<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 ASSISTANT SECRETARY
PRESIDENT AND CHIEF INVESTMENT Paul P. Stamler
OFFICER TREASURER
Gregg M. Diliberto Paul Roselli
INVESTMENT OFFICER ASSISTANT TREASURER
</TABLE>
- --------------------------------------------------------
INVESTMENT ADVISER
BEA Associates
153 East 53rd Street
New York, New York 10022
Phone 1-800-293-1232
- --------------------------------------------------------
ADMINISTRATOR
Chase Global Funds Services Company
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
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 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.
- --------------------------------------------------------------------------------
ANNUAL REPORT
December 31, 1997
<PAGE>
BEA STRATEGIC GLOBAL INCOME FUND, INC.
- ----------
Dear Shareholders: January 30, 1998
We are pleased to report on the activities of the BEA Strategic Global Income
Fund, Inc. ("the Fund") for the year ended December 31, 1997 and discuss our
investment strategy.
At December 31, 1997, the Fund's net asset value ("NAV") was $10.79,
compared to an NAV of $10.37 at December 31, 1996. As a result, the Fund's total
return (based on NAV and assuming reinvestment of dividends of $.8775 per share)
was 13.82%. For the quarter ended December 31, 1997, the Fund gained 0.29%. We
also note, the Fund increased its monthly per share dividend to $0.0725 from
$0.0675, effective with the October dividend payment.
At December 31, 1997, $60.6 million was invested in high yield debt
securities; $3.3 million was invested in investment-grade debt securities; $22.6
was invested in emerging-market debt securities; and the balance of $6.6 million
was invested in equity securities. Of the debt securities, the largest
concentration (48.5%) was invested in B-rated issues.
THE MARKET
The key dynamic in fixed income markets worldwide during the fourth quarter
was the effort by investors to grapple with the implications of the "Asian Flu"
of currency depreciation and falling securities prices. Fueled by mounting
financial crises in Indonesia and South Korea, the flu forced investors to
reassess their assumptions concerning such vital factors as global liquidity,
sovereign risk and worldwide economic growth prospects. The presence of so much
uncertainty resulted in a classic "flight to quality" in which high-caliber
instruments like United States Treasury bonds and investment-grade corporate
debt fared best, while prices of securities most dependent on growth prospects
and liquidity conditions suffered the greatest declines.
One could reasonably expect that U.S. high yield debt would sell off in this
type of environment. Such was not the case, however, as the sector actually
benefited. Not only did high yield generate positive returns during the quarter,
but it also attracted substantial cash inflows from investors exiting the
relatively riskier emerging debt markets.
The flight to quality additionally favored high yield debt securities by
pushing down interest rates. The yield on the bellwether 30-year Treasury bond,
for example, fell to 5.92% at year-end from 6.39% at the end of the third
quarter. With rates declining on one hand and higher-yielding emerging market
debt selling off on the other, yield-hungry investors had few other places to
go.
Overall, 1997 was a banner year for the high yield market. The Salomon
Brothers High Yield Market Index's 13.2% return handily exceeded the 9.65%
return of the Lehman Brothers Aggregate Bond Index, a standard benchmark for the
investment-grade sector. According to Chase Securities, new records were set in
mutual fund inflows ($21.5 billion, up 35.2% from 1996), new issue volume
($125.5 billion, up 70.5%) and total market size ($452.3 billion, up 28.2%). The
average yield for the overall high yield market fell to 9.31% from 9.47% on
January 1, 1997.
Despite their sharp sell-off in the fourth quarter, aggregate emerging debt
markets outperformed their developed-nation counterparts in 1997 as a whole.
Events in Asia helped to transform the emerging sector into a two-tiered market
in which investors tended to gravitate toward higher sovereign credits like
Mexico and Poland while avoiding those countries considered riskiest. Many fixed
income investors remain drawn to the emerging markets for their higher yields
relative to most other debt sectors as well as their greater appreciation
potential.
PORTFOLIO REVIEW
The Fund underperformed the broad high yield market (as represented by the
Salomon Brothers index) during the fourth quarter primarily due to the weakness
of its emerging market debt holdings. This same portion of the portfolio,
however, positively contributed to the Fund's outperformance on a full-year
basis. Within the high yield holdings, our emphasis on security selection and
sector weightings also proved effective. Both of the latter fundamental elements
of our strategy remain essentially unchanged.
The best-performing high yield industry sector was telecommunications, which
continues both as the portfolio's most heavily weighted such sector and its most
heavily overweighted sector compared to the market. Our relative overweighting
of the telecom sector further enhanced performance by magnifying the beneficial
impact
2
<PAGE>
of our individual telecom holdings' strong returns. Other positive factors
included our underweighting in energy, which sold off as oil prices declined;
and our avoidance of certain poorly performing companies in the automobile
sector.
We also note that events in Asia had little effect on the Fund's high yield
holdings. This was mainly because three of our largest sector weightings (I.E.,
telecom, cable and media, gaming), which account for approximately one-third of
total assets, are almost exclusively focused on the domestic U.S. market. In
addition, the portfolio contains relatively low exposure to steel, paper and
chemicals, which are the high yield market's cyclical industry groups most
negatively affected by the Asian turmoil.
OUTLOOK
HIGH YIELD. In our view, the two drivers of a positive 1998 outlook for the
high yield market remain intact. These are the ongoing macroeconomic backdrop of
moderate growth and stable-to-declining interest rates, as well as the vibrance
of corporate merger and acquisitions (M&A) activity.
We believe that a somewhat cautious investment stance in the near term is
most appropriate, however, as we expect to see a higher level of volatility in
the market over the coming months. In particular, we see the current decoupling
of the bond and stock markets as a mixed blessing for high yield. Bonds are
doing well as a result of the flight to quality and its byproduct of falling
yields, while the fall in stock prices, if longer-lived, would be negative for
M&A. The relevance of trends in both for high yield suggests that achieving
above-market returns should be more difficult than in 1997.
Our strategy will continue to include a preference for issues at the higher
end of the high yield credit spectrum (I.E., single-B) and the retention of our
largest sector allocations in cable and media, telecommunications and gaming.
During the fourth quarter, in fact, we raised exposure to these sectors even
further because of their brighter prospects relative to those of cyclicals.
INTERNATIONAL. Although we minimized Asian exposure several months ago, we
have further reconfigured our holdings to concentrate on higher-quality
countries with conservative economic policies. These include Mexico, Poland,
Venezuela and Peru. We also have increased positions in Brazil and Russia in the
belief that both are taking the tough fiscal and monetary measures needed to put
their economies back on the right track.
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 November 21, 1996, 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, Mr. Lindquist served
various offices at CSFBIM beginning in July, 1989. 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 Officer 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
- ---------
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
DOMESTIC SECURITIES (77.3%)
- --------------------------------------------------------------------------------------------
- -----------------
CORPORATE OBLIGATIONS (66.4%)
- --------------------------------------------------------------------------------------------
- -----------------
AUTOMOTIVE (1.3%)
(3) Cambridge Industries, Inc.
Sr. Sub. Notes
10.25%, 7/15/07 B3 $ 250 $ 260,937
Collins & Aikman
Products Corp.
