(logo)
Scudder
Global High
Income Fund, Inc.
(Formerly, The Latin America Dollar Income Fund, Inc.
Annual Report
October 31, 1998
A non-diversified closed-end investment company seeking high current income as
its primary objective and capital appreciation as a secondary objective through
investment principally in global income securities.
<PAGE>
Scudder Global High
Income Fund, Inc.
================================================================================
Investment objectives and policies
o seeking high current income as its primary objective and capital appreciation
as its secondary objective through investment principally in global income
securities
Investment characteristics
o a non-diversified closed-end investment company investing principally in a
portfolio of global income securities and, to a limited extent, emerging
country equity securities
o a vehicle for international investment through participation in the
economies of both developed and developing countries throughout the
world
General Information
================================================================================
Executive offices
Scudder Global High Income Fund, Inc.
345 Park Avenue
New York, NY 10154
For Fund information: 1-800-349-4281
Transfer agent, registrar and dividend
reinvestment plan agent
For account information: 1-800-426-5523
Boston Equiserve
Investor Relations Department
P.O. Box 8200
Boston, MA 02266-8200
Custodian
Brown Brothers Harriman & Co.
Legal counsel
Willkie Farr & Gallagher
Independent Accountants
PricewaterhouseCoopers LLP
New York Stock Exchange Symbol -- LBF
Contents
- --------------------------------------------------------------------------------
In Brief 3
Letter to Shareholders 3
Investment Summary 7
Portfolio Summary 8
Investment Portfolio 9
Financial Statements 12
Financial Highlights 16
Notes to Financial Statements 17
Report of Independent Accountants 22
Investment Policy Changes 23
Dividend Reinvestment and
Cash Purchase Plan 25
Investment Manager 27
Directors and Officers Back cover
Net Asset Value
The Fund's net asset value is listed in the following publications:
The Wall Street Journal (Mondays)
The New York Times
Barron's
The Financial Times
- --------------------------------------------------------------------------------
This report is sent to the shareholders of Scudder Global High Income Fund, Inc.
for their information. It is not a prospectus, circular, or representation
intended for use in the purchase or sale of shares of the Fund or of any
securities mentioned in the report.
- --------------------------------------------------------------------------------
2
<PAGE>
Scudder Global High Income Fund, Inc.
In Brief
================================================================================
o Economic crises in Asia, Russia, and South America buffeted emerging market
bonds during Scudder Global High Income Fund's most recent fiscal year ended
October 31, 1998. During the period, the difference or "spread" between
emerging market bond yields and Treasury yields widened to the largest margin
since the 1994 Mexican crisis. In late September and October, the markets
regained some ground as a stabilization package for Brazil was announced.
o For the 12-month period ended October 31, 1998, Scudder Global High Income
Fund's return based on net asset value was -52.80%. The unmanaged J.P. Morgan
Emerging Markets Bond Index Plus posted a -10.11% return over the same
period.
Letter to Shareholders
================================================================================
Dear Shareholders,
The twelve-month period ended October 31, 1998, was an extremely difficult
period for emerging markets. This period was especially difficult for Scudder
Global High Income Fund which posted a -52.80% total return based on net asset
value. The Fund closed the 12-month period with a net asset value ("NAV") of
$5.45, down from $13.11 on October 31, 1997. During the period the Fund paid
$1.24 per share in income distributions and $0.26 in nontaxable return of
capital distributions. Following the close of the Fund's 1998 fiscal year,
Scudder Global High Income Fund's Board of Directors declared a $0.15 per share
income distribution to shareholders of record as of December 31, 1998. By
lowering the Fund's regular quarterly distribution to a level commensurate with
the current earnings of the Fund, the Fund's Board and management hope to avoid
a return of capital for the 1999 fiscal year. The unmanaged J.P. Morgan Emerging
Markets Bond Index Plus returned -10.11% over the same time period. A
significant amount of the Fund's severe decline in NAV resulted from its
overweight exposure to Russia, as well as the fact that the Fund was fully
leveraged at the time of the Russia crisis.
During the 12-month period ended October 31, 1998, the Fund's share price on the
New York Stock Exchange declined from $14.25 to $6.875, for a total return of
- -36.19%. The $6.875 price of the shares on October 31, 1998, represented a 26.2%
premium to the Fund's NAV.
Asian Economic Weakness Spreads
The 12-month period ended October 31 was the most difficult one for emerging
market investors since the Mexican currency crisis in 1994. The recent troubles
began with the devaluation of the Thai baht in July of 1997. The so-called
"Asian contagion" -- where pressure was exerted on Asian countries with
significant current account deficits and overvalued currencies to devalue their
currencies -- eventually spread to several other Asian countries, including the
Philippines, Singapore, South Korea, and Indonesia. The International Monetary
Fund (IMF) intervened in several of these countries, promising to buttress
currency reserves but demanding stringent fiscal reforms. With the exception of
Indonesia, most Asian currencies eventually settled into a lower trading range.
Currency concerns then shifted for a time to the Hong Kong dollar peg. Although
interest rate spreads between emerging market and Treasury bonds widened during
this period, they showed signs of stabilizing as South Korea and Thailand
managed to post current account surpluses while their currencies strengthened.
Then, in May 1998, attention began to focus on the difficulties in Russia.
3
<PAGE>
Scudder Global High Income Fund, Inc.
Letter to Shareholders
================================================================================
Turmoil in Russia arose from issues surrounding the country's short-term
domestic debt: Investors became concerned over what portion of their substantial
debt Russian officials would be able to refinance when it came due. A large
percentage of the Russian GKO (short-term domestic debt) was owned by investors
outside Russia, and most of the growth the country had been able to sustain was
due to inflows of foreign capital. As confidence in the Russian government's
ability to enact economic reforms and maintain the currency regime came into
question, foreign investors began to sell their Russian assets.
Concern then grew over Russia's loss of international reserves. Negotiations
with the IMF produced a stabilization package of $23 billion, with stringent
fiscal stipulations by the IMF. The Russian government failed to fulfill all of
these stipulations, which, in turn, made the IMF reluctant to disperse the
second tranche of aid to the Russian government. The two major blows to emerging
market bonds came last August 17th when the Russian government decided to
restructure ruble-denominated debt and to set a new floating exchange rate that
allowed Russia's currency to trade freely. These moves by Russia initiated waves
of selling by emerging market investors, causing the yield spread between
emerging market bonds and Treasuries to widen substantially (the spread
eventually reached almost 18 percentage points, the widest margin since the
Mexican crisis in 1994).
Scudder Global High Income Fund was not invested in any instrument which was
part of the Russian debt restructuring announced last August. The Fund had not
participated in these investments due to concern that the fiscal situation in
Russia was difficult and these instruments were therefore vulnerable. The Fund
did, however, own Russian "principal loans," longer-term securities that are
obligations of the former Soviet Union and denominated in U.S. dollars. By the
close of the Fund's fiscal year we had sold most of our Russian position.
