<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
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.
---------------------------------------------
SEMI-ANNUAL REPORT
June 30, 1998
<PAGE>
BEA INCOME FUND, INC.
- ----------
Dear Shareholders: July 24, 1998
We are pleased to report on the activities of the BEA Income Fund, Inc. (the
"Fund") for the six-months ended June 30, 1998 and to discuss our investment
strategy.
At June 30, 1998, the Fund's net asset value ("NAV") was $8.41, compared to
an NAV of $8.44 at December 31, 1997. The Fund's total return (based on NAV and
assuming reinvestment of dividends of $0.36 per share) for the period was 3.95%.
For the twelve months ended June 30, 1998, the Fund's total return was 11.83%
(based on NAV and assuming reinvestment of dividends of $0.72 per share).
At June 30, 1998, $213.3 million was invested in high yield debt securities;
$59.1 million in investment-grade debt securities; $19.0 million in equity
securities; and the balance of $6.3 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 (44.4%) was invested in B-rated
issues.
THE MARKET: ASIA, AGAIN
The major influence on financial markets worldwide in the second quarter was
the ongoing deterioration of macroeconomic conditions throughout Asia, notably
Japan. Not only did the Japanese government fail to respond to growing external
pressure for substantive measures to revive the economy, but data announced for
the first quarter officially classified the economy as being in recession. A
massive sell-off in the yen followed the mid-June announcement.
As they did in the fourth quarter of 1997, fixed income investors reacted to
the news from Asia with a classic "flight to quality" rally that favored
high-grade, liquid securities such as U.S. Treasury bonds. High yield generated
positive returns despite the market's clear preference for stronger credits, but
still underperformed all investment-grade sectors. The Salomon Smith Barney
High-Yield Market Index, for example, gained a scant 1.0%. As a result, yield
spreads between high yield and comparable Treasury issues widened to 417 basis
points from 378 basis points at the end of March.
Other factors negatively impacted high yield as well:
- - The level of new issuance, which for so long had supplied the fuel for the
market's buoyant growth, finally became more than investors could comfortably
absorb. Total new issuance for the quarter reached a staggering $56.3
billion, up from $49.7 billion in the first quarter.
- - The pace of cash inflows into high yield mutual funds slowed. Inflows were
sizable at $4.2 billion, but were 46% lower than the $7.8 billion recorded in
the first quarter.
- - The overall high yield market tended to act more in line with stocks than
bonds. With equity investors concerned about Asia and the prospects for an
increase in interest rates, this tended to dampen high yield's performance.
- - Although most high yield issuers have little direct exposure to Asia, the
market was indirectly affected by Asia in two ways. The first was declining
sentiment in the equity market. Second was concern that a less favorable
environment for stocks would result in fewer new equity issues, which would
suggest fewer opportunities for high yield issuers to raise capital.
PORTFOLIO REVIEW
One of the factors that helped the Fund's performance during the first
quarter meaningfully reduced performance in the second quarter. This was our
substantial overweighting of the telecommunications sector.
A significant proportion of telecom high yield debt is in the form of
zero-coupon securities that do not pay interest until at least four years after
issuance. Because of this latter characteristic and the fact that most zeros
have fairly long maturities (I.E., they are more interest-rate sensitive than
average and therefore more volatile), zero prices tend to fluctuate much more
like stocks than bonds. Since stocks and high yield were relatively weak in the
second quarter, then, telecom debt underperformed. The Fund's return suffered
disproportionately, as telecom is the largest sector allocation in the portfolio
and weighted nearly 50% higher than in the broad high yield market (I.E., the
Salomon Smith Barney index).
2
<PAGE>
OUTLOOK: REMAINING POSITIVE
In spite of the second-quarter picture that we painted earlier, we see
little reason to change our positive view on the high yield market. The economy
remains in good shape, and the key macroeconomic indicators of interest rates
and inflation are low and should generally stay that way at least over the next
few months. We expect that the Federal Reserve will leave interest rates
unadjusted, as it has since March 1997.
That said, we sense rising uncertainty about prospects for the equity
market. Stocks are surging to new highs and their valuations are reaching
unsustainable levels. The outlook for corporate profitability and earnings,
furthermore, is less clear than previously. These factors suggest that activity
in the high yield market should become more complicated.
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 telecommunications, cable/media and gaming sectors. In
this context we note the announcement in late June of the acquisition of
TeleCommunications Inc. (TCI) by AT&T Corp. The AT&T/TCI deal is in line with
our expectations for ongoing consolidation activity both in telecom and
cable/media, and we anticipate that its effects will continue to be felt in the
high yield market into the third quarter.
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 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 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 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)
- ---------
JUNE 30, 1998
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
- -------------
DOMESTIC SECURITIES (100.1%)
- --------------------------------------------------------------------------------
- -------------
CORPORATE OBLIGATIONS (80.8%)
- --------------------------------------------------------------------------------
- -------------
AEROSPACE/DEFENSE (0.1%)
(3) Sabreliner Corp.
Sr. Notes
11.00%, 6/15/08 B3 $ 200 $ 200,500
Wyman-Gordon Co.
Sr. Notes
8.00%, 12/15/07 Ba2 150 153,375
------------
GROUP TOTAL 353,875
------------
- --------------------------------------------------------------------------------
- -------------
AUTOMOTIVE (2.1%)
(3) BREED Technologies Inc.
Gtd. Sr. Sub. Notes
9.25%, 4/15/08 B3 600 592,500
Cambridge Industries, Inc.
Series B, Gtd.
Sr. Sub. Notes
10.25%, 7/15/07 B3 500 516,250
Collins & Aikman Products Corp.
Gtd. Sr. Sub. Notes
11.50%, 4/15/06 B2 650 721,500
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 1,845,187
Oxford Automotive, Inc.
Gtd. Sr. Sub. Notes
10.125%, 6/15/07 Caa1 100 105,500
(3) 10.125%, 6/15/07 Caa1 925 975,875
Safety Components International, Inc.
Series B, Gtd. Sr. Sub. Notes
10.125%, 7/15/07 B3 500 518,750
Stanadyne Automotive Corp.
Series B, Gtd. Sr. Sub. Notes
10.25%, 12/15/07 Caa1 400 409,000
(3) Walbro Corp.
Gtd. Sr. Notes
10.125%, 12/15/07 B2 300 298,875
------------
GROUP TOTAL 5,983,437
------------
- --------------------------------------------------------------------------------
- -------------
BROADCASTING (4.2%)
(8) Australis Holdings Pty. Ltd.
Yankee Sr. Secured Discount Notes
0.00%, 11/1/02 N/R 3,350 335,000
Australis Media Ltd.:
Yankee Units
15.75%, 5/15/03 C 2,377 237,712
Yankee Gtd. Sr. Secured
Discount Notes
15.75%, 5/15/03 C 37 3,649
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(8) Capstar Broadcasting Partners, Inc.
Sr. Discount Notes
0.00%, 2/1/09 N/R $ 2,000 $ 1,520,000
Digital Television Services/ L.L.C., Inc./DTS
Capital, Inc.
Series B, Gtd. Sr. Sub. Notes
12.50%, 8/1/07 B3 750 856,875
(8) EchoStar Communications Corp.
Gtd. Sr. Discount Notes
0.00%, 6/1/04 B2 450 436,500
Fox/Liberty Networks L.L.C.
Sr. Notes
8.875%, 8/15/07 B1 500 506,250
Granite Broadcasting Corp.:
Sr. Sub. Notes
9.375%, 12/1/05 B3 300 304,500
(3) Series A, Sr. Sub. Notes
8.875%, 5/15/08 B3 650 654,875
Pegasus Media & Communications, Inc.
Series B, Notes
12.50%, 7/1/05 B2 250 282,500
SFX Broadcasting, Inc.
Series B, Sr. Sub. Notes
10.75%, 5/15/06 B3 427 474,504
Sinclair Broadcast Group, Inc.:
Gtd. Sr. Sub. Notes
8.75%, 12/15/07 B2 350 357,000
Sr. Sub. Notes
10.00%, 9/30/05 B2 900 967,500
Spanish Broadcasting System, Inc.
Sr. Notes
12.50%, 6/15/02 B2 500 571,875
Turner Broadcasting Systems, Inc.
Sr. Notes
7.40%, 2/1/04 Baa3 820 853,825
(8) United International Holdings, Inc.,
Series B, Sr. Discount Notes
0.00%, 2/15/08 B3 1,700 1,045,500
Univision Network Holding L.P.
Sub. Notes
Zero Coupon, 12/17/02 N/R 1,500 1,755,000
Young Broadcasting, Inc.:
Series B, Gtd. Sr. Sub. Notes
Sr. Sub. Notes 9.00%, 1/15/06 B2 300 311,250
Sr. Discount Notes 8.75%, 6/15/07 B2 750 783,750
------------
GROUP TOTAL 12,258,065
------------
- --------------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
BUSINESS SERVICES & EQUIPMENT (0.2%)
(3) General Binding Corp.
Gtd. Sr. Sub. Notes
9.375%, 6/1/08 B2 $ 250 $ 254,375
(3) Iron Mountain Inc.
Sr. Sub. Notes
8.75%, 9/30/09 B3 200 204,000
------------
GROUP TOTAL 458,375
------------
- --------------------------------------------------------------------------------
- -------------
CABLE (9.3%)
Adelphia Communications Corp.
Series B, Sr. Notes
8.375%, 2/1/08 B2 550 552,750
CCA Holdings Corp.
Sr. Sub. Notes
13.00%, 12/31/99 N/R 1,500 2,291,250
CSC Holdings, Inc.:
Sr. Sub. Notes
9.875%, 5/15/06 B1 400 439,000
Series B, Sr. Sub. Debentures
8.125%, 8/15/09 Ba2 350 370,125
Sr. Sub. Debentures
9.875%, 2/15/13 B1 850 941,375
Century Communications Corp.:
Sr. Notes
9.75%, 2/15/02 Ba3 500 535,000
8.75%, 10/1/07 Ba3 400 423,000
(3) Series B, Sr. Discount
Notes
Zero Coupon, 1/15/08 Ba3 650 294,125
Charter Communications Southeast L.P.
