BEA INCOME FUND INC, N-2, 1996-08-26

BEA INCOME FUND INC
N-2, 1996-08-26

Previous: INSURED MUNICIPALS INC TR & INV QUAL TAX EX TR MULTI SER 53, 485BPOS, 1996-08-26

Next: WARBURG PINCUS CAPITAL APPRECIATION FUND, N-30D, 1996-08-26

<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 26, 1996
SECURITIES ACT FILE NO. 333- ____
INVESTMENT COMPANY ACT FILE NO. 811-5012
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM N-2
/X/ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ / PRE-EFFECTIVE AMENDMENT NO. ____
/ / POST-EFFECTIVE AMENDMENT NO. ____

/X/ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/ AMENDMENT NO. 5
____________________
BEA INCOME FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
____________________
153 East 53rd Street
New York, New York 10022
(Address of principal executive offices)
(212) 832-2626
(Registrant's telephone number, including area code)
____________________
Daniel H. Sigg
Chief Executive Officer
BEA Income Fund, Inc.
153 East 53rd Street
New York, New York 10022
(Name and address of agent for service)
____________________
WITH COPIES TO:

DANIEL SCHLOENDORN, ESQ. TOM DECAPO, ESQ.
WILLKIE FARR & GALLAGHER SKADDEN, ARPS, SLATE, MEAGHER & FLOM
ONE CITICORP CENTER 1 BEACON STREET
153 EAST 53RD STREET BOSTON, MA 02108
NEW YORK, NEW YORK 10022

____________________
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.

If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. /X/
It is proposed that this filing will become effective (check appropriate box)

/ / when declared effective pursuant to Section 8(c)

If appropriate, check the following box:

/ / This amendment designates a new effective date for a previously filed
registration statement.

/ / This Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is ____________________.

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------
PROPOSED
MAXIMUM PROPOSED AMOUNT OF
AMOUNT OFFERING MAXIMUM REGISTRAT
TITLE OF SECURITIES BEING PRICE PER AGGREGATE ION
BEING REGISTERED REGISTERED UNIT(1) OFFERING PRICE FEE(2)
- --------------------------------------------------------------------------------
Shares of Common
Stock, par value
$.001 per share...... 10,160,570 $8.31 $84,434,336.70 $29,115.29
- --------------------------------------------------------------------------------

(1) As calculated pursuant to Rule 457(c) under the Securities Act of 1933, as
amended. Based on the average of the high and low sales prices reported on
the New York Stock Exchange on August 21, 1996.
(2) $29,115.29 was wired to the Securities and Exchange Commission's account at
Mellon Bank in payment of the required registration fee due in connection
with this Registration Statement.
____________________________

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

<PAGE>

BEA INCOME FUND, INC.
FORM N-2
CROSS-REFERENCE SHEET
PARTS A AND B OF PROSPECTUS

ITEM NO. CAPTION LOCATION IN PROSPECTUS
- -------- ------- ----------------------

PART A - Information Required in a Prospectus

1. Outside Front Cover . . . . . . . . Front Cover Page

2. Inside Front and Outside
Back Cover Page . . . . . . . . Front Cover Page

3. Fee Table and Synopsis. . . . . . . Prospectus Summary; Fee Table

4. Financial Highlights. . . . . . . . Financial Highlights

5. Plan of Distribution. . . . . . . . Front Cover Page; Prospectus
Summary; The Offer; Distribution
Arrangements

6. Selling Shareholders. . . . . . . . Not Applicable

7. Use of Proceeds . . . . . . . . . . Use of Proceeds

8. General Description of the
Registrant. . . . . . . . . . . . . Front Cover Page; Prospectus
Summary; The Fund; Investment
Objective and Policies; Risk
Factors and Special
Considerations; Common Stock;
Net Asset Value

9. Management. . . . . . . . . . . . . Management of the Fund; Portfolio
Transactions; Custodian and
Transfer and Dividend-Paying
Agent and Registrar

10. Capital Stock, Long-Term Debt and
Other Securities. . . . . . . . . . The Offer; Common Stock; Dividends
and Distributions; Dividend
Reinvestment and Cash Purchase
Plan; Net Asset Value; Taxation

11. Defaults and Arrears on
Senior Securities . . . . . . . . . Not Applicable

12. Legal Proceedings . . . . . . . . . Not Applicable

13. Table of Contents of the Statement
of Additional Information . . . . . Table of Contents of the
Statement of Additional
Information

PART B - Information required in a Statement of Additional Information

14. Cover Page. . . . . . . . . . . . . Front Cover Page

15. Table of Contents . . . . . . . . . Front Cover Page

16. General Information and History . . General Information

17. Investment Objective and Policies . Investment Objective and Policies;
Investment Restrictions

18. Management. . . . . . . . . . . . . Management of the Fund

<PAGE>

19. Control Persons and Principal Holders
of Securities . . . . . . . . . . . Common Stock

20. Investment Advisory and
Other Services. . . . . . . . . . . Management of the Fund

21. Brokerage Allocation and Other
Practices . . . . . . . . . . . . . Portfolio Transactions

22. Tax Status. . . . . . . . . . . . . Taxation

23. Financial Statements. . . . . . . . Financial Statements

PART C - Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.

<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION DATED AUGUST 26, 1996
PROSPECTUS
BEA INCOME FUND, INC.
8,128,456 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF RIGHTS
TO SUBSCRIBE FOR SUCH SHARES
-------------------

BEA Income Fund, Inc. (the "Fund") is issuing to its shareholders of record
("Record Date Shareholders") as of the close of business on , 1996
(the "Record Date") non-transferable rights ("Rights") entitling the holders
thereof to subscribe for an aggregate of 8,128,456 shares ("Shares") of the
Fund's common stock ( the "Offer"). Each Record Date Shareholder is being issued
one Right for each whole share of the Fund's common stock ("Common Stock") owned
on the Record Date. The Rights entitle the Record Date Shareholder to acquire at
the Subscription Price (as hereinafter defined) one Share for every three Rights
held (one for three). Shareholders who fully exercise their Rights will be
entitled to subscribe for additional shares of Common Stock pursuant to an
Over-Subscription Privilege, as described herein. The Fund may increase at its
discretion the number of shares of Common Stock subject to subscription by up to
25% of the Shares, or 2,032,114 Shares, for an aggregate total of 10,160,570
Shares. Fractional Shares will not be issued upon the exercise of Rights.
Accordingly, Shares may be purchased only pursuant to the exercise of Rights in
integral multiples of three. The Rights are non-transferable and will not be
admitted for trading on the New York Stock Exchange or any other exchange. See
"The Offer." THE SUBSCRIPTION PRICE PER SHARE (THE "SUBSCRIPTION PRICE") WILL BE
% OF THE LOWER OF (i) THE AVERAGE OF THE LAST REPORTED SALES PRICE OF A SHARE
OF THE FUND'S COMMON STOCK ON THE NEW YORK STOCK EXCHANGE ON THE DATE OF THE
EXPIRATION OF THE OFFER (THE "PRICING DATE") AND ON THE FOUR PRECEDING BUSINESS
DAYS THEREOF AND (ii) THE NET ASSET VALUE PER SHARE AS OF THE CLOSE OF BUSINESS
ON THE PRICING DATE.

The Fund announced the Offer after the close of trading on the New York
Stock Exchange on August 22, 1996. Shares of the Common Stock trade on that
exchange under the symbol "FBF." The last reported net asset value per share of
Common Stock at the close of business on August 23, 1996 and , 1996
was $8.51 and $ , respectively, and the last reported sales price of a
share of the Fund's Common Stock on that exchange on those dates was $8 3/8 and
$ , respectively.

THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1996 (THE "EXPIRATION DATE"), UNLESS EXTENDED AS DESCRIBED HEREIN.

Upon the completion of the Offer, Record Date Shareholders who do not fully
exercise their Rights will own a smaller proportional interest in the Fund than
would otherwise be the case if the Offer had not been made. In addition, because
the Subscription Price per Share will be less than the current net asset value
per share, the Offer will result in dilution of net asset value per share for
all shareholders. If the Subscription Price per Share were to be substantially
less than the current net asset value per share, such dilution would be
substantial. Shareholders will have no right to rescind their subscriptions
after receipt of their payment for Shares by the Subscription Agent. See "Risk
Factors and Special Considerations-- Certain Effects of the Offer."

If you have questions or need further information about the Offer, please
call Shareholder Communications Corporation, the Fund's information agent for
the Offer (the "Information Agent"), at (800) 733-8481, extension 349.

(CONTINUED ON THE FOLLOWING PAGE)
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
ESTIMATED ESTIMATED PROCEEDS
SUBSCRIPTION ESTIMATED TO
PRICE(1) SALES LOAD(2) THE FUND(3)(4)
<S> <C> <C> <C>
Per Share.................. $ $ $
Total Maximum(5)........... $ $ $
</TABLE>

(FOOTNOTES ON THE FOLLOWING PAGE)

The date of this Prospectus is , 1996
<PAGE>
(CONTINUED FROM THE PREVIOUS PAGE)

The Fund is a closed-end, diversified management investment company that
seeks current income consistent with the preservation of capital by investing
primarily in fixed-income securities. Under normal circumstances, the Fund will
invest at least 75% of its total assets in fixed-income securities, such as
bonds, debentures and preferred stocks. All or substantially all of the Fund's
assets may be invested in securities rated below investment grade and in unrated
securities of comparable quality. Securities of this type are subject to greater
risk of loss of principal of nonpayment of interest than higher-rated securities
and are predominantly speculative. There can be no assurance that the Fund's
investment objective will be achieved. See "Investment Objective and Policies."
BEA Associates serves as the Fund's investment adviser. The address of the Fund
is One Citicorp Center, 57th Floor, 153 East 53rd Street, New York, New York
10022, and the Fund's telephone number is (212) 832-2626.

Investment in lower-rated securities involves certain special considerations
not typically associated with investment in higher-rated securities. See "Risk
Factors and Special Considerations."

This Prospectus sets forth information about the Fund that a prospective
investor ought to know before investing and should be retained for future
reference. A Statement of Additional Information dated , 1996 (the
"SAI") containing additional information about the Fund has been filed with the
Securities and Exchange Commission (the "Commission") and is incorporated by
reference in its entirety into this Prospectus. A copy of the SAI, the table of
contents of which appears on page 35 of this Prospectus, may be obtained without
charge by contacting the Information Agent at the telephone number set forth
above.
-------------------

(FOOTNOTES FROM THE PREVIOUS PAGE)

(1) Estimated on the basis of % of the market price per share on
, 1996. See "The Offer--Subscription Price."

(2) In connection with the Offer, (the "Dealer
Manager") and other broker-dealers soliciting the exercise of Rights will
receive soliciting fees equal to 2.50% of the Subscription Price per Share
for each Share issued upon exercise of the Rights and the Over-Subscription
Privilege. The Fund has also agreed to pay the Dealer Manager a fee for
financial advisory and marketing services in connection with the Offer equal
to 1.25% of the Subscription Price per Share for Shares issued upon exercise
of the Rights and the Over-Subscription Privilege and has agreed to
indemnify the Dealer Manager against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act").

(3) Before deduction of offering expenses incurred by the Fund, estimated at
$550,000, including an aggregate of up to $100,000 to be paid to the Dealer
Manager as partial reimbursement for its expenses.

(4) Funds received by check prior to the final due date of this Offer will be
deposited into a segregated interest bearing account (which interest will be
paid to the Fund) pending proration and distribution of Shares.

(5) Assumes all Rights are exercised at the Estimated Subscription Price.
Pursuant to the Over-Subscription Privilege, the Fund may at its discretion
increase the number of Shares subject to subscription by up to 25% of the
Shares offered hereby. If the Fund increases the number of Shares subject to
subscription by 25%, the aggregate maximum Estimated Subscription Price,
Estimated Sales Load and Estimated Proceeds to the Fund will be $ ,
$ and $ , respectively.
-------------------

Unless otherwise specified, all references in this Prospectus to "U.S.
dollars," "dollars," "US$" or "$" are to United States dollars.

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS AND THE STATEMENT OF
ADDITIONAL INFORMATION ("SAI").

PURPOSE OF THE OFFER

The Board of Directors of BEA Income Fund, Inc. (the "Fund") has determined
that it would be in the best interest of the Fund and its shareholders to
increase the assets of the Fund available for investment, thereby allowing
better positioning of the Fund to more fully take advantage of available
investment opportunities consistent with the Fund's investment objective of
realizing current income. In reaching its decision, the Board of Directors was
advised by BEA Associates that the availability of new funds would provide the
Fund with additional investment flexibility as well as increase the Fund's
ability to take advantage of what BEA Associates believes to be timely
opportunities in the high yield bond market as a result of interest rate
stability and a strong economy.

The Board of Directors also considered that a well-subscribed rights
offering may reduce the Fund's expense ratio, which may be of long-term benefit
to shareholders. In addition, the Board of Directors considered that such a
rights offering could result in an improvement in the liquidity of the trading
market for shares of the Fund's common stock ("Common Stock") on the New York
Stock Exchange, where the shares are listed and traded. The Board of Directors
also considered the proposed terms of the Offer (as defined below), including
the expenses of the Offer, and its dilutive effect, including the effect on non-
exercising shareholders of the Fund. After careful consideration, the Fund's
Board of Directors unanimously voted to approve the Offer.

The Fund may, in the future and at its discretion, choose to make additional
rights offerings from time to time for a number of shares and on terms which may
or may not be similar to the Offer. Any such future rights offering will be made
in accordance with the Investment Company Act of 1940, as amended (the "1940
Act").

TERMS OF THE OFFER

The Fund is issuing to its shareholders of record ("Record Date
Shareholders") as of the close of business on , 1996 (the "Record
Date") non-transferable rights ("Rights") to subscribe for an aggregate of
8,128,456 shares ("Shares") of the Fund's Common Stock, par value $0.001 per
share (the "Offer"). Each Record Date Shareholder is being issued one Right for
each whole share of Common Stock owned on the Record Date. The Rights entitle
the Record Date Shareholder to acquire at the Subscription Price (as hereinafter
defined) one Share for every three Rights held (one for three). Rights may be
exercised at any time during the offering period (the "Subscription Period"),
which commences on , 1996 and ends at 5:00 p.m., New York City time,
on , 1996 (the "Expiration Date"), unless extended by the Fund until
5:00 p.m., New York City time, on a date no later than , 1996. The
right to acquire one Share for every three Rights held during the Subscription
Period at the Subscription Price is hereinafter referred to as the "Primary
Subscription."

OVER-SUBSCRIPTION PRIVILEGE

Any Record Date Shareholder who fully exercises all Rights issued to such
shareholder is entitled to subscribe for Shares which were not otherwise
subscribed for by others on Primary Subscription (the "Over-Subscription
Privilege"). If sufficient Shares are not available to honor all requests for
over-subscriptions, the Fund may, at its discretion, issue shares of Common
Stock up to an additional 25% of the Shares available pursuant to the Offer (up
to 2,032,114 Shares) in order to satisfy such over-subscription requests. Shares
requested pursuant to the Over-Subscription Privilege may be subject to
allotment, which is more fully discussed under "The Offer--Over-Subscription
Privilege."

3
<PAGE>
SUBSCRIPTION PRICE

The subscription price per Share (the "Subscription Price") will be % of
the lower of (i) the average of the last reported sales price of a share of the
Fund's Common Stock on the New York Stock Exchange on the Expiration Date (the
"Pricing Date") and on the four preceding business days thereof and (ii) the net
asset value per share as of the close of business on the Pricing Date. See "The
Offer--Subscription Price."

NON-TRANSFERABILITY OF RIGHTS

The Rights are non-transferable and, therefore, may not be purchased or
sold. The Rights will not be admitted for trading on the New York Stock Exchange
or any other exchange. However, the Shares to be issued pursuant to the Rights
will be admitted for trading on the New York Stock Exchange.

METHOD OF EXERCISE OF RIGHTS

Rights will be evidenced by subscription certificates ("Subscription
Certificates") that will be mailed to Record Date Shareholders, or if shares are
held by Cede & Co. ("Cede"), the nominee for The Depository Trust Company, or
any other depository or nominee, to Cede or such other depository or nominee.
Rights may be exercised by completing and signing a Subscription Certificate and
delivering it, together with payment, either by means of a notice of guaranteed
delivery or a check, to The Chase Manhattan Bank (the "Subscription Agent").
Shareholders who exercise their Rights will have no right to rescind their
subscription after the Subscription Agent has received payment. See "The
Offer--Subscription Agent" and "The Offer--Method of Exercise of Rights."

FOREIGN RESTRICTIONS

Subscription Certificates will not be mailed to Record Date Shareholders
whose record addresses are outside the United States (for these purposes the
United States includes its territories and possessions and the District of
Columbia) ("Foreign Record Date Shareholders"). The Rights to which such
Subscription Certificates relate will be held by the Subscription Agent for such
Foreign Record Date Shareholder's accounts until instructions are received to
exercise the Rights. If no instructions are received prior to the Expiration
Date, such Rights will expire.

IMPORTANT DATES TO REMEMBER

<TABLE>
<CAPTION>
EVENT DATE
- ---------------------------------------------------------------- ------------------------------------------------
<S> <C>
Record Date..................................................... , 1996
Subscription Period............................................. , 1996 to , 1996*
Payment for Shares or Notice of Guaranteed Delivery Due......... , 1996*
Expiration and Pricing Date..................................... , 1996*
Payment for Guarantees of Delivery Due.......................... , 1996*
Confirmation to Participants.................................... , 1996*
Final Payment for Shares........................................ , 1996*
</TABLE>

- ---------
* Unless the Offer is extended to a date not later than , 1996.

INFORMATION AGENT

The Information Agent for the Offer (the "Information Agent") is:

Shareholder Communications Corporation

Toll Free: (800) 733-8481, Extension 349.

Shareholders calling from outside the United States may call collect (212)
805-7000.

DISTRIBUTION ARRANGEMENTS

(the "Dealer Manager") will act as the dealer manager
for the Offer. The Fund has agreed to pay the Dealer Manager a fee for its
financial advisory and marketing services equal to 1.25% of the Subscription
Price per Share for Shares issued upon exercise of the Rights and the
Over-Subscription

4
<PAGE>
Privilege, and to pay broker-dealers, including the Dealer Manager, fees for
their soliciting efforts equal to 2.50% of the Subscription Price per Share for
each Share issued upon exercise of the Rights and the Over-Subscription
Privilege. See "Distribution Arrangements."

INFORMATION REGARDING THE FUND

The Fund has been engaged in business as a closed-end, diversified
management investment company since March 23, 1987. The Fund's investment
objective is current income consistent with the preservation capital. The Fund
seeks to achieve this objective primarily through investment in fixed-income
securities, such as bonds, debentures and preferred stocks. Under normal
circumstances, at least 75% of the Fund's total assets will be invested in
fixed-income securities. The Fund's investments in fixed-income securities are
not subject to any rating quality limitation and, accordingly, a substantial
portion or all of the Fund's portfolio may be invested in securities that are
rated below investment grade by a nationally recognized rating service or
unrated and of comparable quality in the opinion of BEA Associates. Lower-rated
securities generally provide yields superior to those of more highly rated
securities, but involve greater risks and are speculative in nature ("high yield
securities"). See "Risk Factors and Special Considerations--Low-Rated
Securities." The Fund may also invest up to 25% of its assets in money market
instruments such as certificates of deposit, commercial paper, bankers'
acceptances and repurchase agreements. There can be no assurance that the Fund's
investment objective will be achieved. See "Investment Objective and Policies."
BEA Associates anticipates that investment of the net proceeds of the Offer, in
accordance with the Fund's investment objective and policies, will take up to
one month from their receipt by the Fund, depending on market conditions and the
availability of appropriate securities. See "Use of Proceeds." The Common Stock
is listed and traded on the New York Stock Exchange under the symbol "FBF." As
of June 30, 1996, the net assets of the Fund were approximately $208 million.

INVESTMENT ADVISER AND ADMINISTRATORS

BEA Associates, a U.S. investment counseling firm ("BEA Associates"), serves
as the Fund's investment adviser. BEA Associates emphasizes a global investment
strategy and, as of June 30, 1996, acted as adviser for assets in excess of
$28.7 billion, including as of that date approximately $10.9 billion of assets
invested in fixed-income securities and money market instruments.

Chase Global Funds Services Company serves as the Fund's administrator (the
"Administrator"). See "Management of the Fund."

ADVISORY, ADMINISTRATIVE AND CONSULTING FEES

The aggregate annual fees payable by the Fund for investment advice equal
0.50% of the Fund's average weekly net assets. See "Management of the Fund."

For administrative services, the Fund pays the Administrator a fee at an
annual rate of 0.15% of the first $100 million of the Fund's average weekly net
assets, 0.10% of the Fund's next $300 million of average weekly net assets and
0.05% of the Fund's average weekly net assets in excess of $400 million.

Since the Fund's investment adviser's and administrator's fees are based on
the net assets of the Fund, the Fund's investment adviser and administrator will
benefit from an increase in the Fund's assets resulting from the Offer. In
addition, one director who is an "interested person" (as such term is defined
under the 1940 Act) of the Fund because of his position as a director and
officer of BEA Associates could benefit indirectly from the Offer because of
such director's affiliation. See "The Offer--Certain Impact on Fees."

RISK FACTORS AND SPECIAL CONSIDERATIONS

The following summarizes certain matters that should be considered, among
others, in connection with an exercise of Rights and an additional investment in
the Fund.

CERTAIN EFFECTS OF THE OFFER. Upon the completion of the Offer,
shareholders who do not fully exercise their Rights will own a smaller
proportional interest in the Fund than would be the case if the Offer had not
been made. In addition, an immediate dilution of the net asset value per share
will be experienced by all shareholders as a result of the Offer because the
Subscription Price will be less than the then current net asset value per share,
the Fund will bear the expenses of the Offer and the number of shares
outstanding

5
<PAGE>
after the Offer will have increased proportionately more than the increase in
the size of the Fund's net assets. Although it is not possible to state
precisely the amount of such a decrease in net asset value, because it is not
known at this time how many Shares will be subscribed for or what the
Subscription Price will be, such dilution might be substantial. See "Risk
Factors and Special Considerations."

RISKS ASSOCIATED WITH INVESTMENTS IN FIXED-INCOME SECURITIES. Bond prices
generally vary inversely in relation to changes in the level of interest rates,
as well as in response to other market factors and changes in the
creditworthiness of the issuers of the securities. Government securities are
considered to be of the highest credit quality available. Government securities,
however, will be affected by general changes in interest rates. The price
volatility of a Fund share where the Fund invests in intermediate maturity bonds
will be substantially less than where it invests in long-term bond. An
intermediate maturity bond will generally have a lower yield than a long-term
bond. Longer-term securities in which the Fund may invest generally offer a
higher current yield than is offered by shorter-term securities, but also
generally involve greater volatility of price and risk of capital than
shorter-term securities. See "Risk Factors and Special Considerations."

LOWER-RATED SECURITIES. At any time, all or substantially all of the Fund's
portfolio may be invested in medium-grade or below investment grade fixed-income
securities as determined by a nationally recognized rating service. Investment
in lower-rated securities typically involves risks not associated with
higher-rated securities, including, among others, overall greater risk that
timely and ultimate payment of interest and principal will not occur,
potentially greater sensitivity to general economic conditions, greater market
price volatility and relative illiquidity. In addition, ratings are relative and
subjective and not absolute standards of quality. See "Risk Factors and Special
Considerations."

NON PUBLICLY-TRADED SECURITIES; RULE 144A SECURITIES. The Fund may purchase
securities that are not registered under the Securities Act but that can be sold
to "qualified institutional buyers" in accordance with Rule 144A under the
Securities Act ("Rule 144A Securities"). Non publicly-traded securities,
including Rule 144A Securities, may involve a high degree of business and
financial risk and may result in substantial losses. These securities may be
less liquid than publicly-traded securities, and the Fund may take longer to
liquidate these positions than would be the case for publicly-traded securities.
Although these securities may be resold in privately negotiated transactions,
the prices realized from these sales could be less than those originally paid by
the Fund. Further, companies whose securities are not publicly-traded may not be
subject to the disclosure and other investor protection requirements that would
be applicable if their securities were publicly-traded. A Fund's investment in
illiquid securities is subject to the risk that, should the Fund desire to sell
any of these securities when a ready buyer is not available at a price that is
deemed to be representative of their value, the value of the Fund's net assets
could be adversely affected. See "Risk Factors and Special Considerations."

RISKS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES. The Fund may invest a
substantial portion of its total assets in mortgage-backed securities. The value
of mortgaged-backed securities is subject to change due to shifts in the
market's perception of issuers, and regulatory or tax changes may adversely
affect the mortgage securities market as a whole. Foreclosures and prepayments,
which occur when unscheduled or early payments are made on the underlying
mortgages, may shorten the effective maturities on these securities. The Fund's
yield may be affected by reinvestment of prepayments at higher or lower rates
than the original investment. Prepayments may tend to increase due to
refinancing of mortgages as interest rates decline. In addition, like other debt
securities, the values of mortgage-backed securities will generally fluctuate in
response to interest rates. See "Risk Factors and Special Considerations."

SHORT SALES. The Fund's investment policies may include short selling.
Short sales can, in certain circumstances, substantially increase the impact of
adverse price movements on the Fund's portfolio. A short sale of a security
involves the risk of a theoretically unlimited increase in the market price of
the security which could result in an inability to cover the short position or
the theoretically unlimited loss. There can be no assurance that securities
necessary to cover the short position will be available for purchase. The Fund,
however, is restricted from engaging in uncovered short selling. See "Investment
Objective and Policies-- Short Sales" below and "Investment Restrictions" in the
SAI.

6
<PAGE>
RISKS OF TRANSACTIONS IN INTEREST RATE FUTURES CONTRACTS. The Fund may, for
bona fide hedging purposes, purchase and sell interest rate futures contracts
and options thereon that are traded on U.S. futures exchanges. There are several
risks in connection with the use of interest rate futures contracts as a hedge
for transactions and anticipated transactions, including the risk of unlimited
loss. Due to the imperfect correlation between movements in the prices of
interest rate futures contracts and movements in the prices of the underlying
securities, the price of a futures contract may move more than or less than the
price of the securities being hedged. The market prices of futures contracts may
also be affected by various other factors which can result in significant price
distortions. In addition, there is the risk that movements in the prices of
interest rate futures contracts will not correlate with interest rate movements.
Although the Fund intends to purchase or sell interest rate futures contracts
only on exchanges or boards of trade where there appears to be an active market
for such contracts, there is no assurance that a liquid market on an exchange or
board of trade will exist for any particular contract or at any particular time.
See "Risk Factors and Special Considerations."

RISKS OF TRANSACTIONS IN OPTIONS ON INTEREST RATE FUTURES CONTRACTS. In
addition to the risks which apply to all options transactions and the risks that
apply to futures contracts, there are several special risks relating to options
on interest rate futures contracts. The ability to establish and close out
positions on such options is subject to the maintenance of a liquid secondary
market. The Fund will only purchase or write options on futures contracts traded
in sufficiently developed markets such that the risks in connection with such
options are not greater than the risks in connection with transactions in the
underlying interest rate futures contracts. See "Risk Factors and Special
Considerations."

RISKS ASSOCIATED WITH REPURCHASE AGREEMENTS. The Fund may invest in
repurchase agreements collateralized by U.S. Government securities, certificates
of deposit and certain bankers' acceptances for the purpose of realizing
additional income. The use of repurchase agreements involves certain risks not
associated with direct investment in securities. For example, if the seller of
securities under an agreement defaults on its obligation to repurchase the
underlying securities at the agreed upon repurchase price at a time when the
value of these securities has declined, the Fund may incur a loss upon their
disposition. If such a defaulting seller were to become insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws,
disposition of the underlying securities could involve certain costs or delays
pending court action. Finally, it is not certain whether the Fund would be
entitled, as against a claim of the seller or its receiver, trustee in
bankruptcy or creditors, to retain the underlying securities. While BEA
Associates acknowledges these risks, it is expected that they can be controlled
by limiting the institutions with which the Fund will enter into repurchase
agreements to the Federal Reserve Bank, Reporting Government Securities Dealers
and member banks of the Federal Reserve System and by carefully monitoring the
creditworthiness of such institutions, other than the Federal Reserve Bank, by
BEA Associates. See "Risk Factors and Special Considerations."

MARKET VALUE AND NET ASSET VALUE. Shares of closed-end investment companies
frequently trade at a discount to net asset value. This characteristic of shares
of a closed-end fund is a risk separate and distinct from the risk that the
Fund's net asset value may decrease. The Fund cannot predict whether its shares
will trade at, below or above net asset value. In addition, changes in market
yields will affect the Fund's net asset value as prices of fixed-income
securities generally increase when interest rates decline and decrease when
interest rates rise. Since the commencement of the Fund's operations, the Fund's
shares have generally traded in the market at a discount to net asset value. See
"Net Asset Value" and "Common Stock."

7
<PAGE>
FEE TABLE

The following table sets forth certain fees and expenses of the Fund.

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of the Subscription Price per Share)(1)............. 3.75%
ANNUAL EXPENSES (as a percentage of net assets)
Management Fees(2).............................................................. .50%
Other Expenses(3)............................................................... .31%
TOTAL ANNUAL EXPENSES(2)............................................................ .81%
</TABLE>

<TABLE>
<CAPTION>
1 3 5 10
EXAMPLE YEAR YEARS YEARS YEARS
- -------------------------------------------------- ----- ----- ------ ------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment assuming a 5% annual
return(4)..................................... $45 $62 $81 $134
</TABLE>

- ---------
(1) The Dealer Manager and the other broker-dealers soliciting the exercise of
Rights will receive soliciting fees equal to 2.50% of the Subscription Price
per Share for each Share issued upon exercise of the Rights and the
Over-Subscription Privilege. The Fund has also agreed to pay the Dealer
Manager a fee for financial advisory and marketing services in connection
with the Offer equal to 1.25% of the Subscription Price per Share for Shares
issued upon exercise of the Rights and the Over-Subscription Privilege.
These fees will be borne by the Fund and indirectly by all of the Fund's
shareholders, including those shareholders who do not exercise their Rights.

(2) Based on net assets of the Fund after giving effect to the anticipated net
proceeds of the Offer including proceeds from the issuance of up to 25% of
the Shares pursuant to the Over-Subscription Privilege.

(3) Based upon estimated amounts for the current fiscal year and on the net
assets of the Fund after giving effect to the anticipated net proceeds of
the Offer including proceeds from the issuance of up to 25% of the Shares
pursuant to the Over-Subscription Privilege. Does not include expenses of
the Fund incurred in connection with the Offer, estimated at $550,000.

(4) The example reflects the Sales Load and other expenses of the Fund incurred
in connection with the Offer and assumes that all of the Rights are
exercised.

THE PURPOSE OF THE FOREGOING TABLE AND EXAMPLE IS TO ASSIST RIGHTS HOLDERS
IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT AN INVESTOR IN THE FUND
BEARS, DIRECTLY OR INDIRECTLY, BUT SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR RATE OF RETURN. THE ACTUAL EXPENSES OF THE FUND MAY
BE GREATER OR LESSER THAN THOSE SHOWN. The figures provided under "Other
Expenses" are based upon estimated amounts for the current fiscal year and
assume that all of the Rights are exercised and the Fund increases the number of
Shares subject to subscription by 25%. For more complete descriptions of certain
of the Fund's costs and expenses, see "Management of the Fund" below and in the
SAI.

8
<PAGE>
FINANCIAL HIGHLIGHTS

The table below sets forth selected financial data for a share of Common
Stock outstanding throughout each period presented. The per share operating
performance and ratios for each of the periods, other than the six-month period
ended June 30, 1996, have been derived from financial statements audited by
Price Waterhouse LLP, the Fund's independent accountants, as stated in their
report which is incorporated by reference into the SAI. The following
information should be read in conjunction with the Financial Statements and
Notes thereto, which are incorporated by reference into the SAI.
PER SHARE OPERATING PERFORMANCE
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
6/30/96(1) 12/31/95(2) 12/31/94 12/31/93 12/31/92
------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............. $ 8.63 $ 8.05 $ 9.00 $ 8.42 $ 8.28
Offering Costs................................... -- -- -- -- --
Net Investment Income............................ 0.40 0.86 0.83 0.91 0.89
Net Realized and Unrealized Gains or Losses on
Investments..................................... 0.02 0.48 (1.06) 0.57 0.08
------ ------ ------ ------ ------
Total from Investment Activities................. 0.42 1.34 (0.23) 1.48 0.97
------ ------ ------ ------ ------
Distributions:
From Net Investment Income....................... (0.54) (0.76) (0.72) (0.90) (0.83)
------ ------ ------ ------ ------
From Realized Gain............................. -- -- -- -- --
From Capital Surplus........................... -- -- -- -- --
------ ------ ------ ------ ------
Total Distribution........................... -- -- -- -- --
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Net Asset Value, End of Period................... $ 8.51 $ 8.63 $ 8.05 $ 9.00 $ 8.42
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Per Share Market Value, End of Period............ $ 7.88 $ 7.88 $ 7.00 $ 8.50 $ 8.38
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total Investment Return
Net Asset Value(4)............................. 5.06% 17.41% (2.67)% 18.47% 11.95%
Market Value................................... 6.83% 24.34% (9.48)% 12.46% 12.09%

<CAPTION>
PERIOD FROM

3/23/87(3)

YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH

12/31/91 12/31/90 12/31/89 12/31/88 12/31/87

------------- ------------- ------------- ------------- -------------

<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............. $ 7.25 $ 8.32 $ 8.58 $ 8.71 $ 9.30

Offering Costs................................... -- -- -- -- (0.01)

Net Investment Income............................ 0.89 0.87 0.92 0.87 0.59

Net Realized and Unrealized Gains or Losses on
Investments..................................... 1.04 (1.04) (0.28) (0.10) (0.51)

------ ------ ------ ------ -------------

Total from Investment Activities................. 1.93 (0.17) (0.64) (0.77) 0.08

------ ------ ------ ------ -------------

Distributions:
From Net Investment Income....................... (0.90) (0.90) (0.90) (0.90) (0.59)

------ ------ ------ ------ -------------

From Realized Gain............................. -- -- -- -- (0.01)

From Capital Surplus........................... -- -- -- -- (0.06)

------ ------ ------ ------ -------------

Total Distribution........................... -- -- -- -- (0.66)

------ ------ ------ ------ -------------

Net Asset Value, End of Period................... $ 8.28 $ 7.25 $ 8.32 $ 8.58 $ 8.71

------ ------ ------ ------ -------------

Per Share Market Value, End of Period............ $ 8.38 $ 6.38 $ 7.88 $ 7.88 $ 8.325

------ ------ ------ ------ -------------

Total Investment Return
Net Asset Value(4)............................. 27.71% (2.06)% 7.69% 9.14% 1.01%

Market Value................................... 50.81% (6.12)% 13.58% 7.80% (10.91)%

</TABLE>

RATIOS/SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
6/30/96(1) 12/31/95(2) 12/31/94 12/31/93 12/31/92 12/31/91
------------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Assets, End of Period (thousands)......... $207,551 $210,441 $196,379 $219,355 $203,846 $199,857
Ratio of Expenses to Average Net Assets....... 0.98%(5) 0.92% 0.83% 0.88% 0.86% 0.87%
Ratio of Net Investment Income to
Average Net Assets........................... 9.44%(5) 10.22% 9.75% 10.34% 10.38% 11.12%
Portfolio Turnover.......................... 44.1%(6) 44.1% 70.6% 117.5% 115.2% 53.3%

<CAPTION>
PERIOD FROM
3/23/87(3)
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
12/31/90 12/31/89 12/31/88 12/31/87
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net Assets, End of Period (thousands)......... $175,390 $201,297 $207,293 $209,060
Ratio of Expenses to Average Net Assets....... 0.89% 0.92% 0.91% 0.77%(5)
Ratio of Net Investment Income to
Average Net Assets........................... 11.26% 10.67% 9.96% 9.4%(5)
Portfolio Turnover.......................... 61.4% 95.8% 113.5% 42.0%
</TABLE>

- ------------

<TABLE>
<S> <C>
(1) Unaudited.
(2) BEA Associates replaced CS First Boston Investment Management Corporation ("CSIM") as the Fund's investment adviser
effective June 13, 1995.
(3) Commencement of investment operations.
(4) 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 value of the stock and the net asset value of the Fund.
(5) Annualized.
(6) Not Annualized.
</TABLE>

9
<PAGE>
THE OFFER

PURPOSE OF THE OFFER

The Board of Directors of the Fund has determined that it would be in the
best interest of the Fund and its shareholders to increase the assets of the
Fund available for investment, thereby allowing better positioning of the Fund
to more fully take advantage of available investment opportunities consistent
with the Fund's investment objective of realizing current income. In reaching
its decision, the Board of Directors was advised by BEA Associates that the
availability of new funds would provide the Fund with additional investment
flexibility as well as increase the Fund's ability to take advantage of what BEA
Associates believes to be timely opportunities in the high yield bond market as
a result of interest rate stability and a strong economy.

The Board of Directors also considered that a well-subscribed rights
offering may reduce the Fund's expense ratio, which may be of long-term benefit
to shareholders. In addition, the Board of Directors considered that such a
rights offering could result in an improvement in the liquidity of the trading
market for shares of the Fund's Common Stock on the New York Stock Exchange,
where the shares are listed and traded. The Board of Directors also considered
the proposed terms of the Offer, including the expenses of the Offer, and its
dilutive effect, including the effect on non-exercising shareholders of the
Fund. After careful consideration, the Fund's Board of Directors unanimously
voted to approve the Offer.

TERMS OF THE OFFER

The Fund is issuing to Record Date Shareholders Rights to subscribe for
Shares pursuant to the exercise of such Rights. Each Record Date Shareholder is
being issued one Right for each whole share of Common Stock owned on the Record
Date. The Rights entitle the Record Date Shareholder to acquire at the
Subscription Price one Share for every three Rights held (one for three).
Fractional Shares will not be issued upon the exercise of Rights. Accordingly,
Shares may be purchased only pursuant to the exercise of Rights in integral
multiples of three. Rights may be exercised at any time during the Subscription
Period, which commences on , 1996 and ends at 5:00 p.m., New York
City time, on , 1996, unless extended by the Fund until 5:00 p.m.,
New York City time, to a date not later than , 1996. A Record Date
Shareholder's right to acquire one Share for every three Rights held during the
Subscription Period at the Subscription Price is hereinafter referred to as the
"Primary Subscription." The Rights are evidenced by Subscription Certificates,
which will be mailed to Record Date Shareholders, except as discussed below
under "Foreign Restrictions."

