<PAGE>
BEA Income Fund, Inc.
153 East 53rd Street
New York, NY 10022
---------------------------------------------
OFFICERS AND DIRECTORS
William W. Priest, Jr. Hal Liebes
CHAIRMAN OF THE BOARD SENIOR VICE PRESIDENT
Prof. Enrique R. Arzac Michael A. Pignataro
DIRECTOR SECRETARY
Lawrence J. Fox Wendy S. Setnicka
DIRECTOR VICE PRESIDENT
James S. Pasman, Jr. AND ASSISTANT SECRETARY
DIRECTOR Paul P. Stamler
Richard J. Lindquist TREASURER
PRESIDENT AND CHIEF Paul Roselli
INVESTMENT OFFICER ASSISTANT TREASURER
Suzanne E. Moran
INVESTMENT OFFICER
--------------------------------------------------------
INVESTMENT ADVISER
BEA Associates
153 East 53rd Street
New York, New York 10022
Phone 1-800-293-1232
--------------------------------------------------------
ADMINISTRATOR
Chase Global Funds Services Co.
73 Tremont Street
Boston, Massachusetts 02108
--------------------------------------------------------
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
--------------------------------------------------------
SHAREHOLDER SERVICING AGENT
The Chase Manhattan Bank
4 New York Plaza
New York, New York 10004
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 description of the Plan and additional information concerning
terms and conditions, and any applicable charges relating to the Plan, is
included at the back of this report.
--------------------------------------------------------
BEA Income Fund, Inc.
---------------------------------------------
SEMI-ANNUAL REPORT
June 30, 1997
<PAGE>
BEA INCOME FUND, INC.
- ----------
Dear Shareholders: August 11, 1997
We are pleased to report on the activities of the BEA Income Fund, Inc. ("the
Fund") for the six-months ended June 30, 1997.
At June 30, 1997, the Fund's net asset value ("NAV") was $8.19, compared to
an NAV of $8.12 at December 31, 1996. As a result, the Fund's total return
(based on NAV and assuming reinvestment of dividends of $0.40 per share) for the
period was 6.01%. The Fund's total return for the quarter ended June 30, 1997
was 4.40% (based on NAV and assuming reinvestment of dividends of $.18 per
share).
THE MARKET
Performance of fixed income markets during the second quarter was broadly
positive. Prices of most debt subcategories, which had fallen in March over
concern about a hike in interest rates, erased March's losses and rose even
higher.
The market's turnaround is attributable to two factors. First, the Federal
Reserve chose not to raise interest rates at its Open Market Committee meetings
in May and July. Second, government data increasingly suggested an absence of
inflationary pressures on the economy.
Both the investment-grade and high yield debt sectors generated strong
returns in the quarter. The Lehman Brothers Aggregate Bond Index rose 3.7%,
reflecting strong performance from investment-grade subcategories. High grade
corporate bonds and mortgage-backed securities were most notable in this regard.
High yield generated the best returns of any U.S. debt sector both for the
quarter and the year to date, with the yield spreads between high yield and
Treasury instruments narrowing to record lows. The Salomon Brothers High-Yield
Market Index returned 4.5% and 6.0% in the quarter and six months, respectively,
versus the 3.7% and 3.1% gains posted by the Lehman Aggregate index during the
same periods.
The vitality of the high yield market is reflected by several meaningful
indicators:
- - MUTUAL FUND INFLOWS. According to Chase Securities, individuals poured $5.1
billion of net new cash into high yield mutual funds during the quarter, up
from $4.2 billion in the first quarter and $3.9 billion in the second quarter
of 1996. The year-to-date total of $9.3 billion is 45.3% higher than the $6.4
billion taken in during 1996's first six months.
- - NEW ISSUES. The decline in interest rates during the quarter made terms more
attractive both for new issues and refinancings of outstanding paper. Chase
Securities calculates total new supply at $33.9 billion, compared to $25.8
billion in the first quarter and $22.8 in last year's second quarter. The
$59.7 billion in year-to-date new issuance is a six-month record and not far
from the $73.6 billion recorded in all of 1996.
- - YIELDS. Lower market yields mean that prices are strengthening. The average
market-weighted new-issue offer yield in June was 9.73%, down from 9.97% in
May and 10.62% for 1996 as a whole. The average yield for the overall high
yield market dropped to 9.21%, versus 9.39% on July 1, 1996.
- - MARKET SIZE. The size of the high yield market at June 30, 1997 was
estimated by Chase Securities at $388 billion, the highest such level ever.
PORTFOLIO REVIEW
Our general strategy during the quarter was to maintain existing positions
and adjust the portfolio only as necessary. The Fund's performance, then, is
primarily attributable to the strength of its individual high yield holdings and
sector weightings. Positions in investment-grade securities tended to detract
from overall returns.
Portfolio weightings were responsible for the positive showing of the Fund's
five most heavily weighted sectors. Since the top four (I.E., cable and media,
telecommunications, gaming and metals/mining) all generated higher returns for
the Fund than they did within standard high yield market indices, for example,
our overweighting of these sectors relative to the indices was especially
fruitful. Our underweighting of the fifth-largest sector, energy, succeeded
because the indices' energy components generally performed poorly.
OUTLOOK
In light of the Fed's decision to leave interest rates unchanged, we view
the fundamental environment for
2
<PAGE>
high yield securities as remaining positive through the second half of 1997.
Technical factors, however, may present some danger. These include the potential
for excess supply in the market from new issues and refinancings; and the surge
of the equity market, which creates additional downside risk for issuers whose
earnings do not meet expectations. We are monitoring market conditions
accordingly.
The longer-term outlook remains bright. As long as interest rates and the
threat of inflation continue to be relatively low, investors should have ample
liquidity and will seek out the highest yields available in the marketplace. Two
other auspicious factors that we have previously noted are worthy of
reiteration. These are the need for greater diversification of retirement plan
assets as cash inflows rise, and the increasing comfort level of many
institutional investors with below-investment-grade fixed income in their asset
mixes.
We see several new areas of opportunity in the investment-grade sector.
There are pockets of value in the AA and AAA corporate sectors, which have been
overlooked due to investors' preference for higher-yielding securities. The
industries we favor include cable and media, energy, transportation and electric
utilities. We also like mortgage-backed bonds, which are attractive at the
current low level of interest-rate volatility; taxable municipals; AA and AAA
corporates of intermediate maturity; and securitizations of non-viable utility
plant and equipment.
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,
[SIGNATURE]
Richard J. Lindquist
PRESIDENT AND CHIEF INVESTMENT OFFICER*
[SIGNATURE]
William W. Priest, Jr.
CHAIRMAN OF THE BOARD*
*Richard J. Lindquist, who is a member of the Management Committee and is an
Executive Director of BEA Associates, is primarily responsible for management of
the Fund's assets. He has served in such capacity since November 21, 1996. Prior
to November 21, 1996, he served as Vice President to the Fund, a position he
assumed on August 15, 1989. Mr. Lindquist joined BEA Associates on May 1, 1995
as a result of BEA's acquisition of CS First Boston Investment Management
Corporation ("CSFBIM"). Prior to joining BEA Associates, Mr. Lindquist served
various offices at CSFBIM beginning in July, 1989. Mr. Lindquist is also
President and Chief Investments Officer of BEA Strategic Global Income Fund,
Inc.
William W. Priest, Jr. who is Chairman of the Management Committee and holds
the offices of Executive Director and Chief Executive Officer of BEA Associates,
joined BEA Associates in 1972. Mr. Priest is Director and President of The
Indonesia Fund, Inc. and Director and Chairman of the Board of BEA Strategic
Global Income Fund, Inc., The Brazilian Equity Fund, Inc., The Chile Fund, Inc.,
The Emerging Markets Infrastructure Fund, Inc., The Emerging Markets
Telecommunications Fund, Inc., The First Israel Fund, Inc., The Latin America
Equity Fund, Inc., The Latin America Investment Fund, Inc. and The Portugal
Fund, Inc., all of which are managed by BEA Associates.
3
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
- ---------
JUNE 30, 1997
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
CORPORATE OBLIGATIONS (77.5%)
- --------------------------------------------------------------------------------
- ----------------
BROADCASTING (4.8%)
(8) Benedek Communications Corp.
Sr. Sub. Discount Notes
0.00%, 5/15/06 B3 $ 250 $ 153,125
(3)(8) Capstar Broadcasting Partners,
Inc.
Sr. Discount Notes
0.00%, 2/1/09 N/R 2,000 1,290,000
(8) Commodore Media, Inc.
Gtd. Sr. Sub. Notes
7.50%, 5/1/03 B3 300 327,000
(8) EchoStar Communications Corp.
