<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 TREASURER
DIRECTOR Paul Roselli
Richard J. Lindquist ASSISTANT TREASURER
PRESIDENT AND CHIEF
INVESTMENT OFFICER
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.
---------------------------------------------
FIRST QUARTER REPORT
March 31, 1998
<PAGE>
BEA INCOME FUND, INC.
- ----------
Dear Shareholders: May 11, 1998
We are writing to report on the activities of the BEA Income Fund, Inc. ("the
Fund") for the quarter ended March 31, 1998 and to discuss our investment
strategy.
At March 31, 1998, the Fund's net asset value ("NAV") was $8.52, compared to
an NAV of $8.44 at December 31, 1997. As a result, the Fund's total return
(based on NAV and assuming reinvestment of dividends of $0.18 per share) for the
period was 3.10%. For the twelve months ended March 31, 1998, the Fund's total
return was 15.77% (based on NAV and assuming reinvestment of dividends of $.72
per share).
At March 31, 1998, $187.5 million was invested in high yield debt
securities; $84.4 million in investment-grade debt securities; $18.3 million in
equity securities; and the balance of $9.7 million in cash equivalents. The
investment-grade component consisted of short and intermediate-term mortgages,
asset-backed securities and corporate bonds of intermediate maturity. Of the
debt securities, the largest concentration (43.94%) was invested in B-rated
issues.
THE MARKET
Despite some volatility during the first quarter, long-term U.S. interest
rates ended the period virtually unchanged from where they started. As
represented by the yield on the bellwether 30-year Treasury bond, rates began
the quarter at 5.92% and ended it at 5.93%.
Bonds' performance reflected several factors. Perhaps most important was the
receding impact of the "Asian Flu" of currency devaluation and widespread
weakness in global financial markets, which dominated trading activity in last
year's fourth quarter. Investor perceptions regarding any official adjustment of
interest rates were mixed, furthermore, thus muting the potential for sustained
price movement in either direction. Finally, an unusual coincidence of
conflicting economic forces (I.E., the strength of the economy coupled with the
simultaneous deflationary wave originating from the problems in Asia) remained
intact.
High yield outperformed the major investment-grade fixed income sectors in
this environment. Most investment-grade sectors (E.G., Treasury instruments,
corporate bonds, mortgage and asset-backed securities) returned between 1-2%
during the quarter, well below the 4.0% generated by the Salomon Smith Barney
High-Yield Market Index.
As we have done for many consecutive quarters now, we note several
statistics that attest to the high yield market's extraordinary vibrance. New
issuance during the first quarter reached a record $49.7 billion, handily
surpassing the previous high of $37.4 billion set in 1997's third quarter. Net
new inflows into high yield mutual funds totaled approximately $7.8 billion,
more than twice the $3.7 billion recorded in the same period a year ago. The
total size of the market grew to a new high of $500 billion, 11% higher than the
previous record of $452 billion at year-end 1997. [All data supplied by Chase
Securities.]
PORTFOLIO REVIEW
We attribute the Fund's performance during the quarter to our success both
in weighting industry sectors and selecting individual securities.
Four of our largest industry allocations figured prominently in the Fund's
overall return. These included cable and media, telecommunications, gaming and
energy.
- - In cable and media, we had the good fortune to own private-issue securities
in Diva Systems, an exciting company pioneering the provision of "video on
demand" services. Diva refinanced these securities during the quarter at
terms that were highly profitable to the Fund.
- - Aggregate telecommunications debt issues enjoyed strong quarterly
performance, powered by continued expectations of mergers and acquisitions
(M&A) activity and good industry growth. The Fund benefited
disproportionately, as our telecommunications weighting in the portfolio
exceeded that of the broad high yield market.
- - The gaming sector achieved attractive quarterly returns based on investors'
M&A expectations. We are pleased to point out in this context that one of our
gaming holdings, Casino Magic, announced in February that it would be
acquired by Hollywood Park.
- - Energy was weak during the quarter, as the debt and equity securities of
oil-related companies were hurt by a downturn in oil and gas prices. Not only
did we maintain an underweighting in energy relative to the market, but we
also concentrated the Fund's holdings in energy service companies, which did
well.
2
<PAGE>
OUTLOOK
Our fundamental outlook for the high yield market remains quite positive.
Investor interest in the market has been rising for some time now and does not
appear to be slowing down.
The key to our view is the unusually favorable macroeconomic climate, which
has become widely known as "Goldilocks" (I.E., not too hot, not too cold, just
right). In today's Goldilocks scenario, the climate for inflation and interest
rates is benign and should remain so for the foreseeable future. With the
economy humming along at a moderate yet sustainable pace, there appears to be
little risk that inflation will appreciably increase.
Another plus for high yield is the ongoing strength of corporate M&A
activity. As we noted earlier, this trend is an important element in our
investment theses for the telecommunications and gaming industries, whose
favorable returns have been critical to the Fund's performance over the last few
quarters.
We have not changed the basic components of our strategy. These include a
preference for issues with better credit ratings within the high yield sector,
and the retention of our largest sector allocations in telecommunications, cable
and media, and gaming. More recently, however, we increased the Fund's
allocation to the high yield sector, while reducing the investment-grade
component.
As developments occur that we believe would be of interest to you, we will
keep you informed. Meanwhile, if you have any questions about your portfolio or
the capital markets generally, please feel free to call upon us at any time.
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 Executive 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 Investment Officer of BEA Strategic Global Income Fund, Inc.
William W. Priest, Jr., who is Chairman of the Executive 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.
3
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
- ---------
MARCH 31, 1998
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- -------------
DOMESTIC SECURITIES (98.9%)
- --------------------------------------------------------------------------------
- -------------
CORPORATE OBLIGATIONS (74.2%)
- --------------------------------------------------------------------------------
- -------------
AEROSPACE/DEFENSE (0.1%)
Wyman-Gordon Co.
Sr. Notes
8.00%, 12/15/07 Ba2 $ 150 $ 151,875
------------
- --------------------------------------------------------------------------------
- -------------
AUTOMOTIVE (1.7%)
Cambridge Industries, Inc.
Series B, Sr. Sub. Notes
10.25%, 7/15/07 N/R 500 524,375
Collins & Aikman
Products Corp.
Sr. Sub. Notes
11.50%, 4/15/06 B3 650 731,250
Consorcio G Grupo
Dina S.A./MCII Holdings
(U.S.A.), Inc.
Sr. Secured Notes
Zero Coupon, 11/15/02 N/R 1,950 1,842,750
(3) Oxford Automotive, Inc.
Sr. Sub. Notes
10.125%, 6/15/07 Caa1 925 982,812
Safety Components
International, Inc.
Series B, Gtd.
Sr. Sub. Notes
10.125%, 7/15/07 B3 500 521,875
(3) Walbro Corp.
Gtd. Sr. Notes
10.125%, 12/15/07 B2 300 304,500
------------
GROUP TOTAL 4,907,562
------------
- --------------------------------------------------------------------------------
- -------------
BROADCASTING (4.4%)
(8) Australis Holdings Pty. Ltd.
Yankee Sr. Secured
Discount Notes
0.00%, 11/1/02 N/R 2,250 520,696
(8) Capstar Broadcasting Partners, Inc.
Sr. Discount Notes
0.00%, 2/1/09 N/R 2,000 1,500,000
(8) Commodore Media, Inc.
Gtd. Sr. Sub. Notes
7.50%, 5/1/03 B2 300 339,750
Digital Television Services, L.L.C./DTS
Capital, Inc.
Series B, Gtd. Sr. Sub. Notes
12.50%, 8/1/07 B3 750 858,750
(8) EchoStar Communications Corp.
Gtd. Sr. Discount Notes
0.00%, 6/1/04 B2 450 434,812
Granite Broadcasting Corp.
Sr. Sub. Notes
9.375%, 12/1/05 B3 300 310,500
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Jacor Communications, Inc.
Sr. Sub. Notes
8.00%, 2/15/10 B2 $ 250 $ 251,562
Pegasus Media & Communications, Inc.
Series B, Notes
12.50%, 7/1/05 B2 250 286,250
SFX Broadcasting, Inc.
