<PAGE>
BEA INCOME FUND, INC.
153 EAST 53RD STREET
NEW YORK, NY 10022
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OFFICERS AND DIRECTORS
Daniel H. Sigg Michael A. Pignataro
Chairman and Chief Vice President
Executive Officer
Richard J. Lindquist
Robert Moore Vice President
President and Chief
Investment Officer Hal Liebes
Secretary
Prof. Enrique R. Arzac
Director Harvey M. Rosen
Treasurer
Lawrence J. Fox
Director Paul P. Stamler
Assistant Treasurer
James S. Pasman, Jr.
Director John M. Corcoran
Assistant Treasurer
================================================================================
INVESTMENT ADVISER
BEA Associates
153 East 53rd Street
New York, NY 10022
- --------------------------------------------------------------------------------
ADMINISTRATOR
United States Trust Company of New York
73 Tremont Street
Boston, Massachusetts 02108
- --------------------------------------------------------------------------------
CUSTODIAN
United States Trust Company of New York
770 Broadway
New York, New York 10003
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT
United States Trust Company of New York
770 Broadway
New York, New York 10003
Phone 1-800-428-8890
- --------------------------------------------------------------------------------
LEGAL COUNSEL
Willkie Farr & Gallagher
153 East 53rd Street
New York, NY 10022
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
================================================================================
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 $3,000 (per investment period), plus
any dividends received in cash, to the Plan Agent to purchase Fund shares in
the open market. A brochure further describing the Plan and additional
information concerning terms and conditions, and any applicable charges
relating to the Plan, can be obtained from the Plan's agent at (800) 428-8890.
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
BEA INCOME FUND, INC.
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
SEMI-ANNUAL REPORT
JUNE 30, 1995
<PAGE>
BEA Income Fund, Inc.
- -------
To Our Shareholders:
During the second quarter of 1995, the U.S. Treasury market's 6.24% return
exceeded its first quarter 1995 return by 1.58%, making it the highest positive
quarterly return since the third quarter of 1992. For the quarter as a whole,
yields on 2-year Treasuries declined by 99 basis points, from 6.78% to 5.79%,
while yields on 30-year Treasuries dropped 81 basis points, from 7.43% to
6.62%. The BEA Income Fund earned a net total return of 5.26% during the second
quarter based on net asset value and reinvestment of dividends. As a result of
the greater drop in short-term yields, the yield curve steepened by 18 basis
points during the quarter due to the differential in the decline in yield of
the 2-year note versus the 30-year bond.
The continuation during the second quarter of the rally begun in March can be
attributed to the atmosphere surrounding the U.S. capital markets, which
continued to be permeated by the belief that the U.S. economy is slowing down
and is headed for a "soft landing", with all eyes still focused on what, if
any, actions the Federal Reserve would take. As a result, the fixed income
market continued to perform well during the quarter with yields dropping to a
14-month low in May and remaining at these levels through June.
Again, key to this overall positive environment was evidence of an economic
slowdown and continued moderate inflation as measured by the marginal increase
in the Producer Price Index coupled with the volume of central bank buying of
Treasury securities which occurred in February and March. June was the most
volatile of the three months that comprised the quarter, with larger-than-
expected price movements following data releases that were out of sync with
market expectations. Specifically, the benchmark 30-year Treasury bond jumped 2
points following the report of a 17-month high in the number of Americans who
filed for initial unemployment benefits, only to be offset later in the month
by a larger-than-expected gain in durable goods orders and a surge of 19.9% in
new homes sales. This activity underscores the extreme sensitivity of the
market given the mixed messages, i.e., declines in the index of leading
indicators while specific indicator-type data (a rebound in U.S. factory orders
for big ticket goods, rising consumer confidence, rise in home sales, steady
employment) point to economic strength.
Finally, the much anticipated move by the Federal Reserve occurred on
Thursday, July 6th with a 25 basis point drop in the Fed Funds rate to 5.75%,
the first such drop in nearly three years. The bond market immediately rallied
with market consensus supporting a series of further Fed easing moves as
evidenced by the fact that a 50 basis point drop had already been priced into
the market. On Friday morning, however, questions arose as to whether the Fed's
action was premature when a higher-than-expected new jobs number was released,
raising speculation that the Fed would not ease again soon. These fears were
short-lived as other data were released later in the day suggesting that the
economy would not mend without the Fed's help.
The U.S. High Yield market posted strong positive performance for the quarter
as yield-seeking new cash buyers continued to enter the market, interest rates
continued to trend lower and positive news releases permeated the market. The
Salomon Brother High Yield Market Index posted a 6.15% return for the quarter
and 12.24% year-to-date (returns are unannualized). Airlines, pharmaceuticals
and telecommunications sectors posted the largest gains.
Within the high grade sector of the Fund, we continue to maintain a duration
neutral stance relative to appropriate benchmarks and emphasize mortgage- and
asset-backed securities and select BBB-rated issues.
Sectorwise, we will continue to focus on high yield investments. It is still
our intention to maintain a relatively high allocation to the high yield market
in
1
<PAGE>
anticipation of improving fundamental and technical conditions. We expect the
high yield market to continue to track the directional movements of the debt
and equity markets, albeit, with less volatility for the market as a whole
near-term than it has experienced in 1994. We do expect the market to continue
to be volatile on an individual credit basis as bonds react to news releases.
We expect July and August to continue to experience a slowdown from the levels
in May and June of the new issue calendar. In addition, the new issue calendar
is not expected to reprice certain sectors of the high yield market as it did
in June. Our long-term outlook continues to be positive for the credit
fundamentals of many high yield issuers. Our strategy continues to be focused
on opportunistically investing in companies that we believe offer operating
performance improvement and deleveraging potential over the longer-term.
Finally, the changes we discussed in our last letter as a result of the
transfer of the CS First Boston Investment Management business to its
affiliate, BEA Associates, were approved. As a result, among other things, the
Fund will now be known as BEA Income Fund, Inc. (symbol FBF) and a new advisory
agreement was executed with BEA Associates. In addition, the following
management changes were effected: Daniel H. Sigg was elected as Chairman and
Chief Executive Officer, Robert Moore, became the Fund's President and Chief
Investment Officer, and Joseph Huber's resignation as Chairman was accepted.
We thank you for your interest in the Fund and would be pleased to respond to
your questions or comments.