Russia's Effect on Emerging Market Debt
When short-term Russian securities defaulted and the ruble was devalued, many of
the large hedge funds that had invested in Russian GKOs received margin calls.
The need to meet margin calls sparked further selling, resulting in the
unwinding of much of the leverage in the emerging market universe. In the
aftermath, investors looked to the currencies of other countries that might have
problems similar to Russia's. In Latin America, Venezuela was affected first,
because with oil prices falling to extremely low inflation-adjusted levels, the
country's ability to meet its fiscal requirements came into question.
The market's major focus subsequently came to Brazil, with its high debt to GDP
ratios. During late summer, daily capital flight of $500 million to $1 billion
nearly halved Brazil's currency reserves. In addition, a presidential election
made it difficult for President Cardoso to pass needed reforms. Following
President Cardoso's recent re-election, the IMF, the G-7, and the World Bank
have offered a $42 billion stabilization package contingent on passage of a new
round of taxes, expenditure cuts, and fiscal reforms. The market is now awaiting
the results of Brazilian Congressional action.
Portfolio Allocations
In light of the recent increases in the volatility of emerging market bond
prices, we are focusing on countries that we believe exhibit sound fiscal policy
and have limited refinancing needs. Countries such as Bulgaria, which has
satisfied its financing requirements through the year 2000, seem very
attractive. There is currently little or no risk of capital flight from Bulgaria
by holders of the country's short-term debt. We increased our allocation there
to 10% of Fund holdings by the close of the period. Likewise, the Fund has
recently made significant purchases in Peru, which has almost no short-term
debt.
4
<PAGE>
Scudder Global High Income Fund, Inc.
Letter to Shareholders
================================================================================
In addition, the Fund is slightly overweight in Mexico, a holding that can be
considered defensive in light of the fact that prices of Mexican sovereign bonds
tend to remain fairly stable in up and down markets. In Brazil, we remain
somewhat underweight, as we await the results of recent reform efforts. If
needed reforms are passed, Brazilian bonds should stage a strong rally.
Year 2000 Readiness
Like other registered investment companies and financial business organizations
worldwide, the Fund could be adversely affected if computer systems on which the
Fund relies, which primarily include those used by the Fund's Adviser, its
affiliates or other service providers, are unable to correctly process
date-related information on and after January 1, 2000. This risk is commonly
called the Year 2000 Issue (Y2K). Failure to successfully address the Y2K Issue
could result in interruptions to and other material adverse effects on the
Fund's business and operations. Scudder Kemper Investments has commenced a
review of the Y2K Issue as it may affect the Fund and is taking steps it
believes are reasonably designed to address the Y2K Issue, although there can be
no assurances that these steps will be sufficient. In addition, there can be no
assurances that the Y2K Issue will not have any adverse effect on the companies
whose securities are held by the Fund or on global markets or economies
generally. The foregoing is a Year 2000 readiness disclosure under the Year 2000
Information and Readiness Disclosure Act.
Euro Conversion
The planned introduction of a new European currency, the euro, may result in
uncertainties for European securities in the markets in which they trade and
with respect to the operation of the Fund's portfolio. Currently, the euro is
expected to be introduced on January 1, 1999 by eleven European countries that
are members of the European and Monetary Union (EMU). The introduction of the
euro will require the redenomination of European debt and equity securities over
a period of time, which may result in various accounting differences and/or tax
treatments that otherwise would not likely occur. Additional questions are
raised by the fact that certain other EMU members, including the United Kingdom,
will not officially be implementing the euro on January 1, 1999. If the
introduction of the euro does not take place as planned, there could be negative
effects, such as severe currency fluctuations and market disruptions.
The Adviser is actively working to address euro-related issues and understands
that other key service providers are taking similar steps. At this time, no one
knows precisely what the degree of impact will be. To the extent that the market
impact or effect on a portfolio holding is negative, it could hurt the Fund's
performance.
Outlook
During the coming months, we expect prices to remain at or near current levels.
However, a number of concerns need to be addressed throughout emerging markets
- -- the Russian debt restructuring, continued fiscal adjustments in Brazil and
Venezuela, and further progress on restructurings in Asia. Keeping these
concerns in mind, the Fund has taken a conservative approach and will continue
to monitor the progress of these key issues. If volatility and yields continue
to trend downward, the prospects for emerging market performance should continue
to improve. Recent interest rate reductions by European central banks in an
effort to restore global liquidity have also been encouraging signs for emerging
markets.
If the recent positive direction continues, we believe more investors will
return to the emerging markets, further boosting liquidity, in search of the
high yields that are now available. The basis of investing in emerging markets
debt -- the long-term trend of improving creditworthiness in major emerging
markets -- is still in place, though near-term risk levels have increased.
Barring a significant global recession, we believe that this trend should
5
<PAGE>
continue at a gradual pace over the next five years. Over the coming months, we
will continue to search for opportunities to provide high current income and
long-term capital appreciation to our shareholders.
We are pleased that you are an investor in Scudder Global High Income Fund and
appreciate the long term commitment you have shown through this difficult
period. We would be happy to receive any questions or comments. You can reach us
at 1-800-349-4281.
Respectfully,
/s/Lynn S. Birdsong
Lynn S. Birdsong
President and
Chairman of the Board
6
<PAGE>
SCUDDER GLOBAL HIGH INCOME FUND, INC.
INVESTMENT SUMMARY AS OF OCTOBER 31, 1998
- -------------------------------------------------------------------------------
HISTORICAL
INFORMATION TOTAL RETURN (%)
LIFE OF FUND ----------------------------------------------------------------
MARKET VALUE NET ASSET VALUE (a) INDEX (b)
------------------- -------------------- -------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
------------------- ------------------- --------------------
CURRENT QUARTER -42.06% -- -50.12% -- -16.71% --
ONE YEAR -36.19% -36.19% -52.80% -52.80% -10.11% -10.11%
THREE YEAR -2.27% -0.76% -16.13% -5.70% 43.94% 12.90%
FIVE YEAR -0.27% -0.05% -23.84% -5.30% 41.01% 7.11%
LIFE OF FUND* 16.18% 2.43% -0.11% -0.02% 88.02% 10.62%
- -------------------------------------------------------------------------------
PER SHARE INFORMATION AND RETURNS
YEARLY PERIODS ENDED OCTOBER 31
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) with the exact
data points listed in the table below.
<TABLE>
<CAPTION>
1992* 1993 1994 1995 1996 1997 1998
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE..... $13.45 $16.22 $13.41 $11.20 $15.61 $13.11 $ 5.45
INCOME DIVIDENDS.... $ .13 $ 1.49 $ 1.51 $ 1.53 $ 1.50 $ 1.50 $ 1.50
CAPITAL GAINS
DISTRIBUTIONS....... $ -- $ .01 $ .36 $ .15 $ -- $ 2.92 $ --
TOTAL RETURN(%)(a).. -1.89 33.69 -5.94 -3.46 55.81 14.03 -52.80
</TABLE>
(a) Total investment returns reflect changes in net asset value per share
during each period and assume that dividends and capital gains
distributions, if any, were reinvested. These percentages are not an
indication of the performance of a shareholder's investment in the Fund
based on market price.
