<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
Joseph R. Federico
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]
SEMI-ANNUAL REPORT
June 30, 1996
<PAGE>
BEA INCOME FUND, INC.
- ----------
Dear Shareholders: August 14, 1996
We are pleased to report on the activities of the BEA Income Fund, Inc. ("the
Fund") for the six months ended June 30, 1996.
At June 30, 1996, the Fund's net asset value (NAV) was $8.51, compared to an
NAV of $8.63 at December 31, 1995. As a result, the Fund's total return (based
on NAV and assuming reinvestment of dividends of $0.54 per share) for the period
was 5.06%. At June 30, 1996, $139.6 million was invested in high-yield debt
securities, $59.7 million was invested in investment-grade debt securities, and
the balance of the Fund's investments, $6.0 million, was invested in equity
securities. The investment-grade component consisted of short-term mortgages,
asset-backed securities and corporate bonds of intermediate maturity. Of the
debt securities, the largest concentration (44.13%) was in B-rated issues.
MARKET COMMENTARY
Overall, the high-yield sector was the top performer among major U.S.
fixed-income markets during the first half of 1996. As measured by the Salomon
Brothers High Yield Market Index, high yield returned 2.91%. This was
significantly better than the -1.81% return achieved by government bonds, the
- -2.12% by corporate bonds and the 0.30% earned by mortgages. [All returns cited
from the respective Salomon Brothers index.]
The high yield new-issue market was extremely active and more than doubled
its 1995 pace. As of June 30, 1996, $40.9 billion of new issues had entered the
market, versus $20.0 billion for the same period last year. In addition, the
average market-weighted new-issue offer yield was 11.00% at the end of the
period, as compared with 11.43% at the same point in 1995 and 10.93% for 1995 as
a whole.
Investment in high-yield mutual funds substantially increased during the
six-month period ended June 30, 1996. Net cash inflow was $6.4 billion, a 23.1%
jump over 1995. The percentage of funds held in cash was 5.71%, the lowest such
figure since July 1994, suggesting general optimism among portfolio managers.
HIGH-YIELD SECURITIES
The Fund's most noteworthy strategic activity in its high-yield holdings
occurred during the first quarter. At that time, we reduced our positions in the
steel and paper sectors, based on our belief that their appeal as cyclical plays
had declined. We used the proceeds to overweight several other sectors versus
their weightings in the Salomon high yield index. The new overweightings
included broadcasting, cable, telecommunications, health care and gaming. Our
reasoning behind the shift was twofold. First, these sectors tend to grow
regardless of the current state of the economy. Second, most have recently been
experiencing substantial merger and acquisition activity (especially gaming,
broadcasting and telecommunications). Such activity benefits debtholders in the
form of price appreciation and upgraded creditworthiness.
Our shifts in sector allocation helped the Fund to perform well during the
period. As a result, we do not anticipate any meaningful allocation change in
the near term.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities (MBS), in which the Fund maintains a position,
are regaining popularity among investors. Certain MBS categories represent good
value in the current environment. In this regard, we particularly like
commercial mortgage-backed securities (CMBS). Essentially, these are structured
mortgages most commonly backed by commercial real estate. Because of their very
strong collateralization and relatively high income levels, CMBS offer an
unusual combination of credit strength and attractive yield. Most investors tend
to avoid them, moreover, because they are somewhat difficult to understand,
indicating the kind of information gap that can help more knowledgeable
investors to earn excess returns. We have trimmed our corporate holdings a bit
and reallocated the proceeds to CMBS and asset-backed securities.
2
<PAGE>
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.
On the new-issue front, we expect the third quarter to slow down from the
frenetic pace of the first half. Secondary trading should remain brisk as
investors reposition portfolios to make room for new issues.
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)
- ---------
JUNE 30, 1996
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------
- -----------------
CORPORATE OBLIGATIONS (78.5%)
- ---------------------------------------------------------------------------------
- -
- -----------------
COMMUNICATIONS (20.9%)
A+ Network, Inc.
Sr. Sub. Notes
11.875%, 11/1/05 Caa $ 750 $ 766,875
AT&T Capital Corp.,
Medium Term Notes
6.03%, 10/27/97 Baa3 1,100 1,089,759
(8) American Communications
Services, Inc.
Sr. Discount Notes
0.00%, 11/1/05 N/R 2,000 1,110,000
(8) American Telecasting, Inc.
Sr. Discount Notes
0.00%, 6/15/04 Caa 613 435,230
(8) Arch Communications Group,
Inc.
Sr. Discount Notes
0.00%, 3/15/08 B3 1,750 905,625
(3)(8) Brooks Fiber Properties, Inc.
Sr. Discount Notes
0.00%, 3/1/06 N/R 1,000 532,500
Cablevision System Corp.
Sr. Sub. Debentures
9.875%, 2/15/13 B2 500 470,000
Sr. Sub. Notes
9.875%, 5/15/06 B2 400 385,000
Century Communications Corp.
Sr. Notes
9.75%, 2/15/02 Ba3 500 500,000
Chancellor Broadcasting Co.
Gtd. Sr. Sub. Notes
12.50%, 10/1/04 B3 750 825,000
(3) Charter Communications
Southeast L.P.
Sr. Notes
11.25%, 3/15/06 B3 450 447,750
Citicasters, Inc.,
Series B, Sr. Sub. Notes
9.75%, 2/15/04 B2 1,500 1,500,000
Comcast Corp.
Sr. Sub. Notes
9.125%, 10/15/06 B1 750 709,688
9.375%, 5/15/05 B1 180 173,700
(8) Commodore Media, Inc.,
Sr. Sub. Notes
7.50%, 5/1/03 B3 300 309,000
(8) Dial Call Communications
Sr. Discount Notes
0.00%, 4/15/04 Caa 750 483,750
(8) Diamond Cable
Communications plc
Yankee Sr. Discount Notes
0.00%, 12/15/05 B3 1,850 1,091,500
(8) EchoStar Communications Corp.
Gtd. Sr. Discount Notes
0.00%, 6/1/04 B2 1,500 1,128,750
(4) Falcon Holdings Group L.P.
Sr. Sub. Notes
11.00%, 9/15/03 N/R 2,001 1,920,788
(8) GST Telecommunications,
Sr. Discount Notes
0.00%, 12/15/05 N/R 200 200,000
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
(3)(8) GST USA, Inc.,
Guaranteed Notes
0.00%, 12/15/05 N/R $1,600 $ 896,000
General Media, Inc.
Sr. Notes
10.625%, 12/31/00 Caa 625 456,250
Geotek Communications, Inc.
Sr. Sub. Convertible Notes
12.00%, 2/15/01 N/R 1,000 1,400,000
(3) Granite Broadcasting Corp.,
Sr. Sub. Notes
9.375%, 12/1/05 B3 300 274,500
(8) Helicon Group L.P.
Sr. Secured Notes
9.00%, 11/1/03 B1 2,000 1,975,000
(8) Imax Corp.,
Series B, Yankee Sr. Notes
7.00%, 3/1/01 B1 1,000 987,500
(8) In-Flight Phone Corp.,
Series B, Sr. Discount Notes
0.00%, 5/15/02 Caa 1,000 360,000
(8) IntelCom Group, Inc.
