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, 2017


Item 1 – Reports to Stockholders – The Report to Shareholders is attached herewith.


LOGO

 

Aberdeen Asia-Pacific Income Fund, Inc. (FAX)
Annual Report
October 31, 2017
HongKong
Aberdeen
Simply asset management.


Managed Distribution Policy (unaudited)

 

 

 

The Board of Directors of the Aberdeen Asia-Pacific Income Fund, Inc. (the “Fund”) has authorized a managed distribution policy (“MDP”) of paying monthly distributions at an annual rate set once a year. The Fund’s current monthly distribution is set at a rate of $0.035 per share. 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, 2017 consisted of 63% net investment income and 37% return of capital.

In January 2018, 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 2017 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 shareholders 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 purchase 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, 2017. The Fund’s principal investment objective is to seek current income. The Fund may also achieve incidental capital appreciation.

Fund Updates

As of September 30, 2017, the Fund’s blended benchmark changed, as summarized below:

 

Index   

Previous

Weight

     New Index   

New

Weight

 

Bloomberg AusBond Composite Index1

     35.00%     

Bloomberg AusBond Composite Index

     35.00%  

JP Morgan Asian Credit Index2

     40.00%     

JP Morgan Asian Credit Diversified Index6

     40.00%  

Markit iBoxx Asia Government Index3

     15.00%     

Markit iBoxx Asia Government Index

     15.00%  

Markit iBoxx Asia Government India Index4

     5.00%     

Markit iBoxx Asia Government India Index

     5.00%  

Markit iBoxx Asia Government Indonesia Index5

     5.00%     

Markit iBoxx Asia Government Indonesia Index

     5.00%  

 

1   

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

2   

The JP Morgan Asian Credit Index is a broad-based securities market index which consists of liquid US dollar-denominated debt securities issued out of the Asia ex-Japan region.

3   

The Markit iBoxx Asia Government Index is a subset of the iBoxx Asia ex-Japan Index family investing in local currency sovereign bonds from China, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand.

4   

The Markit iBoxx Asia Government India Index is a subset of the iBoxx Asia ex-Japan Index family investing in local currency sovereign bonds from India.

5   

The Markit iBoxx Asia Government Indonesia Index is a subset of the iBoxx Asia ex-Japan Index family investing in local currency sovereign bonds from Indonesia.

6   

The JP Morgan Asian Credit Diversified Index is a variant of the JP Morgan Asian Credit Index (JACI) focuses on reducing concentration risk of the JACI index to any particular market. The JACI is a broad-based securities market index which consists of liquid US dollar-denominated debt securities issued out of Asia ex-Japan region.

 

Total Investment Return

For the fiscal year ended October 31, 2017, the total return to shareholders of the Fund based on the net asset value (“NAV”) and market price of the Fund are as follows:

 

NAV*

     3.8

Market Price*

     11.2

 

*   assuming the reinvestment of dividends and distributions

The Fund’s NAV total return is based on the reported NAV on each financial reporting period end which could differ from the NAV disclosed within the financial statements. For more information in Fund performance please see page 4 Report of the Investment Manager.

NAV, Share Price and Discount

 

      NAV      Market Price      Discount  

10/31/2016

     $5.69        $4.92        13.5%  

10/31/2017

     $5.43        $5.03        7.4%  

% Change

     -4.6%        2.2%           

 

Portfolio Allocation

As of October 31, 2017, the Fund held of its total investments 61.0% in Asian debt securities, 31.4% in Australian debt securities, 4.6% in European debt securities, 2.6% in U.S. debt securities and 0.4% in African securities.

Of the Fund’s total investments, excluding hedges, 42.2% were held in U.S. Dollar denominated bonds issued by foreign issuers. The rest of the Fund’s currency exposure was 32.7% in the Australian Dollar and 25.1% in various Asian currencies.

Of the Fund’s total investments, including hedges, 43.7% were held in U.S. Dollar denominated bonds issued by foreign issuers. The rest of the Fund’s currency exposure was 27.6% in the Australian Dollar and 28.7% in various Asian currencies.

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

1


Letter to Shareholders (unaudited) (continued)

 

 

 

Credit Quality

As of October 31, 2017, 45.7% of the Fund’s total investments were invested in securities where either the issue or the issuer was rated A or better by Standard & Poor’s1 or Moody’s Investors Services, Inc. (“Moody’s”).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 responsible for the day-to-day management of the Fund.

Effective March 15, 2017, Lin-Jing Leong replaced Victor Rodriguez as part of the team having the most significant responsibility for the day-to-day management of the Fund’s portfolio. This team also includes Kenneth Akintewe, Nick Bishop, David Choi and Adam McCabe.

Ms. Leong is an investment manager on the Asian local rates and currency team. She joined Aberdeen Asset Management Asia Limited in 2013 from the Reserve Management Section of the Central Bank of Malaysia where she specialized in investing in the Asian local current bond market.

Managed Distribution Policy

Distributions to common shareholders for the twelve-month period ended October 31, 2017 totaled $0.42 per share. Based on the share price of $5.03 on October 31, 2017, the distribution rate over the twelve-month period ended October 31, 2017 was 8.3%. 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 9, 2017 and December 11, 2017, the Fund announced that it will pay on November 29, 2017 and January 8, 2018, respectively, a distribution of U.S. $0.035 per share to all shareholders of record as of November 21, 2017 and December 29, 2017, 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. 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.

Fund’s Leverage

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

 

    

Amount

($ in millions)

    Maturity  

4-year Term Loan B

  $ 100       December 14, 2019  

Revolving Credit Facility

  $ 100       April 7, 2020  

7-Year Series A Senior Secured Notes

  $ 100       June 12, 2020  

10-Year Series B Senior Secured Notes

  $ 100       June 12, 2023  

10-Year Series A Mandatory Redeemable Preferred Shares

  $ 50       June 27, 2023  

15-Year Series C Senior Secured Notes

  $ 50       February 8, 2032  

15-Year Series D Senior Secured Notes

  $ 100       August 10, 2032  

The Series A Mandatory Redeemable Preferred Shares, with a liquidation value of $50 million, are rated AA by Fitch Ratings3 and the combined $350 million 7-year, 10-year and 15-Year Series A, B, C and D 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 Report of the Investment Manager and 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, 2017 and fiscal year ended October 31, 2016, the Fund repurchased 1,135,695 and 3,042,619 shares, respectively.

Merger of Aberdeen Asset Management PLC with Standard Life plc

The Fund’s investment manager, investment adviser, investment sub-adviser and administrator are each a subsidiary of Aberdeen Asset Management PLC (“Aberdeen PLC”). The merger of Standard Life plc and Aberdeen PLC, announced on March 6, 2017 (the

 

 

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.

3   

Fitch Ratings (“Fitch”) 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)

 

 

 

“Merger”), closed on August 14, 2017. Aberdeen PLC became a direct subsidiary of Standard Life plc as a result of the Merger and the combined company changed its name to Standard Life Aberdeen plc. Shareholders of the Fund are not required to take any action as a result of the Merger. Following the Merger, the Fund’s investment manager and administrator each became an indirect subsidiary of Standard Life Aberdeen plc, but otherwise did not change. The investment management, investment advisory, investment sub-advisory and administration agreements for the Fund, the services provided under the agreements, and the fees charged for services did not change as a result of the Merger. The portfolio management team for the Fund also has remained the same following the Merger.

Portfolio Holdings Disclosure

The Fund’s complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year are included in the Fund’s semi-annual and annual reports to shareholders. The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (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 31 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 advisor 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, we invite you to visit the Fund on the web at www.aberdeenfax.com. Here, you can view monthly fact sheets, quarterly commentary, distribution and performance information, updated daily fact sheets courtesy of Morningstar®, portfolio charting and other Fund literature.

Enroll in our email services today and be among the first to receive the latest closed-end fund news, announcements, videos and 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 cef.aberdeen-asset.us/en/cefinvestorcenter/contact-us/email.

For your convenience, 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 services and receive future communications from Aberdeen.

Contact Us:

 

 

Visit: cef.aberdeen-asset.us;

 

Watch: http://cef.aberdeen-asset.us/en/cefinvestorcenter/ aberdeen-closed-end-fund-tv;

 

Email: InvestorRelations@aberdeenstandard.com; or

 

Call: 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)

 

 

 

Market/economic review

Asia-Pacific government bonds ended with mixed performance over the 12-month period ended October 31, 2017. Global investors remained drawn towards the more attractive yields in the region compared to the low-rate environment in most developed markets. However, external events weighed on the markets. Donald Trump’s win in the November 2016 U.S. presidential election fueled expectations of increased fiscal spending and rising inflation, which halted the global bond market rally. Towards the end of the reporting period, bond yields rose again as major global central banks edged closer towards ending the era of accommodative monetary policy. Notably, both the U.S. Federal Reserve (Fed) and European Central Bank decided to start unwinding their quantitative-easing programs. Meanwhile, North Korea enflamed geopolitical tensions and market anxiety with its missile tests. Regional currencies ended with mixed performance against the U.S. dollar.

Indonesian local-currency government bonds were among the strongest regional performers over the reporting period, buoyed by monetary policy rate cuts and ongoing reforms that prompted Standard & Poor’s to restore the country’s investment-grade rating.1 Government reform momentum also lifted Sri Lankan bonds. In India, the government’s demonetization2 led to vast amounts of bank deposits being channeled into domestic bonds, while the nationwide Goods and Services Tax was finally implemented. However, market gains were later pared by investors’ concerns that the government’s bank rescue plan could increase the fiscal deficit. Malaysian bonds were boosted by easier trading rules for government securities, although rising inflationary pressures capped total returns.

Conversely, bonds in Hong Kong and Singapore tracked U.S. Treasury yields higher. Philippine bonds weakened as expectations of an interest-rate hike persisted amid rising inflation. Korean bonds were also pressured by the hawkish central bank, coupled with domestic and external political pressures. In China, short-duration3 bonds declined as money-market rates moved sharply higher after monetary authorities tightened liquidity.

Australian government bond yields rose over the reporting period as benign inflation scuttled talks of policy rate hikes. The domestic economy appeared robust, while improving Chinese economic growth data also bolstered the prospects of Australian commodities exporters, which were positioned to benefit from increased demand.

Asia-Pacific credit markets recorded positive total returns over the reporting period, mainly because of tighter spreads against relatively weaker-performing U.S. Treasuries. High-yield credits outperformed their investment-grade counterparts. Commodity-related issues outperformed the overall market on the back of price recovery. Consumer-related credit spreads tightened as data indicated better-than-expected economic growth in China. Financial-sector credits were buoyed by hopes that profit margins would improve with rising rates, but non-performing loans remained a concern in some markets. Additionally, this segment was hurt by heavy bond supply in China. Industrial-sector credits also underperformed due mainly to Noble Group, a trading company that is suffering from potential default and debt restructuring. The Fund does not have a position in Noble Group.

