<PAGE>
BEA Income Fund, Inc.
153 East 53rd Street
New York, NY 10022
---------------------------------------------
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
Daniel H. Sigg Richard J. Lindquist
CHAIRMAN AND CHIEF VICE PRESIDENT
EXECUTIVE OFFICER Michael A. Pignataro
Robert J. Moore SECRETARY
PRESIDENT AND CHIEF Wendy S. Setnicka
INVESTMENT OFFICER ASSISTANT VICE
Prof. Enrique R. PRESIDENT
Arzac AND ASSISTANT
DIRECTOR SECRETARY
Lawrence J. Fox Paul P. Stamler
DIRECTOR TREASURER
James S. Pasman, Jr. John M. Corcoran
DIRECTOR ASSISTANT TREASURER
</TABLE>
---------------------------------------------
INVESTMENT ADVISER
BEA Associates
153 East 53rd Street
New York, New York 10022
--------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
--------------------------------------------------------
CUSTODIAN
The Chase Manhattan Bank
770 Broadway
New York, New York 10003
--------------------------------------------------------
SHAREHOLDER SERVICING AGENT
The Chase Manhattan Bank
770 Broadway
New York, New York 10003
Phone 1-800-428-8890
--------------------------------------------------------
LEGAL COUNSEL
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
--------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
--------------------------------------------------------
INCREASE YOUR FUND HOLDINGS THROUGH DIVIDEND REINVESTMENT AND DIRECT CASH
PURCHASES
The Fund offers the opportunity for all shareholders to participate in the
Fund's Dividend Reinvestment and Cash Purchase Plan (the "Plan"). Under the
Plan, participating shareholders receive, in lieu of cash dividends, common
stock of the Fund. In addition, participants in the Plan have the option of
making voluntary cash payments of $100 to $3,000 (per investment period), plus
any dividends received in cash, to the Plan Agent to purchase Fund shares in the
open market. A brochure further describing the Plan and additional information
concerning terms and conditions, and any applicable charges relating to the
Plan, can be obtained from the Plan's agent at (800) 428-8890.
[LOGO]
BEA Income Fund, Inc.
[LOGO]
THIRD QUARTER REPORT
September 30, 1996
<PAGE>
BEA INCOME FUND, INC.
- ----------
Dear Shareholders: November 8, 1996
We are pleased to report on the activities of the BEA Income Fund, Inc. ("the
Fund") for the quarter ended September 30, 1996.
At September 30, 1996, the Fund's net asset value (NAV) was $8.63, compared
to an NAV of $8.51 at June 30, 1996. As a result, the Fund's total return (based
on NAV and assuming reinvestment of dividends of $0.18 per share) for the period
was 3.60%. At September 30, 1996, $139.0 million was invested in high-yield debt
securities; $61.3 million was invested in investment-grade debt securities; and
the balance of the Fund's investments, $6.9 million, was invested in equity
securities. The investment-grade component consisted of short and intermediate-
term mortgages, asset-backed securities and corporate bonds of intermediate
maturity. Of the debt securities, the largest concentration (43.91%) was in
B-rated issues.
In late October, the Fund completed its first rights offering to existing
shareholders. The original amount of shares was increased by 25% in order to
satisfy over-subscription requests. As a result, approximately 10.2 million
shares were issued at a price of $7.15 generating net proceeds of $69.4 million.
THE MARKET
Through September, high yield remained the top performer among major U.S.
fixed income categories in 1996. As measured by the Salomon Brothers High Yield
Market Index, high yield rose 7.11%, much higher than government bonds (-0.16%),
corporate bonds (-0.14%) and mortgages (2.41%). High yield also outperformed
bonds globally, which gained 1.21%. [All returns cited from the corresponding
Salomon Brothers index.]
Individuals have been pouring cash into high-yield mutual funds at a record
pace in 1996. September witnessed the highest monthly net inflows on record
($2.3 billion), eclipsing the previous high in November 1992 ($1.6 billion).
Year to date through September, high-yield fund net inflows totaled $11.3
billion (versus $7.9 billion for the same period in 1995), thus already
exceeding the previous annual record of $9.6 billion set in 1986.
As reflected by the level of new issuance, institutions are also finding
high yield very attractive. New issuance for 1996 thus far totaled $54.8 billion
at the end of September, nearly double last year's $29.9 billion for the
same period. The average market-weighted new-issue offer yield was 11.11% at
month-end, versus 10.93% for 1995 as a whole.
HIGH-YIELD SECURITIES
Currently, the high-yield market is being propelled forward by an auspicious
combination of technical and fundamental factors. For example, interest rates
are both stable and relatively low, each of which is beneficial to high-yield
performance. A stable economy suggests that issuer defaults should remain below
historical averages, while low rates help to attract income-oriented investors
looking for more yield than is available from investment-grade instruments.
Our strategy continues to be focused on opportunistic investment in
companies that we believe offer operating performance improvement and
deleveraging potential over the longer term. We also favor companies whose core
operations should perform relatively well regardless of the state of the
economy, as well as those which may be desirable candidates for future mergers
and acquisitions activity. We assign overweighted allocations to industries that
we believe have a good operating outlook and could benefit from consolidation
trends.
This approach is particularly reflected by several of our sector
concentrations:
TELECOMMUNICATIONS. This industry should benefit from the landmark
telecommunications legislation enacted in early 1996. The wireless
communications segment is poised for tremendous growth over the near term as the
Information Highway takes shape. Therefore, we believe that this segment, which
is in the early phase of its growth cycle, will be able to grow even through an
economic downturn.
Going forward, we expect the broad telecom industry to continue to
consolidate, a trend from which high-yield issuers should benefit. Accordingly,
telecom is among our largest industry exposures. Its 12.7% weighting in the
Portfolio (as of September 30) is about 1.5 times its 6.6% concurrent weighting
in the Salomon Brothers High Yield Market Index.
GAMING. We are attracted to this sector for much the same reasons that we
like telecom. It is growing and consolidating and is relatively less affected by
the macroeconomic environment. Although we believe that Atlantic City may become
overbuilt over the next few years, the sector's long-term prospects remain
bright.
2
<PAGE>
CABLE AND MEDIA. As with telecom, we expect cable/ media's recent
consolidation trend to continue. Cable TV companies need to become larger, with
more contiguous systems, in order both to offer local phone service in the
future and to compete against the regional Bell operating companies.
