<PAGE>
BEA Investment Funds, Inc.
Institutional Government Fund
153 East 53rd Street
New York, NY 10022
---------------------------------------------
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
Richard H. Francis Michael A. Pignataro
CHAIRMAN OF THE BOARD, ASSISTANT VICE PRESIDENT
PRESIDENT AND CHIEF AND ASSISTANT SECRETARY
EXECUTIVE OFFICER Hal Liebes
Desmond G. FitzGerald SECRETARY
DIRECTOR Harvey M. Rosen
Robert G. Stone, Jr. TREASURER
DIRECTOR Paul P. Stamler
Bruce N. Lehmann ASSISTANT TREASURER
DIRECTOR John M. Corcoran
Mark Silverstein ASSISTANT TREASURER
VICE PRESIDENT
</TABLE>
---------------------------------------------
INVESTMENT ADVISER
BEA Associates
153 East 53rd Street
New York, New York 10022
--------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank, N.A.
73 Tremont Street
Boston, Massachusetts 02108
--------------------------------------------------------
CUSTODIAN
The Chase Manhattan Bank, N.A.
770 Broadway
New York, New York 10003
--------------------------------------------------------
SHAREHOLDER SERVICING AGENT
The Chase Manhattan Bank, N.A.
73 Tremont Street
Boston, Massachusetts 02108
(800) 545-5799
--------------------------------------------------------
LEGAL COUNSEL
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
--------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
--------------------------------------------------------
This report, including the financial statements herein, is transmitted to the
shareholders of the Institutional Government Fund for their information. This is
not a prospectus, circular or representation intended for use in the purchase of
shares of the Fund or any securities mentioned in this report.
[LOGO]
BEA Investment Funds, Inc.
Institutional Government Fund
[LOGO]
ANNUAL REPORT
December 31, 1995
<PAGE>
BEA INVESTMENT FUNDS, INC.
INSTITUTIONAL GOVERNMENT FUND
- ----------
Dear Shareholders:
We are pleased to report on the activities of the Institutional Government Fund
(the "Fund") for the year ended December 31, 1995. The net asset value (NAV) of
the Fund as of December 31, 1995 was $9.70, compared to an NAV of $9.00 at
December 31, 1994. As a result, the Fund's total return (assuming reinvestment
of dividends) was 14.57%. In comparison, the Lehman Brothers Government/Mortgage
Index gained 17.82% during the same period.
TREASURY MARKET AND ECONOMIC COMMENTARY
The past year was very unusual, especially considering the events of 1994.
Although bear markets have lasted several years in the past, 1994 was the first
major bear market this century to last only one year. As a result, many
investors did not expect the more than 200 basis-point decline in interest rates
across the yield curve in 1995. Two and three-year securities fell 250 basis
points and 10-year securities fell 220 basis points. The Federal Reserve eased
again in November, continuing the trend it started in July. With the easing
trend in place, a weakening economy, and talk of a balanced budget, yields began
to decline.
The U.S. Treasury market had a very strong year due to several factors. The
extremely weak dollar early in the year helped to bring high levels of
international investment to the United States. In addition, as it became clear
that inflation was going to remain low (approximately 1.5 to 2.5 percent), the
economy weakened. With that economic scenario, investors anticipated that the
Federal Reserve would begin to ease. As expected, short-term rates were lowered
slowly, a trend that is expected to continue.
At year-end levels, interest rates are reasonable relative to inflation
expectations and are low relative to short-term rates. It is our opinion that
the Federal Reserve has held rates unnecessarily high due to the failure of
Congress and the White House to agree on a budget. Once a budget and deficit
plan are in place, we expect the Federal Reserve to quickly move to lower rates.
MORTGAGE SECURITIES MARKET
The mortgage-backed securities market had an unusual year, as the dominant
investors became money managers and the mortgage agencies themselves (FHLMC and
FNMA), rather then yield-oriented insurance companies, banks and mutual funds.
During the first half of the year, the sharp drop in interest rates brought back
memories of rapid prepayments causing mortgage securities to become underpriced
relative to their actual risk. Believing that substantial prepayments were not
likely to materialize (and they have not), we increased our mortgage allocation
at the height of prepayment fears in June. Soon the market adjusted for its
overreaction.
