<PAGE>
BEA Income Fund, Inc.
153 East 53rd Street
New York, NY 10022
---------------------------------------------
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
Daniel H. Sigg Michael A. Pignataro
CHAIRMAN AND CHIEF ASSISTANT VICE
EXECUTIVE OFFICER PRESIDENT
Robert J. Moore AND ASSISTANT
PRESIDENT AND CHIEF SECRETARY
INVESTMENT OFFICER Hal Liebes
Prof. Enrique R. SECRETARY
Arzac Harvey M. Rosen
DIRECTOR TREASURER
Lawrence J. Fox Paul P. Stamler
DIRECTOR ASSISTANT TREASURER
James S. Pasman, Jr. John M. Corcoran
DIRECTOR ASSISTANT TREASURER
Richard J. Lindquist
VICE PRESIDENT
</TABLE>
---------------------------------------------
INVESTMENT ADVISER
BEA Associates
153 East 53rd Street
New York, New York 10022
--------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank, N.A.
73 Tremont Street
Boston, Massachusetts 02108
--------------------------------------------------------
CUSTODIAN
The Chase Manhattan Bank, N.A.
770 Broadway
New York, New York 10003
--------------------------------------------------------
SHAREHOLDER SERVICING AGENT
The Chase Manhattan Bank, N.A.
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]
FIRST QUARTER REPORT
March 31, 1996
<PAGE>
BEA INCOME FUND, INC.
- ----------
Dear Shareholders: April 18, 1996
We are pleased to report on the results of the BEA Income Fund, Inc. (the "Fund)
for the quarter ended March 31, 1996.
At March 31, 1996 the Fund's net asset value ("NAV") was $8.52, compared to
$8.63 at December 31, 1995. As a result, the Fund's total return (assuming
reinvestment of dividends) was 3.11%.
During the first quarter of 1996, the high yield market, as measured by the
Salomon Brothers High Yield Index, posted positive performance of 1.71% during a
period in which new cash buyers entered the market while high yield spreads
tightened slightly versus treasuries as interest rates increased. In addition,
the market's positive performance was driven by gains in the CCC-rated sector
followed by the B and BB-rated issues as the deferred-interest sector
outperformed the cash-pay sector. During the quarter, the high yield market
outperformed the investment grade market, which declined 1.75% according to the
Salomon Brothers Broad Index, but underperformed the emerging markets, which was
up 4.46% according to the Salomon Brothers Brady Bond Index, and the equity
market, which saw the S&P 500 rise 5.37%.
All industry sectors had positive performance in the quarter except for
Airlines, which reported a decline of 1.66% and Conglomerates, which declined
0.61%. The Airline industry's poor performance was driven by its higher-rated
securities, which followed treasuries in underperforming for the quarter. The
best performing industry sector Gaming, which returned 7.62%, was led by
positive news regarding Atlantic City casinos and Harrahs Jazz, based in New
Orleans. In addition, we have started to see interest in previously out-of-favor
industries, including restaurants and retailing.
During the first quarter, high yield mutual fund investors continued to
enter the market, with AMG Data Services reporting inflows of $2.85 billion. The
high yield new issue market was very active during the first quarter of 1996
with $18.4 billion of new deals being priced versus $5.6 billion in the first
quarter of 1995. The average market-weighted new issue offer yield was 10.87% at
the end of the first quarter of 1996 versus 10.94% at the end of the first
quarter of 1995 and for the year 1995 averaged 10.93%.
We continue to expect the high yield market to track the directional
movements of the debt and equity markets in 1996. We also expect the market to
remain volatile on an individual credit basis as bonds react quickly to news
releases, particularly those of the negative variety. The strong cash flows we
have witnessed in the high yield
market over the last year have become somewhat precarious as treasury yields
have taken on increased volatility as fear of inflation has been rising. As a
result, we will be watching carefully to see how high-yield investors react to
higher rates.
We believe that the second quarter will remain busy on the new issue front
following a very well received calendar in the first quarter. However, with
rates at higher levels, there is a risk that the new issues will reprice the
secondary market. We expect secondary trading to remain brisk as investors
reposition portfolios to make room for new issues.
Our long-term outlook continues to be positive for the credit fundamentals
of many high-yield issuers. We remain positive on selected gaming companies
particularly in Atlantic City and Las Vegas, on industry sectors such as health
care and cable where we have seen continued merger activity, on many sectors of
the telecommunications industry, which along with the cable and broadcasting
sectors should benefit over the near-term from the recently signed
Telecommunications Bill, and on certain cyclical sectors. Our strategy continues
to be focused on opportunistically investing in companies that we believe offer
operating performance improvement and deleveraging potential over the longer
term.
During the first quarter, mortgages were the best-performing
investment-grade fixed-income sector, with a return of -0.44%, while corporates
lagged at -2.58%. Mortgage securities are at historically cheap levels, while
corporate bond spreads remain extremely tight, and have been steady for nearly
two years.
