         June 27, 2023   

 

 

 

1   

Standard & Poor’s credit ratings are expressed as letter grades that range from ‘AAA’ to ‘D’ to communicate the agency’s opinion of relative level of credit risk. Ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. The investment grade category is a rating from ‘AAA’ to ‘BBB-’.

2   

Moody’s is an independent, unaffiliated research company that rates fixed income securities. Moody’s assigns ratings on the basis of risk and the borrower’s ability to make interest payments. Typically securities are assigned a rating from ‘Aaa’ to ‘C’, with ‘Aaa’ being the highest quality and ‘C’ the lowest quality.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

1


Letter to Shareholders (unaudited) (concluded)

 

 

 

The Series A Mandatory Redeemable Preferred Shares, with a liquidation value of $50 million, are rated ‘AA’ by Fitch Ratings3 and the $200 million 7 and 10 year Series A and B Senior Secured Notes are rated ‘AAA’ by Fitch Ratings.

We believe the Fund has been able to lock in an attractive rate cost of borrowing and extend the maturity of the leverage facility while diversifying its borrowing structure during what we believe to be a favorable current interest rate environment. A more detailed description of the Fund’s leverage can be found in the Notes to Financial Statements.

Open Market Repurchase Program

The Fund’s policy is generally to buy back Fund shares on the open market when the Fund trades at certain discounts to NAV. During the fiscal year ended October 31, 2014 and fiscal year ended October 31, 2013, the Fund repurchased 6,107,325 and 0 shares, respectively.

Portfolio Holdings Disclosure

The Fund’s complete schedule of portfolio holdings is included in the Fund’s semi-annual and annual reports to shareholders. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Form N-Q filings are available on the SEC’s website at http://www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information about the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund makes the information on Form N-Q available to shareholders on the Fund’s website or upon request and without charge by calling Investor Relations toll-free at 1-800-522-5465.

Proxy Voting

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent twelve months ended June 30 is available by August 30 of the relevant year: (i) upon request and without charge by calling Investor Relations toll-free at 1-800-522-5465; and (ii) on the SEC’s website at http://www.sec.gov.

Investor Relations Information

As part of our ongoing commitment to provide information to our shareholders, I invite you to visit the Fund on the web at www.aberdeenfax.com. From this page, you can view monthly fact sheets, portfolio manager commentary, distribution and performance information, updated daily fact sheets courtesy of Morningstar®, and view portfolio charting and other timely data.

Please take a look at Aberdeen’s award-winning Closed-End Fund Talk Channel, where you can watch fund manager web casts and view our latest short films. For replays of recent broadcasts or to register for upcoming events, please visit Aberdeen’s Closed-End Fund Talk Channel at www.aberdeen-asset.us/aam.nsf/usclosed/aberdeentv.

Please ensure that you are enrolled in our email services, which feature timely news from Aberdeen portfolio managers located around the world. Enroll today at www.aberdeen-asset.us/aam.nsf/usclosed/email and be among the first to receive the latest closed-end fund news, announcements of upcoming fund manager web casts, films and other information.

Included within this report is a reply card with postage paid envelope. Please complete and mail the card if you would like to be added to our enhanced email service and receive future communications from Aberdeen.

Please contact Aberdeen Asset Management Inc. by:

 

 

calling toll free at 1-800-522-5465 in the United States;

 

emailing InvestorRelations@aberdeen-asset.com;

 

Visiting Aberdeen Closed-End Fund Center at http://www.aberdeen-asset.us/aam.nsf/usclosed/home; or

 

visiting www.aberdeenfax.com

Yours sincerely,

 

/s/ Christian Pittard
Christian Pittard
President
 

 

 

3   

Fitch is an international credit rating agency. Fitch ratings range from AAA (reliable and stable) to D (high risk).

All amounts are U.S. Dollars unless otherwise stated.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

2


Report of the Investment Manager (unaudited)

 

 

 

Market/economic review

Asian local currency bond and credit markets posted decent gains, but most regional currencies lost ground as the U.S. dollar strengthened over the reporting period. Monetary policy conditions remained loose, ensuring abundant liquidity, against the backdrop of a tentative global recovery. China’s economy slowed. Japan and the Eurozone1 grappled with deflation risks, but the U.S. recovery gained traction. Consequently, global central bank monetary policy diverged over the period. The U.S. Federal Reserve (Fed) ended its asset purchases, but Japan and Europe took the opposite tack and ramped up quantitative easing (QE) in hopes of reinvigorating growth. Economic data softened across most of Asia, although weak commodity prices led to easing inflation and gave policymakers more room to maneuver. Geopolitical risks increased significantly due to Russia’s incursion into Ukraine as well as the rise of the Islamic State (ISIS) in both Iraq and Syria. There were also concerns over the Ebola outbreak in sub-Saharan Africa.

Asian credit markets, led by high-yield sovereigns,2 outperformed their local currency bond counterparts over the reporting period. The pipeline of new issues was strong, as companies sought to lock in long-term funding at current interest rate levels. While valuations looked fairly expensive, robust demand reflected the continued chase for yield.

Regarding local currency bond markets, South Korea outpaced its regional peers. Yields fell sharply, as the central bank cut interest rates twice to support slowing gross domestic product (GDP) growth. The Korean Won faced a more testing time owing to talk of intervention to protect export competitiveness, after the Japanese yen fell sharply following the Bank of Japan’s QE announcement. Thai bonds rose on the back of two rate cuts and a stabilizing political climate.

The Chinese bond market was supported by deepening economic concerns, as GDP growth slowed from 7.5% to 7.3% in the third quarter. India was a solid performer where bonds posted gains and the Indian Rupee was resilient. Narendra Modi’s landslide election as prime minister lifted hopes of the revitalization of a stagnating economy. Inflation started to ease and the current account deficit narrowed as well.

Conversely, Indonesian bonds and the rupiah (the nation’s currency unit) were the most notable market laggards for the reporting period.

While there was initial euphoria over the presidential election victory by Joko Widodo, investor sentiment soured following a rough start for him. Bonds and the peso fell in the Philippines, where the central bank raised its benchmark rate amid resilient growth and rising inflation. Malaysian bonds sold off on expectations of rate hikes to fix financial imbalances, while markets in Hong Kong and Singapore tracked U.S. Treasury weakness at the short end of the yield curve.

In Australia, longer-dated bonds outperformed their short-term peers, as the central bank reaffirmed its neutral stance, leaving the cash rate at 2.5%. Inflation eased, highlighting the impact of removing the carbon tax. Economic data reflected subpar growth, while consumer confidence remained fragile.

Fund performance review

Fund performance for the reporting period was weighed down by negative contributions from holdings in Australian bonds, particularly security selection and the currency overlay,3 while there was a marginal drag on performance from the overweight allocation relative to the HSBC Asian Local Bond Index to Asian local currency bonds and security selection in U.S. dollar-denominated Asian credit.

Within the Australian bond portfolio, the Fund’s short duration relative to the benchmark and credit strategies detracted from the relative return. Regarding the Fund’s positions in Asian local currency bonds, the overweight to India and exposure to Sri Lanka (which is not represented in the benchmark index) as well as the underweight to the Singapore dollar, had a positive impact on performance, while the underweight to the Singapore market, as along with security selection in Indonesia and the Philippines, were significant detractors.

In U.S.-dollar denominated Asian credit, security selection and the underweight to investment-grade sovereigns detracted most notably from Fund performance. However, this was mitigated by the positive contribution from the lack of exposure to investment-grade quasi–sovereign issues.4

Our use of futures to reduce the Fund’s duration had a negative impact on performance, subtracting approximately 30 basis points from its return, given the rally in long-term U.S. Treasury yields.

Bond futures are used to express interest rate positions, in terms of duration and yield curve exposures. This usage encompasses the hedging of individual physical bond exposures in the Fund, or

 

 

1   

The Eurozone comprises the block of nations which has adopted the euro as common currency and legal tender.

2  

Sovereign bonds are debt securities issued by a national government within a given country and denominated in a foreign currency.

3  

A currency overlay is used in international investment portfolios to separate the management of currency risk from the asset allocation and security selection decisions of the investor’s money managers.

4  

Quasi-sovereign bonds are debt securities issued by an agency of a national government.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

3


Report of the Investment Manager (unaudited) (continued)

 

 

 

managing overall duration and yield curve exposure versus the Fund’s benchmark, the HSBC Asian Local Bond Index. Bond futures contracts are not used to leverage the Fund in any way.

Interest rate swaps are primarily used to hedge the U.S. dollar borrowing facilities, helping to manage the overall mixture of fixed rate and floating rate liabilities in a proportion that the manager feels is appropriate. For example, receiving fixed rates through swaps allows the manager to shift a fixed borrowing rate on the leverage facilities to the floating rate. The Fund uses interest rate swaps as part of the set of instruments involved in managing fund leverage; they are not used for speculative trading purposes.

Credit-linked notes are used in an effort to improve market access and allows saving on withholding tax. Currency forwards are used to express and manage the Fund’s currency exposure.

Outlook

Risk-aversion and volatility accelerated towards the end of the reporting period, given the confluence of risk factors. Consensus expectations are still for the U.S. to begin normalizing interest rates next year, while Europe and Japan embark on an easing path. Complicating the situation is the fragile global outlook – in particular, the stalling Eurozone recovery and geopolitical risks in the Middle East. Across Asia, while conditions have grown more challenging, we think that well-anchored inflation expectations and a conducive policy environment may support bond markets. For some markets, we feel that localized factors may influence sentiment as well. In India and Indonesia, whether the new governments can deliver on much-needed structural reforms remains to be seen, but we think that Prime Minister Modi in India has begun the process admirably. In the currency markets, we expect volatility to remain elevated, as the U.S. begins its policy normalization, while in Asia falling commodity prices are providing support to current account balances (especially in India), and foreign exchange reserves remain ample, in our view.

In Australia, we believe that the cash rate may remain on hold for a prolonged period as elevated housing prices may potentially prevent the central bank from cutting rates, even amid subdued economic growth. In our view, the transition away from mining and rebalancing of business investment towards other sectors may be at a measured pace, supported by residential investments and net exports. We also foresee a gradual but slow recovery in consumption, reflecting consumer caution and low wage growth.5

Loan Facilities and the Use of Leverage

The amounts borrowed under the Revolving Credit Facility, the Term Loan Facility, the Notes and the Series A MRPS (each as defined below) may be invested to return higher rates than the rates pursuant to which interests or dividends are paid under such forms of leverage. However, the cost of leverage could exceed the income earned by the Fund on the proceeds of such leverage. To the extent that the Fund is unable to invest the proceeds from the use of leverage in assets which pay interest at a rate which exceeds the rate paid on the leverage, the yield on the Fund’s common stock will decrease. In addition, in the event of a general market decline in the value of assets in which the Fund invests, the effect of that decline will be magnified in the Fund because of the additional assets purchased with the proceeds of the leverage.

The Fund employed leverage obtained via bank borrowing and other forms of leverage during the reporting period. On April 9, 2014, the Fund renewed its $150 million revolving credit facility for a 3-year period with a syndicate of banks (the “Revolving Credit Facility”). On June 12, 2013, the Fund entered into a note purchase agreement (the “Note Purchase Agreement”) with institutional investors relating to the private placement of $200 million of senior secured notes rated ‘AAA’ by Fitch Ratings, $100 million due June 12, 2020 and $100 million due June 12, 2023 (the “Notes”). On the same day, the Fund also entered into a term loan agreement providing for $200 million in secured term loans from Bank of America, N.A., $100 million due June 12, 2016 and $100 million due June 12, 2018 (the “Term Loan Facility”). On June 27, 2013, the Fund issued a private offering of 2 million shares of Series A Mandatory Redeemable Preferred Shares due June 25, 2023 (the “Series A MRPS”). The Series A MRPS have a liquidation value of $50 million and are rated ‘AA’ by Fitch Ratings. The Fund’s outstanding balance as of October 31, 2014 was $150 million on the Revolving Credit Facility.

The Fund’s leveraged capital structure creates special risks not associated with unleveraged funds having similar investment objectives and policies. The funds borrowed pursuant to the Revolving Credit Facility, the Term Loan Facility and the Notes may constitute a substantial lien and burden by reason of their prior claim against the income of the Fund and against the net assets of the Fund in liquidation. The Fund is limited in its ability to declare dividends or other distributions under the terms of the various forms of leverage. In the event of an event of default under either the Revolving Credit Facility or Term Loan Facility, the lenders have the right to cause a

 

 

5  

Forecasts and estimates are offered as opinion and are not reflective of potential performance, are not guaranteed and actual events or results may differ materially.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

4


Report of the Investment Manager (unaudited) (concluded)

 

 

 

liquidation of the collateral (i.e., sell portfolio securities and other assets of the Fund) and, if any such default is not cured, the lenders may be able to control the liquidation as well. In the event of an event of default under the Note Purchase Agreement, the Noteholders have the right to cause a liquidation of the collateral (i.e., sell portfolio securities and other assets of the Fund).

Each of the Revolving Credit Facility Agreement, the Term Loan Agreement, the Note Purchase Agreement, or the securities purchase agreement relating to the Series A MRPS, includes usual and customary covenants for the applicable type of transaction. These covenants impose on the Fund asset coverage requirements, Fund composition requirements and limits on certain investments, such as illiquid investments, which are more stringent than those imposed on the Fund by the 1940 Act. The covenants or guidelines could impede the Fund’s investment manager, investment adviser, or sub-adviser from fully managing the Fund’s portfolio in accordance with the Fund’s investment objective and policies. Furthermore, non-compliance with such covenants or the occurrence of other events could lead to the cancellation of any and/or all of the forms of leverage. As of April 30, 2014, the Fund was in compliance with all covenants under the agreements relating to the various forms of leverage.

Interest Rate Swaps

The Fund may enter into interest rate swaps to efficiently gain or hedge interest rate or currency risk. As of October 31, 2014, the

Fund held interest rate swap agreements with an aggregate notional amount of $150 million, which represented 100% of the Fund’s Revolving Credit Facility. Under the terms of the agreements currently in effect, the Fund receives a floating rate of interest (three month USD-LIBOR BBA rate) and pays fixed rates of interest for the terms and based upon the notional amounts set forth below:

 

Remaining

Terms as of

October 31, 2014

   Amount
(in millions)
     Fixed Rate
Payable (%)
 

24 months

   $ 84.0         1.42   

36 months

     66.0         0.84   

A significant risk associated with interest rate swaps is the risk that the counterparty may default or file for bankruptcy, in which case the Fund would bear the risk of loss of the amount expected to be received under the swap agreements.

There can be no assurance that the Fund will have an interest rate swap in place at any given time nor can there be any assurance that, if an interest rate swap is in place, it will be successful in hedging the Fund’s interest rate risk with respect to the loan facility. The implementation of this strategy is at the discretion of the Leverage Committee of the Board.

Aberdeen Asset Management Asia Limited

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

5


Total Investment Return (unaudited)

 

 

 

The following table summarizes the average annual Fund performance compared to the Fund’s blended benchmark consisting of 45% of the UBS Composite Index (or the “Bloomberg AusBond Composite Bond Index”)1, 35.75% of the JP Morgan Asia Credit Index2, and 19.25% of the IBOXX Asia ex-Japan Government Bond Index3 for the 1-year, 3-year, 5-year and 10-year periods as of October 31, 2014.

 

        1 Year        3 Years        5 Years        10 Years  

Net Asset Value (NAV)

       2.3%           1.9%           6.5%           7.3%   

Market Value

       (2.2%        0.7%           5.8%           6.2%   

Blended Benchmark

       2.8%           2.9%           6.6%           7.4%   

Returns represent past performance. Total investment return at net asset value (NAV) is based on changes in the NAV of Fund shares and assumes reinvestment of dividends and distributions, if any, at market prices pursuant to the dividend reinvestment program sponsored by the Fund’s transfer agent. Total investment return at market value is based on changes in the market price at which the Fund’s shares traded on the NYSE MKT during the period and assumes reinvestment of dividends and distributions, if any, at market prices pursuant to the dividend reinvestment program sponsored by the Fund’s transfer agent. The Fund’s total return is based on the reported NAV on each annual period end. Because the Fund’s shares trade in the stock market based on investor demand, the Fund may trade at a price higher or lower than its NAV. Therefore, returns are calculated based on both market price and NAV. Past performance is no guarantee of future results. The performance information provided does not reflect the deduction of taxes that a shareholder would pay on distributions received from the Fund. The current performance of the Fund may be lower or higher than the figures shown. The Fund’s yield, return, market price and NAV will fluctuate. Performance information current to the most recent month-end is available at www.aberdeenfax.com or by calling 800-522-5465.