Series B, Sr. Sub. Notes
10.75%, 5/15/06 B3 650 725,563
Sinclair Broadcast Group, Inc.:
Gtd. Sr. Sub. Notes
8.75%, 12/15/07 B2 350 360,500
Sr. Sub. Notes
10.00%, 9/30/05 B2 900 974,250
(3) Source Media, Inc.
Gtd. Sr. Secured Notes
12.00%, 11/1/04 B3 100 99,500
Spanish Broadcasting System, Inc.
Sr. Notes
12.50%, 6/15/02 B2 500 572,500
Turner Broadcasting Systems, Inc.
Sr. Notes
7.40%, 2/1/04 Ba1 1,820 1,876,875
(3)(8) United International Holdings, Inc.
Sr. Discount Notes
0.00%, 2/15/08 B3 1,700 1,060,375
Univision Network
Holding L.P.
Sub. Notes
Zero Coupon, 12/17/02 N/R 1,500 1,672,500
Young Broadcasting, Inc.
Series B, Gtd. Sr. Sub.
Notes:
9.00%, 1/15/06 B2 300 311,250
8.75%, 6/15/07 B2 750 770,625
------------
GROUP TOTAL 12,926,258
------------
- --------------------------------------------------------------------------------
- -------------
BUSINESS SERVICES (0.1%)
Iron Mountain, Inc.
Sr. Notes
8.75%, 9/30/09 B3 200 206,500
------------
- --------------------------------------------------------------------------------
- -------------
CABLE (7.4%)
Adelphia Communications Corp.
Series B, Sr. Notes
8.375%, 2/1/08 B3 450 451,125
CCA Holdings Corp.
Sr. Sub. Notes
13.00%, 12/31/99 N/R 1,500 2,227,500
CSC Holdings, Inc.:
Series B, Sr. Debentures
8.125%, 8/15/09 Ba2 250 263,125
Sr. Sub. Debentures
9.875%, 2/15/13 B1 850 939,250
Sr. Sub. Notes
9.875%, 5/15/06 B1 400 439,000
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Century Communications Corp.
Sr. Notes:
9.75%, 2/15/02 Ba3 $ 500 $ 532,500
8.75%, 10/1/07 Ba3 400 416,000
Charter Communications Southeast L.P.
Series B, Sr. Notes
11.25%, 3/15/06 B3 450 499,500
Comcast Corp.
Sr. Sub. Notes:
9.375%, 5/15/05 Ba3 180 192,717
9.125%, 10/15/06 Ba3 750 795,000
(3)(8) DIVA Systems Corp.
Units
0.00%, 3/1/08 N/R 2,176 1,240,098
(8) Diamond Cable Communications plc
Yankee Discount Notes
0.00%, 12/15/05 Caa1 1,800 1,431,000
(4) Falcon Holding Group L.P.
Sr. Sub. Notes
11.00%, 9/15/03 B3 1,752 1,880,982
Helicon Group L.P.
Series B, Sr. Secured
Notes
11.00%, 11/1/03 B1 500 538,125
InterMedia Capital Partners IV L.P./
InterMedia Partners Capital Corp.
Sr. Notes
11.25%, 8/1/06 B2 650 728,813
Lenfest Communications, Inc.:
Sr. Notes
8.375%, 11/1/05 Ba3 500 520,000
Sr. Sub. Notes
10.50%, 6/15/06 B2 1,000 1,140,000
(8) Marcus Cable Co.
Sr. Discount Notes
0.00%, 12/15/05 B3 1,600 1,456,000
NTL, Inc.:
(8) Series A, Sr. Deferred Coupon Notes
0.00%, 4/15/05 B3 1,000 862,500
(8) Series B, Sr. Deferred Coupon Notes
0.00%, 2/1/06 B3 700 570,500
Series B, Sr. Notes
10.00%, 2/15/07 B3 500 541,250
Olympus Communications, L.P./ Olympus Capital
Corp.
Series B, Sr. Notes
10.625%, 11/15/06 B1 1,000 1,113,750
OpTel, Inc.
Series B, Sr. Notes
13.00%, 2/15/05 B3 500 555,000
Tele-Communications, Inc.
Notes
6.34%, 2/1/02 Baa3 360 356,400
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(8) Telewest
Communications plc
Yankee Sr. Sub. Discount
Debentures
0.00%, 10/1/07 B1 $ 2,700 $ 2,200,500
------------
GROUP TOTAL 21,890,635
------------
- --------------------------------------------------------------------------------
- -------------
CHEMICALS (2.2%)
Applied Extrusion Technologies, Inc.
Series B, Sr. Notes
11.50%, 4/1/02 B2 1,500 1,603,125
Harris Chemical N.A.
Sr. Secured Debentures
10.25%, 7/15/01 B2 350 365,750
Huntsman Polymers Corp.
Sr. Notes
11.75%, 12/1/04 B1 1,000 1,116,250
NL Industries Inc.:
Sr. Secured Notes
11.75%, 10/15/03 B1 250 278,125
(8) Sr. Secured Discount Debentures 0.00%,
10/15/05 B2 800 818,000
(8) Sterling Chemical Holdings, Inc.
Sr. Secured Discount
Notes
0.00%, 8/15/08 Caa1 1,000 595,000
Texas Petrochemical Corp.
Series B, Sr. Sub. Notes
11.125%, 7/1/06 B3 350 386,313
UCC Investor's Holdings, Inc.
Sr. Sub. Notes
11.00%, 5/1/03 B2 1,200 1,272,000
------------
GROUP TOTAL 6,434,563
------------
- --------------------------------------------------------------------------------
- -------------
CONSTRUCTION & BUILDING MATERIALS (0.7%)
(3) American Architectural Products Corp.
Sr. Notes
11.75%, 12/1/07 Caa1 650 680,875
(8) Building Materials Corp.
Series B, Sr. Deferred
Notes
0.00%, 7/1/04 Ba3 200 191,000
Collins & Aikman Floor Coverings, Inc.
Series B, Sr. Sub. Notes
10.00%, 1/15/07 B3 550 581,625
(8) Waxman Industries Inc.
Series B, Sr. Secured
Deferred Notes
0.00%, 6/1/04 Caa1 600 538,500
------------
GROUP TOTAL 1,992,000
------------
- --------------------------------------------------------------------------------
- -------------
CONSUMER PRODUCTS & SERVICES (1.7%)
(8) Coinstar Inc.
Sr. Discount Notes
0.00%, 10/1/06 N/R 1,700 1,328,125
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(3) Doskocil Manufacturing Co., Inc.
Gtd. Sr. Sub. Notes
10.125%, 9/15/07 B3 $ 500 $ 532,500
Fort James Corp.
Notes
6.234%, 3/15/01 Baa3 350 348,688
(3) Holmes Products Corp.
Gtd. Sr. Sub. Notes
9.875%, 11/15/07 B3 300 310,500
Jordan Industries, Inc.
Series B, Sr. Notes
10.375%, 8/1/07 N/R 750 776,250
Playtex Products, Inc.
Series B, Gtd. Sr. Notes
8.875%, 7/15/04 B1 225 232,875
Renaissance Cosmetics, Inc.
Gtd. Sr. Notes
11.75%, 2/15/04 Caa2 650 349,375
(3) Revlon Consumer Products, Inc.
Sr. Sub. Notes
8.625%, 2/1/08 B3 700 710,500
(3) Sealy Mattress Co.
Gtd. Sr. Sub. Notes
9.875%, 12/15/07 B3 200 212,000
(2) Town & Country Corp.
Sr. Sub. Notes
13.00%, 5/31/98 Ca 878 342,489
------------
GROUP TOTAL 5,143,302
------------
- --------------------------------------------------------------------------------
- -------------
ELECTRONICS (1.5%)
Advanced Micro Devices, Inc.
Sr. Secured Notes
11.00%, 8/1/03 Ba1 $ 850 $ 909,500
Celestica International, Inc.
Yankee Gtd. Sr. Sub.
Notes
10.50%, 12/31/06 B2 600 654,750
(3) Flextronics
International Ltd.
