<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 Hal Liebes
DIRECTOR SENIOR VICE PRESIDENT
Lawrence J. Fox Michael A. Pignataro
DIRECTOR SECRETARY
James S. Pasman, Jr. Paul Roselli
DIRECTOR ASSISTANT TREASURER
Richard J. Lindquist
PRESIDENT AND CHIEF
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
787 Seventh Avenue
New York, New York 10019
- --------------------------------------------------------
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers 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.
---------------------------------------------
THIRD QUARTER REPORT
September 30, 1998
<PAGE>
BEA INCOME FUND, INC.
- ----------
Dear Shareholders: October 20, 1998
We are pleased to report on the activities of the BEA Income Fund, Inc. ("the
Fund") for the quarter ended September 30, 1998 and to discuss our investment
strategy.
At September 30, 1998, the Fund's net asset value ("NAV") was $7.88,
compared to an NAV of $8.41 at June 30, 1998. The Fund's total return (based on
NAV and assuming reinvestment of dividends of $0.18 per share) for the period
declined 4.23%. For the nine months ended September 30, 1998, the Fund's total
return declined 0.44% (based on NAV and assuming reinvestment of dividends of
$0.54 per share).
At September 30, 1998, $197.5 million was invested in high yield debt
securities; $50.8 million in investment-grade debt securities; $16.4 million in
equity securities; and the balance of $2.6 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 (44.9%) was invested in B-rated
issues.
THE MARKET: STILL FLYING TO QUALITY
During the third quarter, the fixed income market experienced yet another
"flight to quality" reaction in which U.S. Treasury securities became the
favored asset. Much of the plunge in bond prices occurred in the month of August
alone, when market volatility was such that many debt sectors generated their
worst-ever relative returns for a single month.
It's not surprising that high yield fared worse than investment-grade
securities in this kind of environment. As measured by the Salomon Smith Barney
High-Yield Market Index, the overall high yield market fell 4.8%. Aggregate
investment-grade securities (in the form of the Lehman Brothers Aggregate Bond
Index), by contrast, gained 4.2%.
Developments overseas were most responsible both for the flight to quality
and the quarter's high volatility:
- - RUSSIA: The deterioration of political and economic conditions in Russia came
to a head in mid-August, when the government devalued the crumbling ruble and
rescheduled payment of ruble-denominated Treasury securities. For investors,
this was a major turning point in how they perceive risk and their overall
willingness to accept it. The world's bond and stock markets subsequently
plunged as investors sought to rid themselves of relatively risky assets.
- - JAPAN: An unexpected outcome in July's parliamentary elections forced Prime
Minister Hashimoto to resign. The Japanese economy, meanwhile, remained mired
in its worst recession since World War II, while government gridlock
prevented any real progress toward a solution.
- - BRAZIL: Fueled by negative news from Asia and Russia, concern over Brazil's
fiscal deficit and overvalued currency prompted foreigners to withdraw an
alarmingly high amount of capital from the country. Expectations grew that
the International Monetary Fund would provide a financial aid package of some
kind. Investors began to contemplate with uneasiness, the nation's prospects
following the presumed re-election of President Cardoso in October.
In the U.S., sentiment for a reduction in interest rates that would keep the
domestic economy humming and help ease macroeconomic conditions elsewhere rose
to a fever pitch. The Federal Reserve cut short-term rates by 25 basis points on
September 29th, an amount many considered too low. There was also the news that
a prominent hedge fund with major positions in fixed income, Long-Term Capital
Management, had racked up huge trading losses and would need to be bailed out by
its creditors and shareholders.
The negative effect of the flight to quality on high yield prices was
magnified by two factors. First was the heavy selling by hedge funds like
Long-Term Capital, which were forced to liquidate large positions to protect
performance as well as to meet margin calls and share redemptions; and brokerage
firms, which had to sell to offset losses in emerging market debt and were faced
with swelling inventories that they could not maintain. Second was the fact that
there were few buyers around, as most portfolio managers chose to simply
maintain existing holdings while prices fell.
2
<PAGE>
PERFORMANCE: SECTOR ALLOCATIONS HELPED AND HURT
Sector allocations relative to the overall high yield market (as represented
by the Salomon Smith Barney index) played the biggest role in the Fund's
performance during the third quarter:
- - On the positive side were our overweight in cable/ media, which performed
much better than the market; and underweights in energy and finance, both of
which were hit hard.
- - Our overweighting in telecommunications hurt returns, as telecom issues
performed poorly.
- - We were also more highly exposed than the market to deferred interest
instruments such as zero-coupon bonds, whose prices tend to fluctuate much
more like stocks than bonds. Zeros experienced particularly high volatility
as stocks sold off and fixed income investors flocked to the least risky
securities.
- - Our absence from utilities, which was among the best-performing high yield
sectors, was an additional negative.
OUTLOOK: CAUTIOUSLY OPTIMISTIC
Our near-term view of the high yield market is one of caution, as we expect
activity to remain volatile through the fourth quarter and into early 1999.
Hedge funds and brokers still have substantial positions to sell, and will have
to do so during the fourth quarter in order to balance their books by year-end.
Investors also continue to grapple with important developments overseas.
Barring a recession of some degree--which we consider unlikely--we're more
optimistic about high yield's prospects next year. The key to this thesis is our
sense that the Fed will continue to reduce interest rates, perhaps as much as
another 50-100 basis points over the next six months or so. [Indeed, the Fed has
already done so by unexpectedly cutting rates by 25 basis points on October
15th.] This, in turn, should help stabilize overall global market conditions and
maintain a comfortable level of liquidity, thus setting the stage for most fixed
income sectors to thrive. The benefits of further rate cuts should be enough to
offset any major potential negatives.
Our fundamental strategy is unchanged. We continue to favor issues at the
higher end of the high yield credit spectrum and are keeping the portfolio most
heavily weighted in the cable/media, telecommunications and gaming sectors, as
their positive industry and company fundamentals are intact. We also are
avoiding meaningful exposure to cyclical industries and those most vulnerable to
the severe economic problems in Asia. Should appropriate opportunities arise, we
will probably add to our holdings in cable/media and BB-rated bonds more
generally.
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,
[RICHARD J. LINDQUIST SIGNATURE]
Richard J. Lindquist
PRESIDENT AND CHIEF INVESTMENT OFFICER*
[WILLIAM W. PRIEST, JR. 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 that date, 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 and beginning in July, 1989, he held
various offices at CSFBIM. 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 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)
- ---------
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- -------------
DOMESTIC SECURITIES (95.7%)
- --------------------------------------------------------------------------------
- -------------
CORPORATE OBLIGATIONS (79.5%)
- --------------------------------------------------------------------------------
- -------------
AEROSPACE/DEFENSE (0.1%)
(3) Sabreliner Corp.
Gtd. Sr. Notes
11.00%, 6/15/08 B3 $ 200 $ 188,750
Wyman-Gordon Co.
Sr. Notes
8.00%, 12/15/07 Ba2 150 162,750
-------------
GROUP TOTAL 351,500
-------------
- --------------------------------------------------------------------------------
- -------------
AUTOMOTIVE (2.1%)
Aetna Industries, Inc.
Sr. Notes
11.875%, 10/1/06 B3 600 630,000
Cambridge Industries, Inc.
Series B, Gtd.
Sr. Sub. Notes
10.25%, 7/15/07 B3 500 501,250
Collins & Aikman Products Corp.
Gtd. Sr. Notes
11.50%, 4/15/06 B2 650 682,500
Consorcio G Grupo Dina S.A./MCII Holdings (U.S.A.),
Inc.
Sr. Secured Discount Notes
Zero Coupon, 11/15/02 N/R 1,950 1,842,750
Oxford Automotive, Inc.:
Gtd. Sr. Sub. Notes 10.125%, 6/15/07 Caa1 100 91,750
Series B, Gtd. Sr. Sub. Notes
10.125%, 6/15/07 Caa1 925 848,688
Safety Components International, Inc.
Series B, Gtd. Sr. Sub. Notes
10.125%, 7/15/07 B3 500 504,375
Stanadyne Automotive Corp.
Series B, Gtd. Sr. Sub. Notes
10.25%, 12/15/07 Caa1 400 386,000
Walbro Corp.
Series B,
Gtd. Sr. Notes
10.125%, 12/15/07 B2 300 291,375
-------------
GROUP TOTAL 5,778,688
-------------
- --------------------------------------------------------------------------------
- -------------
BROADCASTING (4.3%)
(6) Australis Holdings Pty. Ltd.
Yankee Sr. Secured Discount Notes
0.00%, 11/1/02 N/R 3,950 197,500
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(6) Australis Media Ltd.
Yankee Units
0.00%, 5/15/03 C $ 2,375 $ 35,625
(6) Australis Media Ltd.