Fund performance review

The Fund performed in line with its blended benchmark4 on a net asset value basis for the 12-month period ended October 31, 2017. The Fund’s strategy in Asian local-currency bonds was the biggest contributor to relative performance. The Fund’s strategies in Asian U.S.-dollar bonds and Australian bonds also added to relative performance, while the strategy in Asian local-currency high-yield debt was largely neutral.

In Asian local-currency bonds, the key contributors to Fund performance for the reporting period were the overweight positions in Indian, Indonesian and Sri Lankan bonds; however, gains were pared by the weakness in the Indonesian rupiah and Sri Lankan rupee against the U.S. dollar. The Fund’s underweight allocations to Malaysian bonds and the Malaysian ringgit also detracted from relative performance.

 

 

1  

Standard & Poor’s credit ratings express the agency’s opinion about the ability and willingness of an issuer, such as a corporation or state or city government, to meet its financial obligations in full and on time. Typically, ratings are expressed as letter grades that range, for example, 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.

2  

Demonetization comprises the act of stripping specific denominations of a currency unit of their status as legal tender. The currency denominations are pulled from circulation and are replaced with new currency units.

3  

Duration is an estimate of bond price sensitivity to changes in interest rates. The higher the duration, the greater the change (i.e., higher risk) in relation to interest-rate movements.

4  

The Fund’s blended benchmark comprises 35% Bloomberg AusBond Composite Index; 40% J.P. Morgan Asian Credit Index; 19.25% Markit iBoxx Asia ex-Japan Government Bond Index; 15% Markit iBoxx Asia Government Index; 5% Markit iBoxx Asia Government India Index; and 5% Markit iBoxx Asia Government Indonesia Index.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

4


Report of the Investment Manager (unaudited) (continued)

 

 

 

Asian U.S.-dollar bonds contributed to relative performance for the period, attributable mainly to positive security selection in investment-grade financial credits, investment-grade sovereigns and investment-grade quasi-sovereigns.

The Fund’s strategy in Australian bonds also bolstered relative performance on the back of a positive absolute return.

Our management of Asian local-currency high-yield bonds did not have a notable impact on Fund performance for the reporting period. Positive contributions from the Fund’s exposure to the Indian market were counterbalanced by negative returns from the allocation to Indonesia.

The overall impact on performance from the Fund’s use of derivatives was generally positive, driven by the currency overlay5 into Asian currencies and the hedging of U.S. Treasury risk.

Outlook

In early November 2017, the Bank of England raised interest rates for the first time in a decade and indicated the start of a gradual increase in borrowing costs, as monetary policymakers seek to prevent a sustained rise in inflation without choking economic recovery. Meanwhile, the Fed grew more vocal about unwinding its balance sheet. Bond markets currently appear to be taking the news in stride, but we will not be surprised if the sell-off gathers pace. We do not think that such moves to drain liquidity from the global financial system will go unnoticed as risks to the nascent global economic recovery persist. Specifically, we believe that the global financial markets remain vulnerable to precarious political developments in the Korean Peninsula and the Middle East, the possibility of renewed volatility in commodity prices and potentially protectionist trade policies from the Trump administration in the U.S. While higher oil prices are generally positive for emerging markets for parts of Asia, a continued rise could exert inflationary and balance-of-payments pressure, in our view.

Against this backdrop, we intend to maintain the Fund’s overweight to high-yielding government bond markets that are relatively insulated from external risks, including India and Sri Lanka. We also retain our preference for countries with more robust balances of payments over their structurally weaker counterparts. In credit markets, valuations look expensive, so we intend to narrow our search to investment-grade companies that we believe have strong balance sheets, healthy cash flows and good management. In Australia, recent deals were oversubscribed and we are increasingly selective about the new issues in which we will participate.

 

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 interest 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 February 8, 2017, the Fund entered into a note purchase agreement with institutional investors relating to the private placement of $50 million of Series C senior secured notes rated ‘AAA’ by Fitch. Net proceeds of the Series C notes were used to refinance $50 million of the Fund’s existing syndicated revolving credit facility (the “Revolving Credit Facility”). On April 7, 2017, the Fund renewed its $100 million Revolving Credit Facility for a 3-year period with a syndicate of banks. On June 12, 2013, the Fund entered into a note purchase agreement with institutional investors relating to the private placement of $200 million of Series A and Series B senior secured notes rated ‘AAA’ by Fitch, $100 million due June 12, 2020 and $100 million due June 12, 2023. 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 (on December 14, 2015, the maturity of this loan was extended to December 14, 2019) and $100 million due June 12, 2018 (the “Term Loan Facility”). On August 10, 2017, the Fund entered into a note purchase agreement with institutional investors relating to the private placement of $100 million of Series D senior secured notes rated ‘AAA’ by Fitch (collectively with the Series A, Series B and Series C senior secured notes, the “Notes”). Net proceeds of the Series D notes were used to pay down $100 million of the Fund’s existing 5-year Term Loan A originally maturing on June 12, 2018 (the “Term A 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. The Fund’s outstanding balance as of October 31, 2017 was $100 million on the Revolving Credit Facility.

 

 

5  

A currency overlay seeks to separate the management of currency risk from the asset allocation and security selection decisions of the investor’s money managers.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

5


Report of the Investment Manager (unaudited) (concluded)

 

 

 

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., 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 Agreements, 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 Investment Company Act of 1940. 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, 2017, 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 February 6, 2017, the Fund exited $50,000,000 in notional value of a swap maturing November 1, 2017. On July 5, 2017, the Fund entered $25,000,000 in notional value of a swap maturing July 7, 2026. On October 24, 2017 the Fund entered $16,000,000 in notional value of a swap maturing October 24, 2027 to replace a $16,000,000 in notional value swap maturing November 1, 2017. As of October 31, 2017, the Fund held interest rate swap agreements with an aggregate notional amount of $100 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, 2017

   Amount
(in millions)
     Fixed Rate
Payable (%)
 

105 months

   $ 25.0        2.27  

108 months

   $ 59.0        1.57  

120 months

   $ 16.0        2.36  

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, 2017. 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)

       3.8%          2.0%          0.5%          4.8%  

Market Price

       11.2%          3.2%          -1.4%          5.1%  

Returns represent past performance. Total investment return at 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. All return data at NAV includes fees charged to the Fund, which are listed in the Fund’s Statement of Operations under “Expenses.” Total investment return at market value is based on changes in the market price at which the Fund’s shares traded on the NYSE American (formerly, NYSE MKT) during the period and assumes reinvestment of dividends and distributions, if any, at market prices pursuant to the dividend reinvestment program. The Fund’s total investment return is based on the reported NAV on the financial reporting period ended October 31, 2017. 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 total operating expense ratio based on the fiscal year ended October 31, 2017 was 2.42%. The total operating expense ratio, excluding interest expense and distributions to Series A Mandatory Redeemable Preferred Shares, based on the fiscal year ended October 31, 2017 was 1.15%.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

7


Portfolio Composition (unaudited)

 

 

 

Quality of Investments(1)

As of October 31, 2017, 45.7% of the Fund’s total investments were invested in securities where either the issue or the issuer was rated “A” or better by Standard & Poor’s or Moody’s. The table below shows the asset quality of the Fund’s portfolio as of October 31, 2017 compared to April 30, 2017 and October 31, 2016:

 

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

October 31, 2017

       25.9          9.4          10.4          21.2          4.6          3.7          0.2          24.6  

April 30, 2017

       28.2          11.6          9.6          24.3          3.9          3.7          0.0          18.7  

October 31, 2016

       31.6          7.9          9.2          25.0          3.6          3.6          0.0          19.1  

 

**   Below investment grade
***   Not Rated
(1)   

For financial reporting purposes, credit quality ratings shown above reflect the lowest rating assigned by either Standard & Poor’s or Moody’s if ratings differ. These rating agencies 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. Aberdeen Asset Management Asia Limited (“AAMAL” or 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, 2017, compared to April 30, 2017 and October 31, 2016:

 

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

October 31, 2017

       61.0          31.4          4.6          2.6          0.4  

April 30, 2017

       62.0          31.9          4.5          1.6          0.0  

October 31, 2016

       62.8          32.5          4.4          0.3          0.0  

Currency Composition

The table below shows the currency composition, including hedges, of the Fund’s total investments as of October 31, 2017, compared to April 30, 2017 and October 31, 2016:

 

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

October 31, 2017

       27.6          28.7          43.7  

April 30, 2017

       27.7          27.3          45.0  

October 31, 2016

       30.1          29.3          40.6  

 

**   Includes U.S. Dollar-denominated bonds issued by foreign issuers: 43.7% of the Fund’s total investments on October 31, 2017, 45.0% of the Fund’s total investments on April 30, 2017, and 40.6% of the Fund’s total investments on October 31, 2016.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

8


Portfolio Composition (unaudited) (concluded)

 

 

 

Maturity Composition

As of October 31, 2017, the average maturity of the Fund’s total investments was 8.1 years, compared with 7.8 years at April 30, 2017, and 7.8 years at October 31, 2016. The following table shows the maturity composition of the Fund’s investments as of October 31, 2017, compared to April 30, 2017 and October 31, 2016:

 

Date      Under 3 Years
%
       3 to 5 Years
%
       5 to 10 Years
%
       10 Years & Over
%
 

October 31, 2017

       25.2          21.2          34.6          19.0  

April 30, 2017

       22.9          18.7          38.1          20.3  

October 31, 2016

       18.7          17.6          45.2          18.5  

 

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, 2017 compared to April 30, 2017 and October 31, 2016:

 

        October 31, 2017        April 30, 2017        October 31, 2016  

Australia

              

90 day Bank Bills

       1.69%          1.75%          1.75%  

10 yr bond

       2.28%          2.22%          2.06%  

currency USD per 1 AUD

       $0.77          $0.75          $0.76  

South Korea

              

90 day commercial paper

       1.40%          1.41%          1.39%  

10 yr bond

       2.58%          2.19%          1.68%  

currency local per 1 USD

       W1120.35          W1137.90          W1144.25  

Thailand

              

3 months deposit rate

       1.00%          1.00%          1.00%  

10 yr bond

       2.32%          2.71%          2.13%  

currency local per 1 USD

       B33.22          B34.59          B35.00  

Philippines

              

90 day T-Bills

       2.12%          2.12%          1.56%  

10 yr bond

       4.80%          5.16%          3.93%  

currency local per 1 USD

       P51.63          P49.97          P48.42  

Malaysia

              

3-month T-Bills

       3.00%          3.09%          2.62%  

10 yr bond

       3.90%          4.05%          3.60%  

currency local per 1 USD

       R4.23          R4.34          R4.20  

Singapore

              