Sr. Discount Notes
0.00%, 9/15/05 N/R 650 389,188
(3) 0.00%, 5/1/06 N/R 600 327,000
(3) Lenfest Communications, Inc.
Sr. Sub. Notes
10.50%, 6/15/06 N/R 1,000 1,016,560
(8) MFS Communications Co., Inc.
Discount Notes
0.00%, 1/15/04 B1 850 637,500
Metrocall, Inc.
Sr. Sub. Notes
10.375%, 10/1/07 B2 500 465,000
Mobile Telecommunications
Technologies Corp.
Sr. Sub. Notes
13.50%, 12/15/02 B2 750 796,875
NWCG Holding Corp., Series B,
Sr. Discount Notes
Zero Coupon, 6/15/99 Caa 1,000 737,500
(8) Nextel Communications, Inc.
Sr. Notes
0.00%, 8/15/04 B3 2,000 1,175,000
(8) Pagemart Nationwide, Inc.
Sr. Discount Notes
0.00%, 2/1/05 N/R 1,750 1,146,250
Paging Network, Inc.
Sr. Sub. Notes
10.125%, 8/1/07 B2 1,000 985,000
(3) Park Broadcasting Inc.,
Sr. Notes
11.75%, 5/15/04 B2 675 677,113
Pegasus Media &
Communications, Inc.,
Series B, Notes
12.50%, 7/1/05 B3 250 265,000
(8) People's Choice TV Corp.
Discount Notes
0.00%, 6/1/04 Caa 500 295,000
(3) Petersburg Long Distance
Telephone,
Sub. Notes
9.00%, 6/1/06 N/R 230 276,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
(8) PriCellular Wireless Corp.
Sr. Discount Notes
0.00%, 10/1/03 B3 $ 750 $ 592,500
Rogers Cablesystems Ltd.,
Series B, Yankee Sr. Secured
2nd Priority Notes
10.00%, 3/15/05 Ba3 300 298,500
(3) SFX Broadcasting, Inc.
Sr. Sub. Notes
10.75%, 5/15/06 B3 1,000 995,000
(2) Scott Cable Communications,
Inc.
Sub. Debentures
12.25%, 4/15/01 B3 500 300,000
(2)(6) Simmons Cable
Sr. Sub. Notes
15.747%, 4/30/96 N/R 750 502,500
Sinclair Broadcast Group
Sr. Sub. Notes
10.00%, 9/30/05 B2 750 720,000
Spanish Broadcasting Systems
Sr. Notes
7.50%, 6/15/02 B3 1,500 1,488,750
Teleport Communications Group,
Inc.
Sr. Notes,
9.875%, 7/1/06 B1 750 759,610
Sr. Discount Notes,
(8) 0.00%, 7/1/07 B1 1,150 683,172
(3)(8) UIH Australia/Pacific,
Sr. Discount Notes
0.00%, 5/15/06 B3 1,500 791,250
United International Holdings
Discount Notes
Zero Coupon, 11/15/99 B3 4,000 2,600,000
Univision Network Holding L.P.
Sub. Notes
Zero Coupon, 12/17/02 N/R 1,500 1,020,000
(8) Videotron Holdings plc
Yankee Discount Notes
0.00%, 8/15/05 B3 2,000 1,340,000
(8) Winstar Communications, Inc.
Convertible Sr. Discount
Notes
0.00%, 10/15/01 N/R 250 162,500
Sr. Discount Notes
0.00%, 10/15/05 N/R 500 276,250
Young Broadcasting, Inc.
Series B Gtd. Sr. Sub. Notes
9.00%, 1/15/06 N/R 300 269,250
------------
GROUP TOTAL 43,322,433
------------
- ----------------------------------------------------------------------------------
- -----------------
CONSUMER PRODUCTS (5.6%)
Fort Howard Corp.
Sub. Notes
10.00%, 3/15/03 B2 1,250 1,243,750
Fresh Del Monte Produce,
Series B, Yankee Sr. Notes
10.00%, 5/1/03 Caa 250 232,500
Jordan Industries, Inc.
Sr. Notes
10.375%, 8/1/03 B3 1,200 1,140,000
Mail-Well Corp.
Sr. Sub. Notes
10.50%, 2/15/04 B2 1,500 1,436,250
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
Marvel III Holdings, Inc.,
Series B, Sr. Secured
Debentures
9.125%, 2/15/98 Caa $1,100 $ 1,039,500
(3) Park Newspapers Inc.,
Sr. Notes
11.875%, 5/15/04 B2 500 505,000
Renaissance Cosmetics, Inc.,
Series B, Sr. Notes
13.75%, 8/15/01 N/R 1,500 1,500,000
Revlon Consumer Products,
Inc.,
Series B, Sr. Sub. Notes
10.50%, 2/15/03 B3 1,000 1,005,000
Revlon Worldwide Corp.
Sr. Secured Discount Notes
Zero Coupon, 3/15/98 B3 1,400 1,163,750
(8) Specialty Foods Acquisition
Corp.,
Series B, Sr. Secured
Discount Debentures
0.00%, 8/15/05 Ca 2,000 850,000
(4) Town & Country Corp.
Sr. Sub. Notes
13.00%, 5/31/98 Caa 878 702,542
Viridian, Inc.,
Yankee Debentures
10.50%, 3/31/14 Ba3 375 395,625
(3)(8) Waxman Industries, Inc.,
Notes
0.00%, 6/1/04 Caa 600 396,000
------------
GROUP TOTAL 11,609,917
------------
- ----------------------------------------------------------------------------------
- -----------------
FINANCE (10.0%)
American Banknote Corp.,
Series B, Sr. Notes
11.625%, 8/1/02 B2 750 622,500
American Express Co. Eurobond
Zero Coupon, 12/12/00 N/R 5,000 3,713,550
Credit Foncier de France,
Sr. Notes
8.00%, 1/14/02 Baa1 750 764,790
Citicorp
Sr. Notes
5.625%, 2/15/01 A1 1,500 1,428,750
7.625%, 5/1/05 A2 485 493,541
Conseco, Inc.
Sr. Notes
10.50%, 12/15/04 Ba2 550 628,375
GMAC Medium Term
Notes
6.90%, 6/6/00 A3 2,000 1,989,500
(3) Goldman Sachs Group L.P.
Medium Term Notes
6.20%, 2/15/01 A1 3,000 2,900,970
GPA Holland B.V.:
Series C
Medium Term Notes
8.625%, 1/15/99 N/R 750 745,313
(3) 9.12%, 2/24/99 Caa 250 249,063
Meditrust Convertible
Debentures
7.50%, 3/1/01 Baa3 3,000 3,015,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
Polysindo International
Finance Co.,
Company B.V.
Yankee Gtd. Notes
11.375%, 6/15/06 Ba3 $1,000 $ 1,017,500
Santander Financial Issuances
Ltd.,
Yankee Gtd. Sub. Notes
7.25%, 5/30/06 A1 500 494,465
7.875%, 4/15/05 A1 300 308,681
State Street Boston Corp.,
Debentures,
7.35%, 6/15/26 A1 500 506,875
Travelers Group, Inc.,
Sr. Notes
6.625%, 9/15/05 A1 500 477,025
Western National Corp.