Gtd. Sr. Discount Notes
0.00%, 6/1/04 B2 1,500 1,269,375
Granite Broadcasting Corp.
Sr. Sub. Notes
9.375%, 12/1/05 B3 300 285,000
Pegasus Media &
Communications, Inc.
Series B, Notes
12.50%, 7/1/05 B3 250 275,625
SFX Broadcasting, Inc.
Series B, Sr. Sub. Notes
10.75%, 5/15/06 B3 650 711,750
Sinclair Broadcast Group
Sr. Sub. Notes
10.00%, 9/30/05 B2 1,000 1,030,000
(8) Spanish Broadcasting System,
Inc.
Sr. Notes
12.50%, 6/15/02 B2 500 552,500
Turner Broadcasting Systems,
Inc.
Sr. Notes
7.40%, 2/1/04 Ba1 1,820 1,826,825
(8) UIH Australia/Pacific, Inc.
Series B, Sr. Discount Notes
0.00%, 5/15/06 B3 1,500 928,125
United International Holdings:
Sr. Secured Discount Notes
Zero Coupon, 11/15/99 B3 2,200 1,694,000
Series B, Sr. Secured
Discount Notes
Zero Coupon, 11/15/99 B3 1,000 780,000
Univision Network
Holding L.P.
Sub. Notes
Zero Coupon, 12/17/02 N/R 1,500 1,365,000
Young Broadcasting, Inc.:
(3) Sr. Sub. Debentures
8.75%, 6/15/07 B2 750 727,500
Series B, Gtd. Sr. Sub. Notes
9.00%, 1/15/06 B2 300 300,000
-------------
GROUP TOTAL 13,515,825
-------------
- --------------------------------------------------------------------------------
- ----------------
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
CABLE (6.9%)
(8) Australis Holdings Pty. Ltd.
Yankee Sr. Secured
Discount Notes 0.00%, 11/1/02 B2 $ 2,250 $ 1,223,103
(3) CCA Holdings Corp.
Sr. Sub. Notes
13.00%, 12/31/99 N/R 1,500 1,627,500
Cablevision System Corp.:
Sr. Sub. Debentures
9.875%, 2/15/13 B2 850 896,750
Sr. Sub. Notes
9.875%, 5/15/06 B2 400 429,000
Century Communications Corp.
Sr. Notes
9.75%, 2/15/02 Ba3 500 521,250
Charter Communications
Southeast L.P.
Series B, Sr. Notes
11.25%, 3/15/06 B3 450 486,000
Comcast Corp.
Sr. Sub. Notes:
9.375%, 5/15/05 B1 180 189,000
9.125%, 10/15/06 B1 750 783,750
Continental Cablevision, Inc.
Sr. Debentures
9.50%, 8/1/13 Baa2 600 681,000
(3)(8) DIVA Systems Corp.
Units
0.00%, 5/15/06 N/R 1,925 1,155,000
(4) Falcon Holding Group L.P.
Sr. Sub. Notes
11.00%, 9/15/03 N/R 1,660 1,668,765
Helicon Group L.P.
Series B, Sr. Secured Notes
11.00%, 11/1/03 B1 2,000 2,027,500
Lenfest Communications, Inc.:
Sr. Notes
8.375%, 11/1/05 Ba3 250 246,875
Sr. Sub. Notes
10.50%, 6/15/06 B2 1,000 1,090,000
(8) Marcus Cable Co.
Sr. Discount Notes
0.00%, 12/15/05 Caa 1,600 1,272,000
NTL, Inc.:
(8) Series A, Sr. Deferred Coupon
Notes
0.00%, 4/15/05 B3 1,000 777,500
(8) Series B, Sr. Deferred Coupon
Notes
0.00%, 2/1/06 B3 1,000 695,000
Series B, Sr. Notes
10.00%, 2/15/07 B3 500 512,500
(3) OpTel, Inc.
Units
13.00%, 2/15/05 B3 500 487,500
(9) TCI Communications, Inc.
Remarket Floating Rate Reset
Notes
6.463%, 9/15/03 Ba1 1,140 1,139,430
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
(8) Telewest Communications plc
Yankee Sr. Sub. Discount
Debentures
0.00%, 10/1/07 B1 $ 2,450 $ 1,776,250
-------------
GROUP TOTAL 19,685,673
-------------
- --------------------------------------------------------------------------------
- ----------------
CHEMICALS (2.4%)
Harris Chemical N.A.
Sr. Secured Debentures
10.25%, 7/15/01 B2 1,050 1,092,000
ISP Holdings Inc.
Series B, Sr. Notes
9.75%, 2/15/02 Ba3 289 308,146
LaRoche Industries, Inc.
Sr. Sub. Notes
13.00%, 8/15/04 B3 400 442,000
NL Industries Inc.:
Sr. Secured Debentures
11.75%, 10/15/03 B1 250 271,250
(8) Sr. Secured Discount
Debentures
0.00%, 10/15/05 B2 800 748,000
Rexene Corp.
Sr. Notes
11.75%, 12/1/04 B1 1,000 1,151,250
(8) Sterling Chemical Holdings,
Inc.
Sr. Secured Discount Notes
0.00%, 8/15/08 Caa 1,000 672,500
Texas Petrochemical Corp.
Series B, Sr. Sub. Notes
11.125%, 7/1/06 B3 350 377,125
UCC Investor's Holdings, Inc.
Sr. Sub. Notes
11.00%, 5/1/03 B3 1,500 1,612,500
-------------
GROUP TOTAL 6,674,771
-------------
- --------------------------------------------------------------------------------
- ----------------
CONSTRUCTION & BUILDING MATERIALS (1.0%)
Atrium Companies Inc.
Sr. Sub. Notes
10.50%, 11/15/06 B3 750 772,500
(8) Building Materials Corp.
Series B, Sr. Deferred Notes
0.00%, 7/1/04 Ba3 900 816,750
(3) Collins & Aikman Floor
Coverings, Inc.
Sr. Sub. Notes
10.00%, 1/15/07 B3 550 556,875
(3) MMI Products, Inc.
Sr. Sub. Notes
11.25%, 4/15/07 B2 150 160,125
(8) Waxman Industries Inc.
Series B, Sr. Secured
Deferred Notes
0.00%, 6/1/04 Caa 600 510,000
-------------
GROUP TOTAL 2,816,250
-------------
- --------------------------------------------------------------------------------
- ----------------
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
CONSUMER PRODUCTS & SERVICES (1.8%)
(3)(8) Coinstar, Inc.
Sr. Discount Notes
0.00%, 10/1/06 N/R $ 1,700 $ 1,294,125
Jordan Industries, Inc.
Sr. Notes
10.375%, 8/1/03 B3 1,440 1,526,400
Renaissance Cosmetics, Inc.
Sr. Notes
11.75%, 2/15/04 N/R 900 942,750
Revlon Consumer Products, Inc.
Series B, Sr. Sub. Notes
10.50%, 2/15/03 B3 800 852,000
(4) Town & Country Corp.
Sr. Sub. Notes
13.00%, 5/31/98 Ca 878 535,689
-------------
GROUP TOTAL 5,150,964
-------------
- --------------------------------------------------------------------------------
- ----------------
ELECTRONICS (1.4%)
Advanced Micro Devices, Inc.
Sr. Secured Notes
11.00%, 8/1/03 Ba1 850 954,125
Celestica International Inc.
Gtd. Sr. Sub. Yankee Notes
10.50%, 12/31/06 N/R 1,100 1,188,000
Unisys Corp.:
Series B, Sr. Notes
12.00%, 4/15/03 B1 1,000 1,092,500
Sr. Notes
11.75%, 10/15/04 B1 225 245,812
(3) Viasystems, Inc.
Sr. Sub. Notes
9.75%, 6/1/07 B3 400 410,000
-------------
GROUP TOTAL 3,890,437
-------------
- --------------------------------------------------------------------------------
- ----------------
ENERGY (4.2%)
Abraxas Petroleum Corp.
Series B, Sr. Notes
11.50%, 11/1/04 B2 1,550 1,701,125
(3) Belden & Blake Energy Co.
Gtd. Sr. Sub. Notes
9.875%, 6/15/07 N/R 500 500,000
Bellwether Exploration Co.
Gtd. Sr. Sub. Notes
10.875%, 4/1/07 B3 1,450 1,555,125
Dawson Production Services,
Inc.
Sr. Notes
9.375%, 2/1/07 B1 300 307,500
Forcenergy, Inc.
Series B, Sr. Sub. Notes
8.50%, 2/15/07 N/R 725 710,500
Gulf Canada Resources Ltd.