Sr. Sub. Notes
11.50%, 4/15/06 B3 250 280,938
(3) Consorcio G Grupo
Dina S.A./MCII Holdings
(U.S.A.), Inc.
Sr. Secured Discount Notes
Zero Coupon, 11/15/02 N/R 400 360,500
(3) Delco Remy International, Inc.
Gtd. Sr. Sub. Notes
10.625%, 8/1/06 B2 250 270,625
-----------
GROUP TOTAL 1,173,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
BROADCASTING (5.4%)
(3)(8) Acme Television, L.L.C./
ACME Financial Corp.
Gtd. Sr. Discount Notes
0.00%, 9/30/04 B3 500 367,500
(8) Australis Holdings Pty. Ltd.
Yankee Sr. Secured
Discount Notes
0.00%, 11/1/02 N/R 250 73,260
(8) Australis Media Ltd.
Yankee Units
0.00%, 5/15/03 C 227 68,098
(8) Capstar Broadcasting
Partners, Inc.
Sr. Discount Notes
0.00%, 2/1/09 N/R 500 356,250
(3) Digital Television Services
L.L.C./DTS Capital, Inc.
Gtd. Sr. Sub. Notes
12.50%, 8/1/07 B3 250 280,625
(8) EchoStar Communications Corp.
Gtd. Sr. Discount Notes
0.00%, 6/1/04 B2 300 274,500
(3) Fox Kids Worldwide, Inc.
Sr. Notes
9.25%, 11/1/07 B1 250 242,500
Pegasus Media &
Communications, Inc.
Series B, Notes
12.50%, 7/1/05 B2 250 285,625
Sinclair Broadcast Group, Inc.:
Sr. Sub. Notes
10.00%, 9/30/05 B2 300 318,000
Gtd. Sr. Sub. Notes
8.75%, 12/15/07 B2 250 252,500
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
(3) Source Media, Inc.
Sr. Secured Notes
12.00%, 11/1/04 B3 $ 250 $ 247,500
(8) Spanish Broadcasting
System, Inc.
Sr. Notes
12.50%, 6/15/02 B2 250 287,500
United International Holdings, Inc.
Sr. Secured Discount Notes
Zero Coupon, 11/15/99 B3 750 615,000
Univision Network Holding L.P.
Sub. Notes
Zero Coupon, 12/17/02 N/R 573 613,907
Young Broadcasting, Inc.
Series B, Gtd. Sr. Sub. Notes
9.00%, 1/15/06 B2 200 199,500
Series B, Sr. Sub. Notes
8.75%, 6/15/07 B2 450 446,625
-----------
GROUP TOTAL 4,928,890
-----------
- --------------------------------------------------------------------------------------------
- -----------------
BUSINESS SERVICES (0.6%)
(3) Employee Solutions, Inc.
Gtd. Sr. Notes
10.00%, 10/15/04 B1 250 241,875
(3) Iron Mountain, Inc.
Sr. Notes
8.75%, 9/30/09 N/R 250 256,875
-----------
GROUP TOTAL 498,750
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CABLE (5.9%)
Cablevision System Corp.
Sr. Sub. Debentures
9.875%, 2/15/13 B1 250 276,875
Century Communications Corp.
Sr. Notes
8.75%, 10/1/07 Ba3 250 255,625
Charter Communications
Southeast L.P.
Series B, Sr. Notes
11.25%, 3/15/06 B3 250 275,000
Comcast Corp.
Sr. Sub. Notes
9.125%, 10/15/06 Ba3 250 270,000
(8) Comcast UK Cable
Partners Ltd.
Yankee Sr. Debentures
0.00%, 11/15/07 B2 500 406,250
(8) Diamond Cable
Communications plc
Yankee Discount Notes
0.00%, 12/15/05 B3 500 388,750
(3)(8) DIVA Systems Corp.
Units
0.00%, 5/15/06 N/R 900 542,250
(4) Falcon Holding Group L.P.
Sr. Sub. Notes
11.00%, 9/15/03 N/R 215 231,745
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
- -----------------
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 250 278,125
Lenfest Communications, Inc.
Sr. Sub. Notes
10.50%, 6/15/06 B2 500 557,500
(8) Marcus Cable Co.
Sr. Discount Notes
0.00%, 12/15/05 Caa1 350 303,625
NTL, Inc.:
(8) Series B, Sr. Deferred
Coupon Notes
0.00%, 2/1/06 B3 500 392,500
Series B, Sr. Notes
10.00%, 2/15/07 B3 250 265,625
OpTel, Inc.
Series B, Sr. Notes
13.00%, 2/15/05 B3 250 260,625
Rifkin Acquisitions
Partners L.P.
Sr. Sub. Notes
11.125%, 1/15/06 B3 250 274,687
(8) Telewest Communications plc
Yankee Sr. Sub. Discount
Debentures
0.00%, 10/1/07 B1 250 195,000
-----------
GROUP TOTAL 5,389,182
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CHEMICALS (1.9%)
Harris Chemical N.A.
Sr. Secured Debentures
10.25%, 7/15/01 B2 300 315,000
Huntsman Polymers Corp.
Sr. Notes
11.75%, 12/1/04 B1 400 448,500
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 250 248,750
Texas Petrochemical Corp.
Series B, Sr. Sub. Notes
11.125%, 7/1/06 B3 200 218,750
UCC Investor's Holdings, Inc.
Sr. Sub. Notes
11.00%, 5/1/03 B2 350 378,000
-----------
GROUP TOTAL 1,774,750
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CONSTRUCTION & BUILDING MATERIALS (0.5%)
(3) American Architectural Products Corp.
Sr. Notes
11.75%, 12/1/07 Caa1 250 251,250
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
Presley Companies
Sr. Notes
12.50%, 7/1/01 Caa3 $ 250 $ 240,000
-----------
GROUP TOTAL 491,250
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CONSUMER PRODUCTS & SERVICES (2.9%)
(8) Coinstar, Inc.
Sr. Discount Notes
0.00%, 10/1/06 N/R 600 468,000
(3) Holmes Products Corp.
Gtd. Sr. Sub. Notes
9.875%, 11/15/07 B3 200 204,500
Jordan Industries, Inc.
Series B, Sr. Notes
10.375%, 8/1/07 B3 225 229,500
Playtex Products, Inc.
Series B, Gtd. Sr. Notes
8.875%, 7/15/04 B1 200 203,500
Renaissance Cosmetics, Inc.
Gtd. Sr. Notes
11.75%, 2/15/04 B3 250 245,938
Revlon Consumer Products, Inc.
Series B, Sr. Sub. Notes
10.50%, 2/15/03 B3 250 266,250
Revlon Worldwide
(Parent) Corp.
Series B, Sr. Secured
Discount Notes
Zero Coupon, 3/15/01 B3 300 207,000
Signature Brands USA, Inc.
Sr. Sub. Notes
13.00%, 8/15/02 B3 500 536,875
(2) Town & Country Corp.
Sr. Sub. Notes
13.00%, 5/31/98 Ca 616 255,668
-----------
GROUP TOTAL 2,617,231
-----------
- --------------------------------------------------------------------------------------------
- -----------------
ELECTRONICS (2.7%)
Advanced Micro Devices, Inc.
