[LOGO OF PUTNAM INVESTMENTS]
Lincoln National
Global Asset
Allocation Fund, Inc.
Annual Report
December 31, 1998
<PAGE>
Lincoln National
Global Asset Allocation Fund, Inc.
Index
Commentary
Statement of Net Assets
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Ernst & Young LLP, Independent Auditors
<PAGE>
Lincoln National
Global Asset Allocation Fund, Inc.
Managed by: [LOGO OF PUTNAM INVESTMENTS]
The Global Asset Allocation Fund had a return of 13.50% for the year ended
December 31, 1998. This broadly diversified global investment product lagged the
long-term custom benchmark, (50% S&P 500; 20% Lehman Brothers Aggregate Bond;
15% Morgan Stanley EAFE Index; 10% Salomon Brothers World Government Bond Index;
5% 90 day T-Bill) which gained 20.18%.
For much of the year, U.S. equities performed extremely well, although in late
summer the market took a decided dip as investors grew skittish about continued
financial and economic turmoil among developing nations. Stocks recovered as
Fall wore on, closing out their fourth consecutive year of sparkling returns.
Large-capitalization stocks continued to outpace small-and mid-cap stocks, and
companies whose operations were primarily domestic fared better than
manufacturers and exporters with links to Asia.
Within the U.S. bond market, the third-quarter global flight to quality drove
yields on Treasuries to their lowest levels in modern history. Corporate bonds,
mortgage-backed securities, and asset-backed securities underperformed
Treasuries by a wide margin, creating an opportunity for us to take advantage of
attractively priced valuations in these sectors to position the portfolio for
the future. By year-end, non-Treasury sectors had begun to recover.
International equity markets bore the brunt of the global correction. Stock
markets in the Pacific Rim fared particularly poorly. The Fund had minimal
exposure in that region, although South Korea, Hong Kong, and Singapore did
provide some opportunities. European equities also provided solid returns. In
contrast, non-U.S. government bond markets benefited from global turmoil and the
resulting flight to quality, as well as benign inflation and relatively low
interest rates. The Fund benefited most from its European fixed-income
investments, as European markets registered gains only slightly behind those
provided by U.S. bonds. Emerging-markets debt was hit hard by global financial
woes and our under-weighting proved beneficial.
The Fund's underperformance relative to the benchmark was due to positions held
in riskier asset classes as well as poor security selection in U.S. equity
holdings, a prominent part of the custom benchmark, which were ill-suited for
volatile market conditions.
The largest positive contributor to performance was a broad portfolio bias
toward stocks over bonds. However, the third-quarter market dislocations
triggered by Russia's default on its domestic bonds pushed equity markets lower
across the globe. As a result, the U.S. stock market fell sharply, suffering its
worst quarter in eight years.
The Fund, which under normal market conditions is able to reduce the volatility
of returns by diversifying across markets and asset classes, experienced a
damaging confluence of negative forces in the third quarter. Risk positions in
the capital markets that usually offset one another acted in concert to the
detriment of performance. Weak security selection in U.S. large-cap and
international stocks exacerbated the losses suffered from the equity market's
overweighted position. The U.S. high-yield allocation also hindered performance
as that market suffered greatly in the general flight to quality.
Looking ahead, we see moderate economic growth in the U.S. and Europe. Inflation
should remain subdued, creating a favorable environment for financial assets.
Although we may still see flare-ups in Brazil and other markets, the effects of
the emerging-markets crisis on the developed markets is diminishing, since much
of the leverage that had existed earlier in 1998 has been wrung out of the
system by year-end.
<PAGE>
We still believe that the developed equity markets of Europe and the United
States should show modest appreciation in 1999, and our forecasts favor Europe.
Equity market valuations, however, are high and caution is warranted as little
cushion remains to absorb any adverse news.
William Landes, Ph.D
Growth of $10,000 invested 1/1/89 through 12/31/98
1/1/89 12/31/98
Global Asset Allocation Fund $10,000 $57,904
Lehman Brothers Government/Corporate Bond Index $10,000 $33,393
S&P 500 Index $10,000 $26,452
Morgan Stanley EAFE Index $10,000 $24,402
Salomon Brothers World Government Bond Index $10,000 $24,025
Lehman Brothers Aggregate Bond Index $10,000 $17,167
This chart illustrates, hypothetically, that $10,000 was invested in the Global
Asset Allocation Fund on 1/1/89. As the chart shows, by December 31, 1998, the
value of the investment at net asset value, with any dividends and capital gains
reinvested, would have grown to $33,393. For comparison, look at how the Indices
did over the same period. Past performance is not indicative of future
performance. Remember, an investor cannot invest directly in an index.
Average annual return Ended
on investments 12/31/98
- -------------------------------------------------
One Year +13.50%
- -------------------------------------------------
Five Years +13.68%
- -------------------------------------------------
Ten Years +12.81%
- -------------------------------------------------
Lincoln National
Global Asset Allocation Fund, Inc.
Statement of Net Assets
December 31, 1998
Investments:
Par Market
Long-Term Debt Investments: Amount** Value
- -----------------------------------------------------------------------------
U.S. Government and Agency Obligations: 11.6%
- -----------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation
7.50%, 4/1/28 $ 2,079,369 $ 2,140,450
Federal National Mortgage Association
5.75%, 4/15/03 620,000 637,667
7.50%, 7/1/07 245,700 254,990
6.00%, 5/15/08 1,450,000 1,533,925
5.50%, 2/1/11 272,038 270,253
5.50%, 3/1/11 175,310 174,159
7.00%, 3/1/11 26,216 26,913
5.50%, 4/1/11 458,602 455,592
5.50%, 4/1/11 532,629 529,134
5.50%, 4/1/11 282,448 280,594
5.50%, 5/1/11 855,322 849,709
5.50%, 5/1/11 132,969 132,096
5.50%, 5/1/11 62,313 61,904
5.50%, 6/1/11 115,750 114,990
7.00%, 10/1/11 1,427,902 1,464,492
5.50%, 12/1/11 402,684 400,042
5.50%, 1/1/12 283,504 281,643
6.00%, 2/1/13 34,097 34,215
6.50%, 4/1/13 513,395 521,095
6.00%, 5/1/13 538,619 540,470
6.50%, 5/1/13 576,766 585,417
6.00%, 6/1/13 418,735 420,174
6.50%, 6/1/13 797,802 809,769
6.50%, 7/1/13 262,405 266,341
6.00%, 9/1/13 104,058 104,415
6.00%, 9/1/13 488,389 490,068
6.00%, 9/1/13 443,519 445,044
6.00%, 10/1/13 411,523 412,937
7.00%, 10/1/13 515,633 527,235
6.00%, 1/15/14 900,000 902,531
7.00%, 2/25/23 301,821 307,697
6.978%, 7/1/25 55,419 56,874
6.50%, 7/1/28 461,350 464,954
6.50%, 7/1/28 408,271 411,460
6.50%, 7/1/28 420,507 423,792
6.50%, 8/1/28 716,092 721,686
6.50%, 8/1/28 503,323 507,098
6.50%, 1/15/29 1,820,000 1,831,944
Federal National Mortgage Association TBA
6.00%, 1/15/29 2,370,000 2,340,375
Government National Mortgage Association
10.00%, 6/15/13 337,717 369,378
11.00%, 12/15/15 3,643 4,052
11.00%, 12/15/15 27,268 30,327
11.00%, 12/15/15 56,048 62,335
7.00%, 1/15/23 241,008 248,389
7.50%, 1/15/23 156,929 162,961
7.50%, 8/15/23 577,012 598,108
7.50%, 8/15/23 88,910 92,189
7.50%, 9/15/23 347,302 360,000
7.00%, 12/15/23 102,379 105,291
7.00%, 8/15/25 95,471 98,126
7.00%, 12/15/25 657,738 676,032
7.00%, 4/15/26 247,649 254,536
7.00%, 4/15/26 222,513 228,702
7.00%, 10/15/26 248,949 255,095
7.00%, 10/15/27 161,562 165,702
7.00%, 12/15/27 126,820 130,070
7.00%, 1/15/28 465,939 477,733
6.50%, 3/15/28 508,579 514,141
6.50%, 3/15/28 364,569 368,785
6.50%, 4/15/28 100,957 102,061
6.50%, 4/15/28 297,569 300,824
7.00%, 9/15/28 402,815 412,633
7.00%, 9/15/28 327,944 335,835
6.50%, 11/15/28 1,475,158 1,491,293
<PAGE>
Par Market
Amount** Value
- -----------------------------------------------------------------------------
6.50%, 12/15/28 $ 336,542 $ 340,223
7.00%, 12/15/28 960,300 983,407
Government National Mortgage Association TBA
8.00%, 1/15/29 1,705,000 1,771,069
U.S. Treasury Bill(+)
4.32%, 3/4/99 5,045,000 5,007,378
U.S. Treasury Bond
6.375%, 8/15/27 160,000 183,617
6.125%, 11/15/27 2,375,000 2,655,221
5.25%, 11/15/28 435,000 445,597
U.S. Treasury Note
4.50%, 9/30/00 4,175,000 4,169,221
4.00%, 10/31/00 285,000 282,080
4.625%, 11/30/00 805,000 805,766
5.25%, 8/15/03 3,875,000 3,975,204
4.25%, 11/15/03 1,260,000 1,244,158
5.625%, 5/15/08 1,740,000 1,857,943
4.75%, 11/15/08 1,815,000 1,829,128
56,128,754
Asset Backed - 3.6%
- -----------------------------------------------------------------------------
Advanta 1997 A-7
6.63%, 1/25/29 615,000 617,975
Advanta Mortgage Loan Trust
6.69%, 4/25/17 595,000 610,461
7.05%, 5/25/21 685,000 702,344
Amres 97-3A3
6.60%, 1/25/18 400,000 400,000
Amresco Commercial Mortgage Funding I
Series 1997-C1 A1
6.73%, 6/17/29 541,824 553,359
BHET
6.91%, 1/25/29 190,000 193,488
Capital Equipment Receivables Trust
6.28%, 6/15/00 180,000 180,983
Collateralized Mortgage Obligations
9.00%, 11/20/20 1,448,829 1,498,397
Commercial Mortgage Acceptance Corporation
6.57%, 12/15/30 165,000 171,549
5.80%, 9/1/30 467,900 468,558
Federal Home Loan Mortgage Corporation
7.50%, 11/15/22 685,000 715,085
Federal Home Loan Mortgage Corporation
Series 2080 Class PC
6.00%, 11/15/15 170,000 170,266
Federal National Mortgage Association 93-240B
6.25%, 12/25/13 381,666 383,985
Federal National Mortgage Association-89-71-J
8.50%, 10/25/19 755,000 798,629
First Union
6.28%, 6/18/07 200,000 208,648
6.65%, 6/18/08 568,283 581,771
GE Capital Management Services
6.00%, 2/25/24 53,262 53,055
GE Electric Mortgage Services
Series 1996-HE2 Class A4
7.65%, 3/25/12 165,000 167,892
GS Mortgage Securities II
6.562%, 4/13/31 160,000 166,050
General Motors Acceptance Corporation
6.15%, 11/15/07 245,679 249,086
6.42%, 5/15/31 323,180 332,598
Government National Mortgage Association
7.50%, 5/16/27 1,100,000 1,149,701
Green Tree Financial 97-2 A6
7.24%, 4/15/28 540,000 556,845
Green Tree Recreational Series 1998-A A1C
6.18%, 6/15/19 685,839 694,385
Greentree 97-3
