<PAGE>
BEA Income Fund, Inc.
153 East 53rd Street
New York, NY 10022
---------------------------------------------
OFFICERS AND DIRECTORS
William W. Priest, Jr. Suzanne E. Moran
CHAIRMAN OF THE BOARD INVESTMENT OFFICER
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 John M. Corcoran
INVESTMENT OFFICER ASSISTANT TREASURER
--------------------------------------------------------
INVESTMENT ADVISER
BEA Associates
153 East 53rd Street
New York, New York 10022
--------------------------------------------------------
ADMINISTRATOR
Chase Global Funds Services Company
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.
---------------------------------------------
FIRST QUARTER REPORT
March 31, 1997
<PAGE>
BEA INCOME FUND, INC.
- ----------
Dear Shareholders: May 13, 1997
We are pleased to report on the activities of the BEA Income Fund, Inc. ("the
Fund") for the quarter ended March 31, 1997.
At March 31, 1997, the Fund's net asset value ("NAV") was $8.02, 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 $0.22 per share) for the
period was 1.54%. At March 31, 1997, $173.1 million was invested in high-yield
debt securities; $86.4 million was invested in investment-grade debt securities;
and the balance of the Fund's investments, $15.7 million, was invested in equity
securities. The investment-grade component consisted of domestic government
obligations, short and intermediate-term mortgages, asset-backed securities and
corporate bonds of intermediate maturity. Of the debt securities, the largest
concentration (40.94%) was in B-rated issues.
THE MARKET
The first quarter was a tale of two markets for U.S. fixed income sectors
generally. In the first, which lasted roughly through mid-March, bond prices
mostly reflected jitters about a possible increase in interest rates by the
Federal Reserve. The jitters were intensified in February by comments from Fed
chairman Alan Greenspan to the effect that equities and high yield securities
were overvalued. The second phase comprised the last two-three weeks in March,
in which the jitters strengthened into fears. Such fears were realized on March
25th, when the Fed hiked short-term rates by 25 basis points (the first increase
since early 1995).
Performance both of the investment-grade and high yield sectors reflected
the shift in investor attitude from the first market phase to the second. As
represented by the Lehman Brothers Aggregate Bond Index, investment-grade's
0.55% gain through February was more than wiped out by its 1.11% drop in March.
Furthermore, after generating positive returns through February, all of the
Index's subsectors posted negative results in March. Only mortgage-backed and
asset-backed securities showed gains for the quarter as a whole.
High yield instruments followed a similar pattern. The Salomon Brothers
High-Yield Market Index, for example, fell 1.03% in March after rising 2.47%
through February. We note that, despite the March decline, the Salomon index's
1.41% return for the entire quarter is considerably better than the quarterly
results posted by most other taxable fixed income sectors.
The high yield market continued to enjoy strong demand, both from
individuals and institutions. According to Chase Securities, individuals
invested $4.2 billion in high yield mutual funds, an increase of about 70% over
the $2.5 billion invested in the first quarter of 1996. Fund flow trends
dramatically changed in March, however, as $335 million was withdrawn, following
an inflow of well over $4 billion in January and February combined.
As measured by the level of new issues, institutional appetite for high
yield was more consistent. Aggregate new issuance for the quarter was $25.8
billion, up about 40% vs. the $18.4 billion issued in the same period last year,
and rose monthly in January, February and March.
PORTFOLIO REVIEW
The factor primarily responsible for the Fund's outperformance of the broad
high yield market in the first quarter was its emphasis on generating income
rather than price appreciation. Specifically, the Fund had relatively larger
holdings of conventional cash-paying debt and smaller holdings of
deferred-interest securities ("DIS"). As most typically represented by
zero-coupon bonds, DIS tend to perform worse than cash-paying debt when interest
rates are rising and better when rates fall. This pattern applied in March, when
DIS performed far worse than the cash-pay sector. Chase Securities calculates
that the yield spread between DIS and cash-pay widened by 45 basis points. Since
only a small portion of total portfolio assets is invested in DIS, the Fund
benefited accordingly.
Our high yield industry allocations remained essentially unchanged during
the quarter, as did our views on individual-industry fundamentals.
Telecommunications and gaming continued as the portfolio's largest overweights
relative to the broad market, while the utilities group was the most significant
underweight.
The positive performance achieved by the investment-grade portion of the
Fund was attributable to the overall approach of favoring certain 'spread
products' (I.E., debt securities whose market valuation is greatly driven by the
spreads between their yields and those of U.S. Treasury debt) versus Treasuries
that had proven successful in 1996. Two sectors were most significant in this
regard:
2
<PAGE>
- - We maintained a defensive posture toward corporate debt by focusing on bonds
consistent with our themes of balance-sheet deleveraging and company
restructuring.
- - We increased the allocation to conventional pass-through mortgage-backed
securities ("MBS") in the portfolio in late 1996 in the belief that
yield-hungry and value-conscious investors would opt to increase their
exposure. This approach proved effective, as MBS enjoyed a solid rally in
December and January. We chose to realize some of the resulting gains in the
Fund's pass-through allocation by selling a modest portion into the market's
strength.
OUTLOOK
Like most fixed income sectors, high yield became increasingly volatile as
1997 began, in anticipation of a long-expected increase in interest rates by the
Federal Reserve. Such volatility continued even after the Fed finally raised
rates in late March. Our near-term view, therefore, is one of caution, and we
are closely monitoring economic and financial news accordingly.
A cautious approach is particularly appropriate in light of high yield
instruments' sensitivity not only to the interest-rate environment, but also to
investor perceptions of corporate earnings as reflected by fluctuations in the
prices of specific equities. With this in mind, we note that near-term
volatility on an individual-credit basis should also be driven by the high
seasonal level of equity-related earnings announcements.
The longer-term picture for high yield remains bright. The macroeconomic
climate continues to be favorable, default risk should stay low and general
corporate performance is expected to stay positive. We consider two other
factors notably auspicious, as well. First, the rapid growth of retirement plan
assets is compelling institutions to seek new ways of diversifying their
portfolios' overall risk. Second, many institutions already have added emerging
markets debt (whose credit quality is similar to that of high yield) to their
asset mixes and, therefore, are becoming more comfortable with the concept of
below-investment-grade fixed income.
We also are maintaining a watchful view on the investment-grade sector.
Going forward, then, we have positioned our holdings in a generally defensive
manner by raising the portfolio's allocation to relatively low-risk, liquid
government securities; adhering to our preference in corporate debt for
individual issues rather than industry bets; and keeping the MBS allocation
duration-neutral.