Series B, Sr. Notes
11.25%, 3/15/06 B3 450 496,125
Comcast Corp.
Sr. Sub. Notes:
9.125%, 10/15/06 Ba3 750 798,750
9.375%, 5/15/05 Ba3 180 192,253
(3)(8) DIVA Systems Corp.
Units
0.00%, 3/1/08 N/R 2,176 1,120,439
(8) Diamond Cable Communications plc
Yankee Discount Notes
0.00%, 12/15/05 Caa1 1,500 1,245,000
Falcon Holdings Group, L.P./Falcon Funding
Corp.:
(3)(8) Sr. Discount Debentures
0.00%, 4/15/10 B2 1,500 967,500
(3) Sr. Debentures
8.375%, 4/15/10 B2 500 501,250
Helicon Group L.P.
Series B, Sr. Secured Notes
11.00%, 11/1/03 B1 800 860,000
InterMedia Capital Partners IV L.P./
InterMedia Partners IV Capital Corp.
Sr. Notes
11.25%, 8/1/06 B2 650 727,187
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Jones Intercable, Inc.
Sr. Notes
7.625%, 4/15/08 Ba2 $ 1,150 $ 1,167,250
Lenfest Communications, Inc.:
Sr. Notes
8.375%, 11/1/05 Ba3 500 531,250
Sr. Sub. Notes
(3) 8.25%, 2/15/08 B2 200 208,500
10.50%, 6/15/06 B2 1,000 1,165,000
(8) Marcus Cable Co.
Sr. Discount Notes
0.00%, 12/15/05 B3 1,600 1,494,000
NTL, Inc.:
(8) Series A, Sr. Deferred Coupon Notes
0.00%, 4/15/05 B3 1,000 868,750
(8) Series B, Sr. Deferred Coupon Notes
0.00%, 2/1/06 B3 1,050 866,250
Series B, Sr. Notes
10.00%, 2/15/07 B3 500 536,250
Northland Cable Television, Inc.
Gtd. Sr. Sub. Notes
10.25%, 11/15/07 B3 500 533,750
Olympus Communications, L.P./ Olympus Capital
Corp.
Series B, Sr. Notes
10.625%, 11/15/06 B1 1,000 1,100,000
OpTel, Inc.:
Series B, Sr. Notes
13.00%, 2/15/05 B3 500 552,500
Sr. Notes
11.50%, 7/1/08 B3 2,450 2,450,000
(3)(8) Renaissance Media Group
Sr. Discount Notes
0.00%, 4/15/08 B3 1,000 613,750
Tele-Communications, Inc.
Series C, Medium Term Notes
6.34%, 2/1/02 Baa3 360 360,450
(8) Telewest Communications plc
Yankee Sr. Sub. Discount Debentures
0.00%, 10/1/07 B1 2,400 1,998,000
------------
GROUP TOTAL 27,200,829
------------
- --------------------------------------------------------------------
- -------------
CHEMICALS (1.7%)
Applied Extrusion Technologies, Inc.
Series B, Sr. Notes
11.50%, 4/1/02 B2 1,500 1,591,875
Harris Chemical N.A.
Sr. Secured Debentures
10.25%, 7/15/01 Ba1 150 156,000
Huntsman Polymers Corp.
Sr. Notes
11.75%, 12/1/04 B1 1,000 1,103,750
NL Industries Inc.:
Sr. Secured Notes
11.75%, 10/15/03 B1 250 276,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(8) Sr. Secured Discount Debentures
0.00%, 10/15/05 B2 $ 800 $ 828,000
(8) Sterling Chemical Holdings, Inc.
Sr. Secured Discount Notes
0.00%, 8/15/08 Caa1 1,000 580,000
Texas Petrochemical Corp.
Series B, Sr. Sub. Notes
11.125%, 7/1/06 B3 350 384,125
------------
GROUP TOTAL 4,920,000
------------
- --------------------------------------------------------------------------------
- -------------
CONSTRUCTION & BUILDING MATERIALS (0.6%)
American Architectural Products Corp.
Gtd. Sr. Notes
11.75%, 12/1/07 Caa1 650 676,000
Collins & Aikman Floor Coverings, Inc.
Series B, Sr. Sub. Notes
10.00%, 1/15/07 B3 550 573,375
(8) Waxman Industries Inc.
Series B, Sr. Secured Deferred Notes
0.00%, 6/1/04 Caa1 600 574,500
------------
GROUP TOTAL 1,823,875
------------
- --------------------------------------------------------------------------------
- -------------
CONSUMER PRODUCTS & SERVICES (2.0%)
(8) Coinstar Inc.
Sr. Discount Notes
0.00%, 10/1/06 N/R 1,700 1,411,000
Doskocil Manufacturing Co., Inc.
Gtd. Sr. Sub. Notes
10.125%, 9/15/07 B3 500 530,000
Fort James Corp.
Notes
6.234%, 3/15/01 Baa3 155 155,000
Holmes Products Corp.
Gtd. Sr. Sub. Notes
9.875%, 11/15/07 B3 300 309,750
(3) Indesco International, Inc.
Gtd. Sr. Sub. Notes
9.75%, 4/15/08 B3 600 591,000
Jordan Industries, Inc.
Series B, Sr. Notes
10.375%, 8/1/07 B3 750 768,750
(3) Packaged Ice, Inc.
Gtd. Sr. Notes
9.75%, 2/1/05 B3 100 101,000
Playtex Products, Inc.
Series B, Gtd. Sr. Notes
8.875%, 7/15/04 B1 225 231,187
Revlon Consumer Products Corp.
Sr. Sub. Notes
8.625%, 2/1/08 B3 700 701,750
Revlon Worldwide (Parent) Corp.
Series B, Sr. Secured Discount Notes
Zero Coupon, 3/15/01 B3 500 388,125
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(3) Sealy Mattress Co.
Gtd. Sr. Sub. Notes
9.875%, 12/15/07 B3 $ 200 $ 208,000
(2) Town & Country Corp.
Sr. Sub. Notes
13.000%, 5/31/98 N/R N/R 878 349,076
------------
GROUP TOTAL 5,744,638
------------
- --------------------------------------------------------------------------------
- -------------
ELECTRONICS (1.1%)
Details, Inc.
Series B,. Sr. Sub. Notes
10.00%, 11/15/05 N/R 500 505,000
Flextronics International Ltd.
Yankee Series B, Sr. Sub. Notes
8.75%, 10/15/07 B2 600 603,750
Unisys Corp.:
Series B, Sr. Notes
12.00%, 4/15/03 Ba3 1,000 1,135,000
Sr. Notes
11.75%, 10/15/04 Ba3 225 259,875
7.875%, 4/1/08 Ba3 250 250,312
Viasystems, Inc.:
Series B, Sr. Sub. Notes
9.75%, 6/1/07 B3 150 147,000
Sr. Sub. Notes
9.75%, 6/1/07 B3 400 392,000
------------
GROUP TOTAL 3,292,937
------------
- --------------------------------------------------------------------------------
- -------------
ENERGY (4.2%)
Abraxas Petroleum Corp./ Canadian Abraxas
Petroleum Ltd.
Series D, Gtd. Sr. Notes
11.50%, 11/1/04 B2 1,550 1,592,625
Belden & Blake Energy Co.
Series B, Gtd. Sr. Sub. Notes
9.875%, 6/15/07 N/R 200 196,000
Bellwether Exploration Co.
Gtd. Sr. Sub. Notes
10.875%, 4/1/07 B3 1,450 1,526,125
(3) Canadian Forest Oil, Ltd.
Gtd. Sr. Sub. Notes
8.75%, 9/15/07 B2 450 442,125
Cliffs Drilling Co.
Series D, Gtd. Sr. Notes
10.25%, 5/15/03 N/R 1,100 1,163,250
Dawson Production Services, Inc.
Sr. Notes
9.375%, 2/1/07 B1 450 443,250
First Wave Marine, Inc.
Gtd. Sr. Notes
11.00%, 2/1/08 B3 1,000 1,065,000
Giant Industries, Inc.
Gtd. Sr. Sub. Notes
9.00%, 9/1/07 B2 500 511,250
(3) Gothic Production Corp.
Gtd. Sr. Secured Notes
11.125%, 5/1/05 B3 500 477,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
H.S. Resources, Inc.:
Gtd. Sr. Sub. Notes
9.25%, 11/15/06 B2 $ 600 $ 606,000
Sr. Sub. Notes
9.875%, 12/1/03 B2 500 508,750
KN Energy, Inc.
Reset Put Notes
6.30%, 3/1/01 Baa2 1,765 1,767,206
Parker Drilling Co.
Series D, Gtd. Sr. Notes
9.75%, 11/15/06 B1 300 306,750
Plains Resources, Inc.
Series B, Gtd. Sr. Sub. Notes
10.25%, 3/15/06 B2 375 390,937
Southwest Royalties, Inc.
Series B, Gtd. Sr. Notes
10.50%, 10/15/04 Caa2 500 415,000
TransAmerican Energy Corp.
Series B, Sr. Secured Notes
11.50%, 6/15/02 B3 450 426,937
Wiser Oil Co.
Gtd. Sr. Sub. Notes
9.50%, 5/15/07 B2 450 419,625
------------
GROUP TOTAL 12,258,330
------------
- --------------------------------------------------------------------------------
- -------------
ENTERTAINMENT (3.1%)
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 350 360,500
Booth Creek Ski Holdings, Inc.
Series B, Sr. Sub. Notes
12.50%, 3/15/07 Caa1 1,000 1,080,000
Cinemark U.S.A., Inc.
Series D, Sr. Sub. Notes
9.625%, 8/1/08 N/R 250 257,500
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 400 433,500
(3) Outboard Marine Corp.
Gtd. Sr. Notes
10.75%, 6/1/08 B3 500 515,000
(3) Premier Cruises, Ltd.
