1998 Annual Report
Berwyn Income Fund
February 21, 1999
Dear Berwyn Income Fund Shareholder:
The annual total return to Berwyn Income Fund (BIF) shareholders was
negative 4.57 percent for 1998 versus a gain of 13.4 percent for
1997. BIF suffered a moderate drop in net asset value, yet continued
to provide a strong stream of income. The net asset value per share
decreased from $12.51 on December 31,1997 to $10.72 on December 31,
1998. Shareholders received distributions totaling $1.25 during the
year. Of this total, $0.82 is net investment income, $0.25 is from
long-term capital gains and $0.18 is a return of capital. As a result
of our annual audit, this distribution breakdown differs from that
mentioned in our fourth quarter report. A revised Form 1099 will be
mailed to you promptly.
The total returns for the Salomon Smith Barney Broad Investment Grade
Bond (SBBIG) and High Yield Composite Indices (SBHYC) were 8.72
percent and 3.98 percent, respectively. The Lipper Income Fund Index
(LII), an index of income-oriented mutual funds, produced a total
return of 8.12 percent for the year. The graphs on page 4 show the
BIF's performance relative to its benchmarks. While this year we fell
short of our benchmarks, the record shows a history of competitive
returns with low market volatility.
In the fourth quarter report, we discussed the impact of the Asian,
Russian and Latin American currency crises on our financial markets.
During the year, the financial markets discounted the deflationary
effects of the crises and the potential for global recession.
Reflecting these concerns, the domestic credit markets reacted
negatively. Fearful investors rushed into U.S. Treasuries and, on a
relative basis, the prices of other fixed income securities fell in
approximate correlation with their credit quality. The result was
historically high credit risk spreads. The Federal Reserve Board
stepped in to restore confidence to the markets early in October. The
credit spread widening between investment grade corporate bonds and
the ten-year U.S. Treasury is shown below.
Moody's Baa Corporate Bond Yield Less Ten-Year U.S.
Treasury Yield
Source: Federal Reserve: Bear, Stearns & Co. Inc.
In the first half of 1998, changes were made to the portfolio in
response to the developing crises in Asia. Firstly, the percentage of
corporate bonds was increased and the overall credit quality upgraded.
At mid-year over thirty percent of the portfolio was comprised of
investment-grade fixed income securities. Secondly, the amount of
common stock was reduced. Stock in companies particularly vulnerable
to an economic slowdown were scaled back.
In the latter part of the year, when the flight to quality reached an
extreme in the bond market, profits were taken in U.S. Treasury bonds.
The price of the 30 year Treasury is now about 9.5 percent below the
high reached in October. The prices of the lesser quality bonds in
the portfolio, which decreased as risk spreads widened, have only
partially rebounded at this time. However, there were no bond
defaults during the year and the income stream remains strong. At
year end, the 30 day SEC yield was 8.68 percent.
Within the domestic equity markets there was a dichotomy between the
strong performance of the large capitalization growth stocks, which
dominate the S&P 500, and most other stocks. For instance, on the
NASDAQ only 1,690 stocks rose in price compared to 3,351 which
declined. Most of the mutual funds in the LII benefited from
significant exposure to the stocks which comprise the S&P 500. We
believe that the top-tier of S&P 500 stocks is overvalued by a wide
margin, representing significant risk to their owners. Within BIF's
portfolio positive contributions were made by large cap consumer
cyclicals, such as GM and Ford, as well as large cap utilities, such
as Philadelphia Electric and Montana Power. Overall, the equity
portion of the portfolio was a drag in part due to its exposure to
small cap stocks. Investments in basic materials, oil and gas and
capital goods also served to weaken the return. The emphasis we have
placed in these sectors has been premature. We continue to closely
monitor them regarding potential risks and opportunities.