(b) The unmanaged J.P. Morgan Emerging Markets Bond Index Plus (EMBI+) tracks
total returns for traded external debt instruments in the emerging markets.
Included in the index are U.S. dollar- and other external-currency-
denominated Brady bonds, loans, Eurobonds, and local market instruments.
The EMBI+ Index began on December 31, 1993. Prior index returns are based
on the J.P. Morgan Emerging Markets Bond Index (EMBI). Index returns assume
reinvested dividends, and unlike Fund returns, do not reflect any fees or
expenses.
* The Fund commenced operations on July 31, 1992.
On November 14, 1997, the Fund adopted its current name and investment
policies. Prior to that date the Fund was known as The Latin America Dollar
Income Fund and its investment objective was to provide income and
appreciation through investment in U.S. dollar denominated Latin American
debt instruments. Performance prior to November 14, 1997 should not be
considered representative of the present Fund.
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE OF THE
FUND.
7
<PAGE>
SCUDDER GLOBAL HIGH INCOME FUND, INC.
PORTFOLIO SUMMARY as of October 31, 1998
===============================================================================
INVESTMENT ALLOCATION (Excludes 9% Cash Equivalents)
Sovereign Bonds (1) 100%
-----
(1) Includes 62% investments in Brady Bonds.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
===============================================================================
INTEREST RATE SENSITIVITY (Excludes 9% Cash Equivalents)
Floating Rate Bonds 58%
Fixed Rate Bonds 42%
-----
100%
-----
-----
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
===============================================================================
GEOGRAPHICAL (Excludes 9% Cash Equivalents)
Mexico 23%
Brazil 19%
Argentina 13%
Bulgaria 10%
Morocco 10%
Ecuador 7%
Peru 5%
Jamaica 4%
Russia 3%
Other 6%
-----
100%
-----
-----
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
8
<PAGE>
Scudder Global High Income Fund, Inc.
Investment Portfolio
================================================================================
<TABLE>
<CAPTION>
Principal Market
Amount ($) (c) Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Agency Obligations -- 9.3%
United States
Federal Home Loan Mortgage Association, 11/3/1998 ........................................ 6,000,000 5,998,367
Federal National Mortgage Association, 11/2/1998 ......................................... 335,000 334,949
----------
Total U.S. Government Agency Obligations (Cost $6,333,316) ............................... 6,333,316
----------
- ----------------------------------------------------------------------------------------------------------------------
Short Term Investments -- 2.7%
Mexico
Certificados de la Tesoreria, 12/31/1998 ..............................................MXP 9,582,550 899,877
Certificados de la Tesoreria, 1/7/1999 ................................................MXP 9,705,670 905,521
----------
Total Short Term Investments (Cost $1,812,134) ........................................... 1,805,398
----------
- ----------------------------------------------------------------------------------------------------------------------
Bonds -- 88.0%
Argentina -- 11.3%
Argentine Republic, 9.25%, 2/23/2001 ..................................................... 1,000,000 975,000
Argentine Republic, 11.0%, 10/9/2006 ..................................................... 690,000 683,100
Argentine Republic, Collateralized Discount Bond, Floating Rate Bond, Series L, 6.625%,
3/31/2023 .............................................................................. 1,250,000 859,375
Argentine Republic, Collateralized Par Bond, Series L, Step-up Coupon, 5.75%,
3/31/2023 .............................................................................. 2,500,000 1,750,000
Argentine Republic, Floating Rate Bond, Series L, LIBOR plus .8125% (6.1875%),
3/31/2005 (b) .......................................................................... 4,042,000 3,354,860
----------
7,622,335
----------
Brazil -- 17.2%
Federative Republic of Brazil, 9.375%, 4/7/2008 (b) ...................................... 3,500,000 2,382,188
Federative Republic of Brazil, Collateralized Discount Bond, Floating Rate Bond, LIBOR
plus .8125% (6.125%), 4/15/2024 (b) .................................................... 3,770,000 2,243,150
Federative Republic of Brazil, Eligible Interest, Floating Rate Bond, LIBOR plus .8125%
(6.125%), 4/15/2006 (b) ................................................................ 5,184,000 3,356,640
Federative Republic of Brazil, "New" Money Bond, Floating Rate Bond, LIBOR plus .875%
(6.1875%), 4/15/2009 (b) ............................................................... 6,610,000 3,685,075
----------
11,667,053
----------
Bulgaria -- 9.2%
Republic of Bulgaria, Collateralized Discount Bond, Tranche A, LIBOR plus .8125%
(6.6875%), 7/28/2024 (b) ............................................................... 3,100,000 2,170,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Scudder Global High Income Fund, Inc.
Investment Portfolio
================================================================================
<TABLE>
<CAPTION>
Principal Market
Amount ($) (c) Value (U.S.$)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Republic of Bulgaria, Floating Rate Interest Reduction, Step-up Coupon Collateralized
Bond "A", 2.25%, 7/28/2012 ............................................................. 3,375,000 1,856,250
Republic of Bulgaria, Interest Arrears Bond, LIBOR plus .8125% (6.6875%), 7/28/2011 (b) .. 3,350,000 2,211,000
----------
6,237,250
----------
Ecuador -- 6.2%
Republic of Ecuador, Collateralized Discount Bond, Floating Rate Bond, LIBOR plus
.8125% (6.625%), 2/28/2025 ............................................................. 750,000 384,375
Republic of Ecuador, Collateralized Global Par Bond, Step-up Coupon, 3.5%,
2/28/2025 .............................................................................. 8,450,000 3,844,750
----------
4,229,125
----------
Ivory Coast -- 1.2%
Republic of the Ivory Coast, Floating Rate Interest Reduction Bond, Step-up Coupon,
2.0%, 3/29/2018 (b) .................................................................... 3,500,000 805,000
----------
Jamaica -- 4.0%
Government of Jamaica, 10.875%, 6/10/2005 ................................................ 3,625,000 2,718,750
----------
Korea -- 2.3%
Republic of Korea, 8.875%, 4/15/2008 ..................................................... 1,660,000 1,527,200
----------
Mexico -- 18.0%
Petroleos Mexicanos S.A., 9.5%, 9/15/2027 (b) ............................................ 4,500,000 3,667,500
United Mexican States, Collateralized Discount Bond, Floating Rate Bond (Detachable Oil
Priced Indexed Value Recovery Rights), Series B, LIBOR plus .8125% (6.476%),
12/31/2019 ............................................................................. 500,000 391,875
United Mexican States, Collateralized Discount Bond, Floating Rate Bond (Detachable Oil
Priced Indexed Value Recovery Rights), Series C, LIBOR plus .8125% (6.617%),
12/31/2019 ............................................................................. 1,000,000 783,750
United Mexican States, Collateralized Discount Bond, Floating Rate Bond (Detachable Oil
Priced Indexed Value Recovery Rights), Series D, LIBOR plus .8125% (6.813%),
12/31/2019 (b) ......................................................................... 7,250,000 5,682,188
United Mexican States, Collateralized Par Bond (Detachable Oil Priced Indexed Value
Recovery Rights), Series A, 6.25%, 12/31/2019 .......................................... 2,200,000 1,655,500
----------
12,180,813
----------
Morocco -- 9.4%
Kingdom of Morocco, Restructuring and Consolidation Agreement, Tranche A, Floating
Rate Bond, LIBOR plus .8125% (6.5625)%, 1/1/2009 ....................................... 8,150,000 6,112,500
SNAP Ltd., Kingdom of Morocco Repackaged Euro Note, Morocco Loan, Tranche A,
11.5%, 1/29/2009 ....................................................................DEM 458,334 235,448
----------
6,347,948
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Scudder Global High Income Fund, Inc.
