Aberdeen Asia-Pacific Income 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, 2015


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, 2015 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 estimated 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, 2015 consisted of 95% net investment income and 5% return of capital.

In January 2016, 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 2015 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 fiscal year ended October 31, 2015. 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 -8.2% for the fiscal year ended October 31, 2015 and 8.1% per annum since inception, assuming the reinvestment of dividends and distributions. The Fund’s total return for the fiscal year ended October 31, 2015 and per annum since inception is based on the reported NAV on each financial reporting period end.

Share Price and NAV

For the fiscal year ended October 31, 2015, based on market price, the Fund’s total return was -12.4%, assuming reinvestment of dividends and distributions. The Fund’s share price decreased by 19.2% over the fiscal year, from $5.88 on October 31, 2014 to $4.75 on October 31, 2015. The Fund’s share price on October 31, 2015 represented a discount of 14.7% to the NAV per share of $5.57 on that date, compared with a discount of 10.6% to the NAV per share of $6.58 on October 31, 2014.

Portfolio Allocation

As of October 31, 2015, the Fund held 34.6% of its total investments in Australian debt securities, 57.7% in Asian debt securities, 3.8% in European debt securities, 3.8% in U.S. debt securities and 0.1% in Canadian debt securities.

Of the Fund’s total investments, 42.2% were held in U.S. Dollar-denominated bonds issued by foreign issuers. The rest of the Fund’s currency exposure was 37.4% in the Australian Dollar and 20.4% in various Asian currencies.

Credit Quality

As of October 31, 2015, 58.5% 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

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, 2015 totaled $0.42 per share. Based on the share price of $4.75 on October 31, 2015, the distribution rate over the twelve-month period ended October 31, 2015 was 8.8%. 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 10, 2015 and December 9, 2015 the Fund announced that it will pay on November 30, 2015 and January 12, 2016 a distribution of US $0.035 per share to all shareholders of record as of November 23, 2015 and December 31, 2015, 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, 2015 distribution payment. This policy is subject to an annual review as well as 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 2016.

 

 

 

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) (continued)

 

 

 

Fund’s Leverage

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

 

     

Amount

($ in millions)

     Maturity  

Revolving Credit Facility

   $ 125         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   

 

*   Subsequent to the end of the reporting period, the maturity of Term Loan B was extended to December 14, 2019.

On August 13, 2015, the Fund paid down $25 million of the Revolving Credit Facility.

The Series A Mandatory Redeemable Preferred Shares, with a liquidation value of $50 million, are rated AA by Fitch Ratings3 and the combined $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 and management believes such repurchases may enhance shareholder value. During the fiscal year ended October 31, 2015 and fiscal year ended October 31, 2014, the Fund repurchased 4,991,465 and 6,107,325 shares, respectively.

Portfolio Holdings Disclosure

The Fund’s complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year 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.

Unclaimed Share Accounts

Please be advised that abandoned or unclaimed property laws for certain states require financial organizations to transfer (escheat) unclaimed property (including Fund shares) to the state. Each state has its own definition of unclaimed property, and Fund shares could be considered “unclaimed property” due to account inactivity (e.g., no owner-generated activity for a certain period), returned mail (e.g., when mail sent to a shareholder is returned to the Fund’s transfer agent as undeliverable), or a combination of both. If your Fund shares are categorized as unclaimed, your financial adviser or the Fund’s transfer agent will follow the applicable state’s statutory requirements to contact you, but if unsuccessful, laws may require that the shares be escheated to the appropriate state. If this happens, you will have to contact the state to recover your property, which may involve time and expense. For more information on unclaimed property and how to maintain an active account, please contact your financial adviser or the Fund’s transfer agent.

Investor Relations Information

As part of Aberdeen’s commitment to 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®, portfolio charting and other timely data.

Enroll in our email services and be among the first to receive the latest closed-end fund news, announcements of upcoming fund manager web casts, films and other information. In addition, you can receive electronic versions of important Fund documents including annual reports, semi-annual reports, prospectuses, and proxy statements. Sign-up today at www.aberdeen-assets.us/aam.nsf/usclosed/email.

 

 

3   

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

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

2


Letter to Shareholders (unaudited) (concluded)

 

 

 

Please take a look at Aberdeen’s award-winning Closed-End Fund Talk Channel, where a series of fund manager web casts and short films are posted. Visit Aberdeen’s Closed-End Fund Talk Channel at www.aberdeen-asset.us/aam.nsf/usclosed/aberdeentv.

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.

Contact Us

 

 

Visit us: http://www.aberdeen-asset.us/cef or www.aberdeenfax.com

 

Watch us: www.aberdeen-asset.us/aam.nsf/usclosed/aberdeentv

 

Email us: InvestorRelations@aberdeen-asset.com

 

Call us: 1-800-522-5465 (toll free in the U.S.)

Yours sincerely,

/s/ Christian Pittard

Christian Pittard

President

 

 

 

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

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

3


Report of the Investment Manager (unaudited) (continued)

 

 

 

Market/economic review

Asian bond markets declined in U.S. dollar terms over the 12-month period ended October 31, 2015. Key laggards during the period included Singapore and Hong Kong government bonds, where expectations of a U.S. Federal Reserve (Fed) interest-rate hike weighed on short-term bonds. Asia regional currencies weakened as the U.S. dollar strengthened in anticipation of monetary policy normalization.

In the Asian credit markets, high-yield corporates led gains, outperforming their investment-grade peers over the reporting period. There was solid buying interest in China amid signs of a property market revival. This occurred despite concerns about borrowers’ foreign debt following the yuan devaluation, as well as news of liquidity problems at several state-owned enterprises (SOEs). In almost all cases, the Chinese government stepped in to help the SOEs avoid default. Conversely, Indonesia and Malaysian credits underperformed.

In the government bond markets, Australia’s yield curve shifted sharply lower over the reporting period. The central bank cut rates twice early in the period and subsequently acknowledged the need for monetary policy to remain accommodative. Second-quarter 2015 gross domestic product (GDP) growth was weaker than expected, although unemployment was largely stable, while business and consumer confidence improved towards the end of the reporting period. Malcolm Turnbull ousted Tony Abbott as leader of Australia’s Liberal Party and was sworn in as prime minister – the fifth leadership change in as many years. In New Zealand, the central bank loosened monetary policy as weak agricultural prices hurt economic growth.

Elsewhere, government bonds in India and China outperformed versus their peers as their central banks were among the most aggressive in cutting interest rates, while net oil-importer India also benefited from crude oil price weakness. The Indian rupee and Chinese yuan were among the strongest-performing regional currencies. Meanwhile, the Chinese government took a step towards internationalizing the yuan by allowing market forces to determine its value. In Thailand and Korea, monetary policy easing amid benign inflation also buoyed markets. Economic growth outlooks for the two countries were clouded by bombings in Bangkok and the Middle East Respiratory Syndrome (MERS) virus outbreak, respectively.

The Indonesian and Malaysian markets performed relatively well during the reporting period despite massive foreign investments in

government securities that made these markets susceptible to selling pressure in the face of U.S. dollar strength. Problematic domestic issues persisted as well: Indonesia faced external account1 vulnerabilities, while Malaysia reeled from the impact of lower oil prices on government revenues and the scandal at state investment firm, 1Malaysia Development Berhad (1MDB). Philippine bonds also performed well over the period.

Fund performance review

The Fund posted a negative return (on both a net asset value and market price basis) but outperformed its blended benchmark2 over the 12-month reporting period ended October 31, 2015. Fund performance was bolstered by the underweight position in Australia and New Zealand bonds, as well as an overweight allocation to U.S. dollar-denominated Asian credit; however, negative security selection in both these sectors tempered gains. Meanwhile, security selection in Asian local-currency bonds was positive.

Within the Australia and New Zealand segment of the Fund, interest-rate strategies detracted from performance, while the currency strategy had a marginally positive impact. Regarding Asian local-currency bonds, the overweight to India and significant underweight to the Malaysian ringgit were the most significant contributors to the Fund’s relative performance. Conversely, overweight positions in the Indian rupee and Sri Lankan rupee were the biggest detractors, while the underweight to Hong Kong also weighed on performance.

In U.S. dollar-denominated Asian credit, security selection in high-yield industrials and investment-grade financials added to relative return, as did the lack of exposure to investment-grade quasi-sovereigns. The significant exposure to high-yield financials also had a positive impact. However, the exposure to the oil and gas sector, which is not represented in the Fund’s blended benchmark, detracted from performance.

Regarding derivatives, the Fund’s use of U.S. Treasury futures to hedge the U.S. interest-rate risk and the use of swaps to hedge the leverage had a modestly negative impact on performance, primarily those positions gaining exposure to the Asian currencies. The use of currency forwards to hedge the Asian currency exposure enhanced Fund performance.

Outlook

In our view, the sooner the U.S. normalizes interest rates, the better, as global markets may find relief from a major source of uncertainty*. While

 

 

1   

The portion of a country’s debt that was borrowed from foreign lenders, including commercial banks, governments or international financial institutions.

2   

The Fund’s blended benchmark comprises 45% of the UBS Composite Index (or the “Bloomberg AusBond Composite Bond Index”), 35.75% of the J.P. Morgan Asia Credit Index, and 19.25% of the IBOXX Asia ex-Japan Government Bond Index.