Gtd. Sr. Notes
11.00%, 3/15/08 Caa2 900 600,750
(3) Production Resource Group, L.L.C./PRG Finance
Group
Gtd. Sr. Sub. Notes
11.50%, 1/15/08 Caa2 750 725,625
(3) Regal Cinemas Inc.
Sr. Sub. Notes
9.50%, 6/1/08 B3 1,000 1,010,000
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Silver Cinemas, Inc.
Sr. Sub. Notes
10.50%, 4/15/05 Caa1 $ 1,900 $ 1,940,375
Time Warner Inc.
Debentures
6.85%, 1/15/26 Ba1 1,140 1,174,200
------------
GROUP TOTAL 9,074,512
------------
- --------------------------------------------------------------------
- -------------
FINANCIAL SERVICES (3.6%)
AT&T Capital Corp.
Series 4, Medium Term Notes:
6.26%, 2/18/99 Baa3 290 290,528
6.92%, 4/29/99 Baa3 1,100 1,107,348
6.47%, 12/3/99 Baa3 60 60,067
Associates Corp. of North America
Sr. Debentures
5.96%, 5/15/37 Aa3 1,215 1,221,075
BellSouth Capital Funding Corp.
Debentures
6.04%, 11/15/26 Aa1 1,200 1,244,388
Chase Manhattan Corp. Sub. Notes
6.375%, 4/1/08 A1 310 310,000
GMAC
Medium Term Notes
6.90%, 6/6/00 A2 2,000 2,034,180
General Electric Capital Corp.
Remarketed Reset Notes
6.29%, 12/15/07 Aaa 1,150 1,158,303
Long Island Savings
Bank F.S.B.
Notes
7.00%, 6/13/02 Baa3 770 787,325
Olympic Financial, Ltd.
Sr. Notes
11.50%, 3/15/07 B2 475 476,188
(8) PTC International
Finance B.V.
Gtd. Sr. Sub. Notes
0.00%, 7/1/07 B3 350 241,500
Westfed Holdings
Sr. Debentures
15.50%, 9/15/99 N/R 1,750 1,575,000
------------
GROUP TOTAL 10,505,902
------------
- --------------------------------------------------------------------
- -------------
FOOD & BEVERAGES (1.2%)
AmeriServ Food Distribution, Inc.
Gtd. Sr. Notes
8.875%, 10/15/06 B1 650 654,875
Archibald Candy Corp.
Gtd. Sr. Secured Notes
10.25%, 7/1/04 B2 550 584,375
(3) Eagle Family Foods, Inc.
Gtd. Sr. Sub. Notes
8.75%, 1/15/08 B3 300 292,125
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Fleming Companies, Inc.
Series B, Gtd. Sr. Sub. Notes
10.50%, 12/1/04 B3 $ 700 $ 722,750
International Home Foods, Inc.
Gtd. Sr. Sub. Notes
10.375%, 11/1/06 B2 1,000 1,106,250
------------
GROUP TOTAL 3,360,375
------------
- --------------------------------------------------------------------
- -------------
HEALTH CARE (2.9%)
(9) Health & Retirement Property Trust
Remarketed Reset Notes
6.114%, 7/9/07 Baa2 710 709,360
ICON Health & Fitness, Inc.
Series B, Sr. Sub. Notes
13.00%, 7/15/02 B3 500 536,250
Integrated Health Services, Inc.:
Series A, Sr. Sub. Notes
10.25%, 4/30/06 B2 400 435,000
Sr. Sub. Notes
9.25%, 1/15/08 B2 100 103,750
Meditrust:
Remarketed Reset Notes
6.075%, 8/15/02 Baa3 550 549,999
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 1,461,600
Paracelsus Healthcare
Sr. Sub. Notes
10.00%, 8/15/06 B1 750 742,500
(3) Pharmerica Inc.
Gtd. Sr. Sub. Notes
8.375%, 4/1/08 B2 500 497,500
Vencor Operating, Inc.
Gtd. Sr. Sub. Notes
9.875%, 5/1/05 B3 400 393,000
------------
GROUP TOTAL 8,428,959
------------
- --------------------------------------------------------------------------------
- -------------
INDUSTRIAL GOODS & MATERIALS (4.6%)
AMTROL, Inc.
Sr. Sub. Notes
10.625%, 12/31/06 B3 400 391,000
Atlantis Group, Inc.
Sr. Notes
11.00%, 2/15/03 B2 585 617,175
CLARK Material
Handling Co.
Gtd. Sr. Notes
10.75%, 11/15/06 B1 550 594,000
(3) Golden Ocean
Group, Ltd.
Gtd. Sr. Notes
10.00%, 8/31/01 B3 1,548 1,220,985
Haynes International, Inc.
Sr. Notes
11.625%, 9/1/04 B3 500 554,375
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
IHF Holdings, Inc.
Series B, Sr. Sec. Discount Notes
0.00%, 11/15/04 Caa2 $ 1,250 $ 1,065,625
Interlake Corp.
Sr. Sub. Debentures
12.125%, 3/1/02 B3 1,000 1,020,000
International Knife & Saw, Inc.
Sr. Sub. Notes
11.375%, 11/15/06 B3 750 802,500
MVE, Inc.
Sr. Secured Debentures
12.50%, 2/15/02 B3 850 863,813
Motors and Gears, Inc.
Series D, Sr. Notes
10.75%, 11/15/06 B3 1,500 1,612,500
Neenah Corp.
Series B, Sr. Sub. Notes
11.125%, 5/1/07 B3 500 545,000
Park-Ohio Industries, Inc.
Sr. Sub. Notes
9.25%, 12/1/07 B2 400 408,000
SRI Receivables Purchase Co., Inc.
Series B, Notes
12.50%, 12/15/00 N/R 1,500 1,582,500
Seagate Technology, Inc.
Sr. Debentures
7.45%, 3/1/37 Ba1 400 397,500
Specialty Equipment Companies, Inc.
Sr. Sub. Notes
11.375%, 12/1/03 B3 1,000 1,070,000
(3)(8) Thermadyne Holdings Corp.
Sr. Discount Notes
0.00%, 6/1/08 Caa1 650 359,937
(3) Thermadyne Mfg. LLC/ Thermadyne Capital Corp.
Gtd. Sr. Sub. Notes
9.875%, 6/1/08 B3 300 301,875
------------
GROUP TOTAL 13,406,785
------------
- --------------------------------------------------------------------------------
- -------------
METALS & MINING (3.5%)
AK Steel Corp.
Gtd. Sr. Notes
10.75%, 4/1/04 Ba2 1,200 1,275,000
Algoma Steel, Inc.
Yankee First Mortgage Notes
12.375%, 7/15/05 B1 450 501,750
(3) Bayou Steel Corp.
First Mortgage Notes
9.50%, 5/15/08 B2 500 495,000
Gulf States Steel, Inc.
First Mortgage Notes
13.50%, 4/15/03 B1 1,200 1,212,000
Kaiser Aluminum & Chemical Corp.
Series D, Sr. Notes
10.875%, 10/15/06 B1 675 725,625
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(3) Lodestar Holdings Inc.
Sr. Notes
11.50%, 5/15/05 Caa2 $ 800 $ 807,000
Metallurg, Inc.
Series B, Gtd. Sr. Notes
11.00%, 12/1/07 B3 750 783,750
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 750 772,500
WCI Steel, Inc.
Series B, Sr. Secured Notes
10.00%, 12/1/04 B2 925 945,812
Weirton Steel Corp.
Sr. Notes
11.375%, 7/1/04 B2 625 665,625
Wheeling-Pittsburg Corp.
Sr. Notes
9.25%, 11/15/07 B2 750 768,750
------------
GROUP TOTAL 10,065,112
------------
- --------------------------------------------------------------------------------
- -------------
PACKAGING/CONTAINERS (1.4%)
AEP Industries, Inc.
Sr. Sub. Notes
9.875%, 11/15/07 B2 250 260,000
BPC Holding Corp.
Series B, Sr. Secured Notes
12.50%, 6/15/06 Caa3 950 1,045,000
Container Corp. of America
Gtd. Sr. Notes
9.75%, 4/1/03 B1 500 537,500
(8) Crown Packaging Enterprises Ltd.
Yankee Sr. Secured Discount Notes
0.00%, 8/1/06 Ca1 1,950 29,250
Four M Corp.
Series B, Gtd. Sr.
Secured Notes
12.00%, 6/1/06 B3 150 159,000
Gaylord Container Corp.
Series B, Sr. Notes
9.75%, 6/15/07 B3 700 694,750
Radnor Holdings, Inc.
Series B, Gtd. Sr. Notes
10.00%, 12/1/03 B2 250 260,625
Riverwood International Corp.
Gtd. Sr. Sub. Notes
10.875%, 4/1/08 Caa1 600 607,500
Stone Container
Finance Co.
Yankee Gtd. Sr. Notes
11.50%, 8/15/06 B2 530 570,412
------------
GROUP TOTAL 4,164,037
------------
- --------------------------------------------------------------------
- -------------
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
PAPER & FOREST PRODUCTS (2.0%)
Ainsworth Lumber
Co. Ltd.
Yankee Sr. Secured Notes
12.50%, 7/15/07 B3 $ 1,250 $ 1,342,187
Crown Paper Co.
Sr. Sub. Notes
11.00%, 9/1/05 B3 550 594,000
Mail-Well Corp.
Sr. Sub. Notes
10.50%, 2/15/04 B1 1,500 1,606,875
Malette, Inc.
Yankee Sr. Secured Debentures
12.25%, 7/15/04 Ba3 180 199,800
QUNO Corp.
Yankee Sr. Notes
9.125%, 5/15/05 Baa3 315 327,994
Repap New Brunswick, Inc.
Sr. Secured Debentures
10.625%, 4/15/05 Caa1 700 708,750
SD Warren Co.
Series B, Sr. Sub. Notes
12.00%, 12/15/04 B1 1,000 1,111,250
------------
GROUP TOTAL 5,890,856
------------
- --------------------------------------------------------------------------------
- -------------
PUBLISHING & INFORMATION SERVICES (1.8%)
(3) American Lawyer Media, Inc.
