<PAGE>
[LOGO CS FIRST BOSTON STRATEGIC INCOME FUND, INC.
APPEARS 599 LEXINGTON AVENUE
HERE] NEW YORK, NY 10022
================================================================================
OFFICERS AND DIRECTORS
Joseph F. Huber Richard J. Lindquist
Chairman and President Vice President
Prof. Enrique Arzac Robert R. Coby
Director Vice President
Lawrence J. Fox Hal Liebes
Director Secretary
James S. Pasman, Jr. Harvey M. Rosen
Director Treasurer
================================================================================
INVESTMENT ADVISER
CS First Boston Investment Management Corporation
599 Lexington Avenue
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
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
- --------------------------------------------------------------------------------
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 change relating
to the Plan, can be obtained from the Plan's agent at (800) 428-8890.
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[LOGO APPEARS HERE] CS FIRST BOSTON STRATEGIC
INCOME FUND, INC.
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
FIRST QUARTER REPORT
MARCH 31, 1995
<PAGE>
CS First Boston Strategic Income Fund, Inc.
Chairman's Letter
========
To Our Shareholders:
During the first quarter of 1995, the U.S. Treasury market posted its highest
positive quarterly return since the third quarter of 1992, 4.66%. The first
quarter ended with yields hovering near a six-month low. Yields on 2-year
Treasuries declined by 91 basis points, from 7.69% to 6.78%, while yields on
30-year Treasuries dropped by 45 basis points to 7.43%. The CS First Boston
Strategic Income Fund earned a net total return of 5.16% during the first
quarter based upon net asset value and reinvestment of dividends. As a result
of the greater drop in short-term yields, the yield curve steepened by 193
basis points during the year, as measured by the differential between 2-year
and 30-year maturities.
This rally is attributable in part to the investment of the cash accumulated
in late 1993 and investors seeking an alternative to emerging markets. In
addition, recent economic and inflation data and comments by Federal Reserve
Chairman Greenspan have caused many participants to conclude that the cycle of
rising short- and long-term rates may be completed.
Recent reports indicated that sales of new homes fell a larger-than expected
14.0% in February to the lowest level in three years. Home construction is
losing steam, sales of existing homes have fallen for two consecutive months
and auto manufacturers are cutting back production targets for 1995 amid weaker
sales. In addition, a decline in durable goods orders and weak retail sales
figures in February were viewed as signals of a moderating pace of economic
acceleration. Leading indicators pointed to continued economic strength.
Payroll employment gains of 318,000 in February were stronger than expected and
the unemployment rate fell to 5.4%. Business confidence in the U.S. economy
rose in March as companies made plans to hire more workers. Consumer confidence
rose unexpectedly as more Americans planned to buy houses and cars amid lower
mortgage rates and steady employment.
Inflation data paints a similarly two-tone picture. Inflation at the finished
goods level has remained relatively subdued. The consumer and producer price
indices each rose 0.3% in February. However, indications of underlying price
pressures have become more widespread. Intermediate goods producer prices rose
9.6% for the three months ending in January. Capacity utilization rose to a
fifteen and a half year high of 85.7%. While a high level of plant usage
indicates economic strength, it also means that productions costs may rise.
Finally the increase in the hourly earnings component of the employment data
reveals the early stages of wage inflation.
For the first quarter 1995, the U.S. high yield market saw strong positive
performance driven by gains in gaming, cable and telecommunications. The
Salomon Brothers High Yield Market Index posted a 5.91% return for the quarter
following 1994's negative performance. The high yield market outperformed all
other fixed income indices according to Salomon Brothers.
We are basing our investment strategy on the assumption that the recent
decline in short-term yields will be reversed. Forward looking measures such as
employment, factory utilization and consumer confidence remain very high.
Fourth quarter real GDP grew at 4.6% and final sales were up by 5.3%. These
factors combined with a weak U.S. dollar make it unlikely that inflation can
remain low in this environment. We believe the Fed is likely to respond by
further lifting the Fed funds target. The current level of interest rates does
not adequately reflect further Fed intervention, consequently, we are keeping
portfolio durations moderately short relative to their respective targets.
