<PAGE>
BEA Strategic Global Income Fund, Inc.
153 East 53rd Street
New York, NY 10022
- ---------------------------------------------
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
William W. Priest, Jr. Suzanne E. Moran
CHAIRMAN OF THE BOARD INVESTMENT OFFICER
Prof. Enrique R. Arzac Hal Liebes
DIRECTOR SENIOR VICE PRESIDENT
Lawrence J. Fox Michael A. Pignataro
DIRECTOR SECRETARY
James S. Pasman, Jr. Wendy S. Setnicka
DIRECTOR VICE PRESIDENT
Richard J. Lindquist AND TREASURER
PRESIDENT AND CHIEF INVESTMENT Paul Roselli
OFFICER ASSISTANT TREASURER
Gregg M. Diliberto
INVESTMENT OFFICER
</TABLE>
- --------------------------------------------------------
INVESTMENT ADVISER
BEA Associates
153 East 53rd Street
New York, New York 10022
Phone 1-800-293-1232
- --------------------------------------------------------
ADMINISTRATOR
Chase Global Funds Services Co.
73 Tremont Street
Boston, Massachusetts 02108
- --------------------------------------------------------
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
- --------------------------------------------------------
SHAREHOLDER SERVICING AGENT
The Chase Manhattan Bank
4 New York Plaza
New York, New York 10004
Phone 1-800-428-8890
- --------------------------------------------------------
LEGAL COUNSEL
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
- --------------------------------------------------------
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers 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 description of the Plan and additional information concerning
terms and conditions, and any applicable charges relating to the Plan is
included at the back of this report.
- --------------------------------------------------------------------------------
BEA Strategic Global Income Fund, Inc.
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
June 30, 1998
<PAGE>
BEA STRATEGIC GLOBAL INCOME FUND, INC.
- ----------
Dear Shareholders: July 24, 1998
We are pleased to report on the activities of the BEA Strategic Global Income
Fund, Inc. (the "Fund") for the six-months ended June 30, 1998 and to discuss
our investment strategy.
At June 30, 1998, the Fund's net asset value ("NAV") was $10.70, compared to
an NAV of $10.79 at December 31, 1997. The Fund's total return (based on NAV and
assuming reinvestment of dividends of $0.36 per share) for the period was 4.16%.
For the twelve months ended June 30, 1998 the Fund's total return was 10.64%
(based on NAV and assuming reinvestment of dividends of $0.9325 per share).
At June 30, 1998, $57.0 million was invested in high yield debt securities;
$3.6 million in investment-grade debt securities; $18.5 million in
emerging-market debt securities; $7.0 million in equity securities, and the
balance of $1.5 in cash equivalents. Of the debt securities, the largest
concentration (49.9%) was invested in B-rated issues.
THE MARKET: ASIA, AGAIN
The major influence on financial markets worldwide in the second quarter was
the ongoing deterioration of macroeconomic conditions throughout Asia, notably
Japan. Not only did the Japanese government fail to respond to growing external
pressure for substantive measures to revive the economy, but data announced for
the first quarter officially classified the economy as being in recession. A
massive sell-off in the yen followed the mid-June announcement.
As they did in the fourth quarter of 1997, fixed income investors reacted to
the news from Asia with a classic "flight to quality" rally that favored
high-grade, liquid securities such as U.S. Treasury bonds. High yield generated
positive returns despite the market's clear preference for stronger credits, but
still underperformed all investment-grade sectors. The Salomon Smith Barney
High-Yield Market Index, for example, gained a scant 1.0%. As a result, yield
spreads between high yield and comparable Treasury issues widened to 417 basis
points from 378 basis points at the end of March.
Other factors negatively impacted high yield as well:
- - The level of new issuance, which for so long had supplied the fuel for the
market's buoyant growth, finally became more than investors could comfortably
absorb. Total new issuance for the quarter reached a staggering $56.3 billion,
up from $49.7 billion in the first quarter.
- - The pace of cash inflows into high yield mutual funds slowed. Inflows were
sizable at $4.2 billion, but were 46% lower than the $7.8 billion recorded in
the first quarter.
- - The overall high yield market tended to act more in line with stocks than
bonds. With equity investors concerned about Asia and the prospects for an
increase in interest rates, this tended to dampen high yield's performance.
- - Although most high yield issuers have little direct exposure to Asia, the
market was indirectly affected by Asia in two ways. The first was declining
sentiment in the equity market. Second was concern that a less favorable
environment for stocks would result in fewer new equity issues, which would
suggest fewer opportunities for high yield issuers to raise capital.
Emerging debt markets weakened in response to global conditions and negative
investor sentiment. As measured by the J.P. Morgan Emerging Markets Bond Index
Plus (EMBI+), aggregate emerging debt markets fell 6.0%. Only three markets
managed to generate positive returns: Poland, Nigeria and the Philippines. By
far, Russia (-20.5%) was the worst performer.
Spreads on emerging instruments widened in June alone by 100 basis points on
average, which we attribute primarily to three factors. First was the sharp
sell-off in the yen, and its potentially harmful impact on other Asian nations
(prominently China and Hong Kong), the U.S. and global liquidity. Next was
Russia, in the form of the falling ruble and increasing external funding needs.
Finally, important technical factors (I.E., shrinking liquidity and negative
sentiment) were poor.
PORTFOLIO REVIEW
Exposure to emerging market debt, which accounted for about 20% of total
assets at June 30th, impacted the Fund's quarterly performance most negatively.
Despite our relatively defensive approach (E.G., modest allocation, shortened
maturities, emphasis on higher-quality credits, prudent selling into rallies),
the severity of the sell-off in the emerging sector was such that performance
suffered regardless.
In the high yield portion of the portfolio, one of the factors that helped
performance during the first quarter
2
<PAGE>
meaningfully worked against it in the second quarter. This was our substantial
overweighting of the telecommunications sector.
A significant proportion of telecom high yield debt is in the form of
zero-coupon securities that do not pay interest until at least four years after
issuance. Because of this latter characteristic and the fact that most zeros
have fairly long maturities (I.E., they are more interest-rate sensitive than
average and therefore more volatile), zero prices tend to fluctuate much more
like stocks than bonds. Since stocks and high yield were relatively weak in the
second quarter, then, telecom debt underperformed. The Fund's return suffered
disproportionately, as telecom is the largest sector allocation in the portfolio
and weighted nearly 40% higher than in the broad high yield market (I.E., the
Salomon Smith Barney index).
OUTLOOK: REMAINING POSITIVE ON HIGH YIELD, CAUTIOUS ON EMERGING MARKETS
HIGH YIELD. In spite of the second-quarter picture that we painted earlier,
we see little reason to change our positive view on the high yield market. The
economy remains in good shape, and the key macroeconomic indicators of interest
rates and inflation are low and should generally stay that way at least over the
next few months. We expect that the Federal Reserve will leave interest rates
unadjusted, as it has since March 1997.
That said, we sense rising uncertainty about prospects for the equity
market. Stocks are surging to new highs and their valuations are reaching
unsustainable levels. The outlook for corporate profitability and earnings,
furthermore, is less clear than previously. These factors suggest that activity
in the high yield market should become more complicated.
Our fundamental strategy is unchanged. We continue to favor issues at the
higher end of the high yield credit spectrum and are keeping the portfolio most
heavily weighted in the telecommunications, cable/media and gaming sectors. In
this context we note the announcement in late June of the acquisition of
Tele-Communications Inc. (TCI) by AT&T Corp. The AT&T/TCI deal is in line with
our expectations for ongoing consolidation activity both in telecom and
cable/media, and we anticipate that its effects will continue to be felt in the
high yield market into the third quarter.
INTERNATIONAL. Given our expectation that global factors will continue to
drive the performance of most fixed income sectors, we are staying cautious on
emerging markets. In addition, we are looking for positive developments out of
Asia and Russia, ongoing strength in U.S. equities and improved global liquidity
to stabilize the sector. We favor the higher-quality and improving credits in
Central Europe and Latin America, particularly Poland, Argentina and Mexico, as
they have been relatively successful at managing their economies and finances
since the Asian crisis began.
As developments occur that we believe would be of interest to you, we will
keep you informed. Meanwhile, if you have any questions about your portfolio or
the capital markets generally, please feel free to call upon us at any time.
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 management or allocations should 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 Fund's Shareholder Servicing Agent at (800) 428-8890.
Sincerely yours,
/s/ Richard J. Lindquist
Richard J. Lindquist
PRESIDENT AND CHIEF INVESTMENT OFFICER*
/s/ William W. Priest, Jr.
William W. Priest, Jr.
CHAIRMAN OF THE BOARD*
*Richard J. Lindquist, who is a member of the Executive Committee and is an
Executive Director of BEA Associates, is primarily responsible for management of
the Fund's assets. He has served in such capacity since November 21, 1996. Prior
to that date, he served as Vice President to the Fund, a position he assumed on
August 15, 1989. Mr. Lindquist joined BEA Associates on May 1, 1995 as a result
of BEA's acquisition of CS First Boston Investment Management Corporation
("CSFBIM"). Prior to joining BEA Associates and beginning in July, 1989, he held
various offices at CSFBIM. Mr. Lindquist is also President and Chief Investment
Officer of BEA Income Fund, Inc.