Yankee Sr. Sub. Debentures
9.25%, 1/15/04 Ba2 750 789,375
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
H.S. Resources, Inc.:
Sr. Sub. Notes
9.875%, 12/1/03 B2 $ 500 $ 515,625
Gtd. Sr. Sub. Notes
9.25%, 11/15/06 B2 750 753,750
Maxus Energy Corp.:
Notes
9.375%, 11/1/03 B1 350 376,250
Series B, Notes
9.375%, 11/1/03 B1 450 482,625
(8) Mesa Operating Co.
Gtd. Sr. Sub. Discount Notes
0.00%, 7/1/06 Ba2 1,200 927,000
National Energy Group, Inc.
Sr. Notes
10.75%, 11/1/06 B1 1,000 1,037,500
Noble Drilling Corp.
Sr. Notes
9.125%, 7/1/06 Baa2 500 547,500
(3) Panda Global Energy Co.
Yankee Sr. Secured Notes
12.50%, 4/15/04 N/R 550 534,188
Parker Drilling Co.
Series B, Gtd. Sr. Notes
9.75%, 11/15/06 B1 300 313,500
Plains Resources Inc.
Series B, Gtd. Sr. Sub. Notes
10.25%, 3/15/06 B2 500 538,750
(3)(8) TransAmerican Energy Corp.
Sr. Secured Discount Notes
0.00%, 6/15/02 N/R 500 362,500
-------------
GROUP TOTAL 11,952,813
-------------
- --------------------------------------------------------------------------------
- ----------------
ENTERTAINMENT (1.3%)
American Skiing Co.
Series B, Sr. Sub. Notes
12.00%, 7/15/06 B3 425 448,375
(3) Booth Creek Ski Holdings, Inc.
Sr. Notes
12.50%, 3/15/07 Caa 1,000 1,032,500
(3) Cinemark USA, Inc.
Series C, Sr. Sub. Notes
9.625%, 8/1/08 B2 600 613,500
Genmar Holdings, Inc.
Series A, Sr. Sub. Notes
13.50%, 7/15/01 Caa 500 486,875
(2) Marvel III Holdings, Inc.
Series B, Sr. Secured
Debentures
9.125%, 2/15/98 C 1,100 129,250
Time Warner Inc.
Debentures
6.85%, 1/15/26 Ba1 1,095 1,077,119
-------------
GROUP TOTAL 3,787,619
-------------
- --------------------------------------------------------------------------------
- ----------------
FINANCIAL SERVICES (10.5%)
AT&T Capital Corp.
Series 4, Medium Term Notes:
6.275%, 6/9/98 Baa3 1,100 1,100,077
6.26%, 2/18/99 Baa3 290 289,638
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
American Banknote Corp.
Series B, Sr. Notes
11.625%, 8/1/02 B2 $ 750 $ 761,250
Arcadia Financial Ltd.
Units
11.50%, 3/15/07 B2 475 485,688
Associates Corp. of
North America
Sr. Debentures
5.96%, 5/15/37 Aa3 1,150 1,157,165
BellSouth Capital
Funding Corp.
Debentures
6.04%, 11/15/26 Aa1 1,700 1,724,089
Chase Manhattan Corp.
Sub. Notes
7.25%, 6/1/07 A1 800 803,000
Citicorp:
(6) Sr. Notes
5.625%, 2/15/01 A1 1,500 1,451,250
Sub. Notes
7.20%, 6/15/07 A1 485 486,819
Consorcio G Grupo Dina
S.A./MCII Holdings (U.S.A.),
Inc.
Sr. Secured Notes
Zero Coupon, 11/15/02 N/R 2,100 1,813,875
First Maryland Bancorp
Sub. Notes
7.20%, 7/1/07 A3 1,100 1,099,373
GMAC
Medium Term Notes
6.90%, 6/6/00 A3 2,000 2,014,640
General Electric Capital Corp.
Remarketed Reset Notes
6.29%, 12/15/07 Aaa 2,150 2,112,117
(3) Goldman Sachs Group L.P.
Medium Term Notes
6.20%, 2/15/01 A1 3,000 2,928,750
L'Auxiliare du Credit Foncier
de France:
Sr. Unsub. Notes
8.00%, 1/14/02 A3 320 332,400
(9) Gtd. Sub. Notes
5.906%, 10/22/02 Baa3 680 654,500
Long Island Savings
Bank F.S.B.
Notes
7.00%, 6/13/02 Baa3 770 770,000
(9) Midland Bank plc
Series 1M Perpetual Primary
Capital Notes
6.125% A1 230 207,736
(9) National Westminster
Bank plc
Series A, Perpetual
Sub. Notes
5.938% Aa3 470 428,429
Norwest Financial Inc.
Sr. Notes
7.50%, 4/15/05 Aa3 1,100 1,131,834
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
Olympus Communications,
L.P./Olympus Capital Corp.
Series B, Sr. Notes
10.625%, 11/15/06 B1 $ 1,000 $ 1,057,500
(3)(8) PTC International
Finance B.V.
Gtd. Notes
0.00%, 7/1/07 N/R 350 216,344
(9) Royal Bank of Canada
Sub. Debentures
6.00%, 6/29/85 Aa3 220 200,750
(9) Skandinaviska Enskilda Banken
AB
Perpetual Sub. Notes:
6.625% Baa1 400 396,652
7.50% N/R 1,250 1,257,562
Trans Financial Bank N.A.:
Notes
6.48%, 10/23/98 Baa3 1,250 1,247,962
Sr. Notes
6.32%, 10/17/97 Baa3 1,750 1,752,572
Travelers Group, Inc.
Sr. Notes
6.625%, 9/15/05 Aa3 500 487,515
(2) Westfed Holdings
Sr. Debentures
15.50%, 9/15/99 N/R 1,750 1,242,500
-------------
GROUP TOTAL 29,611,987
-------------
- --------------------------------------------------------------------------------
- ----------------
FOOD & BEVERAGES (1.2%)
(3) Archibald Candy Corp.
Gtd. Sr. Secured Notes
10.25%, 7/1/04 B2 550 558,250
Fresh Del Monte Produce N.V.
Series B, Yankee Sr. Notes
10.00%, 5/1/03 Caa 800 822,000
Gorges/Quick-To-Fix Foods,
Inc.
Series B, Sr. Sub. Notes
11.50%, 12/1/06 B3 1,000 1,030,000
International Home Foods, Inc.
Gtd. Sr. Sub. Notes
10.375%, 11/1/06 B2 1,000 1,037,500
-------------
GROUP TOTAL 3,447,750
-------------
- --------------------------------------------------------------------------------
- ----------------
HEALTH CARE (3.0%)
ICON Health & Fitness, Inc.
Series B, Sr. Sub. Notes
13.00%, 7/15/02 B3 500 562,500
(3) Integrated Health Services,
Inc.
Sr. Sub. Notes
10.25%, 4/30/06 B1 400 427,000
Meditrust
Conv. Debentures
7.50%, 3/1/01 Baa3 3,000 3,060,000
Merck & Co.
Series B, Medium
Term Notes
5.76%, 5/3/37 N/R 1,650 1,656,187
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
Paracelsus Healthcare
Sr. Sub. Notes
10.00%, 8/15/06 B1 $ 1,700 $ 1,734,000
Regency Health Services, Inc.
Gtd. Sr. Sub. Notes
9.875%, 10/15/02 B2 500 512,500
(3) UROHEALTH Systems, Inc.
Units
12.50%, 4/1/04 B3 500 488,750
-------------
GROUP TOTAL 8,440,937
-------------
- --------------------------------------------------------------------------------
- ----------------
INDUSTRIAL GOODS & MATERIALS (5.5%)
AMTROL Acquisition Inc.
Sr. Sub. Notes
10.625%, 12/31/06 B3 400 418,000
Alpine Group, Inc.
Series B, Gtd. Sr.
Secured Notes
12.25%, 7/15/03 B3 500 550,000
Atlantis Group, Inc.
Sr. Notes
11.00%, 2/15/03 B2 585 608,400
CLARK Material
Handling Co.
Gtd. Sr. Notes
10.75%, 11/15/06 B1 550 578,875
Haynes International, Inc.
Sr. Notes
11.625%, 9/1/04 B3 500 540,625
(8) IHF Holdings Inc.
Series B, Sr. Sub.
Discount Notes
0.00%, 11/15/04 Caa 1,250 1,031,250
Interlake Corp.
Sr. Sub. Debentures
12.125%, 3/1/02 B3 1,000 1,050,000
International Knife & Saw,
Inc.
Sr. Sub. Notes
11.375%, 11/15/06 N/R 750 806,250
MVE Inc.
Sr. Secured Debentures
12.50%, 2/15/02 B3 850 872,313
Mafco, Inc.
Sr. Sub. Notes
11.875%, 11/15/02 B3 550 594,687
Motors and Gears, Inc.
