<PAGE>
BEA STRATEGIC INCOME FUND, INC.
153 EAST 53RD STREET NEW YORK, NY 10022
================================================================================
OFFICERS AND DIRECTORS
Daniel H. Sigg Michael A. Pignataro
Chairman and Chief Vice President
Executive Officer
Robert Moore Richard J. Lindquist
President and Chief Vice President
Investment Officer
Hal Liebes
Prof. Enrique R. Arzac Secretary
Director
Harvey M. Rosen
Lawrence J. Fox Treasurer
Director
Paul P. Stamler
Assistant Treasurer
James S. Pasman, Jr.
Director John. M. Corcoran
Assistant Treasurer
================================================================================
INVESTMENT ADVISER
BEA Associates
153 East 53rd Street
New York, New York 10022
- --------------------------------------------------------------------------------
ADMINISTRATOR
United States Trust Company of New York
73 Tremont Street Boston, Massachusetts 02108
- --------------------------------------------------------------------------------
CUSTODIAN
United States Trust Company of New York
770 Broadway
New York, New York 10003
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT
United States Trust Company of New York
770 Broadway
New York, New York 10003
Phone 1-800-428-8890
- --------------------------------------------------------------------------------
LEGAL COUNSEL
Wilkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
================================================================================
INCREASE YOUR FUND HOLDINGS THROUGH DIVIDEND REINVESTMENT AND DIRECT CASH
PURCHASES
The Fund offers the opportunity for all shareholders to participate in the
Fund's Dividend Reinvestment and Cash Purchase Plan (the "Plan"). Under the
Plan, participating shareholders receive, in lieu of cash dividends, common
stock of the Fund. In addition, participants in the Plan have the option of
making voluntary cash payments of $100 to $1,000 (per investment period), plus
any dividends received in cash, to the Plan Agent to purchase Fund shares in
the open market. A brochure further describing the Plan and additional
information concerning terms and conditions, and any applicable charges
relating to the Plan, can be obtained from the Plan's agent at (800) 428-8890.
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
BEA STRATEGIC INCOME FUND, INC.
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
SEMI-ANNUAL REPORT
JUNE 30, 1995
<PAGE>
BEA Strategic Income Fund, Inc.
- -------
To Our Shareholders:
During the second quarter of 1995, the U.S. Treasury market's 6.24% return
exceeded its first quarter 1995 return by 1.58%, making it the highest positive
quarterly return since the third quarter of 1992. For the quarter as a whole,
yields on 2-year Treasuries declined by 99 basis points, from 6.78% to 5.79%,
while yields on 30-year Treasuries dropped 81 basis points, from 7.43% to
6.62%. The BEA Strategic Income Fund, Inc. earned a net total return of 4.59%
during the second quarter based on net asset value and reinvestment of
dividends. As a result of the greater drop in short-term yields, the yield
curve steepened by 18 basis points during the quarter due to the differential
in the decline in yield of the 2-year note versus the 30-year bond.
The continuation during the second quarter of the rally begun in March can be
attributed to the atmosphere surrounding the U.S. capital markets, which
continued to be permeated by the belief that the U.S. economy is slowing down
and is headed for a "soft landing", with all eyes still focused on what, if
any, actions the Federal Reserve would take. As a result, the fixed income
market continued to perform well during the quarter with yields dropping to a
14-month low in May and remaining at these levels through June.
Again, key to this overall positive environment was evidence of an economic
slowdown and continued moderate inflation as measured by the marginal increase
in the Producer Price Index coupled with the volume of central bank buying of
Treasury securities which occurred in February and March. June was the most
volatile of the three months that comprised the quarter, with larger-than-
expected price movements following data releases that were out of sync with
market expectations. Specifically, the benchmark 30-year Treasury bond jumped 2
points following the report of a 17-month high in the number of Americans who
filed for initial unemployment benefits, only to be offset later in the month
by a larger-than-expected gain in durable goods orders and a surge of 19.9% in
new homes sales. This activity underscores the extreme sensitivity of the
market given the mixed messages, i.e., declines in the index of leading
indicators while specific indicator-type data (a rebound in U.S. factory orders
for big ticket goods, rising consumer confidence, rise in home sales, steady
employment) point to economic strength.
Finally, the much anticipated move by the Federal Reserve occurred on
Thursday, July 6th with a 25 basis point drop in the Fed Funds rate to 5.75%,
the first such drop in nearly three years. The bond market immediately rallied
with market consensus supporting a series of further Fed easing moves as
evidenced by the fact that a 50 basis point drop had already been priced into
the market. On Friday morning, however, questions arose as to whether the Fed's
action was premature when a higher-than-expected new jobs number was released,
raising speculation that the Fed would not ease again soon. These fears were
short-lived as other data were released later in the day suggesting that the
economy would not mend without the Fed's help.
The U.S. High Yield market posted strong positive performance for the quarter
as yield-seeking new cash buyers continued to enter the market, interest rates
continued to trend lower and positive news releases permeated the market. The
Salomon Brother High Yield Market Index posted a 6.15% return for the quarter
and 12.24% year-to-date (returns are unannualized). Airlines, pharmaceuticals
and telecommunications sectors posted the largest gains.
Within the high grade sector of the Fund, we continue to maintain a duration
neutral stance relative to appropriate benchmarks and emphasize mortgage- and
asset-backed securities and select BBB-rated issues.
Sectorwise, we will continue to focus on high yield investments. It is still
our intention to maintain a relatively high allocation to the high yield market
in
1
<PAGE>
anticipation of improving fundamental and technical conditions. We expect the
high yield market to continue to track the directional movements of the debt
and equity markets, albeit, with less volatility for the market as a whole
near-term than it has experienced in 1994. We do expect the market to continue
to be volatile on an individual credit basis as bonds react to news releases.
We expect July and August to continue to experience a slowdown from the levels
in May and June of the new issue calendar. In addition, the new issue calendar
is not expected to reprice certain sectors of the high yield market as it did
in June. Our long-term outlook continues to be positive for the credit
fundamentals of many high yield issuers. Our strategy continues to be focused
on opportunistically investing in companies that we believe offer operating
performance improvement and deleveraging potential over the longer-term.
We may increase our current allocation to non-U.S. dollar fixed income
investments. Both the economic slowdown and the accompanying fixed income
rally, which culminated in the Federal Reserve's easing on July 6th,
reverberated globally. Similar easing moves around the world triggered strong
rallies, offering investors substantial investment opportunities. We continue
to hedge our currency exposure in expectation of a stronger U.S. dollar versus
other currencies.
