<PAGE>
BEA Strategic Income Fund, Inc.
153 East 53rd Street
New York, NY 10022
---------------------------------------------
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
Daniel H. Sigg Michael A. Pignataro
CHAIRMAN AND CHIEF ASSISTANT VICE
EXECUTIVE OFFICER PRESIDENT
Robert J. Moore AND ASSISTANT
PRESIDENT AND CHIEF SECRETARY
INVESTMENT OFFICER Hal Liebes
Prof. Enrique R. Arzac SECRETARY
DIRECTOR Harvey M. Rosen
Lawrence J. Fox TREASURER
DIRECTOR Paul P. Stamler
James S. Pasman, Jr. ASSISTANT TREASURER
DIRECTOR John M. Corcoran
Richard J. Lindquist ASSISTANT TREASURER
VICE PRESIDENT
</TABLE>
--------------------------------------------------------
INVESTMENT ADVISER
BEA Associates
153 East 53rd Street
New York, New York 10022
--------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank, N.A.
73 Tremont Street
Boston, Massachusetts 02108
--------------------------------------------------------
CUSTODIAN
The Chase Manhattan Bank, N.A.
770 Broadway
New York, New York 10003
--------------------------------------------------------
SHAREHOLDER SERVICING AGENT
The Chase Manhattan Bank, N.A.
770 Broadway
New York, New York 10003
Phone 1-800-428-8890
--------------------------------------------------------
LEGAL COUNSEL
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
--------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
--------------------------------------------------------
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.
[LOGO]
BEA Strategic Income Fund, Inc.
[LOGO]
FIRST QUARTER REPORT
March 31, 1996
<PAGE>
BEA STRATEGIC INCOME FUND, INC.
- ----------
Dear Shareholders: April 18, 1996
We are pleased to report on the results of the BEA Strategic Income Fund, Inc.
(the "Fund) for the quarter ended March 31, 1996.
At March 31, 1996 the Fund's net asset value ("NAV") was $10.12, compared to
$10.01 at December 31, 1995. As a result, the Fund's total return (assuming
reinvestment of dividends) was 3.36%.
During the first quarter of 1996, the high yield market, as measured by the
Salomon Brothers High Yield Index, posted positive performance of 1.71% during a
period in which new cash buyers entered the market while high yield spreads
tightened slightly versus treasuries as interest rates increased. In addition,
the market's positive performance was driven by gains in the CCC-rated sector
followed by the B and BB-rated issues as the deferred-interest sector
outperformed the cash-pay sector. During the quarter, the high yield market
outperformed the investment grade market, which declined 1.75% according to the
Salomon Brothers Broad Index, but underperformed the emerging markets, which was
up 4.46% according to the Salomon Brothers Brady Bond Index, and the equity
market, which saw the S&P 500 rise 5.37%.
All industry sectors had positive performance in the quarter except for
Airlines, which reported a decline of 1.66% and Conglomerates, which declined
0.61%. The Airline industry's poor performance was driven by its higher-rated
securities, which followed treasuries in underperforming for the quarter. The
best performing industry sector Gaming, which returned 7.62%, was led by
positive news regarding Atlantic City casinos and Harrahs Jazz, based in New
Orleans. In addition, we have started to see interest in previously out-of-favor
industries, including restaurants and retailing.
During the first quarter, high yield mutual fund investors continued to
enter the market, with AMG Data Services reporting inflows of $2.85 billion. The
high yield new issue market was very active during the first quarter of 1996
with $18.4 billion of new deals being priced versus $5.6 billion in the first
quarter of 1995. The average market-weighted new issue offer yield was 10.87% at
the end of the first quarter of 1996 versus 10.94% at the end of the first
quarter of 1995 and for the year 1995 averaged 10.93%.
We continue to expect the high yield market to track the directional
movements of the debt and equity markets in 1996. We also expect the market to
remain volatile on an individual credit basis as bonds react quickly to news
releases, particularly those of the negative variety. The strong cash flows we
have witnessed in the high yield market over the last year have become somewhat
precarious as treasury yields have taken on increased volatility as fear of
inflation has been rising. As a result,
we will be watching carefully to see how high-yield investors react to higher
rates.
We believe that the second quarter will remain busy on the new issue front
following a very well received calendar in the first quarter. However, with
rates at higher levels, there is a risk that the new issues will reprice the
secondary market. We expect secondary trading to remain brisk as investors
reposition portfolios to make room for new issues.
Our long-term outlook continues to be positive for the credit fundamentals
of many high-yield issuers. We remain positive on selected gaming companies
particularly in Atlantic City and Las Vegas, on industry sectors such as health
care and cable where we have seen continued merger activity, on many sectors of
the telecommunications industry, which along with the cable and broadcasting
sectors should benefit over the near-term from the recently signed
Telecommunications Bill, and on certain cyclical sectors. 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.
During the first quarter, mortgages were the best-performing
investment-grade fixed-income sector, with a return of -0.44% while corporates
lagged at -2.58%. Mortgage securities are at historically cheap levels, while
corporate bond spreads remain extremely tight, and have been steady for nearly
two years.