We appreciate your interest in the Fund and would be pleased to respond to
your questions or comments. Any questions regarding net asset value,
performance, dividends, portfolio management or allocations should be directed
to BEA Associates at (800) 293-1232. All other inquiries regarding account
information or requests for a prospectus or other reports should be directed to
the Fund's Shareholder Servicing Agent at (800) 428-8890.
Sincerely yours,
[SIG]
Richard J. Lindquist
PRESIDENT AND CHIEF INVESTMENT OFFICER
[SIG]
William W. Priest, Jr.
CHAIRMAN OF THE BOARD
3
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
- ---------
MARCH 31, 1997
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- ------------------------------------------------------------------------------
- -----------------
CORPORATE OBLIGATIONS (73.0%)
- ------------------------------------------------------------------------------
- -----------------
AEROSPACE/DEFENSE (0.4%)
GPA Holland B.V.
Series C, Medium Term Notes:
(3) 8.625%, 1/15/99 N/R $ 750 $ 751,875
(3) 9.12%, 2/24/99 N/R 250 250,625
-------------
GROUP TOTAL 1,002,500
-------------
- ------------------------------------------------------------------------------
- -----------------
BROADCASTING (4.0%)
(3)(8) Capstar Broadcasting Partners,
Inc.
Sr. Discount Notes
0.00%, 2/1/09 N/R 2,000 1,095,000
Chancellor Radio Broadcasting
Co.
Gtd. Sr. Sub. Notes
12.50%, 10/1/04 B3 750 839,062
(8) Commodore Media, Inc.
Gtd. Sr. Sub. Notes
7.50%, 5/1/03 B3 300 325,500
(8) EchoStar Communications Corp.
Gtd. Sr. Discount Notes
0.00%, 6/1/04 B2 1,500 1,282,500
Granite Broadcasting Corp. Sr.
Sub. Notes
9.375%, 12/1/05 B3 300 282,000
Pegasus Media &
Communications, Inc. Series
B, Notes
12.50%, 7/1/05 B3 250 273,750
SFX Broadcasting, Inc. Series
B, Sr. Sub. Notes
10.75%, 5/15/06 B3 650 685,750
Sinclair Broadcast Group Sr.
Sub. Notes
10.00%, 9/30/05 B2 1,000 995,000
(8) Spanish Broadcasting
System, Inc.
Sr. Notes
7.50%, 6/15/02 B3 500 527,500
(8) UIH Australia/Pacific, Inc.
Series B, Sr. Discount Notes
0.00%, 5/15/06 B3 1,500 780,000
United International Holdings:
Sr. Secured Discount Notes
Zero Coupon, 11/15/99 B3 2,200 1,573,000
Series B, Sr. Secured
Discount Notes
Zero Coupon, 11/15/99 B3 1,000 723,750
Univision Network
Holding L.P.
Sub. Notes
Zero Coupon, 12/17/02 N/R 1,500 1,365,000
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Young Broadcasting, Inc.
Series B, Gtd. Sr. Sub. Notes
9.00%, 1/15/06 B2 $ 300 $ 285,000
-------------
GROUP TOTAL 11,032,812
-------------
- -----------------------------------------------------------------------------------------------
BUSINESS SERVICES (0.4%)
(3) Intertek Finance plc
Yankee Sr. Sub. Notes
10.25%, 11/1/06 B2 600 609,000
(3)(8) Real Time Data, Inc.
Units
0.00%, 8/15/06 N/R 1,114 626,625
-------------
GROUP TOTAL 1,235,625
-------------
- ------------------------------------------------------------------------------
- -----------------
CABLE (7.1%)
(3) Adelphia Communications Corp.
Sr. Notes
9.875%, 3/1/07 N/R 750 695,625
(3)(8) Australis Holdings Pty Ltd.
Yankee Units
0.00%, 11/1/02 B2 2,250 1,386,562
(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 500 490,625
Sr. Sub. Notes
9.875%, 5/15/06 B2 400 396,000
Century Communications Corp.
Sr. Notes
9.75%, 2/15/02 Ba3 500 502,500
Charter Communications
Southeast L.P.
Series B, Sr. Notes
11.25%, 3/15/06 B3 450 465,750
Comcast Corp.
Sr. Sub Notes:
9.375%, 5/15/05 B1 180 180,000
9.125%, 10/15/06 B1 750 742,500
Continental Cablevision, Inc.
Sr. Debentures
9.50%, 8/1/13 Baa2 600 669,750
(3)(8) DIVA Systems Corp.
Units
0.00%, 5/15/06 N/R 1,925 1,135,750
(4) Falcon Holding Group L.P. Sr.
Sub. Notes
11.00%, 9/15/03 N/R 1,660 1,444,603
Helicon Group L.P.
Series B, Sr. Secured Notes
11.00%, 11/1/03 B1 2,000 2,022,500
Lenfest Communications, Inc.
Sr. Notes
8.375%, 11/1/05 Ba3 250 228,750
Sr. Sub. Notes
10.50%, 6/15/06 B2 1,000 1,020,000
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
(8) Marcus Cable Co. Sr. Discount
Notes
0.00%, 12/15/05 Caa $ 1,100 $ 778,250
NTL, Inc.:
(8) Series A, Sr. Deferred Coupon
Notes
0.00%, 4/15/05 B3 1,000 712,500
(8) Series B, Sr. Deferred Coupon
Notes
0.00%, 2/1/06 B3 1,000 620,000
(3) Sr. Notes
10.00%, 2/15/07 N/R 500 481,250
(3) Olympus Communication
L.P./Olympus Capital Corp.
Sr. Notes
10.625%, 11/15/06 B1 1,000 990,000
(3) OpTel, Inc.
Units
13.00%, 2/15/05 B3 500 478,750
(9) TCI Communications, Inc.
Remarket Floating Rate Reset
Notes
6.213%, 9/15/03 Ba1 1,140 1,134,300
(8) Telewest Communications plc
Yankee Sr. Sub. Discount
Debentures
0.00%, 10/1/07 B1 2,050 1,373,500
-------------
GROUP TOTAL 19,576,965
-------------
- ------------------------------------------------------------------------------
- -----------------
CHEMICALS (2.6%)
(8) Harris Chemical N.A.
Sr. Secured Debentures
10.25%, 7/15/01 B2 1,050 1,050,000
(3) ISP Holdings Inc.
Sr. Notes
9.75%, 2/15/02 Ba3 433 450,320
LaRoche Industries, Inc.
Sr. Sub. Notes
13.00%, 8/15/04 B3 400 432,000
NL Industries Inc.:
Sr. Secured Debentures
11.75%, 10/15/03 B1 500 525,000
(8) Sr. Secured Discount
Debentures
0.00%, 10/15/05 B2 1,000 897,500
Rexene Corp.