BEA's stance in the corporate sector remains defensive, in light of several
indications that corporate profits growth may be fading. We are now in the
sixty-first month of the current business expansion; the average period of
expansion in the postwar era has lasted only fifty months. Corporate profits
peaked relative to economic growth during the second quarter of 1995, while the
ratio of rating agency upgrades to downgrades also peaked last year.
In the mortgage sector, we are currently emphasizing discount coupons,
because prepayment protection in these issues is particularly undervalued.
Call-protected Commercial Mortgage-Backed Securities also offer excellent value
relative to corporates.
Looking forward, our mortgage strategy should benefit when nervous buyers
return to this undervalued sector. Our primary concerns for the next three to
six months are focused on the potential for continued
2
<PAGE>
negative surprises, in light of the recent backup in interest rates. This could
result in a continued increase in interest rate volatility, and consequently
lower liquidity. Our current modest weighting in below investment grade bonds
(and in corporates in general) reflects this higher probability, and leaves the
portfolio with "dry powder" should opportunities arise.
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 allocations, or management can 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 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)
- -----------------
MARCH 31, 1996
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------
- -----------------
CORPORATE OBLIGATIONS (76.9%)
- -----------------------------------------------------------------------------
- -----------------
COMMUNICATIONS (18.6%)
(3) Allbritton Communications Co.,
Sr. Sub. Debentures
9.75%, 11/30/07 B3 $ 300 $ 281,250
(8) American Telecasting, Inc.
Sr. Discount Notes
0.00%, 6/15/04 Caa 613 447,490
A+ Network, Inc.
Sr. Sub. Notes
11.875%, 11/1/05 Caa 750 770,625
(8) Arch Communications Group,
Inc.
Sr. Discount Notes
0.00%, 3/15/08 B3 1,750 1,001,875
(3)(8) Brooks Fiber Properties, Inc.
Sr. Discount Notes
0.00%, 3/1/06 N/R 1,000 585,000
Cablevision Industries Corp.
Sr. Debentures
9.25%, 4/1/08 Ba2 975 1,053,000
Cablevision Systems Corp.
Sr. Sub. Debentures
9.875%, 2/15/13 B3 750 780,000
Century Communications Corp.
Sr. Notes
9.75%, 2/15/02 Ba3 500 505,000
Chancellor Broadcasting Co.
Gtd. Sr. Sub. Notes
12.50%, 10/1/04 B3 750 836,250
(3) Charter Communications L.P.
Sr. Notes
11.25%, 3/15/06 B3 450 450,000
Citicasters, Inc.,
Series B, Sr. Sub. Notes
9.75%, 2/15/04 N/R 1,500 1,522,500
Comcast Corp.:
Sr. Sub Notes
9.125%, 10/15/06 B1 750 746,250
Sr. Sub. Notes
9.375%, 5/15/05 B1 180 181,800
(8) Commodore Media, Inc.
Sr. Sub. Notes
7.50%, 5/1/03 B3 300 298,500
Continental Cablevision, Inc.:
Sr. Debentures
9.50%, 8/1/13 Ba2 1,250 1,400,000
Sr. Sub Debentures
11.00%, 6/1/07 B1 1,150 1,311,000
(8) Dial Call Communications
Sr. Discount Notes
0.00%, 4/15/04 Caa 750 457,500
(8) Diamond Cable
Communications Plc
Yankee Sr. Discount Notes
0.00%, 12/15/05 B3 1,850 1,082,250
(8) EchoStar Communications Corp.
Gtd. Sr. Discount Notes
0.00%, 6/1/04 B2 1,500 1,087,500
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------
- -----------------
(4) Falcon Holdings Group L.P.
Sr. Sub. Notes
11.00%, 9/15/03 N/R $2,001 $ 1,920,789
General Media, Inc.
Sr. Notes
10.625%, 12/31/00 Caa 625 456,250
(3) Geotek Communications, Inc.
Sr. Sub. Convertible Notes
12.00%, 2/15/01 N/R 1,000 1,120,000
Granite Broadcasting Corp.
Sr. Sub. Notes
10.375%, 5/15/05 B3 300 302,625
(8) Helicon Group L.P.
Sr. Secured Notes
9.00%, 11/1/03 B1 2,000 2,010,000
(8) Imax Corp.,
Series B, Yankee Sr. Notes
7.00%, 3/1/01 B1 1,000 991,250
(6)(8) In-Flight Phone Corp.,
Series B, Sr. Discount Notes
0.00%, 5/15/02 N/R 1,000 250,000
(8) IntelCom Group, Inc.
Sr. Discount Notes
0.00%, 9/15/05 N/R 650 419,250
(8) MFS Communications Co., Inc.
Discount Notes
0.00%, 1/15/04 B1 1,000 760,000
Metrocall, Inc.
Sr. Sub. Notes
10.375%, 10/1/07 B2 500 491,250
Mobile Telecommunications
Technologies Corp.
