<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. Gregg M. Diliberto
CHAIRMAN OF THE BOARD INVESTMENT OFFICER
Prof. Enrique R. Arzac Suzanne E. Moran
DIRECTOR INVESTMENT OFFICER
Lawrence J. Fox Hal Liebes
DIRECTOR SENIOR VICE PRESIDENT
James S. Pasman, Jr. Michael A. Pignataro
DIRECTOR SECRETARY
Richard J. Lindquist
PRESIDENT AND CHIEF INVESTMENT
OFFICER
</TABLE>
- --------------------------------------------------------
INVESTMENT ADVISER
Credit Suisse Asset Management
153 East 53rd Street
New York, New York 10022
Phone 1-800-293-1232
- --------------------------------------------------------
ADMINISTRATOR
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
- --------------------------------------------------------
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
- --------------------------------------------------------
SHAREHOLDER SERVICING AGENT
BankBoston, N.A.
P.O. Box 1865
Mailstop 45-02-62
Boston, Massachusetts 02105-1865
Phone 1-800-730-6001
- --------------------------------------------------------
LEGAL COUNSEL
Willkie Farr & Gallagher
787 7th 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.
- --------------------------------------------------------------------------------
ANNUAL REPORT
December 31, 1998
<PAGE>
BEA STRATEGIC GLOBAL INCOME FUND, INC.
- ----------
Dear Shareholders: January 29, 1999
We are writing to report on the activities of the BEA Strategic Global Income
Fund, Inc. ("the Fund") for the quarter ended December 31, 1998 and to discuss
our investment strategy.
At December 31, 1998, the Fund's net asset value ("NAV") was $9.29, compared
to an NAV of $9.33 at September 30, 1998. The Fund's total return (based on NAV
and assuming reinvestment of dividends of $0.2175 per share) for the quarter
ended December 31, 1998 was 2.1%. For 1998 as a whole, the Fund returned 5.13%.
At December 31, 1998, $52.5 million was invested in high yield debt
securities; $2.0 million in investment-grade debt securities; $15.6 million in
emerging-market debt securities; and the balance of $6.9 million in equity
securities and cash equivalents. Of the debt securities, the largest
concentration (56.0%) was invested in B-rated issues.
THE MARKET: EMERGING MARKETS REVIVE, HIGH YIELD UNDERPERFORMS
After suffering painful losses in the second and third quarters of 1998,
"spread product"--debt securities whose market valuation is driven by the
difference, known as the "spread," between their yields and those of U.S.
Treasury debt-- enjoyed a healthy rebound in the fourth quarter.
Investors' pronounced risk aversion began to soften in response to a number
of developments. These were the cumulative effect of over 60 monetary easings by
central banks, including three in the U.S. by the Federal Reserve within a
period of seven weeks; the announcement of a long-awaited fiscal aid package for
Brazil by the International Monetary Fund; and the relatively orderly
liquidation of large positions held by Long-Term Capital Management and other
ailing hedge funds.
Within the spread product universe, emerging market debt fared notably well
and high yield less so. Aggregate emerging debt (as measured by J.P. Morgan's
Emerging Markets Bond Index Plus) rose 9.9%. While modest in comparison, the
3.5% return of the Salomon Smith Barney High-Yield Market Index was
substantially higher than that of most other U.S. spread product sectors.
The high yield market's outperformance appears even more noteworthy in light
of technical factors that served to moderate its returns during the quarter:
- - Trading liquidity continued to deteriorate in the aftermath of the "flight to
quality" rallies that bloodied anything other than major-nation sovereign
instruments earlier in the year, as brokerage firms sharply reduced their
willingness to make markets.
- - Swelling cash inflows into high yield mutual funds, which had helped to
absorb a booming new issue calendar in November, subsided in December even as
new issue activity remained buoyant.
- - Investors continued to favor the better-rated high yield issues, meaning that
a large portion of the overall high yield market spent much of the quarter
fairly inactive.
PERFORMANCE: DAMPENED BY HIGH YIELD SECTOR ALLOCATIONS
The same sector allocations that most affected the Fund's performance during
the third quarter continued to do so in the fourth quarter:
- - Bright spots included our positions in cable/media and gaming, both of which
performed much better than the overall benchmark; underweighting in finance
and energy, which were the quarter's two worst-performing sectors in the
entire high yield market; and our exposure to emerging markets.
- - Our overweighting in telecommunications hurt returns, as it left the
portfolio more highly exposed than the benchmark to deferred interest
instruments such as zero-coupon bonds. Zeros' returns generally were lower
than those of traditional cash-pay instruments, reflecting investors' ongoing
preference for higher-quality issues within the overall high yield universe.
- - We underweighted utilities, which performed well.
- - Our holdings in the transportation sector were mostly shipping companies,
which were hurt by a combination of falling oil prices and declining Asian
demand for oil.
OUTLOOK: CAUTIOUSLY OPTIMISTIC ON HIGH YIELD,
CAUTIOUS ON EMERGING MARKETS
HIGH YIELD. In the near term, we are cautiously optimistic on the prospects
for the high yield market. There are a number of factors supporting our
optimism, including positive conditions for many sectors of the economy; minimal
inflation, which suggests little upward pressure on interest rates; and fairly
wide yield spreads relative to comparable-maturity U.S. Treasury bonds, which
have ample scope to narrow (and, thus, push bond prices higher).
2
<PAGE>
We thus expect investor cash flows into high yield mutual funds to rise--which
is already the case as we write.
To be sure, we see areas for meaningful concern, as well. Recent events in
Brazil underscore the fragility of the world's capital markets, for example, and
may not have ended yet. The level of market volatility that rose to
extraordinary levels in 1998 shows few signs of dissipating. And the U.S. equity
market, to which activity in high yield is closely correlated, is hitting new
highs that may prove unsustainable.
Our outlook for interest rates is neutral. With the Federal Reserve having
cut rates three times between late September and mid-November, the U.S. economy
doing well and the strength in equities, we don't expect the Fed to ease
interest rates again in the near future. If the global economy slows down or
enters recession and market volatility becomes especially harsh, though, we see
room for the Fed to cut interest rates another 50-75 basis points in 1999.
The persistence of volatility reinforces our belief in the long-term
viability of our fundamental strategy. We are keeping the portfolio most heavily
weighted in telecommunications, cable/media and gaming, whose positive industry
and company fundamentals are unchanged. We also are avoiding meaningful exposure
to cyclical industries and those most vulnerable to the severe economic problems
in Asia. Should appropriate opportunities arise, we will probably add to our
holdings in cable/media and BB-rated bonds more generally.
INTERNATIONAL. Our near-term view on emerging debt markets remains
cautious, particularly with regard to Brazil and its potential impact on other
developing countries. Looking ahead to the medium term, though, we maintain our
optimism on higher-quality credits and expect their returns to continue to
positively decouple from those of less creditworthy nations.
We are keeping the Fund's emerging markets allocation most heavily weighted
in countries with favorable economic fundamentals, including Argentina, Mexico,
the Philippines, Panama, Croatia and Morocco. In addition, we intend to seek out
mispricing opportunities created from heavy selling activity and capitalize on
them where appropriate.
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 Credit Suisse Asset Management at (800) 293-1232 or (212) 238-5674. 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)
730-6001.
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*
FROM CREDIT SUISSE ASSET MANAGEMENT:
I. Effective January 12, 1999, the Fund's investment adviser, BEA
Associates, changed its name to Credit Suisse Asset Management ("CSAM"). In
making the announcement, the firm said that it expected the new name to enhance
its recognition as a global asset manager. CSAM is the investment division of
Credit Suisse Group, one of the world's largest financial organizations, with
$600 billion in assets under management.
* Richard J. Lindquist, who is a Managing Director of Credit Suisse Asset
Management ("CSAM") formerly known as 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 CSAM on May 1,
1995 as a result of CSAM's acquisition of CS First Boston Investment Management
Corporation ("CSFBIM"). Prior to joining CSAM and beginning in July, 1989, he
held various offices at CSFBIM. Mr. Lindquist is also President and Chief
Investment Officer of BEA Strategic Global Income Fund, Inc.