Investment Portfolio
================================================================================
<TABLE>
<CAPTION>
Principal Market
Amount ($) (c) Value (U.S.$)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Peru -- 4.8%
Republic of Peru, Floating Rate Interest Reduction Bond, 3.25%, 3/7/2017 ................. 4,250,000 2,146,250
Republic of Peru, Past Due Interest Bond, 4.0%, 3/7/2017 (b) ............................. 1,960,000 1,107,400
----------
3,253,650
----------
Russia -- 2.8%
Russian Federation Principal Loan, Floating Rate Bond, LIBOR plus .8125% (6.625%),
12/15/2020 ............................................................................. 25,680,000 1,893,900
Russian IAN (Interest in Arrears Note), Floating Rate Bond, LIBOR plus .8125% (6.625%),
12/15/2015 ............................................................................. 370,543 37,054
----------
1,930,954
----------
Venezuela -- 1.6%
Republic of Venezuela, Debt Conversion Bond, Floating Rate Bond, Series DL, LIBOR
plus .875% (6.625%), 12/18/2007 ........................................................ 1,809,520 1,103,807
----------
Total Bonds (Cost $68,479,393) ........................................................... 59,623,885
----------
- ----------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $76,624,843) (a) .............................. 67,762,599
==========
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost of the investment portfolio for federal income tax purposes was
$86,709,477. At October 31, 1998, net unrealized depreciation for all
securities based on tax cost was $18,946,878. This consisted of aggregate
gross unrealized appreciation for all securities in which there was an
excess of market value over tax cost of $1,986,195 and aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over market value $20,933,073.
(b) At October 31, 1998 these securities, in whole or in part, are subject to
repurchase under reverse repurchase agreements.
(c) Principal amounts are stated in U.S. dollars unless otherwise noted.
Currency Abbreviations
--------------------------------------------
DEM Deutsche Marks
MXP Mexican Pesos
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Scudder Global High Income Fund, Inc.
Financial Statements
================================================================================
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities
October 31, 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments, at market (identified cost $76,624,843) ..................................... $ 67,762,599
Receivable for investments sold .......................................................... 9,333,132
Interest receivable ...................................................................... 1,940,004
Other assets ............................................................................. 1,409
----------------
Total assets ............................................................................. 79,037,144
LIABILITIES
Reverse repurchase agreements ............................................................ 24,018,516
Interest payable for reverse repurchase agreements ....................................... 164,485
Payable for investments purchased ........................................................ 1,061,866
Due to custodian bank .................................................................... 21,551
Accrued management fee ................................................................... 52,294
Other payables and accrued expenses ...................................................... 264,938
----------------
Total liabilities ........................................................................ 25,583,650
----------------
Net assets, at market value .............................................................. $ 53,453,494
================
NET ASSETS
Net assets consist of:
Net unrealized appreciation (depreciation) on:
Investments .............................................................................. (8,862,244)
Foreign currency related transactions .................................................... 1,554
Accumulated net realized gain (loss) ..................................................... (68,583,269)
Paid-in capital .......................................................................... 130,897,453
----------------
Net assets, at market value .............................................................. $ 53,453,494
================
Net asset value per share ($53,453,494 B 9,807,807 shares of common stock
outstanding, $.01 par value, 100,000,000 shares authorized) ........................... $5.45
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
12
<PAGE>
Scudder Global High Income Fund, Inc.
Financial Statements
================================================================================
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Statement of Operations
Year Ended October 31, 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment Income
Interest ................................................................................. $ 15,623,941
----------------
Expenses:
Management fee ........................................................................... 1,331,774
Directors' fees and expenses ............................................................. 59,620
Custodian, accounting and other fees ..................................................... 194,130
Reports to shareholders .................................................................. 47,993
Auditing ................................................................................. 97,703
Legal .................................................................................... 14,240
Services to shareholders ................................................................. 44,091
Interest ................................................................................. 1,205,293
----------------
2,994,844
----------------
Net investment income .................................................................... 12,629,097
----------------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) from:
Investments .............................................................................. (68,754,276)
Futures .................................................................................. 311,191
Foreign currency related transactions .................................................... (290,657)
----------------
(68,733,742)
----------------
Net unrealized appreciation (depreciation) on:
Investments .............................................................................. (4,041,366)
Foreign currency related transactions .................................................... 17,810
----------------
(4,023,556)
----------------
Net gain (loss) on investment transactions ............................................... (72,757,298)
----------------
Net increase (decrease) in net assets resulting from operations .......................... $ (60,128,201)
================
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
13
<PAGE>
Scudder Global High Income Fund, Inc.
Financial Statements
================================================================================
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------------------------
Years ended October 31,
-----------------------------------------------
Increase (Decrease) in Net Assets 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................................. $ 12,629,097 $ 7,850,426
Net realized gain (loss) from investment transactions ................. (68,733,742) 13,592,824
Net unrealized appreciation (depreciation) on investment transactions
during the period .................................................. (4,023,556) (9,659,259)
---------------- ----------------
Net increase (decrease) in net assets resulting from operations ....... (60,128,201) 11,783,991
---------------- ----------------
Distributions to shareholders from:
Net investment income ................................................. (12,088,724) (9,170,408)
---------------- ----------------
Tax return of capital ................................................. (2,539,510) --
---------------- ----------------
Net realized gains from investment transactions ....................... -- (17,875,360)
---------------- ----------------
Fund share transactions:
Proceeds from shares issued in the acquisition of Scudder World
Income Opportunities Fund, Inc. .................................... 45,594,929 --
Reinvestment of distributions ......................................... 1,893,156 1,235,015
---------------- ----------------
Net increase (decrease) in net assets from Fund share transactions .... 47,488,085 1,235,015
---------------- ----------------
Increase (decrease) in net assets ..................................... (27,268,350) (14,026,762)
Net assets at beginning of period ..................................... 80,721,844 94,748,606
---------------- ----------------
Net assets at end of period (including undistributed net investment
income of $31,162 at October 31, 1997) ............................. $ 53,453,494 $ 80,721,844
================ ================
Other Information
Increase (decrease) in Fund Shares
Shares outstanding at beginning of period ............................. 6,155,449 6,070,974
---------------- ----------------
Shares issued in the acquisition of Scudder World Income
Opportunities Fund, Inc. ........................................... 3,496,614 --
Shares issued to shareholders in reinvestment of distributions ........ 155,744 84,475
---------------- ----------------
Net increase (decrease) in Fund Shares ................................ 3,652,358 84,475
---------------- ----------------
Shares outstanding at end of period ................................... 9,807,807 6,155,449
================ ================
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
14
<PAGE>
Scudder Global High Income Fund, Inc.