*   The Fed subsequently raised the federal funds rate by 0.25% on December 16, noting that it sees the risks to the outlook for both economic activity and the labor market as balanced.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

4


Report of the Investment Manager (unaudited) (continued)

 

 

 

investors have already reduced a great deal of risk, we believe that they may remain cautious and that further risk reduction is possible. But a hike in U.S. interest rates may not necessarily be harmful to bonds, since a Fed tightening cycle likely will be gradual, in our opinion, and regional central banks can remain accommodative. Asian sovereign balance sheets are improving, which we believe puts them in a good position to cope with higher U.S. rates. We feel that it also is worth noting that valuations have improved substantially and in some cases, such as in Indonesia, have led to a recovery in fund flows. As for regional currencies, investors are largely prepared for short-term weakness in the face of U.S.-dollar strength. A number of central banks – such as those in Thailand and Korea – actually prefer weaker domestic currencies as this may help to revive moribund growth, in our view.

Nevertheless, we think that challenges persist in delivering concrete reforms, particularly in China, India and Indonesia. In the mainland, green shoots may be visible, notably in the property sector. Aided by government intervention, the yuan has also stabilized and a decision was recently made by the International Monetary Fund to include the currency in its reserve basket. However, given the ongoing economic restructuring and weak global backdrop, Chinese economic growth is still expected to be slow. In a small number of countries, political risks may potentially weigh on investor sentiment. As of the end of the reporting period, India’s governing Bharatiya Janata Party lost the Bihar state election, which we think may potentially curb investors’ risk appetite. In the Philippines, we believe that volatility could spike ahead of the presidential elections in May 2016 amid questions over economic growth momentum, given our opinion that none of the candidates thus far appear to possess current President Benigno Aquino’s focus on reform.

In Australia, we anticipate a prolonged period of stable but subpar growth amid excess capacity in the labor market. In our view, the structural slowdown in China is still a major headwind, exposing commodity prices to downward pressure, even as the mining giants ramp up record supply in a bid to shake out weaker players. This, in turn, has a negative impact on the terms of trade and diminishes the contribution to growth from net exports. Additionally, financial markets remain skittish, given uncertainty surrounding monetary policy in China and the U.S. In this environment, we believe that consumer prices and wage inflation may remain at the low end of the central bank’s target range, which would support its monetary policy easing bias in the medium term. We also see further rate cuts in New Zealand, given low inflation and the sharp deceleration in GDP growth. Although the outlook for dairy prices has improved, prices remain low in absolute terms and production is being reduced; therefore, agriculture may be a drag on economic growth.

In credit markets, we feel that spreads could tighten further amid firm demand supported by the loose monetary policy environment. We believe that companies may see declining earnings growth as they continue to experience slowing consumption, exacerbated by rising household debt. However, finances are generally more robust in Asia than elsewhere in the emerging markets. In China, we think that potential defaults are cause for concern. But we believe that the Chinese government remains supportive of state-owned enterprises deemed strategically important, despite the obvious moral hazards.

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 seek 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. On August 13, 2015, the Fund paid down $25 million of the Revolving Credit Facility. The Fund’s outstanding balance as of October 31, 2015 was $125 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

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

5


Report of the Investment Manager (unaudited) (concluded)

 

 

 

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 holders of the Notes have the right to cause a liquidation of the collateral (i.e., cause the sale of portfolio securities and other assets of the Fund).

Each of the Revolving Credit Facility Agreement, the Term Loan Agreement, the Note Purchase Agreement, and 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 October 31, 2015, 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 interest rate exposure and hedge interest rate risk. On August 6, 2015, the Fund exited $25 million in notional value of a swap maturing on October 31, 2016. As of October 31, 2015, the Fund held interest rate swap agreements with an aggregate notional amount of $125 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, 2015

   Amount
(in millions)
     Fixed Rate
Payable (%)
 

12 months

   $ 59.0         1.42   

24 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.

 

6


Total Investment Return (unaudited)

 

 

 

The following table summarizes the average annual Fund performance for the 1-year, 3-year, 5-year and 10-year periods as of October 31, 2015. The Fund’s principal investment objective is to seek current income. The Fund may also achieve incidental capital appreciation.

 

        1 Year        3 Years        5 Years        10 Years  

Net Asset Value (NAV)

       -8.2%           -4.0%           1.2%           5.8%   

Market Value

       -12.4%           -9.5%           -1.0%           5.1%   

Aberdeen Asset Management Inc. (“AAMI”) has entered into an agreement with the Fund to limit investor relation services fees, without which performance would be lower. For the fiscal year ended October 31, 2015, AAMI did not waive any investor relation service fees because the Fund did not reach the capped amount. See Note 3 in the Notes to Financial Statements. 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. All return data at NAV includes fees charged to the Fund, which are listed in the Fund’s Statement of Operations under “Expenses”. The Fund’s total return is based on the reported NAV on each financial reporting period end. 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. 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, 2015 was 2.15%. 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, 2015 was 1.14%. These ratios include a one-time expense associated with the August 2012 shelf offering costs attributed to the registered but unsold shares that expired in August 2015. See Note 5 in the Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

7


Portfolio Composition (unaudited)

 

 

 

Quality of Investments(1)

As of October 31, 2015, 58.5% 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. The table below shows the asset quality of the Fund’s portfolio as of October 31, 2015 compared with the previous six and twelve months:

 

Date      AAA/Aaa
%
       AA/Aa
%
       A
%
       BBB/Baa
%
       BB/Ba*
%
       B*
%
       NR**
%
 

October 31, 2015

       36.9           12.4           9.2           22.9           7.5           5.4           5.7   

April 30, 2015***

       36.3           11.2           10.7           25.6           8.9           4.6           2.7   

October 31, 2014

       36.4           14.2           13.1           18.6           11.4           3.5           2.8   

 

*   Below investment grade
**   Not Rated
***   Unaudited
(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 Investor Service if ratings differ. These rating agencies were selected because they are independent, nationally recognized statistical rating organization 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 evaluated 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, 2015, compared with the previous six and twelve months:

 

Date      Australia
%
       Asia
(including NZ)
%
       Europe
%
       United
States
%
       Canada
%
 

October 31, 2015

       34.6           57.7           3.8           3.8           0.1   

April 30, 2015*

       31.9           61.5           3.8           2.7           0.1   

October 31, 2014

       40.0           54.8           3.1           1.7           0.4   

 

*   Unaudited

Currency Composition

The table below shows the currency composition of the Fund’s total investments as of October 31, 2015, compared with the previous six and twelve months:

 

Date      Australian
Dollar
%
       Asian Currencies
(including NZ Dollar)
%
       US Dollar*
%
 

October 31, 2015

       37.4           20.4           42.2   

April 30, 2015**

       38.7           20.7           40.6   

October 31, 2014

       42.2           13.8           44.0   

 

*   Includes U.S. Dollar-denominated bonds issued by foreign issuers: 42.2% of the Fund’s total investments on October 31, 2015, 40.6% of the Fund’s total investments on April 30, 2015, 39.8% of the Fund’s total investments on October 31, 2014.
**   Unaudited

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

8


Portfolio Composition (unaudited) (concluded)

 

 

 

Maturity Composition

As of October 31, 2015, the average maturity of the Fund’s total investments was 7.9 years, compared with 7.9 years at April 30, 2015, and 6.6 years at October 31, 2014. The following table shows the maturity composition of the Fund’s investments as of October 31, 2015, 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, 2015

       22.9           15.6           42.5           19.0   

April 30, 2015*

       26.3           16.4           38.2           19.1   

October 31, 2014

       25.1           25.4           36.6           12.9   

 

*   Unaudited

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

9


Summary of Key Rates (unaudited)

 

 

 

The following table summarizes the movements of key interest rates and currencies from October 31, 2015 and the previous six and twelve month periods.

 

        October 31, 2015        April 30, 2015        October 31, 2014  

Australia

              

90 day Bank Bills

       2.11%           2.25%           2.74%   

10 yr bond

       2.40%           2.49%           3.19%   

Australian Dollar

       $0.71           $0.79           $0.88   

New Zealand

              

90 day Bank Bills

       2.98%           3.64%           3.71%   

10 yr bond

       3.30%           3.45%           3.99%   

New Zealand Dollar

       $0.68           $0.76           $0.78   

South Korea

              

90 day commercial paper

       1.57%           1.80%           2.14%   

10 yr bond

       2.11%           2.41%           2.65%   

South Korean Won*

       W1140.05           W1072.00           W1068.73   

Thailand

              

3 months deposit rate

       1.00%           1.00%           1.13%   

10 yr bond

       2.65%           2.48%           3.33%   

Thai Baht*

       B35.57           B32.97           B32.57   

Philippines

              

90 day T-Bills

       2.30%           2.35%           1.44%   

10 yr bond

       3.72%           4.31%           4.11%   

Philippine Peso*

       P46.82           P44.53           P44.88   

Malaysia

              

3-month T-Bills

       2.96%           2.93%           3.30%   

10 yr bond

       4.37%           3.85%           3.84%   

Malaysian Ringgit*

       R4.30           R3.56           R3.29   

Singapore

              

3-month T-Bills

       1.16%           0.95%           0.34%   

10 yr bond

       2.46%           2.25%           2.29%   

Singapore Dollar*

       S1.40           S1.32           S1.29   

US$ Bonds**

              

Indonesia

       4.44%           3.89%           N/A   

Philippines

       1.57%           1.78%           2.26%   

 

*   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.