Sr. Sub. Notes
13.50%, 12/15/02 B2 600 639,000
NWCG Holding Corp.,
Series B, Sr. Discount Notes
Zero Coupon, 6/15/99 Caa 1,000 720,000
(8) Nextel Communications, Inc.
Sr. Notes
0.00%, 8/15/04 B3 2,000 1,170,000
(8) Pagemart Nationwide, Inc.
Sr. Discount Notes
0.00%, 2/1/05 N/R 1,750 1,163,750
Paging Network, Inc.
Sr. Sub. Notes
10.125%, 8/1/07 B2 1,000 1,043,750
Pegasus Media &
Communications, Inc.,
Series B, Notes
12.50%, 7/1/05 B3 250 256,250
(8) People's Choice TV Corp.
Discount Notes
0.00%, 6/1/04 Caa 500 317,500
(8) PriCellular Wireless Corp.
Sr. Discount Notes
0.00%, 10/1/03 B3 500 392,500
Rogers Cablesystems Ltd.,
Series B, Yankee Sr. Secured
2nd Priority Notes
10.00%, 3/15/05 Ba3 300 312,000
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------
- -----------------
(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 750 450,000
Sinclair Broadcast Group
Sr. Sub. Notes
10.00%, 9/30/05 B1 500 497,500
(8) Spanish Broadcasting Systems
Sr. Notes
7.50%, 6/15/02 B3 1,500 1,485,000
Summit Communications, Inc.
Sr. Sub. Notes
10.50%, 4/15/05 Ba3 500 555,000
(8) Telemundo Group, Inc.
Sr. Discount Notes
7.00%, 2/15/06 B1 500 445,000
United International Holdings:
Discount Notes
Zero Coupon, 11/15/99 B3 1,000 675,000
Sr. Secured Debentures
Zero Coupon, 11/15/99 B3 3,000 1,942,500
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 1,270,000
(8) Winstar Communications, Inc.
Convertible Sr. Discount
Notes
0.00%, 10/15/05 N/R 250 152,500
(3) Young Broadcasting, Inc.
Gtd. Sr. Sub. Notes
9.00%, 1/15/06 B2 300 283,500
------------
GROUP TOTAL 38,609,954
------------
- -----------------------------------------------------------------------------
- -----------------
CONSUMER PRODUCTS (4.8%)
Fort Howard Corp.
Sub. Notes
10.00%, 3/15/03 B2 1,250 1,281,250
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 1,110,000
Mail-Well Corp.
Sr. Sub. Notes
10.50%, 2/15/04 B2 1,500 1,458,750
Marvel III Holdings, Inc.,
Series B, Sr. Secured
Debentures
9.125%, 2/15/98 Caa 1,100 979,000
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------
- -----------------
Renaissance Cosmetics, Inc.,
Series B, Sr. Notes
13.75%, 8/15/01 N/R $1,500 $ 1,507,500
Revlon Consumer Products,
Inc.,
Series B, Sr. Sub Notes
10.50%, 2/15/03 B3 1,000 1,010,000
Revlon Worldwide Corp.
Sr. Secured Discount Notes
Zero Coupon, 3/15/98 B3 1,400 1,092,000
Sherritt, Inc.
Yankee Debentures
10.50%, 3/31/14 B1 375 412,500
(8) Specialty Foods Acquisition
Corp.,
Series B, Sr. Secured
Discount Debentures
0.00%, 8/15/05 Ca 2,000 920,000
------------
GROUP TOTAL 10,003,500
------------
- -----------------------------------------------------------------------------
- -----------------
FINANCE (7.3%)
American Express Co. Eurobond
Zero Coupon, 12/12/00 N/R 5,000 3,714,400
Citicorp
Sr. Notes
5.625%, 2/15/01 A1 1,500 1,449,375
(10) GMAC
Medium Term Notes
5.95%, 12/14/98 A3 4,000 3,966,600
(3) GPA Holland B.V.:
Medium Term Notes
8.50%, 3/3/97 N/R 550 552,063
8.625%, 1/15/99 Caa 750 753,750
9.12%, 2/24/99 Caa 250 251,250
(3) Goldman Sachs Group L.P.
Medium Term Notes
6.20%, 2/15/01 A1 3,000 2,940,000
Western National Corp.
Sr. Notes
7.125%, 2/15/04 Baa1 1,500 1,490,115
------------
GROUP TOTAL 15,117,553
------------
- -----------------------------------------------------------------------------
- -----------------
INDUSTRIAL (9.6%)
AK Steel Corp.
Gtd. Sr. Notes
10.75%, 4/1/04 Ba3 950 1,045,000
Alpine Group, Inc.
Gtd. Sr. Notes
12.25%, 7/15/03 B3 1,000 980,000
Arcadian Partners L.P.,
Series B, Sr. Notes
10.75%, 5/1/05 B2 900 981,000
Armco, Inc.
Sr. Notes
11.375%, 10/15/99 B2 815 843,525
Bayou Steel Corp.
First Mortgage Notes
10.25%, 3/1/01 B2 500 440,000
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------
- -----------------
Berg Electronics Inc.