William W. Priest, Jr., who is Chairman of the Executive Committee and holds
the offices of Executive Director and Chief Executive of BEA Associates, joined
BEA Associates in 1972. Mr. Priest is Director and President of The Indonesia
Fund, Inc. and Director and Chairman of the Board of BEA Income Fund, Inc.; The
Brazilian Equity Fund, Inc.; The Chile Fund, Inc.; The Emerging Markets
Infrastructure Fund, Inc.; The Emerging Markets Telecommunications Fund, Inc.;
The First Israel Fund, Inc.; The Latin America Equity Fund, Inc.; The Latin
America Investment Fund, Inc.; and The Portugal Fund, Inc.
3
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
- ---------
JUNE 30, 1998
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
DOMESTIC SECURITIES (76.4%)
- --------------------------------------------------------------------------------------------
- -----------------
CORPORATE OBLIGATIONS (63.8%)
- --------------------------------------------------------------------------------------------
- -----------------
AUTOMOTIVE (1.6%)
Cambridge Industries, Inc.
Series B, Gtd. Sr. Sub. Notes
10.25%, 7/15/07 B3 $ 250 $ 258,125
Collins & Aikman Products Co., Inc.
Series B, Sr. Sub. Notes
11.50%, 4/15/06 B3 250 277,500
Consorcio G Grupo Dina S.A./ MCII Holdings
(U.S.A.) , Inc.
Sr. Secured Discount Notes
Zero Coupon, 11/15/02 N/R 400 378,500
Delco Remy International, Inc.
Gtd. Sr. Sub. Notes
10.625%, 8/1/06 B2 250 272,500
(3) Oxford Automotive, Inc.
Gtd. Sr. Sub. Notes
10.125%, 6/15/07 Caa1 250 263,750
-----------
GROUP TOTAL 1,450,375
-----------
- --------------------------------------------------------------------------------------------
- -----------------
BROADCASTING (4.9%)
(8) Acme Television, L.L.C./ACME Financial Corp.
Gtd. Sr. Discount Notes
0.00%, 9/30/04 B3 500 408,750
(8) Australis Holdings Pty. Ltd. Yankee Sr.
Secured
Discount Notes
0.00%, 11/1/02 N/R 250 25,000
Australis Media Ltd.
Yankee Units
15.75%, 5/15/03 C 229 22,599
(8) Capstar Broadcasting Partners, Inc.
Sr. Discount Notes
0.00%, 2/1/09 N/R 500 380,000
Digital Television Services, Inc./
DTS Capital, Inc.
Series B, Gtd. Sr. Sub. Notes
12.50%, 8/1/07 B3 250 285,625
(8) EchoStar Communications Corp.
Gtd. Sr. Discount Notes
0.00%, 6/1/04 B2 300 291,000
Fox/Liberty Networks L.L.C.
Sr. Notes
8.875%, 8/15/07 B1 250 253,125
Pegasus Media & Communications, Inc.
Series B, Notes
12.50%, 7/1/05 B2 250 282,500
Sinclair Broadcast Group, Inc.:
Sr. Sub. Notes
10.00%, 9/30/05 B2 300 322,500
Gtd. Sr. Sub. Notes
8.75%, 12/15/07 B2 250 255,000
Spanish Broadcasting System, Inc.
Sr. Notes
12.50%, 6/15/02 B2 250 282,500
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
(8) United International
Holdings Inc.
Series B, Sr. Discount Notes
0.00%, 2/15/08 B3 $ 500 $ 307,500
Univision Network Holding L.P.
Sub. Notes
Zero Coupon, 12/17/02 N/R 573 670,498
Young Broadcasting, Inc.
Series B, Gtd. Sr. Sub. Notes:
9.00%, 1/15/06 B2 200 207,500
8.75%, 6/15/07 B2 450 470,250
-----------
GROUP TOTAL 4,464,347
-----------
- --------------------------------------------------------------------------------------------
- -----------------
BUSINESS SERVICES & EQUIPMENT (0.3%)
(3) Iron Mountain Inc.
Sr. Sub. Notes
8.75%, 9/30/09 B3 250 255,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CABLE (6.7%)
Adelphia Communications Corp.
Series B, Sr. Notes
8.375%, 2/1/08 B2 200 201,000
CSC Holdings, Inc.:
Sr. Sub. Notes
9.875%, 2/15/13 B1 250 276,875
Century Communications Corp.
Sr. Notes
8.75%, 10/1/07 Ba3 250 264,375
Charter Communications Southeast L.P.
Series B, Sr. Notes
11.25%, 3/15/06 B3 250 275,625
Comcast Corp.
Sr. Sub. Notes
9.125%, 10/15/06 Ba3 250 266,250
(8) Comcast UK Cable Partners Ltd.
Yankee Sr. Debentures
0.00%, 11/15/07 B2 500 417,500
(3)(8) DIVA Systems Corp.
Units
0.00%, 3/1/08 N/R 810 417,150
(8) Diamond Cable Communications plc
Yankee Discount Notes
0.00%, 12/15/05 Caa1 300 249,000
(8) Falcon Holdings Group L.P./
Falcon Funding Corp.
Sr. Discount Debentures
0.00%, 4/15/10 B2 500 322,500
Helicon Group L.P.
Series B, Sr. Secured Notes
11.00%, 11/1/03 B1 200 215,000
InterMedia Capital Partners IV
L.P./InterMedia Partners IV Capital Corp.
Sr. Notes
11.25%, 8/1/06 B2 250 279,687
Lenfest Communications, Inc.
Sr. Sub. Notes
10.50%, 6/15/06 B2 500 582,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
- -----------------
(8) Marcus Cable Co.
Sr. Discount Notes
0.00%, 12/15/05 B3 $ 350 $ 326,812
(8) NTL, Inc.:
Series B, Sr. Deferred Coupon Notes
0.00%, 2/1/06 B3 500 412,500
Series B, Sr. Notes
10.00%, 2/15/07 B3 250 268,125
OpTel, Inc.:
Series B, Sr. Notes
13.00%, 2/15/05 B3 250 276,250
(3) Sr. Notes
11.50%, 7/1/08 B3 500 500,000
Rifkin Acquisitions Partners L.P.
Sr. Sub. Notes
11.125%, 1/15/06 B3 250 275,625
(8) Telewest Communications plc
Yankee Sr. Sub. Discount Debentures
0.00%, 10/1/07 B1 250 208,125
-----------
GROUP TOTAL 6,034,899
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CHEMICALS (1.5%)
Applied Extrusion Technologies, Inc.
Series B, Sr. Notes
11.50%, 4/1/02 B2 250 265,312
Huntsman Polymers Corp.
Sr. Notes
11.75%, 12/1/04 B1 400 441,500
NL Industries Inc.
Sr. Secured Notes
11.75%, 10/15/03 B1 150 165,750
(8) Sr. Secured Discount Debentures
0.00%, 10/15/05 B2 250 258,750
Texas Petrochemical Corp.
Series B, Sr. Sub. Notes
11.125%, 7/1/06 B3 200 219,500
-----------
GROUP TOTAL 1,350,812
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CONSTRUCTION & BUILDING MATERIALS (0.5%)
American Architectural
Products Corp.
Gtd. Sr. Notes
11.75%, 12/1/07 Caa1 250 260,000
Presley Companies
Sr. Notes
12.50%, 7/1/01 Caa3 250 235,000
-----------
GROUP TOTAL 495,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CONSUMER PRODUCTS & SERVICES (2.4%)
(8) Coinstar Inc.
Sr. Discount Notes
0.00%, 10/1/06 N/R 600 498,000
Holmes Products Corp.
Gtd. Sr. Sub. Notes
9.875%, 11/15/07 B3 200 206,500
Jordan Industries, Inc.
Series B, Sr. Notes
10.375%, 8/1/07 B3 225 230,625
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
Playtex Products, Inc.
Series B, Gtd. Sr. Notes
8.875%, 7/15/04 B1 $ 200 $ 205,500
Revlon Consumer
Products, Corp.
Series B, Sr. Sub. Notes
8.625%, 2/1/08 B3 250 250,625
Revlon Worldwide
(Parent) Corp.
Series B, Sr. Secured Discount Notes
Zero Coupon, 3/15/01 B3 300 232,875
Signature Brands USA, Inc.
Sr. Sub. Notes
13.00%, 8/15/02 B3 500 565,625
-----------
GROUP TOTAL 2,189,750
-----------
- --------------------------------------------------------------------------------------------
- -----------------
ELECTRONICS (1.9%)
Details, Inc.
Series B. Sr. Sub Notes
10.00%, 11/15/05 N/R 250 252,500
Flextronics International Ltd.
Yankee, Series B, Sr. Sub Notes
8.75%, 10/15/07 B2 300 301,875
Unisys Corp.
Sr. Notes
11.75%, 10/15/04 Ba3 300 346,500
(3) Verio, Inc.
Units
13.50%, 6/15/04 B3 400 592,000
Viasystems, Inc.