The net operating expense ratio based on the fiscal year ended October 31, 2014 is 1.97%. The net operating expense ratio, excluding interest expense and distributions to Series A Mandatory Redeemable Preferred Shares, based on the fiscal year ended October 31, 2014 is 1.09%.

 

 

1   

The Bloomberg AusBond Composite Bond Index includes investment grade fixed interest bonds of all maturities issued in the Australian debt market under Australian law.

2   

The J.P. Morgan Asia Credit Index (JACI) tracks total return performance of the Asia fixed-rate dollar bond market. JACI is a market cap-weighted index comprising sovereign, quasi-sovereign and corporate bonds and it is partitioned by country, sector and credit rating.

3   

The Markit iBoxx Asia ex-Japan Index family comprises local currency debt from China, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

6


Portfolio Composition (unaudited)

 

 

 

Quality of Investments(1)

As of October 31, 2014, 63.7% of the Fund’s total investments were invested in securities where either the issue or the issuer was rated “A” or better by Standard & Poor’s or Moody’s Investors Service, Inc., or, if unrated, judged to be of equivalent quality by the Investment Manager. The table below shows the asset quality of the Fund’s portfolio as of October 31, 2014 compared with the previous six and twelve months:

 

Date     

AAA/Aaa

%

      

AA/Aa

%

      

A

%

      

BBB/Baa

%

      

BB/Ba*

%

      

B*

%

      

NR**

%

 

October 31, 2014

       36.4           14.2           13.1           18.6           11.4           3.5           2.8   

April 30, 2014

       35.0           14.0           19.1           16.2           10.4           3.1           2.2   

October 31, 2013

       34.4           13.9           21.6           16.2           9.7           2.2           2.0   

 

*   Below investment grade
**   Not Rated
(1)   For financial reporting purposes, credit quality ratings shown above reflect the lowest rating assigned by either Standard & Poor’s (“S&P”) or Moody’s Investors Service if ratings differ. These rating agencies are independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings are credit ratings of BB/Ba or lower. Investments designated NR are not rated by either rating agency. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings are subject to change. The Investment Manager evaluates the credit quality of unrated investments based upon, but not limited to, credit ratings for similar investments.

Geographic Composition

The table below shows the geographical composition (with U.S. Dollar-denominated bonds issued by foreign issuers allocated into country of issuance) of the Fund’s total investments as of October 31, 2014, compared with the previous six and twelve months:

 

Date   

Australia

%

    

Asia

(including NZ)

%

    

Europe

%

    

United
States

%

    

Canada

%

 

October 31, 2014

     40.0         54.8         3.1         1.7         0.4   

April 30, 2014

     39.8         56.1         3.3         0.4         0.4   

October 31, 2013

     37.6         55.5         4.4         1.7         0.8   

Currency Composition

The table below shows the currency composition of the Fund’s total investments as of October 31, 2014, compared with the previous six and twelve months:

 

Date     

Australian
Dollar

%

      

Asian Currencies
(including NZ Dollar)

%

      

US Dollar*

%

 

October 31, 2014

       42.2           13.8           44.0   

April 30, 2014

       42.0           8.5           49.5   

October 31, 2013

       41.4           19.8           38.8   

 

*   Includes U.S. Dollar-denominated bonds issued by foreign issuers: 39.8% of the Fund's total investments on October 31, 2014, 37.3% of the Fund's total investments on April 30, 2014, 37.1% of the Fund's total investments on October 31, 2013.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

7


Portfolio Composition (unaudited) (concluded)

 

 

 

Maturity Composition

As of October 31, 2014, the average maturity of the Fund’s total investments was 6.6 years, compared with 6.3 years at April 30, 2014, and 6.9 years at October 31, 2013. The following table shows the maturity composition of the Fund’s investments as of October 31, 2014, compared with the previous six and twelve months:

 

Date     

Under 3 Years

%

      

3 to 5 Years

%

      

5 to 10 Years

%

      

10 Years & Over

%

 

October 31, 2014

       25.1           25.4           36.6           12.9   

April 30, 2014

       30.9           17.8           42.0           9.3   

October 31, 2013

       18.9           25.0           46.8           9.3   

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

8


Summary of Key Rates (unaudited)

 

 

 

The following table summarizes the movements of key interest rates and currencies from October 31, 2014 and the previous six and twelve month periods.

 

        October 31, 2014        April 30, 2014        October 31, 2013  

Australia

              

90 day Bank Bills

       2.74%           2.68%           2.60%   

10 yr bond

       3.19%           3.85%           3.94%   

Australian Dollar

       $0.88           $0.93           $0.95   

New Zealand

              

90 day Bank Bills

       3.71%           3.35%           2.70%   

10 yr bond

       3.99%           4.41%           4.51%   

New Zealand Dollar

       $0.78           $0.86           $0.83   

South Korea

              

90 day commercial paper

       2.14%           2.65%           2.65%   

10 yr bond

       2.65%           3.53%           3.40%   

South Korean Won*

       W1068.73           W1033.30           W1060.75   

Thailand

              

3 months deposit rate

       1.13%           1.13%           1.63%   

10 yr bond

       3.33%           3.55%           3.90%   

Thai Baht*

       B32.57           B32.36           B31.13   

Philippines

              

90 day T-Bills

       1.44%           1.46%           0.25%   

10 yr bond

       4.11%           4.41%           3.63%   

Philippine Peso*

       P44.88           P44.58           P43.21   

Malaysia

              

3-month T-Bills

       3.30%           2.99%           2.95%   

10 yr bond

       3.84%           4.07%           3.59%   

Malaysian Ringgit*

       R3.29           R3.27           R3.16   

Singapore

              

3-month T-Bills

       0.34%           0.32%           0.29%   

10 yr bond

       2.29%           2.42%           2.15%   

Singapore Dollar*

       S1.29           S1.26           S1.24   

US$ Bonds**

              

South Korea

       n/a           1.04%           1.53%   

Malaysia

       n/a           3.47%           3.60%   

Philippines

       2.26%           2.44%           2.66%   

 

*   These currencies are quoted Asian currency per U.S. Dollar. The Australian and New Zealand Dollars are quoted U.S. Dollars per currency.
**   Sovereign issues.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

9


Portfolio of Investments

As of October 31, 2014

 

 

Principal
Amount
(000)
     Description   Value
(US$)
 
                  

CORPORATE BONDS—59.1%

  

AUSTRALIA—7.1%

  

AUD

    3,000      

AAI Ltd., 6.75%, 10/06/2016 (a)(b)

  $ 2,716,981   

AUD

    1,800      

AMP Group Finance Services Ltd., 7.00%, 03/02/2015

    1,601,965   

AUD

    2,500      

APT Pipelines Ltd., 7.75%, 07/22/2020

    2,513,631   

AUD

    5,300      

Australia & New Zealand Banking Group Ltd., 6.75%, 11/10/2014

    4,668,849   

AUD

    10,900      

BHP Billiton Finance Ltd., 3.75%, 10/18/2017

    9,694,382   

AUD

    4,000      

CFS Retail Property Trust, 6.25%, 12/22/2014

    3,535,733   

AUD

    4,300      

CFS Retail Property Trust, 7.25%, 05/02/2016

    3,998,249   

AUD

    8,200      

Coca-Cola Amatil Ltd., 4.25%, 11/13/2019

    7,349,710   

AUD

    5,300      

DnB NOR Boligkreditt, 6.25%, 06/08/2016

    4,882,927   

AUD

    5,000      

KfW, 6.00%, 08/20/2020

    4,953,527   

AUD

    10,600      

KfW, 6.25%, 02/23/2018

    10,252,122   

AUD

    10,500      

KfW, 6.25%, 12/04/2019

    10,454,133   

AUD

    15,000      

KfW, 6.25%, 05/19/2021

    15,177,223   

AUD

    9,788      

Kommunalbanken AS, 6.50%, 04/12/2021

    9,955,325   

AUD

    2,900      

National Capital Trust III, 3.69%, 09/30/2016 (a)(b)(c)

    2,497,795   

AUD

    2,500      

National Wealth Management Holdings Ltd., 6.75%, 06/16/2016 (a)(b)

    2,262,435   

AUD

    4,800      

New Zealand Milk Australia Pty Ltd., 6.25%, 07/11/2016

    4,425,314   

AUD

    4,000      

Rabobank Capital Funding Trust V, 3.41%, 12/31/2014 (a)(b)(c)(d)

    3,513,311   

AUD

    4,800      

Royal Womens Hospital Finance Pty Ltd., 6.20%, 03/26/2017 (a)(b)(e)

    4,037,509   

AUD

    6,000      

SPI Australia Assets Pty Ltd., 7.00%, 08/12/2015

    5,415,430   

AUD

    2,000      

Telstra Corp. Ltd., 8.75%, 01/20/2015

    1,779,791   

AUD

    4,000      

Westpac Banking Corp., 7.25%, 11/18/2016

    3,805,013   

AUD

    3,600      

Woolworths Ltd., 6.75%, 03/22/2016

    3,323,738   
                   122,815,093   

CHINA—14.5%

 

USD

    8,200      

Anton Oilfield Services Group, 7.50%, 11/06/2016 (b)(d)

    8,159,000   

USD

    10,000      

Central China Real Estate Ltd., 6.50%, 06/04/2016 (b)(d)

    9,709,070   

USD

    4,400      

China Hongqiao Group Ltd., 7.63%, 06/26/2017 (d)

    4,547,211   

USD

    8,450      

China Overseas Finance Cayman Island II Ltd., 5.50%, 11/10/2020 (d)

    9,070,830   

USD

    12,030      

China Railway Resources Huitung Ltd., 3.85%, 02/05/2023 (d)

    11,924,425   

USD

    4,955      

China Resources Gas Group Ltd., 4.50%, 04/05/2022 (d)

    5,161,163   

USD

    9,550      

CIFI Holdings Group Co. Ltd., 12.25%, 04/15/2016 (b)(d)

    10,743,750   

USD

    8,980      

CNOOC Finance 2012 Ltd., 3.88%, 05/02/2022 (d)

    9,182,409   

USD

    1,652      

CNOOC Finance 2013 Ltd., 3.00%, 05/09/2023

    1,567,069   

USD

    11,800      

COSL Finance BVI Ltd., REG S, 3.25%, 09/06/2022 (d)

    11,238,863   

USD

    17,200      

Country Garden Holdings Co. Ltd., 7.25%, 10/04/2017 (b)(d)

    16,942,000   

USD

    4,348      

CRCC Yuxiang Ltd., 3.50%, 05/16/2023 (d)

    4,228,960   

USD

    1,949      

ENN Energy Holdings Ltd., 6.00%, 05/13/2021 (d)

    2,177,937   

CNH

    13,000      

Export-Import Bank of China, 3.25%, 01/17/2021

    2,121,149   

USD

    5,531      

Export-Import Bank of China, 3.63%, 07/31/2024 (d)

    5,562,510   

USD

    4,400      

Franshion Development Ltd., 6.75%, 04/15/2021 (d)

    4,664,000   

USD

    13,200      

Franshion Investment Ltd., 4.70%, 10/26/2017 (d)

    13,497,000   

USD

    5,876      

Future Land Development Holdings Ltd., 10.25%, 07/21/2017 (b)(d)

    5,760,830   

USD

    8,629      

Greenland Hong Kong Holdings Ltd., 4.75%, 10/18/2016 (d)

    8,683,363   

USD

    5,609      

KWG Property Holding Ltd., 8.98%, 01/14/2017 (b)(d)

    5,594,978   

USD

    3,907      

Longfor Properties Co. Ltd., 6.75%, 01/29/2018 (b)(d)

    3,811,107   

USD

    6,500      

Maoye International Holdings Ltd., 7.75%, 05/19/2017 (d)

    6,678,750   

USD

    4,044      

MIE Holdings Corp., 7.50%, 04/25/2017 (b)(d)

    3,963,120   

USD

    14,434      

Semiconductor Manufacturing International Corp., 4.13%, 10/07/2019 (d)

    14,520,821   

USD

    10,200      

Sinopec Capital 2013 Ltd., 3.13%, 04/24/2023 (d)

    9,735,890   

USD

    1,600      

Sinopec Group Overseas Development 2012 Ltd., 3.90%, 05/17/2022 (d)

    1,635,661   

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

10


Portfolio of Investments (continued)

As of October 31, 2014

 

 

Principal
Amount
(000)
     Description   Value
(US$)
 
                  

CORPORATE BONDS (continued)

  

CHINA (continued)

 

USD

    1,300      

Sinopec Group Overseas Development 2012 Ltd., 4.88%, 05/17/2042 (d)

  $ 1,377,117   

USD

    4,400      

Sinopec Group Overseas Development 2013 Ltd., 4.38%, 10/17/2023 (d)

    4,595,892   

USD

    3,460      

Sinopec Group Overseas Development 2014 Ltd., 4.38%, 04/10/2024 (d)

    3,613,596   

USD

    6,312      

Tingyi Cayman Islands Holding Corp., 3.88%, 06/20/2017 (d)

    6,561,892   

USD

    12,884      

Trillion Chance Ltd., 8.50%, 01/10/2017 (b)(d)

    12,682,636   

USD

    19,000      

Wanda Properties Overseas Ltd., 4.88%, 11/21/2018 (d)

    19,289,446   

USD

    4,852      

Yingde Gases Investment Ltd., 144A, 8.13%, 04/22/2016 (b)(d)

    5,046,080   

USD

    5,313      

Yingde Gases Investment Ltd., REG S, 8.13%, 04/22/2016 (b)(d)

    5,525,520   
                   249,574,045   

HONG KONG—6.8%

 

USD

    10,103      

Champion MTN Ltd., 3.75%, 01/17/2023 (d)

    9,284,283   

USD

    5,400      

CNPC General Capital Ltd., 2.75%, 05/14/2019 (d)

    5,392,057   

USD

    4,282      

CNPC General Capital Ltd., 3.40%, 04/16/2023 (d)

    4,159,184   

USD

    17,000      

HLP Finance Ltd., 4.75%, 06/25/2022 (d)

    17,414,953   

USD

    1,600      

Hong Kong Land Finance Cayman Islands Co. Ltd., 4.50%, 06/01/2022

    1,698,638   

USD

    4,417      

Hutchison Whampoa International Ltd., 1.63%, 10/31/2017 (d)

    4,409,504   

USD

    1,600      

Hutchison Whampoa International Ltd., 4.63%, 09/11/2015 (d)

    1,651,790   

USD

    1,900      

Hutchison Whampoa International Ltd., 7.45%, 11/24/2033 (d)

    2,701,091   

USD

    7,014      

Hutchison Whampoa International Ltd., 7.63%, 04/09/2019 (d)

    8,531,858   

USD

    1,862      

LS Finance 2022 Ltd., 4.25%, 10/16/2022 (d)

    1,846,022   

USD

    13,200      

Metropolitan Light International Ltd., 5.25%, 01/17/2015 (b)(d)

    13,266,000   

USD

    1,250      

Shimao Property Holdings Ltd., 6.63%, 01/14/2017 (b)(d)

    1,237,500   

USD

    7,758      

Shimao Property Holdings Ltd., 8.13%, 01/22/2018 (b)(d)

    8,126,505   

USD

    5,545      

Standard Chartered PLC, 144A, 3.95%, 01/11/2023 (d)

    5,441,131   

USD

    9,200      

Standard Chartered PLC, REG S, 3.95%, 01/11/2023 (d)

    9,027,666   

USD

    1,800      

Swire Pacific MTN Financing Ltd., 6.25%, 04/18/2018

    2,031,827   

USD

    2,440      

Swire Properties MTN Financing Ltd., 2.75%, 03/07/2020 (d)

    2,410,786   

USD

    17,300      

Swire Properties MTN Financing Ltd., 4.38%, 06/18/2022 (d)

    18,228,820   
                   116,859,615   

INDIA—3.9%

 

USD

    2,799      

Axis Bank Ltd, 5.13%, 09/05/2017 (d)