Sr. Notes
11.75%, 12/1/04 B1 1,000 1,120,000
(8) Sterling Chemical
Holdings, Inc.
Sr. Discount Notes
0.00%, 8/15/08 Caa 1,300 793,000
(3) Texas Petrochemicals Corp.
Series B, Sr. Sub. Notes
11.125%, 7/1/06 N/R 350 367,500
UCC Investor's Holdings, Inc.
Sr. Sub. Notes
11.00%, 5/1/03 B3 1,500 1,590,000
-------------
GROUP TOTAL 7,225,320
-------------
- -----------------------------------------------------------------------------------------------
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
CONSTRUCTION & BUILDING MATERIALS (1.0%)
(3) Atrium Companies Inc.
Sr. Sub Notes
10.50%, 11/15/06 B3 $ 1,500 $ 1,530,000
(8) Building Materials Corp.
Series B, Sr. Deferred Notes
0.00%, 7/1/04 Ba3 900 798,750
(8) Waxman Industries Inc. Series
B, Sr. Secured Deferred Notes
0.00%, 6/1/04 Caa 600 497,250
-------------
GROUP TOTAL 2,826,000
-------------
- -----------------------------------------------------------------------------------------------
CONSUMER PRODUCTS & SERVICES (1.9%)
(3)(8) Coinstar Inc.
Units
0.00%, 10/1/06 N/R 1,700 1,232,500
Jordan Industries, Inc.
Sr. Notes
10.375%, 8/1/03 B3 1,440 1,418,400
(2) Marvel III Holdings, Inc.
Series B, Sr. Secured
Debentures
9.125%, 2/15/98 C 1,100 209,000
(3) Renaissance Cosmetics, Inc.
Sr. Notes
11.75%, 2/15/04 B3 900 905,625
Revlon Consumer Products, Inc.
Series B, Sr. Sub. Notes
10.50%, 2/15/03 B3 800 844,000
(4) Town & Country Corp. Sr. Sub.
Notes
13.00%, 5/31/98 Caa 878 540,079
-------------
GROUP TOTAL 5,149,604
-------------
- ------------------------------------------------------------------------------
- -----------------
ELECTRONICS (1.2%)
Advanced Micro Devices, Inc.
Sr. Secured Notes
11.00%, 8/1/03 Ba1 850 932,875
(3) Celestica International Inc.
Gtd. Sr. Sub. Yankee Notes
10.50%, 12/31/06 B2 1,100 1,183,875
Unisys Corp.:
Series B, Sr. Notes
12.00%, 4/15/03 B1 1,000 1,045,000
Sr. Notes
11.75%, 10/15/04 B1 225 235,125
-------------
GROUP TOTAL 3,396,875
-------------
- ------------------------------------------------------------------------------
- -----------------
ENERGY (2.9%)
(3) Abraxas Petroleum Corp.
Series B, Sr. Notes
11.50%, 11/1/04 B2 1,550 1,646,875
Gulf Canada Resources Ltd.
Yankee Sr. Sub. Debentures
9.25%, 1/15/04 Ba2 750 776,250
H.S. Resources, Inc.
Sr. Sub. Notes
9.875%, 12/1/03 B2 500 505,625
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
(3) H.S. Resources, Inc.
Sr. Sub. Notes
9.25%, 11/15/06 B2 $ 750 $ 705,000
Maxus Energy Corp.:
Notes
9.375%, 11/1/03 B1 350 357,000
Series B, Notes
9.375%, 11/1/03 B1 450 459,000
(8) Mesa Operating Co.
Gtd. Sr. Sub. Discount Notes
0.00%, 7/1/06 B2 1,200 810,000
National Energy Group, Inc.
Sr. Notes
10.75%, 11/1/06 B1 1,000 1,035,000
Noble Drilling Corp. Sr. Notes
9.125%, 7/1/06 Ba2 500 535,000
Parker Drilling Company
Series B, Sr. Notes
9.75%, 11/15/06 B1 300 304,500
Plains Resources Inc. Series
B, Gtd. Sr. Sub. Notes
10.25%, 3/15/06 B2 500 527,500
TransTexas Gas Corp.
Gtd. Sr. Secured Debentures
11.50%, 6/15/02 B2 400 438,000
-------------
GROUP TOTAL 8,099,750
-------------
- ------------------------------------------------------------------------------
- -----------------
ENTERTAINMENT (1.7%)
American Skiing Company Series
B, Sr. Sub. Notes
12.00%, 7/15/06 B3 425 433,500
(3) Booth Creek Ski
Holdings, Inc.
Sr. Notes
12.50%, 3/15/07 Caa 1,000 981,250
Genmar Holdings, Inc. Series
A, Sr. Sub. Notes
13.50%, 7/15/01 Caa 500 503,750
(8) Imax Corp.,
Yankee Sr. Notes
7.00%, 3/1/01 B1 1,000 983,750
(3) Stuart Entertainment, Inc. Sr.
Sub. Notes
12.50%, 11/15/04 B3 750 750,000
Time Warner Inc.
Debentures
6.85%, 1/15/26 Ba1 1,095 1,056,117
-------------
GROUP TOTAL 4,708,367
-------------
- ------------------------------------------------------------------------------
- -----------------
FINANCIAL SERVICES (9.3%)
(6) AT&T Capital Corp. Series 3,
Medium Term Notes
6.03%, 10/27/97 Baa3 1,100 1,097,822
American Banknote Corp. Series
B, Sr. Notes
11.625%, 8/1/02 B2 750 749,063
BellSouth Capital
Funding Corp.
Debentures
6.04%, 11/15/26 Aa1 1,700 1,654,406
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Chase Manhattan Corp.
Sub. Notes
7.125%, 2/1/07 A1 $ 800 $ 779,200
Citicorp:
Sr. Notes
5.625%, 2/15/01 A1 1,500 1,428,750
Sub. Notes
7.625%, 5/1/05 A2 485 490,223
Consorcio G Grupo Dina
S.A./MCII Holdings
(U.S.A.), Inc.
Sr. Secured Notes
Zero Coupon, 11/15/02 N/R 2,100 1,808,625
(3) Dollar Financial Group, Inc.
Sr. Notes
10.875%, 11/15/06 B2 1,000 1,020,000
(6) GMAC
Medium Term Notes
6.90%, 6/6/00 A3 2,000 1,995,620
General Electric Capital Corp.
Remarketed Reset Notes
6.29%, 12/15/07 Aaa 2,150 2,078,018
(3) Goldman Sachs Group L.P.