Sr. Sub. Notes
9.75%, 6/1/07 B3 250 245,000
-----------
GROUP TOTAL 1,737,875
-----------
- --------------------------------------------------------------------------------------------
- -----------------
ENERGY (3.2%)
Belden & Blake Energy Co.
Series B, Gtd. Sr. Sub. Notes
9.875%, 6/15/07 N/R 200 196,000
Bellwether Exploration Co.
Gtd. Sr. Sub. Notes
10.875%, 4/1/07 B3 350 368,375
Canadian Forest Oil, Ltd.
Sr. Sub. Notes
8.75%, 9/15/07 B2 250 245,625
Cliffs Drilling Co.
Series D, Gtd. Sr. Notes
10.25%, 5/15/03 N/R 250 264,375
Dawson Production Services, Inc.
Sr. Notes
9.375%, 2/1/07 B1 450 443,250
Dual Drilling Co.
Gtd. Sr. Sub. Notes
9.875%, 1/15/04 Baa3 250 268,125
Energy Corp. of America
Series A, Sr. Sub. Notes
9.50%, 5/15/07 B2 250 246,250
H.S. Resources, Inc.
Gtd. Sr. Sub. Notes
9.25%, 11/15/06 B2 250 252,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
- -----------------
Southwest Royalties, Inc.
Series B, Gtd. Sr. Notes
10.50%, 10/15/04 Caa2 $ 250 $ 207,500
TransAmerican Energy Corp.
Series B, Sr. Secured Notes
11.50%, 6/15/02 B3 200 189,750
Wiser Oil Co.
Gtd. Sr. Sub. Notes
9.50%, 5/15/07 B2 250 233,125
-----------
GROUP TOTAL 2,914,875
-----------
- --------------------------------------------------------------------------------------------
- -----------------
ENTERTAINMENT (2.7%)
American Skiing Co.
Series B, Sr. Sub. Notes
12.00%, 7/15/06 B3 200 224,500
Bally Total Fitness Holding Corp.
Series B Sr. Sub. Notes
9.875%, 10/15/07 B3 250 257,500
Booth Creek Ski Holdings, Inc.
Series B, Sr. Sub. Notes
12.50%, 3/15/07 Caa1 250 270,000
Cinemark U.S.A., Inc.
Series D, Sr. Sub. Notes
9.625%, 8/1/08 N/R 200 206,000
Genmar Holdings, Inc.
Series A, Sr. Sub. Notes
13.50%, 7/15/01 Caa2 500 500,000
PTI Holdings, Inc.
Sub. Notes
0.00%, 12/17/02 N/R 507 593,091
Premier Cruises, Ltd.
Sr. Notes
11.00%, 3/15/08 Caa2 250 166,875
(3) Production Resource Group, L.L.C./PRG Finance
Group,
Gtd. Sr. Sub. Notes
11.50%, 1/15/08 Caa2 250 241,875
-----------
GROUP TOTAL 2,459,841
-----------
- --------------------------------------------------------------------------------------------
- -----------------
FINANCIAL SERVICES (0.2%)
(2) Westfed Holdings
Sr. Debentures
15.50%, 9/15/99 N/R 250 225,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
FOOD & BEVERAGES (0.8%)
AmeriServ Food Distribution, Inc.
Gtd. Sr. Notes
8.875%, 10/15/06 B1 250 251,875
Archibald Candy Corp.
Gtd. Sr. Secured Notes
10.25%, 7/1/04 B2 250 265,625
Fleming Companies, Inc.
Series B, Gtd. Sr. Sub. Notes
10.50%, 12/1/04 B3 200 206,500
-----------
GROUP TOTAL 724,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
HEALTH CARE (0.7%)
(3) Insight Health Services Corp.
Gtd. Sr. Sub. Notes
9.625%, 6/15/08 B3 350 349,125
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
Integrated Health Services, Inc.
Sr. Sub. Notes
9.25%, 1/15/08 B2 $ 250 $ 259,375
-----------
GROUP TOTAL 608,500
-----------
- --------------------------------------------------------------------------------------------
- -----------------
INDUSTRIAL GOODS & MATERIALS (3.1%)
Atlantis Group, Inc.
Sr. Notes
11.00%, 2/15/03 B2 250 263,750
(3) Golden Ocean Group, Ltd.
Gtd. Sr. Notes
10.00%, 8/31/01 B3 513 404,629
Haynes International, Inc.
Sr. Notes
11.625%, 9/1/04 B3 250 277,187
(8) IHF Holdings, Inc.
Series B, Sr. Sec. Discount Notes
0.00%, 11/15/04 Caa2 250 213,125
MVE, Inc.
Sr. Secured Debentures
12.50%, 2/15/02 B3 440 447,150
Park-Ohio Industries, Inc.
Sr. Sub. Notes
9.25%, 12/1/07 B2 200 204,000
SRI Receivables Purchase Co., Inc.
Series B, Notes
12.50%, 12/15/00 N/R 500 527,500
Specialty Equipment Companies, Inc.
Sr. Sub. Notes
11.375%, 12/1/03 B3 450 481,500
-----------
GROUP TOTAL 2,818,841
-----------
- --------------------------------------------------------------------------------------------
- -----------------
METALS & MINING (2.5%)
Algoma Steel, Inc.
Yankee First Mortgage Notes
12.375%, 7/15/05 B1 250 278,750
Gulf States Steel, Inc.
First Mortgage Notes
13.50%, 4/15/03 B1 250 252,500
Metallurg, Inc.
Series B, Gtd. Sr. Notes
11.00%, 12/1/07 B3 250 261,250
NS Group, Inc.
Gtd. Sr. Secured Debentures
13.50%, 7/15/03 Ba2 150 165,375
Republic Engineered Steel, Inc.
First Mortgage Bonds
9.875%, 12/15/01 Caa1 250 245,000
Sheffield Steel Corp.
Series B, First Mortgage Bonds
11.50%, 12/1/05 N/R 250 257,500
WCI Steel, Inc.
Series B, Sr. Secured Notes
10.00%, 12/1/04 B2 250 255,625
Weirton Steel Corp.
Sr. Notes
11.375%, 7/1/04 B2 300 319,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
- -----------------
Wheeling-Pittsburg Corp.
Sr. Notes
9.25%, 11/15/07 B2 $ 250 $ 256,250
-----------
GROUP TOTAL 2,291,750
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PACKAGING/CONTAINERS (2.6%)
AEP Industries, Inc.
Sr. Sub. Notes
9.875%, 11/15/07 B2 400 416,000
BWAY Corp.
Gtd. Sr. Sub. Notes
10.25%, 4/15/07 B2 150 162,750
Container Corp. of America
Gtd. Sr. Notes
9.75%, 4/1/03 B1 250 268,750
(8) Crown Packaging
Enterprises Ltd.
Yankee Sr. Secured Discount Notes
0.00%, 8/1/06 Ca1 775 11,625
Gaylord Container Corp.
Series B, Sr. Notes
9.75%, 6/15/07 B3 250 248,125
Plastic Containers, Inc.
Series B, Sr. Secured Notes
10.00%, 12/15/06 B1 250 268,750
Radnor Holdings, Corp.
Series B, Gtd. Sr. Notes
10.00%, 12/1/03 B2 400 417,000
Riverwood International Corp.
Gtd. Sr. Sub. Notes
10.875%, 4/1/08 Caa1 250 253,125
Stone Container Finance Co.
Yankee Gtd. Sr. Notes
11.50%, 8/15/06 B2 250 269,062
-----------
GROUP TOTAL 2,315,187
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PAPER & FOREST PRODUCTS (1.1%)
Ainsworth Lumber Co. Ltd.
Yankee Sr. Secured Notes
12.50%, 7/15/07 B3 250 268,437
Mail-Well Corp.
Sr. Sub. Notes
10.50%, 2/15/04 B2 500 535,625
Malette, Inc.
Yankee Sr. Secured Debentures
12.25%, 7/15/04 Ba3 150 166,500
-----------
GROUP TOTAL 970,562
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PUBLISHING & INFORMATION SERVICES (1.6%)
Ampex Corp.
Series B, Sr. Notes
12.00%, 3/15/03 N/R 250 260,000
(8) InterAct Systems, Inc.
Sr. Discount Notes
0.00%, 8/1/03 N/R 400 160,500
Level 3 Communications, Inc.
Sr. Notes
9.125%, 5/1/08 B3 175 170,188
(8) Liberty Group Publishing, Inc.
Sr. Discount Debentures
0.00%, 2/1/09 Caa1 300 182,625
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
(3)(4) Mentus Media Corp.
Units
12.00%, 2/1/03 N/R $ 350 $ 350,875
(3) Tri-State Outdoor Media Group, Inc.
Sr. Notes
11.00%, 5/15/08 N/R 300 303,000
-----------
GROUP TOTAL 1,427,188
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RESTAURANTS, HOTELS & GAMING (4.9%)
American Restaurant Group, Inc.
Gtd. Sr. Secured Notes
11.50%, 2/15/03 B3 250 257,187
Casino America, Inc.
Gtd. Sr. Notes
12.50%, 8/1/03 B1 250 282,500
Casino Magic of Louisiana, Corp.