Financial Statements
================================================================================
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Statement of Cash Flows
Year Ended October 31, 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Investment income received ............................................................... $ 12,000,805
Payment of expenses ...................................................................... (2,903,012)
Proceeds from sales and maturities of investments ........................................ 387,034,895
Purchases of investments ................................................................. (401,409,040)
Net maturities of short-term investments ................................................. 6,988,804
----------------
Cash provided by operating activities .................................................... 1,712,452
----------------
Cash flows from financing activities:
Net increase (decrease) in reverse repurchase agreements ................................. 24,018,516
Cash provided from borrowings from custodian ............................................. 21,551
Distributions paid (net of reinvestment of dividends) .................................... (25,753,659)
----------------
Cash used by financing activities ........................................................ (1,713,592)
----------------
Increase (decrease) in cash .............................................................. (1,140)
Cash at beginning of period .............................................................. 1,140
----------------
Cash at end of period .................................................................... $ 0
================
Reconciliation of net increase (decrease) in net assets from operations to cash
used by operating activities:
Net increase (decrease) in net assets resulting from operations .......................... (60,128,201)
Net increase (decrease) in cost of investments ........................................... 53,024,476
Net increase (decrease) in unrealized appreciation (depreciation) on investments ......... 4,041,366
(Increase) decrease in interest receivable ............................................... (592,384)
(Increase) decrease in receivable for investments sold ................................... 4,220,562
(Increase) decrease in other assets ...................................................... 10,805
Increase (decrease) in payable for investments purchased ................................. 1,061,866
Increase (decrease) in accrued expenses .................................................. (72,713)
Increase (decrease) in interest payable .................................................. 164,485
Increase (decrease) in unrealized appreciation (depreciation) on forward foreign
currency exchange contracts ........................................................... (17,810)
----------------
Cash provided by operating activities .................................................... $ 1,712,452
================
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
15
<PAGE>
Scudder Global High Income Fund, Inc.
Financial Statements
================================================================================
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements and market price data.
- ----------------------------------------------------------------------------------------------------------------------
Years Ended October 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period .................... $ 13.11 $ 15.61 $ 11.20 $ 13.41 $ 16.22
------- ------- ------- ------- -------
Net investment income ................................... 1.33 1.28 1.59 1.55 1.51
Net realized and unrealized gain (loss) on investment
transactions ............................................ (7.49) .64 4.32 (2.08) (2.45)
------- ------- ------- ------- -------
Total from investment operations ........................ (6.16) 1.92 5.91 (.53) (.94)
------- ------- ------- ------- -------
Less distributions:
From net investment income .............................. (1.24) (1.50) (1.50) (1.30) (1.51)
From net realized gains on investment transactions ...... -- (2.92) -- (.15) (.33)
In excess of net realized gains ......................... -- -- -- -- (.03)
Tax return of capital ................................... (.26) -- -- (.23) --
------- ------- ------- ------- -------
Total distributions ..................................... (1.50) (4.42) (1.50) (1.68) (1.87)
------- ------- ------- ------- -------
Net asset value, end of period .......................... $ 5.45 $ 13.11 $ 15.61 $ 11.20 $ 13.41
======= ======= ======= ======= =======
Market value, end of period ............................. $ 6.88 $12.13(b) $ 13.88 $ 12.13 $ 13.25
======= ======= ======= ======= =======
Total Investment Return
Per share market value (%) .............................. (36.19) 19.72 27.93 5.78 (3.52)
Per share net asset value (%) (c) ....................... (52.80) 14.03 55.81 (3.46) (5.94)
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................. 53 81 95 67 79
Ratio of operating expenses (excluding interest) to
average net assets (%) ................................ 1.60 1.85 1.79 1.96 1.83
Ratio of operating expenses to average net assets (%) ... 2.67 2.36 3.28 3.66 3.41
Ratio of net investment income to average net
assets (%) ............................................ 11.28 7.80 11.66 13.59 10.42
Portfolio turnover rate (%) ............................. 323.7 362.3 322.3 365.9 161.1
</TABLE>
(a) Based on monthly average shares outstanding during each period.
(b) Market value of $14.25 has been reduced to reflect a distribution of $2.12
per share, relating to a due bill which entitles individuals who purchased
shares prior to November 4, 1997, the ex-date of the dividend, to be
reimbursed by the seller in the amount of the distribution.
(c) Total investment returns reflect changes in net asset value per share
during each period and assume that dividends and capital gains
distributions, if any, were reinvested. These percentages are not an
indication of the performance of a shareholder's investment in the Fund
based on market price.
On November 14, 1997, the Fund adopted its current name and investment policies.
Prior to that date, the Fund was known as The Latin America Dollar Income Fund,
Inc. and its investment objective was to provide income and appreciation through
investment in U.S. dollar denominated Latin American Debt Instruments. Financial
information prior to November 14, 1997 should not be considered representative
of the present Fund.
- --------------------------------------------------------------------------------
16
<PAGE>
Scudder Global High Income Fund, Inc.
Notes to Financial Statements
================================================================================
A. Significant Accounting Policies
Scudder Global High Income Fund, Inc. (formerly The Latin America Dollar Income
Fund, Inc.) (the "Fund") is registered under the Investment Company Act of 1940,
as amended, as a non-diversified, closed-end management investment company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio debt securities with original maturities greater
than sixty days are valued by pricing agents approved by the Officers of the
Fund, whose quotations reflect broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Money Market investments having an original maturity of sixty
days or less are valued at amortized cost. All other securities are valued at
their fair value as determined in good faith by the Valuation Committee of the
Board of Directors.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value is equal to at least the repurchase price.
Options. An option contract is a contract in which the writer of the option
grants the buyer of the option the right to purchase from (call option), or sell
to (put option), the writer a designated instrument at a specified price within
a specified period of time. Certain options, including options on indices, will
require cash settlement by the Fund if the option is exercised. During the
period, the Fund purchased call options on securities as a temporary substitute
for purchasing selected investments.
If the Fund writes an option and the option expires unexercised, the Fund will
realize income, in the form of a capital gain, to the extent of the amount
received for the option (the "premium"). If the Fund elects to close out the
option it would recognize a gain or loss based on the difference between the
cost of closing the option and the initial premium received. If the Fund
purchased an option and allows the option to expire it would realize a loss to
the extent of the premium paid. If the Fund elects to close out the option it
would recognize a gain or loss equal to the difference between the cost of
acquiring the option and the amount realized upon the sale of the option.