Respectfully,
Robert J. Moore
President and Chief Investment Officer
August 11, 1995
2
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
- -------
June 30, 1995
<TABLE>
<CAPTION>
Face Value
Moody's Amount (000)
Ratings (000) (Note A-1)
- ---------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
CORPORATE OBLIGATIONS (82.3%)
- ---------------------------------------------------------------------------
- ------------
COMMUNICATIONS (12.6%)
Adelphia Communications
Series B, Sr. Notes
(/4/) 9.50%, 2/15/04 B3 $ 548 $ 451
12.50%, 5/15/02 B3 650 647
(/8/) American Telecasting, Inc.
Sr. Discount Notes
0.00%, 6/15/04 Caa 1,500 885
(/8/) Australias Media Ltd. Sr. Sub.
Disc. Notes 0.00%, 5/15/03 B3 650 341
Cablevision Industry Corp.
Sr. Sub. Notes
9.25%, 4/1/08 B1 975 1,009
Cablevision System Corp.
Sr. Sub. Notes 9.875%, 2/15/13 B3 500 522
Chancellor Broadcasting Co.
Gtd. Sr. Sub. Notes
12.50%, 10/1/04 B3 1,000 1,035
Citicasters, Inc., Series B
Sr. Sub. Notes
9.75%, 2/15/04 N/R 1,500 1,496
Continental Cablevision, Inc. Sr. Sub.
Notes
9.50%, 8/1/13 Ba2 850 875
11.00%, 6/1/07 B1 1,650 1,832
(/8/) Dial Call Communications
Sr. Discount Notes
0.00%, 4/15/04 Caa 750 360
(/4/) Falcon Holdings Group L.P.
Sr. Sub. Notes 11.00%, 9/15/03 N/R 1,263 1,175
General Media, Inc., Series B
Sr. Notes 10.625%, 12/31/00 B2 625 494
(/3/)(/6/) Granite Broadcasting Corp.
Sr. Sub. Notes 10.375%,
5/15/05 B3 300 301
(/8/) Helicon Group Sr. Secured Notes
9.00%, 11/1/03 Caa 2,000 1,820
Heritage Media Sr. Sub. Notes
11.00%, 10/1/02 B2 1,500 1,590
(/8/) Imax Corp., Series B
Sr. Notes
7.00%, 3/1/01 B1 1,000 912
Jones Intercable, Inc. Sr. Sub.
Notes
11.50%, 7/15/04 B1 1,000 1,105
(/8/) MFS Communications Sr. Notes
0.00%, 1/15/04 B2 $ 900 $ 626
Mobile Telecommunications Technologies
Corp.
Sr. Sub. Notes
13.50%, 12/15/02 B2 500 536
(/8/) Nextel Communications
Sr. Notes
0.00%, 9/1/03 B3 1,500 840
0.00%, 8/15/04 B3 800 384
(/6/)(/8/) Pagemart, Inc.
Sr. Disc. Notes 0.00%, 2/1/05 N/R 2,000 1,220
(/3/)(/6/) Rogers Cablesystems of America,
Series A
Sr. Notes
10.00%, 3/15/05 Ba3 300 309
Scott Cable Communications, Inc.
Sub. Debentures 12.25%,
4/15/01 B3 500 350
(/2/)(/6/) Simmons Cable
Sr. Sub. Notes
15.747%, 4/30/96 N/R 750 390
(/8/) Spanish Broadcasting Systems
Sr. Notes
7.50%, 6/15/02 B3 1,500 1,413
Summit Communications
Sr. Sub. Notes
10.50%, 4/15/05 B3 500 545
United International Holdings
Sr. Sec. Debentures
Zero Coupon, 1/15/99 B3 2,950 1,785
Univision Network Holding
Sub. Notes
Zero Coupon, 12/17/02 N/R 1,500 900
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GROUP TOTAL 26,148
--------
- ---------------------------------------------------------------------------
- ------------
CONSUMER PRODUCTS (5.1%)
Doskocil Cos, Sr. Sub. Notes
9.75%, 7/15/00 B2 250 241
Fort Howard Corp. Sub. Notes
10.00%, 3/15/03 B2 1,250 1,231
Jordan Industries Sr. Notes
10.375%, 8/1/03 B3 1,200 1,107
Mail-Well Envelope Sr. Sub.
Notes
10.50%, 2/15/04 B3 1,500 1,335
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Face Value
Moody's Amount (000)
Ratings (000) (Note A-1)
- -------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
(/8/) Mail-Well Holdings
Sr. Notes
0.00%, 2/15/06 Caa $ 500 $ 215
Marvel III Holdings, Inc.
Series B, Sr. Secured Notes
9.125%, 2/15/98 Caa 1,100 1,018
Pilgrim's Pride Corp. Sr. Sub.
Notes 10.875%, 8/1/03 B3 1,000 942
(/3/)(/6/) Renaissance Cosmetics Sr. Notes
13.75%, 8/15/01 N/R 1,500 1,470
Revlon Consumer
Products, Inc.
Sr. Sub. Notes
10.50%, 2/15/03 B3 1,450 1,421
Seven Up/RC Bottling Co.
Sr. Secured Notes 11.50%, 8/1/99 Caa 500 440
(/8/) Specialty Foods Acquisition
Corp., Series B
Sr. Secured Notes
0.00%, 8/15/05 Ca 2,000 1,040
------
GROUP TOTAL 10,460
------
- -------------------------------------------------------------------------
- ------------
FINANCE (7.4%)
American Express
Zero Coupon, 12/12/00 N/R 5,000 3,497
Comcast Corp.
Sr. Sub. Notes
9.375%, 5/15/05 B1 300 302
GMAC
Medium Term Notes
5.95%, 12/14/98 A3 4,000 3,924
(/3/) Goldman Sachs & Co.
Medium Term Notes 6.20%, 2/15/01 A1 3,000 2,910
GPA Holland
Medium Term Notes
(/3/) 8.50%, 3/3/97 N/R 550 500
(/3/) 8.625%, 1/15/99 Caa 750 574
(/3/) 9.12%, 2/24/99 Caa 250 193
Tiphook Finance Corp. Gtd. Notes
8.00%, 3/15/00 Caa 697 558
Western National Corp. Sr. Notes
7.125%, 2/15/04 Baa1 3,000 2,971
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GROUP TOTAL 15,429
------
- -------------------------------------------------------------------------
- ------------
INDUSTRIAL (13.9%)
Adience, Inc.