The composition of BIF by asset class as of December 31, 1998 is as
follows:
Dividend-paying commn stocks 19.23%
Corporate bonds 39.83
Convertible bonds 24.73
Convertible preferred stocks 14.95
Preferred stocks 4.91
Cash (3.64)
The average weighted maturity of the bonds in the portfolio is 13.2
years. The duration of the bonds is 5.8 years. The credit quality of
the bonds, constituting 64.6 percent of the portfolio, is as follows:
A 7.62%
BBB 15.12
BB 5.81
B 20.87
CCC 1.74
NR 13.44
The five sectors of the economy with the largest representation at
year end were:
Basic Materials 23.9%
Energy 13.5
Capital Goods 11.6
Consumer Cyclical 10.9
Technology 10.0
BIF's ten largest holdings at year end are listed below:
Company Security Percent
Georgia Pacific 7.25% due 6/1/28 3.60
IMC Global Inc. 7.30% due 1/15/28 3.63
Occidential USA 7.00% due 4/15/11 3.32
PECO Energy 7.38% due 4/6/28 3.87
Whitakker Cop. 7.00% due 5/1/05 3.09
Dixie Group 7.00 % due 5/15/12 2.66
AK Steel Common Stock 2.49
Cyprus Amax 7.375% due 5/15/07 2.47
Drug Emporium 7.75% due 10/1/14 2.44
Xerox 8.00% due 2/1/27 2.35
We believe the long-term outlook for U.S. Treasuries and investment-
grade corporate bonds is positive since inflation has been contained.
Furthermore, deflationary pressures around the globe continue strong.
With the recent strength in the S&P 500, bonds have become relatively
more attractive. However, in the near term, the U.S. economy remains
strong implying some upward pressure on interest rates. Therefore,
emphasis will be placed on shorter maturities for new bond purchases.
At year end, the total net assets in BIF were $103 million. The
expense ratio was 0.66.
In 1998 the convictions of staunch value investors, such as ourselves,
were challenged. Most investors who exercise a value style were
disappointed. A strong value discipline guides one away from areas of
speculation, a prerequisite for preserving capital over the long term.
Our historical performance record shows this philosophy has served us
well over the years. Despite the outsized performance of the large
cap growth stocks and, more recently, anything related to the
Internet, we do not intend to stray from our value philosophy
regarding security selection.
Very truly yours,
Edward A. Killen Robert E.
Killen
Portfolio Manager President
Long Term Fund Performance* (12/31/98)
(Average Annual Compounded Return)
Fund 1 year 5 years
10 years
BIF -4.57% 8.13% 11.20%
BIF's SEC yield as of 12/31/98: 8.68%
*Past performance is not a guarantee of future results.
Note:
Returns for BIF are net of all advisory and commission charges. The
investment return and the principal value of an investment in BIF will
fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost
*Index Inception Date January 1989
Note: LII consists of ten funds with investment objectives similar
to those of BIF. BIF is
precluded from making new investments in common stocks
once common stocks
comprise 30% of the Fund's assets. This restriction does not
necessary apply to other
funds in LII. The graph is based on an initial investment of
$10,000 with distributions
being reinvested.
BERWYN INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 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 as
earned.
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. At December 31, 1998,
the Fund increased undistributed realized gains and decreased
undistributed net investment income by $18,279.
Repurchase Agreements: The Fund invested in repurchase agreements
secured by U.S. Government obligations. Securities pledged as
collateral for repurchase agreements are held by the Fund's custodian
bank until maturity of each repurchase agreement. Provisions of the
agreement require that the market value of the collateral be
sufficient to cover principal and interest in the event of default;
however, in the event of default or bankruptcy by the other party to
the agreement, realization and/or retention of the collateral may be
subject to legal proceedings.
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, and the Directors and Officers
of the Fund, together with their families, owned 149,394 shares of the
Fund at December 31, 1998. Certain Directors and Officers of the Fund
are also Directors and Officers of the Investment Adviser.
During the year ended December 31, 1998, the Fund paid $185,897 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 year ended December 31, 1998, the Fund made purchases of
$44,385,499 and sales of $97,795,191 of investment securities other
than short-term securities and U.S. Government securities and
purchases of $3,222,351 and sales of $6,200,200 of long term U.S.
Government securities.
Cost of securities owned at December 31, 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 December 31, 1998, net unrealized depreciation for financial
reporting and Federal income tax purposes aggregated $12,273,757 of
which $4,256,391 related to appreciated securities and $16,530,148
related to depreciated securities.
NOTE 5 - CHANGE IN ACCOUNTING PRINCIPLES
Effective January 1, 1998, the Fund began to amortize premiums and
accrete discounts to interest income over the life of the bonds. In
adopting the new accounting principle, the Fund increased the cost of
investments at January 1, 1998 by $3,225,781. In addition, at January
1, 1998, the Fund increased undistributed net investment income and
decreased unrealized appreciation by the same amount.