Sectorwise, we will continue to focus on high yield investments. It is our
intent to maintain a relatively high allocation to the high yield market in
anticipation of improving fundamental and technical conditions. We expect the
high yield market 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 the past year. However, we do expect the market to
continue to be volatile on an individual credit basis as earnings releases are
made. On the technical side, the high
1
<PAGE>
yield market has benefited from $2.6 billion that has flowed into high yield
mutual funds during the first quarter of 1995, versus only $14.0 million that
flowed into these funds in the first quarter of 1994. Other participants in the
marketplace, pension funds, insurance companies and former emerging markets
players, are also adding demand to a market that currently does not have a
great deal of supply. We continue to find value in new issues and selected
secondary issues. Holdings continue to be diversified.
We will maintain our current allocation to non-U.S. dollar fixed income
investments. The benign economic environment and moderate inflation levels in
Europe suggest a more favorable interest rate outlook than in the U.S. For
defensive purposes we have been hedging our currency exposure in expectation of
a rebound in the U.S. dollar versus other currencies.
Finally, as recently announced, the Fund's adviser, CS First Boston
Investment Management Corporation has agreed to transfer its business to its
affiliate BEA Associates ("BEA"). Accordingly, the Fund will be sending proxy
material to its stockholders asking them to approve, among other things, a new
advisory agreement with BEA and a name change of the fund to BEA Strategic
Income Fund at your upcoming shareholder meeting. A further result of this
change is the addition of BEA representatives to the Fund's Board of Directors
and senior management. Going forward it is proposed that Daniel Sigg and Robert
Moore will be the Fund's senior executives with Mr. Sigg joining the Board, and
Joseph Huber will resign.
/s/ Joseph F. Huber
Joseph F. Huber
Chairman
2
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
========
March 31, 1995
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (000)
========-----------------------------------------------------------------------
DOMESTIC SECURITIES (94.5%)
========-----------------------------------------------------------------------
CORPORATE OBLIGATIONS (67.4%)
========-----------------------------------------------------------------------
COMMUNICATIONS (11.1%)
<S> <C> <C> <C>
(/4/) Adelphia Communications, Series B
Sr. Notes
9.50%, 2/15/04 B3 $ 548 $ 408
(/8/)(/1//1/) American Telecasting, Inc.
Sr. Discount Notes
0.00%, 6/15/04 Caa 1,000 450
(/1//1/) Cablevision Industry Corp.
Sr. Sub. Notes
9.25%, 4/1/08 B1 500 492
CF Cable TV, Inc.
Sr. Note
11.625%, 2/15/05 B1 200 205
(/1//1/) Chancellor
12.50%, 10/1/04 B3 500 500
(/1//1/) Continental Cablevision, Inc.
Sr. Sub. Notes
11.00%, 6/1/07 B1 500 530
(/8/)(/1//1/) Dial Call Communications
Sr. Discount Notes
0.00%, 4/15/04 Caa 500 188
(/8/) Diamond Cable
Sr. Discount Notes
0.00%, 9/30/04 B3 350 198
(/4/) Falcon Holdings Group L.P.
Sr. Sub. Notes
11.00%, 9/15/03 N/R 616 535
(/8/) Helicon Group
Sr. Secured Notes
9.00%, 11/1/03 Caa 650 569
(/8/) Imax Corp.
Sr. Notes
7.00%, 3/1/01 B1 250 218
Jones Intercable, Inc.
Sr. Sub. Notes
11.50%, 7/15/04 B1 500 528
(/8/)(/1//1/) MFS Communications
Sr. Notes
0.00%, 1/15/04 B2 500 316
Mobile Telecommunications Technologies
Corp.
13.50%, 12/15/02 B2 250 260
(/8/) Nextel Communications
Sr. Notes
0.00%, 9/1/03 B3 500 221
(/6/)(/8/) Pagemart, Inc.
0.00%, 2/1/05 N/R 1,000 540
(/6/) PTI Holdings
Sub. Notes
0.00%, 12/17/02 N/R 507 299
Scott Cable Communications, Inc. Sr.