Any Record Date Shareholder who fully exercises all Rights issued to such
shareholder will be entitled to subscribe for additional Shares pursuant to the
Over-Subscription Privilege. Shares requested pursuant to the Over-Subscription
Privilege are subject to allotment and may be subject to increase, which is more
fully discussed below under "--Over-Subscription Privilege." For purposes of
determining the maximum number of Shares a Record Date Shareholder may acquire
pursuant to the Offer, shareholders whose shares are held of record by Cede, the
nominee for The Depository Trust Company, or by any other depository or nominee
will be deemed to be the holders of the Rights that are issued to Cede or such
other depository or nominee on their behalf.

As fractional Shares will not be issued, Record Date Shareholders who
receive or have remaining fewer than three Rights will be unable to purchase
Shares upon the exercise of such Rights and will not be entitled to receive any
cash in lieu thereof. Such shareholders, however, may subscribe for Shares
pursuant to the Over-Subscription Privilege provided such shareholders have
fully exercised the Rights issued to them. Shareholders will have no right to
rescind their subscriptions after receipt of their payment for Shares by the
Subscription Agent.

OVER-SUBSCRIPTION PRIVILEGE

To the extent Record Date Shareholders do not exercise all of the Rights
issued to them, the underlying Shares represented by such Rights will be offered
by means of the Over-Subscription Privilege to Record

10
<PAGE>
Date Shareholders who have exercised all the Rights issued to them pursuant to
the Primary Subscription and who desire to acquire additional Shares. Only
Record Date Shareholders who exercise all such Rights may indicate on the
Subscription Certificate the number of additional Shares desired pursuant to the
Over-Subscription Privilege. If sufficient Shares remain as a result of
unexercised Rights, all over-subscriptions may be honored in full. If sufficient
Shares are not available to honor all requests for over-subscriptions, the Fund
may, at its discretion, issue shares of Common Stock up to an additional 25% of
the Shares available pursuant to the Offer (up to 2,032,114 Shares) in order to
satisfy such over-subscription requests. Regardless of whether the Fund issues
such additional Shares, to the extent Shares are not available to honor all
over-subscriptions, the available Shares will be allocated among those who
over-subscribe based on the number of Rights originally issued to them by the
Fund, so that the number of Shares issued to Record Date Shareholders who
subscribe pursuant to the Over-Subscription Privilege will generally be in
proportion to the number of shares owned by them in the Fund on the Record Date.
The allocation process may involve a series of allocations in order to assure
that the total number of Shares available for over-subscriptions is distributed
on a pro rata basis.

The Fund will not sell any Shares that are not subscribed for pursuant to
the Primary Subscription or the Over-Subscription Privilege.

SUBSCRIPTION PRICE

The Subscription Price for each Share to be issued pursuant to the Rights
will be % of the lower of (i) the average of the last reported sales price of
a share of the Fund's Common Stock on the New York Stock Exchange on the Pricing
Date and on the four preceding business days thereof and (ii) the net asset
value per share as of the close of business on the Pricing Date. For example, if
the average of the last reported sales price on the New York Stock Exchange on
the Pricing Date and on the four preceding business days thereof of a share of
the Fund's Common Stock is $ , and the net asset value as of the close of
business on the Pricing Date is $ , the Subscription Price will be
$ ( % of $ ). If, however, the average of the last reported
sales price of a share on that exchange on the Pricing Date and on the four
preceding business days thereof is $ , and the net asset value as of the
close of business on the Pricing Date is $ , the Subscription Price will
be $ ( % of $ ). See "Common Stock."

The Fund announced the Offer after the close of trading on the New York
Stock Exchange on August 22, 1996. The last reported net asset value per share
of Common Stock at the close of business on August 23, 1996 and ,
1996 was $8.51 and $ , respectively, and the last reported sales price of
a share of the Fund's Common Stock on the New York Stock Exchange on those dates
was $8 3/8 and $ , respectively.

NON-TRANSFERABILITY OF RIGHTS

EXPIRATION OF THE OFFER

The Offer will expire at 5:00 p.m., New York City time, on ,
1996, unless extended by the Fund until 5:00 p.m., New York City time, to a date
not later than , 1996. Rights will expire on the Expiration Date and
thereafter may not be exercised. Since the Expiration Date and the Pricing Date
will be the same date, Record Date Shareholders who decide to acquire Shares
during the Primary Subscription or pursuant to the Over-Subscription Privilege
will not know, when they make such decision, the purchase price for such Shares.
Any extension of the Offer will be followed as promptly as practical by an
announcement thereof. Without limiting the manner in which the Fund may choose
to make such announcement, the Fund will not, unless otherwise required by law,
have any obligation to publish, advertise or otherwise communicate any such
announcement other than by making a release to the Dow Jones News Service or
such other means of announcement as the Fund deems appropriate.

11
<PAGE>
SUBSCRIPTION AGENT

The Subscription Agent is The Chase Manhattan Bank ("Chase Manhattan"), 770
Broadway, New York, New York, which will receive, for its administrative,
processing, invoicing and other services as subscription agent, a fee estimated
to be $15,000, plus reimbursement for its out-of-pocket expenses related to the
Offer. The Subscription Agent is also the Fund's Transfer Agent, Dividend-Paying
Agent and Registrar with respect to the Common Stock. An affiliate of the
Subscription Agent also acts as the Fund's administrator. SIGNED SUBSCRIPTION
CERTIFICATES TOGETHER WITH PAYMENT OF THE ESTIMATED SUBSCRIPTION PRICE MUST BE
SENT TO CHASE MANHATTAN by one of the methods described below. The Fund will
accept only Subscription Certificates actually received on a timely basis at the
address listed below:

<TABLE>
<S> <C>
(1) BY FIRST CLASS MAIL/HAND/OVERNIGHT COURIER:
The Chase Manhattan Bank
770 Broadway
7th Floor
New York, New York 10003

(2) BY FACSIMILE (TELECOPY):
FOR NOTICE OF GUARANTEED DELIVERY ONLY

(212) 473-2592 with the original Subscription Certificate to be sent
by one of the three methods above. Confirm facsimile by telephone at
(800) 774-4365.
</TABLE>

DELIVERY TO AN ADDRESS OTHER THAN THOSE SET FORTH ABOVE DOES NOT CONSTITUTE
GOOD DELIVERY.

METHOD OF EXERCISE OF RIGHTS

Rights will be evidenced by Subscription Certificates that will be mailed to
Record Date Shareholders, or if shares are held by Cede or any other depository
or nominee, to Cede or such other depository or nominee except as discussed
under "Foreign Restrictions" below. Rights may be exercised by completing and
signing the Subscription Certificate and mailing it in the envelope provided, or
otherwise delivering the completed and signed Subscription Certificate, together
with payment for the Shares as described below under "--Payment for Shares," to
the Subscription Agent. Rights may also be exercised by contacting your broker,
banker or trust company, which can arrange, on your behalf, to guarantee
delivery of payment and of a properly completed and executed Subscription
Certificate. A fee may be charged for this service. Fractional Shares will not
be issued, and shareholders who receive, or who have remaining, fewer than three
Rights will not be able to purchase any Shares upon the exercise of such Rights.
Such shareholders may, however, subscribe for Shares pursuant to the
Over-Subscription Privilege provided such shareholders have fully exercised the
Rights issued to them. Completed Subscription Certificates or Notices of
Guaranteed Delivery must be received by the Subscription Agent prior to 5:00
p.m., New York City time, on the Expiration Date at the office of the
Subscription Agent at the address set forth above.

SHAREHOLDERS WHO ARE RECORD OWNERS. Shareholders who are record owners can
choose between either option set forth under "Payment for Shares" below. If time
is of the essence, option (2) will permit delivery of the completed Subscription
Certificate and payment after the Expiration Date.

INVESTORS WHOSE SHARES ARE HELD BY A NOMINEE. Shareholders whose shares are
held by a nominee, such as a broker or trustee, must contact that nominee to
exercise their Rights. In that case, the nominee will complete the Subscription
Certificate on behalf of the investor and arrange for proper payment by one of
the methods set forth under "Payment for Shares" below.

NOMINEES. Nominees who hold shares for the account of others should notify
the beneficial owners of such shares as soon as possible to ascertain such
beneficial owners' intentions and to obtain instructions with respect to the
Rights. If the beneficial owner so instructs, the nominee should complete the
Subscription Certificate and submit it to the Subscription Agent with the proper
payment described under "Payment for Shares" below.

12
<PAGE>
FOREIGN RESTRICTIONS

Subscription Certificates will not be mailed to Record Date Shareholders
whose record addresses are outside the United States (for these purposes the
United States includes its territories and possessions and the District of
Columbia). The Rights to which those Subscription Certificates relate will be
held by the Subscription Agent for such Foreign Record Date Shareholders'
accounts until instructions are received to exercise the Rights. If no
instructions are received prior to the Expiration Date, such Rights will expire.

INFORMATION AGENT

Any questions or requests for assistance may be directed to the Information
Agent at its telephone number listed below:
THE INFORMATION AGENT FOR THE OFFER IS:
Shareholder Communications Corporation
Toll Free: (800) 733-8481, Extension 349

Shareholders calling from outside the United States may call collect (212)
805-7000. Shareholders may also contact their brokers or nominees for
information with respect to the Offer.

The Information Agent will receive a fee estimated to be $10,000 plus
reimbursement for its out-of-pocket expenses related to the Offer.

PAYMENT FOR SHARES

Shareholders who acquire Shares during the Primary Subscription or pursuant
to the Over-Subscription Privilege may choose between the following methods of
payment:

(1) A shareholder can send the completed Subscription Certificate
together with payment for the Shares acquired during the Primary
Subscription and for additional Shares subscribed for pursuant to the
Over-Subscription Privilege to the Subscription Agent, calculating the total
payment on the basis of an estimated Subscription Price of $ per
Share (the "Estimated Subscription Price"). To be accepted, such payment,
together with the properly executed and completed Subscription Certificate,
must be received by the Subscription Agent at one of the Subscription
Agent's offices at the addresses set forth above prior to 5:00 p.m., New
York City time, on the Expiration Date. A PAYMENT PURSUANT TO THIS METHOD
MUST BE IN UNITED STATES DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK
LOCATED IN THE UNITED STATES OF AMERICA, MUST BE PAYABLE TO BEA INCOME FUND,
INC. AND MUST ACCOMPANY AN EXECUTED SUBSCRIPTION CERTIFICATE FOR SUCH
SUBSCRIPTION CERTIFICATE TO BE ACCEPTED.

(2) Alternatively, a subscription will be accepted by the Subscription
Agent, if, prior to 5:00 p.m., New York City time, on the Expiration Date,
the Subscription Agent has received a Notice of Guaranteed Delivery by
facsimile (telecopy) or otherwise from a bank, trust company, or New York
Stock Exchange member guaranteeing delivery to the Subscription Agent of (i)
payment of the full Subscription Price for the Shares subscribed for during
the Primary Subscription and any additional Shares subscribed for pursuant
to the Over-Subscription Privilege, and (ii) a properly completed and
executed Subscription Certificate. The Subscription Agent will not honor a
Notice of Guaranteed Delivery if a properly completed and executed
Subscription Certificate, together with payment, is not received by the
Subscription Agent by the close of business on the third business day after
the Expiration Date.

Within ten business days following the Pricing Date (the "Confirmation
Date"), a confirmation will be sent by the Subscription Agent to each Record
Date Shareholder (or, if the shareholder's shares are held by Cede or any other
depository or nominee, to Cede or such depository or nominee), showing (i) the
number of Shares acquired pursuant to the Primary Subscription, (ii) the number
of Shares, if any, acquired pursuant to the Over-Subscription Privilege, (iii)
the per Share and total purchase price for the Shares, and (iv) any additional
amount payable by such shareholder to the Fund or any excess to be refunded by
the Fund to such shareholder, in each case based on the Subscription Price as
determined on the Pricing Date. Any additional payment required from a
shareholder must be received by the Subscription Agent within ten business days

13
<PAGE>
after the Confirmation Date. Any excess payment to be refunded by the Fund to a
shareholder will be mailed by the Subscription Agent to such shareholder as
promptly as possible. No interest shall be paid by the Fund on any such excess
payment. All payments by a shareholder must be in U.S. Dollars by money order or
check drawn on a bank located in the United States of America and payable to BEA
INCOME FUND, INC.

The Subscription Agent will deposit all checks received by it prior to the
final due date into a segregated interest bearing account (which interest will
accrue to the benefit of the Fund) pending distribution of the Shares.

Whichever of the two payment methods described above is used, issuance and
delivery of certificates for the Shares purchased are subject to collection of
checks and actual payment pursuant to any Notice of Guaranteed Delivery.

SHAREHOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR SUBSCRIPTION AFTER RECEIPT
OF THEIR PAYMENT FOR SHARES BY THE SUBSCRIPTION AGENT.

If a shareholder who acquires Shares pursuant to the Primary Subscription or
the Over-Subscription Privilege does not make payment of any additional amounts
due, the Fund reserves the right to take any or all of the following actions:
(i) sell such subscribed and unpaid-for Shares to other shareholders, (ii) apply
any payment actually received by it toward the purchase of the greatest whole
number of Shares which could be acquired by such holder upon exercise of the
Primary Subscription and/or Over-Subscription Privilege, and/or (iii) exercise
any and all other rights or remedies to which it may be entitled, including,
without limitation, set-offs against payments actually received by it with
respect to such subscribed Shares and/or to enforce the relevant guaranty of
payment.

All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Fund, whose determinations will
be final and binding. The Fund in its sole discretion may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Fund determines
in its sole discretion. The Fund will not be under any duty to give notification
of any defect or irregularity in connection with the submission of Subscription
Certificates or incur any liability for failure to give such notification.

DELIVERY OF STOCK CERTIFICATES

Except as noted below in this paragraph, stock certificates for all Shares
acquired during the Primary Subscription and pursuant to the Over-Subscription
Privilege will be mailed promptly after the Confirmation Date and after payment
for the Shares subscribed for has cleared. Participants in the Fund's Dividend
Reinvestment and Cash Purchase Plan (the "Plan") will have any Shares acquired
during the Primary Subscription or pursuant to the Over-Subscription Privilege
credited to their accounts in the Plan. Stock certificates will not be issued
for Shares credited to Plan accounts. Shareholders whose shares of Common Stock
are held of record by Cede or by any other depository or nominee on their behalf
or their broker-dealers' behalf will have any Shares acquired during the Primary
Subscription or pursuant to the Over-Subscription Privilege credited to the
account of Cede or such other depository or nominee.

FEDERAL INCOME TAX CONSEQUENCES

For United States federal income tax purposes, neither the receipt nor the
exercise of the Rights by Record Date Shareholders will result in taxable income
to holders of Common Stock, and no loss will be realized if the Rights expire
without exercise. A shareholder's holding period for a Share acquired upon
exercise of a Right begins with the date of exercise. A shareholder's basis for
determining gain or loss upon the sale of a Share acquired upon the exercise of
a Right will be equal to the sum of the Subscription Price per Share, any
servicing fee charged to the shareholder by the shareholder's broker, bank or
trust company and the shareholder's basis, if any, in the Rights exercised (as
discussed below). A shareholder's gain or loss recognized upon a sale of a Share
acquired upon the exercise of a Right will be a capital gain or loss (assuming
the Share is held as a capital asset at the time of sale) and will be a
long-term capital gain or loss if the Share has been held at the time of sale
for more than one year.

14
<PAGE>
If the fair market value of the Rights on the date of distribution is less
than 15% of the fair market value of the shares of Common Stock with respect to
which they are issued, on that date the basis of a Right will be zero unless a
Record Date Shareholder elects to allocate his basis in those shares of the Fund
which he originally owned between such shares and the Rights issued in the
Offer. This allocation is based upon the relative fair market value of such
shares and the Rights as of the date of distribution of the Rights. Thus, if
such an election is made, the shareholder's basis in the shares originally owned
will be reduced by an amount equal to the basis allocated to the Rights. This
election must be made in a statement attached to the shareholder's federal
income tax return for the year in which the Offer occurs. If the fair market
value of the Rights on the date of distribution is equal to or greater than 15%
of the fair market value of the shares of Common Stock with regard to which they
are issued, a Record Date Shareholder will allocate his basis in those shares of
the Fund which he originally owned between such shares and the Rights issued in
the Offer based upon their relative fair market values on the date of
distribution. However, if a shareholder does not exercise the Rights, no loss
will be recognized and no portion of the shareholder's basis in the shares will
be allocated to the unexercised Rights. If a shareholder exercises the Rights,
the basis of any Shares acquired through exercise of the Rights will be
increased by the basis allocated to such Rights. Accordingly, shareholders
should consider the advisability of making the election described above if the
shareholder intends to exercise the Rights.

The foregoing is a general summary of the material United States federal
income tax consequences of the receipt and exercise of Rights by a Record Date
Shareholder. The discussion is based upon applicable provisions of the U.S.
Internal Revenue Code of 1986, as amended (the "Code"), U.S. Treasury
regulations and other authorities currently in effect, and does not cover state,
local or foreign taxes. The Code and regulations are subject to change by
legislative or administrative action. Shareholders should consult their tax
advisors regarding specific questions as to federal, state, local or foreign
taxes. See "Taxation" in the SAI.

EMPLOYEE BENEFIT PLAN CONSIDERATIONS

Shareholders that hold their shares through employee benefit plans that are
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (including corporate savings and 401(k) plans, Keogh Plans of
self-employed individuals and Individual Retirement Accounts (collectively,
"Benefit Plans")) should be aware of the complexity of the rules and regulations
governing Benefit Plans and the penalties for noncompliance, and should consult
their counsel and tax advisors regarding the consequences under ERISA and the
Code of their exercise of the Rights.

CERTAIN EFFECTS OF THE OFFER

Upon the completion of the Offer, shareholders who do not fully exercise
their Rights will own a smaller proportional interest in the Fund than would be
the case if the Offer had not been made. In addition, because the Subscription
Price per Share will be less than the then current net asset value per share of
the Fund's Common Stock, the Offer will result in a dilution of net asset value
per share for all shareholders, which will disproportionately affect
shareholders who do not exercise their Rights. Although it is not possible to
state precisely the amount of such decrease in net asset value because it is not
known at the date of this Prospectus how many Shares will be subscribed for, or
what the Subscription Price will be, such dilution might be substantial. For
example, assuming all Rights are exercised at the Estimated Subscription Price,
including up to an additional 25% of the Shares which may be issued to satisfy
over-subscriptions, the Fund's current net asset value of $ per share
would be reduced by approximately $ or %, taking into account the
expenses of the Offer.

It is expected that no dividends or other distributions will be payable with
respect to the Shares offered hereby until November 1996.

CERTAIN IMPACT ON FEES

The Fund's investment adviser and administrator will benefit from the Offer
because the investment advisory and administration fees are based on the net
assets of the Fund. See "Management of the Fund." It is not possible to state
precisely the amount of additional compensation the Fund's investment adviser or
administrator will receive as a result of the Offer because it is not known how
many Shares will be subscribed for and because the proceeds of the Offer will be
invested in additional portfolio securities which will

15
<PAGE>
fluctuate in value. However, assuming all Rights are exercised at the Estimated
Subscription Price, including up to an additional 25% of the Shares which may be
issued to satisfy over-subscriptions, the annual compensation to be received by
the Fund's investment adviser and administrator would be increased by
approximately $ and $ , respectively. One of the Fund's directors
who voted to authorize the Offer is an "interested person" of the Fund within
the meaning of the 1940 Act because of his position as a director and an officer
of BEA Associates. This director could benefit indirectly from the Offer because
of his affiliation. The other three directors are not "interested persons" of
the Fund. See "Management of the Fund" in the SAI.

IMPORTANT DATES TO REMEMBER

<TABLE>
<CAPTION>
EVENT DATE
- --------------------------------------------------------------- -------------------------------------------------
<S> <C>
Record Date.................................................... , 1996
Subscription Period............................................ , 1996 to , 1996*
Payment for Shares or Notices of Guaranteed Delivery Due....... , 1996*
Expiration and Pricing Date.................................... , 1996*
Payment for Guarantees of Delivery Due......................... , 1996*
Confirmation to Participants................................... , 1996*
Final Payment for Shares....................................... , 1996*
</TABLE>

- ---------
* Unless the Offer is extended to a date not later than , 1996.

THE FUND

The Fund, incorporated in Maryland on February 10, 1987, is a diversified,
closed-end management investment company registered under the 1940 Act. The
Fund's Common Stock is traded on the New York Stock Exchange under the symbol
"FBF."

The Fund commenced operations on March 23, 1987 after an initial public
offering of 24,000,000 shares of the Common Stock, the net proceeds to the Fund
of which were approximately $222,715,000.

The Fund's investment objective is current income consistent with the
preservation of capital. The Fund seeks to achieve its objective by investing
primarily in fixed-income securities, such as bonds, debentures and preferred
stocks. Under normal circumstances, the Fund will invest at least 75% of its
total assets in fixed-income securities. The Fund may also invest up to 25% of
its assets in money market instruments, such as certificates of deposit,
commercial paper, bankers' acceptances and repurchase agreements. The Fund may
hold securities deemed to be Temporary Investments (as defined below).

At June 30, 1996, the Fund's portfolio of investments was composed as
follows (as a percentage of net assets): corporate obligations (78.5%);
government and agency securities (8.4%); collateralized securities (3.7%); asset
backed obligations (3.3%); common stocks (1.8%); preferred stocks (0.8%);
warrants (0.3%); rights (0.0%) and units (2.1%). At the same date, 67.2% of the
Fund's net assets were invested in high yield fixed-income securities.

The table below sets forth the percentages of the Fund's assets invested
during the fiscal year ended December 31,1 995 in the various Standard & Poor's
Rating Group ("S&P") and Moody's Investors Service, Inc. ("Moody's") rating
categories and in unrated securities determined by BEA Associates to be of

16
<PAGE>
comparable quality. The percentages are based on the dollar-weighted average of
credit ratings of all securities held by the Fund during the 1995 fiscal year,
computed on a monthly basis. For information regarding the various ratings of
Moody's and S&P, see the Appendix to this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
---------------------------------------
UNRATED SECURITIES
RATED SECURITIES OF
AS A PERCENTAGE COMPARABLE QUALITY
RATING OF AS A PERCENTAGE OF
CATEGORY PORTFOLIO VALUE PORTFOLIO VALUE
- -------------------------------------------------------------------------- ----------------- --------------------
<S> <C> <C>
AAA/Aaa...................................................................
AA/Aa.....................................................................
A/A.......................................................................
BBB/Baa...................................................................
BB/Ba.....................................................................
B/B.......................................................................
CCC/Caa...................................................................
CC/Ca.....................................................................
C/C.......................................................................
D.........................................................................
Percentage of Rated and Unrated Securities................................ % %
</TABLE>

The percentage of the Fund's assets invested in securities of various grades
may from time to time vary substantially from those set forth above.

At June 30, 1996 the Fund's assets were invested in the following industries
and financial instruments:

<TABLE>
<CAPTION>
% OF FUND'S NET
INDUSTRY ASSETS
- ----------------------------------------------------------------------- ---------------------
<S> <C>
Communications 21.32%
Services 11.51%
Industrial Goods & Materials 10.99%
Manufacturing 10.92%
Finance 10.03%
U.S. Gvts. 8.42%
CMOs & Asset Backed Securities 6.99%
Consumer Products 6.10%
Retail Trade 5.67%
Transportation 2.64%
Rights, Warrants & Units 2.49%
Oil, Gas Electric 1.81%
------
Total Investments 98.89%
Net Other Assets 1.11%
------
Net Assets 100.00%
</TABLE>

17
<PAGE>
The Fund's ten largest holdings at June 30, 1996 (as a percentage of net
assets) were:

<TABLE>
<CAPTION>
% OF FUND'S
POSITION NET ASSETS
--------------------------------------------------------------------------- --------------
<S> <C> <C>
1) Drexel, Burnham & Lambert Trust
Remic-PAC Series S, Class 2, 9.00%, 8/01/18 3.12%
2) U.S. Treasury Note
5.375%, 5/31/98 2.92%
3) Federal National Mortgage Association
Remic-PAC Series 1989-23, Class D, 10.20%, 9/25/18 1.98%
4) American Express Co. Eurobond
Zero Coupon, 12/12/00 1.79%
5) Ferrovie dello Stato Notes
9.125%, 7/6/09 1.64%
6) Meditrust Convertible Debentures
7.50%, 3/01/01 1.45%
7) Goldman Sachs Group L.P. MTN
6.20%, 2/15/01 1.40%
8) U.S. Treasury Note
7.25%, 5/15/04 1.30%
9) Household Affinity Credit Card Master Trust I
Series 1993-S, Class B, 4.95%, 3/15/99 1.20%
10) Merrill Lynch Home Equity Acceptance Trust
Series 1994-A, Class A-2, 6.25%, 7/17/22 0.99%
</TABLE>

USE OF PROCEEDS

Assuming all Shares offered pursuant to the Primary Subscription are sold at
the Estimated Subscription Price, the net proceeds of the Offer are estimated to
be $ , after payment of the Dealer Manager's fees, the soliciting fees
and the estimated offering expenses. These expenses will be borne by the Fund
and will reduce the net asset value of the Common Stock. If the Fund increases
the number of Shares subject to the Offer by 25%, or 2,032,114 Shares, in order
to satisfy over-subscription requests, the additional net proceeds will be
approximately $ . The Fund expects that, subject to market conditions,
substantially all of the net proceeds of the Offer will be invested in
accordance with the Fund's investment objective within one month from the date
of this Prospectus. Pending such investment, the proceeds will be invested in
certain short-term debt instruments, as described under "Investment Objective
and Policies-- Temporary Investments."

RISK FACTORS AND SPECIAL CONSIDERATIONS

Investors should consider the following special considerations associated
with an exercise of Rights and an additional investment in the Fund.

CERTAIN EFFECTS OF THE OFFER

Upon the completion of the Offer, shareholders who do not fully exercise
their Rights will own a smaller proportional interest in the Fund than would be
the case if the Offer had not been made. In addition, an immediate dilution of
the net asset value per share will be experienced by all shareholders as a
result of the Offer because the Subscription Price will be less than the then
current net asset value per share, the Fund will bear the expenses of the Offer
and the number of shares outstanding after the Offer will have increased
proportionately more than the increase in the size of the Fund's net assets.
Although it is not possible to state precisely the amount of such a decrease in
value, because it is not known at this time how many Shares will be subscribed
for or what the Subscription Price will be, such dilution might be substantial.
For example, if the Subscription Price per Share is $ , representing a
price that is % of an assumed net asset value per share of $ ,
assuming that all Rights are exercised, including an additional 25% of the
Shares which may be issued to satisfy over-subscription requests, the Fund's net
asset value per share would be

18
<PAGE>
reduced by approximately $ per share. If, on the other hand, the
Subscription Price represents a price that is less than % of the Fund's then
net asset value, which would be the case if the Subscription Price is set at a
time when the market price per share is lower than the net asset value per
share, the dilution would be greater. For example, if the Subscription Price per
Share is $ , representing a price which is only % of the net asset
value per share, assuming that all Rights are exercised, including an additional
25% of the Shares which may be issued to satisfy over-subscription requests, the
Fund's net asset value per share would be reduced by approximately $ per
share. The foregoing examples assumed Subscription Prices of $ and
$ per Share, respectively. However, the actual Subscription Price may be
greater or less than such assumed Subscription Price. This dilution of net asset
value per share will disproportionately affect shareholders who do not exercise
their Rights.

RISKS ASSOCIATED WITH INVESTMENTS IN FIXED-INCOME SECURITIES

Bond prices generally vary inversely in relation to changes in the level of
interest rates, as well as in response to other market factors and changes in
the creditworthiness of the issuers of the securities. Government securities are
considered to be of the highest credit quality available. Government securities,
however, will be affected by general changes in interest rates. The price
volatility of a Fund share where the Fund invests in intermediate maturity bonds
will be substantially less than where it invests in long-term bonds. An
intermediate maturity bond will generally have a lower yield than that of a
long-term bond. Longer-term securities in which the Fund may invest generally
offer a higher current yield than is offered by shorter-term securities, but
also generally involve greater volatility of price and risk of capital than
shorter-term securities.

LOWER-RATED SECURITIES

At any time, a substantial portion of the Fund's assets may be invested in
medium-grade or below investment grade fixed-income securities as determined by
a nationally recognized rating service. Investment in lower-rated securities
typically involves risks not associated with higher-rated securities, including,
among others, overall greater risk that timely and ultimate payment of interest
and principal will not occur, potentially greater sensitivity to general
economic conditions, greater market price volatility and relative illiquidity.
In addition, ratings are relative and subjective and not absolute standards of
quality. Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' analysis at the time of rating.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition.

Securities rated in the lowest investment grade (Baa or BBB) have
speculative characteristics and securities rated below investment grade have
speculative elements and a greater vulnerability to default than higher-rated
securities. Lower-rated and comparable unrated securities (commonly referred to
as "junk bonds") (i) will likely have some quality and protective
characteristics that, in the judgment of the rating service, are outweighed by
large uncertainties or major-risk exposures to adverse economic conditions and
(ii) are predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
Medium- and lower-rated securities and comparable unrated securities generally
present a higher degree of credit risk. The risk of loss due to default by such
issuers is significantly greater because medium- and lower-rated securities and
unrated securities generally are unsecured and frequently are subordinated to
the prior payment of senior indebtedness. No assurance can be given that the
securities purchased by the Fund will continue to earn yields comparable to
those earned historically, nor can any assurance be given that issuers whose
obligations the Fund acquires will make payments on such obligations as they
become due.

Lower-rated securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher-rated securities.
Economic downturns or increases in interest rates may result in higher rates of
default for lower-rated securities than for higher-rated securities. The prices
of lower-rated securities have been found to be less sensitive to interest rate
changes than those of higher-rated securities, but to be more sensitive to
adverse economic downturns or individual corporate developments.

The market value of securities in lower-rated categories is more volatile
than that of higher-quality securities. The markets in which lower-rated
securities are traded are more limited than those in which

19
<PAGE>
higher-rated securities are traded. Adverse publicity and investors'
perceptions, whether or not based on fundamental analyses, may decrease the
values and liquidity of lower-rated securities, especially in a thinly traded
market. Analysis of the creditworthiness of issuers of lower-rated securities
may be more complex than for issuers of higher-rated securities, and the ability
of the Fund to achieve its investment objective may, to the extent of investment
in lower-rated securities, be more dependent upon such creditworthiness analysis
than would be the case if the Fund were investing in higher-rated securities.

The more limited size of the markets in which lower-rated securities are
traded may result in reducing the Fund's ability to dispose of certain of its
investments. The lack of a liquid secondary market for certain securities may
have an adverse impact on the Fund's ability to dispose of particular issues and
may make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing the Fund and calculating its net asset value.

In addition, certain of the Fund's investments in high yield securities may
be subject to special tax considerations. Interest on high yield securities
structured as zero coupon or paid-in-kind securities must be reported as income
by the Fund, although no cash is received until such securities' maturity or
payment date. Under the Code, the Fund is required to distribute all its
investment income. In order to maintain its status as a regulated investment
company, the Fund could therefore be required to dispose of portfolio securities
or leverage its portfolio to generate cash for distribution. There is no
assurance that any such disposition could be made at favorable market
conditions.

For a complete description of rating systems of Moody's and S&P, see the
Appendix to this Prospectus.

NON PUBLICLY-TRADED SECURITIES; RULE 144A SECURITIES

The Fund may purchase securities that are not registered under the
Securities Act but that can be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act ("Rule 144A Securities").
Nonpublicly-traded securities, including Rule 144A Securities, may involve a
high degree of business and financial risk and may result in substantial losses.
These securities may be less liquid than publicly-traded securities, and the
Fund may take longer to liquidate these positions than would be the case for
publicly-traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly-traded may not be subject to the disclosure and other investor
protection requirements that would be applicable if their securities were
publicly-traded. A Fund's investment in illiquid securities is subject to the
risk that, should the Fund desire to sell any of these securities when a ready
buyer is not available at a price that is deemed to be representative of their
value, the value of the Fund's net assets could be adversely affected.

RISKS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES

The Fund may invest a substantial portion of its total assets in
mortgage-backed securities. The value of mortgaged-backed securities is subject
to change due to shifts in the market's perception of issuers, and regulatory or
tax changes may adversely affect the mortgage securities market as a whole.
Foreclosures and prepayments, which occur when unscheduled or early payments are
made on the underlying mortgages, may shorten the effective maturities on these
securities. The Fund's yield may be affected by reinvestment of prepayments at
higher or lower rates than the original investment. Prepayments may tend to
increase due to refinancing of mortgages as interest rates decline. In addition,
like other debt securities, the values of mortgage-backed securities will
generally fluctuate in response to interest rates.

SHORT SALES

The Fund's investment policies may include short selling. Short sales can,
under certain circumstances, substantially increase the impact of adverse price
movements on the Fund's portfolio. A short sale of a security involves the risk
of a theoretically unlimited increase in the market price of the security which
could result in an inability to cover the short position or the theoretically
unlimited loss. There can be no assurance that securities necessary to cover the
short position will be available for purchase. The Fund, however, is restricted
from engaging in uncovered short selling. See "Investment Objective and
Policies--Short Sales" below and "Investment Restrictions" in the SAI.

20
<PAGE>
RISKS OF TRANSACTIONS IN INTEREST RATE FUTURES CONTRACTS

The Fund may, for bona fide hedging purposes, purchase and sell interest
rate futures contracts and options thereon that are traded on U.S. futures
exchanges. There are several risks in connection with the use of interest rate
futures contracts as a hedge for transactions and anticipated transactions,
including the potential risk of unlimited loss. Due to the imperfect correlation
between movements in the prices of interest rate futures contracts and movements
in the prices of the underlying securities, the price of a futures contract may
move more than or less than the price of the securities being hedged. The market
prices of futures contracts may also be affected by various other factors which
can result in significant price distortions. In addition, there is the risk that
movements in the prices of interest rate futures contracts will not correlate
with interest rate movements.

In addition to the possibility that there may be an imperfect correlation
between movements in prices of interest rate futures contracts and portfolio
securities being hedged, the market prices of futures contracts may be affected
by certain factors. If participants in the interest rate futures market elect to
close out their contracts through offsetting transactions rather than meet
margin deposit requirements, distortions in the normal relationship between the
debt securities and futures markets could result. Price distortions could also
result if investors in futures contracts opt to make or take delivery of
underlying securities rather than engage in closing transactions due to the
resultant reduction in the liquidity of the interest rate futures market. In
addition, due to the fact that, from the point of view of speculators, the
deposit requirements in the interest rate futures markets are less onerous than
margin requirements in the cash market, increased participation by speculators
in the interest rate futures market could cause temporary price distortions. Due
to the possibility of price distortions in the interest rate futures market and
because of the imperfect correlation between movements in the prices of
securities and movements in the prices of interest rate futures contracts, a
correct forecast of interest rate trends by BEA Associates may still not result
in a successful hedging transaction. If BEA Associates' predictions of movements
in the direction of overall interest rate markets are inaccurate, the adverse
consequences to the Fund may place the Fund in a worse position than if hedging
strategies were not employed.

Positions in interest futures contracts may be closed out only on an
exchange or board of trade which provides a market for such interest rate
futures contracts. Although the Fund intends to purchase or sell interest rate
futures contracts only on exchanges or boards of trade where there appears to be
an active market for such contracts, there is no assurance that a liquid market
on an exchange or board of trade will exist for any particular contract or at
any particular time. In the event a liquid market does not exist, it may not be
possible to close an interest rate futures position, and in the event of adverse
price movements, the Fund would continue to be required to make daily cash
payments of maintenance margin. In addition, limitations imposed by an exchange
or board of trade on which interest futures contracts are traded may compel or
prevent the Fund from closing out a contract which may result in reduced gain or
increased loss to the Fund. The absence of a liquid market in futures contracts
might cause the Fund to make or take delivery of the underlying securities at a
time when it may be disadvantageous to do so.

RISKS OF TRANSACTIONS IN OPTIONS ON INTEREST RATE FUTURES CONTRACTS

In addition to the risks which apply to all options transactions and the
risks that apply to futures contracts, there are several special risks relating
to options on interest rate futures contracts. The ability to establish and
close out positions on such options is subject to the maintenance of a liquid
secondary market. The Fund will only purchase or write options on futures
contracts traded on sufficiently developed markets such that the risks in
connection with such options are not greater than the risks in connection with
transactions in the underlying interest rate futures contracts.

Compared to the purchase or sale of interest rate futures contracts, the
purchase of call or put options on futures contracts involves less potential
risk to the Fund because the maximum amount at risk is the premium paid for the
options (plus transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a loss to
the Fund when the purchase or sale of an interest rate futures contract would
not result in a loss, such as when there is no movement in the prices of the
underlying securities.

21
<PAGE>
Because of an income-tax related limitation on the amount of certain types
of short-term gain that the Fund can recognize in any year, there is a risk that
the Fund may need to defer closing out certain futures contracts and options
thereon in order to continue to qualify for beneficial tax treatment. See
"Taxation."

RISKS ASSOCIATED WITH REPURCHASE AGREEMENTS

The Fund may invest in repurchase agreements collateralized by U.S.
Government securities, certificates of deposit and certain bankers' acceptances
for the purpose of realizing additional income. The use of repurchase agreements
involves certain risks not associated with direct investment in securities. For
example, if the seller of securities under an agreement defaults on its
obligation to repurchase the underlying securities at the agreed upon repurchase
price at a time when the value of these securities has declined, the Fund may
incur a loss upon their disposition. If such a defaulting seller were to become
insolvent and subject to liquidation or reorganization under applicable
bankruptcy or other laws, disposition of the underlying securities could involve
certain costs or delays pending court action. Finally, it is not certain whether
the Fund would be entitled, as against a claim of the seller or its receiver,
trustee in bankruptcy or creditors, to retain the underlying securities. While
BEA Associates acknowledges these risks, it is expected that they can be
controlled by limiting the institutions with which the Fund will enter into
repurchase agreements to the Federal Reserve Bank, Reporting Government
Securities Dealers and member banks of the Federal Reserve System and by
carefully monitoring the creditworthiness of such institutions, other than the
Federal Reserve Bank, by BEA Associates.