Medium Term Notes
6.20%, 2/15/01 A1 3,000 2,883,750
L'Auxiliare Du Credit Foncier
de France:
Sr. Unsub. Notes
8.00%, 1/14/02 A3 320 328,400
(9) Gtd. Sub. Notes
5.50%, 10/22/02 Baa3 680 647,768
(9) Midland Bank Plc
Series 1M Perpetual Primary
Capital Notes
5.875% A1 470 423,305
(9) National Westminster Bank plc
Series B, Perpetual
Sub. Notes
5.9375% Aa3 1,120 1,010,016
Norwest Financial Inc.
Sr. Notes
7.50%, 4/15/05 Aa3 1,100 1,109,075
(9) Royal Bank of Canada
Sub. Debentures
5.75%, 6/29/85 Aa3 410 370,537
(9) Skandinaviska Enskilda Banken
AB,
Perpetual Sub. 6.625% Baa1 1,300 1,272,960
Trans Financial Bank N.A.:
Notes
6.48%, 10/23/98 Baa3 1,250 1,240,313
Sr. Notes
6.32%, 10/17/97 Baa3 1,750 1,752,013
Travelers Group, Inc. Sr.
Notes
6.625%, 9/15/05 A1 500 472,615
(2)(6) Westfed Holdings Sr.
Debentures
15.50%, 9/15/99 N/R 1,750 1,190,000
-------------
GROUP TOTAL 25,802,479
-------------
- -----------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
FOOD & BEVERAGES (1.0%)
Fresh Del Monte Produce N.V.
Series B, Yankee
Sr. Notes
10.00%, 5/1/03 Caa $ 800 $ 803,000
(3) Gorges/Quick-To-Fix Foods,
Inc. Sr. Sub. Notes
11.50%, 12/1/06 B3 1,000 1,025,000
International Home Foods, Inc.
Sr. Sub. Notes
10.375%, 11/1/06 B2 1,000 1,012,500
-------------
GROUP TOTAL 2,840,500
-------------
- ------------------------------------------------------------------------------
- -----------------
HEALTH CARE (3.2%)
(4) General Medical Corp. Series
A, Sub. Debentures
12.125%, 8/15/05 Caa 2,031 2,254,410
ICON Health & Fitness, Inc.
Series B, Sr. Sub. Notes
13.00%, 7/15/02 B3 500 554,375
(3) Integrated Health Services,
Inc.
Sr. Sub. Notes
10.25%, 4/30/06 B1 400 422,000
Meditrust
Conv. Debentures
7.50%, 3/1/01 Baa3 3,000 3,150,000
Paracelsus Healthcare
Sr. Sub. Notes
10.00%, 8/15/06 B1 1,900 1,786,000
Regency Health Services, Inc.
Gtd Sr. Sub. Notes
9.875%, 10/15/02 B2 750 757,500
-------------
GROUP TOTAL 8,924,285
-------------
- ------------------------------------------------------------------------------
- -----------------
INDUSTRIAL GOODS & MATERIALS (4.9%)
AMTROL Acquisition Inc. Sr.
Sub. Notes
10.625%, 12/31/06 B3 400 412,000
Alpine Group, Inc.
Series B, Gtd. Sr.
Secured Notes
12.25%, 7/15/03 B3 500 545,000
Atlantis Group, Inc.
Sr. Notes
11.00%, 2/15/03 B2 585 596,700
CLARK Material Handling Co.
Sr. Notes
10.75%, 11/15/06 B1 550 565,125
Haynes International, Inc. Sr.
Notes
11.625%, 9/1/04 B3 500 538,125
Interlake Corp.
Sr. Sub. Debentures
12.125%, 3/1/02 B3 1,000 1,025,000
International Knife & Saw,
Inc.
Sr. Sec. Sub. Notes
11.375%, 11/15/06 B3 750 776,250
MVE Inc.
Sr. Secured Debentures
12.50%, 2/15/02 B3 650 680,063
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Mafco, Inc.
Sr. Sub. Notes
11.875%, 11/15/02 B3 $ 550 $ 585,750
(3) Motors and Gears Inc. Series
A, Sr. Notes
10.75%, 11/15/06 B3 1,500 1,537,500
Plastic Specialties &
Technologies, Inc. Sr.
Secured Debentures
11.25%, 12/1/03 B3 500 540,000
(3) SRI Receivables Purchase Co.,
Inc. Trust
Certificate-Backed Notes
12.50%, 12/15/00 N/R 1,500 1,552,500
Seagate Technology, Inc.
Sr. Debentures
7.45%, 3/1/37 Baa3 900 877,500
Specialty Equipment Companies,
Inc.
Sr. Sub. Notes
11.375%, 12/1/03 B3 1,500 1,597,500
Terex Corp.
Series B, Sr. Secured Notes
13.25%, 5/15/02 Caa 1,500 1,640,625
-------------
GROUP TOTAL 13,469,638
-------------
- ------------------------------------------------------------------------------
- -----------------
METALS & MINING (3.7%)
AK Steel Corp.
Gtd. Sr. Notes
10.75%, 4/1/04 Ba2 1,450 1,558,750
Algoma Steel, Inc. Yankee
First Mortgage Notes
12.375%, 7/15/05 B1 500 532,500
(6) Armco, Inc.
Sr. Notes
11.375%, 10/15/99 B2 815 831,300
Bayou Steel Corp.
First Mortgage Notes
10.25%, 3/1/01 B2 500 480,000
Gulf States Steel, Inc.
First Mortgage Notes
13.50%, 4/15/03 B1 750 727,500
Kaiser Aluminum &
Chemical Corp.:
Sr. Notes
10.875%, 10/15/06 B1 1,500 1,576,875
Sr. Sub. Notes
12.75%, 2/1/03 B2 850 918,000
Republic Engineered Steel,
Inc.
First Mortgage Bonds
9.875%, 12/15/01 Caa 500 445,000
Sheffield Steel Corp.
First Mortgage Notes
12.00%, 11/1/01 Caa 1,250 1,176,563
WCI Steel Inc.
Series B, Sr. Notes
10.00%, 12/1/04 B2 1,250 1,271,875
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Weirton Steel Corp.
Sr. Notes
11.375%, 7/1/04 B2 $ 700 $ 700,000
-------------
GROUP TOTAL 10,218,363
-------------
- -----------------------------------------------------------------------------------------------
PACKAGING/CONTAINERS (3.2%)
BPC Holding Corp.
Series B, Sr. Secured Notes
12.50%, 6/15/06 Caa 1,000 1,061,250
Container Corp. of America
Gtd. Sr. Notes
9.75%, 4/1/03 B1 500 520,000
(3)(8) Crown Packaging
Enterprises Ltd.