MORTGAGE AND ASSET-BACKED SECURITIES
Three factors most benefited mortgage-backed securities ("MBS") during the
third quarter: relatively stable interest rates, modest new supply and the
strength (i.e., lower yields) of the investment-grade corporate bond market.
Rate stability is good for MBS because it generally lowers volatility in the
government and corporate sectors, thus allowing for greater MBS liquidity. In
this climate, intermediate-term instruments such as collateralized mortgage
obligations ("CMOs") have done well. We are maintaining the Fund's existing CMO
positions because their yields to effective maturity are about 20 to 40 basis
points higher than those of comparable investment-grade corporates.
The Fund also owns asset-backed securities ("ABS"), which are instruments
whose credit quality and income stream are backed by various types of
consumer-related receivables (most notably from credit cards and auto
financings). Like MBS, ABS yields are typically higher than those of comparable
investment-grade corporates. ABS have performed well during the past year,
particularly since many pension funds and other institutional investors have
dropped their historical restrictions against ABS investment. As a result, many
institutions have begun to buy ABS in place of corporates within their
investment-grade allocations.
OUTLOOK
Our outlook for the high-yield debt market remains positive. We are
maintaining our strategic focus on the generation of a strong income stream as
well as pragmatic investment in companies that, over the longer term, we believe
offer improving operating performance and deleveraging potential. We continue to
find good opportunities among the increasingly large universe of high-yield
issues and issuers. As always, we are carefully monitoring market conditions so
as to preserve the Fund's capital.
In closing, we would like to take this opportunity to express our thanks to
shareholders for exhibiting their confidence in the Fund by their strong
response to the rights offering.
We appreciate your interest in the Fund and would be pleased to respond to
your questions or comments. Any questions regarding net asset value,
performance, dividends, portfolio management or allocations should be directed
to BEA Associates at (800) 293-1232. All other inquiries regarding account
information or requests for a prospectus or other reports should be directed to
the Fund's Shareholder Servicing Agent at (800) 428-8890.
Sincerely yours,
[SIG]
Robert J. Moore
PRESIDENT AND CHIEF INVESTMENT OFFICER
[SIG]
Daniel H. Sigg
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
3
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
- ---------
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------
- -----------------
CORPORATE OBLIGATIONS (77.1%)
- ----------------------------------------------------------------------------------
- -----------------
AEROSPACE/DEFENSE (0.7%)
GPA Holland B.V.:
Series C Medium Term Notes
8.625%, 1/15/99 N/R $ 750 $ 748,125
(3) 9.12%, 2/24/99 N/R 250 251,250
Tracor, Inc.,
Series A, Gtd. Sr. Sub. Notes
10.875%, 8/15/01 B2 500 535,000
------------
GROUP TOTAL 1,534,375
------------
- ----------------------------------------------------------------------------------
- -----------------
BROADCASTING (6.0%)
Chancellor Broadcasting Co.
Gtd. Sr. Sub. Notes
12.50%, 10/1/04 B3 750 842,813
(8) Commodore Media, Inc.,
Gtd. Sr. Sub. Notes
7.50%, 5/1/03 B3 300 312,000
(8) EchoStar Communications Corp.
Gtd. Sr. Discount Notes
0.00%, 6/1/04 B2 1,500 1,177,500
(3) Granite Broadcasting Corp.
Sr. Sub. Notes
9.375%, 12/1/05 B3 300 288,000
NWCG Holdings Corp.,
Series B, Sr. Discount Notes
Zero Coupon, 6/15/99 Caa 1,000 803,750
(3) Park Broadcasting Inc.,
Sr. Notes
11.75%, 5/15/04 B2 675 771,187
Pegasus Media & Communications, Inc.,
Series B, Notes
12.50%, 7/1/05 B3 250 263,750
SFX Broadcasting, Inc.
Series B, Sr. Sub. Notes
10.75%, 5/15/06 B3 1,000 1,037,500
Sinclair Broadcast Group
Sr. Sub. Notes
10.00%, 9/30/05 B2 750 759,375
(8) Spanish Broadcasting Systems
Sr. Notes
7.50%, 6/15/02 B3 1,500 1,560,000
(8) UIH Australia / Pacific, Inc.
Series B, Sr. Discount Notes
0.00%, 5/15/06 B3 1,500 802,500
United International Holdings:
Sr. Discount Notes
Zero Coupon, 11/15/99 B3 3,000 2,100,000
Sr. Secured Debentures Series B Zero
Coupon, 11/15/99 B3 1,000 700,000
Univision Network Holding L.P.
Sub. Notes
Zero Coupon, 12/17/02 N/R 1,500 1,020,000
Young Broadcasting, Inc.
Series B Gtd. Sr. Sub. Notes
9.00%, 1/15/06 B2 300 282,750
------------
GROUP TOTAL 12,721,125
------------
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
CABLE (4.3%)
(8) American Telecasting, Inc.
Sr. Discount Notes
0.00%, 6/15/04 Caa $ 613 $ 456,685
Cablevision System Corp.
Sr. Sub. Debentures
9.875%, 2/15/13 B2 500 481,250
Sr. Sub. Notes
9.875%, 5/15/06 B2 400 400,000
Century Communications Corp.
Sr. Notes
9.75%, 2/15/02 Ba3 500 508,750
Charter Communications Southeast, L.P.
Series B, Sr. Notes
11.25%, 3/15/06 B3 450 463,500
Comcast Corp.
Sr. Sub Notes
9.375%, 5/15/05 B1 180 182,700
9.125%, 10/15/06 B1 750 746,250
(4) Falcon Holding Group L.P.
Sr. Sub. Notes
11.00%, 9/15/03 N/R 2,111 1,952,551
(8) Helicon Group L.P.
Sr. Secured Notes
9.00%, 11/1/03 B1 2,000 2,025,000
(3) Lenfest Communications, Inc.
Sr. Sub. Notes
10.50%, 6/15/06 B2 1,000 1,032,500
(2) Scott Cable Communications, Inc.
Sub. Debentures
12.25%, 4/15/01 B3 500 300,000
Simmons Cable
(2)(6)(8) Sr. Sub. Notes
15.747%, 4/30/96 N/R 750 577,500
------------
GROUP TOTAL 9,126,686
------------
- ----------------------------------------------------------------------------------
- -----------------
CHEMICALS (2.9%)
(8) Harris Chemical N.A.