Yankee Gtd. Sr. Secured
Discount Notes
0.00%, 5/15/03 C 37 508
(3) Chancellor Media Corp.
Sr. Sub. Notes
9.00%, 10/1/08 Ba3 500 500,000
(6) Capstar Broadcasting Partners, Inc.
Sr. Discount Notes
0.00%, 2/1/09 N/R 2,000 1,477,500
Digital Television Services, L.L.C./DTS Capital, Inc.
Series B, Gtd. Sr. Sub. Notes
12.50%, 8/1/07 B3 750 811,875
(6) Echostar Communications Corp.
Gtd. Sr. Discount Notes
0.00%, 6/1/04 B2 450 437,625
Fox/Liberty Networks L.L.C.
Sr. Notes
8.875%, 8/15/07 B1 300 294,000
Granite Broadcasting Corp.:
Series A, Sr. Sub. Notes
8.875%, 5/15/08 B3 650 606,938
Sr. Sub. Notes
9.375%, 12/1/05 B3 300 297,000
Pegasus Media & Communications, Inc.
Series B, Notes
12.50%, 7/1/05 B2 250 270,625
SFX Broadcasting, Inc.
Series B, Sr. Sub. Notes
10.75%, 5/15/06 B3 427 468,099
Sinclair Broadcast Group, Inc.:
Gtd. Sr. Sub. Notes
8.75%, 12/15/07 B2 350 343,000
Sr. Sub. Notes
10.00%, 9/30/05 B2 900 940,500
Spanish Broadcasting System, Inc.
Sr. Notes
12.50%, 6/15/02 B3 500 554,375
Turner Broadcasting Systems, Inc.
Sr. Notes
7.40%, 2/1/04 Baa3 820 883,550
(6) United International Holdings, Inc.,
Series B, Sr. Discount Notes
0.00%, 2/15/08 B3 1,700 811,750
Univision Network Holding L.P.
Sub. Notes
Zero Coupon, 12/17/02 N/R 1,500 1,710,000
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Young Broadcasting, Inc.
Series B, Gtd. Sr. Discount Notes:
8.75%, 6/15/07 B2 $ 750 $ 727,500
9.00%, 1/15/06 B2 300 295,500
-------------
GROUP TOTAL 11,663,470
-------------
- --------------------------------------------------------------------------------
- -------------
BUSINESS SERVICES & EQUIPMENT (0.2%)
General Binding Corp.
Gtd. Sr. Sub. Notes
9.375%, 6/1/08 B2 250 245,938
(3) Iron Mountain Inc.
Sr. Sub. Notes
8.75%, 9/30/09 B3 200 196,000
-------------
GROUP TOTAL 441,938
-------------
- --------------------------------------------------------------------------------
- -------------
CABLE (9.9%)
Adelphia Communications Corp.
Series B, Sr. Notes
8.375%, 2/1/08 B2 800 812,000
CCA Holdings Corp.
Sr. Sub. Notes
13.00%, 12/31/99 N/R 1,500 2,246,250
CSC Holdings, Inc.:
Series B, Sr. Sub. Debentures
8.125%, 8/15/09 Ba2 350 364,875
Sr. Sub. Notes
9.875%, 5/15/06 B1 400 428,000
Sr. Sub. Debentures
9.875%, 2/15/13 B1 850 941,375
Century Communications Corp.:
Sr. Notes
8.75%, 10/1/07 Ba3 400 423,000
9.75%, 2/15/02 Ba3 500 535,000
Series B, Sr. Discount Notes
Zero Coupon, 1/15/08 Ba3 650 299,813
Charter Communications Southeast L.P.
Series B, Sr. Notes
11.25%, 3/15/06 B3 450 490,500
Comcast Corp.
Sr. Sub. Notes:
9.125%, 10/15/06 Ba3 750 795,000
9.375%, 5/15/05 Ba3 180 194,193
(3)(6) DIVA Systems Corp.
Units
0.00%, 3/1/08 N/R 2,776 943,707
(6) Diamond Cable Communications plc
Yankee Discount Notes
0.00%, 12/15/05 Caa1 1,500 1,203,750
Falcon Holdings Group, L.P./Falcon Funding Corp.:
Series B, Sr. Debentures
8.375%, 4/15/10 B2 500 501,250
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Series B, Sr. Discount Debentures
(6) 0.00%, 4/15/10 B2 $ 1,500 $ 1,018,125
Helicon Group L.P.
Series B, Sr. Secured Notes
11.00%, 11/1/03 B1 800 842,000
InterMedia Capital Partners IV L.P./ InterMedia
Partners IV Capital Corp.
Sr. Notes
11.25%, 8/1/06 B2 650 702,813
James Cable Partners L.P./ James Cable Finance Corp.
Series B, Gtd. Sr. Notes
10.75%, 8/15/04 B2 450 472,500
Jones Intercable, Inc.
Sr. Notes
7.625%, 4/15/08 Ba2 1,150 1,184,500
Lenfest Communications, Inc.:
Sr. Notes
8.375%, 11/1/05 Ba3 500 526,250
Sr. Sub. Notes
10.50%, 6/15/06 B2 900 1,021,500
8.25%, 2/15/08 B2 200 202,000
(6) Marcus Cable Co., L.P./ Marcus Cable Capital Corp. III
Sr. Discount Notes
0.00%, 12/15/05 B3 1,600 1,498,000
NTL, Inc.:
Series A, Sr. Deferred Coupon Notes
(6) 0.00%, 4/15/05 B3 1,000 860,000
Series B, Sr. Deferred Coupon Notes
(6) 0.00%, 2/1/06 B3 1,050 855,750
Series B, Sr. Notes
10.00%, 2/15/07 B3 500 505,000
Northland Cable Television, Inc.
Gtd. Sr. Sub. Notes
10.25%, 11/15/07 B3 500 528,750
OpTel, Inc.:
Sr. Notes
(3) 11.50%, 7/1/08 B3 2,350 2,358,812
Series B, Sr. Notes
13.00%, 2/15/05 B3 500 501,875
Olympus Communications, L.P./ Olympus Capital Corp.
Series B, Sr. Notes
10.625%, 11/15/06 B1 1,000 1,070,000
(6) Renaissance Media L.L.C.
Sr. Discount Notes
0.00%, 4/15/08 B3 1,000 668,750
Tele-Communications, Inc.
Series C, Medium Term Notes
6.34%, 2/1/02 Baa3 360 371,700
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(6) Telewest Communications plc
Yankee Sr. Sub. Discount
Debentures
0.00%, 10/1/07 B1 $ 2,100 $ 1,727,250
-------------
GROUP TOTAL 27,094,288
-------------
- --------------------------------------------------------------------------------
- -------------
CHEMICALS (1.7%)
Applied Extrusion Technologies, Inc.
Series B, Sr. Notes
11.50%, 4/1/02 B2 1,500 1,584,375
Harris Chemical N.A.
Sr. Secured Debentures
10.25%, 7/15/01 Ba1 150 154,500
Huntsman Polymers Corp.
Sr. Notes
11.75%, 12/1/04 B1 1,000 1,096,250
NL Industries Inc.:
Sr. Secured Notes
11.75%, 10/15/03 B1 250 270,000
Sr. Secured Discount Debentures
(6) 0.00%, 10/15/05 B2 800 836,000
(6) Sterling Chemical Holdings, Inc.
Sr. Secured Discount Notes
0.00%, 8/15/08 Caa1 1,000 400,000
Texas Petrochemicals Corp.
Series B, Sr. Sub. Notes
11.125%, 7/1/06 B3 350 329,438
-------------
GROUP TOTAL 4,670,563
-------------
- --------------------------------------------------------------------------------
- -------------
CONSTRUCTION & BUILDING MATERIALS (0.4%)
American Architectural Products Corp.
Gtd. Sr. Notes
11.75%, 12/1/07 Caa1 650 606,125
(6) Waxman Industries Inc.
Series B, Sr. Secured Deferred Notes
0.00%, 6/1/04 Caa1 600 547,500
-------------
GROUP TOTAL 1,153,625
-------------
- --------------------------------------------------------------------------------
- -------------
CONSUMER PRODUCTS & SERVICES (2.4%)
(6) Coinstar Inc.
Sr. Discount Notes
0.00%, 10/1/06 N/R 1,700 1,377,000
Doskocil Manufacturing Co., Inc.
Gtd. Sr. Sub. Notes
10.125%, 9/15/07 B3 500 515,000
Fort James Corp.
Notes
6.234%, 3/15/01 Baa2 155 158,488
Holmes Products Corp.
Series B, Gtd. Sr. Sub. Notes
9.875%, 11/15/07 B3 300 276,375
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Indesco International, Inc.