Series B, Sr. Notes
10.75%, 10/15/06 B3 1,500 1,554,375
(3) Neenah Corp.
Sr. Sub. Notes
11.125%, 5/1/07 B3 500 532,500
Plastic Specialties &
Technologies, Inc.
Sr. Secured Debentures
11.25%, 12/1/03 B3 500 535,000
SRI Receivables Purchase Co.,
Inc.
Series B, Notes
12.50%, 12/15/00 N/R 1,500 1,560,000
Seagate Technology, Inc.
Sr. Debentures
7.45%, 3/1/37 Baa3 900 900,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
Specialty Equipment Companies,
Inc.
Sr. Sub. Notes
11.375%, 12/1/03 B3 $ 1,500 $ 1,635,000
Terex Corp.
Series B, Sr. Secured Notes
13.25%, 5/15/02 Caa 1,500 1,683,750
-------------
GROUP TOTAL 15,451,025
-------------
- --------------------------------------------------------------------------------
- ----------------
METALS & MINING (3.7%)
AK Steel Corp.
Gtd. Sr. Notes
10.75%, 4/1/04 Ba2 1,450 1,566,000
Algoma Steel, Inc.
Yankee First Mortgage Notes
12.375%, 7/15/05 B1 500 552,500
Armco, Inc.
Sr. Notes
11.375%, 10/15/99 B2 815 839,450
Bayou Steel Corp.
First Mortgage Notes
10.25%, 3/1/01 B2 400 397,000
Gulf States Steel, Inc.
First Mortgage Notes
13.50%, 4/15/03 B1 1,200 1,209,000
Kaiser Aluminum & Chemical
Corp.:
Series D, Sr. Notes
10.875%, 10/15/06 B1 1,500 1,623,750
Sr. Sub. Notes
12.75%, 2/1/03 B2 850 926,500
Republic Engineered Steel,
Inc.
First Mortgage Bonds
9.875%, 12/15/01 Caa 500 462,500
Sheffield Steel Corp.
First Mortgage Notes
12.00%, 11/1/01 Caa 1,250 1,217,187
WCI Steel Inc.
Series B, Sr. Secured Notes
10.00%, 12/1/04 B2 1,025 1,063,438
Weirton Steel Corp.
Sr. Notes
11.375%, 7/1/04 B2 700 749,000
-------------
GROUP TOTAL 10,606,325
-------------
- --------------------------------------------------------------------------------
- ----------------
PACKAGING/CONTAINERS (2.9%)
BPC Holding Corp.
Series B, Sr. Secured Notes
12.50%, 6/15/06 Caa 1,000 1,093,750
Container Corp. of America
Gtd. Sr. Notes
9.75%, 4/1/03 B1 500 525,000
(8) Crown Packaging
Enterprises Ltd.
Sr. Secured Discount Notes
0.00%, 8/1/06 Ca 1,950 468,000
Four M Corp.
Series B, Sr. Secured Notes
12.00%, 6/1/06 B3 500 515,000
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
Gaylord Container Corp.:
(3) Sr. Notes
9.75%, 6/15/07 B3 $ 1,500 $ 1,500,000
Sr. Sub. Discount Debentures
12.75%, 5/15/05 Caa 900 985,500
(8) Ivex Holdings Corp.
Series B, Sr. Discount
Debentures
0.00%, 3/15/05 Caa 1,500 1,177,500
Radnor Holdings, Corp.
Sr. Notes
10.00%, 12/1/03 B2 500 506,250
Stone Container Corp.
Units
12.25%, 4/1/02 B3 500 513,750
(3) Stone Container Finance Co.
Yankee Gtd. Sr. Notes
11.50%, 8/15/06 B2 1,000 1,043,750
-------------
GROUP TOTAL 8,328,500
-------------
- --------------------------------------------------------------------------------
- ----------------
PAPER & FOREST PRODUCTS (1.9%)
Crown Paper Co.
Sr. Sub. Notes
11.00%, 9/1/05 B3 700 696,500
Fort Howard Corp.
Sub. Notes
10.00%, 3/15/03 Ba2 1,250 1,346,875
(3) Indah Kiat Finance
Mauritius Ltd.
Gtd. Sr. Notes
10.00%, 7/1/07 N/R 750 749,062
Mail-Well Corp.
Sr. Sub. Notes
10.50%, 2/15/04 B2 1,500 1,582,500
Malette, Inc.
Yankee Sr. Secured Debentures
12.25%, 7/15/04 Ba3 180 201,600
QUNO Corp.
Yankee Sr. Notes
9.125%, 5/15/05 Baa3 315 330,750
Repap Wisconsin, Inc.
Sr. Secured Debentures
9.875%, 5/1/06 B2 400 404,000
-------------
GROUP TOTAL 5,311,287
-------------
- --------------------------------------------------------------------------------
- ----------------
PUBLISHING & INFORMATION SERVICES (1.2%)
Belo (A.H.) Corp.
Sr. Notes
6.875%, 6/1/02 Baa2 750 750,000
General Media, Inc.
Sr. Notes
10.625%, 12/31/00 Caa 625 541,406
(8) InterAct Systems, Inc.
Sr. Discount Notes
0.00%, 8/1/03 N/R 750 343,125
Lamar Advertising Co.
Gtd. Sr. Sub. Notes
9.625%, 12/1/06 B1 550 565,125
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
Peterson Publishing Co.,
L.L.C./Peterson Capital Corp.
Series B, Gtd. Sr. Sub. Notes
11.125%, 11/15/06 B3 $ 450 $ 501,750
Universal Outdoor, Inc.
Series B, Sr. Sub. Notes
9.75%, 10/15/06 B1 750 778,125
-------------
GROUP TOTAL 3,479,531
-------------
- --------------------------------------------------------------------------------
- ----------------
RESTAURANTS, HOTELS & GAMING (6.2%)
Boomtown, Inc.
First Mortgage Notes
11.50%, 11/1/03 B1 500 540,000
(2) Capital Gaming International,
Inc.
Promissory Notes
10.125%, 8/1/95 N/R 1 62
Casino America, Inc.
Gtd. Sr. Notes
12.50%, 8/1/03 B1 1,400 1,456,000
(3) Casino Magic of
Louisiana, Corp.
First Mortgage Notes
13.00%, 8/15/03 B3 2,550 2,250,375
(4) Colorado Gaming &
Entertainment, Co.
Gtd. Sr. Notes
12.00%, 6/1/03 N/R 1,480 1,478,520
(2) Elsinore Corp.
First Mortgage Notes
12.50%, 10/1/00 N/R 1,500 780,000
Empress River Casino Finance
Corp.
Gtd. Sr. Notes
10.75%, 4/1/02 Ba3 500 536,875
G.B. Property Funding Corp.
Gtd. First Mortgage Notes
10.875%, 1/15/04 B3 1,100 979,000
HMC Acquisition Properties,
Series B, Gtd. Sr. Notes
9.00%, 12/15/07 Ba3 450 461,250
Horseshoe Gaming L.L.C.:
Series B, Gtd. Sr. Notes
12.75%, 9/30/00 B1 750 826,875
(3) Sr. Sub. Notes
9.375%, 6/15/07 B3 1,500 1,509,375
Majestic Star Casino L.L.C.
Sr. Exchange Secured Notes
12.75%, 5/15/03 B2 200 219,250
Mohegan Tribal
Gaming Authority
Series B, Sr. Secured Notes
13.50%, 11/15/02 Ba1 900 1,182,375
Prime Hospitality Corp.
Secured First
Mortgage Notes
9.25%, 1/15/06 Ba2 975 1,011,563
Red Roof Inns, Inc.
Sr. Exchange Notes
9.625%, 12/15/03 B2 900 931,500
Santa Fe Hotel, Inc.
Gtd. First Mortgage Notes
11.00%, 12/15/00 Caa 354 261,960
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
Trump Atlantic City Associates
Secured First
Mortgage Notes
11.25%, 5/1/06 B1 $ 900 $ 879,750
(3) Waterford Gaming L.L.C./
Waterford Gaming
Finance Corp.
Sr. Notes
12.75%, 11/15/03 N/R 1,600 1,774,000
Wyndham Hotel Corp.
Gtd. Sr. Sub. Notes
10.50%, 5/15/06 B2 300 336,000
-------------
GROUP TOTAL 17,414,730
-------------
- --------------------------------------------------------------------------------
- ----------------
RETAIL (3.8%)
(2) Barry's Jewelers, Inc.
Sr. Secured Notes
11.00%, 12/22/00 Caa 2,200 1,432,750
Brylane L.P.
Gtd. Sr. Sub. Notes
10.00%, 9/1/03 B1 500 535,000
(2) County Seat Stores, Inc.