The effect of adopting this new principle on current year activity was
to record an additional $468,662 of net investment income and an
equally lower change in unrealized appreciation. In addition, 1998
realized gains were decreased by $148,878 as a result of adopting this
principle.
Berwyn Income Fund, Inc.
Annual Shareholders Meeting
The Fund's Annual Meeting of Shareholders was held on March 27, 1998.
Shareholders re-elected Anthony N. Carrelli, Denis P. Conlon, Edward
A. Killen II, Robert E. Killen, and William H. Vonier as Directors,
approved the renewal of the Investment Advisory Agreement between the
Fund and The Killen Group, Inc., and ratified the appointment of Price
Waterhouse LLP, which effective July 1, 1998 became
PricewaterhouseCoopers LLP, as the Fund's independent accountants.
The resulting vote count for each proposal is indicated below.
1. Election of Directors:
Robert E. Killen Denis P. Conlon Anthony N.
Carrelli Edward A. Killen William H. Vonier
For: 7,081,694 7,087,612 7,087,846 7,094,598 7,094,598
Withheld: 169,001 163,083 162,849 156,097 156,097
Abstain:
2. Approval of the Investment Advisory Agreement with The Killen
Group, Inc.:
For: 7,046,669
Against 69,700
Abstain: 134,325
3. Ratification of appointment of Price Waterhouse LLP as the Fund's
independent accountants:
For: 7,110,565
Against: 41,183
Abstain: 98,946
4. Amendment of Articles of Incorporation to increase the number of
authorized shares:
For: 6,693,650
Against: 317,674
Abstain: 239,369
5. Amendment of the fundamental investment restriction and Bylaws of
the Fund to permit the purchase and sale of Rule 144A Securities:
For: 5,319,855
Against 415,831
Abstain: 253,859
Broker Non-Vote: 1,261,150
BERWYN INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
Assets:
Investments in Securities, at Value $107,398,965
(Cost $119,623,972) (Note 2)
Receivables:
Interest 1,347,656
Dividends 149,075
Receivable for Securities Sold 871,227
Total Assets 109,766,923
Liabilities:
Payable to Custodian 5,807,582
Payable for Investment Securities Purchased 166,724
Investment Advisory Fee Payable 97,785
Accrued Expenses 71,262
Total Liabilities 6,143,353
Net Assets: (1)
Applicable to 9,667,250 Shares Outstanding of
Common Stock, $1.00 Par Value
(Authorized 100,000,000 Shares Outstanding) $103,623,570
Net Asset Value, Offering Price and Redemption
Price Per Share ($103,623,570/9,667,250
Shares Outstanding) $ 10.72
(1) On December 31, 1998 Net Assets consisted of the following:
Common Stock, Par Value $1.00 Per Share $ 9,667,250
Paid-in Capital 104,019,057
Undistributed Net Investment Income 2,162,270
Net Unrealized Depreciation of Investment Securities (12,225,007)
$103,623,570
The accompanying notes are an integral part of these financial
statements.
BERWYN INCOME FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
Investment Income:
Interest $7,239,527
Dividends 3,687,504
Total Investment Income $10,927,031
Expenses:
Investment Advisory Fee (Note 3) 789,024
Transfer Agent Fees 48,679
Custodian Fees 27,885
Professional Fees 34,564
Registration Fees 27,339
Directors' Fees 3,272
Printing Expenses 64,888
Office Expenses 20,954
Insurance 5,443
Taxes (Other than Income Tax) 11,738
Total Expenses 1,033,786
Net Investment Income 9,893,245
Realized and Unrealized Gain on Investments:
Net Realized Gain from Sales of Investment Securities 1,420,002
Net Change in Unrealized Depreciation on
Investment Securities (18,017,738)
Net Realized and Unrealized Loss on Investments (16,597,736)
Net Decrease in Net Assets Resulting from Operations $ (6,704,491)
The accompanying notes are an integral part of these financial
statements.