Finally, the changes we discussed in our last letter as a result of the
transfer of the CS First Boston Investment Management business to its
affiliate, BEA Associates, were approved. As a result, among other things, the
Fund will now be known as BEA Strategic Income Fund, Inc. (symbol FBI) and a
new advisory agreement was executed with BEA Associates. In addition, the
following management changes were effected: Daniel H. Sigg was elected as
Chairman and Chief Executive Officer, Robert Moore, became the Fund's President
and Chief Investment Officer, and Joseph Huber's resignation as Chairman was
accepted.
We thank you for your interest in the Fund and would be pleased to respond to
your questions or comments.
Respectfully,
Robert J. Moore
President and Chief Investment Officer
August 11, 1995
2
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
- -------
June 30, 1995
<TABLE>
<CAPTION>
Face Value
Moody's Amount (000)
Ratings (000) (Note A-1)
- -------------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
DOMESTIC SECURITIES (91.9%)
- -------------------------------------------------------------------------------
- ------------
CORPORATE OBLIGATIONS (67.4%)
- -------------------------------------------------------------------------------
- ------------
COMMUNICATIONS (11.8%)
(/4/) Adelphia Communications, Series B,
Sr. Notes
9.50%, 2/15/04 B3 $ 548 $ 451
(/8/) American Telecasting, Inc. Sr.
Discount Notes
0.00%, 6/15/04 Caa 1,000 590
(/8/) Australias Media Ltd.
Sr. Sub. Disc. Notes
0.00%, 5/15/03 B3 500 263
(/1//1/) Cablevision Industry Corp. Sr. Sub.
Notes
9.25%, 4/1/08 B1 500 517
(/1//1/) Chancellor Broadcasting Co.
Gtd. Sr. Sub. Notes
12.50%, 10/1/04 B3 500 517
Citicasters, Inc., Series B
Sr. Sub. Notes
9.75%, 2/15/04 N/R 500 498
Continental Cablevision, Inc.
Sr. Sub. Notes
11.00%, 6/1/07 B1 500 555
(/8/) Dial Call Communications Sr.
Discount Notes
0.00%, 4/15/04 Caa 500 240
(/8/) Diamond Cable Communications
Discount Notes
0.00%, 9/30/04 B3 350 229
(/4/) Falcon Holdings Group L.P.
Sr. Sub. Notes
11.00%, 9/15/03 N/R 616 572
(/8/) Helicon Group
Sr. Secured Notes
9.00%, 11/1/03 Caa 650 592
(/8/) Imax Corp., Series B
Sr. Notes
7.00%, 3/1/01 B1 250 228
Jones Intercable, Inc.
Sr. Sub. Notes
11.50%, 7/15/04 B1 500 553
(/8/)(/1//1/) MFS Communications
Sr. Notes
0.00%, 1/15/04 B2 500 348
Mobile Telecommunications
Technologies Corp.
Sr. Sub. Notes
13.50%, 12/15/02 B2 250 268
(/8/) Nextel Communications
Sr. Notes
0.00%, 9/1/03 B3 500 280
(/6/)(/8/) Pagemart, Inc.
Sr. Disc. Notes
0.00%, 2/1/05 N/R 1,000 610
</TABLE>
<TABLE>
<CAPTION>
Face Value
Moody's Amount (000)
Ratings (000) (Note A-1)
- -------------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
PTI Holdings
Sub. Notes
0.00%, 12/17/02 N/R $ 507 $ 304
Scott Cable
Communications, Inc. Sub.
Debentures
12.25%, 4/15/01 B3 500 350
(/2/)(/6/) Simmons Cable
Sr. Sub. Notes
15.747%, 4/30/96 N/R 500 260
(/8/) Spanish Broadcasting Systems
Sr. Notes
7.50%, 6/15/02 B3 500 471
United International Holdings
Sr. Sec. Debentures
Zero Coupon, 1/15/99 B3 1,000 605
Univision Network Holding Sub. Notes
Zero Coupon, 12/17/02 N/R 573 344
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GROUP TOTAL 9,645
-------
- -------------------------------------------------------------------------------
- ------------
CONSUMER PRODUCTS (6.4%)
(/1//1/) Fort Howard Corp.
Sub. Notes
10.00%, 3/15/03 B2 500 492
Health O Meter Notes
13.00%, 8/15/02 B3 500 455
Jordan Industries
Sr. Notes
10.375%, 8/1/03 B3 500 461
Mail-Well Envelope
Sr. Sub. Notes
10.50%, 2/15/04 B3 500 445
(/8/) Mail-Well Holdings
Sr. Notes
0.00%, 2/15/06 Caa 250 108
Marvel III Holdings, Inc.,
Series B, Sr. Secured Notes
9.125%, 2/15/98 Caa 700 648
Pilgrim's Pride Corp.
Sr. Sub. Notes
10.875%, 8/1/03 B3 500 471
(/3/)(/6/) Renaissance Cosmetics
Sr. Notes
13.75%, 8/15/01 N/R 500 490
Revlon Consumer Products, Inc.
Sr. Sub. Notes
10.50%, 2/15/03 B3 500 490
Seven Up/RC Bottling Co.
Sr. Secured Notes
11.50%, 8/1/99 Caa 500 440
(/8/) Specialty Foods Acquisition
Corp., Series B
Sr. Secured Notes
0.00%, 8/15/05 Ca 1,500 780
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GROUP TOTAL 5,280
-------
- -------------------------------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Face Value
Moody's Amount (000)
Ratings (000) (Note A-1)
- -------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
FINANCE (1.1%)
(/3/) GPA Holland
Medium Term Notes
8.625%, 1/15/99 Caa $ 500 $ 383
(/3/)(/6/) Monarch Acquisitions
Corp. Sr. Notes
12.50%, 7/1/03 B2 500 500
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GROUP TOTAL 883
-------
- -------------------------------------------------------------------
- ------------
INDUSTRIAL (13.2%)
Adience Inc.
Sr. Secured Notes
11.00%, 6/15/02 N/R 662 496
(/6/) Alpine Group, Inc.
Sr. Secured Notes
13.50%, 12/22/95 N/R 500 500
Arcadian Partners L.P.,
Series B, Sr. Notes
10.75%, 5/1/05 B2 500 500
(/1//1/) Armco, Inc.
Sr. Notes
11.375%, 10/15/99 B2 500 510
Bayou Steel Corp.
First Mortgage Notes
10.25%, 3/1/01 B2 300 279
(/1//1/) Berg Electronics
Sr. Sub. Notes
11.375%, 5/1/03 B3 500 525
(/1//1/) Chatwins Group, Inc.
Sr. Notes
13.00%, 5/1/03 B2 500 410
(/1//1/) Container Corp. of
America
Sr. Notes
9.75%, 4/1/03 B2 250 247
Doman Industries Ltd.
Gtd. Sr. Notes
8.75%, 3/15/04 Ba3 650 618
Duane Reade Corp.