Sr. Secured Debentures
10.25%, 7/15/01 B2 1,700 1,734,000
NL Industries Inc.:
(8) Sr. Secured Discount Debentures
0.00%, 10/15/05 B2 1,000 842,500
Sr. Secured Debentures
11.75%, 10/15/03 B1 500 525,000
Rexene Corp.
Sr. Notes
11.75%, 12/1/04 B1 1,000 1,090,000
UCC Investor's Holdings, Inc.
Sr. Sub. Notes
11.00%, 5/1/03 B3 1,500 1,571,250
Viridian, Inc.,
Yankee Debentures
10.50%, 3/31/14 Ba3 375 417,188
------------
GROUP TOTAL 6,179,938
------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
CONSTRUCTION & BUILDING MATERIALS (0.7%)
(8) Building Materials Corp.,
Series B, Sr. Deferred Notes
0.00%, 7/1/04 Ba3 $ 900 $ 724,500
G.I. Holdings, Inc.
Series B, Sr. Notes
10.00%, 2/15/06 Ba3 433 433,000
(3)(8) Waxman Industries, Inc.,
Series B, Sr. Secured Deferred Notes
0.00%, 6/1/04 Caa 600 408,000
------------
GROUP TOTAL 1,565,500
------------
- ----------------------------------------------------------------------------------
- -----------------
CONSUMER PRODUCTS & SERVICES (3.7%)
Fresh Del Monte Produce,
Series B, Yankee Sr. Notes
10.00%, 5/1/03 Caa 250 236,250
Jordan Industries, Inc.
Sr. Notes
10.375%, 8/1/03 B3 1,200 1,158,000
Marvel III Holdings, Inc.,
Series B, Sr. Secured Debentures
9.125%, 2/15/98 Caa 1,100 1,031,250
Renaissance Cosmetics, Inc.,
Series B, Sr. Notes
13.75%, 8/15/01 N/R 1,500 1,605,000
Revlon Consumer Products, Inc.,
Series B, Sr. Sub. Notes
10.50%, 2/15/03 B3 1,000 1,037,500
Revlon Worldwide Corp.
Series B, Sr. Secured
Discount Notes
Zero Coupon, 3/15/98 B3 1,400 1,228,500
(8) Specialty Foods Acquisition Corp.,
Series B, Sr. Secured
Discount Debentures
0.00%, 8/15/05 Ca 2,000 860,000
(4) Town & Country Corp.
Sr. Sub. Notes
13.00%, 5/31/98 Caa 878 720,106
------------
GROUP TOTAL 7,876,606
------------
- ----------------------------------------------------------------------------------
- -----------------
ELECTRONICS (0.7%)
Advanced Micro Devices Inc.,
Sr. Secured Notes
11.00%, 8/1/03 Ba1 450 464,625
Unisys Corp.
Series B, Sr. Notes
12.00%, 4/15/03 B1 1,000 1,035,000
------------
GROUP TOTAL 1,499,625
------------
- ----------------------------------------------------------------------------------
- -----------------
ENERGY (1.9%)
Gulf Canada Resources Ltd.
Yankee Sr. Sub. Debentures
9.25%, 1/15/04 Ba3 750 769,688
H.S. Resources, Inc.
Sr. Sub. Notes
9.875%, 12/1/03 B2 500 492,500
Kelley Oil & Gas Corp.
Sr. Notes
13.50%, 6/15/99 B2 400 452,000
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
Maxus Energy Corp.:
Series B, Notes
9.375%, 11/1/03 B1 $ 450 $ 444,375
Notes
9.375%, 11/1/03 B1 350 350,000
Noble Drilling Corp.,
Sr. Notes
9.125%, 7/1/06 Ba2 500 513,750
Plains Resources, Inc.,
Series B, Gtd. Sr. Sub. Notes
10.25%, 3/15/06 B2 500 520,000
TransTexas Gas Corp.
Sr. Secured Debentures
11.50%, 6/15/02 B2 400 425,000
------------
GROUP TOTAL 3,967,313
------------
- ----------------------------------------------------------------------------------
- -----------------
ENTERTAINMENT (2.5%)
(3) American Skiing Company,
Sr. Sub. Notes
12.00%, 7/15/06 B3 425 422,875
GNF Corp.,
Series B, First Mortgage Notes
10.625%, 4/1/03 B1 1,200 1,314,000
Genmar Holdings Inc.,
Series A, Sr. Sub. Notes
13.50%, 7/15/01 Caa 500 477,500
Gillett Holdings, Inc.
Series A, Sr. Sub. Notes
12.25%, 6/30/02 N/R 535 564,852
(8) Imax Corp.
Series B, Yankee Sr. Notes
7.00%, 3/1/01 B1 1,000 988,750
Time Warner Inc.,
Debentures
6.85%, 1/15/26 Ba1 1,450 1,392,174
------------
GROUP TOTAL 5,160,151
------------
- ----------------------------------------------------------------------------------
- -----------------
FINANCIAL SERVICES (8.7%)
American Banknote Corp.,
Series B, Sr. Notes
11.625%, 8/1/02 B2 750 695,625
American Express Co.
Notes
Zero Coupon, 12/12/00 N/R 5,000 3,800,850
Citicorp:
Sr. Notes
5.625%, 2/15/01 A1 1,500 1,430,625
Sub. Notes
7.625%, 5/1/05 A2 485 493,177
Conseco, Inc.
Sr. Notes
10.50%, 12/15/04 Ba1 550 635,162
(3) Consorcio G Grupo Dina S.A./ MCII
Holdings (U.S.A.), Inc.
Sr. Secured Notes
0.00%, 11/15/02 N/R 550 445,500
GMAC Medium Term Notes
6.90%, 6/6/00 A3 2,000 2,004,680
(3) Goldman Sachs Group L.P.
Medium Term Notes
6.20%, 2/15/01 A1 3,000 2,917,500
Grand Metro Investment Corp.