During the third and fourth quarters, two other events caused additional
cheapness in this sector. First, FASB allowed a one-time window for financial
institutions to reclassify securities. This led to fears of massive selling of
mortgage securities, which never actually materialized. The second event was a
statement by the S&P rating agency that insurance companies would be penalized
for holding mortgages, causing concern that insurance companies may shy away
from the sector. As interest rates dropped late in the year, we increased our
allocation further because mortgages had reached their cheapest level relative
to treasuries since 1991, while other fixed income sectors remain close to their
richest levels. Looking into 1996, we expect that investors will realize that
mortgage-backed securities provide the best relative value to treasuries,
compared with corporates or asset-backeds. We will continue to participate in
this sector primarily through investments in agency passthroughs.
We thank you for your interest in the Fund and would be pleased to respond
to your questions or comments.
Respectfully,
[LOGO]
Mark Silverstein
VICE PRESIDENT
January 19, 1996
2
<PAGE>
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
COMPARISON OF A CHANGE IN THE VALUE OF A $25,000 PURCHASE IN THE
BEA INSTITUTIONAL GOVERNMENT FUND
AND THE LEHMAN BROTHERS GOVERNMENT/MORTGAGE INDEX.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BEA INSTITUTIONAL LEHMAN BROTHERS GOVERNMENT/
<S> <C> <C>
GOVERNMENT FUND(7) MORTGAGE INDEX(7)
1/8/91* 25,000 25,000
12/31/91 28,990 29,000
12/31/92 31,000 31,500
12/31/93 34,000 34,990
12/31/94 32,182 32,900
12/31/95 36,873 38,720
AVERAGE ANNUAL TOTAL RETURN
FOR PERIOD ENDED DECEMBER 31, 1995
1 YEAR SINCE 1/8/91*
14.57 8.11
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH
MORE OR LESS THAN THE ORIGINAL COST.
* Commencement of Operations
+The comparative index is not adjusted to reflect expenses or other fees that
the SEC requires to be reflected in the Fund's performance. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
comparative index has been adjusted to reflect reinvestment of dividends on
securities in the index. The Fund's performance excludes the effect of sales
charges and includes the effects of fee waivers and expense reimbursements.
Definition of the Comparative Index
The Lehman Brothers Government/Mortgage Index is an unmanaged index composed of
a combination of the Government and Mortgage-Backed Securities Indices. The
Government Index includes public obligations of the U.S. Treasury, issues of
Government agencies, and corporate debt backed by the U.S. Government. The
Mortgage-Backed Securities Index includes 15-and 30-year fixed-rate mortgage
securities backed by GNMA, FHLMC, and FNMA. Graduated Payment Mortgages are
included. All issues are investment grade (AAA) or higher, with maturities of at
least one year and outstanding par value of at least $100 million. All returns
are market value weighted inclusive of accrued income.
PLEASE NOTE THAT ONE CAN NOT INVEST IN AN UNMANAGED INDEX.
3
<PAGE>
PORTFOLIO OF INVESTMENTS
- ---------
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Principal Value
Amount (Note A-1)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
MORTGAGE BACKED OBLIGATIONS (61.1%)
- --------------------------------------------------
- ----------
COLLATERALIZED MORTGAGE OBLIGATIONS (12.5%)
Federal Home Loan
Mortgage Corporation
Series 7, Class G REMIC-PAC
8.50%, 9/15/18 $ 416,204 $ 424,915
Federal National
Mortgage Association
Series 1990-39, Class H REMIC-PAC
8.95%, 11/25/18 2,000,000 2,110,000
----------
TOTAL COLLATERALIZED
MORTGAGE OBLIGATIONS 2,534,915
----------
- ---------------------------------------------------------
- ------------
FEDERAL HOME LOAN MORTGAGE ASSOCIATION (6.9%)
Various 30-Year Gold Pools:
9.00%, 5/1/21-8/1/21 1,337,344 1,407,127
----------
- ---------------------------------------------------------
- ------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (23.7%)
Various Pools:
6.00%, 3/1/24-9/1/24 1,458,888 1,410,103
7.00%, 12/1/09-7/1/10 1,215,439 1,237,841
8.00%, 6/1/25 1,115,547 1,155,283
9.00%, 4/1/16 33,265 35,333
11.00%, 10/1/10 897,533 997,697
----------
TOTAL FEDERAL NATIONAL
MORTGAGE ASSOCIATION 4,836,257
----------
- ---------------------------------------------------------
- ------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (18.0%)
Various Pools:
6.00%, 4/15/09 425,438 422,379
7.00%, 6/15/09-7/15/09 870,554 890,681
8.00%, 8/15/07-8/15/22 2,168,373 2,261,647
10.50%, 10/15/15 33,414 37,342
11.00%, 9/15/10-9/15/15 56,193 63,447
----------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION 3,675,496
----------
- ---------------------------------------------------------
- ------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(Cost $12,288,811) 12,453,795
----------
- ---------------------------------------------------------
- ------------
<CAPTION>
Value
Principal (Notes A-1
Amount and A-3)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