Sr. Secured Notes
11.00%, 8/1/03 Ba1 250 268,750
DecisionOne Corp.
Sr. Sub. Notes
9.75%, 8/1/07 B3 250 260,625
(3) Details, Inc.
Sr. Sub. Notes
10.00%, 11/15/05 B3 250 256,875
(3) Flextronics International Ltd.
Sr. Sub. Notes
8.75%, 10/15/07 B2 600 598,500
Unisys Corp.
Sr. Notes
11.75%, 10/15/04 B1 300 343,500
(3) Verio, Inc.
Units
13.50%, 6/15/04 N/R 400 480,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
- -----------------
Viasystems, Inc.
Sr. Sub. Notes
9.75%, 6/1/07 B3 $ 250 $ 258,437
-----------
GROUP TOTAL 2,466,687
-----------
- --------------------------------------------------------------------------------------------
- -----------------
ENERGY (3.4%)
Belden & Blake Energy Co.
Series B, Gtd. Sr. Sub. Notes
9.875%, 6/15/07 B3 200 202,750
Bellwether Exploration Co.
Gtd. Sr. Sub. Notes
10.875%, 4/1/07 B3 350 385,000
Cliffs Drilling Co.
Series D, Gtd. Sr. Notes
10.25%, 5/15/03 N/R 250 272,500
Dawson Production Services, Inc.
Sr. Notes
9.375%, 2/1/07 B1 150 157,500
Dual Drilling Co.
Gtd. Sr. Sub. Notes
9.875%, 1/15/04 Baa3 250 270,625
Energy Corp. of America
Series A, Sr. Sub. Notes
9.50%, 5/15/07 B2 250 250,625
Falcon Drilling Co., Inc.
Series B, Sr. Notes
9.75%, 1/15/01 Ba3 375 392,344
H.S. Resources, Inc.
Gtd. Sr. Sub. Notes
9.25%, 11/15/06 B2 250 256,875
(3) Hurricane Hydrocarbons Ltd.
Gtd. Sr. Notes
11.75%, 11/1/04 B3 250 240,000
(3) Southwest Royalties, Inc.
Gtd. Sr. Notes
10.50%, 10/15/04 B3 250 247,500
(3) TransAmerican Energy
Sr. Secured Notes
11.50%, 6/15/02 N/R 200 196,500
Wiser Oil Co.
Gtd. Sr. Sub. Notes
9.50%, 5/15/07 B2 250 245,000
-----------
GROUP TOTAL 3,117,219
-----------
- --------------------------------------------------------------------------------------------
- -----------------
ENTERTAINMENT (2.6%)
American Skiing Co.
Series B, Sr. Sub. Notes
12.00%, 7/15/06 B3 200 221,000
(3) Bally Total Fitness
Holding Corp.
Sr. Sub. Notes
9.875%, 10/15/07 N/R 250 252,500
Booth Creek Ski Holdings, Inc.
Series B, Sr. Notes
12.50%, 3/15/07 Caa1 250 245,625
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
Cinemark USA, Inc.
Series D, Sr. Sub. Notes
9.625%, 8/1/08 N/R $ 200 $ 208,000
Cobblestone Holdings, Inc.
Series B, Sr. Notes
Zero Coupon, 6/1/04 Caa1 300 142,500
Genmar Holdings, Inc.
Series A, Sr. Sub. Notes
13.50%, 7/15/01 Caa2 500 507,500
PTI Holdings, Inc.
Sub. Notes
Zero Coupon, 12/17/02 N/R 507 543,033
(3) Production Resource
Group L.L.C.
Gtd. Sr. Sub. Notes
11.50%, 1/15/08 Caa2 250 251,250
-----------
GROUP TOTAL 2,371,408
-----------
- --------------------------------------------------------------------------------------------
- -----------------
FINANCIAL SERVICES (0.8%)
Western Financial Bank F.S.B.
Sub. Capital Debentures
8.875%, 8/1/07 B1 250 241,875
(2) Westfed Holdings
Sr. Debentures
15.50%, 9/15/99 N/R 250 230,000
(3) Wilshire Financial Services Group, Inc.
Unsecured Sr. Notes
13.00%, 8/15/04 N/R 250 259,375
-----------
GROUP TOTAL 731,250
-----------
- --------------------------------------------------------------------------------------------
- -----------------
FOOD & BEVERAGES (0.8%)
(3) AmeriServ Food
Distribution, Inc.
Gtd. Sr. Notes
8.875%, 10/15/06 B1 250 253,125
(3) Archibald Candy Corp.
Gtd. Sr. Secured Notes
10.25%, 7/1/04 B2 250 261,875
(3) Fleming Companies, Inc.
Gtd. Sr. Sub. Notes
10.50%, 12/1/04 B3 200 210,000
-----------
GROUP TOTAL 725,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
HEALTH CARE (0.4%)
IMAGYN Medical Technologies, Inc.
Gtd. Sr. Sub Notes
12.50%, 4/1/04 N/R 100 95,875
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
- -----------------
(3) Integrated Health Services, Inc.
Sr. Sub. Notes
9.25%, 1/15/08 B2 $ 250 $ 255,000
-----------
GROUP TOTAL 350,875
-----------
- --------------------------------------------------------------------------------------------
- -----------------
INDUSTRIAL GOODS & MATERIALS (3.6%)
Atlantis Group, Inc.
Sr. Notes
11.00%, 2/15/03 B2 250 262,500
Exide Corp.
Sr. Notes
10.75%, 12/15/02 B1 190 201,162
(3) Golden Ocean Group, Ltd.
Units
10.00%, 8/31/01 B3 342 294,120
Haynes International, Inc.
Sr. Notes
11.625%, 9/1/04 B3 250 288,437
(8) IHF Holdings, Inc.
Series B, Sr. Sec.
Discount Notes
0.00%, 11/15/04 Caa2 250 217,500
MVE, Inc.
Sr. Secured Debentures
12.50%, 2/15/02 B3 440 447,700
(3) Park-Ohio Industries, Inc.
Sr. Sub. Notes
9.25%, 12/1/07 B2 200 205,250
SRI Receivables Purchase Co., Inc.
Series B, Notes
12.50%, 12/15/00 N/R 500 525,000
Specialty Equipment
Companies, Inc.
Sr. Sub. Notes
11.375%, 12/1/03 B3 450 487,125
Terex Corp.
Series B, Sr. Secured Notes
13.25%, 5/15/02 Caa1 334 381,595
-----------
GROUP TOTAL 3,310,389
-----------
- --------------------------------------------------------------------------------------------
- -----------------
METALS & MINING (2.8%)
Algoma Steel, Inc.
Yankee First Mortgage Notes
12.375%, 7/15/05 B1 250 290,000
Bayou Steel Corp.
First Mortgage Notes
10.25%, 3/1/01 B2 250 259,375
Gulf States Steel, Inc.
First Mortgage Notes
13.50%, 4/15/03 B1 250 257,500
(3) Metallurg, Inc.