 

10


Portfolio of Investments

As of October 31, 2015

 

 

     Principal
Amount
(000)
     Description   Value
(US$)
 

CORPORATE BONDS—65.1%

 

AUSTRALIA—6.9%

 

AUD

    3,000      

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

  $ 2,193,766   

AUD

    2,500      

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

    2,081,360   

AUD

    10,900      

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

    7,862,767   

AUD

    8,200      

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

    6,087,690   

AUD

    5,300      

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

    3,862,350   

AUD

    5,000      

KfW, 6.00%, 08/20/2020 (c)

    4,099,262   

AUD

    10,600      

KfW, 6.25%, 02/23/2018 (c)

    8,233,034   

AUD

    10,500      

KfW, 6.25%, 12/04/2019 (c)

    8,566,131   

AUD

    15,000      

KfW, 6.25%, 05/19/2021 (c)

    12,609,247   

AUD

    9,788      

Kommunalbanken AS, 6.50%, 04/12/2021

    8,282,257   

AUD

    10,000      

Landwirtschaftliche Rentenbank, 4.75%, 04/08/2024 (c)

    7,951,542   

AUD

    2,900      

National Capital Trust III, 3.13%, 09/30/2016 (a)(b)(d)

    2,045,862   

AUD

    2,500      

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

    1,811,737   

AUD

    4,800      

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

    3,506,022   

AUD

    4,300      

Novion Property Group, 7.25%, 05/02/2016

    3,135,200   

AUD

    7,300      

Qantas Airways Ltd., 7.50%, 06/11/2021

    5,738,655   

AUD

    4,800      

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

    3,402,651   

AUD

    2,000      

Telstra Corp. Ltd., 8.75%, 01/15/2020

    1,736,565   

AUD

    4,000      

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

    2,997,016   

AUD

    3,600      

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

    2,606,976   
                   98,810,090   

CHINA—15.3%

  

    

USD

    3,950      

Agile Property Holdings Ltd., 9.00%, 05/21/2018 (b)(f)

    4,178,045   

CNH

    11,250      

China Development Bank Corp., 3.60%, 11/13/2018

    1,763,650   

USD

    8,450      

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

    9,195,603   

USD

    4,955      

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

    5,150,425   

USD

    9,550      

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

    10,448,092   

USD

    7,500      

CNOOC Curtis Funding No 1 Pty Ltd., 4.50%, 10/03/2023 (f)

    7,844,542   

USD

    12,160      

CNOOC Nexen Finance 2014 ULC, 4.25%, 04/30/2024

    12,487,821   

USD

    12,670      

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

    13,214,823   

USD

    4,348      

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

    4,255,118   

USD

    15,143      

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

    16,599,242   

USD

    10,700      

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

    11,033,893   

USD

    5,876      

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

    6,373,421   

USD

    8,800      

Green Dragon Gas Ltd., 10.00%, 11/30/2015 (b)(e)(f)

    8,580,000   

USD

    5,745      

Greenland Global Investment Ltd., 5.88%, 07/03/2024 (f)

    5,699,603   

USD

    8,629      

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

    8,680,343   

USD

    3,674      

Kunlun Energy Co. Ltd., 3.75%, 05/13/2025 (f)

    3,574,177   

USD

    3,950      

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

    4,188,189   

USD

    3,800      

Logan Property Holdings Co. Ltd., 11.25%, 06/04/2017 (b)(f)

    4,161,091   

USD

    14,434      

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

    14,403,515   

USD

    1,385      

Shanghai Electric Group Investment Ltd., 3.00%, 08/14/2019

    1,389,584   

USD

    10,200      

Sinopec Capital 2013 Ltd., 144A, 3.13%, 04/24/2023 (f)

    9,815,797   

USD

    4,109      

Sinopec Capital 2013 Ltd., REG S, 3.13%, 04/24/2023 (f)

    3,954,226   

USD

    1,600      

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

    1,646,122   

USD

    4,400      

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

    4,604,939   

USD

    8,584      

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

    8,777,183   

USD

    20,800      

Wanda Properties International Co. Ltd., 7.25%, 01/29/2024 (f)

    22,818,245   

USD

    4,852      

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

    4,536,620   

USD

    5,313      

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

    4,967,655   

USD

    4,300      

Yuzhou Properties Co. Ltd., 9.00%, 12/08/2017 (b)(f)

    4,536,027   
                   218,877,991   

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

11


Portfolio of Investments (continued)

As of October 31, 2015

 

 

 

     Principal
Amount
(000)
     Description   Value
(US$)
 

CORPORATE BONDS (continued)

  

HONG KONG—8.6%

  

USD

    4,103      

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

  $ 3,994,131   

USD

    5,400      

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

    5,417,199   

USD

    8,350      

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

    8,160,380   

USD

    17,000      

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

    17,701,488   

USD

    1,600      

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

    1,711,723   

USD

    5,608      

HPHT Finance 15 Ltd., 2.88%, 03/17/2020 (f)

    5,608,314   

USD

    9,500      

Hutchison Whampoa Finance CI Ltd., 7.50%, 08/01/2027 (f)

    12,552,360   

USD

    4,417      

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

    4,405,048   

USD

    2,880      

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

    3,957,160   

USD

    3,973      

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

    4,658,513   

USD

    8,382      

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

    8,291,198   

USD

    1,250      

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

    1,303,460   

USD

    7,758      

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

    8,331,021   

USD

    14,355      

Standard Chartered PLC, 3.95%, 01/11/2023 (f)

    14,071,532   

USD

    5,545      

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

    5,435,503   

USD

    1,800      

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

    1,975,824   

USD

    2,440      

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

    2,462,597   

USD

    11,300      

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

    12,099,373   
                   122,136,824   

INDIA—9.5%

  

USD

    8,666      

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

    8,067,353   

USD

    2,799      

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

    2,945,864   

INR

    300,000      

Axis Bank Ltd., 8.85%, 12/05/2024

    4,774,070   

USD

    2,900      

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

    3,094,045   

USD

    3,050      

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

    3,124,670   

USD

    6,727      

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

    7,136,055   

USD

    3,652      

Bharti Airtel International Netherlands BV, 5.35%, 05/20/2024 (f)

    3,923,347   

USD

    4,573      

Bharti Airtel Ltd., 4.38%, 06/10/2025 (f)

    4,600,964   

INR

    100,000      

Export-Import Bank of India, 8.87%, 10/30/2029

    1,636,341   

USD

    6,487      

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

    6,322,607   

USD

    7,000      

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

    7,090,888   

USD

    7,909      

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

    8,043,184   

USD

    3,515      

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

    3,743,405   

INR

    250,000      

ICICI Bank Ltd., 9.15%, 08/06/2024

    4,095,187   

INR

    250,000      

Indian Railway Finance Corp. Ltd., 8.83%, 03/25/2023

    3,975,614   

USD

    4,400      

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

    4,648,767   

INR

    200,000      

NTPC Ltd., 8.49%, 03/25/2025

    3,241,334   

INR

    100,000      

NTPC Ltd., 8.73%, 03/07/2023

    1,589,393   

INR

    100,000      

NTPC Ltd., 9.17%, 09/22/2024

    1,636,945   

USD

    11,954      

ONGC Videsh Ltd., 4.63%, 07/15/2024 (f)

    12,330,240   

INR

    250,000      

Power Finance Corp. Ltd., 8.39%, 04/19/2025

    3,816,929   

INR

    400,000      

Power Finance Corp. Ltd., 8.65%, 12/28/2024

    6,217,951   

INR

    200,000      

Power Grid Corp. of India Ltd., 8.20%, 01/23/2025

    3,074,078   

INR

    200,000      

Power Grid Corp. of India Ltd., 8.93%, 10/20/2022

    3,197,227   

INR

    300,000      

Power Grid Corp. of India Ltd., 9.30%, 09/04/2024

    4,923,292   

INR

    200,000      

Rural Electrification Corp. Ltd., 8.44%, 12/04/2021

    3,088,209   

INR

    150,000      

Rural Electrification Corp. Ltd., 9.34%, 08/25/2024

    2,421,580   

INR

    270,000      

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

    4,350,250   

USD

    4,800      

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

    4,927,262   

INR

    150,000      

Steel Authority of India Ltd., 9.00%, 10/14/2024

    2,407,401   

INR

    100,000      

Tata Motors Ltd., 9.73%, 10/01/2020

    1,588,900   
                   136,033,352   

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

12


Portfolio of Investments (continued)

As of October 31, 2015

 

 

 

     Principal
Amount
(000)
     Description   Value
(US$)
 

CORPORATE BONDS (continued)

  

INDONESIA—3.9%

  

IDR

    24,000,000      

Bank OCBC Nisp Tbk PT, 9.40%, 02/10/2017

  $ 1,734,226   

USD

    3,886      

Indo Energy Finance BV, 7.00%, 11/30/2015 (b)(f)

    2,143,137   

USD

    1,200      

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

    1,144,338   

IDR

    30,000,000      

Lembaga Pembiayaan Ekspor Indonesia, 9.50%, 03/13/2020

    2,168,110   

USD

    3,150      

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

    3,531,938   

USD

    8,900      

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

    10,034,750   

USD

    8,888      

Pertamina Persero PT, 5.63%, 05/20/2043 (f)

    7,390,372   

USD

    11,900      

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

    10,323,250   

USD

    7,600      

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

    7,039,530   

USD

    4,600      

Perusahaan Listrik Negara PT, 5.25%, 10/24/2042 (f)