BEA's stance in the corporate sector remains defensive, in light of several
indications that corporate profits growth may be fading. We are now in the
sixty-first month of the current business expansion; the average period of
expansion in the postwar era has lasted only fifty months. Corporate profits
peaked relative to economic growth during the second quarter of 1995, while the
ratio of rating agency upgrades to downgrades also peaked last year.
In the mortgage sector, we are currently emphasizing discount coupons,
because prepayment protection in these issues is particularly undervalued.
Call-protected Commercial Mortgage-Backed Securities also offer excellent value
relative to corporates.
Looking forward, our mortgage strategy should benefit when nervous buyers
return to this undervalued sector. Our primary concerns for the next three to
six months are focused on the potential for continued negative surprises, in
light of the recent backup in interest rates. This could result in a continued
increase in interest rate volatility, and consequently lower liquidity. Our
current modest weighting in below investment grade bonds (and in corporates in
general) reflects this higher
2
<PAGE>
probability, and leaves the portfolio with "dry powder" should opportunities
arise.
We continue to be bullish on the higher-quality European markets, where
sluggish economic growth should lead to continued declining rates, independent
of whatever occurs with U.S. rates. Early in the year, for example, German bond
prices reflected an expectation of 10 basis points of easing in 1996, while at
quarter-end the German market pricing reflected expectations for monetary
tightening in the second or third quarter. Even more than in the U.S., we
believe that this is overly pessimistic, and that German rates will come down
later in the year. In our view, therefore, German bonds (and thus bonds in the
other major European markets) are cheap, and we are gradually adding to our
holdings in these markets. Meanwhile, it remains our view that the high-yielding
European markets (Italy, Spain, Sweden, etc.) are becoming rich, and we continue
to gravitate toward higher-quality European markets.
We appreciate your interest in the Fund and would be pleased to respond to
your questions or comments. Any questions regarding net asset value,
performance,
dividends, portfolio allocations, or management can be directed to BEA
Associates at (800) 293-1232. All other inquiries regarding account information
or requests for a prospectus or other reports should be directed to the
Shareholder Servicing Agent at (800) 428-8890.
Sincerely yours,
[SIG]
Robert J. Moore
PRESIDENT AND CHIEF INVESTMENT OFFICER
[SIG]
Daniel H. Sigg
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
3
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
- ---------
MARCH 31, 1996
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------------------
- -----------------
DOMESTIC SECURITIES (86.6%)
- ---------------------------------------------------------------------------------
- -----------------
CORPORATE OBLIGATIONS (63.7%)
- ---------------------------------------------------------------------------------
- -----------------
COMMUNICATIONS (18.7%)
(3) Allbritton Communications Co.
Sr. Sub. Debentures
9.75%, 11/30/07 B3 $ 250 $ 234,375
(8) American Telecasting, Inc.
Sr. Discount Notes
0.00%, 6/15/04 Caa 325 237,250
A+ Network, Inc.
Sr. Sub. Notes
11.875%, 11/1/05 Caa 250 256,875
(8) Arch Communications Group,
Inc.
Sr. Discount Notes
0.00%, 3/15/08 B3 700 400,750
(8) Australis Media Ltd.
Yankee Gtd. Sub. Discount
Notes
0.00%, 5/15/03 B3 225 155,250
(3)(8) Brooks Fiber Properties, Inc.
Sr. Discount Notes
0.00%, 3/1/06 N/R 450 263,250
Cablevision Industries Corp.
Sr. Debentures
9.25%, 4/1/08 Ba2 500 540,000
Chancellor Broadcasting Co.
Gtd. Sr. Sub. Notes
12.50%, 10/1/04 B3 375 418,125
(3) Charter Communications L.P.
Sr. Notes
11.25%, 3/15/06 B3 250 250,000
Citicasters, Inc.,
Series B, Sr. Sub. Notes
9.75%, 2/15/04 N/R 500 507,500
Comcast Corp.
Sr. Sub. Notes
9.125%, 10/15/06 B1 250 248,750
(8) Comcast UK Cable Partners
Ltd.
Yankee Sr. Debentures
0.00%, 11/15/07 B2 500 295,000
Continental Cablevision, Inc.
Sr. Sub. Debentures
11.00%, 6/1/07 B1 500 570,000
(8) Dial Call Communications
Sr. Discount Notes
0.00%, 4/15/04 Caa 500 305,000
(8) Diamond Cable Communications
plc
Yankee Sr. Discount Notes
0.00%, 12/15/05 B3 1,000 585,000
(8) EchoStar Communications Corp.
Gtd. Sr. Discount Notes
0.00%, 6/1/04 B2 500 362,500
(4) Falcon Holdings Group L.P.
Sr. Sub. Notes
11.00%, 9/15/03 N/R 396 380,226
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
- ----------------------------------------------------------------------------------
- -----------------
<C> <S> <C> <C> <C>
(3) Geotek Communications, Inc.
Sr. Subordinated Conv. Notes
12.00%, 2/15/01 N/R $ 350 $ 392,000
(8) Helicon Group L.P.