Series B, Gtd. First Mortgage Notes
13.00%, 8/15/03 B3 600 694,500
Colorado Gaming & Entertainment, Co.
Gtd. Sr. Notes
12.00%, 6/1/03 N/R 443 477,445
Elsinore Corp.
Second Mortgage Notes
13.50%, 8/20/01 N/R 52 52,000
Friendly Ice Cream Corp.
Gtd. Sr. Notes
10.50%, 12/1/07 B1 250 263,750
HMC Acquisition Properties
Series B, Gtd. Sr. Notes
9.00%, 12/15/07 N/R 450 489,375
Hollywood Park, Inc.
Series B Gtd. Sr. Sub. Notes
9.50%, 8/1/07 B2 200 206,250
Horseshoe Gaming L.L.C.:
Series B, Sr. Sub. Notes
9.375%, 6/15/07 B3 500 527,500
Series B, Gtd. Sr. Notes
12.75%, 9/30/00 B1 375 416,250
Mohegan Tribal Gaming Authority
Series B, Sr. Secured Notes
13.50%, 11/15/02 Ba1 200 257,750
Prime Hospitality Corp.
Secured First Mortgage Notes
9.25%, 1/15/06 Ba2 250 265,000
Waterford Gaming L.L.C./ Waterford Gaming
Finance Corp. Sr. Notes
12.75%, 11/15/03 N/R 189 208,609
-----------
GROUP TOTAL 4,398,116
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RETAIL (3.5%)
(3)(8) Advance Holding Corp.
Sr. Discount Debentures
0.00%, 4/15/09 Caa2 350 207,812
(3) Advance Stores Co., Inc.
Gtd. Sr. Sub. Notes
10.25%, 4/15/08 Caa1 150 155,437
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
- -----------------
Brylane L.P.
Series B, Gtd. Sr. Sub. Notes
10.00%, 9/1/03 B1 $ 500 $ 526,250
(3) County Seat Stores, Inc.
Units
12.75%, 11/1/04 N/R 250 256,250
Dairy Mart Convenience Stores, Inc.
Sr. Sub. Notes
10.25%, 3/15/04 B3 251 249,745
Great American Cookie Co.
Series B, Sr. Secured Debentures
10.875%, 1/15/01 B3 500 517,500
Jitney-Jungle Stores of America, Inc.:
Gtd. Sr. Notes
12.00%, 3/1/06 B2 250 281,250
Gtd. Sr. Sub. Notes
10.375%, 9/15/07 N/R 250 266,875
K Mart Corp.
Debentures
7.75%, 10/1/12 Ba2 200 201,250
Pantry, Inc.
Gtd. Sr. Sub. Notes
10.25%, 10/15/07 B3 300 305,250
Pathmark Stores, Inc.
Sr. Sub. Notes
9.625%, 5/1/03 Caa1 100 101,250
-----------
GROUP TOTAL 3,068,869
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TELECOMMUNICATIONS (15.3%)
Advanced Radio Telecommunications Corp.
Sr. Notes
14.00%, 2/15/07 Caa2 250 265,000
(3) Bell Technology Group
Units
13.00%, 5/1/05 N/R 250 255,000
Concentric Network Corp.
Sr. Notes
12.75%, 12/15/07 N/R 250 265,000
(3) Convergent
Communications, Inc.
Units
13.00%, 4/1/08 N/R 250 250,000
(3)(8) DTI Holdings, Inc.
Units
0.00%, 3/1/08 N/R 300 159,750
(3)(8) Dolphin Telecom plc
Sr. Discount Notes
0.00%, 6/1/08 Caa1 250 142,187
(8) E. Spire Communications, Inc.
Sr. Discount Notes.
0.00%, 11/1/05 N/R 500 415,000
(3) Exodus Communications Inc.
Sr. Notes
11.25%, 7/1/08 N/R 50 50,062
(8) Echostar Satellite
Broadcasting Corp.
Sr. Secured Discount Notes 0.00%, 3/15/04 B3 250 229,687
(3)(8) Focal Communications Corp.
Sr. Discount Notes
0.00%, 2/15/08 N/R 200 121,500
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
(3)(8) GST Telecommunications, Inc.
Conv. Sr. Sub. Discount Notes
0.00%, 12/15/05 N/R $ 100 $ 80,625
(8) GST USA, Inc.
Gtd. Sr. Discount Notes
0.00%, 12/15/05 N/R 800 647,000
Geotek Communications, Inc.
Conv. Sr. Sub. Notes
12.00%, 2/15/01 Caa2 350 7,000
Globalstar, L.P./Globalstar
Capital Corp.
Sr. Notes
10.75%, 11/1/04 B3 300 287,250
ICG Holdings, Inc.
Grd. Sr. Exchange Discount Notes
(3)(8) 0.00%, 3/15/07 N/R 1,000 735,000
Gtd. Sr. Discount Notes
(8) 0.00%, 9/15/05 N/R 350 299,250
(3)(8) ICG Services, Inc.
Gtd. Sr. Discount Notes
0.00%, 5/1/08 N/R 250 148,437
Intermedia Communications, Inc.
(8) Series B, Sr. Discount Notes
0.00%, 7/15/07 B2 300 219,750
Series B, Sr. Notes
8.875%, 11/1/07 B2 150 153,375
Iridium Operating L.L.C./ Iridium Capital
Corp.
Series C/EN, Gtd. Sr. Notes
11.25%, 7/15/05 B3 250 250,625
Jacor Communications, Inc.
Gtd. Sr. Sub Notes
8.00%, 2/15/10 B2 250 251,250
(8) Jordan Telecommunications Products, Inc.
Series B Sr. Discount Notes
0.00%, 8/1/07 N\R 250 207,500
(3) Long Distance International, Inc.
Units
12.25%, 4/15/08 N/R 500 502,500
(8) McCaw International Ltd.
Sr. Discount Notes
0.00%, 4/15/07 Caa1 750 495,000
McLeod USA, Inc.:
(8) Sr. Discount Notes
0.00%, 3/1/07 B2 100 74,500
Sr. Notes
9.25%, 7/15/07 B2 200 207,000
(3)(8) MetroNet
Communications Corp.
Sr. Discount Notes:
0.00%, 11/1/07 B3 350 232,750
0.00%, 6/15/08 B3 250 154,063
NEXTLINK Communications, Inc.
Sr. Notes
12.50%, 4/15/06 B3 100 115,750
(3)(8) Nextel Communications, Inc.
Sr. Discount Notes
0.00%, 2/15/08 B2 900 576,000
Orion Network Systems, Inc.
Gtd. Sr. Notes
11.25%, 1/15/07 B2 250 286,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
- -----------------
(8) Pagemart Nationwide, Inc.
Sr. Discount Notes
0.00%, 2/1/05 B3 $ 750 $ 667,500
Petersburg Long Distance, Inc.:
(3)(8) Units
0.00%, 6/1/04 N/R 560 518,000
Conv. Sub. Notes
9.00%, 6/1/06 N/R 80 83,600
(3)(8) Pinnacle Holdings Inc.
Sr. Discount Notes
0.00%, 3/15/08 N/R 100 65,500
(8) Price Communications Corp./ Price
Communications Cellular Holdings, Inc.
Sr. Discount Notes
0.00%, 8/1/07 Caa1 350 244,125
(3) Price Communications Wireless, Inc.
Sr. Secured Notes
9.125%, 12/15/06 Ba3 100 99,750
(8) Qwest Communications International, Inc.
Sr. Discount Notes
0.00%, 10/15/07 Ba1 250 187,813
(8) RCN Corp.
Series B, Sr. Discount Notes
0.00%, 2/15/08 B3 300 182,250
RSL Communications plc
Gtd. Sr. Notes
9.125%, 3/1/08 B3 250 242,500
(3)(8) Rhythms Netconnections
Units
0.00%, 5/15/08 N/R 500 245,000
Sprint Spectrum L.P./Sprint Spectrum Finance
Corp.
Sr. Notes
11.00%, 8/15/06 Ba2 450 517,500
Star Choice Communications, Inc.
Yankee Sr. Notes.
13.00%, 12/15/05 B3 200 204,250
(3) Startec Global
Communications Corp.
Units
12.00%, 5/15/08 N/R 350 343,875
T/SF Communications Corp.,
Series B, Gtd. Sr. Sub. Notes
10.375%, 11/1/07 B3 250 255,625
TCI Satellite Entertainment, Inc.:
(8) Sr. Sub. Discount Notes
0.00%, 2/15/07 Caa1 150 101,625
Sr. Sub. Notes
10.875%, 2/15/07 Caa1 300 298,500
Talton Holdings, Inc.
Series B, Gtd. Sr. Notes
11.00%, 6/30/07 B2 250 269,375
(8) Teleport Communications Group, Inc.
Sr. Discount Notes
0.00%, 7/1/07 Baa3 550 473,000
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
(8) USN Communications Inc.
Series B, Sr. Discount Notes
0.00%, 8/15/04 Caa1 $ 205 $ 161,694
Western Wireless Corp.