* William W. Priest, Jr., who is a Managing Director and Chief Executive
Officer-Americas of Credit Suisse Asset Management ("CSAM") formerly known as
BEA Associates, joined CSAM in 1972. Mr. Priest is Director and President of The
Indonesia Fund, Inc. and Director and Chairman of the Board of BEA Strategic
Global 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, 1998
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
DOMESTIC SECURITIES (77.5%)
- --------------------------------------------------------------------------------------------
- -----------------
CORPORATE OBLIGATIONS (67.3%)
- --------------------------------------------------------------------------------------------
- -----------------
AUTOMOTIVE (2.1%)
Cambridge Industries, Inc.
Sr. Sub. Notes
10.25%, 7/15/07 B3 $ 250 $ 215,625
Collins & Aikman Products Co., Inc.
Series B, Sr. Sub. Notes
11.50%, 4/15/06 B3 250 260,000
Consorcio G Grupo Dina S.A./MCII
Holdings (U.S.A.), Inc.
Sr. Secured Discount Notes Zero Coupon,
11/15/02 N/R 400 359,500
Delco Remy International, Inc.
Gtd. Sr. Sub. Notes
10.625%, 8/1/06 B2 250 262,813
Oxford Automotive, Inc.
Gtd. Sr. Sub. Notes
10.125%, 6/15/07 Caa1 250 256,875
(3) 10.125%, 6/15/07 Caa1 250 256,875
-----------
GROUP TOTAL 1,611,688
-----------
- --------------------------------------------------------------------------------------------
- -----------------
BROADCASTING (5.7%)
(8) Acme Television L.L.C./ ACME Financial Corp.
Gtd. Sr. Discount Notes
0.00%, 9/30/04 B3 500 399,375
(8) Australis Holdings Pty. Ltd.
Yankee Sr. Secured Discount Notes
0.00%, 11/1/02 N/R 650 6,500
(2)(8) Australis Media Ltd.
Yankee Units
15.75%, 5/15/03 C 500 2,500
15.75%, 5/15/03 C 229 1,144
Capstar Broadcasting Partners, Inc.:
Sr. Sub. Notes
9.25%, 7/1/07 B2 200 208,000
(8) Sr. Discount Notes
0.00%, 2/1/09 N/R 500 411,250
Digital Television Services, Inc./DTS
Capital, Inc.
Series B, Gtd. Sr. Sub. Notes
12.50%, 8/1/07 B3 250 271,250
(8) EchoStar Communications Corp.
Gtd. Sr. Discount Notes
0.00%, 6/1/04 B2 300 307,875
(3) Granite Broadcasting, Inc.
Sr. Sub. Notes
8.875%, 5/15/08 B3 250 235,625
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
Pegasus Media & Communications, Inc.
Series B, Notes
12.50%, 7/1/05 B2 $ 250 $ 274,375
Sinclair Broadcast Group, Inc.:
Sr. Sub. Notes
10.00%, 9/30/05 B2 300 318,000
Sr. Sub. Notes
8.75%, 12/15/07 B2 250 251,875
(8) Spanish Broadcasting System, Inc. Sr. Notes
12.50%, 6/15/02 B3 250 270,000
(8) United International Holdings, Inc.
Series B, Sr. Discount Notes
0.00%, 2/15/08 B3 500 268,750
Univision Network Holding L.P.
Sub. Notes
Zero Coupon, 12/17/02 N/R 573 700,584
Young Broadcasting, Inc.:
Series B, Gtd. Sr. Sub. Notes
9.00%, 1/15/06 B2 200 202,500
8.75%, 6/15/07 B2 450 452,250
-----------
GROUP TOTAL 4,581,853
-----------
- --------------------------------------------------------------------------------------------
- -----------------
BUSINESS SERVICES (0.6%)
(3) General Binding Corp.
Sr. Sub. Notes
9.375%, 6/1/08 B2 250 251,563
(3) Iron Mountain Inc.
Sr. Notes
8.75%, 9/30/09 B3 250 257,500
-----------
GROUP TOTAL 509,063
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CABLE (8.1%)
Adelphia Communications Corp.
Series B, Sr. Notes
8.375%, 2/1/08 B3 200 207,000
Avalon Cable Holdings, Inc.
Units
Zero Coupon, 12/1/08 Caa1 500 279,375
CSC Holdings, Inc.
Sr. Sub. Notes
9.875%, 2/15/13 B1 250 280,313
Century Communications Corp.
Sr. Notes
8.75%, 10/1/07 Ba3 250 275,000
Charter Communications Southeast L.P.
Series B, Sr. Notes
11.25%, 3/15/06 B3 250 280,000
</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>
- -----------------
Comcast Corp.
Sr. Sub. Notes
9.125%, 10/15/06 Ba3 $ 250 $ 267,500
(8) Comcast UK Cable Partners Ltd.
Yankee Sr. Debentures
0.00%, 11/15/07 B2 500 420,000
(3)(8) DIVA Systems Corp.
Units
0.00%, 3/1/08 N/R 810 339,188
(8) Diamond Cable Communications plc
Yankee Discount Notes
0.00%, 12/15/05 Caa1 300 246,750
(3)(8) Falcon Holdings Group L.P./ Falcon Funding
Corp.
Sr. Discount Debentures
0.00%, 4/15/10 B2 500 344,375
Helicon Group L.P.
Series B, Sr. Secured Notes
11.00%, 11/1/03 B1 200 209,250
InterMedia Capital Partners IV
L.P./InterMedia Partners Capital Corp.
Sr. Notes
11.25%, 8/1/06 B2 250 281,250
James Cable Partners L.P.
Series B, Sr. Notes
10.75%, 8/15/04 N/R 100 104,375
(3) Lenfest Communications, Inc.
Sr. Sub. Notes
10.50%, 6/15/06 B2 350 409,500
(8) Marcus Cable Co.
Sr. Discount Notes
0.00%, 12/15/05 B3 350 335,563
NTL, Inc.
Series B, Sr. Deferred Coupon Notes
0.00%, 2/1/06 B3 500 420,000
Series B, Sr. Notes
10.00%, 2/15/07 B3 250 251,875
(3)(8) 0.00%, 10/1/08 B3 250 157,813
OpTel, Inc. Series B, Sr. Notes
11.50%, 7/1/08 B3 250 241,875
13.00%, 2/15/05 B3 250 255,625
Rifkin Acquisitions Partners L.P.
Sr. Sub. Notes
11.125%, 1/15/06 B3 250 273,438
(8) Telewest Communications Plc
Yankee Sr. Sub. Discount Debentures
0.00%, 10/1/07 B1 250 208,750
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
(3) United Rentals, Inc.
Sr. Sub. Notes
9.25%, 1/15/09 B1 $ 250 $ 251,875
-----------
GROUP TOTAL 6,340,690
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CHEMICALS (1.0%)
Huntsman Polymers Corp.
Sr. Notes
11.75%, 12/1/04 B1 400 436,000
NL Industries Inc.
Sr. Secured Notes
11.75%, 10/15/03 B1 150 159,000
Texas Petrochemical Corp.
Series B, Sr. Sub. Notes
11.125%, 7/1/06 N/R 200 196,000
-----------
GROUP TOTAL 791,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CONSTRUCTION & BUILDING MATERIALS (0.7%)
American Architectural Products Corp.
Gtd. Sr. Notes
11.75%, 12/1/07 Caa1 250 189,375
Brand Scaffold Services
Sr. Notes
10.25%, 2/15/08 B3 150 147,750
Presley Companies
Sr. Notes
12.50%, 7/1/01 Caa3 250 211,250
-----------
GROUP TOTAL 548,375
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CONSUMER PRODUCTS & SERVICES (2.5%)
(8) Coinstar Inc.
Sr. Discount Notes
0.00%, 10/1/06 Caa1 350 300,563
Holmes Products Corp.
Gtd. Sr. Sub. Notes
9.875%, 11/15/07 B3 200 179,250
Jordan Industries, Inc.
Series B, Sr. Notes
10.375%, 8/1/07 B3 225 232,594
Playtex Products, Inc.
Series B, Gtd. Sr. Notes
8.875%, 7/15/04 B1 200 207,500
Revlon Consumer Products, Corp.
Series B, Sr. Sub Notes
8.625%, 2/1/08 B3 250 229,375
Signature Brands USA, Inc.
Sr. Sub. Notes
13.00%, 8/15/02 B3 500 554,375
(2)(4) Town & Country Corp.