6.55%, 7/15/28 590,466 599,462
6.93%, 7/15/28 930,000 960,518
6.24%, 3/18/28 870,000 878,700
Independent National Mortgage Corporation
8.3005%, 12/25/24 173,826 175,782
Merrill Lynch Mortgage Investors
6.54%, 12/10/29 985,000 1,029,941
6.22%, 2/15/30 704,823 718,149
Par Market
Amount** Value
- -----------------------------------------------------------------------------
Morgan Stanley Capital I
7.227%, 1/16/06 $ 560,000 $ 594,825
PNC Mortgage Securities
6.60%, 7/25/27 305,264 306,409
The Money Store Home Equity Trust
Series 1996-A Class A5
6.85%, 6/15/19 280,000 286,739
- -----------------------------------------------------------------------------
17,175,635
Aerospace & Defense: 0.3%
- -----------------------------------------------------------------------------
Argo-Tech
8.625%, 10/1/07 30,000 28,575
BE Aerospace
9.875%, 2/1/06 45,000 46,856
8.00%, 3/1/08 125,000 122,813
9.50%, 11/1/08 20,000 21,200
Boeing
6.625%, 2/15/38 505,000 503,738
Continental Airlines
9.50%, 12/15/01 175,000 183,750
DERLAN Manufacturing
10.00%, 1/15/07 50,000 40,000
K & F Industries
9.25%, 10/15/07 15,000 15,113
L-3 Communcations
10.375%, 5/1/07 20,000 22,000
8.00%, 8/1/08 20,000 20,100
Lockheed Martin
7.25%, 5/15/06 410,000 443,825
Sequa
9.375%, 12/15/03 5,000 5,175
- -----------------------------------------------------------------------------
1,453,145
Automobile & Auto Parts: 0.3%
- -----------------------------------------------------------------------------
Aftermarket Tech
12.00%, 8/1/04 20,000 21,000
Argo-Tech
8.625%, 10/1/07 10,000 9,525
Chrysler
7.45%, 2/1/97 170,000 195,925
Hayes Lemmerz International
8.25%, 12/15/08 80,000 80,000
Hertz
7.00%, 1/15/28 815,000 829,263
Lear
9.50%, 7/15/06 100,000 108,500
Navistar International
7.00%, 2/1/03 150,000 150,563
8.00%, 2/1/08 85,000 86,594
Newcor
9.875%, 3/1/08 100,000 95,500
Talon Automotive Group
9.625%, 5/1/08 70,000 68,950
- -----------------------------------------------------------------------------
1,645,820
Banking, Finance & Insurance: 1.8%
- -----------------------------------------------------------------------------
Aames Financial
9.125%, 11/1/03 45,000 29,250
AFC Capital Trust I
8.207%, 2/3/27 425,000 477,594
AT&T Capital
6.25%, 5/15/01 445,000 442,219
Banponce
7.125%, 5/2/02 350,000 367,500
Chevy Chase Bank
9.25%, 12/1/05 50,000 50,000
CIT Group Holdings
5.50%, 10/15/01 390,000 390,488
Colonial Capital II
8.92%, 1/15/27 35,000 37,625
Delta Financial
9.50%, 8/1/04 50,000 41,500
Dime Capital Trust I
9.33%, 5/6/27 15,000 16,181
Dollar Financial Group
10.875%, 11/15/06 20,000 20,225
Empress River Casino Financial
10.75%, 4/1/02 40,000 42,750
<PAGE>
Par Market
Amount** Value
- -----------------------------------------------------------------------------
First Financial Caribbean
7.84%, 10/10/06 $ 140,000 $ 153,125
Firstar Bank Milwaukee
6.25%, 12/1/02 170,000 177,013
Fleet Financial Group
6.875%, 1/15/28 25,000 26,469
General Motors Acceptance
5.80%, 4/9/01 325,000 327,438
5.75%, 11/10/03 305,000 306,906
Greenpoint Capital Trust I
9.10%, 6/1/27 15,000 17,156
Imperial Credit Capital Trust I
10.25%, 6/14/02 75,000 54,000
Imperial Credit Industries
9.88%, 1/15/07 35,000 27,213
Lehman Brothers Holdings
6.50%, 10/1/02 265,000 265,000
Merita Bank Ltd
6.50%, 1/15/06 565,000 574,181
NationsBank
6.875%, 2/15/05 875,000 925,313
Nationwide Credit
10.25%, 1/15/08 10,000 8,325
North Fork Capital Trust I
8.70%, 12/15/26 10,000 11,938
Ocwen Capital Trust I
10.875%, 8/1/27 10,000 8,300
Ocwen Federal Bank
12.00%, 6/15/05 5,000 4,750
Ocwen Financial
11.875%, 10/1/03 5,000 4,500
Orange Cogen Funding
8.175%, 3/15/22 110,000 116,831
Paine Webber Group
6.55%, 4/15/08 655,000 657,456
Phoenix Home Life Mutual
6.95%, 12/1/06 315,000 329,569
Popular
6.40%, 8/25/00 530,000 540,600
Provident
7.405%, 3/15/38 555,000 545,981
Provident Capital Trust I
8.60%, 12/1/26 35,000 41,344
PRT Funding
11.625%, 4/15/04 40,000 26,800
Salomon Brothers
7.30%, 5/15/02 395,000 413,763
Sovereign Capital Trust
9.00%, 4/1/27 20,000 23,275
Sprint Capital
6.875%, 11/15/28 395,000 412,775
TIG Holdings
8.125%, 4/15/05 370,000 408,388
Toyota Motor Credit
5.625%, 11/13/03 315,000 318,544
Webster Capital Trust I
9.36%, 1/29/27 5,000 5,588
- -----------------------------------------------------------------------------
8,647,873
Building & Materials: 0.0%
- -----------------------------------------------------------------------------
American Architectural
11.75%, 12/1/07 10,000 7,600
Building Materials
8.625%, 12/15/06 5,000 5,050
8.00%, 12/1/08 20,000 20,150
Continental Homes Holding
10.00%, 4/15/06 35,000 37,100
MCII Holdings
0.00%, 11/15/02 75,000 67,500
Southdown
10.00%, 3/1/06 25,000 26,375
- -----------------------------------------------------------------------------
163,775
Cable, Media & Publishing: 1.0%
- -----------------------------------------------------------------------------
Acme Television/Finance
0.00%, 9/30/04 20,000 16,000
Adelphia Communications
9.875%, 3/1/07 90,000 99,450
Par Market
Amount** Value
- -----------------------------------------------------------------------------
Adelphia Communications 144A
8.375%, 2/1/08 $ 80,000 $ 83,000
Albritton Communications
9.75%, 11/30/07 100,000 106,250
8.875%, 2/1/08 10,000 10,150
American Media Operation
11.625%, 11/15/04 50,000 51,125
Benedek Broadcasting
11.875%, 3/1/05 190,000 206,150
CBS
6.875%, 9/1/03 40,000 41,200
Century Communications
9.50%, 3/1/05 105,000 117,075
Chancellor Media
8.125%, 12/15/07 15,000 14,925
8.00%, 11/1/08 160,000 163,200
Citadel Broadcast 144A
10.25%, 7/1/07 20,000 21,900
9.25%, 11/15/08 20,000 20,925
Comcast
9.50%, 1/15/08 25,000 26,500
CSC Holdings
9.25%, 11/1/05 10,000 10,475
7.875%, 12/15/07 75,000 79,313
7.25%, 7/15/08 40,000 40,700
9.875%, 2/15/13 125,000 140,469
7.875%, 2/15/18 20,000 20,325
Diva Systems Units
0.00%, 3/1/08 170,000 72,250
Dobson Wireline
12.25%, 6/15/08 40,000 36,900
Fox Family Worldwide
9.25%, 11/1/07 65,000 64,350
Fox Kids Worldwide
0.00%, 11/1/07 (1) 25,000 15,938
Fox/Liberty Networks LLC
8.875%, 8/15/07 50,000 51,125
Garden State Newspapers
8.75%, 10/1/09 125,000 121,094
Golden Sky Systems
12.375%, 8/1/06 50,000 51,500
Granite Broadcasting
10.375%, 5/15/05 75,000 76,594
9.375%, 12/1/05 35,000 34,475
8.875%, 5/15/08 30,000 28,350
Gray Comm System
10.625%, 10/1/06 5,000 5,325
Jacor Communications
0.00%, 6/12/11 50,000 43,688
Jones Intercable
9.625%, 3/15/02 10,000 10,750
10.50%, 3/1/08 50,000 55,188
Knology Holdings
0.00%, 10/15/07 (1) 120,000 56,250
Lamar Advertising
9.625%, 12/1/06 110,000 119,213
8.625%, 9/15/07 15,000 15,544
Marcus Cable Operating Notes
0.00%, 8/1/04 (1) 50,000 50,063
News America Holdings
7.70%, 10/30/25 590,000 638,675
Outdoor Communications
9.25%, 8/15/07 185,000 196,100
Outdoor Systems
8.875%, 6/15/07 125,000 133,281
Pathnet
12.25%, 4/15/08 65,000 45,500
Pegasus Communications 144A
9.75%, 12/1/06 10,000 10,038
Pegasus Media
12.50%, 7/1/05 50,000 55,000
PX Escrow
0.00%, 2/1/06 10,000 5,538
Radio One
7.00%, 5/15/04 5,000 4,925
SFX Broadcasting
10.75%, 5/15/06 82,000 90,508
<PAGE>
Par Market
Amount** Value
- -----------------------------------------------------------------------------
SFX Entertainment
9.125%, 2/1/08 $ 30,000 $ 29,925
9.125%, 12/1/08 40,000 39,900
Sinclair Broadcast Group
8.75%, 12/15/07 100,000 101,000
Spanish Broadcasting System
7.50%, 6/15/02 (1) 100,000 110,125
11.00%, 3/15/04 30,000 31,875
TCI Communications
7.125%, 2/15/28 100,000 108,750
TCI Satellite Entertainment
10.875%, 2/15/07 16,000 5,920
Time Warner
8.875%, 10/1/12 360,000 456,300
United International Holdings
0.00%, 2/15/08 60,000 32,400
Verio 144A
11.25%, 12/1/08 30,000 30,300
Von Hoffman
13.50%, 5/15/09 10,955 10,955
Von Hoffman Press
10.375%, 5/15/07 40,000 41,200
Walt Disney
5.62%, 12/1/08 395,000 398,456
Young Broadcasting
8.75%, 6/15/07 200,000 201,500
- -----------------------------------------------------------------------------
4,955,900
Chemicals: 0.2%
- -----------------------------------------------------------------------------
Geo Specialty Chemicals
10.125%, 8/1/08 30,000 29,250
Huntsman 144A
9.50%, 7/1/07 30,000 30,075
ISP Holdings
9.75%, 2/15/02 45,000 47,925
Lubrizol
5.875%, 12/1/08 200,000 200,000
Monsanto
6.60%, 12/1/28 610,000 612,288
Pioneer Americas Acquisition
9.25%, 6/15/07 15,000 11,700
Sterling Chemical Holdings
0.00%, 8/15/08 (1) 40,000 16,400
- -----------------------------------------------------------------------------
947,638
Computers & Technology: 0.4%
- -----------------------------------------------------------------------------
Amazon.com
0.00%, 5/1/08 (1) 60,000 40,275
Cellnet Data Systems
0.00%, 10/1/07 170,000 86,700
Concentric Network Units
12.75%, 12/15/07 10,000 10,500
Dell Computer
7.10%, 4/15/28 385,000 384,519
IPC Information Systems
0.00%, 5/1/08 (1) 90,000 56,700
PSINet
10.00%, 2/15/05 30,000 29,700
11.50%, 11/1/08 60,000 62,400
Unisys
12.00%, 4/15/03 200,000 212,000
7.875%, 4/1/08 130,000 145,925
WMX Technologies
7.10%, 8/1/26 990,000 1,048,163
- -----------------------------------------------------------------------------
2,076,882
Consumer Products: 0.2%
- -----------------------------------------------------------------------------
Capstar Broadcasting
0.00%, 2/1/09 (1) 85,000 70,125
Chattem
8.875%, 4/1/08 20,000 20,550
French Fragrance
10.375%, 5/15/07 15,000 14,981
Home Interiors and Gifts
10.125%, 6/1/08 20,000 19,800
Iron Age
9.875%, 5/1/08 75,000 68,438
NBTY
8.625%, 9/15/07 200,000 196,750
Par Market
Amount** Value
- -----------------------------------------------------------------------------
Revlon Consumer Products
9.00%, 11/1/06 $ 30,000 $ 29,775
8.625%, 2/1/08 200,000 184,000
United Stationer Supply
12.75%, 5/1/05 7,000 7,805
William Carter
10.375%, 12/1/06 100,000 109,375
William Carter Holdings 144A
12.00%, 10/1/08 25,000 25,781
- -----------------------------------------------------------------------------
747,380
Electronics & Electrical Equipment: 0.2%
- -----------------------------------------------------------------------------
Echostar Satellite Broadcast
0.00%, 3/15/04 (1) 40,000 40,800
Fairchild Semiconductor
10.125%, 3/15/07 60,000 50,400
0.00%, 3/14/08 (1) 65,000 65,000
Flextronics International
8.75%, 10/15/07 20,000 20,750
HCC Industries
10.75%, 5/15/07 20,000 19,300
Northeast Optic Network
12.75%, 8/15/08 50,000 49,313