Sr. Sub. Notes
10.50%, 2/1/07 B3 250 268,750
(8) WinStar Communications, Inc.
Sr. Discount Notes
0.00%, 10/15/05 Caa1 400 335,500
-----------
GROUP TOTAL 13,849,793
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TEXTILES/APPAREL (0.3%)
Maxim Group, Inc.
Series B, Gtd. Sr. Sub. Notes
9.25%, 10/15/07 B2 250 255,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TRANSPORTATION (1.2%)
AirTran Airlines, Inc.
Gtd. Sr. Secured Notes
10.50%, 4/15/01 B2 500 497,500
(3) Cenargo International plc
First Priority Ship Mortgage Notes
9.75%, 6/15/08 Ba3 100 97,875
(3) Ermis Maritime Holdings Ltd.
Units
12.50%, 3/15/06 B3 275 272,250
(3) Trans World Airlines, Inc.
Sr. Notes
11.375%, 3/1/06 Caa1 250 249,063
-----------
1,116,688
-----------
- --------------------------------------------------------------------------------------------
- -----------------
WASTE MANAGEMENT (0.3%)
Allied Waste North America, Inc.
Gtd. Sr. Sub. Notes
10.25%, 12/1/06 B2 250 275,313
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL CORPORATE OBLIGATIONS
(Cost $57,595,095) 57,697,581
-----------
- --------------------------------------------------------------------------------------------
- -----------------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.8%)
Asset Securitization Corp.
Series 1996-MD6, Class A6
7.10%, 11/13/26 Baa2 230 241,033
Drexel, Burnham & Lambert
Trust REMIC-PAC, Series S, Class 2
9.00%, 8/1/18 Aaa 517 517,308
-----------
GROUP TOTAL 758,341
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $767,294) 758,341
-----------
- --------------------------------------------------------------------------------------------
- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
- -----------------
ASSET BACKED OBLIGATIONS (2.4%)
- --------------------------------------------------------------------------------------------
- -----------------
Green Tree Financial Corp. Manufactured
Housing
Installment Sale Contracts:
Series 1995-6, Class A3
6.65%, 9/15/26 Aaa $ 410 $ 411,025
Series 1993-4, Class B1
7.20%, 1/15/19 Baa3 1,043 1,046,577
Merrill Lynch Home Equity Acceptance Trust
Series 1994-A, Class A-2
6.438%, 7/17/22 A3 554 551,144
Nationscredit Grantor Trust,
Boat Retail Installment Sale Contracts
Series 1996-1, Class A
5.85%, 9/15/11 Aaa 136 135,231
-----------
GROUP TOTAL 2,143,977
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL ASSET BACKED OBLIGATIONS
(Cost $2,253,633) 2,143,977
-----------
- --------------------------------------------------------------------------------------------
- -----------------
<CAPTION>
Shares/Units
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
COMMON STOCKS (2.3%)
- --------------------------------------------------------------------------------------------
- -----------------
BROADCASTING (0.0%)
(1) Pegasus Communications Corp. 1,128 23,688
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CABLE (0.0%)
OpTel, Inc. 250 3
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CONSUMER PRODUCTS & SERVICES (0.0%)
(1) Coinstar, Inc. 4,196 38,813
-----------
- --------------------------------------------------------------------------------------------
- -----------------
FINANCIAL SERVICES (0.0%)
(1)(5) Westfed Holdings, Inc.
Class B (acquired 9/20/88, $127) 4,223 0
-----------
- --------------------------------------------------------------------------------------------
- -----------------
FOOD & BEVERAGES (1.6%)
(1)(5) Dr. Pepper Bottling Holdings, Inc.
Class A (acquired 10/21/88, cost $40,500) 45,000 1,440,000
(1) Specialty Foods Corp. 22,500 1,125
-----------
GROUP TOTAL 1,441,125
-----------
- --------------------------------------------------------------------------------------------
- -----------------
INDUSTRIAL GOODS & MATERIALS (0.2%)
(1)(5)(7) CIC I Acquisition Corp.
(acquired 10/18/89, cost $1,076,715) 2,944 200,192
-----------
- --------------------------------------------------------------------------------------------
- -----------------
METALS & MINING (0.0%)
Sheffield Steel Corp. 2,500 10,625
-----------
- --------------------------------------------------------------------------------------------
- -----------------
<CAPTION>
Value
Shares/Units (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
PACKAGING\CONTAINERS (0.0%)
(1) Crown Packaging Enterprises Ltd. 100,848 $ 1,008
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PAPER & FOREST PRODUCTS (0.3%)
(1) Mail-Well, Inc. 3,550 76,990
(1)(3) Mail-Well, Inc. 7,102 154,025
-----------
GROUP TOTAL 231,015
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RESTAURANTS, HOTELS & GAMING (0.1%)
(1) Casino America Inc. 4,982 17,126
(1) Colorado Gaming & Entertainment, Co. 8,822 48,521
Elsinore Corp. 6,178 9,652
(1) Motels of America, Inc. 250 4,250
-----------
GROUP TOTAL 79,549
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RETAIL (0.0%)
(1)(5) Jewel Recovery L.P.
(acquired 7/30/93, cost $0) 33,040 0
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TELECOMMUNICATIONS (0.1%)
Intermedia Communications, Inc. 374 15,661
Nextel Communications, Inc. Class A 774 19,205
(1) Pagemart Nationwide, Inc. 3,500 31,500
-----------
GROUP TOTAL 66,366
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL COMMON STOCKS
(Cost $1,379,638) 2,092,384
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PREFERRED STOCKS (4.3%)
- --------------------------------------------------------------------------------------------
- -----------------
AEROSPACE/DEFENSE (0.4%)
(1) GPA Group plc 7% Second Preference Cum. Conv. 650,000 370,500
-----------
- --------------------------------------------------------------------------------------------
- -----------------
BROADCASTING (0.8%)
Granite Broadcasting Corp.
12.75% Cum. Exchangeable 11 12,595
Source Media, Inc.
13.5% Units 4,135 119,915
(1) Spanish Broadcasting System, Inc.
14.25% Cum. Exchangeable 5,710 605,260
-----------
GROUP TOTAL 737,770
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CABLE (1.8%)
Adelphia Communications Corp.
13% Cum. Exchangeable, Series B 2,500 297,500
(3) Intermedia Communications, Inc.
7% Jr. Convertible, Series E 15,000 551,250
NEXTLINK Communications, Inc.
14% Cum. Exchangeable 7,127 445,438
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
Value
Shares/Units (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
NTL, Inc.
13% Exchangeable 1 $ 1,304
Nextel Communications, Inc.
13% Exchangeable, Series D 273 308,490
-----------
1,603,982
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CONSUMER PRODUCTS & SERVICES (0.0%)
Renaissance Cosmetics, Inc.
14% Cumulative 4 39
-----------
- --------------------------------------------------------------------------------------------
- -----------------
FINANCIAL SERVICES (0.0%)
(1)(5)(7) West Fed Holdings, Inc.
Class A (acquired 9/20/88-6/18/93, cost
$1,203,480) 14,246 14,246
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PAPER & FOREST PRODUCTS (0.7%)
(1) SD Warren Co.
14% Cum. Exchangeable, Series B 13,000 650,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PUBLISHING & INFORMATION SERVICES (0.4%)
Primedia, Inc.
10% Cum. Exchangeable, Series D 3,500 363,125
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RESTAURANTS, HOTELS & GAMING (0.2%)
AmeriKing, Inc.
13% Cum. Exchangable 5,865 158,355
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL PREFERRED STOCKS
(Cost $4,014,276) 3,898,017
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RIGHTS (0.1%)
- --------------------------------------------------------------------------------------------
- -----------------
(1) Terex Corp. Expiring 5/15/02 (Cost $0) 2,000 46,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
WARRANTS (1.1%)
- --------------------------------------------------------------------------------------------
- -----------------
(1) Advanced Radio Telecommunications Corp.
expiring 2/15/07 3,750 45,938
(1) American Telecasting, Inc.
expiring 6/23/99 350 0
(1) Ampex Corp.
expiring 3/15/03 8,500 13,345
(1) Australis Holdings Pty Ltd.
expiring 10/30/01 250 2
(1) Australis Media Ltd.
expiring 5/15/00 225 1
(1) Boomtown, Inc.
expiring 11/1/98 500 5
(1) CHC Helicopter Corp.
expiring 12/15/00 2,000 6,000
(1) Casino America, Inc.
expiring 5/3/01 882 9
(1) Central Bank of Nigeria 500 0
(1)(7) Chi Energy, Inc.:
Series B, expiring 11/8/03 3,790 9,100
(1) Series C, expiring 11/8/05 2,459 5,904
<CAPTION>
Value
Shares/Units (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
(1) Concentric Network Corp. 250 $ 26,250
(1)(7) Consolidated Hydro, Inc.
expiring 12/31/03 2,700 0
(1) County Seat Stores, Inc.
expiring 10/15/98 500 5
(1) Crown Packaging Holdings, Ltd.
expiring 11/1/03 1,000 500
(1) DIVA Systems Corp.
expiring 5/15/06 900 207,000
(1) Dairy Mart Convenience Stores, Inc.