Sr. Sub. Notes
13.00%, 5/31/98 N/R 616 244,887
-----------
GROUP TOTAL 1,948,544
-----------
- --------------------------------------------------------------------------------------------
- -----------------
</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>
- -----------------
ELECTRONICS (1.4%)
Details, Inc.
Series B. Sr. Sub Notes
10.00%, 11/15/05 B3 $ 250 $ 244,375
Unisys Corp.
Sr. Notes
11.75%, 10/15/04 B1 100 116,000
(3) Verio, Inc.
Units
13.50%, 6/15/04 B3 400 434,000
Viasystems, Inc.
Sr. Sub. Notes
9.75%, 6/1/07 B3 250 236,875
-----------
GROUP TOTAL 1,031,250
-----------
- --------------------------------------------------------------------------------------------
- -----------------
ENERGY (3.0%)
Belden & Blake Energy Co.
Series B, Gtd. Sr. Sub. Notes
9.875%, 6/15/07 B3 200 163,500
Bellwether Exploration Co.
Gtd. Sr. Sub. Notes
10.875%, 4/1/07 B3 250 241,875
(3) Canadian Forest Oil, Ltd.
Sr. Sub. Notes
8.75%, 9/15/07 B2 250 225,625
Continental Resources, Inc.
Gtd. Sr. Notes
10.25%, 8/1/08 B3 150 128,625
Cliffs Drilling Co.
Series D, Gtd. Sr. Notes
10.25%, 5/15/03 B1 250 262,813
Dual Drilling Co.
Gtd. Sr. Sub. Notes
9.875%, 1/15/04 Baa3 250 262,500
Energy Corp. of America
Series A, Sr. Sub. Notes
9.50%, 5/15/07 B2 250 228,125
H.S. Resources, Inc.
Gtd. Sr. Sub. Notes
9.25%, 11/15/06 B2 250 234,375
Key Energy Group
11.50%, 9/15/99 N/R 250 240,000
(3) Southwest Royalties, Inc.
Series B, Gtd. Sr. Notes
10.50%, 10/15/04 B3 250 109,375
TransAmerican Energy Corp.
Sr. Secured Notes
11.50%, 6/15/02 B3 200 76,000
Wiser Oil Co.
Gtd. Sr. Sub. Notes
9.50%, 5/15/07 B2 250 171,875
-----------
GROUP TOTAL 2,344,688
-----------
- --------------------------------------------------------------------------------------------
- -----------------
ENTERTAINMENT (3.5%)
American Skiing Co.
Series B, Sr. Sub. Notes
12.00%, 7/15/06 B3 200 208,000
(3) Bally Total Fitness Holding Corp.
Sr. Sub. Notes
9.875%, 10/15/07 B3 250 244,375
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
Booth Creek Ski Holdings, Inc.
Series B, Sr. Notes
12.50%, 3/15/07 Caa1 $ 250 $ 247,500
Cinemark U.S.A., Inc.
Series D, Sr. Sub. Notes
9.625%, 8/1/08 B2 200 209,500
Genmar Holdings, Inc.
Series A, Sr. Sub. Notes
13.50%, 7/15/01 Caa2 500 500,000
(8) IHF Holdings, Inc.
Series B, Sr. Sec. Discount Notes
Zero Coupon, 11/15/04 Caa2 300 53,625
(3) Production Resource Group, L.L.C./ PRG
Finance Group
Gtd. Sr. Sub. Notes
11.50%, 1/15/08 Caa2 250 245,625
PTI Holdings, Inc.
Sub. Notes
Zero Coupon, 12/17/02 N/R 507 619,704
(3) Premier Cruises, Ltd.
Sr. Notes
11.00%, 3/15/08 B3 250 99,375
Regal Cinemas, Inc.
Sr. Sub. Notes
9.50%, 6/1/08 B3 100 104,000
(3) 8.875%, 12/15/10 B3 250 248,125
-----------
GROUP TOTAL 2,779,829
-----------
- --------------------------------------------------------------------------------------------
- -----------------
FINANCIAL SERVICES (0.3%)
(3) Petroleos Mexicanos
Private Placement
9.574%, 7/15/05 Ba2 20 18,550
(2) Westfed Holdings
Sr. Debentures
15.50%, 9/15/99 N/R 250 185,000
-----------
GROUP TOTAL 203,550
-----------
- --------------------------------------------------------------------------------------------
- -----------------
FOOD & BEVERAGES (0.9%)
AmeriServ Food Distribution, Inc.
Gtd. Sr. Notes
8.875%, 10/15/06 B1 250 236,875
Archibald Candy Corp.
Gtd. Sr. Secured Notes
10.25%, 7/1/04 B2 250 253,125
(3) Fleming Companies, Inc.
Sr. Sub. Notes
10.50%, 12/1/04 B3 200 190,500
-----------
GROUP TOTAL 680,500
-----------
- --------------------------------------------------------------------------------------------
- -----------------
HEALTH CARE (0.9%)
(3) ICN Pharmaceutical
Sr. Notes
8.75%, 11/15/08 Ba3 250 251,875
(3) Insight Health Services Corp.
Gtd. Sr. Sub. Notes
9.625%, 6/15/08 B3 200 193,500
</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>
- -----------------
Integrated Health Services, Inc.
Sr. Sub. Notes
9.25%, 1/15/08 B2 $ 250 $ 237,500
-----------
GROUP TOTAL 682,875
-----------
- --------------------------------------------------------------------------------------------
- -----------------
INDUSTRIAL GOODS & MATERIALS (3.5%)
Atlantis Group, Inc.
Sr. Notes
11.00%, 2/15/03 B2 250 248,750
(3) Chancellor Media Corp.
Sr. Notes
8.00%, 11/1/08 Ba2 200 203,500
(3) Golden Ocean Group, Ltd.
Gtd. Sr. Notes
10.00%, 8/31/01 B3 513 142,358
(3) Hayes Lemmerz International, Inc.
Gtd. Sr. Notes
8.25%, 12/15/08 B2 500 498,750
Haynes International, Inc.
Sr. Notes
11.625%, 9/1/04 B3 250 232,500
MVE, Inc.
Sr. Secured Debentures
12.50%, 2/15/02 B3 440 424,050
Park-Ohio Industries, Inc.
Sr. Sub. Notes
9.25%, 12/1/07 B2 200 204,000
(3) Romacorp Inc.
Sr. Notes
12.00%, 7/1/06 B3 250 244,688
SRI Receivables Purchase Co., Inc.
Series B, Notes
12.50%, 12/15/00 N/R 500 520,000
-----------
GROUP TOTAL 2,718,596
-----------
- --------------------------------------------------------------------------------------------
- -----------------
METALS & MINING (2.3%)
Algoma Steel, Inc.
Yankee First Mortgage Notes
12.375%, 7/15/05 B1 250 187,500
Gulf States Steel, Inc.
First Mortgage Notes
13.50%, 4/15/03 B1 250 101,875
(3) Metallurg, Inc.
Series B, Gtd. Sr. Notes
11.00%, 12/1/07 B3 250 239,063
NS Group, Inc.
Gtd. Sr. Secured Debentures
13.50%, 7/15/03 B3 150 161,625
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
Republic Engineered Steel, Inc.
First Mortgage Bonds
9.875%, 12/15/01 Caa1 $ 250 $ 252,500
(3) Sheffield Steel Corp.
Series B, First Mortgage Bonds
11.50%, 12/1/05 Caa2 250 201,563
WCI Steel, Inc.
Series B, Sr. Secured Notes
10.00%, 12/1/04 B2 250 248,750
Weirton Steel Corp.
Sr. Notes
11.375%, 7/1/04 B2 200 178,000
Wheeling-Pittsburg Corp.
Sr. Notes
9.25%, 11/15/07 B2 250 231,875
-----------
GROUP TOTAL 1,802,751
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PACKAGING/CONTAINERS (2.8%)
AEP Industries, Inc.
Sr. Sub. Notes
9.875%, 11/15/07 B2 400 403,000
BWAY Corp.
Gtd. Sr. Sub. Notes
10.25%, 4/15/07 B2 150 157,500
Container Corp. of America
Gtd. Sr. Notes
9.75%, 4/1/03 B1 250 255,000
(8) Crown Packaging Enterprises Ltd.