MARKET VALUE AND NET ASSET VALUE

Shares of closed-end investment companies frequently trade at a discount to
net asset value. This characteristic of shares of a closed-end fund is a risk
separate and distinct from the risk that the Fund's net asset value will
decrease. In addition, changes in market yields will affect the Fund's net asset
value as prices of fixed-income securities generally increase when interest
rates decline and decrease when interest rates rise. The Fund cannot predict
whether its shares will trade at, below or above net asset value. Since the
commencement of the Fund's operations, the Fund's shares have generally traded
in the market at a discount to net asset value. See "Net Asset Value" and
"Common Stock." The risk of purchasing shares of a closed-end fund that might
trade at a discount is more pronounced for investors who wish to sell their
shares in a relatively short period of time because for those investors,
realization of a gain or loss on their investments is likely to be more
dependent upon the existence of a premium or discount than upon portfolio
performance. The Fund's shares are not subject to redemption. Investors desiring
liquidity may, subject to applicable securities laws, trade their shares in the
Fund on any exchange where such shares are then listed at the then current
market value, which may differ from the then current net asset value. If, at any
time, the average discount from net asset value at which shares of the Fund's
Common Stock have traded for any fiscal quarter is substantial in the
determination of the Board of Directors, the Board of Directors will consider,
at its next regularly scheduled quarterly meeting, taking actions designed to
eliminate the discount, including periodic repurchases of shares. See "Common
Stock."

INVESTMENT OBJECTIVE AND POLICIES

GENERAL

The Fund's investment objective is current income consistent with the
preservation of capital. The Fund seeks to achieve this objective by investing
primarily in fixed-income securities, such as bonds, debentures and preferred
stock. The Fund's investment portfolio will not be managed for capital
appreciation. The Fund's investment objective is a fundamental policy and cannot
be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities. As used herein, a "majority of the Fund's
outstanding voting securities" means the lesser of (a) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (b) more than 50% of the outstanding shares. No assurance can be
given that the Fund's investment objective will be achieved. For a more detailed
discussion of the Fund's investment objective and policies, see "Investment
Objective and Policies" in the SAI.

22
<PAGE>
INVESTMENT POLICIES

Under normal circumstances, the Fund will invest at least 75% of its total
assets in fixed-income securities. In January 1992, the Board of Directors
removed the requirement that two-thirds of the Fund's fixed-income securities be
comprised of investment grade securities. Accordingly, the Fund's investments in
fixed-income securities are no longer subject to any rating quality limitation
and a substantial portion or all of the Fund's portfolio may consist of
securities that are rated below investment grade by a nationally recognized
rating service or that are unrated and of comparable quality in the opinion of
BEA Associates. Lower-rated securities generally provide yields superior to
those of more highly rated securities, but involve greater risks and are
speculative in nature. See "Risk Factors and Special Considerations--Lower-Rated
Securities." The market value of lower-rated securities may be more volatile
than the market value of higher-rated securities and generally tends to reflect
the market's perception of the creditworthiness of the issuer and short-term
market developments to a greater extent than more highly rated securities, which
reflect primarily fluctuations in general levels of interest rates. For a
description of the corporate bond ratings of Moody's and S&P, see the Appendix
to the Prospectus.

Depending on market conditions, the Fund may also invest a substantial
portion of its assets in mortgage-backed securities. Mortgage-backed securities
are collateralized by mortgages or interests in mortgages and may be issued by
government or non-government entities. Mortgage-backed securities issued by
government entities typically provide a monthly payment consisting of interest
and principal payments, and additional payments will be made out of unscheduled
prepayments of principal. Non-government issued mortgage-backed securities may
offer higher yields than those issued by government entities, but may be subject
to greater price fluctuations.

Subject to the limitations described under "Other Investment Techniques"
below, the Fund may also invest up to 25% of its total assets in money market
instruments such as certificates of deposit, commercial paper, bankers'
acceptances and repurchase agreements; the Fund, however, currently does not
intend to invest more than 5% in such assets. The Fund may also, for bona fide
hedging purposes, invest in interest rate futures and related options. It is
expected that the average weighted maturity of the Fund investment portfolio
will be 8 to 12 years.

The Fund's policy is to diversify its investments among various securities
and industries only to the extent such diversification appears to enhance the
opportunity to achieve its investment objective. The Fund may not invest in a
security if after such investment 25% or more of its total assets, at market
value, would be invested in any one industry.

OTHER INVESTMENT TECHNIQUES

The Fund may enter into repurchase agreements, lend portfolio securities,
purchase securities on a when-issued basis and invest in interest rate futures
and related options.

23
<PAGE>
Securities and Exchange Commission (the "Commission") thereunder. The Fund will
not lend portfolio securities if, as a result, the aggregate of such loans
exceeds 33 1/3% of the value of the Fund's total assets. Loan arrangements made
by the Fund will comply with all other applicable regulatory requirements,
including the rules of the New York Stock Exchange. All relevant facts and
circumstances, including the creditworthiness of the borrower, will be
considered by BEA Associates in making decisions with respect to the lending of
securities, subject to review by the Fund's Board of Directors. The
creditworthiness of such bank, broker, dealer or other financial institution
will be monitored by BEA Associates during the time any securities are loaned.
In addition, voting rights may pass with the loaned securities but if a material
event were to occur affecting an investment on a loan, the loan must be called
and the securities voted by the Fund.

SHORT SALE. The Fund may engage in short sales (the sale of securities that
it does not own), but only when it owns an equal amount of such securities or
securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in amount to, the
securities sold short ("short sales against the box"), and only if not more than
5% of the Fund's net assets (taken at current value) is held as collateral for
such sales at any one time.

In accordance with the current rules of the Commodity Futures Trading
Commission (the "CFTC"), the Fund will not enter into any interest rate futures
contract or option thereon if, immediately thereafter, the aggregate initial
margin for all existing futures contracts and options thereon and for premiums
paid for such options would exceed 5% of the Fund's total assets. The Fund will
not enter into any such contract or option thereon, if, as a result thereof,
more than 50% of the Fund's total assets would be hedged.

The selection of futures and options strategies requires skills different
from those needed to select portfolio securities however, BEA Associates does
have experience in the use of futures and options.

DIRECT PLACEMENT. As noted under "Investment Restrictions" in the SAI, the
Fund may invest up to 10% of its assets in securities that are not readily
marketable. The portion of the Fund's portfolio that may be invested in such
securities (other than in repurchase agreements) will be purchased in placements
from the securities' issuer or in the secondary market for such directly placed
securities ("Direct Placement Securities"). The purchase of Direct Placement
Securities will depend on the relative attractiveness of those securities as
compared to securities which have been publicly offered.

TEMPORARY INVESTMENTS

24
<PAGE>
rated at least A by Moody's or S&P. Subject to its limitation on investments in
money market instruments, the Fund will also invest in short-term debt
securities rated at least Baa by Moody's or BBB by S&P to commit overnight cash
balances.

MANAGEMENT OF THE FUND

DIRECTORS AND OFFICERS

The business and affairs of the Fund are managed under the direction of the
Fund's Board of Directors, and the day to day operations of the Fund are
conducted through or under the direction of the officers of the Fund. For
certain information regarding the directors and officers of the Fund, see
"Management of the Fund--Directors and Officers" in the SAI.

BEA ASSOCIATES

BEA Associates serves as the Fund's investment adviser pursuant to an
Advisory Agreement with the Fund (the "Advisory Agreement") which became
effective on June 13, 1995. Prior to that date, CSIM provided investment
advisory services to the Fund.

BEA Associates is a general partnership organized under the laws of the
State of New York and, together, with its predecessor firms, has been engaged in
the investment advisory business for over 50 years. BEA Associates is located at
One Citicorp Center, 57th Floor, 153 East 53rd Street, New York, New York 10022.
Credit Suisse Capital Corporation ("CS Capital") is an 80% partner and CS
Advisors Corp., a New York corporation and a wholly owned subsidiary of CS
Capital, is a 20% partner in BEA Associates. CS Capital is a wholly owned
subsidiary of Credit Suisse Investment Corporation, which is a wholly owned
subsidiary of Credit Suisse, the second largest Swiss bank, which in turn is a
subsidiary of CS Holding, a Swiss corporation. BEA Associates is registered as
an investment adviser under the Investment Advisers Act of 1940, as amended.

BEA Associates is a diversified asset manager, handling global equity,
balanced, fixed income and derivative securities accounts for private
individuals, as well as corporate pension and profit-sharing plans, state
pension funds, union funds, endowments and other charitable institutions. As of
June 30, 1996, BEA Associates managed in excess of $28.7 billion of assets.

BEA Associates has sole investment discretion for the Fund with respect to
the Fund's portfolio under the supervision of the Fund's Board of Directors and
in accordance with the Fund's stated policies. BEA Associates will select
investments for the Fund and will place purchase and sale orders on behalf of
the Fund. For its services, BEA Associates is paid a quarterly fee computed at
an annual rate of 0.50% of the Fund's average weekly net assets.

PORTFOLIO MANAGEMENT

Robert Moore, who has been an Executive Director and the Chief Operating
Officer of BEA Associates since 1995, is primarily responsible for management of
the Fund's assets. Mr. Moore has served the Fund in such capacity since June
1995. Mr. Moore joined BEA Associates in 1987. He is President and Chief
Investment Officer of the Fund and is also President and Chief Investment
Officer of BEA Strategic Income Fund, Inc.

ADMINISTRATOR

Chase Global Funds Services Company, a Delaware corporation, serves as the
Fund's administrator pursuant to an agreement with the Fund (the "Administration
Agreement"). The Administrator's principal offices are located at 73 Tremont
Street, Boston, Massachusetts. Under the Administration Agreement, the Fund pays
the Administrator a monthly fee that is computed weekly at an annual rate of
0.15% of the Fund's first $100 million of average weekly net assets, 0.10% of
the Fund's next $300 million of average weekly net assets and 0.05% of the
Fund's average weekly net assets in excess of $400 million.

The Administrator provides office facilities and personnel adequate to
perform services for the Fund, including without limitation the following:
oversight of the determination and publication of the Fund's net asset value in
accordance with the Fund's policy as adopted from time to time by the Board of
Directors;

25
<PAGE>
oversee the maintenance of the books and records of the Fund as required under
the 1940 Act; assist in preparation and filing of the Fund's U.S. federal, state
and local income tax returns; preparation of financial information for the
Fund's proxy statements and semiannual and annual reports to shareholders; and
preparation of certain of the Fund's reports to the Securities and Exchange
Commission.

ESTIMATED EXPENSES

BEA Associates and the Administrator are each obligated to pay expenses
associated with providing the services contemplated by the agreements to which
they are parties, including compensation of and office space for their
respective officers and employees connected with investment and economic
research, trading and investment management and administration of the Fund, as
well as the fees of all directors of the Fund who are affiliated with those
companies or any of their affiliates. The Fund pays all other expenses incurred
in the operation of the Fund including, among other things, expenses for legal
and independent accountants' services, costs of printing proxies, stock
certificates and shareholder reports, charges of the custodians, any
sub-custodians and the transfer and dividend-paying agent, expenses in
connection with the Plan, Securities and Exchange Commission fees, fees and
expenses of unaffiliated directors, accounting and pricing costs, membership
fees in trade associations, fidelity bond coverage for the Fund's officers and
employees, directors' and officers' errors and omissions insurance coverage,
interest, brokerage costs and stock exchange fees, taxes, stock exchange listing
fees and expenses, expenses of qualifying the Fund's shares for sale in various
states, litigation and other extraordinary or non-recurring expenses and other
expenses properly payable by the Fund.

PORTFOLIO TRANSACTIONS

The Fund may utilize CS First Boston Corporation and other affiliates of
Credit Suisse in connection with the purchase or sale of securities in
accordance with rules or exemptive orders adopted by the Securities and Exchange
Commission when BEA Associates believes that the charge for the transaction does
not exceed usual and customary levels. For a more detailed discussion of the
Fund's brokerage allocation practice, see the SAI under "Portfolio
Transactions."

DIVIDENDS AND DISTRIBUTIONS; DIVIDEND
REINVESTMENT AND CASH PURCHASE PLAN

The Fund's policy is to make distributions of net investment income to
shareholders monthly on or about the fifteenth day of each month and to make
distributions at least annually of any net capital gains in excess of applicable
capital losses, including capital loss carryforwards.

All dividends and distributions, net of any applicable U.S. withholding tax,
are automatically reinvested in additional shares of the Fund unless a
shareholder has instructed Chase Manhattan, as the Plan Agent (the "Plan
Agent"), otherwise in writing. A shareholder whose shares are held by a broker
or nominee that does not provide a dividend reinvestment program may be required
to have his shares registered in his own name to participate in the Plan. The
receipt of dividends and distributions in shares under the Plan will not relieve
participants of any income tax (including withholding tax) that may be payable
on such dividends or distributions.

Certain distributions of cash attributable to (a) some of the dividends and
interest amounts paid to the Fund and (b) certain capital gains earned by the
Fund that are derived from securities of certain foreign issuers are subject to
taxes payable by the Fund at the time amounts are remitted. Such taxes, if any,
will be borne by the Fund and allocated to all shareholders in proportion to
their interests in the Fund.

26
<PAGE>
net asset value or, if the net asset value is less than 95% of the market price
on that date, then valued at 95% of the market price. If net asset value per
share as determined at the time of purchase exceeds the market price per share
on that date, or if the Fund should declare a dividend or other distribution
payable only in cash, the Plan Agent, as agent for the participants, will buy
shares of Common Stock on the open market, on the New York Stock Exchange or
elsewhere, for the participants' accounts. The valuation date generally is the
dividend or distribution payment date or, if that date is not a New York Stock
Exchange trading day, the next preceding trading day. If the Fund should declare
an income dividend or capital gains distribution payable only in cash, the Plan
Agent will, as agent for the participants, buy Fund shares in the open market,
on the New York Stock Exchange or elsewhere, for the participants' accounts on,
or shortly after, the payment date.

There is no charge to participants for reinvesting dividends or capital
gains distributions payable in either shares or cash. However, each participant
will be charged by the Plan Agent a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open market purchases in connection
with voluntary cash payments made by the participant or the reinvestment of
dividends or capital gains distributions payable only in cash. All
correspondence concerning the Plan should be directed to The Chase Manhattan
Bank, Dividend Reinvestment Department--Retail, 770 Broadway, New York, New York
10003-9598 or by telephone at 1-800-744-4365. For a more complete description of
the Plan, see "Dividend Reinvestment and Cash Purchase Plan" in the SAI.

TAXATION

The Fund has qualified and intends to continue to qualify and elect to be
treated as a regulated investment company for each taxable year under the Code.
The Fund pays monthly dividends of net investment incme and makes distributions
at least annually of any net capital gains in exess of applicable capital
losses, including capital loss carryforwards. The Board of Directors of the Fund
will determine annually whether to distribute any such net realized long-term
capital gains in excess of net realized short-term capital losses (including any
capital loss carryovers). The Fund currently expects to distribute any excess
annually to its shareholders. However, if the Fund retains for investment an
amount equal to its net long-term capital gains in excess of its net short-term
capital losses and capital loss carryovers, it will be subject to a corporate
tax (currently at a rate of 35%) on the amount retained. In that event, the Fund
expects to designate such retained amounts as undistributed capital gains in a
notice to its shareholders who (a) will be required to include in income for
United States federal income tax purposes, as long-term capital gains, their
proportionate shares of the undistributed amount, (b) will be entitled to credit
their proportionate shares of the 35% tax paid by the Fund on the undistributed
amount against their United States federal income tax liabilities, if any, and
to claim refunds to the extent their credits exceed their liabilities, if any,
and (c) will be entitled to increase their tax basis, for United States federal
income tax purposes, in their shares by an amount equal to 65% of the amount of
undistributed capital gains included in the shareholder's income.

Shareholders will be notified annually by the Fund as to the United States
federal income tax status of the dividends, distributions and deemed
distributions made by the Fund to its shareholders. Furthermore, shareholders
will also receive, if appropriate, various written notices after the close of
the Fund's taxable year regarding the United States federal income tax status of
certain dividends, distributions and deemed distributions that were paid (or
that are treated as having been paid) by the Fund to its shareholders during the
preceding taxable year. For a more detailed discussion of tax matters affecting
the Fund and its shareholders, see "Taxation" in the SAI.

NET ASSET VALUE

27
<PAGE>
liabilities, exclusive of capital stock and surplus) by the total number of
shares of Common Stock outstanding. Net asset value includes interest on
fixed-income securities which is accrued daily. Securities which are traded
over-the-counter and on a stock exchange will be valued according to the
broadest and most representative market, and it is expected that for bonds and
other fixed-income securities this ordinarily will be the over-the-counter
market. Notwithstanding the above, bonds and other fixed-income securities may
be valued on the basis of prices provided by a pricing service when such prices
are believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to specific securities. Securities not
priced in this manner are valued at the most recent current quoted bid price, or
when stock exchange valuations are used, at the latest quoted sale price on the
date of valuation. Short-term debt securities which mature in less than 60 days
are valued at amortized cost if their term to maturity from date of purchase by
the Fund was less than 60 days, or by amortizing their value on the 61st day if
their term to maturity on the date acquired by the Fund was more than 60 days,
unless this is determined by the Board of Directors not to represent fair value.
The value of other assets and securities for which no current quotations are
readily available are determined in good faith at fair value using methods
determined by the Directors.

COMMON STOCK

The authorized capital stock of the Fund is 100,000,000 shares of Common
Stock, $.001 par value per share. All shares of Common Stock have equal rights
as to dividends and voting privileges and, when issued, will be fully paid and
nonassessable. There are no conversion, preemptive or other subscription rights.
In the event of liquidation, each share of Common Stock is entitled to its
proportion of the Fund's assets after debts and expenses. Shareholders are
entitled to one vote per share and do not have cumulative voting rights.

Set forth below is information with respect to the Common Stock as of July
31, 1996:

<TABLE>
<CAPTION>
AMOUNT HELD BY FUND
AMOUNT AUTHORIZED FOR ITS OWN ACCOUNT AMOUNT OUTSTANDING
- --------------------- -------------------- -------------------
<S> <C> <C>
100,000,000 Shares 0 Shares 24,385,367
</TABLE>

The number of shares outstanding as of July 31, 1996, adjusted to give
effect to the issuance of all the Shares pursuant to the Offer, including up to
25% of the Shares available for issuance pursuant to the Over-Subscription
Privilege, would be 34,545,937.

The Fund's shares are listed and traded on the New York Stock Exchange. The
average weekly trading volume of the Common Stock on the New York Stock Exchange
during the year ended December 31, 1995 was 124,877 shares. The following table
sets forth for the quarters indicated the high and low sales prices on the New
York Stock Exchange per share of Common Stock and the net asset value and the
premium or discount from net asset value at which the Common Stock was trading,
expressed as a percentage of net asset value, at each of the high and low sales
prices provided.

<TABLE>
<CAPTION>
DISCOUNT AS % OF NAV(2)
MARKET PRICE(1) NET ASSET VALUE
-------------------- -------------------- ------------------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
- ---------------------------------------------------- --------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1994...................................... $ 8.50 $ 7.75 $ 9.08 $ 8.91 6.39% 13.02%
June 30, 1994....................................... 8.00 7.38 8.67 8.48 7.73 13.03
September 30, 1994.................................. 7.75 7.00 8.36 8.17 7.30 14.32
December 31, 1994................................... 7.25 6.75 8.11 8.11 10.60 16.77
March 31, 1995...................................... 7.63 7.00 8.24 7.95 7.46 11.95
June 30, 1995....................................... 7.75 7.25 8.54 8.36 9.25 13.28
September 30, 1995.................................. 7.75 7.50 8.55 8.59 9.36 12.69
December 31, 1995................................... 8.00 7.50 8.63 8.58 7.30 12.59
March 31, 1996...................................... 8.50 7.88 8.60 8.49 1.16 7.24
June 30, 1996....................................... 8.25 7.75 8.51 8.53 3.06 9.14
September 30, 1996*................................. 8.25 8.00 8.49 8.51 2.83 5.99
</TABLE>

- ---------
(1) As reported by the New York Stock Exchange.

28
<PAGE>
(2) Based on the Fund's computations.

* Through August 16, 1996.

The Fund's By-laws provide that if, for a fiscal quarter during or after the
fifth year following the initial public offering of the Fund, the average
discount from net asset value at which shares of the Fund's Common Stock have
traded is substantial in the determination of the Board of Directors, the Board
of Directors of the Fund will consider, at its next regularly scheduled
quarterly meeting, taking actions designed to eliminate the discount, including
periodic repurchases of shares or amendments to the Fund's Articles of
Incorporation to convert the Fund to an open-end investment company. Any such
amendment would require a favorable vote of a majority of the shares entitled to
vote on the matter and the amendment would have to be declared advisable by the
Board of Directors prior to its submission to shareholders. Shareholders of an
open-end investment company may require the company to redeem their shares at
any time (except in certain circumstances as authorized by or under the 1940
Act) at their net asset value, less such redemption charge, if any, as might be
in effect at the time of a redemption.

The Fund's Board of Directors has approved a share repurchase program
authorizing the Fund from time to time to make open-market purchases of shares
of the Fund on the New York Stock Exchange up to 10% of the number of shares of
the Fund that were outstanding as of December 11, 1990. There were no
repurchases of shares during the year ended December 31, 1995.

CUSTODIAN AND TRANSFER AND DIVIDEND-PAYING AGENT AND REGISTRAR

The Chase Manhattan Bank, 770 Broadway, New York, New York 10003, acts as
the accounting agent and custodian for the Fund's assets. The Chase Manhattan
Bank also acts as the Fund's dividend-paying agent, transfer agent and
registrar.

DISTRIBUTION ARRANGEMENTS

, located at , will act as Dealer
Manager for the Offer. Under the terms and subject to the conditions contained
in a Dealer Manager Agreement, the Dealer Manager will provide financial
advisory and marketing services in connection with the Offer and will solicit
the exercise of Rights by Record Date Shareholders. The Offer is not contingent
upon any number of Rights being exercised. The Fund has agreed to pay the Dealer
Manager a fee for financial advisory and marketing services equal to 1.25% of
the Subscription Price per Share for shares issued upon exercise of the Rights
and the Over-Subscription Privilege and to pay broker-dealers, including the
Dealer Manager, fees for their soliciting efforts ("Soliciting Fees") of 2.50%
of the Subscription Price per Share for each Share issued upon exercise of the
Rights and the Over-Subscription Privilege. Soliciting Fees will be paid to the
broker-dealer designated on the applicable portion of the Subscription
Certificates, or if no broker-dealer is so designated, to the Dealer Manager.

The Fund has also agreed to reimburse the Dealer Manager up to $100,000 for
its reasonable expenses incurred in connection with the Offer.

The Fund and BEA Associates have agreed to indemnify the Dealer Manager for
losses arising out of certain liabilities including liabilities under the
Securities Act. The Dealer Manager Agreement also provides that the Dealer
Manager will not be subject to any liability to the Fund in rendering the
services contemplated by the Agreement except in instances involving the bad
faith, willful misfeasance, or gross negligence of the Dealer Manager or the
reckless disregard by the Dealer Manager of its obligations and duties under the
Agreement.

The Fund has agreed, subject to certain exceptions, not to offer or sell, or
enter into any agreement to sell, any equity or equity related securities of the
Fund or securities convertible into such securities for a period of 180 days
after the date of the Dealer Manager Agreement without the prior consent of the
Dealer Manager.

LEGAL MATTERS

With respect to matters of United States law, the validity of the shares
offered hereby will be passed on for the Fund by Willkie Farr & Gallagher, New
York, New York. Certain legal matters will be passed on for

29
<PAGE>
the Dealer Manager by Skadden, Arps, Slate, Meagher & Flom, Boston,
Massachusetts. Counsel for the Fund and the Dealer Manager will rely, as to
matters of Maryland law, on Venable, Baetjer and Howard, LLP, Baltimore,
Maryland.

EXPERTS

The financial statements of the Fund as of December 31, 1995 have been
incorporated by reference into the SAI in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of that firm as
experts in accounting and auditing. Price Waterhouse LLP is located at 1177
Avenue of the Americas, New York, New York 10036.

FURTHER INFORMATION

Further information concerning these securities and their issuer may be
found in the Registration Statement of which this Prospectus constitutes a part
on file with the Securities and Exchange Commission. The Commission maintains a
World Wide Web site on the Internet at http://www.sec.gov. that contains the
Prospectus, material incorporated by reference and other information regarding
registrants, such as the Fund, that file electronically with the Commission.

30
<PAGE>
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
General Information........................................................................................ 2
Investment Objectives and Policies......................................................................... 2
Investment Restrictions.................................................................................... 6
Management of the Fund..................................................................................... 8
Portfolio Transactions..................................................................................... 11
Dividend Reinvestment and Cash Purchase Plan............................................................... 12
Taxation................................................................................................... 14
Net Asset Value............................................................................................ 18
Common Stock............................................................................................... 18
Financial Statements....................................................................................... 18
</TABLE>

31
<PAGE>
APPENDIX

CORPORATE BOND RATINGS

MOODY'S INVESTORS SERVICE, INC.

<TABLE>
<S> <C>
AAA Bonds that are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are not likely to impair the fundamentally
strong position of such issues.

AA Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa Securities.

A Bonds that are rated A possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.

BAA Bonds that are rated Baa are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
</TABLE>

Moody's applies numerical modifiers (1, 2, and 3) with respect to the bonds
rated "Aa" through "B." The modifier 1 indicates that the bond being rated ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category.

<TABLE>
<S> <C>
BA Bonds that are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

B Bonds that are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.

CAA Bonds that are rated Caa are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or interest.

CA Bonds that are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.

C Bonds that are rated C are the lowest-rated class of bonds and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
</TABLE>

STANDARD & POOR'S RATINGS GROUP

<TABLE>
<S> <C>
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest
and repay principal is extremely strong.

AA Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from AAA issues only in small degree.
</TABLE>

A-1
<PAGE>
<TABLE>
<S> <C>
A Debt rated A has a strong capacity to pay interest and repay principal, although
it is somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher-rated categories.

BBB This is the lowest investment grade. Debt rated BBB has an adequate capacity to
pay interest and repay principal. It normally exhibits adequate protection
parameters, but adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay.
</TABLE>

SPECULATIVE GRADE

Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the lowest degree of speculation, and C the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions. Debt rated D is in payment default.

In July 1994, Standard & Poor's initiated an "r" symbol to its ratings. The
"r" symbol is attached to derivative, hybrid and certain other obligations that
Standard & Poor's believes may experience high variability in expected returns
due to non-credit risks created by the terms of the obligation.

MODIFIERS

Standard & Poor's may apply plus (+) or minus (-) modifiers with respect to
bonds rated "AA" through "CCC." These modifiers show the bond's relative
standing within the major rating categories.

A-2
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------

NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND, THE FUND'S INVESTMENT ADVISER OR THE DEALER
MANAGER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS
AS SET FORTH IN THE PROSPECTUS OR IN THE AFFAIRS OF THE FUND SINCE THE DATE
HEREOF.

-------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Fee Table...................................... 8
Financial Highlights........................... 9
The Offer...................................... 10
The Fund....................................... 16
Use of Proceeds................................ 18
Risk Factors and Special Considerations........ 18
Investment Objective and Policies.............. 22
Management of the Fund......................... 24
Portfolio Transactions......................... 26
Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan.......... 26
Taxation....................................... 27
Net Asset Value................................ 27
Common Stock................................... 28
Custodian and Transfer and Dividend-Paying
Agent and Registrar.......................... 29
Distribution Arrangements...................... 29
Legal Matters.................................. 29
Experts........................................ 30
Official Documents............................. XX
Further Information............................ 30
Table of Contents of Statement of Additional
Information.................................. 31
Appendix....................................... A-1
</TABLE>

BEA INCOME FUND, INC.

8,278,456 SHARES OF
COMMON STOCK ISSUABLE UPON
EXERCISE OF RIGHTS TO SUBSCRIBE
TO SUCH SHARES

-------------------

P R O S P E C T U S
-------------------

------------

, 1996

- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION DATED AUGUST 26, 1996

BEA INCOME FUND, INC.

_______________________

STATEMENT OF ADDITIONAL INFORMATION

BEA Income Fund, Inc. (the "Fund") is a diversified, closed-end
management investment company seeking current income consistent with the
preservation of capital. The Fund seeks to achieve this objective primarily
through investment in fixed-income securities, such as bonds, debentures and
preferred stocks. Under normal circumstances, at least 75% of the Fund's total
assets will be invested in fixed-income securities.

This Statement of Additional Information ("SAI") is not a prospectus,
but should be read in conjunction with the Prospectus for the Fund dated
, 1996 (the "Prospectus"). This SAI does not include all
information that a prospective investor should consider before purchasing shares
of the Fund, and investors should obtain and read the Prospectus prior to
purchasing shares. A copy of the Prospectus may be obtained without charge, by
calling (800) 733-8481, extension 349, and from ouside the United State, by
calling (212) 805-7000. This SAI incorporates by reference the entire
Prospectus.

_________________

TABLE OF CONTENTS

PAGE
----

GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN . . . . . . . . . . . . . . . . .12
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
NET ASSET VALUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

__________________

The Prospectus and this SAI omit certain of the information contained
in the registration statement filed with the Securities and Exchange Commission,
Washington, D.C. The registration statement may be obtained from the Securities
and Exchange Commission upon payment of the fee prescribed, or inspected at the
Securities and Exchange Commission's office at no charge.

___________________

This Statement of Additional Information is dated

____________, 1996.

<PAGE>

GENERAL INFORMATION

The Fund changed its name from First Boston Income Fund, Inc. to CS
First Boston Income Fund, Inc. in June 1994 and to BEA Income Fund, Inc. in June
1995.

INVESTMENT OBJECTIVE AND POLICIES

INVESTMENT OBJECTIVE

The Fund's investment objective is current income consistent with the
preservation of capital. The Fund seeks to achieve this objective by investing
primarily in fixed-income securities, such as bonds, debentures and preferred
stocks. The Fund's investment portfolio will not be managed for capital
appreciation. The Fund's investment objective and the investment limitations
described below under the caption "Investment Restrictions" are fundamental and
may not be changed without the approval of a majority of the Fund's outstanding
voting securities, as such term is defined in the Investment Company Act of 1940
(the "Act"). All other policies and percentage limitations of the Fund as
described below may be modified by the Board of Directors if, in the reasonable
exercise of the Board's business judgment, modification is determined to be
necessary or appropriate to carry out the Fund's investment objective.

INVESTMENT POLICIES

Under normal circumstances, the Fund will invest at least 75% of
its total assets in fixed-income securities, such as bonds, debentures and
preferred stocks. In January 1992, the Board of Directors removed the
requirement that two-thirds of the Fund's fixed-income securities be
comprised of investment grade securities. Accordingly, the Fund's
investments in fixed-income securities are no longer subject to any rating
quality limitation and may consist of securities that are rated below
investment grade by a nationally recognized rating service or that are
unrated and of comparable quality in the opinion of BEA Associates. Lower
rated securities generally provide yields superior to those of more highly
rated securities, but involve greater risks and are speculative in nature.
See "Risk Factors and Special Considerations--Lower-Rated Securities" in the
Prospectus. The market value of lower-rated securities may be more volatile
than the market value of higher-rated securities and generally tends to
reflect the market's perception of the creditworthiness of the issuer and
short-term market developments to a greater extent than more highly rated
securities, which reflect primarily fluctuations in general levels of
interest rates. For a description of the corporate bond ratings of Moody's
Investors Service, Inc. ("Moodys") and Standard & Poor's Ratings Group
("S&P"), see the Appendix to the Prospectus.

Depending on market conditions, the Fund may also invest a substantial
portion of its assets in mortgage-backed securities. Mortgage-backed securities
are collateralized by mortgages or interests in mortgages and may be issued by
government or non-government entities. Mortgage-backed securities issued by
government entities typically provide a monthly payment consisting of interest
and principal payments, and additional payments will be made out of unscheduled
prepayments of principal. Non-government issued mortgage backed securities may
offer higher yields than those issued by government entities, but may be subject
to greater price fluctuations.

The Fund intends its portfolio, under normal market conditions, to
consist principally of fixed-income securities. Subject to the limitations
described under "Other Investment Techniques" below, the Fund may also invest up
to 25% of its total assets in money market instruments such as certificates of
deposit, commercial paper, bankers' acceptances and repurchase agreements; the
Fund, however, currently does not intend to invest more than 5% in such assets.
The Fund may also, for bona fide hedging purposes, invest in interest rate
futures and related options. It is expected that the average weighted maturity
of the Fund's investment portfolio will be 8 to 12 years.

2
<PAGE>

The Fund's policy is to diversify its investments among various
securities and industries only to the extent such diversification appears to
enhance the opportunity to achieve its investment objective. The Fund may not
invest in a security if after such investment 25% or more of its total assets,
at market value, would be invested in any one industry.

Under the 1940 Act, the Fund is restricted in its ability to purchase
any security of which BEA Associates or any of its affiliate is a principal
underwriter during the public offering of such security.

OTHER INVESTMENT TECHNIQUES

The Fund may enter into repurchase agreements, lend portfolio
securities, purchase securities on a when-issued basis and invest in interest
rate futures and related options.

REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements
collateralized by U.S. Government securities, certificates of deposit and
certain bankers' acceptances for the purpose of realizing additional income.
Repurchase agreements are transactions by which the Fund purchases a security
and simultaneously commits to resell that security to the seller (a bank or
securities dealer) at an agreed upon price on an agreed upon date (usually
within seven days of purchase). The resale price reflects the purchase price
plus an agreed-upon market rate of interest which is unrelated to the coupon
rate or date of maturity of the purchased security. In these transactions, the
seller is required to deliver additional securities to the Fund, if necessary,
so that the current total market value of the securities subject to the
repurchase agreement will be at all times in excess of the agreed upon
repurchase price including any accrued interest earned on the repurchase
agreement. Securities subject to such repurchase agreements will be held by the
Fund's custodian bank until repurchased. Use of repurchase agreements can
permit the Fund to keep its assets at work while retaining short-term
flexibility in pursuit of investments of a longer-term nature. BEA Associates
will continually monitor the value of the underlying securities to ensure that
their value always equals or exceeds the repurchase price.

LENDING OF SECURITIES. The Fund may lend its portfolio securities to
banks, brokers, dealers and other financial institutions who need to borrow
securities in order to complete certain transactions, such as covering short
sales, avoiding failures to deliver securities or completing arbitrage
operations. By lending its portfolio securities, the Fund attempts to increase
its income through the receipt of interest on the loan. Any gain or loss in the
market price of the securities lent that might occur during the term of the loan
would be for the account of the Fund. The Fund may lend its portfolio
securities so long as the terms and the structure of such loans are not
inconsistent with the 1940 Act or the rules and regulations or interpretations
of the Securities and Exchange Commission (the "Commission") thereunder, which
currently require that (a) the borrower pledge and maintain with the Fund
collateral consisting of cash, a letter of credit issued by a domestic U.S.
bank, or securities issued or guaranteed by the United States Government or its
agencies having a value at all times not less than 102% of the value of the
securities lent, (b) the borrower adds to such collateral whenever the price of
the securities lent rises (i.e., the borrower "marks to the market" on a daily
basis), (c) the loan be made subject to termination by the Fund at any time and
(d) the Fund receives reasonable interest on the loan (which may include the
Fund's investing any cash collateral in interest-bearing short-term
investments), any distribution on the securities lent and any increase in their
market value. The Fund will not lend portfolio securities if, as a result, the
aggregate of such loans exceeds 33 1/3% of the value of the Fund's total assets.
Loan arrangements made by the Fund will comply with all other applicable
regulatory requirements, including the rules of the New York Stock Exchange,
which rules presently require the borrower, after notice, to redeliver the
securities within the normal settlement time of three business days. All
relevant facts and circumstances, including the creditworthiness of the
borrower, will be considered by BEA Associates in making decisions with respect
to the lending of securities, subject to review by the Fund's Board of
Directors. The creditworthiness of such bank, broker, dealer or other financial
institution will be monitored by the Adviser during the time any securities are
loaned. In addition, voting rights may pass with the loaned securities but if a
material event were to occur affecting an investment on a loan, the loan must be
called and the securities voted by the Fund.

3
<PAGE>

SHORT SALE. The Fund may engage in short sales (the sale of
securities that it does not own), but only when it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short ("short sales against the box"), and only
if not more than 5% of the Fund's net assets (taken at current value) is held
as collateral for such sales at any one time.

INTEREST RATE FUTURES AND RELATED OPTIONS. The Fund may purchase and
sell interest rate futures contracts and options thereon that are traded on U.S.
futures exchanges. When the Fund attempts to hedge its portfolio by selling an
interest rate futures contract, purchasing a put option thereon, or writing a
call option thereon, it will own an amount of U.S. Government securities
corresponding to the open futures or option position. Futures contracts are
commodities contracts that obligate the buyer to take and the seller to make
delivery at a future date of a specified quantity of the underlying financial
instrument. However, some interest rate futures contracts provide for
settlement in cash rather than by delivery of the securities underlying the
contract. Each futures contract is traded on a commodity exchange that has been
designated a "contract market" by the Commodity Futures Trading Commission (the
"CFTC"). A call option for a futures contract is a short term contract (having
a duration of nine months or less) pursuant to which a purchaser, in return for
a premium paid, has the right to buy the futures contract underlying the option
at a specified exercise price at any time during the term of the option. The
writer of the call option, who receives the premium, has the obligation, upon
exercise of the option, to deliver the underlying futures contract against
payment of the exercise price. A put option for a futures contract is a similar
contract which gives the purchaser, in return for a premium, the right to sell
the underlying futures contract at a specified price during the term of the
option. The writer of the put, who receives the premium, has the obligation to
buy the underlying futures contract, upon exercise, at the exercise price. The
Fund only intends to engage in futures contracts or options for bona fide
hedging purposes. In instances where the Fund purchases futures, the Fund will
segregate with its custodian an amount of cash, U.S. Government securities or
other high-grade, liquid debt securities equal to the market value of the
interest rate futures contracts and thereby insure that the use of interest rate
futures contracts is unleveraged.

In accordance with current CFTC rules, the Fund will not enter into
any interest rate futures contract or option thereon if, immediately thereafter,
the aggregate initial margin for all existing futures contracts and options
thereon and for premiums paid for such options would exceed 5% of the Fund's
total assets. The Fund will not enter into any such contract or option thereon,
if, as a result thereof, more than 50% of the Fund's total assets would be
hedged.