Gtd. Sr. Sub. Notes
9.75%, 4/15/08 B3 $ 600 $ 558,000
Jordan Industries, Inc.
Series B, Sr. Notes
10.375%, 8/1/07 B3 1,150 1,106,875
Packaged Ice, Inc.
Series B, Gtd. Sr. Notes
9.75%, 2/1/05 B3 100 94,500
Playtex Products, Inc.
Series B, Gtd. Sr. Notes
8.875%, 7/15/04 B1 225 227,813
Revlon Consumer Products Corp.
Sr. Sub. Notes
8.625%, 2/1/08 B3 700 687,750
Revlon Worldwide (Parent) Corp.
Series B, Sr. Secured Discount Notes
Zero Coupon, 3/15/01 B3 1,100 844,250
Sealy Mattress Co.
Series B, Gtd. Sr. Sub. Notes
9.875%, 12/15/07 B3 200 197,000
(2) Town & Country Corp.
Sr. Sub. Notes
13.00%, 5/31/98 N/R 878 349,074
-------------
GROUP TOTAL 6,392,125
-------------
- --------------------------------------------------------------------------------
- -------------
ELECTRONICS (0.9%)
Details, Inc.,
Series B.
Sr. Sub Notes
10.00%, 11/15/05 N/R 500 484,375
Unisys Corp.:
Sr. Notes
11.75%, 10/15/04 Ba3 225 253,125
7.875%, 4/1/08 Ba3 250 249,375
Series B, Sr. Notes
12.00%, 4/15/03 Ba3 1,000 1,115,000
Viasystems, Inc.:
Series B, Sr. Sub. Notes
9.75%, 6/1/07 B3 150 127,875
Sr. Sub. Notes
9.75%, 6/1/07 B3 300 255,750
-------------
GROUP TOTAL 2,485,500
-------------
- --------------------------------------------------------------------------------
- -------------
ENERGY (3.7%)
Abraxas Petroleum Corp./ Canadian Abraxas Petroleum
Ltd.
Series D, Gtd. Sr. Notes
11.50%, 11/1/04 B2 1,550 1,243,875
Belden & Blake
Energy Co.
Series B, Gtd. Sr. Sub. Notes
9.875%, 6/15/07 N/R 200 166,500
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Bellwether
Exploration Co.
Gtd. Sr. Sub. Notes
10.875%, 4/1/07 B3 $ 1,250 $ 1,190,625
Canadian Forest Oil, Ltd.
Yankee Gtd. Sr. Sub. Notes
8.75%, 9/15/07 B2 450 408,375
Cliffs Drilling Co.
Series D, Gtd. Sr. Notes
10.25%, 5/15/03 B1 1,100 1,164,625
(3) Continental Resources, Inc.
Gtd. Sr. Sub. Notes
10.25%, 8/1/08 B3 250 209,375
Dawson Production Services, Inc.
Sr. Notes
9.375%, 2/1/07 B1 450 444,375
First Wave Marine, Inc.
Gtd. Sr. Notes
11.00%, 2/1/08 B3 1,000 1,033,750
Giant Industries, Inc.
Gtd. Sr. Sub. Notes
9.00%, 9/1/07 B2 500 480,000
Gothic Production Corp.
Series B, Gtd. Sr. Secured Notes
11.125%, 5/1/05 B3 250 181,875
H.S. Resources, Inc.:
Gtd. Sr. Sub. Notes
9.25%, 11/15/06 B2 600 558,000
Sr. Sub. Notes
9.875%, 12/1/03 B2 500 488,750
KN Energy, Inc.
Reset Put Notes
6.30%, 3/1/01 Baa2 970 993,038
Parker Drilling Co.
Series D, Gtd. Sr. Notes
9.75%, 11/15/06 B1 300 279,000
Plains Resources, Inc.
Series B, Gtd. Sr. Sub. Notes
10.25%, 3/15/06 B2 375 378,750
Southwest Royalties, Inc.
Series B, Gtd. Sr. Notes
10.50%, 10/15/04 Caa2 500 273,750
TransAmerican Energy Corp.
Series B, Sr. Secured Notes
11.50%, 6/15/02 Caa2 450 269,438
Wiser Oil Co.
Gtd. Sr. Sub. Notes
9.50%, 5/15/07 B3 450 352,124
-------------
GROUP TOTAL 10,116,225
-------------
- --------------------------------------------------------------------------------
- -------------
ENTERTAINMENT (3.5%)
American Skiing Co.
Series B, Sr. Sub. Notes
12.00%, 7/15/06 B3 425 434,563
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Bally Total Fitness Holding Corp.
Series B, Sr. Sub. Notes
9.875%, 10/15/07 B3 $ 350 $ 327,250
Booth Creek Ski Holdings, Inc.
Series B, Gtd. Sr. Sub. Notes
12.50%, 3/15/07 Caa1 1,000 987,500
Cinemark U.S.A., Inc.
Series D, Sr. Sub. Notes
9.625%, 8/1/08 N/R 250 255,625
Genmar Holdings, Inc.
Series A, Sr. Sub. Notes
13.50%, 7/15/01 Caa2 500 500,000
Hollywood Theaters, Inc.
Gtd. Sr. Sub. Notes
10.625%, 8/1/07 B3 400 404,500
ICON Health & Fitness, Inc.
Series B, Sr. Sub. Notes
13.00%, 7/15/02 B3 500 395,000
IHF Holdings, Inc.
Series B, Sr. Sec. Discount Notes
0.00%, 11/15/04 Caa2 1,450 288,188
(3) Loews Cineplex Entertainment Corp.
Sr. Sub. Notes
8.875%, 8/1/08 B3 500 498,750
(3) Outboard Marine Corp.
Gtd. Sr. Notes
10.75%, 6/1/08 B3 500 483,125
(3) Premier Cruises, Ltd.
Gtd. Sr. Notes
11.00%, 3/15/08 Caa2 900 537,750
Production Resource Group, L.L.C./PRG Finance Group
Gtd. Sr. Sub. Notes
11.50%, 1/15/08 Caa2 750 711,562
(3) Regal Cinemas Inc.
Sr. Sub. Notes
9.50%, 6/1/08 B3 750 757,500
Silver Cinemas, Inc.
Sr. Sub. Notes
10.50%, 4/15/05 Caa1 1,900 1,857,250
Time Warner, Inc.
Debentures
6.85%, 1/15/26 Baa3 720 767,700
9.125%, 1/15/13 Baa3 270 347,962
-------------
GROUP TOTAL 9,554,225
-------------
- --------------------------------------------------------------------------------
- -------------
FINANCIAL SERVICES (2.7%)
AT&T Capital Corp.
Series 4, Medium Term Notes:
6.47%, 12/3/99 Baa3 60 60,728
6.92%, 4/29/99 Baa3 600 604,825
6.26%, 2/18/99 Baa3 290 290,847
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Associates Corp. of North America
Sr. Debentures
5.96%, 5/15/37 Aa3 $ 1,215 $ 1,243,856
Cie. Financiere de Paribas
Sub. Notes
6.95%, 7/22/13 A3 380 400,900
BellSouth Capital
Funding Corp.
Debentures
6.04%, 11/15/26 Aa1 1,200 1,280,124
Chase Manhattan Corp.
Sub. Notes
6.375%, 4/1/08 A1 420 431,550
Long Island Savings
Bank F.S.B.
Notes
7.00%, 6/13/02 Baa3 770 808,500
National Westminister Bank
Gtd. Capital Notes
9.375%, 11/15/03 Aa3 95 112,104
Olympic Financial, Ltd.
Sr. Notes
11.50%, 3/15/07 B2 475 451,250
(3) Prudential Insurance Co.
Sr. Notes
6.375%, 7/23/06 A2 100 103,375
(3)(6) PTC International
Finance B.V.
Gtd. Sr. Sub. Notes
0.00%, 7/1/07 B3 350 235,375
(2) Westfed Holdings
Sr. Debentures
15.50%, 9/15/99 N/R 1,750 1,330,000
-------------
GROUP TOTAL 7,353,434
-------------
- --------------------------------------------------------------------------------
- -------------
FOOD & BEVERAGES (1.2%)
AmeriServ Food Distribution, Inc.
Gtd. Sr. Notes
8.875%, 10/15/06 B1 650 590,688
Archibald Candy Corp.
Gtd. Sr. Secured Notes
10.25%, 7/1/04 B2 550 562,375
Eagle Family Foods, Inc.
Series B, Gtd. Sr. Sub. Notes
8.75%, 1/15/08 B3 400 375,000
Fleming Companies, Inc.
Series B, Gtd. Sr. Sub. Notes
10.50%, 12/1/04 B3 700 670,250
International Home Foods, Inc.