Sr. Secured Notes
9.00%, 11/1/03 B1 650 653,250
(8) Imax Corp.,
Series B, Yankee Sr. Notes
7.00%, 3/1/01 B1 250 247,813
(6)(8) In-Flight Phone Corp.,
Series B, Sr. Discount Notes
0.00%, 5/15/02 N/R 500 125,000
(8) IntelCom Group, Inc.
Sr. Discount Notes
0.00%, 9/15/05 N/R 350 225,750
Intermedia Communications of
Florida, Inc.,
Series B, Sr. Notes
13.50%, 6/1/05 B3 300 348,000
(3)(8) International CableTel, Inc.,
Series A, Sr. Deferred
Coupon Notes
0.00%, 2/1/06 B3 500 285,000
(8) MFS Communications Co., Inc.
Discount Notes
0.00%, 1/15/04 B1 500 380,000
Metrocall, Inc.
Sr. Sub. Notes
10.375%, 10/1/07 B2 250 245,625
Mobile Telecommunications
Technologies Corp.
Sr. Sub. Notes
13.50%, 12/15/02 B2 250 266,250
NWCG Holding Corp.,
Series B, Sr. Discount Notes
Zero Coupon, 6/15/99 Caa 500 360,000
(8) Nextel Communications, Inc.
Sr. Notes
0.00%, 8/15/04 B3 700 402,500
(8) Pagemart Nationwide, Inc.
Sr. Disc. Notes
0.00%, 2/1/05 N/R 750 498,750
Paging Network, Inc.
Sr. Sub. Notes
10.125%, 8/1/07 B2 500 521,875
Pegasus Media &
Communications, Inc.,
Series B, Notes
12.50%, 7/1/05 B3 500 512,500
(8) PriCellular Wireless Corp.
Sr. Discount Notes
0.00%, 10/1/03 B3 350 274,750
PTI Holdings, Inc.
Sub. Notes
Zero Coupon, 12/17/02 N/R 507 344,702
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
- ----------------------------------------------------------------------------------
- -----------------
<C> <S> <C> <C> <C>
Rogers Cablesystems Ltd.,
Series B, Yankee Sr. Secured
2nd Priority Notes
10.00%, 12/1/07 Ba3 $ 500 $ 518,750
(2) Scott Cable Communications,
Inc.
Sub Debentures
12.25%, 4/15/01 B3 500 300,000
(2)(6) Simmons Cable
Sr. Sub. Notes
15.747%, 4/30/96 N/R 500 300,000
Sinclair Broadcast Group
Sr. Sub. Notes
10.00%, 9/30/05 B1 250 248,750
Spanish Broadcasting Systems
Sr. Notes
7.50%, 6/15/02 B3 500 495,000
(8) Telemundo Group, Inc.
Sr. Discount Notes
7.00%, 2/15/06 B1 250 222,500
United International Holdings
Discount Notes
Zero Coupon, 11/15/99 B3 1,000 647,500
Univision Network Holding
L.P.
Sub. Notes
Zero Coupon, 12/17/02 N/R 573 389,691
(8) Videotron Holdings plc
Yankee Discount Notes
0.00%, 8/15/05 B3 1,000 635,000
(3) Young Broadcasting, Inc.
Gtd. Sr. Sub. Notes
9.00%, 1/15/06 B2 200 189,000
-----------
GROUP TOTAL 16,039,807
-----------
- ---------------------------------------------------------------------------------
- -----------------
CONSUMER PRODUCTS (5.4%)
Fort Howard Corp.
Sub. Notes
10.00%, 3/15/03 B2 500 512,500
Jordan Industries, Inc.
Sr. Notes
10.375%, 8/1/03 B3 500 462,500
Mail-Well Corp.
Sr. Sub. Notes
10.50%, 2/15/04 B2 500 486,250
Marvel III Holdings, Inc.,
Series B, Sr. Secured
Debentures
9.125%, 2/15/98 Caa 700 623,000
Regency Health Services, Inc.
Gtd. Sr. Sub. Notes
9.875%, 10/15/02 B2 300 302,250
Renaissance Cosmetics, Inc.,
Series B, Sr. Notes
13.75%, 8/15/01 N/R 500 502,500
Revlon Consumer Products,
Inc.,
Series B, Sr. Sub. Notes
10.50%, 2/15/03 B3 450 454,500
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
- ----------------------------------------------------------------------------------
- -----------------
<C> <S> <C> <C> <C>
Revlon Worldwide Corp.
Sr. Secured Discount Notes
Zero Coupon, 3/15/98 B3 $ 750 $ 585,000
(8)(10) Specialty Foods Acquisition
Corp.,
Series B, Sr. Secured
Discount Debentures
0.00%, 8/15/05 Ca 1,500 690,000
-----------
GROUP TOTAL 4,618,500
-----------
- ---------------------------------------------------------------------------------
- -----------------
FINANCE (0.6%)
(3) GPA Holland B.V.