Yankee Sr. Secured Discount Notes
0.00%, 8/1/06 Ca1 925 13,875
Gaylord Container Corp.
Series B, Sr. Notes
9.75%, 6/15/07 B3 250 211,875
Plastic Containers, Inc.
Series B, Sr. Secured Notes
10.00%, 12/15/06 B1 250 262,188
(3) Radnor Holdings, Inc.
Series B, Gtd. Sr. Notes
10.00%, 12/1/03 B2 400 403,000
Riverwood International Corp.
Gtd. Sr. Sub. Notes
10.875%, 4/1/08 Caa1 250 228,125
(3) Stone Container Finance Co.
Yankee Gtd. Sr. Notes
11.50%, 8/15/06 B2 250 251,875
-----------
GROUP TOTAL 2,186,438
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PAPER & FOREST PRODUCTS (1.4%)
(3) Ainsworth Lumber Co., Ltd.
Yankee Sr. Secured Notes
12.50%, 7/15/07 B3 250 247,500
</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>
- -----------------
Color Spot Nurseries
Sr. Sub. Notes
10.50%, 12/15/07 Caa1 $ 200 $ 109,500
Crown Paper Co.
Sr. Sub. Notes
11.00%, 9/1/05 B3 100 87,250
Mail-Well Corp.
Sr. Sub. Notes
10.50%, 2/15/04 B2 500 525,000
Malette, Inc.
Yankee Sr. Secured Debentures
12.25%, 7/15/04 Ba3 150 161,625
-----------
GROUP TOTAL 1,130,875
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PUBLISHING & INFORMATION SERVICES (2.3%)
Ampex Corp.
Series B, Sr. Notes
12.00%, 3/15/03 N/R 250 257,500
(8) InterAct Systems, Inc.
Sr. Discount Notes
0.00%, 8/1/03 N/R 400 120,000
(3) Level 3 Communications, Inc.
Sr. Notes
9.125%, 5/1/08 B3 275 272,938
0.00%, 12/1/08 B3 550 321,063
(8) Liberty Group Publishing, Inc.
Sr. Discount Debentures
0.00%, 2/1/09 Caa1 300 160,500
(3) Mentus Media Corp.
Units
12.00%, 2/1/03 N/R 369 369,000
Tri-State Outdoor Media Group, Inc.
Sr. Notes
11.00%, 5/15/08 N/R 300 295,500
-----------
GROUP TOTAL 1,796,501
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RESTAURANTS, HOTELS & GAMING (4.3%)
American Restaurant Group, Inc.
Gtd. Sr. Secured Notes
11.50%, 2/15/03 B3 250 233,125
Casino America, Inc.
Gtd. Sr. Notes
12.50%, 8/1/03 B1 250 277,500
Casino Magic of Louisiana, Corp.
Series B, Gtd. First Mortgage Notes
13.00%, 8/15/03 B3 300 318,375
(4) Colorado Gaming & Entertainment, Co.
Gtd. Sr. Notes
12.00%, 6/1/03 N/R 443 477,445
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
Friendly Ice Cream Corp.
Gtd. Sr. Notes
10.50%, 12/1/07 B1 $ 250 $ 253,125
HMH Properties
Gtd. Sr. Secured Notes
7.875%, 8/1/08 Ba2 250 243,438
(3) Hollywood Park, Inc.
Sr. Sub. Notes
9.50%, 8/1/07 B2 200 198,000
Horseshoe Gaming L.L.C.
Series B, Sr. Sub. Notes
9.375%, 6/15/07 B3 300 308,250
Horseshoe Gaming L.L.C.
Series B, Gtd. Sr. Notes
12.75%, 9/30/00 B1 375 402,656
Mohegan Tribal Gaming Authority
Series B, Sr. Secured Notes
13.50%, 11/15/02 Ba1 200 240,750
Prime Hospitality Corp.
Secured First Mortgage Notes
9.25%, 1/15/06 Ba2 250 259,063
Waterford Gaming L.L.C./ Waterford Gaming
Finance Corp.
Sr. Notes
12.75%, 11/15/03 N/R 189 203,411
-----------
GROUP TOTAL 3,415,138
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RETAIL (2.7%)
(3)(8) Advance Holdings Corp.
Sr. Discount Debentures
0.00%, 4/15/09 Caa2 350 206,063
(3) Advance Stores Co., Inc.
Gtd. Sr. Sub. Notes
10.25%, 4/15/08 Caa1 150 151,875
(3) County Seat Stores, Inc.
Units
12.75%, 11/1/04 N/R 250 187,500
Dairy Mart Convenience Stores, Inc.
Sr. Sub. Notes
10.25%, 3/15/04 B3 251 236,568
Jitney-Jungle Stores of America, Inc.:
Gtd. Sr. Sub. Notes
10.375%, 9/15/07 B3 250 257,500
Gtd. Sr. Notes
12.00%, 3/1/06 B2 250 277,500
K Mart Corp.
Debentures
7.75%, 10/1/12 Ba2 200 199,250
(8) Mrs. Fields Holding Co.
Units
0.00%, 12/1/05 Caa2 500 278,750
Pantry, Inc.
Sr. Sub. Notes
10.25%, 10/15/07 B3 200 208,000
</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>
- -----------------
Pathmark Stores, Inc.
Sr. Sub. Notes
9.625%, 5/1/03 Caa1 $ 100 $ 98,250
-----------
GROUP TOTAL 2,101,256
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TELECOMMUNICATIONS (15.1%)
Advanced Radio Telecommunications Corp.
Sr. Notes
14.00%, 2/15/07 Caa2 250 162,188
Applied Extrusion Tech
Series B, Sr. Notes
11.50%, 4/1/02 B2 250 261,538
Concentric Network Corp.
Sr. Notes
12.75%, 12/15/07 N/R 250 251,875
(3)(8) DTI Holdings, Inc.
Units
0.00%, 3/1/08 N/R 300 76,125
(3) Dobson/Sygnet Communications Co.
Sr. Notes
12.25%, 12/15/08 N/R 250 251,250
(3)(8) Dolphin Telecom plc
Sr. Discount Notes
0.00%, 6/1/08 Caa1 250 88,438
(8) E. Spire Communications, Inc.
Sr. Discount Notes.
0.00%, 11/1/05 N/R 750 566,250
0.00%, 7/1/08 N/R 400 167,500
(3) Exodus Communications, Inc.
Sr. Notes
11.25%, 7/1/08 N/R 50 50,250
(8) Echostar Satellite Broadcasting Corp.
Sr. Secured Discount Notes
0.00%, 3/15/04 B3 150 152,813
(3)(8) Focal Communications Corp.
Sr. Discount Notes
0.00%, 2/15/08 N/R 200 104,500
(3) Global Crossing Holdings, Ltd.
Gtd. Sr. Notes
9.625%, 5/15/08 N/R 250 265,000
Globix Corp.
Sr. Notes
13.00%, 5/1/05 N/R 250 208,750
(8) GST USA, Inc.
Gtd. Sr. Discount Notes
0.00%, 12/15/05 N/R 600 437,250
Globalstar, L.P./Globalstar Capital Corp.
Sr. Notes
10.75%, 11/1/04 B3 300 215,250
ICG Holdings, Inc.:
Gtd. Sr. Discount Notes
0.00%, 3/15/07 N/R 750 473,438
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
(8) Gtd. Sr. Exchange Discount
Notes
0.00%, 9/15/05 N/R $ 350 $ 290,500
(3)(8) ICG Services, Inc.
Gtd. Sr. Discount Notes
0.00%, 5/1/08 N/R 250 134,688
Intermedia Communications, Inc.:
Sr. Notes
8.875%, 11/1/07 B2 150 147,375
(8) Series B, Sr. Discount Notes
0.00%, 7/15/07 B2 300 209,625
Irridium Operating L.L.C./ Irridium Capital
Corp.
Series C/EN Gtd. Sr. Notes
11.25%, 7/15/05 B3 250 210,313
Jacor Communications, Inc.
Gtd. Sr. Sub. Notes
8.00%, 2/15/10 B2 250 259,063
Jordan Telecommunications Products, Inc.
Series B, Sr. Discount Notes
0.00%, 8/1/07 B3 250 192,188
(3) Long Distance International, Inc.