Gtd. Sub. Debentures
11.375%, 5/1/03 B3 $1,000 $ 1,110,000
Container Corp. of America
Gtd. Sr. Notes
9.75%, 4/1/03 B1 500 495,000
Crown Paper Co.
Sr. Sub. Notes
11.00%, 9/1/05 B3 500 462,500
(3) G.I. Holdings, Inc.
Sr. Notes
10.00%, 2/15/06 Ba3 433 433,000
GNF Corp.,
Series B, First Mortgage
Notes
10.625%, 4/1/03 B1 1,200 1,200,000
Geneva Steel Co.
Sr. Notes
9.50%, 1/15/04 B1 250 193,750
Genmar Holdings,
Series A, Sr. Sub. Notes
13.50%, 7/15/01 Caa 500 450,000
(3) Hanson America, Inc.
Conv. Sr. Discount Notes
2.39%, 3/1/01 A3 2,000 1,625,000
Harris Chemical N.A.
Sr. Secured Debentures
10.25%, 7/15/01 B2 1,700 1,678,750
(8) INDSPEC Chemical Corp.
Sr. Sub. Discount Notes
0.00%, 12/1/03 B3 1,496 1,286,560
Jitney Jungle Stores of
America, Inc.
Sr. Notes
12.00%, 3/1/06 B2 250 248,750
Malette, Inc.
Yankee Sr. Secured Debentures
12.25%, 7/15/04 Ba3 1,000 1,060,000
NL Industries:
Sr. Secured Debentures
11.75%, 10/15/03 B1 500 518,750
(8) Sr. Secured Discount
Debentures
0.00%, 10/15/05 B2 1,000 755,000
Repap Wisconsin, Inc.
Sr. Secured Debentures
9.875%, 5/1/06 B3 400 368,000
(3) Southdown Inc.
Sr. Sub. Notes
10.00%, 3/1/06 B2 200 200,188
Tenneco Inc.
Notes
6.50%, 12/15/05 Baa2 500 476,335
UCC Investor's Holdings, Inc.
Sr. Sub. Notes
11.00%, 5/1/03 B3 1,500 1,537,500
(3) Unisys Corp.
Sr. Notes
12.00%, 4/15/03 B1 1,000 995,000
WCI Steel, Inc.,
Series B, Sr. Notes
10.50%, 3/1/02 B1 600 603,000
------------
GROUP TOTAL 19,986,608
------------
- -----------------------------------------------------------------------------
- -----------------
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------
- -----------------
MANUFACTURING (11.9%)
Algoma Steel, Inc.
Yankee First Mortgage Notes
12.375%, 7/15/05 B1 $ 500 $ 487,500
(8) American Standard, Inc.
Sr. Sub. Debentures
0.00%, 6/1/05 B1 2,100 1,790,250
Associated Materials, Inc.
Sr. Sub. Notes
11.50%, 8/15/03 B3 500 405,000
Atlantis Group, Inc.
Sr. Notes
11.00%, 2/15/03 B2 585 544,050
(8) Building Materials Corp.,
Series B, Notes
0.00%, 7/1/04 B1 900 666,000
(8) Crown Packaging Holdings,
Series B, Sr. Sub. Notes
0.00%, 11/1/03 Caa 2,550 1,096,500
Domtar, Inc.
Yankee Debentures
11.25%, 9/15/17 Ba1 1,250 1,325,000
(8) Exide Corp.
Sr. Sub. Debentures
0.00%, 12/15/04 B2 1,000 800,000
Gaylord Container Corp.:
Sr. Notes
11.50%, 5/15/01 B3 950 959,500
(8) Sr. Sub. Debentures
0.00%, 5/15/05 Caa 1,000 1,010,000
Interlake Corp.
Sr. Sub. Debentures
12.125%, 3/1/02 B3 1,000 932,500
(2) Ithaca Industries, Inc.
Sr. Sub. Notes
11.125%, 12/15/02 Ca 900 432,000
(8) Ivex Holdings Corp.
Series B, Sr. Debentures
0.00%, 3/15/05 Caa 1,500 915,000
MVE Inc.
Sr. Secured Debentures
12.50%, 2/15/02 B3 650 669,500
Mafco, Inc.
Sr. Sub. Notes
11.875%, 11/15/02 B3 550 569,250
Plastic Specialties &
Technology Sr. Secured
Debentures
11.25%, 12/1/03 B3 500 500,000
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 1,115,625
(8) Silgan Holdings, Inc.
Sr. Debentures
0.00%, 12/15/02 B3 1,000 980,000
Specialty Equipment Co., Inc.
Sr. Sub. Notes
11.375%, 12/1/03 B3 1,500 1,571,250
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------
- -----------------
Stone Container Corp.
First Mortgage Notes
10.75%, 10/1/02 B1 $1,450 $ 1,439,125
Synthetic Industries, Inc.
Sr. Sub. Notes
12.75%, 12/1/02 B3 1,450 1,522,500
(3) Terex Corp.