Protection One Alarm
13.625%, 6/30/05 (1) 20,000 22,600
Raytheon
6.45%, 8/15/02 515,000 527,231
Signature Brands USA
13.00%, 8/15/02 100,000 111,000
Wavetek
10.125%, 6/15/07 10,000 9,700
Zilog
9.50%, 3/1/05 65,000 52,325
- -----------------------------------------------------------------------------
968,419
Energy: 0.3%
- -----------------------------------------------------------------------------
Abraxas Petro/CN Abraxas
11.50%, 11/1/04 40,000 30,800
Benton Oil and Gas
9.375%, 11/1/07 5,000 3,100
Chesapeake Energy
9.125%, 4/15/06 125,000 96,875
Coastal
6.95%, 6/2/28 440,000 427,900
COHO Energy
8.875%, 10/15/07 10,000 8,400
Costilla Energy
10.25%, 10/1/06 40,000 28,400
DII Group
8.50%, 9/15/07 10,000 9,825
Dailey International
9.50%, 2/15/08 30,000 13,500
Eagle Geophysical
10.75%, 7/15/08 35,000 29,400
Gothic Energy
0.00%, 5/1/06 10,000 4,500
Gothic Production
11.125%, 5/1/05 30,000 23,400
Michael Petroleum
11.50%, 4/1/05 30,000 21,000
Ocean Energy
8.375%, 7/1/08 50,000 47,500
Ocean Energy Series B
8.875%, 7/15/07 20,000 19,850
Petro-Canada
7.00%, 11/15/28 330,000 330,825
Panaco
10.625%, 10/1/04 10,000 7,600
Seven Seas Petroleum
12.50%, 5/15/05 30,000 19,800
Snyder Oil
8.75%, 6/15/07 15,000 14,625
Statoil
6.50%, 12/1/28 295,000 289,838
Transamerican Energy
0.00%, 6/15/02 (1) 525,000 178,500
11.50%, 6/15/02 120,000 45,600
<PAGE>
Par Market
Amount** Value
- -----------------------------------------------------------------------------
Transamerican Refining Units
16.00%, 6/30/03 $ 40,000 $ 16,800
- -----------------------------------------------------------------------------
1,668,038
Environmental Services: 0.2%
- -----------------------------------------------------------------------------
American Eco
9.625%, 5/15/08 70,000 47,250
Columbia Gas Systems
7.32%, 11/28/10 500,000 545,000
Petroleum Geo-Services
7.50%, 3/31/07 175,000 183,750
TransTexas Gas
13.75%, 12/31/01 157,000 127,170
- -----------------------------------------------------------------------------
903,170
Food, Beverage & Tobacco: 0.2%
- -----------------------------------------------------------------------------
Albecca
10.75%, 8/15/08 40,000 40,800
Ameriserv Food Distributors
8.875%, 10/15/06 25,000 23,750
10.125%, 7/15/07 15,000 13,650
Aurora Foods
9.875%, 2/15/07 40,000 43,600
9.875%, 2/15/07 20,000 21,800
Canandaigua Wine
8.75%, 12/15/03 5,000 5,050
8.75%, 12/15/03 150,000 151,500
Fleming
10.625%, 7/31/07 100,000 94,250
Philip Morris
7.50%, 1/15/02 405,000 425,250
Purina Mills
9.00%, 3/15/10 40,000 41,200
Southland Corp
5.00%, 12/15/03 50,000 43,250
Windy Hill Pet Food
9.75%, 5/15/07 105,000 106,050
- -----------------------------------------------------------------------------
1,010,150
Healthcare & Pharmaceuticals: 0.6%
- -----------------------------------------------------------------------------
Alaris Medical Systems
9.75%, 12/1/06 50,000 49,563
Conmed
9.00%, 3/15/08 30,000 29,213
Dade International
11.125%, 5/1/06 40,000 44,450
ExtendiCare Health Services
9.35%, 12/15/07 150,000 138,000
Eye Care Centers of America
9.125%, 5/1/08 30,000 28,875
Fresenius Medical Capital Trust II
7.875%, 2/1/08 50,000 49,750
Fresenius Medical Care
9.00%, 12/1/06 150,000 157,875
Global Health Sciences
11.00%, 5/1/08 50,000 32,500
Hudson Respiratory Care
9.125%, 4/15/08 40,000 32,800
ICN Pharmaceuticals
9.25%, 8/15/05 70,000 71,925
Integrated Health Services
9.50%, 9/15/07 50,000 47,750
9.25%, 1/15/08 40,000 38,100
9.25%, 1/15/08 10,000 9,525
Magellan Health
9.00%, 2/15/08 70,000 62,650
Manor Care
7.50%, 6/15/06 285,000 307,088
Mariner Post-Acute Network
0.00%, 11/1/07 40,000 21,650
9.50%, 11/1/07 60,000 48,600
Mediq
11.00%, 6/1/08 50,000 47,500
0.00%, 6/1/09 40,000 18,400
Medpartners
7.375%, 10/1/06 200,000 162,000
Merck
5.95%, 12/1/28 320,000 322,400
Par Market
Amount** Value
- -----------------------------------------------------------------------------
Multicare
9.00%, 8/1/07 $ 125,000 $ 118,750
Paracelsus Healthcare
10.00%, 8/15/06 50,000 46,000
Philip Morris
7.50%, 4/1/04 640,000 684,800
Prime Hospitality
9.75%, 4/1/07 40,000 40,400
Tenet Healthcare
8.625%, 1/15/07 125,000 133,906
7.625%, 6/1/08 50,000 51,188
8.125%, 12/1/08 10,000 10,363
- -----------------------------------------------------------------------------
2,806,021
Industrial Machinery: 0.0%
- -----------------------------------------------------------------------------
AEP Industries
9.875%, 11/15/07 15,000 15,150
Coinmach
11.75%, 11/15/05 50,000 54,563
Jackson Products
9.50%, 4/15/05 20,000 20,000
Morris Materials Handling
9.50%, 4/1/08 40,000 29,200
Motors and Gears
10.75%, 11/15/06 40,000 42,150
POGO Producing
8.75%, 5/15/07 5,000 4,700
Safety Components International
10.125%, 7/15/07 20,000 20,175
Tyco International Group SA
6.25%, 6/15/03 190,000 193,800
Viasystems
9.75%, 6/1/07 5,000 4,750
Waxman Industries
0.00%, 6/1/04 (1) 5,000 2,400
- -----------------------------------------------------------------------------
386,888
Leisure, Lodging & Entertainment: 0.3%
- -----------------------------------------------------------------------------
AMC Entertainment
9.50%, 3/15/09 40,000 41,100
Argosy Gaming
13.25%, 6/1/04 100,000 111,625
Boyd Gaming
9.50%, 7/15/07 50,000 49,875
Cinemark USA Series C
9.625%, 8/1/08 65,000 68,250
Cinemark USA
9.625%, 8/1/08 50,000 52,500
Circus Circus
6.45%, 2/1/06 20,000 17,900
Circus Circus Enterprise
9.25%, 12/1/05 20,000 20,475
Coast Hotels & Casino
13.00%, 12/15/02 65,000 70,525
Colorado Gaming
12.00%, 6/1/03 79,350 85,698
Epic Resorts
13.00%, 6/15/05 30,000 29,100
Fitzgerald Gaming
12.25%, 12/15/04 70,000 40,600
Harrahs Operating
7.875%, 12/15/05 50,000 50,250
Hollywood Casino
12.75%, 11/1/03 75,000 79,875
Host Mar Travel Plaza
9.50%, 5/15/05 130,000 136,175
Mohegan Tribal Gaming
13.50%, 11/15/02 45,000 54,225
Park Place Entertainment
7.875%, 12/15/05 70,000 70,175
Premier Parks
12.00%, 8/15/03 50,000 54,000
9.25%, 4/1/06 75,000 78,750
Showboat Marina Casino
13.50%, 3/15/03 50,000 58,125
Silver Cinemas
10.50%, 4/15/05 40,000 29,600
<PAGE>
Par Market
Amount** Value
- -----------------------------------------------------------------------------
Six Flags Theme Parks
0.00%, 6/15/05 (1) $ 250,000 $ 274,063
Sun International Hotels
8.625%, 12/15/07 75,000 77,719
United Artists Theatre
9.75%, 4/15/08 60,000 57,600
- -----------------------------------------------------------------------------
1,608,205
Metals & Mining: 0.0%
- -----------------------------------------------------------------------------
AK Steel
9.125%, 12/15/06 65,000 67,925
Ameristeel
8.75%, 4/15/08 50,000 48,500
Anker Coal Group
9.75%, 10/1/07 215,000 118,250
Continental Global Group
11.00%, 4/1/07 30,000 26,438
Kaiser Aluminum & Chemical
12.75%, 2/1/03 20,000 19,850
Weirton Steel
11.375%, 7/1/04 50,000 46,250
WHX
10.50%, 4/15/05 30,000 27,600
- -----------------------------------------------------------------------------
354,813
Miscellaneous: 0.6%
- -----------------------------------------------------------------------------
Affinity Group Holding
11.00%, 4/1/07 75,000 77,625
Allied Waste
7.625%, 1/1/06 50,000 50,750
Allied Waste 144A
7.875%, 1/1/09 120,000 121,950
ATC Group Services
12.00%, 1/15/08 15,000 1,500
AXIA
10.75%, 7/15/08 50,000 50,750
Calair LLC/Calair Capital
8.125%, 4/1/08 30,000 31,013
Cencall Communication
0.00%, 1/15/04 (1) 5,000 5,000
Cendant
7.75%, 12/1/03 40,000 40,450
CEX Holdings
9.625%, 6/1/08 40,000 36,600
Coinmach
11.75%, 11/15/05 5,000 5,456
Day International Group
9.50%, 3/15/08 50,000 49,125
Decora Industries
11.00%, 5/1/05 40,000 36,600
Details
10.00%, 11/15/03 15,000 14,700
Focal Communications
0.00%, 2/15/08 80,000 42,000
Glenoit
11.00%, 4/15/07 15,000 14,063
Graphic Controls
12.00%, 9/15/05 45,000 51,863
Hedstrom Holdings
0.00%, 6/1/09 (1) 5,000 2,750
Household Finance
6.50%, 11/15/08 210,000 218,925
Huntsman
9.0937%, 7/1/07 50,000 48,625
Integrated Device Technology
5.50%, 6/1/02 20,000 14,750
Iron Mountain
10.125%, 10/1/06 150,000 161,250
8.75%, 9/30/09 20,000 20,650
Isle of Capri
13.00%, 8/31/04 10,000 10,625
Lodestar Holdings
11.50%, 5/15/05 30,000 23,250
OutSourcing Solutions
11.00%, 11/1/06 20,000 19,300
Paragon Corp Holdings
9.625%, 4/1/08 20,000 16,800
Par Market
Amount** Value
- -----------------------------------------------------------------------------
Perry-Judd
10.625%, 12/15/07 $ 75,000 $ 78,750
Players International
10.875%, 4/15/05 25,000 27,000
Polymer Group
9.00%, 7/1/07 20,000 19,800
8.75%, 3/1/08 40,000 39,200
PP&L Capital Funding
5.90%, 10/16/00 785,000 781,075
Premium Standard Farms
11.00%, 9/17/03 18,158 18,158
RAB Enterprises
10.50%, 5/1/05 60,000 48,000
Sassco Fashions
12.75%, 12/31/03 25,000 24,750
Solutia
6.72%, 10/15/37 765,000 814,725
Viasystems
9.75%, 6/1/07 75,000 71,250
W.R.Carpenter North America
10.625%, 6/15/07 25,000 25,375
- -----------------------------------------------------------------------------
3,114,453
Packaging & Containers: 0.0%
- -----------------------------------------------------------------------------
Huntsman Packaging
9.125%, 10/1/07 25,000 24,875
Owens-Illinois
8.10%, 5/15/07 25,000 26,844
Riverwood International
10.25%, 4/1/06 50,000 49,500
10.875%, 4/1/08 85,000 77,775
- -----------------------------------------------------------------------------
178,994
Paper & Forest Products: 0.0%
- -----------------------------------------------------------------------------
Boise Cascade
7.43%, 10/10/05 10,000 10,150
Republic Group
9.50%, 7/15/08 20,000 19,550
United Stationers Supply
8.375%, 4/15/08 10,000 10,038
US Office Products
9.75%, 6/15/08 60,000 39,600
- -----------------------------------------------------------------------------
79,338
Real Estate: 0.1%
- -----------------------------------------------------------------------------
EOP Operating LP
6.763%, 6/15/07 450,000 450,563
HMH Properties
7.875%, 8/1/08 120,000 117,150
John Q. Hammons Hotels
8.875%, 2/15/04 125,000 114,375
- -----------------------------------------------------------------------------
682,088
Retail: 0.2%
- -----------------------------------------------------------------------------
Adams Outdoor Advertising
10.75%, 3/15/06 125,000 135,000
Amscan Holdings
9.875%, 12/15/07 10,000 9,400
Fleming
10.50%, 12/1/04 30,000 28,650
FRD Acquisition
12.50%, 7/15/04 10,000 10,200
Fred Meyer