In contrast to the purchase or sale of a security, the full purchase
price of the futures contract is not paid or received by the Fund upon its
purchase or sale. Instead, the Fund will deposit in a segregated custodial
account as an initial margin an amount of cash or U.S. Treasury bills equal to
approximately 5% of the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments to and from
the broker, called variation margin, will be made on a daily basis as the price
of the underlying security fluctuates making the long and short positions in the
futures contract more or less valuable, a process known as "mark to the market."
For example, when the Fund has purchased an interest rate futures contract and
the price of the underlying security has risen, that position will have
increased in value and the Fund will receive from the broker a variation margin
payment equal to that increase in value. Conversely, where the Fund has
purchased an interest rate futures contract and the price of the underlying
security has declined, the position would be less valuable and the Fund would be
required to make a variation margin payment to the broker. At any time prior to
expiration of the futures contract, the Fund may elect to terminate the position
by taking an opposite position. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain. No assurance can be given that the Fund
will be able to take an opposite position.

Interest rate futures contracts are currently available on several
types of fixed-income securities, including U.S. Treasury Bonds, U.S. Treasury
Notes and GNMA securities on The Chicago Board of

4
<PAGE>

Trade, and on U.S. Treasury Bills on the International Monetary Market Division
of The Chicago Mercantile Exchange. The Fund may enter into interest rate
futures contracts consistent with the Fund's investment objectives and in
compliance with applicable regulations of the CFTC.

The purpose of selling an interest rate futures contract is to protect
the Fund's portfolio from fluctuations in asset value resulting from interest
rate changes. Selling a futures contract has an effect similar to selling a
portfolio of the Fund's portfolio securities. If interest rates were to
increase, the value of the securities in the portfolio would decline, but the
value of the Fund's futures contracts would increase, thereby keeping the net
asset value of the Fund from declining as much as it otherwise might have. In
this way, selling futures contracts acts as a hedge against the effects of
rising interest rates. However, a decline in interest rates resulting in an
increase in the value of portfolio securities tends to be offset by a decrease
in the value of the corresponding futures contracts.

Similarly, when interest rates are expected to decline, futures
contracts may be purchased to hedge against anticipated subsequent purchases of
portfolio securities at higher prices. By buying futures, the Fund could
effectively hedge against an increase in the price of the securities it intends
to purchase at a later date in order to permit the purchase to be effected in an
orderly manner. At that time, the futures contracts could be liquidated at a
profit if rates had in fact declined as expected, and the Fund's cash position
could be used to purchase securities.

Although most interest rate futures contracts call for making or
taking delivery of the underlying securities, these obligations are typically
canceled or closed out before the scheduled settlement date. The closing is
accomplished by purchasing (or selling) an identical futures contract to offset
a short (or long) position. Such an offsetting transaction cancels the
contractual obligations established by the original futures transaction. Other
financial futures contracts call for cash settlements rather than delivery of
securities.

If the price of an offsetting futures transaction varies from the
price of the original futures transaction, the Fund will realize a gain or loss
corresponding to the difference. That gain or loss will tend to offset the
unrealized loss or gain on the hedged securities transaction, but may not always
or completely do so.

The selection of futures and option strategies requires skills
different than those needed to select portfolio securities, however, BEA
Associates does have experience in the use of futures and options.

DIRECT PLACEMENT. As noted under "Investment Restrictions," the Fund
may invest up to 10% of its assets in securities that are not readily
marketable. The portion of the Fund's portfolio that may be invested in such
securities (other than in repurchase agreements) will be purchased in placements
from the securities' issuer or in the secondary market for such directly placed
securities ("Direct Placement Securities"). The purchase of Direct Placement
Securities will depend on the relative attractiveness of those securities as
compared to securities which have been publicly offered.

Direct Placement Securities have frequently resulted in higher yields
and restrictive covenants providing greater protection for the purchaser, such
as longer call or refunding protection, than typically would be available with
publicly offered securities of the same type. An issuer is often willing to
create more attractive features in its securities issued privately, because it
has avoided the expense and delay involved in a public offering of its
securities. For various reasons, an issuer may prefer or be required as a
practical matter to obtain private financing. At certain times adverse
conditions in the public securities markets may preclude a public offering of an
issuer's securities.

On the other hand, Direct Placement Securities are subject to
statutory or contractual restrictions and delays on resale. They are,
therefore, often referred to as "restricted securities." Restricted securities
may generally be resold only in a privately negotiated transaction with a
limited number of purchasers or in a public offering registered under the
Securities Act of 1933. Such securities are therefore unlike securities which
are traded in the open market and which can be expected to be sold immediately
if the market is adequate.

5
<PAGE>

TEMPORARY INVESTMENTS

The Fund may, for temporary defensive purposes, invest its assets in
money market instruments and interest rate futures and related options without
regard to any percentage limitation. The Fund may also, for temporary defensive
purposes, invest in short-term (less than twelve months to maturity) debt
securities rated at least A by Moody's or S&P. Subject to its limitation on
investments in money market instruments, the Fund will also invest in short-term
debt securities rated at least Baa by Moody's or BBB by S&P to commit overnight
cash balances.

PORTFOLIO TURNOVER

The Fund has no restrictions on portfolio turnover, but it is not the
Fund's policy to engage in transactions with the objective of seeking profits
from short-term trading. It is anticipated that the Fund's annual portfolio
turnover will not exceed 100%. For information regarding the Fund's portfolio
turnover rate, see "Financial Highlights" in the Prospectus. This rate is
calculated by dividing the lesser of sales or purchases of portfolio securities
for any given year by the average monthly value of the Fund's portfolio
securities for such year. For purposes of this calculation, portfolio
securities exclude purchase and sales of debt securities having a maturity at
the date of purchase of one year or less. The rate of portfolio turnover will
not be a limiting factor when BEA Associates deems it appropriate to purchase or
sell securities for the Fund. Portfolio turnover, however, directly affects the
amount of transaction costs that will be borne by the Fund. In addition, the
sale of securities held by the Fund for not more than one year will give rise to
short-term capital gain or loss for U.S. federal income tax purposes. The U.S.
federal income tax requirement that the Fund derive less than 30% of its gross
income from the sale or other disposition of stock or securities held less than
three months may limit the Fund's ability to dispose of its securities. See
"Taxation--United States Federal Income Taxes."

INVESTMENT RESTRICTIONS

The Fund is subject to the following restrictions which may not be
changed without the approval of at least a majority of the outstanding voting
securities of the Fund, as defined in the 1940 Act. The Fund will not (1)
invest more than 5% of the value of its total assets in the securities of any
one issuer, excluding obligations of the U.S. Government or any agency or
instrumentality thereof and except that up to 25% of the value of its total
assets may be invested without regard to this limitation; (2) own more than 10%
of the outstanding voting stock or other securities (other than securities of
the U.S. Government or any agency or instrumentality thereof), or both, of any
one issuer; (3) purchase shares of other investment companies except as part of
a plan of reorganization, merger, consolidation or an offer of exchange; (4)
borrow money except as a temporary measure for extraordinary or emergency
purposes, and in no event in excess of 10% of the lower of the market value or
cost of its total assets, except that for the purpose of this restriction,
short-term credits necessary for settlement of securities transactions are not
considered borrowings (the Fund will not purchase any securities at any time
while such borrowings exceed 5% of total assets); (5) purchase securities on
margin; (6) sell securities short unless at all times when a short position is
open it owns an equal amount of such securities or securities convertible into
or exchangeable, with payment of any further consideration, for securities of
the same issue as, and equal in amount, to the securities sold short, and unless
not more than 5% of the Fund's net assets (taken at current value) are held as
collateral for such sales at any one time; (7) invest in the aggregate more than
5% of the value of its total assets in securities denominated in a currency
other than the United States dollar; (8) invest for the purpose of exercising
control over management of any company; (9) make loans, except (i) by purchasing
bonds, debentures or similar obligations (including repurchase agreements,
subject to the limitation described in (11) below), which are either publicly
distributed or customarily purchased by institutional investors, and (ii) by
lending its securities to banks, brokers, dealers and other financial
institutions so long as such loans are not inconsistent with the 1940 Act or the
rules and regulations or interpretations of the Commission thereunder; (10)
underwrite the securities of other issuers, except to the extent that in
connection with the disposition of portfolio securities the Fund may be deemed
to be an underwriter; (11) invest more than 10% of its total assets in
securities subject to legal or contractual restrictions on resale or in
securities which are not readily marketable, including repurchase agreements
having maturities of more than 7 days and Direct

6
<PAGE>

Placement Securities (as defined under Investment Objective and Policies--Other
Investment Techniques; (12) except as described under "Investment Objective and
Policies", purchase real estate, commodities or commodity contracts, although
the Fund may purchase or sell securities of companies which deal in real estate
or interests therein; (13) except as described under "Investment Objective and
Policies", invest in or write put, call, straddle or spread options; (14) invest
directly in interests in oil, gas or other mineral exploration development
programs; or (15) invest in non-dividend paying equity securities if after such
investment, total non-dividend paying equity securities would comprise more than
10% of the Fund's total assets. The deposit of initial and variation margin in
connection with interest rate futures contracts and related options shall not be
deemed to be in violation of any of the foregoing investment restrictions.

If a percentage restriction on investment or use of assets set forth
above is adhered to at the time a transaction is effected, later changes in
percentages resulting from changing values will not be considered a violation.

Under the 1940 Act, the Fund may neither invest more than 5% of its
total assets in the securities of any one investment fund, nor acquire more than
3% of the outstanding voting securities of any such fund. In addition, the Fund
may not invest more than 10% of its total assets in securities issued by all
investment funds. As a shareholder in any investment company, the Fund will
bear its ratable share of that investment company's expenses, and would remain
subject to payment of the Fund's advisory, sub-advisory and administrative fees
with respect to assets so invested. See "Taxation--United States Federal Income
Taxes."

7
<PAGE>

MANAGEMENT OF THE FUND

DIRECTORS AND OFFICERS

The names of the directors and principal officers of the Fund are set
forth below, together with their positions and their principal occupations
during the past five years.

Name, Address and Age Position with the Fund
--------------------- ----------------------

Daniel H. Sigg (40) . . . . . . . . . . . Director, Chairman of the Board
One Citicorp Center and Chief Executive Officer
153 East 53rd Street
New York, New York 10022

Prof. Enrique R. Arzac (54) . . . . . . . Director
Columbia University
Graduate School of Business
New York, New York 10027

Lawrence J. Fox (52) . . . . . . . . . . Director
110 PNB Building
Broad and Chestnut Streets
Philadelphia, Pennsylvania 19107

James S. Pasman, Jr. (65) . . . . . . . . Director
29 The Trillium
Pittsburgh, Pennsylvania 15238

Robert Moore (39) . . . . . . . . . . . . President and Chief Investment
One Citicorp Center Officer
153 East 53rd Street
New York, New York 10022

Richard J. Lindquist (35) . . . . . . . . Vice President
One Citicorp Center
153 East 53rd Street
New York, New York 10022

Paul P. Stamler (35) . . . . . . . . . . Treasurer
One Citicorp Center
153 East 53rd Street
New York, New York 10022

Michael A. Pignataro (36) . . . . . . . . Secretary
One Citicorp Center
153 East 53rd Street
New York, New York 10022

_____________

* Mr. Sigg is an "interested person" of the Fund within the meaning of
the 1940 Act by virtue of his position as a director and officer of BEA
Associates.

Daniel H. Sigg is a member of the Executive Committee, Chief
Financial Officer, and an Executive Director of BEA Associates (since May
1995). From February 1992 to April 1995, Mr. Sigg was a member of the
Executive Committee and a Managing Director of BEA Associates. He was Vice
President of Marketing of BEA Associates from January 1991 to January 1992.
Mr. Sigg has been President of Credit Suisse Advisors Corporation since
December 1995 and President of Credit Suisse Capital Corporation since
December 1994. He was Director and Vice President of Credit Suisse Capital
Corporation from December 1990 to November 1994. From 1987 to December 1990,
Mr. Sigg was Vice President and Head of International Equity Sales and
Trading at Swiss American Securities. Mr. Sigg is also a Director and Senior
Vice President of The Brazilian Equity Fund, Inc., The Latin America
Investment Fund, Inc., The Latin America Equity Fund, Inc.,

8
<PAGE>

The Portugal Fund, Inc., The Indonesia Fund, Inc., The Chile Fund, Inc., The
Emerging Markets Telecommunications Fund, Inc., The First Israel Fund, Inc. and
The Emerging Markets Infrastructure Fund, Inc. and is Chairman of the Board,
Chief Executive Officer and a Director of BEA Strategic Income Fund, Inc.

Prof. Enrique R. Arzac is Professor of Finance and Director of the
Financial Management Program at the Graduate School of Business of Columbia
University (since 1971). He is also a Director of The Adam Express Company and
Petroleum and Resources Corp. Dr. Arzac is also a director of The Brazilian
Equity Fund, Inc., The Latin America Investment Fund, Inc., The Latin America
Equity Fund, Inc., The Portugal Fund, Inc., The Chile Fund, Inc., The Emerging
Markets Telecommunications Fund, Inc., The First Israel Fund, Inc., The Emerging
Markets Infrastructure Fund, Inc. and BEA Strategic Income Fund, Inc.

Lawrence J. Fox is Managing Partner and Chairman of Professional
Responsibility Committee of the law firm of Drinker Biddle & Reath (since
January 1992). He has been a partner of Drinker Biddle & Reath since 1976. He
is a director of BEA Strategic Income Fund, Inc.

James S. Pasman, Jr. was the President and Chief Operating Officer of
National InterGroup, Inc. from April 1989 to March 1991. He is a director of
BEA Strategic Income Fund, Inc. and of ADT, Ltd.

Robert Moore is a member of the Executive Committee, Executive
Director and Chief Operating Officer of BEA Associates (since December 1995).
From February 1992 to December 1995, Mr. Moore was a Managing Director and
Portfolio Manager of BEA Associates, and from December 1990 to January 1992 he
was Vice President and Portfolio Manager of BEA Associates.

Richard J. Lindquist is a Managing Director of BEA Associates (since
April 1995) and a Vice President of BEA Strategic Income Fund, Inc.. From March
1993 to March 1995, he was Chief Compliance Officer of CS First Boston
Investment Management Corporation ("CSIM"). He was director of CSIM from April
1992 to February 1993 and Vice President of CSIM from July 1989 to March 1992.

Paul P. Stamler is a Vice President of BEA Associates (since June
1993) and a Vice President of BEA Strategic Income Fund, Inc.. From April 1992
to May 1993, Mr. Stamler was self-employed as a certified public accountant.
From June 1988 to March 1992, Mr. Stamler was Vice President of Bear,
Stearns & Co. Inc. Mr. Stamler is also a Senior Vice President of The Brazilian
Equity Fund, Inc., The Latin America Investment Fund, Inc., The Latin America
Equity Fund, Inc., The Portugal Fund, Inc., The Indonesia Fund, Inc., The Chile
Fund, Inc., The Emerging Markets Telecommunications Fund, Inc., The First Israel
Fund, Inc. and The Emerging Markets Infrastructure Fund, Inc. and Treasurer of
BEA Strategic Income Fund, Inc.

Michael A. Pignataro has been Vice President of BEA Associates
since December 1995. He was Assistant Vice President and Chief
Administrative Officer for Investment Companies of BEA Associates from
September 1989 to December 1995. Mr. Pignataro is also the Chief Financial
Officer and Secretary of The Brazilian Equity Fund, Inc., The Latin America
Investment Fund, Inc., The Latin America Equity Fund, Inc., The Portugal
Fund, Inc., The Chile Fund, Inc., The Emerging Markets Telecommunications
Fund, Inc., The First Israel Fund, Inc. and The Emerging Markets
Infrastructure Fund, Inc. and Chief Financial Officer and Assistant Secretary
of The Indonesia Fund, Inc. and Secretary of BEA Strategic Income Fund, Inc.

The Fund pays each of its directors who is not a director, officer or
employee of BEA Associates or any affiliate thereof an annual fee of $10,000
plus $500 for each Board of Directors meeting attended. In addition, the Fund
will reimburse those directors for travel and out-of-pocket expenses incurred in
connection with Board of Directors meetings. The aggregate remuneration paid to
all such unaffiliated directors by the Fund during the fiscal year ended
December 31, 1995 was $39,358.

The following table shows certain compensation information for the
directors of the Fund for the fiscal year ended December 31, 1995. None of the
Fund's executive officers or directors who are also

9
<PAGE>

officers or directors of BEA Associates received any compensation from the Fund
for such period. The Fund has no bonus, profit sharing, pension or retirement
plans.

Total Number of
Boards of BEA
Total Associates
Pension or Estimated Compensation Advised
Aggregate Retirement Benefits Annual Benefits From Fund and Investment
Compensation Accrued as Part of Upon Fund Complex Companies
Name of Director from Fund Fund Expenses Retirement Paid to Directors Served
- ------------------------- ------------ ------------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>

Enrique R. Arzac * $26,000 0 0 $26,000 10
Lawrence J. Fox $13,000 0 0 $26,000 2
James S. Pasman, Jr. $13,000 0 0 $26,000 2

</TABLE>

__________

* On February 13, 1996, Prof. Arzac was elected as a director of eight
other BEA Associates-advised investment companies. Because the election
took place after the 1995 fiscal year-end, Prof. Arzac did not receive any
compensation with respect to these BEA-advised investment companies for the
year ended December 31, 1995.

The Articles of Incorporation and Bylaws of the Fund provide that the
Fund will indemnify directors, officers, employees and agents of the Fund
against liabilities and expenses incurred in connection with litigation in which
they may be involved because of their positions with the Fund to the fullest
extent permitted by law. In addition, the Fund's Articles of Incorporation
provide that the Fund's directors and officers will not be liable to the
shareholders for money damages, except in limited instances. However, nothing
in the Articles of Incorporation or the Bylaws of the Fund protects or
indemnifies a director, officer, employee or agent against any liability to
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of such person's office.

ADVISORY ARRANGEMENTS

BEA Associates act as the Fund's investment adviser pursuant to an
Advisory Agreement with the Fund (the "Advisory Agreement") which became
effective on June 13, 1995. Prior to this date, CSIM provided investment
advisory services to the Fund under substantially the same terms, conditions
and fees.

The Advisory Agreement provides that BEA Associates shall not be
liable for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the matters to which the Advisory Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services (in which case any award of
damages shall be limited to the period and the amount set forth in Section
36(b)(3) of the 1940 Act) or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of BEA Associates in the performance of
its duties or from reckless disregard of its obligations and duties under the
Advisory Agreement.

For the fiscal period from June 13, 1995 (effective date of the
Advisory Agreement) through December 31, 1995, BEA Associates was paid $568,039
for advisory services rendered to the Fund. For the fiscal period from January
1, 1995 through June 12, 1995 and the fiscal years ended December 31, 1994 and
December 31, 1993, CSIM was paid for advisory services rendered to the Fund
$458,394, $1,032,360 and $1,066,979, respectively.

ADMINISTRATIVE ARRANGEMENT

Chase Global Funds Services Company (the "Administrator") serves as
the Fund's administrator pursuant to an agreement with the Fund (the
"Administration Agreement").

DURATION AND TERMINATION; NON-EXCLUSIVE SERVICES

The Advisory Agreement became effective on June 13, 1995. Unless
earlier terminated as described below, the Advisory Agreement remains in effect
if approved annually (a) by the Board of Directors

10
<PAGE>

of the Fund or by the holders of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act) and (b) by a majority of the directors
who are not parties to the Advisory Agreement or "interested persons" (as
defined in the 1940 Act) of any such party. The Advisory Agreement terminates
on its assignment by any party and may be terminated without penalty on 60 days'
written notice at the option of the Board of Directors of the Fund or by the
vote of the majority of the holders of the Fund's shares, or upon 90 days'
written notice, by BEA Associates.

The Administration Agreement is terminable upon 60 days' notice by
either party.

The services of BEA Associates and the Administrator are not deemed to
be exclusive, and nothing in the relevant service agreements will prevent any of
them or their affiliates from providing similar services to other investment
companies and other clients (whether or not such clients' investment objectives
and policies are similar to those of the Fund) or from engaging in other
activities.

PORTFOLIO TRANSACTIONS

Decisions to buy and sell securities for the Fund are made by BEA
Associates, subject to the overall review of the Fund's Board of Directors.
Portfolio securities transactions for the Fund are placed on behalf of the Fund
by persons authorized by BEA Associates. BEA Associates manages other
investment companies and accounts (the "BEA Accounts") that invest in fixed-
income securities. Although investment decisions for the Fund are made
independently from those of the other BEA Accounts, investments of the type the
Fund may make may also be made on behalf of the BEA Accounts. When the Fund and
one or more of the BEA Accounts is prepared to invest in, or desires to dispose
of, the same security, available investments or opportunities for each will be
allocated in a manner believed by BEA Associates to be equitable to each. In
some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. The
Fund may utilize CS First Boston Corporation and other affiliates of Credit
Suisse in connection with the purchase or sale of securities in accordance with
rules or exemptive orders adopted by the Securities and Exchange Commission when
BEA Associates believes that the charge for the transaction does not exceed
usual and customary levels.

Transactions on U.S. and some foreign stock exchanges involve the
payment of negotiated brokerage commissions, which may vary among different
brokers. The cost of securities purchased from underwriters includes an
underwriter's commission or concession, and the prices at which securities are
purchased from and sold to dealers in the over-the-counter markets include a
dealer's mark-up or mark-down, which normally is not disclosed. Fixed-income
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security will likely include a profit to the dealer.

In selecting brokers or dealers to execute portfolio transactions
on behalf of the Fund, BEA Associates will seek the best overall terms
available. In addition, unless otherwise directed by the Board of Directors
of the Fund, the Advisory Agreement authorizes BEA Associates, in selecting
brokers or dealers to execute a particular transaction and in evaluating the
best overall terms available, to consider the brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act
of 1934) and cause the Fund to pay a broker-dealer which furnishes such
services a higher commission than that which might be charged by another
broker-dealer for effecting the same transaction, provided that such
commission is deemed reasonable in terms of either that particular
transaction or the overall responsibilities of BEA Associates to the Fund.
The fees payable under the Advisory Agreement are not reduced as a result of
BEA Associates' receiving such brokerage and research services.

11
<PAGE>

It is currently the Fund's policy that BEA Associates may at times pay
higher commissions than might otherwise be obtainable in recognition of
brokerage services felt necessary for the achievement of best available price
and most favorable execution of certain securities transactions. BEA Associates
will only pay such higher commissions if it believes this to be in the best
interest of the Fund. Some brokers or dealers who may receive such higher
commissions in recognition of brokerage services related to execution of
securities transactions are also providers of research information to BEA
Associates and/or the Fund. Subject to the primary objective set forth above,
BEA Associates has informed the Fund that it may pay higher commission rates
specifically for the purpose of obtaining research services. The Fund will not
pay to any affiliates of BEA Associates a higher commission rate specifically
for the purpose of obtaining research services.

The Fund paid no affiliated brokerage commissions in any of the
fiscal years ended December 31, 1995, December 31, 1994 and December 31, 1993.

DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN

Pursuant to the Fund's Dividend Reinvestment and Cash Purchase Plan
(the "Plan"), each shareholder will be deemed to have elected, unless The Chase
Manhattan Bank ("Chase Manhattan") as the Plan Agent (the "Plan Agent"), is
otherwise instructed by the shareholder in writing, to have all distributions,
net of any applicable U.S. withholding tax, automatically reinvested in
additional shares of the Fund. Shareholders who do not participate in the Plan
will receive all dividends and distributions in cash, net of any applicable U.S.
withholding tax, paid in dollars by check mailed directly to the shareholder by
the Plan Agent, as dividend-paying agent. Shareholders who do not wish to have
dividends and distributions automatically reinvested should notify Chase
Manhattan, as the Plan Agent for BEA Income Fund, Inc., Dividend Reinvestment
Department - Retail, 770 Broadway, New York, New York 10003-9598 or by telephone
at 1-800-774-4365. Dividends and distributions with respect to shares
registered in the name of a broker-dealer or other nominee (i.e., in "street
name") will be reinvested under the Plan unless such service is not provided by
the broker or nominee or the shareholder elects to receive dividends and
distributions in cash. A shareholder whose shares are held by a broker or
nominee that does not provide a dividend reinvestment program may be required to
have his shares registered in his own name to participate in the Plan.
Investors who own shares of the Fund's Common Stock registered in street name
should contact the broker or nominee for details concerning participation in the
Plan.

Certain distributions of cash attributable to (a) some of the
dividends and interest amounts paid to the Fund and (b) certain capital gains
earned by the Fund that are derived from securities of certain foreign issuers
are subject to taxes payable by the Fund at the time amounts are remitted. Such
taxes, if any, will be borne by the Fund and allocated to all shareholders in
proportion to their interests in the Fund.

The Plan Agent serves as agent for the shareholders in administering
the Plan. If the Board of Directors of the Fund declares an income dividend or
a capital gains distribution payable either in the Fund's common stock or in
cash, as shareholders may have elected, nonparticipants in the Plan will receive
cash and participants in the Plan will receive the equivalent in shares of the
Fund valued at the lower of market price or net asset value as determined at the
time of purchase (generally on the payable date of the dividend) as set forth
below. Whenever market price is equal to or exceeds net asset value at the time
shares are valued for the purpose of determining the number of shares equivalent
to the cash dividend or distribution, participants will be issued shares of the
Fund at a price equal to net asset value but not less than 95% of the then
current market price of the Fund shares. The Fund will not issue shares under
the Plan below net asset value. If net asset value determined as at the time of
purchase exceeds the market price of Fund shares at such time, or if the Fund
should declare a dividend or other distribution payable only in cash (i.e., if
the Board of Directors should preclude reinvestment at net asset value), the
Agent will, as agent for the participants, endeavor to buy Fund shares in the
open market, on the New York Stock Exchange or elsewhere, on behalf of all
participants, and will

12
<PAGE>

allocate to each shareholder its pro rata portion based on the average price
paid (including brokerage commissions) for all shares purchased. Shares
acquired on behalf of participants in the open market will be purchased at the
prevailing market price. If, before the Agent has completed its purchases, the
market price exceeds the net asset value of a Fund share, the average per share
purchase price paid by the Agent may exceed the net asset value of the Fund's
shares, resulting in the acquisition of fewer shares than if the dividend or
distribution had been paid in shares issued by the Fund. For all purposes of
the Plan, (a) the market price of the Common Stock on a dividend payment date
shall be the last sale price on the New York Stock Exchange on that date, or, if
there is no such sale, then the mean between the closing bid and asked
quotations for such stock, and (b) net asset value per share of the Common Stock
on a particular date shall be as determined by or on behalf of the Fund.

Participants in the Plan have the option of making additional cash
payments to the Plan Agent, monthly, in any amount from $100 to $3,000, for
investment in the Fund's Common Stock. Cash contributions are used to purchase
shares of Common Stock in the open market regardless of whether such shares are
selling above, at or below the net asset value of the Fund. As a result,
shareholders may be purchasing shares at a market price that reflects a premium
to the Fund's net asset value. Voluntary cash payments received after five
business days before the dividend payment date will be invested by the Plan
Agent on the next succeeding dividend payment date. Dividend payment dates are
expected to be the 15th (or next business day) of each month. A participant may
withdraw a voluntary cash payment by written notice, if the notice is received
by the Plan Agent not less than 48 hours before the next succeeding dividend
payment. A participant's tax basis in his shares acquired through this optional
investment right will equal his cash payments to the Plan, including any cash
payments used to pay brokerage commissions allocable to his acquired shares.

The Plan Agent maintains all shareholder accounts in the Plan and
furnishes written confirmations of all transactions in the account, including
information needed by shareholders for personal and tax records. Shares in the
account of each Plan participant will be held by the Plan Agent in the name of
the participant and each shareholder's proxy will include those shares purchased
pursuant to the Plan.

In the case of a shareholder, such as a bank, broker or nominee, that
holds shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of shares certified from time to
time by the shareholder as representing the total amount registered in the
shareholder's name and held for the account of beneficial owners who are to
participate in the Plan.

There is no charge to participants for reinvesting dividends or
capital gains distributions payable in either stock or cash. The Plan Agent's
fees for the handling of reinvestment of such dividends and capital gains
distributions will be paid by the Fund. There will be no brokerage charges with
respect to shares issued directly by the Fund as a result of dividends or
capital gains distributions payable either in stock or in cash. However, each
participant will be charged by the Plan Agent a pro rata share of brokerage
commissions incurred with respect to the Plan Agent's open market purchases in
connection with voluntary cash payments made by the participant or the
reinvestment of dividends or capital gains distributions. Brokerage charges for
purchasing small amounts of stock for individual accounts through the Plan are
expected to be less than the usual brokerage charges for such transactions
because the Plan Agent will be purchasing stock for all participants in blocks
and prorating the lower commission thus obtainable. Brokerage commissions will
vary based on, among other things, the broker selected to effect a particular
purchase and the number of participants on whose behalf such purchase is being
made. The Fund cannot predict, therefore, whether the cost to a participant who
makes a voluntary cash payment will be less than if a participant were to make
an open market purchase of the Fund's Common Stock on his own behalf.

The receipt of dividends and distributions in stock under the Plan
will not relieve participants of any income tax (including withholding tax) that
may be payable on such dividends or distributions.

The Fund reserves the right to terminate the Plan as applied to any
voluntary cash payments made and any dividend or distribution paid subsequent to
notice of the termination sent to the members of the Plan at least 30 days
before the record date for such dividend or distributions. The Plan also may be
amended

13
<PAGE>

by the Fund or the Plan Agent, but (except when necessary or appropriate to
comply with applicable law, rules or policies of a regulatory authority) only by
at least 30 days' written notice to members of the Plan. All correspondence
concerning the Plan should be directed to The Chase Manhattan Bank, Dividend
Reinvestment Department - Retail, 770 Broadway, New York, New York 10003-9598.

TAXATION

The following is a summary of the material United States federal
income tax considerations, regarding the purchase, ownership and disposition of
shares in the Fund. Each prospective shareholder is urged to consult his own
tax adviser with respect to the specific federal, state, local and foreign tax
consequences of investing in the Fund. The summary is based on the laws in
effect on the date of this SAI, which are subject to change.

UNITED STATES FEDERAL INCOME TAXES

THE FUND AND ITS INVESTMENTS. The Fund has qualified and intends to
continue to qualify and elect to be treated as a regulated investment company
for each taxable year under the Code. To so qualify, the Fund must, among other
things: (a) derive at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock or securities or foreign currencies, or
other income (including, but not limited to, gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies; (b) derive less than 30% of its gross income in
each taxable year from the sale or other disposition of (i) stock or securities
held for less than three months, (ii) options, futures or forward contracts
(other than options, futures or forward contracts on foreign currencies) held
for less than three months and (iii) foreign currencies (or options, futures or
forward contracts on such foreign currencies) held for less than three months
but only if such currencies (or options, futures or forward contracts) are not
directly related to the Fund's principal business of investing in stock or
securities (or options or futures with respect to stock or securities); and (c)
diversify its holdings so that, at the end of each quarter of the Fund's taxable
year, (i) at least 50% of the market value of the Fund's assets is represented
by cash, securities of other regulated investment companies, United States
government securities and other securities, with such other securities limited,
in respect of any one issuer, to an amount not greater than 5% of the Fund's
assets and not greater than 10% of the outstanding voting securities of such
issuer and (ii) not more than 25% of the value of its assets is invested in the
securities (other than United States government securities or securities of
other regulated investment companies) of any one issuer or any two or more
issuers that the Fund controls and are determined to be engaged in the same or
similar trades or businesses or related trades or businesses. The Fund expects
that all of its foreign currency gains will be directly related to its principal
business of investing in stocks and securities.

Although legislation that would repeal the 30% limitation on a
regulated investment company's ability to make short-term investments has been
proposed in Congress, it is unclear when, if ever, such legislation will be
enacted or the form of such legislation if enacted.

As a regulated investment company, the Fund will not be subject to
United States federal income tax on its net investment income (i.e., income
other than its net realized long- and short-term capital gains) and its net
realized long- and short-term capital gains, if any, that it distributes to its
shareholders, provided that an amount equal to at least 90% of the sum of its
investment company taxable income (i.e., 90% of its taxable income minus the
excess, if any, of its net realized long-term capital gains over its net
realized short-term capital losses (including any capital loss carryovers), plus
or minus certain other adjustments as specified in section 852 of the Code) and
its net tax-exempt income for the taxable year is distributed, but will be
subject to tax at regular corporate rates on any taxable income or gains that it
does not distribute. Furthermore, the Fund will be subject to a United States
corporate income tax with respect to such distributed amounts in any year that
it fails to qualify as a regulated investment company or fails to meet this
distribution requirement. Any dividend declared by the Fund in October,
November or December of any calendar year and payable to shareholders of record
on a specified date in such a month shall be deemed to have been received by

14
<PAGE>

each shareholder on December 31 of such calendar year and to have been paid by
the Fund not later than such December 31, provided that such dividend is
actually paid by the Fund during January of the following calendar year.

The Fund pays dividends of net investment income monthly and makes
distributions at least annually of any net capital gains in excess of applicable
capital losses, including capital loss carryforwards. The Board of Directors of
the Fund will determine annually whether to distribute any such net realized
long-term capital gains in excess of net realized short-term capital losses
(including any capital loss carryovers). The Fund currently expects to
distribute any excess annually to its shareholders. However, if the Fund
retains for investment an amount equal to all or a portion of its net long-term
capital gains in excess of its net short-term capital losses and capital loss
carryovers, it will be subject to a corporate tax (currently at a rate of 35%)
on the amount retained. In that event, the Fund expects to designate such
retained amounts as undistributed capital gains in a notice to its shareholders
who (a) will be required to include in income for United States federal income
tax purposes, as long-term capital gains, their proportionate shares of the
undistributed amount, (b) will be entitled to credit their proportionate shares
of the 35% tax paid by the Fund on the undistributed amount against their United
States federal income tax liabilities, if any, and to claim refunds to the
extent their credits exceed their liabilities, if any, and (c) will be entitled
to increase their tax basis, for United States federal income tax purposes, in
their shares by an amount equal to 65% of the amount of undistributed capital
gains included in the shareholder's income.

The Code imposes a 4% nondeductible excise tax on the Fund to the
extent the Fund does not distribute by the end of any calendar year at least 98%
of its net investment income for that year and 98% of the net amount of its
capital gains (both long-and short-term) for the one-year period ending, as a
general rule, on October 31 of that year. For this purpose, however, any income
or gain retained by the Fund that is subject to corporate income tax will be
considered to have been distributed by year-end. In addition, the minimum
amounts that must be distributed in any year to avoid the excise tax will be
increased or decreased to reflect any underdistribution or overdistribution, as
the case may be, from the previous year. The Fund anticipates that it will pay
such dividends and will make such distributions as are necessary in order to
avoid the application of this tax.

If, in any taxable year, the Fund fails to qualify as a regulated
investment company under the Code, the Fund would be taxed in the same manner as
an ordinary corporation and distributions to its shareholders would note be
deductible by the Fund in computing its taxable income. In addition, in the
event of a failure to qualify, the Fund's distributions, to the extent derived
from the Fund's current or accumulated earnings and profits, would constitute
dividends (eligible for the corporate dividends-received deduction) which are
taxable to shareholders as ordinary income, even though those distributions
might otherwise (at least in part) have been treated in the shareholders' hands
as long-term capital gains. If the Fund fails to qualify as a regulated
investment company in any year, it must pay out its earnings and profits
accumulated in that year in order to qualify again as a regulated investment
company. In addition, if the Fund failed to qualify as a regulated investment
company for a period greater than one taxable year, the Fund may be required to
recognize any net built-in gains (the excess of the aggregate gains, including
items of income, over aggregate losses that would have been realized if it had
been liquidated) in order to qualify as a regulated investment company in a
subsequent year.

The Fund's transactions in options and futures contracts will be
subject to special provisions of the Code that, among other things, may affect
the character of gains and losses realized by the Fund (i.e., may affect whether
gains or losses are ordinary or capital), accelerate recognition of income to
the Fund and defer Fund losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. These provisions
also (a) will require the Fund to mark-to-market certain types of the positions
in its portfolio (i.e., treat them as if they were closed out) and (b) may cause
the Fund to recognize income without receiving cash with which to pay dividends
or make distributions in amounts necessary to satisfy the distribution
requirements for avoiding income and excise taxes. The Fund will monitor its
transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it acquires any

15
<PAGE>

option, futures contract or hedged investment in order to mitigate the effect of
these rules and prevent disqualification of the Fund as a regulated investment
company.

DIVIDENDS AND DISTRIBUTIONS. Dividends of net investment income and
distributions of net realized short-term capital gains are taxable to a United
States shareholder as ordinary income, whether paid in cash or in shares.
Distributions of net long-term capital gains, if any, that the Fund designates
as capital gains dividends are taxable as long-term capital gains, whether paid
in cash or in shares and regardless of how long a shareholder has held shares of
the Fund. Dividends and distributions paid by the Fund (except for the portion
thereof, if any, attributable to dividends on stock of U.S. corporations
received by the Fund) will not qualify for the deduction for dividends received
by corporations. Distributions in excess of the Fund's current and accumulated
earnings and profits will, as to each shareholder, be treated as a tax-free
return of capital, to the extent of a shareholder's basis in his shares of the
Fund, and as a capital gain thereafter (if the shareholder holds his shares of
the Fund as capital assets).

Shareholders receiving dividends or distributions in the form of
additional shares pursuant to the Plan should be treated for United States
federal income tax purposes as receiving a distribution in the amount equal to
the amount of money that the shareholders receiving cash dividends or
distributions will receive, and should have a cost basis in the shares received
equal to such amount.

Investors considering buying shares just prior to a dividend or
capital gain distribution should be aware that, although the price of shares
just purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable to
them.

If the Fund is the holder of record of any stock on the record date
for any dividends payable with respect to such stock, such dividends are
included in the Fund's gross income not as of the date received but as of the
later of (a) the date such stock became ex-dividend with respect to such
dividends (i.e., the date on which a buyer of the stock would not be entitled to
receive the declared, but unpaid, dividends) or (b) the date the Fund acquired
such stock. Accordingly, in order to satisfy its income distribution
requirements, the Fund may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an earlier year than would
otherwise be the case.

SALES OF SHARES. Upon the sale or exchange of his shares, a
shareholder will realize a taxable gain or loss equal to the difference between
the amount realized and his basis in his shares. Such gain or loss will be
treated as capital gain or loss, if the shares are capital assets in the
shareholder's hands, and will be long-term capital gain or loss if the shares
are held for more than one year and short-term capital gain or loss if the
shares are held for one year or less. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed of are replaced, including
replacement through the reinvesting of dividends and capital gains distributions
in the Fund under the Plan, within a 61-day period beginning 30 days before and
ending 30 days after the disposition of the shares. In such a case, the basis
of the shares acquired will be increased to reflect the disallowed loss. Any
loss realized by a shareholder on the sale of a Fund share held by the
shareholder for six months or less will be treated for United States federal
income tax purposes as a long-term capital loss to the extent of any
distributions or deemed distributions of long-term capital gains received by the
shareholder with respect to such share.