Gtd. Sr. Notes
13.75%, 5/15/02 Caa 1,500 1,485,000
Tracor, Inc.,
Series A, Gtd. Sr. Sub. Notes
10.875%, 8/15/01 B2 500 520,000
USG Corp.,
Series B, Sr. Sec. Debentures
9.25%, 9/15/01 Ba2 500 530,000
U.S. Leather, Inc.
Sr. Notes
10.25%, 7/31/03 B3 1,750 1,400,000
------------
GROUP TOTAL 24,700,550
------------
- -----------------------------------------------------------------------------
- -----------------
OIL, GAS & ELECTRIC (2.8%)
El Paso Electric Company
Series D, First Mortgage
Bonds
8.90%, 2/1/06 Ba3 500 503,750
Energy Ventures, Inc.,
Series B, Gtd. Sr. Notes
10.25%, 3/15/04 B1 500 522,500
Gulf Canada Resources Ltd.
Yankee Sr. Sub. Debentures
9.25%, 1/15/04 Ba3 750 765,938
H.S. Resources, Inc.
Sr. Sub. Notes
9.875%, 12/1/03 B1 500 485,000
Kelley Oil & Gas Corp.
Sr. Notes
13.50%, 6/15/99 Caa 400 418,000
(8) Mesa, Inc.
Secured Notes
12.75%, 6/30/98 Caa 1,725 1,686,188
(3) Plains Resources Inc.
Sr. Sub. Notes
10.25%, 3/15/06 B2 500 502,500
Tesoro Petroleum Corp.
Notes
13.00%, 12/1/00 B2 1,000 1,005,000
------------
GROUP TOTAL 5,888,876
------------
- -----------------------------------------------------------------------------
- -----------------
RETAIL TRADE (5.9%)
Big V Supermarkets, Inc.
Sr. Sub. Notes
11.00%, 2/15/04 B3 1,675 1,486,562
Brylane L.P.
Gtd. Sr. Sub. Notes
10.00%, 9/1/03 B2 500 462,500
County Seat Stores, Inc.
Sr. Sub. Notes
12.00%, 10/1/02 Caa 1,520 1,140,000
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------
- -----------------
Dairy Mart Conveniences
Stores, Inc. Sr. Sub. Notes
10.25%, 3/15/04 B3 $1,750 $ 1,583,750
Duane Reade Corp.
Sr. Notes
12.00%, 9/15/02 B3 1,500 1,425,000
Farm Fresh, Inc.
Sr. Notes
12.25%, 10/1/00 B2 1,360 1,142,400
Great American Cookie Co.,
Series B, Sr. Sec. Debentures
10.875%, 1/15/01 B3 1,250 1,107,813
Hills Stores Co.
Sr. Notes
10.25%, 9/30/03 B1 1,250 1,200,000
(8) Pathmark Stores, Inc.
Jr. Sub. Notes
0.00%, 11/1/03 B3 1,400 833,000
Sr. Sub. Notes
9.625%, 5/1/03 B2 250 235,000
Petro PSC Properties L.P.
Sr. Notes
12.50%, 6/1/02 B3 500 475,000
(4) Town & Country Corp.
Sr. Sub. Notes
13.00%, 5/31/98 Caa 878 535,689
Waban, Inc.
Sr. Sub. Notes
11.00%, 5/15/04 Ba3 500 512,500
------------
GROUP TOTAL 12,139,214
------------
- -----------------------------------------------------------------------------
- -----------------
SERVICES (13.7%)
Allied Waste Industries
Sr. Sub. Notes
12.00%, 2/1/04 B3 400 430,000
American Banknote Corp.
Series B, Sr. Notes
11.625%, 8/1/02 N/R 750 456,562
American Restaurant Group,
Inc.,
Series A, Sr. Notes
12.00%, 9/15/98 B3 1,500 1,260,000
Bally's Casino Holdings, Inc.
Sr. Discount Notes
Zero Coupon, 6/15/98 B2 1,500 1,267,500
Bally's Health & Tennis Corp.
Sr. Sub. Notes
13.00%, 1/15/03 Caa 1,000 825,000
Bally's Park Place Funding,
Inc.
First Mortgage Notes
9.25%, 3/15/04 Ba3 400 400,000
Boomtown, Inc.
First Mortgage Notes
11.50%, 11/1/03 B1 500 483,750
Conseco, Inc.
Sr. Notes
10.50%, 12/15/04 Ba2 550 627,000
Casino America, Inc.
First Mortgage Bonds
11.50%, 11/15/01 B1 1,000 1,000,000
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------
- -----------------
Cinemark USA, Inc.
Sr. Secured Debentures
12.00%, 6/1/02 Ba3 $ 500 $ 547,500
(3) Coinmach Corp.
Sr. Notes
11.75%, 11/15/05 B2 1,055 1,055,000
Columbia/HCA Healthcare
Medium Term Notes
6.63%, 7/15/45 A3 1,500 1,462,500
Community Health Systems, Inc.