Sr. Secured Notes
11.00%, 6/15/02 N/R 2,000 1,500
(/6/) Alpine Group , Inc.
Sr. Secured Notes
13.50%, 12/22/95 N/R 1,000 1,000
AK Steel Corp.
Sr. Sub. Notes
10.75%, 4/1/04 Ba3 950 1,000
</TABLE>
<TABLE>
<CAPTION>
Face Value
Moody's Amount (000)
Ratings (000) (Note A-1)
- ------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
Arcadian Partners L.P., Series B, Sr.
Notes 10.75%, 5/1/05 B2 $ 900 $ 907
Armco, Inc.
Sr. Notes
11.375%, 10/15/99 B2 815 831
Bayou Steel Corp.
First Mortgage Notes 10.25%, 3/1/01 B2 500 465
Berg Electronics
Sr. Sub. Notes
11.375%, 5/1/03 B3 1,000 1,050
Boise Cascade Co. Notes
9.85%, 6/15/02 Baa3 3,000 3,360
Chatwins Group, Inc. Sr. Notes
13.00%, 5/1/03 B2 1,000 820
Container Corp. of America
Sr. Notes
9.75%, 4/1/03 B2 500 495
Doman Industries Ltd. Gtd. Sr. Notes
8.75%, 3/15/04 Ba3 650 618
Easco Corp.
Series B, Sr. Notes
10.00%, 3/15/01 B1 500 498
Geneva Steel Co.
Sr. Notes
9.50%, 1/15/04 B1 250 179
Genmar Holdings, Series A
Sr. Sub. Notes
13.50%, 7/15/01 B3 500 490
Grupo Industrial Durango
Yankee Notes
12.00%, 7/15/01 B1 250 188
(/3/) Hanson America, Inc. Conv. Debentures
2.39%, 3/1/01 A3 2,000 1,598
(/8/) Harris Chemical
Sr. Secured Notes 0.00%, 7/15/01 B2 1,425 1,293
Sr. Sub. Notes
10.75%, 10/15/03 B3 1,000 940
Huntsman Corp.
First Mortgage Notes 11.00%, 4/15/04 B1 750 819
(/8/) Indspec Chemical
Sr. Sub. Notes
0.00%, 12/1/03 B3 1,496 942
Malette, Inc.
Sr. Secured Notes 12.25%, 7/15/04 Ba3 1,750 1,938
NL Industries
Sr. Secured Debentures
11.75%, 10/15/03 B1 500 521
Repap Wisconsin, Inc. Sr. Notes
9.875%, 5/1/06 B3 400 386
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Face Value
Moody's Amount (000)
Ratings (000) (Note A-1)
- -----------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
Trans Resources, Inc. Sr. Sub.
Notes 11.875%, 7/1/02 B2 $ 500 $ 454
UCC Investor's Holdings, Inc.
Sr. Sub. Notes 11.00%, 5/1/03 B3 1,500 1,532
Uniroyal Technology Corp.
Sr. Notes
11.75%, 6/1/03 B2 500 445
USX Corp.
Notes
9.625%, 8/15/03 Baa3 3,000 3,350
WCI Steel, Inc., Series B
Sr. Notes
10.50%, 3/1/02 B1 600 585
WHX Corp.
Sr. Notes
9.375%, 11/15/03 B1 500 455
------
GROUP TOTAL 28,659
------
- -----------------------------------------------------------------------
- ------------
MANUFACTURING (13.7%)
(/8/) American Standard Cos.
Sr. Sub. Notes
0.00%, 6/1/05 B1 2,100 1,596
Associated Materials, Inc.
Sr. Sub. Notes 11.50%, 8/15/03 B3 500 455
Atlantis Group, Inc.
Sr. Notes
11.00%, 2/15/03 B2 1,740 1,714
(/8/) Building Materials Corp.
Series B, Notes
0.00%, 7/1/04 B1 1,300 774
Consoltex Group, Inc. Sr. Sub.
Notes 11.00%, 10/1/03 B2 1,000 915
(/3/)(/8/) Crown Packaging Holdings
Sr. Sub. Notes
0.00%, 11/1/03 Caa 2,550 1,148
Domtar, Inc.
Yankee Debentures
11.25%, 9/15/17 Ba1 1,500 1,601
(/8/) Exide Corp.
Sr. Sub. Notes
0.00%, 12/15/04 B2 1,000 715
Gaylord Container Corp.
Sr. Notes
11.50%, 5/15/01 B3 1,700 1,802
(/8/) Sr. Sub. Notes
0.00%, 5/15/05 Caa 1,000 980
G.I. Holdings, Inc., Series B
Sr. Notes
Zero Coupon, 10/1/98 Ba3 1,000 670
Interlake Corp.
Sr. Sub. Notes
12.125%, 3/1/02 B3 1,000 987
</TABLE>
<TABLE>
<CAPTION>
Face Value
Moody's Amount (000)
Ratings (000) (Note A-1)
- --------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
Ithaca Industries, Inc. Sr.
Sub. Notes 11.125%, 12/15/02 B2 $ 900 $ 855
Ivex Holdings Corp.
Sr. Sub. Notes
12.50%, 12/15/02 B3 500 538
(/8/) 0.00%, 3/15/05 Caa 1,500 810
Mafco, Inc.
Sr. Sub. Notes
11.875%, 11/15/02 B3 550 548
MVE Inc.,
Sr. Notes
12.50%, 2/15/02 B3 650 670
Plastic Specialties &
Technology
Sr. Secured Notes 11.25%,
12/1/03 B3 500 457
Rexene Corp.
Sr. Notes
11.75%, 12/1/04 B1 500 535
Riverwood International Corp.
Sr. Sub. Notes
10.375%, 6/30/04 B1 500 550
(/5/)(/6/)(/7/) Rotor Tool
Sr. Sub. Notes (acquired
1/26/93, cost $169,200)
12.375%, 4/1/97 N/R 940 564
Sheffield Steel Corp. First
Mortgage Notes 12.00%,
11/1/01 N/R 1,250 1,187
(/8/) Silgan Holdings, Inc.
Sr. Disc. Notes
0.00%, 12/15/02 B3 1,000 915
Specialty Equipment Co., Inc.