BERWYN INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
Year
Ended Year Ended
12/31/98
12/31/97
Increase (Decrease) in Net Assets
from Investment Activities:
Net Investment Income $ 9,893,245 $ 9,923,818
Net Realized Gain from Sales of
Investment Securities 1,420,002 8,770,212
Change in Unrealized Appreciation of
Investment Securities (18,017,738) 1,268,334
Net Increase (Decrease) in Net Assets
Resulting from Operations (6,704,491) 19,962,364
Distributions to Shareholders:
From Net Investment Income (11,243,348) (9,850,406)
From Net Realized Gains from Sales of Securities (1,481,648) (8,787,456)
From Capital (2,062,237) -
Total Distributions (14,787,233) (18,637,862)
Capital Share Transactions: (1)
Net Proceeds from Sales of Shares 38,418,807 65,409,414
Cost of Shares Redeemed (105,827,066) (37,836,437)
Distributions Reinvested 11,699,788 14,760,234
Net Increase (Decrease) in Net Assets
from Capital Share Transactions (55,708,471) 42,333,211
Total Increase (Decrease) in Net Assets (77,200,195) 43,657,713
Net Assets:
Beginning of Year 180,823,765 137,166,052
End of Year (Including Undistributed Net
Investment Income of $2,162,270 and
$3,512,373, respectively) $103,623,570 $180,823,765
(1) Shares Issued and Redeemed:
Shares Sold 3,139,460 5,085,767
Shares Redeemed (8,937,920) (2,950,791)
Shares Reinvested 1,012,587 1,172,013
(4,785,873) 3,306,989
The accompanying notes are an integral part of these financial
statements.
BERWYN INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED
12/31/98(1) 12/31/97 12/31/96 12/31/95 12/31/94
Net Asset Value, Beginning of Year $12.51 $12.31 $11.95 $10.75 $11.63
_______ _______ _______ _______ _______
Income from Investment Operations:
Net Investment Income 0.90 0.77 0.76 0.73 0.73
Net Realized and Unrealized Gains
(Losses) on Securities (1.44) 0.84 0.87 1.48 (0.85)
_______ _______ _______ _______ _______
Total from Investment Operations (0.54) 1.61 1.63 2.21 (0.12)
_______ _______ _______ _______ _______
Less Distributions:
From Net Investment Income (0.92) (0.77) (0.80) (0.70) (0.73)
From Net Realized Gains (0.15) (0.64) (0.47) (0.31) (0.03)
From Capital (0.18) (0.00) (0.00) (0.00) (0.00)
_______ _______ _______ _______ ______
Total Distributions (1.25) (1.41) (1.27) (1.01) (0.76)
_______ _______ _______ _______ ______
Net Asset Value, End of Year $10.72 $12.51 $12.31 $11.95 $10.75
Total Return (4.57%) 13.36% 13.99% 21.0% (1.10%)
Ratios/Supplemental Data:
Net Assets, End of Period (000) $103,624 $180,823 $137,166 $119,552 $55,825
Ratio of Expenses to Average Net Assets 0.66% 0.65% 0.68% 0.73% 0.93%
Ratio of Net Investment Income to
Average Net Assets 6.27% 6.15% 6.35% 6.78% 7.20%
Portfolio Turnover Rate 31% 53% 38% 39% 30%
(1) Effect of change in accounting principle (see Note 5) is to increase
per share net income by $0.04 and
ratio of net investment income to average net assets by 0.3%.
The accompanying notes are an integral part of these financial
statements.
BERWYN INCOME FUND, INC.
STATEMENT OF INVESTMENTS
DECEMBER 31, 1998
Number of
Shares COMMON STOCKS -
18.8% Value*