Sr. Sub. Notes
12.00%, 10/1/02 Ca 1,520 699,200
Dairy Mart Convenience Stores,
Inc.
Sr. Sub. Notes
10.25%, 3/15/04 B3 1,000 995,000
Farm Fresh, Inc.
Sr. Notes
12.25%, 10/1/00 Caa 960 811,200
Great American Cookie Co.
Series B, Sr. Secured
Debentures
10.875%, 1/15/01 B3 1,250 1,262,500
Hills Stores Co.
Gtd. Sr. Notes
12.50%, 7/1/03 B2 800 622,000
Jitney-Jungle Stores of
America, Inc.
Gtd. Sr. Notes
12.00%, 3/1/06 B2 250 277,500
K Mart Corp.
Debentures
7.75%, 10/1/12 Ba3 1,175 1,075,125
Parisian, Inc.
Sr. Sub. Notes
9.875%, 7/15/03 B1 1,250 1,312,500
Pathmark Stores, Inc.
Sr. Sub. Notes
9.625%, 5/1/03 B3 700 684,250
(3) Shoppers Food
Warehouse Corp.
Gtd. Sr. Secured Notes
9.75%, 6/15/04 B1 1,000 1,002,500
-------------
GROUP TOTAL 10,709,525
-------------
- --------------------------------------------------------------------------------
- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
TELECOMMUNICATIONS (11.2%)
Advanced Radio
Telecommunications Corp.
Units
14.00%, 2/15/07 Caa $ 900 $ 913,500
(8) American Communications
Services, Inc.
Sr. Discount Notes
0.00%, 11/1/05 N/R 2,100 1,228,500
Brooks Fiber Properties, Inc.:
(8) Sr. Discount Notes:
0.00%, 3/1/06 N/R 1,000 680,000
0.00%, 11/1/06 N/R 2,375 1,543,750
(3) Sr. Notes
10.00%, 6/1/07 N/R 1,050 1,068,375
(8) COLT Telecom Group plc
Yankee Units
0.00%, 12/15/06 N/R 400 261,000
Cellular Communications
International, Inc.
Units
Zero Coupon, 8/15/00 B3 2,000 1,485,000
(8) Dial Call Communications
Sr. Discount Notes
0.00%, 4/15/04 B3 1,100 911,625
(8) Diamond Cable Communications
plc
Yankee Discount Notes
0.00%, 12/15/05 B3 1,850 1,281,125
(3)(8) GST Telecommunications, Inc.
Conv. Sr. Sub. Discount Notes
0.00%, 12/15/05 N/R 200 124,000
(8) GST USA, Inc.
Gtd. Sr. Discount Notes
0.00%, 12/15/05 N/R 1,700 1,032,750
(3) Geotek Communications, Inc.
Conv. Sr. Sub. Notes
12.00%, 12/15/01 Caa 1,000 950,000
(8) ICG Holdings, Inc.:
Gtd. Sr. Discount Notes
0.00%, 9/15/05 N/R 650 474,500
Gtd. Sr. Exchangeable
Discount Notes
0.00%, 5/1/06 N/R 600 402,000
(3) Sr. Discount Notes
0.00%, 3/15/07 N/R 2,000 1,200,000
InterMedia Capital Partners IV
L.P./InterMedia Partners IV
Capital Corp.
Sr. Notes
11.25%, 8/1/06 B2 650 702,000
(8) MFS Communications Co., Inc.
Sr. Discount Notes
0.00%, 1/15/04 Ba3 1,100 1,023,880
(3)(8) McCaw International Ltd.
Units
0.00%, 4/15/07 N/R 1,000 500,000
NEXTLINK Communications, Inc.
Sr. Notes
12.50%, 4/15/06 N/R 350 372,750
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
(8) Nextel Communications, Inc.
Sr. Discount Notes
0.00%, 8/15/04 B3 $ 2,800 $ 2,142,000
Orion Network Systems, Inc.
Units
11.25%, 1/15/07 B2 500 520,000
(8) Pagemart Nationwide, Inc.
Sr. Discount Notes
0.00%, 2/1/05 N/R 1,750 1,321,250
(3) Petersburg Long
Distance Inc.:
Conv. Sub. Notes
9.00%, 6/1/06 N/R 230 234,600
(8) Units
0.00%, 6/1/04 N/R 1,610 1,336,300
PriCellular Wireless Corp.:
(8) Discount Notes
0.00%, 10/1/03 B3 750 690,000
Sr. Notes
10.75%, 11/1/04 B1 300 312,750
Rogers Cablesystems Ltd.
Series B, Yankee Sr. Secured
2nd Priority Notes
10.00%, 3/15/05 Ba3 300 324,000
Rogers Cantel Inc.
Yankee Sr. Secured Debentures
9.375%, 6/1/08 Ba3 350 369,250
Sprint Spectrum L.P./Sprint
Spectrum Finance Corp.
Sr. Notes
11.00%, 8/15/06 B2 1,400 1,557,500
(3) TCI Satellite Entertainment,
Inc.:
(8) Sr. Sub. Discount Notes
0.00%, 2/15/07 B3 250 147,500
Sr. Sub. Notes
10.875%, 2/15/07 B3 700 703,500
(3) Talton Holdings, Inc.
Gtd. Sr. Notes
11.00%, 6/30/07 B2 500 506,250
(3)(8) Telesystem International
Wireless, Inc.
Sr. Discount Notes
0.00%, 6/30/07 N/R 400 210,380
Teleport Communications Group,
Inc.:
(8) Sr. Discount Notes
0.00%, 7/1/07 B1 1,150 829,438
Sr. Notes
9.875%, 7/1/06 B1 750 798,750
(3) UNIFI Communications, Inc.
Units
14.00%, 3/1/04 N/R 1,000 995,000
(8) Videotron Holdings plc
Yankee Discount Notes
0.00%, 8/15/05 B3 2,000 1,670,000
Western Wireless Corp.
Sr. Sub. Notes
10.50%, 2/1/07 B3 500 520,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
(8) WinStar Communications, Inc.:
Conv. Sr. Discount Notes
0.00%, 10/15/05 Caa1 $ 250 $ 152,500
Sr. Discount Notes
0.00%, 10/15/05 Caa1 500 286,875
-------------
GROUP TOTAL 31,782,598
-------------
- --------------------------------------------------------------------------------
- ----------------
TEXTILES/APPAREL (0.6%)
Collins & Aikman Products
Sr. Sub. Notes
11.50%, 4/15/06 B3 650 731,250
Pillowtex Corp.
Gtd. Sr. Sub. Notes
10.00%, 11/15/06 B2 500 530,625
William Carter Co.
Series A, Sr. Sub. Notes
10.375%, 12/1/06 N/R 500 527,500
-------------
GROUP TOTAL 1,789,375
-------------
- --------------------------------------------------------------------------------
- ----------------
TRANSPORTATION (1.8%)
CHC Helicopter Corp.
Yankee Sr. Sub. Notes
11.50%, 7/15/02 B3 750 776,250
Norfolk Southern Corp.:
Notes:
6.95%, 5/1/02 Baa1 450 453,375
7.875%, 2/15/04 Baa1 700 728,875
7.05%, 5/1/37 Baa1 815 827,225
Series A, Medium
Term Notes
7.40%, 9/15/06 Baa1 260 263,575
USAir, Inc.
Gtd. Sr. Notes
10.00%, 7/1/03 B3 1,900 1,947,500
-------------
GROUP TOTAL 4,996,800
-------------
- --------------------------------------------------------------------------------
- ----------------
WASTE MANAGEMENT (0.2%)
(3) Allied Waste Industries, Inc.
