BERWYN INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 - ORGANIZATION
Berwyn Income Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end
management company and incorporated under the laws of the Commonwealth
of Pennsylvania. The Fund's investment objective is to provide
investors with current income while seeking to preserve capital.
Certain of the Fund's investments are in corporate debt instruments;
the issuers' ability to meet these obligations may be affected by
economic developments in their respective industries.
NOTE 2 - ACCOUNTING POLICIES
The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those
estimates.
Security Valuation: Securities listed on a national securities
exchange are valued at the last quoted sales price. Securities not
traded on the valuation date and securities not listed are valued at
the last quoted bid price. Short-term investments are valued at
amortized cost which approximates market value. The value of other
assets and securities for which no quotations are readily available is
determined in good faith at fair value using methods determined by the
Board of Directors.
Federal Income Taxes: The Fund intends to continue to qualify as a
regulated investment company and distribute all of its taxable income
and otherwise comply with the provisions of the Internal Revenue Code
of 1986, as amended. Accordingly, no provision for Federal income tax
is required in the financial statements.
Securities Transactions and Investment Income: Securities
transactions are accounted for on the date the securities are
purchased or sold. Costs used in determining realized gains and
losses on sales of investment securities are those of specific
securities sold. Dividend income and distributions to shareholders
are recorded on the ex-dividend date. Interest income is recorded
using the accrual method. Discounts and premiums on debt securities
purchased are amortized to interest income over the lives of the
respective securities.
Distributions to Shareholders: Dividends from net investment income
are paid quarterly to the shareholders. Distributions of net realized
capital gains, if any, are paid at least annually to the shareholders.
The amounts of distributions from net investment income and net
realized capital gains are determined in accordance with Federal
income tax regulations, which may differ from those amounts determined
under generally accepted accounting principles. These book/tax
differences are either temporary or permanent in nature. To the
extent these differences are permanent, they are adjusted to reflect
their tax treatment in the period the differences arise.
NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY
TRANSACTIONS
Under the terms of the investment advisory agreement, the Fund has
agreed to pay The Killen Group, Inc. (the "Investment Adviser") an
investment advisory fee at an annual rate of .50% of the Fund's
average daily net assets. The Investment Adviser and the Directors
and Officers of the Investment Adviser, together with their families,
owned 132,941 shares of the Fund at June 30, 1998.
During the period ended June 30, 1998, the Fund paid $88,411 in
commissions to Berwyn Financial Services, a brokerage company
affiliated with the Investment Adviser, to execute certain portfolio
transactions.
NOTE 4 - SECURITY TRANSACTIONS
During the period ended June 30, 1998, the Fund made purchases of
$38,330,276 and sales of $50,556,727 of investment securities other
than short-term securities and U.S. Government securities and
purchases of $2,165,954 of long term U.S. Government securities.
Cost of securities owned at June 30, 1998 and the net realized gains
or losses on securities sold for the period then ended for Federal
income tax purposes were not materially different from amounts
reported for financial reporting purposes.
At June 30, 1998, net unrealized depreciation for financial reporting
and Federal income tax purposes aggregated $2,013,258 of which
$8,723,839 related to appreciated securities and $10,737,097 related
to depreciated securities.
BERWYN INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
(Unaudited)
Assets:
Investments in Securities, at Market Value $168,232,004
(Cost $170,245,262) (Note 2)
Receivables:
Interest 2,020,687
Dividends 196,559
Investment Securities Sold 2,605,628
Prepaid Expenses 41,662
Total Assets $173,096,540
Liabilities:
Payable to Custodian 3,073,205
Accrued Expenses 9,874
Investment Advisory Fee Payable 71,633
Total Liabilities 3,154,712
Net Assets: (1)
Applicable to 13,566,050 Outstanding Shares of
Common Stock, $1.00 Par Value
(Authorized 20,000,000 Shares) $169,941,828
Net Asset Value, Offering Price and Redemption
Price Per Share ($169,941,828 / 13,566,050
Outstanding Shares) $ 12.53
(1) On June 30, 1998 Net Assets consisted of the following:
Common Stock, Par Value $1.00 13,566,050
Paid-in Capital 146,700,195
Undistributed Net Investment Income 5,802,011
Accumulated Net Realized Capital Gains 5,886,830
Net Unrealized Depreciation of Investment Securities (2,013,258)
$169,941,828
The accompanying notes are an integral part of these financial
statements.