BANKING -
0.2%
8,500 First Essex Bancorp $ 149,813
COMMERCIAL PRINTING -
1.1%
48,248 Courier Corp. 1,145,890
DIVERSIFIED MANUFACTURING - 0.7%
48,551 LindbergCorp. 436,959
35,400 Synalloy Corp. 314,175
751,134
FOREST & PAPER PRODUCTS - 0.5%
13,100 Greif Brothers Corp. 381,538
3,050,148 Repap Enterprises + 167,758
549,296
INSURANCE -
0.4%
8,500 Chicago Title Corp. 398,969
MANUFACTURED HOUSING - 0.9%
59,800 Patrick Industries 919,425
MACHINERY MANUFACTURER - 0.2%
12,500 Hardinge, Inc. 229,688
METALS & MINING INDUSTRY - 2.5%
15,000 Cleveland-Cliffs Inc. 604,687
122,416 Impala Platinum 1,664,784
19,000 Kaiser Aluminum 92,625
19,000 Placer Domer Inc. 218,500
2,580,596
OIL & GAS EXPLORATION & PRODUCTION - 3.4%
17,500 Berry Petroleum 248,281
39,710 Louis Dreyfus Natural Gas 565,868
18,640 Occidental Petroleum 314,550
283,811 Ranger Oil Ltd. 1,259,411
32,180 Sun Co. Inc. 1,160,491
3,548,601
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 -
0.3%
13,315 Ultramar Diamond Shamrock $ 322,889
REAL ESTATE INVESTMENT TRUST -
3.1%
31,500 Hospitality Property Trust 759,937
14,500 Mid-America Apts. 328,969
6,000 First Industsrial Realty Trust 160,875
124,200 Town & Country Trust 1,994,963
3,244,744
STEEL & STEEL PRODUCTS -
2.5%
110,314 AK Steel Holding Corp. 2,592,379
TEXTILE INDUSTRY -
0.6%
27,000 Culp Inc. 212,625
55,902 Dixie Group 433,240
645,865
TRANSPORTATION INDUSTRY -
1.1%
130,900 Anangel-American Shipholding - SP ADR 662,681
47,300 Stolt-Nielsen S.A. 467,088
1,129,769
UTILITIES -
1.3%
30,200 Otter Tail Power Co. 1,204,225
2,900 PP&L Resources Inc. 80,837
1,285,062
TOTAL COMMON STOCKS (Cost $20,739,442) 19,494,120
PREFERRED STOCKS -
19.8%
BANKING - 1.5%
52,620 Astoria Financial PFD B 1,578,600
CHEMICAL INDUSTRY -
1.0%
35,000 LSB PFD C CV 1,076,250
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*
FOOD PROCESSING - 1.0%
30,500 Chiquita Brands International PFD Series A CV $ 1,071,312
METALS & MINING INDUSTRY - 6.6%
27,600 Battle Mountain Gold Co. PFD CV $325 1,031,550
44,470 Cyprus Amax Minerals PFD CV 1,573,126
84,400 Freeport McMoran Copper & Gold PFD A CV 0.05 SH 1,255,450
43,900 Freeport McMoran Copper & Gold PFD C DP Gold II 537,775
42,600 Freeport McMoran Copper & Gold PFD D 500,550
41,500 Hecla Mining PFD B CV 1,577,000
21,021 Westmoreland Coal PFD Series A CV** 357,357
6,832,808
OIL & GAS EXPLORATION & PRODUCTION - 3.0%
70,335 Callon Petro Co. PFD A CV 1,925,421
261,800 Gulf Canada Resources PFD 409,062
21,500 Western Gas Resources, Inc. PFD CV 786,094
3,120,577
OIL REFINING -
0.2%
9,800 UDS Capital 246,837
REAL ESTATE INVESTMENT TRUST - 1.8%
27,300 First Industrial Realty PFD A 685,912
46,000 Mid America Apt. Communities PFD A 1,127,000
1,812,912
STEEL & STEEL PRODUCTION -
3.5%
49,567 Bethlehem Steel Corp. 3.5% PFD CV 1,840,175
38,300 USX Marathon Group, Inc. 6.5% PFD CV 1,773,769
3,613,944
TRANSPORTATION INDUSTRY -
1.2%
38,550 Greyhound Lines Inc. 8.5% PFD CV 1,219,144
TOTAL PREFERRED STOCKS (Cost $25,233,766) 20,572,384
The accompanying notes are an integral part of these financial
statements.
BERWYN INCOME FUND, INC.