Gtd. Sr. Sub. Notes
10.375%, 11/1/06 B2 1,000 1,051,250
-------------
GROUP TOTAL 3,249,563
-------------
- --------------------------------------------------------------------
- -------------
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
HEALTH CARE (2.8%)
(7) Health and Retirement Properties Trust
Remarketed Reset Notes
6.288%, 7/9/99 Baa2 $ 710 $ 709,766
(3) ICN Pharmaceuticals, Inc.
Sr. Notes
8.75%, 11/15/08 Ba3 500 495,000
Integrated Health Services, Inc.:
Series A, Sr. Sub. Notes
10.25%, 4/30/06 B2 400 399,000
Sr. Sub. Notes
9.25%, 1/15/08 B2 100 95,500
Meditrust
Conv. Debentures
7.50%, 3/1/01 Baa3 3,000 3,000,000
Merck & Co.
Series B, Medium Term Notes
5.76%, 5/3/37 Aaa 1,440 1,479,600
(3) Oxford Health Plans, Inc.
Sr. Notes
11.00%, 5/15/05 Caa1 590 516,250
Paracelsus Healthcare Corp.
Sr. Sub. Notes
10.00%, 8/15/06 B1 750 690,000
Vencor Operating, Inc.
Gtd. Sr. Sub. Notes
9.875%, 5/1/05 B3 400 318,925
-------------
GROUP TOTAL 7,704,041
-------------
- --------------------------------------------------------------------
- -------------
INDUSTRIAL GOODS & MATERIALS (4.2%)
AMTROL, Inc.
Sr. Sub. Notes
10.625%, 12/31/06 B3 400 381,000
Atlantis Group, Inc.
Sr. Notes
11.00%, 2/15/03 B2 585 596,700
CLARK Material
Handling Co.
Gtd. Sr. Notes
10.75%, 11/15/06 B1 550 555,500
Golden Ocean
Group, Ltd.
Gtd. Sr. Notes
10.00%, 8/31/01 B3 1,548 774,000
Haynes International, Inc.
Sr. Notes
11.625%, 9/1/04 B3 500 555,625
Interlake Corp.
Sr. Sub. Debentures
12.125%, 3/1/02 B3 800 792,000
International Knife & Saw, Inc.
Sr. Sub. Notes
11.375%, 11/15/06 B3 750 764,063
MVE, Inc.
Sr. Secured Debentures
12.50%, 2/15/02 B3 850 851,063
Motors and Gears, Inc.
Series D, Sr. Notes
10.75%, 11/15/06 B3 1,500 1,466,250
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Neenah Corp.
Series B, Sr. Sub. Notes
11.125%, 5/1/07 B3 $ 500 $ 500,624
Park-Ohio Industries, Inc.
Sr. Sub. Notes
9.25%, 12/1/07 B2 400 400,000
SRI Receivables Purchase Co., Inc.
Series B, Notes
12.50%, 12/15/00 N/R 1,500 1,500,000
Seagate Technology, Inc.
Sr. Debentures
7.45%, 3/1/37 Ba1 400 424,500
Specialty Equipment Companies, Inc.
Sr. Sub. Notes
11.375%, 12/1/03 B3 1,000 1,057,500
(6) Thermadyne Holdings Corp.
Sr. Discount Debentures
0.00%, 6/1/08 Caa1 975 482,625
Thermadyne Mfg. LLC/ Thermadyne Capital Corp.
Gtd. Sr. Sub. Notes
9.875%, 6/1/08 B3 300 272,250
-------------
GROUP TOTAL 11,373,700
-------------
- --------------------------------------------------------------------------------
- -------------
METALS & MINING (3.2%)
AK Steel Corp.
Gtd. Sr. Notes
10.75%, 4/1/04 Ba2 1,200 1,252,500
Algoma Steel, Inc.
Yankee First Mortgage Notes
12.375%, 7/15/05 B1 450 337,500
(3) Bayou Steel Corp.
First Mortgage Notes
9.50%, 5/15/08 B1 500 449,375
Gulf States Steel, Inc.
First Mortgage Notes
13.50%, 4/15/03 B3 1,200 777,000
Kaiser Aluminum & Chemical Corp.
Series D, Sr. Notes
10.875%, 10/15/06 B1 675 666,563
(3) Lodestar Holdings Inc.
Sr. Notes
11.50%, 5/15/05 Caa2 800 775,000
Metallurg, Inc.
Series B, Gtd. Sr. Notes
11.00%, 12/1/07 B3 750 767,813
Republic Engineered Steel, Inc.
First Mortgage Bonds
9.875%, 12/15/01 Caa1 1,135 1,112,300
Sheffield Steel Corp.
Series B, First Mortgage Notes
11.50%, 12/1/05 N/R 750 628,124
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
WCI Steel, Inc.
Series B, Sr. Secured Notes
10.00%, 12/1/04 B2 $ 925 $ 885,688
Weirton Steel Corp.
Sr. Notes
11.375%, 7/1/04 B2 500 450,000
Wheeling-Pittsburgh Corp.
Sr. Notes
9.25%, 11/15/07 B2 750 693,750
-------------
GROUP TOTAL 8,795,613
-------------
- --------------------------------------------------------------------------------
- -------------
PACKAGING/CONTAINERS (1.4%)
AEP Industries, Inc.
Sr. Sub. Notes
9.875%, 11/15/07 B2 250 241,875
BPC Holding Corp.
Series B, Sr. Secured Notes
12.50%, 6/15/06 Caa3 900 964,125
Container Corp. of America
Gtd. Sr. Notes
9.75%, 4/1/03 B1 500 495,000
(6) Crown Packaging Enterprises Ltd.
Yankee Sr. Secured Discount Notes
0.00%, 8/1/06 Ca1 2,450 27,563
Four M Corp.
Series B, Gtd. Sr. Secured Notes
12.00%, 6/1/06 B3 150 147,750
Gaylord Container Corp.
Series B, Sr. Notes
9.75%, 6/15/07 Caa1 700 572,250
Radnor Holdings, Inc.
Series B, Gtd. Sr. Notes
10.00%, 12/1/03 B2 250 248,125
Riverwood International Corp.
Gtd. Sr. Sub. Notes
10.875%, 4/1/08 Caa1 600 493,500
Stone Container
Finance Co.
Yankee Gtd. Sr. Notes
11.50%, 8/15/06 B2 530 556,500
-------------
GROUP TOTAL 3,746,688
-------------
- --------------------------------------------------------------------------------
- -------------
PAPER & FOREST PRODUCTS (1.9%)
Ainsworth
Lumber Co. Ltd.
Yankee Sr. Secured Notes
12.50%, 7/15/07 B3 1,250 1,246,875
Crown Paper Co.
Sr. Sub. Notes
11.00%, 9/1/05 B3 550 412,500
Mail-Well Corp.
Sr. Sub. Notes
10.50%, 2/15/04 B1 1,500 1,552,500
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Malette, Inc.
Yankee Sr. Secured Debentures
12.25%, 7/15/04 Ba3 $ 180 $ 195,750
QUNO Corp.
Yankee Sr. Notes
9.125%, 5/15/05 Baa3 315 333,506
Repap New Brunswick, Inc.
Sr. Secured Debentures
10.625%, 4/15/05 Caa1 700 439,250
SD Warren Co.
Series B, Sr. Sub. Notes
12.00%, 12/15/04 B1 1,000 1,101,250
-------------
GROUP TOTAL 5,281,631
-------------
- --------------------------------------------------------------------------------
- -------------
PUBLISHING & INFORMATION SERVICES (1.9%)
American Lawyer Media, Inc.
Series B, Gtd. Sr. Notes
9.75%, 12/15/07 B1 450 448,875
Ampex Corp.
Series B, Sr. Notes
12.00%, 3/15/03 N/R 750 750,000
Belo (A.H.) Corp.
Sr. Notes
6.875%, 6/1/02 Baa2 750 790,313
(6) InterAct Systems, Inc.
Sr. Discount Notes
0.00%, 8/1/03 N/R 950 369,313
Lamar Advertising Co.
Gtd. Sr. Sub. Notes
9.625%, 12/1/06 B1 250 266,874
Level 3 Communications, Inc.
Sr. Notes
9.125%, 5/1/08 B3 800 754,000
(6) Liberty Group Publishing, Inc.
Sr. Discount Debentures
0.00%, 2/1/09 Caa1 600 335,250
(8) Mentus Media Corp.
Series B, Sr. Secured PIK Notes
12.00%, 2/1/03 N/R 1,423 1,423,000
-------------
GROUP TOTAL 5,137,625
-------------
- --------------------------------------------------------------------------------
- -------------
REAL ESTATE (0.4%)
(7) Camden Property Trust Remarketed Reset Notes
6.088%, 5/9/02 Baa2 660 660,428
EOP Operating L.P.