expiring 12/1/01 4,172 2,086
(1) E. Spire Communications, Inc. 1,000 110,000
(1) Elsinore Corp.
expiring 10/8/98 5,329 0
(1) Golden Ocean Group, Ltd.
expiring 8/31/01 342 3,078
(1) Great American Cookie Co.
expiring 1/30/00 90 900
(1) Hemmeter Enterprises, Inc.
expiring 12/15/99 3,000 0
(1) IntelCom Group, Inc.
expiring 9/1/05 1,155 30,030
(1) Interact Systems, Inc.
expiring 8/1/03 400 0
(1) Intermedia Communications, Inc.
expiring 6/1/00 300 46,500
(1) McCaw International Ltd.
expiring 4/15/07 750 3,750
(1) NEXTLINK Communications, Inc.
expiring 2/1/09 6,000 0
(1) Nextel Communications, Inc.
expiring 4/25/99 500 580
(1) Orion Network Systems, Inc.
expiring 1/31/07 250 4,000
(1) Price Communications Corp.
expiring 8/1/07 1,204 12,040
(1) SD Warren Co.
expiring 12/15/06 8,000 40,000
(1) Signature Brands Ltd.
expiring 8/15/02 500 0
(1) Source Media, Inc.
expiring 11/1/07 2,235 22
(1) Spanish Broadcasting System:
expiring 6/30/99 500 245,000
(1) Star Choice
Communications, Inc. 4,632 7,871
(1) Expiring 6/29/99 500 102,500
(1) USN Communications, Inc.
expiring 10/15/04 3,050 36,600
(1) United International Holdings
expiring 11/15/99 600 7,200
(1) Wright Medical Technology
expiring 6/30/03 206 20,588
-----------
GROUP TOTAL 986,804
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL WARRANTS
(Cost $869,640) 986,804
-----------
- --------------------------------------------------------------------------------------------
- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
SHORT-TERM INVESTMENTS (1.6%)
FHLB Discount Corp
Zero Coupon,
7/1/98 (Cost $1,480,000) N/R $ 1,480 $ 1,480,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL DOMESTIC SECURITIES
(Cost $68,359,576) 69,103,104
-----------
- --------------------------------------------------------------------------------------------
- -----------------
FOREIGN INCOME SECURITIES (20.4%)
- --------------------------------------------------------------------------------------------
- -----------------
CORPORATE OBLIGATIONS (4.0%)
- --------------------------------------------------------------------------------------------
- -----------------
ARGENTINA (0.5%)
CIA Internacional Telecomunicacoes
Sr. Notes
10.375%, 8/1/04 N/R ARP 300 249,412
(3) Disco S.A.
Notes
9.875%, 5/15/08 Ba3 USD 250 236,250
-----------
485,662
-----------
- --------------------------------------------------------------------------------------------
- -----------------
BRAZIL (1.2%)
Arisco Produtos Alimenticios S.A.
Gtd. Notes
10.75%, 5/22/05 N/R USD 280 252,000
Cia. Petroleo Ipiranga S.A.
Sr. Unsub. Notes
10.625%, 2/25/02 N/R USD 600 606,358
Petroleo Brasileiro S.A.
Debentures
8.25%, 4/5/01 B1 USD 220 216,425
-----------
1,074,783
-----------
- --------------------------------------------------------------------------------------------
- -----------------
KAZAKHSTAN (0.2%)
Kazkommerts International BV
Gtd. Structured Notes
11.25%, 5/8/01 B2 USD 225 202,500
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RUSSIA (2.1%)
AO Sibneft
Loan Participation Notes
Notes 9.691%, 8/15/00 N/R USD 1,675 1,455,156
(3) Zero Coupon, 9/18/98 N/R USD 250 240,988
(3) Mosenergo Finance B.V.
Gtd. Notes
8.375%, 10/9/02 N/R USD 260 174,642
-----------
1,870,786
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL CORPORATE OBLIGATIONS
(Cost $3,312,345) 3,633,731
-----------
- --------------------------------------------------------------------------------------------
- -----------------
GOVERNMENT OBLIGATIONS (16.4%)
- --------------------------------------------------------------------------------------------
- -----------------
ALGERIA (0.2%)
Republic of Algeria
Loan Participation Agreements
6.25%, 5/4/00 N/R USD 235 219,138
-----------
- --------------------------------------------------------------------------------------------
- -----------------
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
ARGENTINA (3.2%)
Republic of Argentina:
Debentures
6.625%, 3/31/05 Ba3 USD 475 $ 418,309
(9) Bocon PRO1 Notes
3.11%, 4/1/07 Ba3 USD 300 255,788
Secured Par Bonds,
Series L-GP
5.75%, 3/31/23 Ba3 USD 2,950 2,186,688
-----------
2,860,785
-----------
- --------------------------------------------------------------------------------------------
- -----------------
BRAZIL (2.5%)
Federal Republic of Brazil:
MYDFA Trust Certificates
6.563%, 9/15/07 N/R USD 1,418 1,225,017
Discount Bonds
6.625%, 4/15/24 B1 USD 335 257,950
Banco Nacional de Desenvolvimento Economico e
Social
Notes
10.30%, 6/16/08 B1 USD 800 790,000
-----------
2,272,967
-----------
- --------------------------------------------------------------------------------------------
- -----------------
BULGARIA (0.9%)
(3)(8) Republic of Bulgaria:
Front Loaded Interest Reduction Bonds,
Series A
2.25%, 7/28/12 B2 USD 750 451,875
(9) Discount Bonds, Series A
6.563%, 7/28/24 B2 USD 415 325,775
-----------
777,650
-----------
- --------------------------------------------------------------------------------------------
- -----------------
COLOMBIA (0.4%)
Republic of Colombia
Notes
8.625%, 4/1/08 Baa3 USD 340 322,575
-----------
- --------------------------------------------------------------------------------------------
- -----------------
ECUADOR (0.5%)
Republic of Ecuador:
(8) Par Bonds
3.50%, 2/28/25 B1 USD 380 206,676
(9) Discount Bonds
6.625%, 2/28/25 B1 USD 310 218,736
-----------
425,412
-----------
- --------------------------------------------------------------------------------------------
- -----------------
HUNGARY (0.2%)
Hungarian Republic
Bonds
16.50%, 4/12/99 N/R HUF 49,140 223,803
-----------
- --------------------------------------------------------------------------------------------
- -----------------
IVORY COAST (0.2%)
(8) Republic of the Ivory Coast
Front Loaded Interest Reduction Bonds
2.00%, 3/29/18 N/R FRF 4,050 214,357
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
- -----------------
KOREA (0.5%)
Republic of Korea
Bonds:
8.75%, 4/15/03 Ba1 USD 230 $ 215,625
8.87%, 4/15/08 Ba1 USD 240 216,900
-----------
432,525
-----------
- --------------------------------------------------------------------------------------------
- -----------------
MEXICO (3.3%)
United Mexican States:
Certificates de Tesoreria:
Zero Coupon, 4/8/99 N/R MXP 260 239,257
Zero Coupon, 5/6/99 N/R MXP 300 272,864
(9) Discount Bonds, Series B
6.477%, 12/31/19 Ba2 USD 500 450,000
Secured Par Bonds, Series W-A
6.25%, 12/31/19 Ba2 USD 2,000 1,593,798
Secured Par Bonds, Series W-B
6.25%, 12/31/19 Ba2 USD 520 414,387
-----------
2,970,306
-----------
- --------------------------------------------------------------------------------------------
- -----------------
POLAND (1.5%)
Republic of Poland:
(9) Discount Bonds
6.688%, 10/27/24 Baa3 USD 460 453,675
(8) Par Bonds
3.00%, 10/27/24 Baa3 USD 520 341,250
(8) Revolving Short-Term Agreement Bonds
3.75%, 10/27/24 Baa3 USD 820 597,575
-----------
1,392,500
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RUSSIA (2.4%)
Bank of Foreign Economic Affairs of the USSR:
(Vnesheconombank)
3.313%, 12/15/20 N/R USD 870 397,068
(9) 6.625%, 12/15/15 N/R USD 2,124 1,151,395
(3) Russian Federation,
Ministry of Finance
Bonds
11.75%, 6/10/03 N/R USD 680 584,800
-----------
2,133,263
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TURKEY (0.2%)
Republic of Turkey
Treasury Bills
Zero Coupon, 2/17/99 N/R TRL 88,000,000 219,297
-----------
- --------------------------------------------------------------------------------------------
- -----------------
VENEZUELA (0.4%)
Republic of Venezuela
Debt Conversion Bonds, Series DL
6.625%, 12/18/07 B1 USD 238 194,643
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
(8) Front Loaded Interest
Reduction Bonds, Series A
6.625%, 3/31/07 B1 USD 214 $ 176,784
-----------
371,427
-----------
GROUP TOTAL 14,836,005
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL GOVERNMENT OBLIGATIONS
(Cost $14,900,333) 14,836,005
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL FOREIGN INCOME SECURITIES
(Cost $18,212,678) 18,469,736
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL INVESTMENTS (96.8%)
(Cost $86,572,254) 87,572,840
-----------
- --------------------------------------------------------------------------------------------
- -----------------
LIABILITIES IN EXCESS OF OTHER
ASSETS (3.2%)
2,868,399
-----------
- --------------------------------------------------------------------------------------------
- -----------------
NET ASSETS (100%)
Applicable to 8,454,140 issued and outstanding $.001 par value shares (authorized
100,000,000 shares) $90,441,239
-----------
-----------
- --------------------------------------------------------------------------------------------
- -----------------
N/R--Not Rated.