Sub. Notes
12.25%, 4/15/01 B3 500 400
</TABLE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (000)
========-----------------------------------------------------------------------
<S> <C> <C> <C>
(/6/) Simmons Cable
Sr. Sub. Notes
15.747%, 4/30/96 N/R $ 500 $ 260
(/8/) Spanish Broadcasting System
7.50%, 6/15/02 B3 500 452
Telemundo Group
Sr. Notes
10.25%, 12/30/01 N/R 500 425
(/1//1/) United International Holdings
Zero Coupon, 1/15/99 B3 1,000 558
Univision Network Holding
Sub. Notes
Zero Coupon, 12/17/02 N/R 573 338
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GROUP TOTAL 8,890
-------
========-----------------------------------------------------------------------
CONSUMER PRODUCTS (5.6%)
Health O Meter Notes
13.00%, 8/15/02 B3 500 440
Jordan Industries
Sr. Notes
10.375%, 8/1/03 B3 500 461
(/1//1/) Mail-Well Envelope
Sr. Sub. Notes
10.50%, 2/15/04 B3 500 447
(/3/)(/8/) Mail-Well Holdings
Sr. Notes
0.00%, 2/15/06 N/R 250 108
(/1//1/) Marvel III Holdings, Inc.,
Series B Sr. Secured Notes
9.125%, 2/15/98 Caa 500 444
Pilgrim's Pride Corp.
Sr. Sub. Notes
10.875%, 8/1/03 B3 500 455
(/3/) Renaissance Cosmetics
13.75%, 8/15/01 N/R 500 472
Revlon Consumer Products, Inc.
Sr. Sub. Notes
10.50%, 2/15/03 B3 500 469
Seven Up/RC Bottling Co.
Sr. Secured Notes
11.50%, 8/1/99 Caa 500 433
(/8/)(/1//1/) Specialty Foods Acquisition Corp.
Series B
Sr. Secured Notes
0.00%, 8/15/05 Caa 1,500 750
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GROUP TOTAL 4,479
-------
========-----------------------------------------------------------------------
FINANCE (0.5%)
(/3/) GPA Holland
8.625%, 1/15/99 N/R 500 373
-------
</TABLE>
========-----------------------------------------------------------------------
3
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (000)
========-------------------------------------------------------------------
<S> <C> <C> <C>
INDUSTRIAL (13.4%)
Adience Enterprises, Inc.
Sr. Secured Notes
11.00%, 6/15/02 N/R $ 662 $ 497
(/6/) Alpine Group
13.50%, 12/22/95 N/R 500 495
(/1//1/) Armco, Inc.
Sr. Notes
11.375%, 10/15/99 B2 500 492
(/1//1/) Berg Electronics
Sr. Sub. Notes
11.375%, 5/1/03 B3 500 515
(/1//1/) Chatwins Group, Inc.
Sr. Notes
13.00%, 5/1/03 B2 500 412
(/1//1/) Container Corp. of America
Sr. Notes
9.75%, 4/1/03 B2 500 490
Doman Industries Ltd.
Sr. Notes
8.75%, 3/15/04 Ba3 650 591
(/1//1/) Fairfield Manufacturing Co.
Sr. Sub. Notes
11.375%, 7/1/01 Caa 500 472
(/1//1/) Fort Howard Corp.
Sub. Notes
10.00%, 3/15/03 B2 500 477
Geneva Steel Co.
Sr. Notes
9.50%, 1/15/04 B1 250 203
Genmar Holdings, Series A
13.50%, 7/15/01 B3 500 488
Harris Chemical
(/8/) Sr. Secured Notes
0.00%, 7/15/01 B2 500 432
(/1//1/) Sr. Sub. Notes
10.75%, 10/15/03 B3 250 242
Huntsman Corp.
First Mortgage Notes
11.00%, 4/15/04 B1 500 534
(/8/) Indspec Chemical
Sr. Sub. Notes
0.00%, 12/1/03 B3 750 442
(/1//1/) Malette, Inc.
12.25%, 7/15/04 Ba3 500 520
(/8/) Mesa Capital Corp.
0.00%, 6/30/98 B3 500 482
NL Industries
11.75%, 10/15/03 B1 250 256
Presley Cos.
12.50%, 7/1/01 B2 250 208
Repap Wisconsin
Sr. Notes
9.875%, 5/1/06 B3 250 229
Sherritt Gordon, Inc.
10.50%, 3/31/14 B1 150 146
(/1//1/) Stone Consolidated
Sr. Secured Notes
10.25%, 12/15/00 B1 500 505
Trans Resources, Inc.
Sr. Sub. Notes
11.875%, 7/1/02 B2 500 450
</TABLE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (000)
========-------------------------------------------------------------------
<S> <C> <C> <C>
Uniroyal Chemical Acquisitions
Sr. Sub. Notes
11.00%, 5/1/03 B3 $ 500 $ 503
WCI Steel, Inc., Series B
Sr. Notes
10.50%, 3/1/02 B1 200 193
(/1//1/) Wheeling-Pittsburgh Corp.