7.45%, 3/1/08 40,000 43,300
French Fragrances
10.375%, 5/15/07 10,000 9,988
Outdoor Systems
9.375%, 10/15/06 5,000 5,419
Sealy Mattress
0.00%, 12/15/07 (1) 20,000 12,000
Sears Roebuck Acceptance
6.50%, 12/1/28 335,000 331,650
Specialty Retailers
8.50%, 7/15/05 5,000 4,500
Stater Brothers Holdings
9.00%, 7/1/04 100,000 93,000
<PAGE>
Par Market
Amount** Value
- -----------------------------------------------------------------------------
Tricon Global Restaurants
7.45%, 5/15/05 $ 30,000 $ 31,425
Zale
8.50%, 10/1/07 20,000 19,450
- -----------------------------------------------------------------------------
733,982
Telecommunications: 0.8%
- -----------------------------------------------------------------------------
Allegiance Telecommunications
0.00%, 2/15/08 (1) 120,000 58,200
12.875%, 5/15/08 (1) 20,000 20,000
Birch Telecommunications
14.00%, 6/15/08 30,000 27,600
BTI Telecom
10.50%, 9/15/07 110,000 90,200
CBS Radio
11.375%, 1/15/09 500 589
COVAD Communications
0.00%, 3/15/08 45,000 24,750
Caprock Communications
12.00%, 7/15/08 30,000 28,500
Capstar Broadcasting
9.25%, 7/1/07 50,000 52,125
Centennial Cellular
8.875%, 11/1/01 15,000 15,750
Charter Communications Holdings
0.00%, 3/15/07 (1) 20,000 16,850
Comcast Cellular
9.50%, 5/1/07 100,000 106,750
Dobson Communications
11.75%, 4/15/07 55,000 56,650
DTI Holdings
0.00%, 3/1/08 (1) 200,000 51,000
Econophone
0.00%, 2/15/08 100,000 48,000
FirstWorld Communication units
0.00%, 4/15/08 (1) 140 43,400
Global Crossing
9.625%, 5/15/08 200,000 212,500
GST Telecommunications
0.00%, 5/1/08 170,000 78,200
GST USA
0.00%, 12/15/05 95,000 69,350
Hyperion Telecommunication
0.00%, 4/15/03 (1) 25,000 18,500
12.25%, 9/1/04 35,000 35,525
ICG Services
0.00%, 2/15/08 180,000 96,300
0.00%, 5/1/08 185,000 99,900
Intelcom Group USA
0.00%, 5/1/06 (1) 60,000 44,400
Intermedia Communication
8.50%, 1/15/08 80,000 76,800
8.60%, 6/1/08 130,000 128,050
ITC Deltacom
11.00%, 6/1/07 23,000 24,581
IXC Communications
9.00%, 4/15/08 50,000 49,625
KMC Telecom Holdings
0.00%, 2/15/08 145,000 69,963
Level 3 Communications
9.125%, 5/1/08 100,000 99,500
8.50%, 5/15/08 30,000 31,275
Long Distance International
12.25%, 4/15/08 50,000 40,500
Metrocall
11.00%, 9/15/08 50,000 50,375
Metromedia Fiber
10.00%, 11/15/08 90,000 93,263
MJD Communications
10.00%, 5/1/08 20,000 19,600
Nextel Communications
0.00%, 8/15/04 (1) 250,000 242,813
0.00%, 9/15/07 30,000 19,350
0.00%, 2/15/08 10,000 6,025
12.00%, 11/1/08 90,000 99,900
Nextel International
0.00%, 4/15/08 290,000 130,500
Par Market
Amount** Value
- -----------------------------------------------------------------------------
NTL
0.00%, 4/1/08 $ 450,000 $ 274,500
Onepoint Communications Units
14.50%, 6/1/08 20,000 11,600
Orbital Imaging
11.625%, 3/1/05 40,000 39,800
PowerTel
0.00%, 2/1/06 (1) 10,000 7,550
Price Communications Wire
9.125%, 12/15/06 10,000 10,363
Qwest Communications International
0.00%, 10/15/07 (1) 35,000 27,300
0.00%, 2/1/08 (1) 160,000 120,400
RCN
0.00%, 10/15/07 40,000 23,400
Rhythms Netconnections
0.00%, 5/15/08 90,000 44,100
Sprint Spectrum L.P.
0.00%, 8/15/06 (1) 60,000 54,600
11.00%, 8/15/06 15,000 17,400
Startec Global Communications
12.00%, 5/15/08 40,000 34,350
Telecommunication Techniques
9.75%, 5/15/08 30,000 29,213
Telehub Communications
0.00%, 7/31/05 30,000 17,025
Teligent
11.50%, 12/1/07 30,000 28,200
0.00%, 3/1/08 100,000 49,000
Time Warner Telecommunications LLC
9.75%, 7/15/08 90,000 94,500
US West Communications
5.625%, 11/15/08 175,000 176,969
US XCHANGE LLC
15.00%, 7/1/08 30,000 31,200
Ucar Global Enterprises
12.00%, 1/15/05 30,000 30,900
Winstar Communications
0.00%, 10/15/05 (1) 30,000 42,000
15.00%, 3/1/07 (1) 40,000 43,200
11.00%, 3/15/08 260,000 187,200
Winstar Equipment
12.50%, 3/15/04 20,000 20,200
E.spire Communications
0.00%, 11/1/05 (1) 20,000 15,125
0.00%, 4/1/06 (1) 25,000 17,063
13.75%, 7/15/07 20,000 20,800
- -----------------------------------------------------------------------------
3,945,117
Textiles, Apparel & Furniture: 0.0%
- -----------------------------------------------------------------------------
Galey & Lord
9.125%, 3/1/08 70,000 61,600
Guess
9.50%, 8/15/03 5,000 4,875
- -----------------------------------------------------------------------------
66,475
Transportation & Shipping: 0.3%
- -----------------------------------------------------------------------------
Aviation Sales
8.125%, 2/15/08 50,000 49,625
Coach USA
9.375%, 7/1/07 20,000 20,600
Continental Airlines
6.541%, 3/15/08 680,000 665,346
CSX Transportation
7.95%, 5/1/27 95,000 106,756
Johnstown America Industries
11.75%, 8/15/05 75,000 79,125
Kitty Hawk
9.95%, 11/15/04 20,000 19,600
MC Shipping
11.25%, 3/1/08 20,000 13,600
Newport News Shipbuilding
8.625%, 12/1/06 60,000 63,600
Norfolk Southern
7.05%, 5/1/37 160,000 174,600
Trans World Airlines
11.50%, 12/15/04 65,000 55,819
11.375%, 3/1/06 30,000 24,713
<PAGE>
Par Market
Amount** Value
- -----------------------------------------------------------------------------
US Air
9.625%, 9/1/03 $ 175,000 $ 183,969
- -----------------------------------------------------------------------------
1,457,353
Utilities: 0.3%
- -----------------------------------------------------------------------------
Arizona Public Service
6.75%, 11/15/06 315,000 334,294
CMS Energy
7.00%, 1/15/05 30,000 30,338
Calpine
7.875%, 4/1/08 50,000 50,375
Cleveland Electric
9.50%, 5/15/05 30,000 33,113
6.86%, 10/1/08 70,000 70,875
Connecticut Light & Power
7.875%, 6/1/01 210,000 219,450
El Paso Electric
9.40%, 5/1/11 10,000 11,613
Jersey Central Power & Light
6.85%, 11/27/06 115,000 123,769
KN Energy
6.45%, 3/1/03 300,000 301,125
6.80%, 3/1/08 80,000 81,400
Midland Funding
10.33%, 7/23/02 27,323 29,372
Midland Funding II
11.75%, 7/23/05 80,000 92,000
Niagara Mohawk Power
9.95%, 6/1/00 50,000 50,063
7.375%, 7/1/03 30,000 30,713
7.625%, 10/1/05 30,000 31,500
7.75%, 10/1/08 110,000 119,350
Northeast Utilities
8.38%, 3/1/05 32,000 32,640
8.58%, 12/1/06 12,380 12,735
Ram Energy
11.50%, 2/15/08 30,000 19,800
- -----------------------------------------------------------------------------
1,674,525
Foreign Bonds: 7.4%
- -----------------------------------------------------------------------------
BTPS (Italy)
5.75%, 9/15/02 3,335,000,000 2,179,429
Bundesrepublic Deutschland (Germany)
5.625%, 1/4/28 2,400,000 1,623,298
Buoni Poliennali Del Tes
(Italian Government) (Italy)
8.50%, 8/1/99 2,435,000,000 1,494,738
Canada Government (Canada)
5.25%, 9/1/03 1,780,000 1,189,728
8.00%, 6/1/27 630,000 579,193
France O.A.T. (France)
5.50%, 10/25/07 2,738,000 547,226
5.25%, 4/25/08 2,300,000 454,952
0.00%, 10/25/25 7,758,000 364,000
Government of France (France)
5.50%, 4/25/07 5,950,000 1,183,969
Government of Italy (Italy)
10.50%, 9/1/05 1,010,000,000 844,333
Government of New Zealand (New Zealand)
6.50%, 2/15/00 1,500,000 801,613
8.00%, 4/15/04 1,995,000 1,174,272
Hellenic Republic (Greece)
9.20%, 3/21/02 131,800,000 486,668
8.60%, 3/26/08 75,100,000 298,471
Kredit Fuer Wiederaufban (Germany)
5.00%, 1/4/09 1,780,000 1,143,588
Netherlands Government (Netherlands)
9.00%, 5/15/00 5,540,000 3,173,656
7.00%, 2/15/03 3,720,000 2,243,989
Netherlands Government Series 1 (Netherlands)
5.75%, 2/15/07 2,080,000 1,248,610
Quebec Province (Canada)
7.00%, 1/30/07 355,000 384,288
Spanish Government (Spain)
5.25%, 1/31/03 131,780,000 997,020
5.15%, 7/30/09 163,300,000 1,226,105
Sweden (Kingdom of) (Sweden)
5.50%, 4/12/02 22,900,000 2,978,332
Par Market
Amount** Value
- -----------------------------------------------------------------------------
United Kingdom Treasury (United Kingdom)
7.00%, 6/7/02 $ 1,925,000 $ 3,432,309
9.00%, 8/6/12 370,000 890,663
United Kingdom Treasury Bond (United Kingdom)
9.75%, 8/27/02 2,645,000 5,121,695
- -----------------------------------------------------------------------------
36,062,145
Total Long-Term Debt Instruments: 30.9%
(Cost $149,998,951) 151,642,976
- -----------------------------------------------------------------------------
Number
Common Stock: of Shares
- -----------------------------------------------------------------------------
Aerospace & Defense: 0.3%
Career Education* 4,300 129,000
United Technologies 10,800 1,174,500
- -----------------------------------------------------------------------------
1,303,500
Automobiles & Auto Parts: 1.2%
- -----------------------------------------------------------------------------
Bayerische Motoren Werke (BMW) AG (Germany) 474 372,091
Bayerische Motoren Werke (BMW) New (Germany)* 174 133,569
Bridgestone (Japan) 9,000 203,437
CSX Auto* 6,000 160,125
Dana 6,710 274,271
Ford Motor 23,610 1,385,612
General Motors 18,350 1,313,172
Goodyear Tire & Rubber 12,395 625,173
Honda Motor (Japan) 11,000 359,639
Meritor Automotive 3,916 82,970
Michelin (France) 11,502 460,013
Volkswagen AG (Germany) 5,500 444,954
Volvo AB (Sweden) 7,289 166,867
- -----------------------------------------------------------------------------
5,981,893
Banking, Finance & Insurance: 11.5%
- -----------------------------------------------------------------------------
ABN Amro Holdings N.V. (Netherlands) 10,344 217,633
Aetna 8,565 673,423
AGF (Assurances Generales de France) (France) 4,228 252,546
Allianz AG (Germany) 772 287,258
Allied Irish Banks (Ireland) 41,861 750,557
Allied Zurich (United Kingdom)* 63,117 941,223
Allstate 23,360 902,280
American Express 12,575 1,285,794
American General 30,650 2,390,700
American International Group 19,350 1,869,694
Aon 14,100 780,788
Associates First Capital Class A 15,600 661,050
Axa-UAP (France) 2,886 418,312
Banca Popolare di Bergamo Credito Varesino
(Italy) 4,400 106,961
Banca Popolare di Milano (Italy) 12,300 111,847
Banca Popolare di Brescia (Italy) 4,200 102,608
Banc One 31,623 1,614,749
Bank of Boston 29,010 1,129,577
Bank of Ireland (Ireland) 30,299 675,113
Bank of Nova Scotia (Canada) 27,384 603,664
BankAmerica 39,412 2,369,647
Banque Nationale de Paris (France) 10,077 829,844
Charles River Associates* 2,400 52,650
Charter One Financial* 6,100 169,084
Chase Manhattan 19,155 1,303,737
Cigna 19,320 1,493,678
Cimpor-Cimentos de Portugal (Portugal) 5,163 164,747
Citigroup 47,777 2,364,962
Comerica 17,100 1,166,006
Commonwealth Bank of Australia (Australia) 18,740 265,437
Compagnie Financiere Richemont AG (Sweden) 191 269,958