Sr. Sub. Notes
8.75%, 10/15/07 B2 200 201,000
Unisys Corp.:
Series B, Sr. Notes
12.00%, 4/15/03 B1 1,000 1,132,500
Sr. Notes:
11.75%, 10/15/04 B1 225 260,438
7.875%, 4/1/08 B1 250 251,250
Viasystems, Inc.
Sr. Sub. Notes:
9.75%, 6/1/07 B3 400 419,000
(3) 9.75%, 6/1/07 B3 150 157,125
(3) Zilog, Inc.
Sr. Secured Notes
9.50%, 3/1/05 B2 550 540,375
------------
GROUP TOTAL 4,525,938
------------
- --------------------------------------------------------------------
- -------------
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
ENERGY (4.3%)
Abraxas Petroleum Corp.
Series B, Gtd. Sr. Notes
11.50%, 11/1/04 B2 $ 1,550 $ 1,581,000
Belden & Blake
Energy Co.
Series B, Gtd. Sr. Sub.
Notes
9.875%, 6/15/07 N/R 200 203,500
Bellwether
Exploration Co.
Gtd. Sr. Sub. Notes
10.875%, 4/1/07 B3 1,450 1,537,000
(3) Canadian Forest Oil Ltd.
Gtd. Sr. Sub. Notes
8.75%, 9/15/07 B2 450 459,000
Cliffs Drilling Co.
Series D, Gtd. Sr.
Notes
10.25%, 5/15/03 B1 1,100 1,190,750
Dawson Production Services, Inc.
Sr. Notes
9.375%, 2/1/07 B1 150 154,312
First Wave Marine, Inc.
Gtd. Sr. Notes
11.00%, 2/1/08 B3 1,000 1,037,500
(3) Giant Industries, Inc.
Gtd. Sr. Sub. Notes
9.00%, 9/1/07 B2 500 510,000
H.S. Resources, Inc.:
Gtd. Sr. Sub. Notes
9.25%, 11/15/06 B2 600 615,000
Sr. Sub. Notes
9.875%, 12/1/03 B2 500 520,000
KN Energy, Inc.
Reset Put Securities
6.30%, 3/1/21 Baa2 1,765 1,762,794
(3) Michael Petroleum Corp.
Sr. Notes
11.50%, 4/1/05 B3 1,000 992,500
Noble Drilling Corp.
Sr. Notes
9.125%, 7/1/06 Baa2 100 110,625
Parker Drilling Co.
Series B, Gtd. Sr. Notes
9.75%, 11/15/06 B1 300 321,000
Plains Resources, Inc.
Series B, Gtd. Sr. Sub.
Notes
10.25%, 3/15/06 B2 375 403,125
(3) Southwest Royalties, Inc.
Gtd. Sr. Notes
10.50%, 10/15/04 B3 500 445,000
(3) TransAmerican Energy Corp.
Sr. Secured Notes
11.50%, 6/15/02 B3 450 447,750
Wiser Oil Co.
Gtd. Sr. Sub. Notes
9.50%, 5/15/07 B2 450 437,625
------------
GROUP TOTAL 12,728,481
------------
- --------------------------------------------------------------------
- -------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
ENTERTAINMENT (2.0%)
American Skiing Co.
Series B, Sr. Sub. Notes
12.00%, 7/15/06 B3 $ 425 $ 477,062
Bally Total Fitness
Holding Corp.
Series B, Sr. Sub. Notes
9.875%, 10/15/07 B3 350 372,750
Booth Creek Ski Holdings, Inc.
Series B, Sr. Notes
12.50%, 3/15/07 Caa1 1,000 1,032,500
Cinemark U.S.A., Inc.
Series D, Sr. Sub. Notes
9.625%, 8/1/08 N/R 250 262,813
Genmar Holdings, Inc.
Series A, Sr. Sub. Notes
13.50%, 7/15/01 Caa2 500 510,000
(3) Hollywood Theaters, Inc.
Gtd. Sr. Sub. Notes
10.625%, 8/1/07 B3 400 435,000
(3) Premier Cruises, Ltd.
Sr. Notes
11.00%, 3/15/08 B3 900 888,750
(3) Production Resource Group L.L.C./PRG Finance
Group
Gtd. Sr. Sub. Notes
11.50%, 1/15/08 Caa2 750 739,688
Time Warner Inc.
Debentures
6.85%, 1/15/26 Ba1 1,095 1,133,325
------------
GROUP TOTAL 5,851,888
------------
- --------------------------------------------------------------------------------
- -------------
FINANCIAL SERVICES (6.0%)
AT&T Capital Corp.
Series 4, Medium Term
Notes:
6.26%, 2/18/99 Baa3 290 290,461
6.92%, 4/29/99 Baa3 1,100 1,108,360
6.47%, 12/3/99 Baa3 60 59,965
Associates Corp. of
North America
Sr. Debentures
5.96%, 5/15/37 Aa3 1,215 1,222,594
BellSouth Capital Funding Corp.
Debentures
6.04%, 11/15/26 Aa1 1,700 1,734,527
Citicorp
Sr. Notes
5.625%, 2/15/01 Aa3 1,500 1,477,500
GMAC
Medium Term Notes
6.90%, 6/6/00 A2 2,000 2,034,780
(9) General Electric Capital Corp.
Remarketed Reset Notes
6.29%, 12/15/07 Aaa 2,150 2,163,072
(3) Goldman Sachs Group L.P.
Medium Term Notes
6.20%, 2/15/01 A1 3,000 2,996,250
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Long Island Savings Bank F.S.B.
Notes
7.00%, 6/13/02 Baa3 $ 770 $ 783,475
Olympic Financial, Ltd.
Sr. Notes
11.50%, 3/15/07 B2 475 475,000
(3)(8) PTC International Finance B.V.
Gtd. Sr. Sub. Notes
0.00%, 7/1/07 N/R 350 239,312
Trans Financial Bank N.A.
Notes
6.48%, 10/23/98 Baa2 1,250 1,251,975
(2) Westfed Holdings
Sr. Debentures
15.50%, 9/15/99 N/R 1,750 1,750,000
------------
GROUP TOTAL 17,587,271
------------
- --------------------------------------------------------------------------------
- -------------
FOOD & BEVERAGES (1.2%)
AmeriServ Food Distribution, Inc.
Gtd. Sr. Notes
8.875%, 10/15/06 B1 650 669,500
Archibald Candy Corp.
Gtd. Sr. Secured Notes
10.25%, 7/1/04 B2 550 585,750
Eagle Family Foods
Gtd. Sr. Sub. Notes
8.75%, 1/15/08 B3 300 302,250
(3) Fleming Companies, Inc.
Sr. Sub. Notes
10.50%, 12/1/04 B3 500 531,250
Fresh Del Monte Produce N.V.
Series B, Yankee Sr.
Notes
10.00%, 5/1/03 Ba3 455 478,319
International Home Foods, Inc.
Gtd. Sr. Sub. Notes
10.375%, 11/1/06 B2 1,000 1,110,000
------------
GROUP TOTAL 3,677,069
------------
- --------------------------------------------------------------------------------
- -------------
HEALTH CARE (3.0%)
(9) Health & Retirement
Property Trust
Remarketed Reset Notes
6.141%, 7/9/98 Baa2 1,050 1,047,084
ICON Health & Fitness, Inc.
Series B, Sr. Sub. Notes
13.00%, 7/15/02 B3 500 543,750
Integrated Health Services, Inc.:
Series A, Sr. Sub. Notes
10.25%, 4/30/06 B2 400 436,000
(3) Sr. Sub. Notes
9.25%, 1/15/08 B2 100 105,250
Meditrust:
(9) Remarketed Reset Notes
6.075%, 8/15/02 Baa3 550 549,643
Conv. Debentures
7.50%, 3/1/01 Baa3 3,000 3,069,990
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Merck & Co.
Series B, Medium Term
Notes
5.76%, 5/3/37 Aaa $ 1,940 $ 1,976,375
(3) PharMerica, Inc.
Gtd. Sr. Sub. Notes
8.375%, 4/1/08 B2 500 503,750
Paracelsus Healthcare
Sr. Sub. Notes
10.00%, 8/15/06 B1 750 776,250
------------
GROUP TOTAL 9,008,092
------------
- --------------------------------------------------------------------------------
- -------------
INDUSTRIAL GOODS & MATERIALS (5.1%)
AMTROL Acquisition Inc.