Sr. Notes
9.375%, 11/15/03 B1 500 432
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GROUP TOTAL 10,706
-------
========-------------------------------------------------------------------
MANUFACTURING (13.5%)
(/8/) American Standard Cos.
Sr. Sub. Notes
0.00%, 6/1/05 B1 500 340
(/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/)(/1//1/) Building Materials Corp.
0.00%, 7/1/04 B1 500 268
(/1//1/) Comdata Network, Inc.
Sr. Sub. Notes
13.25%, 12/15/02 B3 500 545
(/1//1/) Consoltex Group, Inc.
Sr. Sub. Notes
11.00%, 10/1/03 B2 500 445
(/3/)(/8/) Crown Packaging Holdings
Sr. Sub. Notes
0.00%, 11/1/03 Caa 1,000 485
Data Documents Inc.
Sr. Notes
13.50%, 7/15/02 B2 250 250
Domtar, Inc.
11.25%, 9/15/17 Ba1 500 525
Gaylord Container Corp.
Sr. Notes
11.50%, 5/15/01 B3 250 263
(/8/) Sr. Sub. Notes
0.00%, 5/15/05 Caa 500 475
(/1//1/) G.I. Holdings, Inc., Series B
Sr. Note
Zero Coupon, 10/1/98 Ba3 1,000 645
(/8/)(/1//1/) Ivex Holdings Corp.
Sr. Sub. Notes
0.00%, 3/15/05 Caa 1,250 600
MVE Inc.
Sr. Notes
12.50%, 2/15/02 B3 500 512
Rexene Corp.
Sr. Notes
11.75%, 12/1/04 B1 250 255
(/5/)(/6/)(/7/) Rotor Tool
Sr. Sub. Notes
12.375%, 4/1/97
(acquired 1/26/93, cost $82,600) N/R 459 275
Sheffield Steel Corp.
12.00%, 11/1/01 N/R 500 475
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (000)
========-------------------------------------------------------------------
<S> <C> <C> <C>
(/8/) Silgan Holdings, Inc.
Sr. Disc. Notes
0.00%, 12/15/02 B3 $ 500 $ 445
Specialty Equipment Co., Inc.
Sr. Sub. Notes
11.375%, 12/1/03 B3 700 690
Stone Container Corp.
Sr. Notes
9.875%, 2/1/01 B1 500 485
Synthetic Industries, Inc.
Sr. Sub. Notes
12.75%, 12/1/02 B3 500 480
Tracor, Inc.
Sr. Sub. Notes
10.875%, 8/15/01 B2 500 502
USG Corp., Series B
Sr. Notes
9.25%, 9/15/01 B1 200 198
(/1//1/) U.S. Leather, Inc.
Sr. Notes
10.25%, 7/31/03 B2 500 415
Westpoint Stevens, Inc.
Sr. Sub. Notes
9.375%, 12/15/05 B3 250 229
-------
GROUP TOTAL 10,749
-------
========-------------------------------------------------------------------
OIL, GAS & ELECTRIC (2.7%)
Falcon Drilling, Inc.
Sr. Sub. Notes
9.75%, 1/15/01 B2 500 473
(/1//1/) Forest Oil, Inc.
Sr. Sub. Notes
11.25%, 9/1/03 B3 500 420
(/1//1/) Gulf Canada Resources
Sr. Sub. Notes
9.25%, 1/15/04 B2 500 475
Southeastern Public Service Co.
Sr. Sub. Notes
11.875%, 2/1/98 Caa 314 314
(/1//1/) Wilrig
Sr. Notes
11.25%, 3/15/04 B2 500 480
-------
GROUP TOTAL 2,162
-------
========-------------------------------------------------------------------
RETAIL TRADE (8.6%)
Big V Supermarkets, Inc.
11.00%, 2/15/04 B3 500 415
(/1//1/) Brylane Capital Corp.
Sr. Sub. Notes
10.00%, 9/1/03 B2 500 488
Central Rents Inc., Series B
12.875%, 12/15/03 N/R 500 456
(/1//1/) County Seat Stores
Sr. Sub. Notes
12.00%, 10/1/01 B3 500 498
(/1//1/) Dairy Mart Convenience Stores, Inc.