Credit Commercial de France (France) 1,760 163,455
Development Bank of Singapore (Singapore) 15,000 135,372
Equitable 9,200 532,450
Federal Home Loan Bank 43,400 2,796,588
Federal National Mortgage Association 18,935 1,401,190
Fifth Third Bancorp 14,350 1,023,783
Financiere et Industrielle Gaz et Eaux (France) 11 558
First Union 12,755 775,663
Firstar 17,520 1,633,740
Fleet Financial Group 20,360 909,838
HSBC Holdings (Hong Kong) 7,200 179,361
<PAGE>
Number Market
of Shares Value
- -----------------------------------------------------------------------------
ING Groep N.V. (Netherlands) 14,033 $ ,855,846
INSpire Insurance Solutions* 9,250 169,391
Istituto Nazionale delle Assicurazione (Italy)* 81,200 214,866
Julius Baer Holding AG (Switzerland) 149 495,040
Kookmin Bank (South Korea)* 1 10
Lehman Brothers Holdings 26,995 1,189,467
MBNA 48,700 1,214,456
Mercantile Bancorporation 15,100 696,488
Merrill Lynch & Company 23,055 1,538,921
Morgan (J.P.) 12,725 1,336,920
Muenchener Rueckversicherungs-Gisellschaft
(Germany) 523 255,813
National City 12,895 934,888
National Westminster Bank (United Kingdom) 21,100 405,076
Nikko Securities Ltd. (Japan) 139,000 385,856
Nordbanken Holdings (Sweden) 22,528 144,184
Overseas Union Bank (Singapore) 23,000 100,303
PNC Financial Group 17,905 969,108
Promise (Japan) 5,580 289,142
Providian Financial 11,985 898,875
Reinsurance Group of America 4,200 294,000
Royal Bank of Canada (Canada) 2,498 124,900
Royal & Sun Alliance Insurance Group
(United Kingdom) 40,390 325,763
Societe Generale (France) 1,967 318,546
Sparbanken Sverige AB, Swedbank-A Shares
(Sweden) 4,500 116,311
Summit Bancorp 8,460 369,596
SunAmerica 14,500 1,176,313
Svenska Handelsbanken (Sweden) 7,001 294,697
UBS AG (Switzerland)* 3,054 937,983
Unidanmark A/S (Denmark) 1,977 178,619
Washington Mutual 22,912 874,952
Wells Fargo 87,750 3,504,516
Yapi Ve Kredi Bankasi GDR 6,074 68,934
- -----------------------------------------------------------------------------
56,457,305
Buildings & Materials: 0.4%
- -----------------------------------------------------------------------------
CRH (Ireland) 53,845 930,918
IJM - Berhad (Malaysia) 48,000 22,627
Lafarge SA (France) 4,795 455,619
Masco 22,400 644,000
- -----------------------------------------------------------------------------
2,053,164
Cable, Media & Publishing: 2.9%
- -----------------------------------------------------------------------------
Cellular Communications International 1 68
Citadel Communications* 7,900 205,400
Consolidated Graphics* 2,100 141,881
Cumulus Media* 12,600 209,475
Cunningham Graphics International* 5,200 80,925
Dai Nippon Printing (Japan) 15,000 238,202
InterPublic Group 22,000 1,754,500
Jones Intercable* 11,400 407,550
Lamar Advertising* 6,200 232,500
McGraw-Hill 6,540 666,263
MediaOne Group 23,830 1,120,010
Scandinavian Broadcasting System* 3,700 101,056
Sinclair Broadcasting Group* 2,400 47,475
Tele-communications Class A 30,600 1,693,519
Telecommunications-TCI Ventures Group Class A 51,800 1,225,394
Time Warner 52,800 3,276,900
Times Mirror Class A 17,405 974,680
Viacom Class B* 24,700 1,827,800
- -----------------------------------------------------------------------------
14,203,598
Chemicals: 0.9%
- -----------------------------------------------------------------------------
Akzo Nobel (Netherlands) 14,052 639,947
Bayer AG (Germany) 11,000 461,789
Cheung Kong (Holdings) (Hong Kong) 27,000 194,288
DuPont(E.I.)deNemours 26,070 1,383,339
Eastman Chemical 13,560 606,810
Hoechst AG (Germany) 10,130 418,882
Shin-Etsu Chemical (Japan) 5,000 119,850
Witco 23,130 368,634
- -----------------------------------------------------------------------------
4,193,539
Computers & Technology: 6.3%
- -----------------------------------------------------------------------------
3Com* 10,700 479,828
ACT Networks* 6,400 78,000
Number Market
of Shares Value
- -----------------------------------------------------------------------------
Activision* 7,000 $ 77,000
Advanced Communications Systems* 4,000 49,500
America Online 4,500 720,000
American Bank Note Holographics* 16,400 287,000
Analytical Surveys* 4,500 135,984
Apex PC Solutions* 4,800 138,000
ASM Lithography Holdings 2,500 76,406
Aspect Development 1,700 75,969
Aware 4,100 111,597
Best Software* 6,400 152,800
Black Box* 3,900 146,859
BMC Software 27,190 1,212,504
BroadVision* 3,400 109,969
Cisco Systems 14,300 1,327,666
Compaq Computer 37,620 1,577,689
Complete Business Solutions 5,200 175,825
Computer Network Technology* 7,200 90,900
Computer Sciences 16,700 1,076,106
Computer Task Group 2,800 75,950
Compuware* 12,700 991,791
Concord Communications* 900 51,525
Concur Technologies 1,200 36,263
Data Processing Resources* 3,600 105,300
Dell Computer 14,900 1,090,959
Dendrite International 2,400 59,550
Digital River* 1,900 67,925
DuPont Photomasks* 2,100 88,922
Eclipsys* 900 26,044
EMC* 23,700 2,014,500
Emulex* 1,400 54,600
Exchange Applications* 3,200 62,600
Exodus Communications* 1,700 109,756
Fvc.com* 4,600 73,744
HBO & Company 53,400 1,533,581
Igen International* 2,400 73,425
IMRglobal* 3,475 102,404
Information Advantage* 8,600 64,769
Intelligroup* 4,869 86,729
International Business Machines 29,603 5,469,154
Legato Systems* 2,900 191,128
Metro Information Services* 4,200 124,163
Micron Technology* 11,900 601,694
Microsoft 31,000 4,294,469
Nanometrics* 3,510 27,422
NCR* 900 37,575
NeoMagic* 7,400 163,494
New Era of Networks* 5,200 228,150
Peregrine Systems* 7,000 324,406
Pervasive Software 1,700 31,981
Pinnacle Systems* 2,000 70,875
Qlogic* 2,000 260,875
SPR* 3,550 60,350
Spyglass* 6,900 151,369
Summit Design* 8,300 76,516
Sun Microsystems* 13,170 1,126,858
TDK (Japan)* 2,000 182,066
Videoserver* 6,000 112,500
Visual Networks* 4,400 164,863
Xerox 20,795 2,453,810
- -----------------------------------------------------------------------------
31,023,657
Consumer Products: 2.2%
- -----------------------------------------------------------------------------
Bebe Stores* 3,700 130,541
Clorox 16,085 1,878,929
Equity* 8,350 221,797
Estee Lauder Class A 14,200 1,214,100
General Electric 49,230 5,024,537
Hedstrom Holdings* 303 303
Kao (Japan) 14,000 314,607
Kimberly-Clark 8,590 468,155
Minnesota Mining & Manufacturing 14,815 1,053,717
Provant* 4,597 98,261
RCM Technologies* 2,800 74,025
Shiseido (Japan) 6,000 76,775
- -----------------------------------------------------------------------------
10,555,747
Electronics & Electrical Equipment: 3.0%
- -----------------------------------------------------------------------------
Applied Micro Circuits* 4,200 142,800
ATMI* 7,100 179,719
<PAGE>
Number Market
of Shares Value
- -----------------------------------------------------------------------------
Canon (Japan) 20,400 $ 434,157
Credence Systems 7,500 138,281
DII Group* 9,000 206,438
Dixons Group (United Kingdom) 30,000 418,524
Emerson Electric 15,225 952,514
Fujitsu (Japan) 59,000 782,507
Harmonic Lightwaves* 7,600 143,213
Intel 36,585 4,336,466
Kulicke & Soffa Industries* 2,100 37,144
Micrel* 2,450 135,363
Motorola 21,995 1,343,070
Murata Manufacturing (Japan) 1,000 41,331
Phillips Electronics N.V. (Netherlands) 7,238 485,768
Photronics* 4,500 107,859
Power Integrations* 2,500 62,891
Raytheon Class A 13,410 693,129
Raytheon Class B 4,200 223,650
Rockwell International 7,600 369,075
Samsung Electronics (South Korea) 4,500 301,872
Sipex* 3,700 131,234
Smiths Industries (United Kingdom) 25,468 355,510
Sony (Japan) 2,400 174,065
STMicroelectronics N.V.* 7,491 584,766
Texas Instruments 22,820 1,952,536
Veeco Instruments* 3,000 158,625
- -----------------------------------------------------------------------------
14,892,507
Energy: 3.1%
- -----------------------------------------------------------------------------
Atlantic Richfield 22,530 1,470,083
British Petroleum ADR 11,551 1,097,345
Burmah Castrol (United Kingdom) 32,499 465,241
Chevron 17,490 1,450,577
Conoco 25,200 526,050
Duke Energy 15,185 972,789
Ente Nazionale Idrocarburi SpA (ENI) (Italy) 72,797 476,613
Exxon 54,587 3,991,674
Independent Energy Holdings* 7,700 69,541
Kerr-McGee 20,735 793,114
Mobil 13,910 1,211,909
Sonat 29,060 786,436
Texaco 15,530 821,149
Tosco 24,005 621,129
Total SA (France) 4,367 442,301
- -----------------------------------------------------------------------------
15,195,951
Environmental Services: 0.6%
- -----------------------------------------------------------------------------
Casella Waste Systems* 3,100 114,894
Halliburton 21,760 644,640
Waste Management 44,345 2,067,586
- -----------------------------------------------------------------------------
2,827,120
Food, Beverage & Tobacco: 3.0%
- -----------------------------------------------------------------------------
Anheuser Busch 18,860 1,237,688
Bass (United Kindgom) 39,998 560,660
Coca-Cola Femsa S.A. ADR 3,100 41,075
General Mills 11,055 859,526
Greencore Group (Ireland)* 46,122 213,097
Groupe Danone (France) 810 231,912
Hain Food Group* 6,100 150,403
Heinz (H.J.) 15,575 881,934
Koninklijke Ahold (Netherlands) 16,345 604,205
Laurus (Netherlands) 5,040 127,247
McDonald's 11,445 876,973
Nabisco Holdings Class A 7,300 302,950
Nestle SA (Switzerland) 451 981,434
P.F. Chang's China Bistro* 3,640 81,673
Philip Morris 59,550 3,185,925
Quaker Oats 25,730 1,530,935
Sara Lee 56,390 1,589,493
Whitman 42,325 1,073,997
- -----------------------------------------------------------------------------
14,531,127
Healthcare & Pharmaceuticals: 8.0%
- -----------------------------------------------------------------------------
Advance Paradigm* 2,100 72,713
Alternative Living Services* 2,300 78,775
American Home Products 34,015 1,915,470
American Oncology Resources* 9,700 141,863
Amsurg* 5,300 38,094
Number Market
of Shares Value
- -----------------------------------------------------------------------------
Baxter International 23,150 $ 1,488,834
Bristol-Myers Squibb 34,535 4,621,215
Cardinal Health 14,050 1,066,044
CareMatrix* 3,900 119,438
Centennial HealthCare* 4,000 61,750
Centocor 13,100 590,319
Coulter Pharmaceuticals* 6,900 205,491
Eisai Co. Limited (Japan) 3,000 58,163
F.Y.I.* 2,700 86,400
Glaxo Wellcome (United Kingdom) 9,112 311,341
IMS Health 13,500 1,018,406
Johnson & Johnson 13,185 1,105,892
Kendle International* 1,800 42,244
Lilly (Eli) 23,300 2,070,788