BACKUP WITHHOLDING. The Fund may be required to withhold, for United
States federal income tax purposes, 31% of the dividends and distributions
payable to shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding. Corporate shareholders and certain other shareholders are or may
be exempt from backup withholding. Backup withholding is not an additional tax
and any amount withheld may be credited against a shareholder's United States
federal income tax liabilities. Additional tax withholding requirements which
apply with respect to foreign investors are discussed below.

FOREIGN SHAREHOLDERS. Taxation of a shareholder who, as to the United
States, is a foreign investor (such as a nonresident alien individual, a foreign
trust or estate, a foreign corporation or a foreign

16
<PAGE>

partnership) depends, in part, on whether the shareholder's income from the Fund
is "effectively connected" with a United States trade or business carried on by
the shareholder.

If the foreign investor is not a resident alien and the income from
the Fund is not effectively connected with a United States trade or business
carried on by the foreign investor, distributions of net investment income and
net realized short-term capital gains will be subject to a 30% (or lower treaty
rate) United States withholding tax. Furthermore, foreign investors may be
subject to an increased United States tax on their income resulting from the
Fund's election (described above) to "pass-through" amounts of foreign taxes
paid by the Fund, but may not be able to claim a credit or deduction with
respect to the foreign taxes treated as having been paid by them. Distributions
to a non-resident alien of net realized long-term capital gains, amounts
retained by the Fund which are designated as undistributed capital gains, and
gains realized upon the sale of shares of the Fund generally will not be subject
to United States tax unless the foreign investor who is a nonresident alien
individual is physically present in the United States for more than 182 days
during the taxable year and, in the case of gain realized upon the sale of Fund
shares, unless (a) such gain is attributable to an office or fixed place of
business in the United States or (b) such nonresident alien individual has a tax
home in the United States and such gain is not attributable to an office or
fixed place of business located outside the United States. However, a
determination by the Fund not to distribute long-term capital gains will cause
the Fund to incur a U.S. federal tax liability with respect to retained long-
term capital gains, thereby reducing the amount of cash held by the Fund that is
available for investment, and the foreign investor may not be able to claim a
credit or deduction with respect to such taxes.

In general, if a foreign investor is a resident alien or if dividends
or distributions from the Fund are effectively connected with a United States
trade or business carried on by the foreign investor, then dividends of net
investment income, distributions of net short-term and long-term capital gains,
amounts retained by the Fund that are designated as undistributed capital gains
and any gains realized upon the sale of shares of the Fund will be subject to
United States income tax at the rates applicable to United States citizens or
domestic corporations. If the income from the Fund is effectively connected
with a United States trade or business carried on by a foreign investor that is
a corporation, then such foreign investor may also be subject to the 30% (or
lower treaty rate) branch profits tax.

The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Shareholders may be required to provide appropriate documentation
to establish their entitlement to the benefits of such a treaty. Foreign
investors are advised to consult their own tax advisers with respect to (a)
whether their income from the Fund is or is not effectively connected with a
United States trade or business carried on by them, (b) whether they may claim
the benefits of an applicable tax treaty, and (c) any other tax consequences to
them of an investment in the Fund.

NOTICES. Shareholders will be notified annually by the Fund as to the
United States federal income tax status of the dividends, distributions and
deemed distributions made by the Fund to its shareholders. Furthermore,
shareholders will also receive, if appropriate, various written notices after
the close of the Fund's taxable year regarding the United States federal income
tax status of certain dividends, distributions and deemed distributions that
were paid (or that are treated as having been paid) by the Fund to its
shareholders during the preceding taxable year.

OTHER TAXATION. Distributions also may be subject to additional
state, local and foreign taxes depending on each shareholder's particular
situation.

THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES
AFFECTING THE FUND AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO CONSULT
THEIR OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM
OF AN INVESTMENT IN THE FUND.

17
<PAGE>

NET ASSET VALUE

The net asset value per share is determined as of the close of the New
York Stock Exchange on the last business day of each week, by dividing the value
of the Fund's net assets (the value of its assets less its liabilities,
exclusive of capital stock and surplus) by the total number of shares of Common
Stock outstanding. Net asset value includes interest on fixed-income securities
which is accrued daily. Securities which are traded over-the-counter and on a
stock exchange will be valued according to the broadest and most representative
market, and it is expected that for bonds and other fixed income securities this
ordinarily will be the over-the-counter market. Notwithstanding the above,
bonds and other fixed-income securities may be valued on the basis of prices
provided by a pricing service when such prices are believed to reflect the fair
market value of such securities. The prices provided by a pricing service are
determined without regard to bid or last sale prices but take into account
institutional size trading in similar groups of securities and any developments
related to specific securities. Securities not priced in this manner are valued
at the most recent current quoted bid price, or when stock exchange valuations
are used, at the latest quoted sale price on the date of valuation. Short-term
debt securities which mature in less than 60 days are valued at amortized cost
if their term to maturity from date of purchase by the Fund was less than 60
days, or by amortizing their value on the 61st day if their term to maturity on
the date acquired by the Fund was more than 60 days, unless this is determined
by the Board of Directors not to represent fair value. The value of other
assets and securities for which no current quotations are readily available are
determined in good faith at fair value using methods determined by the
Directors.

COMMON STOCK

The authorized capital stock of the Fund is 100,000,000 shares of
Common Stock. The Fund has no present intention of offering additional shares
other than pursuant to the Offer, except that additional shares may be issued
under the Plan. See "Dividend Reinvestment and Cash Purchase Plan." Other
offerings of shares, if made, will require approval of the Fund's Board of
Directors. Any additional offering will be subject to the requirement of the
1940 Act that shares not be sold at a price below the then current net asset
value (exclusive of underwriting discounts and commissions) except in connection
with an offering to existing shareholders or with the consent of the holders of
a majority of the Fund's outstanding voting securities, as such term is defined
under the 1940 Act.

BENEFICIAL OWNER

There are no persons known to the Fund who may be deemed beneficial
owners of 5% or more of the shares of the Fund's Common Stock because they
possessed or shared voting or investment power with respect to shares of the
Fund's Common Stock. The officers and directors of the Fund, in the aggregate,
own less than 1% of the outstanding shares of the Fund's Common Stock.

FINANCIAL STATEMENTS

The Fund's Annual Report for the fiscal year ended December 31, 1995
and its Semi-Annual Report for the fiscal period ended June 30, 1996 (the
"Reports"), which either accompany this SAI or have previously been provided to
the person to whom this Prospectus is being sent, are incorporated herein by
reference with respect to all information other than the information set forth
in the Letter to Shareholders included therein. The Fund will furnish, without
charge, a copy of its Reports upon request to Shareholder Relations at BEA
Associates, One Citicorp Center, 153 East 53rd Street, New York, New York 10022,
(800)293-1232.

18
<PAGE>

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(1) Financial Statements
(i)* -- Schedule of Investments as of December 31, 1995
(ii)* -- Statement of Assets and Liabilities as of December 31,
1995
(iii)* -- Statement of Operations for the fiscal year ended
December 31, 1995
(iv)* -- Statement of Changes in Net Assets for the fiscal year
ended December 31, 1995
(v)* -- Selected Per Share Data and Ratios for the fiscal year
ended December 31, 1995
(vi)* -- Notes to Financial Statements for the fiscal year
ended December 31, 1995
(vii)* -- Report of Independent Accountants
________________
* Incorporated by reference to filing made with the Commission.

(2) Exhibits
(a) -- Articles of Incorporation of the Fund
(b)* -- By-Laws of the Fund
(c) -- Not applicable
(d)(1)*-- Specimen certificate for Common Stock, par value $.001
per share
(2)*-- Form of Subscription Certificate
(3)*-- Form of Notice of Guaranteed Delivery
(4)*-- Form of DTC Participant Over-Subscription Certificate
(5)*-- Form of Nominee Holder Over-Subscription Certificate
(6)*-- Form of Beneficial Listing
(7)*-- Form of Subscription Agency Agreement
(e)* -- Dividend Reinvestment and Cash Purchase Plan
(f) -- Not applicable
(g) -- Investment Advisory Agreement between the Fund and BEA
Associates ("BEA")
(h)(1)*-- Dealer Manager Agreement between the Fund, BEA and
(2)*-- Form of Soliciting Dealer Agreement
(i) -- Not applicable
(j) -- Mutual Fund Custody Agreement between the Fund and The
Chase Manhattan Bank
(k)(1)*-- Transfer Agency Services Agreement between the Fund
and The Chase Manhattan Bank
(2)*-- Administration Agreement between the Fund and Chase
Global Funds Services Company
(3) -- Credit Agreement among the Fund, the First National
Bank of Boston and certain other funds
(l)(1)*-- Opinion and consent of Willkie Farr & Gallagher
(2)*-- Opinion and consent of Venable, Baetjer and Howard,
LLP
(m) -- Not applicable
(n) -- Consent of Price Waterhouse LLP
(o) -- Not applicable
(p)* -- Purchase Agreement between the Fund and CS First
Boston

C-1
<PAGE>

(q) -- Not applicable
(r) -- Financial Data Schedule
_____________
* To be filed by amendment.

ITEM 25. MARKETING ARRANGEMENTS

Not applicable.

ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses to be incurred
in connection with the Offer described in this Registration Statement:

Registration fees. . . . . . . . . . . . . . . . . . . $ 29,115.29
New York Stock Exchange listing fee. . . . . . . . . . 38,500.00
Printing (other than stock certificates) . . . . . . . 100,000.00
Engraving and printing stock certificates. . . . . . . 12,000.000
Fees and expenses of qualification under state
securities laws (including fees of counsel) . . . . . 20,000.00
Accounting fees and expenses . . . . . . . . . . . . . 15,000.00
Legal fees and expenses. . . . . . . . . . . . . . . . 100,000.00
Dealer Manager's expenses. . . . . . . . . . . . . . . 100,000.00
Information Agent's fees and expenses. . . . . . . . . 10,000.00
Subscription Agent's fees and expenses . . . . . . . . 15,000.00
NASD fees. . . . . . . . . . . . . . . . . . . . . . . 9,000.00
Postage. . . . . . . . . . . . . . . . . . . . . . . . 50,000.00
Miscellaneous. . . . . . . . . . . . . . . . . . . . . $ 15,385.00
-----------
Total. . . . . . . . . . . . . . . . . . . . . . $550,000.00

ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

None.

ITEM 28. NUMBER OF HOLDERS OF SECURITIES

Common Stock, par value $.001 per share: 4,630 record holders as of
August 7, 1996.

ITEM 29. INDEMNIFICATION

Section 2-418 of the General Corporation Law of the State of Maryland,
Article VIII of the Fund's Articles of Incorporation, Article VII of the Fund's
Bylaws and the Dealer Manager Agreement to be filed as Exhibit (h)(1) provide
for indemnification.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to directors,
officers and controlling persons of the Fund, pursuant to the foregoing
provisions or otherwise, the Fund has been advised that in the opinion of the
Securities and Exchange Commission (the "SEC") such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by

C-2
<PAGE>

the Fund of expenses incurred or paid by a director, officer or controlling
person of the Fund in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered, the Fund will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Registrant is fulfilling the requirement of this Item 30 to provide a
list of the officers and directors of its investment adviser, together with
information as to any other business, profession, vocation or employment of a
substantial nature engaged in by that entity or those of its officers and
directors during the past two years, by incorporating by reference the
information contained in the Form ADV filed with the SEC pursuant to the
Investment Advisers Act of 1940 by BEA Associates (SEC File No. 801-37170).

ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
BEA Income Fund, Inc.
c/o BEA Associates
One Citicorp Center, 57th Floor
153 East 53rd Street
New York, New York 10022

(Registrant's Articles of Incorporation and By-Laws)

BEA Associates
One Citicorp Center, 57th Floor
153 East 53rd Street
New York, New York 10022

(with respect to its services as investment adviser)

Chase Global Funds Services Company
73 Tremont Street
Boston, Massachusetts 02108

(with respect to its services as Administrator)

The Chase Manhattan Bank
770 Broadway
10th Floor
New York, New York 10003

(with respect to its services as Custodian for the Fund's assets)

The Chase Manhattan Bank
770 Broadway
7th Floor
New York, New York 10003

(with respect to its services as dividend-paying agency, transfer
agent and registrar)

C-3
<PAGE>

ITEM 32. MANAGEMENT SERVICES

Not applicable.

ITEM 33. UNDERTAKINGS

(a) Registrant undertakes to suspend offering its shares until it
amends its prospectus contained herein if (1) subsequent to the effective date
of its Registration Statement, the net asset value per share declines more than
10 percent from its net asset value per share as of the effective date of this
Registration Statement, or (2) the net asset value per share increases to an
amount greater than its net proceeds as stated in the prospectus contained
herein.

(b) Registrant hereby undertakes:

(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:

(i) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; or

(ii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.

(2) that, for the purpose of determining any liability under the
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.

(c) Registrant hereby undertakes to send by, first class mail or
other means designed to ensure equally prompt delivery, within two business
days of receipt of a written or oral request, any Statement of Additional
Information.

C-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 26th day of
August, 1996.

BEA INCOME FUND, INC.

By: /s/ Daniel H. Sigg
-------------------------
Daniel H. Sigg
Chairman of the Board and
Chief Executive Officer

Each person whose signature appears below hereby constitutes and
appoints Paul P. Stamler and Michael A. Pignataro, and each of them, his true
and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, and hereby grants to such attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that such
attorneys-in-fact and agents or any of them, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated.

SIGNATURE TITLE DATE
- --------- ----- ----

/s/ Daniel H. Sigg Chairman of the Board and August 26, 1996
- ------------------------- Chief Executive Officer
Daniel H. Sigg

/s/ Paul P. Stamler Treasurer August 26, 1996
- -------------------------
Paul P. Stamler

/s/ Enrique R. Arzac Director August 26, 1996
- -------------------------
Enrique R. Arzac

/s/ James S. Pasman, Jr. Director August 26, 1996
- -------------------------
James S. Pasman, Jr.

- ------------------------- Director
Lawrence J. Fox

<PAGE>

EXHIBIT INDEX

PAGE IN
SEQUENTIAL
NUMBERING
SYSTEM
------

(a) -- Articles of Incorporation of the Fund . . . . . . . . . . . . . . .
(b)* -- By-Laws of the Fund . . . . . . . . . . . . . . . . . . . . . . . .
(d)(1)* -- Specimen certificate for Common Stock, par value
$.001 per share. . . . . . . . . . . . . . . . . . . . . . . . . .
(2)* -- Form of Subscription Certificate. . . . . . . . . . . . . . . . . .
(3)* -- Form of Notice of Guaranteed Delivery . . . . . . . . . . . . . . .
(4)* -- Form of DTC Participant Over-Subscription Certificate . . . . . . .
(5)* -- Form of Nominee Holder Over-Subscription Certificate. . . . . . . .
(6)* -- Form of Beneficial Listing. . . . . . . . . . . . . . . . . . . . .
(7)* -- Form of Subscription Agency Agreement . . . . . . . . . . . . . . .
(e)* -- Dividend Reinvestment and Cash Purchase Plan. . . . . . . . . . . .
(g) -- Investment Advisory Agreement between the Fund and BEA
Associates ("BEA") . . . . . . . . . . . . . . . . . . . . . . . .
(h)(1)* -- Dealer Manager Agreement between the Fund, BEA and. . . . . . . . .
(2)* -- Form of Soliciting Dealer Agreement . . . . . . . . . . . . . . . .
(j) -- Mutual Fund Custody Agreement between the Fund and The
Chase Manhattan Bank . . . . . . . . . . . . . . . . . . . . . . .
(k)(1)* -- Transfer Agency Services Agreement between the Fund and The
Chase Manhattan Bank.. . . . . . . . . . . . . . . . . . . . . . .
(2)* -- Administration Agreement between the Fund and Chase
Global Funds Services Company. . . . . . . . . . . . . . . . . . .
(3) -- Credit Agreement among the Fund, the First National Bank
of Boston and certain other funds. . . . . . . . . . . . . . . . .
(l)(1)* -- Opinion and consent of Willkie Farr & Gallagher . . . . . . . . . .
(2)* -- Opinion and consent of Venable, Baetjer and Howard, LLP . . . . . .
(n) -- Consent of Price Waterhouse LLP . . . . . . . . . . . . . . . . . .
(p)* -- Purchase Agreement between the Fund and CS First Boston . . . . . .
(r) -- Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . .

_____________
* To be filed by amendment.

<PAGE>

AMENDED ARTICLES OF INCORPORATION
OF
FIRST BOSTON QUALITY INCOME FUND, INC.

Article I.

I, the incorporator, Warren J. Olsen, whose post office address is 250
Park Avenue, New York, New York 10177, being at least eighteen years of age, am,
under and by virtue of the General Laws of the State of Maryland authorizing the
formation of corporations, forming a corporation.

Article II.

The name of the corporation (hereinafter called the "Corporation") is
FIRST BOSTON INCOME FUND, INC.

Article III
PURPOSES

The purpose for which the Corporation is formed is to act as a closed-
end, diversified investment company of the management type registered as such
with the Securities and Exchange Commission pursuant to the Investment Company
Act of 1940 and to exercise and generally to enjoy all of the powers, rights and
privileges granted to, or conferred upon, corporations by the General Laws of
the State of Maryland now or hereafter in force.

<PAGE>

Article IV.

ADDRESS IN MARYLAND

The post office address of the place at which the principal office of
the Corporation in the State of Maryland is located is c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202.

The name of the Corporation's resident agent is the Corporation Trust
Incorporated, and its post office address is 32 South Street, Baltimore,
Maryland 21202. Said resident agent is a corporation of the State of Maryland.

Article V.

COMMON STOCK

Section 1. The total number of shares of stock which the
Corporation has authority to issue is 100,000,000 shares of common stock of the
par value of $0.001 each, all of one class, having an aggregate par value of
$100,000.

Section 2. The presence in person or by proxy of the holders of
record of one-third of the shares of common stock issued and outstanding and
entitled to vote thereat shall constitute a quorum for the transaction of any
business at all meetings of the stockholders except as otherwise provided by law
or in these Articles of Incorporation.

Section 3. Notwithstanding any provision of the General Laws of
the State of Maryland requiring action to be

-2-

<PAGE>

taken or authorized by the affirmative vote of the holders of a designated
proportion greater than a majority of the shares of common stock, such action
shall be valid and effective if taken or authorized by the affirmative vote of
the holders of a majority of the total number of shares of common stock
outstanding and entitled to vote thereupon pursuant to the provisions of these
Articles of Incorporation.

Section 4. No holder of shares of common stock of the Corporation
shall, as such holder, have any preemptive right to purchase or subscribe for
any shares of the common stock of the Corporation of any class which it may
issue or sell.

Section 5. All persons who shall acquire common stock in the
Corporation shall acquire the same subject to the provisions of these Articles
of Incorporation.

Article VI.

DIRECTORS

The initial number of directors of the Corporation shall be three, and
the names of those who shall act as such until the first annual meeting and
until their successors are duly elected and qualify are as follows: Michael F.
Holland, Robert M. Baylis and James L. Freeman. However, the By-Laws of the
Corporation may fix the number of directors at a number other

-3-

<PAGE>

than three and may authorize the Board of Directors, by the vote of a majority
of the entire Board of Directors, to increase or decrease the number of
directors within a limit specified in the By-Laws, provided that in no case
shall the number of directors be less than three, and to fill the vacancies
created by any such increase in the number of directors. Unless otherwise
provided by the By-Laws of the Corporation, the directors of the Corporation
need not be stockholders.

The By-Laws of the Corporation may divide the Directors of the
Corporation into classes and prescribe the tenure of office of the several
classes; but no class shall be elected for a period shorter than that from the
time of the election of such class until the next annual meeting and thereafter
for a period shorter than the interval between annual meetings or for a longer
period than five years, and the term of office of at least one class shall
expire each year.

Article VII.

MANAGEMENT OF THE AFFAIRS OF THE CORPORATION

Section 1. All corporate powers and authority of the Corporation
(except as at the time otherwise provided by statute, by these Articles of
Incorporation or by the By-Laws) shall be vested in and exercised by the Board
of Directors.

-4-

<PAGE>

Section 2. The Board of Directors shall have the power to adopt,
alter or repeal the By-Laws of the Corporation except to the extent that the
By-Laws otherwise provide.

Section 3. The Board of Directors shall have the power from time
to time to determine whether and to what extent, and at what times and places
and under what conditions and regulations, the accounts and books of the
Corporation (other than the stock ledger) or any of them shall be open to the
inspection of stockholders; and no stockholder shall have any right to inspect
any account, book or document of the Corporation except to the extent permitted
by statute or the By-Laws.

Section 4. The Board of Directors shall have the power to
determine, as provided herein, or if provision is not made herein, in accordance
with generally accepted accounting principles, what constitutes net income,
total assets and the net asset value of the shares of Common Stock of the
Corporation.

Section 5. The Board of Directors shall have the power to
distribute dividends from funds legally available therefor in such amounts, if
any, and in such manner to the stockholders of record as of such date, as the
Board of Directors may determine.

-5-

<PAGE>

Article VIII.

Section 1. Provided that reasonable care has been exercised in the
selection of the officers, other employees, investment advisors and managers,
distributors, underwriters, selling agents, custodians, dividend disbursing
agents, transfer agents and registrars, legal counsel, auditors, and other
agents of the Corporation, no director of the Corporation shall be responsible
or liable in any event for any neglect or wrong-doing of any of the same, nor
shall any director be responsible or liable for the act or omission to act of
any other director.

Section 2. Each officer or director or member of any committee
designated by the Board of Directors shall, in the performance of his duties, be
fully protected in relying in good faith upon the books of account of or reports
made to the Corporation by any of its officials or by an independent public
accountant or by an appraiser selected with reasonable care by the Board of
Directors or by any such committee and in relying in good faith upon other
records of the Corporation.

Section 3. The Corporation shall indemnify its directors and
officers to the fullest extent allowed, and in the manner provided by Maryland
law, including the advancing of expenses incurred in connection therewith. Such
indemnification shall be in addition to any other right or claim to which any
director or officer may otherwise be

-6-

<PAGE>

entitled. The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of the Corporation,
or who, while a director, officer, employee or agent of the Corporation, is or
was serving at the request of the Corporation as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise, or employee benefit plan,
against any liability asserted against and incurred by such person in any such
capacity or arising out of such person's position, whether or not the
Corporation would have had the power to indemnify such liability.

Section 4. Nothing in this Article protects or purports to
protect, any director or officer against any liability to the Corporation or its
security holders to which he or she would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.

Section 5. Each section or portion thereof of this Article shall
be deemed severable from the remainder, and the invalidity of any such section
or portion shall not affect the validity of the remainder of this Article.

Article IX.

The duration of the Corporation shall be perpetual.

-7-

<PAGE>

Article X.

AMENDMENTS

From time to time any of the provisions of these Articles of
Incorporation may be amended, altered or repealed (including any amendment that
changes the terms of any of the outstanding stock by classification,
reclassification or otherwise), and other provisions that may, under the
statutes of the State of Maryland at the time in force, be lawfully contained in
articles of incorporation may be added or inserted, upon the vote of the holders
of a majority of the shares of common stock of the Corporation at the time
outstanding and entitled to vote, and all rights at any time conferred upon the
stockholders of the Corporation by these Articles of Incorporation are subject
to the provisions of this Article X.
_________________________

The term "Articles of Incorporation" as used herein and in the By-Laws
of the Corporation shall be deemed to mean these Articles of Incorporation as
from time to time amended and restated.
__________________________

-8-

<PAGE>

I acknowledge this document to be my act, and state under the
penalties of perjury that with respect to all matters and facts herein, to the
best of my knowledge, information and belief such matters and facts are true in
all material respects and that this statement is made under the penalties of
perjury.

March 9, 1987
/s/Warren J. Olsen
-------------------------------
Warren J. Olsen

-9-

<PAGE>

STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )

THIS IS TO CERTIFY that on this 9th day of March, 1987 before me, the
subscriber a Notary Public in and for the State of New York, personally appeared
WARREN J. OLSEN and acknowledged the foregoing Amended Articles of Incorporation
of First Boston Income Fund, Inc. to be his act and deed and that the facts
therein stated are truly set forth.
WITNESS my hand and Notarial Seal the day and year last above written.

/s/Mary McMillan
-------------------------------
Notary Public

<PAGE>

Articles of Amendment of
Articles of Incorporation
of
FIRST BOSTON INCOME FUND, INC.

FIRST BOSTON INCOME FUND, INC., a Maryland corporation (the
"Corporation"), having its principal office in Baltimore, Maryland, hereby
certifies to the State Department of Assessments and Taxation of Maryland that:

FIRST: The Corporation's Articles of Incorporation are hereby
amended as follows:

1. Article EIGHTH, Section 3 is hereby amended by deleting it in its
entirety and replacing it with the following:

The Fund shall indemnify to the fullest extent permitted by law
(including the Investment Company Act of 1940) as currently in effect
or as may hereafter be amended, any person made or threatened to be
made a party to any action, suit or proceeding, whether criminal,
civil, administrative or investigative, by reason of the fact that
such person or such person's testator or intestate is or was a
Director or Officer. To the fullest extent permitted by law
(including the Investment Company Act of 1940) as currently in effect
or as the same may hereafter be amended, expenses incurred by any such
person in defending any such action, suit or proceeding shall be paid
or reimbursed by the Fund promptly upon receipt by it of an
undertaking of such person to repay such expenses if it shall
ultimately be determined that such person is not entitled to be
indemnified by the Fund. Before the Fund may advance such expenses,
one of the following provisions must be satisfied: 1) such Director
or Officer shall provide a security for his undertaking, 2) the Fund
shall be insured against losses arising by reason of any lawful
advances, or 3) a majority of a quorum of disinterested, non-party
directors of the

<PAGE>

Fund, or an independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts, that there is
reason to believe that such Director or Officer ultimately will be
found entitled to indemnification. The rights provided to any person
by this Section of this Article shall be enforceable against the Fund
by such person who shall be presumed to have relied upon it in serving
or continuing to serve as a Director or Officer as provided above. No
amendment of this Section of this Article shall impair the rights of
any person arising at any time with respect to events occurring prior
to such amendment. For purposes of this Section of this Article, the
term "Fund" shall include any predecessor of the Fund and any
constituent corporation (including any constituent of a constituent)
absorbed by the Fund in a consolidation or merger; the term "other
enterprise" shall include any corporation, partnership, joint venture,
trust or employee benefit plan; service "at the request of the Fund"
shall include service as a Director or Officer of the Fund which
imposes duties on, or involves services by, such Director or Officer
with respect to an employee benefit plan, its participants or
beneficiaries; any excise taxes assessed on a person with respect to
an employee benefit plan, its participants or beneficiaries; any
excise taxes assessed on a person with respect to an employee benefit
plan shall be deemed to be indemnifiable expenses; and action by a
person with respect to any employee benefit plan which such person
reasonably believes to be in the interest of the participants and
beneficiaries of such plan shall be deemed to be action not opposed to
the best interests of the Fund.

2. Article EIGHTH is hereby amended by adding the following
Section 5:
Section 5. A Director or Officer of the Fund shall not be liable
to the Fund or its stockholders for monetary damages for breach of
fiduciary duty as a Director or Officer, except to the extent such
exemption from liability or limitation thereof is not permitted by law
(including the Investment Company Act of 1940 and rules or regulations
thereunder or any releases issued by the Securities and Exchange
Commission or its staff) as currently in effect or as the same may
hereafter be amended.

-2-

<PAGE>

SECOND: The foregoing amendment to the Articles of Incorporation of
the Corporation has been advised by the Board of Directors and approved by the
stockholders in the manner required by law and its Articles of Incorporation.

IN WITNESS WHEREOF, FIRST BOSTON INCOME FUND, INC. has caused these
Articles of Amendment of Articles of Incorporation to be signed in the name and
on its behalf by its President and witnessed by its Assistant Secretary this
10th day of June, 1991.

FIRST BOSTON INCOME FUND, INC.

By /s/Edward N. McMillan
-----------------------------
Edward N. McMillan
President

WITNESS:

/s/Susanne M. Dennis
- ---------------------------
Susanne M. Dennis
Assistant Secretary

-3-

<PAGE>

THE UNDERSIGNED, President of FIRST BOSTON INCOME FUND, INC., who
executed on behalf of the Corporation the foregoing Articles of Amendment of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles of Amendment to be the
corporate act of said Corporation and hereby certifies that to the best of his
knowledge, information, and belief the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.

/s/Edward N. McMillan
------------------------------------
Edward N. McMillan
President

-4-

<PAGE>
ARTICLES OF AMENDMENT
to
ARTICLES OF INCORPORATION
of
FIRST BOSTON INCOME FUND, INC.

THIS IS TO CERTIFY that FIRST BOSTON INCOME FUND, INC., a Maryland
corporation having its principal office in Baltimore City, Maryland (hereinafter
called the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland, that:

FIRST: The Corporation's Articles of Incorporation are hereby
amended as follows:

The name of the Corporation is hereby changed from "First Boston
Income Fund, Inc." to "CS First Boston Income Fund, Inc."

SECOND: The foregoing amendment to the Articles of Incorporation of
the Corporation has been advised by the Board of Directors and approved by the
stockholders of the Corporation in the manner required by law and its Articles
of Incorporation.

IN WITNESS WHEREOF, FIRST BOSTON INCOME FUND, INC., has caused these
Articles of Amendment to Articles of Incorporation to be signed in its name and
on its behalf by its Chairman, John J. Cook, Jr., and witnessed by its Assistant
Secretary, James P. Pappas, and each of said officers of the Corporation has
also acknowledged these Articles of Amendment to be the corporate act

<PAGE>

of the Corporation and has stated under penalties of perjury that to the best of
said officer's knowledge, information and belief the matters and facts set forth
with respect to approval are true in all material respects, all on May 24, 1994.

FIRST BOSTON INCOME FUND, INC.

By: /s/John J. Cook, Jr.
---------------------------------
Name: John J. Cook, Jr.
Title: President and Chairman

Witness:

/s/James P. Pappas
- --------------------------
Name: James P. Pappas
Title: Assistant Secretary

-2-

<PAGE>

CS FIRST BOSTON REALTY, INC.
55 E. 52 Street
New York, New York 10055

June 8, 1994

Maryland State Department of
Assessments and Taxation
301 West Preston Street
Baltimore, MD 21201

Re: Consent to use of "CS First Boston" name by First Boston Income Fund, Inc.

To the Department of Assessments and Taxation:

We have been informed by CT Corporation System that the use by CS First Boston
Realty, Inc. of the "CS First Boston" designation prevents First Boston Income
Fund, Inc. from adopting a name change in Maryland to CS First Boston Income
Fund, Inc. without first obtaining the consent of this company.

CS First Boston Realty, Inc. hereby authorizes First Boston Income Fund, Inc. to
use, in Maryland, the "CS First Boston" designation so that it may amend its
name to CS First Boston Income Fund, Inc.

Please call me at (212) 322-7205 if you have any questions regarding this
authorization.

Sincerely,

/s/Lori M. Russo

Lori M. Russo,
Assistant Secretary

LMR/pt

cc: Charles Griemsman
(CS First Boston Investment
Management Corporation)
Stuart B. Leichenko, Esq.
(Sullivan & Cromwell)

<PAGE>

ARTICLES OF AMENDMENT
to
ARTICLES OF INCORPORATION
of
CS FIRST BOSTON INCOME FUND, INC.

THIS IS TO CERTIFY that CS FIRST BOSTON INCOME FUND, INC., a Maryland
corporation having its principal office in Baltimore City, Maryland (hereinafter
called the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland, that:

FIRST: Article First of the Corporation's Articles of Incorporation
are hereby amended as follows:

The name of the Corporation is "BEA Income Fund, Inc."

IN WITNESS WHEREOF, CS FIRST BOSTON INCOME FUND, INC., has caused
these Articles of Amendment to Articles of Incorporation to be signed in its
name and on its behalf by its President, Robert Moore, and witnessed by its
Secretary, Hal Liebes, and each of said officers of the Corporation has also
acknowledged these Articles of Amendment to be the corporate act of the
Corporation and has stated under penalties of perjury that to the best of said
officer's knowledge, information and belief

<PAGE>

the matters and facts set forth with respect to approval are true in all
material respects, all on June 13, 1995.

CS FIRST BOSTON INCOME FUND, INC.

By: /s/Robert J. Moore
---------------------------------
Name: Robert J. Moore
Title: President

Witness:

/s/Hal Liebes
- -----------------------------
Name: Hal Liebes
Title: Secretary

-2-

<PAGE>

CS FIRST BOSTON INCOME FUND, INC.
(being changed to "BEA Income Fund, Inc.")

INVESTMENT ADVISORY AGREEMENT

AGREEMENT, made as of the 13th day of June, 1995 between CS First Boston
Income Fund, Inc., a Maryland corporation whose name is being changed to "BEA
Income Fund, Inc." (the "Fund"), and BEA Associates, a New York general
partnership (the "Adviser").

W I T N E S S E T H

WHEREAS, the Fund is a diversified, closed-end investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and

WHEREAS, the Fund desires to retain the Adviser to render investment
advisory services to the Fund, and the Adviser is willing to render such
services;

NOW, THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth, the parties hereto agree as follows:

1. The Fund hereby appoints the Adviser to act as investment adviser
to the Fund. The Adviser accepts such appointment and agrees to render the
services herein set forth, for the compensation herein provided.

2. Subject to the supervision of the Board of Directors of the Fund,
the Adviser will manage the portfolio of securities and investments (including
cash) belonging to the Fund including the purchase, retention and disposition
thereof and the execution of agreements relating thereto, in accordance with the
Fund's investment objective, policies and restrictions as stated in the
Prospectus (as defined in paragraph 4(f) of this Agreement) and subject to the
following understandings:

(a) The Adviser shall furnish a continuous investment program for the
Fund and in so doing shall determine from time to time what investments or
securities will be purchased, retained or sold by the Fund, and what
portion of the assets will be invested or held uninvested as cash;

(b) The Adviser shall use its best judgment in the performance of its
duties under this Agreement;

(c) The Adviser, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Articles of
Incorporation, the Bylaws and Prospectus of the Fund and with the
instructions and directions of the Board of Directors of the Fund and will
conform to and comply with the requirements of the 1940 Act

<PAGE>

and all other applicable federal and state laws and regulations;

(d) The Adviser shall determine the securities to be purchased or
sold by the Fund and as agent for the Fund will effect portfolio
transactions pursuant to its determinations either directly with the issuer
or with any broker and/or dealer in such securities; in placing orders with
brokers and/or dealers the Adviser intends to seek the best available price
and execution for purchases and sales; the Adviser shall also determine
whether or not the Fund shall enter into repurchase or reverse repurchase
agreements;

On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of the Fund as well as other customers,
the Adviser may, to the extent permitted by applicable laws and
regulations, but shall not be obligated to, aggregate the securities to be
sold or purchased in order to obtain the best execution and lower brokerage
commissions, if any. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction,
will be made by the Adviser in the manner it considers to be the most
equitable and consistent with its fiduciary obligations to the Fund and, if
applicable, to such other customers;

(e) The Adviser shall maintain books and records with respect to the
securities transactions of the Fund and shall render to the Fund's Board of
Directors such periodic and special reports as the Board of Directors may
reasonably request;

(f) The Adviser shall provide the Fund's Custodian as required with
information relating to all transactions concerning the assets belonging to
the Fund, except purchases of and any sales of the Fund's Common Stock
("Fund Shares"); and

(g) The investment management services of the Adviser to the Fund
under this Agreement are not to be deemed exclusive, and the Adviser shall
be free to render similar services to others.

3. The Adviser is authorized to select the brokers and dealers that
will execute the purchases and sales of portfolio securities for the Fund and is
directed to use its best efforts to obtain the best available price and
execution, except as prescribed herein. Unless and until otherwise directed by
the Board of Directors of the Fund, the Adviser may also effect individual
securities transactions at commission rates in excess of the minimum commission
rates available, if the Adviser determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage or research
services provided by such broker or dealer, viewed in terms of

-2-

<PAGE>

either that particular transaction or the Adviser's overall responsibilities
with respect to the Fund. The execution of such transactions shall not be
deemed to represent an unlawful act or breach of any duty created by this
Agreement or otherwise.

4. The Fund has delivered copies of each of the following documents
to the Adviser and will promptly notify and deliver to it all future amendments
and supplements, if any:

(a) Articles of Incorporation of the Fund, filed with the Department
of Assessments and Taxation of the State of Maryland on February 11, 1987
(such Articles of Incorporation, as presently in effect and as amended from
time to time, being herein called the "Articles of Incorporation");

(b) Bylaws of the Fund (such Bylaws, as presently in effect and as
amended from time to time, being herein called the "Bylaws");

(c) Certified resolutions of the Board of Directors of the Fund
authorizing the appointment of the Adviser and approving the form of this
Agreement;

(d) Registration Statement under the 1940 Act and the Securities Act
of 1933, as amended, on Form N-2 (No. 33-11996) (the "Registration
Statement") as filed with the Securities and Exchange Commission (the
"Commission") on February 13, 1987 relating to the Fund and the Fund
Shares, and all amendments thereto;

(e) Notification of Registration of the Fund under the 1940 Act on
Form N-8A as filed with the Commission on February 13, 1987 and all
amendments thereto; and

(f) Prospectus of the Fund dated April 8, 1987 (such prospectus being
herein called the "Prospectus").

5. The Adviser shall authorize and permit any of its partners,
agents and employees who may be elected as directors or officers of the Fund to
serve in the capacities in which they are elected. Services to be furnished by
the Adviser under this Agreement may be furnished through the medium of any of
such partners, agents or employees of the Adviser.

6. The Adviser shall keep the Fund's books and records required to
be maintained by it pursuant to paragraph 2(e) of this Agreement. The Adviser
agrees that all records which it maintains for the Fund are the property of the
Fund and it will promptly surrender any of such records to the Fund upon the
Fund's request. The Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 of the Commission under the 1940 Act any such records
as are required to be maintained by the

-3-

<PAGE>

Adviser with respect to the Fund by Rule 31a-1 of the Commission under the
1940 Act.