The gain or loss recognized by the Fund upon the exercise of a written call or
purchased put option is adjusted for the amount of option premium. If a written
put or purchased call option is exercised, the Fund's cost basis of the acquired
security or currency would be the exercise price adjusted for the amount of the
option premium.
The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price or at the most recent asked price (bid for purchased options) if no bid
and asked prices are available. Over-the-counter written or purchased options
are valued using dealer supplied quotations.
When the Fund writes a covered call option, the Fund foregoes, in exchange for
the premium, the opportunity to profit during the option period from an increase
in the market value of the underlying security or currency above the exercise
price. When the Fund writes a put option it accepts the risk of a decline in the
market value of the
17
<PAGE>
Scudder Global High Income Fund, Inc.
Notes to Financial Statements
================================================================================
underlying security or currency below the exercise price. Over-the-counter
options have the risk of the potential inability of counterparties to meet the
terms of their contracts. The Fund's maximum exposure to purchased options is
limited to the premium initially paid. In addition, certain risks may arise upon
entering into option contracts including the risk that an illiquid secondary
market will limit the Fund's ability to close out an option contract prior to
the expiration date and, that a change in the value of the option contract may
not correlate exactly with changes in the value of the securities or currencies
hedged.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
Fund utilized forward contracts as a hedge in connection with portfolio
purchases and sales of securities denominated in foreign currencies.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and liabilities at
the daily rates of exchange, and
(ii) purchases and sales of investment securities, interest income and
certain expenses at the rates of exchange prevailing on the respective
dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with the net
realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the accrual and payment dates on interest
and foreign withholding taxes.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies, and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes, and no federal
income tax provision was required. At October 31, 1998, the Fund had a net tax
basis capital loss carryforward of approximately $59,000,000, which may be
applied against any realized net taxable capital gains of each succeeding year
until fully utilized or until October 31, 2006, whichever occurs first.
Distribution of Income and Gains. The Fund's policy is to declare and pay
distributions to shareholders of substantially all net investment income of the
Fund quarterly. Net realized gains from investment transactions in
18
<PAGE>
Scudder Global High Income Fund, Inc.
Notes to Financial Statements
================================================================================
excess of available capital loss carryforwards, which would be taxable to the
Fund if not distributed, will be distributed to shareholders annually.
Distributions to shareholders are recorded on the ex-dividend date. An
additional distribution may be made to the extent necessary to avoid the payment
of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to investments in foreign denominated securities
and certain securities sold at a loss. As a result, net investment income (loss)
and net realized gain (loss) on investment transactions for a reporting period
may differ significantly from distributions during such period. Accordingly, the
Fund may periodically make reclassifications among certain of its capital
accounts without impacting the net asset value of the Fund. The Fund uses the
specific identification method for determining realized gain or loss on
investments.
Statement of Cash Flows. Information on financial transactions which have been
settled through the receipt and disbursement of cash is presented in the
Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows is
the amount reported as cash in the Fund's Statement of Assets and Liabilities
and represents the cash position in its custodian bank account at October 31,
1998. Significant non-cash activity resulting from the acquisition of Scudder
World Income Opportunities Fund, Inc. has been excluded from the Statement of
Cash Flows (see Note F).
Reverse Repurchase Agreements. The Fund may borrow through the use of reverse
repurchase agreements whereby the Fund agrees to sell and simultaneously agrees
to repurchase certain securities at a mutually agreed date and price. At the
time the Fund enters into a reverse repurchase agreement, it is required to
pledge securities subject to repurchase. The sale of these securities is not
recorded and the Fund agrees to later repay cash plus interest. Should the
securities' value decline below the repurchase price, the Fund may be obligated
to pledge additional collateral to the lender in the form of cash or securities.
Reverse repurchase agreements involve the risk that the market value of the
securities purchased with the proceeds from the sale of securities subject to
reverse repurchase agreements may decline below the value of the securities the
Fund is obligated to repurchase. The risk in borrowing, as with any extension of
credit, consists of the possible delay in the recovery of securities or possible
loss of rights in the collateral should the counterparty fail financially.
Additionally, there is the risk that the expense associated with the transaction
may be greater than the income earned from the investment of the proceeds of the
transaction.
Other. Portfolio securities transactions are accounted for on a trade-date
basis. Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date. All discounts are accreted for both tax and
financial reporting purposes.
B. Purchases and Sales of Securities
During the year ended October 31, 1998, purchases and sales of investment
securities (excluding short-term investments) aggregated $411,980,348 and
$382,814,337, respectively.
The aggregate face value of futures contracts opened and closed during the
period ended October 31, 1998 was $14,604,299.
19
<PAGE>
Scudder Global High Income Fund, Inc.
Notes to Financial Statements
================================================================================
C. Related Parties
Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an international insurance and financial
services organization, formed a new global investment organization by combining
Scudder's business with that of Zurich's subsidiary, Zurich Kemper Investments,
Inc. As a result of the transaction, Scudder changed its name to Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"). The transaction between
Scudder and Zurich resulted in the termination of the Fund's Investment
Management Agreement with Scudder. However, a new Investment Management
Agreement (the "Management Agreement") between the Fund and Scudder Kemper was
approved by the Fund's Board of Directors and by the Fund's Shareholders. The
Management Agreement, which was effective December 31, 1997, is the same in all
material respects as the corresponding previous Investment Management Agreement,
except that Scudder Kemper is the new investment adviser to the Fund.
Under the Management Agreement with Scudder Kemper, the Adviser directs the
investments of the Fund in accordance with the Fund's investment objectives,
policies, and restrictions and under the direction and control of the Fund's
Board of Directors. In addition to portfolio management services, the Adviser
provides certain administrative services in accordance with the Management
Agreement. The Fund pays to the Adviser a monthly fee at an annualized rate of
1.20% of the average weekly net assets of the Fund. For the year ended October
31, 1998, the fee pursuant to such agreements amounted to $1,331,774, of which
$52,294 is unpaid at October 31, 1998.
On September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner of the
Adviser, entered into an agreement with B.A.T Industries p.l.c. ("B.A.T")
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon consummation of the
transaction, the Fund's investment management agreement with Scudder Kemper was
deemed to have been assigned and, therefore, terminated. The Board of Directors
of the Fund has approved a new investment management agreement with Scudder
Kemper, which is substantially identical to the former investment management
agreement, except for the dates of execution and termination. The Board of
Directors of the Fund will seek shareholder approval of the new investment
management agreement through a proxy solicitation that is currently scheduled to
conclude in mid-December.
The Fund pays each Director not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and committee meetings. For the year
ended October 31, 1998, Directors' fees and expenses aggregated $59,620.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
October 31, 1998, the amount charged to the Fund by SFAC aggregated $108,278, of
which $9,491 is unpaid at October 31, 1998.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, provides
shareholder communications services for the Fund. For the year ended October 31,
1998, the amount charged to the Fund by SSC aggregated $16,250, of which $1,250
is unpaid at October 31, 1998.