Sr. Sub. Notes
10.625%, 12/31/06 B3 400 413,500
Atlantis Group, Inc.
Sr. Notes
11.00%, 2/15/03 B2 585 623,025
CLARK Material Handling Co.
Gtd. Sr. Notes
10.75%, 11/15/06 B1 550 591,250
(3) Columbus McKinnon Corp.
Sr. Sub. Notes
8.50%, 4/1/08 B2 500 502,500
(3) Golden Ocean Group, Ltd.
Units
10.00%, 8/31/01 B3 2,064 1,581,540
Haynes International, Inc.
Sr. Notes
11.625%, 9/1/04 B3 500 566,250
(8) IHF Holdings, Inc.
Series B, Sr. Sec.
Discount Notes
0.00%, 11/15/04 Caa2 1,250 1,056,250
Interlake Corp.
Sr. Sub. Debentures
12.125%, 3/1/02 B3 1,000 1,030,000
International Knife & Saw, Inc.
Sr. Sub. Notes
11.375%, 11/15/06 B3 750 819,375
MVE, Inc.
Sr. Secured Debentures
12.50%, 2/15/02 B3 850 864,875
Motors & Gears, Inc.
Series B, Sr. Notes
10.75%, 11/15/06 B3 1,500 1,633,125
Neenah Corp.
Series B, Sr. Sub. Notes
11.125%, 5/1/07 B3 500 553,750
(3) Paragon Corporate Holdings, Inc.
Gtd. Sr. Notes
9.625%, 4/1/08 B3 1,000 995,000
Park-Ohio Industries, Inc.
Sr. Sub. Notes
9.25%, 12/1/07 B2 400 421,000
SRI Receivables Purchase Co., Inc.
Series B, Notes
12.50%, 12/15/00 N/R 1,500 1,560,000
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Seagate Technology, Inc.
Sr. Debentures
7.45%, 3/1/37 Baa3 $ 700 $ 687,750
Specialty Equipment Companies, Inc.
Sr. Sub. Notes
11.375%, 12/1/03 B3 1,000 1,082,500
------------
GROUP TOTAL 14,981,690
------------
- --------------------------------------------------------------------------------
- -------------
METALS & MINING (3.1%)
AK Steel Corp.
Gtd. Sr. Notes
10.75%, 4/1/04 Ba2 1,200 1,290,000
Algoma Steel, Inc.
Yankee First Mortgage
Notes
12.375%, 7/15/05 B1 450 535,500
Bayou Steel Corp.
First Mortgage Notes
10.25%, 3/1/01 B2 400 412,000
Gulf States Steel, Inc.
First Mortgage Notes
13.50%, 4/15/03 B1 1,200 1,239,000
Kaiser Aluminum & Chemical Corp.
Series D, Sr. Notes
10.875%, 10/15/06 B1 875 951,562
(3) Metallurg, Inc.
Gtd. Sr. Notes
11.00%, 12/1/07 B3 650 682,500
Republic Engineered Steel, Inc.
First Mortgage Bonds
9.875%, 12/15/01 Caa1 985 994,850
Sheffield Steel Corp.
Series B, First Mortgage Notes
11.50%, 12/1/05 N/R 750 780,000
WCI Steel, Inc.
Series B, Sr. Secured Notes
10.00%, 12/1/04 B2 725 764,875
Weirton Steel Corp.
Sr. Notes
11.375%, 7/1/04 B2 625 675,000
(3) Wheeling-Pittsburgh Corp.
Sr. Notes
9.25%, 11/15/07 B2 750 761,250
------------
GROUP TOTAL 9,086,537
------------
- --------------------------------------------------------------------------------
- -------------
PACKAGING/CONTAINERS (1.3%)
(3) AEP Industries, Inc.
Sr. Sub. Notes
9.875%, 11/15/07 B2 250 265,937
BPC Holding Corp.
Series B, Sr. Secured
Notes
12.50%, 6/15/06 Caa3 950 1,047,375
Container Corp. of America
Gtd. Sr. Notes
9.75%, 4/1/03 B1 500 536,875
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(8) Crown Packaging Enterprises Ltd.
Yankee Sr. Secured
Discount Notes
0.00%, 8/1/06 Ca $ 1,950 $ 19,500
Four M Corp.
Series B, Sr. Secured
Notes
12.00%, 6/1/06 B3 500 531,875
Gaylord Container Corp.
Series B, Sr. Notes
9.75%, 6/15/07 B3 700 719,250
(3) Radnor Holdings, Inc.
Series B, Sr. Notes
10.00%, 12/1/03 B2 250 263,125
Stone Container Finance Co.
Yankee Gtd. Sr. Notes
11.50%, 8/15/06 B2 530 555,838
------------
GROUP TOTAL 3,939,775
------------
- --------------------------------------------------------------------------------
- -------------
PAPER & FOREST PRODUCTS (1.3%)
(3) Ainsworth Lumber Co. Ltd.
Yankee Sr. Secured Notes
12.50%, 7/15/07 B3 500 513,750
Crown Paper Co.
Sr. Sub. Notes
11.00%, 9/1/05 B3 550 588,500
Mail-Well Corp.
Sr. Sub. Notes
10.50%, 2/15/04 B1 1,500 1,612,500
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 315 328,781
Repap New Brunswick, Inc.
Sr. Secured Debentures
10.625%, 4/15/05 Caa1 700 707,000
------------
GROUP TOTAL 3,952,131
------------
- --------------------------------------------------------------------------------
- -------------
PUBLISHING & INFORMATION SERVICES (1.3%)
(3) Ampex Corp.
Sr. Notes
12.00%, 3/15/03 N/R 750 750,000
Belo (A.H.) Corp.
Sr. Notes
6.875%, 6/1/02 Baa2 750 765,937
(8) InterAct Systems, Inc.
Sr. Discount Notes
0.00%, 8/1/03 N/R 750 298,125
Lamar Advertising Co.
Gtd. Sr. Sub. Notes
9.625%, 12/1/06 B1 250 271,875
(3)(8) Liberty Group Publishing, Inc.
Sr. Discount Debentures
0.00%, 2/1/09 Caa1 600 360,750
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(3) Mentus Media Corp.
Units
12.00%, 2/1/03 N/R $ 1,350 $ 1,353,375
------------
GROUP TOTAL 3,800,062
------------
- --------------------------------------------------------------------------------
- -------------
REAL ESTATE (0.2%)
(9) Camden Property Trust
Remarketed Reset Notes
5.945%, 5/9/02 Baa3 660 660,086
------------
- --------------------------------------------------------------------------------
- -------------
RESTAURANTS, HOTELS & GAMING (6.2%)
(3) American Restaurant Group, Inc.
Gtd. Sr. Secured Notes
11.50%, 2/15/03 B3 750 774,375
(3) Bluegreen Corp.
Sr. Secured Notes
10.50%, 4/1/08 B3 1,000 1,002,500
Boyd Gaming Corp.
Sr. Sub. Notes
9.50%, 7/15/07 B1 150 160,500
(2) Capital Gaming
International, Inc.
Promissory Notes
10.125%, 8/1/95 N/R 1 63
CapStar Hotel Co.
Sr. Sub. Notes
8.75%, 8/15/07 B1 375 389,063
Casino America, Inc.
Gtd. Sr. Notes
12.50%, 8/1/03 B1 1,400 1,561,000
Casino Magic of Louisiana, Corp.
Series B, Gtd.
First Mortgage Notes
13.00%, 8/15/03 B3 1,900 2,208,750
Colorado Gaming & Entertainment, Co.
Gtd. Sr. Notes
12.00%, 6/1/03 N/R 1,480 1,596,949
Elsinore Corp.
Second Mortgage Notes
13.50%, 8/20/01 N/R 790 790,000
Empress River Casino Finance Corp.
Gtd. Sr. Notes
10.75%, 4/1/02 Ba3 500 545,625
Friendly Ice Cream Corp.