Gtd. Notes
7.45%, 4/15/35 A2 400 414,648
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
L'Auxiliare du Credit Foncier de France,
Sr. Unsub. Notes
8.00%, 1/14/02 Baa1 $ 750 $ 764,813
National Westminister Bank PLC Perpetual
Sub. FRN,
Series B, 6.125%, Aa3 360 316,800
Skandinaviska Enskilda Banken AB,
Perpetual Sub. FRN
6.625%, Baa1 1,300 1,258,543
Standard Federal Bancorp,
Medium Term Notes
7.75%, 7/17/06 Baa3 550 556,473
State Street Boston Corp.,
Debentures
7.35%, 6/15/26 A1 500 510,160
Travelers Group, Inc.,
Sr. Notes
6.625%, 9/15/05 A1 500 477,920
Western National Corp.
Sr. Notes
7.125%, 2/15/04 Baa1 1,500 1,463,865
------------
GROUP TOTAL 18,186,341
------------
- ----------------------------------------------------------------------------------
- -----------------
HEALTH CARE (3.1%)
(4) General Medical Corp.,
Series A, Sub. Debentures
12.125%, 8/15/05 Caa 1,915 1,919,787
ICON Health & Fitness, Inc.,
Series B, Sr. Sub. Notes
13.00%, 7/15/02 B3 500 555,000
(3) Integrated Health Services Inc.,
Sr. Sub. Notes
10.25%, 4/3/06 B1 400 413,000
Meditrust Convertible Debentures
7.50%, 3/1/01 Baa3 3,000 3,030,000
Regency Health Services, Inc.
Gtd Sr. Sub. Notes
9.875%, 10/15/02 B2 600 603,000
------------
GROUP TOTAL 6,520,787
------------
- ----------------------------------------------------------------------------------
- -----------------
INDUSTRIAL GOODS & MATERIALS (5.7%)
Alpine Group, Inc.
Series B, Gtd. Sr.
Secured Notes
12.25%, 7/15/03 B3 1,000 1,027,500
Atlantis Group, Inc.
Sr. Notes
11.00%, 2/15/03 B2 585 585,000
(3) Hanson America, Inc.
Conv. Sr. Discount Notes
2.39%, 3/1/01 Baa2 2,000 1,725,000
Haynes International, Inc.
Sr. Notes
11.625%, 9/1/04 B3 500 515,000
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
Interlake Corp.
Sr. Sub. Debentures
12.125%, 3/1/02 B3 $ 1,000 $ 1,045,000
MVE Inc.
Sr. Secured Debentures
12.50%, 2/15/02 B3 650 689,000
Mafco, Inc.
Sr. Sub. Notes
11.875%, 11/15/02 B3 550 596,750
Plastic Specialties & Technologies, Inc.
Sr. Secured Debentures
11.25%, 12/1/03 B3 500 491,250
(3) SRI Receivables Purchase Co., Inc.
Trust Certificate-Backed Notes
12.50%, 12/15/00 N/R 1,500 1,515,000
Specialty Equipment Companies Inc.
Sr. Sub. Notes
11.375%, 12/1/03 B3 1,500 1,608,750
Tenneco Inc.,
Notes
7.875%, 10/1/02 Baa2 630 652,907
(3) Terex Corp.
Gtd. Sr. Notes
13.75%, 5/15/02 Caa 1,500 1,578,750
------------
GROUP TOTAL 12,029,907
------------
- ----------------------------------------------------------------------------------
- -----------------
METALS & MINING (2.8%)
AK Steel Corp.
Gtd. Sr. Notes
10.75%, 4/1/04 Ba2 950 1,040,250
Algoma Steel, Inc.
Yankee First Mortgage Notes
12.375%, 7/15/05 B1 500 522,500
Armco, Inc.
Sr. Notes
11.375%, 10/15/99 B2 815 851,675
Bayou Steel Corp.
First Mortgage Notes
10.25%, 3/1/01 B2 500 485,000
Sheffield Steel Corp.
First Mortgage Notes
12.00%, 11/1/01 Caa 1,250 1,156,250
(8) Silgan Holdings, Inc.
Sr. Discount Debentures
13.25%, 12/15/02 B3 334 339,010
WCI Steel, Inc.
Series B, Sr. Notes
10.50%, 3/1/02 B1 600 660,000
Weirton Steel Corp.
Sr. Notes
11.375%, 7/1/04 N/R 775 778,875
------------
GROUP TOTAL 5,833,560
------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
PACKAGING/CONTAINERS (3.4%)
(3) BPC Holding Corp.,
Sr. Secured Notes
12.50%, 6/15/06 Caa $ 1,000 $ 1,040,000
Container Corp. of America
Gtd. Sr. Notes
9.75%, 4/1/03 B1 500 507,500
(8) Crown Packaging Holdings Ltd.
Series B, Sr. Sub. Discount Notes
0.00%, 11/1/03 Caa 2,550 1,083,750
(3) Four M Corp.,
Series A, Sr. Secured Notes,
12.00%, 6/1/06 B2 500 530,000
Gaylord Container Corp.
Sr. Notes
11.50%, 5/15/01 B3 950 1,007,000
Sr. Sub. Debentures
12.75%, 5/15/05 Caa 900 987,750
(8) Ivex Holdings Corp.
Series B, Sr. Debentures
0.00%, 3/15/05 Caa 1,500 948,750
(3) Stone Container Finance Co.,
Series C, Gtd. Sr. Notes
11.50%, 8/15/06 B1 1,000 1,030,000
------------
GROUP TOTAL 7,134,750
------------
- ----------------------------------------------------------------------------------
- -----------------
PAPER & FOREST PRODUCTS (2.2%)
Crown Paper Co.
Sr. Sub. Notes
11.00%, 9/1/05 B3 500 493,750
Fort Howard Corp.
Sub. Notes
10.00%, 3/15/03 B2 1,250 1,287,500
Mail-Well Corp.
Sr. Sub. Notes
10.50%, 2/15/04 B2 1,500 1,470,000
Malette, Inc.
Yankee Sr. Secured Debentures
12.25%, 7/15/04 Ba3 850 909,500
Repap Wisconsin, Inc.
Sr. Secured Debentures
9.875%, 5/1/06 Caa 400 392,000
------------
GROUP TOTAL 4,552,750
------------
- ----------------------------------------------------------------------------------
- -----------------
PUBLISHING & INFORMATION SERVICES (0.5%)
General Media, Inc.