Units
0.00%, 8/1/06 Ca 1,950 360,750
(8) Crown Packaging
Holdings Ltd.
Series B, Sr. Sub.
Discount Notes
0.00%, 11/1/03 Ca 2,250 810,000
Four M Corp.
Series B, Gtd. Sr.
Secured Notes
12.00%, 6/1/06 B2 500 510,000
Gaylord Container Corp. Sr.
Sub. Discount Debentures
12.75%, 5/15/05 Caa 2,250 2,452,500
(8) Ivex Holdings Corp.
Series B, Sr. Discount
Debentures
0.00%, 3/15/05 Caa 1,500 1,233,750
(3) Radnor Holdings Corp. Sr.
Notes
10.00%, 12/1/03 B2 500 511,250
(3) Spinnaker Industries Inc. Sr.
Secured Notes
10.75%, 10/15/06 B3 500 503,750
(3) Stone Container Finance Co.
Yankee Gtd. Sr. Notes
11.50%, 8/15/06 B1 1,000 1,008,750
-------------
GROUP TOTAL 8,972,000
-------------
- ------------------------------------------------------------------------------
- -----------------
PAPER & FOREST PRODUCTS (1.9%)
Crown Paper Co.
Sr. Sub. Notes
11.00%, 9/1/05 B3 700 644,000
Fort Howard Corp.
Sub. Notes
10.00%, 3/15/03 B2 1,250 1,312,500
Mail-Well Corp.
Sr. Sub. Notes
10.50%, 2/15/04 B2 1,500 1,567,500
Malette, Inc.
Yankee Sr. Secured
Debentures
12.25%, 7/15/04 Ba3 180 198,000
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Repap New Brunswick, Inc.
Yankee Sr. Secured Debentures
10.625%, 4/15/05 Caa $ 1,300 $ 1,288,625
Repap Wisconsin, Inc. Sr.
Secured Debentures
9.875%, 5/1/06 B2 400 390,000
-------------
GROUP TOTAL 5,400,625
-------------
- ------------------------------------------------------------------------------
- -----------------
PUBLISHING & INFORMATION SERVICES (1.0%)
General Media, Inc.
Sr. Notes
10.625%, 12/31/00 Caa 625 539,844
(8) InterAct Systems, Inc. Sr.
Discount Notes
0.00%, 8/1/03 N/R 750 412,500
Lamar Advertising Co.
Gtd. Sr. Sub. Notes
9.625%, 12/1/06 B1 550 554,125
Petersen Publishing Co.,
L.L.C./Peterson
Capital Corp.
Series B, Gtd. Sr. Sub. Notes
11.125%, 11/15/06 B3 450 481,500
(3) Universal Outdoor, Inc. Sr.
Sub. Notes
9.75%, 10/15/06 B1 750 753,750
-------------
GROUP TOTAL 2,741,719
-------------
- ------------------------------------------------------------------------------
- -----------------
RESTAURANTS, HOTELS & GAMING (5.3%)
Boomtown, Inc.
First Mortgage Notes
11.50%, 11/1/03 B1 500 536,250
(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 1,300 1,251,250
(3) Casino Magic of
Louisiana, Corp.
First Mortgage Notes
13.00%, 8/15/03 B3 1,900 1,843,000
(4) Colorado Gaming &
Entertainment, Co.
Gtd. Sr. Notes
12.00%, 6/1/03 N/R 1,130 1,114,827
(2) Elsinore Corp.
First Mortgage Notes
12.50%, 10/1/00 N/R 1,500 780,000
G.B. Property Funding Corp.
Gtd. First Mortgage Notes
10.875%, 1/15/04 B3 1,100 902,000
HMC Acquisition Properties,
Series B, Gtd. Sr. Notes
9.00%, 12/15/07 Ba3 450 443,250
Horseshoe Gaming L.L.C. Series
B, Sr. Notes
12.75%, 9/30/00 B1 750 813,750
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Mohegan Tribal Gaming
Authority
Series B, Sr. Secured Notes
13.50%, 11/15/02 Ba1 $ 900 $ 1,184,625
Prime Hospitality Corp.
Secured First
Mortgage Notes
9.25%, 1/15/06 Ba2 975 992,063
Red Roof Inns, Inc. Sr.
Exchange Notes
9.625%, 12/15/03 B2 900 900,000
Santa Fe Hotel, Inc.
Gtd. First Mortgage Notes
11.00%, 12/15/00 Caa 354 256,208
Trump Atlantic City Associates
Secured First
Mortgage Notes
11.25%, 5/1/06 B1 1,250 1,137,500
Trump's Castle Funding, Inc.
Mortgage Bonds
11.75%, 11/15/03 Caa 550 423,500
(3) Waterford Gaming L.L.C./
Waterford Gaming
Finance Corp.
Sr. Notes
12.75%, 11/15/03 N/R 1,600 1,706,000
Wyndham Hotel Corp.
Gtd. Sr. Sub. Notes
10.50%, 5/15/06 B2 300 319,500
-------------
GROUP TOTAL 14,603,785
-------------
- ------------------------------------------------------------------------------
- -----------------
RETAIL (3.7%)
Brylane L.P.
Gtd. Sr. Sub. Notes
10.00%, 9/1/03 B1 500 525,000
(2) County Seat Stores, Inc. Sr.
Sub. Notes
12.00%, 10/1/02 Ca 1,520 456,000
Dairy Mart Conveniences
Stores, Inc.
Sr. Sub. Notes
10.25%, 3/15/04 B3 1,500 1,477,500
Duane Reade Corp.
Sr. Notes
12.00%, 9/15/02 B3 200 211,500
Farm Fresh, Inc.
Sr. Notes
12.25%, 10/1/00 Caa 1,360 1,142,400
Great American Cookie Co.
Series B, Sr. Secured
Debentures
10.875%, 1/15/01 B3 1,250 1,206,250
Hills Stores Co.
Gtd. Sr. Notes
12.50%, 7/1/03 B2 600 516,000
(3) Jitney-Jungle Stores of
America, Inc.
Gtd. Sr. Notes
12.00%, 3/1/06 B2 250 263,750
K Mart Corp.
Debentures
7.75%, 10/1/12 Ba3 1,175 1,038,406
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Parisian, Inc.
Sr. Sub. Notes
9.875%, 7/15/03 B1 $ 1,250 $ 1,287,500
Pathmark Stores, Inc.:
(8) Jr. Sub. Notes
0.00%, 11/1/03 Caa 1,400 931,000
Sr. Sub. Notes
9.625%, 5/1/03 B3 700 659,750
Waban, Inc.