McKesson 6,500 513,906
Medical Manager* 4,200 131,250
Medicis Pharmaceutical Class A* 4,850 289,181
MedQuist* 8,300 328,369
Merck & Company 16,085 2,375,553
Minimed* 2,200 230,725
NCS HealthCare* 2,400 57,375
Novartis (Switzerland) 643 1,263,537
Pediatrix Medical Group* 800 47,950
Pfizer 20,100 2,521,294
Pharmacia & Upjohn ADR 47,865 2,710,356
Pharmacia & Upjohn (Sweden) 18,108 1,011,850
Priority Healthcare-B* 1,400 74,288
Province Healthcare* 3,600 128,025
Quintiles Transnational* 12,100 645,459
Renal Care Group* 4,625 134,125
Sabratek* 5,400 88,088
Schering-Plough 55,400 3,060,850
Serologicals* 4,000 119,250
Sterigenics International* 4,900 122,500
Sunrise Assisted Living* 4,200 217,088
Theragenics* 7,600 127,775
Tyco International 53,800 4,058,538
VA Technologie (Austria) 1,628 141,096
Warner-Lambert 39,100 2,939,831
Wesley Jessen VisionCare* 3,700 102,559
Xomed Surgical Products* 8,750 280,000
Yamanouchi Pharmaceutical (Japan) 14,000 449,086
- -----------------------------------------------------------------------------
39,263,144
Industrial Machinery: 0.5%
- -----------------------------------------------------------------------------
Advanced Energy Industries* 1,300 33,516
Deere & Co. 25,025 828,953
Mannesmann AG (Germany) 8,346 965,463
Sandvik (Sweden) 8,635 148,792
Tomkins (United Kingdom) 113,120 530,727
- -----------------------------------------------------------------------------
2,507,451
Leisure, Lodging & Entertainment: 1.1%
- -----------------------------------------------------------------------------
Ambassadors International* 800 12,100
Carnival Cruise Lines 33,000 1,584,000
Cinar Films Class B 5,900 148,606
Eastman Kodak 13,770 991,440
EMI Group (United Kingdom) 24,200 169,908
Global Vacation Group* 6,600 56,925
Granada Group (United Kingdom) 34,900 617,066
Hasbro 29,255 1,056,837
MemberWorks* 5,300 156,681
Steiner Leisure* 2,450 78,323
Sunterra* 7,600 114,000
The News Corporation 12,318 325,657
Travel Services International* 4,600 138,863
Vistana* 6,200 87,188
- -----------------------------------------------------------------------------
5,537,594
Metals & Mining: 0.0%
- -----------------------------------------------------------------------------
Pohang Iron & Steel Ltd. ADR 8,045 135,759
- -----------------------------------------------------------------------------
Miscellaneous: 1.5%
- -----------------------------------------------------------------------------
Bright Horizons Family Solutions 3,780 102,533
Brookdale Living Communities* 3,100 59,288
BTR (United Kingdom) 111,223 226,801
Companhia Energetica de Minas Gerais-ADR 5,800 110,412
Cookson Group (United Kingdom) 41,931 90,370
<PAGE>
Number Market
of Shares Value
- -----------------------------------------------------------------------------
Education Management 10,000 $ 235,313
First Consulting Group* 4,000 82,750
Gilman & Ciocia* 5,700 55,753
Helix Technology 5,000 64,844
Insight Enterprises 500 25,469
KTI* 5,200 112,775
Lason Incorporated* 5,100 296,916
Market Facts* 6,000 150,750
Metamor Worldwide* 3,425 84,983
NCO Group* 8,550 385,017
On Assignment* 6,700 228,847
Pitney Bowes 21,620 1,428,271
ProBusiness Services* 6,400 291,600
Romac International* 2,800 62,125
Securicor (United Kingdom) 56,573 469,886
Siebe (United Kingdom) 84,560 330,843
Strayer Education 3,500 123,047
Vedior (Netherlands)* 7,106 140,044
Walgreen 35,300 2,067,256
- -----------------------------------------------------------------------------
7,225,893
Packaging & Containers: 0.2%
- -----------------------------------------------------------------------------
Owens-Illinois* 37,090 1,135,881
- -----------------------------------------------------------------------------
Paper & Forest Products: 0.3%
- -----------------------------------------------------------------------------
Boise Cascade 29,405 911,555
Svenska Cellulosa (Sweden) 16,741 364,707
- -----------------------------------------------------------------------------
1,276,262
Real Estate: 0.0%
- -----------------------------------------------------------------------------
Unione Immobiliare Spa (Italy)* 81,200 42,433
- -----------------------------------------------------------------------------
Retail: 5.1%
- -----------------------------------------------------------------------------
99 Cents Only Stores* 4,062 199,546
Action Performance* 4,100 144,781
Ameriking 75 3,000
Coldwater Creek* 3,500 48,563
Coles Myer (Australia) 19,000 99,338
Colgate-Palmolive 21,310 1,979,166
Cost Plus* 3,800 118,988
Costco Companies* 30,900 2,235,422
CVS Corporation 53,542 2,944,810
Federated Department Stores* 14,100 614,231
Gap 11,850 666,563
Guitar Center* 6,700 164,778
Hibbett Sporting Goods* 4,100 99,169
Home Depot 37,300 2,282,294
K Mart* 55,910 856,122
Kroger* 9,500 574,750
Linens N Things* 9,100 360,588
Marks & Spencer 26,079 177,480
Penney (J.C.) 14,860 696,563
PJ America* 2,400 43,350
Rent-Way* 12,869 312,878
Ricoh (Japan) 17,000 156,105
Safeway* 36,400 2,218,125
Sears Roebuck 21,125 897,813
The Men's Wearhouse* 6,100 192,150
TJX 56,200 1,629,800
Toys R Us* 31,240 527,175
Tricon Global Restaurants* 14,800 741,850
Vendex 6,181 150,129
Wal-Mart Stores 48,500 3,949,719
- -----------------------------------------------------------------------------
25,085,246
Telecommunications: 5.7%
- -----------------------------------------------------------------------------
ALLTEL 14,770 883,431
Ameritech 10,560 669,240
Artesyn Technologies* 11,400 162,806
Ascend Communications* 17,300 1,138,016
AT & T 29,875 2,248,094
BCE (Canada)* 3,400 128,472
Cable & Wireless Optus (Australia)* 29,700 62,294
Cable & Wireless (United Kingdom) 53,500 655,899
Del Global Technologies* 5,111 59,096
Deutsche Telekom (Germany) 10,995 361,279
Number Market
of Shares Value
- -----------------------------------------------------------------------------
Dycom* 4,900 $ 279,913
E.spire Communications* 6,300 40,556
Excel Switching* 1,800 68,681
France Telecom SA (France) 2,160 171,615
General Instrument* 15,000 509,063
GeoTel Communications* 7,156 265,667
Grupo Televisa SA GDR* 1,320 32,588
GTE 24,145 1,628,278
Heftel Broadcasting* 7,200 355,500
Hellenic Telecommunications (Greece) 11,665 310,048
Intermedia Communications 3,300 57,131
KPN NV (Netherlands) 5,594 280,085
Lucent Technologies 34,000 3,740,000
MCI Worldcom* 43,200 3,100,950
Nextel Communications 549 12,987
Nippon Telegraph & Telephone (Japan)* 63 484,124
Nokia Oyj (Finland) 6,336 775,525
Orange (United Kingdom)* 16,600 191,954
Portugal Telecom SA (Portugal) 5,522 253,085
Saga Communications* 6,328 129,724
SBC Communications 72,084 3,865,505
Swisscom AG (Switzerland)* 700 292,940
Telecom Italia SpA (Italy) 117,100 1,000,931
Telefonaktiebolaget LM Ericsson (Sweden) 19,474 462,597
Telefonica de Espana (Spain) 17,051 759,026
Telefonos De Mexico SA ADR 3,223 156,920
Telesp Celular Participacoes S.A. ADR* 1,554 27,195
Telesp Participacoes S.A. ADR* 3,886 85,978
U.S.West 26,857 1,735,634
Vodafone Group (United Kingdom) 9,870 159,375
Winstar Communications* 2,500 97,422
- -----------------------------------------------------------------------------
27,699,624
Textiles, Apparel & Furniture: 0.0%
- -----------------------------------------------------------------------------
French Fragrances* 7,700 55,584
Gucci Group N.V. 3,124 151,905
Select Comfort* 2,750 73,391
- -----------------------------------------------------------------------------
280,880
Transportation & Shipping: 0.9%
- -----------------------------------------------------------------------------
Bombardier (Canada) 21,500 308,948
British Airways (United Kingdom) 50,287 339,309
Burlington Northern Santa Fe 24,930 841,388
Carey International* 5,300 93,413
Deutsche Lufthansa AG (Germany) 5,337 118,352
Eagle USA Airfreight* 6,800 166,600
Expeditors International 3,750 157,969
International Container Terminal Services
(Philippines)* 243,450 20,340
Mesaba Holdings* 10,500 216,234
Peninsular and Orient Steam (United Kingdom) 20,935 246,420
Rental Service* 3,700 58,044
Singapore Airlines (Singapore) 5,000 36,644
Skywest 4,500 147,094
Southwest Airlines 41,110 922,406
TNT Post Group NV (Netherlands) 14,728 474,612
- -----------------------------------------------------------------------------
4,147,773
Utilities: 3.0%
- -----------------------------------------------------------------------------
AirTouch Communications* 12,000 865,500
Consolidated Edison 20,680 1,093,455
Dominion Resources/Virginia 19,370 905,548
Edison International 28,860 804,473
EDP - Electricidade de Portugal, SA (Portugal) 14,580 320,884
Elf Aquitaine (France) 4,968 574,292
Enron 5,450 310,991
Entergy 33,005 1,027,281
Iberdrola S.A. (Spain) 13,100 245,365
Hong Kong & China Gas (Hong Kong)* 72,000 91,539
PECO Energy 26,000 1,082,250
Rohm (Japan) 1,400 126,953
Sankyo (Japan) 13,000 282,970
Scottish Power (United Kingdom) 79,046 806,591
Sprint 38,315 3,223,206
Texas Utilities 19,980 932,816
Tokyo Electric Power (Japan) 22,800 560,581
Veba AG (Germany) 8,764 519,138
Vivendi (France) 4,352 1,129,212
- -----------------------------------------------------------------------------
14,903,045
<PAGE>
Number Market
of Shares Value
- -----------------------------------------------------------------------------
Total Common Stock: 61.7%
(Cost $212,014,710) $302,460,093
- -----------------------------------------------------------------------------
Preferred Stock:
- -----------------------------------------------------------------------------
Ameriking 3,867 94,742
Anvil Holdings 20 451
California Federal 4,000 101,250
Capstar Broadcasting 281 31,753
Chancellor Media 300 28,013
Chevy Chase 670 35,008
Citadel Broadcasting 681 78,315
Concentric Network 213 17,871
CSC Holdings 518 57,110
CSC Holdings Class A 173 19,571
Dobson Communications 10 10,000
Global Crossing 1,060 103,350
Intermedia Communications PIK 98 98,368
IXC Communications 32 33,309
Mediaone Group 7,190 478,135
Nebco Evans Holding 323 21,722
Nextel Communications 27 27,490
Nextel Communications PIK 238 214,200
Nextlink Communications 697 38,702
Paxson Communications 746 66,427
Public Service Company of New Hampshire 1,583 41,158
Spanish Broadcasting 97 96,509
Winstar Communications 50 54,250
- -----------------------------------------------------------------------------