Gtd. Sr. Notes
10.50%, 12/1/07 B1 500 528,750
HMC Acquisition
Properties,
Series B, Gtd. Sr. Notes
9.00%, 12/15/07 Ba3 450 472,500
(3) Hollywood Park, Inc.
Sr. Sub. Notes
9.50%, 8/1/07 B2 675 705,375
Horseshoe Gaming L.L.C.:
Series B, Gtd. Sr. Notes
12.75%, 9/30/00 B1 750 833,438
(3) Series B, Sr. Sub. Notes
9.375%, 6/15/07 B3 1,500 1,616,250
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Majestic Star
Casino L.L.C.
Sr. Exchange
Secured Notes
12.75%, 5/15/03 B2 $ 200 $ 216,500
Mohegan Tribal Gaming Authority
Series B, Sr. Secured
Notes
13.50%, 11/15/02 Ba1 900 1,162,125
Prime Hospitality Corp.
Secured First Mortgage
Notes
9.25%, 1/15/06 Ba2 975 1,035,937
Red Roof Inns, Inc.
Sr. Exchange Notes
9.625%, 12/15/03 B2 700 724,500
Santa Fe Hotel, Inc.
Gtd. First Mortgage
Notes
11.00%, 12/15/00 Caa2 354 350,902
Waterford Gaming L.L.C./ Waterford Gaming
Finance Corp.
Sr. Notes
12.75%, 11/15/03 N/R 1,514 1,674,862
------------
GROUP TOTAL 18,349,964
------------
- --------------------------------------------------------------------------------
- -------------
RETAIL (2.3%)
Brylane L.P.
Gtd. Sr. Sub. Notes
10.00%, 9/1/03 B1 500 530,000
(3) County Seat Stores, Inc.
Units
12.75%, 11/1/04 N/R 1,100 1,113,750
Dairy Mart Convenience Stores, Inc.
Sr. Sub. Notes
10.25%, 3/15/04 B3 275 274,312
(3) Frank's Nursery & Crafts, Inc.
Sr. Sub. Notes
10.25%, 3/1/08 B3 500 501,250
Great American Cookie Co.
Series B, Sr. Secured
Debentures
10.875%, 1/15/01 B3 1,250 1,293,750
Jitney-Jungle Stores of America, Inc.:
Gtd. Sr. Notes
12.00%, 3/1/06 B2 250 285,000
Gtd. Sr. Sub. Notes
10.375%, 9/15/07 N/R 500 520,000
K Mart Corp.
Debentures
7.75%, 10/1/12 Ba2 1,175 1,176,469
(3) Mrs. Field's Original Cookies
Gtd. Sr. Notes
10.125%, 12/1/04 B2 300 300,000
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(3) Pantry, Inc.
Sr. Sub. Notes
10.25%, 10/15/07 B3 $ 650 $ 672,750
------------
GROUP TOTAL 6,667,281
------------
- --------------------------------------------------------------------------------
- -------------
TELECOMMUNICATIONS (13.2%)
Advanced Radio Telecommunications Corp.
Sr. Notes
14.00%, 2/15/07 Caa2 900 993,375
(8) American Communications Services, Inc.
Sr. Discount Notes
0.00%, 11/1/05 N/R 1,700 1,453,500
(8) COLT Telecom Group plc
Yankee Units
0.00%, 12/15/06 N/R 400 352,000
(3) Concentric Network Corp.
Units
12.75%, 12/15/07 N/R 750 862,500
(3) Convergent Communications, Inc.
Units
13.00%, 4/1/08 N/R 1,250 1,256,250
(3)(8) DTI Holdings, Inc.
Units
0.00%, 3/1/08 N/R 3,350 1,968,125
(8) EchoStar Satellite
Broadcasting Corp.
Sr. Secured Discount
Notes
0.00%, 3/15/04 B3 750 687,188
Fox/Liberty Networks L.L.C.
Sr. Notes
8.875%, 8/15/07 B1 500 520,000
(3)(8) GST Telecommunications, Inc.
Conv. Sr. Sub. Discount
Notes
0.00%, 12/15/05 N/R 200 158,500
(8) GST USA, Inc.
Gtd. Sr. Discount Notes
0.00%, 12/15/05 N/R 1,800 1,500,750
Geotek Communications, Inc.
Conv. Sr. Sub. Notes
12.00%, 12/15/01 Caa2 1,100 627,000
(3) Globalstar, L.P./Globalstar Capital Corp.
Sr. Notes:
10.75%, 11/1/04 B3 1,000 1,030,000
11.25%, 6/15/04 B3 500 525,000
(8) Hyperion Telecommunications, Inc.
Series B, Sr. Discount Notes
0.00%, 4/15/03 B3 350 269,938
(8) ICG Holdings, Inc.:
Gtd. Sr. Discount Notes
0.00%, 9/15/05 N/R 650 554,125
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Gtd. Sr. Exchange
Discount Notes:
0.00%, 5/1/06 N/R $ 600 $ 480,000
0.00%, 3/15/07 N/R 2,000 1,412,500
(3)(8) Sr. Discount Notes
0.00%, 2/15/08 N/R 750 481,875
ITC DeltaCom, Inc.
Sr. Notes
11.00%, 6/1/07 B2 400 452,000
Intermedia Communications, Inc.
Series B, Sr. Notes
8.875%, 11/1/07 B2 200 214,000
Iridium LLC/Iridium Capital Corp.
Series B, Sr. Notes
14.00%, 7/15/05 B3 500 580,625
Jordan Telecommunications Products, Inc.
Series B, Sr. Discount
Notes
0.00%, 8/1/07 N/R 625 530,469
(8) McCaw International Ltd.
Sr. Discount Notes
0.00%, 4/15/07 Caa1 1,000 665,000
McLeod USA, Inc.:
(8) Sr. Discount Notes
0.00%, 3/1/07 B2 400 306,500
(3) Sr. Notes
9.25%, 7/15/07 B2 400 428,500
(3)(8) MetroNet Communications Corp.
Sr. Discount Notes
0.00%, 11/1/07 B3 1,100 721,875
(8) Microcell Telecommunications, Inc.
Series B, Yankee Sr.
Discount Notes
0.00%, 6/1/06 B3 400 297,500
NEXTLINK Communications, Inc.
Sr. Notes
12.50%, 4/15/06 B3 350 404,687
(3)(8) Nextel Communications, Inc.
Sr. Discount Notes
0.00%, 2/15/08 B2 1,700 1,088,000
Orion Network Systems, Inc.
Gtd. Sr. Notes
11.25%, 1/15/07 B2 500 578,750
(8) Pagemart Nationwide, Inc.
Sr. Discount Notes
0.00%, 2/1/05 B3 1,750 1,548,750
(3) Petersburg Long Distance, Inc.:
Conv. Sub. Notes
9.00%, 6/1/06 N/R 230 284,050
(8) Units
0.00%, 6/1/04 N/R 1,610 1,529,500
(3)(8) Pinnacle Holdings Inc.
Sr. Discount Notes
0.00%, 3/15/08 N/R 900 563,625
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(8) PriCellular Wireless Corp.:
Discount Notes
0.00%, 10/1/03 B3 $ 650 $ 695,500
(3) Sr. Notes
10.75%, 11/1/04 B1 250 281,250
(3)(8) Price Communications Corp./Price
Communications Cellular Holdings, Inc.
Series B, Gtd. Sr. Notes
0.00%, 8/1/07 Caa1 1,150 803,562
(3)(8) Qwest Communications International, Inc.
Sr. Discount Notes
0.00%, 10/15/07 B2 600 441,000
(3)(8) RCN Corp.
Sr. Discount Notes
0.00%, 2/15/08 B3 1,000 628,750
(3) RSL Communications PLC
Gtd. Sr. Notes
9.125%, 3/1/08 B3 250 252,812
Rogers Cablesystems Ltd.
Series B, Yankee Sr.
Secured 2nd Priority
Notes
10.00%, 3/15/05 Ba3 300 332,250
Rogers Cantel, Inc.
Yankee Sr. Secured
Debentures
9.375%, 6/1/08 Ba3 350 370,125
Sprint Spectrum L.P./ Sprint Spectrum Finance
Corp.