BERWYN INCOME FUND, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JUNE 30, 1998
(Unaudited)
Investment Income:
Interest $ 7,013,143
Dividends 2,178,411
Extraordinary Income 1,098
Total Investment Income $ 9,192,652
Expenses:
Investment Advisory Fee (Note 3) 448,638
Transfer Agent 13,844
Custodian 16,499
Professional Fees 8,431
Registration Fees 11,157
Directors' Fees 1,672
Printing Costs 19,809
Office Expenses 4,236
Insurance 2,662
Taxes (Other than Income Tax) 6,782
Total Expenses 533,730
Net Investment Income 8,658,922
Realized and Unrealized Gain on Investments:
Net Realized Gain from Sales of Securities 5,910,963
Net Change in Unrealized Depreciation
on Investment Securities (11,096,884)
Net Realized and Unrealized Loss on Investments (5,185,921)
Net Increase in Net Assets Resulting from Operations $ 3,473,001
The accompanying notes are an integral part of these financial
statements.
BERWYN INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
Six Months Six Months
Ended Ended
06/30/98 06/30/97
Increase in Net Assets from Investment Activities:
Net Investment Income $ 8,658,922 $ 4,497,185
Net Realized Gain from Sales of Securities 5,910,963 2,545,917
Change in Net Unrealized Appreciation/Depreciation
on Investment Securities (11,096,884) 1,695,107
Net Increase in Net Assets Resulting
from Operations 3,473,001 8,738,209
Distributions to Shareholders:
From Net Investment Income (3,142,405) (2,305,128)
Capital Share Transactions: (1)
Net Proceeds from Sales of Shares 24,655,929 35,969,363
Cost of Shares Redeemed (38,320,365) (20,205,862)
Distributions Reinvested 2,454,289 1,770,016
Net Increase in Net Assets from
Capital Share Transactions (11,210,147) 17,533,517
Total Increase in Net Assets (10,879,551) 23,966,598
Net Assets:
Beginning of Period 180,821,379 137,166,052
End of Period (Including Undistributed Net
Investment Income of $5,802,011 and
$2,462,409 at June 30, 1998 and 1997,
respectively) $169,941,828 $161,132,650
(1) Shares Issued and Redeemed:
Shares Sold 1,939,629 2,868,898
Shares Redeemed (3,019,045) (1,619,488)
Shares Reinvested 192,342 145,083
(887,074) 1,394,493
The accompanying notes are an integral part of these financial
statements.
BERWYN INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
(Unaudited)
SIX MONTHS YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
06/30/98 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
Net Asset Value, Beginning of Period $12.51 $12.31 $11.95 $10.75 $11.63 $11.12
______ ______
______ ______ ______
______
Income from Investment Operations:
Net Investment Income 0.61 .77 0.76 0.73 0.73 0.69
Net Realized and Unrealized Gains
(Losses) on Securities (0.37) .84 0.87 1.48 (0.85) 1.15
______ ______
______ ______ ______
______
Total from Investment Operations 0.24 0.61 1.63 2.21 (0.12) 1.84
______ ______
______ ______ ______
______
Less Distributions:
Dividends from Net Investment Income (0.22) (0.77) (0.80) (0.70) (0.73) (0.65)
Distributions from Net Realized Gains --- (0.64) (0.47) (0.31) (0.03) (0.68)
______ ______
______ ______ ______
______
Total Distributions (0.22) (1.41) (1.27) (1.01) (0.76) (1.33)
______ ______
______ ______ ______
______
Net Asset Value, End of Period $12.53 $12.51 $12.31 $11.95 $10.75 $11.63
Total Return 1.89% 13.36% 13.99% 21.0% (1.10%) 16.90%
Ratios/Supplemental Data:
Net Assets, End of Period (000) $169,942 $180,823
$137,166 $119,552 $55,825 $30,359
Ratio of Expenses to Average Net Assets 0.60%* 0.65% 0.68% 0.73% 0.93% 1.07%
Ratio of Net Investment Income to
Average Net Assets 9.58%* 6.15% 6.35% 6.78%
7.20% 6.15%
Portfolio Turnover Rate 46%* 53% 38% 39% 30% 83%
Average Commission Rate Paid** $0.0643 $0.0687 $0.0860 --- --- ---
*Annualized
**Computed by dividing the total amount of commission paid by the total
number of shares purchased and sold during
the period.