    2,990,594   

USD

    2,900      

Bank of Baroda, 4.88%, 07/23/2019 (d)

    3,064,271   

USD

    3,050      

Bank of Baroda, 5.00%, 08/24/2016 (d)

    3,197,785   

USD

    3,800      

Bharti Airtel International Netherlands BV, 5.13%, 03/11/2023 (d)

    4,013,864   

USD

    6,487      

GCX Ltd., 7.00%, 08/01/2016 (b)(d)

    6,659,963   

USD

    7,000      

HDFC Bank Ltd., 3.00%, 03/06/2018 (d)

    7,031,430   

USD

    7,909      

ICICI Bank Ltd., 3.50%, 03/18/2020 (d)

    7,935,313   

USD

    3,515      

ICICI Bank Ltd., 4.80%, 05/22/2019 (d)

    3,731,524   

USD

    4,400      

NTPC Ltd., 4.75%, 10/03/2022 (d)

    4,532,937   

USD

    12,500      

NTPC Ltd., 5.63%, 07/14/2021 (d)

    13,618,188   

INR

    270,000      

Rural Electrification Corp. Ltd., 9.35%, 06/15/2022

    4,450,202   

USD

    4,800      

State Bank of India, 3.62%, 04/17/2019 (d)

    4,899,619   
                   66,125,690   

INDONESIA—3.7%

 

IDR

    24,000,000      

Bank OCBC Nisp Tbk PT, 6.90%, 02/19/2015

    1,973,024   

USD

    7,600      

Indo Energy Finance BV, 7.00%, 05/05/2015 (b)(d)

    7,261,344   

USD

    5,200      

Indo Energy Finance II BV, 6.38%, 01/24/2018 (b)(d)

    4,199,000   

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

11


Portfolio of Investments (continued)

As of October 31, 2014

 

 

Principal
Amount
(000)
     Description   Value
(US$)
 
                  

CORPORATE BONDS (continued)

  

INDONESIA (continued)

 

USD

    3,150      

Majapahit Holding BV, 7.88%, 06/29/2037 (d)

  $ 3,795,750   

USD

    8,900      

Majapahit Holding BV, 8.00%, 08/07/2019 (d)

    10,435,250   

USD

    2,940      

Pertamina Persero PT, 4.30%, 05/20/2023 (d)

    2,859,150   

USD

    10,100      

Pertamina Persero PT, 6.00%, 05/03/2042 (d)

    10,100,000   

USD

    7,600      

Pertamina Persero PT, 6.45%, 05/30/2044 (d)

    8,094,000   

USD

    4,600      

Perusahaan Listrik Negara PT, 144A, 5.25%, 10/24/2042 (d)

    4,163,000   

USD

    6,009      

Perusahaan Listrik Negara PT, REG S, 5.25%, 10/24/2042 (d)

    5,438,145   

USD

    4,600      

TBG Global Pte Ltd., 4.63%, 04/03/2016 (b)(d)

    4,623,000   
                   62,941,663   

MALAYSIA—2.5%

 

MYR

    5,000      

AmBank M Bhd, 4.95%, 03/25/2015

    1,525,361   

USD

    11,700      

AMBB Capital (L) Ltd., 6.77%, 01/27/2016 (a)(b)(c)

    11,770,327   

MYR

    15,000      

Bank Pembangunan Malaysia Bhd MTN, 4.15%, 04/10/2015

    4,573,535   

USD

    900      

Petroliam Nasional Bhd, 7.63%, 10/15/2026 (d)

    1,243,827   

USD

    50      

PETRONAS Capital Ltd., 5.25%, 08/12/2019 (d)

    56,162   

USD

    6,791      

Petronas Capital Ltd., 7.88%, 05/22/2022 (d)

    8,899,320   

USD

    2,650      

Public Bank Bhd, 6.84%, 08/22/2016 (a)(b)

    2,730,131   

USD

    11,550      

SBB Capital Corp., 6.62%, 11/02/2015 (a)(b)(c)(d)

    11,694,006   
                   42,492,669   

NETHERLANDS—0.1%

 

USD

    1,200      

Jababeka International BV, 7.50%, 09/24/2017 (b)(d)

    1,222,056   

PHILIPPINES—2.7%

 

USD

    3,700      

Energy Development Corp., 6.50%, 01/20/2021 (d)

    4,014,500   

USD

    3,072      

Philippine Long Distance Telephone Co., 8.35%, 03/06/2017

    3,523,584   

USD

    19,200      

Power Sector Assets & Liabilities Management Corp., 7.25%, 05/27/2019 (d)

    22,848,000   

USD

    12,900      

Power Sector Assets & Liabilities Management Corp., 7.39%, 12/02/2024 (d)

    16,770,000   
                   47,156,084   

REPUBLIC OF SOUTH KOREA—6.5%

 

USD

    3,000      

Export-Import Bank of Korea, 5.13%, 03/16/2015

    3,049,392   

USD

    4,300      

Export-Import Bank of Korea, 5.88%, 01/14/2015

    4,343,714   

USD

    4,211      

Korea Exchange Bank, 2.50%, 06/12/2019 (d)

    4,209,021   

USD

    2,050      

Korea Expressway Corp., 1.88%, 10/22/2017 (d)

    2,048,803   

USD

    12,750      

Korea Expressway Corp., 4.50%, 03/23/2015 (d)

    12,929,329   

USD

    2,300      

Korea Gas Corp., 2.25%, 07/25/2017 (d)

    2,326,130   

USD

    1,400      

Korea Gas Corp., 2.88%, 07/29/2018 (d)

    1,429,065   

USD

    7,633      

Korea Gas Corp., 3.50%, 07/02/2026 (d)

    7,705,781   

USD

    4,000      

Korea Hydro & Nuclear Power Co. Ltd., 2.88%, 10/02/2018 (d)

    4,077,564   

USD

    4,200      

Korea Hydro & Nuclear Power Co. Ltd., 144A, 3.00%, 09/19/2022 (d)

    4,131,183   

USD

    13,400      

Korea Hydro & Nuclear Power Co. Ltd., REG S, 3.00%, 09/19/2022 (d)

    13,180,441   

USD

    3,000      

Korea South-East Power Co. Ltd., 3.63%, 01/29/2017 (d)

    3,124,779   

USD

    12,470      

Korea South-East Power Co. Ltd., 6.00%, 05/25/2016 (d)

    13,333,797   

USD

    11,000      

Korea Western Power Co. Ltd., 2.88%, 10/10/2018 (d)

    11,220,242   

USD

    6,390      

Minera y Metalergica del Boleo SA de CV (Korea Resources Corp.), 2.88%, 05/07/2019 (d)

    6,494,540   

USD

    4,200      

Shinhan Bank, 1.88%, 07/30/2018 (d)

    4,146,307   

USD

    5,880      

Shinhan Bank, 5.66%, 03/02/2015 (a)(b)(d)

    5,924,100   

USD

    7,896      

Woori Bank Co. Ltd., 4.75%, 04/30/2024 (d)

    8,182,854   
                   111,857,042   

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

12


Portfolio of Investments (continued)

As of October 31, 2014

 

 

Principal
Amount
(000)
     Description   Value
(US$)
 
                  

CORPORATE BONDS (continued)

  

SINGAPORE—2.1%

 

USD

    8,666      

ABJA Investment Co. Pte Ltd., 5.95%, 07/31/2024 (d)

  $ 8,806,822   

SGD

    2,750      

CapitaMalls Asia Treasury Ltd., 3.95%, 08/24/2017

    2,234,485   

USD

    8,900      

Oversea-Chinese Banking Corp. Ltd., 3.15%, 03/11/2018 (a)(b)(d)

    9,004,842   

USD

    7,450      

Oversea-Chinese Banking Corp. Ltd., 3.75%, 11/15/2017 (a)(b)(d)

    7,698,085   

USD

    4,000      

United Overseas Bank Ltd., 2.88%, 10/17/2017 (a)(b)(d)

    4,041,200   

USD

    4,400      

United Overseas Bank Ltd., 3.75%, 09/19/2019 (a)(b)(d)

    4,440,348   
                   36,225,782   

SRI LANKA—0.2%

 

USD

    3,300      

Bank of Ceylon, 5.33%, 04/16/2018 (d)

    3,349,500   

SUPRANATIONAL—4.9%

 

AUD

    14,000      

Asian Development Bank, 5.00%, 03/09/2022

    13,355,862   

AUD

    13,800      

Asian Development Bank, 5.50%, 02/15/2016

    12,551,270   

AUD

    16,800      

Asian Development Bank, 6.25%, 03/05/2020

    16,817,090   

AUD

    10,000      

Inter-American Development Bank, 6.00%, 05/25/2016

    9,228,029   

AUD

    11,200      

Inter-American Development Bank, 6.50%, 08/20/2019

    11,232,643   

AUD

    8,900      

International Bank for Reconstruction & Development, 5.75%, 10/21/2019

    8,693,282   

AUD

    10,300      

International Bank for Reconstruction & Development, 6.00%, 11/09/2016

    9,622,158   

AUD

    2,600      

International Finance Corp., 5.75%, 07/28/2020

    2,557,411   
                   84,057,745   

THAILAND—4.1%

 

USD

    2,400      

Bangkok Bank PCL, 4.80%, 10/18/2020 (d)

    2,600,424   

USD

    4,200      

Bangkok Bank PCL, 5.00%, 10/03/2023 (d)

    4,631,579   

USD

    4,800      

Bangkok Bank PCL, 9.03%, 03/15/2029 (d)

    6,653,918   

USD

    17,170      

Krung Thai Bank PCL, 5.20%, 12/26/2019 (a)(b)(d)

    17,720,333   

USD

    4,330      

PTT Global Chemical PCL, 144A, 4.25%, 09/19/2022 (d)

    4,420,120   

USD

    9,440      

PTT Global Chemical PCL, REG S, 4.25%, 09/19/2022 (d)

    9,636,475   

USD

    7,400      

PTTEP Canada International Finance Ltd., 5.69%, 04/05/2021 (d)

    8,397,587   

USD

    4,500      

Siam Commercial Bank Ltd., 3.38%, 09/19/2017 (d)

    4,644,374   

USD

    12,002      

Siam Commercial Bank PCL, 3.50%, 04/07/2019 (d)

    12,295,689   
                   71,000,499   
            

Total Corporate Bonds — 59.1% (cost $1,024,594,043)

    1,015,677,483   

GOVERNMENT BONDS—66.1%

  

AUSTRALIA—39.3%

  

AUD

    30,300      

Australia Government Bond, 3.25%, 04/21/2029 (d)

    25,634,761   

AUD

    58,800      

Australia Government Bond, 4.50%, 04/21/2033 (d)

    56,944,771   

AUD

    99,700      

Australia Government Bond, 5.50%, 01/21/2018

    95,479,549   

AUD

    7,000      

Australia Government Bond, 5.50%, 04/21/2023

    7,202,886   

AUD

    35,300      

Australia Government Bond, 5.75%, 07/15/2022

    36,583,750   

AUD

    104,500      

Australia Government Bond, 6.25%, 04/15/2015

    93,537,084   

AUD

    15,000      

New South Wales Treasury Corp., 6.00%, 03/01/2022

    15,370,616   

AUD

    5,950      

Queensland Treasury Corp., 6.00%, 10/14/2015 (d)(f)

    5,405,645   

AUD

    27,100      

Queensland Treasury Corp., 6.00%, 04/21/2016 (d)

    24,992,458   

AUD

    22,850      

Queensland Treasury Corp., 6.00%, 02/21/2018 (d)

    22,051,833   

AUD

    31,190      

Queensland Treasury Corp., 6.00%, 06/14/2021 (d)(f)

    31,875,247   

AUD

    47,100      

Queensland Treasury Corp., 6.25%, 06/14/2019 (f)

    47,263,554   

AUD

    24,330      

Queensland Treasury Corp., 6.25%, 02/21/2020 (d)

    24,538,023   

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

13


Portfolio of Investments (continued)

As of October 31, 2014

 

 

Principal
Amount
(000)
     Description   Value
(US$)
 
                  

GOVERNMENT BONDS (continued)

  

AUSTRALIA (continued)

 

AUD

    131,500      

Treasury Corp. of Victoria, 5.75%, 11/15/2016

  $ 122,717,549   

AUD

    14,250      

Treasury Corp. of Victoria, 6.00%, 06/15/2020

    14,331,334   

AUD

    35,350      

Treasury Corp. of Victoria, 6.00%, 10/17/2022

    36,502,116   

AUD

    15,000      

Western Australian Treasury Corp., 7.00%, 07/15/2021

    15,939,523   
                   676,370,699   

CHINA—3.9%

  

CNH

    10,000      

Agriculture Development Bank of China Co., Ltd., 3.08%, 01/16/2016

    1,627,993   

CNH

    13,000      

China Development Bank, 3.35%, 03/20/2017

    2,113,052   

CNY

    15,000      

China Development Bank, 5.80%, 01/03/2016

    2,516,153   

CNH

    17,500      

China Government Bond, 1.40%, 08/18/2016

    2,784,288   

CNH

    10,000      

China Government Bond, 1.80%, 12/01/2015

    1,615,190   

CNH

    18,000      

China Government Bond, 2.48%, 12/01/2020

    2,782,453   

CNY

    50,000      

China Government Bond, 3.28%, 08/05/2020 (g)

    8,009,937   

CNY

    10,000      

China Government Bond, 3.36%, 05/24/2022 (g)

    1,592,512   

CNY

    70,000      

China Government Bond, 3.41%, 06/24/2020 (g)

    11,296,272   

CNY

    20,000      

China Government Bond, 3.46%, 07/11/2020 (g)

    3,234,988   

CNY

    8,000      

China Government Bond, 3.55%, 10/20/2016 (g)

    1,309,587   

CNY

    2,000      

China Government Bond, 3.57%, 11/17/2021 (g)

    323,358   

CNY

    40,000      

China Government Bond, 3.60%, 02/17/2016 (g)

    6,552,783   

CNY

    4,000      

China Government Bond, 3.77%, 08/15/2016 (g)

    657,244   

CNY

    20,000      

China Government Bond, 3.83%, 01/27/2018 (g)

    3,302,122   

CNY

    60,000      

China Government Bond, 4.08%, 08/22/2023 (g)

    10,029,181   

CNY

    30,000      

China Government Bond, 4.10%, 09/27/2032 (g)

    4,931,640   

CNY

    18,000      

China Government Bond, 4.13%, 11/07/2018 (g)

    3,005,068   
                   67,683,821   

INDIA—2.5%

  

INR

    502,500      

India Government Bond, 7.28%, 06/03/2019

    7,879,765   

INR

    1,885,000      

India Government Bond, 8.12%, 12/10/2020

    30,346,750   

INR

    125,000      

India Government Bond, 8.30%, 07/02/2040

    2,008,526   

INR

    16,000      

India Government Bond, 8.33%, 06/07/2036

    258,340   

INR

    150,000      

India Government Bond, 8.83%, 12/12/2041

    2,569,673   
                   43,063,054   

INDONESIA—4.6%

  

IDR

    167,000,000      

Indonesia Government Bond, Barclays Credit Linked Note, 9.50%, 06/17/2015

    14,019,156   

USD

    3,981      

Indonesia Government Bond, Perusahaan Penerbit SBSN, 4.35%, 09/10/2024 (d)

    3,990,953   

USD

    7,989      

Indonesia Government International Bond, 3.38%, 04/15/2023 (d)

    7,649,467   

USD

    14,700      

Indonesia Government International Bond, 4.63%, 04/15/2043 (d)

    13,744,500   

USD

    3,500      

Indonesia Government International Bond, 5.25%, 01/17/2042 (d)

    3,508,750   

USD

    7,400      

Indonesia Government International Bond, 5.88%, 03/13/2020 (d)

    8,278,750   

USD

    1,400      

Indonesia Government International Bond, 5.88%, 01/15/2024 (d)

    1,592,500   

USD

    6,900      

Indonesia Government International Bond, 6.63%, 02/17/2037 (d)

    8,055,750   

IDR

    47,000,000      

Indonesia Treasury Bond, 8.25%, 06/15/2032

    3,762,839   

IDR

    125,400,000      

Indonesia Treasury Bond, 8.38%, 03/15/2034

    10,303,864   

IDR

    21,000,000      

Indonesia Treasury Bond, 9.50%, 07/15/2031

    1,889,739   

USD

    2,050      

Perusahaan Penerbit SBSN, 4.00%, 11/21/2018 (d)