Sr. Sub. Notes
10.25%, 12/1/06 N/R 550 594,000
-------------
- --------------------------------------------------------------------------------
- ----------------
TOTAL CORPORATE OBLIGATIONS
(Cost $215,174,595) 219,438,722
-------------
- --------------------------------------------------------------------------------
- ----------------
MUNICIPAL SECURITIES (0.6%)
--------------------------------------------------------------------------------
- ----------------
New Jersey Economic
Development Authority
Series B, Revenue Bonds:
Zero Coupon, 2/15/03 Aaa 1,605 1,106,343
Zero Coupon, 2/15/07 Aaa 1,280 653,683
-------------
- --------------------------------------------------------------------------------
- ----------------
TOTAL MUNICIPAL SECURITIES
(Cost $1,760,355) 1,760,026
-------------
- --------------------------------------------------------------------------------
- ----------------
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
GOVERNMENT & AGENCY SECURITIES (7.3%)
- --------------------------------------------------------------------------------
- ----------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (3.5%)
Various Pools
7.00%, 3/1/11-6/1/27 Aaa $ 9,316 $ 9,256,545
REMIC-PAC Series 1262, Class H
4.50%, 11/15/20 Aaa 850 734,714
-------------
GROUP TOTAL 9,991,259
-------------
- --------------------------------------------------------------------------------
- ----------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (2.0%)
Pool# 303784
7.00%, 3/1/11 Aaa 1,980 1,979,365
REMIC-PAC Series 1989-23,
Class D
10.20%, 9/25/18 Aaa 2,572 2,682,891
STRIPS, Series H, Class 2
11.50%, 5/1/09 Aaa 979 1,083,300
-------------
GROUP TOTAL 5,745,556
-------------
- --------------------------------------------------------------------------------
- ----------------
TENNESSEE VALLEY AUTHORITY (0.6%)
Power Bonds, 1996 Series A
5.98%, 4/1/36 N/R 1,530 1,542,362
-------------
- --------------------------------------------------------------------------------
- ----------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (1.0%)
Various Pools:
6.00%, 2/20/27 Aaa 2,549 2,568,398
10.50%, 9/15/15-8/15/16 Aaa 282 312,267
-------------
GROUP TOTAL 2,880,665
-------------
- --------------------------------------------------------------------------------
- ----------------
UNITED STATES DEPARTMENT OF VETERANS AFFAIRS (0.2%)
Vendee Mortgage Trust
REMIC Series 1994-2, Class 3F
6.50%, 10/15/15 N/R 400 381,372
-------------
- --------------------------------------------------------------------------------
- ----------------
TOTAL GOVERNMENT & AGENCY SECURITIES
(Cost $20,243,659) 20,541,214
-------------
- --------------------------------------------------------------------------------
- ----------------
COLLATERALIZED MORTGAGE OBLIGATIONS (3.5%)
- --------------------------------------------------------------------------------
- ----------------
Asset Securitization Corp.:
Series 1995-MD4, Class A1
7.10%, 8/13/29 N/R 1,222 1,235,884
Series 1996-D3, Class A1B
7.21%, 10/13/26 Aaa 600 609,750
Series 1996-MD6, Class A6
7.108%, 11/13/26 Baa2 420 422,888
Series 1997-D4, Class A1D
7.49%, 4/14/29 Aaa 600 617,344
Series 1997-MD7, Class A1B
7.41%, 1/13/30 Aaa 430 440,481
Chase Commercial Mortgage
Securities Corp.:
Series 1996-2, Class A2
6.90%, 9/19/06 N/R 550 540,545
Series 1997-1, Class A2
7.37%, 2/19/07 N/R 940 952,634
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
Drexel, Burnham & Lambert
Trust
REMIC-PAC, Series S, Class 2
9.00%, 8/1/18 Aaa $ 4,924 $ 4,925,649
Merrill Lynch Mortgage
Investors, Inc.
Series 1996-C2, Class A2
6.82%, 11/21/28 N/R 310 308,500
-------------
- --------------------------------------------------------------------------------
- ----------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $10,386,231) 10,053,675
-------------
- --------------------------------------------------------------------------------
- ----------------
ASSET BACKED OBLIGATIONS (4.6%)
--------------------------------------------------------------------------------
- ----------------
Capita Equipment Receivables
Trust, Series 1996-1, Class
A3
6.11%, 7/15/99 Aaa 1,250 1,248,825
Green Tree Financial Corp.
Manufactured Housing
Installment Sale Contracts:
Series 1993-4, Class B1
7.20%, 1/15/19 Baa3 2,000 2,004,360
Series 1995-4, Class A3
6.30%, 7/15/25 Aaa 350 349,234
Series 1995-7, Class A2
6.15%, 11/15/26 Aaa 1,308 1,308,529
Series 1995-7, Class A3
6.35%, 11/15/26 Aaa 1,300 1,298,305
Series 1997-3, Class B1
6.73%, 7/15/28 Aaa 1,650 1,656,188
Merrill Lynch Home Equity
Acceptance Trust, Series
1994-A, Class A-2
6.44%, 7/17/22 A3 1,486 1,486,211
Metris Master Trust,
MasterCard Credit Card
Receivables
Series 1997-1, Class A
6.87%, 10/20/05 Aaa 900 904,221
Nationscredit Grantor Trust,
Boat Retail Installment Sale
Contracts,
Series 1996-1, Class A
5.85%, 9/15/11 Aaa 933 915,567
Sears Credit Account Master
Trust, Credit Card
Receivables
Series 1996-1, Class A
6.20%, 2/16/06 Aaa 1,750 1,730,326
-------------
- --------------------------------------------------------------------------------
- ----------------
TOTAL ASSET BACKED OBLIGATIONS
(Cost $14,226,132) 12,901,766
-------------
- --------------------------------------------------------------------------------
- ----------------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares/ Units (Note A-1)
<C> <S> <C> <C>
- -------------------------------------------------------------------------
- ----------------
COMMON STOCKS (1.2%)
- -------------------------------------------------------------------------
- ----------------
BROADCASTING (0.0%)
(1) Pegasus Communications Corp. 564 $ 6,274
-------------
- -------------------------------------------------------------------------
- ----------------
CONSUMER PRODUCTS & SERVICES (0.0%)
(1)(5) Applause Enterprises, Inc.
(acquired 11/8/91,
cost $144,400) 3,800 11,400
-------------
- -------------------------------------------------------------------------
- ----------------
FINANCIAL SERVICES (0.0%)
(1)(5)(7) Westfed Holdings Inc.
Class B (acquired 9/20/88,
cost $383) 12,670 0
-------------
- -------------------------------------------------------------------------
- ----------------
FOOD & BEVERAGE (0.5%)
(1)(5) Dr. Pepper Bottling Holdings,
Inc. Class A (acquired
2/25/97,
cost $1,181,250) 75,000 1,387,500
(1)(3) Specialty Foods Corp. 30,000 7,500
-------------
GROUP TOTAL 1,395,000
-------------
- -------------------------------------------------------------------------
- ----------------
INDUSTRIAL GOODS & MATERIALS (0.1%)
(1)(5)(7) CIC I Acquisition Corp.
(acquired 10/18/89,
cost $1,076,715) 2,944 200,192
-------------
- -------------------------------------------------------------------------
- ----------------
PACKAGING/CONTAINERS (0.0%)
(1) Crown Packaging Enterprises
Ltd. 253,500 2,535
-------------
- -------------------------------------------------------------------------
- ----------------
PAPER & FOREST PRODUCTS (0.1%)
(1) Mail-Well, Inc. 10,653 303,611
-------------
- -------------------------------------------------------------------------
- ----------------
RESTAURANTS, HOTELS & GAMING (0.5%)
(1) Capital Gaming
International, Inc. 6,667 67
(1) Casino America Inc. 14,947 32,689
(1) Colorado Gaming
& Entertainment, Co. 26,465 79,395
(1) Motels of America, Inc. 500 25,000
Vail Resorts Inc. 46,000 1,164,352
-------------
GROUP TOTAL 1,301,503
-------------
- -------------------------------------------------------------------------
- ----------------
RETAIL (0.0%)
(1)(5) Jewel Recovery L.P.
(acquired 7/30/93, cost $0) 49,559 0
-------------
- -------------------------------------------------------------------------
- ----------------
TELECOMMUNICATIONS (0.0%)
(1) Pagemart Nationwide, Inc. 7,000 52,500
-------------
- -------------------------------------------------------------------------
- ----------------
TOTAL COMMON STOCKS
(Cost $3,737,162) 3,273,015
-------------
- -------------------------------------------------------------------------
- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
Value
Shares/ Units (Note A-1)
<C> <S> <C> <C>
- -------------------------------------------------------------------------
- ----------------
PREFERRED STOCKS (3.9%)
- -------------------------------------------------------------------------
- ----------------
AEROSPACE/DEFENSE (0.5%)
(1) GPA Group plc
7% Second Preference Cum.
Conv. 2,875,000 $ 1,480,625
-------------
- -------------------------------------------------------------------------
- ----------------
BROADCASTING (0.6%)
(1) Pegasus Communications Corp.
Units 250 245,000
(1)(3) Spanish Broadcasting
System, Inc.
14.25% Cumulative
Exchangeable 15,000 1,395,000
-------------
GROUP TOTAL 1,640,000
-------------
- -------------------------------------------------------------------------
- ----------------
CABLE (0.7%)
(1)(3) NTL Inc.
13% Exchangeable 2,067 2,170,350
-------------
- -------------------------------------------------------------------------
- ----------------
CONSUMER PRODUCTS & SERVICES (0.1%)
(1) Renaissance Cosmetics, Inc.
14% Cumulative 330 291,280
-------------
- -------------------------------------------------------------------------
- ----------------
ENERGY (0.0%)
(1)(7) Consolidated Hydro, Inc.