Sr. Notes
12.00%, 9/15/02 B3 500 444
Geneva Steel Co.
Sr. Notes
9.50%, 1/15/04 B1 250 179
Genmar Holdings,
Series A
Sr. Sub. Notes
13.50%, 7/15/01 B3 500 490
GNF Corp.
First Mortgage Notes
10.625%, 4/1/03 B2 500 417
(/8/)(/1//1/) Harris Chemical
Sr. Secured Notes
0.00%, 7/15/01 B2 500 454
Huntsman Corp.
First Mortgage Notes
11.00%, 4/15/04 B1 500 546
(/8/) Indspec Chemical
Sr. Sub. Notes
0.00%, 12/1/03 B3 750 472
Malette, Inc.
Sr. Secured Notes
12.25%, 7/15/04 Ba3 500 554
</TABLE>
<TABLE>
<CAPTION>
Face Value
Moody's Amount (000)
Ratings (000) (Note A-1)
- ---------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
NL Industries
Sr. Secured Debentures
11.75%, 10/15/03 B1 $ 250 $ 261
Presley Cos.
Sr. Notes
12.50%, 7/1/01 B2 250 203
Repap Wisconsin, Inc.
Sr. Notes
9.875%, 5/1/06 B3 250 241
Republic Engineered Steel
First Mortgage Bonds
9.875%, 12/15/01 B2 350 319
(/1//1/) Stone Consolidated
Sr. Secured Notes
10.25%, 12/15/00 B1 500 519
Trans Resources, Inc.
Sr. Sub. Notes
11.875%, 7/1/02 B2 500 454
UCC Investor's
Holdings, Inc.
Sr. Sub. Notes
11.00%, 5/1/03 B3 500 511
WCI Steel, Inc., Series B
Sr. Notes
10.50%, 3/1/02 B1 200 195
WHX Corp.
Sr. Notes
9.375%, 11/15/03 B1 500 455
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GROUP TOTAL 10,799
-------
- ---------------------------------------------------------------------
- ------------
MANUFACTURING (13.0%)
(/8/) American Standard Cos.
Sr. Sub. Notes
0.00%, 6/1/05 B1 500 380
(/1//1/) Associated Materials, Inc.
Sr. Sub. Notes
11.50%, 8/15/03 B3 500 455
Atlantis Group, Inc.
Sr. Notes
11.00%, 2/15/03 B2 500 492
(/8/) Building Materials Corp.
Series B, Notes
0.00%, 7/1/04 B1 500 298
(/1//1/) Comdata Network, Inc.
Sr. Sub. Notes
13.25%, 12/15/02 B3 500 563
(/1//1/) Consoltex Group, Inc.
Sr. Sub. Notes
11.00%, 10/1/03 B2 500 457
(/3/)(/8/) Crown Packaging Holdings
Sr. Sub. Notes
0.00%, 11/1/03 Caa 1,300 585
Domtar, Inc.
Yankee Debentures
11.25%, 9/15/17 Ba1 500 534
Gaylord Container Corp.
Sr. Notes
11.50%, 5/15/01 B3 250 265
(/8/) Sr. Sub. Notes
0.00%, 5/15/05 Caa 500 490
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Face Value
Moody's Amount (000)
Ratings (000) (Note A-1)
- -----------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
(/1//1/) G.I. Holdings, Inc., Series B
Sr. Notes
Zero Coupon, 10/1/98 Ba3 $ 1,000 $ 670
(/8/) Ivex Holdings Corp.
Sr. Sub. Notes
0.00%, 3/15/05 Caa 1,250 675
MVE Inc.,
Sr. Notes
12.50%, 2/15/02 B3 500 515
Rexene Corp.
Sr. Notes
11.75%, 12/1/04 B1 250 268
(/5/)(/6/)(/7/) Rotor Tool
Sr. Sub. Notes
12.375%, 4/1/97
(acquired 1/26/93,
cost $90,000) N/R 451 271
(/3/)(/6/) Selmer Co.
Sr. Sub. Notes
11.00%, 5/15/05 B3 500 480
Sheffield Steel Corp.
First Mortgage Notes
12.00%, 11/1/01 N/R 500 475
(/8/) Silgan Holdings, Inc.
Sr. Disc. Notes
0.00%, 12/15/02 B3 500 457
Specialty Equipment Co., Inc.
Sr. Sub. Notes
11.375%, 12/1/03 B3 700 719
Stone Container Corp.
Sr. Notes
9.875%, 2/1/01 B1 250 248
Synthetic Industries, Inc.
Sr. Sub. Notes
12.75%, 12/1/02 B3 500 505
Tracor, Inc.
Sr. Sub. Notes
10.875%, 8/15/01 B2 250 257
U.S. Leather, Inc.
Sr. Notes
10.25%, 7/31/03 B2 700 606
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GROUP TOTAL 10,665
-------
- -----------------------------------------------------------------------------
- ------------
OIL, GAS & ELECTRIC (3.3%)
Falcon Drilling Co. Inc.
Sr. Sub. Notes
9.75%, 1/15/01 B2 500 465
Forest Oil, Inc.
Sr. Sub. Notes
11.25%, 9/1/03 B3 500 460
(/1//1/) Gulf Canada Resources
Sr. Sub. Notes
9.25%, 1/15/04 Ba3 500 490
Mesa Capital Corp.
Secured Notes
12.75%, 6/30/98 Caa 500 452
Southeastern Public Service Co.
Sr. Sub. Notes
11.875%, 2/1/98 Caa 314 323
Wilrig
Sr. Sub. Debentures
11.25%, 3/15/04 B2 500 515
-------
GROUP TOTAL 2,705
-------
- -----------------------------------------------------------------------------
- ------------
</TABLE>
<TABLE>
<CAPTION>
Face Value
Moody's Amount (000)
Ratings (000) (Note A-1)
- ------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
RETAIL TRADE (7.7%)
Big V Supermarkets, Inc.
Sr. Sub. Notes
11.00%, 2/15/04 B3 $ 500 $ 420
(/1//1/) Brylane Capital Corp.
Sr. Sub. Notes
10.00%, 9/1/03 B2 500 465
County Seat Stores
Sr. Sub. Notes
12.00%, 10/1/01 B3 500 498
Dairy Mart Conveniences
Stores, Inc.
Sr. Sub. Notes
10.25%, 3/15/04 B3 626 510
Farm Fresh, Inc.
Sr. Notes
12.25%, 10/1/00 B2 650 611
Finlay Fine Jewelry
Sr. Notes
10.625%, 5/1/03 B1 500 478
Great American Cookie
Series B
Sr. Sec. Debentures
10.875%, 1/15/01 B3 500 434
Hill Stores
Sr. Notes
10.25%, 9/30/03 Ba3 700 693
Pathmark Stores
(/8/) Jr. Sub. Notes
0.00%, 11/1/03 B3 750 450
Sr. Sub. Notes
9.625%, 5/1/03 B2 500 487
Ralph's Grocery Co.