Sr. Notes
10.625%, 12/31/00 Caa 625 512,500
(3) Park Newspapers Inc.,
Sr. Notes
11.875%, 5/15/04 B2 500 571,250
------------
GROUP TOTAL 1,083,750
------------
- ----------------------------------------------------------------------------------
- -----------------
RESTAURANTS, HOTELS & GAMING (7.0%)
American Restaurant Group, Inc.
Series 92, Sr. Notes
13.00%, 9/15/98 N/R 1,500 1,365,000
(3) Argosy Gaming Company
First Mortgage Notes
13.25%, 6/1/04 B1 300 298,500
Bally's Casino Holdings, Inc.
Sr. Discount Notes
Zero Coupon, 6/15/98 B2 1,500 1,331,250
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
Bally's Park Place Funding, Inc.
First Mortgage Notes
9.25%, 3/15/04 Ba3 $ 400 $ 430,000
Boomtown, Inc.
First Mortgage Notes
11.50%, 11/1/03 B1 500 510,000
(2) Capital Gaming International, Inc.
Promissary Notes
Zero Coupon, 8/1/95 N/R 1 62
Casino America, Inc.
Gtd. Sr. Notes
12.50%, 8/1/03 B1 750 784,688
(3)(5)(6) Casino Magic of Louisiana, Corp.
First Mortgage Notes
13.00%, 8/15/03 (acquired 8/16/96, cost
$400,000) B3 400 406,000
(4) Colorado Gaming & Entertaiment, Co.
Sr. Notes
12.00%, 6/1/03 N/R 265 247,775
(2) Elsinore Corp.
First Mortgage Notes
12.50%, 10/1/00 N/R 1,500 780,000
G.B. Property Funding Corp.
First Mortgage Notes
10.875%, 1/15/04 B3 1,000 870,000
Grand Casinos Inc.,
First Mortgage Bonds
10.125%, 12/1/03 Ba3 250 245,938
Griffin Gaming & Entertainment, Inc.
Mortgage Notes
11.00%, 9/15/03 N/R 1,000 1,055,000
Horseshoe Gaming L.L.C.
Series B, Sr. Notes
12.75%, 9/30/00 B1 750 802,500
Mohegan Tribal Gaming Authority,
Series B, Sr. Secured Notes
13.50%, 11/15/02 N/R 900 1,134,000
Red Roof Inns, Inc.
Sr. Exchange Notes
9.625%, 12/15/03 B2 900 877,500
Santa Fe Hotel, Inc.
First Mortgage Notes
11.00%, 12/15/00 Caa 354 237,180
Station Casinos, Inc.
Sr. Sub. Notes
9.625%, 6/1/03 B2 350 336,875
Trump Atlantic City,
First Mortgage Notes
11.25%, 5/1/06 B1 1,400 1,379,000
Trump's Castle Funding, Inc.
Mortgage Bonds
11.75%, 11/15/03 Caa 1,250 1,275,000
Wyndham Hotel Corp.,
Gtd. Sr. Sub Notes,
10.50%, 5/15/06 B2 300 307,875
------------
GROUP TOTAL 14,674,143
------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
RETAIL (4.8%)
Big V Supermarkets, Inc.
Sr. Sub. Notes
11.00%, 2/15/04 B3 $ 1,675 $ 1,608,000
Brylane L.P.
Gtd. Sr. Sub. Notes
10.00%, 9/1/03 B2 500 511,250
County Seat Stores, Inc.
Sr. Sub. Notes
12.00%, 10/1/02 Ca 1,520 501,600
Dairy Mart Conveniences Stores, Inc.
Sr. Sub. Notes
10.25%, 3/15/04 B3 1,750 1,688,750
Duane Reade Corp.
Sr. Notes
12.00%, 9/15/02 B3 750 727,500
Farm Fresh, Inc.
Sr. Notes
12.25%, 10/1/00 B3 1,360 1,047,200
Great American Cookie Co.,
Series B, Sr. Sec. Debentures
10.875%, 1/15/01 B3 1,250 1,050,000
Hills Stores Co.
Gtd. Sr. Notes
12.50%, 7/1/03 B1 600 538,500
Jitney-Jungle Stores of America, Inc.
Gtd. Sr. Notes
12.00%, 3/1/06 B2 250 265,625
Pathmark Stores, Inc.
(8) Jr. Sub. Notes
0.00%, 11/1/03 B3 1,400 927,500
Sr. Sub. Notes
9.625%, 5/1/03 B2 250 243,750
Petro PSC Properties L.P.
Sr. Notes
12.50%, 6/1/02 B3 500 495,000
Waban, Inc.
Sr. Sub. Notes
11.00%, 5/15/04 Ba3 500 517,500
------------
GROUP TOTAL 10,122,175
------------
- ----------------------------------------------------------------------------------
- -----------------
TELECOMMUNICATIONS (11.1%)
A+ Network, Inc.
Sr. Sub. Notes
11.875%, 11/1/05 Caa 750 725,625
AT&T Capital Corp.,
Series 3, Medium Term Notes
6.03%, 10/27/97 Baa3 1,100 1,099,285
(8) American Communications Services, Inc.
Sr. Discount Notes
0.00%, 11/1/05 N/R 2,000 1,150,000
(8) Arch Communications Group, Inc.
Sr. Discount Notes
0.00%, 3/15/08 B3 750 420,000
(8) Brooks Fiber Properties, Inc.
Sr. Discount Notes
0.00%, 3/1/06 N/R 1,000 615,000
(8) Dial Call Communications
Sr. Discount Notes
0.00%, 4/15/04 B3 750 508,125
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
(8) Diamond Cable Communications plc
Yankee Sr. Discount Notes
0.00%, 12/15/05 B3 $ 1,850 $ 1,193,250
(3)(8) GST Telecommunications, Inc.
Conv. Sr. Discount Notes
0.00%, 12/15/05 N/R 200 166,000
(8) GST USA, Inc.
Guaranteed Notes
0.00%, 12/15/05 N/R 1,600 864,000
Geotek Communications, Inc.
Sr. Sub. Convertible Notes
12.00%, 12/15/01 Caa 1,000 1,160,000
(8) Hyperion Telecommunications, Inc.