    2,119,188   
                   78,915,456   

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

14


Portfolio of Investments (continued)

As of October 31, 2014

 

 

Principal
Amount
(000)
     Description   Value
(US$)
 
                  

GOVERNMENT BONDS (continued)

  

MALAYSIA—2.3%

  

MYR

    11,300      

Malaysia Government Bond, 3.31%, 10/31/2017

  $ 3,406,926   

MYR

    1,450      

Malaysia Government Bond, 3.39%, 03/15/2017

    439,481   

MYR

    600      

Malaysia Government Bond, 3.49%, 03/31/2020

    180,756   

MYR

    98,400      

Malaysia Government Bond, 3.58%, 09/28/2018

    29,882,578   

MYR

    20,400      

Malaysia Government Bond, 4.16%, 07/15/2021

    6,342,609   
                   40,252,350   

NEW ZEALAND—0.2%

  

NZD

    2,150      

New Zealand Government Bond, 6.00%, 04/15/2015 (d)

    1,694,578   

NZD

    1,500      

Province of Quebec, 6.75%, 11/09/2015

    1,199,774   
                   2,894,352   

PHILIPPINES—2.4%

  

PHP

    347,040      

Philippine Government Bond, 5.75%, 11/24/2021

    8,606,066   

PHP

    543      

Philippine Government Bond, 6.38%, 01/19/2022

    13,915   

PHP

    331,030      

Philippine Government Bond, 9.13%, 09/04/2016

    8,269,952   

USD

    8,300      

Philippine Government International Bond, 6.50%, 01/20/2020

    9,897,750   

USD

    7,050      

Philippine Government International Bond, 7.75%, 01/14/2031

    10,011,000   

USD

    2,970      

Philippine Government International Bond, 9.88%, 01/15/2019

    3,864,713   
                   40,663,396   

REPUBLIC OF SOUTH KOREA—6.7%

  

USD

    5,600      

Korea Land & Housing Corp., 1.88%, 08/02/2017 (d)

    5,618,312   

KRW

    7,000,000      

Korea Monetary Stabilization Bond, 2.47%, 04/02/2015

    6,561,371   

KRW

    8,000,000      

Korea Monetary Stabilization Bond, 2.76%, 06/02/2015

    7,515,784   

KRW

    17,486,865      

Korea Treasury Bond, 1.50%, 06/10/2021 (h)

    16,583,814   

KRW

    2,000,000      

Korea Treasury Bond, 2.75%, 09/10/2017

    1,901,457   

KRW

    22,000,000      

Korea Treasury Bond, 2.75%, 03/10/2018

    20,944,454   

KRW

    15,500,000      

Korea Treasury Bond, 3.25%, 09/10/2018

    15,042,859   

KRW

    10,300,000      

Korea Treasury Bond, 3.38%, 09/10/2023

    10,221,010   

KRW

    22,000,000      

Korea Treasury Bond, 3.50%, 03/10/2024

    22,061,015   

KRW

    3,300,000      

Korea Treasury Bond, 3.75%, 06/10/2022

    3,347,543   

KRW

    5,000,000      

Korea Treasury Bond, 4.25%, 06/10/2021

    5,189,809   
                   114,987,428   

SINGAPORE—0.4%

  

SGD

    3,000      

Housing & Development Board, 1.01%, 09/19/2016

    2,329,403   

SGD

    3,000      

Housing & Development Board, 1.83%, 11/21/2018 (d)

    2,317,349   

SGD

    750      

Housing & Development Board, 2.02%, 02/22/2016

    591,963   

SGD

    2,000      

Housing & Development Board, 3.14%, 03/18/2021

    1,612,347   
                   6,851,062   

SRI LANKA—0.9%

  

LKR

    90,000      

Sri Lanka Government Bonds, 8.00%, 09/01/2016

    703,101   

LKR

    151,000      

Sri Lanka Government Bonds, 8.00%, 11/15/2018

    1,192,498   

LKR

    724,600      

Sri Lanka Government Bonds, 8.50%, 11/01/2015

    5,651,142   

LKR

    230,000      

Sri Lanka Government Bonds, 8.50%, 04/01/2018

    1,842,636   

LKR

    388,000      

Sri Lanka Government Bonds, 8.50%, 07/15/2018

    3,109,103   

LKR

    293,000      

Sri Lanka Government Bonds, 8.75%, 05/15/2017

    2,329,339   
                   14,827,819   

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

15


Portfolio of Investments (continued)

As of October 31, 2014

 

 

Principal
Amount
(000)
     Description   Value
(US$)
 
                  

GOVERNMENT BONDS (continued)

  

THAILAND—2.9%

  

THB

    637,015      

Thailand Government Bond, 1.20%, 07/14/2021 (d)(h)

  $ 18,935,860   

THB

    330,067      

Thailand Government Bond, 1.25%, 03/12/2028 (d)(h)

    9,333,905   

THB

    321,000      

Thailand Government Bond, 3.45%, 03/08/2019

    10,121,010   

THB

    335,000      

Thailand Government Bond, 3.63%, 06/16/2023

    10,687,765   
                   49,078,540   
            

Total Government Bonds—66.1% (cost $1,162,192,724)

    1,135,587,977   

SHORT-TERM INVESTMENT—2.2%

  

UNITED STATES—2.2%

  

USD

    38,574      

Repurchase Agreement, Fixed Income Clearing Corp.,
0.00% dated 10/31/2014, due 11/03/2014 in the amount of $38,574,000
(collateralized by $39,455,000 U.S. Treasury Note, maturing 10/31/2021;
value of $39,352,683)

    38,574,000   
            

Total Short-Term Investment—2.2% (cost $38,574,000)

    38,574,000   
            

Total Investments—127.4% (cost $2,225,360,767)

    2,189,839,460   
    

Other Assets and Liabilities—7.5%

    129,104,848   
    

Long-Term Debt Obligations—(32.0%)

    (550,000,000
            

Mandatory Redeemable Preferred Stock at Liquidation Value—(2.9%)

    (50,000,000
            

Net Assets—100.0%

  $ 1,718,944,308   

 

AUD—Australian Dollar   KRW—South Korean Won   SGD—Singapore Dollar
CNH—Chinese Yuan Renminbi Offshore   LKR—Sri Lanka Rupee   THB—Thailand Baht
CNY—Chinese Yuan Renminbi   MYR—Malaysian Ringgit   USD—U.S. Dollar
IDR—Indonesian Rupiah   NZD—New Zealand Dollar  
INR—Indian Rupee   PHP—Philippine Peso  

 

(a)   Indicates a variable rate security. The maturity date presented for these instruments is the later of the next date on which the security can be redeemed at par or the next date on which the rate of interest is adjusted. The interest rate shown reflects the rate in effect at October 31, 2014.
(b)   The maturity date presented for these instruments represents the next call/put date.
(c)   Perpetual bond. This is a bond that has no maturity date, is redeemable and pays a steady stream of interest indefinitely.
(d)   Denotes a restricted security, see Note 2(c).
(e)   Illiquid security.
(f)   This security is government guaranteed.
(g)   China A shares. These shares are issued in local currency, traded in the local stock markets and are held through a qualified foreign institutional investor license.
(h)   Inflation linked security.

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

16


Portfolio of Investments (continued)

As of October 31, 2014

 

 

At October 31, 2014, the Fund held the following futures contracts:

 

Futures Contracts      Counterparty        Number of
Contracts
Long (Short)
       Expiration
Date
       Unrealized
Appreciation/
(Depreciation)
 

United States Treasury Note 6%-2 year

       UBS           (219        12/31/2014         $ 29,805   

United States Treasury Note 6%-5 year

       UBS           75           12/31/2014           (24,111

United States Treasury Note 6%-10 year

       UBS           (3,207        12/19/2014           1,576,199   

United States Treasury Bond 6%-30 year

       UBS           (46        12/19/2014           (73,059
                                        $ 1,508,834   

At October 31, 2014, the Fund’s open forward foreign currency exchange contracts were as follows:

 

Purchase Contracts
Settlement Date*
   Counterparty    Amount
Purchased
     Amount Sold      Fair Value      Unrealized
Appreciation/
(Depreciation)
 

Chinese Yuan Renminbi/United States Dollar

  

        
03/10/2015   

Credit Suisse

     CNY99,408,000         USD16,000,000       $ 16,103,035       $ 103,035   
03/10/2015   

Deutche Bank

     CNY88,836,500         USD14,380,000         14,390,565         10,565   
03/10/2015   

HSBC

     CNY78,212,500         USD12,500,000         12,669,590         169,590   
07/14/2015   

UBS

     CNY202,560,100         USD32,600,000         32,562,996         (37,004

Chinese Yuan Renminbi Offshore/United States Dollar

  

     
07/14/2015   

State Street

     CNH176,540,000         USD28,000,000         28,299,845         299,845   

Malaysian Ringgit/United States Dollar

  

     
12/04/2014   

Credit Suisse

     MYR168,345,600         USD51,200,000         51,067,207         (132,793

Philippine Peso/United States Dollar

  

     
11/10/2014   

Goldman Sachs

     PHP196,893,000         USD4,500,000         4,386,607         (113,393

Singapore Dollar/United States Dollar

  

     
12/15/2014   

Goldman Sachs

     SGD71,557,313         USD56,250,000         55,690,958         (559,042

South Korean Won/United States Dollar

  

     
01/16/2015   

Standard Chartered Bank

     KRW2,432,480,000         USD2,300,000         2,274,760         (25,240

Thai Baht/United States Dollar

  

     
11/14/2014   

Goldman Sachs

     THB256,118,000         USD7,900,000         7,857,280         (42,720
                            $ 225,302,843       $ (327,157

Sale Contracts

           

United States Dollar/Australian Dollar

  

01/28/2015   

State Street

     USD4,000,000         AUD4,542,512         3,973,370         26,630   

United States Dollar/Chinese Yuan Renminbi

  

  
03/10/2015   

Standard Chartered Bank

     USD20,400,000         CNY125,986,320         20,408,440         (8,440
07/14/2015   

Deutsche Bank

     USD32,400,000         CNY202,532,400         32,558,543         (158,543

United States Dollar/Chinese Yuan Renminbi Offshore

  

  
07/14/2015   

Goldman Sachs

     USD13,000,000         CNH80,990,000         12,982,918         17,082   
07/14/2015   

State Street

     USD28,200,000         CNH176,463,860         28,287,639         (87,639

United States Dollar/Malaysian Ringgit

  

  
12/04/2014   

Goldman Sachs

     USD48,220,000         MYR153,619,276         46,600,014         1,619,986   

United States Dollar/Philippine Peso

  

  
11/10/2014   

Goldman Sachs

     USD19,600,000         PHP857,578,400         19,106,110         493,890   

United States Dollar/Singapore Dollar

  

  
12/15/2014   

Goldman Sachs

     USD20,800,000         SGD26,458,952         20,592,227         207,773   
12/15/2014   

State Street

     USD46,500,000         SGD59,192,873         46,068,077         431,923   

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

17


Portfolio of Investments (concluded)

As of October 31, 2014

 

 

Sale Contracts
Settlement Date*
   Counterparty    Amount
Purchased
     Amount Sold      Fair Value      Unrealized
Appreciation/
(Depreciation)
 

United States Dollar/South Korean Won

  

  
12/05/2014   

State Street

     USD30,520,000         KRW31,229,590,000       $ 29,212,802       $ 1,307,198   
01/16/2015   

Standard Chartered Bank

     USD6,000,000         KRW6,345,600,000         5,934,155         65,845   

United States Dollar/Thai Baht

  

  
11/14/2014   

Goldman Sachs

     USD38,720,000         THB1,248,777,040         38,310,432         409,568   
11/14/2014   

UBS

     USD19,000,000         THB614,270,000         18,844,796         155,204   
                       $ 322,879,523       $ 4,480,477   

 

*   Certain contracts with different trade dates and like characteristics have been shown net.

At October 31, 2014, the Fund’s interest rate swaps were as follows:

 

Currency    Notional
Amount
     Expiration
Date
     Counterparty    Receive (Pay)
Floating Rate
   Floating Rate Index    Fixed
Rate
     Unrealized
Appreciation/
(Depreciation)
 

USD

     84,000,000         10/31/2016      

Barclays Bank

   Receive   

3-month LIBOR Index

     1.42%       $ (1,210,708

USD

     66,000,000         11/01/2017      

Barclays Bank

   Receive   

3-month LIBOR Index

     0.84%         337,421   
                                               $ (873,287

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

18


Statement of Assets and Liabilities

As of October 31, 2014

 

 

Assets

        

Investments, at value (cost $2,186,786,767)

   $ 2,151,265,460   

Repurchase agreement, at value (cost $38,574,000)

     38,574,000   

Foreign currency, at value (cost $95,240,166)

     95,194,006   

Cash at broker for futures contracts

     5,297,520   

Cash

     3,268,741   

Due from Broker

     1,822,700   

Cash at broker for interest rate swaps

     1,050,000   

Cash at broker for China A shares

     74,794   

Interest receivable

     27,200,753   

Receivable for investments sold

     7,106,081   

Unrealized appreciation on forward foreign currency exchange contracts

     5,318,134   

Prepaid expenses in connection with revolving credit facility, senior secured notes, term loans and Series A Mandatory Redeemable Preferred Shares

     3,320,254   

Variation margin receivable for futures contracts

     1,606,004   

Unrealized appreciation on interest rate swaps

     337,421   

Prepaid expenses

     220,010   

Prepaid expenses in connection with the at-the-market stock offering

     219,465   

Total assets

     2,341,875,343   

Liabilities

  

Senior secured notes payable (Note 8)

     200,000,000   

Revolving credit facility payable (Note 9)

     150,000,000   

3-year term loan payable (Note 9)

     100,000,000   

5-year term loan payable (Note 9)

     100,000,000   

Series A Mandatory Redeemable Preferred Shares ($25.00 liquidation value per share; 2,000,000 shares outstanding) (Note 7)

     50,000,000   

Payable for investments purchased

     14,672,691   

Interest payable on revolving credit facility, senior secured notes and term loans

     3,313,997   

Unrealized depreciation on interest rate swaps

     1,210,708   

Unrealized depreciation on forward foreign currency exchange contracts

     1,164,814   

Investment management fees payable (Note 3)

     1,156,643   

Deferred foreign capital gains tax

     361,642   

Administration fees payable (Note 3)

     237,922   

Dividend payable on Series A Mandatory Redeemable Preferred Shares

     211,981   

Variation margin payable for futures contracts

     97,170   

Investor relations fees payable (Note 3)

     86,132   

Director fees payable

     56,108   

Accrued expenses

     361,227   

Total liabilities

     622,931,035   
          

Net Assets Applicable to Common Shareholders

   $ 1,718,944,308   

Composition of Net Assets:

  

Common stock (par value $.01 per share) (Note 5)

   $ 2,613,006   

Paid-in capital in excess of par

     1,567,711,640   

Undistributed net investment income

     1,614,609   

Accumulated net realized loss from investments, interest rate swaps and futures contracts

     (89,845,867

Net unrealized appreciation on investments, futures contracts and interest rate swaps

     70,643,279   

Accumulated net realized foreign exchange gains

     268,441,512   

Net unrealized foreign exchange and forward foreign currency contract loss

     (102,233,871

Net Assets Applicable to Common Shareholders

   $ 1,718,944,308   

Net asset value per common share based on 261,300,603 shares issued and outstanding

   $ 6.58   

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

19


Statement of Operations

For the Year Ended October 31, 2014

 

 

Net Investment Income

        

Income

  

Interest and amortization of discount and premium (net of foreign withholding taxes of $990,265)

   $ 108,313,119   

Expenses

  

Investment management fee (Note 3)

     12,348,334   

Administration fee (Note 3)

     2,528,889   

Revolving credit facility, senior secured notes, term loans and Series A Mandatory Redeemable Preferred Shares fees and expenses

     1,149,494   

Custodian’s fees and expenses

     873,183   

Investor relations fees and expenses (Note 3)