U.S. GOVERNMENT OBLIGATIONS (25.4%)
- --------------------------------------------------
- ----------
U.S. TREASURY BONDS (15.6%)
7.875%, 2/15/21 $ 815,000 $1,003,599
9.00%, 11/15/18 1,600,000 2,179,248
----------
TOTAL U.S. TREASURY BONDS 3,182,847
----------
- ---------------------------------------------------------
- ------------
U.S. TREASURY NOTES (9.8%)
5.375%, 5/31/98 700,000 702,296
5.875%, 11/15/05 550,000 562,375
6.25%, 2/15/03 710,000 740,729
----------
TOTAL U.S. TREASURY NOTES 2,005,400
----------
- ---------------------------------------------------------
- ------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $4,717,949) 5,188,247
----------
- ---------------------------------------------------------
- ------------
REPURCHASE AGREEMENT (8.0%)
Paine Webber, 5.80%, dated
12/29/95, due 1/2/96, to be
repurchased at $1,627,048,
collateralized by $1,585,000
U.S. Treasury Notes, 6.75%,
due 5/31/99, valued at
$1,658,520
(Cost $1,626,000) 1,626,000 1,626,000
----------
- ---------------------------------------------------------
- ------------
TOTAL INVESTMENTS (94.5%)
(Cost $18,632,760) 19,268,042
----------
- ---------------------------------------------------------
- ------------
OTHER ASSETS IN EXCESS OF
LIABILITIES (5.5%) 1,120,210
----------
- ---------------------------------------------------------
- ------------
NET ASSETS (100%) $20,388,252
----------
----------
- ---------------------------------------------------------
- ------------
REMIC--Real Estate Mortgage Investment Conduit.
PAC--Planned Amortization Class.
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES December 31, 1995
<S> <C>
- --------------------------------------------------------------------------
ASSETS:
Investments at Value
(Cost $17,006,760) (Note A-1)......................... $17,642,042
Repurchase Agreement at Value
(Cost $1,626,000) (Note A-3).......................... 1,626,000
Cash.................................................... 856,060
Receivables:
Interest (Note A-6)................................... 153,955
Fund Shares Sold (Note F)............................. 121,753
Paydowns.............................................. 11,291
Investment Adviser (Note B)........................... 4,490
Other Assets............................................ 2,917
- --------------------------------------------------------------------------
Total Assets........................................ 20,418,508
- --------------------------------------------------------------------------
LIABILITIES:
Payables:
Professional Fees..................................... 20,857
Shareholders' Reports................................. 4,279
Administrative Fees (Note C).......................... 3,461
Directors' Fees....................................... 1,659
- --------------------------------------------------------------------------
Total Liabilities................................... 30,256
- --------------------------------------------------------------------------
NET ASSETS.................................................. $20,388,252
NET ASSETS CONSIST OF:
Capital Shares at $.001 Par Value....................... $ 2,101
Capital Paid in Excess of Par Value..................... 20,690,334
Undistributed Net Investment Income..................... 105,007
Accumulated Net Realized Loss........................... (1,044,472)
Unrealized Appreciation on Investments.................. 635,282
NET ASSETS APPLICABLE TO 2,101,165 ISSUED AND OUTSTANDING
$.001 PAR VALUE SHARES (AUTHORIZED 500,000,000 SHARES).... $20,388,252
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($20,388,252 / 2,101,165 Shares Outstanding).............. $9.70
CALCULATION OF MAXIMUM OFFERING PRICE
Net Asset Value Per Share............................... $ 9.70
Sales Charge--2.50% of Public Offering Price............ 0.25
Maximum Offering Price Per Share........................ $ 9.95
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS Year Ended
December 31, 1995
<S> <C>
- --------------------------------------------------------------------------
INVESTMENT INCOME:
Interest (Note A-6)..................................... $1,490,489
- --------------------------------------------------------------------------
EXPENSES:
Investment Advisory Fees (Note B)....................... 105,545
Directors' Fees and Expenses............................ 41,609
Professional Fees....................................... 41,151
Organizational Expense (Note A-8)....................... 37,603
Administrative Fees (Note C)............................ 36,131
Shareholder Reports Expense............................. 17,436
Other................................................... 20,424
- --------------------------------------------------------------------------
Total Expenses........................................ 299,899
- --------------------------------------------------------------------------
Less: Fees Waived by Adviser (Note B)................... (88,695)
- --------------------------------------------------------------------------