Gtd. Sr. Notes
9.75%, 12/15/07 B1 450 466,875
Ampex Corp.
Series B, Sr. Notes
12.00%, 3/15/03 N/R 750 780,000
Belo (A.H.) Corp.
Sr. Notes
6.875%, 6/1/02 Baa2 750 768,750
(8) InterAct Systems, Inc.
Sr. Discount Notes
0.00%, 8/1/03 N/R 750 300,938
Lamar Advertising Co.
Gtd. Sr. Sub. Notes
9.625%, 12/1/06 B1 250 267,500
(3) Level 3 Communications, Inc.
Sr. Notes
9.125%, 5/1/08 B3 1,000 972,500
(8) Liberty Group
Publishing, Inc
Sr. Discount Debentures
0.00%, 2/1/09 Caa1 600 365,250
(3) Mentus Media Corp.
Units
12.00%, 2/1/03 N/R 1,350 1,353,375
------------
GROUP TOTAL 5,275,188
------------
- --------------------------------------------------------------------
- -------------
REAL ESTATE (0.4%)
(9) Camden Property Trust
Remarketed Reset Notes
6.088%, 5/9/02 Baa2 660 659,661
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(3) EOP Operating Limited Partnership
6.375%, 2/15/03 Baa1 $ 500 $ 496,875
------------
GROUP TOTAL 1,156,536
------------
- --------------------------------------------------------------------------------
- -------------
RESTAURANTS, HOTELS & GAMING (6.5%)
American Restaurant Group, Inc.
Gtd. Sr. Secured Notes
11.50%, 2/15/03 B3 750 771,562
(3) Bluegreen Corp.
Gtd. Sr. Secured Notes
10.50%, 4/1/08 B3 1,000 1,000,000
Boyd Gaming Corp.
Sr. Sub. Notes
9.50%, 7/15/07 B1 150 154,500
CapStar Hotel Co.
Sr. Sub. Notes
8.75%, 8/15/07 Ba3 375 390,000
(2) Capital Gaming International, Inc.
Promissory Notes
10.125%, 8/1/95 N/R 1 1
Casino America, Inc.
Gtd. Sr. Notes
12.50%, 8/1/03 B1 1,400 1,582,000
Casino Magic of Louisiana, Corp.
Series B, Gtd. First Mortgage Notes
13.00%, 8/15/03 B3 1,900 2,199,250
Colorado Gaming & Entertainment, Co.
Gtd. Sr. Notes
12.00%, 6/1/03 N/R 1,480 1,595,099
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 Ba2 500 544,375
Friendly Ice Cream Corp.
Gtd. Sr. Notes
10.50%, 12/1/07 B1 500 527,500
HMC Acquisition Properties,
Series B, Gtd. Sr. Notes
9.00%, 12/15/07 N/R 450 489,375
(3) Hard Rock Hotel, Inc.
Sr. Sub. Notes
9.25%, 4/1/05 B3 550 561,000
Hollywood Park, Inc.
Series B, Gtd. Sr. Sub. Notes
9.50%, 8/1/07 B2 675 696,094
Horseshoe Gaming L.L.C.:
Series B, Gtd. Sr. Notes
12.75%, 9/30/00 B1 750 832,500
Series B, Sr. Sub. Notes
9.375%, 6/15/07 B3 1,500 1,582,500
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Majestic Star Casino L.L.C.
Sr. Exchange Secured Notes
12.75%, 5/15/03 B2 $ 200 $ 218,000
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 975 1,033,500
Red Roof Inns, Inc.
Sr. Exchange Notes
9.625%, 12/15/03 B2 700 721,000
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 1,671,077
------------
GROUP TOTAL 18,870,110
------------
- --------------------------------------------------------------------------------
- -------------
RETAIL (4.1%)
(3)(8) Advance Holding Corp.
Sr. Discount Debentures.
0.00%, 4/15/09 Caa2 1,500 890,625
(3) Advance Stores Co.
Gtd. Sr. Sub. Notes
10.25%, 4/15/08 Caa1 2,000 2,072,500
Brylane L.P.
Series B, Gtd.
Sr. Sub. Notes
10.00%, 9/1/03 B1 500 526,250
(3) County Seat Stores, Inc.
Units
12.75%, 11/1/04 N/R 1,100 1,127,500
Dairy Mart Convenience Stores, Inc.
Sr. Sub. Notes
10.25%, 3/15/04 B3 275 273,625
Finlay Enterprises, Inc.
Sr. Debentures
9.00%, 5/1/08 B2 600 601,500
Finlay Fine Jewelry Corp.
Gtd. Sr. Notes
8.375%, 5/1/08 Ba3 1,200 1,203,000
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. Sub. Notes
10.375%, 9/15/07 N/R 300 320,250
Gtd. Sr. Notes
12.00%, 3/1/06 B2 250 281,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
K Mart Corp.
Debentures
7.75%, 10/1/12 Ba2 $ 1,175 $ 1,182,344
Mrs. Fields' Original Cookies, Inc.
Series B, Gtd. Sr. Notes
10.125%, 12/1/04 B2 800 776,000
Pantry, Inc.
Gtd. Sr. Sub. Notes
10.25%, 10/15/07 B3 650 661,375
Pathmark Stores, Inc.
Sr. Sub. Notes
9.625%, 5/1/03 Caa1 850 860,625
------------
GROUP TOTAL 12,070,594
------------
- --------------------------------------------------------------------------------
- -------------
TELECOMMUNICATIONS (16.6%)
Advanced Radio Telecommunications Corp.
Sr. Notes
14.00%, 2/15/07 Caa2 900 954,000
(3) Bell Technology Group
Units
13.00%, 5/1/05 N/R 1,000 1,020,000
(8) COLT Telecom Group plc
Yankee Units
0.00%, 12/15/06 B2 400 352,000
(8) Clearnet Communications, Inc.
Sr. Discount Notes
0.00%, 12/15/05 B3 800 670,000
Concentric Network Corp.
Sr. Notes
12.75%, 12/15/07 N/R 750 795,000
(3) Convergent Communications, Inc.
Units
13.00%, 4/1/08 N/R 1,250 1,250,000
(3)(8) DTI Holdings, Inc.
Units
0.00%, 3/1/08 N/R 2,350 1,251,375
(3) Dobson Wireline Co.
Sr. Notes
12.25%, 6/15/08 N/R 1,000 972,500
(3)(8) Dolphin Telecom plc
Sr. Discount Notes
0.00%, 6/1/08 Caa1 500 284,375
(8) E. Spire Communications, Inc.
Sr. Discount Notes.
0.00%, 11/1/05 N/R 1,700 1,411,000
(3) Exodus Communications, Inc.
Sr. Notes
11.25%, 7/1/08 N/R 700 700,875
(8) Echostar Satellite Broadcasting Corp.
Sr. Secured Discount Notes
0.00%, 3/15/04 B3 700 643,125
(3)(8) Focal Communications Corp.
Sr. Discount Notes
0.00%, 2/15/08 N/R 1,400 850,500
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(3)(8) GST Telecommunications, Inc.
Conv. Sr. Sub. Discount Notes
0.00%, 12/15/05 N/R $ 200 $ 161,250
(8) GST USA, Inc.
Gtd. Sr. Exchange Discount Notes
0.00%, 12/15/05 N/R 1,800 1,455,750
GTE Corp.
Debentures
6.36%, 4/15/06 Baa1 1,000 1,005,000
Geotek Communications, Inc.
Conv. Sr. Sub. Notes
12.00%, 2/15/01 Caa1 1,100 22,000
(3) Global Crossing Holdings Ltd.
Gtd. Sr. Notes
9.625%, 5/15/08 N/R 350 364,437
Globalstar, L.P./Globalstar Capital Corp.
Sr. Notes
11.25%, 6/15/04 B3 500 486,250
10.75%, 11/1/04 B3 1,000 957,500
(3) 11.50%, 6/1/05 B3 200 194,750
(8) Hyperion Telecommunications, Inc.
Series B, Sr. Discount Notes
0.00%, 4/15/03 B3 450 337,500
(8) ICG Holdings, Inc.:
Gtd. Sr. Secured Discount Notes
0.00%, 5/1/06 N/R 600 477,000
Gtd. Sr. Exchange
Discount Notes
0.00%, 3/15/07 N/R 2,000 1,470,000
Gtd. Sr. Discount Notes
0.00%, 9/15/05 N/R 650 555,750
(3)(8) ICG Services, Inc.
Sr. Discount Notes:
0.00%, 5/1/08 N/R 1,350 801,562
0.00%, 2/15/08 N/R 500 304,375
ITC DeltaCom, Inc.
Sr. Notes
11.00%, 6/1/07 B2 259 291,375
Intermedia Communications, Inc.
Series B, Sr. Notes
8.875%, 11/1/07 B2 200 204,500
Iridium Operating LLC / Iridium Capital
Corp.:
Series B, Gtd. Sr. Notes
14.00%, 7/15/05 B3 500 556,250
Series C/EN, Gtd.
Sr. Notes
11.25%, 7/15/05 B3 100 100,250
Series D, Gtd. Sr. Notes
10.875%, 7/15/05 B3 500 495,625
Jacor Communications, Inc.
Gtd. Sr. Sub. Notes
8.00%, 2/15/10 B2 250 251,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Jordan Telecommunications Products, Inc.:
Series B, Sr. Notes.
9.875%, 8/1/07 N/R $ 270 $ 285,525
(8) Series B, Sr. Discount
Notes
0.00%, 8/1/07 N/R 625 518,750
(3) Long Distance International, Inc.
Units
12.25%, 4/15/08 N/R 1,500 1,507,500
MCI Communications Corp.
Sr. Notes
6.50%, 4/15/10 Baa2 290 288,912
(8) McCaw International Ltd.