Sr. Sub. Notes
11.375%, 12/1/03 B3 1,500 1,541
Stone Container Corp. Sr.
Notes
9.875%, 2/1/01 B1 1,250 1,239
Synthetic Industries, Inc.
Sr. Sub. Notes 12.75%,
12/1/02 B3 1,450 1,465
Tracor, Inc.
Sr. Sub. Notes
10.875%, 8/15/01 B2 500 515
USG Corp., Series B
Sr. Sec. Debentures
9.25%, 9/15/01 B1 500 512
U.S. Leather, Inc.
Sr. Notes
10.25%, 7/31/03 B2 1,750 1,514
Westpoint Stevens, Inc. Sr.
Sub. Notes 9.375%, 12/15/05 B3 500 481
------
GROUP TOTAL 28,253
------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Face Value
Moody's Amount (000)
Ratings (000) (Note A-1)
- -------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
OIL, GAS & ELECTRIC (4.0%)
Energy Ventures Sr. Notes
10.25%, 3/15/04 B1 $ 500 $ 511
Forest Oil, Inc. Sr. Sub. Notes
11.25%, 9/1/03 B3 500 460
Giant Industries
Sr. Sub. Notes
9.75%, 11/15/03 B2 500 470
Gulf Canada Resources Sr. Sub. Notes
9.25%, 1/15/04 Ba3 900 882
H.S. Resources Sr. Sub. Notes
9.875%, 12/1/03 B1 500 485
Mesa Capital Corp. Secured Notes 12.75%,
6/30/98 Caa 1,725 1,561
Oryx Energy Co.
Notes
9.75%, 9/15/98 Ba3 1,000 1,005
Petroleum Heat & Power
Sr. Sub. Debentures
12.25%, 2/1/05 B2 200 214
Southeastern Public
Service Co.
Sr. Sub. Notes
11.875%, 2/1/98 Caa 628 646
Tesoro Petroleum Corp. 13.00%, 12/1/00 B2 1,000 1,010
Wilrig
Sr. Sub. Debentures 11.25%, 3/15/04 B2 1,000 1,030
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GROUP TOTAL 8,274
-----
- -------------------------------------------------------------------------
- ------------
RETAIL TRADE (5.9%)
Big V Supermarkets, Inc.
Sr. Sub. Notes
11.00%, 2/15/04 B3 1,675 1,407
Brylane Capital Corp. Sr. Sub. Notes
10.00%, 9/1/03 B2 500 465
County Seat Stores Sr. Sub. Notes
12.00%, 10/1/01 B3 1,520 1,512
Dairy Mart Conveniences
Stores, Inc.
Sr. Sub. Notes
10.25%, 3/15/04 B3 1,750 1,426
Duane Reade Corp.
Sr. Notes
12.00%, 9/15/02 B3 1,500 1,331
Farm Fresh, Inc. Sr. Notes
12.25%, 10/1/00 B2 1,360 1,278
Finlay Fine Jewelry Sr. Notes
10.625%, 5/1/03 B1 500 478
</TABLE>
<TABLE>
<CAPTION>
Face Value
Moody's Amount (000)
Ratings (000) (Note A-1)
- --------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
Great American Cookie Series B
Sr. Sec. Debentures
10.875%, 1/15/01 B3 $1,250 $1,084
Hill Stores
Sr. Notes
10.25%, 9/30/03 Ba3 1,250 1,238
Pathmark Stores, Inc.
(/8/) Jr. Sub. Notes
0.00%, 11/1/03 B3 1,450 870
Sr. Sub. Notes 9.625%, 5/1/03 B2 250 244
(/4/) Town & Country Corp. Sr. Sub.
Notes 13.00%, 5/31/98 B3 878 351
Waban, Inc. Sr. Sub. Notes
11.00%, 5/15/04 Ba3 500 490
------
GROUP TOTAL 12,174
------
- --------------------------------------------------------------------------
- ------------
SERVICES (17.2%)
(/2/) Acme Holdings, Inc. Sr. Sub. Notes
11.75%, 6/1/00 Ca 1,000 500
Allied Waste Industries Sr. Sub.
Notes
12.00%, 2/1/04 B3 400 404
American Restaurant
Group, Inc.
Sr. Secured Notes
12.00%, 9/15/98 B2 1,500 1,290
Bally's Casino Holdings, Inc.
Sr. Discount Notes
Zero Coupon, 6/15/98 B3 1,500 1,028
Bally's Health & Tennis Sr. Sub.
Notes 13.00%, 1/15/03 B3 1,000 870
Boomtown, Inc.
First Mortgage Notes
11.50%, 11/1/03 B1 500 457
(/5/)(/6/) Capital Gaming International
Zero Coupon, 8/1/95 (acquired
7/20/94, cost $900) N/R 1 0
Casino America Corp.
First Mortgage Notes
11.50%, 11/15/01 B1 1,000 1,000
CCP Insurance Inc. 10.50%,
12/15/04 Ba1 3,000 3,041
Charter Medical Corp. Sr. Sub.
Notes 11.25%, 4/15/04 B2 250 266
Cinemark USA, Inc. Sr. Sub. Notes
12.00%, 6/1/02 B1 500 538
Comdata Network, Inc. Sr. Sub.
Notes 13.25%, 12/15/02 B3 1,000 1,125
Community Health Systems Sr. Sub. Notes
10.25%, 11/30/03 B2 500 525
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Face Value
Moody's Amount (000)
Ratings (000) (Note A-1)
- -------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
Continental Medical Systems, Inc.
Sr. Sub. Notes
10.375%, 4/1/03 B2 $1,200 $1,224
10.875%, 8/15/02 B2 1,400 1,470
Elsinore Corp.
First Mortgage Notes
12.50%, 10/1/00 N/R 1,500 750
G.B. Property Funding First
Mortgage Notes
10.875%, 1/15/04 B2 1,100 935
(/4/) General Medical Sub. Notes
12.125%, 8/15/05 B3 1,780 1,940
Gillett Holdings, Inc. Sr. Sub.
Notes 12.25%, 6/30/02 N/R 1,000 1,048
GNF Corp., Series B
First Mortgage Notes
10.625%, 4/1/03 B2 1,200 1,002
Grand Casinos, Inc., Series B
First Mortgage Notes
12.50%, 2/1/00 Ba3 1,000 1,080
(/4/)(/6/) Hemmeter Enterprises, Inc.