Units
12.25%, 4/15/08 N/R 500 408,750
(3)(8) MetroNet Communications Corp.
Sr. Discount Notes
0.00%, 6/15/08 B3 250 154,063
0.00%, 11/1/07 B 350 213,063
(8) McCaw International Ltd.
Sr. Discount Notes
0.00%, 4/15/07 Caa1 500 275,000
McLeod USA, Inc.:
(8) Sr. Discount Notes
0.00%, 3/1/07 B2 100 76,375
Sr. Notes
9.25%, 7/15/07 B2 200 207,250
NEXTLINK Communications, Inc.
Sr. Notes
10.75%, 11/15/08 B3 250 256,250
12.50%, 4/15/06 B3 100 109,000
(3)(8) Nextel Communications, Inc.
Sr. Discount Notes
0.00%, 2/15/08 B2 900 542,250
Orion Network Systems, Inc.
Gtd. Sr. Notes
11.25%, 1/15/07 B2 250 240,625
PLD Telekom, Inc.
Gtd. Sr. Notes
14.00%, 6/1/04 N/R 560 336,000
</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>
- -----------------
(8) Pagemart Nationwide, Inc.
Sr. Discount Notes
0.00%, 2/1/05 B3 $ 750 $ 666,563
(3) Petersburg Long Distance, Inc.
Conv. Sub. Notes
9.00%, 6/1/06 N/R 80 29,300
Price Communications Corp./
Price Communications
Cellular Holdings, Inc.
Sr. Discount Notes
11.25%, 8/15/08 Caa1 200 190,000
(8) Qwest Communications International, Inc.
Sr. Discount Notes
0.00%, 10/15/07 B2 250 194,688
(8) RCN Corp.
Series B, Sr. Discount Notes
0.00%, 2/15/08 B3 300 161,625
RSL Communications plc
Gtd. Senior Notes
9.125%, 3/1/08 B3 250 233,750
(3)(8) Rhythms Netconnections
Units
0.00%, 5/15/08 N/R 500 224,375
(3) Startec Global Communications Corp.
Units
12.00%, 5/15/08 N/R 350 299,688
Sprint Spectrum L.P./Sprint
Spectrum Finance Corp.
Sr. Notes
11.00%, 8/15/06 B2 450 520,875
Star Choice Communications, Inc.
Yankee Sr. Notes.
13.00%, 12/15/05 N/R 200 198,500
TCI Satellite Entertainment, Inc.
(8) Sr. Sub. Discount Notes
0.00%, 2/15/07 B3 150 29,813
Sr. Sub. Notes
10.875%, 2/15/07 B3 200 73,500
T/SF Communications Corp.
Series B, Guaranteed Sr. Sub. Notes
10.375%, 11/1/07 B3 200 198,750
Talton Holdings, Inc.
Gtd. Sr. Notes
11.00%, 6/30/07 B2 250 237,188
(8) USN Communications Inc.
Units
0.00%, 8/15/04 Caa1 205 77,388
Western Wireless Corp.
Sr. Sub. Notes
10.50%, 2/1/07 B3 250 261,250
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
(8) WinStar Communications, Inc.
Sr. Discount Notes
0.00%, 10/15/05 Caa1 $ 400 $ 295,500
-----------
GROUP TOTAL 11,887,546
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TEXTILES/APPAREL (0.3%)
Maxim Group, Inc.
Gtd. Sr. Sub. Notes
9.25%, 10/15/07 B2 250 249,688
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TRANSPORTATION (1.9%)
AirTran Airlines, Inc.
Sr. Notes
10.50%, 4/15/01 N/R 500 404,375
Canada Airlines Corp.
Sr. Notes
12.25%, 8/1/06 Caa2 300 227,250
(3) Cenargo International plc
First Priority Ship Mortgage Notes
9.75%, 6/15/08 Ba3 100 101,250
(3) Ermis Maritime Holdings, Ltd.
Units
12.50%, 3/15/06 B3 275 266,750
(3) Hermes Europe Railtel B.V.
Sr. Notes
10.375%, 1/15/09 B3 250 253,125
(3) Trans World Airlines, Inc.
Sr. Notes
11.375%, 3/1/06 Caa1 250 205,313
-----------
GROUP TOTAL 1,458,063
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL CORPORATE OBLIGATIONS
(Cost $57,152,908) 52,800,757
-----------
- ---------------------------------------------
- -------------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.3%)
- --------------------------------------------------------------------------------------------
- -----------------
Asset Securitization Corp.
Series 1996-MD6, Class A6
7.10%, 11/13/26
(Cost $233,342) Baa2 230 235,435
-----------
- --------------------------------------------------------------------------------------------
- -----------------
ASSET BACKED OBLIGATIONS (2.0%)
- --------------------------------------------------------------------------------------------
- -----------------
Green Tree Financial Corp.
Manufactured Housing Installment Sale
Contracts:
Series 1995-6, Class A3
6.65%, 9/15/26 Aaa 203 203,756
Series 1993-4, Class B1
7.20%, 1/15/19 Baa3 1,043 1,021,160
Merrill Lynch Home Equity
Acceptance Trust
Series 1994-A, Class A-2
6.50%, 7/17/22 A3 212 208,980
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
- -----------------
Nationscredit Grantor Trust
Boat Retail Installment Sale Contracts
Series 1996-1, Class A
5.85%, 9/15/11 Aaa $ 115 $ 114,084
-----------
GROUP TOTAL 1,547,980
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL ASSET BACKED OBLIGATIONS
(Cost $1,583,181) 1,547,980
-----------
- --------------------------------------------------------------------------------------------
- -----------------
<CAPTION>
Shares/
Units
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
COMMON STOCKS (2.3%)
- --------------------------------------------------------------------------------------------
- -----------------
CABLE (0.0%)
(1) OpTel, Inc. 250 3
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CONSUMER PRODUCTS & SERVICES (0.1%)
(1) Coinstar, Inc. 4,196 43,534
-----------
- --------------------------------------------------------------------------------------------
- -----------------
FINANCIAL SERVICES (0.0%)
(1)(5) Westfed Holdings, Inc.
Class B (acquired 9/20/88, $127) 4,223 0
-----------
- --------------------------------------------------------------------------------------------
- -----------------
FOOD & BEVERAGES (1.7%)
(1)(5) Dr. Pepper Bottling Holdings, Inc.
Class A (acquired 10/21/88, cost $40,500) 45,000 1,350,000
(1) Specialty Foods Corp. 22,500 1,125
-----------
GROUP TOTAL 1,351,125
-----------
- --------------------------------------------------------------------------------------------
- -----------------
INDUSTRIAL GOODS & MATERIALS (0.3%)
(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 10,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PACKAGING\CONTAINERS (0.0%)
(1) Crown Packaging Enterprises Ltd. 100,848 1,008
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PAPER & FOREST PRODUCTS (0.2%)
(1)(3)(6) Mail-Well, Inc. 7,102 81,229
(1) Mail-Well, Inc. 3,550 40,603
-----------
GROUP TOTAL 121,832
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RESTAURANTS, HOTELS & GAMING (0.0%)
(1) Elsinore Corp. 6,178 1,158
(1) Isle of Capri Casinos, Inc. 4,982 19,617
(1) Motels of America, Inc. 250 4,500
-----------
GROUP TOTAL 25,275
-----------
- --------------------------------------------------------------------------------------------
- -----------------
<CAPTION>
Shares/ Value
Units (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
RETAIL (0.0%)
(1)(5) Jewel Recovery L.P.
(acquired 7/30/93, cost $0) 33,040 $ 0
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TELECOMMUNICATIONS (0.0%)
(1) Intermedia Communications, Inc. 825 14,231
(1) Pagemart Nationwide, Inc. 3,500 19,688
-----------
GROUP TOTAL 33,919
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL COMMON STOCKS
(Cost $1,309,193) 1,786,888
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PREFERRED STOCKS (4.5%)
- --------------------------------------------------------------------------------------------
- -----------------
AEROSPACE/DEFENSE (0.4%)
(1) GPA Group plc
7% Second Preference Cum. Conv. 650,000 338,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
BROADCASTING (0.9%)
(1) Granite Broadcasting Corp.
12.75% Cum. Exchangeable 11 9,900
(1)(3) Source Media, Inc. 4,410 85,995
(1) Spanish Broadcasting System, Inc.