PAC--Planned Amortization Class.
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. Market value includes accrued interest.
(5) Restricted as to private and public resale. Total cost of restricted securities at June 30, 1998
aggregated $2,320,822. Total market value of restricted securities owned at June 30, 1998
$1,654,438 or 1.8% of net assets.
(6) All or a portion of this security was pledged as collateral for delayed delivery.
(7) Securities for which market quotations are not readily available are valued at fair value as
determined in good faith by 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 June 30, 1998.
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES June 30,
1998
(Unaudited)
<S> <C>
- ------------------------------------------------------------------------------------------
ASSETS:
Investments at Value
(Cost $86,572,254) (Note A-1).......................................... $87,572,840
Receivables:
Interest (Note A-6)................................................... 1,437,789
Investments Sold...................................................... 2,392,155
Unrealized gain on receivable Forward FX.............................. 5,672
Other Assets............................................................ 20,802
- ------------------------------------------------------------------------------------------
Total Assets........................................................ 91,429,258
- ------------------------------------------------------------------------------------------
LIABILITIES:
Payables:
Investments Purchased................................................. 750,000
Investment Advisory Fees (Note B)..................................... 113,807
Professional Fees..................................................... 43,173
Shareholder Servicing Fees............................................ 39,588
Shareholders' Reports................................................. 24,847
Administrative Fees (Note C).......................................... 9,733
Custodian Fees........................................................ 3,724
Due to Custodian Bank................................................... 2,072
Other Liabilities....................................................... 1,075
- ------------------------------------------------------------------------------------------
Total Liabilities................................................... 988,019
- ------------------------------------------------------------------------------------------
NET ASSETS.................................................................. $90,441,239
------------
------------
NET ASSETS CONSIST OF:
Capital Shares at $.001 Par Value....................................... $ 8,454
Capital Paid in Excess of Par Value..................................... 89,457,023
Undistributed Net Investment Income..................................... 872,818
Accumulated Net Realized Loss........................................... (901,313)
Unrealized Appreciation on Investments and Foreign Currency
Translations........................................................... 1,004,257
------------
NET ASSETS APPLICABLE TO 8,454,140 ISSUED AND OUTSTANDING SHARES (AUTHORIZED
100,000,000 SHARES)....................................................... $90,441,239
------------
------------
NET ASSET VALUE PER SHARE................................................... $ 10.70
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS Six Months
Ended
June 30,
1998
(Unaudited)
<S> <C>
- ------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest (Note A-6)..................................................... $4,475,728
Dividends (Note A-6).................................................... 41,481
- ------------------------------------------------------------------------------------------
Total Income.......................................................... 4,517,209
- ------------------------------------------------------------------------------------------
EXPENSES:
Investment Advisory Fees (Note B)....................................... 227,374
Administrative Fees (Note C)............................................ 71,324
Shareholders' Reports................................................... 43,780
Professional Fees....................................................... 32,385
Shareholder Servicing Fees.............................................. 45,702
Custodian Fees.......................................................... 77,391
Directors' Fees and Expenses............................................ 19,470
Other................................................................... 39,003
- ------------------------------------------------------------------------------------------
Total Expenses........................................................ 556,429
- ------------------------------------------------------------------------------------------
Expense offeset (Note A-6).............................................. --
- ------------------------------------------------------------------------------------------
Net Expenses........................................................ 556,429
- ------------------------------------------------------------------------------------------
Net Investment Income............................................... 3,960,780
- ------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS):
Investments............................................................. 250,568
Foreign Currency........................................................ (1,191)
- ------------------------------------------------------------------------------------------
Total Net Realized Gain............................................. 249,377
- ------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION:
Investments............................................................. (628,948)
Foreign Currency Translations........................................... (1,682)
- ------------------------------------------------------------------------------------------
Total Change in Unrealized Appreciation/Depreciation................ (630,630)
- ------------------------------------------------------------------------------------------
Net Realized Gain and Change in Unrealized Appreciation/Depreciation........ (381,253)
- ------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $3,579,527
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
June 30, 1998 Year Ended
(Unaudited) December 31, 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Income....................................................... $ 3,960,780 $ 7,538,868
Net Realized Gain on Investments and Foreign Currency....................... 249,377 1,113,711
Change in Unrealized Appreciation/Depreciation on Investments and Foreign
Currency................................................................... (630,630) 2,304,023
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ 3,579,527 10,956,602
- -------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income....................................................... (4,332,748) (7,418,410)
- -------------------------------------------------------------------------------------------------------------------------
Total Increase (decrease) in Net Assets................................... (753,221) 3,538,192
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Period......................................................... 91,194,460 87,656,268
- -------------------------------------------------------------------------------------------------------------------------
End of Year (Including undistributed net investment income of $872,818 and
$1,244,786, respectively).................................................. $90,441,239 $91,194,460
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Six Months
Ended Year Ended December 31,
June 30, 1998 -----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: (Unaudited) 1997 1996 1995Section 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF
PERIOD........................... $ 10.79 $ 10.37 $ 10.01 $ 9.26 $ 10.45 $ 9.80
- ----------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net Investment Income.......... 0.32 0.89 0.91 0.95 0.95 1.04
Net Realized and Unrealized
Gain (Loss) on Investments.... (0.05) 0.41 0.26 0.61 (1.33) 0.66
- ----------------------------------------------------------------------------------------------------------------------------------
Total from Investment
Activities.................. 0.27 1.30 1.17 1.56 (0.38) 1.70
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income.......... (0.36) (0.88) (0.81) (0.76) (0.62) (1.04)
In Excess of Net Investment
Income........................ -- -- -- -- -- (0.01)
Return of Capital.............. -- -- -- (0.05) (0.19) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Distributions.......... (0.36) (0.88) (0.81) (0.81) (0.81) (1.05)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD..... $ 10.70 $ 10.79 $ 10.37 $ 10.01 $ 9.26 $ 10.45
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF
PERIOD........................... $ 9.94 $ 10.06 $ 9.00 $ 8.88 $ 8.25 $ 9.50
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Net Asset Value (1)............ 4.16% 13.82% 13.27% 17.57% (3.80)% 18.29%
Market Value................... 3.74% 22.34% 11.03% 18.16% (4.72)% 10.94%
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period
(Thousands)...................... $90,441 $91,194 $87,656 $84,618 $78,252 $88,319
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net
Assets Including Expense
Offsets.......................... 1.22%* 1.08% 1.11% 1.12% 0.99% 1.06%
Ratio of Expenses to Average Net
Assets........................... 1.22%* 1.10% 1.11% -- -- --
Ratio of Net Investment Income to
Average Net Assets............... 8.71%* 8.43% 8.99% 9.80% 9.66% 10.28%
Portfolio Turnover Rate............ 50.1% 119.1% 65.1% 54.5% 83.1% 128.5%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
# Not Annualized
Section BEA Associates replaced CS First Boston Investment Management as the
Fund's investment adviser effective June 13, 1995.
(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.
Note: Current period permanent book-tax differences, if any, are not included
in the calculation of net investment income per share.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ------------
BEA Strategic Global Income Fund, Inc. (the "Fund"), was incorporated on January
27, 1988 and is registered as a diversified, closed-end investment company under
the Investment Company Act of 1940. The Fund's investment objective is to seek
high current income through investments primarily in debt securities.
A. The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. Generally accepted
accounting principles may require management to make estimates and assumptions
that affect the amounts and disclosures in the financial statements. Actual
reported results could differ from those estimates.
1. SECURITY VALUATION: 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
$229,442 (or 0.25% of net assets) at June 30, 1998. 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.
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 gains/losses on foreign currency transactions represent net
foreign exchange gains/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 exchange contracts to protect securities and related
receivables and
16
<PAGE>
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 fluc-
tuate 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, including capital loss carryforward.
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. These differences are principally
due to the timing of the recognition of defaulted bond interest and to
differing book and tax treatment for foreign currency transactions.
Permanent book and tax differences relating to shareholder distributions may
result in reclassifications to undistributed net investment income (loss),
undistributed realized gain (loss) and paid in capital.
B. 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.
C. The Chase Manhattan Bank ("Chase"), through its corporate affiliate Chase
Global Funds Services Company ("CGFSC" or the "Administrator"), provides
administrative services to the Fund under the terms of 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.
Chase provides custodial services to the Fund. Under the Custody Agreement,
Chase 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.
Chase provides transfer agent services to the Fund. Under the Transfer Agent
Agreement, Chase is paid a fee based on the number of accounts in the Fund per
year. In addition, the Fund is charged certain out-of-pocket expenses by Chase.