Medium Term Notes
8.625%, 1/15/99 Caa 500 502,500
-----------
- ---------------------------------------------------------------------------------
- -----------------
INDUSTRIAL (8.8%)
Alpine Group, Inc.
Gtd. Sr. Notes
12.25%, 7/15/03 B3 250 245,000
Arcadian Partners L.P.,
Series B, Sr. Notes
10.75%, 5/1/05 B2 500 545,000
Armco, Inc.
Sr. Notes
11.375%, 10/15/99 B2 500 517,500
Bayou Steel Corp.
First Mortgage Notes
10.25%, 3/1/01 B2 300 264,000
Berg Electronics, Inc.
Gtd. Sub. Debentures
11.375%, 5/1/03 B3 500 555,000
Container Corp. of America
Gtd. Sr. Notes
9.75%, 4/1/03 B1 250 247,500
Doman Industries Ltd.
Yankee Gtd. Sr. Notes
8.75%, 3/15/04 Ba3 250 226,875
(3) G-I Holdings, Inc.
Sr. Notes
10.00%, 2/15/06 Ba3 433 433,000
GNF Corp.,
Series B, First Mortgage
Notes
10.625%, 4/1/03 B1 500 500,000
Geneva Steel Co.
Sr. Notes
9.50%, 1/15/04 B1 250 193,750
(10) Genmar Holdings,
Series A, Sr. Sub. Notes
13.50%, 7/15/01 Caa 500 450,000
(8) Harris Chemical N.A.
Sr. Secured Debentures
10.25%, 7/15/01 B2 500 493,750
(8) INDSPEC Chemical Corp.
Sr. Sub. Discount Notes
0.00%, 12/1/03 B3 750 645,000
Malette, Inc.
Yankee Sr. Secured
Debentures
12.25%, 7/15/04 Ba3 250 265,000
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
- ----------------------------------------------------------------------------------
- -----------------
<C> <S> <C> <C> <C>
NL Industries:
Sr. Secured Debentures
11.75%, 10/15/03 B1 $ 250 $ 259,375
(8) Sr. Secured Discount
Debentures
0.00%, 10/15/05 B2 400 302,000
Presley Companies
Sr. Notes
12.50%, 7/1/01 B3 250 227,500
Repap Wisconsin, Inc.
Sr. Secured Debentures
9.875%, 5/1/06 B3 250 230,000
Stone-Consolidated Corp.
Yankee Sr. Secured
Debentures
10.25%, 12/15/00 Ba1 250 262,500
UCC Investor's Holdings, Inc.
Sr. Sub. Notes
11.00%, 5/1/03 B3 500 512,500
WCI Steel, Inc.,
Series B, Sr. Notes
10.50%, 3/1/02 B1 200 201,000
-----------
GROUP TOTAL 7,576,250
-----------
- ---------------------------------------------------------------------------------
- -----------------
MANUFACTURING (10.5%)
Algoma Steel, Inc.
Yankee First Mortgage Notes
12.375%, 7/15/05 B1 500 487,500
(8) American Standard, Inc.
Sr. Sub. Debentures
0.00%, 6/1/05 B1 500 426,250
Associated Materials, Inc.
Sr. Sub. Notes
11.50%, 8/15/03 B3 250 202,500
Atlantis Group, Inc.
Sr. Notes
11.00%, 2/15/03 B2 250 232,500
(8)(10) Crown Packaging Holdings,
Series B, Sr. Sub. Notes
0.00%, 11/1/03 Caa 1,300 559,000
(10) Domtar, Inc.
Yankee Debentures
11.25%, 9/15/17 Ba1 500 530,000
Gaylord Container Corp.:
Sr. Notes
11.50%, 5/15/01 B3 250 252,500
(8) Sr. Sub. Debentures
0.00%, 5/15/05 Caa 500 505,000
(8) Ivex Holdings Corp.,
Series B, Sr. Debentures
0.00%, 3/15/05 Caa 1,250 762,500
MVE Inc.
Sr. Secured Debentures
12.50%, 2/15/02 B3 500 515,000
Republic Engineered Steel,
Inc.
First Mortgage Bonds
9.875%, 12/15/01 B3 350 322,000
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
- ----------------------------------------------------------------------------------
- -----------------
<C> <S> <C> <C> <C>
Rexene Corp.
Sr. Notes
11.75%, 12/1/04 B1 $ 400 $ 414,000
Sheffield Steel Corp.
First Mortgage Notes
12.00%, 11/1/01 Caa 500 446,250
(8) Silgan Holdings, Inc.
Sr. Debentures
0.00%, 12/15/02 B3 500 490,000
Specialty Equipment Co., Inc.
Sr. Sub. Notes
11.375%, 12/1/03 B3 700 733,250
Stone Container Corp.
First Mortgage Notes
10.75%, 10/1/02 B1 250 248,125
Synthetic Industries, Inc.
Sr. Sub. Notes
12.75%, 12/1/02 B3 500 525,000
(3) Terex Corp.
Gtd. Sr. Notes
13.75%, 5/15/02 Caa 500 495,000
Tracor, Inc.,
Series A, Gtd. Sr. Sub.