Gtd. Sr. Notes
11.00%, 12/1/07 B3 250 258,125
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
NS Group, Inc.
Gtd. Sr. Secured Debentures
13.50%, 7/15/03 Ba2 $ 150 $ 173,625
Republic Engineered Steel, Inc.
First Mortgage Bonds
9.875%, 12/15/01 Caa1 250 237,500
(3) Sheffield Steel Corp.
First Mortgage Notes
11.50%, 12/1/05 Caa2 250 253,750
WCI Steel, Inc.
Series B, Sr. Secured Notes
10.00%, 12/1/04 B2 250 256,875
(3) WHX Corporation
Sr. Notes
9.25%, 11/15/07 B2 250 245,625
Weirton Steel Corp.
Sr. Notes
11.375%, 7/1/04 B2 300 312,000
-----------
GROUP TOTAL 2,544,375
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PACKAGING/CONTAINERS (3.4%)
(3) AEP Industries, Inc.
Sr. Sub. Notes
9.875%, 11/15/07 B2 400 412,000
(3) BWAY Corp.
Gtd. Sr. Sub. Notes
10.25%, 4/15/07 B2 150 162,562
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 Ca 775 186,000
Four M Corp.
Series B, Sr. Secured Notes
12.00%, 6/1/06 B3 350 372,750
Gaylord Container Corp.:
Series B, Sr. Notes
9.75%, 6/15/07 B3 250 244,375
Sr. Sub. Discount
Debentures
12.75%, 5/15/05 Caa1 250 267,500
Plastic Containers, Inc.
Series B, Sr. Secured Notes
10.00%, 12/15/06 B1 250 263,750
(3) Radnor Holdings Corp.
Series B, Sr. Notes
10.00%, 12/1/03 B2 400 416,000
Riverwood
International Corp.
Gtd. Sr. Sub. Notes
10.875%, 4/1/08 Caa1 250 241,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
- -----------------
(3) Stone Container Finance Co.
Yankee Gtd. Sr. Notes
11.50%, 8/15/06 B2 $ 250 $ 262,500
-----------
GROUP TOTAL 3,097,437
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PAPER & FOREST PRODUCTS (1.0%)
(3)(4) Ainsworth Lumber Co. Ltd.
Yankee Sr. Secured Notes
12.50%, 7/15/07 B3 250 253,125
Mail-Well Corp.
Sr. Sub. Notes
10.50%, 2/15/04 B1 500 536,250
Malette, Inc.
Yankee Sr. Secured Debentures
12.25%, 7/15/04 Ba3 150 168,000
-----------
GROUP TOTAL 957,375
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PUBLISHING & INFORMATION SERVICES (1.0%)
(3)(8) American Lawyer Media Holdings, Inc.
Sr. Discount Notes
0.00%, 12/15/08 B3 925 521,469
(8) InterAct Systems, Inc.
Sr. Discount Notes
0.00%, 8/1/03 N/R 400 163,000
(3) T/SF Communications Corp.
Gtd. Sr. Sub. Notes
10.375%, 11/1/07 B3 250 249,375
-----------
GROUP TOTAL 933,844
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RESTAURANTS, HOTELS & GAMING (4.8%)
Casino America, Inc.
Gtd. Sr. Notes
12.50%, 8/1/03 B1 250 271,250
Casino Magic of
Louisiana, Corp.
Series B, Gtd. First
Mortgage Notes
13.00%, 8/15/03 B3 600 568,500
(4) Colorado Gaming & Entertainment, Co.
Gtd. Sr. Notes
12.00%, 6/1/03 N/R 443 478,552
(2) 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 250 251,875
G.B. Property Funding Corp.
Gtd. First Mortgage Notes
10.875%, 1/15/04 Caa1 450 378,000
HMC Acquisition Properties
Series B, Gtd. Sr. Notes
9.00%, 12/15/07 Ba3 450 462,937
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
(3) Hollywood Park, Inc.
Gtd. Sr. Sub. Notes
9.50%, 8/1/07 B2 $ 200 $ 214,000
(3) Horseshoe Gaming L.L.C.:
Series B, Sr. Sub. Notes
9.375%, 6/15/07 N/R 500 525,000
Series B, Gtd. Sr. Notes
12.75%, 9/30/00 B1 375 414,375
Mohegan Tribal Gaming Authority
Series B, Sr. Secured Notes
13.50%, 11/15/02 Ba1 200 258,750
Prime Hospitality Corp.
Secured First Mortgage Notes
9.25%, 1/15/06 Ba2 250 265,937
Waterford Gaming L.L.C./
Waterford Gaming
Finance Corp.
Sr. Notes 12.75%, 11/15/03 N/R 189 208,845
-----------
GROUP TOTAL 4,350,021
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RETAIL (3.1%)
Brylane L.P.
Gtd. Sr. Sub. Notes
10.00%, 9/1/03 B1 500 530,625
(3) County Seat Stores, Inc.
Units
12.75%, 11/1/04 N/R 250 261,250
Dairy Mart Convenience Stores, Inc.
Sr. Sub. Notes
10.25%, 3/15/04 B3 301 300,247
Great American Cookie Co.
Series B, Sr. Secured Debentures
10.875%, 1/15/01 B3 500 511,250
Jitney-Jungle Stores of America, Inc.:
Sr. Sub. Notes
12.00%, 3/1/06 B2 250 283,750
Gtd. Sr. Notes
10.375%, 9/15/07 N/R 250 259,375
K Mart Corp.
Debentures
7.75%, 10/1/12 Ba3 200 190,750
(3) Pantry, Inc.
Sr. Sub Notes
10.25%, 10/15/07 B3 300 307,500
Parisian, Inc.
Sr. Sub. Notes
9.875%, 7/15/03 B1 150 160,500
-----------
GROUP TOTAL 2,805,247
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TELECOMMUNICATIONS (15.4%)
Advanced Radio Telecommunications Corp.
Sr. Notes
14.00%, 2/15/07 Caa2 250 240,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
- -----------------
(8) American Communications Services, Inc.
Sr. Discount Notes
0.00%, 11/1/05 N/R $ 1,000 $ 805,000
Brooks Fiber Properties, Inc.:
(8) Sr. Discount Notes:
0.00%, 3/1/06 N/R 450 373,500
0.00%, 11/1/06 N/R 250 199,375
Sr. Notes
10.00%, 6/1/07 N/R 250 286,250
Cellular Communications International, Inc.
Units
Zero Coupon, 8/15/00 B3 700 561,750
(3) Concentric Network Corp.
Units
12.75%, 12/15/07 N/R 250 256,875
(8) Dial Call Communications
Sr. Discount Notes
0.00%, 4/15/04 B3 700 668,500
(8) EchoStar Satellite Broadcasting Corp.
Sr. Secured Discount Notes
0.00%, 3/15/04 B3 250 213,125
(3) Fox/Liberty Networks L.L.C.
Sr. Notes
8.875%, 8/15/07 B1 250 250,000
(3)(8) GST Telecommunications, Inc.
Conv. Sr. Sub. Discount Notes
0.00%, 12/15/05 N/R 100 77,000
(8) GST USA, Inc.