14.25% Cum. Exchangeable 6,110 604,890
-----------
GROUP TOTAL 700,785
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CABLE (1.7%)
Adelphia Communications Corp.
13% Cum. Exchangeable, Series B 2,500 296,250
(3) Intermedia Communications, Inc.
7% Jr. Convertible, Series E 15,000 277,500
NEXTLINK Communications, Inc.
14% Cum. Exchangeable 7,634 423,687
Nextel Communications, Inc.
13% Exchangeable, Series D 299 299,425
-----------
GROUP TOTAL 1,296,862
-----------
- --------------------------------------------------------------------------------------------
- -----------------
CONSUMER PRODUCTS & SERVICES (0.0%)
Renaissance Cosmetics, Inc.
14% Cumulative 4 0
-----------
- --------------------------------------------------------------------------------------------
- -----------------
FINANCIAL SERVICES (0.0%)
(7) West Fed Holdings, Inc.
Class A (acquired 9/20/88-6/18/93, cost
$1,203,480) 14,246 14,246
-----------
- --------------------------------------------------------------------------------------------
- -----------------
INDUSTRIAL GOODS & MATERIALS (0.0%)
NTL, Inc.
13% Exchangeable 1 1,198
-----------
- --------------------------------------------------------------------------------------------
- -----------------
</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>
- -----------------
MISCELLANEOUS (0.0%)
(1) TCR Holdings Corp.
Series B 351 $ 21
Series C (non-voting) 193 11
Series D (non-voting) 509 27
Series E (non-voting) 1,053 66
-----------
GROUP TOTAL 125
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PAPER & FOREST PRODUCTS (0.8%)
(1) SD Warren Co.
14% Cum. Exchangeable, Series B 13,000 663,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PUBLISHING & INFORMATION SERVICES (0.5%)
Primedia, Inc.
10% Cum. Exchangeable, Series D 3,500 363,125
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RESTAURANTS, HOTELS & GAMING (0.2%)
AmeriKing, Inc.
13% Cum. Exchangable 6,251 153,150
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL PREFERRED STOCKS
(Cost $3,969,019) 3,530,491
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RIGHTS (0.0%)
- --------------------------------------------------------------------------------------------
- -----------------
(1) Terex Corp. expiring 5/15/02
(Cost $0) 2,000 28,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
WARRANTS (1.1%)
- --------------------------------------------------------------------------------------------
- -----------------
(1) Advanced Radio Telecommunications Corp.
expiring 2/15/07 3,750 24,000
(1) American Telecasting, Inc.
expiring 6/23/99 350 0
(1) Ampex Corp.
expiring 3/15/03 8,500 6,375
(1) Australis Holdings Pty Ltd.
expiring 10/30/01 250 2
(1) Australis Media Ltd.
expiring 5/15/00 225 1
(1) Bell Technology, Inc.
expiring 5/1/05 250 3
(1) CHC Helicopter Corp.
expiring 12/15/00 2,000 6,000
(1)(7) Chi Energy, Inc.:
Series C, expiring 11/8/05 2,459 5,909
Series B, expiring 11/8/03 3,790 9,100
(1) Concentric Network Corp.
expiring 12/15/07 250 37,228
(1)(7) Consolidated Hydro, Inc.
expiring 12/31/03 2,700 0
(1) Crown Packaging Holdings, Ltd.
expiring 11/1/03 1,000 500
<CAPTION>
Shares/ Value
Units (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
(1) DIVA Systems Corp.
expiring 5/15/06 900 $ 198,000
expiring 3/1/01 2,430 24
(1) DTI Holdings, Inc.
expiring 3/1/08 1,500 75
(1) Dairy Mart Convenience Stores, Inc.
expiring 12/1/01 4,172 1,160
(1) E. Spire Communications, Inc.
expiring 11/1/05 1,000 110,000
(1) Golden Ocean Group, Ltd.
expiring 8/31/01 342 342
(1) Great American Cookie Co.
expiring 1/30/00 90 0
(1) Hemmeter Enterprises, Inc.
expiring 12/15/99 3,000 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 12,822
(1) Isle Capri Casinos, Inc.
expiring 5/3/01 882 9
(1) Long Distance International
expiring 4/13/08 500 5
(1) Loral Orion Network Systems, Inc.
expiring 1/31/07 250 2,625
(1) Mentus Media Corp.
expiring 2/1/08 1,034 11
(1) McCaw International Ltd.
expiring 4/15/07 750 1,875
(1) NEXTLINK Communications, Inc.
expiring 2/1/09 6,000 0
(1) Nextel Communications, Inc. expiring 4/25/99 500 5
(1) PLD Telekom, Inc.
expiring 6/1/06 560 6
(1) Price Communications Corp.
expiring 8/1/07 1,204 12,040
(1) Rhythms Netconnections
expiring 5/15/08 2,000 20
(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 21,903
(1) Spanish Broadcasting Systems
expiring 6/29/99 500 102,500
expiring 6/30/99 500 245,000
(1) Star Choice Communications, Inc.
expiring 12/15/05 4,632 4,974
(1) Startec Global Communications Corp.
expiring 5/15/08 350 4
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
Shares/ Value
Units (Note A-1)
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
- -----------------
(1) USN Communications, Inc.
expiring 10/15/04 3,050 $ 2,562
(1) United International Holdings
expiring 11/15/99 600 3,000
(1) Verio, Inc. 3,200 70,400
(1) Wright Medical Technology
expiring 6/30/03 206 2
-----------
GROUP TOTAL 934,652
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL WARRANTS
(Cost $869,639) 934,652
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL DOMESTIC SECURITIES
(Cost $65,117,282) 60,864,203
-----------
</TABLE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount
(Unaudited) (000)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
FOREIGN SECURITIES (19.8%)
- --------------------------------------------------------------------------------------------
- -----------------
CORPORATE OBLIGATIONS (1.3%)
- --------------------------------------------------------------------------------------------
- -----------------
ARGENTINA (0.1%)
CIA Internacional Telecomunicacoes
Sr. Notes
10.375%, 8/1/04 N/R ARP 145 103,411
-----------
- --------------------------------------------------------------------------------------------
- -----------------
BRAZIL (0.7%)
Cia. Petroleo Ipiranga S.A.