Sr. Sub. Notes
11.00%, 5/15/04 Ba3 500 557,500
-------------
GROUP TOTAL 10,272,556
-------------
- -----------------------------------------------------------------------------------------------
TELECOMMUNICATIONS (10.5%)
(8) American Communications
Services, Inc.
Sr. Discount Notes
0.00%, 11/1/05 N/R 2,100 1,267,875
Brooks Fiber Properties, Inc.
Sr. Discount Notes:
(8) 0.00%, 11/1/06 N/R 2,000 1,190,000
(8) 0.00%, 3/1/06 N/R 1,000 620,000
(8) COLT Telecom Group plc Yankee
Units
0.00%, 12/15/06 N/R 800 498,000
Cellular Communications
International, Inc.
Units
Zero Coupon, 8/15/00 B3 2,000 1,420,000
(8) Dial Call Communications Sr.
Discount Notes
0.00%, 4/15/04 B3 1,100 816,750
(8) Diamond Cable Communications
plc
Yankee Discount Notes
0.00%, 12/15/05 B3 1,850 1,184,000
(3)(8) GST Telecommunications, Inc.
Conv. Sr. Sub.
Discount Notes
0.00%, 12/15/05 N/R 200 120,000
(8) GST USA, Inc.
Gtd. Sr. Discount Notes
0.00%, 12/15/05 N/R 1,700 1,088,000
(3) Geotek Communications, Inc.
Conv. Sr. Sub. Notes
12.00%, 12/15/01 Caa 1,000 800,000
(8) Hyperion Telecommunications,
Inc. Series B, Sr. Discount
Notes
0.00%, 4/15/03 N/R 1,750 945,000
ICG Holdings, Inc. Sr.
Discount Notes
(8) 0.00%, 9/15/05 N/R 650 435,500
(3)(8) 0.00%, 3/15/07 N/R 2,000 1,120,000
(8) IntelCom Group (U.S.A.) Inc.
Gtd. Sr. Exchangeable
Discount Notes
0.00%, 5/1/06 N/R 600 372,000
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
InterMedia Capital Partners IV
L.P./InterMedia Partners IV
Capital Corp.
Sr. Notes
11.25%, 8/1/06 B2 $ 650 $ 679,250
(8) MFS Communications Co., Inc.
Discount Notes
0.00%, 1/15/04 Ba3 1,100 990,000
(3)(8) McCaw International Ltd. Units
0.00%, 4/15/07 N/R 1,000 480,000
(8) Nextel Communications, Inc.
Sr. Notes
0.00%, 8/15/04 B3 3,200 2,176,000
Orbcomm Global L.P./ Orbcomm
Global Capital Corp.
Series B, Gtd. Sr. Notes
14.00%, 8/15/04 B3 500 500,000
Orion Network Systems, Inc.
Units
11.25%, 1/15/07 B2 900 891,000
(8) Pagemart Nationwide, Inc. Sr.
Discount Notes
0.00%, 2/1/05 N/R 1,750 1,244,687
Petersburg Long Distance Inc.:
(3) Conv. Sub. Notes
9.00%, 6/1/06 N/R 230 231,150
(3)(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 750 667,500
Sr. Notes
10.75%, 11/1/04 B1 300 303,750
Rogers Cablesystems Ltd.
Series B, Yankee Sr. Secured
2nd Priority Notes
10.00%, 3/15/05 Ba3 300 310,500
Rogers Cantel Inc. Sr. Secured
Debentures
9.375%, 6/1/08 Ba3 350 358,750
Sprint Spectrum L.P./Sprint
Spectrum Finance Corp. Sr.
Notes
11.00%, 8/15/06 B2 1,400 1,484,000
(3) TCI Satellite
Entertainment, Inc.
Sr. Sub. Notes
10.875%, 2/15/07 N/R 300 270,000
Teleport Communications Group,
Inc.:
Sr. Notes
9.875%, 7/1/06 B1 750 776,250
(8) Sr. Discount Notes
0.00%, 7/1/07 B1 1,150 770,500
(3) UNIFI Communications, Inc.
Units
14.00%, 3/1/04 N/R 1,000 1,030,000
(8) Videotron Holdings plc Yankee
Discount Notes
0.00%, 8/15/05 B3 2,000 1,580,000
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Western Wireless Corp. Sr.
Sub. Notes
10.50%, 2/1/07 B3 $ 500 $ 501,250
WinStar Communications, Inc.:
(3)(8) Conv. Sr. Discount Notes
0.00%, 10/15/05 N/R 250 160,000
(8) Sr. Discount Notes
0.00%, 10/15/05 N/R 500 285,000
(8) Wireless One, Inc.
Units
0.00%, 8/1/06 B3 750 202,500
-------------
GROUP TOTAL 29,105,512
-------------
- -----------------------------------------------------------------------------------------------
TEXTILES/APPAREL (0.6%)
Collins & Aikman Products Sr.
Sub. Notes
11.50%, 4/15/06 B3 650 718,250
Pillowtex Corp.
Gtd. Sr. Sub. Notes
10.00%, 11/15/06 B2 500 522,500
(3) William Carter Co.
Sr. Sub. Notes
10.375%, 12/1/06 B3 500 513,750
-------------
GROUP TOTAL 1,754,500
-------------
- ------------------------------------------------------------------------------
- -----------------
TRANSPORTATION (1.0%)
CHC Helicopter Corp. Yankee
Sr. Sub. Notes
11.50%, 7/15/02 B3 750 776,250
USAir, Inc.
Gtd. Sr. Notes
10.00%, 7/1/03 B3 1,900 1,916,625
-------------
GROUP TOTAL 2,692,875
-------------
- ------------------------------------------------------------------------------
- -----------------
WASTE MANAGEMENT (0.5%)
(6) WMX Technologies Inc. Sr.