The accompanying notes are an integral part of these financial
statements
BERWYN INCOME FUND, INC.
STATEMENT OF INVESTMENTS
JUNE 30, 1998
Number of
Shares COMMON STOCKS -
20.1% Value*
AUTOS & AUTOMOTIVE PARTS
1 Associates First Capital - A $ 77
CHEMICAL INDUSTRY -
0.7%
41,700 IMC Global Inc. 1,256,212
COMMERCIAL PRINTING -
0.8%
53,500 Courier Corp. 1,417,750
DIVERSIFIED MANUFACTURING - 0.8%
44,551 LindbergCorp. 868,744
34,400 Synalloy Corp. 460,100
1,328,844
FOREST & PAPER PRODUCTS - 0.5%
7,600 Greif Brothers Corp. 284,050
3,060,148 Repap Enterprises + 459,022
743,072
MANUFACTURED HOUSING - 0.6%
62,800 Patrick Industries 957,700
MACHINERY MANUFACTURER - 0.7%
127,800 Unit Instruments + 1,150,200
METALS & MINING INDUSTRY - 2.2 %
21,700 Cleveland-Cliffs Inc. 1,163,662
133,416 Impala Platinum 1,143,882
45,000 Kaiser Aluminum 430,312
40,000 Placer Domer Inc. 470,000
71,900 Pittston Minerals Group 422,413
3,630,269
OIL & GAS EXPLORATION & PRODUCTION - 3.9%
49,210 Louis Dreyfus Natural Gas 931,914
69,140 Occidental Petroleum 1,866,780
295,811 Ranger Oil Ltd. 2,163,118
42,180 Sun Co. Inc. 1,637,111
6,598,923
The accompanying notes are an integral part of these financial
statements.
BERWYN INCOME FUND, INC.
STATEMENT OF INVESTMENTS (Continued)
Number of
Shares COMMON STOCKS
(Continued) Value*
OIL REFINING -
0.6%
33,315 Ultramar Diamond Shamrock $ 1,051,505
REAL ESTATE INVESTMENT TRUST -
2.3%
47,000 Hospitality Property Trust 1,509,875
10,000 Mid-America Apts. 263,125
124,200 Town & Country Trust 2,057,063
3,830,063
STEEL & STEEL PRODUCTS -
1.4%
135,314 AK Steel Holding Corp. 2,418,738
TEXTILE INDUSTRY -
0.7%
43,500 Culp Inc. 562,781
65,902 Dixie Group 617,831
1,180,612
TRANSPORTATION INDUSTRY -
1.0%
132,900 Anangel-American Shipholding - SP ADR 955,219
40,000 Stolt-Nielsen 680,000
1,635,219
UTILITIES -
3.9%
59,500 DPL Inc. 1,078,438
34,200 Otter Tail Power Co. 1,267,538
42,800 PECO 1,249,225
82,400 PP&L Resources Inc. 1,869,450
37,300 UNICOM 1,307,831
6,772,482
TOTAL COMMON STOCKS (Cost $32,215,142) 33,971,666
PREFERRED STOCKS -
17.9%
AUTOS & AUTOMOTIVE - 0.7%
6,300 Ford Motors PFD T 1,264,569
The accompanying notes are an integral part of these financial
statements.
BERWYN INCOME FUND, INC.
STATEMENT OF INVESTMENTS (Continued)
Number of
Shares PREFERRED STOCKS (Continued)
Value*
BANKING - 0.9%
52,620 Astoria Financial PFD B $1,578,600
CHEMICAL INDUSTRY -
0.7%
35,000 LSB PFD C CV 1,120,000
FOOD PROCESSING - 1.6%
25,700 Chiquita Brands International PFD Series A CV 1,178,987
26,000 Chiquita Brands PFD Series B CV 1,469,000
2,647,987
METALS & MINING INDUSTRY - 5.4%
31,500 Battle Mountain Gold CV 1,443,094
45,400 Cyprus Amax Minerals PFD Series CV 2,048,675
16,800 Freeport McMoran Copper PFD B 355,950
45,100 Freeport McMoran Copper PFD D 761,063
88,400 Freeport McMoran Copper PFD A CV 1,723,800
49,400 Freeport McMoran Copper PFD C 935,513
43,000 Hecla Mining PFD B CV 1,881,250
21,021 Westmoreland Coal PFD Series A CV** 97,222
9,246,567
OIL & GAS EXPLORATION & PRODUCTION - 2.3%
71,335 Callon Petro Co. PFD Series A CV 2,354,055
261,800 Gulf Canada Resources PFD 670,863
22,000 Western Gas Resources, Inc. PFD CV 852,500
3,877,418
OIL REFINING -
0.5%
33,600 UDS Capital 856,800
REAL ESTATE INVESTMENT TRUST - 2.0%
65,500 First Ind. Realty PFD A 1,682,531
64,500 Mid America Apts. PFD A 1,624,594
3,307,125
STEEL & STEEL PRODUCTION -
2.9%
52,067 Bethlehem Steel Corp. 3.5% PFD CV 2,323,490
51,500 USX - U.S. Steel Group, Inc. 6.5% PFD CV 2,481,656
4,805,146
The accompanying notes are an integral part of these financial
statements.