Sr. Sub. Debentures
10.25%, 11/30/03 B2 500 538,750
(2) Elsinore Corp.
First Mortgage Notes
12.50%, 10/1/00 N/R 1,500 600,000
G.B. Property Funding Corp.
First Mortgage Notes
10.875%, 1/15/04 B2 1,000 890,000
(4) General Medical Corp., Series
A, Sub. Debentures
12.125%, 8/15/05 Caa 2,001 2,081,040
Gillett Holdings, Inc.
Series A, Sr. Sub. Notes
12.25%, 6/30/02 N/R 535 559,504
Grand Casinos, Inc.
First Mortgage Bonds
10.125%, 12/1/03 Ba3 900 954,000
Griffin Gaming & Entertainment
Mortgage Notes
11.00%, 9/15/03 N/R 1,000 1,000,000
(2)(4)(6) Hemmeter Enterprises, Inc.
Sr. Notes
12.00%, 12/15/00 N/R 892 356,630
ICON Health & Fitness, Inc.,
Series B, Sr. Sub. Notes
13.00%, 7/15/02 B3 500 555,000
Magellan Health Services,
Inc.,
Series A, Sr. Sub. Notes
11.25%, 4/15/04 B2 250 273,750
Meditrust
Convertible Debentures
7.50%, 3/1/01 Baa3 3,000 3,030,000
Motels of America, Inc.,
Series B, Sr. Sub. Notes
12.00%, 4/15/04 B3 500 488,750
OrNda HealthCorp.
Sr. Sub. Notes
12.25%, 5/15/02 B2 1,000 1,085,000
Red Roof Inns, Inc.
Sr. Exchange Notes
9.625%, 12/15/03 B3 900 891,000
Regency Health Services, Inc.
Gtd. Sr. Sub Notes
9.875%, 10/15/02 B2 600 604,500
Santa Fe Hotel, Inc.
First Mortgage Notes
11.00%, 12/15/00 B2 363 264,990
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------
- -----------------
Station Casinos, Inc.
Sr. Sub. Notes
9.625%, 6/1/03 B2 $ 450 $ 436,500
Stratosphere Corp.
First Mortgage Notes
14.25%, 5/15/02 B2 350 423,500
Time Warner, Inc.
Debentures
6.85%, 1/15/26 Ba1 1,450 1,409,168
Trump's Castle Funding, Inc.
Mortgage Bonds
11.75%, 11/15/03 Caa 1,000 935,000
Trump Plaza Funding, Inc.
First Mortgage Notes
10.875%, 6/15/01 B3 850 943,500
Wright Medical Technology,
Series B, Sr. Secured
Debentures
10.75%, 7/1/00 B3 250 257,500
------------
GROUP TOTAL 28,392,894
------------
- -----------------------------------------------------------------------------
- -----------------
TRANSPORTATION (2.3%)
CHC Helicopter Corp.
Yankee Sr. Sub. Notes
11.50%, 7/15/02 B3 750 712,500
Ferrovie dello Stato
Notes
9.125%, 7/6/09 N/R 3,000 3,167,610
USAir, Inc.
Gtd. Sr. Notes
10.00%, 7/1/03 B3 1,000 925,000
------------
GROUP TOTAL 4,805,110
------------
- -----------------------------------------------------------------------------
- -----------------
TOTAL CORPORATE OBLIGATIONS
(Cost $164,069,515) 159,644,259
------------
- -----------------------------------------------------------------------------
- -----------------
GOVERNMENT & AGENCY SECURITIES (10.0%)
- -----------------------------------------------------------------------------
- -----------------
FEDERAL HOME LOAN BANK (3.0%)
Discount Note
Zero Coupon, 4/1/96 Aaa 6,185 6,183,196
------------
- -----------------------------------------------------------------------------
- -----------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (3.7%)
30 yr. TBA
7.00% Aaa 1,950 1,851,272
REMIC-PAC Series 1989-23,
Class D
10.20%, 9/25/18 Aaa 4,348 4,550,442
STRIPS, Series H, Class 2
11.50%, 5/01/09 Aaa 1,277 1,373,881
------------
GROUP TOTAL 7,775,595
------------
- -----------------------------------------------------------------------------
- -----------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (0.2%)
Various Pools:
10.50%, 9/15/15-8/15/16 Aaa 330 362,570
------------
- -----------------------------------------------------------------------------
- -----------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------
- -----------------
U.S. TREASURY NOTES (3.1%)
5.375%, 5/31/98 TSY $2,500 $ 2,476,950
7.25%, 5/15/04 TSY 3,800 4,007,214
------------
GROUP TOTAL 6,484,164
------------
- -----------------------------------------------------------------------------
- -----------------
TOTAL GOVERNMENT & AGENCY SECURITIES
(Cost $20,943,876) 20,805,525
------------
- -----------------------------------------------------------------------------
- -----------------
COLLATERALIZED SECURITY (3.4%)
- -----------------------------------------------------------------------------
- -----------------
COLLATERALIZED MORTGAGE OBLIGATIONS (3.4%)
Drexel, Burnham & Lambert
Trust
REMIC-PAC, Series S, Class 2
9.00%, 8/1/18
(Cost $7,357,738) Aaa 6,901 7,023,475
------------
- -----------------------------------------------------------------------------
- -----------------
ASSET BACKED OBLIGATIONS (3.2%)
- -----------------------------------------------------------------------------
- -----------------
Green Tree Financial Corp.