Notes
7.10%, 8/1/26 A1 1,250 1,244,650
-------------
- ------------------------------------------------------------------------------
- -----------------
TOTAL CORPORATE OBLIGATIONS
(Cost $205,742,614) 202,297,305
-------------
- -----------------------------------------------------------------------------------------------
GOVERNMENT & AGENCY SECURITIES (11.9%)
- ------------------------------------------------------------------------------
- -----------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (2.6%)
30-year TBA
7.50%, 4/1/27 Aaa 3,250 3,189,062
REMIC-PAC Series 1989-23,
Class D
10.20%, 9/25/18 Aaa 2,837 2,954,485
STRIPS, Series H, Class 2
11.50%, 5/1/09 Aaa 1,020 1,119,279
-------------
GROUP TOTAL 7,262,826
-------------
- -----------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
GOVERNMENT & AGENCY SECURITIES (0.5%)
Tennessee Valley Authority
Bonds
5.98%, 4/1/36 N/R $ 1,250 $ 1,250,450
-------------
- -----------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (1.1%)
Various Pools:
6.00%, 2/20/27 Aaa 2,564 2,570,500
10.50%, 9/15/15-8/15/16 Aaa 282 312,379
-------------
GROUP TOTAL 2,882,879
-------------
- -----------------------------------------------------------------------------------------------
UNITED STATES DEPARTMENT OF VETERANS AFFAIRS (0.1%)
Vendee Mortgage Trust REMIC
Series 1994-2, Class 3F
6.50%, 10/15/15 N/R 400 371,500
-------------
- ------------------------------------------------------------------------------
- -----------------
UNITED STATES TREASURY NOTES (7.6%)
(6) 7.750%, 11/30/99 Aaa 2,870 2,950,274
6.625%, 6/30/01 Aaa 7,440 7,402,800
7.875%, 11/15/04 Aaa 10,200 10,772,118
-------------
GROUP TOTAL 21,125,192
-------------
- ------------------------------------------------------------------------------
- -----------------
TOTAL GOVERNMENT & AGENCY SECURITIES
(Cost $33,338,437) 32,892,847
-------------
- ------------------------------------------------------------------------------
- -----------------
COLLATERALIZED MORTGAGE OBLIGATIONS (3.3%)
- -----------------------------------------------------------------------------------------------
Asset Securitization Corp.:
Series 1995-MD4, Class A1
7.10%, 8/13/29 N/R 1,226 1,208,064
Series 1996-D3, Class A1B
7.21%, 10/13/26 Aaa 600 601,032
Series 1996-MD6, Class A6
7.108%, 11/13/26 Baa2 420 412,058
Series 1997-D4, Class A1D
7.49%, 4/14/97 Aaa 600 605,812
Series 1997-MD7, Class A1B
7.41%, 1/13/30 Aaa 430 434,098
Chase Commercial Mortgage
Securities Corp. Series
1996-2, Class A2
6.90%, 9/19/06 N/R 550 542,954
Drexel, Burnham & Lambert Trust
REMIC-PAC,
Series S, Class 2
9.00%, 8/1/18 Aaa 5,134 5,148,748
Merrill Lynch Mortgage
Investors, Inc. Series
1996-C2, Class A2
6.82%, 11/21/28 N/R 310 300,604
-------------
- ------------------------------------------------------------------------------
- -----------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $9,663,803) 9,253,370
-------------
- -----------------------------------------------------------------------------------------------
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
ASSET BACKED OBLIGATIONS (3.2%)
- ------------------------------------------------------------------------------
- -----------------
Capita Equipment Receivables
Trust, Series 1996-1, Class
A3
6.11%, 7/15/99 Aaa $ 1,250 $ 1,241,413
Green Tree Financial Corp.
Manufactured Housing
Installment Sale Contracts:
Series 1993-4, Class B1
7.20%, 1/15/19 Baa3 2,000 1,971,240
Series 1995-4, Class A3
6.30%, 7/15/25 Aaa 350 345,842
Green Tree Financial Corp.
Series 1995-7, Class A2
6.15%, 11/15/26 Aaa 1,450 1,445,911
Series 1995-7, Class A3
6.35%, 11/15/26 Aaa 1,300 1,283,327
(9) Merrill Lynch Home Equity
Acceptance Trust, Series
1994-A, Class A-2
6.25%, 7/17/22 A3 1,533 1,532,577
Nationscredit Grantor Trust,
Boat Retail Installment Sale
Contracts, Series 1996-1,
Class A
5.85%, 9/15/11 Aaa 1,020 987,864
-------------
- ------------------------------------------------------------------------------
- -----------------
TOTAL ASSET BACKED OBLIGATIONS
(Cost $7,486,807) 8,808,174
-------------
- -----------------------------------------------------------------------------------------------
<CAPTION>
Shares/ Units
<C> <S> <C> <C> <C>
- ------------------------------------------------------------------------------
- -----------------
COMMON STOCKS (1.2%)
- ------------------------------------------------------------------------------
- -----------------
BROADCASTING (0.0%)
(1) Pegasus Media &
Communications, Inc. Class B 564 6,204
-------------
- -----------------------------------------------------------------------------------------------
CONSUMER PRODUCTS & SERVICES (0.4%)
(1)(5) Applause Enterprises, Inc.
(acquired 11/8/91, cost
$144,400) 3,800 11,400
(1)(5) Dr. Pepper Bottling Holdings,
Inc. Class A
(acquired 2/25/97, cost
$1,181,250) 75,000 1,181,250
-------------
GROUP TOTAL 1,192,650
-------------
- ------------------------------------------------------------------------------
- -----------------
FINANCIAL SERVICES (0.0%)
(1)(5)(7) Westfed Holdings Inc. Class B
(acquired 9/20/88, cost $383) 12,670 0
-------------
- -----------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Shares/ Units Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
FOOD & BEVERAGE (0.0%)
(1)(3) Specialty Foods Acquisition
Corp. 30,000 $ 7,500
-------------
- ------------------------------------------------------------------------------
- -----------------
INDUSTRIAL GOODS & MATERIALS (0.1%)
(1)(5)(7) CIC I Acquisition Corp.
(acquired 10/18/89, cost
$1,076,715) 2,944 200,192
-------------
- ------------------------------------------------------------------------------
- -----------------
PAPER & FOREST PRODUCTS (0.0%)
(1)(3) Mail-Well, Inc. 7,102 139,377
-------------
- ------------------------------------------------------------------------------
- -----------------
RESTAURANTS, HOTELS & GAMING (0.7%)
(1) Capital Gaming
International, Inc. 6,667 100
(1) Casino America Inc. 14,947 37,367
(1) Colorado Gaming &
Entertainment Co. 26,465 79,395
(1)(3) Motels of America, Inc. 500 34,000
(1) Vail Resorts Inc. 85,000 1,657,500
-------------
GROUP TOTAL 1,808,362
-------------
- ------------------------------------------------------------------------------
- -----------------
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 38,500
-------------
- -----------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $4,626,537) 3,392,785
-------------
- -----------------------------------------------------------------------------------------------
PREFERRED STOCKS (4.1%)
- ------------------------------------------------------------------------------
- -----------------
AEROSPACE/DEFENSE (0.5%)
(1) GPA Group plc 7% Second
Preference Cum. Conv. 2,875,000 1,388,625
-------------
- ------------------------------------------------------------------------------
- -----------------
BROADCASTING (0.6%)
(1) Pegasus Communications, Corp.