     544,935   

Insurance expense

     408,950   

Reports to shareholders and proxy solicitation

     372,421   

Directors’ fees and expenses

     318,445   

Legal fees and expenses

     163,003   

Transfer agent’s fees and expenses

     145,095   

Independent auditors’ fees and expenses

     111,394   

Miscellaneous

     295,663   

Total operating expenses, excluding interest expense

     19,259,806   

Interest expense (Notes 8 & 9)

     13,544,204   

Distributions to Series A Mandatory Redeemable Preferred Shares (Note 7)

     2,091,147   

Net operating expenses

     34,895,157   
          

Net investment income applicable to common shareholders

     73,417,962   

Realized and Unrealized Gains/(Losses) on Investments, Interest Rate Swaps, Futures Contracts and Foreign Currencies

  

Net realized gain/(loss) from:

  

Investment transactions (including $114,893 capital gains tax)

     7,803,400   

Interest rate swaps

     (1,385,845

Futures contracts

     (11,998,949

Forward and spot foreign currency exchange contracts

     (6,541,857

Foreign currency transactions

     (49,570,207
       (61,693,458

Net change in unrealized appreciation/(depreciation) on:

  

Investments (including $23,658 change in deferred capital gains tax)

     37,467,316   

Interest rate swaps

     633,909   

Futures contracts

     2,383,002   

Forward foreign currency exchange rate contracts

     6,531,350   

Foreign currency translation

     (34,180,733
       12,834,844   

Net loss from investments, interest rate swaps, futures contracts and foreign currencies

     (48,858,614

Net Increase in Net Assets Applicable to Common Shareholders Resulting from Operations

   $ 24,559,348   

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

20


Statements of Changes in Net Assets

 

 

 

      For the
Year Ended
October 31, 2014
     For the
Year Ended
October 31, 2013
 

Increase/(Decrease) in Net Assets Applicable to Common Shareholders

     

Operations:

     

Net investment income

   $ 73,417,962       $ 79,435,526   

Net realized gain from investments, interest rate swaps and futures contracts

     (5,581,394      37,439,978   

Net realized loss from foreign currency transactions

     (56,112,064      (3,693,314

Net change in unrealized appreciation/depreciation on investments, interest rate swaps and futures contracts

     40,484,227         (124,629,665

Net change in unrealized appreciation/depreciation on foreign currency translation

     (27,649,383      (113,658,709

Net increase/(decrease) in net assets applicable to common shareholders resulting from operations

     24,559,348         (125,106,184

Distributions to Common Shareholders from:

     

Net investment income

     (111,091,699      (111,875,139

Net decrease in net assets applicable to common shareholders from distributions

     (111,091,699      (111,875,139

Common Stock Transactions:

     

Proceeds from the at-the-market stock offering (Note 5)

             37,174,650   

Expenses in connection with the at-the-market stock offering (Note 5)

             (59,829

Repurchase of common stock from open market repurchase program (6,107,325 and 0 shares respectively) (Note 6)

     (36,993,347        

Change in net assets from common stock transactions

     (36,993,347      37,114,821   

Change in net assets applicable to common shareholders resulting from operations

     (123,525,698      (199,866,502

Net Assets Applicable to Common Shareholders:

     

Beginning of year

     1,842,470,006         2,042,336,508   

End of year (including undistributed net investment income/(distributions in excess of net investment income) of $1,614,609 and ($9,758,172), respectively)

   $ 1,718,944,308       $ 1,842,470,006   

Amounts listed as “–” are $0 or round to $0.

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

21


Statement of Cash Flows

For the Year Ended October 31, 2014

 

 

Increase/(Decrease) in Cash (Including Foreign Currency)

  

Cash flows provided from (used for) operating activities:

  

Interest received (excluding discount and premium amortization of $11,863,590)

   $ 122,923,817   

Operating expenses paid

     (32,752,001

Dividends paid to Series A Mandatory Redeemable Preferred Shares

     (2,062,500

Purchases and sales of short-term portfolio investments, net

     4,350,000   

Purchases of long-term portfolio investments

     (1,299,654,896

Proceeds from sales of long-term portfolio investments

     1,508,551,498   

Realized losses on forward foreign currency exchange contracts closed

     (4,825,863

Realized losses on interest rate swap transactions

     (1,385,845

Payments paid to broker for futures contracts

     (14,248,241

Payments due from broker

     (1,822,700

Increase in cash collateral held at broker for China A shares

     (260

Decrease in prepaid expenses and other assets

     140   

Net cash provided from operating activities

     279,073,149   

Cash flows provided from (used for) financing activities

  

Repurchase of common stock

     (36,993,347

Dividends paid to common shareholders

     (120,456,416

Net cash used for financing activities

     (157,449,763

Effect of exchange rate on cash

     (51,103,453

Net increase in cash

     70,519,933   

Cash at beginning of year

     27,942,814   

Cash at end of year

   $ 98,462,747   

Reconciliation of Net Increase in Net Assets from Operations to Net Cash (Including Foreign Currency) Provided from (Used for) Operating Activities

  

Net increase in total net assets resulting from operations

   $ 24,559,348   

Decrease in investments

     229,773,603   

Net realized gain on investment transactions

     (7,803,400

Net realized foreign exchange losses

     51,286,201   

Net change in unrealized appreciation/depreciation on investments

     (37,467,316

Net change in unrealized foreign exchange gains/losses

     27,649,383   

Decrease in interest receivable

     2,747,108   

Increase in receivable for investments sold

     (3,367,209

Increase in interest payable on bank loan, senior secured notes and term loans

     142,431   

Increase in dividend payable to preferred shares

     28,647   

Net change in variation margin on future contracts

     (2,383,002

Net decrease in other assets

     140   

Decrease in payable for investments purchased

     (1,296,202

Payments made to broker for interest rate swaps

     (633,909

Payments made to broker for futures contracts

     (2,249,292

Payments due from broker

     (1,822,700

Increase in cash collateral at broker for China A shares

     (260

Decrease in prepaid expenses in connection with revolving credit facility, senior secured notes, term loans and     Series A Preferred Shares

     151,058   

Decrease in accrued expenses and other liabilities

     (241,480

Total adjustments

     254,513,801   

Net cash provided from operating activities

   $ 279,073,149   

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

22


 

 

[THIS PAGE INTENTIONALLY LEFT BLANK]

 

 

 


Financial Highlights

 

 

 

     For the Fiscal Years Ended October 31,  
     2014     2013     2012     2011     2010  

Per Share Operating Performance(a):

                                        
Net asset value per common share, beginning of year      $6.89        $7.78        $7.48        $7.27        $6.53   
Net investment income      0.28        0.30        0.36        0.39        0.37   
Net realized and unrealized gains/(losses) on investments, interest rate swaps, futures contracts and foreign currency transactions      (0.18     (0.77     0.36        0.24        0.79   
Total from investment operations applicable to common shareholders      0.10        (0.47     0.72        0.63        1.16   
Distributions to common shareholders from:           
Net investment income      (0.42     (0.42     (0.42     (0.42     (0.42
Total distributions to shareholders      (0.42     (0.42     (0.42     (0.42     (0.42

Capital Share Transactions:

          
Expenses in connection with the at-the-market stock offering (Note 5)                                    
Impact of at-the-market stock offering (Note 5)                                    
Impact due to open market repurchase program (Note 6)      0.01                               
Total capital share transactions      0.01                               
Net asset value per common share, end of year      $6.58        $6.89        $7.78        $7.48        $7.27   
Market value, end of year      $5.88        $6.44        $7.90        $6.93        $6.90   
Total Investment Return Based on(b):           
Market value      (2.17%     (13.37%     20.47%        6.59%        21.73%   
Net asset value      2.33%        (5.89% )(c)      9.92% (c)      9.20%        18.63%   
Ratio to Average Net Assets Applicable to Common Shareholders/Supplementary Data(d):           
Net assets applicable to common shareholders, end of year (000 omitted)      $1,718,944        $1,842,470        $2,042,337        $1,951,739        $1,897,181   
Average net assets applicable to common shareholders (000 omitted)      $1,771,852        $1,953,410        $1,965,038        $1,937,986        $1,753,665   
Net operating expenses      1.97%        1.50%        1.38%        1.49%        1.89%   
Net operating expenses, excluding interest expense and distributions to Series A Mandatory Redeemable Preferred Shares      1.09%        1.03%        1.01%        1.05%        1.19%   
Net investment income      4.14%        4.07%        4.85%        5.30%        5.44%   
Portfolio turnover      49%        42%        38%        72%        67%   
Leverage (senior securities) outstanding (000 omitted)      $550,000        $550,000        $600,000        $600,000        $600,000   
Leverage (preferred stock) outstanding (000 omitted)      $50,000        $50,000                        
Asset coverage ratio on long-term debt obligations at year end(e)      422%        444%        440%        425%        416%   
Asset coverage per $1,000 on long-term debt obligations at year end      $4,216        $4,441        $4,404        $4,253        $4,162   
Asset coverage ratio on total leverage at year end(f)      386%        407%                        
Asset coverage per share on total leverage at year end      $3,865        $4,071                        

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

24


Financial Highlights (concluded)

 

 

 

 

(a)   Based on average shares outstanding.
(b)   Total investment return based on market value is calculated assuming that shares of the Fund’s common stock were purchased at the closing market price as of the beginning of the period, dividends, capital gains, and other distributions were reinvested as provided for in the Fund’s dividend reinvestment plan and then sold at the closing market price per share on the last day of the period. The computation does not reflect any sales commission investors may incur in purchasing or selling shares of the Fund. The total investment return based on the net asset value is similarly computed except that the Fund’s net asset value is substituted for the closing market value.
(c)   The total return shown above includes the impact of financial statement rounding of the NAV per share and/or financial statement adjustments.
(d)   Ratios calculated on the basis of income, expenses and preferred share dividends applicable to both the common and preferred shares relative to the average net assets of common shareholders. For each of the years ended October 31, 2014, 2013, 2012, 2011, and 2010 the ratios of net investment income before preferred stock dividends to average net assets of common shareholders were 4.26%, 4.10%, 4.85%, 5.30% and 5.44%, respectively.
(e)   Asset coverage ratio is calculated by dividing net assets plus the amount of any borrowings, including Series A Mandatory Redeemable Preferred Shares, for investment purposes by the amount of any long-term debt obligations, which includes the senior secured notes, revolving credit facility and term loans.
(f)   Asset coverage ratio is calculated by dividing net assets plus the amount of any borrowings, including Series A Mandatory Redeemable Preferred Shares, for investment purposes by the amount of any borrowings.

Amounts listed as “–” are $0 or round to $0.

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

25


Notes to Financial Statements

October 31, 2014

 

 

1. Organization

Aberdeen Asia-Pacific Income Fund, Inc. (the “Fund”) was incorporated in Maryland on March 14, 1986 as a closed-end, non-diversified management investment company. The Fund’s principal investment objective is to seek current income. The Fund may also achieve incidental capital appreciation. To achieve its investment objectives, the Fund normally invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in Asian debt securities, Australian debt securities and New Zealand debt securities. This 80% investment policy is a non-fundamental policy of the Fund and may be changed by the Fund’s Board of Directors (the “Board”) upon 60 days’ prior written notice to shareholders. There can be no assurance that the Fund will achieve its investment objectives. The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic developments in a specific industry, country or region.

At a meeting held on September 8, 2014, the Fund’s Board of Directors authorized the Fund to invest in debt securities of Bangladesh. Accordingly, the Fund’s policy to invest 80% of its total assets, plus the amount of any borrowings for investment purposes, in “Asian debt securities” was revised as follows:

The Fund may invest up to 80% of its total assets, plus the amount of any borrowings for investment purposes, in “Asian debt securities,” which include: (1) debt securities of Asian Country (as defined below) 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 Bangladesh, China, Hong Kong, India, Indonesia, Japan, Malaysia, Pakistan, the Philippines, Singapore, South Korea, Taiwan, Thailand, Vietnam, Sri Lanka, Kazakhstan and Mongolia, and such other countries on the Asian continent approved for investment by the Board of Directors upon the recommendation of Aberdeen Asset Management Asia Limited, the Fund’s investment manager (“AAMAL” or the “Investment Manager”).

2. Summary of Significant Accounting Policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform to accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses for the period. Actual results could differ from those estimates. The accounting records of the Fund are maintained in U.S. Dollars and the U.S. Dollar is used as both the functional and reporting currency. However, the Australian Dollar is the functional currency for U.S. federal tax purposes.

a. Security Valuation:

The Fund is required to value its securities at fair market value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Long-term debt and other fixed-income securities are valued at the last quoted or evaluated bid price on the valuation date provided by an independent pricing service provider. If there are no current day bids, the security is valued at the previously applied bid. Short-term debt securities (such as commercial paper, and U.S. treasury bills) having a remaining maturity of 60 days or less are valued at amortized cost, which approximates fair value. Debt and other fixed-income securities are generally determined to be Level 2 investments.

Exchange traded derivatives are generally Level 1 investments and over-the-counter derivatives are generally Level 2 investments.

In the event that a security’s market quotations are not readily available or are deemed unreliable, the security is valued at fair value as determined by the Fund’s Pricing Committee, taking into account the relevant factors and surrounding circumstances using valuation policies and procedures approved by the Board. A security that has been fair valued by the Pricing Committee may be classified as Level 2 or 3 depending on the nature of the inputs.

In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the Fund discloses the

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

26


Notes to Financial Statements (continued)

October 31, 2014

 

 

fair value of its investments using a three-level hierarchy that classifies the inputs to valuation techniques used to measure the fair value. The hierarchy assigns Level 1 measurements to valuations based upon other significant observable inputs, including unadjusted quoted prices in active markets for identical assets, Level 2 measurements to valuations based upon other significant observable inputs, including adjusted quoted prices in active markets for identical assets, and Level 3 measurements to valuations based upon unobservable inputs that are significant to the valuation. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability, which are based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s

own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. A financial instrument’s level within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement. The three-level hierarchy of inputs is summarized below:

Level 1 – quoted prices in active markets for identical investments;

Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, and credit risk); or

Level 3 – significant unobservable inputs (including a Fund’s own assumptions in determining the fair value of investments).

 

 

A summary of standard inputs is listed below:

 

Security Type    Standard Inputs
   

Debt and other fixed-income securities

   Reported trade data, broker-dealer price quotations, benchmark yields, issuer spreads on comparable securities, credit quality, yield, and maturity.
   

Forward foreign currency contracts

   Forward exchange rate quotations.
   

Swap agreements

   Market information pertaining to the underlying reference assets, i.e., credit spreads, credit event probabilities, fair values, forward rates, and volatility measures.