20
<PAGE>
Scudder Global High Income Fund, Inc.
Notes to Financial Statements
================================================================================
D. Borrowings
The Fund has entered into reverse repurchase agreements with third parties
involving its holdings in foreign debt securities. At October 31, 1998, the Fund
had outstanding reverse repurchase agreements as follows:
Value of assets sold Weighted
under agreement Repurchase average
Maturity to repurchase liability interest rate
-------- -------------------- ------------ -------------
Demand $ 27,572,001 $ 24,018,516 4.97%
Securities subject to repurchase under reverse repurchase agreements are
designated in the Investment Portfolio. The average weighted daily balance of
reverse repurchase agreements outstanding during the period ended October 31,
1998 was $37,978,570.
E. Investing in Emerging Markets
Investing in emerging markets may involve special risks and considerations not
typically associated with investing in the United States. These risks include
revaluation of currencies, high rates of inflation, repatriation restrictions on
income and capital, and future adverse political and economic developments.
Moreover, securities issued in these markets may be less liquid, subject to
government ownership controls, delayed settlements, and their prices more
volatile than those of comparable securities in the United States.
As a result of recent occurrences in Russia, the Fund wrote down interest
receivable of approximately $370,000 from the Russian Federation Principal Loan
on December 2, 1998.
F. Acquisition of Assets
On November 14, 1997, substantially all of the assets and liabilities of Scudder
World Income Opportunities Fund, Inc. ("SWIOF") were acquired by the Fund in a
non-taxable exchange of 3,496,614 shares of the Fund (valued at $45,594,929).
The net assets of SWIOF acquired included unrealized depreciation of $2,809,625.
21
<PAGE>
Scudder Global High Income Fund, Inc.
Report of Independent Accountants
================================================================================
To the Board of Directors and Shareholders of Scudder Global High Income Fund,
Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations, of cash
flows, and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Scudder Global High Income
Fund, Inc. (the "Fund") at October 31, 1998, the results of its operations, its
cash flows, the changes in its net assets and the financial highlights for each
of the periods indicated, 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 October 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 14, 1998
22
<PAGE>
Scudder Global High Income Fund, Inc.
Investment Policy Changes
================================================================================
Listed below are certain changes in the investment policies of the Fund which
were approved by the Fund's Board of Directors on July 29, 1997. These changes
were previously generally described in the joint prospectus/proxy statement
distributed in connection with the reorganization of the Fund in 1997; however,
the Fund is listing the changes in investment policies in this Annual Report in
order to comply with certain securities laws requirements. (Terms used but not
defined herein shall have the same meanings ascribed to them in that joint
prospectus/proxy statement.)
The following investment policies were deleted by the Fund:
o Investing at least 85 percent of the Fund's total assets in
U.S. dollar-denominated Latin American Debt Instruments.
o Deriving at least 65 percent of the Fund's income from U.S.
dollar-denominated Latin American Debt Instruments.
o Investing at least 65 percent of the Fund's total assets in
Latin American Debt Securities that are (a) issued or
guaranteed by Latin American Governmental Issuers; (b)
issued by Latin American Governmental-Related Issuers; and
(c) issued by entities organized and operated for the
purpose of restructuring the investment characteristics of
instruments issued by Latin American Governmental and Latin
American Governmental-Related Issuers.
o Limiting to 35 percent of the Fund's total assets the portion invested in
debt securities issued by: (a) banks located in Latin America or branches of
Latin American banks located outside of Latin America, (b) companies
organized under the laws of any Latin American country or (c) issuers located
in, or organized under the laws of, Puerto Rico or any country located in the
Caribbean.
o Limiting to 40 percent of the Fund's total assets the portion invested in
issuers in any one Latin American country.
o Limiting to 15 percent of the Fund's total assets the portion invested in any
Latin American country other than Argentina, Brazil, Chile, Mexico, or
Venezuela.
The following investment policies were adopted by the Fund:
o Investing at least 65 percent of the Fund's total assets in Income Securities
of issuers located in developed and developing countries throughout the
world.
o Limiting to 25 percent (measured at the time of investment) the portion of
the Fund's assets invested in issuers in any one foreign country other than
Argentina, Brazil, Mexico, and Venezuela, in which cases the limitation per
country is 35 percent of the Fund's assets.
o Investing at least 65 percent of the Fund's assets in no fewer than three
countries, one of which may be the United States.
o Investing at least 50 percent of assets (measured at the
time of investment) in U.S. dollar-denominated securities.
o Limiting to 25 percent of the Fund's assets (measured at the time of
investment) the portion that may be invested in securities denominated in or
indexed to any one foreign currency.
o Investing up to 35 percent of its portfolio in assets other than Income
Securities, including emerging country equity securities, such as common
stock, warrants that are not part of a unit with Income Securities, preferred
stock that is non-dividend paying, ADRs and EDRs, Strategic Transactions,
Highly Liquid Investments, and cash.
o Investing up to 20 percent of the Fund's assets in emerging country equity
securities.
23
<PAGE>
o Limiting to 35 percent of assets (measured at the time of investment) the
portion invested in securities that, in the opinion of the Investment
Manager, have no trading market (excluding Rule 144A Securities) and, with
respect to Income Securities, which have remaining maturities at the time of
purchase greater than one year.
o Limiting to 10 percent of the Fund's total assets (measured at the time of
investment) the portion invested in securities of any single issuer
(excluding investments in Sovereign Debt).
o Limiting to 20 percent of the Fund's total assets the portion invested in
Income Securities issued by U.S. issuers that have a credit rating below
investment grade or that have no credit rating but which are deemed by the
Investment Manager to be of comparable quality.
o Authority to invest in (a) privatization programs, (b) Rule 144A Securities,
(c) Indexed Securities, (d) Stripped Income Securities, (e) Zero Coupon, Deep
Discount and PIK Securities, (f) Floating and Variable Rate Income
Securities, (g) Premium Securities, and (h) Depository Receipts.
24
<PAGE>
Scudder Global High Income Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
================================================================================
The Plan
The Fund's Dividend Reinvestment and Cash Purchase Plan (the "Plan") offers
you an automatic way to reinvest your dividends and capital gains distributions
in shares of the Fund. The Plan also provides for cash investments in Fund
shares of $100 to $3,000 semiannually through State Street Bank and Trust
Company, the Plan Agent.
Automatic Participation
Each shareholder of record is automatically a participant in the Plan unless
the shareholder has instructed the Plan Agent in writing otherwise. Such a
notice must be received by the Plan Agent not less than 10 days prior to the
record date for a dividend or distribution in order to be effective with respect
to that dividend or distribution. A notice which is not received by that time
will be effective only with respect to subsequent dividends and distributions.