Notes
10.875%, 8/15/01 B2 250 260,000
U.S. Leather, Inc.
Sr. Notes
10.25%, 7/31/03 B3 700 560,000
-----------
GROUP TOTAL 8,966,375
-----------
- ---------------------------------------------------------------------------------
- -----------------
OIL, GAS & ELECTRIC (2.4%)
El Paso Electric Company
Series D, First Mortgage
Bonds
8.90%, 2/1/06 Ba3 250 251,875
Falcon Drilling Co., Inc.,
Series B, Sr. Notes
9.75%, 1/15/01 Ba3 375 388,125
Gulf Canada Resources Ltd.
Yankee Sr. Sub. Debentures
9.25%, 1/15/04 Ba3 450 459,562
Kelley Oil & Gas Corp.
Sr. Notes
13.50%, 6/15/99 Caa 200 209,000
(8) Mesa, Inc.
Secured Notes
12.75%, 6/30/98 Caa 750 733,125
-----------
GROUP TOTAL 2,041,687
-----------
- ---------------------------------------------------------------------------------
- -----------------
RETAIL TRADE (7.5%)
Big V Supermarkets, Inc.
Sr. Sub. Notes
11.00%, 2/15/04 B3 500 443,750
Brylane L.P.
Gtd. Sr. Sub. Notes
10.00%, 9/1/03 B2 500 462,500
County Seat Stores, Inc.
Sr. Sub. Notes
12.00%, 10/1/02 Caa 500 375,000
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
- ----------------------------------------------------------------------------------
- -----------------
<C> <S> <C> <C> <C>
Dairy Mart Conveniences
Stores, Inc.
Sr. Sub. Notes
10.25%, 3/15/04 B3 $ 626 $ 566,530
Duane Reade Corp.
Sr. Notes
12.00%, 9/15/02 B3 500 475,000
(10) Farm Fresh, Inc.:
Sr. Notes
12.25%, 10/1/00 B2 500 420,000
Series A, Sr. Notes
12.25%, 10/1/00 B2 150 126,000
(10) Great American Cookie Co.,
Series B, Sr. Sec.
Debentures
10.875%, 1/15/01 B3 500 443,125
Hill Stores Co.
Sr. Notes
10.25%, 9/30/03 B1 700 672,000
(8)(10) Pathmark Stores, Inc.:
Jr. Sub. Notes
0.00%, 11/1/03 B3 850 505,750
Sr. Sub. Notes
9.625%, 5/1/03 B2 500 470,000
Ralphs Grocery Co.
Sr. Notes
10.45%, 6/15/04 B1 500 477,500
(4) Town & Country Corp.
Sr. Sub. Notes
13.00%, 5/31/98 Caa 616 375,802
Waban, Inc.
Sr. Sub. Notes
11.00%, 5/15/04 Ba3 550 563,750
-----------
GROUP TOTAL 6,376,707
-----------
- ---------------------------------------------------------------------------------
- -----------------
SERVICES (9.0%)
American Banknote Corp.,
Series B, Sr. Notes
11.625%, 8/1/02 N/R 250 152,188
American Restaurant Group,
Inc.,
Series A, Sr. Notes
12.00%, 9/15/98 B3 500 420,000
Bally's Casino Holdings, Inc.
Sr. Discount Notes
Zero Coupon, 6/15/98 B2 600 507,000
Bally's Park Place Funding,
Inc.
First Mortgage Notes
9.25%, 3/15/04 Ba3 250 250,000
Boomtown, Inc.
First Mortgage Notes
11.50%, 11/1/03 B1 500 483,750
Casino America, Inc.
First Mortgage Bonds
11.50%, 11/15/01 B1 500 500,000
(3) Coinmach Corp.
Sr. Notes
11.75%, 11/15/05 B2 527 527,000
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
- ----------------------------------------------------------------------------------
- -----------------
<C> <S> <C> <C> <C>
Community Health Systems,
Inc.
Sr. Sub. Debentures
10.25%, 11/30/03 B2 $ 250 $ 269,375
(2) Elsinore Corp.
First Mortgage Notes
12.50%, 10/1/00 N/R 100 40,000
G.B. Property Funding Corp.
First Mortgage Notes
10.875%, 1/15/04 B2 500 445,000
(4)(10) General Medical Corp.,
Series A, Sub. Debentures
12.125%, 8/15/05 Caa 663 689,520
Grand Casinos, Inc.
First Mortgage Bonds
10.125%, 12/1/03 Ba3 500 530,000
Griffin Gaming &
Entertainment
Mortgage Notes
11.00%, 9/15/03 N/R 500 500,000
(2)(4)(6) Hemmeter Enterprises, Inc.
Sr. Notes
12.00%, 12/15/00 N/R 297 118,877
(3) Host Marriot Corp.
Acquisition Properties
Sr. Notes
9.00%, 12/15/07 Ba3 450 434,250
Motels of America, Inc.,
Series B, Sr. Sub. Notes
12.00%, 4/15/04 B3 250 244,375
Stratosphere Corp.