The following is a summary of the inputs used as of October 31, 2014 in valuing the Fund’s investments and other financial instruments at fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Please refer to the Portfolio of Investments for a detailed breakout of the security types:

 

Investments, at Value      Level 1        Level 2        Level 3        Total  

Fixed Income Investments

                     

Corporate Bonds

     $         $ 1,015,677,483         $         $ 1,015,677,483   

Government Bonds

                 1,135,587,977                     1,135,587,977   

Total Fixed Income Investments

                 2,151,265,460                     2,151,265,460   

Short-Term Investment

                 38,574,000                     38,574,000   

Total Investments

     $         $ 2,189,839,460         $         $ 2,189,839,460   

Other Financial Instruments

                     

Forward Foreign Currency Exchange Contracts

     $         $ 5,318,134         $         $ 5,318,134   

Futures Contracts

       1,606,004                               1,606,004   

Interest Rate Swap Agreements

                 337,421                     337,421   

Total Other Financial Instruments

     $ 1,606,004         $ 5,655,555         $         $ 7,261,559   

Total Assets

     $ 1,606,004         $ 2,195,495,015         $         $ 2,197,101,019   

Liabilities

                     

Other Financial Instruments

                     

Forward Foreign Currency Exchange Contracts

     $         $ (1,164,814      $         $ (1,164,814

Futures Contracts

       (97,170                            (97,170

Interest Rate Swap Agreements

                 (1,210,708                  (1,210,708

Total Liabilities

     $ (97,170      $ (2,375,522      $         $ (2,472,692

Amounts listed as “–” are $0 or round to $0.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

27


Notes to Financial Statements (continued)

October 31, 2014

 

 

For movements between the Levels within the fair value hierarchy, the Fund has adopted a policy of recognizing transfers at the end of each period. During the year ended October 31, 2014, there were no transfers between Levels 1, 2 and 3. For the year ended October 31, 2014, there have been no significant changes to the fair valuation methodologies.

b. Repurchase Agreements:

The Fund may enter into repurchase agreements under the terms of a Master Repurchase Agreement. It is the Fund’s policy that its custodian/counterparty segregate the underlying collateral securities, the value of which exceeds the principal amount of the repurchase transaction, including accrued interest. The repurchase price generally equals the price paid by the Fund plus interest negotiated on the basis of current short-term rates. To the extent that any repurchase transaction exceeds one business day, the collateral is valued on a daily basis to determine its adequacy. Under the Master Repurchase Agreement, if the counterparty defaults and the value of the collateral declines, or if bankruptcy proceedings are commenced with respect to the counterparty of the security, realization of the collateral by the Fund may be delayed or limited. The Fund held a repurchase agreement of $38,574,000 as of October 31, 2014. The value of the related collateral exceeded the value of the repurchase agreement at October 31, 2014. Repurchase agreements are subject to contractual netting arrangements with the counterparty, Fixed Income Clearing Corp. For additional information on the Fund’s repurchase agreement, see the Portfolio of Investments.

c. Restricted Securities:

Restricted securities are privately-placed securities whose resale is restricted under U.S. securities laws. The Fund may invest in restricted securities, including unregistered securities eligible for resale without registration pursuant to Rule 144A and privately-placed securities of U.S. and non-U.S. issuers offered outside the U.S. without registration pursuant to Regulation S under the Securities Act of 1933, as amended (the “1933 Act”). Rule 144A securities may be freely traded among certain qualified institutional investors, such as the Fund, but resale of such securities in the U.S. is permitted only in limited circumstances.

d. Foreign Currency Translation:

Foreign securities, currencies, and other assets and liabilities denominated in foreign currencies are translated into U.S. Dollars at the exchange rate of said currencies against the U.S. Dollar, as of the “Valuation Time,” as provided by an independent pricing service approved by the Board. The Valuation Time is as of the close of regular trading on the New York Stock Exchange (usually 4:00 p.m. Eastern Time).

Foreign currency amounts are translated into U.S. Dollars on the following basis:

 

(i)   market value of investment securities, other assets and liabilities – at the current daily rates of exchange; and

 

(ii)   purchases and sales of investment securities, income and expenses – at the rate of exchange prevailing on the respective dates of such transactions.

The Fund isolates that portion of the results of operations arising from changes in the foreign exchange rates due to the fluctuations in the market prices of the securities held at the end of the reporting period. Similarly, the Fund isolates the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of portfolio securities sold during the reporting period.

Net exchange gain/(loss) is realized from sales and maturities of portfolio securities, sales of foreign currencies, settlement of securities transactions, dividends, interest and foreign withholding taxes recorded on the Fund’s books. Net unrealized foreign exchange appreciation/(depreciation) includes changes in the value of portfolio securities and other assets and liabilities arising as a result of changes in the exchange rate. The net realized and unrealized foreign exchange gain/(loss) shown in the composition of net assets represents foreign exchange gain/(loss) for book purposes that may not have been recognized for tax purposes.

Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of domestic origin, including unanticipated movements in the value of the foreign currency relative to the U.S. Dollar. Generally, when the U.S. Dollar rises in value against foreign currency, the Fund’s investments denominated in that currency will lose value because its currency is worth fewer U.S. Dollars; the opposite effect occurs if the U.S. Dollar falls in relative value.

e. Derivative Financial Instruments:

The Fund is authorized to use derivatives to manage currency, interest rate and credit risk and as a substitute for physical securities. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. The use of derivative instruments involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities.

Forward Foreign Currency Exchange Contracts:

A forward foreign currency exchange contract (“forward contract”) involves an obligation to purchase and sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

28


Notes to Financial Statements (continued)

October 31, 2014

 

 

of the contract. Forward contracts are used to manage the Fund’s currency exposure in an efficient manner. They are used to sell unwanted currency exposure that comes with holding securities in a market, or to buy currency exposure where the exposure from holding securities is insufficient to give the desired currency exposure either in absolute terms or relative to the benchmark. The use of forward contracts allows the separation of decision-making between markets and their currencies. The forward contract is marked-to-market daily and the change in market value is recorded by the Fund as unrealized appreciation or depreciation. Forward contracts’ prices are received daily from an independent pricing provider. When the forward 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. These realized and unrealized gains and losses are reported on the Statement of Operations. The Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts or from unanticipated movements in exchange rates. During the year ended October 31, 2014, the Fund used forward contracts to express and manage the Fund’s currency exposure.

While the Fund may enter into forward contracts to seek to reduce currency exchange rate risks, transactions in such contracts involve certain risks. The Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in exchange rates. Thus, while the Fund may benefit from such transactions, unanticipated changes in currency prices may result in a poorer overall performance for the Fund than if it had not engaged in any such transactions. Moreover, there may be imperfect correlation between the Fund’s portfolio holdings or securities quoted or denominated in a particular currency and forward contracts entered into by the Fund. Such imperfect correlation may prevent the Fund from achieving a complete hedge, which will expose the Fund to the risk of foreign exchange loss.

Forward contracts are subject to the risk that the counterparties to such contracts may default on their obligations. Since a forward foreign currency exchange contract is not guaranteed by an exchange or clearing house, a default on the contract would deprive the Fund of unrealized profits, transaction costs or the benefits of a currency hedge or force the Fund to cover its purchase or sale commitments, if any, at the market price at the time of the default.

Futures Contracts:

The Fund may invest in financial futures contracts (“futures contracts”) for the purpose of hedging its existing portfolio securities, or securities that the Fund intends to purchase, against

fluctuations in value caused by changes in prevailing market interest rates or prices. Futures contracts may also be entered into for non-hedging purposes.

Upon entering into a futures contract, the Fund is required to pledge to the broker an amount of cash and/or other assets equal to a certain percentage of the contract amount. This payment is known as initial margin. Subsequent payments, known as “variation margin,” are calculated each day, depending on the daily fluctuations in the fair value/market value of the underlying assets. An unrealized gain/(loss) equal to the variation margin is recognized on a daily basis. When the contract expires or is closed, the gain/(loss) is realized and is presented in the Statement of Operations as a net realized gain/(loss) on futures contracts. Futures contracts are valued daily at their last quoted sale price on the exchange on which they are traded.

A “sale” of a futures contract means a contractual obligation to deliver the securities or foreign currency called for by the contract at a fixed price at a specified time in the future. A “purchase” of a futures contract means a contractual obligation to acquire the securities or foreign currency at a fixed price at a specified time in the future. During the year ended October 31, 2014, bond futures contracts were used to express interest rate positions, in terms of duration and yield curve exposures.

There are significant risks associated with the Fund’s use of futures contracts, including the following: (1) the success of a hedging strategy may depend on the ability of the Fund’s investment adviser and/or sub-adviser to predict movements in the prices of individual securities, fluctuations in markets and movements in interest rates; (2) there may be an imperfect or no correlation between the movement in the price of futures contracts, interest rates and the value/market value of the securities held by the Fund; (3) there may not be a liquid secondary market for a futures contract; (4) trading restrictions or limitations may be imposed by an exchange; and (5) government regulations may restrict trading in futures contracts. In addition, should market conditions change unexpectedly, the Fund may not achieve the anticipated benefits of the futures contracts and may realize a loss.

Swaps:

A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified

amount of an underlying asset or notional principal amount. The Fund will enter into swaps only on a net basis, which means that the

two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the difference between the two payments. Risks may arise as a result of the failure

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

29


Notes to Financial Statements (continued)

October 31, 2014

 

 

of the counterparty to the swap contract to comply with the terms of the swap contract. The loss incurred by the failure of a counterparty is generally limited to the net interest payment to be received by the Fund, and/or the termination value at the end of the contract. Therefore, the Fund considers the creditworthiness of each counterparty to a swap contract in evaluating potential credit risk. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying reference asset or index. The Fund records unrealized gains/(losses) on a daily basis representing the value and the current net receivable or payable relating to open swap contracts. Net amounts received or paid on the swap contract are recorded as realized gains/(losses). Fluctuations in the value of swap contracts are recorded for financial statement purposes as unrealized appreciation or depreciation of swap contracts. Realized gains/(losses) from terminated swaps are included in net realized gains/(losses) on swap contracts transactions. During the year ended October 31, 2014, the Fund used interest rate swaps to hedge the U.S. dollar borrowing facilities, helping to manage the overall mixture of fixed rate and floating rate liabilities in a proportion that the manager feels is appropriate.

The Fund is a party to International Swap Dealers Association, Inc. Master Agreements (“ISDA Master Agreements”). These agreements are with select counterparties and they govern transactions, including certain over-the-counter derivative and foreign exchange contracts, entered into by the Fund and the counterparty. The ISDA Master Agreements maintain provisions for general obligations, representations, agreements, collateral, and events of default or termination. The occurrence of a specified event of termination may give a counterparty the right to terminate all of its contracts and affect settlement of all outstanding transactions under the applicable ISDA Master Agreement.

Certain swaps entered into after June 10, 2013, including some interest rate swaps, must be cleared pursuant to U.S. Commodity Futures Trading Commission (“CFTC”) regulations. As a result, these swaps can no longer be traded over-the-counter and are subject to various regulations and rules of the CFTC.

 

 

Summary of Derivative Instruments:

The Fund may use derivatives for various purposes as noted above. The following is a summary of the fair value of Derivative Instruments, not accounted for as hedging instruments, as of October 31, 2014:

 

     Asset Derivatives      Liability Derivatives  
     Year Ended October 31, 2014      Year Ended October 31, 2014  
Derivatives not accounted for
as hedging instruments
and risk exposure
   Statement of Assets
and Liabilities Location
   Fair Value      Statement of Assets
and Liabilities Location
   Fair Value  

Interest rate swaps
(interest rate risk)

   Unrealized appreciation on interest rate swaps    $ 337,421       Unrealized depreciation on interest rate swaps    $ 1,210,708   

Forward foreign exchange contracts (foreign exchange risk)

   Unrealized appreciation on forward currency exchange contracts    $ 5,318,134       Unrealized depreciation on forward currency exchange contracts    $ 1,164,814   

Futures contracts
(interest rate risk)*

   Unrealized appreciation on futures contracts    $ 1,606,004       Unrealized depreciation on futures contracts    $ 97,170   

Total

        $ 7,261,559            $ 2,472,692   

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

30


Notes to Financial Statements (continued)

October 31, 2014

 

 

The Fund has transactions that may be subject to enforceable master netting agreements. A reconciliation of the gross amounts on the Statements of Assets and Liabilities to the net amounts by broker and derivative type, including any collateral received or pledged, is included in the following tables:

 

          Gross Amounts Not Offset
in Statement of
Assets and Liabilities
          Gross Amounts Not Offset
in Statement of
Assets and Liabilities
 
Description   Gross Amounts
of Assets
Presented in
Statement of
Assets and
Liabilities
    Financial
Instruments
    Collateral
Received (1)
    Net
Amount (3)
    Gross Amounts
of Liabilities
Presented in
Statement of
Assets and
Liabilities
    Financial
Instruments
    Collateral
Pledged (1)
    Net
Amount (3)
 
    Assets     Liabilities  

Forward foreign currency (2)

               

Credit Suisse

  $ 103,035      $ (103,035   $      $      $ 132,793      $ (103,035   $      $ 29,758   

Deutsche Bank

    31,550        (31,550                   179,528        (31,550            147,978   

Goldman Sachs

    2,748,299        (715,154            2,033,145        715,154        (715,154              

HSBC

    169,590                      169,590                               

Standard Chartered Bank

    65,845        (33,680            32,165        33,680        (33,680              

State Street

    2,065,596        (87,640            1,977,956        87,640        (87,640              

UBS

    155,204        (37,004            118,200        37,004        (37,004              

Futures (2)

               

UBS

    1,606,004        (97,170     (1,508,834            97,170        (97,170              

Interest rate swaps (2)

               

Barclays Bank

    337,421        (337,421                   1,210,708        (337,421     (873,287       

 

1.   In some instances, the actual collateral received and/or pledged may be more than the amount shown here due to overcollateralization.
2.   Includes financial instrument (swaps, forwards and futures) which are not subject to master netting arrangement, or other another similar arrangement.
3.   Net amounts represent the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from financial derivative instruments can only be netted across transactions governed under the same master agreement with the same legal entity.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

31


Notes to Financial Statements (continued)

October 31, 2014

 

 

The Effect of Derivative Instruments on the Statement of Operations

for the Year Ended October 31, 2014:

 

Derivatives not accounted for as
hedging instruments under
Statement 133(a)
     Location of Gain or (Loss)
on Derivatives
     Realized
Gain or
(Loss) on
Derivatives
       Change in
Unrealized
Appreciation/
Depreciation
on Derivatives
 
     Realized/Unrealized Gain/(Loss) from Investments, Interest Rate Swaps, Futures Contracts and Foreign Currencies          

Interest rate swaps (interest rate risk)

          $ (1,385,845      $ 633,909   

Forward foreign exchange contracts (foreign exchange risk)

          $ (4,825,863      $ 6,531,350   

Futures contracts (interest rate risk)

            $ (11,998,949      $ 2,383,002   

Total

            $ (18,210,657      $ 9,548,261   

 

Information about derivatives reflected as of the date of this report is generally indicative of the type of activity for the year ended October 31, 2014. The table below summarizes the weighted average values of derivatives holdings for the fund during the year ended October 31, 2014.

 

Forward foreign
exchange contracts
(Average
Notional Value)
     Futures contracts
(Average
Notional Value)
     Swap contracts
(Average
Notional Value)
 
$ 630,807,434       $ (229,916,667    $ 150,000,000   

The Fund values derivatives at fair value, as described in the results of operations. Accordingly, the Fund does not follow hedge accounting even for derivatives employed as economic hedges.

f. Credit-Linked Notes:

The Fund invests in credit-linked securities, which are unstructured, unleveraged pass-through vehicles to an underlying security denominated in a local currency, used for the purposes of efficiently managing access to the market and interest rate risk. For instance, the Fund may invest in credit-linked securities as a cash management tool in order to gain exposure to a certain market and/or to remain fully invested when more traditional income producing securities are not available. Like an investment in a bond, investments in credit-linked securities represent the right to receive periodic income payments (in the form of distributions) and payment of principal at the end of the term of the security. However, these payments are conditioned on the issuer’s receipt of

payments from, and the issuer’s potential obligations to, the counterparties to the derivative instruments and other securities in which the issuer invests. For instance, the issuer may sell one or more credit default swaps, under which the issuer would receive a stream of payments over the term of the swap agreements provided that no event of default has occurred with respect to the referenced debt obligation upon which the swap is based. If a default occurs, the stream of payments may stop and the issuer would be obligated to pay the counterparty the par value (or other agreed upon value) of the referenced debt obligation. This, in turn, would reduce the amount of income and principal that the Fund would receive. The Fund’s investments in these instruments are indirectly subject to the risks associated with derivative instruments, including, among others, credit risk, default or similar event risk, counterparty risk, interest rate risk, leverage risk and management risk. It is also expected that the securities will be exempt from registration under the 1933 Act. Accordingly, there may be no established trading market for the securities and they may constitute illiquid investments.

g. Security Transactions, Investment Income and Expenses:

Security transactions are recorded on the trade date. Realized and unrealized gains/(losses) from security and currency transactions are calculated on the identified cost basis. Interest income and expenses are recorded on an accrual basis. Discounts and premiums on securities purchased are accreted or amortized on an effective yield basis over the estimated lives of the respective securities. Expenses are accrued on a daily basis.

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

32


Notes to Financial Statements (continued)

October 31, 2014

 

 

h. Distributions:

The Fund has a managed distribution policy to pay distributions from net investment income supplemented by net realized foreign exchange gains, net realized short-term capital gains and return of capital distributions, if necessary, on a monthly basis. The managed distribution policy is subject to regular review by the Board. The Fund will also declare and pay distributions at least annually from net realized gains on investment transactions and net realized foreign exchange gains, if any. Dividends and distributions to shareholders are recorded on the ex-dividend date.

Dividends and distributions to shareholders are determined in accordance with federal income tax regulations, which may differ from GAAP. These differences are primarily due to differing treatments for foreign currencies, loss deferrals and recognition of market discount and premium.

