KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
REPORT TO SHAREHOLDERS

REPORT HIGHLIGHTS
- Australian dollar rose from US$0.63 to US$0.65 over the period.
- Australian inflation continues to be below the Reserve Bank of Australia's
2.0%-3.0% target band.
- Low interest rate levels and improvements in the employment sector
continue to strengthen Australia's consumer confidence.
- The yield on ten-year Australian government bonds ended the period at
6.3%.
- -----------------------------------------------

TO OUR SHAREHOLDERS,

During the nine months ended July 31, 1999, the total value of the Fund
declined slightly, with Australian and New Zealand bonds undermined by a move to
higher global bond yields. The Australian dollar did recover slightly against
the U.S. currency, but this appreciation was not sufficient to compensate for
lower bond prices. The slight reduction in the Fund's discount led to a closing
share price which was unchanged from its end-of-October level. The investment
policy of the Fund continued to target high-quality Australian bonds--where
possible, free from withholding tax. An exposure to New Zealand dollar debt
securities was maintained for diversification purposes. At July 31, 1999, the
Fund's closing market price was $6.63, a discount of 17.91% to its net asset
value of $8.07.
For the twelve-months ended July 31, 1999, the Fund achieved a total return
on net asset value (with income reinvested) of 9.45%. The monthly dividend has
been maintained at US$0.04 per share since January 1999. Over the financial
year-to-date, the Fund has achieved a superior level of income return to that
available on U.S. Treasury securities. However, recent declines in Australian
and New Zealand interest rates have reduced the Fund's income stream and led the
Board to consider strategies for yield enhancement. These proposals are detailed
in the proxy statement, mailed under separate cover, and are recommended for
shareholder approval at the annual shareholder meeting scheduled for October 15,
1999. The Fund generated a current twelve-month income yield of 6.3% as of July
31, 1999 (based on the Fund's income distribution of $0.42 per share over the
period divided by the Fund's closing market price at July 31, 1999).

A further analysis of the Fund's performance since inception is provided on
the following page.

[SIGNATURE]

Sir Robert Cotton
Chairman
September 3, 1999

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PORTFOLIO SUMMARY

At July 31, 1999, the average maturity of the Fund's portfolio was 5.5
years with an average duration of 4.3 years and a current yield to
maturity of 6.2%. Securities rated AAA comprised 78% of the portfolio
with the remaining 22% in AA rated securities.
- --------------------------------------------------------------------------------

KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
PERFORMANCE FROM INCEPTION THROUGH JULY 31, 1999
(UNAUDITED)

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

FUND MARKET VALUE FUND NET ASSET VALUE U.S. INDEX AUSTRALIAN INDEX

11-86 $10,000 $10,000 $10,000 $10,000
07-87 $9,751 $11,623 $9,899 $12,064
07-88 $13,511 $15,350 $10,566 $16,159
07-89 $14,020 $15,314 $12,198 $16,312
07-90 $15,518 $17,997 $12,918 $19,746
07-91 $19,341 $21,209 $14,210 $23,722
07-92 $23,573 $24,940 $16,360 $28,251
07-93 $22,937 $25,738 $18,153 $29,616
07-94 $23,634 $26,796 $18,123 $30,540
07-95 $24,749 $28,982 $19,880 $33,835
07-96 $28,846 $33,955 $20,888 $40,351
07-97 $32,021 $37,341 $23,013 $45,420
07-98 $26,735 $32,460 $24,953 $40,455
07-99 $28,317 $35,482 $25,636 $44,788

Since its inception in 1986, the Fund has achieved an average annualized return
on market value of 8.55%, on the basis noted below. On a net asset value basis,
which measures the performance of the Fund's underlying portfolio, the average
annualized return has been 10.50% and has outpaced the Salomon Brothers US
Government Bond Index, which has averaged 7.71%. The Salomon Brothers Australian
Government Bond Index has averaged 12.56% since the Fund's inception, with the
difference between the Fund's net asset value performance and that of the index
primarily attributable to the Fund's operating and foreign tax expenses, which
neither index is subject to. After adjusting for these expenses, which have
averaged 2.11% since inception, the Fund has slightly outperformed the
Australian index.