First Mortgage Notes
14.25%, 5/15/02 B2 250 302,500
Trump's Castle Funding, Inc.
Mortgage Bonds
11.75%, 11/15/03 Caa 500 467,500
Trump Plaza Funding, Inc.
First Mortgage Notes
10.875%, 6/15/01 B3 500 555,000
Wright Medical Technology,
Series B, Sr. Secured
Debentures
10.75%, 7/1/00 B3 250 257,500
-----------
GROUP TOTAL 7,693,835
-----------
- ---------------------------------------------------------------------------------
- -----------------
TRANSPORTATION (0.8%)
CHC Helicopter Corp.
Yankee Sr. Sub. Notes
11.50%, 7/15/02 B3 250 237,500
USAir, Inc.
Gtd. Sr. Notes
10.00%, 7/1/03 B3 500 462,500
-----------
GROUP TOTAL 700,000
-----------
- ---------------------------------------------------------------------------------
- -----------------
TOTAL CORPORATE OBLIGATIONS
(Cost $55,520,920) 54,515,661
-----------
- ---------------------------------------------------------------------------------
- -----------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
- ----------------------------------------------------------------------------------
- -----------------
<C> <S> <C> <C> <C>
GOVERNMENT & AGENCY SECURITIES (8.2%)
- ---------------------------------------------------------------------------------
- -----------------
FEDERAL HOME LOAN BANK (3.6%)
Discount Note
Zero Coupon, 4/1/96 Aaa $ 3,110 $ 3,109,093
-----------
- ---------------------------------------------------------------------------------
- -----------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (2.4%)
30 yr. TBA
8.00% N/R 2,000 2,035,620
-----------
- ---------------------------------------------------------------------------------
- -----------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (0.5%)
30 yr. TBA
7.00% Aaa 400 379,748
-----------
- ---------------------------------------------------------------------------------
- -----------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (0.0%)
Graduated Payment
12.75%, 11/15/13 Aaa 28 33,106
-----------
- ---------------------------------------------------------------------------------
- -----------------
U.S. TREASURY NOTE (1.7%)
5.375%, 5/31/98 TSY 1,500 1,486,170
-----------
- ---------------------------------------------------------------------------------
- -----------------
TOTAL GOVERNMENT & AGENCY SECURITIES
(Cost $7,080,275) 7,043,737
-----------
- ---------------------------------------------------------------------------------
- -----------------
COLLATERALIZED SECURITIES (2.4%)
- ---------------------------------------------------------------------------------
- -----------------
COLLATERALIZED MORTGAGE OBLIGATIONS (2.4%)
(10) Drexel, Burnham & Lambert
Trust
REMIC-PAC Series S, Class 2
9.00%, 8/1/18 Aaa 920 936,463
Kidder Peabody Acceptance Corp.:
Series 1993-C1, Class A3
6.80%, 9/1/06 N/R 400 391,876
Series 1993-M3, Class A
6.50%, 11/25/25 Aaa 366 358,812
Vendee Mortgage Trust Series
1995-2B, Class 2D 7.50%,
10/15/17 N/R 350 357,000
-----------
- ---------------------------------------------------------------------------------
- -----------------
TOTAL COLLATERALIZED SECURITIES
(Cost $2,075,294) 2,044,151
-----------
- ---------------------------------------------------------------------------------
- -----------------
ASSET BACKED OBLIGATIONS (5.0%)
- ----------------------------------------------------------------------------------
- -----------------
Green Tree Financial Corp.,
Manufactured Housing
Installment Sale Contracts,
Series 1993-4, Class B1
7.20%, 1/15/19 Baa3 1,043 1,042,511
(9) Merrill Lynch Home Equity
Acceptance Trust Series
1994-A, Class A2
6.188%, 7/17/22 A3 1,413 1,421,652
(6) Merrill Lynch Home Equity
Loan Corp.,
Series 1991-1, Class B
9.30%, 5/15/16 A 1,787 1,825,634
-----------
<CAPTION>
Value
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------------------
- -----------------
TOTAL ASSET BACKED OBLIGATIONS
(Cost $4,348,584) $ 4,289,797
-----------
- ---------------------------------------------------------------------------------
- -----------------
<CAPTION>
Shares
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
COMMON STOCKS (1.5%)
- ---------------------------------------------------------------------------------
- -----------------
COMMUNICATIONS (0.0%)
Pagemart, Inc. 3,500 0
Pegasus Media &
Communications, Inc. 50 0
-----------
GROUP TOTAL 0
-----------
- ---------------------------------------------------------------------------------
- -----------------
CONSUMER PRODUCTS (0.6%)
(1)(5)(6) Applause Enterprises, Inc.
(acquired 11/8/91, cost
$72,200) 1,900 5,700
(5)(6) Dr. Pepper Bottling Holdings,
Inc.
(acquired 10/21/88, cost
$54,000) 60,000 285,000
(1) Mail-Well, Inc. 3,551 35,510
(1) Specialty Foods, Corp. 22,500 16,875
(1)(5)(6) TLC Beatrice International
Holdings, Inc.