Gtd. Sr. Discount Notes
0.00%, 12/15/05 N/R 800 614,000
(3) Globalstar L.P./Globalstar Capital Corp.
Sr. Notes
10.75%, 11/1/04 B3 300 294,000
Geotek Communications, Inc.
Conv. Sr. Sub. Notes
12.00%, 12/15/01 Caa1 350 280,000
(8) ICG Holdings, Inc.:
Gtd. Sr. Discount Notes
0.00%, 9/15/05 N/R 350 287,437
0.00%, 3/15/07 N/R 1,000 680,000
Intermedia Communications, Inc.:
(8) Sr. Discount Notes
0.00%, 7/15/07 B2 200 142,500
(3) Sr. Notes
8.875%, 11/1/07 B2 150 154,875
(3) Iridium L.L.C./Iridium
Capital Corp.
Sr. Notes
11.25%, 7/15/05 B3 250 247,500
(3)(8) Jordan Telecommunication
Products, Inc.
Sr. Discount Notes
0.00%, 8/1/07 B3 250 201,250
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
(8) McCaw International Ltd.
Sr. Discount Notes
0.00%, 4/15/07 N/R $ 750 $ 438,750
McLeodUSA, Inc.:
(8) Sr. Discount Notes
0.00%, 3/1/07 B3 100 72,750
(3) Sr. Notes
9.25%, 7/15/07 B3 200 209,500
(3)(8) MetroNet Communications Corp.
Sr. Discount Notes
0.00%, 11/1/07 N/R 350 214,375
NEXTLINK Communications, Inc.
Sr. Notes
12.50%, 4/15/06 B3 100 114,375
(3)(8) Nextel Communications, Inc.
Sr. Discount Notes
0.00%, 8/15/04 B3 500 445,000
Orion Network Systems, Inc.
Gtd. Sr. Notes
11.25%, 1/15/07 B2 250 284,062
(8) Pagemart Nationwide, Inc.
Sr. Discount Notes
0.00%, 2/1/05 B3 750 671,250
(3) Petersburg Long Distance, Inc.:
Conv. Sub. Notes
9.00%, 6/1/06 N/R 80 99,700
(8) Units
0.00%, 6/1/04 N/R 560 532,000
(3)(8) Price Communications Corp./
Price Communications
Cellular Holdings, Inc.
Units
0.00%, 8/1/07 Caa1 350 218,750
(8) PriCellular Wireless Corp.
Discount Notes
0.00%, 10/1/03 B3 300 304,500
(3)(8) Qwest Communications
International, Inc.
Sr. Discount Notes
0.00%, 10/15/07 B2 250 170,000
(3) Star Choice Communications, Inc.
Units
13.00%, 12/15/05 B3 200 206,500
Sprint Spectrum L.P./
Sprint Spectrum Finance Corp.
Sr. Notes
11.00%, 8/15/06 B2 450 506,250
(3) TCI Satellite Entertainment, Inc.:
(8) Sr. Sub. Discount Notes
0.00%, 2/15/07 B3 150 100,500
Sr. Sub. Notes
10.875%, 2/15/07 B3 300 318,000
(3) Talton Holdings Inc.
Gtd. Sr. Notes
11.00%, 6/30/07 B2 250 269,375
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
- -----------------
Teleport Communications
Group, Inc.:
Sr. Notes
9.875%, 7/1/06 B1 $ 250 $ 282,187
(8) Sr. Discount Notes
0.00%, 7/1/07 B1 550 448,250
(3) Teletrac, Inc./
Teletrac Holdings, Inc.
Sr. Notes
14.00%, 8/1/07 Caa2 200 208,000
UNIFI Communications, Inc.
Sr. Notes
14.00%, 3/1/04 N/R 250 246,563
(3) USN Communications, Inc.
Units
0.00%, 8/15/04 Caa1 305 234,088
(3) Western Wireless Corp.
Sr. Sub. Notes
10.50%, 2/1/07 B3 250 270,625
(8) WinStar Communications, Inc.
Sr. Discount Notes
0.00%, 10/15/05 Caa1 400 318,000
-----------
GROUP TOTAL 14,016,287
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TEXTILES/APPAREL (0.5%)
(3) Maxim Group, Inc.
Gtd. Sr. Sub. Notes
9.25%, 10/15/07 B2 500 495,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TRANSPORTATION (1.3%)
CHC Helicopter Corp.
Yankee Sr. Sub. Notes
11.50%, 7/15/02 B3 250 266,250
USAir, Inc.
Gtd. Sr. Notes
10.00%, 7/1/03 B3 400 412,000
ValueJet, Inc.
Sr. Notes
10.50%, 4/15/01 B2 500 500,000
-----------
GROUP TOTAL 1,178,250
-----------
- --------------------------------------------------------------------------------------------
- -----------------
WASTE MANAGEMENT (0.3%)
Allied Waste North America, Inc.
Sr. Sub. Notes
10.25%, 12/1/06 B2 250 273,750
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL CORPORATE OBLIGATIONS
(Cost $58,233,010) 60,597,467
-----------
- --------------------------------------------------------------------
- -------------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.9%)
- --------------------------------------------------------------------------------------------
- -----------------
Asset Securitization Corp.
Series 1996-MD6, Class A6
7.10%, 11/13/26 Baa2 230 237,942
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
Drexel, Burnham & Lambert
Trust REMIC-PAC,
Series S, Class 2
9.00%, 8/1/18 Aaa $ 581 $ 580,850
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $833,065) 818,792
-----------
- --------------------------------------------------------------------------------------------
- -----------------
ASSET BACKED OBLIGATIONS (2.7%)
- --------------------------------------------------------------------------------------------
- -----------------
(3) Constellation Finance L.L.C.
Airline Receivable
Asset Backed Notes,
Series 1997-1
9.80%, 12/14/02 N/R 250 251,250
Green Tree Financial Corp.
Manufactured Housing
Installment Sale Contracts:
Series 1993-4, Class B1
7.20%, 1/15/19 Baa3 1,043 1,050,823
Series 1995-6, Class A3
6.65%, 9/15/26 Aaa 410 411,406
(9) Merrill Lynch Home Equity
Acceptance Trust,
Series 1994-A,
Class A-2
6.875%, 7/17/22 A3 554 550,795
Nationscredit Grantor Trust,
Boat Retail Installment Sale
Contracts, Series 1996-1, Class A
5.85%, 9/15/11 Aaa 160 158,917
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL ASSET BACKED OBLIGATIONS
(Cost $2,428,571) 2,423,191
-----------
- --------------------------------------------------------------------------------------------
- -----------------
<CAPTION>
Shares/
Units
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
COMMON STOCKS (1.8%)
- --------------------------------------------------------------------------------------------
- -----------------
BROADCASTING (0.0%)
(1) Pegasus Communications Corp. 1,128 11
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CABLE (0.0%)
(1) OpTel, Inc. 250 3
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CONSUMER PRODUCTS AND SERVICES (0.0%)
(1) Coinstar, Inc. 4,196 34,617
-----------
- --------------------------------------------------------------------------------------------
- -----------------
FINANCIAL SERVICES (0.0%)
(1)(5)(7) Westfed Holdings, Inc.