Distributions to Series A Mandatory Redeemable Preferred Shares (the “Series A MRPS”) shareholders are accrued daily and paid quarterly based on an annual rate of 4.125%. The Fund may not pay distributions to its preferred shareholders unless (i) the pro forma asset coverage ratios for the Series A MRPS, as calculated in accordance with the Fitch Ratings total and net overcollateralization tests per the ‘AA’ rating guidelines outlined in Fitch Rating’s closed-end fund criteria, is in excess of 100%, and (ii) the Fund’s asset coverage ratios for the Series A MRPS, as calculated in accordance with the Investment Company Act of 1940, as amended (“1940 Act”), is in excess of 225%.The character of distributions to Series A MRPS shareholders made during the year may differ from their ultimate characterization for federal income tax purposes. For tax purposes, the Fund’s distributions to Series A MRPS shareholders for the year ended October 31, 2014 were 100% net investment income. For book purposes, the source of the Fund’s distributions to Series A MRPS shareholders for the year ended October 31, 2014 was 100% net investment income.

i. Federal Income Taxes:

For federal income and excise tax purposes, substantially all of the Fund’s transactions are accounted for using the Australian Dollar as the functional currency. Accordingly, realized currency gains/(losses) are realized from changes in the foreign exchange rates against the Australian Dollar or are a result from the repatriation of Australian Dollars into U.S. Dollars. This may differ substantially from the realized currency gains recognized under GAAP within the financial statements. Furthermore, the Fund’s distribution requirements are calculated on a federal tax basis whereby currency gains/(losses) are considered income and distributed out as such.

The Fund intends to continue to qualify as a “regulated investment company” by complying with the provisions available to certain investment companies, as defined in Subchapter M of the Internal Revenue Code of 1986, as amended, and to make distributions of net investment income and net realized capital gains sufficient to relieve the Fund from all federal income taxes. Therefore, no federal income tax provision is required. Since tax authorities can examine previously filed tax returns, the Fund’s U.S. federal and state tax returns for each of the four fiscal years up to the most recent fiscal year ended October 31 are subject to such review.

j. 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 but does not include cash at brokers in segregated accounts for financial futures contracts because it is designated as collateral.

3. Agreements and Transactions with Affiliates

a. Investment Manager, Investment Adviser, and Investment Sub-Adviser:

Aberdeen Asset Management Asia Limited (the “Investment Manager”) serves as investment manager to the Fund, pursuant to a management agreement. Aberdeen Asset Management Limited (the “Investment Adviser”) serves as the investment adviser and Aberdeen Asset Managers Limited (“AAML” or the “Sub-Adviser”) serves as the sub-adviser, pursuant to an advisory agreement and a sub-advisory agreement, respectively. The Investment Manager, the Investment Adviser and the Sub-Adviser are wholly-owned subsidiaries of Aberdeen Asset Management PLC.

The Investment Manager makes investment decisions on behalf of the Fund on the basis of recommendations and information furnished to it by the Investment Adviser, including the selection of and the placement of orders with brokers and dealers to execute portfolio transactions on behalf of the Fund. The Sub-Adviser manages the portion of the Fund’s assets that the Investment Manager allocates to it.

The management agreement provides the Investment Manager with a fee, payable monthly by the Fund, at the following annual rates: 0.65% of the Fund’s average weekly Managed Assets up to $200 million, 0.60% of Managed Assets between $200 million and

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

33


Notes to Financial Statements (continued)

October 31, 2014

 

 

$500 million, 0.55% of Managed Assets between $500 million and $900 million, 0.50% of Managed Assets between $900 million and $1.75 billion and 0.45% of Managed Assets in excess of $1.75 billion. Managed Assets is defined in the management agreement to mean total assets of the Fund, including any form of investment leverage, minus all accrued expenses incurred in the normal course of operations, but not excluding any liabilities or obligations attributable to investment leverage obtained through (i) indebtedness of any type (including, without limitation, borrowing through a credit facility or the issuance of debt securities), (ii) the issuance of preferred stock or other similar preference securities, (iii) the reinvestment of collateral received for securities loaned in accordance with the Fund’s investment objectives and policies, and/or (iv) any other means.

The Investment Manager pays fees to the Investment Adviser for its services rendered. The Investment Manager informed the Fund that it paid $2,271,406 to the Investment Adviser, with respect to the Fund, during the fiscal year ended October 31, 2014. As compensation for its services under the sub-advisory agreement, the Sub-Adviser receives an annual fee paid by the Investment Manager in the amount of $91,667, to be paid in monthly increments.

b. Fund Administration:

Aberdeen Asset Management Inc. (“AAMI”), an affiliate of the Investment Manager, Investment Adviser and Sub-Adviser, is the Fund’s Administrator, pursuant to an agreement under which AAMI receives a fee, payable monthly by the Fund, at an annual fee rate of 0.125% of the Fund’s average weekly Managed Assets up to $1 billion, 0.10% of the Fund’s average weekly Managed Assets between $1 billion and $2 billion, and 0.075% of the Fund’s average weekly Managed Assets in excess of $2 billion. For the fiscal year ended October 31, 2014, AAMI earned $2,528,889 from the Fund for administration fees.

c. Investor Relations:

Under the terms of an Investor Relations Services Agreement, AAMI serves as the Fund’s investor relations services provider.

Pursuant to the terms of the Investor Relations Services Agreement, AAMI provides, among other things, objective and timely information to shareholders based on publicly-available information; provides information efficiently through the use of technology while offering shareholders immediate access to knowledgeable investor relations representatives; develops and maintains effective communications with investment professionals from a wide variety of firms; creates and maintains investor relations communication materials such as fund manager interviews, films and webcasts, published white papers, magazine and articles and other relevant

materials discussing the Fund’s investment results, portfolio positioning and outlook; develops and maintains effective communications with large institutional shareholders; responds to specific shareholder questions; and reports activities and results to the Board and management detailing insight into general shareholder sentiment.

For the year ended October 31, 2014, the Fund paid fees of approximately $536,958 for investor relations services. Investor relations fees and expenses in the Statement of Operations include certain out-of-pocket expenses.

4. Investment Transactions

Purchases and sales of investment securities (excluding short-term securities) for the fiscal year ended October 31, 2014, were $1,035,942,127 and $1,262,427,451, respectively.

5. Capital

The authorized capital of the Fund is 400 million shares of $0.01 par value common stock. During the year ended October 31, 2014, the fund repurchased 6,107,325 shares pursuant to its Open Market Repurchase Program, see Note 6 for further information. As of October 31, 2014, there were 261,300,603 shares of common stock issued and outstanding.

The Fund filed a “shelf” registration statement with the Securities and Exchange Commission on August 17, 2012 which permits the Fund to issue up to $375,000,000 in shares of common stock through one or more public offerings including at-the-market offerings (“ATM offerings”) over a three year period. Shares are only offered through ATM offerings when the premium to net asset value is greater than the costs associated with the transaction. Any proceeds raised are used for investment purposes. For the year ended October 31, 2014, there were no shares sold through ATM or other offerings. Offering costs were previously capitalized as a prepaid expense. When shares of common stock are sold, a portion of the cost attributable to those shares will be charged to paid-in capital. Upon expiration of this shelf offering in August, 2015, any remaining prepaid Offering Costs with this registration statement will be expensed to the Fund. For the year ended October 31, 2014 and year ended October 31, 2013, offering costs in the amount of $0 and $59,829, respectively, were charged to paid-in capital. These costs are noted on the Statements of Changes in Net Assets.

6. Open Market Repurchase Program

On March 1, 2001, the Board approved a stock repurchase program. The Board amended the program on December 12, 2007. The stock repurchase program allows the Fund to repurchase up to 10% of its outstanding common stock in the open market during any 12-month

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

34


Notes to Financial Statements (continued)

October 31, 2014

 

 

period, if and when the discount to NAV is at least 8%. For the fiscal year ended October 31, 2014 and fiscal year ended October 31, 2013, the Fund repurchased 6,107,325 and 0 shares, respectively, through this program.

7. Preferred Shares

At October 31, 2014, the Fund had 2,000,000 shares of Series A MRPS outstanding with an aggregate liquidation preference of $50,000,000 ($25.00 per share) (the “Series A MRPS”). The following table shows the mandatory redemption date, annual fixed rate, aggregate liquidation preference and estimated fair value of the Series A MRPS at October 31, 2014.

 

Mandatory
Redemption
Date
     Annual Fixed
Rate
    Aggregate
Liquidation
Preference
     Estimated Fair
Value
 
  June 27, 2023         4.125   $ 50,000,000       $ 49,932,875   

Holders of the Series A MRPS are entitled to receive quarterly cumulative cash dividend payments on the first business day following each calendar quarter at an annual fixed rate of 4.125% until maturity. The Series A MRPS were issued in private placement offerings to institutional investors and are not listed on any exchange or automated quotation system. Distributions are accrued daily and paid quarterly and are presented in the Statement of Assets and Liabilities as a dividend payable to preferred shareholders. For the fiscal year ended October 31, 2014, the Fund paid $2,091,147 in distributions to preferred shareholders.

The Series A MRPS rank senior to all of the Fund’s outstanding shares of common stock and on a parity with shares of any other series of preferred stock as to the payment of dividends to which the shares are entitled and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund.

The estimated fair value of Series A MRPS was calculated, for disclosure purposes, by discounting future cash flows by a rate equal to the current U.S. Treasury rate with an equivalent maturity date, plus the spread between the U.S. insurance and financial debt rate and the U.S. Treasury rate plus a market spread for the issuance of preferred shares.

The Series A MRPS are redeemable in certain circumstances at the option of the Fund. The Series A MRPS are also subject to mandatory redemption, unless otherwise prohibited by the 1940 Act, if the Fund fails to maintain (1) asset coverage, as determined in accordance with Section 18(h) of the 1940 Act, of at least 225%, with respect to all outstanding preferred stock, as of the last day of any month or (2) eligible assets with an aggregate agency discounted value at least

equal to the basic maintenance amount as provided in the Fund’s rating agency guidelines. As of October 31, 2014, the Fund was in compliance with the asset coverage and basic maintenance requirements of the Series A MRPS.

Except for matters which do not require the vote of the holders of the Series A MRPS under the 1940 Act and except as otherwise provided in the Fund’s Charter or Bylaws, or as otherwise required by applicable law, holders of the Series A MRPS have one vote per share and generally vote together with holders of common stock as a single class on all matters submitted to the Fund’s stockholders. The holders of the Series A MRPS, voting separately as a single class, have the right to elect at least two directors of the Fund.

8. Senior Secured Notes

At October 31, 2014, the Fund had $200,000,000 in aggregate principal amount of senior secured notes rated ‘AAA’ by Fitch Ratings outstanding ($100,000,000 in 3.05% Series A Senior Secured Notes due June 12, 2020 and $100,000,000 in 3.69% Series B Senior Secured Notes due June 12, 2023) (collectively, the “Notes”). The Notes are secured obligations of the Fund and, upon liquidation, dissolution or winding up of the Fund, will rank senior to all unsecured and unsubordinated indebtedness and senior to any common or preferred stock pari passu in priority and security with all other secured indebtedness. Noteholders are entitled to receive cash interest payments semi-annually until maturity. The Series A Notes and the Series B Notes accrue interest at annual fixed rates of 3.05% and 3.69%, respectively.

The Notes were issued in private placement offerings to institutional investors and are not listed on any exchange or automated quotation system.

The Notes may be prepaid in certain limited circumstances at the option of the Fund. The Notes are also subject to optional prepayment to the extent needed to satisfy certain requirements if the Fund fails to meet an asset coverage ratio required by the terms of the Notes and is not able to cure the coverage deficiency by the applicable deadline.

The estimated fair value of each series of fixed-rate Notes was calculated, for disclosure purposes, by discounting future cash flows by a rate equal to the current U.S. Treasury rate with an equivalent maturity date, plus either 1) the spread between the interest rate on recently issued debt and the U.S. Treasury rate with a similar maturity date or 2) if there has not been a recent debt issuance, the spread between the AAA corporate finance debt rate and the U.S. Treasury rate with an equivalent maturity date. The following table shows the maturity date, interest rate, notional/carrying amount and

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

35


Notes to Financial Statements (continued)

October 31, 2014

 

 

estimated fair value for each series of Notes outstanding at October 31, 2014.

 

Series     Maturity
Date
    Interest
Rate
    Notional/
Carrying
Amount
    Estimated
Fair Value
 
  Series A        June 12, 2020        3.05   $ 100,000,000      $ 99,742,824   
  Series B        June 12, 2023        3.69   $ 100,000,000      $ 101,061,226   

9. Credit Facilities

On April 9, 2014, the Fund renewed its credit agreement providing for a $150,000,000 senior secured revolving credit loan facility (the “Revolving Credit Facility”) with a syndicate of banks with Bank of America Merrill Lynch, N.A., acting as administrative agent. On June 12, 2013, the Fund entered into a term loan agreement (the “Term Loan Agreement”) providing for $200,000,000 of senior secured term loans (the “Term Loan Facility”) from Bank of America, N.A. At October 31, 2014, the Fund had $150,000,000 outstanding under the Revolving Credit Facility and $200,000,000 outstanding under the Term Loan Facility. Under the terms of the Revolving Credit Facility and the Term Loan Agreement and applicable regulations, the Fund is required to maintain certain asset coverage ratios for the amount of its outstanding borrowings.

For the year ended October 31, 2014, the average interest rate on the Revolving Credit Facility was 1.11% and the average balance of the Revolving Credit Facility was $150,000,000. Pursuant to the Term Loan Agreement, the Term Loan Facility consists of two separate facilities: $100,000,000 term loan facility which accrues interest at 2.80% per annum (the “Term A Facility”) and a $100,000,000 term loan facility which accrues interest at 2.16% per annum (the “Term B Facility”). For the year ended October 31, 2014, the average interest rate on the Term Loan Facility was 2.48% and the average balance of the Term Loan Facility was $200,000,000. The interest expense is accrued on a daily basis and is payable on a monthly basis or on the last date of the respective LIBOR period, as applicable, for the Revolving Credit Facility, and payable on the last business day of each March, June, September and December and the maturity date for the Term Loan Facility.

The estimated fair value of each Term Loan Facility was calculated, for disclosure purposes, by discounting future cash flows by a rate equal to the current U.S. Treasury rate with an equivalent maturity date, the spread between the U.S. insurance and financial debt rate and the U.S. Treasury rate. The following table shows the maturity date, interest rate, notional/carrying amount and estimated fair value for each Term Loan Facility outstanding at year.

Series     Maturity
Date
    Interest
Rate
    Notional/
Carrying
Amount
    Estimated
Fair Value
 
 

 

Term A

Facility

  

  

    June 12, 2018        2.80   $ 100,000,000      $ 101,058,397   
 

 

Term B

Facility

  

  

    June 12, 2016        2.16   $ 100,000,000      $ 100,928,643   

The Revolving Credit Facility has a term of 3-years and is not a perpetual form of leverage; there can be no assurance that the Revolving Credit Facility will be available for renewal on acceptable terms, if at all. The Term A Facility and the Term B Facility have 5-and 3-year terms, respectively. Bank loan fees and expenses included in the Statement of Operations include fees for the renewal of the Revolving Credit Facility as well as commitment fees for any portion of the loan facility not drawn upon at any time during the period.

The estimated fair value of the Revolving Credit Facility was calculated, for disclosure purposes, by discounting future cash flows by a rate equal to the current U.S. Treasury rate with an equivalent maturity date, the spread between the U.S. insurance and financial debt rate and the U.S. Treasury rate. The following table shows the maturity date, interest rate, notional/carrying amount and estimated fair value outstanding as of October 31, 2014.

 

Maturity Date      Interest Rate     Notional/
Carrying
Amount
     Estimated
Fair Value
 
  April 9, 2017         1.18   $ 150,000,000       $ 147,029,846   

10. Risks of Leveraged Capital Structure

The amounts borrowed under the Revolving Credit Facility, the Term Loan Facility and the Notes and other funds obtained through various forms of leverage, including the Series A MRPS, may be invested to return higher rates than the rates pursuant to which interests or dividends are paid under such forms of leverage. However, the cost of leverage could exceed the income earned by the Fund on the proceeds of such leverage. To the extent that the Fund is unable to invest the proceeds from the use of leverage in assets which pay interest at a rate which exceeds the rate paid on the leverage, the yield on the Fund’s common stock will decrease. In addition, in the event of a general market decline in the value of assets in which the Fund invests, the effect of that decline will be magnified in the Fund because of the additional assets purchased with the proceeds of the leverage.