Sr. Sub. Notes
11.00%, 6/15/05 B3 500 481
(/4/) Town & Country Corp.
Sr. Sub. Notes
13.00%, 5/31/98 B3 616 246
Waban, Inc.
Sr. Sub. Notes
11.00%, 5/15/04 Ba3 550 539
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GROUP TOTAL 6,312
-------
- ------------------------------------------------------------------------
- ------------
SERVICES (10.1%)
(/2/) Acme Holdings, Inc.
Sr. Sub. Notes
11.75%, 6/1/00 Ca 500 250
(/1//1/) American Restaurant Group, Inc.
Sr. Secured Notes
12.00%, 9/15/98 B2 500 430
(/1//1/) Bally's Casino Holdings, Inc.
Sr. Discount Notes
Zero Coupon, 6/15/98 B3 600 411
(/1//1/) Boomtown, Inc.
First Mortgage Notes
11.50%, 11/1/03 B1 500 458
(/1//1/) Casino America Corp.
First Mortgage Notes
11.50%, 11/15/01 B1 500 500
(/1//1/) Community Health Systems
Sr. Sub. Notes
10.25%, 11/30/03 B2 250 263
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Face Value
Moody's Amount (000)
Ratings (000) (Note A-1)
- ------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
(/1//1/) Continental Medical
Systems, Inc.
Sr. Sub. Notes
10.375%, 4/1/03 B2 $ 500 $ 520
Elsinore Corp.
First Mortgage Notes
12.50%, 10/1/00 N/R 100 50
G.B. Property Funding
First Mortgage Notes
10.875%, 1/15/04 B2 500 425
(/4/) General Medical
Sub. Notes
12.125%, 8/15/05 B3 591 644
Grand Casinos, Inc.,
Series B
First Mortgage Notes
12.50%, 2/1/00 Ba3 500 540
(/4/)(/6/) Hemmeter Enterprises,
Inc.
Sr. Notes
12.00%, 12/15/00 N/R 280 112
Hollywood Casino Corp.
Series B, Sr. Secured
Notes
14.00%, 4/1/98 N/R 500 549
Kloster Cruise Ltd.
Sr. Notes
13.00%, 5/1/03 B2 500 391
Motels of America, Inc.
Sr. Sub. Notes
12.00%, 4/15/04 B3 250 250
Resorts International
Hotel Casino, Inc.
Mortgage Notes
11.00%, 9/15/03 N/R 500 440
(/1//1/) Solon Automated
Sr. Notes
12.75%, 7/15/01 B1 500 493
Trump Plaza Funding,
Inc.
First Mortgage Notes
10.875%, 6/15/01 B3 500 457
(/4/)(/1//0/) Trump Taj Mahal Funding
Sr. Debentures
11.35%, 11/15/99 Caa 510 404
U.S. Banknote Corp.,
Series B
11.625%, 8/1/02 B2 250 205
Wright Medical
Technology
Series B, Sr. Notes
10.75%, 7/1/00 B3 500 502
-------
GROUP TOTAL 8,294
-------
- ------------------------------------------------------------
- ------------
TRANSPORTATION (0.8%)
CHC Helicopter
Sr. Sub. Notes
11.50%, 7/15/02 B3 250 208
USAir, Inc.
Sr. Notes
10.00%, 7/1/03 B3 500 425
-------
GROUP TOTAL 633
-------
- ------------------------------------------------------------
- ------------
TOTAL CORPORATE OBLIGATIONS
(Cost $57,805,740) 55,216
-------
- ------------------------------------------------------------
- ------------
</TABLE>
<TABLE>
<CAPTION>
Face Value
Moody's Amount (000)
Ratings (000) (Note A-1)
- -------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
GOVERNMENT & AGENCY SECURITIES (8.9%)
- -------------------------------------------------------------------------
- ------------
COLLATERALIZED MORTGAGE OBLIGATIONS (1.4%)
Federal Home Loan Mortgage Corporation
(/1//1/) REMIC-PAC 32-C
9.50%, 3/15/20 Aaa $ 1,000 $ 1,111
-------
- -------------------------------------------------------------------------
- ------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (4.9%)
July 30 yr. TBA
8.00%, 8/1/25 Aaa 2,000 2,037
Various Pools:
8.50%, 4/1/25-6/1/25 Aaa 1,960 2,021
-------
GROUP TOTAL 4,058
-------
- -------------------------------------------------------------------------
- ------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (2.6%)
Graduated Payment
12.75%, 11/15/13 Aaa 29 31
July 30 yr. TBA
9.00%, 11/15/25 Aaa 2,000 2,101
-------
GROUP TOTAL 2,132
-------
- -------------------------------------------------------------------------
- ------------
TOTAL GOVERNMENT & AGENCY SECURITIES
(Cost $7,244,652) 7,301
-------
- -------------------------------------------------------------------------
- ------------
COLLATERALIZED SECURITIES (1.4%)
- -------------------------------------------------------------------------
- ------------
COLLATERALIZED MORTGAGE OBLIGATIONS (1.4%)
(/1//1/) Drexel, Burnham, & Lambert Trust
REMIC-PAC, Series S-2
9.00%, 8/1/18 Aaa 1,086 1,164
-------
- -------------------------------------------------------------------------
- ------------
TOTAL COLLATERALIZED SECURITIES
(Cost $1,121,827) 1,164
-------
- -------------------------------------------------------------------------
- ------------
ASSET BACKED OBLIGATIONS (9.1%)
- -------------------------------------------------------------------------
- ------------
(/1//1/) Green Tree Financial Corp.
Series 1993-4, Class B1
7.20%, 1/15/19 Baa3 1,768 1,724
(/9/) Merrill Lynch Home Equity
Acceptance Trust
Series 1994-A, Class A-2
6.875%, 7/17/22 A3 1,623 1,626
Merrill Lynch Home Equity Loan
Corp., Series 1991-1, Class B
9.30%, 5/15/16 A 3,000 3,092
(/3/) Resolution Trust Co.
Series 1994-N1A, Class 2
6.00%, 1/15/04 Baa2 1,000 999
- -------------------------------------------------------------------------
- ------------
TOTAL ASSET BACKED OBLIGATIONS
(Cost $7,568,390) 7,441
-------
- -------------------------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Value
(000)
Shares (Note A-1)
- ----------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
COMMON STOCKS (0.9%)
- ----------------------------------------------------------------------------
- ------------
COMMUNICATIONS (0.0%)
Pagemart, Inc. 3,500 $ 0
-------
- ----------------------------------------------------------------------------
- ------------
CONSUMER PRODUCTS (0.6%)
(/1/)(/5/)(/6/) Applause Enterprises, Inc.