Sr. Sub. Notes
10.25%, 3/15/04 B3 626 488
</TABLE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (000)
========------------------------------------------------------------------
<S> <C> <C> <C>
Farm Fresh, Inc.
Sr. Notes
12.25%, 10/1/00 B2 $ 500 $ 465
(/1//1/) Finlay Fine Jewelry
Sr. Notes
10.625%, 5/1/03 B1 500 465
(/2/) Grand Union Co., Series A
Sr. Sub. Notes
11.375%, 2/15/99 B3 500 515
Great American Cookie
10.875%, 1/15/01 B3 500 443
Hill Stores
Sr. Notes
10.25%, 9/30/03 Ba3 700 679
Pathmark Stores
(/8/) Jr. Sub. Notes
0.00%, 11/1/03 B3 750 401
Sr. Sub. Notes
9.625%, 5/1/03 B2 500 467
Ralph's Grocery
Sr. Sub. Notes
10.25%, 7/15/02 B2 500 495
(/4/) Town & Country Corp.
Sr. Sub. Notes
13.00%, 5/31/98 B3 578 231
Waban, Inc.
Sr. Sub. Notes
11.00%, 5/15/04 Ba3 400 402
-------
GROUP TOTAL 6,908
-------
========------------------------------------------------------------------
SERVICES (11.3%)
(/2/)(/1//1/) Acme Holdings
Sr. Sub. Notes
11.75%, 6/1/00 Ca 500 185
(/1//1/) American Restaurant Group, Inc.
Sr. Secured Notes
12.00%, 9/15/98 B2 500 455
(/1//1/) Bally's Casino Holdings, Inc.
Zero Coupon, 6/15/98 B3 600 393
(/1//1/) Boomtown, Inc.
11.50%, 11/1/03 B1 500 480
(/1//1/) Casino America Corp.
11.50%, 11/15/01 B1 500 486
(/1//1/) Community Health Systems
Sr. Sub. Notes
10.25%, 11/30/03 B2 250 255
(/1//1/) Continental Medical Systems, Inc.
Sr. Sub. Notes
10.375%, 4/1/03 B2 500 457
Elsinore Corp.
12.50%, 10/1/00 N/R 100 50
(/1//1/) Empress River Casino Finance
Sr. Notes
10.75%, 4/1/02 B1 500 485
G.B. Property Funding
10.875%, 1/15/04 B2 500 421
(/4/) General Medical
Sub. Notes
12.125%, 8/15/05 B3 591 582
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (000)
========--------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GNF Corp., Series B
10.625%, 4/1/03 B2 $ 500 $ 388
Grand Casinos, Inc., Series B
12.50%, 2/1/00 Ba3 500 510
(/4/)(/6/) Hemmeter
12.00%, 12/15/00 N/R 280 210
Hollywood Casino Corp., Series B
Sr. Secured Notes
14.00%, 4/1/98 N/R 500 531
Kloster Cruise Ltd.
Sr. Note
13.00%, 5/1/03 B2 500 402
Mid-American Waste Systems
Sr. Sub. Notes
12.25%, 2/15/03 B3 500 510
Motels of America, Inc.
Sr. Sub. Notes
12.00%, 4/15/04 B3 250 253
(/1//1/) Solon Automated
12.75%, 7/15/01 B1 500 491
Trump Plaza
Mortgage Notes
10.875%, 6/15/01 B3 500 405
(/4/)(/1//2/) Trump Taj Mahal Funding
11.35%, 11/15/99 Caa 500 379
U.S. Bank Note Corp., Series B
Sr. Notes
11.625%, 8/1/02 B1 250 185
Wright Medical Technology Series B
Sr. Notes
10.75%, 7/1/00 B3 500 490
-------
GROUP TOTAL 9,003
-------
========--------------------------------------------------------------------------
TRANSPORTATION (0.7%)
CHC Helicopter
Sr. Sub. Notes
11.50%, 7/15/02 B3 250 208
USAir, Inc.