Sr. Discount Notes
0.00%, 4/15/07 Caa1 1,000 660,000
McLeod USA, Inc.:
Sr. Notes
9.25%, 7/15/07 B2 400 414,000
(8) Sr. Discount Notes
0.00%, 3/1/07 B2 800 596,000
(3)(8) MetroNet Communications Corp.:
Sr. Discount Notes
0.00%, 11/1/07 B3 1,100 731,500
0.00%, 6/15/08 B3 1,150 708,687
(8) Microcell Telecommunications, Inc.
Series B, Yankee Sr. Discount Notes
0.00%, 6/1/06 B3 400 297,000
NEXTLINK Communications, Inc.:
Sr. Notes
12.50%, 4/15/06 B3 350 405,125
(3)(8) Sr. Discount Notes
0.00%, 4/15/08 B3 1,700 1,043,375
(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 500 572,500
(8) Pagemart Nationwide, Inc.
Sr. Discount Notes
0.00%, 2/1/05 B3 1,750 1,557,500
Petersburg Long
Distance, Inc.:
(3)(8) Units
0.00%, 6/1/04 N/R 1,610 1,489,250
(3) Conv. Sub. Notes
9.00%, 6/1/06 N/R 230 240,350
(3)(8) Pinnacle Holdings, Inc.
Sr. Discount Notes
0.00%, 3/15/08 N/R 900 589,500
(8) Price Communications Corp./Price
Communications Cellular Holdings, Inc.
Sr. Discount Notes
0.00%, 8/1/07 Caa1 1,150 802,125
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(8) Qwest Communications International, Inc.
Sr. Discount Notes
0.00%, 10/15/07 Ba1 $ 1,100 $ 826,375
(8) RCN Corp.
Series B, Sr. Discount Notes
0.00%, 2/15/08 B3 1,000 607,500
RSL Communications plc
Gtd. Sr. Notes
9.125%, 3/1/08 B3 250 242,500
(3)(8) Rhythms Netconnections
Units
0.00%, 5/15/08 N/R 1,500 735,000
Rogers Cablesystems Ltd.
Series B, Yankee Sr. Secured 2nd Priority
Notes
10.00%, 3/15/05 Ba3 300 333,000
Rogers Cantel Inc.
Yankee Sr. Secured Debentures
9.375%, 6/1/08 Ba3 350 362,250
(3) Rural Cellular Corp.
Sr. Sub. Notes
9.625%, 5/15/08 B3 100 99,500
Sprint Spectrum L.P./ Sprint Spectrum Finance
Corp.
Sr. Notes
11.00%, 8/15/06 Ba2 1,500 1,725,000
Star Choice
Communications, Inc.
Yankee Sr. Notes
13.00%, 12/15/05 B3 500 510,625
(3) Startec Global Communications Corp.
Units
12.00%, 5/15/08 N/R 750 736,875
(8) TCI Satellite Entertainment, Inc.:
Sr. Sub. Discount Notes
0.00%, 2/15/07 Caa1 350 237,125
Sr. Sub. Notes
10.875%, 2/15/07 Caa1 700 696,500
Talton Holdings, Inc.
Series B, Gtd. Sr. Notes
11.00%, 6/30/07 B2 500 538,750
(8) Teleport Communications Group, Inc.
Sr. Discount Notes
0.00%, 7/1/07 Baa3 1,150 989,000
Teligent, Inc.
Sr. Notes
11.50%, 12/1/07 Caa1 750 761,250
(8) USN Communications Inc.
Series B, Sr. Discount Notes
0.00%, 8/15/04 Caa1 660 520,575
(3) Viatel, Inc.
Units
11.25%, 4/15/08 Caa1 850 892,500
Western Wireless Corp.
Sr. Sub. Notes
10.50%, 2/1/07 B3 350 376,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(8) WinStar Communications, Inc.
Sr. Discount Notes
0.00%, 10/15/05 Caa1 $ 2,100 $ 1,761,375
------------
GROUP TOTAL 48,394,673
------------
- --------------------------------------------------------------------------------
- -------------
TEXTILES/APPAREL (1.0%)
(3) Iron Age Corp.
Sr. Sub. Notes
9.875%, 5/1/08 B3 250 250,000
Maxim Group, Inc.
Series B, Gtd. Sr. Sub. Notes
9.25%, 10/15/07 B2 700 714,000
(3) Phillips-Van Heusen Corp.
Sr. Sub. Notes
9.50%, 5/1/08 B1 800 801,000
Pillowtex Corp.
Gtd. Sr. Sub. Notes
10.00%, 11/15/06 B2 500 536,250
William Carter Co.
Series A, Sr. Sub. Notes
10.375%, 12/1/06 B3 500 535,000
------------
GROUP TOTAL 2,836,250
------------
- --------------------------------------------------------------------
- -------------
TRANSPORTATION (1.8%)
AirTran Airlines, Inc.
Gtd. Sr. Secured Notes
10.50%, 4/15/01 B2 1,000 995,000
(3) Ermis Maritime
Holdings Ltd.
Units
12.50%, 3/15/06 B3 915 905,850
Norfolk Southern Corp.:
Notes
7.875%, 2/15/04 Baa1 700 753,375
7.05%, 5/1/37 Baa1 825 881,719
Pegasus Shipping (Hellas) Ltd.
Series A, First Preferred Ship Mortgage
Notes
11.875%, 11/15/04 B3 300 302,250
(3) Trans World Airlines, Inc.
Sr. Notes
11.375%, 3/1/06 Caa1 1,500 1,494,375
------------
GROUP TOTAL 5,332,569
------------
- --------------------------------------------------------------------------------
- -------------
WASTE MANAGEMENT (0.8%)
(8) Allied Waste Industries, Inc.
Sr. Discount Notes
0.00%, 6/1/07 B3 200 147,500
Allied Waste North America, Inc.
Gtd. Sr. Sub. Notes
10.25%, 12/1/06 B3 550 605,688
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
(3) Waste Systems International, Inc.
Sub. Notes
7.00%, 5/13/05 N/R $ 1,500 $ 1,500,000
------------
GROUP TOTAL 2,253,188
------------
- --------------------------------------------------------------------
- -------------
TOTAL CORPORATE OBLIGATIONS
(Cost $230,948,836) 235,380,007
------------
- --------------------------------------------------------------------
- -------------
MUNICIPAL SECURITIES (0.4%)
- --------------------------------------------------------------------
- -------------
New Jersey Economic Development Authority
Series B, Revenue Bonds:
Zero Coupon, 2/15/03 Aaa 1,605 1,229,928
------------
- --------------------------------------------------------------------------------
- -------------
TOTAL MUNICIPAL SECURITIES
(Cost $1,182,170) 1,229,928
------------
- --------------------------------------------------------------------
- -------------
GOVERNMENT & AGENCY SECURITIES (5.0%)
- --------------------------------------------------------------------------------
- -------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (0.5%)
REMIC-PAC
Series 1660, Class E
6.00%, 1/15/07 Aaa 1,370 1,372,137
------------
- --------------------------------------------------------------------------------
- -------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (3.3%)
15-Year Dwarf TBA
6.00%, 7/1/13 Aaa 1,400 1,384,684
15-Year TBA
5.50%, 7/1/13 Aaa 1,350 1,309,082
30-Year TBA:
6.50%, 7/1/28 Aaa 2,400 2,390,232
6.00%, 7/1/28 Aaa 1,500 1,460,145
7.00%, 7/1/28 Aaa 1,150 1,166,169
REMIC-PAC
Series 1989-23, Class D
10.20%, 9/25/18 Aaa 1,020 1,034,411
STRIPS, Series H, Class 2
11.50%, 5/1/09 Aaa 783 875,115
------------
GROUP TOTAL 9,619,838
------------
- --------------------------------------------------------------------------------
- -------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (0.5%)
30-Year TBA
7.00%, 7/1/28 Aaa 1,150 1,168,320
Various Pools:
10.50%, 9/15/15 Aaa 126 138,763
10.50%, 12/15/15 Aaa 5 5,103
10.50%, 3/15/16 Aaa 26 29,332
10.50%, 8/15/16 Aaa 35 39,114
------------
GROUP TOTAL 1,380,632
------------
- --------------------------------------------------------------------------------
- -------------
TENNESSEE VALLEY AUTHORITY (0.1%)
Power Bonds, 1996
Series A
5.88%, 4/1/36 Aaa 340 350,200
------------
- --------------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
UNITED STATES TREASURY NOTES (0.6%)
6.25%, 6/30/02 Aaa $ 1,800 $ 1,845,288
------------
- --------------------------------------------------------------------
- -------------
TOTAL GOVERNMENT & AGENCY SECURITIES
(Cost $14,507,141) 14,568,095
------------
- --------------------------------------------------------------------------------
- -------------
COLLATERALIZED MORTGAGE OBLIGATIONS (2.2%)
- --------------------------------------------------------------------
- -------------
Asset Securitization Corp.:
Series 1997-D5,
Class A1C
6.75%, 2/14/41 Aaa 330 343,085
Series 1996-MD6,
Class A6
7.106%, 11/13/26 Baa2 420 440,147
Series 1997-D5,
Class A1D
6.85%, 2/14/41 Aaa 650 683,293
Drexel, Burnham & Lambert Trust
REMIC-PAC, Series S,
Class 2
9.00%, 8/1/18 Aaa 3,877 3,879,807
GMAC Commercial Mortgage Securities Inc.
Series 1997-C1, Class A2
6.853%, 9/15/06 Aaa 80 83,078
Kidder Peabody Acceptance Corp.