Notes
6.375%, 2/15/03 Baa1 500 508,125
-------------
GROUP TOTAL 1,168,553
-------------
- --------------------------------------------------------------------
- -------------
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
RESTAURANTS, HOTELS & GAMING (6.5%)
American Restaurant Group, Inc.
Series B, Gtd. Sr. Secured Notes
11.50%, 2/15/03 B3 $ 750 $ 726,563
Bluegreen Corp.
Series B, Gtd. Sr. Secured Notes
10.50%, 4/1/08 B3 1,000 948,750
Boyd Gaming Corp.
Sr. Sub. Notes
9.50%, 7/15/07 B1 150 148,500
(2) Capital Gaming International, Inc.
Promissory Notes
10.125%, 8/1/95 N/R 1 1
CapStar Hotel Co.
Sr. Sub. Notes
8.75%, 8/15/07 Ba3 375 356,250
Casino America, Inc.
Gtd. Sr. Notes
12.50%, 8/1/03 B1 1,250 1,353,125
Casino Magic of Louisiana, Corp.
Series B, Gtd. First Mortgage Notes
13.00%, 8/15/03 B3 1,900 2,085,250
Colorado Gaming & Entertainment, Co.
Gtd. Sr. Secured Notes
12.00%, 6/1/03 N/R 1,480 1,565,491
Empress River Casino Finance Corp.
Gtd. Sr. Notes
10.75%, 4/1/02 Ba2 500 536,250
Friendly Ice Cream Corp.
Gtd. Sr. Notes
10.50%, 12/1/07 B1 800 710,000
HMH Properties, Inc.
Series B, Gtd. Sr. Notes
7.875%, 8/1/08 Ba2 500 493,750
Hard Rock Hotel, Inc.
Series B, Sr. Sub. Notes
9.25%, 4/1/05 B3 550 540,375
Hollywood Park, Inc.
Series B, Gtd. Sr. Sub. Notes
9.50%, 8/1/07 B2 675 641,250
Horseshoe Gaming L.L.C.:
Series B, Gtd. Sr. Sub. Notes
9.375%, 6/15/07 B3 1,350 1,299,375
Series B, Gtd. Sr. Notes
12.75%, 9/30/00 B1 750 806,250
Majestic Star
Casino L.L.C.
Sr. Exchange Secured Notes
12.75%, 5/15/03 B2 200 206,500
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Moody's Face 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 $ 1,159,875
Prime Hospitality Corp.
Secured First Mortgage Notes
9.25%, 1/15/06 Ba2 850 833,000
Red Roof Inns, Inc.
Sr. Exchange Notes
9.625%, 12/15/03 B2 700 684,250
(3) Romacorp, Inc.
Gtd. Sr. Notes
12.00%, 7/1/06 B3 750 738,750
Santa Fe Hotel, Inc.
Gtd. First Mortgage Notes
11.00%, 12/15/00 Caa2 354 354,000
Waterford Gaming L.L.C./ Waterford Gaming Finance Corp.
Sr. Notes
12.75%, 11/15/03 N/R 1,514 1,638,904
-------------
GROUP TOTAL 17,826,459
-------------
- --------------------------------------------------------------------------------
- -------------
RETAIL (3.9%)
(3)(6) Advance Holding Corp.
Sr. Discount Debentures
0.00%, 4/15/09 Caa2 1,500 868,125
(3) Advance Stores Co.
Gtd. Sr. Sub. Notes
10.25%, 4/15/08 Caa1 2,000 1,955,000
(3) County Seat Stores, Inc.
Units
12.75%, 11/1/04 N/R 1,100 1,089,000
Dairy Mart Convenience Stores, Inc.
Sr. Sub. Notes
10.25%, 3/15/04 B3 275 254,375
Finlay Enterprises, Inc.
Sr. Debentures
9.00%, 5/1/08 B2 600 538,500
Finlay Fine Jewelry Corp. Gtd. Sr. Notes
8.375%, 5/1/08 Ba3 1,200 1,066,500
Jitney-Jungle Stores of America, Inc.:
Gtd. Sr. Notes
12.00%, 3/1/06 B2 250 275,000
Gtd. Sr. Sub. Notes
10.375%, 9/15/07 N/R 300 303,750
K Mart Corp.
Debentures
7.75%, 10/1/12 Ba2 1,175 1,128,000
Mrs. Fields' Original Cookies, Inc.
Series B, Gtd. Sr. Notes
10.125%, 12/1/04 B2 800 752,000
(3)(6) Mrs. Fields' Holding Co.
Units
0.00%, 12/1/05 Caa2 1,750 975,625
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Pantry, Inc.
Gtd. Sr. Sub. Notes
10.25%, 10/15/07 B3 $ 750 $ 727,500
Pathmark Stores, Inc.
Sr. Sub. Notes
9.625%, 5/1/03 Caa1 850 822,375
-------------
GROUP TOTAL 10,755,750
-------------
- --------------------------------------------------------------------------------
- -------------
TELECOMMUNICATIONS (15.5%)
Advanced Radio Telecommunications Corp.
Sr. Notes
14.00%, 2/15/07 Caa2 900 699,750
Bell Technology
Group Ltd.
Sr. Notes
13.00%, 5/1/05 N/R 1,000 848,750
(6) COLT Telecom Group plc
Yankee Units
0.00%, 12/15/06 B2 400 352,000
(6) Clearnet Communications Corp.
Sr. Discount Notes
0.00%, 12/15/05 B3 800 665,000
Concentric Network Corp.
Sr. Notes
12.75%, 12/15/07 N/R 750 691,875
(3) Convergent Communications, Inc.
Units
13.00%, 4/1/08 N/R 1,250 1,187,500
(3)(6) DTI Holdings, Inc.
Units
0.00%, 3/1/08 N/R 1,850 723,813
(3) Dobson Wireline Co.
Sr. Notes
12.25%, 6/15/08 N/R 1,000 930,000
(3)(6) Dolphin Telecom plc
Sr. Discount Notes
0.00%, 6/1/08 Caa1 500 244,375
(6) Echostar Satellite Broadcasting Corp.
Sr. Secured Discount Notes
0.00%, 3/15/04 B3 700 618,625
(6) E. Spire Communications, Inc.
Sr. Discount Notes.
0.00%, 11/1/05 N/R 2,950 2,371,063
(3) Exodus Communications, Inc.
Sr. Notes
11.25%, 7/1/08 N/R 700 630,875
(3)(6) Focal Communications Corp.
Sr. Discount Notes
0.00%, 2/15/08 N/R 1,400 684,250
(6) GST USA, Inc.
Gtd. Sr. Exchange Discount Notes
0.00%, 12/15/05 N/R 1,800 1,334,250
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
GTE Corp.
Debentures
6.36%, 4/15/06 Baa1 $ 1,000 $ 1,058,750
(3) Global Crossing
Holdings Ltd.
Gtd. Sr. Notes
9.625%, 5/15/08 N/R 350 343,000
Globalstar, L.P. / Globalstar Capital Corp.
Sr. Notes
10.75%, 11/1/04 Caa1 1,000 637,500
11.25%, 6/15/04 Caa1 500 340,000
11.50%, 6/1/05 Caa1 200 133,500
(6) Hyperion Telecommunications, Inc.
Series B, Sr. Discount Notes
0.00%, 4/15/03 B3 450 310,500
(6) ICG Holdings, Inc.:
Gtd. Sr. Exchange Discount Notes
0.00%, 3/15/07 N/R 1,750 1,163,750
Gtd. Sr. Discount Notes
0.00%, 9/15/05 N/R 650 507,000
Gtd. Sr. Secured Discount Notes
0.00%, 5/1/06 N/R 600 427,500
(6) ICG Services, Inc.:
Sr. Discount Notes
0.00%, 2/15/08 N/R 500 255,625
0.00%, 5/1/08 N/R 1,350 676,688
ITC DeltaCom, Inc.
Sr. Notes
11.00%, 6/1/07 B2 259 281,015
Intermedia Communications, Inc.
Series B, Sr. Notes
8.875%, 11/1/07 B2 200 202,500
Iridium Operating L.L.C. / Iridium Capital Corp.:
Series B, Gtd. Sr. Notes
14.00%, 7/15/05 B3 500 445,000
Series C/EN,
Gtd. Sr. Notes
11.25%, 7/15/05 B3 100 80,250
Series D, Gtd. Sr. Notes
10.875%, 7/15/05 B3 500 403,750
Jacor Communications, Inc.
Gtd. Sr. Sub. Notes
8.00%, 2/15/10 B2 250 250,000
Jordan Telecommunications Products, Inc.:
Series B, Sr. Notes
9.875%, 8/1/07 N/R 270 273,038
(6) Series B, Sr. Discount Notes
0.00%, 8/1/07 N/R 425 309,719
(3) Long Distance International, Inc.