(acquired 11/8/91, cost $72,200) 1,900 7
(/1/)(/5/)(/6/) Dr. Pepper Bottling Holdings, Inc.
(acquired 10/21/88, cost $54,000) 60,000 210
(/1/)(/6/) Mail-Well, Inc. 1,250 0
(/1/) Specialty Foods, Inc. 22,500 45
(/1/)(/5/)(/6/) TLC Beatrice Enterprises, Inc.
(acquired 11/26/91, cost
$307,500) 7,500 225
-------
GROUP TOTAL 487
-------
- ----------------------------------------------------------------------------
- ------------
FINANCE (0.0%)
(/1/)(/5/)(/6/)(/7/) Westfed Holdings, Inc., Series B
(acquired 9/20/88, cost $100) 4,223 0
- ----------------------------------------------------------------------------
- ------------
MANUFACTURING (0.3%)
(/5/)(/6/)(/7/) CIC Acquisition Corp.
(acquired 10/18/89, cost
$1,076,700) 2,944 200
(/1/) Polyvision Corp. 2,208 7
-------
GROUP TOTAL 207
-------
- ----------------------------------------------------------------------------
- ------------
RETAIL TRADE (0.0%)
(/1/)(/5/) Jewel Recovery L.P.
(acquired 7/30/93, cost $0) 33,040 0
-------
- ----------------------------------------------------------------------------
- ------------
SERVICES (0.0%)
(/3/) Motels of America, Inc. 250 19
-------
- ----------------------------------------------------------------------------
- ------------
TOTAL COMMON STOCKS
(Cost $1,565,264) 713
-------
- ----------------------------------------------------------------------------
- ------------
PREFERRED STOCKS (1.3%)
- ----------------------------------------------------------------------------
- ------------
COMMUNICATIONS (0.3%)
(/3/) SD Warren Co. 8,000 224
-------
- ----------------------------------------------------------------------------
- ------------
FINANCE (0.0%)
(/1/)(/5/)(/6/)(/7/) Westfed Holdings, Inc., Class A
(acquired 9/20/88-6/18/93,
cost $1,203,500) 14,246 0
-------
- ----------------------------------------------------------------------------
- ------------
MANUFACTURING (0.0%)
Alpine Group, Inc. 990 45
(/3/)(/6/) BCP/Essex Holdings, Series A 15,000 4
-------
GROUP TOTAL 49
-------
- ----------------------------------------------------------------------------
- ------------
OIL, GAS & ELECTRIC (1.0%)
(/1/) Consolidated Hydro, Inc., Class H 1,500 817
-------
- ----------------------------------------------------------------------------
- ------------
TOTAL PREFERRED STOCKS
(Cost $2,556,289) 1,090
-------
- ----------------------------------------------------------------------------
- ------------
</TABLE>
<TABLE>
<CAPTION>
Value
(000)
Shares (Note A-1)
- -------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
WARRANTS (0.3%)
- -------------------------------------------------------------------------
- ------------
(/1/) American Telecasting, Inc.,
expiring 6/23/99 5,000 $ 12
(/1/)(/3/) Boomtown, Inc., expiring 11/1/98 500 0
(/1/) Casino America Corp., expiring
11/15/96 1,632 0
(/1/) Casino Magic Corp., expiring
10/14/96 3,000 0
(/1/) Chatwins Group, expiring 5/3/03 500 0
(/1/) CHC Helicopter, expiring 12/15/00 2,000 2
(/1/) Consolidated Hydro, Inc.,
expiring 12/31/03 2,700 13
(/1/) County Seat Stores, expiring
10/15/98 500 1
(/1/)(/6/) Crown Packaging Holdings,
expiring 11/1/03 1,000 22
(/1/) Dial Call Communications,
expiring 4/25/99 500 1
(/1/)(/3/) Elsinore Corp., expiring 10/8/98 5,329 0
(/1/)(/3/) Great American Cookie,
expiring 1/30/00 90 0
(/1/) Health O Meter, expiring 8/15/02 500 0
(/1/) Hemmeter, expiring 12/15/99 3,000 0
(/1/) MVE Inc., expiring 2/15/02 500 0
(/1/) Presidential Riverboat Casinos,
expiring 9/23/96 3,000 0
(/1/)(/3/) Purity Supreme, expiring 8/1/97 1,733 0
(/1/)(/3/) Renaissance Cosmetics,
expiring 4/3/01 1,000 18
(/1/) SD Warren Co., expiring 12/15/06 8,000 48
(/1/) Sheffield Steel Corp.,
expiring 11/1/01 2,500 15
(/1/) Spanish Broadcasting System,
expiring 6/29/99 500 90
(/1/) United International Holdings,
expiring 11/15/99 600 0
(/1/)(/3/) Wright Medical Technology,
expiring 6/30/03 206 34
- -------------------------------------------------------------------------
- ------------
TOTAL WARRANTS
(Cost $176,749) 256
-------
- -------------------------------------------------------------------------
- ------------
<CAPTION>
Face
Moody's Amount
Ratings (000)
- -------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
UNITS (2.6%)
- -------------------------------------------------------------------------
- ------------
CORPORATE OBLIGATIONS (2.6%)
(/3/)(/6/) Intermedia
13.50%, 6/1/05 B3 $300 302
(/3/)(/6/)(/8/) In-Flight Phone Corp.
0.00%, 5/15/02 Caa 500 295
Pegasus Media Communications
12.50%, 7/1/05 B3 500 500
(/3/)(/6/) Terex Corp.
13.75%, 5/15/02 Caa 500 445
(/3/)(/9/) Thermoscan, Inc.
13.50%, 8/15/01 N/R 500 550
- -------------------------------------------------------------------------
- ------------
TOTAL UNITS
(Cost $2,135,250) 2,092
-------
- -------------------------------------------------------------------------
- ------------
TOTAL DOMESTIC INCOME SECURITIES
(Cost $80,174,161) 75,273
-------
- -------------------------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
Face Value
Moody's Amount (000)
Ratings (000) (Note A-1)
- ------------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
FOREIGN INCOME SECURITIES (15.0%)
- ------------------------------------------------------------------------------
- ------------
GOVERNMENT OBLIGATIONS (15.0%)
- ------------------------------------------------------------------------------
- ------------
DENMARK
Kingdom of Denmark
8.00%, 3/15/06 Aaa DK 5,200 $ 923
FRANCE
France O.A.T.