Net Expenses.......................................... 211,204
- --------------------------------------------------------------------------
Net Investment Income............................... 1,279,285
- --------------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS............................ 430,143
CHANGE IN UNREALIZED APPRECIATION/ DEPRECIATION ON
INVESTMENTS............................................... 1,148,213
- --------------------------------------------------------------------------
Net Realized Gain and Change in Unrealized
Appreciation/Depreciation................................. 1,578,356
- --------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations........ $2,857,641
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Year Ended
Year Ended December 31,
STATEMENT OF CHANGES IN NET ASSETS December 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Income....................................................... $ 1,279,285 $ 1,494,495
Net Realized Gain (Loss) on Investments..................................... 430,143 (1,455,923)
Change in Unrealized Appreciation/Depreciation on Investments............... 1,148,213 (927,476)
- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. 2,857,641 (888,904)
- -----------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income....................................................... (1,286,392) (1,382,381)
- -----------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from Subscriptions................................................. 7,925,699 5,642,390
Reinvestment of Dividends and Distributions................................. 1,281,820 1,246,907
Cost of Redemptions......................................................... (10,875,817) (22,182,433)
- -----------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM CAPITAL SHARE TRANSACTIONS............ (1,668,298) (15,293,136)
- -----------------------------------------------------------------------------------------------------------------------
Total Decrease in Net Assets.............................................. (97,049) (17,564,421)
NET ASSETS:
Beginning of Year........................................................... 20,485,301 38,049,722
- -----------------------------------------------------------------------------------------------------------------------
End of Year (including undistributed net investment income of $105,007 and
$112,114, respectively).................................................... $ 20,388,252 $ 20,485,301
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS Year Ended December 31, Period Ended
PER SHARE OPERATING ----------------------------------------------------------------- December 31,
PERFORMANCE: 1995Section 1994 1993 1992 1991*
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF
PERIOD............. $ 9.00 $ 9.73 $ 10.01 $ 10.25 $ 9.75
- ----------------------------------------------------------------------------------------------------------
Investment
Activities:
Net Investment
Income+........ 0.57 0.53 0.47 0.56 0.71
Net Realized and
Unrealized Gain
(Loss) on
Investments.... 0.70 (0.78) 0.43 (0.01) 0.67
- ----------------------------------------------------------------------------------------------------------
Total from
Investment
Activities... 1.27 (0.25) 0.90 0.55 1.38
- ----------------------------------------------------------------------------------------------------------
Distributions:
Net Investment
Income......... (0.57) (0.48) (0.47) (0.56) (0.71)
Net Realized
Gain........... -- -- (0.71) (0.23) (0.17)
- ----------------------------------------------------------------------------------------------------------
Total
Distributions... (0.57) (0.48) (1.18) (0.79) (0.88)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END
OF PERIOD.......... $ 9.70 $ 9.00 $ 9.73 $ 10.01 $ 10.25
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT
RETURN (1) ++...... 14.57% (2.58)% 9.10% 5.52% 14.78%#
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
RATIOS AND
SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Net Assets, End of
Period
(Thousands)........ $20,388 $20,485 $38,050 $66,630 $34,631
- ----------------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net
Assets............. 1.00% 0.96% 0.88% 0.99% 0.59%**
Ratio of Net
Investment Income
to Average Net
Assets............. 6.04% 5.45% 4.37% 5.66% 7.39%**
Portfolio Turnover
Rate............... 84.56% 201.23% 244.53% 371.19% 201.42%
- ----------------------------------------------------------------------------------------------------------
# Not annualized.
* Reflects operations for the period from January 8, 1991 (commencement of operations) to December 31,
1991.
** Annualized.
+ Net of waived fees and reimbursed expenses of $0.13 , $0.02 and $.04 per share for the years ended
December 31, 1991, December 31, 1992 and December 31, 1995, respectively.
Section BEA Associates replaced CS First Boston Investment Management as the Fund's investment adviser
effective June 13, 1995, as explained in Note B.