D. During the six months ended June 30, 1998, the Fund made purchases of
$44,979,836 and sales of $62,107,725 of investment securities other than U.S.
Government securities and short term investments. At June 30, 1998, the cost of
investments for Federal income tax purposes was $86,572,254. Accordingly, net
unrealized appreciation for Federal income tax purposes aggregated $1,000,586,
of which $7,156,980 related to appreciated securities and $6,156,394 related to
depreciated securities.
At December 31, 1997 the Fund had a capital loss carryforward of $1,050,925
available to offset future capital gains of which $95,231, $743,988 and $211,706
will expire on December 31, 2000, 2002 and 2003, respectively.
E. At June 30, 1998, 81.50% 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, as well as the market value of the securities. Such
investments may also be less liquid and more volatile than investments in higher
rated fixed income securities.
F. 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, 1998.
17
<PAGE>
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
THREE MONTHS ENDED
----------------------------------------------------------------------------
MARCH 31, 1998 JUNE 30, 1998
----------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income............. $ 2,309 $ 0.27 $ 2,208 $ 0.26
Net Investment Income......... 2,049 0.24 1,912 0.23
Net Realized Gain (Loss) and
Change in Unrealized
Appreciation/Depreciation on
Investments and Foreign
Currency..................... 2,428 0.29 (2,809) (0.33)
Net Increase in Net Assets
Resulting from
Operations................... 4,477 0.53 (897) (0.10)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
MARCH 31, 1997 JUNE 30, 1997 1997 1997
----------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income............. $ 2,214 $ 0.26 $ 2,016 $ 0.24 $ 2,123 $ 0.25 $ 2,154 $ 0.25
Net Investment Income......... 1,977 0.23 1,774 0.21 1,886 0.22 1,902 0.23
Net Realized Gain (Loss) and
Change in Unrealized
Appreciation/Depreciation on
Investments and Foreign
Currency..................... (491) (0.05) 2,466 0.29 2,519 0.30 (1,076) (0.13)
Net Increase in Net Assets
Resulting from
Operations................... 1,486 0.18 4,240 0.50 4,405 0.52 826 0.10
</TABLE>
SUPPLEMENTAL PROXY INFORMATION (UNAUDITED)
The Annual Meeting of the Stockholders of the BEA Strategic Global Income Fund,
Inc. was held on Monday, May 11, 1998, at the offices of Willkie, Farr &
Gallagher, 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
PROPOSAL FAVOR OF AGAINST ABSTAINED
- ------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1. To elect the following four Directors:
Messrs. Enrique R. Arzac, Lawrence J. Fox,
James S. Pasman, Jr. and William W. Priest,
Jr. 6,830,758 44,095 --
2. To ratify the selection of
PricewaterhouseCoopers LLP as independent
public accountants of the Fund until the next
annual meeting. 6,793,279 27,103 54,472
</TABLE>
18
<PAGE>
DESCRIPTION OF DIVIDEND REINVESTMENT
AND CASH PURCHASE PLAN
- ---------
Pursuant to the BEA Strategic Global Income Fund, Inc.'s (the "Fund") Dividend
Reinvestment and Cash Purchase Plan (the "Plan"), shareholders may elect to have
all dividends and distributions, net of any U.S. withholding tax, automatically
reinvested in additional shares of the Fund by The Chase Manhattan Bank, as the
plan agent (the "Plan Agent"). Shareholders who do not make this election will
receive all dividends and distributions in cash, net of any applicable U.S.
withholding tax, paid in dollars by check mailed directly to the shareholder by
the Plan Agent, as dividend-paying agent. Shareholders who do not wish to have
dividends and distributions automatically reinvested should notify the Plan
Agent for the Fund, at Dividend Reinvestment Department -- Retail, 4 New York
Plaza, New York, NY 10004. A shareholder whose shares are held by a broker or
nominee that does not provide a dividend reinvestment program may be required to
have his shares registered in his own name to participate in the Plan. Investors
who own shares of the Fund's common stock registered in street name should
contact the broker or nominee for details concerning participation in the Plan.
Certain distributions of cash attributable to (a) some of the dividends and
interest amounts paid to the Fund and (b) certain capital gains earned by the
Fund that are derived from securities of certain foreign issuers are subject to
taxes payable by the Fund at the time amounts are remitted. Such taxes, if any,
will be borne by the Fund and allocated to all shareholders in proportion to
their interests in the Fund.
The Plan Agent serves as agent for the shareholders in administering the
Plan. If the Board of Directors of the Fund declares an income dividend or a
capital gains distribution payable either in the Fund's common stock or in cash,
as shareholders may have elected, nonparticipants in the Plan will receive cash
and participants in the Plan will receive the equivalent in shares of the Fund
valued at the lower of market price or net asset value as determined at the time
of purchase (generally on the payable date of the dividend) as set forth below.
Whenever market price is equal to or exceeds net asset value at the time shares
are valued for the purpose of determining the number of shares equivalent to the
cash dividend or distribution, participants will be issued shares of the Fund at
a price equal to net asset value but not less than 95% of the then current
market price of the Fund shares. The Fund will not issue shares under the Plan
below net asset value. If net asset value determined as at the time of purchase
exceeds the market price of Fund shares at such time, or if the Fund should
declare a dividend or other distribution payable only in cash (i.e., if the
Board of Directors should preclude reinvestment at net asset value), the Agent
will, as agent for the participants, endeavor to buy Fund shares in the open
market, on the New York Stock Exchange or elsewhere, on behalf of all
participants, and will allocate to you your pro rata portion based on the
average price paid (including brokerage commissions) for all shares purchased.
Shares acquired on behalf of participants in the open market will be purchased
at the prevailing market price. Fractions of a share allocated to you will be
computed to four decimal places. If, before the Agent has completed its
purchases, the market price exceeds the net asset value of a Fund share, the
average per share purchase price paid by the Agent may exceed the net asset
value of the Fund's shares, resulting in the acquisition of fewer shares than if
the dividend or distribution had been paid in shares issued by the Fund.
For all purposes of the Plan: (a) the market price of the Fund's common
stock on a dividend payment date shall be the last sale price on the New York
Stock Exchange on that date, or, if there is no such sale, then the mean between
the closing bid and asked quotations for such stock, and (b) net asset value per
share of the Fund's common stock on a particular date shall be as determined by
or on behalf of the Fund.
Participants in the Plan have the option of making additional cash payments
to the Plan Agent, monthly, in any amount from $100 to $1,000, for investment in
the Fund's common stock. Shareholders should be aware that cash contributions
will be used to purchase shares of the Fund in the open market regardless of
whether such shares are selling above, at or below the market price that
reflects a premium to the Fund's net asset value.
Cash contributions should be in the form of a check or money order and made
payable in U.S. dollars and directed to The Chase Manhattan Bank, Dividend
Reinvestment Department -- Retail, 4 New York Plaza, New York, NY 10004.
Deliveries to any other address do not constitute valid delivery.
A detachable form for use in making voluntary cash payments will be attached
to each Dividend Reinvestment Plan statement you receive. The same amount of
money need not be sent each month and there is no obligation to make an optional
cash payment each month.
Payments received by the Agent will be used to purchase stock under the
Plan. Prior to such purchase of stock by the Agent, no interest will be paid on
such funds sent to the Agent. Therefore, voluntary cash payments should be sent
to reach the Agent shortly (but at least five business days) before the dividend
payment date. Voluntary cash payments received after the five business day
deadline will be invested by the Agent on the next succeeding dividend payment
date. Dividend payment dates are expected to be the 15th (or next business day)
of each month.
You may obtain a refund of any voluntary payment if a request for such a
refund is received in writing by the Agent not less than 48 hours before the
next succeeding dividend payment.
There is no charge to participants for reinvesting dividends or capital
gains distributions. The Agent's fees for the
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handling of reinvestment of dividends and distributions will be paid by the
Fund. There will be no brokerage charges with respect to shares issued directly
by the Fund as a result of dividends or capital gains distributions payable
either in shares or in cash. However, each participant will pay a pro rata share
of brokerage commissions incurred with respect to the Agent's open market
purchases in connection with the reinvestment of dividends, capital gains
distributions, or voluntary cash payments.
Brokerage charges for purchasing small amounts of stock for individual
accounts through the Plan are expected to be less than the usual brokerage
charges for such transactions because the Agent will be purchasing stock for all
participants in blocks and pro rating the lower commissions thus attainable.
The receipt of dividends and distributions in stock under the Plan will not
relieve participants of any income tax (including withholding tax) that may be
payable on such dividends and distributions.
While the Fund presently intends to continue the Plan indefinitely,
experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan as applied to any
voluntary cash payments made and any dividend or distribution paid subsequent to
notice of the change sent to all shareholders of the Fund at least 30 days
before the record date for such dividend or distribution. The Plan also may be
amended or terminated by the Agent by at least 30 days' written notice to all
shareholders of the Fund.
Any notices, questions or other correspondence regarding the Plan should be
addressed to The Chase Manhattan Bank, Customer Service Department, 4 New York
Plaza, New York, NY 10004. Be sure to include a reference to BEA Strategic
Global Income Fund, Inc. or you may call (800) 428-8890.
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