7. During the term of this Agreement the Adviser will pay all
expenses (including without limitation the compensation of all its partners,
agents and employees serving as directors or officers of the Fund pursuant to
paragraph 5 of this Agreement) incurred by it in connection with its activities
under this Agreement other than the cost of securities and investments purchased
for the Fund (including taxes and brokerage commissions, if any).

8. For the services provided and the expenses borne pursuant to this
Agreement, the Fund will pay to the Adviser as full compensation therefor a fee,
computed weekly and payable quarterly, at an annual rate equal to 0.50% per
annum of the average weekly net assets of the Fund. This fee for each quarter
will be paid to the Adviser during the month succeeding such quarter.

9. The Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which this Agreement relates, except a loss resulting from a breach
of fiduciary duty with respect to the receipt of compensation for services (in
which case any award of damages shall be limited to the period and the amount
set forth in Section 36(b)(3) of the 1940 Act) or a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement.

10. This Agreement shall become effective upon the later of (a) the
termination of the previous Investment Advisory Agreement between the Fund and
CS First Boston Investment Management Corporation or (b) its approval by the
stockholders of the Fund in the manner prescribed by the 1940 Act. Upon
becoming effective, this Agreement shall remain in effect until January 31,
1997, and shall continue in effect from year to year thereafter if such
continuance is approved at least annually by (a) a majority of the outstanding
voting securities (as defined in the 1940 Act) or by vote of the Fund's Board of
Directors, cast in person at a meeting called for the purpose of voting on such
approval, and (b) vote of a majority of the Directors of the Fund who are not
parties to this Agreement or "interested persons" (as defined in the 1940 Act)
of any party to this Agreement, cast in person at a meeting called for the
purpose of voting on such approval. This Agreement may be terminated by the
Fund at any time, without the payment of any penalty, by the Board of Directors
of the Fund or by vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund on 60 days' written notice to the Adviser,
or by the Adviser at any time, without the payment of any penalty, on 90 days'
written notice to the Fund. This Agreement will automatically

-4-

<PAGE>

and immediately terminate in the event of its assignment (as defined in the 1940
Act).

11. The Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, unless expressly provided herein or authorized
by the Board of Directors of the Fund from time to time, have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.

12. This Agreement may be amended by mutual consent, but the consent
of the Fund must be approved (a) by vote of a majority of those Directors of the
Fund who are not parties to this Agreement or "interested persons" (as defined
in the 1940 Act) of any such party, cast in person at a meeting called for the
purpose of voting on such amendment, and (b) by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Fund.

13. Notices of any kind to be given to the Adviser by the Fund shall
be in writing and shall be duly given if mailed or delivered to the Adviser at
One Citicorp Center, 153 East 53rd Street, New York, New York 10022, Attention:
President, or at such other address or to such other individual as shall be
specified by the Adviser to the Fund in accordance with this paragraph 13.
Notices of any kind to be given to the Fund by the Adviser shall be in writing
and shall be duly given if mailed or delivered to the Fund at CS First Boston
Income Fund, Inc., One Citicorp Center, 153 East 53rd Street, New York, New York
10022, Attention: President, or at such other address or to such other
individual as shall be specified by the Fund to the Adviser in accordance with
this paragraph 13. The Adviser agrees to notify the Fund of any change in its
membership within a reasonable time of such change.

14. The Fund agrees that if this Agreement is terminated and the
Adviser shall no longer be the adviser to the Fund, the Fund will, within a
reasonable period of time, change its name to delete reference to "BEA".

15. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.

16. This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original.

-5-

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.

CS FIRST BOSTON INCOME FUND, INC.
(being changed to "BEA Income Fund,
Inc.")

By:/s/Paul P. Stamler
--------------------------------------

BEA ASSOCIATES

By:/s/BEA Associates
--------------------------------------

-6-

<PAGE>

MUTUAL FUND CUSTODY AGREEMENT

FIRST BOSTON INCOME FUND, INC.

UNITED STATES TRUST COMPANY OF NEW YORK

<PAGE>

MUTUAL FUND CUSTODY AGREEMENT

FIRST BOSTON INCOME FUND, INC.

TABLE OF CONTENTS

SECTION/PARAGRAPH PAGE

1. Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

2. Delivery of Documents. . . . . . . . . . . . . . . . . . . . . . . . . .1

3. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

4. Delivery and Registration of the Property. . . . . . . . . . . . . . . .5

5. Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

6. Receipt and Disbursement of Money. . . . . . . . . . . . . . . . . . . .6

7. Receipt of Securities. . . . . . . . . . . . . . . . . . . . . . . . . .7

8. Use of Securities Depository or the Book-Entry System. . . . . . . . . .8

9. Instructions Consistent With The Articles, etc . . . . . . . . . . . . .9

10. Transactions Not Requiring Instructions. . . . . . . . . . . . . . . . 11

11. Transactions Requiring Instructions. . . . . . . . . . . . . . . . . . 16

12. Purchase of Securities . . . . . . . . . . . . . . . . . . . . . . . . 17

13. Sales of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . 18

14. Authorized Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 18

15. Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

16. Cooperation with Accountants . . . . . . . . . . . . . . . . . . . . . 19

17. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

18. Equipment Failures . . . . . . . . . . . . . . . . . . . . . . . . . . 20

19. Right to Receive Advice. . . . . . . . . . . . . . . . . . . . . . . . 20

20. Compliance with Governmental Rules and Regulations . . . . . . . . . . 21

21. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

22. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

-i-
<PAGE>

23. Responsibility of U.S. Trust . . . . . . . . . . . . . . . . . . . . . 23

24. Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

25. Duration and Termination . . . . . . . . . . . . . . . . . . . . . . . 25

26. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

27. Further Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

28. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

29. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Attachment A -- Fees and Expenses A-1

Attachment B -- Authorized Persons B-1

-ii-

<PAGE>

MUTUAL FUND CUSTODY AGREEMENT

THIS AGREEMENT is made as of May 1, 1993, by and between FIRST BOSTON
INCOME FUND, INC., a Maryland corporation (the "Company"), and UNITED STATES
TRUST COMPANY OF NEW YORK, a New York State chartered bank trust company ("U.S.
Trust").
W I T N E S S E T H

WHEREAS, the Company is registered as a closed-end investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"); and

WHEREAS, the Company desires to retain U.S. Trust to serve as the
Company's custodian and U.S. Trust is willing to furnish such services;

NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:

1. APPOINTMENT. The Company hereby appoints U.S. Trust to act as
custodian of its portfolio securities, cash and other property on the terms set
forth in this Agreement. U.S. Trust accepts such appointment and agrees to
furnish the services herein set forth in return for the compensation as provided
in Paragraph 21 of this Agreement.

2. DELIVERY OF DOCUMENTS. The Company will promptly furnish to U.S.
Trust such copies, properly certified or authenticated, of contracts, documents
and other related information that U.S. Trust may request or requires to
properly

-1-
<PAGE>

discharge its duties. Such documents may include but are not limited to the
following:

(a) Resolutions of the Company's Directors authorizing the
appointment of U.S. Trust as Custodian of the portfolio securities, cash and
other property of the Company and approving this Agreement;

(b) Incumbency and signature certificates identifying and containing
the signatures of the Company's officers and/or the persons authorized to sign
Written Instructions, as hereinafter defined, on behalf of the Company;

(c) The Company's Articles of Incorporation filed with the Department
of Assessments and Taxation of the State of Maryland and all amendments thereto
(such Articles of Incorporation, as currently in effect and as they shall from
time to time be amended, are herein called the "Articles");

(d) The Company's By-Laws and all amendments thereto (such By-Laws,
as currently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");

(e) Resolutions of the Company's Directors and/or the Company's
stockholders approving the Investment Advisory Agreement between the Company and
the Company's investment adviser (the "Advisory Agreement");

(f) The Advisory Agreement;

(g) The Company's current Registration Statement on Form N-2 under
the 1940 Act, as amended, as filed with the Securities and Exchange Commission
(the "SEC"); and

-2-
<PAGE>

(h) Each Fund's most recent prospectus including all amendments and
supplements thereto (the "Prospectus").

The Company will furnish U.S. Trust from time to time with copies of
all amendments of or supplements to the foregoing, if any. The Company will
also furnish U.S. Trust with a copy of the opinion of counsel for the Company
with respect to the validity of the shares of common stock, par value $.001 per
share (the "Shares"), of the Company and the status of such Shares under the
1933 Act as registered with the SEC, and under any other applicable federal law
or regulation.

3. DEFINITIONS.

(a) "AUTHORIZED PERSON". As used in this Agreement, the term
"Authorized Person" means the Company's President, Vice-President, Treasurer and
any other person, whether or not any such person is an officer or employee of
the Company, duly authorized by the Directors of the Company to give Written
Instructions on behalf of the Company and listed on Attachment B hereto which
may be amended from time to time.

(b) "BOOK-ENTRY SYSTEM". As used in this Agreement, the term "Book-
Entry System" means the Federal Reserve/Treasury book-entry system for United
States and federal agency securities, its successor or successors and its
nominee or nominees.

(i) any and all securities, cash, and other property of the
Company which the Company may from time

-3-
<PAGE>

to time deposit, or cause to be deposited, with U.S. Trust or which
U.S. Trust may from time to time hold for the Company;

(ii) all income in respect of any such securities or other
property;

(iii) all proceeds of the sales of any of such Securities or
other property; and

(iv) all proceeds of the sale of securities issued by the
Company, which are received by U.S. Trust from time to time from or on
behalf of the Company.

(d) "SECURITIES DEPOSITORY". As used in this Agreement, the term
"Securities Depository" shall mean The Depository Trust Company, a clearing
agency registered with the SEC, or its successor or successors and its nominee
or nominees; and shall also mean any other registered clearing agency, its
successor or successors, specifically identified in a certified copy of a
resolution of the Company's Directors approving deposits by U.S. Trust therein.

(e) "WRITTEN INSTRUCTIONS". Means instructions

(i) delivered by mail, tested telegram, cable, telex, facsimile
sending device, and received by U.S. Trust, signed by two Authorized
Persons or by persons reasonably believed by U.S. Trust to be
Authorized Persons; or

(ii) transmitted electronically through the U.S. Trust Asset
Management System or any similar electronic instruction system
acceptable to U.S. Trust.

-4-
<PAGE>

4. DELIVERY AND REGISTRATION OF THE PROPERTY. The Company will deliver
or cause to be delivered to U.S. Trust all Property owned by it, including cash
received for the issuance of its Shares, at any time during the period of this
Agreement, except for securities and monies to be delivered to any subcustodian
appointed pursuant to Paragraph 7 hereof. U.S. Trust will not be responsible
for such securities and such monies until actually received by U.S. Trust or by
any subcustodian. All securities delivered to U.S. Trust or to any such
subcustodian (other than in bearer form) shall be registered in the name of the
Company or in the name of a nominee of the Company or in the name of U.S. Trust
or any nominee of U.S. Trust (with or without indication of fiduciary status) or
in the name of any subcustodian or any nominee of such subcustodian appointed
pursuant to Paragraph 7 hereof or shall be properly endorsed and in form for
transfer satisfactory to U.S. Trust.

5. VOTING RIGHTS. With respect to all securities, however registered, it
is understood that the voting and other rights and powers shall be exercised by
the Company. U.S. Trust's only duty shall be to mail to the Company any
documents received, including proxy statements and offering circulars, with any
proxies for securities registered in a nominee name executed by such nominee.
Where warrants, options, tenders or other securities have fixed expiration
dates, the Company understands that in order for U.S. Trust to act, U.S. Trust
must receive the Company's instructions at its offices in New York City,
addressed as U.S. Trust may from time to time request, by no later than noon
(New York City time)

-5-
<PAGE>

at least one business day prior to the last scheduled date to act with respect
thereto (or such earlier date or time as permits the Company a reasonable period
of time in which to respond after U.S. Trust notifies the Company of such date
or time). Absent U.S. Trust's timely receipt of such instructions, such
instruments will expire without liability to U.S. Trust.

6. RECEIPT AND DISBURSEMENT OF MONEY.

(a) U.S. Trust shall open and maintain a custody account for the
Company (the "Account") subject only to draft or order by U.S. Trust acting
pursuant to the terms of this Agreement, and shall hold in such Account, subject
to the provisions hereof, all cash received by it from or for the Company. U.S.
Trust shall make payments of cash to, or for the account of, the Company from
such cash only (i) for the purchase of securities for the Company as provided in
paragraph 12 hereof; (ii) upon receipt of Written Instructions, for the payment
of dividends or other distributions of shares, or for the payment of interest,
taxes, administration, distribution or advisory fees or expenses which are to be
borne by the Company under the terms of this Agreement, any Advisory Agreement,
or any administration agreement of the Company; (iii) upon receipt of Written
Instructions for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Company and held by or to
be delivered to U.S. Trust; (iv) to a subcustodian pursuant to Paragraph 7
hereof; or (v) upon receipt of Written Instructions for other corporate
purposes.

-6-
<PAGE>

(b) U.S. Trust is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received as custodian
for the Company.

7. RECEIPT OF SECURITIES.

(a) Except as provided by Paragraph 8 hereof, U.S. Trust shall hold
all securities and non-cash Property received by it for the Company. All such
securities and non-cash Property are to be held or disposed of by U.S. Trust for
the Company pursuant to the terms of this Agreement. In the absence of Written
Instructions accompanied by a certified resolution authorizing the specific
transaction by the Company's Directors, U.S. Trust shall have no power or
authority to withdraw, deliver, assign, hypothecate, pledge or otherwise dispose
of any such securities and non-cash Property, except in accordance with the
express terms provided for in this Agreement. In connection with its duties
under this Paragraph 7, U.S. Trust may, at its own expense and with the consent
of the Company, enter into subcustodian agreements with other banks, trust
companies, or other qualified entities for the receipt of certain securities and
cash to be held by U.S. Trust for the account of the Company pursuant to this
Agreement; provided, that each such subcustodian shall meet the requirements
established by the 1940 Act for U.S. domestic and foreign investment company
custodians, including (i) the requirements of Rule 17f-5 under the 1940 Act and
(ii) a requirement of approval by the Company's Board of Directors, if any, and
that each such subcustodian agrees with U.S. Trust to comply with all relevant
provisions of the 1940 Act and

-7-
<PAGE>

applicable rules and regulations thereunder. U.S. Trust will be liable for acts
or omissions of any such subcustodian.

(b) Promptly after the close of business on each day, U.S. Trust
shall furnish the Company with confirmations and a summary of all transfers to
or from the account of the Company during said day. Where securities are
transferred to the account of the Company established at a Securities Depository
or the Book-Entry System pursuant to Paragraph 8 hereof, U.S. Trust shall also
by book-entry or otherwise identify as belonging to the Company the quantity of
securities that belongs to the Company that are part of a fungible bulk of
securities registered in the name of U.S. Trust (or its nominee) or shown in
U.S. Trust's account on the books of a Securities Depository or the Book-Entry
System. At least monthly and from time to time, U.S. Trust shall furnish the
Company with a detailed statement of the Property held for the Company under
this Agreement.

8. USE OF SECURITIES DEPOSITORY OR THE BOOK-ENTRY SYSTEM. The Company
shall deliver to U.S. Trust a certified resolution of the Directors of the
Company approving, authorizing and instructing U.S. Trust on a continuous and
ongoing basis until instructed to the contrary by Written Instructions actually
received by U.S. Trust (1) to deposit in a Securities Depository or the Book-
Entry System all securities of the Company eligible for deposit therein and (ii)
to utilize a Securities Depository or the Book-Entry System to the extent
possible in connection with the performance of its duties hereunder, including
without limitation, settlements of purchases and sales of securities by

-8-
<PAGE>

the Company, and deliveries and returns of securities collateral in connection
with borrowings. Without limiting the generality of such use, it is agreed that
the following provisions shall apply thereto:

(a) Securities and any cash of the Company deposited in a Securities
Depository or the Book-Entry System will at all times be segregated from any
assets and cash controlled by U.S. Trust in other than a fiduciary or custodian
capacity but may be commingled with other assets held in such capacities. U.S.
Trust will effect payment for securities and receive and deliver securities in
accordance with accepted industry practices in the place where the transaction
is settled, unless the Company has given U.S. Trust Written Instructions to the
contrary.

(b) All Books and records maintained by U.S. Trust which relate to
the Company's participation in a Securities Depository or the Book-Entry System
will at all times during U.S. Trust's regular business hours be open to the
inspection of the Company's duly authorized employees or agents, and the Company
will be furnished with all information in respect of the services rendered to it
as it may require.

9. INSTRUCTIONS CONSISTENT WITH THE ARTICLES, ETC. Unless otherwise
provided in this Agreement, U.S. Trust shall act only upon Written Instructions.
U.S. Trust may assume that any Written Instructions received hereunder are not
in any way inconsistent with any provision of the Articles or By-Laws of the
Company or any vote or resolution of the Company's Directors, or any committee
thereof. U.S. Trust shall be entitled to rely upon

-9-
<PAGE>

any Written Instructions actually received by U.S. Trust pursuant to this
Agreement. The Company agrees that U.S. Trust shall incur no liability in
acting upon Written Instructions given to U.S. Trust. In accord with
instructions from the Company, as required by accepted industry practice or as
U.S. Trust may elect in effecting the execution of Company instructions,
advances of cash or other Property made by U.S. Trust, arising from the
purchase, sale, redemption, transfer or other disposition of Property of the
Company, or in connection with the disbursement of funds to any party, or in
payment of fees, expenses, claims or liabilities owed to U.S. Trust by the
Company, or to any other party which has secured judgment in a court of law
against the Company which creates an overdraft in the accounts or over-delivery
of Property shall be deemed a loan by U.S. Trust to the Company, payable on
demand, bearing interest at such rate customarily charged by U.S. Trust for
similar loans. The Company agrees that test arrangements, authentication
methods or other security devices to be used with respect to instructions which
the Company may give by telephone, telex, TWX, facsimile transmission, bank wire
or through an electronic instruction system, shall be processed in accordance
with terms and conditions for the use of such arrangements, methods or devices
as U.S. Trust may put into effect and modify from time to time. The Company
shall safeguard any test keys, identification codes or other security devices
which U.S. Trust makes available to the Company and agrees that the Company
shall be responsible for any loss, liability or damage incurred by U.S. Trust or
by the

-10-
<PAGE>

Company as a result of U.S. Trust's acting in accordance with instructions from
any unauthorized person using the proper security device unless such loss,
liability or damage was incurred as a result of U.S. Trust's negligence or
willful misconduct. U.S. Trust may electronically record, but shall not be
obligated to so record, any instructions given by telephone and any other
telephone discussions with respect to the Account. In the event that the
Company uses U.S. Trust's Asset Management System ("AMS"), the Company agrees
that U.S. Trust is not responsible for the consequences of the failure of the
AMS to perform for any reason, beyond the reasonable control of U.S. Trust, or
the failure of any communications carrier, utility, or communications network.
In the event the AMS is inoperable, the Company agrees that it will accept the
communication of transaction instructions by telephone, facsimile transmission
on equipment compatible to U.S. Trust's facsimile receiving equipment or by
letter, at no additional charge to the Company.

10. TRANSACTIONS NOT REQUIRING INSTRUCTIONS. U.S. Trust is authorized to
take the following action without Written Instructions:

(a) COLLECTION OF INCOME AND OTHER PAYMENT. U.S. Trust shall:

(i) collect and receive for the account of the Company, all
income and other payments and distributions, including (without
limitation) stock dividends, rights, warrants and similar items,
included or to be included in the Property of the Company, and

-11-
<PAGE>

promptly advise the Company of such receipt and shall credit such
income, as collected, to the Company. From time to time, U.S. Trust
may elect, but shall not be so obligated, to credit the Account with
interest, dividends or principal payments on payable or contractual
settlement date, in anticipation of receiving same from a payor,
central depository, broker or other agent employed by the Company or
U.S. Trust. Any such crediting and posting shall be at the Company's
sole risk, and U.S. Trust shall be authorized to reverse any such
advance posting in the event U.S. Trust does not receive good funds
from any such payor, central depository, broker or agent of the
Company.

(ii) with respect to securities of foreign issuers, effect
collection of dividends, interest and other income, and to notify the
Company of any call for redemption, offer of exchange, right of
subscription, reorganization, or other proceedings affecting such
securities, or any default in payments due thereon. It is understood,
hovever, that U.S. Trust shall be under no responsibility for any
failure or delay in effecting such collections or giving such notice
with respect to securities of foreign issuers, regardless of whether
or not the relevant information is published in any financial service
available to U.S. Trust unless such failure or delay is due to its
negligence or willful misconduct; provided that this subparagraph (ii)
shall

-12-
<PAGE>

not be construed as creating any such responsibility with respect to
securities of non-foreign issuers. Collections of income in foreign
currency are, to the extent possible, to be converted into United
States Dollars unless otherwise instructed in writing, and in
effecting such conversion U.S. Trust may use such methods or agencies
as it may see fit, including the facilities of its own foreign
Trust shall have no responsibility for fluctuations in exchange rates
affecting any such conversion.

(iii) endorse and deposit for collection in the name of the
Company, checks, drafts, or other orders for the payment of money on
the same day as received;

(iv) receive and hold for the account of the Company all
securities received by the Company as a result of a stock dividend,
share split-up or reorganization, recapitalization, readjustment or
other rearrangement or distribution of rights or similar securities
issued with respect to any portfolio securities of the Company held by
U.S. Trust hereunder;

(v) present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed or retired, or
otherwise become payable on the date such securities become payable;

-13-
<PAGE>

(iv) take any action which may be necessary and proper in
connection with the collection and receipt of such income and other
payments and the endorsement for collection of checks, drafts and
other negotiable instruments;

(vii) with respect to domestic securities, to exchange
securities in temporary form for securities in definitive form, to
effect an exchange of the shares where the par value of stock is
changed, and to surrender securities at maturity or when advised of
earlier call for redemption, against payment therefor in accordance
with accepted industry practice. The Company understands that U.S.
Trust subscribes to one or more nationally recognized services that
provide information with respect to calls for redemption of bonds or
other corporate actions. U.S. Trust shall not be liable for failure
to redeem any called bond or to take other action if notice of such
call or action was not provided by any service to which it subscribes
provided that U.S. Trust shall have acted in good faith without
negligence and in accordance with "Street Practice" (as is customary
in industry). U.S. Trust shall have no duty to notify the Company of
any rights, duties, limitations, conditions or other information set
forth in any security (including mandatory or optional put, call and
similar provisions), but U.S. Trust shall forward to the Company any
notices or other

-14-

<PAGE>

documents subsequently received in regard to any such security. When
fractional shares of stock of a declaring corporation are received as
a stock distribution, unless specifically instructed to the contrary
in writing, U.S. Trust is authorized to sell the fraction received and
credit the Company's account. Unless specifically instructed to the
contrary in writing, U.S. Trust is authorized to exchange securities
in bearer form for securities in registered form. If any Property
registered in the name of a nominee of U.S. Trust is called for
partial redemption by the issuer of such Property, U.S. Trust is
authorized to allot the called portion to the respective beneficial
holders of the Property in such manner deemed to be fair and equitable
by U.S. Trust in its sole discretion.

(b) MISCELLANEOUS TRANSACTIONS. U.S. Trust is authorized to deliver
or cause to be delivered Property against payment or other consideration or
written receipt therefor in the following cases:

(i) for examination by a broker selling for the account of the
Company in accordance with street delivery custom;

(ii) for the exchange of interim receipts or temporary securities
for definitive securities;

(iii) for transfer of securities into the name of the Company
or U.S. Trust or a nominee of either, or

-15-
<PAGE>

for exchange of securities for a different number of bonds,
certificates, or other evidence, representing the same aggregate face
amount or number of units bearing the same interest rate, maturity
date and call provisions, if any; provided that, in any such case, the
new securities are to be delivered to U.S. Trust.

11. TRANSACTIONS REQUIRING INSTRUCTIONS. Upon receipt of Written
Instructions and not otherwise, U.S. Trust, directly or through the use of a
Securities Depository or the Book-Entry System, shall:

(a) Execute and deliver to such persons as may be designated in such
Written Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Company as owner of any securities may
be exercised;

(b) Deliver any securities held for the Company against receipt of
other securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;

(c) Deliver any securities held for the Company to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or sale of
assets of any corporation, against receipt of such certificates of deposit,
interim receipts or other instruments or documents as may be issued to it to
evidence such delivery;

-16-
<PAGE>

(d) Make such transfers or exchanges of the assets of the Company and
take such other steps as shall be stated in said instructions to be for the
purpose of effectuating and duly authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Company;

(e) Release securities belonging to the Company to any bank or trust
company for the purpose of pledge or hypothecation to secure any loan incurred
by the Company; provided, however, that securities shall be released only upon
payment to U.S. Trust of the monies borrowed, except that in cases where
additional collateral is required to secure a borrowing already made, subject to
proper prior authorization, further securities may be released for that purpose;
and pay such loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or notes evidencing the
loan;

(f) Deliver any securities held for the Company upon the exercise of
a covered call option written by the Company on such securities; and

(g) Deliver securities held for the Company pursuant to separate
security lending agreements concerning the lending of the Company's securities
into which the Company may enter, from time to time.

12. PURCHASE OF SECURITIES. Promptly after each purchase of securities by
the Investment Adviser (or any sub-adviser), the Company shall deliver to U.S.
Trust (as Custodian) Written Instructions specifying with respect to each such
purchase: (a) the name of the issuer and the title of the securities, (b)

-17-
<PAGE>

the number of shares of the principal amount purchased and accrued interest, if
any, (c) the dates of purchase and settlement, (d) the purchase price per unit,
(e) the total amount payable upon such purchase and (f) the name of the person
from whom or the broker through whom the purchase was made.

13. SALES OF SECURITIES. Promptly after each sale of securities by the
Investment Adviser, the Company shall deliver to U.S. Trust (as Custodian)
Written Instructions, specifying with respect to each such sale: (a) the name
of the issuer and the title of the security, (b) the number of shares or
principal amount sold, and accrued interest, if any, (c) the date of sale, (d)
the sale price per unit, (e) the total amount payable to the Company upon such
sale and (f) the name of the broker through whom or the person to whom the sale
was made. U.S. Trust shall deliver the securities upon receipt of the total
amount payable to the Company upon such sale, provided that the same conforms to
the total amount payable as set forth in such Written Instructions. Subject to
the foregoing, U.S. Trust may accept payment in such form as shall be
satisfactory to it, and may deliver securities and arrange for payment in
accordance with the customs prevailing among dealers in securities.

14. AUTHORIZED SHARES. The Company has a fixed number of authorized
shares of its securities, subject to the authority of the Board of Directors to
increase or decrease the number of authorized shares and to reclassify
authorized but unissued shares.

-18-
<PAGE>

15. RECORDS. The books and records pertaining to the Company which are in
the possession of U.S. Trust shall be the property of the Company. Such books
and records shall be prepared and maintained as required by the 1940 Act; other
applicable federal and state securities laws and rules and regulations; and, any
state or federal regulatory body having appropriate jurisdiction. The Company,
or the Company's authorized representatives, shall have access to such books and
records at all times during U.S. Trust's normal business hours, and such books
and records shall be surrendered to the Company promptly upon request. Upon
reasonable request of the Company, copies of any such books and records shall be
provided by U.S. Trust to the Company or the Company's authorized representative
at the Company's expense.

16. COOPERATION WITH ACCOUNTANTS. U.S. Trust shall cooperate with the
Company's independent certified public accountants and shall take all reasonable
action in the performance of its obligations under this Agreement to assure that
the necessary information is made available to such accountants for the
expression of their unqualified opinion, including but not limited to the
opinion included in the Company's semiannual report on Form N-SAR.

17. CONFIDENTIALITY. U.S. Trust agrees on behalf of itself and its
employees to treat confidentially and as the proprietary information of the
Company all records and other information relative to the Company and its prior,
present or potential Shareholders and relative to the investment advisers and
its

-19-
<PAGE>

prior, present or potential customers, and not to use such records and
information for any purpose other than performance of its responsibilities and
duties hereunder, except after prior notification to and approval in writing by
the Company, which approval shall not be unreasonably withheld and may not be
withheld where U.S. Trust may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Company. Nothing
contained herein, however, shall prohibit U.S. Trust from advertising, or
soliciting the public generally with respect to other products or services,
regardless of whether such advertisement or solicitation may include prior,
present or potential Shareholders of the Company.

18. EQUIPMENT FAILURES. In the event of equipment failures beyond U.S.
Trust's control, U.S. Trust shall, at no additional expense to the Company, take
reasonable steps to minimize service interruptions but shall not have liability
with respect thereto. U.S. Trust shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provision for
back up emergency use of electronic data processing equipment to the extent
appropriate equipment is available.

19. RIGHT TO RECEIVE ADVICE

(a) ADVICE OF FUND. If U.S. Trust shall be in doubt as to any action
to be taken or omitted by it, it may request, and shall receive, from the
Company clarification or advice.

(b) ADVICE OF COUNSEL. If U.S. Trust shall be in doubt as to any
question of law involved in any action to be

-20-

<PAGE>

taken or omitted by U.S. Trust it may request advice at its own cost from
counsel of its own choosing (who may be counsel for the Company or U.S. Trust,
at the option of U.S. Trust).

(c) CONFLICTING ADVICE. In case of conflict between directions or
advice received by U.S. Trust pursuant to subparagraph (a) of this paragraph and
advice received by U.S. Trust pursuant to subparagraph (b) of this paragraph,
U.S. Trust shall be entitled to rely on and follow the advice received pursuant
to the latter provision alone.

(d) PROTECTION OF U.S. TRUST. U.S. Trust shall be protected in any
action or inaction which it takes or omits to take in reliance on any directions
or advice received pursuant to subparagraph (a) of this section which U.S.
Trust, after receipt of any such directions or advice, in good faith believes to
be consistent with such directions or advice. However, nothing in this
paragraph shall be construed as imposing upon U.S. Trust any obligation (i) to
seek such directions or advice, or (ii) to act in accordance with such
directions or advice when received, unless, under the terms or another provision
of this Agreement, the same is a condition to U.S. Trust's properly taking or
omitting to take such action. Nothing in this subparagraph shall excuse U.S.
Trust when an action or omission on the part of U.S. Trust constitutes willful
misfeasance, bad faith, negligence or reckless disregard by U.S. Trust of its
duties under this Agreement.

20. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS. The Company
assumes full responsibility for insuring that the

-21-

<PAGE>

contents of each Prospectus of the Company complies with all applicable
requirements of the 1933 Act, the 1940 Act, and any laws, rules and regulations
of governmental authorities having Jurisdiction.

21. COMPENSATION. As compensation for the services described within this
Agreement and rendered by U.S. Trust during the term of this Agreement, the
Company will pay to U.S. Trust, in addition to reimbursement of its out-of-
pocket expenses, monthly fees as outlined in Attachment A.

22. INDEMNIFICATION. The Company, as sole owner of the Property, agrees
to indemnify and hold harmless U.S. Trust and its nominees from all taxes,
charges, expenses, assessments, claims, and liabilities (including, without
limitation, liabilities arising under the 1933 Act, the Securities Exchange Act
of 1934 as amended, the 1940 Act, and any state and foreign securities and blue
sky laws, all as or to be amended from time to time) and expenses, including
(without limitation) attorney's fees and disbursements, arising directly or
indirectly (a) from the fact that securities included in the Property are
registered in the name of any such nominee or (b) without limiting the
generality of the foregoing clause (a) from any action or thing which U.S. Trust
takes or does or omits to take or do (i) at the request or on the direction of
or in reliance on the advice of the Company given in accordance with the terms
of this Agreement, or (ii) upon Written Instructions; provided, that neither
U.S. Trust nor any of its nominees or subcustodians shall be indemnified against
any liability to the Company or to its

-22-

<PAGE>

Shareholders (or any expenses incident to such liability) arising out of U.S.
Trust's or such nominee's or subcustodian's own willful misfeasance, bad faith,
negligence or reckless disregard of its duties under this Agreement or any
agreement between U.S. Trust and any nominee or subcustodian. In the event of
any advance of cash for any purpose made by U.S. Trust resulting from orders or
Written Instructions of the Company, or in the event that U.S. Trust or its
nominee or subcustodian shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Agreement, except such as may arise from its or its nominee's or subcustodian's
own negligent action, negligent failure to act, willful misconduct, or reckless
disregard of its duties under this Agreement or any agreement between U.S. Trust
and any nominee or subcustodian, the Company shall promptly reimburse U.S. Trust
for such advance of cash or such taxes, charges, expenses, assessments, claims
or liabilities.

23. RESPONSIBILITY OF U.S. TRUST. U.S. Trust shall be under no duty to
take any action on behalf of the Company except as specifically set forth herein
or as may be specifically agreed to by U.S. Trust in writing. In the
performance of its duties hereunder, U.S. Trust shall be obligated to exercise
care and diligence and to act in good faith and to use its best efforts within
reasonable limits to insure the accuracy of all services performed under this
Agreement. U.S. Trust shall not be liable for any act or omission which does
not constitute willful misfeasance, bad faith, or negligence on the part of U.S.
Trust

-23-

<PAGE>

or nominee or subcustodian or reckless disregard of the duties, obligations and
responsibilities hereunder. Without limiting the generality of the foregoing or
of any other provision of this Agreement, U.S. Trust in connection with its
duties under this Agreement shall not be under any duty or obligation to inquire
into and shall not be liable for or in respect of (a) the validity or invalidity
or authority or lack thereof of any advice, direction, notice or other
instrument which conforms to the applicable requirements of this Agreement, if
any, and which U.S. Trust believes to be genuine, (b) the validity of the issue
of any securities purchased or sold by the Company, the legality of the purchase
or sale thereof or the propriety of the amount paid or received therefor, (c)
the legality of the issue or sale of any Shares, or the sufficiency of the
amount to be received therefor, (d) the legality of the redemption of any
Shares, or the propriety of the amount to be paid therefor, (e) the legality of
the declaration or payment of any dividend or distribution on Shares, or (f)
delays or errors or loss of data occurring by reason of circumstances beyond
U.S. Trust's control, including acts of civil or military authority, national
emergencies, labor difficulties, fire, mechanical breakdown (except as provided
in Paragraph 18), flood or catastrophe, acts of God, insurrection, war, riots,
or failure of the mail, transportation systems, communication systems or power
supply.

24. COLLECTION. All collections of monies or other property in respect,
or which are to become part, of the Property (but not the safekeeping thereof
upon receipt by U.S. Trust)

-24-

<PAGE>

shall be at the sole risk of the Company. In any case in which U.S. Trust does
not receive any payment due the Company within a reasonable time after U.S.
Trust has made proper demands for the same, it shall so notify the Company in
writing, including copies of all demand letters, any written responses thereto,
and memoranda of all oral responses thereto, and to telephonic demands, and
await instructions from the Company. U.S. Trust shall not be obliged to take
legal action for collection unless and until reasonably indemnified to its
satisfaction. U.S. Trust shall also notify the Company as soon as reasonably
practicable whenever income due on securities is not collected in due course.

25. DURATION AND TERMINATION. This Agreement shall be effective as of the
date hereof and shall continue until termination by the Company or by U.S. Trust
on 60 day's written notice. Upon any termination of this Agreement, pending
appointment of a successor to U.S. Trust by the Company or a vote of the
Shareholders of the Company to dissolve or a vote of its Board of Directors to
function without a custodian of its cash, securities or other property, U.S.
Trust shall not deliver cash, securities or other property of the Company to the
Company, but may deliver them to a bank or trust company of its own selection,
having aggregate capital, surplus and undivided profits, as shown by its last
published report of not less than twenty million dollars ($20,000,000) as a
successor custodian for the Company to be held under terms similar to those of
this Agreement. Notwithstanding the making by U.S. Trust of any such delivery
or payment, U.S. Trust will remain entitled to full payment by the

-25-

<PAGE>

Company of all liabilities constituting a charge on or against the properties
previously held by U.S. Trust or on or against U.S. Trust and full payment of
all of its fees, compensation, costs and expenses, subject to the provisions of
Paragraph 21 of this Agreement.

26. NOTICES. All notices and other communications (collectively referred
to as "Notice" or "Notices" in this paragraph) hereunder shall be in writing or
by confirming telegram, cable, telex, or facsimile sending device. Notices
shall be addressed (a) if to U.S. Trust, at U.S. Trust's address, 114 W. 47th
Street, New York, New York, 10036; (b) if to the Company, at the address of the
Company; or (c) if to neither of the foregoing, at such other address as shall
have been notified to the sender of any such Notice or other communication. If
the location of the sender of a Notice and the address of the addressee thereof
are, at the time of sending, more than 100 miles apart, the Notice may be sent
by first-class mail, in which case it shall be deemed to have been given three
days after it is sent, or if sent by confirming telegram, cable, telex or
facsimile sending device, it shall be deemed to have been given immediately,
and, if the location of the sender of a Notice and the address of the addressee
thereof are, at the time of sending, not more than 100 miles apart, the Notice
may be sent by first-class mail, in which case it shall be deemed to have been
given two days after it is sent, or if sent by messenger, it shall be deemed to
have been given on the day it is delivered, or if sent by confirming telegram,
cable, telex or facsimile sending device,

-26-

<PAGE>

it shall be deemed to have been given immediately. All postage, cable,
telegram, telex and facsimile sending device charges arising from the sending of
a Notice hereunder shall be paid by the Sender.

27. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.

28. AMENDMENTS. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.

29. MISCELLANEOUS. This Agreement embodies the entire Agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the parties hereto. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in New York and
governed by New York law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors.

-27-

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.

FIRST BOSTON INCOME FUND, INC.

Attest: /s/ Susanne M. Dennis By: /s/ Jay T. Roelof
---------------------------- ------------------------
Name: Jay T. Roelof
------------------------
Title: Secretary
------------------------

UNITED STATES TRUST COMPANY

OF NEW YORK

Attest: /s/ Witness By: /s/ Donald P. Hearn
--------------------------- -----------------------
Name: Donald P. Hearn
-----------------------
Title: S.V.P.
-----------------------

-28-

<PAGE>

MUTUAL FUND CUSTODY AGREEMENT
FIRST BOSTON INCOME FUND, INC.
MAY 1, 1993

ATTACHMENT A
FEES AND EXPENSES

For the services described in the Agreement, the Fund shall pay to U.S. Trust a
custody safekeeping fee and custody transaction fees as follows:

DOMESTIC CUSTODY SAFEKEEPING FEES

0.03% (3.0 Basis Points) of the first $50 million of the Fund's average daily
net assets; plus
0.02% (2.0 Basis Points) of the second $50 million of the Fund's average daily
net assets; plus
0.01% (1.0 Basis Points) of the Fund's average daily net assets in excess of
$100 million.