Series 1994-C1, Class B
6.85%, 2/1/06 N/R 910 924,123
------------
GROUP TOTAL 6,353,533
------------
- --------------------------------------------------------------------
- -------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $6,557,965) 6,353,533
------------
- --------------------------------------------------------------------
- -------------
ASSET BACKED OBLIGATIONS (3.1%)
- --------------------------------------------------------------------
- -------------
Capita Equipment Receivables Trust,
Series 1996-1 Class A3
6.11%, 7/15/99 Aaa 1,063 1,064,836
Constellation Finance
L.L.C. Airline Receivable Asset Backed Notes
Series 1997-1
9.80%, 12/14/02 N/R 250 255,000
ContiMortgage Home Equity Loan Trust, Home
Equity Loan Certificates:
Series 1998-1, Class A5
6.43%, 4/15/16 Aaa 425 427,933
Series 1996-4, Class A8
7.22%, 1/15/28 Aaa 125 129,781
Fleetwood Credit Corp. Grantor Trust, RV
Retail Installment Sales Contracts,
Series 1997-B, Class A
6.40%, 5/15/13 Aaa 785 792,710
<CAPTION>
Face
Moody's Amount Value
Ratings (000) (Note A-1)
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------
- -------------
Green Tree Financial Corp. Manufactured
Housing Installment Sale Contracts:
Series 1993-4, Class B1
7.20%, 1/15/19 Baa3 $ 2,000 $ 2,006,860
Series 1997-3, Class A3
6.73%, 7/15/28 Aaa 1,310 1,324,318
Green Tree Home Equity Loan Trust, Home
Equity Loan Certificates
Series 1998-C, Class A2
6.03%, 7/15/29 N/R 440 440,686
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 867 877,773
IMC Home Equity Loan Trust, Home Equity Loan
Certificates,
Series 1998-3, Class A3
6.16%, 5/20/14 Aaa 165 164,974
Nationscredit Grantor Trust, Boat Retail
Installment Sale Contracts,
Series 1996-1, Class A
5.85%, 9/15/11 Aaa 681 676,153
New Century Home Equity Loan Trust, Mortgage
Loan Certificates
Series 1997-D6, Class A4
6.73%, 7/25/22 Aaa 100 101,502
Southern Pacific Secured Assets Corp.,
Mortgage Loan Certificates
Series 1998-1, Class A2
6.27%, 2/25/18 Aaa 550 550,743
UCFC Acceptance Corp.
Home Equity Loan Certificates,
Series 1996-B1, Class A7
8.20%, 9/15/27 Aaa 110 119,597
------------
GROUP TOTAL 8,932,866
------------
- --------------------------------------------------------------------
- -------------
TOTAL ASSET BACKED OBLIGATIONS
(Cost $8,718,820) 8,932,866
------------
- --------------------------------------------------------------------
- -------------
</TABLE>
<TABLE>
<CAPTION>
Shares/
Units
<C> <S> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
COMMON STOCKS (1.3%)
- --------------------------------------------------------------------------------
- ----------------
BROADCASTING (0.0%)
Pegasus Communications Corp. 564 11,844
------------
- --------------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
Shares/
Units Value
- --------------------------------------------------------------------
<C> <S> <C> <C>
- -------------
CABLE (0.0%)
OpTel, Inc. 500 $ 5
------------
- --------------------------------------------------------------------
- -------------
CONSUMER PRODUCTS & SERVICES (0.0%)
Coinstar, Inc. 11,887 109,955
(1) Crown Packaging Enterprises Ltd. 253,746 2,537
------------
GROUP TOTAL 112,492
------------
- --------------------------------------------------------------------
- -------------
FINANCIAL SERVICES (0.0%)
(1)(5)(7) Westfed Holdings, Inc.
Class B (acquired 9/20/88, $127) 12,670 0
------------
- --------------------------------------------------------------------
- -------------
FOOD & BEVERAGES (0.8%)
(1)(5) Dr. Pepper Bottling Holdings, Inc.
Class A (acquired 2/25/97, cost $1,181,250) 75,000 2,400,000
(1) Specialty Foods Corp. 30,000 1,500
------------
GROUP TOTAL 2,401,500
------------
- --------------------------------------------------------------------------------
- ----------------
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 26,563
------------
- --------------------------------------------------------------------------------
- ----------------
PAPER & FOREST PRODUCTS (0.2%)
(1) Mail-Well, Inc. 14,204 308,049
(1) Mail-Well, Inc. 7,102 154,025
------------
GROUP TOTAL 462,074
------------
- --------------------------------------------------------------------------------
- ----------------
RESTAURANTS, HOTELS & GAMING (0.1%)
(1) Casino America Inc. 14,947 51,380
(1) Colorado Gaming & Entertainment, Co. 26,465 145,558
Elsinore Corp. 86,539 135,216
(1) Motels of America, Inc. 500 8,500
------------
GROUP TOTAL 340,654
------------
- --------------------------------------------------------------------------------
- ----------------
RETAIL (0.0%)
(1)(5) Jewel Recovery L.P.
(acquired 7/30/93, cost $0) 49,559 0
------------
- --------------------------------------------------------------------------------
- ----------------
TELECOMMUNICATIONS (0.1%)
Intermedia Communications, Inc. 1,100 46,063
Nextel Communications, Inc.
Class A 4,957 122,996
(1) Pagemart Nationwide, Inc. 7,000 63,000
------------
GROUP TOTAL 232,059
------------
- --------------------------------------------------------------------------------
- ----------------
TOTAL COMMON STOCKS
(Cost $3,275,566) 3,787,383
------------
- --------------------------------------------------------------------
- -------------
<CAPTION>
Shares/
Units Value
<C> <S> <C> <C>
- --------------------------------------------------------------------
- -------------
PREFERRED STOCKS (4.3%)
- --------------------------------------------------------------------------------
- ----------------
AEROSPACE/DEFENSE (0.4%)
(1) GPA Group plc
7% Second Preference Cum. Conv. 2,125,000 $ 1,211,250
------------
- --------------------------------------------------------------------
- -------------
BROADCASTING (1.4%)
(3) Benedek Communications Corp.
11.50% Sr. Exchangeable 150 151,500
(1) Pegasus Communications Corp.:
12.75% Units 250 289,375
(1) Cum. Exchangeable,
Series A 49 54,698
(3) Source Media Inc.
13.5% Units 56,856 1,648,824
(1) Spanish Broadcasting System, Inc.
14.25% Cum. Exchangeable 17,140 1,816,840
------------
GROUP TOTAL 3,961,237
------------
- --------------------------------------------------------------------------------
- ----------------
CABLE (0.4%)
Adelphia Communications Corp.
13% Cum. Exchangeable, Series B 5,000 595,000
DIVA Systems Corp.
Series D 56,913 648,808
NTL, Inc.
13% Exchangeable, Series B 1 652
------------
GROUP TOTAL 1,244,460
------------
- --------------------------------------------------------------------------------
- ----------------
CONSUMER PRODUCTS & SERVICES (0.0%)
Renaissance Cosmetics, Inc.
14% Cumulative 2 23
------------
- --------------------------------------------------------------------
- -------------
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
------------
- --------------------------------------------------------------------
- -------------
METALS & MINING (0.0%)
International Utility Structures, Inc.
13% Units 150 166,500
------------
- --------------------------------------------------------------------
- -------------
PAPER & FOREST PRODUCTS (0.4%)
SD Warren Co.
14% Cum. Exchangeable, Series B 21,459 1,072,950
------------
- --------------------------------------------------------------------------------
- ----------------
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 17,598 475,146
------------
- --------------------------------------------------------------------------------
- ----------------
TELECOMMUNICATIONS (1.3%)
(1) Intermedia Communications, Inc.:
7% Jr. Convertible, Series E 44,000 1,617,000
13.5% Exchangeable, Series B 2,981 351,739
NEXTLINK Communications, Inc.
14% Cum. Exchangeable 11,285 705,313
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
Shares/
Units Value
- --------------------------------------------------------------------
<C> <S> <C> <C>
- -------------
Nextel Communications, Inc.
13% Cum. Exchangeable, Series D 877 $ 991,010
(3) Rural Cellular Corp.
11.375% Sr. Exchangeable 250 252,500
------------
GROUP TOTAL 3,917,562
------------
- --------------------------------------------------------------------
- -------------
TOTAL PREFERRED STOCKS
(Cost $13,394,101) 12,610,637
------------
- --------------------------------------------------------------------
- -------------
RIGHTS (0.0%)
- --------------------------------------------------------------------
Terex Corp.
Expiring 5/15/02 (Cost $0) 6,000 138,000
------------
- --------------------------------------------------------------------
- -------------
WARRANTS (0.9%)
- --------------------------------------------------------------------
(1) Advanced Radio Telecommunications Corp.
expiring 2/15/07 13,500 165,375
(1) American Telecasting, Inc.
expiring 6/23/99 525 0
(1) Ampex Corp.
expiring 3/15/03 25,500 40,035
(1) Australis Holdings Pty Ltd.
expiring 10/30/01 2,250 14
(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)(7) 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 78,750
(1)(7) Consolidated Hydro, Inc.
expiring 12/31/03 5,400 0
(1) County Seat Stores, Inc.
expiring 10/15/98 1,520 15
(1) Crown Packaging Holdings, Ltd.
expiring 11/1/03 2,000 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 5,833
(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 9,288
(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 15,000
<CAPTION>
Shares/
Units Value
<C> <S> <C> <C>
- --------------------------------------------------------------------
- -------------
(1) IntelCom Group, Inc.
expiring 9/1/05 2,145 $ 55,770
(1) Interact Systems, Inc.
expiring 8/1/03 750 0
(1) McCaw International Ltd.
expiring 4/15/07 1,000 5,000
(1) Microcell Telecommunications:
expiring 06/01/06 1,600 30,048
(1) NEXTLINK Communications, Inc.
expiring 2/1/09 9,500 0
(1) Nextel Communications, Inc.
expiring 4/25/99 750 870
(1) Orion Network Systems, Inc.
expiring 1/31/07 500 8,000
(1) Price Communications Corp.
expiring 8/1/07 3,956 39,560
(1) Star Choice Communications
expiring 12/15/05 11,580 19,676
(1) SD Warren Co.
expiring 12/15/06 12,000 60,000
(1) Source Media, Inc.
expiring 11/01/07 30,731 307
(1) Spanish Broadcasting System
expiring 6/29/99 1,500 735,000
expiring 6/30/99 1,500 315,000
(1) USN Communications, Inc.