Sr. Notes
11.00%, 8/15/06 B2 1,400 1,617,000
(3) Star Choice Communications Inc.
Units
13.00%, 12/15/05 B3 500 522,500
(3) TCI Satellite Entertainment, Inc.:
Sr. Sub. Discount Notes
0.00%, 2/15/07 Caa1 250 180,000
Sr. Sub. Notes
10.875%, 2/15/07 Caa1 700 747,250
(3) Talton Holdings, Inc.
Gtd. Sr. Notes
11.00%, 6/30/07 B2 500 551,250
Teleport Communications Group, Inc.:
Sr. Notes
9.875%, 7/1/06 Baa3 750 856,875
(8) Sr. Discount Notes
0.00%, 7/1/07 Baa3 1,150 991,875
Teligent, Inc.
Sr. Notes
11.50%, 12/1/07 Caa1 750 791,250
UNIFI Communications, Inc.
Sr. Notes
14.00%, 3/1/04 N/R 1,000 668,750
(3)(8) USN Communications Inc.
Units
0.00%, 8/15/04 Caa1 760 623,200
</TABLE>
11
<PAGE>
<TABLE>
<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 $ 350 $ 384,563
(8) WinStar Communications, Inc.
Sr. Discount Notes
0.00%, 10/15/05 Caa1 2,100 1,758,750
------------
GROUP TOTAL 38,824,969
------------
- --------------------------------------------------------------------------------
- -------------
TEXTILES/APPAREL (0.6%)
Maxim Group, Inc.
Series B, Gtd. Sr. Sub. Notes
9.25%, 10/15/07 B2 700 709,625
Pillowtex Corp.
Gtd. Sr. Sub. Notes
10.00%, 11/15/06 B2 500 546,875
William Carter Co.
Series A, Sr. Sub. Notes
10.375%, 12/1/06 B3 500 536,250
------------
GROUP TOTAL 1,792,750
------------
- --------------------------------------------------------------------------------
- -------------
TRANSPORTATION (3.0%)
(3) AirTran Airlines, Inc.
Gtd. Sr. Notes
10.50%, 4/15/01 B2 1,000 983,750
CHC Helicopter Corp.
Yankee Sr. Sub. Notes
11.50%, 7/15/02 B3 750 804,375
(3) Ermis Maritime Holdings, Ltd.
Units
12.50%, 3/15/06 B3 915 923,006
Norfolk Southern Corp.
Notes:
7.875%, 2/15/04 Baa1 700 748,125
7.05%, 5/1/37 Baa1 825 873,469
(3) Pegasus Shipping Ltd.
Gtd. Sr. Mortgage Notes
11.875%, 11/15/04 Caa1 300 302,250
(3) Trans World Airlines, Inc.
Sr. Notes
11.375%, 3/1/06 Caa1 1,000 1,010,000
USAir, Inc.
Gtd. Sr. Notes
10.00%, 7/1/03 B3 1,500 1,588,125
(3) Ultrapetrol (Bahamas) Ltd.
Gtd. First Preferred Ship Mortgage Notes
10.50%, 4/1/08 B1 1,750 1,754,375
------------
GROUP TOTAL 8,987,475
------------
- --------------------------------------------------------------------------------
- -------------
WASTE MANAGEMENT (0.3%)
Allied Waste North America, Inc.:
Gtd. Sr. Sub. Notes
10.25%, 12/1/06 B2 550 612,562
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(8) Sr. Discount Notes
0.00%, 6/1/07 B3 $ 200 $ 145,750
------------
GROUP TOTAL 758,312
------------
- --------------------------------------------------------------------------------
- -------------
TOTAL CORPORATE OBLIGATIONS
(Cost $210,463,872) 218,832,466
------------
- --------------------------------------------------------------------------------
- -------------
MUNICIPAL SECURITIES (0.7%)
- --------------------------------------------------------------------
New Jersey Economic Development Authority
Series B, Revenue Bonds:
Zero Coupon, 2/15/03 Aaa 1,605 1,201,439
Zero Coupon, 2/15/07 Aaa 1,280 739,776
------------
- --------------------------------------------------------------------------------
- -------------
TOTAL MUNICIPAL SECURITIES
(Cost $1,856,111) 1,941,215
------------
- --------------------------------------------------------------------
- -------------
GOVERNMENT & AGENCY SECURITIES (9.0%)
- --------------------------------------------------------------------------------
- -------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (0.9%)
15-Year TBA
6.00%, 4/1/13 Aaa 1,400 1,378,552
REMIC-PAC
Series 1660, Class E
6.00%, 1/15/07 Aaa 1,370 1,367,849
Various Pools:
8.50%, 5/1/17 Aaa 24 25,793
8.50%, 7/1/21 Aaa 11 11,209
------------
GROUP TOTAL 2,783,403
------------
- --------------------------------------------------------------------
- -------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (2.3%)
15-Year TBA
5.50%, 4/1/13 Aaa 1,350 1,301,484
30-Year TBA
6.50%, 5/1/28 Aaa 3,050 3,015,687
REMIC-PAC
Series 1989-23, Class D
10.20%, 9/25/18 Aaa 1,563 1,619,360
STRIPS, Series H, Class 2
11.50%, 5/1/09 Aaa 845 950,839
------------
GROUP TOTAL 6,887,370
------------
- --------------------------------------------------------------------------------
- -------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (0.1%)
Various Pools:
10.50%, 9/15/15-8/15/16 Aaa 215 238,820
------------
- --------------------------------------------------------------------------------
- -------------
TENNESSEE VALLEY AUTHORITY (0.3%)
Power Bonds, 1996
Series A
5.88%, 4/1/36 Aaa 840 859,950
------------
- --------------------------------------------------------------------------------
- -------------
UNITED STATES DEPARTMENT OF VETERANS AFFAIRS (0.2%)
Vendee Mortgage Trust
REMIC
Series 1994-2, Class 3F
6.50%, 10/15/15 N/R 439 436,116
------------
- --------------------------------------------------------------------
- -------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
UNITED STATES TREASURY BOND (0.3%)
6.875%, 8/15/25 Aaa $ 750 $ 836,483
------------
- --------------------------------------------------------------------------------
- -------------
UNITED STATES TREASURY NOTES (4.9%)
6.25%, 6/30/02 Aaa 3,285 3,354,806
7.875%, 11/15/04 Aaa 4,970 5,552,435
7.75%, 11/30/99 Aaa 5,475 5,658,905
------------
GROUP TOTAL 14,566,146
------------
- --------------------------------------------------------------------------------
- -------------
TOTAL GOVERNMENT & AGENCY SECURITIES
(Cost $26,605,545) 26,608,288
------------
- --------------------------------------------------------------------------------
- -------------
COLLATERALIZED MORTGAGE OBLIGATIONS (3.0%)
- --------------------------------------------------------------------
- -------------
Asset Securitization Corp.:
Series 1997-D5:
Class A1C
6.75%, 2/14/41 Aaa 330 338,610
Class A1D
6.85%, 2/14/41 Aaa 650 671,632
Series 1996-MD6,
Class A6
7.28%, 11/13/26 Baa2 420 434,108
DLJ Commercial Mortgage Corp.
Series 1998-CF1,
Class A1B
6.41%, 2/15/08 Aaa 800 791,048
Drexel, Burnham & Lambert Trust
REMIC-PAC, Series S,
Class 2
9.00%, 8/1/18 Aaa 4,123 4,125,276
Fleetwood Credit Corp.
Grantor Trust
Series 1997-B, Class A
6.40%, 5/15/13 Aaa 868 874,065
Kidder Peabody Acceptance Corp.
Series 1994-C1
Class C1 B
6.85%, 2/1/06 N/R 910 921,948
LB Commercial Conduit Mortgage Trust
Series 1998-C1,
Class A3
6.48%, 1/18/08 Aaa 650 654,602
------------
- --------------------------------------------------------------------------------
- -------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $9,065,606) 8,811,289
------------
- --------------------------------------------------------------------------------
- -------------
ASSET BACKED OBLIGATIONS (2.5%)
- --------------------------------------------------------------------
- -------------
Capita Equipment
Receivables Trust,
Series 1996-1 Class A3
6.11%, 7/15/99 Aaa 1,250 1,252,050
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Constellation Finance L.L.C.