(acquired 11/26/91, cost
$307,500) 7,500 172,500
-----------
GROUP TOTAL 515,585
-----------
- ---------------------------------------------------------------------------------
- -----------------
FINANCE (0.0%)
(1)(5)(6)(7) Westfed Holdings, Inc., Class
B
(acquired 9/20/88, cost
$127) 4,223 0
-----------
- ---------------------------------------------------------------------------------
- -----------------
MANUFACTURING (0.3%)
(1) Alpine Group, Inc. 3,773 16,035
(1)(5)(6)(7) CIC I Acquisition Corp.
(acquired 10/18/89, cost
$1,076,725) 2,944 200,192
Polyvision Corp. 3,882 8,492
-----------
GROUP TOTAL 224,719
-----------
- ---------------------------------------------------------------------------------
- -----------------
RETAIL TRADE (0.0%)
(1)(5)(6) Jewel Recovery L.P.
(acquired 7/30/93, cost $0) 33,040 0
-----------
- ---------------------------------------------------------------------------------
- -----------------
SERVICES (0.6%)
(1) Gillett Holdings, Inc. 22,500 540,000
(1)(3) Motels of America, Inc. 250 20,000
-----------
GROUP TOTAL 560,000
-----------
- ---------------------------------------------------------------------------------
- -----------------
TOTAL COMMON STOCKS
(Cost $2,127,584) 1,300,304
-----------
- ----------------------------------------------------------------------------------
- -----------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------------------
- -----------------
PREFERRED STOCKS (2.7%)
- ---------------------------------------------------------------------------------
- -----------------
COMMUNICATIONS (1.5%)
BCP/Essex Holdings, Inc., 15%
Exchangeable, Series B 16,751 $ 427,150
(3) Cablevision Systems Inc.,
11.125% PIK, Series L 2,500 249,375
(3) K-III Communications Corp.
10% Exchangeable, Series C 3,500 350,000
SD Warren Co.
14% Exchangeable 8,000 248,000
-----------
GROUP TOTAL 1,274,525
-----------
- ---------------------------------------------------------------------------------
- -----------------
FINANCE (0.0%)
(1)(5)(6)(7) Westfed Holdings, Inc., Class
A
(acquired 9/20/88-6/18/93,
cost $1,203,480) 14,246 0
-----------
- ---------------------------------------------------------------------------------
- -----------------
MANUFACTURING (0.3%)
GPA Group Plc 7% Cum. Cv. 6,500 224,250
-----------
- ---------------------------------------------------------------------------------
- -----------------
OIL, GAS & ELECTRIC (0.9%)
(1)(7) Consolidated Hydro, Inc.,
13.50% Cv. Exchangeable
Series H 1,500 817,500
-----------
- ---------------------------------------------------------------------------------
- -----------------
TOTAL PREFERRED STOCKS
(Cost $3,104,457) 2,316,275
-----------
- ---------------------------------------------------------------------------------
- -----------------
WARRANTS (0.2%)
- ----------------------------------------------------------------------------------
- -----------------
(1) American Telecasting, Inc.,
expiring 6/23/99 350 1,838
(1) Australis Media Ltd.,
expiring 5/15/00 225 0
(1)(3) Boomtown, Inc., expiring
11/1/98 500 0
(1) Casino America, Inc.,
expiring 11/15/96 1,632 0
(1) Casino Magic Corp., expiring
10/14/96 3,000 30
(1) CHC Helicopter Corp.,
expiring 12/15/00 2,000 1,000
(1)(7) Consolidated Hydro, Inc.,
expiring 12/31/03 2,700 13,500
(1) County Seat Stores, Inc.,
expiring 10/15/98 500 25
(1)(6) Crown Packaging Holdings,
expiring 11/1/03 1,000 8,000
(1) Dial Call Communications,
expiring 4/25/99 500 5
(1)(3) Elsinore Corp., expiring
10/8/98 5,329 0
(1)(3) Great American Cookie Co.,
expiring 1/30/00 90 0
(1) Hemmeter Enterprises, Inc.,
expiring 12/15/99 3,000 0
(1) Horseshoe Gaming L.L.C. 125 0
<CAPTION>
Shares Value
- ----------------------------------------------------------------------------------
- -----------------
<C> <S> <C> <C> <C>
(1)(3) In-Flight Phone Corp.,
expiring 8/31/02 500 $ 0
(1)(3) IntelCom Group, Inc.,
expiring 9/15/05 1,155 0
(1) Intermedia Communications of Florida, Inc.,
expiring 6/1/00 300 7,500
(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, Inc.,
expiring 8/15/01 1,000 22,500
(1) SD Warren Co., expiring
12/15/06 8,000 24,000
(1) Sheffield Steel Corp.,
expiring 11/1/01 2,500 7,500
(1) Spanish Broadcasting Systems,
expiring 6/29/99 500 75,000
(1) United International
Holdings,
expiring 11/15/99 600 0
(1)(3) Wright Medical Technology,
expiring 6/30/03 206 33,970
-----------
- ---------------------------------------------------------------------------------
- -----------------
TOTAL WARRANTS
(Cost $177,319) 194,868
-----------
- ---------------------------------------------------------------------------------
- -----------------
RIGHTS (0.0%)
- ----------------------------------------------------------------------------------
- -----------------
(1) Terex Corp.,
expiring 5/15/02 (Cost $0) 2,000 0
-----------
</TABLE>
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------
Face
Moody's Amount
Ratings (000)
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------------------
- -----------------
UNITS (2.9%)
- ---------------------------------------------------------------------------------
- -
- -----------------
(8) American Communications
Services, Inc.