3-month T-Bills

       1.23%          0.96%          0.79%  

10 yr bond

       2.15%          2.13%          1.89%  

currency local per 1 USD

       S1.36          S1.40          S1.39  

India

              

3-month T-Bills

       6.10%          6.18%          6.37%  

10 yr bond

       6.86%          6.96%          6.79%  

currency local per 1 USD

       64.77          64.33          66.79  

Indonesia

              

3 months deposit rate

       5.93%          6.19%          6.32%  

10 yr bond

       6.77%          7.01%          7.21%  

currency local per 1 USD

       Rp13562.50          Rp13329.00          Rp13048.00  

China Onshore

              

3-month Bill Yield

       2.63%          2.63%          2.63%  

10 yr bond

       3.88%          3.46%          2.74%  

currency local per 1 USD

       ¥6.63          ¥6.90          ¥6.77  

Sri Lanka

              

3-month Generic Govt Yield

       8.93%          10.15%          8.60%  

10 yr bond

       10.35%          12.22%          11.89%  

currency local per 1 USD

       Rs153.63          Rs152.50          Rs147.90  

Yankee Bonds

              

Indonesia

       3.22%          3.78%          3.59%  

Sri Lanka

       5.35%          n/a          n/a  

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

10


Portfolio of Investments

As of October 31, 2017

 

 

Principal
Amount
(000)
or Shares
     Description   Value
(US$)
 

CORPORATE BONDS—69.6%

 

AUSTRALIA—2.7%

 

USD

    4,750     

APT Pipelines Ltd., 4.25%, 04/15/2027 (a)(b)

  $ 4,889,187  

AUD

    2,500     

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

    2,142,272  

AUD

    6,740     

Brisbane Square Finance Pty Ltd., Zero Coupon, 11/25/2025 (c)(d)(e)(f)

    5,624,568  

AUD

    4,310     

NEXTDC Ltd., 6.25%, 06/09/2019 (b)(d)

    3,407,909  

AUD

    7,300     

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

    6,344,798  

USD

    7,000     

SGSP Australia Assets Pty Ltd., 3.25%, 07/29/2026 (a)

    6,909,987  

AUD

    2,000     

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

    1,733,081  

USD

    5,965     

Transurban Finance Co. Pty Ltd., 3.38%, 12/22/2026 (a)(b)

    5,823,081  
                   36,874,883  

CHINA—16.6%

 

USD

    3,759     

361 Degrees International Ltd., 7.25%, 06/03/2019 (a)(b)

    4,021,250  

USD

    3,950     

Agile Group Holdings Ltd., 9.00%, 05/21/2018 (a)(b)

    4,243,702  

CNH

    10,000     

Bank of China Ltd., 4.88%, 04/20/2020

    1,530,251  

USD

    3,900     

Central China Real Estate Ltd., 6.50%, 11/30/2017 (a)(b)

    3,943,840  

USD

    4,500     

Central China Real Estate Ltd., 8.00%, 11/30/2017 (a)(b)

    4,618,067  

USD

    2,500     

China Aoyuan Property Group Ltd., 6.35%, 01/11/2020 (a)

    2,568,700  

USD

    3,000     

China Aoyuan Property Group Ltd., 10.88%, 05/26/2018 (a)

    3,111,063  

CNH

    11,250     

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

    1,687,610  

CNH

    8,000     

China Development Bank Hong Kong, 3.20%, 09/21/2023

    1,170,228  

USD

    7,000     

China Overseas Finance Cayman III Ltd., 5.38%, 10/29/2023 (a)

    7,799,757  

USD

    4,955     

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

    5,258,895  

CNY

    20,000     

China Three Gorges Corp., 4.30%, 07/24/2018

    3,014,365  

USD

    4,000     

Chinalco Capital Holdings Ltd., 4.25%, 04/21/2022 (a)

    4,080,160  

USD

    3,850     

CNAC HK Finbridge Co. Ltd., 3.00%, 07/19/2020 (a)

    3,860,834  

USD

    7,500     

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

    8,124,060  

USD

    8,000     

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

    8,528,152  

USD

    2,000     

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

    2,012,100  

USD

    6,810     

Country Garden Holdings Co. Ltd., 7.25%, 11/30/2017 (a)(b)

    7,058,402  

USD

    7,700     

Franshion Brilliant Ltd., 3.60%, 03/03/2022 (a)

    7,726,411  

USD

    3,900     

Future Land Development Holdings Ltd., 5.00%, 02/16/2020 (a)

    3,943,680  

USD

    3,500     

FUXIANG Investment Management Ltd., 3.63%, 11/30/2019 (a)

    3,521,224  

USD

    5,200     

Health and Happiness H&H International Holdings Ltd., 7.25%, 06/21/2018 (a)(b)

    5,459,782  

USD

    1,000     

Hilong Holding Ltd., 7.25%, 06/22/2020 (a)

    998,716  

CNY

    30,000     

PetroChina Co. Ltd., 3.45%, 05/12/2021

    4,326,538  

USD

    18,800     

Proven Honour Capital Ltd., 4.13%, 05/19/2025 (a)

    19,569,352  

USD

    14,434     

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

    14,686,017  

USD

    4,000     

Shanhai Hong Kong International Investments Ltd., 3.88%, 04/20/2020 (a)

    4,024,220  

USD

    8,200     

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

    8,276,054  

USD

    1,600     

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

    1,676,114  

USD

    4,400     

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

    4,751,362  

USD

    5,900     

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

    6,353,515  

USD

    6,930     

Sinopec Group Overseas Development 2017 Ltd., 2.38%, 04/12/2020 (a)

    6,924,137  

USD

    12,330     

Sinopec Group Overseas Development 2017 Ltd., 3.00%, 04/12/2022 (a)

    12,456,124  

USD

    6,632     

State Grid Overseas Investment 2016 Ltd., 2.75%, 05/04/2022 (a)

    6,645,565  

USD

    14,738     

State Grid Overseas Investment 2016 Ltd., 3.50%, 05/04/2027 (a)

    15,042,390  

USD

    7,500     

Tencent Holdings Ltd., 3.80%, 02/11/2025 (a)

    7,867,666  

USD

    4,000     

Times Property Holdings Ltd., 11.45%, 03/05/2018 (a)(b)

    4,325,512  

USD

    7,000     

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

    6,929,720  

USD

    4,300     

Yestar Healthcare Holdings Co, Ltd., 6.90%, 09/15/2019 (a)(b)

    4,498,750  
                   226,634,285  

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

11


Portfolio of Investments (continued)

As of October 31, 2017

 

 

Principal
Amount
(000)
or Shares
     Description   Value
(US$)
 

CORPORATE BONDS (continued)

 

GERMANY—2.9%

 

AUD

    7,500     

KfW, 3.75%, 07/18/2018 (g)

  $ 5,816,393  

AUD

    5,000     

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

    4,212,539  

AUD

    10,500     

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

    8,712,096  

AUD

    15,000     

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

    12,983,701  

AUD

    10,000     

Landwirtschaftliche Rentenbank, 4.75%, 04/08/2024 (g)(h)

    8,485,518  
                   40,210,247  

HONG KONG—5.8%

 

USD

    4,103     

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

    4,152,983  

USD

    2,594     

CK Hutchison Capital Securities 17 Ltd., 4.00%, 05/12/2022 (a)(b)(i)

    2,639,602  

USD

    4,840     

CK Hutchison International 17 Ltd., 2.88%, 04/05/2022 (a)

    4,860,841  

USD

    3,900     

Far East Consortium International Ltd., 3.75%, 09/08/2021 (a)

    3,875,531  

USD

    5,326     

FPC Treasury Ltd., 4.50%, 04/16/2023 (a)

    5,425,772  

USD

    11,000     

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

    11,712,393  

USD

    12,000     

Hongkong Electric Finance Ltd., 2.88%, 05/03/2026 (a)

    11,650,536  

USD

    1,600     

Hongkong Land Finance Cayman Islands Co. Ltd. (The), 4.50%, 06/01/2022

    1,721,726  

USD

    15,500     

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

    20,607,250  

USD

    980     

Hutchison Whampoa International 03/33 Ltd., 7.45%, 11/24/2033 (a)

    1,396,719  

USD

    7,600     

Shimao Property Holdings Ltd., 8.38%, 02/10/2019 (a)

    8,369,401  

USD

    2,871     

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

    2,923,207  
                   79,335,961  

INDIA—11.7%

 

USD

    9,480     

Adani Ports & Special Economic Zone Ltd., 4.00%, 06/30/2027 (a)(b)

    9,499,718  

INR

    350,000     

Adani Transmission Ltd., 10.25%, 04/15/2021

    5,752,744  

INR

    500,000     

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

    8,280,595  

USD

    3,840     

Bharat Petroleum Corp. Ltd., 4.00%, 05/08/2025 (a)

    3,941,138  

USD

    7,300     

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

    7,818,884  

USD

    6,487     

GCX Ltd., 7.00%, 12/01/2017 (a)(b)

    5,481,126  

INR

    350,000     

HDFC Bank Ltd., 7.95%, 09/21/2026

    5,557,717  

USD

    3,800     

Hindustan Petroleum Corp. Ltd., 4.00%, 07/12/2027 (a)

    3,846,854  

INR

    100,000     

Housing Development Finance Corp. Ltd., 8.65%, 09/18/2020

    1,589,366  

INR

    250,000     

Housing Development Finance Corp. Ltd., 8.75%, 01/13/2020 (b)

    3,961,858  

USD

    10,700     

ICICI Bank Ltd., 4.00%, 03/18/2026 (a)

    10,974,455  

INR

    400,000     

ICICI Bank Ltd., 7.60%, 10/07/2023

    6,172,294  

INR

    250,000     

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

    4,190,953  

INR

    200,000     

Indiabulls Housing Finance Ltd., 8.90%, 09/26/2021

    3,169,227  

INR

    100,000     

Indiabulls Housing Finance Ltd., 9.00%, 04/29/2026

    1,597,361  

INR

    250,000     

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

    4,112,847  

USD

    3,780     

Neerg Energy Ltd., 6.00%, 02/13/2020 (a)(b)

    3,905,814  

USD

    3,400     

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

    3,671,252  

INR

    200,000     

NTPC Ltd., 8.49%, 03/25/2025 (f)

    3,217,465  

INR

    100,000     

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

    1,626,337  

INR

    100,000     

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

    1,679,620  

INR

    250,000     

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

    4,055,935  

INR

    400,000     

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

    6,513,297  

INR

    200,000     

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

    3,317,259  

USD

    7,000     

Reliance Industries Ltd., 4.13%, 01/28/2025 (a)