13.50% Series H, Conv. 3,000 30,000
-------------
- -------------------------------------------------------------------------
- ----------------
FINANCIAL SERVICES (0.4%)
Chevy Chase Preferred
Capital Corp.
10.375% Noncumulative
Exchangeable, Series A, Conv. 20,000 1,050,000
(1)(5)(7) West Fed Holdings, Inc.
Class A
(acquired 9/20/88-6/18/93,
cost $3,611,992) 42,759 42,759
-------------
GROUP TOTAL 1,092,759
-------------
- -------------------------------------------------------------------------
- ----------------
PAPER & FOREST PRODUCTS (0.3%)
(1) SD Warren Co.
14% Cumulative Exchangeable,
Series B 21,459 922,737
-------------
- -------------------------------------------------------------------------
- ----------------
PUBLISHING & INFORMATION SERVICES (0.2%)
K-III Communications Corp.
10% Cumulative Exchangeable,
Series D 5,000 490,000
-------------
- -------------------------------------------------------------------------
- ----------------
RESTAURANTS, HOTELS & GAMING (0.4%)
(1) AmeriKing, Inc.
13.00% Cumulative
Exchangeable 15,000 420,000
(1) Lady Luck Gaming Corp.
Series A 20,000 700,000
-------------
GROUP TOTAL 1,120,000
-------------
- -------------------------------------------------------------------------
- ----------------
RETAIL (0.4%)
(1) Jitney-Jungle Stores of
America, Inc.
15.00% Class A 7,500 1,068,750
-------------
- -------------------------------------------------------------------------
- ----------------
<CAPTION>
Value
Shares/ Units (Note A-1)
<C> <S> <C> <C>
- -------------------------------------------------------------------------
- ----------------
TELECOMMUNICATIONS (0.3%)
(1)(3) Intermedia Communications
13.5% Exchangeable, Series B 2,500 $ 260,000
(1) NEXTLINK Communications, Inc.
14% Cumulative Exchangeable 9,836 521,308
-------------
781,308
-------------
- -------------------------------------------------------------------------
- ----------------
TOTAL PREFERRED STOCKS
(Cost $14,754,183) 11,087,809
-------------
- -------------------------------------------------------------------------
- ----------------
RIGHTS (0.0%)
- -------------------------------------------------------------------------
- ----------------
(1) Terex Corp.,
expiring 5/15/02
(Cost $0) 6,000 90,000
-------------
- -------------------------------------------------------------------------
- ----------------
WARRANTS (0.4%)
- -------------------------------------------------------------------------
- ----------------
(1) America Communications
Services, Inc.
expiring 11/1/05 2,000 100,000
(1) American Telecasting, Inc.
expiring 6/23/99 525 262
(1) Australis Holdings Pty Ltd.
expiring 10/1/01 2,250 3,398
(1) Boomtown, Inc.
expiring 11/1/98 500 5
(1) CHC Helicopter Corp.
expiring 12/15/00 6,000 6,750
(1)(3) Capital Gaming International,
Inc. expiring 2/1/99 5,687 0
(1) Casino America, Inc.
expiring 5/3/01 2,646 2,315
(1) Coinstar, Inc.
expiring 10/1/06 1,700 0
(1)(7) Consolidated Hydro, Inc.
expiring 12/31/03 5,400 0
(1) County Seat Stores, Inc.
expiring 10/15/98 1,520 15
(1) Crown Packaging Holdings, Ltd.
expiring 11/1/03 2,000 250
(1) Dairy Mart Convenience Stores,
Inc. expiring 5/13/98 11,665 23,330
(1) Elsinore Corp.
expiring 10/8/98 79,941 0
(1) General Media Inc.
expiring 12/22/00 500 500
(1) General Media Inc.
expiring 12/31/00 625 625
(1) Great American Cookie Co.
expiring 1/30/00 225 2,250
(1) Hemmeter Enterprises, Inc.
expiring 12/15/99 9,000 0
(1) IHF Capital, Inc.
expiring 11/14/99 500 27,500
(1) In-Flight Phone Corp.
expiring 8/31/02 1,000 0
(1) IntelCom Group, Inc.
expiring 9/1/05 2,145 28,957
(1) Interact Systems, Inc.
expiring 8/1/03 750 0
(1) NEXTLINK Communications
expiring 2/1/09 9,500 95
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
Value
Shares/ Units (Note A-1)
<C> <S> <C> <C>
- -------------------------------------------------------------------------
- ----------------
(1) Nextel Communications, Inc.
expiring 4/25/99 750 $ 8
(1) Purity Supreme
expiring 8/1/97 5,198 0
(1) Renaissance Cosmetics, Inc.:
(3) expiring 4/3/01 3,000 150,000
expiring 8/31/06 300 30,000
(1) SD Warren Co.
expiring 12/15/06 12,000 60,000
(1) Sheffield Steel Corp.
expiring 11/1/01 6,250 18,750
(1) Spanish Broadcasting Systems:
expiring 6/29/99 1,500 180,000
expiring 6/29/99 1,500 330,000
(1) United International Holdings
expiring 11/15/99 2,950 14,750
(1) Wright Medical Technology
expiring 6/30/03 618 61,765
-------------
- -------------------------------------------------------------------------
- ----------------
TOTAL WARRANTS
(Cost $384,221) 1,041,525
-------------
- -------------------------------------------------------------------------
- ----------------
TOTAL INVESTMENTS (99.0%)
(Cost $280,666,538) 280,187,752
-------------
- -------------------------------------------------------------------------
- ----------------
OTHER ASSETS IN EXCESS OF LIABILITIES (1.0%)
2,959,172
-------------
- -------------------------------------------------------------------------
- ----------------
</TABLE>
<TABLE>
<CAPTION>
Value
(Note A-1)
<C> <S> <C> <C>
- -------------------------------------------------------------------------
- ----------------
NET ASSETS (100%)
Applicable to 34,568,304 issued and
outstanding $.001 par value shares
(authorized 100,000,000 shares) $ 283,146,924
-------------
-------------
- -------------------------------------------------------------------------
- ----------------
</TABLE>
N/R--Not Rated.
PAC--Planned Amortization Class.
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 June 30, 1997 aggregated $6,014,740. Total market value of
restricted securities owned at June 30, 1997 was $1,641,851 or .6% of net
assets.
(6) All or a portion of this security was pledged as collateral for delayed
delivery securities.
(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,
1997.