7.50%, 4/25/05 Aaa FF 7,000 1,430
Government of France Treasury Bill
4.75%, 4/12/99 Aaa 7,000 1,339
GERMANY
Deutscheland Republic
6.75%, 7/15/04 Aaa DM 6,000 4,252
SWEDEN
Kingdom of Sweden
11.00%, 1/21/99 Aaa SK10,000 1,393
UNITED KINGDOM
United Kingdom Treasury
6.00%, 8/10/99 Aaa $ 2,000 2,944
- ------------------------------------------------------------------------------
- ------------
TOTAL GOVERNMENT OBLIGATIONS
(Cost $10,642,627) 12,281
--------
- ------------------------------------------------------------------------------
- ------------
TOTAL FOREIGN INCOME SECURITIES
(Cost $10,642,627) 12,281
--------
- ------------------------------------------------------------------------------
- ------------
TOTAL INVESTMENTS (106.9%)
(Cost $90,816,788) 87,554
--------
- ------------------------------------------------------------------------------
- ------------
LIABILITIES IN EXCESS OF
OTHER ASSETS (-6.9%) (5,670)
--------
- ------------------------------------------------------------------------------
- ------------
NET ASSETS (100%)
Applicable to 8,454,140 issued and outstanding $.001 par value
shares (authorized 100,000,000 shares) $ 81,884
--------
- ------------------------------------------------------------------------------
- ------------
</TABLE>
(Pounds)--British Pound.
DK--Danish Krone.
DM--Deutsche Mark.
FF--French Franc.
SK--Swedish Krona.
N/R--Not Rated.
REMIC--Real Estate Mortgage Investment Conduit.
PAC--Planned Amortization Class.
TBA--Security is subject to delayed delivery.
(/1/) Non-income producing security.
(/2/) Defaultedsecurity.
(/3/) 144A Security. Certain conditions for public sale may exist.
(/4/) Payment in kind bond. Market value includes accrued interest.
(/5/) Restricted as to private and public resale. Total cost of restricted
securities at June 30, 1995 aggregated $2,804,000. Total market value of
restricted securities owned at June 30, 1995 was $ 913,000 or 1.1% of net
assets.
(/6/) Private Placement.
(/7/) Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by the Board of
Directors.
(/8/) Step Bond--Coupon rate is low or zero for an initial period and then
increases to a higher coupon rate thereafter.
(/9/) Floating Rate--The interest rate changes on these instruments based upon
a designated base rate. The rates shown are those in effect at June 30,
1995.
(/0/) 9.375%0of 11.35%)represents amount paid in cash, the remainder is payment
in kind.
(/11/) A portion of this security was pledged as collateral for delayed delivery
securities.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
June 30, 1995
(Unaudited)
(000)
- ---------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at Value
(Cost of $90,817) (Note A-1)......................................... $87,554
Receivables:
Interest (Note A-6)................................................... 2,063
Investments Sold...................................................... 558
Other Assets.......................................................... 28
- ---------------------------------------------------------------------------------
Total Assets......................................................... 90,203
- ---------------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment Purchased.................................................. 4,646
Bank Overdraft........................................................ 2,862
Dividends............................................................. 570
Investment Advisory Fees (Note B)..................................... 102
Unrealized Loss on Forward Foreign Currency Exchange Contracts (Note
E)................................................................... 52
Shareholder Servicing Fees............................................ 21
Administrative Fees (Note C).......................................... 11
Custodian Fees........................................................ 9
Other Liabilities..................................................... 46
- ---------------------------------------------------------------------------------
Total Liabilities.................................................... 8,319
- ---------------------------------------------------------------------------------
NET ASSETS............................................................. $81,884
=======
NET ASSETS CONSIST OF:
Paid in Capital....................................................... $89,916
Undistributed Net Investment Income................................... 115
Accumulated Net Realized Loss......................................... (4,854)
Unrealized Depreciation on Investments and Foreign Currency........... (3,293)
-------
NET ASSETS APPLICABLE TO 8,454,140 ISSUED AND OUTSTANDING $.001 PAR
VALUE SHARES (AUTHORIZED 100,000,000 SHARES).......................... $81,884
=======
NET ASSET VALUE PER SHARE.............................................. $ 9.69
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1995
(Unaudited)
(000)
- ---------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest (Note A-6)
(Net of foreign taxes withheld of $11)................................ $ 4,608
- ---------------------------------------------------------------------------------
EXPENSES:
Investment Advisory Fees (Note B)...................................... 200
Administrative Fees (Note C)........................................... 63
Shareholder Servicing Fees............................................. 51
Shareholders' Reports.................................................. 36
Professional Fees...................................................... 28
Directors' Fees and Expenses........................................... 19
Custodian Fees......................................................... 16
Other.................................................................. 25
- ---------------------------------------------------------------------------------
Total Expenses........................................................ 438
- ---------------------------------------------------------------------------------
Net Investment Income................................................ 4,170
- ---------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS) ON:
Investments............................................................ 346
Foreign Currency....................................................... (3,164)
- ---------------------------------------------------------------------------------
Total Net Realized Loss............................................... (2,818)
- ---------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation on Investments and For-
eign Currency.......................................................... 6,275
- ---------------------------------------------------------------------------------
Net Realized Loss and Change in Unrealized Appreciation/Depreciation.... 3,457
- ---------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations.................... $ 7,627
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1995 Year Ended
(Unaudited) December 31, 1994
(000) (000)
- ---------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Income..................... $ 4,170 $ 8,001
Net Realized Loss on Investments and For-
eign Currency............................ (2,818) (3,815)
Change in Unrealized
Appreciation/Depreciation on Investments
and Foreign Currency..................... 6,275 (7,405)
- ---------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RE-
SULTING FROM OPERATIONS................... 7,627 (3,219)
- ---------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income..................... (3,995) (5,212)
Return of Capital......................... -- (1,636)
- ---------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS........................ (3,995) (6,848)
- ---------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets.. 3,632 (10,067)
- ---------------------------------------------------------------------------------
NET ASSETS:
Beginning of Period....................... 78,252 88,319
- ---------------------------------------------------------------------------------
End of Period (including undistributed net
investment income of $115 and
distributions in excess of ($60),
respectively)............................ $81,884 $ 78,252
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
PER SHARE OPERATING June 30, 1994 -------------------------------------------
PERFORMANCE: (Unaudited) 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF PERIOD......... $ 9.26 $ 10.45 $ 9.80 $ 9.62 $ 8.70 $ 10.06
- ------------------------------------------------------------------------------------
Income from Investment
Activities:
Net Investment Income.. 0.49 0.95 1.04 1.22 1.16 1.17
Net Realized and
Unrealized Gain (Loss)
on Investments........ 0.41 (1.33) 0.66 0.01 0.96 (1.33)
- ------------------------------------------------------------------------------------
Total from Investment
Activities............. 0.90 (0.38) 1.70 1.23 2.12 (0.16)
- ------------------------------------------------------------------------------------
Distributions:
Net Investment Income.. (0.47) (0.62) (1.04) (1.05) (1.20) (1.20)
In Excess of Net In-
vestment Income....... -- -- (0.01) -- -- --
Return of Capital...... -- (0.19) -- -- -- --
- ------------------------------------------------------------------------------------
Total Distributions..... (0.47) (0.81) (1.05) (1.05) (1.20) (1.20)
- ------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD................. $ 9.69 $ 9.26 $ 10.45 $ 9.80 $ 9.62 $ 8.70
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
PER SHARE MARKET VALUE,
END OF PERIOD.......... $ 8.50 $ 8.25 $ 9.50 $ 9.50 $ 10.38 $ 7.88
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Net Asset Value (1).... 9.98%# (3.80)% 18.29% 13.28% 25.32% (1.66)%
Market Value........... 8.00%# (4.72)% 10.94% 3.50% 53.35% 0.38%
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL
DATA:
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Net Assets, End of Pe-
riod (Thousands)....... $81,884 $78,252 $88,319 $82,450 $80,606 $73,068
- ------------------------------------------------------------------------------------
Ratio of Expenses to Av-
erage Net Assets....... 1.10%* 0.99% 1.06% 1.01% 1.00% 1.00%
Ratio of Net Investment
Income to Average Net
Assets................. 10.44%* 9.66% 10.28% 12.34% 12.13% 12.48%
Portfolio Turnover Rate. 45.50% 83.1% 128.5% 107.7% 48.0% 81.0%
- ------------------------------------------------------------------------------------
</TABLE>
* Annualized
# Not annualized
(1) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes 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 value due to
differences between the market price of the stock and the net asset value
of the Fund.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
BEA Strategic Income Fund, Inc. (the "Fund"), formerly CS First Boston
Strategic Income Fund, Inc., was incorporated on January 27, 1988 and is
registered as a diversified, closed-end investment company under the
Investment Company Act of 1940.