Class B (acquired 9/20/88, cost $127) 4,223 0
-----------
- --------------------------------------------------------------------------------------------
- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
Shares/ Value
Units (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
FOOD & BEVERAGES (1.2%)
(1)(5) Dr. Pepper Bottling
Holdings, Inc.
Class A (acquired 10/21/88,
cost $40,500) 45,000 $ 1,035,000
(1)(3) Specialty Foods Corp. 22,500 2,250
-----------
GROUP TOTAL 1,037,250
-----------
- --------------------------------------------------------------------------------------------
- -----------------
INDUSTRIAL GOODS & MATERIALS (0.2%)
(1)(5)(7) CIC I Acquisition Corp.
(acquired 10/18/89, cost $1,076,725) 2,944 200,192
-----------
- --------------------------------------------------------------------------------------------
- -----------------
METALS & MINING (0.0%)
(1) Sheffield Steel Corp. 2,500 5,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PACKAGING/CONTAINERS (0.0%)
(1) Crown Packaging
Enterprises Ltd. 100,750 1,008
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PAPER & FOREST PRODUCTS (0.2%)
(1) Mail-Well, Inc. 5,326 214,036
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RESTAURANTS, HOTELS & GAMING (0.1%)
(1) Casino America, Inc. 4,982 11,987
(1) Colorado Gaming & Entertainment, Co. 8,822 48,521
(1) Elsinore Corp. 6,178 13,900
(1) Motels of America, Inc. 250 4,500
-----------
GROUP TOTAL 78,908
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RETAIL (0.0%)
(1)(5) Jewel Recovery L.P.
(acquired 7/30/93, cost $0) 33,040 0
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TELECOMMUNICATIONS (0.1%)
(1) Nextel Communications, Inc. 1,858 40,947
(1) Pagemart Nationwide, Inc. 3,500 29,750
-----------
GROUP TOTAL 70,697
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL COMMON STOCKS
(Cost $1,397,128) 1,641,722
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PREFERRED STOCKS (4.8%)
- --------------------------------------------------------------------------------------------
- -----------------
AEROSPACE/DEFENSE (0.4%)
(1) GPA Group plc
7% Second Preference Cum. Conv. 650,000 347,750
-----------
- --------------------------------------------------------------------------------------------
- -----------------
<CAPTION>
Shares/ Value
Units (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
BROADCASTING (0.7%)
(1) Granite Broadcasting Corp.
12.75% Cum. Exchangeable 11 $ 12,100
(1) Source Media, Inc.
13.5% Units 4,000 101,000
(1) Spanish Broadcasting
System, Inc.
14.25% Cum.
Exchangeable 5,333 567,965
-----------
GROUP TOTAL 681,065
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CABLE (0.7%)
(1)(3) Adelphia Communications Corp.
13% Cum.
Exchangeable Series B 2,500 298,125
(1) NTL, Inc.
13% Exchangeable 275 317,671
-----------
GROUP TOTAL 615,796
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CONSUMER PRODUCTS & SERVICES (0.1%)
Renaissance Cosmetics, Inc.
14% Cumulative 237 118,500
-----------
- --------------------------------------------------------------------------------------------
- -----------------
FINANCIAL SERVICES (0.0%)
(1)(5)(7) Westfed 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 13,000 637,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PUBLISHING & INFORMATION SERVICES (0.4%)
(1) Primedia, Inc.
10% Cum.
Exchangeable Series D 3,500 361,375
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RESTAURANTS, HOTELS & GAMING (0.2%)
(1) AmeriKing, Inc.
13% Cum. Exchangeable 5,503 145,836
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RETAIL (0.3%)
(1) Jitney-Jungle Stores of
America, Inc.
15.00% Class A 1,750 266,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TELECOMMUNICATIONS (1.3%)
(1)(3) Intermedia Communications, Inc.
7% Jr. Convertible, Series E 15,000 431,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
Shares/ Value
Units (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
(1) NEXTLINK Communications, Inc.
14% Cum. Exchangeable 6,654 $ 412,548
(1)(3) Nextel Communications, Inc.
13% Exchangeable, Series D 258 297,505
-----------
GROUP TOTAL 1,141,303
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL PREFERRED STOCKS
(Cost $4,714,380) 4,328,871
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RIGHTS (0.0%)
- --------------------------------------------------------------------------------------------
- -----------------
(1) Terex Corp.
expiring 5/15/02
(Cost $0) 2,000 40,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
WARRANTS (0.7%)
- --------------------------------------------------------------------------------------------
- -----------------
(1) Advanced Radio
Telecommunications Corp.
expiring 2/15/07 3,750 38,588
(1) American Communications
Services, Inc.
expiring 11/1/05 1,000 90,000
(1) American Telecasting, Inc.
expiring 6/23/99 350 0
(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 6,500
(1)(7) CHI Energy, Inc.:
Series B expiring 11/8/03 3,790 9,100
Series C expiring 11/8/05 2,459 5,904
(1) Casino America, Inc.
expiring 5/3/01 882 9
(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 1,000 125
(1) Dairy Mart Convenience Stores, Inc.
expiring 5/13/98 4,173 2,087
(1)(5) Elsinore Corp.
expiring 10/8/98 5,329 0
(1) Golden Ocean Group, Ltd.
expiring 8/31/01 342 1,710
(1) Great American Cookie Co.
expiring 1/30/00 90 900
<CAPTION>
Shares/ Value
Units (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
(1) Hemmeter Enterprises, Inc.
expiring 12/15/99 3,000 $ 0
(1) IMAGYN Medical Technologies, Inc.
expiring 4/10/04 100 250
(1) In-Flight Phone Corp.
expiring 8/31/02 500 0
(1) IntelCom Group, Inc.
expiring 9/1/05 1,155 16,170
(1) Interact Systems, Inc.
expiring 8/1/03 400 0
(1) Intermedia Communications, Inc.
expiring 6/1/00 300 33,000
(1) McCaw International Ltd.
expiring 4/15/07 750 1,875
(1) NEXTLINK Communications, Inc.
expiring 2/1/09 6,000 60
(1) Nextel Communications, Inc.
expiring 4/25/99 500 1,500
(1) Orion Network Systems, Inc.
expiring 1/15/07 250 3,000
(1) Price Communications Corp.
expiring 8/1/07 1,204 12,040
(1) Renaissance Cosmetics, Inc.:
expiring 4/3/01 1,000 10,000
expiring 8/31/06 200 2
(1) SD Warren Co.
expiring 12/15/06 8,000 40,000
(1) Signature Brands Ltd.
expiring 8/15/02 500 0
(1) Spanish Broadcasting Systems:
expiring 6/29/99 500 175,000
expiring 6/30/99 500 117,500
(1) Teletrac, Inc.
expiring 8/1/07 200 1,100
(1) UNIFI Communications
expiring 3/1/07 250 3
(1) USN Communications, Inc.
expiring 10/15/04 3,050 31
(1) United International Holdings
expiring 11/15/99 600 7,200
(1) Wright Medical Technology
expiring 6/30/03 206 20,588
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL WARRANTS
(Cost $909,639) 594,255
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL DOMESTIC SECURITIES
(Cost $68,515,793) $70,444,298
-----------
- --------------------------------------------------------------------------------------------
- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
FOREIGN SECURITIES (24.8%)
- --------------------------------------------------------------------------------------------
- -----------------
CORPORATE OBLIGATIONS (5.0%)
- --------------------------------------------------------------------------------------------
- -----------------
BRAZIL (2.7%)
Cia. Petroleo Ipiranga S.A.