Manufactured Housing
Installment Sale Contracts
Series 1993-4, Class B1
7.20%, 1/15/19 Baa3 2,000 1,999,062
Household Affinity Credit Card
Master Trust I
Series 1993-3, Class B
4.95%, 3/15/99 A2 2,500 2,484,375
(9) Merrill Lynch Home Equity
Acceptance Trust Series
1994-A, Class A2
6.188%, 7/17/22 A3 2,119 2,132,478
------------
- -----------------------------------------------------------------------------
- -----------------
TOTAL ASSET BACKED OBLIGATIONS
(Cost $6,086,534) 6,615,915
------------
- -----------------------------------------------------------------------------
- -----------------
Shares
- -----------------------------------------------------------------------------
- -----------------
COMMON STOCKS (1.0%)
- -----------------------------------------------------------------------------
- -----------------
COMMUNICATIONS (0.0%)
Pagemart, Inc. 7,000 0
Pegasus Media &
Communications, Inc. 25 0
------------
GROUP TOTAL 0
------------
- -----------------------------------------------------------------------------
- -----------------
CONSUMER PRODUCTS (0.3%)
(1)(5)(6) Applause Enterprises, Inc.
(acquired 11/8/91, cost
$144,400) 3,800 11,400
(1) Mail-Well, Inc. 7,102 71,020
(1) Specialty Foods Corp. 30,000 22,500
(1)(5)(6) TLC Beatrice International
Holdings, Inc.
(acquired 11/19/91-11/21/91,
cost $1,018,750) 25,000 575,000
------------
GROUP TOTAL 679,920
------------
- -----------------------------------------------------------------------------
- -----------------
Shares Value
- -----------------------------------------------------------------------------
- -----------------
FINANCE (0.0%)
Capital Holding Corp. 6,667 $ 1,533
(1)(5)(6)(7) Westfed Holdings, Inc., Class
B
(acquired 9/20/88, cost $383) 12,670 0
------------
GROUP TOTAL 1,533
------------
- -----------------------------------------------------------------------------
- -----------------
MANUFACTURING (0.2%)
(1) Alpine Group, Inc. 65,878 279,981
(1)(5)(6)(7) CIC I Acquisition Corp.
(acquired 10/18/89, cost
$1,076,715) 2,944 200,192
Polyvision Corp. 8,137 17,800
------------
GROUP TOTAL 497,973
------------
- -----------------------------------------------------------------------------
- -----------------
RETAIL TRADE (0.0%)
(1)(5)(6) Jewel Recovery L.P.
(acquired 7/30/93, cost $0) 49,559 0
------------
- -----------------------------------------------------------------------------
- -----------------
SERVICES (0.5%)
(1) Gillett Holdings, Inc. 42,500 1,020,000
(1)(5)(6)(7) Lady Luck Gaming Corp.
(acquired 2/15/94-2/22/94,
cost $144,532) 11,040 4,416
(1)(3) Motels of America, Inc. 500 40,000
------------
GROUP TOTAL 1,064,416
------------
- -----------------------------------------------------------------------------
- -----------------
TOTAL COMMON STOCKS
(Cost $3,765,133) 2,243,842
------------
- -----------------------------------------------------------------------------
- -----------------
PREFERRED STOCKS (1.5%)
- -----------------------------------------------------------------------------
- -----------------
COMMUNICATIONS (0.5%)
(3) Cablevision Systems, Inc.,
11.125% PIK, Series L 2,500 249,375
(3) K-III Communications Corp.
10% Exchangeable, Series C 5,000 500,000
SD Warren Co.