Sr. Notes
7.125%, 2/15/04 Baa1 1,500 1,461,884
------------
GROUP TOTAL 20,817,782
------------
- ----------------------------------------------------------------------------------
- -----------------
INDUSTRIAL GOODS & MATERIALS (11.0%)
AK Steel Corp.
Gtd. Sr. Notes
10.75%, 4/1/04 Ba2 950 1,028,375
Alpine Group, Inc.
Gtd. Sr. Notes
12.25%, 7/15/03 B3 1,000 1,028,200
Armco, Inc.
Sr. Notes
11.375%, 10/15/99 B2 815 831,300
Bayou Steel Corp.
First Mortgage Notes
10.25%, 3/1/01 B2 500 460,000
Collins & Aikman Products,
Sr. Sub. Notes
11.50%, 4/15/06 B3 450 455,625
Container Corp. of America
Gtd. Sr. Notes
9.75%, 4/1/03 B1 500 491,250
Crown Paper Co.
Sr. Sub. Notes
11.00%, 9/1/05 B3 500 478,750
(3) Four M Corp.,
Series A, Sr. Secured Notes,
12.00%, 6/1/06 B2 500 511,250
G.I. Holdings, Inc.
Sr. Notes
10.00%, 2/15/06 Ba3 433 426,505
GNF Corp.,
Series B, First Mortgage
Notes
10.625%, 4/1/03 B1 1,200 1,305,000
Geneva Steel Co.
Sr. Notes
9.50%, 1/15/04 B2 250 195,000
Genmar Holdings,
Series A, Sr. Sub. Notes
13.50%, 7/15/01 Caa 500 437,500
(3) Hanson America, Inc.
Conv. Sr. Discount Notes
2.39%, 3/1/01 A3 2,000 1,710,000
Harris Chemical N.A.
Sr. Secured Debentures
10.25%, 7/15/01 B2 1,700 1,704,250
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
(3) Integrated Health Services,
Inc.
Sr. Sub. Notes
10.25%, 4/3/06 B1 $ 400 $ 396,000
Malette, Inc.
Yankee Sr. Secured Debentures
12.25%, 7/15/04 Ba3 850 892,500
NL Industries, Inc.
(8) Sr. Notes
0.00%, 10/15/05 B2 1,000 772,500
Sr. Secured Discount
Debentures
11.75%, 10/15/03 B1 500 510,000
Noble Drilling Corp.,
Sr. Notes,
9.125%, 7/1/06 Ba2 500 506,565
Parisian, Inc.,
Sr. Sub. Notes
9.875%, 7/15/03 Caa 500 472,500
Philips Electronics, N.V.
Yankee Notes
7.20%, 6/1/26 A3 700 683,137
Repap Wisconsin, Inc.,
2nd Priority Sr. Secured
Notes
9.875%, 5/1/06 Caa 400 358,000
(3) SRI Receivables Purchase Co.,
Inc.
Trust Certificate-Backed
Notes
12.50%, 12/15/00 N/R 1,500 1,515,000
Tenneco Inc.,
Notes
7.875%, 10/1/02 Baa2 630 648,554
TransTexas Gas Corp.
Sr. Notes
11.50%, 6/15/02 B2 400 393,000
UCC Investor's Holdings, Inc.
Sr. Sub. Notes
11.00%, 5/1/03 B3 1,500 1,567,500
(3) Unisys Corp.
Sr. Notes
12.00%, 4/15/03 B1 1,000 1,020,000
WCI Steel, Inc.,
Series B, Sr. Notes
10.50%, 3/1/02 B1 600 609,000
Weatherford Enterra,
Notes
7.25%, 5/15/06 Baa1 650 644,917
(3)(5)(6) Weirton Steel Corp.
Sr. Notes
11.375%, 7/1/04
(acquired 6/27/96, cost
$760,182) N/R 775 760,182
------------
GROUP TOTAL 22,812,360
------------
- ----------------------------------------------------------------------------------
- -----------------
MANUFACTURING (10.5%)
Algoma Steel, Inc.
Yankee First Mortgage Notes
12.375%, 7/15/05 B1 500 485,000
Atlantis Group, Inc.
Sr. Notes
11.00%, 2/15/03 B2 585 558,675
(3) BPC Holding Corp.,
Sr. Secured Notes
12.50%, 6/15/06 N/R 1,000 1,010,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
(8) Building Materials Corp.,
Series B, Notes
0.00%, 7/1/04 B1 $ 900 $ 670,500
(8) Crown Packaging Holdings,
Series B, Sr. Sub. Notes
0.00%, 11/1/03 Caa 2,550 969,000
Domtar, Inc.
Yankee Debentures
11.25%, 9/15/17 Ba1 1,250 1,325,000
Gaylord Container Corp.
Sr. Notes
11.50%, 5/15/01 B3 950 971,375
Sr. Sub. Debentures
12.75%, 5/15/05 Caa 900 948,375
Interlake Corp.
Sr. Sub. Debentures
12.125%, 3/1/02 B3 1,000 1,000,000
(8) Ivex Holdings Corp.
Series B, Sr. Debentures
0.00%, 3/15/05 Caa 1,500 903,750
Mafco, Inc.
Sr. Sub. Notes
11.875%, 11/15/02 B3 550 582,313
MVE Inc.
Sr. Secured Debentures
12.50%, 2/15/02 B3 650 676,000
Plastic Specialties &
Technology, Inc.
Sr. Secured Debentures
11.25%, 12/1/03 B3 500 480,000
Rexene Corp.
Sr. Notes
11.75%, 12/1/04 B1 1,000 1,035,000
Sheffield Steel Corp.
First Mortgage Notes
12.00%, 11/1/01 Caa 1,250 1,100,000
Silgan Holdings, Inc.
Sr. Debentures
13.25%, 12/15/02 B3 919 930,487
Specialty Equipment Co., Inc.
Sr. Sub. Notes
11.375%, 12/1/03 B3 1,500 1,548,750
Stone Container Corp.
First Mortgage Notes
10.75%, 10/1/02 B1 1,450 1,464,500
Synthetic Industries, Inc.
Sr. Sub. Notes
12.75%, 12/1/02 B3 1,450 1,533,375
(3) Terex Corp.
Gtd. Sr. Notes
13.75%, 5/15/02 Caa 1,500 1,552,500
Tracor, Inc.,
Series A, Gtd. Sr. Sub. Notes
10.875%, 8/15/01 B2 500 527,500
U.S. Leather, Inc.
Sr. Notes
10.25%, 7/31/03 B3 1,750 1,487,500
------------
GROUP TOTAL 21,759,600
------------
- ----------------------------------------------------------------------------------
- -----------------
OIL, GAS & ELECTRIC (1.7%)
Energy Ventures, Inc.,
Series B, Gtd. Sr. Notes
10.25%, 3/15/04 B1 500 522,500
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
Gulf Canada Resources Ltd.