    3,783,500   

USD

    6,009      

Perusahaan Listrik Negara PT, 5.25%, 10/24/2042 (f)

    4,942,402   

USD

    2,000      

Pratama Agung Pte Ltd., 6.25%, 02/24/2018 (b)(f)

    1,959,358   
                   56,194,911   

MALAYSIA—3.1%

  

USD

    11,700      

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

    11,595,653   

USD

    900      

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

    1,176,257   

USD

    8,180      

Petronas Capital Ltd., 3.13%, 03/18/2022 (f)

    8,012,326   

USD

    50      

Petronas Capital Ltd., 5.25%, 08/12/2019 (f)

    54,541   

USD

    6,791      

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

    8,433,614   

USD

    2,650      

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

    2,706,220   

USD

    11,550      

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

    11,550,000   
                   43,528,611   

PHILIPPINES—2.0%

  

USD

    3,700      

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

    4,060,750   

USD

    3,072      

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

    3,310,618   

USD

    16,534      

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

    21,576,870   
                   28,948,238   

REPUBLIC OF SOUTH KOREA—4.2%

  

USD

    7,218      

Doosan Heavy Industries & Construction Co. Ltd., 2.13%, 04/27/2020 (f)

    7,124,859   

USD

    6,000      

Hyundai Capital Services, Inc., 2.63%, 09/29/2020 (f)

    5,934,414   

USD

    4,552      

Hyundai Capital Services, Inc., 2.63%, 09/29/2020 (f)

    4,502,242   

USD

    4,211      

KEB Hana Bank, 2.50%, 06/12/2019 (f)

    4,223,204   

USD

    2,050      

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

    2,053,327   

USD

    1,400      

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

    1,430,576   

USD

    4,000      

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

    4,082,432   

USD

    10,858      

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

    10,902,702   

USD

    6,305      

Korea Hydro & Nuclear Power Co. Ltd., 3.25%, 06/15/2025 (f)

    6,338,612   

USD

    3,000      

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

    3,066,489   

USD

    6,390      

Minera y Metalergica del Boleo SA de CV, 2.88%, 05/07/2019 (f)

    6,494,515   

USD

    4,200      

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

    4,173,767   
                   60,327,139   

SINGAPORE—2.0%

  

SGD

    2,750      

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

    2,017,447   

USD

    1,000      

MPM Global Pte Ltd., 6.75%, 09/19/2017 (b)(f)

    949,854   

USD

    8,900      

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

    8,991,981   

USD

    7,450      

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

    7,642,210   

USD

    4,000      

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

    4,039,128   

USD

    4,400      

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

    4,480,476   
                   28,121,096   

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

13


Portfolio of Investments (continued)

As of October 31, 2015

 

 

     Principal
Amount
(000)
     Description   Value
(US$)
 

CORPORATE BONDS (continued)

 

SRI LANKA—0.2%

 

USD

    3,300      

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

  $ 3,279,375   

SUPRANATIONAL—5.3%

 

AUD

    14,000      

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

    11,229,327   

AUD

    13,800      

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

    9,933,391   

AUD

    16,800      

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

    13,812,791   

AUD

    10,000      

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

    7,283,959   

AUD

    11,200      

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

    9,164,249   

AUD

    10,000      

International Bank for Reconstruction & Development, 4.25%, 06/24/2025

    7,812,965   

AUD

    8,900      

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

    7,148,418   

AUD

    10,300      

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

    7,631,602   

AUD

    2,600      

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

    2,117,003   
                   76,133,705   

THAILAND—3.5%

 

USD

    2,400      

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

    2,609,657   

USD

    4,200      

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

    4,606,736   

USD

    4,800      

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

    6,608,208   

USD

    17,170      

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

    17,449,373   

USD

    9,440      

PTT Global Chemical PCL, 4.25%, 09/19/2022 (f)

    9,704,254   

USD

    4,500      

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

    4,602,501   

USD

    4,002      

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

    4,098,104   
                   49,678,833   

UNITED KINGDOM—0.6%

 

USD

    7,924      

HSBC Holdings PLC, 6.38%, 03/30/2025 (a)(b)(d)(g)

    7,824,950   
            

Total Corporate Bonds—65.1% (cost $970,371,547)

    929,895,115   

GOVERNMENT BONDS—66.3%

 

AUSTRALIA—38.4%

 

AUD

    34,700      

Australia Government Bond, 3.25%, 04/21/2025 (f)

    26,045,885   

AUD

    30,300      

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

    22,370,085   

AUD

    105,300      

Australia Government Bond, 3.75%, 04/21/2037 (f)

    80,743,656   

AUD

    76,500      

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

    64,735,394   

AUD

    41,200      

Australia Government Bond, 4.75%, 06/15/2016 (f)

    29,917,249   

AUD

    7,000      

Australia Government Bond, 5.50%, 04/21/2023 (f)

    6,042,003   

AUD

    35,300      

Australia Government Bond, 5.75%, 07/15/2022 (f)

    30,530,631   

AUD

    15,000      

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

    12,878,638   

AUD

    27,100      

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

    19,684,453   

AUD

    22,850      

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

    17,742,378   

AUD

    31,190      

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

    26,411,217   

AUD

    47,100      

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

    38,461,489   

AUD

    24,330      

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

    20,107,633   

AUD

    131,500      

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

    97,419,459   

AUD

    14,250      

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

    11,838,858   

AUD

    35,350      

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

    30,668,657   

AUD

    15,000      

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

    13,164,288   
                   548,761,973   

BANGLADESH—0.3%

 

BDT

    200,000      

Bangladesh Treasury Bond, 11.23%, 01/15/2019

    2,890,075   

BDT

    100,000      

Bangladesh Treasury Bond, 11.78%, 08/14/2018

    1,448,067   
                   4,338,142   

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

14


Portfolio of Investments (continued)

As of October 31, 2015

 

 

     Principal
Amount
(000)
     Description   Value
(US$)
 

GOVERNMENT BONDS (continued)

 

CHINA—4.9%

 

CNH

    13,000      

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

  $ 2,040,701   

CNY

    15,000      

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

    2,393,471   

CNY

    50,000      

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

    8,031,160   

CNY

    10,000      

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

    1,610,248   

CNY

    40,000      

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

    6,462,050   

CNY

    20,000      

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

    3,237,211   

CNY

    2,000      

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

    325,949   

CNY

    88,000      

China Government Bond, 3.64%, 04/09/2025 (h)

    14,534,076   

CNY

    4,000      

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

    639,811   

CNY

    60,000      

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

    10,140,470   

CNY

    30,000      

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

    5,128,250   

CNY

    8,000      

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

    1,314,750   

CNY

    20,000      

China Government Bond, 4.13%, 09/18/2024 (h)

    3,416,310   

CNY

    20,000      

China Government Bond, 4.15%, 04/28/2031 (h)

    3,457,257   

CNH

    13,000      

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

    2,040,709   

USD

    5,531      

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

    5,678,705   
                   70,451,128   

INDIA—3.1%

 

INR

    1,885,000      

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

    29,341,960   

INR

    125,000      

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

    1,991,845   

INR

    16,000      

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

    255,592   

INR

    83,000      

India Government Bond, 8.40%, 07/28/2024

    1,318,364   

INR

    502,500      

India Government Bond, 8.60%, 06/02/2028

    8,140,561   

INR

    150,000      

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

    2,510,517   

INR

    8,870      

India Government Bond, 9.20%, 09/30/2030

    150,579   
                   43,709,418   

INDONESIA—3.7%

 

USD

    7,989      

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

    7,612,063   

USD

    3,500      

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

    3,323,250   

USD

    6,900      

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

    7,583,100   

IDR

    47,000,000      

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

    3,138,749   

IDR

    40,000,000      

Indonesia Treasury Bond, 8.25%, 05/15/2036

    2,665,816   

IDR

    214,000,000      

Indonesia Treasury Bond, 8.38%, 03/15/2024

    15,229,452   

IDR

    40,400,000      

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

    2,751,155   

IDR

    30,000,000      

Indonesia Treasury Bond, 9.00%, 03/15/2029

    2,175,299   

IDR

    21,000,000      

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

    1,561,812   

USD

    2,050      

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

    2,147,375   

USD

    3,981      

Perusahaan Penerbit SBSN, 4.35%, 09/10/2024 (f)

    3,866,745   
                   52,054,816   

MALAYSIA—0.5%

 

MYR

    30,000      

Malaysia Government Investment Issue, 0.01%, 10/31/2035

    7,015,384   

NEW ZEALAND—0.1%

 

NZD

    1,500      

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

    1,016,226   

PHILIPPINES—3.2%

 

PHP

    347,040      

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

    8,316,204   

PHP

    544      

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

    13,496   

PHP

    331,030      

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

    7,462,817   

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

15


Portfolio of Investments (continued)

As of October 31, 2015

 

 

 

     Principal
Amount
(000)
     Description   Value
(US$)
 

GOVERNMENT BONDS (continued)

  

PHILIPPINES (continued)

 

PHP

    851,000      

Philippine Government International Bond, 3.63%, 03/21/2033

  $ 16,426,463   

USD

    7,050      

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

    10,180,369   

USD

    2,970      

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

    3,728,437   
                   46,127,786   

REPUBLIC OF SOUTH KOREA—6.3%

  