    7,289,169  

INR

    250,000     

Reliance Jio Infocomm Ltd., 8.95%, 10/04/2020

    4,007,716  

INR

    200,000     

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

    3,197,520  

INR

    150,000     

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

    2,547,452  

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

12


Portfolio of Investments (continued)

As of October 31, 2017

 

 

Principal
Amount
(000)
or Shares
     Description   Value
(US$)
 

CORPORATE BONDS (continued)

 

INDIA (continued)

 

INR

    70,000     

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

  $ 1,165,007  

INR

    50,000     

State of Karnataka India, 7.38%, 09/27/2027

    763,004  

INR

    500,000     

State of Maharashtra India, 7.20%, 08/09/2027

    7,542,521  

INR

    100,000     

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

    1,637,199  

USD

    7,475     

UPL Corp. Ltd., 3.25%, 10/13/2021 (a)

    7,481,182  

USD

    10,793     

Vedanta Resources PLC, 6.13%, 08/09/2021 (a)

    11,011,569  
                   160,576,455  

INDONESIA—1.6%

 

USD

    6,250     

Chandra Asri Petrochemical Tbk PT, 4.95%, 11/08/2024 (a)

    6,193,319  

USD

    3,520     

Indika Energy Capital II Pte Ltd., 6.88%, 04/10/2020 (a)(b)

    3,669,329  

USD

    1,200     

Jababeka International BV, 6.50%, 10/05/2020 (a)(b)

    1,261,696  

IDR

    30,000,000     

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

    2,289,180  

USD

    9     

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

    9,476  

USD

    4,000     

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

    4,144,684  

USD

    4,164     

TBG Global Pte Ltd., 5.25%, 02/10/2019 (a)(b)

    4,280,688  
                   21,848,372  

KUWAIT—0.6%

 

USD

    7,500     

Equate Petrochemical BV, 4.25%, 11/03/2026 (a)

    7,706,250  

MACAU—0.1%

 

USD

    1,500     

Wynn Macau Ltd., 4.88%, 10/01/2020 (a)

    1,524,450  

MALAYSIA—2.8%

 

MYR

    5,500     

Cagamas Bhd, 4.45%, 11/25/2020

    1,316,351  

MYR

    5,000     

Digi Telecommunications Sdn Bhd, 4.38%, 04/14/2022 (b)

    1,184,059  

USD

    7,000     

Gohl Capital Ltd., 4.25%, 01/24/2027 (a)

    7,268,989  

USD

    6,000     

Malayan Banking Bhd, 3.91%, 10/29/2021 (a)(b)

    6,189,786  

MYR

    4,800     

Malaysia Airports Capital Bhd, 4.55%, 08/28/2020

    1,144,085  

USD

    1,540     

Malaysia Sovereign Sukuk Bhd, 3.04%, 04/22/2025 (a)

    1,561,098  

MYR

    5,000     

Putrajaya Holdings Sdn Bhd, 5.10%, 04/22/2019

    1,198,004  

USD

    3,736     

RHB Bank Bhd, 2.50%, 10/06/2021 (a)

    3,697,108  

USD

    7,000     

TNB Global Ventures Capital Bhd, 3.24%, 10/19/2026 (a)

    6,851,782  

USD

    7,000     

Wakala Global Sukuk Bhd, 4.65%, 07/06/2021 (a)

    7,550,934  
                   37,962,196  

NETHERLANDS—0.5%

 

USD

    6,050     

Samvardhana Motherson Automotive Systems Group BV, 4.88%, 06/16/2019 (a)(b)

    6,331,664  

NORWAY—0.7%

 

AUD

    7,000     

Kommunalbanken, 4.50%, 04/17/2023 (a)

    5,820,311  

AUD

    4,988     

Kommunalbanken AS, 6.50%, 04/12/2021

    4,326,332  
                   10,146,643  

PHILIPPINES—3.1%

 

USD

    7,000     

ICTSI Treasury BV, 5.88%, 09/17/2025 (a)

    7,703,801  

USD

    3,446     

International Container Terminal Services, Inc., 7.38%, 03/17/2020 (a)

    3,821,442  

USD

    13,086     

Megaworld Corp., 4.25%, 04/17/2023 (a)

    13,247,180  

USD

    4,534     

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

    5,838,953  

USD

    7,000     

Royal Capital BV, 4.88%, 05/05/2024 (a)(b)(i)

    7,106,715  

USD

    5,000     

SM Investments Corp., 4.25%, 10/17/2019 (a)

    5,182,110  
                   42,900,201  

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

13


Portfolio of Investments (continued)

As of October 31, 2017

 

 

Principal
Amount
(000)
or Shares
     Description   Value
(US$)
 

CORPORATE BONDS (continued)

 

REPUBLIC OF SOUTH KOREA—5.5%

 

USD

    11,400     

Busan Bank Co. Ltd., 3.63%, 07/25/2026 (a)

  $ 11,129,820  

USD

    7,218     

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

    7,094,016  

USD

    6,000     

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

    5,971,680  

USD

    6,160     

Industrial Bank of Korea, 3.90%, 07/31/2022 (a)(b)(i)

    6,075,041  

USD

    11,111     

Korea Development Bank (The), 2.63%, 02/27/2022

    11,008,784  

USD

    2,350     

Korea Gas Corp., 2.75%, 07/20/2022 (a)

    2,330,413  

USD

    10,658     

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

    10,686,041  

USD

    13,652     

Korea National Oil Corp., 2.63%, 04/14/2026 (a)

    12,955,989  

USD

    7,760     

Shinhan Bank Co. Ltd., 2.88%, 03/28/2022 (a)

    7,732,131  
                   74,983,915  

SINGAPORE—2.8%

 

USD

    6,833     

DBS Group Holdings Ltd., 3.60%, 09/07/2021 (a)(b)(i)

    6,856,594  

USD

    7,289     

Marble II Pte Ltd., 5.30%, 06/20/2019 (a)(b)

    7,426,325  

USD

    8,900     

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

    8,925,160  

USD

    3,800     

Parkway Pantai Ltd., 4.25%, 07/27/2022 (a)(b)(i)

    3,869,160  

USD

    2,800     

SingTel Group Treasury Pte Ltd., 2.38%, 10/03/2026 (a)

    2,650,349  

USD

    9,000     

United Overseas Bank Ltd., 3.50%, 09/16/2021 (a)(b)(h)

    9,161,523  
                   38,889,111  

SUPRANATIONAL—5.1%

 

AUD

    14,000     

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

    11,811,461  

AUD

    6,800     

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

    5,690,676  

AUD

    4,000     

EUROFIMA, 5.50%, 06/30/2020

    3,306,685  

AUD

    15,000     

Inter-American Development Bank, 6.00%, 02/26/2021

    12,824,172  

AUD

    11,200     

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

    9,251,560  

AUD

    10,000     

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

    8,333,443  

AUD

    6,900     

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

    5,658,024  

AUD

    15,600     

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

    13,066,423  
                   69,942,444  

THAILAND—3.2%

 

USD

    1,200     

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

    1,694,009  

USD

    17,170     

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

    17,817,824  

USD

    14,000     

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

    14,793,002  

USD

    4,331     

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

    4,736,137  

USD

    5,386     

PTTEP Treasury Center Co. Ltd., 4.60%, 07/17/2022 (a)(b)(i)

    5,484,267  
                   44,525,239  

UNITED ARAB EMIRATES—1.7%

 

USD

    7,500     

DIB Sukuk Ltd., 3.66%, 02/14/2022 (a)

    7,620,000  

USD

    5,400     

First Abu Dhabi Bank PJSC, 3.00%, 03/30/2022 (a)

    5,408,532  

USD

    3,700     

MAF Global Securities Ltd., 5.50%, 09/07/2022 (a)(b)(i)

    3,817,734  

USD

    5,970     

MDC-GMTN BV, 3.00%, 04/19/2024 (a)

    5,904,330  
                   22,750,596  

UNITED KINGDOM—2.2%

 

USD

    12,962     

HSBC Holdings PLC, 6.38%, 03/30/2025 (b)(h)(i)

    14,177,187  

USD

    6,999     

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

    7,126,270  

USD

    5,000     

Standard Chartered PLC, 4.05%, 04/12/2026 (a)

    5,139,910  

USD

    2,759     

Standard Chartered PLC, 7.75%, 04/02/2023 (a)(b)(i)

    3,059,455  
                   29,502,822  
            

Total Corporate Bonds — 69.6% (cost $963,973,724)

    952,645,734  

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

14


Portfolio of Investments (continued)

As of October 31, 2017

 

 

Principal
Amount
(000)
or Shares
     Description   Value
(US$)
 

GOVERNMENT BONDS—67.2%

 

AUSTRALIA—35.7%

 

AUD

    46,300     

Australia Government Bond, 2.75%, 11/21/2028 (a)

  $ 35,455,861  

AUD

    34,700     

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

    27,884,646  

AUD

    64,300     

Australia Government Bond, 3.25%, 06/21/2039 (a)

    49,112,784  

AUD

    51,000     

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

    42,391,814  

AUD

    17,700     

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

    16,150,638  

AUD

    9,700     

Australia Government Bond, 5.25%, 03/15/2019 (a)

    7,773,611  

AUD

    5,300     

Australia Government Bond, 5.50%, 01/21/2018 (a)

    4,090,513  

AUD

    41,800     

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

    37,267,043  

AUD

    13,500     

New South Wales Treasury Corp., 3.00%, 02/20/2030 (a)

    10,042,642  

AUD

    7,500     

New South Wales Treasury Corp., 4.00%, 05/20/2026 (a)

    6,247,011  

AUD

    46,000     

New South Wales Treasury Corp., 6.00%, 02/01/2018

    35,577,799  

AUD

    25,000     

New South Wales Treasury Corp., 6.00%, 05/01/2020

    20,982,200  

AUD

    15,000     

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

    13,233,178  

AUD

    22,000     

Queensland Treasury Corp., 4.25%, 07/21/2023 (a)

    18,326,755  

AUD

    47,850     

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

    37,098,150  

AUD

    4,690     

Queensland Treasury Corp., 6.00%, 06/14/2021 (a)(g)

    4,073,785  

AUD

    47,100     

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

    38,602,338  

AUD

    16,200     

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

    13,575,673  

AUD

    20,000     

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

    17,900,156  

AUD

    5,000     

Western Australian Treasury Corp., 2.50%, 07/23/2024

    3,740,846  

AUD

    22,000     

Western Australian Treasury Corp., 2.75%, 10/20/2022

    16,990,415  

AUD

    25,000     

Western Australian Treasury Corp., 3.75%, 10/23/2018 (a)

    19,488,008  

AUD

    15,000     

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

    13,384,821  
                   489,390,687  

BAHRAIN—0.6%

 