Total Preferred Stock: 0.4%
(Cost $1,702,184) 1,747,704
- -----------------------------------------------------------------------------
Warrants/Rights:
- -----------------------------------------------------------------------------
Allegiance Telecom Warrants* 80 1,280
Cellnet Data Systems* 125 3,125
Covad Communications Warrants* 25 1,250
DTI Holdings* 1,000 100
Epic Resorts* 30 -
Equity Office Property* 450 900
Globalstar Telecom* 50 3,500
Hyperion Telecommunications* 100 5,813
KMC Telecom Holdings* 125 469
Knology Holdings Warrants* 110 220
Mediq* 40 -
MGC Communication Warrants* 10 640
Orbital Imaging* 40 1,640
Pathnet Warrants* 65 650
PowerTel Warrants* 1,280 8,640
Spanish Broadcasting - WT99* 35 7,175
Startec Global* 40 40
Telefonica SA Bonus Rights (Spain)* 17,051 15,156
- -----------------------------------------------------------------------------
Total Warrants/Rights: 0.0%
(Cost $28,392) 50,598
- -----------------------------------------------------------------------------
Par
Repurchase Agreement: Amount
SBC Warburg Repurchase Agreement,
dated 12/31/98, 4.75%, maturing 1/4/99,
collateralized by $14,321,000 U.S. Treasury Bond,
10.375%, 11/15/09,
market value $18,475,979 $18,041,000 18,041,000
- -----------------------------------------------------------------------------
Total Repurchase Agreement: 3.7%
(Cost $18,041,000) 18,041,000
- -----------------------------------------------------------------------------
Total Investments: 96.7%
(Cost $381,785,237) 473,942,371
- -----------------------------------------------------------------------------
Other Assets Over Liabilities: 3.3% 16,211,515
- -----------------------------------------------------------------------------
Net Assets: 100.0%
(Equivalent to $15.759 per share based on
31,102,262 shares issued and outstanding) $490,153,886
=============================================================================
** Non income producing security.
** Par amounts for foreign debt are expressed in local currency
PIK - Pay in kind security.
(1) Step-up Bond
(+) Fully or partially pledged as collateral for open futures contracts.
TBA - To be announced.
See accompanying notes to financial statements.
<PAGE>
Lincoln National Global Asset Allocation Fund, Inc.
Statement of Operations
Year ended December 31, 1998
Investment income:
Interest $10,785,461
- -----------------------------------------------------------------------
Dividends 4,401,671
- -----------------------------------------------------------------------
Less: Foreign withholding tax (90,799)
- -----------------------------------------------------------------------
Total investment income 15,096,333
- -----------------------------------------------------------------------
Expenses:
Management fees 3,320,142
- -----------------------------------------------------------------------
Accounting fees 302,051
- -----------------------------------------------------------------------
Custodial fees 271,460
- -----------------------------------------------------------------------
Printing and postage 144,384
- -----------------------------------------------------------------------
Directors fees 4,200
- -----------------------------------------------------------------------
Other 141,130
- -----------------------------------------------------------------------
Total expenses 4,183,367
- -----------------------------------------------------------------------
Net investment income 10,912,966
- -----------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments,
futures contracts, and foreign currency:
Net realized gain (loss) on:
Investment transactions and futures contracts 11,443,775
- -----------------------------------------------------------------------
Foreign currency transactions (998,821)
- -----------------------------------------------------------------------
Net realized gain on investments, futures
contracts, and foreign currency 10,444,954
- -----------------------------------------------------------------------
Net change in unrealized appreciation of:
Investments and futures contracts 35,157,074
- -----------------------------------------------------------------------
Foreign currency 929,079
- -----------------------------------------------------------------------
Net change in unrealized appreciation of investments,
futures contracts, and foreign currency 36,086,153
- -----------------------------------------------------------------------
Net realized and unrealized gain of investments
and foreign currency 46,531,107
- -----------------------------------------------------------------------
Net increase in net assets
resulting from operations $57,444,073
=======================================================================
Statements of Changes in Net Assets
Years ended December 31, 1998 and 1997
Year ended Year ended
12/31/98 12/31/97
---------------------------
Changes from operations:
- ------------------------------------------------------------------------------
Net investment income $ 10,912,966 $ 10,728,312
- ------------------------------------------------------------------------------
Net realized gain on investments,
futures contracts, and foreign currency 10,444,954 33,708,317
- ------------------------------------------------------------------------------
Net change in unrealized appreciation of investments,
futures contracts, and foreign currency 36,086,153 21,677,078
- ------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 57,444,073 66,113,707
- ------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (16,888,181) -
- ------------------------------------------------------------------------------
Net realized gain on investments (33,708,317) (26,677,086)
- ------------------------------------------------------------------------------
Total distributions to shareholders (50,596,498) (26,677,086)
- ------------------------------------------------------------------------------
Net increase in net assets
resulting from capital share transactions 45,216,416 82,601,799
- ------------------------------------------------------------------------------
Total increase in net assets 52,063,991 122,038,420
- ------------------------------------------------------------------------------
Net Assets, beginning of year 438,089,895 316,051,475
- ------------------------------------------------------------------------------
Net Assets, end of year $490,153,886 $438,089,895
==============================================================================
See accompanying notes to financial statements.
<PAGE>
Lincoln National Global Asset Allocation Fund, Inc.
Financial Highlights
(Selected data for each capital share outstanding throughout the year)
<TABLE>
<CAPTION>
Period ended December 31,
1998 1997 1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $15.628 $14.226 $13.391 $11.144 $12.502
Income (loss) from investment operations:
Net investment income(2) 0.357 0.383 0.392 0.412 0.349
Net realized and unrealized gain (loss)
on investments, futures contracts, and
foreign currency 1.585 2.205 1.522 2.247 (0.702)
Total from investment operations 1.942 2.588 1.914 2.659 (0.353)
Less dividends and distributions:
Dividends from net investment income (0.589) - (0.392) (0.412) (0.349)
Distributions from net realized gain on
investment transactions (1.222) (1.186) (0.687) - (0.656)
Total dividends and distributions (1.811) (1.186) (1.079) (0.412) (1.005)
Net asset value, end of year $15.759 $15.628 $14.226 $13.391 $11.144
Total Return(1) 13.50% 19.47% 15.04% 23.95% (1.82%)
Ratios and supplemental data:
Ratio of expenses to average net assets 0.91% 0.89% 1.00% 0.92% 1.06%
Ratio of net investment income
to average net assets 2.36% 2.77% 2.93% 3.36% 3.07%
Portfolio Turnover 133.84% 178.40% 167.33% 146.49% 134.33%
Net assets, end of year (000 omitted) $490,154 $438,090 $316,051 $248,772 $195,697
</TABLE>
(1) Total return percentages in this table are calculated on the basis
prescribed by the Securities and Exchange Commission. These percentages are
based on the underlying mutual fund shares. The total return percentages in
the table are NOT calculated on the same basis as the performance
percentages in the letter at the front of this booklet (those percentages
are based upon the change in unit value).
(2) Per share information for the year ended December 31, 1998 was based on the
average shares outstanding method.
See accompanying notes to financial statements.
<PAGE>
Lincoln National Global Asset Allocation Fund, Inc.
Notes to Financial Statements
December 31, 1998
The Fund: Lincoln National Global Asset Allocation, Inc. (the "Fund") is
registered as an open-end, diversified management investment company under the
Investment Company Act of 1940, as amended. The Fund's shares are sold only to
The Lincoln National Life Insurance Company and Lincoln Life & Annuity Company
of New York (the "Companies") for allocation to their variable annuity products.
The Fund's investment objective is to maximize long-term total return consistent
with preservation of capital. The Fund allocates its assets among several
categories of equity and fixed-income securities, both of U.S. and foreign
issuers.
1. Significant Accounting Policies
Investment Valuation: Portfolio securities which are traded on an exchange are
valued at the last reported sale price on the exchange or market where primarily
traded or listed or, in the absence of recent sales, at the mean between the
last reported bid and asked prices. Long-term debt investments are valued at
their mean quotations. Options traded on exchanges are valued at the last bid
price for options purchased and the last sale price for options written. Options
traded in the over-the-counter market are valued at the last asked price for
options written and the last bid price for options purchased. Financial futures
are valued at the settlement price established each day by the board of trade or
exchange on which they are traded. Forward foreign currency contracts are valued
at the forward exchange rates prevailing on the day of valuation. Other
securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Fund's Board of Directors. Money market instruments having less than 60 days
to maturity are stated at amortized cost, which approximates market value.