Units
12.25%, 4/15/08 N/R 1,500 1,507,500
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
MCI Communications Corp.
Sr. Notes
6.50%, 4/15/10 Baa2 $ 290 $ 308,850
(3)(6) McCaw International Ltd.
Sr. Discount Notes
0.00%, 4/15/07 Caa1 1,000 498,750
McLeod USA, Inc.:
Sr. Discount Notes
9.25%, 7/15/07 B2 400 411,000
(6) 0.00%, 3/1/07 B2 800 583,000
(3)(6) MetroNet Communications Corp.
Yankee Sr. Discount Notes:
0.00%, 6/15/08 B3 1,000 591,250
0.00%, 11/1/07 B3 1,100 660,000
(6) Microcell Telecommunications, Inc.
Series B, Yankee Sr. Discount Notes
0.00%, 6/1/06 B3 270 192,713
NEXTLINK Communications, Inc.:
Sr. Notes
12.50%, 4/15/06 B3 350 378,000
(6) Sr. Discount Notes
0.00%, 4/15/08 B3 1,700 983,875
(3)(6) Nextel Communications, Inc.
Sr. Discount Notes
0.00%, 2/15/08 B2 1,700 1,024,250
Orion Network Systems, Inc.
Gtd. Sr. Notes
11.25%, 1/15/07 B2 500 544,375
(6) Pagemart Nationwide, Inc.
Sr. Discount Notes
0.00%, 2/1/05 B3 1,750 1,575,000
Petersburg Long Distance, Inc.:
(3)(6) Units 0.00%, 6/1/04 N/R 1,610 1,352,400
(3) Conv. Sr. Sub. Notes
9.00%, 6/1/06 N/R 230 61,525
(6) Pinnacle Holdings, Inc.
Sr. Discount Notes
0.00%, 3/15/08 N/R 900 477,000
(6)(8) Price Communications Cellular Holdings, Inc.
Sr. Exchangeable PIK Notes
11.25%, 8/15/08 Caa1 700 707,000
(6) Qwest Communications International, Inc.
Sr. Discount Notes
0.00%, 10/15/07 Ba1 1,100 842,874
(6) RCN Corp.
Series B, Sr. Discount Notes
0.00%, 2/15/08 B3 900 466,874
RSL Communications plc
Gtd. Sr. Notes
9.125%, 3/1/08 B3 250 215,000
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(3)(6) Rhythms NetConnections Inc. Units
0.00%, 5/15/08 N/R $ 1,500 $ 675,000
Rogers Cablesystems Ltd.
Series B, Yankee Sr. Secured 2nd Priority Notes
10.00%, 3/15/05 Ba3 250 276,250
Rogers Cantel Inc.
Yankee Sr. Secured Debentures
9.375%, 6/1/08 Ba3 350 355,250
Sprint Spectrum L.P./ Sprint Spectrum Finance Corp.
Sr. Notes
11.00%, 8/15/06 Ba2 1,500 1,687,500
Star Choice Communications, Inc.
Yankee Sr. Notes.
13.00%, 12/15/05 B3 500 465,000
(3) Startec Global Communications Corp.
Units
12.00%, 5/15/08 N/R 750 720,000
TCI Satellite Entertainment, Inc.:
(6) Sr. Sub. Discount Notes
0.00%, 2/15/07 Caa1 200 121,750
Sr. Sub. Notes
10.875%, 2/15/07 Caa1 700 642,250
Talton Holdings, Inc.
Gtd. Sr. Notes
11.00%, 6/30/07 B2 250 250,000
Teligent, Inc.
Sr. Notes
11.50%, 12/1/07 Caa1 750 583,124
(6) USN Communications, Inc.
Series B, Sr. Discount Notes
0.00%, 8/15/04 Caa1 660 429,000
Viatel, Inc.
Global Bonds
11.25%, 4/15/08 Caa1 850 889,312
Western Wireless Corp.
Sr. Sub. Notes
10.50%, 2/1/07 B3 350 353,062
(6) WinStar Communications, Inc.
Sr. Discount Notes
0.00%, 10/15/05 Caa1 2,100 1,383,374
-------------
GROUP TOTAL 42,293,319
-------------
- --------------------------------------------------------------------------------
- -------------
TEXTILES/APPAREL (1.3%)
Collins & Aikman Floor Coverings, Inc.
Series B, Sr. Sub. Notes
11.50%, 4/15/06 B3 550 554,125
(3) Iron Age Corp.
Sr. Sub. Notes
9.875%, 5/1/08 B3 250 217,500
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Maxim Group, Inc.
Series B, Gtd. Sr. Sub. Notes
9.25%, 10/15/07 B2 $ 700 $ 704,375
Phillips-Van Heusen Corp.
Gtd. Sr. Sub. Notes
9.50%, 5/1/08 B1 800 770,000
Pillowtex Corp.
Gtd. Sr. Sub. Notes
10.00%, 11/15/06 B2 500 508,750
William Carter Co.
Series A, Sr. Sub. Notes
10.375%, 12/1/06 B3 500 521,250
-------------
GROUP TOTAL 3,276,000
-------------
- --------------------------------------------------------------------------------
- -------------
TRANSPORTATION (2.6%)
AirTran Airlines, Inc.
Series B, Gtd. Sr. Secured Notes
10.50%, 4/15/01 B2 1,000 995,000
Canadian Airlines Corp.
Yankee Sr. Notes
12.25%, 8/1/06 Caa2 1,950 1,859,813
Ermis Maritime
Holdings, Ltd.
Units
12.50%, 3/15/06 B3 915 887,550
Norfolk Southern Corp.
Notes:
7.05%, 5/1/37 Baa1 825 917,812
7.875%, 2/15/04 Baa1 700 785,750
Pegasus Shipping
(Hellas) Ltd.
Series A, First Preferred Ship Mortgage Notes
11.875%, 11/15/04 B3 300 269,250
Trans World Airlines, Inc.
Sr. Notes
11.375%, 3/1/06 Caa1 1,500 1,453,125
-------------
GROUP TOTAL 7,168,300
-------------
- --------------------------------------------------------------------------------
- -------------
WASTE MANAGEMENT (0.8%)
Allied Waste North America, Inc.
Gtd. Sr. Sub. Notes
10.25%, 12/1/06 B2 550 600,188
(6) Allied Waste Industries, Inc.
Sr. Discount Notes
0.00%, 6/1/07 B3 200 147,750
(3) Waste Systems International, Inc.
Conv. Sub. Notes
7.00%, 5/13/05 N/R 1,500 1,470,000
-------------
GROUP TOTAL 2,217,938
-------------
- --------------------------------------------------------------------
- -------------
TOTAL CORPORATE OBLIGATIONS
(Cost $228,128,405) 217,050,761
-------------
- --------------------------------------------------------------------
- -------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
MUNICIPAL SECURITIES (0.5%)
- --------------------------------------------------------------------
- -------------
New Jersey Economic Development Authority
Series B, Revenue Bonds:
Zero Coupon, 2/15/03 Aaa $ 1,605 $ 1,285,236
-------------
- --------------------------------------------------------------------
- -------------
TOTAL MUNICIPAL SECURITIES
(Cost $1,202,046) 1,285,236
-------------
- --------------------------------------------------------------------
- -------------
GOVERNMENT & AGENCY SECURITIES (3.7%)
- --------------------------------------------------------------------------------
- -------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (0.5%)
REMIC-PAC
Series 1660, Class E
6.00%, 1/15/07 Aaa 1,345 1,356,337
-------------
- --------------------------------------------------------------------------------
- -------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (0.9%)
15-Year TBA
6.00%, 9/1/13 Aaa 996 1,006,160
REMIC-PAC
Series 1989-23, Class D
10.20%, 9/25/18 Aaa 610 615,689
STRIPS, Series H, Class 2
11.50%, 5/1/09 Aaa 726 788,118
-------------
GROUP TOTAL 2,409,967
-------------
- --------------------------------------------------------------------------------
- -------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (0.1%)
Various Pools:
10.50%, 9/15/15 Aaa 99 109,366
10.50%, 12/15/15 Aaa 5 5,024
10.50%, 3/15/16 Aaa 26 28,916
10.50%, 8/15/16 Aaa 35 38,457
-------------
GROUP TOTAL 181,763
-------------
- --------------------------------------------------------------------------------
- -------------
TENNESSEE VALLEY AUTHORITY (0.1%)
Power Bonds, 1996 Series A
5.88%, 4/1/36 Aaa 290 313,563
-------------
- --------------------------------------------------------------------
- -------------
UNITED STATES TREASURY NOTES (2.1%)
6.25%, 6/30/02 Aaa 2,300 2,447,706
6.25%, 2/15/07 Aaa 2,210 2,482,095
5.375%, 2/15/01 Aaa 850 869,261
-------------
GROUP TOTAL 5,799,062
-------------
- --------------------------------------------------------------------
- -------------
TOTAL GOVERNMENT & AGENCY SECURITIES
(Cost $9,900,045) 10,060,692
-------------
- --------------------------------------------------------------------
- -------------
COLLATERALIZED MORTGAGE OBLIGATIONS (2.0%)
- --------------------------------------------------------------------
- -------------
Asset Securitization Corp.:
Series 1997-D5, Class A1C
6.85%, 2/14/41 Aaa 500 538,975
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Series 1996-MD6, Class A6
7.106%, 11/13/26 Baa2 $ 420 $ 454,213
Drexel, Burnham & Lambert Trust,
REMIC-PAC, Series S, Class 2
9.00%, 8/1/18 Aaa 3,479 3,487,624
GMAC Commercial Mortgage Securities Inc.