Sr. Unsub. Notes
10.625%, 2/25/02 N/R USD 2,050 $ 1,987,188
Arisco Produtos Alimenticios S.A.
Gtd. Notes
10.75%, 5/22/05 N/R USD 550 478,165
-----------
2,465,353
-----------
- --------------------------------------------------------------------------------------------
- -----------------
INDONESIA (0.5%)
P.T. Indah Kiat Pulp & Paper Corp. Tbk.
Gtd. Global Bonds, Series A
11.375%, 6/15/99 Caa1 USD 500 486,875
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RUSSIA (1.8%)
(3) AO Sibneft
Loan Participation Notes
9.75%, 8/15/00 N/R USD 1,675 1,620,562
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL CORPORATE OBLIGATIONS
(Cost $4,911,941) 4,572,790
-----------
- --------------------------------------------------------------------------------------------
- -----------------
GOVERNMENT OBLIGATIONS (19.8%)
- --------------------------------------------------------------------------------------------
- -----------------
ARGENTINA (2.6%)
Republic of Argentina:
(9) Debentures
6.688%, 3/31/05 Ba3 USD 1,440 1,287,360
(8) Secured Par Bonds, Series L-GP
5.50%, 3/31/23 Ba3 USD 1,500 1,098,750
-----------
2,386,110
-----------
- --------------------------------------------------------------------------------------------
- -----------------
BRAZIL (4.5%)
Federal Republic of Brazil:
(8) Capitalization Bonds
8.00%, 4/15/04 B1 USD 1,257 986,355
(4)(9) MYDFA Trust Certificates
6.688%, 9/15/07 N/R USD 3,651 3,098,393
-----------
4,084,748
-----------
- --------------------------------------------------------------------------------------------
- -----------------
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
MEXICO (4.1%)
United Mexican States:
Secured Par Bonds, Series W-A
6.25%, 12/31/19 Ba2 USD 2,500 $ 1,965,625
Global Bonds
11.50%, 5/15/26 Ba2 USD 1,500 1,778,250
-----------
3,743,875
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PANAMA (0.8%)
(8) Republic of Panama
Interest Reduction Bonds
3.75%, 7/17/14 Ba1 USD 1,000 763,750
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PERU (0.7%)
(8) Republic of Peru
Interest Reduction Bonds, Series 20 year
3.25%, 3/7/17 N/R USD 1,000 595,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
POLAND (1.9%)
(8) Republic of Poland
Past Due Interest Bonds
4.00%, 10/27/14 Baa3 USD 2,000 1,727,500
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RUSSIA (1.2%)
Ministry of Finance
Unsub. Notes
10.00%, 6/26/07 Ba2 USD 500 463,125
Republic of Russia
(9) Interest Notes, Series US
6.719%, 12/15/15 N/R USD 950 673,313
-----------
1,136,438
-----------
- --------------------------------------------------------------------------------------------
- -----------------
VENEZUELA (4.0%)
Republic of Venezuela:
(9) Front Loaded Interest
Reduction Bonds, Series A
6.75%, 3/31/07 Ba2 USD 1,810 1,625,166
(9) Debt Conversion Bonds, Series DL
6.813%, 12/18/07 Ba2 USD 1,429 1,281,257
Unsecured Bonds
9.25%, 9/15/27 Ba2 USD 815 729,425
-----------
3,635,848
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL GOVERNMENT OBLIGATIONS
(Cost $18,033,090) 18,073,269
-----------
- --------------------------------------------------------------------------------------------
- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
Value
(Note A-1)
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
- -----------------
TOTAL FOREIGN SECURITIES
(Cost $22,945,031) $22,646,059
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL INVESTMENTS (102.1%)
(Cost $91,460,824) 93,090,357
-----------
- --------------------------------------------------------------------------------------------
- -----------------
LIABILITIES IN EXCESS OF OTHER
ASSETS (-2.1%)
(1,895,897)
-----------
- --------------------------------------------------------------------------------------------
- -----------------
NET ASSETS (100%)
Applicable to 8,454,140 issued and outstanding $.001 par value shares
(authorized 100,000,000 shares) $91,194,460
-----------
-----------
- --------------------------------------------------------------------------------------------
- -----------------
N/R--Not Rated.
TBA--Security is subject to delayed delivery.
(1) Non-income producing security.
(2) Defaulted security.
(3) 144A Security. Certain conditions for public sale may exist.
(4) Payment in kind bond. Market value includes accrued interest.
(5) Restricted as to private and public resale. Total cost of restricted securities at
December 31, 1997 aggregated $2,320,832. Total market value of restricted securities
owned at December 31, 1997 was $1,249,438 or 1.4% of net assets.
(6) All or a portion of this security was pledged as collateral for delayed delivery
securities.
(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 December 31, 1997.
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES December 31, 1997
<S> <C>
- ---------------------------------------------------------------------------------------------------
ASSETS:
Investments at Value (Cost $91,460,824) (Note A-1).......................... $93,090,357
Receivables:
Interest (Note A-6)....................................................... 1,753,390
Investments Sold.......................................................... 1,008,074
Other Assets................................................................ 32,528
- ---------------------------------------------------------------------------------------------------
Total Assets............................................................ 95,884,349
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
Due to Custodian Bank....................................................... 2,809,080
Payables:
Investments Purchased..................................................... 1,636,160
Investment Advisory Fees (Note B)......................................... 114,353
Professional Fees......................................................... 54,366
Shareholders' Reports..................................................... 32,398
Custodian Fees............................................................ 18,669
Administrative Fees (Note C).............................................. 12,980
Shareholder Servicing Fees................................................ 11,883
- ---------------------------------------------------------------------------------------------------
Total Liabilities....................................................... 4,689,889
- ---------------------------------------------------------------------------------------------------
NET ASSETS...................................................................... $91,194,460
-----------------
-----------------
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......................................... 1,244,786
Accumulated Net Realized Loss............................................... (1,150,690)
1,634,887
Unrealized Appreciation on Investments and Foreign Currency Translations....