USD

    3,837     

Bahrain Government International Bond, 6.75%, 09/20/2029 (a)

    3,816,280  

USD

    3,600     

Bahrain Government International Bond, 7.00%, 10/12/2028 (a)

    3,699,216  
                   7,515,496  

CHINA—1.4%

 

CNY

    14,000     

China Government Bond, 2.85%, 01/28/2026 (j)

    1,955,393  

CNY

    20,000     

China Government Bond, 3.14%, 09/08/2020 (j)

    2,977,626  

CNY

    3,000     

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

    450,334  

CNY

    30,000     

China Government Bond, 3.47%, 07/13/2022 (j)

    4,438,301  

CNY

    40,000     

China Government Bond, 3.52%, 05/04/2027 (j)

    5,852,431  

CNY

    2,000     

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

    299,915  

CNY

    20,000     

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

    3,024,450  
                   18,998,450  

INDIA—7.6%

 

INR

    150,000     

Export-Import Bank of India, 7.62%, 09/01/2026

    2,301,065  

INR

    750,000     

India Government Bond, 7.68%, 12/15/2023

    12,068,121  

INR

    1,000,000     

India Government Bond, 7.72%, 05/25/2025

    16,093,560  

INR

    1,675,000     

India Government Bond, 7.73%, 12/19/2034

    26,854,927  

INR

    1,041,880     

India Government Bond, 8.08%, 08/02/2022

    16,921,979  

INR

    507,870     

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

    8,179,709  

INR

    1,232,130     

India Government Bond, 8.27%, 06/09/2020

    19,812,238  

INR

    110,440     

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

    1,833,103  

INR

    9,590     

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

    171,368  
                   104,236,070  

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

15


Portfolio of Investments (continued)

As of October 31, 2017

 

 

Principal
Amount
(000)
or Shares
     Description   Value
(US$)
 

GOVERNMENT BONDS (continued)

 

INDONESIA—14.2%

 

USD

    4,402     

Indonesia Government International Bond, 3.85%, 07/18/2027 (a)

  $ 4,533,312  

USD

    1,880     

Indonesia Government International Bond, 4.35%, 01/08/2027 (a)

    1,993,588  

USD

    591     

Indonesia Government International Bond, 5.25%, 01/08/2047 (a)

    667,226  

IDR

    168,000,000     

Indonesia Treasury Bill, Zero Coupon, 11/09/2017

    12,375,948  

IDR

    356,000,000     

Indonesia Treasury Bond, 7.00%, 05/15/2022

    26,813,198  

IDR

    120,000,000     

Indonesia Treasury Bond, 7.00%, 05/15/2027

    8,993,917  

IDR

    27,100,000     

Indonesia Treasury Bond, 7.50%, 08/15/2032

    2,035,123  

IDR

    153,000,000     

Indonesia Treasury Bond, 7.50%, 05/15/2038

    11,489,806  

IDR

    47,000,000     

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

    3,761,109  

IDR

    310,000,000     

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

    24,685,714  

IDR

    288,224,000     

Indonesia Treasury Bond, 8.38%, 09/15/2026

    23,323,564  

IDR

    120,400,000     

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

    9,618,684  

IDR

    340,600,000     

Indonesia Treasury Bond, 8.75%, 05/15/2031

    28,189,751  

IDR

    100,000,000     

Indonesia Treasury Bond, 8.75%, 02/15/2044

    8,509,995  

IDR

    30,000,000     

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

    2,516,129  

IDR

    21,000,000     

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

    1,840,507  

USD

    4,970     

Perusahaan Penerbit SBSN Indonesia III, 3.40%, 03/29/2022 (a)

    5,066,915  

USD

    4,970     

Perusahaan Penerbit SBSN Indonesia III, 4.15%, 03/29/2027 (a)

    5,124,070  

USD

    10,981     

Perusahaan Penerbit SBSN Indonesia III, 4.35%, 09/10/2024 (a)

    11,562,993  

USD

    1,500     

Perusahaan Penerbit SBSN Indonesia III, 4.55%, 03/29/2026 (a)

    1,590,000  
                   194,691,549  

MALAYSIA—1.5%

 

MYR

    71,300     

Malaysia Government Bond, 4.06%, 09/30/2024

    16,946,445  

MYR

    3,725     

Malaysia Government Bond, 4.74%, 03/15/2046

    846,759  

MYR

    10,000     

Malaysia Government Investment Issue, 4.76%, 08/04/2037

    2,349,682  
                   20,142,886  

MONGOLIA—0.3%

 

USD

    2,200     

Mongolia Government International Bond, 4.13%, 01/05/2018 (a)

    2,202,200  

USD

    2,200     

Mongolia Government International Bond, 5.63%, 05/01/2023 (a)

    2,205,738  
                   4,407,938  

NETHERLANDS—0.2%

 

USD

    3,145     

Mongolia (Government Of) Credit Linked Note, Zero Coupon, 07/23/2018 (ING BANK) (d)(k)

    2,895,375  

PHILIPPINES—0.3%

 

PHP

    251,000     

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

    4,032,467  

PHP

    544     

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

    11,386  
                   4,043,853  

REPUBLIC OF SOUTH KOREA—0.7%

 

KRW

    10,000,000     

Korea Monetary Stabilization Bond, 1.48%, 02/09/2018

    8,924,059  

SAUDI ARABIA—0.7%

 

USD

    5,472     

Saudi Government International Bond, 3.63%, 03/04/2028 (a)

    5,430,960  

USD

    4,549     

Saudi Government International Bond, 4.63%, 10/04/2047 (a)

    4,655,792  
                   10,086,752  

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

16


Portfolio of Investments (continued)

As of October 31, 2017

 

 

Principal
Amount
(000)
or Shares
     Description          Value
(US$)
 

GOVERNMENT BONDS (continued)

   

SINGAPORE—1.2%

 

SGD

    6,300     

Singapore Government Bond, 2.13%, 06/01/2026

    $ 4,635,684  

SGD

    15,250     

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

            11,917,174  
                           16,552,858  

SRI LANKA—2.4%

 

LKR

    471,000     

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

      3,020,615  

LKR

    230,000     

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

      1,492,771  

LKR

    388,000     

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

      2,511,411  

LKR

    745,000     

Sri Lanka Government Bond, 10.60%, 09/15/2019

      4,915,012  

LKR

    1,680,000     

Sri Lanka Government Bond, 10.75%, 01/15/2019

      11,083,669  

LKR

    80,000     

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

      539,748  

LKR

    90,000     

Sri Lanka Government Bonds, 9.25%, 05/01/2020

      577,173  

LKR

    150,000     

Sri Lanka Government Bonds, 11.00%, 08/01/2021

      1,002,105  

LKR

    240,000     

Sri Lanka Government Bonds, 11.50%, 12/15/2021

      1,640,855  

USD

    5,254     

Sri Lanka Government International Bond, 6.13%, 06/03/2025 (a)

            5,606,533  
                           32,389,892  

THAILAND—0.5%

 

THB

    203,400     

Thailand Government Bond, 3.65%, 06/20/2031

            6,741,608  
            

Total Government Bonds—67.2% (cost $946,942,737)

            921,017,473  

SHORT-TERM INVESTMENT—3.7%

 

UNITED STATES—3.7%

 

USD

    50,046,830     

State Street Institutional U.S. Government Money Market Fund, Institutional Class, 0.96% (l)

 

    50,046,830  
                           50,046,830  
            

Total Short-Term Investment—3.7% (cost $50,046,830)

            50,046,830  
            

Total Investments—140.5% (cost $1,960,963,291)

            1,923,710,037  
    

Long Term Debt Securities

      (550,000,000
    

Mandatory Redeemable Preferred Stock at Liquidation Value 4.125% due June 27, 2023

      (50,000,000
            

Other Assets in Excess of Liabilities—3.3%

            45,393,538  
            

Net Assets—100.0%

          $ 1,369,103,575  

 

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

 

(a)   Denotes a restricted security.
(b)   The maturity date presented for these instruments represents the next call/put date.
(c)   Variable or Floating Rate Security. Rate disclosed is as of October 31, 2017.
(d)   Illiquid security.
(e)   For this security the annuity payments increase by 3.25% every year, until the asset amortizes to zero.
(f)   Sinkable security.

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

17


Portfolio of Investments (continued)

As of October 31, 2017

 

 

(g)   This security is government guaranteed.
(h)   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.
(i)   Perpetual bond. This is a bond that has no maturity date, is redeemable and pays a steady stream of interest indefinitely. The maturity date presented for these instruments represents the next call/put date.
(j)   China A securities. These securities are issued in local currency, traded in the local markets and are held through a qualified foreign institutional investor license.
(k)   Level 3 security. This security was fair valued by the Fund’s pricing committee as approved by the Fund’s Board of Trustees. See Note 2(a) of the accompanying Notes to Financial Statements.
(l)   Registered investment company advised by State Street Global Advisors. The rate shown is the current yield as of October 31, 2017.

At October 31, 2017, the Fund’s open futures contracts were as follows:

 

Futures Contracts          Number of
Contracts
Long/(Short)
    Expiration
Date
     Notional
Amount
    Market
Value
    Unrealized
Appreciation/
(Depreciation)
 

Long Contract Positions

 

      

United States Treasury Note 6%—2 year

    UBS       703       12/29/2017      $ 152,047,337     $ 151,397,642     $ (649,695

United States Treasury Note 6%—Ultra Long

    UBS       393       12/19/2017        65,693,050       64,759,031       (934,019
                                             $ (1,583,714

Short Contract Positions

 

      

United States Treasury Note 6%—5 year

    UBS       (428     12/29/2017      $ (50,633,406   $ (50,156,250   $ 477,156  

United States Treasury Note 6%—10 year

    UBS       (1,196     12/19/2017        (151,290,000     (149,425,250     1,864,750  
                       $ 2,341,906  

At October 31, 2017, 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)
 

Australian Dollar/United States Dollar

       

11/24/2017

  HSBC Bank plc     AUD1,402,247       USD1,100,000     $ 1,072,963     $ (27,037

Chinese Yuan Renminbi Offshore/United States Dollar

 

     

11/03/2017

  Goldman Sachs     CNH131,110,065       USD19,800,000       19,765,819       (34,181

11/03/2017

  UBS     CNH 49,370,630       USD 7,300,000       7,442,990       142,990  

Indian Rupee/United States Dollar

 

     

02/09/2018

  HSBC Bank plc     INR1,892,661,000       USD28,900,000       28,871,499       (28,501

Indonesian Rupiah/United States Dollar

 

     

01/26/2018

  Goldman Sachs     IDR143,000,000,000       USD10,500,000       10,486,505       (13,495

Japanese Yen/United States Dollar

 

     