Sr. Notes
10.00%, 7/1/03 B3 500 380
-------
GROUP TOTAL 588
-------
========--------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
(Cost $57,154,626) 53,858
-------
========--------------------------------------------------------------------------
AGENCY SECURITIES (12.5%)
========--------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (1.4%)
FEDERAL HOME LOAN MORTGAGE CORPORATION
(/1//1/) REMIC 32-C
9.50%, 3/15/20 Aaa 1,000 1,076
-------
========--------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (8.5%)
April 30 yr TBA PERL
13.05%, 6/7/95 Aaa 2,000 40
April 30 yr TBA
8.00%, 4/1/25 Aaa 2,000 1,980
8.50%, 4/1/25 Aaa 2,000 2,021
9.00%, 4/1/25 Aaa 2,700 2,773
-------
GROUP TOTAL 6,814
-------
</TABLE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (000)
========--------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (2.6%)
Graduated Payment
12.75%, 11/15/13 Aaa $ 29 $ 31
March 30 yr TBA
9.00%, 3/1/25 Aaa 2,000 2,064
-------
GROUP TOTAL 2,095
-------
========--------------------------------------------------------------------------
TOTAL AGENCY SECURITIES
(Cost $11,945,322) 9,985
-------
========--------------------------------------------------------------------------
AGENCY COLLATERALIZED SECURITIES (1.5%)
========--------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (1.5%)
Drexel, Burnham, & Lambert
Trust Series S-2
9.00%, 8/1/18 Aaa 1,114 1,158
-------
========--------------------------------------------------------------------------
TOTAL AGENCY COLLATERALIZED SECURITIES
(Cost $1,150,764) 1,158
-------
========--------------------------------------------------------------------------
ASSET BACKED OBLIGATIONS (9.9%)
========--------------------------------------------------------------------------
FINANCE (9.9%)
(/1//1/) Green Tree Financial Corp.
7.20%, 1/15/19 Baa3 1,768 1,602
(/1//0/) Merrill Lynch Home Equity
Acceptance Trust Series 94-A2
6.875%, 7/17/22 A3 1,704 1,708
Merrill Lynch Home Equity
Loan Corp.
9.30%, 5/15/16 A 3,000 3,048
(/3/)(/1//1/) Resolution Trust Co.
6.00%, 1/15/04 Baa2 1,531 1,527
========--------------------------------------------------------------------------
TOTAL ASSET BACKED OBLIGATIONS
(Cost $8,179,636) 7,885
-------
========--------------------------------------------------------------------------
Shares
========--------------------------------------------------------------------------
COMMON STOCKS (1.1%)
========--------------------------------------------------------------------------
COMMUNICATIONS (0.0%)
Pagemart, Inc. 3,500 0
-------
========--------------------------------------------------------------------------
CONSUMER PRODUCTS (0.7%)
(/1/)(/5/)(/6/) Applause Enterprises, Inc.
(acquired 11/8/91, cost $72,200) 1,900 5
(/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 56
(/1/)(/5/)(/6/) TLC Beatrice Enterprises, Inc.
(acquired 11/26/91, cost $307,500) 7,500 323
-------
GROUP TOTAL 594
-------
========--------------------------------------------------------------------------
FINANCE (0.0%)
(/1/)(/5/)(/6/)(/7/) Westfed Holdings, Inc., Series B
(acquired 9/20/88, cost $100) 4,223 0
-------
========--------------------------------------------------------------------------
MANUFACTURING (0.4%)
(/1/) Adience, Inc. 100,000 100
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Value
Shares (000)
========---------------------------------------------------------------------------
<S> <C> <C>
(/5/)(/6/)(/7/) CIC Acquisition Corp.