Series B, Sr. Discount Notes
0.00%, 4/15/03 N/R 1,750 1,085,000
(8) IntelCom Group (U.S.A.), Inc.:
Sr. Discount Notes
0.00%, 9/15/05 N/R 650 435,500
Sr. Exchange Discount Notes
0.00%, 5/1/06 N/R 600 360,000
(8) In-Flight Phone Corp.
Series B, Sr. Discount Notes
0.00%, 5/15/02 Caa 1,000 330,000
(3) InterMedia Capital Partners IV,
L.P./InterMedia Partners IV Capital
Corp.
Sr. Notes
11.25%, 8/1/06 B2 650 669,500
MFS Communications Co., Inc.
Discount Notes
0.00%, 1/15/04 B1 850 714,000
Metrocall, Inc.
Sr. Sub. Notes
10.375%, 10/1/07 B3 1,500 1,245,000
Mobile Telecommunications Technologies
Corp.
Sr. Sub. Notes
13.50%, 12/15/02 B3 750 780,000
(8) Nextel Communications, Inc.
Sr. Notes
0.00%, 8/15/04 B3 2,000 1,290,000
(3) Orbcomm Global L.P./Orbcomm Global
Capital Corp.
Sr. Notes
14.00%, 8/15/04 B3 650 666,250
(8) Pagemart Nationwide, Inc.
Sr. Discount Notes
0.00%, 2/1/05 N/R 1,750 1,172,500
Paging Network, Inc.
Sr. Sub. Notes
10.125%, 8/1/07 B2 800 812,000
(3) Petersburg Long Distance Telephone, Inc.
Conv. Sub. Notes
9.00%, 6/1/06 N/R 230 276,000
(8) PriCellular Wireless Corp.
Discount Notes
0.00%, 10/1/03 B3 750 603,750
Rogers Cablesystems Ltd.,
Series B, Yankee Sr. Secured 2nd
Priority Notes
10.00%, 3/15/05 Ba3 300 305,250
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
Sprint Spectrum L.P./Sprint Spectrum
Finance Corp.
Sr. Notes
11.00%, 8/15/06 B2 $ 1,400 $ 1,442,000
Teleport Communications Group, Inc.:
Sr. Notes
9.875%, 7/1/06 B1 750 768,750
(8) Sr. Discount Notes
0.00%, 7/1/07 B1 1,150 736,000
(8) Videotron Holdings plc
Yankee Discount Notes
0.00%, 8/15/05 B3 2,000 1,325,000
(8) WinStar Communications, Inc.:
Convertible Sr. Discount Notes
0.00%, 10/15/05 N/R 250 146,250
Sr. Discount Notes
0.00%, 10/15/05 N/R 500 267,500
------------
GROUP TOTAL 23,331,535
------------
- ----------------------------------------------------------------------------------
- -----------------
TEXTILES/APPAREL (1.3%)
Collins & Aikman Products,
Sr. Sub Notes
11.50%, 4/15/06 B3 650 684,125
Parisian, Inc.,
Sr. Sub Notes
9.875%, 7/15/03 Caa 500 491,250
Synthetic Industries, Inc.
Sr. Sub. Notes
12.75%, 12/1/02 B3 1,450 1,566,000
------------
GROUP TOTAL 2,741,375
------------
- ----------------------------------------------------------------------------------
- -----------------
TRANSPORTATION (2.5%)
CHC Helicopter Corp.
Yankee Sr. Sub. Notes
11.50%, 7/15/03 B3 750 744,375
Ferrovie dello Stato Notes
9.125%, 7/6/09 N/R 3,000 3,446,160
USAir, Inc.
Gtd. Sr. Notes
10.00%, 7/1/03 B3 1,000 950,000
------------
GROUP TOTAL 5,140,535
------------
- ----------------------------------------------------------------------------------
- -----------------
WASTE MANAGEMENT (0.6%)
WMX Technologies Inc.,
Notes
7.10%, 8/1/26 A1 1,250 1,266,512
------------
- ---------------------------------------------------------------------
- -----------------
TOTAL CORPORATE OBLIGATIONS
(Cost $163,775,483) 162,249,439
------------
- ---------------------------------------------------------------------
- -----------------
GOVERNMENT & AGENCY SECURITIES (7.8%)
- ----------------------------------------------------------------------------------
- -----------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (2.3%)
REMIC-PAC Series 1989-23, Class D
10.20%, 9/25/18 Aaa 3,492 3,658,248
------------
STRIPS, Series H, Class 2
11.50%, 5/1/09 Aaa 1,133 1,211,180
------------
GROUP TOTAL 4,869,428
------------
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
TENNESSEE VALLEY AUTHORITY (0.6%)
5.98%, 4/1/36 Aaa $ 1,250 $ 1,250,000
------------
- ----------------------------------------------------------------------------------
- -----------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (0.1%)
Various Pools:
10.50%, 9/15/15-8/15/16 Aaa 293 323,942
------------
- ----------------------------------------------------------------------------------
- -----------------
U.S. DEPT OF VETERANS AFFAIRS (0.2%)
Vendee Mortgage Trust Series 1994-2,
Class 3F
6.50%, 10/15/15 N/R 400 372,500
------------
- ----------------------------------------------------------------------------------
- -----------------
UNITED STATES TREASURY NOTE (4.6%)
5.375%, 5/31/98 Aaa 6,150 6,084,625
6.625%, 6/30/01 Aaa 940 945,725
7.25%, 5/15/04 Aaa 1,800 1,864,962
7.50%, 2/15/05 Aaa 650 684,021
------------
GROUP TOTAL 9,579,333
------------
- ---------------------------------------------------------------------
- -----------------
TOTAL GOVERNMENT & AGENCY SECURITIES
(Cost $16,368,095) 16,395,203
------------
- ---------------------------------------------------------------------
- -----------------
COLLATERALIZED SECURITIES (3.3%)
- ----------------------------------------------------------------------------------
- -----------------
COLLATERALIZED MORTGAGE OBLIGATIONS (3.3%)
Drexel, Burnham & Lambert Trust
REMIC-PAC, Series S, Class 2
9.00%, 8/1/18 Aaa 5,868 5,944,548
Nationscredit Grantor Trust, Retail
Installment Sale Contracts,
Series 1996-1, Class A
5.85%, 9/15/11 Aaa 1,148 1,120,962
------------
- ---------------------------------------------------------------------
- -----------------
TOTAL COLLATERALIZED SECURITIES
(Cost $7,379,048) 7,065,510
------------
- ---------------------------------------------------------------------
- -----------------
ASSET BACKED OBLIGATIONS (3.2%)
- ----------------------------------------------------------------------------------
- -----------------
Green Tree Financial Corp. Manufactured
Housing Installment Sale Contracts:
Series 1995-4, Class A3
6.30%, 7/15/25 Aaa 350 345,733
Series 1993-4, Class B1
7.20%, 1/15/19 Baa3 2,000 1,947,500
Household Affinity Credit Card Master
Trust I
Series 1993-3, Class B
4.95%, 3/15/99 A2 2,500 2,493,750
(9) Merrill Lynch Home Equity Acceptance
Trust
Series 1994-A, Class A-2
6.1875%, 7/17/22 A3 2,023 2,023,356
- ---------------------------------------------------------------------
- -----------------
TOTAL ASSET BACKED OBLIGATIONS
(Cost $6,711,332) 6,810,339
------------
- ---------------------------------------------------------------------
- -----------------
UNITS (3.1%)
- ----------------------------------------------------------------------------------
- -----------------
Cellular Communications, International,
Inc. Notes
Zero Coupon, 8/15/00 B3 2,000 1,310,000
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
(3)(8) Crown Packaging
Enterprises Ltd.