Yankee Sr. Sub. Debentures
9.25%, 1/15/04 Ba3 $ 750 $ 730,313
H.S. Resources, Inc.
Sr. Sub. Notes
9.875%, 12/1/03 B1 500 488,750
Kelley Oil & Gas Corp.
Sr. Notes
13.50%, 6/15/99 B2 400 424,000
Maxus Energy Corp.,
Notes
9.375%, 11/1/03 B1 800 789,231
(3) Plains Resources, Inc.,
Series A, Sr. Sub. Notes
10.25%, 3/15/06 B2 500 497,500
------------
GROUP TOTAL 3,452,294
------------
- ----------------------------------------------------------------------------------
- -----------------
RETAIL TRADE (5.6%)
Big V Supermarkets, Inc.
Sr. Sub. Notes
11.00%, 2/15/04 B3 1,675 1,564,031
Brylane L.P.,
Series B, Gtd. Sr. Sub. Notes
10.00%, 9/1/03 B2 500 485,000
County Seat Stores, Inc.
Sr. Sub. Notes
12.00%, 10/1/02 Caa 1,520 1,227,400
Dairy Mart Conveniences
Stores, Inc.
Sr. Sub. Notes
10.25%, 3/15/04 B3 1,750 1,631,875
Duane Reade Corp.
Sr. Notes
12.00%, 9/15/02 B3 1,500 1,432,500
Farm Fresh, Inc.
Sr. Notes
12.25%, 10/1/00 B2 1,360 1,169,600
Great American Cookie Co.,
Series B, Sr. Sec. Debentures
10.875%, 1/15/01 B3 1,250 1,101,563
(3) Hills Stores Co.
Sr. Notes
12.50%, 7/1/03 B1 600 589,500
Jitney-Jungle Stores of
America, Inc.
Sr. Notes
12.00%, 3/1/06 B2 250 260,000
(8) Pathmark Stores, Inc.
Jr. Sub. Notes
0.00%, 11/1/03 B3 1,400 847,000
Sr. Sub. Notes
9.625%, 5/1/03 B2 250 232,500
Petro PSC Properties L.P.
Sr. Notes
12.50%, 6/1/02 B3 500 482,500
Waban, Inc.
Sr. Sub. Notes
11.00%, 5/15/04 Ba3 500 527,530
------------
GROUP TOTAL 11,550,999
------------
- ----------------------------------------------------------------------------------
- -----------------
SERVICES (10.6%)
Allied Waste Industries
Sr. Sub. Notes
12.00%, 2/1/04 B3 400 438,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
American Restaurant Group, Inc.
Series A, Sr. Notes
12.00%, 9/15/98 Caa $1,500 $ 1,333,350
(3) American Skiing Corp.,
Sr. Sub. Notes
12.00%, 7/15/06 B3 425 415,437
Bally's Casino Holdings, Inc.
Sr. Discount Notes
Zero Coupon, 6/15/98 B2 1,500 1,297,500
Bally's Park Place Funding,
Inc.
First Mortgage Notes
9.25%, 3/15/04 Ba3 400 424,000
Boomtown, Inc.
First Mortgage Notes
11.50%, 11/1/03 B1 500 485,000
(2) Capital Gaming International
Promissary Note
Zero Coupon, 8/1/95 N/R 1 437
Casino America, Inc.
First Mortgage Bonds
11.50%, 11/15/01 B1 1,000 1,060,000
Cinemark USA, Inc.
Sr. Secured Debentures
12.00%, 6/1/02 B1 500 542,500
Community Health Systems, Inc.
Sr. Sub. Debentures
10.25%, 11/30/03 B2 500 525,000
(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 B2 1,000 900,000
(4) General Medical Corp.,
Series A, Sub. Debentures
12.125%, 8/15/05 Caa 1,806 1,896,300
Gillett Holdings, Inc.
Sr. Sub. Notes
12.25%, 6/30/02 N/R 535 561,510
Griffin Gaming &
Entertainment, Inc.
Mortgage Notes
11.00%, 9/15/03 N/R 1,000 1,040,000
(2)(4) Hemmeter Enterprises, Inc.
Sr. Notes
12.00%, 12/15/00 N/R 892 356,630
Horseshoe Gaming L.L.C.
Sr. Notes
12.75%, 9/30/00 B1 750 806,250
ICON Health & Fitness, Inc.,
Series B, Sr. Sub. Notes
13.00%, 7/15/02 B3 500 557,500
(3) Mohegan Tribal Gaming Authority,
Series A, Sr. Secured Notes
13.50%, 11/15/02 N/R 850 1,066,750
Motels of America, Inc.,
Series B, Sr. Sub. Notes
12.00%, 4/15/04 B3 500 479,375
Red Roof Inns, Inc.
Sr. Exchange Notes
9.625%, 12/15/03 B3 900 859,500
Regency Health Services, Inc.
Gtd Sr. Sub. Notes
9.875%, 10/15/02 B2 600 576,000
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
Santa Fe Hotel, Inc.
First Mortgage Notes
11.00%, 12/15/00 B2 $ 363 $ 284,955
Station Casinos, Inc.
Sr. Sub. Notes
9.625%, 6/1/03 B2 450 428,040
Stratosphere Corp.
First Mortgage Notes
14.25%, 5/15/02 B2 350 392,000
Time Warner Inc.,
Debentures
6.85%, 1/15/26 Ba1 1,450 1,388,911
Trump Atlantic City,
First Mortgage Notes
11.25%, 5/1/06 B1 1,600 1,604,000
Trump Castle Funding, Inc.
Mortgage Bonds
11.75%, 11/15/03 Caa 1,250 1,275,000
Wyndham Hotel Corp.,
Sr. Sub Notes,
10.50%, 5/15/06 B2 300 298,125
------------
GROUP TOTAL 22,072,070
------------
- ----------------------------------------------------------------------------------
- -----------------
TRANSPORTATION (2.6%)
CHC Helicopter Corp.
Yankee Sr. Sub. Notes
11.50%, 7/15/02 B3 750 712,500
(3)(8) Consorcio G Grupo Dina S.A./
MCII Holdings (USA), Inc.
Sr. Secured Notes
0.00%, 11/15/02 N/R 550 419,375
Ferrovie dello Stato
Notes
9.125%, 7/6/09 N/R 3,000 3,401,550
USAir, Inc.