DOMESTIC CUSTODY TRANSACTION FEES

$15.00 per DTC, PTC or Fed Book Entry transaction
$25.00 per physical transaction
$35.00 per future, option or swap transaction
$40.00 per Cedel/Euroclear transaction
$ 8.00 per wire transfer

The Fund will be billed for all reasonable "out-of-pocket" expenses as they
relate to the provision of services under this Agreement. International
transactions and securities may involve additional fees and expenses.

A-1

<PAGE>

MUTUAL FUND CUSTODY AGREEMENT
FIRST BOSTON INCOME FUND, INC.
MAY 1, 1993

ATTACHMENT B

AUTHORIZED PERSONS

B-1

<PAGE>

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of April 1, 1996, by
and among each of the management investment companies listed on SCHEDULE I
hereto, acting either for itself or solely on behalf of the portfolios indicated
on said Schedule (each, a "PORTFOLIO"), as said Schedule may from time to time
be modified or amended (each of such management investment companies in such
individual or representative capacity being hereafter referred to as a
"BORROWER" and collectively as the "BORROWERS") and THE FIRST NATIONAL BANK OF
BOSTON, a national banking association with its head office at 100 Federal
Street, Boston, Massachusetts 02110 (the "BANK").

WHEREAS, the Existing Borrowers and the Bank entered into an Amended and
Restated Credit Agreement dated as of December 15, 1994 (the "PRIOR AGREEMENT")
providing for advances to be made by the Bank to the Existing Borrowers for
temporary or emergency purposes; and

WHEREAS, the Existing Borrowers and the Bank desire to amend and restate
the Prior Agreement to add the New Borrowers as Borrowers; and

WHEREAS, each of the Borrowers is authorized to borrow money for its own
temporary or emergency purposes, or the temporary or emergency purposes of any
of its Portfolios, and desires to enter into this Agreement so that it may
borrow funds from the Bank from time to time for such purposes; and

WHEREAS, the Bank is willing to advance funds to the Borrowers for their
own accounts or for the accounts of any of their Portfolios from time to time on
a demand, discretionary basis on the terms and subject to the conditions set
forth below;

NOW, THEREFORE, in consideration of the mutual promises and agreements of
the parties set forth herein, the parties hereto agree as follows:

Section 1. DEFINITIONS; INTERPRETATION.

Section 1.1. DEFINITIONS. As used herein, the following terms shall have
meanings assigned to them below:

ADJUSTED EURODOLLAR RATE. Applicable to any Interest Period, shall mean a
rate per annum determined pursuant to the following formula:

AER = [ LIBOR ]*
-----------
[ 1.00 - RP ]

AER = Adjusted Eurodollar Rate
LIBOR = London Interbank Offered Rate
RP = Reserve Percentage

*The amount in brackets shall be rounded upwards, if
necessary, to the next higher 1/100 of 1%.

<PAGE>
-2-
Where:

"LONDON INTERBANK OFFERED RATE" applicable to any Eurodollar
Loan for any Interest Period means the rate of interest determined by
the Bank to be the prevailing rate per annum at which deposits in U.S.
dollars are offered to the Bank by first-class banks in the London
interbank Eurodollar market on or about 11:00 a.m. (London time) two
Business Days before the first day of such Interest Period in an
amount approximately equal to the principal amount of the Eurodollar
Loan to which such Interest Period is to apply for a period of time
approximately equal to such Interest Period.

"RESERVE PERCENTAGE" applicable to any Interest Period means the rate
(expressed as a decimal) applicable to the Bank during such Interest Period
under regulations issued from time to time by the Board of Governors of the
Federal Reserve System for determining the maximum reserve requirement
(including, without limitation, any basic, supplemental, emergency or
marginal reserve requirement) of the Bank with respect to
"Eurocurrency liabilities" as that term is defined under such
regulations.

The Adjusted Eurodollar Rate shall be adjusted automatically as of the
effective date of any change in the Reserve Percentage.

AFFECTED LOANS. As defined in Section 2.8(a).

AFFILIATED PERSON. As defined in the 1940 Act and the rules and
regulations promulgated thereunder.

AGREEMENT. This Second Amended and Restated Credit Agreement as
originally executed, or if amended or supplemented from time to time, as so
amended or supplemented. References to the Agreement shall mean and include
references to each of the Exhibits and Schedules hereto.

BANK. As defined in the preamble hereof.

BASE RATE. The greater of (i) the annual rate of interest
announced from time to time by the Bank at its Head Office as its "Base
Rate", and (ii) the Federal Funds Effective Rate plus 1/2 of 1% per annum
(rounded upwards, if necessary, to the next 1/8 of 1%).

BASE RATE LOAN. A Loan that bears interest at the Base Rate.

<PAGE>

-3-

BORROWER AND BORROWERS. As defined in the preamble hereof.

BORROWING DATE. The date on which any Loan is made or is to be
made hereunder.

BORROWER'S PERCENTAGE. As applied to any Borrower, for its own
account or for the account of a Portfolio, the percentage obtained by
dividing 100 by the number of Borrowers set forth in SCHEDULE I hereto.

BUSINESS DAY. (i) For all purposes other than as covered by clause (ii)
below, any day other than a Saturday, Sunday or legal holiday on which banks
in Boston, Massachusetts or New York, New York are open for the conduct of a
substantial part of their commercial banking business; and (ii) with respect
to all notices and determinations in connection with, and payments of
principal and interest on, Eurodollar Loans, any day that is a Business Day
described in clause (i) and that is also a day for trading by and between
banks in U.S. Dollar deposits in the London interbank Eurodollar market.

CUSTODIAN. The entity that acts as a Borrower's custodian for
purposes of Section 17(f) of the 1940 Act or, if a Borrower has more than one
custodian for the assets of its Portfolios, the entity that acts as custodian
for the assets of a Portfolio.

DEFAULT. As defined in Section 6.1 hereof.

EURODOLLAR LOAN. Any Loan bearing interest at a rate determined with
reference to the Adjusted Eurodollar Rate.

EVENT OF DEFAULT. As defined in Section 6.1 hereof.

EXISTING BORROWERS. Those Borrowers identified as "Existing
Borrowers" on SCHEDULE I hereto.

FEDERAL FUNDS EFFECTIVE RATE. For any day, a fluctuating interest
rate per annum equal to the weighted average of the rates on overnight
Federal Funds transactions with members of the Federal Reserve System
arranged by Federal Funds brokers, as published for such day (or, if such day
is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day
that is a Business Day, the average of the quotations for such day on such
transactions received by the Bank from three Federal Funds brokers of
recognized standing selected by the Bank.

<PAGE>

-4-

HEAD OFFICE. The head office of the Bank, which at present is
located at 100 Federal Street, Boston, Massachusetts 02110.

INDEBTEDNESS. All obligations, contingent and otherwise, that in
accordance with generally accepted accounting principles should be classified
upon the obligor's balance sheet as indebtedness, or to which reference
should be made by footnotes thereto, including, without limitation, in any
event and whether or not so classified: (i) all debt for money borrowed and
similar extensions of credit, whether direct or indirect; (ii) all
liabilities secured by any mortgage, pledge, security interest, lien, charge,
or other encumbrance existing on property owned or acquired subject thereto,
whether or not the liability secured thereby shall have been assumed; and
(iii) all guaranties, endorsements and other contingent obligations, whether
direct or indirect, in respect of Indebtedness of others, including any
obligation to supply funds to or in any manner to invest in, directly, or
indirectly, the debtor, to purchase Indebtedness, or to assure the owner of
Indebtedness against loss, through an agreement to purchase goods, supplies,
or services for the purpose of enabling the debtor to make payment of the
Indebtedness held by such owner or otherwise, and the obligations to
reimburse the issuer of any letters of credit.

INTEREST PERIOD. (a) With respect to each Eurodollar Loan made to
a Borrower for its own account or for the account of a Portfolio, the period
commencing on the date of the making or continuation of or conversion to such
Eurodollar Loan and ending seven, 14 or 30 days thereafter, as such Borrower
may elect in the applicable Loan Request delivered pursuant to Section
2.2(a), or continuation notice delivered pursuant to Section 2.5(b); provided
that:

(i) any Interest Period (other than an Interest Period determined
pursuant to clause (iii) below) that would otherwise end on a day that
is not a Business Day shall be extended to the next succeeding Business
Day unless such Business Day falls in the next calendar month, in which
case such Interest Period shall end on the immediately preceding
Business Day;

(ii) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (iii) below, end on the last Business
Day of a calendar month;

<PAGE>

-5-

(iii) any Interest Period that would otherwise end after the
Termination Date shall end on the Termination Date;

(iv) notwithstanding clause (iii) above, no Interest Period shall
have a duration of less than seven days; and if any Interest Period
applicable to such Loan would be for a shorter period, such Interest
Period shall not be available hereunder; and

(v) the Interest Period for any Eurodollar Loan made to any
Portfolio of the RBB Fund may not exceed seven days.

(b) With respect to each Money Market Loan made to a Borrower for its
own account or for the account of a Portfolio, the period commencing on the
date of the making of such Money Market Loan and ending one to 30 days
thereafter, as such Borrower may elect in the applicable Loan Request
delivered pursuant to Section 2.2(a), PROVIDED that:

(i) any Interest Period (other than an Interest Period determined
pursuant to clause (ii) below) that would otherwise end on a day that is
not a Business Day shall be extended to the next succeeding Business Day;
and

(ii) any Interest Period that would otherwise end after the
Termination Date shall end on the Termination Date.

INVESTMENT ADVISER. BEA Associates, a New York general partnership.

LOAN OR LOANS. As defined in Section 2.1 hereof.

LOAN ACCOUNT. As defined in Section 2.3 hereof.

LOAN REQUEST. As defined in Section 2.2(a) hereof.

MAXIMUM AMOUNT. With respect to each Borrower or, if applicable, each
Portfolio, and at the relevant time of reference thereto, an amount equal to the
lesser of the following:

(i) until the Termination Date, $50,000,000, or

(ii) at all times, and when added to all other indebtedness of such
Borrower incurred for itself or on behalf of such Portfolio, as
applicable, then outstanding, 25% of the value of the net assets of such
Borrower or such Portfolio at such time (total assets less all
liabilities other than liabilities for borrowed money), or

<PAGE>

-6-

(iii) the maximum amount such Borrower is permitted to borrow for
itself or on behalf of such Portfolio, as applicable, at such time under
(a) applicable federal or state laws, statutes and regulations, including
without limitation the asset coverage requirements of Section 18(a)(1) of
the 1940 Act, (b) agreements (whether or not having the force of law) by
such Borrower for itself or on behalf of such Portfolio, as applicable,
with federal, state, local or foreign governmental agencies, authorities
or regulators, as more particularly described in Part 1 of SCHEDULE II
hereto, as amended and in effect from time to time, and (c) limitations
on borrowing adopted by such Borrower for itself or on behalf of such
Portfolio, as applicable, and described in its Registration Statement,
Prospectus or Statement of Additional Information, if applicable, or
elsewhere, as more particularly described in Part 2 of SCHEDULE II
hereto, as amended and in effect from time to time.

Although it will be within the discretion of the Bank whether it makes Loans
under this Agreement, each Borrower understands that the Bank may use the
Maximum Amount as a ceiling on Loans.

MONEY MARKET LOANS. Loans bearing interest at a Money Market Rate.

MONEY MARKET RATE. The rate quoted by the Bank in its sole discretion
(it being understood that the Bank is under no obligation to quote such rate)
to each Borrower for its own account or for the account of a Portfolio as the
fixed rate of interest at which it is willing to make a "money market" loan to
such Borrower or Portfolio in the amount and for the period of the requested
Loan.

NEW BORROWERS. Those Borrowers identified as "New Borrowers" on SCHEDULE
I hereto.

1940 ACT. The Investment Company Act of 1940, as amended.

PORTFOLIO. As defined in the preamble hereof.

PRIOR AGREEMENT. As defined in the preamble hereof.

PROSPECTUS. The Prospectus required to be delivered by each Borrower and
each Portfolio to offerees of its securities pursuant to the Securities Act of
1933, as amended from time to time.

<PAGE>

-7-

RBB FUND. The RBB Fund, Inc., an open end management investment
company incorporated under the law of Maryland and registered under the 1940
Act and a Borrower under this Agreement acting solely on behalf of the
Portfolios indicated on SCHEDULE I hereto.

REGISTRATION STATEMENT. The most recent Registration Statement on
Form N-2 or Form N-1A, as applicable, filed by each Borrower on its own
behalf or on behalf of its Portfolios with, and declared effective by, the
Securities and Exchange Commission and amended from time to time, pursuant to
the 1940 Act.

REGULATION U. Regulation U promulgated by the Board of Governors of
the Federal Reserve System, as in effect from time to time.

STATEMENT OF ADDITIONAL INFORMATION. The Statement of Additional
Information that must be provided by each Borrower and each Portfolio to
recipients of its Prospectus upon request, pursuant to the rules and
regulations of the Securities and Exchange Commission.

TERMINATION DATE. The date on which the credit facility shall have
been terminated as provided for in Section 2.13 of this Agreement and made
demand for the repayment of all amounts then outstanding hereunder.

Section 1.2. INTERPRETATION. All terms of an accounting character
not specifically defined herein shall have the meanings assigned thereto by
generally accepted accounting principles in the United States of America,
unless the context otherwise requires. Each reference herein to a particular
person or entity (including, without limitation, the Bank) shall include a
reference to the successors and permitted assigns of such person or entity.
The words "herein", "hereof", "hereunder", and words of like import shall
refer to this Agreement as a whole and not to any particular Section or
subdivision of this Agreement.

Section 2. CREDIT FACILITY.

Section 2.1. CREDIT FACILITY. Subject to the terms and conditions
set forth in this Agreement, the Bank agrees to make revolving loans
("LOANS") to each Borrower from time to time in the Bank's discretion on any
Business Day during the period from the date hereof to (but not including)
the Termination Date, as may be requested by any Borrower for itself or on
behalf of a Portfolio. Each Loan made by the Bank shall be in the principal
amount stated in the applicable Loan Request, and shall be in a minimum
amount of at least $1,000,000 and an integral multiple of

<PAGE>
-8-

$100,000 (or the balance of the applicable unborrowed Maximum Amount), provided
that at no time shall the aggregate outstanding principal amount of all Loans
made to any Borrower for its own account or for the account of a Portfolio
exceed the Maximum Amount applicable to such Borrower or Portfolio; and
provided, further that at no time shall the aggregate outstanding principal
amount of all Loans to all Borrowers exceed $50,000,000. Within the limits of
the provisions of this Section 2.1, each Borrower may borrow, pay or prepay, for
its own account or the account of its Portfolios, pursuant to Section 2.7 and
reborrow under this Section 2.1.

Section 2.2. NOTICE AND MANNER OF BORROWING. All Loans shall be
requested and funded in accordance with the procedures set forth below:

(a) LOAN REQUESTS. Each request by a Borrower for a Loan hereunder
for its own account or the account of its Portfolios shall be made by
telephonic notice to the Bank (a "LOAN REQUEST") prior to 11:30 a.m., Boston
time, on the Borrowing Date in the case of Base Rate Loans or Money Market
Loans, and three days prior to the Borrowing Date in the case of Eurodollar
Loans. Each Loan Request shall be irrevocable and shall state (i) the
principal amount of the requested Loan; (ii) the interest rate to be
applicable thereto; (iii) in the case of Eurodollar Loans or Money Market
Loans, the Interest Period requested for such Loan (subject to the definition
of Interest Period); and (iv) in the case of a Loan to a Borrower on behalf
of a Portfolio, the name of Portfolio for which the Loan is being requested.
Each Loan Request shall also state the maximum amount such Borrower is then
permitted to borrow hereunder, for itself or on behalf of the relevant
Portfolio, as applicable, determined in accordance with the definition of
Maximum Amount. Each Loan Request shall be made by a duly authorized
representative of such Borrower, as specified by such Borrower in writing
from time to time, and the Bank may rely upon any telephone request that it
reasonably believes is made by such a representative. Each Loan Request
shall promptly be followed by a written confirmation thereof, substantially
in the form of EXHIBIT A hereto, PROVIDED that if such written confirmation
differs in any material respect from the action of the Bank taken in good
faith reliance upon such telephone request, the records of the Bank shall
control absent manifest error.

Each Loan Request made by a Borrower for its own account or for the
account of a Portfolio shall constitute a representation and warranty by such
Borrower to the Bank that (i) the Loan requested thereby is permitted under
the Prospectus, Registration Statement and, if applicable, Statement of
Additional Information

<PAGE>

-9-

of such Borrower or Portfolio; (ii) such Loan will not, when made, cause the
aggregate outstanding principal amount of all Loans of all Borrowers
hereunder to exceed $50,000,000; (iii) the proceeds of such Loan will be used
by such Borrower for itself or on behalf of the applicable Portfolio only in
accordance with the provisions of Section 2.11 hereof; and (iv) all of the
representations and warranties of such Borrower made with respect to itself
or its Portfolios contained in Section 4 hereof are true and correct on and
as of the date of such Loan Request and the date of such Loan as though made
on and as of such dates.

(b) FUNDING THE LOANS. If, upon receipt of a Loan Request in
accordance with Section 2.2(a) hereof, the Bank is willing, in its
discretion, to make a Loan to the requesting Borrower for itself or on behalf
of a Portfolio, the Bank shall make such Loan by depositing or wiring the
proceeds thereof, on the same day in immediately available funds and at the
applicable Borrower's expense, to an account maintained on behalf of such
Borrower or Portfolio by the Custodian of such Borrower or Portfolio in
accordance with the wiring instructions set forth in SCHEDULE III hereto, as
amended by such Borrower and in effect from time to time.

Section 2.3. LOAN ACCOUNT. The Bank will maintain a separate
account on its books for each Borrower and each Portfolio (each a "LOAN
ACCOUNT") on which will be recorded, in accordance with the Bank's customary
accounting practice, (a) all Loans made by the Bank to such Borrower for its
own account or for the account of such Portfolio, (b) all payments on such
Loans made by such Borrower for its own account or for the account of such
Portfolio to the Bank, and (c) all other charges and expenses properly
chargeable to such Borrower for its own account or for the account of such
Portfolio hereunder. The debit balance of each Loan Account shall reflect
the amount of the applicable Borrower's indebtedness incurred for its own
account or the account of its Portfolios from time to time to the Bank
hereunder and, in the absence of manifest error, shall constitute conclusive
evidence of the indebtedness of such Borrower incurred for its own account or
for the account of its Portfolios to the Bank hereunder.

Section 2.4. REPAYMENT OF LOANS. Each Loan made hereunder shall be
payable on demand or upon the termination of the credit facility provided
hereunder, as contemplated by Section 2.13; PROVIDED that if demand is not
earlier made, each Base Rate Loan shall mature and the principal amount
thereof become due and payable in full on the seventh day following the date
of the making of such Base Rate Loan, in the case of Loans to any Borrower
for the account of any of its Portfolios, and on the

<PAGE>

-10-

Termination Date, in the case of all other Loans; and each Eurodollar Loan and
Money Market Loan shall mature and the principal amount thereof become due and
payable on the last day of the applicable Interest Period. Only the relevant
Borrower or the assets of the relevant Portfolio, as applicable, shall be liable
for the due and punctual payment of each such Loan made to such Borrower for its
own account or the account of such Portfolio, together with interest accrued
thereon and any other amounts payable with respect thereto.

Section 2.5. INTEREST.

(a) INTEREST RATE ON LOANS. Except as otherwise provided in Section
2.5(d) below, the outstanding principal amount of each Loan to a Borrower for
its own account or for the account of a Portfolio shall bear interest until
maturity at (i) the Base Rate, (ii) the Adjusted Eurodollar Rate plus 1-1/2%,
or (iii) the applicable Money Market Rate as selected by the applicable
Borrower for itself or for a Portfolio from time to time in the applicable
Loan Request. Interest accrued on each Base Rate Loan shall be paid by the
applicable Borrower for its own account or for the account of a Portfolio on
the last day of each calendar quarter and upon demand by the Bank for
repayment of such Loan. Interest accrued on each Eurodollar Loan or Money
Market Loan shall be paid on the last day of the Interest Period applicable
thereto and upon demand by the Bank for repayment of such Loan.

(b) DURATION OF INTEREST PERIODS. Subject to the provisions of the
definition of Interest Period, the duration of each Interest Period
applicable to a Eurodollar Loan or Money Market Loan shall be as specified in
the applicable Loan Request delivered pursuant to Section 2.2(a). The
applicable Borrower shall have the option to elect a subsequent Interest
Period to be applicable to a Eurodollar Loan or a Money Market Loan made to
such Borrower for its own account or for the account of a Portfolio (if the
Bank in its discretion is then willing to make a Money Market Loan to such
Borrower for its own account or for the account of a Portfolio) by giving
notice of such election to the Bank received no later than 10:00 a.m. Boston
time three Business Days before the end of the then applicable Interest
Period.

If the Bank does not receive a notice of election of duration of an
Interest Period for a Eurodollar Loan made to a Borrower for its own account
or for the account of a Portfolio within the applicable time limits specified
therein, or if, when such notice must be given, the Bank shall not then be
willing, in its sole discretion, to continue such Loan or a Default or Event
of Default then exists, such Borrower shall be deemed to have

<PAGE>

-11-

elected to convert such Loan in whole into a Base Rate Loan on the last day of
the then current Interest Period with respect thereto.

Notwithstanding the foregoing, no Borrower may select an Interest
Period to be appl icable to a Loan made to such Borrower for its own account
or for the account of a Portfolio that would end, but for the provisions of
the definition of Interest Period, after the Termination Date.

(c) OVERDUE PRINCIPAL AND INTEREST. Overdue principal and (to the
extent permitted by applicable law) interest on each Loan and all other
overdue amounts payable hereunder shall bear interest compounded monthly and
payable on demand at a rate per annum equal to two percent above the greater
of (i) the interest rate then in effect for such Loan and (ii) the Base Rate,
until such amount shall be paid in full (whether before or after judgment).

(d) LIMITATION ON INTEREST. No provision of this Agreement shall
require the payment or permit the collection of interest in excess of the
rate then permitted by applicable law.

Section 2.6. PLACE AND MODE OF PAYMENTS; COMPUTATIONS.

(a) Each payment made or caused to be made by a Borrower for its own
account or for the account of a Portfolio to the Bank under this Agreement
shall be made directly to the Bank in United States Dollars at the Bank's
Head Office ABA #011-000-390 Attention: Loretta Barrasso, Commercial Loan
Services, not later than 2:00 p.m., Boston time, on the due date of each such
payment, and in immediately available and freely transferable funds.

(b) If any sum would, but for the provisions of this subsection (b),
become due and payable to the Bank by any Borrower for its own account or for
the account of a Portfolio on any day that is not a Business Day, then such
sum shall become due and payable on the next succeeding Business Day, and
interest payable to the Bank under this Agreement shall be adjusted by the
Bank accordingly.

(c) All computations of interest and fees hereunder shall be made by
the Bank on the basis of a 360-day year and paid for the actual number of
days elapsed.

(d) The Bank will determine the Base Rate in effect from time to
time. Any change in the Base Rate shall, for all purposes of this Agreement,
become effective on, and from the

<PAGE>

-12-

beginning of, the day on which such change shall first be announced or
determined by the Bank in accordance with the Bank's customary banking
practices.

(e) Each payment by a Borrower for its own account or for the account
of a Portfolio under this Agreement shall be made without set-off or
counterclaim and free and clear of and without deduction or withholding of
any kind.

Section 2.7. OPTIONAL PREPAYMENTS; CERTAIN MANDATORY PREPAYMENTS.

(a) Each Borrower shall have the right at any time to repay any Base
Rate Loans made to such Borrower for its own account or for the account of a
Portfolio, in whole or in part, upon telephonic notice to the Bank of its
intention to repay such Loan prior to 12:00 noon, Boston time, on the date
such prepayment is to be made; PROVIDED, HOWEVER, that each such prepayment
(except a prepayment in full) shall be made in an amount of $100,000 or an
integral multiple thereof. Except as otherwise provided herein, Eurodollar
Loans may only be prepaid on the last day of the applicable Interest Period,
and no Money Market Loans may be prepaid.

(b) If at any time the aggregate unpaid principal amount of all Loans
to all Borrowers exceeds $50,000,000, the Borrower that borrowed the Loan
(for its own account or for the account of a Portfolio) that caused such
excess agrees to immediately prepay the amount of such excess from its own
funds or from the funds of such Portfolio, as applicable, together with any
amounts payable pursuant to Section 2.10 hereof.

(c) If at any time the aggregate unpaid principal amount of Loans
made to any Borrower for its own account or for the account of a Portfolio
shall exceed the Maximum Amount applicable to such Borrower or Portfolio,
such Borrower agrees to immediately prepay the amount of such excess from its
own funds or from the funds of such Portfolio, as applicable, together with
any amounts payable pursuant to Section 2.10 hereof.

(d) Upon each repayment or prepayment of any principal of any Loan
pursuant to any of the provisions of this Agreement, the applicable Borrower
hereby absolutely and unconditionally promises, for itself or on behalf of
the relevant Portfolio, to pay to the Bank, and there shall become absolutely
due and payable on the date of each such repayment or prepayment, all of the
unpaid interest accrued to such date on the amount of the principal of the
Loans being repaid or prepaid by such Borrower from its own funds or from the
funds of such Portfolio, as

<PAGE>

-13-

applicable, on such date. Whenever any interest on and any principal of the
Loans are paid simultaneously hereunder, the whole amount paid shall be applied
first to interest then due and payable.

2.8. CHANGED CIRCUMSTANCES.

(a) In the event that:

(i) on any date on which the Adjusted Eurodollar Rate would
otherwise be set the Bank shall have determined in good faith
(which determination shall be final and conclusive) that adequate and
fair means do not exist for ascertaining the London Interbank Offered
Rate, or

(ii) at any time the Bank shall have determined in good faith (which
determination shall be final and conclusive) that:

(A) the making or continuation of or conversion of any Loan to a
Eurodollar Loan has been made impracticable or unlawful by (1) the
occurrence of a contingency that materially and adversely affects the
London interbank Eurodollar market or (2) compliance by the Bank in good
faith with any applicable law or governmental regulation, guideline or
order or interpretation or change thereof by any governmental authority
charged with the interpretation or administration thereof or with any
request or directive of any such governmental authority (whether or not
having the force of law); or

(B) the Adjusted Eurodollar Rate shall no longer represent the
effective cost to the Bank for U.S. dollar deposits in the London
interbank market;

then, and in any such event, the Bank shall forthwith so notify each Borrower
thereof. Until the Bank notifies a Borrower that the circumstances giving
rise to such notice no longer apply, the obligation of the Bank to allow
selection by such Borrower of Loans for its own account or for the account of
a Portfolio of the type of Loan affected by the contingencies described in
this Section 2.8(a) (herein called "AFFECTED LOANS") shall be suspended. If
at the time the Bank so notifies each Borrower, a Borrower has previously
given the Bank a Loan Request for its own account or for the account of a
Portfolio with respect to one or more Affected Loans but such Loans have not
yet gone into effect, such Loan Request shall be deemed to be void and, if
the Bank in its discretion continues to be willing to lend to such Borrower
for its own account or for the account of a Portfolio, such

<PAGE>

-14-

Borrower may borrow Loans for its own account or for the account of a Portfolio
of a non-affected type by delivering a substitute Loan Request pursuant to
Section 2.2(a) hereof.

Upon such date as shall be specified in such notice (which shall not
be earlier than the date such notice is given) each Borrower shall, with
respect to the outstanding Affected Loans made to it for its own account or
for the account of a Portfolio, prepay the same, together with interest
thereon and any amounts required to be paid pursuant to Section 2.10, and may
borrow Loans for its own account or for the account of a Portfolio of another
type in accordance with Section 2.1 hereof by delivering substitute Loan
Requests pursuant to Section 2.2(a) hereof.

(b) In case any change in law, regulation, treaty or official
directive or the interpretation or application thereof by any court or by any
governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):

(i) subjects the Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by any
Borrower for its own account or for the account of a Portfolio or
otherwise with respect to the transactions contemplated hereby
(except for taxes on the overall net income of the Bank imposed by the
United States of America or any political subdivision thereof), or

(ii) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by,
or deposits in or for the account of, or loans by, the Bank (other than
such requirements as are already included in the determination of the
Adjusted Eurodollar Rate), or

(iii) imposes upon the Bank any other condition with respect to
its performance under this Agreement,

and the result of any of the foregoing is to increase the cost to the Bank,
reduce the income receivable by the Bank or impose any expense upon the Bank
with respect to any Loans, the Bank shall notify each Borrower thereof. To
the extent such cost, reduction or expense is attributable to any specific
Loan or Loans, the applicable Borrower(s) agree(s) to pay to the Bank for its
own account or for the account of a Portfolio the amount of such increase in
cost, reduction in income or additional expense attributable to such Loan or
Loans as and when such cost, reduction or expense is incurred or determined,
upon presentation

<PAGE>

-15-

by the Bank of a statement in the amount and setting forth the Bank's
calculation thereof, which statement shall be deemed true and correct absent
manifest error. To the extent such cost, reduction or expense is not so
attributable to any Loan or Loans, each Borrower, for its own account or for
the account of any of its Portfolios, as applicable, agrees to pay to the
Bank, in the proportion that the average amount of Loans outstanding made to
such Borrower for its own account or for the account of each Portfolio during
the preceding 12-month period (or such shorter period that this Agreement
shall have been effective) bears to the average amount of all Loans
outstanding to all Borrowers for their own accounts or for the accounts of
any of its Portfolios during such period (or, if no Loans shall have been
outstanding, such Borrower's Percentage of such amount), the amount of such
increase in cost, reduction in income or additional expense, determined and
paid as aforesaid.

Section 2.9. INCREASED CAPITAL REQUIREMENTS. If any law or any
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) or the interpretation thereof by a court or
governmental authority with appropriate jurisdiction affects the amount of
capital required to be maintained by the Bank or any corporation controlling
the Bank and the Bank determines that the amount of capital required is
increased by or based upon the existence of the credit facilities established
hereunder or any Loans made pursuant hereto, and such increase has or would
have the effect of reducing the return on the Bank's equity to a level below
that which the Bank could have achieved (taking into consideration the Bank's
then existing policies with respect to capital adequacy and assuming the full
utilization of the Bank's capital) but for such law, rule, regulation,
policy, guideline or directive, then the Bank shall notify each Borrower in
writing of such fact. To the extent such reduction is attributable to any
specific Loan or Loans, the applicable Borrower(s) agree(s) to pay to the
Bank, for its own account or for the account of a Portfolio, the amount of
such reduction attributable to such Loan or Loans as and when such reduction
is determined, upon presentation by the Bank of a statement in the amount and
setting forth the Bank's calculation thereof, which statement shall be deemed
true and correct absent manifest error. To the extent such reduction is not
so attributable to any Loan or Loans, each Borrower agrees to pay, in the
proportion that the average amount of Loans outstanding made to such Borrower
for its own account or for the account of each Portfolio, as applicable,
during the preceding 12-month period (or such shorter period that this
Agreement shall have been effective) bears to the average amount of all Loans
outstanding to all Borrowers for their own accounts or for the accounts of
any of their Portfolios during such period (or, if no

<PAGE>

-16-

Loans shall have been outstanding, such Borrower's Percentage of such
amount), the amount of such reduction, determined and paid as aforesaid. In
determining such amount, the Bank may use any reasonable averaging and
attribution methods. In this connection, the Bank shall allocate such costs
among its customers in good faith and on an equitable basis.

Section 2.10. FUNDING LOSSES. If a Borrower for any reason makes any
payment of principal for its own account or for the account of a Portfolio
with respect to a Eurodollar Loan or Money Market Loan on any date other than
the scheduled maturity thereof, or fails to borrow or continue a Eurodollar
Loan or Money Market Loan after giving a Loan Request or continuation notice
therefor, such Borrower shall, for its own account or for the account of a
Portfolio, reimburse the Bank for any resulting loss or expense incurred by
the Bank, including without limitation any loss reasonably incurred in
obtaining, liquidating or employing of deposits from third parties. Such
Borrower shall pay the amount of such loss or expense for its own account or
for the account of a Portfolio upon presentation of a statement in the amount
thereof and setting forth the Bank's calculation thereof, which statement
shall be deemed true and correct absent manifest error.

Section 2.11. USE OF PROCEEDS. The proceeds of each Loan hereunder
made to a Borrower for its own account or for the account of a Portfolio
shall be used by the applicable Borrower to meet requests for funds from such
Borrower for itself or on behalf of a Portfolio of such Borrower for
temporary or emergency purposes, as specified in the Prospectus of such
Borrower or Portfolio. No portion of any Loan made to a Borrower (other than
the New Borrowers) which is a "closed-end fund" (as identified on SCHEDULE I
hereto) is to be used for the "purpose of purchasing or carrying" any "margin
stock" as such terms are used in Regulations U and X of the Board of
Governors of the Federal Reserve System, 12 C.F.R. 221 and 224, as amended.
In addition, each of the New Borrowers hereby agrees that during the term of
this Agreement, no more than 25% of its assets (after applying the proceeds
of any Loans made under this Agreement) shall consist of such "margin stock".
Proceeds for any Loan made to a Borrower for its own account or for the
account of a Portfolio, which Borrower is an "open-end fund" (as identified
on SCHEDULE I hereto) shall be used by such Borrower solely to effect
redemptions to shareholders during the period in which such Borrower is
awaiting receipt of settlement money from the sale of assets made to cover
requests for redemptions.

Section 2.12. DISCRETIONARY DEMAND FACILITY. It is acknowledged and
agreed by each Borrower that the Bank has no

<PAGE>

-17-

obligation to make any Loan hereunder, and that the decision whether or not
to make any Loan requested by any Borrower for its own account or for the
account of a Portfolio is within the sole and exclusive discretion of the
Bank. The Bank may terminate the credit facilities provided for herein
either in whole or in part with respect to one or more Borrowers for their
own accounts or for the accounts of one or more Portfolios at any time by
written notice to the affected Borrower(s).

Section 2.13. TERM. This Agreement and the credit facility provided
herein shall automatically terminate on the earlier to occur of (i) the date
on which the Bank in its sole discretion shall have terminated the credit
facility and made demand for the repayment of all amounts then outstanding
hereunder and (ii) March 31, 1997; PROVIDED that if the Bank shall give
written notice to the Borrowers, after February 1 and prior to February 25 in
any year, of its willingness to extend such termination date for an
additional year (which notice by the Bank may be given or not given in the
sole and absolute discretion of the Bank), then, subject to the Bank's
ability to terminate the credit facility at any time in its discretion as
aforesaid, this Agreement shall be extended for an additional year (to expire
on March 31 of the following year).

Section 3. CONDITIONS PRECEDENT.

Section 3.1. CONDITIONS OF CLOSING. This Agreement shall become
effective upon the receipt by the Bank of the following:

(a) executed original counterparts of this Agreement, signed by the Bank
and each Borrower;

(b) certified copies of the charter documents and bylaws of each New
Borrower, and certified copies of any amendments executed since December 15,
1994 to the charter documents and bylaws of each Existing Borrower;

(c) certified copies of all documents relating to the due
authorization and execution by each Borrower of this Agreement as the Bank
may reasonably request, including, without limitation, all votes of the Board
of Directors of such Borrower authorizing (i) the execution and delivery by
such Borrower of this Agreement, (ii) its performance of all of its
agreements and obligations under this Agreement, and (iii) the borrowings and
other transactions contemplated by this Agreement;

(d) an incumbency certificate, dated the date hereof, signed by the
Secretary or Assistant Secretary of each Borrower setting forth the names and
specimen signatures of each

<PAGE>

-18-

individual authorized to give notices, sign or act on behalf of such Borrower
in connection with the transactions contemplated by this Agreement;

(e) an opinion of Ballard Spahr Andrews & Ingersoll, counsel to the
RBB Fund, an opinion of Skadden, Arps, Slate, Meagher and Flom, counsel to
The First Israel Fund, Inc. and an opinion from Willkie Farr & Gallagher,
counsel to the remaining Borrowers, substantially in the form of Exhibits
B-1, B-2 B-3, and B-4 respectively; and

(f) such other documents as the Bank shall have requested in order to
comply with applicable rules and regulations promulgated by the Federal
Reserve Board and other governmental and regulatory authorities.

Section 3.2. CONDITIONS OF LOANS. The willingness of the Bank in
its discretion to make any Loan to a Borrower for its own account or for the
account of a Portfolio on a Borrowing Date shall be subject to the
satisfaction, at or before the time each such Loan is made, of each of the
following conditions precedent (unless and to the extent that satisfaction of
such conditions precedent or any of them is waived pursuant to Section 16
hereof):

(a) the Bank shall have received a Loan Request from the applicable
Borrower for itself or on behalf of a Portfolio, as required by Section 2.2(a);

(b) the representations and warranties contained in Section 4 of this
Agreement and otherwise made by or on behalf of or with respect to such
Borrower for itself or on behalf of a Portfolio in connection with the
transactions contemplated by this Agreement shall (except to the extent that
such representations and warranties relate expressly to a specific date, and
except to the extent of changes resulting from the transactions contemplated
or permitted by this Agreement and changes occurring in the ordinary course
of business that, singly or in the aggregate, do not materially adversely
affect such Borrower or such Portfolio or its business, assets, operations,
prospects or its condition (financial or otherwise)), be true and correct at
and as of such Borrowing Date;

(d) the Bank shall be satisfied that there has been no material
adverse change (i) in the business, assets, operations, prospects or
condition (financial or otherwise) of such Borrower

<PAGE>

-19-

or Portfolio since the date of the most recent financial statements of such
Borrower or Portfolio referred to in Section 4.9, or (ii) in the political or
economic conditions prevailing in the countries of origin of the issuers of
the portfolio securities of such Borrower or Portfolio; and

(e) the making of such Loan shall not contravene any law, regulation,
decree or order binding on such Borrower with respect to itself or a
Portfolio or the Bank, and the Bank shall have received all such certificates
and documents in relation thereto as the Bank or the Bank's counsel shall
have reasonably requested.

Section 4. REPRESENTATIONS AND WARRANTIES. Each of the Borrowers
represents and warrants to the Bank that:

Section 4.1. ORGANIZATION, QUALIFICATION, ETC. Such Borrower is
duly organized and validly existing as a corporation under the laws of its
jurisdiction of incorporation and each Borrower and each Portfolio is duly
qualified to do business in each other jurisdiction wherein the nature of its
properties or its business requires such qualification and in which the
failure to be so qualified could materially adversely affect the business,
assets or condition (financial or otherwise) of such Borrower or Portfolio.