++ Total return for the years ended December 31, 1991, December 31, 1992 and December 31, 1995 would have
been lower if fees had not been waived and reimbursed.
(1) Total return is calculated exclusive of sales charge.
Note: Current period permanent book-tax differences, if any, are not included in the calculation of net
investment income per share.
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- ------------
A. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES--BEA Investment Funds, Inc.
(the "Company") formerly CS First Boston Investment Funds, Inc. was incorporated
in Maryland on July 2, 1987 and its operations through July 27, 1988 were
limited to its organization and registration as a diversified, open-end
investment company under the Investment Company Act of 1940. The Institutional
Government Fund (the "Fund") commenced operations on January 8, 1991. The Fund's
investment objective is a high current return through investments in U.S.
Government securities.
The following significant accounting policies are in conformity with generally
accepted accounting principles for investment companies. Such policies are
consistently followed by the Fund in the preparation of financial statements.
Generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts and disclosures in the financial
statements. Actual reported results could differ from those estimates.
1. SECURITY VALUATION: Investments for which the primary market is a national
securities exchange are valued at the last sale price on such exchange on the
day of valuation or, if no sale occurred on such day, at the mean of the bid
and asked prices on such day. Investments for which the primary market is
believed to be over-the-counter are valued at the mean of the most recent
quoted bid and asked prices provided by one or more principal market makers.
Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith in
accordance with procedures adopted by the Board of Directors. U.S. government
obligations and other short-term obligations maturing in sixty days or less
are valued at amortized cost, which approximates market value.
2. FEDERAL INCOME TAXES: It is the Fund's intention to comply with the
requirements of the Internal Revenue Code to qualify as a regulated
investment company and distribute all of its taxable income and realized
gains to shareholders. Accordingly, no provision for Federal income taxes is
required.
The cost of investments for Federal income tax purposes amounted to
$18,636,080. The net unrealized appreciation on a Federal income tax basis
amounts to $631,962 and is comprised of appreciation of $690,092 and
depreciation of $58,130 at December 31, 1995.
During the year ended December 31, 1995 the Fund utilized capital loss
carryover for federal income tax purposes of $259,295. For the year ended
December 31, 1995, the Fund had capital loss carryforwards totaling $1,041,152
which can be used to offset capital gains until December 31, 2002.
Undistributed net investment income and accumulated net realized loss have
been adjusted for prior period permanent book-tax differences.
3. REPURCHASE AGREEMENTS: The Fund enters into agreements to purchase securities
and to resell them (repurchase agreements) at a future date. It is the Fund's
policy to take custody of securities purchased and to ensure that the market
value of the collateral including accrued interest is sufficient to protect
the Fund from losses incurred in the event the counterparty does not
repurchase the securities. If the seller defaults and the value of the
collateral declines or if bankruptcy proceedings are commenced with respect
to the seller of the security, realization of the collateral by the Fund may
be delayed or limited.
4. DOLLAR ROLLS: The Fund may enter into dollar rolls in which the Fund sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities
on a specified future date. During the roll period, the Fund forgoes
principal and interest paid on the securities. The Fund is compensated by the
interest earned on the cash proceeds of the initial sale and a fee earned for
entering into the roll transaction. The fee is amortized into income over the
duration of the roll transaction.
5. DIVIDENDS AND DISTRIBUTIONS: Distributions from net investment income are
declared on a monthly basis payable on the last calendar day (or next
business day if the last calendar day falls on a holiday or weekend) of the
month. Distributions of net realized gains will be paid at least annually.
However, to the extent that net realized gains of the Fund can be reduced by
any capital loss carryforwards of the Fund, such gains will not be
distributed.
Income distributions and capital gains distributions are determined in
accordance with U.S. Federal Income Tax regulations which may differ from
generally accepted accounting principles. These differences are principally
due to the timing of the recognition of gains or losses on securities.
6. SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Security transactions are
accounted for on the date the securities are purchased or sold. Costs used in
determining realized gains and losses on the sale of investment securities
are those of specific securities sold. Interest income is recognized on the
accrual basis. Discounts and premiums on securities purchased are
accreted/amortized over their respective estimated lives on a yield to
maturity basis for long term securities, with the exception of mortgage
backed securities, and on a straight line basis for short
7
<PAGE>
term securities. Discount or premium on mortgage backed securities is
recognized upon receipt of principal payments on the underlying mortgage
pools.