Gtd. Sr. Notes
10.00%, 7/1/03 B3 1,000 942,500
------------
GROUP TOTAL 5,475,925
------------
- ---------------------------------------------------------------------
- -----------------
TOTAL CORPORATE OBLIGATIONS
(Cost $166,786,819) 162,873,380
------------
- ---------------------------------------------------------------------
- -----------------
GOVERNMENT & AGENCY SECURITIES (8.4%)
- ---------------------------------------------------------------------------------
- -
- -----------------
FEDERAL HOME LOAN BANK (0.8%)
Discount Note
Zero Coupon, 7/1/96 Aaa 1,725 1,724,471
------------
- ----------------------------------------------------------------------------------
- -----------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (2.6%)
REMIC-PAC Series 1989-23,
Class D
10.20%, 9/25/18 Aaa 3,907 4,101,509
STRIPS, Series H, Class 2
11.50%, 5/25/09 Aaa 1,201 1,290,559
------------
GROUP TOTAL 5,392,068
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
TENNESSEE VALLEY AUTHORITY (0.6%)
6.09%, 4/15/36 Aaa $1,250 $ 1,250,000
------------
- ----------------------------------------------------------------------------------
- -----------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (0.2%)
Various Pools:
10.50%, 9/15/15-8/15/16 Aaa 303 333,600
------------
- ----------------------------------------------------------------------------------
- -----------------
U.S. TREASURY NOTES (4.2%)
5.375%, 5/31/98 Aaa 6,150 6,068,328
7.25%, 5/15/04 Aaa 2,610 2,704,195
------------
GROUP TOTAL 8,772,523
------------
- ---------------------------------------------------------------------
- -----------------
TOTAL GOVERNMENT & AGENCY SECURITIES
(Cost $17,466,977) 17,472,662
------------
- ---------------------------------------------------------------------
- -----------------
COLLATERALIZED SECURITIES (3.7%)
- ---------------------------------------------------------------------------------
- -
- -----------------
COLLATERALIZED MORTGAGE OBLIGATIONS (3.7%)
Drexel, Burnham & Lambert
Trust
REMIC-PAC, Series S, Class 2
9.00%, 8/1/18 Aaa 6,353 6,476,364
Nationscredit Grantor Trust
Retail Installment Sale
Contracts, Series 1996-1,
Class A
5.85%, 9/15/11 Aaa 1,233 1,191,214
- ---------------------------------------------------------------------
- -----------------
TOTAL COLLATERALIZED SECURITIES
(Cost $7,979,676) 7,667,578
------------
- ---------------------------------------------------------------------
- -----------------
ASSET BACKED OBLIGATIONS (3.3%)
- ---------------------------------------------------------------------------------
- -
- -----------------
Green Tree Financial Corp.
Manufactured Housing
Installment Sale Contracts
Series 1993-4, Class B1
6.30%, 7/15/25 Aaa 350 343,438
7.20%, 1/15/19 Baa3 2,000 1,940,620
Household Affinity Credit Card
Master Trust I Series 1993-3,
Class B
4.95%, 3/15/99 A2 2,500 2,488,275
(9) Merrill Lynch Home Equity
Acceptance Trust
Series 1994-A, Class A-2
6.25%, 7/17/22 A3 2,048 2,058,323
- ---------------------------------------------------------------------
- -----------------
TOTAL ASSET BACKED OBLIGATIONS
(Cost $6,736,059) 6,830,656
------------
- ----------------------------------------------------------------------------------
- -----------------
<CAPTION>
Shares
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------
- -----------------
COMMON STOCKS (1.8%)
- ---------------------------------------------------------------------------------
- -
- -----------------
COMMUNICATIONS (0.1%)
(1) Pagemart, Inc. 7,000 71,750
Pegasus Media &
Communications, Inc. 25 15,000
------------
GROUP TOTAL 86,750
------------
- ----------------------------------------------------------------------------------
- -----------------
<CAPTION>
Shares Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
CONSUMER PRODUCTS (0.5%)
(1)(5)(6) Applause Enterprises, Inc.
(acquired 11/8/91, cost
$144,000) 3,800 $ 11,400
Mail-Well, Inc. 7,102 60,367
(1) Specialty Foods Corp. 30,000 15,000
(5)(6) TLC Beatrice International
Holdings, Inc.
(acquired 11/19/91-11/21/91,
cost $1,018,750) 25,000 525,000
(1) Waxman Industries, Inc. 99,600 448,200
------------
GROUP TOTAL 1,059,967
------------
- ----------------------------------------------------------------------------------
- -----------------
FINANCE (0.0%)
(1) Capital Gaming International,
Inc. 6,667 1,133
(1)(5)(6)(7) Westfed Holdings, Inc., Class
B
(acquired 9/20/88, cost $383) 12,670 0
------------
GROUP TOTAL 1,133
------------
- ----------------------------------------------------------------------------------
- -----------------
MANUFACTURING (0.2%)
(1) Alpine Group, Inc. 65,878 312,921
(1)(5)(6)(7) CICI Acquisition Corp.
(acquired 10/18/89, cost
$1,076,715) 2,944 200,192
------------
GROUP TOTAL 513,113
------------
- ----------------------------------------------------------------------------------
- -----------------
RETAIL TRADE (0.1%)
(1) Barry's Jewelers, Inc. 64,521 225,824
(1)(5)(6) Jewel Recovery L.P.
(acquired 7/30/93, cost $0) 49,559 0
------------
GROUP TOTAL 225,824
------------
- ----------------------------------------------------------------------------------
- -----------------
SERVICES (0.9%)
(1) Gillett Holdings, Inc. 42,500 1,190,000
(1) Lady Luck Gaming Corp. 20,000 587,000
(1)(3) Motels of America, Inc. 500 37,500
------------
GROUP TOTAL 1,814,500
------------
- ---------------------------------------------------------------------
- -----------------
TOTAL COMMON STOCKS
(Cost $4,957,252) 3,701,287
------------
- ---------------------------------------------------------------------
- -----------------
PREFERRED STOCKS (0.8%)
- ---------------------------------------------------------------------------------
- -
- -----------------
COMMUNICATIONS (0.4%)
(3) K-III Communications Corp.
10% Exchangeable, Series C 5,000 455,000
(1) SD Warren Co.
14% Exchangeable 12,000 386,760
------------
GROUP TOTAL 841,760
------------
- ----------------------------------------------------------------------------------
- -----------------
FINANCE (0.0%)
(1)(5)(6)(7) Westfed Holdings, Inc., Class A
(acquired 9/20/88-6/18/93, cost
$3,611,992) 42,759 0
------------
- ----------------------------------------------------------------------------------
- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
MANUFACTURING (0.2%)
GPA Group
Plc 7% Cum. Cv. 11,000 $ 401,500
------------
- ----------------------------------------------------------------------------------
- -----------------
OIL, GAS & ELECTRIC (0.2%)
(1)(7) Consolidated Hydro, Inc.,
Series H, 13.50%
(Convertible) 3,000 300,000
------------
- ---------------------------------------------------------------------
- -----------------
TOTAL PREFERRED STOCKS
(Cost $6,189,932) 1,543,260
------------
- ---------------------------------------------------------------------
- -----------------
RIGHTS (0.0%)
- ---------------------------------------------------------------------------------
- -
- -----------------
(1) Terex Corp.