Investment Transactions and Investment Income: Investment transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date and interest income is recorded on the accrual basis and includes
amortization of any premium and discount. Realized gains or losses from
investment transactions are reported on an identified cost basis. Gains and
losses on premiums from expired options are recognized on the date of
expiration.
Foreign Currency Transactions: The books and records of the Fund are maintained
in U.S. dollars. All assets and liabilities denominated in a foreign currency
are translated into U.S. dollars based upon foreign exchange rates prevailing at
the end of the period. Income and expenses and purchases and sales of
investments are translated into U.S. dollars at the rate of exchange prevailing
on the respective dates of such transactions. It is not practical to isolate
that portion of both realized and unrealized gains and losses on investments in
equity securities that result from fluctuations in foreign currency exchange
rates in the statement of operations. The Fund does isolate that portion of
gains and losses on investments in debt securities which are due to changes in
the foreign exchange rate from that which are due to changes in market prices of
debt securities.
Reported net realized gains and losses on foreign currency transactions arise
from sales and maturities of forward foreign currency contracts, currency gains
and losses between the trade and settlement dates on securities transactions,
and the differences between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of
the amounts actually received or paid. Net change in unrealized appreciation or
depreciation on translation of assets and liabilities in foreign currencies
arise from changes in the value of other assets and liabilities at the end of
the period resulting from changes in the exchange rates.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
Taxes: The Fund has complied with the special provisions of the Internal Revenue
Code for regulated investment companies. As such, the Fund is not subject to
U.S. federal income taxes to the extent that it distributes all of its taxable
income for its fiscal year.
Withholding taxes on foreign interest and dividends have been provided for in
accordance with the applicable country's tax rates.
<PAGE>
Notes to Financial Statements - (Continued)
2. Other Assets Over Liabilities
The statement of net assets account "Other Assets Over Liabilities" at December
31, 1998 consisted of the following assets (liabilities):
Cash $ 85,224
- --------------------------------------------------------
Foreign currency 20,371,889
- --------------------------------------------------------
Receivable for dividends earned 397,266
- --------------------------------------------------------
Receivable for interest earned 2,277,201
- --------------------------------------------------------
Receivable for securities sold 641,480
- --------------------------------------------------------
Receivable for capital shares sold 8,032
- --------------------------------------------------------
Payable for securities purchased (7,861,167)
- --------------------------------------------------------
Payable for capital shares redeemed (8,955)
- --------------------------------------------------------
Management fees payable (445,409)
- --------------------------------------------------------
Other, net 745,954
- --------------------------------------------------------
$16,211,515
============
3. Management Fees and Other Transactions With Affiliates
Lincoln Investment Management Company (the "Advisor") and its affiliates manage
the Fund's investment portfolio and maintain its accounts and records. For these
services, the Advisor receives a management fee at an annual rate of .75% of the
first $200,000,000 of the average daily net assets of the Fund, .70% of the next
$200,000,000, and .68% of the average daily net assets of the Fund in excess of
$400,000,000. The sub-adviser, Putnam Investments, is paid directly by the
Advisor.
Delaware Service Company ("Delaware"), an affiliate of the Advisor, provides
accounting services and other administration support to the Fund. For these
services, the Fund pays Delaware a monthly fee based on average net assets,
subject to certain minimums.
If the aggregate annual expenses of the Fund, including the management fee, but
excluding taxes, interest, brokerage commissions relating to the purchase or
sale of portfolio securities and extraordinary non-recurring expenses, exceed
1.50% of the average daily net assets of the Fund, the Advisor will reimburse
the Fund in the amount of such excess. No reimbursement was due for the year
ended December 31, 1998.
Certain officers and directors of the Fund are also officers or directors of the
Companies and receive no compensation from the Fund. The compensation of
unaffiliated directors of the Fund is borne by the Fund.
4. Analysis of Net Assets
Net Assets at December 31, 1998 consisted of the following:
Common Stock, par value $.01 per share** $ 311,022
- ------------------------------------------------------------------------
Paid in capital in excess of par value of shares issued 381,012,207
- ------------------------------------------------------------------------
Undistributed net investment income 3,754,276
- ------------------------------------------------------------------------
Accumulated net realized gain on investments and
futures contracts 11,443,775
- ------------------------------------------------------------------------
Net unrealized appreciation of investments,
foreign currencies, and futures contracts 93,632,606
- ------------------------------------------------------------------------
$490,153,886
============
** The Fund has 50,000,000 authorized shares.
<PAGE>
Notes to Financial Statements - (Continued)
5. Investments
The cost of investments for federal income tax purposes approximates cost for
book purposes. The aggregate cost of investments purchased and the aggregate
proceeds from investments sold for the year ended December 31, 1998 and the
aggregate gross unrealized appreciation, the aggregate gross unrealized
depreciation and the net unrealized appreciation at December 31, 1998 are as
follows:
Aggregate Aggregate Gross Gross Net
Cost of Proceeds Unrealized Unrealized Unrealized
Purchases From Sales Appreciation Depreciation Appreciation
------------------------------------------------------------------------
$571,263,196 $568,382,980 $100,216,708 $(8,059,574) $92,157,134
6. Supplemental Financial Instrument Information
Options: The Fund may purchase or write options that are exchange traded to
hedge fluctuation risks in the price of certain securities. When the Fund writes
a call or put option, an amount equal to the premium received is reflected as a
liability. The amount of the liability is subsequently "marked-to-market" to
reflect the current market value of the option written. The premium paid by the
Fund for the purchase of a call or put option is recorded as an investment and
subsequently "marked-to-market" to reflect the current market value of the
option purchased. The Fund is subject to the risk of an imperfect correlation
between movement in the price of the instrument and the price of the underlying
security or transaction. Risks may also arise due to illiquid secondary markets
for the instruments. The Fund did not write any options during the year ended
December 31, 1998.
Forward Foreign Currency Contracts: The Fund may purchase or sell forward
foreign currency contracts to hedge risks of fluctuations in specific
transactions or portfolio positions. Forward foreign currency contracts obligate
the Fund to take or deliver a foreign currency at a future date at a specified
price. The realized and unrealized gain or loss on the contracts is reflected in
the accompanying financial statements. The Fund is subject to the credit risks
that the counter parties to these contracts will fail to perform; although this
risk is minimized by purchasing such agreements from financial institutions with
long standing, superior performance records. In addition, the Fund is subject to
the market risks associated with unanticipated movements in the value of a
foreign currency relative to the U.S. dollar. Forward foreign currency contracts
that were open at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Contracts to Foreign In Exchange Unrealized
Receive (Deliver) Currency For Settlement Dates Gain (Loss)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1,777,488 Australian Dollar $ 1,137,130 March 1999 $ (32,507)
(1,107,800) Australian Dollar (691,732) March 1999 13,865
(459,800) Canadian Dollar (299,544) March 1999 (843)
42,442,573 German Deutschemark 25,422,133 February 1999 139,840
(31,442,055) German Deutschemark (18,837,149) February 1999 (99,524)
6,584,776 Danish Kroner 1,040,249 March 1999 (3,306)
1,583,700 Finnish Marrka 310,146 February 1999 1,197
11,620,700 French Franc 2,068,736 February 1999 15,185
(4,032,300) Great Britain Pound (6,663,138) March 1999 (6,696)
(1,080,542,270) Italian Lira (649,755) February 1999 (5,994)
(1,667,483,380) Japanese Yen (14,099,667) March 1999 (745,039)
2,995,029,230 Japanese Yen 25,361,750 March 1999 1,301,380
(12,841,700) Netherlands Guilder (6,814,742) February 1999 (32,784)
(2,151,200) New Zealand Dollar (1,139,598) March 1999 6,719
(56,596,415) Spanish Peseta (396,992) February 1999 (2,725)
17,704,700 Swedish Krona 2,194,707 March 1999 (8,177)
(33,276,590) Swedish Krona (4,143,776) March 1999 24,185
----------
$ 564,776
==========
</TABLE>
<PAGE>
Notes to Financial Statements - (Continued)
Financial Futures Contracts: The Fund may purchase or sell financial futures
contracts, which are exchange traded. The Fund bears the market risk that arises
from changes in the value of these financial instruments. The Fund deposits with
its custodian a specified amount of cash or eligible securities called "initial
margin" or "variation margin". The market value of investments pledged to cover
margin requirements for open positions at December 31, 1998 was $5,007,378. The
unrealized gain or loss on the contracts is reflected in the accompanying
financial statements. The Fund is subject to the market risks of unexpected
changes in the underlying markets and interest rates. Financial futures
contracts open at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Notional Unrealized
Contracts Cost Amount Expiration Dates Gain (Loss)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
103 CAC 40 Index Contracts $ 3,409,735 January 1999 $ 208,790
40 S&P 500 contracts (11,779,444) March 1999 (675,556)
14 NASDAQ 100 contracts 2,412,791 March 1999 182,809
12 Russell 2000 contracts 2,402,265 March 1999 149,235
23 U.S. 10 Year Treasury note contracts (2,737,030) March 1999 (3,564)
15 U.S. 20 Year Treasury note contracts 1,952,910 March 1999 (36,191)
43 Gilt contracts (8,456,499) March 1999 (32,423)
55 Ftse 100 Index contracts 5,142,724 March 1999 207,821
2 German 10 Year contracts 349,035 March 1999 (1,605)
101 Australian All Ords Index contracts 4,332,013 March 1999 87,022
17 Dax Index contracts 4,850,147 March 1999 316,462
9 Japan 10 Year contracts 5,076,040 March 1999 1,948
54 Nikkei 225 contracts 3,185,732 March 1999 79,964
39 MIB 30 Index contracts 7,754,725 March 1999 616,836
----------
$1,101,548
==========
</TABLE>
Repurchase Agreements: The Fund, through its custodian, receives delivery of the
underlying securities, whose market value is required to be at least 102% of the
repurchase price. However, in the event of default or bankruptcy by the
counterparty to the agreement, realization of the collateral may be subject to
legal proceedings.
7. Credit and Market Risks
The Fund invests in foreign securities. As a result, there may be additional
risks, such as the investments being subject to restrictions as to repatriation
of cash back to the United States and to political or economic uncertainties. At
December 31, 1998 the Fund did not have investments in excess of 5% of net
assets in any individual foreign country.
The Fund may invest in illiquid securities which may include securities with
contractual restrictions on resale, securities exempt from registration under
Rule 144A of the Securities Act of 1933, as amended, and other securities which
may not be readily marketable. The relative illiquidity of some of these
securities may adversely affect the Fund's ability to dispose of such securities
in a timely manner and at a fair price when it is necessary to liquidate such
securities.
8. Summary of Changes From Capital Share Transactions
<TABLE>
<CAPTION>
Shares Issued Upon Net Increase
Capital Reinvestment of Capital Shares Resulting From Capital
Shares Sold Dividends Redeemed Share Transactions
---------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended
December 31, 1998: 1,671,912 $25,333,336 3,464,248 $50,596,498 (2,066,025) $(30,713,418) 3,070,135 $45,216,416
Year ended
December 31, 1997: 3,478,495 51,199,000 2,577,537 34,962,268 (241,050) (3,559,469) 5,814,982 82,601,799
</TABLE>
9. Distributions to Shareholders
The Fund declares and distributes dividends on net investment income, if any,
semiannually. Distributions of net realized gains, if any, are declared and
distributed annually.
<PAGE>
Lincoln National Global Asset Allocation Fund, Inc.
Report of Ernst & Young LLP, Independent Auditors
To the Shareholders and Board of Directors
Lincoln National Global Asset Allocation Fund, Inc.
We have audited the accompanying statement of net assets of Lincoln National
Global Asset Allocation Fund, Inc. (the "Fund") as of December 31, 1998, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Lincoln National Global Asset Allocation Fund, Inc. at December 31, 1998, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and its financial highlights
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG
Philadelphia, Pennsylvania
February 5, 1999