Sr. Unsub. Notes
10.625%, 2/25/02 N/R USD 600 497,747
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RUSSIA (0.5%)
(3) AO Sibneft
Loan Participation Notes
9.402%, 8/15/00 N/R USD 1,275 403,219
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL CORPORATE OBLIGATIONS
(Cost $2,053,488) 1,004,377
-----------
- --------------------------------------------------------------------------------------------
- -----------------
GOVERNMENT OBLIGATIONS (18.5%)
- --------------------------------------------------------------------------------------------
- -----------------
ALGERIA (0.5%)
Republic of Algeria
Loan Participation Agreements 6.25%, 5/4/00 N/R USD 28,036 211,262
Tranche
Series A
6.25%, 5/4/00 N/R USD 176 142,763
-----------
GROUP TOTAL 354,025
-----------
- --------------------------------------------------------------------------------------------
- -----------------
ARGENTINA (4.7%)
Argentina
9.75%, 9/19/27 Ba3 USD 370 335,540
9.75%, 9/19/27 Ba3 USD 160 144,200
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
Argentina Non-U.S. Global
Series L-GL
6.063%, 3/31/23 Ba3 USD 850 $ 621,563
Republic of Argentina:
11.00%, 10/9/06 Ba3 USD 100 99,250
Series PRE2
5.198%, 4/1/01 Ba3 USD 450 313,050
Debentures
6.188%, 3/31/05 B1 USD 1,001 846,330
(9) Bocon PRO1 Notes
2.909%, 4/1/07 Ba3 USD 330 286,382
Secured Par Bonds,
Series L-GP
5.75%, 3/31/23 B1 USD 1,470 1,056,563
-----------
GROUP TOTAL 3,702,878
-----------
- --------------------------------------------------------------------------------------------
- -----------------
BRAZIL (4.5%)
Federal Republic of Brazil:
Debentures
Series EI-L
6.125%, 4/15/06 B2 USD 163 104,856
6.125%, 4/15/06 B1 USD 2,285 1,476,552
10.125%, 5/15/27 B1 USD 870 585,075
Capitalization Bonds
5.00%, 4/15/14 B1 USD 1,702 1,015,076
Discount Bond
6.125%, 4/15/24 N/R USD 610 356,850
-----------
GROUP TOTAL 3,538,409
-----------
- --------------------------------------------------------------------------------------------
- -----------------
BULGARIA (0.9%)
(3) Republic of Bulgaria:
Front Loaded Interest Reduction Bonds, Series
A
6.688%, 7/28/24 B2 USD 1,040 728,000
-----------
- --------------------------------------------------------------------------------------------
- -----------------
COLUMBIA (0.6%)
Republic of Colombia:
12.243%, 8/13/05 Baa3 USD 190 175,275
Notes
8.625%, 4/1/08 Baa3 USD 360 306,450
-----------
GROUP TOTAL 481,725
-----------
- --------------------------------------------------------------------------------------------
- -----------------
GREECE (0.2%)
Hellenic Republic
8.70%, 4/8/05 N/R USD 1,040 154,520
-----------
- --------------------------------------------------------------------------------------------
- -----------------
HUNGARY (0.3%)
Hungary Republic
Bonds
15.00%, 7/24/01 N/R HUF50,000 238,612
-----------
- --------------------------------------------------------------------------------------------
- -----------------
IVORY COAST (0.3%)
(8) Republic of the Ivory Coast:
Past Due Interest (PDI) Bonds
1.90%, 3/29/18 Baa3 FRF 245 85,075
2.00%, 3/29/18 Baa3 FRF 360 170,097
-----------
GROUP TOTAL 255,172
-----------
- --------------------------------------------------------------------------------------------
- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
- -----------------
MEXICO (2.8%)
United Mexican States:
11.50%, 5/15/26 Ba2 USD 530 $ 566,557
Secured Par Bonds,
Series W-A
6.25%, 12/31/19 Ba2 USD 1,695 1,313,625
Secured Par Bonds,
Series W-B
6.25%, 12/31/19 Ba2 USD 360 279,000
-----------
GROUP TOTAL 2,159,182
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PANAMA (0.7%)
Republic of Panama:
Interest Reduction Bonds
3.75%, 7/17/14 Ba1 USD 425 316,625
Bonds
8.875%, 9/30/27 Ba1 USD 245 229,688
-----------
GROUP TOTAL 546,313
-----------
- --------------------------------------------------------------------------------------------
- -----------------
PERU (0.8%)
Republic of Peru:
Interest Reduction Bonds
Series 20 year
3.25%, 3/7/17 N/R USD 510 290,700
PDI--Series 20YR
4.00%, 3/7/17 N/R USD 550 346,500
-----------
GROUP TOTAL 637,200
-----------
- --------------------------------------------------------------------------------------------
- -----------------
POLAND (0.3%)
(8) Republic of Poland
PDI--Bonds
5.00%, 10/27/14 Baa3 USD 250 232,813
-----------
- --------------------------------------------------------------------------------------------
- -----------------
RUSSIA (0.3%)
Russian Registered Bonds
12.75%, 6/24/28 B3 USD 1,150 294,515
-----------
- --------------------------------------------------------------------------------------------
- -----------------
VENEZUELA (1.6%)
Republic of Venezuela:
Debt Conversion Bonds, Series DL
5.938%, 12/18/07 Ba2 USD 750 474,375
Front Loaded Interest Reduction Bonds, Series
A
6.125%, 3/31/07 Ba2 USD 405 252,128
Unsecured Bonds
9.25%, 9/15/27 Ba2 USD 850 503,625
-----------
GROUP TOTAL 1,230,128
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL GOVERNMENT OBLIGATIONS
(Cost $14,270,415) 14,553,492
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL FOREIGN SECURITIES
(Cost $16,323,903) 15,557,869
-----------
- --------------------------------------------------------------------------------------------
- -----------------
<CAPTION>
Moody's Face
Ratings Amount Value
(Unaudited) (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- -----------------
SHORT-TERM INVESTMENTS (0.8%)
Chase Vista Prime Money Market Fund
Institutional Shares N/R $ 17,462 $ 17,462
FHLB Discount Corp.
Zero Coupon, 1/4/99 N/R 583 582,791
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $600,253) 600,253
-----------
- --------------------------------------------------------------------------------------------
- -----------------
TOTAL INVESTMENTS (98.1%)
(Cost $82,041,438) 77,022,325
-----------
- --------------------------------------------------------------------------------------------
- -----------------
OTHER ASSETS IN EXCESS OF OTHER LIABILITIES (1.9%)
1,487,941
-----------
- --------------------------------------------------------------------------------------------
- -----------------
NET ASSETS (100%)
Applicable to 8,454,140 issued and outstanding $.001 par value Shares
(authorized 100,000,000 shares) $78,510,266
-----------
-----------
- --------------------------------------------------------------------------------------------
- -----------------
N/R--Not Rated.
TBA--Security is subject to delayed delivery.
ARP--Argentine Peso.
FRF--French Franc
HUF--Hungarian Forint
(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, 1998 aggregated $2,320,822. Total market value of restricted securities
owned at December 31, 1998 was $1,564,438 or 2.0% of net assets.
(6) Private Placement.
(7) Securities for which market quotations are not readily available are valued at fair
value as determined in good faith by the Board of Directors.
(8) Step Bond--Coupon rate is low or zero for an initial period and then increases to a
higher coupon rate thereafter. Maturity date disclosed is the ultimate maturity.
(9) Floating Rate--The interest rate changes on these instruments based upon a designated
base rate. The rates shown are those in effect at December 31, 1998.
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES December 31, 1998
<S> <C>
- ---------------------------------------------------------------------------------------------------
ASSETS:
Investments at Value (Cost $82,041,438) (Note A-1).......................... $77,022,325
Receivables:
Interest (Note A-6)....................................................... 1,591,576
Investments Sold.......................................................... 824,774
Other Assets................................................................ 8,826
- ---------------------------------------------------------------------------------------------------
Total Assets............................................................ 79,447,501
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
Payables:
Investments Purchased..................................................... 593,323
Investment Advisory Fees (Note B)......................................... 98,629
Professional Fees......................................................... 53,860
Shareholders' Reports..................................................... 47,285
Unrealized Depreciation on Forward Foreign Currency Exchange Contracts
(Note A-5)............................................................... 13,937
Custodian Fees............................................................ 9,547
Administrative Fees (Note C).............................................. 8,224
Shareholder Servicing Fees................................................ 2,412
Directors' Fees........................................................... 1,953
Due to Custodian Bank....................................................... 86,641
Other Liabilities........................................................... 21,424
- ---------------------------------------------------------------------------------------------------
Total Liabilities....................................................... 937,235
- ---------------------------------------------------------------------------------------------------
NET ASSETS...................................................................... $78,510,266
-----------------
-----------------
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......................................... 990,088
Accumulated Net Realized Loss............................................... (6,916,680)
(5,028,619)
Unrealized Depreciation on Investments and Foreign Currency Translations....