expiring 5/15/02 (Cost $0) 6,000 12,000
------------
- ---------------------------------------------------------------------
- -----------------
WARRANTS (0.3%)
- ---------------------------------------------------------------------------------
- -
- -----------------
(1) America Communications
Services, Inc. expiring
11/1/05 2,000 0
(1) American Telecasting, Inc.,
expiring 6/23/99 525 2,625
(1)(3) Boomtown, Inc.,
expiring 11/1/98 500 250
(1) CHC Helicopter Corp.,
expiring 12/15/00 6,000 3,000
(1)(3)(6) Capital Gaming International,
expiring 2/1/99 5,687 284
(1) Casino America, Inc.,
expiring 11/15/96 3,263 0
(1) Casino Magic Corp.,
expiring 10/14/96 9,000 450
(1) Commodore Media, Inc.,
expiring 5/1/00 300 3,975
(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 10,000
(1) Dairy Mart Convenience 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
expiring 12/31/00 625 625
(1)(3) Great American Cookie,
expiring 1/30/00 225 2,250
(1) Hemmeter Enterprises, Inc.,
expiring 12/15/99 9,000 0
(1) Icon Health & Fitness Inc.,
expiring 11/14/99 500 0
(1)(3) In-Flight Phone Corp.,
expiring 8/31/02 1,000 0
(1)(3) IntelCom Group, Inc.,
expiring 9/15/05 2,145 30,030
(1) MVE Inc.,
expiring 2/15/02 650 19,500
(1) Nextel Communications, Inc.
expiring 4/25/99 750 8
<CAPTION>
Shares Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------
- -----------------
(1) Petro Shopping Centers L.P.,
expiring 6/1/97 500 $ 16,500
(1) Presidential Riverboat
Casinos,
expiring 9/23/96 6,000 60
(1)(3) Purity Supreme,
expiring 8/1/97 5,198 0
(1)(3) Renaissance Cosmetics Inc.,
expiring 8/15/01 3,000 67,500
(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 1,500 255,000
(1) Uniroyal Technology Corp.,
expiring 6/1/03 5,000 8,750
(1) United International Holdings,
expiring 11/15/99 2,950 79,650
(1)(3) Wright Medical Technology,
expiring 6/30/03 618 80,295
------------
- ---------------------------------------------------------------------
- -----------------
TOTAL WARRANTS
(Cost $435,671) 689,073
------------
- ----------------------------------------------------------------------------------
- -----------------
<CAPTION>
Face
Moody's Amount
Ratings (000)
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------
- -----------------
UNITS (2.1%)
- ----------------------------------------------------------------------------------
- -----------------
Cellular Communications,
International, Inc. Notes,
Zero Coupon, 8/15/00 B3 $2,000 1,220,000
(3)(5)(6)(8) DIVA Systems Corp.,
Notes
0.00%, 5/15/06
(acquired 5/30/96, cost
$1,036,962) N/R 1,925 1,039,500
(3)(8) Hyperion TeleCommunications,
Inc.
Sr. Discount Notes
0.00%, 4/15/03 N/R 1,750 962,500
(3)(8) Petersburg Long Distance Inc.
Sub. Notes
0.00%, 6/1/04 N/R 1,610 1,247,750
- ---------------------------------------------------------------------
- -----------------
TOTAL UNITS
(Cost $3,550,795) 4,469,750
------------
- ---------------------------------------------------------------------
- -----------------
TOTAL INVESTMENTS (98.9%)
(Cost $214,103,181) 205,259,646
------------
- ----------------------------------------------------------------------------------
- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<C> <S> <C> <C> <C>
Value
- ----------------------------------------------------------------------------------
- -----------------
OTHER ASSETS IN EXCESS OF
LIABILITIES (1.1%) $ 2,291,656
------------
- ---------------------------------------------------------------------
- -----------------
NET ASSETS (100%)
Applicable to 24,385,367 issued and outstanding
$.001 par value shares (authorized 100,000,000
shares) $207,551,302
------------
------------
- ----------------------------------------------------------------------------------
- -----------------
N/R--Not Rated.
PAC--Planned Amortization Class.
REMIC--Real Estate Mortgage Investment Conduit.
STRIPS--Separate Trading of Registered Interest and Principal Securities.
(1) Non-income producing security.
(2) Defaulted security.
(3) 144A Security. Certain conditions for public sale may exist.
(4) Payment in kind bond. Market value includes accrued interest.
(5) Restricted as to private and public resale. Total cost of restricted
securities at June 30, 1996 aggregated $7,648,984. Total market value
of restricted securities owned at June 30, 1996 was $ 2,536,274 or
1.2% 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
June 30, 1996.
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES June 30,
1996
(Unaudited)
<S> <C>
- --------------------------------------------------------------------------
ASSETS:
Investments at Value (Cost $214,103,181) (Note A-1)..... $205,259,646
Interest Receivable (Note A-4).......................... 3,542,721
Receivable for Investments Sold......................... 3,384,823
Other Assets............................................ 79,219
- --------------------------------------------------------------------------
Total Assets........................................ 212,266,409
- --------------------------------------------------------------------------
LIABILITIES:
Payables:
Investments Purchased................................. 4,331,495
Investment Advisory Fees (Note B)..................... 251,669
Shareholders' Reports................................. 41,839
Shareholder Servicing Fees............................ 34,550
Professional Fees..................................... 23,506
Administrative Fees (Note C).......................... 20,939
Custodian Fees........................................ 11,109
- --------------------------------------------------------------------------
Total Liabilities................................... 4,715,107
- --------------------------------------------------------------------------
NET ASSETS.................................................. $207,551,302
------------
------------
NET ASSETS CONSIST OF:
Capital Shares at $.001 Par Value....................... $24,385
Capital Paid in Excess of Par Value..................... 224,976,068
Undistributed Net Investment Income..................... 1,971,996
Accumulated Net Realized Loss........................... (10,577,612)
Unrealized Depreciation on Investments.................. (8,843,535)
------------
NET ASSETS APPLICABLE TO 24,385,367 ISSUED AND OUTSTANDING
SHARES (AUTHORIZED 100,000,000 SHARES).................... $207,551,302
------------
------------
NET ASSET VALUE PER SHARE................................... $8.51
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS Six Months
Ended
June 30,
1996
(Unaudited)
<S> <C>
- --------------------------------------------------------------------------
INVESTMENT INCOME:
Interest (Note A-4)..................................... $10,612,562
Dividends (Note A-4).................................... 16,361
- --------------------------------------------------------------------------
Total Income.......................................... 10,628,923
- --------------------------------------------------------------------------
EXPENSES:
Investment Advisory Fees (Note B)....................... 509,995
Administrative Fees (Note C)............................ 130,378
Shareholder Servicing Fees.............................. 75,562
Shareholders' Reports................................... 65,264
Professional Fees....................................... 30,256
Custodian Fees.......................................... 21,925
Directors' Fees and Expenses............................ 19,134
Other................................................... 143,303
- --------------------------------------------------------------------------
Total Expenses........................................ 995,817
- --------------------------------------------------------------------------
Net Investment Income............................... 9,633,106
- --------------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS............................ 2,156,550
- --------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/ DEPRECIATION ON
INVESTMENTS............................................... (1,511,218)
- --------------------------------------------------------------------------
Net Realized Gain and Change in Unrealized
Appreciation/Depreciation................................. 645,332
- --------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations........ $10,278,438
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C>
Six Months Ended Year Ended
June 30, 1996 December 31,
(Unaudited) 1995
- -----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Income....................................................... $ 9,633,106 $ 20,963,543
Net Realized Gain (Loss) on Investments..................................... 2,156,550 (841,746)
Change in Unrealized Appreciation/Depreciation on Investments............... (1,511,218) 12,472,856
- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ 10,278,438 32,594,653