Sr. Notes
12.00%, 12/15/00 N/R 841 336
Hollywood Casino Corp.,
Series B, Sr. Secured Notes
14.00%, 4/1/98 N/R 1,000 1,099
(/3/) Icon Health & Fitness, Inc.
Series B,
Sr. Sub. Notes
13.00%, 7/15/02 B3 500 505
Kloster Cruise Ltd.
Sr. Notes
13.00%, 5/1/03 B2 1,250 978
Meditrust Convertible Debentures
7.50%, 3/1/01 Baa3 3,000 2,955
Motels of America, Inc. Sr. Sub.
Notes 12.00%, 4/15/04 B3 500 500
Ornda Health Corp.
Sr. Sub. Notes
12.25%, 5/15/02 B2 1,000 1,108
Red Roof Inns, Inc.
Sr. Notes
9.625%, 12/15/03 B3 900 891
Resorts International Hotel
Casino, Inc.
Mortgage Notes
11.00%, 9/15/03 N/R 975 858
Sea Containers
Sr. Sub. Notes
12.50%, 12/1/04 B1 500 545
Solon Automated
Sr. Notes
12.75%, 7/15/01 B1 1,000 985
Station Casinos, Inc.
Sr. Sub Notes
9.625%, 6/1/03 B2 450 420
</TABLE>
<TABLE>
<CAPTION>
Face Value
Moody's Amount (000)
Ratings (000) (Note A-1)
- --------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
Trump Plaza Funding, Inc.
First Mortgage Notes
10.875%, 6/15/01 B3 $ 850 $ 778
(/4/)(/1//0/) Trump Taj Mahal Funding
Sr. Debentures
11.35%, 11/15/99 Caa 1,804 1,430
U.S. Banknote Corp., Series B
Sr. Sub. Notes
11.625%, 8/1/02 B2 750 615
Wright Medical Technology
Series B, Sr. Notes
10.75%, 7/1/00 B3 1,000 1,005
-------
GROUP TOTAL 35,501
-------
- --------------------------------------------------------------------------
- ------------
TRANSPORTATION (2.5%)
Americold Corp., Series B
First Mortgage Notes
11.50%, 3/1/05 Caa 225 217
CHC Helicopter
Sr. Sub. Notes
11.50%, 7/15/02 B3 750 622
Ferrovie dello Stato
Notes
9.125%, 7/6/09 N/R 3,000 3,465
USAir, Inc.
Sr. Notes
10.00%, 7/1/03 B3 1,000 850
-------
GROUP TOTAL 5,154
-------
- --------------------------------------------------------------------------
- ------------
TOTAL CORPORATE OBLIGATIONS
(Cost $174,091,054) 170,052
-------
- --------------------------------------------------------------------------
- ------------
GOVERNMENT & AGENCY SECURITIES (4.0%)
- --------------------------------------------------------------------------
- ------------
COLLATERALIZED MORTGAGE OBLIGATIONS (3.6%)
Federal Home Loan Mortgage Corporation
REMIC-PAC 32-C
9.50%, 3/15/20 Aaa 1,000 1,111
-------
- --------------------------------------------------------------------------
- ------------
Federal National Mortgage Association
REMIC Series 89-23D 10.20%,
9/25/18 Aaa 4,348 4,712
Strip Series H-2 11.50%, 5/1/09 Aaa 1,477 1,612
-------
GROUP TOTAL 6,324
-------
- --------------------------------------------------------------------------
- ------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (0.2%)
Various Pools:
10.50%, 9/15/15-8/15/16 Aaa 364 401
-------
- --------------------------------------------------------------------------
- ------------
U.S. TREASURY BOND (0.2%)
7.125%, 2/15/23 Aaa 290 306
-------
- --------------------------------------------------------------------------
- ------------
TOTAL GOVERNMENT & AGENCY SECURITIES
(Cost $7,924,334) 8,142
-------
- --------------------------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
Face Value
Moody's Amount (000)
Ratings (000) (Note A-1)
- ------------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
COLLATERALIZED SECURITIES (4.2%)
- ------------------------------------------------------------------------------
- ------------
COLLATERALIZED MORTGAGE OBLIGATIONS (4.2%)
Drexel, Burnham, & Lambert Trust
REMIC-PAC Series S-2
9.00%, 8/1/18 Aaa $8,146 $8,732
------
- ------------------------------------------------------------------------------
- ------------
TOTAL COLLATERALIZED SECURITIES
(Cost $8,686,100) 8,732
------
- ------------------------------------------------------------------------------
- ------------
ASSET BACKED OBLIGATIONS (3.8%)
- ------------------------------------------------------------------------------
- ------------
Green Tree Financial Corp.
Series 1993-4, Class B1
7.20%, 1/15/19 Baa3 2,000 1,950
Household Affinity
Credit Card Master
Trust I Series 93-B, Class B
4.95%, 3/15/99 A2 2,500 2,451
(/9/) Merrill Lynch Home Equity
Acceptance Trust
Series 1994-A, Class A2
(/9/) 6.875%, 7/17/22 A3 2,434 2,439
(/3/) Resolution Trust Co.
Series 1994-N1A, Class 2
6.00%, 1/15/04 Baa2 1,000 999
- ------------------------------------------------------------------------------
- ------------
TOTAL ASSET BACKED OBLIGATIONS
(Cost $7,776,465) 7,839
------
- ------------------------------------------------------------------------------
- ------------
<CAPTION>
Shares
- ------------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
COMMON STOCKS (0.6%)
- ------------------------------------------------------------------------------
- ------------
COMMUNICATIONS (0.0%)
Pagemart, Inc. 7,000 0
------
- ------------------------------------------------------------------------------
- ------------
CONSUMER PRODUCTS (0.5%)
(/1/)(/5/)(/6/) Applause Enterprises, Inc.
(acquired 11/8/91, cost
$144,400) 3,800 13
Grand Union Co. 18,063 262
(/1/)(/6/) Mail-Well, Inc. 2,500 0
(/1/) Specialty Foods, Inc. 30,000 60
(/1/)(/5/)(/6/) TLC Beatrice Enterprises, Inc.