BERWYN INCOME FUND, INC.
STATEMENT OF INVESTMENTS (Continued)
Number of
Shares PREFERRED STOCKS (Continued)
Value*
TRANSPORTATION INDUSTRY -
0.9%
43,550 Greyhound Lines PFD CV $ 1,537,859
TOTAL PREFERRED STOCKS (Cost $32,141,449) 30,242,071
Face
Amount CORPORATE BONDS -
57.3%
AIRCRAFT & AEROSPACE -
4.4%
$2,200,000 Mark IV Industries, Inc. 7.50% 09/01/07 2,215,587
2,041,000 Sequa Corp. 9.375% 12/15/03 2,132,845
3,000,000 Whittaker Corp. 7% 05/01/05 3,075,000
7,423,432
AUTO & AUTOMOTIVE PARTS - 3.8%
3,750,000 Ford 6.375% 11/05/08 3,773,437
2,520,000 General Motors 7.40% 09/01/25 2,791,001
6,564,438
BANKING - 1.2%
2,000,000 Chase Manhattan 7.125% 02/01/07 2,111,700
CHEMICAL INDUSTRY -
2.5%
4,130,000 IMC Global Inc. 7.30% 01/15/28 4,215,904
COMPUTER & PERIPHERAL - 3.5%
3,329,000 Cray Research Inc. 6.125% CV 02/01/11 2,713,135
1,400,000 Inacom Corp. 4.5% 11/01/04 CV 1,433,250
2,250,000 Integrated Devices 5.50% CV 06/01/02 1,856,250
6,002,635
DIVERSIFIED MANUFACTURING - 0.9%
1,500,000 Chatwin Group 13% 05/01/03 1,597,500
DRUGSTORE -
1.8%
3,507,000 Drug Emporium, Inc. 7.75% CV 10/01/14 3,042,322
The accompanying notes are an integral part of these financial
statements.
BERWYN INCOME FUND, INC.
STATEMENT OF INVESTMENTS (Continued)
Face
Amount CORPORATE BONDS
(Continued) Value*
ELECTRONICS -
5.5%
$1,473,000 Kollmorgen Corp. 8.75% CV 05/01/09 $1,517,190
3,315,000 Richey Electronics 7% CV 03/01/06 3,041,512
2,750,000 Reptron Electronic 6.75% CV 08/01/04 2,186,250
2,520,000 Trans-Lux Corp. 7.5% CV 12/01/06 2,611,350
9,356,302
ENVIRONMENTAL -
1.6%
2,705,000 OHM Corp. 8% CV 10/01/06 2,654,281
FINANCIAL SERVICES -
1.2%
2,000,000 Bear Sterns 6.75% 05/01/01 2,037,882
FOOD PRODUCTS -
0.3%
500,000 Chiquita Brands International 9.125% 03/01/04 513,750
FOREST & PAPER PRODUCTS -
3.7%
980,000 Boise Cascade 7.35% 02/01/16 996,508
3,750,000 Georgia Pacific 7.25% 06/01/28 3,792,626
865,000 MAXXAM Inc. 11.25% 08/01/03 916,900
737,000 Stone Container Corp. 6.75% CV 02/15/07 646,717
6,352,751
HOTEL -
1.4%
2,500,000 ITT Corp. 7.375% 11/15/15 2,348,390
MACHINERY MANUFACTURING - 0.4%
500,000 Robbins & Myers 6.5% CV 09/01/03 632,500
METALS & MINING -
2.7%
500,000 Campbell Resources Inc. 7.5% CV 07/20/04 356,250
2,500,000 Cyprus Amax Minerals Co. 7.375% 05/15/07 2,644,908
1,600,000 Homestake Mining 5.50% 06/23/00 CV 1,524,000
4,525,158
OFFICE EQUIPMENT -
1.4%
$2,250,000 XEROX Corp. 8% 02/01/27 2,432,021
The accompanying notes are an integral part of these financial
statements.