Shareholders who do not participate in the Plan will receive all distributions
in cash paid by check in dollars mailed directly to the shareholder by State
Street Bank and Trust Company, as dividend paying agent.
Shares Held by a Nominee
If your shares are held in the name of a brokerage firm, bank, or other
nominee as the shareholder of record, please consult your nominee (or any
successor nominee) to determine whether it is participating in the Plan on your
behalf. Many nominees are generally authorized to receive cash dividends unless
they are specifically instructed by a client to reinvest. If you would like your
nominee to participate in the Plan on your behalf, you should give your nominee
instructions to that effect as soon as possible.
Pricing of Dividends and Distributions
If the market price per share on the payment date for the dividend or
distribution (the "Valuation Date") equals or exceeds net asset value per share
on that date, the Fund will issue new shares to participants at the greater of
the following on the Valuation Date: (a) net asset value, or (b) 95% of the
market price. The Valuation Date will be the dividend or distribution payment
date or, if that date is not a New York Stock Exchange trading date, the next
preceding trading date. If the net asset value exceeds the market price of Fund
shares at such time, participants in the Plan are considered to have elected to
receive shares of stock from the Fund, valued at market price, on the Valuation
Date. In either case, for Federal income tax purposes, the shareholder receives
a distribution equal to the market value on Valuation Date of new shares issued.
State and local taxes may also apply. If the Fund should declare an income
dividend or net capital gains distribution payable only in cash, the Plan Agent
will, as agent for the participants, buy Fund shares in the open market, on the
New York Stock Exchange or elsewhere, for the participants' account on, or
shortly after, the payment date.
Voluntary Cash Purchases
Participants in the Plan have the option of making additional cash payments to
the Plan Agent, semiannually, in any amount from $100 to $3,000, for investment
in the Fund's shares. The Plan Agent will use all such monies received from
participants to purchase Fund shares in the open market on or about February 15
and August 15. Any voluntary cash payments received more than 5 days after or 30
days prior to these dates will be returned by the Plan Agent, and interest will
not be paid on any uninvested cash payments. To avoid unnecessary cash
accumulations, and also to allow ample time for receipt and processing by the
Plan Agent, it is suggested that participants send in voluntary cash payments to
be received by the Plan Agent approximately ten days before February 15, or
August 15, as the case may be. A participant may withdraw a voluntary cash
payment by written notice, if the
25
<PAGE>
Scudder Global High Income Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
===============================================================================
notice is received by the Plan Agent not less than 48 hours before such payment
is to be invested.
Participant Plan Accounts
The Plan Agent maintains all participant accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by participants for personal and tax records. Shares in the account of
each plan participant will be held by the Plan Agent in non-certificated form in
the name of the participant, and each participant will be able to vote those
shares purchased pursuant to the Plan at a shareholder meeting or by proxy.
No Service Fee to Reinvest
There is no service fee charged to participants for reinvesting dividends or
distributions from net realized capital gains. The Plan Agent's fees for the
handling of the reinvestment of dividends and capital gains distributions will
be paid by the Fund. There will be no brokerage commissions with respect to
shares issued directly by the Fund as a result of dividends or capital gains
distributions payable either in stock or in cash. However, participants will pay
a pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of any
dividends or capital gains distributions payable only in cash.
Costs for Cash Purchases
With respect to purchases of Fund shares from voluntary cash payments, the
Plan Agent will charge $1.00 for each such purchase for a participant. Each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases of Fund shares in connection
with voluntary cash payments made by the participant.
Brokerage charges for purchasing small amounts of stock for individual
accounts through the Plan are expected to be less than the usual brokerage
charges for such transactions, because the Plan Agent will be purchasing stock
for all participants in blocks and pro-rating the lower commission thus
attainable.
Amendment or Termination
The Fund and the Plan Agent each reserve the right to terminate the Plan.
Notice of the termination will be sent to the participants of the Plan at least
30 days before the record date for a dividend or distribution. The Plan also may
be amended by the Fund or the Plan Agent, but only by giving at least 30 days'
written notice to participants in the Plan (except when necessary or appropriate
to comply with applicable law, rules or policies of a regulatory authority).
A participant may terminate his account under the Plan by written notice to
the Plan Agent. If the written notice is received 10 days before the record day
of any distribution, it will be effective immediately. If received after that
date, it will be effective as soon as possible after the reinvestment of the
dividend or distribution.
If a participant elects to sell his shares before the Plan is terminated, the
Plan Agent will deduct a $2.50 fee plus brokerage commissions from the sale
transaction.
Plan Agent Address and Telephone Number
You may obtain more detailed information by requesting a copy of the Plan from
the Plan Agent. All correspondence (including notifications) should be directed
to: Scudder Global High Income Fund, Inc. Dividend Reinvestment and Cash
Purchase Plan, c/o Equiserve, P.O. Box 8200, Boston, MA 02266-8200, (617)
328-5000, ext. 6406.
26
<PAGE>
Scudder Global High Income Fund, Inc.
Investment Manager
================================================================================
The investment manager of Scudder Global High Income Fund, Inc. is Scudder
Kemper Investments Inc. ("the Manager"), one of the most experienced investment
management firms in the world. Established in 1919, the firm manages investments
for institutional and corporate clients, retirement and pension plans, insurance
companies, mutual fund investors, and individuals. The Manager has offices
throughout the United States and has subsidiaries in London, Switzerland, and
Tokyo.
The Manager has been a leader in international investment management for over
40 years. It manages Scudder International Fund, which was originally
incorporated in Canada in 1953 as the first foreign investment company
registered with the United States Securities and Exchange Commission. The
Manager's clients which invest primarily in foreign securities include thirty
open-end investment companies as well as portfolios for institutional investors.
In addition to the Fund, the Manager manages the assets of six other
closed-end investment companies which invest primarily in foreign securities:
Scudder New Asia Fund, Inc., and Scudder Spain and Portugal Fund, Inc., Scudder
New Europe Fund, Inc., The Brazil Fund, Inc. The Korea Fund, Inc., and The
Argentina Fund, Inc.
27
<PAGE>
Scudder Global High Income Fund, Inc.
Directors and Officers
================================================================================
LYNN S. BIRDSONG*
President, Chairman of the Board,
and Director
ROBERT J. CALLANDER
Director
GEORGE M. LOVEJOY, JR.
Director
RONALDO A. DA FROTA NOGUEIRA
Director
DR. SUSAN KAUFMAN PURCELL
Director
SUSAN E. DAHL*
Vice President
JUDITH A. HANNAWAY*
Vice President
M. ISABEL SALTZMAN*
Vice President
PAUL J. ELMLINGER*
Vice President and Assistant Secretary
BRUCE H. GOLDFARB*
Vice President and Assistant Secretary
THOMAS F. McDONOUGH*
Vice President and Secretary
KATHRYN L. QUIRK*
Vice President and Assistant Secretary
JOHN R. HEBBLE*
Treasurer
CAROLINE PEARSON*
Assistant Secretary
* Scudder Kemper Investments, Inc.