(acquired 11/19/91-11/26/91
cost $1,018,800) 25,000 750
------
GROUP TOTAL 1,085
------
- ------------------------------------------------------------------------------
- ------------
FINANCE (0.0%)
Capital Holding Corp. 6,667 6
(/1/)(/5/)(/6/)(/7/) Westfed Holdings, Inc., Series B
(acquired 9/20/88, cost $400) 12,670 0
------
GROUP TOTAL 6
------
- ------------------------------------------------------------------------------
- ------------
MANUFACTURING (0.1%)
(/5/)(/6/)(/7/) CIC Acquisition Corp.
(acquired 10/18/89, cost
$1,076,700) 2,944 200
(/1/) Polyvision Corp. 3,701 12
------
GROUP TOTAL 212
------
- ------------------------------------------------------------------------------
- ------------
RETAIL TRADE (0.0%)
(/1/)(/5/) Jewel Recovery L.P.
(acquired 7/30/93, cost $0) 49,559 0
------
- ------------------------------------------------------------------------------
- ------------
SERVICES (0.0%)
(/1/)(/5/)(/6/) Lady Luck Gaming Corp. (acquired
2/15/94-2/18/94,
cost $144,500) 11,040 $ 4
(/3/) Motels of America, Inc. 500 38
------
GROUP TOTAL 42
------
- ------------------------------------------------------------------------------
- ------------
TOTAL COMMON STOCKS
(Cost $2,922,785) 1,345
------
- ------------------------------------------------------------------------------
- ------------
PREFERRED STOCKS (1.0%)
- ------------------------------------------------------------------------------
- ------------
COMMUNICATIONS (0.2%)
(/3/) SD Warren Co. 12,000 336
------
- ------------------------------------------------------------------------------
- ------------
FINANCE (0.0%)
(/1/)(/5/)(/6/)(/7/) Westfed Holdings, Inc., Class A
(acquired 9/20/88-6/18/93,
cost $3,612,000) 42,759 0
------
- ------------------------------------------------------------------------------
- ------------
MANUFACTURING (0.0%)
Alpine Group, Inc. 1,659 75
------
- ------------------------------------------------------------------------------
- ------------
OIL, GAS & ELECTRIC (0.8%)
(/1/) Consolidated Hydro, Inc., Class
H 3,000 1,635
------
- ------------------------------------------------------------------------------
- ------------
TOTAL PREFERRED STOCKS
(Cost $5,423,973) 2,046
------
- ------------------------------------------------------------------------------
- ------------
WARRANTS (0.3%)
- ------------------------------------------------------------------------------
- ------------
(/1/) American Telecasting, Inc.,
expiring 6/23/99 7,500 19
(/1/)(/3/) Boomtown, Inc., expiring 11/1/98 500 0
(/1/)(/3/)(/6/) Capital Gaming International,
expiring 2/1/99 5,687 1
(/1/) Casino America Corp.,
expiring 11/15/96 3,263 0
(/1/) Casino Magic Corp.,
expiring 10/14/96 9,000 0
(/1/) Chatwins Group, Inc.,
expiring 5/3/03 1,000 0
(/1/) CHC Helicopter, expiring
12/15/00 6,000 6
(/1/) Consolidated Hydro, Inc.,
expiring 12/31/03 5,400 27
(/1/) County Seat Stores,
expiring 10/15/98 1,520 3
(/1/)(/6/) Crown Packaging Holdings,
expiring 11/1/03 2,000 44
(/1/) Dial Call Communications,
expiring 4/25/99 750 1
(/1/)(/3/) Elsinore Corp., expiring 10/8/98 79,941 0
General Media,
(/1/) expiring 12/22/00 500 5
(/1/) expiring 12/31/00 625 6
(/1/)(/3/) Great American Cookie,
expiring 1/30/00 225 0
(/1/) Hemmeter, expiring 12/15/99 9,000 0
(/1/)(/3/) Icon Health Fitness, Inc.,
expiring 11/14/99 500 0
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
Value
(000)
Shares (Note A-1)
- -------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
(/1/) MVE Inc., expiring 2/15/02 1,415 $ 0
(/1/) Presidential Riverboat Casinos,
expiring 9/23/96 6,000 0
(/1/)(/3/) Purity Supreme, expiring 8/1/97 5,198 0
(/1/)(/3/) Renaissance Cosmetics,
expiring 4/3/01 3,000 53
(/1/) SD Warren Co., expiring 12/15/06 12,000 72
(/1/) Sheffield Steel Corp.,
expiring 11/01/01 6,250 38
(/1/) Spanish Broadcasting System,
expiring 6/29/99 1,500 270
(/1/) Uniroyal Technology Corp., expiring
6/1/03 5,000 10
(/1/) United International Holdings,
expiring 11/15/99 2,950 0
(/1/)(/3/) Wright Medical Technology, expiring
6/30/03 618 102
- -------------------------------------------------------------------------
- ------------
TOTAL WARRANTS
(Cost $420,096) 657
--------
- -------------------------------------------------------------------------
- ------------
<CAPTION>
Face
Moody's Amount
Ratings (000)
- -------------------------------------------------------------------------
- ------------
<C> <S> <C> <C> <C>
UNITS (2.0%)
- -------------------------------------------------------------------------
- ------------
CORPORATE OBLIGATIONS (2.0%)
(/3/)(/6/)(/8/) Commodore Media, Inc.
7.50%, 5/1/03 N/R $ 300 265
(/3/)(/6/) Gulf States Steel 13.50%,
4/15/03 B1 400 387
(/3/)(/6/)(/8/) In-Flight Phone Corp. 0.00%,
5/15/02 Caa 1,000 590
Petro PSC Properties/Petro
Finance
12.50%, 6/1/02 B3 500 523
Santa Fe Hotel, Inc. 11.00%,
12/15/00 B2 400 376
(/3/)(/6/) Terex Corp.
13.75%, 5/15/02 Caa 1,500 1,335
(/3/)(/9/) Thermoscan, Inc. 13.50%,
8/15/01 N/R 500 550
- -------------------------------------------------------------------------
- ------------
TOTAL UNITS
(Cost $3,547,504) 4,026
--------
- -------------------------------------------------------------------------
- ------------
TOTAL INVESTMENTS (98.2%)
(Cost $210,792,311) 202,839
--------
- -------------------------------------------------------------------------
- ------------
OTHER ASSETS IN EXCESS OF LIABILITES (1.8%) 3,821
--------
- -------------------------------------------------------------------------
- ------------
NET ASSETS (100%)
Applicable to 24,385,367 issued and outstanding $.001 par
value shares (authorized 100,000,000 shares) $206,660
--------
- -------------------------------------------------------------------------
- ------------
</TABLE>
N/R--Not Rated.