01/19/2018

  HSBC Bank plc     JPY692,600,140       USD6,201,237       6,116,147       (85,090

Philippine Peso/United States Dollar

 

     

12/22/2017

  HSBC Bank plc     PHP495,463,000       USD9,500,000       9,569,541       69,541  

12/22/2017

  UBS     PHP 270,868,000       USD 5,200,000       5,231,637       31,637  

Singapore Dollar/United States Dollar

 

     

12/08/2017

  Goldman Sachs     SGD40,549,660       USD30,000,000       29,761,851       (238,149

South Korean Won/United States Dollar

 

     

01/05/2018

  Goldman Sachs     KRW47,430,889,383       USD41,699,999       42,374,699       674,700  

Thai Baht/United States Dollar

 

     

11/10/2017

  UBS     THB942,200,000       USD28,000,000       28,366,275       366,275  
                        $ 189,059,926     $ 858,690  

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

18


Portfolio of Investments (concluded)

As of October 31, 2017

 

 

 

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

United States Dollar/Australian Dollar

    
11/24/2017   

Royal Bank of Canada

     USD 24,847,326        AUD 31,500,000      $ 24,102,976      $ 744,350  
12/20/2017   

Royal Bank of Canada

     USD 80,877,871        AUD 101,000,000        77,263,487        3,614,384  

United States Dollar/Chinese Renminbi

 
12/12/2017   

Standard Chartered Bank

     USD 20,300,000        CNY 132,400,660        19,935,779        364,221  

United States Dollar/Chinese Yuan Renminbi Offshore

 
11/03/2017   

Standard Chartered Bank

     USD 3,100,000        CNH 20,351,500        3,068,140        31,860  
11/03/2017   

UBS

     USD 17,300,000        CNH 115,002,350        17,337,461        (37,461

United States Dollar/Indian Rupee

 
11/03/2017   

Standard Chartered Bank

     USD 5,400,000        INR 350,806,500        5,415,486        (15,486
11/03/2017   

UBS

     USD 22,000,000        INR 1,434,180,000        22,139,790        (139,790

United States Dollar/Philippine Peso

 
12/22/2017   

HSBC Bank plc

     USD 18,900,000        PHP 985,710,600        19,038,351        (138,351

United States Dollar/Thai Baht

 
11/10/2017   

BNP Paribas

     USD 1,500,000        THB 49,555,500        1,491,939        8,061  
11/10/2017   

UBS

     USD 31,600,000        THB 1,063,340,000        32,013,367        (413,367
                       $ 221,806,776      $ 4,018,421  

 

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

At October 31, 2017, the Fund held the following centrally cleared interest rate swaps:

 

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

USD

    16,000,000       10/24/2027    

Citibank

  Receive  

3-month LIBOR Index

    2.36%     $     $ (23,438

USD

    59,000,000       10/28/2026    

Citibank

  Receive  

3-month LIBOR Index

    1.57%             3,543,204  

USD

    25,000,000       07/07/2026    

Citibank

  Receive  

3-month LIBOR Index

    2.27%             (117,694
                                                $ 3,402,072  

 

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

19


Statement of Assets and Liabilities

As of October 31, 2017

 

 

Assets

        

Investments, at value (cost $1,910,916,461)

   $ 1,873,663,207  

Short-term investments, at value (cost $50,046,830)

     50,046,830  

Foreign currency, at value (cost $17,424,464)

     17,373,533  

Cash at broker for interest rate swaps

     4,611,410  

Cash at broker for futures contracts

     490,610  

Cash at broker for China A shares

     71,190  

Due from broker

     7,513,261  

Interest receivable

     24,032,936  

Receivable for investments sold

     6,238,522  

Unrealized appreciation on forward foreign currency exchange contracts

     6,048,019  

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

     2,918,469  

Variation margin receivable for futures contracts

     2,341,906  

Variation margin receivable for centrally cleared interest rate swaps

     12,338  

Prepaid expenses and other assets

     180,312  

Total assets

     1,995,542,543  

Liabilities

  

Senior secured notes payable (Note 8)

     350,000,000  

Revolving credit facility payable (Note 9)

     100,000,000  

4-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  

Due to custodian

     5,559,669  

Payable for investments purchased

     11,421,347  

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

     4,148,684  

Variation margin payable for futures contracts

     1,583,714  

Unrealized depreciation on forward foreign currency exchange contracts

     1,170,908  

Investment management fees payable (Note 3)

     927,858  

Collateral to broker for forward foreign currency exchange contracts

     439,869  

Deferred foreign capital gains tax

     475,214  

Administration fees payable (Note 3)

     195,475  

Dividend payable on Series A Mandatory Redeemable Preferred Shares

     185,217  

Investor relations fees payable (Note 3)

     10,187  

Other accrued expenses

     320,826  

Total liabilities

     626,438,968  
          

Net Assets Applicable to Common Shareholders

   $ 1,369,103,575  

Composition of Net Assets:

  

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

   $ 2,521,308  

Paid-in capital in excess of par

     1,394,862,588  

Distributions in excess of net investment income

     (1,146,300

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

     (44,526,002

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

     34,536,733  

Accumulated net realized foreign exchange gains

     46,384,877  

Net unrealized foreign exchange and forward foreign currency contract loss

     (63,529,629

Net Assets Applicable to Common Shareholders

   $ 1,369,103,575  

Net asset value per share based on 252,130,824 shares issued and outstanding

   $ 5.43  

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

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

20


Statement of Operations

For the Year Ended October 31, 2017

 

 

Net Investment Income

        

Income

  

Interest and amortization of discount and premium and other income (net of foreign withholding taxes of $1,995,817)

   $ 91,104,957  

Total Investment Income

     91,104,957  

Expenses

  

Investment management fee (Note 3)

     10,519,636  

Administration fee (Note 3)

     2,214,983  

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

     852,712  

Custodian’s fees and expenses

     629,533  

Insurance expense

     330,232  

Directors’ fees and expenses

     307,000  

Reports to shareholders and proxy solicitation

     274,557  

Investor relations fees and expenses (Note 3)

     212,694  

Legal fees and expenses

     168,244  

Transfer agent’s fees and expenses

     132,669  

Independent auditors’ fees and expenses

     111,210  

Miscellaneous

     153,948  

Total operating expenses, excluding interest expense

     15,907,418  

Interest expense (Notes 8 & 9)

     15,490,761  

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

     2,052,925  

Net operating expenses

     33,451,104  
          

Net investment income applicable to common shareholders

     57,653,853  

Net Realized/Unrealized Gain/(Loss) from Investments and Foreign Currency Related Transactions:

  

Net realized gain/(loss) from:

  

Investment transactions (including $982,638 capital gains tax)

     25,585,131  

Futures contracts

     27,528  

Interest rate swaps

     (143,531

Forward foreign currency exchange contracts

     (5,367,759

Foreign currency transactions

     (67,751,686
       (47,650,317

Net change in unrealized appreciation/(depreciation) on:

  

Investments (including $(247,621) change in unrealized deferred capital gains tax)

     (42,492,857

Interest rate swaps

     2,828,510  

Futures contracts

     1,021,123  

Forward foreign currency exchange rate contracts

     2,979,679  

Foreign currency translation

     65,824,616  
       30,161,071  

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

     (17,489,246

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

   $ 40,164,607  

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

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

21


Statement of Changes in Net Assets

 

 

 

      For the
Year Ended
October 31, 2017
     For the
Year Ended
October 31, 2016
 

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

     

Operations:

     

Net investment income

   $ 57,653,853      $ 61,690,456  

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

     25,469,128        35,760,472  

Net realized loss from foreign currency transactions and forward foreign currency exchange contracts

     (73,119,445      (92,657,070

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

     (38,643,224      18,986,629  

Net change in unrealized appreciation on foreign currency translation and forward foreign currency exchange contracts

     68,804,295        110,378,001  

Net increase in net assets applicable to common shareholders resulting from operations

     40,164,607        134,158,488  

Distributions to Common Shareholders from:

     

Net investment income

     (66,636,882      (59,990,293

Tax return of capital

     (39,328,863      (46,911,791

Net decrease in net assets applicable to common shareholders from distributions

     (105,965,745      (106,902,084

Common Stock Transactions:

     

Repurchase of common stock resulting in the reduction of 1,135,695 and 3,042,619 shares of common stock, respectively (Note 6)

     (5,446,710      (14,553,549

Change in net assets from common stock transactions

     (5,446,710      (14,553,549

Change in net assets applicable to common shareholders resulting from operations

     (71,247,848      12,702,855  

Net Assets Applicable to Common Shareholders:

     

Beginning of year

     1,440,351,423        1,427,648,568  

End of year (including distributions in excess of net investment income of ($1,146,300) and ($1,118,257), respectively)

   $ 1,369,103,575      $ 1,440,351,423  

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

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

22


Statement of Cash Flows

For the Year Ended October 31, 2017

 

 

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

  

Cash flows provided from (used for) operating activities:

  

Interest received (excluding discount and premium amortization of $11,783,508)

   $ 105,013,337  

Operating expenses paid

     (31,302,350

Dividends paid to Series A Mandatory Redeemable Preferred Shares

     (2,062,500

Payments received from broker for collateral on interest rate swaps

     5,736,093  

Purchases and sales of short-term portfolio investments, net

     (41,090,316

Purchases of long-term portfolio investments

     (1,135,055,557

Proceeds from sales of long-term portfolio investments

     1,274,050,001  

Realized losses on forward foreign currency exchange contracts closed

     (5,367,759

Realized losses on interest rate swap transactions

     (143,531

Payments received from broker for futures contracts

     1,374,407  

Increase in cash collateral held at broker for China A shares

     (159

Increase in collateral to broker for forward foreign currency exchange contracts

     439,869  

Decrease in prepaid expenses and other assets

     10,530  

Realized losses on foreign currency transactions

     (67,751,686

Increase in payments due from broker

     (7,513,261

Net cash provided from operating activities

     96,337,118  

Cash flows provided from (used for) financing activities

  

Decrease in payable for revolving credit facility

     (25,000,000

Issuance of senior secured notes and secured term loans

     50,000,000  

Repurchase of common stock

     (5,446,710

Dividends paid to common shareholders

     (105,952,972

Decrease in payable due to custodian

     (786,577

Net cash used for financing activities

     (87,186,259

Effect of exchange rate on cash

     (19,037

Net increase in cash

     9,131,822  

Cash at beginning of year

     8,241,711  

Cash at end of year

   $ 17,373,533  

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

  