STATEMENT OF INVESTMENTS (Continued)
Face
Amount CORPORATE BONDS -
64.6% Value*
AIRCRAFT & AEROSPACE -
4.1%
$1,041,000 Sequa Corp. 9.375% 12/15/03 $1,068,326
3,000,000 Whittaker Corp. 7% 05/01/05 3,210,000
4,278,326
AUTO & AUTOMOTIVE PARTS - 3.6%
2,000,000 Ford 6.375% 11/05/08 2,090,000
1,520,000 General Motors 7.40% 09/01/25 1,687,714
3,777,714
BANKING - 2.1%
2,000,000 Chase Manhattan 7.125% 02/01/07 2,164,270
CHEMICAL INDUSTRY - 3.6%
4,130,000 IMC Global Inc. 7.30% 01/15/28 3,776,720
COMPUTER & PERIPHERAL - 5.6%
3,329,000 Cray Research Inc. 6.125% CV 02/01/11 2,413,525
2,300,000 Inacom Corp. 4.5% 11/01/04 CV 1,995,250
250,000 Inacom Corp. 6% 06/15/06 CV 231,250
1,750,000 Integrated Devices 5.50% CV 06/01/02 1,198,750
5,838,775
DRUGSTORE -
2.5%
3,057,000 Drug Emporium, Inc. 7.75% CV 10/01/14 2,537,310
ELECTRONICS -
6.2%
1,473,000 Kollmorgen Corp. 8.75% CV 05/01/09 1,513,508
2,750,000 Reptron Electronic 6.75% CV 08/01/04 1,361,250
1,215,000 Richey Electronics 7% CV 03/01/06 1,196,775
2,520,000 Trans-Lux Corp. 7.5% CV 12/01/06 2,365,650
6,437,183
FOREST & PAPER PRODUCTS -
5.0%
980,000 Boise Cascade 7.35% 02/01/16 887,468
3,750,000 Georgia Pacific 7.25% 06/01/28 3,738,139
737,000 Stone Container Corp. 6.75% CV 02/15/07 596,970
5,222,577
MACHINERY MANUFACTURING - 1.2%
1,250,000 Robbins & Myers 6.5% CV 09/01/03 1,201,563
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*
METALS & MINING -
4.2%
$ 500,000 Campbell Resources Inc. 7.5% CV 07/20/04 $ 239,375
2,500,000 Cyprus Amax Minerals Co. 7.375% 05/15/07 2,572,108
1,600,000 Homestake Mining 5.50% 06/23/00 CV 1,532,000
4,343,483
OFFICE EQUIPMENT -
2.4%
2,250,000 XEROX Corp. 8% 02/01/27 2,442,433
OIL & GAS -
7.0%
1,500,000 Ashland Oil, Inc. 8.23% 02/26/07 1,681,365
1,500,000 Crown Central Petroleum 10.875% 02/01/05 1,440,000
700,000 Gulf Canada Resources Ltd. 9.625% 07/01/05 698,250
3,200,000 OXY USA 7% 04/15/11 3,451,014
7,270,629
OIL & GAS EXPLORATION & PRODUCTION - 1.4%
2,050,000 Swift Energy 6.25% CV 11/15/06 1,450,375
RETAIL INDUSTRY -
2.3%
2,524,000 Dairy Mart Stores 10.25% 03/15/04 2,397,800
TELECOMMUNICATIONS INDUSTRY - 0.8%
750,000 GTE 7.51% 04/01/09 860,967
TEXTILE -
2.7%
3,741,000 Dixie Group, Inc. 7% CV 05/05/12 2,768,340
TOBACCO -
2.2%
3,079,000 Standard Commercial Corp. 7.25% CV 03/31/07 2,247,670
TRANSPORTATION -
1.9%
919,000 Builders Transport, Inc. 8% CV 08/15/05 ++ 179,205
1,365,000 Transportacion Maritima Mexicana SA 10% 11/15/06 1,155,131
2,200,000 World Airways, Inc. 8% CV 08/26/04 594,000
1,928,336
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*
UTILITY -
5.8%
$1,253,000 American & Foreign Power 5% 03/01/30 $ 873,967
4,000,000 PECO Energy Cap Trust 7.38% 04/06/28 4,023,300
1,000,000 Consolidated Edison 6.25% 02/01/08 1,054,060
5,951,327
TOTAL CORPORATE BONDS (Cost $73,012,547) 66,895,798
Number of
Shares
WARRANTS - 0%
6,000 IMC Global, Inc. 4,125
TOTAL WARRANTS (Cost $21,336) 4,125
CLOSED-END MUTUAL FUNDS -
0.4%
15,000 ASA Limited 233,438
8,800 Castle Convertible Fund 199,100
432,538
TOTAL CLOSED-END MUTUAL FUNDS (Cost $616,971) 432,538
TOTAL INVESTMENTS (Cost $119,623,972) - 103.6% 107,398,965
OTHER LIABILITIES IN EXCESS OF ASSETS - (3.6%) (3,775,395)
NET ASSETS - 100% $103,623,570
__________________________________________
* 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
SP Sponsored
The accompanying notes are an integral part of these financial
statements.
PricewaterhouseCoopers
Report to Independent Accountants
To the Board of Directors and Shareholders of
Berwyn Income Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the schedule 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
Berwyn 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 securities at December
31, 1998 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
As discussed in Note 5 to the financial statements, the Fund changed
its method of accounting for discounts and premiums on investment
securities in 1998.
PricewaterhouseCoopers LLP
February 12, 1999