Airline Receivable
Asset Backed Notes
Series 1997-1
9.80%, 12/14/02 N/R $ 250 $ 253,750
Contimortgage Home Equity Loan Trust
Series 1998-1,
Class A5
6.43%, 4/15/16 Aaa 360 361,069
Green Tree Financial Corp.
Manufactured Housing
Installment Sale
Contracts:
Series 1997-3, Class A3
6.73%, 7/15/28 Aaa 1,310 1,322,681
Series 1993-4, Class B1
7.20%, 1/15/19 Baa3 2,000 1,998,120
Green Tree Recreational,
Equipment & Consumer
Trust, Consumer Products & Equipment Retail
Installment Sale Contracts,
Series 1997-C, Class A-1
6.49%, 2/15/18 N/R 950 958,075
Nationscredit Grantor
Trust, Boat Retail
Installment Sale
Contracts,
Series 1996-1, Class A
5.85%, 9/15/11 Aaa 749 740,465
Southern Pacific Secured Assets Corp.
Home Equity Loans
Series 1998- 1,
Class A2
6.27%, 3/25/28 Aaa 550 549,926
------------
- --------------------------------------------------------------------
- -------------
TOTAL ASSET BACKED OBLIGATIONS
(Cost $7,253,657) 7,436,136
------------
- --------------------------------------------------------------------
- -------------
</TABLE>
<TABLE>
<CAPTION>
Shares/
Units
<C> <S> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
COMMON STOCKS (1.2%)
- --------------------------------------------------------------------------------
- ----------------
BROADCASTING (0.0%)
(1) Pegasus Communications Corp. 564 12,972
------------
- --------------------------------------------------------------------
- -------------
CABLE (0.0%)
(1) OpTel, Inc. 500 5
------------
- --------------------------------------------------------------------------------
- ----------------
CONSUMER PRODUCTS & SERVICES (0.0%)
(1) Coinstar, Inc. 11,887 107,726
------------
- --------------------------------------------------------------------
- -------------
FINANCIAL SERVICES (0.0%)
(1)(5) Westfed Holdings, Inc.
Class B (acquired 9/20/88, $127) 12,670 0
------------
- --------------------------------------------------------------------
- -------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Shares/
Units Value
- --------------------------------------------------------------------
<C> <S> <C> <C>
- -------------
FOOD & BEVERAGES (0.8%)
(1)(5) Dr. Pepper Bottling Holdings, Inc.
Class A (acquired 2/25/97, cost $1,181,250) 75,000 $ 2,212,500
(1)(3) Specialty Foods Corp. 30,000 3,000
------------
GROUP TOTAL 2,215,500
------------
- --------------------------------------------------------------------------------
- ----------------
INDUSTRIAL GOODS & MATERIALS (0.1%)
(1)(5)(7) CIC I Acquisition Corp.
(acquired 10/18/89, cost $1,076,715) 2,944 200,192
------------
- --------------------------------------------------------------------------------
- ----------------
METALS & MINING (0.0%)
Sheffield Steel Corp. 6,250 15,313
------------
- --------------------------------------------------------------------------------
- ----------------
PACKAGING/CONTAINERS (0.0%)
(1) Crown Packaging Enterprises Ltd. 253,500 2,535
------------
- --------------------------------------------------------------------------------
- ----------------
PAPER & FOREST PRODUCTS (0.1%)
(1) Mail-Well, Inc. 10,653 403,482
------------
- --------------------------------------------------------------------------------
- ----------------
RESTAURANTS, HOTELS & GAMING (0.1%)
(1) Casino America, Inc. 14,947 42,039
(1) Colorado Gaming & Entertainment, Co. 26,465 109,168
(1) Elsinore Corp. 86,539 135,217
(1) Motels of America, Inc. 500 8,500
------------
GROUP TOTAL 294,924
------------
- --------------------------------------------------------------------------------
- ----------------
RETAIL (0.0%)
(1)(5) Jewel Recovery L.P.
(acquired 7/30/93, cost $0) 49,559 0
------------
- --------------------------------------------------------------------------------
- ----------------
TELECOMMUNICATIONS (0.1%)
Intermedia Communications, Inc. 311 24,763
(1) Nextel Communications, Inc.
Class A 4,957 166,989
(1) Pagemart Nationwide, Inc. 7,000 63,000
------------
GROUP TOTAL 254,752
------------
- --------------------------------------------------------------------------------
- ----------------
TOTAL COMMON STOCKS
(Cost $3,275,566) 3,507,401
------------
- --------------------------------------------------------------------
- -------------
PREFERRED STOCKS (4.1%)
- --------------------------------------------------------------------------------
- ----------------
AEROSPACE/DEFENSE (0.4%)
(1) GPA Group plc
7% Second Preference Cum. Conv. 2,125,000 1,200,625
------------
- --------------------------------------------------------------------------------
- ----------------
BROADCASTING (1.1%)
(1) Pegasus Communications Corp.:
Units 250 293,125
12.75% Cum. Exchangeable,
Series A 31 35,078
(1) Source Media, Inc.
13.5% Units 55,000 1,361,250
<CAPTION>
Shares/
Units Value
<C> <S> <C> <C>
- --------------------------------------------------------------------
- -------------
Spanish Broadcasting System, Inc.
14.25% Cum. Exchangeable 16,114 $ 1,691,970
------------
GROUP TOTAL 3,381,423
------------
- --------------------------------------------------------------------------------
- ----------------
CABLE (0.7%)
(3) Adelphia Communications Corp.
13% Cum. Exchangeable, Series B 5,000 590,000
(1) DIVA Systems Corp.
Series D 56,913 651,085
(1) NTL, Inc.
13% Exchangeable 1 643
(1)(3) Nextel Communications, Inc.
13% Exchangeable, Series D 850 960,500
------------
GROUP TOTAL 2,202,228
------------
- --------------------------------------------------------------------------------
- ----------------
CONSUMER PRODUCTS & SERVICES (0.0%)
Renaissance Cosmetics, Inc.
14% Cumulative 366 36,600
------------
- --------------------------------------------------------------------------------
- ----------------
INDUSTRIAL GOODS & MATERIALS (0.1%)
(1)(3) International Utility Structures Inc.
Units 150 157,500
------------
- --------------------------------------------------------------------------------
- ----------------
FINANCIAL SERVICES (0.0%)
(1)(5)(7) West Fed Holdings, Inc.
Class A (acquired 9/20/88-6/18/93, cost $3,611,992) 42,759 42,759
------------
- --------------------------------------------------------------------------------
- ----------------
PAPER & FOREST PRODUCTS (0.4%)
(1) SD Warren Co.
14% Cum. Exchangeable, Series B 21,459 1,062,220
------------
- --------------------------------------------------------------------------------
- ----------------
PUBLISHING & INFORMATION SERVICES (0.4%)
(1) Liberty Group Publishing, Inc.
14.75% Cum. Exchangeable 22,000 555,500
Primedia, Inc.
10% Cum. Exchangeable, Series D 5,000 515,000
------------
GROUP TOTAL 1,070,500
------------
- --------------------------------------------------------------------------------
- ----------------
RESTAURANTS, HOTELS & GAMING (0.1%)
(1) AmeriKing, Inc.
13% Cum. Exchangeable 17,045 460,215
------------
- --------------------------------------------------------------------------------
- ----------------
TELECOMMUNICATIONS (0.9%)
(3) Intermedia Communications, Inc.:
(1) 7% Jr. Convertible, Series E 44,000 1,556,500
13.5% Exchangeable, Series B 2,785 342,506
NEXTLINK Communications, Inc.