Net increase in total net assets resulting from operations

   $ 40,164,607  

Decrease in investments

     100,660,010  

Net realized gain on investment transactions

     (25,585,131

Net change in unrealized appreciation/depreciation on investments

     42,492,857  

Net change in unrealized foreign exchange gains/losses

     (68,804,295

Decrease in interest receivable

     2,124,872  

Increase in receivable for investments sold

     (2,393,721

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

     967,933  

Decrease in dividend payable to preferred shares

     (9,575

Net change in variation margin on future contracts

     (1,021,123

Net decrease in other assets

     10,530  

Increase in payable for investments purchased

     11,421,347  

Change in interest receivable/payable for closed interest rate swaps

     4,223,579  

Payments made to broker for interest rate swaps

     (1,315,996

Payments received from broker for futures contracts

     1,346,879  

Payments due from broker

     (7,513,261

Collateral to broker for forward foreign currency exchange contracts

     439,869  

Increase in cash collateral at broker for China A shares

     (159

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

     (735,710

Decrease in accrued expenses and other liabilities

     (136,394

Total adjustments

     56,172,511  

Net cash provided from operating activities

   $ 96,337,118  

See Notes to Financial Statements.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

23


Financial Highlights

 

 

 

     For the Fiscal Years Ended October 31,  
     2017     2016     2015     2014     2013  

PER SHARE OPERATING PERFORMANCE(a):

                                        
Net asset value per common share, beginning of year      $5.69       $5.57       $6.58       $6.89       $7.78  
Net investment income      0.23       0.24       0.28       0.28       0.30  
Net realized and unrealized gains/(losses) on investments, interest rate swaps, futures contracts and foreign currency transactions      (0.07     0.29       (0.88     (0.18     (0.77
Total from investment operations applicable to common shareholders      0.16       0.53       (0.60     0.10       (0.47
Distributions to Series A Mandatory Redeemable Preferred Shares:  
Net investment income                               
Distributions to common shareholders from:  
Net investment income      (0.26     (0.24     (0.40     (0.42     (0.42
Tax return of capital      (0.16     (0.18     (0.02            
Total distributions to shareholders      (0.42     (0.42     (0.42     (0.42     (0.42
Capital Share Transactions:  
Impact due to open market repurchase policy (Note 6)            0.01       0.01       0.01        
Total capital share transactions            0.01       0.01       0.01        
Net asset value per common share, end of year      $5.43       $5.69       $5.57       $6.58       $6.89  
Market value, end of year      $5.03       $4.92       $4.75       $5.88       $6.44  
Total Investment Return Based on(b):           
Market value      11.19%       12.90%       (12.38%     (2.17%     (13.37%
Net asset value      3.79%       11.35%       (8.19%     2.33%       (5.89% )(c) 
Ratio to Average Net Assets Applicable to Common Shareholders/Supplementary Data(d):           
Net assets applicable to common shareholders, end of year (000 omitted)      $1,369,104       $1,440,351       $1,427,649       $1,718,944       $1,842,470  
Average net assets applicable to common shareholders (000 omitted)      $1,382,050       $1,433,905       $1,549,308       $1,771,852       $1,953,410  
Net operating expenses      2.42%       2.23%       2.15% (e)      1.97%       1.50%  
Net operating expenses, excluding interest expense and distributions to Series A Mandatory Redeemable Preferred Shares      1.15%       1.14%       1.14% (e)      1.09%       1.03%  
Net investment income      4.17%       4.30%       4.65%       4.14%       4.07%  
Portfolio turnover      57%       52%       45%       49%       42%  
Leverage (senior securities) outstanding (000 omitted)      $550,000       $525,000       $525,000       $550,000       $550,000  
Leverage (preferred stock) outstanding (000 omitted)      $50,000       $50,000       $50,000       $50,000       $50,000  
Asset coverage ratio on long-term debt obligations at year end(f)      358%       384%       381%       422%       444%  
Asset coverage per $1,000 on long-term debt obligations at year end      $3,580       $3,839       $3,815       $4,216       $4,441  
Asset coverage ratio on total leverage at year end(g)      328%       350%       348%       386%       407%  
Asset coverage per share on total leverage at year end      $3,282       $3,505       $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, 2017, 2016, 2015, 2014 and 2013, the ratios of net investment income before preferred stock dividends to average net assets of common shareholders were 4.32%, 4.16%, 4.79%, 4.26% and 4.10%, 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 that expired in August 2014.
(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, 2017

 

 

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 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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services-Investment Companies.

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform to generally accepted accounting principles 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 transact at the measurement date.

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, the highest level, measurements to valuations based upon unadjusted quoted prices in active markets for identical assets, Level 2 measurements to valuations based upon other significant observable inputs, including adjusted quoted prices in active markets for similar assets, and Level 3, the lowest level, 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

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

26


Notes to Financial Statements (continued)

October 31, 2017

 

 

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.

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. If there are no current day bids, the security is valued at the previously applied bid. Pricing services generally price debt securities assuming orderly transactions of an institutional “round lot” size and the strategies employed by the Fund’s investment adviser generally trade in round lot sizes. In certain circumstances, some trades may occur in smaller “odd lot” sizes which may be effected at lower or higher prices than institutional round lot trades. 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.

Short-term investments are comprised of cash and cash equivalents invested in short-term investment funds which are redeemable daily. The Fund sweeps available cash into the State Street Institutional U.S. Government Money Market Fund; a “government money market fund” pursuant to Rule 2a-7 under the Investment Company Act of 1940, as amended (the “1940 Act”), which has an objective, which is not guaranteed, to maintain a $1.00 per share net asset value (“NAV”). Registered investment companies are valued at their net

asset value as reported by such company. Generally, these investment types are categorized as Level 1 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 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 agreements 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 Fund’s Pricing Committee may be classified as Level 2 or Level 3 depending on the nature of the inputs. The three-level hierarchy of inputs is summarized below:

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

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

Level 3 – significant unobservable inputs (including 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, 2017

 

 

The following is a summary of the inputs used as of October 31, 2017 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:

 

Investments, at Value      Level 1        Level 2        Level 3        Total  

Fixed Income Investments

                     

Corporate Bonds

     $        $ 952,645,734        $        $ 952,645,734  

Government Bonds

                918,122,098          2,895,375          921,017,473  

Short-Term Investment

       50,046,830                            50,046,830  

Total Investments

     $ 50,046,830        $ 1,870,767,832        $ 2,895,375        $ 1,923,710,037  

Other Financial Instruments

                     

Futures Contracts

       2,341,906                            2,341,906  

Forward Foreign Currency Exchange Contracts

                6,048,019                   6,048,019  

Centrally Cleared Interest Rate Swap Agreements

                3,543,204                   3,543,204  

Total Other Financial Instruments

     $ 2,341,906        $ 9,591,223        $          11,933,129  

Total Assets

     $ 52,388,736        $ 1,880,359,055        $ 2,895,375          1,935,643,166  

Liabilities

                     

Other Financial Instruments

                     

Futures Contracts

       (1,583,714                          (1,583,714

Forward Foreign Currency Exchange Contracts

                (1,170,908                 (1,170,908

Centrally Cleared Interest Rate Swap Agreements

                (141,132                 (141,132

Total Liabilities

     $ (1,583,714      $ (1,312,040      $        $ (2,895,754

 

Amounts listed as “—” are $0 or round to $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 fiscal period. For the fiscal year ended October 31, 2017, there were no transfers between Levels 1, 2, or 3. For the fiscal year ended October 31, 2017, there were no significant changes to the fair valuation methodologies. There were no Level 3 investments held at the beginning of the year. Level 3 investments held during and at the end of the year in relation to net assets were not significant and accordingly, a reconciliation of Level 3 assets for the year ended October 31, 2017 is not presented. The valuation technique used at October 31, 2017 was a single unadjusted broker quote. The inputs utilized by the broker to value the investment were not available.

b. 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. 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.

c. 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.
 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

28


Notes to Financial Statements (continued)

October 31, 2017

 

 

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 the foreign currency is worth fewer U.S. Dollars; the opposite effect occurs if the U.S. Dollar falls in relative value.

d. 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 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, 2017, 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 a counterparty 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, however, in those instances, (a) either the aggregate initial margin and premiums required to establish the Fund’s position may not exceed 5% of the Fund’s NAV after taking into account unrealized profits and unrealized losses on any such contract into which it has entered into, or (b) the aggregate net notional value of the Fund’s position may not exceed 100% of the

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

29


Notes to Financial Statements (continued)

October 31, 2017

 

 

Fund’s NAV after taking into account unrealized profits and unrealized losses on any such contract which it has entered into.

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, 2017, 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 and/or meet certain obligations at specified intervals based upon or calculated by reference to changes in specified prices or rates (interest rates in the case of interest rate swaps, currency exchange rates in the case of currency swaps) or the occurrence of a credit event with respect to an underlying reference obligation (in the case of a credit default swap) 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 amount of the difference between the two payments. Except for currency swaps and credit default swaps, the notional principal amount is used solely to calculate the payment streams but is not exchanged. With respect to currency swaps, actual principal amounts of currencies may be exchanged by the counterparties at the initiation, and again upon the termination of the transaction.

Traditionally, swaps were customized, privately negotiated agreements executed between two parties (“OTC Swaps”) but since 2013, certain swaps are required to be cleared pursuant to rules and regulations related to the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank”) and/or Regulation (EU) No 648/2012 on OTC Derivatives, Central Counterparties and Trade Repositories (“EMIR”) (“Cleared Swaps”). Like OTC Swaps, Cleared Swaps are negotiated bilaterally. Unlike OTC Swaps, the act of clearing results in two swaps executed between each of the parties and a central counterparty (“CCP”), and thus the counterparty credit exposure of the parties is to the CCP rather than to one another. Upon entering into a Cleared Swap, the Fund is required to pledge 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 or loss equal to the variation margin is recognized on a daily basis. When the contract matures or is terminated, the gain or loss is realized and is presented in the Statements of Operations as a net realized gain or loss on swap contracts. As of March 2017, the Fund may be required to provide variation and/or initial margin for OTC Swaps pursuant to further rules and regulations related to Dodd Frank and EMIR. The margin requirements associated with OTC Swaps and Cleared Swaps may not be the same.

The rights and obligations of the parties to a swap are memorialized in either an International Swap Dealers Association, Inc. Master Agreement (“ISDA”) for OTC Swaps or a futures agreement with an OTC addendum for Cleared Swaps (“Clearing Agreement”). These agreements are with certain counterparties whose creditworthiness is monitored on an ongoing basis by risk professionals. Both the ISDA and Clearing Agreement maintain provisions for general obligations, representations, agreements, collateral, and events of default or termination. The occurrence of a specified event of default or termination by one party may give the other party the right to terminate and settle all of its contracts.

Entering into swap agreements involves, to varying degrees, elements of credit, market and interest risk in excess of the amounts

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

30


Notes to Financial Statements (continued)

October 31, 2017

 

 

reported on the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform and that there may be unfavorable changes in the value of the index or securities underlying the agreement. The Fund’s maximum risk of loss from counterparty risk related to swaps is the fair value of the contract. This risk is mitigated by the posting of collateral by the counterparties to the Fund to cover the Fund’s exposure to the counterparty.