Sr. Secured Discount Notes
0.00%, 8/1/06 N/R $ 1,950 $ 759,661
(3)(5)(6)(8) DIVA Systems Corp., Sub. Discount Notes
0.00%, 5/15/06
(acquired 5/30/96, cost $1,036,962) N/R 1,925 1,039,500
(3)(8) InterAct Systems Inc.,
Sr. Discount Notes
0.00%, 8/1/03 N/R 750 510,000
(8) People's Choice TV Corp. Sr. Discount
Notes
0.00%,6/1/04 Caa 500 308,750
(3)(5)(6)(8) Petersburg Long Distance Inc. Sr.
Discount Notes
0.00%, 6/1/04
(acquired 5/24/96, cost $1,210,525) N/R 1,610 1,312,150
(3)(8) Real Time Data, Inc.
Sub. Discount Notes
0.00%, 8/15/06 N/R 1,114 601,560
(1)(3) Renaissance Cosmetics, Inc.
14% Sr. Redeemable PIK Pfd., Series B N/R 300 300,000
(8) Wireless One, Inc.
Sr. Discount Notes
0.00%, 8/1/06 B3 750 408,750
- ---------------------------------------------------------------------
- -----------------
TOTAL UNITS
(Cost $6,407,532) 6,550,371
------------
- ----------------------------------------------------------------------------------
- -----------------
<CAPTION>
Shares
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------
- -----------------
COMMON STOCKS (1.5%)
- ----------------------------------------------------------------------------------
- -----------------
BROADCASTING (0.0%)
(3) Pegasus Media & Communications, Inc.
Class B 25 8,750
------------
- ----------------------------------------------------------------------------------
- -----------------
CONSTRUCTION & BUILDING MATERIALS (0.2%)
(1) Waxman Industries, Inc. 99,600 348,600
------------
- ----------------------------------------------------------------------------------
- -----------------
CONSUMER PRODUCTS & SERVICES (0.0%)
(1)(5)(6) Applause Enterprises, Inc.
(acquired 11/8/91, cost $144,400) 3,800 11,400
(1) Specialty Foods Corporation 30,000 15,000
------------
GROUP TOTAL 26,400
------------
- ----------------------------------------------------------------------------------
- -----------------
ENTERTAINMENT (0.7%)
(1) Gillett Holdings, Inc. 42,500 1,487,500
------------
GROUP TOTAL 1,487,500
------------
- ----------------------------------------------------------------------------------
- -----------------
FINANCIAL SERVICES (0.0%)
(1)(5)(6)(7) Westfed Holdings Inc. Class B
(acquired 9/20/88, cost $383) 12,670 0
------------
- ----------------------------------------------------------------------------------
- -----------------
INDUSTRIAL GOODS & MATERIALS (0.3%)
(1) Alpine Group, Inc. 65,878 456,996
(1)(5)(6)(7) CIC I Acquisition Corp.
(acquired 10/18/89, cost $1,076,715 ) 2,944 200,192
------------
GROUP TOTAL 657,188
------------
- ----------------------------------------------------------------------------------
- -----------------
PAPER & FOREST PRODUCTS (0.0%)
Mail-Well, Inc. 7,102 60,367
------------
<CAPTION>
Shares Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
RESTAURANTS, HOTELS & GAMING (0.1%)
(1) Capital Gaming International, Inc. 6,667 $ 800
(1) Casino America Inc. 14,947 100,892
(1) Colorado Gaming & Entertainment, Co. 26,465 79,395
(1)(3) Motels of America, Inc., 500 38,000
------------
GROUP TOTAL 219,087
------------
- ----------------------------------------------------------------------------------
- -----------------
RETAIL (0.1%)
(1) Barry's Jewelers, Inc. 64,521 233,889
(1)(5)(6) Jewel Recovery L.P.
(acquired 7/30/93, cost $0) 49,559 0
------------
GROUP TOTAL 233,889
------------
- ----------------------------------------------------------------------------------
- -----------------
TELECOMMUNICATIONS (0.1%)
(1) Pagemart Nationwide, Inc. 7,000 71,750
------------
- ---------------------------------------------------------------------
- -----------------
TOTAL COMMON STOCKS
(Cost $3,744,317) 3,113,531
------------
- ---------------------------------------------------------------------
- -----------------
PREFERRED STOCKS (1.2%)
- ----------------------------------------------------------------------------------
- -----------------
AEROSPACE/DEFENSE (0.2%)
GPA Group Plc
7% Cum. Cv. 1,100,000 429,000
------------
- ----------------------------------------------------------------------------------
- -----------------
ENERGY (0.1%)
(1)(7) Consolidated Hydro, Inc.,
Series H, 13.50% Convertible 3,000 300,000
------------
- ----------------------------------------------------------------------------------
- -----------------
FINANCIAL SERVICES (0.0%)
(1)(5)(6)(7) WestFed Holdings, Class A
(acquired 9/20/88-6/18/93, cost
$3,611,992) 42,759 42,759
------------
- ----------------------------------------------------------------------------------
- -----------------
PAPER & FOREST PRODUCTS (0.4%)
(1) SD Warren Co. 14% Exchangeable 21,459 751,065
------------
- ----------------------------------------------------------------------------------
- -----------------
PUBLISHING & INFORMATION SERVICES (0.2%)
K-III Communications Corp. 10%
Exchangeable, Series C 5,000 450,000
------------
- ----------------------------------------------------------------------------------
- -----------------
RESTAURANTS, HOTELS & GAMING (0.3%)
(1) Lady Luck Gaming Corp., Series A 20,000 610,000
------------
- ---------------------------------------------------------------------
- -----------------
TOTAL PREFERRED STOCKS
(Cost $7,097,356) 2,582,824
------------
- ---------------------------------------------------------------------
- -----------------
RIGHTS (0.0%)
- ----------------------------------------------------------------------------------
- -----------------
(1) Terex Corp.