expiring 10/15/04 7,600 91,200
(1) United International Holdings
expiring 11/15/99 2,950 35,400
(1) Wright Medical Technology
expiring 6/30/03 618 61,765
------------
GROUP TOTAL 2,485,943
------------
- --------------------------------------------------------------------
- -------------
TOTAL WARRANTS
(Cost $1,780,100) 2,485,943
------------
- --------------------------------------------------------------------
- -------------
<CAPTION>
Face
Moody's Amount
Ratings (000)
<C> <S> <C> <C>
- --------------------------------------------------------------------------------
- ----------------
SHORT-TERM INVESTMENTS (2.1%)
- --------------------------------------------------------------------
Federal Home Loan Bank
Discount Notes
Zero coupon, 7/1/98
(cost $6,252,000 N/R $ 6,252 6,252,000
------------
- --------------------------------------------------------------------
- -------------
TOTAL DOMESTIC SECURITIES
(Cost $286,616,699) 291,738,392
------------
- --------------------------------------------------------------------
- -------------
FOREIGN SECURITIES (2.1%)
- --------------------------------------------------------------------------------
- ----------------
CORPORATE OBLIGATIONS (2.1%)
- --------------------------------------------------------------------
FINLAND (0.2%)
Okobank
Perpetual Medium Term
Notes
6.188% A3 USD 530 526,025
------------
- --------------------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<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 $ 644,028
L'Auxiliare du Credit
Foncier de France:
Gtd. Sub. Notes
5.598%, 10/22/02 Baa3 USD 680 663,884
Sr. Unsub. Notes
8.00%, 1/14/02 A3 USD 320 337,000
------------
1,644,912
------------
- --------------------------------------------------------------------
- -------------
JAPAN (0.2%)
Fuji Finance
(Cayman) Ltd.:
Perpetual Gtd. Notes
7.30% Baa2 USD 370 314,500
Perpetual Sub. Notes
6.425% Baa1 USD 430 346,150
------------
660,650
------------
- --------------------------------------------------------------------
- -------------
SWEDEN (1.1%)
ForeningsSparbanken AB
Perpetual Jr. Sub.
Medium Term Notes
6.438% A3 USD 980 983,724
(3) Perpetual Sub. Notes
7.50% A3 USD 420 434,700
Skandinaviska Enskilda
Banken AB
Perpetual Sub. Notes:
7.50% N/R USD 1,250 1,290,575
6.625% Baa1 USD 400 401,356
------------
3,110,355
------------
GROUP TOTAL 5,941,942
------------
- --------------------------------------------------------------------
- -------------
TOTAL CORPORATE OBLIGATIONS
(Cost $5,933,701) 5,941,942
------------
- --------------------------------------------------------------------
- -------------
<CAPTION>
Value
<C> <S> <C> <C>
- --------------------------------------------------------------------
- -------------
TOTAL FOREIGN SECURITIES
(Cost $5,933,701) $ 5,941,942
------------
- --------------------------------------------------------------------
- -------------
TOTAL INVESTMENTS (102.2%)
(Cost $292,550,400) 297,680,334
------------
- --------------------------------------------------------------------------------
- ----------------
LIABILITIES IN EXCESS OF
OTHER ASSETS (-2.2%) (6,334,474)
------------
- --------------------------------------------------------------------------------
- ----------------
NET ASSETS (100%)
Applicable to 34,632,153 issued and outstanding $.001 par value Shares
(authorized 100,000,000 shares) $291,345,860
------------
------------
- --------------------------------------------------------------------
- -------------
</TABLE>
N/R--Not Rated.
PAC--Planned Amortization Class.
REMIC--Real Estate Mortgage Investment Conduit.
STRIPS--Separate Trading of Registered Interest and Principal Securities.
TBA--Security is subject to delayed delivery.
(1) Non-income producing security.
(2) Defaulted security.
(3) 144A Security. Certain conditions for public sale may exist.
(4) Payment in kind bond. Market value includes accrued interest.
(5) Restricted as to private and public resale. Total cost of restricted
securities at June 30, 1998 aggregated $5,870,084. Total market value of
restricted securities owned at June 30, 1998 was $2,642,951 or 0.91% of
net assets.
(6) Private Placement.
(7) Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by the Board of
Directors.
(8) Step Bond--Coupon rate is low or zero for an initial period and then
increases to a higher coupon rate thereafter. Maturity date disclosed is
the ultimate maturity.
(9) Floating Rate--The interest rate changes on these instruments based upon
a designated base rate. The rates shown are those in effect at June 30,
1998.
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES June 30, 1998
(Unaudited)
<S> <C>
- ---------------------------------------------------------------------------------------------------
ASSETS:
Investments at Value
(Cost $292,550,400) (Note A-1)............................................ $297,680,334
Cash........................................................................ 1,646
Interest Receivable (Note A-4).............................................. 4,534,402
Dividend Receivable (Note A-4).............................................. 28
Receivable for Investments Sold............................................. 2,531,602
Other Assets................................................................ 34,186
- ---------------------------------------------------------------------------------------------------
Total Assets............................................................ 304,782,198
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
Investments Purchased..................................................... 12,812,515
Investment Advisory Fees (Note B)......................................... 365,680
Shareholders' Reports..................................................... 105,983
Shareholder Servicing Fees................................................ 61,035
Professional Fees......................................................... 49,635
Administrative Fees (Note C).............................................. 26,812
Custodian Fees............................................................ 8,541
Miscellaneous Fees........................................................ 6,137
- ---------------------------------------------------------------------------------------------------
Total Liabilities....................................................... 13,436,338
- ---------------------------------------------------------------------------------------------------
NET ASSETS...................................................................... $291,345,860
-----------------
-----------------
NET ASSETS CONSIST OF:
Capital Shares at $.001 Par Value........................................... $ 34,632
Capital Paid in Excess of Par Value......................................... 295,039,073
Accumulated Net Investment Loss............................................. (181,916)
Accumulated Net Realized Loss............................................... (8,675,863)
Unrealized Appreciation on Investments...................................... 5,129,934
NET ASSETS APPLICABLE TO 34,632,153 ISSUED AND OUTSTANDING SHARES (AUTHORIZED
100,000,000 SHARES)........................................................... $291,345,860
-----------------
-----------------
NET ASSET VALUE PER SHARE....................................................... $ 8.41
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS Six Months Ended
June 30, 1998
(Unaudited)
<S> <C>
- --------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest (Note A-4)......................................................... $13,145,622
Dividends (Note A- 4)....................................................... 58,973
- --------------------------------------------------------------------------------------------------
Total Income.............................................................. 13,204,595
- --------------------------------------------------------------------------------------------------
EXPENSES:
Investment Advisory Fees (Note B)........................................... 727,137
Administrative Fees (Note C)................................................ 171,192
Shareholder Servicing Fees.................................................. 82,284
Shareholders' Reports....................................................... 70,605
Custodian Fees.............................................................. 44,984
Professional Fees........................................................... 32,294
Directors' Fees and Expenses................................................ 19,437
Other....................................................................... 66,299
- --------------------------------------------------------------------------------------------------
Total Expenses............................................................ 1,214,232
- --------------------------------------------------------------------------------------------------
Expense Offset (Note A-4)................................................... --
- --------------------------------------------------------------------------------------------------
Net Expenses.............................................................. 1,214,232
- --------------------------------------------------------------------------------------------------
Net Investment Income..................................................... 11,990,363
- --------------------------------------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS................................................ 2,175,502
- --------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON INVESTMENTS................... (2,485,627)
- --------------------------------------------------------------------------------------------------
Net Realized Gain and Change in Unrealized Appreciation/Depreciation............ (310,125)
- --------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ $11,680,238
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C>
Six Months Ended
June 30, 1998 Year Ended
(Unaudited) December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Income....................................................... $ 11,990,363 $ 24,024,970
Net Realized Gain on Investments............................................ 2,175,502 381,883
Change in Unrealized Appreciation / Depreciaion on Investments.............. (2,485,627) 12,659,532
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ 11,680,238 37,066,385
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income....................................................... (12,465,145) (26,270,243)
- ----------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Common Stock Issued through Reinvestment of Distributions (20,310 and 65,906
shares, respectively)...................................................... 172,027 529,012
- ----------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Capital Share Transactions...... 172,027 529,012
- ----------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets................................... (612,880) 11,325,154
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Period......................................................... 291,958,740 280,633,586
- ----------------------------------------------------------------------------------------------------------------------
End of Period (Including undistributed net investment income (loss) of
$(181,916) and $292,866, respectively)..................................... $291,345,860 $291,958,740
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
<S> <C> <C> <C> <C> <C> <C>
Six Months Ended Year Ended December 31,
June 30, 1998 ----------------------------------------------------
PER SHARE OPERATING PERFORMANCE: (Unaudited) 1997 1996 1995Section 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 8.44 $ 8.12 $ 8.63 $ 8.05 $ 9.00 $ 8.42
- ------------------------------------------------------------------------------------------------------------------------------
Offering Costs.................................... -- -- (0.02) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Net Investment Income......................... 0.35 0.69 0.75 0.86 0.83 0.91
Net Realized and Unrealized Gain (Loss) on
Investments.................................. (0.02) 0.39 0.18 0.48 (1.06) 0.57
- ------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities............ 0.33 1.08 0.93 1.34 (0.23) 1.48
- ------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income......................... (0.36) (0.76) (0.90) (0.76) (0.72) (0.90)
- ------------------------------------------------------------------------------------------------------------------------------
Decrease in Net Asset Value due to Shares Issued
through Rights Offering.......................... -- -- (0.52) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.................... $ 8.41 $ 8.44 $ 8.12 $ 8.63 $ 8.05 $ 9.00
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD............. $ 8.38 $ 8.75 $ 7.63 $ 7.88 $ 7.00 $ 8.50
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Net Asset Value (1)........................... 3.95%# 14.03 10.59%+ 17.41% (2.67)% 18.47%
Market Value.................................. (0.15)%# 25.90% 10.05%+ 24.34% (9.48)% 12.46%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (Thousands)............. $291,346 $291,959 $280,634 $210,441 $196,379 $219,355
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets Including
Expense Offsets.................................. 0.83%* 0.84% 0.94% 0.92% 0.83% 0.88%
Ratio of Expenses to Average Net Assets........... 0.83%* 0.84% 0.95% -- -- --
Ratio of Net Investment Income to Average Net
Assets........................................... 8.24%* 8.47% 9.23% 10.22% 9.75% 10.34%
Portfolio Turnover Rate........................... 54.6%# 97.7% 81.0% 44.1% 70.6% 117.5%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Section BEA Associates replaced CS First Boston Investment management as the
Fund's investment adviser effective June 13, 1995.