USD

    12,500      

Export-Import Bank of Korea, 2.63%, 12/30/2020

    12,646,712   

USD

    5,600      

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

    5,617,478   

KRW

    1,000,000      

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

    894,917   

KRW

    46,000,000      

Korea Treasury Bond, 3.00%, 09/10/2024

    43,302,420   

KRW

    5,500,000      

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

    5,035,150   

KRW

    10,300,000      

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

    9,917,580   

KRW

    7,000,000      

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

    6,817,112   

KRW

    3,300,000      

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

    3,218,968   

KRW

    1,500,000      

Korea Treasury Bond, 3.75%, 12/10/2033

    1,614,555   

KRW

    1,000,000      

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

    987,845   
                   90,052,737   

SINGAPORE—2.8%

  

SGD

    3,000      

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

    2,133,814   

SGD

    3,000      

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

    2,133,658   

SGD

    750      

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

    536,520   

SGD

    2,000      

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

    1,482,874   

SGD

    10,000      

Singapore Government Bond, 0.50%, 04/01/2018

    6,995,503   

SGD

    20,000      

Singapore Government Bond, 3.00%, 09/01/2024

    14,968,948   

SGD

    15,490      

Singapore Government Bond, 3.50%, 03/01/2027

    12,035,738   
                   40,287,055   

SRI LANKA—2.3%

  

USD

    9,754      

Sri Lanka Government Bonds, 6.13%, 06/03/2025 (f)

    9,207,600   

LKR

    90,000      

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

    640,688   

LKR

    151,000      

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

    1,048,697   

LKR

    724,600      

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

    5,135,183   

LKR

    230,000      

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

    1,623,987   

LKR

    388,000      

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

    2,732,782   

LKR

    293,000      

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

    2,104,265   

LKR

    550,000      

Sri Lanka Government Bonds, 11.20%, 07/01/2022

    4,188,131   

LKR

    820,000      

Sri Lanka Government Bonds, 11.40%, 01/01/2024

    6,320,459   
                   33,001,792   

THAILAND—0.7%

  

THB

    300,000      

Thailand Government Bond, 4.26%, 12/12/2037 (f)

    9,254,896   
            

Total Government Bonds—66.3% (cost $1,092,434,743)

    946,071,353   

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

16


Portfolio of Investments (continued)

As of October 31, 2015

 

 

     Principal
Amount
(000)
     Description   Value
(US$)
 

SHORT-TERM INVESTMENT—5.4%

  

UNITED STATES—5.4%

  

USD

    76,319      

Repurchase Agreement, Fixed Income Clearing Corp.,
0.00% dated 10/30/2015, due 11/02/2015 in the amount of $76,319,000 (collateralized by $78,115,000 U.S. Treasury Obligations, maturing 07/31/2016—11/15/2024; value of $77,852,538)

  $ 76,319,000   
            

Total Short-Term Investment—5.4% (cost $76,319,000)

    76,319,000   
            

Total Investments—136.8% (cost $2,139,125,290)

    1,952,285,468   
    

Long Term Debt Securities

    (525,000,000
    

Mandatory Redeemable Preferred Stock at Liquidation Value

    (50,000,000
            

Other Assets in Excess of Liabilities—3.5%

    50,363,100   
            

Net Assets—100.0%

  $ 1,427,648,568   

 

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

 

(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, 2015.
(b)   The maturity date presented for these instruments represents the next call/put date.
(c)   This security is government guaranteed.
(d)   Perpetual bond. This is a bond that has no maturity date, is redeemable and pays a steady stream of interest indefinitely.
(e)   Illiquid security.
(f)   Denotes a restricted security, see Note 2(c).
(g)   Variable or Floating Rate Security. Rate disclosed is as of October 31, 2015.
(h)   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.

At October 31, 2015, 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           499           12/31/2015         $ (97,210

United States Treasury Note 6%—5 year

       UBS           (34        12/31/2015           27,013   

United States Treasury Note 6%—10 year

       UBS           (693        12/21/2015           (118,892

United States Treasury Note 6%—30 year

       UBS           136           12/21/2015           (33,132
                                        $ (222,221

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

17


Portfolio of Investments (concluded)

As of October 31, 2015

 

 

At October 31, 2015, 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)
 

Indian Rupee/United States Dollar

  

        
11/03/2015   

Standard Chartered Bank

     INR 6,909,964,950         USD 106,500,000       $ 105,745,886       $ (754,114
02/02/2016   

Citigroup

     INR 2,734,188,030         USD 41,300,000         41,175,464         (124,536

Philippine Peso/United States Dollar

  

        
12/03/2015   

BNP Paribas

     PHP 412,808,000         USD 8,800,000         8,802,473         2,473   

Singapore Dollar/United States Dollar

  

        
01/14/2016   

Royal Bank of Canada

     SGD 81,445,035         USD 57,900,000         58,015,345         115,345   
01/14/2016   

State Street

     SGD 43,818,930         USD 31,200,000         31,213,325         13,325   

South Korean Won/United States Dollar

  

        
12/03/2015   

State Street

     KRW 11,317,440,000         USD 9,600,000         9,924,097         324,097   

Thai Baht/United States Dollar

  

        
12/08/2015   

Credit Suisse

     THB 716,489,000         USD 19,700,000         20,118,978         418,978   
                            $ 274,995,568       $ (4,432
Sale Contracts
Settlement Date*
   Counterparty    Amount
Purchased
     Amount Sold      Fair Value      Unrealized
Appreciation/
(Depreciation)
 

United States Dollar/Australian Dollar

           
01/14/2016   

Credit Suisse

     USD 172,000,000         AUD 236,686,391       $ 168,176,631       $ 3,823,369   

United States Dollar/Chinese Renminbi

  

        
11/09/2015   

Standard Chartered Bank

     USD 23,700,000         CNY 155,353,500         24,582,873         (882,873

United States Dollar/Chinese Yuan Renminbi Offshore

  

        
11/09/2015   

State Street

     USD 7,900,000         CNH 49,690,450         7,855,515         44,485   

United States Dollar/Indian Rupee

  

        
11/03/2015   

Standard Chartered Bank

     USD 65,100,000         INR 4,227,594,000         64,696,518         403,482   

United States Dollar/Philippine Peso

  

        
12/03/2015   

Goldman Sachs

     USD 24,200,000         PHP 1,133,286,000         24,165,520         34,480   
12/03/2015   

Standard Chartered Bank

     USD 9,700,000         PHP 459,683,000         9,802,008         (102,008

United States Dollar/Singapore Dollar

  

        
01/14/2016   

Standard Chartered Bank

     USD 22,200,000         SGD 31,053,360         22,120,088         79,912   
01/14/2016   

State Street

     USD 59,200,000         SGD 83,563,177         59,524,151         (324,151

United States Dollar/South Korean Won

  

        
12/03/2015   

Goldman Sachs

     USD 10,800,000         KRW 12,463,470,000         10,929,034         (129,034
12/03/2015   

State Street

     USD 32,100,001         KRW 38,535,792,000         33,791,470         (1,691,469

United States Dollar/Thai Baht

  

        
12/08/2015   

Credit Suisse

     USD 21,000,000         THB 763,770,000         21,446,627         (446,627
12/08/2015   

Goldman Sachs

     USD 10,000,000         THB 363,600,000         10,209,871         (209,871
                            $ 457,300,306       $ 599,695   

 

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

At October 31, 2015, the Fund’s over-the-counter interest rate swaps were as follows:

 

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

USD

     59,000,000         10/31/2016         Barclays Bank         Receive         3-month LIBOR Index         1.42    $ (512,903

USD

     66,000,000         11/01/2017         Barclays Bank         Receive         3-month LIBOR Index         0.84         (209,600
       $ (722,503

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

18


Statement of Assets and Liabilities

As of October 31, 2015

 

 

Assets

  

Investments, at value (cost $2,062,806,290)

   $ 1,875,966,468   

Repurchase agreement, at value (cost $76,319,000)

     76,319,000   

Foreign currency, at value (cost $36,541,028)

     36,141,940   

Cash at broker for over-the-counter interest rate swaps

     1,050,000   

Cash at broker for futures contracts

     888,480   

Cash at broker for China A shares

     72,625   

Interest receivable

     24,541,666   

Receivable for investments sold

     5,828,794   

Unrealized appreciation on forward foreign currency exchange contracts

     5,259,946   

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

     3,146,090   

Variation margin receivable for futures contracts

     27,013   

Prepaid expenses

     199,936   

Total assets

     2,029,441,958   

Liabilities

  

Senior secured notes payable (Note 8)

     200,000,000   

Revolving credit facility payable (Note 9)

     125,000,000   

5-year term loan payable (Note 9)

     100,000,000   

3-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

     14,402,242   

Unrealized depreciation on forward foreign currency exchange contracts

     4,664,683   

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

     3,371,168   

Investment management fees payable (Note 3)

     1,053,696   

Deferred foreign capital gains tax

     785,155   

Dividend payable on Series A Mandatory Redeemable Preferred Shares

     756,253   

Unrealized depreciation on over-the-counter interest rate swaps

     722,503   

Variation margin payable for futures contracts

     249,234   

Administration fee payable (Note 3)

     221,820   

Investor relations fees payable (Note 3)

     44,036   

Due to custodian

     114,067   

Director fees payable

     90   

Accrued Expenses

     408,443   

Total liabilities

     601,793,390   
          

Net Assets Applicable to Common Shareholders

   $ 1,427,648,568   

Composition of Net Assets:

  

Common stock (par value $0.01 per share) (Note 5)