Section 4.2. REGISTRATION UNDER APPLICABLE LAW. Such Borrower is
registered as a closed-end management investment company under the 1940 Act
or, in the case of the RBB Fund, such Borrower is registered as a open-end
management investment company under the 1940 Act.

Section 4.3. AUTHORIZATION, ETC. The execution, delivery and
performance by such Borrower of this Agreement, and the borrowing of Loans
for its account or for the accounts of any of its Portfolios, are within the
powers of such Borrower, have been duly authorized by all necessary and
proper action on the part of such Borrower, and do not and will not (i)
violate or contravene any provision of such Borrower's charter documents or
bylaws, or any amendment thereof; (ii) violate or contravene any provision of
the Prospectus, Registration Statement or Statement of Additional
Information, if applicable, of such Borrower or Portfolio; (iii) conflict
with, or result in a breach of any material term, condition or provision of,
or constitute a default under or result in the creation of any mortgage,
lien, pledge, charge, security interest or other encumbrance upon any of the
property or assets of such Borrower or Portfolio under, any agreement, trust
deed, indenture, mortgage or other instrument to which such Borrower is a
party or by which such Borrower or any

<PAGE>

-20-

of its or its Portfolios' property or assets is bound or affected; or (iv)
violate or contravene any provision of any material law, regulation, order,
ruling or interpretation thereunder or any decree, order or judgment of any
court or governmental or regulatory authority, bureau, agency or official.

Section 4.4. BINDING EFFECT OF AGREEMENT, ETC. This Agreement and
all the provisions hereof constitute the legally valid and binding
obligations of such Borrower, acting on its own behalf or on behalf of a
Portfolio, enforceable against such Borrower in its own capacity or on behalf
of a Portfolio in accordance with their terms, except as enforceability is
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting generally the enforcement of creditors' rights and
except to the extent that the availability of equitable remedies is subject
to the discretion of the court before which any proceeding therefor may be
brought.

Section 4.5. APPROVALS, ETC. No authorization, approval, consent or
other action by, and no notice to or filing with, any shareholder or creditor
of such Borrower with respect to such Borrower or a Portfolio of such
Borrower, or governmental or regulatory agency or authority having
jurisdiction over such Borrower with respect to such Borrower or a Portfolio
of such Borrower, is required to make valid and legally binding the
execution, delivery and performance by such Borrower of this Agreement for
its own account or for the account of its Portfolios or the consummation by
such Borrower for its own account or for the account of its Portfolios of the
transactions contemplated hereby, or the exercise by the Bank of its rights
and remedies hereunder.

Section 4.6. COMPLIANCE WITH OTHER INSTRUMENTS. Such Borrower is in
compliance with all investment policies and restrictions applicable to it or
to its Portfolios identified in its Prospectus, Registration Statement and
Statement of Additional Information, if applicable, and is in compliance with
all investment policies and restrictions applicable to it or its Portfolios
under Section 8(b), Section 13 and all other provisions of the 1940 Act.
Such Borrower is not in violation of any material provision of its charter
documents or bylaws, or any amendment thereof, or in default under any
material indenture or agreement to which it is a party or by which it or any
of its property or assets is bound, or in violation of any material
applicable laws or orders, regulations, rulings, decrees or requirements of
any court or governmental or regulatory agency or authority by which it or
any of its property or assets is bound, which default or violation could have
a material adverse effect on the business, assets, operations, prospects or
condition

<PAGE>

-21-

(financial or otherwise) of such Borrower or any of the Portfolios of such
Borrower.

Section 4.7. LITIGATION. There are no pending or, to the best
knowledge of such Borrower, threatened actions, suits, investigations or
proceedings at law or in equity before any federal, state, local or foreign
court, governmental or regulatory authority, agency, commission, board,
bureau or instrumentality, or board of arbitration, against or affecting such
Borrower or any Portfolio of such Borrower or its right, title and interest
in or to any of its or such Portfolio's properties or assets.

Section 4.8. TAXES. Such Borrower has made or filed all federal,
state, local, foreign and other tax returns, reports and declarations
required by any jurisdiction to which such Borrower is subject, for its own
account or for the account of its Portfolios, and has paid all taxes and
other assessments and charges shown or determined to be due on such returns,
reports and declarations or pursuant to any matters raised by audits or for
other reasons known to it, except those being contested in good faith by
appropriate proceedings and as to which there have been set aside reserves
adequate with respect to such tax, assessment or charge so contested. Such
Borrower has set aside on its books, for its own account or for the account
of its Portfolios, provisions reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes claimed to be due by the
taxing authority of any jurisdiction, and such Borrower knows of no basis for
any such claim.

Section 4.9. FINANCIAL STATEMENTS; NO MATERIAL CHANGES.

The audited and certified financial reports of each Borrower with
respect to such Borrower or the Portfolios of such Borrower previously
furnished to the Bank, setting forth the investments of such Borrower or its
Portfolios, a statement of assets and liabilities as of the date of such
report and a statement of operations and a statement of changes in net assets
of such Borrower or its Portfolios for the period then ended, are complete
and correct in all material respects, and fairly present the financial
condition of such Borrower or its Portfolios as of such date and the results
of the operations of such Borrower or its Portfolios for the period ended on
such date, all in accordance with generally accepted accounting principles
applied on a consistent basis. Since the date of each of such reports, there
has been no change in the assets, liabilities, business, condition (financial
or otherwise) or results of operations of

<PAGE>
-22-

such Borrower or any of its Portfolios, that have been, in any case or in the
aggregate, materially adverse.

Section 4.10. NO DEFAULTS. No Default or Event of Default has
occurred and is continuing.

Section 4.11. AFFILIATED PERSONS.

(a) So far as appears from the records of such Borrower, neither the
Bank nor, to the knowledge of such Borrower, any Affiliated Person of the
Bank, individually or in the aggregate, owns, controls or holds with the
power to vote, five percent or more of the outstanding voting securities of
such Borrower or any Portfolio of such Borrower;

(b) neither such Borrower nor, to the knowledge of such Borrower, any
Affiliated Person of such Borrower, directly or indirectly, individually or
in the aggregate, owns, controls or holds with power to vote, either for its
own account or for the account of its Portfolios, five percent or more of the
outstanding voting securities of the Bank or, to the knowledge of such
Borrower, any Affiliated Person of the Bank;

(c) neither such Borrower, for its own account or for the account of
any Portfolio, nor, to the knowledge of such Borrower, any Affiliated Person
of such Borrower or Portfolio, directly or indirectly, individually or in the
aggregate, controls or, to the knowledge of such Borrower, after due inquiry,
is controlled by or under common control with, the Bank or, to the knowledge
of such Borrower, any Affiliated Person of the Bank;

(d) no officer, director or employee of such Borrower or, to the
knowledge of such Borrower, any Affiliated Person of such Borrower or of a
Portfolio of such Borrower is an Affiliated Person of the Bank or, to the
knowledge of such Borrower, any Affiliated Person of the Bank;

(e) except as described in SCHEDULE IV hereto, as amended and in
effect from time to time, such Borrower does not, directly or indirectly,
own, control, or hold with power to vote, either for its own account or for
the account of its Portfolios, ten percent or more of the outstanding voting
securities of any issuer; and

(f) except as described in SCHEDULE V, as amended and in effect from
time to time, to the knowledge of such Borrower, no person, directly or
indirectly, owns, controls or holds with power to vote, five percent or more
of the outstanding voting securities of such Borrower or a Portfolio of such
Borrower.

<PAGE>

-23-

Section 4.12. DISCLOSURE. Neither this Agreement nor any of the
information concerning such Borrower or any Portfolio of such Borrower
submitted to the Bank in connection herewith contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make
the statements contained therein not misleading in light of the circumstances
in which they are made. Except as disclosed herein or in the Prospectuses,
Registration Statements or Statements of Additional Information, there is no
fact known to such Borrower that materially adversely affects, or that, in
the best judgment of the management of such Borrower, could in the future
materially adversely affect, the assets, business, prospects, condition
(financial or otherwise) or operations of such Borrower or any Portfolio of
such Borrower.

Section 5. COVENANTS. Each Borrower covenants and agrees that, so
long as any amounts are owing with respect to the Loans or otherwise under
this Agreement, or if no such amount is owing, so long as the Bank shall, in
its discretion, be willing to make Loans hereunder as provided herein, it
will comply with the following covenants. EACH BORROWER ACKNOWLEDGES AND
AGREES THAT COMPLIANCE WITH THE FOLLOWING COVENANTS SHALL IN NO WAY
COMPROMISE THE ABSOLUTE DISCRETION OF THE BANK TO ADVANCE FUNDS UNDER THIS
CREDIT FACILITY TO SUCH BORROWER FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF
ANY PORTFOLIO OR MAKE DEMAND AT ANY TIME FOR PAYMENT OF THE OBLIGATIONS OF
SUCH BORROWER FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANY PORTFOLIO TO THE
BANK.

Section 5.1. USE OF PROCEEDS. Such Borrower shall use the proceeds
of Loans made to it for its own account or for the account of a Portfolio
only for the purposes specified in Section 2.11 and, if applicable, shall
hold no more than 25% of its assets in margin stock as specified in Section
2.11.

Section 5.2. PUNCTUAL PAYMENT. Such Borrower will duly and
punctually pay or cause to be paid principal and interest and all other sums
due from it for its own account or for the account of any Portfolio under
this Agreement in accordance with the terms hereof.

Section 5.3. TAXES, ETC. Such Borrower (a) will file all federal,
state, local, foreign and other tax returns, reports and declarations
required by any jurisdiction to which such Borrower is subject for its own
account or for the account of any Portfolio on or before the due dates for
the returns, reports and declarations; and (b) will pay and discharge, before
the same shall become in arrears, all taxes, assessments and other
governmental charges shown or determined to be due on such
<PAGE>

-24-

returns, reports and declarations, unless, and in any such case, the same is
being contested in good faith by appropriate proceedings and an adequate
reserve therefor has been established.

Section 5.4. COMPLIANCE WITH LAW, ETC. Such Borrower will comply in
all material respects with (i) all applicable federal, state and local laws,
rules, regulations and governmental or regulatory directives (whether or not
having the force of law), and all orders, writs, judgments, injunctions,
decrees or awards to which it may be subject with respect to such Borrower or
a Portfolio of such Borrower; (ii) all of the investment policies and
restrictions set forth in its or its Portfolios' Prospectus, Registration
Statement or Statement of Additional Information, if applicable, or
otherwise; and (iii) the provisions of its charter documents and bylaws and
all agreements and instruments by which it or any of its property or assets
or the property or assets of any of its Portfolios may be affected or bound.

Section 5.5. COMPLIANCE WITH REGULATION U. Such Borrower will, at
any time and from time to time upon receipt of notice from the Bank, and at
the expense of such Borrower for its own account or the account of the
applicable Portfolio, promptly execute and deliver or file all additional
instruments and documents, and take all further action, that may be necessary
or desirable, or that the Bank may reasonably request, in order to fully
comply with the requirements of Regulation U.

Section 5.6. NOTICE OF CERTAIN EVENTS. Such Borrower will give the
Bank prompt written notice of:

(a) any change in any federal, state or local law, rule or regulation
or governmental or regulatory directive (whether or not having the force of
law) materially adversely affecting such Borrower or any Portfolio of such
Borrower, or any of the property or assets of such Borrower or any Portfolio
of such Borrower, or affecting such Borrower's ability to repay the Loans
made to it for its own account or for the account of any Portfolio and comply
with the terms of this Agreement;

(b) any change in its agreements with governmental authorities or
regulators or its investment policies or restrictions that would make any of
the information set forth in SCHEDULE II hereto incorrect, incomplete or
misleading in any material respect, and will prepare and submit to the Bank
for attachment to this Agreement an amendment to SCHEDULE II reflecting such
change;

<PAGE>

-24-

(c) any change in its portfolio or in the ownership of its
outstanding voting securities that would make any of the information set
forth in SCHEDULES IV and V hereto incorrect or incomplete in any material
respect, and will prepare and submit to the Bank for attachment to this
Agreement an amendment to SCHEDULE IV or V, as applicable, reflecting such
change;

(d) any material change in its method of business or in the
Registration Statement or Statement of Additional Information, if applicable
(it being understood that any change in the investment restrictions and
limitations on indebtedness applicable to such Borrower or any Portfolio of
such Borrower shall constitute material changes);

(e) the commencement of any litigation or any administrative,
regulatory or arbitration proceeding or investigation to which such Borrower
may hereafter become a party with respect to itself or any Portfolio that may
involve any material risk of any material final judgment or liability not
adequately covered by insurance or that may otherwise result in any material
adverse change in the business, assets, operations, prospects or condition
(financial or otherwise) of such Borrower or any Portfolio; and

(f) the occurrence of any Default or Event of Default.

Section 5.7. TOTAL VALUE OF ASSETS, ETC. Such Borrower will, at any
time and from time to time during normal business hours, notify the Bank by
telephone or in writing, as requested by the Bank, of a listing of the
portfolio securities, the total asset value of such securities and the net
asset value of such securities of such Borrower, or any of the Portfolios of
such Borrower, and any changes in any of such values, in each case as most
recently calculated.

Section 5.8. REPORTS, ADDITIONAL INFORMATION, ETC. Such Borrower
will cause to be furnished to the Bank:

(a) as soon as available, and not later than 90 days after the end of
each fiscal year of such Borrower or each of the Portfolios of such Borrower,
the Annual Report(s) of such Borrower for itself or for its Portfolios,
including audited financial statements certified by Coopers & Lybrand or
other independent public accountants of national standing, setting forth the
Schedule of Investments and the Statement of Assets and Liabilities of such
Borrower or Portfolios, each as of the end of such fiscal year, and including
Statements of Operations, Cash Flows and Changes in Net Assets of such
Borrower or Portfolios for the fiscal period then ended;

<PAGE>

-26-

(b) as soon as available, and not later than 60 days after the end of
the second fiscal quarter of such Borrower or each of the Portfolios of such
Borrower, the Semi-Annual Report(s) prepared by such Borrower for itself or
for its Portfolios, its administrator or accounting agent , setting forth the
Schedule of Investments and the Statement of Assets and Liabilities of such
Borrower or Portfolios, each as of the end of such fiscal quarter, and
including Statements of Operations, Cash Flows and Changes in Net Assets of
such Borrower or Portfolios for the fiscal period then ended;

(c) at the same times as such reports are furnished to the
shareholders of such Borrower or Portfolio, any additional reports required
by Section 30(d) of the 1940 Act or any applicable law;

(d) upon request by the Bank, within 10 Business Days after the
issuance thereof, copies of all other regular and periodic reports and any
other reports that such Borrower may be required to file with the Securities
and Exchange Commission or any similar or corresponding governmental
commission, department or agency with respect to itself or any Portfolio; and

(e) such other information with respect to the financial standing and
history or the business, property, assets or prospects of such Borrower or
any of the Portfolios of such Borrower as the Bank may, at any time and from
time to time, reasonably request.

Section 5.9. FURTHER ASSURANCES. Such Borrower will, at any time
and from time to time, execute and deliver such additional instruments and
take such further action as the Bank may reasonably request to carry out to
the Bank's satisfaction the transactions contemplated by this Agreement.

Section 5.10. PROHIBITED AFFILIATIONS. (a) Such Borrower will not,
directly or indirectly, own, control, or hold with power to vote, either for
its own account or for the account of its Portfolios, five percent or more of
the outstanding voting securities of the Bank or any Affiliated Person of the
Bank known to such Borrower to be such an Affiliated Person;

(b) such Borrower will use its best efforts to ensure that it will
not, directly or indirectly, for its own account or for the account of a
Portfolio, control the Bank or any Affiliated Person of the Bank known to
such Borrower to be such an Affiliated Person; and

<PAGE>

-27-

(c) such Borrower will use its best efforts to ensure that none of
its officers, directors, or employees is or becomes an Affiliated Person of
the Bank or any Affiliated Person of the Bank known to such Borrower to be
such an Affiliated Person.

Section 5.11. NEGATIVE PLEDGE ON ASSETS. Such Borrower will not
create or permit to exist any lien or encumbrance upon any of its property or
assets, or the assets of any of its Portfolios, as applicable, other than (i)
liens in favor of the Bank; (ii) liens arising from attachments or similar
proceedings, pending litigation, judgments or taxes or assessments, in any
such event whose validity or amount is being contested in good faith by
appropriate proceedings and for which adequate reserves have been established
and are maintained, or liens arising from taxes and assessments which are not
due and delinquent; and (iii) banker's liens or rights of offset on deposits
held in banks; PROVIDED that this provision shall not prohibit the making of
any collateral arrangement or the segregation of assets as required by law in
connection with certain portfolio strategies, such as forward contracts,
futures contracts and options.

Section 5.12. LIMITATION ON ADDITIONAL INDEBTEDNESS. Such Borrower
will not incur or permit to exist or remain outstanding, for its own account
or for the account of any of its Portfolios, as applicable, any Indebtedness
to any person or entity; PROVIDED, HOWEVER, that such Borrower may incur or
permit to exist or remain outstanding, for its own account or for the account
of any Portfolio:

(a) Indebtedness of such Borrower incurred for its own account or for
the account of any of its Portfolios, as applicable, to the Bank arising
under this Agreement;

(b) Indebtedness in respect of taxes, assessments and other
governmental charges to the extent that payment thereof is not at the time
required to be made or is being contested in good faith by appropriate
proceedings and for which an adequate reserve has been established;

(c) Indebtedness of such Borrower incurred for its own account or for
the account of any of its Portfolios, as applicable, incurred in the ordinary
course of business and not incurred through the borrowing of money or the
obtaining of credit or the leasing of property, except that this provision
shall not prohibit (i) credit on an open account basis customarily extended
to such Borrower for its own account or for the account of its Portfolios, in
connection with purchases of goods or services in the ordinary course of
business; (ii) the entry into reverse repurchase agreements and dollar rolls;
and

<PAGE>

-28-

(iii) short-term credits for the clearance and settlement of securities
transactions; and

(d) Indebtedness in respect of judgments or awards which have been in
force for less than the applicable appeal period, so long as execution is not
levied or in respect of which such Borrower shall, for its own account or for
the account of its Portfolios, at the time in good faith be prosecuting an
appeal or proceedings for review.

Section 5.13. LIMITATION ON DIVIDENDS. Such Borrower will not
declare or pay any dividend or make any other distribution on any class of
its capital stock or purchase any of such capital stock in violation of the
requirements of Section 18(a)(1)(B) of the 1940 Act or any other applicable
law or regulation.

Section 6. EVENTS OF DEFAULT; ACCELERATION.

Section 6.1. EVENTS OF DEFAULT; ACCELERATION. If any of the
following events ("EVENTS OF DEFAULT" or, if the giving of notice or the
lapse of time or both is required, then, prior to such notice and/or lapse of
time, "DEFAULTS") shall occur:

(a) if any Borrower shall fail to pay any principal of any Loan
outstanding made to it hereunder for its own account or for the account of a
Portfolio when the same shall become due and payable, whether at the stated
date of maturity or any accelerated date of maturity or at any other date
fixed for payment;

(b) if any Borrower shall fail to pay any interest on any Loan
outstanding made to it for its own account or for the account of a Portfolio
when the same shall become due and payable, whether at the stated date of
maturity or any accelerated date of maturity or at any other date fixed for
payment, and such failure shall continue unremedied for three Business Days;

(c) if any Borrower, acting for itself or on behalf of a Portfolio,
shall fail to perform, discharge, observe or comply with any of the terms,
covenants and agreements contained in Section 5.1, 5.6(f), 5.7 or 5.10
through 5.13;

(d) if any Borrower, acting for itself or on behalf of a Portfolio,
shall fail to perform, discharge, observe or comply with any of the terms,
covenants and agreements contained herein (other than those specified in
paragraphs (a), (b) and (c) of this Section 6.1), and such failure shall
continue unremedied for

<PAGE>

-29-

30 days after written notice of such failure has been given to such Borrower
by the Bank;

(e) if any representation or warranty of any Borrower made with
respect to itself or any Portfolio contained in this Agreement or any other
document or instrument delivered by such Borrower pursuant to or in
connection with this Agreement shall prove to have been false or misleading
in any material respect as of the time when made or deemed to have been made;

(f) if any Borrower, acting for itself or on behalf of a Portfolio,
shall fail in the performance or the payment, at maturity or within an
applicable period of grace, of any obligation contained in any agreement or
instrument evidencing any other indebtedness with respect to borrowed money
or credit received, or any mortgage, pledge, agreement, indenture or other
agreement relating thereto, for such period of time as would, or would have
permitted (assuming the giving of appropriate notice if required) the holder
or holders thereof or of any obligations issued thereunder to accelerate the
maturity thereof;

(g) if any Borrower makes an assignment for the benefit of creditors,
or admits in writing its inability to pay or generally fails to pay its debts
incurred for its own account or for the account of its Portfolios as they
mature or become due, or petitions or applies for the appointment of a
trustee (in bankruptcy) or other custodian, liquidator or receiver of such
Borrower or of any substantial part of the property or assets of such
Borrower or any of its Portfolios or commences any case or other proceeding
relating to such Borrower under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar law
of any jurisdiction, now or hereafter in effect, or takes any action to
authorize or in furtherance of any of the foregoing;

(h) if any such petition or application is filed or any such case or
other proceeding is commenced against such Borrower and such Borrower
indicates its approval thereof, consent thereto or acquiescence therein or an
order for relief or appointing any such trustee (in bankruptcy), custodian,
liquidator or receiver is entered adjudicating such Borrower bankrupt or
insolvent, or approving a petition in any such case or other proceeding, and
such order remains unstayed and in effect for more than 60 days, whether or
not consecutive;

(i) if there shall remain in force, undischarged, unsatisfied and
unstayed, for more than 30 days, whether or not consecutive, any final
judgment against such Borrower with respect to itself or any Portfolio that,
with other outstanding

<PAGE>

-30-

final judgments undischarged against such Borrower or Portfolio, (i) exceeds,
in the aggregate, $500,000 or (ii) shall have a materially adverse effect
upon the business, assets, operations, prospects or condition (financial or
otherwise) of such Borrower or Portfolio; or

(j) if there shall occur a material adverse change in the business,
assets, operations, prospects or condition, financial or otherwise, of such
Borrower or any of its Portfolios; it being acknowledged that a reduction in
a Borrower's total assets resulting from declines in the market value of its
assets or, in the case of any Portfolios of a Borrower, shareholder
redemptions, shall not constitute a material adverse change so long as the
aggregate amount of such Borrower's Loans made for its own account or for the
account of its Portfolios does not exceed the Maximum Amount applicable to
such Borrower;

then and in any such event and without notice or demand by the Bank (i) the
obligation of the Bank to consider, in its discretion, making Loans to the
defaulting Borrower for its own account or for the account of its Portfolios
shall terminate, (ii) the Loans of such Borrower for its own account or for
the account of its Portfolios, all interest thereon and all other amounts
payable by such Borrower for its own account or for the account of its
Portfolios under this Agreement shall become and be forthwith due and payable
without presentment, demand, protest or notice, all of which are expressly
waived by such Borrower. In case any one or more of the foregoing Events of
Default shall have occurred and be continuing, and whether or not the Bank
shall have accelerated the maturity of the Loans of any Borrower made for its
own account or for the account of its Portfolios pursuant to the foregoing,
the Bank may proceed to protect and enforce its rights against such Borrower
by suit in equity, action at law and/or other appropriate proceeding, whether
for the specific performance of any covenant or agreement contained in this
Agreement or any instrument pursuant to which the obligations of any Borrower
for its own account or for the account of its Portfolios to the Bank
hereunder are evidenced, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of the Bank hereunder. No remedy conferred upon the
Bank herein is intended to be exclusive of any other remedy and each and
every remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute or any other provision of law.

EACH BORROWER ACKNOWLEDGES AND AGREES THAT INCLUSION OF THE PRECEDING
EVENTS OF DEFAULT AND REMEDIES THEREFOR SHALL IN NO WAY

<PAGE>

-31-

COMPROMISE THE ABSOLUTE DISCRETION OF THE BANK TO ADVANCE FUNDS UNDER THIS
CREDIT FACILITY TO SUCH BORROWER FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANY
PORTFOLIO OR MAKE DEMAND AT ANY TIME FOR PAYMENT OF THE OBLIGATIONS OF SUCH
BORROWER FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANY PORTFOLIO TO THE BANK

Section 7. SET-OFF. Any deposits, balances or other sums credited
by or due from the Bank to any Borrower hereunder for its own account or for
the account of a Portfolio may be, at any time or from time to time, set-off
and applied by the Bank, in such order as the Bank in its sole discretion may
determine, against the payment of all or any part of the obligations of such
Borrower hereunder for its own account or for the account of such Portfolio
then due and payable and any other liabilities, direct or indirect, absolute
or contingent, now existing or hereafter arising, of such Borrower for its
own account or for the account of such Portfolio then due and payable to the
Bank hereunder. The Bank agrees promptly to notify the applicable Borrower
of such set-off or application, provided that the failure to give such notice
shall not affect the validity of such set-off or application. Nothing herein
shall permit the Bank to set off any deposits, balances or other sums
credited by or due from the Bank to any Portfolio of a Borrower against any
obligations to the Bank of another Portfolio of the Borrower.

Section 8. EXPENSES. Whether or not the transactions contemplated
hereby are consummated, and to the extent any expense is attributable to any
specific Loan or Loans made to a Borrower for its own account or for the
account of a Portfolio, the applicable Borrower(s) agrees to reimburse the
Bank on demand out of its own funds or the funds of such Portfolio, as
applicable, the amount of all reasonable expenses attributable to such Loan
or Loans, including but not limited to reasonable attorneys' fees and
disbursements (and the allocated costs of in-house counsel for the Bank),
incurred or expended in connection with the preparation or interpretation of
this Agreement or any amendment hereof, or with the enforcement of any
obligations or the satisfaction of any indebtedness of such Borrower
hereunder incurred for its own account or for the account of a Portfolio, or
in connection with any litigation, proceeding or dispute hereunder in any way
related to the Bank's relationship hereunder. To the extent any such expense
is not so attributable to any Loan or Loans, each Borrower agrees to pay to
the Bank, out of its own funds or the funds of its Portfolios, as applicable,
in the proportion that the average amount of Loans made to such Borrower for
its own account or for the account of a Portfolio outstanding during the
preceding 12-month period (or such shorter period that this Agreement shall
have been effective) bears to the average amount of all Loans outstanding

<PAGE>

-32-

to all Borrowers for their own accounts or for the accounts of any of their
Portfolios during such period (or, if no Loans shall have been outstanding,
such Borrower's Percentage of such amount), the amount of such expense,
determined and paid as aforesaid.

Section 9. SURVIVAL OF COVENANTS, ETC. All covenants, agreements,
representations and warranties made herein or in any documents or other
papers delivered by, or on behalf of, each Borrower with respect to itself or
any Portfolio pursuant hereto shall be deemed to have been relied upon by the
Bank, notwithstanding any investigation heretofore or hereafter made by it,
and shall survive the making by the Bank of the Loans to such Borrower, as
herein contemplated, and shall continue in full force and effect so long as
any amount due under this Agreement remains outstanding and unpaid or the
Bank has any obligation to make any Loans to such Borrower hereunder for its
own account or for the account of any Portfolio. All statements contained in
any certificate, document or other paper delivered by any authorized person
to the Bank at any time by or on behalf of any Borrower pursuant hereto or in
connection with the transactions contemplated hereby shall constitute
representations and warranties by such Borrower hereunder with respect to
itself or any Portfolio.

Section 10. INDEMNIFICATION. (a) Each Borrower agrees, for itself
or on behalf of any applicable Portfolio to indemnify and hold harmless the
Bank from and against any and all claims, actions and suits whether
groundless or otherwise, and from and against any and all liabilities,
losses, damages and expenses of every nature and character arising out of
this Agreement or the transactions evidenced hereby as they directly relate
to such Borrower for itself or on behalf of any applicable Portfolio or the
Loans made by the Bank to such Borrower for its own account or for the
account of a Portfolio; provided that the Bank shall have no right to be
indemnified hereunder with respect to any such claims, actions, suits,
liabilities, losses, damages and expenses to the extent arising as a result
of its own gross negligence, willful misconduct or bad faith; and provided,
further that no Borrower, acting for itself or on behalf of any applicable
Portfolio, shall be liable for any settlement, compromise or consent to the
entry of any order adjudicating or otherwise disposing of any claim, action,
suit, liability, loss, damage or expense effected without the consent of such
Borrower for itself or on behalf of any applicable Portfolio. Should any
claim be made by a person not a party to this Agreement with respect to any
matter to which the foregoing indemnity relates, the Bank shall promptly notify
the applicable Borrower of any such claim, and such Borrower shall, acting for
itself or on
<PAGE>

-33-

behalf of any applicable Portfolio, have the right to direct and control the
defense of such claim or any litigation based thereon at its own expense
through counsel of its own choosing.

(b) The Bank agrees to indemnify and hold harmless each Borrower for
its own account or for the account of any applicable Portfolio from and
against any and all claims, actions and suits whether groundless or
otherwise, and from and against any and all liabilities, losses, damages and
expenses of every nature and character arising out of this Agreement or the
transactions evidenced hereby; provided that no Borrower shall have the right
to be indemnified hereunder for its own account or for the account of any
applicable Portfolio with respect to any such claims, actions, suits,
liabilities, losses, damages and expenses to the extent arising as a result
of its own gross negligence, willful misconduct or bad faith; and provided,
further that the Bank shall not be liable for any settlement, compromise or
consent to the entry of any order adjudicating or otherwise disposing of any
claim, action, suit, liability, loss, damage or expense effected without the
consent of the Bank. Should any claim be made against a Borrower with
respect to itself or any applicable Portfolio by a person not a party to this
Agreement with respect to any matter to which the foregoing indemnity
relates, such Borrower shall, for itself or on behalf of any applicable
Portfolio, promptly notify the Bank of any such claim, and the Bank shall
have the right to direct and control the defense of such claim or any
litigation based thereon at its own expense through counsel of its own
choosing.

Section 11. PARTIES IN INTEREST; PARTICIPATIONS. All the terms of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto;
provided that no Borrower may assign or transfer its rights hereunder with
respect to itself or any Portfolio or any interest herein without the prior
written consent of the Bank. The Bank may, with the prior written consent of
any Borrower, acting for itself or on behalf of its Portfolios, (which shall
not be unreasonably withheld or delayed), assign or transfer to any other
person or entity, all or any part of, or any interest in, its rights and
obligations hereunder with respect to such Borrower for its own account or
the account of its Portfolios, or without such consent, grant loan
participations therein; provided that in all cases other than the case of the
sale of loan participations, the Bank shall give the applicable Borrower
prompt written notice thereof, and provided, further that such Borrower shall
make payment of all amounts due and payable hereunder for its own account or
for the account of any Portfolio and deliver such documents as are

<PAGE>

-34-

required hereunder to the Bank until such time as it is notified in writing
to do otherwise.

Section 12. NOTICES, ETC. Except as otherwise expressly provided
in this Agreement, all notices, demands and other communications made or
required to be given pursuant to this Agreement shall be in writing and shall
be delivered by hand, by accepted express mail service, postage prepaid, or
sent by telex or facsimile transmission and confirmed by letter, addressed as
follows:

(a) if to any Borrower, for itself or on behalf of any Portfolio,
c/o BEA Associates, One Citicorp Center, 153 East 53rd Street, New York,
New York 10022 Attention: Paul Stamler, Vice President - Fund
Administration or at such other address for notice or demand as any
Borrower shall last have furnished in writing to the Bank; or

(b) if to the Bank, to the address set forth in the preamble of this
Agreement, Attention: John T. Daley, Vice President, or at such other
address for notice as the Bank shall last have furnished in writing to
each Borrower.

Any such notice or demand shall be deemed to have been duly given or made and
to have become effective (a) if delivered by hand to a responsible officer of
the party to which it is directed, at the time of receipt thereof by such
officer, (b) if sent by accepted express mail service, postage prepaid, one
Business Day after posting thereof, and (c) if sent by facsimile transmission
or telex, at the time of receipt of any automatic answer-back or other
similar acknowledgment of receipt thereof.

Section 13. MISCELLANEOUS. This Agreement shall be deemed to be a
contract under the laws of The Commonwealth of Massachusetts and shall for
all purposes be construed in accordance with and governed by the laws of said
Commonwealth. The rights and remedies herein expressed are cumulative and
not exclusive of any other rights that the Bank or any Borrower (acting for
itself or on behalf of any Portfolio), as the case may be, would otherwise
have. The captions in this Agreement are for convenience of reference only
and shall not define or limit the provisions hereof. This Agreement and any
amendment hereof may be executed in several counterparts and by each party on
a separate counterpart, each of which when so executed and delivered shall be
an original, but all of which together shall constitute one instrument. In
proving this Agreement, it shall not be necessary to produce or account for
more than one such counterpart signed by the party against whom enforcement
is sought.

<PAGE>

-35-

Section 14. SEVERABILITY. If any of the provisions of this
Agreement or the application thereof to any party hereto or to any person or
entity or circumstance is held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other term or provision hereof or thereof or the application thereof to any
other party hereto or to any other person or entity or circumstance.

Section 15. ENTIRE AGREEMENT, ETC. This Agreement amends and
restates in its entirety the Prior Agreement. This Agreement, together with
any of the documents executed in connection herewith, express the entire
understanding of the parties with respect to the transactions contemplated
hereby. Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated orally or in writing, except as provided in Section
16 hereof.

Section 16. CONSENTS, AMENDMENTS, WAIVERS, ETC. Except as
otherwise expressly provided in this Agreement, any consent or approval
required or permitted by this Agreement to be given by the Bank may be given,
and any term of this Agreement or of any other instrument related hereto or
mentioned herein may be amended, and the performance or observance by any
Borrower, acting for itself or on behalf of any Portfolio, of any terms of
this Agreement or such other instrument or the continuance of any Default or
Event of Default by such Borrower, acting for itself or on behalf of any
Portfolio, or any condition or term hereof applicable to such Borrower,
acting for itself or on behalf of any Portfolio, may be waived (either
generally or in a particular instance and either retroactively or
prospectively) with, but only with, the written consent of such Borrower,
acting for itself or on behalf of any Portfolio, and the written consent of
the Bank. No waiver shall extend to or affect any obligation not expressly
waived or impair any right consequent thereon. No course of dealing or delay
or omission on the part of the Bank in exercising any right shall operate as
a waiver thereof or otherwise be prejudicial thereto. No notice to or demand
on any Borrower for its own account or for the account of any Portfolio shall
entitle such Borrower to other or further notice in similar or other
circumstances.

Section 17. WAIVER OF JURY TRIAL. THE BANK AND EACH BORROWER, FOR
ITSELF OR ON BEHALF OF EACH PORTFOLIO, AGREE THAT NONE OF THEM NOR ANY
ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING,
COUNTERCLAIM OR ANY OTHER ACTION BASED UPON, OR ARISING OUT OF, THIS
AGREEMENT OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM,
OR (B)

<PAGE>

-36-

SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY
TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH
HAVE BEEN FULLY DISCUSSED BY THE BANK AND EACH BORROWER, FOR ITSELF OR ON
BEHALF OF EACH PORTFOLIO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO
EXCEPTIONS. NEITHER THE BANK NOR ANY BORROWER, FOR ITSELF OR ON BEHALF OF
ANY PORTFOLIO, HAS AGREED WITH OR REPRESENTED TO THE OTHER THAT THE
PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.

Section 18. SUBMISSION TO JURISDICTION. Each Borrower agrees, for
itself or on behalf of its Portfolios, that any suit for the enforcement of
this Agreement may be brought in the courts of The Commonwealth of
Massachusetts or any Federal Court sitting therein and consents to the
non-exclusive jurisdiction of such court and to service of process in any
such suit being made upon such Borrower for itself or on behalf of any
applicable Portfolio, by mail at the address specified in Section 12 hereof.
Each Borrower hereby waives, for itself or on behalf of any applicable
Portfolio, any objection that it may now or hereafter have to the venue of
any such suit or any such court or that such suit was brought in an
inconvenient court.

Section 19. JUDGMENT CURRENCY. Each Borrower agrees to indemnify
the Bank, for its own account or for the accounts of its Portfolios, against
any loss incurred by it as a result of any judgment or order against such
Borrower for its own account or for the accounts of its Portfolios being
given or made for the payment of any amount due hereunder which is expressed
and paid in a currency (the "JUDGMENT CURRENCY") other than the currency in
which such amount was to be paid (the "OBLIGATION CURRENCY") and as a result
of any variation between (a) the rate of exchange at which the Obligation
Currency amount is converted into Judgment Currency for the purposes of such
judgment or order, and (b) the rate of exchange at which the Bank is able to
purchase the Obligation Currency with the amount of Judgment Currency
actually received by the Bank. The foregoing indemnity shall constitute a
separate and independent obligation of each Borrower for its own account and
for the accounts of its Portfolios and shall continue in full force and
effect notwithstanding any such judgment or order as aforesaid. The term
"rate of exchange" shall include any premiums and costs of exchange payable
in connection with the purchase of, or conversions into, the relevant
currency.

Section 20. CONFIDENTIALITY. The Bank agrees that in handling any
non-public information received from any Borrower with respect to itself or
any of its Portfolios hereunder the Bank shall exercise the same degree of
care that it exercises

<PAGE>

-37-

with respect to its own proprietary information of the same or similar types
in order to maintain the confidentiality of such information, it being
understood by each Borrower, however, for itself or on behalf of any
applicable Portfolio, that disclosure of such information may be made (i) to
the subsidiaries or affiliates of the Bank in connection with their present
or prospective business relations with any Borrower, in its own capacity or
on behalf of any of its Portfolios, (ii) to prospective transferees or
purchasers of an interest in the Loans made to any Borrower for its own
account or for the account of any Portfolio, (iii) as required by law,
regulation, rule or order, subpoena, judicial order or similar order and (iv)
as may be required in connection with the examination, audit or similar
investigation of the Bank.

Section 21. OBLIGATIONS SEVERAL. The Bank agrees that the
obligations of each Borrower and, in case of the RBB Fund, each Portfolio,
hereunder are several and that the Bank shall have no recourse against any
Borrower or Portfolio for the payment or performance of the obligations of
any other Borrower or Portfolio.
<PAGE>

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be duly executed as an instrument under seal by its duly authorized officer
as of the date first written above.

THE LATIN AMERICA INVESTMENT FUND, INC.