* Annualized
# Not Annualized
+ Adjusted for Rights Offering.
(1) Total investment return based on per share net asset value reflects
the effects of change in net asset value on the performance of the
Fund during each period, and assumes dividends and capital gains
distributions, if any, were reinvested. These percentages are not an
indication of the performance of a shareholder's investment in the
Fund based on market value due to differences between the market
price of the stock and the net asset value of the Fund.
Note: Current period permanent book-tax differences, if any, are not
included in the calculation of net investment income per
share.
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ------------
BEA Income Fund, Inc. (the "Fund"), was incorporated on February 11, 1987 and is
registered as a diversified, closed-end investment company under the Investment
Company Act of 1940. The Fund's investment objective is to seek current income
through investments primarily in debt securities.
A. The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. Generally accepted
accounting principles may require management to make estimates and assumptions
that affect the amounts and disclosures in the financial statements. Actual
reported results could differ from those estimates.
1. SECURITY VALUATION: Market values for fixed income securities are valued at
the latest quoted bid price in the over-the-counter market. However, fixed
income securities may be valued on the basis of prices provided by a pricing
service which are based primarily on institutional size trading in similar
groups of securities. Other securities listed on an exchange are valued at
the latest quoted sales prices on the day of valuation or if there was no
sale on such day, the last bid price quoted on such day. Securities purchased
with remaining maturities of 60 days or less are valued at amortized cost, if
it approximates market value. Securities for which market quotations are not
readily available (including investments which are subject to limitations as
to their sale) are valued at fair value as determined in good faith by the
Board of Directors. Such securities have a value of $272,957 (or 0.09% of net
assets) at June 30, 1998. In determining fair value, consideration is given
to cost, operating and other financial data.
The Fund may invest up to 10% of its total assets in securities which are not
readily marketable, including those which are restricted as to disposition
under securities law ("restricted securities"). These securities are valued
pursuant to the valuation procedures noted above.
2. FEDERAL INCOME TAXES: It is the Fund's intention to continue to qualify as a
regulated investment company and distribute all of its taxable income to
shareholders. Accordingly, no provision for Federal income taxes is required
in the financial statements.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the
underlying securities, the value of which exceeds the principal amount of the
repurchase transaction, including accrued interest. To the extent that any
repurchase transaction exceeds one business day, the value of the collateral
is marked-to-market on a daily basis to determine the adequacy of the
collateral. In the event of default on the obligation to repurchase, the Fund
has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. In the event of default or bankruptcy by the
other party to the agreement, realization and/or retention of the collateral
or proceeds may be subject to legal proceedings.
4. SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Security transactions are
accounted for on the date the securities are purchased or sold. Costs used in
determining realized gains and losses on the sale of investment securities
are those of specific securities sold. Interest income is recognized on the
accrual basis. Discounts on securities purchased are amortized according to
the effective yield method over their respective lives. Discount or premium
on mortgage backed securities is recognized upon receipt of principal
payments on the underlying mortgage pools. Dividend income is recorded on the
ex-dividend date.
The Fund maintains a cash balance with its custodian and receives a reduction
of its custody fees and expenses for the amount of interest earned on such
uninvested cash balances. For the six months ended June 30, 1998, custodian
fees and expense offsets were increased by $4,049. There was no effect on net
investment income. The Fund could have invested such cash amounts in income
producing assets if it had not agreed to a reduction of fees or expenses
under the expense-offset arrangement with its Custodian.
5. DELAYED DELIVERY COMMITMENTS: The Fund may purchase or sell securities on a
when-issued or forward commitment basis. Payment and delivery may take place
a month or more after the date of the transaction. The price of the
underlying securities and the date when the securities will be delivered and
paid for are fixed at the time the transaction is negotiated.
6. DIVIDENDS AND DISTRIBUTIONS: The Fund pays dividends of net investment income
monthly and makes distributions at least annually of any net capital gains in
excess of applicable capital losses, including capital loss carryforward.
Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gains distributions are determined in
accordance with U.S. Federal Income Tax regulations which may differ from
generally accepted accounting principles. These differences are principally
due to timing of the recognition of defaulted bond interest.
Permanent book and tax differences relating to shareholder distributions may
result in reclassifications to undistributed net investment income (loss),
undistributed net realized gain (loss) and paid in capital.
B. BEA Associates (the "Adviser") provides investment advisory services to the
Fund under the terms of an Advisory Agreement. Under the Advisory Agreement,
the
20
<PAGE>
Adviser is paid a fee, computed weekly and payable quarterly at an annual
rate of .50% of average weekly net assets.
C. The Chase Manhattan Bank ("Chase"), through its affiliate Chase Global Funds
Services Company ("CGFSC" or the "Administrator"), provides administrative
services to the Fund under the terms of an Administration Agreement. Under the
Agreement, the Administrator is paid a fee, computed weekly and payable monthly,
at an annual rate of .15% of the Fund's first $100 million of average weekly net
assets, .10% of the Fund's next $300 million of average weekly net assets and
.05% of the Fund's average weekly net assets in excess of $400 million.
Chase provides custodial services to the Fund. Under the Custody Agreement,
Chase is paid a fee, computed weekly and payable monthly, at an annual rate of
.03% of the Fund's first $50 million of average weekly net assets, .02% of the
Fund's next $50 million of average weekly net assets and .01% of the Fund's
average weekly net assets in excess of $100 million.
Chase provides transfer agent services to the Fund. Under the Transfer Agent
Agreement, Chase is paid a fee based on the number of accounts in the Fund per
year. In addition, the Fund is charged certain out-of-pocket expenses by Chase.
D. During the six months ended June 30, 1998, the Fund made purchases of
$171,168,883 and sales of $158,343,590 of investment securities other than U.S.
Government securities and short term investments. During the six months ended
June 30, 1998, purchases and sales of U.S. Government securities were
$22,497,747 and $33,566,521, respectively. At June 30, 1998, the cost of
investments for Federal income tax purposes was $291,695,960. Accordingly, net
unrealized depreciation for Federal income tax purposes aggregated $5,635,298,
of which $18,453,494 related to appreciated securities and $12,818,196 related
to depreciated securities.
At December 31, 1997 the Fund had a capital loss carryforward of $11,235,467
available to offset future capital gains of which $4,225,267, $882,969,
$3,865,851 and $2,261,380 will expire on December 31, 1998, 1999, 2000 and 2003,
respectively.
E. At June 30, 1998, 73.20% of the Fund's net assets comprised high yield fixed
income securities. The financial condition of the issuers of the securities and
general economic conditions may affect the issuers' ability to make payments of
income and principal, as well as the market value of the securities. Such
investments may also be less liquid and more volatile than investments in higher
rated fixed income securities.
F. The Fund's Board of Directors has approved a share repurchase program
authorizing the Fund from time to time to make open-market purchases on the New
York Stock Exchange of up to 10 percent of the Fund's shares outstanding as of
December 11, 1990. There were no repurchases of shares during the six months
ended June 30, 1998.
G. The Fund issued to its shareholders of record as of the close of business on
September 27, 1996 transferable Rights to subscribe for up to an aggregate of
10,160,570 shares of Common Stock of the Fund at a rate of one share of Common
Stock for three Rights held at the subscription price of $7.15 per share. During
October 1996, the Fund issued a total of 10,160,570 shares of Common Stock on
exercise of such Rights. Rights' offering costs of $550,000 were charged
directly against the proceeds of the Offering.
21
<PAGE>
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
THREE MONTHS ENDED
----------------------------------------------------------------------------
MARCH 31, 1998 JUNE 30, 1998
----------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income............. $ 6,624 $ 0.19 $ 6,580 $ 0.19
Net Investment Income......... 6,017 0.18 5,973 0.17
Net Realized Gain (Loss) and
Change in Unrealized
Appreciation/Depreciation on
Investments.................. 3,082 0.09 (3,392) (0.10)
Net Increase in Net Assets
Resulting from Operations.... 9,099 0.27 2,581 0.07
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
MARCH 31, 1997 JUNE 30, 1997 1997 1997
----------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income............. $ 7,183 $ 0.21 $ 6,361 $ 0.18 $ 6,479 $ 0.19 $ 6,374 $ 0.18
Net Investment Income......... 6,609 0.19 5,782 0.17 5,881 0.17 5,753 0.16
Net Realized Gain (Loss) and
Change in Unrealized
Appreciation/Depreciation on
Investments.................. (2,551) (0.07) 6,315 0.18 3,142 0.09 6,133 0.19
Net Increase in Net Assets
Resulting from Operations.... 4,058 0.12 12,097 0.35 9,023 0.26 11,886 0.35
</TABLE>
SUPPLEMENTAL PROXY INFORMATION (UNAUDITED)
The Annual Meeting of the Stockholders of the BEA Income Fund, Inc., was held on
Monday, May 11, 1998 at the offices of Willkie Farr & Gallagher, One Citicorp
Center, 153 East 53rd Street, New York City. The following is a summary of each
proposal presented and the total number of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES
PROPOSAL FAVOR OF AGAINST ABSTAINED
- ------------------------------------------------------- -------- ------ ------
<S> <C> <C> <C> <C>
1. To elect the following four Directors:
Messrs. Enrique R. Arzac, Lawrence J. Fox,
James S. Pasman Jr., and William W. Priest,
Jr. 30,965,912 383,250 --
2. To ratify the selection of
PricewaterhouseCoopers LLP as independent
public accountants of the Fund until the next
annual meeting. 30,820,561 228,873 299,727
</TABLE>
22
<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
23
<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.
24