14% Exchangeable 12,000 372,000
------------
GROUP TOTAL 1,121,375
------------
- -----------------------------------------------------------------------------
- -----------------
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
------------
- -----------------------------------------------------------------------------
- -----------------
MANUFACTURING (0.2%)
GPA Group Plc 7% Cum. Cv. 11,000 379,500
------------
</TABLE>
9
<PAGE>
<TABLE>
<C> <S> <C> <C> <C>
Shares Value
- -----------------------------------------------------------------------------
- -----------------
- -----------------------------------------------------------------------------
- -----------------
OIL, GAS & ELECTRIC (0.8%)
(1)(7) Consolidated Hydro, Inc.,
13.50% CV. Exchangeable,
Series H 3,000 $ 1,635,000
------------
- -----------------------------------------------------------------------------
- -----------------
TOTAL PREFERRED STOCKS
(Cost $6,439,932) 3,135,875
------------
- -----------------------------------------------------------------------------
- -----------------
WARRANTS (0.3%)
- -----------------------------------------------------------------------------
- -----------------
(1) American Telecasting, Inc.,
expiring 6/23/99 525 2,756
(1)(3) Boomtown, Inc.,
expiring 11/1/98 500 0
(1)(3)(6) Capital Gaming International,
expiring 2/1/99 5,687 171
(1) Casino America, Inc.,
expiring 11/15/96 3,263 0
(1) Casino Magic Corp.,
expiring 10/14/96 9,000 90
(1) CHC Helicopter Corp.,
expiring 12/15/00 6,000 3,000
(1) Commodore Media, Inc.,
expiring 5/1/00 300 3,600
(1)(7) Consolidated Hydro, Inc.,
expiring 12/31/03 5,400 27,000
(1) County Seat Stores, Inc.,
expiring 10/15/98 1,520 76
(1)(6) Crown Packaging Holdings,
expiring 11/1/03 2,000 16,000
(1) Dial Call Communicaitons,
expiring 4/25/99 750 7
(1)(3) Elsinore Corp.,
expiring 10/8/98 79,941 0
(1) General Media, Inc.,
expiring 12/22/00 500 500
expiring 12/31/00 625 626
(1)(3) Great American Cookie Co.,
expiring 1/30/00 225 0
(1) Gulf States Steel Acquisition
Corp,
expiring 4/15/00 400 0
(1) Hemmeter Enterprises, Inc.,
expiring 12/15/99 9,000 0
(1) Horeshoe Gaming L.L.C. 250 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 0
(1) MVE Inc.,
expiring 2/15/02 650 0
(1) Petro Shopping Centers L.P.,
expiring 6/1/97 500 16,500
(1) Presidential Riverboat
Casinos, expiring 9/23/96 6,000 0
Shares Value
- -----------------------------------------------------------------------------
- -----------------
(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 36,000
(1) Sheffield Steel Corp.,
expiring 11/1/01 6,250 18,750
(1) Spanish Broadcasting Systems,
expiring 6/29/99 1,500 225,000
(1) Uniroyal Technology Corp.,
expiring 6/1/03 5,000 7,500
(1) United International Holdings,
expiring 11/15/99 2,950 0
(1)(3) Wright Medical Technology,
expiring 6/30/03 618 101,911
------------
- -----------------------------------------------------------------------------
- -----------------
TOTAL WARRANTS
(Cost $435,671) 526,987
------------
- -----------------------------------------------------------------------------
- -----------------
RIGHTS (0.0%)
(1) Terex Corp.
expiring 5/15/02 (Cost $0) 6,000 0
------------
- -----------------------------------------------------------------------------
- -----------------
<CAPTION>
Face
Moody's Amount
Ratings (000)
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------
- -----------------
UNITS (2.0%)
- -----------------------------------------------------------------------------
- -----------------
(8) American Communications
Services, Inc.
Sr. Discount Notes
0.00%, 11/1/05 N/R $2,000 1,120,000
Cellular Communications,
International, Inc.
Notes, Zero Coupon, 8/15/00 B3 2,000 1,185,000
(3)(8) GST Telecommunications
Sr. Discount Notes
0.00%, 12/15/05 N/R 2,000 1,100,000
Horseshoe Gaming L.L.C.
Senior Notes
12.75%, 9/15/00 B1 500 538,750
(8) Winstar Communications, Inc.
Senior Discount Notes
0.00%, 10/15/05 N/R 500 282,500
------------
- -----------------------------------------------------------------------------
- -----------------
TOTAL UNITS
(Cost $2,986,017) 4,226,250
------------
- -----------------------------------------------------------------------------
- -----------------
TOTAL INVESTMENTS (98.3%)
(Cost $212,084,416) 204,222,128
------------
- -----------------------------------------------------------------------------
- -----------------
</TABLE>
10
<PAGE>
<TABLE>
<C> <S> <C> <C> <C>
Value
- -----------------------------------------------------------------------------
- -----------------
OTHER ASSETS IN EXCESS OF LIABILITIES (1.7%)
$ 3,504,836
------------
- -----------------------------------------------------------------------------
- -----------------
NET ASSETS (100%)
Applicable to 24,385,367 issued and
outstanding $.001par value shares
(authorized 100,000,000 shares) $207,726,964
------------
------------
- -----------------------------------------------------------------------------
- -----------------
NET ASSET VALUE PER SHARE $ 8.52
------------
------------
- -----------------------------------------------------------------------------
- -----------------
MARKET PRICE PER SHARE $ 8.13
------------
------------
- -----------------------------------------------------------------------------
- -----------------
N/R--Not Rated.
PAC--Planned Amortization Class.
PIK--Payment in Kind.
REMIC--Real Estate Mortgage Investment Conduit.
STRIPS--Separate 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 March 31, 1996 aggregated $5,996,772. Total market value
of restricted securities owned at March 31, 1996 was $791,008 or 0.4%
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
March 31, 1996.
(10) A portion of this security was pledged as collateral for delayed
delivery securities.
</TABLE>
11