ANNUALIZED 9 10 SINCE
PERFORMANCE MONTHS* 1 YEAR 3 YEARS 5 YEARS YEARS INCEPTION+

Fund Market Value (1) 7.76% 5.91% -0.63% 3.67% 7.28% 8.55%
Fund Net Asset Value (2) 2.71% 9.31% 1.49% 5.78% 8.77% 10.50%
Salomon Brothers U.S. Gov't Bond Index (3) -2.33% 2.74% 7.06% 7.18% 7.70% 7.71%
Salomon Brothers Australian Gov't Bond Index (3) 3.53% 10.71% 3.54% 7.96% 10.62% 12.56%

- --------------------------------------------------------------------------------
* Not Annualized
+ Fund commenced operations November 28, 1986.
(1) Based on market value per share, adjusted for rights offerings, and
assumes reinvestment of all distributions at reinvestment plan prices.
(2) Based on net asset value per share, adjusted for rights offerings, and
assumes reinvestment of all distributions at the ex-dividend date net
asset value. This measures the performance of the underlying Fund
portfolio and may not be indicative of returns to investors.
(3) The Salomon Brothers US and Australian Government Bond Indices are US$
based unmanaged indices.

Please remember that past performance may not be indicative of future
results.

KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
MARKET REVIEW

MARKET REVIEW
- --------------------------

Throughout the period under review, world economic growth recovered, led by
continued economic growth in the United States where both business and consumer
confidence remained robust. Fears that sustained growth would be accompanied by
a rise in inflation were compounded by a sharp appreciation in the price of oil.
While a sustained uptrend in domestic inflation did not fully materialize, the
U.S. Federal Reserve nevertheless moved toward a tightening bias, raising
interest rates in June, as a precautionary measure. Given this macroeconomic
environment, the U.S. Treasury market performed poorly, resulting in bearish
sentiment across the major global bond markets.

The Australian market fell during the nine months ended July 31, 1999, with
only sporadic periods of respite in the downtrend. Ten-year yields initially
fluctuated around 5.0% from November 1998 to January 1999, but the bond market
subsequently deteriorated as yields rose through the course of spring and summer
1999 to end the period at 6.3%. Having reduced the short-term Cash Target from
5.0% to 4.75% in November 1998, the Reserve Bank of Australia held official
short-term interest rates at that level, against a background of sustained
domestic economic growth and relatively low inflation.

The New Zealand bond market moved in parallel with Australian bonds in the
ten-year area, as yields rose from 5.4% to 6.6%. Initially, the short-term
direction of interest rates was determined by a need to support the fragile
recovery in domestic economic conditions. Short market rates therefore remained
low and the Official Cash Rate, introduced in April 1999, was held at 4.50%.
Subsequently, the outlook for medium-term interest rates was revised higher, as
the improvement in the domestic economy over the course of the summer caused
some fear of a rise in rates by year-end. In retrospect, it was the bearish
sentiment in the U.S. Treasury market that ultimately caused yields to rise in
the medium and longer end of the New Zealand market.

From November 1998 to July 1999, the Australian dollar rose marginally from
US$0.63 to US$0.65. Within the period, however, there was a large degree of
volatility. The currency traded in a broad uptrend from November to early April,
and then appreciated sharply before adopting its current US$0.64 to US$0.67
range from mid-May. Throughout the period, the Australian dollar was supported
by the ongoing strength of the domestic economy, the recovery of Emerging Asian
economies, and modest rises in certain key base metal prices. The sharp
appreciation in the spring was largely the result of an upward revision of
domestic growth prospects and, more important, an anticipation of higher short
rates. The current range has been threatened by adverse movements in the gold
price, which fell further after a substantial sale of Bank of England reserves.
Market sentiment was also affected by the prospect of significantly higher
interest rates in the United States.

The New Zealand dollar closed the period virtually unchanged, having
returned to November's initial US$0.53 level by the end of July 1999. The
currency's correlation with the Australian dollar was close as it responded to
the same global economic and market factors outlined above in much the same way.
Despite initial evidence of an improvement in the New Zealand current account
from December 1998 onwards, the (currency positive) impact of the economic
recovery in the Asian region was tempered by deterioration in the trade balance,
as in Australia. The key difference between the fundamental factors affecting
both currencies was the comparative weakness of the domestic economy in New
Zealand, despite the recovery.

KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
ECONOMIC REVIEW

ECONOMIC REVIEW
- -----------------------------

AUSTRALIA

From November 1998 to July 1999, the Australian economy continued to expand
at a higher rate than expected. GDP grew at 1.1% over the first quarter of 1999,
the sixth consecutive quarterly reading above 1.0%, to be 4.8% higher than a
year before. The economy was driven by the continued strength of consumer
confidence, supported by the low interest rate levels and recent improvements in
the employment sector. Business confidence remained high, with the NAB business
index rising to +11 in July, exceeding the previous peak of +9, recorded in
March. The current account deficit, in contrast, continued to deteriorate, due
to the wide divergence between strong domestic and weak Asian demand. Although
the recovery of regional Asian economies has become increasingly evident,
international trade remains a drag on growth, with greater net imports causing
the deficit to deteriorate to A$8,283mn in the first quarter of 1999.

The consumer sector continued to accelerate over the period as a whole, with
year-on-year retail trade rising over 7.1% in the year-to-June 1999, compared
with 5.3% to November 1998. The sector remains supported by both strong labor
and housing markets. Unemployment declined from 7.9% in November 1998 to 7.2% in
June 1999. Additionally, both the ANZ job advertisements survey and the number
of skilled vacancies revealed no change in the current high levels of demand.
The Australian housing market remains fairly buoyant. Building approvals rose
6.9% in the year-to-June 1999, though this was partly offset by recent
moderation in the housing finance series.

Australian inflation remained comfortably below the Reserve Bank of
Australia's 2.0%-3.0% target band during the period under review. Headline CPI
rose just 1.1% in the year-to-June 1999, having risen only 1.2% in the March
quarter. The treasury underlying figures rose marginally over the period, from
1.6% to 1.7%, but given the sustained expansion of the economy--and in
particular the high level of consumer demand--the inflationary background
remains relatively benign. The possibility of imported inflation, a concern this
time last year, was prevented by the partial recovery of the Australian dollar
over the period. Additionally, the substantial rise in the price of oil failed
to ignite inflationary pressures, and was in any case offset by continued
weakness in certain key commodities, in particular gold.

NEW ZEALAND

Economic growth in New Zealand continued to recover through the course of
1999 after the technical recession seen in the first half of 1998. GDP expanded
by 0.7% in both the December and March quarters. The rebound was driven by a
substantial rise in investment spending, which was in turn encouraged by the low
level of interest rates. The new economic cycle is still in its earliest stages,
however, with GDP for the year to March falling 0.2%. Employment firmed over the
period, in line with economic improvements, as the unemployment rate fell from
7.7% in the final quarter of 1998 to 7.0% for the June quarter. The rate remains
above the 6.7% average for the last four years, but the decline has nevertheless
given a renewed impetus to the consumer sector. Retail trade rose 3.5%, in the
year-to-June 1999. In trend terms, retail sales have now risen for the fourth
consecutive quarter. The exporting sector continues to lag the remainder of the
economy despite the recovery of regional Asian economies, on which New Zealand
is heavily dependent. The current account deficit has stabilized a little, with
the annual deficit standing at 1.7% of GDP in June 1999. Imports are currently
rising at around 8.0% on

KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
ECONOMIC REVIEW

an annual basis, negating the effect of increased exports and thus keeping the
current account deficit at high levels.

Economic recovery has led pricing in New Zealand to emerge from a period of
deflation, with June quarter CPI posting the first positive figure in three
quarters. The underlying CPIX measure, monitored by the Reserve Bank, remained
benign, rising from 1.0% to 1.2% over the June quarter. Producer price inflation
is also returning to an upward trend, with input prices rising 0.6% over the
June quarter and the output reading rising 0.4%. There was no major change in
tradeable goods prices given the New Zealand dollar's return to the $0.52/USD
level. Commodity prices on the whole also remained unchanged for most of the
period; however, an uptick in pricing has recently been recorded, driven by
rises in meat, wood and aluminium prices and the stronger global economic
background.

KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
PORTFOLIO OF INVESTMENTS

July 31, 1999
(Unaudited)

Long-Term Investments -- 97.1%

PRINCIPAL AMOUNT VALUE (US$)
- ---------------------------------------------------------------------------------------------------------- -----------

AUSTRALIAN GOVERNMENT AND SEMI-GOVERNMENT BONDS -- 63.2%
EUROBONDS -- 42.5%
A$ 2,000,000 State Bank of South Australia 9.5% due 10/15/02....................... $1,433,833
5,000,000 Australian Industrial Development Corp. 9.25% due 2/17/03....................... 3,592,267
3,300,000 Export Finance & Insurance Corp. 9% due 3/26/03.......................... 2,358,454
2,750,000 State Bank of South Australia 10.5% due 6/23/03....................... 2,058,752
1,500,000 South Australian Government Bond 7.25% due 9/22/03....................... 1,016,248
2,500,000 Australian Industrial Development Corp. 8.75% due 7/20/04....................... 1,807,490
21,400,000 Queensland Treasury Corp. 6.5% due 6/14/05........................ 14,160,847
1,200,000 Treasury Corp. of Victoria 9% due 6/27/05.......................... 884,206
1,000,000 Commonwealth Bank of Australia 9% due 8/15/05.......................... 737,973
6,000,000 New South Wales Treasury Corp. 6.5% due 5/01/06........................ 3,949,005
14,500,000 Queensland Treasury Corp. 6% due 7/14/09.......................... 9,032,461
-----------
41,031,536
-----------
DOMESTIC BONDS -- 20.7%
A$ 10,000,000 Commonwealth Government Bond 6.75% due 11/15/06...................... 6,779,793
6,000,000 Western Australia Treasury Corp. 8% due 7/15/03.......................... 4,190,992
4,000,000 Victoria Public Finance Authority 12.5% due 10/15/03...................... 3,231,427
7,500,000 Commonwealth Government Bond 8.75% due 8/15/08....................... 5,738,556
-----------
19,940,768
-----------
Total Australian Government and Semi-Government Bonds -- (Cost $60,684,228) 60,972,304
-----------
AUSTRALIAN EUROBONDS -- 17.1%
A$ 3,500,000 DSL Finance N.V. 10.25% due 4/7/00....................... 2,357,708
6,000,000 Morgan Guaranty Trust Co. 8% due 4/18/01.......................... 4,063,764
2,000,000 Bayerische Vereinsbank 8.75% due 5/17/01....................... 1,373,373
5,000,000 Nederlandse Waterschapsbank N.V. 7% due 3/15/02.......................... 3,346,998
4,000,000 National Australia Bank 7% due 7/23/04.......................... 2,680,556
3,500,000 Bayerische Vereinsbank 10.25% due 10/28/04..................... 2,660,570
-----------
Total Australian Eurobonds-(Cost $18,182,055) 16,482,969
-----------
NEW ZEALAND EUROBONDS -- 14.6%
NZ$ 4,000,000 European Investment Bank 8.5% due 5/30/01........................ 2,218,847
2,000,000 KFW International Finance 7.5% due 11/08/01....................... 1,092,949
3,000,000 KFW International Finance 7.625% due 4/29/02...................... 1,642,918
7,000,000 Federal National Mortgage Association (US) 7.25% due 6/20/02....................... 3,802,378
2,000,000 KFW International Finance 7.25% due 2/20/07....................... 1,345,753
8,400,000 I.B.R.D. 5.5% due 11/03/08....................... 3,982,798
-----------
Total New Zealand Eurobonds -- (Cost $15,496,632) 14,085,643
-----------
NEW ZEALAND GOVERNMENT BOND -- 2.2%
NZ$ 4,000,000 New Zealand Government Bond 7% due 7/15/09 -- (Cost $2,219,258)..... 2,176,514
-----------
TOTAL PORTFOLIO OF INVESTMENTS -- 97.1% (COST $96,582,173) 93,717,430
-----------
OTHER ASSETS LESS LIABILITIES -- 2.9% 2,804,622
-----------
NET ASSETS -- 100.0% $96,522,052
-----------
-----------

KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
FINANCIAL SUMMARY

For the nine months ended July 31, 1999
(Unaudited)

NET ASSET
TOTAL NET VALUE
ASSETS PER SHARE
------------ ------------

Beginning of period, November 1,
1998.............................. $100,046,885 $ 8.37
------------ ------------

Operations:
Net investment income*.............. 4,152,557 0.35
Net realized gain (loss) on:
Investment transactions*.......... 507,759 0.04
Foreign currency transactions**... (223,785) (0.02)
Change in unrealized depreciation
on:
Investments*...................... (6,512,985) (0.54)
Foreign currency denominated
assets and liabilities**........ 4,720,176 0.39
------------ ------------

Net increase in net assets resulting
from operations................... 2,643,722 0.22
------------ ------------

Dividends paid from net investment
income............................ (3,885,233) (0.33)
Distributions paid from net realized
capital gains..................... (2,283,322) (0.19)
------------ ------------
Net decrease in net assets resulting
from distributions
to shareholders................... (6,168,555) (0.52)
------------ ------------

Net decrease in net asset value..... (3,524,833) (0.30)
------------ ------------

End of period, July 31, 1999........ $ 96,522,052 $ 8.07
------------ ------------
------------ ------------

* Net decrease in net assets before net foreign currency gain and dividends
and distributions paid to shareholders was ($1,852,669), equal to ($0.15)
per share.
** Net realized and unrealized foreign currency gain was $4,496,391, equal to
$0.37 per share.

KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.
- ------------------------
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
(Unaudited)

DIVIDEND REINVESTMENT AND CASH
PURCHASE PLAN

The Fund offers to shareholders a Dividend Reinvestment Plan which provides
participants with a prompt and simple way to reinvest their income dividends and
capital gain distributions in additional Fund shares. If you choose to
participate in the Plan, your income dividends and capital gain distributions
will automatically be reinvested in Fund shares at the lower of market price or
net asset value, at up to a 5% discount for market price, on valuation date. The
Plan also includes a Cash Purchase option which provides Reinvestment Plan
participants with the opportunity to make additional cash investments in Fund
shares directly through the Plan Agent.

The Plan is entirely voluntary and, subject to the terms and conditions of
the Plan, you may join or withdraw at any time. A brochure with more
information, including the full terms and conditions, and an application is
available from the Plan Agent, Boston EquiServe, telephone (800) 730-6001.

If you wish to participate and your shares are registered in your name,
simply complete and return the application form. If your shares are held in the
name of a brokerage firm, bank or other nominee, your shares may need to be
re-registered in your own name in order for you to participate. Please consult
your broker to determine what needs to be done to arrange for you to join the
Plan.

(This page intentionally left blank.)

DIRECTORS AND OFFICERS
Sir Robert C. Cotton
DIRECTOR AND CHAIRMAN OF THE BOARD
SYDNEY, AUSTRALIA

Luke Knecht
PRESIDENT AND DIRECTOR
SAN FRANCISCO, CA

James J. Foley
DIRECTOR
BELMONT, MA

Leonard T. Hinde
DIRECTOR
MOSMAN, NSW, AUSTRALIA

The Earl of Limerick
DIRECTOR
LONDON, ENGLAND

G. William Miller
DIRECTOR AND DEPUTY CHAIRMAN OF THE BOARD
WASHINGTON, DC

Stephen K. West
DIRECTOR
NEW YORK, NY

Robert J. Goldstein
SECRETARY
SAN FRANCISCO, CA

Jennie W. Klein
TREASURER
SAN FRANCISCO, CA

INVESTMENT ADVISOR
Kleinwort Benson Investment
Management Americas Inc.
SAN FRANCISCO, CA

KLEINWORT
BENSON
AUSTRALIAN
INCOME FUND, INC.

Four Embarcadero Center
Suite 3000
San Francisco, CA 94111
(800) 237-4218

2520-Q3-7/99

KLEINWORT

BENSON

AUSTRALIAN

INCOME FUND, INC.

QUARTERLY REPORT
JULY 31, 1999