Units 250 245,000
(1)(3) Spanish Broadcasting
System, Inc. Units 1,500 1,500,000
-------------
GROUP TOTAL 1,745,000
-------------
- ------------------------------------------------------------------------------
- -----------------
CABLE (0.7%)
(1)(3) NTL, Inc.
13.00% Sr. Redeemable
Exchangeable 2,000 1,900,000
-------------
- -----------------------------------------------------------------------------------------------
<CAPTION>
Shares/ Units Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
CONSUMER PRODUCTS & SERVICES (0.1%)
Renaissance Cosmetics, Inc.:
(1)(3) Units 300 $ 301,500
(1)(3) 14% Sr. Redeemable, Series B 20 17,550
-------------
GROUP TOTAL 319,050
-------------
- ------------------------------------------------------------------------------
- -----------------
ENERGY (0.1%)
(1)(7) Consolidated Hydro, Inc.
13.50% Series H, Conv. 3,000 300,000
-------------
- ------------------------------------------------------------------------------
- -----------------
FINANCIAL SERVICES (0.8%)
Chevy Chase Bank, F. S.B.
10.375% Series A, Conv. 40,000 2,040,000
(1)(5)(7) WestFed Holdings, Inc. Cum.
Class A
(acquired 9/20/88-6/18/93,
cost $3,611,992) 42,759 42,759
-------------
GROUP TOTAL 2,082,759
-------------
- -----------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS (0.3%)
(1) SD Warren Co. 14% Exchangeable 21,459 815,442
-------------
- ------------------------------------------------------------------------------
- -----------------
PUBLISHING & INFORMATION SERVICES (0.2%)
K-III Communications Corp. 10%
Exchangeable, Series D 5,000 490,000
-------------
- ------------------------------------------------------------------------------
- -----------------
RESTAURANTS, HOTELS & GAMING (0.2%)
(1) Lady Luck Gaming Corp. Series
A 20,000 640,000
-------------
- ------------------------------------------------------------------------------
- -----------------
RETAIL (0.4%)
(1) Jitney-Jungle Stores of
America, Inc. 7,500 1,005,000
-------------
- -----------------------------------------------------------------------------------------------
TELECOMMUNICATIONS (0.2%)
(1)(3) Intermedia Communications
13.5% Series A Redeemable
Exchangeable 25 240,000
(1)(3) NEXTLINK Communications, Inc.
Units 9,500 446,500
-------------
GROUP TOTAL 686,500
-------------
- ------------------------------------------------------------------------------
- -----------------
TOTAL PREFERRED STOCKS
(Cost $14,867,294) 11,372,376
-------------
- -----------------------------------------------------------------------------------------------
RIGHTS (0.0%)
- ------------------------------------------------------------------------------
- -----------------
(1) Terex Corp., expiring 5/15/02
(Cost $0) 6,000 30,000
-------------
- -----------------------------------------------------------------------------------------------
WARRANTS (0.3%)
- ------------------------------------------------------------------------------
- -----------------
(1) American Communications
Services, Inc.
expiring 11/1/05 2,000 120,000
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Shares/ Units Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
(1) American Telecasting, Inc.
expiring 6/23/99 525 $ 263
(1) Australis Holdings Pty Ltd.
expiring 10/30/01 2,250 0
(1)(3) Boomtown, Inc.
expiring 11/1/98 500 10
(1) CHC Helicopter Corp.
expiring 12/15/00 6,000 3,000
(1)(3) Capital Gaming
International, Inc.
expiring 2/1/99 5,687 6
(1) Casino America, Inc.
expiring 5/3/01 2,646 2,315
(1)(3)(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 Conveniences
Stores, Inc.
expiring 5/13/98 11,665 23,330
(1)(3) Elsinore Corp.
expiring 10/8/98 79,941 0
(1) General Media Inc.
expiring 12/22/00 500 500
(1) General Media Inc.
expiring 12/31/00 625 625
(1) Great American Cookie Co.
expiring 1/30/00 225 2,250
(1) Hemmeter Enterprises, Inc.
expiring 12/15/99 9,000 0
(1) Hyperion Telecommunications,
Inc.
expiring 4/15/01 1,750 52,500
(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 21,450
(1) InterAct Systems, Inc.
expiring 8/1/03 750 0
(1) Nextel Communications, Inc.
expiring 4/25/99 750 7
(1) Purity Supreme
expiring 8/1/97 5,198 0
(1) Renaissance Cosmetics, Inc.
expiring 8/31/06 3,000 150,000
(1) SD Warren Co.
expiring 12/15/06 12,000 51,000
(1) Sheffield Steel Corp.
expiring 11/1/01 6,250 18,750
(1) Spanish Broadcasting
System, Inc.
expiring 6/29/99 1,500 292,500
(1) United International Holdings
expiring 11/15/99 2,950 14,750
<CAPTION>
Shares/ Units Value
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
(1)(3) Wright Medical Technology
expiring 6/30/03 618 $ 74,118
-------------
- ------------------------------------------------------------------------------
- -----------------
TOTAL WARRANTS
(Cost $384,221) 855,139
-------------
- -----------------------------------------------------------------------------------------------
<CAPTION>
Face
Moody's Amount
Ratings (000)
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (2.3%)
- ------------------------------------------------------------------------------
- -----------------
FEDERAL HOME LOAN MORTGAGE DISCOUNT NOTE (2.3%)
0.00%, 4/1/97 (Cost
$6,296,000) N/R $ 6,296 6,296,000
-------------
- ------------------------------------------------------------------------------
- -----------------
TOTAL INVESTMENTS (99.3%)
(Cost $282,405,713) 275,197,996
-------------
- -----------------------------------------------------------------------------------------------
OTHER ASSETS IN EXCESS OF LIABILITIES (0.7%)
1,893,995
-------------
- ------------------------------------------------------------------------------
- -----------------
NET ASSETS (100%)
Applicable to 34,545,937 issued and outstanding $.001 par
value shares (authorized 100,000,000 shares). $ 277,091,991
-------------
-------------
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $ 8.02
-------------
-------------
- -----------------------------------------------------------------------------------------------
MARKET PRICE PER SHARE $ 7.875
-------------
-------------
- ------------------------------------------------------------------------------
- -----------------
</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 March 31, 1997 aggregated $6,014,740. Total market value of
restricted securities owned at March 31, 1997 was $1,435,601 or 0.5% 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 March 31,
1997.
13
<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 distributions, 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 10004. 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 common stock on a particular date shall be as determined by
or on behalf of the Fund.
Participants in the Plan have the option of making additional cash payments
to the Plan Agent, monthly, in any amount from $100 to $3,000, for investment in
the Fund's common stock. 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.
14
<PAGE>
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 shares or in cash.
How-ever, 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.
15