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income....................................................... (13,168,098) (18,532,879)
- -----------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets................................... (2,889,660) 14,061,774
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Period......................................................... 210,440,962 196,379,188
- -----------------------------------------------------------------------------------------------------------------------
End of Period (Including undistributed net investment income of $1,971,996
and $5,506,988, respectively).............................................. $207,551,302 $210,440,962
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Six Months
FINANCIAL HIGHLIGHTS Ended Year Ended December 31,
PER SHARE OPERATING June 30, 1996 ----------------------------------------------------------------------------------
PERFORMANCE: (Unaudited) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF
PERIOD............. $ 8.63 $ 8.05 $ 9.00 $ 8.42 $ 8.28 $ 7.25
- ---------------------------------------------------------------------------------------------------------------------------
Investment
Activities:
Net Investment
Income......... 0.40 0.86 0.83 0.91 0.89 0.89
Net Realized and
Unrealized Gain
(Loss) on
Investments.... 0.02 0.48 (1.06) 0.57 0.08 1.04
- ---------------------------------------------------------------------------------------------------------------------------
Total from
Investment
Activities... 0.42 1.34 (0.23) 1.48 0.97 1.93
- ---------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment
Income......... (0.54) (0.76) (0.72) (0.90) (0.83) (0.90)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END
OF PERIOD.......... $ 8.51 $ 8.63 $ 8.05 $ 9.00 $ 8.42 $ 8.28
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET
VALUE, END OF
PERIOD............. $ 7.88 $ 7.88 $ 7.00 $ 8.50 $ 8.38 $ 8.38
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT
RETURN:
Net Asset Value
(1)............ 5.06%# 17.41% (2.67)% 18.47% 11.95% 27.71%
Market Value.... 6.83%# 24.34% (9.48)% 12.46% 12.09% 50.81%
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS AND
SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
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%* 0.92% 0.83% 0.88% 0.86% 0.87%
Ratio of Net
Investment Income
to Average Net
Assets............. 9.44%* 10.22% 9.75% 10.34% 10.38% 11.12%
Portfolio Turnover
Rate............... 44.1%# 44.1% 70.6% 117.5% 115.2% 53.3%
- ---------------------------------------------------------------------------------------------------------------------------
* Annualized
# Not Annualized
(1) Total investment return based on per share net asset value reflects the effects of change in net asset value on the
performance of the Fund during each period, and assumes dividends and capital gains distributions, if any, were
reinvested. These percentages are not an indication of the performance of a shareholder's investment in the Fund based
on market value due to differences between the market price of the stock and the net asset value of the Fund.
Note: Current period permanent book-tax differences, if any, are not included in the calculation of net investment income
per share.
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ------------
BEA Income Fund, Inc. (the "Fund"), was incorporated on February 11, 1987 and is
registered as a diversified, closed-end investment company under the Investment
Company Act of 1940. The Fund's investment objective is to seek current income
through investments primarily in debt securities.
A. The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. Generally accepted
accounting principles may require management to make estimates and assumptions
that affect the amounts and disclosures in the financial statements. Actual
reported results could differ from those estimates.
1. SECURITY VALUATION: Market values for fixed income securities are valued at
the latest quoted bid price in the over-the-counter market. However, fixed
income securities may be valued on the basis of prices provided by a pricing
service which are based primarily on institutional size trading in similar
groups of securities. Other securities listed on an exchange are valued at
the latest quoted sales prices on the day of valuation or if there was no
sale on such day, the last bid price quoted on such day. Securities purchased
with remaining maturities of 60 days or less are valued at amortized cost, if
it approximates market value. Securities for which market quotations are not
readily available (including investments which are subject to limitations as
to their sale) are valued at fair value as determined in good faith by the
Board of Directors. Such securities have a value of $500,192 (or 0.24% of net
assets) at June 30, 1996. In determining fair value, consideration is given
to cost, operating and other financial data.
The Fund may invest up to 10% of its total assets in securities which are not
readily marketable, including those which are restricted as to disposition
under securities law ("restricted securities"). These securities are valued
pursuant to the valuation procedures noted above.
2. FEDERAL INCOME TAXES: It is the Fund's intention to continue to qualify as a
regulated investment company and distribute all of its taxable income to
shareholders. Accordingly, no provision for Federal income taxes is required
in the financial statements.
Paid in capital, undistributed net investment income and accumulated net
realized loss have been adjusted for prior period permanent book-tax
differences.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the
underlying securities, the value of which exceeds the principal amount of the
repurchase transaction, including accrued interest. To the extent that any
repurchase transaction exceeds one business day, the value of the collateral
is marked-to-market on a daily basis to determine the adequacy of the
collateral. In the event of default on the obligation to repurchase, the Fund
has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. In the event of default or bankruptcy by the
other party to the agreement, realization and/or retention of the collateral
or proceeds may be subject to legal proceedings.
4. SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Security transactions are
accounted for on the date the securities are purchased or sold. Costs used in
determining realized gains and losses on the sale of investment securities
are those of specific securities sold. Interest income is recognized on the
accrual basis. Discounts on securities purchased are amortized according to
the effective yield method over their respective lives. Discount or premium
on mortgage backed securities is recognized upon receipt of principal
payments on the underlying mortgage pools. Dividend income is recorded on the
ex-dividend date.
5. DIVIDENDS AND DISTRIBUTIONS: The Fund pays dividends of net investment income
monthly and makes distributions at least annually of any net capital gains in
excess of applicable capital losses, including capital loss carryforward.
Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gains distributions are determined in
accordance with U.S. Federal Income Tax regulations which may differ from
generally accepted accounting principles.
B. BEA Associates (the "Adviser") provides investment advisory services to the
Fund under the terms of an Advisory Agreement. Under the Advisory Agreement, the
Adviser is paid a fee, computed weekly and payable quarterly at an annual rate
of .50% of average weekly net assets.
C. The Chase Manhattan Bank ("Chase"), through its affiliate Chase Global Funds
Services Company ("CGFSC" or the "Administrator"), provides administrative
services to the Fund under the terms of an Administration Agreement. Under the
Agreement, the Administrator is paid a fee, computed weekly and payable monthly,
at an annual rate of .15% of the Fund's first $100 million of average weekly net
assets, .10% of the Fund's next $300 million of average weekly net assets and
.05% of the Fund's average weekly net assets in excess of $400 million.
Chase provides custodial services to the Fund. Under the Custody Agreement,
Chase is paid a fee, computed weekly and payable monthly, at an annual rate of
.03% of the Fund's first $50 million of average weekly net assets, .02% of the
Fund's next $50 million of average weekly net assets and .01% of the Fund's
average weekly net assets in excess of $100 million.
14
<PAGE>
CGFSC provides transfer agent services to the Fund. Under the Transfer Agent
Agreement, CGFSC is paid a fee based on the number of accounts in the Fund per
year. In addition, the Fund is charged certain out-of-pocket expenses by CGFSC.
D. During the six months ended June 30, 1996, the Fund made purchases of
$66,471,147 and sales of $76,112,735 of investment securities other than U.S.