(acquired 10/18/89, cost $1,076,700) 2,944 $ 200
-------
GROUP TOTAL 300
-------
========---------------------------------------------------------------------------
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 21
-------
========---------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $1,629,403) 915
-------
========---------------------------------------------------------------------------
PREFERRED STOCKS (1.0%)
========---------------------------------------------------------------------------
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
-------
========---------------------------------------------------------------------------
OIL, GAS & ELECTRIC (1.0%)
(/1/) Consolidated Hydro, Inc., Class H 1,500 818
-------
========---------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost $1,953,800) 818
-------
========---------------------------------------------------------------------------
WARRANTS (0.2%)
========---------------------------------------------------------------------------
(/1/) American Telecasting, Inc.,
expiring 6/23/99 5,000 17
(/1/)(/3/) Boomtown, Inc., expiring 11/1/98 500 0
(/1/) Casino America, expiring 11/15/96 1,632 0
(/1/) Casino Magic Corp., expiring 10/14/96 3,000 0
(/1/)(/3/) Central Rents, expiring 1/30/04 500 14
(/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 30
(/1/) Data Documents, Inc., expiring 7/15/02 250 0
(/1/) Dial Call Communications, expiring 4/25/99 500 1
(/1/)(/3/) Elsinore, 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 4/3/95 3,000 1
(/1/)(/3/) Purity Supreme, expiring 8/1/97 1,733 0
(/1/)(/3/) Renaissance Cosmetics, expiring 4/3/01 1,000 0
(/1/) Sheffield Steel Corp., expiring 11/1/01 2,500 15
(/1/) Spanish Broadcasting, expiring 6/29/99 500 60
(/1/) United International Holdings,
expiring 11/15/99 600 0
(/1/)(/3/) Wright Medical Technology,
expiring 6/30/03 206 34
========---------------------------------------------------------------------------
TOTAL WARRANTS
(Cost $105,750) 188
-------
========---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (000)
========------------------------------------------------------------
<S> <C> <C> <C>
UNITS (0.9%)
========------------------------------------------------------------
CORPORATE OBLIGATIONS (0.6%)
(/3/) Thermoscan, Inc.
11.50%, 8/15/01 N/R $ 500 $ 500
-------
========------------------------------------------------------------
Shares
========------------------------------------------------------------
PREFERRED STOCK (0.3%)
(3) SD Warren Co. 8,000 244
-------
========------------------------------------------------------------
TOTAL UNITS
(Cost $700,000) 744
-------
========------------------------------------------------------------
TOTAL DOMESTIC SECURITIES
(Cost $82,819,301) 75,551
-------
========------------------------------------------------------------
Face
Amount
(000)
========------------------------------------------------------------
FOREIGN INCOME SECURITIES (15.9%)
========------------------------------------------------------------
GOVERNMENT OBLIGATIONS (15.9%)
========------------------------------------------------------------
DENMARK
Kingdom of Denmark
9.00%, 11/15/00 N/R DK 8,000 $ 1,492
-------
FRANCE
France O.A.T.
7.50%, 4/25/05 N/R FF 7,000 1,408
Government of France
Treasury Bill
4.75%, 4/12/99 N/R 7,000 1,314
-------
2,722
-------
GERMANY
Deutscheland Republic
Government Bond 6.75%,
7/15/04 Aaa DM 6,000 4,211
-------
SWEDEN
Government of Sweden
11.00%, 1/21/99 Aa1 SK 10,000 1,355
-------
UNITED KINGDOM
United Kingdom Treasury
6.00%, 8/10/99 N/R (Pounds)2,000 2,950
-------
========------------------------------------------------------------
TOTAL GOVERNMENT OBLIGATIONS
(Cost $11,716,095) 12,730
-------
========------------------------------------------------------------
TOTAL FOREIGN INCOME SECURITIES
(Cost $11,716,095) 12,730
-------
========------------------------------------------------------------
TOTAL INVESTMENTS (110.4%)
(Cost $94,535,396) 88,281
-------
========------------------------------------------------------------
LIABILITIES IN EXCESS OF
OTHER ASSETS (-10.4%) (8,347)
-------
========------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Value
(000)
========-----------------------------
<S> <C>
NET ASSETS (100%)
Applicable to 8,454,140
issued and outstanding
$.001 par value shares
(authorized 100,000,000
shares) $79,934
-------
========-----------------------------
NET ASSET VALUE PER SHARE $ 9.46
-------
========-----------------------------
</TABLE>
(Pounds)--British Pound.
DK--Danish Krone.
DM--Deutsche Mark.
FF--French Franc.
SK--Swedish Krone.
N/R--Not Rated.
PERL--Principle Exchange Rate Linked Security.
REMIC--Real Estate Mortgage Investment Conduit.
TBA--Security is subject to delayed delivery.
(/1/) Non-income producing security.
(/2/) Defaulted security.
(/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 March 31, 1995 aggregated $2,796,600. Total market value of
restricted securities owned at March 31, 1995 was $1,013,000 or 1.3% 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/) The interest rate disclosed represents the current yield at March 31,
1995.
(/10/) Floating Rate--The interest rate changes on these instruments based upon
a designated base rate. The rates shown are those in effect at March 31,
1995.
(/11/) A portion of this security was pledged as collateral for delayed delivery
transactions.
(/12/) 9.375% of 11.35% represents amount paid in cash, the remainder is payment
in kind.
8