Interest Rate Swaps

The Fund uses interest rate swap contracts to manage its exposure to interest rates. Interest rate swap contracts typically represent the exchange between the Fund and a counterparty of respective

commitments to make variable rate and fixed rate payments with respect to a notional amount of principal. Interest rate swap contracts may have a term that is greater than one year, but typically require periodic interim settlement in cash, at which time the specified value of the variable interest rate is reset for the next settlement period. Net payments of interest are recorded as realized gains or losses. During the period that the swap contract is open, the contract is marked-to-market as the net amount due to or from the Fund and changes in the value of swap contracts are recorded as unrealized gains or losses. During the fiscal year ended October 31, 2017, the Fund used interest rate swaps to hedge the interest rate risk on the Fund’s Revolving Credit Facility (as defined in Note 9 below).

 

 

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, 2017:

 

    

Asset Derivatives

    

Liability Derivatives

 
     Year Ended October 31, 2017      Year Ended October 31, 2017  
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)

   Variation margin
receivable for centrally
cleared interest rate
swaps
   $ 3,543,204      Variation margin
payable for centrally
cleared interest rate
swaps
   $ 141,132  

Forward foreign exchange contracts
(foreign exchange risk)

   Unrealized appreciation
on forward currency
exchange contracts
   $ 6,048,019      Unrealized depreciation
on forward currency
exchange contracts
   $ 1,170,908  

Futures contracts
(interest rate risk)

   Variation margin
receivable for
futures contracts
   $ 2,341,906      Variation margin
payable for
futures contracts
   $ 1,583,714  

Total

        $ 11,933,129           $ 2,895,754  

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

 

*   The values shown reflect unrealized appreciation/(depreciation) and the values shown in the Statement of Assets and Liabilities reflects variation margin.

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

31


Notes to Financial Statements (continued)

October 31, 2017

 

 

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, 2017 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 Not Offset
in Statement of
Assets and Liabilities
 
Description   Gross Amounts
of Assets
Presented in
Statement of
Financial
Position
    Financial
Instruments
    Collateral
Received (1)
    Net
Amount (3)
    Gross Amounts
of Liabilities
Presented in
Statement of
Financial
Position
    Financial
Instruments
    Collateral
Pledged (1)
    Net
Amount (3)
 
    Assets     Liabilities  

Forward foreign currency (2)

 

             

BNP Paribas

  $ 8,061     $     $     $ 8,061     $     $     $     $  

Goldman Sachs

    674,700       (285,825           388,875       285,825       (285,825            

HSBC Bank plc

    69,541       (69,541                 278,979       (69,541           209,438  

Royal Bank of Canada

    4,358,734                   4,358,734                          

Standard Chartered Bank

    396,081       (15,486     (380,595           15,486       (15,486            

UBS

    540,902       (540,902                 590,618       (540,902           49,716  

 

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 which are not subject to a master netting arrangement across funds, or 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, 2017:

 

Derivatives not accounted for as
hedging instruments
     Location of Gain or (Loss)
on Derivatives
     Realized
Gain or
(Loss) on
Derivatives
       Change in
Unrealized
Appreciation/
(Depreciation)
on Derivatives
 

Interest rate swaps (interest rate risk)

     Realized/Unrealized Gain/(Loss) from Investments, Interest Rate Swaps, Futures Contracts and Foreign Currencies      $ (143,531      $ 2,828,510  

Forward foreign exchange contracts
(foreign exchange risk)

          $ (5,367,759      $ 2,979,679  

Futures contracts (interest rate risk)

          $ 27,528        $ 1,021,123  

Total

          $ (5,483,762      $ 6,829,312  

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

32


Notes to Financial Statements (continued)

October 31, 2017

 

 

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, 2017. The table below summarizes the weighted average values of derivatives holdings for the Fund during the fiscal year ended October 31, 2017.

 

Derivative     

Average

Notional Value

 

Purchase Forward Foreign Currency Contracts

     $ 148,750,315  

Sale Forward Foreign Currency Contracts

       234,350,545  

Long Futures Contracts

       195,955,662  

Short Futures Contracts

       200,760,080  

Interest Rate Swaps

       98,303,031  

e. Bank Loans:

The Fund may invest in bank loans. Bank loans include floating and fixed-rate debt obligations. Floating rate loans are debt obligations issued by companies or other entities with floating interest rates that reset periodically. Bank loans may include, but are not limited to, term loans, delayed funding loans, bridge loans and revolving credit facilities. Loan interest will primarily take the form of assignments purchased in the primary or secondary market but may include participants. Floating rate loans are secured by specific collateral of the borrower and are senior to most other securities of the borrower (e.g., common stock or debt instruments) in the event of bankruptcy. Floating rate loans are often issued in connection with recapitalizations, acquisitions, leveraged buyouts, and refinancings. Floating rate loans are typically structured and administered by a financial institution that acts as the agent of the lenders participating in the floating rate loan. Floating rate loans may be acquired directly through the agent, as an assignment from another lender who holds a direct interest in the floating rate loan, or as a participation interest in another lender’s portion of the floating rate loan.

The Fund may also enter into, or acquire participation in, delayed funding loans and revolving credit facilities. Delayed funding loans and revolving credit facilities are borrowings in which the Fund agrees to make loans up to a maximum amount upon demand by the borrowing issuer for a specified term. A revolving credit facility differs from a delayed funding loan in that as the borrowing issuer repays the loan, an amount equal to the repayment is again made available to the borrowing issuer under the facility. The borrowing issuer may at any time borrow and repay amounts so long as, in the aggregate, at any given time the amount borrowed does not exceed the maximum amount established by the loan agreement. Delayed funding loans and revolving credit facilities usually provide for floating or variable rates of interest.

There are a number of risks associated with an investment in bank loans including credit risk, interest rate risk, illiquid securities risk, and prepayment risk. There is also the possibility that the collateral securing a loan, if any, may be difficult to liquidate or be insufficient to cover the amount owed under the loan. These risks could cause the Fund to lose income or principal on a particular investment, which in turn could affect the Fund’s returns. In addition, bank loans may settle on a delayed basis, resulting in the proceeds from the sale of such loans not being readily available to make additional investments or to meet the Fund’s redemption obligations. To the extent the extended settlement process gives rise to short-term liquidity needs, the Fund may hold additional cash, sell investments or temporarily borrow from banks or other lenders.

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

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

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Notes to Financial Statements (continued)

October 31, 2017

 

 

accordance with the 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, 2017 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 a Qualified Business Unit (“QBU”) (see 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. 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 and swap contracts because it is designated as collateral.

k. 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. If the counterparty to a repurchase agreement defaults and the value of the collateral declines, or if bankruptcy proceedings are commenced with respect to the counterparty of the security, realization of the

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

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Notes to Financial Statements (continued)

October 31, 2017

 

 

collateral by the Fund may be delayed or limited. Repurchase agreements are subject to contractual netting arrangements with the Fund’s repurchase agreement counterparty, Fixed Income Clearing Corp. To the extent the Fund enters into repurchase agreements, additional information on individual repurchase agreements is included in the Statements of Investments. As of and during the fiscal year ended, October 31, 2017, the Fund did not hold any repurchase agreements.

3. Agreements and Transactions with Affiliates

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

Merger of Aberdeen Asset Management PLC with Standard Life plc

The Fund’s investment manager, investment adviser, investment sub-adviser and administrator are each a subsidiary of Aberdeen Asset Management PLC (“Aberdeen PLC”). The merger of Standard Life plc and Aberdeen PLC was announced on March 6, 2017 and closed on August 14, 2017 (“Merger”). Aberdeen PLC became a direct subsidiary of Standard Life plc as a result of the Merger and the combined company adviser, sub-adviser changed its name to Standard Life Aberdeen plc. Shareholders of the Fund are not required to take any action as a result of the Merger. Following the Merger, the Fund’s investment manager and administrator each became an indirect subsidiary of Standard Life Aberdeen plc, but otherwise did not change. The investment management, investment advisory, investment sub-advisory and administration agreements for the Fund, the services provided under the agreements, and the fees charged for services did not change as a result of the Merger. The portfolio management team for the Fund also has remained the same following the Merger.

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, with the Investment Manager.

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 Investment Adviser and Sub-Adviser are paid by the Investment Manager, not the Fund.

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.

For the fiscal year ended October 31, 2017, AAMAL earned $10,519,636 from the Fund for investment management fees.

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, 2017, AAMI earned $2,214,983 from the Fund for administration fees.

c. Investor Relations:

Under the terms of the Investor Relations Services Agreement, AAMI provides and/or engages third parties to provide investor relations services to the Fund and certain other funds advised by AAMAL or its affiliates as part of an Investor Relations Program. Under the Investor Relations Services Agreement, the Fund owes a portion of the fees related to the Investor Relations Program (the “Fund’s Portion”). However, investor relations services fees are limited by AAMI so that the Fund will only pay up to an annual rate of 0.05% of the Fund’s average weekly net assets. Any difference between the capped rate of 0.05% of the Fund’s average weekly net assets and the Fund’s portion is paid for by AAMI.

Pursuant to the terms of the Investor Relations Services Agreement, AAMI (or third parties hired by AAMI), among other things, provides

 

 

Aberdeen Asia-Pacific Income Fund, Inc.

 

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Notes to Financial Statements (continued)

October 31, 2017

 

 

objective and timely information to shareholders based on publicly-available information; provides information efficiently through the use of technology while offering shareholders immediate access to knowledgeable investor relations representatives; develops and maintains effective communications with investment professionals from a wide variety of firms; creates and maintains investor relations communication materials such as fund manager interviews, films and webcasts, 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.

During the fiscal year ended October 31, 2017, the Fund incurred investor relations fees of approximately $212,694. For the fiscal year ended October 31, 2017, AAMI did not waive any investor relations fees because the Fund did not reach the capped amount.

4. Investment Transactions

Purchases and sales of investment securities (excluding short-term securities) for the fiscal year ended October 31, 2017, were $1,061,429,178 and $1,110,623,620, respectively.

5. Capital

The authorized capital of the Fund is 400 million shares of $0.01 par value per share of common stock. During the fiscal year ended October 31, 2017, the Fund repurchased 1,135,695 shares pursuant to its Open Market Repurchase Program, see Note 6 for further information. As of October 31, 2017, there were 252,130,824 shares of common stock issued and outstanding.

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, 2017 and fiscal year ended October 31, 2016, the Fund repurchased 1,135,695 and 3,042,619 shares, respectively, through this program.

7. Preferred Shares

At October 31, 2017, 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, 2017.