PAC--Planned Amortization Class.
REMIC--Real Estate Mortgage Investment Conduit.
(/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 June 30, 1995 aggregated $6,166,900. Total market value of
restricted securities owned at June 30, 1995 was $1,531,000 or 0.7% 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 intial period and then
increases to a higher coupon rate thereafter.
(/9/) Floating Rate--The interest rate changes on these instruments based upon a
designated base rate. The rates shown are those in effect at June 30,
1995.
(/10/ 9.375% of 11.35% represents amount paid in cash, the remainder is payment
in kind.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
June 30, 1995
(Unaudited)
(000)
- -------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at Value
(Cost $210,792) (Note A-1)........................................ $202,839
Receivables:
Interest (Note A-4)................................................ 4,663
Investments Sold................................................... 1,146
Other Assets....................................................... 48
- -------------------------------------------------------------------------------
Total Assets...................................................... 208,696
- -------------------------------------------------------------------------------
LIABILITIES:
Payables:
Dividends.......................................................... 1,463
Investment Advisory Fees (Note B).................................. 257
Bank Overdraft..................................................... 181
Shareholder Servicing Fees......................................... 37
Administrative Fees (Note C)....................................... 22
Custodian Fees..................................................... 13
Other Liabilities.................................................. 63
- -------------------------------------------------------------------------------
Total Liabilities................................................. 2,036
- -------------------------------------------------------------------------------
NET ASSETS.......................................................... $206,660
========
NET ASSETS CONSIST OF:
Paid in Capital.................................................... $225,000
Undistributed Net Investment Income................................ 2,410
Accumulated Net Realized Loss...................................... (12,797)
Unrealized Depreciation on Investments............................. (7,953)
--------
NET ASSETS APPLICABLE TO 24,385,367 ISSUED AND OUTSTANDING $.001 PAR
VALUE SHARES (AUTHORIZED 100,000,000 SHARES)....................... $206,660
========
NET ASSET VALUE PER SHARE........................................... $ 8.47
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1995
(Unaudited)
(000)
- ----------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest (Note A-4)..................................................... $11,438
- ----------------------------------------------------------------------------------
EXPENSES:
Investment Advisory Fees (Note B)....................................... 501
Administrative Fees (Note C)............................................ 129
Shareholder Servicing Fees.............................................. 86
Shareholders' Reports................................................... 54
Professional Fees....................................................... 28
Custodian Fees.......................................................... 24
Directors' Fees and Expenses............................................ 19
Other Expenses.......................................................... 46
- ----------------------------------------------------------------------------------
Total Expenses......................................................... 887
- ----------------------------------------------------------------------------------
Net Investment Income................................................. 10,551
- ----------------------------------------------------------------------------------
Net Realized Loss on Investments......................................... (905)
Change in Unrealized Appreciation/ Depreciation on Investments........... 11,852
- ----------------------------------------------------------------------------------
Net Realized Loss and Change in Unrealized Appreciation/Depreciation..... 10,947
- ----------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations..................... $21,498
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1995 Year Ended
(Unaudited) December 31, 1994
(000) (000)
- ---------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Income..................... $ 10,551 $ 20,163
Net Realized Gain (Loss) on Investments... (905) 950
Net Change in Unrealized
Appreciation/Depreciation on Investments. 11,852 (26,532)
- ---------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................. 21,498 (5,419)
- ---------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income..................... (11,217) (17,557)
- ---------------------------------------------------------------------------------
Total Net Increase (Decrease) in Net
Assets.................................. 10,281 (22,976)
- ---------------------------------------------------------------------------------
NET ASSETS:
Beginning of Period....................... 196,379 219,355
- ---------------------------------------------------------------------------------
End of Period (Including undistributed net
investment income of $2,410 and $3,076
respectively)............................ $206,660 $196,379
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
PER SHARE OPERATING June 30, 1995 ------------------------------------------------
PERFORMANCE: (Unaudited) 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 8.05 $ 9.00 $ 8.42 $ 8.28 $ 7.25 $ 8.32
- --------------------------------------------------------------------------------------------
Investment Activities:
Net Investment Income.. 0.43 0.83 0.91 0.89 0.89 0.87
Net Realized and
Unrealized Gain (Loss)
on Investments........ 0.45 (1.06) 0.57 0.08 1.04 (1.04)
- --------------------------------------------------------------------------------------------
Total from Investment
Activities............. 0.88 (0.23) 1.48 0.97 1.93 (0.17)
- --------------------------------------------------------------------------------------------
Distributions:
Net Investment Income.. (0.46) (0.72) (0.90) (0.83) (0.90) (0.90)
- --------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD................. $ 8.47 $ 8.05 $ 9.00 $ 8.42 $ 8.28 $ 7.25
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE,
END OF PERIOD.......... $ 7.63 $ 7.00 $ 8.50 $ 8.38 $ 8.38 $ 6.38
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Net Asset Value (1).... 11.26%# (2.67)% 18.47% 11.95% 27.71% (2.06)%
Market Value........... 14.89%# (9.48)% 12.46% 12.09% 50.81% (6.12)%
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
RATIOS SUPPLEMENTAL
DATA:
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Net Assets, End of
Period (Thousands)..... $206,660 $196,379 $219,355 $203,846 $199,857 $175,390
- --------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets..... 0.89%* 0.83% 0.88% 0.86% 0.87% 0.89%
Ratio of Net Investment
Income to Average Net
Assets................. 10.53%* 9.75% 10.34% 10.38% 11.12% 11.26%
Portfolio Turnover Rate. 27.32% 70.6% 117.5% 115.2% 53.3% 61.4%
- --------------------------------------------------------------------------------------------
</TABLE>
* Annualized
# Not Annualized
(1) Total investment return based on per share net asset value reflects the
effects of change 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.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
BEA Income Fund, Inc. (the "Fund"), formerly CS First Boston Income Fund, Inc.,
was incorporated on February 11, 1987 and is registered as a diversified,
closed-end investment company under the Investment Company Act of 1940.