Sr. Discount Notes
0.00%, 11/1/05 N/R $ 1,000 560,000
Cellular Communications
International, Inc.
Zero Coupon Notes, 8/15/00 B3 1,000 592,500
(3)(8) GST Telecommunications Sr.
Discount Notes
0.00%, 12/15/05 N/R 1,000 550,000
Health O Meter, Inc.
Gtd. Sr. Sub. Notes
13.00%, 8/15/02 B3 500 485,000
Horseshoe Gaming L.L.C.
Senior Notes
12.75%, 9/15/00 B1 250 269,375
-----------
- ----------------------------------------------------------------------------------
- -----------------
TOTAL UNITS
(Cost $2,337,649) 2,456,875
-----------
- ----------------------------------------------------------------------------------
- -----------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
- ----------------------------------------------------------------------------------
- -----------------
<C> <S> <C> <C> <C>
TOTAL DOMESTIC SECURITIES
(Cost $76,772,082) $74,161,668
-----------
</TABLE>
<TABLE>
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------------------
- -----------------
FOREIGN INCOME SECURITIES (13.9%)
- ---------------------------------------------------------------------------------
- -----------------
CORPORATE OBLIGATIONS (1.1%)
- ---------------------------------------------------------------------------------
- -----------------
SUPRA NATIONAL
International Bank for
Reconstruction & Development
Japanese Yen, Global Bonds
5.25%, 3/20/02
(Cost $965,054) Aaa JPY $90,000 959,506
-----------
- ---------------------------------------------------------------------------------
- -----------------
GOVERNMENT OBLIGATIONS (12.8%)
- ---------------------------------------------------------------------------------
- -----------------
DENMARK
Kingdom of Denmark
Bonds
8.00%, 3/15/06 Aaa DK 5,200 941,821
-----------
- ---------------------------------------------------------------------------------
- -----------------
FRANCE
Government of France
Debentures
7.50%, 4/25/05 Aaa FF 7,000 1,481,953
Government of France
Treasury Bill
4.75%, 4/12/99 Aaa 7,000 1,375,955
-----------
GROUP TOTAL 2,857,908
-----------
- ---------------------------------------------------------------------------------
- -----------------
GERMANY
Deutscheland Bundesbank
Debentures
6.75%, 7/15/04 Aaa DM 6,000 4,178,258
-----------
- ---------------------------------------------------------------------------------
- -----------------
UNITED KINGDOM
United Kingdom Treasury
6.00%, 8/10/99 Aaa L 2,000 2,933,144
-----------
- ---------------------------------------------------------------------------------
- -----------------
TOTAL GOVERNMENT OBLIGATIONS
(Cost $10,011,458) 10,911,131
-----------
- ---------------------------------------------------------------------------------
- -----------------
TOTAL FOREIGN INCOME SECURITIES
(Cost $10,976,512) 11,870,637
-----------
- ---------------------------------------------------------------------------------
- -----------------
TOTAL INVESTMENTS (100.5%)
(Cost $87,748,594) 86,032,305
-----------
- ----------------------------------------------------------------------------------
- -----------------
<CAPTION>
Value
- ----------------------------------------------------------------------------------
- -----------------
<C> <S> <C> <C> <C>
LIABILITIES IN EXCESS OF OTHER
ASSETS (-0.5%) $ (479,699)
-----------
- ---------------------------------------------------------------------------------
- -----------------
NET ASSETS (100%)
Applicable to 8,454,140 issued and
outstanding $.001 par value shares
(authorized 100,000,000 shares) $85,552,606
-----------
-----------
- ---------------------------------------------------------------------------------
- -----------------
NET ASSET VALUE PER SHARE $10.12
-----------
-----------
- ---------------------------------------------------------------------------------
- -----------------
MARKET PRICE PER SHARE $8.88
-----------
-----------
- ---------------------------------------------------------------------------------
- -----------------
</TABLE>
L--British Pound.
DK--Danish Krone.
DM--Deutsche Mark.
FF--French Franc.
JPY--Japanese Yen.
N/R--Not Rated.
PAC--Planned Amortization Class.
REMIC--Real Estate Mortgage Investment Conduit.
TBA--To Be Announced. 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, 1996 aggregated $2,714,032. Total market value of
restricted securities owned at March 31, 1996 was $663,392 or 0.8% 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. Maturity date disclosed is
the ultimate maturity.
(9) 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,
1996.
(10) A portion of this security was pledged as collateral for delayed delivery
securities.
10