The Fund’s leveraged capital structure creates special risks not associated with unleveraged funds having similar investment objectives and policies. The funds borrowed pursuant to the Revolving Credit Facility, the Term Loan Facility and the Notes may constitute a

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

36


Notes to Financial Statements (continued)

October 31, 2014

 

 

substantial lien and burden by reason of their prior claim against the income of the Fund and against the net assets of the Fund in liquidation. The Fund is limited in its ability to declare dividends or other distributions under the terms of the various forms of leverage. In the event of an event of default under either the Revolving Credit Facility or Term Loan Facility, the lenders have the right to cause a liquidation of the collateral (i.e., sell portfolio securities and other assets of the Fund) and, if any such default is not cured, the lenders may be able to control the liquidation as well. In the event of an event of default under the Note Purchase Agreement, the noteholders have the right to cause a liquidation of the collateral (i.e., sell portfolio securities and other assets of the Fund).

Each of the Revolving Credit Facility Agreement, the Term Loan Agreement, the Note Purchase Agreement or the securities purchase agreement relating to the Series A MRPS includes usual and customary covenants for the applicable type of transaction. These covenants impose on the Fund asset coverage requirements, Fund composition requirements and limits on certain investments, such as illiquid investments, which are more stringent than those imposed on the Fund by the 1940 Act. The covenants or guidelines could impede the Investment Manager, Investment Adviser, or Sub-Adviser from fully managing the Fund’s portfolio in accordance with the Fund’s investment objective and policies. Furthermore, non-compliance with such covenants or the occurrence of other events could lead to the cancellation of any and/or all of the forms of leverage. As of October 31, 2014, the Fund was in compliance with all covenants under the agreements relating to the various forms of leverage.

During the fiscal year ended October 31, 2014, the Fund incurred fees of approximately $1,053,846 for the Revolving Credit Facility, Term Loan Facility and Notes.

11. Portfolio Investment Risks

a. Credit and Market Risk:

A debt instrument’s price depends, in part, on the credit quality of the issuer, borrower, counterparty, or underlying collateral and can decline in response to changes in the financial condition of the issuer, borrower, counterparty, or underlying collateral, or changes in specific or general market, economic, industry, political, regulatory, geopolitical, or other conditions. Funds that invest in high yield and emerging market instruments are subject to certain additional credit and market risks. The yields of high yield and emerging market debt obligations reflect, among other things, perceived credit risk. The Fund’s investments in securities rated below investment grade typically involve risks not associated with higher rated securities including, among others, greater risk of not receiving timely and/or

ultimate payment of interest and principal, greater market price volatility, and less liquid secondary market trading.

b. Interest Rate Risk:

The prices of fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund’s fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. The Fund may be subject to a greater risk of rising interest rates due to current period of historically low rates and the effect of potential government fiscal policy intiatives and resulting market reaction to those initiatives.

c. Risks Associated with Foreign Securities and Currencies:

Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of U.S. issuers. These risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, and political or social instability or diplomatic developments, which could adversely affect investments in those countries.

Certain countries also may impose substantial restrictions on investments in their capital markets by foreign entities, including restrictions on investments in issuers of industries deemed sensitive to relevant national interests. These factors may limit the investment opportunities available and result in a lack of liquidity and high price volatility with respect to securities of issuers from developing countries.

d. Focus Risk:

The Fund may have elements of risk not typically associated with investments in the United States due to focused investments in a limited number of countries or regions subject to foreign securities or currencies risks. Such focused investments may subject the Fund to additional risks resulting from political or economic conditions in such countries or regions and the possible imposition of adverse governmental laws or currency exchange restrictions could cause the securities and their markets to be less liquid and their prices to be more volatile than those of comparable U.S. securities.

e. Risks Associated with Mortgage-backed Securities:

The value of mortgage-backed securities can fall if the owners of the underlying mortgages default or pay off their mortgages sooner than expected, which could happen when interest rates fall.

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

37


Notes to Financial Statements (continued)

October 31, 2014

 

 

 

12. Contingencies

In the normal course of business, the Fund may provide general indemnifications pursuant to certain contracts and organizational documents. The Fund’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund, and therefore, cannot be estimated; however, based on experience, the risk of loss from such claims is considered remote.

 

13. Tax Information

The U.S. federal income tax basis of the Fund’s investments and the net unrealized appreciation as of October 31, 2014 were as follows:

 

Tax Basis of
Investments
    Appreciation      Depreciation    

Net

Unrealized

Depreciation

 
  $2,138,581,473        $67,327,120       $ (16,069,133   $ 51,257,987   
 

The tax character of distributions paid during the fiscal years ended October 31, 2014 and October 31, 2013 was as follows:

 

      October 31, 2014     October 31, 2013  

Distributions paid from:

    

Ordinary Income

   $ 111,091,699      $ 111,875,139   

Net long-term capital gains

              

Total tax character of distributions

   $ 111,091,699      $ 111,875,139   

As of October 31, 2014, the components of accumulated earnings on a tax basis were as follows:

 

Undistributed ordinary income – net

     $ 1,908,431   

Undistributed long-term capital gains – net

         

Total undistributed earnings

     $ 1,908,431   

Capital loss carryforward

       (65,219,015 )* 

Other currency gains

       268,441,511   

Other Temporary Differences

       (1,878,564

Unrealized appreciation/(depreciation) – securities

       51,257,987 ** 

Unrealized appreciation/(depreciation) – currency

       (105,890,689 )** 

Total accumulated earnings/(losses) – net

     $ 148,619,661   

 

*   On October 31, 2014, the Fund has a net capital loss carryforward of $(65,219,015) which will be available to offset like amounts of any future taxable gains. Under the Regulated Investment Company Modernization Act of 2010, the Fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short term as under previous law. Capital loss carryforwards expire as follows:

 

Amounts    Expires  

$13,960,591

     2016 (Short-Term)   

$17,991,164

     2017 (Short-Term)   

$21,193,794

     2019 (Short-Term)   

$12,073,466

     Unlimited (Short-Term)   

 

**   The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable to the difference between book and tax amortization methods for premiums and discounts on fixed income securities, differing treatments for foreign currencies, the tax deferral of wash sales and straddles, the realization of unrealized gains on certain futures and forward contracts, and other timing differences.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

38


Notes to Financial Statements (concluded)

October 31, 2014

 

 

GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, during the current year, undistributed net investment income has been increased by $49,046,518; accumulated net realized loss from investments, interest rate swaps and futures contracts has been increased by $58,683,368; accumulated net realized foreign exchange gains has been decreased by $39,753,304; and paid-in capital has been decreased by $67,976,582. Substantially all of the paid-in capital reclassification relates to shareholder distributions and foreign currency gains/(losses) in prior years. These reclassifications have no effect on net assets or net asset values per share. Accumulated net realized foreign exchange gains/losses will be recognized for Federal income tax purposes upon repatriation of Australian Dollars to U.S. Dollars.

14. Recent Accounting Pronouncements

In June 2014, the Financial Accounting Standards Board issued guidance to improve the financial reporting of repurchase agreements and other similar transactions. The guidance includes expanded disclosure requirements for entities that enter into repurchase agreements and similar transactions accounted for as secured borrowings. The guidance is effective for financial statements with fiscal years beginning on or after December 15, 2014 and interim periods within those fiscal years. Management is evaluating the impact, if any, of this guidance on the Fund’s financial statement disclosures.

15. Subsequent Events

Management has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. Based on this evaluation, no disclosures or adjustments were required to the financial statements as of October 31, 2014.

On November 11, 2014 and December 9, 2014, the Fund announced that it will pay on November 28, 2014 and January 12, 2015 a distribution of $0.035 per share to all shareholders of record as of November 24, 2014 and December 31, 2014, respectively.

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

39


Report of Independent Registered Public Accounting Firm

 

 

 

The Board of Directors and Shareholders of

Aberdeen Asia-Pacific Income Fund, Inc.

 

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Aberdeen Asia-Pacific Income Fund, Inc. (the “Fund”), as of October 31, 2014, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, the statement of cash flows for the year then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2014, by

correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund as of October 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, its cash flows for the year then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.

 

LOGO

Philadelphia, Pennsylvania

December 29, 2014

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

40


Federal Tax Information: Dividends and Distributions (unaudited)

 

 

 

The following information is provided with respect to the distributions paid by the Aberdeen Asia-Pacific Income Fund, Inc. during the fiscal year ended October 31, 2014:

Common Shareholders

 

Payable Date    Foreign Taxes Paid†*     Foreign Source Income**  

11/15/2013-1/17/2014

     0.857%        49.46%   

2/14/2014-10/29/2014

     0.971%        77.75%   

 

  Expressed as a percentage of the distributions paid.
*   The foreign taxes paid represent taxes incurred by the Fund on interest received from foreign sources. Foreign taxes paid may be included in taxable income with an offsetting deduction from gross income or may be taken as a credit for taxes paid to foreign governments. You should consult your tax advisor regarding the appropriate treatment of foreign taxes paid.
**   Expressed as a percentage of ordinary distributions paid grossed-up for foreign taxes paid.

Supplemental Information (unaudited)

 

 

 

Board of Directors’ Consideration of Advisory and Sub-Advisory Agreements

At an in-person meeting of the Board of Directors (the “Board”) of Aberdeen Asia-Pacific Fund, Inc. (“FAX” or the “Fund”) held on September 8, 2014, the Board, including a majority of the Directors who are not considered to be “interested persons” of the Fund (the “Independent Directors”) under the Investment Company Act of 1940, as amended (the “1940 Act”), approved for an annual period the continuation of the Fund’s management agreement with Aberdeen Asset Management Asia Limited (the “Investment Manager”), the investment advisory agreement among the Fund, the Investment Manager and Aberdeen Asset Management Limited (the “Investment Adviser”), and the investment sub-advisory agreement among the Fund, the Investment Manager and Aberdeen Asset Managers Limited (the “Sub-Adviser”). Collectively, the Investment Manager, the Investment Adviser and the Sub-Adviser are referred to herein as the “Advisers” and the aforementioned agreements with the Advisers are referred to as the “Advisory Agreements.” The Investment Adviser and the Sub-Adviser are affiliates of the Investment Manager.

In considering whether to approve the Fund’s Advisory Agreements, the Board reviews a variety of information provided by the Advisers relating to FAX, the Advisory Agreements and the Advisers, including comparative performance, fee and expense information and other information regarding the nature, extent and quality of services provided by the Advisers under their respective Advisory Agreements. The materials provided to the Board generally include, among other items: (i) information on the investment performance of the Fund

and the performance of peer groups of funds and the Fund’s performance benchmarks; (ii) information on the Fund’s advisory fees and other expenses, including information comparing the Fund’s expenses to those of a peer group of funds and information about any applicable expense limitations and fee “breakpoints”; (iii) information about the profitability of the Advisory Agreements to the Advisers; (iv) a report prepared by the Advisers in response to a request submitted by the Independent Directors’ independent legal counsel on behalf of such Directors; and (v) a memorandum from the Independent Directors’ independent legal counsel on the responsibilities of the Board in considering for approval the investment advisory and investment sub-advisory arrangements under the 1940 Act and Maryland law. The Board, including the Fund’s Independent Directors, also considered other matters such as: (i) the Advisers’ financial results and financial condition; (ii) the Fund’s investment objective and strategies; (iii) the Advisers’ investment personnel and operations; (iv) the procedures employed to determine the value of the Fund’s assets; (v) the allocation of the Fund’s brokerage, if any, including, if applicable, allocations to brokers affiliated with the Advisers and the use, if any, of “soft” commission dollars to pay Fund expenses and to pay for research and other similar services; (vi) the resources devoted to, and the record of compliance with, the Fund’s investment policies and restrictions, policies on personal securities transactions and other compliance policies; and (vii) possible conflicts of interest. Throughout the process, the Board was afforded the opportunity to ask questions of and request additional materials from the Advisers.

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

41


Supplemental Information (unaudited) (continued)

 

 

 

In addition to the materials requested by the Directors in connection with their annual consideration of the continuation of the Advisory Agreements, the Directors received materials in advance of each regular quarterly meeting of the Board that provided information relating to the services provided by the Advisers.

The Independent Directors were advised by separate independent legal counsel throughout the process. The Independent Directors also consulted in executive sessions with counsel to the Independent Directors regarding consideration of the renewal of the Advisory Agreements. The Directors also considered the recommendation of the Board’s Contract Review Committee, consisting solely of the Board’s Independent Directors, that the Advisory Agreements be renewed. In considering whether to approve the continuation of the Advisory Agreements, the Board, including the Independent Directors, did not identify any single factor as determinative. Individual Directors may have evaluated the information presented differently from one another, giving different weights to various factors. Matters considered by the Board, including the Independent Directors, in connection with its approval of the continuation of the Advisory Agreements included the factors listed below.

The nature, extent and quality of the services provided to the Fund under the Advisory Agreements. The Directors considered the nature, extent and quality of the services provided by the Advisers to the Fund and the resources dedicated to the applicable Fund by the Advisers. The Board considered, among other things, the Advisers’ investment experience. The Board received information regarding the Advisers’ compliance with applicable laws and SEC and other regulatory inquiries or audits of the Fund and the Advisers. The Board also considered the background and experience of the Advisers’ senior management personnel and the qualifications, background and responsibilities of the portfolio managers primarily responsible for the day-to-day portfolio management services for the Fund. The Board also considered the allocation of responsibilities among the Advisers. The Board also considered that they receive information on a regular basis from the Fund’s Chief Compliance Officer regarding the Advisers’ compliance policies and procedures. The Board also considered the Advisers’ risk management processes. The Board considered the Advisers’ brokerage policies and practices. Management reported to the Board on, among other things, its business plans and organizational changes. The Board also took into account their knowledge of management and the quality of the performance of management’s duties through Board meetings, discussion and reports during the preceding year.

After reviewing these and related factors, the Board concluded that they were satisfied with the nature, extent and quality of the

services provided and supported the renewal of the applicable Advisory Agreements.

Investment performance of the Fund and the Advisers. The Board received and reviewed with management, among other performance data, information compiled by Strategic Insight Mutual Fund Research and Consulting, LLC (“SI”), an independent third-party provider of investment company data as to the Fund’s total return, as compared to the funds in the Fund’s Morningstar category (the “Morningstar Group”). The Board also received performance information from management that compared the Fund’s return to comparable non-U.S. investment companies in its Lipper category.

The Board received and considered information for each of the last five fiscal years regarding the Fund’s total return on a gross and net basis and relative to the Fund’s benchmark, the Fund’s share performance and premium/discount information and the impact of foreign currency movements on the Fund’s performance. The Board also received and reviewed information as to the Fund’s total return for each of the last five fiscal years as compared with the total returns of its respective Morningstar Group average, and other comparable Aberdeen-managed funds and segregated accounts. The Board considered management’s discussion of the factors contributing to differences in performance, including differences in the investment strategies of each of these other funds and accounts. The Board also reviewed information as to the Fund’s discount/premium ranking relative to its Morningstar Group. The Board took into account management’s discussion of the Fund’s performance.

Specifically, the Board received and reviewed, among other performance data, information compiled by SI as to the Fund’s total return, as compared to the funds in the Fund’s Morningstar Group. The SI report indicated that the Fund’s annualized net total return was below the median for the one- and three- year periods ended April 30, 2014, was above the median for the five- and ten-year periods ended April 30, 2014. The Board also received performance information from management that compared the Fund’s return to comparable non-U.S. investment companies in its Lipper category.

The Board received and considered information for each of the last five fiscal years regarding the Fund’s total return on a gross and net basis and relative to the Fund’s benchmark, the Fund’s share performance and premium/discount information and the impact of foreign currency movements on the Fund’s performance. The Board also received and reviewed information as to the Fund’s total return for the last ten fiscal years as compared with the total returns of the Morningstar Group, and for the last five fiscal years as compared with other Aberdeen-managed funds and a segregated account with sufficiently similar investment portfolios to those of the Fund. The

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

42