BERWYN INCOME FUND, INC.
STATEMENT OF INVESTMENTS (Continued)
Face
Amount CORPORATE BONDS
(Continued) Value*
OIL & GAS -
4.3%
$1,500,000 Ashland Oil, Inc. 8.23% 02/26/07 $ 1,700,888
1,500,000 Crown Central Petroleum 10.875% 02/01/05 1,590,000
700,000 Gulf Canada Resources Ltd. 9.625% 07/01/05 750,750
3,200,000 OXY USA 7% 04/15/11 3,313,984
7,355,622
OIL & GAS EXPLORATION & PRODUCTION - 1.4%
500,000 Shell Canada LTD 8.875% 01/14/01 533,655
2,050,000 Swift Energy 6.25% CV 11/15/06 1,937,250
2,470,905
RETAIL INDUSTRY -
1.4%
2,524,000 Dairy Mart Stores 10.25% 03/15/04 2,441,970
STEEL & STEEL PRODUCTS -
1.3%
2,500,000 Geneva Steel Co. 9.5% 01/15/04 2,250,000
TELECOMMUNICATIONS INDUSTRY - 1.3%
2,000,000 GTE 7.51% 04/01/09 2,180,184
TEXTILE -
2.0%
3,866,000 Dixie Group, Inc. 7% CV 05/05/12 3,363,420
TOBACCO -
1.6%
3,179,000 Standard Commercial Corp. 07.25% CV 03/31/07 2,650,491
TRANSPORTATION -
3.5%
1,919,000 Builders Transport, Inc. 8% CV 08/15/05 ++ 470,155
782,000 Builders Transport, Inc. 6.5% CV 05/01/11 ++ 152,490
2,470,000 OMI 10.25% 11/01/03 2,568,800
1,365,000 Transportacion Maritima Mexicana SA 10% 11/15/06 1,306,988
2,200,000 World Airways, Inc. 8% CV 08/26/04 1,342,000
5,840,433
UTILITY -
4.2%
1,433,000 American & Foreign Power 5% 03/01/30 1,053,255
4,000,000 PECO Energy Cap Trust 7.38% 04/06/28 4,037,980
2,000,000 Consolidated Edison 6.25% 02/01/08 2,006,046
7,097,281
TOTAL CORPORATE BONDS (Cost $99,347,706) 97,461,272
The accompanying notes are an integral part of these financial
statements.
BERWYN INCOME FUND, INC.
STATEMENT OF INVESTMENTS (Continued)
Face
Amount GOVERNMENT SECURITIES -
2.3% Value*
$2,600,000 US Treasury Bond 6.25% 02/15/07 $ 2,723,500
1,000,000 US Treasury Bond 6.875% 08/15/25 1,158,438
3,881,938
TOTAL GOVERNMENT SECURITIES (Cost $3,665,248) 3,881,938
WARRANTS -
0.01%
6,000 IMC Global, Inc. 15,000
TOTAL WARRANTS (Cost $21,336) 15,000
CLOSED-END MUTUAL FUNDS -
1.5%
35,500 ASA Limited 676,719
30,000 Castle Convertible Fund 753,750
99,450 Duff & Phelps Utilities Income 1,031,794
13,700 Duff & Phelps Utilties & Corp. Bonds 197,794
2,660,057
TOTAL CLOSED-END MUTUAL FUNDS (Cost $2,873,560) 2,660,057
TOTAL INVESTMENTS (Cost $170,245,262) - 99.0% $168,232,004
OTHER ASSETS IN EXCESS OF LIABILITIES - 1.0% 1,709,824
NET ASSETS - 100% $169,941,828
__________________________________________
* See Note 2 to the Financial Statements.
** Considered to be an affiliate under the Investment Company Act
of 1940
+ Non-Income Producing Security
++ Non-Income Producing Security in default of interest payments
ADR American Depositary Receipt
CV Convertible Security
PFD Preferred Stock
The accompanying notes are an integral part of these financial
statements.
Notes