A.The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.
1. SECURITY VALUATION: Market values for fixed income securities are valued at
the latest quoted bid price in the over-the-counter market. However, fixed
income securities may be valued on the basis of prices provided by a
pricing service which are based primarily on institutional size trading in
similar groups of securities. Other securities listed on an exchange are
valued at the latest quoted sales prices on the day of valuation or if
there was no sale on such day, the last bid price quoted on such day.
Quotations of foreign security prices denominated in a foreign currency are
converted to U.S. dollars at the current exchange rate on valuation date.
Securities purchased with remaining maturities of 60 days or less are
valued at amortized cost, if it approximates market value. Securities for
which market quotations are not readily available (including investments
which are subject to limitations as to their sale) are valued at fair value
as determined in good faith by the Board of Directors. Such securities have
a value of $471,000 (or 0.57% of net assets) at June 30, 1995. In
determining fair value, consideration is given to cost, operating and other
financial data.
The Fund may invest up to 10% of its total assets in securities which are
not readily marketable, including those which are restricted as to
disposition under securities law ("restricted securities"). These securities
are valued pursuant to the valuation procedures noted above.
2. FEDERAL INCOME TAXES: It is the Fund's intention to continue to qualify as
a regulated investment company and distribute all of its taxable income to
shareholders. Accordingly, no provision for Federal income taxes is
required in the financial statements.
Paid in capital, undistributed net investment income and accumulated net
realized loss have been adjusted for prior period permanent book-tax
differences.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the
underlying securities, the value of which exceeds the principal amount of
the repurchase transaction, including accrued interest. To the extent that
any repurchase transaction exceeds one business day, the value of the
collateral is marked-to-market on a daily basis to determine the adequacy
of the collateral. In the event of default on the obligation to repurchase,
the Fund has the right to liquidate the collateral and apply the proceeds
in satisfaction of the obligation. In the event of default or bankruptcy by
the other party to the agreement, realization and/or retention of the
collateral and proceeds may be subject to legal proceedings.
4. FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars at the bid price of such currencies against U.S. dollars last
quoted by a major bank as follows:
. investments, other assets and liabilities at the prevailing rates of
exchange on the valuation date;
. investment transactions and investment income at the prevailing rates of
exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the period, the Fund does not
isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of the securities held at period end. Similarly
the Fund does not isolate the effect of changes in foreign exchange rates
from the fluctuations arising from changes in the market prices of
securities sold during the period. Accordingly, realized and unrealized
foreign currency gains (losses) are included in the reported net realized
and unrealized gains (losses) on investment transactions and balances.
Net realized losses on foreign currency transactions represent net foreign
exchange losses from sales and maturities of forward currency contracts,
disposition of foreign currencies, currency gains or losses realized between
the trade and settlement dates on securities transactions, and the
difference between the amount of investment income and foreign withholding
taxes recorded on the Fund's books and the U.S. dollar equivalent amounts
actually received or paid. Net currency gains (losses) from valuing foreign
currency denominated assets and liabilities at period end exchange rates are
included in unrealized depreciation of investments and foreign currency.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of U.S. dollar
denominated transactions as a result of, among other factors, the level of
governmental supervision and regulation of foreign securities markets and
the possibility of political or economic instability.
5. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into
forward foreign currency
11
<PAGE>
exchange contracts to protect securities and related receivables and payables
against changes in future foreign exchange rates. A forward currency contract
is an agreement between two parties to buy or sell currency at a set price on
a future date. The market value of the contract will fluctuate with changes
in currency exchange rates. The contract is marked-to-market daily using the
forward rate and the change in market value is recorded by the Fund as
unrealized gain or loss. The Fund recognizes realized gain or loss when the
contract is closed equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed. Risks may
arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
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 on securities purchased are
amortized according to the effective yield method over their respective
lives. Discount or premium on mortgage backed securities is recognized upon
receipt of principal payments on the underlying mortgage pools. Dividend
income is recorded on the ex-dividend date.
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. DIVIDENDS AND DISTRIBUTIONS: The Fund pays dividends of net investment
income monthly and makes distributions at least annually of any net capital
gains in excess of applicable capital losses. Dividends and distributions
are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with U.S. Federal Income Tax regulations which may differ from
generally accepted accounting principles.
B. Effective June 13, 1995, BEA Associates (the "Adviser") provides investment
advisory services to the Fund under the terms of an Advisory Agreement. Under
the Advisory Agreement, the Adviser is paid a fee, computed weekly and payable
quarterly at an annual rate of .50% of average weekly 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.