expiring 5/15/02 (cost $0) 6,000 12,000
------------
- ---------------------------------------------------------------------
- -----------------
WARRANTS (0.5%)
- ----------------------------------------------------------------------------------
- -----------------
(1) American Communications Services, Inc.,
expiring 11 /1/05 2,000 150,000
(1) American Telecasting, Inc.,
expiring 6/23/99 525 2,100
(1)(3) Boomtown, Inc.,
expiring 11/1/98 500 125
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
(1) CHC Helicopter Corp.,
expiring 12/15/00 6,000 $ 3,000
(1)(3)(6) Capital Gaming
International, Inc.
expiring 2/1/99 5,687 171
(1) Casino America, Inc.,
expiring 05/03/01 2,646 2,646
(1) Casino America, Inc.,
expiring 11/15/96 3,263 0
(1) Casino Magic of
Louisiana Corp.
expiring 10/14/96 9,000 450
(1) Commodore Media, Inc.,
expiring 5/1/00 300 33,900
(1)(7) Consolidated Hydro, Inc.,
expiring 12/31/03 5,400 0
(1) County Seat Stores, Inc.,
expiring 10/15/98 1,520 76
(1)(6) Crown Packaging Holdings,
expiring 11/1/03 2,000 4,000
(1) Dairy Mart Conveniences
Stores, Inc.,
expiring 5/13/98 11,665 34,995
(1)(3) Elsinore Corp.,
expiring 10/8/98 79,941 0
(1) General Media Inc.,
expiring 12/22/00 500 500
(1) General Media Inc.,
expiring 12/31/00 625 625
(1)(3) Great American Cookie, Co.
expiring 1/30/00 225 2,250
(1) Hemmeter Enterprises, Inc.,
expiring 12/15/99 9,000 0
(1)(3) Hyperion Telecommunications, Inc.
expiring 4/15/01 1,750 0
(1) IHF Capital, Inc.
expiring 11/14/99 500 0
(1)(3) In-Flight Phone Corp.,
expiring 8/31/02 1,000 0
(1)(3) IntelCom Group, (U.S.A.) Inc.,
expiring 9/15/05 2,145 32,175
(1) Nextel Communications, Inc.,
expiring 4/25/99 750 7
(1) Petro PSC Properties L.P.,
expiring 6/1/97 500 20,000
(1)(3) Purity Supreme, Inc.
expiring 8/1/97 5,198 0
(1)(3) Renaissance Cosmetics Inc.,
expiring 8/15/01 3,000 150,000
(1) SD Warren Co.,
expiring 12/15/06 12,000 54,000
(1) Sheffield Steel Corp.,
expiring 11/1/01 6,250 18,750
(1) Spanish Broadcasting Systems,
expiring 6/29/99 1,500 315,000
(1) United International Holdings,
expiring 11/15/99 2,950 59,000
(1)(3) Wright Medical Technology,
expiring 6/30/03 618 80,294
------------
- ---------------------------------------------------------------------
- -----------------
TOTAL WARRANTS
(Cost $435,171) 964,064
------------
- ----------------------------------------------------------------------------------
- -----------------
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------
- -----------------
SHORT-TERM INVESTMENT (0.7%)
- ----------------------------------------------------------------------------------
- -----------------
FEDERAL HOME LOAN MORTGAGE DISCOUNT NOTE (0.7%)
Zero Coupon, 10/1/96 (Cost $1,425,000) N/R $ 1,425 $ 1,425,000
------------
- ---------------------------------------------------------------------
- -----------------
TOTAL INVESTMENTS (98.4%)
(Cost $213,343,334) 207,168,281
------------
- ----------------------------------------------------------------------------------
- -----------------
OTHER ASSETS IN EXCESS OF
LIABILITIES (1.6%) 3,312,742
------------
- ---------------------------------------------------------------------
- -----------------
NET ASSETS (100%)
Applicable to 24,385,367 issued and outstanding $.001 par
value shares (authorized 100,000,000 shares) $210,481,023
------------
------------
- ---------------------------------------------------------------------
- -----------------
NET ASSET VALUE PER SHARE $ 8.63
------------
------------
- ---------------------------------------------------------------------
- -----------------
MARKET PRICE PER SHARE $ 7.875
------------
------------
- ----------------------------------------------------------------------------------
- -----------------
FRN--Floating Rate Note
N/R--Not Rated.
PAC--Planned Amortization Class.
REMIC--Real Estate Mortgage Investment Conduit.
STRIPS--Seperate Trading of Registered Interest and Principal Securities.
TBA--To Be Announced. Security is subject to delayed delivery.
(1) Non-income producing security.
(2) Defaulted security.
(3) 144A Security. Certain conditions for public sale may exist.
(4) Payment in kind bond. Market value includes accrued interest.
(5) Restricted as to private and public resale. Total cost of restricted securities at
September 30, 1996 aggregated $7,480,977. Total market value of restricted
securities owned at September 30, 1996 was $3,012,001 or 1.4% of net assets.
(6) Private Placement.
(7) Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by the Board of Directors.
(8) Step Bond -- Coupon rate is low or zero for an initial period and then increases
to a higher coupon rate thereafter. Maturity date disclosed is the ultimate
maturity.
(9) Floating Rate -- The interest rate changes on these instruments based upon a
designated base rate. The rates shown are those in effect at September 30, 1996.
</TABLE>
11