14% Cum. Exchangeable 10,904 681,500
------------
GROUP TOTAL 2,580,506
------------
- --------------------------------------------------------------------------------
- ----------------
TOTAL PREFERRED STOCKS
(Cost $13,842,494) 12,194,576
------------
- --------------------------------------------------------------------
- -------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Shares/
Units Value
- --------------------------------------------------------------------
<C> <S> <C> <C>
- -------------
RIGHTS (0.1%)
- --------------------------------------------------------------------
(1) Terex Corp.,
expiring 5/15/02 (Cost $0) 6,000 $ 120,000
------------
- --------------------------------------------------------------------
- -------------
WARRANTS (0.8%)
- --------------------------------------------------------------------
(1) Advanced Radio
Telecommunications Corp.,
expiring 2/15/07 13,500 289,170
(1) American Communications Services, Inc.
expiring 11/1/05 2,000 220,000
(1) American Telecasting, Inc.
expiring 6/23/99 525 0
(1) Ampex Corp.
expiring 3/15/03 25,500 44,625
(1) Australis Holdings Pty Ltd.
expiring 10/30/01 2,250 15
(1) Boomtown, Inc.
expiring 11/1/98 500 5
(1) CHC Helicopter Corp.
expiring 12/15/00 6,000 18,000
(1) Capital Gaming International, Inc.
expiring 2/1/99 5,704 0
(1) Casino America, Inc.
expiring 5/3/01 2,646 26
(1) Cellular Communications International, Inc.
expiring 8/15/03 2,000 50,000
(1) CHI Energy, Inc.:
Series B,
expiring 11/8/03 7,578 18,195
Series C,
expiring 11/8/05 4,919 11,811
(1) 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 1,000
(1) DIVA Systems Corp.
expiring 5/15/06 1,925 442,750
(1) Dairy Mart Convenience Stores, Inc.:
expiring 12/1/01 11,665 5,832
expiring 5/13/98 1 1
(1) Elsinore Corp.
expiring 10/8/98 79,941 0
(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 53,625
(1) Interact Systems, Inc.
expiring 8/1/03 750 0
(1) McCaw International Ltd.
expiring 4/15/07 1,000 5,000
<CAPTION>
Shares/
Units Value
<C> <S> <C> <C>
- --------------------------------------------------------------------
- -------------
(1) Microcell Telecommunications
expiring 12/31/97 1,600 $ 30,480
(1) NEXTLINK Communications, Inc.
expiring 2/1/09 9,500 0
(1) Nextel Communications, Inc.
expiring 4/25/99 750 2,167
(1) Orion Network Systems, Inc.
expiring 1/15/07 500 7,000
(1) Price Communications Corp.
expiring 8/1/07 3,956 39,560
(1) Purity Supreme
expiring 8/1/97 5,198 0
(1) Renaissance Cosmetics, Inc.:
expiring 4/3/01 300 3
expiring 8/31/06 3,000 3,000
(1) SD Warren Co.
expiring 12/15/06 12,000 60,000
(1) Spanish Broadcasting Systems:
expiring 6/29/99 1,500 525,000
expiring 6/30/99 1,500 300,000
(1) UNIFI Communications, Inc.
expiring 3/1/07 1,000 15,000
(1) USN Communications, Inc.
expiring 10/15/04 7,600 186,200
(1) United International Holdings
expiring 11/15/99 2,950 35,400
(1) Wright Medical Technology
expiring 6/30/03 618 61,765
- --------------------------------------------------------------------------------
- ----------------
TOTAL WARRANTS
(Cost $1,899,100) 2,455,395
------------
- --------------------------------------------------------------------
- -------------
<CAPTION>
Face
Moody's Amount
Ratings (000)
<C> <S> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
SHORT-TERM INVESTMENTS (3.3%)
- --------------------------------------------------------------------
Federal Home Loan Bank
Discount Note
Zero Coupon, 4/1/98
(Cost $9,743,000) N/R $ 9,743 9,743,000
------------
- --------------------------------------------------------------------------------
- ----------------
TOTAL DOMESTIC SECURITIES
(Cost $284,004,951) 291,649,766
------------
- --------------------------------------------------------------------
- -------------
FOREIGN SECURITIES (2.8%)
- --------------------------------------------------------------------------------
- ----------------
CORPORATE OBLIGATIONS (2.1%)
- --------------------------------------------------------------------
FINLAND (0.2%)
Okobank
Perpetual Medium Term
Notes
6.188% A3 USD 530 520,725
------------
- --------------------------------------------------------------------
- -------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C>
- --------------------------------------------------------------------
- -------------
FRANCE (0.6%)
(9) Credit Lyonnais
Perpetual Sub. Notes
6.75% Baa2 USD 660 $ 641,850
L'Auxiliare du Credit
Foncier de France:
Sr. Unsub. Notes
8.00%, 1/14/02 A3 USD 320 336,200
Gtd. Sub. Notes
5.75%, 10/22/02 Baa3 USD 680 657,662
------------
1,635,712
------------
- --------------------------------------------------------------------
- -------------
JAPAN (0.2%)
(9) Fuji Finance (Cayman) Ltd.:
Perpetual Sub. FRN
6.425% Baa1 USD 430 389,150
Perpetual Gtd. Notes
7.30% Baa1 USD 370 338,087
------------
727,237
------------
- --------------------------------------------------------------------
- -------------
SWEDEN (1.0%)
ForeningsSparbanken AB:
Perpetual Jr. Sub.
Medium Term Notes
6.434% A3 USD 980 980,931
Perpetual Sub. Notes
7.50% A3 USD 420 432,600
(8) Skandinaviska Enskilda
Banken AB
Perpetual Sub. Notes:
7.50% N/R USD 1,250 1,266,063
6.625% Baa1 USD 400 400,112
------------
3,079,706
------------
- --------------------------------------------------------------------
- -------------
UNITED KINGDOM (0.1%)
(9) National Westminster Bank plc
Series A, Perpetual Sub.
Notes
5.813% Aa3 USD 230 201,342
------------
- --------------------------------------------------------------------
- -------------
TOTAL CORPORATE OBLIGATIONS
(Cost $6,138,295) 6,164,722
------------
- --------------------------------------------------------------------------------
- ----------------
GOVERNMENT OBLIGATIONS (0.7%)
--------------------------------------------------------------------------------
- ----------------
COLOMBIA (0.2%)
Republic of Colombia
Global Bonds
8.625%, 4/1/08 Baa3 USD 700 703,500
------------
- --------------------------------------------------------------------
- -------------
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C>
- --------------------------------------------------------------------
- -------------
POLAND (0.5%)
Republic of Poland
Past Due Interest Bonds
4.00%, 10/27/14 Baa3 USD 1,555 $ 1,393,668
------------
- --------------------------------------------------------------------------------
- ----------------
TOTAL GOVERNMENT OBLIGATIONS
(Cost $2,082,024) 2,097,168
------------
- --------------------------------------------------------------------------------
- ----------------
TOTAL FOREIGN SECURITIES
(Cost $8,220,319) 8,261,890
------------
- --------------------------------------------------------------------
- -------------
TOTAL INVESTMENTS (101.7%)
(Cost $292,225,270) 299,911,656
------------
- --------------------------------------------------------------------------------
- ----------------
LIABILITIES IN EXCESS OF OTHER
ASSETS (-1.7%) (4,945,390)
------------
- --------------------------------------------------------------------------------
- ----------------
NET ASSETS (100%)
Applicable to 34,632,153 issued and outstanding $0.001 par value shares
(authorized 100,000,000 shares) $294,966,266
------------
------------
- --------------------------------------------------------------------------------
- ----------------
NET ASSET VALUE PER SHARE $ 8.52
------------
------------
- --------------------------------------------------------------------------------
- ----------------
MARKET PRICE PER SHARE $ 8.66
------------
------------
- --------------------------------------------------------------------
- -------------
</TABLE>
N/R--Not Rated
PERL--Principle Exchange Rate Linked Security
PAC--Planned Amortization Class
REMIC--Real Estate Mortgage Investment Conduit
STRIPS--Seperate Trading of Registered Interest and Principal Securities.
TBA--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, 1998 aggregated $5,869,957. Total market value of
restricted securities owned at March 31, 1998 was $2,455,451 or 0.8% 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,
1998.
16
<PAGE>
DESCRIPTION OF DIVIDEND REINVESTMENT
AND CASH PURCHASE PLAN
- ---------
Pursuant to the BEA Income Fund, Inc.'s (the "Fund") Dividend Reinvestment and
Cash Purchase Plan (the "Plan"), each shareholder 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 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
17
<PAGE>
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.
18