A.The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
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 the 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. Securities
purchased with remaining maturities of 60 days or less are valued at
amortized cost, if it approximates market value. Securities for which market
quotations are not readily available (including investments which are
subject to limitations as to their sale) are valued at fair value as
determined in good faith by the Board of Directors. Such securities have a
value of $764,000 (or 0.37% of net assets) at June 30, 1995. In determining
fair value, consideration is given to cost, operating and other financial
data.
The Fund may invest up to 10% of its total assets in securities which are not
readily marketable, including those which are restricted as to disposition
under securities law ("restricted securities"). These securities are valued
pursuant to the valuation procedures noted above.
2. FEDERAL INCOME TAXES: It is the Fund's intention to continue to qualify as a
regulated investment company and distribute all of its taxable income to
shareholders. Accordingly, no provision for Federal income taxes is required
in the financial statements.
Paid in capital, undistributed net investment income and accumulated net
realized loss have been adjusted for prior period permanent book-tax
differences.
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
or proceeds may be subject to legal proceedings.
4. 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.
5. 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. 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.
B. Effective June 13, 1995, 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. Prior to June
13, 1995, CS First Boston Investment Management Corporation provided investment
advisory services to the Fund under substantially the same terms, conditions
and fees as stated above.
C. United States Trust Company of New York ("U.S. Trust"), through its wholly
owned subsidiary, Mutual Funds Service Company, provides administrative
services to the Fund under 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 average weekly net assets,
.10% of the Fund's next $300 million average weekly net assets and .05% of the
Fund's average weekly net assets in excess of $400 million.
U.S. Trust also provides custodial and transfer agent services. Under the
Custody Agreement, U.S. Trust 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
12
<PAGE>
million. Under the Transfer Agent Agreement, U.S. Trust is paid a fee based on
the number of accounts in the Fund per year.
D.During the six months ended June 30, 1995, the Fund made purchases of
$48,997,242 and sales of $51,533,564 of investment securities other than U.S.
Government securities and short term investments. During the six months ended
June 30, 1995, purchases and sales of U.S. Government securities were
$7,741,379 and $2,995,704, respectively. At June 30, 1995, the cost of
investments for Federal income tax purposes was $210,792,311. Accordingly, net
unrealized depreciation for Federal income tax purposes aggregated $7,953,133,
of which $5,744,819 related to appreciated securities and $13,697,952 related
to depreciated securities.
During the year ended December 31, 1994 the Fund utilized capital loss
carryover for federal income tax purposes of $2,360,326. At December 31, 1994
the Fund had a capital loss carryforward of approximately $10,473,000 available
to offset future capital gains of which $1,139,000, $4,585,000, $883,000 and
$3,866,000 will expire on December 31, 1997, 1998, 1999 and 2000, respectively.
Net capital losses incurred after October 31 and within the taxable year are
deemed to arise on the first business day of a portfolio's next taxable year.
The Fund incurred and elected to defer, net capital losses of approximately
$1,419,600 for the year ended December 31, 1994.
E.At June 30, 1995, 69.1% 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.
F.The Fund's Board of Directors has approved a share repurchase program
authorizing the Fund from time to time to make open-market purchases on the New
York Stock Exchange of up to 10 percent of the Fund's shares outstanding as of
December 11, 1990. There were no repurchases of shares during the six months
ended June 30, 1995.
G.Summary of quarterly results of operations:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
THREE MONTHS ENDED
------------------------------------------------------------------
MARCH 31, 1995 JUNE 30, 1995
--------------- ---------------
<S> <C> <C> <C> <C>
Investment Income........ $ 5,429 $ 0.22 $ 6,009 $ 0.25
Net Investment Income.... 4,969 0.20 5,582 0.23
Net Realized Loss and
Change in Unrealized
Appreciation/Depreciation
on Investments.......... 5,992 0.25 4,955 0.20
Net Increase in Net
Assets Resulting from
Operations.............. 10,961 0.45 10,537 0.43
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
MARCH 31, 1994 JUNE 30, 1994 1994 1994
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income........ $ 5,427 $ 0.22 $ 5,532 $ 0.23 $ 5,512 $ 0.23 $ 5,412 $ 0.22
Net Investment Income.... 4,954 0.20 5,093 0.21 5,105 0.21 5,011 0.21
Net Realized Gain (Loss)
and Change in Unrealized
Appreciation/Depreciation
on Investments.......... (6,727) (0.28) (7,923) (0.32) (6,059) (0.25) (4,873) (0.21)
Net Increase (Decrease)
in Net Assets Resulting
from Operations......... (1,773) (0.08) (2,830) (0.11) (954) (0.04) 138 0.00
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
MARCH 31, 1993 JUNE 30, 1993 1993 1993
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income........ $ 6,262 $ 0.18 $ 6,030 $ 0.25 $ 5,372 $ 0.29 $ 6,291 $ 0.26
Net Investment Income.... 5,782 0.16 5,558 0.23 4,907 0.27 5,833 0.25
Net Realized Gain (Loss)
and Change in Unrealized
Appreciation/Depreciation
on Investments.......... 8,465 0.35 3,817 0.16 (2,806) (0.11) 4,308 0.17
Net Increase in Net
Assets Resulting from
Operations.............. 14,247 0.51 9,375 0.39 2,101 0.16 10,141 0.42
</TABLE>
H.Supplemental Proxy Information
The Annual Meeting of the Stockholders of the BEA Income Fund, Inc. was held on
Tuesday June 13, 1995 at the offices of BEA Associates, 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 VOTES
PROPOSAL FAVOR OF AGAINST WITHHELD ABSTAINED
- -------- ---------- ------- --------- ---------
<S> <C> <C> <C> <C>
1. To elect the following four Directors:
Messrs. Daniel H. Sigg, Enrique R. Arzac,
Lawrence J. Fox and James S. Pasman Jr. 21,698,444 -- 1,739,413 --
2. To ratify the selection of Price Waterhouse
LLP as independent public accountants of the
Fund until the next annual meeting. 21,665,717 180,630 -- 295,073
3. To approve or disapprove a new Investment
Advisory Agreement between the Fund and BEA
Associates containing substantially the same
terms and conditions and fees as the Fund's
previous investment agreement with CS First
Boston Investment Management Corporation. 21,053,829 488,643 -- 598,948
4. To approve or disapprove an amendment to the
Articles of Incorporation of the Fund to
change its name to "BEA Income Fund, Inc."
from "CS First Boston Income Fund, Inc." 20,776,084 723,375 -- 641,961
</TABLE>
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