7. DELAYED DELIVERY COMMITMENTS: The Fund may purchase or sell securities on a
when-issued or forward commitment basis. Payment and delivery may take place
a month or more after the date of the transaction. The price of the
underlying securities and the date when the securities will be delivered and
paid for are fixed at the time the transaction is negotiated.
8. OTHER: Organization expenses were amortized on a straight line basis over a
period which did not exceed sixty months.
Most expenses of the Company can be directly attributed to a fund. Expenses
which cannot be directly attributed are apportioned among the funds in the
Company.
B. INVESTMENT ADVISORY AGREEMENT--Effective June 13, 1995, BEA Associates (the
"Adviser") provides investment advisory services to the Fund under the terms of
an Investment Advisory Agreement (the "Advisory Agreement"). Under the Advisory
Agreement, the Fund pays the Adviser a fee, calculated daily and payable
monthly, at a base annual rate of .50% of the Fund's average daily net assets.
Prior to June 13, 1995, CS First Boston Investment Management Corporation
provided investment advisory services to the Fund under substantially the same
terms, conditions and fees as stated above.
The Adviser has agreed to reimburse to the Fund a portion of its advisory fees
to the extent that the expenses of the Fund exceed 1.00% of average daily net
assets.
C. ADMINISTRATIVE AND CUSTODY AGREEMENTS--Effective September 1, 1995, The Chase
Manhattan Bank, N.A. ("Chase"), through its affiliate Chase Global Funds
Services Company (the "Administrator"), formerly Mutual Funds Service Company
("MFSC"), provides administrative, fund accounting, dividend disbursing and
transfer agent services under an Administrative Agreement. Effective September
1, 1995, Chase also serves as custodian of the Fund's assets under a Custody
Agreement. Under the Agreements, Chase is paid a combined fee, computed daily
and payable monthly at an annual rate of .05% of the Fund's average daily net
assets, plus a fixed fee of $1,000 per month and out-of-pocket expenses. Prior
to September 1, 1995, United States Trust Company of New York ("U.S. Trust"),
through its wholly owned subsidiary MFSC, provided administrative, fund
accounting, dividend disbursing and transfer agent services. U.S. Trust also
provided custodial services to the Fund under the same terms conditions, terms
and fees as stated above.
D. DISTRIBUTION AGREEMENT--Effective April 19, 1995, Funds Distributor, Inc.
(the "Distributor") serves as distributor of shares of the Fund. Under its
Distribution Agreement with the Company, the Distributor sells shares of the
Fund upon the terms of the prospectus and at the current offering price. The
Distributor is not obligated to sell any certain number of shares of the Fund.
For the year ended December 31, 1995, the Distributor received no commissions
from sales of the Fund's shares. Prior to April 19, 1995, CS First Boston
Corporation served as distributor of shares of the Fund. CS First Boston
Corporation also received no commissions.
E. PORTFOLIO ACTIVITY--Purchases and sales of U.S. Government securities, other
than short term investments for the year ended December 31, 1995 were
$16,730,170 and $19,102,885, respectively.
F. CAPITAL--The Company is authorized to issue 79,500,000,000 shares of Common
Stock, $.001 par value, of which the Fund is authorized to issue 500,000,000
shares. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
------------- -------------
<S> <C> <C>
Shares outstanding, beginning
of period..................... 2,275,820 3,910,001
Shares sold.................... 852,793 602,487
Shares issued in reinvestment
of dividends and
distributions................. 137,829 134,526
Shares redeemed................ (1,165,277) (2,371,194)
------------- -------------
Shares outstanding, end of
period........................ 2,101,165 2,275,820
------------- -------------
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</TABLE>
G. SUBSEQUENT EVENT--The Fund paid a dividend of $.05 per share on January 2,
1996. The Fund also paid a dividend of $.05 per share on January 31, 1996, which
represented all taxable income and capital gains of the Fund through January 31,
1996. The Fund ceased operations on January 31, 1996 and redeemed all
outstanding shares at a net asset value of $9.63 per share.
8
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REPORT OF INDEPENDENT ACCOUNTANTS
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To The Board of Directors and Shareholders of
Institutional Government Fund, a portfolio of
BEA Investment Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Institutional Government Fund
of BEA Investment Funds, Inc. (the "Fund") at December 31, 1995, 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 the financial highlights for each
of the four years in the period then ended and for the period January 8, 1991
(commencement of operations) through December 31, 1991, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
As further explained in Note G, the Fund ceased operations on January 31, 1996.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY
February 7, 1996
9
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