Series 1997-C1, Class A2
6.853%, 9/15/06 Aaa 80 85,038
Kidder Peabody Acceptance Corp.
Series 1994-C1 Class B
6.85%, 2/1/06 N/R 910 941,814
-------------
GROUP TOTAL 5,507,664
-------------
- --------------------------------------------------------------------
- -------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $5,641,131) 5,507,664
-------------
- --------------------------------------------------------------------
- -------------
ASSET BACKED OBLIGATIONS (3.1%)
- --------------------------------------------------------------------
- -------------
Capita Equipment Receivables Trust,
Series 1996-1 Class A3
6.11%, 7/15/99 Aaa 673 674,573
Constellation Finance L.L.C. Airline Receivable
Asset-Backed Notes
9.80%, 12/14/02 N/R 250 249,688
ContiMortgage Home Equity Loan Trust, Home Equity Loan
Certificates:
Series 1996-4, Class A8
7.22%, 1/15/28 Aaa 125 132,013
Series 1998-1 , Class A5
6.43%, 4/15/16 Aaa 425 438,106
Fleetwood Credit Corp. Grantor Trust RV Retail
Installment Sales Contracts
Series 1997-B, Class A
6.40%, 5/15/13 Aaa 721 737,885
Green Tree Financial Corp. Manufactured Housing
Installment Sales Contracts:
Series 1997-3, Class A3
6.73%, 7/15/28 Aaa 1,310 1,325,144
Series 1993-4, Class B1
7.20%, 1/15/19 Baa3 2,000 1,980,620
Green Tree Home Equity Loan Trust, Home Equity Loan
Certificates, Series 1998-C,
Class A2
6.03%, 7/15/29 N/R 440 443,159
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Moody's Face Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Green Tree Recreational, Equipment & Consumer Trust,
Consumer Products & Equipment Retail Installment
Sales Contracts, Series 1997-C, Class A-1
6.49%, 2/15/18 N/R $ 780 $ 815,341
IMC Home Equity Loan Trust, Home Equity Loan
Certificates, Series 1998-3, Class A3
6.16%, 5/20/14 Aaa 165 165,960
Nationscredit Grantor Trust, Boat Retail Installment
Sales Contracts, Series 1996-1, Class A
5.85%, 9/15/11 Aaa 617 623,997
New Century Home Equity Loan Trust, Mortgage Loan
Certificates, series 1998-D6, Class A4
6.73%, 7/25/22 Aaa 100 101,782
Southern Pacific Secured Assets Corp., Mortgage Loan
Certificates, Series 1998-1, Class A2
6.27%, 2/25/18 Aaa 550 560,478
UCFC Acceptance Corp. Home Equity Loan Certificates,
Series 1996-B1, Class A7
8.20%, 9/15/27 Aaa 110 120,196
-------------
GROUP TOTAL 8,368,942
-------------
- --------------------------------------------------------------------
- -------------
TOTAL ASSET BACKED OBLIGATIONS
(Cost $8,115,392) 8,368,942
-------------
- --------------------------------------------------------------------
- -------------
</TABLE>
<TABLE>
<CAPTION>
Shares/
Units
<C> <S> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
COMMON STOCKS (1.0%)
- --------------------------------------------------------------------------------
- ----------------
CABLE (0.0%)
OpTel, Inc. 500 5
-------------
- --------------------------------------------------------------------
- -------------
CONSUMER PRODUCTS & SERVICES (0.0%)
Coinstar, Inc. 11,887 72,808
(1) Crown Packaging Enterprises Ltd. 253,746 2,537
-------------
GROUP TOTAL 75,345
-------------
- --------------------------------------------------------------------
- -------------
FINANCIAL SERVICES (0.0%)
(1)(4)(5) Westfed Holdings, Inc.
Class B (acquired 9/20/88, $127) 12,670 0
-------------
- --------------------------------------------------------------------
- -------------
<CAPTION>
Shares/
Units Value
<C> <S> <C> <C>
- --------------------------------------------------------------------
- -------------
FOOD & BEVERAGES (0.7%)
(1)(4) Dr. Pepper Bottling Holdings, Inc. Class A (acquired 2/25/97, cost
$1,181,250) 75,000 $ 1,950,000
(1) Specialty Foods Corp. 30,000 1,500
-------------
GROUP TOTAL 1,951,500
-------------
- --------------------------------------------------------------------------------
- ----------------
INDUSTRIAL GOODS & MATERIALS (0.1%)
(1)(4)(5) 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 25,000
-------------
- --------------------------------------------------------------------
- -------------
PAPER & FOREST PRODUCTS (0.1%)
(1)(3) Mail-Well, Inc. 7,102 60,811
(1) Mail-Well, Inc. 14,204 121,622
-------------
GROUP TOTAL 182,433
-------------
- --------------------------------------------------------------------------------
- ----------------
RESTAURANTS, HOTELS & GAMING (0.0%)
(1) Casino America, Inc. 14,947 38,302
Elsinore Corp. 86,539 21,634
(1) Motels of America, Inc. 500 8,500
-------------
GROUP TOTAL 68,436
-------------
- --------------------------------------------------------------------------------
- ----------------
TELECOMMUNICATIONS (0.1%)
Intermedia Communications, Inc. 1,613 39,519
Nextel Communications, Inc.
Class A 310 6,258
(1) Pagemart Nationwide, Inc. 7,000 54,250
-------------
GROUP TOTAL 100,027
-------------
- --------------------------------------------------------------------------------
- ----------------
TOTAL COMMON STOCKS
(Cost $3,026,732) 2,602,938
-------------
- --------------------------------------------------------------------
- -------------
PREFERRED STOCKS (4.1%)
- --------------------------------------------------------------------------------
- ----------------
AEROSPACE/DEFENSE (0.4%)
(1) GPA Group plc
7% Second Preference Cum. Conv. 2,125,000 1,126,250
-------------
- --------------------------------------------------------------------
- -------------
BROADCASTING (1.3%)
Benedek Communications Corp.
11.50% Sr. Exchangeable 150 151,500
Pegasus Communications Corp.:
12.75% Cum. Exchangeable, Series A 49 53,117
12.75% Units 250 281,250
(3) Source Media, Inc.
13.5% Units 60,632 1,152,008
(1) Spanish Broadcasting System, Inc.
14.25% Cum. Exchangeable 18,360 1,845,180
-------------
GROUP TOTAL 3,483,055
-------------
- --------------------------------------------------------------------
- -------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Shares/
Units Value
- --------------------------------------------------------------------
<C> <S> <C> <C>
- -------------
CABLE (0.4%)
Adelphia Communications Corp.
13% Cum. Exchangeable, Series B 5,000 $ 563,750
DIVA Systems Corp.
Series D 56,913 648,808
NTL, Inc.
13% Exchangeable, Series B 1 545
-------------
GROUP TOTAL 1,213,103
-------------
- --------------------------------------------------------------------------------
- ----------------
CONSUMER PRODUCTS & SERVICES (0.0%)
Renaissance Cosmetics, Inc.
14% Cumulative 2 23
-------------
- --------------------------------------------------------------------
- -------------
FINANCIAL SERVICES (0.0%)
(1)(4)(5) West Fed Holdings, Inc.
Class A (acquired 9/20/88-6/18/93, cost $3,611,992) 42,759 42,759
-------------
- --------------------------------------------------------------------------------
- ----------------
METALS & MINING (0.0%)
(3) International Utility Structures, Inc.:
13% Units 150 142,500
13% Sr. Exchangeable 9 855
-------------
GROUP TOTAL 143,355
-------------
- --------------------------------------------------------------------------------
- ----------------
PAPER & FOREST PRODUCTS (0.4%)
SD Warren Co.
14% Cum. Exchangeable, Series B 21,459 1,016,620
-------------
- --------------------------------------------------------------------
- -------------
PUBLISHING & INFORMATION SERVICES (0.2%)
Primedia, Inc.