Government securities and short term investments. During the six months ended
June 30, 1996, purchases and sales of U.S. Government securities were
$26,227,211 and $16,319,648, respectively. At June 30, 1996, the cost of
investments for Federal income tax purposes was $214,103,181. Accordingly, net
unrealized depreciation for Federal income tax purposes aggregated $8,843,535,
of which $5,350,941 related to appreciated securities and $14,194,476 related to
depreciated securities.
At December 31, 1995 the Fund had a capital loss carryforward of $12,734,162
available to offset future capital gains of
which $1,138,924, $4,585,038, $882,969, $3,865,851 and $2,261,380 will expire on
December 31, 1997, 1998, 1999, 2000 and 2003, respectively.
E. At June 30, 1996, 67.24% of the Fund's net assets comprised high yield fixed
income securities. The financial condition of the issuers of the securities and
general economic conditions may affect the issuers' ability to make payments of
income and principal, as well as the market value of the securities. Such
investments may also be less liquid and more volatile than investments in higher
rated fixed income securities.
F. The Fund's Board of Directors has approved a share repurchase program
authorizing the Fund from time to time to make open-market purchases on the New
York Stock Exchange of up to 10 percent of the Fund's shares outstanding as of
December 11, 1990. There were no repurchases of shares during the six months
ended June 30, 1996.
<TABLE>
<CAPTION>
G. Summary of quarterly results of operations:
AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
THREE MONTHS ENDED
--------------------------------------------------------------------------------------
MARCH 31, 1996 JUNE 30, 1996
-------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income........................ $ 5,283 $ 0.22 $ 5,408 $ 0.22
Net Investment Income.................... 4,771 0.20 4,924 0.20
Net Realized Gain (Loss) and Change in
Unrealized Appreciation/Depreciation on
Investments............................. 1,294 0.05 (648) (0.03)
Net Increase in Net Assets Resulting from
Operations.............................. 6,065 0.25 4,276 0.17
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1995 JUNE 30, 1995 SEPTEMBER 30, 1995 DECEMBER 31, 1995
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income........................ $ 5,429 $ 0.22 $ 6,009 $ 0.25 $ 5,703 $ 0.23 $ 5,712 $ 0.23
Net Investment Income.................... 4,969 0.20 5,582 0.23 5,205 0.21 5,208 0.22
Net Realized Gain/Loss and Change in
Unrealized Appreciation/Depreciation on
Investments............................. 5,992 0.25 4,955 0.20 343 0.02 341 0.01
Net Increase in Net Assets Resulting from
Operations.............................. 10,961 0.45 10,537 0.43 5,548 0.23 5,549 0.23
<CAPTION>
MARCH 31, 1994 JUNE 30, 1994 SEPTEMBER 30, 1994 DECEMBER 31, 1994
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income........................ $ 5,427 $ 0.22 $ 5,532 $ 0.23 $ 5,512 $ 0.23 $ 5,412 $ 0.22
Net Investment Income.................... 4,954 0.20 5,093 0.21 5,105 0.21 5,011 0.21
Net Realized Gain/Loss and Change in
Unrealized Appreciation/Depreciation on
Investments............................. (6,727) (0.28) (7,923) (0.32) (6,059) (0.25) (4,873) (0.21)
Net Increase (Decrease) in Net Assets
Resulting from Operations............... (1,773) (0.08) (2,830) (0.11) (954) (0.04) 138 0.00
</TABLE>
15
<PAGE>
H. Supplemental Proxy Information
The Annual Meeting of the Stockholders of the BEA Income Fund, Inc. was held on
Thursday May 16, 1996 at the offices of Willkie Farr & Gallagher, One Citicorp
Center, 153 East 53rd Street, New York City. The following is a summary of each
proposal presented and the total number of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES
PROPOSAL FAVOR OF AGAINST ABSTAINED
- ------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1. To elect the following four Directors:
Messrs. Daniel H. Sigg, Enrique R. Arzac,
Lawrence J. Fox and James S. Pasman Jr. 21,112,564 241,634 --
2. To ratify the selection of Price Waterhouse
LLP as independent public accountants of the
Fund until the next annual meeting. 21,059,305 95,476 199,417
</TABLE>
16
<PAGE>
DESCRIPTION OF DIVIDEND REINVESTMENT
AND CASH PURCHASE PLAN
- -----------------
Pursuant to the BEA Income Fund, Inc.'s (the "Fund") Dividend Reinvestment
and Cash Purchase Plan (the "Plan"), each shareholder will be deemed to have
elected, unless the Fund's transfer agent as the Plan Agent (the "Plan Agent"),
is otherwise instructed by the shareholder in writing, to have all dividends and
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
the Plan Agent for the Fund, at the address set forth below. 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 allocate to you your 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. Fractions of a share allocated to you will be
computed to four decimal places. 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 Fund's 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 Fund's commons 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. Shareholders should be aware that cash contributions
will be used to purchase shares of the Fund 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.
Cash contributions should be in the form of a check or money order and made
payable in U.S. dollars and directed to The Chase Manhattan Bank, Dividend
Reinvestment Department -- Retail, 770 Broadway, New York, NY 10003-9598.
Deliveries to any other address do not constitute valid delivery.
A detachable form for use in making voluntary cash payments will be attached
to each Dividend Reinvestment Plan statement you receive. The same amount of
money need not be sent each month and there is no obligation to make an optional
cash payment each month.
Payments received by the Agent will be used to purchase stock under the
Plan. Prior to such purchase of stock by the Agent, no interest will be paid on
such funds sent to the Agent. Therefore, voluntary cash payments should be sent
to reach the Agent shortly (but at least five business days) before the dividend
payment date. Voluntary cash payments received after the five business day
deadline will be invested by the Agent on the next succeeding dividend payment
date. Dividend payment dates are expected to be the 15th (or next business day)
of each month.
17
<PAGE>
You may obtain a refund of any voluntary cash payment if a request for such
a refund is received in writing by the Agent not less than 48 hours before the
next succeeding dividend payment.
There is no charge to participants for reinvesting dividends or capital
gains distributions. The Agent's fees for the handling of reinvestment of
dividends and 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 shares or in cash.
However, each participant will pay a pro rata share of brokerage commissions
incurred with respect to the Agent's open market purchases in connection with
the reinvestment of dividends, capital gains distributions, or voluntary cash
payments.
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 Agent will be purchasing stock for all
participants in blocks and pro rating the lower commissions thus attainable.
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 and distributions.
While the Fund presently intends to continue the Plan indefinitely,
experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan as applied to any
voluntary cash payments made and any dividend or distribution paid subsequent to
notice of the change sent to all shareholders of the Fund at least 30 days
before the record date for such dividend or distribution. The Plan also may be
amended or terminated by the Agent by at least 30 days' written notice to all
shareholders of the Fund.
Any notices, questions or other correspondence regarding the Plan should be
addressed to The Chase Manhattan Bank, Customer Service Department, 770
Broadway, New York, NY 10003-9598. Be sure to include a reference to BEA Income
Fund, Inc. or you may call (800) 428-8890.
18