   $ 2,563,091   

Paid-in capital in excess of par

     1,535,685,633   

Distributions in excess of net investment income

     (474,699

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

     (97,138,950

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

     54,193,328   

Accumulated net realized foreign exchange gains

     175,532,090   

Net unrealized foreign exchange and forward foreign currency contract loss

     (242,711,925

Net Assets Applicable to Common Shareholders

   $ 1,427,648,568   

Net asset value per share based on 256,309,138 shares issued and outstanding

   $ 5.57   

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

19


Statement of Operations

For the Fiscal Year Ended October 31, 2015

 

 

Net Investment Income

        

Income

  

Interest and amortization of discount and premium (net of foreign withholding taxes of $1,279,746)

   $ 105,478,039   

Other income

     23,471   
       105,501,510   

Expenses

  

Investment management fee (Note 3)

     11,322,847   

Administration fee (Note 3)

     2,357,523   

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

     780,019   

Custodian’s fees and expenses

     749,392   

Investor relations fees and expenses (Note 3)

     530,296   

Insurance expense

     393,422   

Reports to shareholders and proxy solicitation

     304,474   

Directors’ fees and expenses

     242,387   

Offering costs expense (Note 5)

     219,739   

Transfer agent’s fees and expenses

     149,079   

Legal fees and expenses

     148,874   

Independent auditors’ fees and expenses

     87,700   

Miscellaneous

     341,402   

Total operating expenses, excluding interest expense

     17,627,154   

Interest expense (Notes 8 & 9)

     13,625,257   

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

     2,091,147   

Net operating expenses

     33,343,558   
          

Net investment income applicable to common shareholders

     72,157,952   

Net Realized and Unrealized Gains/(Losses) on Investments and Foreign Currency Related Transactions

  

Net realized gain/(loss) from:

  

Investment transactions (including $288,786 capital gains tax)

     9,407,200   

Interest rate swaps

     (1,518,307

Futures contracts

     (10,806,500

Forward and spot foreign currency exchange contracts

     10,244,441   

Foreign currency transactions

     (79,009,620
       (71,682,786

Net change in unrealized appreciation/(depreciation) on:

  

Investments (including $(376,831) change in deferred capital gains tax)

     (14,869,680

Interest rate swaps

     150,784   

Futures contracts

     (1,731,055

Forward foreign currency exchange rate contracts

     (3,558,057

Foreign currency translation

     (136,919,997
       (156,928,005

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

     (228,610,791

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

   $ (156,452,839

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

20


Statements of Changes in Net Assets

 

 

 

      For the
Fiscal
Year Ended
October 31, 2015
     For the
Fiscal
Year Ended
October 31, 2014
 

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

     

Operations:

     

Net investment income

   $ 72,157,952       $ 73,417,962   

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

     (2,917,607      (5,581,394

Net realized loss from foreign currency transactions

     (68,765,179      (56,112,064

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

     (16,449,951      40,484,227   

Net change in unrealized appreciation/(depreciation) on foreign currency contracts and translation

     (140,478,054      (27,649,383

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

     (156,452,839      24,559,348   

Distributions to Common Shareholders from:

     

Net investment income

     (102,766,980      (111,091,699

Tax return of capital

     (5,766,249        

Net decrease in net assets applicable to common shareholders from distributions

     (108,533,229      (111,091,699

Common Stock Transactions:

     

Repurchase of common stock resulting in the reduction of 4,991,465 and 6,107,325 shares of common stock, respectively (Note 6)

     (26,309,672      (36,993,347

Change in net assets from common stock transactions

     (26,309,672      (36,993,347

Change in net assets applicable to common shareholders resulting from operations

     (291,295,740      (123,525,698

Net Assets Applicable to Common Shareholders:

     

Beginning of year

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

End of year (including distributions in excess of net investment income/ accumulated net investment income) of $(474,699) and $1,614,609, respectively)

   $ 1,427,648,568       $ 1,718,944,308   

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

21


Statement of Cash Flows

For the Fiscal Year Ended October 31, 2015

 

 

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

  

Cash flows provided from (used for) operating activities:

  

Interest received (excluding discount and premium amortization of $6,659,764)

   $ 115,110,493   

Operating expenses paid

     (31,191,023

Dividends paid to Series A Mandatory Redeemable Preferred Shares

     (1,546,875

Purchases and sales of short-term portfolio investments, net

     (37,745,000

Purchases of long-term portfolio investments

     (964,668,768

Proceeds from sales of long-term portfolio investments

     1,092,446,104   

Realized gains on forward foreign currency exchange contracts closed

     11,064,939   

Realized losses on interest rate swap transactions

     (1,518,307

Payments paid to broker for futures contracts

     (6,397,751

Increase in cash collateral held at broker for China A shares

     (249

Payments due from broker

     1,822,700   

Decrease in prepaid expenses and other assets

     20,074   

Net cash provided from operating activities

     177,396,337   

Cash flows provided from (used for) financing activities

  

Decrease in revolving credit facility

     (25,000,000

Repurchase of common stock

     (26,090,207

Dividends paid to common shareholders

     (108,533,229

Due to custodian

     114,067   

Net cash used for financing activities

     (159,509,369

Effect of exchange rate on cash

     (80,207,775

Net decrease in cash

     (62,320,807

Cash at beginning of year

     98,462,747   

Cash at end of year

   $ 36,141,940   

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

  

Net decrease in total net assets resulting from operations

   $ (156,452,839

Decrease in investments

     95,689,370   

Net realized gain on investment transactions

     (9,407,200

Net realized foreign exchange losses

     79,830,118   

Net change in unrealized appreciation/depreciation on investments

     14,869,680   

Net change in unrealized foreign exchange gains/losses

     140,478,054   

Decrease in interest receivable

     2,949,219   

Decrease in receivable for investments sold

     1,277,287   

Increase in interest payable on revolving credit facility, senior secured notes and term loans

     57,171   

Increase in dividend payable to preferred shares

     544,272   

Net change in variation margin on future contracts

     1,731,055   

Net decrease in other assets

     20,074   

Decrease in payable for investments purchased

     (274,557

Payments made to broker for interest rate swaps

     (150,784

Decrease in payments due from broker

     1,822,700   

Payments received from broker for futures contracts

     4,408,749   

Increase in cash collateral at broker for China A shares

     (249

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

     174,164   

Decrease in accrued expenses and other liabilities

     (169,947

Total adjustments

     333,849,176   

Net cash provided from operating activities

   $ 177,396,337   

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,  
      2015     2014     2013     2012     2011  
Per Share Operating Performance(a):           
Net asset value per common share, beginning of year      $6.58        $6.89        $7.78        $7.48        $7.27   
Net investment income      0.28        0.28        0.30        0.36        0.39   
Net realized and unrealized gains/(losses) on investments, interest rate swaps, futures contracts and foreign currency transactions      (0.88     (0.18     (0.77     0.36        0.24   
Total from investment operations applicable to common shareholders      (0.60     0.10        (0.47     0.72        0.63   
Distributions to common shareholders from:           
Net investment income      (0.40     (0.42     (0.42     (0.42     (0.42
Tax return of capital      (0.02                            
Total distributions to shareholders      (0.42     (0.42     (0.42     (0.42     (0.42
Capital Share Transactions:           
Offering cost on common stock                                    
Impact of shelf offering                                    
Impact due to open market repurchase policy (Note 7)      0.01        0.01                        
Total capital share transactions      0.01        0.01                        
Net asset value per common share, end of year      $5.57        $6.58        $6.89        $7.78        $7.48   
Market value, end of year      $4.75        $5.88        $6.44        $7.90        $6.93   
Total Investment Return Based on(b):           
Market value      (12.38%     (2.17%     (13.37%     20.47%        6.59%   
Net asset value      (8.19%     2.33%        (5.89% )(c)      9.92% (c)      9.20%   
Ratio to Average Net Assets Applicable to Common Shareholders/Supplementary Data(d):           
Net assets applicable to common shareholders, end of year (000 omitted)      $1,427,649        $1,718,944        $1,842,470        $2,042,337        $1,951,739   
Average net assets applicable to common shareholders (000 omitted)      $1,549,308        $1,771,852        $1,953,410        $1,965,038        $1,937,986   
Net operating expenses      2.15% (e)      1.97%        1.50%        1.38%        1.49%   
Net operating expenses, excluding interest expense and distributions to Series A Mandatory Redeemable Preferred Shares      1.14% (e)      1.09%        1.03%        1.01%        1.05%   
Net investment income      4.65%        4.14%        4.07%        4.85%        5.30%   
Portfolio turnover      45%        49%        42%        38%        72%   
Leverage (senior securities) outstanding (000 omitted)      $525,000        $550,000        $550,000        $600,000        $600,000   
Leverage (preferred stock) outstanding (000 omitted)      $50,000        $50,000        $50,000        $–        $–   
Asset coverage ratio on long-term debt obligations at year end(f)      381%        422%        444%        440%        425%   
Asset coverage per $1,000 on long-term debt obligations at year end      $3,815        $4,216        $4,441        $4,404        $4,253   
Asset coverage ratio on total leverage at year end(g)      348%        386%        407%                 
Asset coverage per share on total leverage at year end      $3,483        $3,862        $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 the fiscal years ended October 31, 2015, 2014, 2013, 2012 and 2011 the ratios of net investment income before preferred stock dividends to average net assets of common shareholders were 4.79%, 4.26%, 4.10%, 4.85% and 5.30%, respectively.
(e)   The expense ratio includes a one-time expense associated with the August 2011 shelf offering costs attributable to the registered but unsold shares expiring August 2015. Please see Note 5 of Notes to Financial Statements for further information.
(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 long-term debt obligations, which includes the senior secured notes, revolving credit facility and term loans.
(g)   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, 2015

 

 

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.