NET ASSETS APPLICABLE TO 8,454,140 ISSUED AND OUTSTANDING SHARES (AUTHORIZED
100,000,000 SHARES)........................................................... $78,510,266
-----------------
-----------------
NET ASSET VALUE PER SHARE....................................................... $9.29
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS Year Ended
December 31,
1998
<S> <C>
- ------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest (Note A-6)
(Net of foreign taxes withheld of $380)............... $8,860,285
Dividends (Note A-6).................................... 75,056
- ------------------------------------------------------------------------------
Total Income.......................................... 8,935,341
- ------------------------------------------------------------------------------
EXPENSES:
Investment Advisory Fees (Note B)....................... 433,203
Administrative Fees (Note C)............................ 132,539
Shareholders' Reports................................... 105,352
Professional Fees....................................... 66,484
Custodian Fees.......................................... 59,545
Interest Expense........................................ 59,324
Directors' Fees and Expenses............................ 51,171
Shareholder Servicing Fees.............................. 33,702
Other................................................... 68,883
- ------------------------------------------------------------------------------
Total Expenses........................................ 1,010,203
- ------------------------------------------------------------------------------
Expense Offset (Note A-6)............................... (4,075)
- ------------------------------------------------------------------------------
Net Expenses.......................................... 1,006,128
- ------------------------------------------------------------------------------
Net Investment Income................................. 7,929,213
- ------------------------------------------------------------------------------
NET REALIZED LOSS:
Investments............................................. (5,783,809)
Foreign Currency........................................ (155,791)
- ------------------------------------------------------------------------------
Total Net Realized Loss............................... (5,939,600)
- ------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/ DEPRECIATION:
Investments............................................. (6,648,646)
Foreign Currency Translations........................... (14,860)
- ------------------------------------------------------------------------------
Total Change in Unrealized
Appreciation/Depreciation............................ (6,663,506)
- ------------------------------------------------------------------------------
Net Realized Loss and Change in Unrealized
Appreciation/Depreciation................................. (12,603,106)
- ------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from Operations........ $(4,673,893)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</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
1998 December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Income....................................................... $ 7,929,213 $ 7,538,868
Net Realized Gain (Loss) on Investments and Foreign Currency................ (5,939,600) 1,113,711
Change in Unrealized Appreciation/Depreciation on Investments and Foreign
Currency................................................................... (6,663,506) 2,304,023
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. (4,673,893) 10,956,602
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income....................................................... (8,010,301) (7,418,410)
- ----------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets................................... (12,684,194) 3,538,192
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Year........................................................... 91,194,460 87,656,268
- ----------------------------------------------------------------------------------------------------------------------
End of Year (Including undistributed net investment income of $990,088 and
$1,244,786, respectively).................................................. $78,510,266 $91,194,460
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
FINANCIAL HIGHLIGHTS ----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1998 1997 1996 1995Section 1994
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF
YEAR.............................. $ 10.79 $ 10.37 $ 10.01 $ 9.26 $ 10.45
- -----------------------------------------------------------------------------------------------
Investment Activities:
Net Investment Income.......... 0.94 0.89 0.91 0.95 0.95
Net Realized and Unrealized
Gain (Loss) on Investments.... (1.49) 0.41 0.26 0.61 (1.33)
- -----------------------------------------------------------------------------------------------
Total from Investment
Activities.................. (0.55) 1.30 1.17 1.56 (0.38)
- -----------------------------------------------------------------------------------------------
Distributions:
Net Investment Income.......... (0.95) (0.88) (0.81) (0.76) (0.62)
Return of Capital.............. -- -- -- (0.05) (0.19)
- -----------------------------------------------------------------------------------------------
Total Distributions.......... (0.95) (0.88) (0.81) (0.81) (0.81)
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR....... $ 9.29 $ 10.79 $ 10.37 $ 10.01 $ 9.26
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF
YEAR.............................. $ 8.63 $ 10.06 $ 9.00 $ 8.88 $ 8.25
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Net Asset Value (1)............ (5.13)% 13.82% 13.27% 17.57% (3.80)%
Market Value................... (5.56)% 22.34% 11.03% 18.16% (4.72)%
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Net Assets, End of Year
(Thousands)....................... $78,510 $91,194 $87,656 $84,618 $78,252
- -----------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net
Assets Including Expense
Offsets........................... 1.17% 1.08% 1.11% 1.12% 0.99%
Ratio of Expenses to Average Net
Assets............................ 1.17% 1.10% 1.11% -- --
Ratio of Net Investment Income to
Average Net Assets................ 9.17% 8.43% 8.99% 9.80% 9.66%
Portfolio Turnover Rate............ 107.8% 119.1% 65.1% 54.5% 83.1%
- -----------------------------------------------------------------------------------------------
</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. (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 restricted 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 0.27% of net assets) at December 31, 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") (excludes 144A 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.
The Fund had the following outstanding forward foreign currency exchange
contracts at December 31, 1998.
<TABLE>
<CAPTION>
FORWARD FOREIGN VALUE AT UNREALIZED
CURRENCY EXCHANGE SETTLEMENT SETTLEMENT CURRENT APPRECIATION
CONTRACTS DATE DATE VALUE (DEPRECIATION)
- ---------------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Purchase Contracts:
French Franc.......... 2/18/99 $ 59,907 $ 59,609 $ (298 )
French Franc.......... 2/18/99 122,844 121,481 (1,363 )
French Franc.......... 2/18/99 90,151 88,064 (2,087 )
German Marks.......... 2/12/99 302,355 282,228 (20,127 )
German Marks.......... 2/12/99 181,439 169,244 (12,195 )
German Marks.......... 2/12/99 181,439 169,462 (11,977 )
German Marks.......... 3/18/99 169,325 171,394 2,069
Japanese Yen.......... 3/18/99 301,168 291,828 (9,340 )
----------- ----------- -------------
$1,408,628 $ 1,353,310 $ (55,318 )
----------- ----------- -------------
----------- ----------- -------------
Sale Contracts:
German Marks.......... 2/12/99 $ 484,005 $ 455,510 $ 28,495
German Marks.......... 2/12/99 $ 181,439 $ 168,553 $ 12,886
----------- ----------- -------------
$ 665,444 $ 624,063 $ 41,381
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
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, 1998, custodian
fees and expense offsets were increased by $4,075. 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. Credit Suisse Asset Management, formerly known as 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. At May
1, 1998, the rate was reduced from .15% to .12% of the Fund's first 100 million
of average weekly net assets.
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.
Effective January 25, 1999, BankBoston N.A. replaced CGFSC as the Fund's
Transfer Agent. Effective March 1, 1999, Brown Brothers Harriman & Co. will
replace CGFSC as the Fund's Administrator and Custodian.
D. During the year ended December 31, 1998, the Fund made purchases of
$90,575,988 and sales of $96,693,998 of investment securities other than U.S.
Government securities and short term investments. At December 31, 1998, the cost
of investments for Federal income tax purposes was $82,732,582. Accordingly, net
unrealized depreciation for Federal income tax purposes aggregated $5,710,257,
of which $5,233,992 related to appreciated securities and $10,944,249 related to
depreciated securities.
18
<PAGE>
At December 31, 1998 the Fund had a capital loss carryforward of $5,708,744
available to offset future capital gains of which $90,877, $743,988, $211,706,
$4,334 and $4,657,819 will expire on December 31, 2000, 2002, 2003, 2005, 2006,
respectively. For the period from November 1, 1998 to December 31, 1998 the Fund
incurred and elected to defer until January 1, 1999 for U.S. Federal income
purposes net losses of approximately $517,000.
E. At December 31, 1998, 67.3% of the Fund's net assets comprised high-yield
fixed income securities. The financial condition of the issuers of the
securities and general economic conditions may affect the issuers' ability to
make payments of income and principal, 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.
At December 31, 1998, 18.5% of the Fund's net assets comprised foreign currency
denominated fixed income securities. Changes in currency exchange rates will
affect the value and net investment income from such securities.
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, 1998.
19
<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, 1998, 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, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 19, 1999
20
<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, 1998 JUNE 30, 1998 1998 1998
----------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income............. $ 2,309 $ 0.27 $ 2,208 $ 0.26 $ 2,163 $ 0.26 $ 2,255 $ 0.27
Net Investment Income......... 2,049 0.24 1,912 0.23 1,931 0.23 2,037 0.24
Net Realized Gain (Loss) and
Change in Unrealized
Appreciation/Depreciation on
Investments and Foreign
Currency..................... 2,428 0.29 (2,809) (0.33) (11,239) (1.28) (983) (0.17)
Net Increase/Decrease in Net
Assets Resulting from
Operations................... 4,477 0.53 (897) (0.10) (9,689) (1.15) 1,436 0.17
<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 0.22
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 0.08
</TABLE>
SUPPLEMENTAL PROXY INFORMATION
The Annual Meeting of the Stockholders of the BEA Strategic Global Income Fund,
Inc. was held on 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 Fund until the next
annual meeting. 6,793,279 27,103 54,472
</TABLE>
21
<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 BankBoston, N.A. c/o
EquiServe--Boston, 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--EquiServe--Boston, Dividend Reinvestment Department, P.O. Box 9041,
Boston MA 02205-9041. 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 BankBoston, N.A., c/o EquiServe--Boston,
P.O. Box 9041, Boston, MA 02205-9041. 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
22
<PAGE>
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 EquiServe--Boston, c/o The "Fund", P.O. Box 8040, Boston, MA
02266-8040, (800) 730-6001.
23