C.United States Trust Company of New York ("U.S. Trust"), through its wholly
owned subsidiary, Mutual Funds Service Company, provides administrative
services to the Fund under an Administration Agreement. Under the Agreement,
the Administrator is paid a fee, computed weekly and payable monthly at an
annual rate of .15% of the Fund's first $100 million of average weekly net
assets, .10% of the Fund's next $300 million of average weekly net assets and
.05% of the Fund's average weekly net assets in excess of $400 million.
U.S. Trust also provides custodial and transfer agent services. Under the
Custody Agreement, U.S. Trust is paid a fee, computed weekly and payable
monthly at an annual rate of .03% of the Fund's first $50 million of average
weekly net assets, .02% of the Fund's next $50 million of average weekly net
assets and .01% of the Fund's average weekly net assets in excess of $100
million. Under the Transfer Agent Agreement, U.S. Trust is paid a fee based on
the number of accounts in the Fund per year.
D.During the six months ended June 30, 1995, the Fund made purchases of
$29,159,503 and sales of $31,026,841 of investment securities other than U.S.
Government securities and short term investments. During the six months ended
June 30, 1995, purchases and sales of U.S. Government securities were
$10,839,301 and $9,522,992, respectively. At June 30, 1995, the cost of
investments for Federal income tax purposes was $90,816,788. Accordingly, net
unrealized depreciation for Federal income tax purposes aggregated $3,262,160,
of which $6,396,642 related to depreciated securities and $3,134,482 related to
appreciated securities.
At December 31, 1994, the Fund had a capital loss carryforward of approximately
$1,533,000 available to offset future capital gains of which $242,000, $547,000
and $744,000 will expire on December 31, 1998, 2000 and 2002, respectively.
Net capital losses incurred after October 31, and within the taxable year are
deemed to arise on the first business day of a Fund's next taxable year. The
Fund incurred and elected to defer, net capital losses of approximately
$503,200 for the year ended December 31, 1994.
E.At June 30, 1995 under the terms of the forward foreign currency exchange
contracts, the Fund is obligated to deliver currency in exchange for U.S.
dollars as indicated in the following table:
<TABLE>
<CAPTION>
SALES
- -----
IN NET UNREALIZED
CURRENCY TO EXCHANGE SETTLEMENT APPRECIATION
DELIVER FOR DATE VALUE (DEPRECIATION)
- ----------- -------- ---------- ----- --------------
<S> <C> <C> <C> <C>
SK 10,500,000 $1,441,615 8/15/95 $1,438,520 $ 3,095
DM 6,200,000 $4,414,634 9/15/95 4,497,969 (83,335)
DK 5,200,000 $ 943,225 12/15/95 959,459 (16,234)
FF 13,800,000 $2,865,151 12/15/95 2,836,629 28,522
(Pounds)1,850,000 $2,915,045 6/18/96 2,899,141 15,904
--------
TOTAL $(52,048)
========
</TABLE>
12
<PAGE>
F.At June 30, 1995, 70.3% of the Fund's net assets comprised high-yield fixed
income securities. The financial condition of the issuers of the securities and
general economic conditions may affect the issuers' ability to make payments of
income and principal.
At June 30, 1995, 15.0% of the Fund's net assets comprised foreign currency
denominated fixed income securities. Changes in currency exchange rates will
affect the value and net investment income from such securities.
G.The Fund's Board of Directors has approved a share repurchase program
authorizing the Fund from time to time to make open-market purchases on the New
York Stock Exchange of up to 10 percent of the Fund's shares outstanding as of
December 11, 1990. There were no repurchases of shares during the six months
ended June 30, 1995.
H. Summary of quarterly results of operations:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
THREE MONTHS ENDED
------------------------------------------------------------------
MARCH 31, 1995 JUNE 30, 1995
--------------- ---------------
<S> <C> <C> <C> <C>
Investment Income........ $ 2,178 $ 0.26 $ 2,430 $ 0.29
Net Investment Income.... 1,946 0.23 2,224 0.26
Net Realized Loss and
Change in Unrealized
Appreciation/Depreciation
on Investments and
Foreign Currency........ 2,020 0.24 1,437 0.17
Net Increase in Net
Assets Resulting from
Operations.............. 3,966 0.47 3,661 0.43
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
MARCH 31, 1994 JUNE 30, 1994 1994 1994
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income........ $ 2,264 $ 0.27 $ 2,196 $ 0.26 $ 2,224 $ 0.27 $ 2,138 $ 0.25
Net Investment Income.... 2,053 0.24 1,974 0.24 2,022 0.24 1,952 0.23
Net Realized Loss and
Change in Unrealized
Depreciation on
Investments and Foreign
Currency................ (3,027) (0.36) (3,969) (0.48) (2,037) (0.24) (2,187) (0.25)
Net Decrease in Net
Assets Resulting from
Operations.............. (974) (0.12) (1,995) (0.24) (15) 0.00 (235) (0.02)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
MARCH 31, 1993 JUNE 30, 1993 1993 1993
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income........ $ 2,509 $ 0.20 $ 2,231 $ 0.26 $ 2,253 $ 0.36 $ 2,729 $ 0.32
Net Investment Income.... 2,285 0.18 1,987 0.24 2,047 0.33 2,493 0.29
Net Realized Gain (Loss)
and Change in Unrealized
Appreciation/Depreciation
on Investments and
Foreign Currency........ 4,007 0.47 582 0.08 (2,006) (0.24) 2,934 0.35
Net Increase in Net
Assets Resulting from
Operations.............. 6,292 0.65 2,569 0.32 41 0.09 5,427 0.64
</TABLE>
I. Supplemental Proxy Information
The Annual Meeting of the Stockholders of the BEA Strategic Income Fund, Inc.
was held on Tuesday June 13, 1995 at the offices of BEA Associates, One
Citicorp Center, 153 East 53rd Street, New York City. The following is a
summary of each proposal presented and the total number of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES VOTES
PROPOSAL FAVOR OF AGAINST WITHHELD ABSTAINED
- -------- --------- ------- -------- ---------
<S> <C> <C> <C> <C>
1. To elect the following four Directors:
Messrs. Daniel H. Sigg, Enrique R. Arzac,
Lawrence J. Fox and James S. Pasman Jr. 6,804,993 -- 600,974 --
2. To ratify the selection of Price Waterhouse
LLP as independent public accountants of Fund
until the next annual meeting. 6,863,732 38,830 -- 83,557
3. To approve or disapprove a new Investment
Advisory Agreement between the Fund and BEA
Associates containing substantially the same
terms and conditions and fees as the Fund's
previous investment agreement with CS First
Boston Investment Management Corporation. 6,670,086 174,739 -- 141,294
4. To approve or disapprove an amendment to the
Articles of Incorporation of the Fund to
change its name to "BEA Strategic Income
Fund, Inc." from "CS First Boston Strategic
Income Fund, Inc." 6,573,600 257,415 -- 155,104
</TABLE>
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