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 values its securities at current market value or fair value, consistent with regulatory requirements. “Fair Value” is defined in the Fund’s valuation and liquidity procedures as the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants without a compulsion to contract 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 approved by the Board. Pricing services generally price debt securities assuming orderly transactions of an institutional “round lot” size, but some trades occur in smaller “odd lot” size that transacted at lower prices than institutional round lot trades. 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, if it represents the best approximation of fair value. Debt and other fixed-income securities are generally determined to be Level 2 investments.

Derivatives are valued at fair value. Exchange traded derivatives are generally Level 1 investments and over-the-counter derivatives are generally Level 2 investments. Forward foreign currency contracts are generally valued based on the bid price of the forward rates and the current spot rate. Forward exchange rate quotations are available for scheduled settlement dates, such as 1-, 3-, 6-, 9- and 12-month periods. An interpolated valuation is derived based on the actual

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

26


Notes to Financial Statements (continued)

October 31, 2015

 

 

settlement dates of the forward contracts held. Futures contracts are valued at the settlement price or at the last bid price if no settlement price is available. Interest rate swaps are generally valued by an approved pricing agent based on the terms of the swap agreement (including future cash flows).

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 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 unadjusted quoted prices in active markets for similar assets, Level 2 measurements to valuations based upon 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 similar 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 the 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.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

27


Notes to Financial Statements (continued)

October 31, 2015

 

 

The following is a summary of the inputs used as of October 31, 2015 in valuing the Fund’s investments and other financial instruments at fair value. The inputs or methodology 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:

 

Assets      Level 1        Level 2        Level 3        Total  

Fixed Income Investments

                     

Corporate Bonds

     $         $ 921,315,115         $ 8,580,000         $ 929,895,115   

Government Bonds

                 946,071,353                     946,071,353   

Total Fixed Income Investments

                 1,867,386,468           8,580,000           1,875,966,468   

Short-Term Investment

                 76,319,000                     76,319,000   

Total Investments

     $         $ 1,943,705,468         $ 8,580,000         $ 1,952,285,468   

Other Financial Instruments

                     

Futures Contracts

     $ 27,013         $         $         $ 27,013   

Forward Foreign Currency Exchange Contracts

                 5,259,946                     5,259,946   

Total Other Financial Instruments

     $ 27,013         $ 5,259,946         $           5,286,959   

Total Assets

     $ 27,013         $ 1,948,965,414         $ 8,580,000           1,957,572,427   

Liabilities

                     

Other Financial Instruments

                     

Futures Contracts

     $ (249,234      $         $         $ (249,234

Forward Foreign Currency Exchange Contracts

                 (4,664,683                  (4,664,683

Interest Rate Swap Agreements

                 (722,503                  (722,503

Total Liabilities

     $ (249,234      $ (5,387,186      $         $ (5,636,420

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

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

 

Investments in
Securities
  Balance as of
October 31,
2014
    Accrued
Discounts
(Premiums)
    Realized
Gain (Loss)
    Change in
Unrealized
Appreciation
(Depreciation)
    Net
Purchases
    Net
Sales
    Net
Transfers
in to
Level 3
    Net
Transfers
out of
Level 3
    Balance as of
October 31,
2015
 

CORPORATE BONDS

                                                                       

China

  $      $      $      $      $ 8,580,000      $      $      $      $ 8,580,000   

TOTAL

  $      $      $      $      $ 8,580,000      $      $      $      $ 8,580,000   

 

Change in unrealized appreciation/(depreciation) relating to investments still held at October 31, 2015 is $0.

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 fiscal year ended October 31, 2015, there were no transfers between Levels 1, 2 or 3. For the fiscal year ended October 31, 2015, there were 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

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

28


Notes to Financial Statements (continued)

October 31, 2015

 

 

the collateral declines, or if bankruptcy proceedings are commenced with respect to the counterparty of the repurchase agreement, realization of the collateral by the Fund may be delayed or limited. The Fund held a repurchase agreement of $76,319,000 as of October 31, 2015. The value of the related collateral exceeded the value of the repurchase agreement at October 31, 2015. 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 at the Valuation Time; and

 

(ii)   purchases and sales of investment securities, income and expenses – at the relevant rates 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 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

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

29


Notes to Financial Statements (continued)

October 31, 2015

 

 

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 fiscal year ended October 31, 2015, the Fund used forward contracts to hedge and efficiently manage Australian and certain Asian 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 fiscal year ended October 31, 2015, the Fund used U.S. Treasury futures to efficiently manage U.S. interest rate exposure and hedge the U.S. interest rate risk.

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 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

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

30


Notes to Financial Statements (continued)

October 31, 2015

 

 

included in net realized gains/(losses) on swap contracts transactions. During the fiscal year ended October 31, 2015, the Fund used interest rate swaps to hedge the interest rate risk on the Fund’s Revolving Credit Facility (as defined below).

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, including some interest rate swaps, when entered into, 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, 2015:

 

     Asset Derivatives      Liability Derivatives  
     Year Ended October 31, 2015      Year Ended October 31, 2015  
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    $       Unrealized depreciation on interest rate swaps    $ 722,503   

Forward foreign exchange contracts (foreign exchange risk)

   Unrealized appreciation on forward currency exchange contracts      5,259,946       Unrealized depreciation on forward currency exchange contracts      4,664,683   

Futures contracts (interest rate risk)*

   Unrealized appreciation on futures contracts      27,013       Unrealized depreciation on futures contracts      249,234   

Total

        $ 5,286,959            $ 5,636,420   

 

*   Includes cumulative appreciation/(depreciation) on futures contracts as reported in the Portfolio of Investments.

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

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

31


Notes to Financial Statements (continued)

October 31, 2015

 

 

The Fund has transactions that may be subject to enforceable master netting agreements. A reconciliation of the gross amounts on the Statement of Assets and Liabilities as of October 31, 2015 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 & Liabilities

 
      Gross
Amounts of Assets
     Gross
Amounts of Liabilities
 
Description    Financial

Position
     Financial
Instruments
    Collateral
Received (1)
     Net
Amount (3)
     Financial

Position
     Financial
Instruments
    Collateral
Pledged (1)
    Net
Amount (3)
 

Forward foreign currency (2)

                    

BNP Paribas

   $ 2,473       $      $         –       $ 2,473       $       $      $      $   

Citigroup

                                    124,536                       124,536   

Credit Suisse

     4,242,347         (446,627             3,795,720         446,627         (446,627              

Goldman Sachs

     34,480         (34,480                     338,905         (34,480            304,425   

Royal Bank of Canada

     115,345                        115,345                                 

Standard Chartered Bank

     483,394         (483,394                     1,738,995         (483,394            1,255,601   

State Street

     381,907         (381,907                     2,015,620         (381,907            1,633,713   

Interest rate swaps (2)

                    

Barclays Bank

   $       $      $       $       $ 722,503       $      $ (722,503   $   

 

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 instruments (swaps and forwards) which are not subject to a master netting arrangement across funds, 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 netting agreement with the same legal entity.

The Effect of Derivative Instruments on the Statement of Operations

for the fiscal year ended October 31, 2015:

 

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)

          $ (1,518,307      $ 150,784   

Forward foreign exchange contracts (foreign exchange risk)

            11,034,988           (3,558,057

Futures contracts (interest rate risk)

              (10,806,500        (1,731,055

Total

            $ (1,289,819      $ (5,138,328

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

32


Notes to Financial Statements (continued)

October 31, 2015

 

 

Information about derivatives reflected as of the date of this report is generally indicative of the type of activity for the fiscal year ended October 31, 2015. The table below summarizes the weighted average values of derivatives holdings for the Fund during the fiscal year ended October 31, 2015.

 

Forward foreign
exchange
contracts
(Average
Notional Value)
     Futures contracts
(Average
Notional Value)
       Swap contracts
(Average
Notional Value)
 

$639,847,570

     $ (79,075,000      $ 143,750,000   

f. 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.

g. 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 fiscal 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 fiscal year ended October 31, 2015 were 100% net investment income.

h. Federal Income Taxes:

For U.S. federal income purposes the Fund is comprised of a separately identifiable unit called Qualified Business Unit (“QBU”) (see the Internal Revenue Code of 1986, as amended (“IRC”) section 987). The Fund has operated with a QBU for U.S. federal income purposes since 1990. The home office of the Fund is designated as the United States and of the QBU is Australia with a functional currency of Australian dollar. The securities held within the Fund reside within either the QBU or the home office depending on certain factors including geographic region. As an example, New Zealand and Indonesian securities reside within the Australian QBU. When sold, Australian dollar denominated securities within the Australian QBU generate capital gain/loss (which are translated for U.S. federal income tax purposes into U.S. dollars based on the weighted average exchange rate for the period) but not currency gain/loss. When a New Zealand security is sold within the Australian QBU, the sale generates capital gain/loss as well as currency gain/loss based on the currency exchange between the New Zealand dollar and the Australian dollar.