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES June 30, 1997
(Unaudited)
<S> <C>
- ---------------------------------------------------------------------------------------------------
ASSETS:
Investments at Value
(Cost $280,666,538) (Note A-1)............................................ $280,187,752
Interest Receivable (Note A-4).............................................. 4,263,497
Receivable for Investments Sold............................................. 4,736,031
Dividend Receivable (Note A-4).............................................. 25,937
Other Assets................................................................ 55,556
- ---------------------------------------------------------------------------------------------------
Total Assets............................................................ 289,268,773
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
Due to Custodian Bank....................................................... 683,720
Payables:
Investments Purchased..................................................... 4,858,346
Investment Advisory Fees (Note B)......................................... 347,700
Shareholders' Reports..................................................... 105,251
Professional Fees......................................................... 48,524
Shareholder Servicing Fees................................................ 39,319
Administrative Fees (Note C).............................................. 27,060
Custodian Fees............................................................ 9,162
Other Liabilities........................................................... 2,767
- ---------------------------------------------------------------------------------------------------
Total Liabilities....................................................... 6,121,849
- ---------------------------------------------------------------------------------------------------
NET ASSETS...................................................................... $283,146,924
-----------------
-----------------
NET ASSETS CONSIST OF:
Capital Shares at $.001 Par Value........................................... $ 34,568
Capital Paid in Excess of Par Value......................................... 294,334,576
Undistributed Net Investment Income......................................... 1,453,133
Accumulated Net Realized Loss............................................... (12,196,567)
Unrealized Depreciation on Investments...................................... (478,786)
------------------
NET ASSETS APPLICABLE TO 34,568,304 ISSUED AND OUTSTANDING SHARES (AUTHORIZED
100,000,000 SHARES)........................................................... $283,146,924
-----------------
-----------------
NET ASSET VALUE PER SHARE....................................................... $ 8.19
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS Six Months Ended
June 30, 1997
(Unaudited)
<S> <C>
- ------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest (Note A-4)..................................... $13,258,108
Dividends (Note A-4).................................... 285,562
- ------------------------------------------------------------------------------
Total Income.......................................... 13,543,670
- ------------------------------------------------------------------------------
EXPENSES:
Investment Advisory Fees (Note B)....................... 692,089
Administrative Fees (Note C)............................ 167,349
Shareholder Servicing Fees.............................. 82,303
Shareholders' Reports................................... 69,681
Professional Fees....................................... 39,411
Custodian Fees.......................................... 30,962
Directors' Fees and Expenses............................ 18,862
Other................................................... 54,266
- ------------------------------------------------------------------------------
Total Expenses........................................ 1,154,923
- ------------------------------------------------------------------------------
Expense Offset (Note A-4)............................... (2,624)
- ------------------------------------------------------------------------------
Net Expenses.......................................... 1,152,299
- ------------------------------------------------------------------------------
Net Investment Income................................. 12,391,371
- ------------------------------------------------------------------------------
NET REALIZED LOSS ON INVESTMENTS............................ (801,749)
- ------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/ DEPRECIATION ON
INVESTMENTS............................................... 4,565,185
- ------------------------------------------------------------------------------
Net Realized Loss and Change in Unrealized
Appreciation/Depreciation................................. 3,763,436
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations........ $16,154,807
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C>
Six Months Ended
June 30, 1997 Year Ended
(Unaudited) December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Income....................................................... $ 12,391,371 $ 20,314,612
Net Realized Gain (Loss) on Investments..................................... (801,749) 1,381,989
Change in Unrealized Appreciation/Depreciaion on Investments................ 4,565,185 2,288,346
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ 16,154,807 23,984,947
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income....................................................... (13,820,394) (23,166,099)
- ----------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Common Stock Issued through Reinvestment of Distributions (22,367 shares)... 178,925 --
Common Stock Issued through Rights Offering (10,160,570 shares)............. -- 69,923,776
Offering Costs.............................................................. -- (550,000)
- ----------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Capital Share Transactions...... 178,925 69,373,776
- ----------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets.............................................. 2,513,338 70,192,624
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Period......................................................... 280,633,586 210,440,962
- ----------------------------------------------------------------------------------------------------------------------
End of Period (Including undistributed net investment income of $1,453,133
and $2,882,156, respectively).............................................. $283,146,924 $280,633,586
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
FINANCIAL HIGHLIGHTS June 30, 1997 ----------------------------------------------------
PER SHARE OPERATING PERFORMANCE: (Unaudited) 1996 1995Section 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD............................ $ 8.12 $ 8.63 $ 8.05 $ 9.00 $ 8.42 $ 8.28
- ---------------------------------------------------------------------------------------------------------
Offering Costs..................... -- (0.02) -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Investment Activities:
Net Investment Income.......... 0.36 0.75 0.86 0.83 0.91 0.89
Net Realized and Unrealized
Gain (Loss) on Investments.... 0.11 0.18 0.48 (1.06) 0.57 0.08
- ---------------------------------------------------------------------------------------------------------
Total from Investment
Activities.................. 0.47 0.93 1.34 (0.23) 1.48 0.97
- ---------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income.......... (0.40) (0.90) (0.76) (0.72) (0.90) (0.83)
- ---------------------------------------------------------------------------------------------------------
Decrease in Net Asset Value due to
Shares Issued through Rights
Offering.......................... -- (0.52) -- -- -- --
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD..... $ 8.19 $ 8.12 $ 8.63 $ 8.05 $ 9.00 $ 8.42
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF
PERIOD............................ $ 8.19 $ 7.63 $ 7.88 $ 7.00 $ 8.50 $ 8.38
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Net Asset Value (1)............ 6.01%# 10.59%+ 17.41% (2.67)% 18.47% 11.95%
Market Value................... 12.85%# 10.05%+ 24.34% (9.48)% 12.46% 12.09%
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Net Assets, End of Period
(Thousands)....................... $283,147 $280,634 $210,441 $196,379 $219,355 $203,846
- ---------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net
Assets Including Expense
Offsets........................... 0.83%* 0.94% 0.92% 0.83% 0.88% 0.86%
Ratio of Expenses to Average Net
Assets............................ 0.83%* 0.95% -- -- -- --
Ratio of Net Investment Income to
Average Net Assets................ 8.95%* 9.23% 10.22% 9.75% 10.34% 10.38%
Portfolio Turnover Rate............ 52.0%# 81.0% 44.1% 70.6% 117.5% 115.2%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Section BEA Associates replaced CS First Boston Investment management as the
Fund's investment adviser effective June 13, 1995.
* Annualized
# Not Annualized
+ Adjusted for Rights Offering.
(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.
The accompanying notes are an integral part of the financial statements.
16
<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 $272,951 (or 0.10% of net
assets) at June 30, 1997. 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.
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.
Custodian fees for the Fund have been increased to include expense offsets
for custodian balance credits.
5. DELAYED DELIVERY COMMITMENTS: The Fund may purchase or sell securities on a
when-issued or forward commitment basis. Payment and delivery may take place
a month or more after the date of the transaction. The price of the
underlying securities and the date when the securities will be delivered and
paid for are fixed at the time the transaction is negotiated.
6. 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
17
<PAGE>
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.
Chase provides transfer agent services to the Fund. Under the Transfer Agent
Agreement, Chase 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 Chase.
D. During the six months ended June 30, 1997, the Fund made purchases of
$86,071,504 and sales of $76,789,543 of investment securities other than U.S.
Government securities and short term investments. During the six months ended
June 30, 1997, purchases and sales of U.S. Government securities were
$62,973,448 and $64,557,087, respectively. At June 30, 1997, the cost of
investments for Federal income tax purposes was $280,666,538. Accordingly, net
unrealized depreciation for Federal income tax purposes aggregated $478,786, of
which $12,131,450 related to appreciated securities and $12,610,236 related to
depreciated securities.
At December 31, 1996 the Fund had a capital loss carryforward of $11,235,467
available to offset future capital gains of which $4,225,267, $882,969,
$3,865,851 and $2,261,380 will expire on December 31, 1998, 1999, 2000 and 2003,
respectively.
E. At June 30, 1997, 65.03% 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, 1997.
G. The Fund issued to its shareholders of record as of the close of business on
September 27, 1996 transferable Rights to subscribe for up to an aggregate of
10,160,570 shares of Common Stock of the Fund at a rate of one share of Common
Stock for three Rights held at the subscription price of $7.15 per share. During
October 1996, the Fund issued a total of 10,160,570 shares of Common Stock on
exercize of such Rights. Rights' offering costs of $550,000 were charged
directly against the proceeds of the Offering.
18
<PAGE>
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
THREE MONTHS ENDED
----------------------------------------------------------------------------
MARCH 31, 1997 JUNE 30, 1997
----------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income............. $ 7,183 $ 0.21 $ 6,361 $ 0.18
Net Investment Income......... 6,609 0.19 5,782 0.17
Net Realized Gain/Loss and
Change in Unrealized
Appreciation/Depreciation on
Investments.................. (2,551) (0.07) 6,315 0.18
Net Increase in Net Assets
Resulting from Operations.... 4,058 0.12 12,097 0.35
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
MARCH 31, 1996 JUNE 30, 1996 1996 1996
----------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income............. $ 5,283 $ 0.22 $ 5,408 $ 0.22 $ 5,922 $ 0.24 $ 5,769 $ 0.15
Net Investment Income......... 4,771 0.20 4,924 0.20 5,445 0.22 5,175 0.13
Net Realized Gain/Loss and
Change in Unrealized
Appreciation/Depreciation on
Investments.................. 1,294 0.05 (648) (0.03) 1,811 0.08 1,213 0.08
Net Increase in Net Assets
Resulting from Operations.... 6,065 0.25 4,276 0.17 7,256 0.30 6,388 0.21
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
MARCH 31, 1995 JUNE 30, 1995 1995 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
</TABLE>
SUPPLEMENTAL PROXY INFORMATION (UNAUDITED)
The Annual Meeting of the Stockholders of the BEA Income Fund, Inc. was held on
Monday May 12, 1997 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. Enrique R. Arzac, Lawrence J. Fox,
James S. Pasman, Jr. and William W. Priest,
Jr. 24,991,346 286,487 --
2. To ratify the selection of Price Waterhouse
LLP as independent public accountants of the
Fund until the next annual meeting. 24,940,895 81,290 255,648
</TABLE>
19
<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 may elect to have all
dividends and distibutions, net of any applicable U.S. withholding tax,
automatically reinvested in additional shares of the Fund by the Chase Manhattan
Bank, as the plan agent (the "Plan Agent"). Shareholders who do not make this
election 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 wish
to have dividends and distributions automatically reinvested should notify the
Plan Agent for the Fund, at Dividend Reinvestment Department -- Retail,
4 New York Plaza, New York, NY 1004. 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, 4 New York Plaza, New York, NY 10004.
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.
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
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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, 4 New York
Plaza, New York, NY 10004. Be sure to include a reference to BEA Income Fund,
Inc. or you may call (800) 428-8890.
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