NET ASSETS APPLICABLE TO 8,454,140 ISSUED AND OUTSTANDING SHARES (AUTHORIZED
100,000,000 SHARES)........................................................... $91,194,460
-----------------
-----------------
NET ASSET VALUE PER SHARE....................................................... $10.79
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS Year Ended
December 31,
1997
<S> <C>
- ------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest (Note A-6)
(Net of foreign taxes withheld of $5,153)............. $8,361,964
Dividends (Note A-6).................................... 144,800
- ------------------------------------------------------------------------------
Total Income.......................................... 8,506,764
- ------------------------------------------------------------------------------
EXPENSES:
Investment Advisory Fees (Note B)....................... 446,640
Administrative Fees (Note C)............................ 146,115
Shareholders' Reports................................... 93,903
Professional Fees....................................... 72,158
Shareholder Servicing Fees.............................. 66,379
Custodian Fees.......................................... 51,772
Directors' Fees and Expenses............................ 38,002
Other................................................... 66,357
- ------------------------------------------------------------------------------
Total Expenses........................................ 981,326
- ------------------------------------------------------------------------------
Expense Offset (Note A-6)............................... (13,430)
- ------------------------------------------------------------------------------
Net Expenses.......................................... 967,896
- ------------------------------------------------------------------------------
Net Investment Income................................. 7,538,868
- ------------------------------------------------------------------------------
NET REALIZED GAIN:
Investments............................................. 229,116
Foreign Currency........................................ 884,595
- ------------------------------------------------------------------------------
Total Net Realized Gain............................... 1,113,711
- ------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/ DEPRECIATION:
Investments............................................. 2,214,762
Foreign Currency Translations........................... 89,261
- ------------------------------------------------------------------------------
Total Change in Unrealized
Appreciation/Depreciation............................ 2,304,023
- ------------------------------------------------------------------------------
Net Realized Gain and Change in Unrealized
Appreciation/Depreciation................................. 3,417,734
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations........ $10,956,602
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C>
Year Ended
December 31, Year Ended
1997 December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Income....................................................... $ 7,538,868 $ 7,713,862
Net Realized Gain on Investments and Foreign Currency....................... 1,113,711 1,182,696
Change in Unrealized Appreciation/Depreciation on Investments and Foreign
Currency................................................................... 2,304,023 989,307
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ 10,956,602 9,885,865
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income....................................................... (7,418,410) (6,847,859)
- ----------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets.............................................. 3,538,192 3,038,006
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Year........................................................... 87,656,268 84,618,262
- ----------------------------------------------------------------------------------------------------------------------
End of Year (Including undistributed net investment income of $1,244,786 and
$242,020, respectively).................................................... $91,194,460 $87,656,268
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
FINANCIAL HIGHLIGHTS ----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1997 1996 1995Section 1994 1993
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF
YEAR.............................. $ 10.37 $ 10.01 $ 9.26 $ 10.45 $ 9.80
- -----------------------------------------------------------------------------------------------
Investment Activities:
Net Investment Income.......... 0.89 0.91 0.95 0.95 1.04
Net Realized and Unrealized
Gain (Loss) on Investments.... 0.41 0.26 0.61 (1.33) 0.66
- -----------------------------------------------------------------------------------------------
Total from Investment
Activities.................. 1.30 1.17 1.56 (0.38) 1.70
- -----------------------------------------------------------------------------------------------
Distributions:
Net Investment Income.......... (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.......... (0.88) (0.81) (0.81) (0.81) (1.05)
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR....... $ 10.79 $ 10.37 $ 10.01 $ 9.26 $ 10.45
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF
YEAR.............................. $ 10.06 $ 9.00 $ 8.88 $ 8.25 $ 9.50
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Net Asset Value (1)............ 13.82% 13.27% 17.57% (3.80)% 18.29%
Market Value................... 22.34% 11.03% 18.16% (4.72)% 10.94%
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Net Assets, End of Year
(Thousands)....................... $91,194 $87,656 $84,618 $78,252 $88,319
- -----------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net
Assets Including Expense
Offsets........................... 1.08% 1.11% 1.12% 0.99% 1.06%
Ratio of Expenses to Average Net
Assets............................ 1.10% 1.11% -- -- --
Ratio of Net Investment Income to
Average Net Assets................ 8.43% 8.99% 9.80% 9.66% 10.28%
Portfolio Turnover Rate............ 119.1% 65.1% 54.5% 83.1% 128.5%
- -----------------------------------------------------------------------------------------------
</TABLE>
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.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- ------------
BEA Strategic Global Income Fund, Inc. (formerly BEA Strategic 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 December 31, 1997. 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 payables against changes in future foreign exchange rates. A
forward currency contract is an agreement between two parties to buy or sell
currency at a set price on a future date. The market value of the contract
will fluctuate with changes in currency exchange rates. The contract is
marked-to-market daily using the forward rate and the change in market value
is recorded by the Fund as unrealized gain or loss. The Fund recognizes
realized
17
<PAGE>
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.
The Fund maintains a cash balance with its custodian and receives a reduction
of its custody fees and expenses for the amount of interest earned on such
uninvested cash balances. For the year ended December 31, 1997, custodian
fees and expense offsets were increased by $13,430. There was no effect on
net investment income. The Fund could have invested such cash amounts in
income producing assets if it had not agreed to a reduction of fees or
expenses under the expense offset arrangement with its custodian.
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 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.
CGFSC provides transfer agent services to the Fund. Under the Transfer Agent
Agreement, CGFSC 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 CGFSC.
D. During the year ended December 31, 1997, the Fund made purchases of
$94,167,567 and sales of $96,216,301 of investment securities other than U.S.
Government securities and short term investments. During the year ended December
31, 1997, purchases and sales of U.S. Government securities were $8,763,677 and
$15,379,749, respectively. At December 31, 1997, the cost of investments for
federal income tax purposes was $91,507,080. Accordingly, net unrealized
appreciation for federal income tax purposes aggregated $1,583,277, of which
$6,624,047 related to appreciated securities and $5,040,770 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 December 31, 1997, 89.36% 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 year ended
December 31, 1997.
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------
To the Shareholders and Board of Directors of
BEA Strategic Global Income Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of BEA Strategic Global Income Fund,
Inc. (the "Fund") at December 31, 1997, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of the securities at
December 31, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 16, 1998
19
<PAGE>
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
THREE MONTHS ENDED
----------------------------------------------------------------------------
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
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
MARCH 31, 1996 JUNE 30, 1996 1996 1996
----------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income............. $ 2,085 $ 0.24 $ 2,212 $ 0.26 $ 2,370 $ 0.28 $ 2,000 $ 0.24
Net Investment Income......... 1,872 0.22 1,966 0.23 2,134 0.25 1,742 0.21
Net Realized Gain (Loss) and
Change in Unrealized
Appreciation/Depreciation on
Investments and Foreign
Currency..................... 774 0.09 (363) (0.04) 1,161 0.14 600 0.07
Net Increase in Net Assets
Resulting from Operations.... 2,646 0.31 1,603 0.19 3,295 0.39 2,342 0.28
</TABLE>
SUPPLEMENTAL PROXY INFORMATION (UNAUDITED)
The Annual Meeting of the Stockholders of the BEA Strategic Global Income Fund,
Inc. was held on Monday, May 12, 1997 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. 5,812,901 60,816 --
2. To ratify the selection of Price Waterhouse
LLP as independent public accountants of Fund
until the next annual meeting. 5,761,099 29,404 83,234
3. To approve an amendment to the Fund's
Articles of Incorporation to change the name
of the Fund. 5,697,451 72,701 103,565
</TABLE>
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
For the year ended December 31, 1997, the percentage of dividends paid that
qualify for the 70% dividend received reduction for corporate shareholders is
1.88%.
20
<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 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
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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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