Currency gain/loss related to currency exchange between the U.S. dollar and the QBU functional currency is generated when money is transferred from a QBU to the home office. The currency gain/loss would result from the difference between the current exchange rate and the fiscal year to date average exchange rate until which profits are utilized and the pooled U.S. dollar basis in the QBU (which is generally computed based on the currency exchange rates from when money was transferred into such QBU and from gain/losses generated within such QBU based on the weighted average exchange rates for the periods such gain/loss was recognized.) Based on the QBU structure, there may be sizable differences in the currency gain/loss recognized for U.S. federal income tax purposes and what is reported within the financial statements under GAAP. As of the Fund’s fiscal year-end, the calculation of the composition of distributions to shareholders is finalized and reported in the Fund’s annual report to shareholders.

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 IRC, 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.

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

33


Notes to Financial Statements (continued)

October 31, 2015

 

 

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.

i. Foreign Withholding Tax:

Dividend and interest income from non-U.S. sources received by the Fund are generally subject to non-U.S. withholding taxes. In addition, the Fund may be subject to capital gains tax in certain countries in which it invests. The above taxes may be reduced or eliminated under the terms of applicable U.S. income tax treaties with some of these countries. The Fund accrues such taxes when the related income is earned.

In addition, when the Fund sells securities within certain countries in which it invests, the capital gains realized may be subject to tax. Based on these market requirements and as required under GAAP, the Fund accrues deferred capital gains tax on securities currently held that have unrealized appreciation within these countries. The amount of deferred capital gains tax accrued is reported on the Statement of Operations as part of the Net Change in Unrealized Appreciation/Depreciation on Investments.

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:

AAMAL 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 $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 paid $1,894,578 to the Investment Adviser, with respect to the Fund, during the fiscal year ended October 31, 2015. 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 $108,333, 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, 2015, AAMI earned $2,357,523 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

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

34


Notes to Financial Statements (continued)

October 31, 2015

 

 

with investment professionals from a wide variety of firms; creates and maintains investor relations communication materials such as fund manager interviews, films and webcasts, publishes white papers, magazine 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.

Effective January 1, 2015, a portion of these fees are capped at an annual rate of 0.05% of the Fund’s average net assets. For the fiscal year ended October 31, 2015, the Fund paid fees of approximately $530,296 for investor relations services. For the fiscal year ended October 31, 2015 AAMI did not waive any investor relations fees because the Fund did not reach the capped amount. 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, 2015, were $902,382,116 and $932,407,125, respectively.

5. Capital

The authorized capital of the Fund is 400 million shares of $0.01 par value common stock. During the fiscal year ended October 31, 2015, the Fund repurchased 4,991,465 shares pursuant to its Open Market Repurchase Program, see Note 6 for further information. As of October 31, 2015, there were 256,309,138 shares of common stock issued and outstanding.

In August 2012, the Fund filed a “shelf” registration statement with the SEC, which permitted the Fund to issue up to $375 million in shares of common stock through one or more public offerings, including at-the-market offerings (“ATM offerings”), provided that the registration statement was updated and certain performance conditions were met over a three year period. Shares would be offered through ATM offerings only when market conditions were considered favorable. Such shares would only be issued when the premium to net asset value was greater than the costs associated with the transaction. Any proceeds raised were used for investment purposes. For the fiscal year ended October 31, 2015, there were no shares sold through ATM or other offerings. Offering costs were previously capitalized as a prepaid expense. For the fiscal years ended October 31, 2015 and October 31, 2014, no offering costs were charged to paid-in capital. Upon expiration of this shelf registration statement in August 2015, prepaid Offering Costs with this

registration statement were expensed to the Fund. These costs are noted on the Statements of Operations.

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 period. The Fund reports repurchase activity on the Fund’s website on a monthly basis.

For the fiscal year ended October 31, 2015 and fiscal year ended October 31, 2014, the Fund repurchased 4,991,465 and 6,107,325 shares, respectively, through this program.

7. Preferred Shares

At October 31, 2015, 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 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, 2015.

 

Mandatory
Redemption
Date
     Annual Fixed
Rate
    Aggregate
Liquidation
Preference
     Estimated Fair
Value
 
  June 27, 2023         4.125   $ 50,000,000       $ 49,404,423   

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, 2015, 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.

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

35


Notes to Financial Statements (continued)

October 31, 2015

 

 

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, 2015, 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, 2015, 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. Holders of the Notes 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 estimated fair value for each series of Notes outstanding at October 31, 2015.

 

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

Series A

     June 12, 2020        3.05%      $ 100,000,000      $ 100,720,262   

Series B

     June 12, 2023        3.69%      $ 100,000,000      $ 101,244,716   

9. Credit Facility

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. On August 13, 2015, the Fund paid down $25,000,000 of the Revolving Credit Facility. At October 31, 2015 the Fund had $125,000,000 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 fiscal year ended October 31, 2015, the average interest rate on the Revolving Credit Facility was 1.20% and the average balance of the Revolving Credit Facility was $144,589,041. 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 fiscal year ended October 31, 2015, 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.

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

36


Notes to Financial Statements (continued)

October 31, 2015

 

 

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 as of October 31, 2015.

 

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

Term A
Facility

    June 12, 2018        2.80%      $ 100,000,000      $ 100,486,353   

Term B
Facility

    June 12, 2016     2.16%      $ 100,000,000      $ 100,171,958   

 

*   Subsequent to the end of the reporting period, the maturity of Term Loan B was extended to December 14, 2019.

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, 2015.

 

Maturity Date   Interest
Rate
    Notional/
Carrying
Amount
    Estimated
Fair Value
 

April 9, 2017

    1.22%      $ 125,000,000      $ 123,068,143   

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 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 holders of the Notes 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, 2015, 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, 2015, the Fund incurred fees of approximately $681,982 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,

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

37


Notes to Financial Statements (continued)

October 31, 2015

 

 

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 initiatives 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.

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, 2015 were as follows:

 

Tax Basis of
Investments
     Appreciation      Depreciation    

Net

Unrealized

Appreciation

 
  $1,914,399,324       $ 61,633,606       $ (23,747,462   $ 37,886,144   
 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

38


Notes to Financial Statements (continued)

October 31, 2015

 

 

The tax character of distributions paid during the fiscal years ended October 31, 2015 and October 31, 2014 was as follows:

 

        October 31, 2015        October 31, 2014  

Distributions paid from:

         

Ordinary Income

     $ 102,766,980         $ 111,091,699   

Net long-term capital gains

                   

Tax return of capital

       5,766,249             

Total tax character of distributions

     $ 108,533,229         $ 111,091,699   

As of October 31, 2015, the components of accumulated earnings on a tax basis were as follows:

 

Undistributed ordinary income – net

     $   

Undistributed long-term capital gains – net

         

Total undistributed earnings

     $   

Capital loss carryforward

       (75,826,843 )* 

Other currency gains

       175,532,091   

Other temporary differences

       (5,475,201

Unrealized appreciation/(depreciation) – securities

       37,886,144 ** 

Unrealized appreciation/(depreciation) – currency

       (242,716,347 )** 

Total accumulated earnings/(losses) – net

     $ (110,600,156

 

*   On October 31, 2015, the Fund has a net capital loss carryforward of $75,826,843 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)
$22,681,294    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.

 

39


Notes to Financial Statements (concluded)

October 31, 2015

 

 

GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, the table below details the necessary reclassifications, which are a result of permanent differences primarily attributable to foreign currency losses, reclassification of capital gains, reclassification of swaps and reclassification of amortization. These reclassifications have no effect on net assets or net asset values per share.

 

Paid-in capital

   

Accumulated
net investment
income

     Accumulated
net realized
loss
    

Accumulated
net realized
loss on

currency

 
  (1   $ 28,519,720       $ (4,375,476    $ (24,144,243

14. 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, 2015, other than those listed below.

On November 10, 2015 and December 9, 2015, the Fund announced that it will pay on November 30, 2015 and January 12, 2016 a distribution of $0.035 per share to all shareholders of record as of November 23, 2015 and December 31, 2015, respectively.

On September 8, 2015, the Board of Directors approved an Amended and Restated Sub-Advisory Agreement between the Fund’s Investment Manager and the Fund’s Sub-Adviser, revising the schedule of fees that are paid from the Investment Manager to the Sub-Adviser (the “Fee Revision”). The Fee Revision provides that for any month in which the Sub-Adviser is managing Fund assets, it receives a monthly fee of 1/12 of $100,000. Previously, the Sub-Adviser was paid an annual total fee of $100,000, paid in monthly increments, irrespective of whether it managed Fund assets during the month. The Fee Revision only impacts the fees received by the Sub-Adviser from the Investment Manager, and does not impact the fee received by the Investment Manager from the Fund or the overall management fees paid by the Fund. The Amended and Restated Sub-Advisory Agreement became effective November 1, 2015.

On December 14, 2015, the Fund amended the Term Loan Agreement pertaining to the Term B Facility to extend the facility’s maturity date. The Term B Facility had a three-year term expiring June 12, 2016, which was amended to be a four-year term expiring December 14, 2019. The interest rate changed from 2.16% per annum to 2.38% per annum.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

40


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, 2015, and the related statements 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 statements of cash flows for the year 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, 2015, by

correspondence with custodians 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, 2015, 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, 2015

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

41


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, 2015:

Common Shareholders

 

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

11/28/14-1/12/15

     0.857%         66.91%   

1/30/15-10/28/15

     1.991%         61.71%   

 

  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, 2015, 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.

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

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

42


Supplemental Information (unaudited) (continued)

 

 

 

regular quarterly meeting of the Boa