10% Cum. Exchangeable, Series D 5,000 518,750
-------------
- --------------------------------------------------------------------------------
- ----------------
RESTAURANTS, HOTELS & GAMING (0.2%)
AmeriKing, Inc.
13% Cum. Exchangeable 18,169 490,562
-------------
- --------------------------------------------------------------------
- -------------
TELECOMMUNICATIONS (1.2%)
(1) Intermedia Communications, Inc.:
13.5% Exchangeable, Series B 3,072 362,461
7% Jr. Convertible, Series E 44,000 1,056,000
NEXTLINK Communications, Inc.
14% Cum. Exchangeable 11,679 689,061
Nextel Communications, Inc.
13% Exchangeable, Series D 906 993,786
(3) Rural Cellular Corp.
11.375%, Sr. Exchangeable 257 251,860
Viatel, Inc.
10% Convertible, Series A 422 20,975
-------------
GROUP TOTAL 3,374,143
-------------
- --------------------------------------------------------------------
- -------------
TOTAL PREFERRED STOCKS
(Cost $13,394,029) 11,408,620
-------------
- --------------------------------------------------------------------
- -------------
RIGHTS (0.0%)
- --------------------------------------------------------------------
(1) Terex Corp.
expiring 5/15/02 (Cost $0) 6,000 96,000
-------------
- --------------------------------------------------------------------
- -------------
<CAPTION>
Shares/
Units Value
<C> <S> <C> <C>
- --------------------------------------------------------------------
- -------------
WARRANTS (0.9%)
- --------------------------------------------------------------------
(1) Advanced Radio Telecommunications Corp.
expiring 2/15/07 13,500 $ 72,630
(1) American Telecasting, Inc.
expiring 6/23/99 525 0
(1) Ampex Corp.
expiring 3/15/03 25,500 19,125
(1) Australis Holdings Pty Ltd.
expiring 10/30/01 2,250 13
(1) Bell Technology Group
expiring 5/1/05 1,000 10
(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 17 0
(1) Capital Gaming International, Inc.
expiring 2/1/99 5,687 0
(1) Casino America, Inc.
expiring 5/3/01 2,646 26
(1)(5) Chi Energy, Inc.:
Series B, expiring 11/8/03 7,578 18,195
Series C, expiring 11/8/05 4,919 11,811
(1) Concentric Network Corp.
expiring 12/15/07 750 1,875
(1)(5) 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 1,925 423,500
(1) DTI Holdings
expiring 3/1/08 9,250 9,250
(1) Dairy Mart Convenience Stores, Inc.
expiring 12/1/01 11,665 4,783
(1) E. Spire Communications, Inc.
expiring 11/1/05 2,000 220,000
(1) Elsinore Corp.
expiring 10/8/98 79,941 0
(1) Golden Ocean Group, Ltd.
expiring 8/31/01 1,032 4,644
(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 5
(1) IntelCom Group, Inc.
expiring 9/1/05 2,145 32,175
(1) Interact Systems, Inc.
expiring 8/1/03 750 0
(1) Loral Space & Communications Ltd.
expiring 1/15/07 500 5,500
(1) Mentus Media Corp.
expiring 2/1/08 3,757 38
(1) Mentus Media Corp.
expiring 2/1/08 227 2
(1) McCaw International Ltd.
expiring 4/15/07 1,000 5,000
(1) Microcell Telecommunications:
expiring 6/1/06 1,600 21,472
(1) NEXTLINK Communications, Inc.
expiring 2/1/09 9,500 0
(1) Nextel Communications, Inc.
expiring 4/25/99 750 8
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Shares/
Units Value
- --------------------------------------------------------------------
<C> <S> <C> <C>
- -------------
(1) Price Communications Corp.
expiring 8/1/07 3,956 $ 39,560
(1) SD Warren Co.
expiring 12/15/06 12,000 60,000
(1) Source Media, Inc.
expiring 11/1/07 30,731 238,167
Spanish Broadcasting System:
(1) expiring 6/30/99 1,500 735,000
(1)(3) expiring 6/30/99 1,500 315,000
(1) Star Choice Communications, Inc.
expiring 12/15/05 11,580 13,284
(1) USN Communications, Inc.
expiring 10/15/04 7,600 14,668
(1) United International Holdings
expiring 11/15/99 2,950 14,750
(1) Wright Medical Technology
expiring 6/30/03 618 40,147
-------------
GROUP TOTAL 2,341,908
-------------
- --------------------------------------------------------------------
- -------------
TOTAL WARRANTS
(Cost $1,780,100) 2,341,908
-------------
- --------------------------------------------------------------------
- -------------
</TABLE>
<TABLE>
<CAPTION>
Face
Moody's Amount
Ratings (000)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
SHORT-TERM INVESTMENTS (0.9%)
- --------------------------------------------------------------------
Federal Home Loan Bank Discount Note
Zero Coupon, 10/1/98
(Cost $2,560,000) N/R $ 2,560 2,560,000
-------------
- --------------------------------------------------------------------
- -------------
TOTAL DOMESTIC SECURITES
(Cost $273,747,880) 261,282,761
-------------
- --------------------------------------------------------------------
- -------------
FOREIGN SECURITIES (2.2%)
- --------------------------------------------------------------------------------
- ----------------
CORPORATE OBLIGATIONS (1.9%)
- --------------------------------------------------------------------
FRANCE (0.6%)
(7) Credit Lyonnais Perpetual Sub. Notes
6.75% Baa2 USD 660 584,100
L'Auxiliare du Credit Foncier de France:
Sr. Unsub. Notes
8.00%, 1/14/02 A3 USD 320 343,400
(7) Gtd. Sub. Notes
5.598%, 10/22/02 Baa3 USD 680 651,984
-------------
GROUP TOTAL 1,579,484
-------------
- --------------------------------------------------------------------
- -------------
JAPAN (0.2%)
Fuji Finance
(Cayman) Ltd.:
Perpetual Sub. Notes
6.55% Baa2 USD 430 206,400
Perpetual Gtd. Notes
7.30% Baa2 USD 370 185,000
Okobank
Perpetual Medium Term Notes
6.188% A3 USD 300 291,750
-------------
GROUP TOTAL 683,150
-------------
- --------------------------------------------------------------------
- -------------
<CAPTION>
Face
Moody's Amount
Ratings (000) Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
SWEDEN (1.1%)
(7) ForeningsSparbanken AB:
Perpetual Jr. Sub. Medium Term Notes
6.438% A3 USD 980 $ 975,100
(3) Perpetual Sub. Notes
7.50% A3 USD 420 433,125
(6) Skandinaviska Enskilda Banken AB
Perpetual Sub. Notes
6.625% Baa1 USD 400 401,156
7.50% N/R 1,250 1,254,375
-------------
GROUP TOTAL 3,063,756
-------------
- --------------------------------------------------------------------
- -------------
TOTAL COPORATE OBLIGATIONS
(Cost $5,705,708) 5,326,390
-------------
- --------------------------------------------------------------------------------
- ----------------
GOVERNMENT OBLIGATIONS (0.3%)
- --------------------------------------------------------
POLAND (0.3%)
(6) Republic of Poland,
Past Due Interest Bonds
4.00%, 10/27/14 Baa3 USD 800 690,000
-------------
- --------------------------------------------------------------------------------
- ----------------
TOTAL GOVERNMENT OBLIGATIONS
(Cost $682,680) 690,000
-------------
- --------------------------------------------------------------------
- -------------
TOTAL FOREIGN SECURITIES
(Cost $6,388,388) 6,016,390
-------------
- --------------------------------------------------------------------
- -------------
TOTAL INVESTMENTS (97.9%)
(Cost $280,136,268) 267,299,151
-------------
- --------------------------------------------------------------------------------
- ----------------
OTHER ASSETS IN EXCESS OF
LIABILITIES (2.1%) 5,750,020
-------------
- --------------------------------------------------------------------------------
- ----------------
NET ASSETS (100%)
Applicable to 34,663,488 issued and outstanding $.001 par value Shares (authorized
100,000,000 shares) $ 273,049,171
-------------
-------------
- --------------------------------------------------------------------
- -------------
</TABLE>
N/R--Not Rated.
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) Restricted as to private and public resale. Total cost of restricted
securities at September 30, 1998 aggregated $5,870,084. Total market
value of restricted securities owned at September 30, 1998 was $2,192,951
or 0.80% of net assets.
(5) Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by the Board of
Directors.
(6) 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.
(7) Floating Rate--The interest rate changes on these instruments based upon
a designated base rate. The rates shown are those in effect at September
30, 1998.
(8) Payment-in-kind bond. Market value includes accrued interest.
17
<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
18
<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.
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